Cost determination and balance sheet
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This document discusses cost determination and balance sheets. It defines different types of costs like fixed, variable, and semi-variable costs. It also discusses opportunity costs and other cost types. The document then explains what a balance sheet is and its key components of assets, liabilities, and shareholders' equity. It provides an example balance sheet format and describes assets and liability sections. Finally, it briefly discusses the time value of money and different depreciation methods.
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The balance sheet shows the financial position of a business at a particular date. It has three sections - assets, liabilities, and owner's equity. Assets are things owned that are of value, and are classified as current assets (used within a year) or fixed assets. Liabilities are amounts owed, classified as current (due within a year) or long term. Owner's equity represents the remaining value that belongs to the owner, calculated as total assets minus total liabilities.
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Balance sheet
Balance Sheet
The Balance Sheet shows the financial condition of a business at a specific point of time categorizing financial sheet of the firm under two major heads “Equity & Liabilities” and “Assets”
The balance sheet is based on the fundamental equation:
Assets = Liabilities + Equity
The balance sheet is one of the major fundamental financial statements used to serve various purposes of financial analysis, accounting and financial modelling
Equity & Liabilities represents what the firm owes, the burden or debt
The format prescribed in the Companies Act classifies Equity and Liabilities as follows: Shareholders’ Fund, Non-current Liabilities & Current Liabilities
Equity is a degree of ownership in any asset after deducting all the debts associated with that asset
It represents the shareholders’ stake/ownership in the company
Liabilities are defined as a company's financial debts or obligations that arise during the course of business operations
Shareholders’ fund represents the contribution made by shareholders in the form of financing for the business
Non-current liabilities are liabilities which are expected to be settled in longer period of time usually after one year
These include long-term borrowings , deferred tax liabilities, long-term provisions and other long-term liabilities
Current Liabilities are liabilities which are due to be settled within a year
These include short-term borrowings , trade payables and short-term provisions
An asset is any resource owned by the business either tangible or intangible that produce value and is held by a company to for longer period of time to reap positive economic value for the business.
As per Companies act , under balance sheet asset is categorized under two main headings :- Current assets and Non- current assets.
Current asset is any asset which can reasonably be expected to get sold, consumed, or exhausted through the normal course of a business within the current fiscal year or operating cycle usually within one year
Current assets include current investments, inventories, trade receivables, cash& cash equivalents, short-term loans & advances
Non-current assets are company’s long-term investments usually in the form of investments made in property (land & building), plant and equipment, machinery, intangible assets like patents, copyright, trademark, goodwill etc.
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Balance sheet
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The Balance Sheet shows the financial condition of a business at a specific point of time categorizing financial sheet of the firm under two major heads “Equity & Liabilities” and “Assets”
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Short term planning
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Financial statement, taxes, and cash flow
This document provides an overview of key financial statements and concepts:
- The balance sheet outlines a company's assets, liabilities, and equity at a point in time. It shows what a company owns and owes.
- The income statement reports a company's revenues, expenses, and profits over a period of time. It shows if a company made a profit or loss.
- Taxes reduce a company's net income. Cash flow looks at a company's inflows and outflows of cash.
- Net working capital and liquidity ratios are important for assessing a company's short-term financial health and ability to meet current obligations. The market value of a company's assets may differ from their value
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This document discusses discounted cash flow (DCF) valuation and provides examples of equity versus firm valuation using DCF. It covers key inputs needed for DCF such as cash flows, discount rates, terminal values and growth rates. It emphasizes the importance of matching cash flows and discount rates and discusses errors that can occur from mismatching them.
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This document discusses the key steps and concepts in portfolio management, including:
1) Identifying investment objectives like risk tolerance and return targets as well as constraints like time horizon and liquidity needs through creating an investment policy statement.
2) Developing strategic asset allocation by considering capital market expectations and the investment policy statement.
3) Implementing the portfolio through selection of specific assets and ongoing monitoring including performance evaluation and rebalancing.
Balance Sheet Reconciliation
Balance sheet reconciliations are an important part of the closing process that helps identify errors by comparing account balances between the general ledger and other sources like sub-ledgers, bank statements, or physical counts. Key accounts that need reconciling include cash, accounts receivable, inventory, prepaid expenses, accounts payable, and accrued liabilities. The reconciliation process involves labeling any differences found as reconciling items and ensuring the total balances from both sources are equal. Performing regular balance sheet reconciliations helps ensure accounting records are accurate and can detect issues like missing or untimely transactions.
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1. Job-order costing is used when different products are produced to customer orders and the unique nature of each job requires tracing costs.
2. Manufacturing overhead is allocated to jobs using a predetermined overhead rate based on an allocation base like direct labor hours.
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The cost of a product consists of direct material, direct labor, direct expenses, and overhead costs which include factory overhead, selling and distribution overhead, and administrative overhead. Direct costs can be traced to a specific product while indirect costs cannot. Overhead includes various indirect expenses like utilities, rent, and supervision that are allocated across products and services.
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The balance sheet shows a snapshot of a business' financial position at a point in time. It lists the business' assets, liabilities, and capital. Assets are what the business owns, like equipment, inventory, and cash. Liabilities are what the business owes, such as loans and accounts payable. Capital represents the owner's investment in the business. The balance sheet ensures that assets always equal the sum of liabilities and capital.
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Depreciation is the allocation of the cost of tangible and intangible assets over their useful lives. There are different methods for calculating depreciation under accounting standards in India (AS-6), US GAAP, and IFRS. Key differences include how revaluations are treated and whether changes in estimates are considered changes in accounting policies. Uniformity in depreciation accounting standards worldwide could improve comparability between companies.
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Understanding the Balance Sheet.
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Financial statement analysis involves analyzing a company's financial statements to assess its performance and financial position. It is used to evaluate factors like profitability, solvency, liquidity, and efficiency. Key tools for financial statement analysis include financial ratios, common size analysis, trend analysis, and comparisons to industry standards and past performance. The purpose is to provide useful information to decision makers about a company's historical performance, current condition, and future prospects.
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The document discusses presenting financial statements clearly through balance sheets, current financial reports, forecasts, and dynamic models. It provides tips for each:
1) For balance sheets, focus on liquidity, changes in cash, timing of assets/liabilities, and key line items and ratios.
2) Current reports should include a financial dashboard and template-driven monthly reports with relevant charts.
3) Forecasts should answer "what if" questions and have the same format as reports, with assumptions driving the model.
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This document defines and provides examples of different types of costs that can be classified in various ways for accounting and management purposes. It discusses costs classified by nature (material, labor, expenses), functions (production, selling, distribution, etc.), identifiability (direct, indirect), variability (fixed, variable, step), controllability (controllable, uncontrollable), normality (normal, abnormal), and more. Key points covered include definitions of direct costs, indirect costs, fixed costs, variable costs, product costs, period costs, and common/joint costs.
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The document defines variances as differences between standard and actual costs. It discusses computing variances for material costs, including material cost, price, usage, mix, and yield variances. It also discusses labor cost and rate variances. Variances are classified and examples are provided to demonstrate how to calculate different types of variances based on standard and actual data. The key information is on defining and calculating different types of variances to identify reasons for deviations between actual and standard performance.
METHODS & TECHNIQUES OF COSTING
The document discusses different types of audits:
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- Non-statutory audits are voluntary and terms are agreed upon between the auditor and proprietor.
- Internal audits are independent reviews conducted within an organization to evaluate risk management, controls, and governance processes.
- Special audits are specifically requested to detect potential errors, irregularities, or fraud.
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Cost determination and balance sheet
- 1. COST DETERMINATION AND BALANCE SHEET
- 2. COST – Definition an amount that has to be paid or given up in order to get something. In business, cost is usually a monetary valuation Effort Material Resources Time and utilities consumed Risks incurred Opportunities forgone
- 3. TYPE OF COSTS The major types of costs are FIXED COSTS – Costs don’t change over a period of time and don’t vary with output VARIABLE COSTS – Costs that vary change over a period of time and also vary with output SEMI – VARIABLE COSTS - These costs have fixed and variable elements of production
- 4. THE OTHER TYPE OF COSTS Opportunity costs Accounting costs Transaction costs Sunk costs Marginal costs Economic costs
- 6. WHAT DOES BALANCE SHEET MEAN????? A financial statement that summarizes a company’s assets, liabilities and shareholder’s equity at a specific point of time. These three balance sheet segmented give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders ASSETTS = LIABILITIES + SHAREHOLDER’S EQUITY
- 7. FORMAT OF A BALANCE SHEET LIABILITIES ASSETS Capital: Share capital Preference capital Debentures Long term loan Reserves & surplus CURRENT LIABILITIES: Creditors Mortgage loan Bills payable Outstanding expenses FIXED ASSETS: Plant & machinery Land & building Furniture Goodwill Current assets: Cash in hand Cash at bank Debtors Closing stock Bills receivables Prepaid expenses
- 8. TIME VALUE OF MONEY The value of money received today is greatere than the value of the same amount receivable after 5 or 10 years REASONS FOR TIME PREFERENCE FOR MONEY Uncertainty Preference for consumption Investment opportunities
- 9. TECHNIQUES OF TIME VALUE OF MONEY COMPOUNDING VALUE OF A LUMP SUM: Yearly calculations MULTIPLE COMPOUNDING PERIODS: Yearly, half- Yearly or even monthly DOUBLING PERIOD: Investment doubling after some year. Example: Indra vikas patra doubled in 5 years
- 10. DEPRECCIATION It is the distribution in value of a fixed assets due to use/passage of time OBJECTIVES Ascertainment of true profits Presentation of true financial position Replacement of assets
- 11. METHODS OF CALCULATING DEPRECIATION STRAIGHT LINE METHOD WRITTEN DOWN METHOD ANNUITY METHOD PRODUCTION – BASED METHODS REVALUATION METHOD DEPELTION METHOD DEPRECIATION FUND METHOD
- 13. THANK YOU