Term life Insurance protect assured agreed payment

Unlike degree term life, very existence protect provides an assured agreed payment, which to a lot of persons causes it to be much better value for money eventually. Although reimbursements upon this sort of protection are more pricey as compared to degree term insurance policies, the particular insurance company is likely to make compensate every time the particular covered party drops dead, hence the increased monthly payments will certainly ensure an agreed payment sometime. There is a variety involving unique variations of very existence plans, as well as buyers can easily choose the one that very best satisfies their desires as well as their spending budget. Just like additional plans, it is possible to tailor-make your entire insurance coverage protect to add in added protect for instance vital sickness insurance policies. The actual variations upon very existence insurance policy incorporate:
Non-profit UK very existence plans: This is the simplest sort of very existence protect, as well as permits you to enjoy the capability of degree expenses throughout the term in the plan unless you perish. Upon death, your household acquired an agreed payment as well as the plan gets null as well as useless. If you want to pay somewhat extra, it is possible to get an insurance policy that is predetermined over a specified term, meaning you will simply possibly be generating expenses regarding some occasion, however, your spouse and children will certainly nonetheless obtain an agreed payment once you perish. With-profit UK very existence insurance policies: This is a protected as well as expense form structure, exactly where your current monthly payments are usually split regarding the protect monthly premiums as well as the expense side of the plan. You might try an assured total, and you'll know that your current insurance company gives discretionary additional bonuses. Inexpensive UK very existence insurance policies: Among the least expensive forms of very existence protect, this sort of plan features a reducing term prepare, as well as the plan,  is usually along with a gains finance. While additional bonuses are usually included in the particular benefit side in the plan, the particular plan term lessons. This gives a cost-effective option for those that are looking to savor the advantages of the very existence insurance policy without having to help to make excessive monthly payments.
UK complete life insurance policy
Unitised UK complete life insurance policy: After you acquire this sort of very existence protects, you will additionally possibly be committing to with-profit items. Because of this when the insurance company helps make an agreed payment, the particular total given is going to be influenced by online in the items in comparison with online in the death advantage (the agreed payment will be based about no matter which would be the best inside value). Month after month items is usually terminated so as to boost amounts of death advantage protect, using critiques accomplished every once in awhile to guarantee sufficient amounts of death advantage protect.

Huge funds collected and many cases investors cheated

Capital market has witnessed a tremendous growth in recent times. Huge funds have been collected from the public and in many cases investors have been cheated by presenting rosy pictures about the security of investments, high dividends and capital appreciation which were not actually true. This necessitated the need for properly regulated securities market in India. As a consequence of this, Securities and exchange Board of India (SEBI) was setup to take care of the capital market. Accounting can play an effective role in the development of healthy capital market by proving accounting data to the prospective investors. By making an analysis and interpretation of the financial statements of an existing firm and other accounting information available in case of a new firm, the prospective investor can make a rational decision of the investment and there are chances that he will not be cheated. Some areas where accounting can be useful in capital market are:
Accountant’s Report in Prospectus; Schedule II Part II of the Companies Act, 1956 specifies that an accountant should report about the use of the proceeds or any part of the proceeds raised by issuing debentures or shares in his report. Any report by accountants mentioned in this schedule shall be made by accountants qualified under the Act for appointment as auditor of a company and shall not be made by any accountant who is an officer or servant, or a partner or in the employment of officer or servant of the company. A report by accountant must cover the
The profit or loss of the business for each of the last date to which the accounts of preceding the issue of prospectus
The assets and liabilities of the business at the last date to which the accounts of the business were made of, being the data not more than 120 days before the date of issue of the prospectus.
This Accountant’s report in the prospectus will be very useful to prospective investors in forming an opinion of the company which is issuing shares or debentures.
Furnishing Financial Results on Quarterly Basis by listed Companies: As per modified clause 41 of the Listing Agreement, all the listed companies are now required to publish unaudited financial results on a quarterly basis. Un- audited financial results prepared with the help of accounting records will be helpful to the prospective investors in making rational decision for investments in the capital market.

Corporate Governance Associated with Accountability

Accounting plays a very important role in corporate governance by ascertaining efficiency with which funds of shareholder and investor are used in a company. What is corporate governance? It is about how those entrusted with day to day management of the company’s affairs are held accountable to shareholders and another provider of finance. It is a system by which companies are directed and controlled. Everyone who is a part of the system is contributing to corporate governance. It is associated with accountability to the company’s equity shareholders. Equity shareholders pool their monies to run a business. Because of the size and complexities involved, they do not manage the business but let a group of executives operate it under the surveillance of a representative board of directors. Shareholders are residual claimants to the firm’s income. Gain or loss from good or bad performance is a lot of shareholders. To give good return to shareholders, efficient corporate governance is required an annual report of the company comprising profit and loss account, balance sheet, director’s report, and auditor’s report gives an idea of the efficiency of the resources employed in the business. An annual report reflecting corporate governance can be prepared if proper and adequate accounting records are maintained. Various tools of management accounting cost accounting and financial accounting are useful to know the performance of a company which is the basis of corporate governance.
Corporate governance as a concept has come to the forefront in recent years following major business failures worldwide. It has resulted in a redefinition of what is expected from the management and board of directors by the shareholders of a company. A new sense of responsibility on the board of directors and management is supposed to inform their working to shareholders and other investors. Branches of accounting (i.e. financial accounting, cost accounting, and management accounting) are very useful in this regard by giving comprehensive information on the working of management and board of directors by preparing an annual report of a company which is legally required to be given annually to every shareholder of a company. It may be made clear that good corporate governance is a key driver of sustainable growth and long term value creation for all shareholders. A company should be committed to the highest standards of corporate governance and should follow the basic tenets of integrity, transparency, accountability, and responsibility in all its activities. Accounts should be prepared in such a way that they exhibit a true and fair view of the profitability and financial position of a company and give a true and fair view of corporate governance. There should be no window dressing in the presentation of accounts to shareholders so that the performance of the management and board of directors may be properly ascertained which is the apex of corporate governance. 

Responsibility accounting is control device

Responsibility accounting is control device.A control system to be effective should be such that deviations from the plans must be reported at the earliest so as to take corrective action for the future. The deviations can be known only when performance is reported. Thus responsibility accounting system is focused on performance reports also known as responsibility reports, prepared for each responsibility unit. Unlike authority which flows from top to bottom, reporting flows from bottom to up. These reports should be addressed to appropriate persons in respective responsibility centers. The report should contain information in comparative from as to show plans and the actual performance and should give details of variance which are related to that center. The variances which are not controllable at a particular responsibility center should also mention separately in the report. To be effective, the reports should be clear and simple. The function of responsibility accounting system becomes more effective if participative or democratic style of management is followed, wherein, the plans are laid or budgets and standards are fixed according to the mutual consent and the decisions reached after consulting the subordinates. It provides motivation to the workers by ensuring their participation and self imposed goals. It is well accepted fact that at successive higher level of management in the organizational chain less and less time is devoted to control and more and more to planning. Thus, an effective responsibility accounting system must provide for management by exception i.e., it should focus attention of the management on significant deviations and not burden them with all kind of routine matters, rather condensed report requiring their attention must be sent to them particularly at higher level of management.

The aim of responsibility accounting is not to place blame. Instead it is to evaluate the performance and provide feed back so that future operations can be improved. Goals and objectives are achieved through people and, hence, responsibility accounting system should motivate people. It should be used in positive sense. It should not be taken as a device to punish subordinates. It should rather help in improving their performance. Subordinate sometimes dislike control because they take them as restraints. The best responsibility accounting system enlightens employees about the positive side of control. To ensure the success of responsibility accounting system, it must look into human aspect also by considering needs of subordinates, developing mutual interests, providing information about control measures and adjusting according to requirement.

Responsibility accounting recent developments

The fundamental function of management accounting is facilitating managerial control. Various devices are used by the management in performing this important function. Responsibility accounting is one of the most recent developments in this field. Responsibility accounting has assumed great significance and is rightly described as modern approach to managerial control and reporting. The growth of responsibility accounting is attributed to the realization that the results of operation must be regarded as human responsibilities and not as abstract concepts. While the other control techniques, available under conventional accounting, are directed towards determining the total and unit product cost for the organization as a whole, responsibility accounting lays emphasis on performance of individuals where responsibilities are fixed for persons and divisions accountable for the same. The concept of responsibility accounting is closely related to the systems of budgetary control and standard costing.

The system of costing like standard costing and budgetary control are useful to management for controlling the costs. In those systems the emphasis is on the devices of control and not on those who use such devices. Responsibility accounting is a system of control where responsibility is assigned for the control of cost. The persons are made responsible for the control of costs. Proper authority is given to the persons so that they are able to keep up their performance. In case the performance is not according to the predetermined standards then the persons who are assigned this duty will be personally responsible for it. In responsibility accounting the emphasis is on men rather than systems. For example, if Mr. C, the manager of a department, prepares the cost budget of his department, then he will be made responsible for keeping the budget under control. C will be supplied with full information of costs incurred by his department. In case the costs are more than the budgeted costs, then C will try to find out and take necessary corrective measures. C will be personally responsible for the performance of his department. Responsibility accounting is a system of accounting that recognizes various responsibility centers throughout the organization and reflects the plans and actions of each of the centers by assigning particular revenues and costs to the one having the pertinent responsibility. It is also called profitability accounting.

Maintenance of responsibility accounting system

The implementation and maintenance of responsibility accounting system is based upon information relating to inputs and outputs. The physical resources utilized in an organization such as raw material used and labor hours consumed, are termed as input. These input expressed in the monetary terms are known as costs. Similarly outputs expressed in monetary terms are called revenues. Thus responsibility accounting is based on cost and revenue information. Effective responsibility accounting requires both planned and actual financial information. It is only the historical cost and revenue data but also the planned future data which is important for the implementation of responsibility accounting system. It is through budget that responsibility for implementing the plans communicated to each level of management. The use of fixed budgets, flexible budget and profit planning are all incorporated into one overall system of responsibility accounting. The whole concept of responsibility accounting is focused around identification of responsibility center. The responsibility center represents the sphere of authority or decision points in an organization. In small firm, one individual or small groups of individuals who are usually the owners, may possibly manage or control the entire organization. However, for effective control, a large firm is usually, divided into meaningful segments, departments or divisions. These sub units or divisions of organization are called responsibility center. A responsibility center is under control of an individual who is responsible for the control of activities of that sub unit of the organization. This responsibility center may be very small sub unit of the organization, as an individual could be made responsible for one machine used in manufacturing operations.

A sound organization structure with clear cut lines of authority responsibility relationship is a prerequisite for establishing a successful responsibility accounting system. Further, responsibility accounting system must be so designed as to suit the organization structure of the organization. It must be founded upon the existing authority responsibility relationships in the organization. In fact, responsibility accounting system should parallel the organization structure and provide financial information to evaluate actual results of each individual responsible for a function.

Financial Ratios analysis one most powerful tools

The Ratios analysis is one of the most powerful tools of financial analysis. it is used as a device to analyse and interpret the financial health of enterprise. Just like doctor examines his patient by recording his body temperature, blood pressure etc. before making his conclusion regarding the illness and before giving his treatment, a financial analyst analyses the financial statements with various tools of analysis before commenting upon the financial health or weaknesses of an enterprise. A ratio is known as a symptom like blood pressure, the pulse rate or the temperature of an individual. It is with help of ratios that the financial statements can be analysed more clearly and decisions made from such analysis.

The use of ratios is not confined to financial managers only.There are different parties interested in the ratios analysis for knowing the financial position of a firm for different purposes. The supplier of good on credit, banks, financial institutions, investors, shareholders and management all make use of ratio analysis as a tool in evaluating the financial position and performance of a firm for granting credit, providing loans or making investments in the firm. With the use of ratio analysis one can measure the financial condition of a firm and can point out whether the condition is strong, good,questionable or poor. The conclusions can also be drawn as to whether the performance of the firm is improving or deteriorating. Thus ratios have wide applications.

Ratio analysis technique financial analysis

Ratio analysis is a technique of analysis and interpretation of financial statements. it is the process of establishing and interpreting various ratios for helping in making certain decisions. However, ratio analysis is not an end in itself. It is only a means of better understanding of financial strengths and weaknesses of a firm. Calculation of mere ratios does not serve any purpose, unless several appropriate ratios are analysed and interpreted. There are a number of ratios which can be calculated from the information given in the financial statements, but the analyst has select the appropriate data and calculate only few appropriate ratios from the same keeping in mind the objective of analysis. The ratios may be used as a symptom like blood pressure, the pulse rate or the body temperature and their interpretation depends upon the caliber and competence of the analyst. 

The main steps involved in the Ratio analysis

• Selection of relevant data from the financial statements depending upon the objective of the analysis.
• Calculation of appropriate ratios from the data
• Comparison of the calculated ratios with the ratios of the same firm in the past, or the ratios developed from projected financial statements or the ratios of some other firms or the comparison with ratios of the industry to which the firm belongs 
• Interpretation of the ratios.

The Comparative Income Statement Gives an Idea

The income statement gives the results of the operations of a business. The comparative income statement gives an idea of the progress of a business over a period of time. The changes in absolute data in money values and percentages can be determined to analyze the profitability of the business. Like the comparative balance sheet, the income statement also has four columns. The first two columns give figures for various items for two years. Third and fourth columns are used to show an increase and decrease in figures in absolute amounts and percentages respectively.

Guidelines for interpretation of income statement:

The analysis and interpretation of income statement will involve the followings steps: 

1. The increase and decrease in sales should be compared with the increase and decrease in the cost of goods sold. An increase in sales will not always mean an increase in profit. The profitability will improve if the increase in sales is more than the increase in the cost of goods sold. The amount of gross profit should be studied in the first step. 

2. The second step of analysis should be the study of operational profits. The opening expenses such as office and administrative expenses, selling and distribution expenses should be deducted from gross profit to find out operating profits. An increase in operating profits will result from the increase in a sales position and control of operating expenses. A decrease in operating profit may be due to an increase in operating expenses or a decrease in sales. The change in individual expenses should also be studied. Some expenses may increase due to the expansion of business activities while others may go up due to managerial inefficiency.

 3. The increase or decrease in net profit will give an idea about the overall profitability of the concern. Non operating expenses such as interest paid, losses from the sale of assets, written off of deferred expenses, payment of tax, etc. decrease the figure of operating profit. When all non-operating expenses are deducted from operational profit, we get a figure of net profit. Some non-operating incomes may also be there which will increase net profit. An increase in net profit will give us an idea about the progress of the concern. 

4. An opinion should be formed about the profitability of the concern and it should be given at the end. It should be mentioned whether the overall profitability is good or not.

Financial analysis is a powerful mechanism

Financial analysis is a powerful mechanism of determining financial strengths and weaknesses of a firm. But, the analysis is based on the information available in the financial statements. Thus, the financial analysis suffers from serious inherent limitation of financial statements. The financial analyst has also to be careful about the impact of price level changes, window dressing of financial statements, changes in accounting policies of a firm, accounting concept and conventions, and personal judgment etc.

Limitations of financial analysis are:

• It is only study of interim reports
• Financial analysis is based upon only monetary information and non monetary factors are ignored.
• It does hot consider changes in price levels
• As the financial statements are prepared in the basis of a going concern, it does not give exact position. Thus accounting concepts and conventions causes a serious limitation to financial analysis.
• Changes in accounting procedure by a firm may often make financial analysis misleading.
• Analysis is only a means and not an end in itself. The analyst has to make interpretation and draw his own conclusions. Different people may interpret the same analysis in different ways. 

Financing working capital requirements

Broadly speaking, there are two sources of financing working capital requirements, long term sources such as share capital, debentures, and public deposits etc. and short term sources such as commercial banks, indigenous banker, trade credits etc. therefore, a question arises as to what portion of working capital should be finances by long term sources and how much by short term sources.

There are three basis approaches for determining an appropriate working capital financing mix.

• The Hedging or matching Approach
• The conservative Approach
• The Aggressive Approach

The Hedging or Matching Approach The term hedging usually refers to two off- selling transactions of a simultaneous but opposite nature which counterbalance the effect of each other. With reference to financing mix, the term hedging refers to ‘a process of matching maturities of debt with the maturities of finance needs’. According to this approach the maturity of sources of funds should match the nature of assets to be financed. This approach is, therefore also known as matching approach. Hedging approach suggest that the permanent working capital requirements should be financed with funds from long term sources while the temporary or seasonal working capital requirements should be finances with short terms funds.

Conservative Approach This approach suggest that the entire estimate investments in current assets should be financed from long term sources and the short term sources should be used only for emergency requirements.

The Aggressive Approach The aggressive approach suggest that the entire estimated requirements of current asset should be financed from short term sources and even a part of fixed assets investments be financed from short term sources. This approach makes the finance mix more risky, less costly and more profitable.

Forecast assessment of probable future

An estimate is predetermination of future event either on the basis of simple guess work or following scientific principles. Forecast is an assessment of probable future event. Budget is based on the implication of a forecast and related to plan events. Forecasting precedes preparation of a budget as it is an essential part of the budgeting process. It is said that the budgetary process is more a test of forecasting skill than anything else. To establish realistic budgets, it is necessary to forecast a wide range of factors like sales volume, sales prices, material availabilities and price, wages rate, the cost of overheads etc. It is not sufficient merely to add or deduct a percentage to or from last year’s budget; rather a proper forecasting should be prepared. A budget is a detailed statement of forecasting resulting from joint action of a number of planned operations conducted with normal efficiency.

Budget and forecasting both refer to the anticipated actions and events in a specified future period but still there are wide differences between the two as given:

• Budget: it is relates to planned events i.e., the policy and programme to be followed in a future period under planned conditions. It is usually planned separately for each accounting period. Budget comprises the whole business unit. Sectional budgets are coordinate into logical whole. Budget is a tool of control as it represents action which can be shaped according to will to suit conditions which may or may not happen. The process of budget starts where forecast ends and converts it into a budget. It is made in respect of those spheres which are related to business or industry

• Forecast: It is concerned with probable events likely to happen under anticipated conditions during a specified period of time. It may cover a long period or years. Forecasting may cover a limited function or activity of business as sales forecast. It does not connote any sense of control as forecast is merely a statement of future events. The function of forecast ends with the forecast of likely event. It is made in several other spheres which may not be connected with the budgeting process.

production of a process in terms of completed units

This represents the production of a process in terms of completed units. In other words, it means converting the uncomplete production into its equivalent of completed units. In each process an estimate is made of the percentage completion of any work in progress. A production schedule and a cost schedule will then be prepared. The work in progress is inspected and an estimate is made of the degree of completion, usually on a percentage basis. It is most important that this estimate is as accurate as possible because a mistake at this stage would affect the stock valuation used in the preparation of final accounts. The formula of equivalent production is:

Equivalent unit of work in progress =

Actual No. of units in progress of manufacture * percentage of work completed

For example if 70% work has done on the average on 200 units still in process, then 200 such units will be equal to 140 completed units. The cost of work in progress will be equal to 140 completed units.

Calculation of Equivalent Production:

1. Method A – under this method opening work in progress is stated in equivalent completed units by applying the percentage of work needed to complete the unfinished work of the previous period. Then numbers of units started and completed are added. Further equivalent completed units of closing work in progress are also added to get the equivalent production.
2. Method B – under this method units completed during the period are added to the units of closing stock completed during the period and out of the total units, opening stock units completed in previous year are deducted to get the units of equivalent production.
3. Method C – under this method units of uncompleted input are added to the units of incomplete work in opening stock and out of the total units, incomplete work in closing stock are deducted to have units of equivalent production.

Process may consist of several operations

Sometimes, a process may consist of several operations. Each operation in each process or stage of production is separately costed. It represents a refinement of process costing. Operational costing refers to the determination of unit operation cost by each operation forming part of a production process. In other words, it refers to conversion cost i.e. cost of labor and overheads. At the end of each operation, the unit operation cost is computed by dividing the conversion cost by output. The procedure of costing for operation is the same as for process costing. Material, labor and expenses are recorded separately for each operation and cost of one operation is transferred from one operation to another as in the case of process costing. The total cost of product is calculate  by totaling the cost of several operations through which it passes. In computing the material cost, the initial input weight has to be taken and not the ultimate output weight.

When a series of operation is carried out to convert raw materials into the finished production, rejections may occur at the end of each operation. To find out the ultimate conversion cost of specified quantity of output, regard is to be had to the cumulative effect on conversion costs of the rejection at each operation i.e. the cost per 100 units for cost of final output. Computing such cost involves working back from the final output to first operation stage 

Value of the contract is ascertained by adding a certain percentage of profit

Cost plus contract is a contract in which the value of the contract is ascertained by adding a certain percentage of profit over the total cost of the work. It is generally adopted in those cases where the probable cost of the contract cannot be computed in advance with a reasonable degree of accuracy. Such contracts are undertaken for production of special articles not usually manufactured e.g., production of newly designed aircraft component or in case of urgent repair of ships, or in case of construction during war time. Government prefers to give contract on cost plus basis. From the manufacture’s point of view, this method protects him from the risk of fluctuations in market prices of materials, labor and other services. He knows in advance the profit he can expected on the order when completed. Moreover, there is no risk of incurring loss on the contract as all agreed costs are recovered. If the contractor is unscrupulous, he may deliberately inflate cost in order to obtain higher profit. In order to avoid disputes in future, he must settle the admissible costs such as supervision, fixed overhead and losses such as allowances for wastage, scrape, normal loss etc. when bills are tendered, the burden of proving each item charged falls on the shoulder of the manufacturer. However, this system may put a premium on inefficiency in so far as the contractor, whose costs are highest, obtains highest profit. There is no incentive to find more efficient methods of production or to reduce costs, as the contractor can obtain no benefit from any saving thereby affected.

From buyer’s point of view, this method ensures that the price paid will depend on cost rather than on arbitrary commitment to specific price. Thus in uncertain market the buyer is suitably fortified and he pays only reasonable price. This method is suitable when he provides raw materials, tools etc. to manufacturer. In general, it is observed that the cost to the buyer tends to be higher than the cost which could be obtained by other forms of contract.

Target costing method the targets of volume of production and targets of various expenditures of production are fixed before hand and constant efforts are made not to exceed the expenditure targets unless there is corresponding increase in the volume of production over the fixed. Thus the contractor receives an agreed sum of profit over his predetermined costs. If actual costs are below the target fixed, the contractor is entitled to a bonus which is a proportion of saving thus made. Escalation Clause which provided in the contract to cover up any changes in the price of contract due to changes in price of raw materials and labor or change in utilization of factor of production. The object of this clause is to safeguard the interest of both sides against unfavorable changes in price. 

Contractor is engaged on a contract for a considerable time

When a contractor is engaged on a contract for a considerable time his financial resources could become severely strained. A large amount of working capital would be required if he did not received payment until the completion of the contract. It is a normal practice particularly in the case of large contracts for the contractee to pay the contractor sum of money on account during the period of the contract. These sums will be paid against certificates by surveyors or architects acting or the contractee certifying the value of work so far performed. In many cases, the terms of the contract provide that whole of the amount shown by the certificate shall not be paid immediately but percentage thereof shall be retained is called retention money. The object of this retention is to place the contractee in a favorable position, should faulty work arise or penalties become payable by reason of late completion of the contract. If the work has not been certified, the contractee would not make any advance on it. Such work which has not been done but not certified is called work uncertified i.e., work done since certification. Work certified and work uncertified will appear on the credit side of the contract account under the heading ‘work-in-progress’. If the work certified is not given, cash received from the contractee and retention money are given; the amount of work certified should be calculated first.

On receipt of certificate, one of the following accounting methods may be adopted:

1. Credit the appropriated contract account with the value mentioned in the certificate and debit personal account of the contractee. Cash received is credited to the contractee’s account and the balance is shown as a debtor representing retention money.
2. The contract account is credited with the value of the certificate and the contractee’s account is debited with the amount payable immediately and a special Retention Money Account is debited with amount so retained, or
3. The contract account id credited with the value of the certified work. Whenever any amount is received from the contractee, cash account is debited and contractee’s account is credited. Until contract is completed, amount received from contractee shows advance payments and is deducted from work in progress in the Balance sheet. When contract is completed, contractee’s account is debited with the contract price and the contract account is credited.

Cost components of the total cost of executing a job

Job order cost system is designed to show in detail their cost components of the total cost of executing a job which may take the form of either a special order or job or a batch of orders. A job cost sheet is prepared for every job which is undertaken on the basis of material requisition concerned. Labor cost on the basis of the time clocked in respect of the job with the help of time tickets and factory overheads are added to these cost components according to some rational methods of overhead absorption. Thus the total cost of a job as indicated by the job cost sheet consists partly of direct cost and partly of cost arrived at by assignment, allocation, apportionment and finally by absorption. Thus it is clear that similar jobs executed during a certain time period are bound to have different units of production. Units cost is determined by dividing total cost by the number of units or a volume of goods produce there under. The procedure for job order cost system may be summarized as

• Production order - For any job, the cost involved is estimated and on the basis of estimate price is quoted to the customer. If the job is accepted, a Production order is made by the planning department. It is in the form of instructions issued to the foreman to proceed with the manufacture of the product. It forms an authority for starting the work. It contains all the information regarding production.
• Recording of Costs – The costs are collected and recorded for each job under separate production order number. Generally, job cost sheet is maintained for each job. This is a document which is used to record direct material, direct wages and overheads applicable to respective jobs.
• Completion of job – On the completion of a job, a completion report is sent to costing department. The expenditure under each element of cost is totaled and the total job cost is ascertained. The actual cost is compared with the estimated cost so as to reveal efficiency or inefficiency in operation.
• Profit or loss on job – It is determined by comparing the actual expenditure or cost with the price obtain.

Maintaining sincerity regarding money along with replacement

The phrase accounting allowance is in fact drived from your Latinaconcept ‘Depretium’ that's your mix of 2 content ‘De’ in add-on to ‘Pretium’. Here this is of the ‘De’ is actually decline along with ‘Pretium’ represents selling price. As a result the definition of ‘depretium’ represents decline inside importance regarding selling price associated with a good asset. Inside modern strategy them represents a new slow along with steady decline or decrease in your book significance about the preset possessions due to wear and split, obsolescence effluxion of energy or every various other cause. Decline is in fact long term along with carrying on diminution regarding decline from the product quality, quality or significance about the possessions due to wear and split, lapse of strength, obsolescence, fatigue or almost every other bring about just as accident. It's not necessarily wrong to bring up which accounting allowance can be a money decline along with should be furnished intended for beyond income before they are propagate. Consider some of the items regarding delivering Decline inside Debit side of the Profit along with Burning Bill.

Maintaining sincerity regarding money along with replacement regarding items: The particular beneficial lifetime regarding an asset is fixed. Living may also rely upon your level about the employment of product. Unless of course currently accounting allowance your replacement of the asset by the end regarding its lifetime might be hard. Towards level the worthiness associated with an asset is in fact shed, it's attractive that you should impose the item for the revenue along with decline accounts of the year alone. This enables that you should spread the sale price on your possessions within the period of everything of the asset.

Inside deficit of your accounting permitting impose your calculations of the revenue won't possibly be appropriate. A vital maybe the asset eaten from the many years ought to be found just as one expense/loss. With its deficiency an organisation may possibly finish up dividend beyond dollars, which is legitimately prohibited and it is financially unwelcome. The particular revenue along with decline accounts along with sense of balance published will not likely likely symbolize the rarity of the situation.

One more accounts will probably provide a genuine along with honest view of the enterprise exercise while in a sales period, and the situation regarding possessions along with financial obligations to the night out concerning Equilibrium Published. When accounting allowance is just not incurred your income worked out will be better and the possessions above valued. The intention connected with representing a genuine along with honest view will not likely done.

Malicious prosecution indirectly defends interests

Malicious prosecution indirectly defends interests which receive direct protection simply by other rules with the law of torts. The need for this becomes apparent if we consider the issue of actions with regard to false imprisonment and also defamation. Ordinarily one exactly who intentionally causes the confinement of an additional by inducing 1 / 3 person to take action is subject on the same liability like he himself got confined or imprisoned the opposite. This principle is applied the place where a citizen induces a police to arrest another without a warrant by course or request or with a charge of criminal offenses which he knows to get without foundation. The officer isn't liable if the arrest is lawful the way it ordinarily will be if the crime charged can be a felony, the citizen will be apparently a legitimate person and there is certainly apparently no reason to doubt them. The officer within such circumstances possesses reasonable ground to think that the person accused has dedicated a felony and he may therefore arrest without a warrant. But as you move the officer is not liable, the citizen exactly who thus causes the unjustified arrest is liable. An action regarding trespass will lay against him with the confinement. If the citizen does not follow up the arrest by creating a formal charge regarding crime which results in the issuance regarding process or many prosecutions, he isn't liable for detrimental prosecution. But the other bands interests are superior protected by the action of trespass with the false arrest with no further protection is necessary. In several points, a private citizen here is under a a lot stricter liability with regard to false arrest than he'd be for detrimental prosecution. In the primary place, he takes danger that a felony has in reality been committed; if it offers not, he is liable without more. That, of course, is not the case in malicious prosecution where it's not necessarily enough to make the prosecutor liable to show either the innocence with the accused or which no crime have been committed. In the other place, even in case a felony has been committed, the defendant in the action for phony arrest, whether non-public citizen or officer, must have got reasonable grounds to think that the charged probably committed the idea.

In malicious justice, however, the want regarding probable cause isn't enough to make the prosecutor at fault; he must be shown to have acted via an improper objective, i. e., not to ever bring a supposed criminal to rights. If he acted for any proper purpose, the fact that he acted unreasonably is not going to make him at fault.

Family law contained very few rules

Family law contained very few rules for figuring out intra familial property interests from the ongoing marriage. Alternatively, the communal principle in the family as a private sphere was stressed. However, law increasingly has become asked to address circumstances certainly where an husband’s and wife’s separate interests in family property become salient, such as when marriage concludes. As law did so, the number of intra familial property rules according to equal and equitable principles has enhanced in family law. Also, after divorce had become typical and equal privileges measures gave ladies more leverage, family law begun including rules to influence married people to handle their house during marriage in ways consistent with divorce law’s marital home rules. As an effect, trends in divorce law plus the intra familial fairness principles embodied included have had a huge effect on family law’s method to marital property. From mid-century, divorce law’s significant other property rules differed between community property as well as separate property devices, each essentially working on different concepts of fairness. Equality tended to be able to dominate in group property law from the assumption that with any point inside a marriage each spouse owns a present, vested, and equal one-half fascination with all property acquired through the marriage by either party, except pertaining to property one gathering had acquired by means of inheritance.

Under separate home law often it had been assumed that anyone who held legal title on the property was the proprietor. For untitled as well as jointly-held property, ownership usually was thought to be with the man or woman providing the means for acquiring it, the notion of “means” typically being interpreted seeing that “income”. Thus, separate property law followed an equitable theory, making entitlement to assets dependent on the relative income contributions in the spouses. Under the predominance of patriarchy, the new perfect of family where a husband is the only wage-earner and a wife is a full-time homemaker, plus the reality that some sort of wife’s income typically was much smaller than her husband’s, the problem until recent generations was one by which wives in group property states offered help to fare greater in property funds than those with separate property states whenever a marriage ended.

Suspend or close the activities due to trade recession

Sometimes it becomes necessary for a firm to temporarily suspend or close the activities of a particular product, department or factory as a whole due to trade recession. The decision to close down or suspend its activities will depend on whether products are making contribution towards fixed costs or not. If the products are making a contribution towards fixed costs, it is preferable not to close business or suspend its activities to minimize the losses. If the business is closed down there may be certain fixed costs which could be avoided but there will be certain expenses which will have to be incurred at the time of closing the operation like redundancy payments, necessary maintenance of plant or overhauling of plant on reopening, training of personnel etc. Such costs are associated with closing down of the business and must be taken into consideration before taking any decision. Fixed costs may be general or specific. General fixed costs may or may not remain constant while specific costs will be directly affected by the closing down of the operation. To conclude, if general fixed costs are likely to come down in the event of closure or suspension of activities, the excess of contribution over specific fixed costs will have to be compared with reduction in general fixed cost. If the former exceeds the latter it is profitable to continue the activities and close down or suspend activities if the latter exceeds the former. In addition to cost consideration, there may be some non- cost considerations which may weigh in taking the decision to close down or suspend its activities or not. The followings non cost considerations are relevant in this respect :

• Once the business is closed down, competitors may establish their products and our business may be lost. It may be difficult to recapture the lost market again; heavy advertisement charges may have to be incurred to recapture the business again.
•  Fear of retrenchment of worker. If worker are discharged it may be difficult to get experienced and skilled workers again at the restart of the business.
• Plant may become obsolete with the closure of the business and heavy capital expenditure may have to be incurred on restart of the business.
• Reputation of the firm may suffer if some activities are closed down or suspended.
• Temporary closing down or suspending activities may not be desirable if the relationship with the suppliers is adversely affected.
• Fear of non collection of dues from customers in case of close of business may not go in favor of closure of business.

Differential cost is the change in the costs

Differential cost is the change in the costs which may take place due to increase or decrease in output, changes in sales volume, alternate method of production, makes or buy decision, change in product mix etc. So, differential cost is the result of an alternative course of action. For example, difference in costs may arise because of replacement of labor by machinery and difference in costs of two alternative courses of action will be the differential cost. It may be remembered that differential cost may be increase or decrease in costs. If the change in cost occurs due to change in level of activity, differential cost is referred to as incremental cost in case of increase in output and decremented cost in case of decrease in output. However, in practice, no distinction is made between differential cost and incremental or decremented cost and two terms are used to mean the same thing. Differential costs are often taken as marginal costs or incremental costs. But this is not the case. In differential cost analysis costs are calculated on the basis of absorption or total costing technique, but in marginal costing technique, costs are calculated on the basis of variable cost only and fixed costs are not taken. But if the alternate course of action does not involve any extra fixed costs change in variable costs will become differential costs and there will be no difference between marginal cost and differential costs. Differential costs are the change in cost which may result from the adoption of an alternate course of action or change in the level of activity. Change in cost may take place due to change in fixed costs and variable costs which take place due to the adoption of an alternate course of action or changes in the level of output. The ascertainment of differential cost becomes easy if a flexible budget is prepared by the concern because it shows cost at various level of activity.

The followings are the essential characteristics of differential costs:

1. Total differential costs are considered in differential cost analysis. Cost per unit is not taken into consideration.
2. Total differential revenues are compared with total differential costs before advocating an alternate course of action. A change in course of action is recommended only if differential revenues exceed differential costs
3. The items of cost which do not change for the alternatives under consideration are ignored, only the difference in items of costs are considered because differential costs analysis is concerned with changes in costs.
4. The changes in costs are measured from a common base point which may be a present course of action or present level of production.
5. Differential cost analysis is not made with in the accounting records rather it is made outside the accounting records, differential costs may, however, be incorporated in the flexible budgets because they budget costs at various level of activity.

Prices are controlled by market conditions and economic factors

Prices are controlled by market conditions and  economic factors that by decisions of management yet fixation of selling prices is one of the most important functions of management. The function are under normal circumstances, in time of trade competition, in time of trade depression, in accepting additional orders for utilizing idle capacity, In exporting and exploring new markets.

In normal circumstances the price fixed must cover total cost as otherwise profits cannot be earned. It can be fixed on the basis of marginal cost by adding a high margin to marginal cost which may be sufficient to contribute towards fixed expenses and profits. But under other circumstances, products may have to be sold at a price below total cost, if such a step is necessary to meet the situation arising due to competition, trade depression, additional orders for utilizing spare capacity, exploring new markets etc. thus, in special circumstances, price may be below the total cost and it should be equal to marginal cost plus a certain amount. Pricing falls during depression and the product may be sold below the total cost. In case there is a serious but temporary fall in the demand on account of depression leading to the need for a drastic reduction in prices temporarily, the minimum selling price should be equal to the marginal cost or more than marginal cost the product should be continued. Fixed expenses will be incurred even if the product is discontinued during depression for a short period. If the product can be sold at a price which is a little more than marginal cost, loss on account of fixed expenses will reduce because price will recover fixed expenses to some extent. If the selling price is below marginal cost, loss will be more than the fixed costs because variable expenses will not be recovered fully. Hence, efforts should be made to sell the product at a price which is equal to the marginal cost or more than the marginal cost. Production should be discontinued if the price obtained is below the marginal cost so that loss may not be more than the fixed costs.

When additional orders are accepted or additional markets explore at a price below normal price to utilize idle capacity, it should be very carefully seen that they will not affect normal market and goodwill of the company. The order from local merchant should not be accepted at a price below normal price because it will affect relationship of the concern with the other customer purchasing the goods at normal price. In case of foreign markets, goods may be sold at a price below normal price keeping in view the direct and indirect benefits of exporting such as import quotas, subsidies of Government, prestige of exporting etc. The main factors to be considered before launching a product in the new market, whether the firm has surplus capacity to meet new demand. What price is being offered by the new market ? In any case, it should be higher than the variable cost of the product plus any additional expenditure to be incurred to meet the specific requirements of the new market

Margin of safety is the difference between the actual sales

Margin of safety is the difference between the actual sales and the sales at break even point. One of the assumption of marginal costing is that output will coincide sales, so margin of safety is also the excess production over the break even point’s output. Sales or output beyond break even point is known as margin of safety because it gives some profit, at break even point only fixed expenses are recovered. Margin of safety can also be express in the percentage.

Formula for the Calculation of margin of safety:

Margin of Safety (M/S) = Present Sales – Break Even Sales

Margin of safety can also be calculated with the help of followings:

Margin of Safety (M/S) =   Profit / P/V  Ratio

Margin of Safety is that sales or output which is above break even point. All fixed expenses are recovered at break even point; so fixed expenses have been excluded from the formula of margin of safety given above. Margin of safety is that sales which gives us profit after meeting fixed costs; so formula of its calculation takes only profit. If the margin of safety is large, it is an indicator of the strength of a business because with a substantial reduction in sales or production, profit shall be made. On the other hand, if the margin is small, a small reduction in sales or production will be a serious matter and lead to loss. The margin of safety at break even point is nil because actual sales volume is just equal to the break even sales. Efforts should be made be the management to increase the margin of safety so that more profit many be earned. This margin can be increased by taking the following steps:

1.        Increase the level of production
2.        Increase the selling price
3.        Reduce the fixed and variable costs or both
4.        Substitute the existing products by more profitable products.

Break even analysis is a logical extension of marginal costing

Break even analysis is a logical extension of marginal costing. It is based on the same principle of classifying the operating expenses into fixed and variable. Now a days it become powerful instrument in the hands of policy makers to maximize profits.

There may be change in the level of production due to many reasons, such as competition, introduction of a new product, trade depression or boom, increased demand for the products, scarce resources, change in the selling prices of product etc. in such cases management must study the effect on profit on account of the changing level of production. A number of techniques can be used as an aid to management in this respect.

The term ‘break even analysis’ is interpreted in the narrower as well as broader sense. Used in its narrower sense, it is concerned with finding out the break even point, i.e., level of activity where the total cost equals total selling price. Used in its broader sense, it means that system of analysis which determines the probable profits at any level of production. The break even analysis establish the relationship of cost, volume and profit; so this analysis is also known as ‘cost Volume Profit Analysis’.

The study of break even analysis can be made:

• Mathematical relationship between cost volume profit.
• By preparing break even charts.

To understand mathematical relationship between cost, volume and profit, it is, desirable to understand the following four concept, their calculation and applications.

• Contribution
• Contribution/sales(C.S) or Profit Volume (P/V) Ratio
• Break Even Point
• Margin of Safety

The Amount of Depreciation For a Period

The amount of depreciation for a period and relating to a department is specifically allocated and booked to the standing order numbers. Separate standing order with suitable sub- numbers may be used to indicate the section number where the asset is located and to book depreciation for various types of assets like plant and machinery, building etc. Depreciation should be estimated in advance if it is charged on the basis of predetermined overhead rates. Generally, depreciation can be directly allocated to various departments or cost centers but where it is not possible it may be apportioned on the basis of value, floor space, or cubic capacity of the building in each department in case of building and on the basis of written down value of the assets in each cost center in case of plant and machinery.

Time factor or usage factor or inclusion of maintenance cost or an element of interests is the general principle which is taken into consideration while calculating depreciation for the purpose of charge to cost. Name of the asset and the use to which it is put to in a particular concern will determine the method to be selected for depreciation of an asset.

The various reasons for including the depreciation charge in the cost account are:

• To ascertain the true and comparable cost of production
• To show a true and fair picture in the balance sheet
• To keep the asset intact by distributing the loss in its value over a number of years.
• To keep the capital intact and to make a provision for the replacement of the asset in future.
• To provide for depreciation before distribution of profit as required under the companies Act.
• To provide depreciation in those concerns where selling price is directly related to cost.

Obsolescence is different form depreciation

Obsolescence is different form depreciation. It is generally used to indicate a sudden loss in the value of a asset not due to wear and tear. It arises because a machine has to be discarded in favor of one better adopted to its purpose and giving better result. It is also called external depreciation as the asset has to be withdrawn before the end of its useful life owing to the operation of external factors like technological improvements in the existing machines. It may also arise due to change in the product or change in the method of manufacture. It may also arise because an asset is not up to the standard to cope with the increasing competition in the market. It may arise either in case of fixed assets.

The Following methods may be used for accounting of obsolescence:

• The rate of depreciation should be increased in order to include the element of obsolescence provided it can be foreseen and predicted. Thus if a machine is purchased for 800$ and has 8 year of effective life but is likely to be out of date in 5 years, then depreciation should be 160$ p.a. and not 100$ p.a.
• The loss resulting from the obsolescence may be written off to profit and loss account of that year in which it arises, provided the amount is small. If the amount is big, then it may be treated as deferred charge and may be spread over a number of years. The loss to be written off will be represented by the depreciated value of the asset on the date when it is discarded less reliable value, if any.
• A suitable amount every year may be credited to Obsolescence Reserve Account and loss arising from the discarding of asset is debited to Obsolescence Reserve Account.

Depreciation is the diminution in the value of a fixed asset

Depreciation is the diminution in the value of a fixed asset says a machine due to use and lapse of time. A fixed assets has a span of life during which it render service for production purposes and on the expiry of which, the asset has either no value or has only small scrap value. The life of an asset is enhanced by efficient maintenance and reduced by its extensive use. Through out its life, the machine has been gradually diminishing the value to reach the scrap value at the expiry of its life. The gradual reduction in the value is called depreciation. Depreciation thus is the result of two factors viz., usage and lapse of time. An asset continues to depreciate with the passage of time even if it is not in active service, through the rate of depreciation may be lower. The more the use to which an asset is put, the larger will be the depreciation. If an asset works on two or more shifts, the depreciation may be doubled or trebled. The methods of depreciation take either the usage of time factor or both into consideration while calculating depreciation.

Factors for rate of depreciation of plant and machinery –

The following are the factors to be considered while considering the rate of depreciation of plant and machinery:

• Time factor
• Usage factor
• Element of maintenance
• Element of interest. This is based on opportunity cost i.e. if not invested in machines; the amount would have earned revenue if employed elsewhere.

Thus element of maintenance is one of the factors to be considered. The method of depreciation should provide a uniform charge each period for aggregate depreciation and maintenance cost. The problem of heavy expenses on maintenance in one year and less in another year is avoided under repair reserve method.

The method of accounting of research and development costs

The method of accounting of research and development costs to be adopted in basic research costs. Such costs are not linked with any specific product, equipment and method. Moreover, the result of such research are uncertain and may be available in the same year or in the subsequent years or may not be successful at all. Such research costs are treated as an item of specified overhead with reference to the area in which such research falls. Cost of applied research such research costs incurred on specific products may be charged to these products are pre production costs. If the amount of such costs is heavy and it will benefit the production of future years, then it may be treated as deferred revenue expenditure and will be charged to the future production on piece rate basis. Such costs may be partly charged to current production and partly treated as deferred revenue if it is incurred for the improvement of existing products or methods of production. If the research costs are incurred for the purpose of increasing the effective production capability or capacity of the concern, then it is capitalized. Unsuccessful Research and Development the amount spent on unsuccessful research and development is treated as an item of overhead costs provided it is normal and provided for in the budget. If it is not so, then it is written off to profit and loss account in order to protect the cost from such abnormalities. Basic research carried on continuously, if does not produce any tangible results, should be treated as unsuccessful and be treated as an item of overhead.

Research and development on behalf of a customer such costs are either treated as an item of overhead cost or directly charged to customer’s job as it can be directly identified to a particular customer. Research and Development for new product such cost can be treated as deferred revenue expenditure if there is no production during the current period or year and is shown in the balance sheet as fictitious asset. Such expenditure will be charged to profit and loss account on the basis of production of new products in the future period. If production has already started but it is not sufficient to bear the research and development cost then a portion of this may be charged to current production and rest may be treated as deferred revenue expenditure. Research and development for existing products such research and development is carried out to improve and develop the existing product by reducing waste, correcting defects and improving the quality etc. such research costs are charged to the current cost of production treating these as manufacturing or selling overhead depending upon whether such research and development is done for improving production capabilities or the volume of sales. The cost of incomplete research and development work should be carried over to the next year treating it as work in progress on incomplete projects in respect of new projects.

Accounting of such cost gives rise to many problems

Accounting of such cost gives rise to many problems which are due to such expenditure is in nature of pre- production cost and there is too much time lag between the incurred of expenditure and getting benefit. Either the production is nil or it is so small that becomes difficult to charge such costs to the cost of products. Because of these difficulties, there is lack of general agreement regarding the treatment of such costs in cost accounts. There are main methods which can be used for the recovery of such costs.

Charge to current period on revenue basis – Research and development costs being a function of production, can be directly charged to the cost of goods sold of specific products to recover through the general overhead rates treating as overhead costs. Charging such costs to cost of goods sold of current period or not is a matter of controversy. Whether such costs should be capitalized or charged to the current revenue depends on two factors ie. The nature of expenses included in the costs and the objective and likely result of such research and development. If the research is contributing to the general efficiency and growth of the business and not for the benefit of a particular department and is undertaken for bettering the result of the concern by finding out improved materials, methods, processes handling methods etc. and for developing additional product , then such costs may be charged to the costs of current revenues.

Amortizing on long term basis by capitalization- If the research and development cost is incurred for a specific  product or process, and there is little or no production during the current period, then it is desirable not to charge such costs to current cost of production. If it is expected to drive the benefit of such research and development on large term basis, the expenditure may be capitalized and a suitable amount may be charged to costs like depreciation on fixed assets.

Amortizing on short term basis – If the benefits of research and development are to be derived  only for a short period of two three years, then such costs may be treated as depreciable cost. A portion of the total amount spent is written off to profit and loss account and the balance is shown as fictitious assets and carried over in the balance sheet to be written off in the subsequent years.

Research cost is the cost of searching for new

Research cost is the cost of searching for new and improved products, new application of materials, or new or improved method. It can be carried out by the research staff of organization or it may be entrusted to an outside association or consultants. Such cost include the cost of initial experimentation, all types of tests and subsequent small trial run in order to prove the results of research. The main item of expenditure are salaries and wages of the research and testing staff, materials and facilities used in laboratory and research departments and payment of outside research agencies.

Research may be two types :

• Pure or basic or fundamental research
• Applied or directed research

Pure or basic or fundamental research – This is done to increase the knowledge in certain fields such as production, marketing etc. such research is done in the hope that some useful applications will develop from it. This type of research is usually undertaken by large companies, the government and educational institutions as it has a less certain and immediate benefit. Pure research may be general research or routine research. General research is for general purposes and is not connected with any specific product. The benefit of such research cannot be assessed against a particular product. Routine research includes test for quality and specification of input and output.

Applied or directed research – Such research differ from basic research in that it aims at producing definite results. It is usually limited to the study of field closely related to organisation’s existing areas of business. This type of research takes help of available knowledge or new facts uncovered by a company’s basic research. Such research is generally done for improving the existing products, processes, methods or equipment which can provide more profits and for providing improved measures of health, safety and convenience. It may relate to raw materials and other resource utilization and management of personnel and human relations. The more immediate payoff potential in this research makes it more practical for commercial undertaking than basic research.