Finance Management Articles - Page 12 of 96

Hedging an asset or liability limits the exposure to extreme changes in its value. Hedging is done to mitigate the risk of loss. Any gain arises through hedging instrument will uplift the item in the financial statement (in case of asset value falls drastically).Accounting for fair value hedges is done by company with respect to exposure of fair value change of item. This item can be asset or liability to company and can be attribute to particular risk which result in generating profit or loss to companySteps involved in fair value hedge accountingFair value of hedged item and hedging instrument ... Read More

Let us first understand what GAAP.GAAP (Generally Accepted Accounting Principles)GAAP offers standards for the true and fair value of companies financial wellbeing. It is defined by Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC).Advantages of GAAP includeFacilities consistencyIncrease investors trust.Comparability of financial statements.Decision making.Disadvantages include:Compels financial statements according to creditors instead of equity holders.Non – GAAP (Generally Accepted Accounting Principles)Non – GAAP is not a standard one. Necessary adjustments are made for conveying significant information. Securities and Exchange Commission (SEC) issues rules and regulations.Advantages of Non – GAAP include −Provides Quality information.Provides Predictive information.Provides relevant and ... Read More

Let us see first understand what cash settlement and physical settlement are −Cash settlementIn this net settlement is done with cash on settlement date, that means, it does not involve any physical delivery of assets or asset. In this, contractor pays the difference amount of spot price and future price. Contractor pays difference amount in cash at the time of settlement.Physical settlementIt involves physical delivery of underlying asset or assets on settlement date. This process is coordinate by clearing agents or brokers. In this, if contractor holds SHORT POSITION then he will responsible for physical delivery. If contractor holds LONG ... Read More

In forward contract both sellers and buyers involve in forward transactions and both are obligated to fulfill their obligations on or before maturity or expiry date. Obligations of forward contract are as followsBuy or sell underlying asset at forward price or specific priceBuy or sell underlying asset at expiry date or on contract maturity or at particular timeNot traded on exchangesThe main characteristics of forward contracts are explained below −Not traded − Forward contracts are designed to meet specific requirements of company. These contracts are not traded in the market.No premium − Since these contracts are not traded in markets, ... Read More

A forward contract is an agreement between two parties where, one party agrees to buy second party asset on a particular future date at a fixed price. This is a type of derivative financial instrument. It has right and obligation to be executed.In this contract, a buyer is called LONG and seller is called SHORT. Banks, investors and hedge funds use forward contracts. Here, both parties will hold their position till contract expires.Components of forward contractsAsset − underlying asset which is specified in contractExpiration date − date at which asset is delivered and paidQuantity − amount or size of asset which ... Read More

ConsentWhen two or more persons agree upon same thing and in same sense, it is consent.If a contract to be valid the consent of parties should be genuine. Consensus-ad-idem principle followed by parties in contract. Parties should have same understanding on subject matter in contract. Mere consent is not enough, free consent is necessary for a contract to be enforceable. Factors which invalidate consent are coercion, undue influence, fraud and misrepresentationFree consentIf consent is not caused by a) coercion (section 15), b) undue influence (section 16), c) fraud (section 17), d) misrepresentation (section 18) or mistake (sections 20, 21, 22).According ... Read More

In forward contract, terms are negotiated between parties. In this, parties trade underlying asset a certain or agreed price at particular future time. This contract differs from future contract (standardized form of forward contract) whereas in future contract parties buy or sell underlying financial asset at particular rate in future time. Future contracts are traded in exchanges and forward contract are in over the counter (OTC).By seeing their overview both contracts look same but when you go deep or dig further then you can see in what aspects they will differ and their grounds. Before digging deep into contracts let ... Read More

Job costing is a costing method which is executed the work according to specifications of the customer. This production process depends on orders received from customers. This cost is ascertained for each job separately and it vary from customer to customerObjectivesAscertain cost, profit & loss of each jobProfitable and non-profitable jobs are identifiedCost controllingActual cost to estimated cost are comparedCharacteristicsAdopted by both non0manufacturing and manufacturing concernsGoods produces according to customer specifications follows this methodWork is analyzed in different jobsSeparate account is maintainedEach job is treated separatelyProduction is not continuous and intermittentProfit & loss made on each job is found separatelyAdvantagesGives ... Read More

Terms Bid and offer (offer also called as ASK) is a two-way price which indicates best price at which securities can be bought and sold at point of time. Bid price is the minimum price whereas offer price or Ask price is minimum price where securities can be bought and sold. Difference between bid price and ask price gives the price called spread. Spread and liquidity are inversely proportional that means if spread is smaller then liquidity will be greater for a given securityFor example, Market maker quoting a price of $13.50/$13.75 for XYZ company stock. Mr. x Ask for ... Read More

The main function of a contract is to record transactions between entities that exist between parties legally. Contracts can be as simple as handshake between people or as complex deal between companies (which takes months of negotiations and preparation of pages of legal terms with help of team of lawyers). Components of contract are Offer (promiser made an offer to promisee), Acceptance (Promisee accepts the offer made by promisor), Capacity (ability of promisee and promisor to fulfill offer and acceptance), Consideration (Obligation are created and made accepted), creating legal Document (agreement enforced by court of law), Certainty (No ambiguity) and ... Read More