Notes

Hire pur. & Installment
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Hire purchase (HP) is a method of purchasing an item, typically a vehicle or equipment, by paying an initial deposit followed by a series of regular payments. The item is considered the property of the borrower during the hire purchase period, but ownership is transferred to the borrower once the final payment is made.

The importance of hire purchase is that it allows individuals and businesses to acquire assets they may not be able to afford to purchase out right. It also allows them to spread the cost of the asset over a period of time, making it more manageable. Additionally, hire purchase can also be an effective way to obtain financing for a business, as it allows the business to acquire assets it needs to operate without incurring a large amount of debt all at once


The installment system refers to a method of paying for goods or services in which the buyer makes a series of payments over a period of time, rather than paying the full amount upfront. These payments are typically made on a regular basis, such as monthly or weekly, and may include interest charges.



The method for implementing an installment system can vary depending on the type of goods or services being purchased. For example, in the case of a car loan, the buyer would typically make a down payment and then make monthly payments over a period of time to pay off the remaining balance. In the case of a furniture purchase, the buyer may make a down payment and then make weekly or monthly payments until the balance is paid off.

The importance of the installment system is that it allows individuals and businesses to purchase goods and services that they may not be able to afford upfront. It allows them to spread the cost out over time, making it more manageable and allowing them to make larger purchases. This can be beneficial for both the buyer and the seller, as it allows the buyer to acquire the goods or services they need and the seller to make a sale that they may not have otherwise been able to make. Additionally, installment systems can be used as a form of credit, helping individuals and businesses establish a credit history and build their credit scores.


https://onentrepreneur.com/difference-between-hire-purchase-and-installment-system/

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Branch & Department
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A branch office is a location, other than the main office, where a business is conducted. Most branch offices consist of smaller divisions of different aspects of the company such as human resources, marketing, and accounting. A branch office will typically have a branch manager who will report directly to, and answer to, a management member at the main office.


A department is typically understood as a part of a larger organization.
Departments within a company can be organized around a number of different parameters, e.g. function, product, customer, geography or process.

From a financial point of view it may be interesting to look at the income and expenses for each department.

1. Meaning

Branch: A segment of a business company located outside the head office
Department: Different functional area within the business organization

2. Classification

Branch: Branches are geographically classified (like different branch offices in different cities of the country)
Department; Departments are technically classified such as production department, finance department, personnel department etc.


3. Location

Branch: Separate location from head office
Department: Within the head office

4, Purpose

Branch: Purpose of business expansion and to face competition
Department: To improve operational activities and business performance


5. Accounting

Branch: Branch accounting system is maintained
Department: Departmental accounting system is maintained

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The following points highlight the top 2 Methods for Incorporation of Branch Trial Balance in Head Office. The Methods are: 1. First Method 2. Second Method.

Method # 1. First Method:

Under this method, in order to incorporate all revenue items, a Branch. Trading and Profit and Loss Account is prepared. But profit/loss, asset and liabilities are incorporated through Branch Account for Consolidated Balance Sheet purposes.

1. In case of gross Loss, it will be reversed.

2. In case of Net Loss, it will be reversed.


Method # 2. Second Method:

Under this method, only net profit/net loss of branch is transferred in the books of head office. Branch assets and branch liabilities also will not appear for which Branch Account will show a balance which must be equal to Net Worth of the business (i.e., Total Assets – Total Liabilities). This method is particularly applicable where only the net profit/loss is given in the problem without presenting the detailed information about revenue items. The following illustration will help us to understand the principle clearly.

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copyright & royalty
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What is royalty in accounting?

Royalty refers to the payment that is made to the owner of an asset or property for usage. Royalties enable another individual, who is not the original creator of the property or asset, to use the property in exchange for a payment or other terms. Generally, payments are made in the case where trademarks, copyrights, and patents are required by another individual. Royalties exist in different industries. Royalties have similar purpose where one individual owns the property and another has the license to use that property on stipulated terms.

Royalties involve a formal agreement and the owner is able to earn income through royalties. The terms of the royalties depend on the particular royalty. For example, in the case of books, royalties are based on how many books have been sold. For other royalties such as mineral properties, there are two ways in which royalties can be computed ; "based on the units produced or revenue". Sometimes, a royalty percentage is computed and then paid to the owner. All of these terms are specified in the agreement.

Royalties exist because they enable the owner to benefit from their work and their property. In a way, royalties can protect the owner of the property as they ensure the property is being used properly. There are two parties in royalties accounting ; "the lessor (owner of the property) and the lessee (who pur. the property)" . The lessor is the individual who is the owner of the asset. He is the one who gives the right to another individual to use the particular asset. An example of a lessor is an author who has written a novel. The lessee is the individual who purchases the right to the asset from the lessor. An example of a lessee is a book publisher.

Copyrights
Copyright provides the right to the author or owner of assets like book, artwork, music composition etc. to claim royalty from the publisher. Therefore, publishers pay copyright royalty to the author based on sales made by the publishers.

jornal entry.

Royalties A/c Dr 4,00,000
Short Workings A/c Dr 1,00,000
To Zen A/c 5,00,000
(Being Royalty and Short Workings due to Zen)
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Garner vs. Murray rule
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According to Garner vs. Murray rule, if the partner becomes insolvent, he is unable to pay back the amount due to him. The amount not paid is a capital loss which should be borne by the solvent partner in the ratio of their capitals standing in the balance sheet on the date of dissolution of the firm. This rule is applicable when one partner is insolvent then other partner can bring the cash. But if only one partner is solvent or all partners are insolvent then there is no one to bring the cash, so this rule can not be applied. And if partnership deed provides a method to follow then that method will be followed only.

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average clause
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1
: a clause in an insurance policy that restricts the amount payable to a sum not to exceed the value of the property destroyed and that bears the same proportion to the loss as the face of the policy does to the value of the property insured
compare COINSURANCE
2
: a clause in a marine insurance policy that exempts the insurer from particular average and in respect of some things from all average

Definition: A condition by which an insurer determines that the payment for any damage or any loss will be in proportion to the value insured.



In other words, a part of an insurance policy that states that if the insurance value of a property at the time of loss or damage is less than its real value, payment by the insurance company will be reduced according to the difference.

For example, a building worth 100,000€ but insured for 50,000€ is totally destroyed,

The insurer will only pay 25,000€, which represents 50% of the insurance value, but 25% of the full value.

Of course, the insured has insured his or her building for only 50% of its real value. The insured having taken a risk, he or she has not only lost the full value of the property, but will only be compensated for the proportion of the gambit he or she took when he or she was insured for half of it.



According to the average clause in the insurance policy,

If the actual cost of the goods/property is higher than the sum insured for such goods/property, then the insured has to bear the difference.
The insured must bear the cost arising due to the difference between the actual value of goods/property and the amount for which it is insured.
The insurer will only pay for the proportion of the loss which relates to the sum insured divided by actual value.
The average clause only applies when the sum insured is less than the actual value of the goods or the property.
The amount of claim that the insured gets is calculated as follows:

Claim amount = (Actual loss × Insured amount) / Value of goods or property at the date of loss.



Suppose a property worth 1,500,000€ is insured for 1,300,000€, and the fire insurance policy comprises the average clause.

If half the property is damaged due to the fire, the loss that the policy holder incurs is about 750,000€ based on the current worth of the property (half amount).

However, the amount that will be paid by the insurer is:

= (750,000 × 1,300,000) / 1,500,000 = 650,000€



Of course 1,300,000 / 1,500,000 = 86.67%

750,000 * 86.67% = 650,000€



Therefore, the additional amount of 100,000€ (750,000 – 650,000) has to be borne by the insured him or herself.



Unfortunately, underinsuring is quite common in many markets for various reasons.

It can arise willingly to reduce the cost of the premium which should be paid on the sum insured.

It can also occur by negligence, if the original sum insured has not been updated and increased because of increased value due to inflation or property extensions.

Hence, the average clause is used more often.



For the reinsurer, it is sometimes important to remind insurers of the existence of this average clause.



Indeed, if the reinsurer realizes that the insurer has been too complacent by ignoring underinsurance for commercial reasons (i.e., to not lose a big client), and if the insurer has paid such loss without applying the average clause, the reinsurer has every right to deduct the portion from its reinsurance, which does not have to be paid.

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MINIMUM
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