النتائج 1 إلى 1 من 1

الموضوع: Financial Management in Accounting

  1. #1
    الصورة الرمزية محاسب متخصص
    محاسب متخصص غير متواجد حالياً مشرف عام
    المشاركات
    2,654
    شكراً
    1
    تم شكره 72 مرة في 62 مشاركة

    Financial Management in Accounting

    Financial Management in Accounting



    Finance –
    Company
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image001.gif[/IMG]4 Pillars of company
    Finance Marketing
    Deptt Deptt
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image002.gif[/IMG]

    HR Deptt Production
    Labour Manager Deptt




    Financial Management in Accounting – Financial Management is concerned with the procurement of funds and its effective utilization in the business.

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image003.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image004.gif[/IMG] FM





    Procurement of funds Effective utilization in business
    Fund Raising
    Liability = Din dent + interest

    Din dent = ERS (Earning Per Share)
    EMI = Equally Money Installment


    Unit - I

    Financial Accounting – Financial accounting is concerned with the record of day to day transaction of the business.

    Balance sheet = is the report card of the company
    Accounting concepts & conventions = Accounting is the langrage of the business through which normally a business houses communicates with the outside world in order to make this language intelligible and commonly understood by all. It is necessary that it should be based on certain uniform scientifically laid down in standards. These standards termed as accounting principles. These principles can be classified into category.
    1. Accounting concept
    2. Accounting conventions

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image005.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image006.gif[/IMG]A Principle

    A concept A conventions

    Accounting concepts – In accounting business is consider to be a separate entity from proprietors person can sale is untimely helpful in keeping business affairs separate from the proprietors. For Ex- When one person invests Rs 10,000 into the business. It will be deemed that the proprietor has given that much of money to the business as a loan, which will be shown as “Liability” In book of business. In case he with drown Rs 2000 from business. The amount will be charged to him and net amount payable to him in business will show as Rs 8000.
    The following are the important Accounting concept

    1. Separate Entity concepts – In accounting business is consider to be a separate entity from the proprietor
    2. Going concern concepts – According to this concept it is assume that the business will continue for a fairly long time to come. This is neither intention nor the necessities to liquidate (End of business) the particular business venture in forcible future.
    3. Money Measurement concepts – Accounting records only monetary transaction or events which cannot be expressed in money do not find any place in the books of accounts. They may be useful for business.

    For Ex – In a business has got a team of dedicated employees. It is definitely an asset to business. But since it monetary measurement is not possible it is not shown in the books of the business.

    1. Cost concept - This concept is closely related to going concern concept. According to this concept an “Assets is ordinally entered on the accounting records at the. Price paid to acquire it for Ex – If a business buy plot of land for Rs. 50,000 the books at Rs 50,000 if its market value at that time happen to be Rs. 60006

    (i) An asset is ordinary entered on the report at the price paid to acquire it
    (ii) This cost is bases for all subsequent accounting if a business buy a plot of land 50,000 the asset should be recorded in the books at Rs 50,000 even if it’s market price at that time to be Rs 60,000 and later a year the market value of this asset comes down to Rs 40,000 it will ordinarily continue to be shown at Rs 50,000 and not at Rs 40,000

    1. Dual aspect concepts – This is the basic concept of accounting according to this concept has every business transact has a dual effects

    A. Starts a business of with a capital of 10,000 there are 2 aspect of transaction on the one hand the business has the asset of 10 K while on the other hand the business has to pay a to the proprietor, which is taken by the proprietors

    1. Accounting period concept – At the end of each accounting period an income statement and a balance sheet are prepared. The income statements disclose the profit & loss made by the business during the accounting period and the B/s depicts the financial position of business on the last day of accounting periods.


    Accounting conventions:-

    (I) Conservatism: - In the initial stages of accounting certain anticipate profits which were recorded which did not materialize. This resulted in acceptability of the accounting figures by the end users on the account of this season. The accountant follows the rule anticipate no profit but while for possible losses in recorded business transaction in other word the accountant follows the policy of (Playing sale) on account of this convention the inventory valued at cost all market price whichever is less.
    Sumer provision is made of for possible bad and doubtful debt out of current year profit the concept affect principle they categories of current.
    (II) Full disclosure: - According to this convention of accounting record should disclosed fully and fairly the information this support to represent. They should be honesty prepared and should sufficiently disclosed.
    Information which is of material interest of proprietors’ present and positional creditors and inverters
    Consistency = determination
    (III) Consistency: - According to this convention accounting practice should remain unchanged from example if stock is valued at “cost or market price which ever is less” This principle should be followed year by year.

    (IV) Materiality: - According to this convention. The accountant should attach important to material details and ignore in significance detail this is because otherwise accounting will be unnecessarily over burden with minute’s details.

    Recognition of revenue Expenses:-

    Revenue Recognition: - Revenue means the amount which is assed to the capital as a result of business operations. Revenue is earned by sell of by providing a service. Principle of – determines the time of the particular period in which the revenue is realized. Following basis may be used for delaine the period in which the revenue is realized
    (i) On the basis of sales:- According to the bass of sale revenue is deemed to realized when the ownership of the goods has been transferred to the purchases and when he has legally become liable to pay the amount it should be remembered RR is not rerated with the script of cash e:g if a firm get an order of good on 01.01.2010 supplies the goods on 20 Jan and reserved the cash on 01.Aprie reverse will be deemed to have been earned on 20 Jan as the ownership of goods was transferred on the date.
    (ii) On the bases of cash:- According to this bases the revenue should be recognized when it is actually recorded in cash this basis is adopted when the good have been sold on credit and there is a doubt about the sell prodded. This basis is also adopted in case of sales on installment bases.
    (iii) Recognition of expenses:- The principle of is very important for current determination of net profit according to this principle and determine. The net profit from business operations all cost which are applicable to revenue of the period should be charged against that revenue according by for matching cost with revenue first revenue should be recognized and then cost in curried for generating that revenue should be recognized.

    Accounting Cycle: - The accounting Cycle with recording of business transaction in the Generals or subsidiary books and after passing through ledger & trial balance it results in the preparation of final accounts (Trading Profit and Loss A/c and balance sheet)” This accounting cycle is generally completed in an accounting year and is again repeated in subsequent year.







    Accounting Cycle
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image007.gif[/IMG]



    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image008.gif[/IMG] Transactions

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image009.gif[/IMG] Journal

    Trading, profit & Loss
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image010.gif[/IMG] A/c and Balance sheet

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image011.gif[/IMG] Ledger

    Trial Balance

    Accounting Equation:- Accounting equation basically concern with the balance sheet to understand accounting equation we should know about the B/s contents: -

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image012.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image013.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image012.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image012.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image012.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image012.gif[/IMG]
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image014.gif[/IMG] Liabilities & Capital Rs Assists Rs
    60,000 Cash & Book Debtors
    Capital Stock in Trade
    Liabilities Furniture 100,000
    Creditors 40,000 Machinery
    Bank Over draft Building
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image014.gif[/IMG]
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image014.gif[/IMG]


    100, 000 100,000

    In the above balance sheets assets are recorded on the right “hand side and capital & Liabilities are recorded on the “Left hand side” At any point of time the total of the both side of balance sheets is always equal. The above B/s discloser that there are total assets worth Rs 100,000 out of which assets work Rs 60,000 have been purchase from capital provided by the proprietor and the remaining Rs 40,000 worth of assets have been purchased by the funds provided by external parties.
    The above position can be expressed in accounting equation.

    Assets = Liabilities + Capital



    Liabilities = Assets - Capital



    (GAAP) General Accepted Accounting Principle = 21 Marks

    General Accepted Accounting Principle (GAAP)”

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image015.gif[/IMG]Accounting Principle

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image016.gif[/IMG]


    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image017.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image017.gif[/IMG]Accounting Concepts Accounting Commenting

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image018.gif[/IMG] [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image019.gif[/IMG]



    Separate Caring Money Cost Dual Accenting Period Realization Conservation Full Consistency Materiality
    entity measurement aspect Matching Concept disclosure
    Of cost
    and revenues


    Accounting Standards: - Accounting is an information system and its main aim is to provide financial information to a no’s of pasties such as investors’ management Creditors govt. etc such information provided through a set of financial statements namely P/s & A/c and B/s. the set of financial statement of an enterprise should depicts a true & fair view of position. The international accounting committed IAS
    Came into existence 29 June 1970 to develop accounting bodies from 16 accounting bodies from 9 nation called as (Founder members) signed the agreement & the constitution for nation the committee has its head quarters in London. The institute of cost & work A/c of India are associated members of (IASC)

    Definition of Accounting Standards: - Accounting standards may be defined as written statements issued from time to time by instituted of accounting specifying uniform rules of practices from daring the financial statements.

    Accounting to KOHLER: - Accounting standards is a code of conduct imposed on accounts by aistom, laws or professional bodies

    Indian Accounting Standard: - The Institute of Chartered Accounting of India and Institute of cost & works accountants ICWA of India are both numbers of the International accounting standards committee on 22nd April 1977, the council of the Institute of charted accountant of India establish an accounting standard so that such standard will be established by the council of the institute Charted Accountant.
    As on 1st Jan 2002 there are 23 accounting standards specified by the Institute of corpulence of all which is mandatory for all companies.

    AS-1 Disclosure of accounting policies
    AS-2 Valuation of inventories
    AS-3 Cash flow statement should be prepared
    AS-4 Contingencies and events occurring after the B/s date
    AS-5 Net profit and Loss for the period prior items & changes in accounting policies
    AS-6 Depreciation accounting
    AS-7 Accounting for construction & canticles
    AS-8 Accounting for Research & Development
    AS-9 Revenue Recognition
    AS-10 Accounting for fixed Assets
    AS-11 Accounting for the effects of changes in foreign exchange rate
    AS-12 Accounting for Govt. grants
    AS-13 Accounting for investments
    AS-14 Accounting for amalgamation
    AS-15 Accounting for retirement benefits in the financial statement of employees
    AS-16 Borrowing Cost should be disclosed
    AS-17 Accounting for Segment reporting
    AS-18 Related party disclosure
    AS-19 Accounting for leisure
    AS-20 Earning per shares should be disclosed
    AS-21 Consolidated financial statement should be prepared
    AS-22 Accounting for Taxes & Income
    AS-23 Accounting for Investment in associated

    International Accounting Standards: - The committee has so form led down standard regarding following matters.

    IAS–1 Disclosure of accounting policies
    IAS–2 Valuation and presentation on of Inventories in the content of historical cost system
    IAS-3 Consolidated financial system should be disclosed
    IAS-4 Depreciating Accounting should be followed
    IAS-5 Information to be disclosed in financial statements should be true & fair
    IAS-6 Accounting responses to changing prices
    IAS-7 Statement of change in financial position should be presented
    IAS-8 Unusual and prior period item and changes in accounting policy
    IAS-9 Accounting for Research and development activity
    IAS-10 Accounting events accounting after balance sheet date should be disclosed
    IAS-11 Accounting equipment’s
    IAS-12 Accounting for contents should be discloses
    IAS-13 Accounting for lanes or income
    IAS-14 Presentation of current assets and current Liabilities
    IAS-15 Reporting financial information by segments
    IAS-16 Information reflecting the changes of the effects of prices
    IAS-17 Accounting for property plant and equipments
    IAS-18 Accounting for leases
    IAS-19 Revenue recognition
    IAS-20 Accounting for retirement benefits in the financial statement of employees
    IAS-21 Accounting for government grants and disclosure of govt. assistance
    IAS-22 Accounting for effect of changes of Jorgen exchanges rates
    IAS-23 Accounting for business combinations (e:q Joint ventures )
    IAS-24 Capitalization of borrowing cost
    IAS-25 Related party disclosed
    IAS-26 Consolidated financial statement and Accounting for investments is subsidiaries
    IAS-27 Accounting for investment in associates
    IAS-28 Financial reporting in hyper inflation economics
    IAS-29 Disclosure in the financial statement of bank and financial institution
    IAS-30 Financial reports of interest in Joint ventures
    IAS-31 Financial Investments and disclosure presentations
    IAS-32 Earning per share [EPS]

    EPS - Dividend Amount (Proportionate of earning) Total No Shares issued it calculates annually

    Accounting Book: - The book in which transaction is recorded for the first time from a source document are called books of “Original entry” or accounting book.
    Journal is one of the basic book of original entry in which transaction are originally in chronological (day to day) order. Accounting to the principle or Double entry system when the size of the business is small then it is possible to enter each & every trans in the journal when the size of business it becomes no longer to possible it records each every transaction in journal.
    As such the journal is subelivided into no of sub journals “known as special purpose subsidiary books or books of original entry”.
    Each type of transaction recorded in a separate subsidiary book these subsidiary book are.

    1. Journal Book
    2. Cash Book
    3. Purchase Book
    4. Sales Book
    5. Purchase return Book
    6. Sales return Book
    7. Bill Receivable Book
    8. Bill payable Book


    Journal: - Journal is a book of original entry in which the transactions are records first of all when they take place.

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image020.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image020.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image020.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image021.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image020.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image020.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image020.gif[/IMG]
    Date Particulars Ledger folio Amount (Dr) Rs Amount (Cr) Rs
    (1) [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image022.gif[/IMG] (2) (3) (4) (5)




    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image021.gif[/IMG]
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image022.gif[/IMG]





    Ledger: - Business transactions are first entered in Journal or in subsidiary books. The next step is to Transfer these entries to respective accounts in Ledger.
    In other words all entries are recorded in Journal are classified in order to ascertain the position of particular account all bans actions relating to that particular A/c are collided at one place in the Ledger in short Ledger is the book which continues the all A/c of the business enterprise wheatear personal real or nominally

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image023.gif[/IMG]


    Date Particulars L.F Amount Date Particulars L.F Amount
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image024.gif[/IMG]


    1-4-09 To ITC Com 5000.00
    By Bal C/d 5000.00
    1-4-09 To Bal B/D 5000.00


    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image025.gif[/IMG]
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image024.gif[/IMG]




    Trial Balance: - Trial Balance is a statement prepared with the Dr and Cr Balance to test the arithmetical & curacy of the book
    All the businessmen after completing of costing from the ledger or other subsidiary books to for these purpose a statement is prepared where in the balances of all the accounts in the Ledger are in corporate the statement so prepared is called trial Balance.
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image026.gif[/IMG]


    Name of A/c L.F Balance (Dr) Balance (Cr)
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image022.gif[/IMG]
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image021.gif[/IMG]






    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image021.gif[/IMG] Total Total

    Cash Book: - To records receipts and payment of cash, including receipts into and payment out of the Bank.

    Features: -

    1. Only cash transactions are recorded in cash bank.
    2. All cash receipts are recorded in the debit side and all cash payment are recorded in the credited.
    3. It peyam’s the function of both journal and the larger at same time.


    v Kind of cash book: -
    (1) Simple cash book: - (cash book with cash and bank column) for recording only
    (2) Two (double) column cash book: - Cash book with cash and bank column for recording cash & bank transaction
    (3) Three column cash book: - cash book with cash, bank and discount column ) For recording cash & bank transaction involving loss or gain on a A/c of discount

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image027.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image028.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image028.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image028.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image029.gif[/IMG]Simple Cash Book
    Dr Receipts Payments Cr
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image030.gif[/IMG]

    Date Pasticcios V/No L.F Amt Rs Date Pasticcios V/No L.F Amt Rs



    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image031.gif[/IMG]



    Performa
    Double/ Two Colum Cash Book

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image032.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image032.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image032.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image032.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image032.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image032.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image032.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image032.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image032.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image032.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image032.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image032.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image033.gif[/IMG] Dr Cr
    Date Patiala L/F Cash Bank Date Patiala L/F Cash Bank
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image034.gif[/IMG]
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image033.gif[/IMG]








    Three Colum Cash book (Petty cash book)

    Receipts Payment
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image035.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image036.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image036.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image036.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image036.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image036.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image036.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image036.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image036.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image036.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image036.gif[/IMG] Date Patiala V/No Convince Cartage Stationary Postings & ceria Sundries
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image035.gif[/IMG]
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image037.gif[/IMG]







    Purchase Book: - To records credit purchase of goals dealt in or of the material and stokes required in the factory

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image038.gif[/IMG]Journal

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image038.gif[/IMG]Ledger

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image038.gif[/IMG]Trial Balance

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image038.gif[/IMG]Profit /Loss A/c

    Balance sheet




    Unit – 2

    Financial Management

    STRESS

    Eustace + VE Distress - VE

    Is concern with the procurement of the funds its effective utilization in the business to earn a maximum profit to achieve a organizational goal

    Financial: - It is a life blood for any type of the organization.
    (1) Issue of equity share or preference share
    (2) Take a lone from bank
    (3) Take a lone from financial institution
    (4) Take a money from promoter


    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image039.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image040.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image041.gif[/IMG] Source of company



    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image042.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image043.gif[/IMG] Issuing of shares Take a Loans from Take money
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image044.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image045.gif[/IMG] & financial institutes From Promoters

    Equity Preference
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image046.gif[/IMG] Share share
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image047.gif[/IMG]



    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image048.gif[/IMG] Dividend + Interest + Proportion of earning

    Cost of Capital

    Dividend is a part of the company. It is also a certificate of loan.
    Cost of capital = Dividend + Interest + Past of firm Promoters.

    Financial Management:- Financial mgmt is concerned to procurement of funds from the market and its effective utilization in the business to earn maximum profit all cash equal to the cost of capital.


    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image049.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image050.gif[/IMG]Financial Management



    Procurement of funds effective utilization in the business

    Financial Functions: - Or functions of functions Manager

    (1) Investment decision
    (2) Financing decision or fund raising
    (3) Dividend decision


    Scope of finance
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image051.gif[/IMG]




    Finance with HR Dept Finance with marketing Dept Finance with production Dept


    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image052.gif[/IMG]Financial Goal: - High risk Light gain
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image053.gif[/IMG] Low risk Low gain


    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image054.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image055.gif[/IMG]Financial Goal


    Profit Maximization Wealth Maximization

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image053.gif[/IMG]Profit Risk

    Wealth is the to be indicated by the market price of the company
    Financial Goal: -

    1. Profit Maximization
    2. Wealth Maximization of value of share in stock exchange.


    Financial Goal two types

    Profit Maximization: - The main abject of the any company is to learn a maximum profit is given a measure importance a member of problems.
    Can arise: -
    (1) Profits maximization has to be attempted with a realization of risk involved. There is a direct relationship between risk & profit
    Many Risky proposition yield high profit higher the risk higher is the possibility of profit if profit minimization is the only goad. Then risk factor is all together finances manager will except highly risky proposal also if they give high profit
    Risk is very important. Consideration and has to be balanced with profit objectives.
    (2) Profit Maximization: - Profit maximization as a objective does not take in to accounting time pattern of return proposal. A may profit compared to proposal B yet it the return begin to flow say ten year later, proposal B may be preferred which may have lower over all profits / but the return flow is more early and quick
    According to “ Banhorne “, “value is represented by the market price of the companies common stock the market price of a firms stock represent the focus judgment of all market participants as to what the value of the particular firm is. It tax into account present prospective future earning (EPS) pushier, the timing and risk of there earnings, they dividend policy of the firm. & many other fachars that. Fear upon the market price of the stock. The market price service as a perform ender of or report card of the firm’s progress. It indicates how will mgmt. is doing on behalf of shock holders.

    Finance Functions or Functions of finance manager: -

    (I) Financing decision or capital - mix
    (II) Invest mental decision or long term assets – mix
    (III) Dividend decision or profit allocation
    (IV) Short-term asset – mix or liquidity decision

    Financing Decision: - Financing decision is the important functions to be performed by the financial manager
    The mix of debt and equity is known as the firm’s capital structure. The financial manager must strike to obtain the best financing mix or the optimum capital structures for his or her firm. The change in the share holders return caused by the change in the profit is called to financial leverage.
    Investment Decision: - A firm’s investment decision involves capital expenditures. They are, the fore, reoffered is capital budgeting decision.
    A capital budgeting decision involves the decision of allocation of capital or commitment of funds to long – term assets that would yield benefits (cash flows) in the future. Two important aspects of investment decision are: -
    (a) The evaluation of the prospective profitability of new investment, and
    (b) The measurement of a cut off rate against that the prospective return of new investment could be compared

    Dividend Decision: - Dividend decision is the third major financial decision. The proportion of profit distribute as dividends is called the dividend – payout ratio and the refrained portion of profits is known as the retention ratio. The optimum dividend policy is one that maximizes. The market value of the firm’s shares bonus shares are shares issued to the existing shareholders without any charge.

    Liquidity Decision: - Investment in current assets affects the firm’s profitability and liquidity.
    The profitability liquidity lsade off equines that the financial managers should develop sound techniques of managing current assets

    Risk and Return Analysis

    Definition of Risk: - The variability of the actual return from the expected return associated with a given security is defined as risk. If there is high variability, the security is said to be more riskier. If the return on the security is certain and less variability then it is less risky.

    Types of Risks
    Total portfolio risks are as under:

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image056.gif[/IMG]Risks
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image057.gif[/IMG]


    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image058.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image058.gif[/IMG]Systematic Unsystematic
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image059.gif[/IMG] [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image060.gif[/IMG]



    Market Interest Purchasing Business Financial
    Risk Rate Risk Power Risk Risk Risk




    Systematic Risk

    (a) Market Risk: - It is a risk which arises due to change in political, social and economic issues. It is referred to as stock variability due to change in investor’s attitudes and expectations.
    Investors can eliminate market risk by being conservative in framing their portfolios. With a wise combination of stocks on the portfolio, to some extent, the risk will be reduced.
    (b) Interest Rate Risk: - Interest rates change constantly for bonds, stock and equity shares. Interest rate risk can be reduced by diversifying in various kinds of securities and also buying securities of different maturity dates.
    Example: A Government bond or a bond issued by Financial Institution like IDBI is a riskless bond.
    (c) Purchasing Power Risk: - It is known as inflation risk also. This risk arises out of change in the prices of goods and technically it covers both inflation and deflation periods. The behavior of purchasing power risk can in some ways be compared to interest rate risk. They have a systematic influence on the prices of both stocks and bonds.

    Unsystematic Risk

    The importance of unsystematic risk arises out of the uncertainty surrounding a particular firm due to factors like strike, management policies consumer preferences. These uncertainties directly affect the financing and operating environment of the firm.
    (a) Business Risk: - Business risk is mainly associated with variation in operating profits, internal environment of the firm and those beyond its control. A firm can reduce its business risk by keeping its fixed expenses low and by diversify its business into a wide range of products.
    (b) Financial Risk: - Financial risk in a company is associated with the method through which it plans its financial structure. To reduce this risk the company should constantly test its debts to fixed assts, debts to net worth debts to working capital.

    Measurement of Risk: In case of a single asset the risk associated can be calculated as under:

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image056.gif[/IMG]Calculation of Risk for single Asset
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image057.gif[/IMG]


    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image061.gif[/IMG] Behavioral Point of View Quantitative/Statistical
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image058.gif[/IMG] Point of View
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image062.gif[/IMG] [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image060.gif[/IMG]



    Sensitivity Probability Standard Coefficient
    Analysis (Distribution) Deviation of Variation

    Capital Budgeting

    Capital Budgeting: - Capital Budgeting is the process of making investment decisions in capital expenditure a capital expenditure may be defined as a expend the benefit of which are expected to be received over period of time exceeding one year
    In simple language we may say that: - A capital expenditure is a expenditure incurred for acceding or improving the fixed assets. That benefits of which are expected to be received over a number of years in future” the followings are the some examples are capital Exp:-

    (1) Cost of exemplas of permanent assets as land and building. Paint and machinery, goodwill etc
    (2) Cost of addition, expansion improvement or alteration of the fixed assets
    (3) Cost of replacements of permanent asset
    (4) Research or development of project cost
    This capital expenditure decisions are also called long term investment decisions investment in the planning

    Process: - Capital budgeting can be classify in these & segments

    Capital Budgeting Process: -
    (1) Identify Investment proposals
    (2) Screening the proposals
    (3) Evaluation of various proposals
    (4) Fixing proposals
    (5) Final approval
    (6) Implementing proposals
    (7) Review performance
    (8) Final performance review


    Capital Budgeting proposal: -

    (1) Identification of investment proposal: - The capital budgeting process begins with the identification of investment proposal. The proposal or the idea or potential investment opportunities may or grate from top management or may come from rank or file worker of any dept. or from any officer of the organization
    The departmental heads analysis the various proposals in the light of corporate
    Strategies & submit suitable proposal to the capital Exp. Planning committee. In case of large org. or to the officers concerns with the process of long term investment decisions
    (2) Screening the process: - The expenditure planning committees screens the various proposals received from different departments the committee views these proposal from various angles to ensure that these are accordance with the co-operate strategy or selection criterion of the firms and also do not lead need to departmental imbalances.
    (3) Evaluation of various proposals:- The next step of the capital budgeting process is to evaluate the profitable of various proposals. There are many methods which may be used for this purpose such as payback period methods,
    (a) Rate of return period methods
    (b) Net present value period methods
    (c) Internal rate of return period methods
    (4) Fixing Priorities: - After evaluating the various proposals the unprofitable or uneconomical proposal may be rejected but a may not be possible may be possible for the firm to invest immediately in all the proposal accepted due to limitation hence it is essentials to ranks the various proposal and to established priorities after considering argental risk and profitability in outline there in.
    (5) Final approval: - Proposals meeting the evolutions and other criteria are finally approved to be included in the capital expenditure budgets in the meeting of the board of directors
    (6) Implanting the proposals:- Preparation of the capital expenditure budgeting and in corporation of a parceled proposals in the budget does not its if authorize to go ahead in the implementation of the project a request for authored to send the amount should further be made to the capital expenditure committee which may like to review the profitability of the project in the changed circumstances
    (7) Review Performance: - The last stage of the process in capital budgeting is the evaluation of the performance of the project the valuation is made through past experience past competitor is audit by the way comparison of actual expenditure on the project with the budgeted one and also by comparing the actual return investment with the antipasto return
    (8) Final performance review:-


    Rate of Return method: - This method test in accounts the earnings expected from the investments over there whole life. It is known as accounting rate of return method. According to this method various projects a ranked in order to the rate of earnings or rate of return the project with the higher rate of return is selected compared to the one with lower rate of return. This method can be also used to make decision to accepting or rejected a proposal. the expect result is determine and the project which has a higher rate of return than the minimum rate specified by the firm called the “cut off rate” is accepting and a one gives are lower expected rate of return than the minimum rate its rejected.
    The return of investment method can be use in several wages.
    (1) Average rate of return method: - Under this method average profit after tax and depreciation is calculate and then it is dividend by total capital outlay or total investment in the project. In other words it establishes the relationship between average annual profit to total investments.

    Average rate of return = Average annual profit × 100
    Net investment in the project

    A.R.R = A.A.P × 100
    N.I.P
    Exp – A project requires in project & inters tamest Rs. of 500,000 and has a scrap value of Rs. 200,000 after 5 years.
    It is expected to yield profit after dep. & taxes during the 5 year amounting to Rs. 40,000, Rs. 20,000 calculate the average or rate of investment
    40,000 (Total Profit)
    60,000
    70,000
    50,000
    20,000
    2, 40,000
    Average profit = 2, 40,000 = 48,000
    5
    Net investment in the project = 5, 00,000
    Scrap value - 20,000
    = 4, 80,000

    Average rate of return = 4, 80,000 × 100
    48,000
    = 10% Ans.

    (2) Return on per unit investment: - This method is small version of the average rate of return method total profit after deprecation is dividend by the total investment that is return or per unit investment.

    Return or per unit investment = Total profit (Profit of the tax and deprecation × 100
    Net investment
    = 240,000 × 100
    480,000
    = 50% Ans.
    Advantages of Rate of return method: -
    (1) It is very simple and easy to operate.
    (2) It uses the entre earning of a project in calculating rate of return and not only the earning up to pay back period. And hence gives a better view of profitability as compared to pay back method.
    (3) As this method is based on accounting concept of profit it can be readily calculate from the final data.

    Net Present Value Method (NPV) – (This method is based on time value of money). The net present value method is a modern method of an evaluated investment proposal. This method tax to consecration the time value of money and its attends to calculate the return or investment by introductive the factors of time element. It recognizes that a rupee run today is worth mare them the some rupees earn tomorrow. The net present value of all inflows and out loose of cash accruing during the entire life of the project is determine is repeatedly for each year by discounting these flows by the firm’s cash of capital or a pre-determined rate.

    NPV Method & Time Value of Money-

    The present value of rupee one due in any no of years can be found with the use of the fallowing mathematical formula.

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image063.gif[/IMG] NPV = 1
    (l + r)n

    R = Rate of interest /rate of return
    N = No of years
    NPV = Net present value

    The presents value for all the case inflows for a no of years as fallows =

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image064.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image064.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image064.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image064.gif[/IMG] PV = A1 + A2 + A3 + ------------- + An
    (l + r) (l + r)2 (l + r)3 (1 + r)n

    A1, A2, A3, = Net cash fallows
    r = rate of interest
    1, 2, 3, = no of year

    Profitability Index Method: - It is also a terms adjusted method of evaluating the investment proposal profitability index also called as benefit cost ratio desirability factor is the relationship between present value of cash inflow and the present value of cash outflow.

    P.I = Present value of cash inflow
    Present value of cash outflow

    P.I = Present value of cash inflow
    Initial cash outflow

    This proposal is accepted it the profitability is more than 1 & rejected in cash the profitability is less than 1 the various project earning under this method in order of their profitability index in such a manner that 1 with higher than the other with a lower profitability index.

    Exp – The initial cash outlay of the project is Rs. 50,000 and it generate cash inflows of Rs. 20,000, Rs. 15,000, Rs. 25,000 & Rs. 10,000 in 4 years using profitability index method analysis project should be accepted or rejected.

    Years cash inflow present value present value
    Factor @ 10%

    1 20,000 .909 18180
    2 15,000 .826 12390
    3 25,000 .751 18777
    4 10,000 .683 6830
    56175
    Total present value = 56175
    Less initial outlay = 50,000
    NPV 6175

    P.I = P.V. of cash inflow = 56,175
    Initial cash outlay 50,000
    = 1.1235
    As the P.I is higher than 1 the proposal will be acceptable


    Pay Back Period Method (PB Method): - The pay Back sometimes called as payment or pay off period method represents the period in which total investment in permanent assets pays back it self.
    This method based on the principle that every capital expenditure pays back itself back with in a certain period out of the additional earning generated from the capital assets. Thus it measured the period of time for the original cost of a project to be recovered from the addition project it self. Under this method various investments are ranks according to their length of their payback period. In such a manner that the investments with a shorter pay back period it proffered to the one which longer pay back period method.
    In case of evaluation of a single project it is adopted if it is pays back for it self with in a period specified by the management and the project does not pay back itself with in the period specified by the management than it is rejected.

    The PB period can be certain in the following method: -
    (a) Calculate annual net earning (in the Profit) before depreciation and after tax these are called annual cash inflows
    (b) Divide the initial outlay (Cost) of the project by the annual cash in flow where the project generates constant annual cash in flow. Thus where the
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image065.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image065.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image066.gif[/IMG]

    Pay back period = Cast outlay of the project or original cost of the asset
    Annual Cash inflows
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image067.gif[/IMG]



    (c) Where the annual cash inflow (Profit) preferred before dep after tax are unequal. The pay back period can be found by adding up the cash inflow until the total is equal to the initial case outlay of the project or original cost of the assets
    Exp: - A project cost of Rs. 100,000 and yields and annual cash inflow of Rs 20,000 for 8 years. Calculate is pay back period.

    P.B period = Initial outlay of the project
    Annual cash flow








    = 100,000 = 5
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image068.gif[/IMG] 20,000

    P.B.P is = 5 years.


    Numerical: - A project cost Rs One Lakh and giolds an annual cash inflow of 20,000 for eight years calculus its PB

    Annual cash inflow =

    Numerical
    A project cost of Rs 5 Lakhs and yields annually a profit of Rs 80 K after depreciation @ 12% per annum but before tax of 50% calcite PB method

    Profit before tax - 80,000
    Less 50% tax - 40,000
    40,000
    Profit after tax 40,000
    Add back depreciation @ 12% of 5 Lakhs 60,000
    100,000
    (Annual Cash inflow)
    Pay back = Cost outlay of the project or original cost of the asset
    Annual cash inflow

    500,000 = 5 years
    100,000
    Pay back Period Method

    Numerical: - Determine the pay back period for a project which requires a cash outlay of Rs 10,000 and generates cash inflows of Rs 20,000, Rs 4000, Rs 3000, & Rs 2000, in the 1st ,2nd, 3rd , 4th , years respectively.

    Solution: - Total cash outlay = 10,000
    Total cash inflows for the three year = 2000 + 3000 + 4000 = 9000

    Up to the third year the total cost is not recover but the total cash inflows for the 4 year are Rs 9K, 12K = 11K that is Rs 1000 more than that the cost of the project so the pay back period is some where between three and four years
    Assuming that the cash inflows occurs evenly through out the year, the time required to recovered 1000 will be
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image069.gif[/IMG] 1000 × 12 = 6 Months
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image070.gif[/IMG] 2000
    Nance the PB Period of this project is 364Kg



    Capital Rationing: - Capital rationing refers to a situation where a firm is not in a position to investment in all profitable projects due to the less availability of funds. We know that the reserves are always limited. It is for this reason that the firm cannot take up all the projects though profitable and has to select the combination of the proposals that will yield the greater profitability.

    Cost of Capital: - The cost of capital of firm is the minimum rate of return expected by its inverters. It is weighted average cast of various sauces of finance use by the firm may be in the firm of dept, preference capital, returned earnings and equity shares.

    Cost of capital: - Divided + Interest to the bank + Earning for the promoters + Interest or dentures concept of cost of capital is very important in the financial management. A decision to invest in a particular depend upon the cast of capital of the firm or the cut-off rate which is the minimum rate of return invested by the in case of a firm is not abele to achieve cut-off rate the market value of the shares will fall infect the cast of capital is the minimum rate of return which will market value of shares at its present level.
    Hampton John J. defines “cost of capital” The rate of return the firm requires firm investment in order to increase the value of the firm in the market place.”
    So overall concept of cast of capital is : –
    (1) Cost of capital is the rate of return is requires to earn from its project
    (2) It is the minimum rate of return which will all east maintain the market value of the shares
    The computation of cast of capital: -


    Cost of debt: - The cast of dept is the rate of interest payable on dept. cost of dept can be computer by the

    Kd = I (1 – T)
    NP
    Where –
    Kd = cost of debt
    I = Interest
    NP = net proceeds
    T = tax

    Cast of debenture can be calculated by the formula –

    Kd = I (1 – I)
    NP
    (1) Issue at par -
    I = 16% of 10, 00,000
    = 160,000
    NP = 10, 00,000
    Kd = 16, 00,000 (1 – 0.35)
    10, 00,000 = 160,000 × 0.65
    10, 00,000
    = 10.4%


    (2) Issued at 10% Premium

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image071.gif[/IMG]10, 00,000 × 10 = 10, 00,000
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image072.gif[/IMG] 100
    NP = 10, 00,000 + 10, 00,000 = 11.00,000
    I = 16% of 10, 00,000
    = 160,000
    Kd = 1, 60,000 (1- 0.35)
    11, 00,000
    = 9.45%
    (3) Issued at 10% discount
    NP = 10, 00,000 – 10, 00,000
    = 9, 00,000
    I = 16% of 10, 00,000
    = 1, 60,000
    Kd = 1, 60,000 (1 - .35)
    9, 00,000
    = 11.55%

    (4) Brokerage = 10,00,000 × 2%
    = 20,000
    Np = 10, 00,000 – 20,000
    = 9, 80,000
    Kd = 1, 60,000 (1 - .35)
    9, 80,000
    = 10.6%

    Cost of Preference Capital – A fixed rate of dividend is payable on preference shares. Though dividend is payable at the discretion of the board of directors and there is no legal binding to pay dividend yet it decant means preference capital is cast free. The cost of preference capital function of dividend expected by it investors.
    In case dividend are not prayed to preference share holder it will affect the fund raising capacity of the firm has dividend are usually paid regularly on preference shares except when there are no profit to pay dividend. The cast of preference capital can be calculated

    KP = D × 100
    NP

    Kp = Cost of preference share
    Np = Net proceed
    D = Dividend

    Numerical: - A company is less 10,000, 10% preference share of Rs. 100 each cost of issue is Rs. 2% per share calculate the cost of preference capital in these shares are issue : -
    (a) At par
    (b) At a premium of 10%
    (c) At a discount of 5%

    Solution: - Kp = D
    Np
    (I) Issued at par


    Cost of Equity – The cost of equity is minimum rate of return that the company most earns on equity finance portion of its investment. The cost of equity capital is the expected the return by its interest cost of equity capital can be calculated by through fallowing formula.
    Ke = D or D
    Np Mp

    Ke = Cost of capital equity capital
    Np = Net proceed
    Mp = Market prices of share
    D = Dividend

    Ques.- A company issues 1000 equity shares at 100 each at preterm of 10% the company has been paying 20% dividend for the last 5 years and expected to maintain the same in the future also. Company the cost of capital will may be any difference if the market price of equity share is Rs. 160
    Ke = D or D
    Np Mp
    Np = 1000 × 100 = 1, 00,000
    D = 20% of 1, 00,000
    = 20 × 1, 00,000
    100
    = 20,000
    10% perineum = 10% of 1, 00,000
    = 10 × 1, 00,000
    100
    = 10,000
    Ke = D
    Np
    = 20,000
    1, 00,000 + 10,000
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image073.gif[/IMG] = 20,000 = 2 = .1818
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image074.gif[/IMG] 110,000 11
    Ke = .1818 × 100 = 18.18%
    Np = 1000 × 160 = 1, 60,000
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image075.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image076.gif[/IMG]Ke = D × 100 = 20,000 × 100
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image077.gif[/IMG] MP 160,000
    Ke = 12.5% Ans.

    Weighted Average Cost of Capital (W.A.C.C): - The composite of overall cast of capital of a firm is the weighted average of cost of various sources of funds weighted taken to many position of each of funds in the capital structure each investment is financed a pool of funds which represent the various sources from which fund have been raised.
    Any decision of investment there fore has to be made the difference over all cost of capital
    W. A. C. C Calculated by

    (1) Calculating the cost of specific source’s of funds.
    (2) Multiplying the cost of each sauces by it proposal cost of structure.
    (3) Adding the weighting component to get the firms (W. A. C. C) Thus WACC is.

    Ko = k1 w1 + k2 w2 + ----------------- kn wn

    Where, k1 k2 is a component of cost w1 & w2 are the weight of he component of cost.
    Operating and Financial Leverage: -

    Concept of Leverage: - Leverage means the use of fixed cast in attempt to increase (or lives up) Profitability. These are 3 commonly used measures of leverage in financially analysis.

    (1) Operating Leverage
    (2) Financial Leverage
    (3) Combined Leverage

    1 - Operating Leverage: - The increase in the net profit ratio “Due an increase in sales or activity level is also termed as operating leverage. Operating leverage increase as the ratio of variable cost of total cost increase since variation in sales produced much larges variation in net income.
    Operating Leverage at any Level of sales can be calculated
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image078.gif[/IMG]O.P.L = Contribution
    Operating profit or EBIT

    Exp = Calculate operating Leverage from the following data.

    Sales Rs. 4000 Rs
    Fixed cost Rs. 600 Rs
    Variable cost Rs. 2000 Rs
    Operating profit Rs. 1400 Rs
    Contribution Rs. 2000 Rs

    Calculated operating Leverage

    Operating = Contribution
    O.P
    = 2000
    1400
    = 1.429 Ans.

    2- Financial Leverage: - The use of fixed financing cost by the firm is called financial leverage. The British expression is “greasing”.
    Financial leverage can be calculated by.

    F.L = EBIT
    EBT

    Ex = Calculate the financial leverage from the following data.

    Ordinary shares = 1000 Rs
    Long Terms Loans = 3000 Rs
    EBIT = 600 Rs
    Less interest @ 10% = 300 Rs
    EBT = 300 Rs

    R.L = EBIT = 600 = 2 Rs
    EBT 300





    3 - Combined LeverageIf we Multiple these leverage. We can measure there combined effect all the finances of company combined leverage.

    C.L = Operating Leverage × Financial Leverage

    C × OP
    OP EBT

    C.L = C (EBIT=OP)
    EBT
    OP = Operating profit

    Ex = The following Figure Relate two company.

    P. Ltd. (Rs in lack) Q. Ltd (Rs in lack)

    Sales 500 1000
    Less variable cost – 200 -300
    Contribution 300 700

    Less fixed assets 150 400
    EBIT -150 - 300
    Less interest - 50 - 100
    EBT of PBT = 100 200

    = P. Ltd =

    Operating Leverage = C 300 = 2
    EBIT 150

    Financial Leverage = EBIT 150 =105
    EBT 100

    Combined Leverage = C 300 = 3
    EBT 100

    = Q. Ltd =


    Operating Leverage = C 700 = 2.3
    EBIT 300

    Financial Leverage = EBIT 300 = 1.3
    EBT 200

    Combined Leverage = C 700 = 1.5
    EBT 200









    Unit - 3

    Capital Structure Theories: - It refers to the mix of sources form which the long term can you raised required for the business. In the mix of sources we will consider what should be the proportion of equity share debentures, capital, pref. share, capital internal sources and other sources of funds in the total amount of capital etc.
    There is no definite models which can be used as an ideal for all business undertaking. This is because the circumstances differ. The capital structure depends primarily or a no of factors like the nature of industry, gestation period, certainty with which the profit will acquired after the undertaking goes into commercial production & the likely quantum of return on investment.
    It is therefore, important to understand that different types of capital structure would be required for different type of undertakings.

    Optimum Capital Structure: - The Capital Structure is said to be optimum when the real cost of each source of financing is identical with an optimum debt is minimum and market price per share is maximum.

    Features of Optimum Capital Structure: -

    Profitability: - The most profitable capital structure is one that lands to minimum cost of financing and minimum earning per equity share.

    Flexibility: - The capital structure should be such that company can raise funds whenever needed.

    Conservation: - The debt contained in the capital structure should not exceed the limit which the company can bear.

    Solvency: - The capital structure should be such that firm does not run raise of the coming involvement.

    Control: - The capital structure should be so divided that it involves so minimum risk of loss of control of the company.

    Dividend Policies: - The term dividend refers to that portion of profit (After tax) which is distributed among owners/share holders of the firm and the profit which is not distributed is known as retained earning.
    The dividend policy of the company should aim at achieving the objective of company to maximize share holder wealth.

    50, 00,000 – 25, 00,000 + 10, 00,000 + 500,000 =10, 00,000 (Retained earring)

    Approaches of Dividend Policy Factors Determining the Dividend Policy: -

    (1) Legal Considerations: - The provision of company act 1956 must we keep in mind since they provide measures dimension to the dividend decision. Section 205 of the company prescribed the quantum of distributable profits. So in decide about the dividend policy of the company. Legal consideration must be consideration.
    (2) Stability of Earning: - Once the legal considerations related to dividend policy have been examined the next question is to study the nature of earnings. In many company earning may fluctuate greatly over different with changes in business circumstances. In many other companies’s earning may be reactively stable for a company which cans falcate earning it would be a belter policy to considered earning. On overage basis over a giving cyclical. On this basis dividend can be declassed, other basis dividend may follower highly eventuating pattern consequent upon the earning of the company.
    (3) Opportunities for Investment & Growth: - It is said that given the current level of earnings. The dividend decision is a by product of the capital budget.
    This implies that the company which seas a high growth potential for itself and therefore required a large amount of fund enhancing growth will declare lower dividend to the share holder.
    (4) Cash Flow: - Since each payment of dividend is involver a cash outflow, a dividend decision is to be see with reference to its effect on the cash position of the company.
    (5) Effect on Market Prices: - Dividend rate effect on the market price share of the company. The question of dividend is an important factor in the calculation of valuation that the investment put on the company.


    In relevancy Theory: -

    Approaches of Dividend M.M. Hypothesis: - Modigliani Milted have expressed in the most comprehensive manner in support of the theory of in reliance. They maintain that it has no affect on the market price of the shares and the values of the firm in determined by. The earnings policy
    “Dividend policy has no effect on the market price of the shares & the value of the firm is determine by the earning capacity of the firm or its investment policy”
    The splitting of earning between retention and dividends may be in any manner the firm like’s doesn’t effect the value of the firm.

    Assumption of M.M. Hypothesis: - The M.M. Hypothesis of irrelevance of dividend is based on the following assumption.
    (1) They are perfect capital market
    (2) Investors behave rationally
    (3) Information about the company is available to all without any cost
    (4) They are no flotation & Transition cost
    (5) No investor is large enough to impact to market price of the shares.

    Walter’s Approach: - Prof. Walter’s Approach supports that the dividend decision are relevant and affect the value of the firm.
    The relationship b/w the internal rate of return earned by the firm & its cost of capital is very significant in determining the dividend policy to observe the ultimate of maintaining the wealth of the share holders.
    Prof. Walter’s model is based on the relationship b/w the firm-
    (1) Return or investment – (r)
    (2) The cost of capital on the required rate of return (K)

    R> K = Growth firm
    R< K = Declining firm
    R= K = Normal Firm

    According to Prof. Walter’s when r < k that is if the firm earns a higher rate of return on its investment then the required rate return the firm should retain the earning & such firm are turned as growth firms.
    In case of declining firm, which do not have profitable investment i.e where r < k the share holder’s would stained to gain the firm distributer earning
    Such firm optimum payout the 100% the firm should be distributed the entire earning as dividends.
    In case of normal firm where r = k the dividend policy will not effect the market value of share as the share holder will get some return as from its firm as expected by them.

    Assumption of Walter’s model: -
    (1) The investments of the firm are finance through retained earning only & the firms doesn’t used external source of the firm.
    (2) The internal rate of return ‘r’ & cost of capital ‘k’ or the firm are constant.
    (3) The firm has a vary long like
    (4) Earning & dividends do not change in determining the values.

    Gordon’s Approach: - Myron Gordon has also developed a model on the lines of Prof. Walter’s suggestion that dividends are relevant and the dividend decision of the firm affects its value. His basic model is based on the following assumption.

    (1) The firm is all equity firm
    (2) No external financing is available or used. Retained earning represents the only source of financing investment programmer.
    (3) The rates of return on the firm’s investment are is constant.
    (4) The cost of capital for the firm remains constant.
    (5) Co-operate taxes do not exist.

    Forms of Dividend/ Type: -

    (1) Cash Dividend: - A cash dividend is a usually Method of paying dividend. Payment of dividend in cash result in outflow of fund’s and reduces the company net worth
    Macaque: - International level funds rule through the shares holder get on opportunity to invest the cash in any manner they desire. This is why the ordinary share holder prefer to receive the dividend in cash but the firm must have adequate liquate resources at it disposal
    (2) Scrip or Band Dividend: - A scrip dividend promises to pay the share holder at the future specific date. In case a company does not have a sufficient fund to pay the dividends in cash it may issues bonds for amount due to the shares holders. The abject of scrip dividend is to postpone the immediate payment of the cash. A scrip dividend bears a interact & is accented as a collateral security.
    (3) Property Dividend: - Property dividends are played in the form of some assets other than cash they are distributed under exceptional transact once is not popular in India.
    (4) Stock Dividend: - Stock dividend mean the issue of the bonus shares to the
    Ex: - Of the share holder if a company does not have liquate reassures it is better to declare stock dividend.
    Stability in Dividend Policy: - The terms of stability of dividend means consistency or lack of variability in the stream of dividend payment. In mare price firm it means payment of certain minimum of amount of regularly. A stabile dividend policy may be established in any of the following three forms.
    (1) Content Dividend per share: - Some company’s follow a policy of paying fixed dividend per share in respective of the level of earnings year. After year such times usually create a “Reverse for dividend equalization” to enable them pay the fix dividend even in the years. When the earning is not sufficient or when they are losses. A policy of constant dividend per share is more suitable to concern whose earning are expected to remain stable over a number of years.
    (2) Stable Rupee Dividend Plus extra Dividend: - Some company follow a policy of paying constant low dividend per shares on extra dividend in the year of high profit such as policy is must suitable to the firm having fluctuating earning from year to year.

    Advantages of Stable: -
    It is sign of continue of normal operation of company It establishes the market value of shares. Plus on extra dividend in the year of high profit. Such a policy is must suitable to the firm having fluctuating earning from year to year.
    (1) It is sign of continue of normal operation of company
    (2) It establishes the market value of shares.
    (3) It create confidence among the investors
    (4) It provides a source of living to those inventions that prefer company’s with stable dividend and view as a source of funds to meet day to day expense.

    Working Capital Management & Working Capital Cycle: -

    Working Capital Cycle

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image079.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image080.gif[/IMG] Cash

    Sales on Credit
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image081.gif[/IMG] Credit receivable Buy Raw Material
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image082.gif[/IMG]
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image083.gif[/IMG]



    Finished
    Crowd Raw Material Processed






    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image084.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image084.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image084.gif[/IMG]Working Capital Management


    Cash Inventory Receivable
    Management Management Management


    (1) Inventory Mgmt - Working Capitals refers to the funds invested in a current asset that is investment stock sundry debtors, Cash & other current assets are essential to issue fined assets profitably.
    Ex: - A machine can’t be used without raw Material. The investments on purchase of raw material require working capital.
    Working capital refers to the investment in current assets. The assets that are normally converted into cash with in one accounting year
    The current assets are: -
    (1) Cash
    (2) Near cash assets such as a short term marketable securities
    (3) Bill receivable
    (4) Inventories including row material semi finished goods, finished goods.

    Types of Working Capital: -

    (1) Grass Working Capital: - (Total working capital in the company) Refers to investment is all the current assets taken to gather. The total of investment in all current assets called a gross working capital.
    (2) Net Working Capital: - It refers to excess of total current assets over total current liabilities. Det. W. C = CA – CL
    (3) Permanent Working Capital: - It refers is equal to hard core working capital. It is that minimum level of investment is the current assets i. e is carry buy the business at all times to carry out minimum level of its activities.
    (4) [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image085.gif[/IMG]Temporary Working Capital: - It refers to that part of total working capital which is required by a business according to the seasonal demand it is also called variable working capital since the volume of temporary working capital keeps on fluctuating from time to time according to the business activities it may be financed from short tern sources.
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image086.gif[/IMG] Temporary
    Working
    Gap
    A/c of working
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image087.gif[/IMG][IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image088.gif[/IMG] Capital
    Permanent working capital

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image089.gif[/IMG]
    Working Capital of Management: - Working capital mgmt is usually concert with the administration of all the current assets & current liabilities.
    It is basically concert with: -

    (1) Determining the need for working capital
    (2) Determining the optimum level of investment in various current asset
    (3) Examining the silent points regarding each element of working capital

    The basic goal of working capital: - Mgmt is to manage the current assets & current liabilities in such a way that a satisfactory level of working capital is maintain that it is neither inadequate and nor - easier.
    Estimating of working Capital requirement: - The working capital requirement of the concern depend open a larger no factors such as nature and size of business the character of the operations the length of production cycle and the stage of production cycle and the stage of economic situation it is not possible to rank them because of all such factors are of different importance and the influence of in dividend factors changes firm over time.
    The following are imp. Factors generally influencing the working capital requirement

    (1) Nature or character of Business: - The working capital requirement for the firm basically nature of its business public utility undertaking like electricity, water supply, & Railway need very limited working capital because they offer only the supply services not products and as such no funds are tide up inventory and Receivables on the other hand. If manufacturing concern they need a lot of inventories and also formulate are receivable policy. So they equine a large a/m of w/c.
    (2) Size of business: - The working capital requirements of concern of business are directly influenced by the size of its business which may be measured in terms of scale of operations. Greater of the size of a business unit larger will be requirement of the working capital
    (3) Production policy: - In certain industries they demand is subject urde fluctuation due to seasonal variations. The requirement of the working capital in such cashes depends open the production policy. The production could be keep either steady by accumulation inventories during select period with a view to meet high demand during the peak season or the production could be curtailed during the select season and increase during peak seasonal.
    Down period: - Select peiver – It the policy to keep the production policy stead by acclimating inventories it will require higher working capital w/c
    (4) Market condition: - Working capital requirement are also effected by market condition like degree of competitor large inventory is essential as delivery has to be given or credit has to be extended on labial terms when market competition is fines or market. May not very strong or is a buyer market.
    (5) Dividend policy: - Payment of dividend utilizes cash in retaining profit as sources by dividend policy

    Financing of working capital and Norms of Bank finance (Sources of w/c): -

    The working capital requirement of a concerned can be classified: -
    (1) Permanent or forced working capital requirement
    (2) Temporary or variable working capital requirement
    In any concerned a part of w/c investments are as permanent investment are infired assets. It is so of because there is always a minimum level of current assets which are confinesly required by the entre price to carry out it day to day business operations and this minimum can not be expected to reduce at any time. This minimum level of current assets gives rise to permanent of fixed w/c as this part w/c peravienently blocked in c. s.
    Similarly, some amount of w/c may be required to seasonal demand and some special exigencies such as rise in price, strikes etc.
    These proportions of w/c give rise to temp or w/c which can not be presently employed gainfully in business.
    The fixed proportnaly of the w/c should be generally financial from the fixed capital sources and the temp or variable w/c requirements of a concern may be meet from the short term sources of capital

    Permanent Long term sources
    Temporary Short term sources

    The various sources for the financing w/c are as follows: -

    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image090.gif[/IMG]Sources of working Capital
    [IMG]file:///C:/Users/Atatork/AppData/Local/Temp/msohtmlclip1/01/clip_image091.gif[/IMG]



    Permanent or fixed Temporary or variable

    (1) Shares (1) Commercial Banks
    (2) Debentures (2) Ingénues Banks
    (3) Public deposits (3) Invade creditors
    (4) Plouging of profit (4) Installment credit
    (5) Loans from (5) Advances
    (6) Financial Institution (6) A/c receivable
    (7) (7) Commercial papers

    Factoring Services: - Is a new finance services that is presently beg developed in India it is not just a single services rather a portfolio of complementary financial services available to client that is sales the sellers are free to avail any combination or services offered by the factoring or according to their individual requirements
    Generally factors involves provision of specially services relate into credit investigation of sales ledger mgmt purchase and collection debt credit protection as well as proustion against receivable and risk biasing
    Its operation is very simple dients enter into an agreement with “factor” working out at foclorng arrangement according his requiem. The factors than face the responsibility and monitoring follow up risk taking and provision of advance.
    The factor generally fines up a limit customer wise for the client (seller)

    Cash Management: - Mgmt. of cash mgmt of cash is an important function of the finance manager. The modern day business comprises of nesnerous units spread over vast geographic as areas. It is the duty of the financer manager to provide adeqleate cash to each of the units for the survival of the business. It is abusively essential that then should be adequate cash.
    It is the duty of the finance manager to have liquidly at all parts of the organization in managing cash

    Objectives of holding cash
    (1) Transaction Motives: - A firm needs cash for transaction for making transaction in the day to day operation
    The each is needed to make purchase pay expenses, taxes dividend etc.
    (2) Precautionary Motives: - A firm holds cash for meeting inaquries that may arise it may happen that idea a big customer does not pay the bills or the row materials suppliers elements the credit the need for more cash will require suddenly without prior notice. Such needs are unforcy but they are not continual phenomena. The is why a firm holds cash for this purpose in the form of near cash assets.
    Whenever emergencies arise near cash assets are converted into cash
    (3) Speculative Motives: - A firm holds cash that leads to some additions requirement for cash some time unfrock opportunities arise when it is profitable for the firm to invest. In order to avail such opportunities cash is required since such needs arise occasionally the cash for this purpose is help in the firm of near cash assets

    The management of cash basically involves four steps: -
    (1) Assortment of the cash requirement
    (2) Optimization of the each need through restructuring of inflows and outflows.
    (3) Selection of the sources from where cash could be brought in
    (4) Investment of circular cash if any into near cash assets.


    Receivable Management
    Is the process of making decision relating to investment in trade debtors? The have already that stated certain investment is necessary to implies and its profit to the firm. But at the same time investment in these assets involves cost consideration also. Further there is always are risks bad debts too. Thus the objective of receivable management to take sound decision as regard investment in debtors In the words of Waltan – The objective of R/M is – “To prompt sales and profits until that point is rest where the return of the investment is further funding of receivables is less than the cost of funds raised to finance that additional credit.
    Considerations for formulating an Optimum Credit Policy
    a) Forming or credit policy: For efficient management of receivables or concern are must adopt credit policy is relative to decision such as credit standard length of credit period etc.
    The volume of sales will be influenced by the credit policy of concern by liberalizing credit policy the volume of sales can be increased resulting into increased profit.
    b) Executing credit policy: After formulating the credit policy is proper execution is very important. The valuation of credit application and finding out the credit worthiness of the customer should be creditor will be together credit info about the customer. The information may be available from financial state, credit trading agencies, report for banks, firm reports etc.
    Financial reports of the customer for a no. of years will be helpful & determining the financial position profitability position.
    c) Formulating & Executing Collection Policy: The collecting of amounts due to the customers is very important. The concern should device procedure to be follow where account becomes due after the expiry of credit period. The collection policy is turn as ‘district and liniments.’
    A strict policy will involves more efforts a collection. A lineament policy may increase bad collection period & more bad debts losses.

    The following are the steps should taken by the concern:
    a) Sending the reminder or payment.
    b) Personal requests through telephone.
    c) Personal visits to the customers.
    d) Taking help of collecting agencies.
    e) Taking legal action.

    Inventory Management
    The investment in inventory is very high the most of undertaking engaged in manufacturing, whole-sale & retail trade. The amount of investment is some time more inventory than in other assets. It is necessary for every management to give proper attention to inventory management. A proper planning of purchasing, handling, storing and accounting for a part of inventory management should for a management.

    An efficient of inventory management while determine:
    a) What to purchase
    b) How much to purchase
    c) From where to purchase
    d) Where to store


    Receivable Management
    Is the process of making decision relating to investment in trade debtors? The have already that stated certain investment is necessary to implies and its profit to the firm. But at the same time investment in these assets involves cost consideration also. Further there is always are risks bad debts too. Thus the objective of receivable management to take sound decision as regard investment in debtors In the words of Waltan – The objective of R/M is – “To prompt sales and profits until that point is rest where the return of the investment is further funding of receivables is less than the cost of funds raised to finance that additional credit.
    Considerations for formulating an Optimum Credit Policy
    d) Forming or credit policy: For efficient management of receivables or concern are must adopt credit policy is relative to decision such as credit standard length of credit period etc.
    The volume of sales will be influenced by the credit policy of concern by liberalizing credit policy the volume of sales can be increased resulting into increased profit.
    e) Executing credit policy: After formulating the credit policy is proper execution is very important. The valuation of credit application and finding out the credit worthiness of the customer should be creditor will be together credit info about the customer. The information may be available from financial state, credit trading agencies, report for banks, firm reports etc.
    Financial reports of the customer for a no. of years will be helpful & determining the financial position profitability position.
    f) Formulating & Executing Collection Policy: The collecting of amounts due to the customers is very important. The concern should device procedure to be follow where account becomes due after the expiry of credit period. The collection policy is turn as ‘district and liniments.’
    A strict policy will involves more efforts a collection. A lineament policy may increase bad collection period & more bad debts losses.

    The following are the steps should taken by the concern:
    f) Sending the reminder or payment.
    g) Personal requests through telephone.
    h) Personal visits to the customers.
    i) Taking help of collecting agencies.
    j) Taking legal action.

    Inventory Management
    The investment in inventory is very high the most of undertaking engaged in manufacturing, whole-sale & retail trade. The amount of investment is some time more inventory than in other assets. It is necessary for every management to give proper attention to inventory management. A proper planning of purchasing, handling, storing and accounting for a part of inventory management should for a management.

    An efficient of inventory management while determine:
    e) What to purchase
    f) How much to purchase
    g) From where to purchase
    h) Where to store

















    الملفات المرفقة


موضوعات ذات علاقة
training course:Internal audit and risk management - gulfstd
A training course entitled Internal audit, analysis and advanced risk management Participants / Participants Audit managers and financial... (مشاركات: 5)

Differences between financial accounting and cost accounting
Differences between financial accounting and cost accounting Basis Financial Accounting Cost accounting (مشاركات: 0)

Glossary of financial accounting terms
The definition of one word or phrase may depend on understanding another word or phrase defined elsewhere in the reference list. Words in bold... (مشاركات: 0)

الإدارة بالإستثناء Management by exception (نص مترجم)
الإدارة بالإستثناء Management by exception الإدارة بالإستثناء هى تلك الممارسة التى تهدف إلى تتبع نتائج العمليات المالية و التشغيلية ، وفقط صب... (مشاركات: 0)

إدارة فائض النقد Cash Surplus Management
ن أكثر الأصول القصيرة الأجل سيولة هو النقد والأوراق المالية قصيرة الأجل ، فالنقد هو وسيلة للتبادل في البيع والشراء ويتألف هذا النقد من النقد في صندوق... (مشاركات: 0)

أحدث المرفقات
الكلمات الدلالية