Deferred Tax Conundrum

My understanding of Deferred Taxes after reading literature and annual reports

“We would see an entry “Provision for Taxes” in almost all the P&L account of companies. This heading would generally have Subheads like “Current Taxes”, “Fringe Benefit Taxes”, “Wealth Taxes”, “Deferred Taxes (Either Asset or Liability). Now this either Asset or Liability is confusing and let me explain what I understand. While calculating the profit after tax, we REDUCE ALL these provisions from the “Income BEFORE taxes/Profit (Loss) BEFORE taxes. Now if an entry is a Deferred Tax ASSET, then it should INCREASE the profit after tax. Which is another way of saying that it should INCREASE the profit(loss)/income BEFORE tax as well. Therefore as we are REDUCING these provisions, for this Deferred Entry to INCREASE PAT and hence be termed as a Deferred Tax ASSET it should have a NEGATIVE sign in front of it so that when it is REDUCED from PBT it in a way gets ADDED to the PBT and hence increase PAT. Let me explain it using some numbers.

See here that the Deferred Tax has a NEGATIVE value (-9005000), therefore when ALL the provisions are REDUCED/SUBTRACTED from PBT (259,092,856) to derive PAT, the Deferred Tax being NEGATIVE gets ADDED to PBT and hence it INCREASES the value of PAT. Therefore the REDUCTION process of Provision effectively becomes

259092856 – 66195845 – 4887171 – (-9005000) , which is same as

259092856 – 66195845 – 4887171 + 9005000 = 197014840.

Therefore as the Deferred Tax value gets ADDED to the PBT (in a way) we conclude it’s a Deferred Tax ASSET. Or vice versa, if we see a P&L entry of Taxation Provision having a NEGATIVE value for Deferred Tax Entry (without saying whether its an ASSET or a LIABILITY) we can say that as the Deferred Tax value given has a NEGATIVE sign, its an ASSET and NOT a LIABILITY.

Had the Deferred Tax value being 9005000 (and not -9005000) we would have calculated the PAT as

259092856 – 66195845 – 4887171 – 9005000 = 179,004,840 (less than 197014840)

In this case the Deferred Tax value (9005000) is REDUCED from PBT and the final PAT value comes out to be 179,004,840, which is less than the PAT value we found when the Deferred Tax value was -9005000. Therefore we would have called that 9005000 value as a Deferred Tax LIABILITY, as it reduced our PAT.

the marketing jugglery

I generally refrain from commenting on any marketing hype or horrible media in our country because I believe; in the end they are doing their business and have to earn money to survive. A marketer’s critical work is to hype out self made trends and then make people believe that something like that is really happening. But then that is their job and I think what they are doing is not unethical either. No problems from my side.

Two advertisements off late have attracted whatever little attention span I have for them. One of Nivea promoting the whitening cream for boys and other Parachute advt in which the new chick on the block Deepika Padukone talks about doing “Champi”.

The advt are so contrasting in the message they want to deliver and the concept they are relying on. Nivea brand is associated with men’s product. Now to get into the facial products it’s trying to expand by conveying a message which goes against the general perception of a handsome man “Tall and Dark”. Dark color was ingrained in men’s handsomeness, but now to increase the market and make more money Nivea decided to turn the logic head on. Well we can always argue that this “Tall Dark and Handsome” was arbitrary and has nothing to do with handsomeness of a man and Nivea is an innovator when it challenges the unproven hypothesis.

And if you happen to ask Nivea guys about this advt which is against the accepted notions they would say with a straight face “Oh we found many men using women’s creams. Therefore we thought we have a market to serve”. This is what I was talking about when I said that marketing would make people believe that they are launching the product because a demand exists. This is because marketing led demand inducement is still not taken very well by the people.

I am not saying that demand for men’s cream does not exist. What I am trying to convey is that the demand would be minuscule and hence Nivea has to increase it manifold by advertisements and all sorts of gimmicks. By this it would be successful in inducing foolish consumers in trying a product which they would not really need.

In the parachute advt Deepika is trying to get a forgotten concept “Champi”, a concept which is not considered to be “cool” back to the mainstream. And why is she doing that, because Parachute finds itself to be a brand which is associated with the older generation. Therefore to get back into the grooves it’s trying to get an so called old fashioned concept to core. In another advt she would be promoting a “chip chip” less oil and may be advising not to use oil at all.

I am sure the consumers will buy both the arguments. That reminds me of a few notes I had written in the Kotler’s marketing book when I was doing my post graduation in management. Those notes were “if the people are so gullible and idiots to buy these preposterous marketing arguments, then they deserve to get fooled by these advertisements”.

Therefore whereas Nivea wants to break preconceived notions and is going against the accepted principles, Parachute is trying to bring back a concept which was omnipresent earlier but has been forgotten off late. I am also confident that these products like that of Nivea have a short life span and would go off shelf soon. The consumer finally is not that fool, apart from those who have excessive money to throw away. They may have tremendous growth phase earlier but their longer growth rate is susceptible.

Being a management graduate myself I however must congratulate the marketing campaign of both the products as they would be successful in inducing demand for their product where none may have existed.

Perspectives, Context and Benchmarks

Perspectives, Context and Benchmarks

Wanted to write about this topic for long. These three words may appear to be disconnected, however I believe they have quite a bit in common. Whenever we appreciate something or dislike something there is an unsaid benchmark we tend to compare it with. For example if someone says Jagjit Singh is a good ghazal singer he would be benchmarking him against Indian awful singers like Pankaj Udhas. However when we see Mehdi Saheb, then we realize where does Jagjit Singh and singers like Ghulam Ali stand. However this is my perspective. From someone else’ perspective I am sure they would have different reasons to give for liking or disliking Jagjit Singh, or say any food or any culture etc.

Whenever we read a book we tend to agree with it provided the author writes something which is in consonance with our predisposition towards the idea presented in the book. It appears enticing but is very tough to judge or read a book without any biases. We all are prisoners of our prejudices and biases which have impacted our upbringing and social context.

When we tend to compare two things we tend to forget the difference in context we are talking about. This mistake is most common in courses on leadership in management institutes. The students are asked to compare two leaders without giving a thought that comparing across time periods, across different socio-economic and geographical settings is impossible. However management minds are trained to perform comparison even when it has only academic value (if at all).

From Indian’s perspective Bhagat Singh was a hero but from British perspective he was a state criminal. From our perspective so called Mujahidin’s in Kashmir are terrorists but from their perspective they are messenger of God and fighting a holy war. Therefore finally most of the debate boils down to who holds the upper hand. For example saying that Greek was the older civilization which worked consciously towards making a nation and state is flawed as history belongs to the victorious and the arguments are preserved which are heavily biased towards something more popular.

We must never forget which context we are talking about. If we understand the context most of the futile debates which we see in our society won’t even exist. However most of the times the deeper we get into something be it music, management, literature etc we tend to become closer to philosophy. Perhaps that’s why philosophy is the ultimate form of human emancipation and learning. Most of the big authors talking about business strategy or some other mantra tend to give too much of philosophy in their books which appear to be ridiculous to the readers. From the reader’s perspective this philosophical thought is not tangible and hence it is not valued. However once these readers themselves have sufficient reading behind them they also tend to become philosophical.

Questions which appear inane once like “What do you want to do with your life” “What does happiness means” etc become the most important questions to address. That may be a reason why we see so many billionaires starting some social initiatives or some fund helping cause of the poor. For them that seems to be giving back to society and going nearer to the unseen power which is known as the God Almighty.

The problem arises when people tend to pass value judgments on others without fully understanding the contexts and the perspectives. That’s why so much of social tension is caused.

When we see poor homeless people we want to help, but when it appears that the person on the street is “happy” what should we do and how should we do? But the bigger question would be should we do something. We can see (again through our perspective) that the person is not living in a condition which is apt for a human life. But then we say that from our benchmarks. If his family is not getting three meals, or is not getting decent income or not getting medical attention we tend to analyze it based on our own benchmarks and standards. May be if these people had written the constitution they may not have made “right to food” as the fundamental right because from their perspective “regular food” is a luxury and cannot be a right per se.

This issues has always intrigued me and I have hopelessly tried to answer it. When we say “Every child should be a child and should be taken care of etc etc” what do we actually mean? And who gave us the so called “educated class” to jargonize and presume so many things that whatever we are thinking is indeed correct. I believe the answer would be that someone has to take the initiatives. If no initiatives or nothing new was said or done the humanity would still be living in the cages. However was living in cages a worse option than what we have today? The problem in answering these arguments would be that we would answer them based on our current benchmarks. We could say “see we would not have been able to talk to many people apart from close clan (under the influence of communication technology these days”, we would have said “we would have felt so much of heat, would have been eating uncooked food etc (under the benchmarks of eating cooked food these days, having AC etc.”) .

The fundamental issue is that all these answers are made from current benchmarks and hence can never be used to answer those days when these things never existed. Was the world a worse place before car, mobile, computer etc came?

Expanding music boundaries, Nusrat, Purist and the Dilemma

I was watching one video of Nusrat Fateh Ali Khan singing in his usual unique and captivating style but could not resist seeing the shabby stage and facilities he was singing in. There were those cheap decorations on the wall, bad acoustics and sound systems. I had heard this debate where people say that Nusrat has made such a class of Sufi music "cheap". This kind of music was supposed to be for those people who really like, understand and admire it. It was not made to be heard in a paan or barber shop (figuratively speaking). However Nusrat (like Jagjit Singh in India for Ghazals) popularized the Sufi music to masses. This quest lead him towards west where the people would not understand what he was singing but based on the way it was sung, the clapping of chorus, the ragas, the rustic harmonium, tabla etc made them dance on this music. This gave Nusrat world wide recognition as well as money. Now he could sing in the Wembleys or Royal Concert Hall. However this also impacted in dilution of the following of real music appreciators of Sufi music. Sufi music became a fad which everybody wants to "do" now. However had Nusrat not expanded his musical boundaries he would have met the same fate like many other slatwarts who died penurious death due to want of money. At the same time this expansion introduced the West to a large degree about a different kind of music which surpasses any kind of music (apart from Mehdi Hasan's Ghazal singing). Therefore in a way it was a good initiative in terms of financial and recognition sense. Nusrat would have been singing in the same shabby PTV shows or those pathetic gatherings of rich people from from Lahore. Hence I believe once some phenomenon or concept expands beyond its natural habitat its bound to get diluted in terms of its quality, following, target segment etc. However this expansion may invariably be needed if that phenonmenon has to surpass the boundation of time.

Why english movies have this?

Despite the fact that however good or bad an English movie is, there appears to be common scene in all of them for particular scenarios. If there are two police or investigating agencies they would always be in the loggerheads. FBI would be screwing around LAPD or NYPD etc and would treat them condescendingly. If there is FBI and some other country's police (like Rush Hour 2) then also FBI would treat them badly and would always say "get the hell out of our way".

And when there is a bomb scare or some other scare why always they have to cry their heart out "out out, now" or "everybody clear the room right now" "go go go". Its so irritating to see these scenes in almost every second English movie. And then they would speak strange English "There would be no quite room no more" rather than "There would not be quite room anymore". I mean does not two no would make one yes? If we say "I would not do no more" does not this essentially means I would actually do more? May be these are cultural subtleties and how the English is spoken. Anyways Americans have this illusion and desperation of showing "American English" which in any case is no language, to be different than British English. Be the word called honour written as honor or colour written as color. Anyways none of my business.