BME 1505 Accounting for Managers

Course Code BME 1505
Course Title  Accounting for Managers
Number of Credits 5
Academic Year 1

This course deals with the basic theoretical and practical aspects of Financial Accounting and Cost and Management Accounting. It is intended to provide an understanding and knowledge in application of the concepts and techniques of Financial Accounting, Cost Accounting and Management Accounting, specially focusing on providing guidance on decision making of business entities as these disciplines play a key and dominant role in the decision making process of the organization. It mainly attempts to expose the students to the accounting process, financial statements of business entities including limited liability companies, controlling cost elements, decision making and performance management systems etc. The course finally focuses on developments in management accounting.

  • To introduce the environment background within which financial, cost  management accounting operates.
  • To introduce the terminology used in financial, cost and management
  • To guide the students to study the accounting process.
  • To impart the knowledge required for preparing the financial statements of business entities by adhering to the regulatory and financial reporting framework requirements and guidelines whenever applicable.
  • To guide in the decisions of both short – term and long-term, related to cost, volume and profit, budgetary controls and in investing in capital assets etc.

To expose the students into the new developments in these disciplines.

  • Understand and apply the terminology and salient basic concepts in Financial Accounting and Cost & Management Accounting

Develop evaluation and judgmental skills associated with the use of financial and managerial information in decision making.

Main Topics Sub Topics No. of Hours
1. Introduction to accounting


1.1 The role of accounting

1.2  Accounting as an information system

1.3  Users of accounting information

1.4  Branches of accounting

1.5  Difference between financial and

management accounting

1.6  External environmental factors

2. Business transactions and accounting equation


2.1   Entity concept

2.2     Accounting equation and recording  transactions in accounting equation

3. Accounting process


3.1  Recording transactions using double entry system

3.2   Preparation of prime entry books

3.3   Ledger & Trial Balance

3.4   Correction of errors

3.5   Bank reconciliation statement

3.6  Control accounts

4.  Financial statements of a sole trader


4.1  Period end adjustments

§  Opening & Closing inventory

§  Depreciation

§  Accruals and Prepayments

§  Bad and doubtful debts

§  Stock losses

§  Income receivable and income received in advance

4.2  Manufacturing, trading profit and loss  account

4.3   Income statement

4.4   Statement of Changes in equity

4.5   Statement of financial position

4.6   Accounting concepts

§  Entity

§  Money measurement

§  Going concern

§  Periodicity

§  Historical cost

§  Accrual

§  Matching

§  Prudence

§  Realization

§  Substance- over –form

§  Materiality

§  Consistency

5.  Conceptual framework for financial reporting and regulatory framework


5.1  Objectives of having  a conceptual framework

5.2  Matters dealt  within conceptual framework

5.3  Objectives of financial reporting

5.4  Qualitative characteristics of financial information (Primary and Enhancing qualities)

5.5  Underlying assumption

5.6  Elements of financial statements (Assets,   Liabilities, Incomes, Expenses & Equity)

5.7  Recognition and measurement of elements of financial statements

5.8     The benefits and disadvantages of conceptual framework

5.9   Regulatory framework

6.  Accounting for assets


6.1  Definition of assets

§  Types of assets

§  Recognition and measurement

§  Classification of assets in to current and non-current

6.2 Accounting for Inventory LKAS 2

§  Definitions

§  Cost of inventory

§  Recognition and measurement

§  Inventory cost flow assumptions (Weighted Average, FIFO and LIFO)

§  Disclosures

6.3  Accounting for property plant and equipment LKAS 16

§  Definitions

§  Recognition and measurement

§  Depreciation

§  Useful life

§  Revaluation and impairment testing

§  Disclosures

7.  Accounting for  liabilities 7.1 Accounting for liabilities LKAS 37 Provisions and Contingent liabilities           ( Basic understanding and applications)

7.2  Definition

7.3 Recognition and measurement

7.4 Disclosures

8.  Accounting for  leases


8.1 LKAS 17 – Leases ( Basic understanding and application)

8.2  Types of leases

§  Recording transaction in the books of  lessee for finance leases and operating leases

§  Disclosures


9.Financial statement of a limited liability company


9.1 LKAS 1 – Presentation of financial statements

9.2 LKAS 8 – Accounting policies,  Changes in  accounting estimates & errors

9.3  LKAS 10 – Events after reporting period

9.4  Sections 49- 58 of the Companies No 07 of 2007

9.5   Application of  LKAS 7 – Statement of cash flows

10.  Consolidated financial statements


10.1 Rational for consolidating the financial  statements of different legal entities

10.2    LKAS 27-Consolidated & separate  financial statements -simple structure having only one subsidiary

10.3          Non-controlling interest


10.5Intercompany transactions

10.6Unrealized profits on trading

10.7Consolidates income statement

10.8       Consolidated statement of financial   position

11.Financial statement analysis


11.1  Introduction

11.2  Calculation and interpretation of ratios Profitability, Liquidity, Efficiency,  Gearing, Market ratios, Cash flow ratios

11.3Limitations of ratios


12.  Introduction to Cost and Management Accounting 12.1  Introduction

12.2  The decision making process

12.3  Changing competitive business environment


13.  Cost concepts and Cost Behaviour


13.1    Purposes for which cost information  is required

13.2  Introduction to cost terms and concepts and their significance for decision making

14.  Accounting for Overheads 14.1Nature of overhead costs

14.2   Overhead distribution (allocation, apportionment, absorption, overhead absorption rates)

14.3          Over or under absorption (reasons,   implications and accounting)

14.4          Plant – wide overhead rate vs multiple overhead rates

14.5        Reciprocal servicing (direct, step down, simultaneous equation and repeated distribution methods)

15. Activity Based Costing (ABC)


15.1     Introduction to activity based costing (ABC)

15.2   Importance of ABC as a cost allocation system

15.3     Basic concepts involved in ABC

15.4     Designing of ABC system

16.  Cost, Volume, Profit (CVP) Analysis


16.1Understanding cost behaviour

16.2          A mathematical approach to CVP  analysis

16.3Graphical approach to CVP Analysis

16.4Multi-product CVP analysis

16.5Assumptions under CVP analysis


17.Special Decision Making Situations


17.1          Product-mix decisions when capacity   constraints exit


17.2             Outsourcing and make or buy   decisions

17.3Discontinuation decisions

18.Capital Budgeting 18.1Two dimensions of cost analysis

18.2Stages of capital budgeting

Evaluating a capital project, Pay back, Accounting rate of return, Discounted cash flow methods- Net Present Value (NPV) method, Internal Rate of Return (IRR) method, Payback method, Accrual accounting rate of return

19.  Budgetary Control


19.1   The multiple functions of budgets

19.2    Stages in the budgeting process

19.3    Preparation of functional and master budgets

19.4    Alternative approaches to budgeting

19.5    Criticisms of budgeting

20.  Developments in Management Accounting


20.1  Just-in-time systems

20.2  Kaizen costing

20.3  Total Quality Management(TQM)

20.4  Activity Based Management (ABM)

20.5  Lean Production

20.6  Business Process Reengineering (BPR)

20.7 Life cycle costing

20.8 Target costing




Mode of Evaluation Final examination will be conducted
  • Wijewardena, H, Financial accounting in Sri Lanka, Author publication
  • Accounting Standards (SLFRS & LKAS)  latest versions. Chartered Accountants Sri Lanka
  • Drury, C., 2007, Management and Cost Accounting, Thomson Learning, India.

Horngren, C T,  Sundem, G L and Stratton, W O (latest edition), Introduction to Management Accounting, Prentice Hall, New Delhi.