Financial Arithmetic

Learning Outcomes:

After reading this post the readers are able to understand 

1- what is partnership?

2- what is inheritance?

3- what is banking and it's other related terms like

PLS saving account,

Current deposit account,

PLS term deposit account,

Foreign currency account,

Negotiable instruments like

Cheque, demand draft,pay order, online banking, ATM , debit card, credit card,

4- readers are able exchange or conversion of currencies.

5- Readers are able to calculate profit ,loss and markup and also discount.

6- Readers are able to know the types of finance like

Overdraft, Running finance, Demand finance and leasing also.

7- Readers are able to calculate percentage %.

8- Readers are able to well known about insurance and its types like,

Life insurance

Vehicle insurance and about income tax.

Let's start...

Partnership: (شراکت)

A business (کاروبار)  in which two or more persons run the business and they are responsible(ذمہ دار) for the profit and loss is called the partnership. 

If the partners( شراکت دار) start the business and close it together with same or different investment capital, this partnership is called a simple partnership( سادہ شراکت داری). 

If the partners contribute (شامل) different capitals for different time periods or at least one partner contributes two or more capitals for different time periods, then this partnership is called a compound partnership ( مرکب شراکت داری). In this case the profit or loss (نفع اور نقصان) is divided in the ratio of monthly investments.

Example:

Saud & Ammar start a business with capitals of Rs 56000 and Rs 64000 respectively. After 1 year they earned a profit of Rs 22500. Caculate the share of each one.

solution:

Example:

Tahir start a business with a amount of Rs 15000. after five (5) months Umer also joined him with an investment of Rs 30000. At the start of nine (9) months Usman joined them by investing Rs 45000. At the end of year they earned a profit of Rs 406000. Find the share of every one.

solution:

Inheritance: (وراثت )

When a person dies, then the assets (اثاثہ) left by him are called inheritance and it is distributed among his legal inheritors ( ورثہ) according to Islamic Sharjah Law (شریعت اسلام). In Islam the principles (اصول)of distribution of inheritance are given below.

First of all his/her funeral expenses(تجہیزوتکفین کے اخراجات) and all his/her all debt be paid.

Then execute the will upto one third (1/3 ) of his/her property if asked for.

Then distribute (تقسیم) the remaining inheritance accordingly.

We can understand the procedure(طریقہ) of inheritance with the help of following examples.

Example:

A person left his property (جایداد) of Rs 640000. A debt (قرض) of Rs 40000 was due to him and Rs 5000 was spent on his burial(تدفین). Distribute the amount between his widow ( share 1/8), one (1) daughter and two (2) sons according to the Islamic law.

Solution:

 

BANKING: (بینکنگ)

It is a business activity of accepting (وصول کرنا) and safeguarding (حفاظت کرنا ) the money and then earn a profit by lending out this money. 

Define Commercial Bank deposits: 

(کمرشل بنک ڈیپازٹس کی تعریف )

The function of bank which accepts deposits, provides loans and other services to the clients (لوگ۔گاہک) is known as commercial banking. 

Types of a Bank Account:

There are four types of bank accounts.

 1- PLS Saving Bank Account: (نفع و نقصان شراکتی سیونگ اکاونٹ)

It is an account on the basis (بنیاد) of profit and loss sharing. The bank uses the deposits in some business (کاروبار) and gives the share in profit and loss to the account holder at the end of specified period(مخصوص وقفہ). This account is meant to encourage (حوصلہ افزاٸ) the saving habits among the persons having small income means. Zakat (زکوٰۃ ) is deducted on notified balance on first Ramadan each year. 

2- Current Deposit Account: (کرنٹ ڈیپازٹ کاونٹ)

This account is usually opened by businessmen (کاروباری آدمی ) who have a number of deposits and withdrawal regularly. It is a running account and no interest (نفع) is paid on its balance. In this account amount can be deposited and withdrawn (نکلوانا) at any time during banking hours without any notice. No Zakat is deducted (منہاکرنا) on this account.

 3- PLS Term Deposit Account: 

(نفع و نقصان شراکتی ٹرم ڈیپازٹ اکاونٹ)

This account is free of interest(سود). PLS term deposit holder(کھاتہ دار) shares profit and loss on the rate determined by the bank after every six months. The rate of profit on fixed deposits is comparatively (نسبتاً ) higher than saving deposits. 

4-Foreign Currency Account: (فارن کرنسی اکاونٹ)

A foreign currency account (کھاتہ) is the account maintained in a commercial bank in the currency other than Pakistani currency. Usually foreign currency accounts are maintained in Dollars ڈالر, Pounds پاونڈ , Euro یورو  etc. Foreign currency accounts are exempted (چھوٹ) from Zakat and taxes. Rate of profit in this account is very low(بہت کم).

Describe negotiable instruments(نیگوشی ایبل انسرومنٹس) 

like cheque, demand draft and pay order:

 Negotiable Instrument: 

It is a document (کاغزات) which can be transferred from one person to another. It is payable either to the order of the bearer (مالک) or to his agent(نماندہ) as the case may be. This document is entitled to receive that amount which is mentioned (ذکر) in it. 

Cheque: (چیک)

A cheque is a written order that instructs a bank to pay the specific(مخصوص) amount from a specified account to the holder of the cheque. A crossed cheque (کراس چیک) has to be deposited in the specified account. 

Demand Draft: (ڈیمانڈ ڈرافٹ)

It is a method used by individuals(انفرادی) to make transfer payments from one bank account to another. The bank receives (وصول کرنا) the money in advance before it issues the draft. A very small fee is charged (فیس وصول کرنا) by the bank to prepare it. 

Pay order:  (پے آرڈر)

It is a document which instructs (ہدایت نامہ) a bank to pay a certain amount to a third party. Pay order issued by the bank on the request of its customer (گاہک). It is issued (جاری کرنا) on the receipt of full amount for which a pay order is issued by the bank. It can be encashed (رقم حاصل کرنا) from any other bank.

 Online Banking

Explain online Banking:(آن لاین بینکنگ کی وضاحت)

The use of Internet by banks to assist (سہولت) their customers through on-line banking. It allows customers to perform banking transactions (منتقلی) such as money withdrawal, pay utility bills and transfer funds from their account to another account. A good online bank will offer its customers (گاہک) just about every service traditionally available through a local branch.

Transactions through ATM (Auto Teller Machine): (اے ٹی ایم)

An automated teller machine (ATM) is electric devices (الیکٹرانک مشین) that allows a bank's customer, to draw cash and check their account balances (کھاتہ کی رقم) without any need for a humane teller. The transactions are as given below.

Withdraw money, 

make deposits, 

print a statement,

check account balances(بیلنس ) and trasfer money (رقم) between accounts.

 Debit Card: (ڈیبٹ کارڈ)

It is a plastic payment card that provides card holder electronic access (رسائی ) to his bank account at anytime and anywhere. It is a facility provided (مہیا کرنا ) to the customers to perform different transactions. It is a smarter and secured (محفوظ) way to make quick payments at the time of purchase (خرید کرنا) of different goods from traditional or online market.

Credit Card (Visa and Master): (کریڈٹ کارڈ)

 It is a thin plastic card which can be used to buy articles(خریداری اشیاء ). Visa and Master cards are used worldwide (ساری دنیا) for making payments. These are not the names of cards but are the names of global credit card companies(کمپنیاں). Credit card holder is charged an annual fee(سالانہ فیس). 

Conversion of Currencies: (کرنسیوں کا تبادلہ)

A foreign currency exchange rate (تبادلہ کی شرح) is a price that represents how much it costs to buy the currency of one country using the currency of another country.

 Convert Pakistani Currency to well-known international (بین الاقوامی)currencies:

Currency conversion rates are not permanent (مستقل) but these change day by day. We use these currency rates to convert(تبدیل) Pakistani currency to differen international currencies. (rate of US $ is equal to Rs. 157)

Example:

Mr. Naeem wants to exchange( تبدیل کرنا) Pakistani Rupees 50000 to US dollars. How many US dollars will he receive? (1US dollars = 157 rupees)

Solution:

Amount to be changed = 50000 rs

Rate of 1 US dollar = 157 rs

Number of US dollars = 50000 / 157 = 318.47 US dollars Ans.

Example:

Change 75000 Pakistani Rupees in UK pounds ( 1UK pound = 218 rupees)

Solution:

Amount to be changed = 75000 rs

Rate of UK one UK pound = 218 rs

Number of UK Pounds = 75000/218 = 344.03 UK Pounds Ans.

Profit / Markup

Profit: (منافع)

When we deposit (جمع کروانا) money into a bank, the bank uses our money and in return pays an extra amount(اضافی رقم) along with actual deposit. The extra money which the bank gives for the use of our amount is called profit (منافع) on the deposit.

Markup: (مارک اپ)

When we borrow (قرض) money from bank to run a business, the bank in return receives some extra amount alongwith the actual money (اصل رقم) given. This extra money which the bank receives (وصول کرنا) is known as markup.

Principal amount: (اصل رقم)

The amount we borrow (ادھار لینا) or deposit (جمع کروانا) in the bank is called principal amount.

Profit / Markup rate:

The rate (شرح) at which the bank gives share to its account holders (کھاتہ دار) is known as profit / markup rate. It is expressed in percentage.

Period:(مدت)

The time for which a particular (خاص) amount is invested in a business is known as period. 

How to calculate profit/markup: (منافع اور مارک اپ معلوم کرنا)

For calculation of profit/markup we use following formula.

Profit/markup = principal × time × rate

OR  I = P × R × T

Now we solve some examples by using this formula.

Example:

Younis borrow Rs 65000 from bank at the rate of 5% for two (2) years. Find or calculate  the amount of markup (مادک اپ) and the total amount to be paid.

Solution:

Example:

A student purchase a computer by taking loan from the bank on simple interest. The student took loan of Rs 25000 at the rate of 10% for 2 years. Find markup to paid and the total amount to be paid back.

Solution:

Calculate Principal Amount: (اصل زر معلوم کرنا )

The formula used in previous(سابقہ) examples, we will use same formula for principal amount as,

Profit/markup = principal × time × rate

Now

Principal amount = profit or markup/ ( Rate × time)

Example:

Find the principal amount is taken to bring in Rs 640 as profit at the rate of 4% in two (2) years?

Solution:

Example:

A man got some loan on which he has to pay Rs 3500 as markup at the rate of 10% for 3.5 years. Find the amount of loan.

Solution:

Calculate (profit/markup) rate: (منافع یا مارک اپ معلوم کرنا)

Profit/markup = principal × time × rate

Rate = markup / (principal amount × Time)

Example:

At what annual rate percent (%) of markup (مارک اپ) would the principal amount ( اصل زر) Rs 68000 become Rs 86360 in three (3) years ?

Solution:

Calculate the period (Time): (مدت معلوم کرنا)

Profit/markup = principal × time × rate

Period (time) = markup / (principal × rate)

Example:

A man got loan from bank at the rate of 3% per year for some period. In how much period ( کتنے عرصہ میں) his loan of Rs 65000 will become Rs 68900.

Solution:

Types of Finance:

Overdraft (OD): ( اوور ڈراٹ)

It is a borrowing facility (سہولت) provided by a bank to account holder to withdraw (نکلوانا) some amount in excess of his original account balance. In other words if there is no amount left in an account and the bank does not send a cheque back due to lack (کمی) of funds in the drawer's account, then this is called Overdraft. 

Running Finance: (گردشی سرمایہ)

Running Finance is very similar (ایک جیسا)( to overdraft. The aim of running finance is to give a chance (موقعہ) -to the customers to withdraw more money that they actually have. Therefore it can be considered (تصور کرنا) as a credit facility which is meant for a credit limit with a variable interest rate. Usually (عام طور پر) the running finance is granted for a period of 1 year.

Demand Finance: ( ڈیمانڈ فنانس)

One can think of demand as a person's willingness (مرضی) to go out and buy a certain product. For example market demand is the total of what everybody ( ہر آدمی) in the market wants and is willing to pay for. To meet (پورا کرنا) these requirements banks have demand finance. Demand is a type of loan (قرض) that may be called in by the bank (or lender مقروض) at any time. It may be either short (مختصر)term or long term.

Leasing: (ٹھیکہ)

A lease is a contractual agreement (معاہدہ) between the lessee (user)(اثاثہ کرایے پر لینے والا) to pay the lessor (owner) for the use of an asset. It means the user rents (کرایہ) the land or goods rented out by the owner. The ownership of the leased asset during the leased period (اٹھیلہ کا دورانیہ) known as term remains with the lessor. Hire purchase is a method (طریقہ) of buying goods in which payments of purchase price is spread over specific term by payment of an initial deposit known as the down payment(ڈاون پے منٹ). It is explained with the help of examples.

Example:

A company gets house on lease for six (6) years. According to agreement( راضی نامہ) the company paid Rs 1000000 as down payment (ڈاون پیمنٹ) and shall pay Rs 20000 per month as rent. After three (3) years company shall increase the rent 3% . Find the total amount the lesser (owner) would get.

Solution:

Percentage: (فی صد)

The definition of percentage is ' out of hundred or per hundred (ہر سو پر)'. Percentage is denoted by %.

Profit and Loss: (نفع و نقصان )

The term profit can b understand as if the selling price (S.P)(قیمت فروخت) is higher than the cost price ( C.P)(قیمت خرید) then the profit occur. It can be written as

Profit (نفع)= sale price - Cost price  Or

Profit = S.P - C.P

And if the cost price is higher (زیادہ) than the selling price then loss occur and it can be written as

Loss (نقصان) = Cost price - Sale price. Or

Loss = C.P - S.P

Percentage Profit and Percentage Loss: (نفع و نقصان فیصد میں)

Percentage Profit and Percentage Loss will be find by using following formulas.

Percentage Profit(نفع فیصد) = ( profit / cost price) × 100

Percentage loss (نقصان فیصد)= ( loss / cost price) × 100

Example:

John bought a motor cycle for 50000 rupees and sold it for 56000 rupees. Find his percentage profit?

Solution:

Example:

Aslam bought a piece of land worth Rs. 300000 and sold it for Rs. 240000. Find his Profit or loss Percentage?

Solution:

Discount:(چھوٹ)

The meaning of discount is to reduce (کمی) the price is an article from its market price which is also called list price or regular price. After reduction (کمی کے بعد) the amount is known as the sale price. The discount is the amount that we saved (بچت) in buying an article.

Discount (چھوٹ)= Market price - sale price

Example:

Alam bought some articles of worth Rs. 2500. He was allowed 15 percent (%) discount on his purchase. Find or calculate sale price of the said articles.

Solution:

Example:

The market price of an article is Rs. 1700. The sale price of that article is Rs 1360. Find the discount in percentage (%).

Solution:

Insurance: (بیمہ) 

Insurance is a system of protecting or safeguarding (تحفظ) against risk or injuries. It provides financial protection for property(جایداد), life, health etc. against specified contingencies such as death, loss or damage and involving payment of regular premium(قسط) in return for a policy guaranteeing. The contract(معاہدہ) is called the insurance policy. The party bearing the rish is the insurer (بیمہ کمپنی) or assurer and the party Whose risk is covered is known as insured or assured.

There are many types of insurance including life, health, property and so.. We discuss only two types of insurance.

1- Life insurance
2- Vehicle insurance

Life insurance: (زندگی کا بیمہ)

Life insurance is an agreement (معاہدہ) between the policy owner and the insurance company for an agreed time period. Insurance company agrees to pay back a sum equal to original amount (اصل زر) and the profit at the end of agreed period or on the death or critical illness of the policy owner. In return the policy owner agrees (راضی) to pay regular installments of premium.

Example:

Hamza got a life insurance policy of Rs. 500000. Rate of annual premium is 4.5% of the total amount of the policy whereas the policy fee is at the rate of 0.25% . Calculate the annual premium of policy.

Solution:

Vehicle Insurance: (گاڑی کا بیمہ)

The vehicle insurance provides a protection against risks (خطرات) to the vehicle. The amount of policy in this depends upon the actual value (اصل قیمت) of the vehicle.

Example:

Abu Bakar got his motorcycle insured for one year. The price of his motorcycle is Rs. 50000 and the rate of insurance (انشورنس کی شرح) is 4.5 %. Find the amount of premium.

Solution:

Income Tax: ( انکم ٹیکس)

Income tax imposed (لاگو ہونا ) on the annual income of a person whose income exceeds a certain limit (خاص حد) which is determined by the government. The rules for income tax are amended (تعین کرنا ) by the government from time to time.

Exempt Income: (چھوٹ کی رقم )

Tax exempt Income is money on which a person does not have to pay tax (ٹیکس). In other words it is income (آمدنی) which is not subject to income tax.

Taxable income: (قابل ٹیکس آمدن )

Taxable income is the difference (فرق) of annual income and exempted income.

Taxable income = Annual Income - exempted income

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Have a nice day.