Application of the Reserve capitalization in the group companies.

Do not forget that the capitalization reserve under Article 25 of the new Corporate Tax Law is a reduction of the tax base. In this sense, we may ask, what is taxable amount in the case of existence of groups of companies?

First we have to refer to is the tax group of companies under the special regime of tax consolidation regime (arts. 55-75 of the LIS) as if no tax group and there accounting group, from the fiscally it is taxed in the general scheme, and in this case, the reference is the individual tax base of each company's accounting group, which will be taxed separately. In this sense, one can see our post titled: Welcome capitalization reserve for the year 2015.

Therefore, only in those cases where there is tax group, it seems that there may be a problem in determining the tax base on which the reduction should be performed by capitalization reserve.

Consequently, if there is tax group, it is possible two ways for the tax group tribute:

1. Taxation for the General Scheme. If the group is taxed by the general scheme, then the reduction in the reserve capitalization and all that it demands as increased equity, etc, should be performed at the individual level of society concerned.

2. Taxation by the Special Tax consolidation as arts. 55 to 75 of the LIS. We will deal with this case.

If the group is taxed by the special tax consolidation regime (arts. 55-75 of the LIS), we can verify that the consolidated tax base will be made by aggregation of individual tax bases of the group companies, and this aggregation is made the deletions and additions by those results between companies in the group (intragroup) that had not been done abroad.

We can see in Article 62 of the LIS, on determining the taxable income of the tax group

1. The taxable amount of the tax group is determined by adding:
a) The individual tax bases corresponding to each and every one of the members of the tax group entities, taking into account the specialties contained in Article 63 of this Law. However, the requirements or qualifications set both the accounting standards for determining the accounting result, as in this Act to the application of any adjustments to that, under the terms set out in paragraph 3 of Article 10 of this Law shall refer to the tax group.

b) The eliminations.
c) The additions of deletions made in previous tax periods where applicable in accordance with Article 65 of this Law.
d) corresponding to the capitalization reserve provided for in Article 25 of this Law, which will refer to the tax group amounts. However, the provision of reservation will be made by any of the entities of the group.


Therefore, the first conclusion we draw is that to determine the consolidated tax base, pre-aggregation of tax bases of the group companies, will take place without the reduction that affected society might correspond by the capitalization reserve .

5 forms of credit will lead your business to evolve with a negative balance in your bank account

For TPE, no alternative but to turn to a bank to finance their need for short-term cash. But bankers prefer to finance investment rather than the operating cycle. BPIFrance opened a guarantee fund to help finance small businesses affected by the crisis. Take the opportunity to take stock of current formulas short-term bank loans that cover the need for working capital.

Since 1 January 2015, BPIFrance, whose role is to support the business credit has opened a guarantee fund of 500 millon euros.10000 Small businesses will benefit from the guarantee of that public body, which will guarantee for them, with the private bank lending up to 50 000 euros per case.This is good news for small businesses and craft businesses in particular have seen their cash battered by the economic crisis that has hit particularly hard in 2014 ... with the result that the bankers have become particularly cautious.

According to data from the Observatory of Credit, once a company had difficulties financing its need for short-term cash, if the bankers are not eager to fly to the rescue. Is that to the bank, finance an investment in durable goods (equipment, buildings) is less risky than financing the daily expenses of a company that suffers.

You may be among those whose business will benefit from the public initiative in favor of small business credit, mounting a specific bank loan documents and motivated.

We remind you now short-term credit products offered by the banks to finance current TPE cash requirements. Your professional financial counselor will be the spokesperson delegated by BPIFrance to commit to be available to your business.
If you have kept your relationship with him, so much the better, as it plays the role of filter.

Cash Loans:

1. overdraft facilities
2. authorized overdrafts
3. Commercial paper / seasonal credit?
4. tacit agreements
5. unauthorized overdrafts

These five forms of credit, which all lead your business to evolve with a negative balance in his bank account, the first 3 are acceptable. As for tacit agreements and unauthorized overdrafts, they are best avoided. The last two formulas are the result of an overdraft that has not been negotiated with the banker. Use the money out of your bank of any explicit agreement framework will inevitably cost more than if the need was anticipated and that you have the agreement signed banker on the amount, duration and cost of the overdraft.
Worse, in the case of tacit and unauthorized overdrafts agreements, banker "can close the tap" at will, as he promised you anything.

The untraded overdrafts are always a sign of a lack of foresight of the entrepreneur and sometimes disinterest banker for a folder. In all cases, it is the company that loses.

The risk of harm inherent in decision making

     9.   The probability of a specific event is a measure between_____and_____of whether the event is likely to happen.

a.	0 and 100
b.	0 and 1
c.	1 and infinity
d.	-1 and 1

ANS:  B                  

   10.   In general the risk of harm inherent in decision making may be

a.	physical loss.
b.	psychological loss.
c.	emotional loss.
d.	all of these.

ANS:  D                        

   11.   Objective probability is:

a.	the likelihood that a specific result will occur, based on personal judgments.
b.	the likelihood that a specific result will occur, based on hard facts and numbers.
c.	the likelihood of both of these.
d.	the likelihood of neither of these.

ANS:  B                     

   12.   Subjective probability is:

a.	the likelihood that a specific result will occur, based on personal judgments.
b.	the likelihood that a specific result will occur, based on hard facts and numbers.
c.	the likelihood of both of these.
d.	the likelihood of neither of these.

ANS:    A

Journal Enrty of Manufacturing Overhead

When predetermined rates are used, overhead is applied at the end of the period or at completion of production, whichever is earlier. Overhead is applied at the end of each period so that the Work in Process Inventory account contains costs for all three product elements (direct material, direct labor, and overhead).

 

More commonly, overhead is applied to jobs using one or more annualized predetermined overhead application rates. Overhead is assigned to jobs by multiplying he predetermined rate by the actual measure of the activity base that was incurred during  the period  for each  job. This method  is normal costing.

Overhead is applied to Work in Process Inventory at completion so that a proper product cost can be transferred to Finished Goods Inventory. The journal entry to apply overhead follows.

Work in Process Inventory  XXX
 

Manufacturing Overhead                XXX

What are the primary documents used in a job order costing system?

A job can be categorized by the stage of its production cycle. There are three stages of production: 

 

(1) contracted for but not yet started, 

(2) in process, and 

(3) completed.

Because a company using job order costing is making products according to user specifications, jobs might occasionally require unique raw material. Thus, some raw material may not be acquired until a job is under contract and it is known that production will occur. The raw material acquired, although often separately distinguishable and related to specific jobs, is accounted for in a single general ledger control account (Raw Material Inventory) with subsidiary ledger backup.

The material may, however, be designated in the storeroom and possibly in the subsidiary records as being “held for use in Job XX.” Such designations should keep the material from being used on a job other than the one for which it was acquired.

In concept, there could be four categories. The third and fourth categories would distinguish between products completed but not sold and products completed and sold. However, the usual case is that firms using a job order costing system produce only products for which there is a current demand. Consequently, there is usually no inventory of finished products that await sale.

Setting price of a bond

When the market rate of interest is different from the contract rate, the bond will sell at a premium or discount. But precisely how much will the premium or discount be? How does one go about calculating this premium or discount? The answer is that the price is based upon the following formula:


Bond selling price = present value of the principal+ present value of the interest payments


Note: If you would like a quick review of present value concepts, please see in a Present Value Table


The interest payments are an annuity; the principal is not. Accordingly, both the Present Value of $1 table and the Present Value of an Annuity of $1 table (both appearing in the Appendix) must be used.

The Boston Corporation wishes to issue a $50,000, 4-year, 10% bond. The interest is payable annually. Unfortunately, the market rate has risen to 12%. Clearly, the bond must sell at a discount. But how much?
We must find the present value of the $50,000 principal and of the $5,000 ($50,000 × 10%) annuity. According to the tables:

Present value of $50,000, 4 periods, 12% = 0.63552
                                                                        × $50,000
                                                                                                      $31,776
Present value of $5,000 annuity, 4 periods, 12% = 3.03735
                                                                                   × $5,000
                                                                                                        15,187
The bond selling price is:                                                            $46,963

Notice that 12%, not 10%, was used in looking up the table. An important rule to remember is: Always look up the table at the market rate.

Unrestricted revenue in Fund Accounting

Revenues
In addition to public support, resources may be received from exchange transactions that are classified as unrestricted revenue. These resources would include the following accounts:

1. Membership Dues Revenue for dues charged members to join and use facilities or receive publications.
2. Program Services Fees for amounts charged clients for services of the organization, such as consulting, testing, or advising.
3. Sales of Publications and Supplies for proceeds from the sales of these items.

Investment transaction revenue, classified as unrestricted or restricted, could include the following accounts:
1. Investment Revenue for interest, dividends, and other earnings.
2. Realized Gain on Investment Transactions for gains from the sale or exchange of investments.
3. Net Increase (or Decrease) in Carrying Value of Investments for the unrealized appreciation (or depreciation) of investments if they are carried at fair value.

Each of the items of investment transactions revenue would be recorded as unrestricted or restricted depending on donor stipulations. Thus, the unrestricted revenue from an endowment would be recorded with a credit to Investment Revenue—Unrestricted. Restricted investment revenue is reported as temporarily or permanently restricted in compliance with the donor’s wishes.VHWOs are required to carry their investments at fair value. Cost includes not only the total cost of purchased investments but also the fair value at the date of receipt of donated investments. When a relatively permanent reduction in fair value occurs, the impairment to cost should be recorded. The unrealized appreciation (or depreciation) is shown separately in Net Increase (or Decrease) in Carrying Value of Investments. Realized and unrealized gains and losses on all investments are considered increases or decreases in unrestricted net assets unless restricted by donor or law.

How Statement of Position 98-2 makes difficult to allocate the public or advocacy costs to programs

Not-for-profits often conduct activities  that combine program and  fund  raising.  In  the past, the cost of the  joint activity often was reported entirely as a functional program expense with no allocation to the functional support expense of fund raising. In response to concerns about fundraising costs being hidden within the program and management activities, the AICPA issued Statement of Position 98-2 making  it more difficult  to allocate educating  the public or advocacy costs to programs. SOP 98-2 sets forth the following requirements:

1. Costs of  all materials  and  activities  that  include  a  fund-raising  appeal  should be  reported  as fund-raising costs . . . unless a bona fide program or management function has been conducted in conjunction with the appeal.

2. Criteria of purpose, audience, and content must be met in order to conclude that a bona fide program or management  and general  function has been  conducted  in  conjunction with  the appeal of funds.

3. If a bona  fide program or management  function has been conducted,  the  joint costs  should be allocated using an equitable allocation base.

4. Certain information must be disclosed if joint costs are allocated.

Which are Not-for-profit organizations?

Not-for-profit activities make up a significant portion of the U.S. economy. All not-for-profit organizations provide services without the intention of realizing a profit. Such organizations are generally financed by contributions, earnings from endowments or other investments, charges for services, and government grants. 

 

The AICPA defines a not-for-profit organization as an entity that (1) has significant contributions from resource providers who do not expect to get anything in return, (2) has an operating purpose other than to make a profit, and (3) has no owners. 

 

Examples of not-for-profits include voluntary health and welfare organizations (VHWO) or human service organizations such as the American Cancer Society, American Red Cross, Girl Scouts, and Boy Scouts. Other not-for-profits have charitable, educational, or scientific pur-poses and can be classified as mutual not-for-profits. Examples are libraries and museums, performing arts and other cultural organizations, private elementary and secondary schools, private colleges and universities, not-for-profit health care organizations, public broadcasting stations, religious organizations, research and scientific organizations, cemetery organizations, civic and fraternal organizations, labor unions, political parties, private and community foundations, professional associations, social and country clubs, trade associations, and zoological and botanical societies. 

 

External users of a not-for-profit organization’s financial statements have common interests in assessing (1) its services and ability to continue those services, (2) its creditworthiness, and (3) how its managers discharge their stewardship responsibilities and perform in other aspects.

What is Current Unrestricted Fund.?

Current Unrestricted Fund. The current unrestricted fund accounts are for resources that have no external restrictions and are available for current operations at the discretion of the governing board. The board, however, may place its own limitations on the fund unrestricted net assets. 

In the same manner that industry appropriates retained earnings, the board of directors of a health and welfare organization may designate a portion of its unrestricted net assets for a special project. 

To reflect such an action, a subset of unrestricted net assets, Unrestricted Net Assets—Designated, may be displayed, provided the total amount of Unrestricted Net Assets is shown.

What is Current Restricted Fund?

Current Restricted Fund. The current restricted fund accounts for assets received from outside sources for a current operating purpose specified by the donor. 

 

The distinguishing feature between unrestricted and restricted funds is whether or not an externally imposed restriction exists. A contribution received by a health agency to conduct nutrition classes is an example of a restricted resource. When donor-restricted contributions are expensed, the restriction is released or reclassified to offset the expense. 

 

Specifically excluded from this fund are contributions of endowments or contributions restricted to the acquisition of plant assets, which are recorded in other appropriate funds.

Some net assets of this fund may be unrestricted; for example, grants, awards, sponsorships, and appropriations have traditionally been recorded in the restricted current fund. These may now be defined as exchange transactions in which the grantor or sponsor expects to receive something of value in return for the grant. All exchange transactions are unrestricted per FASB Statement No.116.

What is Plant Fund in Accounting for Funds?

Land, Building, and Equipment Fund (or Plant Fund). The plant fund accounts for the activity related to fixed assets, including the accumulation of resources to acquire or replace them and the liabilities related to them, as well as their acquisition, disposal, and depreciation. 

To determine the total cost of rendering service, depreciation of assets employed in providing that service must be recorded in the plant fund, with the typical depreciation entry debiting Depreciation Expense and crediting Accumulated Depreciation.

The plant fund of a VHWO (Voluntary health and welfare organization)may have all three net asset classes: unrestricted, temporarily restricted, and permanently restricted. Unrestricted net assets may be transfers from current funds at the discretion of the governing board. Assets acquired with unrestricted funds are unrestricted. 

Donor-restricted contributions specified for property and equipment are temporarily restricted. As with other not-for-profits, a VHWO(Voluntary health and welfare organization) may choose to release the restriction of these assets upon acquisition or over the useful life. Contributions of land are considered permanently restricted if the land cannot be sold. If no restriction exists, donated land is an unrestricted contribution.

What is Endowment Fund?

Endowment Fund. The endowment fund accounts for gifts or bequests with the legal restriction that the principal be maintained in perpetuity (permanently restricted) or until the occurrence of a specified event (temporarily restricted). 

 

Various conditions are possible, depending upon the desires of the contributor. Unless otherwise specified, net gains or losses on the sale of endowment fund assets are increases or decreases of the fund principal.

Endowment fund investment revenue may be restricted or unrestricted. Income is recorded directly in the fund that is to receive it. Such income not subject to any restrictions by the principal donor may be recorded directly in the current unrestricted fund as unrestricted investment revenue. 

 

If the revenue is subject to a restriction, it would be recorded as temporarily or permanently restricted in the appropriate restricted fund.

What is Agency or Custodian Fund. ?

Agency (Custodian) Fund. Agency funds of not-for-profit organizations account for assets that do not belong to the organization holding them. They are often established for payroll withholding. 

 

Custodian funds are established to account for assets received by an organization to be held or disbursed only on instructions of the person or organization from whom they were received.

Flow-through government grants are examples of this latter use of agency funds. Assets are recorded when received, along with a related liability. 

 

Only when the assets are released by the contributor will they be recognized as revenue in the appropriate fund.

What is Pooling of Investments?

Pooling of Investments. If an organization accumulates substantial investments in its various funds, pooling may be advisable. Pooling of investments is the process of combining the investments of various funds into one group or pool to provide greater flexibility at lower cost and to provide diversification to spread the risk. Once pooled, individual investments lose their identity as to fund.

Each contributing fund merely maintains in its investment account an amount representing its portion of the pool. Before any additions or withdrawals may be made, the fair value of the total portfolio must be determined. Realized gains and losses (and unrealized, if investments are carried at fair value rather than cost) are allocated to each participating fund on the basis of its share of the total fair value at the previous valuation date. The proportion of each fund’s fair value may be expressed in terms of units or in terms of percentages of the total. The latter method is more flexible which shows changes in pooled investments over a period of time.