Railway Accounts Department Examinations

Showing posts with label Management Accounting. Show all posts
Showing posts with label Management Accounting. Show all posts

Thursday, August 13, 2020

Management Audit


Management Audit | Purpose | Scope | Advantages | Disadvantages

Management Audit


What is : Assessment of competency and capability of Organization’s Management in carrying out corporate objectives. 


Purpose is: The purpose of Management Audit is not to appraise individual Executive performance, but to evaluate the management team as a whole.


Why conducts: Check the effectiveness of Management team in respect to  fulfils the interests of shareholders, industrial relations with staff and uphold good reputation standards.


Who conducts:  Independent consultant hired by the Company.


Scope:  Narrow one


When:  Conducted before mergers, restructurings, bankruptcies, succession planning and also to identify the weaknesses in a company management.


How long:  Normally a month or two months. 


Mandatory:  No




Monday, July 27, 2020

Functions of Management Accountant

Functions of Management Accountant

Easy to remember   PRE TEA

Planning & Control
Tax administration
External effects
Asset Protection

Differences between Financial Accounting and Management Accounting

Financial Accounting vs Management Accounting | Top 9 Differences

Differences between
Financial Accounting
Management Accounting
End user
Mostly outsiders (Govt,
Tax bodies, Investors etc)
In house Management
Legal obligation
Non statutory
Company as a whole
Segment wise
Type of Information
Monetary value
Monetary, Quantity & Quality
Not specified or customised
Internal & External
GAAP (Generally Accepted
Accounting Principles)
No specific ones
Not much
Mostly analytical
Ends & Means
Ends in itself
Means to end
Objective / Measurable
Subjective / Interpretations / Personal
At the end of Financial Year
No such period.  But information may
 be required at any time
Subject to Independent Audit
Need not be audited

Wednesday, July 8, 2020

MBE - Management By Exception - for LDCE

MBE  - Management By Exception   -  for LDCE

*      Concept by Frederick W. Taylor ( 1856 – 1915) – An American Mechanical Engineer and one of the first Management Consultants.

*      He was instrumental in the creation and development of branch of engineering that is now known as “Industrial Engineering”.   “The Principles of Scientific Management” authored by him was voted as the Most influential Management book of the 20th Century by the Fellows of the Academy of Management.

*      Key feature: Attention only to material deviations, which requiring investigation.

*      Routine decisions making should be handled by Lower Level Managers, who report only exceptional cases to Higher Management.

*      A policy by which Management devotes it’s time to investigate only those situations which actual results differ significantly from the planned results. Creating the Right conditions /Benchmarks in the first place, then only intervening when things are not going as per Bench marks.

*      Use of MBE in Project Management: The Project Board should meet when key decisions about the Project should be taken, and not on regular intervals. For this, the Manager should produce “Exception Reports” (like RAR – Revenue Allocation Registers and Price Ledgers in Indian Railways) to summon the Board for such meetings.

*      MBE gives Management more opportunity to evaluate the administrative ability of their lower level Managers.


Tuesday, June 9, 2020

SPV - Special Purpose Vehicle

SPV – Special Purpose Vehicle


Key Takeaways

ü  Separate legal entity

ü  To achieve specific objectives/goals

ü  Isolated from the firm

ü  Can leverage future earnings to raise funds

Salient features

·         Definition of SPV – A fenced organization having limited predefined purposes and a legal personality.

·          Also called as SPE – Special Purpose Entity (in USA) or SPC – Special Purpose Corporation or FVC – Financial Vehicle Corporation

·         A legal entity created to fulfil single, well defined and narrow objective/purpose.

·         Typically used by firms to isolate the firm from financial risk

·        ·          Primarily, a business association of persons or entities eligible to participate in the association.

·          Usually formed to raise funds from the market by collateralizing future receivables.

·         It is independent of members subscribing to the shares of SPV.

·         Concept: Usually, a sponsoring firm hives off or transfers its assets or activities from the rest of the company into an SPV. This isolation of assets is important for providing comfort to investors. The assets or activities are distanced from the parent company; hence the performance of the new entity will not be affected by the ups and downs of the originating entity. The SPV will be subject to fewer risks and thus provide greater comfort to the lenders.

·         Basically, a company can leverage future earnings to raise funds.




ü  Separating the risk.

ü  Protected against risks like insolvency.

ü  Best suited for Project financing.



Examples of SPVs in India

1.       NHSRC - National High Speed Rail Corporation. The Company has been modelled as ‘Special Purpose Vehicle’ in the joint sector with equity participation by Central Government through Ministry of Railways and two State Governments viz. Government of Gujarat and Government of Maharashtra.

2.       LTMRHL – Larsen & Toubro Metro Rail Hyderabad Limited (for Hyderabad Metro)

3.       IRSDC - Indian Railways Station Development Corporation ltd (by RLDA & IRCON)



Wednesday, April 1, 2020

Cash Flow Statement - Management Accounting for LDCE

Cash Flow Statement          -    Management Accounting for LDCE


«  Meaning: A statement which discloses the changes in Cash position between two periods (usually 31st March of previous year to 31st March of current year)


«  Example: A Balance sheet shows a cash balance as on 31.03.2019 at Rs. 5 lakhs, while the same position as on 31.03.2020 at Rs. 6 lakhs.  That means cash inflows during the year 2019-20 is Rs.1 lakh.


«  The statement also outlines the reasons for such cash inflows or cash outflows, which in turn helps to analyze the functioning of Business.


«  It is an important tool in the hands of Business Management.


«   Components of Cash are 1. Cash on Hand  2.  Cash at Bank  3. Short term, highly liquid investments that are readily convertible into cash.




1.       Efficient in Cash Management  - Helps how much cash will be available at a particular point of time to meet the day to day obligations.


2.       Helps in internal financial management.


3.       Discloses the movement of cash during the financial year. Understanding and analysis of what are the sources & applications of cash.


4.       Past years cash flow statement is used as an estimate for next year's cash flow.


5.       Shows the success / failure of cash management.


6.       Comparison between two firms.


7.       Analysis of relationship between profitability and net cash flow.




1.       Cash flow statement cannot serve the purpose of Profit and Loss Account.  Because later covers both cash items and non cash items, whereas former covers only cash items.


2.       Cash  flow statement can't replace the Fund flow statement. The later one is reflecting the complete financial picture than the former one.


3.       Cash balance as per Cash flow statement cannot represent the real liquid position of the firm, because of postponing of purchases & other payments.


4.       Very difficult to define the term "Cash". whether the items like cheques, stamps, postal orders etc are comes under purview of cash or not.  






Working Capital Management Accounting for LDCE

                                                      Working Capital Management Accounting for LDCE

1991 LDCE SCR - 5 marks


ü  Meaning:  Represents the amount of funds required to finance " the day to day activities".


ü  Excess of Current Assets over Current Liabilities.


ü  It should be ideal/sufficient.  That means neither more nor less to the correct requirements of working capital.


ü  Shortage - Difficult to manage day to day activities/payments.


ü  Surplus - Capital will be blocked / unutilized.


ü  So it should be sufficient to meet current obligations  ( not long term obligations)


ü  The difference between Gross Working Capital and Net Working Capital is "Current Liabilities". Total sum of all current assets is called Gross Working Capital.  The difference between Current Assets & Current Liabilities is called Net Working capital.



ROCE - Management Accounting for LDCE

ROCE     -     Management Accounting for LDCE

·         Full form is Return On Capital Employed


·         It is most important Ratio among all the Financial Ratios


·         ROCE = Return /Capital Employed  x 100


·         Expressed in Percentage.  Example  Return is 200 rupees against the capital 2000 rupees employed. ROCE is 200/2000 x 100 = 10 %. 


·         Return = Net Profit + or - Non Trading adjustments + Interest on Long term debts + Provision for tax - Interest/Dividend from non trade investments


·         Capital Employed = Equity share capital + Reserves & Surpluses + Preference share capital + Debentures & other long term loan - Misc Expenditure & loss - Non trade investments.


ROCE in Indian Railways


·         Para 511 of Indian Railway Finance & Administrate Code mentions Return on Capital.


·         Return on Capital = Percentage of Revenue Surplus/Net Receipts to Capital at charge and Investments from Capital Fund.


·         Revenue Surplus/Net Receipts = Total Revenue Receipts - Total Revenue Expenditure


·         Since element of Dividends is not there (from 2017-18 onwards due to merger of Railway Budget with General Budget), the Net Receipts and the Revenue Surplus are one and same.


·         Total Revenue Receipts = Gross Earnings (X, Y & Z) minus  Suspense


·         Total Revenue Expenditure = Gross Working Expenses ( OWE + Appropriation to DRF & Pension Fund) minus Suspense.


Tuesday, March 24, 2020

Marginal Costing for LDCE

Marginal Costing

·         Total cost + Profit  = Sales   
·         Total Cost = Variable Cost   +  Fixed Cost  

·         So, Variable Cost + Fixed Cost + Profit  = Sales

·         Sales = Variable Cost + (Fixed Cost + Profit)

·         Contribution = (Fixed Cost + Profit)

·         Sales - Variable Cost = Contribution

·         I.e., S - V = (F + P)
·         S - V = C
·         C = S - V

·         Contribution = Sales - Variable Cost

·         Contribution = (Fixed Cost + Profit)

·         (Fixed Cost + Profit) = Sales - Variable Cost

·         Profit Volume Ratio (PV Ratio) = Contribution / Sales

·         BEP - Break Even Point = Where No Profit or No loss.

·         BEP - Break Even Point = Fixed Cost / P V Ratio


Sales - Rs. 100,  Variable Cost - Rs. 80,  Fixed cost - Rs. 10.   Find the Sales at Break Even Point


Contribution = Sales - Variable Cost

C = Rs. 100 - Rs. 80 = Rs. 20

PV Ratio = Contribution / Sales = Rs. 20/ Rs.100  = 0.20

BEP = Fixed Cost / PV Ratio

BEP Sales = Rs.10 /0.20  = Rs. 50

To Prove:

If Sales is Rs. 100,  Variable Cost is Rs. 80

If Sales is Rs. 50, Variable Cost is ?   = 50/100 x 80  = Rs. 40

Contribution = Sales - Variable Cost   Rs. 50 - Rs. 40 = Rs. 10

In Break Even Point, Contribution equals Fixed Cost.  Here too Contribution (Rs. 10) and Fixed Cost (Rs.10) are equal. That means No Profit or No loss at Sales Rs. 50.