What is Cost pool

Cost pool: Cost pool is a collection of costs that are to be assigned to cost objects. Costs are often pooled because they have the same cost driver.  An example of a cost pool is all costs related to material handling in a manufacturing firm.

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What is Cost object

Cost object:- Cost object is something which is assigned a separate measure of cost because management needs such cost information; for example, responsibility centers, products, projects and so on. The various production departments in a manufacturing firm also provide examples of cost objects. For example, the material handling cost pool may be allocated across the various production departments that use material handling services.

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What is Market Value

Market Value:- Market Value is the current price at which share of stock may be bought or sold. When a stock is traded on an organized stock exchange, the market price is quoted daily in the financial press. Market price is based upon a combination of factors, including investors’ expectation of future earning, dividend yield, interest rates and alternative investment opportunities, etc.

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What is Book Value

Book Value:- Book Value is the amount of net assets presented by each share of common stock. Book value may be either higher or lower than the current market value; however it may give an indication of reasonableness of the current market price.

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Preparation Of Cash Flow Statement.

Cash flow statement can be prepared under two methods:-

(i) Direct method and 

(ii) Indirect method 

We will discuss about indirect method here. In fact two methods differ only in calculating cash flows from Operating Activities.

 

Cash flows into a business under three activities:-

1. Operating Activities

2. Investing Activities and

3. Financing Activities

1. Operating Activities:- Cash comes in and goes out from operations is shown under this head. Changes in current assets and changes in current liabilities is shown here. When current assets increase it is cash outflow and When assets decrease it is cash inflow. When current liabilities increase it is cash inflow and When current liabilities decrease it is cash outflow. Any non cash expenditure like depreciation, amortization e.t.c  is added to net income.

2. Investing Activities:-  Cash comes in and goes out from investing activities is shown under this head. Examples include purchase and sale of long term assets. 

3. Financing Activities:- Cash comes in and goes out from financing activities is shown under this head.

Examples include dividend paid, Common stock issue and retire, Bond issue and retire e.t.c

A sample Cash Flow Statement



 

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Statement of Changes in Equity (Sample)

                                                                                  XYZ Company
                                                                        Statement of Changes in Equity
                                                                            For the year ended 20XX

	Share Capital	Share Premium	General Reserve	Sinking Fund	Accu. OCI	Retained Earnings
Balance b/d	X	X	X	X	X	X
Add: Net income						X
Transfer to General reserve			X			(X)
Comprehensive income					X
Balance c/d	X	X	X	X	X	X

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Difference between Recognized and Un-Recognized Provident Fund.

Recognized Provident Fund:- A Provident Fund which is recognized by an income tax commissioner is called a Recognized Provident Fund.

Un-Recognized Provident Fund:- A Provident Fund which is not recognized by an income tax commissioner is called an Un-Recognized Provident Fund.

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Difference between Contributory and Non Contributory Provident fund.

Contributory Provident Fund:- A contributory Provident Fund is one Where employee and Employer both contributes the same amount to the Provident Fund. A certain percentage is deducted from the basic salary of an employee and the same amount is deposited to the Provident Fund by the employer.

Non Contributory Provident fund:- A Non Contributory Provident fund is one where only employee contributes to his/her provident fund.

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Statement of Cash Flows (Sample)

                                       XYZ Company
                                       Statement of Cash Flows
                                       For the Year ended 20XX

Cash flows from operating activities:
Net income	XX
Adjustments to reconcile net income
Add: Depreciation on building	X
Add: Depreciation on equipment	X
Add: Amortized of bond discount	X
Add: Loss on sale of securities	X
Add: Loss on sale of equipment	X
Less: Gain on sale of marketable securities	(X)
Cash from operating activities before working capital changes
Increase in accounts receivable (net)	(X)
Decrease in inventory	X
Increase in prepaid insurance	(X)
Decrease in accounts payable	(X)
Increase in misc. expense payable	X
Decrease in un-earned revenue	(X)
Increase in tax payable	X
Decrease in deferred income tax liability	(X)
Net cash provided from operating activities	X
Cash flows from investing activities:
Sale of equipment	X
Purchase of equipment	(X)
Overhauling of equipment	(X)
Sale of marketable securities	X
Net cash used by investing activities	X
Cash flows from financing activities:
Payment of notes payable (Long-term)	(X)
Sale of treasury stock	X
Sale of common stock	X
Dividend paid	(X)
Net cash flows from financing activities	X
Net increase in cash	X
Cash at beginning of year	X
Cash at end of year	X

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Financial Statements that a company needs to disclose.

A Company needs to disclose the following Financial Statements:-

(i) Statement of Financial Position / Balance sheet.
(ii) Statement of Comprehensive Income / Income Statement.
(iii) Statement of Changes in Equity.
(iv) Statement of Cash Flows.

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Levered Firm and Unlevered Firm

Levered Firm :- A  firm that uses a percentage of debts in its capital structure to finance its business is called a Levered Firm. It uses Equity and Debts for doing business.

Unlevered Firm :- A  firm that does not use debts in its capital structure to finance its business is called an Unlevered Firm. It does not use loans for doing business. It depends on Equity funds only.

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Capital Budgeting Techniques.

The following techniques are used in Capital Budgeting :-
1) Pay Back Period (PBP).
2) Discounted Pay Back Period (DPBP).
3) Net present Value (NPV).
4) Internal Rate of Return (IRR).
5) Modified Internal Rate of Return (MIRR).
6) Profitability Index (PI).
7) Accounting / Average Rate of Return (ARR).

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