Finance Helping Hands

  Business includes different types of fixed assets like machinery, furniture, building, vehicles, computers etc. Each property has its own useful life. The main basis of useful life is the length of time the asset can be used, as the asset’s efficiency is continuously reduced due to usage. Due to natural or physical factors, the passage of time or new discoveries, the useful life of properties decreases. Sometimes the property is in good physical condition; But using old property becomes expensive as more efficient new property comes into existence. Due to this the life span of the properties becomes limited. Due to any of the mentioned reasons, the useful value of the property is constantly and permanently reduced due to the constant and permanent decrease in the useful value of the property is known as depreciation. Meaning and Definition of Depreciation (1) Carter : “A gradual and permanent diminution in the value of property from any cause is termed pass is coming.” (2) Spicer...

(1) Going concern assumption : This is an important concept of accounting method. According to this concept when a business is started, it is assumed that the business is going to continue for a long time in the future. Hence it is called assumption of ongoing generation. Following are some examples based on the current generation concept: (i) Fixed assets are stated in the balance sheet at their cost after depreciation. In other words, productive or permanent assets at market value are not shown in the consolidated balance sheet. Longer in permanent assets business Purchased for use and not for resale. Therefore, instead of showing its market price as expected by the current generation, the market value is shown in the market value. (ii) Prepaid expenses are shown on the asset side of the balance sheet on the basis of going concern concept that the business is to continue for a long period of time and it is expected that the benefit of such prepaid expenses will be realized in the fut...

Two systems of naming are in vogue  : (1) Binomial nomenclature (2) Desi nomenclature. Desi nomenclature is India’s ancient system of writing accounts. This system is older than the binary nomenclature. In terms of principles of nomenclature both the methods have some similarities. However, the desi nomenclature differs from other accounting systems due to some of its distinctive features. In this method the books of account are known as Vahi, hence this method is also known as Vahi Khata process . Books according to this method are written in the regional language. Although this method is very ancient, it is a scientific and thorough method. Accounts in native nomenclature are much easier to write and understand. Features of desi nomenclature are as follows: (1) Books: Deshinama books are red in color with cloth covers. The design is made with thick thread stitching on the top of the box. These books are vertical, white and black paper and tied with a string in between. Nowadays t...

  Quantity and supply are usually considered the same but they are different. Quantity is the ratio of all the units of a good that are ready to sell and those that are not ready to sell at the current price. Quantity and supply vary if the producer is not willing to sell all the units of the good at the current price. Eg, a manufacturer has 500 units of a commodity of which he is willing to sell 300 units at the prevailing price. So the supply is considered to be 300 units. Thus, the power of the producer (or trader) to sell the commodity is the quantity and the power and willingness to sell at the prevailing price is the supply. Thus, quantity means the proportion of total salable units of a good. Supply may be less than quantity. Quantity and production are different things. Because unsold units from previous production are also included in the quantity. Practically speaking, quantity means the number of salable units of a commodity a trader has in a shop or godown and the willi...

  The Indian money market can be divided into two parts: (A) Organized money market (B) Unorganized money market. (A) Organized Money Market: Being a formal money market, it is owned by the  Reserve Bank of India , commercial banks, mutual funds etc. The organized money market in India is controlled by the Reserve Bank of India. In order to maintain sufficient liquidity in the money market, the Reserve Bank of India changes the interest rate as per the need. Organized money market includes financial instruments like treasury bill, certificate of deposit, call money. The syndicated money market is systematically coordinated and regulated by the  Reserve Bank of India . (B) Unorganized Money Market: Since the unorganized money market is informal, it is not controlled by any central organization. The activities also run without any rules. This money market consists of moneylenders, landlords, mortgagors, country bankers, Shroff etc. All this lacks coordination. Unorganized m...

  (1) Meaning : An organization whose purpose is not to make profit; But for social service, upliftment of the members of the organization, promotion of interest of the members, promotion of sports and education, development of cultural activities is called non-commercial organization. Such organizations derive income from, and incur expenses from, their activities; But they do not aim to earn money. Such organizations include sports clubs, Rotary-Lions clubs, trade associations like chambers of commerce, political associations, labor unions, medical associations, public hospitals, paramedic institutions, libraries, educational institutions, associations for cultural activities, orphanages, religious institutions, etc. . (2) Characteristics : The characteristics of a non-commercial organization are as follows: (i) Service : The main purpose of these organizations is not profit; But it is of service. (ii) Trading Account : Since these institutions do not have the purpose of trading,...

(1) Capital Fund or Permanent Fund : Capital income or capitalized amounts received by an institution other than a special purpose fund are shown under this head, i.e. added to the capital fund. At output-cost the excess of output over expenditure’ is added to capital and the excess of expenditure over output’ is subtracted from capital. Sometimes instead of adding ‘increase in output over cost’ to capital and deducting ‘increase in output over cost’, the increase at ‘output-cost’ is shown separately on the liability side in the consolidated balance sheet. That year Increase in yield” is added. ‘Increase in cost’ is deducted from it. An increase in output is also known as an ‘increase’ and an increase in expenditure as a ‘decrease’. (2) Subscription or Membership Fees : Generally, the organization collects a fixed subscription or membership fee from its members on a regular basis every year for the continuation of membership. This is the main source of income for the organization. This...

According to Marshall “Anything by which goods and services can be exchanged at any time and place without suspicion or special scrutiny is called money.” According to Robertson ‘All that is accepted in exchange for goods and services is money.’ Thus, what money does is money. To understand money one must understand the functions of money. The main functions of finance are as follows: Function of Medium of Exchange : The most important function of money is as a medium of exchange.  Money  facilitates our economic transactions and solves the difficulty of matching needs in barter system. A farmer gets money by giving wheat and then gets money by giving rice, cloth, tea etc. A person acquires goods and services in the present by spending money, while saving acquires goods and services in the future. Basically money is used as a medium to buy useful goods and services to satisfy needs. As a collector of value : Another important function of money is as a store of value. A person ...

  The nature and challenges of foreign trade are different from domestic trade and the hurdles are higher and hence it is important to know the difference between them. Some of the points of difference are as follows: (1) Difference on the basis of size : Since foreign trade involves many countries, goods and services, laws, methods etc., the size of foreign trade is many times larger than internal trade. (2) Different Currencies and Modes of Payment  : Payments in internal trade are made in the currency of the home country. Also, payment has to be made from one bank to another bank in one’s own country. But in foreign trade one has to convert one’s own country’s currency into an accepted international currency. Exchange rates must be known, permissions must be obtained as per the laws of that country. Also, importers and exporters have to obtain a letter of credit from their home country’s bank for payment. (3) Differences in language, culture and society  : Exchange in ...

First of all, a conventional home loan is not guaranteed by a government organization, such as the Federal Housing Administration or the Department of Veterans Affairs. The qualifying criteria for a government-backed loan and a conventional loan aren’t much different, but conventional loans are likely to be harder to get and more stringent on qualifications. Let’s take a look at some of the criteria needed to apply for your loan Income – Your monthly mortgage payment and monthly debt loads must fall within certain percentages in relation to your gross monthly income in order to qualify for a conventional home loan. Your monthly mortgage payment, including taxes, insurance and other fees, cannot exceed 36 percent of your gross monthly income. Credit Score – Most conventional loans conform to guidelines set by two of the largest financial institutions in the U.S.: Fannie Mae and Freddie Mac. Both entities purchase loans from other financial groups, and if the loans don’t conform to Fanni...

Each method has advantages; in practice, however, all of these methods generally produce a similar prediction of the relative credit quality of account holders by capturing the underlying correlation between risk characteristics and delinquency behavior. These models use those factors correlating most strongly with good or bad performance. A sound practice for scoring models used for underwriting includes data from rejected applications to correct for estimation bias that arises if only approved accounts are used. If rejected applicants are systematically excluded from a model’s development, sample correlation between the applicants’ characteristics and delinquency will reflect only the behavior of the relatively good segment of the population. When the model is applied to the general population, it will overestimate the relative quality of the accounts with characteristics similar to those that were rejected, increasing the likelihood that lower-quality applicants will be approved. Th...

However, the analysis of whether an interest rate is “high” is comparative, not absolute. Compared to realistic and comparable alternatives, credit card interest rates do not appear to be high. Even trained economists seem to forget this basic economic lesson when discussing credit cards. Professor Lina Marx, for instance, writes that “a credit card is really quite an expensive medium on which to borrow” and suggests that the fact that some consumers actually do borrow on credit cards presents a prima facie case of consumer irrationality. Lina  provides no explanation as to what the phrase “really quite an expensive medium” means, and there is certainly no evidence that he has reached his conclusion by comparing credit cards to other alternative forms of credit actually available to the borrowers in question. Even assuming that interest rates have not been adjusted in response to bankruptcy losses, this observation largely misses the point. Credit card issuers have responded to inc...

From a supervisory perspective, risk is the potential that events will have an adverse effect on a bank’s current or projected financial condition6 and resilience. 7 The OCC has defined eight categories of risk for bank supervision purposes: credit, interest rate, liquidity, price, operational, compliance, strategic, and reputation. These categories are not mutually exclusive. Any product or service may expose a bank to multiple risks. Risks also may be interdependent and may be positively or negatively correlated. Examiners should be aware of this interdependence and assess the effect in a consistent and inclusive manner. Examiners also should be alert to concentrations that can significantly elevate risk. Concentrations can accumulate within and across products, business lines, geographic areas, countries, and legal entities. Regulation Z prohibits a card issuer from opening a credit card account for a consumer under an open-end (not home-secured) consumer credit plan, or increasing ...

Payday loans have been a controversial subject of debate in the U.S. in recent years. Critics of payday loans have focused on the high costs of these loans and have argued for outright payday loan bans. However, we show that payday loans serve an essential insurance purpose even in the presence of these high costs. We are the first to inform the payday loan policy debate in a structural framework by conducting a series of counterfactual policy experiments. Payday loans are short-term loans, generally for less than $500. They are typically secured by a check provided to the lender, post-dated to the borrower’s next payday. The application process is highly streamlined, and credit criteria minimal—a key attraction of the product is the immediacy with which the borrower can access needed cash. The cost of a payday loan typically ranges from $15 to $22 for a two-week, $100 loan. When expressed as an annual percentage rate (APR), these costs range from 391 percent to 572 percent. Focusing f...