Monthly Archive October 2015

Cardinal Utility Approach

Cardinal Utility Approach

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Very Short Questions

  • Define utility.

Ans) Utility is defined as the wants satisfying capacity of a commodity .In other words,it is the satisfaction obtained from the consumption of commodity.

  • What do you mean by cardinal utility approach?

Ans) Cardinal Utility approach is the method of analyzing utility which believes that utility is a quantitative concept i.e, utility can be measured numerically .Its unit of measurement is Utils.

  • List any four assumptions of cardinal utility analysis.

Ans) The  four assumptions of cardinal utility analysis are as follows:

  1. The consumer is rational.
  2. Utility can be measured in cardinal number.
  3. Marginal utility of money remains constant.
  4. Units of consumption are suitable.

 

  • Define the total utility.

Ans) Total utility is the total satisfaction obtained from the consumption of a given units of a commodity .It is obtained by the summation of marginal utility.

  • Define the marginal utility.

Ans) Marginal utility is the addition made to the total utility from one additional unit of consumption.

  • Define the concept of ordinal utility approach.

Ans) Ordinal utility approach is the method of analyzing utility as a subjective phenomenon. According to this approach,utility cannot be expressed quantitatively. However,ranking is possible.

  • Define indifference curve.

Ans) Indifference curve is defined as the locus of all combinations of two goods which yields the same level of satisfaction to the consumer.It is also called equal satisfaction curve. It is downward slopping and convex to the origin.

  • Write any four assumptions of indifference curve analysis.

Ans) The four assumptions of indifference curve analysis are as follows:

  1. Rational consumer.
  2. Ordinal measurement of utility.
  3. Diminishing marginal rate of substitution.
  4. Transitivity and consistency.

 

  • Make a list of properties of indifference curve(IC).

Ans) The list of properties of indifference curve are as follows:

  1. An IC slopes downward from left to right.
  2. An IC is convex to the origin.
  3. ICs never intersect each other.
  4. Higher the indifference curve,higher will be level of satisfaction.

 

  • Define the meaning of marginal rate of substitution (MRS).

Ans) Marginal rate of substitution is the rate at which one commodity is substituted for another so that total satisfaction remains the same. It is the slope of indifference curve.

  • Why does marginal rate of substitution diminish?

Ans) The marginal rate of substitution diminish because of the following reasons:

  1. Goods are not perfect substitute for each other.
  2. The particular want is satiable.
  3. Increase in the quantity of one good does not increase the want satisfying power of the other.
  • Why indifference curve is convex to origin?

Ans) Indifference curve is convex to origin because of diminishing marginal rate of substitution between two goods. The rate of substitution goes on diminishing as we move downward to the right.

  • Higher the indifference curve yields higher level of satisfaction .Why?

Ans) Higher the indifference curve contains more units of at least one good. More is preferred to less. Therefore,higher indifference curve yields higher level of satisfaction.

  • What do you mean by consumer’s equilibrium?

Ans) Consumer’s equilibrium means the situation in which the consumer derives maximum satisfaction or utility from his given money income and market price of the goods.

  • What is price (budget) line?

Ans) Price line is the locus of all combinations of two goods which can be purchased with the given money income of the consumer.

  • Why does a budget or price line shift?

Ans) The budget or price line shift when there is change in money income of the consumer or change in price of goods.

  • Write down the conditions required for the consumer’s equilibrium according to the ordinal utility approach.

Ans) The conditions required for the consumer’s equilibrium according to the ordinal utility approach are as follows:

  1. Price line must be tangent to the indifference curve.
  2. Indifference curve should be convex to the origin.

 

  • When does the consumer’s equilibrium change?

Ans) There will be change in consumer’s equilibrium when there is change in income of the consumer or change in price of good.

  • Define price effect.

Ans) Price effect is defined as the change in consumer’s equilibrium with the change in price of a commodity .Purchase of goods will be affected with the change in price of a commodity,Keeping other things constant.

  • What is price consumption curve (PPC)?

Ans) Price consumption curve is the locus of different equilibrium points obtained due to change in price of a commodity. In other words, PPC is the curve that joins different equilibrium points of price effect.

  • Define income effect.

Ans) Income effect is defined as the change in equilibrium due to change in income of the consumer. It shows the effect of change in income to the quantity demanded. It is positive in case of normal goods ,negative in case of inferior goods and zero in case of neutral goods.

  • What do you mean by income consumption curve?

Ans) Income Consumption Curve (ICC) is defined as the locus of different consumer’s equilibrium points obtained at different income of the consumer. In other words, ICC is the curve that joins different equilibrium points of income effect.

  • Define substitution effect.

Ans) Substitution effect is defined as the effect of price change on quantity demanded when income is compensated such that consumer’s utility is unchanged. It is part of price effect.

Price effect= Substitution effect + Income effect

  • What do you mean by Engel curve?

Ans) An Engel curve is a curve which shows optimum quantity of a commodity purchased at different levels of income .In other words Engel’s curve indicates how much quantity of a commodity a consumer will consume at different levels of his income in order to be in equilibrium.

 

 

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Elasticity

images (3)Very short questions of Elasticity

  • Define elasticity of demand.

Ans) The elasticity of demand is the measure of responsiveness of demand for a commodity to the change in any of its determinants like price of the same commodity,price of the related commodity,income of the consumer,etc.

  • What are the types of elasticity of demand?

Ans)There are three types of elasticity of demand.They are:

  1. Price elasticity of demand(Ep)
  2. Income elasticity of demand(Ey)
  3. Cross elasticity of demand(Ec)

 

  • Define price elasticity of demand.

Ans) The price elasticity of demand is the measures the degree of responsiveness of quantity demanded for a commodity to the change in its price.

  • What are the types of price elasticity of demand?

Ans)The types of price elasticity of demand are as follows:

  1. Perfectly elastic demanded(Ep=infinity)
  2. Relatively  elastic demand(Ep>1)
  3. Unitary elastic demand(Ep=1)
  4. Relatively inelastic demand(Ep<1)
  5. Perfectly inelastic demand(Ep=0)

 

  • Give the name of four determinants of price elasticity of demand.

Ans) The main determinants of price elasticity of demand are as follows:

  1. Nature of commodity
  2. Substitute
  3. Goods having several uses
  4. Income of the consumer
  • What is meant by price elasticity of demand?

Ans) Income elasticity of demand shows the degree of responsiveness of quantity demanded for a good to the change in the income of the consumer.

  • State three degrees of positive income elasticity of demand.

Ans) There are three degrees of positive income elasticity of demand.They are:

  1. Unitary Income elasticity of demand (Ey=1)
  2. Less than Unitary Income elasticity of demand (Ey>1)
  3. More than Unitary Income elasticity of demand (Ey<1)

 

  • Define cross elasticity of demand.

Ans) The cross elasticity of demand is defined as the percentage change in the quantity demanded for X resulting from a percentage change in the price of Y .

  • What is the cross elasticity of demand of pens with respect to change in price of motor cars?

Ans) Cross elasticity of demand in case of independent good like pens and motor cars is zero. It means there is no effect on the demand for pens with respect to the change in price of motor cars.

  • What are the types of cross elasticity of demand?

Ans) There are three types of cross elasticity of demand:

  1. Positive cross elasticity of demand (Ec>0)
  2. Negative cross elasticity of demand (Ec<0)
  3. Zero cross elasticity of demand (Ec=0)

 

  • Define elasticity of supply.

Ans) The elasticity of supply measures the degree of responsiveness of quantity supplied of a commodity to the change in its price .

 

  • What are the types of price elasticity of supply?

Ans)The types of price elasticity of supply are as follows:

  1. Perfectly elastic supply (Es=infinity)
  2.  Relatively elastic supply (Es>1)
  3.  Unitary elastic supply (Es=1)
  4.  Relatively inelastic supply (Es<1)
  5. Perfectly inelastic supply (Es=0)

 

  • Give the name of four determinants of price elasticity of supply.

Ans) The main determinants of price elasticity of supply are as follows:

  1. Nature of the commodity
  2. Cost of production
  3. State of technology
  4. Time period

 

 

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Demand and Supply

Very short questions,Demand and Supply

  • What do you mean by demand?

Ans) Demand means the quantity of goods and services which consumers would buy in a market at a given time and price.In order to change desire into demand ,it is essential that the consumer should have both willingness and ability to pay.

  • Define Demand function.

Ans) Demand function is defined as the relationship between demand for a commodity and its determinants.It can be expressed as:

Dx=f(Px,Y,Pr,A,T….)

Where,Dx=Demand for X-Commodity

             Px=Price of X-commodity

            Y=Income of the consumer

            Pr=Price of related goods

            A=Advertisement expenditure

            T=Taste and Preference of the consumer

  • Define linear demand function.

Ans) A demand function is said to be linear when the slope of the demand curve remains constant throughout its length.The simplest form of a linear demand function is  given by the equation

      Dx=a-bPx

In this equation ,The alphabet ’a’denotes total demand at zero price and ‘b’ a constant ,denotes slope of the demand curve .

  • Define non-linear demand function.

Ans) A demand function is said to be non-linear or curvilinear when the slope of a demand curve changes all along the demand curve.A non-linear demand function,generally,takes the form of a power function as

     D=aPx^-b

  • Name four determinants of demand.

Ans ) The four determinants of demand are as follows:

a)Price of  a commodity

b)Income of the consumer

c)Price of related goods

d)Size and composition of population

  •       What do you mean by law of demand?

Ans) Demand for a commodity increases with the fall in price and decreases with the rise in price.There is inverse relationship between price and quantity demanded for a commodity.This inverse relationship between price and quantity demanded is called law of demand.

  • Define normal good.

Ans)Normal good is a good whose demand increases with an increase in income and decrease with a decrease in income of the consumer.There is positive relationship between income and demand.

  • Define Inferior goods.

Ans)When demand for a commodity increase with the decrease in income and decreases with the increase in income of the consumer ,The good is called inferior goods.

  • Define complementary goods.

Ans)When two or more commodities are demanded simultaneously for the satisfaction of a particular want ,they are called complementary goods .

For example,car and petrol,tea and sugar,etc.

  • Define substitute goods.

Ans) Substitute goods are those goods which compete with each other and which can be used interchangeably,like Mayos and Waiwai ,Pepsi and Coke.

  • Define demand schedule.

Ans) A demand schedule is a table which shows the relationship between the price of a commodity and its quantity demanded.

  • What do you mean by movement along demand curve?

Ans) If demand for a commodity changes due to the change price of the same commodity,it can be shown by the different point on the same demand curve which is called movement along demand curve.It is also called change in quantity demanded.

  • What is meant by extension in demand?

Ans)Other things remaining constant ,when the demand for a commodity goes up due to fall in price of the same commodity,it is referred to as an extension in demand.This results in downward movement along the same demand curve.

  • Define contraction in demand.

Ans) Other things remaining constant ,when the demand for a commodity decreases due to rise in price of the same commodity,it is referred to as a contraction in demand.This results in upward movement along the same demand curve.

  • What do you mean by shift in demand curve?

Ans)If demand for a commodity changes due to change in other factor keeping its price constant,the entire demand curve move either rightward or leftward,it is called shift in demand curve or change in demand.

  • Write any four causes for shifting demand curve.

Ans) The following are the causes of shift in demand curve:

  1. Change in income of the consumer.
  2. Change in the price of substitute goods and complementary goods.
  3. Change in taste and preference of the consumer.
  4. Change in size and composition of population.

 

  • What is meant by increase in demand?

Ans)When more quantities of a commodity are demanded due to the favourable change in other factors, ie. Income of the  consumer,price of the related goods,etc,it is referred to as increase in demand.This results in the demand curve for the commodity shifting rightwards.

  • What is meant by decrease in demand?

Ans) As the quantity demanded falls due to unfavourable change in other factors, i.e. income of the consumer,price of related goods,etc., it is referred to as decrease in demand.This results in the demand curve for the commodity shifting leftwards.

  • What are the causes of increase in demand?

Ans) The following are the main causes of increase in demand:

  1. Increase in income of the consumer.
  2. Rise in price of the substitute goods.
  3. Fall in price of the complementary goods.
  4. Expectation of further rise in price.

 

What are the causes of decrease in demand?

Ans) The following are the causes of decrease in demand:

  1. Decrease in income of the consumer.
  2. Fall in price of the substitute goods.
  3. Rise in price of the complementary goods.
  4. Expectation of further fall in price.

 

  • What is meant by individual demand curve?

Ans) An individual demand curve is a curve that shows different quantities of a commodity demanded by an individual consumer at different prices.It is the graphical representation of individual demand schedule.

  • What is market demand curve?

Ans) Market demand curve is a curve that represents the aggregate demand of all the consumers in the market at different prices of a particular commodity.It is horizontal summation of individual demand curves.

  • Define Supply function.

Ans) Supply function is defined as the relationship between supply for a commodity and its determinants.It can be expressed as:

Sx=f(Px,Pf,Pr,G,T…)

Where Sx=Supply function for X-commodity

Px=Price of X-commodity

Pf=Prices of factors of production

Pr=Price of related goods

G=Goal of the producer

T=Technology

  • Define linear supply function .

Ans)A supply function is said to be linear when the slope of the supply curve remains constant throughout its length.The simplest form of a linear supply function is given by the equation,

 Sx=a+bPx

In this equation ,the alphabet ‘a’ denotes total supply at zero price and ‘b’ a constant ,denotes slope of the supply curve.

  • Define non-linear supply function.

Ans) A supply function is said to be non-linear or curvilinear when the slope of the supply curve changes all along the supply curve.A non-linear supply curve function ,gemerally,takes the form of a power function as

Dx=aPx^b

  • Define supply schedule.

Ans) A supply schedule is a table showing various quantities of a good that the sellers would supply at various prices during a period of time .It is of two types: ie; Individual supply schedule and Market supply schedule.

  • Define individual supply schedule.

Ans) Individual supply schedule is defined as the table which shows quantities of a given commodity which an individual firm will supply at all possible prices at a given time.It is a graphical representation of individual supply schedule.

  • What is meant by individual supply curve?

Ans) An individual supply curve is a curve that shows different quantities of a commodity suppliedby an individual consumer at different prices.It is the graphical representation of individual supply schedule.

  • What is meant by market supply schedule?

Ans)Market supply schedule is the table which shows the total quantity of a commodity all firms would supply at each market price per period of time.It is obtained by the summation of individual supply schedule.

  • What is meant by market supply curve?

Ans) Market supply curve is a curve that represents the aggregate supply of all the producers in the market at different prices of a particular commodity.It is horizontal summation of individual supply curves.

  • What is meant by extension in supply?

Ans)Other things remaining constant ,when the supply for a commodity goes up due to rise in price of the same commodity,it is referred to as an extension in supply.This results in upward movement along the same supply curve.

  • Define contraction in supply.

Ans) Other things remaining constant ,when the supply for a commodity goes down due to fall in price of the same commodity,it is referred to as a contraction insupply .This results in downward movement along the same supply curve.

  • What do you mean by shift in supply curve?

Ans)When supply for a commodity increases or decreases ,the whole supply curve is drawn rightward or leftward ,this is referred to as shift in supply curve.Rightwaed shift in supply curve is called increase in  whereas leftward shift is called decrease in supply.

  • What is meant by increase in supply?

Ans)When more quantities of a commodity are supplied due to the favourable change in other factors, ie. goal of the producer,price of the related goods,etc,it is referred to as increase insupply.This results in the supply curve for the commodity shifting rightwards.

  • What is meant by decrease in supply?

Ans) As the quantity supplied falls due to unfavourable change in other factors, i.e. goal of the producer,price of related goods,etc., it is referred to as decrease insupply.This results in the supply curve for the commodity shifting leftwards.

  • What are the causes of increase in supply?

Ans) The following are the main causes of increase in supply:

  1. Increase in price of the related goods.
  2. Decrease in price of factors of production.
  3. Decrease in tax rate.
  4. Favourable weather condition.

 

  • What are the causes of decrease in supply?

Ans) The following are the causes of decrease in supply:

  1. Decrease in price of the related goods.
  2. Increase in price of factors of production.
  3. Increase in tax rate.
  4. Unfavourable weather condition.

 

  • Define market equilibrium.

Ans) The point of interaction between the demand and supply curve is known as equilibrium point.Every market is in equilibrium when total quantity demanded and quantity supplied of a commodity are equal.

 

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Introduction to Microeconomics

Some very short questions of Introduction to Microeconomics

1)Define an economic theory.

Ans) An economic theory is defined as a model along with the specified and empirical economic variables, concepts and facts used to explain and predict the changes.

2).List out the elements of well defined economic theory.

Ans)  The elements of well defined economic theory are as follows:

i)Definition

ii)Assumptions

iii)Predictions

iv)Test

3)What are the economic resources?

Ans)Economic resources refer to the services of the various types of labour,capital equipment,land,and entrepreneurship.Since the supply of these resources is limited or scare ,they command a price(i.e they are economic resources.

4) What do you mean by scarcity?

Ans) Scarcity in economics always refers to relative scarcity. Anything is said to be scare if its demand exceeds corresponding supply ie. Anything having finite supply is called the scare thing.

5)Why do central problems arise in an economy?

Ans) The central economic  problems arise out of two basic facts:

i)Human wants for goods and services are unlimited and

ii)Resources to produce those goods and services are limited or scarce.

6)What do you understand by allocation of resource?

Ans) Allocation of resources is the basic problem related to efficient utilization of resources for the production of different good s and services.It is concerned with what to produce,how to produce and for whom to produce.

7)Define microeconomics.

Ans)Microeconomics is defined as the branch of economics which deals with the action of individuals and small groups of individuals of an economy.These small groups of individuals may be households,firms and industries consisting of several firms.

8)Why microeconomics is also called slicing method?

Ans) Microeconomics is also called ‘slicing method’ because it splits up the entire economy into smaller parts for the purpose of intensive study.

9)Microeconomics is also called price theory.Why?

Ans) Microeconomics is also called price theory because it deals with the determination of price of goods and services.It studies how prices of a particular commodity like paddy is determined;how wages,interest,rent profit are determined.

10)What are the principle variables of microeconomics?

Ans)The principle variables of microeconomics are individual income,individual expenditure,demand and supply of an individual product,relative prices,cost of production of an individual firms,etc.

11)List out the scope of microeconomics.

Ans) The scope of microeconomics are as follows:

i)Theory of demand

ii)Theory of production

iii)Theory of product pricing

iv)Theory of factor pricing

v)Theory of welfare economics

12)What are the different types of microeconomics analysis?

Ans) The different types of microeconomics analysis are as follows:

i)Micro static

ii)Comparative micro static

iii)Micro dynamics

13)Define Micro Static.

Ans) Micro static is the study of static relationship between different microeconomic variables.It deals with the final equilibrium condition which do not involve any variation in the time element.

14)Definine Comparative Micro Static.

Ans) Comparative Micro Static is the comparartive study of different equilibrium position at different points of time.It simply compares the initial equilibrium position with the final position of equilibrium.

15)Define Micro Dynamics.

Ans) Micro economic is  the study of the process through which the final position of equilibrium  is reached through a series of adjustment over a series of time.

16)List the functions of Microeconomics Theory.

Ans) The functions of Microeconomics Theory are as follows:

i)To analyze behavior of an individual economic entities.

ii)To provide tools for business decision making.

iii)To provide basis for product pricing.

iv)To provide tools to formulate economic policies.

17)Write any four importance of Microeconomics.

Ans ) The four importance of microeconomics are as follows:

i)Helpful to understand working of the economy.

ii) Helpful to formulate economic policies.

iii) Helpful to study human behaviours.

iv) Helpful in business decision making.

18)List out the limitations of microeconomics.

Ans)The following are the limitations of microeconomics:

i)Microeconomics is static in nature .

ii)Conclusion drawn from microeconomics may be wrong from the society’s point of view.

iii)It has limited scope.

iv)It ignores the role of the government.

19)Define macroeconomics.

Ans) Macroeconomics is the branch of economics which deals with aggregate economic variables such as national income,aggregate saving,aggregate consumption,etc. It examines how general price level is determined and how resources are allocated at the level of the economic system as a whole.

20)Write any four principles of economics.

Ans)The following are the four principles of economics:

i)People face tradeoffs

ii)The cost of something is what you give up to get it.

iii)Rational people think at the margin.

iv)People respond to incentives.

21)Define normative economics.

Ans)Normative economics is that which studies things as they should be.It is related to the criteria of ‘What ought to be’ or what should be done.For example,it suggest us about what should be done to solve the problem of inflation.

22)Define Positive economics.

Ans) Positive economics is that which studies things as they happen in reality.It explains whatis,what was,and what will be.It studies cause and effect relationship between economic phenomena.For example,the law of demand studies cause and effect relationship between price and demand for a commodity.

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Adventures In English Vol II

Adventures In English Vol II ,Four levels

adven

Unit One: The Environment

  1. How Sane Are We?
  2. Don’t Cut Down the Trees Brother Woodcutter

Unit Two: Natural Science

  1. To Know a Fly

Unit Three: Humor and Satire

  1. King John and the Abbot of Canterbury
  2. Third Thoughts
  3. Who was to Blame?
  4. The Clock Tower

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Inventory Valuation

Inventory Valuation,Methods,Examples

Inventory Valuation:

Inventory valuation is the cost associated with an entity’s inventory at the end of a reporting period. It forms a key part of the cost of goods sold calculation, and can also be used as collateral for loans. This valuation appears as a current asset on the entity’s balance sheet.

The inventory valuation is based on the costs incurred by the entity to acquire the inventory, convert it into a condition that makes it ready for sale, and have it transported into the proper place for sale. You are not allowed to add any administrative or selling costs to the cost of inventory. The costs that can be included in an inventory valuation are:

  • Direct labor
  • Direct materials
  • Freight
  • Handling
  • Import duties
  • Production overhead

Inventory Valuation Methods

Business owners may recognize the classic inventory valuation methods (i.e. FIFO, LIFO, Weighted Average, etc.), but few know the direct impact that each method will have on their financials. The choice between inventory valuation methods can lead to drastic differences in net income, cost of goods sold, and ending inventory. Are the differences due to some sort of accounting magic? Certainly not! As accountants, we must analyze each method and apply the method that most accurately reflects periodic income. To help accountants with this decision, I will go through three common valuation methods and demonstrate the unique impact that each method will have on the financial statements.

a)First In, First Out(FIFO)

FIFO is based on the principle that the first inventory goods received will be the first inventory goods sold. FIFO results in the highest ending inventory, the lowest cost of goods sold, and the highest net income. This is because the oldest and lowest costs are allocated to cost of goods sold. Ending inventory is valued with the newest and highest cost; which most accurately approximates replacement cost. Net income will increase because the lowest costs were used; which is not an accurate reflection of current cost to current revenue. Another unique factor FIFO offers, is the ability to have the same amounts for ending inventory and cost of goods sold regardless of the use of periodic or perpetual inventory systems.

b)Last In, First Out(LIFO):

LIFO is based on the principle that the last inventory goods received will be the first inventory goods sold. In periods of rising prices, LIFO will result in the lowest ending inventory, the highest cost of goods sold, and the lowest net income. Ending inventory is smaller because the newest and highest prices are sold first, leaving the oldest and cheapest inventory on the books. Cost of goods sold is high because the newest and most expensive inventory is sold first. Net income is the lowest because revenues are matched with the highest inventory costs. LIFO eliminates holding gains because we are selling inventory with the newest cost.

LIFO does produce different ending inventory and COGS amounts when choosing between periodic and perpetual inventory systems. When using periodic inventory systems, costs from the end of the period are used first, regardless of when inventory was sold within that period. This results in the highest COGS and a lower ending inventory. When using perpetual inventory systems, the date inventory is sold determines which inventory costs are used. This results in a lower COGS and a higher ending inventory.

There are several important items to note before using LIFO. First, LIFO is susceptible to incurring obsolete inventory. This is because older inventory will continue to sit on the shelves and may become obsolete over time. Second, if LIFO is used in tax reporting, then LIFO is required to be used for financial statement preparation under US GAAP. Finally, International Financial Reporting Standards prohibit the use of LIFO. Each of these factors should be considered before adopting LIFO.

c)Weighted Average Method(WAM):

Weighted average allocates the average period cost of all homogenous goods in inventory to individual items. At the end of each period, identical inventory items are combined for a total inventory cost. The total inventory cost is divided by the units of inventory available. This calculation provides us the average inventory cost per unit. COGS are determined by multiplying the average cost per unit by the amount of goods sold. Ending inventory is determined by subtracting COGS from the total cost of inventory (not the average!). Weighted average provides a middle ground for determining net income, ending inventory, and COGS.

It is important to note that QuickBooks only permits the use of weighted average. If you decide to use another inventory valuation method, you will have to manually override QuickBooks with journal entries.

Inventory management in your accounting system can be very challenging and confusing. Improper handling of inventory can cause wild swings in your financial reports. TGG Accounting can help clean up or implement these kind of best practices. Call us today.

Example:

(past question-2001)

The following information is concerning Pokhara Metal Inc.

 

Units

Unit cost

Beginning Inventory

Purchases

March 5

June 12

August 23

October 2

200

 

300

400

250

150

Rs.10

 

Rs.11

Rs.12

Rs.13

Rs.15

 

Pokhara Metal Inc. employs a perpetual system, sold 1000 units for rs.22 each during the year. Sale occurred on the following dates.

 

Units

Feb 2

April 30

July 7

September 6

December 3

150

200

200

300

150

 

Calculate the ending inventory and cost of goods sold for each of the following methods.

a.Weighted Average

b.FIFO

c.LIFO

d.Which method can minimize the tax obligation? Explain.

Ans:

                                                          Pokhara Metal Inc.

                                 Calculation of Ending Inventory and Cost of Goods sold

                                                Perpetual Inventory System

                                                Weighted Average Method

Date Purchases Sales Balance
Unit  Cost Amount unit cost amount unit cost amount
Beginning             200 10 2000
12-Feb       150 10 1500 50 10 500
5-Mar 300 11 3300       350 10.86 3801
30-Apr       200 10.86 2172 150 10.86 1629
12-Jun 400 12 4800       550 11.689 6428.95
7-Jul       200 11.689 2337.8 350 11.689 4091.15
23-Aug 250 13 3250       600 12.235 7341
6-Sep       300 12.235 3670.5 300 12.235 3670.5
2-Oct 150 15 2250       450 13.16 5922
3-Oct       150 13.16 1974 300 13.16 3948

 

b.          

                                                      Pokhara Metal Inc.

                                 Calculation of Ending Inventory and Cost of Goods sold

                                                Perpetual Inventory System

                                                    FIFO    Method

Date

     Purchases

          Sales

     Balance

Unit

Cost

Amount

unit

cost

amount

unit

cost

amount

Beginning

 

 

 

 

 

 

200

10

2000

12-Feb

 

 

 

150

10

1500

50

10

500

5-Mar

300

11

3300

 

 

 

 

50

300

 

10

11

 

500

3300

30-Apr

 

 

 

 

50

150

 

10

11

 

500

1650

 150

 11

 1650

12-Jun

400

12

4800

 

 

 

 

 150

400

 

 11

12

 

1650

4800

7-Jul

 

 

 

 

 150

50

 

11

12

 

1650

600

 

 

 350

 

 

12

 

 

4200

23-Aug

250

13

3250

 

 

 

 350

250

12 

13

 4200

3250

6-Sep

 

 

 

 300

 12

 3600

 

 50

250

 

12

13

 

600

3250

2-Oct

 

150

 

15

 

2250

 

 

 

 

 50

250

150

 12

13

15

 600

3250

2250

3-Dec

 50

100

 12

13

 600

1300

 

150

 

13

 

1950

 

150

15

2250

  1100 13600 1000 11400

300

4200

 

c.                                       

                                                    Pokhara Metal Inc.

                                 Calculation of Ending Inventory and Cost of Goods sold

                                                Perpetual Inventory System

                                                        LIFO    Method

Date

Purchases

Sales

Balance

Unit

Cost

Amount

unit

cost

amount

unit

cost

amount

Beginning

 

 

 

 

 

 

200

10

2000

12-Feb

 

 

 

150

10

1500

50

10

500

5-Mar

300

11

3300

 

 

 

 

50

300

 

10

11

 

500

3300

30-Apr

 

 

 

 200

 11

 2200

 

 50

100

 

10

11

 

500

1100

12-Jun

 

400

 

12

 

4800

 

 

 

 

 

 50

100

400

 

10

11

12

 

500

1100

4800

     7-Jul

 

 

 

 

 

 200

 

 

 12

 

 

2400

 

 

 50

100

200

 10

11

12

 500

1100

2400

23-Aug

 

 

 

 

 

250

 

 

 

 

 

13

 

 

 

 

 

3250

 

 

 

 

 

 

 

 

 

 

50

100

200

250

 

 

10

11

12

13

 

 

500

1100

2400

3250

 

 

6-Sep

 

 

 

 

 250

50

 13

12

 3250

600

 

50

100

150

 

 10

11

12

 

500

1100

1800

2-Oct

 

 

150

 

 

15

 

 

2250

 

 

 

 

 

 

 50

100

150

150

 

10

11

12

15

 

500

1100

1800

2250

3-Dec

 

 

 

 

 150

 

 15

 

 2250

 

 

50

100

150

 

10

11

12

 

500

1100

1800

 

1100   13600

1000

 

12200

300

 

3400

 

d.)   Tax is paid on the  basis of net income.Net income inversely relates with expenses ie;income increases with decrease in expenses and vice-versa.Cost of goods sold is any expenses incurred to make the intended goods into selling conditions which is deducted from sales revenue to ascertain gross profit.Thus,higher the cost of goods sold,lower the net income before income tax and vice-versa .In the given case ,cost of goods sold is highest ie;rs 12200 under LIFO method in which tax obligation can optimally be minumized.

 

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Sensation

 Sensation,Sensory thresholds

Sensation:

Sensation is the process that allows our brains to take in information via our five senses, which can then be experienced and interpreted by the brain.Sensation involves the relay of information from sensory receptors to the brain and enables a person to experience the world around them.Sensation is input about the physical world registered by our sensory receptors, such as our eyes, ears, mouth, nose, and skin.

Sensation is the process by which our senses gather information and send it to the brain.  A large amount of information is being sensed at any one time such as room temperature, brightness of the lights, someone talking, a distant train, or the smell of perfume.  With all this information coming into our senses, the majority of our world never gets recognized.  We don’t notice radio waves, x-rays, or the microscopic parasites crawling on our skin.  We don’t sense all the odors around us or taste every individual spice in our gourmet dinner.  We only sense those things we are able too since we don’t have the sense of smell like a bloodhound or the sense of sight like a hawk; our thresholds are different from these animals and often even from each other.

Sensory Threshold:

A sensory threshold is the level of strength a stimulus must reach to be detected. Psychologists study sensory thresholds to learn how humans and animals process sensory information

Types of sensory threshold

a.Absolute Threshold:

The absolute threshold is the point where something becomes noticeable to our senses.  It is the softest sound we can hear or the slightest touch we can feel.  Anything less than this goes unnoticed.  The absolute threshold is therefore the point at which a stimuli goes from undetectable to detectable to our senses.

b.Difference Threshold:

Once a stimulus becomes detectable to us, how do we recognize if this stimulus changes.  When we notice the sound of the radio in the other room, how do we notice when it becomes louder.  It’s conceivable that someone could be turning it up so slightly that the difference is undetectable.  The difference threshold is the amount of change needed for us to recognize that a change has occurred.  This change is referred to as the Just Noticeable Difference.

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Perception

Perception,Process of perception

Perception :

Perception is the activity of sensing,interpreting,and evaluating objects both physical and social.Perception is the set of unconscious processes we undergo to make sense of the stimuli and sensations we encounter.Oerception is the process of organizing and attempting to understand the sensory stimulation we receive ,select organize and interpret our sensations.Our perceptions are based on how we interpret all these different sensations, which are sensory impressions we get from the stimuli in the world around us.

for e.g.

Perception enables us to navigate the world and to make decisions about everything, from which T-shirt to wear or how fast to run away from a bear.

Process of Perception:

A sequence of steps that involves, sequentially: selection of stimuli in the environment, organization of that information, and interpretation of those stimuli.Individual differences are seen in perceptual process.

This process is typically unconscious and happens hundreds of thousands of times a day. An unconscious process is simply one that happens without awareness or intention. When you open your eyes, you do not need to tell your brain to interpret the light falling onto your retinas from the object in front of you as “computer” because this has happened unconsciously. When you step out into a chilly night, your brain does not need to be told “cold” because the stimuli trigger the processes and categories automatically.

a.Receptor process:

Receptors are the specialized cells of the nervous system that are sensitive to stimuli.Presence of several receptors located in eyes,ears,nose ,skin,mouth,etc gives knowledge of sensory stimulation .When information reaches the receptors ,the response of these cells are called receptor process.

For e.g.

When you see your friend  suddenly after a long time ,seeing her the receptors(rods and cones) of eye gets activated ,hearing her voice auditory receptor(basilar menbrane) gets activated,shaking hands with her activates the cutaneous receptors,the smell of her perfume arouses cilia of the olfactory receptor.

  Note:

The receptors can be activated simultaneously ,but the perception is only to a particular receptor process.

for e.g.

Suppose one of your friend called you and at the same time your mobile rings which one is to be attended?You will consider the preference first and then attend the later.

b.Symbolic process:

In the second step of the perception process,it is also necessary for our brain to categorize and interpret what we are sensing.When we sense stimulus in present time,it stimulates several activities in the associative neurons of the cortex resulting in receiiving the stored engrams .This is called symbolic process.Our ability to interpret and give meaning to the object is next step called recognition.This received information are categorized and recognized with a particular identifying  name.This process is called symbolic because  they represent the objects ,situations or events of the past.

Mental images of different odors ,ideas ,signs symbols ,shapes ,impressive words ,memories ,languages ,concepts are used in perception as a substitute for an actual object.The mental thought or activity helps in a symbolic way to process selective response.The previous experiences can be recalled even if it ceases to be present.

for e.g.

You can easily remember the activity you were carrying when you heard the royal palace incident which killed most of the royal members .How do you make it possible mentally?It is the symbolic impressions doing the job for you.

c. Affective process:

Affective process reminds the emotions attached to a stimulus.While perceiving we do not only have the images of an object but also its impressions as pleasent-unpleasent,liked-disliked,interesting-uninteresting,love-hate,for or against or perhaps non of these.Affective process is the feeling ,the sentiments attached to an object or person.

for e.g.

Can you recall the most pleasant or unpleasant experience that happened in your life?Why do you call it pleasant or unpleasant ;because it is attached with the affective perception of the situation ?Affective process overlaps the recall of the past experience of receptor and symbolic functions.

                                  It is related with situation .If situation is favourable ,individual takes it as a pleasure ,if unfavourable may be against it.It may be related with organic physical condition of the individual.

for e.g

If a person is hungry the situation is pleasant but if the person is sick it may be highly unpleasant.

                                  It also involves aesthetic experience e.g evaluation of good or bad,beautiful or ugly ,smooth or rough,melodious or hoarse,etc.

d.Unification process:

The interpretaion of the meaning of something that we have perceived is possible not only with receptor ,symbolic,affective process alone but also to their unified effort.Unification process states that all the processes of perception are needed to have a clear picture and understanding of what we perceive.

for e.g.

Cooking meal ,judgement that food is delicious or not,liked or unliked also depends upon past experience .In this way ,the processes of perception overlap upon the arousal of receptor,symbolic and affective processes altogether  this is called unification process.

 

 

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Accounting Equation

Accounting Equation,Financial Accounting I,BBA first semester,BBA-BI second semester

Accounting Equation:

The accounting equation displays that all assets are either financed by borrowing money or paying with the money of the company’s shareholders. Thus, the accounting equation is: Assets = Liabilities +Shareholder Equity. The balance sheet is a complex display of this equation, showing that the total assets of a company are equal to the total of liabilities and shareholder equity. Any purchase or sale by an accounting equity has an equal effect on both sides of the equation, or offsetting effects on the same side of the equation. The accounting equation is also written as Liabilities = Assets – Shareholder Equity and Shareholder Equity = Assets – Liabilities.

Example:

                                                    Accounting Equation for the month of march

                                                     Expert Counselling Service Incorporation

Assets = Liabilities and Owners Equity
Date Cash A/R Supplies Equipment     A/P N/P Capital Stock R/E
2-Mar 40000               40000  
7-Mar 15000             15000    
bal 55000             15000 40000  
12-Mar     700       700      
bal 55000   700       700 15000 40000  
19-Mar   4000               4000
bal 55000 4000 700       700 15000 40000 4000
20-Mar (1,300)                 (1300)
bal 53,700 4000 700       700 15000 40000 2700
22-Mar 1000 (1000)                
bal 54,700 3000 700       700 15000 40000 2700
26-Mar 2800                 2800
bal 57,500 3000 700       700 15000 40000 5500
29-Mar (8000)     8000            
bal 49,500 3000 700 8000     700 15000 40000 5500
30-Mar (3300)                 (3300)
bal 46,200 3000 700 8000     700 15000 40000 2200
31-Mar (1400)                 (1400)
  44,800 3000 700 8000     700 15000 40000  800
Total Assets=56500     Total liabilities +O/E=56500

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Worksheet

Worksheet: 

An accounting worksheet is a spreadsheet used to prepare accounting information and reports. Accounting worksheets are most often used in the accounting cycle process to draft an unadjusted trial balance, adjusting journal entries, adjusted trial balance, and financial statements.

Worksheets are prepared at the end of an accounting period and usually include a list of accounts, account balances, adjustments to each account, and each account’s adjusted balance all sorted in financial statement order. As you can imagine, after a worksheet is completely filled out, preparing financial statements manually is quite simple. Most of the preparation work goes into drafting the worksheets.

As with most working papers, accounting worksheets are designed for internal purposes only. External users like investors and creditors rarely if ever get to see a company’s accounting worksheet. This means that the worksheet format can be flexible. Companies can customize the format of their worksheets to fit their internal demands and work flow needs.

Bookkeepers and accountants use accounting worksheets for a variety of reasons. Worksheets make transferring t-accounts into an adjusted trial balance much easier. Worksheets also reduce the risk of errors making errors when producing financial statements.

Worksheets can also be used for planning purposes. Since the worksheets are used to make adjusting journal entries, managers can examine the worksheets before the adjustments are posted to see their effect on the overall financial statements. Worksheets can also be helpful in preparing interim financial statements.

Example:

 

                                     Forever Green Land Scaping

                                            August 31,2012            

 

Accounting Heads Unadjusted TB Adjustment Adjusted TB Income Statement Balance Sheet
  Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash 6460       6460       6460  
Accounts Receivable 23400       23400       23400  
Supplies on hand 1260     530 730       730  
Prepaid Insurance 3675     175 3500       3500  
Equipment 28800       28800       28800  
Acc. Depn Equipmnt   9200   600   9800   Foreve   9800
Buildings 72000       72000       72000  
Acc. Depn Building   16800   200   17000       17000
Accounts Payable   10500       10500       10500
Notes Payable   10000       10000       10000
Capital Stock   40000       40000       40000
Retained Earnings   42100       42100       42100
Service Revenue   14200       14200   14200    
Advertising Expenses 1200       1200   1200      
Gasoline and Oil Expenses 1775       1775   1775      
Wages and salary Expenses 4230   3320   7550   7550      
Adjustments                    
Supplies expenses     530   530   530      
Insurance expenses     175   175   175      
Depreciation exp Equipmnt     600   600   600      
Depreciation exp Buildings     200   200   200      
Rent Receivable     700   700       700  
Rent Revenue       700   700   700    
Wages and salary payable       3320   3320       3320
Interest expenses     100   100   100      
Interest Payable       100   100       100
              2770     2770
  142800 142800 5625 5625 147720 147720 14900 14900 135590 135590

 

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