Leverage lease is an agreement between lessor and lender. This agreement tell that lessor purchases the asset from the lender by acquiring funds from third part or from taking loan from financial institutions.In this, the lessor transfers lease rents to financial institution or to the third party. The financial institutions or third party charges loan instalments and balance amount (if any) will be transferred to lessor.Characteristics of leverage ratio are mentioned below −Transfer ownership to the lessor at the end of lease.Lessee can buy the asset below fair value.Lease terms is for about 3/4th of asset economic life.Minimum lease payments ... Read More

Operating leverage is ratio between company’s fixed costs to its variable cost. It tells about how company is using its fixed cost to regenerates its revenue. If the fixed costs are high, company generates high leverage ratio which leads to high profits.If the fixed costs are low, company will generate low leverage ratio and leads to low profits. Operating leverage calculates company’s breakeven point and tells about the effectiveness of pricing structure.Scenarios of leverage ratio are as follows −High operating cost − Company will earn larger profit, when it attains sufficient sale volume to cover its fixed cost.Low operating cost ... Read More

The main objective of leverage is the maximisation of wealth of the shareholders. Financial leverage refers to buying the additional assets which company uses as its debt. The more the debt, more the leverage of that company.However, more leverage will increase risk of failure. It is also called as trading on equity. Financial leverage represents left hand side of balance sheet.Increase value of asset shows gain in owner’s cash.Decrease value of asset shows loss in owner’s cash.Measure of financial ratios are as follows −Debt ratio = (debt/total assets)Debt ratio = (debt/total assets)Interest coverage ratio = (profits/interest)Degree of financial leverageDegree of ... Read More

In leasing, the company which leases is called lessor and the user is called lessee. The agreement made between lessor and lessee is called leasing. Different types of leasing are operating lease, financial lease, sale and lease back and leverage lease.Financial lease is an agreement in which lessor receives lease payments. In this lessor is responsible for maintenance, taxes and insurance. In this there will be substantial transfer of risk and rewards to lessee.Main features of financial lease are as follows −Lessee selects an asset.Lessor purchases that asset.Lessee uses that asset during the time.Lessee pays rentals for using the asset.Lessee ... Read More

Below are the basic stock trading terms −Buy − Buy shares in company.Sell − Selling of shares after meeting the target (personal) or to minimise loss.Ask − People are looking to sell their shares or looking get for their shares.Bid − Willing to pay for a stock.Ask – Bid spread − Difference between what people are spending and what they want to get.Bull − Investors will expect prices rise.Bear − Investors will expect price fall.Limit order − Order that tells about a price to buy or sell.Market order − Executes order as quickly as possible.Day order − It tells a ... Read More

SolutionThe solution is given below −Cost = (175000 + 45000 – 0)/95000       = $ 2.32 per tonDepletion of mine = $ 2.32 * 60000       = $ 139200Depletion expenses = total depletion of mine – depletion (unsold)       = 139200 – (2.32 * 15000)       = $ 104400b) Calculate depletion expenses and prepare a journal entry for the following.A company purchases an oil field for $ 2.5 mm and estimated 8, 00, 000 gallons of oil reserves. Cost allocated per gallon is $ 2.75. In the first year, they extracted 1, 80, 000 gallons of ... Read More

Depletion is a non-cash expenses which lowers the value of the asset periodically, through scheduled charges. Process of converting existing goods to new one is called production process. Depletion tells about how much quantity is produced in production process. Generally, depletion is used in timber, mining and oil and gas industries.Main factors that affect depletion are as follows −Acquisition − Acquiring or leasing the rights for a land.Exploration − Exploring the natural resources.Development − Developing more and more wells to get more output.Restoration − Expenses incurred to get back to its original conditions.Types of depletion are explained below −Percentage depletion ... Read More

Processes 150 kgs of coffeeServed 1350 customersSolutionThe solution is given below −Cost of the machine = $ 75000Salvage value = $ 3000Depreciable value = cost of machine – salvage value       = (75000 – 3000)       = $ 72000Processes 150 Kgs of coffeeDepreciation = depreciable value * (number of units processed/total number of process units)       = 72000 * (150/700)       = $ 15428.57Served 1350 customersDepreciation = depreciation amount * (number of customers served/total number of customers)       = 72000 * (1350/17500)      = $ 5554.29

Units of production method is a bit different from other methods of depreciation. This method is also called as units of activity and units of usage method of depreciation. In this method, depreciation is calculated based on number of units produced rather than useful life of an asset.In year, when number of units produced high will depreciate more amount and when number of units produced low will depreciate low amount.FormulaeDepreciation per unit = (cost – salvage value)/total estimated production unitDepreciation expenses = depreciation rate per unit * unit produced in a particular yearSteps involved are as follows −Calculate total number ... Read More

SolutionThe solution is given below −Total cost = cost of machinery + transportation + installation => 1500000 + 175000 + 75000 => Rs. 1750000/-Depreciation rate = 12%Year endedOpening balanceDepreciation amountClosing balance31-03-20151750000210000154000031-03-20161540000184800135520031-03-20171355200162624119257631-03-20181192576143109.121049466.8831-03-20191049466.88125936.0256923530.854431-03-2020923530.8544110823.702528812707.1518731-03-2021812707.1518797524.858224715182.29364631-03-2022715182.29364685821.8752375629360.4184131-03-2023629360.4184175523.250209553837.16820131-03-2024553837.16820166460.4601841487376.7080231-03-2025487376.7080258485.204962428891.50305831-03-2026428891.50305851466.980367377424.52269CalculationsDepreciation amount = opening balance * depreciation rateClosing balance = opening balance – depreciation amountFor year 31-03-2015Depreciation amount = 1750000 * 12% = 210000, closing balance = 1750000 – 210000 = 1540000Similarly, Depreciation amount and closing balances are calculate for respective yearsLedger for above statementsDateParticularsDebitCredit1st year (2014-15)01-04-2015Machinery A/CDr.1750000To bank175000031- marchDepreciation A/cDr.210000To machinery A/c210000(depreciation charges)31 – marchProfit/Loss A/cDr.210000To depreciation A/c210000Similarly, for rest of years’ leger will be prepared (only depreciation amount ... Read More