Departmentalization can be understood as a process of creating departments such as machining, personnel, fabrication, maintenance, stores, accounts, etc., in an organization, for the purpose of allocation and apportionment of overheads in a convenient way. The term allocation of cost is concerned with the complete cost items, whereas the apportionment of the cost is all about the proportion of cost items. Based on the relation of the cost item with the cost center or unit, to which it is … [Read more...]

There are many industries such as sugar industries, chemical industries, agricultural product industries, etc., where more than one products of equal or differential importance are manufactured, either concurrently or during the production of the main product. In this context, joint products and by-products are often studied. Joint products are the products which are produced simultaneously, with the same raw material and process, and requires further processing to become a finished product … [Read more...]

Amalgamation implies a process of unification of two or more companies, which are involved in similar business to form a new company. As per Accounting Standard-14, Amalgamation can take place in two ways, i.e. in the nature of merger and in the nature of the purchase. When amalgamation is in the nature of merger the method of accounting used is the pooling of interest method, whereas is the amalgamation is in the nature of the purchase, purchase method of accounting is used. In pooling of … [Read more...]

Budgeting can be understood as the process of creating a budget, which is nothing but a quantitative statement of incomes and expenses, created and approved, for a specific period, which should be followed during that period, with the aim of achieving the objective. There are two types of budgeting techniques namely traditional budgeting - targets set in the previous year, budgeting is performed, by making certain additions and deductions, to reach the present budget and zero-based budgeting - … [Read more...]

Reconstruction is a process of the company's reorganization, concerning legal, operational, ownership and other structures, by revaluing assets and reassessing the liabilities. There are two methods of reconstruction which are internal reconstruction and external reconstruction. The former is the method in which the reconstruction is undertaken without winding up the company and forming a new one, while the latter, is one whereby the existing company loses its existence, and a new company is set … [Read more...]

Mutual funds can be described as a collective investment avenue. Investing in a mutual fund is like becoming a part-owner in the portfolio of investment. Based on the structure, a mutual fund is classified as open-ended and closed-ended. Open-ended funds, as the name suggests, are the type of mutual funds, wherein the investor can enter and exit anytime. On the other hand, closed-ended funds are the ones which the investor can buy during the IPO or from the stock exchange after they are … [Read more...]

Internal Rate of Return (IRR) for an investment plan is the rate that corresponds the present value of anticipated cash inflows with the initial cash outflows. On the other hand, Modified Internal Rate of Return, or MIRR is the actual IRR, wherein the reinvestment rate does not correspond to the IRR. Every business makes a long-term investment, on various projects with the aim of reaping benefits in future years. Out of various plan, the business has to choose one that generates the best … [Read more...]

Business implies a commercial activity of producing and distributing goods and services to final consumers for a profit. To undertake various business activities, an entity requires money and thus, finance is said to be the spine of business, that keeps it going. The capital brought in, to the business by the proprietor is not sufficient to fulfill the financial needs and so he/she looks for new ways to fulfill fixed capital and working capital needs. Based on the source of generation, it is … [Read more...]

In business, all the profit earned during a financial year is not utilized for payment of dividend to the shareholder, rather a certain amount is earmarked and retained in the business, so as to meet out future needs or cope with emergency situations, it is known as reserves. Based on the nature of profit from which reserves are created, they are grouped as revenue reserve and capital reserve. Revenue Reserve is created out of profit arising from day to day business operations while Capital … [Read more...]

Trading Account is an account that is prepared by the entities to know the profit earned or loss suffered from trading activities. On the other hand, Profit & Loss account is an account created to ascertain the net profit or loss for the period. This article excerpt deals with the difference between trading and profit & loss account. There are two types of entities, i.e. manufacturing entities and non-manufacturing entities. Non-manufacturing entities are the entities engaged in … [Read more...]