Professional Documents
Culture Documents
If u select in Written test u will have Next HR Interview (Personal Questions) and
Tecchinal round (Questions on Accounts and finance).
Here i am attaching some imp Questions & Prepare well.
3.Subject Interview
Accoounting Definations & Concepts and Principals
Ratio's with definations , Shares & debeture
Parent & subsidary Company
Public ltd Company and Private Ltd Company
Revenue Income/Expenditure
deffered Income/Expenditure
Capital Income/Expenditure
Accured Income/Expenditure
Time value of money
Zero based Budget
Fixed Cost, varible cost ,marginal cost and Break even
Good will
Amortisation
Depriciation & Types
Assets and types of Assets (i.e Tangible and Intangible,ficticious Assets)
patnership and Jointventure and Consignment
Trading P&L and Balance sheet (Format & Shedules) and Trail Balance
Minirioty Interest or minority ownership
Less than 50% ownership of a corporation's voting stock, or not enough
ownership to control company operations.
From a purely accounting point of view, a parent company which owns less than
100% but more than 50% of a subsidiary
presents the value of the remaining ownership (the minority ownership) on the
balance sheet in a separate account.
In such cases, minority interest is shown as either a liability or an equity item on
the consolidated balance sheet,
and the income (or loss) owed to the minority owners is subtracted from (or
added to) the parent's income to arrive
at a net income number (consolidated).
Lease & its Types
Green shoe option
Cash flow statements
LOng Term Debt/Short Term Debt
Non Balance sheet Items (Leases Assets/Foot Notes Items)
margin of safety,
In Finance
Financial Management , divined yeild and networth capital Budgeting
Financial services , Commercial Paper and Venture Capital and Mutual Funds
Portfolio Management ,working Capital and types of Working capital,caliculation
methods
Q)tangible-intangible
components of
appr.a/c?from Net profit --------to
provide reserves.
Q)what is EPS and DPS?
Q)Asset write-down arises, when on review by a
asset.
What is net-worth?
merchandise or services.
Q)accounts receivable -- amounts recorded as assets
on the books of a company, institution or individual
that are due, but have not yet been collected, from
a debtor for the previous purchase of merchandise or
services.
employee stock options
minority interest
consolidated accounts
FI Questionnaire
(6) Krisle and Kringle's debt-to-total assets ratio is.4. What is its debt-to-equity
ratio?
(a) .2 (b) .77
(c) .667 (d) .333
Answer : C
(7) Which group of ratios measures a firm's ability to meet short-term
obligations?
(a) Liquidity ratios.
(10) The accounting statement of cash flows reports a firm's cash flows
segregated into what categorical order?
(a) Operating, investing, and financing.
(b) Investing, operating, and financing.
(c) Financing, operating and investing.
(d) Financing, investing, and operating.
Answer : A
(11) The firm had a net increase of $800,000 in net fixed assets over the last
period. The beginning and ending net fixed asset account balances were
$9,100,000 and $9,900,000 respectively. If the firm purchased $2,000,000 in
additional fixed assets and sold $100,000 of fixed assets at book value, what was
the firm's depreciation expense over the period?
(a) $800,000
(b) $1,100,000
(c) $1,900,000
(d) $2,700,000
Answer : B
(12) If EOQ = 40 units, order costs are $2 per order, and carrying costs are $.20
per unit, what is the usage in units?
(a) 10 units. (b) 16 units.
(c) 40 units. (d) 80 units.
Answer : D
(13) What is the book value of common equity per share of common equity
outstanding for the following firm? The firm has 20,000 common shares
authorized of which 15,000 are outstanding at a par value of $1. Additional paid-
in-capital represents $300,000 and retained earnings are an additional $300,000.
(a) $1 (b) $20
(c) $21 (d) $41
Answer : D
(14) Upon close examination of the income statement, which of the following
mathematical expressions would be true?
(a) Net Sales - Gross Profit = Income from Operations
(b) Gross Profit + Selling, General and Administrative Expenses = Net Sales
(c) Income from Operations - Interest Expense - Income Tax Expense = Net
Income
(d) None of the above are true.
Answer : C
(16) The owners' equity section of a balance sheet contains two major
components:
(a) Common Stock and Additional Paid-in Capital
(b) Paid-in Capital and Retained Earnings
(c) Common Stock and Retained Earnings
(d) Net Income and Dividends
Answer : B
(17) Which of the following would not be included on a balance sheet?
( a) Accounts receivable.
( b) Accounts payable.
( c) Sales.
( d) Cash.
Ans:C
(18) If total assets were $21,000 and total liabilities were $12,000 at the
beginning of the year, and if net income for the year was $5,000, what is total
owners' equity at the end of the year?
(a) $ 4,000 (b) 5,000
(c) 9,000 (d) 14,000
Answer : D
(19) Treasury stock involves shares which are:
(a) issued and outstanding.
(b) authorized but not yet issued.
(c) subscribed but not yet authorized.
(d) issued but not currently outstanding.
Answer : D
(20) If a transaction during the year caused one asset to increase by $40,000 and
another asset to decrease by $30,000, which of the following events may have
caused these effects?
(a) Merchandise inventory was purchased and paid for entirely with cash.
(b) Cash was received in exchange for the issuance of common stock.
(c) Equipment was purchased and paid for partly with cash and with an account
payable for the difference.
(d) None of the above could have caused these effects.
Answer : C
(21) Net assets were $9,500 at the beginning of the year and $12,000 at the end
of the year. Merchandise Inventory went up by $1,000 during the year, Accounts
Payable went down by $500, and Accounts Receivable went down by $2,000. If
the Cash account was the only other asset and there were no other liabilities,
what happened to cash during the year?
(a) Cash increased by $2,000.
(b) Cash increased by $3,000.
(c) Cash decreased by $2,000.
(d) None of the above.
Answer : B
(22) The term 'current assets' does not include-
a) Payments in advance.
b) Bills receivable.
c) Long-term deferred charges.
d) Cash at bank
Ans:C
(23) The retained earnings balance for Matt & Anne's Food Center at December
31, 2003 was $33,000. The balance at December 31, 2004 was $47,000. During
2004, dividends in the amount of $6,000 were declared and paid to stockholders.
The only other change in retained earnings was due to net income. The net
income for 2004 was?
(a) $8,000 (b) 14,000
(c) 20,000 (d) 26,000
Answer : C
(24) The principle stating that all expenses incurred while earning revenues
should be identified with the revenues when they are earned, and reported for
the same time period is the:
(a) cost principle.
(b) revenue principle.
(c) expense principle.
(d) matching principle.
Answer : D
(25) "The firm must be treated as financially separate and distinct form its'
owner(s)". This rule is known as:
(a) The account
E.O.Q = 2AO
Angle of Incidents:- When both the cost curve and sales curve cut’s or meet at a
point. That point is called as Break even point.
- The angle left after profit angle (or) Angle of Incident’s
Margin of safety:- Difference between told actual sales-break even sales
Margin of safety = Total sales – B.E.P
Margin of safety will be reached faster if angle of Incidents is Total sales = 30000
Margin safety = 30000-20000
BEP sales = 20000 = 10000
Means Excess actual sales over break even sales is called margin of safety.
Absorption Costing: Each and every item of cost i.e, variable cost and fixed cost
is charged to the product.
Case 1: In this case fixed cost are charged to the product on the basis of normal
capacity.
Current Assets are those which can be converted in to cash in the short run
The term short run means-generally a period of one year
Current Assets: Inventories + Sundry debtors + cash and bank balance + short
term loans & Advances + Marketable non trade Securities + prepaid Expences.
Current Liabilities:- cash credit + bank O.D + short term borrowings + creditors
+ proposed dividend + unclaimed dividend + provision for taxation (provision for
tax Advance tax paid)
MEMORANDUMS ARTICLES
It is a primary document It is Secondary document
It is subordinate to the Act It is subordinate to MOA & the Act
It is a must for every Company Can be written or taken from Company
Act
Strict provisions for alteration Special Resolution is sufficient except
where the amendment brings in to
effect a private from public
Ultra virus MOA even all the members. Ultra virus AOA but intra virus the MOA
Cannot ratify it can be Ratified
SHARES DEBENTURE
Shares are a part of the capital of the Debentures contribute a loan
company
Share holders are members or Oweners Debenture holders are creditors
of the compny
When recommended by the Board Fixed amount of Intrest on debentures
dividend could be declared to share paid before dividend declaration
holders
Shares do not carry on any charge Debentures generally have a charge on
the asset of the company
Shares have restrictions Issue at a Debentures do not have Restrictions
discount Issue at a discount
Share holders have voting Rights Debenture holders do not have voting
rights
Dividend is payable only when profits Dividend is payable whether profits are
are there there or not
No fixed dividend Rate of Intrest is fixed
SHARE STOCK
Has a nominal value No Nominal value
May be fully paid or partly paid Always fully paid
Can be transferred is whole numbers Can be transferred in fractions
and not in fractions
Each and every shares shall be of equal May be of unequal amount
denomination
Shares are identified with distinctive Do not have any distinctive numbers
numbers
Can be issued directly to the public Only fully paid up shares can be
converted in to stock and cannot be
issued Directly
JOURNAL LEDGER
Journal is the book of first or original The ledger is the Book of second entry
entry. It is also called the Book of first
entry
Transaction in the Journal will be Depending upon his conveniences the
recorded Immediately trader Records of the transaction in the
ledger
When once the entries are posted to It will never Loose importance as it is
ledger the Journal Looses its the main book of Accounts which is
Importance relied upon permanently
In the preparation of final A/Cs Journal In the preparation of trial balance and
is not useful final A/Cs Ledger is a must
The tax authorities generally may not In the finalization of income tax to be
depend on Journal paid, the tax authorities depend on
ledger.
Fixed Assets:- These assets are acquired for long term use in the business
Liquid assets:- These assets also known as circulating, fluctuating or current
assets can be converted is to cash as early as possible.
Fictitious assets: Fictitious assets are those assets, which do not have physical
Form. They do not have any real value
Ex: loss on issue of shares, preliminary Expences.
Intaugible assets:- Intaugible assets are those having no physical existence and
can not fouch
Ex: Goodwill, Trademarks
Contingent liabilities :- These are not the real liabilities they are not actual
liabilities at present. They right become liability in future on condition that the
contemplated evint
Realization concept:
Revenues will be Recorded in book only when they are realized
Cash Book:
the cash book is a sub-divisinal of the Book of original entry recording
transactions involving receipts and payments of cash.
All cash transactions are first entered in the cash book and these posted from
cash book in to the ledger
- transactions are recorded chronologically in the cash book
Bill of exchange:-
Is a instrument in writing containing can un conditional order signed by the laker
PRUDENCE :
Incomes are recognized, when they are realised all possible expences are provide
Realization Concept :
In this concept Assets are recorded at the realization value of Assets and not the
histocal cost basis
So now a days realization convention is not accepted professional According
bodys.
TERM LOANS:
Term loans represents by secured borrowing and at present are the most
important source of finance for new projects
The generally carry a rate of interest these loans are generally repayable over a
period of years in annual , semi annual , quantity installments
Term loans are also provided by banks, state financial institutions and all India
lending institutions
CASH PROFIT
Cash profit is arrived by adjusting the non cash transactions to the net profit
The item of inventors is generally classified in to three types. Those are ABC
A= is usage value is Maximum and No.of items is Minimum
B= is usage value is medium and no.of itmes is medium
C= is usage value is lowest and no.of itmes is highest.
Annual Report:
Annual Report is a Report
- which will contain the all financial statements of the company and
- auditors Report and performance of Company and
- Auditors opinion of the company
- with previous Reports
Sweat equity shares :
Equity shares issued by the company to employees directors
such issue should be authorized by a special Resolution passed by the company in
general meeting.
Memorandum:
memorandum means memorandum of association as originally framed alter from
time to time is pursuance of any previous company law or of this act.
MEMBER:
- Name entered in the Register of Members
- Member is also a share holder
- Share warrant holder is not a member
SHAREHOLDER
- Name not entered in the Register of members
- Share holder is not a member unless name is entered in the register of
members
- Share warrant holder is share holder
PARTNER
- Partner is one of the owner
- Partnership is governed by partnership act 1932
- Partner has a un limited liability
DIRECTOR
- Director is one of the member of the executive bsodu
- Companies is governed by companies act 1956
- Director is generally not liable
ISSUE OF SHARES AT DISCOUNT
Shares can be issued at a discount, if the following conditions are fulfilled
- the issue of shares at a discount must be by a resolutions passed by the
members at the general meeting
- the issue should be sanctioned by the Company law tribunal
- the resolution authorizing t;h3e issue of shares specified the maximum
rate of discount at which the shares are to be issued
- the rate of discount shall not exceed 10% unless comp any law tribunal
allowed such excess under special circumstances
- the issue can be made only after one year has elapsed since the Company
was entitled to commence business
- the shares shall be issued with in two months of the sanction by the
Company law tribunal or such other period as permitted
Then it is called shares issued at discount the difference between the issued
price and nominal value is discount on issue of share. It is shown in balance
sheet under head of miscellaneous expenditures no write off
GOODWILL
Is to be Calculated basically on the basis of following methods:
Capitalization Method
Super profit Method
Capitalization Method:
Normal capital employed=future maintainable profits/Normal Rate of Return
Goodwill = normal capital employed-actual closing capital employed
Super profit Method:
Super profit Method=future Maintainable profits-Actual Capital employee X
Normal Rate of Return
Goodwill = super profit X No. of years for which super profit
can be Maintained
capital employed= Total Assets of the Company-out siders liabilities
Goodwill :
It is an Amount paid over and above the value of Assets and liabilities of the
under taking
Goodwill is the Reputation of the business. This reputation is due to Excess
Sales and profit made then normal sales and profit reasons for good will are:
1. good reputation
2. favorable location
3. ability and skill of employees
4. good management extra-
goodwill is of two types
1. purchased goodwill
2. developed goodwill
purchased goodwill: More Amount paid for Assets than require
Ex: Total Assets – 100000
Amount paid – 150000
Developed good will : This goodwill not to be written in books
Shares at a premium:
When a Company issues shares at a price higher than the nominal value of
the (Securities) then the difference in the nominal value and the issue price is
the premium.
- The premium may be received in cash or in kind
- But the share premium collected by a Company on issue of shares in
required to be retained in a separate Accounts titled as (security) premium
Account.
Securities premium account can be used only for
1. paying up of fully paid bonus shares to be issued by the Company to its
members
2. To write off preliminary expences
3. to write off underwriting expences /commission paid discount allowed on any
issue of shares or debentures of the Company
4. To provide premium payable by a Company on Redemption of redeemable
shares or Redemption of debentures of the Company.
Distribution of securities premium amount as dividend is not permitted.
Security premium is not a free reserves it is in the nature of capital reserve.
Accounting Concepts:
1) Business entity Concept: In Accounting language business is separate person
is Business entity (and the person who has invested money in that Business or
not the same so the person who is Investing money must be treated as loan
given)
If the invest money in business should be share as capacity.
- the owner of the Business is business it self
- both business and person investing are two different persons so every person
activities must be written saperately
- Business activities must be written is business books
- person activities must be written is personal books
- capital is shown as liability in B/S. the reason Investing this is business in
lending money from the person investing
- this is also called as SAPERATE LEGAL ENTITY
2) Money measurement concept:
business records only those transactions which are Expressed in money terms.
They will not record transactions if only expressed in other unit of measurement.
3) cost concept: transactions in books are recorded at cost at the actual Amount
Incured market value is not considered
ex: 10 Laks worth land if purchased 1 Lak
we shall record at one lak’s only.
4) Going concern concept:
- It is assumed but overly business will be running for future seable
- That the business entity desent have any intension to stop an Business activities
in year future
- If we feel that the Business will not run or has to be stop in year foreseeable
future. Then all the things have to recorded at realizable values.
5) Dual Aspct Concept:
- each transaction as two activities
a. power to receive some thing (goods purchased)
b. Duty to pay some thing (duty to pay money)
6) Accrual concept:
not only cash items are recorded in the books but also credit items are to be
recorded.
Cash Accounting system:
Only cash transactions are recorded if the system is following
Matching Principle:
Revenues are matched with relevant expences for getting that revenue in that
period.
- all expences incurred or matched with relevant incomes
Out Standing Expenditure: Expenditure incurred but the payment for which is
not yet paid will be shown in the balance sheet liabilities side and profit and loss
account debited.
Accrued expenses: The expenditure which is incurred and the payment thereof
might or might not be paid.
Working capital: For running day to day activities a business, some capital is
required which is called working capital
Working capital: current assets – current liabilities
Excess of total current assets over current liabilities
Working capital cycle/ operating cycle: there is a complete cycle from cash to
cash , Operating cycle is the time duration required to convert cash in to cash
a. conversion of cash in to Raw material
b. conversion of raw material in to work in progress
c. conversion of work in progress in to finished goods
d. conversion of finished goods debtors and
e. conversion of debtors in to cash
No operating cycle: No of days in year / operating cycle period
Stock exchange: stock exchange is the place , where stocks shares and other
securities of the listed companies bought and sold
Primary market: Shares are purchased directs at the time of allotment by the
company
Secondary market: Shares are purchased from market through the stock
exchange
Memorandum of association:
a. It is the main document of the company
b. If this document represents constitution of that company
c. It contains 1. name clause
2. Objective clause
3. State clause
4. capital clause
5. liability clause
6. situation clause
Articles of association:
This document represents rules and regulations of the company, it defines
duties , rights and powers of the governing body between themselves and
company
government, state government, partly by the central govt, and partly one or
more
General Reserve: It is reserve which is created to meet any meet any future
unknown liability , it can be utilized as dividend
Capital reserve: profits in the nature of capital or profits in the form of capital
nature
Reserve capital: reserve capital is called up only at the time of liquidation if
assets held are not sufficient to meat the liabilities
PROVISIONS
- Provisions is charge against profits
- is made for known liability or expenditure
- it is utilized for that purpose only
- is shown above the line
- above the line means profit and loss account
RESERVE
- Reserve in an appropriation profits
- it is made for future unknown liability
- it can be utilized for any future purpose
- is known below the line
- below the line means p&l appropriation account
PRIMARY MARKET
SECONDARY MARKET
STOCK EXCHANGE
- Stock exchange is the place, where stocks shares and other securities of the listed companies
bought and sold
DEBT SECURITAZATION
- It is a mode of financing
- Where in securities are issued on the basis of package of assets called polio
- This involves the following process of activities
- Organizing function
- Pooling function
- Securitization function
WORKING CAPITAL
-
ACCRUED INCOME
Income earned but which not due ( no right to receive on this date) Earned during the current
accounting year but not have been actually received by the end of the same year
DEBTORS
Means taken goods on credit, who owes an amount to some body, People who has taken loan or
money
CREDITORS
Means from whom have taken goods on credit people to whom we owes
ACCRUED EXPENSES
The expenditure which is incurred and the payment there of might or might not be paid
PREPAID EXPENDITURE
The amount paid for the expenditure relating to the future years
AMORTISATION
Writing of intangible assets eg patents, goodwill this assets there is no physical existence
RECURRING EXPENSES
Items which are not regular and repeated eg buying of machinery or other fixed assets, insurance
claims
DELCREDERE COMMISSION
Consignment of goods it is extra commission paid to bare the bad debts collection
STOCK EXCHANGE
Stock exchange is the place where stocks shows and other securities of the listed companies bought and
sold
LIMITED COMPANY
Liability is limited to the face value of shares
MINORITY INTEREST
ACCOUNTING DEFINITION:
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
atleast, of a financial character, and interpreting the result thereof.
SUB-FIELDS OF ACCOUNTING:
1. BOOK-KEEPING: It covers procedural aspects of accounting work and
embraces record keeping function. Obviously book-keeping procedures governed
by the end product, the financial statements, i.e. profit and loss account, and
balance sheet including schedules and notes forming part of accounts.
Profit and Loss account gives result of economic activities for a period and
Balance Sheet states the financial position at the end of the period.
MEASUREMENT BASES:
CURRENT COST: Assets are recorded at the amount of cash or cash equivalent
that would have to be paid if the same or an equivalent asset was acquired
currently. Liabilities are carried at the discounted amount of cash or cash
equivalents that would be required to settle the obligation currently.
REALISABLE VALUE: As per realizable value, assets are carried at the amount
of cash or equivalent that could currently be obtained by selling the assets in an
orderly disposal. Haphazard disposal may yield something less. Liabilities are
carried at their settlement values; i.e., the undiscounted amounts of cash or cash
equivalents expressed to be paid to satisfy the liabilities in the normal course of
business.
EX: Mr. X found that he can get Rs.20,00,000/- if he would sell the machine
purchased, on 1-1-82 paying Rs.7,00,000/- and which would cost Rs.25,00,000/-
in case he would buy it currently.
ACCOUNTING CONCEPTS:
This concept has now been extended to accounting separately for various
division of a firm in order to ascertain the results for each division separately. It
has been of immense value in determining results by each responsibility centre –
Responsibility Accounting.
GOING CONCERN CONCEPT: It is assumed that the business will exist for a long
time and transactions are recorded from this point of view. It is this that
necessitates distinction between expenditure that will render benefit over a long
period and that whose benefit will be exhausted quickly, say, within the year, of
course, if it is certain that the concerned venture will exist only for a limited time,
the accounting record will be kept accordingly.
DUAL ASPECT CONCEPT: Each transaction has two aspects, if a business has
acquired an asset, it must have resulted in one of the following:
a) some other asset has been given up; or
b) the obligation to pay for it has arisen; or rather,
c) there has been a profit, leading to an increase in the amount that the
business owes to the proprietor; or
d) the proprietor has contributed money for the acquisition of the asset.
The reserve is also true. If, for instance, there is an increase in the
money owed to others, there must have been an increase in assets or a
loss. At any time:
In other words, capital, i.e., the owner’s share of the assets of the firm, is
always what is left out of assets after paying off outsiders. This is called the
Accounting Equation. It is self evident but very useful.
resulted from money contributed by the owner himself. Any increase in the
owner’s equity is called revenue and anything that reduces the owner’s equity is
expense (or loss); profit results only when the total of revenues exceeds the total
of expenses or losses
CONVENTIONS:
c) Accrual: Revenues and costs are accrued, that is, recognized as they
are earned or incurred (and not as money is received or paid) and recorded in the
financial statements or the periods to which they relate. (The considerations
affecting the process of matching costs with revenues under the accrual
assumption are not dealt with in this statement).
NOTES TO ACCOUNTS:
Notes to accounts are the explanation of the management about the items
in the financial statements i.e., profit and loss account and balance sheet. The
management gives more explanation and information about the item of profit and
loss account and the balance sheet and any other items, by way of notes of
accounts
ACCOUNTING STANDARDS:
The Council of the ICAI has so far issued twenty eight Accounting
Standards. However, AS-8 on “Research & Development” is withdrawn
consequent to issue of AS-26 “Intangible Assets”. These are as follows:
Semi-Variable Cost:
These costs are partly fixed and partly variable, in relation to output.
Ex: Telephone Bill, Electricity Bill.
Angle of Incidence:
When both the cost curve and sales curve cuts or meet at a point that point is
called as Break Even Point.
The angle left after their inter section is called profit angle or angle of incidents.
Sales Curve
Margin of Safety:
Difference between Total Actual Sales - Break Even Sales
Margin of Safety = Total Sales - B.E.P.
Margin of Safety will be reached faster if angle of incidents is more and vice
versa.
Ex: Total Sales = 30000 ; B.E.P. Sales = 20000
therefore Margin of Safety = 30000 - 20000 = Rs. 10000
Absorption Costing :
Each and every item of cost i.e., variable cost and fixed cost is charged to the
product.
Case 1 :In this case fixed cost are charged to the product on the basis of normal
capacity.
[Normal capacity – The number of units normally produced by the company]
Case 2: in case of under absorption, that amount should be charged to the P&L
A/c
Ex:
Case-1 : Normal units = 10,000
Actual production = 12,000
Fixed over heads = Rs.1,00,000/-
The absorption rate : fixed over heads = 1,00,000
Normal units 1,0000
= Rs.10/- per unit
Marginal Costing:
This is a technique of Decision Making.
In the case of Marginal Costing only variable cost are absorbed by the product.
In this case the fixed costs are considered as period cost and this should be
charged to P & L A/c.
Costing:
The Process of determining cost is called as costing.
Variable Cost:
1. Cost which is changing with every change in production additionally if you want
to producing one more unit we need to expend additional cost.
Ex: for 10 units – Rs.100/-
for 11th unit additionally Rs.10/-
2. Cost per unit will not change but there is change in total cost.
Ex: for 10 units – Rs.100/-
Cost per unit = cost/unit =100/10= Rs.10/-
11 units – 110/-
Cost per unit= 110/11 = Rs.10/-
Fixed Cost:
1. This cost is fixed will not change with increase or decrease in production.
Ex: Factory rent
2. The total cost will not change but cost per unit will change.
Ex: Rent = Rs.10000/-
1 person share =Rs.10000/-
2 persons share= Rs.5000/- each
4 persons share = Rs.2500/- each
Contribution per unit: Selling Price per unit - Variable Cost per unit
At this point to total amount received is equal to the total cost incurred.
Total Sales amount= Total Cost Amount (Fixed Cost + Variable Cost)
Total Contribution = Total Fixed Cost
Ex: Selling Price = Rs.10/-
Variable Cost= Rs.5/-
Fixed Cost= Rs.10000/-
Contribution= Rs.10-Rs.5 = Rs.5/-
P/V Ratio = Contribution x 100 = 5/10x100=50%
Sales
B.E.P.Units= Fixed Cost/ Contribution per unit = 10000/5= 2000 units.
B.E.P.Value= Fixed Cost/ PV Ratio = 10000/50x100 = Rs.20000/-
Shares Debentures
1 Shares are part of the capital of the Debentures constitute a loan.
company.
2 Shareholders are members or Debenture holders are creditors.
owners of the company.
3 When recommended by the board Fixed amount of interest on
dividend could be declared to debentures paid before dividend
shareholders. declaration.
4 Shares do not carry on any charge. Debentures generally have a charge
on the asset of the company.
5 Shares have restrictions issue at a Debentures do not have restrictions
discount. issue at a discount.
6 Shareholders have voting rights. Debenture holders do not have voting
rights.
Shares Stock
1 Has a nominal value. No nominal value.
2 May be fully paid or partly paid. Always fully paid.
3 Can be transferred in whole numbers Can be transferred in fractions also.
and not in fractions.
4 Each and every share shall be of May be unequal amounts.
equal denominations.
5 Shares are identified with distance Do not have any distinctive numbers.
numbers.
6 Can be issued directly to the public. Only fully paid up shares can be
converted in to stock and cannot be
issued directly.
Provision Reserve
1 Provision is a charge against the Reserve is an appropriation on profits.
profits.
2 Is made for known liability or It is made for future unknown liability.
expenditure.
3 It is utilized for that purpose only. It can be utilized for any future
purpose.
4 Is shown above the line. Is shown below the line.
5 Above the line means Profit and Loss Below the line means Profit and Loss
Account. Appropriation Account.
Deposit Debenture
1 Deposits are amounts, received by Debenture is a document, which
the company from the public. acknowledge debt, which is issued by
company
2 Deposits are short term or middle Debentures are long term financial
term financial sources. sources.
3 Deposits are unsecured. Debentures are generally secured.
4 It is easy to rise public deposits. Issue of debentures restricted by RBI.
Partner Director
1 Partner is one of the owner. Director is one of the member of the
executive body.
2 Partnership is governed by Companies is governed by the
Partnership Act, 1932. Companies Act, 1956.
3 Partner is a unlimited liability. Director is generally not liable.
Company Partnership
1 Company comes into existence only A firm is created by mutual agreement
when it is registered under the between partners. Registration is
companies act. optional.
2 Members: Members:
minimum Minimum
Private : 2 Members 2 Partners.
Public : 7 Members Maximum
Maximum In case of Banking Business : 10
Private : 50 In case of Other Business : 20.
Public : un limit.
3 A company on its incorporation A firm does not have separate legal
enjoys a separate legal entity. entity.
4 In case of company members In case of firm, partners are jointly or
liability is limited. severably liable.
Company Club
1 A company is a trading association. Club is a non trading association.
2 A company is required to be Registration of a club is not
registered under the companies act. mandatory.
Journal Ledger
1 Journal is the book of first or original The ledger is the book of second
entry. It is also called the book of entry.
Cash Book : The Cash Book is a sub division of the original entry recording
transactions involving receipts and payments of cash. All cash transactions are
first entered in the cash book and then posted from cash book in to the ledger.
Transactions are recorded chronologically in the cash book.
Prudence: Incomes are recognized when they are realized, all possible expenses
are provide.
Term Loans : Term Loans represents secured borrowing and at present are the
most important source of finance for new projects. They generally carry a rate of
interest. These loans are generally repayable over a period of 6 to 10 years in
annual, semi annual, or quarterly in installments. Term loans are also provided by
banks, state financial institutions and all India term lending institutions.
Cash Profit: Cash is arrived by adjusting the non-cash transactions to the net
profit after tax.
Net profit after tax xxxx
Add: Non-cash expenses xxx
xxxx
Add: Depreciation xxx
xxxx
Less: Non-cash incomes(credit sales) xxx
Cash Profit xxxx
Cash Expenses : Cash is paid for expenses incurred. Ex: Salaries, Wages paid
etc.
Fixed Assets : These assets are acquired for long term use in the business.
Fictitious Assets : Fictitious assets are those assets, which do not have physical
form. They do not have any real value.
Ex: loss on issue of shares, preliminary expenses etc.
Intangible Assets : Intangible assets are those having no physical existence and
cannot touch.
Ex: Goodwill, Patents, and Trademarks etc.
Contingent Liabilities : These are not the real liabilities. They are not actual
liabilities at present. They right become a liability in respect of pending. This is
not shown in balance sheet. That may be shown as notes under balance sheet.
Annual Report : Annual Report is a report, which will contain the all financial
statements of the company and auditors report and main opinions on
performance of company. It is useful with previous reports.
Shares issued at a price less than the nominal value : Then it is called shares
issued at discount. The difference between the issued price and nominal value is
discount on issue of share. It is shown in balance sheet under the head of
miscellaneous expenditure not written off.
Good will : It is an amount paid over and above the value of assets and liabilities
of the under taking.
Goodwill is the reputation of the business. This reputation is due to excess sales
and profit made then normal sales and profit.
Reasons for goodwill are:
• Good reputation
• Favourable location
• Ability and skill of employees
• Good management.
Goodwill is of two types, these are i) Purchased Goodwill and ii) Developed
Goodwill
Purchased goodwill: more amounts paid for assets than required
Ex: Total Assets = 100000
Amount Paid= 150000
Developed Goodwill: This goodwill not be written in books.
Annual Report : Annual Report contains Balance Sheet, Profit and Loss Account
and Notes to accounts of the company during the last year.
• Miscellaneous expenditure
We are downloaded more than 12W Company’s annual report from their web
sites and internet. Then we can access more than 600 files.
Cash Accounting System : Only cash transactions are recorded if the system is
followed.
Discount : Discounts are two types. These are i) Trade Discount and ii) Cash
Discount
Trade Discount : It is deducted from list price or catalogue price or tag. It is
generally allowed by whole seller to retailer. Trade Discount are not recorded in
books.
Ex: Tag Price = Rs. 100
- Trade Discount = Rs. 10
Rs. 90 This amount is recorded in the books.
Purchase A/c Dr 90
To Cash A/c 90
Cash Discount : This discount is given to debtors to make them pay debts as
early as possible.
Ex: Immediately - 5%, within 15 days – 4%, within one month – 2% etc. Cash
discount is given for early or prompt payment. Cash discount are recorded in
books.
Purchase A/c Dr 100
To Cash 90
To Discount 10
Deferred Revenue Income : which is income differed to the future periods. That
means it is not related to one period but related to more than one period.
Ex: Pension Fund Scheme
Capital Profits : Capital profits are profits realized on sale of fixed assets or on
discount of investments. They may be distributed by way of dividend.
Revenue Profits : Revenue profits are the profits earned by the company
through its ordinary activities.
Capital Reserve : Profits in the nature of capital or profits in the form of capital
nature.
Ex: Share Premium, Share Forfeiture.
Subsidiary Company : A company who is selling more than 51% of their shares
to another company is called subsidiary company.
Holding Company : A company who is buying more than 51% of shares from
another company, is called holding company. A company shall be deemed to be a
subsidiary of another company, if that other company,
Controls the composition of its Board of Directors.
Holds more than 50% of the voting power or paid up capital in the
other company.
Is the subsidiary any other company, which is the subsidiary of
holding company.
Stock Exchange : Stock Exchange is the place, where stocks, shares and other
securities of the listed companies bought and sold.
Mutual Fund : Mutual Fund is a fund, which collects the investments of small
saving holders and re-invest in capital markets, like share market, debt market.
It creates link between small saving holders and capital markets. Ex: U.T.I.
Mutual Funds.
Primary Market : Shares are purchased directly at the time of allotment by the
company.
Secondary Market : Shares are purchased from market through the stock
exchange.
Working Capital : For running day to day activities of a business, same capital is
required which is called working capital.
Working Capital = Current Assets – Current Liabilities or,
Excess of Total Current Assets over Current Liabilities.
Accrued Income : means income earned, but which is not due (no right to
receive on this date). Earned during the current accounting year but have not
been actually received by the end of the same year.
Ex: Interest on loan, Commission etc.
Outstanding Income : Income accrued and due but was not receive.
Debtors : means taken goods on credit. People who owes us i.e. people who has
taken loan or money.
Creditors : means from whom have taken goods on credit people to whom we
owes i.e., these people have lent money to us or given money to us.
Accrued Expenses : The expenditure which is incurred and the payment there of
might or might not be paid.
Out Standing Expenditure : Expenditure incurred but the payment for which is
not yet paid and will be shown in the balance sheet liabilities side, debited to
profit and loss account
Del credre Commission : It is extra commission paid to bear to the bad debts
collection.
Written Down Value : Every year depreciation is changing. Year by year it goes
on decreasing. Depreciation is calculated on the opening balance of this year.
Depletion Method : This method is use in mines, quarries. The total quantity of
tones are estimated. Depreciation per tone is now calculated.
Cost per tone = Total Cost / Estimated Tones
IRR : The rate which present value of inflows are equal to present value of
outflows.
PI: also called as benefit cost ratio. It shows relationship between present value
of inflow and present value of outflows. i.e. inflows / outflows.
Reveals the changes in the working capital and gives the details of the
sources from which working capital has been financed.
Helps in the analysis of the financial operations and explains causes
for the changes on the liquidity position of the company.
Helps in dividend distribution and the formulation of an ideal dividend
policy.
Helps in making correct decisions in planning and development of the
company.
Funds: The term funds means working capital i.e., the excess of current assets
over current liabilities.
Flow of Funds: The term flow means movement and includes both “Inflow” and
“Outflow”.
Dividend Yield Ratio = Dividend per Share / Market Value per Share
It is very significant to the new investors.
Office & Administration Exp. Ratio = Office & Admn. Exp. / Sales x 100
Selling & Distribution Exp. Ratio = Selling & Distribution Exp. / Sales x 100
Above five ratios make us know the relationship between various expenses and
sales.
The lower the ratio the greater is the profitability, and higher the ratio the lower
is the profitability
ratio helps us in assessing the risk factor that arises in the use of debt capital in
capital structure.
Debtors Turnover Ratio = Credit Sales / Average Debtors & Bills Receivable
This ratio gives a picture of how many times debtors made payments to the firm.
Creditors Turnover Ratio = Credit Purchases / Average Creditors & Bills Payable
This ratio focuses light on how many times credit facility is allow to the firm. The
lower the ratio the higher the facility of credit.
Working Capital Turnover Ratio = Sales (or) Cost of Sales / Working Capital
To know the relationship between working capital and sales.
Fixed Assets Turnover Ratio = Sales (or) Cost of Sales / Fixed Assets
To know the effective utilization of fixed assets in production.
Operating exp.: The aggregate of office and administrative expenses, selling &
distribution and financial expenses.
Financial Leverage: The use of fixed rate of sources along with owners equity is
described as financial leverage.
HOLDING COMPANIES:
Goodwill or Capital Reserve: When the Holding Company purchases the shares
of subsidiary company by paying more than face value, the excess paid is
treated as Goodwill. When the holding company purchases shares from the
subsidiary company, less than the face value, the difference between face value
and the amount paid is treated as capital reserve.
Capital Profits: The profits and reserve in the subsidiary company on the date of
shares acquired by the holding company is treated as capital profits.
VALUATION OF SHARES:
Net Assets Method: In this method valuation of shares is based on asset
valuation.
Net Tangible Assets: (Assets - Liabilities) - Intangible Assets
Yield Method: This is also known as earning capacity or Market Value Method.
Investors in general and small investors in particular pay for the shares on the
basis of the income or yield expected. Therefore, the expected dividends are
taken as the basis in this method.
Fair Value Method: this is also called earning capacity valuation method or dual
method. This is geared to rectify one of the limitations of the earlier method that
the value of the share is based on the dividend but not on the earnings. This
method relates the value of the share to the earning efficiency in terms of
profitability of the company as the market price of the share is based on the
earnings of the company rather than the dividend declared.
Net Worth: Means the sum of paid up share capital plus reserves plus the
preference share capital.
VALUATION OF GOODWILL:
Goodwill is the reputation and image built up which places the business in
position to have long run survival, success and growth, success and growth
besides positively influencing the earnings.
Average Method: In this method which takes into account the average profits
for the past few years and the value of goodwill is calculating as some years
purchase of this amount.
Super Profit Method: The excess of actual profits over the normal profit is
known as super profit. A business unit may posses some advantages which
enable it to earn extra profits over and above the amount that would be normally
earned, if the same capital is employed elsewhere in a business of same risk
class.
Annuity Method: Under this method goodwill is calculated by taking the average
super profit as the value of an annuity over a certain number of years. An annuity
is a series of equal periodic payments occurring at equal intervals of time. In
other words goodwill is calculated by finding the present value of an annuity
discounted at a given rate of interest which is usually the normal rate of return.
Value Added Statements: The Statements which show changes in value added
which are created by production.
FINANCIAL MANAGEMENT
Future Value: The value at some future time of a present amount of money, or a
series of payment, evaluated at a given interest rate.
Net Present Value: The Present Value of an investment projects net cash flows
minus the projects initial cash outflow.
Price / Earning Ratio: The market price per share of a firm’s common stock
divided by the most recent 12 months of earnings per share.
Funds: Funds include not only cash but also the total current assets or financial
resources.
Joint Stock Company: A joint stock company is a legal entity created under the
law and empowered to own assets, to incur liabilities, and to engage in business.
It is an artificial person created by the law. The capital of a company is divided
into small portions and each portion is called a “share”. Investors who buy these
share are shareholders and they are the owners of the company.
The SEBI Act, 1992 was promulgated after withdrawing the Capital Issues
(Control) Act. SEBI is broad in its application covering wide ranging issues. The
powers and functions of SEBI Act are:
Regulating the business of stock exchanges
Registering and regulating the working of Stock Brokers, Sub Brokers,
Share Transfer Agents, Bankers to the Issue, Trustees of Trust Deeds,
Registrars to an issue, Merchant Bankers, Underwriters, Portfolio
Mangers, Investment Advisors.
Registering and regulating the working of Depositors, Custodians of
Securities, Credit Rating Agencies
Registering and regulating the working of Venture Capital Fund,
Collective Investment Schemes, Mutual Funds
Promoting self regulating organizations.
Prohibiting fraudulent and unfair trade practices
Promoting investors education
Prohibiting insider trading
Regulating substantial acquisition of shares, takeover of companies.