Found 242 Articles for Finance

Operation cycle method considers total cycle of operations, from raw materials to finished goods, from accounts payable to net cash.The times taken to complete these operations are called operating cycle time.If the operating cycle is long then, requirement of working capital is less, if the operating cycle is less then, requirement of working capital is less.FormulasWorking capital = CGS(E)* D/365 + CBHere, CGS (E) = estimated cost of goods sold, D = days in operating cycle, CB = Cash/Bank balanceRM Stock = PU(E) * Cu * (Hp/365)Here, PU(E) = production units estimated, Cu = cost per unit, HP = holding ... Read More

In regression analysis method, statistical tool is used to calculate working capital.CalculationsWorking capital = Int + m*R            Int = intercept, m = slope, R = RevenueΣy = na + bΣxΣxy = aΣx + bΣ2            Where x = sales, y = working capital, n = yearsAdvantages of this method include −Accurate method for bigger volume of data.It is a proven method.Disadvantages of this method include −Not east to understand.Calculations are complicated as compared to percentage sales method.ExampleBy using following table, calculate the data using regression analysis method, forecasted sales = 500YearSales ... Read More

Percentage of sales method is the traditional method to find out working capital. This method is based on historical relationship between sales and working capital. Each of historical value is converted to percentage of net sales and those values are used to forecast.Steps involved in this method are −Determine historical relationship between sales and working capital.Forecast sales for future date.Apply percentage sales of method to get forecasted value.FormulaPercentage of sales method = WCc*100/S Here WCc = components of working capital, S = yearly salesAdvantages of this method are −Easy to understand.Calculations are simple.Disadvantages of this method are −Relationship between sales ... Read More

Appraisal methods are categorised into two types. Each method has its own merits and de-merits. One of the methods used by companies are modern methods which are divided into following typesMBOMBO means Management by Objectives. This concept was developed by Peter F.Drucker in 1954. It is the process where, both superior and subordinates identifies goal for each individual and define those by identifying their areas of responsibilities.This method follows goal setting, performance, comparison and reviews. Its main drawbacks are setting un measurable goals, time taking, no trust.Behaviour anchoredIt varies with performance dimensions. Benefits are combinations of narratives, critical and quantified. ... Read More

Appraisal methods are categorised into two types. Each method has its own merits and de-merits. One of the methods used by companies are traditional methods, which are divided into following types −Ranking method − It is the oldest method used in performance appraisal. In this method, employees are ranked according to their order of worth. It is difficult to rank individually if the employee number is large.Paired comparison − In this method, employees are compared according to one trait. Score of employee is based on their consideration on that particular trait. Better employee is ticked among others. The more the ... Read More

An appraisal is the process of conducting a fair analysis to evaluate an asset, a business, an organization or a performance based on certain standards. A qualified person called an appraiser does appraisal. It is done whenever properties need to be sold and its value is determined for tax obligations for a business.Types of appraisal includeBusiness assets − Mainly, this type of appraisal is done at the time of ceasing operations. Book value is determined. In this business, liabilities are subtracted from its assets.Capitalization − This is the most common method used by appraisers. In this method, past earnings are ... Read More

Departmental overheads used in machine hour rate of depreciation are classified into following types −FixedVariableFixed charges − These are constant charges irrespective of machine hours. Rent, taxes, insurance, general expense etc.Some of the fixed charges are as mentioned below −Fixed expensesBasisRentFloor area occupied by machineInsuranceBased on capital value of machineSupervisoryExpenses to supervisory staffHeatingBased on technical estimatesGeneralEqual to all other machinesLubricantsNature of machineVariable charges − These charges are different from machine to machine. Depreciation of machine, maintenance charges, power etc. are variable charges.Depreciation of machineMachines consists of both fixed and variable parts of depreciation, but calculating them separately is difficult, so ... Read More

Machine hour rate is called as service hour method. In this method, active hours of machine are taken into account for calculation of depreciation. This method is commonly used in sectors like chemicals, steel and other heavy industries.In this method, machine hour rate is established and charged to production. Machine hour rate means the amount spent on machine to run for an hour.Formula            (Depreciation rate) hourly = (Cm-SVm)/ELm    Here Cm = cost of machine, SVm = scrape value of machine and Elm = estimate life of machine             (Depreciation)Annual ... Read More

The mileage method of depreciation is carried out on vehicles (cars, buses, etc.). In this method, depreciation is calculated based on number of kilometres travelled by the vehicle and asset means vehicle.FormulaDepreciation amount = (Ca-SVa) / TLaHere, Ca = cost of asset, SVa = scrap value of asset, TLa = total life of the asset.This method is applied if the following conditions are met −Asset life can be calculated in kilometres.Asset life is certain.ExampleA firm purchases an asset worth of Rs. 1500000/- and scrape value is Rs.200000/-. Expected life of an asset will be 150000 KMS. The asset travelled 8000, ... Read More

Composite depreciation claims depreciation expenses by depreciates group of related assets into single entity than individual. Composite depreciation is the application of straight-line depreciation. If the asset is sold, then account entry is debited to cash and credited to fixed asset. The difference between original cost and sold cost is debited to accumulated depreciation. In composite method, no loss or no gain on sale of fixed asset is recognized.Steps to calculate composite depreciation are as follows −Accumulation of total depreciation cost of assets.Allocate single useful life for asset group.Yearly depreciation = useful life/ total depreciation.Document the depreciation.ExampleCalculate depreciation using composite ... Read More