Financial Management

Posts Tagged ‘accounting’

Types of tax shelters

Some tax shelters are questionable or even illegal:

• Offshore companies. Due to differing tax rates and legislation’s in each country, tax benefits can be exploited. Example: If Import Co. buys $1 of goods from India and sells for $3, Import Co. will pay tax on $2 of taxable income. However, tax benefits can be exploited if Import Co. is to setup an offshore subsidiary in the British Virgin Islands to buy the same goods for $1, sell the goods to Import Co. for $3 and sell it again in the domestic market for $3. This allows Import Co. to report taxable income of $0 (because it was purchased for $3 and sold for $3), thus paying no tax. While the subsidiary will have to pay tax on $2, the tax is payable to the tax authority of British Virgin Islands. Since the British Virgin Islands has a corporate tax rate of 0%, no taxes are payable.

• Financing arrangements. By paying unreasonably high interest rates to a related party, one may severely reduce the income of an investment (or even create a loss), but create a massive capital gain when one withdraws the investment. The tax benefit derives from the fact that capital gains are taxed at a lower rate than the normal investment income such as interest or dividend.

The flaws of these questionable tax shelters are usually that transactions were not reported at fair market value or the interest rate was too high or too low. In general, if the purpose of a transaction is to lower tax liabilities but otherwise have no economic value, and especially when arranged between related parties, such transactions are often viewed as unethical. The agency may re-evaluate the price, and will quickly neutralize any over tax benefits. However, such cases are difficult to prove. A soft drink from a vending machine can cost $1.00, but may also be bought in bulk for $0.25. To prove that the price is in fact unreasonable may turn out to be reasonably difficult itself.

In accounting, ‘appreciation of an asset is an increase in its value. In this sense it is the reverse of depreciation, which measures the fall in value of assets over their normal life-time. Generally, the term is reserved for property or, more specifically, land and buildings.

Applied to a currency, appreciation is a rise of its value in a floating exchange rate.

In times of high inflation, appreciation of assets will be common to all balance sheet assets. In any viable modern economy, such property tends to increase in value over the years – if only because of the scarcity of usable land forces its price in a competitive situation. However, this belief has often caused speculative bubbles to arise.

There are considerable difficulties in assessing the increase in value of any particular asset. This is principally because of the variety of interpretations that can be attached to the concept of value itself, as well as the various instruments and methods used in the valuation process.

Management and corporate governance

When we speak of the management and administration we refer to a social science that studies, how it organizes and manages a business, how to manage the resources with which account, the processes through which it passes and the results of their activities.

This study is also based on financial and administrative sciences also undertakes accounting, marketing, corporate finance and strategic management. In short, to complete the definition, we can say that the management and administration are part of the legal branch of law is also the foundation of all operating within an enterprise.

However we must emphasize that innovations such as the size of the numbers V and fifteenth centuries as well as with the emergence of accounting in 1490 gave to the profession with the tools to make planning and control of the organization in a way you could say almost scientific.

However, many people who still think in the management and financial management as a modern discipline that was beginning in the nineteenth century and twentieth-century management and administration began an evolution as organizations grew and becoming increasingly complex.

The role of a person who directs the management and administration of finances of a company is very varied, as they always depend on the level at which it is situated.

The more you worry about knowing or learning how tasks are executed, will be better prepared to act on an operational level of the company in charge and everything else to handle development of new concepts, more training will have to work on institutional level of the company.

A person responsible for management and administration should have full knowledge of how to prepare a cost estimate, or prevention of sales, as well as you understand how an organization is constructed, as we read a balance and above all things is produced and developed the planning of the production control of the company, among other things.

This knowledge is extremely valuable for the management and administration, however the most important and fundamental is the question as to how they should be used and under what circumstances to apply properly. The title is required to reach this status is college-level work and although many think it is a master, the truth is that this title is the degree in management and business administration.

The scope of the title is based on the organization of human and material resources, and above all the correcting and preventing errors in management and business administration.