asset.
Note: Asset write-down is not to be confused with
depreciation or amortization (which is a regular
charge of the cost of an asset over its estimated
FI Questionnaire
1. What is the difference between company and company code?
2. How many chart of accounts can be attached to a company code?
3. How many chart of accounts does SAP define, and its purposes?
4. What are substitutions and validations? What is the precedent?
5. What is a controlling area?
6. Define relationship between controlling area and company code.
7. What is a fiscal year variant?
8. What are special periods used for?
9. What do you mean by year dependent in fiscal year variants?
10. What are shortened fiscal year? When are they used?
11. What are posting periods?
12. What are document types and what are they used for?
13. How are tolerance group for employees used?
14. What are posting keys? State the purpose of defining posting keys?
15. What are field status groups?
16.What are withholding tax types and tax codes?
17. What is a transport request?
18.What is dunning? What is the maximum level of dunning?
19. What is automatic payment program and what are its pre-requisites?
20. What are open items? What is open item clearing?
21.What are house banks? What are bank chains state the purpose of
having bank chains?
22. State the procedure of setting up cash journals?
23. What is a Chart of depreciation?
24. How many chart of depreciation can be assigned to a company code?
25. What is a depreciation key?
26. What are asset classes
27. How is account determination done for assets?
28. What are depreciation areas? What is the purpose of defining depreciation
area?
29. What are cost elements and what are cost element groups?
30. What are cost centers? Define cost center hierarchy?
31. What are primary and secondary cost elements?
10
11
ARTICLES
It is Secondary document
It is subordinate to MOA & the Act
Can be written or taken from Company
Act
Special Resolution is sufficient except
where the amendment brings in to
effect a private from public
Ultra virus AOA but intra virus the MOA
can be Ratified
DEBENTURE
Debentures contribute a loan
Debenture holders are creditors
Fixed amount of Intrest on debentures
paid before dividend declaration
Debentures generally have a charge on
the asset of the company
Debentures do not have Restrictions
Issue at a discount
Debenture holders do not have voting
rights
Dividend is payable whether profits are
12
are there
No fixed dividend
there or not
Rate of Intrest is fixed
SHARE HOLDER
One of the owners of the Company and
has proprietory intrest in the Company
When the Company makes profits and
the board recommends, share holder
gets a share in the profits
No security for his Investment
Eligible for voting rights
On liquidation, share holders are paid
last
DEBENTURE HOLDER
Only a creditor of the Company
SHARE
Has a nominal value
May be fully paid or partly paid
Can be transferred is whole numbers
and not in fractions
Each and every shares shall be of equal
denomination
Shares are identified with distinctive
numbers
Can be issued directly to the public
STOCK
No Nominal value
Always fully paid
Can be transferred in fractions
PROMISSORY NOTE
In a pro-note there is a promise to pay
In a pronote there are two parties the
maker and the payee
BILL OF EXCHANGE
In a bill there is an order to pay
In a bill there are there parties
1. Drawer 2. Drawee
3. Payee
In a bill the drawer and the payee may
be the same
The maker of a bill is liable only when
the drawee does not accept or pay
A bill has to be accepted by the drawee
before he can be held liable
LEDGER
The ledger is the Book of second entry
Depending upon his conveniences the
trader Records of the transaction in the
ledger
It will never Loose importance as it is
the main book of Accounts which is
relied upon permanently
In the preparation of trial balance and
final A/Cs Ledger is a must
In the finalization of income tax to be
paid, the tax authorities depend on
ledger.
13
TRIAL BALANCE
The trial Balance is prepared to check
the arithmetical accuracy of the Books
of Accounts
Trial balance doesnot show the financial
position of business
The trials balance is prepared based on
the Ledger Accounts
The preparation of trial balance is not
compulsory
Trial balance can not be shown as a
documentary evidence
BALANCE SHEET
Balance sheet is prepared to knowledge
true position of Assts and liabilities
particular date
The financial position can be knowledge
from balance sheet
The balance sheet is prepared on the
base of information from trial balance
The preparation of balance sheet is
must
But balance sheet will be accept
documentary evidences by tax
authorities and courts
BALANCE SHEET
The objective of preparing balance
sheet is to know financial position of the
business on a specific date
Balance sheet is a statement and hence
TO and BY are not used
Capital Incomes and expenditures are
shown in the balance sheet
Balance sheet will not show any
balancing figure. A total of liabilities and
Assets side should always be equal
Fixed Assets:- These assets are acquired for long term use in the business
Liquid assets:- These assets also known as circulating, fluctuating or current
assets can be converted is to cash as early as possible.
Fictitious assets: Fictitious assets are those assets, which do not have physical
Form. They do not have any real value
Ex: loss on issue of shares, preliminary Expences.
Intaugible assets:- Intaugible assets are those having no physical existence and
can not fouch
Ex: Goodwill, Trademarks
Contingent liabilities :- These are not the real liabilities they are not actual
liabilities at present. They right become liability in future on condition that the
contemplated evint
SHARE CERTIFICATE
The holder is a registered member of
the compound
The holder of a share certificate is
essentially a member
For the issue of share certificate may
required approval of the central Govt.
All Companies must issue share
certificates
Share certificate is issued is partly (or)
fully paid shares
Share certificate in not negotiable
SHARE WARRANT
The bearer of a shares warrant is not a
registered member
The bearer of a share warrant can be a
member only if the article so provided
in AOA
Share warrant can be issued central
Govt. approval is must
Share warrants can be only by public
companies
Share warrant can be issued only fully
paid shares
Share warrant is negotiable
14
15
16
17
18
Out Standing Expenditure: Expenditure incurred but the payment for which is
not yet paid will be shown in the balance sheet liabilities side and profit and loss
account debited.
Accrued expenses: The expenditure which is incurred and the payment thereof
might or might not be paid.
Working capital: For running day to day activities a business, some capital is
required which is called working capital
Working capital: current assets current liabilities
Excess of total current assets over current liabilities
Working capital cycle/ operating cycle: there is a complete cycle from cash to
cash , Operating cycle is the time duration required to convert cash in to cash
a. conversion of cash in to Raw material
b. conversion of raw material in to work in progress
c. conversion of work in progress in to finished goods
d. conversion of finished goods debtors and
e. conversion of debtors in to cash
No operating cycle: No of days in year / operating cycle period
Stock exchange: stock exchange is the place , where stocks shares and other
securities of the listed companies bought and sold
19
20
General Reserve: It is reserve which is created to meet any meet any future
unknown liability , it can be utilized as dividend
Capital reserve: profits in the nature of capital or profits in the form of capital
nature
Reserve capital: reserve capital is called up only at the time of liquidation if assets
held are not sufficient to meat the liabilities
PROVISIONS
- Provisions is charge against profits
- is made for known liability or expenditure
- it is utilized for that purpose only
- is shown above the line
- above the line means profit and loss account
RESERVE
- Reserve in an appropriation profits
- it is made for future unknown liability
- it can be utilized for any future purpose
- is known below the line
- below the line means p&l appropriation account
PRIMARY MARKET
-
SECONDARY MARKET
-
STOCK EXCHANGE
-
Stock exchange is the place, where stocks shares and other securities of the listed companies
bought and sold
DEBT SECURITAZATION
-
It is a mode of financing
Where in securities are issued on the basis of package of assets called polio
This involves the following process of activities
Organizing function
Pooling function
Securitization function
WORKING CAPITAL
-
21
ACCRUED INCOME
Income earned but which not due ( no right to receive on this date) Earned during the current
accounting year but not have been actually received by the end of the same year
OUT STANDING INCOME
Income accrued and due but was not received
DEBTORS
Means taken goods on credit, who owes an amount to some body, People who has taken loan or money
CREDITORS
Means from whom have taken goods on credit people to whom we owes
ACCRUED EXPENSES
The expenditure which is incurred and the payment there of might or might not be paid
PREPAID EXPENDITURE
The amount paid for the expenditure relating to the future years
OUT STANDING EXPENDITURE
The expenditure incurred but the payment for which is not yet paid and will be shown in the balance
sheet liabilities side and debited to profit and loss account
AMORTISATION
Writing of intangible assets eg patents, goodwill this assets there is no physical existence
RECURRING EXPENSES
Items which are repeated eg sales and wages
NON RECURRING EXPENSES
Items which are not regular and repeated eg buying of machinery or other fixed assets, insurance
claims
DELCREDERE COMMISSION
Consignment of goods it is extra commission paid to bare the bad debts collection
STOCK EXCHANGE
Stock exchange is the place where stocks shows and other securities of the listed companies bought and
sold
LIMITED COMPANY
22
23
24
25
CONVENTIONS:
It refers to the general agreement on the usage and practices in social or
economic life, it is a customary practice, rule, method or usage. In other words, it
is an accounting procedure followed by the accounting community on the basis of
long standing customs.
Accounting Conventions can be used as follows:
CONSISTENCY: The accounting practices should remain in the same from one
year to another for instance, it would not be proper to value stock-in-trade
according to one method one year and according to another method next year. If
a change becomes necessary, the change and its effect should be stated clearly.
DISCLOSURE: Apart from legal requirements, good accounting practice also
demands that all significant information should be disclosed. Not only various
assets, for example, have to be stated but also the mode of valuation should be
disclosed. Various types of revenues to be stated but also the mode of valuation
should be disclosed. Whether something should be disclosed or not will depend on
whether it is material or not. Materially depends on the amounts involved in
relation to the asset or transaction group involved or to profits.
CONVERVATISM: Financial Statements are usually drawn up on rather a
conservative basis. Window-dressing, i.e., showing a position better that what it
26
NOTES TO ACCOUNTS:
27
Notes to accounts are the explanation of the management about the items
in the financial statements i.e., profit and loss account and balance sheet. The
management gives more explanation and information about the item of profit and
loss account and the balance sheet and any other items, by way of notes of
accounts
Notes to accounts are integral part of financial statement.
ACCOUNTING STANDARDS:
An Accounting Standard is a selected set of accounting policies or broad
guidelines regarding the principles and methods to be chosen out of several
alternatives. Standards conform to applicable laws, customs, usages and business
environment. So there is no universally acceptable set of standards. In India,
Accounting Standards Board (ASB) has the authority of issuing Accounting
Standards. The sole objective of Accounting Standards is to harmonise the
diversified policies to make the system more useful and effective.
The Council of the ICAI has so far issued twenty eight Accounting
Standards. However, AS-8 on Research & Development is withdrawn consequent
to issue of AS-26 Intangible Assets. These are as follows:
AS
1
2
(Revised)
3
(Revised)
4
(Revised)
5
(Revised)
6
(Revised)
7
(Revised)
8
9
10
11
(Revised)
12
13
14
15
Title of the AS
Disclosure of Accounting Policies
Valuation of Inventories
Cash Flow Statements
Contingencies and Events Occurring
after the Balance Sheet Date
Net Profit or Loss for the period,
Prior Period Items and Changes in
Accounting Policies
Depreciation Accounting
Accounting for Construction
Contracts
Accounting for Research &
Development
Revenue Recognition
Accounting for Fixed Assets
The Effects of Changes in Foreign
Exchange Rates
Accounting
Accounting
Accounting
Accounting
for
for
for
for
Government Grants
Investments
Amalgamations
retirement benefits
Enterprises to
which
applicable at
present
All
All
See Note - 2
1-4-1995
All
1-4-1996
All
1-4-1995
--
1-4-2003
All
All
All
All
All
All
All
All
All
28
16
17
18
19
20
21
22
23
24
25
26
27
in Financial Statements of
Employers
Borrowing Costs
Segment Reporting
Related Party Disclosures
Leases
Earning Per Share
Consolidated Financial Statements
Accounting for Taxes on Income
Accounting for Investment in
Associates in Consolidated Financial
Statements
Discontinuing Operations
Interim Financial Reporting
Intangible Assets
Financial Reporting of Interest in
Joint Venture
28
Impairment of Asset
29
1-4-2000
1-4-2001
1-4-2001
1-4-2001
1-4-2001
1-4-2001
See Note - 4
1-4-2002
See
See
See
See
All
Note
All
All
Note
Note
Note
-2
-2
-3
-4
All
1-4-2004
1-4-2002
1-4-2003
1-4-2004
All
All
All
1-4-2004
1-4-2005
1-4-2004
See Note - 2
All
All
(with certain
exceptions in
respect of
paragraphs 66
& 67 of the
Standard)
All
29
Margin of
Safety:
Difference between Total Actual Sales - Break Even Sales
Margin of Safety = Total Sales - B.E.P.
Margin of Safety will be reached faster if angle of incidents is more and vice
versa.
Ex: Total Sales = 30000 ; B.E.P. Sales = 20000
therefore Margin of Safety = 30000 - 20000 = Rs. 10000
Absorption Costing :
Each and every item of cost i.e., variable cost and fixed cost is charged to the
product.
Case 1 :In this case fixed cost are charged to the product on the basis of normal
capacity.
[Normal capacity The number of units normally produced by the company]
30
Case 2: in case of under absorption, that amount should be charged to the P&L
A/c
Ex:
Case-1 : Normal units
= 10,000
Actual production
= 12,000
Fixed over heads
= Rs.1,00,000/The absorption rate : fixed over heads = 1,00,000
Normal units
1,0000
= Rs.10/- per unit
And total absorption should be Restricted to Rs.1,00,000/In any case the absorbed amount should not exceed the actual fixed cost.
Case-2 : if the actual production is 8,000 units
The absorption Rate :1,00,000 =Rs.10/- per unit
10,000
The amount absorbed =8000X10 = Rs.80,000
Under absorbed Amount : 1,00,000 - 80,000= Rs.20,000/Which is charged to the Profit and Loss A/c.
Marginal Costing:
This is a technique of Decision Making.
In the case of Marginal Costing only variable cost are absorbed by the product.
In this case the fixed costs are considered as period cost and this should be
charged to P & L A/c.
Costing:
The Process of determining cost is called as costing.
Variable Cost:
1. Cost which is changing with every change in production additionally if you want
to producing one more unit we need to expend additional cost.
Ex: for 10 units Rs.100/for 11th unit additionally Rs.10/2. Cost per unit will not change but there is change in total cost.
Ex: for 10 units Rs.100/Cost per unit = cost/unit =100/10= Rs.10/11 units 110/Cost per unit= 110/11 = Rs.10/Fixed Cost:
1. This cost is fixed will not change with increase or decrease in production.
Ex: Factory rent
2. The total cost will not change but cost per unit will change.
Ex: Rent = Rs.10000/1 person share =Rs.10000/2 persons share= Rs.5000/- each
4 persons share = Rs.2500/- each
P/V Ratio (Profit - Volume Ratio) :
It is a Ratio between Contribution and Sales.
P/V Ratio = Contribution / Sales x 100
31
32
Contribution___________
Earning Before Interest & Tax (EBIT)
2
3
4
Memorandum of Association
(MOA)
Memorandum defines the companies
constitution and scope. MOA is the
companies constitution and scope.
It is a primary document.
It is subordinate to the Act.
It is a must for every company.
1
2
3
4
5
6
7
8
Shares
Shares are part of the capital of the
company.
Shareholders are members or
owners of the company.
When recommended by the board
dividend could be declared to
shareholders.
Shares do not carry on any charge.
Shares have restrictions issue at a
discount.
Shareholders have voting rights.
Dividend is payable only when
profits are there.
No fixed dividend.
Debentures
Debentures constitute a loan.
Debenture holders are creditors.
Fixed amount of interest on
debentures paid before dividend
declaration.
Debentures generally have a charge
on the asset of the company.
Debentures do not have restrictions
issue at a discount.
Debenture holders do not have voting
rights.
Interest is payable whether profits
are there or not.
Rate of interest is fixed.
33
1
2
3
4
5
1
2
3
4
5
6
1
2
3
4
6
7
1
2
Shareholder
One of the owner of the company
and has proprietary interest in the
company.
When the company makes profits
and the board recommends,
shareholder gets a share in the
profits.
No security for his investment.
Eligible for voting rights.
On liquidation, shareholders are paid
last.
Debenture holder
Only a creditor of the company
Shares
Has a nominal value.
May be fully paid or partly paid.
Can be transferred in whole numbers
and not in fractions.
Each and every share shall be of
equal denominations.
Shares are identified with distance
numbers.
Can be issued directly to the public.
Stock
No nominal value.
Always fully paid.
Can be transferred in fractions also.
Capital expenditure
Expenditure for the purchase and
installation of asset.
These assets are shown at the
assets side of the balance sheet
Expenses are incurred for long term
investment.
The benefits will flow or enjoyed by
the organization for more than one
year.
Ex: plant and machinery
The item dealt is called as asset. It
is expressed or identified in its own
name.
Plant Plant ; T.V. T.V.
Asset is purchased for utilization in
the business, in the normal course
of business.
Depreciation is to be considered for
the life of asset.
Revenue expenditure
Expenditure incurred for the
maintenance of asset.
These expenses are shown in the
debit side of profit and loss account.
Expenditure incurred for short term
investment.
The benefits for the expenditure will
flow or enjoyed by the organization
for the current year only.
Ex: salaries, printing & stationary etc.
The item dealt is called goods or
merchandise.
Plant Goods ; T.V. Goods.
Balance Sheet
The objective of the preparing Balance
Sheet is to know the financial position
of the business on a specific date.
Balance Sheet is a statement and
34
3
4
1
2
3
4
5
1
2
3
4
5
Recurring Expenses
Items which are repeated.
Ex: Salaries & Wages
Non-Recurring Expenses
Items Which Are Not Regular And
Repeated.
Ex: Buying of Machinery or Other
Fixed Assets, Legal Expenses, Loss or
Profit on sale of Asset, Insurance
Claims.
Provision
Provision is a charge against the
profits.
Is made for known liability or
expenditure.
It is utilized for that purpose only.
Reserve
Reserve is an appropriation on profits.
Partnership
It is a going concern.
It always has a name.
Persons carrying on business are
called partners.
Profits are ascertained at regular
intervals, i.e., annually.
Joint Venture
It is a terminable venture.
It may not bear a name.
Persons carrying on business are
called Co-venturers.
The profits are ascertained for each
venture separately cash basis of
accounting is followed.
Deposit
Deposits are amounts, received by
the company from the public.
Debenture
Debenture is a document, which
acknowledge debt, which is issued by
company
Debentures are long term financial
1
2
3
4
35
3
4
1
2
3
1
2
3
1
2
3
4
1
2
1
2
3
sources.
Debentures are generally secured.
Issue of debentures restricted by RBI.
Member
Name entered in the register of
members.
Member is also a share holder.
Share holder
Name not entered in the register on
members.
Share holder is not a member unless
name is entered in the register of
members.
Share warrant holder is share holder.
Partner
Partner is one of the owner.
Partnership is governed by
Partnership Act, 1932.
Partner is a unlimited liability.
Director
Director is one of the member of the
executive body.
Companies is governed by the
Companies Act, 1956.
Director is generally not liable.
Company
Company comes into existence only
when it is registered under the
companies act.
Members:
minimum
Private : 2 Members
Public : 7 Members
Maximum
Private : 50
Public : un limit.
A company on its incorporation
enjoys a separate legal entity.
In case of company members
liability is limited.
Partnership
A firm is created by mutual agreement
between partners. Registration is
optional.
Members:
Minimum
2 Partners.
Maximum
In case of Banking Business : 10
In case of Other Business : 20.
Company
A company is a trading association.
A company is required to be
registered under the companies act.
Club
Club is a non trading association.
Registration of a club is not
mandatory.
Trial Balance
The Trial Balance is prepared to
check the arithmetical accuracy of
the books of accounts.
Trail Balance does not show the
financial position of business.
The Trial Balance is prepared based
on the ledger accounts.
Balance Sheet
Balance Sheet is prepared to know the
true position of assets and liabilities
on a particular date.
The financial position can be known
from balance sheet.
The Balance Sheet is prepared on the
basis of information from Trial
Balance.
36
4
5
1
2
1
2
3
4
5
6
7
1
2
3
1
2
3
4
Forfeiture of Shares
Forfeiture is proceeding against
reluctant shareholder. ( defaulted in
call payment)
Forfeiture can be done only partly
paid up shares.
Surrender of Shares
Surrender is affected with the assent
of share holder.
Share Certificate
The holder is a registered member of
the company.
The holder of a share certificate is
essentially a member.
Share Warrant
The bearer of a share warrant is not a
registered member.
The bearer of a share warrant can be
a member only if the article so
provided in and as.
Share warrant can be issued Central
Govt. approval is must.
Promissory Note
In promissory note there is a
promise to pay..
In promissory note there are two
parties, namely, the maker and the
payee.
A promissory note is signed by the
person liable to pay. So no
acceptance is needed.
Bill of Exchange
In a bill there is an order to pay.
Journal
Journal is the book of first or original
entry. It is also called the book of
first entry or primary entry.
Transaction in the journal will be
recorded immediately.
Ledger
The ledger is the book of second
entry.
37
38
39
40
41
42
43
44
45
Written Down Value : Every year depreciation is changing. Year by year it goes
on decreasing. Depreciation is calculated on the opening balance of this year.
Straight Line Method : Every year depreciation is same
Ex: Total Value/Its Life
(Note: In any method the total amount of asset must be depreciated is 95%).
Annuity Method : Interest is taken care or Interest is added and depreciation is
found.
Depreciation Fund Method: Every year depreciation amount is invested in
investments. Interest on investments receive in also invested. All this investments
are sold, when new assets is to be purchased.
Depletion Method : This method is use in mines, quarries. The total quantity of
tones are estimated. Depreciation per tone is now calculated.
Cost per tone = Total Cost / Estimated Tones
Capital Budgeting : Analyzing and selection of investment projects whose
returns are expected to extend beyond one year.
Net Present Value : It is the difference between inflows and outflows.
IRR : The rate which present value of inflows are equal to present value of
outflows.
PI: also called as benefit cost ratio. It shows relationship between present value
of inflow and present value of outflows. i.e. inflows / outflows.
Capital Structure : It refers to the proportion of debt equity and preference
capital.
Beta : Market Risk Systematic Risk
Stand Demat : Industry Risk Unsystematic Risk
Portfolio Management : means group of securities.
ADVANCED FINANCIAL ACCOUNTING
Funds Flow Statement:
A statement that uses net working capital as a measure of liquidity position is
referred to as funds flow statement.To go to the roots, this funds flow
statement was termed where got and where gone statement. This statement
records the increases and decreases in different items of the balance sheet. Later
it was called funds statement. In 1963 Accounting Principles Board (APB) changed
the name of the statement as statement of sources and applications of funds.
Uses and importance of Funds Flow Statement:
An essential too for the financial analysis and management.
Reveals the changes in the working capital and gives the details of the
sources from which working capital has been financed.
Helps in the analysis of the financial operations and explains causes
for the changes on the liquidity position of the company.
46
47
48
49
50
Fair Value Method: this is also called earning capacity valuation method or dual
method. This is geared to rectify one of the limitations of the earlier method that
the value of the share is based on the dividend but not on the earnings. This
method relates the value of the share to the earning efficiency in terms of
profitability of the company as the market price of the share is based on the
earnings of the company rather than the dividend declared.
Intrinsic value: Means the potential price of a companys common stock.
Liquidation: Winding up of the company.
Net Worth: Means the sum of paid up share capital plus reserves plus the
preference share capital.
VALUATION OF GOODWILL:
Goodwill is the reputation and image built up which places the business in
position to have long run survival, success and growth, success and growth
besides positively influencing the earnings.
Factors affecting goodwill: Profitability of Business, Brand Equity, Product of
Service Quality, Customer Acceptance, Business Location and Access etc.
Average Method: In this method which takes into account the average profits
for the past few years and the value of goodwill is calculating as some years
purchase of this amount.
Super Profit Method: The excess of actual profits over the normal profit is
known as super profit. A business unit may posses some advantages which
enable it to earn extra profits over and above the amount that would be normally
earned, if the same capital is employed elsewhere in a business of same risk
class.
Annuity Method: Under this method goodwill is calculated by taking the average
super profit as the value of an annuity over a certain number of years. An annuity
is a series of equal periodic payments occurring at equal intervals of time. In
other words goodwill is calculated by finding the present value of an annuity
discounted at a given rate of interest which is usually the normal rate of return.
Value Added Statements: The Statements which show changes in value added
which are created by production.
Historical Cost Accounting: The accounting statements which are prepared on
the basis of past transactions.
Inflation Adjusted Statements: Accounting statements are adjusted on the
basis of established price index.
Replacement Cost: It is the cost of replacing an existing employee.
Opportunity Cost: The actual or assumed rate for capitalization of the
differential earnings expected to be earned by an employee.
Annuity: A series of receipts or payments of a fixed amount for a specialized
number of years.
51
FINANCIAL MANAGEMENT
Financial Management: Concerns the acquisition, financing, and management
of assets with some overall goal.
Future Value: The value at some future time of a present amount of money, or a
series of payment, evaluated at a given interest rate.
Net Present Value: The Present Value of an investment projects net cash flows
minus the projects initial cash outflow.
Present Value: The current value of a future amount of money, or a series of
payments, evaluated at a given interest rate.
Price / Earning Ratio: The market price per share of a firms common stock
divided by the most recent 12 months of earnings per share.
Risk: The variability of returns from those that are expected.
Capital Structure: The mix of a firms permanent long - term financing
represented by debt, professed stock, and common stock equity.
Compound Interest: Interest paid on any previous interest earned, as well as
on the principal borrowed.
Funds: Funds include not only cash but also the total current assets or financial
resources.
Profit Maximisation: It is a criterion for economic efficiency as profits provide a
yard stick by which economic performances can be judged under condition of
perfect competition.
Wealth Maximisation: It stands that the management should seek to maximize
the present value of the expected returns of the firm.
Discounting: A reduction of some further amount of money to a present value at
some appropriate rate in accordance with the concept of the time value of money.
Sole Proprietorship: A sole proprietorship is a firm owned by an individual. He
owns all assets and owes all liabilities of the business.
Partnership Firm: A partnership firm is a business unit carried on by two or
more persons with an intention to share profits or losses. The limitations are i)
Unlimited liability ii) Limited life iii) difficulty in transferring ownership and iv)
Limitations in raising funds.
Joint Stock Company: A joint stock company is a legal entity created under the
law and empowered to own assets, to incur liabilities, and to engage in business.
It is an artificial person created by the law. The capital of a company is divided
52
53