Professional Documents
Culture Documents
Sources of Financing
Sources of Financing
Nonbank Sources
Equity Financing
Types of Equity Securities:
Common Shares
It represents a residual claim on firm assets.
Callable Common Shares
It gives a firm the right to repurchase the stock at a pre – specified call price.
Putable Common Shares
It gives the shareholder the right to sell the shares back to the firm at a specific price.
Preference Shares
Shares that have features of both common stock and debt.
Cumulative Preference Share
It require that the current period dividends
Participating Preference Share
COST ACCOUNTING
Cost
- A measurement, in monetary terms, of the amount of resources used for some purpose. When
notified by a term that defines the purpose, cost become operational.
Cost Pool
- An account in which a variety of similar cost are accumulated oprior to allocation to cost objects.
Cost Object
- The intermediate and final disposition of cost pools.
Cost Driver
- A factor that causes a change in the cost pool for a particular activity. Itis used as a basis for cost
allocation; any factor or activity that has a direct cause effect relationship.
Activity
- Any event, action, transaction, or work sequence that incurs costs when producing a product or
providing a service.
Cost Behavior
- describes how a cost behaves or changes as the amount of cost driver changes.
1. Account Analysis
2. Engineering Approach
3. Scatter Graph Method
- Various costs are plotted on a vertical line and measurement figures are plotted on a
horizontal line. A straight line is drawn through the points and using this line, the rate of
variability and fixed cost are computed.
4. High Low Method
- The fixed and variable elements of the mixed costs are computed from two data points –
the high and the low periods as to activity level or cost driver.
y 1− y 2
b=
x 1−x 2
Illustration.
The company had the following mixed cost for the three month period starting January 2017.
$ 10800−$ 7000
b=
4000−2000
$ 3800
b=
2000
b = $1.90 per unit
Y=a+bX
$10800 = a+($1.90)(4000units)
$10800 = a+$7600
a = $10800 - $7600
a = $3200
This is used in Financial Accounting and Reporting This is used only by management and for internal
to External Users. reporting.
This is considered as GAAP in preparing financial This is not considered as GAAP in preparing
statements. financial statements.
The costs are classified as product cost or period The costs are classified as to behaviour.
cost.
Break-Even Sales
- That point of activity level where total revenues equal total costs, i.e. there is neither profit nor
loss.
Summary of Formulas: