Explanation : The normal distribution is undoubtedly the most important probability distribution in statistics. Not far behind, however, is the
binomial d istribution. Th e binom ial distribution is a discrete distribution that can occur in two situations: (1) when sampling from a population with only two types of members (males and females, for example), and (2) when performing a sequence of identical experiments, each of which has only two possible outcomes.
Assumptions of the Binomial Distribution:
> The experiment involves n identical trials.
> Each trial has only two possible outcomes denoted as success or as failure.
> Each trial is independent of the previous trials.
> The terms p and q remain constant throughout the experiment, where the term p is the probability of getting a success on
any one trial and the term q = (1 – p) is the probability of getting a failure on any one trial.
Explanation : Depreciation refers to the decrease in the value of assets, particularly, fixed assets, which may lose their values due to wear and tear, obsolescence, the passage of time, exhaustion, and accident. As this loss in value (depreciation) arises out of operations of fixed assets in the business, it is treated as an operating expense to Profit and Loss Account. The usual treatment of depreciation in the final account is to debit the same to Profit and Loss Account and credit the concerned Fixed Asset account (i.e. deducted from fixed assets in Balance Sheet). Since Profit and Loss
Account and Fixed Asset account are noncurrent accounts, depreciation is treated as a non-fund item while preparing the fund's flow
statement. In other words, depreciation is added back to operating profit to find out funds from operations since it does not affect the flow of funds. Hence, it is neither a source nor an application of funds. If depreciation were really a source of funds by itself, then any business could improve its funds position by providing a periodical depreciation charge. However, depreciation can be taken as a source of funds in a limited sense because of there reasons:
(i) Depreciation finds its way into current assets through the charging of overheads (including depreciation). The value of closing inventory may include depreciation of fixed assets as an element of cost.
(ii) Depreciation does not generate funds but it definitely saves funds. For example, if the business had taken the fixed assets on hire, it would have been required to pay rent for them. Since it owns fixed assets, it saves outflow of funds which would have otherwise gone out in the form of rent.
Explanation : The concept of opportunity cost is one of the most important concepts used in economic and business analyses. The opportunity cost concept is used in making choice from the alternative opportunities available to a person or to a business firm. We explain here a briefly the concept of opportunity cost.
The concept of opportunity cost is related to the scarcity of resources and their alternative uses. As pointed out earlier, resources available to any person, firm, or society are limited. But resources have alternative uses with different products, i.e., income or returns from the alternative uses of resources are different. While one kind of use yields a higher income or return, the other uses yield a lower return or income. Due to income maximizing behaviour, people (individuals, households and firms) put their scarce resources to the use that yields highest income, return or benefit. When they put their resources to the use yielding highest income, they sacrifice the income expected from the next, the second-best, use of the resources. In economics terminology, this sacrifice is called, the opportunity cost of earning from the best use of resources. Such as it is, opportunity cost may be defined as income expected from the second-best use of the resources which is sacrificed for the best use of the resources.
Thus, the opportunity cost is an opportunity lost. From a firm’s point view, opportunity cost of using a resource is what the firm must give up to use the resource as it is used.
In economics terminology, this sacrifice is called, the opportunity cost of earning from the best use of resources. Such as it is, opportunity cost may be defined as income expected from the second-best use of the resources which is sacrificed for the best use of the resources. Thus, the opportunity cost is an opportunity lost. From a firm’s point view, opportunity cost of using a resource is what the firm must give up to use the resource as it is used.
Opportunity cost is also called alternative cost. It is an alternative cost because it arises due to the possibility of alternative uses of the resources. If a resource has only one use, i.e., it has no alternative use, there would not be any alternative or opportunity cost.