Choose one of these topics and indicate how it would be used by you in your futu
ID: 2593448 • Letter: C
Question
Choose one of these topics and indicate how it would be used by you in your future career and/or your personal life. Describe the nature of the topic you chose, why you chose it and how you would, for example, use it for decision-making. Important: LIMIT YOUR ANSWER TO THE FRONT AND BACK OF THIS SHEET.
These are topics:
Cost flows in a manufacturing company
Cost of goods manufactured statement
Overhead incurred and applied
Cost analysis (high-low; semi-averages)
Break-even analysis
Absorption and variable (direct) costing
Job-order and process costing
Joint and joint and byproduct costing
Standard costing
Responsibility accounting (sales price variance, sales volume variance, etc.)
Return on Investment Short-term decision making (make or buy, eliminate segments, etc.)
Budgeting (income, balance sheet, cash flows, etc.)
Capital budgeting (asset replacement, etc.)
Time value of money (present value)
Explanation / Answer
Time value of money is an important concept in the field of finance and accounting and is relevant for making many managerial decisions. Time value of money means money available at present worth more than the same amount of future because of the time difference involve between the two. Present value of amount if invested will earn interest and as a result will become more worthy than the same amount received in the future. This is known as the earning potential of money. This is helpful in determining the present worth of future cash inflows and outflows and thereby assists in decision making.
Some of the important applications of time value of money in accounting are in determining the present value of notes receivables that are non-interest bearing, sinking fund requirement calculation which is needed for debt retirement, finding the long term lease valuation and annual amortization amount, calculation of present value of bonds and preparation of bond amortization schedule, determining the value of future cash flow from natural resources like mines or oil reserves. All this calculations involve time value of money concept.
Accounting principles require various disclosures regarding present value of future obligations or present value of likely benefits of future from the assets. All this are required to be included in financial statements or in the form of footnotes. All these valuation are calculated on the basis of time value of money concept. In personal life time value of money application is important in making saving and investment decisions. The most important application of time value of money is in retirement planning. It is necessary for a person to plan well in advance about his retirement and in that planning time value of money assist in analysing future worth and future requirements.