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Please the detailed notes on Finance & Accounting, request you to understand and prepare well so that you could crack
the various rounds of interviews
*
AR/AP*
LIFO *
FIFO *
Interest *
Dividend *
Mutual funds *
Types of derivatives *
Capital Market *
Hedging*
Additional Topics
Classification of Accounting, Key Accounting Concepts, Fundamental Accounting Assumptions, Accounting Policies
Types of Accounts, Double Entry system
Journal Entries, Posting to Ledger, Preparation of Trial Balance
Subsidiary Books
Rectification of Errors
Adjusting Entries
Bank Reconciliation
Inventory Valuation
Fixed Assets, Depreciation, Sale of assets
*Also Find the model test paper, balance sheet (Performa) &
other detailed topics.*
*Update your knowledge really well and get back to us, so that we could
schedule your interviews with the company officials. *
*Remember the interviews happen from Monday to Friday (any day) so please
reach our office before 12 noon so that we could finish with the entire
interview formalities and aptitude test the very same day!!*
Derivative
Hedging
What do we mean by the term Interest and how is it different from Dividend?
Depreciation
Balance Sheet
NOMINAL ACCOUNTS:
GAINS
DEBIT ALL EXPENSES AND LOSSES & CREDIT ALL INCOMES AND
Difference between Accounts Payable & Accounts Receivable with suitable examples?
Accounts Payable ("payables")
An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable
entry is found on a balance sheet under the heading current liabilities.
Accounts payable are often referred to as "payables".
Another common usage of AP refers to a business department or division that is responsible for making payments owed by
the company to suppliers and other creditors.
Accounts payable are debts that must be paid off within a given period of time in order to avoid default. For example, at the
corporate level, AP refers to short-term debt payments to suppliers and banks.
Payables are not limited to corporations. At the household level, people are also subject to bill payment for goods or
services provided to them by creditors. For example, the phone company, the gas company and the cable company are types
of creditors. Each one of these creditors provides a service first and then bills the customer after the fact. The payable
is essentially a short-term IOU from a customer to the creditor.
Each demands payment for goods or services rendered and must be paid accordingly. If people or companies don't pay their
bills, they are considered to be in default.
Accounts Receivable
Money owed by customers (individuals or corporations) to another entity in exchange for goods or services that have been
delivered or used, but not yet paid for.
IF company has receivables it means that it has made sale but
Receivables usually come in the form of operating lines of credit and are usually due within a relatively short time period,
ranging from a few days to a year.
On a public company's balance sheet, accounts receivable is often recorded as an asset because this represents a legal
obligation for the customer to remit cash for its short-term debts
If a company has receivables, this means it has made a sale but has yet to collect the money from the purchaser. Most
companies operate by allowing some portion of their sales to be on credit. These types of sales are usually made to
frequent or special customers who are invoiced periodically, and allow them to avoid the hassle of physically making
payments as each transaction occurs. In other words, this is when a customer gives a company an IOU for goods or
services already received or rendered.
Accounts receivable are not limited to businesses - individuals have them as well. People get receivables from their
employers in the form of a monthly or bi-weekly paycheck. They are legally owed this money for services (work) already
provided.
When a company owes debts to its suppliers or other parties, these are known as accounts payable.
Explain Derivatives?
A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a
contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common
underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are
characterized by high leverage. HYPERLINK
"http://ads.forbes.com/RealMedia/ads/click_lx.ads/investopedia.com/optionsandfutures/524261147/x85/OasDefault_v5/defa
ult/empty.gif/652b304c375574494676634141524355" \t "_top"
Futures contracts, forward contracts, options and swaps are the most common types of derivatives. Derivatives are contracts
and can be used as an underlying asset. There are even derivatives based on weather data, such as the amount of rain or the
number of sunny days in a particular region.
Derivatives are generally used as an instrument to hedge risk, but can also be used for speculative purposes. For example, a
European investor purchasing shares of an American company off of an American exchange (using U.S. dollars to do so)
would be exposed to exchange-rate risk while holding that stock. To hedge this risk, the investor could purchase currency
futures to lock in a specified exchange rate for the future stock sale and currency conversion back into Euros.
What is Hedging?
Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an
offsetting position in a related security, such as a futures contract. HYPERLINK
"http://ads.forbes.com/RealMedia/ads/click_lx.ads/investopedia.com/trading/350444059/x85/OasDefault_v5/default/empty.
gif/652b304c375574494676634141524355" \t "_top"
An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sell your stock at a
set price, therefore avoiding market fluctuations.
Investors use this strategy when they are unsure of what the market will do. A perfect hedge reduces your risk to nothing
(except for the cost of the hedge).
HYPERLINK "http://www.investopedia.com/terms/h/hedge.asp" What is the difference between hedging and
speculation?
Hedging involves taking an offsetting position in a HYPERLINK "http://www.investopedia.com/terms/d/derivative.asp"
derivative in order to balance any gains and losses to the underlying asset. Hedging attempts to eliminate the volatility
associated with the price of an asset by taking offsetting positions contrary to what the investor currently has. The main
purpose of HYPERLINK "http://www.investopedia.com/terms/s/speculation.asp" speculation, on the other hand, is to
profit from betting on the direction in which an asset will be moving.
Hedgers reduce their risk by taking an opposite position in the market to what they are trying to hedge. The ideal situation in
hedging would be to cause one effect to cancel out another. For example, assume that a company specializes in producing
jewelry and it has a major contract due in six months, for which gold is one of the company's main inputs. The company is
worried about the volatility of the gold market and believes that gold prices may increase substantially in the near future. In
order to protect itself from this uncertainty, the company could buy a six-month HYPERLINK
"http://www.investopedia.com/terms/f/futurescontract.asp" futures contract in gold. This way, if gold experiences a 10%
price increase, the futures contract will lock in a price that will offset this gain. As you can see, although hedgers are
protected from any losses, they are also restricted from any gains. Depending on a company's policies and the type of
business it runs, it may choose to hedge against certain business operations to reduce fluctuations in its profit and
protect itself from any HYPERLINK "http://www.investopedia.com/terms/d/downside.asp" downside risk.
Speculators make bets or guesses on where they believe the market is headed. For example, if a speculator believes that a
stock is overpriced, he or she may HYPERLINK "http://www.investopedia.com/terms/s/shortselling.asp" short sell the
stock and wait for the price of the stock to decline, at which point he or she will buy back the stock and receive a profit.
Speculators are vulnerable to both the downside and HYPERLINK "http://www.investopedia.com/terms/u/upside.asp"
upside of the market; therefore, speculation can be extremely risky.
Overall, hedgers are seen as HYPERLINK "http://www.investopedia.com/terms/r/riskadverse.asp" risk averse and
speculators are typically seen as HYPERLINK "http://www.investopedia.com/terms/r/risklover.asp" risk lovers. Hedgers
try to reduce the risks associated with uncertainty, while speculators bet against the movements of the market to try to profit
from fluctuations in the price of securities.
For taxation purposes, FIFO assumes that the assets that are remaining in inventory are matched to the assets that are most
recently purchased or produced. Because of this assumption, there is a number of tax minimization strategies associated
with using the FIFO asset-management and valuation method.
BANK RECONCILATION STATEMENT
Bank reconciliation is the process of comparing and matching figures from the accounting records against those shown on
a HYPERLINK "http://en.wikipedia.org/wiki/Bank_statement" \o "Bank statement" bank statement. The result is that any
transactions in the accounting records not found on the bank statement are said to be outstanding. Taking the balance on the
bank statement adding the total of outstanding receipts less the total of the outstanding payments this new value should
(match) reconcile to the balance of the accounting records.
Bank reconciliation allows companies or individuals to compare their account records to the bank's records of their account
balance in order to uncover any possible discrepancies. Discrepancies could include: cheques recorded as a lesser amount
than what was presented to the bank; money received but not lodged; or payments taken from the bank account without the
business's knowledge. A bank reconciliation done regularly can reduce the number of errors in an accounts system and make
it easier to find missing purchases and sales invoices.
No we are ready to explore bank reconciliation sample. Below you can find cash book and bank statement of company ABC
for January.
Cash Book
INCLUDEPICTURE "http://www.bookkeeping-financial-accounting-resources.com/images/cash-book.jpg" \*
MERGEFORMATINET
On the cash book you see opening cash balance at the beginning of January. On the left side you have cash inflows, i.e. cash
received by the company in January, on the left side you can see cash payments made by ABC in January. Final cash book
closing balance is $2348.
Bank Statement
INCLUDEPICTURE "http://www.bookkeeping-financial-accounting-resources.com/images/bank-statement.jpg" \*
MERGEFORMATINET
On the bank statement you can see details of each transaction. In the Outflow column you can see payments from ABC bank
account cleared by the bank, each such payment if supported by cheque has a reference number. In the column Inflow you
can see payments received into the bank account of ABC based on the cheques received. Some payments could be received
directly to the bank account.
INCLUDEPICTURE "http://www.bookkeeping-financial-accounting-resources.com/images/cash-book-adjustments.jpg" \*
MERGEFORMATINET
So how we adjust cash book? We take non-adjusted cash book balance at the end of month, add payments received directly
to the bank account (from BC Way amounting to $1000) and deduct payments made directly from bank account (to British
way amounting to $100) and get adjusted cash book balance amounting to $3338.
MERGEFORMATINET
On January 31 $1566 was received from Koala, but not yet cleared by the bank and included into the bank statement. On
January 28 and 31 accordingly ABC company paid to Logypol and Dizzy amounting accordingly to $234 and $540, which
were also not included into the bank statement. These items will be included into the bank reconciliation.
So finally in this bank reconciliation sample we have adjusted cash book and reconciles adjusted cash book balance with the
bank statement explaining differences which are due to different timing of payments recorded on the cash book and bank
statement.
The market for long-term funds where securities such as common stock, preferred stock, and bonds are traded. Both the
primary market for new issues and the secondary market for existing securities are part of the capital market. Any
HYPERLINK "http://financial-dictionary.thefreedictionary.com/Market" market in which HYPERLINK "http://financialdictionary.thefreedictionary.com/Securities" securities are HYPERLINK "http://financialdictionary.thefreedictionary.com/Trading" traded. Capital markets include the HYPERLINK "http://financialdictionary.thefreedictionary.com/Stock" stock and HYPERLINK "http://financialdictionary.thefreedictionary.com/Bond+Market" bond markets. Companies and governments use capital markets to raise
HYPERLINK "http://financial-dictionary.thefreedictionary.com/Funding" funds for their operations; for example, a
company may HYPERLINK "http://financial-dictionary.thefreedictionary.com/Issue" issue an HYPERLINK
"http://financial-dictionary.thefreedictionary.com/IPO" IPO while a government may issue a HYPERLINK
"http://financial-dictionary.thefreedictionary.com/Bond" bond in order to conduct new or expand ongoing HYPERLINK
"http://financial-dictionary.thefreedictionary.com/Activities" activities. HYPERLINK "http://financialdictionary.thefreedictionary.com/Investors" Investors purchase securities in the capital markets in order to extract a
HYPERLINK "http://financial-dictionary.thefreedictionary.com/Return" return and earn HYPERLINK "http://financialdictionary.thefreedictionary.com/Profit" profit on the securities. Capital markets include HYPERLINK "http://financialdictionary.thefreedictionary.com/Primary+Market" primary markets, such as IPOs that are placed with investors through
HYPERLINK "http://financial-dictionary.thefreedictionary.com/Underwriter" underwriters, and HYPERLINK
"http://financial-dictionary.thefreedictionary.com/Secondary+Market" secondary markets, in which all subsequent trading
takes place. Government agencies in different countries regulate local capital markets, though some, especially exchanges,
play some role in regulating themselves.
A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of a mutual fund as a company that
brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares,
which represent a portion of the holdings of the fund.
2) If the fund sells securities that have increased in price, the fund has a HYPERLINK
"http://www.investopedia.com/terms/c/capitalgain.asp" capital gain. Most funds also pass on these gains to investors in a
distribution.
3) If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then
sell your mutual fund shares for a profit.
Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more
shares.
Professional Management - The primary advantage of funds is the professional management of your money. Investors
purchase funds because they do not have the time or the expertise to manage their own portfolios. A mutual fund is a
relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments.
HYPERLINK "http://www.investopedia.com/terms/d/diversification.asp" Diversification - By owning shares in a mutual
fund instead of owning individual stocks or bonds, your risk is spread out. The idea behind diversification is to invest in a
large number of assets so that a loss in any particular investment is minimized by gains in others. In other words, the more
stocks and bonds you own, the less any one of them can hurt you (think about Enron). Large mutual funds typically own
hundreds of different stocks in many different industries. It wouldn't be possible for an investor to build this kind of a
portfolio with a small amount of money.
HYPERLINK "http://www.investopedia.com/terms/e/economiesofscale.asp" Economies of Scale - Because a mutual fund
buys and sells large amounts of securities at a time, its transaction costs are lower than what an individual would pay for
securities transactions.
HYPERLINK "http://www.investopedia.com/terms/l/liquidity.asp" Liquidity - Just like an individual stock, a mutual fund
allows you to request that your shares be converted into cash at any time.
Simplicity - Buying a mutual fund is easy! Pretty well any bank has its own line of mutual funds, and the minimum
investment is small. Most companies also have automatic purchase plans whereby as little as $100 can be invested on a
monthly basis.
What is Depreciation?
A HYPERLINK "http://www.businessdictionary.com/definition/noncash-expense.html" noncash expense that reduces the
HYPERLINK "http://www.investorwords.com/5209/value.html" value of an HYPERLINK
"http://www.investorwords.com/273/asset.html" assetas a HYPERLINK "http://www.investorwords.com/7202/result.html"
result of HYPERLINK "http://www.investorwords.com/5296/wear_and_tear.html" wear and tear, age, or HYPERLINK
"http://www.investorwords.com/3376/obsolescence.html" obsolescence. Most assets lose their value over time (in other
HYPERLINK "http://www.businessdictionary.com/definition/word.html" words, they depreciate), and must be replaced
once the end of their HYPERLINK "http://www.investorwords.com/5193/useful_life.html" useful life is reached. There are
several HYPERLINK "http://www.businessdictionary.com/definition/accounting-method.html" accounting methods that
are used in HYPERLINK "http://www.investorwords.com/3495/order.html" order to HYPERLINK
"http://www.investorwords.com/5348/write_off.html" write off an asset's depreciation HYPERLINK
"http://www.investorwords.com/1148/cost.html" cost over the HYPERLINK
"http://www.investorwords.com/3669/period.html" period of its useful life. Because it is a HYPERLINK
"http://www.investorwords.com/3307/non_cash_expense.html" non-cash expense, depreciation lowers the HYPERLINK
"http://www.investorwords.com/992/company.html" company's reported HYPERLINK
"http://www.investorwords.com/1618/earnings.html" earnings while increasing HYPERLINK
"http://www.investorwords.com/2084/free_cash_flow.html" free cash flow.
Basing on the nature of the asset the depreciation will be calculated. There are different methods of depreciations. They are:
1) Straight line method,
2) Diminishing value method,
There are two types of depreciation the straight line method and the written down value method. The rates of depreciation
under the two methods vary as the useful life of the asset remains the same irrespective of the method of depreciation used.
Under straight line method, a fixed percentage is applied on the original cost of the asset, thereby ensuring that the
depreciation per annum over the useful life is constant. Under written down value method, a fixed percentage is applied on
the written down value (original cost less depreciation charged till the end of the previous year) of the asset. This results in
higher depreciation in the earlier years and lesser depreciation in the later years.
Normally the depreciation rate under written down value is higher than the rate under straight line method. This ensures
creation of depreciation provision over the useful life of the asset.
Accounting Questionnaire
1. Financial position of the business is ascertained on the basis of:
a. Records prepared under book-keeping process
b. Trial balance
c. Accounting reports
d. None of the above
2. A businessman purchased goods for $2,500,000 and sold 80% of such goods during the
accounting year ended 31st March, 2005.The market value of the remaining goods was
$400,000.He valued the closing stick at cost. He violated the concept of:
a. Money measurement
b. Conservatism
c. Cost
d.Periodicity
3. Assets are held in the business for the purpose of:
a.
b.
c.
d.
Resale
Conversion into cash
Earning revenue
None of the above
1,000,000
Installation charges
Market value as on 31st
March,2006
100,000
1,200,000
While finalizing the annual accounts, if the company values the machinery at $1,100,000.Which of the
following concepts is followed by the Alpha Ltd?
a.
b.
c.
d.
Cost
Matching
Realization
Periodicity
9. At the end of the accounting year all the nominal accounts of the ledger book are:
a.
b.
c.
d.
11. A second hand motor car was purchased on credit from B Brothers for $10,000
a.
b.
c.
d.
13. A debit note for $2,000 issued to Mr. for goods returned by us is to be accounted for:
a.
b.
c.
d.
An expenses
A profit
An asset
A liability
18. Amount received from IDBI as a medium term loan for augmenting working capital:
a.
b.
c.
d.
Capital expenditure
Revenue expenditure
Capital receipt
Revenue receipt
19. A second hand car is purchased for $10,000 the amount of $1,000 is spent on its repairs, $500 is
incurred to get the car registered in owners name and $200 is paid as dealers commission. The
amount debited to car account will be
a. $10,000
b. $10,500
c. $11,500
d. $11,700
20. If the amount is posted in the wrong account or it is written on the wrong side of the account, it
is called
a.
b.
c.
d.
Error of omission
Error of commission
Error of principle
Compensating error
21. If a purchase return of $1,000 has been wrongly posted to the debit of the sales returns account,
but has been correctly entered in the suppliers account, the total of the
a.
b.
c.
d.
Trial balance would show the debit side to be $1,000 more than the credit
Trial balance would show the credit side to be $1,000 more than the debit
The debit side of the trial balance will be $2,000 more than the credit side
The credit side of the trial balance will be $2,000 more than the debit side
22. $200 received from Smith whose account, was written off as a bad debt should be credited to:
a.
b.
c.
d.
23. If a purchase return of $24 has been wrongly posted to the debit of the sales return account, but
had been correctly entered in the suppliers account, the total of the trial balance would show:
a.
b.
c.
d.
(10,000)
10,000
19,643
8,000
26. The total cost of goods available for sale with a company during the current year is $1,200,000
and the total sales during the period are $1,300,000.If the gross profit margin of the company is
33 1/3% on cost, the closing inventory during the current year is
a.
b.
c.
d.
$400,000
$300,000
$225,000
$260,000
27. Ascertain the amount of purchase if Cost of goods sold is $80, 700, Opening stock $800,
closing stock $6,000
a.
b.
c.
d.
$80,500
$74,900
$74,700
$85,900
28. Under inflationary conditions, which of the methods will not show lowest value of the closing
stock?
a.
b.
c.
d.
FIFO
LIFO
None of the options are correct
All of the options are correct
29. On April 07, 2005, i.e., a week after the end of the accounting year 2004-2005, a company
undertook physical stock verification. The value of stock as per physical stock verification was
found to be $35,000.The following details pertaining to the period April 01,2005 to April 07,
2005 are given:
(i)
(ii)
(iii)
(iv)
$27,000
$19,000
$43,000
$51,000
30. Consider the following data pertaining to N Ltd. For the month of March 2005:
Purchases
Issues
Balance
Quantity
Rate
Quantity
Quantity
Rate
(kg.)
($)
(kg.)
()kg.
($)
500
22.8
Date
01-03-2005
02-03-2005
400
24
10-03-2005
600
25
25-03-2005
1,000
If the company uses weighted average method for inventory valuation, the value of inventory as on March 31,
2005 is
a. $11967
b. $12000
c. $12500
d. $11400
31. Which of the following is False?
1. The value of ending inventory under simple average price method is realistic.
2. Usually profit or loss will not arise out of pricing the issues on the basis of simple average
price method.
3. The value of stock is shown on the assets side of the balance sheet as fixed assets.
4. Opening stock plus purchases minus cost of goods sold is the value of closing stock.
32. If a concern proposes to discontinue its business from March 2005 and decides to dispose off all its assets
within a period of 4 months, the balance sheet as on March 31, 2005 should indicate the assets at their
1. Historical cost.
2. Net realizable value.
3. Cost less depreciation.
4. Cost price or market value, whichever is lower.
33. Amit Ltd. purchased a machine on 01.01.2003 for $120,000. Installation expenses were $10,000. On
01.07.2003, expenses for repairs were incurred to the extent of $2000. Depreciation is provided under straight
line method. Depreciation rate = 15%. Annual depreciation =
1. $13000
2. $19500
3. $21000
4. $25000
34. Fixed assets are:
1. Kept in the business for use over a long time for earning income.
2. Meant for resale.
3. Meant for conversion into cash as quickly as possible.
4. All of the above.
35. From the following figures ascertain the gross profit:
Particulars
$
Opening stock (01.01.2006)
25000
Goods purchased during 2006
130,000
Freight and packing on above
5000
Closing stock (31.12.2006)
20000
Sales
190,000
Selling expenses on sales
9000
a.
b.
c.
d.
$36000
$45000
$50000
$59000
c. $1,500,000
d. $1,200,000
38. The historical cost of machinery is:
a. $1,000,000
b. $2,000,000
c. $1,100,000
d. $1,200,000
a.
b.
c.
d.
$35,000
$28,000
$20,000
$65,000
42. Using the data given in problem, the value of closing stock using FIFO principle
a. $1,600
b. $1,500
c. $1,300
d. $2,000
43. Using the data given in the problem, the value of the issues in the month of December 2005 using FIFO
method.
a. $27,700
b. $35,500
c. $19,500
d. $21,300
44. Using the data given in problem, the value of closing stock using simple average principle
a. $950
b. $875
c. $1,000
d. $1,300
e. $750
45. Using the data given in the problem, the value of issues in the month of December 2005 using simple
average method
a. $15,385
b. $21,675
c. $19,750
d. $28,125
Based on the following para answer Q46 48
In the year 2004-2005, C Ltd purchased a new machine and made the following payments in relation to it:
Particulars
$
$
Cost as per suppliers list
520,000
Less: agreed discount
50,000
470,000
Delivery charges
10,000
Erection charges
20,000
Annual maintenance charges
30,000
Additional components to increase capacity of the
4,000
Machine
Annual insurance premium
5,000
46. The cost of the machine is
a. $540,000
b. $545,000
c. $504,000
d. $550,000
47. If depreciation is provided @ 10% p.a. SLM, depreciation for 3rd year is
a. $54,000
b. $54,500
c. $47,000
d. $50,400
48. If depreciation is provided @ 10% p.a. under declining balance method, depreciation for 3rd year is
a. $43,740
b. $44,145
c. $40,824
d. $44,550
49. Original cost = $126,000. Salvage value = $6,000. Useful life = 3 years. Annual depreciation under SLM
=
a. $21,000
b. $20,000
c. $15,000
d. $40,000
50. Below some errors are mentioned. State which of these will not be revealed by the Trial Balance:
a. Compensating errors
b. Errors of principle
c.Wrong balancing of an account
d. Both a and b.
LIABLITIES
Current Liabilities:
Commercial Paper
Accounts Payable
Accured Liablities
Accured Income Taxes
Long-Term Debt Due
Obligations Under Capital Leases
Total Current Liabilites
Long Term Debt
Long Term Obligations Under Capital Leases
Deffered Income Taxes and Other
Minority Interest
Shareholder's Equity:
Amount
****
****
****
****
****
****
****
****
****
****
****
Amount
****
****
ASSET
Current Assets:
Cash and Cash Equipments
Receivables
Inventories
Prepaid Expenses and Other
Fixed Assets
Property and Equipments, at cost
Land
Buildings and Improvements
Furnitures And Fixtures
Transportation Equipments
Total Property and Equipment
Less : Accumulated Depreciation
Amount
Amount
****
****
****
****
****
****
****
****
****
****
****
****
Preffered Stock
Common Stock
Capital in Excess of Par Value
Accumulated Other Comprehensive Income
Retained Earnings
Total Shareholder's Equity
Total Liabilities
****
****
****
****
****
****
****
****
****
****
****
****
****
****
****
****
****
Total Assets
****