XBRL - 31/1/2011

Dear All,

XBRL means eXtensible Business Reporting Language. It is a language for electronic communication of business and financial data which is revolutionising business reporting around the world. It offers major benefits to all those who have to create, transmit, use or analyse such information. It offers cost savings, greater efficiency and improved accuracy and reliability to all those involved in supplying or using financial data. It is one of a family of "XML" languages which is becoming a standard means of communicating information between businesses and on the internet. Just as today, the Income tax returns are converted into XML format and then validated against a schema, XBRL does the same job in a new advanced framework.

 

The idea behind XBRL is simple. Instead of treating financial information as a block of text - as in a standard internet page or a printed document - it provides an identifying tag for each individual item of data which is computer readable. The introduction of XBRL tags enables automated processing of business information by computer software, cutting out laborious and costly processes of manual re-entry and comparison. Computers can treat XBRL data "intelligently": they can recognise the information in a XBRL document, select it, analyse it, store it, exchange it with other computers and present it automatically in a variety of ways for users. XBRL greatly increases the speed of handling of financial data, reduces the chance of error and permits automatic checking of information. Companies can use XBRL to save costs and streamline their processes for collecting and reporting financial information. Consumers of financial data, including investors, analysts, financial institutions and regulators, can receive, find, compare and analyse data much more rapidly and efficiently if it is in XBRL format. XBRL can handle data in different languages and accounting standards. It can flexibly be adapted to meet different requirements and uses. Data can be transformed into XBRL by suitable mapping tools or it can be generated in XBRL by appropriate software. 

 

XBRL has been developed by XBRL International, a not-for-profit consortium of over 450 companies and organisations which is promoting its worldwide use. XBRL India is the Indian Jurisdiction of XBRL International. Its main objective is to promote and encourage the adoption of XBRL in India as the standard for electronic business reporting in India. Members of XBRL India include regulators, stock exchanges, software companies and others. XBRL India has developed draft General Purpose Financial Reporting XBRL taxonomy (standardized reporting framework or schema) for Commercial and Industrial Companies. It is currently developing XBRL Taxonomy for the banking sector.

 

For further information refer,

 

http://www.xbrl.org/Home/

http://www.xbrl.org/in/default.aspx

 

Regards,

 

CA Rahul Joglekar

Partner

Gokhale & Sathe

Chartered Accountants

Kaizen Budgeting - 28/1/2011

Dear All,

Kaizen budgeting incorporates expectations for continuous improvement into budgetary estimates. Kaizen costing determines target cost reductions for a period, such as a month. Thus, variances are the differences between actual and targeted cost reduction. The objective is to reduce actual costs below standard costs. The cost-reduction activities associated with the Kaizen approach minimize costs throughout the entire product life cycle. Therefore, it has the advantage of being closely related to the entity's profit-planning procedures. Kaizen is based on the belief that the people doing a particular job will often know better than everyone else, including their superiors, how that job can be improved; and that they should be given the responsibility for making those improvements. Kaizen Budgeting is an approach that explicitly incorporates continuous improvement during the budget period into the budget numbers.  The emphasis here is on many small improvements, rather than on quantum leaps.  A journey of a thousand miles starts with a single step.  The budget numbers are based on changes that are yet to be implemented, rather than on current practices or methods.

Kaizen is a very simple concept, formed from two Japanese characters: “kai”, meaning “change”; and “zen”, meaning “good”. Therefore, “kaizen”, means, “change for the better”, or “continuous improvement” (Cane, 1996, p3). The creator of the concept of kaizen, or continuous improvement, was the late Dr. W. Edwards Deming, an American statistician who made many visits to Japan in the years following World War II. Dr. Deming’s work was so widely regarded as the driving force behind the resurgence of the Japanese economy during this time, that one of Japan’s most coveted awards was later named the Deming Prize. Ironically, American businesses showed little interest in Dr. Deming’s work until the late 1970s when Japanese exports began to make a marked impact on the economy (Cane, 1996, pp 4-5). To paraphrase Matthew 13:58 in the New International Bible, a prophet is indeed without honor in his own country. 

 

Thanks and Regards,

Pranav Vaidya

Article Assistant

Gokhale & Sathe

Chartered Accountants

 

ASBA - 27/1/2011

Dear All,

ASBA (Application Supported by Blocked Amounts) is a process developed by the SEBI for applying to an IPO.In ASBA, an IPO applicant's account doesn't get debited until shares are alloted to him. Qualified Institutional Buyers (QIBs) are not allowed to participate in IPOs through ASBA facility. ASBA process facilitates retail individual investors bidding at cut-off, with single option, to apply through Self Certified Syndicate Banks (SCSBs), in which the investors have bank accounts. SCSBs are those banks which satisfy the conditions laid by SEBI. SCSBs would accept the applications, verify the application, block the fund to the extent of bid payment amount, upload the details in the web based bidding system of NSE, unblock once basis of allotment is finalized and transfer the amount for allotted shares, to the issuer. ASBA is an application containing an authorisation to block the application money in the bank account, for subscribing to an issue. If an investor is applying through ASBA, his application money shall be debited from the bank account only if his/her application is selected for allotment after the basis of allotment is finalized, or the issue is withdrawn / failed. It is a supplementary process of applying in Initial Public Offers (IPO), right issues and Follow on public offers (FPO) made through book building route and co-exists with the current process of using cheque as a mode of payment and submitting applications. One of the advantages of this system is that money is not debited from the bank account till shares are allotted thereby reducing delays in receipt of refunds as well as saving on interest cost for the investors.

For further information refer

http://en.wikipedia.org/wiki/ASBA

http://www.sebi.gov.in/faq/asbaprocess.pdf

 

CA Rahul Joglekar

Partner

Gokhale & Sathe

Chartered Accountants

 

302/303, Udyog Mandir No.1,

Bhagoji Keer Marg, Mahim,

Mumbai - 400016, India

+91 22 43484242

Mezzanine Financing - 25/1/2011

Dear All,

MEZZANINE FINANCING or MEZZANINE CAPITAL refers to a class of investment that is a stage intermediate between venture capital and an initial public offering; or, subordinated debt or preferred equity instrument that represents a claim on a company's assets which is senior only to that of the common shares and used in leveraged buyouts (LBOs).

Mezzanine financings can be structured either as debt (typically an unsecured and subordinated note) or preferred stock.

Mezzanine capital is often a more expensive financing source for a company than secured debt or senior debt. The higher cost of capital associated with mezzanine financings is the result of its location as an unsecured, subordinated (or junior) obligation in a company's capital structure (i.e., in the event of default, the mezzanine financing is less likely to be repaid in full after all senior obligations have been satisfied). Additionally, mezzanine financings, which are usually private placements, are often used by smaller companies and may involve greater overall leverage levels than issuers in the high-yield market; as such, they involve additional risk. In compensation for the increased risk, mezzanine debt holders require a higher return for their investment than secured or other more senior lenders.

 

Thanks and Regards,

Pranav Vaidya

Article Assistant

Gokhale & Sathe

Chartered Accountants

REPO - 24/1/2011

Dear All,

Dear All

REPO, also known as Repurchase Agreement, is a contract under which the seller of securities, such as Treasury Bills, agrees to buy them back at a specified time and price. The investment period ranges from one day to several months, and the purchaser earns interest competitive with money market rates. The repurchase price will be greater than the original sale price, the difference effectively representing interest, sometimes called the repo rate. The party who originally buys the securities effectively acts as a lender. The original seller is effectively acting as a borrower, using their security as collateral for a secured cash loan at a fixed rate of interest.

A repo is equivalent to a cash transaction combined with a forward contract. The cash transaction results in transfer of money to the borrower in exchange for legal transfer of the security to the lender, while the forward contract ensures repayment of the loan to the lender and return of the collateral of the borrower. The difference between the forward price and the spot price is effectively the interest on the loan while the settlement date of the forward contract is the maturity date of the loan

For more information on the same visit: http://en.wikipedia.org/wiki/Repurchase_agreement
 

Thanks and Regards,

Pranav Vaidya

Article Assistant

Gokhale & Sathe

Chartered Accountants

Two Factor Authentication - 21/1/2011

Dear All,

Two Factor authentication

 

Authentication is generally required to access secure data or enter a secure area like a website or a financial trading account. The person requiring access or entry shall authenticate himself after keying in or otherwise stating his openly known identity based on proving authentically her or his identity additionally by means of

§  what the requestor individually knows as a secret, such as a password or a Personal Identification Number (PIN), or

§  what the requesting owner uniquely has, such as a passport, physical token, or an ID-card, or

§  what the requesting bearer individually is, such as biometric data, like a fingerprint

Two-factor authentication (TFA) means using any independent two of these authentication methods (e.g. password + value from physical token) to increase the assurance that the bearer has been authorized to access secure systems. Usually the username is openly known and hence not understood as a secure information. However, when combined with any of the other factors, serves as a strong access control mechanism.

Two-factor authentication means that instead of using only one type of authentication factor, such as only things a user knows (login IDs, passwords, secret images, shared secrets, solicited personal information, etc), a second factor, something the user has or something the user is, must be supplied in order to authenticate.

Two-factor authentication is not a new concept. Two-factor authentication is used every time a bank customer visits the ATM. One authentication factor is the physical ATM card the customer slides into the machine. The second factor is the PIN they enter. Without either of these, authentication cannot take place. This scenario illustrates the basic parts of most multi-factor authentication systems; the "something you have" + "something you know" concept. Now-a-days, some banks have started providing Three factor authentication i.e. in addition to the account no. and password, a physical token that displays random numbers each time, which serves as an added authentication. RBI has also mandated

 

For further information refer

http://en.wikipedia.org/wiki/Two-factor_authentication

Regards,

 

CA Rahul Joglekar

Partner

Gokhale & Sathe

Chartered Accountants

Enterprese Resource Planning (ERP) - 20/1/2011

Dear All,

 

Enterprise resource planning (ERP) integrates internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, etc. ERP systems automate this activity with an integrated computer-based application. Its purpose is to facilitate the flow of information between all business functions inside the boundaries of the organization and manage the connections to outside stakeholders.^[1]

ERP automates the tasks involved in performing a business process—such as order fulfillment, which involves taking an order from a customer, shipping it and billing for it. With ERP, when a customer service representative takes an order from a customer, he or she has all the information necessary to complete the order (the customer's credit rating and order history, the company's inventory levels and the shipping dock's trucking schedule). Everyone else in the company sees the same computer screen and has access to the single database that holds the customer's new order. When one department finishes with the order it is automatically routed via the ERP system to the next department. To find out where the order is at any point, one need only log into the ERP system and track it down. The order process moves like a bolt of lightning through the organization, and customers get their orders faster and with fewer errors than before. ERP can apply that same magic to the other major business processes, such as employee benefits or financial reporting.

ERP systems can run on a variety of hardware and network configurations, typically employing a database to store its data.^[2]
ERP systems typically include the following characteristics:

• An integrated system that operates in (next to) real time, without relying on periodic updates.
• A common database, that supports all applications.
• A consistent look and feel throughout each module.
• Installation of the system without elaborate application/data integration by the Information Technology (IT) department.

For more information on the same please visit: http://en.wikipedia.org/wiki/Enterprise_resource_planning
 

Thanks and Regards,

Pranav Vaidya

Article Assistant

Gokhale & Sathe

Chartered Accountants

Cheque Truncation - 18/1/2011

Dear All,

Cheque truncation system (CTS)

Presently the process of clearing of cheques in Banks is carried out by physically carrying the instruments to RBI’s clearing house and forwarding it to the drawee bank. It a long process which takes upto 3 days for local clearing and anywhere between a week to 20 days for outstation cheques (except at par cheques). This process is at times susceptible to cheque losses, frauds, forgery leading to loss of money, reputation and wastage of time and effort. To eliminate this gap, Cheque Truncation System is proposed to be introduced in India.
Truncation is the process of stopping the flow of the physical cheque issued by a person to another person through a bank branch. The physical instrument will be truncated i.e. terminated at some point en-route to the drawee branch and an electronic image of the cheque would be sent to the drawee branch along with the relevant information like the MICR fields, date of presentation, presenting banks etc. Thus with the implementation of cheque truncation, the need to move the physical instruments across branches would not be required, except in exceptional circumstances. This would effectively reduce the time required for payment of cheques, the associated cost of transit and delay in processing, etc., thus speeding up the process of collection or realization of the cheques

For further information, refer,

 

http://rbidocs.rbi.org.in/rdocs/content/pdfs/74751.pdf

 

Regards,

 

CA Rahul Joglekar

Partner

Gokhale & Sathe

Chartered Accountants

Multi Level Marketing

Dear All,

Multi-level marketing

 

Multi-level marketing (MLM) is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of others they recruit, creating a downline of distributors and a hierarchy of multiple levels of compensation. It follows a chain structure whereby the originator of the chain gets paid for every lower link that he or persons he has tapped. Other terms for MLM include network marketing, direct selling, and referral marketing

Although the products and company are supposed to be marketed directly to consumers and potential business partners by means of relationship referrals and word of mouth marketing, critics have charged that MLMs are nothing more than pyramid schemes and money-making schemes

MLM companies have been a frequent subject of criticism as well as the target of lawsuits. Criticism has focused on their similarity to illegal pyramid schemes, price-fixing of products, high initial start-up costs, emphasis on recruitment of lower-tiered salespeople over actual sales, encouraging if not requiring salespeople to purchase and use the company's products, potential exploitation of personal relationships which are used as new sales and recruiting targets, complex and sometimes exaggerated compensation schemes, and cult-like techniques which some groups use to enhance their members' enthusiasm and devotion.

For further information please refer

http://en.wikipedia.org/wiki/Multi-level_marketing

 

Regards,

 

CA Rahul Joglekar

Partner

Gokhale & Sathe

Chartered Accountants

Escrow - Issue of Shares 14/1/2011

Dear All,

Escrow means depositing of funds with a third party to be used later on compliance of a condition.


Escrow  with respect to Issue of Shares
Share Money is put in a special escrow bank  account which is dedicated for getting IPO money.
Escrow account means an account opened with the Escrow Collection Banks for the issue and in whose favour the applicants will issue cheques or drafts in respect of the application amount while submitting an application. Escrow agreement means the agreement entered into by the Issuer company , the Registrar to the issue, and the Escrow Collection Banks for collection of the application amounts and where applicable , refunds of the amounts collected , to the applicants on the terms and conditions thereof.

Escrow Mechanism:

1. Open Bank A/cs: Issuing Company opens an Escrow account with one or more Escrow collection banks to collect cheques in respect of applications from the applicants . A Public Issue Account and a Refund Account are also opened with the bankers to the issue to receive monies from the Escrow Account an the allotement date towards allotment and refunds

2.  Hold Money in Trust: Escrow collection banks shall hold the application monies in the escrow account in trust on behalf of the applicants until the allotment date.

3.Transfer to public issue a/c : On the allotement date , the Escrow Collection banks shall tranfer the funds equivalent to the size of the issue from the Escrow Account, as per the terms of the Escrow agreement , into public issue account with the bankers to the issue.

4. Refunds : The balance amount after transfer to the Public Issue account shall be transfered to the Refund Account specially opened with Escrow Collection bankers . On the allotment date and not later than 15 days from the issue closing date , the escrow collection bank shall also refund all amounts payable to unsuccessful applicants and also the excess amount paud on applications , if any, after adjusting for Application / Allotment to the applicants , failing which issuing company shall pay interest at 15% per annum for any delay beyond the periods mentioned above.





Regards,
Radhika Karadkar

NBFC - 12/1/2011

Dear All,

A non-banking financial company (NBFC) is an institution that provides banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license. Operations are, regardless of this, still exercised under bank regulation. However this depends on the jurisdiction, as in some jurisdictions, such as New Zealand, any company can do the business of banking, and there are no banking licenses issued.

NBFCs are doing functions similar to banks. What is difference between banks & NBFCs ?

NBFCs are doing functions akin to that of banks, however there are a few differences:

• (i) a NBFC cannot accept demand deposits (demand deposits are funds deposited at a depository institution that are payable on demand -- immediately or within a very short period -- like your current or savings accounts.)
• (ii) it is not a part of the payment and settlement system and as such cannot issue cheques to its customers; and
• (iii) deposit insurance facility of DICGC is not available for NBFC depositors unlike in case of banks.

Is it necessary that every NBFC should be registered with RBI?

In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every NBFC should be registered with RBI to commence or carry on any business of non-banking financial institution as defined in clause (a) of Section 45 I of the RBI Act, 1934.

What are the different types of NBFCs registered with RBI?

The NBFCs that are registered with RBI are:

• (i) equipment leasing company;
• (ii) hire-purchase company;
• (iii) loan company;
• (iv) investment company.

With effect from December 6, 2006 the above NBFCs registered with RBI have been reclassified as

• (i) Asset Finance Company (AFC)
• (ii) Investment Company (IC)
• (iii) Loan Company (LC)

The above type of companies may be further classified into those accepting deposits or those not accepting deposits.

Besides the above class of NBFCs the Residuary Non-Banking Companies are also registered as NBFC with the Bank.

Can all NBFCs accept deposits and what are the requirements for accepting public deposits?

All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a valid certificate of registration with authorisation to accept public deposits can accept/hold public deposits. The NBFCs accepting public deposits should have minimum stipulated net owned fund and comply with the directions issued by the bank.

Is there any ceiling on acceptance of public deposits? What is the rate of interest and period of deposit which NBFCs can accept?

Yes, there is ceiling on acceptance of public deposits. An NBFC maintaining required NOF/CRAR and complying with the prudential norms can accept public deposits.

Whether NBFCs can accept deposits from NRIs?

Effective from April 24, 2004, NBFCs cannot accept deposits from NRI except deposits by debit to NRO account of NRI provided such amount do not represent inward remittance or transfer from NRE/FCNR (B) account.

However, the existing NRI deposits can be renewed.

It is said that rating of NBFCs is necessary before it accepts deposit? Is it true? Who rates them?

An unrated NBFC, except certain Asset Finance companies (AFC), cannot accept public deposits. A NBFC may get itself rated by any of the four rating agencies namely, CRISIL, CARE, ICRA and FITCH Ratings India Pvt. Ltd.

When a company's rating is downgraded, does it have to bring down its level of public deposits immediately or over a period of time?

If rating of a NBFC is downgraded to below minimum investment grade rating, it has to stop accepting public deposit, report the position within fifteen working days to the RBI and reduce within three years from the date of such downgrading of credit rating, the amount of excess public deposit to nil or to the appropriate extent permissible under paragraph 4(4) of Non-Banking Financial Companies Acceptance of Public Deposits ( Reserve Bank) Directions, 1998; however such NBFC can renew the matured public deposits subject to repayment stipulations specified above and compliance with other conditions for acceptance of deposits.

In case a NBFC defaults in repayment of deposit what course of action can be taken by depositors?

If a NBFC defaults in repayment of deposit, the depositor can approach Company Law Board or Consumer Forum or file a civil suit to recover the deposits.

Consumer courts play a useful role in attending to depositors problems. Can one approach consumer forum, civil court, CLB simultaneously?

Yes, a depositor can approach any or all of the redressal authorities i.e consumer forum, court or CLB.

Is there an Ombudsman for hearing complaints against NBFCs?

No, there is no Ombudsman for hearing complaints against NBFCs.

What are various prudential regulations applicable to NBFCs?

The Bank has issued detailed directions on prudential norms, vide Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998. The directions interalia, prescribe guidelines on income recognition, asset classification and provisioning requirements applicable to NBFCs, exposure norms, constitution of audit committee, disclosures in the balance sheet, requirement of capital adequacy, restrictions on investments in land and building and unquoted shares.

Please explain the terms 'owned fund' and 'net owned fund' in relation to NBFCs?

'Owned Fund' means aggregate of the paid-up equity capital and free reserves as disclosed in the latest balance sheet of the company after deducting therefrom accumulated balance of loss, deferred revenue expenditure and other intangible assets.

The amount of investments of such company in shares of its subsidiaries, companies in the same group and all other NBFCs and the book value of debentures, bonds, outstanding loans and advances made to and deposits with subsidiaries and companies in the same group is arrived at. The amount thus calculated, to the extent it exceeds 10% of the owned fund, is reduced from the amount of owned fund to arrive at 'Net Owned Fund'.

The NBFCs have been made liable to pay interest on the overdue matured deposits if the company has not been able to repay the matured public deposits on receipt of a claim from the depositor. Please elaborate the provisions.

As per Reserve Bank's directions, overdue interest is payable to the depositors in case the company has delayed the repayment of matured deposits, and such interest is payable from the date of receipt of such claim by the company or the date of maturity of the deposit whichever is later, till the date of actual payment. If the depositor has lodged his claim after the date of maturity, the company would be liable to pay interest for the period from the date of claim till the date of repayment. For the period between the date of maturity and the date of claim it is the discretion of the company to pay interest.

Please tell us something about the companies which are NBFCs, but are exempted from registration?

Housing Finance Companies, Merchant Banking Companies, Stock Exchanges, Companies engaged in the business of stock-broking/sub-broking, Venture Capital Fund Companies, Nidhi Companies, Insurance companies and Chit Fund Companies are NBFCs but they have been exempted from the requirement of registration under Section 45-IA of the RBI Act, 1934 subject to certain conditions.

Housing Finance Companies are regulated by National Housing Bank, Merchant Banker/Venture Capital Fund Company/stock-exchanges/stock brokers/sub-brokers are regulated by Securities and Exchange Board of India, Insurance companies are regulated by Insurance Regulatory and Development Authority. Similarly, Chit Companies are regulated by the respective State Governments and Nidhi Companies are regulated by Ministry of Company Affairs, Government of India.

To view all the notifications by RBI wrt NBFCs please visit: http://www.rbi.org.in/scripts/BS_ViewNBFCNotification.aspx

 

Thanks and Regards,

Pranav Vaidya

Article Assistant

Gokhale & Sathe

Chartered Accountants

DTAA - 11/1/2011

Dear All,

Double Taxation Avoidance Agreement (DTAA)

India has adopted the system under which Income Tax on residents is imposed on the "total world income" i.e. income earned anywhere in the world. Whereas a tax payer’s own country (referred to as home country) has a sovereign right to tax him, the source of income may be in some other country (referred to as host country) which country also claims a right to tax the income arising in that country. The result is that income arising to a resident out of India is subjected to tax in India as it is part of total world income and, also in host country which provides the source for that income.

In the case of non-residents, however, it is not the "total world income" but only that income is subjected to tax in India which is earned in this country. Since a resident is taxed in respect of foreign income in his own country as well as in the country where it is earned, he is subjected to tax in both the countries in respect of the same income.

Due to phenomenal growth in international trade and commerce and increasing interactivity among the nations, residents of one country extend their sphere of business operations to other countries. Presence of double or multiple taxation acts as a major determining factor in decisions relating to location of investment, technology etc. as it affects the bottom-line of a business enterprise. The effort is, therefore, to ensure that heavy tax burden is not cast as a result of double or multiple taxation. The object is achieved by the Government entering into agreements with other countries whereby the respective jurisdiction is so identified that a particular income is taxed in one country only or, in case it is taxed in both the countries, suitable relief is provided in one country to mitigate the hardship caused by taxation in another jurisdiction.

Such agreements are known as "Double Tax Avoidance Agreements" (DTAA) also termed as "Tax Treaties". The statutory authority to enter into such agreements is vested in the Central Government by the provisions contained in Section 90 of the Income Tax Act in terms of which India has, by the end of March 2002, entered into 64 agreements of this nature which are comprehensive in the sense that they deal with different types of income which may be subjected to double taxation. A list of such agreements and the respective years of their coming into force forms annexure to this book. In addition there are 12 agreements which deal with only profit of enterprises engaged in operation of aircraft and 5 which are limited to shipping profit.

Apart from providing ways and means to avoid double taxation of same income, the agreements generally provide for other matters of common interest of the two countries such as exchange of information, mutual assistance procedure for resolution of disputes and for mutual assistance in effecting recovery of taxes.
Regards,
Kruti P. Gosar

Recession - 7/1/2011

Dear All,

RECESSION

A recession is a business cycle contraction, a general slowdown in economic activity over a period of time for more than two consecutive quarters. In other words, it can be defined as "two down quarters of GDP".

Production, as measured by Gross Domestic Product(GDP), employment, investment spending, capacity utilization, household incomes, business profits andinflation all fall during recessions; while bankruptcies and the unemployment rate rise.

Recessions generally occur when there is a widespread drop in spending often following an adverse supply shock or the bursting of an economic bubble.

For further details, visit: http://en.wikipedia.org/wiki/Recession

(According to me,

Government intervenes Recession though two packages :

1. Bailout Packages

2. Stimulus Packages.

Please correct me if I am wrong.)

Thanks and Regards,

Pratik Chheda

Article Assistant

Gokhale & Sathe

Chartered Accountants

Working Capital

Dear All,

Just a little something on Working Capital:

Working capital (abbreviated WC) is a financial metric which represents operating liquidity available to a business, organization, or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Net working capital is calculated as current assets minus current liabilities. It is a derivation of working capital, that is commonly used in valuation techniques such as DCFs (Discounted cash flows). If current assets are less than current liabilities, an entity has aworking capital deficiency, also called a working capital deficit.

Working Capital = Current Assets

Net Working Capital = Current Assets − Current Liabilities

A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable and cash.

If a company's current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. A declining working capital ratio over a longer time period could also be a red flag that warrants further analysis. For example, it could be that the company's sales volumes are decreasing and, as a result, its accounts receivables number continues to get smaller and smaller.

Working capital also gives investors an idea of the company's underlying operational efficiency. Money that is tied up in inventory or money that customers still owe to the company cannot be used to pay off any of the company's obligations. So, if a company is not operating in the most efficient manner (slow collection), it will show up as an increase in the working capital. This can be seen by comparing the working capital from one period to another; slow collection may signal an underlying problem in the company's operations.

CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital:

a.              Gross working capital: It is equal to the total investment in current assets.

b.             Net working capital: It is the difference between current assets and current liabilities. It can be described as that part of a firm’s current assets which is financed with the help of long-term funds.

Both the concepts have equal significance in working capital management.

Gross working capital helps in analyzing:

a.              Ways to optimize investment in current assets and

b.             Methods for financing current assets.

Net working capital indicates the liquidity position of the firm. It also reflects the extent to which the working capital needs should be financed by long-term sources of funds.

Current assets are those assets that, in ordinary course of business, can be converted into cash within one year without undergoing any diminution in value. The major current assets are cash, marketable securities, accounts receivable, and inventory.

In contrast to this, fixed assets are those assets that are permanent in nature and are held for use in business activities. For example, land, building, machinery etc.

Current liabilities are those liabilities that are obligations that have to be paid in a single accounting period. Examples of current liabilities are: accounts payable, bills receivable, bank over-draft and outstanding expenses. Long-term liabilities, on the other hand, are obligations that can be repaid over a period greater than a single accounting period. Examples of long-term liabilities are: share capital, debentures, long-term loans etc.

For more information visit http://en.wikipedia.org/wiki/Working_capital

Thanks and Regards,

Pranav Vaidya

Article Assistant

Gokhale & Sathe

Chartered Accountants

ISO - 6/1/2011

Dear All,

ISO stands for The International Organization for Standardization. It is an international-standard-setting body composed of representatives from various national standards organizations (like the BIS in India). Founded on February 23rd 1947, the organization promulgates worldwide proprietary industrial and commercial standards. It has its headquarters in Geneva, Switzerland. ISO defines itself as a non-governmental organization. However, its ability to set standards that often become law, either through treaties or national standards makes it more powerful than most non-governmental organizations. In practice, ISO acts as a consortium with strong links to governments. It has 163 national members out of the 203 total countries in the world. ISO has developed over 18000 International Standards on a variety of subjects and some 1100 new ISO standards are published every year. 

 

For further information refer

 

http://en.wikipedia.org/wiki/International_Organization_for_Standardization

http://www.iso.org/iso/home.htm

 

 

CA Rahul Joglekar

Partner

Gokhale & Sathe

Chartered Accountants