The Hindu Business Line : Not a nightmare as feared

LATELY, the Cost Accounting and Financial Management (CAFM) paper in PE2 and the Management Accounting and Financial Analysis (MAFA) paper in CA Final have turned out to be nightmares for students. However, this time around (November 2005), there should be no complaints from anyone about CAFM. Of course, the same cannot be said of MAFA. Question-wise comments on the paper follow:

1(a): This problem is on activity-based costing (ABC). Since the introduction of the new syllabus, this chapter has almost been a permanent fixture.

The question is simple and in line with those that have appeared in the past examinations; similar questions must have been solved in the classroom as well. The cost drivers have been given and, hence, the problem becomes purely arithmetic. Good, indeed, for the students. The 12 marks are there for the taking.

In future, perhaps, asking students to identify batch-level cost, facility-level cost, and so on, could add charm to questions on this topic.

1(b): A theory question for four marks requiring the student to discuss the essentials of a good cost accounting system.

That is straight from the study material and is often taught either in the first or last class on the subject. This depends on the faculty's take on whether the introduction gets best understood only after the subject is learnt or whether the introduction, as the name suggests, should come in first. Here again, the four marks are there for the taking.

1(c): This theory question for four marks requires the student to discuss ABC analysis as a technique of inventory control. A reference to Pareto's law, an explanation of the technique and naming a couple of advantages and exceptions should help the student grab the marks. This again is a topic that is invariably discussed in the classroom.

2): An FAQ on process costing and a pretty easy one at that. This 14-mark question deals with FIFO method involving two materials. While the methodology of working could differ, the standard working procedure suggests — and there is no need to deviate from it one jot — the following. Prepare:

* input-output statement;

* statement of units started and completed;

* statement of equivalent production;

* statement of cost per unit;

* statement of valuation; and

* process account.

3(a): This four-mark theory question on cost audit is straight from the study material and should not have been difficult to crack.

3(b): This 10-mark problem must have been a favourite. Finally a question on cost sheet and reconciliation; it is a topic that tests the fundamental understanding of cost accounting. A straightforward question which candidates should have been happy to answer.

4(a): An unconventional but good question on costing of material receipts. Carries six marks and should have been solved easily even without having much knowledge of cost accounting.

4(b): This eight-mark question on labour is simple. Such problems are often the first to be taught in classrooms and appear in the initial chapters of textbooks. The problem is a textbook lift with numbers altered.

5): This 14 marks question on single machine hour rate is easy to tackle. The candidate has to only make certain that he gets all the periods right. Such problems are frequently worked out in classrooms and appear in most textbooks.

Of the 74 marks (including choice) in cost accounting, theory accounts for a mere 12 marks.

6): Normally, a mandatory question in the accountancy paper, this time it warmed its way into financial management — funds flow statement. With a bit of workings, it should be easy to grab all the 16 marks.

7): A very simple question on ratio analysis, requiring the candidate to draw up a balance-sheet from a slew of numbers and ratios. The 12 marks question can be cracked in 10 minutes.

8): A qualitative question on replacement analysis. The incremental cash flow concept, which is central to replacement decision, should be applied. This 12 marks problem is a neat one indeed.

9(a): A 10 marks problem on sources of finance. Requires computation of EPS and taking a decision based thereon. Would of course have been better if PE multiples had been introduced, since for the same investment a higher EPS can be earned if the premium is higher. Computation of indifference point is also required. A smart question. The study material contains similar problems.

9(b): A simple two-mark theory question on the Miller Orr Model of cash management. Tracing its genesis and advantages should be sufficient.

Of the 52 marks (including choice) in financial management, theory accounts for a measly two marks.

Candidates who have attended classes regularly and studied standard textbooks, including the study material, this paper should have been a cakewalk. On the whole, a paper anyone would love to get in an exam.

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