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The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.
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The double entry bookkeeping has mainly been accredited to one Italian, Frater Luca Bartolomes Pacioli (1445-1517).
Actually Pacioli did not invent double-entry bookkeeping,however, on November 10, 1494 he published the first complete textbook, “Summma de Arithmetica, Geometria: Proportioni et Proportionalita” (meaning “ Everything About Arithmetic, Geometry and Proportion”) describing the standard accounting system with such detail and clarity that it became the standard system for keeping accounts. Pacioli painstakingly noted the use of various bookkeeping tools including journals and ledgers. He is widely known as the father of modern bookkeeping.
Background of Frater Luca Bartolomes Pacioli:
• He was born in 1445 at Borgo San Sepulcro inTuscany, Italy. He was a mathematician. He was a friend of the great artist Leonardo da Vinci. At age 37, Frater Luca Pacioli became a Franciscan friar and traveled the country teaching and expounding on mathematics. He did not earn his doctorate degree until 1486, but by that time, he had accomplished a great deal of work in the field of mathematics. He lived until 1517.
• Pacioli was indeed a Renaissance man” in the true sense of the expression, acquiring an amazing knowledge of diverse technical subjects – religion, business, military science, mathematics, medicine, art, music, law and language.
• His friend Leonardo da Vinci helped prepare the drawings for Pacioli’s 1497 work, Divina Proportione; in turn, Pacioli is reputed to have calculated for da Vinci the quantity of bronze needed for the artist’s huge statue of Duke Lidovico Sforza of Milan.
• Around 1482, after completing his third treatise on mathematics, Pacioli – like many of his time who sought preferment as a teacher – he became a Franciscan friar. He traveled throughout Italy, lecturing on mathematics, and in 1486 he completed his university education with the equivalent of a doctorate degree.
In fact, it was Benedetto Cotrugli who was credited with inventing the double entry bookkeeping process. Cotrugli wrote Delia Mercatura et del Mercante Perfetto (“Of Trading and the Perfect Trader.”) in 1458. It and other hand written manuscripts seem to have circulated in the Italian city states during the 15th century. Cotrugli’s book was not published until 1573 so Paciolo may claim the first published text
In Pacioli’spublished book: “Summma de Arithmetica, Geometria: Proportioni et Proportionalita” (meaning “ Everything About Arithmetic, Geomeetry and Proportion”), he advocated that the trial balance (summa summarium) is the end of accounting cycle. Debit amounts from the old ledger are listed on the left side of the balance sheet and credits on the right. The two totals equal, the old ledger is considered balanced. If not, says Pacioli, “that would indicate a mistake in your Ledger, which mistake you will have to look for diligently with the industry and intelligence God gave you.”
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It records the realisation of various assets and payments of various liabilities. It is prepared to determine the net P&L on realisation
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It records the effect of revaluation of assets and liabilities. It is prepared to determine the net profit or loss on revaluation. It is prepared at the time of reconsititution of partnership or retirement or death of partner.
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It is created to have ready money after a particular period either for the replacement of an asset or for the repayment of a liability. Every year some amount is charged from the P&L a/c and is invested in outside securities with the idea, that at the end of the stipulated period, money will be equal to the amount of an asset.
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: The quantity of material to be ordered at one time is known EOQ. It is fixed where minimum cost of ordering and carryiny stock.
Key Factor: The factor which sets a limit to the activity is known as key factor which influence budgets.
Key Factor = Contribution/Profitability
Profitability =Contribution/Key Factor
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1. Fixed Instalment method or Stright line method
Dep. = Cost price – Scrap value/Estimated life of asset.
2. Diminishing Balance method: Under this metod, depreciation is calculated at a certain percentage each year on the balance of the asset, which is bought forward from the previous year.
3. Annuity method: Under this method amount spent on the purchase of an asset is regarded as an investment which is assumed to earn interest at a certain rate. Every year the asset a/c is debited with the amount of interest and credited with the amount of depreciation
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It is a perminant continuing and gradual shrinkage in the book value of a fixed asset
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It is the value of repetition of a firm in respect of the profits expected in future over and above the normal profits earned by other similar firms belonging to the same industry.
Methods: Average profits method
Super profits method
Capitalisatioin method
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It is the value of repetition of a firm in respect of the profits expected in future over and above the normal profits earned by other similar firms belonging to the same industry.
Methods: Average profits method
Super profits method
Capitalisatioin method
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Reserves are amounts appropriated out of profits which are not intended to meet any liability, contingency, commitment in the value of assets known to exist at the date of the B/S.
Creation of the reserve is to increase the workingcapital in the business and strengthen its financial position. Some times it is invested to purchase out side securities then it is called reserve fund.
Types:
1: Capital Reserve: It is created out of capital profits like premium on the issue of shares, profits and sale of assets, etc…This reserve is not available to distribute as dividend among shareholders.
2: Revenue Reserve: Any Reserve which is available for distribution as dividend to the shareholders is called Revenue Reserve.
Provisions V/S Reserves:
1. Provisions are created for some specific object and it must be utilised for that object for which it is created.
Reserve is created for any future liability or loss.
2. Provision is made because of legal necessity but creating a Reserve is a matter of financial strength.
3. Provision must be charged to profit and loss a/c before calculating the net profit or loss but Reserve can be made only when there is profit.
4. Provisions reduce the net profit and are not invested in outside securities Reserve amount can invested in outside securities.
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There are many risks and uncertainities in business. In order to protect from risks and uncertainities, it is necessary to provisions and reserves in every business.
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These reserves which are not created for any specific purpose and are available for any future contingency or expansion of the business.
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The deviations between standard costs, profits or sales and actual costs. Profits or sales are known as variances.
Types of variances
1: Material Variances
2: Labour Variances
3: Cost Variances
4: Sales or ProfitVariances
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A merger refers to a combination of two or more companies into one company.
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When a company purchases the business of another existing company that is called absorbtion
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Errors that occur while preparing accounting statements are rectified by replacing it by the correct one.
Errors like: Errors of posting, Errors of accounting etc…
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It is used in the case of concerns rendering services like transport. Ex: Supply of water, retail trade, etc
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It is the practice of charging all costs, both variable and fixed to operations, processess or products. This differs from marginal costing where fixed costs are excluded.
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