If you are looking for MTTM-05 IGNOU Solved Assignment solution for the subject Accounting and Finance for Managers in Tourism, you have come to the right place. MTTM-05 solution on this page applies to 2023 session students studying in MTTM courses of IGNOU.
MTTM-05 Solved Assignment Solution by Gyaniversity
Assignment Code: MTTM 5/MTM 5/TMA/2022
Course Code: MTTM-5/MTM-5
Assignment Name: Accounting and Finance For Managers In Tourism
Verification Status: Verified by Professor
1. Explain briefly the role and activities of an Accountant. How is accounting information useful for an organization? 20
Ans) The term "business jargon" is frequently used to describe accounting. Accounting's objective is to communicate or present the results of business activities in all of its diverse forms.
Role and Activities of an Accountant
An accountant is someone who maintains accounts.
A functionary who helps with control is an accountant. It is focused on problem-solving and attention-directing. The employee could be given the title of management accountant.
The organization's conscience is maintained by the accountant. He is seen as someone whose goal is to effectively safeguard and advance the employer's interests. He is there to make sure that none of the organization's employees performs this work in an unethical or harmful way to the long-term lawful interests of the business.
The main responsibilities of an accountant include information management for both internal and external use.
A fiscal advisor is an accountant. a limited, particular accounting function, but one that is extremely important. Due to the significant tax incidence on businesses in India, tax planning is essential for effective fiscal management. The tax advisor strives to minimise the firm's liability by taking advantage of the incentives and concessions allowed by the applicable tax rules by arranging the business' operations in a certain way.
For an organisation, an accountant creates an income statement and a balance sheet.
accounting period and keeps all relevant documentation and classified facts
that ultimately resulted in the accounting statements.
An accountant audits, authenticates, and confirms an entity's financial statements. Such a functionary is an educated and experienced professional who, like other professionals, adheres to a set of ethical standards. This category of accountants includes Chartered Accountants in India, England-Wales, and the USA as well as Certified Public Accountants.
Use of Account Information in Organisation
Accounting provides companies with various pieces of information regarding business operations. It is often conducted by a company's internal accounting department and reviewed by a public accounting firm. Small businesses often have significantly less financial information recorded during the accounting process. However, business owners often review this financial information to determine how well their business is operating. Accounting information can also provide insight on growing or expanding current business operations.
A common use of accounting information is measuring the performance of various business operations. While financial statements are the classic accounting information tool used to assess business operations, business owners may conduct a more thorough analysis of this information when reviewing business operations. Financial ratios use the accounting information reported on financial statements and break it down into leading indicators. These indicators can be compared to other companies in the business environment or an industry standard. This helps business owners understand how well their companies operate compared to other established businesses.
Business owners often use accounting information to create budgets for their companies. Historical financial accounting information provides business owners with a detailed analysis of how their companies have spent money on certain business functions. Business owners often take this accounting information and develop future budgets to ensure they have a financial road map for their businesses.
These budgets can also be adjusted based on current accounting information to ensure a business owner does not restrict spending on critical economic resources. Accounting information is commonly used to make business decisions. For financial management, an income statement and accounting of expenses provides an important overview of the business. Decisions may include expanding current operations, using different economic resources, purchasing new equipment or facilities, estimating future sales or reviewing new business opportunities.
2. What is meant by Cost Accounting? Explain the various types of “Costs? 20
Ans) Cost accounting is a method of managerial accounting which aims to capture the total production cost of a business by measuring the variable costs of each production phase as well as fixed costs, such as a lease expense. Historians believe that cost accounting was first introduced during the industrial revolution when the new global supply and demand economies forced producers to begin monitoring their fixed and variable costs to automate their manufacturing processes.
Cost accounting allowed rail and steel companies to manage costs and make themselves more competitive. By the early 20th century, cost accounting had become a widely discussed subject in the literature of business management. A company's internal management department uses cost accounting to define both variable and fixed costs associated with the manufacturing process. It will first individually calculate and report these costs, then compare input costs with production results to assist in assessing financial performance and in making potential business decisions.
Types of Costs
Direct Costs: Direct costs are related to producing a good or service. A direct cost includes raw materials, labour, and expense or distribution costs associated with producing a product. The cost can easily be traced to a product, department, or project. For example, Ford Motor Company (F) manufactures cars and trucks. A plant worker spends eight hours building a car. The direct costs associated with the car are the wages paid to the worker and the cost of the parts used to build the car.
Indirect Costs: Indirect costs, on the other hand, are expenses unrelated to producing a good or service. An indirect cost cannot be easily traced to a product, department, activity, or project. For example, with Ford, the direct costs associated with each vehicle include tires and steel. However, the electricity used to power the plant is considered an indirect cost because the electricity is used for all the products made in the plant. No one product can be traced back to the electric bill.
Fixed Costs: Fixed costs do not vary with the number of goods or services a company produces over the short term. For example, suppose a company leases a machine for production for two years. The company has to pay $2,000 per month to cover the cost of the lease, no matter how many products that machine is used to make. The lease payment is considered a fixed cost as it remains unchanged.
Variable Costs: Variable costs fluctuate as the level of production output changes, contrary to a fixed cost. This type of cost varies depending on the number of products a company produces. A variable cost increases as the production volume increases, and it falls as the production volume decreases. For example, a toy manufacturer must package its toys before shipping products out to stores. This is considered a type of variable cost because, as the manufacturer produces more toys, its packaging costs increase, however, if the toy manufacturer's production level is decreasing, the variable cost associated with the packaging decreases.
Operating Costs: Operating costs are expenses associated with day-to-day business activities but are not traced back to one product. Operating costs can be variable or fixed. Examples of operating costs, which are more commonly called operating expenses, include rent and utilities for a manufacturing plant. Operating costs are day-to-day expenses, but are classified separately from indirect costs – i.e., costs tied to actual production. Investors can calculate a company's operating expense ratio, which shows how efficient a company is in using its costs to generate sales.
3. What is a budget? What role does it play in overall financial planning of any organization? 20
Ans) A budget is an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis. Budgets can be made for a person, a group of people, a business, a government, or just about anything else that makes and spends money.
To manage your monthly expenses, prepare for life's unpredictable events, and be able to afford big-ticket items without going into debt, budgeting is important. Keeping track of how much you earn and spend doesn't have to be drudgery, doesn't require you to be good at math, and doesn't mean you can't buy the things you want. It just means that you'll know where your money goes, you'll have greater control over your finances.
Role of Budgeting in Financial Planning of an Organisation
A basic budget consists of projected income and expenses for a given period. After expenses are subtracted from projected income, the leftover money can be allocated to projects and initiatives, ensuring you’re not planning to overspend. Budgets from previous periods can be compared to the company’s actual financial allocation and performance, giving an idea of how close predictions were too actual spend.
It Ensures Resource Availability: At its core, budgeting’s primary function is to ensure an organization has enough resources to meet its goals. By planning financials in advance, you can determine which teams and initiatives require more resources and areas where you can cut back. If, for instance, your team needs to hire an additional employee to scale efforts, budgeting for that in advance can allow you to plan other spending.
It Can Help Set and Report on Internal Goals: Budgeting for an upcoming period isn’t just about allocating spend; it’s also about determining how much revenue is needed to reach company goals.
Financial goals should be attainable enough that you count on them to inform the rest of your budget allocations. Your goals inform the expenses needed to reach them and vice versa. You can also use budgeting to update employees on progress and revisit the next period’s goals.
It Helps Prioritize Projects: A by-product of the budgeting process is that it requires prioritizing projects and initiatives. When prioritizing, consider the potential return on investment for each project, how each aligns with your company’s values, and the extent they could impact broader financial goals. The value proposition budgeting method forces you to determine and explain each line item's value to your organization, which can be useful for prioritizing tasks and larger initiatives.
It Can Lead to Financing Opportunities: If you work at a start-up or are considering seeking outside investors, it’s important to have documented budgetary information. When deciding whether to fund a company, investors highly value its current, past, and predicted financial performance.
It Provides a Pivotable Plan: A budget is a financial roadmap for the upcoming period; if all goes according to plan, it shows how much should be earned and spent on specific items.
4. Write a detailed note on ‘Depreciation’. 20
Ans) Depreciation can be defined as a continuing, permanent and gradual decrease in the book value of fixed assets. This type of shrinkage is based on the cost of assets utilised in a firm and not on its market value.
Features of Depreciation
Depreciation is a decrease in the book value of fixed assets.
Depreciation involves loss of value of assets due to the passage of time and obsolescence.
Depreciation is an ongoing process until the end of the life of assets.
Causes of Depreciation
Wear and Tear due to Use or Passage of Time: Wear and tear is nothing but deterioration and the following decrease in the value of an asset, resulting from its use in business operations for earning revenue.
Expiration of Legal Rights: Some categories of assets lose their value after the agreement directing their use in business comes to an end after the expiry of the predetermined period.
Obsolescence: Obsolescence is another factor driving to the depreciation of fixed assets. In common language, obsolescence means being “out-of-date”. Obsolescence refers to an actual asset becoming outdated on account of the availability of a better type of asset.
Abnormal Factors: Drop in the use of the asset may be caused by abnormal factors. Namely, accidents due to the earthquake, fire, floods, etc., Accidental loss is permanent but not continuing.
Methods of Calculating Depreciation
Straight Line Method (SLM): Under the depreciation Straight Line Method, a fixed depreciation amount is charged annually, during the lifetime of an asset. The amount of annual depreciation is computed on Original Cost, and it remains fixed from year to year. This method is also known as the ‘Original Cost method’ or ‘Fixed Instalment method’.
Written Down Value Method (WDV): Under the Written Down Value method, depreciation is charged on the book value (cost –depreciation) of the asset every year. Under the WDV method, book value keeps on reducing so, annual depreciation also keeps on decreasing. This method is also known as ‘Diminishing Balance Method’ or ‘Reducing Instalment Method’.
Depreciation in Business and Accounting
Depreciation is an expense, which means that it appears as a line item on your income statement and reduces net income. Many small-business owners find depreciation confusing because the depreciation expense on the income statement doesn't match cash flow.
Remembering the following points can help simplify the concept:
Depreciation is not a cash expense. That is, a business does not write a check to "depreciation." Instead, the business records or recognizes the cost of the asset over time on the income statement.
Accordingly, depreciation usually doesn’t coincide with when the business buys the asset, even if the purchase is made over time with instalment payments.
Depreciation matches expenses to a given time period, but it isn’t strictly an accrual-basis concept. This calculation will appear on both cash basis and accrual-basis financial statements.
Using Depreciation to Manage Cash Requirements
One often-overlooked benefit of properly recognizing depreciation in your financial statements is that the calculation can help you plan for and manage your business’s cash requirements. This is especially helpful if you want to pay cash for future assets rather than take out a loan to acquire them.
Because you've taken the time to determine the useful life of your equipment for depreciation purposes, you can make an educated assumption about when the business will need to purchase new equipment. The earlier you can start planning for that purchase — perhaps by setting aside cash each month in a business savings account — the easier it will be to replace the equipment when the time comes.
5. Write short notes on the following in about 150 words each: 5x4=20
a) Break Even Point
Ans) The break-even point (break-even price) for a trade or investment is determined by comparing the market price of an asset to the original cost; the break-even point is reached when the two prices are equal.
In corporate accounting, the break-even point formula is determined by dividing the total fixed costs associated with production by the revenue per individual unit minus the variable costs per unit. In this case, fixed costs refer to those which do not change depending upon the number of units sold. Put differently, the break-even point is the production level at which total revenues for a product equal total expenses.
Break-even points can be applied to a wide variety of contexts. For instance, the break-even point in a property would be how much money the homeowner would need to generate from a sale to exactly offset the net purchase price, inclusive of closing costs, taxes, fees, insurance, and interest paid on the mortgage—as well as costs related to maintenance and home improvements. At that price, the homeowner would exactly break even, neither making nor losing any money.
b) Fixed and Current Assets
Ans) Current Assets: Current assets are assets that can be converted into cash within one fiscal year or one operating cycle. Current assets are used to facilitate day-to-day operational expenses and investments. As a result, short-term assets are liquid, meaning they can be readily converted into cash.
Example: Cash and cash equivalents, which might consist of certificates of deposit
Fixed Assets: Fixed assets are noncurrent assets that a company uses in its production of goods and services that have a life of more than one year. Fixed assets are recorded on the balance sheet and listed as property, plant, and equipment (PP&E). Fixed assets are long-term assets and are referred to as tangible assets, meaning they can be physically touched.
Example: Vehicles like trucks
c) Budgetary Control
Ans) Budgetary control is a system of controlling cost which includes preparation of Budgets coordinating the departments and establishing responsibilities comparing performance with budgeted and acting upon results to achieve the maximum profitable.
The process of budgetary control includes:
Preparation of various budgets.
Continuous comparison of actual performance with budgetary performance.
Revision of budgets in the light of changed circumstances.
A system of budgetary control should not become rigid.
There should be enough scope of flexible individual initiative and drive. Budgetary control is an important device for making the organization an important tool for controlling costs and achieving the overall objectives.
Budgetary control serves 4 control purposes:
They help the manager’s co-ordinate resources.
They help define the standards needed in all control systems.
They provide clear and unambiguous guidelines about the organization’s resources and expectations.
They facilitate performance evaluations of managers and units.
d) Profit and Loss Account
Ans) A profit and loss account (also known as a P&L or profit and loss statement) gives you a summary of the income and outgoings for your firm over a specific time period. These numbers will demonstrate if your company generated a profit or loss throughout that time (usually either one months or consolidated months over the course of a year). It is therefore one of the most crucial financial records that your company will need to compile.
Although P&L management provides an excellent insight into your business’s profitability, there are a number of things that it simply won’t be able to tell you about your business. For example, a profit and loss statement can’t provide you with visibility into whether your business is running out of cash as you build stock. That’s why it’s so important to produce a balance sheet and cash flow statement alongside your profit and loss account.
100% Verified solved assignments from ₹ 40 written in our own words so that you get the best marks!
Don't have time to write your assignment neatly? Get it written by experts and get free home delivery
Get Guidebooks and Help books to pass your exams easily. Get home delivery or download instantly!
Download IGNOU's official study material combined into a single PDF file absolutely free!
Download latest Assignment Question Papers for free in PDF format at the click of a button!
Download Previous year Question Papers for reference and Exam Preparation for free!