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Redeemable capitalCapital:-

A business account that records how much the owners or stockholders have invested in a company.Redeemable:-

Redeemable means Some thing, which can be exchanged for moneyfor needs of urgent funds in a Company.

Some times a company that is not interested to increase its permanent capital then they issue the temporary share

or public, Which is called the redeemable capital to reach its urgent needs for funds.

The company issues these shares for a specific time period. When the needs of the company are completed then

hey receive their shares form public again and returned their cash. The people accept these shares because they amore preference share capital and have a high rate of interest .The dividend of the shares more

preferable then the dividend of the fixed capital.

Deferred Tax:

Deferred tax is anaccountingconcept (also known as future income taxes), meaning a future taxliabilityorasset, resulting

romtemporary differencesor timing differences between the accounting value of assets and liabilities and their value for ta

urposes.

Temporary differences

Temporary differences are differences between the carrying amount of an asset or liability recognized in the

tatements of financial position and the amount attributed to that asset or liability for tax purposes (thetax base).

Temporary differences may be either:

taxable temporary differences, which are temporary differences that will result in taxable amounts indetermining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered

settled; or

deductible temporary differences, which are temporary differences that will result in deductibleamounts in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or

liability is recovered or settle.

Tax base

The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes:

the tax base of an asset is the amount that will be deductible for tax purposes against any taxable economic benefits

that will flow to an entity when it recovers the carrying amount of the asset.

the tax base of a liability is its carrying amount, less any amount that will be deductible for tax purposes in respect of

that liability in future periods.

llustrated example

The basic principle of accounting for deferred tax under a temporary difference approach can be illustrated using a

ommon example in which a company has fixed assets which qualify for tax depreciation.

The following example assumes that a company purchases an asset for $1,000 which is depreciated for accounting

purposes on a straight-line basis of five years. The company claims tax depreciation of 20% per year. The applicabl

ate ofcorporate income taxis assumed to be 25%. And then subtract the net value.

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Purchase Year 1 Year 2 Year 3 Year 4

Accounting value $1,000 $800 $600 $400 $200

Tax value $1,000 $750 $563 $422 $316

Taxable/(deductible) temporary difference $0 $50 $37 $(22) $(116)

Deferred tax liability/(asset) at 35% $0 $18 $13 $(8) $(41)

As the tax value, ortax base, is lower than the accounting value, orbook value, in years 1 and 2, the company should recogn

deferred tax liability. This also reflects the fact that the company has claimed tax depreciation in excess of the expense for

ccounting depreciation recorded in its accounts, whereas in the future the company should claim less tax depreciation in

otal than accounting depreciation in its accounts.

n years 3 and 4, the tax value exceeds the accounting value, therefore the company should recognise a deferred tax asset

subject to it having sufficient forecast profits so that it is able to utilise future tax deductions). This reflects the fact that the

ompany expects to be able to claim tax depreciation in the future in excess of accounting depreciation.

Timing differences

WhereasInternational Financial Reporting StandardsandUS GAAPadopt a balance sheet approach in relation to deferred ta

ocused on temporary differences, certainGAAPssuch asUK GAAPrequire deferred tax to be instead recognised in respect o

iming differences.

A timing difference arises when an item of income or expense is recognised for tax purposes but not accounting purposes, or

ice versa, and is therefore consistent with a profit and loss approach to deferred tax.

n many cases the deferred tax outcome will be similar for a temporary difference or timing difference approach. However,

ifferences can arise such as in relation torevaluationoffixed assetsqualifying fortax depreciation, which gives rise to a

eferred tax asset under a balance sheet approach, but in general should have no impact under a timing difference approach

Justification for deferred tax accountingDeferred tax is recognized as a result of theMatching principle. Deferred tax liabilities are provided in order that investors m

nderstand the future tax liabilities that may arise as a result of accelerated tax relief taken to date, or income that has not y

een taxed.

Where accelerated tax relief is obtained for expenditure relative to the timing of an expense recognized in a company's profi

nd loss account, a deferred tax charge should be recognized in the profit and loss account for the movement in the

ompany's deferred tax liability, which will increase the company's total tax charge.

ExamplesDeferred tax liabilities

Deferred tax liabilities generally arise where tax relief is provided in advance of an accounting expense, or income

ccruedbut not taxed until received. Examples of such situations include:

a company claims tax depreciation at an accelerated rate relative to accounting depreciation

a company makes pension contributions for which tax relief is provided on a paid basis, whereas accountin

entries are determined in accordance with actuarial valuations

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Deferred tax assets

Deferred tax assets generally arise where tax relief is provided after an expense is deducted for accounting

purposes.Examples of such situations include:

a company mayaccruean accounting expense in relation to aprovisionsuch as bad debts, but tax relief ma

not be obtained until the provision is utilised

a company may incurtax lossesand be able to "carry forward" losses to reduce taxable income in future

years

Deferred tax in modern accounting standards

Modern accounting standards typically require that a company provides for deferred tax in accordance with either

hetemporary differenceortiming differenceapproach. Where a deferred tax liability or asset is recognised, the

ability or asset should reduce over time (subject to new differences arising) as the temporary or timing difference

everses.

UnderInternational Financial Reporting Standards, deferred tax should be accounted for using the principles inIAS

12: Income Taxes, which is similar (but not identical) toSFAS 109underUS GAAP. Both these accounting standardsequire atemporary differenceapproach.

Other accounting standards which deal with deferred tax include:

UK GAAP-Financial Reporting Standard 19: Deferred Tax(timing difference approach)

Mexican GAAP or PCGA - Boletn D-4, el impuesto sobre la renta diferido

Canadian GAAP-CICASection 3465

RussianPBU 18 (2002)Accounting for profit tax(timing difference approach)

Derecognition of deferred tax assets and liabilities

Management has an obligation to accurately report the true state of the company, and to make judgements and

estimations where necessary. In the context of tax assets and liabilities, there must be a reasonable likelihood that

he tax difference may be realised in future years.

or example, a tax asset may appear on the company's accounts due to losses in previous years (if carry-forward o

ax losses is allowed). In this case a deferred tax asset should be recognised if and only if the management

onsidered that there will be sufficient future taxable profit to utilise the tax loss.[2]

If it becomes clear that the

ompany does not expect to make profits in future years, the value of the tax asset has been impaired: in the

estimation of management, the likelihood that thistax losscan be utilised in the future has significantly fallen.

n cases where the carrying value of tax assets or liabilities has changed, the company may need to do awrite dow

nd in certain cases involving in particular a fundamental error, a restatementof its financial results from previous

ears. Such write-downs may involve either significant income or expenditure being recorded in the company's

profit and loss for the financial year in which the write-down takes place.

What Is Running Finance/overdraft?

Running finance/overdraft is the advance which is given by allowing the customer to withdraw more money from

his current account than he has in it.Running financeis nothing but the finance offerings by financial institutions

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gainst mortgages.It works under the working capital finance. Specifically, the running finance is a credit facility

established for a specific time limit at variable interest rates. Housing Price Index (HPI) is a contributory agent for

uccessful operation of the running finance scheme. The running finance is implemented by means of allowing the

over draft facility and the corresponding amount is determined by the repaying capacity of the borrower.

Overdraft is one sort of offering credit by the account providers, in that withdrawals are permitted exceeding

vailable balance of the bank account. It is nothing but an over-drawing leading to a negative balance. The situatio

s more common with the credit card offerings by the banks. For enjoying overdraft facility, there should be some

greement or approval in advance with the account provider. Generally, the over-draft facility is offered by thebanks for some maximum amount and the same is required to be returned to them (in the respective account)

within some specified time limit.

Non-compliance of these guidelines may impose heavy penalty on the account holders. In any case, drawing an

overdraft necessitates paying interest. Fees charged for providing the overdraft facility and in case of going into

unauthorized limits may vary from bank to bank, but theprincipleremains the same.

Mark Up:

Markup is the difference between thecostof agoodorserviceand its selling price.A markup is added on the total cost incurred by the producer of a good or service in order to create aprofit. The total cost reflects the

otal amount of both fixed and variable expenses to produce and distribute aproduct. Markup can be expressed a

fixed amount or as a percentage of the total cost or selling price.Retail markupis commonly calculated as the

difference betweenwholesaleprice and retail price, as a percentage of wholesale. Other methods are also used.

Price determination

Markup as a fixed amount

Assume: Sale price = $2500, Product cost is $2000

Markup = Sale price - Cost

$500 = $2500 - $2000

Assume the actual sale price was $2200

Markdown = List price - Sale price

$300 = $2500 - $2200

Initial Markup = List price - Cost

$500 = $2500 - $2000

Maintained Markup = Sale price - Cost

$200 = $2200 - $2000

Markup as a percentage

Cost x (Markup + 1) = Sale price

or solved for Markup = (Sale price / Cost) - 1

Assume the sale price is $1.99 and the cost is $1.40

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Markup = ($1.99 / 1.40) - 1 = 42%

To convert from markup toprofit margin:

Sale price - Cost = Sale price x Profit margin

Margin = 1 - (1 / (Markup + 1))

Margin = 1 - (1 / (1 + .42)) = 29.5%

Aggregate supply framework

P = (1+) W. Where is the markup over costs. This is the price setting equation

W = F(u,z) Pe . This is the wage setting relation. u is unemployment which negatively affects wages and z the catch

ll variable positively affects wages.

Sub the wage setting into the price setting to get theaggregate supplycurve.

P = Pe(1+) F(u,z). This is the aggregate supply curve. Where the price is determined by expected price,

unemployment and z the catch all variable.

Long Term Debts/Borrowings:

What Does Long-Term DebtMean?oans and financial obligations lasting over one year.n the U.K., long-term debts are known as "long-term loans."nvestopedia explains Long-Term Debt

For example, debts obligations such as bonds and notes, which have maturities greater than one year, would be consideredong-term debt. Other securities such as T-bills and commercial papers would not be long-term debt because their maturities aypically shorter than one year.

Deferred Interest:

Deferred interest is any interest that is applied to the balance on a loan, when the terms of theloan agreementmakes it

ossible for the next payment due to be less than the amount of interest that is due. This type of arrangement is sometimes

ound in what is known as an adjustable ratemortgage, or ARM. It is also possible for afixed rate mortgageto be structured

with provisions that allow for deferred interest. When the deferred interest causes the balance of the loan to increase, this

reates a situation known as negativeamortization, since the balance did not decrease as a result of the payment.

One of the easiest ways to understand how deferred interest works is to consider an adjusted rate mortgage that includes th

eature. If the interest payment option of the loan is $1000 US Dollars (USD) and the terms allow for a reduced payment of

800 USD, this creates a situation where making that reduced payment will result in adding $200 USD to the loansprincipal

alance. There is usually no requirement that the debtor go with the lower payment and increase the balance as a result; he

he may choose to waive the offer of deferred interest and make the full payment. This is because exercising the deferred

nterest option on an ARM does increase the potential for the monthly payments to be increased at some future point in the

fe of the mortgage.

ixed rate mortgages that include a deferred interest feature are often referred to as graduated paymentmortgages. As with

headjustable rate mortgage, thegraduated payment mortgagedoes allow the ability to periodically make a reduced month

ayment. While this arrangement can be helpful if funds are tight, it also increases the chances that the regular monthly

ayments will increase later on. For this reason, it is important to make use of deferred interest only after considering the

ossible future impact the decision will have on the monthly budget.

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The use of deferred interest in mortgage contracts is not unusual. This type of interest provision can be found in both

esidential and commercial mortgages that are issued in many nations around the world. When employed to best advantage

he arrangement can make it possible to arrange the payment of debt obligations so that the impact to the loan itself is

minimal, while also allowing the debtor to avoid late fees or other penalties associated with obligations other than the

mortgage.

Finance Lease:

A finance lease or capital lease is a type oflease. It is a commercial arrangement where:

the lessee (customer or borrower) will select anasset(equipment, vehicle, software);

the lessor (finance company) will purchase that asset;

the lessee will have use of that asset during the lease;

the lessee will pay a series ofrentalsor installments for the use of that asset;

the lessor will recover a large part or all of the cost of the asset plus earninterestfrom the rentals paid by

the lessee;

the lessee has the option to acquire ownership of the asset (e.g. paying the last rental, or bargain option

purchase price);

The finance company is the legal owner of the asset during duration of the lease.

However the lessee has control over the asset providing them the benefits and risks of (economic) ownership[.

Treatment in the United States

Under US accounting standards, a finance (capital) lease is a lease which meets at least one of the following criteri

ownership of the asset is transferred to the lessee at the end of the lease term;

the lease contains a bargain purchase option to buy the equipment at less than fair market value;the lease term equals or exceeds 75% of the asset's estimated useful life;

thepresent valueof the lease payments equals or exceeds 90% of the total original cost of the equipment.

ollowing theGAAPaccountingpoint of view, such a lease is classified as essentially equivalent to a purchase by th

essee and is capitalized on the lessee'sbalance sheet. SeeStatement of Financial Accounting Standards No. 13 (FA

13)for more details of classification and accounting.

Special Case: Finance Leases under UCC Article 2A

The term sometimes means a special case of lease defined by Article 2A of theUniform Commercial Codespecifically, Sec. 2A-103(1) (g)). Such a finance lease recognizes that some lessors are financial institutions or othe

business organizations that lease the goods in question purely as a financial accommodation and do not want to

have the warranty and other entanglements that are usually associated with leases by companies that are

manufacturers or merchants of such goods. Under a UCC 2A finance lease, the lessee pays the payments to the

essor (and indeed must do so, regardless of any defect in the leased goods this obligation usually being containe

n a "hell or high water" clause), but any claims related to defects in the leased goods may be brought only against

he actual supplier of the goods. UCC 2A finance leases are usually easy to identify because they commonly contai

clause specifically declaring that the lease is to be considered a finance lease under UCC 2A.

nternational Financial Reporting Standards

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8/6/2019 CFS and IFRS Terminologies

7/7

n the over 100 countries that govern accounting usingInternational Financial Reporting Standards, the controlling

tandard is IAS 17, "Leases". While similar in many respects to FAS 13, IAS 17 avoids the "bright line" tests

specifying an exact percentage as a limit) on the lease term and present value of the rents. Instead, IAS 17 has the

ollowing five tests. If any of these tests are met, the lease is considered a finance lease:

ownership of the asset is transferred to the lessee at the end of the lease term;

the lease contains a bargain purchase option to buy the equipment at less than fair market value;

the lease term is for the major part of the economic life of the asset even if title is not transferred;

at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset.

the leased assets are of a specialised nature such that only the lessee can use them without major

modifications being made.

Treatment in Australia

nAustraliathe accounting standard pertaining to lease is AASB 117 'Leases'. AASB 117 was released in July 2004.

AASB 117 'Leases' applies to accounting for leases other than: (a) leases to explore for or use minerals, oil, natural

as and similar non-regenerative resources; and (b) licensing agreements for such items as motion picture films,

ideo recordings, plays, manuscripts, patents and copyrights.

According to AASB 117, paragraph 4, a lease is: an agreement whereby the lessor conveys to the lessee in return fo

payment or series of payments the right to use an asset for an agreed period of time.

A lease is classified as a finance lease if it "transfers substantially all the risks and rewards incidental to ownership

n asset." (AASB 117, p8) There are no strict guidelines as to what constitutes a finance lease, however guidelines

re provided within the standard.

mpact on accounting

Since a finance lease is capitalized, both assets and liabilities (current and long-term ones) in the balance

sheet increase. As a consequence,working capitaldecreases, but the debt/equity ratio increases, creating

additional leverage.

Finance lease expenses are allocated between interest expense and principal value much like a bond or loa

therefore, in a statement of cash flows, part of the lease payments are reported under operating cash flow

but part under financing cash flow. Therefore, operating cash flow increases.

Under operating lease conditions, lease obligations are not recognized; therefore, leverage ratios are

understated and ratios of return (ROEandROA) are overstated.

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