Net assets is the difference of total assets and total liabilities of a firm.
The accountant of XYX Ltd comes with the below figure.
Total assets of company = INR 10,00,000
Total liabilities of company = INR 7,00,000
Management asks to calculate the net assets. He follows the order and makes his calculation as given below:
Net Assets = 10,00,000 – 7,00,000 = INR 3,00,000
An underlying asset is the financial asset upon which a derivative’s price is based.
Often stocks, bonds, commodities, currencies, interest rates and market indexes are considered as underlying assets.
Chattel mortgage is debt instrument in which loan is extended to borrower on movable property.
Usually land and buildings are used as mortgage however when personal movable properties like appliances, car, jewelry, etc. are used rather than non movable properties, it is called a chattel mortgage.
Strike price is the fixed price at which holder of a call option can buy the underlying asset irrespective of its market price until the expiration of contract.
For a put option holder, it is the price at which underlying assets can be sold until the expiration of contract.
The strike price is determined at the time of entering into a derivative contract.
In a call option, if it remains lesser than the spot price (market price), the holder can exercise the option to earn profit.
On the other hand, in a put option, the holder of the option can earn profit only if strike price is more than the market price.
On 1st January 2018, Mr A entered into a derivative contract to buy 100 shares of company XYZ Ltd at a strike price of INR 85. The expiration date of contract is 3 months i.e. 31st March 2018. On 1st of January the market price was INR 82.
In the month of February, market price increased from INR 82 to 97. Mr A has the right to purchase the 100 shares of XYZ ltd at a price of INR 85 or Mr A can wait for further hike in share price till the expiration of contract.
In the month of February, market price increased from INR 82 to 97. Mr A has the right to purchase 100 shares of XYZ ltd at a price of INR 85 or Mr A can wait for further hike in price till the expiration of contract.
Accrued expense is an expense that has been incurred but has not yet been paid. Put it in simple words, payment for these expenses are done after the product or service is taken. For example, salaries & wages, interest on bank loan, income tax etc.
Contrary to prepaid expense, an accrued expense is treated as current liability (If the expense is expected to be paid with a year) and shown on liability side of a balance sheet.
These expenses are recorded for the period in which they incur and not for the period in which payment is made.
For example, company XYZ ltd paid salaries to its employees for the month of March 2017 on 3rd April 2017. The company will make a journal entry for the month of march (for which salaries were issued) and not for the month of April (in which salaries were paid).
