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What is a Term Finance Certificate (TFC)

What is a Term Finance Certificate (TFC) A corporate debt instrument issued by companies to generate short and medium-term funds. Corporate TFCs offer institutional investors, in particular retirement funds and insurance companies, with a viable high yield alternative to the National Saving Schemes (NSS) and bank deposits. TFCs are also an essential complement to risk free, lower yielding government bonds such as PIB. TFCs can be issued both as a fixed or floating rate instrument and may have a call or put option. TFC Rating A TFC must be rated before issuance. The rating reflects, the credit risk of The TFC, i.e. the issuer’s ability and commitment to repay scheduled TFC payments. Currently two rating agencies PACRA and JCR-VIS are operating in Pakistan. Income/Return structure of TFC Like bonds, TFCs are structured to provide regular income in the form of coupons. Unlike a generic bond, a TFCs principal may gradually be redeemed over the tenor of the instrument. TFCs are exempt from Capital gain tax. However, coupons payments are subject to income tax. * Invest only in listed scrips and carries a minimum BBB rating. Salient features of TFC Redeemable capital Monitored by Trustee Return on investment may be fixed or floating

Types and Classification of Bill of Exchange:

Types of Bill of Exchange on the Basis of Period: On the basis of period bills are of two types: Demand bills Term bills Demand Bills of Exchange: There is no fixed date for the payment of such bill. They become payable at ay time, when they are presented before payee by the holder. Tem Bills of Exchange: These bills are payable after specified period of time. The period after which these bill become due for payment is called tenor. Types of Bill of Exchange on the Basis of Object: On the basis of purpose of writing the bills, the bills can be classified as: Trade Bills Accommodation Bills Trade Bills: These bills are drawn and accepted against the sale and purchase of goods on credit. These are drawn by the seller (creditor) and accepted by the buyer (debtor). Accommodation Bills: Such bills do not involve any sale and purchase of goods, rather they are drawn without any consideration. The purpose of such bills is to help one party or both the parties financially. Classification of Bills of Exchange: The bills can be classified into two classes given as under: Inland Bill: These bills are drawn in a country upon person living in the same country or made payable in the same country. Both drawer and the drawee reside in the same country. Foreign Bills: These bills are drawn in one country and accepted and payable in another country, e.g. a bill drawn in England and accepted and payable in India. Accounting Treatment of Bill of Exchange: In business concerns, numerous bills of exchange are drawn and accepted. Special journals are used to record bills of exchange, called bill receivable journal and bill payable journal. From these two journals the totals are posted to bills receivable account and bills payable account respectively. Every bill has two different aspects. To the drawer who has sold goods and wants to be paid for them, it is a bill receivable, he hopes to receive money on the due date. Such bills are recorded in the bills receivable journal. It is a sort of asset for the drawer and as good as money. To the acceptor of the bill, who has bought goods on credit and has agreed to honor the bill on the due date, it is a bill payable. The acceptor must arrange in due course the funds available to honor the bill when it falls due. Such bills are recorded in the bills payable journal. Explanation with an Example: We can understand the accounting of bills of exchange with the help of an example. Let us suppose, Mr X is a manufacturer of shoes and Mr. Y is a retail trader of shoes. Mr. Y (the buyer) wishes to buy shoes from the manufacturer but has no money. He is agreed to accept a bill of exchange for 90 days, if goods are sold to him on credit basis. So both the parties agreed. Mr. X supplies goods to Mr. Y worth $10,000 for a 90 days credit and draws upon him a bill for the full value of goods for 90 days on 1st Jan. 2005. The illustration given above can be summarized below:

here are three transactions which have taken place: Mr. X sold goods to Mr. Y worth $10,000 on credit basis. Mr. X drew a bill of exchange on Mr. Y for 90 days for $10,000. On the due date the bill was presented to Mr. Y and he honored the bill (met his obligation on the due date) Journal Entries: Now we shall see how these transactions are recorded in journal of Mr. X and Mr. Y. Mr. X's Journal Transaction No.1 Mr. X sold goods to Mr. Y for $10,000 on credit. The journal entry is: 1st Jan. 2005 Y A/c Dr. Sales A/c (Goods sold on credit) 10,000 10,000 Transaction No. 2 Mr. Y drew a bill on Mr. X for 90 days. The journal entry is: 1st Jan. 2005 Bill receivable A/c Dr. Y A/c (Acceptance received from Mr. Y) 10,000 10,000 Transaction No. 3 On the due date acceptor honors the bill. The journal entry is: 4 April. 2005 Cash/Bank A/c Dr. Bill receivable A/c (Received cash on presentation of bill) 10,000 10,000 Mr. Y's Journal Transaction No.1 Bought goods from Mr. X for $ 10,000. The journal entry is: 1st Jan. 2005 Purchases A/c Dr. X A/c (Goods purchased on credit) 10,000 10,000 Transaction No. 2 Acceptance given to Mr. X instead of paying him cash. The journal entry is: 1st Jan. 2005 X A/c Dr. Bill payable A/c (Acceptance given to Mr. X) 10,000 10,000 Transaction No. 3 Acceptance is met (paid of due date). The journal entry is: 4 April. 2005 Bill payable A/c Dr. Cash A/c (Acceptance is paid in cash) 10,000 10,000 Different Uses of a Bill of Exchange: In the above illustration, we just discussed only one use of a bill of exchange i.e., the drawer retained the bill with himself till due date and then presented to the acceptor, who honored the bill (paid cash to the drawer). Every drawer or receiver of a bill has three options for him. He can retain the bill till the due date. (As discussed above). He can send the bill to his bank for collection. Bank will present the bill before drawee on due date and will collect the amount for drawer. View accounting treatment for this option on "Bill of Exchange Sent to Bank for Collection" page He can endorse the bill to one of his creditors in settlement of his own debts. View accounting treatment for this option on "Endorsement of Bill of Exchange" page He can discount it with his bank if he is in need of money and cannot wait till the due date. View accounting treatment for this option on "Discounting of a Bill of Exchange" page In the same way every acceptor has four possibilities. He may pay the amount of bill on presentation. (As discussed above). He may refuse to honor the bill. It is called dishonor of a bill of exchange. Read Dishonor of Bill of Exchange He may request the drawer to renew the bill (extending the period of payment). Read Renewal of Bill of Exchange He may get the bill retired. (paying his obligation before the due date). Read Retiring a Bill of Exchange Under Rebate.

B.COM REGULAR 2011 EXAMS, KARACHI UNIVERSITY DATE SHEET

UN-OFFICIAL DATE SHEET B.COM KARACHI UNIVERSITY EXAMS 2011

24/12/2011 ISLAMIAT PART 1

26/12/2011 ADV ACCOUNTING PART 2

28/12/2011 STATISTICS PART 1

29/12/2011 B.COMM PART 2

30/12/2011 I.T.B PART 1

31/12/2011 MANAGEMENT PART 2

02/01/2012 ACCOUNTING PART 1

03/01/2012 ECO OF PAKISTAN PART 2

04/01/2012 ENGLISH PART 1

05/01/2012 BUSINESS LAW PART 2

06/01/2012 PAK STUDIES PART 1

07/01/2012 OPTIONAL PART 2

09/01/2012 ECONOMICS PART 1

Accounting for Bills of Exchange

No business wants to sell goods on credit to his customers who may prove unable or unwilling to pay their debts. Today, however, in every field of retail trade it appears that sales and profits can be increased by selling goods on credit basis. The manufacturers and the wholesalers sell goods mostly on credit. Credit is a very powerful instrument to promote sales, so most of the business transactions, in most business concerns, are carried on credit basis. A bill of exchange is a method of payment used between businessmen which has certain advantages over other methods of payment. Definition and Explanation of Bill of Exchange: "An unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to the bearer".

 You should keep in mind the following points to understand the definition: The person who writes out the order to pay is called the drawer. The person upon whom the bill of exchange is drawn (who is ordered to pay) is called the drawee. The drawee may "accept" the bill. This is a special use of the word accept because it means that he accepts to pay the amount payable expressed in the bill, i.e. if he accepts the obligation to pay he writes "accepted" across the face of the bill and signs it. From that time on he is know as the "acceptor" of the bill and has absolute liability to honor the bill on the due date. The amount of money must be mentioned clearly. For example, I cannot make out a bill requiring someone to pay the value of my car or house. That is an uncertain sum. It must say "five thousand dollars or ten thousand dollars" etc. The time must be fixed or at least be determinable.

For example, "sixty days after date" is quite easily determinable. If the bill is made out on first July, it will be 29th august. The person who is entitled to receive the money from the acceptor is called the "payee". It is usually the drawer who is supplying goods to the value of the bill, and wants to be paid for them. If the drawer decides, the bill can be made payable to someone else by endorsing it. That is why the definition says, to pay..... to, or the the order of, a specified person. A bill can be made payable to a bearer, but it is risky, since any finder of the bill or any thief, can claim the money from the acceptor. Format of Bill of Exchange: Now read the definition again and see the format of the bill of exchange below:

Important Points: This bill is drawn by the peter & Co., so the drawer of the bill is peter & Co. The bill is drawn upon William & Co., so they are drawee of the bill. They have not yet accepted the bill, and so are not liable to pay it at maturity. The bill is an unconditional order in writing. It says "pay ten thousand dollars to Peter & Co." it does not say "provided you are in funds". It just says "pay!". It is addressed by one person (Peter & Co.) to another (William & Co.) and is signed by the person giving it (Peter & Co.). The date is easily determinable it is 90 days after first July, which is 29 September, 20.... The sum of money is very certain, ten thousand US dollars. The bill is payable to, or to the order of, Peter & Co. How a Bill of Exchange Works? A person who wants to purchase goods but has no money, may agree to accept a bill of exchange drawn upon him at some future date for the value of the goods he wants to purchase. For example, Mr. B (a retail trader) wishes to purchase furniture from a furniture manufacturer (Mr. A) but has no money. Mr. A is agreed to sell furniture for a 90 days credit worth $10,000. The drawer (Mr. A) draws a bill for $10,000 on the customer (Mr. B), the drawee, who accepts it (thus becoming the acceptor of the bill) and returns it to the drawer. The drawer delivers the furniture and has a 90 days bill for $10,000. He can keep the bill till due date and present it on the due date before the acceptor. When a drawee (the acceptor) acknowledges the obligation in the bill he is bound by law to honor the bill on the due date. If he is a reputable person the bill is as good as money, and any bank will discount it. There are special kinds of banks which do this job and they are called discount houses. What do the discount houses do? They cash the bill by giving the drawer the present value of the bill. Present Value = Face value of the bill - Interest at agreed rate for the time the bank has to wait So the drawer who discounts the bill with the bank gets less than the face value. On the due date the bank will present the bill to the acceptor, who honors it by paying the full value. The bank has earned the amount of interest it deducted when it discounted the bill. Where does the acceptor get the money to honor the bill? The answer is that he was given 90 days to sell the goods at profit, and therefore, he is liable to honor the bill. Now it is hoped that you will be able to follow what is happening in the following diagrams:

You can understand the figure above with the help of the following notes: Business activities cannot proceed because the retail trader (Mr. B) has nothing to sell and has no money to buy goods. We need a system by which retailer can purchase goods without paying for them at the moment and which enables the manufacturer (Mr. A) to be paid immediately. Since a bill of exchange from a reputable trader is almost as good as money, it will be acceptable to banks. They have plenty of money to lend out to reliable customers so, they will advance money to the holder of bills of exchange. Now look at the following figure and note how bill of exchange can increase the business activities.

The result is that a bill of exchange is a useful instrument to increase business activities, and is beneficial to all the parties.

Introduction to cash flow statement:

Three major financial statements are ordinarily required for external reports―an income statement, a balance sheet, and a statement of cash flows. The purpose of the statement of cash flow is to highlight the major activities that directly and indirectly impact cash flows and hence affect the overall cash balance. Managers focus on cash for a very good reason―without sufficient cash balance at the right time, a company may miss golden opportunities or may even fall into bankruptcy. The cash flow statement answers questions that cannot be answered by the income statement and a balance sheet. For example a statement of cash flows can be used to answer questions like where did the company get the cash to pay dividend of nearly $140 million in a year in which, according to income statement, it lost more than $1 billion? To answer such questions, familiarity with the statement of cash flows is required. Tag Cloud Business Opportunity Accounting Jobs Government Jobs Internet Marketing Accountant Get the cash The statement of cash flows is a valuable analytical tool for managers as well as for investors and creditors, although managers tend to be more concerned with forecasted statements of cash flows that are prepared as a part of the budgeting process. The statement of cash flows can be used to answer crucial questions such as the following: Is the company generating sufficient positive cash flows from its ongoing operations to remain viable? Will the company be able to repay its debts? Will the company be able to pay its usual dividends? Why is there a difference between net income and net cash flow for the year? To what extent will the company have to borrow money in order to make needed investments? For the statement of cash flows to be useful to managers and others, it is important that companies employ a common definition of cash. It is also important that a statement be constructed using consistent guidelines for identifying activities that are sources of cash and uses of cash. The proper definition of cash and the guidelines to use in identifying sources are discussed in coming paragraphs. Definition of Cash: In preparing a statement of cash flows, the term cash is broadly defined to include both cash and cash equivalents. Cash equivalents consist of short term, highly liquid investments such as treasury bills, commercial paper, and money market funds that are made solely for the purpose of generating a return on temporary idle funds. Instead of simply holding cash, most companies invest their excess cash reserves in these types of interest bearing assets that can be easily converted into cash. These short term liquid investments are usually included in marketable securities on the balance sheet. Since such assets are equivalent to cash, they are included with cash in preparing a statement of cash flows Sections of cash flow statement: The cash flow statement is usually divided into three sections: Operating, investing and financing activities.

Operating Activities: Operating activities involve the cash effects of transactions that enter into the determination of net income, such as cash receipts from sales of goods and services and cash payments to suppliers and employees for acquisition of inventory and expenses Investing Activities: Investing activities generally involve long term assets and include (a) making and collecting loans (b) acquiring and disposing of investments and productive long lived assets. Financing Activities: Financing activities involve liability and stock holder's equity items and include obtaining cash from creditors and repaying the amounts borrowed and obtaining capital from owners and providing them with a return on, and a return of, their investment. Below is the typical classification of of cash receipts and payments according to operating, investing and financing activities. Operating Activities: Cash inflows: From sales of goods or services. From return on loans (interest) and on equity securities. dividends Cash outflows: To suppliers for inventories. To employees for services. To government for taxes. To lenders for interest. To others for expenses. Income Statement Items Investing Activities: Cash inflow: From sale of property, plant and equipment. From sale of debt or equity securities of other entities. From collection of principles on loans to other entities. Cash Outflows: To purchase property, plant and equipment. To purchase debt or equity securities of other entities. To make loans to other entities. Generally Long Term Asset Items Generally Long term Liability and Equity Items Financing Activities: Cash inflows: From sale of equity securities. From issuance of debt ( bonds and notes ). Cash outflows: To stock holders as dividends To redeem long term debt or reacquire capital stock.

Some cash flow relating to investing or financing activities are classified as operating activities. For example, receipts of investment income ( interest and dividend ) and payment of interest to lenders are classified as operating activities. Conversely, some cash flows relating to operating activities are classified as investing or financing activities. For example, the cash received from the sale of property plant and equipment at a gain, although reported in the income statement, is classified as an investing activity, and effects of the related gain would not be included in net cash flow from operating activities. Likewise a gain or loss on the payment of debt would generally be part of the cash out flow related to the repayment of the amount borrowed, and therefore it is financing activity. Format of the cash flow statement: The three activities discussed in preceding paragraphs constitute the general format of the statement of cash flows. The cash flows from operating activities section always appears first, followed by the investing section and then financing activities section. The individual inflows and outflows from investing and financing activities are reported separately. That is, they are reported gross, not netted against one another. Thus, cash outflows from the purchasing of property is reported separately from the cash inflow the sale of property. Similarly, the cash inflow from the issuance of debt is reported separately from the cash outflow from its retirement. The net increase or decrease in cash reported during the period should reconcile the beginning and ending cash balances as reported in the comparative balance sheets. The Skelton cash flow statement is presented as follows: This is also called cash flow statement pro forma. Company Name Cash Flow Statement Format Period Covered Cash Flows From Operating Activities: Net income Adjustment to reconcile net income to net cash provided by operating activities: (List of individual items) Net cash flows from operating activities. Cash Flows From Investing Activities: (List of individual inflows and outflows) Net cash provided (used) by operating activities Cash Flows from Financing Activities: (List of individual inflows and outflows) Net cash provided (used) by financing activities Net increase (decrease) in cash Cash at beginning of period Cash at the end of period

The purpose of the statement of cash flows is to highlight the major activities that directly and indirectly impact cash flows and hence affect the overall cash balance. Managers focus on cash for a very good reason―without sufficient cash balance at the right time, a company may miss golden opportunities or may even fall into bankruptcy. The cash flow statement answers questions that cannot be answered by the income statement and a balance sheet. For example a statement of cash flows can be used to answer questions like where did the company get the cash to pay dividend of nearly $140 million in a year in which, according to income statement, it lost more than $1 billion? To answer such questions, familiarity with the statement of cash flows is required. The cash flow statement is a valuable analytical tool for managers as well as for investors and creditors, although managers tend to be more concerned with forecasted statements of cash flows that are prepared as a part of the budgeting process. cash flow statement can be used to answer crucial questions such as the following: Is the company generating sufficient positive cash flows from its ongoing operations to remain viable? Will the company be able to repay its debts? Will the company be able to pay its usual dividends? Why is there a difference between net income and net cash flow for the year? To what extent will the company have to borrow money in order to make needed investments?

CRASH CLASSES B.COM KARACHI UNIVERSITY 2011