How to Get Loan with No Interest

Sometime, you may need money in emergency. You want to get loan but you may not be interested to pay interest on that money. For example, you want to do help for your friend's father's medical treatment. At that time, you can take loan from your business funds. You need not pay interest on your own business's fund. But you should take this loan  for humanity. I think, we should give everything for helping helpless.

Now, second question is, what fund of your business, you can use as loan. Following is the list of fund which can be used as loan from your business with no interest.

1. Building Depreciation Fund
2. Other Depreciation Fund 
3. Employees' Salaries Fund 
4. Employees' Accident Relief Fund
5. Repair Fund 
6. Donation Fund 

For example, you get Rs. 5,00,000 as loan from all above fund. Now, you have to refund all these fund on the monthly basis. You have to fix the Instalment because all fund will also be your responsibility. So, check the risk level before taking any fund. For example, you have to replace your inverter battery next day, you need not take depreciation fund of battery. This is interest free loan, so please never misuse my this idea for bad projects.    

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Types of Greed

Today, I am telling types of different greed on the basis of my past experience.

1. Greed due to Lack of Money

When a person lives in lack of money and sees more money, greed may come in the mind of that person. For example, you are poor and you see big money on the road. You think, if I take this money, I can live enjoyable life. This is the first type of greed.

2. Greed due to Habit of Taking Drugs

All those who take drugs, are greedy because they can not live without drugs. They can tell a lie for getting money for buying drugs. They can easily become dishonest for getting money for drugs. Some person can do also bad work for drugs. One day, I was coming to my home. A Nokia mobile handset was in my hand. I was checking my mobile because a call was not going. Suddenly, I saw that a person had tried to snatch my mobile but he failed. They ran because I was on foot and they were on bike. After running these guys, I thought that they were greedy because they needed money for drugs. So, from that day, I decided to fight against all type of drugs. I want to see my country free from all drugs. This is also a biggest reason of greed of our Indians. We can take the example of  Indian corrupt political leaders. In the time of votes, they buy the votes from public giving the greed of alcohol drink. This is very bad.

3. Greed due to Criminal Plan

Some person may give greed due to complete their criminal plan. One of its truthful story happened yesterday with me. India's one state name is Rajasthan. Yesterday, I got call from a person who is living in Rajasthan. He wanted to sell me 8 Kgs Gold on half price. I asked him, how did he get my telephone no. He told that he got from his friend. You know, this telephone no., I have mentioned for solving your accounting problem not for spam. I told him, I am teacher and I have not enough money to pay 1/2 price of 8 kgs. I also requested him to donate me 10 gram for my samdarshi orphan home. Very few person knows that I am collecting money for opening my Samdarshi Orphan home where orphan children will live and get free education  without any problem. He was ready but he did not want to send it in my home. He gave me greed that he will give me 50 gram free gold, if I will go to their village. After this, I can buy whole 8 kgs Gold on half rate. Now, after closing his call, I thought following point

a) How did he get my telephone no. - Through net, through any other way.

b) He did not give me his home address. It means, he wanted to fulfill his criminal plan. When I will capture in his given greed, I will go to his village. I will call him. He will capture me. After this, he can blackmail to my family for getting money. So, next time when he talked with me. I told, wrong no.!

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Non Performing Assets in India

If we check overall position of non performing assets in India, it will be directly related to non performing assets of public sector banks, private sector banks, foreign banks and advances to weaker section banks whose published report is given on official site of RBI. Almost all the banks have non performing assets. It means,  banks had  given loan and advances to businessmen, companies and organisation but still they could not get from them. This issue directly affects the Indian economy adversely . It is estimated that gross NPV of total advances will be 6.33%, it was just 2.33% of total advances in march 2011.

So, RBI has recently taken following steps to control NPA  risk of banking sector business. All these steps are admirable.

1. Once an asset is classified as a non-performing one, banks are required to set aside 70% of the amount.

2. Closer supervision on the asset quality.

1. The RBI has issued guidelines to banks for classification of assets into four categories for watching NPA closely.

a)  Standard assets:

These are loans which do not have any problem are less risk.

b)  Substandard assets:

These are assets which come under the category of NPA for a period of less then 12 months.

c) Doubtful assets:

These are NPA exceeding 12 months

d) Loss assets:

These NPA which are identified as unreliable by internal inspector of bank or auditors or by RBI.

3. One time settlement / compromise scheme

4. Lok adalats

5. Debt Recovery Tribunals

6. Securitization and reconstruction of financial assets and enforcement of Security Interest Act 2002.

7. Corporate Reconstruction Companies

8. Credit information on defaulters and role of credit information bureaus

9. Strengthening of Legal Norm

10. Aligning of prudential norms with

11. international standards

Related : RBI's Balance Sheet Analysis

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How to Make Consolidated Income Statement - Part 2

Yesterday, we had explained basic steps of making consolidated income statement. Today, we will clear these basic steps through an example.

The trial balance of H Ltd and S Ltd are given below as on 31-3-2010

	H Ltd.		S Ltd.
	Dr.	Cr.	Dr.	Cr.
Equity share capital (Rs. 10)		10,00,000		4,00,000
6% Pref. share capital (Rs. 10)		-		1,00,000
Fixed Assets less depreciation up to 31-3-2009	5,50,000		3,50,000
Sales including 200000 sales by H Ltd to S ltd		12,00,000		10,00,000
Cost of goods sold	960,000		8,00,000
stock 31-3-2010	120,000		90,000
debtors and creditors	2,00,000	1,30,000	1,60,000	60,000
general expenses 32000 shares in S ltd.	4,00,000
interim dividend paid
preference			3000
equity			20,000
Dividend received		16000
profit and loss account ( 31-3-2009		76,000		48,000
Bank	62,000		65,000
	24,22,000	24,22,000	16,08,000	16,08,000

1) Shares were purchased on 1-4-2008

2) S Ltd has paid and provided Rs. 20,000 dividend  for 2007-2008 and
46000 for 2008-2009. The net profit for 2008-2009 was 74,000

3)H ltd. proposed 80,000 fir 2009-2010 and S ltd provided for final dividend
of 3000 as preference dividend and 20,000 equity dividend

4) Goods sold by H ltd to S ltd were at 20% profit on sales price. Closing
stock of S Ltd includes 20,000 such stocks.

5) Depreciation is charged @ 10% p.a. on reducing balance method. There is no
addition in 2009. Fixed assets of S Ltd were valued at 10,000 in excess, but not adjustment has
been made in books. Provision for additional depreciation is to be made only to the extent to
holdings of H ltd.

Prepare consolidated trading and profit and loss account  and p/l  appropriation account for the year
 ended 31st march 2010.

Working notes :

1. Calculation of extra depreciation on fixed assets


Amount written up on 1-4-2008  ================  10,000
Less depreciation 10% depreciation ( 10,000 X 10/100) =  1000
-------------------------------------------------------------------
Book value on 1-4-2009 ==================== 9000
10% Depreciation 2009-2010 ================= 900
Holding company's share of depreciation 900 X 4/5 = 720


2. Calculation of capital reserve


Profit and loss account balance of S ltd on 31-3-2009 = 48000
Less : Profit of S ltd for 2008-2009 = 74000
Less : Dividend for 2008-2009      = 46000
--------------------------------------------
 ====================== 28000  ========  - 28000
----------------------------------------------------------------
Profit and loss balance on 1-4-2008 ===========     20000
============================================
Share of holding company 20,000 X 4/5 ========= 16000

3. Calculation of Share of Minority interest in Net Profit of S ltd

Sales --------------------10,00,000
Less cost of goods sold    8,00,000
------------------------------------------
Gross profit -------------- 2,00,000
Less general exp. ------- 1,20,000
Less depreciation ------ 35,000
=============================
current Net profit ------------- 45,000
Old profit  ---------- ---------- 48,000
=============================
Total profit ------------------ 93,000
Less interim dividend ------- 23000 ( Pref. + equity)
Less proposed dividend ----23000 ( Pref. + equity)
========================================
Balance of net profit ------ 47000
==========================================
Share of Minority interest in Net Profit of S ltd  47000 X 1/5
= 9400

Consolidated Trading and profit and loss account and P/L Appropriation account

		Total			total
To cost of goods sold HLtd  960000  + S Ltd 8,00,000 --------------------  ============1760,000 Less internal transfer 2,00,000 ---------------------------- ============1560,000		15,60,000	By Sales HLtd  12,00,000  + S Ltd 10,00,000 --------------------------------  ================22,00,000 Less internal transfer           2,00,000 ------------------------------------ ================20,00,000		20,00,000
To Gross profit c/d		4,40,000
		20,00,000			20,00,000
To General Expenses			By Gross Profit b/d		4,40,000
H Ltd	130,000		By Dividend Received
S Ltd	1,20,000		H Ltd	16,00,000
	250,000	2,50,000	Less received from S ltd	- 16,00,000	Nil
			By Dividend Proposed
			H Ltd	16,000
			Less proposed  from S ltd	- 16,000	Nil
To Depreciation
H Ltd	55000
S ltd	35000
	90000	90,000
To Net Profit C/d		1,00,000
		4,40,000			4,40,000
To interim dividend			By Balance B/d		1,24,000
Pref.			By Net Profit B/d		1,00,000
H Ltd	Nil
S ltd	3000	3,000
Equity
H Ltd	Nil
S Ltd	20,000
total	20,000
Less internal transfer	-16,000
Net	4,000	4,000
To Proposed Divided
Pref.
H ltd	Nil
S ltd	3,000	3,000
Equity
H ltd	80,000
S ltd	20,000
total	1,00,000
Less internal transfer	-16,000
Net	84000	84,000
To balance C/d		1,30,000
		2,40,000			2,40,000
To Share of Minority interest in Net Profit of Sltd		9400	By Balance B/d		1,30,000
To stock reserve 20,000 X 20/100 X 4/5		3200
To capital reserve		16,000
To extra depreciation on value written off 9000 X 10/100 X 4/5		720
To Balance C/d		1,00680
		1,30,000			1,30,000

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How to Make Consolidated Income Statement

To make consolidated income statement is not difficult. But before this, you should understand the meaning of consolidated income statement. Consolidated income statement is important financial statement which is made by parent company in which it shows the result of his company and his subsidiary companies. For example A Ltd is the parent company and B Ltd is the subsidiary company. If A ltd joins his profit and loss account with the profit and loss account of B Ltd, then a new profit and loss account will become. This will be consolidated income statement. It is also called consolidated statements of operations or consolidated statements of earnings.

Now, we are ready to teach the steps to make consolidated income statement. Following are its main steps: 

1st Step : Eliminate Internal Transfer of Stock 

When stock is transferred from holding company to subsidiary company or reverse, at that time, we will eliminate this by following adjustment.

a) If goods are purchased by subsidiary company from holding company of $ 100,000

We will deduct $ 1,00,000 from the purchase of subsidiary company's purchase in the consolidated income statement. We also deduct $ 1,00,000 from the total sales of holding company in consolidated income statement.

b) If goods are sold by subsidiary company to holding company of $ 1,00,000

We will deduct $ 1,00,000 from sales of subsidiary company and purchase of holding company company.

2nd Step : Eliminate Common Expenses and Revenue

Because we have to show consolidated income statement for knowing net profit from the business outside from parent and subsidiary company. So, we will not show any revenue which have been gained from subsidiary or parent company. For example, parent company gets interest on given loan to subsidiary company, it will not show in consolidated income statement. Like this, we will not show the dividend on the shares purchased of subsidiary company in consolidated income statement.  We also will not show the expenses which are incurred by holding company for subsidiary company or reverse.

3rd Step :  Making of Reserve for Unrealized Profit on Unsold Stock  

When any holding company sells the goods to its subsidiary company or reverse, we eliminate it on the basis of first step. But there will be still unsold goods in credit side consolidated trading and profit and loss account. It means there will be the profit margin of parent or subsidiary company in it. One party's sales will be second party's purchase. Unsold stock will be the part of this stock. So, we have to cancel this profit by creating reserve for unrealized profit on unsold stock. We will show this account in the debit side of consolidated income statement or consolidated trading and profit and loss account.

4th Step : Mix the Outside Incomes and expenses

For example, parent company paid salary to employees of $ 10000 and subsidiary company paid the salary to employees $ 5000. We will show the expense of  total salary in consolidated income statement as $ 15000. Like this, we consolidate all outside both parties incomes.

5th Step: Calculate the Minority interest's Part of Net profit

We will also calculate the minority interest's part of net profit. For example minority interest are 1/5 in subsidiary company. Total net profit is $ 1,00,000. We have calculate the minority interest's net profit as $ 20,000. This $ 20,000 will be debited in the consolidated income statement. 

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Opportunity Cost of Capital

One of the doubtful concept in finance is opportunity cost of capital. If opportunity word is not attached with cost of capital, we can easily explain cost of capital. By attaching opportunity word with cost of capital, its meaning becomes  totally different which we define following way:

Opportunity cost of capital is rate of return on our capital which we get on the investment in one of best alternative. For example, we have made building of $ 10,00,000. It is our capital. We can use it for our business or for renting business. Both way, we can get benefit from this capital. If we give our this capital on rent, we have to sacrifice its use from our business. Our tenant will pay its cost of capital in the form of rent. But if we use this capital for our business, we will not get rent. At that time, our business will pay opportunity cost of capital for sacrificing rent in following way:

1st : We need not take the building on the rent because we have own. With this, we can save per month rent of building. With this, we can increase our per month net profit.

2nd : We can charge depreciation on our building. There will not decrease in cash which we earned from business. We will also not give tax on such depreciation because it is deductible from total incomes like rent of business building. So, it will be helpful to generate reserve from profit.

If we calculate both benefit in % form, it will be opportunity cost of our capital. Following table will explain it more deeply.

	Nature of Capital		Actual Cost of Capital		Opportunity Cost of Capital
	1. We borrow $ 1,00,000 on 10% interest		$ 10,000		-
	2.If we get $ 1,00,000 through issue of share capital @ 10% rate of dividend		$ 10,000		-
	3. If we invest own capital $ 2,00,000 without any rate		-		$ 20,000
	4. If get building on the rent of $ 20,000 per month		$ 20,000		-
	5. If we buy same building of $ 2,00,000 and charge depreciation with 10% p.a.		-		$ 20000 (Depreciation) + $ 20,000(tax benefit )
	Total		$ 40,000		$ 60,000

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What are Ponzi Schemes

Ponzi schemes are those scam investment schemes in which return are given on the basis of money which are paid by new investors instead of earning of any profit. For example, you have been offered double return on  your every new investment. First year, one investor invested $ 50,000. You have to pay $ 100,000. In second year another investor invested $ 1,00,000. You paid $ 1,00,000 with double return to first investor from the investment money of second investor. With this, first investor will feel happy and he will tell his friends. His friends will also invest their big money in your fraudulent project. You are doing nothing. You just pay the payment with double amount if any old investor demands. All such investment schemes are called Ponzi Schemes.

First Ponzi Scheme was started by Charles Ponzi. He promised to give 100% profit within 90 days through exchange of international reply coupons (IRC).

Not just charles ponzi, but there are lots of big cheaters who have cheated the public  through these ponzi schemes. You can read all cheaters in the wikipedia's list of ponzi schemes.

Name of Investor	Time of Investment
	1	2	3	4	5
X	100,000	2,00,000	4,00,000	8,00,000	16,00,0000 No payment ( Collapse of the scheme)
Y	-	1,00,000	2,00,000 (Payment)	-	-
Z	-	-	3,00,000	6,00,000	-
A	-	-	-	5,00,000	10,00,000 No payment ( Collapse of the scheme)
Actual Investment	1,00,000	3,00,000	1,00,000	6,00,000	Party is 9 - 2- 11 or disappears
Total Worth	1,00,000	3,00,000	7,00,000	19,00,000	Nil

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Celebration of 4 Years after Birth of Accounting Education

Today, we are celebrating of 4 years after the birth date of Accounting Education. First of all, we are thankful to you that you have given us the opportunity for providing service to you. We started our not-for-profit organisation in 19th Jan. 2008 whose aim is to provide free education of accounting and finance. In these 4 years, we have achieved our following targets.

1. We have published 2000+ accounting and finance notes which can any student download without paying any tuition fees.

2. We have published 400+ video lectures in youtube svtuition channel which any student can see and download free of cost.

3. More than 25,00,000 students from more than 193 countries got benefit from our free education.

4. Every day more than 5000 students of world get free education from our not-for-profit organisation.

5. We have also provided more than 200 solutions of Accountants' problems. We did not take any service fees for providing solution.

6. As a founder of this not-for-profit organisation, I got several offers of joining as accountant or finance manager in big companies of the world. But, I did not accept these offers because I feel satisfy in this not-for-profit organisation. I prefer your love for me than big salary in big companies.

7. Our all online service will also be free in future. We will also provide VCD and CD lectures at cost for different classes in villages on cost for offline purpose.

8. In future, we will increase our quality of providing free education.

9. In future, we will start  free offline seminars on different issues of accounting for your personal help in different cities of India and abroad.

10. I hope, in future, your faith in this organisation will be same as past. Your faith, your trust and your appreciation for our work will give us power to do work in this direction.

Again Thanks for your valuable Time for our organisation

{ If you want to participate in this celebration, you can call me at 01762-500250 (India), +91-1762-500250 (International}



from Vinod Kumar 

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After-tax Cost of Debt Definition

After-tax cost of debt means calculating the rate of interest after deducting tax rate from total interest rate. Actually we calculate cost of debt before the tax because interest is our operating charges and it is deducted from our total revenue for tax purpose. So, there is no need to calculate after-tax cost of debt. But some good finance managers recommend calculating after-tax cost of debt because with this, we can estimate our total tax saving, if we get money through debt instead of shares or stock.

For example ABC Company has issued 10000 shares and debentures with the price of $ 10 each. Cost of debt is 10% and cost of equity share capital is also 10%. Suppose, corporate income tax rate is 25%. After tax cost of debt will be

= 10/100 X 75/100 = 7.5%

But in case cost of equity share capital, we have estimated (not fixed) to pay 10%. By this way, we save 2.5% tax money if we get loan through debenture. This is $ 2500 which we can reinvest in good project. Otherwise, our $ 2500 will go to Govt. account. So, to calculate this rate and on this rate we can estimate our tax saving.

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Non Operating Expense Examples

Non operating expenses are those which are not related with the operation of business. Every businessman can do specific commercial activities. A business can not produce and sell of furniture and financial activities. All the activities which a businessman does for getting commercial benefits in his field will be his operating business. Its all expenses will be his operating expenses. But sometime, he gets also commercial benefits for the activities which are not related to his operation. All expenses which are not related to his operation will be his non operating expenses.

Now, we are ready to explain non operating expense examples.

1st : If You are Doing Business in Product Market

For example, you are doing the business of buying and selling the product of knife as whole seller. You buy knives at maximum quantity at very low price directly from manufacturer and sell at high quantity and at higher price to retailers. Your all business expenses are relating to this.

(A) Suppose, you have more business space which you want to give it to other party on rent. To give your space on rent and getting rent is your non operating business. For this, you can pay following non-operating expenses:

a) Repair of extra space.
b) Property tax on that space.
c) Supervisor's salary for caring that space.

(B) Suppose, you have earned good money in your business of selling knife. You want to invest it in financial market like buying of shares and getting its dividend. For this, you have paid following expenses. 

a) Demat Account Opening Fees.
b) Paying of Broker fees.
c) Loss on selling shares at low prices ( *Loss is also expenses because this expense is paid in current time but our capital is reduced due to any loss like reducing of capital due to paying of expenses).
d) Bank Charges for collecting your dividend automatically.

(C) Suppose, you want to invest in construction business. For this, you become partner of sham. You are sleeping partner. You invest only small  money for its operating expenses  and get 5% share of profit or loss. At that time, following will be his non operating expenses

a) Your invested small money expenses will be your non operating expenses

b) If same partnership suffers loss, at that time, you will get 5% loss. Excess of your loss over your invested small money is also your non operating expense.

2nd : If You are Doing Business in Financial Market

In financial market, you buy and sell the shares, debentures and other financial market like mutual funds and hedge funds. This is your business. You may also be financial company, bank and other financial organisation which collects money at low rate of interest and gives it at higher rate of interest. At that time, following will be  your non operating expenses

(a) Suppose, you buy some space and sell it at profit. Paying the expenses for buying this will be your non operating expenses.

(b) Suppose, you contract with other party for doing business of buying and selling of product. All its expenses will be your non-operating expenses.

3rd : If You are Doing Business in Service Market 

Suppose, you are CA. Your work is to provide the audit service to companies. But due to this profession, you can estimate the idea of profit in different companies. You contract with your wife. Your wife started business in higher profit industry like producing of soft drinks. You are paying its all operating expenses and getting earning from this business. These all operating expenses in soft drinks will be non operating expenses of your audit service business.

Important 

1. To knowing the difference between operating expenses and non operating expenses will be helpful for comparison by calculating operating expense ratio and non operating expense ratio. Our total sales will now divide into two parts. One is for paying operating expenses and other for paying non operating expenses.

2. From calculating taxable net profit, we deduct only operating expenses from our total business expenses. 

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