1 The Role of Government in the Economy
In every economy the work of different firms has to be coordinated. In a market economy this coordination is achieved by means of markets. Nevertheless the debate over the role for Government in a market economy is continuing and the issue is being widely discussed at the present time. An economy based on free enterprise is generally characterised by private ownership and initiative, with a relative absence of government involvement. However, government intervention has been found necessary from time to time to ensure that economic opportunities are fair, to dampen inflation and to stimulate growth.
Government plays a big role in the American free enterprise system. Federal, state and local governments tax, regulate, and support business.
In the United States there are agencies to regulate safety, health, environment, transport, communications, trade, labour relations, and finances. Regulation ensures that business serves the best interests of the people as a whole.
Some industries — nuclear power, for instance — have been regulated more closely over the last few years than ever before. In others the trend has been towards deregulation or reduction of administrative burden on the economy.
The U.S. economy has a tradition of government intervention for specific economic purposes — including controlling inflation, limiting monopoly, protecting the consumer, providing for the poor. The government also affects the economy by controlling the money supply and the use of credit. The aim is a balanced budget.
Pure monopoly is a theoretical market structure where there is only one seller of a commodity or service, where entry into the industry is closed to potential competitors, and where the seller has complete control over the quan-, tity of goods offered for sale and the price at which goods are sold. Monopolies may begin by the granting of a patent or a copyright, by the possession of a superior skill or talent, or by the ownership of strategic capital. The huge capital investment necessary to organise a firm in some countries is a barrier to entry in these monopolistic fields and, thus, provides established corporations in these industries with potential monopoly power.
At the same time, in recent years, many large U.S. corporations, viewed by many as the chief instrument of monopoly, have become vulnerable to new forms of competition. U.S. consumers can buy goods from foreign producers, pjthe case of automobile, they can purchase products made by Honda, Toyota, or Volvo, to name a few. The U.S. Government has tried to minimise the danger of monopolies through legislation.
All businesses produce goods and services and seek profits. And they all compete with other businesses in doing so.-Competition is universal in the world of business.
Businesses do not compete only in selling things. They compete for labour, capital, and natural resources.
If a business is going to survive in the face of competition, it needs a constant flow of new ideas. It needs managers who are good at developing new products, finding new ways to reduce costs, and thinking of new ways to make products attractive to consumers.
In the 1960s Xerox had a virtual monopoly on producing copying machines because the company had major patents. Rivals like Kodak, Canon, and 3M spent huge amounts of money on getting new patents. They succeeded in obtaining new patents, and now Xerox is just one among many competitors in the copier market.
Taxes are a compulsory financial contribution by a person or body of persons towards the expenditure of a public authority.
The government has a choice of taxing income, wealth or consumption to finance its expenditure on defence, social services, municipal services etc.
The main forms of direct tax are income tax paid by individuals and corporation tax paid by businesses. Income tax in Great Britain dates from the 1790s and has until recently been the major source to generate tax revenue. Income tax can be progressive, proportional or regressive. The idea of a progressive tax is to take more from those who earn more.
Indirect taxes are imposed on certain products or services that people buy. The main ones are value added tax and excise duties.
Pressure to increase government expenditure may lead to a search of new taxes.
Some people argue for a more direct link between specific taxes and particular items of government expenditure. For example, taxes from motorists could be spent on roads and the transport system while the tax from alcohol and tobacco could be spent on the national health service. But it is impossible for the government to match all individual taxes with particular spending programmes.
The major principles of a tax system are that it should be equitable and reasonable. Then the incentive to avoid and evade tax would be less. The system of tax collection shouldn’t be costly and shouldn’t contain a lot of tax allowances and exemptions.
5. The Budget
The budget is the government’s main economic statement of the year. It is a forecast of revenue and expenditure for the conning year.
In Great Britain the budget is prepared and usually issued in March. In a major speech to Parliament, the Chancellor of the Exchequer reviews the nation’s economic performance and describes the government’s economic objectives and the economic policies it intends to follow in order to achieve them.
In November 1993 Great Britain introduced the «so-called» Unified Budget. Under this budget the government presents taxation and spending proposals to Parliament at the same time. The Budget now covers both the government’s taxation plans for the coming financial year and its spending plans for the next three years. The proposals are announced to the House of Commons by the Chancellor of the Exchequer in the Budget statement and are published in the Financial Statement and Budget Report. This report also contains a review of recent developments in the economy, together with an economic forecast, and sets out the fiscal and monetary policies.
6. Starting a Career
In many countries, businesses, the private sector, provide the majority of jobs. But one could also make a career in government or in the not-for-profit sector.
Career is more than just a job. It is something that may include many separate jobs. People, as a rule, move from job to job during their lifetime. A career involves choices of occupation. There is work that we enjoy and feel good about. And ihere is work that we don’t enjoy. Every career includes some work of both kinds. How much of each kind then-is in your career depends very much on decisions that you yourself make.
Seeking work (particularly first job) that is interesting and rewarding requires effort and careful thought. What can help to make careei choices? What makes people give up their jobs? How to take the first steps in starting a career? These questions are very often asked. Here are some hints that may be useful.
First you must assess your interests and abilities. Self-assessment is useful in helping you decide what to look for, what career to pursue When you have a clear idea of the kind of work you would like to do and you are ready to look for a specific job, you should explore the labour market, visit job centres, talk to friends, read advertisements about vacancies. After that you must start writing and sending oul resumes or CV;. Your resume not only sums up your experience and education but also advertises you to potential employers. Its purpose is to arouse employer’s interest in you and thereby to gain an interview.
Employers want to hire people who fit the job, they want to fill the vacancies with competent people. If there is a personnel department in the company then the staff help to recruit a qualified applicant. Employ ers usually consider professional qualifications and personal characteristics. Preference is given to applicants who can maintain good relations, who have positive attitudes, who can work in a team and under pressure.
It is important for the resume to be good-looking and accurate.
Before writing your resume, ask yourself what an employer would want to know about you, what tasks you could perform, what kind ol experience you have had, what skills you can offer and what job you expect the employer to give you.
There are many interesting jobs in the financial system — loan officer at a bank, broker in a securities firm, underwriter in an insurance company, and an auditor.
7. The Labour Market
One of the chief aims of education is to equip future citizens they require to take their place in аdult society. The «place in society» is associated first of all with a well-paid job with good prospects, the labour market in Britain is highly competitive and it will remain competitive for the years to come? Big companies compete with each other to recniit.best students offering them tempting salaries and «fringe benefits». Recruiting tactics of this kind have led to the «brain drain», the process by which highly skilled people offer their services to the highest bidder. And for as long as memory can stretch’ British students have been competing for jobs in this market. They start applying for jobs before they leave university. Companies advertise their vacant positions inviting applications for the jobs. The company personnel managers go through the written applications deciding which of the’applicants have the right qualifications2 for the post and prepare the so-called «short list». Short lists include about five or six applicants who look most promising and who will subseqtwntrjTbe interviewed. Only one of the applicants will succeed. That means that most applicants will be unsuccessful. British students have learned, to live with failure, they do not lose heart, do not feel depressed and embarrassed.
Let us imagine a third-year (i.e. final year) university student, Richard.
Richard is thinking about a career in administration. He would like to help organise and run something but he isn’t quite sure what. He is about to graduate3 with a degree in economics, and he has taken a special computer course. JEach day he reads the jobs section in one of the national papers. So far he has found twenty-five possible jobs. He writes off for an application form, reads the details about the job, fills in the form, includes a copy of his CV and a stamped addressed envelope and posts off the letter. Usually he has a brief reply, thanking him for the letter and saying that he has not been selected for interview.
But one day he received a letter containing a request to go for an interview. Unfortunately he failed because one of the candidates selected for the interview had a better degree in economics, he had also helped to run the student «shop» during his course, as a result he has practical experience in accounting and in handling people.
Having made twenty-five applications and having failed the interview, Richard starts his search again.4 Such an experience is completely typical for students who have just graduated in contemporary Britain.
8. Defining Economics
Economics is a science concerned with how people use available resources to satisfy their wants through the process of production and exchange.
There have been many definitions of economics in the past. The earliest definitions envisaged economics as the study of wealth and the older name for economics was «political economy». Later economics was defined as «the practical science of the production and distribution of wealth». At the turn of the 19th century economists defined economics as a study of man’s actions in the ordinary business of life. At that time economics focused on how men got their incomes and used them. In more recent years, the subject of economics was defined more precisely as «the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses». Today economics deals with data on income, employment, expenditure, prices, production, consumption, transportation and trade.
9. Personal Finances
Many people regard financial security as the most important thing in family finances. This is not the same thing as being rich. It means being freed from the need to think about money, living within your means. For day-to-day living you need ready cash but you also need a bit in reserve for a rainy day. The first thing to think about is your current account and how much is in it. Credit cards can be a helpful way of handling unexpected expenses, but credit is always costly, and of course it’s just another form of debt.
For some people, the English and the Americans, however, living on credit is a normal way of life. They believe that credit enables them to enjoy the use of goods and services before they have fully paid for them. Such people are not afraid to use consumer credit (credit from suppliers, hire purchase and loans from banks) because they have an income. If they want to buy a house they almost always borrow the money in the form of a mortgage from a building society or a mortgage bank. They pay for expensive things in instalments by means of a hire purchase plan.
People earn money in different ways. First of all they get an income from employment, then from keeping money in a savings account with a bank, from renting property, and from investing in shares in the stock market.
People who are paid by the hour get wages. People who are paid on an annual basis get salaries and people, paid for a particular service, get fees.
The worst-off people are the unemployed and the homeless.
For those living at a subsistence level, even buying essentials is a struggle. People on low incomes sometimes take out loans, borrow money from banks, \fery often they are unable to cope with repayments and interest on loans. Banks are not willing to lend money to such people.
10. Supply and Demand
The backbone of any economy are producers. They are represented by enterprises or firms. The aim of producers is to supply goods and services, seek profits, and compete successfully with one another. To j create the goods and services they sell, producers transform inputs into outputs. Three factors of production are needed to make goods and services. They are labour, capital, and natural resources.
Every economy faces the problem of what, how and for whom to produce. In market economies the problem is solved by the market thanks to the law of supply and demand. The law states that the imbalances in the market between the quantity of the goods that buyers want to purchase and the quantity that producers want to sell tend to be corrected by changes in prices.
Other things being equal1, people tend to increase their purchases of a good or service when its price goes down, and to cut back on purchases when prices go up.
Producers tend to respond to a rise in price by increasing their output. Together, changes in supply and demand act to correct temporary shortages or surpluses. When there is a shortage, producers see a chance to increase the supply and to make an extra profit.
Whenever people who are willing to sell a commodity contact people willing to buy it, a market for that commodity is created. In a perfect market, buyers and sellers are numerous and competition is completely free. In some markets there may only be one seller or a very limited number of sellers to offer goods and services. Such a situation is called a «monopoly».
11. On Higher Education
Nobody doubts these days that progress in the world depends on progress in education, higher education in particular.
In Britain, for example, about 71 per cent of pupils continue studying after the age of 16. The proportion of young people entering universities has risen from one in eight in 1980 to almost about one in three at present.
English universities usually consist of colleges. The academic year is divided into three terms. The course lasts three or four years, depending on the subject area: arts, science, law, engineering, medicine, social sciences. The structure of courses does not differ from Russian courses in size of groups, methods of teaching and close relationships with teachers. Methods of assessment differ from university to university but all British students have to undergo lengthy written examinations.
Conditions of student life in Britain differ from those in Russia.
The English assume that anyone from age eighteen is an independent being capable of making up his or her own mind and capable of looking after himself or herself. As a rule, English students try to live away from home. Like Russian students, English students receive a grant from the state for the expenses of daily living. The level of the grant depends on the income of the student and of the student’s parents. Besides, students can take out a special student loan which they do not have to repay until they are earning. Loans are not means-tested. In the opinion of the English there is one more obvious difference between British and Russian students, however. Traditionally, there has always been an enormous almoner LtL Britain. It takes place in universities as well: playing in the university band, taking part in athletics or football, running university newspapers, helping the disabled and pensioners, participating in local and national voluntary groups and societies.
There is a widespread opinion that conditions may be different but goals of getting higher education are the same everywhere. Many people admit that for the majority of young people today success in life is measured in terms of the money young people earn. This materialistic outlook has seriously influenced education. Fewer and fewer young people these days acquire knowledge only for its own sake. They want to obtain prestigious diplomas to get higher wages and advancement.
12. History of Money
At different periods of time and in different parts of the world many different commodities have served as money. These commodities were: cattle, sheep, furs, leather, fish, tobacco, tea, salt, shells etc. The experts underline that to serve effectively as money, a commodity should be fairly durable, easily divisible, and portable. None of the above-mentioned commodities possessed all these qualities, and in time they were replaced by precious metals. First they were replaced by silver and later by gold.
When a payment was made the metal was first weighed out. The next stage was the cutting of the metal into pieces of definite weight and so coins came into use.
Paper money first came into use in the form of receipts given by goldsmiths in exchange for deposits of silver and gold coins. After goldsmiths became bankers their receipts became banknotes. That’s how the first banknotes came into existence.
13. The Nation’s Economy
The economy of the country is like a machine which provides us with things we need, i.e. goods and services. The economy creates the wealth of the country. The better it works the better off are the people.
The government through its economic policy plays an important role in the control of the economy machine. The major branches of economic policy are fiscal and monetary policies. Fiscal policy is concerned with taxes and government spending activities. Monetary policy is concerned with controlling the supply of money and credit.
A nation’s economy can be divided into three sectors of activity. The primary sector deals with extraction of minerals, agriculture, fishing, and forestry. Processing of the primary sector materials and production of manufactured goods is the field of the manufacturing sector. The service sector provides services of various kinds such as transportation, distribution, catering as well as financial services and tourism. The role of the manufacturing sector in the advanced industrialised countries is decreasing while the service sector is becoming more important.
Macroeconomics is a branch of economics concerned with the analysis of the economy in the large. It deals with such large aggregates as the total production, total employment, the rate of economic growth, saving and investment, the national income and so on.
Macroeconomics measures and analyses overall economic activity.
An important task of macroeconomics is to develop ways of aggregating, i.e. ways of bringing together or summing primary data. To this end such concepts as gross domestic product (GDP), aggregate demand, aggregate supply and the national income were developed. For example, the national income is an aggregate, in contrast with the income of an individual.
Macroeconomics is concerned with such major policy issues as the attainment and maintenance of full employment and price stability.
15. Fueled by SMAC M&A Activity Predicted by CFOs to Heat Up
Corporate professional services firm BDO USA [www.bdo.com] polled approximately 100 CFOs of U.S. tech outfits for its 2014 Technology Outlook Survey and found them firm in the belief that mergers and acquisitions in tech would either stay at the same rate (40 percent) or increase over last year (43 percent). And this isn’t a recent phenomenon.
M&A has been widely adopted across a range of technology segments as not only the vehicle to drive growth but, more importantly, to remain at the leading edge in rapidly changing business environment that is being spurred by cloud and mobile computing. EMC, for example, has evolved from a leading storage infrastructure player to a broad-based technology giant driven by 70 acquisitions over the past 10 years.
Since this past August IBM has been involved in a variety of acquisitions amounting to billions of dollars. These acquisitions touch on everything from mobile networks for big data analytics and mobile device management to cloud services integration.
Google, however, probably should be considered the poster child for M&A. According to published reports, Google has been acquiring, on average, more than one company per week since 2010. The giant search engine and services company’s biggest acquisition to date has been the purchase of Motorola Mobility, a mobile device (hardware) manufacturing company, for $12.5 billion. The company also purchased an Israeli startup Waze [www.waze.com] in June 2013 for almost $1 billion. Waze is a GPS-based application for mobile phones and has brought Google a strong position in the mobile phone navigation business, even besting Apple’s iPhone for navigation.
Fueling this M&A wave is SMAC (Social, Mobile, Analytics, Cloud). SMAC appears to be triggering a scramble among large, established blue chip companies like IBM, EMC, HP, Oracle, and more to acquire almost any promising upstarts out there. Their fear: becoming irrelevant, especially among the young, most highly sought demographics.
SMAC has become the code word (code acronym, anyway) for the future. CFOs have embraced SMAC-driven M&A as the fastest, easiest, and cheapest way to achieve strategic advantage through new capabilities and the talent that developed those capabilities. Sure, the companies could recruit and build those capabilities on their own but it could take years to bring a given feature to market that way and by then, in today’s fast moving competitive markets, the company would be doomed to forever playing catch up.
Even with the billion-dollar and multi-billion dollar price tags some of these upstarts are commanding strategic acquisitions like Waze, IBM’s SoftLayer, or EMC’s XtremeIO have the potential to be game changers. That’s the hope, of course. But it can be risky, although risk can be managed. That’s where the CFO comes in.
And the best way to manage SMAC merger risk is to have a coherent strategy for leveraging the new acquisition. What you need to avoid, however, is ending up with a bunch of SMAC piece parts that don’t fit together.
16. THE ECONOMIC ENVIRONMENT
The economy comprises millions of people and thousands of firms as well as the government and local authorities, all taking decisions about prices and wages, what to buy, sell, produce, export, import and many other matters. All these organizations and the decisions they take play a prominent part in shaping the business environment in which firms exist and operate. The economy is complicated and difficult to control and predict, but it is certainly important to all businesses. You should be aware that there are times when businesses and individuals have plenty of funds to spend and there are times when they have to cut back on their spending. This can have enormous implications for business as a whole.
When the economy is enjoying a boom, firms experience high sales and general prosperity. At such times, unemployment is low and many firms will be investing funds to enable them to produce more. They do this because consumers have plenty of money to spend and firms expect high sales. It naturally follows that the state of the economy is a major factor in the success of firms.
However, during periods when people have less to spend many firms face hard times as their sales fall. Thus, the economic environment alters as the economy moves into a recession. At that time, total spending declines asincome falls and unemployment rises. Consumers will purchase cheaper items and cut expenditure on luxury items such as televisions and cars. Changes in the state of the economy affect all types of business, though the extent to which they are affected varies. In the recession of the early 1990s the high street banks suffered badly. Profits declined and, in some cases,losses were incurred. This was because fewer people borrowed money from banks, thus denying them the opportunity to earn interest on loans, and a rising proportion of those who did borrow defaulted on repayment. These so-called «bad debts» cut profit margins substantially. Various forecasters reckoned that the National Westminster Bank’s losses in the case of Robert Maxwell’s collapsing business empire amounted to over £100 million.
No individual firm has the ability to control this aspect of its environment. Rather, it is the outcome of the actions of all the groups who make up society as well as being influenced by the actions of foreigners with whom the nation has dealings.
17. MEASURING ECONOMIC ACTIVITY
There are a large number of statistics produced regularly on the operation of the world’s major economies. The UK’s economy is no exception in this respect. You will probably have noticed that often the headlines in newspapers or important items on television news programmes relate to economic data and the implications for individuals and businesses. A prime example of this occurs when interest rates are increased: the media responds by highlighting the adverse effects on businesses with debts and householders with mortgages.
Data is provided on a wide range of aspects of the economy’s operation. Statistics are available to show.
* the level of unemployment
* the level of inflation
* a country’s trade balance with the rest of the world
* production volumes in key industries and the economy as a whole
* the level of wages
* raw material prices, and so forth.
The main statistics illustrating the economy’s behaviour relate to the level of activity in the economy. That is, they tell us whether the economy is working at full capacity using all or nearly all, available resources of labour, machinery and other factors of production or whether these resources are being under-utilized.
The unemployment figures for the economy give an indicator of the level of activity. As the economy moves towards a recession and a lower level of prosperity it is likely that unemployment figures will rise. An alternative measure of the level of activity is national income statistics, which show the value of a nation’s output during a year. Economists use the term Gross National Product to describe this data. Changes in the level or trends of such key data have great significance for businesses, as we shall see later.
There are numerous sources of data on the economy of which we can make use. The government publishes much through the Treasury, Department of Trade and Industry, the Bank of England and the Department of Employment. The Central Statistical Office, which was established during the Second World War, publishes about half of the government’s economic data.
Much of this is contained in its annual publication, »The Annual Abstract of Statistics». It also publishes the equally valuable «Social Trends» annually. Additionally, private organizations, such as the banks, building societies and universities, publish figures on various aspects of the economy’s performance. Economic statistics are presented in many forms, the most common being graphs and tables. Although these statistics can be valuable in assisting managers, they should be treated with some caution when predicting the future trend of the economy and thus helping the business to take effective decisions.
18. IT Change-proof Your Organization
Many organizations are being whiplashed by IT infrastructure change—costly, disruptive, never-ending change that is hindering IT and the organization. You know the drivers: demand for cloud computing, mobile, social, big data, real-time analytics, and collaboration. Don’t forget to add soaring transaction volumes, escalating amounts of data, 24x7x365 processing, new types of data, proliferating forms of storage, incessant compliance mandates, and more keep driving change. And there is no letup in sight.
All of these trends put great pressure on the organization, which forces IT to repeatedly tweak the infrastructure or otherwise revamp systems. This is costly and disruptive not just to IT but to the organization. In short, you need to change-proof your IT infrastructure and your organization. And you have to do it economically and in a way you can efficiently sustain over time.
At the least ask IT to leverage some of the very same technology trends creating change to design an IT infrastructure that can smoothly accommodate changes both known and unknown. Many of these trends we have discussed in wired FINANCE:
—> Cloud computing
—> Software defined everything
—> Open standards
—> Open APIs
—> Hybrid computing
—> Embedded intelligence
These technologies will allow you to change your infrastructure at will, changing your systems in any variety of ways, often with just a few clicks or tweaks to code. In the process, you can eliminate vendor lock-in and obsolete hardware and software that has distorted your IT budget, constrained your options, and increased your risks. Let’s look at just a few of those listed above, starting with cloud computing.
You probably are using aspects of the cloud to one extent or another. There are numerous benefits to cloud computing but for the purposes of infrastructure change-proofing only three matter: 1) the ability to access IT resources on demand, 2) the ability to change and remove those resources as needed, and 3) flexible pricing models that eliminate the upfront capital investment in favor of paying for resources as you use them.
Yes, there are drawbacks to cloud computing. Security remains a concern although increasingly it is becoming just another manageable risk. Service delivery reliability remains a concern although this too is a manageable risk as organizations learn to work with multiple service providers and arrange for multiple links and access points to those providers.
Virtualization remains the foundational technology behind the cloud. Virtualization makes it possible to deploy multiple images (logical copies) of systems and applications quickly and easily as needed, often in response to widely varying levels of service demand.
Software defined everything also makes extensive use of virtualization. It inserts a virtualization layer between the applications and the underlying infrastructure hardware. Through this layer the organization gains programmatic control of the software defined components. Most frequently we hear about software defined networks that you can use to control, manage, and reconfigure through software running on a console. Software defined storage gives you similar control over storage.
All the technologies listed above exist today at different stages of maturity. Cloud and virtualization already have gone mainstream. The others are following along at varying adoption rates.
The point is to start encouraging IT to begin planning how the organization can use these technologies regain control of the IT infrastructure regardless of how technology and the business may change because here’s the sad fact of life: the world keeps changing and the IT infrastructures of many enterprises are groaning under the pressure. Change-proofing your IT infrastructure is your best chance of keeping up.
19. Three Tips to Make Standard Cost Accounting More Effective
Jan 23, 2014Chris Crowder
Being regularly involved in consulting and auditing manufacturing and distribution companies, I have become accustomed to dealing with “standard cost” accounting for inventory. While it’s commonplace for manufacturing and distribution companies to use standard cost to value their inventories, many may not realize that if they are not regularly reviewing and updating their costs, they may create problems in accounting (especially at year-end) and/or miss opportunities for improvement and cost savings.
By assigning and using standard costs for inventory, companies are making projected estimates of the expected value of inventory (on a per-item basis) based on historical information and other accumulated data such as pricing quotations from vendors. The most basic problem with that approach is that anything other than “actual cost” is not acceptable under generally accepted accounting principles (GAAP). GAAP requires that inventory be stated at actual cost—using FIFO, LIFO, or weighted average; however, standard cost may be acceptable as long as it materially approximates “actual cost.”
Given that GAAP requires actual costs (or a close alignment thereto) and it may not be practical or cost-effective to obtain actual cost data in real time, what is the solution? Without completely altering the company’s existing cost structure, there are ways to manage standard costs and help them more closely approximate actual costs.
The following three steps should be incorporated into a company’s inventory accounting processes to assist in managing its standard cost:
1. Review the company’s capitalizable costs. When setting standard costs, have all appropriately capitalizable costs been considered, such as incoming freight for procured inventories or overhead for produced inventories? For instance, freight is subject to potentially significant variations due to factors such as the carrier or the quantities being ordered.
2. Update standard costs regularly. Updating standard costs on an annual basis is a good start but is probably not frequent enough to ensure accurate inventory costing (not to mention the potential effects on the company’s income statement every time inventory is expensed inaccurately). If the cost of procuring or producing a product has changed since the standard cost was last modified, inventory will be misstated accordingly.
3. Maintain a “standard-to-actual” reserve in the balance sheet. Every time that any component of inventory is acquired or produced at a cost different than the assigned standard cost, that variance hits the income statement and inventory is misstated. If feasible, at the end of every reporting period an analysis of purchase and production costs for capitalizability should be performed. When complete, capitalizable variances should be recorded in a “standard-to-actual” reserve within inventory on the balance sheet with the remainder being appropriately expensed through the income statement. This reserve has the effect of adjusting the company’s inventory balances to “actual,” which is appropriate under GAAP.
By performing these steps, potentially material year-end adjustments to inventory and the income statement might be minimized if not avoided altogether.
What’s more, getting closer to actual costs throughout the year allows accounting to have a better handle on financial reporting and gives operations a greatly improved understanding of their actual production costs and the opportunity to adjust them if needed to save the company money—which is always a desirable result.
20. Economic crisis
The current financial crisis has become an earthquake to the world’s economic system. Have started in the USA, it has rapidly overcome the boundaries of the States and has spread over the Europe and Asia, bringing unemployment and financial recession along. One can hardly say whether it will last long or is going to slump. The following remains obvious, if we don’t want its recurrence in future, we should investigate its root causes now.
The world economic system endures times of prosperity as well as followed by inevitable declines. The circulating scheme is characterized by the rise of manufacturing and it is following recession, thus permitting to keep to the world financial and economic balance order. No one in the world was ready to take the burdens of the economic crisis on the shoulders and to resist its unpredictable consequences. In spite of the fact, almost everybody understood how important it is to examine the reasons of it.
In my opinion there are several important factors to discuss, which obviously have affected the present economic situation. First of all it is the spendthrift lending or, in other term, the so-called housing price bubble. Every family buying a house can take a loan from the bank, which should be given back. In order to return money to the bank, the family first of all should take the house it can afford. Otherwise it will not be able to pay the money back. In the recent years the prices on real estate have been so high and raising so quickly like a bubble. It has resulted in the fact that people started taking loans, which they can’t pay off. Many banks’ borrowers got unable to make their mortgage payments. As a result, the mortgage market was undermined.
This was just the beginning. One of the consequences was the fall of prices on real estate. The institutions and businesses depending on real estate prices or making money on real estate underwent the risk and suffered losses. To such companies belong Freddie Mac and Fannie Mae. It was the blow to the financial system in general, which led to the problems in other pecuniary stocks. This process, started with the bank system and led to the banking liquidity crisis, affected all financial and economic sectors of business all over the world.
Another reason of the present economic crisis is the unrestricted emission of American dollars. The emission of the most wide-spread world currency was strictly controlled by the government of the USA. Each dollar had gold equivalent in the gold reserve of the States. Purchasing capacity of it corresponded to the quantities of products manufactured. That’s not how things stack any more up today. As a result while the USA was loosing its positions on the world market, the dollar was weakening in the world.
To sum it up one can say that the root cause of the current economic crisis lie in the ineffective policies of the economic and financial sectors of the leading and developing countries in the world. One should take into account the root causes to oust its re-occurrence in future.
21. Co-op ‘divi’ under discussion as 80,000 people ‘have their say’
Sunday 23 Feb 2014 5:58 pm
The Co-op could scrap its famous ‘divi’ payment in favour of a fund which supports community projects, as it builds a new strategy for the future, its boss said today.But chief executive Euan Sutherland told Metro the move would only be made if the mutual’s 8 million members and the wider general public wanted it.
The embattled Co-op Group is currently in the middle of carrying out a huge national survey ‘Have Your Say’, designed to give it ideas on how to claw back public trust lost in scandals which have rocked its banking business.
Seventy per cent of the bank was sold off to investors last year to plug a £1.5bn gap in its finances caused by the purchase of Britannia Building Society and aborted plans to buy hundreds of Lloyds branches.
On top of that, its former bank chairman Paul Flowers was engulfed in a gay sex and drugs scandal. As a result of the costs of problems, there will be no dividend paid to members this year in any event.
But if the poll shows people find the traditional ‘divi’ payment old fashioned for example, then the public share of profit could be spent on community projects instead.
The Co-op said 80,000 people had so far answered the questionnaire which asks their views on issues on attitude to business and how firms should benefit communities among others.
‘We want to make sure that the future of the Co-op is shaped for a future generation and it’s clear from the astonishing response that people are desperate to have their say,’ said Mr Sutherland, who took the helm last May.
‘Redistribution of future profits is an issue and it may be the public and members would prefer personal dividend to be replaced with funding for projects championing education into work for example.
‘The dividend has changed over the years anyway and is not guaranteed. We want to ensure community to be at the centre of our business.’
He said the results will be published ‘warts and all’ at the Co-operative Annual General Meeting in May.
Mr Sutherland said concerns that outside investors would now alter the Co-op group’s ethical stance were unfounded.
He said: ‘Investors are buying into our ethical business. We have a separate ethics committee and the ethical stance is written into our directorial duties. No part of this is being sacrificed.’
22. How to get a pay rise – even when times are tough at work
Monday 5 Aug 2013 9:31 am
Real incomes are shrinking as wages fail to keep up with inflation. But even if your firm has put a pay freeze in place, there may be a chance to boost your salary.
In real terms, average earnings in 2012 were at roughly at the same level as in 2003.
After three decades of strong growth, real wages peaked in 2009, but according to the Office for National Statistics (ONS), inflation has eroded the value of wage increases in cash terms over the last four years.
Full-time male employees in the private sector have seen the greatest decline in real earnings since the recession, and in 2012 their average earnings were worth less in real terms than in 2002.
On average, workers saw just a 1.4 percent pay rise in the three months to June. Inflation stood at 2.9 per cent in June, while essentials, such as food, are rising even faster and are up 5 per cent over the past year – lessening the spending power of wages.
But if you’ve been doing more and earning less in recent months negotiating your way to a pay rise may be more likely than you think.
Estelle James, director at Robert Half recruitment said: ‘Over recent months you may have taken on additional responsibilities, been under pressure to work longer hours but not seen any increase to your remuneration.
‘If so, it may be time to negotiate a salary increase. Even if your company says it still has a salary freeze in place it may be possible to negotiate a pay rise if you can demonstrate your value to the company.’
To improve your chances of success, consider these simple steps:
Do your homework. Review salary surveys and check comparable roles on online job boards.
Track your successes. Think about your demands from the boss’s point of view. Why do you deserve a pay rise? Make a solid list of your contributions and have it to hand during the salary negotiation. Consider where you’ve provided return on investment and why you deserve a raise. If you can clearly state why you deserve a pay rise, you will be more likely to get it.
Be flexible. Before you ask your manager about a raise, know specifically what you want and be open to other forms of remuneration. If you ask for a pay increase and you’re told there’s no money in the budget, maybe you can negotiate an extra week of annual leave or more flexitime. Pay is only one part of the job package. Think about an occupational pension, benefits such as private medical cover or life insurance, bonuses and or share schemes.
Time it right. How’s your company’s business doing? If your organisation has undergone recent budget cuts or redundancies, it’s not the best time to ask for a raise. Don’t threaten to walk out if you are turned down – it shows a lack of commitment.
Set a date. Present your case in a calm and relaxed manner to your manager. If he/she requests more time to ‘look into it’, make sure a date has been arranged for a follow-up discussion. Try to agree how you can take things forward and arrange a pay review in the future.
23. How to successfully negotiate and close a deal
Monday 10 Jun 2013 6:00 am