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Understanding the Entity Concept

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Entity Concept, also known as business entity concept or separate entity concept states that a business organization and its owners are two different persons.

Legally, corporations and large companies are identified as separate person to their owners, but the same topic has always been confused in the case of sole proprietorship or partnership in the sense they have unlimited liability. Even in day to day life, if a sole proprietor earns profit in his business, it is perceived as his/her personal revenue and in case of losses, it is considered to be his personal liability. While it may hold good on legal and social grounds, same doesn’t apply in accounting terms.

For example,

Mr. A is a sole proprietor and he owns a restaurant. He has invested some initial capital for running this business and in return receives profit earned by it. Even if it is his own money, the capital amount and the earnings are liability to the restaurant, which it owes to its owner.   Now suppose, he spent some money to repair his house or buy things for his family. Such expenses are his personal expenses and are totally unrelated with the business. Hence, they should not be charged in the business expenses.

While maintaining the book of accounts, the personal expenses of the owners and the business expenses should always be distinguished as per the Entity Concept. Only then, the accurate picture of the business profit or loss can be determined.

The author is a CA student.  If you want to add more information on the given post, please comment below and your comment will be incorporated in the article.


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Business

Financial Literacy: Inflation, the rat that eats your money

This article is brought to you in partnership with Muktinath Bikas Bank as part of our mission of spreading financial literacy among our readers.

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You must have heard many times people saying “10 years back, the price of momo per plate used to be 50 rupees and now its 100,” “back then rice used to cost 50 rupees per kg and now it costs 100 rupees.” In simple terms, they call it price rise (mahangi) and in economic terms, it’s called inflation.

What is inflation

Inflation is the decline of purchasing power of a given currency over time. Like for example, if you could buy a packet of milk at 30 rupees but if it now costs 50 rupees, what actually has happened is a decline in purchasing power of the currency because of which, what you could buy at 30 rupees, to buy the same thing now you need 50 rupees.

In economic terms, it’s not the price that has risen up but the purchasing power of the currency has decreased.

What causes inflation

Answer is complex, because well! economics is complex. Since this post is to give a simple guide over inflation, let’s keep it simple. There are various factors that can drive prices or inflation in an economy but typically speaking, inflation results from an increase in production costs or an increase in demand for products and services.

Production cost: Let’s say the government hiked the taxes, employees demanded a raise in salary, the farmer association raised the price of wheat, and all that increased the production cost of bread by 10%. That rise in production cost will rise the cost of bread. The bread that you could get at 20 rupees will now become 22.

Increase in demand: Because of lockdown, everyone is hoarding rice. Rice is in high demand. In free markets, the traders will raise the price of rice. Now, the rice that you could get at 50 rupees per kg will cost you 60 rupees.

That way, what you could buy at X amount, now you need to pay Y amount to get the same thing. That’s inflation.

What inflation should mean to you

It should mean everything to you. Imagine you have 1 lakh in your account in 2021. In one year, the market inflated by 50%, meaning your 1 lakh has become 50 thousand. Of course, in 2022, you will still see one lakh in your account, but its actual value only equals to 50 thousands that of 2021.

Currency itself means nothing. The value of your currency is determined by its purchasing power. If in 2000 you could buy a packet of milk at 10 rupees rupees and the very same milk if costs 50 rupees now in 2021, technically speaking, the value of your money is eroded by times 5. That means, in 2000, if you had kept 50 thousands in your secret vault at home, in 2021, when you take that money out, that money would be worth only 10 thousands.

See, inflation eats your money!!

That is why inflation is the biggest concern of every government and economist. Generally, moderate inflation is considered good for economics and is aimed to be kept at around 2-3% by central bank or federal bank.

How to save your money from eating up by inflation

Simple answer, grow your money at a higher rate than the inflation rate. Keeping it under the mattress will only eat all your money in the long run.

There are two ways of growing your money:

  1. Invest.
  2. Give it to a bank.

Investing means putting your money into business. Say, if you have invested 100 rupees and it earns you 200 rupees, your money has grown by 100% which by adjusting with inflation rate of 5%, it has still grown by around 95%.

However, investment is subject to market risk. 100 rupees invested may also become Rs. 10 if business fails. That’s why wise financial advice is – never invest all your money and instead put some over saving accounts that you would earn interests.

There are different types of saving accounts out there offered by banks ranging interest rate from 2% to 7% depending on type of saving accounts. This is where you should be careful.

Since now you understand inflation, imagine this – you keep your money in bank that offers you 2% interest, whereas inflation rate is 4%. In this case, even by keeping your money in bank, your money is still being eaten up by inflation.

Never keep your money in banks that offer less interest rate than inflation rate!

Many people’s confusion and the solution

Many people, especially youth, are not interested to locking their money in bank in fixed deposit because they may not be able to use or pull their money when they want before the maturity. Instead, they want it to be in a floating state. That way, they have their money in bank and still have the freedom to pull or use it anytime they want.

Problem with the most of such saving account is that they offer very little interest of 2-3%, but since now you know, it is always wise to find a bank that offers interest rate higher than the inflation rate, Muktinath Bikas Bank has come up with the solution to your dilemma through saving account “Muktinath Sambridhi Bachat Khata.” Unlike a fixed deposit account, you can draw your money at anytime you want yet you will be earning interest at 5.01%, which is higher than the predicted inflation rate for the year 2021. Another interesting and impressive feature of this saving account is that you earn interest on a monthly basis, unlike standard practice in the market of quarterly payment.

The perfect solution for those who don’t want to lock their money in fixed deposit yet want to earn interest more than the inflation rate.

Hope, this article helped you to get the clear understanding of what is inflation, how it affects you and your money and how to safeguard your money from being eaten up by inflation. Also, hope you liked the solution offered by Muktinath Bikas Bank. You can apply for theMuktinath Sambridhi Bachat Khata by CLICK HERE.

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Business

Tell us about your business

Tell us about your business/company and we will turn them into an article for Internet users.

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Hello all business owners and entrepreneurs out there,

We are pleased to announce that we are creating company profiles and publishing them through our website, so that our readers and audience get to know about your company and your business in much simplistic way.  We also believe that with right SEO and web management, those information will be reaching to many internet users, which shall benefit you in a longer run.

Our plan

The provided information will be compiled to turn into an informative article as a company profile and publish them through this website, so that whenever someone wants to learn about your company by searching through Search Engine or by directly on our website, they get to learn basics about your company with an ease.

Why we are doing this

  1.  We are mission-based company, in a mission of “creating an informed society.”  It’s part of our mission to create information about companies and businesses from Nepal and make the information easily accessible to people on internet.
  2.  Your company’s basic background information will be handy for us when we plan to interview or cover your business.
  3.  Our mission is also “to promote local businesses and activities.

Where to start

We have embedded a google form in this article itself.  You either can fill it up directly here itself or you can CLICK HERE to open in separate browser and fill it up.  We expect all questions be answered since those answers are dots to draw a complete picture of your company, skipping which may give an incomplete looks to your company profile.

Once you have submitted the form, we will go through it and turn it into an article as your company profile, which will be notified to you through email or phone.

It’s indeed is a great opportunity for you and your company.  Hope you will grab it.



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Business

What is Seed Capital?

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Just how a germinating seed needs water, sunlight and proper nutrients to grow into a beautiful plant, any budding entrepreneur also needs funds to implement his/her startup ideas. This initial investment which helps to cover up the basic operating expenses, research and development expenses etc to grow the business until the product itself starts generating revenue is called Seed capital or Seed funding. Generally, seed capital is considered as the first round of investment until one develop his/her business to a certain level after which he/she can find venture capitalists to invest in them. So, where does the seed capital come from? Some of the easy sources may include :

  1. Friends or Family
  2. Crowd Funding
  3. A seed-stage angel investor
  4. Corporate seed funds for startups
  5. Self – financing
  6. Government subsidized loans and grants

Finding an investor can be a challenging task as your startup is still in conceptual phase. Generally, the banks often ask for collateral against the applied loan. Even more, the interest rates may be high and not every person can afford to take the risk. On the other hand, investors may invest in you and your idea in exchange for certain equity in stake. This means you will be losing your share of full decision making authority over your business in exchange for his contributed amount of capital. However, reaching out for friends and family or using your own savings is always a good idea if you don’t want to get involved in debt. There are also government grants and subsidized loans in recent years that plan to support to aspiring entrepreneurs in the country. So, before you make your decision, make sure to do a good research and weigh all the pros and cons of each source to find one that actually compliments your business model, as it plays a determining role in the future of your business.

The author is a CA student.  If you want to add more information on the given post, please comment below and your comment will be incorporated in the article.


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Help Us Getting Better:

We put our utmost effort in creating genuine contents, factual and rational, and been working  hard to give best experience to our readers and users.  However, there can be mistakes, glitches and lapses.  Help us getting better by correcting us whenever you notice false information or wrong facts in our posts.  You can do that by commenting on the post or by mailing us in [email protected].  Also, if you experience any bug in our website or any kind of issue in our website, let us know immediately by mailing us.

Thank you for your time.  We are better together.

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