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Endowment effect: Easy explanation. [Video]

Endowment effect: Easy explanation.

In this video, you will learn about a concept in behavioural economics, the endowment effect.

#endowmenteffect #behavioraleconomics #wallstreetmojo #decisionmaking #finance

Chapters:
00:00 – Introduction
00:28 – What is the endowment effect?
01:17 – How does the endowment effect work?
02:26 – Example
03:35 – How to overcome the endowment effect?
04:36 – Conclusion

What is the endowment effect?
The endowment effect is a concept in behavioural economics that states that when a person owns something, they tend to value it more than when they don’t own it.

The endowment bias is a cognitive bias that ultimately increases the probability of you retaining a thing compared to the likelihood of you acquiring it.

(Explained in detail in the video)

How does the endowment effect work?
Because of the endowment effect, sellers may ask for a higher price for items they have used and owned. Unfortunately, this may often exceed the true value of the item.

But, the endowment effect can cause by three things: loss aversion, status quo bias, or even the psychological law of inertia.

Researchers also use other theories to define the endowment effect, like reference price theory and motivated taste change theory.

Example
An actual experiment by Daniel Kahneman, Jack Knetsch, and Richard Thaler led them to propound this endowment effect theory.

(Explained in detail in the video)

How to overcome the endowment effect?
If you want to avoid this effect, you need to look at things from an objective perspective rather than a subjective perspective.

Another way to avoid this bias is through the application of motivation.

Motivation is a psychological factor influencing consumer decision-making, and several industries use motivation-based strategies to change people’s feelings about things.

(Explained in detail in the video)

This is all about the endowment effect. We regularly come up with such content on finance. So, subscribe to the channel, and give this video a like.

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Resources for Accountants

Overview of ASC 805 [Video]

Accounting for business combinations under ASC 805 can be quite complex! Do you know the difference between a business combination and an asset acquisition under U.S. GAAP? The answer to this question is important because the accounting is totally different! No worries. We have you covered in this CPE-eligible, eLearning course (1.5 CPE)! In this online course we begin with the definition of a business and whether a transaction falls within the scope of ASC 805. We then provide you with an overview of the 4-step acquisition method set out in ASC 805, including whether assets and liabilities acquired should be recognized apart from goodwill and, if so, how they should be measured. If you’re new to the accounting for business combinations under U.S. GAAP, this course is a great place to start! Take the course: https://www.gaapdynamics.com/product/business-combinations-overview-of-asc-805/ Buy all three courses and save! https://www.gaapdynamics.com/product/asc-805-business-combinations/ Learn more about GAAP Dynamics: https://www.gaapdynamics.com/ Check out our other online courses on the GAAP Dynamics Learning Library: https://www.gaapdynamics.com/individual-learning/ Subscribe to GAAP Dynamics to see more videos like these!

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Resources for Accountants

Application of ASC 805 [Video]

This is the introductory video for the third course of the three-part Business Combinations eLearning series. Now that you are familiar with the basic accounting rules and certain ASC 805 advanced issues, this course will apply that knowledge by walking through an example acquisition and requiring you to identify the proper accounting treatment. Take the course: https://www.gaapdynamics.com/product/business-combinations-application-of-asc-805/ Buy all three courses and save! https://www.gaapdynamics.com/product/asc-805-business-combinations/ Learn more about GAAP Dynamics: https://www.gaapdynamics.com/ Check out our other online courses on the GAAP Dynamics Learning Library: https://www.gaapdynamics.com/individual-learning/ Subscribe to GAAP Dynamics to see more videos like these!

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Internal Rate of Return (IRR) | Formula | Calculation with Example [Video]

In this video on internal rate of return (irr), here we learn formula, example of irr along with significance and its drawbacks.𝐖𝐡𝐚𝐭 𝐢𝐬 𝐈𝐧𝐭𝐞𝐫𝐧𝐚𝐥 𝐑𝐚𝐭𝐞 𝐨𝐟 𝐑𝐞𝐭𝐮𝐫𝐧 (𝐈𝐑𝐑)?-------------------------------------------------------------------Internal return rate is the rate at which the net present value of the project is zero, the rate at which future cash flows are adjusted to calculate the present value.𝐈𝐧𝐭𝐞𝐫𝐧𝐚𝐥 𝐑𝐚𝐭𝐞 𝐨𝐟 𝐑𝐞𝐭𝐮𝐫𝐧 (𝐈𝐑𝐑) 𝐅𝐨𝐫𝐦𝐮𝐥𝐚-------------------------------------------------------------------NPV= 0= CF0 + CF1/(1+IRR)^1 + CF2/(1+IRR)^2 + ..... CFn/(1+IRR)^n𝐒𝐭𝐞𝐩𝐬 𝐭𝐨 𝐂𝐚𝐥𝐜𝐮𝐥𝐚𝐭𝐞 𝐈𝐑𝐑 𝐢𝐧 𝐄𝐱𝐜𝐞𝐥------------------------------------------------------#1 - Calculate Cash inflows and outflows in a standard format.#2 - Use the IRR formula in Excel#3 - Compare IRR to Discount Rate𝐈𝐧𝐭𝐞𝐫𝐧𝐚𝐥 𝐑𝐚𝐭𝐞 𝐨𝐟 𝐑𝐞𝐭𝐮𝐫𝐧 (𝐈𝐑𝐑) 𝐒𝐢𝐠𝐧𝐢𝐟𝐢𝐜𝐚𝐧𝐜𝐞-------------------------------------------------------------------------The IRR of any project shall be estimated taking into account the following three assumptions:1- The investments made are kept until the maturity dates.2 - The intermediate cash flows will reinvest itself in IRR.3 - By nature all cash flows are periodic, or the time gaps between various cash flows are equal.To know more about 𝐈𝐧𝐭𝐞𝐫𝐧𝐚𝐥 𝐑𝐚𝐭𝐞 𝐨𝐟 𝐑𝐞𝐭𝐮𝐫𝐧 (𝐈𝐑𝐑), you can go to this 𝐥𝐢𝐧𝐤 𝐡𝐞𝐫𝐞:- https://www.wallstreetmojo.com/internal-rate-of-return-irr/Subscribe to our channel to get new updated videos. Click the button above to subscribe or click on the link below to subscribe - https://www.youtube.com/channel/UChlNXSK2tC9SJ2Fhhb2kOUw?sub_confirmation=1

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Advanced Issues and Disclosures [Video]

This is the introductory video to our self-study eLearning course "Business Combinations: Advanced Issues and Disclosures." Check it out here: https://www.gaapdynamics.com/product/business-combinations-advanced-issues-and-disclosures/ This is the second course of the three-part Business Combinations eLearning series. Now that you are familiar with the basic accounting rules, this course dives deeper into more advanced business combination issues such as exceptions to general guidelines, noncontrolling interests, and measurement period adjustments. Learn more about GAAP Dynamics: https://www.gaapdynamics.com/ Check out our other online courses on the GAAP Dynamics Learning Library: https://www.gaapdynamics.com/individual-learning/ Subscribe to GAAP Dynamics to see more videos like these!