An accounting framework is a coherent system of inter-related objectives and fundamentals that should lead to consistent standards that prescribe the nature, function and limits of financial accounting and financial statements. The main reason for developing a conceptual framework are that gives a framework for setting accounting standards, a basis for resolving accounting disputes and fundamental principles which then do not have to be repeated in accounting standards. Furthermore, Conceptual Framework can be categorized in terms of the distinctive function of management accounting within the management process in organizations. Moreover, the way in which the utility of the outcomes of the management accounting process can be tested. Conceptual Framework is a criteria which can be used to assess the value of the processes and work technologies used in management accounting and capabilities necessarily associated with the effectiveness of the management accounting function overall. Conceptual Framework plays an important role in Continue reading
Financial Concepts
Dividend Policy
Dividend refers to the portion of net income paid out to shareholders. It is paid in cash and/or stock for making investment and bearing risk. Dividend decision of the firm is yet another crucial area of financial management as it affects shareholders wealth and value of the firm. The percentage of earning paid out in the form of cash dividend is known as dividend payout ratio. A company may retain some portion of its earnings to finance new investment. The percentage of retained in the firm is called retention ratio. Dividend policy is an integral part of the firm’s financing decision as it provides internal financing. Dividend policy is concerned with determining the proportion of firm’s earnings to be distributed in the form of cash dividend and the portion of earnings to be retained. A firm has three alternatives regarding the payment of cash dividends: It can distribute all of its earnings in Continue reading
What is a Debenture?
A debenture is a debt instrument, which is not backed by collateral’s. Debentures are backed by the creditworthiness and reputation of the debenture issuer. Besides, a debenture is a long-term debt instrument issued by governments and big institutions for the purpose of raising funds. The debenture has some similarities with bonds but the terms and conditions of securitization of debentures are different from that of a bond. A debenture is regarded as an unsecured investment because there are no pledges (guarantee) or liens available on particular assets. Nonetheless, a debenture is backed by all the assets which have not been pledged otherwise. Normally, debentures are referred to as freely negotiable debt instruments. The debenture holder functions as a lender to the issuer of the debenture. In return, a specific rate of interest is paid to the debenture holder by the debenture issuer similar to the case of a loan. In Continue reading
Steps Involved in the Process of Securitization
Securitization, a process by which illiquid financial assets are transformed into tradable commodities, is one of the most significant innovations of the financial world. Having originated in 1970 in mortgage markets in the USA, securitization has already converted over $90 trillion worth of non-tradable assets into marketable securities. As a powerful tool of liquidity and risk management, securitization has had a tremendous impact on the welfare of the world economy. In mortgage markets in many countries it provides a cheaper source of financing, and thus promotes the demand for housing. In the banking sector, securitization is widely used for allocating capital more efficiently, transforming risk into a tradable security, and reducing the overall cost of capital. It has enabled developing countries to emerging market institutions to raise their sovereign ratings ceilings and thereby tap international capital markets for lower-rate financing. Read More: The Concept of Securitization The process of securitization Continue reading
Functions of Debt Recovery Agents
The core function of a debt recovery agent is to collect dues/receivables from specified debtors of the bank as per agency agreement entered with the principal. Remitting the collected funds to principal, keeping account of the receivables collected and yet to be collected and reporting the position and developments to the principal are essential but ancillary to the core function. All these functions will be specified in most agency agreement and would require to be accordingly discharged by the debt recovery agent. Apart from the easily collectible receivables, most banks have on their books over due receivables from debtors who are not traceable, or who show unwillingness pay or who resist surrendering the security charged. In such cases, the recovery process is difficult and requires handling by specialized collection agencies to process the required expertise. The functions of re-processing the security, initial legal action and tracing Continue reading
Decision Making Conditions
There are different conditions in which decisions are made. Managers sometimes have an almost perfect understanding of conditions surrounding a decision, but in other situations they may have little information about those conditions. So, the decision maker must know the conditions under which decisions are to be made. Generally, the decision maker makes decision under the condition of certainty, risk and uncertainty. 1. Certainty Certainty is a condition under which the manager is well informed about possible alternatives and their outcomes. There is only one outcome for each choice. When the outcomes are known and their consequences are certain, the problem of decision is to compute the optimum outcome. Similarly, if there are more than one alternative they are evaluated by conducting cost studies of each alternative and then choosing the one which optimizes the utility of the resources. The condition of certainty exists in case of routine decisions such Continue reading