Question

i) Explain the types of compensation with examples.

ii) Explain the types of information needed by external users with examples.

Answer 1

i) The different types of compensation are :

• Direct compensation : These are direct payment as a reward for the work and efforts done by employees in form of cash. It is financial in nature.

Example: wages, salaries, bonus, commissions, etc these are paid directly to employees as cash for the work they are doing.

• Indirect compensation :These are not direct payments to other in form of cash. It is also financial in nature. Employees receive them from their workplace.

Example : Stock options, befits like health insurance, paid leave, retirement plan, etc

• Non- financial compensation : These are the non monetary compensations which are not of financial nature. The employees are indirectly benefitted by these plans in non monetary forms.

Example : flexible time hours, time off, awards and recognition, fringe benefits etc.

ii) Types of information needed by external users :

• Accounting information - External users need this Accounting informations to decide whether the company is fit to be invested or not. Example - ABC Ltd. is a company. Some investors are willing to invest in that company. But they are demanding the accounting information to analyze the financial position of the company and hence decide whether to invest or not. On seeing the financial statements, they foumf company is making huge profits from last few years, thus they feel its good to invest in the company.

• Historical information - This is information that a external user would like to know to understand the history of the company. The history tells the base of any organization from where it stated and its cultures are reflecting from their past. Example - ABC Ltd. On which we had discussions earlier, now the users are also interested to know the past records of company. Whether is it involved in any dispute or crime. It may be possible that company tries to fraud with its investors which is important to know before investing.
• Production information : External users need to know about the products that are being manufactured in the company to assess whether the production is good for the people using it or not. It may be possible that company would be misleading its customers. Example - It may be possible that ABC Ltd. is producing food materials with not good quality of items being used. As a result it is harming the health of its customers. Now external users to know about this to decide whether to buy such items and support the company or not.