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Kerala State Board New Syllabus Plus Two Business Studies Notes Chapter 10 Financial Markets.

Kerala Plus Two Business Studies Notes Chapter 10 Financial Markets

Financial Market is a market for creation and exchange of financial assets such as Shares, Debentures, Treasury Bills, Commercial Paper, etc. It helps in mobilisation and channelising the savings into most productive uses.

A financial market also helps in price discovery and provides liquidity to financial assets.

Functions of Financial Market

• Mobilisation of Savings: Financial markets mobilise savings of investors and channelise it into the most productive use.
• Facilitating Price Discovery: Financial Market helps in the determination of prices of the financial assets.
• Providing Liquidity: Financial market facilitates easy purchase and sale of financial assets. Thus, it provides liquidity.
• Reducing 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

The money market is a market for short-term funds, which deals in financial assets whose period of maturity is up to one year. It enables in raising short term fund for meeting day-to-day requirements. The major participants in the money market are the Reserve Bank of India, Commercial Banks, Non-Banking Finance Companies, State Governments, Large Corporate Houses and Mutual Funds.

Money Market Instruments

1) Treasury Bill: 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 discount on the face value of the instruments and repayable at par. They are issued in the form of promissory notes. They are also known as Zero Coupon Bonds as no interest is paid on such bills. They are highly liquid. The maturity period of these bills may be between 14 to 364 days.

2) Commercial Paper: Commercial paper is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a maturity period of 15 days to one year. It is sold at a discount and redeemed at par.

3) Call Money: Call money is short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions.

4) Certificate of Deposit: Certificates of Deposit (CDs) are short-term instruments issued by Commercial Banks and Special Financial Institutions (SFIs), which are freely transferable from one party to another. The maturity period of CDs ranges from 91 days to one year.

5) Commercial Bill: A commercial bill is a Bill of Exchange used to finance the working capital requirements of business firms. When goods are sold in credit, the seller draws the bill and the buyer accepts it. The seller can discount the bill before its maturity with the bank. When a trade bill is accepted by a commercial bank it is known as commercial bills.

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:

1. Primary Market.
2. Secondary Market

Primary Market

The primary market is also known as the new issues market. It deals with new securities being issued for the first time. A company can raise capital through the primary market in the form of equity shares, preference shares, debentures, loans and deposits. Funds raised may be for setting up new projects, expansion, diversification, etc. of existing enterprises. The investors in this market are banks, financial institutions, insurance companies, mutual funds and individuals.

Methods of flotation

There are various methods of floating new issues in the primary market. They are:
1. Offer through Prospectus: Prospectus is an invitation to the public for the subscription of shares and debentures of a company. The issues may be underwritten and also are required to be listed on at least one stock exchange.

2. Offer for Sale: Under this method new securities are not offered directly to the public. Initially the entire lots of securities are sold to an intermediary at a fixed price. The intermediary sells these securities to the public at a higher price.

3. Private Placement: Private placement is the allotment of securities by a company to institutional investors or some selected individuals. It is less expensive and saves time.

4. Rights Issue: According to the Companies Act, if a public company wants to issue additional shares, it must first be offered to the existing shareholders, in proportion to the amount paid up on their shares. This right is known as ‘Pre-emptive right’ and such an issue is called right issue.

5. Electronic Initial Public Offer (e-IPOs): It is a method of issuing securities through on-line system of stock exchange. Such a company has to enter into an agreement with the stock exchange. This is called an e-initial public offer.

Difference between capital market and money market

Capital Market:

1. Market deals only long term fund.
2. It arranges large amount of fund.
3. Return is high.
4. The instruments used are equity shares, preference shares, debentures and bonds.
5. SEBI is the market regulator.
6. Capital market instruments are highly risky.

Money Market:

1. Market deals only short term fund.
2. It arranges small amount of fund.
3. Return is law.
4. The instruments used are call money, treasury bills, trade bills, commercial paper and certificate of deposit.
5. RBI is the market regulator.
6. Money market instruments are safe.

Differences between Primary Market and Secondary Market

Primary Market:

1. It deals with new securities
2. It promotes capital formation directly.
3. Investors can only buy. securities.
4. Prices of the securi¬ties are determined by the management of the company.
5. Companies sell securities directly

Secondary Market:

1. It deals with exisitng securities
2. It promotes capital formation indirectly.
3. Investors can buy and sell the securities.
4. Prices are determined by the demand and supply of securities.
5. Securities are exchanged between investors

Secondary market

The secondary market is also known as the stock market or Stock exchange. It is a market for the purchase and sale of existing securities. It also provides liquidity and marketability to existing securities

Stock Exchange

According to Securities Contracts (Regulation) Act 1956, stock exchange means any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying and selling or dealing in securities.

Functions of a Stock Exchange:

• Providing Liquidity and Marketability to Existing Securities: Stock Exchange provides
  a ready and continuous market for the sale and purchase of securities.
• Pricing of Securities: A stock exchange is a mechanism of constant valuation through which the prices of securities are determined. It is based on the forces of demand and supply.
• Safety of Transaction: Stock exchange has its own well-defined rules and regulations. This ensures safety and fair dealings to investors.
• Contributes to Economic Growth: Stock exchange provides a platform by which savings are channelised into the most productive investment proposals, which leads to capital formation and economic growth.
• Providing Scope for Speculation: Stock exchange provides scope within the provisions of Law for speculation in a restricted and controlled manner.
• Economic barometer: A stock exchange serves as a barometer of a country’s economic condition. Price trends in stock exchange indicate whether economy is going through boom or depression.

Trading Procedure on a Stock Exchanges

• Selection of a broker.
• Opening Demat account with the Depository Participant (D.P.).
• Placing order for the purchase or sale of securities with the broker.
• Purchase or sale of securities through on-line.
• Delivery of the contract note to the investor.
• Effecting changes in the Demat account.
• Making payment or receiving of money.

Advantages of electronic trading system (Screen based on line trading)

On line trading means buying and selling of shares and debentures are done through a computer terminal.

• On line trading ensures transparency in dealing.
• It helps in fixing prices of securities efficiently.
• It increases efficiency of operations by reducing time, cost and risk of errors.
• People from all over the country can buy or sell securities through brokers.
• All trading centres have been brought into one trading platform.

Dematerialisation

It is a process by which physical share certificates are converted into an equivalent number of securities to be held in electronic form and credited in the investors’ account. For this, the investor has to open a Demat account with an organisation called a depository.

Working of the Demat System

• A depository participant (DP), either a bank, broker, or financial services company, may be identified.
• An account opening form and documentation (PAN card details, photograph, power of attorney) may be completed.
• The physical certificate is to be given to the DP along with a dematerialisation request form.
• If shares are applied in a public offer, details of DP and demat account are to be given to the depository registrar.
• If shares are to be sold through a broker, the DP is to be instructed to debit the account with the number of shares.
• The broker then gives instruction to his DP for delivery of the shares to the stock exchange.
• The broker then receives payment and pays the person for the shares sold.
• Alt these transactions are to be completed within 2 days, i.e., delivery of shares and payment received from the buyer is on a T + 2 basis, settlement period.

Depository

A depository is an organization where the securities of a shareholder are held in electronic form at the request of the shareholder. All transactions of the investors are settled with greater speed, efficiency and use as all securities are entered in a book entry mode.

Benefits of Depository Services and Demat Account

• Sale and Purchase of shares and stocks of any company make easy.
• Saves time.
• No paperwork.
• Lower transaction costs.
• Ease in trading.
• Transparency in transactions.
• No counterfeiting of security certificate.
• Physical presence of investor is not required in stock exchange.

National Stock Exchange of India (NSE)

NSE is the most modern stock exchange in India. It was incorporated in 1992 and was recognised as a stock exchange in April 1993. It commenced operations in 1994. NSE has set up a nationwide fully automated screen based trading system.

Objectives of NSE

• Establishing a nationwide trading facility for all types of securities.
• Ensuring equal access to investors all over the country.
• Providing a transparent securities market using electronic trading system.
• Enabling shorter settlement cycles and book entry settlements.
• Meeting international benchmarks and standards.

Over the Counter Exchange of India (OTCEI)

The OTCEI is a company incorporated under the Companies Act 1956. It was set-up to provide smalt and medium companies an access to the capital market. It is fully computerised, transparent, single window exchange which provides quicker liquidity to securities at a fixed and fair price, liquidity for less traded securities. It is commenced trading in 1992.

Objectives of OTCEI

• Provide a trading platform to smaller and less liquid companies.
• Provide online trading facilities to the investors.
• Ensure a transparent system of trading.
• Ensure liquidity to the listed securities.
• Help the investors to exchange the securities at minimum cost.

Bombay Stock Exchange (BSE)

BSE was established in 1875 and was Asia’s first Stock Exchange. In 1995 it introduces screen based trading called BOLT (BSE Online Trading).

Objectives of BSE

• To provide an efficient and transparent market for trading in securities.
• To provide a trading platform for equities of small and medium enterprises.
• To educate the investors and brokers
• To provide other services to capital market participants, like risk management, clearing, settlement, market data, etc.
• To conform to international standards.

Securities and Exchange Board of India (SEBI)

In order to protect the investors and to promote the development of stock market, the Govt, of India established the Securities and Exchange Board of India (SEBI) in 1988. In 1992 it becomes a statutory body under a special law of the Parliament. SEBI is the supervisory body for regulation and promotion of securities market in the country. Investor protection is the major responsibility of SEBI. It’s head office is at Mumbai.

Objectives of SEBI

• To regulate stock exchange and the securities market to promote their orderly functioning.
• To protect the rights and interests of investors and to guide and educate them.
• To prevent trade malpractices.
• To regulate and develop a code of conduct to intermediaries like brokers, merchant bankers etc.

Functions of SEBI

1. Regulatory Functions:

• Registration of brokers and sub brokers and other players in the market.
• Registration of Mutual Funds.
• Regulation of stock brokers, portfolio exchanges, underwriters, etc.
• Regulation of takeover bids by companies
• Calling for information by undertaking inspection, conducting enquiries and audits of stock exchanges and intermediaries.
• Levying fee or other charges for carrying out the purposes of the Act.

2) Development Functions:

• Training of intermediaries of the securities market.
• Conducting research and publishing information useful to all market participants.
• Undertaking measures to develop the capital markets by adapting a flexible approach.

3) Protective Functions:

• Prohibition of fraudulent and unfair, trade practices.
• Controlling insider trading price rigging etc. and imposing penalties for such practices.
• Undertaking steps for investor protection.
• Promotion of fair practices and code of conduct in securities market.

Kerala State Board New Syllabus Plus Two Business Studies Notes Chapter 9 Financial Management.

Kerala Plus Two Business Studies Notes Chapter 9 Financial Management

Business Finance

Money required for carrying out business activities is called business finance. Finance is needed to establish a business, to run it, to modernize it, to expand or diversify it.

Financial Management

Financial Management is concerned with optimal procurement as well as usage of finance. For optimal procurement, different available sources of finance are identified and compared in terms of their costs and associated risks. Financial Management aims at reducing the cost of funds procured and ensuring availability of enough funds whenever required.

Objectives of Financial Management

The primary aim of financial management is to maximise shareholder’s wealth. It means maximisation of the market value of equity shares. It is the responsibility of the company to pay reasonable dividend and also to maximize the value of its shares.

Finance Functions

The finance function is concerned with three broad decisions which are:

1. Finance Decision: It relates to the amount of finance to be raised from various long term sources. The main sources of funds for a firm are shareholders’ funds (equity capital and the retained earnings) and borrowed funds (debentures or other forms of debt). A firm needs to have a judicious mix of both debt and equity in making financing decisions.

2. Investment Decision: The investment decision 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 also called a Capital budgeting decision.

Short-term investment decisions (also called working capital decisions) are concerned with the decisions about the levels of cash, inventory and receivables.

3. Dividend Decision: Dividend is that portion of profit which is distributed to shareholders. The decision involved here is how much of the profit earned by company (after paying tax) is to be distributed to the shareholders and how much of it should be retained in the business.

Financial Planning

The process of estimating the fund requirement of a business and specifying the sources of funds is called financial planning. It ensures that enough funds are available at right time.
The twin objectives of financial planning are

1. To ensure availability of fund at the right time and its possible sources.
2. To see that firm does not raise fund unnecessarily.

Importance of Financial Planning

• It ensures adequate funds from various sources.
• It reduces the uncertainty about the availability of funds.
• It integrates the financial policies and procedures.
• It helps the management to eliminate waste of funds and reduce cost.
• It helps to achieve a balance between the inflow and outflow of funds and ensure liquidity.
• It serves as the basis of financial control
• It helps to reduce cost of financing to the minimum.
• It helps to ensure stability and profitability of business.
• It makes the firm better prepared to face the future.

Factors Affecting Capital Budgeting Decisions

1. Cash flows of the project: Cash flows are in the form of a series of cash receipts and payments over the life of an investment. The amount of these cash flows should be carefully analysed before considering a capital budgeting decision.
2. The rate of return: The expected returns and risk from each proposal should be taken into account to select the best proposal.
3. Investment criteria involved: The various investment proposals are evaluated on the basis of capital budgeting techniques.

Factors Affecting Financing Decision

• Cost: The cost of raising funds from different sources is different. The cheapest source should be selected.
• Risk: The risk associated with each of the sources is different.
• Floatation costs: Higher the floatation cost, less attractive the source.
• Cash flow position of the business: In case the cash flow position of a company is good enough, then it can easily use borrowed funds.
• Fixed operating costs: If a business has high fixed operating costs, lower debt financing is better.
• Control considerations: Issues of more equity may lead to dilution of management’s control over the business.

Factors Affecting Dividend Decision

• Stability Earnings: A company having stable earnings can declare higher dividends. Otherwise, pay lower dividend.
• Stability of Dividends: Companies generally follow a policy of stabilising dividend per share. Dividend per share is not altered if the change in earnings is small.
• Growth Opportunities: Companies having good growth opportunities retain more money out of their earnings to finance the required investment. In such a case, they can declare dividend at a lower rate.
• Cash Flow Positions: Availability of enough cash in the company is necessary for declaration of dividend.
• Shareholders’ Preference: While declaring dividends, managements must keep in mind the preferences of the shareholders in this regard.
• 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.
• Capital Market: Reputed companies have easy access to the capital market and, therefore, they can pay higher dividends than the smaller companies.
• Legal Constraints: The companies Act has laid down certain restrictions regarding payment of dividend. No dividend can be paid out of capital.

Capital Structure

Capital structure refers to the mix between owners funds and borrowed funds. Owners fund consists of equity share capital, preference share capital and reserves and surpluses or retained earnings. Borrowed funds can be in the form of loans, debentures, public deposits, etc.

A capital structure will be said to be optimal when the proportion of debt and equity is such that it results in an increase in the value of the equity share.

Factors Affecting Capital Structure

• Trading on Equity (Financial Leverage): It refers to the use of fixed income securities such as debentures and preference capital in the capital structure so as to increase the return of equity shareholders.
• Stability of Earnings: If the company is earning regular and reasonable income, the management can rely on preference shares or debentures. Otherwise issue of equity shares is recommended.
• Cost of Debt: A firm’s ability to borrow at lower rate, increases its capacity to employ higher debt.
• Interest Coverage Ratio (ICR): The interest coverage ratio refers to the number of times earnings before interest and taxes of a company covers the interest obligation. Higher the ratio, better is the position of the firm to raise debt.
• Desire for control: If the management has a desire to control the business, it will prefer preference shares and debentures in capital structure because they have no voting rights.
• Flexibility: Capital structure should be capable of being adjusted according to the needs of changing conditions.
• Capital Market Conditions: In depression, debentures are considered good. In a booming situation, issue of shares will be more preferable.
• Period of Finance: If funds are required for short period, borrowing from bank should be preferred. If funds are required for longer period company can issue shares and debentures.
• Taxation Policy: interest on loan and debentures is deductible item under the Income Tax Act whereas dividend is not deductible. In order to take advantage of this provision, companies may issue debentures.
• Legal Requirements: The structure of capital of a company is also influenced by the statutory requirements. For example, Banking Regulation Act, Indian CompaniesAct, SEBI, etc.

Fixed Capital

Fixed capital refers to the capital needed for the the acquisition of fixed assets to be used for a longer period.

Factors affecting Fixed Capital

• Nature of Business: A trading concern needs lower investment in fixed assets compared with a manufacturing organization.
• Scale of Operations: An organisation operating on large scale require more fixed capital as compared to an organisation operating on small scale.
• Choice of Technique: A capital-intensive organisation requires more amount of fixed capital than labour intensive organisations.
• Technology Upgradation: Organisations using assets which become obsolete faster require more fixed capital as compared to other organisations.
• Growth Prospects: Higher growth of an organisation generally requires higher investment in fixed assets.
• Diversification: The firms dealing in number of products (Diversification) requires more investment in fixed capital.
• Use of Fixed Assets: Companies acquiring fixed assets on hire purchase or lease system require lesser amount as against cash purchases.

Working Capital

Working capital is that portion of capital required for investing in current assets for meeting day to day working of an organization. Current assets can be converted into cash within a period of one year. They provide liquidity to the business.

Working capital is of two types:

1. Gross working capital = Total of current asset
2. Net working capital = Current assets – Current Liabilities

Factors Affecting Working Capital

• Nature of Business: A trading organisation usually needs a smaller amount of working capital as compared to a manufacturing organisation.
• Scale of Operations: A large scale organisation requires large amount of working capital as compared to the organisations which operate on a lower scale.
• Business Cycle: In the boom period larger amount of working capital is needed to meet the demand. In case of depression, demand for goods declines so less working capital is required.
• Seasonal Factors: During peak season demand of a product will be high and thus high working capital will be required as compared to lean season.
• Production Cycle: Production cycle is the time span between the receipt of raw material and their conversion into finished goods. Working capital requirement is higher in firms with longer processing cycle and lower in firms with shorter processing cycle.
• Credit Policy: A liberal credit policy results in higher amount of debtors, increasing the requirement of working capital.
• Operating Efficiency: If cash, debtors and inventory are efficiently managed, working capital requirement can be reduced.
• Availability of Raw Materials: If the raw materials are easily available in the market and there is no shortage, huge amount need not be blocked in inventories, so it needs less working capital.

Kerala State Board New Syllabus Plus Two Business Studies Notes Chapter 8 Controlling.

Kerala Plus Two Business Studies Notes Chapter 8 Controlling

Meaning

Controlling is the process of ensuring that actual performance conform to planned performance. It also ensures that an organisation’s resources are being used effectively for the achievement of predetermined goals. So controlling is a goal oriented function. The controlling functions measure actual performance against standards, find out the deviations, analyse the causes of such deviations and take corrective actions.

Importance of Controlling

1. Accomplishing organisational goals: The controlling function measures progress towards the organisational goals and brings to light the deviations, if any, and indicates corrective action.
2. Judging accuracy of standards: A good control system enables management to verify whether the standards set are accurate.
3. Making efficient use of resources: By exercising control, a manager seeks to reduce wastage of resources.
4. Improving employee motivation: A good control system motivates the employees and helps them to give better performance.
5. Ensuring order and discipline: Controlling creates an atmosphere of order and discipline in the organisation.
6. Facilitating co-ordination: An efficient system of control helps to co-ordinate all the activities in the organisation.

Limitations of Controlling

• Difficulty in setting quantitative standards: Control system loses some of its effectiveness when standards cannot be defined in quantitative terms.
• Little control on external factors: Generally an enterprise cannot control external factors such as government policies, technological changes, competition, etc.
• Resistance from employees: Control is often resisted by employees. They see it as a restriction on their freedom.
• Costly affair: Control is a costly affair as it involves a lot of expenditure, time and effort.

Relationship between Planning and Controlling

• Planning and control are interdependent and inseparable functions of management.
• Planning is a prerequisite for controlling.
• Planning initiates the process of management and controlling complete the process.
• Planning is prescriptive where as controlling is evaluative.
• Planning and controlling are both backward looking as well as forward looking functions.
• Planning based on facts makes controlling easier and effective.

Controlling Process

Controlling is a systematic process involving the following steps.

1. Setting performance standards
2. Measurement of actual performance
3. Comparison of actual performance with standards
4. Analysing deviations
5. Taking corrective action

1. Setting Performance Standards: Standards are the criteria against which actual performance would be measured. Standards can be set in both quantitative as well as qualitative terms.
2. Measurement of Actual Performance: After establishing standards, the next step is measurement of actual performance. Performance should be measured in an objective and reliable manner.
3. Comparing Actual Performance with Standards: This step involves comparison of actual performance with the standard. Such comparison will reveal the deviation between actual and desired results.
4. Analysing Deviations: The deviations from the standards are assessed and analysed to identify the causes of deviations.
5. Taking Corrective Action: The final step in the controlling process is taking corrective action. No corrective action is required when the deviations are within the acceptable limits.

Techniques of Managerial Control

1) Traditional Techniques:
i) Personal Observation: It creates a psychological pressure on the employees to perform well as they are aware that they are being observed personally on their job.

ii) Statistical Reports: Statistical analysis in the form of averages, percentages, ratios, correlation, etc., present useful information to the managers regarding performance of the organisation.

iii) Break Even Analysis: Break even analysis is a technique used by managers to study the relationship between costs, volume and profits. The sales volume at which there is no profit, no loss is known as break even point. It helps in estimating profits at different levels of activities.

B.E.P = \(\frac{F}{S-V}\)
F = Fixed cost
S = Selling price per unit
V = Variable cost per unit

iv) Budgetary Control: Budgetary control is a technique of managerial control in which all operations are planned in advance in the form of budgets and actual results are compared with budgetary standards.

2) Modern Techniques:
i) Return on Investment: Return on Investment (ROI) can be used to measure overall performance of an organisation. It helps to know the invested capital has been used effectively for generating reasonable amount of return.
Return on investment = \(\frac{\text { Net Income }}{\text { Total Investment }}\)

ii) Ratio Analysis: Ratio Analysis refers to analysis of financial statements through computation of ratios.

iii) Responsibility Accounting: Responsibility accounting is a system of accounting in which different sections, divisions and departments of an organisation are set up as ‘Responsibility Centres’. The head of the centre is responsible for achieving the target set for his centre. E.g. Cost centre, Revenue centre, Profit centre, Investment centre, etc.

iv) Management Audit: Management audit may be defined as evaluation of the functioning, performance and effectiveness of management of an organisation.

v) PERT and CPM: PERT (Programme Evaluation and Review Technique) and CPM (Critical Path Method) are important network techniques useful in planning and controlling.

Kerala State Board New Syllabus Plus Two Business Studies Notes Chapter 7 Directing.

Kerala Plus Two Business Studies Notes Chapter 7 Directing

Meaning

Directing refers to the process of instructing, guiding, counseling, motivating and leading people in the organisation to achieve its objectives.

Features

• Directing initiate action
• Directing takes place at every level of management
• Directing is a continuous process
• Directing flows from top to bottom

Importance of Directing

1. Directing helps to initiate action by people in the organisation towards attainment of desired objectives.
2. Directing integrates employees efforts in the organisation in such a way that every individual effort contributes to the organizational performance.
3. Directing guides employees to fully realise their potential and capabilities by motivating and providing effective leadership.
4. Directing facilitates introduction of needed changes in the organization.
5. Effective directing helps to bring stability and balance in the organization.

Principles of Directing

1. Maximum Individual Contribution: This principle emphasises that directing techniques must help every individual in the organization to contribute to his maximum potential for achievement of organisational objectives.
2. Harmony of Objectives: The objectives of individual and organization must be in harmony with each other.
3. Unity of Command: This principle insists that a person in the organisation should receive instructions from one superior only.
4. Appropriateness of Direction Technique: According to this principle, appropriate motivational and leadership techniques should be used while directing the people.
5. Managerial Communication: Effective managerial communication across all the levels in the organisation makes direction effective.
6. Use of informal organization: Managers must make use of informal structure in the formal organisation forgetting correct and real feedback.
7. Leadership: While directing the subordinates, managers should exercise good leadership.
8. Follow through: Managers must continuously review whether the instructions are being understood and followed by the employees or not.

Elements of Direction

1. Supervision
2. Motivation
3. Leadership
4. Communication

Supervision

Supervision means overseeing the subordinates at work. Supervision is instructing, guiding and controlling the workforce with a view to see that they are working according to plans, policies, programmes and instructions.

Importance of Supervision:

• A good supervisor acts as a guide, friend and philosopher to the workers.,
• Supervisor acts as a link between workers and management. It helps to avoid misunderstandings and conflicts among the management and workers.
• Supervisor provides good On the Job training to the workers and employees.
• A supervisor with good leadership qualities can build up high morale among workers.
• A good supervisor analyses the work performed and gives feedback to the workers.
• Supervisors help to maintains harmony among workers.

Motivation

Motivation is the process of stimulating people to action to accomplish desired goals. Motivation depends upon satisfying needs of people.

Features of Motivation:

• Motivation is an internal feeling.
• Motivation produces goal directed behaviour.
• Motivation can be either positive or negative.
• It is a complex and difficult process.

Importance of Motivation:

• Motivation helps to improve performance levels of employees as well as the organisation.
• Motivation helps to change negative attitudes of employee to positive attitudes.
• Motivation helps to reduce employee turnover.
• Motivation helps to reduce absenteeism in the organisation.
• Motivation helps managers to introduce changes smoothly.

Maslow’s Need Hierarchy Theory of Motivation

Abraham Maslow’s Need Hierarchy Theory is considered fundamental to understanding of motivation. His theory was based on human needs. Various human needs are:

1. Physiological Needs: These are the basic needs which include food, clothes, hunger, thirst, shelter, sleep and sex. If physiological needs are not satisfied, the higher level needs will not be emerged.
2. Safety/Security Needs: These needs provide security and protection from physical and emotional harm. These needs include job security, stability of income, pension plans, etc.
3. Social Needs: These needs refer to affection, sense of belongingness, acceptance and friendship. Informal organisation helps to satisfy the social needs of an individual.
4. Esteem Needs: These include factors such as self-respect, autonomy status, recognition and attention.
5. Self Actualisation Needs: It is the highest level of need in the hierarchy. Self actualisation is the need to maximise one’s potential, whatever it may be. These needs include growth, self-fulfilment and achievement of goals.

Financial and Non-Financial Incentives

Incentive means all measures which are used to motivate people to improve performance. These incentives may be

1. Financial Incentives: Financial incentives refer to incentives which are in direct monetary form or measurable in monetary term and serve to motivate people for better performance. Financial incentives are:

• Pay and allowances: It includes basic pay, dearness allowances and other allowances.
• Commission: Under this system, a sales person is guaranteed a minimum wage as well as commission on sales. A commission plan motivates him to work better.
• Bonus: Bonus is an incentive offered over and above the wages/salary to the employees.
• Profit Sharing: Profit sharing is meant to provide a share to employees in the profits of the organisation.
• Co-partnership/ Stock option: Under these incentive schemes, employees are offered company shares at a price which is lower than market price.
• Retirement Benefits: Several retirement benefits such as provident fund, pension, and gratuity provide financial security to employees after their retirement.
• Perquisites: It includes car allowance, housing, medical aid, and education to the children, etc., over and above the salary.

2. Non-Financial Incentives : Incentives which are not measurable in Terms of money are called Non-Financial Incentives. These incentives are essential for satisfying physiological, social and emotional needs. Some of the important non-financial incentives are:

• Status: status means ranking of positions in the organisation. Physiological, social and esteem needs of an individual are satisfied by status given to their job.
• Organisational Climate: It includes individual autonomy, reward orientation, consideration to employees, etc. These characteristics influence the behaviour of individuals in the organization.
• Career Advancement Opportunity: Managers should provide opportunity to employees to improve their skills and be promoted to the higher level jobs.
• Job Enrichment: It is a method of motivating employee by making the task to be performed by him more interesting and challenging.
• Employee Recognition Programmes: It includes Congratulating the employee for good performance, Displaying on the notice board about the achievement of employee, installing award or certificate for best performance and Distributing mementos or complimentaries etc.
• Employee Participation: It means involving employees in decision making of the issues related to them.

Leadership

Leadership can be defined as the process of influencing the behaviour of employees at work towards the accomplishment of organisational objectives.

Features of Leadership:

• Leadership indicates ability of an individual to influence others.
• Leadership tries to bring change in the behaviour of others.
• Leadership indicates interpersonal relations between leaders and followers.
• Leadership is exercised to achieve common goals of the organization.
• Leadership is a continuous process.

Importance of Leadership:

• A leader inspires, supports and influences the behaviour of subordinates to achieve the organisational objective.
• Effective leadership helps to achieve a harmonious relation between the management and subordinates.
• Leadership helps to create job satisfaction among employees by providing good working condition.
• A good leader persuades the people to accept t and carry out the desired change.
• A leader handles conflicts effectively.
• Leader provides training to their subordinates.
• Effective leadership helps to increase efficiency and productivity.

Qualities of Good Leader:

• Physical Features: Physical features like height, weight, health, appearance determine the physical personality of a leader.
• Knowledge: A good leader should have required knowledge and competence.
• Honesty: A leader should possess high level of honesty.
• Initiative: A leader should have courage and initiative.
• Communication Skills: A leader should have the capacity to clearly explain the ideas.
• Motivation Skills: The leader should have the ability to motivate the subordinates by satisfying their needs.
• Self Confidence: A leader should have high level of self confidence.

Leadership Style:

1. Autocratic or Authoritarian Leader: An autocratic leader gives orders and expects his subordinates to obey those orders. Here communication is only one-way with the subordinate.
2. Democratic or Participative Leader: A democratic leader encourages subordinates to participate in decision-making. They respect the other’s opinion and support subordinates to perform their duties.
3. Laissez Faire or Free-rein Leader: Here the followers are given a high degree of independence to formulate their own objectives and ways to achieve them.

Communication

Communication may be defined as an exchange of facts, ideas, opinions or emotions between two or more persons to create mutual understanding.

Elements of Communication Process:

• Sender: The sender is the person who sends message or idea to the receiver.
• Message: Message is the subject matter of communication.
• Encoding: It is converting the message into communication symbols such as words, pictures, etc.
• Media: It is the path through which encoded message is transmitted to receiver.
• Decoding: It is the process of converting encoded symbols of the sender.
• Receiver: Receiver is the person who receives the message.
• Feedback: It includes all those actions of receiver indicating that he has received and understood message of sender.
• Noise: Noise means some obstruction or hindrance to communication.

Importance of Communication:

• Acts as basis of co-ordination: Communication acts as the basis of co-ordination.
• Helps in smooth working of an enterprise: it is only communication, which makes smooth working of an enterprise possible.
• Acts as basis of decision making: Comm Plication provides needed information for decision making.
• Increases managerial efficiency: Communication lubricates the entire organisation and keeps the organisation at work with efficiency.
• Promotes co-operation and industrial peace: Communication promotes co-operation and mutual understanding between the management and workers.
• Establishes effective leadership: Communication is the basis of leadership. Effective communication helps to influence subordinates.
• Boosts morale and provides motivation: An efficient system of communication enables management to motivate, influence and satisfy the subordinates. It helps to boost morale of employees and managers.

Formal Communication

Communication through the official chain of command is called formal communication. It flows through the scalar chain of authority. Formal communication may be of two types:

1. Vertical Communication
2. Horizontal Communication

1. Vertical Communication: Vertical communication flows vertically i.e., upwards or downwards through formal communication channels.

• Downward Communication : Downward communication refers to flow of communication from a superior to subordinate. E.g. Notices, circulars, memos, reports, etc.
• Upward Communication: It refers to flow of communication from a subordinate to superior. E.g. application for leave, submission of progress report, suggestions, complaints, etc.

2. Horizontal or Lateral communication: The flow of communication between persons holding position at the same level of the organisation is known as horizontal communication.

Communication Network

The pattern through which communication flows within the organisation is generally indicated through communication network. Some of the communication networks are:

1) Single Chain: This network exists between a supervisor and his subordinates. Here communication flows from every superior to his subordinate through single chain.

2) Wheel: In wheel network, all subordinates under one superior communicate through him only. The subordinates are not allowed to communicate among themselves.

3) Circular: In circular network, the communication moves in a circle. Each person can communicate with his adjoining two persons.

4) Free flow: In this network, each person can communicate with others freely.

5) Inverted V: In this network, a subordinate is allowed to communicate with his immediate superior as well as his superior’s superior.

Advantages of Formal Communication:

• It is systematic and ensures orderly flow of information.
• It facilitates the location of the source of information.
• It provides authority relationship between the superior and subordinate.
• It helps in fixing responsibilities.
• It facilitates control

Disadvantages of Formal Communication:

• It is time consuming as it passes through scalar chain only.
• It is impersonal; based on authority.
• Accurate and full information may not be transmitted.
• It obstructs free and uninterrupted flow of information.

Informal Communication

Communication that takes place without following the formal lines of communication is said to be informal communication. It results from the social interaction among the members. It satisfies the social needs of members in the organisation. The network of informal communication is known as Grapevine. It is so called because the origin and direction of flow of communication cannot be easily traced out.

Types of Informal Communication/Grapevine Network:

1. Single Strand Network: In single strand network, each person communicates to the other in sequence.
2. Gossip Network: In gossip network, each person communicates with all on non-selective basis.
3. Probability Network: In probability network, the individual communicates randomly with other individual.
4. Cluster Network: In cluster, the individual communicates with only those people whom he trusts.

Advantages of Informal Communication:

• Employees can develop friendly relationship.
• It is very flexible and faster than formal communication.
• Employees attitudes, reactions, etc. to the plans and policies can be easily ascertained.
• It reduces tension in employer-employee relations.
• It can be used in conveying certain information which cannot be passed through official channel.
• Special efforts and expenses are not necessary for informal communication.

Disadvantages of Informal Communication:

• It tends to carry inaccurate information.
• Its origin cannot be traced and responsibility cannot be fixed.
• It is unsystematic and cannot be relied upon.
• It leads to leakage of confidential information.
• It often carries rumours and misunderstandings.

Barriers to Communication

1) Semantic barriers: Semantic barriers are concerned with problems and obstructions in the process of encoding and decoding of message into words or impressions. Semantic barriers are:

• Badly expressed message: The badly expressed messages may be an account of inadequate vocabulary, usage of wrong words, omission of needed words, etc.
• Symbols with different meanings: People may interpret the same message differently depending upon their attitude, education, social and cultural backgrounds.
• Faulty Translations: If the translator is not proficient with both the languages, mistakes may arise causing different meanings to the communication.
• Technical jargon: Technical words may not be understood by the workers.

2) Psychological Barriers: Emotional or psychological factors act as barriers to communicators. Psychological barriers are:

• Premature evaluation: People evaluate the meaning of message before the sender completes his message.
• Lack of attention: The preoccupied mind of receiver and the resultant non-listening of message acts as a major psychological barrier.
• Loss by transmission and poor retention: When communication passes through various levels, there is a chance of distortion of the message.
• Distrust: Distrust between communicator and communicatee acts as a barrier.

3) Organisational Barriers: Organisation’s policies, Number of levels of management, rigid rules, etc., are the examples of organisational barriers.

• Organisational policy: If the organisational policy is complex, it restricts the free flow of communication.
• Rules and regulations: Rigid Rules and regulations may be a hurdle to communication
• Status: Status differences of people in communication chain also adversely affect the effectiveness of communication.
• Complex organisational structure: If there are number of managerial levels, communication gets delayed and distorted.

4) Personal barriers: It includes fear of challenge to authority, lack of confidence, lack of incentives, etc.

• Fear of challenge to authority: If a superior perceives that a particular communication may affect his authority, then he withholds such communication.
• Lack of confidence: If superiors do not have confidence on the competency of subordinates they may not seek their advice.
• Lack of incentives: If there is no motivation or incentive for communication, subordinates may not take initiative to communicate.

Measures to overcome barriers to communication

• The entire problem to be communicated should be studied in depth, analysed and stated in such a manner that it is clearly conveyed to subordinates.
• Communication must be according to the education and understanding levels of subordinates.
• Before communicating the message, it is better to consult with others.
• The contents of the message, tone, language used, etc. are important aspects of effective communication.
• While conveying message to others, it is better to know the interests and needs of the receiver.
• Ensure proper feedback.
• Manager should be a good listener.

Differences Between Formal and Informal Communication

Formal Communication	Informal Communication
1.Communication through the official chain of command	1. Communication through the informal communication network.
2. It is rigid	2. It is flexible
3. The messages can be kept as records for future reference.	3. No messages can be kept as records
4. The responsibility of the sender can be fixed	4. The responsibility of the sender cann’t be fixed

Kerala State Board New Syllabus Plus Two Business Studies Notes Chapter 6 Staffing.

Kerala Plus Two Business Studies Notes Chapter 6 Staffing

Meaning

Staffing is concerned with determining the manpower requirement of enterprise and includes functions like recruitment, selection, placement, promotion, training, growth and development and performance appraisal of employees in the organization.

Importance of Staffing

• Helps in discovering and obtaining competent personnel for various jobs.
• Makes for higher performance, by putting right person on the right job.
• Ensures continuous survival and growth of the enterprise.
• Helps to ensure optimum utilization of the human resources.
• Improves job satisfaction and morale of employees.

Staffing as a part of Human Resources Management (HRM)

Staffing is an inherent part of human resource management. It is a function which all managers need to perform. Human resource management involves planning, procurement and development of human resources.

Functions of Human Resource Management:

• Recruitment, i.e., search for qualified people.
• Analysing jobs, collecting information about jobs to prepare job descriptions.
• Developing compensation and incentive plans.
• Training and development of employees.
• Maintaining labour relations
• Handling grievances and complaints.
• Providing for social security and welfare of employees.
• Maintaining relation with trade unions.

Staffing Process

1) Manpower planning: It is concerned with forecasting the future manpower needs of the organisation, i.e. finding out number and type of employees need by the organisation in future.
2) Recruitment: Recruitment may be defined as the process of searching for prospective employees and stimulating them to apply for jobs in the organisation.
3) Selection: Selection is the process of selecting the most suitable candidates from a large number of applicants.
4) Placement and Orientation: Placement refers to putting the right person on the right job. Orientation is introducing the selected employee to other employees and familiarising him with the rules and policies of the organisation.
5) Training and Development: The process of training helps to improve the job knowledge and skill of the employees. It motivates the employees and improve their efficiency.
6) Performance Appraisal: Performance appraisal means evaluating an employee’s current and past performance as against certain predetermined standards.
7) Promotion and Career Planning: Promotion means movement of an employee from his present job to a higher level job.
8) Compensation: Compensation refers to all forms of pay or rewards going to employees. It may be in the form of direct financial payments like wages, salaries, commissions and indirect payments like employer paid insurance and vacation.

Sources of Recruitment

There are two sources of recruitment.

1. Internal sources
2. External sources

Internal Sources

It refers to the recruitment for jobs from within the organisation.
It includes:
1) Transfer: It involves shifting of an employee from one job to another without change in responsibility or compensation.
2) Promotion: It refers to shifting of a person from lower position to a higher position carrying higher status, responsibility and more salary.

Merits of Internal Sources:

• It motivate the employees for better performance.
• The existing employees get an opportunity for promotion.
• It establishes better employer-employee relationship.
• It creates a sense of security and loyalty among employees.
• Internal recruitment is less time – consuming.

Limitations of Internal Sources:

• It encourages favouritism and nepotism
• There is no opportunity for efficient outsiders.
• There will be absence of competition.
• It may give rise to conflict in the organisation among employees.
• Frequent transfers of employees may often reduce the productivity of the organisation

External Sources

Selection of employees from outside the enterprise is known as external recruitment. The important external sources of recruitment are:
1) Direct Recruitment: Under the direct recruitment, a notice is placed on the notice-board of the enterprise specifying the details of the jobs available. Jobseekers assemble outside the premises of the organisation on the specified date and selection is done on the spot. It is suitable for filling casual vacancies.
2) Casual callers: Many reputed business organisations keep a database of unsolicited applicants in their office. This list can be used for recruitment.
3) Advertisement: Advertisement in newspapers or trade and professional journals is generally used when a wider choice is required.
4) Employment Exchange: Employment exchanges keep records of job seekers and will be supplied to business concern on the basis of their requisition.
5) Placement Agencies and Management Consultants: These agencies compile bio-data of a large number of candidates and recommend suitable names to their clients.
6) Campus Recruitment: Business enterprises may conduct campus recruitment in educational institutions for selecting young and talented candidates.
7) Recommendations of Employees: Applicants introduced by present employees, ortheirfriends and relatives may prove to be a good source of recruitment.
8) Labour Contractors: Labour contractors maintain close contacts with labourers and they can provide the required number of unskilled workers at short notice.
9) Web Publishing: There are certain websites specifically designed and dedicated forthe purpose of providing information to the job seekers.

Merits of External Sources:

• It attracts qualified and trained people to apply for the vacant job in the organisation.
• The management has a wider choice of selecting the people for employment.
• Best and talented employees can be selected.
• If a company taps external sources, the staff will have to compete with the outsiders.

Limitations of External Sources:

• It may cause dissatisfaction among the employees.
• Employees may feel that their chances of promotion are reduced.
• It is time – consuming process.
• It is costly.

Selection

Selection is the process of identifying and choosing the best person out of a number of prospective candidates for a job.

Process of Selection:
1) Preliminary Screening: Preliminary screening helps the manager to eliminate unqualified job seekers.

2) Selection Tests: Various tests are conducted to know the level of ability, knowledge, interest, aptitude, etc. of a particular candidate. The various types of tests are:

• Intelligence Tests: This is one of the important psychological tests used to measure the level of intelligence quotient (IQ) of an individual.
• Aptitude Test: It is a measure of individual’s potential for learning new skills.
• Personality Tests: Personality tests provide clues to a person’s emotions, reactions, maturity and value system, etc.
• Trade Test: These tests measure the existing skills of the individual.
• Interest Tests: Interest tests are used to know the pattern of interests or involvement of a person.

3) Employment Interview: Interview is a formal, in-depth conversation conducted to evaluate the applicant’s suitability for the job.

4) Reference and Background Checks: Many employers request names, addresses, and telephone numbers of references for the purpose of verifying information and, gaining additional information on an applicant.

5) Final Selection: The final decision has to be made from among the candidates who pass the tests, interviews and reference checks.

6) Medical Examination: After selection, the candidates are required to appear for a medical examination for ensuring that he is physically fit for the job.

7) Job Offer: After a candidate has cleared all the hurdles in the selection procedure, he is formally appointed through an order. It contains the terms and conditions of the employment, pay scale, joining time, etc.

8) Employment Contract: Basic information that should be included in a written contract of employment are job title, duties, responsibilities, date of joining, pay and allowances, hours of work, leave rules, disciplinary procedure, work rules, termination of employment, etc.

Difference between Recruitment and Selection

Recruitment:
1) It is the process of searching for candidates and making them apply for the job
2) It is a positive process
3) It is simple
4) It is less expensive
5) Recruitment is the first stage

Selection:
1) It is the process of selection of most suitable candidates
2) It is a negative process
3) It is complex
4) It is more expensive
5) Selection follows the recruitment

Training

Training is any process by which the aptitudes, skills and abilities of employees to perform specific jobs are increased.

Importance of Training:

A. Benefits to the Organisation:

• It enhances employee productivity both in terms of quantity and quality, leading to higher profits.
• Training reduces absenteeism and employee turnover.
• It helps to obtaining effective response to the changing environment.
• Training increases employee morale.
• If the employees are given adequate training, the need for supervision is minimum.
• Trained employees can use materials and machines economically. It helps to reduce cost of production.

B. Benefits to the Employee:

• Training helps in securing promotion and career growth.
• Increased performance by the individual helps him to earn more.
• Training helps to reduce the chances of accident and wastages.
• Training increases the satisfaction of employees.

Training methods

There are two methods of training

1. On the job training.
2. Off the job training.

1. On the Job Method: Under this method the employee is given training when he is on the job. It means learning while doing. The important On the Job Methods are:

• Apprenticeship Programme: Under apprenticeship training, a trainee is put under the supervision of a master worker.
• Coaching: In this method, the superior guides and instructs the trainee as a coach.
• Internship Training: It is a joint programme of training in which vocational and professional institutes enter into an agreement with business enterprises for providing practical knowledge to its students.
• Job Rotation: Here the trainee is transferred from one job to another job or from one department to another department so that he can learn the working of various sections.

2. Off the Job Method: It refers to those methods under which an individual is provided training away from the work place. It means learning before doing. The important Off the Job Methods are:

• Classroom Lectures/Conferences: The lecture approach is well adapted to convey specific information such as rules, procedures or methods. The use of audio-visuals can often make a formal classroom.
• Films: They can provide information and demonstrate skills.
• Case Study: Trainee studies the cases to determine problems, analyses causes, develop alternative solutions and select the best solution to implement.
• Computer Modelling: It stimulate the work environment by programming a computer to imitate the realities of the job and allows learning to take place without the risk or high cost.
• Vestibule Training: Under this method, separate training centres are setup to give training to the new employees. Actual work environment is created in that centre and employees used the same material, equipment, etc. which they use while doing the actual job.
• Programmed Instruction: Here information is broken into meaningful units and these units are arranged in a proper way to form a logical and sequential learning package.

Development

Development refers to the overall growth of the employee. It includes personality development, motivation for growth, career planning, n etc. Development equip the employees to take up future responsibilities of the organisation.

Differences between training and development

Training:

1. It means imparting skills and knowledge for doing a particular job
2. It increases job skills
3. It has a short term perspective
4. It is job centred
5. The role of supervisor is very important

Development:

1. It means the growth of am employee in all respects
2. It shapes the attitude
3. It has long term perspective
4. It is career centred
5. It is self driven

Kerala State Board New Syllabus Plus Two Business Studies Notes Chapter 5 Organising.

Kerala Plus Two Business Studies Notes Chapter 5 Organising

Organising

Organising is one of the most important functions of management, which includes

1. Identifying and grouping the work to be performed.
2. Defining and delegating authority and responsibility.
3. Establishing relationships for the purpose of accomplishing objectives.

Step in the Process of Organising

1) Division of Work: The first step in the process of organising involves identifying and dividing the work that has to be done. Division of work leads to specialisation!
2) Departmentation: The second step is to group similar or related jobs into larger units, called departments. The grouping of activities is known as departmentation.
3) Assignment of duties: The next step is to allocate the work to various employees according to their ability and competencies.
4) Establishing authority – responsibility relationship: The last step is creation of authority – responsibility relationship among the job positions. It helps in the smooth functioning of the organisation.

Importance of Organising

• Specialisation: Since the activities are divided into convenient jobs, and are assigned to a particular employee, it leads to specialisation, more productivity and efficiency.
• Clarity in working relationship: It helps in creating well defined jobs and also clarifying authority – responsibility relationship between the superior and subordinates.
• Optimum utilisation of resources: The proper assignment of jobs avoids overlapping of work and also makes possible the best use of resources.
• Adaptation of change: It allows a business enterprise to adapt itself according to changes in the business environment.
• Effective administration: Clarity in working relationships enables proper execution of work and brings effectiveness in administration.
• Development of personnel: Organising stimulates creativity amongst the managers and subordinates.
• Expansion and growth: Organising helps in the growth and diversification of an enterprise by adding more job positions, departments and product lines.

Organisational Structure

The organisation structure can be defined as the framework within which managerial and operating tasks are performed. It specifies the relationships between people, work and resources.

Span of Management: Span of management or span of control refers to the number of subordinates that can be effectively managed by a superior.

Types of Organisation Structures

The organisational structure can be classified under two categories.

1. Functional Organisation
2. Divisional Organisation

1. Functional Structure: The functional structure is formed by grouping together the entire work to be done into functional departments. Eg. Production department, marketing department, etc.

Advantages:

• It promotes division of work which leads to specialisation.
• It promotes control and coordination within a department.
• It helps in increasing managerial and operational efficiency and this results in increased profit.
• It helps to reduce duplication of effort.
• It makes training of employees easier.
• It ensures that different functions get due attention

Disadvantages:

• Each departmental head gives more importance to their departmental objectives than overall organisation objectives.
• In large functional organisations, taking quick decisions and co-ordination become difficult.
• Inter departmental conflicts may arise in the absence of clear separation of responsibility.

2. Divisional Structure: Grouping of activities on the basis of different product manufactured are known as divisional structure of organisation. Each division has a divisional manager responsible for performance. Each division is multifunctional because within each division functions like production, marketing, finance etc. are performed together to achieve a common goal.

Advantages:

• Each division functions as an autonomous unit which leads to faster decision making.
• It helps in fixation of responsibility in cases of poor performance of the division
• It helps to develop the skill of the divisional head.
• It facilitates expansion and growth as new divisions can be added without interrupting the existing operations.

Disadvantages:

• Conflict may arise among different divisions with reference to allocation of funds.
• It may lead to increase in costs since there may be a duplication of activities across products.
• It is not suitable for small organisations.

Differences between Functional and Divisional Structure

Functional Structure:

1. Formation is based on functions
2. Functional specialisation
3. Difficult to fix responsibility on a department
4. It is economical
5. Suitable for small organisation

Divisional Structure:

1. Formation is based on product lines.
2. Product specialisation
3. Easy to fix responsibility for performance
4. It is costly.
5. Suitable for big organisation

Formal Organisation

Formal organisation refers to an organisation structure which is deliberately created by the management to achieve the objectives. It is a system of well-defined job in terms of authority, responsibility and accountability.

Features:

• It is deliberately created by the top management to achieve the objectives.
• It is based on division of labour and specialisation.
• It is impersonal – Does not take into consideration emotional aspect of employees.
• It clearly defines the authority and responsibility of every individual.
• The principle of scalar chain is followed in formal organisation.

Advantages:

• It is easier to fix responsibility since mutual relationships are clearly defined.
• Clear determination of duties, authorities and responsibilities. It helps in avoiding duplication of effort.
• Unity of command is maintained through an established chain of command.
• It provides stability to the organisation.
• Co-ordination and control become easy.

Disadvantages:

• While following scalar chain and chain of command, actions get delayed in formal structure
• Formal organisational structure does not give importance to psychological and social need of employees.
• Formal organisation structure is very rigid. It reduces the creativity of employees in the organisation

Informal Organisation

Informal organisation refers to relationship between individuals in the organisation based on interest, personal attitude, emotions, likes, dislikes etc. The network of social groups based on friendship is called informal organisation.

Features:

• It originates from within the formal organisation as a result of personal interaction among employees.
• It has no written rules and procedures.
• It does not have fixed lines of communication.
• It is not deliberately created by the management.
• It has no definite structure.

Advantages:

• There can be faster spread of communication.
• It helps to fulfil the social needs of the members and this enhances their job satisfaction.
• Top level managers can know the real feedback of employees on various policies and plans.

Disadvantages:

• It spreads rumours.
• If informal organisation opposes the policies and changes of management, then it becomes very difficult to implement them in organisation.
• Informal organizations lead to conflicts among employees.

Difference between Formal Organisation and Informal Organisation

Formal organisation	Informal organisation
1) It is deliberately created by top level management.	1) It arises automatically as a result of social interaction among the employees.
2) It has pre-determined purpose.	2) It has no pre­determined purpose.
3) It is highly rigid.	3) It is more flexible.
4) Communication is allowed through the scalar chain.	4) Communication is allowed through all channels networks.
5) Managers are leaders.	5) Leaders are chosen voluntarily by the members.
6) It is based on authority and responsibility.	6) There is no authority and responsibility relationship.

Delegation of Authority

Delegation means the granting of authority to subordinates to operate within the prescribed limits. It enables the manager to distribute his workload to others so that he can concentrate on important matters.

Elements of Delegation:

• Authority: Authority refers to the right of an individual to command his subordinates and to take action within the scope of his position. Authority flows from top to bottom. Authority determines the superior subordinate relationship in an organisation.
• Responsibility: Responsibility is the obligation of a subordinate to properly perform the assigned duty. Responsibility flows upwards, i.e., a subordinate will always be responsible to his superior.
• Accountability: Accountability implies being answerable for the final outcome, i.e., subordinate will be accountable to a superior for satisfactory performance of work.

Importance of Delegation of Authority:

• Reduces the work load of managers: The managers are able to function more efficiently as they get more time to concentrate on important matters.
• Employee development: Delegation empowers the employees by providing them the chance to use their skills, gain experience and develop themselves for higher positions.
• Motivation of employees: Responsibility for work builds the self-esteem of an employee and improves his confidence. He feels encouraged and tries to improvers performance.
• Facilitation of growth: Delegation helps in the expansion of an organisation by providing a ready workforce to take up leading positions in new ventures.
• Superior-subordinate relations: Delegation of authority establishes superior-subordinate relationships, which are the basis of hierarchy of management.
• Better co-ordination: The elements of delegation – authority, responsibility and accountability help to avoid overlapping of duties and duplication of effort.

Difference between Authority, Responsibility and Accountability

Authority	Responsibility	Accountability
Right to command	Obligation to perform an assigned task	Answerability for outcome of the assigned task
Can be delegated	Cannot be entirely delegated	Cannot be delegated at all
Arises from formal position	Arises from delegated authority	Arises from responsibility
Flows downward from superior to subordinate	Flows upward from subordinate to superior	Flows upward from subordinate to superior

Decentralisation

Decentralisation refers to a systematic dispersal of authority to the lower levels of the organisation. Here decision making authority is shared with lower levels in the organisation.

Centralisation and Decentralisation: An organisation is centralised when decision-making authority is retained by higher management levels whereas it is decentralised when such authority is delegated to lower levels of management. There must be a balance between centralisation and decentralisation.

Importance of Decentralisation:

1. Decentralisation helps to promote confidence amongst the subordinates.
2. It is a means of trained manpower
3. It helps in quick decision making.
4. It reduces the burden of top executives.
5. It helps to increase productivity and more returns.
6. It helps in maintaining effective control.

Difference between Delegation and Decentralisation

Delegation	Decentralisation
1. It is the entrustment of authority and responsibility from one individual to another.	1. It is a systematic delegation of authority from one level to another level.
2. Responsibility cannot be delegated.	2. Responsibility can be delegated.
3. Delegation is a compulsory act.	3. Decentralisation is an optional policy decision.
4. More control by superiors hence less freedom to take own decisions. it is individualistic.	4. Less control over executives hence greater freedom of action. It is totalistic.

Kerala State Board New Syllabus Plus Two Business Studies Notes Chapter 4 Planning.

Kerala Plus Two Business Studies Notes Chapter 4 Planning

Planning – Meaning

Planning is deciding in advance what to do and how to do. It is one of the basic managerial functions. Planning is closely connected with creativity and innovation. Planning involves setting objectives and developing appropriate courses of action to achieve these objectives.

Importance of Planning

• Planning provides directions: By stating in advance how work is to be done planning provides direction for all actions.
• Planning reduces the risk of uncertainty: Planning enables an organisation to predict future events and prepare to face unexpected events.
• Planning reduces wasteful activities: Planning serves as the basis of co-ordinating the activities and efforts of different departments and individuals. It helps to eliminate useless and redundant activities.
• Planning promotes innovative ideas: Since planning is thinking in advance, there is scope for finding better and different methods to achieve the desired objectives.
• Planning facilitates decision making: Planning helps in decision making by selecting the best alternative among the various alternatives.
• Facilitates control: Planning provides the basis for control. Planning specifies the standard with which the actual performance is compared to find out deviation and taking corrective action.

Features of Planning

• Planning is goal oriented
• It is the primary function of management
• It is required at all levels of management
• Planning is a continuous process
• Planning is futuristic (forward looking)
• It is a decision making function
• It is a mental process

Limitations of Planning

• Planning makes the activities rigid.
• Long term plans are insignificant in the rapidly changing business environment.
• It reduces creativity.
• It involves cost.
• It involves a lot of time.
• Planning does not guarantee success.

Planning Process (Steps in Planning)

1) Setting Objectives: The first step in planning is setting objectives. Objectives may be set for the entire organisation and for each department. The objective must be specific and clear.
2) Developing premises: Planning is based on certain assumptions about the future. These assumptions are called planning premises. Forecasting is important in developing planning premises.
3) Identifying alternative courses of action: The next step in planning is to identify the alternative courses of action to achieve the objectives.
4) Evaluating alternative Courses: The pros and cons of various alternatives must be evaluated in terms of their expected cost and benefits.
5) Selecting an alternative: After evaluating the alternatives the manager will select that alternative which gives maximum benefit at minimum cost.
6) Implement the plan: Implementation of plan means putting plans, into action so as to achieve the objectives of the business.
7) Follow up action: Plans are to be evaluated regularly to check whether they are being implemented and activities are performed according to schedule.

Types of Plans

1) Single use plan: A single use plan is developed for a one-time event or project. Such plans are not to be repeated in future. E.g. budgets, programmes, projects, etc.
2) Standing plan: A standing plan is used for activities that occur regularly over a period of time. E .g. policies, procedures, methods and rules.

Plans can be classified as Objectives, Strategy, Policy, Procedure, Method, Rule, Programme and Budget.

• Objectives: Objectives are the ends, towards which activity is aimed at for the accomplishment of organizational goals. Objective should be measurable in quantitative terms.
• Strategy: Strategy is a comprehensive plan for accomplishing an organization objectives. This comprehensive plan will include determining long term objectives, adopting a particular course of action and allocating resources.
• Policy: Policy is a broad statement formulated to provide guidelines in decision making.
• Procedure: Procedure is a chronological sequence or steps to be undertaken to enforce a policy.
• Method: Methods provide detailed and specific guidance for day-to-day action.
• Rule: Rules are prescribed guidelines for conducting an action.
• Programme: Programme includes all the activities necessary for achieving a given objective Programmes are the combination of goals, policies, procedures and rules.
• Budget: A budget is a statement of expected results expressed in numerical terms.

Kerala State Board New Syllabus Plus Two Business Studies Notes Chapter 3 Business Environment.

Kerala Plus Two Business Studies Notes Chapter 3 Business Environment

Meaning of Business Environment

The term ‘business environment’ means the sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but that may affect its performance.

Features of Business Environment

• Totality of external forces: Business environment is the sum total of all the forces/ factors external to a business firm.
• Specific and general forces: Specific forces includes investors, competitors, customers, etc. who influence business firm directly while general forces includes social, political, economic, legal and technological conditions which affect a business firm indirectly.
• Interrelatedness: All the factors of a business environment are closely interrelated.
• Dynamic: Business environment is dynamic in nature which keeps on changing with the change in technology, consumers fashion and tastes etc.
• Uncertainty: Business environment is uncertain as it is difficult to predict the future environmental changes.
• Complexity: Environment is a complex phenomenon that is relatively easier to understand in parts but difficult to grasp in its totality.
• Relativity: Business environment is a relative concept since it differs from country to country and region to region.

Importance of Business Environment

1. Identification of opportunities: Environment provides numerous opportunities for business success. Early identification of opportunities helps an enterprise to be the first to exploit them.
2. Identification of threats: Environmental awareness help managers to identify various threats on time and serves as an early warning signal.
3. Tapping useful resources: Business environment helps to know the availability of resources and making them available on time.
4. Coping with rapid changes: Environmental scanning enables the firms to adapt themselves to the changes in the market.
5. Assistance in planning and policy formulation: Environmental understanding and analysis is the basis for planning and policy making.
6. Improving performance: Environment scanning helps an organisation in improving its performance

Dimensions of Business Environment

1) Economic Environment: Interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee are some of the economic factors that can affect the business enterprise.
2) Social Environment: The social environment of business includes the social forces like customs and traditions, values, social trends, literacy rate, educational levels, lifestyle, etc.
3) Technological Environment: Technological environment consists of new products, new technologies, new approaches to product, new methods and equipments, etc.
4) Political Environment: Political environment includes constitution, political parties and their ideology, types of govt., political stability, attitude towards business, etc,
5) Legal Environment: Legal environment includes various legislations passed by the central, state or local government.

Economic Environment in India

As a part of economic reforms, the Government of India announced a new industrial policy in July 1991. The broad features of this policy were as follows.

• The government reduced number of industries under compulsory licensing to six.
• The role of public sector was limited only to four industries.
• Disinvestment was carried out in case of many public sectors industrial enterprises
• Policy towards foreign capital was liberalized
• Automatic permission was granted for technology agreements with foreign component.
• Foreign Investment Promotion Board (FIPB) was set up to promote and channelize foreign investment in India.

Liberalisation

Liberalization of economy means to free it from direct control imposed by the government. Liberalisation of the Indian industry has taken place with respect to the following.

• Abolishing licensing requirement in most of the industries
• Freedom in deciding the scale of business activities
• Removal of restrictions on the movement of goods and services
• Freedom in fixing the prices of goods and services
• Reduction in tax rates
• Simplifying procedures for imports and exports
• Attract foreign capital and technology to India.

Privatisation

Privatisation means transfer of the public sector enterprises to the private sector. The role of private sector is encouraged.

This can be done in two ways.

1. Disinvestment of a part of the shares held by the government in public sector units.
2. Dereservatiion of areas formerly reserved for the public sector.

Globalization

Globalisation means the integration of the various economies of the world leading towards the emergence of a cohesive global economy.

Features of Globalisation:

1. Free flow of goods and services across nations
2. Free flow of capital across nations
3. Free flow of information and technology
4. Free movement of people across borders

Impact of Government Policy Changes on Business and Industry

The government policy of liberalisation, privatisation and globalisation has made a definite impact on the working of enterprises in business and industry in terms of the following.

• Competition for Indian firms has increased.
• The customer’s wider choice in purchasing better quality of goods and services.
• Rapid technological advancement has changed/ improved the production process.
• Enterprises are forced to continuously modify their operations.
• Need for Developing Human Resources arise.
• There is a shift from production oriented concept to market oriented concept.

Kerala State Board New Syllabus Plus Two Business Studies Notes Chapter 2 Principles of Management.

Kerala Plus Two Business Studies Notes Chapter 2 Principles of Management

Nature of Principles of Management

Principles of management are statements of fundamental truth which provides guidelines for management decision making and action. The nature of management principles are:

1. Universal applicability: Management principles ha/e universal application in all types of organizations.
2. General guidelines: The principles are guidelines to action.
3. Formed by practice and experimentation: The principles of management are formed by experience and experimentation of managers.
4. Flexible: The principles of management are not rigid. They are flexible and can be modified according to the situation.
5. Influencing human behaviour: Management principles aim at influencing behaviour of human beings.
6. Cause and effect relationship: The principles of management establish the relation between the cause and effect.

Significance of the Principles of Management

1) Increase efficiency: The understanding of the management principles provides guidelines to the managers for handling effectively the complex problems.
2) Optimum utilization of resources: The principles of management helps in the optimum utilization of resources through division of work, delegation of authority, etc.
3) Scientific decision: Management principles help in thoughtful decision-making. Such decisions are free from bias and prejudices.
4) Meeting the changing environmental requirements: Management principles are flexible and can be modified to meet changing requirements of environment.
5) Fulfilling social responsibility: Management principles help the managers to fulfill the social responsibilities towards the society.

Taylor’s Scientific Management

Fredrick Winslow Taylor (1856-1915) is known as the Father of Scientific Management. His book ‘Principles of Scientific Management’was published in 1911.

In the words of Taylor, “Scientific management means knowing exactly what you want men to do and seeing that they do it in the best and cheapest way”.

Principles of Scientific Management

1) Science and not the rule of thumb: The first principle of scientific management requires scientific study and analysis of each element of job in order to replace old rule of thumb approach.

2) Harmony, not discord: As per this principle, there should be complete harmony between the management and workers. Taylor called for complete mental revolution on the part of both management and workers. Both the parties should realize each other’s importance and work towards the profits of the firm.

3) Co-operation not individualism: There should be complete co-operation between the labour and the management instead of individualism. According to Taylor, there should be an almost equal division of work and responsibility between workers and management.

4) Development of each and every person to his or her greatest efficiency and prosperity: The growth and development of an organisation depends on the efficiency and prosperity of employees. The efficiency of employees can be developed by giving proper training and development. This ensure the growth of an organisation.

Techniques of Scientific Management

1) Functional foremanship: Functional foremanship is a technique in which planning and execution are separated. He classified 8 specialist foremen into two departments viz. Planning and Production department. Both departments have four foremen each. Functional foremanship is based on the principle of division of work.

Planning Department:

• Route Clerk
• Instruction Card Clerk
• Time and Cost Clerk
• Shop Disciplinarian

Production Department:

• Gang Boss
• Speed Boss
• Repair Boss
• Inspector

a) Route clerk: To lay down the sequence of operations through which the raw materials have to pass in the production process.
b) Time & cost clerk: To lay down the standard time for completion of the work.
c) Instruction card clerk: He is expected to deal the instructions to be followed by workers in handling the job.
d) Disciplinarian: He maintains proper discipline in the factory.
e) Gang boss: He arranges material, machine, tool, etc. for operation.
f) Speed boss: He supervises matters relating to the speed of work.
g) Repair boss: He ensures repairs and maintenance of the tools and machines.
h) Inspector: He checksthe quality of work done.

2) Standardisation and simplification of work: Standardisation refers to the process of setting standards for every business activity. It includes use of standard tools and equipments, methods, working conditions, etc., for the maximization of output. Simplification aims at eliminating unnecessary diversity of products. It results in savings of cost of labour, machines and tools.

3) Method study: The objective of method study is to find out one best way of doing the job. The main objective is to minimize the cost of production and maximize the quality of the work.

4) Motion study: Motion study involves close observation of the movements of the workers and machines to perform a particular job. It helps to eliminate unnecessary movements of men, materials and machine.

5) Time study: It determines the standard time taken to perform a well-defined job. The objective of time study is to determine the number of workers to be employed, frame suitable incentive schemes and determine labour costs.

6) Fatigue study: Fatigue study seeks to determine the amount and frequency of rest intervals in completing a task.

7) Differential piece wage system: Under this system of wage payment, two kinds of rates are laid down.

• Higher rates are offered to those workers who produce more than standard output.
• Lower rates for those who produce below standard output.

8) Mental revolution: It involves a change in the mental attitude of workers and management towards each other. Both the parties should realise each other’s importance and work towards the profit of the firm.

Fayol’s Principles of Management

Henry Fayol (1841-1925) is known as the ‘Father of General Management’. The 14 principles of management given by him are:
1) Division of Work: This principle states that a complex work should be divided into small tasks, and each task should be assigned a particular employee. Division of work leads to specialization.

2) Authority and Responsibility: Authority is the right to give orders to the subordinates and responsibility is the obligation to perform the work in the manner directed by authority. There should be a balance between authority and responsibility.

3) Discipline: it is the obedience to organizational rules and employment agreement which are necessary for working of the organization.

4) Unity of Command: The principle of unity of command states that each employee should receive orders from one superior only. It helps to avoid confusion and conflict in the employees.

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 co-ordination.

6) Subordination of Individual Interest to General Interest: The Interest of an organization should take priority over the interests of anyone individual employee.

7) Remuneration of Employees: Remuneration should be just, equitable and fair to both employees and the organization.

8) Centralization and Decentralization: Centralisation means concentration of authority at the top management. Decentralization means dispersal of authority to the lower levels in the organisation. There should be a balance between Centralisation and decentralization.

9) Scalar Chain: The formal lines of authority from highest to lowest ranks are known as scalar chain. According to this principle, communication should pass through the established chain of command. It ensures unity of command and effective communication.

Gang Plank : According to the concept of gang plank persons of the same rank can communicate with each other especially in emergency situations. It helps to save a lot of time in communication and possibility of distortion of messages can be reduced.

10. Order: According to Fayol, “People and materials must be in suitable places at appropriate time for maximum efficiency.”

11. Equity: This principle requires the managers to be kind and just to workers. Superiors should be impartial while dealing with their subordinates.

12.Stability of Personnel: According to Fayol, workers should not be moved from one job to another frequently. It helps to minimise labour turnover in the organization.

13.Initiative: Workers should be encouraged to develop and carry out their plans for improvements.

14. Espirit De Corps (Union is strength): According to Fayol, Management should promote a team spirit of unity and harmony among employees.

Fayol VS. Taylor – A Comparison

Henri Fayol	F.W. Taylor
1. Father of General Management	1. Father of Scientific Management
2. Focuses on top level management	2. Focuses on shop floor level of a factory
3. Unity of command – A worker received orders from one superior only	3. Functional foremanship- A worker received orders from eight specialists.
4. Applicable universally	4. Applicable to specialised situations
5. Formulated principles from personal experience	5. Formulated principles from Observations and Experimentation
6. It focuses on improving overall administration	6. It focuses on increasing productivity

Kerala State Board New Syllabus Plus Two Accountancy Chapter Wise Previous Questions and Answers Chapter 1 Accounting for Not For Profit Organisation.

Kerala Plus Two Accountancy Chapter Wise Previous Questions Chapter 1 Accounting for Not For Profit Organisation

Plus Two Accountancy Accounting for Not For Profit Organisation 1 Marks Important Questions

Question 1.
Statement for the calculation of revenue of a non¬profit concern is known as ……………………. . (March 2009)
a) Profit & Loss account
b) lncofne& Expenditure account
c) Receipts & Payments account
d) Balance Sheet
Answer:
b) Income & Expenditure account

Question 2.
Income and Expenditure A/c reveals: (March 2010, March 2014)
a) surplus or deficit
b) cash in hand
c) capital fund
d) cash at bank
Answer:
a) surplus or deficit

Question 3.
Receipts and payment account starts with an opening balance of cash or bank – True or False. (March 2010)
Answer:
True

Question 4.
Donation received for a special purpose will be taken to the …………………….. . (March 2010)
a) Income and Expenditure
b) Asset side of the Balance sheet
c) Liability side of the Balance sheet
Answer:
c) Liability side of the Balance sheet

Question 5. March 2010
Income and Expenditure a/c is a
a) Real a/c
b) Nominal a/c
c) Personal a/c
Answer:
b) Nominal a/c

Question 6.
Receipts and payment a/c is a nominal a/c – True or False. (March 2010)
Answer:
False. Real a/c

Question 7.
Subscription received in 2009, relating to the year 2010, will not be shown in the Receipts and Payment account for the year 2010 – True or False. (March 2011)
Answer:
True.

Question 8.
Opening balance of subscription outstanding from members is a/an …………………….. to the club. (March 2012)
a) Liability
b) Asset
c) Income
d) Expenditure
Answer:
b. Asset

Question 9.
State the following items as Revenue Receipt or Capital Receipt  (Sep – 2012)
a) Specific Donation
b) Legacies
Answer:
a) Capital Receipt,
b) Capital Receipt

Question 10.
Which one of the following equivalent to the summary of a cash book? (March 2013)
a) Income and Expenditure a/c
b) Profit and Loss a/c
c) Balance Sheet
d) Receipts and Payment A/c ]
Answer:
d) Receipts and Payment A/c

Question 11.
Subscription received in advance is …………………….. . (March 2013)
a) Income
b) Expense
c) An asset
d) A liability
Answer:
d) A liability

Question 12.
The life membership fee is an …………………….. . (Aug 2014)
a) Capital receipt
b) Revenue receipt
c) Revenue expense
d) Specific donation
Answer:
a) Capital receipt

Question 13.
Any revenue expense for which a separate funds is available will be …………………….. . (May 2016)
a) Credited to the separate fund.
b) Debited to Income and Expenditure Account.
c) Capitalised and shown in the balance sheet.
d) Debited to the separate fund.
Answer:
d) debited to separate fund

Question 14.
Outstanding subscription of a club is its …………………….. . (May 2016)
a) liability
b) asset
c) asset or liability
d) bad debts
Answer:
b) asset

Plus Two Accountancy Accounting for Not For Profit Organisation 2 Marks Important Questions

Question 15.
The details of stationery for a manufacturing unit is given below:  (March 2012)
Opening stock of stationery 500
Stationery purchase 1,200
Closing stock of stationery 700
Determine the amount of stationery to be debited in the Profit and Loss account.
Answer:
Opening stock of stationery – 500
(+) Purchases – 1,200
– 1,700
(-) Closing stock of stationery – 700
Amount to be debited – 1,000

Question 16.
Ascertain the amount of wages to be debited in the Income and Expenditure account for the year ending 31.12.2011. (March 2013)
Wages paid during the year 2011, ₹ 5,000.
Wages outstanding at the beginning of the financial year, ₹ 500.
Wages outstanding at the end of the financial year, ₹ 600.
Answer:

Particulars	Amt. (₹)
Wages paid during the year (2011) (+) Wages o/s at the end of the year	5,000 600
(-) Wages o/s at the beginning of the year	5,600 500
Amt. to be debited in the income & Expenditure A/c	5,100

Question 17.
Amount paid for stationery during 2010 is ₹ 880. Stock of stationery at the end of the year is ₹ 90. What amount will be posted to Income and Expenditure account during the year 2010? (Sep 2013)
Answer:
Amount paid for stationery
during the year – 880
(-) Stock of stationery at the end – 90
Amt. to be posted to income
and expenditure A/c – 790

Question 18.
“Income and Expenditure account begins with an opening balance of cash.” State whether the above statement is true or false, if false correct the same. (May 2016)
Answer:
False. Receipts & Payment a/c begins with an opening balance of cash.

Question 19.
Anand sports club received Rs. 175000 as subscription for the year ended 31 st March 2016. Consider the following adjustments and mention whether we should add or deduct each items to find out subscription for the year. (March 2017)
Answer:
a) Subscription outstanding on 31st March 2016 Rs. 15,000.
b) Subscription outstanding on 1st April 2015 Rs. 20,000.
c) Subscription received in advance as on 1st April 2015 Rs. 16,000
d) Subscription received in advance as on 31st March 2016 Rs. 12,000
Answer:
a) Subscription outstanding on 31st March 2016 Rs.15000-Add
b) Subscription outstanding on 1st April 2015 Rs. 20,000 – Deduct
c) Subscription received in advance as on 1st April 2015 Rs. 16000-Add
d) Subscription received in advance as on 3181 March 2016 Rs, 12,000-Deduct

Plus Two Accountancy Accounting for Not For Profit Organisation 3 Marks Important Questions

Question 20.
From the following information find out of the amount of subscription to be credited to Income and Expenditure account for the year ending 31st December 2010. (Sep – 2012)
a. Subscription received during the ₹
year 2010 – 12,000
b. Subscription outstanding on
31/12/2010 – 1,500
b. Subscription outstanding on
31/12/2009 – 1,200
d. Subscription received in advance
on 31/12/2010 – 1,800
e. Subscription received in advance
on 31/12/2009 – 750

Plus Two Accountancy Accounting for Not For Profit Organisation 2 Marks Important Questions

Question 15.
The details of stationery for a manufacturing unit is given below: (March – 2012)
Opening stock of stationery – 500
Stationery purchase – 1,200
Closing stock of stationery – 700
Determine the amount of stationery to be debited in the Profit and Loss account.
Answer:
Opening stock of stationery – 500
(+) Purchases – 1,200
– 1,700
(-) Closing stock of stationery – 700
Amount to be debited – 1,000

Question 16.
Ascertain the amount of wages to be debited in the Income and Expenditure account for the year ending 31.122011. (March – 2013)
Wages paid during the year 2011, ₹ 5,000.
Wages outstanding at the beginning of the financial year, ₹ 500.
Wages outstanding at the end of the financial year, ₹ 600.
Answer:

Particulars	Amt. (₹)
Wages paid during the year (2011) (+) Wages o/s at the end of the year	5,000 600
(-) Wages o/s at the beginning of the year	5,600 500
Amt. to be debited in the income & Expenditure A/c	5,100

Question 17.
Amount paid forstationery during 2010 is ₹ 880. Stock of stationery at the end of the year is ₹ 90. What amount will be posted to Income and Expenditure account during the year 2010? (Sep – 2013)
Answer:
Amount paid for stationery during the year – 880
(-) Stock of stationery at the end – 90
Amt. to be posted to income and expenditure A/c – 790

Question 18.
“Income and Expenditure account begins with an opening balance of cash.” State whether the above statement is true or false correct the same. (May 2016)
Answer:
False. Receipts & Payment a/c begins with an opening balance of cash.

Question 19.
Anand sports club received Rs. 175000 as subscription for the year ended 31st March 2016. Consider the following adjustments and mention whether we should add or deduct each items to find out subscription forthe year. (March – 2017)
a) Subscription outstanding on 31st March 2016 Rs. 15,000.
b) Subscription outstanding on 1st April 2015 Rs. 20,000.
c) Subscription received in advance as on 1st April 2015 Rs.16,000
d) Subscription received in advance as on 3131 March 2016 Rs. 12,000
Answer:
a) Subscription outstanding on 31st March 2016 Rs. 15000-Add
b) Subscription outstanding on 1st April 2015 Rs. 20,000 – Deduct
c) Subscription received in advance as on 1st April 2015 Rs. 16000-Add
d) Subscription received in advance as on 3151 March 2016 Rs, 12,000-Deduct

Plus Two Accountancy Accounting for Not For Profit Organisation 3 Marks Important Questions

Question 20.
From the following information find out of the amount of subscription to be credited to Income and Expenditure account for the year ending 31st December 2010. (Sep – 2012)
a. Subscription received during the ₹
year 2010 – 12,000
b. Subscription outstanding on
– 31/12/2010 – 1,500
c. Subscription outstanding on
31/12/2009 – 1,200
d. Subscription received in advance
on 31/12/2010 – 1,800
e. Subscription received in advance
on 31/12/2009 – 750
Answer:

Particulars	Amt. (₹)
Subscription received during the year 2010 Add: Subscription o/s on 31/12/10 Subscription received in advance on 31/12/2009	12,000 1,500 750
Less: Subscription o/s on 31/12/09 Subscription received in advance on 31/12/10 Amt. of subscription to be credited to Income & Expenditure A/C	14,250 1,200 1,800 11,250

Question 21.
From the given particulars, ascertain the amount to be credited to the Income and Expenditure account for the year ending 2012. (March – 2013)
Subscription received during the year – 18,000
Subscription outstanding on 01.01.2012 – 1,000
Subscription received in advance on 01.01.2012 – 500
Subscription received in advance on 31.12.2012 – 300
Subscription outstanding on 31.12.2012 – 200
Answer:

Particulars	Amt. (₹)
Subscription received during the year Add: Subscription received in advance on 1/1/12 Subscription o/s on 31/12/12	18,000 500 200
Less: Subscription o/s on 1/1/12 Subscription received in advance on 31/12/12 Amt. to be credited to the Income & Expenditure a/c	18,700 1,000 300 17,400

Question 22.
Your are given the various receipts and payments of a hospital. Classify them into capital and revenue. (March – 2013)
a) Consultation fees
b) Payment of salaries
c) Conveyance expense
d) Purchase of medicine
e) Purchase of surgical instruments
f) Life membership subscription for health plan
Answer:
Capital
e) Purchase of surgical instruments (expenditure)
f) Life membership subscription for health plan (receipts)

Revenue
a) Consultation fees (receipts)
b) Payment of salaries (payments)
c) Conveyance expense (payments)
d) Purchase of medicine (payments)

Question 23.
Given below is the data taken from Rupa Sports Club, Kochi during the year 2012. Subscription ₹ 12,000 was received during 2012. (March 2014)
(This includes ₹ 900 related to the last year’s outstanding subscription and also advance subscription ₹ 1,200 from the members forthe next year)
During 2011, subscription advanced was ₹ 2,000 Subscription outstanding in 2012 is ₹ 1,050 How much amount has to be credited to the Income and Expenditure account by way of subscription?
Answer:

Particulars	Amt. (₹)
Subscription received during 2012 Add: Subscription advance in 2011 Subscription o/s in 2012	12,000 2,000 1.050 15,050
Less: O/s subscription in 2011 Subscription advance in 2013	900 1,200 12,950

Question 24.
In the case of a not-for-profit organization, capital fund represents its excess of ………… over ……….. . The excess of income over expenditure is called ………… and the closing balance of Receipts and Payments account represents ……….. . (May – 2016)

Fill in the above blanks with appropriate words (s).
Answer:
i) Assets, Liabilities
ii) Surplus
iii) Cash in hand/Cash at bank/Bank over draft

Plus Two Accountancy Accounting for Not For Profit Organisation 5 Marks Important Questions

Question 25.
The Yuvadhara Arts and Sports Club furnishes the following information before you, seeking your help for preparation of receipts and payments account. Help them to prepare receipts and payments account as a commerce student. (August 2009)

Subscriptions Donations Entrance fee Taxes Salaries and Wages Locker rent received Cash in hand (opening)

5,500 3,000 1,000 200 3,500 2,100 2,100

Electricity charges Telephone charges Honorarium to secretary Sale of old newspaper Insurance premium

500 450 400 400 150

Answer:

Receipts and Payments Account
The Yuvadhara Arts and Sports Club

Dr.

Receipts	Amt.	Payment	Amt.
Balance b/d : Cash in hand Subscriptions Donations Entrance fees Locker rent received Sale of old newspaper	2,100 5,500 3,000 1,000 2,100 400	Salaries and wages Taxes Electricity charges Telephone charges Honararium to Secretary Insurance Premium Balance c/d : Cash in hand (balancing figure)	3,500 200 500 450 400 150 8,900
	14,100		14,100

Question 26.
a) Calcutta Sports Association extracts the following Receipts and Payments Account forthe year ended 31st December, 2004. After considering additional information, prepare the Income and Expenditure Account forthe year ended 31st December, 2004. (March – 2010)
Receipts and Payments Account for the year ending31st december, 2004

Particulars	Amount Rs.	Particulars	Amount Rs.
To Balance b/d	1,125	By Newspapers	750
To Subscription	2,900	By Rent	250
To Tournament fund	750	By Salaries	1,800
To Life Membership	1,000	By Office Expenses	1,200
To Entrance fee	100	By Sports equipment	1,150
To Donation for building	1,500	By Tournament expenses	450
To Sales of newspaper	50	By Balance c/d	1,825
	7,425		7,425

Answer:
(a) Income and Expenditure A/c for the year ended 31.12.04

Expenditure	Amt.	Income	Amt
Newspaper Rent Salaries Office Exps. 1200 (+) o/s in -‘04 200 1400 (-) o/s in -‘03 150 Depreciation of sport equipment	750 250 1800 1250 610	Subscriptions 2900 (+) o/s in 04 500 3400 (-) o/s in 03 450 (-) advance for 100 05 Sale of newspaper Deficit	2850 50 1760
	4660		4660

Note: If the entrance fee is treated as revenue income, Deficit will be Rs. 1660.

Question 27.
From the following particulars of Gandhi Memorial Sports Club, prepare the Income and Expenditure account for the year ended 31st March 2010. (March – 2012)
₹
a. Subscription collected 70,000
(₹ 1,000 for 2009 and ₹ 3,000 for 2011)
b. Subscription due but not received for March, 2010 8,000
c. Donation for constructing building 50,000
d. Entrance fees (60% capitalized) 6,000
e. Salary paid (including ₹ 4,000 for 2009) 16,000
f. Purchase of sports equipment 4,000
g- Sale of old ball and equipment 200
h. Printing, Stationery and Rent 1,000
Adjustments : 50% on sports equipment is written off
Answer:

Expenditure	Amt.(₹)	income	Amt.(₹)
Salary Depreciation on Sports equipment Printing Stationery & rent Surplus	12,000 2,000 1,000 61,600	Subscription (66,000 (+) O/s Subscription 8,000) Entrance fees (6000 – 60% x 6000 = 6000 – 3600) Sale of old ball and equipment	74,000 2,400 200
	76,600		76,600

Question 28.
Given below is the Receipts and Payments account of Riders Club for the year ending 31st December, 2012, which was formed on January, 2012. (March – 2013)

Receipts and Payments Accounts for the year ending 31-12-2012

Receipts	Rs.	Payments	Rs.
Subscription Donation Life membership fees Legacy Interest	5,200 1,600 2,000 5,000 160	Salaries Scholarship General expenses Printing and stationery Furniture Investments , Balance c/d	3,500 1,480 1,960 340 2,500 2,400 1,780
	13,960		13,960

Prepare the income and expenditure account of the club for the year ended 31 st December, 2012 and its Balance Sheet as on that date, after taking into account the following information.
a) Sutcriptknsoutstandingason31-12-2O12, Rs, 300.
b) Salaries outstanding, Rs. 330.
e) 5% interest has been accrued on investments kw 6 months.
d) Legacy and life membership fees are to be capitalized.
e) Charge depreciation on furniture 10% p.a.
Answer:
Income and Expenditure Account for the year ended 31-12-2012

Expenditure	Amt	Income	Amt.
To Salaries 3,500 Add: Out-standing  330 To Scholarship To General Exp. To Printing & Stationery To Depreciation on Furniture	3,830 1,480 1,960 340 250	By Subscri- option 5,200 Add: Outstanding 300 By Donation By Interest 160 Add: Interest 60 (2400×5/100×6/12) Excess of Expenditure over Income (Deficit)	5,500 1,600 220 540
	7,860		7,860

Balance Sheet as on 31112/2012

Liabilities	Amt.	Assets	Amt.
Capital fund : Legacy 5,000 Life membership 2.000 Less : Deficit 540 Salary outstanding	7,000 6,460 330	Furniture 2,500 Less : Deere. 250 Subscription outstanding on 31/12/2012 300 Investments Interest accrued Cash	2,250 2,400 60 1,780
	6,790		6,790

Question 29.
From the following information of Jubily Arts Club given below, prepare the Receipts and Payments account for the year ended 31st December, 2012 and balance it. (March – 2014)

	₹		₹
Cash balance on 1/1/2012 Entrance fees General expense Legacy Donations (specific)	3,500 6,000 2,800 3,500 5,000	Salaries Furnitu re Rent received Sports expenses Subscription	4,000 14,000 2,000 5,500 12,000

Answer:

Receipts and Payments alc
for the year ended 31/1 2/2012

Receipts	Amt. (₹)	Payments	Amt. (₹)
Balance Cash Entrance fees Legacy Donations (Specific) Rent received Subscription	3,500 6,000 3,500 5,000 2,000 12,000	General expenses Salaries Furniture Sports expenses Balance Cash	2,800 4,000 14,000 5,500 5,700
	32,000		32,000

Question 30.
The Evergreen Club was founded on January 1,2008, with 100 members; the annual subscription per member being 250. By the end of that year two (2) members had not paid their subscriptions but nine (9) had paid fora year in advance. Ascertain the amount of subscriptions to be credited to Income and Expenditure account for the year ended December 31, 2008, by preparing a subscriptions account. (May – 2016)
Answer:
Subscription A/c

Particulars	Amount	Particulars	Amount
Subscription in advance (250 x 9) Income and expenditure A/c	2250 25000	Banks Subscription in arrear (2 x 250)	26750 500
	27,250		27,250

Note: Bank = (98×250)+(9×250)
= 24500+2250=26750

Plus Two Accountancy Accounting for Not For Profit Organisation 8 Marks Important Questions

Question 31.
Following is the Receipt and Payment Account of G-Men’s Club for the year ending 31 March 2003 : (August – 2009)

G-Men’s Club
Receipts and Payments Account for the
year ended 31st March 2003

Receipt	Amount	Payment	Amount
To Balance b/d Subscription Donations	5,000 7,500 1,500	By Salaries Rent Postage and Telegram	1,200 1,400 650
Entrance fees	2,500	Sundry expenses Stationery Entertainment expenses Investment Cash at bank Cash in hand	850 210 340 6,000 5,000 850
	16,500		16,500

You are required to prepare an Income and Expendi¬ture and Balance Sheet as on the above date after making the following adjustment:

a) Subscription outstanding during the year 2003 Rs. 700. Subscription received include Rs. 400 for the year 2002 and received in advance for the year2004 amounting Rs. 800.
b) Rent paid in advance Rs. 200.
c) 1/3 of the donation and 40% of the entrance fee should be capitalised.
d) On 1st April 2002 the club had sports equipment worth Rs. 4,000 and furniture Rs. 2,000.
e) Salaries unpaid on 1st April 2002 Rs. 200 and 31st March 2003 Rs. 300.
f) Stock of stationery on 31st March 2003 Rs. 60.
Answer:
Balance sheet as on 1/04/2002

Liabilities	Amount	Assets	Amount
Outstanding salary Capital Fund (Balancing Figure)	200 11,200	Cash Sports equipment Furniture Subscription outstanding	5,000 4,000 2,000 400
	11,400		11,400

Income and Expenditure Account for the year ended 31.03.20003

Question 32.
The following are the Receipts and Payments Accounts of Sneha Arts and Sports Club for 31st December, 2011. (March – 2012)

Receipts and Payments Accounts for 31st December, 2011.

Additional information:
a) The Club has 500 members, each paying an annual subscription of Rs. 5.
b) On 31st December, 2011, salaries outstanding amounted to Rs. 50 and municipal taxes amounting to Rs. 40 per annum have been paid upto 31st March, 2012.
c) On 31st December, 2011, the club owned sports equipment valued at Rs. 2,500; furniture worth Rs. 1,500 and musical instruments worth Rs. 1,000.
d) Provide depreciation on sports equipment at 10% p.a.

You are required to prepare the income and expenditure account forthe year ending 31st December, 2011 and the Balance Sheet as on that date.
Answer:
Income and Expenditure Account for the year ended 31-12-2011

Balance Sheet as on 31/12/2010

Liabilities	Amt.	Assets	Amt.
Capital fund (b/f)	6065	Cash Subscription (2010) Sports equipment Furniture Musical Instruments	1025 40 2500 1500 1000
	6065		6065

Balance Sheet as on 31/12/2011

Liabilities	Amt.	Assets	Amt.
Capital fund (b/f)	6065	Cash Subscription (2010) Sports equipment Furniture Musical Instruments	1025 40 2500 1500 1000
	6065		6065

Balance Sheet as on 31/12/2011

Note:
Subscription for 2011
Subscription received – 2050
Add: Outstanding [(500 x 5 = 2500) – 2050] – 450/2500

Question 33.
You are the secretary of Western Sports Club. You are entrusted with the duty of preparation of final accounts of the Club. On 31st Dec. 2010 the books of the club has revealed the following receipts and payments. (September – 2012)

Receipts	Amount	Payments	Amount
Subscriptions Locker rent Building Fund Sale of news paper Interest received Donation (1/3 to be capitalised)	35,000 1,750 20,000 200 250 1,500	Salary paid Sundry expenses Entertainment expenses Furniture purchased (1/10/10) Purchase of Library Books News paper Travelling expenses	11,000 500 250 7,500 750 200 300

The books of the club has also revealed the following additional information.
i) The club had a cash balance on 1/1/2010 Rs. 2,000.
ii) Subscription outstanding on 31/12/2010 Rs. 750 and on 1/1/2010 Rs. 500.
iii) Salary prepaid on 31/12/2010 Rs. 500 and locker rent received in advance on 31/12/2010 Rs. 250.
iv) On 31/12/2009 the Club had investment for Rs. 10,000/Furniture Rs. 5,000, Building Rs. 12,500 and Sports Equipments Rs. 5,000.
v) Depreciation is to be provided during the year as follows.

On Furniture 20%, Building at 10% and Sports and Equipment at 15%.
Prepare Receipts and Payment Account, Income and Expenditure Account and Balance Sheet of the Club for the year ended 31st December, 2010.
Answer:
Receipts and Payments A/c for the year ended 31/12/2010

Receipts	Amt.	Payments	Amt.
To Balance b/d To Subscriptions To Locker Rent To Donation for Bid. To Sale of newspaper To Interest received To Donation	2,000 35,000 1,750 20,000 200 250 1,500	By Salary By Sundry Expenses By Entertainment Exp. By Furniture By Library books By News paper By Travelling exp. By Balance c/d	11,000 500 250 7,500 750 200 300 40,200
	60,700		60,700

Income and Expenditure Account for the year ended 31-12-2010

Note : Depreciation on furniture = (7,500 x 3/12 x 20%) + (5,000 x 20%) = 1,375
Opening Balance Sheet

Balance Sheet as on 31/1 2/2010

Question 34.
Prepare Income and Expenditure Account and Balance Sheet for the year ending 31-03-2015 from the following information: (March – 2016)

Receipts and Payments Account for the year ending 31-03-2015

Additional Information:
1) There are 1, 800 members each paying an an-nual subscription of Rs. 200. Rs.8,000 were in arrears for 2013-14asonApril 1,2014.
2) On 31-03-2015 the rates were prepaid to June 2015, the charge paid every year being Rs.24,000
3) There was an outstanding telephone bill for Rs.1400 on 31-3-2015
4) Outstanding sundry expenses as on 31-2-12014 totalled Rs.2800
5) Stock of stationery 31-03-2014 was Rs. 2,000 on 31-03-2015 it was Rs.3,600.
6) On 31-03-2014, Building stood at Rs.4,00,000 and it was subject to depreciation @ 2.5% p.a.
7) Investment on 31-03-2014 stood at Rs.8,00,000.
8) On 31-03-2015, income accrued on investments amounted to Rs.1,500.
Answer:
Income and expenditure a/c for the year ended 31 /03/2015

Note:
Subscription A/c

Balance sheet as on 31/03/15

The balance sheet as on 31/3/2014

Question 35.
1) What do you mean by Not-for-Profit Organisations? What are the Accounting Records of such organisations? (March – 2016)
2) Explain the steps involved in the preparation of Receipt and Payment A/c and Income and Ex¬penditure A/c.
Answer:
1) “Not-for-profit organisation is an entity intended to render services to the members of the public without any intention of profit”, eg : sports and arts club, Hospitals, Libraries charitable institutions etc.
a) Non-Profit organisation usually keep ‘a cash book’ in which all receipts and payments are recorded.
b) They maintain ‘a ledger’ containing the ac-counts of all incomes, expenses, assets and liabilities which facilities the preparationof fi¬nancial statements at the end of the account¬ing year.
c) The final accounts of a non-profit organisation consist of the following:

• Receipts and payment Account
• Income and Expenditure Account
• Balance sheet

2) Procedure for preparation of Receipts and payments account as follows.

1. This account always starts with opening balance of cash in hand and cash at bank, cash in hand always has a debit balance and hence appears on the debit side as the first item. Cash at bank has either a debit balance or a credit balance (overdraft)
2. All receipts made in cash during the accounting year will be shown on the debit side and all cash payments made during the accounting year are shown on the credit side.
3. Only actual cash receipts and cash payments are recorded in this account.
4. At end of the accounting period, this account is balanced and it shows the closing balance of cash in hand and at bank or bank overdraft, as the case may be.

Procedure for preparing Income & Expenditure as follows:-

1. This account is prepared usually in “T” form taking revenue expenses on the debit side and the revenue incomes on the credit side.
2. It is also prepared in vertical form. Under this method, the total of revenue incomes are shown first, revenue expenses follow it. After this, the total of expenses is deducted from the total of the incomes for ascertaining the surplus or deficit.
3. It is prepared to find out the current year’s surplus or deficit, it does not have any opening balance. Therefore, previous year’s surplus or deficit is not important.
4. This account takes only the revenue incomes and revenue expenses. Capital receipts and payments are not taken into account.
5. Since it is maintained under accrual basis, current year’s income and expenditures alone are shown.
6. Outstanding expenses, accrued incomes, ‘ prepaid expenses, income received in advance, depreciation, provision etc. in the current year are to be suitably adjusted.
7. At the end of the accounting yearthe income and expenditure account is balanced and it reflects either a surplus or a deficit which is transferred to capital fund.

Question 36.
a) From the following Receipt and payment Account of a club, prepare income and expenditure account for the year ended 31st December 2016 and Balance Sheet as on that date: (March – 2017)

Receipt and payment Account for the year ending December 31’s, 2016

Additional Information:
a) The club has 100 members each paying an annual subscription of Rs.900. Subscriptions out¬standing on December 31812015 were Rs. 3,800.
b) On December 31st, 2016, salary outstanding amounted to Rs. 1,000, salary paid included Rs. 1,000 fortheyear2015.
c) On January 1,2016 the club owned land and building Rs.25,000, furniture Rs.2600 and books Rs. 6,200.
Answer:
Income and expenditure AIc for the year ended 31/12/2016

Balance sheet as on 1/1/2016

Balance sheet as on 31/12/2016