Beruflich Dokumente
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From 1 January 2010, name of the components of financial statements has been revised as:
Balance sheet- :Statement of financial position
Income statement : Statement of comprehensive income
Cash flow statement : Statement of cash flow
Materiality: information is material if its omission or misstatement could influence the economic decision of users taken on
the basis of financial statements. Materiality depends on the size and nature of omission or misstatements.
True & fair view: means faithful representation of the effects of transactions.
Substance over form: transactions are recorded and presented in accordance with the substance & economic reality and not
merely their legal form. Example: Finance lease
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7. Capital & revenue expenditure:
Capital expenditure (long tern asset- non-current asset aged more than 1 year)
- Initial cost: up to final condition and location; for example: legal fee, duties, carriage costs, installation costs.
- Subsequent cost: increase earning capacity/efficiency
- Expenditure for trade purpose: i.e. normal course of business; for example: Raw material, wages and salaries,
selling and distribution, admin cost, finance cost etc.;
Revenue income:
- sale of goods
- rendering services
- Interest, dividend, royalty income
Measurement means: the amount at which elements are recognized in balance sheet and income statement
a) Accounting f) Materiality
b) Management stewardship g) Faithful representation
c) Balance sheet h) Capital expenditure
d) Income statement i) Revenue expenditure
e) Substance over form j) Capital income
d) Prudent k) Revenue income
e) Measurement l) Fair value
m Concept of capital maintenance
)
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Mohammad Shahidul Islam MBA, ACA
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26. Identify ‘CapEx’; ‘RevEx’; ‘Capital income’ and ‘Revenue income’ from following list:[1 marks for each]
a Invoice value of machine purchased l) Dividend
)
b Freight charge of the machine m) Spare parts with enhanced capacity
)
c Depreciation of the machine n) Sale of goods
)
d Purchase of a building by a ‘real estate’ company o) Any administrative, selling & dist. expenses
)
e Fees for inspection of the machine by an engineer p) Income from sell on fixed assets
)
f) Royalty q) Loss on sale of fixed assets
g Repair & maintenance of the machine within an r) Import duty charged on imported machine
) existing capacity
h Bank interest s) Add additional 128 mb RAM for office computer
)
i) Repair & maintenance of the machine within t) Sale of fixed assets
enhanced capacity
j) Rendering of services u) Sale of land by a ‘real estate’ company
k Spare parts with existing capacity v) Purchase of new computer after replacing old one
) within the existing capacity
Current Asset: Current assets are assets those are expected to be converted into cash within 1year.
Non-current Assets: Non-current assets are those assets acquired for long term use and would not be realized into cash within
1 year.
Examples of current and non-current distinctions are presented by way of format of “Balance sheet”
Other income - - -
Operating expenses (Administrative, Distribution & Other) - - -
Profit from operation - -
Finance expense - - -
Finance income - - -
Net finance expense - -
Profit before contribution to WPPF - -
Contribution to WPPF - -
Profit before income tax - -
Income tax:
Current tax - -
Deferred tax - - -
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Mohammad Shahidul Islam MBA, ACA
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Profit after tax - -
Balance Sheet
as at 31 December 2009
Note
s 2009 2008
Taka Taka
ASSETS:
Property, plant and equipment - - -
Intangible assets - - -
Investments - - -
Loans and deposits - - -
Deferred tax assets - - -
Total non-current assets - -
Inventories - - -
Trade and other debtors - - -
Advances, deposits and prepayments - - -
Advance income tax - - -
Cash and cash equivalents - - -
Total current assets - -
Total assets - -
EQUITY:
Share capital - - -
Share premium
Retained earnings
Reserves and surplus - - -
Total equity - -
LIABILITY:
Deferred liability - gratuity payable - - -
Deferred tax - liability - - -
Long-term loan - - -
Total non-current liabilities - -
Business entity concept means- a business is a separate legal entity from its owner. A company may, in its own name, acquire
asets, incur debts, and enter into contracts. If a company’s assets became insuffient to meet its liabilities, the company as a
separate entity becomes ‘insolvent’. However, the owners of the company are not usually required to pay the debts from their
own private resources.
Exception: the concept is not applicable for “Sole tradership” and “Partnership” business.
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LEDGER, DOUBLE ENTRY, DISCOUNT & VAT ACCOUNTING
Nominal ledger vs. subsidiary ledger: nominal: all transaction by nature; subsidiary: breakdown of
receivable & payable control ledger for each individual customer & supplier (personal account) nominal:
total; subsidiary: detailed
Example
4. Duality concept
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6. Accounting for discount
Objective:
Trade discount: bulk sale, prime customers
Cash discount: to enhance cash collection
Accounting entry:
Trade discount: none, because it is known from the invoice price
Cash discount: Yes, as income/expense
Terms:
2/10, n/30
5/14, n/60
Consumption tax
Consumer is the ultimate payer
Manufacturer is responsible for collecting from the consumer
Rates:
o Zero rated
o Reduced rate (@4%)
o Standard rate (@15%)
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Mohammad Shahidul Islam MBA, ACA
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VAT journal entries
Math: M/S Kabir Traders is a VAT registered trader. It has the following transactions for the month of
January 2009:
o Goods purchased for Tk. 57,500 including VAT
o The above goods has been sold for Tk. 80,500 including VAT
o Tk. 3,000 deposited to Bangladesh Bank
o Out of goods sold Tk. 4,600 has been returned
o VAT return submitted after adjusting the input and output VAT
Journal entries
Income statement
Balance sheet
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CASH BOOK, BANK STATEMENT, RECONCILIATION
ERRORS, CORRECTION
BANK STATEMENT
PRIME BANK LTD.
DILKUSHA BRANCH
DILKUSHA C/A
DHAKA-1000
Account: ABC Company Ltd.
Account no.: 1003800960
Print date: 31 December 2009
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2. Preparing Bank Reconciliation Statement (BRS)
Step-1: tick off the items that appear in both cash book and the bank statement.
Step-2: update cash book by the unticked items in the bank statement.
Step-3: the remaining unticked items in the cash book will be the timing difference. This timing difference are
used to prepare BRS.
31 Dec. 2009 Rahim Afroz Ltd. 179.75 31 Dec. 2009 Bank charge 12.95
821.45 821.45
Current year
Prior year
4. Correction of errors
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Mohammad Shahidul Islam MBA, ACA
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ACCOUNTING CONCEPTS & CONVENTIONS
1. ACCOUNTING ASSUMPTIONS
Accrual basis:
Under this basis, the effects of transactions and other events are recognized when they occur and nor as cash or
its equivalent is received or paid and they are recorded in the accounting records and reported in the financial
statement of the periods to which they relate.
Example:
Costs only recognized for that part which is sold (COGS concept comes from accrual basis accounting)
Provisions maintained
Accruals of various expenses
Depreciation
Going concern:
Under this assumption it is assumed that an entity will continue its operation for the foreseeable future (12 months
from balance sheet date). It is also assumed that the enterprise has neither the intention nor the necessity of
liquidation or of curtailing materially the scale of its operations.
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Mohammad Shahidul Islam MBA, ACA
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Disclosure requirement in case of going concern problem:
a) Basis on which financial statements have been prepared
b) Reasons why the entity is not considered to be a going concern
c) Nature of the uncertainty
Example:
Indications of going concern assumption: (BSA-570: Going Concern)
Financial Negative operating cash flows
Adverse key financial ratios
Substantial operating losses
Arrears in discontinuance of operations
Inability to pay creditors
Change from credit to cash-on-delivery transaction with suppliers
Withdrawal of financial support by debtor and creditor
Negative current assets
Operating Loss of key management without replacement
Loss of major market
Cancellation of license/franchise etc.
Labor difficulties or shortage of important suppliers
Other Non-compliance of capital or other statutory requirement
Changes in legislation
Consistency:
Items in the financial statements shall be presented and classified consistently year to year. However, in some
cases presentation/classification can be re-arranged.
a) Significant change in nature of operation
b) Change will result clear understanding to user
c) Change in presentation is required by any BAS
Each material item should be presented separately in the financial statement. Immaterial amounts should be
aggregated with amount of similar nature or function.
Materiality depends on the size and nature of business. There is no specific rule for calculating materiality.
However, following rule for calculating materiality can be suggested:
Thumb rule 5% of profit before tax
Companies Act 1994 any amount exceeding 1% of total revenue or Tk. 5,000 whichever is higher, shall
be shown in distinct head in the financial statements
Off-setting:
Assets and liabilities should not be off-set except when off-setting is required by another BAS (Example:
BAS-12);
Income and expenses should only be off-set if standard permits and if the figure is immaterial.
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Mohammad Shahidul Islam MBA, ACA
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Following items are permitted by BAS-1 for off-setting:
a) Gain or losses on disposal of non-current assets
b) Foreign currency translation gain or losses
c) Extraordinary items
Comparative information:
To ensure comparability, comparative information should be given in the financial statements. BAS requires
numerical information and narrative information as comparative figure. Comparative for the year ended 31
December 2009 shall be presented as below:
Prudence
Degree of caution in exercise of the judgments needed in making the management estimates. Examples of
estimates are:
Estimate of useful life of assets to calculate depreciation
Provision for doubtful loss (example: Receivable may not be collected)
Inventory allowance/ obsolescence allowance
Deferred tax
Provision for warranty claim
Accrued revenue
Provision for loss from a lawsuit
1. Reporting entity
2. Basis of preparation
2.1 Statement of compliance
2.2 Basis of measurement
2.3 Functional and presentational currency
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2.4 Use of estimates and judgments
2.5 Going concern
3. Significant accounting policies
3.1 Foreign exchange
3.2 Financial instruments
3.3 Property, plant and equipment and depreciation
i. Recognition and measurement:
ii. Subsequent costs:
iii. Depreciation:
3.4 Impairment:
Recognition
Calculation of recoverable amount
Reversal of impairment
3.5 Lease transactions
3.6 Borrowing costs
3.7 Inventories
3.7.1 Stocks
3.7.2 Stores
3.8 Trade and other debtors
3.9 Provisions
3.11 Revenue recognition
3.12 Taxation
3.12.1 Provision for income tax
3.12.2 Deferred tax
3.13 Events after the balance
sheet
Exam Requirement:
How alloance is created
How allowance is retired
Accounting entry for written off and written-off debt recovered
Implication of treatment in income statement and balance sheet
Identify effect of irrecoverable debt in gross profit and in net profit [admin exp]
Maths on calculation of bad debt allowance
Practical problem
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INVENTORY [BAS-2]
Inventory Count
Inventory Valuation
Inventory write-off
Inventory Recording
B. INVENTORY VALUATION:
Valuation Methods:
Benchmark (Commonly used and BAS supported) method:
Lower of Cost and NRV (Net Realizable Value)
Measurement Methods:
FIFO
LIFO (Prohibited by BAS)
Average Cost
Standard Cost
Valuation Technique
Raw material valuation Work-in-process valuation Finished Goods valuation
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Cost: Cost: Cost:
Purchase price Purchase price Purchase price
Transport cost Transport cost Transport cost
Handling cost Handling cost Handling cost
Non-recoverable taxes Non-recoverable taxes Non-recoverable taxes
Conversion cost (Labor Conversion cost (Labor
and overhead) and overhead)
PRACTICAL PROBLEM
Provision on bad debt depends on accounting policy of a Company
Inventory (Accounting policy)
Inventories except inventories in transit are measured at the lower of cost and net realizable value. The cost of
inventories is based on the first-in first-out principle, and includes expenditure incurred in acquiring the inventories,
production or conversion costs are other costs incurred in bringing them to their existing location and condition.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of
completion and selling expenses.
C. INVENTORY WRITE-OFF
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Mohammad Shahidul Islam MBA, ACA
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Inventory may be written-off when becomes obsolete/damaged.
Beginning inventory:
Cost of sales Dr.
Inventory Cr.
Ending inventory:
Inventory Dr.
Cost of sales Cr.
Inventory write-off:
Inventory write-off (expenses) Dr.
Inventory Cr.
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Mohammad Shahidul Islam MBA, ACA
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NON-CURRENT ASSETS AND DEPRECIATION
[PLANT PROPERTIES & EQUIPMENT, BAS-16]
Recognition
Measurement of PPE
Depreciation
Revaluation
Disposal
Impairment [BAS-36]
Asset Register
Intangible Assets [BAS-39]
Recognition
Initial recognition Subsequent to initial recognition
Revaluation model:
Revalued amount - Accumulated depreciation – Accumulated impairment loss
Measurement
Asset should be measured initially at cost
Initial expenditure Subsequent expenditure
Cost of site preparation Increase capacity
Initial delivery & handling cost Increase useful life
Installation cost Improvement in quality
Professional fee; architects and engineers
Dismantling cost
Depreciation
Commonly used methods of depreciation are:
Straight line method Reducing balance method
Calculation: Calculation:
[Cost-Residual value]/Useful life [Carrying amount (WDV)]*Depreciation rate
Revaluation:
Revaluation is made when actual life of an asset has increased than that of the estimated useful life.
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Once revalued, interval of revaluation is 3-5 years
Professional valuer shall be used in revaluation
Accounting entry:
Plant properties and equipment Dr.
Revaluation surplus Cr.
Disposal
Asset is disposed off when life of the asset has exhausted or not usable.
Raising DOFA:
Asset no. Description Asset class Location Cost Acc. Dep. WDV Reason
Land:
Revaluation reserve Dr.
Retained earnings Cr.
Impairment [BAS]
Impairment loss = Carrying amount > recoverable amount
Asset register
ID no. description Location department Purchase cost Depreciation revaluation Carrying
date method amount
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Intangible assets:
Goodwill
Preliminary expenses
Development cost [BAS-38: design, construction and testing of pre-production, operation of pilot plant,
feasibility study, initiate process systems etc.].
Application Software
Purchased goodwill:
Goodwill Dr.
Cash/Bank Cr.
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Cost of goods
sold
2009 2008
425,422,258 272,009,811
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INSTITUTE OF CHARTERED ACCOUNTANTS OF BANGLADESH
CLASS TEST- 1 [KNOWLEDGE LEVEL (ACCOUNTING)]
MOHAMMAD SHAHIDUL ISLAM ACA
FULL MARKS-100, TIME ALLOWED-90 MIN. [all questions carry equal marks]
1. Mention the users of financial statements specifying internal and external users.
2. List the financial reporting framework of Bangladesh.
3. Mention 4 qualitative characteristics of accounting information.
4. What information are required for information be reliable?
5. How accrual basis of accounting is related to matching concept?
6. Identify key points to distinguish ‘CAPEX’ and ‘REVEX’
7. Briefly describe the responsibility of directors for preparation of financial statements.
8. What statements comprise a complete set of financial statements?
9. Describe, in brief, the recognition criteria of an asset.
10. Mention BAS term of fixed assets, stock, debtors, creditors and profit and loss account.
11. Describe, in brief, the accounting consequences, if ‘business entity concept’ followed and if not.
12. Mention the name of measurement techniques used in accounting. Explain ‘Break-up value’ of measurement
technique.
13. How do you identify ‘non-current and current assets and liabilities?
14. Mention the formula for ‘Gross profit’, ’Net profit’, and admin cost to sales.
15. Mention few examples of distribution expenses.
16. What are the elements of financial statements?
17. How do you distinguish ‘petty cash book in traditional system’ and ‘petty cash book in imprest system’.
18. What documents are called source document? Why?
19. What information are generally included in the GRN?
20. What are books of original entry used for? Why?
21. Describe, in brief, all types of discount.
22. Why payroll costs shown in the profit and loss account is higher than the gross payroll cost of employees.
23. Distinguish nominal ledger and subsidiary ledger. Why subsidiary ledger is maintained?
24. Define duality concept in double entry book keeping system.
25. Point out the basic rules for double entry book keeping.
26. What is the implication of VAT on registered and non-registered person?
27. Distinguish between errors that cause trial balance imbalance and those that do not.
28. What is adjusted cash book? Why computation of adjusted cash book is necessary for an accountant?
29. Mention the types of errors in accounting.
30. Describe the use of suspense account in rectifying errors.
31. Explain the terms ‘Fair presentation’, ‘substance over form’ and ‘Prudence’.
32. Describe the effect in accounting if ‘going concern assumption’ followed and if not followed.
33. Mention the cases where offsetting is permitted by accounting standards?
CLASS TEST-2
KNOWLEDGE LEVEL-ACCOUNTING, SECTION-1
Course Teacher: Mohammad Shahidul Islam ACA
[All questions carry equal marks]
40. Summit Power operates an imprest petty cash system. The imprest amount is Tk. 5000. at the end of the
period the totals of the four analysis columns in the petty cash book were as follows:
Column -1 tk. 23.12
Column -2 tk. 6.74
Column -3 tk. 12.90
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Column -4 tk. 28.50
How much cash is required to restore the imprest amount?
41. Give two example of subsidiary ledger.
42. Soft Supplies Co. recently purchase from Hard Imports Co. 10 printers originally priced at tk. 200 each. A
10% trade discount was negotiated together with a 5% cash discount if payment was made within 14
days. Calculate the following.
a) The total of the trade discount
b) The total of the cash discount
43. Define trade discount and cash discount with two examples
44. Define the term 2/10, n/30
45. Prepare an income statement from the following items:
Taka
a) purchase at gross cost 120,000
b) trade discount allowed 4,000
c) cash discount received 1,500
d) cash sales 34,000
e) credit sale at invoice price 150,000
f) cash discount allowed 8,000
g) distributaries cost 32,000
h) administrative cost 40,000
i) drawings by proprietor 22,000
46. Explain why VAT is called expenditure tax?
47. Explain how VAT is collected?
48. Explain implication of VAT for registered and non-registered persons
49. A manufacturing company purchase raw materials at a cost of tk. 1,000 plus VAT at standard rate of 15%.
From the raw materials the company makes finished products which it sales to a retail outlet, B ltd. For tk.
1,600 plus VAT a\@ 15%. B Ltd. Sales the products to customers at a total price of tk. 2,000 plus VAT
@15%. How much VAT is paid at each stage in the chain?
50. Define the term “irrecoverable VAT” with two examples
51. ABC Company usually sell goods at tk. 130 each, it gives XYZ Trade discount of tk. 10 so he sells goods to
XYZ for tk. 120. ABC is registered for VAT. How much output VAT should ABC company include on XYZ’s
invoice?
52. If you are told that an amount includes VAT @ 15% (gross amount), calculate the VAT amount?
53. ABC is preparing financial statements for the year ended 31 December 2009. Included in its balance sheet
as at 31 December 2008 was a balance for VAT due from government of tk. 15,000. ABC’s summary
income statement for the year 31 December 2009 was as follows:
Taka
Revenue (net) (all standard rated) 500,000
Purchase (net) (all standard rated) (120,000)
Gross profit 380,000
Expenses:
Wages & salaries (VAT exempted) (163,000)
Entertainment (Tk. 40 plus irrecoverable VAT Tk. 6) (46,000)
Other (net, all standard rated) (71,000)
Net profit 100,000
Payments of tk. 5,000, 15,000 and 20,000 have been made in the year to government and a repayment of
tk. 12,000 was received.
a) What is the balance for VAT in the balance sheet as at 31 December 2009 (assume VAT @ 15%)
54. When a credit customer pays an invoice for tk. 115 including VAT @ 15%. What will the credit entry in the
VAT ledger account?
55. Define input VAT and output VAT with example.
Error Type
A credit sales of tk. 6,843 has been incorrectly debited in the receivable ledger as tk. 6,483
A business receives an invoice from a supplier for tk. 250 and the transaction is missed from the
books
An error is to treat revenue expenditure incorrectly as capital expenditure
Putting a debit entry or a credit entry in the wrong account
Casting error
Admin expenses of tk. 2,822 are entered as tk. 2,282 in the administrative expenses ledger
account. At the same time, income of tk. 8,931 is shown in te sales account as tk. 8,391.
68. A bank statement shows a balance of tk, 1,200 in credit. An examination of the statement shows a tk. 500
cheques paid in per the cash book but not yet on the bank statement and a tk. 1,250 cheque paid out
nu\\but not yet on the statement. In addition the cash book shows the proprietors correct calculation of
savings interest of tk. 50 which should have been received, but which is not on the statement. What is the
balance per the cash book?
69. ABC Company had a difference on its trial balance. After investigation the following errors were discovered.
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a) A sales invoice for tk. 500 was mis-read by the clerk as tk. 600 ad\nd entered as such into the
ledger accounts
b) Bank charge of tk. 145 had been debited to the cash at bank account tk. 154
How much was the original difference on the trial balance?
70. Give 3 examples for which a suspense account is required for correction of an error.
71. Bank statement of a company showed an overdrawn balance of tk. 5,250 on 31 December 2009. when this
was reconciled to the cash book, the following difference were noted:
o Un-presented cheques
o Un-credited lodgment
o Standing order for insurance premium payable not entered in cash book
o Overdraft interest not recorded in the cash book
o Credited in error to company’s account by bank
What is the original balance on company’s cash book as on 31 December 2009?
72. “Closing inventory balance is not included in the initial trial balance rather included in the extended trial
balance” explain
73. As at 31 December 2009 a company’s bank statement shows an overdraft of tk. 1,500. The statement
includes bank charges of tk. 30 which have not yet been recorded in the company’s cash book. On 29
December 2009 the company had paid a cheque of tk. 500 to a supplier and banked tk. 200 received from
a trade receivable; neither of these terms appears in the bank statement. What would be the overdraft of
the company’s balance sheet at 31 December 2009?
74. The cash book shows a bank balance of tk. 5,675 overdrawn at 31 December 2009. it is subsequently
discovered that a standing order payment for tk. 125 has been entered twice, and that a dishonored
cheque for tk. 450 has been debited in the cash book instead of credited. What should be correct bank
balance?
75. Give 10 examples for which amendments of cash book is required. (Assignment)
76. Give 5 example for which amendments of banks statement is required (assignment)
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