Category Archives: ACCOUNTING

Basel II Risk Management

Basel Accords are suggestions and rules and regulations with which banking industries should perform. Banking rules and regulations begin with Basel I, Basel II and now Basel III. During the year 2015 when this article wrote by me during that time Basel II was used by many banks and now slowly they are moving to the Basel III.

The Basel committee comprised of G-20 countries and other prominent countries of reserve banks heads or central banks’ head. The suggestions of this committee are for recommendation only but most of the member nations find it easy and good at administration to implement these policies.

These policies update itself through more and more Basel accords that are going to the stage of understanding present-day banking rules and regulations. Many organisations and nation tend to implement these suggestions or at times mould it with their national concern to make a better place for most the people who use banking standards.

It tires to advice banking industries to have minimum capital levels so that it can fight against any such emergencies of liquidity of funds. it removes competitive spirits among bank of different nations and thus create one of most standardise banking management.

In the Basel I accord the existing capitals such as shares, bank reserves comes into mind when calculating banking reserves. In Basel II hybrid capitals of banks such as time duration of loans, and other banking liquidity measurements come into force. In this Basel accord risk of capitals comes into consideration while calculating liquidity ration of banks.

It looks for credit rating and the higher it is safer for banks and the lower is vice versa. Banks are physical institution and in order to observe and manage absolute risks one need to understand the physical risks such as whether the building of bank is of its own or is at rented and then what are cash flow in terms of liquidity risks and what is the current liquidity value, and legal risks in terms of bad loans and how much time it is taking to solve this.

All of these comes under financial statements, calculate risk exposures and assessment of risks and management of it provide adequacy of judgement for calculation of capital adequacy that is maintained inside the banking system.

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difference between absorption costing and marginal costing

Inventory consists of assets to organisation. In the normal business environment it is there to sold to market.In the second category the throughput methods inventory gets ready to sell In the third alternative for the production of materials raw materials to the production material stays inside inventory.

Marginal costing is the cost incurred for inventory. Inventory consists of above three processes. Thus it might consists of more than one production unit.

Absorption costing is the cost incurred to all production units. Variable costs vary with costs. It varies with the volume of a production unit or attached services. If at all any point of time there is no production volume or services then the question of variable costs diminishes.

Under marginal costing which relates to cost differences the variable cost is applicable there. While calculating marginal costing only variable costs in terms of productivity and services is applicable.

Fixed overhead costs are opposite to variable costs and they do not vary remains constant. Management beforehand decides about the total aggregation of variable costs. From it, the constitution of contribution margin such as product price is made of. It minuses the variable costs to inventory in marginal costing. It includes fixed overheads plus contribution margin.

In absorption costing fixed overhead costs are applicable. While calculating total profits of the product, if it is going through marginal costing then it appears higher as the minuses of variable costing is not performed. While calculating profits under absorption costing, the fixed overhead minuses available costs so profit appears lower in this case.

Under marginal costing overhead costs are charged as expenses, in the case of absorption costing they are charged under products. Marginal costing is for internal management purposes they are not significant to show in accounting frameworks.

Absorption costing is included in financial reporting as it includes direct labor and direct materials that show how much exact amount is spent for productivity. Marginal costing includes factory overheads that do not include a practical production process that includes direct labour and direct materials of different units.

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