Professional Documents
Culture Documents
Investment Analysis
Capital Budgeting Techniques
Accounting Terminologies
Accounting Standards Accounting Concepts Accounting Conventions Financial Statements
Profit and Loss Account Balance Sheet Cash flow Statement
Other Topics
Budgetary Control
Cost Accounting
Auditing
Prospective Investors
Debenture Holders Financial Institutions Creditors Customers Management Employees
Employees
Consumers Stock Exchanges Investment Analysts Economists Researchers General Public
Debtor
Revenue
Entry
Event
Entity Equity Capital Assets
Debt
Creditor Solvent Goods Purchases Sales Inventory
Expenses
Loss Gain Profit Debit Credit Account
c/d
b/d c/f b/f CWIP Goodwill
Bottom Line
Liabilities
Net worth
Accounting may be defined as the identifying, measuring, recording and communicating of financial information.
Bierman and Derbin
According to J.R. Batliboi Book-keeping may be defined as the science as well as the art of
Examples
are
Revenue from sale of goods, interest on investments, royalty received, discount received, etc.,
It is an
intermediary account in which the expenditure on on-going works is initially booked and transferred to fixed asset account (called capitalisation) when the related asset is commissioned.
with the Revenue and arriving at profit or loss are stated to have
been Charged to Revenue. These items have to be invariably considered for finalising the Accounts. Examples are Salaries,
Appropriation of Profit :
Appropriation means distribution or taking out of profit earned. Examples are Transfer to Reserves, Payment of Dividend, etc.,. Appropriation of profit arises only when the Company has earned profit. Other-wise there is no scope for appropriation.
Financial Statements
Trading (Manufacturing) Account
Profit and Loss Accounts
Balance Sheet
Cash Flow Statement
Accounting Standards
Accounting Standards
AS 1 Disclosure of Accounting Policies AS 2 Valuation of Inventories AS 3 Cash Flow Statements AS 4 Contingencies and Events occurring after the Balance Sheet date AS 5 Net profit or loss for the period, prior period items and changes in Accounting policies. AS 6 Depreciation Accounting AS 7 Accounting for Construction contracts AS 8 Accounting for Research and Development AS 9 Revenue Recognition AS 10 Accounting for Fixed Assets AS 11 Accounting for the Effects of changes Foreign Exchange rates
Accounting Standards
AS 12 Accounting for Government Grants AS 13 Accounting for investments
Accounting Standards
AS 23 Accounting for Investments in Associates in Consolidated Financial Statements AS 24 Discontinuing Operations AS 25 Interim Financial Reporting AS 26 Intangible Assets AS 27 Financial Reporting of Interests in Joint Ventures AS 28 Impairment of Assets AS 29 Provisions, Contingent Liabilities and Contingent Assets AS 30 Financial Instruments Recognition & Measurement AS 31 Financial Instruments Presentation
Accounting Concepts
Money measurement concept Separate entity concept
Realisation concept
Accrual concept Matching concept
Accounting Concepts
Money Measurement Concept : Means, in accounting, a
record is made only of those transactions or events which
can be measured and expressed in terms of money. Nonmonetary events are not recorded.
own it, and so, the business and the proprietors who own
the business are regarded as two separate entities capable of entering into transactions with each other.
Accounting Concepts
Going Concern Concept : Means that, in accounting, an
enterprise is regarded as a going-concern (i.e., concern
Accounting Concepts
Dual-Aspect Concept : Every business transaction always
results in receiving of some benefit of some value and giving of some other benefit or equal value. So, in accounting, a record is made of the dual or the two aspects of each transaction, and this is called dual-aspect concept.
Accounting Concepts
Objective Evidence Concept : Means that all accounting
entries should be evidenced and supported by source
Accounting Concepts
Accrual Concept : Under this concept, revenues accrue in that year in which they are earned, and not in the year in which they are actually received, and expenses accounted in the year in which they are incurred, and not in the year in which they are actually paid. This is the opposite of cash accounting, which recognizes transactions only when there is an exchange of cash. Matching Concept : Means that, measurement or determination of the profit or loss, the revenues and expenses are matched (i.e., compared) and resultant balance is taken as the net
Accounting Conventions
Convention of Materiality
Convention of conservatism
Convention of consistency
Convention of full disclosure
Accounting Conventions
Convention of Materiality : Means that, in accounting, a
detailed record is made only of those business transactions which are material (i.e., significant) for the users of accounting information. No detailed record is made of transactions which are trivial. Example : Purchase and use of pencil in a office.
Accounting Conventions
Convention of Consistency : Means that, the accounting
practices and methods should remain consistent (i.e., unchanged) from one accounting period to another. It means, whatever accounting practice is followed by the business enterprise should be followed on a consistent basis from year to year.
Books of Accounts
Journal
The book of original entry under the conventional method of accounting is the journal. It means a day book or a daily record.
Account
Refers to a summarised record of all the transactions relating to a person, thing or a service which have taken place during a given period of time.
Ledger
Means a book where the various accounts are kept.
Trial Balance
It is a schedule or list of balances, both debit and credit, extracted from the accounts in the ledger and including cash and bank balances from the cash book.
Classification of Transactions
Transaction in a business enterprise is classified under any of the following group :
Asset Liability Income Expenditure
Trial Balance
It is a statement of ledger balances under various heads of account. All the Accounts can be classified under four heads viz., Assets, Liabilities, Income and
Expenditure.
All Assets and Expenditure heads of account show Debit balance. All Liabilities and Income heads of account show Credit balance.
Contd.,
Employee Costs, R&M Expenses, A&G Expenses, Interest, Depreciation and Other Revenue Expenses.
Cash basis :
Transactions are recognized and accounted only when there is an exchange of cash.
Particulars
REVENUE : Revenue from Sale of power to consumers Revenue from inter-state trading of power Wheeling Charges Open Access Charges Miscellaneous Income from consumers Non-Tariff Income Total Revenue
Amount
EXPENSES :
Purchase of Power Employee Costs Repairs and Maintenance Expenses Administration and General Expenses Interest and Finance Charges Depreciation Prior Period Expenses (or credits) Other Expenses Less : Expenses Capitalised Total Expenses Net Profit or Net Loss
Next Slide
Amount
940.91 828.25 7.46
Other Data
Energy Input :
6214 MUs Sales : 4505 MUs
Total Revenue
EXPENSES : Purchase of Power Employee Costs Repairs and Maintenance Expenses Administration and General Expenses`
1776.62
1421.51 150.65 28.21
Distribution Loss :
27.50 % Rs.3.65/unit
Total Expenses
1776.62
Balance Sheet
Contents : Assets and Liabilities of a Company What it Depicts? : Financial position of the Company
Balance Sheet
Current Assets : Inventories, Sundry Debtors (Receivables), Cash and Bank Balances, Loans and
Particulars
SOURCES OF FUNDS :
Amount
Share Capital Reserves and Surplus Secured Loans Unsecured Loans Deposits from Consumers
APPLICATOIN OF FUNDS :
TOTAL
Fixed Assets
Investments Capital Work in Progress Current Assets Inventories Sundry Debtors Cash & Bank Balances Loans & Advances Other Assets Total Current Assts Less Current Liabilities & Prov. Net Current Assets Deferred Revenue Expenditure
TOTAL
Internal Resources
Plus Deposits
Charges
Other Costs ROE Capex
External Borrowing
DSCR
Annual Report
An Annual Report is presentation of the Companys performance during a period to the Shareholders.
Contents :
Chairmans Statement Directors Report Financial Statements Comments of C&AG of India Auditors Certificate Observations of Statutory Auditor and Management Reply Disclosures Others
Corporate Governance, Directors responsibility statement, Disclosure under the Companies rules 1988 (i.e., Energy conservation, Technology absorption, Foreign Exchange earnings and outgo, etc.,), Statement pursuant to Sec.212 relating to Subsidiary, Managements discussion and analysis on industry and key issues, Committees of the Board, General Body meetings, etc.,
Metering - Importance
If you cant measure it,
In Cash (ie., sold against Cash payments in the same month) Rs.8000
Credit Sales (i.e., sold lbut amount will be received Next month) Rs.4000
CASH Basis
8000
ACCRUAL Basis
12000
Costs
7000
1000
10000
2000
In Cash (ie., paid in the same month) Rs.12000 + Rs.3000 relating to previous month
Sale of Items : Rs.18000
In Cash (ie., sold against Cash payments in the same month) Rs.12000 + Rs.2000 relating to previous month
Credit Sales (i.e., sold lbut amount will be received Next month) Rs.6000
CASH Basis
14000
ACCRUAL Basis
18000
Costs
15000
-1000
15000
3000
CAPITAL BUDGETING
Importance :
Heavy Investments Permanent commitment for funds Long Term impact on profitability Complication of Investment decisions Paucity of Funds Debt Servicing depends on profit margin
Four Things
How to Calculate :
If average Annual Cash inflows are equal then divide the Investment by Annual Cash Inflows to get Pay Back Period (PBP). If cash inflows are uneven, then cumulative cash inflows is compared with investment to see in which year both are equal. The period up to that point is PBP.
Merits :
Easy to understand Gives importance for speedy recovery of investment Good technique when income streams are regular and even.
Demerits :
Overplay importance on liquidity (overlooking the profitability) Ignores earnings beyond the pay back period. Ignores times value of money Overlooks the cost of capital.
Annual Cash-inflows
Example : Original Investments Average Annual cash-inflow (savings after tax but before depreciation) 280000 ________ 80000 = 3.5 Years
PV of Re.1 to be received at the end of the one year is 0.751 ( ie., {1 / (10/100)3}. and so on. Net Present Value : NPV is the difference between present
Project A Rs.50000
Project B Rs.50000
Project A
Project B
Rs.15000
Rs.20000 Rs.25000 Rs.15000 Rs.10000 Rs.50000 Rs.50000 Rs.85000
Rs.5000
Rs.15000 Rs.20000 Rs.30000 Rs.20000 Rs.90000
Net Cash Inflow Project A : Rs.85000 - Rs.50000 = Rs.35000 Project A : Rs.90000 - Rs.50000 = Rs.40000 As there is positive Cash Inflows in both cases, both Projects are financially viable. However Project B is preferred than Project A as the Net cash inflow is more over five years period
Initial Investment
Cash-inflow 1st Year
Rs.50000 Rs.5000 Rs.15000 0.909 0.826 Rs.13635 Rs.16520 Rs. 4545 Rs.12390
2nd Year
3rd Year
4th Year 5th Year Total
Rs.25000
Rs.15000 Rs.10000 Rs.85000
Rs.20000
Rs.30000 Rs.20000 Rs.90000
0.751
0.683 0.620
Rs.18775
Rs.10245 Rs. 6210 Rs.65395
Rs.15020
Rs.20490 Rs.12420 Rs.64865
Net Present Value : Project A : Rs.65385 - Rs.50000 = Rs.15385 Project A : Rs.64865 - Rs.50000 = Rs.14865 Based on NPV, Project A is preferred than Project B as the NPV is more than that of Project B
The IRR is compared to the cost of capital and the project having higher difference is preferred to the other projects.
Investments
Example : Original Investments Rs.5000 PV of future cash inflows Rs.5860 Rs.8,000 (assuming certain discount rate and number of years)
1.17
Budgetary Control
Budgetary Control
Types of Budget :
Incremental Budgeting Zero Based Budgeting (ZBB) Rolling Budget Flexible Budget Monthly, Quarterly, Yearly
Budgetary Control
Capital Budget and Revenue Budget
Revenue Budget Constituents Power Purchase Cost, Employee Costs, R&M Expenditure, A&G
Necessity of taking up future projects Evaluation of proposed Capital Program Sourcing of proposed capital works Execution of Works Monitoring of Works Post Project Appraisal
Basis
Marginal
Costing
Technique
principles.
Fixed Costs
Variable Costs
Total Variable Cost
Cost
Profit Area
Total Costs
Loss Area
Types of Audit
1. Statutory Audit
2. C&AG Audit
3. Internal Audit
4. Cost Audit
5. Management Audit
6. Periodical Audit
7. Special Audit
Average Realisation Rate (ARR) means revenue realised ie., collected per unit of energy sold.
Thank You