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Friday, February 19, 2010

Accounting for Bad Debts

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The two methods for accounting for bad debts are the Direct Write-off method and the Allowance method.

Direct write-off does not properly match, nor does it conform to conservatism, hence the method is not GAAP. It is, however, the method that must be used for income tax reporting.

The Allowance method (is GAAP) does properly match expenses with revenues and is in conformity with conservatism and can be applied in two different, yet similar ways:
Income statement method—relies on an estimate based on a percentage of net credit sales. The balance in the allowance account at the end of the period is not taken into consideration. The percentage of net credit sales is debited to Bad debt expense and credited to the Allowance for bad debts accounts, no matter the balance in the allowance account. (The Kimmel, et al. text does not present this method)

Balance sheet method—relies on an estimate of uncollectible accounts made during an analysis of the Accounts receivable account. The balance in the Allowance account is taken into consideration and the adjusting entry brings the Allowance account up to the desired amount. If the allowance account has a debit balance, it is “overdrawn”. In other words, there have been more write-offs than planned. If the allowance account has a credit balance, it has a positive balance and has not been utilized as fully as was expected.

Accounting for bad debts expense is done only at the end of the accounting period and is done as an adjusting entry. The Bad debt expense account is not used at the time individual accounts are written off. The adjusting entry looks identical under either the Income Statement method or the Balance Sheet method (since Direct Write-off is not GAAP, we won’t do the journal entries related to the method). The adjusting journal entry replenishes the allowance account, which is a contra-asset account and is in effect a reserve for uncollectible accounts, in order to provide for the write-offs that will surely occur as a result of past credit sales. The only difference between the income statement method and the balance sheet method would be the amount in question:

Gifts to Pakistan -, Largest gift shop of Pakistan

12/31 Bad debt expense X,XXX
Allowance for bad debts X,XXX

Net realizable value:

Since we know that we probably won’t be able to collect the entire amount of our receivables, we must present the amount that we reasonably believe that we can collect on the balance sheet (remember that conservatism tells us to avoid overstating our assets). This net amount is often referred to as the net realizable value (NRV) of accounts receivable. This amount is the difference between the amount in accounts receivable and the amount in the allowance account.

Writing off an account:

When a reasonable effort has been made to collect from a customer and it has become evident that our efforts are to be unsuccessful, it is time to write off the account. This is accomplished by the following entry:

Date Allowance for bad debts X,XXX
Accounts receivable—Deadbeat customer X,XXX

Recovery of an account:

On rare occasions customers can return from apparent oblivion and pay us for a debt that seemed hopelessly uncollectible. If we have written them off, we must reinstate their account and journalize the receipt of their payment. This is usually done with two journal entries:

Date Accounts receivable—Deadbeat customer X,XXX
Allowance for bad debts X,XXX

Cash X,XXX
Accounts receivable—Deadbeat customer X,XXX

Notice that the first entry is the reverse of the entry to write off the account and the second is the standard entry to record the receipt of cash on account.


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Wednesday, February 17, 2010

The Theory of Constraints (TOC)

The Theory of Constraints (TOC) is a management philosophy emphasizing on the continuous improvement of a system. It was the brainstorm of Eliyahu M. Goldratt, which he introduced in his book, The Goal. The Theory of Constraints (TOC) suggests that every system is made up of a ‘chain’ of processes – one process following another and most processes being dependant on other processes. To have a significant improvement in this system, Goldratt suggests that the process which is slowing down this system the most must be identified and the whole system must be managed with it in mind. He explained this slower process with similitude to the weakest link in a chain and named it the ‘constraint’ of that system. He also argued that there is usually only one particular phase of a system that is hindering it from achieving its goal.
Dr. Eliyahu M. Goldratt is internationally recognized as the leader of development in the area of new business management concepts and systems, and he acts as an educator to many of the world's leading corporations. His infamous Theory of Constraints (TOC) has revolutionized the way companies think and work. Obtaining his Bachelor of Science degree from Tel-Aviv University, and then his Master of Science and Doctorate of Philosophy degree from Bar-Ilan University, Goldratt went on begin his pioneering work in manufacturing management. He currently holds patents in many other areas, ranging from medical devices to temperature sensors. Dr. Goldratt is a highly frequent contributor to internationally reputed industrial and scientific journals and has lectured extensively in companies and at universities in Britain, continental Europe and the USA. In fact, The publicity and leadership behind his ideas have been held primilarily by him (but have been ventured upon by other renowned scholars, whose names will folly shortly), mostly through a series of books, seminars and workshops.

Dr. Goldratt’s book The Goal (in which he introduced his Theory of constraints) is the story of a harried plant manager (aiming to improve his plant performance) who is motivated by his peer to ‘think out of the box’ to achieve his goal and the result of his thinking. It contains an important message for all managers in industry and has been described as must-read to be to recommended to your associates in the industry, even to your bosses - but definitely not to your competitors. The Fortune magazine has described the author as a ‘guru to the industry’, while BusinessWeek accolades him with the title of ‘genius’. In fact, the book has also been highly praised by the business community. Here is what some of them had to say:

'The Goal is a must for every manager.' Works Management.

'To anybody who is open to a fresh perspective, or who is looking for a guide to a difficult destination, The Goal is a must read … It clears away traditional clutter and points the way towards identifying goals and most importantly, achieving them. Overall, this makes compelling reading.' Financial Management, June 2001.

''"I'd say that our use of The Goal as a practical development tool has already saved us hundred of thousands of pounds as a company, and there's more to come"' William Alden, Managing Director, Alden Group as reported in Career Compass Supplement, January 2004.
So, now that we know that the Theory of Constraints does in fact have some international significance, how do we actually implement it in our working systems?
Unsurprisingly enough, the answer to this question has been delivered by Goldratt himself. He has suggested several ‘Focusing Steps’ and ‘Thinking Processes’ in order to effectively implement the Theory of Constraints.
Goldbratt suggest that the fundamental questions which must be answered are:
• What to change,
• What to change to,
• How to cause that change.
Very simply speaking, Goldbratt asks us to identify the problems in the system, find solutions to the identified problems, and then to construct action plans based on these solutions in order to improve overall performance in the system.
However, as the English saying goes “Its easier said than done”, answering these questions can be an extensively painstaking process. Goldbratt identifies five ‘Focusing Steps’ in order to implement these above mentioned strategies. They are:
• Identify the system’s constraint,
• Exploit these constraints,
• Subordinate all other processes,
• Elevate the constraint,
• If any constraints have been broken, repeat from step 1.
These focusing steps are often preceded by the simple-yet-vital step of actually identifying the goal of the system. It must be noted that these ‘focusing steps’ are simply an answer to the above mentioned questions. We focus on making sure that the constraint is acting in a unique way so as to inhibit the system. Additionally, the solution mentioned above is further emphasized here as a decision made order to beneficially alter the otherwise malignant impact of the constraint, and then ensuring that all the other processes of the system are redefined with this decision in mind. Subsequently, if the decision is taken and it removes the constraint it was targeted at, the focusing steps are re-employed to scavenge and eliminate any side-effects of the decision made or any pre-existing but smaller constraints (previously hidden under the effect of the larger rooted-out constraint).
In addition to these ‘focusing steps’, Goldbratt and many others who have entered this field, have identified a step-by-step ‘thinking process’ in which manager can work out different questions by mapping a tree (sort of an arrow diagram with each step/obstacle shown). In short, these ‘thinking processes’ are the utensils which the administrator or manager of a system can use in order to initiate and execute a project or to root out a constraint in the system.
In particular, these ‘thinking processes’ highlight certain issues which must be dealt with before any workable solution can be effectively applied:
1. Gain agreement on the problem
2. gain agreement on the direction for a solution
3. gain agreement that solution solves the problem
4. agree to overcome any potential negative ramifications
5. agree to overcome any obstacles to implementation

RESULT..M.A. (Previous) External Annual Examination 2008

Karachi University has finaly announced the result of
M.A. (Previous) External Annual Examination 2008 after almost 8 months.

Result is available on the following link.

Fresh Classes of MA Previous and Final from 22nd February 2010




Tuesday, February 16, 2010





FA, dependent upon usage, can mean Fixed Assets, Financial Advisor, Feasibility Analysis, Funds Allocated, Financial Assurance, Financial Agent, Financial Aid, or Factor Analysis.

FACE VALUE is the value printed or written on the face of a asset, e.g. on a bill or bond.

FACTORING is the practice of buying debt at a discount, e.g., if somebody owes you $10,000 payable within a year, a factoring lender may pay you $9,000 for the debt. You receive $9,000 cash quickly, but at the cost of the $1,000 discount.

FACTORY OVERHEAD is the costs of operating a factory which cannot be assigned directly to a specific department or product.

FAF is Financial Accounting Foundation or Financial Aid Form.

FAIR LABOR STANDARDS ACT is a U.S. federal law that enforces a group of minimum standards that employers must abide by when hiring employees.

FAIR MARKET VALUE is the price at which a willing seller will sell and a willing buyer will buy, in an arms- length transaction, when neither is under compulsion to sell or buy and both have reasonable knowledge of relevant facts.

FAIR VALUE, under GAAP, is the amount at which an asset could be bought or sold in a current transaction between willing parties, other than in liquidation. On the other side of the balance sheet, the fair value of a liability is the amount at which that liability could be incurred or settled in a current transaction between willing parties, other than in liquidation.

FALSIFICATION is the act of rendering something false as by fraudulent changes, e.g. financial reports and documents. SEE FALSIFY.

FALSIFY is inserting misleading words into texts or reporting inaccurate data as being true, often falsifying it thereby.

F&A is Facilities and Administrative Costs (aka Indirect Costs or Overhead), Fabrication & Assembly, Finance & Administration, or Finance & Accounting.

F.A.S. (FREE ALONG SIDE), e.g. “F.A.S. New York”, means that, for instance, if goods are shipped from the State of Nevada in the U.S. to Madrid, Spain, no charges for shipment are made to the importer until the goods are "free alongside the vessel" in New York. After this point, charges may be applied to the importer.

FASB see Financial Accounting Standards Board.

FAVORABLE VARIANCE is a variance created by using or spending less of a given resource than specified by the standard, often categorized as rate (spending less per hour for labor for a given amount of production), efficiency (using less hours for a given amount of production), usage (using less materials for a given amount of production) or price (paying less to a vendor for a given purchased item).

FBWT, in finance, is Fund Balance With Treasury.

FCIA (FOREIGN CREDIT INSURANCE ACT) is an EximBank program that offers credit insurance against losses due to political conflict or buyer default.

FCPA, in Australia and elsewhere, is Fellow Certified Practicing Accountant.

FDI is Foreign Direct Investiment.

FEDERAL UNEMPLOYMENT TAX ACT (FUTA) is a U.S, federal law providing guidelines for the unemployment compensation system. A Federal tax is paid by all liable employers to fund the administration of Federal and State unemployment insurance programs and the extended benefits program. FUTA provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax.


FEE ACCOUNTANT is an individual who performs manual or automated bookkeeping services and/or maintains the official accounting records.

FEEDBACK is the process in which part of the output of a system is returned to its input in order to regulate its further output, e.g. a management feedback system would assess the effectiveness of management or a given process and feed the analyzed results back into management for development of positive change.

FEE SCHEDULE is a schedule or list of fees to be paid or benefits that will be received under listed professional procedures or benefits.

FEES EARNED is an income statement account that reports the amount of service revenues earned during the time period stipulated in the heading of the income statement.

FEE SIMPLE is absolute ownership of real property; owner is entitled to the entire property. This includes unencumbered right of disposition during his/her life and upon death the real property passes to his/her heirs. Also known as FEE SIMPLE ABSOLUTE and FEE ABSOLUTE.


FEE SIMPLE DETERMINABLE is a fee simple which automatically comes to an end when a stated event occurs or, perhaps, fails to occur.

FF&E is Furniture, Fixtures & Equipment (in real estate).

FFO - FUNDS FROM OPERATIONS is used by real estate and other investment trusts to present the cash flow from trust operations i.e., earnings plus depreciation and amortization.

FFP, dependent upon usage, is Federal Financial Participation, Firm-Fixed-Price (Contract), or Fixed Fee Procurement.

FGAR is Florida Government Accountability Report.


FICA (FEDERAL INSURANCE CONTRIBUTIONS ACT) is the U.S. law requiring U.S. employers to match the amount of Social Security tax deducted from an employee's paycheck.

FICTITIOUS ASSET is debit balance includes on balance sheets as assets that do not conform to the definition of an asset. Intentional includes of assets known to be fictitious assets may be ruled as fraud.

FICTITIOUS NAME is often referred to as a DBA, "Doing Business As," a fictitious name is frequently used by sole proprietors or partnerships to provide a name, other than those of the owners or partners, under which the business will operate.

FIDDLY is requiring close attention to detail, i.e. to be fussy (primarily used in Great Britain).

FIDUCIARY is a person or business (for example, a bank or stock brokerage) who has the power and obligation to act for another (often called the beneficiary) under circumstances which require total trust, good faith and honesty.

FIELD TRIAL is a test of the performance of a new product under the conditions under which it is intended be used.

FIFO (first-in, first-out) is an inventory cost flow whereby the first goods purchased are assumed to be the first goods sold so that the ending inventory consists of the most recently purchased goods.

FINANCE, dependent upon usage, is a. the management of money, credit, banking and/or investments; b. the commercial activity of providing funds and capital; c. the branch of economics that studies the management of money and other assets; or, d. to sell or provide on credit.

FINANCE CHARGE is the total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and/or broker. In real estate, appraisal, credit report and title search fees are normally not included in the finance charge calculation.

FINANCE LEASE, typically, is a full-payout, non-cancelable agreement, in which the lessee is responsible for maintenance, taxes, and insurance.

FINANCIAL ACCOUNTABILITY tells you what policies your board should adopt or has adopted to meet their responsibility for ensuring that the organization they govern is financially sound. They would then hold those who manage the organization accountable for implementing these policies. Policy areas covered: Finances, Budgets, Asset Protection and Major Risks.

FINANCIAL ACCOUNTING is the area of accounting concerned with reporting financial information to interested external parties.

FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) is a professional organization which develops accounting principles.

FINANCIAL ANALYSIS is analysis of a company's financial statement, usually by accountants or financial analysts.

FINANCIAL CASH FLOW is the cash flows generated by the firm's assets and how those cash flows are distributed to the firm's investors. See CASH FLOW.

FINANCIAL BUDGET is focused on capital expenditures and on a business’s budgeted cash position:

1. CAPITAL BUDGET forecasts large expenditures for items such as machinery. Different companies set different thresholds for what qualifies as a capital expenditure (versus an expense). If the purchase of an item (such as a piece of machinery) is classified as a capital expenditure, it is then depreciated (or amortized in some cases) over a predetermined period of time. The Capital Budget covers Capital Expenditures, Disbursements for Capital Expenditures, and Depreciation Budgets.
2. CASH BUDGET tracks a business’s anticipated cash receipts and disbursements. This is a very detailed and important schedule that draws on information in the Operating Budget.


FINANCIAL ENGINEERING is a process involving the creation and combination of a variety of financial instruments in order achieve a defined financial objective within certain cost, tax and legal constraints, e.g. combining or dividing existing financial products to create new financial products.

FINANCIAL EXPENSE can mean a. generally in the corporate world, it is a company's interest expense on long-term debt; or, in greater depth it is b. it includes interest and related charges; foreign exchange losses on debt; net expense on the disposal of marketable securities; amortization of bond redemption premiums; additions to provisions for financial liabilities and charges and impairment losses on investments.

FINANCIAL GEARING reflects any borrowing that the company may have undertaken. Operating income will become more volatile with increased financial gearing (borrowing). Thus the shares will have more risk attached to them. More borrowing, more risk. See GEARING and OPERATIONAL GEARING.

FINANCIAL GUARANTEE INSURANCE is insurance created to cover losses from specified financial transactions.

FINANCIAL INCOME is that income that is contained within the financial statements of an entity. Financial income normally is not in alignment with taxable income reported in income tax returns. See TAXABLE INCOME.

FINANCIAL INSTRUMENTS are cash, evidence of an ownership interest in an entity, or a contractual right to receive, or deliver, cash or another financial instrument.

FINANCIAL INSTITUTION is an institution (public or private) that collects funds (from the public or other institutions) and invests them into financial assets.

FINANCIAL INTEREST is any financial interest in or relationship with an entity, including, but not limited to, ownership of stocks, bonds, stock options, warrants, partnership or other equity interests, rights to patent or royalty payments, receipt of consulting fees, honoraria, speaking fees, salary, loans, gifts, lectureship fees, compensation for serving on boards of directors, scientific and other advisory boards, or other remuneration. For the purposes of a "financial interest" disclosure, financial interests DO NOT include stock owned through mutual funds or reimbursement for travel expenses.

FINANCIAL LEVERAGE is the use of debt to increase the expected return on equity. Financial leverage is measured by the ratio of debt to debt plus equity.

FINANCIAL MANAGEMENT is the process of managing financial resources, including management decisions concerning accounting and financial reporting, forecasting, and budgeting.

FINANCIAL PLANNER is a investment professional who assists individuals with long- and short-term financial goals.

FINANCIAL POSITION is the status of a firm's or individual's assets, liabilities, and equity positions as reflected on its financial statement.

FINANCIAL RATIO is the result of dividing one financial statement item by another. Ratios help analysts interpret financial statements by focusing on specific relationships.

FINANCIAL RATIO ANALYSIS is: a. an easy and valuable way to interpret and understand the numbers found in your financial statements. Understanding the relationships between the numbers can help you answer critical questions about your business -- and if you monitor the ratios on a regular basis you'll gain insight into how effectively you are managing your business. And: b. lenders also like to evaluate risk by using several sets of ratios; ratios of assets to liabilities, and ratios of lender-investor dollars to owner-investor dollars. Recognize that ratios are indicators and that only you can tell the full story about your business. So the more adept you are at explaining your financial ratios to your investor/lender, the better she/he will understand your business as he/she makes a investment/credit decision.

FINANCIAL RECORDING is the documentation of financial transactions within an elementary accounting system.

FINANCIAL REPORT could contain financial statements, annual report, SEC Form 10-K, and/or prospectus among other documents, i.e. there is no set format.

FINANCIAL REPORTING RELEASE (FRR), in the U.S., is the policy releases and pronouncements from the SEC (Securities and Exchange Commission).

FINANCIAL RESOURCES is the funds used to acquire the natural, manmade and human resources required to provide products or services; also called capital.

FINANCIAL RESTRUCTURING is a process geared at avoiding the liquidation of the Company. Usually it involves agreement by third parties to satisfy creditors' claims under certain terms and conditions. Financial restructuring may also be carried out by concluding an agreement with all creditors of the Company under which creditors will be paid on somewhat different terms than those initially accepted by the Company when credit and loans were extended. This form of financial restructuring enables the Company to continue its operations and minimize creditors’ losses. See also RESTRUCTURING.

FINANCIAL RESULTS usually refers to the summary financial statements provided in compliance to the GAAP guidelines. They can cover any period(s), but usually cover either: single month, quarter, or annual periods.

FINANCIAL RISK is the possibility of whether a bond issuer will default, by failing to repay principal and/or interest in a timely manner. Usually bonds issued by the federal government, for the most part, are immune from default (if the government needs money... more is printed). Bonds issued by corporations are more probable to be defaulted on, since companies often go bankrupt. Municipalities occasionally default as well, but it is much less common. Can also be called default risk or credit risk.


FINANCIAL SCHEDULE, contained in an audited annual report, summarizes the audited financial position of the audited entity. Other application of the term is the scheduling of amounts, not necessarily by date, of major financial events by any given category as to projected receipts, payments, costs, etc.

FINANCIAL STATEMENT is a written report which quantitatively describes the financial health of a company. This includes an income statement and a balance sheet, and often also includes a cash flow statement. Financial statements are usually compiled on a quarterly and annual basis.

FINANCIAL STATEMENT ANALYSIS is analysis of a company's financial statement, usually by accountants or financial analysts. Usually includes indepth financial ratio analysis comparisons over time periods.

FINANCIAL SYSTEM is an information system, comprised of one or more applications, that is used for any of the following: collecting, processing, maintaining, transmitting, and reporting data about financial events; supporting financial planning or budgeting activities; accumulating and reporting cost information; or supporting the preparation of financial statements.

FINANCIAL TREND ANALYSIS is the process of analyzing financial statements of a company for any continuing relationship. Generally, an analysis is made to find out what direction a concern is going, how rapidly, and whether there are enough resources to complete proposed projects.

FINANCIAL VIABILITY is the ability of an entity to continue to achieve its operating objectives and fulfill its mission over the long term.

FINANCING COST is the difference between the cost of financing the purchase of an asset and the assets cash yield. Positive carry means that the yield earned is greater than the financing cost; negative carry means that the financing cost exceeds the yield earned.

FINANCING MARGIN RATIO (FMR) is the margin to be maintained between the debit balance and the actual security value as stipulated in the Facility Letter or any other margin as stipulated by a lending bank from time to time as the FMR.

FINISHED GOODS INVENTORY is that portion of goods in inventory which have completed manufacture and are available for sale.

FINITE SCHEDULING is creating production schedules that automatically take resource availability into account. Schedule dates are moved forward or backward in time as far as necessary to stay within prescribed capacity, and some systems also contain rules to move orders for certain products to approved alternate facilities when the initial resource is full. Finite scheduling systems normally do not ensure that material plans are automatically revised in conjunction with production rescheduling.

FIRM is members of a business organization that owns or operates one or more establishments, e.g. a legal or accounting firm.

FISCAL is belonging to the public treasury; or, pertaining to public finance and financial transactions.

FISCALIST is an economist who prefers that the government affect the economy by raising and lowering taxation and/or government spending.

FISCAL LEVERAGE is the ability of a government to affect economic conditions and/or actions of others through fiscalist policies.

FISCAL PERIOD is a unit of time (corresponding to calendar months) into which the fiscal year is divided. Period 1 is July 1st through July 31st, and so on. An extra accrual period also exists (see 13TH PERIOD).

FISCAL QUARTER is any of the four financial accounting quarters within a fiscal year. See FISCAL YEAR.

FISCAL YEAR is the declared accounting year for a company, but it is not necessarily in conformance to a calendar year (January through December). However, it does cover twelve months, 52 weeks, 365 days. For example, the U.S. government fiscal year ends September 30, i.e. October 1 through September 30 is their fiscal or accounting year.

FIT is Federal Income Tax.

FIXED ASSET is a long-term tangible asset that is not expected to be converted into cash in the current or upcoming fiscal year, e.g., buildings, real estate, production equipment, and furniture. Sometimes called PLANT.


FIXED ASSETS are those assets of a permanent nature required for the normal conduct of a business, and which will not normally be converted into cash during the ensuring fiscal period. For example, furniture, fixtures, land, and buildings are all fixed assets. However, accounts receivable and inventory are not. Sometimes called PLANT.

FIXED ASSETS (NET) is all property, plant, leasehold improvements and equipment, net of accumulated depreciation or depletion.

FIXED ASSETS (NET) / NET WORTH measures liquidity by comparing "fixed" assets with "fixed" capital. A lower ratio indicates proportionately smaller investment and a better "cushion" for creditors in case of liquidation. This may be important if the fixed assets are not easily used in other businesses. The presence of substantial leased fixed assets (not shown on the balance sheet) may deceptively lower this ratio. Therefore smaller is better, i.e., greater than .75 (75%) should merit caution.

FIXED ASSET TURNOVER (FAT) measures management's ability to generate revenues from investments in fixed assets. FAT considers only the firm's investment in property, plant and equipment and is extremely important in high asset firms such as manufactures and telecommunications companies. Generally, the higher this ratio:

· the smaller the investment required to generate sales, thus the more profitable the firm.

· indicates the firm has less money tied up in fixed assets for each dollar of sales revenue.

A declining ratio may indicate that the firm has over-invested in plant, equipment, or other fixed assets. Formula: Net Revenues / Fixed Assets

FIXED BOND pays an income stream and redemption payment at maturity than is fixed in monetary terms; however, high inflation will erode the real value of these payments.

FIXED BUDGET is a budget that is not adjusted for changes in the volume of service. See FLEXIBLE BUDGET.

FIXED CHARGE is those expenses incurred each time a batch of product is produced. Primarily consists of ordering cost for the raw material, engineering costs for machine setup and preparation for the production run, and work order processing cost; also known as SETUP COST.

FIXED CHARGE RATIO is calculated: total fixed costs/total expenses.

FIXED COST is a cost that does not vary depending on production or sales levels, such as rent, property tax, insurance, or interest expense.

FIXED COSTS are operating expenses that are incurred to provide facilities and organization that are kept in readiness to do business without regard to actual volumes of production and sales. Fixed costs remain relatively constant until changed by managerial decision. Within general limits they do not vary with business volume. Examples of fixed costs consist of rent, property taxes, and interest expense.

FIXED DEPOSIT is a specific sum of money deposited in a financial institution for a fixed term earning a pre-agreed interest rate.

FIXED FEE is a set price for the completion of a project. It is easier for the customer to budget, but provides higher risk for the contractor due to cost overruns.

FIXED INCOME is any type of investment that yields a regular (fixed) payment. For example, if you borrow money and have to pay interest once a month, you have issued a fixed income security. When a company does this, it is called a bond (although 'preferred stock' is also sometimes considered to be fixed income). The term fixed income is also applied to people's income which is invariant each period. This could include income derived from fixed income investments such as bonds and preferred stocks or pensions that guarantee a fixed income. See NON-FIXED INCOME.

FIXED OVERHEAD is those costs like rent, utilities, basic telephone, loan payments, etc., that stay the same whether sales go up or down. Variable overhead, on the other hand, are those costs which vary directly with production.

FIXED EXPENSES in the operation of a business are those expenses that remain the same regardless of production or sales volume, i.e. do not fluctuate with sales volume. Contrast with VARIABLE EXPENSES.

FLAG OF CONVENIENCE (FOC) involves the opportunistic registration of ships with national governments that do not impose or effectively administer agreed international standards regarding seaworthiness, safety and health, officer and crew competencies, and employment conditions. For the governments concerned FOC shipping is an easy way to make money. Registration comes at a price in return for turning a blind eye to maritime responsibility, decency and common sense. The classic FOC host has little to do legitimately with the sea and seafaring. For owners of FOC ships, often hidden in corporate mazes and having little to otherwise do with the registering authority, the device is a way of increasing profit margins or turning quick profits.

FLASH REPORT provides highlights of key information promptly to the responsible managerial accountant; also called EXCEPTION REPORT.

FLAT INTEREST refers to charging interest on the full original loan amount, rather than on the declining balance. With group based loans, for example, a common "interest rate" is "3% per month, flat, for 4 months". This means that a $100 principal amount lent is multiplied by 3%, and then by 4 months to come up with $12 in interest. Thus, $112 would be repaid over 4 months in equal installments.

FLAT LEASE is a lease where the cost is fixed for a specific period of time.

FLAT RATE is a per unit price that remains constant regardless of the volume purchased.

FLEXIBLE BUDGET is based upon different levels of activity. It is a very useful tool for comparing actual costs experienced to the cost allowable for the activity level achieved, i.e. it is dynamic in nature as compared to static. A series of budgets can be readily developed to fit any activity level. Flexible budgeting distinguishes between fixed and variable cost, thereby allowing for a budget that can be automatically adjusted to the level of activity actually attained.

FLOAT is 1. the time between the deposit of checks in a bank and when the amount is truly accessible; 2. the amount of funds represented by checks that have been written but not yet presented for payment. Some entities will 'play the float' by writing checks although there are insufficient funds actually on deposit to cover the checks; and, 3. to issue new securities through an underwriter.

FLOTATION COST is the percentage cost of issuing new common stock.

FLOATING RATE CONVERTIBLE NOTE (FRCN) is a debt instrument that is a short-term debt obligation where the interest rate is variable because it is linked to a market rate such as the 3-month T-bill rate or London Interbank Offer Rate (LIBOR), and conditionally allows for the note to be exercised into the security of the debtor in accordance with the conditions set forth in the debt instrument.

FLOATING RATE NOTE (FRN) is a short-term debt obligation where the interest rate is variable because it is linked to a market rate such as the 3-month T-bill rate or London Interbank Offer Rate (LIBOR).

FLOAT MANAGEMENT is to manage depository or checking accounts that do not have any returns associated with them, i.e. it is poor stewardship to leave too much money in checking accounts or other locations that do not maximize returns on that cash, i.e. do not or minimally earn interest income.

FLOOR a series of European interest rate put options used to protect against rate moves below a set strike level.

FLP is Family Limited Partnership.

FLSA is Fair Labor Standards Act.

FMLA is Family and Medical Leave Act of 1993.


FOOTING, in accounting, is the sum of a column of figures.

F.O.B. (FREE ON BOARD) is a transportation term that indicates that the price for goods includes delivery at the seller’s expense to a specified point and no further. The FOB term is used with an identified physical location to determine 1) the responsibility and basis for payment of freight charges, and 2) the point a twhich title for the shipment passes from seller to buyer.The FOB location terms, Origin and Destination, may be qualified by modifiers. The modifier determines the payment of the transportation charges. Modifiers denote nothing about the title of the goods or filing of claims. The most three common modifiers are: Collect, Prepaid & Add, and Prepaid & Allow. Collect: The carrier collects the transportation charges from the buyer. Prepaid & Add: The seller prepays the transportation charges, but adds the charges to the invoice for reimbursement from the buyer .Prepaid & Allow: The seller prepays the transportation charges and they are already included in the contract price.

F.O.B. DESTINATION is where the seller retains title and control of goods until they are delivered and the contract of carriage has been completed. The seller selects the carrier and is responsible for the risk of transportation.

FOB POINT OF ORIGIN is where the supplier is responsible for all shipping costs to the point of having the goods loaded unto the vessel for shipment to its destination. The purchaser, from that point forward, is responsible for all further shipping costs to the point of destination, e.g., insurance, transportation, etc.


FOLIO, dependent upon application, is a. a book (or manuscript) consisting of large sheets of paper folded in the middle to make two leaves or four pages; or, b. a sheet of any written or printed material (especially in a manuscript or book); or, c. the system of numbering pages; or, d. in investments, an unstructured basket of common stock that may represent a stock index, a sector or theme, or even an actively-managed portfolio at inception, but which may be modified by an investor or an advisor to meet the tax and spending needs of its owner. The rationale for the folio is to take advantage of diversification and the ability to realize tax losses in a separately managed account. In general, an investor will have to devote a fair amount of time to the folio or engage the services of a specialized advisor.

FOOTING is the sum of a column of figures.


F.O.R. (FREE ON RAILROAD) is where goods will be delivered by the exporter to a railway station. The importer is responsible from this point on.

FORECAST is to estimate or calculate expected business results in advance. To plan the business course for the future. A document that sets down the plan. See BUSINESS PLAN, PROJECTION, BUDGET.

FOREIGN is of concern to, or concerning the affairs of, other nations (other than your own) (Example: Foreign trade or companies).

FOREIGN CORRUPT PRACTICES ACT (1977) is a United States federal law that is primarily known for its two main provisions: one that deals with accounting transparency requirements of issuers required to report under the Securities Exchange Act of 1934 and one that deals with bribery of foreign officials.

FOREIGN CURRENCY TRANSLATION is the process of restating foreign currency accounts of subsidiaries into the reporting currency of the parent company in order to prepare consolidated financial statements in the native currency of the parent company.

FOREIGN SALES AGENT or REPRESENTATIVE is an entity that works to sell your merchandise in a foreign country. Equivalent to the “Manufacturer's Representative” in the U.S.

FORENSIC ACCOUNTING provides for an accounting analysis that is suitable to a court of law which will form the basis for discussion, debate and ultimately dispute resolution. Forensic accounting encompasses investigative accounting and litigation support. Forensic accountants utilize accounting, auditing and investigative skills when conducting an investigation. Equally critical is the ability to respond immediately and to communicate financial information clearly and concisely in a courtroom setting.

FORENSIC AUDIT is an examination of evidence regarding an assertion to determine its correspondence to established criteria carried out in a manner suitable to the court. An example would be a Forensic Audit of sales records to determine the quantum of rent owing under a lease agreement, which is the subject of litigation.

FOREX is Foreign Exchange Market. FOREX is a market in which brokers located in various parts of the world trade currencies for many nations. FOREX transactions are not traded in futures markets.

FORMATION is an arrangement of people or things acting as a unit, e.g. the formation of a corporation.

FORM 1065 (Schedule K-1) is the domestic partnership income tax return form used in the U.S.

FORM 1120 is the income tax return form used by corporations in the U.S.

FORESEEABLE is what may be reasonably anticipated.

FORMULA is a standard procedure for solving a class of mathematical problems.

FORWARD INTEREST RATE AGREEMENT is where two entities agree to a fixed interest rate in the future. If the actual rate is different than the fixed rate, one party will pay the other party the present value of the difference between the interest cash flows. Essentially the two entities are gambling on which way the interest rate of an index will change. These contracts are not traded on an established exchange but rather are private contracts between parties.

FORWARD LOOKING STATEMENTS, within the meaning of the U.S. Private Securities Litigation Reform Act of 1995,
are statements made that are not historic and are thereby predictive. You can identify forward-looking statements by use of the words “believe”, “expect”, “anticipate”, “intend”, “estimate”, “assume”, “project” and other similar expressions that predict or indicate future events and trends or that do not relate to historical matters. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

FORWARD PREMIUM is when a currency trade forward price is higher than its spot price.

FOUR-WALL PROFIT is the profit of a retail store with all the overhead expense taken out of the profit calculation.

FP, among others, means Fixed Price.

FP&A is Financial Planning and Analysis.

FRA is Forward Rate Agreement, Financial Responsibility Act, Full Retirement Age (SSA), Fiscal Responsibility Act, Federal Reimbursement Allowance, or Federal Register Act.

FRANCHISE is a legal arrangement giving rights to sell a product or service.

FRAUD is intentional deception resulting in injury to another person or entity


FREE CASH FLOW is net income plus non-cash charges to income, specifically depreciation and amortization less capital expenditures, to sustain the basic business.

FREEHOLD is a. an interest in land the duration of which is restricted to the life or lives of a particular person or persons holding it, or b. an interest in property that is unconditional and represents the broadest ownership interest recognized by law.

FREE TRADE AGREEMENT is an agreement between countries that will result, over an agreed period of time, in an elimination of duties for goods flowing between the signatories.

FREE TRADE ZONE (FTZ) is an area, usually a port of entry, designated by the country for duty-free entry of goods. As long as the goods do not go into the country from the FTZ, no duty is assessed. While in the FTZ, goods may be processed, packaged, serviced or displayed.

FREIGHT is the charge for transporting something by common carrier.

FREIGHT FORWARDER is an individual or firm that provides for the packing and shipping of merchandise. Generally they also assist with export and other documentation.

FREIGHT OUT is the handling, packaging, and shipping costs of product; normally considered a selling cost.

FREQUENCY, in advertising, is the number of times you hope to reach your target audience through your advertising campaign.

FRESH START ACCOUNTING, upon emergence from bankruptcy, the consolidated financial statements of the "Successor Company" apply the provisions of fresh start accounting in accordance with Generally Accepted Accounting Principles (GAAP). Under fresh start accounting, a new reporting entity, the “Successor Company”, is deemed to be created, and the recorded amounts of assets and liabilities are adjusted to reflect their fair value. As a result, the reported historical financial statements of the “Predecessor Company” generally are not comparable to those of the "Successor Company".

FRF is an acronym for French Francs.

FRIENDLY TAKEOVER consists of a straight buyout of a company, and happens all the time. The shareholders receive cash or (more commonly) an agreed-upon number of shares of the acquiring company's stock.

FRINGE BENEFIT an incidental benefit awarded for certain types of employment (especially if it is regarded as a right) (Example: employer supplied health insurance or two weeks paid vacation per year).



FRS is Federal Reserve System or Financial Reporting Standard.

FRS 11 sets out the principles and methodology for accounting for impairments of fixed assets and goodwill. It replaces the previous approach whereby diminutions in value were recognized only if they were regarded as permanent. Instead, the carrying amount of an asset is compared with its recoverable amount and, if the carrying amount is higher, the asset is written down.

FRS 19 is a deferred tax standard. In summary:

A. Deferred tax is provided on timing differences relating to:
- accelerated capital allowances and depreciation
- accruals for and payments of pension and other post retirement benefits
- the elimination of unrealized intra group profits
- unrelieved tax losses
- “fair value revaluations” that are taken annually to the profit and loss account
- other short-term timing differences
B. Deferred tax is not provided on timing differences relating to:
- other fixed asset revaluations, where there is no intention to sell
- gains that are rolled over
- unremitted overseas earnings, where there is no intention to remit.
The FRS 19 Standard also includes further, detailed measurement and disclosure rules.

FSA has several possible meanings, e.g. Flexible Spending Account (employee benefit offered by some companies) or Funding Standard Account.

FSS is Financial System Support. The FSS individual(s) would likely interface to outside organizations, customers, etc. Also, would act as a primary accounting system knowledge resource on whatever accounting system is being utilized.

FTSE 100 is the most widely followed index in Britain. It is an index of the 100 largest London listed companies. This includes many foreign companies but it does not include companies that only have secondary listings in London.


FULL CHARGE BOOKKEEPER is someone who can do it all - including compiling the data into the General Ledger and preparing financial statements.


FULL COST RECOVERY is adjusting fees/prices for goods/services to where all cost of operations and maintenance are covered for supplying the given goods or services.


FULL DISCLOSURE, generally, is the requirement to disclose all relevant or material facts to a transaction.


FULLY DEPRECIATED is when an asset has already been charged with the maximum amount of depreciation allowed by the taxing authority for accounting purposes.

FUNCTIONAL-BASED ACCOUNTING focuses on organizational units such as departments and plants, uses financial outcome measures and static standards and benchmarks to evaluate performance, and emphasizes status quo and organizational stability. On the other hand, activity-based accounting focuses on processes, uses both operational and financial measures and dynamic standards, and emphasizes and supports continuous improvement. Activity-based accounting adds a process perspective.

FUNCTIONAL CURRENCY, generally, is the currency of record for any given entity. Within the context of foreign currency, it is the currency which a foreign subsidiary handles on a day-to-day basis in generating net cash flows. It is normally the currency of the country in which the subsidiary operates, but may be the currency of the parent company.

FUND is a pool of money normally set apart for a purpose, for example, a pension fund to provide pensions.

FUND ACCOUNTING is a method of accounting and presentation whereby assets and liabilities are grouped according to the purpose for which they are to be used. Generally used by government entities and not-for-profits.

FUNDAMENTAL ANALYSIS is a method used to evaluate the worth of a security by studying the financial data of the issuer. Performing fundamental analysis will teach you a lot about a company, but virtually nothing about how it will perform in the stock market. Apply this analysis on two competing companies or in comparisone to its industry and it becomes clearer which the best investment choice is. See FUNDAMENTALS.

FUNDAMENTALS are factors which are “fundamental” to the working of a company’s business, its profitability, operating costs, product prices, technical innovations, etc. Company analysis taking into account these fundamental factors facilitates share valuation. See FUNDAMENTAL ANALYSIS.

FUND BALANCE is when liabilities are subtracted from assets, there is a fund balance. A positive fund balance means there are more assets than liabilities; a negative fund balance means just the opposite. Fund balance can be complicated by the fact that part of the fund balance is reserved and part unreserved. The difference between reserved and unreserved is that the unreserved can potentially be authorized for future expenditures while the reserved cannot. Additionally, the fund balance is a residual and not necessarily a cash amount.

FUNDED DEPRECIATION ACCOUNT is a reserve setup to cover the replacement cost of those capital assets covered within the depreciation schedule.

FUND MANAGEMENT is the professional, in many cases regulated, caretaker of client assets for a fee. Dependent upon type of fund, the fund may be authorized to put assets within the fund at risk in the pursuit of profits for the asset owners (clients).

FUNDS EMPLOYED, normally, is the average of Net Working Capital plus Fixed Assets held at the beginning and end of the financial year.

FUNDS FLOW is the funds generated from operations; normally expressed as 'cash flow from operations' or 'working capital from operations'.

FUNDS TRANSFER is money that is withdrawn from one account and transferred into a different account. See also ELECTRONIC FUNDS TRANSFER.

FUND THEORY views the organization as a series of funds or sub-funds represented by various services or departments.


FUTURES are contracts to buy or sell specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future.

FUTURE VALUE is the amount of money that an investment made today (the present value) will grow to by some future date. Since money has time value, we naturally expect the future value to be greater than the present value. The difference between the two depends on the number of compounding periods involved and the going interest rate.

FX ACCOUNT (Foreign Exchange Account) is a trading account usually based in foreign currencies.

FYE is Fiscal Year End.



Thursday, February 11, 2010

Motivation theorists and their theories

Motivation theorists and their theories

Although the process of management is as old as history, scientific management as we know it today is basically a twentieth century phenomenon. Also, as in some other fields, practice has been far ahead of theory.
This is still true in the field of management, contrary to the situation in some of the pure sciences. For instance, Albert Einstein, formulates a theory, which is later proved by decades of intensive research and experimentation. Not so in the field of management.
In fact this field has been so devoid of real fundamental work so far, that Herbert A. Simon is the first management theoretician to win the Nobel Prize for Economics in 1978. His contribution itself gives a clue to the difficulty, bordering on impossibility, of real fundamental work in this field concerned with people. In order to arrive at a correct decision, the manager must have all the information necessary relevant to the various factors and all the time in the world to analyze the same.
This is seldom, if ever, the case. Both the information available and the time at the managers disposal are limited, but he or she must make a decision. And the decision is, therefore, not the optimum one but a 'satisficing' one - in effect, a satisfactory compromise under the real conditions prevailing in the management 'arena'.

Traditional theory 'X'

This can best be ascribed to Sigmund Freud who was no lover of people, and was far from being optimistic. Theory X assumes that people are lazy; they hate work to the extent that they avoid it; they have no ambition, take no initiative and avoid taking any responsibility; all they want is security, and to get them to do any work, they must be rewarded, coerced, intimidated and punished. This is the so-called 'stick and carrot' philosophy of management. If this theory were valid, managers will have to constantly police their staff, whom they cannot trust and who will refuse to cooperate. In such an oppressive and frustrating atmosphere, both for the manager and the managed, there is no possibility of any achievement or any creative work. But fortunately, as we know, this is not the case.

Theory 'Y' - Douglas McGregor

This is in sharp contrast to theory 'X'. McGregor believed that people want to learn and that work is their natural activity to the extent that they develop self-discipline and self-development. They see their reward not so much in cash payments as in the freedom to do difficult and challenging work by themselves. The managers job is to 'dovetail' the human wish for self-development into the organizations need for maximum productive efficiency. The basic objectives of both are therefore met and with imagination and sincerity, the enormous potential can be tapped.
Does it sound too good to be true? It could be construed, by some, that Theory 'Y' management is soft and slack. This is not true and the proof is in the 'pudding', for it has already proved its worth in the USA and elsewhere. For best results, the persons must be carefully selected to form a homogeneous group. A good leader of such a group may conveniently 'absent' from group meetings so they can discuss the matters freely and help select and 'groom' a new leader. The leader does no longer hanker after power, lets people develop freely, and may even (it is hoped) enjoy watching the development and actualization of people, as if, by themselves. Everyone, and most of all the organization, gains as a result.

Theory 'Z' - Abraham Maslow

This is a refreshing change from the theory X of Freud, by a fellow psychologist, Abraham Maslow. Maslow totally rejects the dark and dingy Freudian basement and takes us out into the fresh, open, sunny and cheerful atmosphere. He is the main founder of the humanistic school or the third force which holds that all the good qualities are inherent in people, at least, at birth, although later they are gradually lost.
Maslow's central theme revolves around the meaning and significance of human work and seems to epitomize Voltaire's observation in Candide, 'work banishes the three great evils -boredom, vice and poverty'. The great sage Yajnavalkya explains in the Brihadaranyaka Upanishad that by good works a man becomes holy, by evil works evil. A mans personality is the sum total of his works and that only his works survive a man at death. This is perhaps the essence of Maslow's hierarchy of needs theory, as it is more commonly know.
Maslow's major works include the standard textbook (in collaboration with Mittlemann), Principles of Abnormal Psychology (1941), a seminal paper, 'A Theory of Human Motivation' (1943) and the book, Eupsychian Management (pronounced yew-sigh-keyan) published in 1965. Maslow's theory of human motivation is, in fact, the basis of McGregor's theory 'Y' briefly described above. The basic human needs, according to Maslow, are:
• physiological needs (Lowest)
• safety needs;
• love needs;
• esteem needs; and
• self-actualization needs (Highest)
Mans behavior is seen as dominated by his unsatisfied needs and he is a 'perpetually wanting animal', for when one need is satisfied he aspires for the next higher one. This is, therefore, seen as an ongoing activity, in which the man is totally absorbed in order to attain perfection through self-development.
The highest state of self-actualization is characterized by integrity, responsibility, magnanimity, simplicity and naturalness. Self-actualizers focus on problems external to themselves. His prescription for human salvation is simple, but not easy: 'Hard work and total commitment to doing well the job that fate or personal destiny calls you to do, or any important job that "calls for" doing'.
Maslow has had his share of critics, but he has been able to achieve a refreshing synthesis of divergent and influential philosophies of:
• Marx - economic and physical needs;
• Freud - physical and love needs;
• Adler - esteem needs;
• Goldstein - self-actualization.

Frederick Herzberg - Hygiene / Motivation Theory

This is based on analysis of the interviews of 200 engineers and accountants in the Pittsburgh area in the USA. According to this theory, people work first and foremost in their own self-enlightened interest, for they are truly happy and mentally healthy through work accomplishment. Peoples needs are of two types:
Animal Needs (hygiene factors)
• Supervision
• Interpersonal relations
• Working conditions
• Salary
Human Needs (motivators)
• Recognition
• Work
• Responsibility
• Advancement
Unsatisfactory hygiene factors can act as de-motivators, but if satisfactory, their motivational effect is limited. The psychology of motivation is quite complex and Herzberg has exploded several myths about motivators such as:
• shorter working week;
• increasing wages;
• fringe benefits;
• sensitivity / human relations training;
• communication.
As typical examples, saying 'please' to shop-floor workers does not motivate them to work hard, and telling them about the performance of the company may even antagonize them more. Herzberg regards these also as hygiene factors, which, if satisfactory, satisfy animal needs but not human needs.

Chris Argyris

According to Argyris, organization needs to be redesigned for a fuller utilization of the most precious resource, the workers, in particular their psychological energy. The pyramidal structure will be relegated to the background, and decisions will be taken by small groups rather than by a single boss. Satisfaction in work will be more valued than material rewards. Work should be restructured in order to enable individuals to develop to the fullest extent. At the same time work will become more meaningful and challenging through self-motivation.

Rensis Likert

Likert identified four different styles of management:
• exploitative-authoritative;
• benevolent-authoritative;
• consultative;
• participative.
The participative system was found to be the most effective in that it satisfies the whole range of human needs. Major decisions are taken by groups themselves and this results in achieving high targets and excellent productivity. There is complete trust within the group and the sense of participation leads to a high degree of motivation.

Fred Luthans

Luthans advocates the so-called 'contingency approach' on the basis that certain practices work better than others for certain people and certain jobs. As an example, rigid, clearly defined jobs, authoritative leadership and tight controls lead in some cases to high productivity and satisfaction among workers. In some other cases just the opposite seems to work. It is necessary, therefore, to adapt the leadership style to the particular group of workers and the specific job in hand.

Victor Vroom

Vroom's 'expectancy theory' is an extension of the 'contingency approach'. The leadership style should be 'tailored' to the particular situation and to the particular group. In some cases it appears best for the boss to decide and in others the group arrives at a consensus. An individual should also be rewarded with what he or she perceives as important rather than what the manager perceives. For example, one individual may value a salary increase, whereas another may, instead, value promotion. This theory contributes an insight into the study of employee motivation by explaining how individual goals influence individual performance.
We have discussed above only a selection of the motivation theories and thoughts of the various proponents of the human behavior school of management. Not included here are, among others, the thoughts of:
• Seebohm Rowntree - labor participation in management;
• Elton Mayo - the Hawthorne Experiments;
• Kurt Lewin - group dynamics; force field theory;
• David McClelland - achievement motivation;
• George Humans - the human group;
• William Whyte - the organization man.

Tuesday, February 9, 2010


Two financial statements are used by financial institutions to evaluate a company's loan application, the Income Statement and the Balance Sheet.

The Income Statement shows the sales (incoming revenues) and expenses over a set period of time. This statement is a good indicator of the profitability of a business during a particular period, as it shows the net result when the sales of the business are put against its expenses. The Balance Sheet, on the other hand, shows the business assets, liabilities and shareholder capital on a specific date, and as a result gives a good picture of a company's financial position.

In this article, we take a closer look at the balance sheet and what the numbers represent.


Assets are anything with commercial value that your business owns. They are divided into three categories: current assets, fixed assets, and other assets.

Current assets are cash, accounts receivable, inventory, and other assets that will likely be turned into cash, bartered, exchanged, or converted into an expense within a year during the normal course of business. Included in the “other current assets” category are loans to shareholders, also known as due to shareholders.

Some business owners will not pay themselves a salary, preferring to take drawings, which they must deal with at year-end. In the current assets section, due to shareholder amounts may artificially inflate current assets if you plan to convert them to bonuses, dividends or management fees at year-end, at which time they become expenses of the business.

Fixed assets have commercial value but are not expected to be consumed or converted into cash in the normal course of business. They are long-term, more permanent or "fixed" items, such as land, building, equipment, fixtures, furniture, and leasehold improvements.

Fixed assets often decrease in value (depreciate) over time due to wear and tear from use. The federal government allows businesses to depreciate items for tax purposes, and it has defined specific depreciation rates for different categories of fixed assets. On your balance sheet, therefore, you will see the initial value of the asset, the amount of accumulated depreciation, and finally the net depreciated value of the asset.

Example of a fixed asset on the balance sheet:

Vehicle $ 28,000
Accum Deprec - Vehicle $ -8,500
Total Vehicle $ 19,500*
* Net depreciated value of the vehicle.
Other assets are things that don't fit into either of the above two categories, yet still belong on the balance sheet. They include things like prepaid expenses, which have value but are not fixed or necessarily to be converted into cash value during the current business year.




Liabilities are company debts or obligations to outside parties as a result of goods or services that were transferred to your company on a specific date that has already passed. Current liabilities are the portion of those obligations that are to be paid out during the course of the year, while long-term liabilities are the portion of your company's obligations that extend beyond that timeframe.

Current liabilities include accounts payable, accumulated taxes and payroll liabilities, and the current amount owing on business loans and/or leases.

Long-term liabilities, meanwhile, include the balance of your loans, leases, and other liabilities beyond the current calendar year.

The Intangibles

While Intangible Assets do not appear directly on your balance sheet, they can be a significant factor when one looks to buy or sell a business or part of the business. Intangible assets include things like good will; intellectual property such as copyrights, trademarks, patents; leases; franchises; permits and so on.

While you do not list these assets on your balance sheet, they are reflected in the sense that they enable you to maintain profit margins and market share, so in turn they show up on the current assets section of your balance sheet through the revenue and profits they create.


Something that is often difficult for new entrepreneurs to grasp is the way equity is calculated on the balance sheet, where the total assets always equal the total liabilities plus equity.

In other words, your company's equity is equal to the value of its total assets minus its total liabilities. If the business assets are greater than the liabilities, which is hopefully the case, then the equity of the business is the positive difference between the two numbers.

Sample equity calculation:
On Company ABC's Balance Sheet, the Total Assets are $100,000, while the Total Liabilities are $40,000. In this case, the difference between the assets and liabilities is $60,000. Since equity is equal to this difference, the equity of Company ABC at that time is $60,000.

If Company ABC had Total Liabilities of $50,000, with its Total Assets staying at $100,000, then the equity of Company ABC at that time would be $50,000. The increase in the total liabilities of the company in comparison to its total assets causes the equity of the business to drop.





Sunday, February 7, 2010



University Of Karachi
M.A. (Previous) and M.A. (Final) Examination

M.A. (Previous)
1. The examination for degree of Masters of Arts shall be taken in two parts; (1)
Previous examination and (2) (Final) Examination, each for One year’s
duration. Students passing the B.A. Honors (Three years course) Examination
will be eligible to take the M.A. Final Examination after on year’s study
without being required to pass the M.A. Previous Examination.
2. The Previous Examination shall consist of five papers, paper I_IV are
compulsory and one optional from paper V. Each paper shall be of 100 marks
and of 3 hour’s duration.
M.A Final
3. The M.A. Final Examination shall comprise five papers, paper I, II, III and V
are compulsory and one optional from paper IV. Each paper shall be of 100
marks and of 3 hours duration.
(M.A. Previous)
Micro Economics
1.Utility and preference:
A survey of the contribution of Utilitarian Economists. Marshall’s theory of utility.
Pareto and indifference curves. the ordinal character of utility_ Need for a theory
consistently based upon ordinal concept of utility. Marginal rate of Substitution.
Diminishing Marginal Rate of Substitution.
Preference in a two-commodity world. Choice in a two commodity world-Changes in
the Data (Budget changes) (Price changes). Three or more commodities. One
commodity and money. The Validity of this theory-Demand curves and various
2. The General Equilibrium of Exchange:
Rational Economics and Equilibrium. Quesnay’s Tableau Economique. The classic-
Marshall & J.B Clark-Functional Equilibrium- Genetic-Casual Equilibrium Pareto’s
system as basic of study.
Problems of general equilibrium. Conditions of Stability of General Equilibrium.
Characters of hicks and condition of stability. Equilibrium and disequilibrium
3. Value
A Survey of the contributions of economists towards value theory-classical, Neo
classical, Up-to-date back ground of value theories. the place of prices in a Modern
4. Market structures and Equilibrium.
Equilibrium of the firm and industry under perfect competition. Monopolistic
competition-monopoly in all its all its aspects-oligopoly with its problems and
5. Introduction to games theory :
An introductions to games theory.
6. The theory of factor prices-Marginal productivity theory. Wages-theoris
problems. Interest theories problems profit-theories. Rent theories.
7. Welfare Economics.
Books Prescribed
1. J.R. hicks Value and Capital
2. J. Robinson Economics of Imperfect
3. E. H Chamberlin. Monopolistic Competition.
4. W. Fellner. Modern Economics analysis
5. Erol’o Fossati The theory of General static
6. W. Baumol Economics Theory and
7. R. Dorfman. The PriceSystem
8. W. J. L. Ryan Price System.
9. K. E. Boulding Economics Analysis.
10. reading in the Theory American Economics
11. Reading In The Theory of American Economic
Distribution Association
12. Eric Roll A History of Economics
13. E. Sehneider Pricing and Equilibrium
Government Activities and Expenditure :
1. Role Of Government In An Economy.
The Basic Economy Decisions. The Market Economic and the Attainment of
Economic goals. The Consideration Which have led to the undertaking of
Government Activity.
2. Optimum Levels of Government Activities .
Application of the marginal Rule . Use of Price System by Government
Measurement of community benefits. Estimation and measurement of Costs and
Benefits. Use of Optimum Techniques.
3. Government Expenditure.
Patterns and tends (With special reference to Pakistan).
Major Purpose in Government Expenditures causes of Real increases in
Government Expenditures. Effects and Policies of Government Expenditures.
4. Financing of Government Expenditures.
Sources of Government Revenues :
Sale of Goods and Services :Taxation ,Borrowing. The Developments and
Nature of Principal Taxation.
Taxation of Income :
Income Tax Deduction and Exemption Income Tax Rate Structure and Tax
Administration –The time Period Problem –Economic Consequences of Income
Shifting and Incidence—Sales Taxation
Government Borrowing and Fiscal Policy :
1. The Economics of Government Borrowing .Introduction to Fiscal Policy and
analysis. Anti-Inflationary Fiscal Policy. Fiscal Policy and Unemployment, debit
management in periods of Inflation.
The Budget and Modern Government :
1. Development of Modern Budgeting. Budget classification. Specialized Budget
Problems. Three objective of budget Policy—The Allocation Branch—The
distribution Branch and the Stabilization Branch.
Boxes Prescribed
For Part 1. (i) John F. Due. Government Finance. Richard
Irwin Inc., Relevant chapters.
(ii) A. R. Prest Public Finance, Weidenfeld and Ncolsion,
Loudon,1963(Part III Relevant Portions) :
For Part II John F. Due. Government Finance, Richard Irwin Ince,
Relevant Chapters.
For Part III. (i) Burkhead. Government of Budgeting Creasing and hall Ltd,
London,1956,Chapter 124 Relevant Portion.
(ii) Richard A. Musgrave. The Theory of Public
Finance, McGraw Hill Book Company Inc,
London. 1959,Chapt. I only.
Advanced Economic Statistics
1. Historical development of statistics. The scope of economic statistics,
Misuse of statistics, collection, classification tabulation and interpretation
Of data. Census of population and agriculture ; methods of measuring national
2. Importance of diagrams and graphs bar, sub-divided rectangles, circles,
Graphs of time series and frequency distributions, histograms, frequency polygon
and curve, cumulative, frequency curve, percentage frequency curve, Lorenz
curve, Pareto’s law of income distribution.
3. Measures and dispersion, co-efficient of variation, relative importance of
different averages.
4. Idea of normal curve and its importance properties.
5. First four moments, Sheppard’s correction, skewnes and symmetry, calculation of
co-efficients of skeweess, Kurtosis.
6. Calculation of the co-efficients of correlation of grouped and ungrouped data.
Rank co-relation and idea of non-linear regression.
7. Index, numbers, weighted index numbers, Cost of living numbers.
8. Analysis of time series, methods for measuring short time oscillation, method of
least square.
9. Fiting a straight time and a parabolic curve of the type
y = a + bx $ y =ab --- x + cx2 theory pf sampling, random, stratified, multistage
and purposive sampling.
10. sampling distribution. Standard error and probable error. Simple illustration on
theory of probability.
11. Interpolation by the use of Lyngranges and Newton’s formula. Use of logarithms
and prices on Newton’s formula.
Books Prescribed
1. G. U. Yule and An Introduction to
M. G. kendail statistics.
2. K. D. Practical Problems in
Elbance statistics.
3. H. H. Arkin and An outline of statistical
R.R. colton Method
4. A. R. Hersic Statistics
5. J. Mounsay Introduction to statistical
6. Crowden and Applied General statistics
Economic of Planning
Part 1
1. Principles of Planning :
(a) Theories of Economic development and their application.
(b) Definition and techniques of planning.
(c) Instruments of planning and role of various policy variables.
2. Evolution of planning for the acceleration of development process.
(a) Development experiences in west European Countries.
(b) Development experience in socialist countries.
(c) Development experience in under developed countries.
3. Patterns of developments planning:
(a) Indicative planning socialist planning and comprehensive planning
In a mixed economy.
(b) Annual planning, five years planning and perspective planning.
4. Preparation of development plan in an underdeveloped economy:
(a) Assement of country’s resources.
(b) Minimum of country’s resources.
(c) Need for foreign assistance.
(d) Plan strategy and target consistency.
(e) Sectoral allocations and interdependence.
(f) Input-Output exercise.
5. Implementation of a Development plan.
(a) Private sector : guide- lines government policies with special reference to fiscal
Monetary and foreign trade policies.
(b) public-sector : (i) Finance of the public sector development project via : (a)
taxation (b) inflation and (c) foreign aid.
(c) Public-sector expenditure on (a) infrastructure (b) social service and (c)
commodity production.
6. Evolution of planning experience :
With special reference to :
(a) Targets vs. achievements.
(b) Agriculture vs. industry.
(c) Public vs. private sector.
(d) Balance vs. unbalance growth.
(e) Growth vs. distribution.
Evolution of planning process in Pakistan.
Objectives and techniques of planning. Use of models in programming.
National Resources and targets for national plans.
Price structure : Choice of policy instructions.
The role of public and private sector.
Estimation of capital requirements.
Sources of Capital formation.
Public & private sector, foreign capital inflow.
Method of Allocation of investment Resource.
Obstacles arising for investment choices sect oral constancy.
Strategies of growth, Balance of payment and foreign Aid.
Manpower recourses and its utilization.
Regional Balance.
This study will be mad in the light of the development plans of the country , specially
with reference to current plans.
Books Prescribed
1. Leading Issues in economic development by G. M. Meir.
2. Development Planning by W. A.Lewis.
3. Analytical Techniques of Economic development. A cases study
Of Pakistan by W. Times.
4. Strategy of Economic planning by Mahbub-ul-haque.
5. Planning Economic Development (Homewood,III,1960) by Hagen,E. E.(ED)
6. Planning for Economic Development by U. N. O.
7. Development Planning : Lessons from Experience by Waterstone, A.
8. Economic Planning in under-developed Areas by Mason,E. S.
10. Economic Planning in Pakistan by waterstone,A.
11. The First Five-year Plan of Pakistan.
The Second Five year in Pakistan.
Preliminary Evolution of Progress during the second five.
Year plan. The Third Five year 4th
plan, 5th plan and 6th plan.
12. Pakistan, Development Review.
Pakistan Institute of Development Economic.
Economics of agriculture
A Introduction to Economic of Agriculture :Definition concepts, tool and techniques.
B Demand and supply functions in agriculture.
Focal points and conditions of long—term shift in the demand curve, peculiaries
of demand-supply function in agriculture, farm price behavior.
Problems of price determination with reference to income effect, cobweb theorem
and relevant income elasticities.
(i) Input-output Relationship :
Choice and resource allocation criteria:
Resource—substitution and factor relationship:
Resource-combination and cost minimization:
Resource allocation and enterprise combination, chaise between product and
(ii) Resource Classification and other problems in aggregation :
Nature and types of cost curves:
Returns to scale and farm size;
Factors determining optimum size of farm;
Time-factor reward and resource valuation;
Economic planning and farm-size;
Agriculture and trade-prices;
The role of the state in regulation prices in developed and underdeveloped
C. Problems of agricultural credit;
Credit and Agricultural development;
Form of credit;
Role of interest in agricultural credit vs. rate of interest in industrial credit:
Form-credit supply ;
Allocation and use of farm-credit ;
Credit institutions and marketing operations.
D. Economic Development and Agriculture;
Agriculture in a developing economy; measurement and evaluation with reference
(i) Population increase relating to income
(ii) Use of techniques employed by consuming units and
(iii) Rise in output effecting trade, and development
E. Land Organization income distribution and economic development.
Detailed study of Agricultural sector with reference to its 2nd & 3rd Five year
Plans, Land Unitization, Land man ratio, size of holding, income and standard
of living.
B. (i) LAND : Size of holdings, Farm mechanization, water-logging salinity,
quality and quality of inputs.
(ii) LABOUR: Rate of population growth and land ratio study of agricultural
labour force and its employment; possibility of its transfer to non-agricultural
sector, problems of agricultural wages.
(iii) CAPITAL: Availability and requirements of capital credit institutions
and their performance .The role of National and international agricultural
Credit institutions.
(iv) ORGANISATION: farm until and its layout, problem of sub division and
Fragmentation of holding, their consolidation scheme, Techniques of
cultivation, irrigation system, marketing operation, suggestion for
improvement, impact; stable, unstable prices on the growers; A study in
respective and prospect. Effect of Land Reforms and Tenancy Acts.
(v) Description of Major food and cash crops like food grains, Jule, Cotton,
Tobacco, and the evaluation of policies related to their management and
(vi) Livestock and animal husbandry: A review of existing situation and
projection for future. The role of agro industries diversification, strengthening
and expansion of agricultural sector through establishment agro-industries.
(vii) Effect of agricultural production in the international Trade and Balance
of payment of Pakistan. Foreign Aid and agricultural development, food selfsufficiency
Books Prescribed
(i) Economic of Production and Resource Use.
Earl O. Heady.
(ii) Contemporary Reading in Agricultural Economics.
Hal crow Prentice Hall Inc, New York 1955.
(iii) Outline of Agricultural Economics.
Henry C. Taylor (Macmillan Company)
(iv) The Economics of Agriculture Development J. W. Mellor
(v) Pakistan:- A Developing Economy.
S. M. Akhtar (Latest)
(vi) Demand and supply for Agrienitural Product in Pakistan
S. A. Abbas, Oxford University Press.
(vii) Chapter of 1st IInd IIIrd Five year Plane relating to Agricultural sector.
(viii) Economy of Pakistan.
Andrew and Muhammad, Oxford University press. London 1958.
Books Recommended
(i) The Economic of Agriculture.
R. L. Choed, London, 1959
(ii) Agricultural Marketing.
Fredrick Lundy Thompson, McGraw Hill Book Company,Inc.1951.
(iii) Introduction of Agricultural Economics.
Bishop and Toussaint.
(iv) Farm Management Economics.
(v) Agricultural Economics.
Benjamin Horace Hibbard, London 1956.
Government of Pakistan Publication.
(vi) (a) Report to the Government of Pakistan on Labour conditions
In Agriculture.
(b) Food and agricultural commission Report 1960.
(c) Report of the Land Reforms commission.
(d) Report of the Credit Enquiry Committee.
(vii) Agriculture and Economic Development.
Carl Ficher and Luwrence Witt.
Mcgraw Hill book Company New York.
(viii) Proceedings of 11th International Conference of agricultural Economic.
Oxford University Press, London.
(ix) CENTO Conference on Agricultural Extension, CENTO 1967.
(x) Developing Rural India Plane and Practice by John W. Mellor &
(xi) Pakistan Development Review, Institute of Development Economics.

(i) Introduction :
Macro v/s Micro Economics, state Dynamic Concepts
Micro Economic Equilibrium Analysis and techniques.
(ii) National Income Concepts.
Real and Money income.
Circular flow of income, its component. Ways of calculating national
Gross and Net Product.
(iii) Conceptual Problem in the Estimation of National Income :
(a) Product to be included.
(b) Final and Intermediate Product.
(c) Valuation of the Production.
(iii) Accounting Frame work and national Income Aggregate.
(a) Income and production statement for firm.
(b) Sector account :National Income Aggregate as.
(1) G. N. P. and G.N.I.
(2) N.N.P at Market Price.
(3) G.N.P and Income
(4) N.N.I. as factor cost-and national Income.
(5) Personal Income and outlay.
(6) Disposable Income.
(c) Their definitions and uses for comparative Analysis.
(1) Structural (2) Comparative Analysis.
(3) Over Space.
(d) Critiesm of national Income Accounting.
(v) Other System of Economic Accounting :
(a) Input-output Techniques, Analytical consideration.
And form of input-output accounting table, uses of analysis based on
input-output relationship.
(b) Flow of Fund Accounting.
Rationale of Accounting Procedure, System of Sector Account and uses
(c) Use of National Income analysis for changes is
(1) Population (2) Production (3) Productivity
(4) Prices (5) Employment.
Part II
vi) National Accounting System of Pakistan:
Methods of National Income estimates in Pakistan.
Identification of Problems and suggested salution.
Part III
VII) Component of National Aggregate:
Simple Income Determinations Multiplier.
Factor Affecting Consumption Expenditure.
(b) Federal Policy and Income Consumption Expenditure.
Government expenditure. Taxation the Equilibrium Level of Income.
(c) Level of Investment.
Discounting and the present value of an asset. The inducement to invest.
Factors Affecting investment in spending.
(d) Money and Interest.
Interest and Investment.
General Equilibrium.
(e) Level of Employment.
(i) Factor’s market and classical Doctrine.
(ii) Keynesian Economics and the level of Employment.
(iii) Money Wages rates-employment. Full Employment.
Part I & II
1) R. Ruggle & M.D. Ruggles National Income Accounts and
Income Analysis
2) J.P.P welson National Income & Flow of Fund
3) A.J. Vandermenien & National Income Analysis &
D.C Vandermenien Sector Accounting.
4) W. H. Mier. Yk Input & output Analysis.
5) Sam Rosen National Income
6) R. M. Biggs National Income and Force Casting.
7) Parker & Harcurt Reading in the concept and .
measurement of national income.
8) S. C. Shoup Principal of National Income
9) Report of Pakistan 1965 National Income Commission.
Part II
10) J. S. Henderson National Income
11) C. L. Schultz National Income Analysis.
12) T. F Dernberg & Macro Economics
M. McDougal
13) E. Shapiro Macro Economics
14) G. Ackley Macro Economics
15) M. J. Balley National Income and Price Level.
16) K. E. Boulding Economic Analysis Part II
Macro Economics.
Mathematical Economics
1) Function and Diagrams in Economics Theory:
Introduction, Demand function and Curves, Particular Demand Function
and Curves. Total revenue functions and curves Cost function and curves.
Other functions and Curves in Economic Theory. Indifference curves for
consumer’s goods. Indifference Curves for the flow of income overtime.
2) Derivation & their Interpretation :
Derivatives and approximate value. Derivation and tangents to curves.
Second and higher order derivatives. The application of derivatives in
Economic Theory.
3) The technique of derivative :
The powers function and its derivation. Rules for the evaluation of
derivatives. The evaluation of second and higher order derivatives.
4) Application of derivatives :
The sign and magnitude of the derivatives. Maximum and minimum
values. Application of the second derivative practical method of finding
maximum value. Points of inflexion problems of monopoly and duopoly.
5) Logarithmic Derivation :
Derivation of exponential and logarithmic function. The elasticity of
function. The evolution of elasticties. The elasticity of demand. Normal
condition of demand cross elasticity and normal costs conditions.
6) Function of two or more variables :
Function of two variables. Function of more than two variables. Function
of several variables in economic theory. The production function and
constant product curves. The utility functions and indifference curves.
7) Partial Derivatives & their applications :
Partial derivatives of functions of two variables. Economic application of
partial derivatives. Ilomogeneous functions.
8) Differential and Differentiation :
The technique of differentiation. Differentiation of functions.
Differentiation of implicit function. The differentiation of a function of
more than two variables. The substitution of a factor. Substitutions in
other economic problems.
9) The cobweb & other simple Dynamic Models :
Cobweb model. A simple continuous model. Central features of the
model. Model with stocks.
10) Matrix Algebra :
Equalities, Inequalities. Addition & scalar products. Multiplication of
matrices. Inverse of a matrix, Determinant values. Equivalence and rank
of matrices.
Books Prescribed
1) R. G. D. Allen Mathematical analysis for
Economists chaps, V to XIII.
2) R. G. D. Allen Mathematical Economics
Chaps 1 & XII.
Books Recommended
1) G. C. Archibald A Mathematical Treatment of
2) J. Perty Lewis An Introduction to mathematics for.
Students of Economics.
3) D. W Bushaw & W. Clower. Mathematical Economics.
Comparative Economic System)
Section I
(a) An Introduction to the study of Comparative Economic system.
(b) Performance criteria for Economic system.
Prescribed Reading
1. Halm, George N. Economic system : A comparative
Analysis. Holt, Rinchart and
Winston, NEW YORK 1964
Part I chapter I.
2. Lucks, William N. Comparative Economics, Systems.
Harper International Student
Reprint, John Weatherhill. Tokyo,
6th edition Part I, chapter 1.
3. Bornsten, Morris (ed) Comparative Economic.
System: Model and cases Richard D
Irwid, Homewood, Illions, 1965,
Part I, chapter 1&2,
Section II
(a) Capitalism: Meaning and characteristics: historical Evolution: Major
(b) The Capitalist Economy: Working of the price system productivity:
Income Distribution: Monopoly: unemployment.
(c) An evaluation of the achievement and failing of capitalism. (case study :
United states of America)
Prescribe Readings
1 Loucks Part I chapters 2 to 4 and Part IX chapter 33.
2 Halm, Part II chapters 5 to 9.
3 Bornsection, Part II chapters 3 to 5.
Section III
Socialism and Communism
(a) Definition and concept: Brief outline of Historical Evolution of Socialism.
(b) Maximum theories of history, value and capitalist development.
(c) Economic theories of Democratic socialism.
(d) The soviet Economic: Problems of a centrally planed economy.
(e) Evaluation of the achievements and failings of Socialism in Russia.
Prescribed Readings:
Halm, Part III chapter 10 to 13; Part IV chapters 14 to 17; Part V; chapters 8 &
19; Loncks, Part III chapters 5 to 10; Part IV chapter 15 Part VI chapter 23 to
28; Ahmed Shaikh Mehmud, Economics of Islams, Ashraf , Lahor, 1964.
Bornstein, Part II chapter 6 to 12; Part III chapter 15 to 18.
Ahmed Shaikh Mehmud, Economics of Islams, Ashraf , Lahor, 1964. Bornstein,
Part II chapters 6 to 12 ; Part III chapters 15 to 18.
Section IV
Islamic Economy
(a) The nature of Islamic Economy; its goals and objectives;
(b) Principles relating to Property labour production and growth, consumption,
trade and marketing and economic organization. The working of the price
system in an Islamic economy.
(c) Interest and the problem of its elimination.
(d) Zakat and the principles of taxation; income distribution and social
(e) Economic functions of the state.
(f) Distinctive features of Islamic economy v/s-a-v/s capitalism and socialism.
Suggested Readings:
(1) Ahmed, Shaikh Mahmud, chapters II, IV, VI, and VII,
(2) Sharif, M. M. A History of muslim Physiology, Pakistan Philosophical
Congress. Otto Harrassowis Wiesbeden 1963, Volume I Book Two chapter
IX,pp. 178—190.
(3) Yusuffuddin, Dr, M. Islam Kai Ma’ashi nazaryat, Hyderabad, 1950 Volume I,
Chapter 3 and 4; Vol. II Chapter 4 to 7.
(4) Yousuf Abu, Islam ka Nizam-e-Mahasil. Tr. By Siddiqi, Nejatullah, Chiragh-e-
Rah, Karachi 1966.
Suggested Readings:
(1) Oxenfeidt, Alfred and holubuyeby, Vsezolod, Economic system in Action. Holt,
Rinehart and winstone New York, 1965, chapter1,2, and3.
(2) Ellis, Howard S. A survey of Contemporary Economic Richard. Dr.Irwin,
Homewood, Illionis. Vol I chapter 22 to 23.
(3) Weight, David Mac, Capitalism The McGraw Hill Book Co.
(4) Pigou, A.C, Socialism vs Capitalism the Macmillan Co. London.
(5) Sweezy Paul M. Socialism McGraw-Hill Book Co. New York 1949.
(6) Nove, Alec. The Soviet Economy, George Allen and Un-win London, 2nd
Edition 1965.
(7) Landure, Carl, Contamporary Systems, j.B, Lippincott Co, Philadelphla, 1964.
(8) Maududi, Abul Ala, sood, (Urdu), Islamic Publication Lahore.
(9) Maududi, Abul Ala, Islam and Jadeed Ma’ashi Nazaryat, Islamic Publication,
(10)Siddiqui, Nejatullah, Islam ka Falsafa Milkiyat, Islamic Publication, Lahore.
(11)Azhmides Nicoles. P. Mohammadan theories of Finance, The Prentice Book
Home, Lahore Part II.
(12)Qureshi Dr. Anwar Iqbal, Islam and the theory of Intrest, Ashraf, Lahore.
(13)Attaullah, Sheikh, Revlval of Zakat, Repon, Press, Lahore.
(14)Kutb, Syed Islam ka Nizam-e-Adl Siddiqui, Nejatullah Islamic
Publications, by Al-Farooqi. Ismail R. Social Justice in Islam, American council
of Learned Societies, Washington, 1953.
Economics Of IslamSection – A
1. Nature of Islamic Economic
Islam and Economic
Basic principals of Islamic Economics
Islamic Principals and its comparison with capitalistic. And
Socialistic systems.
2. Social fram work of Islam
Value System Moral cade
Legal Fram Work
Economic Institutions
Problems of Social Integration and Islam
3. Evolution of Economics Through in Islam and brief introduction to the
writings of :
i) Qazi Abu yusuf
ii) Imam Mohammad
iii) Qazi Abu Ubaid
iv) Ibn Hazam
v) Shah Waliullah.
Section – B
1. Consumer’s Behaviour:
Islamic Principals of Consumption and the Law of equimar ginal
Concept of austerity, in Islam and aggregative consumption.
2. Production:
Importance and goals of production
Organization of factors of Production and distinguishing features of
Islamic classification.
3. Demand and Supply Analysis:
Concepts of Value
Nature of Market & Market Behavior
Process of Price Cotermination
3. Distribution :
Determenation of the share of productive factors with special refrence to
the concept of Shirkyat and Mazarbat Problems of rent and retier class.
Wages rates
Intrests and Problems of its elimination
Concept of Profits
An introduction to the Islamic Concept of welfare and theory of
Section – C
Social Economics
i) Socio-Economic Objectie of the Islamic economy.
ii) Economic functions of the state.
iii) Concept of State ownership and economic control in Islam.
iv) Social security and welfare
Section – D
Public Finance
Source of income and their underlying principals taxation and specific taxes.
Principals of Public expenditure. Public dept.
Fiscal Policy :
Section - E
Money & Banking
Money credit and interest free Banking system.
Tenents of monetory policy in Islam.
Principals of trade & internal economic relation.
Books Prescribed
1. Shaikh Mahmud Ahmed. Economic of Islam, Mohammad Ashraf, Lahore.
1964, Chapter 2, 4, 6 and 7.
2. Nicolas, P.Achindes, Muhammedan Theories of Finance Premier Book House,
Lahore 1961. Part II.
3. Anwar Iqbal Qureshi, Islam and the theory of Interest, Muhammad Ashraf.
4. S.Abdul Latif. Basic of Islam Culture, Institute by Indo Middle East Studies,
Hydearbad (Deccan), 1965, II, chapter 12.
5. M.Yusufuddin, Islam kai Mo’ashi Nazaryat Hyderabad (Daccan) 2 volumes.
6. Abul Ala Maududi, sood, Islamic Publication Lahore.
7. Abul Ala Maududi, Islam and Jadeed mo’ashi Nazaryat,Islamic Publication
Books Recommended
1. Ihsan Muhammad Khan World Problems and Muslim Economics, Al-
Quran Printing and Publishing Association Ltd., Karachi, 1952.
2. Raihan Sharif, Islam Social Framework, Quetta Lahore.
3. Sh. Abdullah, Rivial of Zakat, Ripon Printing Press Lahore.
4. Abu Ala Maududi Economic Problems of man and their Islamic Solution, Islam
Publication Ltd., Lahore.
5. Abul Ala Maududi, Economic Teaching of the Quran. A history of Muslim
Philosophy, Pakistan Philosophical Congress, Otto Harresaowiz Wiesbaden,
1953, vol. I Chapter IX.
6. Abul Ala Maududi, Maslai Milkiyat-e-Zamin, Islamic Publications, Lahore.
7. Abu Yusuf, Islam ka Nizam-e-Mahasil. Tr. By Nijatullah siddiqui Chirag-e-
Rab, Karachi.
8. Nijatullah Siddiqui, Islam ka Falsafai Milkyat, Islamic Publications, Lahore.
9. Syed kutb, Islam ka Nizam-e-Adl, Tr. By Nijatullah Siddiqui, Islamic
Publications, Lahore, English translation Social Justice in Islam. American
council of Learned Societies, Washington 1953.
10. hifzur Rehman Sezbari, Islam ka Iqtisadi Nizam, Nadwatul Mussanifeen, delhi.
11. Relevant articles from Islamic culture, Hyderabad, Voice of Islam Karachi
Terjumanul Quran, Lahor Chiragh-e-Rah, Karachi and Islamic Review, London.
The Criterion Karachi.
12. Economic of islam Ibne Saud (Ma’Shiat-e-Islam)
13. Mashiyat-e-Islam (Abdul Ala Maududi)
14. Ghair Soodi Bainkari (Nijatullah Siddiqui)
There shall be five papers of 100 marks each of 3 hours duration
MACRO-ECONOMICS1 Development of macro-economics, Micro economics vs. Macro-economics.
2 The Classical Macro-Economics:
Say’s law and Quantity—Wages, Prices Employment and Production—Savings,
Investment and the role of Interest. Wicks ell’s formulation and monetary and
fiscal policy.
3 The Keynesian Macro Economics :
Obstacles to full employment. Liquidity Preference significance. The Liquidity
Trap. Monitory Management and the role of Interest. The consumption function.
Short urn consumption behavior. Other influences on consumption spending.
Keynesian model and its application, comparison of Keynesian and classical
4 Equilibrium :
Income Output and Employment—systems and effects of changes in price level.
5 Accelerations and Multiplier :
Working of acceleration, its efficiency effects and coefficient. Static and
dynamic mutisector multiplier, employment and foreign trade multipliers.
6 Growth and Fluctuation :
Growth, Investment and employment- stage nation or Exhilaration, Cyclical
7 Employment Policy :
Changes in monetary and fiscal policies, Effect on investment, limitation and
alternative policies.
Coefficient static and dynamic maltisector multiplier, employment and foreign
trade multiplier.
Books Prescribed
Ackely : Macro-Economic Theory General.
Keyne Theory of Employment, Interest and money
Kuribara : Post-Keynesian Economics.
Mc’Dougal & Dernberg : Macro-Economics.
Hansen : Business Cycle and National Income.
Amrican Economic Association Surveys of Economic theory Vol II
Ruyal Economic Society.
Ellia (ed) A Survey of Contemporary
Holly (ed) Economics Vol II
Domar Essays in the Theory of Growth
Samuelson Foundation of Economic Analysis.
Macro Economic Readings
INTERNATIONAL ECONOMICSEvolution of International Trade theory from Ricardo to Haberler—
Measurement of cost to assess gain from trade,
1 Pure theory International Trade.
Supply: The derivation of the Transformation curve from the Production
Function. Factor-Price Equalization demand : The offer-curves and their
derivation from Trade Indifference curves. Consumption pattern and Trade.
Foreign Trade Multiplier.
Terms of Trade: Various concepts their role in measuring gain from trade
Factors affecting terms of trade of advanced and developing countries.
Trade and Welfare: Trade as instrument of welfare under multilateralism and
various restrictive variants. Trade and Economics Growth : Trade and Growth,
Growth and Trade. Different implication of these inter-relation ships for
specialized economics. Diversification of the economy for increased growth.
2 Balance of Payments: (Changes and their adjustment).
The balance of payments of statement. Elements in the adjustment process.
Elasticities and propensities of Trade. The working of the price and income
effect in the payment mechanism. Inter-relation between monetary and fical
policies and price income changes. Discriminatory trade and payment
restrictions and balance of paymentsadjustment. Concept of balance payments
in the short and long terms. Varation in payments discquilibria in Indistralised
and developing economy. Gold standared and the payments machahism.
3 Internation Investment and Foreign Aid:
Foregion Exchange: Market short term and long term Capital movement.
The transfer process .
Forigion Aid: Change in the concept. Terms and Volum of aidproblems
of donor & recipient countries. Absorption Capacity and flow of
4 Commercial Policy:
Trade restriction and the structure of world trade since the end of the First
World War. Tarrifs,Quotas, Commodity Agreements, State trading Exchange
control these restriction should be studied from the point of view of their impact
on the direction, composition and volume of the world trade and its effect on
the economic growth and welfare of various regions.
5 International Monetary Problems and Institutions:
Evolution of payment system is western Europe since World War II, payments
problem of the developing countries. Dollar storages. its changing character
causes and cure. The position of Dollar as reserve currency, its significance for
industrialized and under developed country. Sterling area: its changing role in
the postwar period I.M.F. World Bank. GATT and other international Economic
6 Regional Economic Integration:
Ustom union issue from viner on words. Attitude of GATT. Regional Cooperation
in western Europe. Retional Integration and economic development.
Regional arrangement in developing areas, with special reference to R.C.D.
1 Basic Rending
C.P. Kindle Berger International Economic Richard D. Irwin
Incorporation IIIionis, 1963.
American Economic Reading in International Trade.
Harry G. Johnson International Trade and Economic Growth.
J.E.Meade he Balance of Payment, Oxford University Press,
Throp, W.L. Trade aid or what? John Hope Kings. University
Press, 1964
Mikesell, R.F. U.S. Private and Govt. Investment Abroad,
University of Oregon. Books 1962.
J.E. Meade Trade and Welfare, Oxford university Press,
L.W. Towle International Trade and commercial policy, Harper
And Brothers.
Brain Tew International Monetary Cooperation, Hutchinson &
Co. Ltd.
S.E. Harris The Dollar crisis (New York Harcourt, Brace and
World Inc. 1961.
L. Tarshis Introduction to International Trade and Finance.
(New York John Willy & Sons Inc).
Bela Balasia The Theory of Economic Integration, Homewood,
III, Richard D. Irwin Inc 1961.
2. Supplementary Readings
• Harbarier, A.C. Some evidence on the International price
Mechanism, Journal of Political Economy
December, 1957.
• MacDougall, D. The Doller Problem, A reappraisal Prinston
University Essay in International Finance, 1960
• M. F Miliken & Proposal, Key to united States
W. W. Rostow Foreign Policy (New York) : Harper and Bros.1957
• Vanek International Trade : Theory and Policy.
• E.S. Mason Controlling World Trade,
McGraw Hill Book.
• GATT International Trade. (Annual Publication).
• A. Issacs International Trade. Tariffs and Commercial
Policies (Richard D. Irwin Inc. Illinois).
• R. F. Mikesell Foreign Exchange in the Postwar World. The
Twentieth Century Fund, (New York.54).
• A. G. L. Day The Future of Starling (Oxford Univ.Press)
P. W. Bell The Sterling Area In the Postwar World,(London
• R.G Lipsey Theory of Customs Union; A. General Survey.
Economic Journal September 1960.
• I. Frank The European Common Market (New York.
Frederic A Praegel Inc.1961).
• R. Triffin Yold and Dollar Crisis (Yale University Press 1960)
• F.Machtup Palm for Reform of the International Monetory
System (Princeton University.1962)
• Richard E. Caves Economic structure and International Trade.
• E.S.Masoa Controlling World Trade, McGraw Hill Book.
1. Supply of Money:
(i) Definition of money.
(ii) Process of the Creation of money.
(iii) Institutional Determinants of supply of money.
Government, Commercial Bank, non Banks financial intermediates and
Central Bank.
2. Demand of Money:
(i) Classical view
(ii) Keynesian extensions
(iii) Recent extensions
(a) Chicago School
(b) Patinkin
(c) Gurley Shaw
3. Purchasing Power of Money
(i) The Quality Theory of Money
(ii) The Fundamental Equations
(iii) The conditions for stability
(iv) The theories of loflation and Defination.
4. Monetary Theory:
Integration of real sector with monetary variables
(i) Theory of Interest _ classical, non-classical, Keynesian, Recent contributions.
(ii) Theory of wages - classical, non-classical, Keynesian, Recent contributions.
(iii) Theory of Price - classical, non-classical, Keynesian, Recent contributions.
5. Monitory Policy: Objectives of Monitory Policy:
(i) Price stability
(ii) Fostering of radid growth in the economy
(iii) Generation of employment
(iv) Maintenance of balance in International payments.
6. Monetary Management: The mechanism and instruments of monetary
(i) Mechanism of monitory management
(a) Interstates mechanism
(b) Availability doctrine,
(c) portfolio approach
(ii) Tools of monetary management:
(a) Rediscount Rate
(b) Open market operation
(c) Reserve requirements
(d) Selective credit controls
7. External Value of Money:
(a) Gold Standard
(b) Purchasing Power Parity Theory
(c) Balance of Payments Theory
8. International Liquidity:
(i) International Monetary Fund
(ii) International Bank of Reconstruction and Development
(iii) International Development Association
(vi) International Finance Corporation
(v) Need for an international currency
Monetary Management in Pakistan
Reading List
Chandler, L.V. Economic of Money and Banking
New York Harper and Row.(Latest Edition)
Whittlsey, C. R Money and Banking. Analysis and Policy,
London, Macmillan, 1963
Sapers, R. S Modern Banking. (Oxford Clarendon Press
De Kock, M. H Central Banking.(London) Staple, Press,
Friedman, M. Studies in the Quantity Theory of Money
(Chicago, University Press)
Keynes, J.M. The General Theory of Employment
Interest and Money.
Patinkin D. Money Interest and Prices: An Integration
Of Monetary and Value Theory, (Yew
York). Fordham University Press, 1966.
Friedman, M. A Program for Monetary stability (New
York. Fordham University Press, 1966).
Johnson, H.G. “Monetary Theory and Policy” American
Economic Review, June 1962.
Johnson, H.G Keynes General Theory after Twenty Five,
Years, ‘American Economic Review.
May 1951.
A. Schheim, J. Techniques of Monetary Control Baltimor
John Hopkins, 1961
Lendbeck, A A Study of Monetary Analysis, Uppsals,
Abmquistwechsell, 1962
Chandler, L. C Central Banking and Economic
Development : (Bombay University 1962)
Meenai, S.A Mony and Banking in Pakistan, (Allied
Book Corporation :1966)
There are Five alternatives in this paper. Candidates have the option to take any one
of the following :
A. History of Economics Thought.
B. Economic of Labour.
C. Econometrics.
D. Development Economics.
E. Management Economics.
HISTORY OF ISLAMIC THOUGHTA history of the following main schools of thought and main lines of development since
about 1700 till about 1960. Mercantilism : Classical Physiocrats; Historical Socialist and
Marginal Utility Schools: Marshal Ian Economics ; Growth of Welfare Economics.
Stockholm School and Monetary Theory; Neoclassical school and theory of imperfect
Competition and Consumer Behavior, Growth in the Theories of Business Cycles and
International Trade ; Monetary Theory up to 1936 ; The New Economics and J M,
Recommended Books
1. Monroe Early Economic Thought.
2. Heimann History of Economic Thought
3. Schumpeter History of Economic Analysis
4. E. Cannan A Review of Economic Thought
5. Eric Roll A History of Economic Thought
6. Gide & Rist History of Economic Thought
7. Hutchinson History of Economic Thought
8. Gray History of Economic Thought
9. Hanney History of Economic Thought
PART – 1
1 Introduction : Place and importance of labour in works of Smith Ricardo, Mathus,
Milli; Marx, Mashall. Webbs, Mitchell, Commands and Keyness. A general treatment of
labour in highly industrilised countries as compared to emerging nations. Trade Union
movement in U.K, U.S.A. and U.S.S.R.
2. Employment Problems : The nature and basis of labour problems of insecurity.
Difination of unemployment. Disguised unemployment and methods of its measurement.
3. Theory of Labour Commitments :
Labour Legislation : Review of Pre-1947 Labour Laws.
Labour Laws after 1967 to date. Some important existing Labour Laws viz. Aet,
regarding worker’s association, working conditions, wages, Industrial dispute and
labour management relation, social security and insurance and some other important
Central and provincial Acts. Amendments to Labour Laws—Adequacy of Labour
Laws--- implementation of Labour Laws—Labour Legislation and development-
Evolution of Labour Policy.
2. Labour Market: Study of the demand for Labour, Industrial Location Requirement
system, training of labour force and occupational analysis—Contract Labour Non
Agricultural skilled labour requirements. Supply of labour characteristics of Industrial
labour force, mobility of labour and commitment and examination of backward
bending supply curves. Lewis model of untimited labour supply and economic
3. Wage Price Analysis : Determination of wages, Payment of wages—wage rate
differential—Dearness allow once, its effect on prices,employmentand productivity
Price trend, cost of living , real wages labour—welfare provisions.
4. Labour Organization: Short history of labour movement, Growth of Trade Unions
after 1957—Size, geographical location, significance—the bipartits tripartite bodies,
the structure of unions—political invovlment—I,L.O, and Pakistan—objectives of
union as an institution—Trade Unions and Economic Development.
Books Prescribed
1. Lester Economic of Labour, McMillian & Co,
New York 1958.
2. Dunlop. J.T Industrial Relations System Heary Holt &
Co, New York 1958.
3. Galenson, W. Labour in Developing Economics.
University of California Press, Berkely and
Les Angeles 1962.
4. Kerr.C.,Harbison Industrialism and Industrial Man, Oxford
F.H. Dunlop University Press, New York 1964.
J.T. and Myers, C.A.
5. Moor, W.E Labour Commitment and Social. Change in
developing Areas.
6. Feldman, A.F Social Sciences Research Council New
York, 1960.
ECONOMICTRICS1. Introduction to the Theory of Economics, an outline of procedure and main
2. Elements of matrix algebra, Matrices, determinates vicars and vectors differentiation,
characteristic roots and vectors.
3. Error in variables.
The two-variable linear case
The classical approach
Prediction Problems.
Grouping of observations.
Use of Instrumental variables.
4. Auto-Correlation.
The two variable case.
Conquences of auto-correlated disturbances
Generalized Least squares
Estimation method
Prediction Problems
Legged variables, Dummy Variables
5. Simultaneous-Equation Problems
Simultaneous-Equation Problem
Limited Information Sign Equation (LISE)
Least Variance Ratio (LVR)
Two stage least squares
K-class Estimator
Tests of Identifying Restrictions
Full information Maximum Likelihood (FIML)
Tree stage least squares.
6. Technical Economic Relations.
Micro-Economic Cost Curves.
Technical Development.
7. Econometric Model.
The descriptions of Complete Systems.
The Movements of Complete Systems.
The purpose and logic of economic policy.
Books Prescribed
1. Klein L.R A Text Book of Econometrics.
2. Tinter Econometrics Method.
3. Hood and Koopmans Studies in Economic
4. Allen, R.G.D Mathematical Economic
5. Blyth. C.A. The Use of Economics
6. Tinbergen One the Theory of Economics Policy.
1. Concept of Growth & Development—Basic terminology
2. (a) A general framework of analysis:
(b) Main constituent of growth
3. Statement and appraisals of theories of growth and Development.
Harrod-Domar Model and its Variants
4. Project Appraisal.
(a) Criteria of project evaluation.
(b) Project evaluation of Development.
5. Issue in Development Planning.
(a) Role of fiscal and monitory policy.
(b) Role of Agriculture.
(c) Role of foreign Trade
(d) Role of Foreign Aid
(e) Role of Social Overheads
(f) Population Growth
(g) Role of Public and Private Sector and its balancing.
Reading List
Adelman, Irma Theories of Economic Growth and
Development, Stanford,1986
Bicanic, Rudolf “Economic Growth, Development and
Planning in Socialist Countries” in fast
Nelson (Ed) Economics Growth Rational
Problems, Cases, University of Texas
Press,1960 pp. 171—190
Galbraith, John K. “Positive Approach to economic Aid”
Foreign Affairs,39 (April 1961 pp. 444,
Haq. M. The Strategy of Economic Planning.
Oxford Press.
Higgins, B. H. Economic Development Problems
Principles and Policies. New York,
Hirchman, A. O. The strategy of economic Development
Nichols W. H “The Place of Agriculture in Economic
Development,” In Keneth E. Berril (ed)
Economic Development with special
Reference to East-London 1964, pp.
Nurkes Problems of Capital Formation in
Underdeveloped countries New York,
Ranis. G “A theory of Economic Development”
American Economic Review, 51 (Sept.
1961. pp. 533—465).
“Innovation, Capital accumulation, and
Economic Development,, American,
Economic Review, 53 June 1965 pp.
Rosestein-Rodan “Notes on the Theory of the Big Push”
in H. E. Ellis (ed). Economic
Development for Latin.
Rostow Some Lessons in Economic
Development USIS Karachi 1964.
Ses, A.K “Soma Notes on the Choice of Capital
Intensity in Development Planning. The
Q.J.E 71 (Nov.1957).pp. 561—584
Schumpeter, J. A “The Journal of Economic
History(1948). Supplement VII.
Tinbergen, J. “The Optimum Rate of Saving ”The
Economic Journal 66. Dec(1956) pp.
Walkinsly L.J. The Planning and Execution of
Economic development. New York 1963
Appendix 8.
Wilcix, Clair “Pakistan” in Everest E.. Hagen(ed)
Planning Economic Development Home
Wood (III)1963, pp.52—79
E.A.G. Robinson Problems in Economic Development.
London 1965. (ed).
UN, ECAFE Economic Development and Planning in
Asia and the Far East-Social aspect
Economic Bulletin fdr Asla & the Far
East (Bangkok) Vol. 10 No. 3. 1959
Berner, Y.S. Theories of Economic ,Development and
Meir. Gerald M. Lending Issues in Development
Economics. Oxford University Press,
New York,1964.
Brution, Henry J. Principles of Development Economics
Hesly The Economics of Aid.
1. A Unified Concept of Management.
Planning Organization, Co-ordination. Motivation Control.
2. The Organizational hierarchy.
The Board of Directors. The Chief Executive. The Supervisor.
3. Departmentation.
Basic Departmentation. The Assignment of Activities.
4. Staff and Line Relationship.
5. Centralization and De-centralization.
6. Problems of Management.
1. Pricing Strategy
Opportunities for multiple products. Policy on adding new products. Policy on
dropping old products.
2. Pricing Strategy.
Pricing products of lasting disincentiveness. Pricing products. Of perishable
disincentiveness. Pricing standard products when Competitions are few of Cost—Plus
Pricing Cyclical, Pricing product line pricing.
3. Promotional Strategy.
The economic of Advertising. Method for determining total Advertising Budget.
Cyclical fluctuation of Advertising. Measuring economic effects of Advertising.
4. Introduction to Operational Research and Managements.
Linear Programming Quavering Theory Critical Path Scheduling and P.E.R.T.
Theory of games Dynamic Programming and Replacement. Policy Ranking
Techniques Simulation.
1. Problems of Management in Under developed countries :
2. Project Evolution : Public investment Private Investment.
3. Business Structure and Management Method in Pakistan.
(PART - I)
(i) Harold Koontz & Principles of Management (mc-Graw-Hill
Cycil O’Donnel Book Co. New York 1968.
(ii) Elmore Peterson Grosner Plowman Business Organization and Management
& J. M Triket (Richard D. Irwin Inc. New York 1962)
(iii)L. A Allen Management and Organization (Mc-Graw
Hill. New York 1958)
(iv) Hodges Management.
(For Chapter six)
(Part -II)
(i) Jeel Deam Managerial Economics Practice Hall Inc.
1958. New York.
(ii) M. J. Sargeaunt Operational Research for Management
(Heineman Ltd.1965. London)
*Principles of taxation and specific taxes.
Public Debt.
Fiscal Policy.
Paper V
E S S A YThe paper shall comprise all the subject taught as compulsory & optional papers at
the M.A economic examination in the university of Karachi..


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