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 Unit 1: BUSINESS ENVIRONMENT AND INTERNATIONAL BUSINESS
Business Environment: Economic Environment, Political Environment, Legal Environment, Consumer
Protection Act, International Business, Theories of International Trade, Foreign Direct Investment (FDI) and
Foreign Portfolio Investment (FPI), Regional Economic Integration

 Unit 2: ACCOUNTING AND AUDITING

Basic accounting principles, Accounting Standards, Partnership, Corporate Accounting, Holding company
accounts, Cost and Management Accounting, Funds flow Analysis; Cash flow analysis, Human Resources
Accounting , Break-even analysis, Life cycle costing, Ratio analysis, Auditing

 Unit 3: BUSINESS ECONOMICS

Meaning and scope, Objectives, Demand analysis: Law of demand; Elasticity of demand and its measurement;
Relationship between AR and MR, Consumer behavior: Utility analysis; Indifference curve analysis, Theory of
cost: Short-run and long-run cost curves, Price determination under, Law of Variable Proportions, Law of
Diminishing Marginal Returns

 Unit 4: BUSINESS FINANCE

Scope and sources of finance, Theories of Capital Structure, Working capital management, International
monetary system, Money Market, Capital Market, Foreign exchange market

 Unit 5: BUSINESS STATISTICS AND RESEARCH METHODS

Measures of central tendency, Measures of dispersion, Measures of Skewness, Measures of Kurtosis,
Correlation and regression of, Probability Distribution, Collection and classification of data, Sampling
distribution, z-test; t-test

 Unit 6: BUSINESS MANAGEMENT AND HUMAN RESOURCE MANAGEMENT

Characteristics, Objectives, Levels of Management, Functions, Luther Gullick Function, Fayol‘s Principles of
Management, Taylor‘s Scientific Management, Bureaucratic Theory by Max Weber, Product Life cycle
Management, BCG growth-share matrix, Motivation, Maslow‘s Need Hierarchy-Theory of Motivation,
Herzberg‘s Motivation Two Factor Theory, McGregor‘s Theory X and Theory Y, William Ouchi‘s Theory Z,
Expectancy Theory of Motivation, Blake and Mouton‘s Managerial Grid

 Unit 7: BANKING AND FINANCIAL INSTITUTIONS

Origin and Development of Banking, Types of Banks, Financial Regulators in India

 Unit 8: MARKETING MANAGEMENT

Marketing strategy, Market segmentation, Marketing mix, McKinsey 7-S Model, Promotion decisions, The
Business Buying Process

 Unit 9: LEGAL ASPECTS OF BUSINESS

Objectives, The Indian Contract Act 1872: Contracts, Agreement, Promise, Void and Voidable Contracts, SALE OF GOODS
ACT 1930: Sale, Agreement to Sell, Hire Purchase, Rights against the goods Negotiable Instruments Act 1881: Types of
Negotiable Instruments, The Competition Act 2002, The Information Technology Act 2000, The RTI Act 2005, Intellectual
Property Rights (IPRs), Goods and Services Tax (GST)

 Unit 10: INCOME-TAX AND CORPORATE TAX PLANNING

Income Tax PERSON Residential Status, Income Tax Deductions Corporate Tax, Tax
Deducted at Source (TDS), Rates of TDS, Source of Income

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 Unit - 1
Business Environment and International Business

Business environment
Business environment means the sum total of the factors which influence the business and over which the business
has no control. The study of business environment enables the managers to identify threats and opportunities.

Features of Business Environment

1. Totality of external forces: Business environment is the sum total of all the forces/factors external to a business firm.
2. Specific and general forces: Business environment includes both specific and general forces. Specific forces
influence business firm directly while general forces affect a business firm indirectly.
3. Inter-relatedness: All the forces/factors of a business environment are closely interrelated. For example, increased
awareness of health care has raised the demand for organic food and roasted snacks.
4. Dynamic: Business environment is dynamic in nature which keeps on changing with the change in technology,
consumer‘s fashion and tastes etc.
5. Uncertainty: Business environment is uncertain as it is difficult to predict the future environmental changes and their
impact with full accuracy.
6. Complexity: Business environment is complex which is easy to understand in parts separately but it is difficult to
understand in totality.
7. Relativity: Business environment is a relative concept whose impact differs from country to country, region to region
and firm to firm. For example, a shift of preference from soft drinks to juices will be welcomed as an opportunity by
juice making companies while a threat to soft drink manufacturers.
IMPORTANCE OF BUSINESS ENVIRONMENT
1. Identification of opportunities to get first mover advantage: Understanding of business environment helps an
organisation in identifying advantageous opportunities and getting their benefits prior to competitors, thus reaping the
benefits of being a pioneer.
2. Identification of threats: Correct knowledge of business environment helps an organisation to identify those threats
which may adversely affect its operations. For example, Bajaj Auto made considerable improvements in its two
wheelers when Honda & other companies entered the auto industry.
3. Tapping useful resources: Business environment makes available various resources such as capital, labour,
machines, raw material etc. to a business firm. In order to know the availability of resources and making them available
on time at economical price, knowledge of business environment is necessary.
4. Coping with Rapid changes: Continuous study/scanning of business environment helps in knowing the changes
which are taking place and thus they can be faced effectively.
5. Assistance in planning and policy formulation: Understanding and analysis of business environment helps an
organisation in planning & policy formulation. For example, ITC Hotels planned new hotels in India after observing
boom in tourism sector.
6. Helps in Improving performance: Correct analysis and continuous monitoring of business environment helps an
organisation in improving its performance.

Economic Environment in India

As a part of economic reforms, the Government of India announced New Economic Policy in July 1991 for taking out
the country out of economic difficulty and speeding up the development of the country.
The main objective of New Industrial Policy was to promote Liberalization, Privatization and Globalization.
1. Liberalisation: It means freeing of Indian Industry from all unnecessary government controls and restrictions.
Abolishing licensing requirements; Freedom in deciding the scale of business; removals of restriction on movements of
goods and service; reduction in tax rates; freedom in fixing prices; simplifying procedures; making it easier to attract
foreign investment.
2. Privatization: Giving greater role to private sector in the nation building recess and reduced role of public sector;
Disinvestment in many Public Sector undertaking etc., Setting up of BIFR to revive sick units in public sector
enterprises suffering losses. It aimed at improving efficiency and performance of government undertakings, reducing
budgetary deficit & better utilization of national resources.
3. Globalization: It means integration of various economies of the world leading to the emergence of cohesive global
economy. The measures taken by the Government include trade liberalization which includes import liberalization;
Export Promotion through rationalization of tariff structure; Foreign exchange liberalization; increased interaction
among global economies under the aegis (protection/support) of World Trade Organization. It resulted in addition of
Export duty, Reduction of import.
DIMENSIONS/COMPONENTS OF BUSINESS ENVIRONMENT
1. Economic Environment: It has immediate and direct economic impact on a business. Rate of interest, inflation rate,
change in the income of people, monetary policy, price level etc. are some economic factors which could affect
business firms. Economic environment may offer opportunities to a firm or it may put constraints.
2. Social Environment: It includes various social forces such as customs, beliefs, literacy rates, educational levels,
lifestyle, values etc. Changes in social environment affect an organisation in the long run. Example: Now a days people
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 are paying more attention towards their health, as a result of which demand for mineral water, Diet coke etc. has
increased while demand of tobacco, fatty food products has decreased.
3. Technological Environment: It implies using new and advanced ways/techniques of production. A businessman must
closely monitor the technological changes taking place in the industry as it helps in facing competition and improving
quality of the product. For Example, Digital watches in place of traditional watches, artificial fabrics in place of
traditional cotton and silk fabrics, booking of railway tickets on internet etc.
4. Political Environment: Changes in political situation also affect business organisations. Political stability builds
confidence among business community while political instability and bad law & order situation may bring uncertainty in
business activities. Ideology of the political party, attitude of government towards business, type of government-single
party or coalition government affects the business.
Example: Bangalore and Hyderabad have become the most popular locations for IT due to supportive political climate.
5. Legal Environment: It constitutes the laws and legislations passed by the Government, administrative orders, court
judgements, decisions of various commissions and agencies. Businessmen have to act according to various
legislations and their knowledge is very necessary.
Example: Advertisement of Alcoholic products is prohibited and it is compulsory to give statutory warning on
advertisement of cigarettes.

CONSUMER PROTECTION ACT, 1986

The Consumer Protection Act was passed by the Parliament in 1986 and it came into force from 1987. Its purposes to protect
consumers against defective goods, unsatisfactory services, unfair trade practices, etc. The Act provides for three-tier
machinery consisting of District Forum, State Commission and National Commission. It also provides for the formation
protection councils in every state.
Complainant means:
1. A consumer; or
2. Any voluntary consumer association registered under the Companies Act, 1956 or under any other law for the time
being in force; or
3. The Central Government or any State Government, who or which makes a complaint; or one or more consumers where
there are numerous consumers having the same interest.
Complaint means any allegation in writing made by a complainant that:
1. An unfair trade practice or a restricted trade practice has been adopted by any trader.
2. The goods bought by him or agreed to be bought by him suffer from one more defects.
3. The services hired or availed of or agreed to be hired or availed of by him suffer from deficiency in any respect.
4. The trader has charged for the goods mentioned in the complaint a price excess. of the price fixed by or under any law
for the time being in force or displayed on the goods or any package containing such goods.
Goods mean goods as defined in the Sale of Goods Act, 1930. Under that act, goods means every kind of movable property
other than actionable claims and money and includes stocks and shares, growing crops, grass and things attached to or
forming part of the land which are agreed to be severed before sale or under the contract of sale.
Service is defined to mean service of any description which is made available to potential users and includes the provision of
facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, board or
lodging or both, housing construction, entertainment, amusement or the purveying of news or other information but does not
include the rendering of any service free of charge or under a contract of personal service.

Consumer dispute means dispute where the person against whom a complaint has been made, denies or disputes the
allegation contained in the complaint.

Restrictive Trade Practice means any trade practice which requires a consumer to buy, hire, or avail of any good or as the
case may be, services as a condition precedent for buying, hiring or availing of any other goods or services.

Unfair Trade Practice means unfair trade practice as defined under the Monopolies and Restrictive Trade Practices Act. The
MRTP act has defined certain practices to be unfair trade practices.

Defect means any fault, imperfection or shortcoming in the quality, quantity, potency, purity or standard which is required to be
maintained by or under any law for the time being in force or under any contract, express or implied, or as is claimed by the
trade in any manner whatsoever in relation to any goods.

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Deficiency means any fault, imperfection or shortcoming or inadequacy in the quality, nature and manner of performance
which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a
person in pursuance of a contract or otherwise in relation to any service. A consumer is a user of goods and services. Any
person paying for goods and services, which he uses, is entitled to expect that the goods and services be of a nature and
quality promised to him by the seller.
Objects of the Consumer Protection Act
1. Right to Safety: It is the consumer right to be protected against goods and services which is hazardous to health or
life.
2. Right to be Informed: The consumer has the right to be informed about the quality, quantity, purity, standard and
price of goods he intends to purchase. Therefore, the manufacture must mention complete information about the
product, its ingredients, date of manufacture, price, precaution of use, etc. on the label and package of the product.
3. Right to Choose: The consumer should be assured of freedom to choose from a variety of products at competitive
prices. Every consumer wants to buy a product on his free will. There should be free competition in the market so that
the consumer may make the right choice in satisfying his needs.
4. Right to Representation (or to be Heard): The consumer has right to register dissatisfaction with any product and get
his complaint heard. Most of the reputed firms have set up consumer service cells to listen to the consumer‘s complaint
and take appropriate steps to redress their grievances.
5. Right to Seek Redressal: It is the right to seek redressed against any defect in goods or unfair trader suffered by the
consumer. If the quality and performance of a product falls short of seller‘s claims, the consumer has a right to certain
remedies. The Consumer Protection Act requires that the product must be repaired, replaced or taken back by the
seller as provided under the contract between the buyer and the seller.
6. Right to Consumer Education: It means right of acquiring knowledge and being a well-informed consumer throughout
his life. He should also be made aware of his rights and the remedies available through publicity in the mass media.
Consumer Responsibilities
(i) To provide adequate information to the seller: The consumer has the responsibility to provide adequate information
about his needs and expectation to the sellers.
(ii) To exercise caution in purchasing: The consumer must try to get full information on the quality, design, utility,
quantity, price, etc. of the product before purchasing it.
(iii) To insist on cash memo or receipt: The consumer must get a cash memo or receipt as a proof of purchase of goods
from the seller. This would help him in making a complaint to the seller in case of any defect in the goods.
(iv) To file complaint against genuine grievance: The consumer must file a complaint with the seller or manufacturer
about any defects or shortcoming in the products and services.
(v) To be quality conscious: The consumer should never compromise on the quality of goods. While making purchases,
the consumers must look for standard quality certification marks such as ISI, Agmark, Woolmark, FPO, etc. For
example, electric iron must carry ISI mark.

Powers of the Redressal Agencies:

The District Forum, State Commission and the National Commission are vested with the powers of a civil court under
the Code of Civil Procedure while trying a suit in respect of the following matters:-
1. The summoning and enforcing attendance of any defendant or witness examining the witness on oath;
2. The discovery and production of any document or other material producible as evidence;
3. The reception of evidence on affidavits:
4. The requisitioning of the report of the concerned analysis or test from the appropriate laboratory or from any other
relevant source;
5. Issuing of any commission for the examination of any witness; and
6. Any other matter which may be prescribed.
Note: (Most important Point of Lakshya Academy)

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 It aimed at conserving foreign currency and its optimum utilisation for the development of the economy. In the budget of
1997-98, the government had proposed to replace FERA-1973 by FEMA (Foreign Exchange Management Act). It came into
force on June 1, 2000.
India is the first country in the world to make corporate social responsibility (CSR) mandatory, following an amendment
to the Companies Act, 2013 in April 2014. Businesses can invest their profits in areas such as education, poverty, gender
equality, and hunger as part of any CSR compliance.
Sociocultural factors are customs, lifestyles and values that characterize a society. More specifically, cultural
aspects include aesthetics, education, language, law and politics, religion, social organizations, technology and
material culture, values and attitudes.
The socio-cultural environment is important for multinational companies. There are various socio-cultural factors that
significantly affect the economic activity as well as the performance of multinational companies. The key socio-cultural factors
that have a major impact on the operation of the multinational companies are (Trehan and Trehan, 2009):
1. Culture
2. Language
3. Religion
4. Level of education
5. Customer preferences
6. The attitude of the society towards foreign goods and services.

Liberalization, Privatisation and Globalisation

 Liberalization:
Liberalization of the Indian economy contained the following features:
a. The economic reforms that were introduced were aimed at liberalizing the Indian business and industry from all unnecessary
controls and restrictions.
b. They indicate the end of the license-permit-quota raj.
c. Liberalization of the Indian industry has taken place with respect to:
(i) Abolishing licensing requirement in most of the industries except a short list,
(ii) Freedom in deciding the scale of business activities i.e., no restrictions on expansion or contraction of
business activities,
(iii) Removal of restrictions on the movement of goods and services,
(iv) Freedom in fixing the prices of goods and services,
(v) Reduction in tax rates and lifting of unnecessary controls over the economy,
(vi) Simplifying procedures for imports and exports, and
(vii) Making it easier to attract foreign capital and technology to India.
 Privatisation:
Privatization was characterized by the following features:
a. The new set of economic reforms aimed at giving greater role to the private sector in the nation building process and a
reduced role to the public sector.
b. To achieve this, the government redefined the role of the public sector in the New Industrial Policy of 1991.
c. The purpose of the same, according to the government, was mainly to improve financial discipline and facilitate
modernization.
d. It was also observed that private capital and managerial capabilities could be effectively utilized to improve the performance
of the PSUs.
e. The government has also made attempts to improve the efficiency of PSUs by giving them autonomy in taking managerial
decisions.
 Globalisation:
Globalisation of the Indian economy contained the following characteristics:
a. Globalization is the outcome of the policies of liberalisation and privatization already initiated by the Government.
b. Globalisation is generally understood to mean integration of the economy of the country with the world economy. It is a
complex phenomenon to understand and apply into practice.
c. It is an outcome of the set of various policies that are aimed at transforming the world towards greater interdependence and
integration.
d. It involves creation of networks and activities transcending economic, social and geographical boundaries.
e. Globalisation involves an increased level of interaction and interdependence among the various nations of the global
economy.
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f. Physical geographical gap or political boundaries no longer remain barriers for a business enterprise to serve a customer in a
distant geographical market across the globe.

 Foreign Direct Investment

Foreign direct investment (FDI) involves establishing a direct business interest in a foreign country, such as buying or
establishing a manufacturing business, building warehouses, or buying buildings.
 Foreign Portfolio Investment
Foreign portfolio investment (FPI) refers to investing in the financial assets of a foreign country, such as stocks or bonds
available on an exchange. This type of investment is at times viewed less favorably than direct investment because portfolio
investments can be sold off quickly and are at times seen as short-term attempts to make money, rather than a long-term
investment in the economy.
Difference between FDI and FPI
BASIS FOR FDI FPI
COMPARISON
Meaning FDI refers to the investment made by When an international investor, invests in
the foreign investors to obtain a the passive holdings of an enterprise of
substantial interest in the enterprise another country, i.e. investment in the
located in a different country. financial asset, it is known as FPI.
Role of investors Active Passive
Degree of High Very less
control
Term Long term Short term
Management of Efficient Comparatively less efficient.
Projects
Investment in Physical assets Financial assets
Entry and exit Difficult Relatively easy.
Results in Transfer of funds, technology and Capital inflows
other resources.

Regional Economic Integration

Economic integration is an agreement among countries in a geographic region to reduce and ultimately remove, tariff and non-
tariff barriers to the free flow of goods or services and factors of production among each other‘s; any type of arrangement in
which countries agree to coordinate their trade, fiscal, and/or monetary policies are referred to as economic integration.
Obviously, there are many different stages of integration.
Stages of economic integration
The degree of economic integration can be categorized into five stages:
1. Free trade area
2. Customs union
3. Single market
4. Economic and monetary union
5. Complete integration (political union)

 Free-trade zones
Seven export-processing zones provide facilities for duty-free imports for the manufacture of export item under certain
conditions. Also, 100 percent export-oriented units (EOUs) can be set up outside these zones. While these units are set up to
cater to the export market, they may be allowed to sell up to 25 percent of their production in the domestic tariff area.
 Investor considerations
· Foreign investment requires approval, but certain types of investments quality for automatic approval
· Up to 100 percent foreign ownership may be permitted except in certain cases.
· The trend is to require proof of economic value to India for investment project approval.
· For approved investments. Capital and earning can be freely repatriated, subject to taxation and exchange control formalities.
· Exchange controls are being reduced.
· Only a few industries are reserved for the public sector.
· The favored type of business enterprise is a locally incorporated company with foreign equity participation; a local jointly
venture partner is not mandatory.

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 Unit 2:
Accounting and Auditing

Basic Accounting Principles and Concepts

 Accounting Principles
Accounting principles are the common rules that must be followed when preparing financial statements that are
distributed to people outside of the company (or other organization).
 Accounting Concept
Accounting concept refers to the basic assumptions and rules and principles which work as the basis of recording of business
transactions and preparing accounts.
1. Business Entity Concept
The concept of business entity assumes that business has a distinct and separate entity from its owners. It means that for the
purposes of accounting, the business and its owners are to be treated as two separate entities.
2. Money Measurement Concept
The concept of money measurement states that only those transactions and happenings in an organisation which can be
expressed in terms of money such as sale of goods or payment of expenses or receipt of income, etc. are to be recorded in the
book of accounts.
3. Going Concern Concept
The concept of going concern assumes that a business firm would continue to carry out its operations indefinitely, i.e. for a
fairly long period of time and would not be liquidated in the foreseeable future. This is an important assumption of accounting
as it provides the very basis for showing the value of assets in the balance sheet.
4. Accounting Period Concept
Accounting period refers to the span of time at the end of which the financial statements of an enterprise are prepared, to know
whether it has earned profits or incurred losses during that period and what exactly is the position of its assets and liabilities at
the end of that period.
5. Cost Concept
The cost concept requires that all assets are recorded in the book of accounts at their purchase price, which includes cost of
acquisition, transportation, installation and making the asset ready to use.
6. Dual Aspect Concept
Dual aspect is the foundation or basic principle of accounting. It provides the very basis for recording business transactions into
the book of accounts. This concept states that every transaction has a dual or two-fold effect and should therefore be recorded
at two places. In other words, at least two accounts will be involved in recording a transaction.
Assets = Liabilities + Capital
7. Revenue Recognition (Realisation) Concept
The concept of revenue recognition requires that the revenue for a business transaction should be included in the accounting
records only when it is realised.
8. Matching Concept
The process of ascertaining the amount of profit earned or the loss incurred during a particular period involves deduction of
related expenses from the revenue earned during that period. The matching concept emphasizes exactly on this aspect. It
states that expenses incurred in an accounting period should be matched with revenues during that period. It follows from this
that the revenue and expenses incurred to earn these revenues must belong to the same accounting period.
9. Full Disclosure Concept
Information provided by financial statements are used by different groups of people such as investors, lenders, suppliers and
others in taking various financial decisions. In the corporate form of organisation, there is a distinction between those managing
the affairs of the enterprise and those owning it.
10. Consistency Concept
The accounting information provided by the financial statements would be useful in drawing conclusions regarding the working
of an enterprise only when it allows comparisons over a period of time as well as with the working of other enterprises.
11. Conservatism Concept
The concept of conservatism (also called ‗prudence‘) provides guidance for recording transactions in the book of accounts and
is based on the policy of playing safe. The concept states that a conscious approach should be adopted in ascertaining income
so that profits of the enterprise are not overstated. If the profits ascertained are more than the actual, it may lead to distribution
of dividend out of capital, which is not fair as it will lead to reduction in the capital of the enterprise.

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 12. Materiality Concept
The concept of materiality requires that accounting should focus on material facts. Efforts should not be wasted in recording
and presenting facts, which are immaterial in the determination of income.
13. Objectivity Concept
The concept of objectivity requires that accounting transaction should be recorded in an objective manner, free from the bias of
accountants and others.
14. Systems of Accounting
There are two systems of recording business transactions, viz. double entry system and single entry system. Under double
entry system every transaction has two-fold effects whereas single entry system is known as incomplete records.
15. Basis of Accounting
The two broad approach of accounting are cash basis and accrual basis. Under cash basis transactions are recorded only
when cash are received or paid. Whereas under accrual basis, revenues or costs are recognises when they occur rather than
when they are paid.
16. Accounting Standards
Accounting standards are written statements of uniform accounting rules and guidelines in practice for preparing the uniform
and consistent financial statements. These standards cannot override the provisions of applicable laws, customs, usages and
business environment in the country.
Accounting Standards (AS)
The ICAI has issued the following standards:
 AS 1 Disclosure of Accounting Policies
 AS 2 Valuation of Inventories
 AS 3 Cash Flow Statements
 AS 4 Contingencies and Events Occurring after the Balance Sheet Date
 AS 5 Net Profit or Loss for the Period, Prior Period items and Changes in Accounting Policies
 AS 6 Depreciation Accounting
 AS 7 Construction Contracts
 AS 8 Accounting for Research and Development
 AS 9 Revenue Recognition
 AS 10 Accounting for Fixed Assets
 AS 11 The Effects of Changes in Foreign Exchange Rates
 AS 12 Accounting for Government Grants
 AS 13 Accounting for Investments
 AS 14 Accounting for Amalgamations
 AS 15 Accounting for Retirement Benefits in the Financial Statements of Employers (recently revised and titled as
‗Employee Benefits‘)
 AS 16 Borrowing Costs
 AS 17 Segment Reporting
 AS 18 Related Party Disclosures
 AS 19 Leases
 AS 20 Earnings Per Share
 AS 21 Consolidated Financial Statements
 AS 22 Accounting for Taxes on Income
 AS 23 Accounting for Investments in associates in Consolidated Financial Statements
 AS 24 Discontinuing Operations
 AS 25 Interim Financial Reporting
 AS 26 Intangible Assets
 AS 27 Financial Reporting of Interests in Joint Ventures
 AS 28 Impairment of Assets
 AS 29 Provisions, Contingent Liabilities and Contingent Assets

Partnership
A partnership is a formal arrangement by two or more parties to manage and operate a business and share its profits.

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  A partnership is an arrangement between two or more people to oversee business operations and share its profits and
liabilities.
 In a general partnership company, all members share both profits and liabilities.
 Professionals like doctors and lawyers often form a limited partnership.
 There may be tax benefits to a partnership compared to a corporation.
 Indian Partnership Act, 1932
 The maximum number of members is carrying on banking business - 10 (As per 1956)
 The maximum number of members is carrying on other business - 20 (As per 1956)
Note: This restriction is placed by the companies act and not the partnership act.
 In his/her role as a partner, a person acts both as a Principal as well as an Agent.
 The agreement between the partners put down in writing forms - Partnership Deed / Partnership Agreement / Articles of
Partnership.
 Where the Partnership Deed is silent - the provisions in the "Indian Partnership Act, 1932" apply.
 In the absence of an agreement between the partners - Share Profits and Losses Equally.
 In the absence of an agreement between the partners- No Remuneration (salary, commission, brokerage etc.).
 In the absence of an agreement between the partners- No Interest on Capital & No Interest on Drawing.
 Even where the agreement provides for payment of interest on capital, it will not be paid if there are losses.
 In the absence of an agreement / deed between the partners – Interest on Partners Loan & Advance @ 6% p.a.
 Where the Partnership Deed provides for payment of Interest on Capital & Interest on Drawing but rate of interest not
mention - Interest @ 6% p.a.
 Capital Accounts is affected by - Capital natured & Revenue natured transactions.
 All Partners Cannot be the Guaranteed / Guarantors.
Types of Partners:
1. Active / Managing / Working partner :-
A person who takes active interest in the conduct and management of the firm.
2. Sleeping / Dormant / Inactive partner:-
He does not take active part in the management of the firm. Such a partner only contributes to the share capital of the firm.
3. Nominal / Ostensible partner:-
He only lends his name to the firm, without any capital contributions, and doesn‘t share the profits of the business.
4. Estoppel / Holding / Disposal partner:-
If a person, by his words or conduct, holds out to another that he is a partner.
5. Limited / Silent partner:-
A partner whose liability is limited to the amount of their investment.
Partner Can Retire
 With the consent of all the other partners,
 In accordance with an express agreement among the partners,
 By giving a written notice of intention to retire to all the other partners where partnership is at will.
Various Adjustments on Retirement:
 Adjustment of accumulated reserves and undistributed profit and losses.
 Revaluation of assets and liabilities.
 Adjustment for goodwill of the firm.
 Calculation of new profit and loss sharing ratio.
 Calculation of the amount due to retiring partner and the mode of payment.
Death of a Partner
The death may occur at any time during the course of trading period In the event of death of a partner, the Legal
Representatives of the Deceased Partner will be entitled to receive from the firm the amount due on account of the following:
1. Capital Account of the deceased partner as per the last Balance Sheet of the firm.
2. Interest on capital, if any, to the date of death of the partner.
3. Share in the goodwill of the firm.
4. Share in the revaluation of assets and liabilities.
5. Share in the accumulated reserves.
6. Share in the undistributed profits.
7. Share in the profit of the firm from the last Balance Sheet to the date of his death.
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8. Share in the Joint Life Policy.
9. Salary, if any, due to him till the date of his death.
Interest on Drawing

Corporate Accounting
Corporate Accounting is a special branch of accounting which deals with the accounting for companies, preparation of
their final accounts and cash flow statements, analysis and interpretation of companies‘ financial results and accounting for
specific events like amalgamation, absorption, preparation of consolidated balance sheets.

Issue of Shares by a Company

Issued shares are the authorized shares sold to and held by the shareholders of a company, regardless of whether
they are insiders, institutional investors or the general public, as shown in the company‘s annual report.
Types of Share Capital
1. Authorised/Nominal/Registered Capital:
At the time of registration of a company, the Memorandum of Association mentions the amount of capital a company is
authorised to raise from the public by selling shares which is known as Authorised Capital or Normal Capital or Registered
Capital.
2. Issued Capital:
Generally, a part of the authorised capital is issued to the public for subscription which is known as issued capital, i.e., it is the
nominal value of the shares which are offered to the public for subscription.
3. Subscribed Capital:
A part of the issued capital which is subscribed by the public is known as subscribed capital.
Minimum subscription 90% of issue capital.
4. Called-Up Capital:
Generally, the shareholders pay the price of the shares by installments, viz., application, allotment, First call, Final call etc.
5. Paid Up Capital:
The amount actually paid by the shareholders is known as Paid-up Capital.
6. Reserve Capital:
Reserve Capital is that part of uncalled capital of a company which can be called only in the event of its winding-up. A limited
company may, by special resolution, determine that any portion of its share capital which has not been called-up, shall be
called up, except in the event of the company being wound-up, such capital is known as Reserve Capital.

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 Difference between Equity Shares and Preference Shares
BASIS EQUITY SHARES PREFERENCE SHARES
Meaning Equity shares are the ordinary shares Preference shares are the shares that carry
of the company representing the part preferential rights on the matters of payment
ownership of the shareholder in the of dividend and repayment of capital.
company.
Payment of dividend The dividend is paid after the payment Priority in payment of dividend over equity
of all liabilities. shareholders.
Repayment of capital In the event of winding up of the In the event of winding up of the company,
company, equity shares are repaid at preference shares are repaid before equity
the end. shares.
Rate of dividend Fluctuating Fixed
Redemption No Yes
Voting rights Equity shares carry voting rights. Normally, preference shares do not carry
voting rights. However, in special
circumstances, they get voting rights.
Convertibility Equity shares can never be converted. Preference shares can be converted into
equity shares.
Arrears of Dividend Equity shareholders have no rights to Preference shareholders generally get the
get arrears of the dividend for the arrears of dividend along with the present
previous years. year's dividend, if not paid in the last
previous year, except in the case of non-
cumulative preference shares.

Types of Preference Shares

 Cumulative Preference Shares:
A cumulative preference share has a right to claim the fixed dividend of the current year out of the future profits. The dividend,
in these shares, accumulates unless paid. The accumulated arrears of dividend are to be paid before anything is paid out of
the profits to the holders of any other class of shares.
 Non-cumulative Preference Shares:
Dividend on non-cumulative preference shares can be paid only out of the profits of that very year, and is not allowed to
accumulate to be paid out of the profits of the future years. The right to claim dividend will lapse if there are no profit in a
particular year.
 Participating Preference Shares:
Besides a fixed rate of dividend, the holders of these shares are also entitled to participate with the equity shareholders in the
surplus profits which remain after paying dividend to equity shareholders up to a certain limit.
 Non-participating Preference Shares:
The holders of these shares are entitled only to a fixed rate of dividend and do not share in the surplus profits. The whole of the
surplus profits will, thus, go to the equity shareholders.
 Convertible Preference Shares:
The holders of the shares have a right to get converted their preference shares into equity shares within a certain period.
 Non-convertible Preference Shares:
These preference shares do not carry the right of conversion into equity shares.
 Redeemable Preference Shares:
Shares which can be redeemed after a fixed period or after giving a certain notice at any time at the will of the company out of
the profits of the company or sale proceeds of the new shares are called redeemable shares. Conditions of their issue have
been discussed later in this chapter.
 Irredeemable Preference Shares:
They are of the nature of a permanent and perpetual liability which cannot be redeemed during the lifetime of the company.
According to the Companies (Amendment) Act, 1988, no company can now issue any preference shares which are
irredeemable or are redeemable after 20 years from the date of the issue.
Debenture
Debenture includes debenture stock, bonds and any other securities of a company whether constituting a charge on the assets
of the company or not [Sec. 2 (12)]. Thus, the Act only states that it is a kind of security which constitutes a charge by way of
security on issuing debentures. In sum, debenture is a long-term promissory note which usually runs for a duration of not less
than ten years.

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SEBI guidelines for redemption of debentures
(i) Every company shall create Debenture Redemption Reserve in case of issue of debenture redeemable after a period of
more than 18 months from the date of issue.
(ii) The creation of Debenture Redemption Reserve is obligatory only for non-convertible debentures and non-convertible
portion of partly convertible debentures.
(iii) A company shall create Debenture Redemption Reserve equivalent to at least 50% of the amount of debenture issue
before starting the redemption of debenture.
(iv) Withdrawal from Debenture Redemption Reserve is permissible only after 10% of the debenture liability has already been
reduced by the company.
SEBI guidelines would not apply under the following situations:
(i) Infrastructure company (a company wholly engaged in the business of developing, maintaining and operating infrastructure
facilities), and
(ii) A company issuing debentures with a maturity period of not more than 18 months.
Difference between Shares and Debentures
BASIS SHARES DEBENTURES
Meaning The shares are the owned funds of the company. The debentures are the borrowed funds
of the company.
What is it? Shares represent the capital of the company. Debentures represent the debt of the
company.
Holder The holder of shares is known as shareholder. The holder of debentures is known as
debenture holder.
Status of Holders Owners Creditors
Form of Return Shareholders get the dividend. Debenture holders get the interest.
Payment of return Dividend can be paid to shareholders only out of Interest can be paid to debenture
profits. holders even if there is no profit.
Allowable Dividend is an appropriation of profit and so it is not Interest is a business expense and so it
deduction allowed as deduction. is allowed as deduction from profit.
Security for No Yes
payment
Voting Rights The holders of shares have voting rights. The holders of debentures do not have
any voting rights.
Conversion Shares can never be converted into debentures. Debentures can be converted into
shares.
Repayment in the Shares are repaid after the payment of all the Debentures get priority over shares,
event of winding up liabilities. and so they are repaid before shares.
Quantum Dividend on shares is an appropriation of profit. Interest on debentures is a charge
against profit.
Trust Deed No trust deed is executed in case of shares. When the debentures are issued to the
public, trust deed must be executed.

Liquidation / Winding up
Liquidation is a formal insolvency procedure in which a company is brought to an end; all of its assets are liquidated and the
proceeds from the sale of assets is used to repay creditors. There are two main types of liquidations for insolvent companies–
compulsory liquidation and creditor's voluntary liquidation (CVL).
Consequences of Winding Up:
1. An official designated as liquidator will take over the administration of the Company. In case of compulsory winding up,
the official liquidator, attached to the High Court, functions as liquidator of the Company. In case of voluntary winding
up, such an official is appointed by the members or the creditors depending upon members, or creditor‘s voluntary
winding up.
2. The powers of the Board of Directors will terminate and will now vest in the liquidator.
3. No suit or other legal proceedings can be proceeded with against the Company except with permission of the court.
4. The order for winding up has the effect of a notice of discharge to the employees of the company, except where the
business of the company is continued by the order of the court.
5. A shareholder is liable to pay the full amount up to the face value of the shares held by him. Not only the present
members but past members are also liable in the event of winding up of the company.
6. A Company, whether solvent or insolvent, can be wound up under the Act. In case of solvent company, all claims of its
creditors when proved are fully met. In case of insolvent company, the rules under the Law of Insolvency shall apply.

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  Amalgamation
An amalgamation is a combination of two or more companies into a new entity.
Types of Amalgamation: 1. Nature of Merger
2. Nature of Purchases
 Amalgamation in the nature of merger
When the assets and liabilities of the companies are genuinely pooled, as well as the interest of the companies and
shareholders
 Amalgamation in the nature of purchase
When the assets and liabilities of the company are acquired by another and purchase consideration is paid by the transferee
company.
 NOTES OF AMALGAMATION
1. Increase in R&D facilities
2. Competition between the companies gets eradicated
3. Stability in the prices of the goods is maintained
4. Reduction in operating cost
5. There could be additional debt to pay
6. Healthy competition may be elimination due to amalgamation
7. Reduction of employees may take place
8. Business combination could lead to monopoly in the market
9. The old company loses the goodwill and identity gained over the years
 PROCEDURE FOR AMALGAMATION
1. Preparation of the scheme of amalgamation is to be conducted and later submitted for approval to the respective High
Court.
2. Approval of the shareholders‘ of the constituent companies is to be obtained followed by approval of SEBI.
3. Formation of the new company takes place and shares are will be issued to the shareholders‘ of the transferor
company.
4. The transferor company is then liquidated and all the assets and liabilities are taken over by the transferee company
 Absorption
Existing company takes over the business of another existing company.
 One or more companies are liquidated.
 No new company is formed.
 The nature of business of both companies is similar.
 Generally, larger company purchases the business of smaller company.

Difference between Amalgamation and Absorption

BASIS AMALGAMATION ABSORPTION
Meaning The process in which two or more than companies The process in which one company
are wound up to form a new company, which takes over the other company is
acquires their business is known as known as Absorption.
Amalgamation.
Act Voluntary Voluntary or hostile
Minimum number Three Two
of companies
involved
Creation of new Yes, a new company is formed No, new company is not formed
company
Size of entities The entities are of the same size. The bigger the entity overpowers
the smaller entity.
How many Minimum 2 companies Only one, i.e. the merged company
companies are
liquidated?

 Reconstruction
Reconstruction, in law, is the transfer of a company's (or several companies') business to a new company. The
old company will get put into liquidation, and shareholders will agree to take shares of equivalent value in the new company.

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  Holding Company
A holding company is one which controls one or more companies either by means of holding shares in that company or
companies or by having powers to appoint—directly or indirectly—the whole, or a majority, of the Board of Directors of those
companies.
Note:
 By holding more than half the shares—having voting rights.
 By controlling the composition of the Board of Directors.
 Although a holding company owns the assets of other companies.
 The financial resources of the holding and subsidiary companies can be pooled together.
 Competition between holding and subsidiary companies can be avoided if they are in the same line of business.
 In case the subsidiaries undertake risky business and fail, the loss does not affect the holding company.
 Subsidiary Company
A subsidiary company is one that's owned by another company, known as the parent or holding company.
Notes:
 The holding company provides the subsidiary company with buying power.
 Ability to offset profits and losses of one part of a business with another.
 Subsidiary of a large organization is the limited freedom in management.
 Decision-making can become time-consuming.
 Minority interest is the portion of a subsidiary corporation's stock that is not owned by the parent corporation.
Cost and management accounting is a form of accounting that aims to maximise profit by managing revenues
and expenses. It provides data and reports used by managers to inform their strategies around long-term profit and growth.
Cost Accounting
Types of Cost Accounting :-
 Historical Cost
 Predetermined Standard Cost
 Marginal Cost Method
Need for Cost Accounting:
 Submission of quotations and tenders.
 Management tool for identifying and controlling efficiency.
 Preparation of budgets and standard costs.
 Preparation of Financial Statements.
 Determination of cost-volume-profit relationship.
 Whether to replace the existing plant and machinery.
 Whether to continue the business or to shut it down.

Processed according to Principles

Classification, Analysis, Allocation Apportionment, Absorption, Ascertainment

Use of Techniques

Absorption Costing, Marginal Costing, Cost Ascertainmen Standard Costing, Budgetary Control

Use of one or more Methods

Job Costing, Contract Costing, Batch Costig Operation Costing, Process Costing, Setice Costing

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Classification of Methods of Costing:
 Job Costing: This is a method of costing by which the cost of a definite job, or of a specific order or a batch of finished
products is determined. This method of costing is applied in those business concerns where production is carried out
as per specific order.
 Batch Costing: Determines the cost of a group of Identical Products. Radios, TV, Watches, Cars, Electronic Goods,
Medicines, Biscuits, etc.
 Contract Costing: A contract is treated as a whole job and the cost of the contract is ascertained. It is also known as
Terminal Costing / Job Costing(Principal). Building and Civil engineering works, Ship building and Aircraft manufacture.
 Process Costing: Process costing is a system which applies costs to like products that are mass produced in
continuous series of production steps known as processes. Costs are identified for each process and charged to that
process. Cost of each process is ascertained separately. Chemical Industries, Oil Refineries, Gas and Electricity
Generating Concerns, textiles, paints, flour, food processing, paper, etc.
 Operation Cost: The per unit cost is arrived at the end of each accounting period by dividing the cost of an operation
by the number of units completed in the operation centre.
 Historical Cost: These costs represent the cost of actual operational performance.
 Predetermined / Standard Cost: It is a technique where standard costs are prepared in advance and used. Standard
costs are fixed on the historical data. After the production, actuals are compared with the standard costs and variances
are identified.
 Marginal Costing: costs are classified into fixed and variable costs. the cost of one additional unit of output price will
change. Variable costs are charged to production; fixed costs will be written off in full in the period to which they are
attributable.
 Opportunity Costs: These costs refer to costs which result from the use of material, labour and other facilities, in a
particular manner and which have been discarded in favor of an alternative use.
 Replacement Costs: This cost refers to the cost of replacement of an asset at current market price.
 Imputed Costs: These are notional costs. They do not involve cash outlay. These costs are computed only for the
purpose of decision making. They are also used for evaluating the performance of profit centres.

Chart showing the method of costing applicable to industry

S,N. Industries Methods of Costing
1. Chemical Industries
Cement
Soap
Steel Process Costing
Oil Refinery
Leather
Sugar
2. Electrictronic
Railway
Operating Costing
Hospital
Transport
3. Furniture
Readymade Garments
Batch Costing
Toy Making
Biscuit Manu.
4. Baby Food
Job Costing
Paints and Decorating
5. Ship Building
Construction of Road Contract Costing
Construction of Building
6. Bicycle
Locomotive Multiple Costing
Ari Conditioners

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  Management Accounting
Managerial accounting involves collecting, analyzing, and reporting information about the operations and finances of a
business. These reports are generally directed to the managers of a business, rather than to any external entities, such as
shareholders or lenders.
 Objective of Management Accounting:
1. To Assist in Planning: the production, the selling, the inflow and outflow of cash
2. To Assist in Organising: By preparing budgets and ascertaining specific cost centre.
3. To Assist in Motivating
4. To Coordinate: ‗Master Budget‘
5. To Control
6. To Communicate
Difference B/w Cost and Management Accounting
BASIS COST ACCOUNTING MANAGEMENT ACCOUNTING
Meaning The recording, classifying and The accounting in which the both financial and
summarising of cost data of an non-financial information are provided to
organisation is known as cost accounting. managers is known as Management Accounting.
Information Type Quantitative. Quantitative and Qualitative.
Objective Ascertainment of cost of production. Providing information to managers to set goals
and forecast strategies.
Scope Concerned with ascertainment, allocation, Impart and effect aspect of costs.
distribution and accounting aspects of
cost.
Specific Procedure Yes No
Recording Records past and present data It gives more stress on the analysis of future
projections.
Planning Short range planning Short range and long range planning
Interdependency Can be installed without management Cannot be installed without cost accounting.
accounting.

 Break Even Analysis

It is based on categorising production costs between those which are "variable" and those that are "fixed―.

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Advantages & Need of Break-Even-Analysis:
 Effective tool of management is profit planning.
 Profit performance can be improved
 Easy to Construct and Easy to Understand
 Helps to Select the most Profitable Product Mix
Limitations & Assumptions of Break-Even Chart:
 Selling price remains constant irrespective of the volume of sales
 Variable cost remains same
 Ignore the Concept and Effect of Capital Employed
 Construction of Multiple BEC Chart

 Life Cycle Costing

Life-Cycle Costs are all the costs associated with the product for its entire life cycle. Product life cycle costing traces costs and
revenues of each product over several calendar periods throughout their entire life cycle.

Notes:-
1. Physical Factors 2. Economic Factors 3. Functional Factors
4. Technological Factors 5. Social and Legal Factors
 7 Steps approach to Life Cycle Costing Implementation
1. Establish the Objectives
2. Choose a Method
3. Formulate Assumptions
4. Identify the Costs and Rank the Alternatives
5. Compare Costs and Rank the Alternatives
6. Perform a Sensitivity Analysis
7. Investigate Capital Cost Constraints
Benefits & Effects of Life-Cycle Costing:
It ensures better decision from a more accurate and realistic assessment of revenues and costs
It promotes long-term rewarding
Evaluate the investment options and opportunities effectively
LCC promotes strong association with continuous learning and monitoring
As a basis for budgeting for future expenditure

 Ratio Analysis
Ratio analysis is a quantitative method of gaining insight into a company's liquidity, operational efficiency, and profitability by
comparing information contained in its financial statements.

Ratio analysis can be used to look at trends over time for one company or to compare companies within an industry or
sector.

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Ratio Analysis Categories
 Liquidity Ratios: Liquidity ratios measure a company's ability to pay off its short-term debts as they come due using
the company's current or quick assets, working capital.
 Solvency Ratios: Also called financial leverage ratios, solvency ratios compare a company's debt levels with its
assets, equity, and earnings to evaluate whether a company can stay afloat in the long-term by paying its long-term
debt and interest on the debt. Examples of solvency ratios include debt-equity ratio, debt-assets ratio, and interest
coverage ratio.
 Profitability Ratios: These ratios show how well a company can generate profits from its operations. Profit margin,
return on assets, return on equity, return on capital employed, and gross margin ratio are all examples of profitability
ratios.
 Efficiency Ratios: Also called activity ratios, efficiency ratios evaluate how well a company uses its assets and
liabilities to generate sales and maximize profits. Key efficiency ratios are the asset turnover ratio, inventory turnover,
and days' sales in inventory.
 Coverage Ratios: These ratios measure a company's ability to make the interest payments and other obligations
associated with its debts. Examples times interest earned ratio and debt-service coverage ratio.
 Market Prospect Ratios: These are the most commonly used ratios in fundamental analysis and include dividend
yield, P/E ratio, earnings per share, and dividend payout ratio.

No. RATIOS FORMULAS

1 Current Ratio Current Assets/Current Liabilities
2 Quick Ratio Liquid Assets/Current Liabilities
3 Absolute Liquid Ratio Absolute Liquid Assets/Current Liabilities
4 Gross Profit Ratio Gross Profit/Net Sales X 100
5 Operating Cost Ratio Operating Cost/Net Sales X 100
6 Operating Profit ratio Operating Profit/Net Sales X 100
4 Net Profit Ratio Operating Profit/Net Sales X 100
7 Return on Investment Ratio Net Profit After Interest And Taxes/ Shareholders Funds or Investments X
100
8 Return on Capital Employed Net Profit after Taxes/ Gross Capital Employed X 100
Ratio
9 Earnings Per Share Ratio Net Profit After Tax & Preference Dividend /No of Equity Shares
10 Dividend Pay Out Ratio Dividend Per Equity Share/Earning Per Equity Share X 100
11 Earning Per Equity Share Net Profit after Tax & Preference Dividend / No. of Equity Share
12 Dividend Yield Ratio Dividend Per Share/ Market Value Per Share X 100
13 Price Earnings Ratio Market Price Per Share Equity Share/ Earning Per Share X 100
14 Net Profit to Net Worth Ratio Net Profit after Taxes / Shareholders Net Worth X 100
15 Inventory Ratio Net Sales / Inventory
16 Debtors Turnover Ratio Total Sales / Account Receivables
17 Debt Collection Ratio Receivables x Months or days in a year / Net Credit Sales for the year
18 Creditors Turnover Ratio Net Credit Purchases / Average Accounts Payable
19 Average Payment Period Average Trade Creditors / Net Credit Purchases X 100
20 Working Capital Turnover Ratio Net Sales / Working Capital
21 Fixed Assets Turnover Ratio Cost of goods Sold / Total Fixed Assets
22 Capital Turnover Ratio Cost of Sales / Capital Employed
23 Debt Equity Ratio Total Long Term Debts / Shareholders Fund
24 Proprietary Ratio Shareholders Fund/ Total Assets
25 Capital Gearing ratio Equity Share Capital / Fixed Interest Bearing Funds
26 Debt Service Ratio Net profit Before Interest & Taxes / Fixed Interest Charges

 Cash Flow Statements

CFS is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company.
Use of Cash Flow Statement
 CFS allows investors to understand how a company's operations are running.
 Where its money is coming from and how money is being spent.
 Creditors can use the CFS to determine how much cash is available for the company to pay its debts.
 CFS can be prepared in order to know the Future Cash Position of a concern so as to enable a firm to Plan and
Coordinate its financial operations properly.
 CFS helps to significant for Capital Budgeting decisions.

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  It better explains the causes for Poor Cash Position.
The Structure of the CFS
1) Cash From Operating Activities
2) Cash From Investing Activities
3) Cash From Financing Activities
 Cash From Operating Activities
The operating activities on the CFS include any sources and uses of cash from business activities.
In other words, it reflects how much cash is generated from a company's products or services.
Operating Activities = Net Income + Non Cash Exp – Increase in Working Capital
 Cash From Investing Activities
Investing activities include any sources and uses of cash from a company's Investments or Assets.
Cash Investing Activities = Sale of Asset or Investment - Purchases of Asset or Investment
 Cash from Financing Activities
The Sources of Cash from Investors or Banks, as well as the Uses of cash paid to shareholders, Payment of dividends,
Payments for stock repurchases and the repayment of debt principal (loans) are included in this category.

Advantages of Cash Flow Statement

 Cash Flow Statements help in knowing the liquidity / actual cash position.
 Any Shortfalls can be arranged for or Excess can be used for the growth of the business.
 Cash is the basis of all financial operations. Enable the management to plan and control the financial operations
properly.
 It acts like a filter and is used by many analyst and investors to judge.
Disadvantages of Cash Flow Statement
 Through the cash flow statement alone, it is not possible to arrive at actual P&L of the company as it shows only the
cash position.
 The cash balance as shown by the cash flow statement may not represent the real liquidity position.

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  Cash flow statement cannot replace the funds flow statement.
 Funds Flow Statement
Funds flow statement is a statement which discloses the Analytical Information about the different Sources of a fund and the
Application of the same in an accounting cycle.
It deals with the transactions which change either the amount of current assets and current liabilities.

Need of Fund Flow Statement

 Causes of changes in Working Capital.
 Whether the firm sells any Non-Current Asset; if sold, how were the proceeds utilized?
 Why smaller amount of dividend is paid in spite of sufficient profit?
 Where did the net profit go?
 Was it possible to pay more dividend than the present one?
 Did the firm pay-off its scheduled debts? If so, how, and from what sources?
 Sources of increased Working Capital
Difference b/w Cash Flow and Fund Flow Statement
BASIS CASH FLOW FUND FLOW
Meaning A cash flow statement is a statement A fund flow statement is a statement showing the
showing the inflows and outflows of cash changes in the financial position of the entity in
and cash equivalents over a period. different accounting years.
Purpose of To show the reasons for movements in the To show the reasons for the changes in the
Preparation cash at the beginning and at the end of the financial position, with respect to previous year
accounting period. and current accounting year.
Basis Cash Basis of Accounting. Accrual Basis of Accounting.
Analysis Short Term Analysis of cash planning. Long Term Analysis of financial planning
Discloses Inflows and Outflows of Cash Sources and applications of funds
Opening and Contains opening and closing balance of Does not contains opening balance of cash and
closing balance cash and cash equivalents. cash equivalents.
Part of Financial Yes No
Statement

Human Resources Accounting

Human Resource Accounting is the process of assigning, budgeting, and reporting the cost of human resources incurred in an
organization, including wages and salaries and training expenses.
 Objectives that HR accounting should fulfill include:
 Help in monitoring the utilization of human resources
 Help in decision making and implementation of management principles by showing the financial significances of
various choices and practices
 Aid in human assets analysis
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  To furnish decision makers with cost value information so that decision about acquiring, developing, and training as
well as maintaining of human assets can be cost-effective
 Cost Approach
 The acquisition cost model – this method involves capitalizing the costs of human recruitment in the balance sheet
as opposed to charging it in the P&L statements. The process of value determination involves amortizing the amount
capitalized over a time span, such as from when an employee is employed to when he/she retires.
 Replacement cost approach – this method considers the cost incurred in replacing an employee. It factors in
expenses such as recruitment, compensation, selection and teaching costs. This method can be used to determine
whether to replace or dismiss the worker.
 Value approach
 Present value (worth) of later earnings – this method determines how valuable a worker‘s future input is today
 Value to the organization – top talents may be fought over by different departments in the same company. The
department that has the highest bid should get the employee, and that highest bid is the value of the employee, to be
integrated into that department‘s investment base.
 Expense model – this model divides employees into two categories: those that make executive strategic decisions
and those who execute those decisions. It then determines the value of an employee by working the: real capital cost,
performance assessment and current worth of forthcoming wages and salary payments.
Most Important Point:
1. The system of HRA discloses the value of human resources, which helps in proper interpretation of return on capital
employed.
2. Managerial decision-making can be improved with the help of HRA.
3. The implementation of human resource accounting clearly identifies human resources as valuable assets, which helps
in preventing misuse of human resources by the superiors as well as the management.
4. It helps in efficient utilization of human resources and understanding the evil effects of labour unrest on the quality of
human resources.
5. This system can increase productivity because the human talent, devotion, and skills are considered valuable assets,
which can boost the morale of the employees.
6. It can assist the management for implementing best methods of wages and salary administration.
7. The valuation methods have certain disadvantages as well as advantages; therefore, there is always a bone of
contention among the firms that which method is an ideal one.
8. There are no standardized procedures developed so far. So, firms are providing only as additional information.
9. Under conventional accounting, certain standards are accepted commonly, which is not possible under this method.
10. All the methods of accounting for human assets are based on certain assumptions, which can go wrong at any time.
For example, it is assumed that all workers continue to work with the same organization till retirement, which is far from
possible.
11. It is believed that human resources do not suffer depreciation, and in fact they always appreciate, which can also prove
otherwise in certain firms.
12. The lifespan of human resources cannot be estimated. So, the valuation seems to be unrealistic.

Auditing
Auditing is a part of the accounting world. It is an examination of accounting and financial records that is undertaken
independently. This is done to determine if the company or the business undertaking has confirmed its operations to the laws
and the generally accepted accounting principles.
 Objective
Internal Audit: To ensure that the organization complies with the policies and procedures and also to satisfy that the resources
are utilized economically by the organization.
Independent Financial Audit: Studies the actual operation of internal control to evaluate and decide about the nature, timing
and extent of the substantive procedures.
 Evaluation of internal controls:
Internal Audit: Studies the actual operations of the internal controls and evaluate their effectiveness. The evaluation is in
depth by means of (a) Internal Control questionnaire
(b) Flow charting etc.
Independent Financial Audit: Studies the actual operation of internal control to evaluate and decide about the nature, timing
and extent of the substantive procedures.

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  Error and Fraud:
Internal Audit: The primary concern of the internal audit is prevention and detection of error and fraud.
Independent Financial Audit: Prevention and detection of errors and fraud is only a secondary objective.
 Scope of work and reporting
Internal Audit: The scope of work is determined by the management and the internal audit report is presented to the
management. The nature and scope may differ from organisation to organisation.
Independent Financial Audit: In statutory audit, the scope of work is governed by the Statutes such as Companies Act,
Income tax Act etc. In statutory audit, the report is addressed to the shareholders in the case of companies and to the
appointing authority in the case of others.
 Report:
Internal Audit: There is no specific format for reporting and the report is presented as per the requirement of the management
i.e., monthly, quarterly, half yearly, etc.
Independent Financial Audit: Report should be in a specified format and the report is presented only once i.e., after the
completion of the audit.
 Time of Audit
Internal Audit: Internal audit is continuous and carried out throughout the year.
Independent Financial Audit: Statutory audit is conducted after closing of accounts and preparation of financial statements
 Suggestion and recommendations:
Internal Audit: The internal audit evaluates the efficiency of the operations and makes suggestions and recommendations to
improve the efficiency of the functioning of the organizations.
Independent Financial Audit: The statutory auditor is concerned only with the reliability of the financial records and financial
statements
 Independence
Internal Audit: The work will be focused on the interest of the management
Independent Financial Audit: Statutory auditor is independent

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 Unit 3:
Business Economics

Business Economics is the integration of economic theories for the purpose of facilitating decision making and forward
planning by the management. The scope of Business Economics is many. It includes the many areas of business operations.
Characteristics of a Business Economics:
 Economic activity:
Business is an economic activity of production and distribution of goods and services. It provides employment opportunities in
different sectors like banking, insurance, transport, industries, trade etc. it is an economic activity corned with creation of
utilities for the satisfaction of human wants.
 Buying and Selling:
The basic activity of any business is trading. The business involves buying of raw material, plants and machinery, stationary,
property etc. On the other hand, it sells the finished products to the consumers, wholesaler, retailer etc. Business makes
available various goods and services to the different sections of the society.
 Continuous process:
Business is not a single time activity. It is a continuous process of production and distribution of goods and services. A single
transaction of trade cannot be termed as a business. A business should be conducted regularly in order to grow and gain
regular returns.
 Profit Motive:
Profit is an indicator of success and failure of business. It is the difference between income and expenses of the business. The
primary goal of a business is usually to obtain the highest possible level of profit through the production and sale of goods and
services. It is a return on investment. Profit acts as a driving force behind all business activities.
 Risk and Uncertainties:
Risk is defined as the effect of uncertainty arising on the objectives of the business. Risk is associated with every business.
Business is exposed to two types of risk, Insurable and Non-insurable. Insurable risk is predictable.
Predictable factors are controllable to some extent, such as:
a) Taxes
b) Change in the volume of expected sales
c) Cost of supplies and equipment
d) Overhead costs
e) Salaries
f) Cost of goods and services offered
Unpredictable factors include:
a) Changes in trends and tastes of customers.
b) Impact of the local economy on customer base.
c) Any unexpected action taken by your competitors.
 Creative and Dynamic:
Modern business is creative and dynamic in nature. Business firm has to come out with creative ideas, approaches and
concepts for production and distribution of goods and services. It means to bring things in fresh, new and inventive way.
 Customer satisfaction:
The phase of business has changed from traditional concept to modern concept. Now a day, business adopts a consumer-
oriented approach. Customer satisfaction is the ultimate aim of all economic activities.
 Social Activity:
Business is a socio-economic activity. Both business and society are interdependent. Modern business runs in the area of
social responsibility. Business has some responsibility towards the society and in turn it needs the support of various social
groups like investors, employees, customers, creditors etc. by making goods available to various sections of the society,
business performs an important social function and meets social needs.
 Government control:
Business organisations are subject to government control. They have to follow certain rules and regulations enacted by the
government. Government ensures that the business is conducted for social good by keeping effective supervision and control
by enacting and amending laws and rules from time to time.
 Optimum utilisation of resources: Business facilitates optimum utilisation of countries material and non-material
resources and achieves economic progress. The scarce resources are brought to its fullest use for concentrating
economic wealth and satisfying the needs and wants of the consumers.

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 Demand Analysis
The Demand Analysis is a process whereby the management makes decisions with respect to the production, cost
allocation, advertising, inventory holding, pricing, etc. Although, how much a firm produces depends on its production capacity
but how much it must endeavor to produce depends on the potential demand for its product.
Features/Characteristics of Demand
 The demand is the specific quantity that a consumer is willing to purchase. Thus, it is expressed in numbers.
 The demand must mean the demand per unit of time, per month, per week, per day.
 The demand is always at a price, e. any change in the price of a commodity will bring about a certain change in its
quantity demanded.
 The demand is always in a market, a place where a set of buyers and sellers meet. The market needs not to be a
geographical area.
 Market Demand
The total quantity that all the individuals are willing to and are able to buy at a given price, other things remaining the same is
called as Market Demand. In other words, Market Demand refers to the sum of individual demands for a product at a given
price per unit of time.
 Demand refers to consumers' desire to purchase goods and services at given prices.
 Demand can mean either market demand for a specific good or aggregate demand for the total of all goods in an
economy.
 Demand, along with supply, determines the actual prices of goods and the volume of goods that changes hands in a
market.
Types of Demand
 Price demand:
Price demand refers to the different quantities of the commodity or service which consumers will purchase at a given time and
at given prices, assuming other things remaining the same. It is the price demand with which people are mostly concerned and
as such price demand is an important notion in economics. Price demand has inverse relation with the price.
 Income demand:
Income demand refers to the different quantities of a commodity or service which consumers will buy at different levels of
income, assuming other things remaining constant. Usually the demand for a commodity increases as the income of a person
increases unless the commodity happens to be an inferior product. For example, coarse grain is a cheap or inferior commodity.
 Cross demand:
When the demand for a commodity depends not on its price but on the price of other related commodities, it is called cross
demand. Here we take closely connected or related goods which are substitutes for one another.
 Direct demand:
Commodities or services which satisfy our wants directly are said to have direct demand. For example, all consumer goods
satisfy our wants directly, so they are said to have direct demand.
 Derived demand or Indirect demand:
Commodities or services demanded for producing goods which satisfy our wants directly are said to have derived demand. For
example, demand for a factor of production (say labor) is a derived demand because labor is demanded to help in the
construction of houses which will directly satisfy consumers‘ demand.
 Joint demand:
In finished products as in case of bread, there is need for so many things—the services of the flour mill, oven, fuel, etc. The
demand for them is called joint demand. Similarly for the construction of a house we require land, labor, capital, organization
and materials like cement, bricks, lime, etc. The demand for them is, thus, called a ‗joint demand.‘
 Composite demand:
A commodity is said to have a composite demand when its use is made in more than one purpose. For example the demand
for coal is composite demand as coal has many uses—as fuel for a boiler of a factory, for domestic fuel, for oven for steam-
making in railways engine, etc.

Law of Demand

The law of demand states that the demand curve, as a function of price and quantity, is always downward sloping.
Demand is always at a price and the consumer varies his consumption according to changes in price. Generally a
person will buy more at a lower price. The opposite is also equally true. Hence, it can be easily said that demand for a
commodity is less at a higher price, and more at a lower price.

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Assumptions of the Law of Demand:
1. Income level should remain constant
The law of demand operates only when the income
level of the buyer remains constant. If the income
rises while the price of the commodity does not fall,
it is quite likely that the demand may increase.
Therefore, stability in income is an essential
condition for the operation of the law of demand.
2. Tastes of the buyer should not alter
Any alteration that takes place in the taste of the
consumers will in all probability thwart the working
of the law of demand. It often happens that when
tastes or fashions change people revise their
preferences.
3. Prices of other goods should remain
constant
Changes in the prices of other goods often impinge
on the demand for a particular commodity. If prices of commodities for which demand is inelastic rise, the demand for a
commodity other than these in all probability will decline even though there may not be any change in its price. Therefore, for
the law of demand to operate it is imperative that prices of other goods do not change.
4. No new substitutes for the commodity
If some new substitutes for a commodity appear in the market, its demand generally declines. This is quite natural, because
with the availability of new substitutes some buyers will be attracted towards new products and the demand for the older
product will fall even though price remains unchanged.
5. Price rise in future should not be expected
If the buyers of a commodity expect that its price will rise in future they raise its demand in response to an initial price rise. This
behavior of buyers violates the law of demand.
6. Advertising expenditure should remain the same
If the advertising expenditure of a firm increases, the consumers may be tempted to buy more of its product.
Exceptions to the law of demand
1. Apprehensions about the future price
When consumers anticipate a constant rise in the price of a long-lasting commodity, they purchase more of it despite the price
rise. They do so with the intention of avoiding the blow of still higher prices in the future.
2. Status goods
The law does not concern the commodities which function as a ‗status symbol‘, add to the social status or exhibit prosperity
and opulence e.g. gold, precious stones, rare paintings and antiques, etc. Rich people mostly purchase such goods as they are
very costly.
3. Giffen goods
If there is an inferior good of which the positive income effect is greater than the negative substitution effect, the law of demand
would not hold.
The Relationship between Average and Marginal Revenue
Given that both average revenue (AR) and Marginal revenue (MR) curves
are of straight-line shape, it can be shown that (MR) curve will cut the distance
between AR curve and the Y-axis in the middle, in other words, when both AR and
MR curves are straight lines, then if a perpendicular is drawn from a point on the
AR curve to the F-axis, MR curve will cut this perpendicular at its middle point.
Draw a vertical straight line from A so as to meet the X-axis at M. It means
that when OM quantity of the commodity is sold, average revenue is equal to AM.
Now, there are two ways in which we can find out the total revenue earned by the
sale of OM units of the commodity.

First, total revenue (TR) = AR × Quantity sold

=AM × OM
= area OMAB ….(i)

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Secondly, total revenue can also be obtained by taking a sum of marginal revenues of all the units of the commodity sold.
Thus, total revenue (TR)
= ∑ MR
= Area OMQD …(ii)
Since total revenue for a given quantity of the good sold is to be the same whichever way it
may be found, it follows that
OMAB = OMQD
OMAB = OMQCB + ACQ
OMQD = OMQCB + BDC
From above it follows that:
OMQCB + ACQ= OMQCB + BDC
ACQ=BDC
Or
Thus triangles ACQ and BDC are equal in area
Now, in ∆s ACQ and BDC
QAC = <DBC (right angles)
<ACO = <BCD (vertically opposite angles)
<AQC = <BDC (alternate angles)
Therefore, A ACQ and ABDC are similar.
We have proved above that triangles ACQ and BDC are equal in area as well as similar.
Now, when the two triangles are both equal and similar, then they are congruent (i.e. equal in
all respects).
Therefore ∆s ACQ and BDC are congruent
Hence, AC = BC
It is thus proved that given the straight-line average and marginal revenue curves, the marginal revenue curve will lay half-way
from the average revenue curve.
We also learn the way of drawing MR curve corresponding to a given AR curve. If any AR curve is given to you, and
you are asked to draw MR curve corresponding to it, then you should first extend the AR curve so that it meets the Y-axis (if it
is not already so). After that you should draw MR curve starting from the Y-axis so that it bisects any perpendicular line drawn
from a point on the AR curve to the Y-axis.
Marginal revenue curve corresponding to a convex or concave average revenue curve is not of straight-line shape but
is either convex or concave to the origin. What relationship MR curve will bear to AR curve when average and marginal
revenue curves are either convex or concave? In either of these cases the marginal revenue curve will not lie halfway from the
average revenue curve.
Consumer Behaviour
Consumer behaviour is the study of how individual customers, groups or organizations select, buy, use, and
dispose ideas, goods, and services to satisfy their needs and wants. It refers to the actions of the consumers in the
marketplace and the underlying motives for those actions.
Nature of Consumer Behaviour:
a. Marketing factors such as product design, price, promotion, packaging, positioning and distribution.
b. Personal factors such as age, gender, education and income level.
c. Psychological factors such as buying motives, perception of the product and attitudes towards the product.
d. Situational factors such as physical surroundings at the time of purchase, social surroundings and time factor.
e. Social factors such as social status, reference groups and family.
f. Cultural factors, such as religion, social class—caste and sub-castes.

Appropriate Marketing Decisions:

a. Product design/model b. Pricing of the product
c. Promotion of the product d. Packaging
e. Positioning f. Place of distribution

Utility analysis
Utility analysis begins with the total utility derived from the consumption of different quantities of a good. Total utility is
simply a measure of the total satisfaction of wants and needs obtained from the consumption or use of a good or service.
The four types of economic utility
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Form
Form utility refers to how well a product or service meets the customer's needs. For example, a company might design a
product to target a specific client needs or wants. Form utility is the incorporation of customer needs and wants into the
features and benefits of the products being offered by the company.
Time
Time utility exists when a company maximizes the availability of a product so that customers can buy it during the times that
are the most convenient or desirable for them. Companies analyze how to create or maximize their products' time utility and
adjust their production process, logistical planning of manufacturing, and delivery.
Place
Place utility refers primarily to making goods or services physically available or accessible to potential customers. Examples of
place utility range from a retail store's location to how easy a company's website or services are to find on the internet.
Possession
Possession utility is the amount of usefulness or perceived value from owning a product. For example, owning a car or truck
might be considered to have a high possession utility. Also, increasing the ease of ownership boosts the possession utility or
the perceived value of a product.

Characteristics of Utility
 Utility has no Ethical or Moral Significance
 Utility is Psychological
 Utility is always Individual and Relative
 Utility is not Necessarily Equated with Usefulness
 Utility cannot be Measured Objectively
 Utility Depends on the Intensity of Want
 Utility is Different from Pleasure
 Utility is also Distinct from Satisfaction

Kinds of Utility:
1. Marginal utility: Marginal utility is the utility derived from the last or marginal unit of consumption. It refers to the
additional utility derived from an extra unit of the given commodity purchased, acquired or consumed by the consumer.
Marginal Utility Table
No. of Bread Marginal Utility Kinds of Marginal Utility
1 20
2 16
3 12 Positive Utility
4 8
5 4
6 0 Zero Utility
7 -4 Negative Utility
2. Total Utility: Total Utility is the utility from all units of consumption. ―It is the sum of the marginal utilities associated
with the consumption of the successive units.‖
Total Utility Table
No. of Bread Marginal Utility Total Utility
1 20 0 +20 = 20
2 16 20+16 = 36
3 12 36+12 = 48
4 8 48 +8 = 56
5 4 56 +4 = 62
3. Average Utility: Average Utility is that utility in which the total unit of consumption of goods is divided by number of
Total Units.
Average Utility Table
No. of Bread Marginal Utility Total Utility Average Utility
1 10 10 10/1 = 10
2 8 10 + 8 = 18 18/2 = 9
3 3 18+ 3 = 21 21/3 = 7
4 0 21 + 0 = 21 21/4 = 5.25
5 -2 21 + -2 = 19 19/5 = 3.80

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 Indifference Curve
An indifference curve is a graph that shows a combination of two goods that give a consumer equal satisfaction and utility,
thereby making the consumer indifferent. Indifference curves are heuristic devices used in contemporary microeconomics to
demonstrate consumer preference and the limitations of a budget. Recent economists have adopted the principles of
indifference curves in the study of welfare economics.
 An indifference curve shows a combination of two goods that give a consumer equal satisfaction and utility thereby
making the consumer indifferent.
 Along the curve, the consumer has no preference for either combination of goods because both goods provide the
same level of utility.
 Each indifference curve is convex to the origin, and no two indifference curves ever intersect.

Short-run and Long-run:

In Economics, distinction is often made between the short-run and long-run.
By short-run is meant that period of time within which a firm can vary its output by varying only the amount of variable
factors, such as labour and raw material.
In the short-run period, the fixed factors such as capital equipment, management personnel, the factory buildings, etc.,
cannot be altered.
 Short-run Cost Curves:
We may repeat that, in the short-run, a firm will adjust output to demand by
varying the variable factors. If all the factors of production can be used in
varying proportions, it means that the scale of operations of the firm can be
changed. Each time, the scale of operations is changed, a new short-run
cost curve will have to be drawn for the firm such as SAC‘, SAC‖ and SAC‖
in the diagram.

 Long-run Average Cost Curve:

In the diagram, SAC,, SAC,, and SAC, are the short-run cost curves
corresponding to the different scales of operations. In each case, the firm
in question will be producing the desired output at the lowest cost. For example,
OM‖‘ output is produced at PM‖‘ in the scale of operations represented by the
curve SAC OM will be produced on SAC, and so on.

PRICE DETERMINATION
 The interaction between the demand and supply in the free market that
is used to determine the costs for a goods or service.
 Imperfect competition covers all situations where there is neither pure
competition nor pure monopoly.
 The situation in the real world lies between these two extremes. Imperfect competition may take several forms.
 In fact, ―there is no single case of imperfect competition, but a whole range or series of cases representing
progressively more and more imperfect competition.‖
Perfect competition:
 In this the industry is the price maker and firm is the price taker.
 Features such as (i) Existence of large number of buyers and sellers
(ii) Free entry and free exit
(iii) Homogenous / identical products
(iv) Perfect knowledge about the market
(v) Perfect mobility of the factors
(vi) Absence of transportation cost. If all six features are being fulfilled, then it is known as
perfect competition market and if only the first three features are being fulfilled then it is known as pure
competition market.
 A firm in perfect competition market is said to be in equilibrium when its
 MC=MR and MC curve should cut the MR curve from below.
 A firm in the short run may face three different situations
 (i) Super normal Profit, when AR > AC (ii) Loss, When AC > AR (iii) Normal profit, When AC=AR.
 If a firm is unable to recover AVC in the short run, then it is known as shut down point.
Monopoly:
 It is an extreme form of imperfect competition with a single seller of a product which has no close substitute.
 The word Monopoly is derived from two Greek words, Mono meaning single and Poly meaning seller.
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  In this type of market, there will be absence of competition; it is also known as single firm industry.
 Seller will be price maker.
 The short run equilibrium of the monopolist is at the point where MC = MR.
 MC curve must cut MR curve from below to attain equilibrium in a monopoly market.
 In the long run the supernormal profit will be continued because entry is restricted.
 Price discrimination (Charging different price for different customers for the same commodity) exists.
Monopolistic Competition
 In this market many producers produce goods which are close substitute of one another.
 An individual firm in the long run is in equilibrium position when it produces a quantity lower than its full capacity level.
i.e., existence of excess capacity.
 Product differentiation is an important feature of monopolistic market.
 Free entry and free exist is another feature of this, in which firms can easily enter and exit.
 It is blend of perfect competition and monopoly markets.
Oligopoly Competition:
 It is also known as ―Competition amongst few‖.
 Pure and differentiated Oligopoly, Open and Closed Oligopoly, Collusive and Competitive Oligopoly, Partial and Full
Oligopoly, Syndicated and Organised Oligopoly are the different types of Oligopoly market.
 The main features of Oligopoly market are interdependence, importance of advertisements, selling costs and group
behaviour.
 The sticky price is explained by the concept of Kinked Demand Curve.
Pricing Strategies
Price is the value that is put to a product or service and is the result of a complex set of calculations, research and
understanding and risk taking ability. A pricing strategy takes into account segments, ability to pay, market conditions,
competitor actions, trade margins and input costs, amongst others. It is targeted at the defined customers and against
competitors.
 Premium pricing: high price is used as a defining criterion. Such pricing strategies work in segments and industries
where a strong competitive advantage exists for the company.
Example: Porche in cars and Gillette in blades.
 Penetration pricing: price is set artificially low to gain market share quickly. This is done when a new product is being
launched. It is understood that prices will be raised once the promotion period is over and market share objectives are
achieved.
Example: Mobile phone rates in India; housing loans etc.
 Economy pricing: no-frills price. Margins are wafer thin; overheads like marketing and advertising costs are very low.
Targets the mass market and high market share.
Example: Friendly wash detergents; Nirma; local tea producers.
 Skimming strategy: high price is charged for a product till such time as competitors allow after which prices can be
dropped. The idea is to recover maximum money before the product or segment attracts more competitors who will
lower profits for all concerned.
Example: the earliest prices for mobile phones, VCRs and other electronic items where a few players ruled
attracted lower cost Asian players.
 Peak load pricing: The Peak Load Pricing is the pricing strategy wherein the high price is charged for the goods and
services during times when their demand is at peak. In other words, the high price charged during the high demand
period is called as the peak load pricing.
 Going-Rate Pricing: The Going-Rate Pricing is a method adopted by the firms wherein the product is priced as per
the rates prevailing in the market especially on par with the competitors.
 Perceived-Value Pricing: In Perceived-Value Pricing method, a firm sets the price of a product by considering what
product image a customer carries in his mind and how much he is willing to pay for it.
 Mark-up Pricing : The Mark-up pricing is the method of adding a certain percentage of a markup to the cost of the
product to determine the selling price.
Unit Cost = Variable cost + Fixed cost/unit sales
Mark-up price = unit Cost/1-desired return on sales
 Target-Return Pricing: The Target-Return Pricing is a method wherein the firm determines the price on the basis of a
target rate of return on the investment i.e. what the firm expects from the investments made in the venture.
Price Elasticity of Demand
Price elasticity of demand is a measure of the responsiveness of consumers to a change in a product's cost. The more
general term demand elasticity measures the impact of a change in any of a variety of factors including the product's price.
 Price elasticity of demand is an indicator of the impact of a price change, up or down, on a product's sales.
 Demand elasticity is a more general term, allowing the impact on demand of a number of factors to be estimated.
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  Higher price elasticity of demand suggests that consumers are more responsive to a product's price change.
Types of Price Elasticity of Demand
1. Perfectly Elastic Demand (EP = ∞)
The demand is said to be perfectly elastic if the quantity demanded increases infinitely
(or by unlimited quantity) with a small fall in price or quantity demanded falls to zero with
a small rise in price. Thus, it is also known as infinite
elasticity. It does not have practical importance as it
is rarely found in real life.

2. Perfectly Inelastic Demand (EP = 0)

The demand is said to be perfectly inelastic if the demand remains constant whatever may
be the price (i.e. price may rise or fall). Thus it is also called zero elasticity. It also does not
have practical importance as it is rarely found in real life.

3. Relatively Elastic Demand (EP> 1)

The demand is said to be relatively elastic if the percentage change in demand is greater than
the percentage change in price i.e. if there is a greater change in demand there is a small
change in price. It is also called highly elastic demand or simply elastic demand. For example:
Relatively Inelastic Demand (Ep< 1 )
The demand is said to be relatively inelastic if the percentage
change in quantity demanded is less than the
percentage change in price i.e. if there is a small change
in demand with a greater change in price. It is also
called less elastic or simply inelastic demand.
4. Unitary Elastic Demand ( Ep = 1)
The demand is said to be unitary elastic if the
percentage change in quantity demanded is equal to the
percentage change in price. It is also called unitary
elasticity. In such type of demand, 1% change in price
leads to exactly 1% change in quantity demanded. This type of demand is an imaginary
one as it is rarely applicable in our practical life.
Law of Variable Proportions
The law of variable proportions states that as the quantity of one factor is increased, keeping the other factors fixed, the
marginal product of that factor will eventually decline.
Assumptions of Law of Variable Proportions
(a) Only one input is variable, the other is held constant or fixed.
(b) It is possible to change the proportion in which the factor units are combined.
(c) It assumes a short run.
(d) The state of technology is given and remains unchanged.
(e) Price of factors of production do not change.
Explanation of Each Phase
Phase I: Phase of increasing return or Increasing Return to factor
(a) It is called the stage of increasing returns.
(b) The total product increases at an increasing rate (convex shape) up to point P. The marginal physical product of labour
(MP) is increasing and reaches its highest point Pp vertically downwards to point P.
(c) Point P is called the point of inflexion. At point P, the curvature of the TPP curve changes. It stops increasing at an
increasing rate and starts to increase at a diminishing rate. In the first stage, firm is moving towards achievement of
ideal combination of factors in which TP is increasing at an increasing rate at every level of output. So, instead of
stopping its production, the firm will rather continue employing additional units of a variable factor.
Phase II: Stage of Diminishing Returns or Diminishing Return to factor
(a) The total product (TP) continues to increase, but at a diminishing rate (concave shape) and eventually becomes the
highest.
(b) MP is diminishing but is positive.
(c) The stage comes to an end, when Marginal Product (MP) = 0 and Total Product (TP) is maximum and constant. The
firm would like to operate in the second phase because TP is maximum and there is proper utilization of fixed factor.

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Phase III: Phase of Negative returns or Negative Return to factor
(a) In this stage the total product declines in absolute terms.
(b) Indivisibility of fixed factor
(c) Specialization and division of labour
Reasons for diminishing returns:
(a) The non-optima! Combination of variable factor with the fixed factor
(i) When a given quantity of a fixed factor is combined with more and more units of variable factor, the additional units
of variable factor will have smaller and smaller quantity of fixed factor to work with them.
(ii) As many workers share the same fixed factor, the share of each would obviously fall. Therefore, the cooperation of
the fixed factor is not available to the same extent. Thus, an increase in the variable factor would add less and less
to total output.
(b) Imperfect Substitutes
(i) Diminishing return to factor occurs because variable factor and fixed factor are imperfect substitutes to each other.
(ii) Technically speaking, there is a limit to which variable factor can be applied to fixed factor and that limit depends
upon the efficiency of fixed factor. So, variable factor and fixed factor are imperfect substitutes to each other.
Law of Diminishing Marginal Returns
1. The Law of diminishing marginal return states that when we applied more and more units of variable factor to a given
quantity of fixed factor, total product increases at a diminishing rate and marginal product falls.
2. Law of diminishing marginal returns is a classical theory and classical economists treated it as a separate Law. But
according to modern economists, this law indicates just one aspect (aspect of diminishing returns) of law of variable proportion.
Words that flatter:
1. Fixed factors: It refer to those factors which cannot be changed in the short run. They do not vary directly with the
output. For example, Capital, land, plant and machinery, etc.
2. Short period: It refers to the period of time in which a firm cannot change some of its factors like plant, machinery,
building, etc. due to insucffiency of time but can change any variable factor like labour, raw material, etc.
3. Long period: It refers to a time period during which a firm can change all its factors of production including machines,
building, organization, etc.
4. Total product: It refers to total volume of goods and services produced by a firm with the given input during a specified
period of time.
5. Average product: It is per unit product of variable factors. It is calculated by dividing the total Product by the units of
variable factor.
Average Product=Total Product/Unit of Variable Factor
6. Marginal Product: It is an addition to the total product when an additional unit of a variable factor is employed.
MP=Change in output /Change in input =Δq/ΔL
7. Return to a factor: It states that change in the total output of a good when only the quantity of one input is increased,
while that of other input is kept constant.
8. Law of variable proportion: It states that as we increase the quantity of only one input, keeping other inputs fixed, the
total product increases at an increasing rate in the beginning, then increases at diminishing rate and after a level of
output ultimately falls.
9. Law of diminishing marginal return: It states that when we applied more and more units of variable factor to a given
quantity of fiixed factor, total product increases at a diminishing rate and marginal product falls.

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 Unit 4:
Business Finance

Business finance refers to money and credit employed in business. Finance is the basic of business. It is required to
purchase assets, goods, raw materials and for the other flow of economic activities. Business finance can be defined as ―The
provision of money at the time when it is needed by a business‖
 Fixed Capital
In economics and accounting, fixed capital is any kind of real, physical asset that is used in the production of a product but is
not used up in the production. It contrasts with circulating capital such as raw materials, operating expenses and the like.
 Current capital
Current capital is the part of a company's capital that is used for day-to-day operations, and so it is desirable that companies
maintain substantially more current assets than current liabilities.
 Working capital
Working capital is a financial metric which represents operating liquidity available to a business, organisation or other entity,
including governmental entities. Along with fixed assets such as plant and equipment, working capital is considered a part of
operating capital.
Working Capital = Current Asset – Current Liabilities
Firms need finance to:
 Start up a business, eg pay for premises, new equipment and advertising
 Run the business, eg having enough cash to pay staff wages and suppliers on time
 Expand the business, eg having funds to pay for a new branch in a different city or country

Sources of Business Finance

Owner Capital:
1. Meaning : Consist of the amount contributed by owners and their profit reinvested in business.
2. Permanent : It remains permanent invested.
3. Risk : It carries risk of business.
4. Control :Control rests with providers of owners capital.
5. Security : It does not require any asset as security.
6. reward : Reward is dividend.
7. Priority : Reward is paid after payment of interest on borrowed funds.
8. Nature of return : The rate of dividend may fluctuate year to year.
Borrowed Capital:
1. Meaning : It includes funds available in the form of loans or credit
2. Permanent : It is not permanent source of investment.
3. Risk : The debts of company are secured.
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4. Control : No control rests with providers of borrowed funds.
5. Security : It is backed by security of assets.
6. reward : Reward is interest.
7. Priority : Payment of interest gets priority over payment of dividend.
8. Nature of return : The rate of interest is fixed on funds.

Internal and External Sources of Finance

BASIS INTERNAL SOURCES OF FINANCE EXTERNAL SOURCES OF FINANCE
Meaning Internal sources of finance allude to the sources External sources of finance imply the
of business finance that are generated within the arrangement of capital or funds from sources
business, from the existing assets or activities. outside the business.
Includes Sale of Stock, Sale of Fixed Assets, Retained Financial Institutions, Loan from banks,
Earnings and Debt Collection Preference Shares, Debenture, Public
Deposits, Lease financing, Commercial paper,
Trade Credit, Factoring.
Cost Low High
Collateral Not required Sometimes required.
Amount Comparatively less Huge
raised

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 Capital Budgeting
Capital Budgeting or investment decisions play a vital role in the future profitability of a concern. The process of
decisions to invest a sum of money when the expected results will flow after the lapse of a period of more than one year is
called Capital Budgeting.
It also includes the process of decision regarding disinvestment, i.e., a decision to sell off an undertaking or a part of it.
Normally, however, especially in these days, it is the former type of decision which predominates. It is a most important
decision to make since afterwards, after money has been irrevocably committed, it may not be possible to do much in
improving results.
Methods of Capital Budgeting:
(i) Pay-Back Period (PBP):
According to this method, the number of years in which the amount to be invested will be received back by the firm through
operations is calculated. One should note that the amount of money which a firm receives back every year is the amount of
profit after income-tax plus the amount of depreciation.
Exp: If a firm earns a profit of 4,00,000 before writing off depreciation of 1,00,000 and the rate of income-tax is 50%, the
amount left with the company after paying the tax will be 2,50,000 as shown below :
Profit 400,000
Less: Dep. 100,000 Thus, out of Rs. 4, 00,000 of profit earned Rs. 1,50,000 has been paid as income-tax,
300,000 leaving Rs. 2,50,000. This sum could also be arrived at by adding the profit after tax
Income Tax @ 50% 150,000 and depreciation.
Profit after Tax 150,000
The pay-back period will be calculated as shown below:
 The investment on the Project /The annual cash flow operations
 If, in the above example, the investment is Rs. 10,00,000, they pay-back period will be four years. A project is
accepted or rejected by comparing the pay-back period with the standard figure which the firm may have in mind.
Normally, a pay-back period of 2 or 3 years is considered proper.
 This method is rather crude since it ignores the vital question of interest, i.e., it equates money at present with
money in future. Also it does not take into account the fact that often profits are very low in the beginning and then
they rise and, after a period, they will again begin to fall. There may also be fluctuations from year to year.
This method is quite popular because:
(a) It is simple to calculate.
(b) It brings out a very important fact that unless the project is able to function for a number of years equal to the pay-
back period at least, there will be no profit on the projects. Profit can arise only if the project runs for a period longer
than the pay-back period.
(c) This method is useful for those concerns which suffer from rather a shortage of funds so that they want to use the
same funds for many projects. They would like to invest the funds with short pay-back period so that, when they
receive the funds back, they use it for the next project.
(d) A new concern will know from the pay-back period the initial period during which it should absolutely refuse to pay
dividends even though the Profit and Loss Account will be prepared every year and even though that may reveal
profit.
(e) It is very useful for industries where the technological development, and therefore obsolescence, is very fast.
(ii) The Accounting Rate of Return (ARR):
The rate of return is calculated as follows:
Profit after tax/Investment x 100
In the above example, the profit after tax is Rs. 1,50,000 and the investment is Rs. 10,00,000; therefore the rate of
return will be 15%. It is for every firm to decide as to what rate of return is adequate for its purpose. By comparing the
expected rate of return against the standard figure, the firm will be able to decide whether a particular investment shall be
made or not.
This method is also quite simple and is quite popular. This is chiefly because this conforms to the popular ideas of
profitability.

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This method also suffers from certain grave defects:
(a) This method ignores the fact of fluctuations in profits and also the fact that in case of a new venture, the profits will
be low in the beginning and then high and then again low. It uses only a rather crude average of profits which may
not be really borne out by actual experience.
(b) This method also treats money at present and money in future at par; in other words, it ignores the question of
interest.
(c) The rate of return may also become the target figure for those who are in charge of the venture. If later, actually, the
venture produces less than the estimated rate of return; the management may be treated as insufficient. However,
the original rate of return is likely to be not arrived at on a scientific basis and, therefore, this may lead to wrong
judgment of the people concerned.
(d) This method really does not take into account scientifically the life of the venture. The real assumptions is that the
venture will be perpetual whereas it is never so.
(iii) Net Present Value (NPV):
According to this method, the firm determines, beforehand, the proper rate of return for its ventures, say, 10%. Then it will
discount all future cash flows from the project at this rate of return and compare it with the amount to be invested.
For example, suppose a project will render service only over two years, and at the end suppose a project will render
service only over two years, and at the end of the first year, it will produce cash equal to 1,00,000 and at the end of the
second year equal to Rs. 1,50,000.
If the rate of interest is 10%, present values of these two flows will be Rs. 2,14, 800. The present value of one rupee
at 10% is 0.909, if the rupee is after one year and 0.826 if it is received after two year. Therefore, the present value of
receivable after two years is Rs. 1,23,900-the total of the two is Rs. 2,14,800. (Table is available which show readily the
present value of a rupee with respect to various rates of interests and also for various periods).
 The total present value of expected cash flows from the project can be compared with the investment; if it exceeds
the investment, there will be net present value (NPV) (the difference between the two figures) and the projects may
be accepted. If, however, this is less than the investment, it will show that the project will not earn the required rate
of return and, therefore, should be rejected.
 This method works on the very important assumption that funds that will be generated by the project will again be
invested at the required rate of return immediately. If this cannot be so, the results will be misleading.
Techniques used in Capital Budgeting:
1. Payback period:
The payback (or payout) period is one of the most popular and widely recognized traditional methods of evaluating investment proposals,
it is defined as the number of years required to recover the original cash outlay invested in a project, if the project generates constant
annual cash inflows, the payback period can be computed dividing cash outlay by the annual cash inflow.
Payback period = Cash outlay (investment) / Annual cash inflow = C / A
Advantages:
1. A company can have more favorable short-run effects on earnings per share by setting up a shorter payback period.
2. The riskiness of the project can be tackled by having a shorter payback period as it may ensure guarantee against
loss.
3. As the emphasis in pay back is on the early recovery of investment, it gives an insight to the liquidity of the project.
Limitations:
1. It fails to take account of the cash inflows earned after the payback period.
2. It is not an appropriate method of measuring the profitability of an investment project, as it does not consider the
entire cash inflows yielded by the project.
3. It fails to consider the pattern of cash inflows, i.e., magnitude and timing of cash inflows.
4. Administrative difficulties may be faced in determining the maximum acceptable payback period.
2. Accounting Rate of Return method:

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The Accounting rate of return (ARR) method uses accounting information, as revealed by financial statements, to measure the profit
abilities of the investment proposals. The accounting rate of return is found out by dividing the average income after taxes by the average
investment.
ARR= Average income/Average Investment
Advantages:
1. It is very simple to understand and use.
2. It can be readily calculated using the accounting data.
3. It uses the entire stream of incomes in calculating the accounting rate.
Limitations:
1. It uses accounting, profits, not cash flows in appraising the projects.
2. It ignores the time value of money; profits occurring in different periods are valued equally.
3. It does not consider the lengths of projects lives.
4. It does not allow for the fact that the profit can be reinvested.
3. Net Present Value Method:
The net present value (NPV) method is a process of calculating the present value of cash flows (inflows and outflows) of an
investment proposal, using the cost of capital as the appropriate discounting rate, and finding out the net profit value, by
subtracting the present value of cash outflows from the present value of cash inflows.
Advantages:
1. It recognizes the time value of money
2. It considers all cash flows over the entire life of the project in its calculations.
3. It is consistent with the objective of maximizing the welfare of the owners.
Limitations:
1. It is difficult to use
2. It presupposes that the discount rate which is usually the firm’s cost of capital is known. But in practice, to
understand cost of capital is quite a difficult concept.
3. It may not give satisfactory answer when the projects being compared involve different amounts of investment.
4. Internal Rate of Return Method:
The internal rate of return (IRR) equates the present value cash inflows with the present value of cash outflows of an
investment. It is called internal rate because it depends solely on the outlay and proceeds associated with the project and not
any rate determined outside the investment, it can be
determined by solving the following equation:
Advantages:
1. Like the NPV method, it considers the time
value of money.
2. It considers cash flows over the entire life of
the project.
3. It satisfies the users in terms of the rate of
return on capital.
4. Unlike the NPV method, the calculation of the cost of capital is not a precondition.
5. It is compatible with the firm’s maximising owners’ welfare.
Limitations:
1. It involves complicated computation problems.
2. It may not give unique answer in all situations. It may yield negative rate or multiple rates under certain
circumstances.
3. It implies that the intermediate cash inflows generated by the project are reinvested at the internal rate unlike at the
firm’s cost of capital under NPV method. The latter assumption seems to be more appropriate.
5. Profitability index:
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It is the ratio of the present value of future cash benefits, at the required rate of return to the initial cash outflow of the
investment. It may be gross or net, net being simply gross minus one. The formula to calculate profitability index (PI) or
benefit cost (BC) ratio is as follows.
PI = PV cash inflows/Initial cash outlay A,
1. It gives due consideration to the time value of money.
2. It requires more computation than the traditional method but less than the IRR method.
3. It can also be used to choose between mutually exclusive projects by calculating the incremental benefit cost ratio.
Difference between NPV and IRR
BASIS NPV IRR
Meaning The total of all the present values of cash IRR is described as a rate at which
flows (both positive and negative) of a the sum of discounted cash inflows
project is known as Net Present Value or equates discounted cash outflows.
NPV.
Expressed in Absolute terms Percentage terms
What it represents? Surplus from the project Point of no profit no loss (Breakeven
point)
Decision Making It makes decision making easy. It does not help in decision making
Rate for reinvestment Cost of capital rate Internal rate of return
of intermediate cash
flows
Variation in the cash Will not affect NPV Will show negative or multiple IRR
outflow timing

Theories of Capital Structure

Theory # 1. Net Income Approach:
According to this approach, a firm can minimise the weighted average cost of capital and increase the value of the firm
as well as market price of equity shares by using debt financing to the maximum possible extent. The theory propounds that a
company can increase its value and decrease the overall cost of capital by increasing the proportion of debt in its capital
structure.
Assumptions:
a. The cost of debt is less than the cost of equity.
b. There are no taxes.
c. The risk perception of investors is not changed by the use of debt.

V= S + D
Where, V= Total market value of a firm
S = Market value of equity shares
= Earnings Available to Equity Shareholders (NI)/Equity Capitalisation Rate
D = Market value of debt,
And, Overall Cost of Capital or Weighted Average Cost of Capital can be calculated as:
K0 = EBIT/v

Theory # 2. Net Operating Income Approach:

This theory as suggested by Durand is another extreme of the effect of leverage on the value of the firm. It is
diametrically opposite to the net income approach. According to this approach, change in the capital structure of a company
does not affect the market value of the firm and the overall cost of capital remains constant irrespective of the method of
financing.

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It implies that the overall cost of capital remains the same whether the debt-equity mix is 50: 50 or 20:80 or 0:100. Thus, there
is nothing as an optimal capital structure and every capital structure is the optimum capital structure.
Assumptions:
a. The market capitalises the value of the firm as a whole;
b. The business risk remains constant at every level of debt equity mix;
c. There are no corporate taxes.

V = EBIT/K0
Where, V = Value of a firm
EBIT = Net operating income or Earnings before interest and tax
k0 = Overall cost of capital
The market value of equity, according to this approach is the residual value which is determined by deducting the
market value of debentures from the total market value of the firm.
S=V–D
Where, S = Market value of equity shares
V = Total market value of a firm
D = Market value of debt

Theory # 3. Traditional Approach:

The traditional approach to capital structure suggests that there exist an optimal debt to equity ratio where the overall
cost of capital is the minimum and market value of the firm is the maximum. On either side of this point, changes in the
financing mix can bring positive change to the value of the firm.
Assumptions:

i. The cost of debt capital, Kd, remains constant more or less up to a certain level and thereafter rises.

ii. The cost of equity capital Ke, remains constant more or less or rises gradually up to a certain level and thereafter
increases rapidly.

iii. The average cost of capital, Kw, decreases up to a certain level remains unchanged more or less and thereafter rises
after attaining a certain level.

Theory # 4. Modigliani-Miller (M-M) Approach:

At any degree of leverage, the company's overall cost of capital (ko) and the Value of the firm (V) remains constant.
This means that it is independent of the capital structure.
Assumptions:
a. There are no corporate taxes.

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 b. There is a prefect market.
c. Investors act rationally.
d. The expected earnings of all the firms have identical risk characteristics.
e. The cut-off point of investment in a firm is capitalisation rate.
f. Risk to investors depends upon the random fluctuations of expected earnings and the possibility that the actual
value of the variables may turn out to be different from their best estimates.
g. All earnings are distributed to the shareholders.

INVESTMENT DECISION
It relates to how the firm‘s funds are invested in different assets. Investment decision can be long-term or short-term. A
long term investment decision is called capital budgeting decision as they involve huge amounts of funds and are irreversible
except at a huge cost while short term investment decisions are called working capital decisions, which affect day to day
working of a business.

Factors affecting Investment Decisions

1. Cash flows of the project : The series of cash receipts and payments over the life of an investment proposal should be
considered and analysed for selecting the best proposal. Example-

Investment proposals

No. 1 No. 2 No. 3

Net cash inflow during life 5,00,000 7,00,000 2,00,000
time of investment.

Life time if investment. 10 years 10 years 10 years

Investment should be made in proposal No. 2
2. Rate of Return : The expected returns from each proposal and risk involved in them should be taken into account to select
the best proposal.
Details No. 1 No. 2 No. 3

Rate of return= 13% 24% 15%

Proposal no. 2 should be chosen at it promises maximum rate of return.

3. Investment Criteria Involved : The various investment proposals are evaluated on the basis of capital budgeting
techniques. These involve calculations regarding investment amount, interest rate, cash flows, rate of return, risk involved in
project etc. If key criteria to be considered while choosing the investment channel is RISK.
In that case, the investment channel with LEAST RISK should be chosen.
Investment: - Fixed Assets
Net Current Assets
Fixed Capital
Fixed capital refers to investment in long-term assets. Investment in fixed assets like land, plant and machinery for
longer duration and they must be financed through long-term sources of capital. Decisions relating to fixed capital involve huge
capital and are not reversible without incurring heavy losses.
Factors Affecting Requirement of Fixed Capital
1. Nature of Business : Manufacturing concerns require huge investment in fixed assets & thus huge fixed capital is
required for them but trading concerns need less fixed capital as they are not required to purchase plant and
machinery etc.
2. Scale of Operations : An organisation operating on large scale requires more fixed capital as compared to an
organisation operating on small scale.
1. For Example - A large scale steel enterprise like TISCO requires large investment as compared to a mini steel plant.

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 2. Choice of Technique : An organisation using capital intensive techniques requires more investment in plant &
machinery as compared to an organisation using labour intensive techniques.
3. Technology upgradation : Organisations using assets which become obsolete faster require more fixed capital as
compared to other organisations.
4. Growth Prospects : Companies having more growth plans require more fixed capital. In order to expand production
capacity more plant & machinery are required.
5. Diversification : In case a company goes for diversification then it will require more fixed capital to invest in fixed
assets like plant and machinery.
6. Distribution Channels : The firm which sells its product through wholesalers and retailers requires less fixed capital.
7. Collaboration : If companies are under collaboration, Joint venture, then they need less fixed capital as they share
plant & machinery with their collaborators.
Working Capital
Working Capital refers to the capital required for day to day working of an organisation. Apart from the investment in
fixed assets every business organisation needs to invest in current assets, which can be converted into cash or cash
equivalents within a period of one year. They provide liquidity to the business. Working capital is of two types - Gross working
capital and Net working capital. Investment in all the current assets is called Gross Working Capital whereas the excess of
current assets over current liabilities is called Net Working Capital.

Networking Capital = Current Assets- Current Liabilities

Difference between Fixed Capital and Working Capital
BASIS FIXED CAPITAL WORKING CAPITAL

Meaning Fixed capital refers to the investment of the Working capital means the capital invested
enterprise in long term assets of the in the current assets of the company.
company.

Comprise of Durable goods whose useful life is more than Short term assets and liabilities
one accounting period.

Liquidity Comparatively illiquid. Highly liquid.

Uses Used to buy non-current assets for business. Used for short term financing.

Serves Strategic objectives Operational objectives

Dividend Decision
Dividend refers to that part of the profit which is distributed to shareholders. A company is required to decide how much
of the profit earned by it should be distributed among shareholders and how much should be retained. The decision regarding
dividend should be taken keeping in view the overall objective of maximizing shareholder‘s wealth.

Total Profit
Divident
33%

Retained
Earning
67%
Factors affecting Dividend Decision
1. Earnings : Companies having high and stable earning could declare high rate of dividends as dividends are paid out of
current and past earnings.
2. Stability of Dividends : Companies generally follow the policy of stable dividend. The dividend per share is not
altered/changed in case earnings change by small proportion or increase in earnings is temporary in nature.
3. Growth Prospects : In case there are growth prospects for the company in the near future them it will retain its
earning and thus, no or less dividend will be declared.
4. Cash Flow Positions: Dividends involve an outflow of cash and thus, availability of adequate cash is for most
requirement for declaration of dividends.
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 5. Preference of Shareholders : While deciding about dividend the preference of shareholders is also taken into
account. In case shareholders desire for dividend then company may go for declaring the same.
6. Taxation Policy : A company is required to pay tax on dividend declared by it. If tax on dividend is higher, company
will prefer to pay less by way of dividends whereas if tax rates are lower then more dividends can be declared by the
company.
7. Stock market reaction: Increase in dividend is good news for investors and hence market price of the shares
increases in the stock market. Decrease in dividend reduces the market price of share.
8. Legal constraints : Under provisions of Companies Act, all earnings can‘t be distributed and the company has to
provide for various reserves. This limits the capacity of company to declare dividend.
Financial Market is a market for creation and exchange of financial assets like shares, bonds etc. It helps in mobilising savings
and channelizing them into the most productive uses. It helps to link the savers and the investors by mobilizing funds between
them. The persons or institutions by which allocation of funds is done are called Financial Intermediaries. They bring together
borrowers and lenders and make funds available to those willing to pay for their use,

Household Bank and Business Firms

(Savers) Financial Markets (Investors)

Functions of Financial Markets

1. Mobilisation of Savings and channeling them into the most productive uses : Financial market facilitates the
transfer of savings from savers to investors and thus helps to channelize surplus funds into the most productive use.
2. Helps in Price Determination : Financial Market helps in interaction of savers and investors which in turn helps in the
determination of prices of the financial assets such as shares, debentures etc.
3. Provides Liquidity to Financial Assets : Financial market facilitates easy purchase and sale of financial assets.
Thus, it provides liquidity to them so that they can be easily converted into cash whenever required.
4. Reduces the Cost of Transactions : Financial market provides valuable information about securities which helps in
saving time, efforts and money and thus it reduces cost of transactions.

Money Market
It is a market for short term funds/securities whose period of maturity is upto one year. The major participants in the
money market are RBI, Commercial Banks. Non-Banking Finance Companies, State Government, Large Corporate Houses
and Mutual Funds. The main instruments of money market are as follows:
1. Treasury Bills: They are issued by the RBI on behalf of the Central Government to meet its short-term requirement of
funds. They are issued at a price which is lower than their face value and are repaid at par. They are available for a

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 minimum amount of Rs. 25000 and in multiples thereof. They are also known as Zero Coupon Bonds. They are
negotiable instruments i.e. they are freely transferable.
2. Commercial Paper: They are short term unsecured promissory notes issued by large credit worthy companies to raise
short term funds at lower rates of interest than market rates. They are negotiable instruments transferable by
endorsement and delivery with a fixed maturity period of 15 days to one year.
This source is usually used for-
a. Working Capital requirements
b. Seasonal needs
c. Bridge financing)
3. Call Money: It is short term finance repayable on demand, with a maturity period of one day to 15 days, used for
interbank transactions. Call Money is a method by which banks borrow from each other to be able to maintain the cash
reserve ratio as per RBI. The interest rate paid on call money loans is known as the call rate.
4. Certificate of Deposit: It is an unsecured instrument issued in bearer form by Commercial Banks & Financial
Institutions. They can be issued to individuals. Corporations and companies for raising money for a short period
ranging from 91 days to one year.
5. Commercial Bill: It is a bill of exchange used to finance the working capital requirements of business firms. A seller of
the goods draws the bill on the buyer when goods are sold on credit. When the bill is accepted by the buyer it becomes
marketable instrument and is called a trade bill. These bills can be discounted with a bank if the seller needs funds
before the bill maturity.

Capital Market
It is a market for long term funds where debt and equity are traded. It consists of development banks, commercial
banks and stock exchanges. The capital market can be divided into two parts:
1. Primary Market
It deals with the new securities which are issued for the first time. It is also known as the New Issue Market. The
investors in this market are banks, financial institutions, insurance companies, mutual funds and individuals. It has no fixed
geographical location and only buying of securities takes place in the primary market.

Methods of Floatation of New Issues in Primary Market

1. Offer through Prospectus/ Initial Pubic After: It involves inviting subscription from the public through issue of
prospectus. A prospectus makes a direct appeal to investors to raise capital through an advertisement in newspapers
and magazines.
2. Offer for Sale: Under this method security are offered for sale through intermediaries like issuing houses or stock
brokers. The company sells securities to intermediary/broker at an agreed price and the broker resells them to
investors at a higher price.
3. Private Placements: It refers to the process in which securities are allotted to institutional investor and some selected
individuals.
4. Rights Issue : It refers to the issue in which new shares are offered to the existing shareholders in proportion to the
number of shares they already possess.
5. e-IPOs : It is a method of issuing securities through an on-line system of stock exchange. A company proposing to
issue capital to the public through the on-line system of the stock exchange has to enter into an agreement with the
stock exchange. This is called an e-initial public offer. SEBI‘s registered brokers have to be appointed for the purpose
of accepting applications and placing orders with the company.

2. Secondary Market
It is also known as the stock market or stock exchange where purchase and sale of existing securities takes place.
They are located at specified places and both the buying as well as selling of securities takes place.

Difference between Primary and Secondary Market

BASIS PRIMARY MARKET SECONDARY MARKET
Meaning The market place for new shares is called The place where formerly issued
primary market. securities are traded is known as
Secondary Market.
Another name New Issue Market (NIM) After Market
Type of Purchasing Direct Indirect
Financing It supplies funds to budding enterprises and It does not provide funding to
also to existing companies for expansion and companies.
diversification.
How many times a Only once Multiple times
security can be
sold?
Buying and Selling Company and Investors Investors
between

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 Who will gain the Company Investors
amount on the sale
of shares?
Intermediary Underwriters Brokers
Price Fixed price Fluctuates, depends on the demand
and supply force
Organizational Not rooted to any specific spot or It has physical existence.
difference geographical location.

Stock Exchange/Share Market

A Stock Exchange is an institution which provides a platform for buying and selling of existing securities. It facilitates
the exchange of a security i.e. share, debenture etc. into money and vice versa. Following are some of the important functions
of a Stock Exchange:-
1. Providing liquidity and Marketability to Existing Securities : Stock Exchange provides a ready and continuous
market for the sale and purchase of securities.
2. Pricing of Securities : Stock Exchange helps in constant valuation of securities which provide instant information to
both buyers and sellers and thus helps in pricing of securities which is based on the forces of demand & supply.
3. Safety of Transaction : The members of a stock exchange are well regulated, who are required to work within the
legal framework. This ensures safety of transactions.
4. Contributes to Economic Growth : Stock exchange provides a platform by which savings get channelised into the
most productive investment proposals, which leads to capital formation & economic growth.
5. Spreading of Equity Culture : Stock exchange helps in educating public about investments in securities which leads
to spreading of Equity culture.
6. Providing Scope for Speculation : Stock exchange provides scope within the provisions of law for speculation in a
restricted and controlled manner.

Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) are famous in India.
Trading and Settlement Procedure on a Stock Exchange
1. Selection of Broker: In order to trade on a Stock Exchange first a broker is selected who should be a member of
stock exchange as they can only trade on the stock exchange.
2. Opening Demat Account with Depository.
3. Placing the order: After selecting a broker, the investors specify the type and number of securities they want to buy or
sell.
4. Executing the order: The broker will buy or sell the securities as per the instructions of the investor.
5. Settlement: Any trade taking place gets settled within 2 days of the trade date.
Difference between Capital and Money Market
BASIS MONEY MARKET CAPITAL MARKET
Meaning A segment of the financial market where lending A section of financial market where long
and borrowing of short term securities are done. term securities are issued and traded.
Nature of Market Informal Formal
Financial Treasury Bills, Commercial Papers, Certificate of Shares, Debentures, Bonds, Retained
instruments Deposit, Trade Credit etc. Earnings, Asset Securitization, Euro Issues
etc.
Institutions Central bank, Commercial bank, non-financial Commercial banks, Stock exchange, non-
institutions, bill brokers, acceptance houses, and banking institutions like insurance
so on. companies etc.
Risk Factor Low Comparatively High
Liquidity High Low
Purpose To fulfill short term credit needs of the business. To fulfill long term credit needs of the
business.
Time Horizon Within a year More than a year
Merit Increases liquidity of funds in the economy. Mobilization of Savings in the economy.
Return on Less Comparatively High
Investment
Depository Services and DEMAT Accounts: Keeping in the mind the difficulties to transfer of shares in physical form, SEBI
has developed a new system in which trading in shares is made compulsory in electronic form Depository services system and
Demat Account are very basis of this system.
1. Depository Services: ‗Depository is an institution/organization which holds securities (e.g. shares, debentures, bonds,
mutual funds etc.) in electronic form, in which trading is done. The services provided by a Depository are termed as
‗Depository Services‘. At present there are two depositories in India: NSDL. (National Securities Depository Ltd.) and
CDSL (Central Depository Services Ltd.). which are known as ―Depository Participants‖. (DPs)

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Services provided by Depository
(i) Dematerialisation (usually known as demat) is converting physical ertificates to electronic form.
(ii) Rematerialisation, known as remat, is reverse of demat, i.e getting physical certificates from the electronic
securities.
(iii) Transfer of securities, change of beneficial ownership.
(iv) Players in Online Trading: Settlement of trades done on exchange connected to the Depository. Now a days on-line
paper-less trading in shares of the company is compulsory in India. Depository services is the name of that
mechanism. In this system transfer of ownership in shares take place by means of book entry without the physical
delivery of shares. When an investor wants to deal in shares of any company he has to open a Demat account.
There are four players who participate in this system.
1. The Depository : A depository is an institution which holds the shares of an investor in electronic form.
2. The Depository Participant : He opens the account of Investor and maintains securities records. Generally banks
work as depository participant.
3. The Investor : He is a person who wants to deal in shares whose name is recorded.
4. The Issuing Company: That organisation which issues the securities. This issuing company sends a list of the
shareholders to the depositories.

Benefits of Depository Services

 Sale and Purchase of shares and stocks of any company on any stock Exchange.
 Saves time.
 Lower transaction costs
 Ease in trading.
 Transparency in transactions.
 No counterfeiting of security certificate
 Physical presence of investor is not required in stock exchange.
 Risk of mutilation and loss of security certificate is eliminated.

2. Demat Account
Demat account is the abbreviation of ‗Dematerialized Account‘. (Dematerialized account refers to an account which an
Indian citizen must open with the depository) participant (banks, stockbrokers) to trade in listed securities in electronic form
wherein one can hold shares of various companies in the Dematerialized {electronic} form. Access to De-mat account requires
an internet password and a transaction password. Transfer and purchase of securities can then be initiated. Purchase and sale
of securities on the De-mat account are automatically made once transaction is confirmed and completed.
Opening of Demat Account
A Demat account is opened on the same lines as that of a bank account. Prescribed account opening forms available
with the DP, need to be filled in. Standard agreement is to be signed by the client and the DP, which details the rights and
obligation of both parties. Along with the form, the client is required to attach photograph, attested copies of residence proof
and proof of identity need to be submitted.
Benefits of Demat Account
1. Reduces paper work.
2. Elimination of problems on transfer of shares such as loss, theft and delay.
3. Exemption of stamp duty when transfer of shares.
4. The concept of odd lot stand abolished.
5. Increase liquidity through speedy settlement.
6. Attract foreign investors and promoting foreign investment.
7. A single demat account can hold investments in both equity and debt instruments.
8. Traders can work from anywhere.
9. Automatic credit into demat account for shares arising out of bonus/split/ consolidation/merger.
10. Immediate transfers of securities.
11. Change in address recorded with a DP gets registered with all companies in which investor holds securities eliminating
the need to correspond with each of them.
Securities and Exchange Board of India (SEBI)
SEBI was established by Government of India on 12 April 1988 as an interim administrative body to promote orderly
and healthy growth of securities market and for investor protection. It was given a statutory status on 30 January 1992 through
an ordinance which was later replaced by an Act of Parliament known as the SEBI Act, 1992. It seeks to protect the interest of
investors in new and second hand securities.
Objectives of SEBI
1. To regulate stock exchange and the securities market to promote their orderly functioning.
2. To protect the rights and interests of investors and to guide & educate them.
3. To prevent trade mal practices such as internal trading.

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 4. To regulate and develop a code of conduct and fair practices by intermediaries like brokers, merchant bankers etc.
Functions of SEBI
The SEBI performs three important functions
1. Regulatory functions: These functions are performed by SEBI to regulate the business in stock Exchange.
2. Development functions: These functions are performed by SEBI to promote and develop activities in stock.
3. Protective functions: These functions are performed by SEBI to protect the interest of investors and provide safety on
investments.
Functions of SEBI
Regulatory Functions Development Functions Protective Functions

1. Framing Rule & Regulations 1. Training of intermediaries 1. Prohibiting of fraudulent & unfair
2. Registration of brokers & sub- 2. Conducting Research & trade practices.
brokers. Publishing useful information. 2. Check on insider trading.
3. Registration of collective investment 3. Undertaking measures to 3. Ensure investors protection.
schemes & mutual funds. develop capital market by adopting 4. Promote fair practices & code of
4. Regulation of stock broker, portfolio flexible approach conduct in securities market.
exchanges, under writers 4. Educating Investors to broaden 5. Check on price rigging.
& merchant bankers their understanding 6. Check on preferential allotment.
5. Regulation of takeover bids by 5. Permitting Internet trading through
companies. registered stock brokers
6. Levying fee or other charges as per
act.

 Check on Price Rigging: Making manipulations with sole objective of inflating or depressing the market price of
securities is called ‗Price Rigging‘. Such practises are prohibited by law because they can defraud or cheat investors.
 Check on Unfair Trade Practices: SEBI does not allow the companies to make misleading statements in prospectus
which are likely to induce the sale or purchase of securities by any other person.
 Check on Insider Trading: SEBI prohibits ‗insider trading‘ and imposes penalties for such practices. An insider is any
person connected with the company who is having price sensitive information (in respect of securities of the company),
which is not available to the general public. Directors, promoters, etc. are the insiders. When such directors, promoters,
etc. of the company use inside information to make individual profits, it is referred to as ‗insider trading‘.
International Financial Market
The International Financial Market is the place where financial wealth is traded between individuals (and between
countries). It can be seen as a wide set of rules and institutions where assets are traded between agents in surplus and agents
in deficit and where institutions lay down the rules.
 Global Depository Receipts:
Global Depository Receipt (GDR) is an instrument which allows Indian Corporate, Banks, Non- banking Financial Companies
etc. to raise funds through equity issues abroad to augment their resources for domestic operations.
As per the recent guidelines on issue of GDR, a corporate entity can issue any number of GDR issues in a year and
the corporate involved in infrastructure projects need not have a past track record of financial performance.
 Foreign Currency Convertible Bonds:
Foreign Currency Convertible Bonds (FCCBs) are issued in accordance with the scheme and subscribed by a non-resident in
foreign currency and convertible into ordinary share of the issuing company in any manner, either in whole or in part on the
basis of only equity related warrants attached to debt instrument. The FCCB is almost like the convertible debentures issued in
India.
The Bond has a fixed interest or coupon rate and is convertible into certain number of shares at a prefixed price. The
bonds are listed and traded on one or more stock exchanges abroad. Till conversion the company has to pay interest on
FCCBs in dollars (or in some other foreign currency) and if the conversion option is not exercised, the redemption also has to
be done in foreign currency. The bonds are generally unsecured.
 American Depository Receipts:
A foreign company might make issue in U.S. by issuing securities through appointment of Bank as depository. By keeping the
securities issued by the foreign company, the U.S. Bank will issue receipts called American Depository Receipts (ADRs) to the
investors.
It is a negotiable instrument recognizing a claim on foreign security. The holder of the ADRs can transfer the
instrument as in the case of domestic instrument and also entitled for dividends as and when declared.
 External Commercial Borrowing:

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External Commercial Borrowings (ECBs) is a borrowing of over 180 days. ECB is the borrowing by corporate and financial
institutions from international markets. ECBs include commercial bank loans, buyers credit, suppliers credit, security
instruments such as floating rate notes and fixed rate bonds, credit from export-credit agencies, borrowings from international
financial institutions such as IFC etc.
Benefits: To Indian Company:
(a) Better corporate image both in India and abroad which is useful for strengthening the business operations in the
overseas market.
(b) Exposure to international markets and hence stock prices in line with international trends.
(c) Means of raising capital abroad in foreign exchange.
(d) Use of the foreign exchange proceeds for activities like overseas acquisitions, setting up offices abroad and other
capital expenditure.
(e) Increased recognition internationally by bankers, customers, suppliers etc.
(f) No risk of foreign exchange fluctuations as the company will be paying the interest and dividends in Indian rupees to
the domestic depository bank.
To Overseas Investors:
(a) Assured liquidity due to presence of market makers.
(b) Convenience to investors as ADRs are quoted and pay dividends in U.S. dollars, and they trade exactly like other U.S.
securities.
(c) Cost-effectiveness due to elimination of the need to customize underlying securities in India.
(d) Overseas investors will not be taxed in India in respect of capital gains on transfer of ADRs to another non-resident
outside India.

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 Unit 5:
Business Statistics and Research Methods
Business Statistics
It involves collecting, classifying, summarizing, organizing, analyzing, and interpreting data. The main objective
of Business Statistics is to make inferences about certain characteristics of a population in the business domain whether the
population is people, objects, or collections of information.
Measures of central tendency
Colloquially, measures of central tendency are often called averages. The term central tendency dates from the late 1920s.
The most common measures of central tendency are the arithmetic mean, the median and the mode. A middle tendency can
be calculated for either a finite set of values or for a theoretical distribution, such as the normal distribution. Occasionally
authors use central tendency to denote "the tendency of quantitative data to cluster around some central value.
 Mean
It is determined by adding all the data points in a population and then dividing the total by the number of points. The resulting
number is known as the mean or the average.
 Median
The median is a simple measure of central tendency. To find the median, we arrange the observations in order from smallest to
largest value. If there are an odd number of observations, the median is the middle value. If there is an even number of
observations, the median is the average of the two middle values.
 The median is the middle number in a sorted, ascending or descending, list of numbers and can be more descriptive of
that data set than the average.
 The median is sometimes used as opposed to the mean when there are outliers in the sequence that might skew the
average of the values.
 If there is an odd amount of numbers, the median value is the number that is in the middle, with the same amount of
numbers below and above.
 If there is an even amount of numbers in the list, the middle pair must be determined, added together, and divided by
two to find the Median Value.
 Mode
The mode is a statistical term that refers to the most frequently occurring number found in a set of numbers. The mode is found
by collecting and organizing data in order to count the frequency of each result. The result with the highest count of
occurrences is the mode of the set, also referred to as the modal value.
 In statistics, the mode is the most commonly observed value in a set of data.
 For the normal distribution, the mode is also the same value as the mean and median.
 In many cases, the modal value will differ from the average value in the data.
Advantages:
 The mode is easy to understand and calculate.
 The mode is not affected by extreme values.
 The mode is easy to identify in un-grouped data and discrete frequency distribution.
 The mode is useful for qualitative data.
 The mode can be computed in an open-ended frequency table.
 The mode can be located graphically.
Disadvantages:
 The mode is not well defined.
 The mode is not based on all values.
 The mode is stable for large values and will not be well defined if the data consist of a small number of values.
 The mode is not capable of further mathematical treatment.
 Sometimes data have one mode, more than one mode, or no mode at all.

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 Difference between Mean and Median
BASIS MEAN MEDIAN
Meaning Mean refers to the simple average of the Median is defined as the middle number in an ordered
given set of values or quantities. list of values.
What is it? It is an arithmetic average. It is positional average.
Represents Center of gravity of data set Center of gravity of data set
Mid-point of data set
Applicability Normal distribution Skewed distribution
Outliers Mean is sensitive to outliers. Median is not sensitive to outliers.
Calculation Mean is calculated by adding up all the To calculate median, the data set is arranged in
observations and then dividing the value ascending or descending order, then the value that falls
obtained with the number of observations. in the exact middle of the new data set, is median.

Measures of dispersion
In statistics, dispersion (also called variability, scatter, or spread) is the extent to which a distribution is stretched or squeezed.
Common examples of measures of statistical dispersion are the variance, standard deviation, and interquartile range.
 Range:
Range is the interval between the highest and the lowest score. Range is a measure of variability or scatteredness of the
variants or observations among themselves and does not give an idea about the spread of the observations around some
central value.
Symbolically R = Hs – Ls. Where R = Range;
Range is an index of variability. When the range is more the group is more variable. The smaller the range the more
homogeneous is the group. Range is the most general measure of ‗spread‘ or ‗scatter‘ of scores (or measures). When we wish
to make a rough comparison of variability of two or more groups we may compute the range.
Advantages:
1. Range can be calculated quite easily.
2. It is a simplest measure of dispersion.
3. It is computed when we want to make a rough comparison of two or more graphs of variability.
Limitations:
1. Range is not based on all the observations of the series. It takes into account only the most extreme cases.
2. It helps us to make only a rough comparison of two or more groups of variability.
3. The range takes into account the two extreme scores in a series.
Thus when N is small or when there are large gaps in the frequency distribution, range as a measure of variability is quite
unreliable.
 Quartile Deviation:
Range is the interval or distance on the scale of measurement which includes 100 percent cases. The limitations of the range
are due to its dependence on the two extreme values only.
There are some measures of dispersion which are independent of these two extreme values. Most common of these is
the quartile deviation which is based upon the interval containing the middle 50 percent of cases in a given distribution.

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Quartile deviation is one-half the scale distance between the third quartile and the first quartile. It is the Semi-
interquartile range of a distribution:
 As scores are arranged in descending order,
 The top 5 scores will be in the 1st quarter,
 The next 5 scores will be in the 2nd quarter,
 The next 5 scores will be in the 3rd quarter, and
 And the lowest 5 scores will be in the 4th quarter.
Merits of Quartile:
1. It is a more representative and trustworthy measure of variability than the overall range.
2. It is a good index of score density at the middle of the distribution.
3. Quartiles are useful in indicating the skewness of a distribution.
4. Like the median, Q is applicable to open-end distributions.
5. Wherever median is preferred as a measure of central tendency, quartile deviation is preferred as measure of
dispersion.
Limitations of Quartile:
1. However, like median, quartile deviation is not amenable to algebraic treatment, as it does not take into consideration
all the values of the distribution.
2. It only calculates the third and the first quartile and speaks us about the range. From Q‘ we cannot get a true picture
about how the scores are dispersed from the central value. That is ‗Q‘ does not give us any idea about the composition
of scores. ‗Q‘ of two series may be equal, yet series may be quite dissimilar in composition.
3. It roughly gives an idea of dispersion.
4. It ignores the scores above the third quartile and the scores below the first quartile. It simply speaks us about the
middle 50% of the distribution.
Uses of Quartile:
1. When the median is a measure of a central tendency;
2. When the distribution is incomplete at either end;
3. When there are scattered or extreme score which would disproportionately influence the SD;
4. When the concentration around the median — the middle 50% of cases is of primary interest.
 Average Deviation (A.D.) or Mean Deviation (M.D.):
As we have already discussed the range and the ‗Q‘ roughly gives us some idea of variability. The range of two series may be
the same or the quartile deviation of two series may be same, yet the two series may be dissimilar. Neither the range nor the
‗Q‘ speaks of the composition of the series. These two measures do not take into consideration the individual scores.
The method of average deviation or ‗the mean deviation‘, as it is called sometimes, tends to remove a serious
shortcoming of both methods (Range and ‗Q‘). The average deviation is also called the first moment of dispersion and is based
on all the items in a series.
Merits of Mean Deviation:
1. Mean deviation is the simplest measure of dispersion that takes into account all the values in a given distribution.
2. It is easily comprehensible even by a person not well versed in statistics.
3. It is not very much affected by the value of extreme items.
4. It is the average of the deviations of individual scores from the mean.
Limitations:
1. Mean deviation ignores the algebraic signs of the deviations and as such it is not capable of further mathematical
treatment. So, it is used only as a descriptive measure of variability.
2. In fact, M.D. is not in common use. It is rarely used in modern statistics and generally dispersion is studied by standard
deviation.
Uses of M.D:
1. When it is desired to weigh all the deviations according to their size.
2. When it is required to know the extent to which the measures are spread out on either side of the mean.
3. When extreme deviations unduly influence the standard deviation.
4.
 Standard Deviation or S.D. and Variance:
Out of several measures of dispersion, the most frequently used measure is ‗standard deviation‘. It is also the most important
because of being the only measure of dispersion amenable to algebraic treatment.
Here also, the deviations of all the values from the mean of the distribution are considered. This measure suffers from
the least drawbacks and provides accurate results.

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It differs from the AD in several respects:
I. In computing AD or MD, we disregard signs, whereas in finding SD we avoid the difficulty of signs by squaring the
separate deviations;
II. The squared deviations used in computing SD are always taken from the mean, never from the median or mode.
―Standard deviation or S.D. is the square root of the mean of the squared deviations of the individual scores from
the mean of the distribution.‖
Merits of SD:
1. SD is rigidly defined and its value is always definite.
2. It is the most widely used and important measure of dispersion. It occupies a central position in statistics.
3. Like mean deviation, it is based on all the values of the distribution.
4. Here, the signs of deviations are not disregarded, instead they are eliminated by squaring each of the deviations.
5. It is the master measure of variability as it is amenable to algebraic treatment and is used in correlational work and in
further statistical analysis.
6. It is less affected by fluctuations of sampling.
7. It is the reliable and most accurate measure of variability. S.D. always goes with the mean which is the most reliable
measure of central tendency.
8. It provides a standard unit of measure that possesses comparable meaning from one test to another. Moreover, the
normal curve is directly related to S.D.
Limitations:
1. It is not easy to calculate and it is not easily understood.
2. It gives more weights to extreme items and less to those which are near the mean. When the deviation of an extreme
score is squared it gives rise to a bigger value.
Uses of Standard Deviation:
(i) When the most accurate, reliable and stable measure of variability is wanted.
(ii) When more weight is to be given to extreme deviations from the mean.
(iii) When coefficient of correlation and other statistics are subsequently computed.
(iv) When measures of reliability are computed.
(v) When scores are to be properly interpreted with reference to the normal curve.
(vi) When standard scores are to be computed.
(vii) When we want to test the significance of the difference between two statistics.
(viii) When coefficient of variation, variance, etc. are calculated.
Measures of Skewness
These measures of skewness can be both absolhe or relative. The first absolute measure of skewness is based on the
difference between mean and mode or mean and median.
 Skewness, in statistics, is the degree of distortion from the symmetrical bell curve in a probability distribution.
 Distributions can exhibit right (positive) skewness or left (negative) skewness to varying degree.
 Investors note skewness when judging a return distribution because it, like kurtosis, considers the extremes of the data
set rather than focusing solely on the average.
Measures of Kurtosis
Skewness essentially measures the relative size of the two tails. Kurtosis is a measure of the combined sizes of the
two tails. It measures the amount of probability in the tails. The value is often compared to the kurtosis of the normal
distribution, which is equal to 3.

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 Differences between Skewness and Kurtosis
BASIS SKEWNESS KURTOSIS
Meaning Skewness eludes the tendency of a Kurtosis means the measure of the respective
distribution that determines its symmetry sharpness of the curve, in the frequency distribution.
about the mean.
Measure for Degree of lopsidedness in the distribution. Degree of tailedness in the distribution.
What is it? It is an indicator of lack of equivalence in the It is the measure of data, which is either peaked or
frequency distribution. flat in relation to the normal distribution.
Represents Amount and direction of the skew. How tall and sharp the central peak is?
Correlation
Correlation is a statistical measure that indicates the extent to which two or more variables fluctuate together. A
positive correlation indicates the extent to which those variables increase or decrease in parallel; a
negative correlation indicates the extent to which one variable increases as the other decreases.
 Correlation is a statistic that measures the degree to which two variables move in relation to each other.
 In finance, the correlation can measure the movement of a stock with that of a benchmark index, such as the Beta.
 Correlation measures association, but does not tell you if x causes y or vice versa, or if the association is caused by
some third (perhaps unseen) factor.
Regression
Regression is a technique used to model and analyze the relationships between variables and often times how they
contribute and are related to producing a particular outcome together. A linear regression refers to a regression model that is
completely made up of linear variables.
 Linear regression: Y = a + bX + u
 Multiple regression: Y = a + b1X1 + b2X2 + b3X3 + ... + btXt + u
Where:
 Y = the variable that you are trying to predict (dependent variable).
 X = the variable that you are using to predict Y (independent variable).
 a = the intercept.
 b = the slope.
 u = the regression residual.
 Regression helps investment and financial managers to value assets and understand the relationships between
variables
 Regression can help finance and investment professionals as well as professionals in other businesses.
Difference between Correlation and Regression
BASIS CORRELATION REGRESSION
Meaning Correlation is a statistical measure Regression describes how an independent
which determines co-relationship or variable is numerically related to the dependent
association of two variables. variable.
Usage To represent linear relationship To fit a best line and estimate one variable on the
between two variables. basis of another variable.
Dependent and No difference Both variables are different.
Independent variables
Indicates Correlation coefficient indicates the Regression indicates the impact of a unit change
extent to which two variables move in the known variable (x) on the estimated
together. variable (y).
Objective To find a numerical value expressing To estimate values of random variable on the
the relationship between variables. basis of the values of fixed variable.

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 Probability Distribution
A probability distribution is a statistical function that describes all the possible values and likelihoods that a random
variable can take within a given range. This range will be bounded between the minimum and maximum possible values, but
precisely where the possible value is likely to be plotted on the probability distribution depends on a number of factors. These
factors include the distribution's Mean (average), Standard Deviation, Skewness, and Kurtosis.
 A probability distribution depicts the expected outcomes of possible values for a given data generating process.
 Probability distributions come in many shapes with different characteristics, as defined by the mean, standard
deviation, skewness, and kurtosis.
 Investors use probability distributions to anticipate returns on assets such as stocks over time and to hedge their risk.

Types of Distributions
 Bernoulli Distribution
Let‘s start with the easiest distribution that is Bernoulli Distribution. It is actually easier to understand than it sounds!
All you cricket junkies out there! At the beginning of any cricket match, how do you decide who is going to bat or ball? A toss! It
all depends on whether you win or lose the toss, right? Let‘s say if the toss results in a head, you win. Else, you lose. There‘s
no midway.
 Uniform Distribution
When you roll a fair die, the outcomes are 1 to 6. The probabilities of getting these outcomes are equally likely and that is the
basis of a uniform distribution. Unlike Bernoulli Distribution, all the n number of possible outcomes of a uniform distribution are
equally likely.
 Binomial Distribution
Let‘s get back to cricket. Suppose that you won the toss today and this indicates a successful event. You toss again but you
lost this time. If you win a toss today, this does not necessitate that you will win the toss tomorrow. Let‘s assign a random
variable, say X, to the number of times you won the toss. What can be the possible value of X? It can be any number
depending on the number of times you tossed a coin.
There are only two possible outcomes. Head denoting success and tail denoting failure. Therefore, probability of
getting a head = 0.5 and the probability of failure can be easily computed as: q = 1- p = 0.5.
1. Each trial is independent.
2. There are only two possible outcomes in a trial- either a success or a failure.
3. A total number of n identical trials are conducted.
4. The probability of success and failure is same for all trials. (Trials are identical.)
 Normal Distribution
Normal distribution represents the behavior of most of the situations in the universe (That is why it‘s called a ―normal‖
distribution. I guess!). The large sum of (small) random variables often turns out to be normally distributed, contributing to its
widespread application. Any distribution is known as Normal distribution if it has the following characteristics:
1. The mean, median and mode of the distribution coincide.
2. The curve of the distribution is bell-shaped and symmetrical about the line x=μ.
3. The total area under the curve is 1.
4. Exactly half of the values are to the left of the center and the other half to the right.
 Poisson Distribution
Suppose you work at a call center, approximately how many calls do you get in a day? It can be any number. Now, the entire
number of calls at a call center in a day is modeled by Poisson distribution. Some more examples are
The number of emergency calls recorded at a hospital in a day.

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 1. The number of thefts reported in an area on a day.
2. The number of customers arriving at a salon in an hour.
3. The number of suicides reported in a particular city.
4. The number of printing errors at each page of the book.
 Exponential Distribution
Let‘s consider the call center example one more time. What about the interval of time between the calls ? Here, exponential
distribution comes to our rescue. Exponential distribution models the interval of time between the calls.
Other examples are:
1. Length of time beteeen metro arrivals,
2. Length of time between arrivals at a gas station
3. The life of an Air Conditioner
Exponential distribution is widely used for survival analysis. From the expected life of a machine to the expected life of
a human, exponential distribution successfully delivers the result.
Statistics
The word statistics is coming out from the Latin word status or the Italian word ‗statist‘ or the German word ‗statistic‘ or French
word statistic each of which means political state. In the general word statistics means the collection of numerical data for its
further use. In the other words statistics means numerical data.
 Functions of statistics:-
(i) It presents data in a standard form.
(ii) It provides easy comparison.
(iii) It simpli�es mass data into small �gures.
(iv) It helps to formulate and examine the hypothesis.
(v) It helps in decision making.
(vi) It simpli�es the process of future planning and forecasting.
(vii) It helps in budgeting.
 Scopes of statistics:
(i) Statistics and the state:-
Statistics is essential for a country. It supplies essential information to run a government. Different policies of
government are based on statistics. Periodical collection of data relating to population, national wealth, agriculture, exports,
imports, education, crime etc. are the main guide lines to a government for a good administration. More over all the ministries
and departments of the state like finance, transport, defense, railway etc depends on statistics for their efficient use.
(ii) Statistics and commerce:-
Commerce is a process of collecting, manufacturing, supplying, and distribution of goods and services for profit.
Statistics is helping in formulation of policy and making future decisions.
(iii) Statistics and economics:-
The scope of statistics in the field of economics is highly remarkable. Economics is concerned with production and
distribution of wealth as well as consumption, saving and also investment of income. Above all these things statistics is widely
useful.
(iv) Statistics and natural science:-
Statistical techniques have proved extremely useful in the study of all natural sciences like biology, medicine,
astronomy, meteorology, etc.
(v) Statistics and accounts:-
Statistics is very much useful in the field of accountancy like presentation of accounts and determination of profits and
loss etc.
Limitations of statistics:-
 Statistics does not deal with individuals.
 Statistics deals with only quantitative data but not with qualitative data.
 Statistical results are true only on an average.
 In statistics there may be chance of misuse of data.
 Statistical data should be uniform and homogeneous at the time of comparison.
Data
Data collection is the process of gathering and measuring information on targeted variables in an established system,
which then enables one to answer relevant questions and evaluate outcomes. Data classification is the process of sorting and
categorizing data into various types, forms or any other distinct class. Data classification enables the separation
and classification of data according to data set requirements for various business or personal objectives. It is mainly
a data management process.
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Methods of collecting primary data or sources of primary data:
 Primary data:-The data which is collected in the process of investigation are called primary data.
For the collection of primary data the investigator may choose any one of the following methods.
i) Direct personal observation.
ii) Indirect oral interviews.
iii) Mailed questionnaire method.
iv) Schedules sent through enumerators.
i) Direct personal observations:
In this method the person who collects data visits the field of survey and collects the information through discussions
with the persons who are either directly or indirectly in touch with the facts under study. Some times through personal
observations by investigator can get information. In this method of collecting data the investigator should be very much careful
for his public behavior and he should mix with the people of that locality where he is collecting data.
Merits:
1) Original data are collected.
2) True and reliable data are collected.
3) Response will be encouraging because of personal approach.
Demerits:
1) It is not suitable where the area under survey is very large.
2) It is expensive and time consuming.
3) Untrained investigators will not bring good results.
ii) Indirect oral interviews:
Under this method of collecting data the investigator contacts the third person who is capable of supplying the
necessary information. This method is generally adopted in those cases where the informants are not interested to respond if
investigator approaches directly. For example if we want to interview a drug addict, he may be interested to supply information
about his own habits. In this case we get the necessary information from those persons who know him well.
Merits:
1) It is simple and convenient.
2) It saves time, money and labor.
3) It can be used in the investigation of a large area.
Demerits:
1) Interview with an improper person will spoil the results.
2) In order to get the real position, a sufficient number of persons are to be interviewed.
(iii) Mailed questionnaire method.
Under this method a questionnaire (list of objective type of questions) are sent to the informants by post. The
questionnaire should be attractive and questions are arranged in such a way that it will take minimum time to answer. The
questionnaire should contain a request note and guidelines that how to appear the questions. The questionnaire should be in
expensive and should contain a self-addressed covering letter to send it back with in specified time.
Merits:
1) Of all the methods this method is most economical.
2) This method is suitable when the area of investigation is very large.
3) It saves time, money and labor.
Demerits:
1) In this method there is no direct contact between the investigator and the informant, therefore we can be sure about
the accuracy of the data.
2) This method is only suitable when the informants are literate.
3) There is a chance of delay in receiving of answers from the informants.
(iv) Schedules sent through investigators:
It is the most widely used method of collecting primary data. In this method a number of enumerators are selected and
trained. They are provided with a standardized questionnaire and specific training and instructions are given to them for filling
up the schedules. Each enumerator will be the in charge of a certain area. The investigator goes to the informants along with
the questionnaire and gets replies to the questions in the schedules and records their answers. They explain the object and
purpose of the enquiry.
Merits:
1) This method is very much useful where the informants are illiterates.

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 2) In this method because of direct contact between the investigators and the Informants, the can get accurate
information.
Demerits:
1) This method is more expensive and time consuming.
2) The success of this method is depends upon the trained, intelligent and qualified investigators.
 Sources of secondary data:
The various sources of secondary data can be divided into two categories
1) Published sources
2) Unpublished sources.
1) Published sources: Under this method the data are previously collected and published.
Ex: government publications, statistical reports, journal and newspaper, census reports, and report on national sample
surveys conducted in India etc.
2) Unpublished sources: In this method the data are not published or data kept as personal use or departmental use.
Ex: books of accounts, files and records of government and private offices, work of research of various institutions and
universities or big organizations.
Difference between Primary and Secondary Data
BASIS PRIMARY DATA SECONDARY DATA
Meaning Primary data refers to the first hand data Secondary data means data collected by
gathered by the researcher himself. someone else earlier.
Data Real time data Past data
Process Very involved Quick and easy
Source Surveys, observations, experiments, Government publications, websites, books,
questionnaire, personal interview, etc. journal articles, internal records etc.
Cost effectiveness Expensive Economical
Collection time Long Short
Specific Always specific to the researcher's needs. May or may not be specific to the researcher's
need.
Available in Crude form Refined form
Accuracy and More Relatively less
Reliability

Classification of data
Data collected either from primary sources or the secondary sources are called raw data. Classification means
arrangement of data or grouping of data according to there behavior, nature and characteristics.
Types of classification:
i) Geographical (spatial) classification
ii) Chronological classification.
iii) Quantitative classification.
iv) Qualitative classification.
Types of tables:
1) Simple and complex tables
2) General purpose and special purpose (or) summery tables.
1) Simple and complex tables: - The distinction between simple and complex table is based on the number of characteristics
studied.
In a simple table only one character is shown. Hence this type of table is also known as one-way table. On the other
hand in a complex table two or more characteristics are shown. When two characteristics are shown such a table is known as
two-way table or double tabulation.
2) General and special purpose tables: General purpose tables sometimes termed as reference tables or formation tables.
These tables provide information for general use of reference. hey usually contain detailed information and are not constructed
for specific scission. These tables are also termed as master tables.
The detailed tables prepared in census reports belong to this class.
Special purpose tables also known as summery tables which provide formation for particular discussion. These tables
are constructed or derived from the general purpose tables. These tables are useful for analytical and comparative studies
involving the study of relationship among variables.
Calculation of analytical statistics like ratios, percentages, index numbers, etc incorporated in these tables.
 General format of a table or parts of table:

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1) Table number: Each table should be numbered. The table number may be given either in the center at the top above the
title or in the bottom of the table on the left hand side.
2) Title of the table: Every table must be given a suitable title. The title is a description of the contents of the table. The title
should be clear, brief and self-explanatory. The title should be as short as possible. Its lettering should be the most prominent
of any lettering on the table.
3) Caption: caption refers to the column headings. It explains what the column represents. It may consist of one or more
column headings. The caption should be clearly defined and placed at the middle of the column. As compared with the main
part of the table the caption should be shown in smaller letters. This helps in saving space.
4) Stub: As distinguished from caption stubs are the designations of the rows or row headings. They are at the extreme left
and perform the same function for the horizontal rows of numbers in the table as the column headings do for the vertical
columns of numbers.
5) Body of the table: The body of the table contains the numerical information. This is the most vital part of the table. Data
presented in the body arranged according to the description or classification of the captions and stubs.
6) Head note: It is used to explain certain points relating to the table that have not been included in the title nor in the caption
or stubs. For example the unit of measurement is frequently written as head note such as ‗in thousands‘ or ‗in million tones‘ or
‘in corers‘
7) Foot note: Anything in the table which the reader may find di�cult to understand from the title, captions and stubs should be
explained in the foot notes. If foot notes are needed they are placed directly below the body of the table. Ex: M for male, F for
female etc.
8) Source note: A source note is used where the data are collected by the agency or person other than the one presenting
them.
Difference between Classification and Tabulation
BASIS CLASSIFICATION TABULATION
Meaning Classification is the process of grouping data into Tabulation is a process of summarizing
different categories, on the basis of nature, data and presenting it in a compact form,
behavior, or common characteristics. by putting data into statistical table.
Order After data collection After classification
Arrangement Attributes and variables Columns and rows
Purpose To analysis data To present data
Bifurcates data Categories and sub-categories Headings and sub-headings
into
 Hypothesis Testing
Hypothesis testing is an act in statistics whereby an analyst tests an assumption regarding a population parameter. The
methodology employed by the analyst depends on the nature of the data used and the reason for the analysis. Hypothesis
testing is used to infer the result of a hypothesis performed on sample data from a larger population.
 Hypothesis testing is used to infer the result of a hypothesis performed on sample data from a larger population.
 The test tells the analyst whether or not his primary hypothesis is true.
 Statistical analysts test a hypothesis by measuring and examining a random sample of the population being analyzed.
Steps of Hypothesis Testing
All hypotheses are tested using a four-step process:
1. The first step is for the analyst to state the two hypotheses so that only one can be right.
2. The next step is to formulate an analysis plan, which outlines how the data will be evaluated.
3. The third step is to carry out the plan and physically analyze the sample data.
4. The fourth and final step is to analyze the results and either accept or reject the null hypothesis.
Critics
1. If a person is American, it is highly unlikely she is a member of Congress
2. The person is a member of Congress
3. Therefore is highly unlikely she is an American
4. If a trading strategy is bad, then it is highly unlikely it will be profitable in a back test
5. The trading strategy's back test is profitable
6. Therefore, it is highly unlikely the trading strategy is bad

T-test & Z-test:

Z-tests are statistical calculations that can be used to compare population means to a sample's. T-tests are
calculations used to test a hypothesis, but they are most useful when we need to determine if there is a statistically significant
difference between two independent sample groups.

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 t - test

One Sample

Z - test

Parametric Test Two Group

t - test
Indepent
Sample
Z - test
Two Sample

Paired Sample Paired t - test

Difference between T-test and Z-test

BASIS T-TEST Z-TEST
Meaning T-test refers to a type of parametric test that is Z-test implies a hypothesis test which ascertains
applied to identify, how the means of two sets of if the means of two datasets are different from
data differ from one another when variance is each other when variance is given.
not given.
Based on Student-t distribution Normal distribution
Population Unknown Known
variance
Sample Size Small Large

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 Unit 6:
Business Management and Human Resource Management

 Management is an art of getting things done with and through others.

 Management can be defined as, the process of getting things done with the aim of achieving organizational goals
effectively and efficiently.
Basis of Difference Effectiveness Efficiency
1. Meaning It refers to completing the job on time, no It refers to completing the job in the cost
matter whatever the cost. effective manner.

2. Objective To achieve end result on time. To conduct cost-benefit analysis.

3. Main Consideration Time Cost

Characteristics of Management:
1. Goal oriented Process: It is a goal oriented process, which is undertaken to achieve already specified and desired
objectives by proper utilization of available resources.
2. Pervasive: Management is universal in nature. It is used in all types of organisations whether economic, social or
political irrespective of its size, nature and location and at every level.
3. Multidimensional: It is multidimensional as it involves management of work, people and operations. Every
organisation is established for doing some work like school provides education, a factory produces etc. The
management has to ensure the participation, of its people in the realisation of the organisation goal. Also management
needs to conduct the various operations such as production, sale, purchase etc.
4. Continuous: Management is not a process which can be performed once and for all, but it is a continuous process.
Functions of management like planning, organising, staffing, directing and controlling continuously need to be done.
5. Group Activity: It is a group activity since it involves managing and coordinating activities of different people as a
team to attain the desired objectives.
6. Dynamic function: It is a dynamic function since it has to adapt according to need, time and situation of the changing
environment. For example, McDonalds made major changes in its ‗Menu‘ to survive in the Indian market.
7. Intangible Force: Management is such a force that cannot be seen, only its presence can be felt. When the goals of
an organisation are being realised in accordance with its plans, we can say that the management of the organisation is
good.
Objectives of Management:-
A. Organizational objectives: It refers to the utilisation of human and physical resources available in the organisation,
considering the interest of all stakeholders.
1. Survival – Management of an organisation must ensure the survival of the organisation by earning enough
revenues to cover costs.
2. Profit – It plays an important role in facing business risks and successful running of business activities.
3. Growth – Management must ensure growth which can be measured by increase in sales of product etc.
B. Social objectives: It refers to the consideration of the interest of the society during managerial activities. For e.g. - to save
environment from getting polluted etc.
C. Personal objectives: It refers to the objectives to be determined with respect to the employees of the organisation.
Importance of Management :-
1. Achieving Group Goals: Management creates team work and coordination in the group. Managers give common
direction to individual efforts in achieving the overall goals of the organization.
2. Increases Efficiency: Management increases efficiency by using resources in the best possible manner to reduce
cost and increase productivity.
3. Creates Dynamic organization: Management helps the employees overcome their resistance to change and adapt
as per changing situation to ensure its survival and growth.
4. Achieving personal objectives: Management helps the individuals achieve their personal goals while working
towards organisational objectives.
5. Development of Society: Management helps in the development of society by producing good quality products,
creating employment opportunities and adopting new technology.
Levels of Management: Top, Middle and Operational Levels
 Top Level: Consists of Chairperson, Chief Executive Officer, Chief Operating Officer or equivalent and their team.
Chief task is to integrate and to coordinate the various activities of the business, framing policies, formulating
organisational goals & strategies.
 Middle Level: Consists of Divisional or Departmental heads, Plant Superintendents and Operation Managers etc. Main
tasks are to interpret the policies of the top management to ensure the availability of resources to implement policies,
to coordinate all activities, ensure availability of necessary personnel & assign duties and responsibilities to them.

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  Lower Level/Supervisory Level: Consists of Foremen and Supervisor etc. Main task is to ensure actual
implementation of the policies as per directions, bring workers‘ grievances before the management & maintain
discipline among the workers.

 Functions of Management / Elements of Management

Planning, Organising, Staffing, Directing and Controlling are the main functions of management.
(1) Planning is deciding in advance what to do in future and how to do it.
(2) Organising is to assign duties, grouping tasks, establishing authority and allocating resources required to carry out a
specific plan.
(3) Staffing is finding the right people for the right job by following a series of steps and includes training and
development.
(4) Directing is leading, influencing and motivating employees to perform the tasks assigned to them. It includes four
activities: - Supervision, Communication, Leadership and Motivation.
(5) Controlling is monitoring the organizational performance towards the attainment of the organizational goals.
Co-ordination
Coordination is to synchronise the various activities of an organisation. In the context of business unit, the meaning of
coordination is to balance its various activities (purchase, sales, production, finance, personnel etc.) so that objective of
business can be easily achieved. Lack of coordination results in overlapping, duplication, delay and chaos.
Characteristics of Coordination
1. Coordination integrates group efforts: It integrates diverse business activities into purposeful group activity ensuring
that all people work in one direction to achieve organizational goals.
2. Coordination ensures unity of action: It directs the activities of different departments and employees towards
achievement of common goals and brings unity in individual efforts.
3. Coordination is a continuous process: It is not a specific activity matter, it is required at all levels, in all departments
till the organization continues its operations.
4. Coordination is all pervasive function: It is universal in nature. It synchronizes the activities of all levels and
departments as they are interdependent to maintain organizational balance.
5. Coordination is the responsibility of all managers: It is equally important at all the Three-Top, Middle and Lower
levels of management. Thus it is the responsibility of all managers that they make efforts to establish coordination.
6. Coordination is a deliberate function: Coordination is never established by itself rather it is a conscious effort on the
part of every manager. Cooperation is voluntary effort of employees to help one another. Effective coordination cannot
be achieved without cooperation of group members.
Coordination is the Essence of Management.
Coordination is not a separate function of management. It is the force that binds all the functions & thus, called the
essence of management. It is needed in all management functions:
 Planning – Coordination between the master plan and departmental plan.
 Organising – required between authority, responsibility and accountability
 Staffing – Achieve balance between job requirement and qualities of personnel
 Directing – Required between supervision, motivation and leadership.
 Controlling – Ensure actual result conform to expected results.
Theories of Management

 Fayol‘s Principles of Management: About Henry Fayol: Henry Fayol (1841-1925) got degree in Mining Engineering
and joined French Mining Company in 1860 as an Engineer. He rose to the position of Managing Director in 1988.
When the company was on the verge of bankruptcy. He accepted the challenge and by using rich and broad
administrative experience, he turned the fortune of the company. For his contributions, he is well known as the ―Father
of General Management‖.

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Principles of Management developed by Fayol :-
1. Division of work: Work is divided in small tasks/job and each work is done by a trained specialist which leads to
greater efficiency, specialisation, increased productivity and reduction of unnecessary wastage and movements.
2. Authority and Responsibility: Authority means power to take decisions and responsibility means obligation to
complete the job assigned on time. Authority and responsibility should go hand in hand. Mere responsibility without
authority, makes an executive less interested in discharging his duties. Similarly giving authority without assigning
responsibility makes him arrogant and there is fear of misuse of power.
3. Discipline: It is the obedience to organizational rules by the subordinates. Discipline requires good supervisors at all
levels, clear and fair agreements and judicious application of penalties.
4. Unity of Command: It implies that every worker should receive orders and instructions from one superior only,
otherwise it will create confusion, conflict, disturbance and overlapping of activities.

5. Unity of Direction: Each group of activities having the same objective must have one head and one plan. This
ensures unity of action and coordination.
Difference between Unity of Command and Unity of Direction
Basis Unity of Command Unity of Direction
(1) Meaning One subordinate should receive orders from & Each group of activities having same
should be responsible to only one superior. objective, must have one head.

(2) Aim Prevents dual subordination. Prevents overlapping of activities.

(3) Implications Affects an individual employee. Affects the entire organization.

6. Subordination of Individual Interest to General Interest: The interest of an organization should take priority over the
interest of any one individual employee.
7. Remuneration of Employees: Remuneration of employees should be just and equitable so as to give maximum
satisfaction to both the employees and organisation.
The employees should be paid fair wages/salaries which would give at least a reasonable standard of living. At the same time,
it should be within the paying capacity of the company
8. Centralisation and Decentralisation: Centralisation means concentration of decisions making authority in few hands
at top level. Decentralisation means evenly distribution of power at every level of management. Both should be
balanced as no organization can be completely centralised or completely decentralised.
9. Scalar Chain: The formal lines of authority between superiors and subordinates from the highest to the lowest ranks is
known as scalar chain. This chain should not be violated but in emergency employees at same level can contact
through Gang Plank by informing their immediate superiors.

10. Order: According to the principle of order, a right person should be placed at the right job and a right material should
be placed at the right place. According to Fayol, every enterprise should have two different orders – material order for
physical resources and social order for human resources.
11. Equity: The working environment of any organization should be free from all forms of discrimination (religion,
language, caste, gender, belief or nationality) and principles of justice and fair play should be followed. No worker
should be unduly favored or punished.
12. Stability of Personnel: According to this principle, employees once selected, should be kept at their post/position for a
minimum fixed tenure. They should be given reasonable time to show results.

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 13. Initiative: Workers should be encouraged to develop and carry out their plan for improvements. Initiative means taking
the first step with self-motivation. It is thinking out and executing the plan.
14. Espirit De Corps: Management should promote team spirit, unity and harmony among employees. Management
should promote team work.
 Taylor‘s Scientific Management:- Fredrick Winslow Taylor (1856-1915) was a person who within a very short
duration (1878-1884) rose from ranks of an ordinary apprentice to chief engineer in Midvale Steel Company, U.S.A.
Taylor conducted a number of experiments and came to conclusion that workers were producing much less than the
targeted standard task. Also, both the parties - Management and workers are hostile towards each other. He gave a
number of suggestions to solve this problem and correctly propounded the theory of Scientific Management to
emphasize the use of scientific approach in managing an enterprise instead of hit and trial method. For his
contributions, he is well known as the ―Father of the Scientific Management‖.
SCIENTIFIC MANAGEMENT:-
Meaning: Conduct of business activities according to standardised tools, methods and trained personal so as to have
increased output through effective and optimum utilisation of resources. Hence it stresses that there is always one best way of
doing things. Scientific Management attempts to eliminate wastes to ensure maximum production at minimum cost.
Principles of Scientific Management
1. Science, not rule of Thumb: There should be scientific study and analysis of each element of job rather than adopting
old rule of the thumb approach on a hit and miss method. Encourage ―thinking before doing‖
2. Harmony, not discord: There should be complete harmony and proper understanding between management and
workers in achieving the organisation goals.
3. Cooperation not individualism: Taylor emphasised on the importance of cooperative group efforts between the
management and workers in achieving the organisation‘s goal and not individualism.
4. Development of workers to their greatest efficiency and prosperity: The management should scientifically select
the workers; assign job as per their physical, mental and intellectual capabilities; and train them as per the job
requirement.
Techniques of Scientific Management
A. Functional Foremanship
 Supervision is to be divided into several specialized functions and each function to be entrusted to a special foreman.
 Each worker will have to take orders from eight foreman in the related process of function of production.
 Stress on separating planning function from execution function.

Planning Incharges :
1. Route Clerk to specify the exact sequence and route of production.
2. Instruction card clerk is responsible for drafting instructions for the workers.
3. Time and cost clerk to prepare time and cost sheet for the job.
4. Shop Disciplinarian to ensure discipline and enforcement of rules and regulations among the workers.
Production Incharges:
1. Gang boss is responsible for keeping tools and machines ready for operation.
2. Speed boss is responsible for timely and accurate completion of job.
3. Repair boss to ensure proper working conditions of tools and machines.
4. Inspector to check quality of work.
B. Standardisation and Simplification of work:
 Process of setting standards of every business activity to maximize output.
 Simplification is eliminating unnecessary varieties, sizes and grades of product manufactured in the organisation.

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C. Method study:
 Finding one best way of doing a job.
 Critical analysis is made for plant layout, product design, material handling and work processes using techniques like
process chart, operations research etc.
D. Motion Study
 Making a thorough analysis of various motions being performed by a worker while doing a particular task.
 Identifying and determining the ideal productive movements.
 Eliminate the unproductive movements and equipments.
E. Time study
 It is the technique used to determine the standard time taken by the workmen with reasonable skills and abilities to
perform a particular task.
 Here the job is divided into series of elements and the time required to complete each element idealistically is recorded
using a stop watch.
F. Fatigue study
 Determines the amount and frequency of rest intervals required in completing a task.
G. Differential Piece Wage System
 Evolve a system wherein the efficient and inefficient workers are paid at different rates. (as financial incentives act as
motivators)
 First a standard task is established with the aid of time and motion study, then two rates are established. Higher, when
standard output is produced and lower, when the standard is not met.
For example: Standard task is 10 units. Rates are: Rs 50 per unit for producing 10 units or more and Rs 40 per unit for
producing less than 10 units
 Worker A produces 11 Units; he gets Rs 550 (11 units‘ x 50 per unit)
 Worker B produces 09 units; he gets Rs 360 (9 units‘ x 40 per unit)
 This difference of Rs 190 will motivate B to perform better.
H. Mental Revolution
It involves a complete change in mental outlook and attitude of workers and management towards one another from
competition to cooperation. The management should create pleasant working conditions & workers should work with devotion
and loyalty. Instead of fighting over distribution of profits, they must focus attention on increasing it.
Fayol v/s Taylor
Basis Henry Fayol F.W Taylor
1.Basis of formation Personal Experience Observation

2. Focus Improvement in the overall administration Concentration on improving the productivity

3. Applicability Universally applicable Applicable only to specialised situations

4.Perspective Top level management Lower level-shop floor level

5.Personality Practitioner and known as the father of Scientist and known as father of scientific
General management management

6.Human element More importance given to human element; More importance attached to increasing the
e.g. Principle of equity, stability of tenure production than to the human element

7.Emphasis Greater emphasis on tools and Emphasis on principles and theory of general
standardisation of work i.e. General Theory of administration i.e. Scientific Management
Administration

8.Unity of Command Staunch proponent that orders should be Did not feel that it is important as under
received from one boss. functional foremanship a worker received
orders from eight specialists.

Bureaucratic Theory by Max Weber:

Max Weber (1864-1920), a reputed German Sociologist firstly developed the theory of bureaucratic management.
He has discussed it from two angles—structural and behavioural.
 Structural - bureaucratic management is an organised structure of human relationship.

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  Behavioural - it refers to hierarchy of division of work and authority. The functioning in such system of management is
bound by rules.

1. System of Rules and Regulations: A set of formal rules is determined to ensure uniformity of group efforts. A well-established set
of regulations provides stability and continuity of an enterprise.
2. Hierarchy of Authority: In such management process, the principle of hierarchy of scalar authority is followed. Each lower level is
under the supervision and control of the top level, so that no level of management remains uncontrolled. It indicates that
authority is delegated from the top level to middle level and from the middle level to lower level of management. It sets up a
scalar chain of authority.
3. Systematic Division of Work and Specialisation: The functions of the enterprise are divided into smaller activities and the
responsibility to perform the activity is given to the managers who are specialised in the accomplishment of a particular activity.
4. Superior-Subordinate Relationship: The senior managers command the subordinate managers and issue orders, instructions and
directives to them.
5. Official Relationship: In bureaucratic management, managerial relationship is based on official or formal relations. Personal
relationships among the managers of various levels or departments have no importance.
6. Method of Promotion: In this management pattern, the promotion of the managers and other employees is based on seniority.
7. Suitability: The bureaucratic management structure is suitable for the large and complex enterprises such as business,
governmental, educational and other social organisations.
Criticisms of Bureaucratic Management:
1. Abstract Rules and Regulations: In such type of management less emphasis is given on the realisation of the enterprise
objectives. Rules, regulations, methods or systems are very rigidly followed here.
2. Non-existence of Informal Relationship: It does not recognise the existence and importance of informal relationship among the
employees.
3. Mechanical System: It neglects the psychological and social elements of the managers. It compels them to behave in a
mechanical manner.
4. Lack of Initiative: Individual initiatives and participations are not encouraged in bureaucratic pattern of management. It turns the
employees into dull persons.
5. Excessive Writing Work: Detailed recording of rules, regulations, procedures, decisions, and actions are needed to be written in
bureaucratic management process. So the work of writing is excessively increased.
6. Absence of Flexibility: This system of management is not flexible to adapt readily to the dynamic nature of modern
management. Its system of authority and control are hopelessly outdated.
7. Delay in Accomplishment of Work: In such management system, the problems of redtapism are noticed. So the performance of
normal activities is delayed for the complicated official rules and regulations. Any specific job is not completed in right time.
8. Lack of Creativity: Bureaucratic form of management is suitable for routine works, but it is not fit for creative activities.

Product Life cycle Management (PLM)

PLM can be thought of as both (a) a repository for all information that affects a product, and (b) a communication process
between product stakeholders: principally marketing, engineering, manufacturing and field service. The PLM system is the first
place where all product information from marketing and design comes together, and where it leaves in a form suitable for
production and support.
The essential elements of PLM:
1. Manages design and process documents
2. Constructs and controls bill of material (product structure) records
3. Offers an electronic file repository
4. Includes built-in and custom part and document metadata ("attributes")
5. Identifies materials content for environmental compliance
6. Permits item-focused task assignments
7. Enables workflow and process management for approving changes
8. Controls multi-user secured access, including "electronic signature"
9. Exports data for downstream ERP systems

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The product life cycle (PLC) is the course of product‘s sales and profits over its lifetime. It involves five distinct stages:
1. Product development: development of the idea without any sales.
2. Introduction: slow sales growth when the product is introduced.
3. Growth: period of rapid acceptance.
4. Maturity: period of sale slowdown because of acceptance by most potential buyers.
5. Decline: the period when sales fall and the profit drops.
The introduction stage is the PLC stage in which a new product is first distributed and made available for purchase.
Profits are generally low and the initial strategy must be consistent with product positioning.
The growth stage is the stage in which a product‘s sales start climbing quickly. Profits increase and the firm faces a
trade-off between high market share and high current profit.
In the maturity stage, products sales are growing slowly or level off. The company tries to increase consumption by
finding new consumers, also known as modifying the market. The company might also try to modify the product by changing
characteristics.
In the decline stage, the product‘s sales are declining or dropping to zero. Management might decide to maintain the
brand, reposition it or drop a product from the line.

BCG growth-share matrix

Which is used to portray firm‘s brand portfolio or SBUs on a quadrant along relative market share axis (horizontal axis)
and speed of market growth (vertical axis) axis.

 Easy to perform;
 Helps to understand the strategic positions of business portfolio;
 It‘s a good starting point for further more thorough analysis.
Motivation
Meaning: It is the process of stimulating people to act to their best ability to accomplish desired goals. Motivation means
inspiring the employees to work with greater enthusiasm and more efficiency for the accomplishment of the objectives of the
enterprise. It involves arousing needs and desires in people so as to initiate and direct their behaviour in a purposive manner.
Bridging the gap between ability to do a certain work and willingness to do a certain work- Motivation.
Features
1. Motivation is an Internal feeling: Motivation is an internal feeling which means it cannot be forced on employees.
The internal feeling such as need, desire, aspiration etc. influence human behaviour to behave in a particular manner.
2. Goal Directed Behaviour: It induces people to behave in such a manner so that they can achieve their goals. A
motivated person works towards the achievement of desired goals.
3. Motivation can be either positive or Negative: Positive motivation means inspiring people to work better and
appreciating a work that is well done e.g., pay increase, promotion, recognition. Negative motivation means forcing
people to work by threatening or punishing them. e.g., issue of memo, demotion, stopping increments etc.
4. Complex Process: It is a complex and difficult process. Individuals differ in their needs and wants and moreover
human needs change from time to time.
5. Continuous Process: Human needs are unlimited and so they keep on changing continuously, satisfaction of one
need gives rise to another. As soon as one need is satisfied another need arises. So managers have to continuously
perform the function of motivation.
The importance of motivation can be pointed out by the following benefits:
a) Motivation helps to improve performance levels of employees as well as the organisation.
b) Motivation helps to change negative attitudes of employee to positive attitudes.
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 c) Motivation helps to reduce employee turnover.
d) Motivation helps to reduce absenteeism in the organisation.
e) Motivation helps managers to introduce changes smoothly without resistance from employees.
 Maslow‘s Need Hierarchy-Theory of Motivation: Maslow‘s Theory focuses on the needs as the basis for motivation.
It classifies human needs into five categories. It helps managers to realise that need level of employees should be
identified to provide motivation to them. It is based on the following assumptions:
(i) People‘s behaviour is based on their needs
(ii) People‘s needs are in hierarchical order.
(iii) A satisfied need can no longer motivate a person.
(iv) A person moves to the next higher level of hierarchy only when the lower need is satisfied.
Pyramid representing Maslow‘s Need Hierarchy

 Herzberg‘s Motivation Theory – Two Factor Theory:-

 Motivators: Which can encourage employees to work harder?
 Hygiene factors: These won‘t encourage employees to work harder but they will cause them to become unmotivated if
they are not present.
Motivating factors include:
 Achievement: A job must give an employee a sense of achievement. This will provide a proud feeling of having done
something difficult but worthwhile.
 Recognition: A job must provide an employee with praise and recognition of their successes. This recognition should
come from both their superiors and their peers.
 The work itself: The job itself must be interesting, varied, and provide enough of a challenge to keep employees
motivated.
 Responsibility: Employees should ―own‖ their work. They should hold themselves responsible for this completion and
not feel as though they are being micromanaged.
 Advancement: Promotion opportunities should exist for the employee.
 Growth: The job should give employees the opportunity to learn new skills. This can happen either on the job or
through more formal training.
Hygiene factors include:
 Company policies: These should be fair and clear to every employee. They must also be equivalent to those of
competitors.
 Supervision: Supervision must be fair and appropriate. The employee should be given as much autonomy as is
reasonable.
 Relationships: There should be no tolerance for bullying or cliques. A healthy, amiable, and appropriate relationship
should exist between peers, superiors, and subordinates.

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  Work conditions: Equipment and the working environment should be safe, fit for purpose, and hygienic.
 Salary: The pay structure should be fair and reasonable. It should also be competitive with other organizations in the
same industry.
 Status: The organization should maintain the status of all employees within the organization. Performing meaningful
work can provide a sense of status.
 Security: It is important that employees feel that their job is secure and they are not under the constant threat of being
laid-off.
The Four Stats
In a general sense, there are four states an organization or team can find themselves in when it comes to Two Factor Theory.
1. High Hygiene and High Motivation : This is the ideal situation and the one which every manager should strive for.
Here, all employees are motivated and have very few grievances.
2. High Hygiene and Low Motivation: In this situation, employees have few grievances but they are not highly
motivated. An example of this situation is where pay and working conditions are competitive but the work isn‘t very
interesting. Employees are simply there to collect their salary.
3. Low Hygiene and High Motivation: In this situation, employees are highly motivated but they have a lot of
grievances. A typical example of this situation is where the work is exciting and really interesting but the pay and
conditions are behind competitors in the same industry.
4. Low Hygiene and Low Motivation: This is obviously a bad situation for an organization or team to find itself in. Here,
employees aren‘t motivated and the hygiene factors are not up to scratch.
 McGregor‘s Theory X and Theory Y
The first basically negative, labeled Theory X, and the other basically positive, labeled Theory Y.
 Theory X is based on the following assumptions:
1. People are by nature indolent. That is, they like to work as little as possible.
2. People lack ambition, dislike responsibility, and prefer to be directed by others.
3. People are inherently self-centered and indifferent to organisational needs and goals.
4. People are generally gullible and not very sharp and bright.
 On the contrary, Theory Y assumes that:
1. People are not by nature passive or resistant to organisational goals.
2. They want to assume responsibility.
3. They want their organisation to succeed.
4. People are capable of directing their own behaviour.
5. They have need for achievement.
 William Ouchi’s Theory Z
The result was Theory Z - a development beyond Theory X and Theory Y that blended the best of Eastern and Western
management practices. Theory Z stresses the need to help workers become generalists, rather than specialists.
 A strong company philosophy and culture: The company philosophy and culture need to be understood and
embodied by all employees, and employees need to believe in the work they‘re doing.
 Long-term staff development and employment: The organization and management team need to have measures and
programs in place to develop employees. Employment is usually long-term, and promotion is steady and measured. This
leads to loyalty from team members.
 Consensus in decisions: Employees are encouraged and expected to take part in organizational decisions.
 Generalist employees: Because employees have a greater responsibility in making decisions and understand all
aspects of the organization, they ought to be generalists. However, employees are still expected to have specialized
career responsibilities.
 Concern for the happiness and well-being of workers: The organization shows sincere concern for the health and
happiness of its employees and their families. It takes measures and creates programs to help foster this happiness and
well-being.
 Informal control with formalized measures: Employees are empowered to perform tasks the way they see fit, and
management is quite hands-off. However, there should be formalized measures in place to assess work quality and
performance.
 Individual responsibility: The organization recognizes the individual contributions but always within the context of the
team as a whole.

 Reinforcement Theory of Motivation

The theory of B.F. Skinner is based upon the idea that learning is a function of change in overt behavior. Changes
in behavior are the result of an individual's response to events (stimuli) that occur in the environment.
It is based on ―law of effect‖ Reinforcement theory of motivation overlooks the internal state of individual, i.e., the inner
feelings and drives of individuals are ignored by Skinner.

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There are four types of reinforcement: positive, negative, punishment, and extinction.
 Positive Reinforcement- This implies giving a positive response when an individual shows positive and required
behaviour.
 Negative Reinforcement- This implies rewarding an employee by removing negative / undesirable consequences.
Both positive and negative reinforcement can be used for increasing desirable / required behaviour.
 Punishment- It implies removing positive consequences so as to lower the probability of repeating undesirable
behaviour in future. In other words, punishment means applying undesirable consequence for showing undesirable
behaviour. For instance - Suspending an employee for breaking the organizational rules. Punishment can be equalized
by positive reinforcement from alternative source. The punishment is not liked and therefore to avoid it,
he or she will stop behaving in that manner.
 Extinction- It implies absence of reinforcements. In other words, extinction implies lowering the probability of
undesired behaviour by removing reward for that kind of behaviour.
 Expectancy Theory of Motivation
To summarize expectancy theory, consider this formula: Expectancy + Instrumentality + Valence = Motivation.
The expectancy theory was proposed by Victor Vroom of Yale School of Management in 1964. Vroom stresses and
focuses on outcomes, and not on needs unlike Maslow and Herzberg. The theory states that the intensity of a tendency to
perform in a particular manner is dependent on the intensity of an expectation that the performance will be followed by a
definite outcome and on the appeal of the outcome to the individual.
 Effort-performance relationship: What is the likelihood that the individual‘s effort be recognized in his performance
appraisal?
 Performance-reward relationship: It talks about the extent to which the employee believes that getting a good
performance appraisal leads to organizational rewards.
 Rewards-personal goals relationship: It is all about the attractiveness or appeal of the potential reward to the
individual.
Implications of the Expectancy Theory
1. The managers can correlate the preferred outcomes to the aimed performance levels.
2. The managers must ensure that the employees can achieve the aimed performance levels.
3. The deserving employees must be rewarded for their exceptional performance.
4. The reward system must be fair and just in an organization.
5. Organizations must design interesting, dynamic and challenging jobs.
6. The employee‘s motivation level should be continually assessed through various techniques such as questionnaire,
personal interviews, etc.
Blake and Mouton‘s Managerial Grid
The treatment of task orientation and people orientation as two independent dimensions was a major step in leadership
studies. Blake and Jane Mouton (1960s) proposed a graphic portrayal of leadership styles through a managerial
grid (sometimes called leadership grid).
The grid depicted two dimensions of leader behavior, concern for people (accommodating people‘s needs and giving
them priority) on y-axis and concern for production (keeping tight schedules) on x-axis, with each dimension ranging from
low (1) to high (9), thus creating 81 different positions in which the leader‘s style may fall.
1. Impoverished Management (1, 1): Managers with this approach are low on both the dimensions and exercise minimum
effort to get the work done from subordinates. The leader has low concern for employee satisfaction and work deadlines
and as a result disharmony and disorganization prevail within the organization. The leaders are termed ineffective wherein
their action is merely aimed at preserving job and seniority.
2. Task management (9, 1): Also called dictatorial or perish style. Here leaders are more concerned about production and
have less concern for people. The style is based on theory X of McGregor. The leader believes that efficiency can result
only through proper organization of work systems and through elimination of people wherever possible. Such a style can
definitely increase the output of organization in short run but due to the strict policies and procedures, high labour turnover
is inevitable.
3. Middle-of-the-Road (5, 5): This is basically a compromising style wherein the leader tries to maintain a balance between
goals of company and the needs of people. The leader does not push the boundaries of achievement resulting in average
performance for organization. Here neither employee nor production needs are fully met.
4. Country Club (1, 9): This is a collegial style characterized by low task and high people orientation where the leader gives
thoughtful attention to the needs of people thus providing them with a friendly and comfortable environment. The leader
feels that such a treatment with employees will lead to self-motivation and will find people working hard on their own.
However, a low focus on tasks can hamper production and lead to questionable results.
5. Team Management (9, 9): Characterized by high people and task focus, the style is based on the theory Y of McGregor
and has been termed as most effective style according to Blake and Mouton. The leader feels that empowerment,
commitment, trust, and respect are the key elements in creating a team atmosphere which will automatically result in high
employee satisfaction and production.

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 Unit 7:
Banking and Financial Institutions
Origin and Development Of Banking
 The history of banking begins with the first prototype banks of merchants of the ancient world, which made grain loans
to farmers and traders who carried goods between cities. This began around 2000 BC in Assyria and Babylonia.
 In olden times people deposited their money and valuables at temples, as they are the safest place available at that
time. The practice of storing precious metals at safe places and loaning money was prevalent in ancient Rome.
 However modern Banking is of recent origin. The development of banking from the traditional lines to the modern
structure passes through Merchant bankers, Goldsmiths, Money lenders and Private banks. Merchant Bankers were
originally traders in goods.
 The growth of Joint stock commercial banking was started only after the enactment of Banking Act 1833 in England.
 India has a long history of financial intermediation. The first bank in India to be set up on modern lines was in 1770 by
a British Agency House.
 The earliest but short-lived attempt to establish a central bank was in 1773. India was also a forerunner in terms of
development of financial markets.
 In the beginning of 18th century, British East India Company launched a few commercial banks. Bank of
Hindustan(1770) was the first Indian bank established in India.
 Later on, the East India Company started three presidency banks, Bank of Bengal(1806), Bank of Bombay(1840) and
Bank of Madras(1843) .
 The Reserve Bank of India (RBI) was originally established in 1935 by an Act promulgated by the Government of India,
but as a shareholder institution like the Bank of England.
 After India's independence, in the context of the need for close integration between its policies and those of the
Government, the Reserve Bank became a state - owned institution from January 1, 1949.
 In 1955, Imperial Bank of India was nationalized and renamed as State bank of India (SBI). The SBI started number of
branches in urban and rural areas of the country.
 In 1967, Govt introduced the concept of social control on banking sector.
 Nationalization of 14 commercial banks in 1969 was a revolution in the history of banking in India. Six more
commercial banks were nationalized in 1980.
Characteristics / Features of a Bank
1. Dealing in Money - Bank is a financial institution which deals with other people's money i.e. money given by depositors.
2. Individual / Firm / Company- A bank may be a person, firm or a company. A banking company means a company which
is in the business of banking.
3. Acceptance of Deposit - A bank accepts money from the people in the form of deposits which are usually repayable on
demand or after the expiry of a fixed period. It gives safety to the deposits of its customers. It also acts as a custodian of
funds of its customers.
4. Giving Advances - A bank lends out money in the form of loans to those who require it for different purposes.
5. Payment and Withdrawal- A bank provides easy payment and withdrawal facility to its customers in the form of cheques
and drafts, It also brings bank money in circulation. This money is in the form of cheques, drafts, etc.
6. Agency and Utility Services - A bank provides various banking facilities to its customers. They include general utility
services and agency services.
7. Profit and Service Orientation - A bank is a profit seeking institution having service oriented approach.
8. Ever increasing Functions - Banking is an evolutionary concept. There is continuous expansion and diversification as
regards the functions, services and activities of a bank.
9. Connecting Link - Bank acts as a connecting link between borrowers and lenders of money. Banks collect money from
those who have surplus money and give the same to those who are in need of money.
10. Banking Business - A bank's main activity should be to do business of banking which should not be subsidiary to any
other business.
11. Name Identity - A bank should always add the word "bank" to its name to enable people to know that it is a bank and
that it is dealing in money.
Importance of Banks
1. Banks mobilise small, scattered and idle savings of the people, and make them available for productive purposes
2. By offering attractive interests, Banks promote the habit of thrift and savings
3. By accepting savings, Banks provide safety and security to the surplus money
4. Banks provide convenient and economical means of payments

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 5. Banks provide convenient and economical means of transfer of funds
6. Banks facilitate the movement of funds from unused regions to useful regions
7. Banking help trade, commerce, industry and agriculture by meeting their financial requirements
8. Banking connects saving people and investing people.
9. Through their control over the supply of money, Banks influence the economic activities, employment, income level
and price level in the economy.

Types of Banks and Their Functions

 Commercial banks/Deposit banks
Banks accept deposits from public and lend them mainly for commercial purposes for comparatively shorter periods are called
Commercial Banks. They provide services to the general public, organisations and to the corporate community. They are oldest
banking institution in the organised sector. Commercial banks make their profits by taking small, short-term, relatively liquid
deposits and transforming these into larger, longer maturity loans. This process of asset transformation generates net income
for the commercial bank.
Features of Commercial banks are;
 They accept deposits on various accounts.
 Lend funds to organisations, trade, commerce, industry, small business, agriculture etc by way of loans, overdrafts and
cash credits.
 They are the manufacturers of money.
 The perform many subsidiary services to the customer.
 They perform many innovative services to the customers

 Industrial banks/Investment banks

Industrial banks are those banks which provide fixed capital to industries. They are also called investment banks,
as they invest their funds in subscribing to the shares and debentures of industrial concerns. They are seen in
countries like US, Canada, Japan, Finland, and Germany. In India industrial banks are not found. Instead, special
industrial finance corporations like IFC and SFC have been set up to cater to the needs of industries.
Features of Industrial Banks are:
 Participate in management.
 Advise industries in making right investment
 Advise govt. on matters relating to industries
 Agricultural banks
Agricultural banks are banks which provide finance to agriculture and allied sectors. It is found in almost all the countries. In
India, Co- operative banks are registered under the Co-operative Societies Act, 1912. They generally give credit facilities to
small farmers, salaried employees, small-scale industries, etc. Co-operative Banks are available in rural as well as in urban
areas.
Agricultural banks are of two types;
1. Agricultural co-operative banks: They provide short term finance to farmers for purchasing fertilizers, pesticides and
seeds and for the payment of wages.
2. Land Development Banks: They provide long term finance for making permanent improvement on land. They assist
to purchase machinery, equipment‘s, installation of pump sets, construction of irrigation works etc.
 Exchange banks
Exchange banks finances foreign exchange business (export, import business) of a country. Special exchange banks are
found only in some countries. The main functions of exchange banks are remitting money from one country to another country,
discounting of foreign bills, buying and selling gold and silver, helping import and export trade etc.
 Savings bank
Savings banks are those banks which specialise in the mobilisation of small savings of the middle and low income group. In
India, saving bank activities are done by commercial banks and post offices.
Features of savings banks are;
 Mobilise small and scattered savings
 Promote habit of thrift & savings
 Keep only small portion in hand and invest major part in govt. securities
 They do not lend to general public.

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  Central / National banks
It is the highest banking & monetary institution in a country. It is the leader of all other banks. Since it is occupying a central
position, it‘s known as Central Bank. It is operating under state‘s control and is not a profit motive organisation. Reserve Bank
of India (India), Bank of Canada (Canada), Federal Reserve System (USA) etc are the examples of Central Banks.
Main functions of a Central Bank are;
 Monopoly of currency issue
 Acts as banker to the govt.
 Serves as bankers‘ bank
 Act as controller of credit
 Custodian of nation‘s gold and foreign exchange reserve.
E-banking
 Online banking, also known as internet banking, e-banking or virtual banking, is an electronic payment system that
enables customers of a bank or other financial institution to conduct a range of financial transactions through the
financial institution's website.
 The online banking system will typically connect to or be part of the core banking system operated by a bank and is in
contrast to branch banking which was the traditional way customers accessed banking services.
 Fundamentally and in mechanism, online banking, internet banking and e-banking are the same thing.
Financial Regulators in India
Federal and state governments have a myriad of agencies in place that regulate and oversee financial markets and
companies. These agencies each have a specific range of duties and responsibilities that enable them to act independently of
each other while they work to accomplish similar objectives. Although opinions vary on the efficiency, effectiveness and even
the need for some of these agencies, they were each designed with specific goals and will most likely be around for some time.
With that in mind, the following article is a complete review of each regulatory body.
Need of Financial Regulation:-
 Market Confidence – to maintain confidence in the financial system
 Financial Stability – contributing to the protection and enhancement of stability of the financial system
 Consumer Protection – securing the appropriate degree of protection for consumers.

RBI (Reserve Bank of India) :

Established in April, 1935 in Calcutta, the Reserve Bank of India (RBI) later moved to Mumbai in 1937. After
its nationalization in 1949, RBI is presently owned by the Govt. of India. It has 19 regional offices, majorly in
state capitals, and 9 sub-offices. It is the issuer of the Indian Rupee. RBI regulates the banking and financial
system of the country by issuing broad guidelines and instructions.
Role of RBI
 Control money supply
 Monitor key indicators like GDP and inflation
 Maintain people‘s confidence in the banking and financial system by providing tools such as ‗Ombudsman‘
 Formulate monetary policies such as inflation control, bank credit and interest rate control
SEBI (Securities Exchange Board of India):
Securities Exchange Board of India (SEBI) was established in 1988 but got legal status in 1992 to regulate the
functions of securities market to keep a check on malpractices and protect the investors. Headquartered in
Mumbai, SEBI has its regional offices in New Delhi, Kolkata, Chennai and Ahmedabad.
Role of SEBI
 Protect the interests of investors through proper education and guidance
 Regulate and control the business on stock exchanges and other security markets
 Stop fraud in capital market
 Audit the performance of stock market
Insurance Regulatory and Development Authority of India (IRDAI):
IRDAI is an autonomous apex statutory body for regulating and developing the insurance industry in India. It
was established in 1999 through an act passed by the Indian Parliament. Headquartered in Hyderabad,
Telangana, IRDA regulates and promotes insurance business in India.
Role of IRDAI
 To protect the interest of and ensure just treatment to insurance policy holders.

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  To encourage and ensure the systematic growth of the insurance industry so as to benefit the common man and help
in bringing economic growth.
 To set, promote, monitor and apply high standards of integrity, fair dealing, financial viability and capability of those it
regulates.
 To ensure clarity, preciseness, transparency while dealing with the insurance policy holder.
 To take suitable steps against circumstances where set standards do not prevail or inappropriately enforced.
Forward Market Commission of India (FMC):
Headquartered in Mumbai, FMC is a regulatory authority governed by the Ministry of Finance, Govt. of India. It is
a statutory body, established in 1953 under the Forward Contracts (Regulation) Act, 1952. The commission
allows commodity trading in 22 exchanges in India. The FMC is now merged with SEBI.
Pension Fund Regulatory and Development Authority (PFRDA):
Established in October 2003 by the Government of India, PFRDA develops and regulates the pension sector in
India. The National Pension System (NPS) was launched in January 2004 with an aim to provide retirement
income to all the citizens. The objective of NPS is to set up pension reforms and inculcate the habit of saving for
retirement amongst the citizens.

NABARD (National Bank for Agriculture and Rural Development)

This national bank was established in 1982 by a Special Act of the Parliament, with a mandate to
uplift rural India by facilitating credit flow in agriculture, cottage and village industries, handicrafts and small-
scale industries.
Role of NABARD:
 It is an apex institution which has power to deal with all matters concerning policy, planning as well as operations in
giving credit for agriculture and other economic activities in the rural areas.
 it is a refinancing agency for those institutions that provide investment and production credit for promoting the several
developmental programs for rural development.
 It is improving the absorptive capacity of the credit delivery system in India, including monitoring, formulation of
rehabilitation schemes, restructuring of credit institutions, and training of personnel.
 It co-ordinates the rural credit financing activities of all sorts of institutions engaged in developmental work at the field
level while maintaining liaison with Government of India, and State Governments, and also RBI and other national level
institutions that are concerned with policy formulation.
 It prepares rural credit plans, annually, for all districts in the country.
 It also promotes research in rural banking, and the field of agriculture and rural development.
Functions of NABARD:
 NABARD gives high priority to projects formed under IRDP.
 It provides refinance for IRDP accounts in order to give highest share for the support for poverty alleviation programs
run by IRDP.
 Other than the activities included under IRDP, it also makes the service area plan, to provide backward and forward
linkages and also infrastructural support.
 NABARD also prepares guidelines for promotion of group activities under its programs and provides 100% refinance
support for them.
 It is making efforts to establish linkages between Self-help Group(SHG) that are organized by voluntary agencies for
poor and needy in rural areas and other official credit agencies.
 It refinances to the complete extent for those projects that are taken under the ‗National Watershed Development
Programmed‗and the ‗National Mission of Wasteland Development‗.
 It also has a system of District Oriented Monitoring Studies, under which, study is conducted for a cross section of
schemes that are sanctioned in a district to various banks, to ascertain their performance and to identify the constraints
in their implementation, It also initiates appropriate action to remedy them.
 It also supports Vikas volunteer Vahini programs which offer credit and development activities to poor farmers.

SIDBI (Small Industries Development Bank of India)

In order to promote small scale industries in the country, a special Act was passed in Parliament
in April 1990 for starting of SIDBI. SIDBI is a wholly owned subsidiary of IDBI. It is providing
assistance to all those institutions which are promoting small scale industries.

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OBJECTIVES OF SIDBI
 To promote marketing of products of small scale sector.
 To upgrade technology and also undertaking modernization of small scale units.
 To provide more financial assistance to small scale ancillary and tiny sector.
 To encourage employment oriented industries.
 To coordinate all the other institutions involved in the promotion of small scale industries.
Functions of SIDBI
 SIDBI refinances loans extended by the primary lending institutions to small scale industrial units, and also provides
resources support to them.
 SIDBI discounts and rediscounts bills arising from sale of machinery to or manufactured by industrial units in the small
scale sector.
 To expand the channels for marketing the products of Small Scale Industries (SSI) sector in domestic and international
markets.
 It provides services like leasing, factoring etc. to industrial concerns in the small scale sector.
 To promote employment oriented industries especially in semi-urban areas to create more employment opportunities
and thereby checking migration of people to urban areas.
 To initiate steps for technological up-gradation and modernisation of existing units.
 SIDBI facilitates timely flow of credit for both term loans and working capital to SSI in collaboration with commercial
banks.
 SIDBI Co-Promotes state level venture funds in association with respective state government.
 It grants direct assistance and refinance loans extended by primary lending institutions for financing exports of
products manufactured by small scale units.

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 Unit 8:
Marketing Management

Marketing management is the art and science of choosing target markets and building profitable relationships with them. The
aim is to find, attract, keep and grow the targeted customers by creating and delivering superior customer value.
There are five alternative concepts that companies use to carry out their marketing strategy.
1. The production concept: the idea that consumers will favour products that are available and highly affordable and
that the organisation should therefore focus on improving production and distribution efficiency.
2. The product concept: the idea that consumers will favour products that offer the most quality, performance, and
features and that the organisation should therefore devote its energy to making continuous product improvements.
3. The selling concept: the idea that consumers will not buy enough of the firm‘s product, unless it undertakes a large-
scale selling and promotion effort.
4. The marketing concept: the idea that achieving organisational goals depends on knowing the needs and wants of
target markets and delivering the desired satisfactions better than competitors do. It can be regarded as an ―outside-in
view‖.
5. The societal marketing concept is the idea that a company‘s marketing decisions should consider consumer wants,
the company‘s requirements, consumers‘ long-term interests and society‘s long-term interests. Companies should
deliver value in a way that maintains consumers and society‘s well-being.
Designing the business portfolio also means looking at future businesses. The product/market expansion grid is a
portfolio-planning tool for identifying company growth opportunities through:
 Market penetration: company growth by increasing sales of current products to current market segments without
changing the product.
 Market development: company growth by identifying and developing new market segments for current company
products.
 Product development: company growth by offering modified or new products to current market segments.
 Diversification: company growth through starting up or acquiring businesses outside the company‘s current products
and markets.
Companies also need strategies for downsizing, which means reducing the business portfolio by eliminating products or
business units that are not profitable or that no longer fit the company‘s overall strategy.
Marketing strategy
Marketing strategy is the marketing logic by which the company hopes to create customer value and achieve profitable
customer relationships. The company must choose which customers to serve and how to serve them. This process involves
four steps:
1. Market segmentation: dividing a market into distinct groups of buyers who have different, needs, characteristics or
behaviour and who might require separate products or marketing programmes. A market segment is a group of
consumers who respond in a similar way to a given set of marketing efforts.
2. Market targeting is the process of evaluating each market segment‘s attractiveness and selecting one or more
segments to enter.
3. Positioning is arranging for a product to occupy a clear, distinctive and desirable place relative to competing products
in the minds of consumers.
4. Differentiation is actually differentiating the market offering to create superior -customer value.
Managing the marketing process requires four marketing management functions.
The first is marketing analysis, starting with a SWOT analysis. A SWOT analysis is an overall evaluation of the company‘s
strengths (S – internal capabilities), weaknesses (W – internal limitations), opportunities (O – external factors that can
be profitable) and threats (T – external factors that might challenge the company).
Secondly, marketing planning involves choosing the right marketing strategies.
Third is marketing implementation: turning marketing strategies and plans into marketing actions to accomplish strategic
marketing objectives.
And finally, there is marketing control: measuring and evaluating the results of marketing strategies and plans and taking
corrective action to ensure that the objectives are achieved. Operating control refers to checking the performance against the
annual plan, while strategic control involves looking at the match between strategies and opportunities.
The buyer decision process has five stages.
1. Need recognition is the first stage, in which the consumer recognises a problem or need.
2. Information search is the stage in which the consumer is aroused to search for more information, the consumer may
simply have heightened attention or may go into active information search. Information can be obtained from personal
sources, commercial sources, public sources and experiential sources.
3. Evaluation of alternatives. Alternative evaluation is the process in which the consumer uses information to evaluate
alternative brands in the choice set.
4. Purchase decision is the buyer‘s decision about which brand to purchase. Both the attitude of others and unexpected
situational factors can influence the ultimate decision.
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 5. Post-purchase behaviour is the stage of the buyer decision process in which consumers take further action after
purchase based on their satisfaction or dissatisfaction with a purchase. Cognitive dissonance is buyer discomfort
caused by post-purchase conflict.
There are multiple participants in the business buying process. The buying centre are all the individuals and units that play a
role in the purchase decision-making process.
- Users are members of the buying organisation who will actually use the purchased product or service.
- Influencers are people in an organisation‘s buying centre who affect the buying decision, they often help define
specifications and also provide information for evaluating alternatives.
- Buyers are the people in an organisation‘s buying centre who make an actual purchase.
- Deciders are people who have formal or informal power to select or approve the final suppliers.
- Gatekeepers are people in an organisation‘s buyer centre who control the flow of information to others.
The buying centre is a set of buying roles assumed by different people.
The business buying process
The business buying process has eight stages.
1. Problem recognition: someone in the company recognises a problem or need that can be met by acquiring a good or
a service.
2. General need description is the stage in the business buying process in which a buyer describes the general
characteristics and quantity of a needed item.
3. Product specification is the stage in the business buying process in which the buying organisation decides on and
specifies the best technical product characteristics for a needed item.
4. Supplier search is the stage in which the buyer tries to find the best vendors.
5. Proposal solicitation is the stage in which the buyer invites qualified suppliers to submit proposals.
6. Supplier selection is the stage in which the buyer reviews proposals and select a supplier or suppliers.
7. Order-routine specification is the stage in which the buyer writes the final order with the chosen supplier(s), listing
the technical specifications, quantity needed, expected time of delivery, return policies and warranties.
8. Performance review is the stage in which the buyer assesses the performance of the supplier and decided to
continue, modify or drop the arrangement.
Market segmentation
Market segmentation means dividing a market into smaller segments with the distinct needs, characteristics or behaviour that
might require separate marketing strategies or mixes. There are different ways to segment a market:
1. Geographic segmentation: dividing a market into different geographical units, such as nations, states, regions,
counties, cities or even neighbourhoods.
2. Demographic segmentation: dividing the market into different segments based on variables such as age, gender,
family size, family life cycle, income, occupation education, religion, race, generation and nationality. Age and life-cycle
segmentation is dividing a market into different age and life-cycle groups. Gender segmentation means dividing a
market based on gender, while income segmentation divides a market based on income levels.
3. Psychographic segmentation: dividing a market into different segments based on social class, lifestyle or personality
characteristics.
4. Behavioural segmentation: dividing a market into segments based on consumer knowledge, attitudes, uses or
responses to a product. This can be done via
5. Occasion segmentation: dividing the market according to occasions when buyers get the idea to buy, actually making
their purchase or use the purchased items.
6. Benefit segmentation: dividing the market according to the benefits that customers seek from the product. Markets
can also be segmented based on user states, usage rate and loyalty status.
Market targeting
Market targeting is the process of evaluating each market segment‘s attractiveness and selecting one or more
segments to enter. When evaluating segments, a marketer must look at segment size and growth, segment structural
attractiveness and company objectives and resources. A target market consists of a set of buyers sharing common needs or
characteristics that the company decides to serve. There are several forms of market targeting.
- Undifferentiated (mass) marketing: a marketing coverage strategy in which a firm decides to ignore market segment
differences and go after the whole market with one offer.
- Differentiated marketing or segmented marketing: a market-coverage strategy in which a firm decides to target
several market segments and designs separate offers for each.
- Concentrated marketing (niche): a market-coverage strategy in which a firm goes after a large share of one or a few
segments or niches.
Differentiation and positioning
Differentiation means differentiating the market offering to create superior customer value. Positioning is arranging
for a market offering to occupy a clear, distinctive and desirable place relative to competing products in the mind of target
consumers. A product position is the way the product is defined by consumers on important attributes: the place the product
occupies in the consumers‘ minds relative to competing products. Perceptual positioning maps show consumer perceptions of
brands versus competing products.

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 The value proposition is the full positioning of a brand: the full mix of benefits on which it is positioned. There are multiple
possible value propositions, of which five can be ―winning‖:
1. More for more: upscale products and higher prices.
2. More for the same: used to attack competitors by offering quality at a low price.
3. The same for less: a good deal.
4. Less for much less: a less optimal performance for a low price.
5. More for less: ultimately winning, but difficult to actually achieve.
Consumer and industrial products
Products and services fall into two broad classes: consumer products and industrial products. Consumer products are
products bought by final consumers for personal consumption.
- Convenience products are a type of consumer product that consumers usually buy frequently, immediately and with
minimal comparison and buyer effort.
- Shopping products are consumer products that the customer, in the process of selecting and purchasing, usually
compares on such attributes as suitability, quality, price and style.
- Speciality products are a type of consumer product with unique characteristics or brand identification for which a
significant group of buyers is willing to make a special purchase effort.
- Unsought products are consumer products that the consumer either doesn‘t know about, or knows about but does not
normally consider buying.
Pricing strategies can be challenging. There are two broad strategies.
 Market-skimming pricing (price skimming) means setting a high price for a new product to skim maximum revenues
layer by layer from the segments willing to pay the high price, the company makes fewer but more profitable sales.
 Market-penetration pricing means setting a low price for a new product to attract a large number of buyers and a
large market share.
There are five product mix pricing situations.
1. Product line pricing: setting the price steps between various products in a product line based on cost differences
between the products, customer evaluations of different features and competitor‘s prices.
2. Optional product pricing: the pricing of optional or accessory products along with a main product.
3. Captive product pricing: setting a price for products that must be used along with a main product.
4. By-product pricing: setting a price for by-products to make the main product‘s price more competitive.
5. Product bundle pricing: combining several products and offering the bundle at a reduced price.
There are also seven price adjustment strategies that can be used.
1. Discount: a straight reduction in price on purchases during a stated period of time or of larger quantities. Allowance is
promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer‘s products
in some way.
2. Segmented pricing: selling a product or service at two or more prices, where the difference in prices is not based on
costs. Customer-segment pricing involves different types of customers paying different pricing. Product-form
pricing involves different prices for different versions of the same product. Location-based pricing involves different
prices for different locations, while time-based pricing involves different prices for different moments in time.
3. Psychological pricing: pricing that considers the psychology of prices, not simply the economics, the price says
something about the product. Reference prices are prices that buyers carry in their minds and refer to when they look
at a given product.
4. Promotional pricing: temporarily pricing products below the list price, and sometimes even below cost, to increase
short-run sales.
5. Geographical pricing: setting prices for customers located in different parts of the country or world. This can be FOB-
origin pricing: a geographical pricing strategy in which goods are placed free on board a carrier, the customer pays
the freight from the factory to the destination.
6. Uniform-delivered pricing: a geographical pricing strategy in which the company charges the same price plus freight
to all customers, regardless of their location.
7. Zone pricing: the company sets up two or more zones. All customers within a zone pay the same total price, the more
distant the zone, the higher the price.
8. Base-point pricing: a pricing strategy in which the seller designates some city as a base point and charges all
customers the freight cost from that city to the customer.
9. Freight-absorption pricing is a strategy in which the seller absorbs all or part of the freight charges to get the desired
business.
10. Dynamic pricing means adjusting pricing continually to meet the characteristics and needs of individual customers
and situations.
11. International pricing: charging different pricing for customers in different countries.

Consumerism is an organised movement of citizens and government agencies to improve the rights and power of buyers
in relation to sellers. Traditional seller rights include:
 The right to introduce any product.
 The right to charge any price for a product, provided there is no discrimination.
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  The right to send any amount on promotion, if it is not unfair.
 The right to use any product message, provided it is not misleading.
 The right to use buying incentive programmes, if they are not misleading.
Traditional buyers rights include:
 The right not buy a product that is offered for sale.
 The right to expect the product to be safe.
 The right to expect the product to perform as claimed.
Consumer advocates also call for additional consumer rights:
 The right to be well informed.
 The right to be protected against questionable products.
 The right to influence products and marketing practices in ways that improve quality of life.
 The right to consume in a way that will preserve the world for future generations.
There are five sustainable marketing principles:
1. Consumer-oriented marketing: a principle of sustainable marketing that holds a company should view and organise
its marketing activities from the consumer‘s point of view.
2. Customer value marketing: a principle of sustainable marketing that holds a company should put most of its
resources into consumer value building marketing investments.
3. Innovative marketing: a principle of sustainable marketing that requires a company to seek real product and
marketing improvements.
4. Sense-of-mission marketing: a principle of sustainable that holds a company should define its mission in broad social
terms rather than narrow products terms.
5. Societal marketing: a principle of sustainable marketing that holds a company should make marketing decisions by
considering consumers‘ wants the company‘s requirements, consumer‘s long-term interests and society‘s long term
interests.
Marketing Management Philosophies
1. Production concept: Emphasis on Quantity
Focus: Availability and Affordability.
2. Product Concept: Emphasis on Quality
Focus: Continuously improving quality, incorporating new factors, product improvement.
3. Sales Concept: Emphasis on Sales volume
Focus: Attracting and persuading customers, aggressive promotional techniques.
4. Marketing Concept: Identify a need and fill it.
Focus: Customer satisfaction
5. Societal Marketing Concept: Extension of marketing concept i.e. customer satisfaction with welfare of the society
Consider social, ethical and ecological aspects of marketing.
Functions of Marketing/Marketing activities
1. Marketing research : Gathering and analyzing marketing information i.e. what the customers want to buy, when they
are likely to buy, in what quantities do they buy, from where do they buy etc.
2. Marketing planning: Specific plan for increasing the level of production, promotion of the products etc. and specify the
action programmes to achieve these objectives.
3. Product designing and development: Marketer must take decision like, what-product, which model/size?, brand
name?, Packaging?, quality level? So that Customer needs are satisfied
4. Standardisation and Grading: Standardisation refers to producing goods of predetermined specifications which help
in uniformity and consistency. It reduces the need of inspection, testing and evaluating the products.Grading refers to
the process of classifying the products into different groups. Grading is done for goods which cannot be produced
according to predetermined specifications i.e. agricultural products.
5. Packaging/Labelling: designing the package for the product and put label on the package.
6. Branding: Creating a distinct identity of the product from that of competitors e.g. Videocon washing machine, Usha
Fans, Lux Soap etc.
7. Pricing of products: setting pricing objectives, determining pricing strategies, price level etc.
8. Customer support service: After sales services.
9. Promotion: Informing the customer about the product and persuading the customer to buy the product.
10. Physical distribution: Decision regarding channels of distribution and physical movement of products.
11. Transportation: Physical movement of goods.
12. Storage and Warehousing: Necessary to maintain smooth flow of production and supply.
Marketing mix
A set of marketing tools used by a firm to pursue its marketing objectives in a target market. Product, Price, Place and
Promotion are the important elements of marketing mix which are popularly known as Four P‘s of marketing.
Elements of Marketing Mix
I - PRODUCT MIX
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 Meaning and Concept of Product: Product is anything that can be offered to a market to satisfy a want or need.
Product mix refers to a combination of various features relating to the product or service like quality, size, range,
package, warranty etc.

PRODUCT MIX – Three components are - Branding, Packaging, Labelling.

1. Branding- Giving a name/a sign; a symbol etc. to a product eg.: Apple Audi
Qualities of a Good Brand Name
1. Simple and Short : A brand name should be simple and short as Tata, Bata
2. Easily Pronounceable : A brand names should be easily pronounceable as Lux, Dalda.
3. Suggestive : Brand name should be self-explanatory, suggesting the inherent quality of the product as Ujjala suggests
more whiteness.
4. Distinctive: Brand name should be so distinctive that it highlights itself in the group of other brand names such as :
Tide, Perk.
Advantages of Branding
1. Brand name helps in advertising it in an easier way.
2. Brand name establishes permanent identity of the product.
3. Branded products can be easily identified by consumers.
4. Brand name promotes repurchasing.
5. Branding ensures a particular level of quality of the product: If there is any deviation in the quality the customers
can make a complaint to the manufacturer.
2. Packaging- Act of designing and producing the container or wrapper of a product. Good packaging often helps in selling the
product so it is called a silent salesman.
Levels of Packaging
1. Primary Package : refers to the product‘s immediate container e.g. toffee in a wrapper, a match box.
2. Secondary Package: refers to additional layers of protection that are kept till the product is ready for use e.g. a
Colgate toothpaste usually comes in a card board box.
3. Transportation Package: refers to further packaging components necessary for storage, identification and
transportation e.g. package of toffees are put into corrugated boxes for storing at a manufacturer‘s warehouse and for
transportation.

PACKAGING
Group of activities related to the designing and production of the container in which the product is packed.
It can be different levels:

Functions of Packaging
1. Product Identification: Packaging helps in identification of the product.
2. Product Protection: The main function of the packing is to provide protection to the product from dirt, insects and
breakage.
3. Convenience: It provides convenience in carriage, stocking and in consumption.
4. Product Promotion: Packaging simplifies the work of sales promotion.
Advantages of Packaging
1. Rising standards of Health and Sanitation : The people are becoming health conscious so they like to buy packed
goods. The reason is that the chances of adulteration in such goods are minimised.
2. Innovational Opportunity: With the increasing use of packaging more innovational opportunity becomes available in
this area for the researcher.
3. Product Differentiation: Packaging is helpful in creating product differentiation. The colour, material and size of the
package makes differences in the quantity of the product.
3. Labelling-
Labelling means putting identification marks on the package. Label is a carrier of information & provides
information like - name of the product, name of the manufacturer, contents of the product, expiry and manufacturing
date, general information for use, weight etc.
Labels perform following functions:

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1. Identify the product: - It helps the customers to identify the product from the various
types available. For example: We can easily identify a Cadbury chocolate from the
various chocolates by purple colour of its label.
2. Describe the product and specify its contents: The manufacturer prints all the information
related to the product.

3. Grading of products: With the help of

label, products can be graded in different
categories for example: Brook Bond Red
Label, Brook Bond Yellow Label, Green
Label etc.

4. Helps in promotion of products: - Attractive and colourful labels excite the customers and induce
them to buy the products. For example :- 50% extra free mentioned on detergent etc.

5. Providing information required by law :- There is legal

compulsion to print batch no., contents, max retail price, weight/volume on all the
products and statutory warning on the packet of cigarettes, ―Smoking is injurious to
health‖: In case of hazardous/poisonous material appropriate safety warnings need to
be put.

II. PRICE MIX

Meaning and concept of Price: Price may be defined as the amount of money paid by a buyer (or received by a seller) in
consideration of the purchase of a product or a service. Pricing is crucial for manufacturers, customers and intermediaries. A
customer will buy a product only when he perceives that value or a product is at least equal to value of money, which he has to
pay in the form of price. Before framing any pricing policy following factors should be considered:
1. Pricing Objectives
(a) to maximise profits in the short term-tend to charge maximum price.
(b) Obtain large share of the market i.e., by maximising sales it will charge lower price.
(c) Firm is operating in the competitive market it may charge low price for it.
2. Cost of Production : Needs to be fully realised before fixing prices.
3. Demand : High Demand and less supply may permit increase in price while low demand and more supply may not
allow increase in price.
4. Competition in Market : Prices of competitors need to be considered before fixing prices.
5. Government Policies: Products regulated by government pricing regulations need to be priced as per government
policies.
III. Place Mix/Physical Distribution Mix
Covers all the activities required to physically move goods from manufacturers to the customers Important activities
include:-
1. Order Processing : Accurate & speedy order processing leads to profit & goodwill & vice versa.
2. Transportation : Add value of the goods by moving them to the place where they are required.
3. Inventory control : Additional demand can be met in less time, the need for inventory will also be low.
4. Ware housing : Need arises to fill the gap between the time when the product is produced & time when it is required for
consumption.
 Channels of Distribution
Direct Channel — Manufacturer-Customer
Indirect Channel —
1. Manufacturer-Retailer-Customer.
2. Manufacture-wholesaler-Retailer-customer.
3. Manufacture → Agent → Wholesaler → Retailer → Customer

Direct Channel

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Factors Determining Choice of Channels of Distribution
Choice of appropriate channel of distribution is a very important marketing decision, which affects the performance of an
organisation. Whether the firm will adopt direct marketing channels or long channels involving a no. of intermediaries is a
strategic decision.
Factors Determining Choice of Channels of Distribution
Market related Factors Product Related Factors Company related factor
1. Size of the market no of customers 1. Nature of product technical (made 1. Financial strength of the company -
more customers more to order) direct selling. strong direct /own channel - weak -
Intermediates middleman required.
2. Perishable (direct/short) channels),
2. Geographical concentration Nonperishable –Long Channels. 2. Degree of control Greater control-
concentrated buyers direct selling, Short / direct channel, less control -
spread customers more 3. The unit value of the product costly long channels.
intermediaries. direct selling, Low long channels.
3. Management Sufficient knowledge -
3. Size or order - i.e. quantity of 4. Products' Complexity Complex direct selling & Vice versa.
purchase Less – more intermediaries products direct selling, Non- Complex-
More - direct selling long Channels
IV. Promotion Mix
It refers to combination of promotional tools used by an organisation to communicate and persuade customers to buy
its products.
Elements of Promotion Mix

Tools/Elements of Promotion Mix

1. Advertising: Most commonly used tool of promotion. It is an impersonal form to communication, which is paid by the
marketers (sponsors) to promote goods and services. Common mediums are newspaper, magazine, television & radio.
Role or Importance of Advertising
1. Enhancing customer satisfaction and confidence.
2. Helpful in increasing the demand of existing product.
3. Helpful to increase the market share.
4. Helpful in generating more employment.
5. Helpful in the economic development of the country.
6. Knowledge of various product.
7. No fear of exploitation.
Objections against Advertising : Though advertising is one of the most frequently used medium of promotion of goods &
services but it attracts a lot of criticism/objections against it, which are as follows:
1. Increased Product Price : Which is ultimately added to product cost, manufacturers pass this cost to ultimate
customers.
2. Confusion to Customers : The number of advertisements shown for a single product having different brands confuse
the customers and it becomes very difficult for them to make choice.
3. Encouraging sale of Inferior Products : In many cases some product features are over emphasized.
4. Advertisement of Bad Tastes : Events, models degrade the human dignity.
5. Undermines Social Values and Promotes Materialism: It induces the customers to buy more and more products.
Because of emphasis on materialism, social relationships are distorted which brings social disorder. In the changed
economic environment of globalisation, advertising is considered as an important tool of marketing. It helps a firm in
effectively communicating with its target market, increasing the sale and thereby reducing the per unit cost of
production. It is not a social waste rather it adds value to the social cause by giving a boost to production and
generating employment.
2. Personal Selling
Personal selling consists of contacting prospective buyers of product personally i.e face to face interaction between
seller and buyer for the purpose of sale.
Features of the Personal Selling
1. Personal contact is established under personal selling.
2. Oral conversation.
3. Quick solution of queries.
4. Receipt of additional information.
5. Development of relationship with the prospective customers which may become important in making sale.
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Qualities of a Good Salesman
1. Physical Qualities : Physical qualities include
personality health, stamina and tolerance. A
salesman can instantly connect with the customers
if he is good looking and smart.
2. Mental Qualities : These include mainly skills,
mental alertness, imagination and self confidence.
3. Technical Qualities : He should have full and
updated knowledge about the product he is selling-
Its features, price and variety available. He should
be aware of the nature of work carried on by the
firm, he is working for.
4. Good communication skills : He should be able
to develop a good conversation with the customer.
He should be confident while he is communicating
and should be able to answer all the queries of the
customer satisfactorily.
5. Honesty : It is a very important quality of a good salesman. In order to establish the goodwill of firm he must be honest
and sincere in performing his duty. A salesman who resorts to selling inferior goods, charging higher rates, providing
wrong information, giving exaggerated claims etc. will cause a decline in goodwill of the firm in the long run.
6. Courtesy : A Salesman who is polite and courteous generates buyer‘s confidence selling product becomes easy for
him.
7. Persistent : ―Never give up‖, is the spirit that a salesman should have. Making the customer buy maximum amount of
a product is the ultimate task given to him.
8. Capacity to inspire trust : The salesman should have the convincing power to develop the belief in a customer that
the product he is buying is the best product in the market.
3. Sales Promotion
Short term incentives designed to encourage the buyers to make immediate purchase of a product/service.
Techniques:
1. Rebate : Special price to clear off excess inventory.
2. Discounts : Price reduced to induce buyers to buy more.
3. Sampling : Free sample of a product to customers to try
product & learn about it.
4. Lucky draw : Lucky draw coupon e.g. purchase an easy
product & win a car etc.
5. Full Finance @ 0% Easy financing schemes.
6. Contests : Competitive events involving application of
skills or luck.
7. Product Combination : Offering another product as gift
along with the purchase of a product.
8. Instant draws and assigned gift : Scratch a card and
instantly win a prize with the purchase of a TV, T. Shirt,
Refrigerator etc.
9. Quantity Gift : Offering extra quantity of the product e.g.,
Buy three LUX soaps and get one free.
10. Refunds: Refunding a part of price paid by customer on
some proof of purchase.
11. Usable benefit: Purchase goods worth ` 5000 and get
two movies tickets.
Public Relations
―The Chartered Institute of Public Relations‖ defines Public Relations as `a strategic management function that
adds value to an organization by helping it to manage its reputation‘ Public relations covers a wide range of tactics, usually
involve providing information to independent media sources in the hope of gaining favorable coverage. It also involves a mix of
promoting specific products, services and events and promoting the overall brand of an organization, which is an ongoing tact.
Public Relation tools include:
1. Press Release: A press release is an announcement of an event, performance, or other newsworthy item that is
issued to the press by a public relations professional of an organization. It is written in the form of a story with an
attractive heading so that the media quickly grasp and circulates the message through newspaper/radio/television/
internet.
2. Press Kits: It is a comprehensive package of information outlining a company‘s products and services most frequently
sent to members of the press. It includes
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  A brief company biography.
 Information of senior management.
 Comments from customers.
 Reprints of newspaper and magazine articles.
 Photos of products.
3. Brochures: It is a booklet published by the organization which contains the organization‘s background, its ethics,
vision, mission, its past, present and future projects, its CISP, etc. E.g.: brochure given to new employees.
4. Newsletter: It is a printed publication produced at regular intervals focussing on a particular set of people. The content
of a newsletter is presented in a writing style that is less formal and letter-like. For example, a newsletter published by
a college consists of information about activities conducted during a particular period, special achievements by
students or teachers, etc.
5. Events and Press support: Special events are acts of news development. The ingredients are time, place, people,
activities, drama, showmanship; one special event may have many subsidiary events, such as luncheons, banquets,
contests, speeches, and many others as part of the buildup.
6. Conferences and Seminars: Conferences and seminars are conducted for making people aware about the
organization. For example travel companies generally call prospective clients and offer travel packages. The members
are contacted through telephones and asked to attend seminar.
7. Websites: A website acts as a window for the outside world to know an organization. So it is designed not just to serve
as a resource for members, but also to present a positive message to non-members who are browsing through.

McKinsey 7-S Model

It can help you to improve the performance of your organization, or to determine the best way to implement a proposed
strategy.
 Hard Elements: Strategy, Structure, Systems
 Soft Element: Shared Values, Skills, Style, Staff
1. Strategy: this is your organization's plan for building and maintaining a competitive advantage over its competitors.
2. Structure: this how your company is organized (that is, how departments and teams are structured, including who
reports to whom).
3. Systems: the daily activities and procedures that staff use to get the job done.
4. Shared values: these are the core values of the organization, as shown in its corporate culture and general work ethic.
They were called "superordinate goals" when the model was first developed.
5. Style: the style of leadership adopted.
6. Staff: the employees and their general capabilities.
7. Skills: the actual skills and competencies of the organization's employees.
Advantages
 Emphasis on a firm‘s strategy implementation.
 Organizational efectiveness was not dependent on just strategy and structure.
 Comprehensive because the analyst must consider each of the seven constructs, and how they interact.
 First model to meld the ―hard‖ and ―soft‖ aspects of the enterprise.
 Emphasizes coordination of key tasks.Model was also one of the first to help connect academic research with
managerial practice. (Fleisher & Bensoussan, 2007)
Disadvantages
 May miss some fine-grained areas in which gaps in strategy conception or execution can arise.
 Little empirical support for the model or of its originator‘s conclusions.
 Remains difficult to properly assess the degree of fit.
 Difficult for analysts to explain what should be done for implementation using the model.
 The 7S is mostly a static model (Fleisher & Bensoussan, 2007)
Limitations
 Ignores the importance of the external environment and depicts only the most crucial elements in this model for
explaining the interdependence of the key processes and factors within the organization.
 The model does not explain the concept of organizational effectivness or performance explicitly.
 The model has been criticized for lacking enough empirical evidences to support to support their explanation.
 The model is considered to be more of a static kind of model.
 It is rather difficult to assess the degree of fit with accuracy successfully.
 Criticized for missing out the intricate or finer areas in which the actual gaps in conceptualization and execution of
strategy may arise.

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 Unit 9:
Legal Aspects of Business

Law of Contracts
Objectives:
1. Understand meaning of the terms ‗agreement‘ and ‗contract‘ and note the distinction between the two.
2. Note the essential elements of contract.
3. Be clear about various types of contracts.
4. Understand the concept of offer and acceptance and rules of communication.
5. To know the capacity of persons to enter into contract.
6. To understand the role of ―Consideration‖ in contracts
7. To know all about how contracts can be discharged and the remedies for breach of contract.
8. To understand the special contracts.
The Indian Contract Act 1872
The Indian contract act was enacted in the year 1872. The Act deals with
1. The general principles of the law of contracts: The definition of contract, capacity to enter into contracts, free
consent, consideration, discharge of contracts and the remedies for breach of a contract.
2. Special Contracts: Contract of Indemnity and Guarantee, Contract of Bailment and Pledge, and Contract of Agency.
 Contracts
Section 2 (h) of the Act states that ―an agreement enforceable by law is a contract".
Contract = Agreement + enforcement by law
 Agreement:
Sec.2 (e) defines an Agreement as "every promise and every set of premises forming consideration for each
other‖.
 Promise:
Sec.2 (b) Defines Promise as follows: ―When the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. Proposal when accepted becomes a promise" An offer / proposal when
accepted becomes a ―Promise‖. An agreement consists of an offer by one party and its acceptance by the other. A
person cannot enter into an agreement with himself.
Agreement = offer + Acceptance
For an agreement to be regarded as a Contract. It must give rise to a legal obligation. Social, moral or –
religious agreements do not create any legal obligation (Balfour Vs. Balfour).
There can be an agreement only when they understand the same thing in the same manner. The minds of the
parties should meet (consensus an item / Identity of Minds).
Essential Elements of a valid contract:
The following are the Essential Elements of a Valid Contract
According to Section 10, ―All agreements are contracts if they are made by the free consent of parties competent to
contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. ―The following
essential elements must coexist in order to make a valid contract.
A Valid Contract is a Contract, which binds both the parties to it. Both the parties have rights and obligations under a
Valid Contract. The essential ingredients of a valid contract are as follows.
1. Two competent parties Sections 11 and 12
2. Valid offer
3. Valid acceptance Sections 4 to 7
4. Lawful consideration Sections 2( d) and 25
5. Free and voluntary consent Sections 15 and 19A
Essential Ingredients of a Valid Contract
Agreement
An agreement is composed of two elements – offer and acceptance. The party making the offer is known as the
"offeror" and the party to whom the offer is made is known as the ―offeree‖. It is important that they must agree to the same
thing and in the same sense. In other words, there must be ―consensus-ad-idem‖.
 Example: A has 2 houses, one in Mumbai and the other in Chennai. He has offered to sell one house to B.B accepts
the offer with the idea of purchasing the house in Mumbai, while A was intending to sell the house in Chennai. There is
no identity of minds. So the agreement is void.

Intention to Create Legal Relationship

There must be an intention among the parties to create a legal relationship. If there is no such intention, then there is
no contract. In case of social agreements, generally, there is no intention to create legal relationship and, therefore, there is no
contract.

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  Example: Balfour Vs Balfour A husband agreed to pay 30 pounds to his wife every month while he was abroad. As
he failed .to pay the promised amount, his wife sued him for the recovery of the amount. Held, she could not recover it
as it was a social agreement and the parties did not intend to create legal relations.
Free Consent
For a contract to be valid, it is essential that there must be free and genuine consent of the parties to the contract.
Consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation or mistake. A contract
without free consent is voidable. The consent of parties must be genuine. The term ‗consent‘ means parties to a contract must
agree upon the same thing in the same sense. i.e. there should be consensus-ad idem. In such cases, the contract becomes
voidable at the option of the party whose consent is not free.
Example: A threatened to shoot B if he (B) does not lend him Rs. 2,000 and B agreed to it, Here the agreement is entered into
under coercion and hence voidable at the option of B.
Competence to Contract
The parties to a contract must have capacity (legal ability) to, make valid contract. In every case there must be assent
the parties. The assent presupposes a free, fair, and serious exercise of the reasoning faculty. If, therefore either of the parties
to an agreement is deprived of the use of his understanding or if he be deemed by law not be have attained it; there can be no
such agreement which shall bind him. Section 11 of the Indian Contract Act specifies that every person is competent to
contract provided,
a) He is of the' age of majority according to the law to which he is subject, and
b) He is of sound mind and
c) He not disqualified from contracting by any law to which he is subject.
In other words (a) a minor, (b) a person of unsound mind (a person of unsound mind can enter into a contract during
his lucid intervals) and (c) a person disqualified from contracting by any law to which he' is subject, (e.g an alien enemy, foreign
Sovereigns and accredited representatives of a foreign state; insolvents and convicts are, not competent to contract.
Lawful Consideration
An agreement' must' be supported 'by, consideration. Consideration means something in return'. Consideration may be
an act (doing something) or forbearance not doing something) or a promise to do or not to do something.
a) The consideration may be past, present or future.
b) Consideration must be real
c) The consideration should also be lawful.
Agreement not Explicitly Declared Void
The agreement must not have been expressly declared void under the contract Act. Sections 24 to 30 specify certain
types of agreements, which have been expressly declared void. They include agreements in restraint of marriage, agreements
in restraint of legal proceedings, agreements in restraint of trade and agreements by way of wager.
Certainty of Terms:
Section 29 of the Contract Act provides that agreements, the meaning of which is not certain or capable of being made
certain, are void. Thus, to make a valid contract, it is absolutely essential that its terms must be clear and not vague or
uncertain.
 Void Contract
It is a contract without any legal effect and cannot be enforced in a court of Law. Section 2 (i) defines a void
contract as ―a contract which ceases to be enforceable by law becomes void when it ceases to be enforceable‖.
 Void Contract

Circumstances by which a contract becomes void are as follows:

Destruction of subject matter

A contract becomes void if the subject matter is destroyed after the agreement but before the performance. As stated
earlier, the parties should not be at fault. If the subject matter did not exist even at the time of entering into the agreement,
unknown to both the parties, the contract is void ab-initio (Section 20).

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Death of parties
If a-party to .a contract dies the contract does not die. The obligation will devolve upon the legal representatives unless
there is a contrary INTENTION (Section 37). However, if personal skill is involved, the contract will die with the person himself.
The maxim is ―Action Personalis Moritur Cum Persona‖. Personal cause of action dies with the person himself.
One or more of the parties becoming of unsound mind
If a party is of unsound mind he is disqualified from entering into a contract. A party should be of sound mind to enter
into a contract. Subsequently. If he becomes of unsound mind, the contract becomes void A and, B contract to marry each
other. But by the time fixed for the marriage. A goes mad, the contract becomes void. In the above illustration the performance
of the marriage by itself is not impossible. B can still marry A. But it is impracticable So, impossibility does not mean the
performance is virtually impossible. It is used in the sense that it is impracticable,
Enemy Alien
Alien means a national of a foreign country. Friendly alien and, enemy alien denote the relationship of our country with
the country to which the foreigner belongs. A pennon cannot enter into a contract with an enemy alien. However, person may
enter into a contract with a friendly alien. If the country to which he belongs wages war with our country he becomes enemy al
en. Now the contract becomes void.
An agreement, which is enforceable by law at the option of one or more of the parties thereto, but not at the option of
the other or others, is a voidable contract. ―Thus, a voidable Contract is one which can be set aside or repudiated at the option
of the aggrieved party. Until it is set aside or avoided by the party entitled to do so, it remains a valid contract.
As per section 2(i) an agreement which is enforceable by law at the option of one or
more of the parties but not at the option of the other or others is a voidable contract‖.
Example: A Contract brought about as a result of Coercion, Undue Influence, Fraud or misrepresentation would be voidable at
the option of the person whose consent was caused by anyone of these factors.
Factors affecting consent
A contract is voidable at the option of the party whose consent has been affected.
There are four factors by which consent can be affected. They are -
Factors Affecting Consent
1. Coercion Sections 15 and 19
2. Undue Influence Sections 16 and 19A
3. Fraud. Sections 17 and 19
4. Misrepresentation. Sections 18 and 19
However, it is only an OPTION to the party whose consent, has been affected Until the party exercises his option, the
contract is BINDING upon him. So, a Voidable Contract is essentially a Valid Contract until it has been rescinded (set. aside).
The party whose consent has been affected should exercise his option and rescind the contract either - .
1. Within a reasonable time or
2. Before a third party acquires title to the goods.
In the case of a Void Contract, third parties cannot have title to the goods. But in the case of Voidable Contract, a third
party who takes the goods in good faith and before the contract has been rescinded win get valid title to the goods. Section
178A of the Contract Act and Section 29 of the sale of Goods Act refer.
Illegal or unlawful contracts
The word ‗illegal‘ means contrary to law. They are contracts opposed to statutory law or public morals. They are void
ab-initio. An illegal contract is not only void between the immediate parties but also invalidates collateral transactions. As per
Section 23, an agreement is unlawful illegal, the consideration or object of which
(1) is forbidden by law;
(2) defeats the provisions of any law;
(3) is fraudulent;
(4) involves or implies injury to the person or property of another; and
(5) the Court regards it as immoral, or opposed to public policy.
Example: A agrees to pay Rs. 1 Lakh to B, if B kills C. This is an illegal agreement because its object is unlawful (forbidden by
law)

DIFFERENCE BETWEEN VOID AND ILLEGAL AGREEMENT

BASIS VOID AGREEMENT ILLEGAL AGREEMENT
Meaning An agreement, which lacks legal An agreement whose creation is forbidden by the
enforceability, is void agreement. court of law is an illegal agreement.
Consequence An agreement becomes void when it An illegal agreement is void ab initio i.e. void from
loses its enforceability by law. the very beginning.
Prohibition by IPC No Yes
Scope Wide Narrow
Penalty Parties to void agreement are not liable Parties to illegal agreement are penalized.
for any penalty under law.
Connected May not necessarily be void, they may All connected agreements are void.
agreements be valid also.

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 DIFFERENCE BETWEEN VOID AND VOIDABLE CONTRACTS
BASIS VOID CONTRACT VOIDABLE CONTRACT
Meaning The type of contract which cannot be The contract in which one of the two parties has
enforceable is known as void contract. the option to enforce or rescind it, is known as
voidable contract.
Defined in Section 2 (j) of the Indian Contract Act, 1872. Section 2 (i) of the Indian Contract Act, 1872.
Nature The contract is valid, but subsequently becomes The contract is valid, until the party whose
invalid due to some reasons. consent is not free, does not revokes it.
Reasons Subsequent illegality or impossibility of any act If the consent of the parties is not independent.
which is to be performed in the future.
Rights to party No Yes, but only to the aggrieved party.
Suit for damages Not given by any party to another party for the Damages can be claimed by the aggrieved
non-performance, but any benefit received by party.
any party must be restored back.

 Proposal/Offer & Acceptance [Sec.2 (a)]:

―When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the
assent of the other to such act or abstinence he is said to make a proposal‖.
1. It must be made to another person. There can be no 'proposal' by a person to himself
2. It must be made with a view to obtain the assent of that other person to such act or abstinence, Thus, a mere
Statement of intention is not a proposal.
3. The offer must be definite
4. The offer must be communicated to the offeree.
5. The person making the offer is called the ‗offeror‘ or the ‗preposer' and the person to whom it is made is called the
‗offeree‘.
Classification of Offer
(a) General Offer: It is an offer made to the public in general and hence anyone can accept and do the desired act. In
Carlill V. Carbolic Smoke Ball Co.. (1893), the Court accepted that an offer could be made to the world at large.
Section 8 of the Indian Contract Act points out that the performance of the conditions of a proposal is an acceptance to
any number of proposals. Where a general offer is of continuing nature, it will be open for acceptance to any number of
persons until it is retracted.
(b) Specific Offer: When offer is made to a definite person, it is known as specific offer and only that specified person can
accept such offers. (Bottom V. Johns)
(c) Cross Offers: When two parties exchange identical offers in ignorance at the time of each other's offer, the offers. are
called Cross offers. There is not a binding contract in such a case, as one's offer cannot be construed as acceptance
by other. (Tin (v) Haffmen & Co. 1873)
(d) Counter Offer: When the offeree offers to qualified acceptance of the offer subject to modifications and variations in
the terms 'of original offer, he .is-said to have made a counter offer. Counter - offer amounts to rejection of the original
offer. (Hyde (v) Wrench 1840).
(e) Standing, open or Continuing Offer: An offer, allowed to remain open for acceptance over a period of time, is known
as a standing, open or continuing offer. Tender for supply of goods is a kind of standing offer.
Characteristics of a Valid Offer
1. The terms of the offer must be certain. The terms shall not be ambiguous, that is capable of more than one meaning.
2. A mere supply of information do not amount to an offer and cannot result in a contract even if acted upon.
Rules as to offer
a. The offer must be capable of creating legal relations
b. The offer must be certain, definite and not vague
c. The offer must be expressed or implied.
d. The offer must be distinguished from in an invitation to offer.
e. An offer may be specific or general.
f. The Offer must be communicated
g. The offer must be made with a view to obtaining the consent of the offeree.
h. An offer may be conditional.
i. The, offer should not contain terms the non-compliance of which would amount to acceptance. Thus, a man cannot say
that if acceptance were communicated by a certain time the offer would be considered as accepted.
Offer must be distinguished from an invitation to offer
An invitation ·to offer is not an offer. It is an invitation to the other party to make an offer. It shows the person's
Willingness to have negotiations with him. But he is not bound to accept the offer when the other party makes it. The following
are only ―invitation to offer" and not "offers":
a. price list of goods for sale;
b. b.Quotations of lowest prices;
c. c.An advertisement inviting tenders;

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 d. d.Railway time – table;
e. e.Prospectus issued by Company;
f. Display of goods with price tags attached.
The offer must be communicated
An offer is effective only when it is communicated to the person to whom it is made. This is true of specific as well as
general offers: The communication may be express or implied. An acceptance of an offer, in ignorance of the offer, is no
acceptance at all.
Offer must be made with the view to obtaining the assent
An 'offer to do or not to do must be made with the view to obtain the consent or assent of the other party. Mere enquiry
is not an offer.
Special terms or conditions in an offer must also be communicated
The offeror is free to lay down any terms and conditions in his offer and if the other party accepts the offer then he
would be bound by those terms and conditions. The important point is that if there are some special terms and conditions they
should also be duly communicated
Cross Offers & Counter Offers
a. Cross Offers: Identical offers made by person in ignorance of each other are known as cross offers. They do not
make a contract.
Example: 'H' wrote to ‗T‘ offering to sell 800 tons of iron at 69s. On the same day ‗T‘ wrote 'H' offering to buy 800 tons at 69s.
This is a cross offer .and hence does not constitute a contract.
b. Counter Offer: Conditional Qualified acceptance is not a valid acceptance. It is a counter offer, which may be
accepted or rejected.
The acceptance of an offer, to be effective, must fulfil certain conditions, these are …
1. Acceptance must be absolute and unconditional: The acceptance must be absolute and unqualified. It must correspond
with all the terms of the offer. Even a slight deviation would make the acceptance invalid. Similarly, conditional or qualified
acceptance is no acceptance. It will only be a counter offer, which may be accepted or rejected by the offeror.
2. Acceptance must be communicated: Communication may be oral, in writing or even be implied from the conduct of the
acceptor. Mere desire to accept a proposal is not acceptance. Excommunicated or mental acceptance is not valid acceptance.
The person who has authority to accept should communicate acceptance. Silence does not amount to acceptance.
3. Acceptance must be in the mode prescribed: If the offeror prescribes the mode or manner .of acceptance, the
acceptance must be made in the mode prescribed. Otherwise; the offeror may within a reasonable time after the acceptance is
communicated to him, insist that the acceptance be in the mode prescribed. If he does not inform the offeree to this effect he is
deemed to have accepted the acceptance. If no mode is prescribed, acceptance may be by usual or reasonable mode.
4. Acceptance must be within a reasonable time: If the offeror has prescribed the time within which the offer must be
accepted, then it must be accepted within the prescribed time. If no time is prescribed, it must be accepted within a reasonable
time (Ramsgate Victoria Hotel co.Vs. Montefiore).
5. Acceptance must be given only by the offeree: An offer made to a particular person cart be validly accepted by him
alone. An offer made to a class of persons can be accepted by any member of that class. An offer made to the world at large
can be accepted by any person who had knowledge of it 6. Acceptance must be after an offer: There can be no acceptance
without an offer. The acceptor must be aware of the proposal at the time of acceptance. Thus, acceptance must always
succeed the offer.
7. Acceptance must be given before the offer lapses or is revoked: The offer must exist at the time of acceptance. If an
offer has lapsed or has been revoked, subsequent acceptance will have no effect.
8. A proposal once rejected cannot be accepted unless it is renewed: An offer once rejected cannot be accepted unless a
fresh offer is made (Hyde Vs. wrench).
SALE OF GOODS ACT, 1930
Section 4 ―contract of sale whereby the seller transfers or agrees to transfer the property in goods to the buyer for price‖. The
term ‗contract of sale‘ includes both a sale and an agreement to sell.
Formalities of a contract of sale: Section 5 of the Act specifically provides for the following three steps or formalities in
a contract of sale:
1) Offer and Acceptance: A contract of sale is made by an offer to buy or sell the goods for a price and acceptance of such
offer.
2) Delivery and Payment: It is not necessary that the payment for the goods to the seller and delivery of goods to the buyer
must be simultaneous. They can be made at different times or in installments – as per the contract.
3) Express or Implied: The contract can be in writing, oral or implied. It can also be partly oral and partly written.
Essentials: The five essential features of a contract of sale are as discussed below:
1) Two parties: A sale has to be bilateral because the goods have to pass from one person to another. There must be a
buyer – a person who buys or agrees to buy the goods and a seller – a person who sells or agrees to sell goods. The
seller and the buyer must be different persons. A part owner can sell to another part owner. A partner may, therefore, sell
to his firm or a firm may sell to a partner. But if joint owners distribute property among themselves as per mutual
agreement, it is not ‗sale‘. A person cannot be the seller of his own goods as well as the buyers of them.

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 2) Subject matter to be goods: The term ‗goods‘ is defined in Section 2(7). It states that ‗goods‘ ―means every kind of
movable property other than actionable claims and money; and includes stock and shares, growing crops, grass and
things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale‖.
3) Transfer of ownership of Goods: There must be transfer of ownership or an agreement to transfer the ownership of
goods from the seller to the buyer – not the transfer of mere possession or limited interest as in the case of pledge, lease
or hire purchase agreement). If goods remain in possession of seller after sale transaction is over, the ‗possession‘ is
with seller, but ‗ownership‘ is with buyer. The Act uses the term ‗general property‘ implying that sale involves total
ownership and not a specific right limited by conditions.
4) Consideration is Price: The consideration in a contract of sale has to be price i.e., money. If goods are offered as the
consideration for goods, it will not amount to sale. It will be barter. If there is no consideration, it will be called gift. But
where the goods are sold for definite sum and the price is paid partly in kind and partly in cash, the transaction is a sale.
5) Essential elements of a valid contract: All the essentials of a valid contract must be present. viz., competent parties, free
consent, legal object and so on. The transfer of possession and ownership under the Act has to be voluntary and not be
tainted with fraud or duress.
 Sale
A sale is a type of contract in which the seller transfers the ownership of goods to the buyer for a money consideration. Here
the relationship amidst the seller and buyer is of creditor and debtor. It is the result of an agreement to sell when the conditions
are fulfilled and the specified time is over.
The following are the essential conditions regarding Sale:
 There must be at least two parties; one is the buyer, and other is the seller.
 The subject matter of the sale is the goods.
 Payment should be made in the country‘s legal currency.
 The goods should pass from seller to buyer.
 All the necessary conditions of a valid contract should be present like free consent, consideration, a lawful object,
capacity of parties, etc.
 Agreement to Sell
An agreement to sell is also a contract of sale of goods, in which the seller agrees to transfer goods to the buyer for a price at a
later date or after the fulfillment of a condition.
Difference between Sale and Agreement to sell
BASIS SALE AGREEMENT TO SELL
Meaning When in a contract of sale, the exchange of When in a contract of sale the parties to contract
goods for money consideration takes place agree to exchange the goods for a price at a future
immediately, it is known as Sale. specified date is known as an Agreement to Sell.
Nature Absolute Conditional
Type of Contract Executed Contract Executory Contract
Transfer of risk Yes No
Title In sale, the title of goods transfers to the In an agreement to sell, the title of goods remains
buyer with the transfer of goods. with the seller as there is no transfer of goods.
Right to sell Buyer Seller
Consequences of Responsibility of buyer Responsibility of seller
subsequent loss
or damage to the
goods
Tax VAT is charged at the time of sale. No tax is levied.
Suit for breach of The buyer can claim damages from the seller Here the buyer has the right to claim damages
contract by the and proprietary remedy from the party to only.
seller whom the goods are sold.
Right of unpaid Right to sue for the price. Right to sue for damages.
seller
Difference between Sale and Hire Purchase
Basis Contract of Sale Hire Purchase Agreement
Law A contract of sale is governed by the Sale of They are governed by Hire Purchase Act,
Goods Act, 1930. 1972
Nature of contract It may be written, oral or implied. It is an agreement to hire and an agreement to
sell. It has to be in writing.
Possession Possession may or may not transfer immediately. Possession passes immediately
Transfer of The ownership of goods is transferred immediately. It transferred only when the option to purchase
ownership is exercised and the last payment is made.
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 Buyer The buyer becomes the full owner of the goods The hirer is a bailee, and not the owner until
he pays all the installments of the price in full
or exercises the option to purchase.
Transfer to third The buyer can transfer a good title to third parties The hirer cannot transfer a good title to a third
parties because ownership of goods has been transferred. party as ownership has not been transferred.
Right to The seller can sue for price but he cannot The hire vendor has a right to repossess the
repossess repossess the goods. goods if the hirer defaults in the payments.
Right to terminate In a sale, there is no option to the buyer to return The hirer can terminate the agreement before
the goods bought. the ownership is transferred.
Sales Tax In case of sale of taxable goods, sales tax is levied. Even if taxable goods are hired, sales tax is
not levied.
Difference between Condition and Warranty
BASIS CONDITION WARRANTY
Meaning A requirement or event that should be A warranty is an assurance given by the seller to
performed before the completion of another the buyer about the state of the product, that the
action is known as Condition. prescribed facts are genuine.
Defined in Section 12 (2) of Indian Sale of Goods Act, Section 12 (3) of Indian Sale of Goods Act,
1930. 1930.
What is it? It is directly associated with the objective of It is a subsidiary provision related to the object
the contract. of the contract.
Result of breach Termination of contract. Claim damages for the breach.
Violation Violation of condition can be regarded as a Violation of warranty does not affect the
violation of the warranty. condition.
Remedy available Repudiate the contract as well as claim Claim damages only.
to the aggrieved damages.
party on breach
Rights against the goods where the property in the goods has passed to the buyer
 a) Right of Lien [Section 47,48 and 49]
The right of lien means the right to retain the possession of the goods until the full price is received.
Three circumstance under which right of lien can be exercised [Section 47(1)]
 Where the goods have been sold without any stipulation to credit;
 Where the goods have been sold on credit, but the term of credit has expired;
 Where the buyer becomes insolvent.
Other provisions regarding right of lien[Sections 47(2),48,49(2)]
 The seller may exercise his right of lien, even if he possesses the goods as agent or bailee for buyer[Section 47(2)]
 Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the remainder, unless
such part delivery has been made under such circumstances as to show agreement to waive the lien [Section 48].
 The seller may exercise his right of lien even though he has obtained a decree for the price of the goods [Section
49(2)].
Circumstances under which right of lien in the following cases:
 When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving
the right of disposal of the goods[Section 49(1)(a)].
 When the buyer or his agent lawfully obtains possession of the goods [Section 49(1)(b)]
 When the seller waives his right of lien [Section 49(1)(c)].
 When the buyer disposes of the goods by sale or in any other manner with the consent of the seller [Section 53(1)].
 Where document of title to goods has been issued or lawfully transferres to any person as buyer or owner of the goods
and that person transfers the document by way of sale, to a person who takes the document in good faith and for
consideration.[Proviso to Section 53(1)].
 b) Right of Stoppage of Goods in Transit
The right of stoppage of goods means the right of stopping the goods while they are in transit, to regain possession
and to retain them till the full price is paid. Conditions under which right of stoppage in transit can be exercised [Section 50]
The unpaid seller can exercise the right of stoppage in transit only if the following conditions are fulfilled:
 The seller must have parted with the possession of goods,i.e. the goods must not be in the possession of seller.
 The goods must be in the course of transit.
 The buyer must have become insolvent.
 c) Right of Resale[Section 46(1) and 54]
An unpaid seller can resell the goods under the following three circumstances:
 Where the goods are of a perishable nature.
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  Where the seller expressly reserves a right of resale if the buyer commits a default in making payment.
 Where the unpaid seller who has exercised his right of lien or stoppage in transit gives a notice to the buyer about his
intention to resell an buyer does not pay or tender within a reasonable time.

Negotiable Instruments Act, 1881

A negotiable instrument is a piece of paper which entitles a person to a sum of money and which is transferable from
one person to another by mere delivery or by endorsement and delivery.
Importance of Negotiable Instruments:
 Negotiable Instrument is an easier means of transfer of money.
 It is easy to delivery from one place to another place.
 It helps to flourish in the business sector.
 It creates the right of property.
 It has the easy negotiability and somewhere it provides the security.
 It makes the fast transaction of money.
 It makes the security of money as well as personal security in course of the transaction of money.
Types of Negotiable Instruments
 Promissory Note
The promissory note is a signed document of written promise to pay a stated sum to a specified person or the bearer at a
specified date or on demand. The promissory note is an instrument in writing containing an unconditional rule signed by one
party to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument.
 Commercial bill
This deals in commercial markets. They are drawn either by the seller or the drawer and it is drawn by the drawer of the goods
of the buyer in place of the value for the goods delivered. They are also called trade bills. When these bills are accepted by the
commercial banks, they are called commercial bills.
 Cheque
There are many forms of cheque available as the negotiable instruments in the market. The cheque is also known as the bill of
exchange. It orders the bank to pay a specified amount to a person‘s account from a person who has issued the cheque. Blank
cheque, order cheque, bearer cheque, etc are the different types of the cheque.
 Commercial paper
Commercial paper is also issued in the form of promissory note. It can be sold directly by the issuer to the investors. It can also
be transferred to the borrowers through agents. These instruments can only be issued in multiples of 5 lakhs and thereafter.
The maturity period varies from one week until one year.
 Treasury bills
Treasury bills are also known as T-bills. It is a short-term instrument for borrowing for the government. For these bills, the
tender is issued in the money market and various government departments.
Thus, for this, tenders are invited weekly from brokers and bankers. It provides the government a very cheap way to
borrow the money in the times of fluctuating cash and further it also provides the security for the transaction. Furthermore, the
RBI which is the banker for government provides these bills at a discount rate.
 Bank draft
These are also the bills of exchange. So, in this, the bank‘s orders one its branch to repay the money to a person or to his
order. For this, the banks charge a nominal fee.
Features of Negotiable Instrument
 It is always a written document.
 It is payable to bearer than it is transferred just by delivery. And it is payable to the orderer than it is transferred by
delivery and endorsement.
 The person who holds the negotiable document can sue based on this document.
 There is no consideration mentioned in the instrument. It is presumed already that it has been drawn for a valuable
consideration.
 It works just like money and can be transferred from one person or the other.
 For debt, it is considered one of the simplest modes.
 Dishonour
Dishonour of negotiable instrument means loss of honour or respect for the instrument in question on the part of the maker,
drawee, or acceptor, as the case may be, which eventually results in non-realization of payment due on the instrument.
Dishonoured by non-acceptance in the following circumstances.
 When the drawee or one of the several drawees, not being partners, commit default in acceptance upon being duly
required accepting the bill. In this regard Section 63 expressly provides that the holder must, if so required by the
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 drawee of a bill of exchange presented to for acceptance, allow the drawee forty-eight hours (exclusive of public
holidays) to consider whether he will accept it.
 Where presentment is required and the bill remains unrepresented.
 Where the drawee is incompetent to enter into a valid contract.
 Where the bill is given a qualified acceptance.
 If the drawee is a fictitious person.
 If the drawee cannot be found even after reasonable search.
 Where the drawee has either become insolvent or is dead and the holder does not present the bill to the assignee or
legal representative of the insolvent or deceased drawee.
A party to a negotiable instrument is discharged in the following ways
 By cancellation of the name of a party to the instruments
 By release of any party to the instruments
 By payments
 By allowing drawee more than 48 hours to accept
 By delay in presenting a cheque for payment
 By payment in due course of a cheque (payable to order)
 By taking qualified acceptance
 By non-presentment for acceptance of a bill of exchange
 By operation of law
 By material alteration

The Competition Act, 2002

The Competition Act, 2002 are: to provide the framework for the establishment of the Competition Commission. to prevent
monopolies and to promote competition in the market. To protect the freedom of trade for the participating individuals and
entities in the market.
The main provisions of the Act are:-
 The Central Government may, by notification, establish a Commission to be called the 'Competition Commission of
India'. It shall be the duty of the Commission to eliminate practices having adverse effect on competition, promote and
sustain competition, protect the interests of consumers and ensure freedom of trade carried on by other participants, in
markets in India.
 The Act prohibits anti-competitive agreements. It declares void any agreement by an enterprise or association of
enterprises which restricts the production, supply, distribution, acquisition or control of goods or provision of services. It
recognises horizontal and vertical agreements as having potential of restricting competition in an economy.
 The horizontal agreements are the agreements between those enterprises which are at the same stage of production,
services, etc. It includes, any collusive agreement which :-
 Directly or indirectly determines purchase or sale prices;
 Limits or controls production, supply, markets, technical development, investment or provision of services;
 Shares the market or source production or provision of services by way of allocation of geographical area of market, or
type of goods or services, or number of customers in the market or in any other similar way;
 Directly or indirectly results in bid rigging or collusive bidding.
 The vertical agreements are the agreements between those enterprises which are at the different stages of production,
distribution, etc. It includes the following agreements:-
 Tie-in arrangement;
 Exclusive supply agreement;
 Exclusive distribution agreement;
 Refusal to deal;
 Resale price maintenance.
 Directly or indirectly imposing unfair or discriminatory conditions in the purchase or sale of goods and services;
 Restricting the technical or scientific development relating to goods or services to the prejudice of consumers;
 Indulging in practice(s) resulting in denial of market access;
 Making conclusions of contracts subject to acceptance by other parties, which have no connection with the subject of
such contracts;
 Using dominant position in one relevant market in order to enter into another market.
Objectives of Competition Act:
I. The first and foremost duty of the commission is to exercise control over the practices in competition, which are
having adverse effect on competition.
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 II. In addition to this, the commission also targets to introduce healthy measure for promotion and sustenance of
competition.
III. It largely targets to protect the interests of the consumers and give fair trade practices their due place.
IV. The Commission has also kept the target to place its opinion on the issues about competition prevailing in India.
V. It would also act on a reference received from a statutory authority, if the same has been undertaken by any law in
order to promote competition and create awareness in public, and inculcate training on majors issues in
competition.
The Information Technology Act, 2000
The Information Technology Act, 2000 provides legal recognition to the transaction done via electronic exchange of data and
other electronic means of communication or electronic commerce transactions.
Objectives of the Act
 Grant legal recognition to all transactions done via electronic exchange of data or other electronic means of
communication or e-commerce, in place of the earlier paper-based method of communication.
 Give legal recognition to digital signatures for the authentication of any information or matters requiring legal
authentication
 Facilitate the electronic filing of documents with Government agencies and also departments
 Facilitate the electronic storage of data
 Give legal sanction and also facilitate the electronic transfer of funds between banks and financial institutions
 Grant legal recognition to bankers under the Evidence Act, 1891 and the Reserve Bank of India Act, 1934, for keeping
the books of accounts in electronic form.
Features of the Information Technology Act, 2000
 All electronic contracts made through secure electronic channels are legally valid.
 Legal recognition for digital signatures.
 Security measures for electronic records and also digital signatures are in place
 A procedure for the appointment of adjudicating officers for holding inquiries under the Act is finalized
 Provision for establishing a Cyber Regulatory Appellant Tribunal under the Act. Further, this tribunal will handle all
appeals made against the order of the Controller or Adjudicating Officer.
 An appeal against the order of the Cyber Appellant Tribunal is possible only in the High Court
 Digital Signatures will use an asymmetric cryptosystem and also a hash function
 Provision for the appointment of the Controller of Certifying Authorities (CCA) to license and regulate the working of
Certifying Authorities. The Controller to act as a repository of all digital signatures.
 The Act applies to offences or contraventions committed outside India
 Senior police officers and other officers can enter any public place and search and arrest without warrant
 Provisions for the constitution of a Cyber Regulations Advisory Committee to advise the Central Government and
Controller.

The RTI Act, 2005

The basic object of the RTI Act is to empower the citizens, promote transparency and accountability in the working of the
Government and make our democracy work for the people in real sense. The Right to Information Act, 2005 empowers citizens
to get information from any 'public authority'.
Function
 RTI stands for Right To Information and has been given the status of a fundamental right under Article 19(1) of the
Constitution. Article 19 (1) under which every citizen has freedom of speech and expression and have the right to know
how the government works, what role does it play, what are its functions and so on.
 The Act confers right to the citizens to know as to how the tax payer‘s money is being spent by the Government.
 The RTI Act extends to the whole of India (except the State of Jammu and Kashmir), all bodies, which come under
Government notification including NGOs, which are owned, controlled or are substantially financed by the Government.
 RTI Act confers right to access to information held by a Public Authority. In case you have been denied the access to
information you may file Appeal / Complaint before the Central Information Commission (CIC) using the CIC Online
Process of Filing RTI
 Under the Act, all authorities covered must appoint their Public Information Officer (PIO).
 Any person may submit a request to the PIO for information in writing.
 It is the PIO's obligation to provide information to citizens of India who request information under the Act.
 If the request pertains to another public authority (in whole or part), it is the PIO's responsibility to transfer/forward the
concerned portions of the request to a PIO of the other within 5 working days.

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  In addition, every public authority is required to designate Assistant Public Information Officers (APIOs) to receive RTI
requests and appeals for forwarding to the PIOs of their public authority.
 The applicant is not required to disclose any information or reasons other than his name and contact particulars to
seek the information.
Intellectual Property Rights (IPRs)
Intellectual property rights are the rights given to persons over the creations of their minds. They usually give the creator an
exclusive right over the use of his/her creation for a certain period of time.
Types of IP Protection for Businesses
1. Trade Secrets: A trade secret is a type of intellectual property in the form of a formula, practice, process, design,
instrument, pattern, commercial method, or compilation of information that is not generally known or reasonably
ascertainable by others, and by which a person or company can obtain an economic
2. Trademarks: A trademark (also written trade mark or trade-mark) is a type of intellectual property consisting of a
recognizable sign, design, or expression which identifies products or services of a particular source from those of
others, although trademarks used to identify services are usually called service marks.
3. Copyright: Copyright (or author's right) is a legal term used to describe the rights that creators have over their literary
and artistic works. Works covered by copyright range from books, music, paintings, sculpture, and films, to computer
programs, databases, advertisements, maps, and technical drawings.
4. Patents: A patent is a form of intellectual property that gives its owner the legal right to exclude others from making,
using, selling, and importing an invention for a limited period of years, in exchange for publishing an enabling public
disclosure of the invention.
Goods and Services Tax (GST)
The goods and services tax (GST) is a value-added tax levied on most goods and services sold for domestic
consumption. The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and
services. In effect, GST provides revenue for the government.
Dual GST Structures: Canada
Only a handful of countries, such as Canada and Brazil, have a dual GST structure. Compared to a unified GST economy
where tax is collected by the federal government and then distributed to the states, in a dual system, the federal GST is applied
in addition to the state sales tax.
India's Adoption of the GST
India established a dual GST structure in 2017, which was the biggest reform in the country's tax structure in decades. The
main objective of incorporating the GST is to eliminate tax on tax or double taxation, which cascades from the manufacturing
level to the consumption level.
India has, since launching the GST on July 1, 2017, implemented five different tax rates.
 A 0% tax rate applied to certain foods, books, newspapers, and homespun cotton cloth and hotel services under Rs.
1000.
 A rate of 0.25% applied to rough industrial diamonds.
 A 5% tax rate applied to apparel below Rs. 1000, packaged food items, footwear under Rs. 500, etc.
 A 12% tax rate applied to apparel over Rs. 1000, frozen meats, cutlery, sugar, bio-diesel, etc.
 An 18% tax rate applied to certain luxury items including makeup, pastries, swimming pools, footwear costing more
than Rs. 500, etc.
 The final bracket, taxing goods at 28%, applied to 50 luxury products and those deemed ―sinful,‖ including sunscreen,
ceramic tiles, bidis (Indian cigarettes), cars, motorcycles, etc.
GST Registration Process:
Requirement for Registration
 A business entity that is currently registered under any of the existing tax regimes including:-
o Central Excise duty
o Service Tax
o State VAT
o Central Sales Tax
 But if a business doesn‘t have any existing registration, then it needs to get registered if aggregate turnover in any
financial year exceeds the threshold limit (Rs. 20 lakhs).
 Every person who makes a supply from the territorial waters of India.
Explanation: GST Registration will be a single PAN-based registration in one State or Union territory, but a person
having multiple business verticals in one state or businesses in multiple states has to get a separate registration for each
such business.
This process is however mandatory for certain people that are listed below:

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  Persons making any Inter-State taxable supply (e.g. from Delhi to Maharashtra)
 Casual Taxable person (No fixed place where GST is applicable)
 Non-resident Taxable person (No fixed place in India)
 Persons who are required to pay tax under Reverse Charge
 Persons who are required to deduct tax at source
 Agents of a supplier
 Input Service Distributor
 Persons who supply goods or services through E-commerce Operator
 E-commerce Operator/ Aggregator who supplies services under his brand name (e.g. Flipkart, Amazon).
 Supplying online information and database access or retrieval services from a place outside India to a person in India,
other than a registered taxable person.
 Any Specialized Agency of the UN or any Multilateral Financial Institution
GST Registration Process
1. The applicant needs to submit his PAN, Mobile number and E-mail address in Part A of Form GST REG-01 on GSTN
Portal.
2. The PAN is then verified on the GSTN Portal while the Mobile number and the E-mail address are verified through an
OTP (One-time-password). An acknowledgment will be issued to the applicant in the Form GST REG-02.
3. The Applicant then needs to fill the Part B of Form GST REG-01 and specify the application reference number. The form
can be submitted after attaching the required documents. The authentication would be done by signature through DSC or
E-Signature.
4. If any additional information is required, Form GST REG-03 will be issued. The Applicant needs to respond in Form GST
REG-04 with the required information within 7 working days from the date of the receipt of Form GST REG-03.
5. If applicant has provided all the required information via Form GST REG-01 or Form GST REG-04, the registration
certificate in Form GST REG-06 for the principal place of the business as well as for every additional place of business
will be issued. If, however, the details submitted are not satisfactorily, the registration application will be rejected using
Form GST REG-05.
6. The applicant who is required to deduct TDS or collect TCS shall, however, submit an application in Form GST REG-
07 for the purpose of registration.

The diagram below would help you to understand the GST registration process in a better way:

You will receive an

Log in the GST Upload the required
application
File GST documents
Commom Portal reference number
Registration Form according to the
(www.gst.gov.in) on your Mobile & E-
Business
Mail

Produce the In case of errors

If any error, You will Certificate of
documents within 7 and ques, you may
be informed in Form registration is
working day along need to visit the
GST REG-05 issued
with GST REG-04 department

Types of GST Return Filing Forms for –

1. Regular Dealer
FORM TYPE DETAILS FURNISHED FREQUENCY DUE DATE
GSTR 1 Outward sales by business. MONTHLY 10th of succeeding month
GSTR 2A Auto-populated details of inward supplies made available MONTHLY 11th of succeeding month
to the recipient.
GSTR 2 Purchases made by Business. MONTHLY 15th of succeeding month

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GSTR 1A Details of outward supplies as added corrected or deleted MONTHLY 20th of succeeding month
by the recipient.
GSTR 3 GST monthly return along with the payment of amount of MONTHLY 20th of succeeding month
tax.
GST ITC 1 Communication of acceptance, discrepancy or duplication MONTHLY ─
of input tax credit claim.
GSTR 3A Notice to a registered taxable person who fails to furnish ─ ─
return under section 27 and 31.
GSTR 9 GST Annual Return. ANNUALLY 31st Dec of next financial
year

2. Composite Dealer
FORM TYPE DETAILS FURNISHED FREQUENCY DUE DATE
GSTR 4A Details of inward supplies made available to the recipient QUARTERLY ─
registered under Composition Scheme.
GSTR 4 Quarterly return for GST. QUARTERLY 18th of succeeding month
GSTR 9A Consolidated details of quarterly returns filed along with ANNUALY 31st December of next
tax payment details. financial year

3. Foreign Non-Resident Taxpayer

FORM TYPE DETAILS FURNISHED FREQUENCY DUE DATE
GSTR 5 Provisions of return filing for Non- MONTHLY 20th of succeeding month or within 7 days
Resident Foreign Taxpayers after the expiry of registration
4. Input Service Distributor
FORM TYPE DETAILS FURNISHED FREQUENCY DUE DATE
GSTR 6 Every Input Service Distributor is required to furnish details of MONTHLY 13th of succeeding
invoices in form GSTR 6. month.
GSTR 6A GSTR 6A will give the auto drated details of the supplies made MONTHLY 11th of succeeding
by Input Service Distributor to the recipients. month.
5. Tax Deductor
FORM TYPE DETAILS FURNISHED FREQUENCY DUE DATE
GSTR 7 Furnish details of imports, outward supplies, ITC MONTHLY 10th of succeeding month.
availed, tax paid, and closing stock
GSTR 7A It‘s the deduction certificate to be issued on MONTHLY TDS Certificate to be made available
monthly basis to the deductee. for the download.

6. E-commerce Operator
FORM TYPE DETAILS FURNISHED FREQUENCY DUE DATE
GSTR 8 Details of supplies effected through e-commerce operator and MONTHLY 10th of succeeding
the amount of tax collected on supplies month

7. Government Department & UN Bodies

FORM TYPE DETAILS FURNISHED FREQUENCY DUE DATE
GSTR 11 GST Inward Supplies Statement for UIN MONTHLY 28th of succeeding month

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 Unit 10:
Income-tax and Corporate Tax Planning

Income Tax:
An income tax is a tax imposed on individuals or entities that varies with respective income or profits. Income tax
generally is computed as the product of a tax rate time‘s taxable income. Taxation rates may vary by type or characteristics of
the taxpayer. The tax rate may increase as taxable income increases.
Objectives:
1. Economic Development
2. Full Employment
3. Price Stability
4. Control of Cyclical Fluctuations
5. Reduction of BOP Difficulties
6. Non-Revenue Objective

PERSON [Section 2(31) ]

 Individual : It refers to a natural human being whether Male or Female , Minor or Major.
 Hindu Undivided Family (HUF) : It is a relationship created due to operation of Hindu Law. The Manager of HUF is
called ― Karta‖ and its member are called ‗Coparceners‘.
 Company : It is an artificial person registered under Indian Companies Act 1956 or any other Law.
 Firm : It is an entity which comes into existence as a result of partnership agreement. The Income Tax accepts only
these entities as Firms which are accessed as Firms under Section 184 of the Act.
 Association of Persons (AOP) or Body of Individuals (BOI) : Co-operative societies, MARKFED, NAFED, etc are
the example of such persons. When persons combine together to carry on a joint enterprise and they do not constitute
partnership under the ambit of law, they are assessable as an Association of Persons. An A.O.P. can have firms,
companies, associations and individuals as its members. A Body of Individual ( B.O.I.) cannot have non-individuals as
its members. Only natural human being can be members of a Body of Individuals.
 Local Authority : Municipality, Panchayat, Cantonment Board, Port Trust etc. are called Local Authority.
 Artificial Judicial Person : Statutory Corporations like Life Insurance Corporation, a University etc. are called
Artificial Judicial Persons.
Assessee [ Section 2(7)]: Assessee means a person by whom any tax or any other sum of money is payable under this Act
and includes the following:
(i) Every person in respect of whom (ii) A person who is deemed to (iii) Every person who is deemed to be an
any proceeding under the Income-tax be an assessee under any assessee in default under any provisions of this
Act has been taken: provisions of this Act i.e. a Act. A person is said to be an assessee in default
a. for the assessment of his income person who is treated as an if he fails to comply with the duties imposed upon
or the income of any other person assessee. This would include him under the Income-tax Act. For example: a
in respect of which he is the legal representative of a person, paying interest to another person, is
assessable; or deceased person or the legal responsible for deducting tax at source on this
b. to determine the loss sustained by guardian of minor if minor is amount and to deposit the tax with the
him or by such other person; or taxable separately. Government. If he fails in either of these duties
c. to determine the amount of refund i.e., if he does not deduct the tax, or deducts the
due to him or to such other tax but does not deposit it with the Government,
person. he shall be deemed to be an assessee in default.
―INCOME‖ [ Section 2(24) ]
The Definition given u/s 2 (24) is inclusive and not exhaustive. According to English dictionary, the term ―Income‖
means periodical monetary return coming in regularly from definite sources like one‘s business, Land, Work, Investments etc.‖.
―Income includes ―:
 Profit and Gains : For instance, Profit generated by a businessman is taxable as ―Income‖.
 Dividend: For instance, ―Dividend‖ declared/paid by a company to a shareholders is taxable as ―income‖ in the hands
of shareholders.
 Voluntary contribution received by a Trust : In the hands of a Trust, income includes voluntary contributions
received by it. This rule is applicable in the following cases..
 Such contribution is received by a trust created wholly or partly for charitable or religious purpose ; or
 Such contribution is received by a scientific research association ; or
 Such contribution is received by any fund or institution established for charitable purposes ; or
 Such contribution is received by any university or other educational institutions or hospital.

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GROSS TOTAL INCOME (GTI) & TOTAL INCOME
U/s 14 the term ―Gross Total Income‖ [ GTI ] means aggregate of incomes computed under the following Five heads :
 Income under the head ―Salaries‖
 Income under the head ― House Property‖
 Income under the head ―Profit and Gains of Business or Profession‖.
 Income under the head ―Capital Gain‖.
 Income under the head ― Other Sources‖.
After aggregating income under various heads, losses are adjusted and the resultant figure is called ―Gross Total Income‖
[GTI]
From Gross Total Income , Deductions u/s 80 are allowed. The resultant figure is called ―Total Income ―on which Rates of
Taxes are applied
Income Tax is charged on 5 different heads. Aggregate of taxable income under each head of income is known as Gross Total
Income and so
Taxable Income = Gross Total Income - Allowance Deductions.
 Deduction of Expenditure: In computing income under various heads, deduction is allowed towards expenditure
incurred in relation to earning the income. However, no deduction shall be allowed in respect of expenditure incurred in
relation to incomes exempt from tax.
 Computation of Gross Total Income: It is the aggregate of incomes under various heads of income calculated after
set-off of unabsorbed depreciation/loss, carried forward from earlier years.
 Set-off and Carry Forward: Set-off means adjustment of certain losses against the income under other sources /
heads. Carry forward implies carrying forward of certain losses for set-off in subsequent years.
 Total / Taxable Income: Total / Taxable Income is computed after deducting permissible deductions under section
80A to 80U, from the Gross Total Income.
Agricultural Income: Sec.10(1) exempts Agricultural Income from Income-Tax. Bu virtue of Sec.2(1)a the expression
―Agricultural Income‖ means :
 Any Rent or Revenue derived from Land which is situated in India and is used for agricultural purposes. [Sec. 2(1A)(a)]
 Any income derived from such land :
o Use for Agricultural purposes ; or
o Used for agricultural operations means- irrigating and harvesting , sowing, weeding, digging, cutting etc. It involves
employment of some human skill, labour and energy to get some income from land. ; or
According to Sec. 2(1)(a) , if the following 3 conditions are satisfied, income derived from Land can be termed as ―Agricultural
Income‖.
For disintegrating a composite business income which is partly agriculture and partly non-agricultural, the
following rules are applicable –
Type of Income Business Income Agricultural Income
Tea Business 40% 60%
Coffee Business 40% 60%
Rubber Business 35% 65%

Residential Status
All Taxable entities are divided in the following categories for the purpose of determining Residential Status :
 an individual
 a Hindu Undivided Family ( HUF)
 a Firm or an Association of Person (AOP)
 a joint stock company ; and
 every other person

 RESIDENTIAL STATUS OF AN ‗INDIVIDUAL‘

An individual may be
(a) Resident and ordinarily Resident in India
(b) Resident and not-ordinarily Resident in India;
(c) non-resident in India.

(a). Resident and Ordinary Resident [ Section 6 (1), 6(6)(a) ]

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To determine the Residential Status of an Individual, [Section 6 (1)] prescribes Two Test. An individual who fulfills any one of
the following Two Tests is called Resident under the provisions of this Act. These Tests are :
Test No. 1. Stay in India for 182 days or more.
If an individual has to become Resend of India during any previous year, his / her personal stay in India during that year is a
must although the number of days of stay differs in the two tests. It means that if an individual does not stay in India at all in
any previous year , he cannot be Resident of India in that year. Stay in India means that the individual should have stayed in
India territory and anywhere ( cities, villages, hills, even Indian territory waters ) for such number of days.
The period of 182 days need not be at a stretch. But physical presence for an aggregate of 182 days in the relevant
previous is enough. The Status of Resident is not linked with any particular place or town or house.
Test No. 2. Presence for 365 days during the Four preceding Previous Year and 60 days or more in
that relevant Previous Year.
A person may be frequent visitor to India. In his case, the residential status will be determined on the basis of his
presence in India for 365 days in four years immediately preceding the relevant Previous year. Along with this his
presence for 60 days during the relevant previous year is another essential condition to be fulfilled. The purpose,
object or reason of visit to and stay in India has nothing to do with the determination of residential status.
Explanations:
 For Indian Citizen going abroad on a Job or as a member of crew of an Indian ship [Explanation (a) ]
 In case of Indian citizen who is going outside Indian for a Job and his contact for such employment outside India has
been approved by the Central Government or he is a member of crew of an Indian Ship, Test (a) U/s 6(1) remains
same but in Test (b) words ‗60 days‘ have been replaced to 182 days.
 For Indian Citizens and Persons of Indian Origin [Explanation (b) ]
 For such person Test (a) remains the same but in Test (b) ) words ‗60 days‘ have been replaced to 182 days.
(A person shall be deemed to be of Indian origin if he or either of his parents or any of his grandparents was born in India or
undivided India.)
(b) Resident but Not-Ordinarily Resident [ Section 6(6) ]
An individual who is resident u/s 6(1) can claim the beneficial status of N.O.R. if he can prove that :
(a) He was non resident in India for 9 previous years out of 10 previous years preceding the relevant previous year.
OR
(b)He was in India for a period or periods aggregating in all to 729 days or less during seven previous years
preceeding the relevant previous year.
An individual who is Resident u/s 6(1) can be subdivided into two categories :
(i) Ordinary Resident ; or
(ii) Not ordinarily Resident
(c) Non- Resident [ Section 2(30) ]
Under Sec. 2(30) of the Income Tax Act, 1961 an assessee who does not fulfill any of the two conditions given in Sec.
6(1) (a) or (b) would be regarded as ― Non-Resident‖ assessee during he relevant previous year for all purposes of this Act.
Rule of Residence for an Individual in brief:
The following Table given below summarizes the Rule of residence for the assessment year 2018-2019.
In the case of an Indian Citizen who In the case of an Indian Citizen or a In the case of an individual [other than that
leaves India during the previous year for person of Indian origin ( who mentioned in column (1) and (2)]
the purpose of employment (as a is abroad) who comes on a visit to
member of the crew of an Indian Ship) India during the previous year.
(1) (2) (3)
(a) Presence of at least 182 days in (a) Presence of at least 182 days in (a) Presence of at least 182 days in India
India during the previous year 2018- India during the previous year 2018- during the previous year 2018-2019.
2019 2019. (b) Presence of at least 60 days in India during
(b) Non-functional (b) Non-functional the precious year 2018-2019 and 365 days
during 4 years immediately preceding the
relevant previous year (i.e., during April 1, 2014
and March 31, 2018.)
ADDITIONAL CONDITIONS AT A GLANCE
Resident in India in at least 2 out of 10 years immediately preceding the relevant previous year [ or must satisfy at least one o f
the basic conditions, in 2 out of 10 immediately preceding previous years ( i.e. 1998-99 to 2007-08].

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Presence of at least 730 days in India during 7 years immediately preceding the relevant previous year ( i.e. during April 1,
2001 and March 31, 208.)
Residential Status OF ‗H.U.F.‘ , ‗FIRM‘ , ‗ A.O.P.‘
Section 6(2) of the Act provides that status of these persons shall be determined as per Tests given below :
1. Resident [ Section 6(2) ]
It means that if a H.U.F., FIRM, AOP is controlled from India even partially it will be Resident assessee.
The Control and management of affairs refers to the controlling and directing power, the Head and the Brain. It means
that decision making power for vital affairs is situated in India. The control and management means de facto control and
management and not merely the right to control or manage.
In case of a Firm, it is said that the control and management of firm is saturated at a place where partners meet to decide the
affairs of the firm. If such place is outside India , it will be said that the control and management is outside India.
2. Non- Resident [ Section 2(30) ]
a H.U.F. , FIRM, AOP shall be Non-Resident if the control and management affairs is situated wholly outside India.
3. Not Ordinarily Resident [ Section 6(6)b ]
H.U.F. will be ‗Not Ordinarily Resident‘ if :
(i) its manager (Karta) has not been resident in India in 9 out of 10 previous year preceding the relevant accounting year ; or
(ii) the manage had not , during the 7 previous year preceding the relevant accounting year been present in India for a period
or periods amounting in all to 730 days.
While determining the Residential Status of a Firm or HUF Is should be noted that Residential Status of Partners or co-
parceners of a HUF is of immaterial consideration. What is important to note is that from where the business is being
controlled. There may be a situation where all the partners of a Firm are Resident in India but even then that Firm may be Non-
Resident if its full control and management lies outside India.

Income Tax Deductions under section 80C to 80U

Section Permissible limit Type of investment, expense Eligible claimants
or income
80C Maximum Rs. 1,50,000 (aggregate of 80C, PPF, EPF, Bank FD's, NSC, Individuals, HUFs
80CCC and 80CCD) LIC premium, tuition fees
80CCC Maximum Rs. 1,50,000 (aggregate of 80C, Pension funds Individuals
80CCC and 80CCD)
80CCD Maximum Rs. 1,50,000 (aggregate of 80C, Pension fund initiated by Individuals
80CCC and 80CCD) central government
80TTA Up to Rs. 10,000 per year Interest on bank savings Individuals and HUFs
account
80CCG 50% of amount invested subject maximum of Equity saving schemes Individuals
Rs. 25,000
80CCF Up to Rs. 20, 000 Long term infrastructure bonds Individuals and HUFs
80D For individual taxpayers- Premium up to Rs. Medical insurance premium Individuals and HUFs
25,000 in case of individuals and up to Rs. and Health check up
30,000 for senior citizens
For HUFs- Premium up to Rs. 25,000 and up to
Rs. 30,000 in case the member insured is a
senior citizen or super senior citizen
80E No limit defined Interest on repayment of Individuals
Education loan
80EE Maximum Rs. 50,000 Interest on loan payable for Individuals
acquiring a residential house
property
80G Differs with the amount of donation General donations of any Individuals, HUF's,
recognized society Companies, Firms
80GGA Depends on quantum of donation Donations to Scientific Those who do not have
Research or Rural income from business or
development profession
80GGB Depends on quantum of donation Donations to political parties Indian companies
80GG Rs. 5000 per month or 25% of total income Rent paid if HRA is not Individuals not receiving
whichever is less received HRA

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  International taxation
International taxation is the study or determination of tax on a person or business subject to the tax laws of different countries,
or the international aspects of an individual country's tax laws as the case may be. Governments usually limit the scope of
their income taxation in some manner territorially or provide for offsets to taxation relating to extraterritorial income. The
manner of limitation generally takes the form of a territorial, residence-based, or exclusionary system. Some governments have
attempted to mitigate the differing limitations of each of these three broad systems by enacting a hybrid system with
characteristics of two or more.
 Double Taxation Avoidance Agreement (DTAA)
The Double Tax Avoidance Agreement (DTAA) is a tax treaty signed between two or more countries to help taxpayers avoid
paying double taxes on the same income. A DTAA becomes applicable in cases where an individual is a resident of one
nation, but earns income in another.
DTAAs can be either be comprehensive, encapsulating all income sources, or limited to certain areas, which means
taxing of income from shipping, inheritance, air transport, etc. India presently has DTAA with 80+ countries, with plans to sign
such treaties with more countries in the years to come. Some of the countries with which it has comprehensive agreements
include Australia, Canada, the United Arab Emirates, Germany, Mauritius, Singapore, the United Kingdom and the United
States of America.
Advantages of Double Taxation
1. As already discussed above, Double taxation on income earned will not take place.
2. Such agreements may promote bilateral investments between both the countries and multiple countries.
3. It will promote more clarity and transparency in terms of investments.
4. Lastly it will promote trading on a global perspective.
Double Tax Avoidance Agreement (DTAA) in India includes following types of Incomes, on which Non-resident Indians
need not pay tax twice:
1. Income from Services provided in India,
2. Income from Salary received in India,
3. Income from Immovable property in India,
4. Income from Capital Gains,
5. Income from fixed deposits in India,
6. Income from Savings bank account in India.

Corporate Tax
The term "corporate tax planning" encompasses the strategic structuring of business operations in order to
minimize tax liabilities. Corporate tax planning activities generally seek to avoid legally triggering tax costs rather than illegally
evading an existing obligation to pay taxes.
 Corporate taxes are collected by the government as a source of income.
 Taxes are based on operating earnings after expenses have been deducted.
 The corporate tax rate in the United States is currently at a flat rate of 21%. Before the Trump tax reforms of
2017, the corporate tax rate was 35%.
 A company can register as an S corporation to avoid double taxation. An S corporation does not pay corporate
tax as the income passes through to business owners who are taxed through their individual tax returns.
Corporate Tax Deductions
Corporations are permitted to reduce taxable income by certain necessary and ordinary business expenditures. All
current expenses required for the operation of the business are fully tax deductible. Investments and real estate purchased for
the intent of generating income for the business are also deductible. A corporation can deduct employee salaries, health
benefits, tuition reimbursement, and bonuses. In addition, a corporation can reduce its taxable income by deducting insurance
premiums, travel expenses, bad debts, interest payments, sales taxes, fuel taxes, and excise taxes. Tax preparation fees, legal
services, bookkeeping, and advertising costs are also used to reduce business income.
Double Taxation and S Corporations
A central issue relating to corporate taxation is the concept of double taxation. Certain corporations are taxed on the
taxable income of the company. If this net income is distributed to shareholders, these individuals are forced to pay individual
income taxes on the dividends received. Instead, a business may register as an S corporation and have all income pass-
through to business owners. An S corporation does not pay corporate tax as all taxes are paid through individual tax returns.
Advantages of Corporate Taxation
 Limited liability: The shareholders of a corporation are only liable up to the amount of their investments. The corporate
entity shields them from any further liability, so their personal assets are protected.

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  Source of capital: A publicly-held corporation in particular can raise substantial amounts by selling shares or issuing
bonds.
 Ownership transfers: It is not especially difficult for a shareholder to sell shares in a corporation, though this is more
difficult when the entity is privately-held.
 Perpetual life: There is no limit to the life of a corporation, since ownership of it can pass through many generations of
investors.
 Pass through: If the corporation is structured as an S corporation, profits and losses are passed through to the
shareholders, so that the corporation does not pay income taxes.
Disadvantages of Corporation Taxation:
 Double taxation: Depending on the type of corporation, it may pay taxes on its income, after which shareholders pay
taxes on any dividends received, so income can be taxed twice.
 Excessive tax filings: Depending on the kind of corporation, the various types of income and other taxes that must be
paid can require a substantial amount of paperwork. The exception to this scenario is the S corporation, as noted
earlier.
 Independent management: If there are many investors having no clear majority interest, the management team of a
corporation can operate the business without any real oversight from the owners.
Compare Tax Considerations by Business Type
Sole proprietorship: The business and the owner are legally the same. From the IRS's perspective, the business is
not a taxable entity. Instead, all of the business assets and liabilities and income are treated as belonging directly to
the business owner.
General partnership: As with sole proprietorships, the business and the owners (two or more) are legally the same. A
partnership is not a taxable entity under federal law. There is no separate partnership income tax, as there is a
corporate income tax. Instead, income from the partnership is taxed to the individual partners, at their own individual
tax rates. For tax purposes, all of the income of the partnership must be reported as distributed or ―passed-through‖ to
the partners, who will then be taxed on it through their individual returns.
Limited Liability Company (LLC): A separate legal entity created by a state filing. Under state laws, LLC owners are
given the liability protection that was previously afforded only to owners of a corporation (shareholders). Now, LLCs are
treated like partnerships for federal tax purposes (unless they elect to be treated like a corporation, which most don‘t).
LLCs have ―pass-through‖ taxation, which means that no tax on the LLC‘s income is paid at the business level.
Income/loss is instead reported on the personal tax returns of the owners, and any tax due is paid at the individual
level. Keep in mind, even though LLCs are treated as partnerships for federal tax purposes, the same is not always
true for state tax purposes.
C Corporation: A separate legal entity created by a state filing. The C corporation, also called the "regular"
corporation, is subject to corporate income tax. Income earned by a C corporation is normally taxed at the corporate
level using the corporate income tax rates. C corporation income is also subject to what is called ―double taxation,‖
when the income of the business is distributed to the owners in the form of dividends, because dividends are taxable.
Tax is paid first by the corporation on its income and then again by the owners on the dividends received. If the owner
draws a salary from the corporation, that salary is also subject to income tax (and FICA).
S Corporation: A separate legal entity created by a state filing. The S corporation is a corporation that has filed a
special election with the IRS to be treated like a partnership (or LLC) for tax purposes. Therefore, S corporations are
not subject to corporate income tax. Instead, their income is subject to what is often called ―pass-through‖ taxation,
where the income or loss of the business is passed through the company to the owners (shareholders). Having pass-
through taxation means that S corporation income is not subject to double taxation like C corporation income.

Tax Deducted at Source (TDS)

TDS is a system introduced by Income Tax Department, where person responsible for making specified payments
such as salary, commission, professional fees, interest, rent, etc. is liable to deduct a certain percentage of tax before making
payment in full to the receiver of the payment. As the name suggests, the concept of TDS is to deduct tax at its source. Let us
take an example of TDS assuming the nature of payment is professional fees on which specified rate is 10%.

TAN:
TAN stands for Tax Deduction Account Number. It is 10 digit alpha numeric numbers required to be obtained by all
persons who are responsible for deducting or collecting tax. Under Section 203A of the Income Tax Act, 1961, it is mandatory
to quote Tax Deduction Account Number (TAN) allotted by the Income Tax Department (ITD) on all TDS returns. The
procedure for application of TAN is very simple and can be done online by filling up Form 49B.
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TDS Certificate:
TDS certificates are issued by the deductor (the person who is deducting tax) to the deductee (the person from whose payment
the tax is deducted). There are mainly two types of TDS certificates issued by the deductor.
 Form 16: which is issued by the employer to the employee incorporating details of tax deducted by the employer
throughout the year, and
 Form 16A: which is issued in all cases other than salary.
How much tax should be deducted from salary:
Persons responsible for paying salary are liable to deduct tax on estimated salary at prescribed rate of 15% subject to
following:
 Exemption Limit: No tax is required to be deducted at source unless the estimated salary exceeds basic exemption
limit.
 Exempt allowances: Allowances such as LTC, HRA, conveyance, travelling exempt as per prescribed limits and other
perquisites not forming part of salary should be deducted from total salary while calculating taxable salary.
 Other deductions: Other deductions such as deductions under section 80C, 80CCC, 80CCD, 80CCG, 80D, 80DD,
80DDB, 80E, 80EE, etc. should be considered before the calculation of tax on salary.
Rates of TDS
Section Nature of payment Rate of TDS
192 Salary 15%
(Education and higher education cess @ 2% & 1%
respectively in cases where salary exceeds Rs 1 crore)

194 Deemed Dividend u/s 2(22)(e) 10%

194A Interest other than interest on securities 10%
194C Payment or credit to a resident contractor/sub- 1% (in cases of individuals and HUF)
contractor 2% (in cases of person other than individual or HUF)

194D Insurance Commission 5% (in cases of individuals and HUF)

10% (in cases of person other than individual or HUF)

194G Commission on sale of lottery tickets 10%

194H Commission or Brokerage 10%
194-I Rent 2% (rent of plant & machinery)
10% (rent of land or building or furniture or fixtures)

194-IA Payment/credit of consideration to a resident 1%

transferor for transfer of any immovable property
(other than rural agricultural land)
194J Professional fees, technical fees, royalty or 10%
remuneration to a director
194LA Payment of compensation on acquisition of certain 10%
immovable property

Advance payment of tax

According to Section 208 of Income tax Act, 1961, every person whose estimated tax liability for the FY exceeds Rs.10,000
has to pay tax in advance.
According to Section 208 of the Income Tax Act:
1. Every assessee shall be liable to pay advance income-tax during any financial year in respect of his total income of the
financial year, if the amount of advance income-tax payable exceeds ten thousand rupees.
2. The amount of advance income-tax payable by an assessee in the financial year shall be computed in the following
manner, namely :
1) the assessee shall first estimate his total income and calculate income-tax thereon at the rates in force in the
financial year
2) the income-tax so calculated shall be reduced by;
1) The amount of income-tax which would be deductible or collectible at source during the financial year from
any income which is taken into account in estimating the total income.
2) the amount of credit under section 207, allowed to be set-off in the financial year AND
3) The balance amount of income-tax shall be the advance income-tax payable.

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 3. The advance income-tax, in case of any person other than a company, shall be payable in three installments during the
financial year on or before the dates as specified.
The advance tax is to be paid in the following three installments on the following dates:
For Non-Corporate Assessee:
 On or before 15 September – not less than 30% of tax payable for the year.
 On or before 15 December – not less than 60% of tax payable for the year.
 On or before 15 March – not less than 100% of tax payable for the year.
For Corporate Assessee:
 On or before 15 June – not less than 15% of tax payable for the year.
 On or before 15 September – not less than 45% of tax payable for the year.
 On or before 15 December – not less than 75% of tax payable for the year.
 On or before 15 March – not less than 100% of tax payable for the year.
KEY POINTS
 Advance payments are made before receiving a good or service.
 In many cases, advance payments protect the seller against nonpayment in case the buyer doesn't come and pay at
the time of delivery.
 Companies record advance payments as assets on their balance sheets.
 A prepaid cell phone is an example of an advance payment.

Income Sources
Five main Income tax heads
 Income from Salary.
 Income from House Property.
 Income from Profits and Gains of Profession or Business.
 Income from Capital Gains.
 Income from Other Sources.
Income Tax Slab Rate for AY 2020-21 for Individuals:
 Individual (resident or non-resident), who is of the age of less than 60 years on the last day of the relevant previous
year:
Net Income Range Income-Tax Rate
Up to Rs. 2,50,000 Nil
Rs. 2,50,000- Rs. 5,00,000 5%
Rs. 5,00,000- Rs. 10,00,000 20%
Above Rs. 10,00,000 30%
 Resident senior citizen, i.e., every individual, being a resident in India, who is of the age of 60 years or more but less
than 80 years at any time during the previous year:
Net Income Range Income-Tax Rate
Up to Rs. 3,00,000 Nil
Rs. 3,00,000 – Rs. 5,00,000 5%
Rs. 5,00,000- Rs. 10,00,000 20%
Above Rs. 10,00,000 30%
 Resident super senior citizen, i.e., every individual, being a resident in India, who is of the age of 80 years or more at
any time during the previous year:
Net Income Range Income-Tax Rate
Up to Rs. 5,00,000 Nil
Rs. 5,00,000- Rs. 10,00,000 20%
Above Rs. 10,00,000 30%
Plus: -
Surcharge: - 10% of income tax where total income exceeds Rs. 50,00,000.
15% of income tax where total income exceeds Rs. 1,00,00,000.
Health and Education cess: - 4% of income tax and surcharge.
Note: - A resident individual is entitled for rebate under section 87A if his total income does not exceed Rs. 5,00,000. The
amount of rebate shall be 100% of income-tax or Rs. 12,500, whichever is less.

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  Income Tax Rate for Partnership Firm:
A partnership firm (including LLP) is taxable at 30%.
Plus:
Surcharge:- 12% of tax where total income exceeds Rs. 1 crore.
Health and Education cess: 4% of income tax plus surcharge.
 Tax Rate for Companies:
Tax rates for domestic companies:
Particulars Tax Rates
Total turnover or gross receipts during the previous year 2017-18 doesn‘t exceed Rs. 250 Crore 25%
Other domestic companies 30%
 Tax rates for foreign companies:
The tax rate for foreign company is 40%.
Plus: -
Surcharge:-
Company Net Income is Between Rs. 1Cr. – 10 Cr. Net Income Exceeds Rs. 10Cr.
Domestic Company 7% 12%
Foreign Company 2% 5%
Health and Education cess: 4% of income tax plus surcharge.
Income from salary
Income from salary includes wages, pension, annuity, gratuity, fees, commission, profits, leave encashment, annual
accretion and transferred balance in recognised Provident Fund (PF) and contribution to employees‘ pension account.
Employer-Employee Relationship
o To fall under the ambit of salaries, the relationship between the payer and payee has to be that of Employer-employee.
o An Employee should not be an agent of the Employer • For ascertaining whether a person is an employee or an agent,
a rough and ready test is whether under the terms of his employment the employer exercises a supervisory control in
respect of the work entrusted to that person.
o An employee acts under the direct control and supervision of his employer. An agent on the other hand, in the exercise
of his work, is not subject to the direct control or supervision of the principal
o Generally an agent is paid commission upon effecting the result which he has been instructed by his principal to
achieve, an employee is paid wages or salary.
Income Taxable under the Head – ―Salaries‖
• Any salary due form an employer or former employer to an assessed in the previous year, whether actually paid or not,
• Any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not
due or before it becomes due to him.
• Any arrears of salary paid or allowed to him in a previous year by or on behalf of an employer or former employer, if not
charged to income tax and for any earlier previous years
SALARY [SECTION 17]
• Salary includes –
 Wages;
 any annuity or pension,
 any gratuity;
 any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;
 any advance of salary;
 any payment received by an employee in respect of any period of leave not availed of by him;
 employer's contribution to recognized provident fund is excess of 12% of salary of an employee
ALLOWANCES
• An Allowance is defined as a fixed amount of money given periodically in addition to Salary for the purpose of meeting
some specific requirements connected with the service rendered by the employee or by way of compensation for some
unusual conditions of employments.
• These allowances are generally taxable and are to be included in gross salary unless a specific exemption has been
provided.
Fully Taxable Allowances
 Dearness Allowance or Special Allowance
 Fixed Medical Allowance
 Tiffin Allowance
 Servant Allowance

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  Non-Participating Allowance
 Hill Allowance
 City Compensatory Allowance
 Field Allowance
 Service / Professional Allowance
 Overtime Allowance
 Warden / Proctor Allowance
 Any other allowance not specifically exempted
 otherwise
Allowance Not fully Taxable
 House Rent Allowance
 Special Allowance for performance of official duty
 Conveyance Allowance
 Leave Travel Allowance
 Entertainment
 Allowance

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  The detailed listing of the prescribed allowances which are exempt and the limits of exemption under section 10(14)
Rule 2bb (Some examples are – Education Allowance, Hostel Allowance, Border Area Allowance, Tribal area
allowance, Island duty allowance etc.)
Valuation of Rent-free Accommodation
Circumstances Where Accommodation is unfurnished Where Accommodation is furnished
Where the accommodation is provided License fee determined by the Central License Fee + 10% of cost of furniture
by the Central Government or any Government or any State Government in (including appliances and air
State Government respect of accommodation conditioners)
Accommodation provided by any other (i) 15% of salary in cities having Value of furniture unfurnished
employer (Either owned by employer or population exceeding 25 lakhs as accommodation + 10% of cost of
taken on lease) per 2001 census; appliances and air conditioners)
(ii) 10% of salary in cities having (including
population exceeding 10 lakhs but
not exceeding 25 lakhs as per 2001
census
(iii) 7.5% of salary in other areas
OR
Actual amount of lease rental paid or
payable by the employer or 15% of
salary, whichever is lower
Accommodation is provided by the 24% of salary OR the actual charges
employer in a HOTEL (except where paid or payable to such hotel, which is
the employee is provided such Lower
accommodation for a period Not applicable
not Exceeding in
aggregate fifteen days on his transfer
from one place to another)
CAR Perquisite
Circumstances Where cubic capacity of engine does Where cubic capacity of engine
not exceed 1.6 liters exceeds 1.6 liters
Where Motor Car Owned or Hired by
Employer and –
(a) is used wholly and exclusively in the No Value No Value
performance of his official duties;
(b) Is used exclusively for personal or Actual Amount of expenses for running Actual Amount of expenses for running
private purpose by employee & maintenance + Depreciation & maintenance + Depreciation
(c) is used partly in performance of
official duties and partly for personal
purpose and –
 The expenses on running & Rs. 1,800 p.m. (plus Rs. 900 p.m., if Rs. 2,400 p.m. (plus Rs. 900 p.m., if
maintenance are met or chauffeur is also provided to run the chauffeur is also provided to run the
reimbursement by Employer motor car) motor car)
 The expenses on running & Rs. 600 p.m. (plus Rs. 900 p.m., if Rs. 900 p.m.(plus Rs. 900 p.m., if
maintenance for private or personal chauffeur is also provided to run the chauffeur is also provided to run the
use are fully met by Employee motor car) motor car)
Note:
 Only receipts from employer are taxable under this head, others excluded.
 If salary forgone under legal obligations it is exempted, but if foregone voluntarily, it is taxable.
 Salary received after cessation of employment is taxable.
 Salary in lieu of notice is taxable.
 Salary is always shown on gross basis i.e. after adding amount of contribution already deducted with salary.

Income from House Property

A house property could be your home, an office, a shop, a building or some land attached to the building like a parking
lot. The Income Tax Act does not differentiate between a commercial and residential property. All types of properties are taxed
under the head ‗income from house property‘ in the income tax return. An owner for the purpose of income tax is its legal
owner, someone who can exercise the rights of the owner in his own right and not on someone else‘s behalf.
 The house property should consist of any building or land appurtenant thereto;
 The taxpayer should be the owner of the property. Owner includes deemed owner.
 The house property should not be used for the purpose of business or profession carried on by the taxpayer.

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Deemed Owner [Section 27]:
Income from house property is taxable in the hands of its owner. However, in the following cases, legal owner is not
considered as the real owner of the property and someone else is considered as the deemed owner of the property to pay tax
on income earned from such house property:
 An individual, who transfers otherwise than for adequate consideration any house property to his or her spouse, not
being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, shall
be deemed to be the owner of the house property so transferred;
 The holder of an impartible estate shall be deemed to be the individual owner of all the properties comprised in the
estate;
 A member of a co-operative society, company or other association of persons to whom a building or part thereof is
allotted or leased under a house building scheme shall be deemed to be the owner of that building or part thereof;
 A person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of
the nature referred to in Section 53A of the Transfer of Property Act, 1882 shall be deemed to be the owner of that
building or part thereof;
 A person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not
exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to
in section 269UA (f), shall be deemed to be the owner of that building or part thereof.
Meaning of Composite Rent
When apart from recovering rent of the building, in some cases the owner gets rent of other assets (like furniture) or he
charges for different services provided in the building (for instance, charges for lifts, security, air conditioning, etc.). The amount
so recovered is known as ―composite rent‖.
 Tax treatment of composite rent of building let out along with other assets
Composite rent includes rent of building and rent towards other assets or facilities. The tax treatment of composite rent is as
follows:-
 In a case where letting out of building and letting out of other assets are inseparable (i.e., both the lettings are
composite and not separable, e.g., letting of equipped theatre), entire rent (i.e. composite rent) will be charged to tax
under the head ―Profits and gains of business and profession‖ or ―Income from other sources‖, as the case may be.
Nothing is charged to tax under the head ―Income from house property‖.
 Tax treatment of composite rent in a case of letting of building along with provision of services
In a case letting of building along with provision of services, composite rent includes rent of building and charges for different
services (like lift, watchman, water supply, etc.): In this situation, the composite rent is to be bifurcated and the sum attributable
to the use of property will be charged to tax under the head ―Income from house property‖ and charges for various services will
be charged to tax under the head ―Profits and gains of business and profession‖ or ―Income from other sources‖ (as the case
may be).
 Rental income from sub-letting
Rental income in the hands of owner is charged to tax under the head ―Income from house property‖. Rental income of a
person other than the owner cannot be charged to tax under the head ―Income from house property‖. Hence, rental income
received by a tenant from sub-letting cannot be charged to tax under the head ―Income from house property‖. Such income is
taxable under the head ―Income from other sources‖ or profits and gains from business or profession, as the case may be.
 Rental income from a shop
Rental income from a property, being building or land appurtenant thereto, of which the taxpayer is the owner is charged to tax
under the head ―Income from house property‖. To tax the rental income under the head ―Income from house property‖, the
rented property should be building or land appurtenant thereto. Shop being a building, rental income will be charged to tax
under the head ―Income from house property‖.
Meaning of Self-Occupied Property
A self-occupied property means a property owned by the taxpayer who is occupied throughout the year by the owner
for the purposes of his own residence and is not actually let out during the whole or any part of the year. Thus, a property not
occupied by the owner for his residence cannot be treated as a self occupied property. However, there is one exception to this
rule. If the following conditions are satisfied, then the property can be treated as self-occupied and the annual value of a
property will be ―Nil‖, even though the property is not occupied by the owner throughout the year for his residence:
 The taxpayer owns a property;
 Such property cannot actually be occupied by him owing to his employment, business or profession carried on at any
other place and he has to reside at that other place in a building not owned to him;
 The property mentioned in (a) above (or part thereof) is not actually let out at any time during the year;
 No other benefit is derived from such property.

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 Computation of Income from House Property
Particulars Amount
Gross Annual Value XXX
Less: Municipal Taxes paid during the year XXX
Net Annual Value (NAV) XXX
Less: Deduction under section 24(a) @ 30% of NAV (Standard Deduction)] XXX
Less: Deduction under section 24(b) on account of interest on borrowed capital XXX
Income From House Property XXXX
Meaning of Municipal Value
 For collection of municipal taxes, local authorities make periodic survey of all buildings in their jurisdiction. Such value
determined by the municipal authorities in respect of a property, is called as municipal value of the property.
 Meaning of Fair Rent It is the reasonable expected rent which the property can fetch. It can be determined on the basis
of rent fetched by a similar property in the same or similar locality.
 Meaning of Standard Rent It is the maximum rent which a person can legally recover from his tenant under the Rent
Control Act. Standard rent is applicable only in case of properties covered under Rent Control Act.

Deductions in computation of house property taxable Income:

Description Nature of Deductions
Municipal Taxes Municipal taxes including service-taxes levied by any local authority in respect of house property is
allowed as deduction, if:
a) Taxes are borne by the owner; and
b) Taxes are actually paid by him during the year.
Standard Deduction 30% of net annual value of the house property is allowed as deduction if property is let-out during
[Section 24(a)] the previous year.
Interest on Borrowed a) In respect of let-out property, actual interest incurred on capital borrowed for the purpose of
Capital [Section 24(b)] acquisition, construction, repairing, re-construction shall be allowed as deduction
b) In respect of self-occupied residential house property, interest incurred on capital borrowed for
the purpose of acquisition or construction of house property shall be allowed as deduction up to ₹.
2 lakhs. The deduction shall be allowed if capital is borrowed on or after 01-04-1999 and
acquisition or construction of house property is completed within 5 years
c) In respect of self-occupied residential house property, interest incurred on capital borrowed for
the purpose of reconstruction, repairs or renewals of a house property shall be allowed as
deduction up to ₹.30,000.

Other Provisions related to Computation of House Property Income:

 If any house property is held as stock in trade, but let out the income will be computed as income from house property
and not income from business. However a new sub-section (5) has been inserted in Section 23 of the Income-tax Act
with effect from assessment year 2018-19 to provide that the annual value of a property or part thereof which is held as
stock-in-trade by the owner of the property and not let out during the whole or any part of the year shall be taken to be
nil.
This concession will be available only for the period up to 1 year from the end of the financial year in which the
certificate of completion of construction of the property is obtained from the competent authority.
 Arrears of rent or recovery of unrealized rent [Section 25A]: Amount received in respect of arrears of rent or any
subsequent recovery of unrealized rent shall be deemed to be the income of taxpayer under the head "Income from
house property" in the year in which such rent is realized or received (whether or not the assesse is the owner of that
property in that year).
 Further, 30% of such rent shall be allowed as deduction in computation of house property income.
 Other Tax benefits available to a Taxpayer: Following are tax benefits available to owner of a house property,
besides deduction of interest on borrowed capital utilised for construction/acquisition/purchase, repair/renewal of a
house property as explained above.
Compute Income from House Property under different circumstances
Gross Annual Deduction Net Annual
S. Standard
Property Type Value of the for municipal Value of the Interest on borrowed capital
N. Deduction
property taxes property
Deduction for interest on
One self-occupied house borrowed capital is allowed up
1 Nil Nil Nil Nil
property to ₹.30,000 or ₹.2,00,000, as
the case may be.

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 House property could not be Deduction for interest on
occupied by the owner due borrowed capital is allowed up
2 Nil Nil Nil Nil
to employment or business to ₹.30,000 or ₹.2,00,000, as
carried on at any other place the case may be.
To be Allowed on Gross 30% of Entire amount of interest paid
computed as actual annual Net or payable on borrowed
per payment value less Annual capital shall be allowed as
provisions of basis Municipal Value deduction. Pre-construction
3 Let out property
Section 23(1) taxes paid interest shall be allowed as
deduction in 5 annual equal
installments (Subject to
certain conditions).
Only one property selected by the taxpayer will be considered as self-occupied house
More than one-self occupied
4 property and all other properties shall be deemed to be let-out for the purpose of
property
computation of income under the head house property.
A self-occupied property let- The house will be taken as let-out property and no concession shall be available for the
5
out for the part of the year duration during which the property was self-occupied.
One part of the property is Each part of the property shall be considered as separate property and income will be
6 let-out and other part is used computed accordingly
for self-occupied purposes

Income from Profits and Gains of Profession or Business

Business is an activity of purchase and sell of goods with the intention of making profit.
Profession is an occupation requiring intellectual skill. E.g. Doctor, Lawyer etc. Vocation is an activity, which requires a special
skill, which is used to earn income. e.g. Painter, Singer etc. For income tax purpose there is no difference between business
income, profession income and vocation income.
Section 2 ( 13 ) :
Business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce
or manufacture.
METHODS OF COMPUTING TAXABLE INCOME
1. Gross Sales or Gross fees as the case may be are to be taken as the base if Receipt and Payment A/c or cash Book is
given. From this Gross income expenses which are specifically allowed by the income tax act are deducted to arrive at
taxable income.
2. If profit & loss a/c or income & expenditure a/c is given Net Profit or (Surplus) is taken as the base and then following
adjustments are made:
a. Expenses, which are debited, to profit & loss a/c, but disallowed by the Income Tax Act and either fully or partially
are added back.
b. Expenses, which are not debited, to profit & loss a/c but which are allowed by the Income Tax Act are deducted.
c. Income that is credited to profit & loss a/c but not taxable at all or taxable under some different head is to be
deducted.
d. Income that is not credited to profit & loss a/c, but which is chargeable to tax as business income is to be added.
DEDUCTIONS FOR EXPENSES SPECIFICALLY ALLOWED SECTION 30 TO SECTION 43D
1. Rent, rates, taxes, repairs and insurance of building (Section 30):
a. If assesse has occupied the premises as a tenant, rent of the premises and if he has agreed to bear cost of repairs,
such cost is allowed as deduction, provided it is not of capital nature.
b. If assessee has occupied premises as the owner; repairs, land revenue, local taxes, insurance premium etc. are
allowed as deduction. However, no expenditure in form of capital expenditure is allowed.
2. Repairs & Insurance of machinery, Plant & Furniture (Sec.31): Amount paid on account of repairs and insurance
premium against risk of damage in respect of machinery, plant & furniture are allowed as deduction provided they are not
of capital nature.
3. Depreciation u/s 32: Under Section 32 depreciation on assets is allowed as deduction while computing income from
business or profession. To claim this deduction following conditions should be satisfied:
1) Assessee should be owner of the asset.
2) Asset must be used for the business.
3) Such use must be in the previous year.
Depreciation is allowed not on individual asset items, but on block of assets under following categories:
1) Buildings
2) Plant & Machinery
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 3) Furniture
4) Intangible Assets acquired after March 31, 1998 such as know‐ how, Patents, Trademarks, licenses, franchises or any
other business or commercial rights of similar nature.
The term plant includes ships, vehicles, books, scientific apparatus and surgical equipment‘s used for the business but
excludes tea bushes or livestock.
If any asset falling in block of assets is acquired during the year and put to use during the previous year for less than
180 days depreciation on such asset shall be restricted to 50% of the normal depreciation.
No depreciation is allowed on motor car which is manufactured outside India and acquired on or after 1st March 1975
but before 1st April 2001. However, this restriction does not apply if:
1) Assessee carries on a business of running the car on the hire for tourist, or
2) If assessee is using the car outside India for his business in another country.
If business is carried on in a building not owned by the assessee but acquired on lease or any other occupancy right
and any capital expenditure is incurred by him in respect of this building, such expenditure will be considered as cost of asset
as if he is the owner of such property.
Deduction u/s. 36 & 37:
1. Insurance: Section 36(1) (i)‐ Premium paid to cover the risk of damage or destruction of stocks, stores, cattle and on
health of employees under the approved scheme.
2. Insurance Premium paid by Federal milk co‐op. society on the lives of cattle owned by the members of a Primary Milk
Co‐op, Society affiliated to it. Section 36(1) (ia)
3. Premier for insurance on health of employees in accordance with scheme framed by GIC & approved by Central
Government or any other insurer & approved by the Insurance Regulatory & Development Authority (only if paid by
cheque) Section 36(1) (ib).
4. Bonus or commission paid to Employees: Section 36(1) (ii): It is allowed as deduction so far as they are not paid as
profit or dividend.
5. Interest on borrowed capital: Section 36(1) (iii): ‐ It is allowed as deduction. However, interest paid by firm to its
partners is allowed subject to provisions of Sections 40(b).
6. Discount on zero coupon bonds is deductible by issuing Company on pro rata Basis Sec.36(1)(iii a)
7. Contribution to recognised Provident fund or an approved super annulation fund: Section 36(1)(iv).Any sum paid by the
assessee as an employer by way of contribution towards pension scheme.
8. Contribution to Pension Scheme: Section 36(1)(iv a) Any contribution by an employer by way of contribution towards a
pension scheme for an employee up to 10% of salary shall be allowed as deduction.
9. Contribution to approved Gratuity Fund Section 36(1)(v): ‐ Amount contributed to the fund which is for the exclusive
benefit of the employees will be allowed as deduction.
10. Contributions received from employees (when deposited) Section 36(1)(va): ‐ Any contribution received from
employees towards any funds for the welfare of the employees e.g. P.F. will be allowed as deduction when such
contribution is credited to employees a/c on or before the due date. It is allowed as deduction not because it is an
expenditure of the assessee. In fact, it is not at all an expenditure of the assessee. But when this amount is deducted
from salary of employees, it is treated as an income under section 2(24)(x). Therefore, deduction is allowed when
payment is made by the due date.
11. Animals used for the business: Section 36 (1) (vi): ‐ Deduction is allowed when animals have died or have become
permanently useless. Amount of deduction will be difference between actual cost of the animals and amount realised if
any in respect of carcasses of the animals. Deduction is allowed only if animals are used for the purpose of business but
not as stock in trade.
12. Bad debts: Section 36(1)(vii) and Section 36(2): ‐ Deduction is allowed on this account if debts have arisen out of
business transaction. It is the responsibility of the assessee to prove to the satisfaction of income tax officer that such
debts are irrecoverable.
13. Expenditure for promoting family planning: Section 36(1)(ix): ‐ Only a company can claim this deduction. Any
expenditure incurred by a company to promote family planning among its employees is allowed as deduction fully,
provided it is revenue expenditure. Any capital expenditure on this account is allowed as deduction in 5 equal
installments. If profit is not sufficient to absorb this expenditure it can be carried forward to be set off in future. No
depreciation can be claimed under section 32 on capital assets used for promoting family planning and allowed as
deduction under section 36(1)(ix).

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 Expenses Not Deductible under Section 37
1. Donations
2. Charities
3. Gifts to relatives
4. Income tax
5. Wealth tax
6. Advance income tax
4. Fines and penalties for breach of any laws
5. Personal Drawings
6. Salary to owner
7. Interest on proprietors capital
8. Capital expenditure
9. Purchase of an assets
10. Extension of building
11. Personal expenditure
12. Household expenses.
13. Drawings
14. Education expenses of children
15. Residential telephone bill
16. Residential electricity bill
17. Residential maintenance
18. Amount transferred to reserve
19. Personal Hotel expenses
20. R.D.D. But deduction is allowed for actual bad debts
21. Personal motor expenses
22. L.I.C. on own life.
23. Any Investments
24. Any expenses related to
25. let

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 26. Expenditure on Advertisement (Section 37(2B): It is allowed as deduction. However, as per Section 37 (2B), any
expenditure incurred by an assessee on the advertisement in any souvenir, brochure, and pamphlet etc. published by
a political party will not be allowed as deduction.
27. In case of all assessee Section 40(a): Interest, royalty, fees for technical services or any other sum chargeable to tax
payable outside India without deducting tax at source & where there is no person to be treated as an agent of person
receiving this amount.
28. Salary paid outside India without deducting tax at source
29. Any contribution to PF or any other Fund, if there is no arrangement for TDS from any payment to be made from such
Fund if it is taxable under the head Salaries.
30. Expenditure on Corporate Social Responsibility.(W.e.f A.Y. 2016‐17)

Income from Capital Gains

Any gain arising on the transfer [except such transfers as are given in sections 46 and 47] of a capital asset [sec.
2(14)] is chargeable to tax under section 45, if it is not eligible for exemption under sections 54, 54B, 54D, 54EC, 54EE, 54F,
54G, 54GA, 54GB and 54H. Incidence of tax on capital gains, however, depends upon whether capital gain is a short-term
capital gain or a long-term capital gain [sec. 2(42A)]. All the provisions of the Act regulating tax incidence on capital gains are
discussed in this chapter.
Included and Excluded from Capital Asset:
Positive list - ―Capital asset‖ means property of any kind, whether fixed or circulating, movable or immovable, tangible or
intangible. Besides, it includes the following –
1. Any rights in or in relation to an Indian company, including rights of management or control or any other rights
whatsoever.
2. Property of any kind held by an assessee (whether or not connected with his business or profession).
3. Any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the
regulations made under the SEBI Act.

Negative list - The following assets are excluded from the definition of ―capital assets‖ –
1. Stock-in-trade (other than securities referred to in point 3 above).
2. Personal effects (movable assets).
3. Agricultural land in a rural area in India.
4. A few gold bonds and special bearer bonds (this point does not have any practical utility).
5. Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold
Monetization Scheme, 2015.
Stock-in-trade is not a capital asset –
Any stock-in-trade, (not being securities held by a Foreign Institutional Investor), consumable stores or raw material
held for the purpose of business or profession is not a capital asset. This is because of the fact that any surplus arising on sale
or transfer of stock-in-trade, consumable stores or raw material is chargeable to tax as business income under section 28.
What shall be included in the term stock-in-trade must always be dependent upon the nature of the business of the taxpayer.
For instance, if the taxpayer deals in house properties, then such properties are stock-in-trade and, consequently, they are not
capital asset. If a dealer in properties transfers his stock-in-trade (i.e., house properties), the resulting profit is business income
not capital gains. Conversely, if a doctor transfers a house property, the resulting income is taxable under the head Capital
gains.
Personal effects (being movable assets) are not capital assets –
Any movable property (including wearing apparel and furniture) held for personal use of the owner or for the use of any
member of his family dependent upon him, is not a capital asset for the purpose of income under the head Capital gains‖.
However, the following are not personal effects (in other words, the following are capital assets) even if these are for personal
use jewelry, archaeological collections, drawings, paintings, sculptures, or any work of art.
 LTCG: A long-term capital gain or loss is the gain or loss stemming from the sale of a qualifying investment that has
been owned for longer than 12 months at the time of sale. This may be contrasted with short-term gains or losses on
investments that are disposed of in less than 12 months‘ time.

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  STCG: Short Term Capital Gains (STCG) When securities (listed/equity oriented MF/zero coupon bonds) are held for up
to a year, the gain is treated as STCG. For immovable properties and unlisted securities, holding up to 24 months will
qualify for STCG.
Certain transactions not included in transfer - For the purpose of section 45, the following transactions are not regarded as
transfers (in other words, in the following cases†, there is no capital gain) —
1. Distribution of assets in kind by a company to its shareholders on its liquidation.
2. Any distribution of capital assets in kind by a Hindu undivided family to its members at the time of total or partial
partition.
3. Any transfer of capital asset under a gift or a will or an irrevocable trust (exception gift of ESOP shares is chargeable to
tax).
4. Transfer of capital asset between holding company and its 100 per cent subsidiary company, if the transferee company
is an Indian company.
5. Transfer of capital asset in the scheme of amalgamation/demerger, if the transferee-company is an Indian company.
6. Transfer of shares in amalgamating company/demerged company in lieu of allotment of shares in amalgamated
company/resulting company in the above case.
7. Transfer of capital asset in a scheme of amalgamation of a banking company with a banking institution.
8. Transfer of shares in an Indian company held by a foreign company to another foreign company in a scheme of
amalgamation/demerger of the two foreign companies, if a few conditions are satisfied.
9. Transfer of a capital asset by a non-resident of foreign currency convertible bonds or Global Depository Receipts to
another non-resident if the transfer is made outside India and if a few conditions are satisfied.
10. Transfer by an individual of Sovereign Gold Bond (issued by RBI under the Sovereign Gold Bond Scheme, 2015) by
way of redemption.
11. Transfer of any work of art, archaeological, scientific or art collection, book, manuscript, drawing, painting, photograph
or print, to the Government or a University or the National Museum, National Art Gallery, National Archives or any other
notified public museum or institution.
12. Any transfer by way of conversion of bonds or debentures, debenture-stock or deposit certificate in any form, of a
company into shares or debentures of that company.
13. Transfer by way of conversion of preference shares of a company into equity shares of that company.
14. Land transferred by a sick industrial company, if a few conditions are satisfied.
15. Transfer of a capital asset by a private company/unlisted public company to a limited liability partnership in the case of
conversion of company into LLP, if a few conditions are satisfied.
16. Transfer of capital assets at the time of conversion of a firm/sole proprietary concern in a company, if a few conditions
are satisfied.
17. Any transfer involved in a scheme for lending of any securities, if a few conditions are satisfied.
18. Any transfer of capital asset in a reverse mortgage.
19. Transfer of a capital asset (being a Government security carrying periodic payment of interest) made outside India
through an intermediary dealing in settlement of securities by a non-resident to another nonresident.
20. Transfer of a capital asset (being share of a special purpose vehicle) to a business trust in exchange of units allotted by
that trust to the transferor.
21. Any transfer by a unit holder of units held by him in the consolidating scheme of a mutual fund, made in consideration of
the allotment to him of units in the consolidated scheme of the mutual fund, if the consolidation is of two or more
schemes of equity oriented fund or of two or more schemes of a fund other than equity oriented fund.
22. Transfer by a unit holder of units held by him in the consolidating plan of a mutual fund scheme, made in consideration
of the allotment to him of units, in the consolidated plan of that scheme of the mutual fund.
23. Transfer, made outside India, of a capital asset being rupee denominated bond of an Indian company issued outside
India, by a non-resident to another non-resident.
Computation of short-term capital gain Computation of long-term capital gain
1. Find out full value of consideration [see para 96] 1. Find out full value of consideration [see para 96]
2. Deduct the following : 2. Deduct the following :
a. expenditure incurred wholly and exclusively in a. expenditure incurred wholly and exclusively in
connection with such transfer [see para 97]; connection with such transfer [see para 97];
b. cost of acquisition [see para 98]; and c. cost of b. indexed cost of acquisition see para 100 [in some

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 improvement [see para 99]. cases cost of acquisition is deducted — see para 95.1];
3. From the resulting sum deduct the exemption pro and
4. The balancing amount is short-term capital gain. c. indexed cost of improvement see para 100 [in some
cases cost of improvement is deducted — see para
95.1].
3. From the resulting sum deduct the exemption provided
by sections 54, 54B, 54D, 54EC, 54EE, 54F, 54G, 54GA
and 54GB [see para 103]
4. The balancing amount is long-term capital gain.

Income from Other Sources

Other Sources of Income are Stated Below:
 Lottery, Gambling, Batting, Horse Race, Cross Ward, Puzzle
 Any other casual income
 Interest other than interest on securities
 Interest on Securities
 Commission (If it is not a part of one‘s main Business or Profession)
 Family Pension
 Royalty
 Director‘s Fee
 Subletting of House
 Dividend
 Tuition Income
Casual Income: TDS is applicable @ 30% on this. It generally received after deduction of tax. Hence it always gross up while
calculating the income under this head as given below:
Gross Income = Net Amount Received * 100/70
Lottery Income: If Lottery Income is less than Rs.5000/- then there will be no TDS. Hence no need to gross up.
Income from Horse Race: If Income from Horse Race is less than Rs.2500/- then there will be no TDS Hence no need to
gross up.
Family Pension: Rs.15000/- or 1/3 of Actual Amount received, whichever is less, is exempt.
Taxable = Actual Amount Received – Exempted Amount
Dividend from Indian Co. is fully exempted.
Taxable Dividend: 1.Dividend from Foreign Co.
2. Dividend from Co-operative Society
Tax free in case of other sources:
 Interest from Capital Investment Bond
 Interest on Post Office Savings
 Interest on National Relief Bond
 Income from UTI
 Any Allowance to a M.P. (Member of Parliament)
TREARTMENT OF GIFTS:
The amendment of Sec 56(2) of the income tax act has intensely changed the scenario of the tax treatment of gifts received by
an assessee. The amended provision states that
 Where any sum of money exceeding Rs.50000 (gift in cash or cheque or draft) in aggregate in any previous year is
received by an individual or HUF without any consideration, the sum shall be deemed to be the income of the recipient.
 Any immovable property without any consideration is received and the stamp duty value of such property exceeds Rs.
50000, the stamp duty value will be taxable in the hand of the recipient.
 Any immovable property is received for a consideration which is less than the stamp duty value of the property by an
amount exceeding Rs. 50,000, and then the difference between stamp duty value and consideration is chargeable to tax.
 Any movable property is received without consideration, and the fair market value of which exceeds Rs. 50,000, the
whole of the aggregate fair market value of such property.
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  Any movable property is received for a consideration which is less than the aggregate fair market value of the property
by an amount exceeding Rs. 50,000, and then the difference between aggregate fair market value and the consideration
is chargeable to tax.
Nature of Income Extent of Deduction Available
Dividends (other than referred to in section 115-O) OR Any reasonable sum paid by way of commission to a banker
Interest on securities to realize such dividend or interest
Any sum received by the assessee from his employees to any Amount credited by the assessee to the employee‘s account
PF, Superannuation or ESI fund in the relevant fund on or before the due dates
 Income from Machinery, Plant & Furniture belonging to Where premises occupied as Tenant – Rent paid + Repairs &
assessee and let on hire, if the income is not chargeable Maintenance Other than Tenant – Actual amount paid by him
under the head – ―Profit and gains of business or for Rent, Rates, Taxes, Repairs & Maintenance , Insurance
profession‖ Premium etc. + Depreciation
 Where an assessee let on hire machinery, plant or Actual amount paid by him for Rent, Rates, Taxes, Repairs &
furniture belonging to him and the letting of building is Maintenance , Insurance Premium etc. + Depreciation
inseparable from the letting of said machinery, plant or
furniture, if the income is not chargeable under the head –
―Profit and gains of business or profession‖
Deduction of –
In case of Income in the nature of Family Pension  33.33 % of such income OR
 Rs. 15,000/Whichever is Lower
Deduction of Residuary Category – Any other expenditure Such deduction of expenditure laid out or expended wholly or
incurred exclusively for the purpose of making or earning such income.
Income by way of interest received on compensation or
A deduction of 50% of such income
enhanced compensation
CONDITIONS TO BE FULFILLED FOR CLAIMING THE DEDUCTIONS
 The expenditure must have been incurred solely and exclusively for the purpose of earning income or making profit.
 The expenditure should not be in the nature of a capital expenditure.
 The amount in question should not be in the nature of personal expenses of the assessee.
 The expenditure should be incurred in the accounting year.
 There must be a clear nexus between the expenditure incurred and the income sought to be earned.
 The dominant purpose of the expenditure incurred must be to earn income.

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1. Marginal proceeds are equivalent to price for which one of 13. Transfer of interest exists in the case of
following kinds of market structure (a) Profession (b) employment
A. Monopoly B. Perfect competition (c) business (d) none of these
C. Monopolistic competition D. Oligopoly
14. Human activities are of ____________ types
2. Economic returns are normally (a) One (b) two
A. Higher than accounting profits (c) three (d) four
B. Lower than accounting profits 15. Which of the following is not an example of non-
C. Identical to accounting profits economic activity?
D. B & C (a) Patriotism (b) teaching
3. Imperfect competition was introduced by (c) sentiment (d) sympathy
A. MaRshall B. Chamberlin 16. Economic activities may be classified into business,
C. Keynes D. None ___________ and employment
4. A situation in which the number of competing firms is (a) Profession (b) occupation
relatively small is known as (c) vocation (d) work
A. Monopoly B. Perfect competition 17. Price effect in indifference curve analysis arises
C. Monopsony D. Oligopoly A. When the consumer becomes either better off or
5. Demand is a function of woRse off because price change is not
A. Price B. Firm compensated by income change.
C. Product D. Cost B. When the consumer is betler off due to a change in
income and price
6. The term group equilibrium is related to C. When income and price change
A. Monopolistic competition B. Oligopoly D. None of the above
C. Duopoly D. Perfect competition
18. A situation where there is only one buyer is called
7. The possibilities of inadequate profits or even losses due A. Monopoly B. Oligopoly
to uncertainties are known as ____________ C. Monopsony D. Perfect competition
(a) Business contingencies (b) Business risks
19. Elasticity of demand measures the
(c) Business ventures (d) None of these
A. Sensitivity of sales to changes in a particular causal factor
8. Which one of the following may not be a factor behind B. Sensitivity of production to changes in a particular cost
starting a business? C. Value of price and cost D. Volume of product
(a) Routine workload (b) size of the firm 20. FactoRs responsible for creating conditions for
(c) finance (d) location of the business emergence and growth of monopoly are
9. Name the two broad categories of business activities. A. Control over strategic raw materials B. Patents
(a) Trade and commerce (b) trade and industry C. Licensing D. All of the above
(c) industry and commerce (d) none of these 21. In the case of an inferior good, the income effect
A. Partially offsets the substitution effect
10. Commerce includes activities relating to trade and
B. Is equal to the substitution effect
_________________ to trade.
C. Reinforces the substitution effect
(a) Supporting (b) subsidiaries
D. More than offsets the substitution effect
(c) auxiliaries (d) none of these
22. Generation born before 1964 and after World War II is
11. 'Earning of profit is considered to be the subsidiary classified as
objective of the business.' The given statement is (a) generation X (b) generation Y
(a) True (b) false (c) baby boomeRs (d) both a and b
(c) cannot say (d) None of these
23. FactoRs that affect Company's ability to maintain
12. Following are the characteristics of business risks. One customer relationships are known as
of them is not correct. Please identify it. (a) Marketing environment (b) Marketing dashboard
(a) Loss is the reward for risk bearing (c) Marketing plan (d) Both a and b
(b) Business risks are due to uncertainties
(c) Risk is an essential component of every business 24. Most successful products are those which are
(d) Degree of risk depends mainly upon the nature and size (a) Differentiated (b) Solve customer problems
of business (c) Offering customer value proposition
(d) All of above
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 (ii) The terms of trade are against the primary producer
25. Lexus targets customer regardless of country in which
unless it has a monopoly or the product has on inelastic
they lived - "global elite" segment, this is called
demand abroad.
(A) Intermarket Segmentation
A. Both correct B. Both incorrect
(B) Intramarket Segmentation
C. I corret, II incorrect D. I incorrect II correct
(C) Income Segmentation
(D) Psychographic Segmentation 36. Out of the following, one is not related with WTO
A. TRIPS B. Ministerial Conference
26. Which of the following is not an economic activity?
(a) Production (b) Trading in goods C. TRIMS D. TRAI
(c) Professional (d) Social service 37. Which one of the following statements is correct?
27. On the basis of the size and composition of external (A) Business policy is another name for long-range planning
debt, World Bank has classified India as a (B) Strategic planning is the function of middle management
A. heavily indebted country (C) Operational planning is the function of top management
B. moderate indebted country (D) Strategic planning is largely influenced by external
C. Less indebted country environment.
D. Severely indebted country. 38. Which among the following is the most popular approach for
28. When some sudden and unpredictable changes take accomplishing the results?
place in the organisation is said to ___________ (A) Management by exception (B) Reward system
a) Technological environment (C) Management by objectives (D) Mentor system
b) Natural environment 39. A systematic and orderly process of determining the worth of a
c) Turbulent environment job in relation to other jobs is known as–
d) Changing environment (A) job analysis (B) job evaluation
29. The main objective of International Monetary Fund (IMF) (C) job specification (D) job description
was to 40. Which one of the following factoRs does not influence wage
A. Promote International trade and salary structure?
B. Help economically backward countries (A) Demand and supply (B) Cost of living
(C) Job rotation (D) Job requirements
C. Maintain stable exchange rates
D. Promote international liquidity 41. Which among the following is a direct advantage of incentive
compensation?
30. Which of the following is not an International Financial (A) Mutual co-operation among the workeRs
Institution (B) Decrease in absenteeism
A. ICICI B. IMF (C) Increase in productivity
C. IDA D. World Bank (D) Better industrial relations
31. The gains from two nations depend on 42. Which one of the following items is considered revenue
A. Domestic barter rates expenditure?
(A) Expenditure by way of maintenance that has increased
B. Different in the domestic barter rates of the two countries
productivity
C. Terms of trade D. Degree of absolute advantage. (B) Repair of a gearbox in a car that has enhanced its operational
32. Interest payments on loans borrowed abroad are life
recorded in (C) Complete overhaul of a machine, spending around 20% of its
value
A. Capital Account B. Current Accounts
(D) Changing a small component of a machine to maintain its
C. ErroRs and Omission Section D. Official Reserve operating efficiency
Account
43. After the construction of their new factory building M/s XYZ
33. In balance of payment accounts, all goods exported and Co. shifted to it. During this process Rs 20,000 were spent on
imported are recorded in pulling down the old structure and Rs 2,000 were spent on shifting
A. Capital account B. Visible Accounts the stocks to new building. These expenditures are to be classified
C. Invisible Account D. Merchandise Accounts as–
(A) Capital expenditure (B) Revenue expenditure
34. _________ analysis studies the impact of various (C) Capital and revenue expenditure respectively
environmental factoRs on the marketing mix. (D) Deferred Revenue expenditure
a) Break even analysis b) Risk reward analysis
44. When there are a large number of smaller projects and the
c) Cost - benefit analysis d) Product Analysis
activities of those projects are to be accomplished by setting up
35. Statement: some temporary departments, the appropriate organisation
(i) No gain from trade is shared between countries in structure should be–
accordance with their relative strength of demand. (A) Project organization (B) Functional organisation
(C) Matrix organization (D) Divisional organisation

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45. Which one of the following is the major consideration for 55. What is Euro-lll?
decentralization? A. European Currency B. Group of European Countries
(A) Organization’s environment C. European Film Festival D. Pollution central Scale
(B) Nature of management function
(C) Size of the organization 56. Which one is not on objective of IMF?
(D) Ability of higher-level manageRs A. To promote international monetary cooperation‘s
46. Which of the following amounts shall be credited to Investor B. To ensure balanced international trade
Education and Protection Fund, if they remain unpaid / unclaimed C. To finance productive efforts according to peace time
for seven yeaRs from the date they become due? requirements
(A) Matured debentures of a company D. To ensure exchange rate stability
(B) Tax arreaRs (C) Proceeds of sale of property
(D) Provision for doubtful debts. 57. BRICS includes
47. Which one of the following accounting conventions stipulates A. Bhutan, Romania, Indonesia, Chile and South Korea
that contingent assets appear as a footnote in the balance sheet ? B. Brazil, Russia, Indonesia, Chila and Sudan
(A) Materiality (B) Consistency C. Brazil, Russia, India, China and South Africa
(C) Disclosure (D) Conservation. D. Britain, Russia, India, Czechoslovakia, Srilanka
48. On 31st March, 2013, the closing stock of X Ltd. was Rs 58. Which one of the following theories says that "to export
3,45,000. On April 1, 2013, stock of Rs 2,25,000 was destroyed by
was good and to be encouraged but to import was bad and
fire. The company closes its account on 31st March. If the balance
sheet of the company on 31st March, 2013 was finalized on 25th to the discouraged."
April, 2013, then the balance sheet will show the closing stock at– A. Comparative cost theory
(A) Rs 3,45,000 with no mention of fire B. The theory of Absolute Advantage
(B) Rs 1,20,000 with no mention of fire C. Factor Endowment theory D. Mercantilist theory
(C) Rs 3,45,000 showing loss by fire in footnote
(D) Rs 1,20,000 showing loss by fire in footnote 59. The comparative cost theory of International trade was
developed by
49. Which one of the following paiRs is not correctly matched
(A) Suppression of invoices– Window dressing A. David Ricards B. Haberlar
(B) Overcharging depreciation– Secret reserves C. Adam Smith D. Allfred MaRshall.
(C) Omission of cash receipts from debtoRs– UndeRstatement of
60. The trade theory of absolute advantage was developed
sales
(D) Omission of credit sale– UndeRstatement of debtoRs by
A. Haberler B. David Ricardo
50. Which one of the following is not a valid observation with
C. Adam Smith D. Allfred MaRshall
reference to the declaration or payment of dividend for any
financial year? 61. Management is what a manager does.
(A) Depreciation for the current financial year must be provided A. Peter F Drucker B. Terry
(B) ArreaRs of depreciation must be provided C. Louis Allan D.Hendry Fayol
(C) Losses incurred in previous year(s) must be set off
(D) 10% of the profits must be transferred to the reserves in all 62. Management is the art of getting things done through and with
cases. an informally organized_____________.
A. Harold Koontz B. Terry
51. Standard costing is a technique of– C. Louis Allan D. Hendry Fayol
(A) Planning (B) Organising
(C) Coordination (D) Control 63. The most popular management think of modern times is.
A. Mary Parker B. Lillian Gilberth
52. The balance of payments account is conventionally C. Peter Drucker D. Elton Mayo
divided into
64. Tripartism means
A. Current Account and Capital Account (A) Government, EmployeRs and Employees
B. Visible Account and Invisible Account (B) Union, Employer and Employees
C. Long-term capital Account and short term capital account (C) Labour Commissioner, Union and Employer
D. None of the above (D) Registered trade union, trade union in the company and the
management
53. The World Bank is known as
A. IMF B. IDA 65. The multi-input approach to performance feedback is called
(A) Assessment Centre (B) 360 Degree Assessment
C. IBRD D. Both (b) & (c) (C) Critical Incident Method (D) Forced Distribution Method
54. Which one is not the form of FDI. 66. Expectancy theory was formulated by
A. Purchase of existing assets in foreign currency. (A) Adam Smith (B) Victor Vroom
B. New Investment in Property, plant and equipment. (C) Henry Fayol (D) Herzberg
C. Making investment is the mutual funds 67. ___ is the process allowing the employees to change the nature
D. Transfer of many type of asset of job periodically.
(A) Job Enlargement (B) Job Enrichment
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(C) Job Analysis (D) Job rotation 80. Job availability, wages, prices or availability of goods and
68. Unity of command implies having not more than one– services, and amount of capital investment funding available
(A) Subordinate (B) Friend to minorities for business are best example of
(C) Boss (D) Unit A. Price Discrimination B. Economic Discrimination
69. Accounting provides information on C. Society Discrimination D. Job Discrimination
A. Cost and income for manageRs 81. Changes in foreign direct investment are directly related
B. Company's tax liability for a particular year
to changes in
C. Financial conditions of an institutions
D. All of the above A. Exchange Rates B. Money Demand
C. Prices D. Money Circulation
70. The long term assets that have no physical existence but are
rights that have value is known as 82. A net flow of capital, into one's country, in form of
A. Current assets B. Fixed assets increased purchases of domestic assets by foreigneRs
C. Intangible assets D. Investments and/or reduced holdings of foreign assets by domestic
71. Real account records residents is known as
A. Dealings with creditors or debtoRs A. Financial Transaction B. Financial Inflow
B. Dealings in commodities C. Financial Outflow D. Summary Statement
C. Gains and losses D. All of the above
83. Inputs consisting of resources and other factoRs when
72. The ratios that refer to the ability of the firm to meet the short
term obligations out of its short term resources depicts all maximum possibilities of two goods represents
A. Liquidity ratio B. Leverage ratio A. Indifference Curves B. Isoquants
C. Activity ratio D. Profitability ratio C. Production Possibility Frontier D. IS-LM curve
73. The measure of how efficiently the assets resources are 84. There is a kind of good that if supplier of that good can
employed by the firm is called prevent people who do not pay from consuming it is known
A. Liquidity ratio B. Leverage ratio
as
C. Activity ratio D. Profitability ratio
A. Excludable Good B. Rivalry Good
74. Lower the Debt Equity ratio C. Public Good D. Bad Good
A. Lower the protection to creditors
B. Higher the protection to creditors 85. Demand placed on one good or service as a result of
C. It does not affect the creditors changes in price for some other related good or service is
D. None of the above called as
75. A low Return on Investment Ratio (ROI) indicates A. Driven Demand B. Derived Demand
A. Improper utilization of resources C. Speculative Demand D. Precautionary Demand
B. Over-investment in assets
C. Both A and B D. None of the above 86. Principles of management are NOT
(a) UniveRsal (b) Flexible
76. Act of restraining trade between states through methods
(c) Absolute (d) Behavioural
such as tariffs on imported goods is known as
A. Globalization B. foreign direct investment 87. How are principles of management formed?
C. Embargo D. Protectionism (a) In a laboratory
(b) By experiences of manageRs
77. Among many, one of exclusive assumption for
(c) By experiences of customeRs
production possibility curve is
(d) By propagation of social scientists
A. Resources are fully utilized
B. Level of technology has to be flexible 88. The principles of management are significant because of
C. Large resources can help goods to be produced in bulk (a) Increase in efficiency (b) Initiative
D. MPRS is the ratio by which two goods are being (c) Optimum utilisation of resources (d) Adaptation to
measured changing technology

78. A good that is both private and public, including partial 89. Henri Fayol was a
excludability, partial rivalry, partial diminishability and partial (a) Social Scientist (b) Mining Engineer
reject ability is known as (c) Accountant (d) Production engineer
A. Public Good B. Rivalry Good
90. Which of the following statement best describes the
C. Revealed Preference D. Quasi Good
principle of ‗Division of Work‘
79. Situation when workeRs leave their jobs to find better (a) Work should be divided into small tasks
ones is known to be as (b) Labour should be divided
A. Frictional Unemployment B. Derived Demand (c) Resources should be divided among jobs
C. Full Unemployment D. Under Employment (d) It leads to specialisation

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91. ‗She/he keeps machines, materials, tools etc., ready for 100. Process of allocating capital in a way that reduces
operations by concerned workeRs‘. Whose work is exposure to any one particular asset or risk is known to be
described by this sentence under functional foremanship? as
(a) Instruction Card Clerk (b) Repair Boss A. Risk Criterion B. Risk Assessment
(c) Gang Boss (d) Route Clerk C. Risk Value D. Risk DiveRsification
92. Which of the following is NOT a Principle of management 101. Industries such as media buying, energy management
given by Taylor ? and advertising agencies are classified as
(a) Science, not rule of the Thumb A. Geographical Hubs B. Functional Hubs
(b) Functional foremanship C. Vertical Hubs D. Horizontal Hubs
(c) Maximum not restricted output
(d) Harmony not discord 102. Process of allowing flexibility for unanticipated events is
classified as
93. Management should find ‗One best way‘ to perform a A. Adaption B. Adaptation
task. Which technique of Scientific management is defined in C. Adoption D. Communication
this sentence?
(a) Time Study (b) Motion Study 103. While buying milk which kind of behavior is displayed
(c) Fatigue Study (d) Method Study by a peRson?
A. Extensive problem solving behavior
94. Which of the following statements best describes ‗Mental B. Routinized buying behavior
Revolution‘? C. Variety seeking behavior D. None of the above
(a) It implies change of attitude.
(b) The management and workeRs should not play the game 104. The extended Ps of service marketing mix is:
of one upmanship. A. People, Product, Place
(c) Both management and workeRs require each other. B. Price Physical Evidence, Promotion
(d) WorkeRs should be paid more wages. C. Physical Environment, Process, People
D. Product, Process, Physical Environment
95. Which of the following statements is FALSE about Taylor
and Fayol? 105. What is the basic property of a service which makes it
(a) Fayol was a mining engineer whereas Taylor was a different from a product?
mechanical engineer A. Shape B. Size
(b) Fayol‘s principles are applicable in specialised situations C. Very expensive D. Intangibility
whereas Taylor‘s principles have univeRsal application 106. The solution to price competition is to develop a
(c) Fayol‘s principles were formed through peRsonal differentiated:
experience whereas Taylor‘s principles were formed through A. Product, price, and promotion
experimentation B. Offer, delivery, and image
(d) Fayol‘s principles are applicable at the top level of C. Package and label D. International Web site
management whereas Taylor‘s principles are applicable at
the shop floor. 107. You purchase cleaning supplies for your custodial help
regularly. It is showing which buying situation?
96. Which of the following does not characterise the A. Modified rebuy B. Straight rebuy
business environment? C. Modified straight rebuy D. Consumer buy
(a) Uncertainty (b) Employees
(c) Relativity (d) Complexity 108. Buying mode which requires additional participants at
buyeRs and supplieRs end is best classified as
97. A statement that summarizes economy transactions with A. Modified BuyeRs B. Modified Task
rest of world for a specified time period is known as C. Modified Rebuy D. Modified Buy
A. Transfer Payments B. Balance Sheet
C. Balance Of Payments D. Summary Statement 109. Markets which include buying from manufactureRs
rather than intermediaries is classified as
98. Trade of products that belongs to same industry is A. Relative BuyeRs B. Price Sensitive BuyeRs
known to be as C. Business Markets D. Consumer Markets
A. Intra-Industry Trade B. Inter-Industry Trade
C. Gains from Trade D. Trade with Specialization 110. In modified rebuy, supplieRs that see opportunities to
expand business are classified as
99. When firm's marginal revenue is equals to firm's A. in-supplieRs B. out-supplieRs
marginal cost, that situation is known as C. modified supplier‘s D. new supplieRs
A. Equilibrium B. Profit Maximization
C. Pareto Efficiency D. Efficient Scale 111. Contract awarded to lowest bidder is known as
A. Negotiated contract B. Open bid

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C. Closed bid D. Open contract
126. Purchasing agents of companies in business markets
dominate the
112. Carrying the line of only one manufacturer is known as
A. buyer selection B. trial supplieRs
A. Exclusive assortment B. Open bid
C. product components D. supplier selection
C. Negotiated contract D. Deep assortment
127. Administrator who assists in selection and deselection
113. ―Image building‖ objectives are common in _____ type of purchasing goods and services by screening information
of market structure? about products are
A. Competition B. Oligopoly A. Purchasing agents B. System agents
C. Monopoly D. Monopsony C. Evaluation agents D. Awareness agents
114. When the market is run by a small number of firms that
128. Telephone operatoRs and receptionists who prevent
together control the majority of market share is known as
contacts to decideRs are classified as
A. Oligopoly B. Duopoly
A. initiatoRs B. influenceRs
C. Oligopsony D. Perfect competition
C. buyeRs D. gatekeepeRs
115. The following is (are) the Tangible source(s)
129. Supplier's goal is to enlarge their share of purchasing
A. Capital B. Machines over time; it is a characteristic of buying situation and called
C. Raw material D. All of the above as
A. Supplier's Rebuy B. Purpose Buying
116. The following is (are) the Intangible source(s)
C. Straight Rebuy D. Turned Rebuy
A. Information B. Time
C. Technology D. All of the above 130. A company's buying products such as chemicals or
steel from specialized hubs are classified as
117. In marketing, ______ is the focal point.
A. Profit B. Sales A. Horizontal Markets B. Vertical Markets
C. Customer D. All of the above C. Auction Markets D. Private Markets
131. FiRst step in procedure of setting price is to
118. Reorder point tells
A. analyzing prices of competitor's B. estimating costs
A. When to order B. How much to order
C. determining demand D. select pricing objective
C. When the order will reach D. All of the above
132. Maximum current profit, market skimming, product
119. The brand choice is heavily influenced by reference quality leadeRship and market share are considered as
group in which stage of Product life cycle?
techniques of
A. Introduction B. Growth
A. determining demand B. select pricing objective
C. Maturity D. Decline
C. analyzing prices of competitor's D. estimating costs
120. The major components of marketing mix are
A. Product B. Price 133. Pricing strategy practiced by company according to
which prices are high for products at introduction stage and
C. Place D. All of the above
drops overtime is classified as
121. ________ guides the development of advertisements and A. Push Pricing Strategy B. Market Penetration Pricing
peRsonal sales presentations. C. Market Skimming Pricing D. Quality LeadeRship
A. AIEA B. AIBA C. AICA D. AIDA Pricing

122. Adoption rate will be higher and faster if the product has 134. Pricing objective of company who is plagued with
A. Lower price B. Greater utility intense competition and overcapacity is
C. Compatibility with society D. All of the above A. Maximum Market Skimming B. Maximum Market Share
C. Maximum Current Profit D. Survival
123. Formal decision making process by which large
organization buy services and products is classified as 135. Pricing strategy uses by companies, operating in price
A. organizational buying B. large buying sensitive market is classified as
C. small buying D. procedure buying A. Market Penetration Pricing B. Market Skimming Pricing
C. Quality LeadeRship Pricing D. Push Pricing Strategy
124. DecideRs and buyeRs in companies are classified as
A. evaluatoRs B. approveRs 136. In brand dynamics, brand active familiarity based on
C. buyeRs D. selectoRs trial and saliency of promising brand is classified as
A. Presence B. Brand Relevance
125. Business markets buy phases, include
C. Performance D. Advantage
A. proposal solicitation B. product specification
C. order-routine specification D. all of the above
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137. In brand dynamics, belief for delivering product 150. Difference between before tax-wages and after tax-
performance on consumer's short list is classified as wages is known as
A. Presence B. Brand Relevance A. Tax Incidence B. Tax Administration
C. Brand Performance D. Advantage C. Tax Wedge D. Tax Pay
138. In brand dynamics, belief that brand has rational or 151. Maximum value of correlation is
emotional advantage over, all other brands is considered as A. 2 B. 1.5 C. 1 D. 0
A. Brand Advantage B. Brand Presence
152. Spearman's method is the method of calculating
C. Brand Performance D. Brand Decline
coefficient of correlation by
139. All individuals and groups participants that make purchasing A. Irvin Fischer B. Charles Spearman
decision and share common goals and risks are classified as C. Lorenz D. Karl PeaRson
A. supplier center B. buying center
153. Graph of variables having linear relation will be
C. evaluation center D. initial awareness stage
A. Curved B. Hyperbola
140. Traditional supply situation in which focus is on C. Straight line D. None of the above
competition rather than cooperation is classified as
A. customer supply B. contract supply 154. The files required to maintain general ledger records
include
C. cooperation supply D. bare buying
A. Inventory files B. Detail posting file
141. Type of buyer and supplier relationship that are C. Charts of accounts file D. None of these
together in operational ways is classified as
A. operational systems B. cooperative systems 155. Number of observations are 30 and value of arithmetic
C. structural commitment D. structural adaptation mean is 15 then sum of all values is
142. In business markets, demand of business goods is A. 15 B. 450 C. 200 D. 45
more volatile than demand for consumer goods, is known as 156. In arithmetic mean, sum of deviations of all recorded
A. fluctuating demand B. stable demand observations must always be
C. unstable demand D. freeze demand A. Two B. Minus One
143. Establishing of dams, irrigation, sanitation systems, C. One D. Zero
pipelines and utilities are examples of
A. systems contracting B. system selling 157. Arithmetic mean is 25 and all sum of observations is
350 then number of observations are
C. systems buying D. management supplies
A. 25 B. 70 C. 14 D. 75
144. Electronic markets in which prices fluctuate in every
second are classified as 158. Arithmetic mean is multiplied to coefficient of mean
A. spot markets B. exchange markets absolute deviation to calculate the
C. vertical markets D. both A and B A. absolute mean deviation B. absolute median deviation
C. relative mean deviation D. relative median deviation
145. Business markets include
A. Insurance Companies B. Public Utilities 159. Coefficient of skewness method in which basis of
C. Government Institutions D. All Of The Above measuring is deciles and percentiles is classified as
A. Gary's coefficient of skewness
146. Buying mode in which buyer changes product prices B. Sharma's coefficient of skewness
and requirements is classified as C. Kelly's coefficient of skewness
A. Modified Rebuy B. Modified Buy
D. Jack Karl's coefficient of skewness
C. Modified BuyeRs D. Modified Task
147. Supplier-buyer relationships are categorized into 160. Three times of difference between mean and median is
divided by standard deviation to calculate coefficient of
A. Four categories B. Five categories
skewness by method of
C. Seven categories D. Eight categories A. Professor Keller B. Professor Bowley
148. Industries such as agriculture, fisheries, construction C. Karl PeaRson D. Professor Kelly
and transportation, together up the
161. Method of calculating coefficient of skewness by Karl
A. organization market B. large markets
C. large buying D. business market
PeaRson method is useful for type of distributions that are
A. Non Concentrated B. Open Ended
149. As domestic quantity supply is larger than domestic C. Close Ended D. Concentrated
quantity demanded, country would gain by
A. Importing B. Selling Domestically 162. Distribution whose mode is not well defined and classes
C. Exporting D. Producing Domestically of distribution are open ended uses coefficient of skewness
by
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A. Karl PeaRson B. Professor Kelly A. 20 B. 4 C. 25 D. 15
C. Professor Keller D. Professor Bowley
175. Summary and presentation of data in tabular form with
163. Coefficient of skewness by Karl PeaRson, Professor several non-overlapping classes is referred as
Kelly and professor Bowley are considered as A. Nominal Distribution B. Ordinal Distribution
C. Chronological Distribution D. Frequency Distribution
A. relative measure of skewness
B. absolute measure of skewness 176. If you hold output prices constant as amount of a factor
C. concentrated measure of skewness of production increases, then supply of good that uses this
factor intensively increases and supply of other good
D. directed measure of skewness
decreases falls under
164. According to combination rule, if total number of A. stolper-samuelson theorem B. laissez faire theorem
C. rybczynski theorem D. factor-price equalization theorem
outcomes are 'r' and distinct outcome collection is 'n' then
combinations are calculated as 177. Feature that has a positive impact on economic growth
A. n! ⁄ r!(n - r)! B. n! ⁄ r!(n + r)! of wealthy countries is called as
C. r! ⁄ n!(n - r)! D. r! ⁄ n!(n + r)! A. foreign direct investments B. interest rates
C. balance of payment D. Taxes
165. Method of counting outcomes in which number of 178. Rate at which foreign currency is converted with
outcomes are determined while considering ordering is another currency is known as
classified as A. Shoe-leather cost B. Foreign exchange rate
A. InteRsection combinations B. Union combinations C. Seignior age benefit D. dollarization of the economy
C. listed combination D. Permutations 179. Kurtosis defines peakness of curve in region which is
A. Around Mode B. Around Mean
166. Method of counting outcomes in which number of C. Around Median D. Around Variance
outcomes are determined without taking care of 180. In kurtosis, beta is greater than three and quartile range
arrangement order is classified as is preferred for
A. Listed Combinations B. Union Combinations A. Mesokurtic Distribution B. Mega Curve Distribution
C. InteRsection Combination D. Unlisted Combinations C. Leptokurtic Distribution D. Platykurtic Distribution
167. Considering combination rule of counting outcome, 181. Distribution is considered leptokurtic if
value of 5! Is A. beta three is less than three
A. 5 B. 120 C. 24 D. 20 B. beta two is greater than two
C. beta three is greater than three
168. Difference of mode and mean is equal to
D. beta two is greater than three
A. 3(mean-median) B. 2(mean-median)
C. 3(mean-mode) D. 2(mode mean) 182. Technique which implies in statistical process to
measure variation in data is called
169. If mean is 11 and median is 13 then value of mode is
A. measures of dispeRsion B. measures of statistics
A. 15 B. 13 C. 11 D. 17
C. measures of process D. none of above
170. Distribution in which values of median, mean and mode 183. Measurement of inequality in wealth and income
are not equal is considered as distribution is measured with help of
A. Experimental Distribution B. Asymmetrical Distribution A. measurement of bimodaling
C. Symmetrical Distribution D. Exploratory Distribution B. measurement of outlieRs
171. If value of three measures of central tendencies C. measurement of uniformity
median, mean and mode then distribution is considered as D. measurement of variability
A. Negatively Skewed Modal B. Triangular Model 184. If scatter or dispeRsion in distribution is high on each
C. Unimodel D. Bimodel side then this indicates
172. Discrete variables and continuous variables are two A. outlieRs of data B. low uniformity of data
types of C. high uniformity of data D. dispeRsion of data
A. Open End Classification B. Time Series Classification
185. Technique used in measures of variations to show
C. Qualitative Classification D. Quantitative Classification
direction of variation in set of observations is classified as
173. Classification method in which upper limit of interval is A. measures of dispeRsion B. measures of statistics
same as of lower limit class interval is called C. measures of skewness D. measures of process
A. Exclusive Method B. Inclusive Method
186. The capital that is consumed by an economy or a firm in the
C. Mid-Point Method D. Ratio Method production process is known as
174. Largest value is 60 and smallest value is 40 and A. Capital loss B. Production cost
number of classes desired is 5 then class interval is C. Dead-weight loss D. Depreciation

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187. Who propounded the opportunity cost theory of 198. Institutions deal in financial functions and protect
international trade? corporations and individuals against accidents, theft and
A. Ricardo B. MaRshall death are considered as
C. Heckscher & Ohlin D. Haberler
A. Penalty Companies B. Insurance Companies
188. If the demand for a good is inelastic, an increase in its C. Events DealeRs D. Protecting Companies
price will cause the total expenditure of the consumeRs of
the good to 199. Type of institutions that write securities, engage in
A. Increase B. Decrease brokerage and security trading are considered as
C. Remain the same D. Become zero A. Trading Institutions B. Activity Institutions
189. The horizontal demand curve parallel to x-axis implies C. Investment Banks D. Mortgage Banks
that the elasticity of demand is
200. Financial intermediaries offering savings plan to
A. Zero B. Infinite
C. Equal to 1 D. Greater than zero but less than infinity individuals and funds are exempted from taxation are
considered as
190. An individual demand curve slopes downward to the
right because of the A. Trading Funds B. Penalty Funds
A. Working of the law of diminishing marginal utility C. Pension Funds D. Global Funds
B. Substitution effect of decrease in price 201. Which one is not the part of Migration to new capital
C. Income effect of fall in price adequacy framework based on the three pillar approach
D. All of the above namely?
191. Income elasticity of demand is defined as the A. Minimum capital requirement B. Supervisory review
responsiveness of C. Market discipline D. Book keeping
A. Quantity demanded to a change in income
B. Quantity demanded to a change in price 202. Italian money lendeRs were known as Banechi or
C. Price to a change in income Banacheri because
D. Income to a change in quantity demanded A. They had a lot of money
192. The supply of a good refeRs to B. They had a money bank
A. Stock available for sale C. They kept a special type of table to transact their
B. Total stock in the warehouse business
C. Actual production of the good D. All of the above
D. Quantity of the good offered for sale at a particular
price per unit of time 203. Which of the following are the objectives and functions
193. The cost of one thing in terms of the alternative given of IDBI?
up is called A. To provide technical and administrative assistance for
A. Real cost B. Production cost promotion or expansion of industry
C. Physical cost D. Opportunity cost B. To undertake market and investment research and
194. Assume that consumer's income and the number of surveys as also technical and economic studies in
selleRs in the market for goods both falls. Based on this connection with development of industry.
information, we can conclude with certainty that the C. To act as lender of last resort and to finance projects
equilibrium that are in conformity with national priorities
A. Price will decrease B. Price will increase D. All of these
C. Quantity will decrease D. Quantity will increase
195. The economist's objections to monopoly rest on which 204. Banks can avail refinance against loans made to
of the following grounds? industrial units from
A. There is a transfer of income from consumeRs to the A. DICGC B. NABARD
monopolist C. ECGC D. IDBI
B. There is welfare loss as resources tend to be
misallocated under monopoly 205. Assertion (A) Indent may be open or closed. Open
C. Both A and B are incorrect indent does not specific the price and other details of the
D. Both A and B are correct goods. The closed indent specific the brand, price, number,
196. Stocks or shares that are sold to investoRs without packing, shipping made, insurance etc.
transacting through financial institutions are classified as Reason (R) This is required as a part of export procedures.
A. Direct Transfer B. Indirect Transfer A. Both (A) and (R) are correct
C. Global Transfer D. Pension Transfer B. Both (A) and (R) are not correct
197. Transfer of financial instruments from supplieRs of C. (A) is true, but (R) is false
funds to useRs of funds without any intermediary in between D. (R) is true, but (A) is false
is classified as 206. The ICICI was formed in
A. Global Transfer B. Pension Transfer A. 1952 B. 1953 C. 1954 D. 1955
C. Direct Transfer D. Indirect Transfer
207. The fiRst Public bank was
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A. SBI B. Rural Bank A. State Bank of lndia B. Reserve Bank of lndia
C. PNB D. Bank of Venice C. Bank of Baroda D. Syndicate Bank
208. At present most of the Indian Banks are falling under 219. The primary objective of IDBl is to -------- Regulate and
the Supervise the working of other financial institutions like lFCI,
A. Chain Banking System B. Unit Banking System SFCs, UTI.
C. Branch Banking System D. None of the above A. Co-ordinate B. Control
C. Planning D. None of these
209. Assertion (A). Bank have control over a large part of the
supply of money in circulation.
220. All India financial Institutions are
Reason (R). They cannot influence the nature and character
A. Industrial Development Bank of India (IDBI)
of production in any country.
B. Industrial Finance Corporation of India (lFCI)
A. Both (A) and (R) are true and (R) is correct
C. Industrial Credit and Investment Corporation of India
explanation of (A).
(ICICI)
B. (A) is true but (R) is false and it is not correct
D. All of the above
explanation of (A).
C. (R) is true but (A) is false. 221. The lDBI underwrites and --------------- the shares and
D. (A) is true but (B) is false debentures of industrial concerns.
A. imposses on B. subscribes to
210. IDBI serves as the ------------------- institution for term
C. targets D. none of these
finance to industries.
A. APEX B. CAT C. IIT D. None 222. The IDBl can grant a ------------ and advances to other
financial institutions.
211. How many types of Bank are there on the Basis of
A. Line of credit B. Loans
owneRship?
C. Both (a) and (b) D. None of these
A. Two Types B. 5 types
C. 4 types D. 3 types 223. lndustrial Development Bank of India is
A. Wholly-owned Government of India undertaking
212. The statement "A Banker is a peRson or corporation
B. Wholly-owned subsidiary of Reserve Bank of India
which holds it self out to receive from the public, deposit
C. A corporation and owned by Government of lndia
payable on demand on cheque." is given by
and public sector banks.
A. Findlay shirras B. Kinley
D. Public Limited Company
C. T.G. Hart D. Walter leaf
224. The IDBI was established in
213. Bank classifications according to law are
A. 1964 B. 1965 C. 1966 D. 1967
A. Private Bank B. Scheduled Bank
C. Non-Scheduled Bank D. Both (b) and (c) 225. The UTI was established in
A. 1962 B. 1963 C. 1964 D. 1965
214. In which year the fiRst central Bank in the world was
established? 226. The financial institute IFCI established in
A. 1660 B. 1670 C. 1680 D. 1668 A. 1947 B. 1948 C. 1949 D. 1950
215. Which of the following schemes are operated by IDBI? 227. For delegation to be effective it is essential that
A. Modernisation Assistance Scheme responsibility be accompanied with necessary
B. Technical Development Fund Scheme (a) Authority (b) Manpower
C. Equipment Finance Scheme (c) Incentives (d) Promotions
D. All of these
228 Span of management refeRs to
216. One of the functions of IDBI is to assist other financial (a) Number of manageRs
institutions by ___ of loans granted for exports. (b) Length of term for which a manager is appointed
A. Planning B. Refinancing (c) Number of subordinates under a superior
C. Both (a) and (b) D. None of these (d) Number of membeRs in top management

217. State-level financial institutions are 229. The form of organisation known for giving rise to
A. State Financial Corporations (SFCs). rumoRs is called
B. State Industrial Development Corporations (SIDC) (a) Centralised organization (b) Decentralised organisation
C. State Industrial Investment Corporations (SIIC) (c) Informal organization (d) Formal organisation
D. All of the above
230. Grouping of activities on the basis of product lines is a
218. Which bank was earlier known as the lmperial bank of part of
lndia? (a) Delegated organisation (b) Divisional organisation

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(c) Functional organisation (d) Autonomous C. Agreement D. None of these
organisation
243. The peRson making the proposal is called
231. Grouping of activities on the basis of functions is a part A. Promiser B. Promisee
of C. Both of above D. None of above
(a) Decentralised organisation (b) Divisional organisation
244. Which of the following is not a feature of an optimal
(c) Functional organisation (d) Centralised organisation
capital structure?
232. Which one of the following is not an element of A. Safety B. Flexibility
direction? C. Control D. Solvency
(a) Motivation (b) Communication
245. The growth in book value per share shows
(c) Delegation (d) Supervision
the_____________.
233. The motivation theory which classifies needs in A. rise in share price
hierarchical order is developed by B. increase in physical asset of the firm
(a) Fred Luthans (b) Scott C. increase in net worth
(c) Abraham Maslow (d) Peter F. Drucker D. growth in reserves
234. Which of the following is a financial incentive? 246. The overall capitalization rate and the cost of debt
(a) Promotion (b) Stock Incentive remain constant for all degrees of leverage. This is
(c) Job Security (d) Employee Participation pronounced by __________.
A. Traditional approach B. Net operating income approach
235. Which of the following is not an element of
C. Net income approach D. MM approach
communication process?
(a) Decoding (b) Communication 247. Which of the following is not an assumption in the Miller
(c) Channel (d) Receiver & Modigliani approach?
A. There are no transaction costs
236. Grapevine is
B. Securities are infinitely divisible
(a) Formal communication (b) Barrier to
C. InvestoRs have homogeneous expectations
communication
D. All the firms pay tax on their income at the same rate
(c) Lateral communication (d) Informal communication
248. During planning period, a marginal cost for raising a
237. Status comes under the following type of barrieRs
new debt is classified as
(a) Semantic barrier (b) Organisational barrier
A. Debt Cost B. Relevant Cost
(c) Non Semantic barrier (d) Psychological barrier
C. Borrowing Cost D. Embedded Cost
238. Tasks in a job that are not part of job but are result of
249. What is the purpose behind the enactment of Sale of
any incident related to organization is classified as
Goods Act, 1930?
A. Responsive Functions B. Flexible Functions
A. To define the laws relating to the sale of goods
C. Marginal Functions D. Descriptive Functions
B. To consolidate and amend the laws relating to the sale
239. Basic tasks and duties that must be performed within a of goods
job are classified as C. To consolidate, amend and define the laws relating to
A. Job Functional Validity B. Job Functional Reliability the sale of goods
C. Analytical Functionality D. Essential Job Functions D. To define and amend the laws relating to the sale of
goods
240. Definitions are provided in section_____ of The
Contract Act 250. Section 2(1) of Sale of Goods Act defines ‗buyer‘ as:
A. 2 B. 3 C. 4 D. None A. PeRson who buys goods and services
B. PeRson who agrees to buy goods
241. When one peRson signifies to another his willingness to
C. PeRson who buys or agrees to buy goods
do or to abstain from doing anything with a view to obtaining
D. PeRson who buys or agrees to buy goods and
the assent of that other peRson to such act or abstinence he
services
is said to make a
A. Proposal B. Promise 251. The agent having in customary couRse of business as
C. Both (a) and (b) D. None of these such agent authority either to sell goods or to consign goods
for the purpose of sale or to buy goods or to raise money on
242. When the peRson to whom the proposal is made
the security of goods is called
signifies his assent thereto the proposal is said to be
A. Agent B. Mercantile agent
accepted than it‘s called
C. Partner D. None of above
A. Proposal B. Promise

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252. As per section 2(12), of the Sale of Goods Act, quality D.Depreciated value of the assets
of goods include
261. Which of the following Accounting standards is
A. State of goods B. Conditions of goods
recommendatory and not mandatory?
C. Both (a) and (b) D. None of above
A. AS - 1 - Disclosure of accounting policies
B. AS - 2 (Revised) - Valuation of inventories
253. The goods identified and agreed upon at the time a
C.AS -3 - Cash Flow Statement
contract of sale is made are called
D.AS - 4 - Contingencies and Events occurring after the
A. Ordinary goods B. Specified goods
Balance Sheet date
C. Scheduled goods D. None of above
262. What are the limitations of 'money measurement'
254. When does an agreement to sell become a sale as per
concept?
the provisions of Sale of Goods Act, 1930?
A. Any transaction / event inspite of being very important
A. When the seller transfeRs the property in goods
cannot be recorded in the books of accounts, if it
B. When the seller agrees to transfer the property in
cannot be expressed in money value.
goods
B. As per this concept, a transaction is recorded at its
C. When the time elapses or the conditions subject to
money value on the date of occurrence and the
which the property in the goods is to be transferred
subsequent changes in the money value are
are fulfilled
conveniently ignored.
D. Agreement to sell is deemed to be sale
C.Both (A) and (B)
255. What can be the subject matter of the contract of sale D.None of the above
as per section 6 of Sale of Goods Act:
263. According to AS - 6, 'Depreciable assets' are assets
A. Only existing goods owned or possessed by the
which
owner
A. Are expected to be used during more than one
B. Only Future goods
accounting period
C. Existing goods which are neither owned nor
B. Have a limited useful life
possessed by the owner
C.Are held by an enterprise for use in the production or
D. Existing goods, owned or possessed by the owner
supply of goods and services, for rental to otheRs, or
or future goods
for administrative purposes and not for the purpose of
256. Where in a contract of sale the seller purports to affect
sale in the ordinary couRse of business
the present sale of the future goods, the contract operates
D.All of the above
as:
A. A Contract of sale 264. Which of the following is not deferred revenue
B. An agreement to sell the goods expenditure?
C. A Contact of sale or agreement to sell A. Heavy advertisement expenditure.
D. It is not a valid contract B. Expenses incurred in removing the business to more
257. Which of the following section in Negotiable
convenient premises.
Instruments Act deals with the Bill of Exchange?
C.Preliminary expenses.
A. Section 5 B. Section 6
D.Depreciation on fixed assets.
C. Section 4 D. Section 13
265. Assessment of depreciation and the amount to be
258. Which of the followings are not the Negotiable
charged in respect thereof in an accounting period are
Instruments as defined by the Statute…
usually not based on
A. Banker‘s Note B. Promissory Note
A. Market value of the asset
C. Bill of Exchange D. Cheques
B. Historical cost or other amount substituted for the
259. Dishonor of Negotiable Instrument by Non Payment is historical cost of the depreciable asset when the asset
covered under section in Negotiable Instrument Act 1882… had been revalued
A. Section 90 B. Section 91 C.Expected useful life of the depreciable asset
C. Section 92 D. Section 93 D.Estimated residual value of the depreciable asset

260. Which of the following is not required to be disclosed

266. In case the depreciable assets are revalued, the
according to AS-6?
provision for depreciation is based on
A. The depreciation methods used
A. The revalued amount on the estimate of the remaining
B. The total depreciation for the period for each class of
useful life of such assets
assets
B. Original cost of the assets
C.The gross amount of each class of depreciable assets
C.Depreciated value of the assets
and the related accumulated depreciation
D.AS - 6 is silent in this regard
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 277. The long title of the RTI Act seeks to promote the
267. Which of the following factoRs should be considered following qualities in the working of every public authority:
while estimating the useful life of a depreciable asset? A. Transparency B. Punctuality
A. Expected physical wear and tear C. Efficiency D. Reputation
B. Obsolescence
278. The Central Information Commission falls under which
C.Legal or other limits on the use of asset
ministry?
D.All of the above
(a) Ministry of Home AffaiRs (b) Ministry of PeRsonnel
268. Closing stock is valued at
(c) Ministry of Human Resource Development
A. Cost
(d) None of the above
B. Market value
C.Cost or market price whichever is lower 279. Who appoints the membeRs and chairman of
D.None of the above the Central Information Commission?
269. Which of the following is not included in the category of (a) President alone can appoint
'Intangible Assets' ? (b) Chief Justice of Supreme of India
A. Patents rights (c) Committee under the leadeRship of Prime Minister
B. Copy rights (d) Home Minister of the country
C.Competitive benefit and privileges
280. Which of the following statement is/are correct about
D.Machinery
the Central Information Commission?
270. Which of the following is not come under the definition 1. Post of Central Information Commission is derived from
of 'information' under RTI Act 2005? the RTI Act, 2005.
A. Log books B. File notings 2. Chief Information Commission and other commissioneRs
C. Data material held in any electronic form D. CirculaRs can hold office for the period of 3 yeaRs
3. On the advice of Supreme court the President can
271. The officer designated by the public authorities in all
remove the Chief Information Commission and other
administrative units or offices under it to provide information
commissioneRs
to the citizens requesting for information under the Act is
(a) Only 1 & 3 (b) Only 3
known as
(c) Only 1 & 2 (d) Only 1
A. Appellate Authority
B. Chief Information Commissioner (CIC) 281. Match List I with List II and select correct answer using
C. Public Information Officer (PIO) the codes given below:
D. Assistant Public Information Officer List I List II
a. G.P. Ratio I. Convention of conservatism
272. What is the time limit to get the information under RTI
b. Cash budget II. Profitability
Act 2005?
c. E.O.Q. III. Inventory management
A. 15 days B. 45 days
d. Provision for bad debts IV. Management of liquid assets
C. 60 days D. 30 days
A. a b c d
273. If the interests of a third party are involved in II IV I III
information sought for, the maximum time limit to get the B. a b c d
information will be IV II III I
A. 30 days B. 40 days C. a b c d
C. 45 days D. 60 days IV II I III
D. a b c d
274. What is the fee for getting information under RTI Act
II IV III I
A. Rs 20/- B. Rs 50/- C. Rs 100/- D. Rs 10/-
282. Match List I with List II and select correct answer using
275. FiRst appeal to the fiRst appellate authority can be the codes given below:
preferred by the applicant within ______ days from the List I List II
expiry of the prescribed time limit or from the receipt of the a. Financial leverage I. Efficiency
decision from the PIO b. Quick ratio II. Profitability
A. 30 days B. 45 days c. Stock turnover ratio Ill. Risk
C. 60 days D. 90 days d. Margin on sales IV. Liquidity
A. a b c d
276. Period for disposing fiRst appeal can be expand by
III IV I II
_____ days from 30 days if necessary
B. a b c d
A. 10 days B. 30 days
IV III I II
C. 15 days D. 25 days
C. a b c d

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 IV III II I II IV I III
D. a b c d 289. Which of the following statement is not correct in
III IV II I relation to cash discount?
283. Consider the following statements: A. Cash discount is an allowance made by the peRson
Redeemable preference shares can be redeemed out of who receives cash to the payer for prompt payment
1. Sale proceeds of the new issue of shares B. Cash discount is an allowance in addition to the trade
2. Sale proceeds of the new issue of debentures discount
C.Cash discount is recorded in account books
3. Profits available for dividends
D.Cash discount is always allowed at a rate higher than
4. Sales proceeds of the assets of the company the rate of trade discount
Of these statements
290. What is customer value?
A. 1 and 3 are correct
A. Ratio between the customer's perceived benefits and
B. 1 alone is correct the resources used to obtained these benefits.
C.2, 3 and 4 are correct B. Excess of satisfaction over expectation.
D.1, 2, 3 and 4 are correct C.Post purchase dissonance
D.None of the above.
284. Goods withdrawn by the proprietor for his peRsonal use
are 291. Which method does not consider the time value of
money?
A. Shown as a deduction from the purchases
A. Net present value
B. Shown as a deduction from the sales B. Internal Rate of Return
C.Treated as sales at cost price C.Average rate of return
D.Added to the purchases D.Profitability Index
285. Which one of the following statements is not correct? 292. Match List I wish List II and select correct answer using
A. Bonus shares can be issued out of General Reserves the codes given below:
List I List II
B. Bonus shares can be issued in lieu of dividends
a. ABC Analysis I. Capital Structure
C.The partly-paid shares, if any, should be made fully b. Fund Flow Analysis II. Inventory Control
paid up before the company can make a bonus issue c. ROI Ill. Working Capital Management
D.The bonus issue should be out of free reserves built d. M M Theory IV. Overall Profitability
out of the genuine profits or security premium A. a b c d
collected in cash only II III IV I
B. a b c d
286. EPS is calculated as I II IV III
A. EBIT / Equity shares C. a b c d
B. (EBIT - Preference Dividend) / Equity shares IV III I II
C.EIT / Equity shares D. a b c d
I III II IV
D.(EAT - Preference Dividend) / Equity shares
293. Which one of the following is an example of sources of
287. Which one of the following ratios is most important for funds?
judging the long-term solvency of a firm? A. Decrease in share capital
A. Debt-Equity Ratio B. Increase in long-term liabilities
B. Stock Turnover Ratio C.Decrease in long-term liabilities
C.Return on Investment D.Increase in fixed assets
D.Fixed Assets Turnover Ratio
294. Match List-I wish List-ll and select the correct answer
288. Match List I (Objectives of analysis) with List II (Ratios using the codes given below the lists:
to be computed) and select correct answer using the codes List-I List-II
given below the lists a. Matching approach I. Dividend policy
List I List II b. Structural ratios II. Inventory Management
c. Ordering quality Ill. Financing Working Capital
a. Trading on Equity I. Earnings per share d. Bonus-Shares IV. Capital Structure
b. Efficiency of Inventory Control II. Liquidity ratio A. a b c d
c. Overall Efficiency III. Capital gearing I II III IV
d. Immediate Solvency IV. Stock turnover ratio B. a b c d
A. a b c d III IV I II
II I IV III C.a b c d
B. a b c d III IV II I
III IV I II D.a b c d
C. a b c d II I III IV
III I IV II 295. Which is called as Dividend Ratio Method?
D. a b c d A. Dividend Yield Method
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 B. Debt Equity Method
C.Asset Method 305. The President of India can remove the Chief
D.Equity Method Information Commissioner on the grounds of...
(1) Insolvent
296. If the current ratio is 2: 1 and working capital is Rs
(2) Involved in any paid employment outside is office
60,000, What is the value of the current assets?
A. Rs 60,000 B. Rs 1,00,000 (3) Unfit to continue in office due to infirmity of mind and
C.Rs 1,20,000 D. Rs 1,80,000 body.
(4) Proved misbehavior or incapacity
297. Arrange the following steps involved in capital
budgeting in order of their occurrence (a) Only 1& 4 (b) Only 3& 4
(i) Project Selection (c) Only 1 & 3 (d) All 1,2,3,4
(ii) Project appraisal
306. Who of the following is not the part of the committee to
(iii) Project generation
(iv) Follow up select Chief Election Commissioner and other information
(v) Project execution commissioneRs?
A. (ii), (iii), (i), (v), (iv) (a) Prime Minister of India
B. (iii), (ii), (i), (v), (iv) (b) Chief Justice of Supreme Court
C.(i), (iii), (ii), (v), (iv) (c) Leader of Opposition in the Lok Sabha
D.(i), (ii), (iii), (v), (iv) (d) A Union Cabinet Minister appointed by the Prime Minister
298. Depreciation is incorporated in cash flows because it
A. Is unavoidable cost 307. What can be the maximum strength of the Information
B. Is a cash flow CommissioneRs?
C.Involves an outflow (a) 5 (b) 7 (c) 10 (d) 12
D.Reduces tax liability
308. Consider the following statements about the right to
299. Which one is more appropriate for cost of retained information (RTI) Act, 2005 and select one which is not
earning?
provided for or specially exempted
A. Weighted Average cost of capital
B. Opportunity cost to the firm A. It is not applicable in the state of Jammu and Kashmir
C.Expected rate of return by the investor B. An applicant making request for information will have
D.None of the above to give reasons for seeking information
300. Debt financing is a cheaper source of finance because C. Removal of chief information officer
of D. Every information commissioner shall hold office for a
A. Time value of Money term of 5 yeaRs or till the age of 65 yeaRs whichever
B. Rate of Interest is earlier
C.Tax deductibility of Interest
D.Dividends not payable to lendeRs 309. The concept of Goods and Services Tax (GST) is
301. Which of the following steps of purchase decision originated in………..
process is in sequence? (a) Canada (b) USA
(i) Problem recognition (c) Britain (d) Germany
(ii) Search for alternative
(iii) Evaluation of alternative 310. Which of the following is statement is not correct about
(iv) Purchase action GST?
(v) Post purchase action (a) GST is like a last-point retail tax. GST is going to be
A. 1,3,2,4,5 B. 1,2,4,3,5 collected at point of Sale.
C.2,1,3,5,4 D. ,2,3,4,5 (b) GST will abolish all the direct tax levied in India
302. If compounding is done quarterly in year, the effective (c) It will be implemented from 1 July, 2017 throughout
rate of interest is equal to the country.
A. 4 x nominal rate of interest (d) It will unified the tax structure in India
B. (1 + nominal rate of interest / 4)4 311. Which of the following tax will be abolished by the
C.(1 + nominal rate of interest)/ 4 GST?
D.All of the above
(a) Service Tax (b) Corporation tax
303. The salary and other allowances of the Chief
(c) Income Tax (d) Wealth Tax
Information Commission are same as;
(a) Chief Justice of Supreme Court of India 312. Which of the following tax rate is not applicable under
(b) Attorney General of India the GST?
(c) Comptroller and Auditor General of India (a) 5 (b) 12 (c) 18 (d) 25
(d) Chief Election Commissioner
313. What kind of Tax is GST?
304. What is the tenure of Chief Information Commissioner? (a) Direct Tax (b) Indirect Tax
(a) 5 yeaRs (b) 3 yeaRs (c) Depends on the type of goods and services
(c) 6 yeaRs (d) Not fixed
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(d) None of the above A. quantity of units required to sold B. Selling of units
C. Sold units D. Contributed units
314. Which of the following good will not is covered under
the GST bill? 329. Contribution margin is Rs 34000 and operating income
(a) Cooking gas (b) Liquor is Rs 12000, then degree of operating leverage will be
(c) Petrol (d) All of the above A. 4.84 B. 2.84 C.3.84 D. 5.84
315. Which of the following is the main motive of the 330. If direct service labor is RS 7000, idle time wages are
government behind the introduction of the Goods and RS 2000 and overtime premium is RS 950, then total figure
Services Tax would be
(a) To bring tax uniformity in the country A. RS 5,850 B. RS 5,950
(b) To increase government revenue C. RS 9,950 D. RS 10,050
(c) To replace all the indirect tax
331. Type of distribution, which consists of alternative
(d) All of the above
outcomes and probabilities of events is classified as
316. Which state became the fiRst state of India to ratify A. Event Table B. Outcome Table
GST bill? C. Decision Table D. Probability Table
A Bihar B Telangana
332. Calculation of product cost, gathering information for
C Assam D Andhra Pradesh
planning and analyzing information for decisions making are
317. GST was introduced as the _____ amendment Act. features of
A. 100 B. 101 C. 102 D. 103 A. Information Accounting B. Cost Accounting
C. Analyzing Accounts D. Marketing Costs
318. GST threshold limit barring North East (NE) and hilly
states is ______ lakh. 333. Prime cost is RS 50000 and direct manufacturing labor
A. 10 B. 15 C. 20 D. 25 is RS 10000, then direct material cost will be
A. RS 40,000 B. RS 60,000
319. Who is the chairman of GST council?
C. RS 52,000 D. RS 20,000
A RBI Governor B Prime Minister
C Finance secretary D Finance Minister 334. Direct material cost is RS 75000 and direct
manufacturing labor is RS 20000, then prime cost would be
320. GST is a ___ based tax on consumption of goods and
A. RS 55,000 B. RS 37,500
services.
C. RS 95,000 D. RS 26,000
A Origin B Destiny
C Development D Destination 335. The first item in order of payment to be made by
liquidator is:
321. In which year GST was fiRst proposed in India?
a. Secured creditors b. Preferential creditors
A. 2000 B. 2002 C. 2004 D. 2006
c. Liquidation expenses d. Preferential creditors
322. The country with second highest tax slab i.e. 27% is:
336. Liquidator‘s statement of receipts and payment is
A. South Korea B. Ireland
known as:
C. Argentina D. Netherland
a. Cash flow statement b. Cash book
323. Presently how many countries have implemented GST? c. Liquidator‘s final statement of account
A. 102 B. 120 C. 140 D. 160 d. Deficiency account
324. GST comes under which amendment bill? 337. An effect of fixed cost to change in operating income is
A. 118 B. 120 C. 122 D. 115 classified as
325. Creation of the GST Council as per Article _________ A. Uncertain Margin B. Certain Margin
of the amended Constitution; C. Operating Margin D. Operating Leverage
A. 286A B. 255A C. 266A D. 279A
338. On incorporation of a company, the Registrar of
326. Which of the following comes under sin tax? Companies in addition to the Certificate of Incorporation,
A. Pan Masala B. Tobacco issues a unique identification number called –
C. Alcohol D. All A, B and C a. Unique corporate number
b. Corporate identification number
327. GSTN comes under which Act?
c. Company identification number
A. Banking Regulation Act 1949 B. RBI Act 1934
d. Unique identification number
C. Companies Act, 2013 D. Limitation Act, 1963
339. A company in which 50.25% of shares are held by one
328. Fixed cost is added to target operating income and then
State Government while the rest of the shares are held by
divided to contribute margin per unit to calculate

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private sector companies and by retail shareholdeRs i.e., 349. Higher dividends per share is associated with
membeRs of public, is a – a) high earnings, high cash flows, unusable earnings
a. Government company b. Public company and higher growth opportunities
c. Corporation d. Private sector company b) high earnings, high cash flows, stable earnings and
high growth opportunities
340. The cheapest source of finance is
c) high earnings, high cash flows, stable earnings and
a. debenture b. equity share capital
lower growth opportunities
c. preference share d. retained earning
d) high earnings, low cash flows, stable earnings and
341. A decision to acquire a new and modern plant to lower growth opportunities
upgrade an old one is a
350. A fixed asset should be financed through
a. financing decision b. working capital decision
a) a long-term liability
c. investment decision d. dividend decision
b) a short-term liability
342. Other things remaining the same, an increase in the tax c) a mix of long and short-term liabilities
rate on corporate profits will d) None of them
a. make debt relatively cheaper
351. Capital gain of Rs 75 lakh arising from transfer of long
b. make debt relatively less cheap home
term capital assets will be exempt from tax if such capital
c. no impact on the cost of debt
gain is invested in the bonds redeemable after three years,
d. we can‘t say
issued by NHAI u/s 54EC of the Act.
343. Companies with higher growth paternal are likely to A. True
a. pay lower dividends b. pay higher dividends B. False
c. dividends are not affected by growth considerations C. Cannot be said with certainty
d. none of the above D. Is decided by the Assessing Officer
352. Deduction U/s 80G on account of donation is allowed to
344. Financial leverage is called favorable if
A. A business assessee only B. Any assessee
a. Return on Investment is lower than cost of debt
C. Individual or HUF only D. None of the above
b. ROI is higher than cost of debt
c. Debt is nearly available 353. If good will of a profession which is self-generated is
d. If the degree of existing financial leverage is low transferred, there will
A. Be capital gain B. Not be any capital gain
345. Higher debt equity ratio = results in C. Be a short-term capital gain D. None of the above
a. lower financial risk b. higher degree of operating risk 354. Where a partner transfers any capital asset into the
c. higher degree of financial risk d. higher EPS
business of firm ,the sale consideration of such asset to the
346. Higher working capital usually results in partner shall be
a. higher current ratio, higer risk and higher profits A. Market value of such asset on the date of such transfer
b. lower current ratio, higher risk and profits B. Price at which it was recorded in the books of the firm
c. higher equitably, lower risk and lower profits C. Cost of such asset to the partner
d. lower equitably, lower risk and higher profits D. None of the above

347. Current assets are those assets which get converted 355. R Ltd., is an Indian company whose entire control and
into cash management of its affairs is situated outside India. R Ltd.,
a) within six month shall be
b) within one year A. Resident in India B. Non-resident in India
c) between one and three year C. Not ordinarily resident in India D. None of the above
d) between three and five year 356. Interest on capital of or loan from partner of a firm is
348. Financial planning arrives at allowed as deduction to the firm to the extent of
a) minimising the external borrowing by resorting to A. 18% p.a.
equity issues B. 12% p.a. even if it is not mentioned in partnership
b) entering that the firm always have sinthicicanlty deed
more fund than required so that there is no pancity C. 12% p.a. or at the rate mentioned in partnership deed
of funds whichever is less.
c) ensuring that the firm paces neither a shortage nor a D. None of the above
glut of unusable funds 357. Dividend paid by an Indian company is
d) doing only what is possible with the funds that the
A. Taxable in India in the hands of the recipient
firms has at its disposal B. Exempt in the hands of recipient

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 C. Taxable in the hands of the company and exempt in (D) According to Budget 2017-18, those peoples are
the hands of the recipient earning 5 lakh to 10 lakh per annum have to pay
D. None of the above income tax at the rate of 10% per annum.
358. Method of collecting income tax in which taxes paid 368. According to budget 2017-18, which is the correct
increase with amount of earned income is known as decreasing order of the government tax revenue?
A. Horizontal Equity B. Vertical Equity (A) Income Tax> Corporation Tax> Service Tax.
C. Proportional Tax D. Progressive Tax (B) Income tax> Corporate tax> product tax
(C) Corporate tax> income tax> product tax
359. Concept that refers to movement of assets out of a (D) Corporate tax> product tax> income tax
country is known as
A. Capital Outflow B. Capital Inflow 369. Which of the following is not imposed by the Central
C. Net Outflow D. Net Inflow Government?
(A) Agricultural tax (B) Corporation tax
360. Which of the following "tax" is levied at every stage of (C) Custom duty (D) Sales tax
production?
(A) VAT (B) Income tax 370. Income tax is rounded off to
(C) Custom duty (D) None of the above A. Nearest ten rupees B. Nearest one rupee
C. No rounding off of tax is done D. None of the above
361. Which of the following is indirect tax?
(A) Income tax (B) Wealth tax 371. For claiming exemption under section 54B the
(C) Corporation tax (D) Sales tax assessee should acquire
A. Urban agricultural land B. Rural agricultural land
362. Which of the following tax will be abolished by the C. Any agricultural land D. None of the above
Goods and Services Tax.
372. TI of a person is determined on the basis of his
(A) Property tax (B) Corporation tax
A. residential status in India B. citizenship in India
(C) VAT (D) All of the above
C. none D. both of the above
363. If 'Tata Company' imports a product from abroad, then
373. For person carrying on profession, tax audit is
which tax will be levied on it?
compulsory, if the gross receipts of the previous year
(A) VAT (B) Custom duty
exceeds
(C) Income tax (D) Corporation tax
A. Rs. 50 lakhs B. Rs. 40 lakhs
364. Which of the following tax is imposed by the Central C. Rs.10 lakhs D. None of the above
Government but the state government collects it?
374. Where an urban agricultural land owned by an
(A) VAT (B) Income tax
individual, continuously used by him for agricultural purposes
(C) Corporation tax (D) Stamp Duty
for a period of two years prior to the date of transfer, is
365. What is called Tax heaven? compulsorily, acquired under law and the compensation is
(A) A country which gives tax exemptions to the foreign fixed by the state Government, resultant capital gain is
citizens that there will be no tax on investing the exempt.
money in their country. A. True B. False
(B) Subsidy given by the government in taxes C. Cannot be said with certainty
(C) Tax evasion in the domestic country D. Is decided by the Assessing Officer
(D) To impose equal taxes on domestic producers and
375. If any amount is donated for research, such research
foreign producers
should be in nature of
366. What kind of tax system is found in India? A. Scientific research only
(A) Progressive (B) Degressive B. Social or statistical research only
(C) Proportional (D) None of the following C. Scientific or social or statistical research
D. None of the above
367. Which of the following statements is wrong?
(A) Indian government receives highest income from 376. Education cess is leviable in case of
Corporation tax. A. An individual and HUF B. A company assessee only
(B) According to budget 2017-18, the government C. All assesses D. None of the above
spends 19% of its total income as interest payment. 377. Deduction under section 40(B) shall be allowed on
(C) Economy of Maharashtra is the largest among all account of salary/remuneration paid to
states in India A. Any partner B. Major Partner only
C. Working partner only D. None of the above

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378. Residential status to be determined for 387. Tool used to present manager with performance graphs
A. Previous year B. Assessment year and charts is
C. Accounting year D. Current Year A. HR scorecard B. digital dashboard
C. strategy map D. all of above
379. R, a chartered accountant is employed with R Ltd., as
an internal auditor and requests the employer to call the 388. An employer's refusal to provide work opportunities, is
remuneration as internal audit fee. R shall be chargeable to classified as
tax for such fee under the head.
A. Grievance Procedure B. Lock Out
A. Income from salaries
C. Injunction D. Strike Procedure
B. Profit and gains from Business and Profession
C. Income from other sources. 389. A combined refusal in buying products of employers,
D. None of the above union members as well as employees, known as
380. Business loss can be set off against salary income. A. Boycott B. Impasse Boycott
A. True B. False C. Strike D. Picketing
C. Cannot be said with certainty
390. According to business perspective, employees carrying
D. Is decided by the Assessing Officer
sign language in depicting their concerns, regarded as
381. ABC Pvt. Ltd. has paid fee to XYZ firm for technical A. Strike B. Picketing
services and professional services, Rs. 40,000 and Rs C. Boycott D. Impasse Boycott
25,000 respectively. Which of the following statement is 391. Strike occurs when labor does not agree on conditions
correct? of contract, classified as
A) ABC is required to deduct TDS on Rs. 65,000 and paid A. unfair labor practice strike B. Economic strike
net amount. C. Sympathy strike D. Wildcat strike
B) ABC is required to deduct TDS only on Rs. 40,000.
392. In order of court, compelling parties either to desist a
C) ABC is not required to deduct any TDS.
certain action or to resume a particular action' classified as
D) None of the above.
A. Grievance Procedure B. Lockout
382. Mr. A has paid fees for professional services to a C. Injunction D. Strike Procedure
lawyer for settling his personal family case and pay Rs.
393. Certain revenue and capital expenditure on scientific
25,000 in advance and Rs. 40,000 after settlement of case.
research are allowed as deduction in the previous year of
Which of the following statement is correct?
commencement of business even if these are incurred
E) A is required to deduct TDS on Rs. 65,000 and paid net
A. Five years immediately before the commencement
amount.
F) A is required to deduct TDS only on Rs. 40,000. of business
G) A is not required to deduct any TDS. B. 3 years immediately before the commencement of
the business
H) A is required to deduct TDS at the time of payment of
C. Any time prior to the commencement of the business
Rs 25,000 and of 40,000 respectively.
D. None of the above
383. In surveying market, a way to know what others are
394. R Ltd. is registered in U.K. The control and
paying, known as
management of its affairs is situated in India .R Ltd. shall be
A. Salary Survey B. Market Survey
A. Resident in India B. Non-resident
C. Equity Survey D. Motivation Survey
C. Not ordinarily resident in India D. None of the above
384. Increments based on performance is a basis of
395. Deduction u/s SOD is allowed if the premium is paid to
a) direct financial payments
b) non direct financial payments A. Life insurance Corporation
B. General insurance Corporation or any other insurer
c) direct compensation
approved by IRDA
d) bonuses
C. Life insurance or General insurance corporation
385. Achieving aims and monitoring results in HR D. None of the above
management of financial and non-financial goals, regarded
396. The TI of the assessee has been computed as Rs
as
2,53,494.90. For rounding off, the TI will be taken as
A. HR scorecard B. HR digital dashboard
A. Rs 2,53,500 B. Rs 2,53,490
C. both A and B D. None of above
C. Rs 2,53,495 D. None of the above
386. A graphical tool, used to summarize chain of activities
397. Under the head Business or Profession, the method of
to get "big picture" of performance is
accounting which an assessee can follow shall be
A. HR scorecard B. HR digital dashboard
A. Mercantile system only B. Cash system only
C. Strategy map D. All of above
C. Mercantile or cash system only D. Hybrid system

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 D. All of the above
398. Incomes which accrue or arise outside India but are
received directly into India are taxable in case of 406. Income deemed to accrue or arise in India is taxable in
A. Resident only B. Both ordinarily resident and NOR case of
C. Non-resident D. All the assesses A. Resident only
B. Both ordinarily resident and NOR
399. As per Sec.139(1), a company shall have to file return
C. Non-resident
of income
D. All the assesses
A. When its total income exceeds Rs. 50,000
B. When its total income exceeds the maximum 407. Plans that are designed to motivate employees' short
amount which is not chargeable to income tax term performance are called
C. In all cases irrespective of any income or loss A. Annual Bonus
earned by it. B. Annual Award
D. None of the above C. Annual Sales Promotion
D. Annual Transfer
400. Income which accrue or arise outside India and also
received outside India taxable in case of 408. In traditional focus, providing opportunities for learning
A. resident only is part of
B. not ordinarily resident A. training and development
C. both ordinarily resident and NOR B. performance appraisal
D. none of the above C. recruiting and placement
D. human resource planning
401. A firm business income is nil/negative. It shall still be
allowed as deduction on account of remuneration to working 409. In a career development focus, information about
partner to the maximum extent of individual interests and preferences is a part of
A. Actual remuneration paid as specified in partnership A. training and development
deed B. performance appraisal
B. Rs. 50,000 C. recruiting and placement
C. Nil D. human resource planning
D. None of the above
410. In a career development focus, addition of development
402. For claiming Deduction u/s 80C, the payment or deposit
plans is a part of
should be made
A. training and development
A. Out of any income
B. performance appraisal
B. Out of any income chargeable to income tax
C. recruiting and placement
C. During the current year out of any source
D. compensation and benefits
D. None of the above

403. Income which accrue outside India from a business

controlled from India is taxable in case of
A. Resident only
B. Not ordinarily resident only
C. Both ordinarily resident and NOR
D. Non-resident

404. Perquisite received by the assessee during the course

of carrying on his business or profession is taxable under the
1 B 51 D 101 B 151 C
head.
A. Salary 2 B 52 A 102 B 152 B
B. Other sources 3 B 53 B 103 B 153 C
C. PGBP 4 D 54 A 104 C 154 B
D. None of the above 5 A 55 D 105 D 155 B
6 A 56 C 106 B 156 D
405. New assets acquired for claiming exemption u/s 54, 7 B 57 C 107 B 157 C
54B or 54D, if transferred within 3 years, will result in 8 A 58 D 108 C 158 A
A. Short-term capital gain 9 C 59 A 109 C 159 C
B. Long-term capital gain 10 C 60 C 110 B 160 C
C. ST or LTCG depending upon original transfer 11 B 61 C 111 C 161 B

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12 A 62 A 112 A 162 D 215 D 265 A 315 B 365 A
13 C 63 A 113 B 163 A 216 B 266 A 316 C 366 B
14 B 64 A 114 A 164 A 217 D 267 D 317 B 367 D
15 B 65 B 115 D 165 D 218 A 268 C 318 A 368 C
16 A 66 B 116 D 166 B 219 A 269 D 319 D 369 A
17 A 67 B 117 C 167 B 220 D 270 B 320 D 370 A
18 C 68 C 118 A 168 A 221 B 271 C 321 A 371 C
19 A 69 D 119 C 169 D 222 C 272 D 322 C 372 A
20 D 70 C 120 D 170 B 223 A 273 B 323 D 373 A
21 A 71 B 121 D 171 C 224 A 274 D 324 C 374 B
22 C 72 A 122 D 172 D 225 B 275 A 325 D 375 C
23 A 73 C 123 A 173 A 226 B 276 C 326 D 376 C
24 D 74 B 124 B 174 B 227 A 277 A 327 C 377 C
25 A 75 C 125 D 175 D 228 C 278 B 328 A 378 A
26 D 76 D 126 D 176 C 229 C 279 C 329 B 379 A
27 B 77 A 127 A 177 A 230 B 280 A 330 C 380 B
28 C 78 D 128 D 178 B 231 C 281 D 331 C 381 B
29 B 79 A 129 C 179 A 232 C 282 A 332 B 382 C
30 A 80 B 130 B 180 D 233 C 283 A 333 A 383 A
31 C 81 A 131 D 181 D 234 B 284 A 334 C 384 A
32 B 82 B 132 B 182 D 235 B 285 B 335 C 385 A
33 B 83 C 133 C 183 D 236 D 286 D 336 C 386 C
34 B 84 A 134 D 184 B 237 B 287 A 337 D 387 B
35 D 85 B 135 A 185 C 238 C 288 B 338 D 388 B
36 D 86 C 136 A 186 D 239 D 289 D 339 B 389 A
37 D 87 B 137 C 187 D 240 A 290 A 340 D 390 B
38 C 88 C 138 A 188 A 241 B 291 C 341 C 391 B
39 B 89 B 139 B 189 B 242 B 292 A 342 A 392 C
40 C 90 A 140 A 190 B 243 A 293 B 343 A 393 B
41 C 91 C 141 B 191 A 244 B 294 C 344 B 394 B
42 D 92 B 142 A 192 D 245 D 295 A 345 C 395 B
43 C 93 D 143 B 193 D 246 C 296 C 346 A 396 A
44 A 94 A 144 D 194 C 247 D 297 B 347 B 397 C
45 B 95 B 145 D 195 D 248 B D 348 C
298 398 D
46 A 96 B 146 A 196 A
249 D 299 B 349 C 399 C
47 C 97 C 147 D 197 C
250 C 300 C 350 A 400 A
48 A 98 A 148 D 198 B
401 B 405 A 409 D
49 C 99 B 149 C 199 C B D B
402 406 410
50 D 100 D 150 C 200 C 403 C 407 A
404 C 408 A
201 D 251 B 301 D 351 A
202 B 252 C 302 B 352 B
203 D 253 B 303 D 353 B
204 D 254 C 304 A 354 B
205 C 255 D 305 D 355 A
206 D 256 B 306 B 356 C
207 D 257 A 307 C 357 C
208 C 258 A 308 C 358 B
209 B 259 C 309 A 359 A
210 A 260 D 310 B 360 A
211 D 261 C 311 A 361 D
212 D 262 C 312 D 362 C
213 D 263 D 313 B 363 C
214 D 264 D 314 D 364 D

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 Business Law MCQs b) The usage of the trade
c) The provisions of personal law
1. The Indian Contract Act, 1872 is divided into….. Chapters. d) Any of the above if not inconsistent with the provisions of
a) 3 b) 8 the Contract Act
c) 10 d) 12
13. Who said, ―Every Agreement and Promise enforceable at
2. The Law of Contract is noting but law is a contract?
a) A child of commercial dealing a) Austin b) Benjamin
b) A child of religion c) Pollock d) Balfour
c) A child of day to day politics
14. The provisions of Indian Contract Act override
d) A child of economics
a) The provisions of Hindu law
3. The Contract Act came into force b) The provisions of Mohammedan law
a) From 1 September, 1872 but with retrospective effect c) Usage or customs of trade
b) Before 1 September, 1872 d) All of the above
c) From 1 September, 1872
15. A promises to deliver his watch to B and, in return, B
d) After 1 September, 1872
promises to pay a sum of Rs 2,000. This is a/an
4. The Contract Act applies to a) Agreement b) Proposal
a) Contracts made before 1 September, 1872 c) Acceptance d) Offer
b) Contracts made on 1 September, 1868 16. Contract is defined as agreement enforceable by law,
c) Contracts made before 1 September, 1872 and to be vide Section…… of the Indian Contract Act.
enforced after 1 September, 1872 a) 2(e) b) 2(f)
d) Contracts made on and after 1 September, 1872 c) 2(h) d) 2(i)
5. An Indian mercantile law is based upon 17. A contract or an obligation to perform a promise could
a) Indian culture b) British culture arise by
c) England law d) American law a) Agreement and Contract
6. An agreement consists of reciprocal promises between at b) Promissory Estoppel
least c) Standard form of contracts by promise
a) Four parties b) Six parties d) All of the above
c) Three parties d) Two parties 18. A sells his car to B.A has a right to recover the price of
7. Contractual rights and duties are created by the car from B. This right is a
a) State b) Statute a) Right is rem
c) Parties d) Custom or Usage b) Right is persona
c) Right in rem as well as right in persona
8. In India, the express provisions of the Contract Act applies d) Moral right
to
a) Hindus b) Mohammedan 19. A owns a residential flat. He is entitled to quiet
c) Business man d) All of the above possession and enjoyment of his property. This is called
a) Rights in Persona b) Rights is Rem
9. Who said ―Contract is an agreement creating and defining c) Moral Right d) There is no right at all
obligations between parties?‖
a) Peter Drucker b) Salmond 20. A owes Rs 1 lakh to B. B is entitled to recover this
c) Austin d) Drucker amount from A. This is called
a) Rights in Personam b) Rights is Rem
10. Agreement is defined in Section……… of the Indian c) Constitutional Right d) There is no right at all
Contract Act, 1872.
a) 2(c) b) 2(e) 21. A contract creates
c) 2(g) d) 2(i) a) Rights is Personam b) Rights in Rem
c) No obligations d) Only obligations and no rights
11. Every promise and every set of promise forming the
consideration for each other is a/an 22. Valid Contracts
a) Contract b) Agreement a) Are made by free consent
c) Offer d) Acceptance b) Are made by competent party
12. Where there is no express provision in Contract Act, the c) Have lawful consideration and lawful object
following prevails and applied for deciding the cases d) All of the above
a) The provisions of any law of the land
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23. A lends Rs 10 lakh to B for a year, After one year A‘s 33. A and B of Srinagar entered into a contract on 1st
right to recover the money from B is a September, 2006 as per the provisions of the Indian
a) Right in rem b) Right in personam Contract Act. Can they enforce the contract?
c) Moral right d) Civil right a) Yes, because they made the contract as per the
provisions of Indian Contract Act
24. What comes first in a valid contract is
b) No, because Srinagar is not a part of Indian
a) Enforceability b) Money
c) No, because the Act does not extend to the State of
c) Force d) None of the above
Jammu and Kashmir
25. A has bought a house for Rs 50,000. Which of the d) None of the above
following right is available to A after the purchase?
34. A promised to pay his son B a sum of Rs 1 lakh if B
a) He has a right against the seller to have quiet possession
passed CA exams in the first attempt. B passed the exam in
of the house and enjoy in it
the first attempt, but A failed to pay the amount as promised.
b) He has a right against the whole world to have quiet
B files a sit for recovery of the amount. State whether B can
possession of the house and enjoy in it
recover the amount under the Indian Contract Act, 1972.
c) He has moral right over the house
a) B can sue A
d) He has a right to live in the house but cannot sell
b) B has to pay Rs 1 Lakh to A
26. An agreement not enforceable by law is said to be void c) B has no remedy against A
under section…. of the India Contract Act. d) B has to write the exam again, to claim the reward
a) 2 (a) b) 2 (b)
35. A contract creates
c) 2 (f) d) 2 (g)
a) Rights and obligations of the parties to it
27. An agreement to commit a tort is b) Obligations of the parties to it
a) Void b) Voidable c) Mutual understanding between the parties to it
c) Valid d) Unenforceable d) Mutual lawful rights and obligations of the parties to it.

28. Agreement to murder a person 36. In agreements of purely domestic nature, the intention of
a) Cannot be enforceable by law the parties to create legal relationship is
b) Is valid in law a) To be proved to the satisfaction of the Court
c) In invalid for want of consideration b) Presumed to exist
d) Has no consensus ad idem c) Required to the extent of consideration
d) Not relevant at all
29. Agreements that do not give rise to contractual
obligations are not contracts. 37. An agreement is valid
a) True b) Partly True a) Which creates legal and social obligations of the parties
c) False d) None of the above b) Which creates rights of a party
c) Which is written on a piece of paper and signed by the
30. A invites B for his son‘s wedding. B accepts the
parties
invitation. In this case, there is an agreement but no
d) Which creates legally binding right and obligations of the
contract, since
parties to it
a) There is no consideration
b) There is no intention to create legal relationship 38. Voidable contract is one
c) There is no written document a) Which is lawful
d) There is no formal acceptance of the offer b) Which is invalid
31. A invites B for coffee in coffee-day restaurant and B c) Which is valid as long as it is not avoided by the party
accepts the invitation. On the appointed date, B goes there entitled to do so
but A is not found. In this case d) Which is unlawful
a) B has no remedy against A 39. When the contract is perfectly valid but cannot be
b) B has to wait for another invitation from A enforced because of certain technical defects. This is called
c) B has the right to sue A for not honoring his words a) Unilateral Contract b) Bilateral Contract
d) A has to invite B again, to perform the promise. c) Unenforceable Contract d) Void Contract
32. A promises to give Rs. 5,000 per month pocket money to 40. ………….. is without any legal effect and cannot be
his son B. If A does not give the pocket money enforced in a Court of Law.
a) B can sue his father a) Valid Contract b) Void Contract
b) B has no remedy against A c) Voidable Contract d) Unenforceable Contract
c) B can accept a lower pocket money also
d) B has to give Rs. 5,000 to his father
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41. According to provisions of Indian Contract Act, 1872 void GST MCQs
agreement and void contract is the same. Q. 1. __________ was first country to adopt GST as indirect
a) True b) False system of taxation.
c) Partly True d) Partly False (a) France (b) Germany
(c) UK (d) India
42. The legal effect of void agreement and void contract is
Q. 2. The GST is recommended by the __________ on
the same. implementation of the Fiscal Responsibility and Budget
a) True b) False Management (FRBM) Act, 2003
c) Partly True d) Partly False (a) Kelkar Task Force (b) Chidambaram Task Force
(c) Jaitely Task Force (d) None of the above
43. A void agreement is void as into but a void contract is not
void as into. Q 3:- What kind of tax can be transferred from one person to
a) True b) False another?
(a) Direct tax (b) Indirect tax
c) Partly True d) Partly False
(c) Both of the above (d) None of the above
44. A contract needs to be written, registered and signed by Q 4:- What is the difference between a direct & an indirect
parties and witnessed tax?
a) If any party wishes so (a) Charge of levy
b) If the Contract Act directs so (b) Nature of transfer
c) If the law governing the contract requires so (c) Different collection pattern of tax
(d) All of the above
d) If the consideration is of large amount
Q 5:- When did the GST act come into force?
45. A and B contract to marry each other. Before the time for (a) Year 2015 (b) Year 2016
the marriage, A goes and mad. The contract becomes (c) Year 2017 (d) None of the above
a) Void b) Illegal
Q 6:- Which of the following constitutional amendment
c) Valid d) Voidable governs GST act?
46. ……………. is forbidden by law. The Court will not (a) 101 st amendment, (b) 122 nd amendment,
(c) 152 nd amendment (d) 140 th amendment,
enforce such a contract.
a) Valid Contract b) Illegal agreement Q 7:- What kind of tax is GST called as..?
c) Voidable Contract d) Unenforceable Contract (a) Consumption based tax (b) Movement based tax
(c) Destination based tax (d) None of the above
47. A Contracts with B to beat his business competitor. This
Q 8:- Which of the following is the main motive of the
is an example of
government behind the introduction of the Goods & Service
a) Valid Contract b) Illegal agreement tax act?
c) Voidable Contract d) Unenforceable Contract (a) To bring uniformity of taxes in the country
(b) To increase the government revenue
48. …………. is made by words spoken. (c) To replace all indirect taxes
a) Express Contract b) Implied Contract (d) All of the above
c) Tacit Contract d) Unlawful Contract
Q. 9.Which article of the Constitution outlines the
49. ……….. is made by words written. composition and functions of the GST Council ?
a) Express Contract b) Implied Contract (a) 270 (b) 279-A
(c) 246-A (d) 269-A
c) Tacit Contract d) Unlawful Contract
Q. 10 GSTN is a -----------
50. A appoints B as his agent, by way of a power of attorney. (a) Non-profit organisation (b) Profit organisation
This is an example of (c) None of the above (d) One Person company
a) Express Contract b) Implied Contract
Q 11:- Who of the following will be the members of the GST
c) Tacit Contract d) Unlawful Contract Council?
1. Union Finance Minister
Ans Key 2. Union Minister of State in charge of Revenue or Finance
1.C 2. A 3. C 4. D 5.C 6. D 7. C 8. D 3. Chief Ministers of States
9.B 10 . B 11. B 12. D 13. C 14.D 15. A (a) 1 & 3 (b) 1 & 2
(c) 2 & 3 (d) All of the above
16.C 17. D 18. B 19. B 20. A 21. A 22. D 23. B Q 12:- Who amongst the following will be considered as the
24. A 25. B 26. D 27. D 28. A 29. A 30. B 31.A chairman of GST Council ?
(a) Union Minister of State (b) Union Finance Minister
32. B 33. C 34. C 35. D 36. A 37. D 38. C 39.
(c) Minister of state revenue (d) Chief Minister of state
C 40. B 41. B 42. A 43. A 44.C 45.A

46.B 48. A 49. A 50. A

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Q 13:- Which of the following functions are performed by (A) GST is based on principle of ‗pay as you earn‘.
Goods & Service Network (GSTN)? (B) GST is a destination based tax.
(a) Facilitating registration (c) GST is technically paid by consumers but it is actually
(b) Computation & settlement of IGST funded by suppliers.
(c) Matching of tax payment details with banking network (D) All of the above
(d) All of the above
Q.25 The term 'public interest' is ----------vague and
Q 14:- What does dual GST concept mean? uncertain.
(a) Charging CGST & IGST a) Definitely b) Not
(b) Charging SGST & IGST c) To an extent d) Both (a) and (c) are correct
(c) Charging both CGST & SGST
Q.26.Whether IGST revenue is to be apportioned to state?
(d) None of the above
(a) No
Q 15:- What kinds of taxes are subsumed under GST? (b) Yes- apportioned to origin state
(a) Central excise duty (b) State VAT/Sales Tax (c) Yes- apportioned to destination state
(c) Central Sales Tax (d) Service Tax (d) Discretion of Parliament
(e) All of the above
Q. 27.Who will legislate GST law?
Q 16:- Which of the taxes are out of purview of GST? (a) State Legislature (b) Parliament
(a) Property tax & stamp duty (c) Both (d) Depends upon nature of supply
(b) Additional duties of Custom (CVD & SAD)
(c) Excise duty on Alcohol Q. 28.Presently GST law/Act extends to —
(d) Entertainment tax by local body (a) All States (except the State of J&K)
(e) Only (a) & (c) (b) All States as well as all Union territories
(c) All States (except the State of J&K) and All Union
Q 17 :- Which of the following good will not be covered territories
under the GST act? (d) All States (except the State of Telangana) but
(a) Cooking gas (b) Liquor
(c) Petrol (d) Both b & c above Q. 29.The recommendation of the GST Council will be ____.
Q. 18:-.GST is levied on supply of all goods and services (a) Mandatory
except: (b) Only Advisory Power
(a) Alcoholic liquor for human consumption (c) Mandatory and sometimes Advisory
(b) Tobacco (d) Mandatory on States only
(c) Health care services Q.30.One of the following states does not fall under special
(d) All of the above category given under Article 279A of the Constitution
(a) Himachal Pradesh (b) Uttarakhand
Q 19:- How many Companies are given permission to act as
(c) Chhattisgarh (d) Jammu & Kashmir
GST Suvidha Providers?
a) 30 b) 34 Q. 31.Goods and Services Tax (Compensation to the States)
c) 40 d) 20 Act, 2017 is popularly known as ----------.
a) GST CSA
Q. 20:- The Authority shall consists of?
b) GST Compensation Cess Act
a) 1 Chairman & 1 Technical member
c) GST Cess Act
b) 1 Chairman & 2 Technical members
d) GST Compensation Act
c) 1 Chairman & 3 Technical members
d) 1 Chairman & 4 Technical members Q 32. GST is levied on which of the following?
(a) Sale of goods (b) Manufacture of goods
Q 21:- Who will notify the rate of tax to be levied under
(c) Provision of services (d) Supply of goods/ services
CGST?
(a) Central government suo moto Q 33:- Which of the following would attract levy of CGST &
(b) State government suo moto SGST?
(c) GST council suo moto (a) Inter-state supplies (b) Intra-state supplies
(d) Central government as per recommendations of the GST (c) Any of the above (d) None of the above
council
Q 34:- What are the taxes levied on an intra-state supply?
Q 22:- The proceeds of the GST Compensation Cess (a) CGST (b) SGST
leviable under section 8 shall be distributed among States as (c) CGST & SGST (d) IGST
and when collected.
a) Yes b) No Q. 35. If any supply made by a trader from Delhi to another
trader in Delhi, the supply will be subject to:
Q.23. If a state loses revenue because of abolition of central (a) CGST and SGST (b) CGST and UTGST
sales tax, Central Government will pay compensation in the (c) IGST (d) SGST and UTGST.
form of GST compensation cess for:
Q 36:- Which of the following supplies will be classified as
(a) 1 year (b) 3 years
Inter-state supply?
(c) 5 years (d) 10 years.
(a) Supply within same state
Q. 24. Which of the following statement is correct ? (b) Supply within same union territory

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(c) Supply between two different states/ union territory Q. 47. Officers under which Act shall be deemed to be the
(d) None of the above officers appointed under the provisions of CGST Act:
a. Central Excise Act, 1944
Q 37:- What is Integrated Goods and Services Tax?
b. Central Sales Tax Act, 1956
(a)Tax imposed on import or export of goods and services
c. Delhi Value Added Tax Act, 2004
(b)Tax imposed on value additions to exports
d. Customs Act, 1962
(c)Tax imposed on interstate trade
(d)Both a & c above Q. 48. The officers appointed under which of the following
Acts are authorised to be the proper officers for the purposes
Q. 38.The items which will be taxable both under current
of the CGST Act, 2017:
Central Excise Law and GST even after the implementation
a. State Goods and Services Tax Act
of the GST Act.
b. Union Territory Goods and Services Tax Act
(a) Motor Spirit
c. Both (a) and (b)
(b) Alcoholic Liquor for Human Consumption
d. None of the above
(c) Tobacco and Tobacco Products
(d) Natural Gas Q. 49. The Commissioner may, subject to such conditions
and limitations as may be specified in this behalf by him,
Q. 39. What does ―I‖ stand for IGST or CT for CGST or
delegate his powers to:
Stand for SGST ?
a. Any other officer who is sub-ordinate to him
(a) International , Central, State
b. Any other officer who is senior to him
(b) Integrated, Central, State
c. Both (a) and (b)
(c) Integral , Central, State
d. None of the above
(d) Intra, Central, State
Q 40:- ITC of CGST can be utilised for payment of 50. Mr. X, supplied a laptop for ` 40,000 to Mr. Y along with a
(a) Only CGST (b) Only SGST barter of printer, the value of which is Rs. 4,000 but the open
(c) 1st CGST & then IGST (d) 1st SGST & then IGST market value of the laptop is not known. The GST liability will
Q 41:- ITC of SGST can be utilised for payment of be:
(a) Only CGST (b) Only SGST a. Mr. X for ` 40,000 and Mr. Y for ` 4,000
(c) 1st CGST & then IGST (d) 1st SGST & then IGST b. Mr. X for ` 44,000 and Mr. Y for ` 4,000
c. Mr. X for ` 36,000 and Mr. Y for ` 4,000
Q 42:- ITC of IGST can be utilised for payment of
(a) Only CGST (b) Only SGST d. Mr. X for ` 40,000 and no GST liability for Mr. Y.
(c) Only CGST & SGST 51. Mr. A is a well-known singer. He receives a life-time
(d) 1st IGST 2nd CGST & then SGST
achievement award which consist of a memento and a
Q. 43. For purposes of GST law, the territory of ―India‖ shall cheque of ` 10,00,000. It is:
be taken to cover up following: a. Supply and chargeable to GST
(a) Sea Area upto 12 nautical miles from base line
b. Supply but not chargeable to GST
(b) Sea Area upto 200 nautical miles from base line
(c) Air space above its territory and territorial waters c. Not supply and hence not chargeable to GST
(d) All of the above d. None of the above.
Q.44 . Which of the following type of GST is payable on all 52. Mr. Vishal has head office in pune and has branches in
Inter-State supply of goods and / or services ? state of Gujarat, Goa, and Punjab. Mr. Vishal send goods to
(a) State GST (SGST) its branch Goa worth ` 2,50,000 in a own conveyance. Value
(b) State GST (SGST) & Integrated GST (IGST)
of conveyance ` 15,00,000 and With the conveyance some
(c) Central GST (CGST) & integrated GST (IGST)
(d) Integrated GST (IGST) tools and spares parts are also send worth ` 50,000.
Calculate total value of taxable supply on which GST is
Q.45. Which of the following is not the role of GSTN in GST
payable.
regime?
(a) Facilitating registration, forwarding return to Central and a. 3,00,000 b. 2,50,000
State authorities. c. 18,00,000 d. 15,50,000
(b) Computation and Settlement of IGST, matching tax
53. Mr. X is a dealer of new cars. He sells new cars for
payment details with banking network
(c) Providing platform for litigation `8,25,000 agrees to reduce ` 1,25,000 on surrendering of old
(d) Providing various MIS reports to Central and State car. Mr. Y who intends to buy new car worth ` 8,25,000
Governments, providing analysis on tax payers profile, agreed to exchange his old car with new car. Under GST
running the matching engine, reversal and reclaim of Input law, if Mr. X and Mr.Y is registered person, who will be liable
tax credit to pay GST and what is the value.
Q.46. Officers under SGST Act shall be deemed to be the a. X on 825000 and Y on 125000
officers appointed under: b. X on 700000 and Y on 125000
(a) Income tax Act, 1961 (b) Customs Act, 1962 c. only X on 700000
(c) CGST Act (d) None of the Above d. only Y on 125000

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54. There is a difference in taxability of goods forming part of (ii)When a person import services without consideration for
composite supply and mixed supply. Here are few examples the purposes of his business from his elder brother living
from which you need to identify which is correct example of outside India.
composite supply and mixed supply. (iii) Disposal of car without consideration and where the
i) Mr. A buys a car and purchases warranty and supplier has not claimed input tax credit on such car.
maintenance of the car by paying nominal amount. Car, (iv) When a principal makes supplies to his agent who is also
warranty and maintenance here are a mixed supply. registered and is situated within the same State.
ii) Mr. A buys a car and purchases warranty and a. (i) & (iii) b. (I), (ii) & (iii)
maintenance of the car by paying nominal amount. Car, c. (iii) d. (iii) & (ii)
warranty and maintenance here are a composite
61. In case of Voluntary registration input tax credit can be
supply.
availed
iii) Mrs. A buys a microwave oven and some utensils for
(a) on stocks held on the day immediately preceding the
use in microwave oven. Both microwave oven and
date from which he becomes liable to pay tax under the
utensils are sold at a single price. Microwave oven and
provisions of this Act
its utensils here are a mixed supply.
(b) on stocks held on the day immediately preceding the
iv) Mrs. A buys chocolates, juices and biscuits from a
date of grant of registration under the provisions of this Act.
shop. All items have different prices. Chocolates, juices
(c) on stocks held on the day immediately preceding the date
and biscuits are a mixed supply.
of application of registration under the provisions of this Act.
The correct examples of composite and mixed supply are: -
(d) None of the above
a. i,iv b. ii,iii
c. ii,iii,iv d. None of the above 62. In case of supply of plant & machinery on which ITC is
taken, tax to be paid on is
55. What shall constitute main item under composite supply?
a. Amount equal to ITC availed less 5% for every quarter or
a. Principal Item
part thereof
b. Item with Highest tax rate
b. Tax on transaction value
c. As per the option of the taxpayer
c. Higher of above two
d. None of the above
d. Lower of above two
56. In composite supply, the principal supply is supply of
63. Is Input tax to be paid in case of switchover from taxable
goods whereas the ancillary supply is supply of services.
to exempt supplies
Which provision shall apply in respect of time of supply?
(a) Yes, equivalent to the credit in respect of inputs held in
a. Time of supply of service b. Time of supply of goods
stock (including semi-finished and finished goods) and on
c. Either (a) or (b) d. None of the above
capital goods held in stock
57. M/s X Ltd. a dealer offer combo packs of shirt, watch, (b) No
wallet, book and they are bundled as a kit and this kit is (c) Yes, full credit
supplied for a single price as a mixed supply. Tax rate for (d) No, should be debited to electronic credit ledger
shirt, watch, wallet and book are 12%, 18%, 5% and Nil
64. Is Input tax to be reversed in case of supply of capital
respectively. The mixed supply will be taxed at:
goods
a. 12% b. 18%
(a) Yes fully (b) No
c. 5% d. Nil
(c) Yes, to extent of credit taken as reduced by prescribed
58. What kind of supply is this transaction: Food supplied to percentage or tax on transaction value whichever is higher
the in – patients as advised by the doctor in the hospital.‖ (d) Yes, to the extent of transaction value of such goods
a. Composite Supply b. Mixed Supply
65. What will happen to the rest of credit carried forward in
c. Works Contract Service d. None of the above
respect of a regular dealer switching over to composition
59. XYZ Pvt. Ltd. manufactures the jeans on order of ABC stream under GST, after adjusting to the inputs held in
Pvt. Ltd. Further, after manufacturing, it also gets it delivered stock?
to ABC Ltd. & gets the in transit insurance done. What kind a) Carry forward the rest of the credit
of supply is this? b) Credit kept in abeyance till the taxable opts for normal
a. Mixed supply b. Composite supply scheme once again
c. None of the above d. Don‘t know c) Credit lapses
d) Electronic credit ledger will freeze with the credit available
60 Which of the following transactions does not qualify as
supply under GST law? 66. Mr. Natwarlal, a registered person under GST, was the
(I) When the Head Office makes a supply of services to its proprietor of M/s. Spiceton Restaurant. He died and left
own branch outside the State.

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behind his wife and son on 15-Aug- 2018. His son wants to 73. If credit applicable to more than one recipient, then it
continue the business of the deceased father. shall be distributed
The GST consultant of M/s. Spiceton Restaurant, gave the a. Equally
following advices to the son, how the son could continue the b. On Pro rata basis to the aggregate turnover of such
business of his deceased father. recipients
Which of the following option is correct in accordance with c. Proportionately
the provisions of GST law- d. As per Adhoc Ratio
(b) The son should get himself registered under the name
and style M/s. Spiceton Restaurant, under his own PAN
and file Form ITC-02. 74 What are the areas in respect of which an ISD cannot
(c) The son can get the authorized signatory changed by distribute the Input tax Credit availed?
approaching to the Proper Officer and can continue the a) ITC paid on inputs (Raw material or capital goods)
same business. b) To Outsourced manufacturers or service providers
(d) The son should close the old firm and start new c) both (a) and (b)
business under different name. d) none of the above
(e) The son should do the business as his mother as the
new proprietor of the M/s. Spiceton Restaurant, and 75 Who is considered as Input Service Distributor under
son should act as a Manager. GST?
a) Head office
67. Is ITC available in case goods are sent for job work and
b) Senior Most branch
received within the specified time limit?
c) Majority of branches
a. Yes
d) none of the above
b. No
c. Maybe
76. The ISD Mechanism is based on the concept of -----
d. Yes, with prior permission of the Jurisdictional officer
a) Distributing the credit on common in- voices pertaining to
68. Is principal entitled to take ITC even when the principal Input Services
has not received the goods and directly sent to job worker by b) Distribution of goods (inputs or capital goods) among the
the vendor? branches
a. Yes b. No c) both (a) and (b)
c. Maybe d. None of the above d) none of the above

69. The time limit beyond which if goods are not returned, 77. Is Input Service Distributor Invoice a valid document for
the capital goods sent for job work shall be treated as supply taking the ITC?
a. One year b. Five years a) Yes
c. Three Years d. Seven years b) No
70. When the goods are sent from one job worker to c) Maybe
another, the challan may be issued by: d) None of the above
a. Only by the Principal
b. Only by Job worker sending goods to another job worker 78. What type of registration is required to be taken by an
c. By any one of the above two Input service Distributor?
a) IGST Registration
71. The details of challans in respect of goods dispatched to b) SGST Registration
a job worker or received from a job worker or sent from one c) SGST and CGST Registration
job worker to another during a quarter shall be included in d) ISD Registration
FORM ? 79. What is the threshold limit for registration of ISD under
a. Form GST ITC-03 b. Form GST ITC-04 GST?
c. Form GSTR-2 d. None of Above a) InR 10 Lakhs b) InR 20 Lakhs
c) InR 1 crore d) none of the above
72. In case of ISD whether distributor and recipient
should have same PAN 80. The due date to file GSTR-6 (Return for Input Service
(a) Yes Distributor) is:
(b) No (a) 10th of the next month
(c) Yes, if in same state and different in other state (b) 13th of the next month
(d) None of the above (c) 18th of the next month
(d) 20th of the next month.
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81. For hiring a means of transport including yachts, boat, 84. Mr. Oswal, of Delhi a stock broker arranges securities for
vessel or aircraft upto a period of one month the place of Mr. Alex of Netherland a foreign investor. The transaction is
supply of service is the location of supplier. State whether carried out at BSE Mumbai. The POS shall be:
the statement is true or false. a. Delhi
a. true b. false b. Mumbai
c. Netherland
82. Mr. Ambani of Mumbai hires an aircraft of foreign d. none of the above
company for 5 days for business tour. Determine the place
of supply of service. 85. The place of supply of goods transport service, where
a. location of supplier of service the goods are transported through means other than mail or
b. location of recipient of service courier is:
c. location where service is performed a. location of supplier of service
d. location where passenger embarks for journey b. location of recipient of service
c. location of destination of goods
83. Determine the place of supply for the following services:- d. either b or c above
Mr. D, an unregistered person based in New Delhi, leaves
for a European holiday. He hires a car from London, UK for
20 days.
a. New Delhi b. European
c. London, UK d.None of the above

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 Ans Key
1 A 26 C 51 C 76 A

2 A 27 A 52 B 77 A

3 B 28 D 53 A 78 D

4 D 29 B 54 B 79 D

5 C 30 C 55 A 80 B

6 A 31 B 56 B 81 B

7 C 32 D 57 B 82 B

8 D 33 B 58 A 83 C

9 B 34 C 59 B 84 B

10 A 35 B 60 C 85 C

11 B 36 C 61 B

12 B 37 D 62 A

13 D 38 C 63 A

14 C 39 C 64 C

15 E 40 C 65 C

16 E 41 D 66 A

17 D 42 D 67 A

18 A 43 D 68 A

19 B 44 D 69 C

20 D 45 C 70 C

21 D 46 C 71 B

22 B 47 A 72 A

23 C 48 C 73 B

24 B 49 A 74 C

25 B 50 B 75 A

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