AMITY BUSINESS SCHOOL,AMITY UNIVERSITY HARYNA

MBA-ACCOUNTING FOR MANAGEMENT-THEORY QUESTION BANK

Module 1

1.Define accounting. Explain the need for accounting

American Institute of Certified Public Accountants (AICPA) is that

“Accounting is the art of recording, classifying and summarizing in a
significant manner and in terms of money, transactions and events which are,
in part at least, of financial character and interpreting the results thereof.”

Need and Objectives of Accounting

The Need and objectives of accounting can be given as follows:
1. Systematic Recording of Transactions
The first objective of accounting is to record the business transactions and events by
proper classification and book-keeping in proper books to show assets liabilities capital
and profit and loss.
2. Determination of Profit and Loss
Business Transactions are done for Earning Profits. Every businessman wants to know the
results of transactions done in a specific period. For these, we prepare a profit and loss
account.
Thus, Excess of income over Expenditure shows Profit for the period and if Expenditure is
more than income then there is a loss.
3. Preparation of Tax Returns
One of the main objectives of Accounting is to provide the information for filling up the tax
Returns of- income tax
wealth tax
Sales tax
value-added tax
tax on dividends
exercise duty
import-export duties
export incentive etc.
Thus, the Assessment of tax is done on the Basis of Financial Statements and Vouchers.

4. Providing Necessary information to Financial institution

 If a Businessman Requires money from the financial institution, Much More information
Regarding business is to be given to these institutions.Such as previous years’ Sells, stock
position, profitability, and financial position.

5. The depiction of Financial Position

Every Businessman wants to know the position of his invested money.
The balance sheet is the statement of Assets and liabilities of the business at a particular
point of the time and helps in an Ascertaining the financial health of the business. Need and
Objectives of Accounting.
6. Effective Control over the Business
I want to tell you how to do effective control over the business.
Accounting provides the actual data of Production Cost, Sales, Expenses, Profit and Loss of
the business.he comparison between budgeted data and actual data and the data of other
competitive firms can be done.Generally, variances of the Business Activities are known by
this process and to remove the various Reformative Action can be taken by this effective
control over the business is possible.
7. Providing information to Interested Parties
One of the objects of Accounting is to provide information to creditors, employees,
present and future investors, Researchers, and Society.
The interest of the loan givers and the investors is in the Safety of their investment and in
getting interested and Dividend the interest of the Employees lies in their wages bonus and
permanency.
8. Others
Accounting information should be available for the preparation of budget and standard
for 1. variance Analysis 2. Cost Control and 3. Decision Making.
So, if the Accounts are Computerized it will give Accurate data at the Earliest time for
taking corrective action.

2. Who are the users of accounting information and why?

There are many different users of accounting information and the users may be inside or
outside the organization.

Internal users or Primary users of accounting information include:

 Management- Accounting information is of great assistance to management

for planning, controlling and decision making process. Also, management
needs the accounting information to evaluate the performance of the
organization and position, so that the necessary measures may be taken to
bring improvements in terms of business results. Besides, accounting
information is useful to help mangers to do their jobs better.
  Employees - Employees use the accounting information to find out the
financial health, amount of sales and profitability of business to determine
their job security, the possibility of future remuneration, retirement benefits
and employment opportunities.
 Owners – Owners use the accounting information for analyzing the viability
and profitability of their investments. Accounting information enables the
owners to assess the ability of the business organization to pay dividends. It
also leads them to determine any future course of action.

External users or Secondary users of accounting information include:

 Creditors – Creditors are interested in accounting information, because it

enables them to determine the credit worthiness of the business. The credit
terms and standards are set on the basis of the financial health of a business,
so, it helps them to analyze by using the accurate information accordingly.
Creditors include suppliers and lenders of finance, such as banks. Trade
creditor are generally interested in the accounting information for a short
period of time than lenders.
 Investors – They need the information, because they are concerned with the
risk inherent in investing and the returns. Since it is important to assess the
feasibility of making investments in the company, they need to analyze
before they provide any financial resources to the company.
 Customers – Customers have interest in the accounting information for
assessing the financial position of a business, especially, when they have a
long term involvement with, as it enables to maintain a steady source of
business.
 Regulatory Authorities – The accounting information is needed for them to
ensure that it is in accordance with the rules and regulations and that it
protects the interests of the stake holders who rely on such information.

3.What are the accounting concepts and conventions? Explain

ACCOUNTING CONCEPTS
Business entity concept: A business and its owner should be treated separately as far as their
financial transactions are concerned.
Money measurement concept: Only business transactions that can be expressed in terms of
money are recorded in accounting, though records of other types of transactions may be kept
separately.
Dual aspect concept: For every credit, a corresponding debit is made. The recording of a
transaction is complete only with this dual aspect.
Going concern concept: In accounting, a business is expected to continue for a fairly long
time and carry out its commitments and obligations. This assumes that the business will not
be
forced to stop functioning and liquidate its assets at ―fire-sale‖ prices.
Cost concept: The fixed assets of a business are recorded on the basis of their original cost in
the first year of accounting. Subsequently, these assets are recorded minus depreciation. No
rise or fall in market price is taken into account. The concept applies only to fixed assets.
Accounting year concept: Each business chooses a specific time period to complete a cycle
of the accounting process—for example, monthly, quarterly, or annually—as per a fiscal or a
calendar year.
Matching concept: This principle dictates that for every entry of revenue recorded in a given
accounting period, an equal expense entry has to be recorded for correctly calculating profit
or
loss in a given period.
Realisation concept: According to this concept, profit is recognised only when it is earned.
An advance or fee paid is not considered a profit until the goods or services have been
delivered to the buyer.
1.10.1.2 ACCOUNTING CONVENTIONS
There are four main conventions in practice in accounting: conservatism; consistency; full
disclosure; and materiality.
Conservatism is the convention by which, when two values of a transaction are available, the
lower-value transaction is recorded. By this convention, profit should never be overestimated,
and there should always be a provision for losses.
Consistency prescribes the use of the same accounting principles from one period of an
accounting cycle to the next, so that the same standards are applied to calculate profit and
loss.
Materiality means that all material facts should be recorded in accounting. Accountants
should record important data and leave out insignificant information.
Full disclosure entails the revelation of all information, both favourable and detrimental to a
business enterprise, and which are of material value to creditors and debtors.
4.What is the dual aspect principle?
As per double entry accounting, it is known that any transaction of a business is recorded in two
separate accounts. The dual aspect concept indicates that each transaction made by a business
impacts the business in two different aspects which are equal and opposite in nature. This
concept form the basis of double-entry accounting and is used by all accounting frameworks for
generating accurate and reliable financial statements. 

The accounting equation used in this concept is : Assets = Liabilities + Equity

The accounting equation is registered in the balance sheet, where the amount of the total assets
should be equal to liabilities and equity of the firm. Dual aspect concept is also described as the
duality principle. 

This concept explains that if something is given, someone will receive it. This can be explained
as whenever a transaction occurs, there is a two-sided effect, one is credit, and the other is debit
for a similar amount. 

Do you know the difference between assets and liabilities?

Dual Aspect Concept Example

The concept of dual aspect can be explained with the help of some examples, which are as
follows:

Mohan started a business with Rs 5,00,000 as a primary investment. This investment done by
Mohan will have the following effects on the business.

1. It will increase the assets of the business by Rs 5,00,000. (Cash increases)

2. Capital of the business increases by Rs. 5,00,000.

Now, let’s say Mohan needed to purchase some goods for an amount of Rs 1,00,000, then this
will have the following impact on accounting.

1. Purchasing goods increases assets (stock) of the business by Rs 1,00,000.

2. It reduces another asset of the business, i.e. cash is reduced by Rs.1,00,000.

Similarly, if Mohan has to buy equipment on credit for an amount of 10,00,000 from an
equipment manufacturing company, then it will result in the following effect on the accounting.

1. Purchasing of new equipment on credit increases the asset base of the business by Rs.
10,00,000
2. Purchasing of new equipment on credit results in increasing the liabilities of the business
(repay to creditors) by Rs. 10,00,000.

5.What is accounting cycle?

The accounting cycle refers to the complete process of accounting procedure followed in
recording, classifying and summarizing the business transactions. The accounting cycle starts
right from the identification of business transactions and ends with the preparation of
financial statements and closing of books.

Steps in accounting cycle process

Whether you are a business owner or aspiring accountant, it is important to know and
understand the process involved in the accounting cycle. The accounting cycle consists of 8
steps listed below:

Identification of business transactions

The first step of the accounting cycle beings with the identification of financial transaction
that have occurred in the business. In this accounting cycle, the accountant or the
bookkeeper collects the data of all the transactions such as purchases, sales, payments,
receipts etc. and keeps the data ready to complete the next step of the accounting cycle.
Here, the accountant or bookkeeper analyze the nature of transactions, accounts impacted
etc.

Recording of transactions in the books of accounts

The next step of the accounting cycle is the most crucial and important. In this accounting
cycle, the bookkeeper or accountant records the financial transaction in the book of
accounts. This step of the accounting cycle is also known as a journal entry and the book in
which it is recorded is a journal book.

Here, all the transactions are recorded in chronological order along with the ledger accounts
involved, amounts in Dr/Cr and narration (a brief note on the transactions)
Ledger posting
Ledger posting simply refers to posting the financial transactions recorded in journal books
to individual ledger statements. For example, in preparing a cash ledger account, you must
post all Debits (receipts) and Credit (payments) into a statement and the difference between
these two including the opening balance of cash will be the closing balance.

This part of the accounting cycle includes posting all the Debit and Credit transactions into a
statement belonging to a ledger account as shown in the below image.

Prepare un-adjusted trial balance

In this step, you must list all ledger accounts with closing balance posted from individual
ledger accounts statement (discussed above). The format of the trial balance consists of
the Debit column and Credit column in which the closing balance of each ledger accounts
will be posted. After posting the closing balance of all the ledger accounts, the debit balance
should match with the credit balance.

This is the primary source for preparing the final accounts and all other financial statements.
Post the adjustment entries
Here, adjustment entries such as accrued incomes, depreciation, etc. are posted considering
the unadjusted trial balance prepared earlier.

Prepare the adjusted trial balance

Adjusted trial balance is a statement listing all the closing balance of the ledger accounts
after all the adjustment entries related to the accounting period is posted into the books of
accounts.

Prepare financial statements

This is the most important step of the accounting cycle. Once you have followed all the
above steps of the accounting cycle, it’s time for you to start preparing financial
statements. Profit & Loss account and Balance sheet are the two key financial statements.

 Profit and loss account: Profit and loss accounts is a financial statement prepared to
know the profitability of the business. This is also known as Income Statement.

 Balance sheet: Balance sheet is one of the topmost financial statements prepared by

businesses. The financial details of the balance sheet help you and the external
stakeholders to evaluate the financial performance of the business on a given
date. Click here to know the Balance Sheet format, steps to prepare the balance
sheet, etc.

Closing the books of accounts

Closing books of accounts refer to freezing books from recording the business transaction.
This is done after the closure of the accounting period and posting all the adjustment
entries. At this stage of the accounting cycle, all the financial statements are prepared and
new books for the subsequent financial year will be started.

6.Distinguish between Indian GAAP and US GAAP

The major differences between Indian GAAP (Generally Accepted Accounting Principles)
and US GAAP (United States Generally Accepted Accounting Principles) are as follows −

Indian GAAP (Generally Accepted Accounting Principles)

 Financial statements are prepared in accordance with the principle of
conservatism.
 Financial statements are prepared with presentation requirements of schedule
VI of companies ACT, 1956.
 Only listed companies are mandated for cash flow statements.
 Provides prescribed depreciation rates (schedule XVI of companies Act, 1956).
 No requirement is provided for a portion of long term debt.
 Preparation of financial statements for subsidiary companies is not mandatory.
 Investments are classified as current investments, long term investments and
investment property.
 For integral and non-integral operations, separate treatment is prescribed.
 During the project stage, all incidental expenditures of assets are accumulated
and allocated to cost of assets.
 Development and research expenditure are charged to the profit and loss
account (excludes equipment and machinery).
 Allows revaluation of assets.
 Over a period of time capital issue expenses are amortised.

US GAAP (United States Generally Accepted Accounting

Principles)
 Conservatism is recognised as and when it is realised/realizable/earned.
 No specific format is required.
 Both listed and unlisted companies are required to prepare cash flow
statements.
 No particular depreciation rates are provided.
 Current portion of long term debts is categorised as current liability.
 Preparation of consolidated financial statements are mandatory.
 Investments are classified as held to maturity, trading security and available for
sale.
 Comprehensive income is nothing but transaction difference.
 Expenditure is divided into direct and indirect heads.
 Research and development costs are expenses (excludes purchased intangible
assets).
 Revaluation of assets is not allowed.
 Adjustments for tax rates are required, while reporting prior period items.
 Capital issue expenses are written off as when incurred against proceeds of
capital.
Module 2

7.What is cost of goods sold? How do you calculate it?

Cost of Goods Sold (COGS) represents all costs involved in producing goods that a company
sells over a certain period of time. The cost of goods sold, also known as the cost of services
or the cost of sales, includes both the cost of materials used to create the goods, and the cost
of direct labor (employees salaries).
How to Calculate Cost of Goods Sold – The Formula
You can apply the following formula to calculate the cost of goods sold:

COGS = beginning inventory + purchases – ending inventory

Let’s take a quick look at the components of COGS:

Beginning inventory: this is the company’s inventory from the previous period. It could be
the previous quarter, month, year, etc.
Purchases: these are the total costs of what your company purchased during the specified
accounting period.
Ending inventory: the inventory that remained during that period.

8.What is meant by shareholders’ equity? How do you calculate it?

9. What is human resource accounting? Explain any two methods of valuation of human
Resources.
Human resource accounting is a process by which companies separately account for the
amounts spent on human resources. A report on this is submitted to the stakeholders. The
costs will include salaries, benefits, recruiting costs, training expenses, taxes, etc. paid for
employing people in the company. Calculating these costs can give an accurate picture of
where human resources costs are high and where it is within the limit. It will help the
company relocate employees to ensure their value compensates for the expenses. It also helps
when the company thinks of reducing staff strength.
Historical Cost Model
This human resource accounting model is similar to how companies value their physical
assets. In this model, the costs incurred for employees are measured against their expected
lifetime in the company. The costs include recruiting, hiring, training and developing the
worker. This way, the expenses incurred can be written off against the income earned during
the same period. When a staff member leaves the company before the expected lifetime is
over, the person’s value is low.

Replacement Cost Model

Companies using this human resource accounting method calculate the cost of replacing an
employee. If a person leaves the company, the cost of hiring a new one to replace the lost
person is considered. This is more realistic as the cost is measured against the present
financial status of the company. However, the drawback of the system is that no two persons
can be considered identical.

Opportunity Cost Model

It is a model where the value of the employee is calculated as the opportunity to use the same
person for another job. It happens when the company transfers the same worker from one
department to another. The value increases when the staff member is in demand across
various business units of the same firm. But the danger of this model of human resource
accounting is that ideological bidding wars could raise or lower a person’s value.
Module 3
10.What are the differences between financial accounting and management accounting?
Explain
BASIS FOR COMPARISON FINANCIAL ACCOUNTING MANAGEMENT
ACCOUNTING
Meaning Financial Accounting is an The accounting system which
accounting system that focuses provides relevant information to
on the preparation of a financial the managers to make policies,
statement of an organisation to plans and strategies for running
provide financial information to the business effectively is
the interested parties. known as the management
accounting.
Type of Orientation Historical in nature and based Future related in nature. to take
on past records and decisions for the future of the
transactions company.
Users Both internal and external Only internal users
users
Nature of statements prepared General-purpose financial Special purpose financial
statements to show a true and statements to make specific
fair view of a company decisions for the company
Rules and Regulations Rules of GAAP, IND AS are No fixed rules for the
followed preparation of reports
Nature of reports Only financial aspects of Both financial and non-financial
accounting aspects of accounting
Time Span given Financial statements are Management Reports are
prepared for a fixed period, i.e. prepared whenever needed.
one year.
 Objectives  To create periodical reports To assist internal management
and judge the financial position in the planning and decision-
of the firm. making process by providing
detailed information on various
matters.
Publishing and auditing Required to be published and It is not meant to be published
audited by statutory auditors  or audited. It is for internal use
only.
Format of the financial Specified by the respective Not specified by any authority
statements authority or an institution and or an institution
cannot deviate from the format

11. What is a cash flow statement? Why is it prepared?

A cash flow statement is a financial statement that portrays how businesses spend their cash.
The statement includes detailed information about a business's cash inflow and outflow,
meaning it keeps track of the amount of money that flows in and out as a result of business
handling. Having cash available is a base requirement for businesses to stay solvent and
avoid bankruptcy.

Cash flow statements break down this flow of money into three different sections of cash-
related activity:
Operating activities
This section of the cash flow statement details operating costs and profit items that are also
found on an income statement, such as accounts receivable and payable, inventory, wages
payable and income taxes payable. The operating activities section focuses on a business's
main activities, like selling or buying merchandise and services.
Investing activities
This section includes information about the business's purchase or sale of long-term
investments, such as property, buildings, vehicles, furniture or equipment. The investing
activities section provides further details about a company's assets.
Financing activities
This section outlines all cash transactions from long-term liability and stockholder equity
accounts, including notes payable, retained earnings and dividend payments. The financing
activities section reflects the company's net cash flow, taking stock purchases and debt
financing into consideration.
8 reasons why a cash flow statement is important
Cash flow statements can help businesses navigate the need for positive cash-related activity.
Here are eight reasons why a cash flow statement might be useful for your company:
Insight into spending activities
Cash flow statements give a holistic picture of the different payments companies make that
aren't typically reflected in a profit and loss statement. For instance, if your company took out
a loan and is paying it back, those payments wouldn't be included in a profit and loss
statement. Comparatively, this information would be included in a cash flow statement,
providing insight into the actual cash your business spent. If you want to know where your
business is spending money, a cash flow report can give you a precise portrait of outflow.
Short-term planning
Cash flow statements are especially useful to companies when it comes to short-term
planning. All companies must stay solvent to avoid bankruptcy and meet obligations, such as
paying wages, operating costs and more. Because cash flow statements provide a detailed
report on how much cash a business has on hand at a given time, they can help financial
managers project the cash flow in the near future and keep track of spending to meet specific,
short-term goals.

Better picture of cash planning results

Businesses typically create cash plans to follow to ensure their ventures are successful.
Despite this, however, there are times when businesses aren't able to execute their cash plans
perfectly or meet the objectives identified during the planning period. A cash flow statement
can help companies analyze whether their cash planning was actually effective by allowing
readers to compare projected cash flow numbers to actual cash flow results. Companies can
use this information to make more accurate projections in the future.
Ability to increase cash inflow
When businesses have data regarding their current inflow and outflow, they can focus on
creating cash from activities other than earning profits. While profit inevitably helps to create
cash, there are other ways to do so, and sometimes these methods can be more lucrative
overall. For instance, if a company's employees find that they're spending a lot of money on
inventory, they can try to create excess cash by optimizing operations, such as using
inventory efficiently to collect receivables faster.

Improved knowledge of cash balance

It is vital for business owners and stakeholders to know the optimal amount of cash they need
to operate successfully. This is one of the most important things a cash flow statement can
accomplish—with such a statement, companies can analyze whether they have an excess or
deficit of funds. If a company has an excess of cash, they can invest that money, and if they
are in a deficit situation, they can turn to external lenders or investors to reach their optimal
cash balance.

Working capital analysis

Working capital is defined as the funds that are currently available to businesses—the amount
of cash, deposits or other reserves kept on hand to manage operational and day-to-day
expenses. Cash flow statements can help business executives, investors and other
stakeholders analyze the working capital movement within a given company. This analysis
makes it easier for a business to improve its operations in order to preserve cash and improve
inflow numbers.

Long-term planning
Similar to short-term planning, cash flow statements can help financial managers plan for the
long term. A company's growth is dependent on accurate financial planning, and a cash flow
statement can help managers identify specific, implementable changes. These changes could
very well situate the business within a solid financial position over time. In essence, a cash
flow statement helps financial managers understand what activities a company needs to
prioritize.
Crisis management
Because a cash flow statement gives business stakeholders insight into whether they have a
shortage or excess of cash on hand, the report can help with crisis management. If a manager
can project a potential cash shortage in a company's future, they may be able to come up with
ways to help the company overcome such a challenge ahead of time. This can make an
enormous difference in a company's ability to reach its goals.
12.What are the uses of cash flow statement? Explain
https://www.yourarticlelibrary.com/accounting/cash-flow-statement/uses-of-cash-flow-
statement-9-uses-financial-analysis/67113

Module 4
13. What are activity ratios? How do you calculate these ratios?
14. What are liquidity ratios, financial condition(profitability) ratios? What is their use?
https://byjus.com/commerce/liquidity-ratio/

15. What is Du Pont Analysis? Explain

 The DuPont analysis is a framework for analyzing fundamental

performance originally popularized by the DuPont Corporation.
 The formula was developed in 1914 by F. Donaldson Brown, an
employee of the DuPont Corporation.
 DuPont analysis is a useful technique used to decompose the
different drivers of return on equity.
 An investor can use analysis tools like this to compare the
operational efficiency of two similar firms.
  Managers can use DuPont analysis to identify strengths or
weaknesses that should be addressed.
Example in notebook
16.Why do we analyse financial statements?
According to Accounting Tools, financial statement analysis involves reviewing the financial
statements of an organization to gain an understanding of its financial situation.
Financial statements usually include a balance sheet, income statement, statement of cash
flows and supplementary notes.

Module 5
17. What is marginal costing? List out its applications in business
18.Define cost accounting and marginal costing. Distinguish between total
costing(absorption)costing and marginal costing
19. What is cost-volume-profit analysis? How is it useful to business firms?

Cost-volume-profit (CVP) analysis is a way to find out how changes in variable and fixed
costs affect a firm's profit. Companies can use CVP to see how many units they need to
sell to break even (cover all costs) or reach a certain minimum profit margin.

Benefits of Cost Volume Profit Analysis

Cost Volume Profit analysis helps organizations to examine their profits, costs and
prices with respect to any changed that occur in sales volume. CVP is an effective
tool that helps accountants to engage in decision making regarding future
operations (Breakeven analysis). Moreover, it also helps in making the following
decisions for the company:

 It helps to analyze which products and services are beneficial and how can
company use these products and services to generate the maximum amount
of revenue.
 It also explains what sales volume will be needed by the company in order to
achieve a fixed level of profits.
 Moreover, it tells how much revenue should the company target so as to
make sure that no losses occur.
  It also highlights what would be expected budget of the company.
 It also helps to calculate company’s fixed costs and measure the amount of
risk associated with any investment.

Future Forecasting

By using the above mentioned models, approaches and graphs, managers can
analyze the direction in which their company is moving and this analysis might help
them to better understand the different operations and activities within the
organizations. By getting beforehand knowledge of profits and costs, the company
can manage them in a more efficient way to increase productivity.

Preparation of Budgets

Since the cost profit volume analysis helps in determining the level of sales and thus
helps organizations to achieve their desired targets. This approach would help the
managers to prepare their budgets which consist of the costs as well as the revenues
at any level of production within the organization.

Cost Control

The biggest benefit of CVP analysis is to evaluate the cost volume changes within an
organization and the impact of these changes on revenue generation. For instance:
there is a dental hospital that wants to purchase a new dental machine so that the
patient’s level of satisfaction can be increased by reducing the time required for
dental treatment. The purchase of this new machine will tend to increase fixed costs
of an organization. So, at such complex situations, the cost volume analysis can be
the most effective tool to help in simplifying the company’s decision. If this dental
hospital uses CVP analysis, it can manage to decrease its variable costs by maintain
the profit at the same desired level.

Price Determination

It is another benefit of using this approach. For example: If any competitor within the
dental industry has set the price at Rs.50,000 for a single dental operation and the
business cannot provide this operation at any cost lower than Rs.20,000, then the
company can use cost profit volume analysis to compare the competitor’s price with
the fixed and variable costs of its own operations and thus it can manage to come up
with a price that is in the best interest of the company.

Profit Planning

The aim of any business is to create value for the customers and to get profits for the
company. However, managing all operations and costs in such a way that can
maximize profits is not an easy task. Therefore, organizations have to consider a lot
of things in order to engage in proper profit planning techniques. The CVP analysis
can help the companies to create the best and most profitable combination of cost,
price and sales volume. Thus, it can help managers to calculate and estimate their
profit at different levels and for different range of products.

Decision Making

All the above mentioned benefits of Cost Volume Profit Analysis directly or indirectly
related to the decision making processes of a company. Any business organization
has to make a lot of decisions regarding their price, their costs, and products, fixed
and variable unit costs and so on. The CVP approach simplifies this process by
providing the companies with a breakeven point and by helping them to engage in
better decision making and planning for the future.

20. What is marginal costing? What are its applications in business decision-making? Explain
21.What is break even analysis? What are its assumptions?