Explanation : Accounting Standard 3 (Revised) issued by Institute of Chartered Accounts of India has made it mandatory for listed companies and other enterprises whose turnover exceeds Rs.50 crore to prepare and present the Statement of Changes in Financial Position along with the Financial Statement Realising the importance of such a statement, a number of companies in India have started providing an analysis of their funds and cash flow position in their annual reports. Companies who are required to comply with Accounting Standard (Revised), the presentation of cash flow statement has become a part of the financial statements. The Statement of changes in Financial Position presents condensed and summarised information (prepared from data collected from Income Statement and Balance Sheet) which is not readily available in these statements. In fact the statement of changes in Financial Position in a refined form or an extension of the funds flow or cash flow statement. It is more informative and comprehensive in indicating the financial position of an enterprise.
Explanation : A firm generating an economic loss faces a tough choice: Should it continue to produce or should it shut down its operation? To make this decision, we need to add another variable to our discussion of economic profits and losses: average variable cost, Variable costs are costs that vary with output—for example, wages, raw material, transportation, and electricity. If a firm cannot generate enough revenues to cover its variable costs, it will have larger losses if it operates than if it shuts down (when losses are equal to fixed costs). That is, the firm will shut down if its total revenue (p × q) is less than its variable costs (VC). If we divide p × q by q, we get p, and if we divide VC by q we get AVC, so if p < AVC, a profit-maximizing firm will shut down. Thus, a firm will not produce at all unless the price is greater than its average variable cost.
Explanation : ‘Sale and Lease-back’ arrangements provide
the advantage of better liquidity, since it
enables the lessee to make a sale of the asset
owned to the prospective lessor, and then
take the asset back on lease. This helps a
lessee-firm to overcome a liquidity crunch
by being in a position to sell and realize cash.
This helps overcome working capital crises.
Explanation : Market Stabilization Scheme (MSS): This
instrument for monetary management was
introduced in 2004. Surplus liquidity of a
more enduring nature arising from large
capital inflows is absorbed through sale of
short-dated government securities and treasury
bills. The cash so mobilized is held in a
separate governm ent account with the
Explanation : Offer and acceptance are two very important elem en ts, am on g other things, which constitute a contract. In fact, the making of a contract consists the proposal or offer by the proposer and the acceptance of the proposal or offer by the person to whom the said proposal is made. The contract becomes complete as soon as the acceptance is made and communicated to the proposer. An offer and its acceptance by the person to whom such offer is made becomes an agreement under the Law of Contract. Offer and acceptance which are essential elements of a contract must be absolutely clear and unambiguous. In order to see the sustainability of offer and acceptance from legal angle, one has to see whether the offer an d acceptance are founded on three components, namely, certainty, commitment and communication. If any of these components is missing, either in the offer or in the acceptance, the validity of a contract may be open to question.