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A business account that records how much the owners or stockholders have invested in a company.
Redeemable means Some thing, which can be exchanged for money for needs of urgent funds in a Company. Some times a company that is not interested to increase its permanent capital then they issue the temporary shares for public, Which is called the redeemable capital to reach its urgent needs for funds. The company issues these shares for a specific time period. When the needs of the company are completed then they receive their shares form public again and returned their cash. The people accept these shares because they are more preference share capital and have a high rate of interest .The dividend of the shares more preferable then the dividend of the fixed capital.
Deferred tax is an accounting concept (also known as future income taxes), meaning a future tax liability or asset, resulting from temporary differences or timing differences between the accounting value of assets and liabilities and their value for tax purposes.
Temporary differences are differences between the carrying amount of an asset or liability recognized in the statements of financial position and the amount attributed to that asset or liability for tax purposes (the tax base). Temporary differences may be either:
taxable temporary differences, which are temporary differences that will result in taxable amounts in
determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled; or
deductible temporary differences, which are temporary differences that will result in deductible amounts in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settle.
The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes: the tax base of an asset is the amount that will be deductible for tax purposes against any taxable economic benefits that will flow to an entity when it recovers the carrying amount of the asset. the tax base of a liability is its carrying amount, less any amount that will be deductible for tax purposes in respect of that liability in future periods.
The basic principle of accounting for deferred tax under a temporary difference approach can be illustrated using a common example in which a company has fixed assets which qualify for tax depreciation. The following example assumes that a company purchases an asset for $1,000 which is depreciated for accounting purposes on a straight-line basis of five years. The company claims tax depreciation of 20% per year. The applicable rate of corporate income tax is assumed to be 25%. And then subtract the net value.
Purchase Year 1 Year 2 Year 3 Year 4 Accounting value Tax value Deferred tax liability/(asset) at 35% $1,000 $1,000 $0 $800 $750 $50 $18 $600 $563 $37 $13 $400 $422 $(8) $200 $316 $(41)
Taxable/(deductible) temporary difference $0
As the tax value, or tax base, is lower than the accounting value, or book value, in years 1 and 2, the company should recognise a deferred tax liability. This also reflects the fact that the company has claimed tax depreciation in excess of the expense for accounting depreciation recorded in its accounts, whereas in the future the company should claim less tax depreciation in total than accounting depreciation in its accounts. In years 3 and 4, the tax value exceeds the accounting value, therefore the company should recognise a deferred tax asset (subject to it having sufficient forecast profits so that it is able to utilise future tax deductions). This reflects the fact that the company expects to be able to claim tax depreciation in the future in excess of accounting depreciation.
Whereas International Financial Reporting Standards and US GAAP adopt a balance sheet approach in relation to deferred tax focused on temporary differences, certain GAAPs such as UK GAAP require deferred tax to be instead recognised in respect of timing differences. A timing difference arises when an item of income or expense is recognised for tax purposes but not accounting purposes, or vice versa, and is therefore consistent with a profit and loss approach to deferred tax. In many cases the deferred tax outcome will be similar for a temporary difference or timing difference approach. However, differences can arise such as in relation to revaluation of fixed assets qualifying for tax depreciation, which gives rise to a deferred tax asset under a balance sheet approach, but in general should have no impact under a timing difference approach.
Justification for deferred tax accounting
Deferred tax is recognized as a result of the Matching principle. Deferred tax liabilities are provided in order that investors may understand the future tax liabilities that may arise as a result of accelerated tax relief taken to date, or income that has not yet been taxed. Where accelerated tax relief is obtained for expenditure relative to the timing of an expense recognized in a company's profit and loss account, a deferred tax charge should be recognized in the profit and loss account for the movement in the company's deferred tax liability, which will increase the company's total tax charge.
Deferred tax liabilities
Deferred tax liabilities generally arise where tax relief is provided in advance of an accounting expense, or income is accrued but not taxed until received. Examples of such situations include: a company claims tax depreciation at an accelerated rate relative to accounting depreciation a company makes pension contributions for which tax relief is provided on a paid basis, whereas accounting entries are determined in accordance with actuarial valuations
Deferred tax assets
Deferred tax assets generally arise where tax relief is provided after an expense is deducted for accounting purposes.Examples of such situations include: a company may accrue an accounting expense in relation to a provision such as bad debts, but tax relief may not be obtained until the provision is utilised a company may incur tax losses and be able to "carry forward" losses to reduce taxable income in future years
Deferred tax in modern accounting standards
Modern accounting standards typically require that a company provides for deferred tax in accordance with either the temporary difference or timing difference approach. Where a deferred tax liability or asset is recognised, the liability or asset should reduce over time (subject to new differences arising) as the temporary or timing difference reverses. Under International Financial Reporting Standards, deferred tax should be accounted for using the principles in IAS 12: Income Taxes, which is similar (but not identical) to SFAS 109 under US GAAP. Both these accounting standards require a temporary difference approach. Other accounting standards which deal with deferred tax include: UK GAAP - Financial Reporting Standard 19: Deferred Tax (timing difference approach) Mexican GAAP or PCGA - Boletín D-4, el impuesto sobre la renta diferido Canadian GAAP - CICA Section 3465 Russian PBU 18 (2002) Accounting for profit tax (timing difference approach)
Derecognition of deferred tax assets and liabilities
Management has an obligation to accurately report the true state of the company, and to make judgements and estimations where necessary. In the context of tax assets and liabilities, there must be a reasonable likelihood that the tax difference may be realised in future years. For example, a tax asset may appear on the company's accounts due to losses in previous years (if carry-forward of tax losses is allowed). In this case a deferred tax asset should be recognised if and only if the management considered that there will be sufficient future taxable profit to utilise the tax loss.  If it becomes clear that the company does not expect to make profits in future years, the value of the tax asset has been impaired: in the estimation of management, the likelihood that this tax loss can be utilised in the future has significantly fallen. In cases where the carrying value of tax assets or liabilities has changed, the company may need to do a write down, and in certain cases involving in particular a fundamental error, a restatement of its financial results from previous years. Such write-downs may involve either significant income or expenditure being recorded in the company's profit and loss for the financial year in which the write-down takes place.
What Is Running Finance/overdraft?
Running finance/overdraft is the advance which is given by allowing the customer to withdraw more money from his current account than he has in it. Running finance is nothing but the finance offerings by financial institutions
against mortgages.It works under the working capital finance. Specifically, the running finance is a credit facility established for a specific time limit at variable interest rates. Housing Price Index (HPI) is a contributory agent for successful operation of the running finance scheme. The running finance is implemented by means of allowing the over draft facility and the corresponding amount is determined by the repaying capacity of the borrower. Overdraft is one sort of offering credit by the account providers, in that withdrawals are permitted exceeding available balance of the bank account. It is nothing but an over-drawing leading to a negative balance. The situation is more common with the credit card offerings by the banks. For enjoying overdraft facility, there should be some agreement or approval in advance with the account provider. Generally, the over-draft facility is offered by the banks for some maximum amount and the same is required to be returned to them (in the respective account) within some specified time limit. Non-compliance of these guidelines may impose heavy penalty on the account holders. In any case, drawing an overdraft necessitates paying interest. Fees charged for providing the overdraft facility and in case of going into unauthorized limits may vary from bank to bank, but the principle remains the same.
Markup is the difference between the cost of a good or service and its selling price.A markup is added on to the total cost incurred by the producer of a good or service in order to create a profit. The total cost reflects the total amount of both fixed and variable expenses to produce and distribute a product. Markup can be expressed as a fixed amount or as a percentage of the total cost or selling price. Retail markup is commonly calculated as the difference between wholesale price and retail price, as a percentage of wholesale. Other methods are also used.
Markup as a fixed amount
Assume: Sale price = $2500, Product cost is $2000 Markup = Sale price - Cost $500 = $2500 - $2000 Assume the actual sale price was $2200 Markdown = List price - Sale price $300 = $2500 - $2200 Initial Markup = List price - Cost $500 = $2500 - $2000 Maintained Markup = Sale price - Cost $200 = $2200 - $2000
Markup as a percentage
Cost x (Markup + 1) = Sale price or solved for Markup = (Sale price / Cost) - 1 Assume the sale price is $1.99 and the cost is $1.40
Markup = ($1.99 / 1.40) - 1 = 42% To convert from markup to profit margin: Sale price - Cost = Sale price x Profit margin Margin = 1 - (1 / (Markup + 1)) Margin = 1 - (1 / (1 + .42)) = 29.5%
Aggregate supply framework
P = (1+μ) W. Where μ is the markup over costs. This is the price setting equation W = F(u,z) Pe . This is the wage setting relation. u is unemployment which negatively affects wages and z the catch all variable positively affects wages. Sub the wage setting into the price setting to get the aggregate supply curve. P = Pe(1+μ) F(u,z). This is the aggregate supply curve. Where the price is determined by expected price, unemployment and z the catch all variable.
Long Term Debts/Borrowings:
What Does Long-Term Debt Mean? Loans and financial obligations lasting over one year. In the U.K., long-term debts are known as "long-term loans." Investopedia explains Long-Term Debt For example, debts obligations such as bonds and notes, which have maturities greater than one year, would be considered long-term debt. Other securities such as T-bills and commercial papers would not be long-term debt because their maturities are typically shorter than one year.
Deferred interest is any interest that is applied to the balance on a loan, when the terms of the loan agreement makes it possible for the next payment due to be less than the amount of interest that is due. This type of arrangement is sometimes found in what is known as an adjustable rate mortgage, or ARM. It is also possible for a fixed rate mortgage to be structured with provisions that allow for deferred interest. When the deferred interest causes the balance of the loan to increase, this creates a situation known as negative amortization, since the balance did not decrease as a result of the payment. One of the easiest ways to understand how deferred interest works is to consider an adjusted rate mortgage that includes this feature. If the interest payment option of the loan is $1000 US Dollars (USD) and the terms allow for a reduced payment of $800 USD, this creates a situation where making that reduced payment will result in adding $200 USD to the loan’s principal balance. There is usually no requirement that the debtor go with the lower payment and increase the balance as a result; he or she may choose to waive the offer of deferred interest and make the full payment. This is because exercising the deferred interest option on an ARM does increase the potential for the monthly payments to be increased at some future point in the life of the mortgage. Fixed rate mortgages that include a deferred interest feature are often referred to as graduated payment mortgages. As with the adjustable rate mortgage, the graduated payment mortgage does allow the ability to periodically make a reduced monthly payment. While this arrangement can be helpful if funds are tight, it also increases the chances that the regular monthly payments will increase later on. For this reason, it is important to make use of deferred interest only after considering the possible future impact the decision will have on the monthly budget.
The use of deferred interest in mortgage contracts is not unusual. This type of interest provision can be found in both residential and commercial mortgages that are issued in many nations around the world. When employed to best advantage, the arrangement can make it possible to arrange the payment of debt obligations so that the impact to the loan itself is minimal, while also allowing the debtor to avoid late fees or other penalties associated with obligations other than the mortgage.
A finance lease or capital lease is a type of lease. It is a commercial arrangement where: the lessee (customer or borrower) will select an asset (equipment, vehicle, software); the lessor (finance company) will purchase that asset; the lessee will have use of that asset during the lease; the lessee will pay a series of rentals or installments for the use of that asset; the lessor will recover a large part or all of the cost of the asset plus earn interest from the rentals paid by the lessee; the lessee has the option to acquire ownership of the asset (e.g. paying the last rental, or bargain option purchase price);
The finance company is the legal owner of the asset during duration of the lease. However the lessee has control over the asset providing them the benefits and risks of (economic) ownership [.
Treatment in the United States
Under US accounting standards, a finance (capital) lease is a lease which meets at least one of the following criteria: ownership of the asset is transferred to the lessee at the end of the lease term; the lease contains a bargain purchase option to buy the equipment at less than fair market value; the lease term equals or exceeds 75% of the asset's estimated useful life; the present value of the lease payments equals or exceeds 90% of the total original cost of the equipment. Following the GAAP accounting point of view, such a lease is classified as essentially equivalent to a purchase by the lessee and is capitalized on the lessee's balance sheet. See Statement of Financial Accounting Standards No. 13 (FAS 13) for more details of classification and accounting.
Special Case: Finance Leases under UCC Article 2A
The term sometimes means a special case of lease defined by Article 2A of the Uniform Commercial Code (specifically, Sec. 2A-103(1) (g)). Such a finance lease recognizes that some lessors are financial institutions or other business organizations that lease the goods in question purely as a financial accommodation and do not want to have the warranty and other entanglements that are usually associated with leases by companies that are manufacturers or merchants of such goods. Under a UCC 2A finance lease, the lessee pays the payments to the lessor (and indeed must do so, regardless of any defect in the leased goods – this obligation usually being contained in a "hell or high water" clause), but any claims related to defects in the leased goods may be brought only against the actual supplier of the goods. UCC 2A finance leases are usually easy to identify because they commonly contain a clause specifically declaring that the lease is to be considered a finance lease under UCC 2A.
International Financial Reporting Standards
In the over 100 countries that govern accounting using International Financial Reporting Standards, the controlling standard is IAS 17, "Leases". While similar in many respects to FAS 13, IAS 17 avoids the "bright line" tests (specifying an exact percentage as a limit) on the lease term and present value of the rents. Instead, IAS 17 has the following five tests. If any of these tests are met, the lease is considered a finance lease: ownership of the asset is transferred to the lessee at the end of the lease term; the lease contains a bargain purchase option to buy the equipment at less than fair market value; the lease term is for the major part of the economic life of the asset even if title is not transferred; at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset. the leased assets are of a specialised nature such that only the lessee can use them without major modifications being made.
Treatment in Australia
In Australia the accounting standard pertaining to lease is AASB 117 'Leases'. AASB 117 was released in July 2004. AASB 117 'Leases' applies to accounting for leases other than: (a) leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources; and (b) licensing agreements for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights. According to AASB 117, paragraph 4, a lease is: an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. A lease is classified as a finance lease if it "transfers substantially all the risks and rewards incidental to ownership of an asset." (AASB 117, p8) There are no strict guidelines as to what constitutes a finance lease, however guidelines are provided within the standard.
Impact on accounting
Since a finance lease is capitalized, both assets and liabilities (current and long-term ones) in the balance sheet increase. As a consequence, working capital decreases, but the debt/equity ratio increases, creating additional leverage. Finance lease expenses are allocated between interest expense and principal value much like a bond or loan; therefore, in a statement of cash flows, part of the lease payments are reported under operating cash flow but part under financing cash flow. Therefore, operating cash flow increases. Under operating lease conditions, lease obligations are not recognized; therefore, leverage ratios are understated and ratios of return (ROE and ROA) are overstated.
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