Accounting

Wealth maximization means the goal of the firm should be to maximize the market value of its equity shares which represents the value of the firm to its equity shareholders. Wealth maximization means maximizing the net present value of a course of action. That financial action which has a positive net present value creates wealth and therefore is desirable. It is consistent with the objective of maximizing owner's economic welfare. It implies the fundamental objective of a firm should be to maximize the market value to its shares. In corporation, a management team is elected to manage its activities. Management is supposed to operate in  the best interests of the shareholders. Some have argued that the managers could work just enough to keep stockholders' at a "fair" or "reasonable" level and then devote the remainder of their efforts and resources to public service activities, to employee benefits of higher executive salaries. Similarly, the stockholders ge...

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 compu...

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 ...

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  ...

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.

When a new company is set up to acquire the business of existing companies, it is amalgamation. In order to take the economies of scale, to avoid competition and maintenance of prices, two of more than two joint stock companies may combine their undertakings and become one joint stock company. So amalgamation is a blending of two or more existing undertakings into one undertakings, the shareholders of each blending company becoming substantially the shareholders in the company when is to carry on the blended undertakings.      All the assets and liabilities of the transfer company become, after amalgamation, the assets and liabilities of the transferee company. Shareholders holding not less than 90% of the face value of the equity shares of the transfer company become equity shareholders of the transferee company by virtue of amalgamation. The business of the transfer company is intended to be carried on, after the amalgamation by the transferee company. No adjustme...

A Company established under Company Act 2053 B.S. will be an organized and autonomous organization having perpetual existence. There will be a separate seal of the company. The company can by being under this law like an individual receive, keep, sell and manage all kind of properties movable or immovable as required from time to time. The company can lodge complaint against anybody in its own name and others may also complaint against the name of the company.          In my opinion company is an artificial legal person created by law having a perpetual succession and having separate common seal for business deal and different agreements. Also it is called an enterprises of group of persons formed for obtaining certain goal.    

Character Accountant is an auditor of accounting record of business enterprises. It is also called supervisor of account keeper. Charterer Accountants are a person who are qualified by government authority who create a seprate board called chartered accountant association. Chartered Accountants only can be a member in this association and they can certified a new chartered accountant by taking different stage of examination.        Now a days Chartered Accountants are so popular because in present contents many business organization are formed broadly and they can deal big business and that kind of business are run in globally so that kind of accounting transaction cannot handle by general auditor and they don't have any authority to do so. In present situation the world is narrow because of wide communication facilities, now a days we can easily communicate in different location so it is also apply in business so many business deal are done through intern...

In the early stage 'com' means bread and 'pany' means taking meals together, so this two words 'com' and 'pany' jointly called company. we can understand that different businessmen wore took their meals together, that time they discuss their business problem and solve jointly. So that they knew that if they work jointly they will success better than they are doing solely. From this concept they knew that if they work jointly they will earn more than solely. From this practice we can easily know that gathering of people doing business in one place is called company like wise in other word company is called group of person formed a enterprises for better earning purpose.               In present contents there are many types of company like private company, public company, government company, foreign company, holding company, etc. the main feature of the company is that is artificial legal person, limited liabilities, commo...