tag:blogger.com,1999:blog-13157550925605623362024-03-20T19:24:34.352-07:00MUSINGSmusingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.comBlogger385125tag:blogger.com,1999:blog-1315755092560562336.post-71071484164303833082023-08-28T23:02:00.001-07:002023-08-28T23:02:46.966-07:00Business comm 2<p> </p><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><iframe allowfullscreen='allowfullscreen' webkitallowfullscreen='webkitallowfullscreen' mozallowfullscreen='mozallowfullscreen' width='320' height='266' src='https://www.blogger.com/video.g?token=AD6v5dw_incAmVdtpP2eSQuyjBSz-Tld0fxKznWUkL4UMrG5gvVl7d1zs5QHPiED16AAWy-nasJocfo2drCzkz5Ctg' class='b-hbp-video b-uploaded' frameborder='0'></iframe></div><br /><br /><p></p>musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com0tag:blogger.com,1999:blog-1315755092560562336.post-21476930495687964162022-02-27T05:53:00.001-08:002023-06-22T02:19:06.943-07:00Purchasing of Material- Simplified<p> </p><h2 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(26px, 4vw, 35px); line-height: 1.2em; margin-bottom: 20px;">What Is Meant by the Purchasing of Materials?</h2><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;"><span style="box-sizing: border-box; font-weight: bolder;">Purchasing of materials</span> refers to the procurement of materials for a price. It is usually handled by a specific department (e.g., purchase manager in the procurement department), particularly in large companies.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">A purchasing department can function effectively if:</p><ul style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";"><li style="box-sizing: border-box;">It is organized on a centralized basis</li><li style="box-sizing: border-box;">Full co-operation between purchasing department and other departments is assured</li><li style="box-sizing: border-box;">A close relationship exists between the purchasing department and the accounts department</li><li style="box-sizing: border-box;">The purchase manager is technically qualified and sufficiently experienced</li><li style="box-sizing: border-box;">A proper procedure is clearly set out and strictly adhered to</li></ul><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Purchasing is a critically important and specialized activity in manufacturing companies. Materials account for a considerable portion of production costs. As such, the purchase manager in such a business is responsible for spending more of its money than anyone else.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Any errors on the part of the purchase manager, therefore, may be extremely expensive. Furthermore, purchasing sub-standard materials will undermine product quality, cause wastage, and lead to costly machine breakdowns.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Hence, it is fundamentally important to ensure that the function of purchasing materials is performed effectively, efficiently, and economically.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">According to Alford and Beatty, “purchasing is the procuring of materials, supplies, machines, tools, and services required for the equipment, maintenance, and operation of a manufacturing plant.”</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">As noted above, the purchasing function is typically performed by a separate purchasing department set up under an expert buyer (or purchase manager). To carry out their duties effectively, the purchase manager must know:</p><ul style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";"><li style="box-sizing: border-box;">What to purchase</li><li style="box-sizing: border-box;">When to purchase</li><li style="box-sizing: border-box;">Where to purchase</li><li style="box-sizing: border-box;">How much to purchase</li><li style="box-sizing: border-box;">At what price to purchase</li></ul><h3 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(20px, 3vw, 30px); line-height: 1.2em; margin-bottom: 20px;">What to Purchase</h3><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Normally, some of the spare parts and components that a manufacturing concern requires are manufactured in the company itself rather than being purchased externally. The various items of stores that the purchasing department should procure are:</p><ul style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";"><li style="box-sizing: border-box;">All the items of materials, stores, spares, and components that the manufacturing concern cannot make</li><li style="box-sizing: border-box;">Other items that the manufacturing concern can make but does not want to make</li></ul><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Decision-making in respect of the items falling under the second category is an important function of the purchasing department. The decision about whether to buy or produce a particular item depends on factors such as:</p><ul style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";"><li style="box-sizing: border-box;">Annual requirements for the item</li><li style="box-sizing: border-box;">Purchase frequency for the item</li><li style="box-sizing: border-box;">Availability of spare manufacturing capacity to produce the item</li><li style="box-sizing: border-box;">The price advantage arising out of the comparative cost of making and buying</li><li style="box-sizing: border-box;">Product secrecy</li></ul><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The decision to give preference to buying is of the utmost importance. Such decisions are made by the purchasing department under the guidance of the planning department and cost department.</p><h3 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(20px, 3vw, 30px); line-height: 1.2em; margin-bottom: 20px;">When to Purchase</h3><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Materials are generally purchased as and when requisitions are received from the stores department. If certain items are only available during a particular season, purchases are made during the season.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">For items restricted by government regulations, the question of when to purchase will be determined with reference to the date of the license, quota, or permit, as the case may be.</p><h3 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(20px, 3vw, 30px); line-height: 1.2em; margin-bottom: 20px;">Where to Purchase</h3><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The purchasing department generally maintains a list of approved suppliers for various items of materials. Whenever materials are required, purchases are made from these suppliers after receiving their quotes.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">If there are long-term requirements to purchase materials on a regular basis in bulk, the materials are purchased from specific suppliers only. In the case of controlled materials, purchases are also only made from specific suppliers.</p><h3 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(20px, 3vw, 30px); line-height: 1.2em; margin-bottom: 20px;">How Much to Purchase</h3><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The quantity of materials to be purchased is another important criterion for decision-making. The purchase department is guided in this respect by the purchase requisition received from the stores department.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">However, in organizations that use the budgetary control technique, the purchase budget that is prepared and approved in advance shows the timings and quantity of purchases. Thus, in such cases, the approved <a href="https://learn.financestrategists.com/finance-terms/budget/" style="background-color: transparent; box-sizing: border-box; color: #015566; font-weight: 700;">budget</a> is the guiding factor.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Some manufacturing concerns adopt the <a href="https://learn.financestrategists.com/finance-terms/control/" style="background-color: transparent; box-sizing: border-box; color: #015566; font-weight: 700;">control</a> technique of economic order quantity (EOQ), which indicates the quantity and frequency of purchases. EOQ ensures that the costs involved in purchasing materials and carrying inventory are minimized.</p><h3 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(20px, 3vw, 30px); line-height: 1.2em; margin-bottom: 20px;">At What Price to Purchase</h3><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The price to be paid is a key factor that influences the cost of materials. In case tenders or quotations have been invited and received, it is the responsibility of the purchasing department to select the price at which the materials should be purchased.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Normally, in this case, the tender or quotation that offers the lowest price is selected. However, the terms of delivery, credit period allowed, rate of discount, and the <a href="https://learn.financestrategists.com/finance-terms/reliability-definition/" style="background-color: transparent; box-sizing: border-box; color: #015566; font-weight: 700;">reliability</a> and capacity of the supplier to execute orders should also be considered.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">If materials are supplied through a controlling authority, the purchase manager has no option but to procure the supply at the price fixed by the authority.</p><h2 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(26px, 4vw, 35px); line-height: 1.2em; margin-bottom: 20px;">Types of Purchasing</h2><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Purchasing of materials can be undertaken on a centralized or decentralized basis. In either case, it is important to keep in view the nature, size, and requirements of the business.</p><h3 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(20px, 3vw, 30px); line-height: 1.2em; margin-bottom: 20px;">Centralized Purchasing</h3><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Under centralized purchasing, the authority to purchase materials for all the departments in an organization is placed on one individual or one department (e.g., the purchasing department headed by a purchase manager).</p><h4 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";">Advantages of Centralized Purchasing</h4><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The main advantages of centralized purchasing are as follows:</p><ul style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";"><li style="box-sizing: border-box;">A uniform and firm policy can be pursued with regard to the conditions of purchasing (e.g., terms of payment).</li><li style="box-sizing: border-box;">Purchasing of materials is the sole responsibility of the purchasing department, meaning that other departments can concentrate on production.</li><li style="box-sizing: border-box;">Since the materials are purchased in larger quantities, it is possible to benefit from better rates from suppliers.</li><li style="box-sizing: border-box;">Different items of material can be standardized.</li><li style="box-sizing: border-box;">The buying staff, by concentrating on purchasing alone, develop specialized knowledge and skills, leading to expertise and, in turn, economical buying.</li><li style="box-sizing: border-box;">Centralized purchasing facilitates the maintenance of one complete set of records for purchase <a href="https://learn.financestrategists.com/finance-terms/transaction-definition/" style="background-color: transparent; box-sizing: border-box; color: #015566; font-weight: 700;">transactions</a>, enabling management to exercise better control over purchases.</li><li style="box-sizing: border-box;">Centralized purchasing helps to coordinate purchasing activities and, by placing authority for purchasing on one person, avoids duplication and overlap.</li><li style="box-sizing: border-box;">Centralized purchasing helps to control <a href="https://learn.financestrategists.com/finance-terms/inventories-definition/" style="background-color: transparent; box-sizing: border-box; color: #015566; font-weight: 700;">inventories</a> and avoid excessive <a href="https://learn.financestrategists.com/finance-terms/investments/" style="background-color: transparent; box-sizing: border-box; color: #015566; font-weight: 700;">investment</a> in materials.</li></ul><h4 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";">Disadvantages of Centralized Purchasing</h4><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Centralized purchasing also has several well-defined limitations, including:</p><ul style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";"><li style="box-sizing: border-box;">The procedure used to purchase materials is not flexible, which may lead to delays in obtaining supplies.</li><li style="box-sizing: border-box;">Setting up a separate purchasing department leads to high administration costs.</li></ul><h3 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(20px, 3vw, 30px); line-height: 1.2em; margin-bottom: 20px;">Decentralized Purchasing</h3><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Under decentralized purchasing (also known as <span style="box-sizing: border-box; font-weight: bolder;">localized purchasing</span>), the authority to purchase materials is placed in the hands of more than one individual or department. Under this system, each departmental head makes purchases for their own department.</p><h4 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";">Advantages of Decentralized Purchasing</h4><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Decentralized purchasing is beneficial for the following reasons:</p><ul style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";"><li style="box-sizing: border-box;">It enables flexibility in the purchase routine, thereby helping to avoid procurement delays.</li><li style="box-sizing: border-box;">Under decentralized purchasing, no specialized buying team is appointed, which reduces administration costs.</li><li style="box-sizing: border-box;">Decentralized purchasing is more efficient than centralized purchasing because each departmental head can assess their department’s requirements and problems most effectively.</li></ul><h4 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";">Disadvantages of Decentralized Purchasing</h4><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Decentralized purchasing also suffers from the following disadvantages:</p><ul style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";"><li style="box-sizing: border-box;">Decentralized purchasing is not economical because materials are purchased in smaller lots (as such, volume discounts or favorable purchase terms cannot be obtained).</li><li style="box-sizing: border-box;">Lacks a uniform policy for the purchasing of materials.</li><li style="box-sizing: border-box;">Different prices may be paid for the same materials by different departments.</li><li style="box-sizing: border-box;">Expert buying staff cannot be engaged for each department of the organization.</li><li style="box-sizing: border-box;">There is no coordination among departments, which can lead to duplication and overlap.</li><li style="box-sizing: border-box;">The heads of various operating departments, in being responsible for purchasing materials, cannot concentrate fully on their routine duties.</li></ul><h2 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(26px, 4vw, 35px); line-height: 1.2em; margin-bottom: 20px;">Purchasing Procedure or Purchasing Cycle</h2><h3 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(20px, 3vw, 30px); line-height: 1.2em; margin-bottom: 20px;">1. Initiation of Purchase</h3><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">This starts with the receipt of a purchase requisition by the purchasing department. The purchase requisition is prepared by the storekeeper based on:</p><ul style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";"><li style="box-sizing: border-box;">Requisitions received from the departments of the enterprise</li><li style="box-sizing: border-box;">Replenishment policy being pursued</li><li style="box-sizing: border-box;">Special requisitions for specific equipment and materials</li><li style="box-sizing: border-box;">Personal judgment and experience (if permitted)</li></ul><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The requisitions are usually approved by staff who are authorized to grant approval. The storekeeper ensures that they are acting according to standard policies. They prepare the purchase requisitions in triplicate.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The first one (i.e., the original) is sent to the purchasing department, the next one is sent to the cost department, and the last one is retained by the stores department.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">More copies may be prepared depending on the requirements of the enterprise.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The purchase requisition forms the basis of the order to be placed with suppliers. Therefore, this should be prepared with careful attention. This helps to purchase the right quantity of materials at the right quality, the right place, from the right source, and at the right time.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">This helps the enterprise to procure materials at a competitive price. It also helps to ensure the smooth and uninterrupted operations of the enterprise.</p><h3 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(20px, 3vw, 30px); line-height: 1.2em; margin-bottom: 20px;">Format/Specimen of Purchase Requisition</h3><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;"><img alt="Purchase Requisition Format" class="aligncenter wp-image-5076 size-full" height="293" loading="lazy" src="https://learn.financestrategists.com/wp-content/uploads/2019/04/Purchasing-of-materials-Format-Specimen-of-purchase-requisition.png" style="border-style: none; box-sizing: border-box; height: auto; max-width: 100%; width: auto;" width="470" /></p><h3 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(20px, 3vw, 30px); line-height: 1.2em; margin-bottom: 20px;">2. Inviting Quotations</h3><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">After the receipt of the purchase requisition, the purchase department would proceed further and invite quotations, etc. from suppliers. The usual practice is to send an inquiry proforma to the supplier. The specimen of the Enquiry Proforma is given below :<br style="box-sizing: border-box;" /><img alt="Specimen of the enquiry proforma" class="aligncenter size-full wp-image-32518" height="454" loading="lazy" sizes="(max-width: 470px) 100vw, 470px" src="https://learn.financestrategists.com/wp-content/uploads/Specimen-of-the-enquiry-proforma-1.png" srcset="https://learn.financestrategists.com/wp-content/uploads/Specimen-of-the-enquiry-proforma-1.png 470w, https://learn.financestrategists.com/wp-content/uploads/Specimen-of-the-enquiry-proforma-1-300x290.png 300w" style="border-style: none; box-sizing: border-box; height: auto; max-width: 100%; width: auto;" width="470" /></p><h3 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(20px, 3vw, 30px); line-height: 1.2em; margin-bottom: 20px;">3. Receipt of Supplier’s Quotation</h3><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The supplier, after receiving the inquiry letter, provides a quote and states the terms and conditions of the supply of materials to the purchasing department. The supplier also provides quality, quantity, time of delivery, price, discount, and other necessary information.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">This submission is important from the point of view of both the purchaser and the supplier. It is an offer in legal terms. This, therefore, requires careful handling and proper preservation.</p><h3 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(20px, 3vw, 30px); line-height: 1.2em; margin-bottom: 20px;">4. Preparation of Comparative Statement</h3><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The comparative statement (or a comparative schedule of quotations) is prepared after the quotes are received from the supplier.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">It is prepared with a view to comparing the prices, terms, and conditions, and it helps in selecting the supplier whose terms are most favorable to the organization.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The comparative statement is an important document that should be carefully kept on record for future reference and guidance. The prepared statement is submitted to the head of the purchasing department for approval.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The purpose of preparing a comparative statement is to realize the money’s worth. A proforma of a comparative statement is given below.<br style="box-sizing: border-box;" /><img alt="Comparative Statement Format" class="aligncenter size-full wp-image-32522" height="230" loading="lazy" sizes="(max-width: 600px) 100vw, 600px" src="https://learn.financestrategists.com/wp-content/uploads/Proforma-of-Comparative-statement-for-purchasing-of-materials-2.png" srcset="https://learn.financestrategists.com/wp-content/uploads/Proforma-of-Comparative-statement-for-purchasing-of-materials-2.png 600w, https://learn.financestrategists.com/wp-content/uploads/Proforma-of-Comparative-statement-for-purchasing-of-materials-2-300x115.png 300w" style="border-style: none; box-sizing: border-box; height: auto; max-width: 100%; width: auto;" width="600" /></p><h3 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(20px, 3vw, 30px); line-height: 1.2em; margin-bottom: 20px;">5. Preparation and Placement of Purchase Order</h3><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The last action involved in purchasing materials is to prepare and place a purchase order. A purchase order is a legal document that implies the acceptance of the supplier’s offer.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The purchase order should, therefore, be prepared with great care and in complete detail. This helps the supplier to ensure that they will supply materials of the right quality, the right quantity, and at the right time.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Purchase orders are orders to the supplier to supply the required materials as per their quotations and the instructions contained therein. A proforma of the purchase order is given as follows:<br style="box-sizing: border-box;" /><img alt="Purchase Order Format" class="aligncenter size-full wp-image-32519" height="481" loading="lazy" sizes="(max-width: 470px) 100vw, 470px" src="https://learn.financestrategists.com/wp-content/uploads/Purchase-Order-Proforma-for-the-purchasing-of-materials-1.png" srcset="https://learn.financestrategists.com/wp-content/uploads/Purchase-Order-Proforma-for-the-purchasing-of-materials-1.png 470w, https://learn.financestrategists.com/wp-content/uploads/Purchase-Order-Proforma-for-the-purchasing-of-materials-1-293x300.png 293w" style="border-style: none; box-sizing: border-box; height: auto; max-width: 100%; width: auto;" width="470" /><br style="box-sizing: border-box;" />Generally, the purchase order is prepared in triplicate. The original copy is dispatched to the supplier, the duplicate is sent to the account section, and the triplicate is retained for future reference.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">However, if more copies are required, these should also be prepared. For example, if five copies are to be prepared, the fourth one could be sent to storekeeping and the fifth one could be sent to the requisitioning department.</p>musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com1tag:blogger.com,1999:blog-1315755092560562336.post-10174452057280884932022-02-27T05:12:00.003-08:002023-06-22T02:19:49.509-07:00Types and Forms of Communication<p> </p><h3 style="font-family: verdana, helvetica, arial, sans-serif; font-size: 12.496px; margin-bottom: 5px; margin-top: 5px;">TYPES AND FORMS OF COMMUNICATION</h3><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">Having understood elements of communication, their functions and placement in various models, it is time</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">to complete an other chapter on types and forms of communication before resuming our discussions on</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">various other areas of mass communication for a detailed study.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><h3 style="font-family: verdana, helvetica, arial, sans-serif; font-size: 12.496px; margin-bottom: 5px; margin-top: 5px;">Types of communication</h3><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">Broadly speaking, whole human communication could be classified into two distinct parts.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="font-family: SymbolMT; font-size: small;">• </span><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">Intra personal communication</span><span style="font-family: SymbolMT; font-size: small;"> • </span><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">Inter personal communication</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">Intra personal communication The part of communication in which self of a human being is involved only and the</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">communication is confined to one human entity. This means that all the elements which come into action</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">in a given piece of communication are located within the self of an individual. A message originating from</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">source part of the brain travels through the channel of nerves to reach another location, however close it</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">may be to the point of origin of message, where it is interpreted and understood as receiver.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">All the process of meditation, thinking, monologue and even dreaming while asleep are all but examples of</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">intra communication.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><h3 style="font-family: verdana, helvetica, arial, sans-serif; font-size: 12.496px; margin-bottom: 5px; margin-top: 5px;">Inter personal communication</h3><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">This part of communication belongs to involving two or more individuals for exchange of</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">information. Since this part is experienced more due to its vastness, it is further classified in many</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">categories.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><h3 style="font-family: verdana, helvetica, arial, sans-serif; font-size: 12.496px; margin-bottom: 5px; margin-top: 5px;">Inter personal</h3><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">The simplest form in which more than one individual communicate to each other</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><h3 style="font-family: verdana, helvetica, arial, sans-serif; font-size: 12.496px; margin-bottom: 5px; margin-top: 5px;">Group Communication</h3><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">More often people are seen exchanging views with almost all the participants enjoying an equal</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">status on one count or the other. Like all the players of a hockey team, class-fellows, doctors, teachers,</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">bureaucrats, politicians, economists etc.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><h3 style="font-family: verdana, helvetica, arial, sans-serif; font-size: 12.496px; margin-bottom: 5px; margin-top: 5px;">Organizational communication</h3><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">In this part, communication usually takes place on vertical lines. For instance, a company director is</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">passing on instructions to managers who would be guiding accordingly to field officers and the relevant</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">other field staff. An army general may not be talking to lowest rank men in khaki but would follow the</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">chain of organizational command to deliver his message to the last rank people. Be it a corporate sector,</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">NGO, a political party, an educational institution, the communication process would strictly follow the</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">essentials of the organizational communication.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><h3 style="font-family: verdana, helvetica, arial, sans-serif; font-size: 12.496px; margin-bottom: 5px; margin-top: 5px;">Mass Communication</h3><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">In this category we refer to the communication originating from one source and meant for all</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">possible audience irrespective of distance, cast, creed, religion, nationality and beyond. The mass</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">communication involves use of technology for it is not possible to carry message to a very high number of</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">receivers with out the use of certain devices or techniques. All other types of communication may take place</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">when the source is coming across receivers without involving technology. That is why more research and</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">investment has gone into handling the mass communication</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><h3 style="font-family: verdana, helvetica, arial, sans-serif; font-size: 12.496px; margin-bottom: 5px; margin-top: 5px;">Forms of communication</h3><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">In another way we can examine the communication process by dividing it into different forms of</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">exchanging messages.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="font-family: SymbolMT; font-size: small;">• </span><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">Verbal</span><span style="color: white; font-family: Times New Roman; font-size: 11.36px;">20<br /></span><span style="font-family: SymbolMT; font-size: small;">• </span><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">Non verbal</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">Verbal All the messages said or written in words make part of the verbal communication. This way, all that</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">appears as text in books, magazines and newspapers is part of verbal communication. One can guess the</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">size of an industry in the area of mass communication based on verbal communication.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">Likewise, all the words heard on radio, television, telephone or any other public address system are also part</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">of verbal communication. Again, the industry and technology based on verbal communication is enormous</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">in size and value as well.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">One amazing part of the verbal communication is the availability of events of significance in history. Little</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">is understood about the past from the available artifacts but a great deal of human civilization, growth and</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">conflict is available in the form of verbal communication. The spread of religions and sharing of most</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">scientific work is also due to the verbal communication over the centuries which recorded facts, sentiments</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">and event of common human interest.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">It is on the basis of verbal communication that the world has seen great poets, writers, playwrights, historian</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">and newsmen. This also proves at what great scale the verbal communication has created job opportunities.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">In modern days, people having verbal communication skills are in high demand, especially with the fast</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">expanding media all across the globe.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><h3 style="font-family: verdana, helvetica, arial, sans-serif; font-size: 12.496px; margin-bottom: 5px; margin-top: 5px;">Non verbal<br />Senses</h3><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">Part of human communication involving other than written or spoken words is referred to as non</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">verbal communication. It involves human senses – sight, taste, touch, hearing and smelling.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">As a matter of fact about 90 per cent communication among human beings takes place through their senses</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">and the rest by the use of words as languages.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><h3 style="font-family: verdana, helvetica, arial, sans-serif; font-size: 12.496px; margin-bottom: 5px; margin-top: 5px;">Symbols, signs</h3><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">Emblems, gestures, symbols and signs make more vivid and strong communication as compared to</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">words which are often difficult to decipher.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">For instance making a victory sign by politicians, army generals, sportspersons and leaders in general at the</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">time of defeating enemy is easily understood even by the illiterate. If the same feeling is expressed in words,</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">many may not come even close to understanding what it is.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">The traffic signals, red-cross mark and the symbol of dove are but few illustrations to make people around</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">understand what a message stands far.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><h3 style="font-family: verdana, helvetica, arial, sans-serif; font-size: 12.496px; margin-bottom: 5px; margin-top: 5px;">Combination</h3><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">For practical purposes, however, the use of verbal and non verbal makes a very strong piece of</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">communication. One may see a match on TV but an enthusiast commentator may relish the joy if your</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">favorite team is winning the game. Similarly, feature films, documentaries and dramas on mini screen stand</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">for more effective pieces of communication than if only one for of communication is brought into use.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">Even the newspapers and magazines, which are more to bank on verbal communication, carry so much of</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">non verbal communication in the form of images, graphics and maps.</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">The research journals also exploit the verbal-non verbal combination to share and advance the cause of</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">scientific developments. In fact it has become rather impossible to find a newspaper and magazine, even</span><br style="font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;" /><span style="background-color: white; font-family: verdana, helvetica, arial, sans-serif; font-size: 11.36px;">books, which do not use non verbal communication to explain various aspects of daily life.</span>musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com1tag:blogger.com,1999:blog-1315755092560562336.post-29819538056080377602022-02-27T05:00:00.001-08:002023-08-28T22:44:09.545-07:00Intrapersonal Communication<p><span style="font-size: x-small;"> <span class="c15" style="box-sizing: border-box; color: #373d3f; font-family: Lora, serif; orphans: 1; text-align: initial;"><hypothesis-highlight class="hypothesis-highlight" style="background-color: rgba(255, 255, 60, 0.4); box-sizing: border-box; cursor: pointer;"><hypothesis-highlight class="hypothesis-highlight" style="background-color: rgba(206, 206, 60, 0.4); box-sizing: border-box; cursor: pointer;">Intrapersonal communication</hypothesis-highlight></hypothesis-highlight></span><hypothesis-highlight class="hypothesis-highlight" style="background-color: rgba(255, 255, 60, 0.4); box-sizing: border-box; color: #373d3f; cursor: pointer; font-family: Lora, serif; orphans: 1; text-align: initial;"><hypothesis-highlight class="hypothesis-highlight" style="background-color: rgba(206, 206, 60, 0.4); box-sizing: border-box; cursor: pointer;"> can be defined as communication with one’s self, and that may include self-talk, acts of imagination and visualization, and even recall and memory (McLean, 2005</hypothesis-highlight></hypothesis-highlight><span class="c0" style="box-sizing: border-box; color: #373d3f; font-family: Lora, serif; orphans: 1; text-align: initial;"><hypothesis-highlight class="hypothesis-highlight" style="background-color: rgba(255, 255, 60, 0.4); box-sizing: border-box; cursor: pointer;"><hypothesis-highlight class="hypothesis-highlight" style="background-color: rgba(206, 206, 60, 0.4); box-sizing: border-box; cursor: pointer;">).</hypothesis-highlight></hypothesis-highlight> </span></span></p><p><span class="c0" style="box-sizing: border-box; color: #373d3f; font-family: Lora, serif; orphans: 1; text-align: initial;"><span style="font-size: x-small;">You read on your phone that your friends are going to have dinner at your favourite restaurant. What comes to mind? Sights, sounds, and scents? </span></span></p><p><span class="c0" style="box-sizing: border-box; color: #373d3f; font-family: Lora, serif; orphans: 1; text-align: initial;"><span style="font-size: x-small;">Something special that happened the last time you were there? </span></span></p><p><span class="c0" style="box-sizing: border-box; color: #373d3f; font-family: Lora, serif; orphans: 1; text-align: initial;"><span style="font-size: x-small;">Do you think of joining them? </span></span></p><p><span class="c0" style="box-sizing: border-box; color: #373d3f; font-family: Lora, serif; orphans: 1; text-align: initial;"><span style="font-size: x-small;">Do you start to work out a plan of getting from your present location to the restaurant? </span></span></p><p><span class="c0" style="box-sizing: border-box; color: #373d3f; font-family: Lora, serif; orphans: 1; text-align: initial;"><span style="font-size: x-small;">Do you send your friends a text asking if they want company? </span></span></p><p><span class="c0" style="box-sizing: border-box; color: #373d3f; font-family: Lora, serif; orphans: 1; text-align: initial;"><span style="font-size: x-small;">Until the moment when you hit the “send” button, you are communicating with yourself.</span></span></p><div class="site-content" id="content" style="box-sizing: border-box; flex-grow: 1; margin: 0px auto 2rem; min-height: 350px; padding: 0px 1rem; position: relative; width: var(--reading-width,40em);" tabindex="-1"><section class="standard post-601 chapter type-chapter status-publish hentry focusable" data-type="chapter" style="box-sizing: border-box; color: #373d3f; font-family: Lora, serif; hyphens: auto; line-height: 1.55556em; outline: none; overflow-wrap: break-word;" tabindex="-1"><p class="c1" style="box-sizing: border-box; hyphens: auto; line-height: 1.5; margin-bottom: 0px; margin-top: 1em; orphans: 1; text-align: initial;"><span style="font-size: x-small;">Communications expert Leonard Shedletsky examined intrapersonal communication through the eight basic components of the communication process (i.e., source, receiver, message, channel, feedback, environment, context, and interference) as transactional, but all the interaction occurs within the individual (Shedletsky, 1989<span class="c0" style="box-sizing: border-box;">).</span></span></p><p class="c1" style="box-sizing: border-box; hyphens: auto; line-height: 1.5; margin-bottom: 0px; margin-top: 1em; orphans: 1; text-align: initial;"><span class="c0" style="box-sizing: border-box;"><span style="font-size: x-small;">From planning to problem solving, internal conflict resolution, and evaluations and judgments of self and others, we communicate with ourselves through intrapersonal communication.</span></span></p><p class="c1" style="box-sizing: border-box; hyphens: auto; line-height: 1.5; margin-bottom: 0px; margin-top: 1em; orphans: 1; text-align: initial;"><span class="c0" style="box-sizing: border-box;"><span style="font-size: x-small;">All this interaction takes place in the mind without externalization, and all of it relies on previous interaction with the external world.</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="box-sizing: inherit;"><span style="font-size: x-small;">Here are seven benefits of a well-developed self-communication.</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;"><span style="font-size: x-small;">You Are Aware Of Your Strengths And Weaknesses</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="box-sizing: inherit;"><span style="font-size: x-small;">“Awareness is the beginning of all change.” <a href="https://mindfulnessandgrief.com/how-to-help-to-those-in-pain-including-yourself/" style="background-color: transparent; box-shadow: rgb(240, 240, 240) 0px -1px 0px inset; box-sizing: inherit; color: #dddddd; text-decoration-line: none; transition: color 80ms ease-in 0s, box-shadow 130ms ease-in-out 0s, -webkit-box-shadow 130ms ease-in-out 0s;">Karla Helbert, LPC, E-RYT, C-IAYT</a> said. When you communicate with yourself, you become more aware of yourself. It includes identifying our strengths and weaknesses. By identifying these, you can adapt and adjust yourself to the different situations that you face. It is also essential to acknowledge them, most especially your weaknesses, as doing so can help with your self-development.</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;"><span style="font-size: x-small;">You Can Self-Motivate</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="font-size: x-small;"><span style="box-sizing: inherit;">Because you are aware of your strengths and weaknesses, you know what drives you to be productive and what will give you the energy to accomplish something. It is important to remember that </span><a href="https://www.universeofmemory.com/benefits-of-talking-to-yourself/" style="background-color: transparent; box-shadow: rgb(240, 240, 240) 0px -1px 0px inset; box-sizing: inherit; color: #dddddd; text-decoration-line: none; transition: color 80ms ease-in 0s, box-shadow 130ms ease-in-out 0s, -webkit-box-shadow 130ms ease-in-out 0s;"><span style="box-sizing: inherit;">motivation</span></a> <span style="box-sizing: inherit;">will always come from within you. Communicating with yourself will help you develop your self-motivation skills to help you reach your goals. You also know how to utilize what’s around you to help improve your mental state, such as getting motivation from <a href="https://www.facebook.com/BetterHelp/" style="background-color: transparent; box-shadow: rgb(240, 240, 240) 0px -1px 0px inset; box-sizing: inherit; color: #dddddd; text-decoration-line: none; transition: color 80ms ease-in 0s, box-shadow 130ms ease-in-out 0s, -webkit-box-shadow 130ms ease-in-out 0s;">social media</a>.</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;"><span style="font-size: x-small;">You Learn To Be Independent</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="box-sizing: inherit;"><span style="font-size: x-small;">Being aware of yourself will teach you that you don’t always have to rely on others. You are aware that you are a strong-minded individual who can accomplish many things. However, you should also be conscious that you cannot do everything and that seeking help is sometimes the best solution. Self-communication aids you in identifying the times when you can do it by yourself or when you need help.</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;"><span style="font-size: x-small;">You Develop Better Focus</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="font-size: x-small;"><span style="box-sizing: inherit;"></span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="font-size: x-small;"><span style="box-sizing: inherit;">Self-communication and self-motivation will help you develop a better focus. You become aware of the things that cause you distraction, and you avoid them by all means. With</span><a href="https://socialmettle.com/advantages-disadvantages-of-intrapersonal-communication" style="background-color: transparent; box-shadow: rgb(240, 240, 240) 0px -1px 0px inset; box-sizing: inherit; color: #dddddd; text-decoration-line: none; transition: color 80ms ease-in 0s, box-shadow 130ms ease-in-out 0s, -webkit-box-shadow 130ms ease-in-out 0s;"> <span style="box-sizing: inherit;">deeper concentration</span></a><span style="box-sizing: inherit;">, you can center on the task at hand and achieve them. It will help you become more productive with your time. “Look at negative thoughts like reruns of a TV show you’ve seen a million times. Let them play in the background while you shift your focus to something else,” explains <a href="https://www.oprahmag.com/life/health/a25655113/how-to-be-more-positive/" style="background-color: transparent; box-shadow: rgb(240, 240, 240) 0px -1px 0px inset; box-sizing: inherit; color: #dddddd; text-decoration-line: none; transition: color 80ms ease-in 0s, box-shadow 130ms ease-in-out 0s, -webkit-box-shadow 130ms ease-in-out 0s;">Jo Eckler, PsyD</a>, a therapist.</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="box-sizing: inherit;"><span style="font-size: x-small;">Those were some of the powers of self-communication. By developing your intrapersonal skills, you can become a more responsible and mature human being. But when we talk about power, we talk about how to create and destroy. When there is the right side, there is always the wrong side. It is also applicable to self-communication. It also has some adverse effects that may affect the way you live. Some of these negative benefits include the following:</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;"><span style="font-size: x-small;">Arrogance</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="box-sizing: inherit;"><span style="font-size: x-small;">There is always a thin line between arrogance and confidence. When crossed, it may considerably influence the way you live and how people perceive you.</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;"><span style="font-size: x-small;">Introversion</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="box-sizing: inherit;"><span style="font-size: x-small;">On the other hand, being so good at self-communication may lead you to neglect the importance of social interaction. We are social beings, after all. Disregarding your social life may hinder your growth.</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;"><span style="font-size: x-small;">Overthinking</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="box-sizing: inherit;"><span style="font-size: x-small;">When you always have thoughts in your mind, you may tend to overanalyze things and obsessively think of the outcomes. It may lead you to become anxious, as well.</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="font-size: x-small;"><span style="box-sizing: inherit;"></span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="box-sizing: inherit;"><span style="font-size: x-small;">In a nutshell, there are pros and cons to self-communication. The choice and power are yours on what tactics you will practice to avoid the counteractive effects of self-communication and practice it in a way that will best benefit you and your environment.</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="box-sizing: inherit;"><span style="font-size: x-small;">ADVANTAGES AND DISADVANTAGES</span></span></p><h2 style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #2a3139; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; line-height: 1.236; margin: 0px 0px 0.5em; padding-top: 0.618em;"><span style="font-size: x-small;">Merits of Intrapersonal Communication</span></h2><h3 style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #2a3139; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; line-height: 1.236; margin: 0px 0px 0.5em; padding-top: 0.618em;"><span style="font-size: x-small;">Self-awareness</span></h3><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; margin: 0px 0px 1.5em; padding: 0px;"><span style="font-size: x-small;"><span style="box-sizing: inherit;"></span></span></p><p style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #4d5968; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; margin: 0px 0px 1.382em; padding: 0px;"><span style="font-size: x-small;">It allows the person to be aware of every aspect of their own personality. Through introspection, the person becomes aware of the qualities that help shape his personality which in turn makes him aware of his motivations, aspirations, and expectations from the world. If one’s understanding of self is absolute, it would help in easily communicating his wants and needs to others.</span></p><h3 style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #2a3139; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; line-height: 1.236; margin: 0px 0px 0.5em; padding-top: 0.618em;"><span style="font-size: x-small;">Self-confidence</span></h3><p style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #4d5968; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; margin: 0px 0px 1.382em; padding: 0px;"><span style="font-size: x-small;">A self-aware state makes one secure and increases confidence.</span></p><h3 style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #2a3139; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; line-height: 1.236; margin: 0px 0px 0.5em; padding-top: 0.618em;"><span style="font-size: x-small;">Self-management</span></h3><p style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #4d5968; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; margin: 0px 0px 1.382em; padding: 0px;"><span style="font-size: x-small;">The fact that one is conscious of the indwelling strengths and shortcomings, it equips him to manage his daily affairs efficiently using his strengths to the maximum which in turn compensates for his weaknesses.</span></p><h3 style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #2a3139; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; line-height: 1.236; margin: 0px 0px 0.5em; padding-top: 0.618em;"><span style="font-size: x-small;">Self-motivation</span></h3><p style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #4d5968; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; margin: 0px 0px 1.382em; padding: 0px;"><span style="font-size: x-small;">The absolute knowledge of what one wants out of life will enable the person to strive to achieve those aims and goal while continuously motivating themselves.</span></p><h3 style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #2a3139; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; line-height: 1.236; margin: 0px 0px 0.5em; padding-top: 0.618em;"><span style="font-size: x-small;">Focused</span></h3><p style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #4d5968; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; margin: 0px 0px 1.382em; padding: 0px;"><span style="font-size: x-small;">The qualities of self-motivation and self-management will help develop deeper concentration and direct his focus towards the task at hand.</span></p><h3 style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #2a3139; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; line-height: 1.236; margin: 0px 0px 0.5em; padding-top: 0.618em;"><span style="font-size: x-small;">Independence</span></h3><p style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #4d5968; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; margin: 0px 0px 1.382em; padding: 0px;"><span style="font-size: x-small;">Self-awareness allows the person to be independent.</span></p><h3 style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #2a3139; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; line-height: 1.236; margin: 0px 0px 0.5em; padding-top: 0.618em;"><span style="font-size: x-small;">Adaptability</span></h3><p style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #4d5968; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; margin: 0px 0px 1.382em; padding: 0px;"><span style="font-size: x-small;">The person is highly adaptable to his surroundings as the knowledge of his own qualities allows him to confidently and calmly take decisions and change his approach accordingly in response to situational stimuli.</span></p><h2 style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #2a3139; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; line-height: 1.236; margin: 0px 0px 0.5em; padding-top: 0.618em;"><span style="font-size: x-small;">Demerits of Intrapersonal Communication</span></h2><h3 style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #2a3139; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; line-height: 1.236; margin: 0px 0px 0.5em; padding-top: 0.618em;"><span style="font-size: x-small;">Introverted</span></h3><p style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #4d5968; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; margin: 0px 0px 1.382em; padding: 0px;"><span style="font-size: x-small;">Since the person prefers working alone, he is perceived as shy or anti-social by others.</span></p><h3 style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #2a3139; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; line-height: 1.236; margin: 0px 0px 0.5em; padding-top: 0.618em;"><span style="font-size: x-small;">Wrong assumptions</span></h3><p style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #4d5968; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; margin: 0px 0px 1.382em; padding: 0px;"><span style="font-size: x-small;">Since there is absence of a feedback, that is, the conversation is in a one-way flow, it could lead to the development of misconceptions and faulty assumptions.</span></p><h3 style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #2a3139; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; line-height: 1.236; margin: 0px 0px 0.5em; padding-top: 0.618em;"><span style="font-size: x-small;">Incorrect decisions</span></h3><p style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #4d5968; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; margin: 0px 0px 1.382em; padding: 0px;"><span style="font-size: x-small;">Prejudices formed based on wrong assumptions made by an individual could lead to incorrect choices or decisions.</span></p><h3 style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #2a3139; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; line-height: 1.236; margin: 0px 0px 0.5em; padding-top: 0.618em;"><span style="font-size: x-small;">Categorical thinking</span></h3><p style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #4d5968; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; margin: 0px 0px 1.382em; padding: 0px;"><span style="font-size: x-small;">There is a possibility of an individual categorizing and viewing certain individuals or events with a biased opinion causing one’s thought pattern to be one-tracked and lopsided.</span></p><h3 style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #2a3139; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; line-height: 1.236; margin: 0px 0px 0.5em; padding-top: 0.618em;"><span style="font-size: x-small;">Over-thinking</span></h3><p style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #4d5968; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; margin: 0px 0px 1.382em; padding: 0px;"><span style="font-size: x-small;">Over analysis of situations and prolonged thinking about them will lead to the imagination of unrealistic and unnecessary scenarios, and in extreme cases, may even lead to self-doubt.</span></p><h3 style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #2a3139; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; line-height: 1.236; margin: 0px 0px 0.5em; padding-top: 0.618em;"><span style="font-size: x-small;">Arrogance</span></h3><p style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #4d5968; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; margin: 0px 0px 1.382em; padding: 0px;"><span style="font-size: x-small;">Due to an independent nature and specific approach towards an issue, one may be incorrectly perceived as being arrogant. This is further reinforced by one’s tendency to pay attention to every minute detail.</span></p><p style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #4d5968; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; margin: 0px 0px 1.382em; padding: 0px;"><span style="font-size: x-small;">In conclusion, to overcome the disadvantages of intrapersonal communication, it is vital to be aware of one’s own surroundings as well. Also, the development of interpersonal communication in addition, could help in overcoming demerits.</span></p><p style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); background-color: white; box-sizing: inherit; color: #4d5968; font-family: "Nunito Sans", -apple-system, blinkmacsystemfont, "Segoe UI", roboto, helvetica, arial, sans-serif; margin: 0px 0px 1.382em; padding: 0px;"><span style="font-size: x-small;"><br /></span></p></section></div><nav aria-labelledby="reading-nav" class="nav-reading " role="navigation" style="bottom: 0px; box-sizing: border-box; display: flex; flex-direction: row; left: 0px; position: fixed; width: 100vw; z-index: 1;"><button class="nav-reading__up" style="align-items: center; appearance: button; border-color: var(--primary); border-radius: 50%; border-style: solid; display: flex; flex-direction: column; font-family: Karla, sans-serif; font-weight: 600; height: 2.5rem; justify-content: center; left: 768px; line-height: 1.5; margin: 0px; opacity: 0; overflow: visible; padding: 0px; position: absolute; text-transform: uppercase; top: -3rem; touch-action: manipulation; transform: translate(-50%); vertical-align: middle; width: 2.5rem; z-index: 11;"><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; font-weight: 400; margin: 0px 0px 1.5em; padding: 0px; text-align: start; text-transform: none;"><span style="box-sizing: inherit; font-weight: 700;"><span style="font-size: x-small;">You Boost Your Confidence</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; font-weight: 400; margin: 0px 0px 1.5em; padding: 0px; text-align: start; text-transform: none;"><span style="box-sizing: inherit;"><span style="font-size: x-small;">Having well-developed intrapersonal skills will help you become more comfortable with yourself. You recognize that the person who will never leave you is you. There are times when there will be no one to support you, and you will need to do the support yourself. With self-communication, you become more confident.</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; font-weight: 400; margin: 0px 0px 1.5em; padding: 0px; text-align: start; text-transform: none;"><span style="box-sizing: inherit; font-weight: 700;"><span style="font-size: x-small;">You Become More Adaptable</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; font-weight: 400; margin: 0px 0px 1.5em; padding: 0px; text-align: start; text-transform: none;"><span style="box-sizing: inherit;"><span style="font-size: x-small;">Being self-aware will help you adjust to your environment. You realize that the things and people around you are not necessarily made for you and might cause you discomfort. But because you are self-aware, you are not afraid to take on these challenges in front of you. You can confidently and calmly react to the stimuli around you.</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; font-weight: 400; margin: 0px 0px 1.5em; padding: 0px; text-align: start; text-transform: none;"><span style="box-sizing: inherit; font-weight: 700;"><span style="font-size: x-small;">You Tend To Think First</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; font-weight: 400; margin: 0px 0px 1.5em; padding: 0px; text-align: start; text-transform: none;"><span style="box-sizing: inherit; font-weight: 700;"><span style="font-size: x-small;"><span style="font-weight: 400;">With self-communication, you understand the profound importance of always thinking first. There are still consequences on what you think and do. By thinking first, you always weigh the outcomes to avoid undesirable effects. You will be able to prevent spur of the moment decisions that may lead to disappointing results.</span>You Can Self-Motivate</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; font-weight: 400; margin: 0px 0px 1.5em; padding: 0px; text-align: start; text-transform: none;"><span style="font-size: x-small;"><span style="box-sizing: inherit;">Because you are aware of your strengths and weaknesses, you know what drives you to be productive and what will give you the energy to accomplish something. It is important to remember that </span><a href="https://www.universeofmemory.com/benefits-of-talking-to-yourself/" style="background-color: transparent; box-shadow: rgb(240, 240, 240) 0px -1px 0px inset; box-sizing: inherit; color: #dddddd; text-decoration-line: none; transition: color 80ms ease-in 0s, box-shadow 130ms ease-in-out 0s, -webkit-box-shadow 130ms ease-in-out 0s;"><span style="box-sizing: inherit;">motivation</span></a> <span style="box-sizing: inherit;">will always come from within you. Communicating with yourself will help you develop your self-motivation skills to help you reach your goals. You also know how to utilize what’s around you to help improve your mental state, such as getting motivation from <a href="https://www.facebook.com/BetterHelp/" style="background-color: transparent; box-shadow: rgb(240, 240, 240) 0px -1px 0px inset; box-sizing: inherit; color: #dddddd; text-decoration-line: none; transition: color 80ms ease-in 0s, box-shadow 130ms ease-in-out 0s, -webkit-box-shadow 130ms ease-in-out 0s;">social media</a>.</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; font-weight: 400; margin: 0px 0px 1.5em; padding: 0px; text-align: start; text-transform: none;"><span style="box-sizing: inherit; font-weight: 700;"><span style="font-size: x-small;">You Learn To Be Independent</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; font-weight: 400; margin: 0px 0px 1.5em; padding: 0px; text-align: start; text-transform: none;"><span style="box-sizing: inherit;"><span style="font-size: x-small;">Being aware of yourself will teach you that you don’t always have to rely on others. You are aware that you are a strong-minded individual who can accomplish many things. However, you should also be conscious that you cannot do everything and that seeking help is sometimes the best solution. Self-communication aids you in identifying the times when you can do it by yourself or when you need help.</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; font-weight: 400; margin: 0px 0px 1.5em; padding: 0px; text-align: start; text-transform: none;"><span style="box-sizing: inherit; font-weight: 700;"><span style="font-size: x-small;">You Develop Better Focus</span></span></p><p style="background-color: #222222; box-sizing: inherit; color: #eeeeee; font-family: "Libre Franklin", "Helvetica Neue", helvetica, arial, sans-serif; font-weight: 400; margin: 0px 0px 1.5em; padding: 0px; text-align: start; text-transform: none;"><span style="font-size: x-small;"><span style="box-sizing: inherit;">Self-communication and self-motivation will help you develop a better focus. You become aware of the things that cause you distraction, and you avoid them by all means. With</span><a href="https://socialmettle.com/advantages-disadvantages-of-intrapersonal-communication" style="background-color: transparent; box-shadow: rgb(240, 240, 240) 0px -1px 0px inset; box-sizing: inherit; color: #dddddd; text-decoration-line: none; transition: color 80ms ease-in 0s, box-shadow 130ms ease-in-out 0s, -webkit-box-shadow 130ms ease-in-out 0s;"> <span style="box-sizing: inherit;">deeper concentration</span></a><span style="box-sizing: inherit;">, you can center on the task at hand and achieve them. It will help you become more productive with your time. “Look at negative thoughts like reruns of a TV show you’ve seen a million times. Let them play in the background while you shift your focus to something else,” explains <a href="https://www.oprahmag.com/life/health/a25655113/how-to-be-more-positive/" style="background-color: transparent; box-shadow: rgb(240, 240, 240) 0px -1px 0px inset; box-sizing: inherit; color: #dddddd; text-decoration-line: none; transition: color 80ms ease-in 0s, box-shadow 130ms ease-in-out 0s, -webkit-box-shadow 130ms ease-in-out 0s;">Jo Eckler, PsyD</a>, a therapist.</span></span></p></button></nav>musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com0tag:blogger.com,1999:blog-1315755092560562336.post-80190731163911511082022-02-27T04:15:00.003-08:002023-08-28T22:44:19.848-07:00Store keeping<p> <span style="background-color: white; color: #111111;"><span style="font-family: arial;">Store keeping is the task of maintaining safe custody of all items of supplies, raw materials, finished parts, purchased parts, and other items. These items are held in a storeroom for which a storekeeper acts as a trustee. As such, storekeeping can be defined as process of receiving and distributing stores or supplies.</span></span></p><p style="background-color: white; box-sizing: border-box; color: #111111; margin-bottom: 1.5em;"><span style="font-family: arial;">n the words of Wheldon, “storekeeping is the physical storage of materials carried into the store-room in a scientific and systematic manner with a view to<span style="box-sizing: border-box; font-weight: bolder;"> </span></span></p><p style="background-color: white; box-sizing: border-box; color: #111111; margin-bottom: 1.5em;"><span style="font-family: arial;"><span style="box-sizing: border-box; font-weight: bolder;">(i)</span> saving them from all kinds of damages and <a href="https://learn.financestrategists.com/finance-terms/losses-definition/" style="background-color: transparent; box-sizing: border-box; color: #015566; font-weight: 700;">losses</a>, and </span></p><p style="background-color: white; box-sizing: border-box; color: #111111; margin-bottom: 1.5em;"><span style="font-family: arial;">(ii) exercising overall control over their movement.”</span></p><p style="background-color: white; box-sizing: border-box; color: #111111; margin-bottom: 1.5em;"><span style="font-family: arial;">In short, storekeeping refers to the art of preserving raw materials, work-in-progress, and finished parts in the stores in the best possible manner.</span></p><p style="background-color: white; box-sizing: border-box; color: #111111; margin-bottom: 1.5em;"><span style="font-family: arial;">Generally, in small businesses, storekeeping is a minor task. However, it is always worth remembering that careless handling of materials, material pilferage, and deterioration of materials can lead to reduced profits and even losses.</span></p><p style="background-color: white; box-sizing: border-box; color: #111111; margin-bottom: 1.5em;"><span style="font-family: arial;">Therefore, to ensure maximum efficiency, it is important to maintain a well-equipped storekeeping department.</span></p><h2 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(26px, 4vw, 35px); line-height: 1.2em; margin-bottom: 20px;">Objectives</h2><div><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">An efficient system of storekeeping has the following objectives:</p><ol style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";"><li style="box-sizing: border-box;">To ensure uninterrupted supply of materials and stores without delay to various production and service departments of the organization.</li><li style="box-sizing: border-box;">To prevent over-stocking and under-stocking of materials.</li><li style="box-sizing: border-box;">To check all materials in terms of quality and quantity.</li><li style="box-sizing: border-box;">To minimize storage costs.</li><li style="box-sizing: border-box;">To ensure effective and continuous control over materials.</li><li style="box-sizing: border-box;">To ensure optimal utilization of available storage space and workers engaged in storekeeping processes.</li><li style="box-sizing: border-box;">To protect materials from loss and wastage due to defective storage.</li><li style="box-sizing: border-box;">To identify and locate materials in storerooms without delay.</li><li style="box-sizing: border-box;">To protect and safeguard material items from pilferage, theft, fire, and others.</li><li style="box-sizing: border-box;">To develop a system that provides complete and up-to-date information about all stored items.</li></ol><div><h2 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(26px, 4vw, 35px); line-height: 1.2em; margin-bottom: 20px;">Store Keeping Functions</h2></div></div><div><ol style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";"><li style="box-sizing: border-box;">Issuing purchase requisitions when material is required.</li><li style="box-sizing: border-box;">Receiving purchased stores from the Receiving Department and verifying that every lot of stores is supported by an indent, a purchase order, and an inspection note.</li><li style="box-sizing: border-box;">Preparing Goods Received Note in accordance with the different stores lots received.</li><li style="box-sizing: border-box;">Ensuring that all the Goods Received Notes are regularly posted to the Bin Card.</li><li style="box-sizing: border-box;">Placing and arranging stores received in suitable places and adhering to the golden principle of storekeeping: “A place for everything in its place.”</li><li style="box-sizing: border-box;">Minimizing storage, handling, and maintaining costs by preserving and handling materials in the most economical and efficient manner.</li><li style="box-sizing: border-box;">Issuing stores to various business departments and ensuring that all issues are properly authenticated and accounted for.</li><li style="box-sizing: border-box;">Ensuring adherence to issuing procedures and organizational systems and guidelines.</li><li style="box-sizing: border-box;">Periodically reviewing the inventory by initiating <a href="https://learn.financestrategists.com/explanation/management-accounting/inventory-control-system/" style="background-color: transparent; box-sizing: border-box; color: #015566; font-weight: 700;">inventory control systems</a> (e.g., perpetual inventory control system and ABC system of inventory control).</li><li style="box-sizing: border-box;">Disclosing fullest and up-to-date information about the availability of stores whenever required. This depends on maintaining proper stores records with the help of Bin Cards and a Stores Ledger.</li><li style="box-sizing: border-box;">Safeguarding materials from theft, pilferage, fire, and others.</li><li style="box-sizing: border-box;">Supervising and coordinating the duties of different staff working under the direction of the storekeeper.</li><li style="box-sizing: border-box;">Preventing the entry of unauthorized persons in the stores.</li><li style="box-sizing: border-box;">Maintaining proper stock levels, which are fixed in respect of every item of stores, and replenishing them when necessary.</li></ol></div>musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com0tag:blogger.com,1999:blog-1315755092560562336.post-76269314868440611942022-02-27T04:12:00.000-08:002022-02-27T04:12:27.402-08:00Pricing of Material- Simple and Weighted Average Method<p> (1) Simple Average Method: </p><p>Under this method, price of issue
materials is determined by dividing the total of the prices of the
materials in stock, i.e., adding of different prices by the number of
different prices. Then, this average price is applied to the issues to
production. This method is simple and easy to operate. The value
of closing stock becomes unrealistic. </p><p>Issue Price = (Total of Unit Prices of Materials in Stock)/ Number of Prices</p><p>From the following prepare stores ledger account using Simple
Average Method for the month of January 2022: </p><div style="text-align: left;">January 1 Opening balance 500 units at Rs. 2 per unit <br />3 Issued 100 units
4 Issued 100 units <br />8 Issued 100 units <br />13 Purchased 400 units at Rs. 3 per unit <br />14 Purchased 200 units at Re. 1 per unit <br />16 Issued 150 units <br />20 Purchased 400 units at Rs. 4 Per unit <br />24 Issued 250 units <br />25 Purchased 500 units at Rs. 5 per unit <br />26 Issued 300 units <br />28 Purchased 200 units at Rs. 2 per unit <br />31 Purchased 200 units at Rs. 4 per unit</div><div style="text-align: left;"><br /></div><div style="text-align: left;"><br /></div><div style="text-align: left;">(2) Weighted Average Method: Under this method, the price of
materials issue is determined by dividing the total cost of materials
in stock by the total quantity of material in stock. Here weighted
average rate is calculated based on both quantity and price of the
materials in stock. As more issues are made, a new average rate is
computed and this average rate is applied to the subsequent
issues</div><div style="text-align: left;"><br /></div><div style="text-align: left;">Weighted Average Price-Value of Materials in Stock/Quantity in Stock</div><div style="text-align: left;"><br /></div><div style="text-align: left;">From the following particulars, prepare stores Ledger Account
on weight Average basis:
2021 March </div><div style="text-align: left;">I Opening balance 200 units at Rs. 2 per unit </div><div style="text-align: left;">10 Purchased 300 units at Rs. 2.40 per unit </div><div style="text-align: left;">15 Issued 250 units </div><div style="text-align: left;">18 Purchased 250 units at Rs. 2.60 per unit
2</div><div style="text-align: left;">0 Issued 200 units </div><div style="text-align: left;">25Purchased 300 units at Rs. 2.50 per unit </div><div style="text-align: left;">31Purchased 100 units at Rs. 2 per unit</div>musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com0tag:blogger.com,1999:blog-1315755092560562336.post-81498784371909927702022-02-23T07:59:00.001-08:002022-02-23T07:59:08.443-08:00Verbal Communication<p> <span style="background-color: white; color: #333333; font-family: Arial, Helvetica, Verdana;"><span style="font-size: medium;">There are many ways to communicate with people. The two main ways are verbal and nonverbal communication. </span></span></p><p style="background-color: white; box-sizing: border-box; color: #333333; font-family: Arial, Helvetica, Verdana; margin: 0px 0px 10px;"><span style="font-size: medium;"><u style="box-sizing: border-box;"><span style="box-sizing: border-box; font-weight: 700;">Verbal Communication</span></u><br style="box-sizing: border-box;" />Verbal communication is the use of words to convey a message. Some forms of verbal communication are written and oral communication. <br style="box-sizing: border-box;" /><br style="box-sizing: border-box;" />Examples of Written Communication: </span></p><ul style="background-color: white; box-sizing: border-box; color: #333333; font-family: Arial, Helvetica, Verdana; margin-bottom: 10px; margin-top: 0px;"><li style="box-sizing: border-box;"><span style="font-size: medium;">Letters</span></li><li style="box-sizing: border-box;"><span style="font-size: medium;">Texting</span></li><li style="box-sizing: border-box;"><span style="font-size: medium;">Emails</span></li><li style="box-sizing: border-box;"><span style="font-size: medium;">Books</span></li></ul><p style="background-color: white; box-sizing: border-box; color: #333333; font-family: Arial, Helvetica, Verdana; margin: 0px 0px 10px;"><span style="font-size: medium;"><br style="box-sizing: border-box;" />Examples of Oral Communication: </span></p><ul style="background-color: white; box-sizing: border-box; color: #333333; font-family: Arial, Helvetica, Verdana; margin-bottom: 10px; margin-top: 0px;"><li style="box-sizing: border-box;"><span style="font-size: medium;">Face-to-face conversations</span></li><li style="box-sizing: border-box;"><span style="font-size: medium;">Speech</span></li><li style="box-sizing: border-box;"><span style="font-size: medium;">Host on a Radio </span></li><li style="box-sizing: border-box;"><span style="font-size: medium;">Interviews</span></li></ul><div><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">There are a large number of different verbal communication skills. They range from the obvious (being able to speak clearly, or listening, for example), to the more subtle (such as reflecting and clarifying). This page provides a summary of these skills, and shows where you can find out more.</p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;"><span style="box-sizing: border-box; font-weight: 700;">It is important to remember that effective verbal communication cannot be fully isolated from <a href="https://www.skillsyouneed.com/ips/nonverbal-communication.html" style="background-color: transparent; box-sizing: border-box; color: #022e61;">non-verbal communication</a>: your body language, tone of voice, and facial expressions, for example.</span></p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">Clarity of speech, remaining calm and focused, being polite and following some basic rules of etiquette will all aid the process of verbal communication.</p><h3 style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: Arial; font-size: 24px; font-weight: 400; line-height: 40px; margin-bottom: 10px; margin-top: 20px;">Opening Communication</h3><p class="first-para" style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 18px; font-weight: 700; line-height: 24px; margin: 0px 0px 15px;">In many interpersonal encounters, the first few minutes are extremely important. First impressions have a significant impact on the success of further and future communication.</p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">When you first meet someone, you form an instant impression of them, based on how they look, sound and behave, as well as anything you may have heard about them from other people.</p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;"><span style="box-sizing: border-box; font-weight: 700;">This first impression guides your future communications, at least to some extent.</span></p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">For example, when you meet someone and hear them speak, you form a judgement about their background, and likely level of ability and understanding. This might well change what you say. If you hear a foreign accent, for example, you might decide that you need to use simpler language. You might also realise that you will need to listen more carefully to ensure that you understand what they are saying to you.</p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">Of course your first impression may be revised later. You should ensure that you consciously ‘update’ your thinking when you receive new information about your contact and as you get to know them better.</p><hr style="background-color: whitesmoke; border-bottom: none; border-image: initial; border-left: 0px; border-right: 0px; border-top-color: rgb(144, 144, 144); border-top-style: solid; box-sizing: content-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; height: 0px; margin-bottom: 20px; margin-top: 20px;" /><h2 style="background-color: whitesmoke; box-sizing: border-box; font-family: Arial; font-size: 26px; font-weight: 400; line-height: 40px; margin-bottom: 10px; margin-top: 20px;">Basic Verbal Communication Skills: Effective Speaking and Listening</h2><p class="first-para" style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 18px; font-weight: 700; line-height: 24px; margin: 0px 0px 15px;"><a href="https://www.skillsyouneed.com/ips/effective-speaking.html" style="background-color: transparent; box-sizing: border-box; color: #022e61; line-height: 24px;">Effective speaking</a> involves three main areas: the words you choose, how you say them, and how you reinforce them with other non-verbal communication.</p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">All these affect the transmission of your message, and how it is received and understood by your audience.</p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">It is worth considering your choice of words carefully. You will probably need to use different words in different situations, even when discussing the same subject. For example, what you say to a close colleague will be very different from how you present a subject at a major conference.</p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">How you speak includes your tone of voice and pace. Like non-verbal communication more generally, these send important messages to your audience, for example, about your level of interest and commitment, or whether you are nervous about their reaction.</p><blockquote style="background-color: whitesmoke; border-left: 5px solid rgb(238, 238, 238); box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 20px; padding: 10px 20px;"><em style="box-sizing: border-box;">There is more about this in our page on <a href="https://www.skillsyouneed.com/ips/nonverbal-face-voice.html" style="background-color: transparent; box-sizing: border-box; color: #022e61;"><span style="box-sizing: border-box; font-weight: 700;">Non-Verbal Communication: Face and Voice</span></a>.</em></blockquote><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;"><span style="box-sizing: border-box; font-weight: 700;"><a href="https://www.skillsyouneed.com/ips/active-listening.html" style="background-color: transparent; box-sizing: border-box; color: #022e61;">Active listening</a> is an important skill. However, when we communicate, we tend to spend far more energy considering what we are going to say than listening to the other person.</span></p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">Effective listening is vital for good verbal communication. There are a number of ways that you can ensure that you listen more effectively. These include:</p><ul class="list-style2" style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin-bottom: 10px; margin-left: 0px; margin-top: 0px; padding-left: 0px;"><li style="background: url("https://www.skillsyouneed.com/images/list-style2.png") 2px 5px no-repeat; box-sizing: border-box; list-style: none; margin-bottom: 4px; padding-left: 25px;"><span style="box-sizing: border-box; font-weight: 700;">Be prepared to listen</span>. Concentrate on the speaker, and not on how you are going to reply.</li><li style="background: url("https://www.skillsyouneed.com/images/list-style2.png") 2px 5px no-repeat; box-sizing: border-box; list-style: none; margin-bottom: 4px; padding-left: 25px;"><span style="box-sizing: border-box; font-weight: 700;">Keep an open mind</span> and avoid making judgements about the speaker.</li><li style="background: url("https://www.skillsyouneed.com/images/list-style2.png") 2px 5px no-repeat; box-sizing: border-box; list-style: none; margin-bottom: 4px; padding-left: 25px;"><span style="box-sizing: border-box; font-weight: 700;">Concentrate on the main direction of the speaker’s message</span>. Try to understand broadly what they are trying to say overall, as well as the detail of the words that they are using.</li><li style="background: url("https://www.skillsyouneed.com/images/list-style2.png") 2px 5px no-repeat; box-sizing: border-box; list-style: none; margin-bottom: 4px; padding-left: 25px;"><span style="box-sizing: border-box; font-weight: 700;">Avoid distractions</span> if at all possible. For example, if there is a lot of background noise, you might suggest that you go somewhere else to talk.</li><li style="background: url("https://www.skillsyouneed.com/images/list-style2.png") 2px 5px no-repeat; box-sizing: border-box; list-style: none; margin-bottom: 4px; padding-left: 25px;"><span style="box-sizing: border-box; font-weight: 700;">Be objective</span>.</li><li style="background: url("https://www.skillsyouneed.com/images/list-style2.png") 2px 5px no-repeat; box-sizing: border-box; list-style: none; margin-bottom: 4px; padding-left: 25px;"><span style="box-sizing: border-box; font-weight: 700;">Do not be trying to think of your next question</span> while the other person is giving information.</li><li style="background: url("https://www.skillsyouneed.com/images/list-style2.png") 2px 5px no-repeat; box-sizing: border-box; list-style: none; margin-bottom: 4px; padding-left: 25px;"><span style="box-sizing: border-box; font-weight: 700;">Do not dwell on one or two points at the expense of others</span>. Try to use the overall picture and all the information that you have.</li><li style="background: url("https://www.skillsyouneed.com/images/list-style2.png") 2px 5px no-repeat; box-sizing: border-box; list-style: none; margin-bottom: 4px; padding-left: 25px;"><span style="box-sizing: border-box; font-weight: 700;">Do not stereotype the speaker</span>. Try not to let prejudices associated with, for example, gender, ethnicity, accent, social class, appearance or dress interfere with what is being said (see <a href="https://www.skillsyouneed.com/ips/personal-appearance.html" style="background-color: transparent; box-sizing: border-box; color: #022e61;"><span style="box-sizing: border-box; font-weight: 700;">Personal Appearance</span></a>).</li></ul><blockquote style="background-color: whitesmoke; border-left: 5px solid rgb(238, 238, 238); box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 20px; padding: 10px 20px;"><em style="box-sizing: border-box;">There is more information in our pages on <a href="https://www.skillsyouneed.com/ips/listening-skills.html" style="background-color: transparent; box-sizing: border-box; color: #022e61;"><span style="box-sizing: border-box; font-weight: 700;">Listening Skills</span></a>.</em></blockquote><hr style="background-color: whitesmoke; border-bottom: none; border-image: initial; border-left: 0px; border-right: 0px; border-top-color: rgb(144, 144, 144); border-top-style: solid; box-sizing: content-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; height: 0px; margin-bottom: 20px; margin-top: 20px;" /><h2 style="background-color: whitesmoke; box-sizing: border-box; font-family: Arial; font-size: 26px; font-weight: 400; line-height: 40px; margin-bottom: 10px; margin-top: 20px;">Improving Verbal Communication: More Advanced Techniques</h2><div class="new_ad_right" style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; float: right; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; height: 250px; margin-bottom: 10px !important; margin-left: 15px !important; margin-right: 10px !important; margin-top: auto; text-align: center; width: 300px;"><ins class="adsbygoogle" data-ad-client="ca-pub-0066143052735146" data-ad-format="rectangle,horizontal" data-ad-slot="7141764866" data-ad-status="filled" data-adsbygoogle-status="done" style="box-sizing: border-box; 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border-width: 0px; box-sizing: border-box; height: 250px; left: 0px; position: absolute; top: 0px; width: 300px;" vspace="0" width="300"></iframe></ins></ins></ins></div><p class="first-para" style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 18px; font-weight: 700; line-height: 24px; margin: 0px 0px 15px;">There are a number of tools and techniques that you can use to improve the effectiveness of your verbal communication. These include reinforcement, reflection, clarification, and questioning.</p><h3 style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: Arial; font-size: 24px; font-weight: 400; line-height: 40px; margin-bottom: 10px; margin-top: 20px;">Reinforcement</h3><p class="first-para" style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 18px; font-weight: 700; line-height: 24px; margin: 0px 0px 15px;">Reinforcement is the use of encouraging words alongside non-verbal gestures such as head nods, a warm facial expression and maintaining eye contact.</p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">All these help to <a href="https://www.skillsyouneed.com/ips/rapport.html" style="background-color: transparent; box-sizing: border-box; color: #022e61;"><span style="box-sizing: border-box; font-weight: 700;">build rapport</span></a> and are more likely to reinforce openness in others. The use of encouragement and positive reinforcement can:</p><ul class="list-style1" style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin-bottom: 10px; margin-left: 0px; margin-top: 0px; padding-left: 0px;"><li style="background: url("https://www.skillsyouneed.com/images/list-style1.png") 2px 8px no-repeat; box-sizing: border-box; list-style: none; margin-bottom: 4px; padding-left: 25px;">Encourage others to participate in discussion (particularly in group work);</li><li style="background: url("https://www.skillsyouneed.com/images/list-style1.png") 2px 8px no-repeat; box-sizing: border-box; list-style: none; margin-bottom: 4px; padding-left: 25px;">Show interest in what other people have to say;</li><li style="background: url("https://www.skillsyouneed.com/images/list-style1.png") 2px 8px no-repeat; box-sizing: border-box; list-style: none; margin-bottom: 4px; padding-left: 25px;">Pave the way for development and/or maintenance of a relationship;</li><li style="background: url("https://www.skillsyouneed.com/images/list-style1.png") 2px 8px no-repeat; box-sizing: border-box; list-style: none; margin-bottom: 4px; padding-left: 25px;">Allay fears and give reassurance;</li><li style="background: url("https://www.skillsyouneed.com/images/list-style1.png") 2px 8px no-repeat; box-sizing: border-box; list-style: none; margin-bottom: 4px; padding-left: 25px;">Show warmth and openness; and</li><li style="background: url("https://www.skillsyouneed.com/images/list-style1.png") 2px 8px no-repeat; box-sizing: border-box; list-style: none; margin-bottom: 4px; padding-left: 25px;">Reduce shyness or nervousness in ourselves and others.</li></ul><h3 style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: Arial; font-size: 24px; font-weight: 400; line-height: 40px; margin-bottom: 10px; margin-top: 20px;">Questioning</h3><p class="first-para" style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 18px; font-weight: 700; line-height: 24px; margin: 0px 0px 15px;">Questioning is broadly how we obtain information from others on specific topics.</p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">Questioning is an essential way of clarifying areas that are unclear or test your understanding. It can also enable you to explicitly seek support from others.</p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">On a more social level, questioning is also a useful technique to start conversations, draw someone into a conversation, or simply show interest. Effective questioning is therefore an essential element of verbal communication.</p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">We use two main types of question:</p><ul style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin-bottom: 10px; margin-top: 0px;"><li style="box-sizing: border-box;"><p class="first-para" style="box-sizing: border-box; font-size: 18px; font-weight: 700; line-height: 24px; margin: 0px 0px 15px;">Closed Questions</p><p style="box-sizing: border-box; margin: 0px 0px 15px;">Closed questions tend to seek only a one or two word answer (often simply ‘yes’ or ‘no’). They therefore limit the scope of the response. Two examples of closed questions are:</p><p style="box-sizing: border-box; margin: 0px 0px 15px;"><em style="box-sizing: border-box;">“Did you travel by car today?” </em>and<br style="box-sizing: border-box;" /><em style="box-sizing: border-box;">“Did you see the football game yesterday?”</em></p><p style="box-sizing: border-box; margin: 0px 0px 15px;">These types of question allow the questioner to remain in control of the communication. This is often not the desired outcome when trying to encourage verbal communication, so many people try to focus on using open questions more often. Nevertheless, closed questions can be useful for focusing discussion and obtaining clear, concise answers when needed.</p></li><li style="box-sizing: border-box;"><p class="first-para" style="box-sizing: border-box; font-size: 18px; font-weight: 700; line-height: 24px; margin: 0px 0px 15px;">Open Questions</p><p style="box-sizing: border-box; margin: 0px 0px 15px;">Open questions demand further discussion and elaboration. They therefore broaden the scope for response. They include, for example,</p><p style="box-sizing: border-box; margin: 0px 0px 15px;"><em style="box-sizing: border-box;">“What was the traffic like this morning?”</em><br style="box-sizing: border-box;" /><em style="box-sizing: border-box;">“What do you feel you would like to gain from this discussion?”</em></p><p style="box-sizing: border-box; margin: 0px 0px 15px;">Open questions will take longer to answer, but they give the other person far more scope for self-expression and encourage involvement in the conversation.</p></li></ul><blockquote style="background-color: whitesmoke; border-left: 5px solid rgb(238, 238, 238); box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 20px; padding: 10px 20px;"><em style="box-sizing: border-box;">For more on questioning see our pages: <a href="https://www.skillsyouneed.com/ips/questioning.html" style="background-color: transparent; box-sizing: border-box; color: #022e61;"><span style="box-sizing: border-box; font-weight: 700;">Questioning</span></a> and <a href="https://www.skillsyouneed.com/ips/question-types.html" style="background-color: transparent; box-sizing: border-box; color: #022e61;"><span style="box-sizing: border-box; font-weight: 700;">Types of Question</span></a>.<br style="box-sizing: border-box;" /></em></blockquote><h3 style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: Arial; font-size: 24px; font-weight: 400; line-height: 40px; margin-bottom: 10px; margin-top: 20px;">Reflecting and Clarifying</h3><p class="first-para" style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 18px; font-weight: 700; line-height: 24px; margin: 0px 0px 15px;">Reflecting is the process of feeding back to another person your understanding of what has been said.</p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">Reflecting is a specialised skill often used within counselling, but it can also be applied to a wide range of communication contexts and is a useful skill to learn.</p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">Reflecting often involves paraphrasing the message communicated to you by the speaker in your own words. You need to try to capture the essence of the facts and feelings expressed, and communicate your understanding back to the speaker. It is a useful skill because:</p><ul class="list-style2" style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin-bottom: 10px; margin-left: 0px; margin-top: 0px; padding-left: 0px;"><li style="background: url("https://www.skillsyouneed.com/images/list-style2.png") 2px 5px no-repeat; box-sizing: border-box; list-style: none; margin-bottom: 4px; padding-left: 25px;">You can check that you have understood the message clearly.</li><li style="background: url("https://www.skillsyouneed.com/images/list-style2.png") 2px 5px no-repeat; box-sizing: border-box; list-style: none; margin-bottom: 4px; padding-left: 25px;">The speaker gets feedback about how the message has been received and can then clarify or expand if they wish.</li><li style="background: url("https://www.skillsyouneed.com/images/list-style2.png") 2px 5px no-repeat; box-sizing: border-box; list-style: none; margin-bottom: 4px; padding-left: 25px;">It shows interest in, and respect for, what the other person has to say.</li><li style="background: url("https://www.skillsyouneed.com/images/list-style2.png") 2px 5px no-repeat; box-sizing: border-box; list-style: none; margin-bottom: 4px; padding-left: 25px;">You are demonstrating that you are considering the other person’s viewpoint.</li></ul><blockquote style="background-color: whitesmoke; border-left: 5px solid rgb(238, 238, 238); box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 20px; padding: 10px 20px;"><em style="box-sizing: border-box;">See also our pages on <a href="https://www.skillsyouneed.com/ips/reflecting.html" style="background-color: transparent; box-sizing: border-box; color: #022e61;"><span style="box-sizing: border-box; font-weight: 700;">Reflecting</span></a> and <a href="https://www.skillsyouneed.com/ips/clarification.html" style="background-color: transparent; box-sizing: border-box; color: #022e61;"><span style="box-sizing: border-box; font-weight: 700;">Clarifying</span></a>.</em></blockquote><h3 style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: Arial; font-size: 24px; font-weight: 400; line-height: 40px; margin-bottom: 10px; margin-top: 20px;">Summarising</h3><p class="first-para" style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 18px; font-weight: 700; line-height: 24px; margin: 0px 0px 15px;">A summary is an overview of the main points or issues raised.</p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">Summarising can also serve the same purpose as ‘reflecting’. However, summarising allows both parties to review and agree the message, and ensure that communication has been effective. When used effectively, summaries may also serve as a guide to the next steps forward.</p><h3 style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: Arial; font-size: 24px; font-weight: 400; line-height: 40px; margin-bottom: 10px; margin-top: 20px;">Closing Communication</h3><p class="first-para" style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 18px; font-weight: 700; line-height: 24px; margin: 0px 0px 15px;">The way a communication is closed or ended will, at least in part, determine the way a conversation is remembered.</p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">People use both verbal and non-verbal signals to end a conversation.</p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">Verbal signals may include phrases such as:<br style="box-sizing: border-box;" /><em style="box-sizing: border-box;">“Well, I must be going,”</em> and<br style="box-sizing: border-box;" /><em style="box-sizing: border-box;">“Thank you so much, that’s really helpful.”</em></p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">Non-verbal conclusions may include starting to avoid eye contact, standing up, turning away, or behaviours such as looking at a watch or closing notepads or books. These non-verbal actions indicate to the other person that the initiator wishes to end the communication.</p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;"><span style="box-sizing: border-box; font-weight: 700;">People often use a mixture of these, but tend to start with the non-verbal signals, especially face-to-face. On the telephone, of course, verbal cues are essential.</span></p><p style="background-color: whitesmoke; box-sizing: border-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; margin: 0px 0px 15px;">Closing an interaction too abruptly may not allow the other person to 'round off' what he or she is saying so you should ensure there is time for winding-up. The closure of an interaction is a good time to make any future arrangements. Last, but not least, this time will no doubt be accompanied by a number of socially acceptable parting gestures.</p></div>musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com0tag:blogger.com,1999:blog-1315755092560562336.post-8939289102820550522022-02-23T07:56:00.000-08:002022-02-23T07:56:43.815-08:00Business Communication- Types<p> <span style="background-color: white; font-family: arial, helvetica, sans-serif; font-size: 1.1em;">there are actually five types of communication: verbal, non-verbal, written, listening, and visual.</span></p><h2 style="background-color: white; box-sizing: border-box; color: #07294d; font-family: FuturaCnd, arial, sans-serif; font-size: 1.6em; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1; margin: 30px 0px 10px; padding: 0px; text-transform: uppercase;">VERBAL COMMUNICATION</h2><p style="background-color: white; box-sizing: border-box; font-family: arial, helvetica, sans-serif; font-size: 1.1em; margin: 0px 0px 20px; padding: 0px;">Verbal communication occurs when we engage in speaking with others. It can be face-to-face, over the telephone, via Skype or Zoom, etc. Some verbal engagements are informal, such as chatting with a friend over coffee or in the office kitchen, while others are more formal, such as a scheduled meeting. Regardless of the type, it is not just about the words, it is also about the caliber and complexity of those words, how we string those words together to create an overarching message, as well as the intonation (pitch, tone, cadence, etc.) used while speaking. And when occurring face-to-face, while the words are important, they cannot be separated from non-verbal communication.</p><h2 style="background-color: white; box-sizing: border-box; color: #07294d; font-family: FuturaCnd, arial, sans-serif; font-size: 1.6em; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1; margin: 30px 0px 10px; padding: 0px; text-transform: uppercase;">NON-VERBAL COMMUNICATION</h2><p style="background-color: white; box-sizing: border-box; font-family: arial, helvetica, sans-serif; font-size: 1.1em; margin: 0px 0px 20px; padding: 0px;">What we do while we speak often says more than the actual words. Non-verbal communication includes facial expressions, posture, eye contact, hand movements, and touch. For example, if you’re engaged in a conversation with your boss about your cost-saving idea, it is important to pay attention to both the their words and their non-verbal communication. Your boss might be in agreement with your idea verbally, but their nonverbal cues: avoiding eye contact, sighing, scrunched up face, etc. indicate something different.</p><h2 style="background-color: white; box-sizing: border-box; color: #07294d; font-family: FuturaCnd, arial, sans-serif; font-size: 1.6em; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1; margin: 30px 0px 10px; padding: 0px; text-transform: uppercase;">WRITTEN COMMUNICATION</h2><p style="background-color: white; box-sizing: border-box; font-family: arial, helvetica, sans-serif; font-size: 1.1em; margin: 0px 0px 20px; padding: 0px;">Whether it is an email, a memo, a report, a Facebook post, a Tweet, a contract, etc. all forms of written communication have the same goal to disseminate information in a clear and concise manner – though that objective is often not achieved. In fact, poor writing skills often lead to confusion and embarrassment, and even potential legal jeopardy. One important thing to remember about written communication, especially in the digital age, is the message lives on, perhaps in perpetuity. Thus, there are two things to remember: first, write well – poorly constructed sentences and careless errors make you look bad; and second, ensure the content of the message is something you want to promote or be associated with for the long haul.</p><p style="background-color: white; box-sizing: border-box; font-family: arial, helvetica, sans-serif; font-size: 1.1em; margin: 0px 0px 20px; padding: 0px;"></p><h2 style="background-color: white; box-sizing: border-box; color: #07294d; font-family: FuturaCnd, arial, sans-serif; font-size: 1.6em; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1; margin: 30px 0px 10px; padding: 0px; text-transform: uppercase;">LISTENING</h2><p style="background-color: white; box-sizing: border-box; font-family: arial, helvetica, sans-serif; font-size: 1.1em; margin: 0px 0px 20px; padding: 0px;">The <a href="https://drexel.edu/graduatecollege/professional-development/blog/2019/August/tips-for-better-active-listening/" style="box-sizing: border-box; color: #006699; text-decoration-line: none;">act of listening</a> does not often make its way onto the list of types of communication. Active listening, however, is perhaps one of the most important types of communication because if we cannot listen to the person sitting across from us, we cannot effectively engage with them. Think about a negotiation – part of the process is to assess what the opposition wants and needs. Without listening, it is impossible to assess that, which makes it difficult to achieve a win/win outcome.</p><h2 style="background-color: white; box-sizing: border-box; color: #07294d; font-family: FuturaCnd, arial, sans-serif; font-size: 1.6em; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1; margin: 30px 0px 10px; padding: 0px; text-transform: uppercase;">VISUAL COMMUNICATION</h2><p style="background-color: white; box-sizing: border-box; font-family: arial, helvetica, sans-serif; font-size: 1.1em; margin: 0px 0px 20px; padding: 0px;">We are a visual society. Think about it, televisions are running 24/7, Facebook is visual with memes, videos, images, etc., Instagram is an image-only platform, and advertisers use imagery to sell products and ideas. Think about from a personal perspective – the images we post on social media are meant to convey meaning – to communicate a message. In some cases that message might be, look at me, I’m in Italy or I just won an award. Others are carefully curated to tug on our heartstrings – injured animals, crying children, etc.</p><p style="background-color: white; box-sizing: border-box; font-family: arial, helvetica, sans-serif; font-size: 1.1em; margin: 0px 0px 20px; padding: 0px;">We communicate continually throughout each and every day. We do it without thinking – we operate on communication autopilot. However, I encourage you to think about how you communicate. How do you communicate verbally? What nonverbal cues do you use when you are disinterested? Excited? Nervous? Are you a good listener? Can you write a concise, clearly articulated message? Are there barriers to how you communicate effectively?</p><p style="background-color: white; box-sizing: border-box; font-family: arial, helvetica, sans-serif; font-size: 1.1em; margin: 0px 0px 20px; padding: 0px;"><br /></p>musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com0tag:blogger.com,1999:blog-1315755092560562336.post-19626256322783558562022-02-23T07:48:00.000-08:002022-02-23T07:48:06.181-08:00ECONOMIC ORDER QUANTITY<p> <span style="background-color: white; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px);">The</span><span style="background-color: white; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px);"> </span><span style="box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); font-weight: bolder;">economic order quantity </span><span style="background-color: white; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px);">(EOQ) is the specific total order amount for a firm’s inventory that minimizes the total cost of</span><span style="background-color: white; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px);"> </span><a href="https://learn.financestrategists.com/explanation/management-accounting/inventory-management/" style="box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); font-weight: 700;">inventory management</a><span style="background-color: white; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px);">.</span></p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">That is to say, EOQ refers to the size of the order that gives the maximum economy when purchasing any material. It is the optimal standard ordering quantity.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The EOQ is also commonly referred to as the <span style="box-sizing: border-box; font-weight: bolder;">economic lot </span><span style="box-sizing: border-box; font-weight: bolder;">quantity</span> or <span style="box-sizing: border-box; font-weight: bolder;">economic buying quantity</span>.</p><h2 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(26px, 4vw, 35px); line-height: 1.2em; margin-bottom: 20px;">EOQ: Explanation</h2><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The concept of EOQ relates to the quantity of materials that a purchasing department aims to procure.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The EOQ is the size of the order that yields the best economy when purchasing any material. To determine the optimal order quantity, an analysis is undertaken of the various <a href="https://learn.financestrategists.com/explanation/cost-accounting/what-is-cost-and-its-types/" style="background-color: transparent; box-sizing: border-box; color: #015566; font-weight: 700;">costs</a> associated with the order quantity. These costs are divided into two parts:</p><ul style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";"><li style="box-sizing: border-box;">Material acquisition costs</li><li style="box-sizing: border-box;">Material carrying costs</li></ul><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;"><span style="box-sizing: border-box; font-weight: bolder;">Material acquisition costs</span> arise on account of having to process an order. Part of the wages and operating expenses for departments such as production <a href="https://learn.financestrategists.com/finance-terms/control/" style="background-color: transparent; box-sizing: border-box; color: #015566; font-weight: 700;">control</a>, purchasing, receiving, and storage are incurred for purchasing and possessing the materials.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;"><a href="https://learn.financestrategists.com/finance-terms/carrying-costs/" style="background-color: transparent; box-sizing: border-box; color: #015566; font-weight: 700;">Carrying costs</a> for materials, or <span style="box-sizing: border-box; font-weight: bolder;">material carrying costs</span>, include interest charges on the <a href="https://learn.financestrategists.com/finance-terms/investments/" style="background-color: transparent; box-sizing: border-box; color: #015566; font-weight: 700;">investment</a> in materials, insurance costs, storage costs, and other factors.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">It is worth noting that material acquisition costs and material carrying costs behave quite differently.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Material acquisition costs are related to the number of orders placed during a given period. On the other hand, carrying costs, which are variable or semi-variable in nature, tend to change nearly in direct proportion to the level of stock carried in a manufacturing firm.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Purchasing or buying in large quantities implies low acquisition or purchasing costs (i.e., the number of purchase orders placed with the suppliers is small) and high carrying costs. This is due to the amount of <a href="https://learn.financestrategists.com/finance-terms/stock/" style="background-color: transparent; box-sizing: border-box; color: #015566; font-weight: 700;">stock</a> carried during this period being greater.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">On the other hand, purchasing in small quantities implies high purchasing or acquisition costs and low carrying costs.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The most advantageous, or economic, quantity (i.e., the EOQ) will be at a point where the acquisition costs and the costs of carrying stock are equal; namely, where total costs to order and to carry a given material are minimum.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Two important categories of inventory costs are <span style="box-sizing: border-box; font-weight: bolder;">ordering costs</span> and <span style="box-sizing: border-box; font-weight: bolder;">carrying costs</span>. Ordering costs are costs that are incurred to obtain additional <a href="https://learn.financestrategists.com/finance-terms/inventories-definition/" style="background-color: transparent; box-sizing: border-box; color: #015566; font-weight: 700;">inventories</a>, whereas carrying costs are the costs incurred to hold inventory on hand.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The total inventory cost is the ordering cost plus the carrying cost. It is necessary to minimize total inventory costs, and the EOQ concept is ideal in helping to achieve this. Specifically, the <span style="box-sizing: border-box; font-weight: bolder;">EOQ formula</span> shown in the next section should be applied.</p><h2 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(26px, 4vw, 35px); line-height: 1.2em; margin-bottom: 20px;">EOQ Formula</h2><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The common formula used to compute the economic order quantity (EOQ) is:<br style="box-sizing: border-box;" /><img alt="Economic Order Quantity (EOQ) Formula" class="aligncenter wp-image-4552 size-full" height="108" loading="lazy" src="https://learn.financestrategists.com/wp-content/uploads/2019/02/Economic-order-quantity-EOQ-Formula.png" style="border-style: none; box-sizing: border-box; height: auto; max-width: 100%; width: auto;" width="305" /><br style="box-sizing: border-box;" />where:</p><ul style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";"><li style="box-sizing: border-box;">AR = Annual requirements</li><li style="box-sizing: border-box;">OC = Per unit cost</li><li style="box-sizing: border-box;">CC = Carrying cost per unit per year of materials inventory</li></ul><h2 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(26px, 4vw, 35px); line-height: 1.2em; margin-bottom: 20px;">Factors Governing the Fixation of EOQ</h2><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The following factors govern the fixation of EOQ:</p><ul style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";"><li style="box-sizing: border-box;">Procurement cost</li><li style="box-sizing: border-box;">Carrying cost</li></ul><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">An overview of these costs is given in the next sections.</p><h3 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(20px, 3vw, 30px); line-height: 1.2em; margin-bottom: 20px;"><span style="box-sizing: border-box; font-weight: bolder;">Procurement cost</span></h3><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The cost of obtaining quotations, preparing/placing orders, conducting follow-up actions, receiving and inspecting, and paying bills are all included in the procurement cost. This is also known as the cost of <a href="https://learn.financestrategists.com/finance-terms/acquisition/" style="background-color: transparent; box-sizing: border-box; color: #015566; font-weight: 700;">acquisition</a>.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The salaries of the personnel involved in all business processes are the main items to be considered when calculating the procurement cost.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">For a single order, the procurement cost is the total cost, which is obtained by adding up all the above costs and dividing the result by the number of orders placed during that period.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">To determine the procurement cost of multi-item orders, the total cost is divided by the number of items ordered during a given period of time.</p><h3 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(20px, 3vw, 30px); line-height: 1.2em; margin-bottom: 20px;"><span style="box-sizing: border-box; font-weight: bolder;">Carrying cost</span></h3><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">Carrying cost is calculated based on the insurance premium, <a href="https://learn.financestrategists.com/explanation/depreciation-and-disposal-of-fixed-assets/depreciation-4/" style="background-color: transparent; box-sizing: border-box; color: #015566; font-weight: 700;">depreciation</a>, <a href="https://learn.financestrategists.com/finance-terms/obsolescence-definition/" style="background-color: transparent; box-sizing: border-box; color: #015566; font-weight: 700;">obsolescence</a>, storage, preservation costs, and <a href="https://learn.financestrategists.com/finance-terms/interest/" style="background-color: transparent; box-sizing: border-box; color: #015566; font-weight: 700;">interest</a> on value of stock held, including that of handling and other allied costs. This cost is also known as the possession cost.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">These costs vary from item to item and plant to plant. Average carrying cost is taken as 15% to 25% of the value of average working cost, which usually amounts to 50% of the order quantity.</p><h2 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(26px, 4vw, 35px); line-height: 1.2em; margin-bottom: 20px;">Example</h2><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;">The XYZ Equipment Company estimates its carrying cost at 15% and its ordering cost at Rs 9 per order. The estimated annual requirement is 48,000 units at a price of Rs 4 per unit.</p><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;"><span style="box-sizing: border-box; font-weight: bolder;">Required:</span> Answer the following questions:</p><ol style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol";"><li style="box-sizing: border-box;">What is the most economical no. of units to order?</li><li style="box-sizing: border-box;">How many orders should be placed in a year?</li><li style="box-sizing: border-box;">How often should orders be placed?</li><li style="box-sizing: border-box;">What is the ordering cost?</li><li style="box-sizing: border-box;">What is the carrying cost?</li><li style="box-sizing: border-box;">What is the combined ordering and holding cost at the EOQ?</li></ol><h3 style="background-color: white; box-sizing: border-box; color: #015566; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(20px, 3vw, 30px); line-height: 1.2em; margin-bottom: 20px;">Solution</h3><p style="background-color: white; box-sizing: border-box; color: #111111; font-family: -apple-system, system-ui, BlinkMacSystemFont, "segoe ui", Helvetica, Arial, sans-serif, "apple color emoji", "segoe ui emoji", "segoe ui symbol"; font-size: clamp(16px, 2vw, 18px); margin-bottom: 1.5em;"><span style="box-sizing: border-box; font-weight: bolder;">1. No. of units to order</span><br style="box-sizing: border-box;" /><img alt="Economic Order Quantity (EOQ) Formula Reminder" class="alignnone wp-image-4552 size-full" height="108" loading="lazy" src="https://learn.financestrategists.com/wp-content/uploads/2019/02/Economic-order-quantity-EOQ-Formula.png" style="border-style: none; box-sizing: border-box; height: auto; max-width: 100%; width: auto;" width="305" /><br style="box-sizing: border-box;" /><img alt="Substitute Example Values into EOQ" class="alignnone wp-image-4553 size-full" height="108" loading="lazy" src="https://learn.financestrategists.com/wp-content/uploads/2019/02/Economic-order-quantity-EOQ-example.png" style="border-style: none; box-sizing: border-box; height: auto; max-width: 100%; width: auto;" width="305" /><br style="box-sizing: border-box;" /><img alt="Equation Simplification" class="alignnone wp-image-4554 size-full" height="108" loading="lazy" sizes="(max-width: 305px) 100vw, 305px" src="https://learn.financestrategists.com/wp-content/uploads/Economic-order-quantity-EOQ-solution.png" srcset="https://learn.financestrategists.com/wp-content/uploads/Economic-order-quantity-EOQ-solution.png 305w, https://learn.financestrategists.com/wp-content/uploads/Economic-order-quantity-EOQ-solution-300x106.png 300w" style="border-style: none; box-sizing: border-box; height: auto; max-width: 100%; width: auto;" width="305" /><br style="box-sizing: border-box;" /><img alt="Further Equation Simplification" class="alignnone size-full wp-image-33777" height="108" loading="lazy" sizes="(max-width: 305px) 100vw, 305px" src="https://learn.financestrategists.com/wp-content/uploads/Economic-order-quantity-EOQ-Definition-1.png" srcset="https://learn.financestrategists.com/wp-content/uploads/Economic-order-quantity-EOQ-Definition-1.png 305w, https://learn.financestrategists.com/wp-content/uploads/Economic-order-quantity-EOQ-Definition-1-300x106.png 300w" style="border-style: none; box-sizing: border-box; height: auto; max-width: 100%; width: auto;" width="305" /><br style="box-sizing: border-box;" /><img alt="Solution" class="alignnone wp-image-4556 size-full" height="108" loading="lazy" src="https://learn.financestrategists.com/wp-content/uploads/2019/02/Economic-order-quantity-EOQ-explanation.png" style="border-style: none; box-sizing: border-box; height: auto; max-width: 100%; width: auto;" width="305" /><br style="box-sizing: border-box;" /><span style="box-sizing: border-box; font-weight: bolder;">2. No. of orders to be placed in a year</span><br style="box-sizing: border-box;" />No. of orders per year = Annual requirement / EOQ<br style="box-sizing: border-box;" />= 48,000 / 1,200<br style="box-sizing: border-box;" />= 40 orders<br style="box-sizing: border-box;" /><span style="box-sizing: border-box; font-weight: bolder;">3. How often will an order need to be placed? (i.e., frequency of orders)</span><br style="box-sizing: border-box;" />Frequency of orders = No. of days in one year / No. of orders<br style="box-sizing: border-box;" />= 360 / 40<br style="box-sizing: border-box;" />= 9 days<br style="box-sizing: border-box;" /><span style="box-sizing: border-box; font-weight: bolder;">4. Ordering cost</span><br style="box-sizing: border-box;" />= No. of orders per year x Cost per order<br style="box-sizing: border-box;" />= 40 x 9<br style="box-sizing: border-box;" />= 360<br style="box-sizing: border-box;" /><span style="box-sizing: border-box; font-weight: bolder;">5. Carrying cost</span><br style="box-sizing: border-box;" />= Average units x Carrying cost per unit<br style="box-sizing: border-box;" />= (1,200/ 2) x 1.35<br style="box-sizing: border-box;" />= 600 x 1.35<br style="box-sizing: border-box;" />= 810<br style="box-sizing: border-box;" /><span style="box-sizing: border-box; font-weight: bolder;">6. Combined ordering and holding cost at the EOQ</span><br style="box-sizing: border-box;" />= Ordering cost + Carrying cost<br style="box-sizing: border-box;" />= 360 + 810<br style="box-sizing: border-box;" />= 1,170</p>musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com1tag:blogger.com,1999:blog-1315755092560562336.post-89373944674973855632021-02-24T19:04:00.000-08:002021-02-24T19:04:08.563-08:00WHAT IS COMMUNICATION, DEFINITION, NATURE, CHARACTERISTICS<p> Communication is as old as Mankind itself. Early human beings started communicating or felt the need to communicate when they started living together, There was the need to communicate for food, danger against animals, nature etc. Initially this was conveyed through signs like hand imprints, giving way to guttural sounds and cave paintings. This need became more complex as mankind developed slowly with the discovery of metal and then the wheel and then some language in the region where they settled in communities.</p><p>Today communication is omnipresent. The average human being is seen to be communicating all the time, could be communicating to self, people around consciously or subconsciously, sometimes even unconsciously.</p><p>Look around you, everyone of us, animals included are communicating. As an individual, we communicate keeping in mind the role that we are playing at that time. A parent or a child. Coaxing and cajoling, anger and threat, love and affection all are communicated. Even jealously. So effectively we communicate our emotions to each other. We as a family communicate with each other, usually verbally, outside, with the neighbours, the street vendors, the shopkeepers, other businesses. Even businesses communicate with us as well as other businesses (of course, through humans).</p><p>In the modern era humans are busy using appliances and other instruments to communicate, the computer, the mobile phone, the wireless handset, the wired handset to communicate to others</p><p>The meaning:
The origin of the word “communication” is “communicare” or “communis” which means “to
impart”, “to participate”, “to share” or “to make common.” The sense of sharing is inherent in
the very origin and meaning of “communication.” </p><p>DEFINITION OF COMMUNICATION</p><p>According to the Merriam Webster dictionary, Communication is "<span style="background-color: white; color: #303336; font-family: "Open Sans", Helvetica, Arial, sans-serif; font-size: 18px; font-variant-ligatures: no-common-ligatures; letter-spacing: 0.2px;">a process by which information is exchanged between individuals through a common system of symbols, signs, or behavior"</span></p><p><span style="background-color: white; color: #303336; font-family: "Open Sans", Helvetica, Arial, sans-serif; font-size: 18px; font-variant-ligatures: no-common-ligatures; letter-spacing: 0.2px;">As per </span></p><p class="bulb-smtxt" style="background-color: whitesmoke; box-sizing: border-box; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 18px; line-height: 1.2; margin: 0px 0px 15px;"><span style="color: red;"><span style="box-sizing: border-box; font-weight: 700;">communication</span>, <em style="box-sizing: border-box;">n</em>. The imparting or exchanging of information by speaking, writing, or using some other medium. …The successful conveying or sharing of ideas and feelings.</span></p><hr style="background-color: whitesmoke; border-bottom: none; border-image: initial; border-left: 0px; border-right: 0px; border-top-color: rgb(144, 144, 144); border-top-style: solid; box-sizing: content-box; color: #2a2a2a; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 16px; height: 0px; margin-bottom: 20px; margin-top: 20px;" /><p class="bulb-smtxt" style="background-color: whitesmoke; box-sizing: border-box; font-family: "Open Sans", "Helvetica Neue", Helvetica, Arial, sans-serif; font-size: 18px; line-height: 1.2; margin: 0px 0px 15px;"><span style="color: red;">Oxford English Dictionary</span></p><p style="background-color: white; color: #111111; font-family: Georgia, "Times New Roman", Times, serif; font-size: 16px; margin: 0px 0px 28px; overflow-wrap: break-word; padding: 0px;"><strong style="margin: 0px; overflow-wrap: break-word; padding: 0px;"> ” Communication is transfer of information from one person to another, whether or not it elicits confidence. But the information transferred must be understandable to the receiver – G.G. Brown.</strong></p><p style="background-color: white; color: #111111; font-family: Georgia, "Times New Roman", Times, serif; font-size: 16px; margin: 0px 0px 28px; overflow-wrap: break-word; padding: 0px;"><strong style="margin: 0px; overflow-wrap: break-word; padding: 0px;">“Communication is the intercourse by words, letters or messages”- Fred G. Meyer.</strong></p><p>NATURE OF COMMUNICATION</p><p><br /></p>musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com2tag:blogger.com,1999:blog-1315755092560562336.post-79302222932164693692021-02-03T17:51:00.003-08:002021-02-03T17:51:59.314-08:00FRA-inventory valuation<p> </p><h2 style="background-color: white; color: #222222; font-family: proxima-nova; font-size: 21px; font-weight: 300; letter-spacing: 0.03em; line-height: 1.2em; margin: 0px 0px 24px; white-space: pre-wrap;">How to Value Inventory</h2><p class="" style="background-color: white; color: #444444; font-family: proxima-nova; font-size: 15px; letter-spacing: 0.3px; line-height: 1.6em; margin: 24px 0px; overflow-wrap: break-word; white-space: pre-wrap;">Inventory valuation is the <a href="https://www.accountingtools.com/articles/2017/5/4/cost" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">cost</a> associated with an entity's <a href="https://www.accountingtools.com/articles/2017/5/13/inventory" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">inventory</a> at the end of a <a href="https://www.accountingtools.com/articles/2017/5/11/reporting-period" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">reporting period</a>. It forms a key part of the <a href="https://www.accountingtools.com/articles/2017/5/4/cost-of-goods-sold" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">cost of goods sold</a> calculation, and can also be used as <a href="https://www.accountingtools.com/articles/2017/5/4/collateral" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">collateral</a> for <a href="https://www.accountingtools.com/articles/2017/5/13/loan" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">loans</a>. This valuation appears as a <a href="https://www.accountingtools.com/articles/2017/5/4/current-asset" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">current asset</a> on the entity's <a href="https://www.accountingtools.com/articles/2017/5/17/the-balance-sheet" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">balance sheet</a>. The inventory valuation is based on the costs incurred by the entity to acquire the inventory, convert it into a condition that makes it ready for sale, and have it transported into the proper place for sale. Do not add any administrative or selling costs to the cost of inventory. The costs that can be included in an inventory valuation are:</p><ul data-rte-list="default" style="background-color: white; color: #444444; font-family: proxima-nova; font-size: 15px; letter-spacing: 0.3px; line-height: 1.6em; margin: 1em 0px 24px; overflow-wrap: break-word; padding: 0px 0px 0px 40px;"><li style="list-style-type: none; overflow-wrap: break-word;"><p class="" style="letter-spacing: 0.02em; line-height: 1.6em; margin: 0.5em 0px; overflow-wrap: break-word; white-space: pre-wrap;"><a href="https://www.accountingtools.com/articles/2017/5/6/direct-labor" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">Direct labor</a></p></li><li style="list-style-type: none; overflow-wrap: break-word;"><p class="" style="letter-spacing: 0.02em; line-height: 1.6em; margin: 0.5em 0px; overflow-wrap: break-word; white-space: pre-wrap;"><a href="https://www.accountingtools.com/articles/what-are-direct-materials.html" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">Direct materials</a></p></li><li style="list-style-type: none; overflow-wrap: break-word;"><p class="" style="letter-spacing: 0.02em; line-height: 1.6em; margin: 0.5em 0px; overflow-wrap: break-word; white-space: pre-wrap;"><a href="https://www.accountingtools.com/articles/2017/5/9/factory-overhead" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">Factory overhead</a></p></li><li style="list-style-type: none; overflow-wrap: break-word;"><p class="" style="letter-spacing: 0.02em; line-height: 1.6em; margin: 0.5em 0px; overflow-wrap: break-word; white-space: pre-wrap;"><a href="https://www.accountingtools.com/articles/2017/5/10/freight-in" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">Freight in</a></p></li><li style="list-style-type: none; overflow-wrap: break-word;"><p class="" style="letter-spacing: 0.02em; line-height: 1.6em; margin: 0.5em 0px; overflow-wrap: break-word; white-space: pre-wrap;">Handling</p></li><li style="list-style-type: none; overflow-wrap: break-word;"><p class="" style="letter-spacing: 0.02em; line-height: 1.6em; margin: 0.5em 0px; overflow-wrap: break-word; white-space: pre-wrap;">Import duties</p></li></ul><h2 style="background-color: white; color: #222222; font-family: proxima-nova; font-size: 21px; font-weight: 300; letter-spacing: 0.03em; line-height: 1.2em; margin: 0px 0px 24px; white-space: pre-wrap;">Why Inventory Valuation is Important</h2><p class="" style="background-color: white; color: #444444; font-family: proxima-nova; font-size: 15px; letter-spacing: 0.3px; line-height: 1.6em; margin: 24px 0px; overflow-wrap: break-word; white-space: pre-wrap;">Inventory valuation is important for the following reasons:</p><ul data-rte-list="default" style="background-color: white; color: #444444; font-family: proxima-nova; font-size: 15px; letter-spacing: 0.3px; line-height: 1.6em; margin: 1em 0px 24px; overflow-wrap: break-word; padding: 0px 0px 0px 40px;"><li style="list-style-type: none; overflow-wrap: break-word;"><p class="" style="letter-spacing: 0.02em; line-height: 1.6em; margin: 0.5em 0px; overflow-wrap: break-word; white-space: pre-wrap;"><em style="overflow-wrap: break-word;">Impact on cost of goods sold</em>. When a higher valuation is recorded for ending inventory, this leaves less expense to be charged to the cost of goods sold, and vice versa. Thus, inventory valuation has a major impact on reported <a href="https://www.accountingtools.com/articles/2017/5/14/profit" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">profit</a> levels.</p></li><li style="list-style-type: none; overflow-wrap: break-word;"><p class="" style="letter-spacing: 0.02em; line-height: 1.6em; margin: 0.5em 0px; overflow-wrap: break-word; white-space: pre-wrap;"><em style="overflow-wrap: break-word;">Impact on multiple periods</em>. An incorrect inventory valuation will cause the reported profits in two consecutive periods to be incorrect, because the incorrect ending balance in the first period will be wrong, and it then carries over into the beginning inventory balance in the next reporting period.</p></li><li style="list-style-type: none; overflow-wrap: break-word;"><p class="" style="letter-spacing: 0.02em; line-height: 1.6em; margin: 0.5em 0px; overflow-wrap: break-word; white-space: pre-wrap;"><em style="overflow-wrap: break-word;">Loan ratios</em>. If an entity has been issued a loan by a <a href="https://www.accountingtools.com/articles/2017/5/9/lender" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">lender</a>, the agreement may include a restriction on the allowable proportions of current assets to <a href="https://www.accountingtools.com/articles/2017/5/5/current-liability" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">current liabilities</a>. If the entity cannot meet the target ratio, the lender can call the loan. Since inventory is frequently the largest component of this current ratio, the inventory valuation can be critical.</p></li><li style="list-style-type: none; overflow-wrap: break-word;"><p class="" style="letter-spacing: 0.02em; line-height: 1.6em; margin: 0.5em 0px; overflow-wrap: break-word; white-space: pre-wrap;"><em style="overflow-wrap: break-word;">Income taxes</em>. The choice of cost-flow method used can alter the amount of <a href="https://www.accountingtools.com/articles/2017/5/11/income-tax" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">income taxes</a> paid. The LIFO method is commonly used in periods of rising prices to reduce income taxes paid.</p></li></ul><h2 style="background-color: white; color: #222222; font-family: proxima-nova; font-size: 21px; font-weight: 300; letter-spacing: 0.03em; line-height: 1.2em; margin: 0px 0px 24px; white-space: pre-wrap;">The Lower of Cost or Market Rule</h2><p class="" style="background-color: white; color: #444444; font-family: proxima-nova; font-size: 15px; letter-spacing: 0.3px; line-height: 1.6em; margin: 24px 0px; overflow-wrap: break-word; white-space: pre-wrap;">Under the <a href="https://www.accountingtools.com/articles/2017/5/13/lower-of-cost-or-market-lcm" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">lower of cost or market</a> rule, you may be required to reduce the inventory valuation to the <a href="https://www.accountingtools.com/articles/2017/5/8/market-value" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">market value</a> of the inventory, if it is lower than the recorded cost of the inventory. There are also some very limited circumstances where you are allowed under <a href="https://www.accountingtools.com/articles/what-is-ifrs.html" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">international financial reporting standards</a> to record the cost of inventory at its market value, irrespective of the cost to produce it (generally limited to agricultural produce).</p><h2 style="background-color: white; color: #222222; font-family: proxima-nova; font-size: 21px; font-weight: 300; letter-spacing: 0.03em; line-height: 1.2em; margin: 0px 0px 24px; white-space: pre-wrap;">Inventory Valuation Methods</h2><p class="" style="background-color: white; color: #444444; font-family: proxima-nova; font-size: 15px; letter-spacing: 0.3px; line-height: 1.6em; margin: 24px 0px; overflow-wrap: break-word; white-space: pre-wrap;">When assigning costs to inventory, one should adopt and consistently use a cost-flow assumption regarding how inventory flows through the entity. Examples of cost-flow are:</p><ul data-rte-list="default" style="background-color: white; color: #444444; font-family: proxima-nova; font-size: 15px; letter-spacing: 0.3px; line-height: 1.6em; margin: 1em 0px 24px; overflow-wrap: break-word; padding: 0px 0px 0px 40px;"><li style="list-style-type: none; overflow-wrap: break-word;"><p class="" style="letter-spacing: 0.02em; line-height: 1.6em; margin: 0.5em 0px; overflow-wrap: break-word; white-space: pre-wrap;">The <a href="https://www.accountingtools.com/articles/2017/5/8/specific-identification-method" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">specific identification method</a>, where you track the specific cost of individual items of inventory.</p></li><li style="list-style-type: none; overflow-wrap: break-word;"><p class="" style="letter-spacing: 0.02em; line-height: 1.6em; margin: 0.5em 0px; overflow-wrap: break-word; white-space: pre-wrap;">The <a href="https://www.accountingtools.com/articles/2017/5/13/first-in-first-out-method-fifo" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">first in, first out method</a>, where you assume that the first items to enter the inventory are the first ones to be used.</p></li><li style="list-style-type: none; overflow-wrap: break-word;"><p class="" style="letter-spacing: 0.02em; line-height: 1.6em; margin: 0.5em 0px; overflow-wrap: break-word; white-space: pre-wrap;">The <a href="https://www.accountingtools.com/articles/2017/5/13/last-in-first-out-method-lifo-inventory-method" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">last in, first out method</a>, where you assume that the last items to enter the inventory are the first ones to be used.</p></li><li style="list-style-type: none; overflow-wrap: break-word;"><p class="" style="letter-spacing: 0.02em; line-height: 1.6em; margin: 0.5em 0px; overflow-wrap: break-word; white-space: pre-wrap;">The <a href="https://www.accountingtools.com/articles/2017/5/13/weighted-average-method-weighted-average-costing" style="color: #0d6ece; overflow-wrap: break-word; text-decoration-line: none;">weighted average method</a>, where an average of the costs in the inventory is used in the cost of goods sold.</p></li></ul><p class="" style="background-color: white; color: #444444; font-family: proxima-nova; font-size: 15px; letter-spacing: 0.3px; line-height: 1.6em; margin: 24px 0px; overflow-wrap: break-word; white-space: pre-wrap;">Whichever method chosen will affect the inventory valuation recorded at the end of the reporting period.</p>musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com1tag:blogger.com,1999:blog-1315755092560562336.post-25429811178882723742020-06-13T07:01:00.000-07:002021-02-03T17:52:25.722-08:00ASB conceptual frameworkThis Conceptual Framework for General Purpose Financial Reporting (Conceptual Framework)
has been approved for issue by the Accounting Standards Board (Board), the body which has as
its principal function to set generally recognised accounting practice.<div><br /></div>musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com0tag:blogger.com,1999:blog-1315755092560562336.post-71657592696304029672020-06-13T06:55:00.000-07:002020-06-13T06:55:41.661-07:00iasb conceptual framework<p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;">The IASB bases its financial reporting standards on the conceptual framework that it adopted in 2010. The conceptual framework was developed by IASB and it lays down the basic concepts and principles that act as the foundation for preparation and presentation of the financial statements. The framework is also used as guide to develop / improve standards and to resolve any accounting conflicts. Note that the conceptual framework is not an accounting standard in itself and cannot be used as an alternative to the financial reporting standards applicable in your country.</p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;">The IFRS framework addresses the following:</p><ul style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; margin: 0px 0px 30px; padding: 0px 0px 0px 40px;"><li style="box-sizing: inherit; list-style-type: disc;">Objectives of financial statements</li><li style="box-sizing: inherit; list-style-type: disc;">Underlying assumptions of the financial statements</li><li style="box-sizing: inherit; list-style-type: disc;">Qualitative characteristics of financial statements</li><li style="box-sizing: inherit; list-style-type: disc;">Elements of financial statements</li><li style="box-sizing: inherit; list-style-type: disc;">Recognition of the elements of financial statements</li><li style="box-sizing: inherit; list-style-type: disc;">Measurement of the elements of financial statements</li></ul><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;">Objectives of the Financial Statements</span></p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;">In very simple words, the objective of Financial Statements is:</p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;">“To provide useful information to the users.”</span></p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;">Let’s look at this statement more closely. There are three keywords here:</p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;">Useful:</span> The useful here refers to the need for financial statements to be able to provide high quality information to the users. The usefulness is described in the form of the qualitative characteristics of the financial statements.</p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;">Information:</span> This refers to what information should the financial statements provide. This includes financial position, financial performance, and changes in financial position. These three tips of information are provided in the three financial statements, namely, balance sheet, income statement, and statement of cash flow.</p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;">Users:</span> This refers to the end users of financial statements such as investors, lenders, employees, government, customers, vendors, etc.</p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;">Underlying Assumptions of IFRS</span></p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;">There are two fundamental assumptions underlying the financial statements: Going Concern, and Accruals.</p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;">Going Concern:</span> Here the idea is that the business will continue to operate for the forceable future. This is a really important assumption because if it was so that the business will close by the end of the year, then all the assets will have to be sold and their sale value would have to be recorded in the books. However, this is not the case and businesses use their assets and resources for many years.</p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;">Accruals:</span> The second important assumption is the accrual principal according to which we match any income and expenses to the period in which they were earned or incurred not in the period in which the payment was received or made.</p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;">Qualitative Characteristics of Financial Statements</span></p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;">The conceptual framework sets out four qualitative characteristics of financial statements:</p><ul style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; margin: 0px 0px 30px; padding: 0px 0px 0px 40px;"><li style="box-sizing: inherit; list-style-type: disc;"><span style="box-sizing: inherit; font-weight: 700;">Understandable:</span> The users should be able to understand and appreciate the information.</li><li style="box-sizing: inherit; list-style-type: disc;"><span style="box-sizing: inherit; font-weight: 700;">Relevant:</span> The information should be relevant to the users so that they can make their decisions effectively.</li><li style="box-sizing: inherit; list-style-type: disc;"><span style="box-sizing: inherit; font-weight: 700;">Reliable:</span> The information should be factually accurate.</li><li style="box-sizing: inherit; list-style-type: disc;"><span style="box-sizing: inherit; font-weight: 700;">Comparable:</span> The users should be able to compare the information with the peers or with previous years’ information.</li></ul><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;">So, to be useful, the information on financial position, financial performance, and changes in financial position should be understandable, relevant, reliable, and comparable.</p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;">Elements of Financial Statements</span></p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;">The framework lists five elements of financial statements:</p><ul style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; margin: 0px 0px 30px; padding: 0px 0px 0px 40px;"><li style="box-sizing: inherit; list-style-type: disc;"><span style="box-sizing: inherit; font-weight: 700;">Assets:</span> An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.</li><li style="box-sizing: inherit; list-style-type: disc;"><span style="box-sizing: inherit; font-weight: 700;">Liabilities:</span> A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.</li><li style="box-sizing: inherit; list-style-type: disc;"><span style="box-sizing: inherit; font-weight: 700;">Equity:</span> Equity is the residual interest in the assets of the entity after deducting all its liabilities.</li><li style="box-sizing: inherit; list-style-type: disc;"><span style="box-sizing: inherit; font-weight: 700;">Income:</span> Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.</li><li style="box-sizing: inherit; list-style-type: disc;"><span style="box-sizing: inherit; font-weight: 700;">Expense:</span> Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.</li></ul><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;">We see the assets, liabilities, and equity in the statement of financial position (Balance Sheet), and we see the income and expenses in the statement of financial performance (Income Statement).</p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;">Recognition of the Elements of Financial Statement</span></p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;">Along with the five elements, the framework also provides guidelines about when these elements are recognized in the financial reports.</p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;">To be recognized, an item must meet the definition of an element, and satisfy the following criteria:</p><ul style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; margin: 0px 0px 30px; padding: 0px 0px 0px 40px;"><li style="box-sizing: inherit; list-style-type: disc;">It is probable that any future economic benefit associated with the item will flow to or from the entity; and</li><li style="box-sizing: inherit; list-style-type: disc;">The item’s cost or value can be measured with reliability.</li></ul><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;">Measurement of the Elements of Financial Statement</span></p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;">The final part of the framework describes how we should measure an item once it has been recognized. It suggests the following conceptual models:</p><ul style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; margin: 0px 0px 30px; padding: 0px 0px 0px 40px;"><li style="box-sizing: inherit; list-style-type: disc;">Historical Cost</li><li style="box-sizing: inherit; list-style-type: disc;">Current Cost</li><li style="box-sizing: inherit; list-style-type: disc;">Realizable (Settlement) Value</li><li style="box-sizing: inherit; list-style-type: disc;">Present Value</li></ul><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;"><span style="box-sizing: inherit; font-weight: 700;"></span></p><p style="background-color: white; box-sizing: inherit; color: #333333; font-family: "source sans pro", sans-serif; font-size: 18px; line-height: 30.6px; margin: 0px 0px 30px; padding: 0px;">Among these, historical cost is the most commonly used measure. Note that the IFRS framework does not provide which measurement model should be used for a particular element. Such details are provided in the reporting standards.</p>musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com2tag:blogger.com,1999:blog-1315755092560562336.post-36410758378350857392020-06-12T06:26:00.000-07:002020-06-12T06:26:03.695-07:00COMPREHENSIVE AND OTHER COMPREHENSIVE INCOME- FRA<header class="comp right-rail__offset article-header mntl-block" id="article-header_1-0" style="background-color: white; box-sizing: border-box; color: #111111; font-family: SourceSansPro, sans-serif; font-size: 17.6px; padding-right: 0px;"><h1 class="comp article-heading mntl-text-block" id="article-heading_2-0" style="box-sizing: border-box; font-size: 3rem; font-weight: 400; line-height: 1.1; margin: 0px 0px 1rem; padding-bottom: 0.5rem; position: relative;"><br /></h1><h2 class="comp article-subheading mntl-text-block" id="article-subheading_1-0" style="box-sizing: border-box; color: #666666; font-size: 1.875rem; font-weight: 400; line-height: 1.2; margin: 0px;"></h2><div class="comp sponsorship-wrapper mntl-block" id="sponsorship-wrapper_1-0" style="box-sizing: border-box;"></div></header><div class="comp article-body mntl-block" id="article-body_1-0" style="background-color: white; box-sizing: border-box; color: #111111; font-family: SourceSansPro, sans-serif; font-size: 17.6px; padding-right: 0px; position: static;"><div class="comp article-body-content mntl-sc-page mntl-block" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="40em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0" style="box-sizing: border-box;"><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0" style="box-sizing: border-box; font-size: 1.625rem; font-weight: 400; line-height: 1.2; margin: 0px;"><span class="mntl-sc-block-heading__text" style="box-sizing: border-box;">Comprehensive Income vs. Other Comprehensive Income: An Overview</span></h2><div class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0-1" style="box-sizing: border-box; counter-reset: section 0;"><p style="box-sizing: border-box; margin-bottom: 1.75rem; margin-top: 0px;">In <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialaccounting.asp" style="box-sizing: border-box; color: #2c40d0;">financial accounting</a>, corporate income can be broken down in a multitude of ways, and firms have some latitude on how and when to recognize and report their earnings. To compensate for this, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fasb.asp" style="box-sizing: border-box; color: #2c40d0;">Financial Accounting Standards Board</a> (FASB) has firms collect and report information using certain universally recognized measurements to help provide perspective for investors and analysts and report them on <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-statements.asp" style="box-sizing: border-box; color: #2c40d0;">financial statements</a>. Two such measurements are comprehensive income and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/071415/what-are-some-examples-items-count-comprehensive-income.asp" style="box-sizing: border-box; color: #2c40d0;">other comprehensive income</a>. Obviously, they sound (almost) like the same thing. Let us examine how they differ.</p></div><div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_1-0-2" style="box-sizing: border-box;"><div class="comp mntl-block" id="mntl-block_3-0" style="box-sizing: border-box;"><div class="comp scads-to-load right-rail__item billboard-sticky billboard1-sticky-dynamic billboard-sticky--sc scads-stick-in-parent scads-ad-placed scads-stuck-bottom" data-height="1050" id="billboard1-sticky-dynamic_1-0" style="box-sizing: border-box; height: 1050px; padding-left: 1.25rem; position: absolute; right: 0px; top: 80px; z-index: 1;"><div class="spacer" style="box-sizing: border-box; float: none; height: 280px; position: static; vertical-align: baseline; width: 300px;"><div class="comp billboard1-dynamic mntl-gpt-dynamic-adunit mntl-gpt-adunit gpt billboard dynamic" data-ad-height="250" data-ad-width="300" id="billboard1-dynamic_1-0" style="bottom: 0px; box-sizing: border-box; min-height: 250px; min-width: 300px; position: absolute; text-align: center; width: 300px;"><div class="wrapper" data-auction-floor-id="12d3f6ba0f3c48599c14fd41e4dabba1" data-auction-floor-value="35" data-google-query-id="COfUs9qv_OkCFU9IKwod1_sMpA" data-pos="atf" data-priority="2" data-rtb="true" data-sizes="[[300, 1050], [300, 600], [160, 600], [300, 250], [1, 2], "fluid"]" data-targeting="{}" data-type="billboard" id="billboard" style="-webkit-box-direction: normal; -webkit-box-orient: vertical; box-sizing: border-box; display: flex; flex-direction: column; margin: 0px auto 1.75rem; width: 300px;"><div id="google_ads_iframe_/479/investopedia/inv_corporate-finance-and-accounting/billboard_0__container__" style="border: 0pt none; box-sizing: border-box; display: inline-block; height: 250px; width: 300px;"><iframe data-google-container-id="d" data-is-safeframe="true" data-load-complete="true" frameborder="0" height="250" id="google_ads_iframe_/479/investopedia/inv_corporate-finance-and-accounting/billboard_0" marginheight="0" marginwidth="0" name="" sandbox="allow-forms allow-pointer-lock allow-popups allow-popups-to-escape-sandbox allow-same-origin allow-scripts allow-top-navigation-by-user-activation" scrolling="no" src="https://c565930035bda011b81e77216b7f7759.safeframe.googlesyndication.com/safeframe/1-0-37/html/container.html" style="border-style: initial; border-width: 0px; box-sizing: border-box; margin: 0px auto; vertical-align: bottom;" title="3rd party ad content" width="300"></iframe></div></div></div></div></div></div></div><a class="heading-toc" id="other-comprehensive-income" style="box-sizing: border-box; color: #2c40d0; text-decoration-line: underline;"></a><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0-3" style="box-sizing: border-box; font-size: 1.625rem; font-weight: 400; line-height: 1.2; margin: 0px;"><span class="mntl-sc-block-heading__text" style="box-sizing: border-box;">Other Comprehensive Income</span></h2><div class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0-4" style="box-sizing: border-box; counter-reset: section 0;"><p style="box-sizing: border-box; margin-bottom: 1.75rem; margin-top: 0px;">We will start with other comprehensive income (OCI), for reasons that will become clear later on. Also known as comprehensive earnings, this is a catch-all classification for the items that cannot be included in typical profit and loss calculations because they do not stem from the company's regular business activities and operations. Hence, they have to bypass the company's net <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/incomestatement.asp" style="box-sizing: border-box; color: #2c40d0;">income statement</a>—the sum of recognized revenues minus the sum of recognized expenses—which does include changes in owner equity.</p></div><div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_1-0-5" style="box-sizing: border-box;"><div class="comp mntl-block" id="mntl-block_4-0" style="box-sizing: border-box;"><div class="comp scads-to-load right-rail__item billboard-sticky billboard2-sticky-dynamic billboard-sticky--sc scads-stick-in-parent scads-ad-placed" data-height="600" id="billboard2-sticky-dynamic_1-0" style="box-sizing: border-box; padding-left: 1.25rem; position: absolute; right: 0px; top: 1220px; z-index: 1;"><div class="spacer" style="box-sizing: border-box;"><div class="comp billboard2-dynamic mntl-gpt-dynamic-adunit mntl-gpt-adunit gpt billboard dynamic" data-ad-height="600" data-ad-width="300" id="billboard2-dynamic_1-0" style="box-sizing: border-box; min-height: 250px; min-width: 300px; text-align: center;"><div class="wrapper" data-auction-floor-id="68d2b4fceffd4bfd9f23cb745ac26d87" data-auction-floor-value="10" data-google-query-id="CKqDwtqv_OkCFa2GSwUdafgJbw" data-pos="btf1" data-priority="3" data-rtb="true" data-sizes="[[300, 250], [300, 600], [300, 601], [160, 600], [300, 251], [2, 1], "fluid"]" data-targeting="{}" data-type="billboard" id="billboard2" style="-webkit-box-direction: normal; -webkit-box-orient: vertical; box-sizing: border-box; display: flex; flex-direction: column; margin: 0px auto 1.75rem; width: 300px;"><div id="google_ads_iframe_/479/investopedia/inv_corporate-finance-and-accounting/billboard2_0__container__" style="border: 0pt none; box-sizing: border-box; display: inline-block; height: 600px; width: 300px;"><iframe data-google-container-id="e" data-is-safeframe="true" data-load-complete="true" frameborder="0" height="600" id="google_ads_iframe_/479/investopedia/inv_corporate-finance-and-accounting/billboard2_0" marginheight="0" marginwidth="0" name="" sandbox="allow-forms allow-pointer-lock allow-popups allow-popups-to-escape-sandbox allow-same-origin allow-scripts allow-top-navigation-by-user-activation" scrolling="no" src="https://c565930035bda011b81e77216b7f7759.safeframe.googlesyndication.com/safeframe/1-0-37/html/container.html" style="border-style: initial; border-width: 0px; box-sizing: border-box; margin: 0px auto; vertical-align: bottom;" title="3rd party ad content" width="300"></iframe></div></div></div></div></div></div></div><div class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0-6" style="box-sizing: border-box; counter-reset: section 0;"><p style="box-sizing: border-box; margin-bottom: 1.75rem; margin-top: 0px;">More specifically, other comprehensive income charts the change in a company's net assets from non-owner sources over a certain time period, including all revenues and expenses that have not yet been realized, such as a capital gain or loss from an investment that has not yet been sold. (Once the gain or loss is realized, the amount is reclassified to net income.) Other examples of the types of changes captured by other comprehensive income include:</p></div><div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_1-0-7" style="box-sizing: border-box;"><div class="comp mntl-block" id="mntl-block_5-0" style="box-sizing: border-box;"></div></div><div class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0-8" style="box-sizing: border-box; counter-reset: section 0;"><ul style="box-sizing: border-box; list-style-image: initial; list-style-position: initial; margin-bottom: 1.75rem; margin-top: 0px; padding-left: 1.5rem;"><li style="box-sizing: border-box;">Gains and losses from derivative instruments</li><li style="box-sizing: border-box;">Unrealized gains and losses from debt securities</li><li style="box-sizing: border-box;"><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pensionplan.asp" style="box-sizing: border-box; color: #2c40d0;">Pension</a> or other retirement plan gains and losses</li><li style="box-sizing: border-box;">Foreign currency transactions</li><li style="box-sizing: border-box;">Available-for-sale securities unrealized gains and losses</li></ul></div><div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_1-0-9" style="box-sizing: border-box;"><div class="comp mntl-block" id="mntl-block_6-0" style="box-sizing: border-box;"><div class="comp scads-to-load native mntl-gpt-dynamic-adunit mntl-gpt-adunit gpt dynamic scads-ad-placed" id="native_1-0" style="box-sizing: border-box; text-align: center;"></div></div></div><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0-10" style="box-sizing: border-box;"><div class="comp theme-important mntl-sc-block mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_1-0-11" style="border: 1px solid rgb(225, 226, 230); box-sizing: border-box; margin: -0.75rem 0px 1rem; padding: 0.5rem;"><div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0" style="box-sizing: border-box; padding-left: 2rem; padding-right: 1.75rem;"> <p style="box-sizing: border-box; display: inline; margin-bottom: 1.75rem; margin-top: 0px; vertical-align: baseline;">Other comprehensive income is not listed with net income, instead, it appears listed in its own section, separate from the regular income statement and often presented immediately below it.</p></div></div></div><a class="heading-toc" id="comprehensive-income" style="box-sizing: border-box; color: #2c40d0; text-decoration-line: underline;"></a><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0-12" style="box-sizing: border-box; font-size: 1.625rem; font-weight: 400; line-height: 1.2; margin: 0px;"><span class="mntl-sc-block-heading__text" style="box-sizing: border-box;">Comprehensive Income</span></h2><div class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0-13" style="box-sizing: border-box; counter-reset: section 0;"><p style="box-sizing: border-box; margin-bottom: 1.75rem; margin-top: 0px;">Comprehensive income (CI), is more of an umbrella term—and in fact, an umbrella statement. Usually, it appears within the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stockholdersequity.asp" style="box-sizing: border-box; color: #2c40d0;">stockholders' equity</a> section of a financial report or balance sheet. The comprehensive income consists of two sections:</p></div><div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_1-0-14" style="box-sizing: border-box;"><div class="comp mntl-block" id="mntl-block_7-0" style="box-sizing: border-box;"></div></div><div class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0-15" style="box-sizing: border-box; counter-reset: section 0;"><ul style="box-sizing: border-box; list-style-image: initial; list-style-position: initial; margin-bottom: 1.75rem; margin-top: 0px; padding-left: 1.5rem;"><li style="box-sizing: border-box;">The net income from the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/incomestatement.asp" style="box-sizing: border-box; color: #2c40d0;">income statement</a></li><li style="box-sizing: border-box;">The net income from the other comprehensive income statement</li></ul></div><div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_1-0-16" style="box-sizing: border-box;"><div class="comp mntl-block" id="mntl-block_8-0" style="box-sizing: border-box;"></div></div><div class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0-17" style="box-sizing: border-box; counter-reset: section 0;"><p style="box-sizing: border-box; margin-bottom: 1.75rem; margin-top: 0px;">The sum total of comprehensive income, also known as accumulated other comprehensive income, is calculated by adding net income to other comprehensive income.</p></div><div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_1-0-18" style="box-sizing: border-box;"></div><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0-19" style="box-sizing: border-box;"><div class="comp theme-whatyouneedtoknow mntl-sc-block mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_1-0-20" style="box-sizing: border-box; margin: 1rem 0px 2rem; position: relative;"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0-1" style="box-sizing: border-box; font-family: Cabin-semi-bold, sans-serif; font-size: 1rem; font-weight: 400; letter-spacing: 0.05rem; line-height: 1.2; margin: 0px; padding: 1.5625rem 1.25rem 0.5625rem; text-transform: uppercase;">KEY TAKEAWAYS</h3><div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-1" style="box-sizing: border-box; padding: 0px 1.25rem 1.25rem;"><ul style="box-sizing: border-box; list-style-image: initial; list-style-position: initial; margin-bottom: 0px; margin-top: 0px; padding-left: 1.5rem;"><li style="box-sizing: border-box; padding-bottom: 0.375rem;">Other comprehensive income items occur rather infrequently for smaller businesses, so it is most important for valuing larger corporations.</li><li style="box-sizing: border-box; padding-bottom: 0.375rem;">It shows how overseas operations and currency hedging affect corporate performance.</li><li style="box-sizing: border-box; padding-bottom: 0.375rem;">It might show how the unrealized performance of a firm's investment portfolio can reveal the possibility of major losses down the road.</li><li style="box-sizing: border-box; padding-bottom: 0.375rem;">Comprehensive income provides a more complete view of a company's income and revenues.</li><li style="box-sizing: border-box; margin-bottom: 0px; padding-bottom: 0.375rem;">It is used to chart the changes in the overall net assets of a company; by so doing, it marks the change in the value of an owner's interest in a business</li></ul></div></div></div></div></div>musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com0tag:blogger.com,1999:blog-1315755092560562336.post-45356307135976350602020-06-12T06:19:00.000-07:002020-06-12T06:19:42.375-07:00CASH FLOWS FRA<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div class="MsoNormal" style="background: white; line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Use the following four categories of activities to
classify cash transactions:<o:p></o:p></span></div>
<ul type="disc">
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l1 level1 lfo4; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Operating<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l1 level1 lfo4; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Noncapital
financing<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l1 level1 lfo4; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Capital
and related financing<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l1 level1 lfo4; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Investing<o:p></o:p></span></li>
</ul>
<div class="MsoNormal" style="background: white; line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Generally, cash receipts and cash payments are
reported as gross rather than net. Two exceptions to the gross reporting are:<o:p></o:p></span></div>
<ul type="disc">
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l0 level1 lfo5; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
purchases and sales of cash and cash equivalents<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l0 level1 lfo5; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Assets
and liabilities for which the turnover is quick and the maturities are
three months or less (such as debt, loans receivable and the purchase and
sale of highly liquid investments)<o:p></o:p></span></li>
</ul>
<ol start="1" type="I">
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level1 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
Flows from Operating Activities</span></b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;"><o:p></o:p></span></li>
</ol>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 7.5pt; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm;">
<span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash flows from operating activities
result from providing services and producing and delivering goods. They include
all other transactions not defined as noncapital financing, capital and related
financing or investing activities. The operating activities section is, in a
sense, a “catch-all” category.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 7.5pt; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm;">
<span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash <i>inflows</i> (proceeds)
from operating activities include:<o:p></o:p></span></div>
<ol start="1" type="I">
<ul type="circle">
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
receipts from sales of goods and services including receipts from
collection of accounts receivable and both short/long-term notes
receivable from customers and students arising from those sales<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
receipts from quasi-external operating transactions with other funds<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Grant
receipts for activities considered as operating activities of the grantor
government<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
receipts for reimbursement of operating transactions<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
receipts from collection of program loans<o:p></o:p></span></li>
</ul>
</ol>
<div style="background: #F0F5F8; border: solid #465B68 1.0pt; margin-left: 72.0pt; margin-right: 0cm; mso-border-alt: solid #465B68 .75pt; mso-element: para-border-div; padding: 11.0pt 11.0pt 11.0pt 11.0pt;">
<div class="MsoNormal" style="background: #F0F5F8; border: none; line-height: normal; margin-bottom: 15.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 9.0pt; mso-border-alt: solid #465B68 .75pt; mso-padding-alt: 11.0pt 11.0pt 11.0pt 11.0pt; padding: 0cm;">
<b><span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Note:</span></b><span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;"> “Program loans”
are loan programs undertaken to fulfill a governmental responsibility (such as
low-income housing mortgages and student loans). As the loans made and
collected (including the interest) are part of a governmental program, the loan
activities are reported as operating activities, rather than investing
activities.<o:p></o:p></span></div>
</div>
<ol start="1" type="I">
<ul type="circle">
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
contributions to a defined benefit pension plan administered through a
trust that meets the criteria in <a href="https://fmx.cpa.texas.gov/fmx/pubs/afrrptreq/introduction/index.php?section=gasb&page=current_gasb"><b><span style="color: #016026;">GASB 68</span></b></a>, paragraph 4, or to a
defined benefit OPEB plan administered through a trust that
meets the criteria in <a href="https://fmx.cpa.texas.gov/fmx/pubs/afrrptreq/introduction/index.php?section=gasb&page=current_gasb"><b><span style="color: #016026;">GASB 75</span></b></a>, paragraph 4.<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Other
cash receipts not classified in the other categories.<o:p></o:p></span></li>
</ul>
</ol>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 7.5pt; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm;">
<span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash <i>outflows</i> (payments)
from operating activities include:<o:p></o:p></span></div>
<ol start="1" type="I">
<ul type="circle">
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
payments to suppliers of goods and services<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
payments to employees for services including benefits<o:p></o:p></span></li>
</ul>
</ol>
<div style="background: #F0F5F8; border: solid #465B68 1.0pt; margin-left: 72.0pt; margin-right: 0cm; mso-border-alt: solid #465B68 .75pt; mso-element: para-border-div; padding: 6.0pt 6.0pt 6.0pt 6.0pt;">
<div class="MsoNormal" style="background: #F0F5F8; border: none; line-height: normal; margin-bottom: 15.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 9.0pt; mso-border-alt: solid #465B68 .75pt; mso-padding-alt: 6.0pt 6.0pt 6.0pt 6.0pt; padding: 0cm;">
<b><span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Note:</span></b><span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;"> Separate
accounts payable and payroll payable when determining the cash payments.<o:p></o:p></span></div>
</div>
<ol start="1" type="I">
<ul type="circle">
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
payments for grants considered to be operating activities of the grantor<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
payments for quasi-external operating transactions (including payments in
lieu of taxes)<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
payments for program loans<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
payments for pensions or OPEB regardless of whether the defined
benefit pension plan or defined benefit OPEB plan is
administered through a trust that meets the specified criteria of
either <a href="https://fmx.cpa.texas.gov/fmx/pubs/afrrptreq/introduction/index.php?section=gasb&page=current_gasb"><b><span style="color: #016026;">GASB 68</span></b></a>, paragraph 4, or <a href="https://fmx.cpa.texas.gov/fmx/pubs/afrrptreq/introduction/index.php?section=gasb&page=current_gasb"><b><span style="color: #016026;">GASB 75</span></b></a>, paragraph 4, respectively.<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Other
cash payments not classified in the other categories<o:p></o:p></span></li>
</ul>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level1 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
Flows from Noncapital Financing Activities</span></b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;"><o:p></o:p></span></li>
</ol>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 7.5pt; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm;">
<span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash flows from noncapital financing
activities include borrowing money and repaying the principal and interest on
amounts borrowed for purposes other than to acquire, construct or improve
capital assets.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 7.5pt; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm;">
<span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash <i>inflows</i> (proceeds)
from noncapital financing activities include:<o:p></o:p></span></div>
<ol start="2" type="I">
<ul type="circle">
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
receipts from short and long-term borrowings used for purposes other than
to acquire, construct or improve capital assets<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
receipts from grants and voluntary non-exchange transactions (gifts) not
used for capital assets or for specific activities considered to be
operating activities of the grantor<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
receipts from other funds except amounts used for capital assets,
quasi-external operating transactions or reimbursement for operating
transactions<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
receipts from property and other taxes not specifically restricted for
capital purposes<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
receipts from proceeds of state appropriations<o:p></o:p></span></li>
</ul>
</ol>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 7.5pt; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm;">
<span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash <i>outflows</i> (payments)
for non-capital financing activities include:<o:p></o:p></span></div>
<ol start="2" type="I">
<ul type="circle">
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Repayments
of principal and interest on borrowings for purposes other than
acquiring, constructing or improving capital assets<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Grant
payments to other governments or organizations for activities not
considered as operating activities of the grantor<o:p></o:p></span></li>
</ul>
</ol>
<div style="background: #F0F5F8; border: solid #465B68 1.0pt; margin-left: 72.0pt; margin-right: 0cm; mso-border-alt: solid #465B68 .75pt; mso-element: para-border-div; padding: 6.0pt 6.0pt 6.0pt 6.0pt;">
<div class="MsoNormal" style="background: #F0F5F8; border: none; line-height: normal; margin-bottom: 15.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 9.0pt; mso-border-alt: solid #465B68 .75pt; mso-padding-alt: 6.0pt 6.0pt 6.0pt 6.0pt; padding: 0cm;">
<b><span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Note:</span></b><span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;"> It is
irrelevant whether the grantee uses the grant as an operating subsidy or for
capital purposes.<o:p></o:p></span></div>
</div>
<ol start="2" type="I">
<ul type="circle">
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
payments to other funds except for quasi-external operating transactions<o:p></o:p></span></li>
</ul>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level1 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
Flows from Capital and Related Financing Activities</span></b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;"><o:p></o:p></span></li>
</ol>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 7.5pt; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm;">
<span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash flows from capital and related
financing activities include acquiring and disposing of capital assets,
borrowing money to acquire, construct or improve capital assets, repaying the
principal and interest amounts and paying for capital assets obtained from
vendors on credit.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 7.5pt; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm;">
<span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash <i>inflows</i> (proceeds)
from capital financing activities include:<o:p></o:p></span></div>
<ol start="3" type="I">
<ul type="circle">
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Receipts
from proceeds of issuing or refunding bonds and other short or long-term
borrowings used to acquire, construct or improve capital assets<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Receipts
from capital grants awarded to the governmental enterprise or other
contributions for capital assets<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Receipts
from contributions made by other governments, organizations or
individuals (gifts) for the specific purpose of defraying the cost of
acquiring, constructing or improving capital assets<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Receipts
from sales of capital assets and proceeds from insurance on capital
assets that are stolen or destroyed<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Receipts
from special assessments or property and other taxes levied for capital
purposes<o:p></o:p></span></li>
</ul>
</ol>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 7.5pt; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm;">
<span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash <i>outflows</i> (payments)
for capital financing activities include:<o:p></o:p></span></div>
<ol start="3" type="I">
<ul type="circle">
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Payments
to acquire, construct or improve capital assets<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Payments
on principal and interest or refunding on amounts borrowed for capital
assets<o:p></o:p></span></li>
</ul>
</ol>
<div style="background: #F0F5F8; border: solid #465B68 1.0pt; margin-left: 72.0pt; margin-right: 0cm; mso-border-alt: solid #465B68 .75pt; mso-element: para-border-div; padding: 11.0pt 11.0pt 11.0pt 11.0pt;">
<div class="MsoNormal" style="background: #F0F5F8; border: none; line-height: normal; margin-bottom: 15.0pt; margin-left: 0cm; margin-right: 0cm; margin-top: 9.0pt; mso-border-alt: solid #465B68 .75pt; mso-padding-alt: 11.0pt 11.0pt 11.0pt 11.0pt; padding: 0cm;">
<b><span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Note:</span></b><span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;"> Proceeds of a
refunding debt issue used to refund capital debt are reported in the capital
and related financing category. Likewise, subsequent principal and interest
payments on the refunding debt are also reported as cash outflows in the
capital and related financing category.<o:p></o:p></span></div>
</div>
<ol start="4" type="I">
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level1 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
Flows from Investing Activities</span></b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;"><o:p></o:p></span></li>
</ol>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 7.5pt; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm;">
<span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash flows from investing activities
include making and collecting loans (except program loans; see <a href="https://fmx.cpa.texas.gov/fmx/pubs/afrrptreq/gen_acct/index.php?section=cash_flow&page=classifying#number1"><b><span style="color: #016026;">Cash Flows from Operating Activities</span></b></a>) and
the acquisition and disposition of debt or equity instruments.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 7.5pt; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm;">
<span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash <i>inflows</i> (proceeds)
from investing activities include:<o:p></o:p></span></div>
<ol start="4" type="I">
<ul type="circle">
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Receipts
from collections of loans (except program loans) and sales of other
entities’ debt instruments (other than cash equivalents)<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Receipts
from sales of equity instruments and from returns of investment in those
instruments<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Receipts
of interest and dividends received as returns on loans (except program
loans), debt instruments of other entities, equity securities and cash
management or investment pools<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Receipts
from withdrawals on investment pools the governmental enterprise is not
using as demand accounts<o:p></o:p></span></li>
</ul>
</ol>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 7.5pt; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm;">
<span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash <i>outflows</i> (payments)
for investing activities include:<o:p></o:p></span></div>
<ol start="4" type="I">
<ul type="circle">
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Payments
for loan disbursements (except program loans) and acquisition of debt
instruments of other entities<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Payments
to acquire equity instruments<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: black; line-height: normal; mso-list: l5 level2 lfo6; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 72.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Payments
for deposits into investment pools the governmental enterprise is not
using as demand accounts<o:p></o:p></span></li>
</ul>
</ol>
<div class="MsoNormal" style="background: white; line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<br /></div>
<div class="MsoNormal" style="background: white; line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Benefits of cash
flow information<o:p></o:p></span></b></div>
<div class="MsoNormal" style="background: white; line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">A statement of cash flows, when used in conjunction
with the rest of the financial statements, provides information that enables
users to evaluate the changes in net assets of an entity, its financial
structure (including its liquidity and solvency) and its ability to affect the
amounts and timing of cash flows in order to adapt to changing circumstances
and opportunities. Cash flow information is useful in assessing the ability of
the entity to generate cash and cash equivalents and enables users to develop
models to assess and compare the present value of the future cash flows of
different entities. It also enhances the comparability of the reporting of
operating performance by different entities because it eliminates the effects
of using different accounting treatments for the same transactions and events. <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">5 Historical cash flow information is often used as
an indicator of the amount, timing and certainty of future cash flows. It is
also useful in checking the accuracy of past assessments of future cash flows
and in examining the relationship between profitability and net cash flow and
the impact of changing prices</span><b style="mso-bidi-font-weight: normal;"><span style="color: black; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;"><o:p></o:p></span></b></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 2;">
<br /></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 2;">
<br /></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 2;">
<span style="color: #111111; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash Flow in the Financial Statement<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; mso-margin-bottom-alt: auto;">
<span style="color: #111111; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">The cash flow statement is one of the three main financial statements
that show the state of a company's financial health. The other two important
statements are the <a href="https://www.investopedia.com/terms/b/balancesheet.asp"><span style="color: #2c40d0;">balance sheet</span></a> and income statement. The
balance sheet shows the assets and liabilities as well as shareholder equity at
a particular date. Also known as the profit and loss statement, the <a href="https://www.investopedia.com/terms/i/incomestatement.asp"><span style="color: #2c40d0;">income statement</span></a> focuses on business
income and expenses. The cash flow statement measures the cash generated or
used by a company during a given period. The cash flow statement has three
sections:<o:p></o:p></span></div>
<ol start="1" type="1">
<li class="MsoNormal" style="background: white; color: #111111; line-height: normal; mso-list: l2 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;"><a href="https://www.investopedia.com/terms/c/cash-flow-from-operating-activities.asp"><span style="color: #2c40d0;">Cash flow from operating</span></a> (CFO)
indicates the amount of cash that a company brings in from its regular
business activities or operations. This section includes accounts
receivable, accounts payable, amortization, depreciation, and other items.<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: #111111; line-height: normal; mso-list: l2 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;"><a href="https://www.investopedia.com/terms/c/cashflowfinvestingactivities.asp"><span style="color: #2c40d0;">Cash flow from investing</span></a> (CFI)
reflects a company's purchases and sales of capital assets. CFI reports
the aggregate change in the business cash position as a result of profits
and losses from investments in items like plant and equipment. These items
are considered long-term investments in the business.<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: #111111; line-height: normal; mso-list: l2 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Cash
flow from financing activities (CFF) measures the movement of cash between
a firm and its owners, investors, and creditors. This report shows the net
flow of funds used to run the company including debt, equity, and
dividends.<o:p></o:p></span></li>
</ol>
<div class="MsoNormal" style="background: white; line-height: normal; mso-margin-bottom-alt: auto;">
<span style="color: #111111; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Investors can also get information about CFF activities from the balance
sheet’s equity and long-term debt sections and possibly the footnotes.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 2;">
<span style="color: #111111; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Capital From Debt or Equity<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; mso-margin-bottom-alt: auto;">
<span style="color: #111111; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">CFF indicates the means through which a company raises cash to maintain
or grow its operations. A company's source of capital can be from either debt
or equity. When a company takes on debt, it typically does so by issuing bonds
or taking a loan from the bank. Either way, it must make interest payments to
its bondholders and creditors to compensate them for loaning their money.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; mso-margin-bottom-alt: auto;">
<span style="color: #111111; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">When a company goes through the equity route, it issues stock to
investors who purchase the stock for a share in the company. Some companies
make dividend payments to shareholders, which represents a <a href="https://www.investopedia.com/terms/c/costofequity.asp"><span style="color: #2c40d0;">cost of equity</span></a> for the firm.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 2;">
<span style="color: #111111; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Positive and Negative CFF<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; mso-margin-bottom-alt: auto;">
<span style="color: #111111; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Debt and equity financing are reflected in the cash flow from financing
section, which varies with the different <a href="https://www.investopedia.com/terms/c/capitalstructure.asp"><span style="color: #2c40d0;">capital structures</span></a>, dividend policies, or debt
terms that companies may have.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 3;">
<span style="color: #111111; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Transactions That Cause Positive Cash
Flow From Financing Activities<o:p></o:p></span></div>
<ul type="disc">
<li class="MsoNormal" style="background: white; color: #111111; line-height: normal; mso-list: l4 level1 lfo2; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Issuing
equity or stock, which is sold to investors<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: #111111; line-height: normal; mso-list: l4 level1 lfo2; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Borrowing
debt from a creditor or bank<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: #111111; line-height: normal; mso-list: l4 level1 lfo2; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Issuing
bonds, which is debt that investors purchase<o:p></o:p></span></li>
</ul>
<div class="MsoNormal" style="background: white; line-height: normal; mso-margin-bottom-alt: auto;">
<span style="color: #111111; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">A positive number for cash flow from financing activities means more
money is flowing into the company than flowing out, which increases the
company’s assets.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 3;">
<span style="color: #111111; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Transactions That Cause Negative Cash
Flow From Financing Activities<o:p></o:p></span></div>
<ul type="disc">
<li class="MsoNormal" style="background: white; color: #111111; line-height: normal; mso-list: l3 level1 lfo3; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Transactions
That Cause Negative Cash Flow From Financing Activities<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: #111111; line-height: normal; mso-list: l3 level1 lfo3; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Stock
repurchases<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: #111111; line-height: normal; mso-list: l3 level1 lfo3; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Dividends<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: #111111; line-height: normal; mso-list: l3 level1 lfo3; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Paying
down debt<o:p></o:p></span></li>
<li class="MsoNormal" style="background: #F8F9FA; color: #57595d; line-height: normal; mso-list: l3 level1 lfo3; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">repayment
of long-term debt<o:p></o:p></span></li>
<li class="MsoNormal" style="background: #F8F9FA; color: #57595d; line-height: normal; mso-list: l3 level1 lfo3; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">principal
repayments of <a href="https://corporatefinanceinstitute.com/resources/knowledge/accounting/capital-lease-vs-operating-lease/" title=""><span style="color: #fa621c; text-decoration: none; text-underline: none;">capital lease</span></a> obligations<o:p></o:p></span></li>
<li class="MsoNormal" style="background: #F8F9FA; color: #57595d; line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-list: l3 level1 lfo3; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">principal repayments of finance lease
obligations<o:p></o:p></span></li>
<li class="MsoNormal" style="background: white; color: #111111; line-height: normal; mso-list: l3 level1 lfo3; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;"><o:p> </o:p></span></li>
</ul>
<div class="MsoNormal" style="background: white; line-height: normal; mso-margin-bottom-alt: auto;">
<span style="color: #111111; font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-IN;">Negative CFF numbers can mean the company is servicing debt, but can
also mean the company is retiring debt or making dividend payments and stock
repurchases, which investors might be glad to see.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 107%;">Foreign currency cash flows <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 107%;"><span style="mso-spacerun: yes;"> </span>Cash flows
arising from transactions in a foreign currency shall be recorded in an
entity’s functional currency by applying to the foreign currency amount the
exchange rate between the functional currency and the foreign currency at the
date of the cash flow. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 107%;">The cash flows of a foreign subsidiary shall be
translated at the exchange rates between the functional currency and the
foreign currency at the dates of the cash flows.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 107%;">(Here functional currency can be explained with an
example - If India trades with Canada the two currencies involved are Canadian
dollar and Indian Rupee. The Indian rupee is the functional currency)<o:p></o:p></span></div>
<br /></div>
musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com0tag:blogger.com,1999:blog-1315755092560562336.post-65142373026374319222020-06-08T06:26:00.000-07:002020-06-08T06:26:03.162-07:00Carrying Amount of an asset- FRA notes<div dir="ltr" style="text-align: left;" trbidi="on">
<h2 style="background-color: #f8f9fa; box-sizing: border-box; color: #132e57; display: inline-block; font-family: "Open Sans", -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Helvetica, Arial, sans-serif; font-size: 2.125rem; line-height: 1.25; margin: 0px 0px 48px; position: relative;">
What is the Carrying Amount?</h2>
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The carrying amount is the value of an asset as reflected in a company’s book or <span style="box-sizing: border-box;"><a class="tooltip-shortcode" data-original-title="" href="https://corporatefinanceinstitute.com/resources/knowledge/accounting/balance-sheet/" style="box-sizing: border-box; color: #fa621c; outline: none; text-decoration-line: none; transition: all 0.2s ease 0s; white-space: nowrap;" title="">balance sheet</a></span>, minus the depreciation value of the asset. It is also called book value and is not necessarily the same as an asset’s <span style="box-sizing: border-box;"><a class="tooltip-shortcode" data-original-title="" href="https://corporatefinanceinstitute.com/resources/knowledge/finance/fair-value/" style="box-sizing: border-box; color: #fa621c; outline: none; text-decoration-line: none; transition: all 0.2s ease 0s; white-space: nowrap;" title="">fair value</a></span> or market value.</div>
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<img alt="Carrying Amount" class="aligncenter wp-image-24973 size-large" height="71" sizes="(max-width: 1024px) 100vw, 1024px" src="https://cdn.corporatefinanceinstitute.com/assets/carrying-amount3-1024x71.png" srcset="https://cdn.corporatefinanceinstitute.com/assets/carrying-amount3-1024x71.png 1024w, /assets/carrying-amount3-300x21.png 300w, /assets/carrying-amount3-768x53.png 768w, /assets/carrying-amount3-1200x83.png 1200w, /assets/carrying-amount3-600x42.png 600w, /assets/carrying-amount3-24x2.png 24w, /assets/carrying-amount3-36x2.png 36w, /assets/carrying-amount3-48x3.png 48w, /assets/carrying-amount3.png 1488w" style="box-sizing: border-box; display: block; height: auto; margin: 0.5rem auto; max-width: 100%;" width="1024" /></div>
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Carrying Amount vs. Market Value</h3>
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Carrying amount and market value differ in many ways, as listed below:</div>
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<li style="box-sizing: border-box; display: block; margin-bottom: 1rem; padding-left: 2rem; position: relative;">Carrying amount is the value of an asset as it appears on the balance sheet and is acquired, after deducting its depreciation value and impairment expenses. The market value of an asset, on the other hand, depends on <span style="box-sizing: border-box;"><a class="tooltip-shortcode" data-original-title="" href="https://corporatefinanceinstitute.com/resources/knowledge/economics/supply-demand/" style="box-sizing: border-box; color: #fa621c; outline: none; text-decoration-line: none; transition: all 0.2s ease 0s; white-space: nowrap;" title="">supply and demand</a></span>, where if the demand is high, its value increases and if the demand is low, its value decreases.</li>
<li style="box-sizing: border-box; display: block; margin-bottom: 0px; padding-left: 2rem; position: relative;">Carrying amount is based on the gradual <span style="box-sizing: border-box;"><a class="tooltip-shortcode" data-original-title="" href="https://corporatefinanceinstitute.com/resources/knowledge/accounting/types-depreciation-methods/" style="box-sizing: border-box; color: #fa621c; outline: none; text-decoration-line: none; transition: all 0.2s ease 0s; white-space: nowrap;" title="">depreciation</a></span> of the value of a certain asset, which means that its value will change and decline through time. Market value is the value given to an asset when it is being sold in the open market.</li>
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Example of Carrying Amount</h3>
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Let’s say a company owns a tractor worth $80,000 to be used for developing its newest land property. The said tractor’s depreciation value is $3,000 per year and is expected to still be of use for 20 years. $3,000 for 20 years is $60,000. The carrying amount of the tractor is then $20,000.</div>
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<img alt="Carrying Amount" class="aligncenter wp-image-23957 size-large" height="156" sizes="(max-width: 1024px) 100vw, 1024px" src="https://cdn.corporatefinanceinstitute.com/assets/carrying-amount1-1024x156.png" srcset="https://cdn.corporatefinanceinstitute.com/assets/carrying-amount1-1024x156.png 1024w, /assets/carrying-amount1-300x46.png 300w, /assets/carrying-amount1-768x117.png 768w, /assets/carrying-amount1-600x91.png 600w, /assets/carrying-amount1-24x4.png 24w, /assets/carrying-amount1-36x5.png 36w, /assets/carrying-amount1-48x7.png 48w, /assets/carrying-amount1.png 1071w" style="box-sizing: border-box; display: block; height: auto; margin: 0.5rem auto; max-width: 100%;" width="1024" /></div>
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Example of Fair Value</h3>
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Given the same tractor, its fair value will depend on the supply and demand in the market. If at the time it was sold in the market, the demand for tractors is high, it can be priced higher than its carrying value. The opposite can also be true if the demand goes down. The price of the tractor can go up or down, depending on how much buyers are willing to give for it.</div>
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Carrying Value vs. Book Value</h3>
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Many people use the terms carrying value and book value differently. But what they don’t know is that both terms are ultimately the same thing. The term carrying value refers to the value of the asset that is carried over to the end of its life, combined with its depreciation value. On the other hand, the term book value refers to the actual purchase cost of the asset that is recorded in the company’s book or balance sheet.</div>
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How to Calculate for Carrying Amount</h3>
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It is a very simple task to calculate for carrying amount, as shown in the example above. But to make it clearer, let’s explain it below:</div>
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<li style="box-sizing: border-box; display: block; margin-bottom: 1rem; padding-left: 2rem; position: relative;">Take the original cost of purchasing the asset.</li>
<li style="box-sizing: border-box; display: block; margin-bottom: 1rem; padding-left: 2rem; position: relative;">Put together the depreciation cost for each year and multiply it with the number of years that the asset will be of use.</li>
<li style="box-sizing: border-box; display: block; margin-bottom: 0px; padding-left: 2rem; position: relative;">Subtract the product from the original purchase price to get the carrying amount.</li>
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Depreciation in the Carrying Amount</h3>
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Depreciation is the lowering of the value of a tangible asset because of wear and tear. Tangible assets include buildings, equipment, furniture, and vehicles. One of the easiest and most commonly accepted methods of computing for depreciation is the <span style="box-sizing: border-box;"><a class="tooltip-shortcode" data-original-title="" href="https://corporatefinanceinstitute.com/resources/knowledge/accounting/straight-line-depreciation/" style="box-sizing: border-box; color: #fa621c; outline: none; text-decoration-line: none; transition: all 0.2s ease 0s; white-space: nowrap;" title="">straight-line depreciation method</a></span>. Using the straight-line method, the same depreciation value is copied for every year, such as what was done in the above example wherein if the depreciation value for the first year is $3,000, it would be the same value for the succeeding years.</div>
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The other method is the <span style="box-sizing: border-box;"><a class="tooltip-shortcode" data-original-title="" href="https://corporatefinanceinstitute.com/resources/knowledge/accounting/double-declining-balance-depreciation/" style="box-sizing: border-box; color: #fa621c; outline: none; text-decoration-line: none; transition: all 0.2s ease 0s; white-space: nowrap;" title="">double-declining balance depreciation method</a></span>, which is otherwise known as the 200% declining balance method. With the DDB method, the depreciation is faster than that of straight-line but will not make the depreciation value any bigger. It just means that depreciation is bigger in the early years but smaller in the later years.</div>
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musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com0tag:blogger.com,1999:blog-1315755092560562336.post-87992315009590945262020-05-11T07:03:00.001-07:002020-05-11T07:03:56.710-07:00COST ACCOUNTING THEORY QUESTIONS<div dir="ltr" style="text-align: left;" trbidi="on">
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Difference between periodic and
perpetual inventory systems. What are the advantages and drawbacks of each ?<o:p></o:p></div>
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What do you understand by
escalation clause and cost + contract in cost accounting?<o:p></o:p></div>
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What are the advantages of
introducing costing system in an industrial organisation?<o:p></o:p></div>
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What is idle time? Do a 360 degree
appraisal of idle time. How is it treated in cost accounting?<o:p></o:p></div>
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What are the reasons for
disagreements of profits as per FA and CA? Explain<o:p></o:p></div>
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What are the causes of under/over
absorption of WOHs? How are they treated in CA?<o:p></o:p></div>
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Differentiate between controllable
and non controllable costs<o:p></o:p></div>
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What is the role of a cost
accountant in a manufacturing organisation ?<o:p></o:p></div>
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Explain normal and abnormal process
loss. How are they treated in Cost accounting?<o:p></o:p></div>
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What is labour turnover? What are
its causes ?<o:p></o:p></div>
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Enumerate the different methods of
absorption of WOH<o:p></o:p></div>
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Why is reconciliation of profits
required between cost and FA ?<o:p></o:p></div>
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Limitation of FA has given rise to
CA. Do you agree? Why/Why not?<o:p></o:p></div>
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I have come across this very
interesting question to check your knowledge on pricing of material<o:p></o:p></div>
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March 2020
Receipts
Issues<o:p></o:p></div>
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Qty
Value ( Rs)
Qty
Value ( Rs)<o:p></o:p></div>
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5
500
1600
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8
200
1200
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12
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350
1400<o:p></o:p></div>
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17
250
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20
200
2400
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25
500
3000<o:p></o:p></div>
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26
500
4000<o:p></o:p></div>
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30
400
2900<o:p></o:p></div>
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Find the method and complete the
stores ledger<o:p></o:p></div>
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musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com0tag:blogger.com,1999:blog-1315755092560562336.post-86248886780541487462020-05-05T22:27:00.000-07:002020-05-05T22:27:39.390-07:00Cost Accounting MCQs<div dir="ltr" style="text-align: left;" trbidi="on">
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1.</div>
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Basic objective of cost accounting is ________</div>
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<label for="poll-29549-2" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">B.</label><input id="poll-29549-2" name="poll-radio-29549" style="cursor: pointer; display: block; float: left; font-family: "Open Sans", Arial, sans-serif; font-size: inherit; line-height: inherit; margin-left: 10px; margin-right: 10px; margin-top: 5px; outline: none; padding: 0px; width: auto;" type="radio" /><label for="poll-29549-2" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">financial audit.</label></div>
<div style="border: 0px; box-sizing: border-box; display: flex; float: none; font-family: inherit; font-size: 1em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: 22.4px; line-height: 1.6em; margin-bottom: 20px; outline: none; overflow: hidden; padding: 0px; vertical-align: baseline; width: 737px;">
<label for="poll-29549-3" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">C.</label><input id="poll-29549-3" name="poll-radio-29549" style="cursor: pointer; display: block; float: left; font-family: "Open Sans", Arial, sans-serif; font-size: inherit; line-height: inherit; margin-left: 10px; margin-right: 10px; margin-top: 5px; outline: none; padding: 0px; width: auto;" type="radio" /><label for="poll-29549-3" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">cost ascertainment.</label></div>
<div style="border: 0px; box-sizing: border-box; display: flex; float: none; font-family: inherit; font-size: 1em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: 22.4px; line-height: 1.6em; margin-bottom: 20px; outline: none; overflow: hidden; padding: 0px; vertical-align: baseline; width: 737px;">
<label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">D.</label><input id="poll-29549-4" name="poll-radio-29549" style="cursor: pointer; display: block; float: left; font-family: "Open Sans", Arial, sans-serif; font-size: inherit; line-height: inherit; margin-left: 10px; margin-right: 10px; margin-top: 5px; outline: none; padding: 0px; width: auto;" type="radio" /><label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">profit analysis.</label><label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"><br /></label><label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"><br /></label><label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"><br /></label><label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"><br /></label><label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"><br /></label><label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"> </label><label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"><br /></label><label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"><br /></label><label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"><br /></label><label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"><br /></label><label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"><br /></label><label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"><br /></label><label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"><br /></label><label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"><br /></label><label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"><br /></label><label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"><br /></label><label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"><br /></label></div>
<h2 style="border: 0px; box-sizing: border-box; color: black; font-size: 1.3em; font-stretch: inherit; font-variant-east-asian: inherit; font-variant-numeric: inherit; line-height: 28px; margin: 0px 0px 15px 20px; outline: none; overflow: hidden; padding: 0px 40px 0px 0px; vertical-align: baseline;">
<div class="question-number" style="border: 0px; box-sizing: border-box; float: left; font: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline; width: 30px;">
2.</div>
<div class="question-main" style="border: 0px; box-sizing: border-box; font: inherit; margin: 0px; outline: none; padding: 0px 0px 0px 30px; user-select: none; vertical-align: baseline;">
Process costing is suitable for ________.</div>
</h2>
<div style="border: 0px; box-sizing: border-box; display: flex; float: none; font-family: inherit; font-size: 1em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: 22.4px; line-height: 1.6em; margin-bottom: 20px; outline: none; overflow: hidden; padding: 0px; vertical-align: baseline; width: 737px;">
<label for="poll-29549-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"></label></div>
<div class="question-inner" style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant-east-asian: inherit; font-variant-numeric: inherit; line-height: inherit; margin: 40px 0px 0px; outline: none; padding: 0px 10px 0px 25px; position: relative; vertical-align: baseline;">
<div class="form-style form-style-3" style="border: 0px; box-sizing: border-box; font: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">
<div class="form-inputs clearfix question-options" style="border: 0px; box-sizing: border-box; font: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">
<div style="border: 0px; box-sizing: border-box; display: flex; float: none; font-family: inherit; font-size: 1em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: 22.4px; line-height: 1.6em; margin-bottom: 20px; outline: none; overflow: hidden; padding: 0px; vertical-align: baseline; width: 737px;">
<label class="color" for="poll-29555-1" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">A.</label><input id="poll-29555-1" name="poll-radio-29555" style="cursor: pointer; display: block; float: left; font-family: "Open Sans", Arial, sans-serif; font-size: inherit; line-height: inherit; margin-left: 10px; margin-right: 10px; margin-top: 5px; outline: none; padding: 0px; width: auto;" type="radio" /><label for="poll-29555-1" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">hospitals</label></div>
<div style="border: 0px; box-sizing: border-box; display: flex; float: none; font-family: inherit; font-size: 1em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: 22.4px; line-height: 1.6em; margin-bottom: 20px; outline: none; overflow: hidden; padding: 0px; vertical-align: baseline; width: 737px;">
<label for="poll-29555-2" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">B.</label><input id="poll-29555-2" name="poll-radio-29555" style="cursor: pointer; display: block; float: left; font-family: "Open Sans", Arial, sans-serif; font-size: inherit; line-height: inherit; margin-left: 10px; margin-right: 10px; margin-top: 5px; outline: none; padding: 0px; width: auto;" type="radio" /><label for="poll-29555-2" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">oil refing firms</label></div>
<div style="border: 0px; box-sizing: border-box; display: flex; float: none; font-family: inherit; font-size: 1em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: 22.4px; line-height: 1.6em; margin-bottom: 20px; outline: none; overflow: hidden; padding: 0px; vertical-align: baseline; width: 737px;">
<label for="poll-29555-3" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">C.</label><input id="poll-29555-3" name="poll-radio-29555" style="cursor: pointer; display: block; float: left; font-family: "Open Sans", Arial, sans-serif; font-size: inherit; line-height: inherit; margin-left: 10px; margin-right: 10px; margin-top: 5px; outline: none; padding: 0px; width: auto;" type="radio" /><label for="poll-29555-3" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">transport firms</label></div>
<div style="border: 0px; box-sizing: border-box; display: flex; float: none; font-family: inherit; font-size: 1em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: 22.4px; line-height: 1.6em; margin-bottom: 20px; outline: none; overflow: hidden; padding: 0px; vertical-align: baseline; width: 737px;">
<label for="poll-29555-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">D.</label><input id="poll-29555-4" name="poll-radio-29555" style="cursor: pointer; display: block; float: left; font-family: "Open Sans", Arial, sans-serif; font-size: inherit; line-height: inherit; margin-left: 10px; margin-right: 10px; margin-top: 5px; outline: none; padding: 0px; width: auto;" type="radio" /><label for="poll-29555-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">brick laying firms</label></div>
<h2 style="border: 0px; box-sizing: border-box; color: black; font-size: 1.3em; font-stretch: inherit; font-variant-east-asian: inherit; font-variant-numeric: inherit; line-height: 28px; margin: 0px 0px 15px 20px; outline: none; overflow: hidden; padding: 0px 40px 0px 0px; vertical-align: baseline;">
<div class="question-number" style="border: 0px; box-sizing: border-box; float: left; font: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline; width: 30px;">
3.</div>
<div class="question-main" style="border: 0px; box-sizing: border-box; font: inherit; margin: 0px; outline: none; padding: 0px 0px 0px 30px; user-select: none; vertical-align: baseline;">
Cost classification can be done in ________.</div>
</h2>
<div style="border: 0px; box-sizing: border-box; display: flex; float: none; font-family: inherit; font-size: 1em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: 22.4px; line-height: 1.6em; margin-bottom: 20px; outline: none; overflow: hidden; padding: 0px; vertical-align: baseline; width: 737px;">
<label for="poll-29555-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"></label></div>
<div class="question-inner" style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant-east-asian: inherit; font-variant-numeric: inherit; line-height: inherit; margin: 40px 0px 0px; outline: none; padding: 0px 10px 0px 25px; position: relative; vertical-align: baseline;">
<div class="form-style form-style-3" style="border: 0px; box-sizing: border-box; font: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">
<div class="form-inputs clearfix question-options" style="border: 0px; box-sizing: border-box; font: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">
<div style="border: 0px; box-sizing: border-box; display: flex; float: none; font-family: inherit; font-size: 1em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: 22.4px; line-height: 1.6em; margin-bottom: 20px; outline: none; overflow: hidden; padding: 0px; vertical-align: baseline; width: 737px;">
<label class="color" for="poll-29556-1" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">A.</label><input id="poll-29556-1" name="poll-radio-29556" style="cursor: pointer; display: block; float: left; font-family: "Open Sans", Arial, sans-serif; font-size: inherit; line-height: inherit; margin-left: 10px; margin-right: 10px; margin-top: 5px; outline: none; padding: 0px; width: auto;" type="radio" /><label for="poll-29556-1" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">two ways</label></div>
<div style="border: 0px; box-sizing: border-box; display: flex; float: none; font-family: inherit; font-size: 1em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: 22.4px; line-height: 1.6em; margin-bottom: 20px; outline: none; overflow: hidden; padding: 0px; vertical-align: baseline; width: 737px;">
<label for="poll-29556-2" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">B.</label><input id="poll-29556-2" name="poll-radio-29556" style="cursor: pointer; display: block; float: left; font-family: "Open Sans", Arial, sans-serif; font-size: inherit; line-height: inherit; margin-left: 10px; margin-right: 10px; margin-top: 5px; outline: none; padding: 0px; width: auto;" type="radio" /><label for="poll-29556-2" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">three ways</label></div>
<div style="border: 0px; box-sizing: border-box; display: flex; float: none; font-family: inherit; font-size: 1em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: 22.4px; line-height: 1.6em; margin-bottom: 20px; outline: none; overflow: hidden; padding: 0px; vertical-align: baseline; width: 737px;">
<label for="poll-29556-3" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">C.</label><input id="poll-29556-3" name="poll-radio-29556" style="cursor: pointer; display: block; float: left; font-family: "Open Sans", Arial, sans-serif; font-size: inherit; line-height: inherit; margin-left: 10px; margin-right: 10px; margin-top: 5px; outline: none; padding: 0px; width: auto;" type="radio" /><label for="poll-29556-3" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">four ways</label></div>
<div style="border: 0px; box-sizing: border-box; display: flex; float: none; font-family: inherit; font-size: 1em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: 22.4px; line-height: 1.6em; margin-bottom: 20px; outline: none; overflow: hidden; padding: 0px; vertical-align: baseline; width: 737px;">
<label for="poll-29556-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">D.</label><input id="poll-29556-4" name="poll-radio-29556" style="cursor: pointer; display: block; float: left; font-family: "Open Sans", Arial, sans-serif; font-size: inherit; line-height: inherit; margin-left: 10px; margin-right: 10px; margin-top: 5px; outline: none; padding: 0px; width: auto;" type="radio" /><label for="poll-29556-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;">several ways</label><label for="poll-29556-4" style="border: 0px; box-sizing: border-box; color: #222222; cursor: pointer; display: block; float: left; font-size: 1.2em; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: 700; line-height: inherit; margin: 0px; outline: none; padding: 0px; vertical-align: baseline;"><br /></label></div>
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musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com0tag:blogger.com,1999:blog-1315755092560562336.post-44648985422899783542020-05-05T06:55:00.002-07:002020-05-05T06:55:37.108-07:00FRA Objective Tyoe questions<div dir="ltr" style="text-align: left;" trbidi="on">
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<tr align="left" valign="top"><td align="left" rowspan="2" valign="top"><h2 class="nostyle_inline" style="display: inline; font-size: 1em; font-weight: normal; margin: 0px; padding: 0px;">
<span class="multiChoiceQuestion" style="color: #353534; font-size: 13px; font-weight: 600;">International Accounting Standards (IAS) have been developed by:</span></h2>
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<tr align="left" valign="top"><td align="left" valign="top"> </td><td align="left" valign="top"><table border="0" cellpadding="0" cellspacing="5"><tbody>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214056_1" name="answer_3214056" type="radio" value="1" /> </td><td align="left" valign="top"><label for="answer_3214056_1"><span class="multiChoiceAnswer" style="font-size: 12px;">The European Commission</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214056_2" name="answer_3214056" type="radio" value="0" /> </td><td align="left" valign="top"><label for="answer_3214056_2"><span class="multiChoiceAnswer" style="font-size: 12px;">The International Accounting Standards Committee</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214056_3" name="answer_3214056" type="radio" value="2" /> </td><td align="left" valign="top"><label for="answer_3214056_3"><span class="multiChoiceAnswer" style="font-size: 12px;">The International Organisation of Securities Commission (IOSCO)</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214056_4" name="answer_3214056" type="radio" value="3" /> </td><td align="left" valign="top"><label for="answer_3214056_4"><span class="multiChoiceAnswer" style="font-size: 12px;">The Financial Reporting Council</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214056_5" name="answer_3214056" type="radio" value="4" /> </td><td align="left" valign="top"><label for="answer_3214056_5"><span class="multiChoiceAnswer" style="font-size: 12px;">None of the above is correct</span></label></td></tr>
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<span class="multiChoiceQuestion" style="color: #353534; font-size: 13px; font-weight: 600;">The body that has superseded the International Accounting Standards Committee is the:</span></h2>
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<tr align="left" valign="top"><td align="left" valign="top"> </td><td align="left" valign="top"><table border="0" cellpadding="0" cellspacing="5"><tbody>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214058_1" name="answer_3214058" type="radio" value="0" /> </td><td align="left" valign="top"><label for="answer_3214058_1"><span class="multiChoiceAnswer" style="font-size: 12px;">International Accounting Standards Commission</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214058_2" name="answer_3214058" type="radio" value="2" /> </td><td align="left" valign="top"><label for="answer_3214058_2"><span class="multiChoiceAnswer" style="font-size: 12px;">International Financial Reporting Board</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214058_3" name="answer_3214058" type="radio" value="3" /> </td><td align="left" valign="top"><label for="answer_3214058_3"><span class="multiChoiceAnswer" style="font-size: 12px;">International Financial Reporting Council</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214058_4" name="answer_3214058" type="radio" value="1" /> </td><td align="left" valign="top"><label for="answer_3214058_4"><span class="multiChoiceAnswer" style="font-size: 12px;">International Accounting Standards Board</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214058_5" name="answer_3214058" type="radio" value="4" /> </td><td align="left" valign="top"><label for="answer_3214058_5"><span class="multiChoiceAnswer" style="font-size: 12px;">None of the above is correct</span></label></td></tr>
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<span class="multiChoiceQuestion" style="color: #353534; font-size: 13px; font-weight: 600;">According to the IASB Framework, the main purpose of financial reporting is to:</span></h2>
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<tr align="left" valign="top"><td align="left" valign="top"> </td><td align="left" valign="top"><table border="0" cellpadding="0" cellspacing="5"><tbody>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214059_1" name="answer_3214059" type="radio" value="2" /> </td><td align="left" valign="top"><label for="answer_3214059_1"><span class="multiChoiceAnswer" style="font-size: 12px;">Help the managers to run the business</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214059_2" name="answer_3214059" type="radio" value="3" /> </td><td align="left" valign="top"><label for="answer_3214059_2"><span class="multiChoiceAnswer" style="font-size: 12px;">Calculate taxable income</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214059_3" name="answer_3214059" type="radio" value="0" /> </td><td align="left" valign="top"><label for="answer_3214059_3"><span class="multiChoiceAnswer" style="font-size: 12px;">Enable investors to make economic decisions</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214059_4" name="answer_3214059" type="radio" value="1" /> </td><td align="left" valign="top"><label for="answer_3214059_4"><span class="multiChoiceAnswer" style="font-size: 12px;">Calculate prudently distributable profit</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214059_5" name="answer_3214059" type="radio" value="4" /> </td><td align="left" valign="top"><label for="answer_3214059_5"><span class="multiChoiceAnswer" style="font-size: 12px;">None of the above is correct</span></label></td></tr>
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<span class="multiChoiceQuestion" style="color: #353534; font-size: 13px; font-weight: 600;">According to the IASB Framework:</span></h2>
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<tr align="left" valign="top"><td align="left" valign="top"> </td><td align="left" valign="top"><table border="0" cellpadding="0" cellspacing="5"><tbody>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214060_1" name="answer_3214060" type="radio" value="3" /> </td><td align="left" valign="top"><label for="answer_3214060_1"><span class="multiChoiceAnswer" style="font-size: 12px;">Prudence overrides relevance</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214060_2" name="answer_3214060" type="radio" value="0" /> </td><td align="left" valign="top"><label for="answer_3214060_2"><span class="multiChoiceAnswer" style="font-size: 12px;">Relevance and reliability must be maximized, with a trade-off when they conflict</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214060_3" name="answer_3214060" type="radio" value="4" /> </td><td align="left" valign="top"><label for="answer_3214060_3"><span class="multiChoiceAnswer" style="font-size: 12px;">Relevance overrides reliability</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214060_4" name="answer_3214060" type="radio" value="2" /> </td><td align="left" valign="top"><label for="answer_3214060_4"><span class="multiChoiceAnswer" style="font-size: 12px;">Reliability overrides relevance</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214060_5" name="answer_3214060" type="radio" value="1" /> </td><td align="left" valign="top"><label for="answer_3214060_5"><span class="multiChoiceAnswer" style="font-size: 12px;">The relative importance of the characteristics in different cases is a matter of professional judgement</span></label></td></tr>
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</td><td align="center" height="9" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td></tr>
<tr align="center" valign="middle"><td align="left" height="9" valign="bottom"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"></td><td align="right" height="9" valign="bottom"><img alt="End of Question 6" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_right.gif" vspace="0" width="9" /></td></tr>
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<tr align="center" valign="middle"><td align="left" height="9" valign="top" width="10"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="right" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_right.gif" vspace="0" width="9" /></td></tr>
<tr align="center" valign="middle"><td align="center" height="8" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="center" valign="top"><table border="0" cellpadding="0" cellspacing="3" class="problemTypeBkgd" style="width: 100%px;"><tbody>
<tr align="left" valign="top"><td height="1"></td><td align="left" rowspan="2" valign="top"><h2 class="nostyle_inline" style="display: inline; font-size: 1em; font-weight: normal; margin: 0px; padding: 0px;">
<img alt="Question 7." border="0" height="5" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /><br /><span class="multiChoiceQuestion" style="color: #353534; font-size: 13px; font-weight: 600;">The convention of consistency refers to consistent use of accounting principles:</span></h2>
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<tr align="left" valign="top"><td align="left" valign="top"> </td><td align="left" valign="top"><table border="0" cellpadding="0" cellspacing="5"><tbody>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214061_1" name="answer_3214061" type="radio" value="1" /> </td><td align="left" valign="top"><label for="answer_3214061_1"><span class="multiChoiceAnswer" style="font-size: 12px;">Among enterprises belonging to different industries</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214061_2" name="answer_3214061" type="radio" value="2" /> </td><td align="left" valign="top"><label for="answer_3214061_2"><span class="multiChoiceAnswer" style="font-size: 12px;">Within industries</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214061_3" name="answer_3214061" type="radio" value="0" /> </td><td align="left" valign="top"><label for="answer_3214061_3"><span class="multiChoiceAnswer" style="font-size: 12px;">Across accounting periods</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214061_4" name="answer_3214061" type="radio" value="3" /> </td><td align="left" valign="top"><label for="answer_3214061_4"><span class="multiChoiceAnswer" style="font-size: 12px;">Throughout the accounting period</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214061_5" name="answer_3214061" type="radio" value="4" /> </td><td align="left" valign="top"><label for="answer_3214061_5"><span class="multiChoiceAnswer" style="font-size: 12px;">None of the above is correct</span></label></td></tr>
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</td><td align="center" height="9" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td></tr>
<tr align="center" valign="middle"><td align="left" height="9" valign="bottom"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"></td><td align="right" height="9" valign="bottom"><img alt="End of Question 7" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_right.gif" vspace="0" width="9" /></td></tr>
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<br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><table border="0" cellpadding="0" cellspacing="0" class="problemTypeBkgd" style="background-color: #f5f3f3; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic; width: 100%px;"><tbody>
<tr align="center" valign="middle"><td align="left" height="9" valign="top" width="10"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="right" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_right.gif" vspace="0" width="9" /></td></tr>
<tr align="center" valign="middle"><td align="center" height="8" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="center" valign="top"><table border="0" cellpadding="0" cellspacing="3" class="problemTypeBkgd" style="width: 100%px;"><tbody>
<tr align="left" valign="top"><td height="1"></td><td align="left" rowspan="2" valign="top"><h2 class="nostyle_inline" style="display: inline; font-size: 1em; font-weight: normal; margin: 0px; padding: 0px;">
<img alt="Question 8." border="0" height="5" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /><br /><span class="multiChoiceQuestion" style="color: #353534; font-size: 13px; font-weight: 600;">The charging of depreciation expense over the life of an asset rather than the immediate full expensing of its costs is an example of:</span></h2>
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<tr align="left" valign="top"><td align="left" valign="top"> </td><td align="left" valign="top"><table border="0" cellpadding="0" cellspacing="5"><tbody>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214062_1" name="answer_3214062" type="radio" value="2" /> </td><td align="left" valign="top"><label for="answer_3214062_1"><span class="multiChoiceAnswer" style="font-size: 12px;">Reliability</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214062_2" name="answer_3214062" type="radio" value="1" /> </td><td align="left" valign="top"><label for="answer_3214062_2"><span class="multiChoiceAnswer" style="font-size: 12px;">Prudence</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214062_3" name="answer_3214062" type="radio" value="3" /> </td><td align="left" valign="top"><label for="answer_3214062_3"><span class="multiChoiceAnswer" style="font-size: 12px;">Consistency</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214062_4" name="answer_3214062" type="radio" value="0" /> </td><td align="left" valign="top"><label for="answer_3214062_4"><span class="multiChoiceAnswer" style="font-size: 12px;">Matching</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214062_5" name="answer_3214062" type="radio" value="4" /> </td><td align="left" valign="top"><label for="answer_3214062_5"><span class="multiChoiceAnswer" style="font-size: 12px;">None of the above is correct</span></label></td></tr>
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</td><td align="center" height="9" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td></tr>
<tr align="center" valign="middle"><td align="left" height="9" valign="bottom"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"></td><td align="right" height="9" valign="bottom"><img alt="End of Question 8" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_right.gif" vspace="0" width="9" /></td></tr>
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<br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><table border="0" cellpadding="0" cellspacing="0" class="problemTypeBkgd" style="background-color: #f5f3f3; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic; width: 100%px;"><tbody>
<tr align="center" valign="middle"><td align="left" height="9" valign="top" width="10"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="right" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_right.gif" vspace="0" width="9" /></td></tr>
<tr align="center" valign="middle"><td align="center" height="8" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="center" valign="top"><table border="0" cellpadding="0" cellspacing="3" class="problemTypeBkgd" style="width: 100%px;"><tbody>
<tr align="left" valign="top"><td height="1"></td><td align="left" rowspan="2" valign="top"><h2 class="nostyle_inline" style="display: inline; font-size: 1em; font-weight: normal; margin: 0px; padding: 0px;">
<img alt="Question 9." border="0" height="5" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /><br /><span class="multiChoiceQuestion" style="color: #353534; font-size: 13px; font-weight: 600;">Which of the following statements best describes the term 'going concern'?</span></h2>
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<tr align="left" valign="top"><td align="left" valign="top" width="60"></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"> </td><td align="left" valign="top"><table border="0" cellpadding="0" cellspacing="5"><tbody>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214063_1" name="answer_3214063" type="radio" value="0" /> </td><td align="left" valign="top"><label for="answer_3214063_1"><span class="multiChoiceAnswer" style="font-size: 12px;">The potential to contribute to the flow of cash and cash equivalents to the entity</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214063_2" name="answer_3214063" type="radio" value="3" /> </td><td align="left" valign="top"><label for="answer_3214063_2"><span class="multiChoiceAnswer" style="font-size: 12px;">The ability of the entity to continue in operation for the foreseeable future</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214063_3" name="answer_3214063" type="radio" value="2" /> </td><td align="left" valign="top"><label for="answer_3214063_3"><span class="multiChoiceAnswer" style="font-size: 12px;">When current assets less current liabilities become negative</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214063_4" name="answer_3214063" type="radio" value="1" /> </td><td align="left" valign="top"><label for="answer_3214063_4"><span class="multiChoiceAnswer" style="font-size: 12px;">The income less expenses of an entity are negative</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214063_5" name="answer_3214063" type="radio" value="4" /> </td><td align="left" valign="top"><label for="answer_3214063_5"><span class="multiChoiceAnswer" style="font-size: 12px;">None of the above is correct</span></label></td></tr>
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</td></tr>
</tbody></table>
</td><td align="center" height="9" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td></tr>
<tr align="center" valign="middle"><td align="left" height="9" valign="bottom"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"></td><td align="right" height="9" valign="bottom"><img alt="End of Question 9" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_right.gif" vspace="0" width="9" /></td></tr>
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<br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><table border="0" cellpadding="0" cellspacing="0" class="problemTypeBkgd" style="background-color: #f5f3f3; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic; width: 100%px;"><tbody>
<tr align="center" valign="middle"><td align="left" height="9" valign="top" width="10"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="right" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_right.gif" vspace="0" width="9" /></td></tr>
<tr align="center" valign="middle"><td align="center" height="8" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="center" valign="top"><table border="0" cellpadding="0" cellspacing="3" class="problemTypeBkgd" style="width: 100%px;"><tbody>
<tr align="left" valign="top"><td height="1"></td><td align="left" rowspan="2" valign="top"><h2 class="nostyle_inline" style="display: inline; font-size: 1em; font-weight: normal; margin: 0px; padding: 0px;">
<img alt="Question 10." border="0" height="5" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /><br /><span class="multiChoiceQuestion" style="color: #353534; font-size: 13px; font-weight: 600;">Which of the following statements is true of the qualitative characteristics of 'understandability' in relation to information in financial statements?</span></h2>
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<tr align="left" valign="top"><td align="left" valign="top" width="60"></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"> </td><td align="left" valign="top"><table border="0" cellpadding="0" cellspacing="5"><tbody>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214064_1" name="answer_3214064" type="radio" value="2" /> </td><td align="left" valign="top"><label for="answer_3214064_1"><span class="multiChoiceAnswer" style="font-size: 12px;">Users should be willing to study the information with reasonable diligence</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214064_2" name="answer_3214064" type="radio" value="0" /> </td><td align="left" valign="top"><label for="answer_3214064_2"><span class="multiChoiceAnswer" style="font-size: 12px;">Users are expected to have significant business knowledge</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214064_3" name="answer_3214064" type="radio" value="1" /> </td><td align="left" valign="top"><label for="answer_3214064_3"><span class="multiChoiceAnswer" style="font-size: 12px;">Financial statements should be free form material error</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214064_4" name="answer_3214064" type="radio" value="3" /> </td><td align="left" valign="top"><label for="answer_3214064_4"><span class="multiChoiceAnswer" style="font-size: 12px;">Financial statements should exclude complex matters</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214064_5" name="answer_3214064" type="radio" value="4" /> </td><td align="left" valign="top"><label for="answer_3214064_5"><span class="multiChoiceAnswer" style="font-size: 12px;">None of the above is correct</span></label></td></tr>
</tbody></table>
</td></tr>
</tbody></table>
</td><td align="center" height="9" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td></tr>
<tr align="center" valign="middle"><td align="left" height="9" valign="bottom"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"></td><td align="right" height="9" valign="bottom"><img alt="End of Question 10" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_right.gif" vspace="0" width="9" /></td></tr>
</tbody></table>
<br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><table border="0" cellpadding="0" cellspacing="0" class="problemTypeBkgd" style="background-color: #f5f3f3; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic; width: 100%px;"><tbody>
<tr align="center" valign="middle"><td align="left" height="9" valign="top" width="10"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="right" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_right.gif" vspace="0" width="9" /></td></tr>
<tr align="center" valign="middle"><td align="center" height="8" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="center" valign="top"><table border="0" cellpadding="0" cellspacing="3" class="problemTypeBkgd" style="width: 100%px;"><tbody>
<tr align="left" valign="top"><td height="1"></td><td align="left" rowspan="2" valign="top"><h2 class="nostyle_inline" style="display: inline; font-size: 1em; font-weight: normal; margin: 0px; padding: 0px;">
<img alt="Question 11." border="0" height="5" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /><br /><span class="multiChoiceQuestion" style="color: #353534; font-size: 13px; font-weight: 600;">Which of the following terms best describes information in financial statements that is neutral?</span></h2>
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<tr align="left" valign="top"><td align="left" valign="top" width="60"></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"> </td><td align="left" valign="top"><table border="0" cellpadding="0" cellspacing="5"><tbody>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214065_1" name="answer_3214065" type="radio" value="1" /> </td><td align="left" valign="top"><label for="answer_3214065_1"><span class="multiChoiceAnswer" style="font-size: 12px;">Reliable</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214065_2" name="answer_3214065" type="radio" value="2" /> </td><td align="left" valign="top"><label for="answer_3214065_2"><span class="multiChoiceAnswer" style="font-size: 12px;">Unbiased</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214065_3" name="answer_3214065" type="radio" value="0" /> </td><td align="left" valign="top"><label for="answer_3214065_3"><span class="multiChoiceAnswer" style="font-size: 12px;">Understandable</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214065_4" name="answer_3214065" type="radio" value="3" /> </td><td align="left" valign="top"><label for="answer_3214065_4"><span class="multiChoiceAnswer" style="font-size: 12px;">Relevant</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214065_5" name="answer_3214065" type="radio" value="4" /> </td><td align="left" valign="top"><label for="answer_3214065_5"><span class="multiChoiceAnswer" style="font-size: 12px;">None of the above is correct</span></label></td></tr>
</tbody></table>
</td></tr>
</tbody></table>
</td><td align="center" height="9" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td></tr>
<tr align="center" valign="middle"><td align="left" height="9" valign="bottom"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"></td><td align="right" height="9" valign="bottom"><img alt="End of Question 11" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_right.gif" vspace="0" width="9" /></td></tr>
</tbody></table>
<br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><table border="0" cellpadding="0" cellspacing="0" class="problemTypeBkgd" style="background-color: #f5f3f3; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic; width: 100%px;"><tbody>
<tr align="center" valign="middle"><td align="left" height="9" valign="top" width="10"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="right" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_right.gif" vspace="0" width="9" /></td></tr>
<tr align="center" valign="middle"><td align="center" height="8" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="center" valign="top"><table border="0" cellpadding="0" cellspacing="3" class="problemTypeBkgd" style="width: 100%px;"><tbody>
<tr align="left" valign="top"><td height="1"></td><td align="left" rowspan="2" valign="top"><h2 class="nostyle_inline" style="display: inline; font-size: 1em; font-weight: normal; margin: 0px; padding: 0px;">
<img alt="Question 12." border="0" height="5" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /><br /><span class="multiChoiceQuestion" style="color: #353534; font-size: 13px; font-weight: 600;">Which of the following terms best describes financial statements whose basis of accounting recognises transactions and other events when they occur?</span></h2>
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<tr align="left" valign="top"><td align="left" valign="top" width="60"></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"> </td><td align="left" valign="top"><table border="0" cellpadding="0" cellspacing="5"><tbody>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214066_1" name="answer_3214066" type="radio" value="1" /> </td><td align="left" valign="top"><label for="answer_3214066_1"><span class="multiChoiceAnswer" style="font-size: 12px;">Accrual basis of accounting</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214066_2" name="answer_3214066" type="radio" value="2" /> </td><td align="left" valign="top"><label for="answer_3214066_2"><span class="multiChoiceAnswer" style="font-size: 12px;">Going concern basis of accounting</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214066_3" name="answer_3214066" type="radio" value="3" /> </td><td align="left" valign="top"><label for="answer_3214066_3"><span class="multiChoiceAnswer" style="font-size: 12px;">Invoice basis of accounting</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214066_4" name="answer_3214066" type="radio" value="0" /> </td><td align="left" valign="top"><label for="answer_3214066_4"><span class="multiChoiceAnswer" style="font-size: 12px;">Cash basis of accounting</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214066_5" name="answer_3214066" type="radio" value="4" /> </td><td align="left" valign="top"><label for="answer_3214066_5"><span class="multiChoiceAnswer" style="font-size: 12px;">None of the above</span></label></td></tr>
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</td></tr>
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</td><td align="center" height="9" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td></tr>
<tr align="center" valign="middle"><td align="left" height="9" valign="bottom"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"></td><td align="right" height="9" valign="bottom"><img alt="End of Question 12" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_right.gif" vspace="0" width="9" /></td></tr>
</tbody></table>
<br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><table border="0" cellpadding="0" cellspacing="0" class="problemTypeBkgd" style="background-color: #f5f3f3; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic; width: 100%px;"><tbody>
<tr align="center" valign="middle"><td align="left" height="9" valign="top" width="10"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="right" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_right.gif" vspace="0" width="9" /></td></tr>
<tr align="center" valign="middle"><td align="center" height="8" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="center" valign="top"><table border="0" cellpadding="0" cellspacing="3" class="problemTypeBkgd" style="width: 100%px;"><tbody>
<tr align="left" valign="top"><td height="1"></td><td align="left" rowspan="2" valign="top"><h2 class="nostyle_inline" style="display: inline; font-size: 1em; font-weight: normal; margin: 0px; padding: 0px;">
<img alt="Question 13." border="0" height="5" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /><br /><span class="multiChoiceQuestion" style="color: #353534; font-size: 13px; font-weight: 600;">Which of the following is the best description of 'reliability' in relation to information in financial statements?</span></h2>
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<tr align="left" valign="top"><td align="left" valign="top" width="60"></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"> </td><td align="left" valign="top"><table border="0" cellpadding="0" cellspacing="5"><tbody>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214067_1" name="answer_3214067" type="radio" value="2" /> </td><td align="left" valign="top"><label for="answer_3214067_1"><span class="multiChoiceAnswer" style="font-size: 12px;">Freedom from material error</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214067_2" name="answer_3214067" type="radio" value="0" /> </td><td align="left" valign="top"><label for="answer_3214067_2"><span class="multiChoiceAnswer" style="font-size: 12px;">Comprehensibility to users</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214067_3" name="answer_3214067" type="radio" value="1" /> </td><td align="left" valign="top"><label for="answer_3214067_3"><span class="multiChoiceAnswer" style="font-size: 12px;">Influence on the economic decisions of users</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214067_4" name="answer_3214067" type="radio" value="3" /> </td><td align="left" valign="top"><label for="answer_3214067_4"><span class="multiChoiceAnswer" style="font-size: 12px;">Including a degree of caution</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214067_5" name="answer_3214067" type="radio" value="4" /> </td><td align="left" valign="top"><label for="answer_3214067_5"><span class="multiChoiceAnswer" style="font-size: 12px;">None of the above is correct</span></label></td></tr>
</tbody></table>
</td></tr>
</tbody></table>
</td><td align="center" height="9" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td></tr>
<tr align="center" valign="middle"><td align="left" height="9" valign="bottom"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"></td><td align="right" height="9" valign="bottom"><img alt="End of Question 13" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_right.gif" vspace="0" width="9" /></td></tr>
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<br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><table border="0" cellpadding="0" cellspacing="0" class="problemTypeBkgd" style="background-color: #f5f3f3; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic; width: 100%px;"><tbody>
<tr align="center" valign="middle"><td align="left" height="9" valign="top" width="10"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="right" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_right.gif" vspace="0" width="9" /></td></tr>
<tr align="center" valign="middle"><td align="center" height="8" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="center" valign="top"><table border="0" cellpadding="0" cellspacing="3" class="problemTypeBkgd" style="width: 100%px;"><tbody>
<tr align="left" valign="top"><td height="1"></td><td align="left" rowspan="2" valign="top"><h2 class="nostyle_inline" style="display: inline; font-size: 1em; font-weight: normal; margin: 0px; padding: 0px;">
<img alt="Question 14." border="0" height="5" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /><br /><span class="multiChoiceQuestion" style="color: #353534; font-size: 13px; font-weight: 600;">Which of the following terms best describes information that influences the economic decisions of users?</span></h2>
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<tr align="left" valign="top"><td align="left" valign="top"> </td><td align="left" valign="top"><table border="0" cellpadding="0" cellspacing="5"><tbody>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214068_1" name="answer_3214068" type="radio" value="3" /> </td><td align="left" valign="top"><label for="answer_3214068_1"><span class="multiChoiceAnswer" style="font-size: 12px;">Reliable</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214068_2" name="answer_3214068" type="radio" value="0" /> </td><td align="left" valign="top"><label for="answer_3214068_2"><span class="multiChoiceAnswer" style="font-size: 12px;">Understandable</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214068_3" name="answer_3214068" type="radio" value="2" /> </td><td align="left" valign="top"><label for="answer_3214068_3"><span class="multiChoiceAnswer" style="font-size: 12px;">Relevant</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214068_4" name="answer_3214068" type="radio" value="1" /> </td><td align="left" valign="top"><label for="answer_3214068_4"><span class="multiChoiceAnswer" style="font-size: 12px;">Prospective</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214068_5" name="answer_3214068" type="radio" value="4" /> </td><td align="left" valign="top"><label for="answer_3214068_5"><span class="multiChoiceAnswer" style="font-size: 12px;">None of the above is correct</span></label></td></tr>
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</td><td align="center" height="9" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td></tr>
<tr align="center" valign="middle"><td align="left" height="9" valign="bottom"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"></td><td align="right" height="9" valign="bottom"><img alt="End of Question 14" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_right.gif" vspace="0" width="9" /></td></tr>
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<br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><table border="0" cellpadding="0" cellspacing="0" class="problemTypeBkgd" style="background-color: #f5f3f3; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic; width: 100%px;"><tbody>
<tr align="center" valign="middle"><td align="left" height="9" valign="top" width="10"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="right" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_right.gif" vspace="0" width="9" /></td></tr>
<tr align="center" valign="middle"><td align="center" height="8" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="center" valign="top"><table border="0" cellpadding="0" cellspacing="3" class="problemTypeBkgd" style="width: 100%px;"><tbody>
<tr align="left" valign="top"><td height="1"></td><td align="left" rowspan="2" valign="top"><h2 class="nostyle_inline" style="display: inline; font-size: 1em; font-weight: normal; margin: 0px; padding: 0px;">
<img alt="Question 15." border="0" height="5" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /><br /><span class="multiChoiceQuestion" style="color: #353534; font-size: 13px; font-weight: 600;">Which <u>two</u> of the following are listed in the IASB Framework as 'underlying assumptions' regarding financial statements?</span></h2>
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<tr align="left" valign="top"><td align="left" valign="top" width="60"></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"> </td><td align="left" valign="top"><table border="0" cellpadding="0" cellspacing="5"><tbody>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214069_1" name="answer_3214069" type="checkbox" value="3" /> </td><td align="left" valign="top"><label for="answer_3214069_1"><span class="multiChoiceAnswer" style="font-size: 12px;">Any changes of accounting policy are neutral</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214069_2" name="answer_3214069" type="checkbox" value="0" /> </td><td align="left" valign="top"><label for="answer_3214069_2"><span class="multiChoiceAnswer" style="font-size: 12px;">The enterprise can be viewed as a going concern</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214069_3" name="answer_3214069" type="checkbox" value="1" /> </td><td align="left" valign="top"><label for="answer_3214069_3"><span class="multiChoiceAnswer" style="font-size: 12px;">The financial statements are reliable</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214069_4" name="answer_3214069" type="checkbox" value="2" /> </td><td align="left" valign="top"><label for="answer_3214069_4"><span class="multiChoiceAnswer" style="font-size: 12px;">The financial statements are prepared under the accrual basis</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214069_5" name="answer_3214069" type="checkbox" value="4" /> </td><td align="left" valign="top"><label for="answer_3214069_5"><span class="multiChoiceAnswer" style="font-size: 12px;">None of the above is correct</span></label></td></tr>
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</td><td align="center" height="9" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td></tr>
<tr align="center" valign="middle"><td align="left" height="9" valign="bottom"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"></td><td align="right" height="9" valign="bottom"><img alt="End of Question 15" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_right.gif" vspace="0" width="9" /></td></tr>
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<br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><table border="0" cellpadding="0" cellspacing="0" class="problemTypeBkgd" style="background-color: #f5f3f3; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic; width: 100%px;"><tbody>
<tr align="center" valign="middle"><td align="left" height="9" valign="top" width="10"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="right" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_right.gif" vspace="0" width="9" /></td></tr>
<tr align="center" valign="middle"><td align="center" height="8" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="center" valign="top"><table border="0" cellpadding="0" cellspacing="3" class="problemTypeBkgd" style="width: 100%px;"><tbody>
<tr align="left" valign="top"><td height="1"></td><td align="left" rowspan="2" valign="top"><h2 class="nostyle_inline" style="display: inline; font-size: 1em; font-weight: normal; margin: 0px; padding: 0px;">
<img alt="Question 16." border="0" height="5" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /><br /><span class="multiChoiceQuestion" style="color: #353534; font-size: 13px; font-weight: 600;">Financial statements include a balance sheet, an income statement and a statement of changes in equity. Which <u>two</u> of the following are also included within the financial statements?</span></h2>
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<tr align="left" valign="top"><td align="left" valign="top" width="60"></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"> </td><td align="left" valign="top"><table border="0" cellpadding="0" cellspacing="5"><tbody>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214070_1" name="answer_3214070" type="checkbox" value="1" /> </td><td align="left" valign="top"><label for="answer_3214070_1"><span class="multiChoiceAnswer" style="font-size: 12px;">A directors' report</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214070_2" name="answer_3214070" type="checkbox" value="0" /> </td><td align="left" valign="top"><label for="answer_3214070_2"><span class="multiChoiceAnswer" style="font-size: 12px;">A cash flow statement</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214070_3" name="answer_3214070" type="checkbox" value="3" /> </td><td align="left" valign="top"><label for="answer_3214070_3"><span class="multiChoiceAnswer" style="font-size: 12px;">Accounting policies</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214070_4" name="answer_3214070" type="checkbox" value="2" /> </td><td align="left" valign="top"><label for="answer_3214070_4"><span class="multiChoiceAnswer" style="font-size: 12px;">An auditor's report</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214070_5" name="answer_3214070" type="checkbox" value="4" /> </td><td align="left" valign="top"><label for="answer_3214070_5"><span class="multiChoiceAnswer" style="font-size: 12px;">None of the above is correct</span></label></td></tr>
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</td></tr>
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</td><td align="center" height="9" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td></tr>
<tr align="center" valign="middle"><td align="left" height="9" valign="bottom"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"></td><td align="right" height="9" valign="bottom"><img alt="End of Question 16" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_right.gif" vspace="0" width="9" /></td></tr>
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<br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><table border="0" cellpadding="0" cellspacing="0" class="problemTypeBkgd" style="background-color: #f5f3f3; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic; width: 100%px;"><tbody>
<tr align="center" valign="middle"><td align="left" height="9" valign="top" width="10"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="right" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_right.gif" vspace="0" width="9" /></td></tr>
<tr align="center" valign="middle"><td align="center" height="8" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="center" valign="top"><table border="0" cellpadding="0" cellspacing="3" class="problemTypeBkgd" style="width: 100%px;"><tbody>
<tr align="left" valign="top"><td height="1"></td><td align="left" rowspan="2" valign="top"><h2 class="nostyle_inline" style="display: inline; font-size: 1em; font-weight: normal; margin: 0px; padding: 0px;">
<img alt="Question 17." border="0" height="5" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /><br /><span class="multiChoiceQuestion" style="color: #353534; font-size: 13px; font-weight: 600;">According to the IASB Framework, which <u>two</u> of the following characteristics are described as principal qualitative characteristics that make the information provided in financial statements useful to users?</span></h2>
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<tr align="left" valign="top"><td align="left" valign="top" width="60"></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"> </td><td align="left" valign="top"><table border="0" cellpadding="0" cellspacing="5"><tbody>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214071_1" name="answer_3214071" type="checkbox" value="1" /> </td><td align="left" valign="top"><label for="answer_3214071_1"><span class="multiChoiceAnswer" style="font-size: 12px;">Accrual</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214071_2" name="answer_3214071" type="checkbox" value="0" /> </td><td align="left" valign="top"><label for="answer_3214071_2"><span class="multiChoiceAnswer" style="font-size: 12px;">Understandability</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214071_3" name="answer_3214071" type="checkbox" value="2" /> </td><td align="left" valign="top"><label for="answer_3214071_3"><span class="multiChoiceAnswer" style="font-size: 12px;">Relevance</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214071_4" name="answer_3214071" type="checkbox" value="3" /> </td><td align="left" valign="top"><label for="answer_3214071_4"><span class="multiChoiceAnswer" style="font-size: 12px;">Going concern</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214071_5" name="answer_3214071" type="checkbox" value="4" /> </td><td align="left" valign="top"><label for="answer_3214071_5"><span class="multiChoiceAnswer" style="font-size: 12px;">None of the above is correct</span></label></td></tr>
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</td><td align="center" height="9" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td></tr>
<tr align="center" valign="middle"><td align="left" height="9" valign="bottom"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"></td><td align="right" height="9" valign="bottom"><img alt="End of Question 17" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_lower_right.gif" vspace="0" width="9" /></td></tr>
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<br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><br style="background-color: white; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic;" /><table border="0" cellpadding="0" cellspacing="0" class="problemTypeBkgd" style="background-color: #f5f3f3; color: #805a2a; font-family: Verdana, Arial, sans-serif; font-size: 11px; font-style: italic; width: 100%px;"><tbody>
<tr align="center" valign="middle"><td align="left" height="9" valign="top" width="10"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_left.gif" vspace="0" width="9" /></td><td align="center" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="right" height="9" valign="top"><img alt="" border="0" height="9" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/ps_bkgd_upper_right.gif" vspace="0" width="9" /></td></tr>
<tr align="center" valign="middle"><td align="center" height="8" valign="top"><img alt="" border="0" height="1" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /></td><td align="center" valign="top"><table border="0" cellpadding="0" cellspacing="3" class="problemTypeBkgd" style="width: 100%px;"><tbody>
<tr align="left" valign="top"><td height="1"></td><td align="left" rowspan="2" valign="top"><h2 class="nostyle_inline" style="display: inline; font-size: 1em; font-weight: normal; margin: 0px; padding: 0px;">
<img alt="Question 18." border="0" height="5" hspace="0" src="https://wps.pearsoned.co.uk/wps/media/styles/1480/_skins_/D/default_silver/pixel.gif" vspace="0" width="1" /><br /><span class="multiChoiceQuestion" style="color: #353534; font-size: 13px; font-weight: 600;">'A series of reports that are time-consuming and expensive to prepare is presented to the board of directors each month even though the reports are never used'. Which of the following qualitative characteristics or constraints is violated by this statement?</span></h2>
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<tr align="left" valign="top"><td align="left" valign="top" width="60"></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"> </td><td align="left" valign="top"><table border="0" cellpadding="0" cellspacing="5"><tbody>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214072_1" name="answer_3214072" type="radio" value="1" /> </td><td align="left" valign="top"><label for="answer_3214072_1"><span class="multiChoiceAnswer" style="font-size: 12px;">Prudence</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214072_2" name="answer_3214072" type="radio" value="3" /> </td><td align="left" valign="top"><label for="answer_3214072_2"><span class="multiChoiceAnswer" style="font-size: 12px;">Balance between benefit and cost</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214072_3" name="answer_3214072" type="radio" value="2" /> </td><td align="left" valign="top"><label for="answer_3214072_3"><span class="multiChoiceAnswer" style="font-size: 12px;">Comparability</span></label></td></tr>
<tr align="left" valign="top"><td align="left" valign="top"><input id="answer_3214072_4" name="answer_3214072" type="radio" value="4" /> </td><td align="left" valign="top"><label for="answer_3214072_4"><span class="multiChoiceAnswer" style="font-size: 12px;">Completeness</span></label></td></tr>
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musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com0tag:blogger.com,1999:blog-1315755092560562336.post-62649578506665633402020-05-05T06:44:00.000-07:002020-05-05T06:44:02.461-07:00Practice Questions on Cost Accounting<div dir="ltr" style="text-align: left;" trbidi="on">
q1. Use FIFO pricing method and prepare stores ledger<br />
<br />
Day 2 Purchased 4000 units @Rs 4 per unit<br />
Day 3 Purchased 300 unis @ Rs 5 per unit<br />
Day 6 Issued 2000 units<br />
Day 8 Purchased 6000 units@Rs 8 per unit<br />
Day 10 Issued 4000 units<br />
Day 15 Refund of Surplus from a work Order 25 units @rs 5 per unit<br />
Day 20 Issued 1000 units<br />
Day 23 Issued 2000 units<br />
Day 26 Returned to Vendor 300 units<br />
Day 29 Purchased 4000 units@ Rs 5,5 per unit<br />
Day 31 Issued 3000 units<br />
The sore keeper has informed that on Day 15 he haD FOUND A SHORTAGE OF 5 UNITS AND ON DAY 3O another shortage of 12 units<br />
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Q 2<br />
Asus Engg Co has shared the following information<br />
Sales 75 L<br />
DE1 0 L<br />
DL 5L<br />
Prime Cost 15L<br />
Production OH 30 L<br />
Production Cost 45 L<br />
Admin, S&D OH 15 L<br />
Total Cost 60 L<br />
<br />
Profit 15 L<br />
<br />
An enquiry has been received and the production deptt has prepared the following estimates of the prime cost required for the job<br />
<br />
DM 2500<br />
DL 2000<br />
Prime Cost 4500<br />
Labour hours required 80<br />
Machine hours reauried 50<br />
<br />
Calculate OH absorption rates for absorption of production OH by different methods and comment of the suitability of each method<br />
Calculate production OH cost of the job order based on the above rates<br />
<br />
Pls send solution via whatsapp by tomorrow<br />
Solution to be shared day after tomorrow<br />
<br />
More questions for practice tomorrow<br />
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musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com0tag:blogger.com,1999:blog-1315755092560562336.post-71476606617449154602020-05-03T20:37:00.000-07:002020-05-03T20:37:08.186-07:00<div dir="ltr" style="text-align: left;" trbidi="on">
MEETINGS OTHER THAN AGM AND EGM<br />
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<span style="border: 0px; margin: 0px; padding: 0px;"><span style="border: 0px; font-weight: 700; margin: 0px; padding: 0px;">Other Meetings :</span></span></div>
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I. Meeting of debenture-holders. 2. Meeting of creditors.<br /><span style="border: 0px; margin: 0px; padding: 0px;">3. Meeting of contributories.</span></div>
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<span style="border: 0px; margin: 0px; padding: 0px;"><span style="border: 0px; font-weight: 700; margin: 0px; padding: 0px;">Meeting of Debenture-holders :</span> When a company issues secured debentures, it executes a trust deed. The deed empowers the debenture-holders to hold meetings and to pass; resolutions to vary their rights in certain cases. All matters relating to holding, conduct and proceedings of the meeting are given in the trust deed. The decisions arrived at such meeting with requisite majority are binding to all the debenture-holders.</span></div>
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<span style="border: 0px; margin: 0px; padding: 0px;"><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px; text-decoration-line: underline;">Meeting of creditors</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">The meetings of creditors are called when the company purposes to make a scheme for arrangement with its creditors.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">Section 391 to 393 of the companies Act not only give powers to the company to compromise with the creditors but also lay down the procedure of doing so.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">Creditors meeting are also convened in the case of creditor’s voluntary winding up.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px; text-decoration-line: underline;">Salient feature</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"># An application must be made to the High Court for direction to hold meeting of creditors</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"># The High Court may order a meeting of creditor.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"># Holding of meeting of creditor as per the High Court order.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"># Scheme of compromise or arrangement must be approved by 3/4th in value of creditors</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"># An approved scheme duly sanctioned by High Court in binding on all the creditor.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"># Meeting of creditor on voluntary winding up</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">Section 498 provides that where the liquidator is of the opinion that the company will not be able to pay its debt in full, it will be considered as the creditors’ voluntary winding up and not a members’ voluntary winding up and he shall summon a meeting of the creditor as per section 495 of the Companies Act</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">Section 495 to 507 deals in detail with the topic</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; font-weight: 700; margin: 0px; padding: 0px;">Meeting of creditors and Judicial Decision.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">Section 499 to 509 are dealing with the provision of the meeting of creditor on voluntary winding up.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">Creditor – Every person having a pecuniary claim against the company, whether actual or contingent, is a creditor. In general, any person having pecuniary claim against the company capable of estimate is a creditor.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">The following case law are relevant in this context</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; font-weight: 700; margin: 0px; padding: 0px;">Seksaria cotton mils LTD v. A.E.Naik</span><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"> - in this case it was held that while at the time of sanctioning of the scheme, the sales tax department had a claim against the company, even though the claim might have been a future claim or even a contiengent claim, the sales tax department was a creditor of the company and was bound by the scheme as an unsecured creditor.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; font-weight: 700; margin: 0px; padding: 0px;">Tika Ram and Sons Pvt. Ltd. v. CIT</span><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"> - In this case it was held that the income tax department cannot, before an assessment is made, be considered a creditor within the meaning of S. 391. It is only after an assessment is made that a debt can be said to accure to the department which can be proved before the liquidation court.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; font-weight: 700; margin: 0px; padding: 0px;"><br style="box-sizing: border-box; margin: 0px; padding: 0px;" />Interpretation by Indian court</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">In </span><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; font-weight: 700; margin: 0px; padding: 0px;">Maneckchowk & Ahmedabad Mfg. Co. Ltd</span><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"> - It is formidable difficulty to say what constitutes a class of creditors. Speaking very generally, in order to constitute a class, members belonging to class must form a homogeneous group of commonality of interest. If people with heterogeneous interests are combined in a class, naturally the majority having common interest may ride rough shod over the minority representing a distinct interest. One test that can be applied with reasonable certainty is as to the nature of compromise offered to different classes or groups. The company will ordinarily be expected to offer an identical compromise to persons belonging to one class, otherwise it may be discriminatory. At any rate, those who are offered substantially different compromises each will form a different class. Even if there are different groups within a class, the interests of which are different from the rest of the class or who are to be treated differently in the scheme, such groups must be treated as separate classes for the purpose of the scheme. Broadly speaking, a group of persons would constitute one class when it is shown that they have conveyed all interests and their claims are capable of being ascertained by any common system of valuation. The group styled as a class should ordinarily be homogenous and must have commonality of interest and the compromise inferred to them must be identical. This will provide rational indicia for determining the peripheral boundaries of classification. The test would be that a class must be confined to those persons whose rights are so similar as not to make it impossible for them to consult together with a view to their common interest.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; font-weight: 700; margin: 0px; padding: 0px;">Following position emerge out of it.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">1. Creditor can be divided into 3 categories of preferential creditors, secured creditors and unsecured creditors.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">2. All preferential creditors who have no security for their debt can be treated as one class whether or not some are secured and some unsecured.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">3. All unsecured creditors will normally form a single class.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">4. Secured creditor with common security will be in same class.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">5. Fixed deposited holder is considered as the creditor of the company.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">Now under section 500</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; font-weight: 700; margin: 0px; padding: 0px;">Meeting of creditors.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">1. The company shall cause a meeting of the creditors of the company to be called for the day, or the day next following the day, on which there is to be held the general meeting of the company at which the resolution for voluntary winding up is to be proposed, and shall cause notices of the meeting of creditors to be sent by post to the creditors simultaneously with the sending of the notices of the meeting of the company.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">2. The company shall cause notice of the meeting of the creditors to be advertised once at least in the Official Gazette and once at least in two newspapers circulating in the district where the re- gistered office or principal place of business of the company is situate.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">3. The Board of directors of the company shall-</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">(A) cause a full statement of the position of the company affairs together with a list of the creditors of the company and the estimated amount of their claims to be laid before the meeting of the creditors to be held as aforesaid; and</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">(B) appoint one of their number to preside at the said meeting.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">1. It shall be the duty of the director appointed to preside at the meeting of creditors to attend the meeting and preside thereat.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">2. If the meeting of the company at which the resolution for voluntary winding up is to be proposed is adjourned and the resolution is passed at an adjourned meeting, any resolution passed at the meeting of the creditors held in pursuance of sub- section (1) sis hall have effect as if it had been passed immediately after the pass- ing of the resolution for winding up the company.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">3. If default is made-</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">(A) by the company, in complying with sub- sections (1) and (2);</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">(B) by its Board of directors, in complying with sub- section (3);</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">(C) by any director of the company, in complying with sub- section (4); the company, each of the directors, or the director, as the case may be, shall be punishable with fine which may extend to one thousand rupees and, in the case of default by the company, every officer of the company who is in default, shall be liable to the like punishment.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; font-weight: 700; margin: 0px; padding: 0px;">Provisions intended to give controlling voice to creditors</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">The procedure laid down in this and the following sections, in regard to the creditors’ winding up of an insolvent company, i.e. a company which is not able to pay it’s debts and liabilities, is based upon the views expressed by NAVILLE,J., in In re, Karamelli and Barnett Ltd. “Under this procedure the company has to convene a meeting of the creditors to take place immediately after the meeting of the stakeholders, on the same day or the next day; and the directors have to place full statement of the position of the affairs at the creditors’ meeting. The creditors at the meeting have the right to nominate a liquidator and if their nominee is different from the one nominated by the stakeholders, creditors’ nomination prevails, subject to the power of interference of the court. Thus, the creditors are given a controlling voice in the winding up of an insolvent company.”</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">Where one of the directors was nominated to preside over a meeting of creditors, but he did not turn up, it was held that the creditors present at the meeting could appoint their own nominee to preside at the meeting and that the court was valid and, therefore, it was not necessary to seek directions of the court in the matter. Salcombe Hotel Development Co. Ltd., Re,</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; font-weight: 700; margin: 0px; padding: 0px;">Notice of meeting to the creditors</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">The giving of notices under this section is analogous to the filing, under the law of insolvency, of a declaration of inability to pay debts.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; font-weight: 700; margin: 0px; padding: 0px;">Proxy by Fax</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">It has been held that message of proxy received through fax and signed by the creditor or by someone authorised by him would be a proper proxy form and the creditor would have the right to attend the creditors meeting through such a proxy. A Debtor, Ex Parte, I.R.C. v. The Debtor. It was also held that a proxy form would be deemed to be signed if it carried same distinctive or personal mark placed by the creditor, that is to say, signed by electronic devices or by a rubber stamp. In order to avoid any dispute or controversy the original proxy form should be sent immediately after fax transmission. It would also be advisable to have an authority in the company’s to accept faxed proxy forms.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; font-weight: 700; margin: 0px; padding: 0px;">Disclosure of material at creditors’ meeting</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">An application was made for disclosure of material withheld from creditors’ meeting by the administrators under the Insolvency Act, 1986. The application raised allegations of fraud but there was no evidence to substantiate the allegations. The application was accordingly refused. Trident Fashions plc; Anderson v. Kroll Ltd.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; font-weight: 700; margin: 0px; padding: 0px;">Rejection of creditors’ vote</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">Creditors resolved at their meeting for voluntary winding-u. The chairman objected to a creditors’ vote. The question in this case was as to what would be the effect of the chairman’s decisions in rejecting the creditor’s vote. The court found no prospect of calling a new meeting. The court dismissed the appeal. Power Builders (Surrey) Ltd., Power v. Petrus Estates Ltd.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">If there is no compliance with the requirements of section 500 (2), the consequences of the default as stated in sub-section (6), are that the company or each of the directors shall be punishable with fine.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; font-weight: 700; margin: 0px; padding: 0px;">Section 502. Appointment of liquidator</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">1. The creditors and the company at their respective meetings mentioned in section 500 may nominate a person to be liquidator for the purpose of winding up the affairs and distributing the assets of the company.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">2. If the creditors and the company nominate, different persons the person nominated by the creditors shall be liquidator: Provided that any director, member or creditor of the company may, within seven days after the date on which the nomination was made by the creditors, apply to the Court for an order either directing that the person nominated as liquidator by the company shall be liquidator instead of or jointly with the person nominated by the creditors, or appointing the Official Liquidator or some other person to be liquidator instead of the person appointed by the creditors.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">3. If no person is nominated by the creditors, the person, if any, nominated by the company shall be liquidator.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">4. If no person is nominated by the company, the person, if any, nominated by the creditors shall be liquidator.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; font-weight: 700; margin: 0px; padding: 0px;">Scope of Section</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">It may be noted that in a creditors’ voluntary winding up, the creditors are given a preferential right in the matter of the appointment of a liquidator, with a power to the court to vary the appointment on application made within seven days, by a director, member or creditor.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">A liquidator appointed by a resolution of the members cannot be replaced by one appointed by a majority in value but not in number of creditor.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; font-weight: 700; margin: 0px; padding: 0px;">Section 509. Final meeting and dissolution</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">As soon as the affairs of the company are fully wound up, the liquidator shall-</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">(a)make up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of; and</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">(b) call a general meeting of the company and a meeting of the creditors for the purpose of laying the account before the meetings and giving any explanation thereof,</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">Each such meeting shall be called by advertisement-</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">(A) specifying the time, place and object thereof; and</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">(B) published not less than one month before the meeting in the Official Gazette and also in some newspaper circulating in the district where the registered office of the company is situate.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">Within one week after the date of the meetings, or if the meetings are not held on the same date, after the date of the later meeting, the liquidator shall send to the 1[ Registrar and the Official Liquidator a copy each of the account and shall make a return to 1. Subs. by Act 31 of 1965, s. 55, for certain words (w. e. f. 15- 10- 1965 ). each of them] of the holding of the meetings and of the date or dates on which they were held. If the copy is not so sent or the return is not so made, the liquidator shall be punishable with fine which may extend to fifty rupees for every day during which the default continues.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">If a quorum (which for the purposes of this section shall be two persons) is not present at either of such meetings, the liquidator shall, in lieu of the return referred to in sub- section (3), make a return that the meeting was duly called and that no quorum was present thereat. Upon such a return being made within one week after the date fixed for the meeting, the provisions of sub- section (3) as to the making of the return shall, in respect of that meeting, be deemed to have been complied with.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">1[ The Registrar, on receiving the account and also, in respect of each such meeting, either the return mentioned in sub- section (3) or the return mentioned in sub- section (4), shall forthwith register them.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">The Official Liquidator, on receiving the account and either the return mentioned in sub- section (3) or the return mentioned in sub- section (4), shall, as soon as may be, make, and the liquidator and all officers, past or present, of the company shall give the Official Liquidator all reasonable facilities to make, a scrutiny of the books and papers of the company and if on such scrutiny the Official Liquidator makes a report to the Court that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest, then, from the date of the submission of the report to the Court the company shall be deemed to be dissolved.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">(6A) If on such scrutiny the Official Liquidator makes a report to the Court that the affairs of the company have been conducted in a manner prejudicial as aforesaid, the Court shall by order direct the Official Liquidator to make a further investigation of the affairs of the company and for that purpose shall invest him with all such powers as the Court may deem fit.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">(6B) On the receipt of the report of the Official Liquidator on such further investigation the Court may either make an order that the company shall stand dissolved with effect from the date to be specified by the Court therein or make such other order as the circumstances of the case brought out in the report permit.]</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">1. Subs. by Act 31 of 1965, s. 55, for sub- sections (5) and (6) (w. e. f. 15. 10. 1965 ).</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">7. If the liquidator fails to call a general meeting of the company or a meeting of the creditors as required by this section, he shall be punishable, in respect of each such failure, with fine which may extend to five hundred rupees. Provisions applicable to every voluntary winding up</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">A company in liquidation ceases to exist as a separate entity capable of holding property only when the final meeting under section 509 has taken place. Until then it retain its complete existence so that if the liquidation is annulled at any time before the meeting it will resume its power.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">Company voluntary wound up – final account of the winding up filed by the liquidator to the registrar. Registrar registered on 15th march 1963 company shall be deemed to have been dissolved under section 509 (5)</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">CREDITORS VOLUNTARILY WINDING UP</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">Where the resolution for winding up has been passed, but the Board of Directors are not in a position to give a declaration on the liability of company, they may call a meeting of creditors, for the purpose of winding up. (Sec.500) It is the duty of Board of Directors, to present a full statement of company’s affairs, and list of creditors alongwith their dues, before the meeting of creditors(Sec.50(3)) Whatever resolution, the company passes in creditor's meeting, shall be given to the Registrar within ten days of its passing. (Sec.501) Company in the general meeting [in which resolution for winding up is passed], and the creditors in their meeting, appoint liquidator. They may either agree on one liquidator, or if two names are suggested, then liquidator appointed by creditor shall act.(Sec.502)</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; font-weight: 700; margin: 0px; padding: 0px;">Any director, member or creditor may approach the tribunal, for direction that:</span><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"># Liquidator appointed in general meeting shall act, or</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"># He shall act jointly with liquidator appointed by creditor, or appointing official liquidator, or</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"># Some other person to be appointed as liquidator.(Sec. 502(2))</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">The remuneration of liquidator shall be fixed by the creditors, or by the tribunal.(Sec.504) On appointment of liquidator, all the power of Board of Directors shall cease. (Sec.505) As per section 509, the liquidator shall take the following steps, when affair of the company are fully wound up:</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"># Call a general meeting, and meeting of creditors, and lay before it, complete picture of accounts, winding up procedure and how the properties of company are disposed of.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"># The meeting shall be called by advertisement, specifying the time, place and object of the meeting.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"># The liquidator shall send to the Registrar and official liquidator copy of account, within one week after the meeting.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"># If from the report, official liquidator comes to the conclusion, that affairs of the company are not being carried in manner prejudicial to the interest of it’s members or public, then the company shall be deemed to be dissolved, from the date of report to the tribunal.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"># However, if official liquidator comes to a finding, that affairs have been carried in a manner prejudicial to intent of members or public, and then tribunal may direct the liquidator to investigate further.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">Restrictions on the appointment of body corporate as Liquidator in case of a voluntary winding up.(Sec.513) The Central Govt. shall keep a cognizance over the functioning of official liquidator, and may require him to answer any inquiry. (Sec. 463).</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; font-weight: 700; margin: 0px; padding: 0px;">conclusion</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">There are legal provisions for the meeting of the creditors on winding up (voluntary). When the meeting of creditor is not called on such voluntary winding up. They can approach the court or CLB for the same reason. As the creditors are the main investors in the company with the shareholder. They have given a large amount to the company and if company is winding up then there will be loss to the creditor at large</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">The creditors will be paid back on voluntary winding up of the company and for this purpose official liquidator is also appointed. The liquidator take care of issue of creditors.</span></span></div>
</div>
musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com0tag:blogger.com,1999:blog-1315755092560562336.post-47682036367848828282020-05-03T18:36:00.001-07:002020-05-03T18:36:45.067-07:00Corporate Laws Summary notes on Meetings<div dir="ltr" style="text-align: left;" trbidi="on">
1. Shareholders and Shares<br />
Day to day management of a company is in the hands of the directors, not the
shareholders - but the shareholders retain some important powers - many decisions
require a resolution of the shareholders and cannot be decided by the directors alone.
(a) Who is a "Member"
(i) Anyone who subscribes the memorandum.
(ii)Any other person who agrees to become a member and whose
name is entered on the register of members.
(b) Register of Members
CA 1985, s.352 requires every company to keep a register of its members. The
register must show:
- name and address of each member.
- date person became a member and, where applicable, the date he ceased to be
a member.
- the number of shares held by each member and the amount paid on them<br />
2. Kinds of Meetings<br />
(a) Annual General Meeting
Most companies must hold an AGM.
(i) CA 1985 s.366 provides that an AGM must be held every calendar year with not
more than 15 months between meetings. A newly incorporated company must hold its
first AGM within 18 months of incorporation.
(ii) CA 1985 s.367 - if a company does not hold an AGM as required, any member
can apply to the Secretary of State to call or to direct the calling of the meeting.
(iii) CA 1985 s.366A - members of a private company can choose to dispense with the
holding of an AGM by elective resolution - but any member of such a company can
require that an AGM be held in a particular year by giving notice at least 3 months
before the end of the year.
(iv) CA 1985 s.371 - if it is impracticable to call a meeting or conduct a meeting in the
manner prescribed by the company’s articles, any member or director who would be
entitled to vote can apply to the court which can order the meeting to be called or
held.
Re Sticky Fingers Restaurant Ltd (Case 53)
(b) Usual Business of an AGM
(i) Directors lay before the company annual accounts and reports for t the most recent
financial period.
(ii) Auditor's term of office ends at AGM, so they must be re-appointed or new
auditors must be appointed.
(iii) Director's recommendation for the dividend to be paid to shareholders will be
voted on.
(iv) The Articles may provide that directors are to retire in rotation. Some directors
will retire at the AGM and must be re-appointed or replaced.
(v) Resolutions may be required to pay directors’ and auditors’ fees. (Now normally
fixed by contract).
(vi) Shareholders may have their own resolutions placed on the agenda.
(c) Extraordinary General Meetings<br />
Any meeting which is not an AGM. Table A provides that only directors can call an
EGM, unless there are too few directors in the UK to make up a quorum - then any
member can call one.
CA 1985, s.368 - directors must call an EGM if requisitioned by holders of 10% of the
paid up capital of the company.
CA 1985, s.371 - power of the court to order the holding of an AGM also applies to
EGMs.
CA 1985, s.142 - public company must hold an EGM if the company’s net assets have
fallen to less than half of its called up capital. Meeting must be called within 28 days
of the directors becoming aware of the loss of capital, and must be held within 56
days of that date.
CA 1985, s.392A - where auditor has resigned and has made a statement of
circumstances he thinks should be brought to the attention of creditors and
shareholders - the auditor can requisition the directors to hold an EGM so that he can
explain the circumstances of his resignation.
3. Convening Meetings
(a) Notice of Meetings
(i) Authority to Call a Meeting
Authority normally rests with the directors.
If person without authority issues notice of a meeting the notice is void.
(ii) Who must be notified?
Depends on the Articles. Table A provides that notice must be given to all
shareholders, directors and auditors.
Failure to notify someone entitled to notice will invalidate the meeting unless the
failure was purely accidental:
Young v Ladies Imperial Club (Case 54)
Re West Canadian Collieries Ltd (Case 55)
(iii) Method of Service<br />
Articles can provide for any method - Table A requires written notice to be delivered
personally or by post.
Bradman v Trinity Estates Ltd (Case 56)
The Companies Act 1985 (Electronic Communications) Order 2000 allows notice to
be given by electronic means such as
via a website provided the member agrees to being given notice in this way.
(iv) Length of Notice
Articles can set any length of notice, but by s.369, notice must be at least 21 days for
an AGM, or 14 days for an EGM - unless all members agree shorter notice period.
(v) Contents of Notice
Set out by articles. Table A requires notice to specify date, time and place of meeting
and a general indication of business to be dealt with. Notice must state if meeting is an
AGM.
If meeting is being convened to pass a special or extraordinary resolution, or a
resolution for which special notice is required, these resolutions must be set out in full
in the notice.
Notice will be invalid unless it contains enough detail to allow a reasonable
shareholder to judge whether he needs to attend the meeting.
Baillie v Oriental Telephone & Electric Co Ltd (Case 57)
(vi) Special Notice
Some kinds of resolution require special notice to be given:
- resolution to dismiss a director
- resolution to appoint replacement director at same meeting as dismissal.
- appointment or retention of public company director aged 70 or over.
- resolutions concerning dismissal or appointment of auditors.
Special notice = at least 28 days notice to the company of the intention to move the
resolution. The company must then give the members at least 21 days notice of the
meeting.<br />
4. Conduct of Meetings
(a) Quorum
"Quorum" = the minimum number of persons who must be present before the meeting
will be valid.
Articles can provide for any quorum:
Table A requires two members entitled to vote, or their proxies.
If Table A has been excluded without providing an alternative, CA 1985 s.370
requires two members personally present.
Single Member Private Companies - one member will form a quorum,
notwithstanding anything in the articles.
A meeting held without a quorum cannot validly transact any business:
Sharp v Dawes (Case 58)
(b) Chairman
Usual to have a chairman to preside over a meeting - Table A provides this should be
the chairman of the board or another director nominated by the board.
Chairman’s role is to keep order - he/she has no power to adjourn or dismiss a
meeting unless this is specified in the articles.
Chairman has no casting vote unless given one by the articles. (Table A gives a
casting vote.)
(c) Minutes
Companies must keep minutes of general meetings at the registered office for
inspection by members.
Chairman signs the minutes - they then become prima facie evidence of what occurred
at the meeting.
(d) Voting and Proxies
CA 1985 s.372 - all companies must allow a member who cannot attend a meeting to
allow a proxy to vote in his place<br />
Appointment of proxy must be in writing and lodged with company at least 48 hours
before meeting.
There are two methods of voting at company meetings:
(i) Show of Hands
Voting can be by show of hands unless articles provide otherwise.
Each member has just one vote regardless of number of shares he has - hands are
counted and the result declared by the chairman. Result is conclusive once recorded in
the minutes.
Proxies cannot vote on a show of hands unless the Articles allow this.
(ii) Voting by Poll
A company cannot refuse a demand for a poll made by:
- at least 5 members having the right to vote, or
- any member/members representing one-tenth or more of the total voting
rights.
Members normally have one vote per share in a poll.
Members are entitled to exercise their votes according to their own interests.
Northern Counties Securities Ltd v Jackson & Steeple (Case 59)
5. Resolutions
(a) Special Resolutions
Requires vote of 75% of members present in person or by proxy, who are entitled to
vote and do vote.
Meeting at which resolution is proposed must have had at least 21 days notice, unless
shorter period was agreed by majority in number of members holding at least 95% of
the shares.
Certain matters can only be decided by special resolution and the articles cannot
provide to the contrary<br />
Printed copy of special resolution must be sent to Registrar within 15 days of it being
passed.<br />
(b) Extraordinary Resolutions<br />
Same requirements as for special resolution except for notice period required, which
depends on type of meeting. (21 days for AGM, 14 days for EGM - shorter notice
possible by agreement).
Extraordinary resolution must be used:
- for voluntary winding up when company cannot pay its debts (IA 1986
s.84(1))
- to authorise a liquidator to make an arrangement with creditors in members’
voluntary winding up (IA 1986 s.165(2))
(c) Elective Resolutions
Apply only to private companies. s.379A CA 1985 lists circumstances - e.g. election
to dispense with AGM.
Requires 21 days notice of meeting - resolution must be supported by all members
entitled to attend and vote.
Must be filed with Registrar within 15 days of being passed.
An elective resolution can be revoked by an ordinary resolution - which must also be
filed with the Registrar within 15 days.
(d) Ordinary Resolutions
Most matters can be decided by ordinary resolution and some must be (e.g. decision to
remove a director).
Ordinary resolution requires simple majority - 50% + 1 vote of members present in
person or by proxy.
(e) Written Resolutions
CA 1985 s.381A - allows private company to pass resolutions without holding
meetings.Written resolution is passed by being signed by or on behalf of all members who
would be entitled to attend and vote at a meeting.
Companies cannot be restricted from using s.381A procedure by anything in the
articles.
Resolutions to remove a director or an auditor before his term of office has expired
cannot be taken by written resolution.</div>
musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com0tag:blogger.com,1999:blog-1315755092560562336.post-969044957150704692020-05-01T06:44:00.001-07:002020-05-01T06:44:53.031-07:00Duties and liabilities of Director<div dir="ltr" style="text-align: left;" trbidi="on">
<h3 style="background-color: white; box-sizing: border-box; color: #111111; font-family: Roboto, sans-serif; font-size: 22px; font-weight: 400; line-height: 30px; margin: 27px 0px 17px; text-align: justify;">
<span style="box-sizing: border-box; font-family: "times new roman", times, serif;"><span style="box-sizing: border-box; color: green;">General duties applicable worldwide</span></span></h3>
<h4 style="background-color: white; box-sizing: border-box; color: #111111; font-family: Roboto, sans-serif; font-size: 19px; font-weight: 400; line-height: 29px; margin: 24px 0px 14px; text-align: justify;">
<span style="box-sizing: border-box; color: #ff6600;">The duty of good faith</span></h4>
<div style="background-color: white; box-sizing: border-box; color: #222222; font-family: Verdana, Geneva, sans-serif; font-size: 15px; line-height: 26px; margin-bottom: 26px; overflow-wrap: break-word; text-align: justify;">
<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">The directors should act in the best interest of the company, interest herein implies the </span><span style="box-sizing: border-box; font-family: "times new roman", times, serif;">interest of present and future members of the company, given the going concern principle. They should not exploit corporate opportunities to their own personal benefit resulting in secret profits.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn2" name="_ftnref2" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[2]</a> </span>The good faith would require that all the endeavours of the directors must be directed to the benefit of the company.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn3" name="_ftnref3" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[3]</a> </span> Greatest good faith is expected in a discharge of their duties.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn4" name="_ftnref4" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[4]</a> </span></span><span class="ezoic-adpicker-ad" id="ezoic-pub-ad-placeholder-114" style="box-sizing: border-box;"></span></div>
<div style="background-color: white; box-sizing: border-box; color: #222222; font-family: Verdana, Geneva, sans-serif; font-size: 15px; line-height: 26px; margin-bottom: 26px; overflow-wrap: break-word; text-align: justify;">
<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">It has been held that men who are in complete control of a company’s business must not take the company’s interest at liberty as they are bound to protect the same.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn5" name="_ftnref5" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[5]</a> </span>Recently the Delaware Supreme Court ruled out to postulate the character of the duty of good faith wherein it was made clear that negligent conduct is different from conduct in bad faith because statutory provisions differentiate between the two. If the conduct is in absolute disregard with duties and responsibilities then it would constitute bad faith. Mere failure to act in good faith does not impose fiduciary liability, as it is a subsidiary element of duty of loyalty.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn6" name="_ftnref6" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[6]</a></span></span></div>
<h4 style="background-color: white; box-sizing: border-box; color: #111111; font-family: Roboto, sans-serif; font-size: 19px; font-weight: 400; line-height: 29px; margin: 24px 0px 14px; text-align: justify;">
<span style="box-sizing: border-box; color: #ff6600; font-family: "times new roman", times, serif;">Duty of care </span><span style="box-sizing: border-box; font-family: "times new roman", times, serif;"><em style="box-sizing: border-box;"> </em></span></h4>
<div style="background-color: white; box-sizing: border-box; color: #222222; font-family: Verdana, Geneva, sans-serif; font-size: 15px; line-height: 26px; margin-bottom: 26px; overflow-wrap: break-word; text-align: justify;">
<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">Director by virtue of his esteemed position should take utmost care and due diligence while working in the best interests of the company. However not more than what an ordinarily prudent man would have done can be expected out of him. The duty of care is uniform for all directors.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn7" name="_ftnref7" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[7]</a></span> Such care need not be extraordinary in nature. This degree of care and skills shall vary with the nature of the business.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn8" name="_ftnref8" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[8]</a></span> However, courts have extended relief where liability has been incurred even after acting in good faith. They are not to be held liable for mere errors of judgement.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn9" name="_ftnref9" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[9]</a></span> </span><span style="box-sizing: border-box; font-family: "times new roman", times, serif;"> </span></div>
<h4 style="background-color: white; box-sizing: border-box; color: #111111; font-family: Roboto, sans-serif; font-size: 19px; font-weight: 400; line-height: 29px; margin: 24px 0px 14px; text-align: justify;">
<span style="box-sizing: border-box; color: #ff6600; font-family: "times new roman", times, serif;">Duty not to delegate </span></h4>
<div style="background-color: white; box-sizing: border-box; color: #222222; font-family: Verdana, Geneva, sans-serif; font-size: 15px; line-height: 26px; margin-bottom: 26px; overflow-wrap: break-word; text-align: justify;">
<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">As directors are agents of the company, they already have delegated a power which cant be delegated any further. They are bound by the maxim delegates non potest delegare.It is their skills and judgement on which shareholder rely and the same would get diluted when delegated but there are many exceptions where delegation is permitted subject to the company law and the articles of association. Subsequent to the delegation, if there is no suspicious activity, there is a presumption that affairs of the company are properly conducted.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn10" name="_ftnref10" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[10]</a></span></span></div>
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<span style="box-sizing: border-box; color: #ff6600; font-family: "times new roman", times, serif;">Duty to act honestly</span><span style="box-sizing: border-box; font-family: "times new roman", times, serif;"><em style="box-sizing: border-box;"> </em></span></h4>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">Directors hold the office of trust from where entails a duty to perform truly. Directors have an obligation to act with honesty since they hold a fiduciary position of trust.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn11" name="_ftnref11" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[11]</a> </span>They should be held liable for astraying from duties if that has culminated into frauds and losses.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn12" name="_ftnref12" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[12]</a></span></span></div>
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<span style="box-sizing: border-box; color: green; font-family: "times new roman", times, serif;">Sec 166 of companies act 2013 wherein various elements have been stated like:</span></h3>
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<span style="box-sizing: border-box; color: #ff6600; font-family: "times new roman", times, serif;">How Director Shall Act</span></h4>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">The law in subsection {1} stipulates that a director shall act according to the article of association of the company. Although this does not mandate any specific laying down of the duties if that is so, it will be a desirable provision.</span></div>
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<span style="box-sizing: border-box; color: #ff6600; font-family: "times new roman", times, serif;">Acting In Good Faith and in Best Interest</span></h4>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">The next subsection {2} provides that a director shall act in good faith. This encapsulates a great amount of subjectivity but at the same time should be seen from an ordinarily prudent man’s perspective. It has also been held that all efforts of directors must be directed towards benefiting the company.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn13" name="_ftnref13" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[13]</a></span> Pertinently, a wide coverage has been made by usage of both the terms “members” as well as “shareholders”. “Members are those persons who agree in writing to become members and whose names are entered in the register of members or whose names are entered as beneficial owners”.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn14" name="_ftnref14" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[14]</a></span>Necessarily it does not follow that all shareholders are members and vice versa.</span></div>
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<span style="box-sizing: border-box; color: #ff6600; font-family: "times new roman", times, serif;">Acting with Care, Skill & Independent Judgement</span></h4>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">Subsection {3} goes on to lay down that the director shall exercise his duties with due and reasonable care. Although there is a great subjectivity involved here the touchstone for the same can be that of what a reasonable would do in given circumstances. Further, an exercise of the independent judgment indicates that there should be no external influence, he should have complete freedom to reach to his judgement.</span></div>
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<span style="box-sizing: border-box; color: #ff6600; font-family: "times new roman", times, serif;">No Conflict of Interest</span></h4>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">The following subsection {4} stipulates that a director should avoid conflict of interest. This prescribes that a director should not get involved in such a situation where conflict may arise in his personal interest and the company’s interest. Whenever any such kind of situation arises, precedence should be given to the company’s interest over his personal interest.</span></div>
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<span style="box-sizing: border-box; color: #ff6600; font-family: "times new roman", times, serif;">No Undue Gain or Advantage</span></h4>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">The provision of the subsection {5} stipulates that no personal benefit should be made out of the company’s business neither it should be accrued to director’s relatives, partners, associates.</span></div>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">This section also provides for disgorgement of gains as the intent behind this is that there should not be any loss to the company.</span></div>
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<span style="box-sizing: border-box; color: #ff6600; font-family: "times new roman", times, serif;">No Assignment</span></h4>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">Subsection {6} prohibits the transfer of the office’s rights to another person. He cannot assign his office, and if done it shall be void.</span></div>
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<span style="box-sizing: border-box; color: #ff6600; font-family: "times new roman", times, serif;">Contravention</span></h4>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">The last subsection {7} lays down the penal provisions where a director contravenes the section. Such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn15" name="_ftnref15" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[15]</a> </span>Although this attracts a penalty it does not ask for the vacation of office u/s 167 of Companies Act 2013.</span></div>
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<span style="box-sizing: border-box; color: #ff6600; font-family: "times new roman", times, serif;"><span style="box-sizing: border-box; color: green;">Liabilities of Directors</span> </span></h3>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">Along with duties, liabilities accompany, liabilities can also be statutory liabilities as provided in specific statutes, it can also be general duties which are applicable to all uniformly. They can be :</span></div>
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<span style="box-sizing: border-box; color: #ff6600; font-family: "times new roman", times, serif;">Liability to the Company</span></h4>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">The liability of a director could arise in the following manner :</span></div>
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<li style="box-sizing: border-box; line-height: 26px; margin-left: 21px;"><span style="box-sizing: border-box; font-family: "times new roman", times, serif;"><strong style="box-sizing: border-box;">Breach of fiduciary duty</strong>: As the directors hold the office of trust along with power they are expected to exercise this power in the best interest of the company. Whenever there comes dishonesty in fulfilling this duty, there is a breach of fiduciary duty. There is always a possibility of a conflict of interests but should such a conflict arise the concerned director should make complete disclosure and try to obtain the confidence of stakeholders in the general meeting. If such is not a case then it shall be held as a breach of fiduciary duty and he will be liable for indemnification to the company.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn16" name="_ftnref16" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[16]</a></span>It has been held that directors being the trustee have to deal with business and its property the way they treat their own personal property and interest.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn17" name="_ftnref17" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[17]</a></span></span></li>
<li style="box-sizing: border-box; line-height: 26px; margin-left: 21px;"><span style="box-sizing: border-box; font-family: "times new roman", times, serif;"><strong style="box-sizing: border-box;">Ultra vires act</strong>: Directors have powers subject to Companies Act, Memorandum and Articles of association. Whenever they exceed these limits they are personally liable for the act being ultra vires. But if acts are intra-vires the company such acts can be subsequently ratified by the shareholders in the general meeting, otherwise, if a company suffers a loss on ultra-vires acts of its directors, the company can claim such loss from the directors.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn18" name="_ftnref18" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[18]</a></span></span></li>
<li style="box-sizing: border-box; line-height: 26px; margin-left: 21px;"><span style="box-sizing: border-box; font-family: "times new roman", times, serif;"><strong style="box-sizing: border-box;">Negligence</strong>: As long as the Directors exercise reasonable care and due diligence, they are fulfilling their duties to the company. But as soon as there is the failure to exercise such care and precaution they are deemed to be negligent in their conduct and are personally liable for the consequent damages. However, the error of judgement will not be deemed as negligence.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn19" name="_ftnref19" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[19]</a></span> “Business runs on a going concern, which will not be possible if people doubt every step of the trust holders or office holders.”<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn20" name="_ftnref20" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[20]</a></span></span></li>
<li style="box-sizing: border-box; line-height: 26px; margin-left: 21px;"><strong style="box-sizing: border-box; font-family: "times new roman", times, serif;">Mala fide acts</strong><span style="box-sizing: border-box; font-family: "times new roman", times, serif;">: Directors are the trustees for the money and property of the company. They hold an office of trust and if they misuse their powers they will be liable for breach of trust and may be required indemnify the losses incurred due to.they need to make regular disclosures on their profits, if any, earned in course of the performance of duties. Director can also be held liable for misconduct, provided it is not willful. </span></li>
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<span style="box-sizing: border-box; color: #ff6600; font-family: "times new roman", times, serif;">Liability to third parties</span><span style="box-sizing: border-box; font-family: "times new roman", times, serif;"><em style="box-sizing: border-box;"> </em></span></h4>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">The directors as agents of the company are not most of the times personally liable to third parties for any transaction entered on behalf of the company. Their acts bind the company to third parties. Generally, the rule is that wherever an agent, in a principal- agency concept liable, directors would be liable. They can be held personally liable only in exceptional circumstances when they contract in a personal capacity, or when the principal is not disclosed, or when it is a pre-incorporation contract or when the contract is ultra vires the company and is not ratified subsequently</span></div>
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<span style="box-sizing: border-box; color: green; font-family: "times new roman", times, serif;">Positioning Directors duty in International Paradigm</span></h3>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">Different countries have adopted different approaches to addressing the conundrum of duties and liabilities of Directors. In the UK directors are given full discretion to run the companies. Essentially directors are here deemed to have contractual powers according to which they can enter into any profitable contract that they deem fit for the company. Thus they act in the capacity of agents whereas, in the US, directors are neither “agents” of the corporation nor of the shareholders. They have a fiduciary relationship according to which they have to manage the corporation.</span></div>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">Directors owe duties of care and loyalty to their corporation. They also owe a duty of absolute loyalty and utmost good faith. Prime difference between US & UK law is that in the latter the duty is owed as a whole to the corporation instead of owing it directly to the shareholders However, an in-depth analysis shows that the duty of directors duties in the UK is basically a duty to their shareholders, but the way of interpretation has brought this difference. The duty herein is owed to shareholders as a body and not to individual shareholders<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn21" name="_ftnref21" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[21] </a></span>which is well evident now in sec 170 of their companies act 2006 On the other hand as far as the duty of loyalty is concerned, directors have acted in the best interest of their company accompanies with good faith. Although this case is considered to be a good law and followed throughout the same has been dissented within subsequent cases wherein it was held that in circumstances where a shareholder has solely relied on the director’s guidance, a director may owe a greater duty to an individual shareholder.<span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn22" name="_ftnref22" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[22]</a></span></span></div>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">The American business judgement rule focuses more on procedure than on result whereas in U.K there is an objective test to determine bad faith or good faith transactions. It’s only incomplete irrationality that directors are made liable for business decisions in America.</span><span class="ezoic-adpicker-ad" id="ezoic-pub-ad-placeholder-132" style="box-sizing: border-box;"></span><span class="ezoic-ad link-h-large-3 adtester-container adtester-container-132" data-ez-name="lawtimesjournal_in-link-h-large-3" style="box-sizing: border-box; display: block !important; float: none; margin: 15px 0px !important; min-width: 728px; text-align: center !important;"></span></div>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">Finally, U.K jurisprudence requires that directors should act in such a manner that there exists no conflict of interests and also no personal advantage could be taken by virtue of their position. Here the defence of business judgement rule is ineffective when there is a violation of the duty of loyalty. They are better known here by the name of ‘The no- conflict rule’ and ‘The no-profit rule’ respectively.</span></div>
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<span style="box-sizing: border-box; color: green; font-family: "times new roman", times, serif;">Critical analysis of sec 166</span></h3>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">Codified duties of directors is not a new concept. Its been since long that countries like the UK, Singapore have done codification. .Section 170 of the English Companies Act stipulates that the director’s duties are directed towards the company. The Indian Act fails to provide such clarity, due to which there still remains confusion as to whom the directors own such duties primarily, company or the shareholders.</span></div>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">Companies Act 2013 is a revolution in corporate law development in India. The legislature, through this, has tried to bring the Indian corporate law in International paradigm. Although the inclusion of diverse groups makes it a bit complex still the efforts to serve the interest of stakeholders and society at large is applaudable. The major cause of concern is the unaccountability of directors due to differences in interests. Moreover, there is an immediate need to demarcate the duties owed to the company against that of stakeholders. There must be harmonious construction between commercial considerations of the company and the interests of stakeholders. Thus the courts have been left to strike such a balance so as to reconcile the differences in two extremes.</span></div>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">Also, it becomes pertinent to define good faith and best interest in order to gauge the difference between the two. Good faith is “<em style="box-sizing: border-box;">bona fide state of mind which includes honesty, faithfulness, observance of reasonable commercial</em> <em style="box-sizing: border-box;">standards and absence of intent</em> <em style="box-sizing: border-box;">to defraud”</em>. Best Interest, on the other hand, involves the duty of loyalty with an intention to equitably serve the best interests of all concerned. </span></div>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">In <span style="box-sizing: border-box; color: blue;">Stone v. Ritter</span><span style="box-sizing: border-box; font-size: 11.25px; line-height: 0; position: relative; top: -0.5em; vertical-align: baseline;"><a href="http://lawtimesjournal.in/duties-liabilities-of-director/#_ftn23" name="_ftnref23" style="background-color: transparent; box-sizing: border-box; color: #4db2ec; text-decoration-line: none;">[23]</a></span>it was held that directors must exercise their prudence in carrying out the company’s operations, regardless of what the court may consider the best interest. Directors should ordinarily balance out commercial interest and shareholder’s interest on the scale of an ordinarily prudent person. The duty of good faith somehow acquires higher precedence than the best interest due to the additional element of ‘belief’. It sets a higher benchmark as a director acting in violation of good faith could not be saved by ‘business judgement rule’ even if the act has the approval of the board of the company. </span></div>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">There is a lot of objectivity involved in the best interest criterion. The ‘good faith standard’ places itself on a higher platform as it includes belief too. Since the verbatim of section 166 of Companies Act 2013 does not create a hierarchy between various groups, priority selection creates an enigma. Sometimes maximization of profit may not go hand in hand with environmental interest. Reconciliation of such interest poses serious problems and at such times, the director must take into consideration of all stakeholders and discharge his duty of acting in good faith, to arrive at a decision.</span></div>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">The mentioning of the term ‘company’ twice in section 166(2) evidently suggests that the director owes a duty of good faith read with best interest criterion. A distinction between the two terms could have been presumed had the term not been used in the second part. This results in a conclusion that the legislature intends to put interests of the company, as a whole, over other stakeholders.</span></div>
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<span style="box-sizing: border-box; color: green; font-family: "times new roman", times, serif;">Conclusion</span></h3>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">Companies, by their very nature, incapable of acting on its own despite having a separate legal entity. This is where comes the role of directors who are akin to the company’s guardians. In acting in such a capacity they are expected to work in the best interest of the company and its shareholders and not in their personal interest- contra naturam suam.</span></div>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">This conflict of interest creates myriad conundrums leading to various interpretations. In light of the same, there emerges an immediate need to analyse the duties and liabilities of directors apropos American and British jurisprudence. Under custom-based law rules and even-handed standards, executive’s obligations are to a great extent gotten from the law of office and trusts (i.e., set of authoritative, semi-legally binding and non-legally binding trustee associations with the Organization). Under the law of office, obligations of aptitude, care and persistence are forced on executives. Then again, the law of trusts force trustee obligations on chiefs. As needs are, directors are the trustees of the organization’s cash and property, and furthermore, go about as specialists in the exchange which they go into in the interest of the organization. Executives are at risk as trustees for rupture of trust, on the off chance that they twisted the assets or submitted break of byelaws of the organization. </span></div>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">A director is relied upon to play out his obligations as a sensibly persevering individual having the information, ability and experience both of an individual completing that director’s capacity also, and of that individual himself. An executive, along these lines, assume different jobs in the organization, let it be of a specialist, a representative (when designated on the rolls of the organization), an officer and additionally a trustee of the Organization. Thereby wide interpretation needs to be given so as to include each and every dimension of this duty.</span></div>
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<span style="box-sizing: border-box; color: red; font-family: "times new roman", times, serif;">Frequently Asked Questions(FAQ’S)</span></h3>
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<span style="box-sizing: border-box; color: #ff6600; font-family: "times new roman", times, serif;">1. Why is there a need for including duties of directors in statutes?</span></h4>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">They were an instant need to define them to bring objectivity. This will give less discretion to the courts to decide whether there is a breach or not, rather they will have to decide it according to the set criteria.</span></div>
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<span style="box-sizing: border-box; color: #ff6600; font-family: "times new roman", times, serif;">2. What is the role of directors in a company?</span></h4>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">The <strong style="box-sizing: border-box;">board of directors</strong>‘ key purpose is to ensure the company’s prosperity by collectively directing the company’s affairs, whilst meeting the appropriate interests of its shareholders and stakeholders</span></div>
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<span style="box-sizing: border-box; color: #ff6600; font-family: "times new roman", times, serif;">3. What were the duties of directors in companies act 1956?</span></h4>
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<li style="box-sizing: border-box; line-height: 26px; margin-left: 21px; text-align: justify;"><span style="box-sizing: border-box; font-family: "times new roman", times, serif;">The duty of good faith</span></li>
<li style="box-sizing: border-box; line-height: 26px; margin-left: 21px; text-align: justify;"><span style="box-sizing: border-box; font-family: "times new roman", times, serif;">The duty of reasonable care</span></li>
<li style="box-sizing: border-box; line-height: 26px; margin-left: 21px; text-align: justify;"><span style="box-sizing: border-box; font-family: "times new roman", times, serif;">Duty to attend board meetings</span></li>
<li style="box-sizing: border-box; line-height: 26px; margin-left: 21px; text-align: justify;"><span style="box-sizing: border-box; font-family: "times new roman", times, serif;">The duty of personal attendance</span></li>
<li style="box-sizing: border-box; line-height: 26px; margin-left: 21px; text-align: justify;"><span style="box-sizing: border-box; font-family: "times new roman", times, serif;">Duty to disclose interest</span></li>
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<span style="box-sizing: border-box; color: #ff6600; font-family: "times new roman", times, serif;">4. Whether directors share a fiduciary relationship with co. in India?</span><span style="box-sizing: border-box; font-family: "times new roman", times, serif;"><strong style="box-sizing: border-box;"> </strong></span></h4>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">Yes, Fiduciary Duty of <strong style="box-sizing: border-box;">Good Faith</strong> and Fair Dealing. This fiduciary duty is closely aligned with the duties of care, <strong style="box-sizing: border-box;">loyalty</strong>, and <strong style="box-sizing: border-box;">obedience</strong>. Under this duty, officers and directors must act with <strong style="box-sizing: border-box;">honesty</strong>, <strong style="box-sizing: border-box;">good faith</strong>, and fairness when handling corporate obligations</span></div>
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<span style="box-sizing: border-box; color: #ff6600; font-family: "times new roman", times, serif;">5. What is the consequence of the non-performance of directors duties?</span><span style="box-sizing: border-box; font-family: "times new roman", times, serif;"><strong style="box-sizing: border-box;"> </strong></span></h4>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;"></span></div>
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<span style="box-sizing: border-box; font-family: "times new roman", times, serif;">If a director of the company contravenes the provisions of this section such </span><span style="box-sizing: border-box; font-family: "times new roman", times, serif;">the director shall be punishable with fine which shall not be less than one lakh rupees but which </span><span style="box-sizing: border-box; font-family: "times new roman", times, serif;">may extend to five lakh rupee.</span></div>
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musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com0tag:blogger.com,1999:blog-1315755092560562336.post-63208368303231616432020-05-01T06:40:00.003-07:002020-05-01T06:40:32.900-07:00Corporate Law= position of Directors<div dir="ltr" style="text-align: left;" trbidi="on">
<span style="font-size: large;"><span style="background-color: #e8e6d7; box-sizing: border-box; color: maroon; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;"><span style="box-sizing: border-box; font-weight: 700; margin: 0px; padding: 0px;">Position Of Directors</span></span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">It is not easy to explain the position that a director holds in a corporate enterprise. A director is not a servant of any master. He is the controller of the company’s affairs. Director of a company is neither an employee nor a servant to the company. They are professional people who were hired by the company to direct its affairs.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">However there is no restriction under the Act, that a director cannot be an employee to the company. In </span><span style="background-color: #e8e6d7; font-family: "Open Sans", Arial, sans-serif;"><span style="color: red;">Lee v. Lee’s Air Farming Ltd,</span></span><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"> it was held that, a director may, however, work as an employee in different capacity. There is no definite definition for director under the Companies Act, 1956. Director includes any person who is occupying the position of a director, whatever name called. So in order to understand the position of a director in a company we have to look in to various decided cases.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">In</span><span style="background-color: #e8e6d7; box-sizing: border-box; color: red; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;"> Judhah v. Rampada Gupta</span><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">, it was held that, director of a company registered under this Act are persons duly appointed by the company to direct and manage the business of the company. A director is sometimes described as agents, trustees, managing partners etc. But each of these expressions is used not as exhaustive of their powers and responsibilities, but as indicating useful points of view from which they may for the moment and for the particular purpose be considered.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: maroon; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;"><span style="box-sizing: border-box; font-weight: 700; margin: 0px; padding: 0px;">Director As Agents</span></span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">In </span><span style="background-color: #e8e6d7; box-sizing: border-box; color: red; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;">Ferguson v. Wilson</span><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">, the court clearly recognised that directors are in the eyes of law, agents of the company. It was held that, the company has no person; it can act only through directors and the case is, as regards those directors, merely the ordinary case of a principal and agent. When the directors contract in the name, and on behalf of the company, it is the company which is liable on it and not the directors.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">In </span><span style="background-color: #e8e6d7; box-sizing: border-box; color: red; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;">Elkington & Co. v. Hurter</span><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">, where the plaintiff supplied certain goods to a company through its chairman, who promised to issue him a debenture for the price, but never did so and company went into liquidation, he was held not liable to the plaintiff. Similarly, a director was held to be personally not liable in a suit against a private chit fund company. Attachment of the property of the director was held to be not permissible.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">Like agents, directors have to disclose their personal interest, if any, in any transaction of the company. In </span><span style="background-color: #e8e6d7; font-family: "Open Sans", Arial, sans-serif;"><span style="color: red;">Ray Cylinders & Containers v. Hindustan General Industries Ltd</span></span><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">, held that, the directors are the agents of the institution and not of its individual members, except when that relationship arises due to the special facts of the case. Also granted permission to file a suit against a company was not allowed to be treated as permission against directors as well.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">In </span><span style="background-color: #e8e6d7; box-sizing: border-box; color: red; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;">Sarathi Leasing Finance Ltd v. B Narayana Shetty</span><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">, the articles of association empowered the managing director to represent the company in legal proceedings. It was held that a further authorization was not necessary to enable him to file a complaint for dishonor of cheque under Sec. 138 of Negotiable Instrument Act.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;"><b>Directors are the agents of a company</b>. </span></span><br />
<span style="font-size: large;"><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">They are acting on behalf of the company. So the directors cannot be held personally liable for any default of the company. It was held that, for a loan taken by a company, the directors, who had not given any personal guarantee to the creditor, could not be made liable merely because they were directors.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: maroon; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;"><span style="box-sizing: border-box; font-weight: 700; margin: 0px; padding: 0px;">Director As Trustees</span></span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">Directors are the trusties of the company’s money, property and their powers and such must account for all the moneys over which they exercise control and shall refund any moneys improperly paid away, and shall exercise their powers honestly in the interest of the company and all the shareholders, and not their own sectional interest.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">The directors of a company are trustees for the company, and for reference to their power of applying funds of the company and for misuse of the power they could be rendered liable as trustees and on their death, cause of action survives against their legal representatives. Directors are those persons selected to manage the affairs of the company for the benefit of shareholders. It is an office of trust, which if they undertake, it is their duty to perform fully and entirely. This peculiar nature of their office is one of the reason why the directors been described as trusties.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">In the real sense the directors are not trustees. A trustee is the legal owner of the trust property and contracts in his own name. On the other hand, director is a paid agent or officer of the company and contracts for the company. In fact, the directors are commercial men managing a trading concern for the benefit of themselves and of all the shareholders in it.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">To whom the directors are trustee? Whether to the company or to the individual shareholders. This principle was laid down in 1902 in </span><span style="background-color: #e8e6d7; font-family: "Open Sans", Arial, sans-serif;"><span style="color: red;">Percival v. Wright</span></span><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">, and still holds ground as a basic proposition. In this case the court held that, directors have no duty towards individual shareholders. From this it is very clear that, the directors are trustees to the company and not of individual shareholders. The principle of the case was reiterated in </span><span style="background-color: #e8e6d7; font-family: "Open Sans", Arial, sans-serif;"><span style="color: red;">Peskin v. Anderson</span></span><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">. Ordinarily the directors are not agents or trustees of members or shareholders and owe no fiduciary duties to them.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">However we have to take the decision of </span><span style="background-color: #e8e6d7; font-family: "Open Sans", Arial, sans-serif;"><span style="color: red;">Allen v. Hyatt</span></span><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">. It was held that, the directors are trustees of the profit for the benefit of the shareholders. They cannot always act under the impression that they owe no duty to the individual shareholders. But it is of no doubt that the primary duty of the director is to the company.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">But in such circumstances where the directors act as agents for the share holders, the later would be liable to the purchasers of their shares for any fraudulent misrepresentation made by the directors in the course of negotiations.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: maroon; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;"><span style="box-sizing: border-box; font-weight: 700; margin: 0px; padding: 0px;">Director As Organs Of Corporate Body</span></span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">The organic theory of corporate life “treats certain officials as organs of the company, for whose action the company is held liable just as a natural person is for the action of his limbs. Thus the modern directors are more than mere agents or trustees. The Board is also correctly recognised to be a primary organ of the company. Directors and managers represent the directing mind or will of the company and control what it does.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">The state of mind of these managers is the state of mind of the company and is treated by law as such. The practical effects of these rules are that the directors’ personal fault in the business of the company becomes the “fault of the company”; their reason to believe is attributed to the company and the intention to occupy a premises as expressed by their conduct is the intention of the company.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; box-sizing: border-box; color: maroon; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;"><span style="box-sizing: border-box; font-weight: 700; margin: 0px; padding: 0px;">Conclusion</span></span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">A Director is an agent of the Company for the conduct of the business of the company. Directors of a company have fiduciary relationship with the company as well as the shareholders when he acts as an agent or officers of a company.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">The director as the Companies Act, 1956 indicates, holds an extremely important position in the administration and management of a Company. It must be noted that the director actually works in different capacities at different times to ensure that the company is run in a legal and an efficient manner. The Act places immense responsibility on the soldiers of the directors.</span><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><br style="background-color: #e8e6d7; box-sizing: border-box; color: #333333; font-family: "Open Sans", Arial, sans-serif; margin: 0px; padding: 0px;" /><span style="background-color: #e8e6d7; color: #333333; font-family: "Open Sans", Arial, sans-serif;">Directors are bound to use their fair and reasonable diligence while discharging their duties and they shall act honestly, and with such care as may be reasonably expected from, having regard to their knowledge and experience</span></span></div>
musingshttp://www.blogger.com/profile/05389533080454184063noreply@blogger.com0tag:blogger.com,1999:blog-1315755092560562336.post-51305358183800348182020-04-29T22:18:00.000-07:002020-04-29T22:18:28.870-07:00Cost Accounting Reconciliation of Cost and Financial Accounting<div dir="ltr" style="text-align: left;" trbidi="on">
<em style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The word ‘Reconcile’ means to tally, conciliate, harmonize, bring together or equate.</span></em><br />
<em style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><br /></span></em>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<em style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The term reconciliation applies to the reconciliation of the results of the business profit or loss as shown by the financial accounting records and the cost accounting records.</span></em></div>
<em style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></span></em><br />
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<em style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">When cost accounts and financial accounts are maintained separately, the profit shown by one set of books may not agree with that of the other set.</span></em></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<em style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">In such a situation, it is necessary to reconcile the results (profit/loss) shown by two sets of books. Such reconciliation proves arithmetical accuracy of data, explains reasons for the difference in the two sets of books and affords reliability to them.</span></em></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<em style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><b style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; color: #424142; font-style: normal; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Following are the main causes of difference between the results shown by the cost accounts and the financial accounts:</span></b></span></em></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">1. Estimates and Actuals:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The cost can be computed either on actual or estimated basis. Since cost accounts are meant to function as a control device it will be appropriate to adopt estimated costing or preferably standard costing system while preparing cost accounts. Estimates or standards can be nearer to the actuals but in most cases they cannot be the same. This necessarily means that the profit shown by the cost accounts is bound to be different from the profit shown by the financial accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<em style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><b style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; color: #424142; font-style: normal; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></span></b></span></em></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Following are some of the important items the costs of which may be different in financial books and costing books:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(a) Direct Materials:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The estimated or standard cost of the direct materials purchased or consumed in the production process may be different from the actual costs. This difference will be due to change in price or quantity or both.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(b) Direct Labour:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The estimated or standard cost of direct labour may be different from the actual costs because of differences in wage rates or hours of work or both. Sometimes, workers might have to be paid more due to increased dearness allowance, pay revision, bonus etc. This will cause difference between the profits shown by the two sets of books.</span></div>
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<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(c) Overheads:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">In cost accounts the recovery of overheads is generally based on estimates while in financial accounts the actual expenses incurred are recorded. This results in under-or over-recovery of overheads.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The under-recovery or over-recovery of overheads may be carried forward to the next period or may be charged by a supplementary rate (positive or negative) or transferred to costing Profit and Loss Account. In case the under-recovery or over-recovery of overheads has been carried forward to the next period, the profit as shown by the costing books will be different from the profit as shown by the financial books. Such variation may be due to over-or-under charging of factory, office or selling and distribution overheads.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(d) </b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Depreciation:</b></span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-weight: 300;">Different methods of charging depreciation may be adopted in cost and financial books. In financial books depreciation may be charged according to fixed installment method or diminishing balance method etc. while in cost accounts machine hour rate or any other method may be used. This is also an item of overheads and may be one of the reasons of difference between the overheads charged in financial accounts and overheads charged in cost accounts.</span></b></span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">2. Valuation of Stocks:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(a) Raw materials – In financial accounts stock of raw materials is valued at cost or market price, whichever is less, while in cost accounts stock can be valued on the basis of FIFO or LIFO or any other method. Thus, the figure of stock may be inflated in cost or financial accounts.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></b></span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(b) Work-in-progress – Difference may also exist regarding mode of valuation of work-in-progress. It may be valued at prime cost or factory cost or cost of production. The most appropriate mode of valuation is at factory cost in cost accounts. In financial accounts work-in-progress may be valued after considering a part of administrative expenses also.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(c) Finished goods – Under financial accounts, stock of finished goods is valued at cost or market price whichever is lower. In cost accounts, finished stock is generally valued at total cost of production. If the circumstances warrant, prime cost or factory cost may also be taken as the basis for valuing the stock of finished goods.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Thus, mode of valuation of stocks gives rise to different results in the two sets of books. Greater valuation of opening stocks in cost accounts means less profit as per cost accounts and vice versa. Greater valuation of closing stocks in cost accounts means more profit as per cost accounts and vice versa.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">3. Items Included in Financial Accounts Only:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">There are certain items which are included in the Financial Accounts but not in the Cost Accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">These include the following:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(a) Appropriation of profits e.g., provision for taxation, transfer to reserves, goodwill, preliminary expenses written off.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(b) Purely financial charges e.g., losses on sale of investments; penalties and fines, expenses on transfer of company’s office.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(c) Purely financial incomes e.g., interest received on bank deposits, profits made on the sale of investments, fixed assets, transfer fees received etc.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">4. Items Included in Cost Accounts Only:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">There are certain notional items which are excluded from the financial accounts but are charged in the cost accounts:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(i) Charge in lieu of rent where premises are owned.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(ii) Depreciation on an asset even when the book value of the asset is reduced to a negligible figure.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iii) Interest on capital employed in production but upon which no interest is actually paid (this will be the case when the firm decides to include interest in the overheads).</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The above items will reduce the profits in Cost Accounts as compared to that in Financial Accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">5. Abnormal Gains and Losses:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Abnormal gains or losses may completely be excluded from cost accounts or may be taken to costing profit and loss account. In financial accounts such gains and losses are taken to profit and loss account. As such, in the former case costing profit/loss will differ from financial profit/loss and adjustment will be required. In the latter case, there will be no difference on this account between costing profit or loss and financial profit or loss.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Therefore, no adjustment will be required on this account. Examples of such abnormal gains and losses are abnormal wastage of materials e.g., by theft or fire etc., cost of abnormal idle time, cost of abnormal idle facilities, exceptional bad debts, abnormal gain in manufacturing through processes (when actual production exceeds normal production).</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The need for reconciliation will not arise in case of a business where Integral or Integrated Accounting System is in use as there will be only one set of books both for financial and costing records. But where there are separate sets of books, reconciliation is imperative.</span></div>
<h4 style="background: rgb(255, 255, 255); border: 0px; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin: 0px 0px 0.5em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Preparation of Reconciliation Statement or Memorandum Reconciliation Account:</b></h4>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">A Reconciliation Statement or a Memorandum Reconciliation Account should be drawn up for reconciling profits shown by the two sets of books. Results shown by any sets of books may be taken as the base and necessary adjustment should be made to arrive at the results shown by the other set of books.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The technique of preparing a Reconciliation Statement as well as a Memorandum Reconciliation account is discussed below:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The preparation of reconciliation statement involves the following steps:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(1) Profit as per any set of books (cost or financial) may be taken as the base. This is as a matter of fact the starting point for determining the profit as shown by the other set of books after making suitable adjustments taking into consideration the causes of difference.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(2) The effect of the particular cause of difference should be studied on the profits shown by the other set of books.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(3) In case, the cause has resulted in an increase in the profit shown by other set of books, the amount of such increase should be added to the profit as per the former set of books which has been taken as the base.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(4) In case, the cause has resulted in a decrease in the profit shown by other set of books, the amount of such decrease should be subtracted from the profit as per the former set of books which has been taken as the base.</span></div>
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<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><a href="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image002_thumb2.jpg" style="background: transparent; border: 0px; color: #888888; margin: 0px; outline: 0px; padding: 0px; text-decoration-line: none; vertical-align: baseline;"><img alt="" border="0" height="137" src="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image002_thumb2_thumb.jpg" style="background: none rgba(255, 255, 255, 0.7); border: 0px solid rgb(230, 230, 230); display: block; float: none; height: auto; margin: 0px auto; max-width: 100%; outline: 0px; padding: 0px 0px 3px; vertical-align: bottom;" title="" width="696" /></a></span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">There is a difference of Rs. 300 between the profit as shown by the financial books and the profit as shown by the cost books.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">A reconciliation statement can be prepared to reconcile, on the following basis, the profits shown by two sets of books:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">1. Profit as per cost accounts may be taken as the base. In other words, the profit as shown by the financial books can be found out if suitable adjustments are made in this figure of profit after taking into account the above causes of difference.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">2. Works overheads have been charged more in financial accounts than those in cost accounts. This means profit as shown by the financial accounts is less than the profit as shown by the cost accounts by Rs. 500 (the amount of under-recovery). Since profit as per cost accounts has been taken as the base, the amount of Rs. 500 should be subtracted from this base profit to arrive at the profit as shown by the financial accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">3. The inclusion of interest on capital as an expense has resulted in decrease in profits as shown by financial books. In other words, the profit as shown by the cost books is more than the profit as shown by the financial books by Rs. 500 (the amount of interest). The amount should, therefore, be subtracted from the base profit.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">4. Dividend received has been credited in financial books. This means the profit as shown by the financial books is more than the profit as shown by the cost books by Rs. 1,000. The amount should, therefore, be added to the profit as shown by the cost books,</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">5. No charge is made in financial books for rent on owned buildings. The amount has however been charged in the cost books. It means the profit as shown by the financial books is higher than the profit as shown by the cost books by this amount. The amount, therefore, should be added to the profit as shown by the cost books.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The reconciliation statement may now be conveniently presented in the following form:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><a href="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image004_thumb2.jpg" style="background: transparent; border: 0px; color: #888888; font-weight: bold; margin: 0px; outline: 0px; padding: 0px; text-decoration-line: none; vertical-align: baseline;"><img alt="" border="0" height="187" src="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image004_thumb2_thumb.jpg" style="background: none rgba(255, 255, 255, 0.7); border: 0px solid rgb(230, 230, 230); display: block; float: none; height: auto; margin: 0px auto; max-width: 100%; outline: 0px; padding: 0px 0px 3px; vertical-align: bottom;" title="" width="704" /></a></span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">In case, in the above example, the cost accounts show a loss of Rs. 10,000, in place of a profit, the amount of loss should be put in the ‘minus’ column. The reconciliation statement should then be prepared on the same pattern assuming that there is a profit in place of there being a loss.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Preparation of Memorandum Reconciliation Account:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The memorandum reconciliation account can be prepared on the same lines as a reconciliation statement, the only difference is that in the former ‘Dr.’ denotes’-‘ while ‘Cr.’ denotes ‘+’.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Taking the above example, the memorandum reconciliation account will appear as follows:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><a href="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image005_thumb2.jpg" style="background: transparent; border: 0px; color: #888888; font-weight: bold; margin: 0px; outline: 0px; padding: 0px; text-decoration-line: none; vertical-align: baseline;"><img alt="" border="0" height="164" src="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image005_thumb2_thumb.jpg" style="background: none rgba(255, 255, 255, 0.7); border: 0px solid rgb(230, 230, 230); display: block; float: none; height: auto; margin: 0px auto; max-width: 100%; outline: 0px; padding: 0px 0px 3px; vertical-align: bottom;" title="" width="669" /></a></span><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></b></div>
<h4 style="background: rgb(255, 255, 255); border: 0px; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin: 0px 0px 0.5em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Importance of Reconciliation Statement:</b></h4>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">In case separate set of books are maintained for costing and financial transactions, usually there will be a difference between profit shown by cost accounts and profit shown by financial accounts. However, it is also possible, per chance, that the overall profit shown by two sets of books is the same. Nevertheless all cases, the results shown by both the set of books are to be reconciled to identify the causes of difference (if any) and to establish accuracy of both the sets of books.</span></div>
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<h3 style="background: rgb(255, 255, 255); border: 0px; font-family: Georgia, serif; font-size: 22px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin: 0px 0px 0.5em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span id="Reconciliation_of_Cost_and_Financial_Accounts_8211_Need_Procedure_for_Reconciliation_and_Causes_of_Difference_between_Profit_Shown_by_Cost_and_Financial_Accounts" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: rgb(255, 255, 0); border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Reconciliation of Cost and Financial Accounts – Need, Procedure for Reconciliation and Causes of Difference between Profit Shown by Cost and Financial Accounts</span></span></h3>
<h4 style="background: rgb(255, 255, 255); border: 0px; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin: 0px 0px 0.5em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Need for Reconciliation:</b></h4>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">When cost accounts and financial accounts are maintained separately, the profit shown by one set of books may not agree with that of the other set. In such a situation, it is necessary to reconcile the results (profit/loss) shown by two sets of books. Such reconciliation proves arithmetical accuracy of data, explains reasons for the difference in the two sets of books and affords reliability to them.<s style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></s></span></div>
<h4 style="background: rgb(255, 255, 255); border: 0px; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin: 0px 0px 0.5em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Causes of Difference between Profit Shown by Cost Accounts and Financial Accounts:</b></h4>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">There are certain items, which appear in financial books only and not recorded in cost accounting books. Similarly, there may be some items, which appear in cost accounts only and do not find place in the financial books.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The following items of expenditures/losses appear only in financial books:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">1. Interest on bank loans, mortgage, debentures, etc.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">2. Expenses on stamp duty, discount and other expenses relating to issue and transfer of shares and debentures.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">3. Fines and penalties.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">4. Loss on sale of fixed assets.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">5. Loss on sale of investments.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The following items of incomes/gains are recorded in the financial books only:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">1. Interest received on bank deposits and other investments.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">2. Dividend received on investment in shares.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">3. Rental income, etc.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">4. Fees received on issue and transfer of shares, etc.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">5. Profit on sale of fixed assets</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">6. Profit on sale of investments.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Besides the above, there are special or abnormal items of expenditure and income, which are not included in the cost of production. If they are included, cost ascertainment will not be correct.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">These are:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">1. Excessive or avoidable rejections.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">2. Defective work and spoilage.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">3. Heavy losses of stores.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">4. Loss due to theft or pilferage.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">5. Loss on account of natural calamities.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">6. Abnormal idle time.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">7. Unexpected large incomes and other abnormal gains.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Other reasons for the difference between the results of two sets of books are:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">1. Wages – Often in cost accounts, direct wages are charged on the basis of predetermined rates whereas in financial accounts actual expenditure on wages is recorded.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">2. Overheads – In cost accounts, overheads are generally absorbed on the basis of a predetermined overhead rate whereas in financial accounts actual expenditure on overheads is recorded.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">3. Depreciation – Depreciation may be charged on different bases in financial and cost accounts. For example, in financial accounts, it may be charged according to written down value method recognized by the Income Tax Act whereas in cost accounts it may be charged on the basis of the life of the machine in terms of production hours.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">4. Valuation of Closing Stock – Different methods of valuation of closing stock adopted in cost and financial accounts also cause difference between the results of two sets of books. In financial accounts, the method generally followed is cost or market price, whichever is less, while in cost accounts only cost is the basis.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">5. Notional Charges – Sometimes, notional charges such as interest on capital, rent for own premises, salary of owner-manager, etc. are included in cost accounts. But they do not appear in financial accounts, as there are no actual out go on these items.</span></div>
<h4 style="background: rgb(255, 255, 255); border: 0px; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin: 0px 0px 0.5em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Procedure for Reconciliation:</b></h4>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The following procedure may be followed for reconciliation:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">1. Ascertain items, which appear in financial accounts but not in cost accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">2. Ascertain items that appear in cost accounts only but not in financial accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">3. Determine the extent of difference between actual indirect expenses as recorded in financial books and the amount of overheads recovered in cost books.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">4. Compare the figures of valuation of stock of raw materials, work-in- progress, stores and finished goods as shown in cost accounts and financial accounts and ascertain the amount of difference.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">5. Ascertain other items, which are shown in cost as well as financial accounts but differ in value.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">6. Prepare Reconciliation Statement, which is also called Memorandum Reconciliation Statement.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">7. Start with the profit as per cost accounts and reach the profit as per financial accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">8. Add or deduct, as the case may be, items which differ from financial accounts, and items which are recorded in financial accounts and not in cost accounts. A brief explanation may be given in respect of each addition or deduction.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">9. All items of expenditures/losses, which appear in financial accounts but not in cost accounts will be deducted and all items of income/gains appearing in financial accounts but not in cost accounts will be added. Reverse will be the treatment of items appearing in cost accounts but not appearing in financial accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">In the same way adjustment will be made for difference between any items appearing in both the accounts. For example, expenses overcharged in cost accounts will be added to and expenses undercharged in cost accounts will be deducted from the profit as per cost accounts to arrive at the profit as per financial accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">10. If reconciliation statement is started with profit as per financial accounts and ended with profit as per cost accounts, the above additions and deductions will be reversed.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">11. After making necessary additions and deductions, the resultant figure is profit as per financial accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">12. The above reconciliation may be carried out by preparing a memorandum reconciliation account</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">13. In case of a memorandum reconciliation account, profit as per cost accounts will be the first item on the credit side and items that are added in the reconciliation statement will also appear on the credit side. All the items, which are deducted in the reconciliation statement, will be written on the debit side. The balancing figure will be profit as per financial accounts.</span></div>
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<h3 style="background: rgb(255, 255, 255); border: 0px; font-family: Georgia, serif; font-size: 22px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin: 0px 0px 0.5em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span id="Reconciliation_of_Cost_and_Financial_Accounts_With_Specimen_of_Reconciliation_Statement_and_Memorandum_Reconciliation_Account" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Memorandum Reconciliation Account</span></h3>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">There are mainly two system of maintaining cost accounts namely:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(1) Integral System:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Under this system one set of accounts is operated which contains both financial and cost accounts. In such a system there is no need to prepare a separate reconciliation statement to reconcile the cost and financial profits,</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(2) Non-Integral System of Accounting:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Under this system, separate cost and financial accounts are maintained. Hence the profit or loss disclosed by the two sets of accounts may differ. In such cases, it becomes necessary that cost and financial accounts are reconciled. If it is not reconciled, the two sets of accounts would provide conflicting information on the basis of which unwise policy decision may be taken.</span></div>
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<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Need for Reconciliation:</b></h4>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The need for reconciliation of profits as per Financial Accounts and profits as per Cost Accounts arises due to the following reasons:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(1) Numerical Accuracy – Reconciliation of cost and financial accounts help in checking the arithmetic accuracy of two sets of accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(2) Standardisation – In the long ran standardization is achieved in policies relating to valuation of stock, depreciation or appreciation and absorption of overheads.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(3) Knowing the reasons – Reconciliation reveals the reasons for difference in profits or losses between cost and financial accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(4) Effective internal control – It becomes easier for management to take effective decisions after knowing the reasons for the changes in profits/loss by reconciling the cost and financial accounts.</span></div>
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<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Reasons for Differences in Profit or Loss Shown by Cost Accounts and Profit or Loss Shown by Financial Accounts:</b></h4>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The causes of / reasons for differences between profit shown by financial accounts and cost accounts are:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(a) Pure financial charges included in financial accounts but excluded from cost accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(b) Appropriation of profits included in financial accounts, but not included in cost accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(c) Pure financial incomes and profits included in financial accounts, but not included in cost accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(d) Notional charges included only in cost accounts, but not in financial accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(e) Under or over absorption of overheads.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(f) Abnormal wastage/efficiency in respect of materials and labour.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(g) Difference in the rate of/methods of depreciation adopted in the two sets of accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(h) Difference in the bases of stock valuation etc.</span></div>
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<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Reconciliation Statement:</b></h4>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Reconciliation means tallying the profits/losses reveled by both set of accounts. Reconciliation Statement is a statement which shows the reasons for the differences between profit and losses as shown by the cost accounts with that of the profits/losses as shown by the financial accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Preparation of Reconciliation Statement: </span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The reconciliation statement is prepared as under:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><a href="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image002_thumb2.png" style="background: transparent; border: 0px; color: #888888; font-weight: bold; margin: 0px; outline: 0px; padding: 0px; text-decoration-line: none; vertical-align: baseline;"><img alt="" border="0" height="299" src="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image002_thumb2_thumb.png" style="background: none rgba(255, 255, 255, 0.7); border: 0px solid rgb(230, 230, 230); display: block; float: none; height: auto; margin: 0px auto; max-width: 100%; outline: 0px; padding: 0px 0px 3px; vertical-align: bottom;" title="" width="583" /></a></span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">If loss is given as per cost accounts, then the above additional items should be deducted and deduction items should be added.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Memorandum Reconciliation A/c:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The reconciliation of profit or losses shown by the cost accounts and financial accounts can also be represented in for form of an account. Such an account is called Memorandum Reconciliation a/c.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">It is prepared as under:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><a href="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image004_thumb2.png" style="background: transparent; border: 0px; color: #888888; font-weight: bold; margin: 0px; outline: 0px; padding: 0px; text-decoration-line: none; vertical-align: baseline;"><img alt="" border="0" height="286" src="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image004_thumb2_thumb.png" style="background: none rgba(255, 255, 255, 0.7); border: 0px solid rgb(230, 230, 230); display: block; float: none; height: auto; margin: 0px auto; max-width: 100%; outline: 0px; padding: 0px 0px 3px; vertical-align: bottom;" title="" width="602" /></a></span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Other points to be observed:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(a) If depreciation charged is given separately as per cost accounts and financial accounts, then depreciation charged in cost accounts should be added and deprecation charged in financial accounts should be deducted.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(b) Stores adjustments (Cr.) should be added to cost profits and stores adjustments (Dr.) should be deducted from cost profits.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(c) The following items are considered as pure financial expenses. Example- Interest on capital, cash discounts, commission, loss on sale of assets, capital expenditure. These should be deducted from costing profits.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The following items are considered as pure financial incomes. Example- Interest on bank deposits and loans and investments, Dividend received, Profit on sale of investments and other fixed assets, Share transfer fees received, etc. These should be added to costing profits.</span></div>
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<h3 style="background: rgb(255, 255, 255); border: 0px; font-family: Georgia, serif; font-size: 22px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin: 0px 0px 0.5em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span id="Reconciliation_of_Cost_and_Financial_Accounts_Reasons_for_Difference_in_Profit_Figures_Methods_and_Procedures_for_Reconciliation" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><strong style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: rgb(255, 255, 0); border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Reconciliation of Cost and Financial Accounts: Reasons for Difference in Profit Figures, Methods and Procedures for Reconciliation</span></strong></span></h3>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Under Non-integrated Accounting System, two separate sets of books of accounts are kept and maintained – one, based on the principles of Financial Accounting and the other, on Cost Accounting principles. Both sets are maintained independent of each other. Of course, both sets of books of accounts are maintained on the basis of Double Entry Principles. Further, the vouchers and other documents which form the basis for recording the transactions are also same.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">In spite of this, both the sets of accounts reveal or report, normally, different amounts of profit. That means, the amount of profit revealed by one set of accounts usually does not agree with the profit figure shown by another set of accounts. There is, therefore, a need for reconciliation between two results shown by the two sets of books of accounts. </span><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Reconciliation also helps to check the accuracy in recording both the sets of accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Because, under Non-integrated Accounting System, both Financial and Cost Accounting report different amounts of profit. If they are reconciled properly, then it shows that both the sets of accounts are kept properly and accurately. On the other hand, if the two profit figures cannot properly be reconciled, then it reveals some error in one set of books or the other or in both.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Hence, W. W Bigg opines, although in most cases the Cost and Financial Accounts are kept entirely distinct, it is imperative that they be rendered capable of re-conciliating one with the other. If this were not possible, little reliance could be placed on the accuracy of Cost Accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Further, as H. G. Wheldon views, no system is complete unless it is linked up with the Financial Accounts that the results shown by both Cost and Financial Accounts may be reconciled. Hence, Reconciliation facilitates internal control. For the purpose of reconciliation, it is necessary to know the reasons as to why both report different amounts of profit.</span></div>
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<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Reasons for Difference in Profit Figures:</b></h4>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The important reasons as to why both the Cost and Financial Accounts report different amounts of profit are summarized below:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">1. Inclusion of Certain Items only in Financial Accounts:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Inclusion of Certain Items only in Financial Accounts but not in Cost Accounts also is the most important reason causing the difference in the profit figures reported by Cost and Financial Accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">These items may broadly be classified into three categories as:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">i. Purely Financial Income Items,</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">ii. Purely Financial Expenses, and</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">iii. Items of Appropriation of Profit.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<a href="https://www.blogger.com/null" name="bookmark3" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">i. Items of Purely Financial Income</span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">a. Rent received on letting out the Building,</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">b. Profit on sale of Fixed Assets and Investments,</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">c. Transfer Fees received,</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">d. Interest received on Bank Deposits and Loans granted,</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">e. Dividend received on Investments, etc.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The amounts of the above items shall be added to Costing Profit or shall be deducted from Financial Accounting Profit while reconciling.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<a href="https://www.blogger.com/null" name="bookmark4" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">ii. Items of Purely Financial Expenses</span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">a. Loss on sale of Fixed Assets and Investments,</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">b. Interest on Bank Loan, Mortgage Loan and on Debenture Capital (if it is not treated as cost in cost books of accounts),</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">c. Penalties and Damages,</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">d. Discount on Debentures,</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">e. Cost relating to issue of Shares and other Securities, and expenses of company’s Share Transfer Office,</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">f. Writing-off of Goodwill, Preliminary Expenses, Patents, Underwriting Commission, Debenture Discounts, etc.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The amounts of the above items shall be subtracted from Costing Profit or shall be added to Financial Accounting Profit while reconciling.</span></div>
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<a href="https://www.blogger.com/null" name="bookmark5" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">iii. Items of Appropriation of Profit</span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">a. Tax,</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">b. Transfers to Reserves,</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">c. Payment of Dividend, etc.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The amounts of the above items shall be subtracted from the Costing Profit or shall be added to Financial Accounting Profit while reconciling.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">2. Inclusion of Few Items only in Cost Accounts:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Inclusion of Few Items only in Cost Accounts but not in Financial Accounts is another reason for the difference in the reported profit figures. But this is not true. Because, these items which are very few are of the nature of Notional Charges. The items are interest on owned capital, rent on owned building, etc. These items do not affect the Costing Profit (even if they are considered while computing costs) as they are of the nature of transfer entries.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">For example, if (notional) rent on owned building is considered in Cost Accounts, it is only for ascertaining cost but not profit.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Because, soon after the consideration of rent on owned building for cost ascertainment, a corresponding credit is given to the Costing Profit and Loss Account as below:</span></b></div>
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<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><a href="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image004_thumb.jpg" style="background: transparent; border: 0px; color: #888888; margin: 0px; outline: 0px; padding: 0px; text-decoration-line: none; vertical-align: baseline;"><img alt="" border="0" height="294" src="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image004_thumb_thumb.jpg" style="background: none rgba(255, 255, 255, 0.7); border: 0px solid rgb(230, 230, 230); display: block; float: none; height: auto; margin: 0px auto; max-width: 100%; outline: 0px; padding: 0px 0px 3px; vertical-align: bottom;" title="" width="576" /></a></span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Therefore, these notional items do not require any adjustment in the reconciliation process as they do not either increase or decrease Costing Profit. But care should be taken to find out whether the above corresponding credit entry is passed or not. If it is not passed, then the amount of notional charges shall be added to Costing Profit or it shall be subtracted from Financial Accounting Profit.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">3. Diverse Accounting Treatments:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Diverse Accounting Treatments of some of the items in Cost Accounts and Financial Accounts is another important reason for the difference in the reported profit figures.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">A few such items are analysed below:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">i. Adoption of different bases for valuation of raw materials, work-in progress and finished goods for Cost Accounts and for Financial Accounts results in different amounts of profit. For instance, inventories should be valued for Financial Accounting purposes in accordance with the Generally Accepted Accounting Principles (GAAPs). But for Cost Accounts, any of the issue and valuation rates (such as FIFO, LIFO, etc.,) may be used. Hence, the difference in the value of inventories. This results in the difference in the reported profit figures.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">ii. Use of one depreciation method for Cost Accounts and another method for Financial Accounts also results in the difference in the reported profit figures.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">iii. Recovery of, and over- or under-absorbed, overhead expense is another reason. Because, in Financial Accounts, actual overhead expenses are charged. But in Cost Accounts, normally, overhead expenses are recovered at the pre-determined rate. Hence, the overheads absorbed is normally different from overhead expenses incurred.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">This results in over- or under-absorption of overhead expenses. If these over- or under-absorbed overhead expenses were not transferred to Costing Profit and Loss Account while computing Costing Profit, it results in the difference in the profits.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Like this, a number of factors are responsible for the difference in the profit figures reported by Cost Accounts and Financial Accounts. Hence, these factors should be properly considered while reconciling the profit figures.</span></div>
<h4 style="background: rgb(255, 255, 255); border: 0px; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin: 0px 0px 0.5em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Methods and Procedure of Reconciliation:</b></h4>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Once the reasons for the difference in profits are identified, then it is very easy to reconcile the Cost and Financial Accounts or to prepare the Reconciliation Statement. The important steps in the process of reconciliation are three.</span></div>
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<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">They are:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">1. Ascertainment of profit as per Financial Accounting (by preparing Profit and Loss Account in the Financial Books)</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">2. Ascertainment of Profit as per Cost Accounting (by preparing Income Statement or Costing Profit and Loss Account in the Cost Books), and</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">3. Reconciliation of both the profits (by preparing a Reconciliation Statement which explains the difference in profits between the two sets of book).</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">There are two methods to reconcile the Cost and Financial Accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">They are:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">1. Reconciliation Statement, and</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">2. Memorandum Reconciliation Accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">1. Reconciliation Statement:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Under the first method, a Reconciliation Statement is prepared by following the following procedure:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">i. Decide about the Starting Item – Whether the Statement shall be commenced with profit as per Cost Accounting or Financial Accounting. Because, the nature of adjustments in the form of deductions and/or additions depends upon this point. For the purpose of explaining the type of adjustments, it is assumed that the Statement is started with ‘Profit as per Cost Accounts’.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">ii. Add –</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">i. Items of Income and Gains under-recorded or not recorded in Cost Accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">ii. Items of Expenses and Losses over-charged in Cost Accounts</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">iii. Amount of Over-valuation of Opening Stocks in Cost Accounts</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">iv. Amount of Under-valuation of Closing Stocks in Cost Accounts.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">iii. Less –</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">i. Items of Expenses and Losses under-charged in Cost Accounts</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">ii. Items of Incomes and Gains over-recorded in Cost Accounts</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">iii. Amount of Under-valuation of Opening Stocks in Cost Accounts</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">iv. Amount of Over-valuation of Closing Stocks in Cost Accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">iv. The resulting Profit (i.e., 1.1 + 1.2 – 1.3) represents the amount of profit as per Financial Accounts. If the Reconciliation Statement is started with the ‘Profit as per Financial Accounts’, the above adjustments (1.2 and 1.3) are to be reversed. The resulting profit (i.e., 1.1 -1.2 + 1.3) is the amount of profit as per Cost Accounts.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><a href="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image006_thumb.jpg" style="background: transparent; border: 0px; color: #888888; font-weight: bold; margin: 0px; outline: 0px; padding: 0px; text-decoration-line: none; vertical-align: baseline;"><img alt="" border="0" height="352" src="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image006_thumb_thumb.jpg" style="background: none rgba(255, 255, 255, 0.7); border: 0px solid rgb(230, 230, 230); display: block; float: none; height: auto; margin: 0px auto; max-width: 100%; outline: 0px; padding: 0px 0px 3px; vertical-align: bottom;" title="" width="480" /></a></span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">2. Memorandum Reconciliation Accounts:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">This is the second method of reconciliation which is done in the form of an Account. As this Account is only a memorandum account, it does form a part of the Double-Entry System. The amount of profit as per Cost Accounts which is the starting point appears on the credit side of the Account and on the same credit side; all the items which shall be added to Costing Profit appear. All the items which shall deduct from the Costing Profit appear on the debit side of the Account.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The balancing figure denotes the amount of profit as per Financial Accounts. If the amount of profit as per Financial Accounting is used as the base, it appears on the debit side of the Memorandum Account. Items of additions and deductions do not change. The balancing amount represents the profit as per Cost Accounting.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">A specimen form of the Account is presented below:</span></b></div>
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<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><a href="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image008_thumb.jpg" style="background: transparent; border: 0px; color: #888888; margin: 0px; outline: 0px; padding: 0px; text-decoration-line: none; vertical-align: baseline;"><img alt="" border="0" height="343" src="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image008_thumb_thumb.jpg" style="background: none rgba(255, 255, 255, 0.7); border: 0px solid rgb(230, 230, 230); display: block; float: none; height: auto; margin: 0px auto; max-width: 100%; outline: 0px; padding: 0px 0px 3px; vertical-align: bottom;" title="" width="528" /></a></span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<a href="https://www.blogger.com/null" name="bookmark8" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Classification of Problems</span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Problems pertaining to reconciliation may be categorized into five broad categories as presented below:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">1. Problems requiring the computation of profit under both Cost and Financial Accounts before they are reconciled.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">2. Problems which require the computation of profit under one method and reconciling it with the given profit as per another Accounting.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">3. Problems which furnish the profit as per one set of accounts and require the computation of profit as per another set through reconciliation.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">4. Problems which furnish the profit figures under both the systems and require only reconciliation of these.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">5. Preparation of Memorandum Reconciliation Account.</span></div>
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<h3 style="background: rgb(255, 255, 255); border: 0px; font-family: Georgia, serif; font-size: 22px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin: 0px 0px 0.5em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span id="Reconciliation_of_Cost_and_Financial_Accounts_Need_for_Reconciliation_Preparation_of_Reconciliation_Statement_and_Memorandum_Reconciliation_Account" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Preparation of Reconciliation Statement and Memorandum Reconciliation Account</span></h3>
<h4 style="background: rgb(255, 255, 255); border: 0px; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin: 0px 0px 0.5em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Need for Reconciliation:</b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></b></span></h4>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The word ‘Reconcile’ means to tally, conciliate, harmonize, bring together or equate.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The term reconciliation applies to the reconciliation of the results of the business profit or loss as shown by the financial accounting records and the cost accounting records.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">In a concern where both financial and cost accounting systems are separately maintained, the profit or loss for a certain year is shown by each of them. Ideally both the systems must show the same amount of profit or loss, but in a practical situation, the amounts of profit according to these systems generally differ. This however does not mean that these systems are faulty, both the systems are fool-proof.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">It is for this reason that the profit or loss according to these two systems has to be reconciled. Reconciliation is equating one with the other.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Reconciliation is necessary for the following reasons:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">1. To identify the reasons that causes difference between the profits and to ensure that there are no mistakes.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">2. To ensure accuracy of arithmetic and the following of the principles of both the systems.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">3. To enlighten the management about the reasons which cause a difference between the profits.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">4. To bring about a better co-ordination and understanding between Cost and Finance Accounts wings of the organization.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">5. To standardize certain procedures followed in these systems such as stock valuation methods of depreciation, treatment of overheads, valuation of assets etc.</span></div>
<h4 style="background: rgb(255, 255, 255); border: 0px; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin: 0px 0px 0.5em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Reasons for Differences in Profit or Loss Shown by Cost Accounts and Profit or Loss Shown by Financial Accounts:</b></h4>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Items such as opening stock, purchases, expenses – both direct and indirect, sales, other incomes etc., that take place in a business organization are the same whether they are applied under Cost Accounts and Financial Accounts. Therefore the profit or loss as shown by them also must be the same.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">If these amounts are different from each other, the following are the reasons:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">1. Items Considered Only in Financial Accounts:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Some items of incomes and expenses are considered in Financial Accounts only, on account of the nature of these items. These items never find a place in Cost Accounts. If such items are expenses, the profit as per Financial Accounts alone gets reduced and in case of such items being incomes, the profit as per Financial Accounts also gets increased.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The following are such items:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(i) Purely financial expenses, loss on sale of fixed assets, investments, discount and underwriting commission on the issue of shares and debentures, interest on borrowings, debentures, penalties and fines, damages paid, donations and charities, share transfer fee paid.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(ii) Appropriation of profit, income tax, dividends paid, transfer to reserves, provision for bad debts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iii) Amortization of fictitious and intangible assets, goodwill, patents, copyrights, discount and underwriting commission on the issue of shares and debentures, preliminary expenses, formation expenses, advertisement expense etc.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iv) Incomes of a purely financial nature, rent, interest, dividend, transfer fees received, profit on sale of fixed assets, brokerage, commission etc.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">2. Items Considered Only in Cost Accounts:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Some items of incomes and expenses are considered in Cost Accounts only, on account of the nature of these items. These items never find a place in Financial Accounts. If such items are expenses, the profit as per Cost Accounts alone gets reduced and in case of such items being incomes, the profit as-per Cost Accounts alone gets increased.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The following are such items-</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Notional expenses- Interest on own capital, rent of owned premises, salary of the proprietor, excess depreciation etc.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">3. Absorption of Overheads:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Absorption of overheads means inclusion of these overheads in the calculation of total cost of production. Overhead expenses in Financial Accounts are included/absorbed based on their actual amounts but in Cost Accounts, overhead expenses are included/absorbed at pre-determined rates.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(i) Factory overheads actually paid and considered in Financial Accounts could be Rs.10, 000/- and the same is absorbed in Cost Accounts as 10% of direct wages. If the direct wages paid are Rs.1, 20,000/-, the factory overheads @10% amounts to Rs.12, 000/-. Thus, this expenditure is taken at Rs.2, 000/- excess in Cost Accounts. As a result of this, the profit shown by Cost Accounts would be Rs.2, 000/- lesser than that as shown by Financial Accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(ii) Factory overheads actually paid and considered in Financial Accounts could be Rs.10, 000/- and the same is absorbed in Cost Accounts as 10% of direct wages. If the direct wages paid are Rs.90, 000/-, the factory overheads @10% amounts to Rs.9, 000/-. Thus, this expenditure is taken at Rs.1, 000/- less in Cost Accounts. As a result of this, the profit shown by Cost Accounts would be Rs.1, 000/- greater than that as shown by Financial Accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">4. Valuation of Stock:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The stock of materials under Financial Accounts is valued at the lesser of their cost price or market price. In Cost Accounts however, the value of stock depends on the method adopted for pricing material issues such as FIFO, LIFO, Average etc. Therefore the stock according to Cost Accounts is invariably different from that of Financial Accounts.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Higher the value of closing stock, higher the profit and vice versa in case of opening stock. This renders the profits according to Cost Accounts and Financial Accounts different.</span></div>
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<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">5. Unusual Profits and Losses:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Several unusual/abnormal gains and losses such as excess wastage, abnormal idle time etc., are taken directly to the Costing Profit and Loss Account under Cost Accounts. This makes the profits as per Cost Accounts and Financial Accounts to differ.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">6. Depreciation:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Depreciation under Financial Accounts is charged according to one of the methods such as straight line method, diminishing balance method etc. at a predetermined rate. Depreciation under Cost Accounts is charged based on actual usage of the assets according to machine hours, production hours etc. As a result of this the amounts of depreciation under these two systems of Accounts will never be the same. This makes these two profits different.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Reconciliation of these two profits becomes necessary even when the Financial Accounts and Cost Accounts are independently maintained in computers. This is because; the above mentioned reasons will still operate and cause a difference between the two profits.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The difference between the profits and preparation of the reconciliation statement itself can be avoided by preparing ‘integrated accounts’. Both the – Cost Accounting as well as Financial Accounting transactions are maintained in a single self-contained ledger called the Integrated Ledger under this system.</span></div>
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<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Preparation of Reconciliation Statement and Memorandum Reconciliation Account:</b></h4>
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<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Reconciliation Statement:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">This statement is prepared to reconcile the profits shown as per Cost Accounts and Financial Accounts. This statement is similar to the bank reconciliation statement.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Therefore, in a reconciliation statement to reconcile Costing and Financial Accounting profits, one of the profits (or loss) is taken first as the base. Of the reasons causing a difference, a few reasons’ amounts are added and a few such amounts are deducted to arrive at the other profit (or loss).</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Once a profit (or loss) is taken as a base, each reason has to be analyzed in the context of profit (or loss) taken as the base. The amounts of all the reasons which have reduced the base profit/loss taken first have to be added back. The Amounts of all the reasons which have increased the base profit (or loss) which has been taken first, have to be subtracted from the base profit (or loss) taken first. The final answer will be the profit (or loss) as per the other system of books.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Specimen of a reconciliation statement:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><a href="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image002_thumb2-1.png" style="background: transparent; border: 0px; color: #888888; font-weight: bold; margin: 0px; outline: 0px; padding: 0px; text-decoration-line: none; vertical-align: baseline;"><img alt="" border="0" height="394" src="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image002_thumb2_thumb-1.png" style="background: none rgba(255, 255, 255, 0.7); border: 0px solid rgb(230, 230, 230); display: block; float: none; height: auto; margin: 0px auto; max-width: 100%; outline: 0px; padding: 0px 0px 3px; vertical-align: bottom;" title="" width="529" /></a></span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">In case of ‘Loss’, the amount shall appear as a minus item.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">In case the reconciliation statement is started with profit as per financial accounts, the above order gets reversed.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Memorandum Reconciliation Account:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Reconciliation of the profits of Cost Accounts and Financial Accounts can be done by preparing a Reconciliation Account also.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">This account structurally is similar to a ledger account prepared under financial accounts, except for the date columns on both sides.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The base profit (according to either Cost Accounting or Financial Accounting) is taken as the first item on the credit side. All the amounts to be added to the base profit are credited and all the amounts to be deducted from the base profit are debited to the account. The balancing figure (closing credit balance) is the profit as per the other set of books.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">This account is prepared only to reconcile the profit as per Cost Accounting and Financial Accounting and as such is not a part of the financial accounting cycle. Therefore it is called a memorandum account.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Specimen of Memorandum Reconciliation Account:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><a href="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image004_thumb2-1.png" style="background: transparent; border: 0px; color: #888888; font-weight: bold; margin: 0px; outline: 0px; padding: 0px; text-decoration-line: none; vertical-align: baseline;"><img alt="" border="0" height="267" src="https://cdn.businessmanagementideas.com/wp-content/uploads/2019/10/clip_image004_thumb2_thumb-1.png" style="background: none rgba(255, 255, 255, 0.7); border: 0px solid rgb(230, 230, 230); display: block; float: none; height: auto; margin: 0px auto; max-width: 100%; outline: 0px; padding: 0px 0px 3px; vertical-align: bottom;" title="" width="576" /></a></span></div>
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<span id="Reconciliation_of_Cost_and_Financial_Accounts_Reasons_for_Difference_Steps_and_Methods_of_Preparation" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: rgb(255, 255, 0); border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Reconciliation of Cost and Financial Accounts – Reasons for Difference, Steps and Methods of Preparation</span></b></span></h3>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">When accounts are maintained under non-integrated (interlocking) system, two profit figures will be there – one in the cost ledger and another in the financial ledger. </span>While differences (other than errors) arise between financial accounts profit and cost accounts profit, the ‘Cost Ledger Control Account’ (in the cost ledger) and ‘Financial Ledger Control Account’ (in the financial ledger) will not ‘interlock’ (i.e., will not be equal and opposite).</div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The differences between cost accounts profit and financial accounts profit may arise, where items are appearing only in one set of books (i.e., either in the financial accounts or in the cost accounts). As there will be two different profit figures, periodic reconciliation will be required. Reconciliation can be done either in Statement form or in Memorandum Account form.</span></div>
<h4 style="background: rgb(255, 255, 255); border: 0px; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin: 0px 0px 0.5em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Reasons for Difference in Profit:</b></h4>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">There are three reasons, in general, for the differences in profit:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">1. Items shown only in the financial accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">2. Items shown only in the cost accounts.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">3. Same Items Treated Differently in the Financial Accounts and the Cost Accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">1. Items Shown Only in the Financial Accounts:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">There are many items which appear in the financial accounts but not in the cost accounts. These items may be related to expenses or incomes. All the items of expense will reduce the profit of the financial accounts and similarly, all the items of income will increase the profit of the financial accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The major items are as follows:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<a href="https://www.blogger.com/null" name="bookmark28" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(i) Purely Financial Charges</span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The following items will fall under this category:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(a) Loss on sale of fixed assets;</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(b) Loss on exchange of fixed assets;</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(c) Loss on sale of investments;</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(d) Loss on exchange difference (foreign currency);</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(e) Amortisation of fictitious assets (e.g., writing-off of preliminary expenses, discount on issue of shares or debentures, etc.);</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(f) Amortisation of intangible assets (e.g., writing-off of goodwill, copyrights, licence fees, etc.);</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(g) Fines and penalties.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(h) Interest on bank loans and mortgages.</span></div>
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<a href="https://www.blogger.com/null" name="bookmark29" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(ii) Purely Financial Incomes</span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The following items will fall under this category:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(a) Profit on sale of fixed assets;</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(b) Profit on exchange of fixed assets;</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(c) Profit on sale of investments;</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(d) Profit of exchange difference (foreign currency);</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(e) Income from investment;</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(f) Dividend received from subsidiaries;</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(g) Government subsidies;</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(h) Share transfer fees;</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(i) Rent received from let-out property.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<a href="https://www.blogger.com/null" name="bookmark30" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iii) Abnormal Loss / Income</span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The following items will fall under this category:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(a) Loss of stock / assets by fire, flood etc (uninsured);</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(b) Loss due to theft;</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(c) Windfall gain (e.g., government incentive for less emission of carbon).</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<a href="https://www.blogger.com/null" name="bookmark31" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iv) Appropriation of Profit</span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">There are many items which are debited to financial accounts at the time of calculating profit.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">These are:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(a) Income tax;</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(b) Proposed dividends;</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(c) Transfer to reserves;</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(d) Donations and charities.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<a href="https://www.blogger.com/null" name="bookmark32" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">2. Items Shown Only in the Cost Accounts</span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">There are very few items which appear in the cost accounts but not in the financial accounts. These items are notional in nature (i.e., they do not involve payment in cash or kind). An organisation may choose to record it in the cost accounts to reflect ‘Loss of benefit’.</span></div>
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<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Common items are:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(i) Notional rent; and</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(ii) Interest on capital.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Notional rent and interest on capital are sometimes charged to factory overhead to ensure that management take into consideration those expenses which might normally be expected to be included at the time of arriving at the cost of product/service. For example, where the factory is owned by the company, no rent is payable.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Because of this, the factory overhead will be lower than if rent was payable. The cost of product will lower and the benefit may be transferred to the customer by way of lower price. Many argue that notional rent should be included in the cost of production as it is a factor of production.</span></div>
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<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">There are two methods of recording notional rent in cost books:</span></b></div>
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<a href="https://www.blogger.com/null" name="bookmark33" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Method 1</span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Factory Overheads Control Account … Dr.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">To Notional Rent Provision A/c</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The Notional Rent Provision Account will be carried forward as a reserve account in the cost ledger. As there will be no corresponding entry in the Financial Accounts (as there is no outflow of cash), notional rent will be an item of reconciliation.</span></div>
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<a href="https://www.blogger.com/null" name="bookmark34" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Method 2</span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(a) Factory Overheads Control Account … Dr.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">To Notional Rent Account</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(b) Notional Rent A/c … Dr.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">To Costing Profit and Loss Account</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">In this case also there will be no corresponding entry in Financial Accounts.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Here, it should be observed that notional rent will not become an item of reconciliation because the credit to Costing Profit and Loss Account cancels out the effect of debit entry in Factory Overheads Control Account.</span></div>
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<a href="https://www.blogger.com/null" name="bookmark35" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">3. Same Items Treated Differently in the Financial Accounts and the Cost Accounts</span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">There are many items which are treated differently in the cost accounts and financial accounts.</span></div>
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<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Some of these important items are:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(i) Stock valuation</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(ii) Depreciation</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iii) Absorption of overheads</span></div>
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<a href="https://www.blogger.com/null" name="bookmark36" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(i) Stock Valuation</span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Inventory (raw materials, WIP and finished goods) may be valued differently in the financial accounts and in the cost accounts. For example, in the financial accounts inventories are to be valued as per AS-2 where, only FIFO and Weighted Average methods are allowed, however, in the cost account, the management may follow LIFO method for valuation of inventories. Therefore, a difference in profits will arise because of using different methods of valuation.</span></div>
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<a href="https://www.blogger.com/null" name="bookmark37" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(ii) Depreciation</span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Depreciation method adapted in the financial accounts may not be same as in the cost accounts. For example – In the financial accounts depreciation could be charged on ‘straight line’ basis but in the cost accounts it is charged on a ‘unit of production’ basis. This will produce different profit figures in financial accounts and cost accounts.</span></div>
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<a href="https://www.blogger.com/null" name="bookmark38" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iii) Absorption of Overheads</span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">In the financial accounts actual overhead expenses are debited to Profit and Loss Account. However, in the cost accounts overheads are recovered at a pre-determined rate. Overhead incurred and absorbed may be different. This will cause a difference in reported profits (when under / over absorbed overhead is transferred to next period).</span></div>
<h4 style="background: rgb(255, 255, 255); border: 0px; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin: 0px 0px 0.5em; outline: 0px; padding: 0px; vertical-align: baseline;">
<a href="https://www.blogger.com/null" name="bookmark39" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Preparation of Profit Reconciliation Statement</b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</b></h4>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Profit Reconciliation Statement is a statement which contains a complete and satisfactory explanation of the differences in profit as per cost accounts and financial accounts. It is just a procedure to prove the profit of other books (cost / financial). It is not a part of the double entry system.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Generally, reconciliation of profit is made in statement format. However, some organisations do it through preparation of Memorandum Profit / Loss Account. In the examination, generally, items of reconciliation are given along with the profit as per Cost Accounts or Financial Accounts. In some cases, profit as per both the accounts are given.</span></div>
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<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">We will discuss the procedures for reconciliation of profit under two headings:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(1) When profit / loss as per cost accounts is given; and</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(2) When profit / loss as per financial accounts is given.</span></div>
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<a href="https://www.blogger.com/null" name="bookmark40" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(1) When Profit as per Cost Accounts is </span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Given:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">If we start reconciliation statement with profit as per Cost Accounts, we are to ascertain the impact of each item (causing a difference) on the profit of financial accounts. In other words, we will have to see whether a particular item increases or decreases the profit as per financial accounts. Now, add those items which increase the profit of financial accounts as compared to the profit of cost accounts. For example, ‘Purely Financial Incomes’ like –</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(i) Profit on sale of investments;</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(ii) Profit on sale / exchange of fixed assets;</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iii) Government subsidies;</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iv) Share transfer fees;</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(v) Dividend received from subsidiaries;</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(vi) Income from investments; and so on</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Also add over-absorption of overheads, over-valuation of opening stock as per cost accounts, under valuation of closing stock as per cost accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Deduct those items which decrease the profit of financial accounts. For example – Purely Financial Expenses, like –</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(i) Loss on sale of fixed assets;</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(ii) Loss of sale of investments;</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iii) Goodwill, preliminary expenses written-off;</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iv) Fines and penalties;</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(v) Interest on bank loans and mortgage;</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(vi) Loss on exchange difference of foreign currency;</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(vii) Bad debts written-off.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Also deduct, under-absorption of overheads, under valuation of opening stock as per cost accounts, over valuation of closing stock as per cost accounts, etc.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<a href="https://www.blogger.com/null" name="bookmark41" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(2) When Profit as per Financial Accounts is Given</span></b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">If we start reconciliation statement with profit as per Financial Accounts, we are to ascertain the impact of each item (causing a difference) on the profit of cost accounts. In other words, we will have to see whether a particular item increases or decreases the profit as per cost accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Now, add those items which increase the profit of cost accounts as compared to financial accounts. For example, ‘Purely Financial Expenses’ which have been debited to Financial Profit / Loss Account.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Also add under-absorption of overheads, under-valuation of opening stock as per cost accounts, overvaluation of closing stock as per cost accounts, etc.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Deduct those items which increase the profit of financial accounts as compared to cost accounts. For example, Purely Financial Incomes which have already been credited to financial accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Also deduct over-absorption of overheads, over-valuation of opening stock as per cost accounts, undervaluation of closing stock as per cost accounts.</span></div>
<h4 style="background: rgb(255, 255, 255); border: 0px; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin: 0px 0px 0.5em; outline: 0px; padding: 0px; vertical-align: baseline;">
<a href="https://www.blogger.com/null" name="bookmark42" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Preparation of Memorandum Reconciliation Account</b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</b></h4>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The reconciliation of profit can be done either in Statement format or in Memorandum Account format. Here we will discuss the preparation of Memorandum Reconciliation Account.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The concept is same in both cases, but in Memorandum Reconciliation Account, presentation will be in ‘T’ Account form. However, this account is not a part of the double entry system.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Generally, the following steps are followed for preparation of the Memorandum Reconciliation Account:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Step 1 – Draw a Memorandum Account in a sheet of paper.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Step 2 – Write down profit as per cost accounts on the credit side of the Memorandum Account.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Step 3 – Debit the following items –</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(i) Purely Financial Expenses<s style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></s></span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(ii) Under-absorption of overheads as per cost accounts</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iii) Under-valuation of opening stock as per cost accounts</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iv) Over-valuation of closing stock as per cost accounts</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Step 4 – Find out the balance of the Memorandum Reconciliation Account. If it is a debit balance, it represents profit as per Financial Accounts. If it is a credit balance, it represents loss as per Financial Accounts.</span></div>
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<h3 style="background: rgb(255, 255, 255); border: 0px; font-family: Georgia, serif; font-size: 22px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin: 0px 0px 0.5em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span id="Reconciliation_of_Cost_and_Financial_Accounts_Meaning_Need_Reconciliation_of_Costing_and_Financial_Results_Memorandum_Reconciliation_Account" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Reconciliation of Costing and Financial Results</span></h3>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">In a business concern, cost accounts and financial accounts can be maintained on the basis of non-integral system or integral system of accounting. Under non-integral system of accounting, cost accounts and financial accounts are maintained separately. Cost accounts are maintained by Cost Accountant as per the principles of cost accounting to ascertain the total and per unit cost of products and jobs at different stages of production or execution.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Financial accounts are maintained by financial accountant as per the principles of financial accounting to record the day-to-day transactions of a business with a view to find out their net effect on the profitability and financial position of the business.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Thus, the aims, objects, principles and the methods of maintaining cost accounts and financial accounts are not the same. As such, the profit shown by cost accounts may not agree with the profit shown by financial accounts. The conflicting information provided by these two sets of accounts may not be helpful in taking correct policy decisions.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Thus, the system of costing should be capable of reconciliation with financial accounts. Since the cost accounts, largely dependent upon estimates, comprise a detailed analysis of financial expenditure and unless such analysis is reconciled with financial accounts, cost accounts cannot be relied upon. In this connection, H.J. Wheldon is of the opinion that “no system is complete unless it is linked up with financial accounts so that the results shown by both cost and financial accounts may be reconciled.”</span></div>
<h4 style="background: rgb(255, 255, 255); border: 0px; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin: 0px 0px 0.5em; outline: 0px; padding: 0px; vertical-align: baseline;">
<a href="https://www.blogger.com/null" name="bookmark1" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Meaning of Reconciliation</b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</b></h4>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Reconciliation may be expressed as the process of tallying the working results or profits as shown by cost accounts with that of financial accounts. According to Eric L. Kohler — “Reconciliation is the determination of the items necessary to bring the balances of two or more related accounts or statements into agreement. Efforts are also made to judge the arithmetical accuracy of the profits revealed by two different sets of books.”</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Thus, reconciliation of cost accounts and financial accounts involves the process of identifying and accounting for the items which have led to the difference in working results as shown by cost accounts and financial accounts. The reconciliation is made in an analytical form presented in the shape of a statement (known as Reconciliation Statement) or a memorandum account (known as Memorandum Reconciliation Account).</span></div>
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<a href="https://www.blogger.com/null" name="bookmark2" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Need for Reconciliation</b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</b></h4>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The necessity for reconciliation of cost accounts and financial accounts arises due to the following reasons:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(i) Reconciliation assists in ascertaining the accuracy and reliability of the various sets of books of account maintained in a business concern.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(ii) It facilitates internal control since it discloses the reasons for the variation in profit or loss in an analytical manner.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iii) It assists in effecting co-operation and co-ordination between costing office and accounting office,</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iv) It helps in formulating proper policies regarding overhead absorption, depreciation and stock valuation.</span></div>
<h4 style="background: rgb(255, 255, 255); border: 0px; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin: 0px 0px 0.5em; outline: 0px; padding: 0px; vertical-align: baseline;">
<a href="https://www.blogger.com/null" name="bookmark3" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Causes of Disagreement of Results Shown by Cost Accounts and Financial Accounts</b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</b></h4>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Under the non-integral system of accounting, when cost accounts and financial accounts are maintained separately, the documents used for ascertaining the amount of expenditure to be charged in respect of some of the items, are the same (e.g., cost of materials used and the cost of labour paid are to be ascertained with the help of Material Requisitions and Wages Sheets respectively), yet there may arise a difference in the profit (or loss) as shown by the two sets of accounts, due to one or more of the following reasons –</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">1. </b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Under/Over-Absorption of Overhead:</b></span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The financial accounts comprise the actual expenditure in respect of the factory, office, administration, and selling and distribution overheads whereas the cost accounts comprise an approximate charge in respect of these items on the basis of past records or pre-determined absorption rate. As such, overheads are generally under/ over-absorbed in cost accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">2. </b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Items of Receipts/Income Shown in Financial Accounts Only:</b></span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The following items of receipts and income are shown or included in financial accounts but excluded from cost accounts –</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(a) Interest and discount received.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(b) Rent received.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(c) Dividend received.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(d) Commission received.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(e) Transfer fees received.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(f) Profit from the sale of fixed assets and investments.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">3. Items of Expenses/Losses Shown in Financial Accounts Only:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The following items of expenses and losses are charged in financial accounts but are not shown in cost accounts –</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(a) Interest allowed on loan.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(b) Interest on capital.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(c) Cash discount allowed.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(d) Interest paid on debentures.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(e) Expenses and losses on issue of shares and debentures.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(f) Loss on sale of fixed assets and investments.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(g) Items of appropriation of profit i.e., income tax paid or provision for income tax, transfer to reserves, dividends paid on shares etc.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(h) Preliminary expenses written off.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(i) Goodwill written off.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(j) Donations and charity paid.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">4. </b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Items of Abnormal Profit/Loss Included in Financial Accounts Only:</b></span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">There are various items of abnormal profit/loss which are included in financial accounts but are excluded from cost accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">These items are:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(a) Cost of abnormal loss of materials.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(b) Cost of abnormal idle time of workers.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(c) Cost of abnormal saving of materials.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(d) Exceptional bad debts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(e) Penalties and fines paid for violation of Government rules and regulations.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">5. </b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Items of Expenses Included in Cost Accounts Only:</b></span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The following items of expenses are recorded in cost accounts only and are not considered in financial accounts –</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(a) Notional rent for owned premises.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(b) Depreciation on assets which do not carry any book value in financial accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">6. Difference in the Basis for Charging Depreciation on Assets:</span></b></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The methods for calculating depreciation on fixed assets in cost accounts and financial accounts may differ leading to a difference in working results. In financial accounts, depreciation is generally provided on the basis of diminishing balance (written-down value) method or original cost method. But in cost accounts, machine hour rate or production unit method of depreciation may be followed.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">7. </b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Difference in Bases for Valuation of Stock:</b></span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The stock of raw material in financial accounts is valued at cost price or market price, whichever is less, while in cost accounts, it is valued by adopting any of the methods like FIFO, LIFO, AVERAGE price methods etc. The stock of work-in- progress for the purpose of cost accounts may be valued on the basis of prime cost or factory cost while in financial accounts, it is valued by taking into account, a part of office and administration expenses.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The stock of finished goods in financial accounts is valued on the basis of cost price or market price, whichever is less, while in cost accounts, it is valued on the basis of actual cost.</span></div>
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<a href="https://www.blogger.com/null" name="bookmark4" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Reconciliation of Costing and Financial Results</b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</b></h4>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Where there is a difference between the results of working as disclosed by cost accounts and as disclosed by financial accounts, the following steps should be taken to locate the reasons for such difference –</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">1. The extent of the difference between actual indirect expenses as recorded in financial accounts and the charges made in cost accounts should be ascertained.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">2. A schedule of all expenses and losses which have been included in the Trading and Profit and Loss Account but not in cost accounts should be prepared.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">3. A schedule of all income and profit which have been credited to Profit and Loss Account but excluded from cost accounts should be prepared.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">4. A schedule of all items which have been included in cost accounts but excluded from financial accounts should be prepared.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">5. The basis on which stocks of raw materials, work-in-progress and finished goods have been valued for balance sheet purposes must be ascertained and compared with the valuations appearing in cost accounts and their difference must be ascertained.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">6. Lastly, all items which have been included in cost accounts as well as financial accounts but differ in value should be ascertained.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">After the discrepancies have been located, a Reconciliation Statement should be prepared by starting with profit as disclosed by cost accounts.</span></div>
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<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The following items should then be added to the profit as per cost accounts:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(i) Indirect expenses (factory, office and administration and selling and distribution) over-absorbed or over-recovered in cost accounts or under- absorbed in financial accounts.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(ii) Items of receipts shown in the financial books but not in cost accounts.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iii) Over-valuation of opening stock (of raw material, work-in-progress or finished goods) in cost accounts.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iv) Under-valuation of closing stock (of raw material, work-in-progress or finished goods) in cost accounts.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(v) Items of abnormal efficiency (abnormal saving) shown in financial books but not in cost accounts.</span></div>
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<b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The following items should be deducted from profit as per cost accounts:</span></b></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(i) Under-absorption of indirect expenses in cost accounts or over-absorption in financial accounts,</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(ii) Items of expenses shown in the financial accounts but not in cost accounts.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iii) Under-valuation of opening stock (of raw material, work-in-progress or finished goods) in cost accounts,</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(iv) Over-valuation of closing stock in cost accounts.</span></div>
<div style="background: rgb(255, 255, 255); border: 0px; color: #424142; font-family: Georgia, serif; font-size: 20px; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5em; margin-bottom: 1.2em; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">After making the above adjustments, the profit as per cost accounts will agree with the profit as per financial accounts.</span></div>
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<a href="https://www.blogger.com/null" name="bookmark5" style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></a><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Memorandum Reconciliation Account</b><b style="background: transparent; border: 0px; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">:</b></h4>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Reconciliation of Cost Accounts and Financial Accounts may also be presented in the form of an account prepared on memorandum basis. Such an account is known as “Memorandum Reconciliation Account”. The amount of profit as per cost accounts is shown on the credit side of this account.</span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"></span></div>
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<span style="background: transparent; border: 0px; color: black; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The various items to be added to the profit as per cost accounts, are credited to the Memorandum Reconciliation Account and the items to be deducted from profit as per cost accounts, are debited to it. The difference between the two sides of the account will reveal the amount of profit or loss as per financial accounts. </span></div>
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