Tutor profile: Abhishek D.
Subject: Corporate Finance
What is the best method to forecast operating cash flow for an organisation.
Operating cash flow can be fore casted through two method : Direct method and Indirect method. Direct Method : Opening cash balance + Cash receivables - Cash payable = Closing cash balance Indirect Method : In net income adjustment is made for non cash expense, any increase/decrease in current asset or liability and income on sale of non operational items like scrap. Direct method is beneficial for projection of cash flow as under indirect method increase / decrease in current asset or liability need to be factored which is difficult to ascertain prior to preparing trial balance. Also under direct method an entity can check their receivables and push if there is any delay in collections.
John earns a yearly salary of INR 13 Lacs. His monthly salary is broken in following components : Basic pay of INR 40 K; HRA INR 20K and other allowance INR48.3K. Company deducts tax as per following slab of Income Tax Act : 0-2.5 Lacs 0%;2.5-5 Lacs 5%;5-10 Lacs 20% and more than 10 Lacs @ 30%. Current tax payable for John is INR 1.225 Lacs and effective tax rate is 9.42%. John is currently staying in Bangalore and pays INR 18K monthly rent. How can he reduce his tax liability ?
From above question it is deemed that John is not claiming basic deduction for HRA and making investment upto prescibed limit to reduce his tax liability. Income tax Act allows deduction of upto INR 1.5 lacs under 80C and additional INR 50K if investment is made under New Pension scheme. As John is living in Bangalore Huse Rent Allowance will be allowed least as per following Actual rent paid - 10% of basic salary = 18K - (10% of 40K) = INR 14K Actual HRA received = INR 20K 50% of basic salary = 50% of 40K = 20K So monthly deduction can be claimed is INR 14K and annually INR 168K. Also standard deduction of INR 40K is allowed in Income tax act. So after claiming deduction of INR 168K for House Rent; INR 40K for standard deduction and INR 2 Lacs under 80C, net tax payable by John will be INR 51K with effective rate of 5.8%
Co. X sold to Co.Y license developed by Co. Z for USD 500K. Cost paid by Co. X to Co. Z is USD 400K. License will be delivered directly to Co.Y and all queries will be referred to Co.Z. What will be the revenue recognition under IFRS 15 for Co. X
In the above question it is mentioned that Co. X has procured license from Co. Z and then sold it to Co. Y. To recognise revenue in the books of Co. X we need to go through Principal vs agent i.e. we need to ascertain whether Co. X is acting as a Principal or as on Agent. To determine the nature Company shall: -Identify the specified goods or services to be provided to customer -Assess whether it controls each specified goods or services before it is transferred to customer In above case, goods to be transferred is license and it is clear that Co. X does not control the license as it is transferred to Co.Y directly. So, Co. X is acting as an agent and USD 100K will only be recognized as revenue.
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