The dividend discount model is based on the theory that the price of a share should be equal to the present value of the future dividend payments. The dividend discount model is widely used as a method to value stocks and therefore companies. The dividend discount model is also referred as dividend valuation model, Gordon’s Growth Model or dividend growth model. Dividend Discount Model Formu... »
What is factoring Factoring is a contract where a company transfers or sells its accounts receivable balance (the debtors balance) to a factor, usually a specialized factoring provider. The topic is of particular importance when it comes to the accounting treatment of the transaction and whether the company should keep reporting the accounting receivables or whether they should be removed from the... »
Under both IFRS and GAAP, the capital expenditure can not be recognized as an expense when the asset is bought. It is considered as more appropriate to spread the cost of the asset over its useful life. Therefore, Accounting Standards allow companies to depreciate the assets they have bought over their useful life. This tutorial explains what depreciation is, why it is used, what are the depreciat... »
The first and the most important accounting lesson relates to the double entry system. It is vital to build the foundations and understand how the double entry systems works, what are the rules that you will need to follow to accurately record business transactions and to be able to build on that so you have develop the skills to exercise judgement when required. The double entry accounting system... »
The Accounting Rate of Return method is one of the most widely used techniques for investment appraisals and capital budgeting decisions. The accounting rate of return provides you with the return of the project which should be compared with the cost of raising capital to finance this project. In terms of reaching a decision, a simple method is to accept any project that has an accounting rate of ... »
While the majority of the goods or services sold are standardized, there might be cases where two companies might enter into a construction contract that is tailored to particular circumstances. IAS 11 provides a framework and sets the rules for the accounting treatment of construction contracts. Accounting for construction contracts IAS 11 sets very straightforward rules for revenue recognition w... »
A bad debt relates to amounts that are owed to us and for which we think there is a high chance that they will not be paid. Bad debts also relate to amounts that we consider as not recoverable anymore. For example, if one of our customers goes into liquidation, then our receivable (the asset) that we have on your balance sheet might have to be written off. It is important not to confuse the bad de... »