PONZI SCHEME

A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for older investors by acquiring new investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers. For both Ponzi schemes and pyramid schemes, eventually there isn’t enough money to go around, and the schemes unravel.

The scheme is named after Charles Ponzi, who became notorious for using the technique in the 1920s. The idea, present in novels (for example, Charles Dickens’ 1844 novel Martin Chuzzlewit and 1857 novel Little Dorrit each described such a scheme), was performed in real life by Ponzi, and became well known throughout the United States because of the huge amount of money he took in.

With the constant fluctuation of postage prices, it was common for stamps to be more expensive in one country than another. Ponzi hired agents to purchase cheap international reply coupons in other countries and send them to him. He would then exchange those coupons for stamps that were more expensive than the coupon was originally purchased for. The stamps were then sold as a profit.

This type of exchange is known as an arbitrage, which is not an illegal practice. Ponzi became greedy and expanded his efforts. Under the heading of his company, Securities Exchange Company, he promised returns of 50% in 45 days or 100% in 90 days. Due to his success in the postage stamp scheme, investors were immediately attracted. Instead of actually investing the money, Ponzi just redistributed it and told the investors they made a profit. The scheme lasted until 1920, when an investigation into the Securities Exchange Company was conducted.

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IMPAIRED ASSETS

 

What is an ‘Impaired Asset’
An impaired asset is a company’s asset that has a market price less than the value listed on the company’s balance sheet. Accounts that are likely to be written down are the company’s goodwill, accounts receivable and long-term assets because the carrying value has a longer span of time for impairment. Upon adjusting an impaired asset’s carrying value, the loss is recognized on the company’s income statement.

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An impairment should only be recorded if the anticipated future cash flows are unrecoverable. The journal entry to record an impairment is a debit to a loss, or expense, account and a credit to the underlying asset. A contra asset impairment account may be used for the credit to maintain the original carrying cost of the asset on a separate line item. The net of the asset and contra asset reflect the new carrying cost. If an asset group experiences an impairment, the impairment adjustment is allocated among all assets within the group. This proration is based on the current carrying cost of the assets.

Asset’s Carrying Cost
The total dollar value of an impairment is the difference between the asset’s carrying cost and the market value of the item. Upon writing off the impairment, the asset has a reduced carrying cost because the adjustment recognized a loss and reduced the asset. In future periods, the asset must be reported at carrying cost. Even if the impaired asset’s market value returns to the original level, generally accepted accounting principles (GAAP) state the impaired asset must remain recorded at the adjusted dollar amount. Any increase in value is recognized upon the sale of the asset.

Depreciation
A capital asset is depreciated based on the carrying cost of the asset. Therefore, if a capital asset is impaired, the periodic amount of depreciation is adjusted. Retroactive changes are not required for fixing the amount of depreciation to record. Only depreciation charges going forward are recalculated based on the impaired asset’s new carrying cost.

Impaired Asset Example
In 2015, Microsoft recognized impairment losses on goodwill and other assets related to its 2013 purchase of Nokia. Upon the acquisition, Microsoft recognized an increase in goodwill of $5.5 billion. However, because it had not been able to capitalize on the potential benefits in the cellphone business, Microsoft recognized the impairment loss as the book value assets and goodwill reported on its financial statements were overstated when compared to the true market value .

KFC now has a branded smartphone .

 

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Huawei’s seemingly turned the concept of luxury brand tie-ins on its head with a limited edition run of KFC-branded commemorative phones .

The Huawei Chang has been produced to celebrate the fact that Kentucky Fried Chicken has been selling its wares in China for 30 years. The phone is apparently a reskinned Enjoy 7 Plus that’s been done over in KFC’s trademark scarlet hue, with the iconic Colonel Sanders logo on the back, just beneath the fingerprint scanner.

As you’d expect, you’ll also be able to browse KFC menus on the go and according to the Chrome translation of this Weibo post, the Huawei Chang comes with 10,000 credits for you to spend in store .

We’re not sure exactly how many wings 10,000 gold translates to, but we assume that’s a fairly generous helping. Perhaps best of all though is a feature that, according to Telecoms, lets you, a la Uber, change the music that’s playing over the speakers in any KFC in China.

Seeing as the Huawei Chang is strictly limited to 5,000 units, we don’t see that causing too many fights in the late night queues for Boneless Banquets. The bad news for any KFC fans outside of China is that Chang is currently only being sold in the People’s Republic.

In other KFC-related news, the fast food chain last year announced the development of a super-thin, grease-resistant keyboard designed to sit in serving trays and packaging that charges your phone while you eat.

How Much do Wimbledon Champions Make?

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Wimbledon. The oldest Grand Slam in the history of the game is also the most coveted. Last year, more than 493,000 attended Wimbledon while nearly 70 million people watched it digitally. Those figures are expected to go up this year. Here’s a few other important numbers about this world-famous event.

140 years

The first edition of the tournament was held at the All England Croquet and Lawn Tennis Club in Wimbledon London in 1877, which is 140 years ago. This featured 22 male players. According to newspaper reports, the winner took home £12 and 12 shillings along with a silver cup worth £26 and 5 shillings. Women became a part of the tournament in 1884.

Big Prize

The oldest Grand Slam is not necessarily the most lucrative one. This year, the Wimbledon tournament increased its total prize pool to £31.6 million (close to $41 million), a 12.5 percent increase over last year. However, the U.S. Open has the largest prize pool at an impressive $46.3 million for 2016, and is expected to exceed $50 million for this year when held at the end of the summer.

A SUCCESS STORY

Billionaire Warren Buffett’s success began at a young age. In fact, the financial genius has been making an income, investing money and paying taxes since the ripe age of 14-years-old.
Buffett’s road to becoming one of the richest people in the world started in 1944, when Buffett was a paperboy in Washington, D.C. How do we know this? The billionaire investor recently shared his 1944 tax returns to PBS NewsHour, revealing how he began building his $75 billion net worth while he was still in school.

The returns show that Buffett was raking in $592.50 in annual income, and declaring $228 in interest and dividend income. Overall, he was paying $7 dollars in taxes. Today, that means 14-year-old Buffett was making $8,221.18 in income, and his investments in today’s dollars would be worth $3,163.59, according to Quartz.

Not only that, but the tax returns also demonstrate Buffett’s meticulous nature. The young Buffett was writing off all of his business-related expenses, including $10 for a watch repair and $35 of “Bicycle – Misc.”
While his tax returns today, which he released during the presidential elections, look nothing like those from 73 years ago, it’s intriguing to see how Buffett got his start — take a look below .

[Source : Entrepreneur.com]

RETURN ON INVESTMENTS – ROI

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A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. ROI measures the amount of return on an investment relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment, and the result is expressed as a percentage or a ratio.

The return on investment formula:

Return On Investment (ROI)

In the above formula, “Gain from Investment” refers to the proceeds obtained from the sale of the investment of interest. Because ROI is measured as a percentage, it can be easily compared with returns from other investments, allowing one to measure a variety of types of investments against one another.

BREAKING DOWN ‘Return On Investment – ROI’

Return on investment is a very popular metric because of its versatility and simplicity. Essentially, return on investment can be used as a rudimentary gauge of an investment’s profitability. ROI can be very easy to calculate and to interpret and can apply to a wide variety of kinds of investments. That is, if an investment does not have a positive ROI, or if an investor has other opportunities available with a higher ROI, then these ROI values can instruct him or her as to which investments are preferable to others.

For example, suppose Joe invested $1,000 in Slice Pizza Corp. in 2010 and sold his shares for a total of $1,200 a year later. To calculate the return on his investment, he would divide his profits ($1,200 – $1,000 = $200) by the investment cost ($1,000), for a ROI of $200/$1,000, or 20%.

With this information, he could compare the profitability of his investment in Slice Pizza with that of other investments. Suppose Joe also invested $2,000 in Big-Sale Stores Inc. in 2011 and sold his shares for a total of $2,800 in 2014. The ROI on Joe’s holdings in Big-Sale would be $800/$2,000, or 40%. Using ROI, Joe can easily compare the profitability of these two investments. Joe’s 40% ROI from his Big-Sale holdings is twice as large as his 20% ROI from his Slice holdings, so it would appear that his investment in Big-Sale was the wiser move.

Limitations of ROI

Yet, examples like Joe’s reveal one of several limitations of using ROI, particularly when comparing investments. While the ROI of Joe’s second investment was twice that of his first investment, the time between Joe’s purchase and sale was one year for his first investment and three years for his second. Joe’s ROI for his first investment was 20% in one year and his ROI for his second investment was 40% over three. If one considers that the duration of Joe’s second investment was three times as long as that of his first, it becomes apparent that Joe should have questioned his conclusion that his second investment was the more profitable one. When comparing these two investments on an annual basis, Joe needed to adjust the ROI of his multi-year investment accordingly. Since his total ROI was 40%, to obtain his average annual ROI he would need to divide his ROI by the duration of his investment. Since 40% divided by 3 is 13.33%, it appears that his previous conclusion was incorrect. While Joe’s second investment earned him more profit than did the first, his first investment was actually the more profitable choice since its annual ROI was higher.

Examples like Joe’s indicate how a cursory comparison of investments using ROI can lead one to make incorrect conclusions about their profitability. Given that ROI does not inherently account for the amount of time during which the investment in question is taking place, this metric can often be used in conjunction with Rate of Return, which necessarily pertains to a specified period of time, unlike ROI. One may also incorporate Net Present Value (NPV), which accounts for differences in the value of money over time due to inflation, for even more precise ROI calculations. The application of NPV when calculating rate of return is often called the Real Rate of Return.

Keep in mind that the means of calculating a return on investment and, therefore, its definition as well, can be modified to suit the situation. it all depends on what one includes as returns and costs. The definition of the term in the broadest sense simply attempts to measure the profitability of an investment and, as such, there is no one “right” calculation.

For example, a marketer may compare two different products by dividing the gross profit that each product has generated by its associated marketing expenses. A financial analyst, however, may compare the same two products using an entirely different ROI calculation, perhaps by dividing the net income of an investment by the total value of all resources that have been employed to make and sell the product. When using ROI to assess real estate investments, one might use the initial purchase price of a property as the “Cost of Investment” and the ultimate sale price as the “Gain from Investment,” though this fails to account for all of the intermediary costs, like renovations, property taxes and real estate agent fees.

This flexibility, then, reveals another limitation of using ROI, as ROI calculations can be easily manipulated to suit the user’s purposes, and the results can be expressed in many different ways. As such, when using this metric, the savvy investor would do well to make sure he or she understands which inputs are being used. A return on investment ratio alone can paint a picture that looks quite different from what one might call an “accurate” ROI calculation—one incorporating every relevant expense that has gone into the maintenance and development of an investment over the period of time in question—and investors should always be sure to consider the bigger picture

DEBENTURES

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A debenture is a type of debt instrument that is not secured by physical assets or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond to secure capital. Like other types of bonds, debentures are documented in an indenture.

BREAKING DOWN ‘Debenture’

Debentures have no collateral. Bond buyers generally purchase debentures based on the belief that the bond issuer is unlikely to default on the repayment. An example of a government debenture would be any government-issued Treasury bond (T-bond) or Treasury bill (T-bill). T-bonds and T-bills are generally considered risk free because governments, at worst, can print off more money or raise taxes to pay these types of debts.

Debentures are the most common form of long-term loans that can be taken out by a corporation. These loans are normally repayable on a fixed date and pay a fixed rate of interest. A company normally makes these interest payments prior to paying out dividends to its shareholders, similar to most debt instruments. In relation to other types of loans and debt instruments, debentures are advantageous in that they carry a lower interest rate and have a repayment date that is far in the future.

Convertible and Non-Convertible Debentures

There are two types of debentures as of 2016: convertible and non-convertible. Convertible debentures are bonds that can convert into equity shares of the issuing corporation after a specific period of time. These types of bonds are the most attractive to investors because of the ability to convert, and they are most attractive to companies because of the low interest rate.

Non-convertible debentures are regular debentures that cannot be converted into equity of the issuing corporation. To compensate, investors are rewarded with a higher interest rate when compared to convertible debentures.

Features of a Debenture

All debentures have specific features. First, a trust indenture is drafted, which is an agreement between the issuing corporation and the trust that manages the interest of the investors. Next, the coupon rate is decided, which is the rate of interest that the company will pay the debenture holder or investor. This rate can be either fixed or floating and depends on the company’s credit rating or the bond’s credit rating.

For non-convertible debentures, the date of maturity is also an important feature. This date dictates when the issuing company must pay back the debenture holders. However, the company has a few options for how it will repay. The most common form of repayment is called a redemption out of capital, in which the issuing company makes a lump sum payment on the date of maturity. A second option is called a debenture redemption reserve, in which the issuing company transfers a specific amount of funds each year until the debenture is repaid on the date of maturity.