Project Report

Accounting
Current Assets

Submitted to :Mam Hina Samdani

Group members:

Muhammad Afzal Amaan Qureshi Huzaifa Shohaib

Hassan Munir Majid Amin

Introduction
ASSETS:
Assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset.

Explanation:Assets may have definite physical form such as buildings, machinery, or an inventory of merchandise. On the other hand, some assets exist not in physical or tangible form, but in the form of valuable legal claims or rights; examples are amounts due from customers, investment in Government bonds and patent rights. One of the most basic and at the same time most controversial problems in accounting is determining the dollar values for the various assets of a business. At present, generally accepted accounting principles call for the valuation of most assets in balance sheet at cost, rather than at appraised market values. Basically assets are divided into two categories

Types:a)Non Current Assets(Fixed Assets) b) Current Assets

We have selected Current Assets portion of Balance sheet. So we will continue our project with Current Assets.

CURRENT ASSETS:
Current assets are assets that are expected to be converted to cash, sold, or consumed during the next 12 months of within the businesss normal operating cycle if longer than a year or. A balance sheet item which equals the sum of cash and cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that could be converted to cash in less than one year. A company's creditors will often be interested in how much that company has in current assets, since these assets can be easily liquidated in case the company goes bankrupt. Current assets are called current because they change their form frequently, typically many times within a year. These assets are continually flowing into and out of the business, and are essential for day-to-day operations

Focal point:
The problem is focused by such perspectives as follows: The point which is deeply being focused in this project is that the deep study of Current Assets briefly consists of all its contents and terms related to it. When company performs different activities related to terms of current assets the point to be focused to know the effect of these activities on current assets e.g. increase/decrease in account receivable.

Importance of Topic (Current Assets):

Why this problem is important enough to study? How to treat with Current assets. After understanding the working ,treatment and importance of current assets students will more easily able to understand the financial position, problem and solution of a company in terms of its liquid assets. In this project all contents and parts of current assets will be explained in such a way that it will enhance students ability to understand the importance and real concepts of current assets. In mind of a lay man current assets are worth of a company but for an accounting students its quite important to understand each and every term related to current assets. Moreover its also important to understand the working of Current assets.

Purpose:
Current assets represent assets that can be quickly transferred into money. The main purpose of selecting this topic is that current assets are most important part of balance sheet and a company or organization balance sheet is incomplete without it. Without understanding the working of these assets a financial accounting student will not be able to over come the challenges related to them while working professionally It is to be noted that current assets are also called liquid assets because these assets are easily convertible so understanding this term is also important. The goal of this study of current assets is to know that how corporations collect these assets, what are the effects and treatment of them. More over the objective of study is also refine current understanding of students about current assets and it will also help them to understand working and over coming difficulties related to these assets.

Company:We have selected the company ICI Pakistan. The main reason behind selecting this company is that data of this company is easily available and reliable.ICI Pakistan is a part of AkzoNobel Group which is market leader of Different products e.g. paint and chemicals. The company issues a Annual report in which all information related to its operation e.g. balance sheets income statement is also available in it. Company is committed to provide 100% accurate data in its annual report to its customer shareholder and people who are looking to invest in the company.

Literature Review

CASH:
Cash is listed first in the balance sheet because it represents a resource that can be used immediately to pay any type of obligation. The term LIQUIDITY ASSETS is used to describe assets that can be converted quickly into cash. Cash is the most active item in the accounting statements. the movement of cash completes almost all purchases and sales transactions. Purchases of goods and services normally result in cash payments; sales normally result in cash reciepts.Cash.more often than any other asset, is the item involved in business transactions. This is due to the nature of the business transactions, which include a price and conditions calling for settlement in terms of medium of exchange. Cash includes commercial and saving deposits in banks and elsewhere that are available upon demand, and money items on hand that can be used as medium of exchange or that are acceptable for deposit at face value by a bank. Cash on hand would include petty cash funds, change funds, and other regularly used and unexpected monitory funds, together with monitory items consisting of personal checks, travelers checks, cashiers checks, bank drafts and money orders.

ENTRIES FOR CASH

Transaction 1: Company A sold its products at $120 and received the full amount in cash. DEBIT CASH SALES DEBIT SUPPLIES CASH is decreasing. 50 50 CREDIT 120 120 CREDIT

Transaction 2: Company A purchased supplies and paid $50 in cash

In first transaction Cash is received and it is debited and in second transaction cash is paying it means cash

CASH EQUIVALENTS
Some short term investments are so liquid that they are termed as cash equivalents.

Examples include money market funds, Treasury bills, certificates of deposit(CDs)and high-grade commercial paper. These items are considered so similar to cash that they often are combined with the amount of cash in the balance sheet.Therefore,many businesses call the first asset shown in the balance sheet Cash and Cash equivalents.

NOTES RECIEVABLES
A note is an unconditional written promise by one party to another to pay a certain sum of money at specified time. The note may be negotiable or nonnegotiable. It is negotiable or legally transferable by endorsement and delivery only if it provides for payment to the order of the second party or bearer. Such notes are commonly accepted by commercial banks for discount; hence they are considered more liquid than are other classes of receivables A promissory note is an unconditional Promise in writing to pay on demand or at a future date a definite sum of money. The person who signs the note and thereby promises to pay is called the maker of note. The person to whom payment is to be made is called the payee of the note.

Islamabad Pakistan July 10-2010 One year AFTER DATE GENERAL TYRES PROMISES TO PAY TO THE ORDER OF NATIONAL BANK OF PAKISTAN One Hundred Thousand Only RUPEES PLUS INTEREST COMPUTED AT THE RATE OF per annum TITLE SIGNED 12% Treasure

Rs 100,000

From the view point of the maker, GENERAL TYRES, the illustrated note is liability and is recorded by crediting by crediting the NOTES PAYABLE account. However from the view point of the PAYEE, National Bank of Pakistan, This same note is an ASSET and is recorded by debiting the notes receivable account. The maker of a note expects to pay cash at the MATURITY DATE (or Due Date); the payee expects to receive cash at the date.

NATURE OF INTEREST:
Interest is charge made for the use of money. A borrower incurs interest expense. A lender earns interest revenue. When you encounter notes payable in companys financial statement, you know that the company

is borrowing and you should expect to find interest expense. When you encounter notes receivable, you should expect interest revenue.

ACCOUNTING FOR NOTES RECIEVABLE:

In most fields of business notes receivable are seldom encountered; in some fields they occur frequently and may constitute an important part of total assets. In prior to the wide spread use of computers, these assumptions were widely used in the business community. Today, however, most financial institutions compute interest using a 365 day year and the actual number of days in these months. The differences between these assumptions are not material in dollar amount. Banks and financial institutions, e.g. Notes receivable often represents the companys largest asset category and generate most of the company revenue. Some retailers that sell on installment plans, such as sears, roebuck and Coe also own large amounts of notes receivables from customers. All notes Receivable are usually posted to a single account in the ledger. A subsidiary ledger is not essential because the notes themselves when failed by due dates, are the equivalent of a subsidiary ledger and provide any necessary information as to maturity, Interest rates, collateral pledged, and other details.

IF THE MAKER OF A NOTE DEFAULTS:

A note receivable which cannot be collected at maturity is said to have been defaulted by the maker. Immediately after the default of note, an entry should be made but the holder to transfer the amount due from the notes receivable account to an account receivable from the debtor. ILLUSTRATION: Accounts Receivable..30,900 Notes Receivable..30,000 Interest Receivable. 300 Interest Revenue To Record default by Marvin White on 90-Day 12% note. 900

DISCOUNTING NOTES RECEIVABLE:

In past years, some companies said that notes receivable to banks in order to obtain cash prior to the maturity dates of these notes. As the banks purchase these notes at a DISCOUNT from there maturity value, this practice became known as discounting. Discounting Notes Receivable is not a wide spread practice today, because most banks no longer purchase notes receivable from their customers. Interestingly the practice if discounting notes receivable is most

wide spread among banks themselves. Many banks sell large packages of their notes receivables (loans) to agencies of the federal governments or to other financial institutions.

INVENTORY
A company's merchandise, raw materials, and finished and unfinished products which have not yet been sold. These are considered liquid assets, since they can be converted into cash quite easily. There are various means of valuing these assets, but to be conservative the lowest value is usually used in financial statements.

TYPES OF INVENTORY
Raw materials and purchased product Partially completed goods called work in progress Finished goods inventories Replacement parts, tools and supplies Goods-in-transit to warehouse or customers

FUNCTIONS
To meet anticipated demand To smooth production requirements To decouple operations To protect against stock-outs To take advantage of order cycle To permit operations

OBJECTIVE To achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds.

Inventory Counting Systems

The two main counting system of inventory are

Periodic Inventory System

Physical count of items made at periodic intervals Perpetual inventory system

System that keeps track of removals from inventory continuously, thus monitoring current levels.

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. 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 type of sales are usually made to frequent or special customers who are invoiced periodically, and allows 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.

MARKETABLE SECURITIES:

Marketable securities consists primarily of investments in bonds and in the capital stocks of publicly owned corporations. These marketable securities are traded (bought and sold) daily on organized securities exchanges, such s the New York stock exchange, the Tokyo Stock Exchange and Mexicos Balsa. A basic characteristic of all marketable securities is that they are readily marketable-meaning that they can be purchased or old quickly and easily at quoted market prices.

Investments in marketable securities earn a return for the investor, in the form of interest, dividends, and-if all goes well-an increase in market value. Mean while, these investments are almost as liquid as cash its self. They can be sold immediately over the telephone, simply by placing a sell order with a brokerage firm such as Merrill Lynch or Smith Barney Shearson. Note: Because of their liquidity, investments in marketable securities usually are listed second among the current assets, immediately after cash.

ACCOUNTING FOR MARKETABLE SECURITIES:

There are four basic accountable events relating to investments in marketable securities: (1)Purchase if the investments (2)Receipt of Dividend revenue and interest revenue. (3)Sales of securities owned and, (4)End of period market-to market adjustment (1)ENTRY TO RECORD PURCHASE OF SECURITIES: Marketable Securities (Toshiba).200800 Cash..200800 Purchased 4000 shares of Toshiba Total cost=$200800($50*4000shares+$800); cost per share, $50.20 ($200800+4000shares)

(2)RECOGNITION OF INVESTMENT REVENUE: Cash.3200 Dividend Revenue3200 Received a quarterly cash dividend of 80 cents per share on 4000 shares of Toshiba Capital stock (3)Sales of Investments: Cash..54800 Marketable Securities(Toshiba Capital Stock)50200 Gain on sale of Investments.. 4600 Sold 1000 shares of Toshiba Capital stock at again: Sales Price=($55*1000-$200).$54800 Cost ($50.20 per share*1000 shares)$50200

Gain on Sale.. (4)Adjusting Marketable Securities to Market Value:

$4600

Marketable Securities15000 Unrealized Holding gains(or Loss) on investments15000

SHOP SUPPLIES:
As supplies are purchased their cost is debited to the asset account, Short Supplies. It is not practical to make general entries every few minutes. Instead, an estimate is made of the supplies remaining on hand at the end of each month, the supplies which are Missing are assumed to have been used. Prior to making adjusting entire at December 31, the balance in over nights shop supplies account is $ 1800. Assume that at December 31, John MacLean estimates there are about $1200- worth of short supplies remaining on hand. This suggests supplies costing about $600 have been used in December; thus the following Adjusting entry is made: Dec,31 Supplies Expense.600 Shop Supplies..600 Estimate of shop supplies used in December This adjusting entry serves two purposes: 1..it charges to expense the cost of supplies used in December and 2..it reduces the balance of the shop supplies account to $1200-the amount of supplies estimated to be be on hand at December 31

INSURANCE POLICIES:
Insurance policies are also prepaid expense. These policies provide a service, insurance protection, over a specific period of time. As the time passes the insurance policy expires i.e., it is used up in business operations. Consider the following illustration: Purchasing 12 months of insurance coverage. Feb 1 Unexpired Insurance18000

Cash..18000 Purchased an insurance policy providing coverage for the next 12 Months. This $18000 expenditure provides insurance coverage for a period of one year. Therefore 1/12 of this cost or $1500 is recognize as insurance expense every month. The insurance expense for the month of December is recorded by the following adjusting entry at month end. Dec 31 Insurance Expense1500 Un-expired Insurance..1500
Current Assets Stores and spares Inventory Account receivable Notes Receivable Prepaid advances Other receivables Taxation recoverable Cash and bank balances 21

Insurance Expense for December

496,401 3,244,525 919,463 406,739 452,438 677,111 460,240 4,468,251 11,125,168 538,540 2,951,956 806,612 193,254 404,662 749,388 419,934 1,971,081 8,035,427 605,480 2,311,336 991,596 137,680 341,129 683,461 337,032 3,615,056 9,022,770

Total Assets

21,422,657

18,470,685 18,764,373

Partial Comparative balance sheet of ICI Pakistan 2007-08-09

2009 2008 2007

Methodology
-Main source of information used for this project is ICI Pakistan Annual Financial Report 2009 -Scope of the study was Current assets of the organization and views about company profile after conducting research through different website news paper and company annual report. -Last but not least the source of information for Current assets is Our Teacher. Without her torch bearing we wont be able to complete this.

Analysis:
The results of the study shows that the company is creating a great brand image as well as financial position is getting stronger and current assets of the company are increasing yearly.Infact the study of this project also depicts a clear picture to the student to understand the working easily and know the terms of current assets more easily.

Conclusion:
In this report we come to know that how much current assets are important for a company and how they play a significant role in success of it. It also depicts a complete picture of a big part of assets a company have which help to understand the current position of a company today and in future. Stronger current assets shows stronger while weaker current assets shows image of company in the eyes of investor. The data used of ICI Pakistan in this report shows that how much current assets are in hand of the company and

how company deals with them. We are committed to this point that this research and report will help the investor and shareholder in increasing there trust on company and it will also improve the image of the company.

Recommendations:
Its a Fact that ICI Pakistan has a great image in the market as well as financial position is strong .It is a part of market leader Akzonobel group and this group is back bone of ICI. Akzonobel is leading many industries of world today. But Coming to the other side of picture we recommend some helpful thoughts to the ICI Pakistan . 1. Company have a Large number of inventory which is risky in terms of corruption and theft company should pay attention towards making them secure and check and balance system active to overcome the risk. 2. Accounts receivables of company is in great digits which is dangerous for the company in terms that companys account for bad debts may be increase horribly in coming years. 3. Similarly Notes receivable of company is also increasing company should create a effective procedure for issuing notes so recovery of it become easier.

References:
www.icipakistan.com www.investropedia.com www.akzonobel.com.pk Annual report of ICI Pakistan 2009 Books of Basic and financial accounting.