1.

in financial accounting, the term expense relates to expenditure and when this expense
expires it will be reported on an income statement as cost.

Ans:-

The expenses are considered as cost when it is consumed but if and only if the expenditure is utilized.

Otherwise it will be considered us expense because there is an aim of expending for goods or service for
specific need. So when this expense is used or consumed for that specific purpose it will have value
which is recorded in the financial statement as a cost.

2. If one of your friends from other department asks you about the difference between
Financial Accounting, Cost Accounting & Management accounting how could you respond to
him/her?

Ans:-

Cost accounting

 is related to cost of operations, production and other business expenses and provide the
management with the information of business profitability
 Evaluates the costs of every input to your process.

But

Management accounting

 Is related to managing the cost accounting output and financial accounting output to provide
the crux to management for decision making.
 Is a very different type of analysis and it is about how a business works and uses all data
including metrics, valuations, budgeting and trend analysis.
 Helps business leaders shape their business.

Where as

Financial accounting is related to recording all the transactions as per defined rules and regulations and
generation concrete figure for the further decision making.
3. Do you think that the Management Accountant has the roles in a Modern Organization? If
yes what are those roles?

Ans:-
Yes, the management accountant has a significant role in modern organization. To mention
some of them,
 To perform a series of tasks to ensure their company’s financial security
 Handling essentially all financial matters and thus helping to drive the business’s overall
management and strategy.
 They are key figures in determining the status and success of a company.
 They might perform tasks like budgeting, handling taxes, managing assets to helping
determine compensation and benefits packages and aiding in strategic planning.

4. State the difference between cost and Expenses

Ans:-

Cost
 Are related to buying business assets.
 They are shown on the business balance sheet
 The cost of an asset is usually depreciated (spread over time).
Expenses
 Are related to business expenditure over time
 They are shown on the business net income (profit and loss) statement
 Most ordinary and necessary business expenses can be deducted on the business tax
return.
5. Based on the following Criteria classify and discuss the cost;
a. Time period
b. Management function
 c. Based on their traceability to a particular cost object
d. Based on their behavior pattern
e. Based on reporting standards (IFRS/GAAP)
f. Based on decision making process
g. Based on controllability
Other cost classification

Ans:-
a. Time period costs not included in product costs and not directly tied to the
production process. Overhead or sales, general and admistrative costs are
considered as time period cost.
b. Management function deals with the cost of production, selling and distribution.
Thus, costing means such an analysis of information as to enable management to
know the cost of producing and selling, that is the total cost of various products and
services and also to know how the total cost is constituted.
c. Based on their traceability to a particular cost object this aspect is one of the most
important classifications of costs, in to direct costs and indirect costs. This
classification is based on the degree of traceability to the final product of the firm.
And the direct and indirect costs will be influenced by traceability.
Direct costs: so these are the costs which are easily identified with a specific cost unit
or cost centers.
Indirect costs: these costs are incurred for many purposes, i.e. between many cost
centers or units. So we cannot easily identify them to one particular cost center.
d. Based on their behavior pattern cost behavior patterns refer to how business and
operating expenses change or remain stable through different events. Patterns can
change especially during varying production levels or sales volume within the
company. Cost behavior patterns occur in fixed, variable and mixed expenses.
e. Based on reporting standards (IFRS/GAAP) cost accounting standard states all costs
incurred for the same purpose, in like circumstances, are either direct costs
 only( can be charged to a grant ) or indirect costs only(must be paid with
unrestricted funds) with respect to final cost objectives.
f. Based on decision making process used during the planning cycle and drives the
process of choosing product and process designs. Will result in a product that can be
produced at a cost that will allow an acceptable level of profit, given the products
estimated market price, selling volume, and target functionality.
g. Based on controllability controllable costs are the costs which can be influenced by
the action of a specified member of the undertaking. Whereas uncontrollable cost
are the costs which cannot be influenced by the action of a specified member of the
undertaking.

6. Discuss the five internal sources of finance with their advantage and advantages

Ans:-
The fund that is generated inside the business, such as funds rose from the assets or stock etc.
Is known as the internal sources. These are in various forms of the internal sources of finance.
 Owners capital
The fund that is raised from the owner’s money which is in saving account or retirement
account and utilized for the business purpose.
 Retained profit
The amount of money from the profit that is kept aside for future activities of the business or to
bare future uncertainties of business is called retained earnings or profit.
 Working capital
The source of finance that helps the organization in carrying on the day to day operations of the
business is called working capital.
 Sales of the asset
The business can generate funds by selling old assets such as property of the business, fixtures
and fittings, machineries, vehicles, etc.
  Reducing stock
The business raises the finance by reducing the stock by the way of selling the shares of the
business to the employees or other people.

Advantage of internal source of finance

 it allows an organization to maintain full control

 it improves the planning process
 it reduces the overall cost of most projects
 it improves the overall value of the company
 it limits outside influences on the company
 it offers several sources for the cash that you require
 It requires no additional equity to be issued.
Disadvantage of internal source of finance
 It may have a negative impact on your operating budget
 It requires accurate estimates to be effective
 It may have fewer tax benefits for the organization
 It requires spending discipline
 It can take more time to complete projects
 It can cause some companies to starve departments of cash

7. Discuss the five external sources of finance with their advantage and advantages

Ans:-

The five external source of finance are

 Equity
To finance short term operating activities or long term expansion programs, a company may
raise shares of equity in financial markets.
  Debt
Is a short term or long term liability that a borrower must repay.
 Hybrid instruments
Are financial products that combine debt and equity characteristics.
 Business partners
Business partners, such as customers and suppliers, often constitute reliable financing sources
for companies in need of immediate cash.
 Retained earnings
Are accumulated profits that a company has not distributed to shareholders.

Advantage of external sources of finance

 It makes sense of preserve your own resources and put your money in to that
investment using the external financing for business operation.
 External funding can also be used for making large capital equipment purchases to
facilitate growth.
 Organizations willing to finance your business can often also be useful sources of expert
advice.
Disadvantage of external source of finance

 bank will add interest to business loan

 It’s a lot of work i.e securing external funding can be a nearly full time job in its own
right.
 8. Elaborate the Factors Affecting Choice of Source of Finance

Ans:-
The factors affecting the choice of the source of the finance are
 Cost
There are two types of cost, the cost of procurement of funds and cost of utilizing the funds.
 Financial strength and stability of operations
In the choice of the source of finance business should be in a sound financial position so to be
able to repay the principal amount and interest on borrowed amount.
 Form of organization and legal status
The form of business organization and status influences the choice of a source for raising
money.
 Purpose and time period
Business should plan according to the time period for which the funds are required.

 Risk profile
Business should evaluate each of the sources of finance in terms of the risk involved.
 Control
A particular source of funds may affect the control and power of the owners on the
management of a firm.
 9. Describe at least 6 project classification

Ans:-

We can classify a project with different types of criteria, to mention a few

 According to complexity, the project can be classified as easy and complicated

 According to source of capital can be classified as public, private and mixed.
 According to project content can be classified as construction, IT, business, service or
product production
 According to those involved can be classified as departmental, internal, matriarchal and
external
 According to objective it can be classified as production, social, educational, community
and research.
 By project characteristic high risk project, medium risk and low risk project.

PART II: MATCHING

 Match the appropriate sentences from column “B” to column
“A”

Column “A” Column “B”

1. C

2. A

3. B

4. F

5. E

6. D