Mention the Common Sources of Working Capital Finance

Posted by Ripon Abu Hasnat on Wednesday, September 30, 2015 | 0 comments | Leave a comment...

Working capital is a financial metric represents operating liquidity available to a business, organization or other entity, including governmental entity.

Common Sources of Working Capital Finance:
Loans from Commercial Banks:Small scale industries can raise loans from the commercial banks with or without security. This method of financing does not require any legal formality except that of creating a mortgage on the assets. 

Public Deposits: Often companies find it easy and convenient to raise, short-term funds by inviting shareholders, employees and the general public to deposit their savings with the company. 

Trade Credit: Just as the companies sell goods on credit, they also buy raw materials, components and other goods on credit from their suppliers. 

Factoring: Factoring is a financial service designed to help firms in managing their book debts and receivables in a better manner. 

Discounting Bills of Exchange: When goods are sold on credit, bills of exchange are generally drawn for acceptance by the buyers of goods. The bills are generally drawn for a period of 3 to 6 months. In practice, the writer of the bill, instead of holding the bill till the date of maturity, prefers to discount them with commercial banks on payment of a charge known as discount. 

Bank Overdraft and Cash Credit:Overdraft is a facility extended by the banks to their current account holders for a short-period generally a week. 

Advances from Customers:One way of raising funds for short-term requirement is to demand for advance from one’s own customers. 

Accrual Accounts: Generally, there is a certain amount of time gap between a income is earned and is actually received or expenditure becomes due and is actually paid. Salaries, wages and taxes.

Tagged with , ,

Define Working Capital with differentiate between variable working capital and permanent working capital

Posted by Ripon Abu Hasnat on | 0 comments | Leave a comment...

Working capital is a financial metric represents operating liquidity available to a business, organization or other entity, including governmental entity.

Net working capital is calculated as current assets minus current liabilities. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses.
 
Difference between variable working capital and permanent working capital.
Working capital is a part of capital investment is used for running the business such like money which is used to buy stock, pay expenses and finance credit.
Considering time as the basic of classification there are two types of working capital: 1) Permanent working capital; 2) Variable working capital;

The difference between variable working capital and permanent working capital is as follows:

1) Permanent working capital is referred to finance to stock of finished goods, debtors balances etc. Variable working capital is used to carry out day to day operations.

2) Permanent working capital consists of stock of raw materials, stock of work-in-process, stock of finished goods, debtors balance, etc. Variable working capital consists of cash, marketable securities, account receivable, stock etc.

3) Permanent working capital includes long term financial decisions. Variable working capital includes short term financing decisions.

4) Permanent working is mainly required for operational activities. Variable working capital is required for trading activities. 

Tagged with , ,

Define Working Capital. How to manage working Capital?

Posted by Ripon Abu Hasnat on | 0 comments | Leave a comment...

Definiton of Working Capital:
Working capital is a financial metric represents operating liquidity available to a business, organization or other entity, including governmental entity.

Net working capital is calculated as current assets minus current liabilities. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses.

Management of Working Capital:
Management will use a combination of policies and techniques for the management of working capital. The policies aim at managing the current assets and the short term financing that cash flows and returns are acceptable:
1. Cash management:Identify the cash balance which allows for the business to meet day to day expenses but reduces cash holding costs.
2. Inventory management:Identify the level of inventory which allows for uninterrupted production.
3. Debtors management:Identify the appropriate credit policy, i.e. credit terms which will attract customers.
4. Short term financing:Identify the appropriate source of financing, given the cash conversion cycle.

Tagged with , ,

Scope, practice, and application of Management accounting

Posted by Ripon Abu Hasnat on | 0 comments | Leave a comment...

The American Institute of Certified Public Accountants (AICPA) states that management accounting as practice extends to the following three areas:
  • Strategic management—advancing the role of the management accountant as a strategic partner in the organization.
  • Performance management—developing the practice of business decision-making and managing the performance of the organization.
  • Risk management—contributing to frameworks and practices for identifying, measuring, managing and reporting risks to the achievement of the objectives of the organization.
The Institute of Certified Management Accountants (ICMA) states "A management accountant applies his or her professional knowledge and skill in the preparation and presentation of financial and other decision oriented information in such a way as to assist management in the formulation of policies and in the planning and control of the operation of the undertaking". 

Management accountants therefore are seen as the "value-creators" amongst the accountants. They are more concerned with forward looking and taking decisions that will affect the future of the organization, than in the historical recording and compliance (score keeping) aspects of the profession. Management accounting knowledge and experience can therefore be obtained from varied fields and functions within an organization, such as information management, treasury, efficiency auditing, marketing, valuation, pricing and logistics. 

In 2014 CIMA created the Global Management Accounting Principles (GMAPs). The result of research from across 20 countries in five continents, the principles aim to guide best practice in the discipline.

Tagged with , ,

Discuss the fundamental objective of management accounting

Posted by Ripon Abu Hasnat on Monday, September 28, 2015 | 0 comments | Leave a comment...

The primary objective is to enable the management to maximize profits or minimize losses. The fundamental objective of management accounting is to assist management in their functions.
The other main objectives are:
1. Planning and policy formulation: 
planning is one of the primary functions of management. It involves forecasting on the basis of available information.
 
2. Help in the interpretation process: 
The main object is to present financial information. The financial information must be presented in easily understandable manner.
 
3. Helps in decision making: 
Management accounting makes decision making process more modern and scientific by providing significant information relating to various alternatives.
 
4. Controlling: 
The actual results are compared with pre determined objectives. The management is able to control performance of each and every individual with the help of management accounting devices.
 
5. Reporting: 
This facilitates management to take proper and timely decisions. It presents the different alternative plans before the management in a comparative manner.
 
6. Motivating: 
Delegation increases the job satisfaction of employees and encourages them to look forward. so it serves as a motivational devise.
 
7. Helps in organizing: 
“Return on capital employed” is one of the tools if management accounting. All these aspects are helpful in setting up effective and efficient organization.
 
8. Coordinating operations:
It provides tools which are helpful in coordinating the activities of different sections.

Tagged with , ,

Recent Trends in Management Reporting

Posted by Ripon Abu Hasnat on | 0 comments | Leave a comment...

Reporting is the process of communicating of information to those who need such information relevant for decision making. Some trends in reporting are:
 
1. Financial reporting using IFRS
International Financial Reporting Standards [IFRS] is recognized as global financial reporting standards. From 1st April 2011 Indian Accounting Standards were merged with the new IFRS.IFRS ensures more transparency, consistency and uniformity in accounting policies.

2. Interim Reporting
Interim Reporting is the reporting of financial results of any period that is shorter than a fiscal year. SEBI guidelines require companies listed on Stock Exchanges to publish their financial results on quarterly basis.

3. Segmental Reporting [AS-7]
It is the reporting of the operation segments of a company in the disclosure accompanying financial statements. AS 17 requires to report a segment if it has at least 10% of the revenue, 10% of the profit or loss, or 10% of the combined assets of the company.
 
4. Corporate Governance Report
The SEBI regulates governance practices of companies listed on Stock Exchanges. These regulations are notified under clause 49 of the Listing Agreements of Stock Exchanges. It prescribes the standards to be followed in the governance of the companies.
 
5. Reporting of Information Relating to Group Companies [AS 21]
AS 21 requires companies to prepare consolidated Financial Statements. It is the presentation of subsidiary companies. The objective of consolidation is to show the performance of the group as if it were a single entity. The inter group transactions are eliminated in the consolidated Financial Statements.

Tagged with , ,

Limitations of Management Accounting

Posted by Ripon Abu Hasnat on | 0 comments | Leave a comment...

Management accounting, being comparatively a new discipline, suffers from certain limitations, which limit its effectiveness. These limitations are as follows:

1. Limitations of basic records: 
Management accounting derives its information from financial accounting, cost accounting and other records. The strength and weakness of the management accounting, therefore, depends upon the strength and weakness of these basic records. In other words, their limitations are also the limitations of management accounting.

2. Persistent efforts.
The conclusions draws by the management accountant are not executed automatically. He has to convince people at all levels. In other words, he must be an efficient salesman in selling his ideas.

3. Management accounting is only a tool:
Management accounting cannot replace the management. Management accountant is only an adviser to the management. The decision regarding implementing his advice is to be taken by the management. There is always a temptation to take an easy course of arriving at decision by intuition rather than going by the advice of the management accountant.

4. Wide scope:
Management accounting has a very wide scope incorporating many disciplines. It considers both monetary as well as non-monetary factors. This all brings inexactness and subjectivity in the conclusions obtained through it.

5. Top-heavy structure:
The installation of management accounting system requires heavy costs on account of an elaborate organization and numerous rules and regulations. It can, therefore, be adopted only by big concerns.

6. Opposition to change:
Management accounting demands a break away from traditional accounting practices. It calls for a rearrangement of the personnel and their activities, which is generally not like by the people involved.

7. Evolutionary stage:
Management accounting is still in its initial stage. It has, therefore, the same impediments as a new discipline will have, e.g., fluidity of concepts, raw techniques and imperfect analytical tools. This all creates doubt about the very utility of management accounting.

Tagged with , ,

Discuss the differences between Financial accounting and Management accounting

Posted by Ripon Abu Hasnat on | 0 comments | Leave a comment...

Financial accounting is concerned with the recording of day to day transactions of the business. On the other hand, Management accounting is to provide the quantitative as well as the qualitative to the management. The main differences between Financial accounting and Management accounting are as follows:

Tagged with , ,

Management Accounting is helpful in decision making-discuss the statement

Posted by Ripon Abu Hasnat on Tuesday, September 9, 2014 | 0 comments | Leave a comment...

Managerial accounting information provides data-driven input to these decisions, which can improve decision making over the long term. Small business managers can leverage this powerful tool to help make their business more successful by understanding how management accounting benefits common business decision contexts.

Relevant Cost Analysis
Managerial accounting information is used by company management to determine what should be sold and how to sell it. For example, a small business owner may be unsure where he should focus his marketing efforts.

Activity-based Costing Techniques
Once the company has determined what products to sell, the business needs to determine to whom they should sell the products. By using activity-based costing techniques, small business management can determine the activities required to produce and service a product line.

Make or Buy Analysis
A primary use of managerial accounting information is to provide information used in manufacturing. By completing a make or buy analysis, she can determine which choice is more profitable.

Utilizing the Data
Managerial accounting information provides a data-driven look at how to grow a small business. Budgeting, financial statement projections and balanced scorecards are just a few examples of how managerial accounting information is used to provide information to help management guide the future of a company.

Tagged with ,

SME and Consumer Banking Question Paper, June-2014

Posted by Ripon Abu Hasnat on Thursday, September 4, 2014 | 0 comments | Leave a comment...



THE INSTITUTE OF BANKERS, BANGLADESH (IBB)
Banking Diploma Examination, June, 2014
DAIBB
SME and Consumer Banking (SME)
Time-3 hours
Full marks-100

[N.B.—The figures in the right margin indicate full marks. Answer any five questions.]

1. Write short notes on any four of the following:-
(a) Net Present Value
(b) Cash Flow Analysis;
(c) Leasing;
(d) Break-Even Point
(e) Pay Back Period
(f) Venture Capital

2. (a) Discuss the importance of SME in the economic development of Bangladesh.
(b) Discuss the role of SME foundation in SME development in the country.

3. (a) What are the existing sources and areas of SME financing in Bangladesh? Discuss.
(b) Discuss the major constraints to the growth of SME finance in Bangladesh.

4. (a) Discuss the essentials of a busines plan
(b) How would you assess working capital requirements of an SME Project? Discuss.

5. (a) What do you mean by Project Appraisal?
(b) Discuss in details the various aspects of a Project Appraisal.

6. (a) SME is considered as an 'Employment Generating Machine'. Explain.
(b) `Consumer Credit provokes inflation —Do you agree with this statement? Discuss.

7. (a) What is Credit Risk?
(b) How would you mitigate the risks in SME loan? Discuss in details.

8. (a) Discuss the cost elements of an SME Project.
(b) How would you prepare a Repayment Schedule' of an SME loan? Discuss with an example.

9. Discuss the importance of monitoring and counseling in improving the quality of an SME loan.

10. (a) Discuss the negative impacts of non-performing loan.
(b) What measures would you take to recover a non-performing loan? Discuss.

Tagged with ,

.

.

Subscription

You can subscribe by e-mail to receive news updates and breaking stories.

Most Popular

Tag Cloud

Labels

Recent News

Archives