Accounting

In simple words, capital budgeting is the process of making investment decision in capital expenditure. A capital expenditure may be defined as an expenditure, the benefits of which are expected to be received over a period of time exceeding one year. So in simple language, we can say that a capital expenditure is an expenditure incurred for acquiring or improving the fixed assets, the benefits of which are expected to be received over a number of years in future.       Therefore, the capital budgeting decision involves a current outlay or series of outlay of cash resources in return for an anticipated flow of future benefits. In other words the system of capital budgeting is employed to evaluated expenditure decision which involve current outlay but are likely to produce benefits over a period of time longer than one year.     1. Pay back period : The pay back period is one of the most popular and widely recognized traditional methods of computing investment projects. The payback i

The cost of capital of a firm is the minimum rate of return expected by its investors. The capital used by a firm may be in the form of debt, preferences capital. retained earning and equity shares. Hence, to achieve the objective of wealth maximization, a firm must earn a rate of return more than its cost of capital. Hence, the cost of capital to a company is the rate of return. It must earn its investments in order to satisfy the expectations of investor who provide long-term funds to it. Therefore, the firm's cost of capital will be the overall, or average, required rate of return on the aggregate of the investment projects. Importance of cost of capital : The following are the importance of significances of cost of capital a) Financial standard : The cost of capital is used as a financial standard for evaluating the investment projects. To calculate Net Present Value, it is essential. So it is used for evaluating the desirability of the investment project. b) Determination

Capital required for a business can be classified under two categories: fixed capital and working capital. Long-term funds are required to create production facilities through purchase of fixed assets such as plant, machinery, land, building, furniture, etc. The capital which is used in this regard is fixed capital. Funds are also needed for short term purpose for the purchase of raw materials, payments to wages and other day to day expenses, etc. These funds are known as working capital. So this fund is used on current assets such are being constantly converted into cash. So it is also known as revolving or circulating capital.Tere are two conclusion of working capital Gross concept : In the broad sense, the term 'working capital' refers to the gross working capital and represents the amount of funds invested in current assets. Thus, the gross working capital is the capital invested in total current assets of the enterprise. Net working capital concept : In a narrow sense,

Funds means the net working capital and the term fund flow indicates the inflows and outflows of funds during a particular accounting period. It is prepared to indicate the increase in the cash resources and the utilization of such resources of a business during the accounting period. Like wise, cash flow means also inflow and outflow of cash transaction in a particular period of time. In cash flow there are three stage which are operating, investing and financing activities.   Cash/Fund from operation                                             Sales are main sources of inflow of fund into the business as they increase current assets but at the same time funds flow out of business for expenses and cost of goods sold. Thus the net effect of operations will be a source of funds if inflow from sales exceeds the outflow of expenses and cost of goods sold and vice-versa. But it must be remembered that funds from operation do not necessary mean the profit as shown by the profit and loss a

Introduction        In simple words the financial statements contain summarized information of the firm's financial affairs, organization systematically. It means to present the firm's financial situation to uses. Financial information is needed to predict, compare and evaluate the firm's earning ability and in decision making. The financial information is contained in the financial statement or reports. A financial statement is a collection of data organized according to logical and consistent accounting procedures. Hence, the basic purpose behind financial statement is to convey an understanding of some financial aspects of a business firm. The balance sheet and profit and loss account are the important financial statements used in business. The balance sheet gives a summary of the firm's assets and liabilities and owner's equity. The profit and loss account reflects the results of the business operating during a fixed period of time. Advantages       Financial

The company that acquires the equity shares of any other company is known as holding company and the company whose shares have been acquired is known as subsidiary company. The main purpose of the holding company is to gain control over the company. Such holding company is known as parent company. In another words if a company holds more than 50% of the total capital of another company that is known as holding company. In this arrangement no need to be liquidated for both holding and subsidiary company.       After establishing holding company, both company have to prepare final accounts separately became the legal existence of both companies remains separate. On the basis of those both balance sheets the holding company can collect the different information about the financial position of the company and the balance sheets of both companies are to be combined. In another words a consolidated balance sheet will be prepared for both company by holding company.