The Hindu Business Line : Why `and' in P&L when profit and loss are mutually exclusive?

Your contention that the appellation `profit or loss' account would be more appropriate has a ring of truth to it. This historical wrong however has now found a rationalisation — segment-wise reporting as mandated by AS-17. You would agree that when a company has three products or divisions, with two giving rise to profit and one loss, the financial statement does admit of the description `profit and loss account'.

There can be adduced a genuine justification too. The profit and loss account may have a positive bottomline and the profit and loss appropriation account might have a negative starting point or end line and vice-versa. In such a case, `profit and loss account' does become apt description of the financial statement.

Sachet logic

THE bigger the size, lesser the cost and by so is the selling price. This being so, why are FMCGs sold in sachets? - Shashikant Sisodia, Jaipur

What you say is generally true. But to break into the rural market and to overcome the resistance to fancily priced products, some sort of miniaturisation was inevitable. Selling in sachets was the result. So, sachetisation, as it were, of cold creams makes as much sense as containerisation of cement.

In business, market penetration is as important as cost-cutting. And when the two are at loggerheads, balance needs to be struck.

FI vs FDI

WHAT is the difference between foreign investment and foreign direct investment? - Parveen, Chandigarh

Foreign investment can be categorised into two — FDI and foreign portfolio investment which in India is represented by investments made by foreign institutional investors (FIIs). FDI is more desirable than portfolio investment because the investments thereunder are made directly in the capital of the company and not in the secondary market. FDI helps in increasing production and employment. China has been a great beneficiary of FDI. India unfortunately has not been as fortunate in this respect. However, it does attract huge foreign portfolio investment from FIIs.

It is common knowledge that FII investments have been driving the Indian share market for the last couple of years ever since SEBI opened the floodgates of Indian bourses to them. Economists' regret is that FII investment is fickle as FIIs can sell and go any time taking along precious foreign exchange. They yearn for FDI not only because it is more durable but also to arrest the growing unemployment in this country.

FDI can bankroll mega projects whereas portfolio investments do not add to the production and employment sinews of the country. Of course, Indian corporates are doing their bit for their country.

But that is largely through jobless growth, that is, without creating massive employment opportunities. In fact, their accent has been on pruning the labour force. China's success story has been scripted by FDI.

Developed countries are using it as a manufacturing hub mainly because labour out there is understandably very cheap.

The result is China has stolen a march over us in export-led growth as well as in tackling the festering problem of unemployment.

Of course, thanks to our IT and communication skills, coupled with extensive usage of English language we are one up on China when it comes to outsourcing of services.

But we cannot be complacent because there are other countries notably Ireland, the Philippines, and so on, snapping at our heels.

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in)

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