Finance is often defined simply as the management of money or funds [1] management.

Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created for transacting and trading assets, liabilities, and risks. Finance is conceptualized, structured, and regulated by a complex system of power relations within political economies across state and global markets. Finance is both art (e.g. product development) and science (e.g. measurement), although these activities increasingly converge through the intense technical and institutional focus on measuring and hedging risk-return relationships that underlie shareholder value. Networks of financial businesses exist to create, negotiate, market, and trade in evermore-complex financial products and services for their own as well as their clients accounts. Financial performance measures assess the efficiency and profitability of investments, the safety of debtors claims against assets, and the likelihood that derivative instruments will protect investors against a variety of market [2] risks. The financial system consists of public and private interests and the markets that serve them. It provides capital from individual and institutional investors who transfer money directly and through intermediaries (e.g. banks, insurance companies, brokerage and fund management firms) to other individuals, firms, and governments that acquire resources and transact business. With the expectation of reaping profits, investors fund credit in the forms of (1) debt capital (e.g. corporate and government notes and bonds, mortgage securities and other credit instruments), (2) equity capital (e.g. listed and unlisted company shares), and (3) the derivative products of a wide variety of capital investments including debt and equity securities, property, commodities, and insurance products. Although closely related, the disciplines of economics and finance are distinctive. The economy is a social institution that organizes a societys production, distribution, and consumption of goods and services, all of which must be financed. Economists make a number of abstract assumptions for purposes of their analyses and predictions. They generally regard financial markets that function for the financial system as an efficient mechanism. In practice, however, emerging research is demonstrating that such assumptions are unreliable. Instead, [3] financial markets are subject to human error and emotion. New research discloses the mischaracterization of investment safety and measures of financial products and markets so complex that their effects, especially under conditions of uncertainty, are impossible to predict. The study of finance is subsumed under economics as finance economics, but the scope, speed, power relations and practices of the financial system can uplift or cripple whole economies and the well-being of households, businesses and governing bodies within themsometimes in a single day. Three overarching divisions exist within the academic discipline of finance and its related practices: 1) personal finance: the finances of individuals and families concerning household income and expenses, credit and debt management, saving and investing, and income security in later life, 2) corporate finance: the finances of for-profit organizations including corporations, trusts, partnerships and other entities, and 3) public finance: the financial affairs of domestic and international governments and other public [4] [5] entities. Areas of study within (and the interactions among) these three levels affect all dimensions of social life: politics, taxes, art, religion, housing, health care, poverty and wealth, consumption, sports, transportation, labor force participation, media, and education. While each has a vast accumulated literature of its own, the effects of macro and micro level financing that mold and impact these and other domains of human and societal life typically have been treated by researchers as policy, welfare, work, stratification, and so forth, or have been largely unexplored. Recent research in "behavioral

finance" is promising, albeit a relative newcomer, to the existing body of financial research that focuses primarily on measurement. Loans have become increasingly packaged for resale, meaning that an investor buys the loan (debt) from a bank or directly from a corporation. Bonds are debt instruments sold to investors for organizations such [6] as companies, governments or charities. The investor can then hold the debt and collect the interest or sell the debt on a secondary market. Banks are the main facilitators of funding through the provision of credit, although private equity, mutual funds, hedge funds, and other organizations have become important as they invest in various forms of debt. Financial assets, known as investments, are financially managed with careful attention to financial risk management to control financial risk. Financial instruments allow many forms of securitized assets to be traded on securities exchanges such as stock exchanges, including debt such as bonds as well as equity in publicly traded corporations. Central banks, such as the Federal Reserve System banks in the United States and Bank of England in the United Kingdom, are strong players in public finance, acting as lenders of last resort as well as strong [7] influences on monetary and credit conditions in the economy. Finance is the set of activities dealing with the management of funds. More specifically, it is the decision of collection and use of funds. It is a branch of economics that studies the management of money and other assets. Finance is also the science and art of determining if the funds of an organization are being used properly. Through financial analysis, companies and businesses can take decisions and corrective actions towards the sources of income and the expenses and investments that need to be made in order to stay competitive.

Financial Accounting is concerned with the production of financial statements for external users. Investors need to be able to choose which companies to invest in and compare investments. In order to facilitate comparison, financial accounts are prepared using accepted accounting conventions and standards. International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs) help to reduce the differences in the way that companies draw up their financial statements in different countries. The financial statements are public documents, and therefore they will not reveal details about, for instance, individual products' profitability. Financial accounting provides information to decision makers who are external to the business. To understand the role of financial accounting, consider a large corporation such as IBM. The owners of corporations are called shareholders, and IBM has more than 600,000 shareholders. Obviously, each shareholder cannot participate directly in the running of IBM, and because IBM needs to maintain various trade secrets, its many thousands of shareholders are not permitted access to much of the firms information. Because of this, shareholders delegate most of their decision making power to the corporations board of directors and officers. Shareholders, however, need information to evaluate the performance of the business and the advisability of retaining their investment in the business. Financial accounting provides some of the information for this purpose; such information is also used by potential shareholders who are considering an investment in the business. Creditors and potential creditors are also served by financial accounting. Firms often seek loans from banks, insurance companies, and other lenders. Although creditors are not internal parties of those firms, they need information about them so that funds are loaned only to credit-worthy organizations. Financial accounting will usually provide at least some of the information needed by these decision makers. This Financial Accounting tutorial is useful for B.Com, B.B.A., M.Com., M.B.A., C.S., CA., LCW.A. students and professionals. Every lesson is logically set and graded. This tutorial is organized into main chapters and then into subtopics in order to make yourself comfortable learning Financial Accounting. Financial Accounting is an Important subject of modern world. That is why we bring out this online resource of Financial Accounting Tutorial with advanced methods, Practices and in a inimitable style. The students, businessmen, traders, industrialists and professionals must know financial accounting to real life situations. This tutorial opens up the gateway of analysis to the world of accounting to those who go in for the study of accounting methods and techniques academically as well as practically. This tutorial has been organized in a way to teach Financial Accounting yourself strictly following a student friendly approach and essentially meant to serve the matter for their examination as a tutor at home. Financial Accounting Method has first step in collecting business data and information is compiling a set of adequate definitions of the categories concerned so that there can be no confusion one the part of the reporters. In the private business organization there is some confusion in revenue between taxable and nontaxable sales, and there is always the possibility of confusion in classification of business expenses unless they are carefully designated by accountant. In the modern commercial world there are various manuals of accounts published by trade associations, each adapted to specific business needs. There is no single authoritative and generally accepted definition of financial accounting, or of accounting in general. It began as a practical activity in response to perceived needs, and for most of its development it has progressed in the same way, adapting to meet changes in the demands made on it. Where the needs differed in different countries or environments, accounting tended to develop in different ways as a response to a particular environment, essentially on the Darwinian principle: useful accounting survived. Because accounting developed in different ways, it is likely that definitions suggested in different contextual surroundings will vary.

At a general level it is at least safe to say that accounting exists to provide a service. In the box below there are three definitions. These have all been taken from the same economic and cultural source (the United States) because that country has the longest history of attempting explicit definitions of this type. Note that each suggested definition seems broader than the previous one, and the third one, from 1970, does not restrict accounting to financially quantifiable information at all. Many would not accept this last point even in the US context and, as will be explored at length in this book, attitudes to accounting and its role differ substantially around the world and certainly between European countries.

The Objective of Financial Accounting

An important beginning point for understanding the social role and importance of financial accounting is identifying the objective that it should meet. Although there are many opinions as to what the objective should be, the most authoritative and influential is this definition provided by the Financial Accounting Standards Board (FASB) in its Conceptual Framework project, which was intended to develop a unified theory of accounting Financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions. Thus, according to this definition, the goal is to provide information that allows users to reach better decisions than they would without it. (For simplicity, the FASB uses the term financial reporting to encompass the activities of financial accounting and reporting, which includes presenting both financial statements and the additional financial information that accompanies them. This chapter uses the term financial accounting in this broader sense.) Usefulness may exist at the individual company level if management provides reports to investors and creditors when seeking financing or fulfilling various stewardship reporting responsibilities. Although this perspective undoubtedly explains why some aspects of accounting are regulated, it does not really provide an adequate basis for understanding the substantial governing structure. Instead, an economy-wide perspective is needed.

Read more: Financial Accounting - Online Accounting Tutorial http://www.financial-accounting.us/#ixzz1hY84E2jR CLASSIFICATION OF COSTS: ManufacturingWe first classify costs according to the three elements of cost:a) Materials b) Labour c) ExpensesProduct and Period Costs: We also classify costs as either1 Product costs: the costs of manufacturing our products; or2 Period costs: these are the costs other than produ ct costs that are charged to,debited to, or written off to the income statement each period.The classification of Product Costs:Direct costs: Direct costs are generally seen to be variable costs and they are calleddirect costs because they are directly associated with manufacturing. In turn, thedirect costs can include: Direct materials: plywood, wooden battens, fabric for the seat and the back,nails, screws, glue. Direct labour: sawyers, drillers, assemblers, painters, polishers, upholsterers Direct expense: this is a strange cost that many texts don't include; but(International Accounting Standard) IAS 2, for example, includes it. Directexpenses can include the costs of special designs for one batch, or run, of aparticular set of tables and/or chairs, the cost of buying or hiring specialmachinery to make a limited edition of a set of chairs.Total direct costs are collectively known as Prime Costs and we can see thatProduct Costs are the sum of Prime costs and Overheads.Indirect Costs: Indirect costs are those costs that are incurred in the factory but

thatcannot be directly associate with manufacture. Again these costs are classifiedaccording to the three elements of cost, materials labour and overheads. Indirect materials: Some costs that we have included as direct materials wouldbe included here. Indirect labour: Labour costs of people who are only indirectly associated withmanufacture: management of a department or area, supervisors, cleaners,maintenance and repair technicians Indirect expenses: The list in this section could be infinitely long if we were totry to include every possible indirect cost. Essentially, if a cost is a factorycost and it has not been included in any of the other sections, it has to be anindirect expense. Here are some examples include:Depreciation of equipment, machinery, vehicles, buildingsElectricity, water, telephone, rent, Council Tax, insuranceTotal indirect costs are collectively known as Overheads.Finally, within Product Costs, we have Conversion Costs: these are the costsincurred in the factory that are incurred in the conversion of materials into finishedgoods.

The classification of Period Costs:The scheme shows five sub classifications for Period Costs. When we look atdifferent organisations, we find that they have period costs that might have subclassifications with entirely different names. Unfortunately, this is the nature of theclassification of period costs; it can vary so much according to the organisation, theindustry and so on. Nevertheless, such a scheme is useful in that it gives us thebasic ideas to work on.Administration Costs: Literally the costs of running the administrative aspects of anorganisation. Administration costs will include salaries, rent, Council Tax,electricity, water, telephone, depreciation, a potentially infinitely long list. Noticethat there are costs here such as rent, Council Tax, that appear in several subclassifications; in such cases, it should be clear that we are paying rent on buildings,for example, that we use for manufacturing and storage and administration and eacharea of the business must pay for its share of the total cost under review.Without wishing to overly extend this listing now, we can conclude thisdiscussion by saying that the costs of Selling, the costs of Distribution and the costsof Research are all accumulated in a similar way to the way in which AdministrationCosts are accumulated. Consequently, our task is to look at the selling process andclassify the costs of running that process accordingly: advertising, market research,salaries, bonuses, electricity, and so on. The same applies to all other classificationsof period costs that we might use.Finance Costs: Finance costs are those costs associated with providing thepermanent, long term and short term finance. That is, within the section headedfinance costs we will find dividends, interest on long term loans and interest onshort term loans.Finally, we should say that we can add any number of subclassifications to ourscheme if we need to do that to clarify the ways in which our organisation operates.We will also add further subclassifications if we need to refine and further refine outcost analysis.

Various Mehtods of Costing. Different industries follow different methods for ascertaining cost of their products. The method to be adopted by business organisation will depend on the nature of the production and the type of out put.

The following are the important methods of costing.

Job Costing: Job costing is concerned with the finding of the cost of each job or work order. This method is followed by these concerns when work is carried on by the customers request, such as printer general engineering work shop etc. under this system a job cost sheet is required to be prepared find out profit or losses for each job or work order. Contract Costing: Contract costing is applied for contract work like construction of dam building civil engineering contract etc. each contract or job is treated as separate cost unit for the cost ascertainment and control. Batch Costing: A batch is a group of identical products. Under batch costing a batch of similar products is treated as a separate unit for the purpose of ascertaining cost. The total costs of a batch is divided by the total number of units in a batch to arrive at the costs per unit. This type of costing is generally used in industries like bakery, toy manufacturing etc. Process Costing: This method is used in industries where production is carried on through different stages or processes before becoming a finished product. Costs are determined separately for each process. The main feature of process costing is that output of one process becomes the raw materials of another process until final product is obtained. This type of costing is generally used in industries like textile, chemical paper, oil refining etc. Service (Operating) Costing: This method is used in those industries which rendered services instead of producing goods. Under this method cost of providing a service is also determined. It is also called service costing. The organisation like water supply department, electricity department etc. are the examples of using operating costing. Operation Costing: This is suitable for industries where production is continuous and units are exactly identical to each other. This method is applied in industries like mines or drilling, cement works etc. Under this system cost sheet is prepared to find out cost per unit and profits or loss on production. Multiple Costing: It means combination of two or more of the above methods of costing. Where a product comprises many assembled parts or components (as in case of motor car) costs have to be ascertained for each component as well as for the finished product for different components, different methods of costing may be used. It is also known as composite costing. This type of costing is applicable to industries producing motor vehicle, aeroplane radio, T.V. etc. Submitted to RB by RK Thakur

36. In case of two or more acquition by Holding Co. (or) acquition and sale, In allthe cases date for apportionment etc is the date of 1 st acquition and shareholding pattern is the final share holding pattern.37.In case of Associate accounting, to find the carrying amount of Investment of the associate in the consolidated balancesheet the calculation is similar tominority interest. Only difference

is to add the goodwill found in COC.,ie,Share Capital***(+) Capital Profit***(+) Revenue Profit***(+) Goodwill*** ***AmalgamationIndex of Main Points:-1.Points to be satisfied to treat the amalgamation in the nature of merger All assets and liabilities of transforer is to be taken over at their bookvalues by resulting company All or at least 90% of the Share Holding of Amalgamating Company mustbe the Share Holders of Amalgamated Company. Equity shares of selling company must be given only equity shares of purchasing company. Liabilities of Transferor must not be discharged; it must be taken overby the resulting company. But exemption is the fraction shares can begiven in cash. Same risk and return and nature of company must be same.2.Order of Adjustment of consideration is first General Reserve and then P & La/c. If the problem has statutory reserve it should not be adjusted. It iscarried over as such. 3. As per SEBI guidelines, underwriting commission is 2.5% on equity shares andon 1 st 5000 Preference Shares it is 1.5% and the balance Preference Shares itis 1%.4.Capital employed is considered as Net Revaluation amount of Tangible Asset. 60

5.In case purchasing company holding shares in selling company, Net assetmethod is applied as usual and outside shareholders portion is calculatedseparately as balancing figure.6.If in the above case, settlement of equity share holding of selling company isgiven then that exchange pertains to outside share holders settlement and itshould not be splitted.7.In the books of selling company the shares held by the purchasing companymust be cancelled by transferring it to realization a/cEquity share capital a/cDrTo Realization8.If Preference share holders of selling company is discharged by preferenceshare holders of purchasing company at premium then the premium portionmust be transferred to realization a/c in the books of selling company.9.In case of Merger while drafting Journal Entry in the books of purchasingco mpany for Incorporation of Asset & Liability in the workings, theconsideration is aggregate consideration including shares already purchasedby purchasing company and current purchase payable.10.In case of merger in the books of purchasing company while calculation excess/ shortage to be adjusted against the reserve of selling company. The purchaseconsideration is aggregate consideration including amount already paid (sharesof selling company held by purchasing company) + amount now paid (amountpaid to outsiders).11.Business purchase in case of shares of selling company held by purchasingcompany is the amount given to outsiders only.12.If in the

asset side of selling company Debtors is given as Gross () Reserves /Provision for Doubtful Debts then in the books of selling company whiletransferring all assets and liabilities to realization account Debtors istransferred at gross amount and provision is transferred along with liability.But in the above case in the books of purchasing company whileincorporating assets and liabilities of selling company debtors is taken net of provisions.13.On entry for takeover of assets and liabilities of selling company in purchasingcompany books Assets debited must be excluding goodwill in purchasemethod and difference in debit or credit is treated as Goodwill / Reserves.14.Investment allowance Reserve is not a current liability.15.When purchasing company holding shares in selling company then the sharesheld by purchasing company must be cancelled in the selling company books.16.While canceling the shares held by the purchasing company it must becancelle d at fair value.17.To bring the reserve like Investment allowance reserve in purchasing companybooks the entry will be Amalgamation adjustment a/c DrTo Investment allowance reserveIn the amalgamated B/S investment allowance reserve will appear inthe liability side and amalgamation adjustment account will appear in theasset side for same amount. 18. Incase of Inter Company holding if divided is declared by any one companythen dividend receivable by other company is to be 1 st incorporated as preamalgamation event.Dividend receivable accountDrTo P & L a/cEntry in the 1 st company which has declared dividend P & L a/c DrTo proposed dividend19.In case of Internal reconstruction cancellation of Arrears Dividend forgone byshareholder will not affect the B/S. So no entry. In this case Arrears of 61 dividend is seazed to be contingent liability. Preference shareholders willseize to have the voting right at par with equity shares which was availabledue to arrears of dividend.20.In Demerger while making transfer entry of Asset and liability in purchasingcompany fixed asset net is to be taken but while making the transfer entry inselling company fixed asset gross is taken in credited and provision fordepreciation is debited.21.In case of Inter Company / Single side holding etc. to find the intrinsic value of each company, the investment held by one company in the shares of othercompany is also to be valued as intrinsic value only and not to be taken atbook value. For inter company holding this intrinsic value of shares of eachcompany can be found by framing a linear equation.22.In case of calculation of purchase consideration (Cross holding)Total number of shares in selling company***() Share already held by Purchasing company***Number of shares held by outsiders***V alue of above number of sharesRs.***Number of purchasing company to be issued to selling company***(-) Number of shares already held by selling company***Net number of shares purchasing co. has to issue to selling co.***23.In case of settlement of shareholders of selling company the amount will be =Shares now received from purchasing company + Purchasing company sharesalready held by

selling company.24.In amalgamated B/S if there is Debit in P & L a/c it should be netted of withGeneral Reserve as per schedule VI.25.In case of assets and liabilities is taken over at revalued amount it is in thenature of purchase and in the journal entry for incorporating accounttakenover only the revalued amount is to be taken.26.In case of selling company holding shares in purchasing company theninvestm ent is to be valued at intrinsic value if specified.27.In the above case of holding company gives shares at particular value to thesubsidiary company for settlement then investment is to be valued at thevalue 28. When selling company holding shares in purchasing company then whiletransferring assets and liabilities to realization account in selling companybooks, Assets transferred must be excluding the Investment in purchasingcompany.