scr banking maths 8.docx
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+7)/3=y
m=1/3
m=y2-y1/x2-x1
1/3=k/3
1=k
1. Peter and Paul start simultaneously
on 2 different cars from Point A and
travel towards Point B at speeds of
52 kmph and 39 kmph respectively
on the same road. As soon as Peter
reaches Point B, he returns back to
Point A on the same road and meets
Paul on the way. How far from Point
B do the two friends meet, if the
distance between the 2 points is 70
kms?
Solution:
Since they are meeting after
sometime say T. Therefore,
compare the time taken by both
peter and paul.
70+x is covered by peter and 70-x is
covered by paul.
(70+x)/52 = (70-x)/39
this gives x=10.
2. In triangle ABC, AD is the bisector of
|A, AB=10 cm, AC=14 cm and area
of triangle ABD = 140 sq cm. Findarea of triangle ACD
Solution:
Any angle bisector of any angle
between 2 sides of a triangle divides
the Area of the triangle into the ratio
of sides .
Area of any triangle is 1/2 *(Product
of any 2 sides of the triangle) * (Sin
of Angle between those 2 sides)
Now coming to the question at
concern.
Here area of ABD => 140 = 1/2*(AB
* AD) *(Sin of angle BAD) ---eqn (1)
Area of ACD = 1/2*(AC*AD) * (Sin of
angle DAC) ---eqn(2)
angle DAC = angle BAD ---eqn(3)
as angle A is bisected
Using eqn 1 and 2 and 3, gives 196
as area of ACD.
3. The rate of a certain chemical
reaction is directly proportional to thesquare of the concentration of
INTANGIBALE ASSSETS
CAN BE TREATED IN THE
SAME WAY AS FIXEDASSETS.
THEY ARE NEEDED FOR
OPERATION AND ARE
ACQUIRED WITH
ENTERPRISE FUNDS.
EXAMPLE:
PATENTS CAPITALIZED
& MAY BE
EXPENSED
OVER A
PERIOD OF
TIME
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chemical A and inversely
proportional to the concentration of
chemical B present. If the
concentration of chemical B is
increased by 100%, which one of the
following is the closest to the
percentage change in theconcentration of chemical A required
to keep the reaction rate
unchanged?
a)100% decrease
b)50% decrease
c)40% decrease
d)40% increase
e)50% increase
Solution:
4. Let the rate of the reaction be R
Let concentration of chemical A be A
Let concentration of chemical B be B
Then R is proportional to A
R is also proportional to 1/B
Hence, R is proportional to A/B
If C is a constant, R=C*(A/B)
If the concentration of B is increased
100% B becomes 2B (
B+(100/100)*B = 2B)
Let A2 be the new concentration of
chemical A for the rate to beconstant
Then R
II. k+2kt+t
III. k+t
a) None
b) I only
c) II only
d) III only
e) I,II and III
Solution:
First, you must find out whether k
and t are odd or even. This problem
is all about the results of performing
operations on even and odd
numbers.
Given that k^2 - t^2 is an odd
number, then you know that k^2 is
even, and t^2 is odd. Of course, it
could be reverse, but it shouldn't
matter because of commutative and
associative laws.
So, you then know that k must beeven, and t must be odd. Even *
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Even = Even, and Odd * Odd = Odd.
Now, just go through the statements:
1: Even + Odd + Even = Odd
2: Even*Even + Even*Even*Odd +
Odd*Odd = Even + Even + Odd =
Odd
3: Even + Odd = OddAnswer then is None (A).
5. A contractor combined x tons of a
gravel mixture than contained 10%
gravel G, by weight, with y tons of a
mixture that contained 2% gravel G,
by weight, to produce z tons of a
mixture that was 5% gravel G, by
weight. What is the value of x?
(1) Y=10
(2) Z=16
Solution:
Mixture 1 : 10% gravel and quantity
: x tonnes
Therefore amount of gravel : 0.1x
Mixture 2 : 2% gravel and y tonnes
Amount of gravel : 0.02y
They are mixed to produce a mixture
of z tonnes that is 5% gravel
Hence, 0.1x+0.02y=0.05z
We need x.
Statement 1y=10
Now x+y=z
x+10=z
Putting it in the equation
0.1x+10*0.02=(x+10)0.05
We can get x, hence sufficient.
Statement 2
z=16
==>x+y=16
And we have
0.1x+0.02y=0.05z
i.e
0.1x+0.02y=0.05*16
We can solve for x and y, hence
sufficient,
Hence D
6. True # of items = (total # in group 1)
+ (total # in group 2) + (total # in
group 3) - (# in at least 1/2) - (# in at
least 1/3) - (# in at least 2/3) + (# in
1/2/3)
True # of items = (total # in group 1)+ (total # in group 2) + (total # in
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group 3) - (# in only 1/2) - (# in only
1/3) - (# in only 2/3) - 2(# in 1/2/3)
Examples:
At a certain school, each of the 150
students takes between 1 and 3
classes. The 3 classes available are
Math, Chemistry and English. 53
students study math, 88 study
chemistry and 58 study english. If 6
students take all 3 classes, how
many take exactly 2 classes?
In this case, we'd use the firstformula, since we want the number
who take exactly 2 classes:
150 = 53 + 88 + 58 - (doubles) -2(triples)150 = 199 - (doubles) - 2(6)150 = 187 - doublesdoubles = 37
Let's just change the question a tinybit:
At a certain school, each of the 150
students takes between 1 and 3
classes. The 3 classes available are
Math, Chemistry and English. 53
students study math, 88 study
chemistry and 58 study english. If 6
students take all 3 classes, how
many take at least 2 classes?
In this case, we'd use the second
formula, since we want the number
who take at least 2 classes:
150 = 53 + 88 + 58 - (at least 2 ofthe 3) + (all 3)
150 = 199 - (at least 2 of 3) + 6
150 = 193 - (at least 2 of 3)
At least 2 of 3 = 43
7. In the xy-coordinate system, if (a,b)
and (a+3, b+k) are two points on the
line defined by the equation x = 3y-
7, then k=
(A) 9
(B) 3
(C) 7/3(D) 1
(E) 1/3
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Solution:
8. like both strawberry and apple jam,
what is the largest possible number
of people who like raspberry jam but
do not like either strawberry or apple
jam?
Solution:
40% of the 200 like Raspberry (I'm
assuming you got 80 by simply
taking 40% of 200). However, there
are people who like other jams as
well.
In general, when we're asked to
maximize one thing in a GMAT
question, we want to minimize
everything else.
In this question, to maximize the
number of people who like just
raspberry, we need to minimize the
number of people who like
strawberry and/or apple PLUS
raspberry.
Here's what we know about
Strawberry/Apple:
112 people like Strawberry
88 people like Apple.
60 people like both of them.
Since only 60 people like both ofthem, this means that:
52 people like only strawberry;
28 people like only apple; and
60 people like both.
That's already 140 people. We only
started with 200, so the maximum
possible number of people who
could dislike both apple and
strawberry is 60.
9. Right triangle PQR is to be
constructed in the xy-plane so that
the right angle is at P and PR is
parallel to the x-axis. The x and y
coordinates of P, Q and R are to be
integers that satisfy the inequalities -
4
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No. of possible value for x=10 and
y=11
1) information given is right angle at
P, PR(ll) to x axis
information inferred y coordinates of
p and r is same.
2) PQ (llel) y therefore x coordinates
of P and Q is same.
For P x can be selected in 10 ways
and y in 11 ways = 10*11
For R x in 9 ways and y in 1 way (as
same of P) =9*1
For q x in 1 way and y in 10 ways
(one already selected for P) =10*1
Total ways=10*11*9*10=9900
10. A password of a computer used five
digits where they are from 0 and 9.
What is the probability that the
password solely consists of prime
numbers and zero?
A 1/32
B 1/16
C 1/8
D 2/5
E
Solution:
There are 10 possible options
(0,1,2,3,4,5,6,7,8,9) for each digit.
5 of the options (0,2,3,5,7) are zeroor prime.
So, P(a given digit is zero or prime)
= 5/10 = 1/2
A quick way is to look at this as an
AND probability.
P(all five digits are zero or prime) =
P(1st digit is zero or prime AND 2nd
digit is zero or prime AND 3rd digit is
zero or prime AND 4th digit is zero
or prime AND 5th digit is zero or
prime)
This is equal to P(1st digit is zero or
prime) x P(2nd digit is zero or prime)
x P(3rd digit is zero or prime) x P(4th
digit is zero or prime) x P(5th digit is
zero or prime)
So, we get 1/2 x 1/2 x 1/2 x 1/2 x 1/2
= 1/32
11. There are two set each with the
number 1, 2, 3, 4, 5, 6. If randomly
choose one number from each set,
what is the probability that theproduct of the 2 numbers is divisible
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by 4?
Solution:
12. Picking 2 numbers from each set :
6c1*6c1=36
Favorable outcomes = 15
(1,4)(2,2),(2,4),(2,6)
III. k+t
a) None
b) I only
c) II only
d) III only
e) I,II and III
Solution:
First, you must find out whether k
and t are odd or even. This problem
is all about the results of performing
operations on even and odd
numbers.
Given that k^2 - t^2 is an odd
number, then you know that k^2 is
even, and t^2 is odd. Of course, it
could be reverse, but it shouldn't
matter because of commutative and
associative laws.
So, you then know that k must be
even, and t must be odd. Even *
Even = Even, and Odd * Odd = Odd.Now, just go through the statements:
1: Even + Odd + Even = Odd
2: Even*Even + Even*Even*Odd +
Odd*Odd = Even + Even + Odd =
Odd
3: Even + Odd = Odd
Answer then is None (A).
13. A contractor combined x tons of a
gravel mixture than contained 10%
gravel G, by weight, with y tons of a
mixture that contained 2% gravel G,
by weight, to produce z tons of a
mixture that was 5% gravel G, by
weight. What is the value of x?
(3) Y=10
(4) Z=16
Solution:
14. Mixture 1 : 10% gravel and quantity
: x tonnes
Therefore amount of gravel : 0.1x
Mixture 2 : 2% gravel and y tonnes
Amount of gravel : 0.02y
They are mixed to produce a mixture
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of z tonnes that is 5% gravel
Hence, 0.1x+0.02y=0.05z
We need x.
Statement 1
y=10
Now x+y=zx+10=z
Putting it in the equation
15. Right triangle PQR is to be
constructed in the xy-plane so that
the right angle is at P and PR is
parallel to the x-axis. The x and y
coordinates of P, Q and R are to be
integers that satisfy the inequalities -
4
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or prime.
So, P(a given digit is zero or prime)
= 5/10 = 1/2
A quick way is to look at this as an
AND probability.
P(all five digits are zero or prime) =P(1st digit is zero or prime AND 2nd
digit is zero or prime AND 3rd digit is
zero or prime AND 4th digit is zero
or prime AND 5th digit is zero or
prime)
This is equal to P(1st digit is zero or
prime) x P(2nd digit is zero or prime)
x P(3rd digit is zero or prime) x P(4th
digit is zero or prime) x P(5th digit is
zero or prime)
So, we get 1/2 x 1/2 x 1/2 x 1/2 x 1/2
= 1/32
Contrary to popular belief, credit
cards are a form of money even
though people often refer to
them as "plastic money. " Credit card
users are actually taking out a loan
and sooner or later, they will have to
pay the bill for all those things theyhave charged. They are buying
something now and agreeing to pay
for it at a later date with money,
usually a check.
Many banks issue credit cards, even
to people who aren't regular
customers. Before issuing you a
credit card, a bank will require you to
complete an application form and will
examine your credit record to see if
you have a history of paying back
your debts on time. Many people run
up credit card bills that are too big to
pay off every month. When that
happens customers must pay a
monthly finance charge that can run
anywhere from 10 percent to 24
percent a year. In addition, manybanks and other companies that
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issue credit cards charge their
cardholders an annual fee usually
$20 to $50 a year. Even customers
who pay off their entire credit card bill
every month still have to pay the
annual fee. Banks and credit cardcompanies also charge merchants a
fee for making the credit card service
available. Finance charges, annual
fees, and merchant fees have
become an important source of profit
for banks.
Finally there's another plastic card
that resembles a credit card in
appearance but is actually very
different in functionthe debit card.
A debit card is much more like an
ATM card than a credit card. When
someone uses a debit card at the
gas pump or at a store, the amount
of the purchase is electronically
deducted from the user's bank
balance. There's no monthly bill
because the amount of cashpurchase is deducted almost
immediately from the users account.
What Happens to
Your Money After
You Deposit it inYour Bank
Account?
The bank begins by adding the
amount you're depositing to the
amount that's already in your
account (your existing balance).Your deposit and new balance are
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entered into your "passbook" and into
the bank's computer system. The
money you deposited is mixed in with
all the other cash the bank received
that day.
When you and other customers
deposit money in a bank, the bank
puts most of it to work. Part of the
money is set aside and held in
reserve, but much of the rest is
loaned to people who need to borrow
money in order to buy houses and
cars, start or expand businesses, buy
farm equipment or to plant crops, or
do any of the other things that require
people to borrow money.
Interest - Compounding
When you keep your savings in a
bank, the bank pays you extra
money, which is called interest. The
interest is added to your account on
a regular basisusually once a
month or once every three months
(quarterly). Compounded interest
means that interest is added to your
balance (usually quarterly), then the
next quarter the interest is computed
on your money deposited plus the
last quarter interest.
Example: New Balance = $500. 00
Interest rate = 5% Annual = $25. 00
New Balance = $500. 00
Interest rate = 5% Compounded
quarterly = $25. 72
You would earn $. 72 more with the
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interest compounded quarterly and
the annual yield rate would be 5.
14%. Banks must disclose to you if
the savings account is compounded
and how often it is compounded and
give you the annual yield rate as aresult of the compounding. Some
banks may compound interest as
often as daily. The shorter the
compound period, the higher the
yield rate would be.
There is another side to interest.
When someone borrows money from
a bank, the bank charges them
interest and it charges borrowers a
higher rate than it pays savers. For
example, it might pay savers 5% and
charge borrowers 8% on up to as
high as 25% imposed on some bank
credit cards.
A bank is a business and like other
businesses, banks sometimes fail.
But why should banks go out ofbusiness? Sometimes banks fail
because the people who run them
make poor business decisions such
as expanding too quickly, pushing
too much money into one type of
loan, or using bad judgment making
loans. Sometimes banks fail
because of fraud. Maybe the
president makes questionable loans
to friends or hires unqualified people
and pay them huge salaries.
Things like that happen The bank
begins by adding the amount you're
depositing to the amount that's
already in your
account (your existing balance).
Your deposit and new balance are
entered into your "passbook" and into
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the bank's computer system. The
money you deposited is mixed in with
all the other cash the bank received
that day.
When you and other customers
deposit money in a bank, the bank
puts most of it to work. Part of the
money is set aside and held in
reserve, but much of the rest is
loaned to people who need to borrow
money in order to buy houses and
cars, start or expand businesses, buy
farm equipment or to plant crops, or
do any of the other things that require
people to borrow money.
Interest - Compounding
When you keep your savings in a
bank, the bank pays you extra
money, which is called interest. The
interest is added to your account on
a regular basisusually once a
month or once every three months
(quarterly). Compounded interest
means that interest is added to your
balance (usually quarterly), then the
next quarter the interest is computed
on your money deposited plus the
last quarter interest.
Example: New When you fill in the
blank spaces on one of your checks,
you are telling your bank how much
of your money you want to transfer
and to whom you want it transferred.
You authorize the transfer by signing
y our check. One reason why checks
are so popular is that people can use
a cancelled check to prove they paid
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a bill. In most cases a cancelled
check is as good as a receipt
because it bears the endorsements
of all the persons, banks, companies,
or other organizations that have
handled it. For example if thelandlord claims you didn't pay your
rent, all you need to do is find your
cancelled check and point out that it
was endorsed by your landlord and
your landlord's bank.
Tracing a Check
Through the
Federal Reserve's
Check Collection
Network
1. Your Aunt sent you a $20
Check for your birthday.
2. You deposit the check in your
savings account at your bank.
3. Your bank endorses the check
and sends it to its Federal Reserve
Bank.
4. The Federal Reserve Bank
gives your bank credit for the
check by adding the amount of
the check to your banks
reserve account or clearing
balance.
5. The Federal Reserve
Transportation system flies the check
to your Aunt's Bank FederalReserve Bank.
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6. That Federal Reserve Bank
forwards the check to your Aunt's
bank and deducts the
appropriate amount from thatbank's reserve account.
7. Your Aunt's bank deducts the
$20 from your Aunt's checking
account.
Check 21 is a sweeping new federal
law effective October 28, 2004 thattakes away your ability to get back
your original paper checks. Under
this law, consumers could be more
likely to bounce checks and may find
themselves paying higher bank fees.
The complicated new law gives you
some rights, but those rights depend
on a variety of factors, including how
the merchant and the bank decide to
process your check. Visit the FRB's
web site on the new law:http://www.
federalreserve.
gov/paymentsystems/truncation/.
What is Electronic
Banking?Electronics and computers have
made banking an around-the-clock
business. You can now do much of
your banking even when your bank is
closed. You no longer need to plan
your schedule around your banks
business hours.
Automated Teller Machines (ATMs)
http://www.federalreserve.gov/paymentsystems/truncation/http://www.federalreserve.gov/paymentsystems/truncation/http://www.federalreserve.gov/paymentsystems/truncation/http://www.federalreserve.gov/paymentsystems/truncation/http://www.federalreserve.gov/paymentsystems/truncation/http://www.federalreserve.gov/paymentsystems/truncation/http://www.federalreserve.gov/paymentsystems/truncation/http://www.federalreserve.gov/paymentsystems/truncation/ -
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are computers that are much like
limited-service bank branches. You
can use them to make a withdrawal,
make a deposit, make a payment,
transfer money from one account to
another, or check your accountbalance. In some cases, ATMs of
different banks are linked together so
you can use them when you travel to
a different part of town or even to
another state. All you need to use an
ATM is a plastic card from your bank
and your own personal password
called a PIN number.
You can also have your employer
electronically deposit your pay
directly to your bank account each
payday. Direct deposit is also
popular among people who receive
Social Security checks or pension
checks because it saves them the
bother of standing in line at the bank,
battling bad weather, or worrying
about being robbed on the way homefrom the bank
Another electronic banking
service is called electronic funds
transfer or EFT. By using EFT, a
bank can transfer large amounts
of money to another bank by
wiring an electronic message.
There is no need to write a checkor load up an armored car with
cash and there's no long wait for
the money to be moved.
Electronic transfers take only an
instant. An electronic message
instructs a computer to deduct a
certain amount 2. You deposit
the check in your savings account
at your bank.
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3. Your bank endorses the check
and sends it to its Federal Reserve
Bank.
4. The Federal Reserve Bankgives your bank credit for the
check by adding the amount of
the check to your banks
reserve account or clearing
balance.
5. The Federal Reserve
Transportation system flies the check
to your Aunt's Bank Federal
Reserve Bank.
6. That Federal Reserve Bank
forwards the check to your Aunt's
bank and deducts the
appropriate amount from that
bank's reserve account.
7. Your Aunt's bank deducts the
$20 from your Aunt's checking
account.
Check 21 is a sweeping new federal
law effective October 28, 2004 that
takes away your ability to get back
your original paper
minimum balance) in your NOW
account in order to keep earning
interest. Only non-business
customers may open NOW accounts,
businesses must use regular
checking accounts.
Money market deposit accounts
usually pay a higher rate of interest
and require a higher minimum
balance (usually $2,500).
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Certificates of deposit (CDs) are
savings deposits that require a
customer to keep a certain amount of
money in the bank for a fixed periodof time (example: $1,000 for two
years). As a rule the rate if interest
your money earns is higher if you
agree to keep your money on deposit
for a longer period of time. (That's
because banks can plan on using
your money for a longer period of
time.) Banks do not offer check-
writing privileges on certificates of
deposit.
Finally, banks don't always call their
accounts by the same names. Often
they choose distinctive names in
hopes of attracting customer. But
sometimes there can be a real
difference between one bank's
accounts and another's, so shop
around.
homebuyers. Most of the loans went
to people who didn't make enough
money to be welcome at traditional
banks.
Credit unions began as a 19th-
century solution to the emergency
needs of people who were unable to
borrow money from traditional
lenders. Before the opening of credit
unions, ordinary citizens had no
place to turn when they faced
unexpected home repairs, medical
expenses, or other emergencies.
Credit unions were started by people
who shared a common bond such as
working at the same factory,belonging to the same house of
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worship, or farming in the same
community. Members pooled their
savings and used the money to make
small loans to one another.
Although there are still differences
between banks and thrifts, they now
offer many of the same banking
services to their customers. Most
commercial banks now compete to
make car loans, many thrifts have
begun to make commercial loans,
and some credit unions make loans
to homebuyers.
used to be. For starters you should
shop around to find out which banks
offer the most competitive services.
Some banks charge a monthly fee if
your account falls below a certain
level and sometimes that fee can be
higher than the interest your accountmay earn.
Some states prohibit banks from
charging fees on savings accounts
held by people under 18 or 65 and
over. Find out if your state has such
a law.
Other things you might want to
consider:
Does your bank pay itsdepositors a competitiveinterest rate?
Is the bank in a convenientlocation and are its businesshours convenient to you?
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Is your deposit fully insured
by the federal government?
Is the bank a good corporate
citizen? Does it invest in yourneighborhood?
Last, but certainly not least, does
your bank provide courteous and
efficient service? Before you open an
account, ask a few people if they are
happy with their bank. All banks are
not the same. It's up to you to do
some comparison shopping before
you open an account.
loans, business loans, checking
accounts, savings accounts,
certificates of deposit, and credit card
services. Some people go to the
bank in search of a safe place to
keep their money. Others go to the
bank seeking money for loans to buy
houses or cars, start businesses,
expand farms, or do any of the other
things that require borrowing money.
Where do banks get the money to
lend? They get it from all the people
who open savings and other types of
accounts. Banks act as a go
between the people who save and
people who need to borrow. If
savers didn't put their money in
banks, the banks would have little orno money to lend.
Your savings are combined with
everyone else's savings to form a big
pool of money. The bank uses that
pool of money to make loans. The
money doesn't belong to the bank's
president, board of directors, or
stockholders. It belongs to thedepositors. That's why banks have a
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special obligation not to take big risks
when they make loans.
How did Banking
Begin?No one knows who started the
world's first bank, but it's safe to say
that banking has it roots in the early
trading civilizations of the
Mediterranean ocean. Without trade
there would have been little need toestablish banks. Without banks there
would have been less money to
finance trading ventures.
Imagine for a moment that you are a
merchant in ancient Greece or
Phoenicia. You make your living by
selling to distant ports with boatloads
of olive oil and spices. You don'tgrow the olive oil and spices yourself;
you buy them from growers or other
merchants. If all goes well, you will
be paid for your cargo when you
reach your destination, but before
you can sail, you must have money
to outfit your ship.
You find it by seeking out people whohave money sitting idle. They agree
to put up the money for your cargo
and supplies in exchange for a share
of your profits when you return from
your voyage. . if you return. The
people with the idle money are
among the world's first lenders and
you are among the world's first
borrowers. You complain that they're
demanding too large a share of yourprofits. They reply that your voyage
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is perilous and they run a risk of
losing their entire investment.
Lenders and borrowers have carried
on this debate ever since.
Today, most people who want to
borrow money go to banks rather
than to wealthy individuals. But the
basic concepts of borrowing and
lending haven't really changed.
People don't let you have their
money for nothing. It's risky to lend
money. There's no guarantee that a
lender will get the money back, even
if the borrower is an old friend. So
why lend money? Why take the risk?
Because lending presents an
opportunity to make even more
money. People will often take a
financial risk if they believe there is a
good chance of making more money.
If a bank lends $50,000 to a
borrower, the bank isn't satisfied to
just get its $50,000 back. In order to
make a profit, the bank charges
interest on the loan. Interest is the
price borrowers pay for using
someone else's money. If a loan
seems risky, the lender will charge
more interest to offset the risk. (If
you take a bigger risk, you want a
bigger return). Of course, the
opportunity to earn lots of interestwon't mean much if a borrower fails
to repay a loan. That's why banks
often refuse to make loans that seem
too risky.
Banks also use interest to attract
savers. After all, people who have
extra money don't have to put it in the
bank. They have lots of choices. But
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in addition to all of the different types
of accounts banks offer depositors,
the added advantage is being able to
get to their money quickly.
How is a Bank
Started?The process varies from state to
state, but here's a simple version of
what it takes to start a bank.
1. Individuals get together anddecide to start a bank.
2. They file an application with thefederal and state bankingauthorities. In Indiana, it's theIndiana Department of FinancialInstitutions.
3. People at the state bankingauthority review the application.They look closely at the financialcondition and the character of theapplicants.
4. After reviewing the application,
the federal and state banking
authorities will either approve
or deny it.
\living by selling to distant ports with
boatloads of olive oil and spices.
You don't grow the olive oil and
spices yourself; you buy them from
growers or other merchants. If all
goes well, you will be paid for your
cargo when you reach your
destination, but before you can sail,
-
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you must have money to outfit your
ship.
You find it by seeking out people who
have money sitting idle. They agree
to put up the money for your cargo
and supplies in exchange for a share
of your profits when you return from
your voyage. . if you return. The
people with the idle money are
among the world's first lenders and
you are among the world's first
borrowers. You complain that they're
demanding too large a share of your
profits. They reply that your voyage
is perilous and they run a risk of
losing their entire investment.
Lenders and borrowers have carried
on this debate ever since.
Today, most people who want to
borrow money go to banks rather
than to wealthy individuals. But the
basic concepts of borrowing and
lending haven't really changed.
People don't let you have their
money for nothing. It's risky to lend
money. There's no guarantee that a
lender will get the money back, even
if the borrower is an old friend. So
why lend money? Why take the risk?
Because lending presents an
opportunity to make even more
money. People will often take afinancial risk if they believe there is a
good chance of making more money.
If a bank lends $50,000 to a
borrower, the bank isn't satisfied to
just get its $50,000 back. In order to
make a profit, the bank charges
interest on the loan. Interest is the
price borrowers pay for using
-
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someone else's money. If a loan
seems risky, the lender will charge
more interest to offset the risk. (If
you take a bigger risk, you want a
bigger return). Of course, the
opportunity to earn lots of interestwon't mean much if a borrower fails
to repay a loan. That's why banks
often refuse to make loans that seem
too risky.
SOURCES
PROPRIETORS CAPITAL ORIGINAL
AMOUNT
INVESTED IN
ENTERPRISE
Profit before Taxes
Depreciation STOCK-COMMON/
PREFERRED
AMOUNT
INVESTED BY
SHAREHOLDE
Increase in A/C Payable COST OF PROTOTYPE
DEVELOPMENT &
STUDIES FOR IMPROVED
PRODUCTIO, EFFICIENCY
& PROCESS
DEVELOPMENT (COULD
ALSO BE EXPENSED)
Increase in Bank Loan RETAINED EARNINGS EARNINGS
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RETAINED
AFTER
DISTRIBUTION
OF DIVIDENDS
ACCURED EXPENSES PORTION OF
SALARIES DU
BUT NOT YET
PAID
Total Sources
ACCRUED TAXES PORTION OF
TAXES DUE
BUT NOT YET
PAID
APPLICATIONS SHORT-TERM LOANS LOANS TO BE
REPAID IN
LESS THAN
ONE YEAR
Expenditures for plant/
equipment
Repayment of Long-term
Debt
LONG-TERM LOAN
(current portion)
PORTION OF
LOAN TERM
DEBT DUE FO
PAYMENT
WITHIN ONE
YEAR
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Increase in A/C Receivable
Increase in Inventories
Taxes
Dividends
Total Applications
Increase (decrease) in Cash
RESEARCH AND
DEVELOPMENT
(DEFERRED REVENUE EXPENDITURE)
GOODWILL
PATENTS, CPOYRIGHTS
PRE-OPERATING EXPENSES
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BUSINESS LOSS
* NONPHYSICAL POOSESSIONS OF AN ENTERPRISE EXPECTED TO YIEL
A PERIOD OF YEARS
PETTY CASH
MONEY IN BANK
RAW MATERAIL
SPARE PARTS & CONSUMABLES
WORK-IN-PROCESS FINISHED PRODUCT (UNSOLD)
GOODS & SERVICES SOLD BUT NOT YET PAID FOR
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NOTES & DEPOSITS DRAWING INTEREST, ETC
INSURANCE PREMIUMS LICENSE FEES
RENT
INTEREST ACCRUED
BUT NOT DUE
Current Assets
Cash/ Bank Balance
Accounts Receivable
Inventories
Total Current Assets
Current Liabilities
Short-term Loans
Accounts Payable
Total Current Liabilities
Net Current Assets
Total Assets
Long-term Liabilities
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Long-term Loan
Debenture
Deposits
EQUITY & LIABILITIES
Equity
Equity Share Capital
Preference Share Capital
Retained Earning
Total Equity
LIABILITIES
Equity
Capital Stock
Retained Earnings
Total Equity
Long-term Liabilities
Long-term Debt
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Current Liabilities
Short-term Loans
Accounts Payable
Total Current Liabilities
TOTAL LIABILITIES & EQUIY
CONSISTENCY
ONCE A METHOD OR POLICY IS ADOPTED, SUBSEQUENT
TRANSACTIONS WILL BE TREATED IN THE SAME WAY;
OTHERWISE, CHANGES SHOULD BE EXPLAINED
8) COSERVATISM
TO AVOID OVERSTATEMENT, WHENEVER THERE IS
CHOICE IN VALUING ASSETS OR LIABILITIES THE MORE
CONSERVATIVE VALUE WILL BE USED
9) MATERIALITY
TRIVIALITIES ARE IGNORED. PERSONAL JUDGEMENT AND
COMMON SENSE DETERMINE WHETHER AN ITEM IS TRVIAL OR
NOT
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The Going Concern Concept
ACCOUNTING IS BASED ON ASSUMPTION THAT THE
ENTERPRISE WILL OPERATE INDEFINITELY
4) The Cost Concept
FIXED ASSETS ARE ACCOUNTED FOR AT ACQUISITION COST
RATHER THAN VALUE THEY COULD BE SOLD FOR
5) The Dual Aspect Concept
EVERY (EVENT) TRANSACTION RECORDED AFFECTS AT LEAST
TWO ITEMS IN A FINANCIAL STATEMENT
6) The Accrual Concept
INCOME AND EXPENSES ARISING FROM TRANSACTIONS ARE
RECORDED IN THE PERIOD IN WHICH THEY OCCUR RATHER
THAN THE PERIOD IN WHICH PAYMENT IS MADE. SEEKS TO
MATCH COSTS WITH REVENUES
The raw material has to be cut to size. This is done with a variety of tools.
The most common way to cut material is by Shearing (metalworking);
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Special band saws designed for cutting metal have hardened blades and a feed
mechanism for even cutting. Abrasive cut-off saws, also known as chop saws, are similar to
miter saws but with a steel cutting abrasive disk. Cutting torches can cut very large sections
of steel with little effort.
Burn tables are CNC cutting torches, usually natural gas powered. Plasma and laser
cutting tables, and Water jet cutters, are also common. Plate steel is loaded on a table and the
parts are cut out as programmed. The support table is made of a grid of bars that can be
replaced. Some very expensive burn tables also include CNC punch capability, with a
carousel of different punches and taps. Fabrication of structural steel by plasma and laser
cutting introduces robots to move the cutting head in three dimensions around the material to
be cut.
the maximum output rate a process can achieve under ideal conditions (Krajewski and Ritzman,
2003). The company believes that the CSI effectively communicates how well a process meets
customer specifications, and it provides more useful feedback to the production system. For
instance, a 65% of CSI in cutter operation was measured over a two-month period, which indicates
that only 65% of peak capacity was utilized to meet customer needs. In other words, 35% of
machine capacity was either wasted (due to setup, wait for material, maintenance, or breakdown) or
produced items that failed to meet customer specifications. The 65% of CSI was then used as a
baseline to measure the level of improvement made by this project. The goal (performanceoutcome) established for this process was 80 percent of CSI, which was considered to be the
standard for world-class practice.
Once the measure and process capability for cutting operations was defined, the project
team proceeded to analyze the root cause of poor CSI performance. A Pareto analysis was next
performed, and the team discovered that the cutter grinder accounted for 40% of machine
downtime on the cutting machines (Figure 3). The project team interviewed the operators and
found that, due to lack of proper lubrication of the blades, many cutting heads did not attain their
maximum life. Moreover, as the dull blades were removed for re-sharpening, cutter grinders
became idle and thus failed to keep up with theproduction schedule. Apparently, the dullness of the
blades caused substantial downtime at the cutters. Furthermore, a dull blade also resulted in many
defect-prone items including rough finish along the cutter lines and machine crash. In summary, the
root cause of poor CSI was found to be blade inefficiency, since it caused machine downtime and
defective cutter bodies.
Specifically, neither traditional unit cost reduction nor local operations productivity increase
was used to determine the improvement effort. Instead, the impact of the improvement on overall
quality of axle and system throughput was used to select the improvement project.
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Figure 2 displays a simplified process flow of the Axle manufacturing. Following the TOC
approach, the project team first searched for the bottleneck by identifying operations associated
with large piles of inventory. Gear cutting operation was suspected to be the bottleneck. The
project team further interviewed the operators of the downstream operation, lapping, and
confirmed that lapping was constantly starving for competed ring set from the cutting operation.
Accordingly, cutting operation was determined to be the bottleneck and was chosen as the target
for improvement. Incorporating TOC concept into improvement process enabled the project team
to select a project that could increase the plant throughput and bottom-line performance.
(take in Figure 2)
Value analysis was first performed to determine the various activities in the cutter operation
that add both customer and operational value to the process (Table 1). The purpose of value
analysis is to streamline the value chain to reduce all non-value added waste in the system and tolook for ways to enhance high value-added activities. The machine cycle that includes the cutting
operation is both a customer and operational value-added activity. Improving the yield of a high-
value added activity such as blade cutting would increase the overall capacity of the plant.
Increasing the gear cutting capacity would have a positive impact on manufacturing system
throughput. This could be achieved through a reduction of hours required per gear set, which would
in turn increase the capacity and remove the need for new capacity investments.
(take in Table 1)
After confirming gear cutters as the bottleneck, the project team initially discussed purchasing
additional cutting capacity. The company was using a solvent-cutting device, where the cutting head
was lubricated to increase the shelf life of the cutting blades. Newer technology in this process had
advanced to dry cutting, a significant increase in the life of the blade, thereby increasing the
capacity. However, with the capital constraints facing the plant, it was not feasible to upgrade to the
dry cutting process. As suggested by the TOC concept, the team decided to exploit or maximize
the utilization of the current technology rather than make new capital investment in additional
cutting capacity. In other words, the team would proceed to investigate the current performance of
the solvent-based cutting machines and identifying ways to increase quality and throughput without
additional capital expenditures.
The business case for this project was initiated because of the eroding sales revenue, which
went down by 23% in 2000, while fixed expenses went up by as much as 22% within the same year.
Management was faced with either shutting down the plant or eliminating the non-value added
processes to increase capacity without incurring new capital expenditures. The Axle facility had
some experience in successfully applying Six Sigma to its process improvement. After receiving
training on TOC, managers decided to combine TOC and Six Sigma to guide their improvement
effort. They felt that the concept of TOC could provide them with a focus on global system
improvement. With careful study and planning, an eight-member project team was formed. The
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project team was composed of the plant manager, the controller, two six-sigma certified employees,
and four operators from the plant. One of the authors of this paper and a student team served as
external resources for the project. The team was charged with the responsibility of seeking process
improvement that would result in a minimum of $175,000 savings per year. This was the minimum
standard established by the plant for any major process improvement project. The team started by
reviewing the process map to determine possible bottlenecks in the process. Extensive interviews
were conducted, and an in-depth observation of the processes was undertaken to identify probable
causes of inefficiencies in the system. After the extensive investigation, the cutting process was
singled out as the likely bottleneck operation. The proposed integrated framework was adopted to
make the improvement. The various stages of the process implementation are discussed below.
Phase 1 of this integrated framework is identical to both strategies, and its purpose is to
identify current constraint(s) that block the improvement of global performance, such as meeting
customer needs or improving system throughput. Accordingly, a specific process is selected for
improvement. Phases 2 and 3 follow the spirit of TOC by exploring the capacity of the selected
process. Phase 2 measures the current performance of the process and identifies the root causes
needed to be corrected for improvement. The two phases of Six Sigma, measure and analyze, are
involved in this step. Once the root causes are confirmed, Phase 3 of the integrated approach
applies conventional Six Sigma strategy by using the key manufacturing, engineering, and statistical
techniques to remove root causes of the problem for making necessary process improvement. The
purpose is to best utilize the current capacity of the process without incurring additional capital
expenditures.
Phase 4 ensures the changes made in previous steps are properly supported by the rest of the
system. For example, managers may need to change policies and obtain buy-in from employees to
implement the changes. Training is often required for a revised process. Phases 5 and 6 are taken
from the TOC process. If the improvement of the selected process is insufficient to satisfy customer
needs or goals, managers have to consider various options (e.g., outsourcing and additional
investment) to raise the capacity of the process. Finally, managers must stay alert to the dynamic
nature of the manufacturing system and constantly monitor occurrence of new constraints.
Overall, when the integrated framework is applied to improve a specific process, these twotechniques seem to complement each other. The integration is made by combining the
management aspect of TOC and the engineering aspect of Six Sigma. Specifically, for firms that
apply Six Sigma, TOC provides a global perspective in identifying the constraints and examining
necessary changes to the rest of the systems. On the other hand, Six Sigma brings in the
perspectives of customer needs, performance measures, and engineering and statistical tools during
the stages Theory of Constraints (TOC) was developed by Eliyahu M. Goldratt during the 1980s
(McMullen, 1998). The core idea of TOC is that every organization has at least one constraint that
prevents management from achieving the goal of the organization to a larger degree. Constraints
can be physical resources or policies. TOC develops a set of procedures and methodologies to
identify and optimize such constraints. For the purpose of continuous improvement, TOC uses a
systematic approach which consists of five focusing steps (Goldratt and Cox, 1992).
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1. Identify the systems constraint(s).
2. Decide how to exploit the systems constraint(s).
3. Subordinate everything else to the above decision.
4. Elevate the systems constraint(s).
5. If a constraint has been broken, go back to Step 1. Do not allow inertia to cause asystems constraint.
The implementation of Six Sigma strategy involves a series of steps specifically designed to
facilitate a process of continuous improvement. The strategy takes the key manufacturing,engineering, and transactional processes of entire process through the five transformational phases
(Plotkin, 1999).
1. Define: Identify customer needs and a project suitable for Six-Sigma effort.
2. Measure: Determine what and how to measure the performance of the selected process.
3. Analyze: Understand and determine the variables that create quality variations.
4. Improve: Identify means to remove causes of defects and modify the process.
5. Control: Maintain the improvement.
The primary objective of the five-step process is to recognize critical customer requirements,
identify and validate the improvement opportunity, and upgrade the business processes. A
large number of companies have boosted their profitability, increased market share, and
improved customer satisfaction through the implementation of Six-Sigma. Companies such
as Allied Signal, General Electric, Sony, Texas Instruments, Bombadier, Crane Co.,
Lockheed Martin, and Caterpillar are beginning to dir
The swot anlysis of the Perpetual Inventory System is as under:
STREGTHS:
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Accurate Reporti ng
Companies often experience more accurate financial reporting with a perpetualinventory system. Accountants update the general ledger after each inventorytransaction. This results in a general ledger account that closely mirrors the actual
physical inventory on hand. Owners and managers can then make quality decisionsbased on the accuracy of reporting inventory values. Multiple inventory types alsobenefit from this method, as accountants accurately track each one through thegeneral ledger.
Electronic Management
Perpetual inventory systems often use electronic methods to record transactions. Anexample is the barcode system a clothing retailer uses when selling goods. Each scanrecords data that updates the company's inventory value. Accountants use thisinformation to balance the general ledger. Companies also use the data to order goods
using a just-in-time system. Electronic ordering helps to prevent stock outs and lostsales.
WEAKNESSES:
Cost
Many perpetual inventory systems are expensive. The cost for these systems istwofold. The technology necessary to make the system work can be a major capitalexpense. Updating the system for new changes to the technology is also costly.Training employees to properly use the system is yet another expense. On theadministrative side, companies must find accountants who can work the system andmanage frequent changes to the general ledger.
Process
Perpetual inventory systems are often time-consuming. Electronic updates to acompany's general ledger may result in a need for account reconciliations.
Accountants will often spend copious hours each week or month to reconcileinventory. Persistent errors can also cause further complications. Accountants need tocorrect errors and balance the inventory account prior to closing the company's books.Reporting inaccurate inventory figures can trigger an audit, resulting in potential
problems for the company.
Additional record-keeping Increase workload, increase in staff. Additional costs Staffcosts, costs of computer package to maintain inventory records.
First-In, First-Out (FIFO)is one of the methods commonly used to calculate the value of
inventory on hand at the end of a period and the cost of goods sold during the period. Thismethod assumes that inventory purchased or manufactured first is sold first and newer
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inventory remains unsold. Thus cost of older inventory is assigned to cost of goods sold and
that of newer inventory is assigned to ending inventory. The actual flow of inventory may not
exactly match the first-in, first-out pattern.
First-In, First-Out method can be applied in both the periodic inventory system and the
perpetual inventory system.
Example
Use the following information to calculate the value of inventory on hand on Mar 31 and cost
of goods sold during March in FIFO periodic inventory system and under FIFO perpetual
inventory system.
Mar 1 Beginning Inventory 60 units @ $15.00 per unit
5 Purchase 140 units @ $15.50 per unit
14 Sale 190 units @ $19.00 per unit
27 Purchase 70 units @ $16.00 per unit
29 Sale 30 units @ $19.50 per unit
Solution
FIFO Periodic
Units Available for Sale = 60 + 140 + 70 = 270
Units Sold = 190 + 30 = 220
Units in Ending Inventory = 270 220 = 50
Cost of Goods Sold Units Unit Cost Total
http://accountingexplained.com/financial/inventories/periodic-journal-entrieshttp://accountingexplained.com/financial/inventories/perpetual-journal-entrieshttp://accountingexplained.com/financial/inventories/perpetual-journal-entrieshttp://accountingexplained.com/financial/inventories/periodic-journal-entries -
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Sales From Mar 1 Inventory 60 $15.00 $900
Sales From Mar 5 Purchase 140 $15.50 $2,170
Sales From Mar 27 Purchase 20 $16.00 $320
220 $3390
Ending Inventory Units Unit Cost Total
Inventory From Mar 27 Purchase 50 $16.00 $800
FIFO Perpetual
Date
Purchases Sales Balance
Units Unit Cost Total Units Unit Cost Total Units Unit Cost Total
Mar 1 60 $15.00 $900
5 140 $15.50 $2,170 60 $15.00 $900
140 $15.50 $2,170
14 60 $15.00 $900 10 $15.50 $155
130 $15.50 $2,015
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Under theperpetual inventory system, an entity continually updates its inventory records to
account for additions to and subtractions from inventory for such activities as received
inventory items, goods sold from stock, and items picked from inventory for use in the
production process. Thus, a perpetual inventory system has the advantages of both providing
up-to-date inventory balance information and requiring a reduced level of physical inventory
counts. However, the calculated inventory levels derived by a perpetual inventory system
may gradually diverge from actual inventory levels, due to unrecorded transactions or theft,
so you should periodically compare book balances to actual on-hand quantities.
Perpetual inventory is by far the preferred method for tracking inventory, since it can yield
reasonably accurate results on an ongoing basis, if properly managed. The system works best
when coupled with a computer database of inventory quantities and bin locations, which is
updated in real time by the warehouse staff using wireless bar code scanners, or by sales
clerks using point of sale terminals. It is least effective when changes are recorded on
inventory cards, since there is a significant chance that entries will not be made, or will be
made incorrectly.
Balance sheets complete the sequence of accounts, showing the ultimate result of the entries
in the production, distribution and use of income, and accumulation accounts.Balance sheets and accumulation accounts form a group of accounts that are concerned withthe value of assets owned by institutional units or sectors, and their liabilities at particular
points in time and with the evolution of those values over time. Balance sheets measure thevalues of stocks and are compiled at the beginning and end of the accounting period. On theother hand, the accumulation accounts record the changes in the values of assets andliabilities during the accounting period. They are flow accounts, whose entries depend on theamounts of economic or other activities that take place within a given period of time.In the balance sheets three categories of assets are distinguished:a) non-financial produced assets
b) non-financial non-produced assets
c) financial assets
(i) Periodic stock verification
(ii) Continuous stock verification
(i) Periodic stock verification: It refers to a system where physical stock verification isnormally done periodically, i.e., once or twice in a year. Under this method, value of stock isdetermined by physical counting of the stock on a particular date, usually at the end of theyear.
It is a simple and economical method of stock-taking and is adopted in small concerns. Thistype of verification is good only for the items which do not find place in the perpetual
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inventory records, e.g., works-in-progress, components and consumable stores at site etc. Butthere are many limitations of this method. Stores may' be closed down for a few days tofacilitate stock-taking. There is possibility of fraud] discrepancy, etc.
(ii) Continuous stock verification: This system comprises of counting and verifying i number
of items at random daily throughout the year so that all items of stores are verified severaltimes during the year. Notice of the particular stock to be verified each clay is given to thestore-keeper only on the date of actual verification.
As there is an element of surprise check in this system of stock-taking, effective control overthe items of stores can be exercised. The system does not necessitate the closing down of thestores to facilitate stock-taking. There is also less possibility of fraud and discrepancy, but themethod is expensive and is adopted by big concerns only.
The actual stock of material should not differ from the recorded stock under normalcircumstances. But-sometimes differences arise due to the following reasons:
(i) Breakage and wastage of materials due to improper handling.
(ii) Shrinkage and evaporation.
In earlier periods, non-continuous, orperiodic inventory systems were more prevalent.Starting in the 1970s digital computers made possible the ability to implement a perpetualinventory system. This has been facilitated by bar coding and lately radio frequencyidentification (RFID) labeling which allows computer systems to quickly read and processinventory information as part of transaction processing.
Perpetual inventory systems can still be vulnerable to errors due to overstatements (phantominventory) or understatements (missing inventory) that can occur as a result of theft, breakage,scanning errors or untracked inventory movements, leading to systematic errors inreplenishment.
The ESA95 recommends the Perpetual Inventory Method (PIM) for the calculation of thestock of Fixed assets whenever direct information is missing (par. 6.04). The calculation ofconsumption of Fixed capital can be based on these stocks of assets. Besides net capital stockwhich appears in the Balance sheets can be derived within a PIM approach. In this paragraph
the basic principles of the PIM will be discussed. Using the PIM, gross capital stock iscalculated as the sum of gross fixed capital formation in Previous years, of which the servicelive is not yet expired. In the simplest case it is assumed that the total investment of a
particular asset does not deteriorate during the expected service life of that asset and isdiscarded as a whole after that period of time.
Becoming a preferred employer involves more than learning the characteristics of such an
organization, howeverit also requires that you understand what top performers want and
value in a relationship with an employer. Interestingly, the answers to both questions are the
same.
http://en.wikipedia.org/wiki/Periodic_inventoryhttp://en.wikipedia.org/wiki/RFIDhttp://en.wikipedia.org/wiki/Phantom_inventoryhttp://en.wikipedia.org/wiki/Phantom_inventoryhttp://en.wikipedia.org/w/index.php?title=Missing_inventory&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Missing_inventory&action=edit&redlink=1http://en.wikipedia.org/wiki/Phantom_inventoryhttp://en.wikipedia.org/wiki/Phantom_inventoryhttp://en.wikipedia.org/wiki/RFIDhttp://en.wikipedia.org/wiki/Periodic_inventory -
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To begin with, top-tier employers offer more than competitive pay and benefits. In fact, the
word "competitive" implies that you're simply matching what many other businesses are
providing. Even important additional elements, such as a good environment and open
communication, won't necessarily make the difference.
Studies show that the most important factor is how people feel about their role in the
business. Employees perform at different levels based on how they're engaged in the
lifeblood activities of the company. When an employer brings in people who are talented,
aligned with the company's values and focused on its goals, the results can be tremendous.
Want to set your company apart from your competitors? Here are some steps that can help
you draw the best people to your business:
top related