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How should the capital assets of a capital lease be recorded in the capital projects fund?
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Fixed assets should initially be recorded on the balance sheet?
Fixed Assets are things of value that are expected to maintain their value to the entity for more than a year. All Assets are Balance Sheet accounts so yes, they should initially be recorded on the Balance sheet.
Do you believe that a firm should use the same cost of capital for all of its projects?
no
How to compute cost to be capitalized for acqusition of assets?
The cost to be capital its depend upon the company policy whether they should capitalze the cost or not.
Difference between working capital and capital employed?
Capital EmployedTotal resources are also known as total capital employed and sometimes as gross capital employed or total assets before depreciation. Thus total capital consists of all assets fixed and current. In other words, the total of the assets side of the balance sheet is considered as total assets employed.While calculating capital employed on the basis of assets, following points must be noted.* Any asset which is not in use should be excluded.* Intangible assets like goodwill, patents, trademarks etc should be excluded. If they have some potential sales value, they should be included.* Investments which are not concerned with business, should be excluded* Fictitious assets are to be excludedWorking CapitalWorking capital is defined as the excess of current assets over current liabilities. Current assets are those assets which will be converted into cash within the current accounting period or within the next year as a result of the ordinary operations of the business. They are cash or near cash resources. These include:* Cash and Bank balances* Receivables* Inventory· Raw materials, stores and spares· Work-in-progress· Finished goods* Prepaid expenses* Short-term advances* Temporary investmentThe value represented by these assets circulates among several items. Cash is used to buy raw materials, to pay wages and to meet other manufacturing expenses. Finished goods are produced. These are held as inventories. When these are sold, accounts receivables are created. The collection of accounts receivables brings cash into the firm. The cycle starts again.Current liabilities are the debts of the firms that have to be paid during the current accounting period or within a year. These include:* Creditors for goods purchased* Outstanding expenses i.e., expenses due but not paid* Short-term borrowings* Advances received against sales* Taxes and dividends payable* Other liabilities maturing within a yearWorking capital is also known as circulating capital, fluctuating capital and revolving capital. The magnitude and composition keep on changing continuously in the course of business.Permanent and Temporary Working CapitalConsidering time as the basis of classification, there are two types of working capital viz, 'Permanent' and 'Temporary'. Permanent working capital represents the assets required on continuing basis over the entire year, whereas temporary working capital represents additional assets required at different items during the operation of the year. A firm will finance its seasonal and current fluctuations in business operations through short term debt financing. For example, in peak seasons more raw materials to be purchased, more manufacturing expenses to be incurred, more funds will be locked in debtors balances etc. In such times excess requirement of working capital would be financed from short-term financing sources.The permanent component current assets which are required throughout the year will generally be financed from long-term debt and equity. Tandon Committee has referred to this type of working capital as 'Core Current Assets'. Core Current Assets are those required by the firm to ensure the continuity of operations which represents the minimum levels of various items of current assets viz., stock of raw materials, stock of work-in-process, stock of finished goods, debtors balances, cash and bank etc. This minimum level of current assets will be financed by the long-term sources and any fluctuations over the minimum level of current assets will be financed by the short-term financing. Sometimes core current assets are also referred to as 'hard core working capital'.The management of working capital is concerned with maximizing the return to shareholders within the accepted risk constraints carried by the participants in the company. Just as excessive long-term debt puts a company at risk, so an inordinate quantity of short-term debt also increases the risk to a company by straining its solvency. The suppliers of permanent working capital look for long- term return on funds invested whereas the suppliers of temporary working capital will look for immediate return and the cost of such financing will also be costlier than the cost of permanent funds used for working capital.Gross Working CapitalGross Working Capital is equal to total current assets only. It is identified with current assets alone. It is the value of non-fixed assets of an enterprise and includes inventories (raw materials, work-in-progress, finished goods, spares and consumable stores), receivables, short-term investments, advances to suppliers, loans, tender deposits, sundry deposits with excise and customs, cash and back balances, prepaid expenses, incomes receivable, etc.Gross Working Capital indicated the quantum of working capital available to meet current liabilities.Thus, Gross Working Capital = Current AssetsNet Working CapitalNet Working Capital is the excess of current assets over current liabilities, i.e. current assets less current liabilities.This concept of working capital is widely accepted. This approach, however, does not reflect the exact position of working capital due to the following factors:* Valuation of inventories include write-offs* Debtors include the profit element* Debts outstanding for more than a year likewise debtors which are doubtful or not provided for are included as asset are also placed under the head 'current assets'* Non-moving and slow-moving items of inventories are also included in inventories, and* Write-offs and the profits do not involve cash outflowTo assess the real strength of working capital position, it is necessary to exclude the non-moving and obsolete items from inventories. Working Capital thus arrived at is termed as 'Tangible Working Capital.'
Should deprciation should be charged on idle assets?
Under all of US GAAP, CDN GAAP and IFRS, idle assets should continue to be depreciated.
Fixed assets should initially be recorded on the balance sheet?
Fixed Assets are things of value that are expected to maintain their value to the entity for more than a year. All Assets are Balance Sheet accounts so yes, they should initially be recorded on the Balance sheet.
Should fixed assets be initially recorded in the balance sheet at the lower cost of cost or market?
False
What is capital restructuring?
Capital is generally the assets, often monetary, that are available to generate more assets. Thus the liquidity of capital should be high. Restructuring them means reallocating them to improve their availability (liquidity). The process requires selling assets to buy different ones in order to improve your capital (monetary) position so that you can improve your asset position thus enabling you to earn more with them.
What is Unrestricted Net Assets in your audited Financial Statement?
The difference between assets and liablities are net assets. Per new reporting requirements it is necessary to further distinguish this value. The new reporting standards require that net assets be separated into 3 catagories. Invested in capital assets, net related debt, restricted and unrestricted. The section of invested in capital assets starts with your capital asset value less accumulated depreciation. The capital assets have to be further reduced by the debt held related to those assets. This could be bond issues or donations for capital assets. It is important to remember that other balance sheet items realted to your investment, unamortized prem or discount on the bonds and issuance costs shoud be included in the value. Accrude interest payable is exclude here because its a current liability, and thus will require current assets to retire. Any part of the debt not yet expensed to purchase capital assets should be moved to the second section, restricted for capital projects. Another element of the restricted area includes items retricted "legally" for payment. This would included accrude interest payable on the bonds outstanding. Per the standard if your debt exceeds capital assets acquire the value should be zero. Only positive amts, or zero will be shown in all sections accept for unrestricted. If the amt of restrictions on net assets exceeds net assets the value of unrestricted will be negative or deficit. Conversly, if net assets are greater than restrictions the unrestricted will be positive. When seen on the the balance sheet the deficit indicates legal restrictions in a long term sense. It does not speak to the ability of the company to meet current obligations.
If a corporation has projects that will earn more than the cost of capital should it ration capital?
Yes
Who benefits from capital restructuring?
Capital is generally the assets, often monetary, that are available to generate more assets. Thus the liquidity of capital should be high. Restructuring them means reallocating them to improve their availability (liquidity). The process requires selling assets to buy different ones in order to improve your capital (monetary) position so that you can improve your asset position thus enabling you to earn more with them. It is generally undertaken by companies that are generally doing poorer than expected and wish to stabilize future performance of their assets.
Do you believe that a firm should use the same cost of capital for all of its projects?
no
How to compute cost to be capitalized for acqusition of assets?
The cost to be capital its depend upon the company policy whether they should capitalze the cost or not.
The cost of capital should reflect the average cost of the various sources of long-term funds a firm uses to acquire assets?
Yes, the cost of capital is a weighted average of the various sources of long-term funds a firm uses, such as equity and debt. By considering the different costs and proportions of each source, the cost of capital provides a comprehensive measure of the overall cost of financing for the firm's assets.
Is a cash account an asset or expense?
An expense account is for wages, motor expenses, stationery etc. Expenses are what you use to be able to run your business, the same as assets. But expenses are revenue expenditure items as mentioned above, and assets like motor vehicle and machinery are classed as capital expenditure. So no an expense account is not an asset account, even though they are both recorded on the debit side of there accounts and both recorded in the general/main ledger. Expenses are recorded in the profit and loss account and assets in the balance sheet. Expenses well a majority are allowable for tax purposes and assets are claimable through capital allowances. So assets are used in the business to generate capital and expenses are deducted from gross profit leaving a net/loss profit.
What decision criteria should managers use in selecting projects when there is not enough capital to invest in all available positive NPV projects?
Profitability index criteria can be used to select projects when a capital rationing situation exists, with the highest profititibility index from specified projects being the goal.
What is funding analysis?
hat is a Fund? Fund Meaning Money that is set aside for a particular purpose. To provide money for paying off the interest or principal of (a debt). To finance, using long-term debt or Capital. Synonyms Finance Support Back Furnish Fund = Capital We use the phrase "We need additional funds" to mean we need additional capital whether be it for acquiring assets, clearing liabilities or for meeting expenses. This indicates that Fund means Capital. All capital of the organisation whether owned or loaned is capable of being called Fund. Fund is Capital freely available for use A Fund by its nature would be capital kept aside with a purpose. The fund should be capable of being used for the specified purpose at any time. Fund, in the topic Funds Flow Analysis, is a general purpose fund. It represents capital resource that would be available to the organisation for general purposes. It would be capable of being used in any manner the organisation prefers without any restriction/hindrance. Fund is Capital supported by Current Assets Every rupee of a liability/capital is supported by a rupee of an asset. Every rupee of an asset is financed by a rupee of a liability. Consider a new business that has been started with a capital of Rs. 2,00,000 brought in cash. The organisation's Balance Sheet immediately after this first transaction would be: Balance Sheet of M/s ___ as on 31st December __ Liabilities Amount Assets Amount Capital 2,00,000 Cash 2,00,000 2,00,000 2,00,000 Liabilities supported by Assets : Capital is supported by cash Assets financed by Liabilities : Cash is financed by Capital The next day, Furniture worth Rs. 1,00,000 and Stock Worth Rs. 50,000 have been bought for cash. The Balance Sheet after these transaction would be : Balance Sheet of M/s ___ as on 31st December __ Liabilities Amount Assets Amount Capital 2,00,000 Cash Furniture Stock 50,000 1,00,000 50,000 2,00,000 2,00,000 Liabilities supported by Assets : Capital is supported by Cash, Furniture and Stock Assets financed by Liabilities : Cash, Furniture and Stock are financed by Capital Capital/Cash is employed in purchasing Assets Since Cash used in purchasing Furniture was financed by Capital, we can say that Furniture is financed by Capital. Whereby, we say that capital is employed in purchasing furniture. On converting an asset into a new one, the liability that was being supported by the replaced asset would now be supported by the new asset. Therefore, on employing capital, the assets supporting capital change. Capital that can be employed To be able to employ capital for any purpose, the asset that is supporting it should be easily convertible. Fund is Capital supported by easily convertible Assets Fund is capital freely available for being used in any which way the organisation intends i.e. for long term or short term needs. To enable such usage, funds (capital that we call funds) should be supported not just by assets which are convertible but by assets that are easily convertible. Current Assets are easily convertible Current Meaning Belonging to the present time. Not overdue; occurring this period. Synonyms Present Existing Recent In Progress Current Assets are assets that are capable of being liquidated in a time span of a year or less. They represent easily convertible assets. Fund is capital supported by easily convertible assets + Current Assets are easily convertible assets. ? Fund is capital supported by Current Assets Funds exclude Current Liabilities Current Liabilities Current liabilities are liabilities that are to be repaid/cleared within the near future (a short period of time). Current liabilities are considered to be supported by current assets as they are similar in nature i.e. both of them have a short life span (a year or less). Current liabilities have a charge on current assets. Fund is capital that is freely available for use for any purpose the organisation intends without any hindrance/restriction. All the capital that is supported by current assets cannot be said to be freely available for use without any hindrance. We do not consider Current liabilities to be representing capital that is freely available for use, since they are to be repaid within a short time span Therefore, capital supported by current assets excluding current liabilities would only be considered as fund. Fund = Current Assets - Current Liabilities Fund is freely available capital + Fund is capital supported by Current Assets + Fund is capital supported by current assets excluding current liabilities [Current assets in excess of those supporting current liabilities support funds.] ? Funds = Current Assets - Current Liabilities Fund = Working Capital Excess of Current Assets over Current Liabilities is Working Capital ? Working Capital = Current Assets - Current Liabilities. ? Fund = Working Capital What is Funds Flow? Flow Meaning To move or run smoothly with unbroken continuity like in the case of a fluid. Something that resembles a flowing stream in moving continuously Synonyms Stream Gush Course Funds Flow Fund being working capital, Funds flow indicates the flow of working capital between two points of time. It involves information relating to the various transformations undergone by working capital (i.e. the changes that have taken place in working capital) during the period involved between the two points of time. Every change in working capital is associated with (or is on account of) a flow either an inflow or an outflow. Thus, funds flow involves information relating to the inflows and outflows that resulted in a change in working capital between the two points of time. When do we say that there is a flow of fund? Fund (Working Capital) in an Organisation is like water in a reservoir. The Fund is analogous to water and the reservoir to the organisation. There is a change whenever there is a flow There would be a change in fund (working capital) whenever there is a flow (in/out) of fund. An inflow would result in an increase and An outflow would result in a decrease. There is a flow whenever there is a change A change in fund (working capital) in the organisation is an indication of flow of fund. An increase would indicate an inflow and A decrease would indicate an outflow. Hidden/Masked flows When there is an inflow followed by an outflow of the same magnitude, there may not be a change in fund (working capital). An inflow would result in an increase in fund which would be set off by an outflow resulting in a decrease. Since the magnitude is the same, after the two transactions, the fund seems to be unchanged. In such situations, to notice the change, we will have to break down the transactions into two instead of viewing them in total.
