Saturday, July 27, 2013

What Is Fixed Installment Method Of Depreciation?

Meaning Of Depreciation
The goods and services provides to customers are obtained through the utilization of fixed assets during the operation process for a number of continuous accounting periods.As Fixed assets are used to generate periodic revenue,hence an appropriate amount of cost related to the fixed  assets should be charged as an expense against the revenue generated by the use of fixed assets. The potion of the cost of fixed assets charged to profit &loss account during a particular accounting period is termed as depreciation.

The term depreciation denotes decrease in the value of asset but in terms of accounting it is referred as decrease in book value of assets. Depreciation is a  permanent and continuous decrease in the book value of fixed assets due to use,effluxion of time,obsolescence etc.its is treated as non -cash expenditure.

Fixed Installment Method
Under this method deprecation can be calculated as follows:
1-when the assets has no residual value:
Each year depreciation = original cost of asset / number of years of estimated life of the asset.
2-when the assets has residual value:
Each Year Depreciation=(original cost of the asset-its estimated residual value)/number of years of estimated life of the asset.

Depreciation calculated according to the fixed installment method  is charged every year and at the end of the life of the asset,the amount of asset become zero.under this method every year amount of depreciation remains the same.

Merits:
1-it is very simple to calculate depreciation.
2-it is suitable in case of those assets whose service remain uniform in every year.,e.g.,furniture and fixtures.

Demerits:
1-value of asset goes on decreasing but the amount of depreciation remains the same every year.

It is known by following names also:
1- straight line method 2-original cost method
3-equal investment method 4-simple method of depreciation.

If you want to calculate asset with residual value then you can go through this link:
http://www.formuladirectory.com/user/formula/348
If you want to calculate asset without residual value then you can go through this link:
http://www.formuladirectory.com/user/formula/349


Friday, July 26, 2013

What is Present Value and Future Value of annuity


Introduction                                                                                      
In finance theory,an annuity is a terminating stream of fixed payments. The valuation of such stream  of payments entails concepts such as the time value of money,interest rate and future value .Basically Annuity are regular deposits to a savings account, monthly home mortgage payments and monthly insurance payments. Annuities are classified by the frequency of payment dates. The payments or deposits may be made weekly, monthly, quarterly, yearly, or at any other interval of time.

Financial Manger always confronted with opportunities to earn positive rate of returns on their investment.For this the timing of cash outflow and cash inflow has important economic value,which financial mangers explicitly recognize as the time value of money.Time value is based on the concept that dollar today is worth more than the dollar that will be received at some future date.Because a dollar can be invested and earn a days of worth of interest. Our study of time value in finance,considering the two views of time value,present value and future value of money.The time value of money is the most important concept in finance ,which normally use to increase the better rate of return on the basis of present value and future value concepts.

Present Value And Future Value Of Money

Present value is also known as present discounted rate,is  a future amount of money that has been discounted to reflect its current value,as if it existed today.The preset value is always less than or equal to the future value because money has interest earning potential,a characteristic  referred to as a time value of money.
Present value calculation similarly future value calculation are used to value loans,annuity,mortgage,sinking fund ,perpetuity and more. 

Techniques Of Present Value And Future Value

Present Value Technique measures cash flow at the start of the projects life.(zero Period).Future Value Technique measure cash flow at the end of the projects life.



Saturday, July 6, 2013

Tips on using constants in Formulas

If you are creating a formula that needs to use a constant (this is what we call them here, its not a official name), then you need to know how to use them accurately in order for them to work.

The Basics

All the constants are basically just symbols which represent a particular function. The function is basically an operation which is performed on a specific part of the formula. Here are a few points to remember : 

  1. The specific part on which the constant acts or operates is denoted by simple brackets. That is, this part starts which a ( and ends with a )
  2. The operation can either just place a number or can act on a set of numbers or variables. For example. If you use the constant for pi in a formula, then it will simply be replaced by its value and will not have any effect on rest of the formula. Thus, 2*Π*r becomes 2*3.1416*r
  3. The operation can also act upon a set of numbers or/and variables. For instance,  the power constant which is used in this form : ρ(r,4) operates on r and 4, calculating it as r to the power of 4. Another example of the power function can be something like   ρ((r+1),(n-1)). In such a case, as both the base and power are not a single number, thus the brackets make the function work.