Chap 2 - Management Accounting PDF

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Chapter 2

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MULTIPLE CHOICE Basic concepts 1. Management accounting A. Is governed by generally accepted accounting principles. B. Draws from disciplines other than accounting. C. Is geared primarily to the past rather than the future. D. Places more emphasis on precision of data compared with financial accounting which does not place more emphasis on accuracy of information. (rpcpa) 1. B ? A true statement about management accounting.  Choice-letter “b” is correct. Management accounting draws techniques from disciplines other than accounting. Management accounting has the following characteristics: it concerns with the future data and not of the past, it uses knowledge from different fields of disciplines, its places more emphasis on timeliness and relevance than on accuracy and precision, its information is segmentized and not wholistic, it has no unifying equation, its client is the management and not the general public, and it is not governed by the generally accepted accounting principles but by the needs of the management. Choice-letters “a”, “c”, and “d” are all incorrect assertions with respect to management accounting, but are true assertions with respect to financial accounting. 2. Management accounting is an integral part of the management process. As such, it provides essential information for the following objectives except A. Maintaining the current level of resources utilization as well as internal and external communication. B. Measuring and evaluating performances. C. Planning strategies and controlling current activities of the organization. D. Enhancing objectivity in decision-making. (rpcpa) 2. D ? The one that does not relate to the primary objective of management accounting.  Choice-letters “a”, “b”, and “c” are objectives of management accounting (e.g., communication, performance evaluation, and planning and controlling ). Choice-letter “d” is not a primary objective of management accounting because enhancing objectivity in decision-making by providing relevant and reliable information to management is inherent in, and therefore is not an objective of, the management accounting process. 3. The chief management accountant called “controller” traditionally performs these functions except A. The establishment and implementation of the financial planning process. B. Financial and management reporting and interpretation. C. Protection of company resources and economic evaluation. D. Relate to specific problems where expert help is required. (rpcpa)

3. D

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? 

The one that is not a function of a controller. Choice-letter “d” is the best answer. Although controllership needs expert’s help in the performance of duties, it however, deals with developing and installing control mechanisms in the area of general management, first, before routinary specific controls are provided. Choice-letters “a”, “b”, and “c” are all functions performed by a controller such as the establishment and implementation of the financial planning process, financial and management reporting and interpretation, protection of company resources, and economic evaluation.

4.

The chief management accountant called “controller” traditionally performs these functions except A. The establishment and implementation of the financial planning process. B. Financial and management reporting and interpretation. C. Protection of company’s resources and economic conditions. D. Preparation of proposals for product promotions. (rpcpa)

4.

D The one that is not performed traditionally by a controller. The controller has the following functions: planning and controlling, protections of assets reporting, economic appraisal, government relations and evaluation, and tax administration. What is not included as a function of a controller is choice-letter “d”, preparation of proposals for product promotion, which is more a function of the marketing manager.

? 

5. Which of the following is a controller’s responsibility? A. Tax planning and accounting. B. Custodian of funds. C. In-charge of credit and collection. D. Arranging short-term loans and financing.

(rpcpa)

5. A ? A controller’s responsibility.  Choice letter “a” is correct. Tax administration, which includes tax planning and accounting, is a controller’s responsibility. Choice-letters “b”, “c”, and “d” are incorrect because custodianship of funds, credit and collection, and arranging shortterm loans and financing are functions of a treasurer. 6. Management accountants help design, develop, install and maintain reporting systems which are aligned with the structures of the organization. These systems provide information that are useful for decision making. Management decision processes fall into three categories. A. Repetitive, non programmed, and strategic. B. Repetitive, programmed, and strategic. C. Repetitive, programmed and non strategic. D. Non-repetitive, non programmed, and strategic. (rpcpa)

6. A ?

Three (3) categories of management decision processes.

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The management decision processes may be classified as repetitive, nonprogrammed and strategic. Strategic decisions gear towards long-term objectives, positions, structures, orientations, competitive advantage, aims, and aspirations of the company. It deals with the stability and growth of the company and primarily satisfies the needs and desires of investors. In contrast, tactical decisions deal with the short-term goals that are normally related to the profit-making activities of the company. Tactical decisions concerns with liquidity, profitability, and working capital policies. Repetitive decisions are those routinary in nature and may be predicted, standardized, planned and easily controlled. These decisions are normally operating in nature and relate with the working capital cycle involving transactions with suppliers, customers, employees, utility companies, government and other entities regularly dealt with by the business. These repetitive decisions are captured and expressed in standard operating policies that serve and guide us in standard costing, budgeting, marginal costing, variance investigation and similar routinary management activities. Non-programmed decisions are those that are not covered by repetitive and strategic decisions and deal with both the short-term and long-term objectives of the business. These decisions are not normally guided by written policies but highly require value judgment of the implementing manager.

7. In this element of internal control, the object is to gauge the efficiency of the various levels of people in the organization as well as the quality and quantity of results. A. Records and reports. C. Internal audit. B. Standards of performance. D. Policies and procedure. (rpcpa) 7. B ? The one that has the purpose of gauging the efficiency of the various levels and people in the organization as well as the quality and quantity of results.  Standards of performance measure personnel’s efficiency (quality) and productivity (quantity) by comparing the actual results with established standards. This is important in controlling and directing operational activities to align actual results with plans (choice-letter “b” is correct). Choice-letter “a” is incorrect because reports and records are communicated results of performance that are primarily meant to inform based on verifiable and objective records. Choice-letter “c” and “d” are not correct because internal audit deals with the accuracy of records and operational efficiency, effectiveness, and economy in relation to internal controls which encompass the policies and procedures set by the organization. Controllership and Treasurership 8. As business increases in complexity, the function of controllership has attained top level recognition in the corporate arena. Many areas related to finance and accounting have been identified with controllership. One area that violates basic internal control when assigned to controllership function is A. Credit collection. C. Long-range financial planning. B. Internal auditing. D. Taxation and reporting to government agencies. (rpcpa)

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8. A ? One area that should not be included as a function of controllership because it violates a basic principle of internal control.  Controllership has the following functions (codename is PREGPET): plan and control, report preparation and submission, evaluation of performance, government relations, protection of assets, economic appraisal, and tax administration. Choice-letters “b”, “c”, and “d” are all traditional functions of a controller. Internal auditing relates to economic appraisal and is one of the traditional functions of controllership. Choice-letter “a”, credit and collection, is a function of a treasurer. A treasurer has the following functions (codename is PISBCII): provisions for capital, investor relations, short-term credits, banking and custodianship, credit and collections, investments, and insurance (or risk management). 9. Controllership has attained special recognition in corporate management as businesses expand in complexity and reach, and as the controller exerts influence for management to take organization’s goals. Controllership and treasurership constitute corporate finance. These are among the controller’s traditional functions: 1. Tax management. 5. Reporting to government regulatory agencies. 2. Financial reporting and interpretation. 6. Risk management. 3. Credit management. 7. Economic appraisal. 4. Sourcing and investing funds. 8. Planning for control. A. All eight items. B. Items 1, 2, 5, 7 and 8 only.

C. Items 1, 2, 3, 4, 5, 7, and 8 only. D. Items 2, 3, 5, and 7 and 8 only.

(rpcpa)

9. B ? To identify some of the controller’s traditional functions.  Controllers have the following functions: planning and controlling, reporting, evaluation of performance, government relations, protection of assets, economic appraisal, and tax administration. Credit management, sourcing and investing of funds, and risk management are treasurer’s functions, including that of provision for capital, investors’ relations and banking and custodian. 10. Which of the following is not a controller’s functions? A. In-charge of planning and control. B. Protection of assets. C. Interpretation and reporting on effects of external factors on the business. D. Arranging short-term financing. (rpcpa) 10. D ? The one that is not a controller’s function.  Choice-letter “d” is correct because arranging short-term financing is a function of a treasurer. Choice-letters “a”, “b”, and “c” are controller’s functions. 11. Controllers are generally not concerned with A. Reporting to government. C. Protection of assets. B. Preparation of tax returns. D. Investor relations.

(rpcpa)

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11. D ? An area where controllers are not concerned with.  Choice-letter “d” is a function of a treasure, not of a controller, and therefore is the correct answer. Choice-letters “a”, “b”, and “c” are controller’s functions. 12. You were newly appointed as controller of CRZ Corporation. Among the jobs your department would do, include the following: A. Cash receipts, cash disbursement, general accounting, taxation, financial statements analysis and internal auditing. B. Financial reporting, strategic planning, managerial accounting, taxation, financial statement analysis and internal accounting. C. Financial accounting, managerial accounting, cost accounting, inventory accounting, payroll accounting, tax accounting, and sales forecasting. D. Tax accounting, internal accounting, internal auditing, general accounting . rpcpa) 12. B ? The jobs the controllership department normally do.  Controllership deals with structures and systems to facilitate smooth business activities of generating wealth. The traditional functions of controllership are planning and controlling, reporting of financial information, evaluating performances, government relations and reporting, protecting assets or resources, economic appraisal, and tax administration. Choice-letter “b” is the best choice. Choice-letter “a” is incorrect because cash receipts and disbursements are treasurership functions. Choice-letter “c” is incorrect because sales forecasting is sales functions. Choice-letter “d” is incorrect because internal auditing, under the emerging practice, now belongs to the audit committee or to the office of the Chief Executive Officer to maintain independence and utmost objectivity. Management accounting and Financial accounting 13. To distinguish between management accounting and financial accounting, the following statements are correct, except A. Management accounting, in view of its various integrated recipients, should have a separate data recording and retrieval system from financial accounting. B. Financial accounting is bound by GAAP, and management accounting need not be in conformity with GAAP. C. Financial accounting can be regarded as the process while management accounting can be regarded as the product of that process. D. Management accounting output must be released on time so as not to erode its usefulness; financial accounting output can still be useful even when delayed. (rpcpa)

13. D ? The statement that does not distinguish management accounting from financial accounting.  Choice-letters “a”, “b” and “c” are distinctions between management accounting and financial accounting. Choice-letter “d” is not a distinction because delayed information

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which are only made available after the decision has been made would virtually make the information worthless. This statement is not a distinction but is both an antithesis of relevant financial accounting and management accounting information. 14. The following characteristics refer to financial accounting except A. Provides information to external users. B. Emphasizes on objective data. C. Has no eternally imposed standards. D. Generates general-purpose financial statements.

(rpcpa)

14 C ? The one that does not refer to financial accounting.  Choice-letter “c” is correct because financial accounting has an externally imposed standards called as the generally accepted accounting principles. Choice-letters “a”, “b”, and “d” are all characteristics of financial accounting. 15. Which of the following characteristics does not relate to management accounting? A. Accounting reports may include non-monetary information. B. It is subject to restrictions imposed by GAAP. C. Reports are often based on estimates and are seldom useful for everything other than the purpose for which they are prepared. D. It provides data for external users within the business organizations. (rpcpa) 15. B ? The one that does not relate to management accounting.  Choice-letter “b” is correct because management accounting is not subject to restrictions imposed by GAAP. Choice-letters “a”. “c”, and “d” are incorrect because they all relate to management accounting. 16. Which of the following characteristics relates to financial accounting? A. Reports are promptly prepared and submitted to preserve its usefulness. B. Data may be both historical and estimates. C. It must adhere to the generally accepted accounting principles. D. It provides information needed by management in making decisions. (rpcpa) 16. C ? The one that relates to financial accounting.  Financial accounting should be relevant, its data are both historical and estimates, it adheres to GAAP, and it also provides data to management accounting in making decisions. However, among the choices given, the most important and unique characteristics of financial accounting is choice-letter “c”. 17. A formal report in management accounting is covered by the guidelines of A. GAAP C. Management B. SEC D. PICPA 17. C ? The one that sets the guidelines in preparing a management report.

(rpcpa)

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Choice-letter “c” is correct because management accounting reports are for management’s use only who sets the format in preparing a management accounting report. Generally accepted accounting principles (GAAP), which govern the preparation of external accounting reports, are not used in the field of management accounting that prepares reports for management, or internal, use only. The Securities and Exchange Commission (SEC) and Philippine Institute of Certified Public Accountants (PICPA) do not, and have no inherent authority to, prescribe guidelines on how information for management’s use only should be prepared.

18. Identify the following statements as true or false. Statement 1. Reporting to various government agencies such as BIR, SEC, and SSS is a function of a controller. Statement 2. Interim financial reports issued by managerial accountants must conform to generally accepted accounting principles. Statement 3. The managerial accountant often deals with information that cannot be expressed in numbers. (rpcpa) A Statement 1 is true, Statement 2 is false. B. Statement 2 is true, Statement 1 is false. C. Statement 1 is true, Statement 2 is true. D. Statement 1 is false, Statement 3 is false. 18. A ? Identify the given statements as true or false.  Statement 1 is true. Statement 2 is false because management accountant reports do not conform with GAAP. Statement 3 is false because accounting, including management accounting, makes reports primarily in financial nature or in other quantitative methods of measurement to emphasize objectivity in reporting. Hence, Choice-letter “a” is the correct answer. Miscellaneous 19. Which of the following represents an internal control weakness in a payroll system? A. Payroll department personnel are related in their duties. B. Timekeeping is independent of the payroll department. C. Payroll records are reconciled with quarterly tax reports. D. Paychecks are distributed by the employees’ immediate superior.(rpcpa) 19. D ? The statement that represents an internal control weakness in a payroll system.  The internal control structure of an organization must primarily be set to protect the assets, check the accuracy and reliability of accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies. In so doing, the organization plan and structures should be properly designed to ensure that transactional responsibilities are properly segregated. The phases of a transaction cycle are authorization, execution, recording, custodian and accountability. Choiceletter “d” is a weakness in internal control because the paychecks are supposed to be

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distributed by the custodian (i.e., custodianship) and not by the employees’ immediate superior (i.e., execution). Choice-letter “a” is a strength in internal control (i.e., employees must be carefully selected and trained). Choice-letter “b” indicates strong internal control (i.e., execution is separate from recording). Choice-letter “c” also indicates strong internal control (i.e., all available proof of accuracy must be utilized). 20. Which of the following is not a characteristic of a “staff” authority? A. It gives support, advises and services to line managers. B. It is exercised laterally and upward. C. It has authority to command action or give orders to subordinates. D. None of the above.

(rpcpa)

20. C ? The one that is not a characteristic of a staff authority.  A staff gives support, advises, and services to line authority, and is exercised laterally or upward. Choice-letters “a” and “b” are therefore not correct...