just the bottom line.
Social responsibility has become increasingly important
Q n02Different Types of Investments…Investments generally fall under two
broad umbrellas – growth-oriented investments and fixed-income
investments. A growth-oriented investment option aims at increasing
the value of the capital over time, whereas a fixed-income investment
option aims at providing a steady (and sometimes rising) stream of
income that can either be paid to the investors or re-invested while
seeking to maintain the original value of the investment
Stocks
Also known as shares or equities, stocks are among the most popular growth-
oriented investments. When you purchase a share, you become part-owner of
a publicly-traded company and stand to gain a part of the profits. The risk-
reward ratio with equity investments is often higher than most other forms of
invest
Current Investments • A current Investment is an investment that is by its nature
readily realizable and is intended to be held for not more than one year from the date
on which such investment is made. • The carrying amount for current investments is
the lower of cost and fair value. • Fair Value is the amount for which an asset could be
exchanged between a cknowledgeable, willing buyer and a knowledgeable, willing
seller in an arm’s length transaction. Under appropriate circumstances, market value
or net realizable value provides an evidence of fair value. • Market Value is the
amount obtainable from the sale of an investment in an open market, net of expenses
necessarily to be incurred on or before disposal. • Any reduction to fair value and any
reversals of such reductions are included in the profit and loss statement.
Long Term Investments • A long-term investment is an investment other than a
current investment. • Long term investments are usually carried at cost. • If there is a
permanent decline in the value of a long term investment; the carrying amount is
reduced to recognize the decline. • The reduction in carrying amount is charged to the
profit and loss statement. • The reduction in carrying amount is reversed when there is
a rise in the value of the investment, or if the reasons for the reduction no longer exist
. The cost of an investment includes acquisition charges such as brokerage, fees and
duties. 2. If an investment is acquired, or partly acquired, by the issue of shares or
other securities, the acquisition cost is the fair value of the securities or asset issued.
The fair value may not necessarily be equal to the nominal or par value of the
securities issued. If an investment is acquired in exchange, or part exchange, for
another asset, the acquisition cost of the investment is determined by reference to the
fair value of the asset given up. It may be appropriate to consider the fair value of the
investment acquired if it is more clearly evident. 3. A separate Investment Account
should be made for each scrip purchased. The scrips purchased may be broadly
divided into two categories i) Fixed income bearing scrips ii) Variable income bearing
scrips.
Fixed income Bearing Securities: The investment in Government securities or
debentures comes under this category. In this type of scrip, the interest accrued from
the date of last payment to the date of transaction can be easily calculated. In case the
transaction is on ‘Ex-interest’ basis i.e., the amount of interest accrued to the date of
transaction has to be paid in addition to the price of security. The following entries are
made in the books of Purchaser: Debit: the amount of price settled as on ex-interest
basis is entered in the Capital Column. Debit: the interest accrued to the date of
transaction in the Income Column. In case the transaction is on cum-interest basis, a
part of purchase price is related to the interest accrued from the date of the last interest
paid to the date of transaction. And hence in this case the cost of investment has to be
calculated by subtracting the amount of accrued interest from the Purchase Price. The
following entries are made in the books of Purchaser: Debit: the interest accruing
from the date of last payment to the date of purchase is entered in the Income Column.
Debit: balance i.e., Purchase Price - Interest Accrued, in the Capital Column. When
the interest amount is actually received, it is entered in the Income Column credit
NOTES ON INVESTMENT
Investments are assets held by an enterprise for earning income by way of dividends,
interest, and rentals, for capital appreciation, or for other benefits to the investing
enterprise. Assets held as stock-in-trade are not ‘investments’.
3.2 A current investment is an investment that is by its nature readily realisable and is
intended to be held for not more than one year from the date on which such
investment is made.
3.3 A long term investment is an investment other than a current investment. 3.4 An
investment property is an investment in land or buildings that are not intended to be
occupied substantially for use by, or in the operations of, the investing enterprise.
3.5 Fair value is the amount for which an asset could be exchanged between a
knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s length
transaction. Under appropriate circumstances, market value or net realisable value
provides an evidence of fair value.
3.6 Marketvalue istheamountobtainablefromthe saleofan investment in an open
market, net of expenses necessarily to be incurred on or before disposal
QNO4…Social Responsibility?
Social responsibility means that businesses, in addition to
maximizing shareholder value, must act in a manner benefiting society, not
to investors and consumers who seek investments that not only are
profitable but also contribute to the welfare of society and the environment.
While critics have traditionally argued that the basic nature of business does
not consider society as a stakeholder, younger generations are embracing
social responsibility and driving change.
scrips.
• Social responsibility means that besides maximizing
shareholder value, businesses should operate in a way that
benefits society.
•
Socially responsible companies should adopt policies that
promote the well-being of society and the environment while
lessening negative impacts on them.
•
Companies can act responsibly in many ways, such as by
promoting volunteering, making changes that benefit the
environment, engaging in ethical labor practices, and engaging
in charitable giving.
• Consumers are more actively looking to buy goods and
services from socially responsible companies, hence impacting
their profitability.
• Critics assert that practicing social responsibility is the opposite
of why businesses exist.
Understanding Social Responsibility
Social responsibility means that individuals and companies must act in the
best interests of their environment and society as a whole. As it applies to
business, social responsibility is known as corporate social responsibility
(CSR) and is becoming a more prominent area of focus within businesses
due to shifting social norms.The crux of this theory is to enact policies that
promote an ethical balance between the dual mandates of striving for
profitability and benefiting society as a whole. These policies can be either
commission (philanthropy: donations of money, time, or resources) or
omission (e.g., “go green” initiatives such as reducing greenhouse gases or
abiding by U.S. Environmental Protection Agency regulations to limit
pollutionMany companies, such as those with “green” policies, have made
social responsibility an integral part of their business models, and they have
done so without compromising profitability.Additionally, more investors and
consumers are factoring in a company’s commitment to socially responsible
practices before making an investment or purchase.3 As such, embracing
social responsibility can benefit the prime directive: maximization of
shareholder value.There is a moral imperative as well. Actions—or the lack
thereof—will affect future generations. Put simply, social responsibility is just
good business practice, and a failure to do so can have a deleterious effect
on the balance sheet.Social responsibility can also boost company morale,
especially when a company can engage employees with its social causes.
Social responsibility includes companies engaging in environmental
preservation efforts, ethical labor practices, philanthropy, and promoting
volunteering. For example, a company may change its manufacturing
process to reduce carbon emissions.
Benefiting society and lessening the negative impacts on the environment
are among the main benefits of social responsibility. Consumers are
increasingly looking to buy goods and services from socially responsible
companies, which can have a positive impact on their bottom line.
Q NO9 SOCIAL ACCOUNTING
Business is a socio-economic activity and it draws its inputs from the society,
hence its objective should be the welfare of the society. It should owe a
responsibility towards solving many of the social problems. In the present age
of growing technological, economic, cultural and social awareness, the
accounting has not only to fulfill its stewardship function for the owners of the
enterprise, but also accomplish its social function.Changing environments and
social parameters have compelled business enterprises to account and report
information with regard to discharge of their social responsibilities. The
boundaries of the principles, practices and skills of conventional accounting
have been extended to such areas for social disclosure and attestation with
regard to the measures of social programmes.
The concept of ‘Social Accounting’ has gained importance as a result of high
level industrialization which has brought prosperity as well as many problems
to the society. It has necessitated the corporate sector, with huge amounts of
funds at their disposal, to invest substantial amounts in social activities so as
to nullify the adverse effects of industrialization. “In modern times,
accounting efforts have been extended to the assessment of the state of society
and of the social programmes not for the satisfaction of any individual or
group but for the application of evaluative procedures in the allocation of
resources towards better social well being as a whole.”Social accounting is
concerned with the study and analysis of accounting practice of those activities
of an organisation. The concept of socialistic pattern of society, civil rights
movements, environmental protection and ecological conservation groups,
increasing awareness of society towards corporate social cont.
Features of Social Accounting:
(i) Social accounting is an expression of a company’s social responsibilities.
(ii) Social accounting is related to the use of social resources.
(iii) Social accounting emphasize on relationship between firm and society.
(iv) Social accounting determines desirability of the firm in society.
(v) Social accounting is application of accounting on social sciences.
1. Effective utilization of natural resources
Main objectives of making social accounting is to determine whether
company is properly utilize their natural resources or not
2. Help to employees
Company can help employees by providing the facility of education to children
of employees, providing transport free of cost and also providing good
working environment conditions
3. Help to society
Because companies' factories spread the pollution in natural society which is
very harmful for society . So , enterprise can help to society by planting the
trees , establishing new parks near factory area. and also opening new
hospitals
4. Help to customers
In social accounting this the part of benefits given by company to society , if
company provides goods to customers at lower rate and with high quality .
5. Help to investors
Company can help to investors by providing transparent accounting
information to investors .
Because of many objectives are related to safeguarding of natural resources
so this accounting is also known as Social and Environmental Accounting,
Corporate Social Reporting, Corporate Social Responsibility Reporting, Non-
Financial Reporting, Sustainability Accounting
The important benefits of social accounting are as follows:
(1) A firm fulfills its social obligations and informs its members, the
government and the general public to enables everybody to form correct
opinion.
(2) It counters the adverse publicity or criticism leveled by hostile media and
voluntary social organisations.
(3) It assists management in formulating appropriate policies and
programmes.
(4) Through social accounting the firm proves that it is not socially unethical
in view of moral cultures and environmental degradation.
5) It acts as an evidence of social commitment.
(6) It improves employee motivation.
(7) Social accounting is necessary from the view point of public interest
groups, social organisations investors and government.
(8) It improves the image of the firm.
(9) Through social accounting, the management gets feedback on its policies
aimed at the welfare of the society.
(10) It helps in marketing through greater customer support.
.CONCLUSION: The conclusion drawn is that social accounting is not a means of,
nor an alternative to, but rather a framework methodology into which impact
assessment can fit. Incorporate world social accounting has been one of the major
stepping stones in improvement in corporate social responsibility. The ultimate goal
of social accounting is measurement and reporting resources, costs and social benefits
in the corporate world, genuine social accounting has been one of the first major
stepping stones in improvements in corporate social responsibility. We may conclude
that the social responsibility of accounting is to fulfill the function attributed to it
within the total soc ial division of labor. The responsibility of accountants and
corporate managers tasked with preparing accounting
Q NO What Is Inflation Accounting?Inflation accounting is a special
technique used to factor in the impact that soaring or plummeting
costs of goods in some regions of the world have on the reported
figures of international companies. Financial statements are adjusted
according to price indexes, rather than relying solely on a cost
accounting basis, to paint a clearer picture of a firm’s financial position
in inflationary environments. This method is also sometimes referred to
as price level accounting.
• Inflation accounting is the practice of adjusting financial
statements according to price indexes.
• Numbers are restated to reflect current values in
hyperinflationary business environments.
• International Financial Reporting Standards (IFRS) defines
hyperinflation as prices, interest, and wages linked to a price
index rising 100% or more cumulatively over three years.
• IFRS and U.S. GAAP have different requirements for inflation
accounting.
How Inflation Accounting Works
When a company operates in a country where there is a significant amount
of price inflation or deflation, historical information on financial statements is
no longer relevant. To counter this issue, in certain cases, companies are
permitted to use inflation-adjusted figures, restating numbers to reflect
current economic values.International Accounting Standard (IAS) 29 adopted
by the International Financial Reporting Standards (IFRS) is the guide for
entities whose functional currency is the currency of
a hyperinflationary economy. IFRS defines hyperinflation as prices, interest,
and wages linked to a price index rising 100% or more cumulatively over
three years.1 Companies that fall under this category may be required to
update their statements periodically in order to make them relevant to
current economic and financial conditions, supplementing cost-
based financial statements with regular price-level adjusted statements.
Current Purchasing Power (CPP) method
Under this method, money and non-monetary elements are separated to only
record net profit or loss. In addition, non-monetary components are updated into
figures using a conversion factor equivalent to a specific price index. The
formulas under this method are:
Conversion Factor (under CPP Method) = Price at Current Period / Price at
Historical Period
CPP Value = Conversion Amount or Historical Value x Conversion Factor
2. Current Cost Accounting (CCA) method
This method evaluates assets at their Fair Value Market (FMV) rather than their
historical cost during the fixed asset purchase. However, this method restates
both monetary and non-monetary elements to their current values.
3. Current Value Method
This method measures and reinstates all assets and liabilities at their current
cost structure.
4. Replacement Cost Accounting Method
This method records the replacement cost, which is a parameter under all assets
and liabilities in a balance sheet.
The main advantages of inflation accounting are:
1. Inflation accounting reflects the current balance sheet of a
company and not the historical one
2. It is helpful during general inflation or hyperinflation, as during
such cases, it delivers a lot of benefits to its customers
3. It enables more realistic and comparable statistical analysis of the
financial statements of other companiesProfit and loss in inflation
accounting reflect the true condition of a companyIt provides
meaningful financial ratios with current value adjustments
The limiting disadvantages of inflation accounting are:
1. Inflation accounting is a complicated process, making it more
difficult to reinstate the figures of the company and present these
to the investors.
2. It creates moral hazard issues for businesses that deceive
customers with their finances.
3. It leads to many restatements and financial statements that are
continuously changing.
4. During deflation, the depreciation cost will be low, which does not
reflect the actual financial situation of an entity
4.
5.