The identification, measurement, and allocation of costs can help to determine the actual profit of the organization. Based on the relationship or degree of traceability to products, the costs are classified into direct costs and indirect costs. The two cost differ in the sense that expenditure which can be identified and allocated to a particular cost object or cost center, i.e. traceable to a particular product in an economically feasible manner, it is termed as a direct cost. On the other … [Read more...]

Charge means the asset is given as security, against a debt. The value of the security offered as collateral is either equivalent to or greater than the loan amount. It can be in the form of a pledge, hypothecation, mortgage, lien and assignment. The charge is created on the asset based on of the nature of security. In this context, pledge and hypothecation are quite commonly juxtaposed as in both cases, movable goods are given as collateral. However, they are different in the sense that the … [Read more...]

Private Equity and Venture Capital are a type of financial assistance provided to the companies at various stages. Due to the similarity in their concept, they are taken as one and the same thing. However, there is a considerable overlap amidst the two terms which is not known to people. Private Equity involves larger investments in the matured companies. Unlike, Venture Capital in which relatively small sized investments is made, in the companies passing through initial stages of their … [Read more...]

NPV or otherwise known as Net Present Value method, reckons the present value of the flow of cash, of an investment project, that uses the cost of capital as a discounting rate. On the other hand, IRR, i.e. internal rate of return is a rate of interest which matches present value of future cash flows with the initial capital outflow. In the lifespan of every company, there comes a situation of a dilemma, where it has to make a choice between different projects. NPV and IRR are the two most … [Read more...]

Charge refers to the collateral, given for securing the debt, by way of mortgage on the company's assets. There are two kinds of charge, fixed charge, and floating charge. The former is a charge on the real asset of the company that is identifiable and ascertained when the charge is created. Conversely, the latter is slightly different, which is created over the the assets circulatory in nature, i.e. the charge is not attached to any definite property. Companies borrow funds from banks, … [Read more...]

"Capital Reserve" means the part of profit reserved by the company for a particular purpose such as to finance long-term projects or to write off capital expenses. If we reverse the words, then we get a new term "Reserve Capital". The two terms might seem alike to a layman, but these are not one and the same thing, as they carry different meanings. Reserve Capital shows the part of the authorized capital that has not yet called up by the company and is available for drawing, if … [Read more...]

Maximization of sales is the primary business objective, for which various strategies are followed by the company. One of those strategies is providing a discount or rebate to the shoppers to induce them buy more quantity of goods. The discount is a most common strategy used by the entities to enhance its sales, in which a deduction is made in the price of the product. On the contrary, the rebate is a particular kind of discount or say partial refund of the product price by seller to the … [Read more...]

Based on the association with the product, cost can be classified as product cost and period cost. Product Cost is the cost that is attributable to the product, i.e. the cost which is traceable to the product and is a part of inventory values. On the contrary, Period Cost is just opposite to product cost, as they are not related to production, they cannot be apportioned to the product, as it is charged to the period in which they arise. Product cost comprises of direct materials, direct … [Read more...]

Based on payment, costs are classified into two categories; they are Explicit Costs and Implicit Costs. Explicit Cost is the cost which is actually incurred by the organization, during production. On the other hand, Implicit Cost, are just opposite to the explicit cost, as the organization does not directly incur them, but they are implied in nature which does not involve a cash payment. The former is an out of pocket cost, while the latter is an opportunity cost. Explicit Cost refers to the … [Read more...]

Nowadays, if you want to use an asset, you don't need to purchase it from the seller. There are many offers whereby, you can use the asset just by paying the price for using it, such as Hire Purchasing and Leasing. The former is a business deal in which the purchaser of the asset, pays a small amount at the beginning and the rest of the price in installments. On the contrary, the latter is an agreement between two parties in which the lessor purchases the asset and permits the lessee, use the … [Read more...]