Conceptual Framework  Lec 01 Part 8 - video Dailymotion

HM RANA UMAR FAROOQ  The best teacher of CMA USA

Watch Conceptual Framework  Lec 01 Part 8 - HM RANA UMAR FAROOQ  The best teacher of CMA USA on Dailymotion

Transcript

00:00By the way, we used to do the same accounting.

00:02See what he did?

00:04He took revenue in terms of financial capital, maintenance money,

00:07reduced the cost of sales, and what did we get?

00:10Profit.

00:11This is what we used to do, isn't it?

00:13If he gives admin selling in the paper, he will also reduce it.

00:16But what we have been studying since childhood and will continue to study in the future,

00:19we don't get inflation adjusted in it.

00:23Inflation adjust?

00:24If you look at his SOFB,

00:26he is saying the same thing.

00:27That the thing of 10,000 sold for 14,000,

00:29there is 14,000 cash,

00:31there was 10,000 opening,

00:32earned 4,000 profit,

00:34if we add the profit, how much will be the equity?

00:37The opening capital was 10,000,

00:39earned 4,000 profit,

00:40so the capital will increase, the equity will increase,

00:42and how much will be the closing equity?

00:4414,000.

00:45Very simple.

00:46Now tell me,

00:48that in terms of financial capital, maintenance, money,

00:50he is taking the money of PNL and SOFB.

00:54We will do the same thing that we have been doing since childhood.

00:56We will take revenue,

00:57we will reduce the revenue,

00:59we will reduce the purchase fees,

01:01we don't adjust inflation.

01:03Do we adjust inflation?

01:05No, we don't.

01:06In which?

01:07Financial capital, maintenance, money terms.

01:10But in real terms, you adjust inflation.

01:14But in real terms, which inflation is being adjusted?

01:17General?

01:18Or specific?

01:20There was a question in front of you,

01:22you yourself did the research.

01:24This has general inflation.

01:26General inflation is the investor's perspective.

01:30The investor is the one who is thinking.

01:34The investor says,

01:36how much was the opening capital?

01:40How much was the capital business starting from 10,000?

01:44And how much was the profit?

01:47He says, profit is not 4,000.

01:51I got 4,000 in my pocket,

01:54but the value of the money has decreased.

01:56Where will the 500 go?

01:59It will go to inflation.

02:01If this person

02:03has made a profit of 4,000

02:06and takes all 4,000 as a dividend,

02:10then what will be his closing capital?

02:1310,000.

02:15And now the chair that took 10,000,

02:17will not get it in 10,000.

02:20The chair that took 10,000

02:22has now become inflation.

02:24Now it will not get it in 10,000.

02:26The business will not work.

02:28That is why he says,

02:30general inflation is 5%.

02:32First keep that 5% inflation reserve.

02:34Then tell me what I have earned.

02:36So he says,

02:38you took 10,000.

02:40So how much is the inflation in this?

02:425%.

02:44So tell me, how much will 5% of 10,000 be?

02:46500.

02:49It will go to the inflation reserve.

02:51So effectively he did not make a profit of 4,000.

02:53How much did he make?

02:553500.

02:57And how much can he take as a maximum dividend?

02:593500.

03:01If he takes 4,000,

03:03then the business will not work.

03:05Financial capital maintenance

03:07in real terms,

03:09whose prospective is it?

03:11Investors' prospective.

03:13Investors' prospective.

03:15The investor has not invested

03:18in just one company.

03:20The point of an investor is,

03:22he will invest wherever he gets returns.

03:24Maybe he has invested in 10 companies.

03:26So he looks at the general inflation,

03:28how much is actually reserved in my profit.

03:30If he earned 10 rupees,

03:32and 5 rupees went to inflation,

03:34then how much did he actually earn?

03:365 rupees.

03:38So he deserves inflation.

03:40Who? Investors.

03:42And he looks at the net income.

03:44If a person has 100 rupees,

03:46and it becomes 110,

03:48and the reason for that is only inflation.

03:50You bought an item in the morning,

03:52for example, gold.

03:54It was 1 lakh in the morning,

03:56in the evening it will be 1,10,000.

03:58So the next day,

04:00if you want to buy the same weight,

04:02you need 1,10,000.

04:04Now that will not come in 1,00,000.

04:06So you need 1,10,000

04:08for your business investment.

04:10So the investor looks at the general inflation

04:12and calculates how much he earned.

04:15Financial Capital Maintenance,

04:17in real terms,

04:19how much is the sale?

04:2114,000.

04:23How much is the CGS?

04:2510,000.

04:27But what is the difference between 500 and 100?

04:295% or 10%?

04:31Is it a general rate or a specific rate?

04:33It's a general rate.

04:35So the increase in inflation

04:37that he earns,

04:39he says that in real terms,

04:41in money terms, he earned 4,000.

04:44In real terms,

04:46out of 4,000, 500 went to inflation

04:48and what did I earn?

04:50I earned 3,500.

04:52So when he calculates the cash,

04:54he is saying 14,000.

04:56But he says equity is 10,000.

04:58What is 500?

05:00Inflation Reserve Maintenance.

05:02Just like we maintain

05:04Plant Replacement Reserve.

05:06Because in the future,

05:08when we have to buy a plant,

05:10we should have enough money

05:13Similarly, why are we maintaining

05:15the Inflation Reserve?

05:17Because those things have become expensive.

05:19If you don't place those things

05:21and if you don't buy them,

05:23you won't get what you get before.

05:25So what does he keep?

05:27Inflation Reserve.

05:29So he added 10,000 to the Inflation Reserve.

05:3110,000 became 500.

05:33And then he said,

05:35I didn't earn 4,000,

05:37but I earned 3,500.

05:39Let's look at someone for half a minute

05:42In which, general inflation

05:44is incorporated

05:46with the perspective of

05:48investors.

06:12Sir,

06:14in case of real terms,

06:16we will add it to the DVD.

06:18Yes, son.

06:20In case of real terms,

06:22we will add it to the DVD.

06:24No, no, I have earned 4,000 from business.

06:26No, no,

06:28in case of real terms,

06:30we will add 12,000 to the DVD.

06:32In case of real terms,

06:34I have earned 4,000.

06:36The shareholder will say,

06:38give me a dividend of 4,000.

06:41In fact, the investor himself will say,

06:43this is the investor's perspective.

06:45He will say, for this business,

06:47I needed 10,000.

06:49Now the value of money has decreased.

06:51Now you need 10,500.

06:53Because 5% is inflation.

06:55So he himself will say,

06:57I have earned 4,000.

06:59Add 500 to the Inflation Reserve.

07:01Give me the remaining 3500.

07:03If you want, take it.

07:05Otherwise, add it to the Retained Earnings.

07:07So he decides from the earned.

07:10If you wanted something in a reserve,

07:12where would you shift it from?

07:14From Retained Earnings.

07:16So we will shift it from the profit earned here.

07:18First, we will complete our account.

07:20So that we can meet the inflation.

07:22And then we can take the remaining.

07:24Does anyone have any objection?

07:26Financial Capital Maintenance,

07:28Money Terms,

07:30just like we used to do accounting.

07:32Financial Capital Maintenance,

07:34in real terms,

07:36what inflation is taken in it?

07:39If you have any objection,

07:41you can ask it in question 6 or 8.

07:43I will show you now.

07:45What is written in front of us?

07:47Sir,

07:49in real terms,

07:51what inflation is taken in it?

08:03Yes Sir.

08:05Yes, dear.

08:07Ask the question again.

08:09Who was asking?

08:11Who is asking?

08:13No, no.

08:15Who was asking earlier?

08:17You tell.

08:19If someone asks you a question in an interview,

08:21you will not send it.

08:23You tell.

08:25You tell your own problem.

08:27Sir, in real terms,

08:29what inflation is taken in it?

08:31In equity?

08:34Before Registration.

08:36From where did you start your business?

08:38May God bless you.

08:40May God bless you.

08:42What can we do?

08:44It is written here.

08:46Ex-Limited Commons Business

08:48on 1st January Year 1

08:50with a single item of inventory

08:52which cost 10,000.

08:54He started his business from 10,000.

08:56If you bring 10,000 to the business,

08:58what will be the capital opening?

09:0010,000 is the opening capital.

09:03What is capital from profit?

09:05It increases.

09:07Financial capital maintenance

09:09was in money terms.

09:11Inflation does not adjust in that.

09:13He added 4,000 to the profit

09:15and told the closing equity of 14,000.

09:17But what did he say here?

09:19Inflation and money did not have

09:21that much power.

09:23Business will not run from 10,000.

09:25To do business of the same level,

09:2710,000 and 500 are required.

09:29He has kept 500 in reserve.

09:32Now we have physical capital maintenance.

09:36Physical capital maintenance

09:38is a management prospective

09:40which actually runs the business.

09:48In this, specific inflation is taken.

09:52What is specific?

09:54Specific inflation to business

09:56which is running the business.

09:59Now,

10:01the investor says,

10:03I gave you 10,000.

10:05You have earned

10:07brought down capital.

10:09You have earned

10:11profit 4,000.

10:13Out of this 4,000,

10:15you keep 500

10:17in inflation reserve

10:19and give us

10:213500 profit.

10:23Is it right?

10:26But he says,

10:28the particular item

10:30which we were selling,

10:32for example,

10:34the plant,

10:36the plant which we sold

10:38for 10,000,

10:40this amount is specific inflation.

10:42How much?

10:4410%.

10:46If you want to sell the same plant,

10:48how much will you get?

10:50How much will you get?

10:5210,000.

10:55How much will you get?

10:57110%.

10:59Sir, if we give you 3500,

11:01the plant will not come.

11:03The business will shut down.

11:05Management does not look at

11:07general inflation.

11:09It looks at inflation connected

11:11to my business.

11:13It looks at specific inflation.

11:15It says, Sir,

11:17don't take 3500 from us.

11:19Put the extra 1000 in reserve

11:21so that we can buy

11:24the plant.

11:26How much do you get?

11:283000.

11:30Otherwise, the business will not work.

11:34Management looks at

11:36what I am doing.

11:38The investor is looking at the market.

11:40He thinks I took 3500.

11:42But you are the manager.

11:44If I give him 3500,

11:46this item will be 10% expensive.

11:48It will not come for 10,000.

11:50How much will it cost?

11:52If I give him 3500,

11:54this item will not come.

11:56The business you started

11:58with 10,000,

12:00you need 11,000 to run it.

12:02If you have earned 4000,

12:04take 3000.

12:06We will have to keep 1000 in reserve.

12:08Look at the income statement.

12:10Revenue is 14,000.

12:12What is the cost of sale?

12:14How much is the inflation adjustment?

12:16Specific inflation adjustment.

12:18He said you earned 3000.

12:21If you look at the equity,

12:23what was the adjustment before?

12:2510,000.

12:27He took 1000 as adjustment.

12:29Inflation.

12:31He took the reserve.

12:33How much is that? 11,000.

12:35Now his capital is

12:3711,000 to 14,000.

12:39How much did he earn?

12:413000.

12:43This means that

12:45we will adjust the capital.

12:47We will put inflation on the opening capital

12:50and adjust the capital.

12:52The opening capital is 11,000.

12:54Closing is 14,000.

12:56He did not earn 4000.

12:58How much did he earn?

13:003000.

13:02With this discussion,

13:04let's look at another example.

13:19Let's look at another example.

13:49Let's look at another example.

14:19Let's look at another example.

14:49Thank you for watching.

Conceptual Framework Lec 01 Part 8

Category

Transcript

Recommended