The Nature and Development of Criminal Law

The criminal law is a body of rules listing the various criminal offences, identifying the ingredients there of (including common elements such as general defenses) and specifying the potential punishment.

For instance, the criminal law tells us that, amongst others, rape and theft are crimes; it tells us exactly what the elements of these offences are and what potential punishments they carry.

The list of crimes (in the sense of wrongdoing punished by the community) in early law was extremely short, and included as major offences witchcraft and incest.

For offences such as homicide, wounding, rape, theft etc., the only remedy in primitive law was self-help.

As society developed, self-help was replaced by a system of enforced payment of compensation. The harmed victim, or his kin, was entitled to compensation from the wrongdoer. Such offences were thus not perceived as public wrongs affecting society as a whole. Only the victim or his
kindred had sustained a loss and was entitled to have this loss made good.

The community at large did however have some interest in such forms of wrongdoing. Even in Anglo-Saxon times severe punishments were meted out against offenders who were unwilling or unable to compensate. By the end of the twelfth century it had been realized that such wrongdoing had implications beyond the simple harm sustained by the victim.
First the wider community and then the king began to assume responsibility for criminal justice. Those who had broken the ‘king’s peace’ were brought before the king’s judges who were itinerant justices. The charges were laid on behalf of the community by a ‘grand jury’. Punishments were imposed that did not involve compensation to the victim. In short, the criminal law began to assume one of its most distinctive features, namely, that it is concerned with public wrongs.

A crime is a public wrong in the sense that the public at large is affected by it. The community is threatened or offended by the crime. For example, the crime of rape does more than harm the victim. Society is threatened and made less secure by the rape: the rapist could strike again. Accordingly, society is not prepared to leave the matter to the victim to seek compensation. Rape is made a crime and society attempts to apprehend the rapist and secure his punishment.

Two related features dominated the early criminal law.

  1. Most offences were extremely broad, covering a wide range of wrongdoings. For instance, there was only one homicide offence, the present distinction between murder and manslaughter coming into existence only in the fifteenth century.
  2. Until the end of the twelfth century it appears that the criminal law was primarily interested in the amount of harm done. Man was punished not because he was blameworthy but because he was an instrument of harm. Such thinking led some primitive laws to punish all instruments of harm.

Thus animals could be executed and axes burned. They, and the man who used them, were tainted with evil. Such thinking is still with us today to a certain extent. For instance, if a carving knife were used in a murder we would all regard as distinctly odd (to put it mildly) the man who knowingly used that knife to carve his Sunday roast!

Sources of the Criminal Law (II)

Continental Countries

The nations of western Europe entered the modern period with a corpus of criminal jurisprudence reflecting the varying influences of Roman law, canon law and local custom. The law that so evolved was notable for its harshness and its arbitrary qualities, and few protections to accused persons were provided. Reform of the criminal law thus became an important objective of liberal reform. As early as 1532 Charles V promulgated the Constitutio Criminalis Carolina for the whole of the Holy Roman Empire. Austria produced two famous codes in the 18th century:

  • Constitutio criminalis Theresiana of 1769
  • Emperor Joseph II’s code of 1787.

By far the most important enactments in the history of modern European criminal law were the two Napoleonic codes, the Code of Instruction Criminelle of 1808 and the Code Penal of 1810. The first was finally replaced in 1958 by the Code de Procedure Criminelle, but the latter, although substantially revised in 1832 and in 1863 and frequently amended at other times, has never been repealed. The Code Penal constituted the leading model for European criminal legislation throughout the first half of the 19th century. Thereafter its influence waned, although it continued to play an important role in the legislation of certain Latin-American and middle eastern countries.

The German codes of 1871 (penal code) and 1879 (procedure) provided the models for many central European countries, and have had significant influence in Japan and South Korea. The Italian codes of 1930 represent one of the most interesting legislative efforts in the modern period.
Since World War II notable undertakings include the code of procedure of 1950 and the penal code of 1957 adopted by the German Federal Republic and the Yugoslav criminal code of 1951.

Comparisons between the systems of penal law developed in the western European countries and those having their historical origins in the English common law must be stated cautiously. As already noted, substantial variations exist even among the nations that adhere generally to the Anglo-American system or to the law derived from the French and German codes. However, in many respects the similarities of the criminal law in all states are more important than the differences.
Certain forms of behavior such as those identified in Anglo-American law as murder, aggravated assault, robbery, and theft are everywhere condemned by the law. In matters of mitigation and justification the continental law tends to be more explicit and articulate than the Anglo-American law, although modem legislation in countries adhering to the latter are reducing these differences. Contrasts can be drawn between the procedures of the two systems, yet even here a common effort to provide fair proceedings for the accused and protection for basic social interests
is expressed.

Other Countries

There are almost infinite variations in matters of substance and detail in the law of the countries of Africa and Asia. Some of these nations possess highly sophisticated bodies of law such as those in the country of India. The penal law of many of the new nations of Africa and Asia still bears the imprint of the principles and institutions established by the colonizing powers, and hence continues to feel the influence of the continental codes in some instances, and of Anglo-American law in others. In many of these countries, however, the law developed by the colonizing power varied significantly from that administered by the mother country. The amalgam is further complicated by a great verify of local factors such as religious beliefs, ideological commitments, tribal customs, and the extent to which a trained bench and bar have emerged.

In many of the new nations political instability inhibits the development of advanced systems of criminal justice that provide adequate procedural protections, especially to those accused or suspected of political crimes. In some instances, however, measures like the Preventive Detention act, 1958, in Ghana are similar to legislation that had earlier been applied in British India. Because in many respects the penal law is closely associated with the exercise of governmental power, evolution of the law in the new nations and countries like Communist China will depend on the nature of political developments in those nations.

Criminal Law

Criminal law may be broadly conceived as that body of law which defines criminal offenses, establishes procedures for the apprehension, charging, and trial of suspected offenders and which fixes penalties and modes of treatment applicable to convicted offenders. All organized societies display a body of rules, no-fins or
customs tending to protect the security of individual interests and the survival of the group. The distinction between the criminal law and other forms of social control, however, is ordinarily not sharply drawn in primitive societies. Even in modern Anglo-American law the distinction between criminal law and tort law defies wholly satisfactory definition.

Crime scene in Criminal law

For most practical purposes, however, it is sufficient to say that a tort is a private injury and that the purpose of a tort suit is primarily to obtain compensation from the wrongdoer for injuries sustained by the victim. A crime, on the other hand, even though it may (and ordinarily does) involve injury to some individual, is conceived as an offense against the state and is punishable as such.

Thus the same conduct may render the actor liable in tort to make compensation to the victim for injuries inflicted and, at the same time, answerable to the state in a criminal proceeding. Tort law and criminal law may
also be distinguished by the procedures employed and the sanctions imposed.

Sources of the Criminal Law (I)

  1. England

    • The modern criminal law of England and of the United States derives from the English common law of crimes. This body of law had its origins in judicial decisions which, by the middle of the 13th century, were applied throughout the realm and were thus ‘common’ to it. Even in the medieval period, however, legislation played an important role in the development of the English law of crimes. In some instances, legislation was confined to matters of procedure or the stipulation of penalties, leaving definition of the elements of the offenses to judicial precedents. Thus, as late as the 1960s there was no statutory definition of murder in English law. Even the Homicide act, 1957, confined itself to such matters as eliminating certain types of conduct from earlier judicial definitions of murder and specifying the types of murder punishable by death. in other instances, however, parliament has created offenses wholly unknown to the common law.
      Examples include the embezzlement acts of the 18th century and the spate of statutory offenses enacted in increasing numbers since the first quarter of the eight century to achieve objectives of economic regulation or public welfare. England has consistently rejected all efforts towards comprehensive legislative codification ‘of its criminal law, even though the movement for codification has been supported by the prestige of such names as Jeremy Bentham and Sir James F. Stephen.
  2. United States

    • . Although the criminal law of the United States clearly reveals its derivation from the English common law, the adoption of the common law was neither complete nor uniform in the American colonies. The early criminal legislation of Massachusetts, for example, was little influenced by English precedents, being derived in major part from old Testament sources. In Newyork, the influence of English precedents was earlier and more strongly felt. The famous ‘Quaker code’ brought by William Penn to Pennsylvania and Delaware in the closing years of the 17th century was remarkable for its leniency in that only one capital offense, murder, was recognized. Although Penn’s code was operative for only a short period, it is important as anticipating by over a century the humanitarian impulses later reflected in the Anglo-American law.

Throughout the 18th century an increasing number of lawyers trained in the English law practiced in the colonies, and their influence strongly supported recognition of common-law principles by colonial courts and legislatures. By the time Sir William Blackstone’s Commentaries were published (1765-69), the common law of crimes was generally adopted. After the American Revolution, the states incorporated into their law the English common law as it existed prior to a specified date (either 1607, when the settlement at Jamestown was founded, or 1776, the date of the Declaration of Independence). The adoption of the common law was made subject to the constitution of the United States and of the particular state and only insofar as compatible with the conditions of the new nation. These limitations encouraged the rejection of certain archaic feature of the common law of crime, particularly those relating to outmoded and degrading forms of punishment.


International Accounting Standards

IFRS Standards

IFRS1: First-time adoption of international financial reporting standards
IFRS2: Share-based payment
IFRS3: Business combinations
IFRS4: lnsurance contracts
IFRS5: Non-current assets held for sale and discontinued operations
IFRS6: Exploration and production assets for energy and utilities
IFRS7: Financial instruments: disclosures

IAS Standards

IAS1: Presentation of financial statements
IAS2: lnventories
IAS7: Cash flow statements
IAS8: Accounting policies, changes in accounting estimates and errors

IAS10: Events after the balance sheet date
IAS11: Construction contracts
IAS12: lncome taxes
IAS14: Segmentreporting
IAS16: Property, plant and equipment
IAS17: Leases
IAS18: Revenue
IAS19: Employee benefits
IAS20: Accounting for government grants and disclosure of government assistance
IAS21: The effect of changes in foreign exchange rates
IAS23: Borrowing costs
IAS24: Related party disclosures
IA526: Accounting and reporting by retirement benefit plars
IAS27: Consolidated and separate financial statements
IAS28: investments in associates
IAS29: Financial reporting in hyper-inflationary economies
IAS30: Disclosures in the financial statements of banks and similar financial institutions
IAS31: interests in joint ventures
IAS32: Financial instruments: disclosure and presentation
IAS33: Earnings per share
IAS34: Interim financial reporting
IAS36: impairment of assets
IAS37: Provisions, contingent liabilities and contingent assets
IAS38: Intangible assets
IAS39: Financial instruments: recognition and measurement
IAS40: Investment property
IAS41: Agriculture


Accounting standards in UK

Standard Accounting Practice

Standards issued up to 1 August 1990 are known as Statements of Standard Accounting Practice (SSAP).
SSAP4: The accounting treatment of government grants
SSAP5: Accounting for value added tax
SSAP9: Stocks and long-term contracts
SSAP13: Accounting for research and development
SSAP17: Accounting for post-balance sheet events
SSAP19: Accounting for investment properties
SSAP20: Foreign currency translation
SSAP21: Accounting for leases and hire purchase contracts
SSAP25: Segmental reporting

FRSSE: Financial Reporting Standard for Smaller Entities

Financial Reporting Standards

Standards issued after 1 August 1990 are known as Financial Reporting Standards (FRS).

FRS1: Cash flow statements (Revised)
FRS2: Accounting for subsidiary undertakings
FRS3: Reportingfinancialperformance
FRS4: Capital instruments
FRS5: Reporting the substance of transactions
FRS6: Acquisitions and mergers
FRS7: Fair values in acquisition accounting
FRS8: Related party disclosures
FRS9: Associates and joint ventures
FRS10: Goodwill and intangible assets
FRS11: Impairment of fixed assets and goodwill
FRS12: Provisions, contingent liabilities and contingent assets
FRS13: Derivatives and other financial instruments: disclosures
FRS14: Earnings per share
FRS15: Tangible fixed assets
FRS16: Current taxation
FRS17: Retirement benefits
FRS18: Accounting policies
FRS19: Deferred tax
FRS20: Share-basedpayment
FRS21: Events afterthe balance sheet date
FRS22: Earnings per share
FRS23: The effects of changes in foreign exchange rates
FRS24: Financial reporting in hyperinflationary economies
FRS25: Financial lnstruments: Disclosure and Presentation
FRS26: Financial lnstruments: Measurement
FRS27: Life Assurance
FRS28: Corresponding amounts
FRS29: Financial instruments: disclosures

Accounting software for jewellery shop

Jewellery shops (Jewelry) have big amount of trading in money and small amount of item size !. any small mistake in amount of product could have bad results and loss in shops. 

Free accounting software for Jewelry shops

Accounting software for jewellery

You can use iGreen accounting software for your jewellery shops for free. Lite version of iGreen accounting is free of charges and it includes invoicing, purchase, items reports, inventory reports, income statement and SOA (statement of account) report.

Example of invoice for jewellery

As you see here, in iGreen accounting software, we add a diamond ring with photo in inventory list. Also you can zoom-in and zoom-out to check details of ring. Then we post a purchase 10 pcs of ring for $4100 and then we issued an invoice of one ring for $5400. at the end of test, we click on stock report and as you see in the last screenshot it shows us that we got $1300 profit for sales of one ring


Jewellery accounting, Inventory of Ring
Inventory of Ring


Jewellery accounting, Inventory of Ring - zoom-in
Inventory of Ring – zoom-in


Purchase of ring in jewellery accounting software, iGreen
Purchase of ring in iGreen


Invoice issue of ring in jewellery accounting software, iGreen
Invoice of ring in iGreen
Stock report of ring in jewellery accounting software, iGreen
Stock report of ring with profit and loss statement

In this photo, you can see an easy to understand report of profit of sales. so that, iGreen accounting could be use for jewellery shops for free and very easy to understand

Please click here To download iGreen accounting software


Direct costs Vs indirect costs

Sometimes, direct costs are treated as indirect because tracing costs directly to the cost object is not cost effective. For example, the nails used to manufacture a particular desk can be identified specifically with the desk, but, because the cost is likely to be insignificant, the expense of tracing such items does not justify the possible benefits from calculating more accurate product costs.

The distinction between direct and indirect costs also depends on the cost object

A cost can be treated as direct for one cost object but indirect in respect of another. if the cost object is the cost of using different distribution channels, then the rental of warehouses and the salaries of storekeepers will be regarded as direct for each distribution channel. Also consider a supervisor's salary in a maintenance department of a manufacturing company. if the cost object is the maintenance department, then the salary is a direct cost. However, if the cost object is the product, both the warehouse rental and the salaries of the storekeepers and the supervisor will be an indirect cost because these costs cannot be specifically identified with the product.


Assigning direct costs to cost objects


Direct costs can be traced easily and accurately to a cost object. For example, where products are the cost object,

Direct costs in cost assignment
Direct costs

direct materials and labour used can be physically identified with the different products that an organization produces. Therefore it is a simple process to establish an information technology system that records the quantity and cost of direct labour and material resources used to produce specific products.


Assigning indirect costs to cost objects


In contrast, indirect costs cannot be traced to cost objects. Instead, an estimate must be made of the resources consumed by cost objects using cost allocation. A cost allocation is the process of assigning costs when a direct measure does not exist for the quantity of resources consumed by a particular cost object Cost allocations involve the use of surrogate rather than direct measures. 



For example, consider an activity such as receiving incoming materials. Assuming that the cost of receiving materials is strongly influenced by the number of receipts then costs can be allocated to products (i.e. the cost object) based on the number of material receipts each product requires.

Prices raw materials in cost accounrting

If 20% of the total number of receipts for a period were required for a particular product then 20% of the total costs of receiving incoming materials would be allocated to that product.

Assuming that the product was discontinued, and not replaced, we would expect action to be taken to reduce the resources required for receiving materials by 20%.

in the above illustration the surrogate allocation measure is assumed to be a significant determinant of the cost of receiving incoming materials. You should note that only direct costs can be accurately assigned to cost objects.

The more direct costs that can be traced to a cost object, the more accurate is the cost assignment.

Direct and Indirect Costs

Costs that are assigned to cost objects can be divided into two broad categories Direct and Indirect costs. Both categories can be further divided into direct and indirect material costs, and direct and indirect labour costs Each of these categories is discussed in the following sections.

Direct Materials

Direct materials represent those material costs that can be specifically and exclusively identified with a particular cost object. Where the production of products or the provision of services represent the cost object, the cost of direct materials can be directly charged to the products or services because physical observation can be used to measure
the quantity consumed by each individual product or service. in other words, direct materials become part of a physical product or are used in providing a service. For example, wood used in the manufacture of different types of furniture can be directly identified with each specific type of furniture such as chairs, tables and bookcases.

Direct Labour

As with direct materials. direct labour costs represent those labour costs that can be specifically and exclusively identified with a particular cost object Physical observation can be used to measure the quantity of labour used to produce a specific product or provide a service. The direct labour cost in producing a product includes the cost of
converting the raw materials into a product, such as the workers on an assembly line at Nissan Cars or machine operatives engaged in the production process in the manufacture of televisions. The direct labour cost used to provide a service includes the labour costs in providing a service that can be specifically identified with an individual client in a firm of accountants or the labour costs that can be identified with a specific repair in a firm that repairs computers.

Indirect costs

Indirect costs cannot be identified specifically and exclusively with a given cost object. They consist of indirect labour, materials and expenses. Where products are the cost object the wages of all employees whose time cannot be identified with a specific product represent Examples include the labour cost of staff employed in
the maintenance and repair of production equipment and staff employed in the stores department. The cost of materials used to repair machinery cannot be identified with a specific product and can therefore be classified as Examples of indirect expenses, where products or the provision of a service are the cost objects, include lighting and heating expenses and property taxes. These costs cannot be specifically identified with a particular product or service


The term overheads is widely used instead of indirect costs. In a manufacturing organization overhead costs are categorized as either manufacturing administration and marketing (or selling) overheads include all the costs oi
manufacturing apart from direct labour and material costs. Administrative overheads consist of all costs associated with the general administration of the organization that cannot be assigned to either manufacturing, marketing or distribution overheads.

Examples of overheads

  • Top-executive salaries costs
  • General accounting costs
  • Secretarial costs
  • Research and development costs

Those costs that are necessary to market and distribute a product or service are categorized as marketing (selling) costs. These costs are also known as order-getting and order-filling costs. Examples of marketing costs include advertising sales personnel salaries/commissions, warehousing and delivery transportation costs.

non-manufacturing and Manufacturing costs
non-manufacturing and Manufacturing costs

This image illustrates the various classifications of manufacturing and non-manufacturing costs. You will see from this figure that two further classifications of manufacturing costs are sometimes used. consists of all direct manufacturing costs (i.e. it is the sum of direct material and direct labour costs) is the sum of direct labour and manufacturing overhead costs. It represents the cost of converting raw materials into finished products.

Next Page: Direct Costs VS Indirect Costs

Back to page: Cost Term and Concepts

Cost Terms and Concepts

Accounting information systems measure costs that are used for different purposes i.e profit measurement and inventory valuation, decision-making, performance measurement and control. Therefore different types of costs are used in different situations. Because the term ‘cost’ has multiple meanings, a preceding term must be added to clarify the assumptions that underlie a cost measurement. A large terminology has emerged to indicate which cost meaning is being conveyed. Examples include variable cost, fixed cost, opportunity cost and sunk cost. First step to understanding of the basic cost terms and concepts that are used in the management accounting literature.


A cost objects is any activity for which a separate measurement of costs is desired. in other words, if the users of accounting information want to know the cost of something, this something is called a cost object.

Examples of cost objects

  • cost of a product
  • cost of rendering a service to a bank customer
  • cost of rendering a service to a hospital patient
  • cost of operating a particular department or sales territory

Anything for which one wants to measure the cost of resources used.

Cost accounts will be classified them into type of expense (e g. direct labor, direct materials and indirect costs) or by cost behavior (such as fixed and variable costs) and then assigns these costs to cost objects.

Please Read More: Direct Costs, Indirect Costs

Absorption costing system

Below image provides an overview of the cost assignment process for an absorption costing system, The term cost tracing is used in this photo to denote the fact that direct costs can be specifically and exclusively identified with a particular cost object.
cost absorption in cost assignment

Cost assignment merely involves the implementation of suitable data processing procedures that identify
and record those resources that can be specifically and exclusively identified with a particular cost object. above image also shows that indirect costs are assigned to cost objects using cost allocations. To illustrate a cost allocation, consider an activity such as receiving incoming materials. Assuming that the cost of receiving materials is strongly
influenced by the number of receipts, then costs can be allocated to products (i.e. the cost object) based on the number of material receipts each product requires if 20 per cent of the total number of receipts for a period were required for a particular product then 20 per cent of the total costs of receiving incoming materials would be allocated to that product.
Assuming that the product was discontinued, and not replaced we would expect action to be taken to reduce the resources required for receiving materials by 20 per cent.

in the above illustration the allocation base is assumed to be a significant determinant of the cost of receiving incoming materials. Where allocation bases are significant determinants of the costs we shall describe them as cause-and-effect allocations Where a cost allocation base is used that is not a significant determinant of its cost the term arbitrary allocation will be used.

Arbitrary Allocation Example

An example of an arbitrary allocation would be if direct labor hours were used as the allocation base to allocate the costs of materials receiving.
if a labor-intensive product required a large proportion of direct labor hours (say 30 per cent) but few material receipts it would be allocated with a large proportion of the costs of material receiving. The allocation would be an inaccurate assignment of the resources consumed by the product. Furthermore if the product were discontinued, and not replaced, the cost of the material receiving activity would not decline by 30 per cent because the allocation base is not a significant determinant of the costs of the materials receiving activity Arbitrary allocations are therefore likely to result in inaccurate allocations of indirect costs to cost objects, For the accurate assignment of indirect costs,
cause-and-effect allocations should be used.

Above image identifies two types of absorption costing systems that can be used to assign indirect costs to cost objects.

  1. Traditional costing systems
    • Traditional costing systems were developed in the early 1900s and are still widely used today They rely extensively on arbitrary cost allocations
  2. Activity-based costing (ABC) systems
    • ABC systems only emerged in the late 1980s. One of the major aims of ABC systems is to use only cause-and-effect cost allocations. Both cost systems adopt identical approaches to assigning direct costs to cost objects. 

How to write a cash book

Cash trading is one the most used method in shops and discount centers. to keep a cash book updated and write a cash book in true format, you need details of cash flow.

When Cash receives from customer, it will be added to cash account with amount of it in Debit column

When Cash be paid to Vendors, it will be added to cash account with amount of it in Credit column

Example of a cash flow statement with iGreen
Example of a cash flow

Under view of accounting concepts, when you receive cash, cash will be debit and capital will be credit and vise versa.

if you want to have automated cash book from your invoices, so you need to use an accounting software but if you are using paper system, so that you should be careful to do not make a mistake in writing voucher in right place in ledger book.


Tools Shops in Dubai

in Dubai, tools shops usually sell tools like:


Brands of these tools commonly are from Bush, BlackandDecker, Siemens, …

Coast Tools

Dubai coast shop in Dubai
Dubai coast shop



What is Management Accounting

The Role of Management Accounting Management accounting:  ( defined by the National Association of Accountants (NAA))

( The process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial information, which is used by management to plan, evaluate, and control within an organization. )

It ensures the appropriate use of and accountability for an organizations resources. Management accounting also
comprises the responsibility for the preparation of financial reports for non management groups such as regulatory agencies and tax authorities. Simply stated, management accounting is the accounting for the planning, control, and
decision-making activities of an organization. Financial Accounting vs.
Management Accounting Financial accounting is mainly concerned with the historical aspects of external reporting, that is, providing financial information to outside parties such as investors, creditors, and governments. To protect those outside parties from being misled, financial accounting is governed by what are called generally accepted accounting principles (GAAP).
Management accounting, on the other hand, is concerned primarily with providing information to internal managers who are charged with planning and controlling the operations of the firm and making a variety of management decisions. Due to its internal use, management accounting is not subject to GAAP.

Financial accounting vs Management accounting

Financial Accounting

  1. Provides data for external users
  2. Is
    required by the law
  3. Is subject to GAAP
  4. Must generate accurate and timely
  5. Emphasizes the past
  6. Looks at the business as a whole
  7. Primarily
    stands by itself


Management Accounting

  1. Provides data for internal users
  2. Is
    not mandatory by law
  3. Is not subject to GAAP
  4. Emphasizes relevance and
    flexibility of data
  5. Has more emphasis on the future
  6. Focuses on parts as
    well as on the whole of a business
  7. Draws heavily from other disciplines such
    as finance, economics, and operations research
  8. Is a means to an end 8. Is an
    end in itself?


Cost Accounting vs. Management Accounting

The difference between cost accounting and management accounting is a subtle one. The NAA defines cost
accounting as a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and in detail. It includes methods for recognizing, classifying,
allocating, aggregating, and reporting such costs and comparing them with standard costs. From this definition of cost accounting and the NAAs definition of management accounting,

one thing is clear: The major function of cost accounting is cost accumulation for inventory valuation and income determination.

Management accounting, however, emphasizes the use of the cost data for planning, control, and decision-making purposes.

Classification of Management Performs

Planning The planning
function of management involves the selection of long-range and short-term
objectives and the drawing up of strategic plans to achieve those objectives.
Coordinating In performing the coordination function, management must decide how best to put
together the firms resources in order to carry out established plans.
Controlling Controlling entails the implementation of a decision method and the use of
feedback so that the firms goals and specific strategic plans are optimally
Decision making Decision making is the purposeful selection from among a set of alternatives in
light of a given objective. Management accounting information is important in
performing all of the aforementioned functions.


Organizational Aspect of Management Accounting

There are two types of authorities in the organizational structure:

Line Line authority is the authority to give orders to subordinates. Line managers are responsible for attaining the goals set by the organization as efficiently as possible. Production and sales managers typically possess line authority.
Stuff Staff authority is the authority to give advice, support, and service to line departments. Staff managers do not command others. Examples of staff authority are found in personnel, purchasing, engineering, and finance.

The management accounting function is usually a staff function with responsibility for providing line managers and also other staff people with a specialized service. The service includes:

  • Budgeting
  • Controlling
  • Pricing
  • Special decisions.

Controller-ship The chief management accountant or the chief accounting executive of an organizations called the controller (often called comptroller, especially in the government sector.) The controller is in charge of the accounting department. The controllers authority is basically staff authority in that the controllers office gives advice and service to other departments. But at the same title, the controller has line authority over members of his or her own department such as internal auditors, bookkeepers, budge! analysts, etc.

The principal functions of the controller are:

  1. Planning for control
  2. Financial reporting and interpreting
  3. Tax administration
  4. Management audits, development of accounting systems, and computer data processing
  5.  Internal audits

The Certificate in Management Accounting (CMA) Management accounting has expanded in scope to cover a wide
variety of business disciplines such as finance, economics, organizational behavior, and quantitative methods.

In line with this development, the National Association of Accountants (NAA) has created the Institute of Management Accounting, which offers a program leading to the Certificate in Management Accounting (CMA).

The CMA program requires candidates to pass a series of uniform examinations covering a wide range of subjects. The objectives of the program are threefold:

  1. to establish management accounting as a recognized profession,
  2. to foster higher educational standards in the area of management accounting
  3. to establish objective measurement of an individuals knowledge and competence in the area of management accounting.

The importance of bookkeeping

All businesses, without exception, need to keep accurate and readily accessible records of their financial transactions.
Many organizations other than businesses also need to do it, and some individuals too. As a child I had a neighbor who died at the age of 75 leaving records that accounted for every penny of his income and expenditure since his 21 st birthday.
Surprisingly he was a charming, generous man and in no way a miser. Perhaps you too have a personal bookkeeping system to record your own financial affairs, though I would not recommend taking it to these extreme lengths. The benefits to a business of dependable financial records are probably self-evident.

They include:

  • The law requires all companies and many other organizations to prepare accounts that conform with certain criteria. This can only be done if the basic, supporting financial records are in place. 
  • The tax authorities require it. If you do not believe me, try telling Her Majesty’s Revenue and Customs that you cannot do a VAT return because you have not kept proper records.
  • It is necessary to manage the bank account, cash and borrowing. Otherwise cheques might bounce or unproductive surpluses build up.
  • Intelligently used, the records should warn of impending financial difficulties or even insolvency.
  • Intelligently used, the records should provide the basis for efficiency savings and profitable business decisions.
  • Without proper bookkeeping the owners would not know the worth of the business.
  • It is, in many instances, essential in order to comply with money laundering regulations.

Examples of invoicing

The best way to learn an accounting software is to enter real invoices and vouchers in it.

Therefore, we will add different examples of invoice entry of sample businesses in Dubai, Oman and Qatar to show you how to do invoicing by iGreen accounting application.

Profit and Loss Report

When you record invoices of your business in iGreen accounting software, it will give you an easy to understanding report of profit and loss

As you see here, you can get total of profits of all your items and also you can control one by one of items.

In this example, we have two items in iGreen accounting. 1- water filter 2-vacuum cleaner

so, you can see sales profit of both items are AED 2800 that this amount is total of 1200 and 1600 .

Sales Profit of Water filter item and details of its invoices

Profit and Loss Report of water purifier item in iGreen

Sales Profit of Vacuum cleaner item and details of its invoices

Profit and Loss Report of Vacuum Cleaner item in iGreen

Note: in iGreen accounting, only administrator and manager can access and see profit and loss of invoices. when you create a user in iGreen accounting, you can select [admin] option for it or not.

Forex Positions

Online market of currencies or Forex is very sensitive to any politics changes. an eCommerce with high risk to loss your investments in market very easy. So it need study very carefully !

we will update it about our analyses when to buy or sell EURUSD , JPNUSD and GBPUSD

when to buy or sell in forex with human analyses

Forex signal of this week

  • Macron seems is the winner of France election 2018, so it is time of buy Euro to get a magic position ! And the most profit but don’t forget buy it with lader movement to avoid loss of USA snake movement  ( it will protect your investment more )
  • This week at the first of week sell is the best strategy
  • From middle of week, buy is the best strategy to get profit


Expense Entry Software for Dubai

In any business, Gross income is the main statement for taxation but to know net income, you need to reduce expenses from it, with a perfect expense entry software you can reach net income easily.

There are many software in Dubai markets and you can use them for journal entry of expenses. here we will show you how to use iGreen accounting for expense entry with the easiest way without need to separate journal entry of it (iGreen will post standard journal of expense entry automatically)

How to do expense entry in iGreen

Step 1: Download iGreen accounting software from its link provided in the end of this page and install it

Step 2: in home screen of iGreen, you will see a button as name “Expense Entry”

Expense entry, Step 1 in iGreen
Expense Entry menu

Step 3: Click on “Expense entry” button and you will see expense entry form as below:

Expense Entry Form in iGreen
Expense Entry form

Sample of Expense entry in iGreen

Sample of expense entry in iGreen
Sample of expense entry

Above photo is a sample entry of Cleaning expense as amount of USD 460.

Note: As you see you can change default credit account for this expense voucher and also you can change currency of this voucher easily by click on currency list in above of form


Download iGreen Accounting Software version

You can iGreen accounting software version as expense entry software for your business in Dubai.

Free accounting consultation in Dubai

There many business owners in Dubai that they need an honest guides to know how to order software and automate their business accounts department. so that, a free consultation of accounting in Dubai, could be a advantage for you to know what you need really for your accounts department.

Without a true consultation maybe there are many hidden charges along buying more than one software but without real usage and again re-use paper system for accounting.

Free Consultation

we have free consultation services to analyze and map your business into a routine of accounting software.

Before any purchase or order any accounting software, you can use our free consultation about accounting.

Steps of order a custom accounting software

  1. Our salesperson will talk to you about your business, he will check your financial transactions on papers and so that, he will adjust list of modules you need to enter your vouchers to get the best statements and reports.
  2. Our salesperson will calculate price of custom software and after agreement with you and your down payment, in one week, we will prepare a special version of iGreen accounting compatible with your business.
  3. It will be installed by our salesperson  or we will send its download link (if you have anybody to install the software)
  4. We will be beside you to help and guide you for recording your vouchers and invoices and we will check frequently your suggestion to optimize iGreen accounting as the best as you want.

Updates of software

We also adjust yearly main updates for iGreen accounting to suport you keep your business accounting’s modules updates regard accounting standard of economic department of United Arab Emirates’ government

To get started and get a free consultation, please click here to send a request to us

We will arrange a suitable time for you to have meeting with our salesperson in your office or company.

Note: Our consultation of accounting is free for Dubai location only. other location will be start with online meeting at the first and next meeting will arrange in Dubai by invite you.

Accounting Software Images

Screenshots and images of accounting software could help you to select an accounting software for your accounts department. With looking at images, you don't need to waste your time for installation of accounting software one by one. You can quickly look at screenshots of any accounting software to see what it offers you.

It is important to check what types of vouchers and invoices, you want to have in an accounting software. some of accounting programs are strong in manufacturing department but some of them are strong in shopping accounting. so that, it is not true if an accounting software is strong in another field could be strong in your accounts department.

Images of Quickbooks Accounting Software

Quickbooks accounting has been used widely in United state of America. it is a software product of Intuit software company.

Chart of Accounts in Quickbooks accounting
Quickbooks - Chart of Accounts
Customer payments in Quickbooks Accounting
Customer payments
Main screen of Quickbooks
Main screen of Quickbooks
Sales Invoice in Quickbooks
Invoice in Quickbooks

Images of Peachtree Accounting Software

Invoice entry form in Peachtree accounting software
Invoice entry form in Peachtree accounting software
Print of invoice in one the best accounting software - Peachtree
Print of invoice in one the best accounting software (Peachtree)
Peachtree accounting software - Main Screen
Main screen of Peachtree
Chart of Accounts in Peachtree accounting
Peachtree accounting - Chart of Accounts

Images of iGreen Accounting Software

The most important benefits of iGreen accounting are:

  • A real free accounting software
  • Unlimited levels in Chart of accounts
  • Tree-veiw chart of accounts
  • Tree-view list of items and goods
  • Unlimited photo of products
  • Multi-Currency

Inventory form in iGreen accounting software
Inventory form in iGreen accounting
iGreen Accounting Software V1.1.0.1
Main Screen
iGreen's chart of accounts
iGreen's chart of accounts
Journal Entry in version of iGreen
Journal Entry in version of iGreen accounting
Example of Cash payment in iGreen
Example of Cash payment in iGreen
Report of client cash payment in iGreen
Report of client cash payment in iGreen
Cash Receipt form in iGreen Accounting
Cash Receipt form in iGreen Accounting

New Images

All images of these accounting software have been taken from real accounting software

Node 4253 in BPR Model

The example demonstrated here illustrates opportunities for using e-business in construction processes. The example Node .4253 described is that of an innovative procurement process. Node 4253 incorporates the concept of using I-components for the door ordering process.
The process of selecting a product supplier (in this case the door supplier) requires input from the client brief, door detail drawings and documents, such as door specifications (see Figure 3.3). Typically, the first step involves accessing the door supplier’s database using the IC. This database is an online interactive database of the door supplier’s services
and all product (i.e. door) information. The suppliers can maintain their product and service data online to ensure that only accurate and most up-to-date information is available. Using the IC search engine, the user can search for relevant door information that meets the required product specifications. For example, a search for a specific door type will list the door suppliers whose products match the door specified.

Supplier Products Database in BPR

The user can use these search results to compare the different door suppliers using criteria such as cost, quality, availability, delivery time, etc. Following the comparison process the user can shortlist door suppliers. Using the IC, the
user can view online catalogs of shortlisted door supplier’s Web pages and issue tenders by invitation to these door suppliers. Once the tenders are analysed, the door supplier can then be selected. This entire process, being electronic, can be documented to form a part of the project audit trail document.
Suppliers who advertise products on the IC can update product information regularly. Typically, this information may include product specifications that are defined by the product class, the cost of the product, its availability and quality assurance.

For a given product, the typical classification can include product dimensions, finishes, physical properties, its chemical composition and its use. The information stored on such a system will not only be of use to the company that supplies the product, but also the end-user who can access accurate, updated product information as and when required. For example, the quantity surveyor (QS) can have a better chance of producing an accurate schedule of elements that are required in the construction project itself and he/she can obtain input for the bill of quantities straight from the supplier’s database. The door (product) suppliers would benefit from such electronic business transactions as it helps maintain a record of door orders and thus enables better management of product inventory.
Furthermore, product sales can be improved by monitoring and coordinating the sales inventory and financial data. Such data can help the management with a complete picture of the company/s operations on a day-to-day basis. Suppliers can also access product and order information to establish sales figures and product popularity in terms of which product appeals to the users and why?

The re-engineered business process described here highlights opportunities for using innovative e-business tools within the construction process and the possible business benefits to different stakeholder groups within the supply chain. In order to fully realize the potential of e-business, however, construction companies would have to radically alter traditional practices, especially the ways in which projects are managed and project partners collaborate and communicate with each other. Such changes need to be continually monitored and disseminated to inform late adopters of the impact of specific e-business applications on their end-user business processes.


Free Account Software Download Full Version

An account software usually will be used for double journal entry but accounting software will be used for sales and stock management.

In an account software, the first and the most important section is chart of accounts. advanced account software will let you to manage chart of accounts of your business very professionally but in a simple accounting software you only will see a simple list of accounts in chart of account form.

Here is a comparison of chart of accounts between Quickbooks, Peachtree and iGreen accounting

Chart of Accounts in iGreen accounting
iGreen accounting


Chart of Accounts in Peachtree accounting
Peachtree accounting – Chart of Accounts



Chart of Accounts in Quickbooks accounting
Quickbooks – Chart of Accounts


As you see in Quickbooks 2015 and Peachtree accounting, you will see a simple list of accounts and maximum 2 two levels of accounts is available but in iGreen accounting will see a tree-view of accounts and also you can add unlimited levels of accounts as you want.

Download Full version

You need a free account software now!, iGreen is free. To download iGreen accounting, please click on below link:

Download iGree accounting software, full version for windows 7
Download iGreen accounting software

The Concept of Net Present Value

By using discounted cash flow techniques and calculating present values, we can compare the return on an investment in capital projects with an alternative equal risk investment in securities traded in the financial market, Suppose a firm is considering four projects (all of which are risk-free) as shown in below photo. You can see that each of the projects is identical with the investment in the risk-free security shown in below photo because you can cash in this investment for $10,000 in year 1, $121,000 in year 2, $133,100 in year 3 and $146,410 in year 4. in other words your potential cash receipts from the risk-free security are identical to the net cash flows for projects A, B, C and D shown in below photo. Consequently, the firm should be indifferent as to whether it uses the funds to invest in the projects or invests the funds in securities of identical risk traded in the financial markets.

The most straightforward way of determining whether a project yields a return in excess of the alternative equal risk investment in traded securities is to calculate the net present value (NPV). This is the present value of the net cash inflows less the project’s initial investment outlay if the rate of return from the project is greater than the return from
an equivalent risk investment in securities traded in the financial market, the NPV will be positive. Alternatively, if the rate of return is lower, the NPV will be negative. A positive NPV therefore indicates that an investment should be accepted, while a negative value indicates that it should be rejected. A zero NPV calculation indicates that the firm should be indifferent to whether the project is accepted or rejected.


You can see that the present value of each of the projects shown in below photo is $100,000. You should now deduct the investment cost of $100,000 to calculate the project’s NPV. The NPV for each project is zero. The firm should therefore be indifferent to whether it accepts any of the projects or invests the funds in an equivalent risk-free security. This was our conclusion when we compared the cash flows of the projects with the investment in a risk-free security shown in below photo

Net Present Value
You can see that it is better for the firm to invest in any of the projects shown in Above photo if their initial investment outlays are less than e 100 000. This is because we have to pay $100,000 to obtain an equivalent stream of cash flows from a security traded in the financial markets. Conversely, we should reject the investment in the projects if their
initial investment outlays are greater than 1100 000. You should now see that the NPV rule leads to a direct comparison of a project with an equivalent risk security traded in the financial market Given that the present value of the net cash inf lows for each project is $100,000, their NPVs will be positive (thus signifying acceptance) if the initial
investment outlay is less than $100,000 and negative (thus signifying rejection) if the initial outlay is greater than $100,000.

Next Page: IRR (Internal Rate of Return)

Compounding and Discounting of FV

Our objective is to calculate and compare returns on an investment in a capital project with an alternative equal risk investment in securities traded in the financial markets. This comparison is made using a technique called discounted cash flow (DCF) analysis.
Because a DCF analysis is the opposite of the concept of compounding interest, we shall initially focus on compound interest calculations, Suppose you are investing $100 000 in a risk-free security yielding a return of 10 percent
payable at the end of each year. Below photo shows that if the interest is reinvested, your investment will accumulate to $146,410 by the end of year 4. Period 0 in the first column of photo means that no time has elapsed or the time is now, period 1 means one year later, and so on The values in photo can also be obtained by using the formula:

FVn= Vo(1 + K)n

Puzzle of Future Value (FV)

where FVn denotes the future value of an investment in n years, ( denotes the amount invested at the beginning of the period (year O), K denotes the rate of return on the investment and n denotes the number of years for which the money is invested.

The calculation for $100 000 invested at 10 percent for two years is: FV2= $100 000 (1 + 0.1O)2= $121,000

In photo, all of the year-end values are equal as far as the time value of money is concerned. For example, $121,000 received at the end of year 2 is equivalent to $100 000 received today and invested at 10 percent. Similarly, $133,100 received at the end of year 3 is equivalent to $121,000 received at the end of year 2, because $121,000 can be
invested at the end of year 2 to accumulate to $133,100. Unfortunately, none of the amounts are directly comparable at any singlie moment in time, because each amount is expressed at a different point in time.

When making capital investment decisions, we must convert cash inflows and outflows for different years into a common value. This is achieved by converting the cash f lows into their respective values at the same point in time Mathematically any point in time can be chosen, since all four figures in Exhibit 6.1 are equal to $100,000 at year 0,  $110,O0O at year 1 , $121,000 at year 2, and so on However, it is preferable to choose the point in time at which the decision is taken, and this is the present time or year O. All of the values in below photo can therefore be expressed in values at the present time (i e. present value) of $100,000.
The process of converting cash to be received in the future into a value at the present time by the use of an interest rate is termed discounting and the resulting present value is the discounted present value. Compounding is the opposite of discounting, because it is the future value of present value cash flows. Equation for calculating future values can be rearranged to produce the present value formula:

Vo (present vatue) = FVn / (1+ k)n

$100,000 at 10%, 4years
The Value of $100,000 invested at 10%, compounded annually, for 4 years

By applying this equation, the calculation for e 121 000 received at the end of year 2 can be expressed as

Present value = $121,000 / (1 + 0.10)2 = $100,000

You should now be aware that $1 received today is not equal to $1 received one year from today. No rational person will be equally satisfied with receiving $1 a year from now as opposed to receiving it today, because money received today can be used to earn interest over the ensuing year. Thus one year from now an investor can have the original
$1 plus one year’s interest on it. For example, if the interest rate rs 10 per cent each $1 invested now will yield $1.10 one year from now. That is $1 received today is equal to $1.10 one year from today at 10 percent interest Alternatively,$1 one year from today is equal to 10.9091 today, its present value because $0.9091, plus 10 per cent interest for one year amounts to $1. The concept that $1 received in the future is not equal to $1 received today is known as the time value of money.

We shall now consider four different methods of appraising capital investments: the net present value, internal rate of return, accounting rate of return and payback methods. We shall see that the first two methods take into account the time value of money whereas the accounting rate of return and payback methods ignore this factor.

Next Page: Net Present Value

Professionally Qualified Accountants

There are six institutions of professionally qualified accountants currently operating in the UK. All jealously guard their independence and the many attempts to merge over the past few years have all failed.

Chartered Professional Accountant

Chartered Professional Accountants

  1. institute of Chartered Accountants in England and Wales (ICAEW)
    • Generally auditing, financial accounting, management consultancy, insolvency and tax advice. However, many work in industry.
  2. institute of Chartered Accountants in Ireland ( lCAl)
    • Similar to ICAEW.
  3. institute of Chartered Accountants of Scotland (ICAS)
    • Similar to ICAEW.
  4. Association of Chartered Certified Accountants (ACCA)
    • Auditing, financial accounting, insolvency, management consultancy, and tax advice. Many train or work in industry.
  5. Chartered institute of Management Accountants (CIMA)
    • Management accounting
  6. Chartered institute of Public Finance and Accounting (CIPFA)
    • Accounting within the public sector and privatized industries.

ACCA:  The ACCA's members are not so easy to pigeonhole as the other professionally qualified accountants. They work both in public practice as auditors and as financial accountants. They also have an enormous number of overseas students. Many certified accountants train for their qualification in industry and never work in public practice.

CIMA: This is an important body whose members generally train and work in industry. They are found in almost every industry, ranging, for example, from coal mining to computing. They mainly perform the management accounting function.
CIPFA: This institute is smaller than the ICAEW, ACCA or CIMA. It is also much more specialized with its members typically working in the public sector or the newly privatized industries, such as Railtrack. CIPFA members perform a wide range of financial activities within these organisations, such as budgeting in local government.

Second-Tier Bodies

The main second-tier body in the UK is the Association of Accounting Technicians. This body was set up by the major professional accountancy bodies, Accounting technicians help professional accountants, often doing the more routine bookkeeping and costing activities.
Many accounting technicians go on to qualify as professional accountants. The different accountancy bodies, therefore, all perform different functions. Some work in companies, some in professional accountancy practices, some in the public sector.

Lay Priest

The accountant working for a company

Mendicant Priest

The professional accountant in a partnership

Monastic Priest

The banker, who, while not strictly an accountant, serves much the same ends in a separate and semi-isolated unit

Father Confessor

The auditing accountant to whom everything is (officially) revealed, and who then grants absolution.

Limitations of Accounting

Accounting, therefore, measures business transactions in numerical terms. It thus provides useful information for
managers and other users of accounts. It is, however. important to appreciate certain limitations of accounting.

  1. Accounting tends to measure the cost of past expenditures rather than the current value of assets.
  2. Traditional accounting does not capture non-financial aspects of business. Thus, if an industry pollutes the air or the water, this is not recorded in the conventional accounts. Nor does traditional accounting measure the human resources of a business or its knowledge and skills base. The accounts can' thus' only give a partial picture of a business's activities.

Accounting Firms in UK

Historical Cost Valuation in Real Life

The merits of historical cost accounting and the advantages and disadvantages of the competing alternative measurement systems have been debated vigorously for at least 40 years.  However,  with some rare exceptions,  most companies worldwide still use historical cost.  for example This is not to say that experimentation has not occurred in the Netherlands,  for a Philips,  one of the world’s leading companies,  used replacement cost generation.  Finally,  Philips abandoned replacement cost,  not because of replacement cost’s inadequacies,  but because of the failure of international financial analysts to understand Philips accounts.

Today,  there are still companies in the Netherlands,  such as Heineken,  which use replacement cost.  In the UK too,  there were a few companies,  usually ex-privatized utilities with extensive infrastructure assets,  such as British Gas,  which until recently used replacement costs.  In both the UK and the US in the 1970s,  there were serious attempts to replace historical cost accounting initially with current purchasing,  but later with current value accounting(a mixture of the three current value systems).

These methods were thought to be superior to historical cost accounting when dealing with inflation,  which was at that time quite high.  They were also believed to provide a more realistic valuation of company assets.  In the end these attempts failed.  The reasons for their failure were quite complex.  However,  in general,  accountants preferred the objectivity of a tried-and-tested,  if somewhat flawed,  historical cost system to the subjectivity of the new systems.  In addition,  rates of inflation fell.


Different measurement systems will give different figures in the accounts for profit and net assets.  The mostly widely used measurement system,  historical cost,  records and carries transactions in the accounts at their original amounts.  Historical cost,  however,  does not deal well with changes in asset values resulting from,  for example,  inflation.

Other Four Main Measurement Systems

  1. Current purchasing power adjusts historical cost for general changes in the purchasing power of money.
  2. Replacement cost records assets at the amounts needed to replace them with equivalent assets.
  3. Realizable value records assets at the amounts they would fetch in an orderly sale.
  4. Present value discounts future cash inflows to today’s monetary values.

Although historical cost is the backbone of the accounting measurement systems,  there are departures from it,  such as the valuation of stock at the lower of cost or realisable value.  In particular,  in the UK,  many companies revalue their fixed assets.

Historical Cost vs Replacement Cost

Historical cost

Historical cost has always been the most widely used measurement system. Essentially, transactions are recorded in the books of account at the date the transaction occurred.
This original cost is maintained in the books of account and not updated for any future changes in value that might occur.

An illustration

if we paid £5,000 for a building in 1980, this will be the cost that is shown in the balance sheet when we prepare our accounts in 2006. This is even when the building has increased in value to say £20,000 through inflation.
The depreciation will be based on the original value of the asset(i.e., f5,000 not t20,000)
The main strength of historical cost is that it is objective. In other words, you can objectively verify the original cost of the asset. You only need to refer to the original invoice. In addition, historical cost is very easy to use and to understand. Finally, historical cost enables businesses to keep track of their assets. There is, however, one crucial problem with historical cost. It uses a fixed monetary capital maintenance system, which does not take inflation into account. This failure to take into account changing prices can cause severe problems. In particular, as Soundbite 12.2 shows, it may not accurately value a company's worth Replacement

Historical Cost and Asset-Rich Companies

The balance sheets of asset-rich companies, such as banks,  may not reflect their true asset values,  if prepared under historical cost accounting.  Why do you think this might be?  f we take banks and building societies as examples of asset-rich companies,  these businesses have substantial amounts of prime location fixed assets occupy properties in central locations.  These properties were also often acquired many years indeed possibly centuries ago.  ago,  Using strict historical cost,  these buildings would be recorded in the balance sheet at very low amounts.  This is because over time money values have changed.  If a prime site was purchased for £1,000 in 1700 that might have been worth a lot then.  Today,  it might be worth say £400 million.  Thus,  fixed assets will be radically understated,  unless revalued.


Replacement Cost

Replacement cost attempts to place a realistic value on the assets of a company
It is concerned with maintaining the operating capacity of a business. Essentially, replacement cost asks the question:
what would it cost to replace the existing business assets with identical, equivalent assets at today's prices? Replacement cost is an alternative method of measuring the assets and profits of a business rather than principally a method of tackling inflation. In the Netherlands, replacement costing has been successfully used by many businesses, such as Heineken. As The Company Cam era 12.1 shows, Heineken values its tangible fixed assets at replacement cost based on expert valuation.  the problem for the Dutch is not I convincing rest of the world that it so much the difficulties of using replacement cost,  but of the is a worthwhile system.

Example of Replacement Cost

Replacement Cost in SmithX Tangible Fixed Assets(Property,  Plant and Equipment)

Except for land,  which is not depreciated,  tangible fixed assets are stated at replacement cost less accumulated depreciation.  The following average useful lives are used for depreciation purposes:

  • Buildings 30-40 years
  • Plant and equipment 10-30 years
  • Other fixed assets 5-10 years

The replacement cost is based on appraisals by internal and external experts,  taking into account technical and economic developments.  Other factors taken into account include the experience gained in the construction of breweries throughout the world.  Grants received respect of investments in tangible fixed assets are deducted from the amount of the investment.  Projects under construction are included at cost.

Read more: Historical Cost Valuation in Real Life