Accrual accounting

I do not know how the accounting system we currently follow came into being. At some level, the accounting system is an elaborate exercise in trying to prove a tautological premise. Let's say you have two dogs: Debit and Credit. You give each dog a set of bags. The number of bags given to either dog need not be the same. You then take an even number of beads and start distributing one bead each to either dog asking the dog to put the beads into one of the bags based on some complicated rule.

You keep doing this: pick up two beads, give one to Debit and the other to Credit. Do this for a year. And at the end of the year ask either dog to list the total number of beads against each of its bags. After a lot of fretting, the totals match. You are happy and someone responsible signs off the paper certifying that the totals match. Everyone is happy, Debit and Credit wag their tails, the beads for the new year start coming in.

I could never understand double entry book-keeping in B school. There was just too much pressure which prevented me from making a fundamental assessment of what was going on. It was only recently did I really understand the gist of it all. The difficulty lie in the rules that apply to determine which bead should go into which bag and the exacting exercise of choosing a few bags from either dogs and putting down the bead-count details of those.

Now that I understand accounting in the simple bead, dog, bag model, it is important to understand what constitutes the beads and the bags.

Statutory accounting is done on an accrual basis as against a cash basis. This I'm assuming was a decision taken after a lot of deliberation. Accounting on an accrual basis is more elegant, better for analysis and structurally easier to monitor/maintain. But at the end of the day cash is king, queen and most wanted. Cash accounting is reality. Cash accounting helps you sleep in peace.

Interpreting cash movement from accrual accounting detail can be a harrowing exercise. The problem is that accrual accountants (ergo all certified professional accountants) overdo the elegance bit, mostly at the cost of obfuscating reality.

Lets take a simple example: you own a company that sells soda ash. Your chief executive tells you that he's manufactured and sold 100,000 tonnes of soda ash to Charles Taylor in Sub Saharan Africa. You congratulate him on the sale and tell yourself that you're company is doing well. You order a glass of wine, eat an expensive dinner and go to bed imagining yourself in the new Armani.

A couple of months later your bank calls you and tells you that a 1,000 Rupee check drawn on the bank by the soda ash company is about to bounce. You flip. You ask your accountant to check on what's amiss. He tells you "Sir, yes we're overdrawn".

You look at the company profit & loss statement. It has been a great year; the super-large order from Africa had been the buzz. Your company had made windfall profits thanks to Charles Taylor. What could have gone wrong?

Cash. And the bloody lack of it. The problem is sales, margin, EBITDA, profit are all accrual measures. What really matters is cash. Your profit tells you nothing about whether Charles Taylor paid you for the soda ash. It is designed not to tell you. Charles Taylor's payment or non-payment is hidden in the receivables. The beauty is that you could have gone around town claiming that your company made large profits and yet end up getting caught in a 138 offence on a piddly little check.

This illustration might be simplistic and anyone even remotely familiar with business will be able to spot the miss. But the point I emphasize is that financial reality is often hidden in the accounting statements and takes some finding out.

Accountants are strange people who seem to belong to some secret brotherhood. They seem to have designed things in a way to ensure their necessity is always felt.

His Highness Abdulla

As I grew up, there were a wide set of influences I was exposed to. Malayalam and Kerala culture (not necessarily Malayalee culture) was certainly one of them. There was a school of thought among people at home that Malayalam movies were the best kinds. I did not subscribe to this view: my inability to understand the language and the need to avoid images of dingy, rainy, overly green places were the major reasons.

Recently, I re-started watching Malayalam movies and the first movie I saw was 'His Highness Abdulla' starring Mohanlal, Gautami, Nedumudi Venu among others. As a kid, His Highness Abdulla and Kutti Chatthan were the only 2 Malayalam movies I had ever heard (and Abhayam came sometime later). People at home, especially my aunt's family used to rave about Mohanlal's role, the music and the movie in itself.

Before I put down my review of the movie, I must confess that I watch portions of the movie every single day. I have my favorite dialogues, expressions and sequences to watch out for. I must have watched the entire movie 5 - 6 times in the last year and some portions of it 30 - 40 times. This is seriously a great movie.

Warning: I do not know how to review a movie without detailing the plot. I am spoilt.

The movie is set in the home of Udaya Varma (Nedumudi Venu) who is a king (the Varma type) with lots of property and no heir. His son Unni had vanished as a child. Udaya Varma's poor health stokes the interest of his near family who want to usurp portions of his wealth. The family (mostly of his nephews and neices) shows undue interest in his health and well-being hoping to garner a greater share in the wealth.

Gautami is an orphan - someone born out of wedlock to a servant in the palace. She is the well behaved, obedient servant who Udaya Varma considers as his daughter. She is well versed in music and dance; almost an intellectual heir of Udaya Varma who calls her his Maanasa Putri.

Udaya Varma's set of relatives plot on murdering him so as to hasten the property transfer. It is for this reason that they bring Abdulla (Mohanlal) from Mumbai. Abdulla is a singer in the red light area of Mumbai with no particular experience in being a hitman. But the money offered to him entices him to take the assignment.

Abdulla comes to the tharavad in the guise of Plakkurusi Ananthan Namboodiri - a friend of Ravi Varma: one of Udaya Varma's nephews (played by Sreenivasan). Ananthan invokes suspicion but is allowed by Udaya Varma to stay in the royal house for 2 days.

Udaya Varma's wife (who has become mentally unstable because of her missing son Unni) mistakes Ananthan for Unni and calls out to him. Ananthan is touched my the lady's predicament. She continues to believe that Ananthan is Unni.

Ananthan is told by the set of plotters that he should finish the job in the two days assigned to him. At the end of the two days, Sreenivasan protests at his inaction. It is then that Ananthan plays a trick (a number as he puts it). As if practicing, he sings a beautiful song 'Pramadavanam vendum' (rendered impeccably by Jesudas) which catches the attention of Udaya Varma.

Udaya Varma then takes a liking to Ananthan. Udaya Varma mentions that Ananthan's style of singing sounds familiar to him (evadayo ketta oru aalapanashaili). Ananthan also impresses Gautami with his cheerful nature and knowledge of music and dance. Ananthan helps Udaya Varma's ailing wife walk and laugh by being the Unni she imagines himself to be.

In an episode, Ramanathukkara Ananthan Namboodiri gets into a musical contest with Ananthan and Ananthan (Mohanlal) comes out with flying colours. This song which is part of the contest is the high point of the movie. An absolutely brilliant composition 'Devasabaathalam'. Ananthan's proximity to Udaya Varma grows with time. Udaya Varma confides in him that he feels threatened by his kin. Gautami starts falling in love with Ananthan.

Udaya Varma talks about his friend Ameer Khan, a musician from Malabar. He tells Ananthan how close he was with Ameer Khan and how great a musician he was. That night Ananthan takes Udaya Varma out in the night for a walk. Udaya Varma is drunk in a bid to forget his sorrows. This presents Ananthan a brilliant chance to hurl Udaya Varma down from a cliff in the area. But he doesn't do it.

In the midst of all this, Ananthan's sidekick Jamaal comes to the royal house from Mumbai. The next day Udaya Varma while walking around the house sees Ananthan and Jamaal (who is in the guise of Sankunni Nair) reading the Namaaz. It is then that Udaya Varma realizes that he has been cheated.

Ananthan readily accepts that he is Abdulla and that he had come on a mission to kill him. He says that he has changed his mind and now wants to protect Udaya Varma from danger. Abdulla also meets the conspirators and tells them that he is not ready to kill Udaya Varma.

The conspirators bring in another hitman from Mumbai to do the job. Then there is a fight in which Abdulla prevails. He keems Udaya Varma hidden in the cellar which prevents the conspirators to hurt him.

In the end Abdulla confesses to Udaya Varma that Ameer Khan was his father and that he would never kill Udaya Varma once he came to know this fact. And finally all ends well when Udaya Varma asks Abdulla to stay back in the royal house.

The plot is very beautiful and meaningful. It is unlike the usual movies with heroes endowed with larger than life abilities and powers. But what makes the movie stand out is the characterization and acting.

Nedumudi Venu's role suited him to perfection. He plays the old pessimistic king with a love for the arts brilliantly. Mohanlal never overacts. Each of the characters of the set of conspirators is conceived brilliantly. The old blind man was the stand out character among them.

The movie is in as chaste a Malayalam as you can get. Every dialogue is studded with class befitting a royal setting. The expressions, pauses and modulation are a perfect representation of how Malayalam is spoken. 'Aau Malayala basha raksha pattu' seems a very apt thing to say. The delivery of Hindi could have been better.

Music is top notch. Two of the songs went on to become blockbuster hits. While Pramadavanm might rank as one of Jesudas' all time bests, Devasabaathalam with its lyrical brilliance poignant with meaning and classy screenplay ranks as my favorite.

In summary, a classy, brilliant Malayalam movie. Something that only Malayalam cinema can give you. A movie where everything comes together in perfection.

The Cut and Run business?

My current job offers me multiple opportunities to meet investment bankers - the IBD type. Through two years of B-school, I harbored stereotypes of work in investment banks. As I understood it, there were broadly 2 categories: sales/trading and IBD. Sales/trading concerned with transactions in the the capital markets (debt and equity) and IBD involved transactions outside the capital markets and transactions that resulted in an entity gaining exposure to capital markets (IPOs, debentures, etc.) Of course I understand things better now.

The IBD side of the business intrigues me. These are people who do 'transactions'. Transactions are basically barters of economic interest of different kind; most often cash for ownership or cash for claim on future cash/assets.

Each side of the transaction hires a banker to help find the other side. It is in the banker's interest to see the transaction through. Most often banks are paid a success fee for culmination of the transaction. More money for the bank will mean more money for the people working for the bank and specifically more money for the people directly involved in the transaction. Given this, a banker would be happier if there were more transactions done by him.

Now a transaction by definition is a transaction - a point in time agreement between two or more parties for which the banker is witness or chief cause. The banker's fortunes is not linked to the future of either party post the transaction. This might be different in the case of the non-IBD banking system where the bank might have exposure to the underlying party.

So a transaction banker would do deal 1, make a cut from it, move to another situation with different parties, do transaction 2, make a cut from etc. Does this mean that the nature of business is cut and run?

At first sight, this seemed true. I was sitting at the airport trying to reason this out to someone when I realized the flaw. Banking is about relationships, about reputation. There might be cases where a banker cuts and runs, moves from one bank to another and hence able to continue his cut and run. But in the big picture, these transients will be few. A bank will develop a reputation based on the future performance of the party post the transaction it oversaw. Good banks and hence good deal makers will get a reputation of making the right deal and not merely cut and run.

Nari and the weight loss tamasha

The title of this post is borrowed from a recent book I saw at the store. It was titled 'Women and the weight loss tamasha' and I thought a minor adaptation of the title will put things right in context.

By the BMI method of classification, I am obese. I have been obese for more than a year now. 8 kg is what separates me from normalcy and these 8 kg seem like a huge ask. Weight gain and weight loss depend on multiple factors. My own personal experience tells me that the factors that help me lose weight are: exercise, anxiety and diet control.

My battle with weight is something that was least expected. As a kid I was mildly chubby and I grew to be tall and slim. Before the onset of adolescence few would have expected that I would grow in weight this rapidly. Come adolescence, things changed. It was during a time when I really didn't spend too much time playing outside home. Academics was the main focus. I slept, ate, studied and slept again. My photographs taken in this phase of life tell me that I was very ugly looking.

Things changed when I started off in IIT, I lost 12 kg in the first semester. That is 12 kg in 4 months, 12 kg in 120 days meaning an average loss of 100 grams a day. Imagine hacking off a small 100 gram piece of flesh from your body every day! The factors that contributed to such a drastic fall were anxiety (driven largely by homesickness), exercise (cycling around in crazily humid Chennai after living in the cool, dry climate of Bangalore for most of my life) and diet control (lets just say the mess food wasn't all that great).

I have never been able to replicate such a feat again. There was a brief while in 2008 when I had a bout of typhoid because of which I lost a few kilos in 3 weeks. But the 12 kg loss in 2000 still stands as my personal best.

Subsequent to the first semester, my weight started showing a familiar pattern - gradual decline in the months I was in college followed by sharp spikes during the vacation months when I was home. I realized that I had become one of the types whose weight is never constant or within a small window.

When I started work in 2004, conditions were perfect for steady weight gain - home food, zero anxiety at work, coffee vending machine, McDonald's in the Forum mall etc. I think I did start a morning jogging routine but that was scrapped shortly after I started mugging for CAT.

It was only in a short window - between the CAT written test and the day the interview calls were announced that I religiously went to the gym and brought by weight back from a hair's breadth close to 100 kg. Soon after that, preparation for interviews and the subsequent spartan routine at IIMA took precedence over plans of weight loss.

When I resumed work (now in Bombay) in 2008, I wasn't exactly overweight. Lots of eating out was balanced by work related pressure and the tough life in Bombay. I perhaps had mild ups and downs but on an average hovered around the slightly overweight category.

Since then I have never really considered exercise or a fitness regimen. On marriage day, I apparently didn't seem overweight. Phew!

Moving to Chennai I thought would help me start reducing weight but this time, there was no anxiety and certainly no diet control. Jogging and gym never really took off (my excuse being that I'm growing old and hence will power is in short supply)

One of my relatives lost 15 kg in 3 months thanks to advice from a dietitian. I know this is true. But I also know the amount of hard work that has gone into keeping up with the diet prescribed by the dietitian. Imagine drinking tomato juice for lunch and avoiding pappadam etc.

Today I was told that another relative of mine has started off on a diet prescribed by this dietitian. I also got details about how the dietitian charges her clients. It is Rs 300 per kg, payable in advance. So if you want a diet package for lets say 10 kg, you need to cough up Rs 3,000 for her to give you a neat diet with exact instructions. She also changes the diet plan every week and emphases that the plan is sculpted according the need of the particular person. This reduces the chance of someone borrowing the diet plan from an earlier client.

I might not take the drastic step of seeking a dietitian's advice. I know I do not have the discipline to follow a diet or the ability to suspend my tongue's voice. But yes, given that I will be 30 in a year and a few months more, I really need to put an end to this tamasha.

A lean day at work

Today has been a lean day in the office. It is one of those days when I walk in not knowing what I need to get done through the day. There were of course a couple of small things which needed completion, but nothing big enough to keep me busy through the day.

As a result I began freaking out. This happens to me when I do not know how to spend time. Games on facebook, spider solitaire, countless refreshes at google news: all these to tend to get to you.

There is a looming question: how easy is it to live life without a goal? I have found that having a goal, an objective albeit a short term one is very necessary to keep things going. My mind needs something to feed on and most often the something has to come from the external world. During the day, I usually expect it to be in the form of tasks at work. Outside office, my mind expects responsibility, duty and leisure activities.

Where are things today?

It has been quite some time since I wrote last. Not many things have happened but I seem to have changed quite a bit. The biggest change in me is perhaps my poor health and deteriorating fitness.

It seems to be a symptom of a larger issue in the way I live life nowadays: the lack of a sense of stability. There is just a lot of things I am trying to do and ending up being inefficient.

This is not new, but I need to change and change fast. The most important thing lacking in my life currently is discipline: discipline in multiple things in life.

I went to Pazhani Temple this morning. Pazhani is simply a magical place and it has never failed to inspire me to be better in life. I am sure this time it will be no different.

The anatomy of failure

I have been wanting to write about this for a long time. This one is in the series of posts of self-reflection. By putting down whatever I do here, I hope to change and improve.

What is failure? What constitutes it? Failure is a condition of under-achievement: a feeling of not having done what you intended to or wanted to. I think wanting to do something and not being able to do is a better definition rather than intending to do something and not being able to do so.

There can be many reasons why people fail. The obvious one is that the goal they set for themselves is far beyond what they are capable of. This is failure by design. The system is structured for failure. You cannot be born in India and hope to be the President of the United States.

Failure by design is caused by bad judgements of goals and expectations. Such types of failures can be corrected by realigning goals and wants - the familiar expectation setting. Some people might be of the type who purposely set stretched, unattainable goals for themselves. This is a good strategy for people who know how to deal with it.

The other and more important type of failure is failure by choice. Some people just choose to fail. It is not because of the goals being stretched or their skills being inadequate. It is this nature of failure I personally want to avoid. Currently, there is an overwhelming feeling inside me that I will end up failing because I choose to fail. And the choice is not something I make consciously.

Why does this happen? I think the primary reason is a lack of confidence. It is a feeling inside which says 'success is not for me... I am meant to fail.' It is hard not to succumb to such a feeling when it is strong and sub-conscious. I am not saying that I have succumbed completely; but every now and then, I do believe (and believe very strongly) that success is not for me.

The whole proposition is very silly given that there is no basis for such a feeling. This is the exact logical way I am taking to fight my way out. If there are tendencies which my mind can take for an uncertain event, I might as well tend towards believing in success rather than in failure.

But believing in failure is the very essence of pessimism. It is something that (unfortunately) is a part of me.