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What are Final Accounts?

What are Final Accounts?
What are known as Final Accounts? Trading, profit & loss account and balance sheet, all these three together, are called as final accounts. Final result of trading is known through Profit and Loss Account. Financial position is reflected by Balance Sheet. These are, usually, prepared at the close of the year hence known as final accounts. They serve the ultimate purpose of keeping accounts. Their purpose is to investigate the consequence of various incomes and expenses during the year and the resulting profit or loss. 1. Trading and Profit and Loss A/c is prepared to find out Profit or Loss. 2. Balance Sheet is prepared to find out financial position of a  concern. Trading Account Trading refers buying and selling of goods. Trading A/c shows the result of buying and selling of goods. This account is prepared to find out the difference between the Selling prices and Cost price. Profit and Loss Account Trading account discloses Gross Profit or Gross Loss. Gross Profit is transferred to credit side of Profit and Loss A/c. Gross Loss is transferred to debit side of the Profit Loss Account. Thus Profit and Loss A/c is commenced. This Profit & Loss A/c reveals Net Profit or Net loss at a given time of accounting year. Trading Profit And Loss CMD from knoxbusiness Balance Sheet Trading A/c and Profit & Loss A/c reveals G.P. or G.L and N.P or N.L respectively; besides the Proprietor wants i. To know the total Assets invested in business ii. To know the Position of owner’s equity iii. To know the liabilities of business. Definition of Balance Sheet The Word ‘Balance Sheet’ is defined as “a Statement which sets out the Assets and Liabilities of a business firm and which serves to ascertain the financial position of the same on any particular date.” On the left hand side of this statement, the liabilities and capital are shown. On the right hand side, all the assets are shown. Therefore the two sides of the Balance sheet must always be equal. Capital arrives Assets exceeds the liabilities. BUY “ACCOUNTING CONVENTIONS AND CONCEPTS” OBJECTIVES OF BALANCE SHEET: 1. It shows accurate financial position of a firm. 2. It is a gist of various transactions at a given period. 3. It clearly indicates, whether the firm has sufficient assents to repay its liabilities. 4. The accuracy of final accounts is verified by this statement 5. It shows the profit or Loss arrived through Profit & Loss A/c. PREPARATION OF FINAL ACCOUNTS Preparation of final account is the last stage of the accounting cycle. The basic objective of every firm  maintaining the book of accounts is to find out the profit or loss in their business at the end of the year. Every businessman wishes to find out the financial position of his business firm as a whole during the particular period. In order to accomplish the objectives for the firm, it is essential to prepare final accounts which include Trading, Profit and Loss Account and Balance Sheet. It is mandatory that final accounts have to be prepared, every year, in every business. Trading and profit & loss accounts are prepared, after all the accounts have been completely written and trial balance is extracted. Before preparing final accounts, it becomes obligatory  to scritinize whether all the expenses and incomes for the year for which accounts are prepared have been duly provided for and included in the accounts. Form of Final Accounts: There is a standard format of final accounts only in the case of a limited company. There is no fixed prescribed format of financial accounts in the case of a proprietary concern and partnership...
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Scope of Financial Management

Scope of Financial Management
Scope of Financial Management Facebook Buys WhatsApp: Boneheaded or Brilliant? This was the title of a  Forbes Article when Mark Zuckerberg acquired Whatsapp for $19 billion dollars, the price that may exceed the GNP of some of those countries. Mark is said to be an unconventional thinker and the WhatsApp acquisition shows Facebook’s determination to follow the road not yet paved. It is a bold move, yet filled with risks along the way. This is one of the finest examples of the big investment decisions of recent times and the right course of action,  if you measure the number of potential users of the mobile messaging service rather than the cost of acquiring each user and the potential for selling ads to each user today. Financial management is one of the important aspects of overall management, which is directly asscoiated with various functional departments like personnel, marketing and production. Financial management embraces wide area with multidimensional approaches. The following are the important scope of financial management. Some of the major scope of financial management are as follows: 1. Investment Decision 2. Financing Decision 3. Dividend Decision 4. Working Capital Decision. 1. Investment Decision: The investment decision involves Risk Evaluation Measurement of cost of capital and Estimation of expected benefits from a project. Capital budgeting and liquidity are the other two major components of investment decision. Capital budgeting takes care of the distribution of capital and commitment of funds in permanent assets to harvest revenue in future. Capital budgeting is a very focal decision as it impacts the long-term success and growth of a firm. All the same it is a very tough decision because it encompasses the estimation of costs and benefits which are uncertain and unknown. 2. Financing Decision: Financing decision is related to financing mix or financial structure of the firm. The raising of funds requires decisions regarding Methods and sources of finance Relative proportion and choice between alternative sources Time of floatation of securities, etc. In order to meet its investment needs, a firm can raise funds from various sources. Long Term Sources of Finance: Share Capital or Equity Shares Preference Capital or Preference Shares Retained Earnings or Internal Accruals Debenture / Bonds Term Loans from Financial Institutes, Government, and Commercial Banks Venture Funding Asset Securitization International Financing by way of Euro Issue, Foreign Currency Loans, ADR, GDR etc.  Picture Courtesy: Cash & Treasury Management file Medium Term Sources of Finance: Preference Capital or Preference Shares Debenture / Bonds Medium Term Loans from Financial Institutes Government, and Commercial Banks Lease Finance Hire Purchase Finance Short Term Sources of Finance: Trade Credit Short Term Loans like Working Capital Loans from Commercial Banks Fixed Deposits for a period of 1 year or less Advances received from customers Creditors Payables Factoring Services Bill Discounting etc. 3. Dividend Decision: In order to accomplish the goal of wealth maximization, a proper dividend policy must be established. One feature of dividend policy is to decide whether to distribute all the profits in the form of dividends or to plough back the profit into business. While deciding the optimum dividend payout ratio (proportion of net profits to be paid out to shareholders), the finance manager should consider the following: Investment opportunities available to the firm Plans for expansion and growth, Dividend stability Form of dividends, i.e., cash dividends or stock dividends, etc. 4. Working Capital Decision: Working capital decision is related to the FINANCING in current assets and current liabilities. Current assets include cash, receivables, inventory, short-term securities, etc. Current liabilities consist of creditors, bills payable, outstanding expenses, bank overdraft, etc. Current assets are those assets which are convertible into cash within a year. Similarly, current liabilities are those liabilities, which...
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Patent Protection

Patent Protection
The Idea behind Patent Protection In product markets, the problem of imitation poses a great problem for innovators who are deprived of enjoying economic profits fully. If imitators are able to move in rapidly and capture a substantial share of the market, the initial profits earned by innovators may not be sufficient to cover their costs and risks in the long run. However, a substantial delay between the time of innovation and successive entry by competitors may provide the pioneers with decent profits and make invention and innovation a more attractive activity. The patent system, by establishing a period of time during which the firm faces reduced competition, increases the expected return for innovative effort. Product and Process Innovations: A nation by stimulating research and development can increase the prospects of product and process innovations. Governments can encourage such innovations by granting patents. Three criteria must be satisfied to obtain a patent: The invention must be new It must not have been known to the public before the inventor completed it for more than one year prior to a patent application It must be useful and must be non-obvious What are Patents? Patents confer the exclusive right to the use of an idea for a long period (which varies between nations,say,in countries like India, it is seven to fourteen years, depending on the nature of the product) within which the innovator might be able to recover his initial investment. Another reason to grant patents is to provide for widespread disclosure of new ideas and techniques. The main objective of patent protection is to encourage research and development. Patents: Encourage research and invention Induce an inventor to disclose his discoveries instead of keeping them as a secret. Offer a reward for the expenses of developing inventions to the state at which they are commercially practicable; and Provide an inducement to invest capital in new lines of production Granting of Patents: The idea behind granting of patents thus is to benefit the society. Developing countries have to offer patent protection, the lack of which has made many foreign firms shy away from investing in core sectors like pharmaceuticals and biotechnology in these nations. As a result, people of these countries are forced to buy life saving drugs like those for cancer and have to pay ruinous prices. Once patent protection is available, there is a possibility for manufacturing most of the drugs that are being imported, eventually leading to a fall in the price levels. One of the difficult aspects of patent law is the principle that, whether a patent is to be issued to the person who conceives the idea or who first files for a patent. Another international issue involving patents is that, countries allow firms to steal and copy protected ideas, due to lack of severe legal enforcements or lack of interest. Either way it proves detrimental to the interest of the patent holders and such violations have to be strictly prohibited. Note: THE PATENTS ACT, 1970: An Act to amend and consolidate the law relating to patents The Patent Amendment Act,2005 The Patent Rules,2003 and Amendment Rules,2006 are some of the laws that protect patents in India....
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Transfer of Technology

Transfer of Technology
Transfer of Technology- Commercialisation Vs.Benefit The total influx of technology in underdeveloped countries is from the advanced capitalist countries for obvious reasons, which will be the highlight of this discussion. Multinational corporations play a vital part in technology transfer, the motive being profit maximization for the parent company through their subsidiaries. These corporations act as the principal instrument of technology transfer, either through their subsidiaries or through contractual agreements made with developing countries. The idea is to bring mechanized processes and equipments that are not locally available. Dominance of Technology Supplier: The technology supplier usually takes the upper hand owing to his monopolistic strength that arises from the patent protection for differentiated products and processes. Very often, the terms and conditions of transfer are arbitrarily settled under highly imperfect market conditions by the technology supplying multinationals. Advanced nations have the advantages of reduced population density, even distribution of national wealth, high standard of living, more infusion of capital into research and development, availability of skilled personnel inclined towards research etc. Dependency of Developing Nations: Developing nations on the other hand are subject to the pressures of high population density, uneven distribution of economic wealth (poor people become more poor and the rich even richer), moderate or low living standards etc. Capital drain occurs due to heavy borrowings from the World Bank which leads to increase in the social overheads. In such a situation, it is next to impossible for a developing nation to pump capital into activities concerning research. Bargaining Power of Developing Nations: The bargaining power of developing nations is weak, as they have no access to information about alternate technologies and their sources nor the necessary infrastructure to evaluate the appropriateness of equipments, intermediates and processes. Moreover, the large part of the influx of technology in developing countries is in response to the policy of industrialization through import substitution. Transfer of technology from the developed to the underdeveloped countries is made in a number of ways. They are classified into two broad categories, viz., direct mechanism and indirect mechanism. The direct mechanism includes transfer of technology through banks, journals, industrial fairs, technical co-operation, movement of skilled people etc. Here there is a choice for the developing nation to select the appropriate technology that best suits their requirement. However, this is not the principal form of technology transfer that advanced nations would prefer. Price of Technology: The indirect mechanism implies technology transfer in a “package” or a “bundle” containing technology-embodying equipments, industrial properties like patents and trademark, skill, equity capital, etc. In this system, a local enterprise negotiates with multinational corporations for transport of the required elements of technology, and the terms and conditions are settled through a process of commercial transaction. Since the trading partners are unequal, the terms of contract are invariably restrictive and the price extended for the technology unreasonably high. All the underdeveloped countries, which have opted for growth along the classical path of capitalist development, are in a position to invite multinational corporations, if for no other reason than at least for the diffusion of...
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Strategy Evaluation

Strategy Evaluation
STRATEGY EVALUATION Strategic Evaluation: concerns mainly the analysis and judgment of interventions at the level of strategic goals. One of the noteworthy aspects of strategic evaluation consists of the verification of the adopted strategy with respect to the current and likely social and economic situation. How a firm has performed over time and relatively to its competitors, can be determined with the help of the following quantitative measures. Market price of the shares Market share Earnings on capital employed Dividend rates Return on equity Growth in sales volume Production costs and efficiency Distribution costs and efficiency Employee turnover, absenteeism, and satisfaction indices. Since there is a high correlation between progress and these indicators, we can say that a firm is successful if majority of the factors show a positive signal. But in reality, one cannot expect a business firm to satisfy all the above mentioned criteria, as performance is also affected by unexpected variations in the external environment. One has to trade-off between the positive and negative indicators and find suitable ways to enhance the performance levels. Effectiveness of a Strategy: The strategic importance of any particular criterion may not remain the same at different points of time. The short run and long run effectiveness of strategy cannot be evaluated using the same criteria. There may be difficulties in computation and different methods of computation that may be encountered in measurement. These factors serve as the bases for firms to identify the elements of success. Yet another way of performance evaluation is to identify critical factors that may be regarded as symptoms of decline and can be treated as early warning signals during the implementation of strategy. If they indicate the necessity of a turnaround or retrenchment strategy, the firm should definitely go for a suitable action without further delay. Such factors may be: Declining profit margin Declining market share Rapidly increasing debt Declining working capital Increasing managerial turnover What is the Need for Strategic Evaluation? You might be curious to know, what is the need for a strategic evaluation at all in the first instance? See, business firms and corporate companies are always in a position to execute their action plans in the wake of severe competition and retention of market share. A plan without a strategy is like life without a soul and decision making is solely dependent upon strategic inputs. The need for feedback, appraisal and reward, check on the validity of strategic choice congruence between decisions and intended strategy all these help in successful culmination of strategic management process and create inputs for new strategic planning. The evaluation need not be based only on quantitative terms, but also on qualitative aspects such as: internal consistency, consistency with the environment, appropriateness of the strategy in the light of available resources, acceptability of the degree of risk involved in the strategy, appropriateness of the time horizon of the strategy...
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