03. Concepts
of accounting:
·
Separate
entity concept
·
Going
concern concept
·
Money
measurement concept
·
Cost
concept
·
Dual
aspect concept
·
Accounting
period concept
·
Periodic
matching of costs and revenue concept
·
Realization
concept.
04. Conventions
Of Accounting
·
Conservatism
·
Full
disclosure
·
Consistency
·
D
materiality.
05. Systems
of bookkeeping
·
Single
entry system
·
Double
entry system
54. Types
of a company:
·
Statutory
companies
·
Government
company
·
Foreign
company
·
Registered
companies:
ü Companies limited by shares
ü Companies limited by
guarantee
ü Unlimited companies
ü D. Private company
ü E. Public company
57. Characteristics
of a company:
·
Voluntary
association
·
Separate
legal entity
·
Free
transfer of shares
·
Limited
liability
·
Common
seal
·
Perpetual
existence.
67. Deemed public Ltd. Company: A private
company is a subsidiary company to public
company it satisfies the
following terms/conditions Sec 3(1)3:
·
Having
minimum share capital 5 lakhs
·
Accepting
investments from the public
·
No
restriction of the transferable of shares
·
No
restriction of no. Of members.
·
Accepting
deposits from the investors
68. Secret reserves: secret reserves are
reserves the existence of which does not appear on the face of balance sheet. In such a
situation, net assets position of the business is stronger than that disclosed
by the balance sheet.
These reserves are crated
by:
·
Excessive
dep.of an asset, excessive over-valuation of a liability.
·
Complete
elimination of an asset, or under valuation of an asset.
75. Functions
of financial manager:
·
Investment
decision
·
Dividend
decision
·
Finance
decision
·
Cash
management decisions
·
Performance
evaluation
·
Market
impact analysis
205. Methods
of depreciation:
Unirorm
charge methods:
·
Fixed
installment method
·
Depletion
method
·
Machine
hour rate method.
Declining
charge methods:
·
Diminishing
balance method
·
Sum
of years digits method
·
Double
declining method
Other methods :
·
Group
depreciation method
·
Inventory
system of depreciation
·
Annuity
method
Depreciation fund method
Insurance
policy method.
206. Accrued Income: Accrued Income
means income which has been earned by the business during the accounting year
but which has not yet become due and,
therefore, has not been received.
207. Gross
profit ratio: It indicates the efficiency of the production/trading
operations.
Formula : Gross profit
-------------------X100
Net sales
208. Net
profit ratio: it indicates net
margin on sales
Formula: Net profit
--------------- X 100
Net sales
209. Return On Share Holders Funds : It
indicates measures earning power of equity capital.
Formula :
profits available for
Equity shareholders
-----------------------------------------------X
100
Average Equity Shareholders Funds
210. Earning per Equity share (EPS): It
shows the amount of earnings attributable to each equity share.
Formula :
profits available for
Equity shareholders
----------------------------------------------
Number
of Equity shares
211. Dividend Yield Ratio: It shows the
rate of return to shareholders in the form of dividends based in the market
price of the share
Formula : Dividend per share
---------------------------- X100
Market price
per share
212. Price Earning Ratio: It a measure for determining the value of
a share. May also be used to measure the rate of return expected by investors.
Formula : Market price of
share(MPS)
-------------------------------X 100
Earning
per share (EPS)
213. Current
Ratio: It measures short-term debt paying ability.
Formula : Current
Assets
------------------------
Current
Liabilities
214. Debt-Equity Ratio: It indicates the
percentage of funds being financed through borrowings; a measure of the extent of trading on equity.
Formula : Total Long-term Debt
---------------------------
Shareholders funds
215. Fixed Assets Ratio: This ratio
explains whether the firm has raised adepuate long-term funds to meet its fixed
assets requirements.
Formula Fixed Assets
-------------------
Long-term Funds
216 . Quick Ratio: The ratio termed as ‘
liquidity ratio’. The ratio is ascertained y comparing the liquid assets to
current liabilities.
Formula : Liquid Assets
------------------------
Current
Liabilities
217. Stock turnover Ratio: The ratio
indicates whether investment in inventory in efficiently used or not. It,
therefore explains whether investment in inventory within proper limits or not.
Formula: cost of goods sold
------------------------
Average stock
218. Debtors Turnover Ratio: The ratio
the better it is, since it would indicate that debts are being collected more
promptly. The ration helps in cash budgeting since the flow of cash from
customers can be worked out on the basis of sales.
Formula: Credit sales
-------------------
Average
Accounts Receivable
219. Creditors Turnover Ratio: It
indicates the speed with which the payments for credit purchases are made to
the creditors.
Formula: Credit Purchases
-----------------------
Average
Accounts Payable
220. Working Capital Turnover Ratio: It
is also known as Working Capital Leverage Ratio. This ratio Indicates whether
or not working capital has been effectively utilized in making sales.
Formula: Net Sales
----------------------------
Working Capital
221. Fixed Assets Turnover Ratio: This
ratio indicates the extent to which the investments in fixed assets contributes
towards sales.
Formula: Net Sales
--------------------------
Fixed
Assets
222. Pay-out Ratio: This ratio indicates
what proportion of earning per share has been used for paying dividend.
Formula: Dividend per Equity Share
--------------------------------------------X100
Earning per Equity
share
223. Overall Profitability Ratio: It is
also called as “ Return on Investment” (ROI) or Return on Capital Employed (ROCE) . It indicates the percentage of
return on the total capital employed in the business.
Formula :
Operating profit
------------------------X
100
Capital employed
The term capital employed
has been given different meanings a.sum total of all assets whether fixed or
current b.sum total of fixed assets, c.sum total of long-term funds employed in
the business, i.e., share capital +reserves &surplus +long term loans –(non
business assets + fictitious assets). Operating profit means ‘profit before interest
and tax’
224. Fixed Interest Cover Ratio: The
ratio is very important from the lender’s point of view. It indicates whether the business would earn
sufficient profits to pay periodically the interest charges.
Formula : Income before interest and Tax
---------------------------------------
Interest Charges
225. Fixed Dividend Cover Ratio: This ratio is important for preference
shareholders entitled to get dividend at a fixed rate in priority to other
shareholders.
Formula : Net Profit after Interest and Tax
------------------------------------------
Preference
Dividend
226. Debt Service Coverage ratio: This
ratio is explained ability of a company to make payment of principal amounts
also on time.
Formula : Net profit before interest and tax
---------------------------------------- 1-Tax rate
Interest
+ Principal payment installment
227. Proprietary Ratio: It is a variant
of debt-equity ratio . It establishes relationship between the proprietor’s
funds and the total tangible assets.
Formula : Shareholders funds
----------------------------
Total tangible assets
228. Difference between joint venture and
partner ship:
·
In
joint venture the business is carried on without using a firm name, In the
partnership, the business is carried on
under a firm name.
·
In
the joint venture, the business transactions are recorded under cash system In
the partnership, the business transactions are recorded under mercantile
system. In the joint venture, profit and loss is ascertained on completion of
the venture In the partner ship , profit and loss is ascertained at the end of
each year.
·
In
the joint venture, it is confined to a particular operation and it is
temporary. In the partnership, it is confined to a particular operation and it
is permanent.
229. Meaning of Working Capital: The funds
available for conducting day to day operations of an enterprise. Also represented by the excess of current assets
over current liabilities.
low statement:
·
A
Cash flow statement is concerned only with the change in cash position while a
funds flow analysis is concerned with change in working capital position
between two balance sheet dates.
·
A
cash flow statement is merely a record of cash receipts and disbursements.
While studying the short-term solvency of a business one is interested not only
in cash balance but also in the assets which are easily convertible into cash.
282. Difference
Between the Funds flow and Income statement :
·
A
funds flow statement deals with the financial resource required for running the
business activities. It explains how were the funds obtained and how were they
used, Whereas an income statement discloses the results of the business
activities, i.e., how much has been
earned and how it has been spent.
·
A
funds flow statement matches the “funds raised” and “funds applied” during a
particular period. The source and application of funds may be of capital as
well as of revenue nature. An income statement matches the incomes of a period
with the expenditure of that period, which are both of a revenue nature.
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