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Assets is the sum total of all assets of the company valued at their cost of acquisition.

This is inclusive of the depreciation that is to be charged on each asset.


Gross block

is the gross block less accumulated depreciation on assets. Net block is actually what the asset is worth to the company.
Net block Capital work in progress,

sometimes at the end of the financial year, there is some construction or installation going on in the company, which is not complete, such installation is recorded in the books as capital work in progress because it is asset for the business. If the company has made some investments out of its free cash, it is recorded under the head investments.
Inventory

is the stock of goods that a company has at any point of time.

include the debtors of the company, i.e., it includes all those accounts which are to give money back to the company.
Receivables

include all the assets, which can be converted into cash within a very short period of time like cash in bank etc.
Other current assets Equity Share capital

is the owner's equity. It is the most permanent source of finance for the

company. include the free reserves of the company which are built out of the genuine profits of the company. Together they are known as net worth of the company.
Reserves

includes the long term and the short debt of the company. Long term is for a longer duration, usually for a period more than 3 years like debentures. Short term debt is for a lesser duration, usually for less than a year like bank finance for working capital.
Total debt Creditors

are those entities to which the company owes money.

include all the liabilities that do not fall under any of the above heads and various provisions made.
Other liabilities and provisions

Elements of the financial Statements Elements of the financial statements include Assets, Liabilities, Equity, Income & Expenses. The first three elements relate to the statement of financial position whereas the latter two relate to the income statement. The first three elements relate to the statement of financial position while the latter two relate to income statements. Asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. In simple words, asset is something which a business owns or controls to benefit from its use in some way. It may be something which directly generates revenue for the entity (e.g. a machine, inventory) or it may be something which supports the primary operations of the organization (e.g. office building).

Classification
Assets may be classified into Current and Non-Current. The distinction is made on the basis of time period in which the economic benefits from the asset will flow to the entity. Current Assets are ones that an entity expects to use within one-year time from the reporting date. Non-Current Assets are those whose benefits are expected to last more than one year from the reporting date.

Types and Examples


Following are the most common types of Assets and their Classification along with the economic benefits derived from those assets. Asset Machine Office Building Vehicle Inventory Cash Receivables Liabilities A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits (IASB Framework). Explanation In simple words, liability is an obligation of the entity to transfer cash or other resources to another party. Liability could for instance be a bank loan, which obligates the entity to pay loan installments over the duration of the loan to the bank along with the associated interest cost. Alternatively, an entity's liability could be a trade payable arising from the purchase of goods from a supplier on credit. Classification Economic Benefit Non-current Non-current Used for the production of goods for sale to customer. Provides space to employees for administering company affairs. Used in the transportation of company products and also for commuting. Cash is generated from the sale of inventory. Cash! Will eventually result in inflow of cash.

Non-current Current Current Current

Classification Liabilities may be classified into Current and Non-Current. The distinction is made on the basis of time period within which the liability is expected to be settled by the entity. Current Liability is one which the entity expects to pay off within one year from the reporting date. Non-Current Liability is one which the entity expects to settle after one year from the reporting date. Types and examples Following are examples the common types of liabilities along with their usual classifications. Liability Classification

Long Term Bank Loan Non-current Bank Overdraft current

Short Term Bank Loan current Trade Payables Debenture Tax Payable current Non-current Current

It may be appropriate to break up a single liability into their current and non-current portions. For instance, a bank loan spanning two years and carrying 2 equal installments payable at the end of each year would be classified half as current and half as non-current liability at the inception of loan. Equity is the residual interest in the assets of the entity after deducting all the liabilities Equity is what the owners of an entity have invested in an enterprise. It represents what the business owes to its owners. It is also a reflection of the capital left in the business after assets of the entity are used to pay off any outstanding liabilities. Equity therefore includes share capital contributed by the shareholders along with any profits or surpluses retained in the entity. This is what the owners take home in the event of liquidation of the entity. The Accounting Equation may further explain the meaning of equity:

Assets - Liabilities = Equity There are three key elements to the process of financial management: (1) Financial Planning Management need to ensure that enough funding is available at the right time to meet the needs of the business. In the short term, funding may be needed to invest in equipment and stocks, pay employees and fund sales made on credit. In the medium and long term, funding may be required for significant additions to the productive capacity of the business or to make acquisitions. (2) Financial Control Financial control is a critically important activity to help the business ensure that the business is meeting its objectives. Financial control addresses questions such as: Are assets being used efficiently? Are the businesses assets secure? Does management act in the best interest of shareholders and in accordance with business rules? (3) Financial Decision-making The key aspects of financial decision-making relate to investment, financing and dividends: Investments must be financed in some way however there are always financing alternatives that can be considered. For example it is possible to raise finance from selling new shares, borrowing from banks or taking credit from suppliers A key financing decision is whether profits earned by the business should be retained rather than distributed to shareholders via dividends. If dividends are too high, the business may be starved of funding to reinvest in growing revenues and profits further. Cost of capital refers to the opportunity cost of making a specific investment. It is the rate of return that could have been earned by putting the same money into a different investment with equal risk. Thus, the cost of capital is the rate of return required to persuade the investor to make a given investment.
Importance of Cost of Capital: Capital Budgeting Decisions Designing the Corporate Financial Structure

Deciding about the method of financing in lieu with capital market fluctuations Performance of top management Other areas eg., dividend policy, working capital Basic costs of capital 1. Cost of Equity Capital: the cost of obtaining funds through the sale of common stock. 2. Cost of Preference Shares 3. Cost of Debt 4. Cost of Retained Earnings CAPITAL BUDGETING Why? Perhaps most imp. Function financial managers must perform Results of Cap Budgeting decisions continue for many future years, so firm loses some flexibility Cap Budgeting decisions define firms strategic direction. Timing key since Cap Assets must be put in place when needed Business Application Valuing projects that affect firms strategic direction Methods of valuation used in business Parallels to valuing financial assets (securities) Cap Budgeting Evaluation Methods Payback Discounted Payback Net Present Value (NPV) Internal Rate of Return (IRR) Modified Internal Rate of Return (MIRR) Profitability Index (PI) Equivalent Annual Annuity (EAA) Replacement Chain What is capital budgeting? Analysis of potential projects. Long-term decisions; involve large expenditures. Very important to firms future. Steps in Capital Budgeting Estimate cash flows (inflows & outflows). Assess risk of cash flows. Determine appropriate discount rate (r = WACC) for project. Evaluate cash flows. (Find NPV or IRR etc.) Make Accept/Reject Decision