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 Accounting & Finance Material For MNC Interviews

Venture capital provides capital to the started companies, which has high risk. Generally venture capitalist holds some share in the company. Generally these are high technology companies like software’s , IT, biotechnology.

 A group of financial assets such as various stocks, bounds, cash collectively is called a portfolio. It is also called as ‘ Set of investment’ .

 Precepts are a document it is issued by the company at the time of IPO’s. It containing 1.  Purpose of issue 2.  Price range 3. Under writers of information 4. Fast 3 years earning information 5. Other information (about the company)

It is a combination of both holding and subsidiary company accounts.

Net profit (or) Income =Gross sales - Discounted sales - sales return = Net sales - cost of goods sold =Gross profits - Operating expenses = operating income (EBIT) - interest =profit before tax (EBT)  – Tax = profit after tax - prefer dividend -minority interest

It is expenditure which is incurred in one year, but benefit of that will receive  from more years. Ex: Heavy advertisements

The fictitious assets are not real assets, it is an expenditure, which is done by owner before starting the business, its benefit is long term, so we say its asset. Ex: preliminary expenses.

When two companies are agreed to form as new single company is called a merger. Ex: company A + company B = will become company C. Vijay Kumar Varigala

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 Accounting & Finance Material For MNC Interviews

When one company takes over another company and clearly established it self as the new owner then it is called as absorption. Ex: A buys B and owner will be A & B no more exits.

 Marginal cost is the additional cost to produce additional units of a product. It is also called variable cost. Ex: To produce 100 units of pens cost Rs.1000 and to produce the 101 units its cost is Rs.1020 the average cost per unit is Rs.10. But the marginal cost of that 101 units Rs. 20.

It is a temporary partnership and come to an end after the completion of a  particular venture, No limit in its. They share the profits to agreed ratio.

The two or more persons who have agreed to carry out the business is called as a partnership. In this min 2 max 10 members. If it is banking company max 20 members.  Agreement between the 2 or more persons to carryout a business is called a  partnership deed.

i. This company no. of members’  min 2 max 50. ii. This company the shares are can’t issue the public. iii. The no. of directors 2. iv.  A private company has to use the word Pvt. Ltd., at the end of its name.

i. In this company no. of members min 7 max unlimited. ii. In this company the shares are issued to public. iii.  A public company has to use word limited at the end of its name.

i.

It is an intangible asset. The value of any business is more than its vale of assets is called. ii. Good will = Business value  – asset value. iii. Its value is paid for the repetition of the company. iv. Good will is anticipated earning in the business.

Vijay Kumar Varigala

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 Accounting & Finance Material For MNC Interviews

It is small amount kept in hand in the business. It is used to purchase small items such as milk, tea, puja items, water bottles, to need small small expenses.

Once an error is identified it should be properly corrected. The correction of accounting errors in a systematic manner is called rectifications errors. The errors an effect p & l account shows the wrong  financial position of the company. 1. Wrong totaling in ledger. 2. Wrong posting. 3. Wrong bode posting

Trail Balance is a statement containing the various ledger balances on a  particular date. The trail balance prepared to check the mathematical or arithmetical accuracy of accounts.

 BRS statement of which shows the difference between the bank pass book and cash book. It is basically prepared to know the errors occurred in during the transactions.

The Bonus shares are issued to the already existing share holders in a company. In bonus share change the face value is not change capital is change. Market price is change proposanally.

The share divided into two. It is called –in the stock split the face value, market  price is change proposanally. The market capital is doesn’t change. In the balance sheet, the share counting is increase but capital is same. Ex: X company share value is 5000 and the face value is 50. The liquidity  position of in the market. The company has decided to split the share in to 1:5. The face value of the share will be change proposanally Rs. 10/. The market share value is Rs. 1000/-

The first issue of securities to the public it is called corporate may crises capital in the primary market by way of an IPO.

Vijay Kumar Varigala

M.B.A.

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 Accounting & Finance Material For MNC Interviews IPO is selling of securities to the public in the primary this IPO can make through the fixed price method market book building method.

 Any non- USA company want list time the USA  – markets are called as ADR’s. Ex: Infosys is an Indian company which was listed in the USA exchanges with a name ADR’s.

If any company wants to list in other country except USA is called GDR.

 A stock market index is a number which indicates the market moments based on the increase & decreases the share value. In India we have two stock exchanges 1. SENSEX (BSE)  – It is consisting of 30 shares from various sections. 2. NIFTY (NSE)  – It is consisting of 50 shares from various sections.

The primary market is a market where the securities are issued for public for the first time. Ex: Initial public offer (IPO)

Secondary market is a market where already listed companies are traded. Ex: exchanges, sensex, nifty.



Equity share holders are real owner of the company, they have voting rights.  Dividend is not fixed.  Equity share holders have right to get share the profit or loss.  At the time of liquidation position the equity share holder preference is last  preference.



 Preference share holder is not a real owner, but no  – voting rights.   Dividend fixed   At the time of liquidation position the preference share holder  preference is before the equity share holders.

Vijay Kumar Varigala

M.B.A.

mobile: 9701150115

e-mail: [email protected]

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 Accounting & Finance Material For MNC Interviews

1.  Debenture holder is not owner, he has no voting rights. 2. Coupon rate is fixed. 3.  At the time of liquidation position the debenture holder preference is before the equity share holders & preference share holders.

 A derivative is a security whose price ultimately depends on that of another asset. Derivative means a contract of an agreement. Types of Derivatives: Forward Contracts Futures Options Swaps.    

It is a private contract between two parties. An agreement between two parties to exchange an asset for a price that is specified to days. These are settled at end of contract.

It is an Agreement to buy or sell an asset it is at a certain time in the future for a certain price. Futures will be traded in exchanges only. These are settled daily. Futures are four types: Commodity Futures: Wheat, Soya, Tea, Corn etc..,. Financial Futures: Treasury bills, Debentures, Equity Shares, bonds, etc.., Currency Futures: Major convertible Currencies like Dollars, Founds, Yens, and Euros. Index Futures: Underline assets are famous stock market indices. New York Stock Exchange.   



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 An option gives its Owner The right to buy or sell an Underlying asset on or before a given date at a  fixed price. There can be as may different option contracts as the number of items to buy or sell. They are Stock options, Commodity options, Foreign exchange options and interest rate options are traded on and off organized exchanges across the globe. Options belong to a broader class of assets called Contingent claims. The option to buy is a call option. The option to sell is a Put Option.

Vijay Kumar Varigala

M.B.A.

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 Accounting & Finance Material For MNC Interviews 











The option holder is the buyer of the option and the option writer is the seller of the option. The fixed price at which the option holder can buy or sell the underlying asset is called the exercise price or Striking price.  A European option can be exercised only on the expiration date; where as an  American option can be exercised on or before the expiration date. Options traded on an exchange are called exchange traded option and options not traded on an exchange are called over-the-counter options. When stock price (S1) <= Exercise price (E1) the call is said to be out of money and is worthless. When S1>E1 the call is said to be in the money and its value is S1-E1.

Swaps are private agreements between two companies to exchange cash flows in the future according to a prearranged formula. So this can be regarded as portfolios of forward contracts. Types of swaps: Interest rate Swaps Currency Swaps.  

Interest rate Swaps: The most common type of interest rate swap is ‘Plain Venilla’ . Normal life of swap is 2 to 15 Years. It is a transaction involving an exchange of one stream of interest obligations  for another. Typically, it results in an exchange of fixed rate interest payments  for floating rate interest payments.

 Another type of Swap is known as Currency as Currency Swap. This involves exchanging principal amount and fixed rates interest payments on a loan in one currency for principal and fixed rate interest payments on an approximately equalant loan in another currency. Like interest rate swaps currency swaps can be motivated by comparative advantage.

 Process of analyzing, appraising, deciding investment on long term projects is known as capital budgeting.

1.

2.

Traditional Methods  Payback period method  Average Rate of Return (ARR)  Discounted Cash Flow Methods or Sophisticated methods

Vijay Kumar Varigala

M.B.A.

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 Accounting & Finance Material For MNC Interviews Net Present Value (NPV) Internal Rate of Return (IRR)  Profitability index

 Required time to reach actual investment is known as payback period. = Investment / Cash flow It means the average annual yield on the project. = avg. income / avg. investment Or = (Sum of income / no. of years) / (Total investment + Scrap value) / 2)

The best method for the evaluation of an investment proposal is the NPV or discounted cash flow technique. This method takes into account the time value of money. The sum of the present values of all the cash inflows less the sum of the present value of all the cash outflows associated with the proposal. NPV = Sum of present value of future cash flows  – Investment : It is that rate at which the sum totals of cash inflows after discounting equals to the discounted cash outflows. The internal rate of return of a project is the discount rate which makes net present value of the project equal to zero. One of the methods comparing such proposals is to workout what is known as the ‘Desirability Factor’ or ‘Profitability Index’. In general terms a project is acceptable if its profitability index value is  greater than 1.

Tangible is a fixed asset include items such as plant, building, land machinery. The benefit is long term.

1.  Provisions are created for some specific object & it must be utilized for that object for which it is created. 2.  Provision is making because of legal necessity. 3.  Provisions must be charged to p & l account before calculating the net  profit or loss. 4. It is reduce the net profit and not invest out side securities. Ex: audit fee. Vijay Kumar Varigala

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 Accounting & Finance Material For MNC Interviews

1.  Reserve is created for any long term liability or loss. 2.  But creating reserves is a matter of financial strength. 3.  Reserves can be made only when there is profit. 4.  Reserve amount can invested in out side securities. Ex: bad debts.

The reserve which is transfer from the capital gains it is called a Capital reserve. 1.  Profit on sale of assets. 2.  Profit on issue of shares & debentures 3.  Profit on forfeiture of shares 4. Not distinctive of the share holders

The reserve which is transfer from the normal profits it is called a Revenue reserve. 1. General reserve 2.  R & D fund 3.  Dividend equalization fund Ex: Distribution of divided to the share holders

1.  Revenue expenditure is an expenditure which is incurred for the regular business transactions. 2. Its effect is temporary. 3. The expenditure helps to maintain the business. 4. It reduces profit of the business. 5. It does not appear the business. Ex: Transportation charges.

1. Capital expenditure is expenditure which is incurred for obtaining a long  – term advantages for the business. 2. Its effect is long  – term. 3. This expenditure impresses the position of the business. 4. It doesn’t reduce the revenue concern purchases of fixed asset does not affect revenue. 5. It is appending the business. Ex: Machinery purchases. Vijay Kumar Varigala

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 Accounting & Finance Material For MNC Interviews

It is a point where no loss & no profit.  Revenue = cost  Revenue  BEP (in value) = Fixed cost / PV Ratio (in units) = Fixed cost / Contribution

Contribution = sale price per unit  – variable cost per unit.

Sale  – variable cost = Foxed cost +or- profit / loss  PV Ratio = contribution / sales *100  Per 1 unit information is given  PV Ratio = contribution per unit / sales per unit * 100 2 year information = change in profit / change in sales *100 Through sale, PV Ratio: Contribution = sales * PV Ratio Through PV Ratio, contribution: Sales = contribution / PV Ratio.  Margin of safety (MOS): excess of BEP sales is called as margin of safety  Margin of safety = total sales  – sales of BEP (or)  Profit / PV Ratio

 A contingent liability is one, which is not an actual liability, it is not shown by the balance sheet, it is show under the balance sheet by way of a foot note. (may or may not). Ex: claims against company liability of a case pending in the account.

Current assets: assts within year convert into cash it is called current asset. Ex: closing stock, receivables, cash. Quick assets: the quick asset means current assets  – closing stock  – prepaid expenses. Vijay Kumar Varigala

M.B.A.

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 Accounting & Finance Material For MNC Interviews

Tangible: tangible is fixed asset include items such as plant, building, land, machinery. Which is having the physical appearance. It is shown by assets side of the balance sheet. Intangible: which is not having physical appearance and is not show & touchable such as copy rights, good will.

‚ Gradually & permanent decrease in the value of asset‛  is called Depreciation. Ex: technology changes. The process of writing of intangible assets.

It implies removal of an available but not replaceable source. Ex: coal from a coal mine.

The amount of capital that a company can potentially issue as per its memorandum is called as an authorized capital.

It is part of the authorized capital, which has offered by the company to the investors.

The part of issued capital which have been subscribed by the investor's.

The actual amount paid up by the investors. Ex: typically issued, subscribed, paid up capitals are the same type.

 A mutual fund is a pool of money collected from investor’s and to achieve the common objective (or) goal of investors.

Open ended

Vijay Kumar Varigala

closed ended

M.B.A.

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 Accounting & Finance Material For MNC Interviews Open ended: It means investors can buy (or) sell unit of funds at NAV related price at any time. Ex: SBI, MSFU. Close ended: 1. It is open for sale to investors for specific period 2. It a locking period generally 3 to 5 years. Ex: natural resources fund.

Working capital is blood of the organization. It can be used to meet the day to day requirement of the organization. Working Capital = Current Assets  – Current Liabilities.

Cash flow statement is a statement which records all the cash transactions such as cash inflows and outflows of a particular period. It deals with only cash transactions It consists of 3 activities: 1. Operating activity 2. Investing activity 3. Financing activity

Operating activity is an activity, the activity which involve in the calculation of operating expenses such as interest paid, cash payment to suppliers and employers, depreciation on working capital.

Investing activity is an activity which generally deals with long term assets such as purchases (or) sales land & plant & machinery and etc.

Financing activity is an activity which deals with all the activityrd related to liability and stock holders such as issue of shares, issue of debentures sales of equity securities.

Vijay Kumar Varigala

M.B.A.

mobile: 9701150115

e-mail: [email protected]

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 Accounting & Finance Material For MNC Interviews

 A ratio analysis is a mathematical expression. It is the quantitative relation between two. It is the technique of interpretation of financial statements with the help of meaningful ratios. Ratios may be used for comparison in any of the  following ways. Comparison of a firm its own performance in the past. Comparison of a firm with the another firm in the industry Comparison of a firm with the industry as a whole   

Types of Ratios Liquidity ratio  Activity ratio Leverage ratio  profitability ratio    

These are ratios which measure the short term financial  position of a firm.

i. Current Ratio: It is also called as working capital ratio. The current ratio measures the ability of the firm to meet its current liabilities-current assets get converted into cash during the operating cycle of the firm and provide the  funds needed to pay current liabilities. i.e Current assets Current liabilities Ideal ratio is 2:1

ii. Quick or Acid test Ratio: It tells about the firm’s liquidity position. It is a fairly stringent measure of liquidity. =Quick assets/Current Liabilities Ideal ratio is 1:1 Quick Assets =Current Assets  – Stock - Prepaid Expenses

iii. Absolute Liquid Ratio:  A.L.A/C.L  AL assets=Cash + Bank + Marketable Securities.

2. Activity Ratios or Current Assets management or Efficiency Ratios: These ratios measure the efficiency or effectiveness of the firm in managing its resources or assets

Vijay Kumar Varigala

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 Accounting & Finance Material For MNC Interviews 

Stock or Inventory Turnover Ratio: It indicates the number of times the stock has turned over into sales in a year.  A stock turn over ratio of ‘8’ is considered ideal. A high stock turn over ratio indicates that the stocks are fast moving and get converted into sales quickly. = Cost of goods Sold/ Avg. Inventory   Debtors Turnover Ratio: It expresses the relationship between debtors and sales. =Credit Sales /Average Debtors  Creditors Turnover Ratio: It expresses the relationship between creditors and purchases. =Credit Purchases /Average Creditors Fixed Assets Turnover Ratio: A high fixed asset turn over ratio indicates  better utilization of the firm fixed assets. A ratio of around 5 is considered ideal. = Net Sales / Fixed Assets Working Capital Turnover Ratio: A high working capital turn over ratio  indicates efficiency utilization of the firm’s funds. =CGS/Working Capital =W.C=C.A  – C.L.

3. Leverage Ratio: These ratios are mainly calculated to know the long term solvency position of the company.   Debt Equity Ratio: The debt-equity ratio shows the relative contributions of creditors and owners. = outsiders fund/Share holders fund Ideal ratios 2:1  Proprietary ratio or Equity ratio: It expresses the relationship between  networth and total assets. A high proprietary ratio is indicativeof strong  financial position of the business. =Share holders funds/Total Assets = (Equity Capital +Preference capital +Reserves  – Fictitious assets) / Total Assets 

Fixed Assets to net worth Ratio: This ratio indicates the mode of  financing the fixed assets. The ideal ratio is 0.67 =Fixed Assets (After Depreciation.)/Shareholder Fund

4. Profitability Ratios:  Profitability ratios measure the profitability of a concern generally. They are calculated either in relation to sales or in relation to investment.   Return on Capital Employed or Return on Investment (ROI): This ratio reveals the earning capacity of the capital employed in the business. =PBIT /Capital Employed Vijay Kumar Varigala

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 Accounting & Finance Material For MNC Interviews 

 Return on Proprietors Fund / Earning Ratio: Earn on Net Worth =Net Profit (After tax)/Proprietors Fund   Return on Ordinary shareholders Equity or Return on Equity Capital: It expresses the return earned by the equity shareholders on their investment. =Net Profit after tax and Dividend / Proprietors fund or Paid up equity Capital   Price Earning Ratio: It expresses the relationship between marketprice of share on a company and the earnings per share of that company. =MPS (Market Price per Share) / EPS Earning Price Ratio/ Earning Yield:  = EPS / MPS EPS= Net Profit (After tax and Interest) / No. Of Outstanding Shares.   Dividend Yield ratio: It expresses the relationship between dividend  earned per share to earnings per share. = Dividend per share (DPS) / Market value per share  Dividend pay-out ratio: It is the ratio of dividend per share to earning   per share. = DPS / EPS  DPS: It is the amount of the dividend payable to the holder of one equity share. =Dividend paid to ordinary shareholders / No. of ordinary shares C.G.S = Sales- G.P G.P = Sales  – C.G.S G.P. Ratio = G.P/Net sales*100 Net Sales= Gross Sales  – Return inward- Cash discount allowed Net profit ratio=Net Profit/ Net Sales*100 Operating Profit ratio=O.P/Net Sales*100 Interest Coverage Ratio= Net Profit (Before Tax & Interest) / Fixed Interest Classes  Return on Investment (ROI): It reveals the earning capacity of the capital employed in the business. It is calculated as, EBIT/Capital employed. The return on capital employed should be more than the cost of capital employed. Capital employed = Equity Capital + Preference share capital + Reserves + Long-term loans and Debentures - Fictitious Assets  – Non Operating Assets

Vijay Kumar Varigala

M.B.A.

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 Accounting & Finance Material For MNC Interviews

 Accounting concepts: In this concept the business is traded as a separate entity from its owner while recording the transaction in books. It should be noted that the business & owners are separate entities from the transfer of the business. The personal transaction of the owner, It should not be mixed. Ex: Insurance premium of the owner. Example: Suppose Mr. Ganesh started a business investing Rs. 1,00,000/ He purchased good of 40,000/-, furniture 20,000/-, and plant & machinery 30,000/-, 10,000/- remains in hand. These are the assets of the business & not of the owner.  According to this concept Rs. 1,00,000/- will be transferred by business as capital.

In this concept the accounts are recorded and assumed that the business will continuous for a long time. It is useful for assessment of good will.

Generally the business transactions are recorded ‚at cost‛ in the book of accounts.

In this concept assumed the business transactions must be ‚in terms of money‛. Ex: Sale of Goods worth Rs. 2,00,000/-

In this concept all the transactions are recorded in books of accounts for a specified period of time.

Every transaction there 2 aspects one receiving aspect and another giving aspect.

The concept of realization states that revenue is realized at the time when  goods (or) services are actually delivered. or The revenue is recognized as income as income when it is realized.

Vijay Kumar Varigala

M.B.A.

mobile: 9701150115

e-mail: [email protected]

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 Accounting & Finance Material For MNC Interviews

It’s this concept end of the financial year matching the all revenue and all expenses.

In this concept only important information will be taken. Unimportant information will be ignored in the preparation of financial statements.

In this concept the profit is arises only, when there an increasing the an owners capital. Which there result of excess of revenue over expenses and loss.

In this concept the same accounting policies are followed from one period to another.

Vijay Kumar Varigala

M.B.A.

mobile: 9701150115

e-mail: [email protected]

Page:

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