Salary Slip Format

Sir,

My friend started a proprietorship firm, which deals in mobile accessories, computer software, hardware, and services. He wants to give a salary slip to his employees, so please provide me a format of salary slip.

Tell me about the percentage of PF, ESI and  TDS deduction and other various  instrument of salary slip..

Regards

Sharad Gupta

Sharad Gupta! To make the format of salary slip is so simple, you can create your own format in ms excel. Pay slip is the list of  basic salary, other incentives and deductions. One column of pay slip, you can add the main earnings of your employees and in second column, you can add main deductions. Balance will be the net pay which you will be paid with Salary slip. Following may be its format

PF, ESI and TDS are the main deduction, except this, there may be other fund deduction which may be deducted from total earning of employees. Sometime, employees take loan, at that time, employer deducts installment of his given loan out of salary. So, all these will be included in deductions. All these deductions are some % form and will be updated from time to time. Some deduction may be % on basic salary and other may be % of basic salary plus allowance etc. So, you have to go the Govt. Official Sites for getting all updates. For example, you want to know EPF updated rates of deduction, for this, just go to http://www.epfindia.com/. If you want to ESI, you need to get update from http://esic.nic.in/ .

 If you want to get update of TDS, you need to go http://www.incometaxindia.gov.in/home.asp . So, study and study, you will learn everything what you want to know.

Related Resource :


Payroll Accounting System


Employer's Contribution

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Accounting of Advance

Dear Sir ,

I am working in a construction company as a sub contractor , just now we are started our construction work . No capital invested , we are received 100000 ( Approx ) from our main contractor as an advance for the work and we are managing our overheads and expenses from that .we are using tally.ERP 9 for accounting , we entered the cash receipt as

Cash a/c Dr

To main contractor ( Sundry Creditor )

We are doing the construction work for them so it is right to put them as a sundry creditor ?

Shajahan from Kuwait (10/31/2011 1:44:58) 

Taking of advance before doing work is just like current liability of your business. It is just OK, if you show main contractor as sundry creditor. But, if you buy many things on credit at that time, you can create doubt by passing this entry and keeping advance from main contractor in simple sundry creditors. Simple way is just create a group of advance and keep it under current liability. Now create ledger Advance from Main contractor or simple main contractor under this advance. And Pass following  entry in receipt voucher.

Cash Account Dr. 100000

Main Contractor ( Advance) Cr. 100000

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Study of CA after B.Com in India

I want know that how many year require for study in ca after B.com.

Ajit Singh Bihari from India

 Ajit Singh Bihari, If you have cleared B.Com with 55%, you can start your study in CA by directly admission in  IPCC. After passing this examination, you can join CA Final Examination. Then you can become CA. If Everything is Ok, I think you can become CA after

IPCC Examination + IT Training (100hrs) = 1 year

Article Training with a Professional CA = 3 years

CA Final Examination = 1 years
--------------------------------------------------------------------------------------
Total Approximate Time for Becoming CA = 4 years.
=========================================================

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Why do Indian varsities no have Magnets for Foreign Students

Today, on the basis of Association of Indian Universities (AIU) report, Times of India published the educational news "Indian Varsities no Magnets for Foreign Students." In this education news, we found that more than 1.5 Lakh students went to foreign countries for getting education but our all Indian universities have attracted very few foreign students. No. of all these universities are also few. But this new did not mention the real reason of this.

I analyzed this. Following point may be the reason of this happening:

1. There is no doubt, there is big source of knowledge in India but when foreign students come to India, they face big cost of living. I can explain it with my past experience. Once, I went to Mumbai. I went to a shop and drank on cup of milk. When I asked for bill. He demanded me Rs. 80. I know, this cup's cost was not more than Rs. 10. But, they demanded money for their rich city. Like this, there are lots of lack of honesty. All these points discourage foreign students to come in Indian Universities and live in India for learning.

2. There is also corruption in Indian education system which should be removed.

3. Our universities are working under heavy burden of Regulatory restrictions. Listing those will be too lengthy and  nothing will change except lip service by the concerned. One classic point is 15% restriction on foreign students. Various interpretations by different regulators,particularly in the higher education sector. With such limiting factor imposed on Universities, achieving higher foreign students intake become impossible,more so for the Universities stated in this article.We have complex regulatory environment & do not have any willingness to amend those.

4. One more reason that foreign universities attracts Indian students by big advertisement. In this advertisement, they show that they have better knowledge. It is correct that they have big resources but it is not correct that they have better knowledge. On the other hand, very few Indian Universities advertise their organisation in foreign countries because Indian's own young population is 10 times of foreign young population, so these universities are concentrated. This is also very good point for Indian students.

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E-filing of Excise Return

In India, an excise or excise duty or central excise tax  is described as an indirect tax levied and collected on the goods manufactured in India. Producer or seller who pays the tax to the government is expected to try to recover the tax by raising the price paid by the buyer. So, producer or manufacturer has to file the excise duty return. As per new rules and regulation, manufacturer can file his return of excise duty electronically. This is called e-filing of excise return.

Following are its benefits

Benefits to the Assessees

1. Reduce Physical Interface with the Department
2. Save Time
3. Reduce Paper Work
4. Online Registration and Amendment of Registration Details
5. Electronic filing of all documents such as applications for registration, returns [On-line and
off-line downloadable versions of ER 1,2,3,4,5,,6,7,8,Dealer Return, and ST3], claims,
permissions and intimations; provisional assessment request, export-related documents, refund
request 6. System-generated E-Acknowledgement
7. Online tracking of the status of selected documents
8. Online view facility to see selected documents
9. Internal messaging system on business-related matter


 If you are accountant of that manufacturer, it will become your duty to e-file of excise return. So, you should learn its steps.

Before learning simple steps, you should know, time when you have to e-file of excise return.

Now We learn Two Simple Steps of E-filing of Excise Return

1st Step : Registration for E-filing of Excise Duty Return

If you want to e-file of excise return, you have to register yourself with ACES. What is ACES. ACES means automation of central excise and service tax. Without this, you can not e-file of your excise duty return. For registration with ACES, just Go to the Indian Govt. Website Central Board of Central Excise and Custom. In the top of website, you will see central excise button, click this and if you are new user, you have to get user name and password. For this, fill the new user form and you will get user name and password in your email.

After this, you can login and complete the other process of registration by filing form A- 1, A- 2, A- 3, non assessee form  and declaration form. 

Now, your registration will be approved by commissioner. You will receive a registration certification and it is called RC like RC of any vehicle. This is important and you will receive within 15 days of apply in above registration form. You will receive same RC on your mentioned address through post. With this RC, you will get 15 digit Registration no. It is first 10 digit will be your PAN number, 11-12 digit will be excise manufacture, 13-15–Systems generated alphanumeric serial number.   

2nd Step :  E-filing of Returns Excise Tax 

When your above registration will be approved and your will get RC and registration of excise no., you will be able to e-file of your returns of excise tax. For this login ACES with your user name and password like above above registration. Now, you have to choose RET  instead of REG in main menu. Now, fill all the detail and submit by writing the detail challan of your paid excise duty. 

Related Resources : 

E-Return of Excise Return Video Tutorial

E-Return of Service Tax 

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Types of Government Budgets

Govt. mostly makes two or three type budgets. One is financial budget for a year for the works which is being operated or will operate in future. This budget can also divide in sub- parts. First sub part is anticipated budget. It is that budget which is proposed for next year. Next sub- part  is actual budget which is made in the end of year. In this budget, we have to show what are the main fund and what is the amount of total expenditure and what refresh cost will be incurred. One more type of Govt. budget is for salary. This budget is also made anticipated at the beginning of the year and then, at the end of year, it is also made on actual salary cost basis.

Long Period Govt. Budget

For completing big projects, Govt. makes long period budgets. These projects are given to big companies. For example budgets for establishment of oil refinery, thermal plants and central sponsored national roads projects. For example Jalandhar to Panipat National 6 line highway road, bridge, housing Colonies. Govt. first invests money on yearly basis and then project is started for long period under long period govt. budget.

Variance on Financial Budget and Salary Budget 

If project is not completed at the given time, its cost is increased. Value of budget is also increased due to this reason. If projects are completed with in time, there will not be variation in budgeted and actual cost. If variation will exist, it will be very very minor. We can state that these variation will be 2% or 3%. But all the projects which have been delayed due to delay of  tender or not working by contractors or shortage of funds. Due to this, there will need to increase expenses.

Benefits of Classification of Govt. budgets:

Govt. has lots of departments. If govt. will not classify his total master budget into different sub-parts, how can govt. estimate the need of each department? Some budgets are also sponsored by Central govt. Central govt. sponsored the fund for specific projects. Central govt. pays money to State govt. and state govt. issues money on the basis of different budgets of its different departments.

Written by Guest Writer Shri Om Parkash

Shri Om Parkash completed his B.Com  degree in 1970. He  started his Career with office Assistant in Private Company in 1970. In 14 April 1971, he selected for State Govt. service as Account Assistant. After this, he never saw back and he provided his best services in Govt. department with honestly and dedication  for 35 years. He retired as Circle Superintendent of  Water Supply and Sanitation Department ... Read More >>

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My Father Became First Guest Writer of Accounting Education

I am excited to announce that My Father Shri Om Parkash accepted my proposal for writing  for our Not for Profit Organisation (Accounting Education ) as Guest Writer. He has 35 years experience in Govt. service. Now, he is retired from his Govt. Service. He spends more time in the devotion of God. In future, he will share his experience with you in this Accounting Education. I want to introduce my father with you. His works was totally administrative. He managed accounting, audit and other departments in his 35 years of Govt. Service. We all are lucky, we can read and learn his experience through his guest writing at accounting education. First of all read his full profile at here.

Me with My Father

What can you learn from my father?

1. If you are doing government service in accounting department, you can learn lots of tips and tricks to manage the accounts of Government department.

2. Your can increase your administrative skills by reading my father's contents.

3. You can engage directly with my father by asking problem and selecting the category govt. in ask a question form.

4. My Father was also responsible to manage the payroll of whole govt. department's employees and TDS, completing some Central Govt. projects and HR of accounting department and finance budget. So, his experience may be useful for you.

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What is Shorting Stock

Shorting of stock means to sell the shares for saving from loss and getting speculative profit.

I try to simplified it. Suppose, you are a broker. You are thinking that in the future price of XYZ Ltd. shares will increase. You borrowed the shares from a person whose price was $ 100, suppose, you borrowed one share. Now, when you estimate that its price will decrease, you will sell at $ 100 before decreasing the price. Suppose, tomorrow prices of XYZ Ltd. decreases and you buy same share at $ 60. Now, you have gained $ 40. After this you returned same share to the person from where you borrowed. You paid lending fees just $ 5 dollar. Now, your net profit from this shorting of share is $ 35.

Loss-making Shorting of Stock 

If the price of XYZ Ltd increases and you buy same share at $ 140. At that time, when you will return this share, you will face total loss $ 40 +$ 5 = $ 45 in this deal. So, this may be your loss making shorting of stock.

Mechanism of Shorting Stock 

From Above explanation, we learned that main aim of shorting of stock is to sell the stock at higher price and then repurchase at low price. But in real sense, prices of stock are affected from lots of factors. So, shorting of stock may be profitable or loss suffering. Following graph will represent the mechanism of shorting of stock.

In above graph, we see when the price of XYZ shares is $ 250 at that time, broker borrow and sell same price on fifth day. If he buy same share on 8th day at $ 150, he will get profit from short selling $ 100. If he buy same shares on 12th day, he may suffer loss of $ 100. This loss or profit may be increased due to changing the price of XYZ co. Ltd or changing the date of buying.

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How can Rich People Help Poor

Few minutes ago, I was watching a very old Hindi song in which singer gave some good tips for  removing poverty. Rich people can play important role for helping poor because value of money is low for rich people and they can easily give his excess money to poor if they leave their bad habit of miserliness. Following are the tips which may be helpful for rich people for helping poor.

1. To do Work Honestly

Rich people need not to give their all money to poor. But Every rich person should start his duty honestly. If you are doing business, do it honestly. If you are doing service  in govt. department, do it without bribe. If you making any product, never adulterate of lower quality raw material in it. If rich people will start work honestly,  poor will get quality products with this, they have not pay unnecessary expenses on health problem. They can get justice and cheap service if there is no bribe in Govt. offices. Never give or take bribe, both are maker of reason of poverty.

2. Help to Poor is the Help of Nation

If you will support the poor, it means, you are supporting your nation. Nation is the mixture of poor and rich people. You can give educational, financial or any other support to poor peoples.

3. Good Use of Tax Evasion

Tax evasion is crime. But you have become rich with the money of tax evasion, now you can use this tax evasion for helping poor people. There are many way you can use the money of tax evasion.

a) Donate money in Animal Care Centers - There are lots of unemployed person who are doing work in animal care centers, if you will donate your money in animal care centers, you can help all these unemployed persons.

b) Donate Wikipedia - Wikipedia is free source of education for all. Poor can get education from Wikipedia without going to ads.

c) Donate the Organisations who care Orphan peoples - There are lots of organisations who care orphan people. By this donation, you can help poor people. Same amount, you can get as tax rebate.

4. Embrace the Poor 

If you are rich and want to know the best way to help poor, you should start it by embracing poor. If you start to embrace the poor people, they can easily leave the bad habits of begging. They will feel confidence that rich people are behaving better with them. After this confidence, they will start to work.

Related : Annual Report of Our Local Student Welfare NGO

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What should Do after B.Com

B.Com. is one of most famous degree of graduation in India and other asian countries like Pakistan. Lots of students are doing b.com from different universities. But every student who is doing B.com. wants to know, what should he do after B.Com?

There are lots of specialize fields after doing B.Com. B.Com degree is the base of all these fields. All the basic subjects are taught of specialize fields in three parts of B.Com. Following is list of all these specialize field which you can do after B.Com.

1. Management Field

Your placement will be done by lots of companies, if your interest in management and you will do MBA after B.Com. You can choose human resource management or marketing management or financial management as your specialize. In HR management, you have to appoint the employees and manage the training and handle other issues of employees. In marketing management, you have to increase the sales of company's products. In financial managemement, you have to utilize your skills for effective use the funds of company.

2. Accounting Field

Second important field after B.Com. is Accounting. After B.Com., you are eligible for becoming accountant. But you should do more after B.Com., if you want to specialize in accounting. In India, CA, ICWAI and CFA are three professional degrees which you can do after B.Com.

3. Teaching Field

If you are  interested  in teaching field, there are lots of doors open after B.Com. You can become teacher for commerce classes. Your can become college lecturer. You can operate your own coaching institute. For this, you should have to clear M.Com. If you will do B.Ed, it will be plus point. For college lecturer, UGC NET in commerce is compulsory.

4. Economics

For stabilizing the economy of any country, we need economist. If you listen the strength of China economy, the hand behind of this is of its Chinese economists. For becoming economist, you need to do only M.A. in Economics after B.Com.

5. Statistics Field

This field is relating to collection of data and analyze it with statistics tools like probability, average, index, co-relation, standard deviation and others. You can make this as your field by doing M.Sc in Statistics after B.Com.

6. Competitive Tests for Govt. Field 

If you want to Go to Government sector, you can give different competitive tests of different central and state govt. organisation. B.Com degree is basic eligibility for giving all these tests. One of my friend selected in Govt. Bank. He struggled  more than 5 years for getting chance in Govt. Bank service after B.Com. Now, he is providing his service in Govt. Bank.

7. Business Field

Like any other field, you can start your own business after B.Com. This degree helps you to promote your business more fastly because you have to use all things practically what you have studied in B.Com. You can choose any product or service. Either you can manufacture that product or you can trade in that product.


Related : How to Get Online B.Com Degree in India 

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Discover Bajaj 100 CC Bike Review Oct. 2011

Our New Discover Bajaj 100 CC 

One good new for me and for our organisation that I have bought new discover bike on the eve of deepavali 2011. This bike has been bought from Accounting education and other my online works and services saved funds. Discover Bajaj 100cc  price is Rs. 47390 without RC. Bike insurance and temporary no. cost in it. With RC and diving licence, its cost will be Rs. 51390 (approximately). I just covered 150 kms distance on this bike and I am ready to write some reviews and experience of this bike. Main purpose of writing these review is to help you for better investment in bike. I think your full satisfaction from any bike is best return on your investment in bike. This is first part and next part, I will write after driving it more.

{Remember : Before driving discover bajaj 100 cc bike, please read the guide book which you will get with this bike. One of important conditions of good bike driving is that you have to drive 10-20 speed at first 2 gears and 20 - 30 at third gear and 30- 40 at 4th gear. If you want to drive more than 40+ speed, you can use 5th gear. }

1. Auto Start with in Gear

Bajaj is one of important player in two wheeler vehicle industry. One of best quality, I liked in discover bajaj 100 cc bike that I can auto start  this bike with hand button  within gear. It means, when my bike is switched off in very high traffic area, I need not cancel the my previous two gears. One of my friend is a teacher in Himachal pardesh. He also bought discover 150 CC. He met me on this deepwali and told me, this bike is best because when he drive on hill, sometime, it is very necessary to start bike in gear, otherwise you can fall down from hill with your bike. So, all those who do not know to drive bike or who are living in hills, they can buy this bike for getting this benefit.

2. Five Gear

Before buying of this bike, I had run my friend's Platina Bajaj many times.It has 4 gears. So, for driving my bike on the speed of 30 to 40, I have to use final gear. Now, in this bike, I can use same gear but sometime, I drive 40-60 or more, I can use 5th spear gear. Nice. I am not interesting to drive at more than 60 because it may be risky.

3. More Voice

Perhaps, this is my first experience on discover 100 CC but I did not like its loud voice. I run both Platina bajaj and hero honda splender+, I think both are more peace than discover. I will write more reviews on this point  after first service.

4. Listen to All but take your own decision

I have lots of friends who have different bikes of different companies. They have different types of qualities. Check all bike by going to their respective showrooms. Take test drive of all bike before buying any bike. Some bikes may have resale high value like hero Honda or some bike's consume low petrol or good design. So, this is your investment. Listen to all but take your own decision.

5. Bajaj Discover 100cc Average

It means what distance will any bike cover with one liter of petrol. As per company, they are saying that it will give 80+ average. It means, I can drive it more than 80 kms. It will tell me the time, after third service of this bike. If it is true, this plus point but, I will also check its engine's life on this same average.

Related : We Acquired New Inverter and Battery  

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Rowan Premium Plan

Rowan premium plan is one of important incentive wage plan which was made by  James Rowan of David Rowan and Co. For making this plan, James Rowan had studied the Halsey plan. As per this plan, there is guarantee of minimum wage with time rate. But worker has right to get bonus on the basis of his time saved. We can calculate total wage with rowan premium plan by using following formula.

Total Wage = Time Taken X Time Rate + Time Saved / Standard Time X Time Taken X Time Rate 

or


E = T X R + S-T / S X T X R

E = Total earning

T = Actual Time

S = Standard Time

R = Rate per hour

For example, a worker takes 12 hours for completing our works but our standard time is 16 hours. Rate per hour is $ 2. As per Rowan Premium plan, we will calculate wages of a worker with following way

E = 12 X 2 X 16-12/ 15 X 12 X 2 = $ 30

Minimum wage = $ 24

Incentive = $ 6

Verify the total amount saved by worker

If he gets the wages on the regular rate = saved time  X regular rate =  4 X $ 2 = $ 8

= 6/8 X 100 = 75%

It means, if worker gets wages on this plan, he will save 75% of regular wages.

Merits of Rowan Plan

1. This plan is useful for new workers.

2. This plan is useful when owner wants to increase production at very low time.

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How to Celebrate Deepavali

First of all, happy deepavali to all my online friends and students!

In Accounting Education, I celebrated last two deepavali with you (see here and here) in which I wrote the message which is useful for you. Today, on this festival, I am telling to you the best way to celebrate deepavali. If you will follow these steps, you can get real enjoy on this festival.

1. This is Festival of Light not the Festival of Pollution 

This is the festival of light not the festival of pollution. You can light your house by burning candles or small lamps of pure oil. No need to burn the bombs or to burn other small weapons which yield pollution. Your simple decision brings big difference and helps to prevent pollution on this festival.

2. Follow the Message of Shri Ram Chander 

Shri Ram Chander came on this earth and provided us great message by doing practical. He obeyed his father's order and spent 14 years in forest. He punished monster Ravan and others. He shows the example of dignity of a good person in this world. My mother loves to read the Ramayan. It is the story of Shri Ram chander's whole life. By reading it, we can learn to behave good with others. Not just reading it but we also follow on it. One day, a person was travelling in the train. He was reading ramayan. He told me that he was studying Ramayan for last 10 years. When I asked the reason of travelling on the train. He told me that he was going to file case against his brother because his elder brother has captured his one foot land illegally. I told him that he had just read but not follow its read message. In Ramayan, we learnt that Bharat who was the brother  had scarified his ownership of state for 14 years. When his elder brother came after 14 years, he returned his state ownership to  his elder brother Shri Ram Chander. It means, we have to follow on it.

3. Best time for pledge 

This festival is the best time for pledge. You can take pledge to leave any of your bad habit. You can pledge to plant a tree on this festival. You can pledge to respect your elders on this day. You can pledge that you will not lose courage. Like a candle light, you will become helpful for others. You can pledge that your money is the Lakshmi mother for you and you will not waste it in gambling.

Related : Never Give Up

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What is Cash Flow in Investment

When we make cash flow statement, it is divided into three parts. One is cash flow of operating activities, second is cash flow in investing activities and third is cash flow in financing activities. Cash flow in investing activities and cash flow in investment are same. Cash flow in investment means list of items which shows any inflow or outflow of cash due to investment in  other companies, in fixed assets like investment in  land and building or other fixed assets. If outflow of cash in investment is more than inflow of cash from investing activities, it shows we have paid big amounts for buying fixed assets or investing in financial markets. So, this is normal fact.

Inflow of Cash or Positive Cash Flow in Investment 

1. Cash Received from Sale of Long Term Assets.

2. Cash Received from Dividend

3. Cash Received from Interest


Outflow of Cash or Negative Cash Flow in Investment 

Cash paid for buying Long term assets.

2. Investment in Share Market

3. Investment in Bond or Debenture Market

4. Any other investment in Capital Expenditures.

You should remember that issue of shares or debentures is our financing activity but investment in shares or debentures will only show in Cash flow of investing activities.

Related : How to Solve Cash Flow Statement Problems 

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What is Cost Flow in Accounting

You can easily understand cash flow in accounting because it is just payment and receipt of cash. Your company's cash book or your bank statement is one of its best examples. You would also see the cash flow statement of a company's published financial reports. All are easy to understand but cost flow in accounting is just different from this. Cost flow means flow of cost of inventory before its real sale. Every year, we purchase lots of goods at different time and at different rates. Every time, when we issue the stock, we have to follow our inventory policy for inventory valuation. So, our cost flow is affected with our inventory policy. Suppose, our inventory purchase prices are increasing upward, at that time, if we use FIFO, it means we are issuing stock first in first out method. At this method, our closing stock’s cost flow will be last rates. But cost flow of closing stock in LIFO will be just opposite of FIFO. If prices of inventory are increasing, this method will not show current cash flow in closing stock.

More Resources 

Economic Order Quantity
Economic Order Quantity PPT
Control Ratio
Average Cost Method
Simple Average Method
Weighted Average Method
Scrap in Inventory

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Quote from the Founder of TACCS

Dear Professor

I have a website that teaches accounting on  www.taccs.co.za called tabulate accounting solutions in south africa , I want to thank you for inspiring me to start helping people get employed . I am taking leave for diwali , the next day as well, but I am going to give people my details to join my accounting club . Your ideals of AHIMSA and vegeterian way of life is great, Accounting is directly linked to capitalism , not a bad thing (capitalism) but it contributes to eroding values - when I go to India, I am sad to note that this country has more and more meat eating people , I am not a born vegetarian , but like those great western people , something in my DNA questioned the merciless killing of animals to satisfy my taste , i cannot "reconcile this" - please pay a visit to SOUTH AFRICA , be my Guest at home - Regards Navindra Mahabeer

Thanks dear Navindra  for Sharing your quote  in ask a question section of my site. Yes, it is true that India are becoming the hub of meat eaters because Indians are becoming the followers of bad thing of western people. We all Indians should not leave our moral values and ethics which tells us that we should not harm or kill any animal. Love with all is best policy. We can spread this love policy by becoming vegetarian. We should only learn the honesty, hard working, dedication and other good things from western people.

Again Thanks for inviting me as your Guest in your home in South Africa.

From

Vinod

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Inventory Turnover Ratio

Inventory turnover ratio is useful for checking the efficiency of stock. It is also improvement of current ratio. Sometime current ratio may mislead use when there is slow movement of stock in to sale. But inventory turnover ratio will give more idea about, how should we keep our stock in store.

Inventory turnover ratio is relationship between cost of goods sold or net sales and average inventory. This ratio is also known as stock velocity. This ratio tells us whether we use of stock efficiently or not. This ratio will be in times. It tells us the times of sales of every time of stock bought.

Formula 




or 

ITR = Net Sales / Average Inventory at Cost 




Inventory Turnover Ratio = 300000 / 30000 = 10 times 

Analysis on the Basis of Inventory Turnover Ratio 

1. There is no rule of thumb of inventory turnover ratio but inventory turnover ratio should be optimum. It should not be very higher or very lower.

2. A  lower inventory turnover ratio is not good. Because at this level, we are increasing inventory but our sale is not increasing. Due to not converting inventory into sale, we have to keep our stock in our store and we have to face its cost which may be main cause of decreasing our profit. So, we earnestly say you, if you see lower inventory turnover ratio, you should decrease inventory and take good steps to increase your sale. For example, you net sales is just $ 50000 and your average inventory is $ 100000. It means ITR is just 0.5 times. So, this is not good. Try to improve it.

3. A  higher inventory turnover ratio is good because higher ITR tells us that our number of time of total sales is more than number of times inventory has been bought. A higher ITR means low investment in inventory and higher return on this investment. But very higher ITR is not good because at this time our inventory may be too low. Due to shortage of low inventory, we may face the problem of loss of new sales orders or our supply may delay of sending us the stock. So, remember this point also.

Related : Capital Turnover Ratio 

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How to Hire Laborers

If you asked me, "how to hire laborers?", I will say that my way to hire laborers is just different from other employers who hire laborers. All employers want to hire those laborers who demand low wages. As per accounting, this is correct because if employer will pay less wages and get more production from laborers, it will be helpful for increasing the profit of organisation. But, I never asked to reduce the labor charges out of  what is standard of their wages. But following are my way and I hope, you will follow me when you will hire laborers next time.

Indian Dewali festival is coming and I am busy to maintaining my house for this great festival. Recently, I hired many laborers for repairing my house. For this, I went to labor stand of my city. Due to high amount of unemployment, large number of laborers are ready to go with me. But my demand was limited. So, everybody are saying that they will do good and they should be hired.

But, I had the big list of conditions which I had told to all those laborers. Everyone who will clear my all conditions will have to go with me. Following are these conditions.

1. Any one can be hired  whether he is or she is. Every religion is accepted. I can hire whether he or she is Hindu or Muslim or Sikh or christian or any religion. Every laborer can be hired whether he or she is black or white or any color. Every laborer can be from any state of my country. But he or she should be honest and hard working.

2. Candidate must be vegetarian. He must not eat meat, chicken or any other non-veg because I spend my life with my philosophy and one of main concept of my philosophy to live a vegetarian life. Few times ago, one person had asked me, in the earth quake there are lots of vegetarian dead without any sin of killing of innocence animals. Why? I replied, because they do not support to protect animals by spreading the message of vegetarianism. That is reason, they are responsible. So, now, this is my first condition to hire laborers. If they will say me that they are vegetarian, I am ready to hire them because I do not want that anyone buy the meat with my given money. Because same money is used for increasing the production of killing of innocence animals. I love all animals and I want to see forever at any cost in my life. These all animals are not cheaters. They are more intelligent than human being. They are very helpful to creating balance in environment. They are very helpful to reduce global warming by consuming waste. If same waste is burnt, then it will increase gases in the environment and science proves that more spreading of gases from waste is one of reason of global warming.

3. Candidate must not drink alcohol because I think, if I will hire that laborer who will drink with my money. I will equal responsible for increasing evil like those who is selling drink alcohol. I want to see milk shop everywhere. I love to drink milk because it increase our brain. It increases our power to work. It increase our memory. But drink alcohol is very harmful for health. Just writing on the drink bottle that it is dangerous and harmful for health is not sufficient. No laborer must be hired who is drunker.

4. I hate  intoxicant, if anybody use any intoxicant in any form, I hate this person's that habit. I want to change that person. So, I will not to hire that person who use intoxicants.

I felt shock, when I saw just 10% of total laborers had cleared my all four conditions. But, I am lucky because that day, I had succeeded to hire the laborers who had cleared my all above conditions for my repairing of my house. Some of them belongs to Sikhism religion and they are all already following my above conditions. Following is picture of two lucky laborers who had been hired after cleared my above conditions.

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Absolute Acid Test Ratio

Some accounting experts recommend to calculate absolute liquid or acid test ratio because this ratio will give us correct idea whether our short term financial position is good or not.

Absolute acid means pure acid. Its effect will be very high on marble stone than diluted acid. If marble stone will tolerate the effect of absolute acid, it means that marble is of high quality. We can take the example of Taj Mahal Agra. This Taj Mahal of Agree is tolerating of acid raining from many years but still exists which show the purity and high quality of the marble of Taj Mahal. Like this, company wants to know the capacity of its cash and bank balance for paying its current liabilities. For this purpose, company calculate absolute acid test ratio or absolute liquid ratio. It is just relationship between absolute acid assets and current liabilities.

Formula of Absolute acid test ratio

= Absolute liquid assets / current liabilities

Absolute liquid or acid assets = marketable securities + cash + bank

Main point of analysis

1. If absolute acid test ratio is equal to rule of thumb

Rule of thumb of absolute acid test ratio is 0.5 :1 or 50% of total current liabilities are absolute acid assets. In simple words, if we have 1$ for paying 2$ liabilities it is good because every our creditor will feel good if he will get minimum 50% of cash at any time.

2. If absolute acid test ratio is more than rule of thumb

If absolute acid test ratio is much higher than the rule of thumb, at that time, we analyze our absolute liquid assets. More free cash fund than need will reduce our return on investment. So, we can take some cash fund for investment projects. Upto 1:1 absolute acid test ratio is quit satisfactory.

3. If absolute acid ratio is less than rule of thumb

If absolute acid test ratio is 0.25 which is less than rule of thumb and current and liquid ratio are much more than rule of thumb, at that time, we have to improve cash liquidity by changing the policy of credit sales and advance payments.

Related : Acid Test Ratio

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Mortgage Backed Securities Explained

If you have studied debt securitization, to learn mortgage backed securities will become more easy for you. Mortgage backed securities are those securities which are issued on the mortgage of the properties of buyer of these securities. When company gets big loan from central bank, it is converted in small pools of securities. If these securities are issued on the basis of mortgage properties of the person who gets amount of debt, it will be mortgage backed securities. In case, if he will not pay the money, his property will be of the company. Company will sell his property for getting his given loan.

Types of Mortgage backed security

a) Residential mortgage backed security: This security is issued on basis of residential property

b) Commercial mortgage backed security

It is that security which is issued on the mortgage of commercial property.

Explanation of Mortgage Backed Securities with Simple Example

Suppose, Mr. Belly needs $ 100000 for starting his own business. He has his own house of $ 200000 and he will buy $ 100000 commercial building with $ 100000. So, he get $ 100000 loan, this loan will be on the mortgage of his own property. One is his own house and second is his new bought house. Loan provider bank will give his loan as security and one of its conditions will be mortgage backed. It means if Mr. Belly will be default to repay his loan, his own house or his bough commercial property will be of loan provider bank. At that time, it will be sold. At that time, company may get profit or loss on this deal. But before giving loan, company’s expert evaluates the mortgage property and what value will they get, if any loan will be default. Only profitable deal is accepted. 

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Acid Test Ratio Analysis

Acid test ratio is strict test of liquidity. When check the quality of stone, we drop some acid on the stone. If stone will be of original marble, it will be shine. Like this, we also test company's short term position with acid test ratio. This ratio is just more deep analysis after calculating current ratio. This ratio tells the relationship between liquid assets and current liabilities. Liquid assets are different from current assets. Any asset will be liquid if it can be easily converted into cash without any loss of money within minimum time period. For calculating liquid assets, we deduct inventories and prepaid expenses from current assets.

Following is the formula of Acid Test Ratio

= Liquid Assets / Current Liabilities

For example : Quick assets are 200000 and current liabilities are Rs. 150000

Quick ratio or acid test ratio = 200000/ 150000

Components of Quick or Liquid Ratio 

Liquid Assets 

a) Cash in Hand

b) Cash at Bank

c) Sundry Debtors

d) Marketable Securities

e) Temporary Investments

Current Liabilities

Outstanding or Accrued Expenses

Bill payable

Sundry Creditors

Short term advances

Income Tax payables

Dividends payables

Bank overdraft

Point of Analysis of Acid Test or Quick or Liquid Ratio

1. When Acid Test Ratio is equal to Rule of Thumb

Rule of Thumb of acid test ratio is 1:1. If our acid test ratio is 1:1. It is good because at that time, our liquid assets are capable to pay current liabilities.

2. When Acid Test Ratio is less than Rule of Thumb

If acid ratio is 04 : 1 or less than this, this is not good because with this few amount of liquid assets, we will unable to pay our liabilities. But if our acid test ratio is little low, then there is no problem, because sometime, our stock may be liquid and we can easily sell it.

3. When Acid Test Ratio is more than Rule of Thumb

If acid test ratio is more than rule of thumb, then this is good but we should not ignore the position of our sundry debtors in this. Sometime high ratio than rule of thumb will not good, if major part of debtor is not available for quickly convertible in liquid amount. 

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How to Teach Corporate Finance

Before knowing, how to teach corporate finance in India, following facts may be amazing for you.

From above data figure, we can expect our new opportunities in corporate finance. An Indian freelance corporate teacher may easily earn Rs. 500 per hour. On this earning basis, he may earn one Lakh to two Lakh per month.  But these opportunities will gain who will know the perfect techniques of teaching of corporate finance.  So, you should learn following things before teaching of corporate finance. 

1. Learn To Teach Corporate Investment

You see that when you start your own small business, you think every aspect of your this small investment. When a new finance officer is appointed in the corporate. It will be necessary to give some expert training for better investments of company fund. But companies are not making planning to open new school, college or universities. They are now interested to operate new training center to make specialize to new finance officer. If you have talent to explain with 100's of good ideas on this topic, you can go to next step. If not learn following points

a) how  to explain  portfolio creation.

b) How to explain asset allocation. 

c) ROI

d) Risk adjusted return on investment. 

2. Learn to Teach Corporate Financing 

Corporate financing means to take loan for company's growth. Did you talent to teach what is corporate financing? If not spend your few hours to study different financing companies. What are they doing. What are their sources of money. All these are roots. To reach the roots is better approach to explain how this corporate financing works. 

3. Learn to Teach Working Capital Management Decisions

As corporate finance teacher in any training company, there is no need of your Phd or Net clear requirement. Your simple post graduation in finance  is needed. You can get this through MBA, MFC or CFA of CA. But at least, you should have perfect knowledge of working capital management decisions. Just knowledge is not sufficient. Your duty is not to take these working capital management decisions. But your duty is to explain, how will your learner officer will take decisions. 

4. Learn to Teach Financial Risk Management

We all read the different theoretical concepts of financial risk management. But teacher show have the knowledge to utilize these theoretical concepts in real life. He can become example when he manage all the financial risk personally in real life like I faced a very risky and dangerous accident in my life and saved. Read more about this at here. 

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Self Analysis

From many time, I am thinking on the analysis of financial matters. But today, I choose different topic. All you know that self analysis is neither accounting topic nor financial topic. It is purely educational topic. Before doing self analysis, we all have to find self. Who is self. To analysis of self is easy but to find self is difficult. I am Vinod. This is my name. People knows me with this name. I also know my name is Vinod. When I see my face in water and sometime I feel myself different from Vinod. As per my knowledge, this Vinod born just 31st years ago. I saw myself when I was 5 or 6 years. I am regularly watching a personality whose name is Vinod. Sometime he thinks to earn more and more money. Sometime, this Vinod went to Cemeteries Wharf and this man Vinod promises to God that he will not be trapped in nets of money. But, after coming cemeteries wharf, he forget every promises.

 Sometime same Vinod says to me, I am doing labour. But I asked from Vinod what is meaning of Labour. I teach to Vinod, labour means to do the duty of God. It is the duty of God to give food to every creature of God. Did you give? No, how can you say that you are doing labour. This Vinod tries to understand my teaching but I see that he also listen the voice of one more personality in it. I say him mind. Because, I am in Vinod. I also listen clearly everything what mind says to Vinod. He says him to enjoy all funs of life. Never think what is good or bad. See everything, listen everything and speak everything. But, I teach to Vinod. No, Vinod, God has given to brain. Why are you taking your brain work from mind. Use brain and it will tell you what is good and what is bad. Leave the way what is bad for you. Leave the way where you see bad things. Leave the way where you listen bad things. Obey me order. I am nothing, I am your→Self. But, this Vinod started new way to live the life. This Vinod shows everywhere that he is doing good. People likes him. But, when he is alone and I sleep for few seconds, Vinod tries to obey the order of his mind. He starts to walk on the way where he forgets what is wrong and what is good.

When I awake after few second sleep, I see, this Vinod is seeing something bad and same Vinod is listen something bad. Oh no, I cry and cry but Vinod do not listen my Voice. I feel wonder to see this is Vinod who obey all my order. On my one voice, this Vinod starts to sacrifice everything. But today, I feel sham that I am self of Vinod. Even after giving him all true know how did this Vinod go to bad side? I think, this is due to his mind. But, when this Vinod does good work on my order, I saw that this mind supports him. How can I blame on Vinod's mind. God has given double duty to mind. When anybody will obey my order. This mind will support in Good works. When mind gives order to Vinod, it carry Vinod where Vinod losses his character, his reputation and his everything. he becomes evil in my eye. But, I did not sink Vinod all the time in this evil well.

Now, I am using second way for saving Vinod from the well of evil because I  tried first by just crying. Vinod does not leave to go bad side and Vinod is not listening my Voice. In second, I pray to God, God! Accident of Vinod should be done by you. Or, Vinod should capture in dangerous diseases or any thing. God accepted my voice. God will do big accident of Vinod. But, in this accident, nothing part of Vinod will be injured. Accident was done on the order of God. Now, I am explaining this accident for opening the eyes of Vinod. Vinod is coming from any place. He has to cross railway line. Vinod is confident on his eyes that he can see anything from 2 kms. He sees that there is no train coming of his right side. Now Vinod sees left side. He sees that a train is coming.  The train is coming very slowly. Vinod still sees this left side train which is coming very slowly. Vinod is saying to train, why is dear train coming slowly. Come fastly, I want to see you from near. But training is still coming slowly. Now, it is enough. Vinod thinks that he has spent 5 minutes but this train did not come. Now, he wants to go home. Vinod forgets to see back (right side) and he did not know that A train with speed of about 250-300 km/hrs is coming. Vinod crosses the next rail line. Just one second of crossing next rail line what Vinod sees, "A train is going on same rail line just after one second of his crossing. Vinod thinks that what would happen, if he crosses the same railway line after one second. There would be just 1000 parts of body. Vinod cries, oh! God, you have saved me. God, you have forgiven my all sin. You are so kind. This Vinod faced big accident but there is zero injury. This was just for opening the eyes of Vinod. Now, Vinod reaches the classroom of self.

Now self teaches Vinod to take difference between self and mind. Vinod understood that voice of self is the voice of God. He analyzes that he will not obey the order of his mind. God has given one golden chance to serve other. He will not break the trust of God.

After this self analysis, Vinod fixes his personal aim of life

a) To help needy his rest of life.

b) To leave greed.

c) To leave pride.

d) To listen only voice of self. 

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Current Ratio Analysis - (Video)

Following is video tutorial for explaining current ratio analysis.

Related : Introduction of Ratio Analysis 

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Current Ratio Analysis

In current ratio analysis, we will explain, how will current ratio affect to our business decisions. But before this, we will explain the simple meaning of current ratio.

Current ratio is a relationship between current assets and current liabilities. Just dividing current assets with current liabilities, we can calculate current ratio. Suppose, current assets are Rs. 250000 and current liabilities are Rs. 10000. Result will be 2.5 : 1. It means we have 2.5 times more current assets than current liabilities. In current assets, we can include cash, bank, prepaid expenses, marketable investment, sundry debtors, bill receivables and inventories.

In current liabilities, we can include outstanding expenses, sundry creditors, bank overdraft, short term taken loans and advances. Now, we analyze current ratio.

Main Point of Analysis 

1. Rule of Thumb of Current Ratio 2:1

 As a rule of thumb, current ratio should be 2:1. Proportion of current assets in current ratio should not be very high or very low than what has been given in the rule of thumb.

2.  If current ratio is less than 2:1

 If current ratio is less than 2:1, then it means we have no sufficient current assets to pay our current liabilities. This will not show a good short term position. So, our current ratio must be 2:1.


3.  If current ratio is more  than 2:1


 If our current ratio is more than 2:1, it means, we are misusing our current assets. Suppose, our current ratio is 5:1. This is because of more Rs. 100000 cash in hand. But there is no investment use of this cash. Suppose, we have more 400000 what is necessary for minimum reserve but this bank balance will giving just saving interest earning if we have saving account in bank. But, if we invest this money in business, this money can give us high return. It may be 20% or more. Like this, if we have very high level of debtors. More debtors means more risk of bad debt. If we have high level of inventory, it will increase our cost of storing that more inventory. More inventory in our stock will also increase the risk of obsolescence loss.

4. Analysis of Exceptions of Rule of Thumb

Sometime, we may keep our current ratio more or less than rule of thumb that is 2:1. But before taking this decision, we have to analysis important factors:

a) Good Reputation

If company's reputation in market is very good. At that time, company can operate with lower current ratio because company can sell his product on credit at high level and creditor may give loan for long period.

b) Seasonal Influence 

Some current assets may be seasonal. At that time, current ratio may be high at that season. For example, at Diwali, sweet shops buy high quantity of raw material because at that time, it is expected that sale will be very high.

5. Analysis of Limitation of Current Ratio

If you are creditor or any other interested party, you should not only analyze above points of current ratio, but you should also analyze the limitation of current ratio. One of limitation of window dressing. For changing the current ratio, company may change the value of current assets or current liabilities.

 Following things may happen.

Related : Introduction of Ratio Analysis 

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How to Save Money with Solar Power

If you live in India, you are lucky than more than 100 countries because in India, you can see sun and get its power for 9 months. If you will learn its effect use, you can save your big money. Following are the main ways of saving money with solar power.


1st : Cooking with Solar Power

Many year ago, my papa brought solar cooker in my home. We made food on it. It was very tasty. There is a glass which get solar power and then it is used for increasing the temperature of food. Within one or two hour, your food may be ready. But this solar cooker is very powerful to save our money for buying cooking gas.

Today, I  saw video of  "Largest Solar Cooking System Saving 7,000 Dollars A Month". I saw,  Shirdi Temple uses  world's largest solar cooker for making the food of 400000 visitors daily. 


After installing world's largest solar steam cooking systems at Shri Saibaba Sansthan at Shirdi and creating solar crematorium, South Gujarat-based Gadhia Solar Energy Systems Pvt Ltd has developed world's first and largest solar air conditioning (AC) system. The 100 tonne AC has already been installed and soon it will be made operational.

2nd : Electricity with Solar Power 

Yes, it is true, we can get electricity with solar power. With this, we can save big electricity cost. It is just Rs. 25000 to Rs. 30000 project. Your inverter will be charged with the power of Sun.

3rd : Solar Powered Air Conditioner

Did you listen of solar power Air conditioner. Now, solar powered air conditioner has been invented. I do not suggest to buy air conditioner because it is wastage of our limited electricity source. But solar powered air conditioner is renewable energy. So, you can use it.

4th : Solar Water Heater

In market, you can buy solar water heater. It is cheap and one time cost. In winter, you can also use it because solar water heater consumes every light of sun and convert it in heat energy. There is no regular cost like gas water heater.

5th : Solar thermal power station


This can not be used personally but at large scale, company can make Solar thermal power station and save big cost from this solar thermal power station. One of its example is in following video. 

More Resources


5 Tips to Reduce your Expenses 
How to Reduce Entertainment Expenses
Tips to Reduce the Cost of Making Furniture 

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Facebook Profile Tips and Tricks

I know some of my friends who have good skill and experience in accounting. They are also profession in accounting. But when I saw their profile in the Facebook, I felt sad. They made it as the the place of only fun. I am their friend. So, I like to see everywhere as great accounting profession. So, today, I am giving them and you some tips and tricks of good Facebook profile.

1st Tip : Show Professional Image in Facebook Profile 

You are accountant when companies will search you in Facebook by just writing your email or name, your profile picture will be the first impression for them. So, never show film actor or other fan or any other picture on your profile image.

2nd Tip : Write Good Info


 a) Your Full Educational Qualification 

Your Facebook profile is just like your online resume. Edit your profile and write your correct and full educational qualification.

b)  Your  Past Work Experience 

Where did you work in past. Write it clearly in Facebook profile.  

c) Basic Information 


In basic information, you should write your current working and other updates.


d) Contact Information


Write your email address, your site address, your mobile no. and phone no.

3rd Tip :  Remove Tag

Sometime your friend adds you in funny picture which may be against your profile. See update and remove such tag.


4th Tip : Think Before Like and share any Content on Facebook 

Your every like will be publish in your profile and will be visible to your friends and other public who will search to you. Your click on write your be informative and helpful to other to learn new things in your field.

5th Tip : Make a Professional or Business Page 

You can make any business or professional page in Facebook. Update it with your acquired knowledge. No of fan in this page will show, you quality of service providing. Visit Accounting Education Facebook page to check how should be a professional page.

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Finance Questions and Answers

Q: 1. Discuss in brief various forecasting techniques?


Deepak from India

Ans. (A) Budgeting (B) Probability (C) Time Series Analysis (D) Interpolation and Extrapolation (E) Regression Analysis

Q: 2. Is following possible or not?


To transfer cash from one bank to other bank Like SBI to PNB 


Raju from India 

Ans. Yes,  to transfer cash from one bank to other bank like transfer from your SBI account to other PNB account  is possible. This is not possible through your online bank account but you can do this by just going to  bank branch. Just go to bank branch and say. I want to transfer Rs. 80000 from my SBI account to other PNB account. SBI employee will give you a small voucher. You just write your SBI account no. and beneficiary's PNB account No. and what amount, you have to transfer. Now, every bank are connected with NEFT and RTGS. Within one hour, you can transfer your money from one bank to other bank. Your SBI account will decrease with same amount and other beneficiary's PNB account will increase with same amount.

Q: 3. Importance of funds


Niharika from India

Ans. Fund is very important in any organisation whether it is NGO or commercial because if organisation has no fund how will it operate. Every organisation keeps fund for different projects. It also estimates future net fund. It also checks whether fund has been used effectively or not.

Q: 4. The financial manager should identify surplus assets and dispose off them. why?


Anthony Otsiwah from Ghana

Ans. In this world, everything should be optimum. Suppose, you have 20 houses in different countries. You live just in one house whole year. All other 19 houses are your surplus assets. There is no need to you all 19 surplus assets because someone will may sell all these assets by becoming its false owner. What will you do? Your whole life will spend just going to court for justice. Meaning of this, there is big risk of keeping surplus assets in the business. Surplus or idle assets do not generate incomes. So, it is better dispose off.

Q : 5. Working capital formula is : current assets- Current liabilities now if diff is positive what it indicating ? if diff is Negative what it indicating?


Subramanyam from India 

If difference is positive, it indicates that you have working capital for operating your business. For checking whether it is sufficient or not, depend on lots of factors. If difference is negative, it indicates that you have not working capital for operating your business. It shows your weak condition. In simple words, when any creditor or service provide will demand money from you, you will not have cash to pay him. At that time, you have to sell your fixed assets at big loss or you have to take loan at high rate of interest. If your goodwill is in the market, you can survive with negative capital, otherwise, days are very limited for closing your business.

Q: 6. Sir,


I am investing my money plz, suggest which investment good me? My salary maximum 8000 per. month and I am invest monthly rs. 5000 /- so suggested me which investment, I have to invest?


Manoj from India

Ans. Manoj, it is good, you want to save your money and invest your money Rs. 5000 after consuming Rs. 3000. It is 62.5% of your salary. First of all check through personal budget, is 37.5% consumption is sufficient for completing your basic needs like food, cloths and living expenses because once you take decision and invested, you will no opportunity to decrease this investment. After this learn my 3 tips of investing money.

Related : Finance Chart

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Allocation of Costs

For calculation of the cost of product or service, allocation of cost helps us. It is process transferring of exact cost to particular cost center. In other words, when we use resources, its cost is transfer to specific products or services. This is called cost allocation. For example, we produce Model one and model two in a year with the help of drilling press. Total cost of depreciation of drilling press is $ 10000. $ 5000 of this depreciation will be allocate to model one and $ 5000 cost will be allocated to model two.

Like this we can allocate any resources cost to any product or services.

Allocation of cost of service department

We can allocate the cost of service department on some basis. For example, company pays janitors $ 100000 for cleaning assembly and finishing department. We can allocate this $ 100000 on the basis of number of square feet. For example, area of assembly department is 20000 square feet and area of finishing department is 30000 s.f. Now allocating rate of janitorial cost is = $ 100000/50000 s.f. = $ 2 per square foot. We will transfer cost to assembly department with $ 40000 ( 20000 d.f. X $2 per S.f.) and finishing department receives an allocation of $ 60000 ( 30000 s.f. X $ 2 per s.f.).

Related : Overhead Accounting 

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Trend Analysis

In management accounting, trend analysis is the part of financial statement analysis. It means, to take one financial item and its all past years figures. By taking first year as base year, we calculate % figure of each year. Now, it becomes trend. On this trend, we analyze its spreading flow. It may be upward or downward. With this, we can analyze our past performance and financial position growth.

With analysis, we can estimate future values and uncertain events in any past years. In above years, I have taken 10 years sales and calculated its trend by taking year 2000 as base year. With this sale trend, you can analyze which year, your sales increased and which year it decreased.

It is just sample, you can also calculate the trend of current assets, current liabilities, cost of goods sold, gross profit and net profit. 

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Investment vs Consumption

Investment and consumption both decrease your fund. Both are the application of your saved cash. Both provide you happiness and satisfaction. Without both, you can not survive in the society.  But there are many difference between investment and consumption, if we go to deep of both through finance and macro economics books. Following are main difference between investment and consumption.

Investment vs Consumption

	Basis of Difference		Investment		Consumption
	1. Definition		Investment is that use of fund which provides us the return and long term benefits.		Consumption is that use of our fund which provides us short term satisfaction without any return and long term benefits.
	2. Example		We start our accounting firm by buying computer, furniture and a shop with $ 100000.		After starting our accounting firm, we feel happy and give party to our friends. Party expenses of $ 1000 is our consumption
	3. Propensity		There is direct relationship between income and investment. Trend of investment will increase, if your income will increase.		There is no direct relation between income and consumption. By increasing income, risk level will increase and you will surely decrease your consumption and invest money in some secure earning schemes.
	4. Factors		There are many following factors which affect the level of investment. a) Innovation - innovation needs more investment. b) Expectations of high profit - This will increase your investment. b) Rate of population growth - For making roads, building, schools need more investment.		There are many following factors which affect the level of investment. a) Economic independence - for becoming independent, you have to decrease your consumption. b) Status or Ego - for showing status or ego in the society, rich people consume waste products. c) Decrease in the prices - If prices are decreased, at that time, you will increase consumption. For example, living rent of hotel in hill station will be less in winter. So, you will enjoy in hill station in winter.
	5. Average Propensity		- Total Investment / Total income		- Total consumption / Total income
	6.  Types		a)  Induced Investment b) Autonomous Investment		a) Linear consumption b) Non -linear consumption
	7. Society Benefits		Suppose, you need vehicle for carry your products from one place to other. In market, you can buy a simple vehicle with $10000 which will satisfy your business need, will be your investment. Because you want to give society benefits by your each $ of investment.		Suppose,  you do not buy $ 10000 value vehicle but you buy just branded vehicle with $ 40000 because you are affected from its advertising. $ 30000 in it will be your consumption because same quality vehicle, you can buy $ 10000 and rest money can be used for society benefits. But you have wasted your money in the form of your consumption.
	8. Strategy		Provide sufficient amount of return is best way to increase investment in specific project.		More and more advertising online, offline may affect the level of consumption. This is main strategy to increase the consumption of consumers.
	9. Govt. Role		Govt. wants to invest money for social welfare. For this, it makes govt. schools, govt. colleges, govt. hospitals, govt. parks etc. All the investment of govt.		Govt. wants to grow our business. But business can not grow without the consumption of society. So, govt. makes its tax system more progress. Burden of this tax will on riches and not on middle or poor society. With this, poor society will buy necessary goods and consume for satisfying basics needs.

10. On the Basis of My Personal Thinking

Every investment should be for other needy's help. Suppose, I buy a new computer. But my motive is to help needy through my computer. If I buy inverter and battery. Its aim should be to provide better service to needy regularly. My consumption is to drink food and eat balance food for healthy life. I do not like Fridge and AC and other useless luxuries consumption. It may be your financial investment but in my sense, it is just useless consumption. Because both help to decrease your health. Health is real wealth. So, consumption should be only for physical maintenance and investment should be for other help. I give the example of Krishna of Mahabharata. In Mahabharata, we see that Krishna became the driver of Arjun. Even after king of Mathura, he accepted this duty. He had the power to buy millions of drivers for Arjun. But, he did not trust in useless consumption. During the time of war, he did the service of his horses by himself. He had power to buy millions of servant for serving his horses but he did not want to waste his money in such useless consumption. So, we have to follow that great Shri Krishna before taking any decision regarding investment or consumption. 

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