Marginal Costing and Absorption Costing Technique

 

Impact on Profit under Marginal and Absorption Costing Technique

The concept of Marginal & Absorption costing plays a significant role in the field of management accounting. The main difference between marginal costing and absorption costing lies in how they treat fixed manufacturing overhead costs. This difference can lead to varying profits for a company under the two techniques, particularly when there are changes in production volume and inventory levels. Let us discuss the impact on profit under both techniques:

 

1. Marginal Costing:

Under marginal costing, fixed manufacturing overhead costs are treated as period costs and are not allocated to products. Only variable manufacturing costs (direct materials, direct labor, and variable manufacturing overhead) are considered as part of the product cost.

Profit is calculated as the difference between total revenue and total variable costs (both direct and variable overhead costs).

The closing stock value is valued at its variable production cost only (i.e., direct materials, direct labor, and variable overhead).

Marginal costing provides a clearer view of the contribution margin of each product and helps in making short-term decisions, as it isolates the impact of changing production levels on profitability.

 

2. Absorption Costing:

Under absorption costing, both variable and fixed manufacturing overhead costs are included in the product cost. Fixed overhead costs are absorbed into the cost of units produced.

Profit is calculated as the difference between total revenue and total cost of goods sold (which includes both variable and fixed manufacturing costs).

The closing stock value includes both variable and fixed production costs.

Absorption costing is required for external financial reporting purposes and is often used for inventory valuation.

Impact on Profit:

In periods of stable production and sales levels, both methods generally yield the same profit result.

·       If there is an increase in production levels and inventory builds up (closing stock increases), absorption costing typically results in higher reported profits compared to marginal costing. This is because fixed overhead costs get spread over more units, reducing the cost per unit.

·       On the other hand, if production levels decrease and inventory reduces (closing stock decreases), absorption costing may report lower profits than marginal costing due to the higher fixed overhead costs being allocated to fewer units.

·       If a company faces a temporary downturn in sales and has a buildup of closing stock, absorption costing may show higher profits compared to marginal costing, as fixed overhead costs get absorbed into closing stock, reducing the expense in the income statement.

In summary, the choice between marginal costing and absorption costing can significantly impact reported profits, especially when production levels and inventory levels change. Companies should be aware of these differences and use the appropriate costing method based on their reporting needs and the decision-making context. Absorption costing is generally used for external financial reporting, while marginal costing is useful for internal decision-making and short-term planning.

 

Difference between marginal costing and absorption costing

Marginal costing and absorption costing are two different methods of cost accounting used to determine the cost of production, valuation of inventory, and calculation of profit. The main difference between the two lies in the treatment of fixed manufacturing overhead costs. Let's explore the key distinctions between marginal costing and absorption costing:

1. Treatment of Fixed Manufacturing Overhead:

Marginal Costing: Under marginal costing, fixed manufacturing overhead costs are considered as period costs and are not allocated to products. These costs are treated as expenses in the period they are incurred, and they do not form a part of the product cost. Only variable manufacturing costs (direct materials, direct labor, and variable overhead) are considered as product costs.

Absorption Costing: In absorption costing, both variable and fixed manufacturing overhead costs are included in the product cost. Fixed overhead costs are absorbed into the cost of units produced and are considered as part of the inventory valuation. As a result, fixed overhead costs are recognized as expenses only when the finished goods are sold.

2. Inventory Valuation:

Marginal Costing: Closing stock (ending inventory) is valued at variable production cost only, which includes direct materials, direct labor, and variable manufacturing overhead.

Absorption Costing: Closing stock (ending inventory) is valued at both variable and fixed production costs, including direct materials, direct labor, variable manufacturing overhead, and the allocated fixed manufacturing overhead.

3. Profit Calculation:

Marginal Costing: Profit is calculated as the difference between total revenue and total variable costs (both direct and variable overhead costs). Fixed manufacturing overhead costs are not included in the cost of goods sold.

Absorption Costing: Profit is calculated as the difference between total revenue and total cost of goods sold, which includes both variable and fixed manufacturing costs.

  

4. Decision Making:

Marginal Costing: Marginal costing is useful for short-term decision-making and determining the contribution margin of each product. It helps in assessing the impact of changes in production volume on profitability.

Absorption Costing: Absorption costing is typically used for external financial reporting purposes and is required for inventory valuation under accounting standards. It may not provide the most relevant information for short-term decision-making due to the impact of fixed overhead costs on inventory valuation.

 

5. Cost Behavior Analysis:

Marginal Costing: Marginal costing segregates costs into fixed and variable components, making it easier to analyze cost behavior and perform cost-volume-profit (CVP) analysis.

Absorption Costing: Absorption costing does not clearly distinguish between fixed and variable costs within the product cost, which can make cost behavior analysis more complex.

In summary, the primary difference between marginal costing and absorption costing lies in the treatment of fixed manufacturing overhead costs and the resulting impact on inventory valuation and profit calculation. Each method has its advantages and is suited to different purposes. Marginal costing is more focused on short-term decision-making and cost behavior analysis, while absorption costing is essential for external financial reporting and inventory valuation compliance.

 

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MBA Case Study on Financial Planning

MBA Case Study Question and Answer

You are a Financial Planner. Your client Prashant Pandey aged 35 years and works with an IT company earning Rs 15 lakhs per year. His wife Priti, aged 32 years, is a homemaker. They have one daughter aged 5 years. The couple requires your help to make some financial decisions. (You can make any assumptions to further build up your case.)

a) Prashant wants to buy a Pure Risk Life Insurance cover of Rs 1.5 crore. He is confused about whether he should buy a ULIP or a Term Plan. Recommend the product best suited for his requirement

Based on Prashant's requirement for a Pure Risk Life Insurance cover of Rs 1.5 crore, I would recommend that he opt for a Term Plan rather than a ULIP (Unit Linked Insurance Plan). Here's why: Term Plan:

Coverage: A term plan offers pure life insurance coverage without any investment component. It provides a high sum assured for a specified term or duration.

Affordability: Term plans are generally more affordable compared to ULIPs as they don't have investment-related charges or fees.

Higher Coverage: Term plans allow individuals to secure a higher life cover at a relatively lower premium cost, ensuring adequate financial protection for their family in case of any unfortunate event.

Simplicity: Term plans are straightforward and easy to understand. The focus is solely on providing life insurance coverage, without the complexity of investment options or associated market risks.

Flexibility: Term plans offer flexibility in choosing the policy term, premium payment frequency, and additional riders for enhanced coverage (e.g., critical illness rider, accidental death benefit, etc.).

Financial Independence: By opting for a term plan, Prashant can allocate his resources separately for investments and ensure that his family's financial needs are adequately covered in the event of his demise.

ULIP (Unit Linked Insurance Plan):

Investment Component: ULIPs combine life insurance coverage with an investment component. A portion of the premium paid is allocated to various investment funds (equity, debt, or balanced), allowing policyholders to potentially earn returns.

Market-Linked Returns: ULIPs offer the opportunity for market-linked returns based on the performance of the chosen investment funds. However, this also exposes the policyholder to market volatility and associated risks.

Lock-in Period: ULIPs typically have a lock-in period of five years, during which the policyholder cannot withdraw funds without penalties. This limits liquidity and may not be suitable for Prashant's immediate life insurance coverage needs.

Charges and Fees: ULIPs often have various charges, including premium allocation charges, fund management charges, policy administration charges, and mortality charges. These charges can significantly impact the returns and reduce the overall value of the investment.

Complexity: ULIPs can be more complex compared to term plans, as they involve investment decisions and the need to monitor and manage the investment component of the policy.

Considering Prashant's primary objective of obtaining a Pure Risk Life Insurance cover of Rs 1.5 crore, a term plan would be the most suitable product for him. It provides cost-effective coverage, simplicity, flexibility, and a higher sum assured, ensuring financial security for his family in case of any unfortunate event. Prashant can separately allocate his resources for investment purposes, considering his long-term financial goals and risk tolerance. It's always advisable to carefully read and understand the policy terms and conditions, compare different insurers, and consult a financial advisor or insurance expert before making a final decision.

MBA Case Study assignment with solution

MBA Case study based question and answers

Amit Chopra, (age 31 years) works with a pharmaceutical company and has not yet started to invest for his retirement. Amit is married to Neelam (age 28 years) and they have one son aged 2 years. Amit wants you to prepare a plan for him to retire by age 60. (You can make any assumptions to further build up your case).

To help Amit Chopra prepare a retirement plan, let's consider the following assumptions:

Retirement Age: Amit aims to retire at the age of 60, providing him with a retirement period of 29 years.

Life Expectancy: We'll assume a life expectancy of 85 years for Amit and Neelam, considering they might need funds to sustain themselves for a potential 25 years in retirement.

Risk Profile: Considering Amit's age and the long-term nature of his retirement goal, we'll assume a moderate to high-risk tolerance, allowing for a diversified investment portfolio with potentially higher returns.

Inflation: We'll consider an average inflation rate of 4% per year, which is the historical average in India. This ensures that the retirement corpus is adjusted for the rising cost of living over time.

Existing Assets and Liabilities: We'll assume that Amit has no significant existing assets or liabilities that would directly impact his retirement planning.

Now, let's outline a retirement plan for Amit:

Determine Retirement Corpus:

To estimate the retirement corpus, we'll consider Amit's desired annual post-retirement income. Assuming he wishes to maintain a comfortable lifestyle, we'll consider 70% of his current income, adjusted for inflation. Additionally, we'll consider the number of years left until retirement and the expected inflation rate. Based on these factors, we can estimate the required retirement corpus.

Assess Monthly Savings Capacity:

Considering Amit's current income and expenses, we'll evaluate his monthly savings capacity. It is essential to strike a balance between saving for retirement and managing present financial obligations. We'll aim to allocate a reasonable portion of his income towards retirement savings while ensuring his current lifestyle is sustainable.

Investment Strategy:

To accumulate the retirement corpus, Amit should consider investing in a diversified portfolio that aligns with his risk tolerance and retirement timeframe. A combination of equity mutual funds, debt instruments, and other suitable investment vehicles can be selected to achieve his long-term financial goals. It's advisable to consult a financial advisor to determine the optimal asset allocation and investment strategy based on Amit's risk profile.

Systematic Investment Plan (SIP):

Amit can consider starting a Systematic Investment Plan (SIP) in mutual funds, which allows him to invest a fixed amount at regular intervals. SIPs offer the benefit of rupee-cost averaging and can help him accumulate wealth over time. The investment amount can be adjusted periodically based on his increasing income and changing circumstances.

Periodic Review and Adjustment:

It is essential for Amit to periodically review his retirement plan, taking into account changes in income, expenses, and investment performance. Adjustments can be made in the investment strategy and contribution amounts as needed to stay on track toward his retirement goal.

Risk Management:

Amit should also consider mitigating risks by securing appropriate life and health insurance coverage for himself and his family. This step ensures that unexpected events do not derail his retirement plan.

Professional Advice:

Amit should consult with a certified financial planner or investment advisor to develop a comprehensive retirement plan tailored to his specific financial situation and goals. An expert can provide personalized guidance, recommend suitable investment options, and help monitor the progress of the retirement plan.

Remember, this retirement plan is based on the assumptions provided. It's important for Amit to regularly assess and adapt the plan as his circumstances evolve. Regular monitoring and adjustments will help ensure he stays on track to retire comfortably by age 60.

Is retirement planning a part of investment planning?

Yes, retirement planning is a crucial component of overall investment planning. Retirement planning involves setting goals, estimating the required retirement corpus, and creating a strategy to accumulate sufficient funds to support one's desired lifestyle during retirement.

Investment planning, on the other hand, encompasses a broader scope and involves developing a strategy to grow and manage wealth over time. It includes various financial goals such as buying a house, saving for education, creating an emergency fund, and retirement planning.

Retirement planning is a subset of investment planning, specifically focusing on setting aside funds and investing them in appropriate vehicles to build a retirement corpus. It involves considerations such as determining the desired retirement age, estimating the post-retirement income needs, assessing risk tolerance, selecting suitable investment options, and periodically reviewing and adjusting the plan to stay on track.

By incorporating retirement planning into their investment strategy, individuals can ensure that they allocate sufficient resources and make appropriate investment choices to meet their retirement goals. It helps in providing financial security and a comfortable lifestyle during the post-employment phase of life.

Role of IRDA in Public Awareness

 

The Insurance Regulatory and Development Authority of India (IRDA) plays a crucial role in public awareness regarding the insurance sector, including life insurance. Here are some key roles and initiatives undertaken by IRDA to create public awareness:

Regulatory Framework: IRDA establishes and enforces regulations and guidelines for insurance companies to ensure fair practices, transparency, and consumer protection. These regulations often include provisions related to policyholders' rights, disclosure of information, claims settlement, and grievance redressal.

Consumer Education Initiatives: IRDA conducts various consumer education initiatives to promote awareness and understanding of insurance products and policyholders' rights. These initiatives include workshops, seminars, and campaigns targeting different segments of the population to educate them about the benefits of insurance and the importance of being informed policyholders.

Communication Channels: IRDA maintains effective communication channels to disseminate information to the public. This includes the official IRDA website, where individuals can access resources, FAQs, and information on insurance policies, regulations, and policyholders' rights. The website also provides a platform for lodging complaints and seeking grievance redressal.

Public Service Announcements (PSAs): IRDA collaborates with media outlets to release PSAs that raise awareness about the importance of insurance and policyholders' rights. These PSAs may be in the form of print advertisements, radio spots, or television commercials, conveying key messages to a wide audience.

Grievance Redressal Mechanisms: IRDA establishes and monitors grievance redressal mechanisms to address policyholders' complaints and ensure fair treatment. These mechanisms aim to resolve disputes between policyholders and insurance companies, providing a platform for individuals to seek assistance and get their issues resolved.

Regulatory Compliance and Monitoring: IRDA is responsible for monitoring insurance companies' compliance with regulations, ensuring they adhere to consumer protection guidelines and provide transparent and fair services to policyholders. Through regular inspections and audits, IRDA works to maintain a trustworthy and accountable insurance sector.

Collaborations and Partnerships: IRDA collaborates with industry stakeholders, including insurance companies, industry associations, and financial institutions, to enhance public awareness and understanding of insurance. These collaborations may involve joint awareness campaigns, seminars, and educational programs aimed at promoting financial literacy and educating individuals about insurance and their rights.

Through its regulatory oversight, consumer education initiatives, effective communication channels, grievance redressal mechanisms, and collaborations, IRDA plays a vital role in raising public awareness about the insurance sector, including life insurance. The aim is to empower individuals with knowledge, protect their interests, and foster a trustworthy and responsible insurance industry.

Concept of Marginal Costing

 

Concept of Marginal Costing

Introduction:

Marginal costing is a fundamental concept in managerial accounting that provides insights into cost behavior and decision-making. It focuses on segregating costs into fixed and variable components to understand the impact of changes in production levels and sales volumes on profitability. This study material aims to provide an overview of the concept of marginal costing, its key components, and its applications in decision-making.

Marginal Cost:

Marginal cost refers to the additional cost incurred to produce one more unit of a product or provide one more unit of service.

It includes variable costs, such as direct materials, direct labor, and variable overheads, that vary with the level of production or activity.

Marginal cost does not consider fixed costs, such as rent, depreciation, and salaries, as they remain unchanged regardless of the level of production.

 

Contribution Margin:

Contribution margin is the difference between sales revenue and variable costs.

It represents the amount available to cover fixed costs and contribute towards profit.

Contribution margin per unit is calculated as the difference between the selling price per unit and the variable cost per unit.

Key Concepts and Techniques in Marginal Costing:

 

Breakeven Analysis: Marginal costing is used to determine the breakeven point, which is the level of sales at which total revenue equals total costs, resulting in zero profit.

Cost-Volume-Profit (CVP) Analysis: CVP analysis helps in understanding the relationship between costs, volume, and profit. It analyzes the impact of changes in sales volume on profits.

Relevant Cost Analysis: Marginal costing assists in decision-making by considering only the costs that are relevant to a specific decision.

Decision-Making: Marginal costing helps in assessing the profitability of various alternatives, such as make or buy decisions, pricing decisions, and product mix decisions.

 

Advantages of Marginal Costing:

1. Simplified Analysis: Marginal costing simplifies cost analysis by separating costs into fixed and variable components.
2. Decision-Making Support: It provides a clear understanding of the cost behavior and assists in making informed decisions.
3. Flexibility: Marginal costing allows for flexibility in adjusting production levels and pricing decisions based on cost-volume-profit relationships.
4. Improved Profitability: By analyzing contribution margins, marginal costing helps identify the most profitable products or services.

Limitations of Marginal Costing:

• Ignores Fixed Costs: Marginal costing does not consider fixed costs, which may lead to incomplete cost analysis.
• Assumption of Constant Variable Cost per Unit: Marginal costing assumes that variable costs per unit remain constant throughout different levels of production or activity.
• Limited Applicability: Marginal costing is most suitable for short-term decision-making and may not provide accurate results for long-term planning.

 

Conclusion:

Marginal costing is a valuable tool for analyzing costs, profit determination, and decision-making in managerial accounting. By focusing on the relationship between costs, volume, and profits, it helps businesses understand their cost structures and make informed choices. Marginal costing provides insights into the financial implications of various decisions and assists in maximizing profitability. Understanding the concept of marginal costing is essential for managers and decision-makers in effectively managing costs and optimizing business performance.

Solved sums are available on the above topic at :

https://mbaandbba.blogspot.com/2023/07/marginal-costing-solved-sums-decision.html 

Debt consolidations vs do it yourself!

To make substantial amount of savings, one needs to pay off the debts as early as possible and in minimum interest rates like 5 or 10 percent and it has to be preferably hassle free without your credit score and rating being affected. To carry this out, one can either end up with debt consolidation or can devise their own personal debt payoff strategy in a way of saving money through interest costs.

Option for debt consolidation

A debt consolidation plan offers the debtor to bind all the debts into one loan account for payment. Debt consolidation companies often offer to negotiate with the credit companies with their terms and interest rates and ultimately combine the residual balances into the new loan. A debtor must make one payment every month to for all debts until they are all paid off in fine.

Debt Consolidation Considerations

A prudent debtor can shop around for consolidators who will pass along some of the savings. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed carefully. Although the monthly payments can often be lower, the total amount repaid is often significantly higher due to the long period of the loan. Debt consolidation sometimes only treats the symptoms of debt and does not address the root problem. In some circumstances, snowballing debt may be a better solution. To avoid serious credit loss, debtor can always file a bankruptcy case and go off to the district attorney for temporary exemption. They can also develop their debt in the form of one fixed low-rate ‘loan’ which will allow them to reduce the risk of complaints and licensing. This goes well for all those who cannot keep a steady record of their expenses and want things much more simplified.

Your custom payoff strategy

You can devise your own methods to pay off the debts by paying the highest interest debts first which will include paying all the extra funds towards that particular debt, former to all the other accounts. Then you have to proceed towards the next highest interest debt and clear off all the associated payments… this process will continue till all the debt payments have zero collective balance. Another option for self-assessed mitigation is that you can apply for a home equity loan or other low-interest rate credit card which will allow you to consolidate all your loans into one single account. But during this whole process you should not be assisted by any third party schemes or strategies.

Certain consideration

If you are determined enough to be able to pay it off entirely on time every time you clear off all the highest interest loans every month, then it’s suitable to take up your own devised methods otherwise its advisable to take the help of a consolidation company.

Using a Collection Agency to Recover Unpaid Accounts

When collections are an absolute hassle, it’s nice to know that there’s an alternative — you can use a collection agency. It’s not a perfect option, but it can be better than spending all of your time chasing after a client for an unpaid invoice. And, since collections are all such agencies really do, they often have resources at their disposal that the average freelancer can’t match.

Outsourcing to collection agencies, and knowing when to hire third party debt collection agency services are often important decisions to consider when you operate a business. When credit is extended to customers or clients it is often a gamble, because even those with excellent credit history can occasionally miss a payment or experience financial hardship. Regardless of the circumstances however, it is still important that their payments are made to you on time as agreed.

Decide the time to use a collection agency

Many big UK agencies are part of larger concerns, some owned by U.S. or EU corporations with call centers in the Philippines, India or elsewhere. These larger agencies are primarily focused on high volumes of accounts from a relatively small number of creditors - usually banks, credit card companies or utilities. These agencies would not normally deal with businesses unable to pass at least hundreds of accounts every month for collection. The debtor - client relationship is not usually of major concern since the creditor will have already have written the debt off and is happy to lose the customer.

Other agencies deal solely with debt they have purchased - this happens when a large creditor wishes to sell an “asset” - a credit or loan book. The purchaser often pays as little as a few pence in the pound and hopes to recoup the outlay and make a profit by collecting more than they paid. Again, debtor - client relationships are not a high priority. Of course one of the best ways of choosing an agency for your profession or business is to ask the agency for appropriate references. It is important to note that the debt collection industry is regulated by the Office of Fair Trading and all companies offering collection services for regulated debt need to be licensed. This can be checked on-line or by asking to see the current Debt Collection License.

Why this particular agency

A debt collection agency can take a variety of approaches to recover an overdue account – none of them are rocket science but to be successful they do require an inordinate amount of experience. In addition the best debt collection agencies employ people who are thoughtful, articulate, self reliant, resilient and above all good listeners. Agencies will use a range of well proven collection letters carefully chosen and often written for specific clients to elicit an early response from a customer. This is followed up by telephone contact where necessary. Payments by debit or credit card are usually taken over the phone. Most accounts - particularly for small or medium sized businesses and professional services - are resolved by letter or telephone; in fact experience shows that as many as 85% of debts can be collected this way.

What if everything else fails for your favor

If you try to recover a debt, but are unsuccessful, you will be able to claim part of the loss on your tax return.

Borrowing money faster

Sometimes borrowing money from your clients fast ends up succumbing your dignity to the creditor party. In some cases, if it is a very huge sum, you need to give it a serious thought; as long for small amounts, your need to devise ways of fast borrowing from your creditor. The faster you can complete your deal, the wittier you are.

1. Credit card transactions have been the most lucrative of all forms of deals because of its readiness, comfort and time-saving factors. But charging against your own credit uncontrollably or unscrupulously and non businesslike may not be cumbersome, but paying off the charges and pending amounts after it has been scrutinized will be time-consuming and panicky.

2. You can find a lot of Internet parties ready to lend you but they offer considerably low flexibility and stiffen the time bound for payment of the high-interest cash advances. Also an Internet transaction helps in that it is scuffle-free and is done with readability and in less congestive environment. But a cash-advance store in your locality will provide you much flexibility to pay off.

3. Your own family can rescue from a prospective dilemma of paying it off, because they are the least likely people to charge you with any kind of interest and quick turnaround borrow is also beneficial from them. Usually a sibling comes to the help faster and reliably. Its more because they are your most-trusted allies.

4. If you are a stalwart in your field, do not hesitate to make a request to your senior or your boss in business or your profession. He/she is also the person you can borrow money with least interest and a favorable period of return. If you are loyal and hardworking enough, your boss will be happy to help you out in this matter.

5. Debiting from your bank in matter of brief period and medium amounts, will fetch you the most feasible option for borrowing. Some loans can be drawn most conveniently from the bank which will serve a temporary dislocation of your own savings. For example, if you withdraw as a loan or overdraft of $5550 for your medical expenses or share market that you can fill up within the span of a few days, then the bank is a ready option.

6. If you are good verbal communicator, then things may turn your way if you can simply coax your creditor in his/her/its goodwill for the extension of your payment date. You have to have a stably fine prior relationship with your creditor in order to make this subtle request.

In debt? The basic bank account solution

Having debts to repay can feel like a major additional strain on your finances, especially during times like these, when many of us are having to stick to tight budgets. Taking steps to ensure you can make your monthly debt repayments can improve your financial confidence, and reduce the likelihood of racking up bank charges, damaging your credit rating and/or facing County Court Judgments (CCJs) or other legal action. 

If you're repaying debts and want to improve your financial secaurity, getting a basic bank account could help you to budget for all your monthly costs and steer clear of unexpected fees and charges. Even if you've had debt problems in the past, a basic bank account should still be open to you - and could make it easier to get your finances back on the strait and narrow. 

Two ways a basic bank account could help you with debt:

1. They're open to everyone*

If you've had problems with your finances in the past, you may have damaged your credit rating. If you've defaulted on a loan or missed debt repayments, for example, this can appear on your credit file - and it'll remain there for six years. Some banks feel that customers with poor credit histories are too risky, and will often refuse to let them open a standard bank account. 

However, basic bank accounts won't turn you down for having a bad credit rating (as they wouldn't give you access to any form of credit, e.g. an overdraft or credit card). So your financial past shouldn't hold you back from sorting out your debts in the present - after all, simply having a bank account can make it so much easier to make and receive payments and budget more effectively - and that's a key part of repaying the money you owe. 

* Basic bank accounts typically require you to be at least 18 years of age and a UK resident. Many of them may not be available if you're an undischarged bankrupt.

2. They could help you avoid more debt

Getting a bit of extra help with your finances may be high on your list of priorities if you've had debt problems in the past. Some basic bank accounts offer help with budgeting, by dividing your money up into separate accounts: one for your essential bills (such as your utilities and Council Tax) and another for your 'spending money'. An example of this type of basic bank account can be found here.  

Setting aside enough money for your essential costs should help you steer clear of spending on luxuries when you can't really afford it. This can help you avoid the kind of mistakes you may feel you've made in the past with your money. 

Everyone has different requirements when looking for a bank account, so it's important to research what options are available. Using comparison websites and/or speaking directly to bank account providers could be a good place to start.

Do You Need Business Insurance?

The basic reason to carry any type of insurance is for the peace of mind it provides. Knowing you're financially protected in the event something terrible happens can be well worth the cost. Owning a business has enough headaches, you don't need the added stress of worrying about a potential disaster. Although paying the premiums may strain your budget, it would probably be a good investment--if for no other reason than the peace of mind.

Litigation Runs Rampant

An unfortunate aspect of modern life is that we live in a litigious society. It seems like some people are ready to sue at the drop of a hat, for any number of seemingly insignificant reasons. As a business owner, you are a target for them. You are seen as rich because you own property and produce a product or provide a service. It's sort of a modern day share the wealth point of view. You need to be financially protected from that kind of person.

Legitimate Claims

Keep in mind that there may be legitimate reasons for a claim or lawsuit to be brought against you. Accidents do happen, and people get hurt. No matter how safe you try to make your property, it's possible for someone to slip and fall. You can take every step you can possibly think of to ensure your product is safe, and someone may still be injured while using it. Although you may have instituted the very latest in safety measures for producing your product, someone could still be injured on the job. It doesn't matter how well trained you are, or how carefully you fulfill your professional obligations, it's possible that someone may not react the way they should to your services, and you could be named in a malpractice suit. The list of potential problems is endless.

Better Safe than Sorry?

There are many factors to consider when you try to make up your mind about whether or not to carry business insurance. The more conservative you are, the more likely you'll be to err on the side of caution. Better safe than sorry, right? It's a smart approach. The potential for financial disaster far outweighs the price of business insurance. That is the feeling of the majority of business owners, especially those who actually have adequate insurance coverage. Knowing you will still have a business even after a disaster or devastating law suit can help you sleep at night so you can operate your business efficiently, and with a clear conscious.

Types of Business Liability Insurance

There are four basic types of business liability insurance available, although you can get coverage for nearly any eventuality. The fundamental types are general liability, product liability, professional liability, and discrimination liability. Each will cover you for specific aspects of the business.

Mandatory Coverage

There are a couple of types of insurance that are mandatory, depending on your circumstances. If you have a certain number of employees, which varies from state to state, you will have to carry workman's compensation. If vehicles are used within your business you must have business vehicle insurance. Certain professional people, such as doctors, are required to carry errors and omissions coverage, usually called malpractice insurance.

Purchasing Business Insurance

There are many other types of business insurance you can get to protect yourself, and you have a choice as far as the amount of insurance to carry, as well as how much deductible. Consult with a business planner, an attorney, or your accountant to decide on how much and what type of insurance to carry. Discuss the possibilities with your insurance agent as well. With your security at stake it would be wise to study your options and weigh the pros and cons before deciding against carrying business insurance. If you are worried about the cost, get several different business insurance quotes. Costs can vary from company to company and may not be as high as you think they are.

Guest post from Bailey Harris. Bailey enjoys writing about business, insurance, finance, and related topics.

7 Smart tips on refinancing home loan

A lot of people consider refinancing their home loan to take advantage of lower interest rates. Refinancing can indeed save you a lot of money, but it can be a complicated business too. So remember the following tips before you put your right foot forward:

1. Exit fees: Carefully check the terms and conditions of the existing loan before you decide to refinance. This is because some lenders will impose penalties if you leave before the loan term is over. This is known as exit fees. Heavy penalties in the form of exit fees might render refinancing meaningless. Exit fees might vary depending upon how long you have had the loan.


2. Shop for the best lender: You have no obligation to refinance by borrowing from your current lender. Contact multiple lenders in order to get yourself the best deal. You can also contact mortgage brokers to know current mortgage refinance rates. Compare the rates and make sure that you do not end up accepting the first offer that comes your way.


3. Do not ignore your existing lender: Sometimes staying with your current lender can be the best decision. You might approach them saying that you have got great refinancing offers from other lenders. To keep your business, they might come up with a good offer.


4. Settle for nothing less than what you want: You are willing to take the trouble because you are not happy with the current rate or mortgage terms. But refinancing involves a lot of complications. So do not agree to anything less than your expectations. Remember that you can’t refinance again for a certain period of time.


5. Consider the extra costs involved with refinancing: There might be a host of extra fees associated with refinancing. These include closing costs, exit fees etc. Take these fees into account and then decide if it is viable to refinance your home loan.


6. Borrowing from home equity: If you have some equity in your home then borrowing against home equity is often a pretty effective idea. Refinancing with a home equity loan usually results in a low interest rate and longer repayment period. Both will suit you perfectly. Also note that many people take a debt consolidation loan to refinance their mortgage.


7. Home loan professionals: If you are not too confident about refinancing yourself then consider hiring a home loan professional. He will analyze your situation, find you the best deal, and do all the work on your behalf. Life will get a lot easier for you.

Veteran Business Loan

“Don't simply retire from something; have something to retire to”. - Harry Emerson Fosdick

Retirement can prove to be the golden period of one’s life, provided one pre-plans it properly. When you do not have a regular inflow of money, you might confront hard days to even meet your two ends. Hence it’s better that you set a business so as to support your means. There are lots of sources available for veterans to fund your business including both private and federal funds.

Below are some of the tips that would help you to get a business loan:

Prior to asking for a business loan, decide few things like the type of business you want to take up, the amount of money you need to set it up. Make a list of all possible loans; figure out your income and expenses, and revenues, the cash in your hand about the market and competition.

It is advisable to apply for both veteran and non-veteran loan. This is because you may qualify for one and not all. You can opt for the “Patriot Express Pilot Loan initiative” from the Small Business Administration (SBA). To know more about all options, you can visit the SBA site. The maximum available amount is $500,000.

Visit the website of the International Franchise Association, VetFran.com. This offer is especially meant for the veterans with available discounts and is supported by franchises. Go through the requirements thoroughly and apply for the most suitable.

Refer to several modules available on the business and loan information which will assist you well to create your won business. Thus a deeper understanding of al these will enable you to achieve success in the long run.

Can Bankruptcy be a Solution to Tax Debts?

“A man in debt is so far a slave.”- Ralph Waldo Emerson

Ever since the bankruptcy reform of 2005, Chapter 13 bankruptcy remains the last resort for most of the debtors. This proves to be very difficult to shed off the tax debts. Perhaps the debtor needs to meet certain criterions in order to qualify for the chapter 13 bankruptcy.

Chapter 13 Bankruptcy

A debtor opts for the chapter 13 bankruptcy with an aim to enter a repayment plan instead of discharging the debts. The Internal Revenue Service can assuage a portion of your tax debts. In chapter 13 bankruptcy the debtor has to pay off al the existing debts. If the income of the debtor is higher than the median income of the state, he cannot be eligible for the chapter 7 bankruptcy.

Chapter 7 Bankruptcy

The chapter 7 bankruptcy helps in discharging your debts by selling some of your non-exempted assets. A trustee would be appointed by the court, who would be responsible to carry on with the procedure. He sells off the assets and disburses the amounts to pay off the debts. The debt which is discharged is then forgiven.

Debt that are Discharged

Generally, the debts that are eradicated by bankruptcy are considered by the IRS as taxable income. Hence it can create a tax burden to a debtor. However, the IRS does not take the tax debts that are already discharged as income which eventually does not lead to new tax debts.

Choosing The Best Debt Elimination Method

A Debt Elimination Specialists, mission is to help individuals negotiate a new start by becoming debt free. Debt consolidation and debt settlement can help you reduce the stress associated with debt-related problems.

Are your ever-increasing debts giving you sleepless nights and affecting your family life? Do you want to achieve the final goal of becoming debtfree and break loose from the chains of debt?

If your answer “yes” to the above questions, then you seriously contemplate taking some extreme action to start on a journey towards becoming debt free, financial freedom, and eliminate debt from your life.

Debt elimination should be the top most priority for any person who has a debt load that has become unmanageable. This is regardless of the fact that you may have the illusion that your finances are balanced or not. Financial freedom does not come easy and there may be some sacrifices involved. You need to be committed and make a dedicated effort to achieve your final goal of debt elimination.

Most individuals do not appropriately create a plan or a budget to become debt free. Therefore it’s important to have a workable plan and financial discipline if you do not want your creditors to hold your future hostage.

What is a Debt Elimination Plan?

A debt elimination plan is nothing more than a concrete plan of action, or a clearly defined statement of specific goals and actions that need to be achieved within a period of time.

To create a debt elimination plan, the exact status of your financial condition is necessary. To achieve this you need to create a personal budge that includes all you income and expenses.

After this you need to obtain current copies of your credit report from all main credit bureaus. Legally, you have the right to get a free credit report from these three credit bureaus once a year. Once you’ve gone through these two important steps, that is when you actually create your debt elimination plan.

How Will a Debt Elimination Plan Help Me Reach Financial Freedom?

Now being fully aware of your current financial condition, you can choose which debt elimination method will help you reach your objectives quicker. Making a decision based on concrete information will make it easier and less stressful choosing the best road you need to take to be debtfree. This is an excellent place to start. Commit yourself to a plan of action, get the appropriate help and you will achieve your goals.

Get help with Business loan

Business loan can provide much needed flexibility to small to medium enterprises. In fact business loan as an instrument is a common entity amongst the industries such as polymers, small scale industries, computing, manufacturing and telecom. Business loan can be secured or unsecured depending upon the business needs of an enterprise.

Ideally secured business loan solutions are competitive in interest component and can be easily paid off in EMI’s. Unsecured loans are for shorter term and carry higher financing cost. Business loan can ensure business continuity of an organization. In the times of economic downturns it can enable business managers in sustaining right liquidity at all times. Large working capital expenditures and high operational costs may suck the liquidity from the system.

SME operates under a very controlled manner. When contracts and business is not flowing, managing funds and bank OD’s can become seemingly daunting. A business loan can ensure easier channelization of funds and better management of financial objectives.

At times SME’s and other large organizations take long term business loan solutions to expand their IT and reality infrastructures. Such investments are tax deductible. In order to maintain better debt to equity ratio, business loan solutions are ideal for one and all.

Business loan may carry differential components and sneaky clauses. Essentially reliable bankers and financial services providers must be engaged for availing business loan solutions. Long term associations may attract discounts on financing cost apart from other smart offers for corporate. With the global economic recession, many bankers and financial institutions offered very competitive interest rates on business loan marked with poor lending capacity in the economy.

However, with markets picking up business loan solutions might get a touch or two expensive than the current levels. Analyze your financial risk and avail business loan as & when required on the go.

Facts about debt consolidation programs: What consumers must know

When you're unable to manage multiple debt payments on time, you can consider enrolling in a debt consolidation program. By enrolling in such a program, you can combine all your unsecured debts into a reduced single monthly payment and get rid of them soon.

What types of debts can you consolidate?

With the help from a debt relief company, you can consolidate all your debts that are not secured by a property or asset. Some of the types of bills you can consolidate are:

1. Medical bills
2. Credit card debts
3. Utility bills
4. Personal loans 
5. Charge cards

How can you benefit by enrolling in a debt consolidation program?

When you enroll in a debt consolidation program, a counselor of the relief company analyzes your financial situation and assess your total outstanding debts. A consolidation program offers various benefits. Some of these are:

Communicates with your creditors: A representative of the company communicates with all your creditors and so they may stop harassing you with calls for payment. 

• Communicates with your creditors: A representative of the company communicates with all your creditors and so they may stop harassing you with calls for payment.

• Lowers the interest rate on debts: The representative negotiates with your creditors and helps you lower the rate of interest on your bills. You can also get rid of late fees and over limit charges by enrolling in a consolidation program.

• Single payment replaces multiple payments: The debt relief company prepares a repayment plan and gets it approved by your creditors. Instead of making multiple payments each month, you have to make a single monthly payment to the company and they will disburse it to all your creditors. 
   

How much does a consolidation program cost?

When you enroll in a debt consolidation program, the relief company will charge you an upfront fee and monthly fees. The fees are not very high and can comfortable fit into your budget. However, you must remember that there are certain fraudulent companies that may scam you to pay high fees. So, when you're enrolling in a consolidation program, you must ask the company about the fees you have to pay and also verify the company's service background and accreditations. By paying your creditors on time with the help of a reliable relief company, you can pay off debts within a few years.

How can you manage your finances effectively and save for future?

If you are unable to utilize your income properly to fulfill your needs, you may fall in debt trouble. You must try not only to satisfy your current requirements but also save for the future. Understanding the different aspects of personal finance can help you mange your funds/resources effectively.

What are the different components of personal finance?

Personal finance is a process of determining ways to fulfill your present financial needs and your future monetary goals. It deals with the following:

• Prepare a budget: You should determine your credit goals and accordingly design a financial plan to allocate income towards expenses and savings. You can also create a separate fund that will help you in times of emergencies. If you have debt, you should make timely payment towards all of them.
  

• Insure yourself and your assets: You must determine your needs and accordingly purchase insurance policies that you require. Life insurance, disability insurance, health insurance, home insurance and auto insurance are the most important types of insurance policies.
  

• Plan your tax: Tax planning is an important component of personal finance. You must know when and how much tax you have to pay. By taking advantage of the tax deduction schemes offered by the government, you can save on tax payments.
  

• Save for retirement: You must save in your 401(k) retirement plan. This will not only help you meet your future expenses but also provide you with tax benefits. To meet post-retirement living costs, you should effectively distribute all your financial resources and assets.

Personal finance also deals with investments. By investing wisely in stocks, bonds, foreign exchange market and real estate properties, you can make a lot of money. However, you must be careful not to overspend as that may not only prevent you from saving but also lead you to debt.

Avail Best Insurance Deals Through Insurance Agents

An insurance agent is like a mediator between the insurer and insurance company. Insurance agent can assist their clientele in availing quality insurance solutions for life insurance products, auto insurance and other general insurance entities.

An insurance agent represents an insurance company and their plans. On sign-off of any policy by the client, they get paid a royalty by the insurance company. Many insurance agents pass on the benefit on the first insurance premium as cash back to the client.

Apart from guiding through right insurance solution an insurance agent can help in easing the process of insurance policy sign-off and share vital information. Depending upon the age, sex, professional field and other factors they can help insurers in selecting the right mix of policies and premium.

Insurance agents are generally most sought out for in the Life insurance vertical. They can provide ready to go with information on policies, plans and premium details. Bulk deals, corporate discounts and other factors may attribute to lower premium rates or higher coverage of risk.
It is imperative for an insurance agent to be certified by the governing institution in order to represent an insurance service provider. An individual can become an insurance agent by passing a standard certification course. Various aspects related to insurance domain must be understood in depth by the prospective insurance agents in order to become a certified insurance agent.

Free online sources are giving tough competition to insurance agents. However, the aspects of personalization, communication and negotiation are still untouched by the modern solutions. Insurance agent based solutions must be authenticated on insurance company’s website in detail. Also, it is important to shop around with multiple insurance agent solution agencies for competitive rates. Only a reliable insurance agent solution partner should be selected for addressing your insurance needs at all times on the go.

The Discharge in Bankruptcy

A “Discharge” in bankruptcy specifies that a debtor is released form his personal liability in case of some specified debts. In other words it can be simply said that a debtor is no longer required to pay for the debts for which he is discharged from the court of law or any other law prevalent in the country. The discharge is a permanent order from the court of the law prohibiting the creditor of a debtor from taking any form of action or communication from him (his debtor) in any way to recover any amount of money. A discharge may release a debtor from his personal liability but a secured creditor can obviously enforce his lien on the property to recover from the property secured in lien.

The discharge in bankruptcy depends on various factors such one of which the type of case a debtor files of discharge i.e. Chapter 7, 11, 12, or 13. The timing for discharge too depends on the type of case filled by the debtor.

The debtor will automatically get discharged until and unless there is a litigation involving objection to the discharge. As per the Federal Rules of Bankruptcy the communication of the discharge should be sent to all creditors, the U.S. trustee, the trustee in the case, and the trustee's attorney, debtor, and the debtors attorney. All the parties concerned are informed about the discharge of all the dues from the debtor and cautioned the creditors via notice that continuing collection efforts could subject them to punishment for contempt.

Forensic Accountant: Role played in unfolding various frauds and crimes

A company seeks the help of forensic accountant when it smells something wrong in financial dealings and is not able to find the reason behind it. This may be some mischief, frauds or anything that can cause damage in the financial position of the Organization. Fraud can be of various types such as, forging important documents, cooking up financial information, misappropriation of cash/ stock and money laundering. The stock frauds in India can be categorized into various types: the Flying Companies including IPO web as the investors were attracted by huge returns from the listed shares and in the early 20th century the norms and principles of the regulatory bodies were not strong. Brokerage Misguidance which includes misleading customers by guiding investors in an uncanny manner. High Tech Frauds emerges with the new technology being coming up leading to highly vulnerable frauds. Market Manipulation case can be traced from the example from Ketan Parikh and Harshad Mehta been noted for making abnormal profits by manipulating the market prices of the shares deliberately. There could be various reasons behind a fraud like, ego, fraud intensity, greed etc, and it would start from a very little thing and then after sometime it becomes a part & parcel of the life of the fraudster. A forensic accountant opines that the management should adopt a simple policy that it “Trust, but to Verify” principle since it is found that most of the forgery are done by the CFO’s the most trusted employee by the management. In forensic investigation a group of professional forensic accountant starts its investigation by meeting the senior members of the management and starts shooting questions. The investigator then plans the structure of the interview, place of the interview, number of interviews and the series of questions that would be asked. In order to be successful in investigations, the investigator follows some general principles during investigations that include: conduction of the interview with the potential suspects, manner the questions are posed, shoots pertinent questions depending on the fact whether the interviewee is a lead or a prime suspect, observing the body language and words that could disclose deception. . We can say that corporate world should be very alert and watchful so as to avoid the crimes and frauds that have come up with the so called globalization.