Early Termination of a Public Private Partnership
Public private partnership is a widely used model when it comes to infrastructure financing. However, it needs to be understood that not all public private partnerships end successfully. In some cases, the partnership ends in a default. This means that either one of the parties’ viz. the private party or the public party are unable […]
Dividend Discount Valuation: H Model
The dividend discount model makes a lot of assumptions. Some of these assumptions are not considered to be viable by analysts. For instance, consider the assumption regarding growth rates. During the horizon period, the analyst estimates that the growth rate will be high, let’s say 10% or 12%. Then, when the terminal value is to […]
Pros and Cons of Going Public
The decision to take a company public is a huge one. When a company gets listed on an exchange, it joins an elite list of institutions that have done so creating a positive reputation. However, listing on the exchange is about a lot more than reputation. There are a lot of tangible benefits that accrue […]
Notional Pooling – Meaning, Advantages and Disadvantages
Commercial banks provide various types of services to their customers. One such area of service is that of liquidity management. Commercial banks offer several liquidity management arrangements to their clients. Notional pooling is one such arrangement that is very popular amongst corporations that have many subsidiaries. In this article, we will have a closer look […]
Revenue Based Financing
The manner in which startup companies obtain their financing can have a very large impact on the future of their business. In the previous articles, we have already discussed how bootstrapping as well as investments by professional investors work. Both of these approaches have their own advantages and disadvantages. Up until recently, it was assumed […]
Following are the basic fundamental principles of Accounting:
Accounting needs all values to be recorded in terms of a single monetary unit. It cannot account for goods like the barter system.
Assigning values to goods and items therefore becomes a problem since it is subjective. However, accounting has prescribed rules to deal with the same.
A company is said to have an eternal existence. Once it is formed, the only way to end it is by dissolution. It does not die a natural death like humans do. Hence, accountants assume the going concern principle.
This principle implies that the firm will continue to do its business as usual till the end of the next accounting period and that there is no information to the contrary.
Because of the going concern principle, organizations can function on credit, account for accounts receivables and payables which intend to receive or pay in the future and charge depreciation assuming that the machine will be used for many years.
In case, the management has information that the operations will be suspended in the near future, normal accounting ceases. A special type of accounting meant for dissolution purpose is used.
Accountants are said to be very conservative by nature. They want to hope for the best and be prepared for the worst. This is displayed in the rules that they have created for their profession.
One of the central tenets of accounting is the principle of conservatism.
According to this principle, when there is doubt about the amount of expected inflows and outflows, the organization must state the lowest possible revenue and the highest possible costs.
This can be seen in the fact that accountants value inventory at lower of cost or market price. However, such conservatism helps the company be prepared for any forthcoming financial crises.
Closely related to the principle of conservatism is the cost principle. The cost principle advocates that companies should list everything on the financial statements at the cost price.
Usually assets like land and building, gold, etc appreciate. However, the accountants will not allow this appreciation to be reflected on the financial statements of the company till it is realized.
Accountants believe that the market value of anything is just an opinion. Accountants cannot account on the basis of opinions because there are many of them.
The selling price of something is a fact since someone has paid for it and the same can be verified. Hence accounting works on cost principle and therefore on facts.
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An Overview of Contracts and Why They are Important to Business and Society
February 12, 2025
