Tag: Concept

  • Environmental Education: Aim, Principles, and Concept

    Environmental Education: Aim, Principles, and Concept

    Environmental education (EE) concerns with those aspects of human behavior which are more directly related to man’s interaction with the biophysical environment and his ability to understand this interaction. The article explaining Environmental Education – with their topic Aim, Principles, and Concept. EE is a methodology in which people pick up familiarity with their surroundings and secure learning, abilities, values, experiences, and passion, all of which will empower them to act – separately and aggregately – to take care of present and future environmental issues.

    Learn and understand the Environmental Education: Aim, Principles, and Concept, deeply explain.

    One of the most glaring problems which the world faces today is environmental pollution. The man has exploited nature excessively at the cost of the environment. There is an immediate need to make people aware of environmental degradation. What is Pollution and Types of Environmental Pollution? Education and public participation may change and improve the quality of the environment.

    Explain it each one of Environmental Education (EE): Definition, Objectives of Environmental Education, Aim of Environmental Education, Principles of Environmental Education, and Concept of Environmental Education! Environmental Education in India – Concept, and Role of Environmental Education.

    Definition of Environmental education (EE):

    According to UNESCO,

    “Environmental education is a way of implementing the goals of environmental protection. It is not a separate branch of science but the lifelong interdisciplinary field of study.”

    It means education towards the protection and enhancement of the environment and education as an instrument of development for improving the quality of life of human communities.

    Objectives of Environmental Education (EE):

    The following are the objectives of environmental education:

    1] Awareness:

    To help social groups and individuals to acquire knowledge of pollution and environmental degradation.

    2] Knowledge:

    To help social groups and individuals to acquire knowledge of the environment beyond the immediate environment including the distant environment.

    3] Attitudes:

    To help social groups and individuals to acquire a set of values for environmental protection.

    4] Skills and Capacity Building:

    To help social groups and individuals to develop the skills required for making discriminations in form, shape, sound, touch, habits, and habitats. Further, to develop the ability to draw unbiased inferences and conclusions.

    5] Participation:

    To provide social groups and individuals with an opportunity to actively involve at all levels in environmental decision making.

    There are four areas of decision making:

    • Types of environmental issues on which decisions might make.
    • The physical setting of the prospective environmental decision, including its spatial scale.
    • Types of social groups and individuals who might interact in a process leading up to an environmental decision, and.
    • The time frame within which the decision must make.

    The aim of Environmental Education (EE):

    UNESCO has highlighted the following aims of environmental education:

    The aim of environmental education is clearly to show the economic, social, political and ecological interdependence of the modern world, in which decisions and actions by different countries can have international repercussions. They should, in this regard, help to develop a sense of responsibility and solidarity among countries and regions as the foundation for a new international order which will guarantee the conservation and improvement of the environment.

    The main aim of environmental education at the grass-root level is to succeed in making individuals and communities understand the complex nature of the natural and the built environments. Further, to acquire the knowledge, values, attitudes, and practical skills to participate responsibly and effectively in anticipating and solving social problems, and in the management of the quality of the environment.

    Therefore, necessary steps for environmental education are:

    • Awareness.
    • Knowledge.
    • Attitude building for motivating to protect the environment.
    • Evaluation of environmental measures, and.
    • Skill and capacity building.

    According to D.H. Meadows’, environmental educators on every continent develop materials and methods as varied as the different cultures and ecosystems on earth. He lists some key concepts which underlie all environmental education. These are food for thought, levels of being, complex systems, population growth and carrying capacity, ecologically sustainable development, socially sustainable development, knowledge, uncertainty, and sacredness.

    Guiding Principles of Environmental Education (EE):

    The Principles of Environmental Education is deeply explaining – These are as follows:

    1] Resource Principles:
    • Resource use demands long-term planning if we are to achieve truly sustainable development.
    • Rationale utilization of a renewable source is a sensible way of preserving the resources while obtaining maximum benefits from it.
    • A mode of life heavily dependent upon rapidly diminishing non­-renewable energy sources (i.e. fossil fuel) is unstable.
    2] Soil Principles:
    • The protection of soils and the maintenance of sustainable agriculture are essential factors in the survival of civilizations and settlements.
    • Soil erosion is the irreversible loss of essential resources and must prevent.
    • A vegetation cover (grass, forest) is important for the balance of nature and the conservation of soil, besides being exploitable natural resources.
    3] Wildlife Protection Principles:
    • Wildlife population is important aesthetically, biologically and economically.
    • Nature reserves and other protected wilderness areas are of value in protecting endangered species because they preserve their habitats.
    • The survival of humanity is closely linked to the survival of wildlife both being dependent on the same life-supporting systems.
    4] Environmental Management Principles:
    • Sound environmental management is beneficial to both man and the environment.
    • Management of natural resources should do rationally.
    • Elimination of wastes through recycling and the development of clean.
    • Technologies are important to modern societies to help reduce the consumption of resources.
    • Human activities and technologies influence considerably the natural environment and may affect its capacity to sustain life, including human life.
    5] Other Principles:
    • The relations between humans and their environment are mediated by their culture i.e.
    • Cultural, historical and architectural heritage are much in need of protection.
    Environmental Education Aim Principles and Concept
    Environmental Education: Aim, Principles, and Concept #Pixabay

    The Concept of Environmental Education (EE):

    Any curriculum should base on well-thought-out and clearly define concepts that one wishes the learner to acquire. Some important concepts of environmental education have interdisciplinary significance such as environmental pollution, carrying capacity, ecosystems, ecology, and conservation, etc.

    Environmental Education (EE) in India:

    The prosperity and well-being of a nation depend on the effective utilization of human and physical resources through industrialization based on science and technology. But there is a perennial controversy between development and the environment. Also, the question is whether we shall go for industrial or modernization or we shall protect the environment.

    On one hand, we know that the development of a nation depends on industrialization, and on the other hand, rapid industrial and agricultural development entails many adverse effects on the environment of the countries concerned. So we have to apply our wisdom in striking a balance between these two contradictory factors. Also, Development and the environment are concerned with global ecology. We should, therefore; clearly, know the basic concepts of environment or ecology and its relation to our developmental activities at the macro as well as micro-level.

    Basic Concept of Environmental Education:

    Everything that surrounds us and on which our life depends is our environment. Our room, our home, our village or town, our family and friends, the air we breathe, the water we drink, the sunshine and the rain – all are part of our environment. Even the environment of two individuals is different. But these environments are interrelated so closely that in a sense we all belong to the same environment.

    This interrelatedness is a matter of ecology. The term “ecology” has been deriving from the Greek word “Oikos” which means home. So, ecology is literally, the science that deals with the home conditions of all living beings. Also, Ecology deals with the interrelationships between living beings and their environment.

    Previously, in the old days, a natural balance was maintained between all living beings including men and plants. Also, They were living together in harmony and the natural setting. Human beings live in harmony with Nature including the Forest which was providing most of the necessities for living. But over recent years, due to rapid industrialization, urbanization, nature has been adversely affecting.

    Extra explain:

    The environment seriously degrades and there are imbalance and disharmony. Also, the water and air have been polluted to a great extent because of the destruction of the vast forest on the earth. Because, the forest plays an important role in the conservation of water, purification of air and supplying many useful things to human beings.

    Another disaster that is posed before us is that due to the rapid growth of urbanization. Also, the living conditions of the people in the cities and towns have been deteriorating. There is the pollution of water, air, and noise, etc. due to the rapid expansion of industries, power stations, and motor vehicles, etc. Everywhere, there is pollution. It has been proving harmful to the physical and mental health of the people.

    All the Influences on the growth of the individual constitute the environment. As well as, the environment includes several situations or experiences that influence the development of the individual. So the environment of an individual comprises all the physical and social factors around him which directly affect his living including the working conditions.

    The various environmental factors are interrelated. Also, the physical environment includes living and non-living, the geographical landmarks, topography, and climatic conditions, man-made features like buildings, roads, transport and other facilities like health, sanitation, nutrition aspects. As well as, the social environment consists of the family and community life, fairs and festivals, modes of production and supply of essential commodities.

    The various environmental factors are inter-related. We know the environment of an individual comprises all the physical and social factors. Then only the individual can survive on his earth. For this reason, our environment is to protect.

    Role of Environmental Education (EE):

    Education regards as an important instrument and means for generating proper awareness and adequate knowledge and skills regarding environmental protection. It is, therefore, felt essential to develop education about the environment, education for the environment and education through the environment.

    So as a whole, it will be environmental education.

    • They should integrate into the whole system of formal education at all levels.
    • It adopts a holistic perspective that will examine the ecological, social, cultural and other aspects of particular problems.
    • They should center on practical problems related to real life.
    • They should aim at building up a sense of values.

    However, it universally agrees that environmental education should be interdisciplinary, drawing from biological, sociological, anthropological, economic, and political and human resources. It is also agreed that a conceptual approach in teaching environmental education is the best.

    It also involves decision-making and development strategies for promoting environmental protection. As well as, it treats as a discipline in which various subjects like Zoology, Botany, Chemistry, Mathematics, and Physics are including. This makes it imperative to train specialists in environmental education for planning,’ management, development, and taking remedial measures for solving the problems.

    The NCERT developed the guidelines for the school curriculum based on the Education Commission, 1964-66. It has also prepared a resource material on the use of the environment as a basis for meaningful learning in Primary Education.

    The National Policy on Education 1986 has also given a special place of significance to education and the environment. So a great need is being felt to create awareness for the protection of the environment by redesigning the objectives, methods, and curriculum in the field of education.

  • EVA (Economic Value Added): Definition, Calculation, and Implementation!

    EVA (Economic Value Added): Definition, Calculation, and Implementation!

    Economic Value Added (EVA) is a value-based financial performance measure, an investment decision tool and it is also a performance measure reflecting the absolute amount of shareholder value created. The Concept of EVA (Economic Value Added): Definition of Economic Value Added, Calculation of Economic Value Added, Measurement of Economic Value Added, formula, and Implementation Economic Value Added!

    Learn, Explain EVA (Economic Value Added) Meaning, Definition, Calculation, and Implementation!

    It computes as the product of the “excess return” made on investment or investments and the capital invested in that investment or investments. Also learned, EVA (Economic Value Added) Meaning, Definition, Calculation, formula, and Implementation!

    “Economic Value Added (EVA) is the net operating profit minus an appropriate charge for the opportunity cost of all capital invested in an enterprise or project. It is an estimate of true economic profit or the amount by which earnings exceed or fall short of the required minimum rate of return investors could get by investing in other securities of comparable risk.”

    Economic Value Added (EVA) Meaning and definition is a variation of residual income with adjustments to how one calculates income and capital. Stern Stewart & Co., a consulting firm based in New York, introduced the concept of EVA as a measurement tool in 1989 and trademarked it. The EVA concept often calls Economic Profit (EP) to avoid problems caused by trademarking.

    What is the Economic Value Added (EVA)?

    Economic Value Added is the financial performance measure that comes closer than any other to capture the true economic profit of an enterprise; Economic Profit = Total revenues from the capital – Cost of capital. Also, The basic idea of this criterion is to find, in microeconomics; where it says that the main goal of a company is the maximization of profit. However, it does not mean book profit (the difference between revenues and costs) but economical profit. The difference between economic and book profit is economic profit. It is the difference between revenues and economic costs, which includes book costs and opportunity costs.

    Opportunity costs present by the amount of money lost by not investing sources (like capital, labor, and so on) to the best alternative use. Opportunity costs, in reality, represent mainly by interests from equity capital including risk-reward and sometimes lost wages too. In short; Book profit = Revenues – Costs. This leads to the conclusion that economic profit appears when its amount is higher than “normal” profit derived from the average cost of capital invested both by creditors (cost interests) and owners– shareholders (opportunity costs). Also, This is the basic idea of the new measure, EVA.

    Calculation of EVA (Economic Value Added):

    Economic Value Added (EVA) calculator is an operational measure that differs from conventional earnings measures in two ways. First, it explicitly charges for the use of capital (residual income measure). Secondly, it adjusts reported earnings to minimize accounting distortions and to better match the timing of revenue and expense recognition. As such, wealth maximization correlates with EVA maximization. Also, A positive EVA indicates that a company is generating economic profits; a negative EVA indicates that it is not; A measure of a company’s financial performance based on the residual wealth calculated by deducting the cost of capital from its operating profit after taxes. It also knows as economic profit.

    Defines:

    Economic Value Added (EVA) is defined as the estimate of true economic profit, the amount by which earnings exceed or fall short of the required minimum rate of return investors could get by investing in other securities of comparable risk. It is the net operating profit minus the appropriate charge for the opportunity cost of capital investment in an enterprise (both debt and equity). Also, The capital charge is the most distinctive and important aspect of EVA. Under conventional accounting, most of the companies appear profitable.

    However, many are actually destroying shareholder value because the profits they earn are less than their cost of capital. Also, EVA corrects this error by explicitly recognizing that when managers employ capital, they must pay for it. By considering all capital costs, including the cost of equity, EVA shows the amount of wealth a business has created or destroyed in each reporting period.

    Formula:

    Expressed as a formula, Economic Value Added (EVA) for a given period can write as:

    Economic Value Added (EVA) = NOPAT – Cost of Capital Employed = NOPAT – WACC x CE

    Where 01;
    • NOPAT: Refers to the amount of profit remaining of the business after tax and adding back interest payments. Also, It can calculate as per accounting concept after making necessary adjustments for certain non-operating incomes and expenses.
    • WACC: Weighted Average Cost of Capital. It defines as the weighted average cost of both equity capital and debt. Also, It is the weighted average of both the specified costs with weights equal to the proportion of each in total capital. The tax shield of the debt adjusts with the cost of the debt.
    • CE: Capital employed or Invested capital refers to total assets (net of revaluation) net of non-interest-bearing liabilities. From an operating perspective, invested capital can define as Net Fixed Assets, plus investments plus Net Current Assets. Net Current Assets denote current assets net of Non-Interest Bearing Current Liabilities (NIBCLS). From a financing perspective, the same can define as Net Worth plus total borrowings. Total borrowings denote all interest-bearing debts.

    OR equivalently, if the rate of return defines as NOPAT /Capital Employed; then, it tums into a more revealing formula.

    EVA (Economic Value Added) = (Rate of Return – Cost of Capital) x Capital Employed

    Where 02;
    • Rate of Return: NOPAT /Capital Employed
    • Capital Employed: Total of the balance sheet – Non Interest Bearing Current Liabilities (NIBCL) in the beginning of the year
    • Cost of Capital: (Cost of equity x Proportion of equity in Capital) + (Cost of debt x Proportion of debt in Capital)(1- Tax)

    If Return on Investment defines as above after taxes; EVA can present with the following familiar terms:

    EVA (Economic Value Added) = (ROI – WACC) x Capital Employed

    Where 03;
    • Capital Employed: Net fixed assets – Revenue reserve – Capital Work in progress + Current assets – Funds Deployed outside the business – NIBCL
    Measure:

    EVA (Economic Value Added) measures by comparing Return on Capital Employed with Cost of Capita; also called Return Spread. A positive Return Spread indicates that earning is more than the cost of capital; thereby creating wealth for owners or stockholders. A negative Return Spread means earning is less than cost-of-capital; thus reducing the wealth of owners and stockholders. Economic Value Added (EVA) is an indicator of the market value of the service center’s owner’s equity, a measure especially important to closely-held companies; which do not have the benefit of a published stock price. For publicly traded companies, EVA correlates very closely with the stock price.

    Economic Value Added (EVA) is an estimate of true economic profit and a tool that focuses on maximizing shareholders’ wealth. Also, Companies best utilize EVA as a comprehensive management tool. EVA has the strategic importance of focusing management and employees on the company’s primary goal of maximizing shareholder value. With this goal in mind, EVA can use tactically in several ways including shareholder reporting, financial benchmarking, management decision-making tools, and a foundation for incentive compensation plans.

    Measurement of EVA (Economic Value Added):

    It must note that the measurement of Economic Value Added (EVA) can make by using either an operating or financing approach. Under the operating approach, deducting cash operating expenses and depreciation from sales derives NOPAT. Interest expense excludes because it considers as a financing charge. Also, Adjustments, which refer to as equity equivalent adjustments, design; to reflect economic reality and move income and capital to a more economically based value. These adjustments consider with cash taxes deducted to arrive at NOPAT. EVA then measure by deducting the company’s cost of capital from the NOPAT value. The amount of capital to use in the EVA calculations is the same under either the operating or financing approach but calculate differently.

    The operating approach starts with assets and builds up to invested capital, including adjustments for economically derived equity equivalent values. The financing approach, on the other hand, starts with debt and adds all equity and equity equivalents to arrive at the invested capital. Finally, the weighted average cost of capital; based on the relative values of debt and equity and their respective cost rates; use to arrive at the cost of capital multiplied by the capital employed and deducted from the NOPAT value. The resulting amount is the current period’s EVA.

    Implementing EVA (Economic Value Added):

    When a company decides to adopt EVA as a corporate performance measure; here is what it must do:

    • Step 1: Run an EVA analysis of the company; its publicly traded peers and business units.
    • Step 2: Draw up a definition of EVA that is simple and meets the company’s information needs, existing accounting data, organization, and management.
    • Step 3: Work out a compensation scheme that fits into the company’s business and culture. The incentive plan has to marry the EVA design with traditional concerns of shareholders and directors.
    • Step 4: Train all employees on the basics of EVA and how it affects shareholder value.
    • Step 5: Demonstrate the difference between EVA-led decisions vis-à-vis conventional methods through computer simulation exercises.
    Positives of EVA:
    • No ceiling on the amount managers can take home as incentive pay.
    • Managers think like, act like, and are paid like owners.
    • Targets are set over a time horizon that is more than one year – usually three to five years – forcing a long-term view into managerial decision-making.
    • Cuts capital cost and inculcates financial discipline among employees.
    • Increasing EVA directly benefits the shareholder and has been found to have a positive influence on a company’s stock price.
    Negatives of EVA:
    • Involves lots of complexity. Globally, Stern Stewart is said, in some cases, to make as many as 165 adjustments to work out the weighted average capital cost of companies.
    • Works better at the individual level than team level, unless goals are appropriately structured.
    • May make companies risk-averse. Also, New investments that look risky or difficult to quantify in terms of expected payback may never be made using EVA.
    EVA (Economic Value Added) Meaning Definition Calculation and Implementation Image
    EVA (Economic Value Added): Meaning, Definition, Calculation, and Implementation; Image from Pixabay.
  • Value Added: Definition, Beneficiaries, and Uses!

    Value Added: Definition, Beneficiaries, and Uses!

    Learn, Explain Value Added: Definition, Beneficiaries, and Uses! 

    The traditional basic financial statements are balance sheet and Profit & Loss account. These statements generate and provide data related to financial performance only. The Concept of Value Added: Meaning of Value Added, Definition of Value Added, Beneficiaries of Value Added, and Uses of Value Added! They do not provide any information which shows the extent of the value or the wealth created by the company for a particular period. Hence, there arose a need to modify the existing accounting and financial reporting system so that the business unit is able to give importance to judge its performance by indicating the value or wealth created by it. Also learned, Value Added: Definition, Beneficiaries, and Uses!

    Meaning of Value Added: Value-added describes the enhancement a company gives its product or service before offering the product to customers. Value-added applies to instances where a firm takes a product that may be considered a homogeneous product, with few differences (if any) from that of a competitor, and provides potential customers with a feature or add-on that gives it a greater perception of value.

    To this direction inclusion of Value Added statement in financial reporting system is used. The Value Added concept is now a recognized part of the accountant’s repertoire. However, the concept of Value Added (VA) is not new. Value Added is a basic and broad measure of performance of an enterprise. It is a basic measure because it indicates the net output produced or wealth created by an enterprise. The Value Added of an enterprise may be described as the difference between the revenues received from the sale of its output, and the costs which are incurred in producing the output after making necessary stock adjustments.

    Definition of Value Added:

    Some definitions of Value Added are following:

    • E.S.Hendriksen has defined Value-added as: “The market price of the output of an enterprise less the price of the goods and services acquired by transfer from other firms.”
    • Morely has defined Value-added as:”The value, which the entity has added in a period that equals its sales fewer bought-in-goods and services.” i.e. This definition can be expressed in terms of the equation as follows: Value-added = (Sales) – (bought-in-goods &services)
    • The annual service of industries (ASI,1964) defines Value Added as: “Value Added (VA) = (gross ex-factory value of output)-(gross value of input) “. The term Value Added may simply be defined in economics as the difference between the value of output produced by a firm in a period, and the value of the inputs purchased from other firms.
    • According to John Sizer, “Value Added is the wealth the company has been able to create by its own and its employee’s efforts during a period. “
    • According to E.F.L Berch, “The added value of a firm or for any other organization is the Value Added to materials by the process of production. It also includes the gross margin on any merchanted or factored goods sold. “
    • According to Kohler, Value Added has been defined as: “That part of the costs of a manufactured or semi-manufactured product attributable to work performed on the constituent raw material. The value is arrived by deducting from the total value of the output of a firm and other incomes, the cost of raw materials, power, and fuel, water, etc, which are bought from other firms.” i.e, Value Added = (value of output + income from other sources) – (cost of material and services purchased from outside)
    • According to Evraert and Riahi Belkaoui, “Value Added is said to represent the total wealth of the firm that could be distributed to all capital providers, employees, and the government.”
    • According to Central Statistical Organization (CSO), India “Value Added represents the part of the value of the products which are created in the factory and is computed by deducting from the gross ex-factory value of output, the gross value of input”

    The concept of Value Added:

    The concept of value addition has been derived out from the very manufacturing process in which the firm’s raw materials are converted into finished goods. A company can add value to the efficient use of the resources available to it. These resources can be in the form of manual skills, technical skills, know-how, special purpose machines, factory layout, etc. The process of manufacturing begins with a certain quantum of raw material and goes through a conversion process to yield an output. This output is a product with new utility and market value which is different from the original cost of materials. The excess of such market value over the cost of materials is defined as Value Added.

    The concept of Value Added is considerably old. It originated in the US treasury in the 18th century and periodically accountants have deliberated upon whether the concept should be incorporated in financial accounting practices. The preparation, presentation, and disclosure of Value Added statements (VAS) have come to be seen with greater frequency in most countries of Europe more particularly in Britain.

    Value Added is the wealth created by the business during a particular period of time and the wealth or the value so created or added is distributed amongst different stakeholders who created it. The discussion paper `corporate report’ published in 1975 by the then Accounting Standards Steering Committee (now known as Accounting Standards Board) of UK advocated the publication of Value Added statement along with the conventional annual corporate report.

    Value Added indicates the `new value’ or `wealth’ created by the enterprise during a specified period. No enterprise can grow if it fails to generate wealth. Thus, Value Added is a form of wealth. However, things like land, minerals, metals, coal, oil, timber, water and similar sort of things are wealth but they are provided by nature. Value Added is the kind of wealth that is generated by the efforts and ingenuity of mankind.

    This can be understood from following examples:

    • At the primitive level, a man goes into the forest and cuts down a tree. He converts it into a house, furniture and other articles for his own use. In doing so he `adds value’ to the raw material provided by nature.
    • In the complex industrial society, a manufacturing business buys raw materials, components, fuel and other services. It converts these into products which can be sold for more than the cost of the raw materials and other purchases. In doing so, the business `adds value’ to the materials by the process of production.
    • A farmer-generated wealth by growing crops and breeding animals, then selling them for more than the cost of seeds, fertilizers, foodstuffs and other materials used.

    Value Added may be generated even when little or no material is involved. The gap between what the consumer pays and what the manufacturer or supplier has to pay for the raw material, and other brought in items, is the Value Added that has been generated.

    Value Added = Gross value of output – gross value of the input

    Where,

    • Output = Aggregate value of product*+ work done for customers + sale value of goods sold in the same condition as bought + stock of semi-finished goods (i.e. closing and opening).
    • *Value of Products= value of product manufactured for sale during a year where the value is ex-factory, exclusive of any incidental expenses on sale.
    • Input= Gross value of materials, fuels, etc + work done by other concerns for the firms+ non-industrial services done + depreciation + purchase value of goods sold in the same condition as bought.

    Thus,

    Value Added = value of production – the cost of materials, power, etc

    Where the value of production = sales value + value of increase or decrease in finished and semi-finished goods.

    Beneficiaries of Value Added:

    There are four main beneficiaries of the net value added created by an enterprise. These beneficiaries are workers, providers of capital, government, and the owners. As a matter of principle, the beneficiaries are the persons contributing or providing their efforts or facilities directly or indirectly.

    1. Workers: Labour is one of the major claimants of value added. The value-added statement shows the amount of value added that goes to the human resources. The payments to the workers can be in the form of :
      • Salaries and wages
      • Payment of bonus
      • Contribution to provident fund, ESU, etc.
      • Welfare expenses
      • Payment of gratuity
      • Directors’ remuneration, etc.
    2. Providers of capital: Banks, Financing institutions, public and the owners provide capital to the enterprise, but under this caption, providers of only interest-bearing funds are taken into consideration.
    3. Government: The government which provides not only infrastructural facilities but also conditions conducive for carrying out operational activities has also its claim in the value added. The payment to the government goes in the form of :
      • Excise duty
      • Octroi duty
      • Rates and taxes
      • Sales tax
      • Direct taxes
    4. Owners: Last but not the least owners or shareholders are the ultimate claimants of the value added. The transfer to owners may be in the form of the transfer to various non-statutory reserves or profits distributed.

    Uses of Value Added:

    Till recently, the yardstick to judge the efficiency and profitability was Return on Investment (ROI) but, nowadays too much interest has been shown on `value added’ and it is considered as another approach to measuring operational efficiency and profitability of a business enterprise. The reason behind this is that the performance of an enterprise is now judged by the `social obligation point of view’. The profit is a test for shareholders to measure the performance of an enterprise while `value added’ is a measure useful to all those of the society who have contributed in the process of generating value such as employees, investors of capital, government, etc. No enterprise can survive and grow if it fails to generate sufficient value.

    Value-added reflects the performance of a team, which is, employees, managers, shareholders, creditors. Value-added statement helps the employees to perceive them as responsible participators in a team effort with management and thus may motivate them to work harder. The value-added statement provides a better measure of the size and importance of a company. VA based ratios are interpreted as merely indicative of and predictive of the strength of the company than conventional ratios.

    • VA can be used as a basis for wage and salary policies. The index for value added per employee is a vital figure because it sets a limit to the average wage per employee. No company pays out more in wages per employee than it is generating in value added per employee. The higher the value added per employee, the higher can be the average wage per employee. The creation of value added depends not on the level of capital expenditure but on good marketing strategy, sound investment policy, effective management and employee co-operation to maximize the value added per employee.
    • VA can be used as a basis for bonus schemes. The conventional bonus incentive schemes which are either based on time or on piece work system have a limitation that they apply only to production workers or individuals or small group of employees. Since a better measure of output is value added, a bonus scheme can link the payroll to value added. This is known as value added based bonus scheme. The technical design of value-added based bonus scheme can vary quite circumstances. The traditional measure of business performance is profitability i.e. a ratio of profit to capital employed. The concept of profitability has some merits but it also has some serious defects. First, as a measure of performance, it can be very misleading. Second, in the modem climate of public opinion, it takes the somewhat narrow view. Third, it cannot be applied to non-profit organizations. Value added is more useful than the profitability ratio.
    • VA can be used as a measure of business performance.
    • VA can be used in the formulation of business policies. Value added is used in the formulation of various business policies. It includes (1) product analysis (2) pricing policies (3) capital investment decision, (4) marketing strategy, etc.
    • Another use of VA is that it links the company’s financial accounts to national income. The sum of the value added by each company will equal national income.
    • VAS is said to improve the attitude of employees towards their employing company because the value added statements reflect a broader view of the company’s objectives and responsibilities. When fully informed about value-added they should be better motivated to work, be more co-operative and more identified with their company.
    • Acts as an excellent measure of the size and importance of the company. VAS is used to construct VA based ratios that are considered as important diagnostic and predictive tools for making the comparison of company’s performance with other national and multi-national companies.
    • At present, both central and state governments use VAS to determine and collect tax on value added by an enterprise in its process of production.
    • VAS also provides important accounting and other information that facilitates better communication from concerned to a variety of users who are related or unrelated. Thus, it is more transparent in nature.

    From the above-mentioned uses of VAS, it is worthwhile to note that an organization may survive without earning profit but cannot survive without adding value. An organization, even if it is sick, especially non-profit making in nature, would remain useful so long as it generates value.

    Value Added Definition Beneficiaries and Uses - ilearnlot

  • Value Added Statements: Definition, Advantages, and Disadvantages!

    Value Added Statements: Definition, Advantages, and Disadvantages!

    Learn, Explain Value Added Statements: Definition, Advantages, and Disadvantages! 

    The main thrust of financial accounting development in the recent decades has been in the area of `how’ we measure income rather than `whose’ income we measure. The Concept of Value Added Statements: Meaning of Value Added Statements, Definition of Value Added Statements, Advantages of Value Added Statements, and Limitations or Disadvantages of Value Added Statements! The common belief of the traditional accountants that profit is a reward of the proprietors has been considered as a very narrow definition of income. This was so because previously the assets were assumed to be owned by the proprietor and liabilities were thought as proprietor’s obligations. Also learned, Guide to Theories in Human Resource Management! Value Added Statements: Definition, Advantages, and Disadvantages!

    This notion of proprietorship was accepted and practiced so as long as the nature of business did not experience revolutionary changes. However, with the emergence of corporate entities and the legal recognition of the existence of business entities separate from the personal affairs and interest of the owners led to the rejection of the proprietary theory.

    Definition: The financial statement which shows how much value (wealth) has been created by an enterprise through utilization of its capacity, capital, manpower, and other resources, and how it is allocated among different stakeholders (employees, lenders, shareholders, government, etc.) in an accounting period.

    Value added is now reported in the financial statements of companies in the form of a statement. Value Added Statement (VAS) is aimed at supplementing a new dimension to the existing system of corporate financial accounting and reporting. This is called value-added statement. This statement shows the value created; value added (value generated) and the distribution of it to interest groups viz. Employees, shareholders, promoters of capital and government. 

    Since VAS represents how the value or wealth created or generated by an entity is shared among different stakeholders, it is significant from the national point of view. ICAI, 1985 has defined Value Added Statement as a statement that reveals the value added by an enterprise which it has been able to generate, and its distribution among those contributing to its generation known as stakeholders.

    For the purpose of calculating the amount of value added and its distribution, the value added statement is prepared. The main concern of this statement lies in deriving a measure of wealth (i.e. value), the entity has contributed to the society through the collective efforts of the various stakeholders. This statement is prepared and published voluntarily with the annual financial reports. Thus the presentation of a statement of value-added aids in the disclosure of VA by an enterprise.

    The value-added statement may be defined as a statement, which shows the income of the company as an entity and how that is divided between the people who have contributed to its creation.

    Assumptions in Value Added Statements:

    Following are the basic assumptions which are used for computation of value-added income through the preparation of value-added statements.

    • VAS is a supplement, not a substitute to P&L account.
    • The same data which is recorded and processed by the conventional accounting system is used in the preparation of VAS.
    • The basic accounting concepts and principals of accounting remain the same in preparation of VAS.

    It is convenient to prepare Value Added statements from conventional Profit & Loss account. However, there is a lot of difference between these two statements since the income statements contain certain nonvalue-added items e.g. provisions, interests, non-trading profit, and losses, etc.

    Objectives of Value Added Statements:

    The main objectives of preparing Value Added Statements are:

    • To indicate the value or wealth created by an enterprise. In a way, it shows the wealth-creating ability of the organization.
    • To show the manner in which the wealth created is distributed amongst the employees, shareholders and the government. The pattern of distribution of value added can be clearly understood.
    • To indicate the organization’s contribution to national income.
    • To use it as a basis for making inter-firm and intra-firm analysis, for preparation of financial plans and targets, for developing productivity linked incentive schemes.

    Value Added Statements v/s Profit & Loss Account:

    The traditional Profit & Loss Account is prepared on the theory that the company was created by its shareholders and exists for their benefit. However, the traditional accounting system shows only the profits or losses made by a business enterprise and do not provide any information showing the extent to which the wealth is created by a business unit in a given period. 

    The newly developed accounting method of value added is aiming to add a new dimension to the existing system of corporate financial accounting and reporting through the disclosure of additional information regarding the amount of wealth an entity has created in an accounting period and how it has been divided up by the entity amongst those who have contributed to its creation.

    The statement of value-added conceives the company as the corporate entity in which those who provide capital and those who provide labor cooperate to create wealth which they share amongst themselves and with the government. When the value added statement is prepared, then the company is viewed as a `wealth’ producing entity of a number of groups which are known as stockholders. 

    The value-added statement shows the wealth obtained by its employees, government, providers of capital or business itself during a period of time and the manner in which the generated value is distributed among the employees, government and the providers of capital. It shows the companies contributing to the national income.

    The value-added statement is not a substitute, but a supplement to the Profit & Loss Account although it is based on the figures from the latter. The value-added statement is essentially a much simpler statement than the profit statement. The Profit & Loss Account is prepared on the basis of double entry system and its preparation is statutorily compulsory, but the value added statement is not prepared in the statutory account.

    Advantages of Value Added Statements:

    The following are some of the advantages of Value Added Statements:

    • Reporting on VA improves the attitude of employees towards their employing companies. This is because the VA statement reflects a broader view of the companies objectives and responsibilities
    • VA statement makes it easier for the company to introduce a productivity linked bonus scheme for employees based in VA. The employees may be given productivity bonus on the basis of VA/payroll ratio
    • VA based (e.g. VA/Payroll, taxation/VA, VA/sales, etc.) are useful diagnostic and predictive tools. Trends in VA ratios comparisons with other companies and international comparisons may be useful.
    • VA provides a very good measure of the size and importance of a company. To use sales figures or capital employed figures as a basis for company ranking can cause distortion. This is because sales may be inflated by large bought-in expenses or a capital-intensive company with a few employees may appear to be more important than a highly skilled labor intensive company
    • VA statement links a company’s financial accounts to national income. A company’s VA indicates the company’s contribution to national income.
    • Finally, VA statement is built on the basic conceptual foundation which is currently accepted on the balance sheet and income statements. Concepts such as going concern, matching, consistency, and substance over form are equally applicable to the VA statement.

    Criticisms and Limitations or disadvantages of Value Added Statements:

    It is argued that although the Value Added statements shows the application of VA to several interest groups (like employees, government, shareholders, etc.), the risk associated with the company is only borne by the shareholders. In other words, employees, government, and outside financers are only interested in getting their share in VA, but, when the company is in trouble the entire risk associated therein is borne only by shareholders. Therefore, the concept of showing value added as applied to several interested groups is being questioned by many academics. 

    They advocated that since the shareholders are ultimate risk-takers, the residual profit remaining after meeting the obligation of outside interest group should only be shown as value added accruing to the shareholders. However, academics have also admitted that from the overall point of view value-added statement may be shown as the supplementary statement of financial information. But in no case can the VA statement substitute the traditional income statement (i.e. Profit and loss account).

    Another contemporary criticism of VA statement is that such statements are non-standardized. However, this practice of non-standardization can be effectively eliminated by bringing out an accounting standard on value added. Therefore, this criticism is a temporary phenomenon.

    Thus, along with the advantages, the value added statements embody certain limitations also. These limitations are as follows:

    • Preparation and presentation of the value-added statement may lead to information overload and confusion, as an ordinary employee reading his company’s corporate annual report may not be able to reconcile the value added statement with the earnings statement.
    • Another limitation of Value-added statement is that it raises a danger that management may take the maximization of value added as their goal i.e. the inclusion of the value added may wrongly lead management to pursue maximization of firms value.
    • Another argument against a value-added statement is that its inclusion in the corporate annual report would involve extra work, therefore, extra costs and delay and also a slight loss of confidentiality in view of the additional disclosure involved.
    • The most severe limitation of value-added data emerges from lack of any uniformity and consistency amongst different companies in the preparation and presentation of Value Added statements. VAS is flagrantly standardized.
    • Since there are various methods of calculating VA, it is difficult to make inter-firm comparisons. An even intra-firm comparison is not possible if the treatment of these items is changed in the subsequent years.
    • Value Added statements may lead to confusion especially in the cases where wealth or value added is increasing while earnings are decreasing.

    In spite of these limitations, it may be said that the value-added statement brings about certain changes in emphasis rather than the change in the content in the traditional financial statement. Thus it is considered as a valuable means of social disclosure.

    Value Added Statements Definition Advantages and Disadvantages - ilearnlot

  • What is the Cost Accounting Information System?

    What is the Cost Accounting Information System?

    Cost Accounting Information System (CAIS) is an accounting information system that determines the costs of products manufactured or services provided and records these costs in the accounting records. Also, The concept of CAIS studying: Functions of Cost Accounting Information System, Technology of Cost Accounting Information System, and Development of Cost Accounting Information System! It is the key to management’s assessment of the company’s efforts to achieve profit. Since it is so important, the CAIS must be careful to design and properly maintains. Also learn, Financial Accounting, What is the Cost Accounting Information System?

    Learn, Explain What is the Cost Accounting Information System? Functions, Technology, and Development!

    An accounting information system (AIS) is a system of collecting, storing, and processing financial and accounting data that are used by decision-makers. An accounting information system is generally a computer-based method for tracking accounting activity in conjunction with information technology resources. Also, The resulting financial reports can uses internally by management or externally by other interested parties including investors, creditors, and tax authorities.

    Accounting information systems are designed to support all accounting functions and activities including auditing, financial accounting & reporting, managerial/ management accounting, and tax. Also, The most widely adopted accounting information systems are auditing and financial reporting modules.

    What is the Accounting Information System? Accounting Information System refers to the computer-based method used by the companies to collect, store and process the accounting and the financial data which is used by the internal users of the company to give a report regarding various information to the stakeholders of the company such as creditors, investors, tax authorities, etc.

    The cost accounting information system with its operating accounts must correspond to the organizational division of authority; so that the individual foreman, supervisor, department head, or manager can be held accountable for the costs incurred in his department. Also, The concept of authority and responsibility is closely allied with accountability; which recognizes the need for measuring a manager’s discharge of his responsibilities.

    Functions of Cost Accounting Information System:

    Generally, the purposes or functions of cost accounting information systems fall into four categories. These include providing information for:

    1. External financial statements,
    2. Planning and controlling activities or processes,
    3. Also, Short-term strategic decisions and
    4. Long-term strategic decisions.

    These four functions relate to different audiences, emphasize different types of information, require different reporting intervals, and involve different types of decisions.

    The technology of Cost Accounting Information System:

    They are below;

    Input:

    The input devices commonly associated with CAIS include standard personal computers or workstations running applications; scanning devices for standardized data entry; electronic communication devices for electronic data interchange (EDI) and e-commerce. Also, many financial systems come “Web-enabled” to allow devices to connect to the World Wide Web.

    Process:

    Basic processing achieves through computer systems ranging from individual personal computers to large-scale enterprise servers. However, conceptually, the underlying processing model is still the “double-entry” accounting system initially introduced in the fifteenth century.

    Output:

    Output devices used include computer displays, impact and non-impact printers, and electronic communication devices for EDI and e-commerce. Also, The output content may encompass almost any type of financial report from budgets and tax reports to multinational financial statements.

    Development of Cost Accounting Information System:

    The development of a Cost Accounting Information System includes five basic phases: planning, analysis, design, implementation, and support.

    The period associated with each of these phases can be as short as a few weeks or as long as several years.

    Planning, project management objectives, and techniques: 

    Also, The first phase of systems development is the planning of the project. This entails the determination of the scope and objectives of the project, the definition of project responsibilities, control requirements, project phases, project budgets, and project deliverables.

    Analysis: 

    The analysis phase is using to both determine and document the cost accounting and business processes used by the organization. Such processes are redesign to take advantage of best practices or the operating characteristics of modern system solutions.

    Design:

    The design phase takes the conceptual results of the analysis phase and develops detailed, specific designs that can implement in subsequent phases. It involves the detailed design of all inputs, processing, storage, and outputs of the proposed accounting system. Also, Inputs may be define using screen layout tools and application generators.

    Processing can show through the use of flowcharts or business process maps that define the system logic, operations, and workflow. Also, Logical data storage designs are identified by modeling the relationships among the organization’s resources, events, and agents through diagrams.

    Also, the entity-relationship diagram (ERD) modeling is using to document large-scale database relationships. Output designs are documented through the use of a variety of reporting tools such as report writers, data extraction tools, query tools, and online analytical processing tools. Also, all aspects of the design phase can perform with software toolsets provide by specific software manufacturers.

    Implementation:

    The implementation phase consists of two primary parts: construction and delivery. Also, Construction includes the selection of hardware, software, and vendors for the implementation; building and testing the network communication systems; building and testing the databases; writing and testing the new program modifications; and installing and testing the total system from a technical standpoint.

    Delivery is the process of conducting the final system and user acceptance testing; preparing the conversion plan; installing the production database; Also, training the users, and converting all operations to the new system.

    Support:

    The support phase has two objectives. The first is to update and maintain the CAIS. Also, This includes fixing problems and updating the system for business and environmental changes. For example, changes in generally accepted accounting principles (GAAP) or tax laws might necessitate changes to conversion or reference tables used for financial reporting.

    Also, The second objective of the support is to continue development by continuously improving the business through adjustments to the CAIS caused by business and environmental changes. These changes might result in future problems, new opportunities, or management or governmental directives requiring additional system modifications.

    What is the Cost Accounting Information System Image
    What is the Cost Accounting Information System? Image from Pixabay.

  • What are the Role and Duties of the Management Accountant?

    Management Accountant is an officer who is entrusted with the Management Accounting function of an organization. He plays a significant role in the decision-making process of an organization. The organizational position of Management Accountant varies from concern to concern depending upon the pattern of the management system. He may be an executive in some concern, while a member of the Board of Directors in case of some other concern. However, he occupies a key position in the organization. In large concerns, he is responsible for the installation, development and efficient functioning of the management accounting system. He designs the framework of the financial and cost control reports that provide with the most useful data at the most appropriate time. Also Learned, Cost Accounting, What are the Role and Duties of the Management Accountant?

    Learn, Explain What are the Role and Duties of the Management Accountant?

    The Management Accountant sometimes describing as Chief Intelligence Officer because apart from top management, no one in the organization perhaps knows more about various functions of the organization than him. Tandon has explained the position of Management Accountant as follows: “The management accountant is exactly like the spokes in a wheel, connecting the rim of the wheel and the hub receiving the information. He processes the information and then returns the processed information back to where it came from”.

    #Role of Management Accountant:

    Management Accountant otherwise calls Controller, is considering to be a part of the management team since he has the responsibility for collecting vital information. Both from within and outside the company. The functions of the controller have been laid down by the Controller’s Institute of America.

    These functions are:
    • To establish, coordinate and administer, as an integral part of management, an adequate plan for the control of operations. Such a plan would provide, to the extent required in the business cost standards, expense budgets, sales forecasts, profit planning, and program for capital investment and financing. Together with the necessary procedures to effectuate the plan.
    • To compare performance with operating plan and standards and to report and interpret the results of the operation to all levels of management, and to the owners of the business. This function includes the formulation and administration of accounting policy and the compilations of statistical records and special reposts as required.
    • To consult withal segments of management responsible for policy or action conserving any phase of the operations of the business. As, it relates to the attainment of the objective, and the effectiveness of policies, organization structures, procedures.
    • The administer tax policies and procedures.
    • To supervise and coordinate the preparation of reports to Government agencies.
    • The assured fiscal protection for the assets of the business through adequate internal; control and proper insurance coverage.
    • To continuously appraise economic and social forces and government influences, and interpret their effect upon business.

    #Duties and Responsibilities of Management Accountant:

    The primary duty of Management Accountant is to help management in taking correct policy-decisions and improving the efficiency of operations. He performs a staff function and also has line authority over the accountants. If the management accountant feels that a decision likely to take by the management based on the information tendered by him shall be detrimental to the interest of the concern. He should point out this fact to the concerned management, of course, with tact, patience, firmness, and politeness. On the other hand, if the decision was taken happens to be the wrong one on account of inaccuracy. Biased and fabricated data furnished by the management accountant. He shall be held responsible for the wrong decision takes by the management.

    Controllers Institute of America has defined the following duties of Management Accountant or controller:

    • The installation and interpretation of all accounting records of the Corporative.
    • The preparation and interpretation of the financial statements and reports of the corporation.
    • Continuous audit of all accounts and records of the corporation wherever located.
    • The compilation of costs of distribution.
    • The compilation of production costs.
    • The taking and costing of all physical inventories.
    • The preparation and filing of tax returns and to the supervision of all matters relating to taxes.
    • Preparation and interpretation of all statistical records and reports of the corporation.
    • The preparation as budget director, in conjunction with other officers and department heads, of an annual budget covering all activities of the corporation of submission to the Board of Directors prior to the beginning of the fiscal year. The authority of the Controller, with respect to the veto of commitments of expenditures not authorized by the budget, shall, from time to time, fix by the board of Directors.

    Continuously;

    • The ascertainment currently that the properties of the corporation are properly and adequately insured.
    • The initiation, preparation, and issuance of standard practices relating to all accounting. Matters and procedures and the coordination of the system throughout the corporation including clerical and office methods, records, reports, and procedures.
    • The maintenance of adequate records of authorizing appropriations and determination. That all sums expend pursuant there into properly accounts for.
    • The ascertainment currently that financial transactions cover by minutes of the Board of Directors and/ or the Executive committee are properly executing and recording.
    • The maintenance of adequate records of all contracts and leases.
    • The approval for payment(and/or countersigning ) of all Cheques, promissory notes and other negotiable instruments of the corporation. Which have to sign by the treasurer or such other officers as shall have to authorize by the by-laws of the corporation or from time to time designated by the Board of Directors.
    • The examination of all warrants for the withdrawal of securities from the vaults of the corporation and the determination. That such withdrawals are made in conformity with the by-laws and /or regulations establishing from time by the Board of Directors.
    • The preparation or approval of the regulations or standard practices. Required to assure compliance with orders or regulations issued by duly constituted governmental agencies.
  • Cost Accounting: Objectives, Nature, and Scope

    Cost Accounting: Objectives, Nature, and Scope

    Cost accounting examines the cost structure of a business. It does so by collecting information about the costs incurred by a company’s activities, assigning selected costs to products and services and other cost objects, and evaluating the efficiency of cost usage. Discuss the topic, the Concept of Cost Accounting: Meaning of Cost Accounting, Definition of Cost Accounting, Objectives of Cost Accounting, Nature and Scope of Cost Accounting, and Limitations of Cost Accounting! It is mostly concern with developing an understanding of where a company earns and loses money, and providing input into decisions to generate profits in the future. Also learned, Management Accounting; Objectives, Nature, and Scope.

    Learn, Explain Cost Accounting: Objectives, Nature, and Scope.

    Cost accounting involves the techniques for as: 1) Determining the costs of products, processes, projects, etc. to report the correct amounts on the financial statements, and 2) Assisting management in making decisions and in the planning and control of an organization.

    For example, cost accounts used to compute the unit cost of a manufacturer’s products to report the cost of inventory on its balance sheet and the cost of goods sold on its income statement. This is achieving with techniques such as the allocation of manufacturing overhead costs and through the use of process costing, operations costing, and job-order costing systems.

    It assists management by providing analysis of cost behavior, cost-volume-profit relationships, operational and capital budgeting, standard costing, variance analyses for costs and revenues, transfer pricing, activity-based costing, and more. They had their roots in manufacturing businesses, but today it extends to service businesses.

    For example, a bank will use cost accounting to determine the cost of processing a customer’s check and/or a deposit. This, in turn, may provide management with guidance in the pricing of these services.

    Key activities include:

    • Defining costs as direct materials, direct labor, fixed overhead, variable overhead, and period costs.
    • Assisting the engineering and procurement departments in generating standard costs, if a company uses a standard costing system.
    • Using an allocation methodology to assign all costs except period costs to products and services and other cost objects.
    • Defining the transfer prices at which components and parts are selling from one subsidiary of a parent company to another subsidiary.
    • Examining costs incurred about activities conducted, to see if the company is using its resources effectively.
    • Highlighting any changes in the trend of various costs incurred.
    • Analyzing costs that will change as the result of a business decision.
    • Evaluating the need for capital expenditures.
    • Building a budget model that forecasts changes in costs based on expected activity levels.
    • Determining whether costs can be reduced.
    • Providing cost reports to management, so they can better operate the business.
    • Participating in the calculation of costs that will require to manufacture a new product design, and.
    • Analyzing the system of production to understand where bottlenecks are position, and how they impact the throughput generate by the entire manufacturing system.

    Meaning of Cost Accounting:

    An accounting system is to make available necessary and accurate information for all those who are interested in the welfare of the organization. The requirements of the majority of them are satisfied using financial accounting. However, the management requires far more detailed information than what conventional financial accounting can offer.

    The focus of the management lies not in the past but on the future. For a businessman who manufactures goods or renders services, cost accounts a useful tool. It was developed on account of limitations of financial accounting and is the extension of financial accounting. The advent of the factory system gave an impetus to the development of cost accounting.

    It is a method of accounting for cost. The process of recording and accounting for all the elements of the cost calls cost accounting.

    Definition of Cost Accounting:

    The Institute of Cost and Works Accountants, London defines costing as,

    “The process of accounting for cost from the point at which expenditure incur or commit to the establishment of its ultimate relationship with cost centers and cost units. In its wider usage, it embraces the preparation of statistical data, the application of cost control methods and the ascertainment of the profitability of activities carry out or plan.”

    The Institute of Cost and Works Accountants, India defines cost accounting as,

    “The technique and process of ascertainment of costs. Cost accounts the process of accounting for costs, which begins with the recording of expenses or the bases on which they are calculating and ends with the preparation of statistical data.”

    To put it simply, when the accounting process is applying to the elements of costs (i.e., Materials, Labor and Other expenses), it becomes Cost Accounting.

    Objectives of Cost Accounting:

    It was born to fulfill the needs of manufacturing companies. Its a mechanism of accounting through which costs of goods or services are ascertaining and control for different purposes. It helps to ascertain the true cost of every operation, through a close watch, say, cost analysis and allocation.

    The main objectives of cost accounting are as follows:-

    1] Cost Ascertainment: 

    The main objective of cost accounts to find out the cost of product, process, job, contract, service or any unit of production. It is done through various methods and techniques.

    2] Cost Control: 

    The very basic function of cost accounts to control costs. A comparison of actual costs with standards reveals the discrepancies (Variances). The variances reveal whether the cost is within the control or not. Remedial actions are suggesting to control the costs which are not within control.

    3] Cost Reduction: 

    Cost reduction refers to the real and permanent reduction in the unit cost of goods manufactured or services rendered without affecting the use intended. It can be done with the help of techniques called budgetary control, standard costing, material control, labor control, and overheads control.

    4] Fixation of Selling Price: 

    The price of any product consists of total cost and the margin required. Cost data are useful in the determination of selling price or quotations. It provides detailed information regarding various components of cost. It also provides information in terms of fixed cost and variable costs, so that the extent of price reduction can be decided.

    5] Framing business policy: 

    It helps management in formulating business policy and decision making. Break-even analysis, cost volume profit relationships, differential costing, etc help make decisions regarding key areas of the business.

    Nature and Scope of Cost Accounting:

    Cost accounts concerned with ascertainment and control of costs. The information provided by cost-accounting to the management is helpful for cost control and cost reduction through functions of planning, decision making, and control. Initially, they confined itself to cost ascertainment and presentation of the same mainly to find out product cost.

    With the introduction of large-scale production, the scope was widened and providing information for cost control and cost reduction has assuming equal significance along with finding out the cost of production. To start with cost-accounting was apply in manufacturing activities but now it applies in service organizations, government organizations, local authorities, agricultural farms, Extractive industries and so on.

    The guide for the ascertainment of the cost of production. It discloses as profitable and unprofitable activities. They help management to eliminate unprofitable activities. It provides information for estimates and tenders. They disclose the losses occurring in the form of idle time spoilage or scrap etc. It also provides a perpetual inventory system.

    It helps to make effective control over inventory and for the preparation of interim financial statements. They help in controlling the cost of production with the help of budgetary control and standard costing. They provide data for future production policies. It discloses the relative efficiencies of different workers and for the fixation of wages to workers.

    Cost Accounting Objectives Nature and Scope
    Cost Accounting: Objectives, Nature, and Scope! #Pixabay.

    Limitations of Cost Accounting:

    The following limitations below are;

    • It is based on estimation: as cost accounting relies heavily on predetermined data, it is not reliable.
    • No uniform procedure in cost accounting: as there is no uniform procedure, with the same information different results may be arrived by different cost accounts.
    • A large number of conventions and estimate: There are several conventions and estimates in preparing cost records such as materials are issuing on an average (or) standard price, overheads are charging on the percentage basis, Therefore, the profits arrive from the cost records are not true.
    • Formalities are more: Many formalities are to be observed to obtain the benefit of cost accounting. Therefore, it does not apply to small and medium firms.
    • Expensive: Cost accounts expensive and requires reconciliation with financial records.
    • It is unnecessary: Cost accounts of recent origin and an enterprise can survive even without cost accounting.
    • Secondary data: It depends on financial statements for a lot of information. Any errors or shortcomings in that information creep into cost accounts also.

  • What is the Concept of Accountability in Financial Management?

    Accountability has different forms. First, the individualizing form of accountability can be studied in which the accountability contributes to making the realization of the image an individual perceives it. This perspective helps a person to polish his senses and action thereby improving his image that is noticed by others. The second view of accountability is the socializing form in which a person can improve its performance and efficiency by interacting with some of the experienced people in the organization. Accountability institutionalizes the use of accounting through which it operates in the organizations and firms. Also learned, Types of Product, What is the Concept of Accountability in Financial Management?

    Learn, Explain What is the Concept of Accountability in Financial Management?

    “Accountability breeds responsibility” This is a famous quote by Dr. Stephen R. Covey gives the meaning of accountability in rather general terms. The concept of accountability can be defined as the process through which a person is held answerable for his actions and deeds. Under the umbrella of the organization, the notion of accountability can be stated as the phenomenon through which whether a person at the higher level of hierarchy or at the lower level is accountable for his works and services that he renders to the organization. Accountability from the organizational perspective bears great importance as it is the measure through which the performance of the organization and a person serving can be judged and analyzed.

    How Does Accountability work?

    Accountability within the organizations mainly works through three different levels of accounting. They are auditing, management accounting, and financial reporting. Financial reporting and management accounting aspect of accounting has been dealt with in detail in representation and control part respectively. The third and more applicative form in which accountability holds in the organizations is the auditing in which companies accounts are checked and verified by some agency or authority assigned for it is covered in detail here.

    When it comes to organizational perspective the application of accountability expands. From the past, there has been a practice in business and organizations to maintain the accounts of each and every transaction that takes place in the organization. In the modern era, this system has become more advanced and transparent. The organizations can be judged or held responsible economically on the grounds of the accounts or financial statements that they produce. This involves the concept of auditing of company accounts. Audit serves as a vital economic process and plays an important role in serving the public interest by strengthening the accountability and reinforcing the trust and confidence in financial reporting.

    Auditing of accounts are generally performed by the people employed by the owner of the company, these persons are called auditors, agents or stewards. They generally work in the interest of the company with the focus on the economic performance of the institution. This phenomenon is called an agency theory which suggests that because of the information asymmetries people employ agents or stewards who work for the benefit of the company. Auditing gives a clear idea of accounts and also imparts the correct information to the shareholders.

    The interplay between Accounting and Accountability:

    Accounting can be defined as the process of identifying, measuring and communicating the financial information about the entity to permit informed judgments and decisions by users of information. Initially, there were cruder forms of accounting first one was double entry system which was a binary system method used for recording the events in which all the debts and credits were represented in the tabular form and the second was bookkeeping which was the maintenance or the summary of all the financial transactions taken place. Accountability often comes to play where there is some accounting failures or discrepancies and the company or the person producing the account is held responsible.

  • Marketing Concept: Features, Importance, and Benefits!

    Learn, Explain Marketing Concept: Features, Importance, and Benefits!

    The Marketing Concept is the philosophy that firms should analyze the needs of their customers and then make decisions to satisfy those needs, better than the competition. Today most firms have adopted the marketing concept, but this has not always been the case. In 1776 in the Wealth of Nations, Adam Smith wrote that the needs of producers should be considered only with regard to meeting the needs of consumers. Also learned, NPD (New Product Development), Explain it each one, Marketing Concept: Features, Importance, and Benefits!

    In a modern industrial economy, productive capacity has been built up to a point where most markets are buyers markets (i.e. the buyers are dominant) and sellers have scramble hard for consumers and ultimately consumers began to occupy a place of unique importance. The business firms recognize that “there is only one valid definition of business purpose to create a customer”. In other words, the recognition of the importance of marketing leads to the acceptance of marketing concept.

    To better understand the marketing concept, it is worthwhile to put it in perspective by reviewing other philosophies that once were predominant. After world war II the variety of products increased and hard selling no longer could be relied upon to generate sales. With increased discretionary income, the customer could afford to be selective and buy only those products that precisely met their changing needs, and these needs were not immediately obvious.

    The key questions became :

    1. What do customers want?
    2. Can we develop it while they still want it
    3. How can we keep our customers satisfied?

    In response to these discerning customer, firms began to adopt the marketing concept, which involves:

    1. Focusing on customer needs before developing the product.
    2. Aligning all functions of the company to focus on those needs, and.
    3. Realizing a profit by successfully satisfying customer needs over the long-term.

    When firms began to adopt the marketing concept, they typically set up separate marketing departments whose objective it was so satisfying customer needs. In other words, marketing concept aims customer’s needs and wants orientation backed by integrated marketing effort aimed at generating customer satisfaction as the key to satisfying organizational goals.

    Features of Marketing Concept:

    The salient features of the marketing concept are:

    • Consumer Orientation: The most distinguishing feature of the marketing concept is the importance assigned to the consumer. The determination of what is to be produced should not be in the hands of the firms but in the hands of the consumers. The firms should produce what consumers want. All activities of the marketer such as identifying needs and wants, developing appropriate products and pricing, distributing and promoting them should be consumer – oriented. If these things are done effectively, products will be automatically bought by the consumers.
    • Integrated Marketing: The second feature of the marketing concept is integrated marketing i.e. integrated management action. Marketing can never be an isolated management action. Marketing can never be an isolated management function. Every activity on the marketing side will have some bearing on the other functional areas of management such as production, personnel or finance. Similarly, any action in a particular area of operation in production or finance will certainly have an impact on marketing and ultimately on the consumer. In a business firm that accepts the marketing concept as the cornerstone of its business philosophy, no management area can work in isolation. Therefore in an integrated marketing setup, the various functional areas of management get integrated with the marketing function. Integrated marketing presupposes a proper communication among the different management areas with marketing influencing the corporate decision-making process. Thus, when the firms objective is to make the profit – by providing consumer satisfaction, naturally it follows that the different departments of the company are fairly integrated with each other and their efforts are channelized through the principal marketing department towards the objective of consumer satisfaction.
    • Consumer Satisfaction: The third feature of the marketing concept is consumer satisfaction. The objective of the company adopting marketing concept is to satisfy the customers’ needs so perfectly that they will become regular or permanent satisfied customer. For example, when a consumer buys a tin of coffee, he expects a purpose to be served, a need to be satisfied. If the coffee does not provide him the expected flavor, the taste and the refreshments his purchase has not served the purpose. Or more precisely, the marketer who sold the coffee has failed to satisfy his consumer. Thus, ‘satisfaction’ is the proper foundation on which alone any business can build its future.
    • Realization of Organizational Goals: Though the organizational goals may differ from firm to firm, though key areas such as innovation, market standings, profits and social responsibility are common to all firms. According to the marketing concept, the right way to achieve these organizational goals is through ensuring consumer satisfaction.
    • Profit Creation: A distinguishing feature of the marketing concept is that it considers the creation of profits as an essential requirement for any business concern. The marketing concept is against profiteering but not against profits. Reasonable returns or surplus are essential for the survival and growth of business organizations.

    Importance of marketing concept:

    Business enterprises are conducting their marketing activities under the following five marketing concepts.

    1. Production concept:

    Production concept is the oldest concept under which the businessmen produce goods thinking customers are interested only in low priced, extensively and easily available goods. Finishing and the interest of customers are not important for the manufacturers. They focus only on large scale production and try to make it available on large scale. They try to achieve high production efficiency and creating wide distribution coverage.

    2. Product concept:

    Consumers favor those products that offer the most quality, performance and features is the basis of product concept.  They believe that consumers are willing to pay higher cost for the goods or services which has extra quality. Companies which concentrate on product concept is focused on product improvement.  They constantly improve the product quality and features to satisfy and attract the customers.  Too much focus on product may go off the track and fail.  For example, a biscuit manufacturer produced  a new brand of biscuits with good color, ingredients and packing etc., without taking much importance in consumer tastes and preferences. This may fail in the market if the biscuit does not taste good to the ultimate consumer.

    3. Selling concept:

    In selling concept, producers believe that the aggressive persuasion and selling is the  essence of  their  business  success. They think without such aggressive methods they cannot sell or exist in the market. They are focused on finding ways and means to sell their products. They believe that consumer  themselves will not buy enough of the enterprises products or service by themselves. Hence they do a considerable promotional efforts to sell their product through advertisements and  other means. Sales agents of electrical equipment’s, insurance agents, soft drink/health drink companies and fundraisers for social or religious causes comes under this category. That is why we are getting lots of calls from insurance agents, even though insurance is a subject matter of solicitation. In short, selling concepts assumes that consumers on their own will not buy enough of enterprises products, unless the enterprise undertakes aggressive sales and promotional efforts.

    4. Marketing concept:

    Under marketing concept the task of marketing begins with finding what the consumer want and produce a product which will meet the  consumer requirement and provides maximum satisfaction. “Customer is the King” concept emerged from this point of view. In the process of evolution many organizations changed their way of thinking to match  the  marketing concept. Under this concept producers considers the needs and wants of consumers as the guiding spirit and deliver such goods which can satisfy the consumer needs more efficiently and effectively than the competitors. The marketing concept is consumer oriented and looks forward to achieving long-term profits by making a network of satisfied consumers. When an organization practice the marketing concept, all their activities  such as research and development, distribution, quality control, finance, manufacturing, selling etc., are focused to satisfy the consumer needs and wants.

    5. Societal concept:

    With the growing awareness of the social responsibility of the business, attempts made successfully to turn the business organizations socially responsible. Environmental deterioration, excessive exploitation of resources and growing consumer movements have necessitated the recognition and relevance of marketing based on socially responsible. Societal concept is the extension of marketing concept to cover the society in addition to the consumers. Under the societal concept the business organization must take into account the needs and wants of the consumers and deliver the goods and services efficiently so as to balance the consumers satisfaction as well as the society’s well being.

    Benefits of Marketing Concept:

    The major benefits of marketing concept are described below:

    1. Benefits to Firms: A firm that believes in the marketing concept always feels the pulse of the market through continuous marketing audit and marketing research. It is fast in responding to the changes in buyer behavior. It rectifies any drawback in its product and this proves beneficial to the firm. The firm gives more importance to planning, research and innovation and its decisions are no longer based on hunches but on reliable scientific data and the proper interpretation of such data. The profits for the firm become more certain.
    2. Benefits to Consumers: The concept on the part of various competing firms to satisfy the consumer puts the later in an enviable position. Reasonable prices, better quality and easy availability at convenient places are some of the benefits that accrue to the consumer as a direct result of the marketing concept.
    3. Benefits to Society: The practice of marketing concept contributes to the better lifestyle, better standard of living and also results in the development of entrepreneurial talents. All these sets the pace for social and economic development.

    Thus the marketing concept benefits the organization, the consumer and society at large. A proper understanding of this concept is fundamental to the study of modern marketing.

  • What is the Concept of Corporate Planning?

    Learn and Explain, What is the Concept of Corporate Planning?

    A plan is a predetermined course of action to be taken in the future. It is a document containing the details of how the action will be executed and it is made on a timescale. The goals and the objective that a plan is supposed to achieve are the prerequisites of a plan. The setting of the goals and the objective is the primary task of the Management without which planning cannot begin. Also learned, Management As a Control System! What is the Concept of Corporate Planning?

    Planning means taking a deep look into the future and assessing the likely events in the total business environment and taking a suitable action to meet any eventuality. It further means generating the courses of action to meet the most likely eventuality. Planning is a dynamic process. As the future becomes the present reality, the course of action decided earlier may require a change. Planning, therefore, calls for a continuous assessment of the predetermined course of action versus the current requirements of the environment. The essence of planning is to see the opportunities and the threats in the future and predetermine the course of action to convert the opportunity into a business gain and to meet the threat to avoid any business loss.

    Planning involves a chain of decisions, one dependent on the other since it deals with a long-term period. A successful implementation of a plan means the execution of these decisions in a right manner one after another.

    Planning, in terms of future, can be long-range or short-range. Long-range planning is for a period of five years or more, while short-range planning is for one year at the most. The long-range planning is more concerned about the business as a whole and deals with the subject like the growth and the rate of growth, the direction of the business, establishing some position in the business world by way of a corporate image, a business share and so on. On the other hand, short-range planning is more concerned with the attainment of the business results of the year. It could also be in terms of action by certain business tasks, such as the launching of a new product, starting a manufacturing facility, completing the project, achieving intermediate milestones on the way to the attainment of goals. The goals relate to long-term planning and the objective related to the short-term planning. There is a hierarchy of objectives which together take the company to the attainment of goals. The plans, therefore, relate to the objectives when they are short-range and to goals when they are the long-range.

    Long-range planning deals with resource selection, its acquisition, and allocation. It deals with the technology and not with the methods or the procedures. It talks about the strategy of achieving the goals. The right strategy improves the chance of success tremendously. At the same time, a wrong strategy means a failure in achieving the goals.

    Corporate business planning deals with the corporate business goals and objectives. The business may be a manufacturing or a service; it may deal with the industry or trade; may operate in a public or a private sector; may be a national or an international business. Corporate business planning is a necessity in all cases. Though the corporate business planning deals with a company, its universe is beyond the company. The corporate business plan considers the world trends in the business, the industry, the technology, the international markets, the national priorities, the competitors, the business plans, the corporate strengths and the weaknesses for preparing a corporate plan. Planning, therefore, is a complex exercise of steering the company through the complexities, the difficulties, the inhibitions and the uncertainties towards the attainment of goals and objective.

    #Dimensions of Planning:

    The corporate business plan has five dimensions. These are time, entity, organization, elements and characteristics.

    #Time:

    The plan may either be long-range or short-range, but the execution of the plan is, year after year. The plan is made on a rolling basis where every year it is extended by one year, keeping the plan period for the next five years. The rolling plan provides an opportunity to correct or revise the plan in the light of any new information the planner may receive.

    #Entity:

    The planning entity is the thing on which the plan is focused. The entity could be the production in terms of quantity or it could be a new product. It could be about the finance, the marketing, the capacity, the manpower or the research and development. The goals and the objectives would be stated in terms of these entities. A corporate plan may have several entities.

    #Organization:

    The corporate plan would deal with the company as a whole, but it has to be broken down for its subsidiaries, if any, such as the functional groups, the divisions, the product groups and the projects. The breaking of the corporate business plan into smaller organizational units helps to fix the responsibility for execution. The corporate plan, therefore, would be a master plan and it would comprise several subsidiary plans.

    #Elements:

    The plan is made out of several elements. The plan begins with the mission and goal which the organization would like to achieve. It may provide a vision statement for all to understand as also the purpose, focus, and direction the organization would like to move towards. It would at the outset, place certain policy statements emerging out of management s business philosophy, culture and style of functioning followed by policy statements. Next, it would declare the strategies in various business functions, which would enable the organization to achieve the business objectives and targets. It would spell out a program of execution of plan and achievements. It provides support for rules, procedures, and methods of plan implementation, wherever necessary. One important element of the plan is a budget stipulated for achieving certain goals and business targets. The budgets are provided for sales, production, stocks, resources, expenses which are monitored for the time in execution period. The budgets and performance provide meaningful measure about success and failure of the plan designed to achieve certain goals.

    #Characteristics:

    There are no definite characteristics of a corporate plan. The choice of characteristics is a matter of convenience helping to communicate to everybody concerned in the organization and for an easy understanding in execution. The features of a plan could be several and could have several parts. The plan is a confidential written document subject to the charge and known to a limited few in the organization. It is described in the quantitative and qualitative terms. The long-term plan is normally flexible while the short-term one is generally not. The plan is based on the rational assumptions about the future and gives weight age to the past achievements and corporate strength and weal messes. The typical characteristics of a corporate plan are the goals, the resources, the important milestones, the investment details and a variety of schedules.

    #Concepts of Corporate Planning:

    Corporate planning is the process of creating a path to profitability for the enterprise, including determining how and where to market the company’s products and services. When preparing a business plan the small business owner also forecasts financial results for the upcoming year — revenues, expenses and the resulting profit. Planning has its own terminology, concepts, and techniques that must be understood in order for the business owner to be able to create a realistic plan that can be implemented successfully.

    • Mission Statement: In defining his mission statement, the small business owner states the value he wants to provide his customers, employees or society as a whole. He articulates why he decided to go into business — what he wants to accomplish through building the company.
    • Business Model: The concept of a business model has two components: how the company is going to generate sales and why the company will be profitable. The business may have several revenue streams, such as selling products, offering service contracts for the products and selling subscriptions to premium content on the company’s website. The company also has factors related to its operations that will cause it to be able to earn a profit. Lower production costs, relative to other companies in its industry, is a positive factor for the company.
    • Goals: Goals, or objectives as they are also called, describe the end result the business owner seeks to achieve. During the planning process, the business owner and his management team set numerous goals — major goals, such as revenues and profit margin percentage, as well as goals for each department and sometimes each individual — to ensure that all members of the organization put forth their best efforts and work as a cohesive team.
    • Strategies and Tactics: Strategies describe how the company’s resources will be directed to accomplish the goals. A strategy could be, for example, to sell the company’s products through independent sales reps and in-house salespeople. Tactics are specific steps taken to implement each of the strategies, showing who is responsible for implementing them and when each step needs to be completed.
    • Competitive Advantage: Companies succeed over the long term because they create and maintain competitive advantages — aspects of their products or service levels that deliver greater value to customers than those of competitors. The customers perceive this greater value and continue to do business with the company becoming loyal, repeat customers.
    • Financial Forecast: The forecast is created using spreadsheet software. The business owner builds revenue models that calculate the expected sales — units and dollars. He then estimates what the expenses for the company will be — what will it cost to create products or services, market them and fund the company’s operations including facilities costs and staff salaries.
    • Risk Factors: All businesses, including small ones, face risks — environmental factors that may cause the company to not perform as well financially as anticipated. It is important for the small business owner to recognize these risks and plan ways to change his business strategy if necessary in response to the risks. These planned responses are called contingency plans.
    • Exit Strategy: A business owner may have a long-term goal of selling the company someday. How he intends to divest the business is termed his exit strategy. Although larger companies’ shareholders sometimes exit through selling their shares to the public through an initial public offering — IPO — a small business owner commonly exits the business through selling it to another individual who wants to operate it, or to a larger company.