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Management Accounting (For Bankers) (First edition)

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 Management Accounting
(For Bankers)
(First edition)

Md. Shahid Ullah

The Institute of Bankers, Bangladesh (IBB)

MANAGEMENT ACCOUNTING
(For Bankers)

First edition: September 2018

By

MD. SHAHID ULLAH

MBA in Accounting
Assistant Professor
Bangladesh Institute of Bank Management (BIBM)

Price: Tk- 400.00

The Institute of Bankers, Bangladesh (IBB)

DR Tower (12th Floor) 65/2/2, Box Culvert Road
Purana Paltan, Dhaka- 1000.
 Management Accounting
(For Bankers)

Author:
MD. SHAHID ULLAH
MBA in Accounting
Assistant Professor
Bangladesh Institute of Bank Management (BIBM)

All rights reserved. Except for quotation of short passages for review, no part of this
publication may be reproduced, stored in a retrieval system, or transmitted, by any
form or by any means, electronic, mechanical, photocopying, recording or otherwise,
without permission of the publishers.

The views expressed in the book are those of the author and do not necessarily reflect
the views or opinions of the Institute of Bankers, Bangladesh.

Published by:
Mohammad Naushad Ali Chowdhury
Secretary General
The Institute of Bankers, Bangladesh (IBB)
DR Tower (12th Floor)
65/2/2, Bir Protik Gazi Golam Dostogir Road
(Box Culvert Road) Purana Paltan, Dhaka- 1000.
Phone: 55112857-60

Cover Design by: Md. Shahid Ullah

Printed by:
Tithy Printing & Packaging
28/C-1, Toyenbee Circular Road, Motijheel C/A, Dhaka- 1000.
2
 Foreword

The Institute of Bankers, Bangladesh (IBB) is a professional body of Banks & Financial
Institutions in Bangladesh established in 1973 for developing competent and skilled
professionals. It is managed by a Governing Council comprising senior members of
Bangladesh Bank & Chief Executive Officers of the Bank & Financial Institutions
headed by the Governor of Bangladesh Bank as president.

IBB conducts the Banking Diploma Examination, Junior Associate the Institute of
Bankers, Bangladesh (JAIBB) and Diplomaed Associate the Institute of Bankers,
Bangladesh (DAIBB) twice a year in all over the country. JAIBB examination aims at
giving basic and fundamental knowledge of banking and DAIBB examination is
designed to update the advanced knowledge in the field of banking and allied matters to
enable better decision making by bankers. The syllabi for the examination cover almost
all the theoretical and practical aspects of banking which a banker comes across in
him/her day to day work. The Institute modifies/updates the syllabi of the examination
from time to time keeping in view the new changes/developments in the banking arena
in its domestic as well as international perspective so that the syllabi can serve the
practical requirements of Bankers.

The syllabi of IBB have recently been changed keeping in view the changes that have
taken place in principles, practices and technologies in the banking sector by a team of
experts including a number of veteran bankers. The Council of IBB, headed by the
Governor of Bangladesh Bank approved the revised Syllabus.

IBB has taken steps to publish books on its compulsory subjects. This book entitled
“Management Accounting” is one of the compulsory subjects of DAIBB. Since it is an
important and compulsory subject of DAIBB, we entrusted the work of writing this book
to learned Assistant Professor of BIBM Mr. Md. Shahid Ullah. We believe that this
book will be a great help to the examinees of banking diploma examination, readers in
and outside the banking profession.

The Institute of Bankers, Bangladesh takes the opportunity to express its gratitude to the
learned members of IBB council, Syllabus Committee and the Books Review Committee
on Syllabus and books for the inspiration and guidance in carrying out these important
initiatives which are expected to add new dimension in the Bangladesh financial sector.

Mohammad Naushad Ali Chowdhury

Secretary General
The Institute of Bankers, Bangladesh (IBB)

3
4
 Preface and Acknowledgements
The title of the book has rightly been chosen as 'Management Accounting' (for Bankers)
because this book has been written in response to meeting the needs and continued requests
from our banker friends, especially those who face difficulties in understanding and passing
the Management Accounting course of the IBB. Management accounting, also popularly
known as decision making accounting, is a very useful decision-making tool. Management
accounting books which are available in our country are written for accounting and business
students. But people working in the banking sector come from the diverse educational
background. The author of this book, being an accounting graduate and having a long experience
of teaching accounting and banking simultaneously at Bangladesh Institute of Bank Management
(BIBM) and other universities, has tried to fill this apparent gap by integrating management
accounting with banking. The strong aspects of this book are, inter alia, linking banking with
management accounting, presenting conceptual issues in a lucid way followed by practical
problems, covering the syllabus of IBB and providing the solution of many previous year
banking diploma examination questions.

We all make decisions in our day-to-day life. Bankers are not different; rather they have to make
sensitive decisions such as lending/investment decisions, borrowing decisions, pricing
decisions and many more. Keeping the varied educational background of the readers, this
book has been written in a logical order starting with the basic concepts such as definition
and scope of management accounting followed by costing and pricing, budgeting and
expenditure, planning for liquidity, working capital management, leasing and hire purchase
according to the management accounting syllabus of IBB. In each and every chapter, the
book integrates the relevant banking practices, guidelines and regulations with managerial
decisions. The book consists of ten chapters, namely introduction to management
accounting (chapter 1), cost accounting, cost classification and cost sheet (chapter 2), pricing
(chapter 3), cost, volume, profit relationship (CVP) analysis (chapter 4), budgeting
(chapter 5), capital expenditure - appraisal and budgeting (chapter 6), cash flow statement
(chapter 7), funds flow statement (chapter 8), working capital management (chapter 9),
and leasing and hire purchase (chapter 10). Although the book is primarily intended for
bankers, it can also be useful for undergraduate and postgraduate business students.

I am indebted to a good number of people who motivated and supported me in writing this
book. First of all, I am very grateful to Professor Dr Toufic Ahmad Choudhury, Director
General of BIBM for his constant encouragement and support in the entire process. I
respectfully acknowledge the support and motivation of my teachers, among many, Dr
Abdul Hye (Former Professor, University of Chittagong), Dr Mohammad Badrul Muttakin
(Deakin University, Australia), Professor Katsuhiko Kokubu (Kobe University, Japan). I
sincerely acknowledge the support of my colleagues, Khondkar Ibrahim Khaled (faculty
member of BIBM and former Deputy Governor of Bangladesh Bank), S. A. Chowdhury
(faculty member of BIBM and former Chairman of BKB), Dr Shah Md Ahsan Habib
5
(Professor and Director Training), Dr Pranshanta Kumar Banerjee (Professor and Director,
Research and Development), Md. Mohiuddin Siddique (Professor and Director, Dhaka
School of Bank Management), Dr Bishnu Kumar Adhikary (Adjunct faculty of BIBM and
Associate Professor, Kobe University, Japan), Dr Mohammad Tazul Islam (Associate Professor),
Tofayel Ahmed (Assistant Professor), Atul Chandra Pandit (Associate Professor), Abdul
Alim (Computer operator). I am thankful to Mohammad Naushad

Ali Chowdhury (secretary general of IBS), Md. Abdul Matin (former secretary general),
Jaba Rani Das, Shahjahan and other staff of IBB and the press for their support in
publishing the book. While writing this book, I consulted with numerous accounting and
banking books, Bangladesh Bank guidelines, reading materials of BIBM. I recognize their
usefulness. I am also grateful to the anonymous members of the IBB book review committee for
their valued comments and suggestions. I am also thankful to my banker-friends for their
inspiration. Finally, my family extended necessary support without which completing
this mammoth task would not be possible. I do appreciate the invaluable support of
Sumaya, my wife, and our daughters, Zaima and Zunaira.

There might have some errors and omissions in this first edition. Any constructive
suggestions for improving the book are welcome ([email protected]).

Md. Shahid Ullah

MBA in Accounting
Assistant Professor
Bangladesh Institute of Bank Management
BIBM, Mirpur, Dhaka, Bangladesh

June 2018

6
 Management Accounting (For Bankers)
Table of Contents

Modules Chapters Chapter Titles Page #

Module A:
Introduction to Management
Definition and Scope of Chapter One Accounting 9-33
Management
Accounting
Cost Accounting, Cost
Chapter Two 34-107
Module B: Classification and Cost sheet
Costing and Pricing Chapter Three Pricing 108-118
Cost, Volume, Profit
Chapter Four 119-173
Relationship (CVP) Analysis
Module C: Chapter Five Budgeting 174-243
Budgeting and
Expenditure Capital Expenditure-
Chapter Six 244-287
Appraisal and Budgeting

Module D: Cash Flow Statement

Chapter Seven 288-319
Planning for Liquidity
Chapter Eight Funds Flow Statement 320-335
Module E:
Working Capital
Working Capital Chapter Nine 336-378
Management
Management
Module F:
Leasing and Hire Chapter Ten Leasing and Hire Purchase 379-412
Purchase

Glossary 413-427

7
8
 Chapter One
Introduction to Management Accounting
Syllabus
Managerial Accounting - Definition and Scope - Distinction between Financial
Accounting and Management Accounting - Role of Management Accountant-
Analysis and Interpretation of Finance Statements - The Place of Management
Accounting/Shortcomings of the traditional methods of credit analysis- Planning
Process- Setting of Objectives

Contents
• Accounting
• Financial Accounting
• Management Accounting
• History of Managerial Accounting
• Scope of Management Accounting
• Functions/Benefits/Objectives of Management Accounting
• Financial Accounting Vs Managerial Accounting
• Management Accounting and Cost Accounting
• Shortcomings of the Traditional Methods of Credit Analysis
• Management accounting and Lending Banker
• Role of Management Accountant
• Code of Conduct for Management Accountants
• Limitations of Management Accounting
• Planning
• The Planning Process
• Usefulness of Planning
• Objective Setting
• Banks and Corporate Objectives
• References

What is accounting?
The basic purpose of accounting information is to help someone make decisions,
whether s/he is a company chairperson, a CEO, a production manager, a banker, a
hospital administrator, an investor – the list could go on and on. Regardless of who is

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