How to Manage Funds Without Getting Further Loan?
Saturday, October 31, 2009
Comment
By delaying payments and tightening the credit policy. By getting the existing loans rescheduled.
Query # 2:
a- china factor (low prices / close compitition)
b- increasing prices of raw materail
Comment
The strategy in this respect should be made by the professionals responsible for business decisions. A finance professional, however, can advise and assist in developing a strategy through which an organisation may fight against these factors for e.g. by offering better quality and extra services such as after sale services or guarantees / warranties. Such a strategy will however require perseverance.
Products may be offered at prices lower than the market prices in order to develop a list of good big customers. Services, if any relating to products, may then be offered to these customers and may be charged for, wherever agreed upon. Ethical standards would play a key role in any business. Therefore there should be no compromise in quality and integrity whatsoever are the financial challenges.
Query # 3:
Comment
Mistake is proved to be the key for future success if one learns from his mistakes. It requires self consciousness and ability to identify the cause of bad experiences/ results in one's life.
Labels: accounting
posted @ 2:07 PM,
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Lease Rental of Land
Tuesday, May 12, 2009
Does a company can capitalize rental payment against lease of land before the start of commercial production? What is the date of Commercial production? Further, briefly discuss the taxation implications of the said rental payment.
Comment:
Accounting Aspect:
As per para 14 of IAS-17, characteristic of land is that it normally has an indefinite economic life and lessee normally does not receive substantially all of the risks and rewards incidendtal to ownership, in which case its an Operating Lease.
ICAP's technical committee recomended in its accounting TR-21 that date of commencement of commercial production is the date when the plant is ready for the production of intended products in commercially feasible quantities. The cut off date so established is without regard when the plant actually commences commercial production. Where the construction of an asset is completed in parts and each part is capable of being used while construction continues on the other parts, capitalization of costs for each part should cease as it is completed.
Therefore, all expensed paid before the commencement of commercial production would be capitalized including rental payment to the lessor.
Taxation Aspect:
Witholding tax would be deducted under section 153 of the Income tax Ordinance under execution of other contracts provided any exemption certificate is produced by the lessor.
Labels: accounting, Taxation
posted @ 4:00 PM,
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Dispose of assets and Write off asset
Wednesday, April 8, 2009
Accounting Treatment
of Dispose of assets:Accounting Treatment of Write off of assets:
Labels: accounting
posted @ 1:45 AM,
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Accounting Treatment of Mobile Phones and Depreciation
Friday, March 27, 2009
- a) controlled by an entity as a result of past events; and
- b) from which future economic benefits are expected to flow to the entity (Source: IAS-38).
Further, Property, Plant and Equipment are tangible items that:
- a) are helf for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and
- b) are expected to be used during more than on e period. (Source: IAS-16)
If mobile phones are purchsed for the purpose mentioned above then these would be catagorised as Equipment or specifically as mobile phones as well if the its figure is very material with reference to assets of the company.
Depreciation is the systematic allocation of the depreciabale amount of an asset over its useful life. So if the company has intention to separately catagorised then rate should be charged according to their useful life otherwise if these are shown under Equipment then same rate that equipments are being charged as depreciation.
Labels: accounting
posted @ 1:37 PM,
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Aging
Thursday, March 26, 2009
For example: if a companys total receivable is amounting to Rs.100.000 Million. We can make aging of the said receivable as follows
- 2 months 50.000 Million
- 3 months 20.000 Million
- more the 3 months 30.000 Million
Purpose of doing aging is to take actions to recover the receivables and for accounting point of view to make provision of bad debts , etc
Labels: accounting
posted @ 5:44 PM,
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Foreign Currency Hedging
Tuesday, March 24, 2009
Query from abid younas:
"If a company imports products through open account method (without having a letter of credit) or through contructual imports. What are the hedging instruments available to the company for foreign currency transactions since all of you are aware about exchange rate fluctuations in our country."
Comment:
Since SBP has temporarily restricted the farward booking of imports so that company has to pay at the spot rate prevailing at the time of getting documents and has to carry the risk of exchange rate fluctuation.
However, in normal circumstances Forward Rate Booking and Currency Swap Transaction would be avaialbe to hedge the imports without carrying the risk of exchange rate fluctuation.
Labels: accounting, Treasury
posted @ 1:46 PM,
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Difference between Discount Rate and Interest Rate
Saturday, March 21, 2009
Whereas Interest Rate means A rate which is charged or paid for the use of money. An interest rate is often expressed as an annual percentage of the principal. It is calculated by dividing the amount of interest by the amount of principal. Interest rates often change as a result of inflation and Federal Reserve Policies. These days local currency financing (lease or short/long term) cost KIBOR + 2.50 bps to 5.00 bps.
Normally the term used for lease and borrowing is interest rate rather than discount rate.
Labels: accounting, Treasury
posted @ 10:25 AM,
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Cash Flow Statement Vs. Profit and Loss Account
Friday, March 20, 2009
To access the viability of poposed Capital Expenditure Projects, a cash flow statement is better than profit and loss account because it enables users to evaluate the changes in net assets of an entity, its financial structure ( including its liquidity and solvency) and develop models to assess and compare the present value of the future cash flows of different periods because it eliminates the effects of using different accounting treatments for the same transaction and event.
In simple words Profit and Loss accounts present the picture after all cash and on cash items adjustments whereas Cash Flow statements tells cash impact that is very important to assesst the viability of proposed capital expenditure
Labels: accounting
posted @ 4:29 PM,
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Accounting entry for the Customer Account
Thursday, March 19, 2009
We are an export base firm. One of our customer declared himsel bankrupt and State Bank had asked us to route foreign currency through SBP from our own resources. We'll have to transact the said amount through our own foreign currency account. What would be the accounting entry for the Customer Account ?
Accounting Treatment:
There is no relation of routing foreign currency from your own source with the receivable balance of the party. Both are separte matters. In first transaction your own money would come back to your own account. SBP just wants you to show a foreign proceed whether through outside or local in it allows.
As for as party balance is concerned, if management is of the view that export proceed will not come then you have to write off the balance and charge it to profit and loss account.
Labels: accounting, Write off
posted @ 11:37 AM,
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Best Accountants Group
At the start of my professional career, one of my friends told me to join an accounts related group to stay updated with major developments in ever expanding accounting field.s At that time I didn't have such information about groups but I visited yahoogroups and found Professional Accountants Forum - founded in Jan 29, 2003.
The aim of the group is to provide a platform to communicate and exchange views / information on matters of professional interest, conduct professional development programs, enhance economic knowledge, help students, co-ordinate with other forums, sharing research work and much more.
Being there for some time now, I recommend every body to join this one of the oldest and best groups among all. That has been the best place for me to share knowledge and interact with other. I have already met some wonderful folks there. My message for moderator of this group, "Keep it up man... You are the best."
Labels: Accountants, accounting, Forum
posted @ 9:58 AM,
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TR-31: Annuity Method of Depreciation
Friday, February 27, 2009
- The annuity method is a compounded interest method whereby the depreciation is calculated based on the assumption that depreciation plus the normal cost of capital to finance the assets are constant over the life of the assets. This results in lower depreciation charges in the earlier years of the assets life and higher charges in the later years.
- Although IAS 16 ‘Property, Plant and Equipment’ does neither expressly prohibit the annuity method nor mentions it as a permissible method, it states that the depreciation method should reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity (paragraph 60 of IAS 16). Therefore, depreciation should reflect the actual diminution of the value of the asset or the direct revenue streams arising from such assets duly ignoring indirect and inconsistent revenues and other associated costs which can, however, not be considered to be a part of the pattern of flow of economic benefits from such assets. This implies the straight-line method or the reducing balance method to be more appropriate for most of the leasing assets.
- Further it needs to be noted that in case of applicability of annuity method of depreciation, the depreciation charged in the initial years is on the lower side and accordingly, there rises an inevitable risk that the carrying value of such assets would exceed their fair values, which might create accounting issues in future with regard to impairment testing in line with IAS -36 ‘ .
- In view of the aforesaid, the Committee is of the considered opinion that annuity method of depreciation under IFRS is not an appropriate method of depreciation particularly for ssets given on operating lease for a determined period.
Ref: Recommendation are made in 204th meeting of the ICAP Council – January 23, 2009
Labels: accounting, Depreciation method, ICAP
posted @ 11:48 AM,
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Interest Expense Vs Interest Income
Monday, February 23, 2009
Case: (from Khurram Iqbal - iqbal@rakinvest.ae )
Loan taken by A from B Euro 1,000
Quarterly interest payable to B by A on above loan Euro 100
Loan transferred to C by A Euro 1,000
Quarterly interest payable by C to A Euro 100
Note: At the end of the maturity of above loan A will be liable to payback the full
principal loan amount to B after recovered from C.
Question:
How “A” treats interest expense in its books?
Comment:
- Interest payable to "B" would be interest expense of "A" whereas
- Interest receivable from "C" would be interest income of "A".
Labels: accounting, interest expense
posted @ 4:44 PM,
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Changes in Accounting Estimates
Tuesday, February 17, 2009
Query:
Useful life of the fixed asset can be revised?
Answer:
Para 32 of (International Accounting Standard) IAS-8, Accounting Policies, Changes in Accounting Estimates and Errors states that as a result of the uncertainties inherent in business activities, many items in financial statements cannot be measured with precision but can only be estimated. Estimation involves judgement based on the latest available, reliable information. For example, estimates may be required of:
- bad debts;
- inventory obsolescence;
- the fair value of financial assets or financial liabilities;
- the useful lives of, or expected pattern of consumption of the future economic benefits embodied in, depreciable assets; and
- warranty obligations.
In the light of above management can revise the useful life of the asset as well.
Accounting Treatment:
- To the extent that a change in an accounting estimates gives rise to changes in assets and liabilites, or relates to an item of equity, it shall berecognised by adjusting the carrying amount of the related assets, liability or equity item in period of the change.
- The effect of a change in an accounting estimate, other than mentioned above, shall be recognised prospectively by including it in profit or loss in:
- the period of the change, if the change effects that period only; or
- the period of the change and future periods, if the change affects both.
Labels: accounting, changes in accounting estimates, IAS
posted @ 5:01 PM,
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SECP - Relaxation in accounting treatment for equity securties
Saturday, February 14, 2009
The SECP through SRO 150 (I) 2009 dated February 13, 2009, has granted relaxation in the accounting treatment for equity securities held by the companies under the head “Available for Sale” as required under International Accounting Standard ‘Financial Instrument: Recognition and Measurement (IAS 39). The relaxation is;- The impairment loss if any recognized as on 31-12-2008 due to valuatin of listed equity investment held as "Available for sale" to quoted market prices of 31-12-2008 may be shown under the EQUITY.
- The amount taken to equity including any adjustment / effect for price movements during the quarter of calender year 2009 shall be taken to Profit and Loss account on quarterly basis during the calender ending on 31-12-2009.
- The amount taken to equity shall be treated as a charge to profit and loss account for the purpose of distribution as dividend.
- The above dispensation shall be available to all companies and mutual funds.
- All companies and mutual funds opting for the above treatment shall disclose prominently n the face of balance sheet, profit and loss accounta and director's reports
Labels: accounting
posted @ 10:08 AM,
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Gratuity Rules
Saturday, February 7, 2009
According to standing order no. 12 of The West Pakistan Industrial and Commercial Employment (Standing Orders) Ordinance, 1968, where a workman resigns from service or his services are terminated by the employer, for any reason other than misconduct, he shall, in addition to any other benefit to which he may be entitled in accordance with the terms of his employment or any custom, usage or any settlement or an award of a Labour Court under the Industrial Relations Ordinance, 1969 (XXIII of 1969), be paid gratuity equivalent to thirty days, wages, calculated on the basis of the wages admissible to him in the last month of service if he is a fixed-rated workman or the highest pay drawn by him during the last twelve months if he is a piece-rated workman, for every completed year of service or any part thereof in excess of six monthsLabels: accounting, Commercial rules
posted @ 11:21 AM,
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Enterprise Resource Planning - ERP
Friday, January 30, 2009
ERP stands for Enterprise Resource Planning. ERP is a way to integrate the data and processes of an organization into one single system. Usually ERP systems will have many components including hardware and software, in order to achieve integration, most ERP systems use a unified database to store data for various functions found throughout the organization.The Ideal ERP System is when a single database is utilized and contains all data for various software modules. These software modules can include:
- Manufacturing: Some of the functions include; engineering, capacity, workflow management, quality control, bills of material, manufacturing process, etc.
- Financials: Accounts payable, accounts receivable, fixed assets, general ledger and cash management, etc.
- Human Resources: Benefits, training, payroll, time and attendance, etc
- Supply Chain Management: Inventory, supply chain planning, supplier scheduling, claim processing, order entry, purchasing, etc.
- Projects: Costing, billing, activity management, time and expense, etc.
Customer Relationship Management: sales and marketing, service, commissions, customer contact, calls center support, etc. - Data Warehouse: Usually this is a module that can be accessed by an organizations customers, suppliers and employees.
Advantages of ERP Systems
- A totally integrated system
- The ability to streamline different processes and workflows
- The ability to easily share data across various departments in an organization
- Improved efficiency and productivity levels
- Better tracking and forecasting
- Lower costs
- Improved customer service
Disadvantages of ERP Systems
- Customization in many situations is limited
- The need to reengineer business processes
- ERP systems can be cost prohibitive to install and run
- Technical support can be shoddy
- ERP's may be too rigid for specific organizations that are either new or want to move in a new direction in the near future.
For further details pleae click here!
Labels: accounting
posted @ 4:53 PM,
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Islamic standard for Ijarah - IFAS 2
Thursday, January 29, 2009
State Bank of Pakistan has decided to allow implementation of Islamic Financial Accounting Standard for Ijarah (IFAS 2) w.e.f January 01, 2009. Accordingly, Islamic Banking Institutions (IBIs) shall ensure that henceforth all returns / statements submitted to State Bank as well as the Quarterly/Annual Financial Statements shall be prepared in line with this Standard.
To see the complete standard click here!
Ref: SBP
Labels: accounting
posted @ 12:11 PM,
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Top Obama Advisers Clash on Global Accounting Standards
Friday, January 16, 2009
Paul Volcker, a former chairman of the Federal Reserve Board under Presidents Jimmy Carter and Ronald Reagan and now the chairman of Obama's Economic Recovery Advisory Board said, "I do think we ought to be working toward international accounting standards and have them standard around the world under the general aegis of the International Accounting Standards Board, and there's been a lot of progress in that direction."Even as Volcker was pushing IFRS, however, Mary Schapiro, Obama's nominee for chairman of the Securities and Exchange Commission 
was advocating a go-slow approach on implementing the global standards in the United States. Schapiro, who heads the Financial Industry Regulatory Authority, told the Senate Banking Committee during her confirmation hearing today that she plans to back off of current SEC Chairman Christopher Cox's plans proposed roadmap for converting U.S. companies to international financial reporting standards. "I will not be bound by the existing roadmap that's out for public comment," she said.
Schapiro said she has concerns about the pace of the timeline, the independence of IASB, and the quality of the standards themselves. Considered more principles-based than U.S. generally accepted accounting principles, IFRS are not as detailed and give more room for interpretation, she said.
Ref: Cfo.com
Labels: accounting
posted @ 10:12 AM,
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Financial Ratios
Wednesday, January 14, 2009
Financial ratios are tools for interpreting financial statements to provide a basis for valuing securities and appraising financial and management performance.A good financial analyst will build in financial ratio calculations extensively in a financial modeling exercise to enable robust analysis. Financial ratios allow a financial analyst to:
- Standardize information from financial statements across multiple financial years to allow comparison of a firm’s performance over time in a financial model.
- Standardize information from financial statements from different companies to allow an apples to apples comparison between firms of differing size in a financial model.
- Measure key relationships by relating inputs (costs) with outputs (benefits) and facilitates comparison of these relationships over time and across firms in a financial model.
In general, there are 4 kinds of financial ratios that a financial analyst will use most frequently, these are:
- Performance ratios
- Working capital ratios
- Liquidity ratios
- Solvency ratios
These 4 financial ratios allow a good financial analyst to quickly and efficiently address the following questions or concerns:
Performance ratios:
- What return is the company making on its capital investment?
- What are its profit margins?
Working capital ratios
- How quickly are debts paid?
- How many times is inventory turned?
- Can the company continue to pay its liabilities and debts?
- What is the level of debt in relation to other assets and to equity?
- Is the level of interest payable out of profits?
Labels: accounting
posted @ 1:49 PM,
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Export Proceeds - Accounting Treatment
Saturday, January 10, 2009
Initial Recognition: A foreign currency translation shall be recorded, on initial recognition in the functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.
Recognition of Exchange Difference: Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements shall be recognised in the Profit and Loss in the period in which they arise.
(Ref: Para 21 and 28 of International Accounting Standard IAS-21)
In the context of above mentioned paragraphs initially export sales would be booked at the spot rate and susequently effect of any change in exchange rate would be charged to Profit and Loss Account.
Accounting Entries:
Initial Recognition:
(Dr) Export Sales Receivables----------1,000
(Cr) Export Sales ----------------------1,000
Subsequently
(Dr) Bank Account---------------------980
(Dr) Exchange Rate Loss----------------20
(Cr) Export Sales Receivalbes----------1,000
Labels: accounting
posted @ 3:29 PM,
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