MGT401 Current Final Term Fall 2013 Shared by Adeel Ahmed File 12

Q. 56: 

Provision:

A provision is a liability of uncertain timing or amount. For a provision following

points must be kept in mind:

·Present obligation

·Arising from the past event

·Probable outflow of resources in future

·Amount can be estimated reliably.

Provision is created for two motives:

One to reduce AssetsSecond to create a liability against losses

Provision that is created for reduction in assets is of two types:

1. Provision against receivables (also known as contra to receivables ­

Provision for doubtful debts)

2. Provision against the expiry of economic benefits of fixed assets

(Provision for depreciation/amortization)

Q. No : 57

Cash Flow Statement:

1. Cash flow statement shows the movement in cash resources of the business.

2. This statement shows the sources from which business generated cash and its application.

Cash flow from investing activities includes cash receipts and payments that arise from Fixed and Long Term assets of the organization.

Examples of cash flows from investing activities are:

• Cash payments to acquire property plant and equipment. These also include payments made for self- constructed assets.

• Cash receipts from sale of property plant and equipment.

• Cash payments and receipts from acquisition and disposal other long term assets e.g. Shares, debentures, TFC, long term loans given etc.

• If assets are held for trading purposes or in normal course of business e.g. car / property dealers and loans given by banks, then cash flows from them are included in Operating Cash Flow.

Q. No: 58

Historical cost

Consideration paid (payable) or received (receivable) at the time of recording of transaction (no relation to current costs).

Current cost

The consideration that would have to be paid if a same or an equivalent asset is acquired. The undisclosed amount of cash or cash equivalents, that would be required to settle an obligation currently.

Realizable cost

The consideration that would be realized by selling an asset in an orderly disposal

Q. No 60:

Administrative expenses are costs that are associated with the management and general functions of an organization and are not directly related to a specific department. Sometimes considered part of general business expenses, these costs can be for basic needs such as rental space for the business, utilities or office supplies. Administrative costs also can include the salaries of people who are not involved in sales, production or other departments within the company, such as senior executives, secretaries and receptionists.