What are Assets & Liabilities?

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A Financial Literacy Article by Dominic Shum, DRC Services

Most of us have assets, some have less and some have more. Our assets includes everything that we own including the air around us, the chair we are sitting on and our mental or physical capabilities. However, do you know that when you see listings of assets in financial statement, you might be surprised as to what qualifies as an asset as envisaged by accountants and regulators alike. In financial statements’ human resources are not considered assets although it is something useful; most CEO i know places Human Resources as their No.1 assets. But their accountants will beg to differ.

In the world of financial and accounting information, a resource needs to fulfill 4 conditions before it can be rightly called an asset of the corporation (or any reporting entity) that reports it. Diagram A below sums it up.

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Diagram A Characteristics of Assets – An accountant’s view

So lets say my company buys a printer for use in my office. I typically pay with cash of RM300 (Measurable cost) as its not too expensive (result of past event). I will then use it for my work and maybe for the next 3 years as well (future benefits)…. Also since I paid for it and obtain an invoice which says that its fully paid, I now own the printer (controlled). There!! The printer meets all the condition and it is officially my company’s asset.

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Diagram B- Liabilities

On the other hand liabilities are claims from external parties for payment in respect of transactions entered by the company which has resulted in economic benefit to the company. See Diagram B above for the type of liabilities usually found in financial statements. DS

Dominic Shum is a trainer, consultant & writer. He is a qualified accountant and has been working in financial management field for more than 26 years. for more information about him, visit his profile @ https://about.me/dominicshum  
© 2017 Dominic Shum. All Rights Reserved including diagrams

Why do we need budgets?

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Businesses carry out the budgeting exercise yearly to ensure that they have a set of performance data that they can use as a guide to operations in the coming year. However, in an article by PwC (FSI, 2010), they claimed that “Executives and other stakeholders have long vilified the budgeting and planning processes“. As a financial executive doing budgets year in year out, I too found it perplexing that since it will never be accurate why even bother? In fact, I would say that before the new period or financial year arrives, it will be obsolete already given how fast the business environment changes in recent times. Akten (2009) noted that in these times of economic volatility there is a need for faster budget processes more closely connected to strategy through the CFO’s active intervention so that despite the special challenges, companies can greatly improve their chances of coping with the uncertainty they now confront.

As a consultant and a trainer looking in from the outside now, I believe that budgets or the process of budgeting still have a role to play in financial management and this is on top of the obvious role of having a set of information to monitor actual performance against. The important part of budgeting is not the pieces of paper the budget is printed on (like an emperor’s edict of old) but the process. Going through the process makes use look closely at what we can do in order to achieve the organization’s short term objectives. If we did not do budgeting and debated the pro and cons of the activities to be budgeted how are we to know which path is the correct one? For example; without budgeting or the development of a sales budget, how would production know how much resources to garner for the next year’s production and what they should be producing? Budgeting forces us to map out our journey for the next period.

Another benefit of the budgeting process is the need to communicate information such as availability of resources, production capacity, human resources availability, sales levels and other crucial information at the budgeting stage. The sharing of such information and the verification thereof during the budgeting stage can be an excellent practice session for improving coordination and linkages between various department and reducing interdepartmental friction. Activities will tend to be better coordinated in the actual operational period. In Addition, targets set during budgets are also good motivational tools for managers to improve their ability to manage revenues and cost. When they are involved in the process of setting the targets, they tend to take ownership of the responsibility of reaching those targets . Such targets can also be used as realistic performance appraisals KPIs.

So, don’t ditch the budget yet even though to some its cumbersome and costly as it is still useful in a corporate setting. A budget as it is, provides a benchmark against which actual performances can be measured  but as we can see above, it’s processes provides much more benefits to the organizations.

Bibliography
Akten, M., 2009. Just-in-time budgeting for a volatile economy. [Online]
Available at: http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/just-in-time-budgeting-for-a-volatile-economy
[Accessed 23 March 2016].
FSI, 2010. Breaking the Cycle: The Case for Eliminating the Budget. [Online]
Available at: http://www.pwc.com/us/en/financial-services/publications/viewpoints/viewpoint-eliminating-budget.html
[Accessed 23 March 2016].
By Dominic Shum,  12 April 2016- Revised  5 May 2016
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A Strategic Look at the Private Education Industry In Malaysia

Challenges in  Industry
A Strategic Look at the Private Education Industry In Malaysia

by Dominic Shum Feb 2016.

Since the introduction of the Private Higher Education Act in 1996, the industry has transformed itself from a dull listless backwater industry into a thriving industry with enrollment of more than 1.5 million students  in 2013 including tens of thousands of foreign students. The certainty that comes with having a legislation and the introduction of the Malaysian Qualification Framework  which is modeled along the British Education Systems. Within a few years the number of private colleges and other institutions of higher learning sprouted up. As the lack of expertise or academic capability was apparent, many colleges resorted to providing UK, US and Australian qualifications under twining programs and later when the experience was garnered 3+0 programs were introduced.

With the coming of age of local institutions of higher learning, those which benefited from the growth of the industry then proceeded to open up or upgrade themselves to university colleges and universities. These includes colleges like HELP, SEGI, UCSI, KBU, KDU and many others. Looking at the attractiveness of the local market and the growth of local academic talents, foreign universities then started to position themselves in the market. These include Nottingham University, Monash University, Manipal University and many more. The rapid development now posed a new challenge to the players and overcrowding  of the sector became a reality with more than one hundred universities or university colleges and a few hundred other college level institutions.

PHEIs now have to work out new strategies to tackle the new market dynamics and the forces that affect their survival. Conceptually the forces that provide the challenges are shown below and the challenges includes factors like Funding, Cost Management, student attrition , regulations and margins.

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Funding refers to student funding. A lot of growth in the first 15 years was driven by easy money in the form of PTPTN loans/grants, MARA loans/Scholarships, Bank Loans, EPF withdrawals. As we now know MARA and PTPTN funds have at some time another was a very challenging factor. The industry is also concerned with the rapid rise of academic salaries and other cost which eats info the profit margin of the PHEIs. Student attrition is also an alarming challenging  which must be handled well. The industry is also concerned with margins as this as cost began to rise while fees are becoming more competitive which was sensitive to PTPTN and MARA’s disbursement quantum. Lastly, being caught out by changes in the government regulation could be a disaster for PHEIs not unlike the situation Masterskills found themselves in.

In order to thrive, PHEI must constantly monitor the environment and conduct strategic analysis of the industry when necessary to come out with new strategies to even survive let along succeed. The five factors or challenges must be taken care of and monitored closely. the demand side of the industry is always there and is projected to grow but PHEIs must look within to find the best answer as to how such demand will be made and be met profitably.

References:
  1. Guidebook-Getting Started, PHEI Business in Malaysia (2009), retrieved February, 2.2016 from http://www.mampu.gov.my/documents/10228/25989/21-PHEI_Guidebook.pdf/bb929c17-91e5-4029-8b28-55bce6ff52df
  2. Malaysian Qualification Framework (2011), retrieved February 4, 2016 from  http://www.mqa.gov.my/portalMQA/dokumen/MALAYSIAN%20QUALIFICATIONS%20FRAMEWORK_2011.pdf