scr banking maths 8.docx

7/27/2019 SCR Banking MAths 8.docx

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+7)/3=y

m=1/3

m=y2-y1/x2-x1

1/3=k/3

1=k

1. Peter and Paul start simultaneously

on 2 different cars from Point A and

travel towards Point B at speeds of

52 kmph and 39 kmph respectively

on the same road. As soon as Peter

reaches Point B, he returns back to

Point A on the same road and meets

Paul on the way. How far from Point

B do the two friends meet, if the

distance between the 2 points is 70

kms?

Solution:

Since they are meeting after

sometime say T. Therefore,

compare the time taken by both

peter and paul.

70+x is covered by peter and 70-x is

covered by paul.

(70+x)/52 = (70-x)/39

this gives x=10.

2. In triangle ABC, AD is the bisector of

|A, AB=10 cm, AC=14 cm and area

of triangle ABD = 140 sq cm. Findarea of triangle ACD

Solution:

Any angle bisector of any angle

between 2 sides of a triangle divides

the Area of the triangle into the ratio

of sides .

Area of any triangle is 1/2 *(Product

of any 2 sides of the triangle) * (Sin

of Angle between those 2 sides)

Now coming to the question at

concern.

Here area of ABD => 140 = 1/2*(AB

* AD) *(Sin of angle BAD) ---eqn (1)

Area of ACD = 1/2*(AC*AD) * (Sin of

angle DAC) ---eqn(2)

angle DAC = angle BAD ---eqn(3)

as angle A is bisected

Using eqn 1 and 2 and 3, gives 196

as area of ACD.

3. The rate of a certain chemical

reaction is directly proportional to thesquare of the concentration of

INTANGIBALE ASSSETS

CAN BE TREATED IN THE

SAME WAY AS FIXEDASSETS.

THEY ARE NEEDED FOR

OPERATION AND ARE

ACQUIRED WITH

ENTERPRISE FUNDS.

EXAMPLE:

PATENTS CAPITALIZED

& MAY BE

EXPENSED

OVER A

PERIOD OF

TIME


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chemical A and inversely

proportional to the concentration of

chemical B present. If the

concentration of chemical B is

increased by 100%, which one of the

following is the closest to the

percentage change in theconcentration of chemical A required

to keep the reaction rate

unchanged?

a)100% decrease

b)50% decrease

c)40% decrease

d)40% increase

e)50% increase

Solution:

4. Let the rate of the reaction be R

Let concentration of chemical A be A

Let concentration of chemical B be B

Then R is proportional to A

R is also proportional to 1/B

Hence, R is proportional to A/B

If C is a constant, R=C*(A/B)

If the concentration of B is increased

100% B becomes 2B (

B+(100/100)*B = 2B)

Let A2 be the new concentration of

chemical A for the rate to beconstant

Then R

II. k+2kt+t

III. k+t

a) None

b) I only

c) II only

d) III only

e) I,II and III

Solution:

First, you must find out whether k

and t are odd or even. This problem

is all about the results of performing

operations on even and odd

numbers.

Given that k^2 - t^2 is an odd

number, then you know that k^2 is

even, and t^2 is odd. Of course, it

could be reverse, but it shouldn't

matter because of commutative and

associative laws.

So, you then know that k must beeven, and t must be odd. Even *


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Even = Even, and Odd * Odd = Odd.

Now, just go through the statements:

1: Even + Odd + Even = Odd

2: Even*Even + Even*Even*Odd +

Odd*Odd = Even + Even + Odd =

Odd

3: Even + Odd = OddAnswer then is None (A).

5. A contractor combined x tons of a

gravel mixture than contained 10%

gravel G, by weight, with y tons of a

mixture that contained 2% gravel G,

by weight, to produce z tons of a

mixture that was 5% gravel G, by

weight. What is the value of x?

(1) Y=10

(2) Z=16

Solution:

Mixture 1 : 10% gravel and quantity

: x tonnes

Therefore amount of gravel : 0.1x

Mixture 2 : 2% gravel and y tonnes

Amount of gravel : 0.02y

They are mixed to produce a mixture

of z tonnes that is 5% gravel

Hence, 0.1x+0.02y=0.05z

We need x.

Statement 1y=10

Now x+y=z

x+10=z

Putting it in the equation

0.1x+10*0.02=(x+10)0.05

We can get x, hence sufficient.

Statement 2

z=16

==>x+y=16

And we have

0.1x+0.02y=0.05z

i.e

0.1x+0.02y=0.05*16

We can solve for x and y, hence

sufficient,

Hence D

6. True # of items = (total # in group 1)

+ (total # in group 2) + (total # in

group 3) - (# in at least 1/2) - (# in at

least 1/3) - (# in at least 2/3) + (# in

1/2/3)

True # of items = (total # in group 1)+ (total # in group 2) + (total # in


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group 3) - (# in only 1/2) - (# in only

1/3) - (# in only 2/3) - 2(# in 1/2/3)

Examples:

At a certain school, each of the 150

students takes between 1 and 3

classes. The 3 classes available are

Math, Chemistry and English. 53

students study math, 88 study

chemistry and 58 study english. If 6

students take all 3 classes, how

many take exactly 2 classes?

In this case, we'd use the firstformula, since we want the number

who take exactly 2 classes:

150 = 53 + 88 + 58 - (doubles) -2(triples)150 = 199 - (doubles) - 2(6)150 = 187 - doublesdoubles = 37

Let's just change the question a tinybit:

At a certain school, each of the 150

students takes between 1 and 3

classes. The 3 classes available are

Math, Chemistry and English. 53

students study math, 88 study

chemistry and 58 study english. If 6

students take all 3 classes, how

many take at least 2 classes?

In this case, we'd use the second

formula, since we want the number

who take at least 2 classes:

150 = 53 + 88 + 58 - (at least 2 ofthe 3) + (all 3)

150 = 199 - (at least 2 of 3) + 6

150 = 193 - (at least 2 of 3)

At least 2 of 3 = 43

7. In the xy-coordinate system, if (a,b)

and (a+3, b+k) are two points on the

line defined by the equation x = 3y-

7, then k=

(A) 9

(B) 3

(C) 7/3(D) 1

(E) 1/3


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Solution:

8. like both strawberry and apple jam,

what is the largest possible number

of people who like raspberry jam but

do not like either strawberry or apple

jam?

Solution:

40% of the 200 like Raspberry (I'm

assuming you got 80 by simply

taking 40% of 200). However, there

are people who like other jams as

well.

In general, when we're asked to

maximize one thing in a GMAT

question, we want to minimize

everything else.

In this question, to maximize the

number of people who like just

raspberry, we need to minimize the

number of people who like

strawberry and/or apple PLUS

raspberry.

Here's what we know about

Strawberry/Apple:

112 people like Strawberry

88 people like Apple.

60 people like both of them.

Since only 60 people like both ofthem, this means that:

52 people like only strawberry;

28 people like only apple; and

60 people like both.

That's already 140 people. We only

started with 200, so the maximum

possible number of people who

could dislike both apple and

strawberry is 60.

9. Right triangle PQR is to be

constructed in the xy-plane so that

the right angle is at P and PR is

parallel to the x-axis. The x and y

coordinates of P, Q and R are to be

integers that satisfy the inequalities -

4


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No. of possible value for x=10 and

y=11

1) information given is right angle at

P, PR(ll) to x axis

information inferred y coordinates of

p and r is same.

2) PQ (llel) y therefore x coordinates

of P and Q is same.

For P x can be selected in 10 ways

and y in 11 ways = 10*11

For R x in 9 ways and y in 1 way (as

same of P) =9*1

For q x in 1 way and y in 10 ways

(one already selected for P) =10*1

Total ways=10*11*9*10=9900

10. A password of a computer used five

digits where they are from 0 and 9.

What is the probability that the

password solely consists of prime

numbers and zero?

A 1/32

B 1/16

C 1/8

D 2/5

E

Solution:

There are 10 possible options

(0,1,2,3,4,5,6,7,8,9) for each digit.

5 of the options (0,2,3,5,7) are zeroor prime.

So, P(a given digit is zero or prime)

= 5/10 = 1/2

A quick way is to look at this as an

AND probability.

P(all five digits are zero or prime) =

P(1st digit is zero or prime AND 2nd

digit is zero or prime AND 3rd digit is

zero or prime AND 4th digit is zero

or prime AND 5th digit is zero or

prime)

This is equal to P(1st digit is zero or

prime) x P(2nd digit is zero or prime)

x P(3rd digit is zero or prime) x P(4th

digit is zero or prime) x P(5th digit is

zero or prime)

So, we get 1/2 x 1/2 x 1/2 x 1/2 x 1/2

= 1/32

11. There are two set each with the

number 1, 2, 3, 4, 5, 6. If randomly

choose one number from each set,

what is the probability that theproduct of the 2 numbers is divisible


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by 4?

Solution:

12. Picking 2 numbers from each set :

6c1*6c1=36

Favorable outcomes = 15

(1,4)(2,2),(2,4),(2,6)

III. k+t

a) None

b) I only

c) II only

d) III only

e) I,II and III

Solution:

First, you must find out whether k

and t are odd or even. This problem

is all about the results of performing

operations on even and odd

numbers.

Given that k^2 - t^2 is an odd

number, then you know that k^2 is

even, and t^2 is odd. Of course, it

could be reverse, but it shouldn't

matter because of commutative and

associative laws.

So, you then know that k must be

even, and t must be odd. Even *

Even = Even, and Odd * Odd = Odd.Now, just go through the statements:

1: Even + Odd + Even = Odd

2: Even*Even + Even*Even*Odd +

Odd*Odd = Even + Even + Odd =

Odd

3: Even + Odd = Odd

Answer then is None (A).

13. A contractor combined x tons of a

gravel mixture than contained 10%

gravel G, by weight, with y tons of a

mixture that contained 2% gravel G,

by weight, to produce z tons of a

mixture that was 5% gravel G, by

weight. What is the value of x?

(3) Y=10

(4) Z=16

Solution:

14. Mixture 1 : 10% gravel and quantity

: x tonnes

Therefore amount of gravel : 0.1x

Mixture 2 : 2% gravel and y tonnes

Amount of gravel : 0.02y

They are mixed to produce a mixture


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of z tonnes that is 5% gravel

Hence, 0.1x+0.02y=0.05z

We need x.

Statement 1

y=10

Now x+y=zx+10=z

Putting it in the equation

15. Right triangle PQR is to be

constructed in the xy-plane so that

the right angle is at P and PR is

parallel to the x-axis. The x and y

coordinates of P, Q and R are to be

integers that satisfy the inequalities -

4


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or prime.

So, P(a given digit is zero or prime)

= 5/10 = 1/2

A quick way is to look at this as an

AND probability.

P(all five digits are zero or prime) =P(1st digit is zero or prime AND 2nd

digit is zero or prime AND 3rd digit is

zero or prime AND 4th digit is zero

or prime AND 5th digit is zero or

prime)

This is equal to P(1st digit is zero or

prime) x P(2nd digit is zero or prime)

x P(3rd digit is zero or prime) x P(4th

digit is zero or prime) x P(5th digit is

zero or prime)

So, we get 1/2 x 1/2 x 1/2 x 1/2 x 1/2

= 1/32

Contrary to popular belief, credit

cards are a form of money even

though people often refer to

them as "plastic money. " Credit card

users are actually taking out a loan

and sooner or later, they will have to

pay the bill for all those things theyhave charged. They are buying

something now and agreeing to pay

for it at a later date with money,

usually a check.

Many banks issue credit cards, even

to people who aren't regular

customers. Before issuing you a

credit card, a bank will require you to

complete an application form and will

examine your credit record to see if

you have a history of paying back

your debts on time. Many people run

up credit card bills that are too big to

pay off every month. When that

happens customers must pay a

monthly finance charge that can run

anywhere from 10 percent to 24

percent a year. In addition, manybanks and other companies that


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issue credit cards charge their

cardholders an annual fee usually

$20 to $50 a year. Even customers

who pay off their entire credit card bill

every month still have to pay the

annual fee. Banks and credit cardcompanies also charge merchants a

fee for making the credit card service

available. Finance charges, annual

fees, and merchant fees have

become an important source of profit

for banks.

Finally there's another plastic card

that resembles a credit card in

appearance but is actually very

different in functionthe debit card.

A debit card is much more like an

ATM card than a credit card. When

someone uses a debit card at the

gas pump or at a store, the amount

of the purchase is electronically

deducted from the user's bank

balance. There's no monthly bill

because the amount of cashpurchase is deducted almost

immediately from the users account.

What Happens to

Your Money After

You Deposit it inYour Bank

Account?

The bank begins by adding the

amount you're depositing to the

amount that's already in your

account (your existing balance).Your deposit and new balance are


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entered into your "passbook" and into

the bank's computer system. The

money you deposited is mixed in with

all the other cash the bank received

that day.

When you and other customers

deposit money in a bank, the bank

puts most of it to work. Part of the

money is set aside and held in

reserve, but much of the rest is

loaned to people who need to borrow

money in order to buy houses and

cars, start or expand businesses, buy

farm equipment or to plant crops, or

do any of the other things that require

people to borrow money.

Interest - Compounding

When you keep your savings in a

bank, the bank pays you extra

money, which is called interest. The

interest is added to your account on

a regular basisusually once a

month or once every three months

(quarterly). Compounded interest

means that interest is added to your

balance (usually quarterly), then the

next quarter the interest is computed

on your money deposited plus the

last quarter interest.

Example: New Balance = $500. 00

Interest rate = 5% Annual = $25. 00

New Balance = $500. 00

Interest rate = 5% Compounded

quarterly = $25. 72

You would earn $. 72 more with the


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interest compounded quarterly and

the annual yield rate would be 5.

14%. Banks must disclose to you if

the savings account is compounded

and how often it is compounded and

give you the annual yield rate as aresult of the compounding. Some

banks may compound interest as

often as daily. The shorter the

compound period, the higher the

yield rate would be.

There is another side to interest.

When someone borrows money from

a bank, the bank charges them

interest and it charges borrowers a

higher rate than it pays savers. For

example, it might pay savers 5% and

charge borrowers 8% on up to as

high as 25% imposed on some bank

credit cards.

A bank is a business and like other

businesses, banks sometimes fail.

But why should banks go out ofbusiness? Sometimes banks fail

because the people who run them

make poor business decisions such

as expanding too quickly, pushing

too much money into one type of

loan, or using bad judgment making

loans. Sometimes banks fail

because of fraud. Maybe the

president makes questionable loans

to friends or hires unqualified people

and pay them huge salaries.

Things like that happen The bank

begins by adding the amount you're

depositing to the amount that's

already in your

account (your existing balance).

Your deposit and new balance are

entered into your "passbook" and into


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the bank's computer system. The

money you deposited is mixed in with

all the other cash the bank received

that day.

When you and other customers

deposit money in a bank, the bank

puts most of it to work. Part of the

money is set aside and held in

reserve, but much of the rest is

loaned to people who need to borrow

money in order to buy houses and

cars, start or expand businesses, buy

farm equipment or to plant crops, or

do any of the other things that require

people to borrow money.

Interest - Compounding

When you keep your savings in a

bank, the bank pays you extra

money, which is called interest. The

interest is added to your account on

a regular basisusually once a

month or once every three months

(quarterly). Compounded interest

means that interest is added to your

balance (usually quarterly), then the

next quarter the interest is computed

on your money deposited plus the

last quarter interest.

Example: New When you fill in the

blank spaces on one of your checks,

you are telling your bank how much

of your money you want to transfer

and to whom you want it transferred.

You authorize the transfer by signing

y our check. One reason why checks

are so popular is that people can use

a cancelled check to prove they paid


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a bill. In most cases a cancelled

check is as good as a receipt

because it bears the endorsements

of all the persons, banks, companies,

or other organizations that have

handled it. For example if thelandlord claims you didn't pay your

rent, all you need to do is find your

cancelled check and point out that it

was endorsed by your landlord and

your landlord's bank.

Tracing a Check

Through the

Federal Reserve's

Check Collection

Network

1. Your Aunt sent you a $20

Check for your birthday.

2. You deposit the check in your

savings account at your bank.

3. Your bank endorses the check

and sends it to its Federal Reserve

Bank.

4. The Federal Reserve Bank

gives your bank credit for the

check by adding the amount of

the check to your banks

reserve account or clearing

balance.

5. The Federal Reserve

Transportation system flies the check

to your Aunt's Bank FederalReserve Bank.


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6. That Federal Reserve Bank

forwards the check to your Aunt's

bank and deducts the

appropriate amount from thatbank's reserve account.

7. Your Aunt's bank deducts the

$20 from your Aunt's checking

account.

Check 21 is a sweeping new federal

law effective October 28, 2004 thattakes away your ability to get back

your original paper checks. Under

this law, consumers could be more

likely to bounce checks and may find

themselves paying higher bank fees.

The complicated new law gives you

some rights, but those rights depend

on a variety of factors, including how

the merchant and the bank decide to

process your check. Visit the FRB's

web site on the new law:http://www.

federalreserve.

gov/paymentsystems/truncation/.

What is Electronic

Banking?Electronics and computers have

made banking an around-the-clock

business. You can now do much of

your banking even when your bank is

closed. You no longer need to plan

your schedule around your banks

business hours.

Automated Teller Machines (ATMs)
http://www.federalreserve.gov/paymentsystems/truncation/http://www.federalreserve.gov/paymentsystems/truncation/http://www.federalreserve.gov/paymentsystems/truncation/http://www.federalreserve.gov/paymentsystems/truncation/http://www.federalreserve.gov/paymentsystems/truncation/http://www.federalreserve.gov/paymentsystems/truncation/http://www.federalreserve.gov/paymentsystems/truncation/http://www.federalreserve.gov/paymentsystems/truncation/


16/42

are computers that are much like

limited-service bank branches. You

can use them to make a withdrawal,

make a deposit, make a payment,

transfer money from one account to

another, or check your accountbalance. In some cases, ATMs of

different banks are linked together so

you can use them when you travel to

a different part of town or even to

another state. All you need to use an

ATM is a plastic card from your bank

and your own personal password

called a PIN number.

You can also have your employer

electronically deposit your pay

directly to your bank account each

payday. Direct deposit is also

popular among people who receive

Social Security checks or pension

checks because it saves them the

bother of standing in line at the bank,

battling bad weather, or worrying

about being robbed on the way homefrom the bank

Another electronic banking

service is called electronic funds

transfer or EFT. By using EFT, a

bank can transfer large amounts

of money to another bank by

wiring an electronic message.

There is no need to write a checkor load up an armored car with

cash and there's no long wait for

the money to be moved.

Electronic transfers take only an

instant. An electronic message

instructs a computer to deduct a

certain amount 2. You deposit

the check in your savings account

at your bank.


17/42

3. Your bank endorses the check

and sends it to its Federal Reserve

Bank.

4. The Federal Reserve Bankgives your bank credit for the

check by adding the amount of

the check to your banks

reserve account or clearing

balance.

5. The Federal Reserve

Transportation system flies the check

to your Aunt's Bank Federal

Reserve Bank.

6. That Federal Reserve Bank

forwards the check to your Aunt's

bank and deducts the

appropriate amount from that

bank's reserve account.

7. Your Aunt's bank deducts the

$20 from your Aunt's checking

account.

Check 21 is a sweeping new federal

law effective October 28, 2004 that

takes away your ability to get back

your original paper

minimum balance) in your NOW

account in order to keep earning

interest. Only non-business

customers may open NOW accounts,

businesses must use regular

checking accounts.

Money market deposit accounts

usually pay a higher rate of interest

and require a higher minimum

balance (usually $2,500).


18/42

Certificates of deposit (CDs) are

savings deposits that require a

customer to keep a certain amount of

money in the bank for a fixed periodof time (example: $1,000 for two

years). As a rule the rate if interest

your money earns is higher if you

agree to keep your money on deposit

for a longer period of time. (That's

because banks can plan on using

your money for a longer period of

time.) Banks do not offer check-

writing privileges on certificates of

deposit.

Finally, banks don't always call their

accounts by the same names. Often

they choose distinctive names in

hopes of attracting customer. But

sometimes there can be a real

difference between one bank's

accounts and another's, so shop

around.

homebuyers. Most of the loans went

to people who didn't make enough

money to be welcome at traditional

banks.

Credit unions began as a 19th-

century solution to the emergency

needs of people who were unable to

borrow money from traditional

lenders. Before the opening of credit

unions, ordinary citizens had no

place to turn when they faced

unexpected home repairs, medical

expenses, or other emergencies.

Credit unions were started by people

who shared a common bond such as

working at the same factory,belonging to the same house of


19/42

worship, or farming in the same

community. Members pooled their

savings and used the money to make

small loans to one another.

Although there are still differences

between banks and thrifts, they now

offer many of the same banking

services to their customers. Most

commercial banks now compete to

make car loans, many thrifts have

begun to make commercial loans,

and some credit unions make loans

to homebuyers.

used to be. For starters you should

shop around to find out which banks

offer the most competitive services.

Some banks charge a monthly fee if

your account falls below a certain

level and sometimes that fee can be

higher than the interest your accountmay earn.

Some states prohibit banks from

charging fees on savings accounts

held by people under 18 or 65 and

over. Find out if your state has such

a law.

Other things you might want to

consider:

Does your bank pay itsdepositors a competitiveinterest rate?

Is the bank in a convenientlocation and are its businesshours convenient to you?


20/42

Is your deposit fully insured

by the federal government?

Is the bank a good corporate

citizen? Does it invest in yourneighborhood?

Last, but certainly not least, does

your bank provide courteous and

efficient service? Before you open an

account, ask a few people if they are

happy with their bank. All banks are

not the same. It's up to you to do

some comparison shopping before

you open an account.

loans, business loans, checking

accounts, savings accounts,

certificates of deposit, and credit card

services. Some people go to the

bank in search of a safe place to

keep their money. Others go to the

bank seeking money for loans to buy

houses or cars, start businesses,

expand farms, or do any of the other

things that require borrowing money.

Where do banks get the money to

lend? They get it from all the people

who open savings and other types of

accounts. Banks act as a go

between the people who save and

people who need to borrow. If

savers didn't put their money in

banks, the banks would have little orno money to lend.

Your savings are combined with

everyone else's savings to form a big

pool of money. The bank uses that

pool of money to make loans. The

money doesn't belong to the bank's

president, board of directors, or

stockholders. It belongs to thedepositors. That's why banks have a


21/42

special obligation not to take big risks

when they make loans.

How did Banking

Begin?No one knows who started the

world's first bank, but it's safe to say

that banking has it roots in the early

trading civilizations of the

Mediterranean ocean. Without trade

there would have been little need toestablish banks. Without banks there

would have been less money to

finance trading ventures.

Imagine for a moment that you are a

merchant in ancient Greece or

Phoenicia. You make your living by

selling to distant ports with boatloads

of olive oil and spices. You don'tgrow the olive oil and spices yourself;

you buy them from growers or other

merchants. If all goes well, you will

be paid for your cargo when you

reach your destination, but before

you can sail, you must have money

to outfit your ship.

You find it by seeking out people whohave money sitting idle. They agree

to put up the money for your cargo

and supplies in exchange for a share

of your profits when you return from

your voyage. . if you return. The

people with the idle money are

among the world's first lenders and

you are among the world's first

borrowers. You complain that they're

demanding too large a share of yourprofits. They reply that your voyage


22/42

is perilous and they run a risk of

losing their entire investment.

Lenders and borrowers have carried

on this debate ever since.

Today, most people who want to

borrow money go to banks rather

than to wealthy individuals. But the

basic concepts of borrowing and

lending haven't really changed.

People don't let you have their

money for nothing. It's risky to lend

money. There's no guarantee that a

lender will get the money back, even

if the borrower is an old friend. So

why lend money? Why take the risk?

Because lending presents an

opportunity to make even more

money. People will often take a

financial risk if they believe there is a

good chance of making more money.

If a bank lends $50,000 to a

borrower, the bank isn't satisfied to

just get its $50,000 back. In order to

make a profit, the bank charges

interest on the loan. Interest is the

price borrowers pay for using

someone else's money. If a loan

seems risky, the lender will charge

more interest to offset the risk. (If

you take a bigger risk, you want a

bigger return). Of course, the

opportunity to earn lots of interestwon't mean much if a borrower fails

to repay a loan. That's why banks

often refuse to make loans that seem

too risky.

Banks also use interest to attract

savers. After all, people who have

extra money don't have to put it in the

bank. They have lots of choices. But


23/42

in addition to all of the different types

of accounts banks offer depositors,

the added advantage is being able to

get to their money quickly.

How is a Bank

Started?The process varies from state to

state, but here's a simple version of

what it takes to start a bank.

1. Individuals get together anddecide to start a bank.

2. They file an application with thefederal and state bankingauthorities. In Indiana, it's theIndiana Department of FinancialInstitutions.

3. People at the state bankingauthority review the application.They look closely at the financialcondition and the character of theapplicants.

4. After reviewing the application,

the federal and state banking

authorities will either approve

or deny it.

\living by selling to distant ports with

boatloads of olive oil and spices.

You don't grow the olive oil and

spices yourself; you buy them from

growers or other merchants. If all

goes well, you will be paid for your

cargo when you reach your

destination, but before you can sail,


24/42

you must have money to outfit your

ship.

You find it by seeking out people who

have money sitting idle. They agree

to put up the money for your cargo

and supplies in exchange for a share

of your profits when you return from

your voyage. . if you return. The

people with the idle money are

among the world's first lenders and

you are among the world's first

borrowers. You complain that they're

demanding too large a share of your

profits. They reply that your voyage

is perilous and they run a risk of

losing their entire investment.

Lenders and borrowers have carried

on this debate ever since.

Today, most people who want to

borrow money go to banks rather

than to wealthy individuals. But the

basic concepts of borrowing and

lending haven't really changed.

People don't let you have their

money for nothing. It's risky to lend

money. There's no guarantee that a

lender will get the money back, even

if the borrower is an old friend. So

why lend money? Why take the risk?

Because lending presents an

opportunity to make even more

money. People will often take afinancial risk if they believe there is a

good chance of making more money.

If a bank lends $50,000 to a

borrower, the bank isn't satisfied to

just get its $50,000 back. In order to

make a profit, the bank charges

interest on the loan. Interest is the

price borrowers pay for using


25/42

someone else's money. If a loan

seems risky, the lender will charge

more interest to offset the risk. (If

you take a bigger risk, you want a

bigger return). Of course, the

opportunity to earn lots of interestwon't mean much if a borrower fails

to repay a loan. That's why banks

often refuse to make loans that seem

too risky.

SOURCES

PROPRIETORS CAPITAL ORIGINAL

AMOUNT

INVESTED IN

ENTERPRISE

Profit before Taxes

Depreciation STOCK-COMMON/

PREFERRED

AMOUNT

INVESTED BY

SHAREHOLDE

Increase in A/C Payable COST OF PROTOTYPE

DEVELOPMENT &

STUDIES FOR IMPROVED

PRODUCTIO, EFFICIENCY

& PROCESS

DEVELOPMENT (COULD

ALSO BE EXPENSED)

Increase in Bank Loan RETAINED EARNINGS EARNINGS


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RETAINED

AFTER

DISTRIBUTION

OF DIVIDENDS

ACCURED EXPENSES PORTION OF

SALARIES DU

BUT NOT YET

PAID

Total Sources

ACCRUED TAXES PORTION OF

TAXES DUE

BUT NOT YET

PAID

APPLICATIONS SHORT-TERM LOANS LOANS TO BE

REPAID IN

LESS THAN

ONE YEAR

Expenditures for plant/

equipment

Repayment of Long-term

Debt

LONG-TERM LOAN

(current portion)

PORTION OF

LOAN TERM

DEBT DUE FO

PAYMENT

WITHIN ONE

YEAR


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Increase in A/C Receivable

Increase in Inventories

Taxes

Dividends

Total Applications

Increase (decrease) in Cash

RESEARCH AND

DEVELOPMENT

(DEFERRED REVENUE EXPENDITURE)

GOODWILL

PATENTS, CPOYRIGHTS

PRE-OPERATING EXPENSES


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BUSINESS LOSS

* NONPHYSICAL POOSESSIONS OF AN ENTERPRISE EXPECTED TO YIEL

A PERIOD OF YEARS

PETTY CASH

MONEY IN BANK

RAW MATERAIL

SPARE PARTS & CONSUMABLES

WORK-IN-PROCESS FINISHED PRODUCT (UNSOLD)

GOODS & SERVICES SOLD BUT NOT YET PAID FOR


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NOTES & DEPOSITS DRAWING INTEREST, ETC

INSURANCE PREMIUMS LICENSE FEES

RENT

INTEREST ACCRUED

BUT NOT DUE

Current Assets

Cash/ Bank Balance

Accounts Receivable

Inventories

Total Current Assets

Current Liabilities

Short-term Loans

Accounts Payable

Total Current Liabilities

Net Current Assets

Total Assets

Long-term Liabilities


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Long-term Loan

Debenture

Deposits

EQUITY & LIABILITIES

Equity

Equity Share Capital

Preference Share Capital

Retained Earning

Total Equity

LIABILITIES

Equity

Capital Stock

Retained Earnings

Total Equity

Long-term Liabilities

Long-term Debt


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Current Liabilities

Short-term Loans

Accounts Payable

Total Current Liabilities

TOTAL LIABILITIES & EQUIY

CONSISTENCY

ONCE A METHOD OR POLICY IS ADOPTED, SUBSEQUENT

TRANSACTIONS WILL BE TREATED IN THE SAME WAY;

OTHERWISE, CHANGES SHOULD BE EXPLAINED

8) COSERVATISM

TO AVOID OVERSTATEMENT, WHENEVER THERE IS

CHOICE IN VALUING ASSETS OR LIABILITIES THE MORE

CONSERVATIVE VALUE WILL BE USED

9) MATERIALITY

TRIVIALITIES ARE IGNORED. PERSONAL JUDGEMENT AND

COMMON SENSE DETERMINE WHETHER AN ITEM IS TRVIAL OR

NOT


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The Going Concern Concept

ACCOUNTING IS BASED ON ASSUMPTION THAT THE

ENTERPRISE WILL OPERATE INDEFINITELY

4) The Cost Concept

FIXED ASSETS ARE ACCOUNTED FOR AT ACQUISITION COST

RATHER THAN VALUE THEY COULD BE SOLD FOR

5) The Dual Aspect Concept

EVERY (EVENT) TRANSACTION RECORDED AFFECTS AT LEAST

TWO ITEMS IN A FINANCIAL STATEMENT

6) The Accrual Concept

INCOME AND EXPENSES ARISING FROM TRANSACTIONS ARE

RECORDED IN THE PERIOD IN WHICH THEY OCCUR RATHER

THAN THE PERIOD IN WHICH PAYMENT IS MADE. SEEKS TO

MATCH COSTS WITH REVENUES

The raw material has to be cut to size. This is done with a variety of tools.

The most common way to cut material is by Shearing (metalworking);


33/42

Special band saws designed for cutting metal have hardened blades and a feed

mechanism for even cutting. Abrasive cut-off saws, also known as chop saws, are similar to

miter saws but with a steel cutting abrasive disk. Cutting torches can cut very large sections

of steel with little effort.

Burn tables are CNC cutting torches, usually natural gas powered. Plasma and laser

cutting tables, and Water jet cutters, are also common. Plate steel is loaded on a table and the

parts are cut out as programmed. The support table is made of a grid of bars that can be

replaced. Some very expensive burn tables also include CNC punch capability, with a

carousel of different punches and taps. Fabrication of structural steel by plasma and laser

cutting introduces robots to move the cutting head in three dimensions around the material to

be cut.

the maximum output rate a process can achieve under ideal conditions (Krajewski and Ritzman,

2003). The company believes that the CSI effectively communicates how well a process meets

customer specifications, and it provides more useful feedback to the production system. For

instance, a 65% of CSI in cutter operation was measured over a two-month period, which indicates

that only 65% of peak capacity was utilized to meet customer needs. In other words, 35% of

machine capacity was either wasted (due to setup, wait for material, maintenance, or breakdown) or

produced items that failed to meet customer specifications. The 65% of CSI was then used as a

baseline to measure the level of improvement made by this project. The goal (performanceoutcome) established for this process was 80 percent of CSI, which was considered to be the

standard for world-class practice.

Once the measure and process capability for cutting operations was defined, the project

team proceeded to analyze the root cause of poor CSI performance. A Pareto analysis was next

performed, and the team discovered that the cutter grinder accounted for 40% of machine

downtime on the cutting machines (Figure 3). The project team interviewed the operators and

found that, due to lack of proper lubrication of the blades, many cutting heads did not attain their

maximum life. Moreover, as the dull blades were removed for re-sharpening, cutter grinders

became idle and thus failed to keep up with theproduction schedule. Apparently, the dullness of the

blades caused substantial downtime at the cutters. Furthermore, a dull blade also resulted in many

defect-prone items including rough finish along the cutter lines and machine crash. In summary, the

root cause of poor CSI was found to be blade inefficiency, since it caused machine downtime and

defective cutter bodies.

Specifically, neither traditional unit cost reduction nor local operations productivity increase

was used to determine the improvement effort. Instead, the impact of the improvement on overall

quality of axle and system throughput was used to select the improvement project.


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Figure 2 displays a simplified process flow of the Axle manufacturing. Following the TOC

approach, the project team first searched for the bottleneck by identifying operations associated

with large piles of inventory. Gear cutting operation was suspected to be the bottleneck. The

project team further interviewed the operators of the downstream operation, lapping, and

confirmed that lapping was constantly starving for competed ring set from the cutting operation.

Accordingly, cutting operation was determined to be the bottleneck and was chosen as the target

for improvement. Incorporating TOC concept into improvement process enabled the project team

to select a project that could increase the plant throughput and bottom-line performance.

(take in Figure 2)

Value analysis was first performed to determine the various activities in the cutter operation

that add both customer and operational value to the process (Table 1). The purpose of value

analysis is to streamline the value chain to reduce all non-value added waste in the system and tolook for ways to enhance high value-added activities. The machine cycle that includes the cutting

operation is both a customer and operational value-added activity. Improving the yield of a high-

value added activity such as blade cutting would increase the overall capacity of the plant.

Increasing the gear cutting capacity would have a positive impact on manufacturing system

throughput. This could be achieved through a reduction of hours required per gear set, which would

in turn increase the capacity and remove the need for new capacity investments.

(take in Table 1)

After confirming gear cutters as the bottleneck, the project team initially discussed purchasing

additional cutting capacity. The company was using a solvent-cutting device, where the cutting head

was lubricated to increase the shelf life of the cutting blades. Newer technology in this process had

advanced to dry cutting, a significant increase in the life of the blade, thereby increasing the

capacity. However, with the capital constraints facing the plant, it was not feasible to upgrade to the

dry cutting process. As suggested by the TOC concept, the team decided to exploit or maximize

the utilization of the current technology rather than make new capital investment in additional

cutting capacity. In other words, the team would proceed to investigate the current performance of

the solvent-based cutting machines and identifying ways to increase quality and throughput without

additional capital expenditures.

The business case for this project was initiated because of the eroding sales revenue, which

went down by 23% in 2000, while fixed expenses went up by as much as 22% within the same year.

Management was faced with either shutting down the plant or eliminating the non-value added

processes to increase capacity without incurring new capital expenditures. The Axle facility had

some experience in successfully applying Six Sigma to its process improvement. After receiving

training on TOC, managers decided to combine TOC and Six Sigma to guide their improvement

effort. They felt that the concept of TOC could provide them with a focus on global system

improvement. With careful study and planning, an eight-member project team was formed. The


35/42

project team was composed of the plant manager, the controller, two six-sigma certified employees,

and four operators from the plant. One of the authors of this paper and a student team served as

external resources for the project. The team was charged with the responsibility of seeking process

improvement that would result in a minimum of $175,000 savings per year. This was the minimum

standard established by the plant for any major process improvement project. The team started by

reviewing the process map to determine possible bottlenecks in the process. Extensive interviews

were conducted, and an in-depth observation of the processes was undertaken to identify probable

causes of inefficiencies in the system. After the extensive investigation, the cutting process was

singled out as the likely bottleneck operation. The proposed integrated framework was adopted to

make the improvement. The various stages of the process implementation are discussed below.

Phase 1 of this integrated framework is identical to both strategies, and its purpose is to

identify current constraint(s) that block the improvement of global performance, such as meeting

customer needs or improving system throughput. Accordingly, a specific process is selected for

improvement. Phases 2 and 3 follow the spirit of TOC by exploring the capacity of the selected

process. Phase 2 measures the current performance of the process and identifies the root causes

needed to be corrected for improvement. The two phases of Six Sigma, measure and analyze, are

involved in this step. Once the root causes are confirmed, Phase 3 of the integrated approach

applies conventional Six Sigma strategy by using the key manufacturing, engineering, and statistical

techniques to remove root causes of the problem for making necessary process improvement. The

purpose is to best utilize the current capacity of the process without incurring additional capital

expenditures.

Phase 4 ensures the changes made in previous steps are properly supported by the rest of the

system. For example, managers may need to change policies and obtain buy-in from employees to

implement the changes. Training is often required for a revised process. Phases 5 and 6 are taken

from the TOC process. If the improvement of the selected process is insufficient to satisfy customer

needs or goals, managers have to consider various options (e.g., outsourcing and additional

investment) to raise the capacity of the process. Finally, managers must stay alert to the dynamic

nature of the manufacturing system and constantly monitor occurrence of new constraints.

Overall, when the integrated framework is applied to improve a specific process, these twotechniques seem to complement each other. The integration is made by combining the

management aspect of TOC and the engineering aspect of Six Sigma. Specifically, for firms that

apply Six Sigma, TOC provides a global perspective in identifying the constraints and examining

necessary changes to the rest of the systems. On the other hand, Six Sigma brings in the

perspectives of customer needs, performance measures, and engineering and statistical tools during

the stages Theory of Constraints (TOC) was developed by Eliyahu M. Goldratt during the 1980s

(McMullen, 1998). The core idea of TOC is that every organization has at least one constraint that

prevents management from achieving the goal of the organization to a larger degree. Constraints

can be physical resources or policies. TOC develops a set of procedures and methodologies to

identify and optimize such constraints. For the purpose of continuous improvement, TOC uses a

systematic approach which consists of five focusing steps (Goldratt and Cox, 1992).


36/42

1. Identify the systems constraint(s).

2. Decide how to exploit the systems constraint(s).

3. Subordinate everything else to the above decision.

4. Elevate the systems constraint(s).

5. If a constraint has been broken, go back to Step 1. Do not allow inertia to cause asystems constraint.

The implementation of Six Sigma strategy involves a series of steps specifically designed to

facilitate a process of continuous improvement. The strategy takes the key manufacturing,engineering, and transactional processes of entire process through the five transformational phases

(Plotkin, 1999).

1. Define: Identify customer needs and a project suitable for Six-Sigma effort.

2. Measure: Determine what and how to measure the performance of the selected process.

3. Analyze: Understand and determine the variables that create quality variations.

4. Improve: Identify means to remove causes of defects and modify the process.

5. Control: Maintain the improvement.

The primary objective of the five-step process is to recognize critical customer requirements,

identify and validate the improvement opportunity, and upgrade the business processes. A

large number of companies have boosted their profitability, increased market share, and

improved customer satisfaction through the implementation of Six-Sigma. Companies such

as Allied Signal, General Electric, Sony, Texas Instruments, Bombadier, Crane Co.,

Lockheed Martin, and Caterpillar are beginning to dir

The swot anlysis of the Perpetual Inventory System is as under:

STREGTHS:


37/42

Accurate Reporti ng

Companies often experience more accurate financial reporting with a perpetualinventory system. Accountants update the general ledger after each inventorytransaction. This results in a general ledger account that closely mirrors the actual

physical inventory on hand. Owners and managers can then make quality decisionsbased on the accuracy of reporting inventory values. Multiple inventory types alsobenefit from this method, as accountants accurately track each one through thegeneral ledger.

Electronic Management

Perpetual inventory systems often use electronic methods to record transactions. Anexample is the barcode system a clothing retailer uses when selling goods. Each scanrecords data that updates the company's inventory value. Accountants use thisinformation to balance the general ledger. Companies also use the data to order goods

using a just-in-time system. Electronic ordering helps to prevent stock outs and lostsales.

WEAKNESSES:

Cost

Many perpetual inventory systems are expensive. The cost for these systems istwofold. The technology necessary to make the system work can be a major capitalexpense. Updating the system for new changes to the technology is also costly.Training employees to properly use the system is yet another expense. On theadministrative side, companies must find accountants who can work the system andmanage frequent changes to the general ledger.

Process

Perpetual inventory systems are often time-consuming. Electronic updates to acompany's general ledger may result in a need for account reconciliations.

Accountants will often spend copious hours each week or month to reconcileinventory. Persistent errors can also cause further complications. Accountants need tocorrect errors and balance the inventory account prior to closing the company's books.Reporting inaccurate inventory figures can trigger an audit, resulting in potential

problems for the company.

Additional record-keeping Increase workload, increase in staff. Additional costs Staffcosts, costs of computer package to maintain inventory records.

First-In, First-Out (FIFO)is one of the methods commonly used to calculate the value of

inventory on hand at the end of a period and the cost of goods sold during the period. Thismethod assumes that inventory purchased or manufactured first is sold first and newer
http://accountingexplained.com/financial/inventories/http://accountingexplained.com/financial/inventories/


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inventory remains unsold. Thus cost of older inventory is assigned to cost of goods sold and

that of newer inventory is assigned to ending inventory. The actual flow of inventory may not

exactly match the first-in, first-out pattern.

First-In, First-Out method can be applied in both the periodic inventory system and the

perpetual inventory system.

Example

Use the following information to calculate the value of inventory on hand on Mar 31 and cost

of goods sold during March in FIFO periodic inventory system and under FIFO perpetual

inventory system.

Mar 1 Beginning Inventory 60 units @ $15.00 per unit

5 Purchase 140 units @ $15.50 per unit

14 Sale 190 units @ $19.00 per unit

27 Purchase 70 units @ $16.00 per unit

29 Sale 30 units @ $19.50 per unit

Solution

FIFO Periodic

Units Available for Sale = 60 + 140 + 70 = 270

Units Sold = 190 + 30 = 220

Units in Ending Inventory = 270 220 = 50

Cost of Goods Sold Units Unit Cost Total
http://accountingexplained.com/financial/inventories/periodic-journal-entrieshttp://accountingexplained.com/financial/inventories/perpetual-journal-entrieshttp://accountingexplained.com/financial/inventories/perpetual-journal-entrieshttp://accountingexplained.com/financial/inventories/periodic-journal-entries


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Sales From Mar 1 Inventory 60 $15.00 $900

Sales From Mar 5 Purchase 140 $15.50 $2,170

Sales From Mar 27 Purchase 20 $16.00 $320

220 $3390

Ending Inventory Units Unit Cost Total

Inventory From Mar 27 Purchase 50 $16.00 $800

FIFO Perpetual

Date

Purchases Sales Balance

Units Unit Cost Total Units Unit Cost Total Units Unit Cost Total

Mar 1 60 $15.00 $900

5 140 $15.50 $2,170 60 $15.00 $900

140 $15.50 $2,170

14 60 $15.00 $900 10 $15.50 $155

130 $15.50 $2,015


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Under theperpetual inventory system, an entity continually updates its inventory records to

account for additions to and subtractions from inventory for such activities as received

inventory items, goods sold from stock, and items picked from inventory for use in the

production process. Thus, a perpetual inventory system has the advantages of both providing

up-to-date inventory balance information and requiring a reduced level of physical inventory

counts. However, the calculated inventory levels derived by a perpetual inventory system

may gradually diverge from actual inventory levels, due to unrecorded transactions or theft,

so you should periodically compare book balances to actual on-hand quantities.

Perpetual inventory is by far the preferred method for tracking inventory, since it can yield

reasonably accurate results on an ongoing basis, if properly managed. The system works best

when coupled with a computer database of inventory quantities and bin locations, which is

updated in real time by the warehouse staff using wireless bar code scanners, or by sales

clerks using point of sale terminals. It is least effective when changes are recorded on

inventory cards, since there is a significant chance that entries will not be made, or will be

made incorrectly.

Balance sheets complete the sequence of accounts, showing the ultimate result of the entries

in the production, distribution and use of income, and accumulation accounts.Balance sheets and accumulation accounts form a group of accounts that are concerned withthe value of assets owned by institutional units or sectors, and their liabilities at particular

points in time and with the evolution of those values over time. Balance sheets measure thevalues of stocks and are compiled at the beginning and end of the accounting period. On theother hand, the accumulation accounts record the changes in the values of assets andliabilities during the accounting period. They are flow accounts, whose entries depend on theamounts of economic or other activities that take place within a given period of time.In the balance sheets three categories of assets are distinguished:a) non-financial produced assets

b) non-financial non-produced assets

c) financial assets

(i) Periodic stock verification

(ii) Continuous stock verification

(i) Periodic stock verification: It refers to a system where physical stock verification isnormally done periodically, i.e., once or twice in a year. Under this method, value of stock isdetermined by physical counting of the stock on a particular date, usually at the end of theyear.

It is a simple and economical method of stock-taking and is adopted in small concerns. Thistype of verification is good only for the items which do not find place in the perpetual


41/42

inventory records, e.g., works-in-progress, components and consumable stores at site etc. Butthere are many limitations of this method. Stores may' be closed down for a few days tofacilitate stock-taking. There is possibility of fraud] discrepancy, etc.

(ii) Continuous stock verification: This system comprises of counting and verifying i number

of items at random daily throughout the year so that all items of stores are verified severaltimes during the year. Notice of the particular stock to be verified each clay is given to thestore-keeper only on the date of actual verification.

As there is an element of surprise check in this system of stock-taking, effective control overthe items of stores can be exercised. The system does not necessitate the closing down of thestores to facilitate stock-taking. There is also less possibility of fraud and discrepancy, but themethod is expensive and is adopted by big concerns only.

The actual stock of material should not differ from the recorded stock under normalcircumstances. But-sometimes differences arise due to the following reasons:

(i) Breakage and wastage of materials due to improper handling.

(ii) Shrinkage and evaporation.

In earlier periods, non-continuous, orperiodic inventory systems were more prevalent.Starting in the 1970s digital computers made possible the ability to implement a perpetualinventory system. This has been facilitated by bar coding and lately radio frequencyidentification (RFID) labeling which allows computer systems to quickly read and processinventory information as part of transaction processing.

Perpetual inventory systems can still be vulnerable to errors due to overstatements (phantominventory) or understatements (missing inventory) that can occur as a result of theft, breakage,scanning errors or untracked inventory movements, leading to systematic errors inreplenishment.

The ESA95 recommends the Perpetual Inventory Method (PIM) for the calculation of thestock of Fixed assets whenever direct information is missing (par. 6.04). The calculation ofconsumption of Fixed capital can be based on these stocks of assets. Besides net capital stockwhich appears in the Balance sheets can be derived within a PIM approach. In this paragraph

the basic principles of the PIM will be discussed. Using the PIM, gross capital stock iscalculated as the sum of gross fixed capital formation in Previous years, of which the servicelive is not yet expired. In the simplest case it is assumed that the total investment of a

particular asset does not deteriorate during the expected service life of that asset and isdiscarded as a whole after that period of time.

Becoming a preferred employer involves more than learning the characteristics of such an

organization, howeverit also requires that you understand what top performers want and

value in a relationship with an employer. Interestingly, the answers to both questions are the

same.
http://en.wikipedia.org/wiki/Periodic_inventoryhttp://en.wikipedia.org/wiki/RFIDhttp://en.wikipedia.org/wiki/Phantom_inventoryhttp://en.wikipedia.org/wiki/Phantom_inventoryhttp://en.wikipedia.org/w/index.php?title=Missing_inventory&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Missing_inventory&action=edit&redlink=1http://en.wikipedia.org/wiki/Phantom_inventoryhttp://en.wikipedia.org/wiki/Phantom_inventoryhttp://en.wikipedia.org/wiki/RFIDhttp://en.wikipedia.org/wiki/Periodic_inventory


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To begin with, top-tier employers offer more than competitive pay and benefits. In fact, the

word "competitive" implies that you're simply matching what many other businesses are

providing. Even important additional elements, such as a good environment and open

communication, won't necessarily make the difference.

Studies show that the most important factor is how people feel about their role in the

business. Employees perform at different levels based on how they're engaged in the

lifeblood activities of the company. When an employer brings in people who are talented,

aligned with the company's values and focused on its goals, the results can be tremendous.

Want to set your company apart from your competitors? Here are some steps that can help

you draw the best people to your business:

scr banking maths 8.docx

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