MUSINGS

As we covered above, shareholders' equity is total assets minus total liabilities. However, this is not the same value as total assets minus total debt because the payment terms of the debt should also be taken into account when assessing the overall financial health of a company. Short-term debt consists of liabilities that will be paid in under a year. Long-term debt consists of liabilities that will take a year or under to mature. Let's walk through an example. Company A has $2 million in short-term debt and $1 million in long-term debt. Company B has $1 million in short-term debt and $2 million in long-term debt. Both companies have $3 million in debt and $3.1 million in shareholder equity giving them both a debt to equity ratio of 1.03. However, because short-term debt is renewed more often, having greater short-term debt compared to long-term debt is considered risky, especially with fluctuating interest rates. With this in mind, Company B would be considered less...

Maximum Stock Level That level above which the stock should not be allowed to exceed. It is the highest level of a particular material which is there in the store at a particular period of time. Overstocking means increased cost of storage, cost of investment in stock, increase in cost of insurance and also the risk of obsolescence This level is fixed after keeping in mind the following Re Order Level Reorder Quantity Minimum rate of Consumption Minimum reorder period Availability of Working Capital Availability of storage space Extra Cost of Storage Extra cost of Insurance Risk of Obsolescence Supply of Importance Material Price Fluctuations Maximum Level = Re Order level+ RE order Quantity - (Minimum Rate of Consumption X Minimum Re order Period) Minimum  Stock level That level of  stock below which the stock level should not be allowed to fall. It is the lowest level of a particular material. The objective is to avoid the cost of understocking or extra ...

It is a system of material Control. It exercises differential control classified on the basis of the investment done in the stock. It concentrates more on critical investments. Material or stock is divided or classified according to their importance or value. This is a principle of selective control. The emphasis of ABC analysis technique is that the management should concentrate its energy in controlling those items that mostly affect the organisational objects. Manufacturing concerns find it useful to group the materials into three classes on the basis of investment involved. Category A Materials having higher values but constitute small percentage of total items, are grouped in ‘A’ category. In other words it consists of those items which require large investments (say about 70% of total value of stores) but constitute a small percentage ( about 10%) of total amount of stores/stock. High degree of control is exercised in such stock by keeping the material under lock and key ...

         STATEMENT OF PROFIT AND LOSS ACCOUNT (COST SHEET) Direct Material Cost Opening Stock of Raw Material Add Purchases Add Expenses on Purchases Less  Purchase Returns Less Closing Stock of Raw Material Less Net Value of Scrap of Raw Material Direct Labour Cost Add Outstanding Wages Less Prepaid Wages Direct Expenses Prime Cost ( DM + DL+ DE)   -i Works Overhead/ Factory Overhead/ Production Overhead Less Net Value of Scrap of Indirect Material Add OS of WIP Less CS of WIP Net Overheads    ii Works Cost (i+ii) Add Office and Administration Overheads = Cost Of Goods Purchased Add OS of Finished Goods Less CS of Finished Goods = Cost of Goods Sold Add Selling and Distribution Expenses Cost of Sales Add Profit Less Loss = Sales

Prime Cost comprises a sum of Direct Material, Direct Wages or Labour and Direct Expenses Let us understand each: DIRECT MATERIAL Materisl that can be conveniently identified with ad can e directly allocated to a particular job or process to calculate cost of one unit of product Some examples are: Timber in furniture Cloth in Garments Milk and Cream in Ice Cream Can for food and drink Bottle for different types of liquid products LABOUR It is a human resource and cannot be acquired. It only can be hired and yet participates in the production process Direct Labour is the labour which can be readily identified with a specific job, contract or work order. It includes - all labour directly engaged in converting raw material or WIP into finished products or in altering the construction, composition or condition of the product - any other form of labour which is incurred  wholly or specifically for any particular job, process or work order Examples Weaver in weaving uni...

From the following particulars prepared Cost Sheet: Opening Stock of RM          20 K Closing Stock of RM            30 K Purchase of RM                   105K Import Duty on Goods Purchased       15 K Carriage Inward        5K Packing Material       3K Productive Wages         95K Opening Stock of WIP      17K Closing Stock of WIP        10K Hire Charges paid on plant   14K Other Chargeable Expenses   6K From the following details prepare Prime Cost OS of RM      10 RM purchased     80 RM returned       5 Carriage Inward for Material Purchased   4  CS of RM   6 Opening Stock of WIP 8 CS of WIP   4 Chargeable Expenses   10 Pr...

The newest and completed Framework published in 2018 comprises 8 chapters and in this article, I would like to sum it up Is the Framework equivalent to the Standard? Let me please make one point clear: Framework is  NOT a Standard  itself. Thus if you wish to decide on the financial reporting of certain transaction, you need to look into the appropriate standard – IFRS or IAS. Sometimes, it may even happen that the rules in that IFRS or IAS standard will be contrary to what the Framework says. In this case, you need to apply the standard, not the Framework. When should you apply the Framework? In most cases, when there are no specific rules for your transaction and you need to develop your accounting policy, then you would look to the Framework as you cannot depart from its basic principles and definitions.   Chapter 1: The objective of general purpose financial reporting The main objective of general purpose financial reports is to  prov...