The basic function of a commercial bank is to make loans and advances out of the money which is received from the public by way of deposits. The loans are particularly granted to businessmen and members of the public against personal security, gold and silver and other movable and immovable assets. Such loans and advances are given to members of the public and to the business community at a higher rate of interest than allowed by banks on various deposit accounts. The rate of interest charged on loans and advances varies depending upon the purpose, period and the mode of repayment. The difference between the rates of interest allowed on deposits and the rate charged on the loans is the main source of a commercial banks income. A loan is granted for a specific time period. Generally, commercial banks grant short-term loans. But term loans, that is, loan for more Continue reading
Business Finance
Business Finance is that business activity which is concerned with the acquisition and conservation of capital funds in meeting financial needs and overall objectives of business enterprises.
Accounting Treatments for Non-Performing Leases
There is no information in the guidance note on lease accounting, 1995, for non-performing assets. The general accounting principles for non-performing assets is contained in accounting standard 9 on Revenue Recognition which is more or less on the lines of the International Accounting Standards on the issue. The Standard provides that whereas, in general, incomes are to be recognized on the basis of accrual, in case of an uncertainty in the ultimate realization of an income, the treatment is as follows: If the uncertainty is prevalent at the time of raising the claim for the income, the recognition of the income shall be postponed If the uncertainty arises subsequent to the claim being made, there shall be a provision made to the extent of the uncertainty. This statement lays down the basic difference between a provision against an income, and non-recognition of income, which is very significant. The accounting for Continue reading
Stages of Venture Capital Financing
The Venture Capital Financing Spectrum The requirements of funds vary with the life cycle stage of the enterprise. Even before a business plan is prepared the entrepreneur invests his time and resources in surveying the market, finding and understanding the target customers and their needs. At the seed stage the entrepreneur continue to fund the venture with his own or family funds. At this stage the funds are needed to solicit the consultant’s services in formulation of business plans, meeting potential customers and technology partners. Next the funds would be required for development of the product/process and producing prototypes, hiring key people and building up the managerial team. This is followed by funds for assembling the manufacturing and marketing facilities in that order. Finally the funds are needed to expand the business and attain the critical mass for profit generation. Venture capitalists cater to the needs of the entrepreneurs at Continue reading
Positive Accounting Theory
The beginning of positive accounting theory is the Efficient Markets Hypothesis (EMH). The EMH is based on the assumption that capital markets react in an efficient and unbiased manner to publicly available information. The main strengths of Positive Accounting Theories over Normative Accounting Theories are the facts that hypothesis are framed in such a way that they are capable of falsification by empirical research. Also, these theories aim to provide an understanding of how the world works rather than stating how the world should work. Moreover, PAT tries to understand the relationship and connection between various accounting information, managers, firms, and markets; and also analyze these relationships within an economic framework. There are several assumptions made in development of positive accounting theory. The first is that the firm is a nexus of contracts. In relation to Positive Accounting Theory, because there is a need to be efficient, the firm will Continue reading
Ethical Issues in Cost Allocation
A cost is generally understood to be that sacrifice incurred in an economic activity to achieve a specific objective, such as to consume, exchange, or produce. All types of organizations- businesses, not-for-profits, governmental- incur costs. To achieve missions and objectives, an organization acquires resources, transforms them in some manner, and delivers units of product or service to its customers or clients. Costs are incurred to perform these activities. For planning and control, decisions are made about areas such as pricing, program evaluation, product costing, outsourcing, and investment. Different costs are needed for different purposes. In each instance, costs are determined to help management make better decisions. When incurred, costs are initially reviewed and accumulated by some classification system. Costs with one or more characteristics in common may be accumulated into cost pools. Costs are then reassigned, differently for specified purposes, from these cost pools to one or more cost objects. Continue reading
Capital Profit and Revenue Profit
Meaning Of Capital Profits The amount of profit earned by the business from the sale of its assets, shares, and debentures is capital profit. If assets are sold at a price more than their book values then the excess of book value is capital profit. Similarly, if the shares and debentures are issued at a price more than their face value, then the excess of face value or premium is capital profit. Such profit is not earned in the ordinary course of the business. It is not available for the distribution to shareholders as dividend. Such profits are transferred to capital reserve. It is used for meeting capital losses. It is shown on the liabilities side of balance sheet. Meaning Of Revenue Profits Revenue profit is the difference between revenue incomes and revenue expenses. It is earned in the ordinary course of the business. It results from the sale of Continue reading