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Lesson Posted on 06 Mar Exam Coaching/ICWA Coaching

Cost Structure

Karthikeyan

Qualified CMA having around 5 yrs of experience in Accounting field.

Cost structure refers to the types and relative proportions of fixed and variable costs that a business incurs. The concept can be defined in smaller units, such as by product, service, product line, customer, division, or geographic region. Cost structure is used as a tool to determine prices, if you... read more

Cost structure refers to the types and relative proportions of fixed and variable costs that a business incurs. The concept can be defined in smaller units, such as by product, service, product line, customer, division, or geographic region. Cost structure is used as a tool to determine prices, if you are using a cost-based pricing strategy, as well as to highlight areas in which costs might potentially be reduced or at least subjected to better control. Thus, the cost structure concept is a management accounting concept; it has no applicability to financial accounting.

To define a cost structure, you need to define every cost incurred in relation to a cost object. The following bullet points highlight key elements of the cost structures of various cost objects:

i. Product cost structure:

  • Fixed costs. Direct labor, manufacturing overhead
  • Variable costs. Direct materials, commissions, production supplies, piece rate wages

ii. Service cost structure:

  • Fixed costs. Administrative overhead
  • Variable costs. Staff wages, bonuses, payroll taxes, travel and entertainment
  • Product line cost structure
    • Fixed costs. Administrative overhead, manufacturing overhead, direct labor
    • Variable costs. Direct materials, commissions, production supplies
  • Customer cost structure
    • Fixed costs. Administrative overhead for customer service, warranty claims
    • Variable costs. Costs of products and services sold to the customer, product returns, credits taken, early payment discounts taken

Some of the preceding costs can be difficult to define, so you may need to implement an activity-based costing project to more closely assign costs to the cost structure of the cost object in question.

You can alter the competitive posture of a business by altering its cost structure, not only in total, but between its fixed and variable cost components. For example, you could outsource the functions of a department to a supplier who is willing to bill the company based on usage levels. By doing so, you are eliminating a fixed cost in favor of a variable cost, which means that the company now has a lower break even point, so that it can still earn a profit at lower sales levels.

A knowledge of the capacity levels associated with the existing fixed cost structure can also allow a business to increase its profits by lowering prices sufficiently to maximize the utilization of a fixed cost item. For example, if a company has spent $100,000 on a high-capacity automated machine and it is currently only being utilized 10% of the time, a reasonable action would be to obtain more work to increase the amount of cash earned from that machine, even at prices that might normally be considered low. This type of pricing behavior is only possible if you have a detailed knowledge of the cost structure of a business.

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Lesson Posted on 22/12/2017 Exam Coaching/ICWA Coaching

CMA Foundation Test Accounts

Vidyadhan Academy Pvt. Ltd.

Our faculty is well adapted with the latest syllabus taught at school as well as university well. They...

I. Multiple Choice Questions: 1. Which of these is/are recurring (indirect expenses)? (a) Transit insurance and freight (b) Octroi (c) Advertisement (d) Godown rent and insurance 2.X sends out goods to Y, costing Rs.1,50,000. Goods are to be sold at +33 1/3% of sale. The consignor asked consignee... read more

I. Multiple Choice Questions:

 

1. Which of these is/are recurring (indirect expenses)?

(a) Transit insurance and freight

(b) Octroi

(c) Advertisement

(d) Godown rent and insurance

 

2.X sends out goods to Y, costing Rs.1,50,000. Goods are to be sold at +33 1/3% of sale. The consignor asked consignee to pay an advance for an amount equivalent to 60% of sales value. The amount of advance will be

(a) 1,20,000

(b) 1,35,000

(c) 1,50,000

(d) None

 

3.Goods of the invoice value of Rs.2,40,000 sent outto consignee at 20% profit on cost the loading amount will be

(a) 40,000

(b) 48,000

(c) 50,000

(d) None

 

4.X of Mumbai sends out certain goods at cost +25%. Invoice value of the goods is Rs 2,00,000. 4/5thof the goods were sold by consignee at Rs 1,76,000. Commission 2% upto invoice value and 10% of any surplus above invoice. The amount of commission will be.

(a) 4800

(b) 5200

(c) 3200

(d) 1600

 

II. Fill in the blanks:

 

1. The person who sends the goods for sale on fixed commission basis is ______.

2.When the consignor sends goods to consignee he prepares a ________.

3.Delcredere commission is allowed to cover the risk of _________.

4.Where goods are sent on consignment, credit is given to _______ in the books of consignor.

5.Stock reserve is created to adjust ___________.

6.Extra commission given to the consignee, for making him responsible for bad debts this extra commission is known as __________.

 

III. True or false:

 

1.Goods sent on consignment account is of the nature  of real account

2.Goods valued at invoice price refers to valued at lower price than its original cost

3.Balance in consignment account shows profit and loss on consignment

4.Profit and loss on consignment is retained / borne by consignor

5.The details contained in account sales are unsold stock left with the consignee

 

IV. Practical Questions:

 

Q.1 From the following particulars ascertains the value of unsold stock on Consignment.

Goods sent (1,000 kgs.) Rs. 20,000.

Consignor’s expenses Rs. 4,000.

Consignees non-recurring expenses Rs. 3,000.

Sold (800 kgs.) Rs. 40,000.

Loss due to natural wastage (100 kgs).

  

Q.2Mr. X, the consignor, consigned goods to Mr. Y 100 Radio sets valued Rs. 50,000. This was made by adding 25% on cost. Mr. X paid Rs. 5,000 for freight and insurance.

Mr. Y received all goods in good condition. He incurred Rs. 4,000 for freight and miscellaneous expenses and Rs. 3,000 for godown rent. He sold 60 sets for Rs. 50,000. Show the necessary ledger account in the books of Mr. X assuming that Mr. Y was entitled to an ordinary Commission of 10% on sales and 5% Del Credere Commission on sales. He also reported that Rs. 1,000 were provide bad.

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Answered on 06/11/2017 Exam Coaching/ICWA Coaching

Karthikeyan

Tutor

My answer will be it is better to concentrate only on studies. Because if you completed the course you have lot of opportunities waiting outside.
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Lesson Posted on 23/08/2017 Exam Coaching/CA Coaching Exam Coaching/ICWA Coaching Exam Coaching/Company Secratary (CS) Coaching +4 Tuition/MBA Tuition Tuition/BCom Tuition Exam Coaching/CA Coaching/CPT Tuition/BBA Tuition less

With effective from 1st April, 2017, no person shall receive an amount ofRs 2 Lakh or more; (A) in aggregate...

Ca Prashanth Reddy

I enjoy teaching and interacting with students. Teaching is my passion, profession and hobby. Every student...

With effective from 1st April, 2017, no person shall receive an amount ofRs 2 Lakh or more; (A) in aggregate from a person in a day (or)(B) in respect of a single transaction (or)(C) in respect of transactions relating to one event or occasion from a person. A.Single Person: Cash Receipt of Rs 2 lakh... read more

With effective from 1st April, 2017, no person shall receive an amount ofRs 2 Lakh or more; (A) in aggregate from a person in a day (or)(B) in respect of a single transaction (or)(C) in respect of transactions relating to one event or occasion from a person.

A.Single Person: Cash Receipt of Rs 2 lakh or more, from asingle person in a day is not allowed even if the amount has been paid through multiple transactions during the day which are below Rs 2 lakh. For example: Mr Viratbuys a gold chain worth Rs 2 Lakh and pays the amount by cash to Mr Sonesh on a single day in 4 equal installments of Rs 50,000 each. As Mr Sonesh accepted cash worth Rs 2 Lakh from a single person and in a single day, section 269ST is applicable in this case. Sonesh has to pay a penalty of Rs 2 Lakh.

B. Single Transaction:
Cash receipts of Rs 2 Lakh or more which are related to a single transaction are prohibited.For example: Mr Kejriwal goes through a medical surgery and the hospital charges him a bill of Rs 4 Lakh. Kejriwal clears the bill in 4 installments of Rs 1 Lakh each on four different dates. Here, the cashreceipts got by hospital are less than Rs 2 Lakh and have been received on different dates. Whether this transaction violates section 269ST? – Yes. Hospital has to pay the penalty. Because, they received the payments with respect to single bill / transaction. So, splitting of payments over several days is prohibited.

C. Single Event / Occasion:
Cash transactions or cash receipts related to a single event or occasion, can not be more than Rs 2 Lakh. For example: Nagachaitanya gets married to Samantha. On their wedding occasion, their relatives gifted Cash amount worth Rs 10 Lakh on different dates. Even if we assume that each person has gifted cash worth less than Rs 2 Lakh, are these receipts come under the purview of Section 269ST? Is penalty applicable? Yes, penalty can be levied. Here, marriage is a ‘single occasion’ and cash gifts worth Rs 2 Lakh or morecan not be received from relatives and other persons.

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Lesson Posted on 19/08/2017 Exam Coaching/CA Coaching Exam Coaching/CA Coaching/IPCC Group 1 Exam Coaching/CA Coaching/IPCC Group 2 +12 Exam Coaching/ICWA Coaching Exam Coaching/Company Secratary (CS) Coaching Exam Coaching/CA Coaching/CPT Tuition/BCom Tuition/Business Taxation Tuition/BCom Tuition/Corporate Tax Planning Tuition/BCom Tuition/Income Tax Laws Tuition/BCom Tuition/Indirect Tax Laws Tuition/BCom Tuition/Personal Tax Planning Tuition/BBA Tuition Exam Coaching/ACCA Exam Coaching Tuition/MBA Tuition Exam Coaching/MCA Coaching less

Restriction On Acceptance Of Cash Deposit From FY 2017-18

Ca Prashanth Reddy

I enjoy teaching and interacting with students. Teaching is my passion, profession and hobby. Every student...

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Uses For Computers In Business World

Kousiki C.

Teaching is my hobby and not my profession. I have around 16 years teaching experience. I started my...

Almost every business uses computers to complete daily tasks. From making contact with clients to inputting data for reports, computers allow businesses a more efficient way to manage affairs when compared to traditional paper and manila folders. Businesses use a variety of different types of computers... read more

Almost every business uses computers to complete daily tasks. From making contact with clients to inputting data for reports, computers allow businesses a more efficient way to manage affairs when compared to traditional paper and manila folders. Businesses use a variety of different types of computers such as desktops, laptops, servers, smartphones and tablets, depending on their needs. With computers, employees are able to work anytime, anywhere.

1. Communication:

Communication is key when gaining and maintaining clients and other important contacts. Computers give businesses access to email, instant messaging and custom customer contact systems. Computerized phone systems allow for automated support during off hours and a virtual operator can quickly direct callers to the correct department for faster support.

2. Marketing:

Computers allow businesses to create websites, stunning ads and complete marketing campaigns. Marketing videos can be edited and custom ads created in-house with the use of specialized software. Businesses can completely develop and manage websites with their own servers or connect remotely to a third-party business to upload their latest content such as articles, product images and blog posts.

3. Accounting:

Accounting without computers presents a high risk for human error. Accounting software allows businesses to simply input their financial data and instantly see gains and losses. All necessary tax reports are available the moment the data is entered. Using computers for invoicing, managing expenses and calculating payroll is vital for ensuring financial data is as accurate as possible.

4. Storage:

Instead of filing cabinets, businesses are able to store millions of files using computers and servers. Data can be stored centrally for easy access from multiple computers or stored locally for individual use. Computerized storage saves space and provides a far more efficient organization strategy. With encryption, passwords and replace keys, data remains secure.

5. Documents and Reports:

Most businesses have some sort of productivity software which typically includes a word processor and spreadsheet application. These two programs allow businesses to create reports, memos, tutorials and even colorful ads for company events. Spreadsheet applications give businesses the chance to organize, manage and calculate both numeric and alphabetic data. With charts and graphs, reporting becomes visual instead of text-based.

6. Education:

Businesses use computers to help educate employees on software, company policy, standard procedures and safety. Instead of hiring teachers, computers can be used to educate employees at their own pace or through an online webinar with live questions and answers. This form of education fits the busy schedules of businesses without sacrificing the quality of the education.

7. Research:

From learning more about the competition to discovering what customers really want, research isn't as difficult as it once was, thanks to computers. Search engines, forums, social networks and industry specific websites provide businesses with a wealth of information and research data.

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Entrepreneurship Development

Kousiki C.

Teaching is my hobby and not my profession. I have around 16 years teaching experience. I started my...

1. Meaning and Definition of Entrepreneur: The word entrepreneur has come from the France word “entreprendra”which means to undertake, to pursue opportunities to fulfill needs and wants through innovation to undertake business.In the year 1725 the word entrepreneur was first brought into... read more

1. Meaning and Definition of Entrepreneur:

The word entrepreneur has come from the France word “entreprendra”which means to undertake, to pursue opportunities to fulfill needs and wants through innovation to undertake business.

In the year 1725 the word entrepreneur was first brought into economics by a social scientist named Richard cantilion.the expert who invented the theory of entrepreneurship was David mc cellion in 1961.

There was various definition of entrepreneur.

According to America heritage dictionary:

“Entrepreneur is a person who organizes operates and assumes the risk for business venture”

The dictionary of social science has defined entrepreneur from functional viewpoint. According to it “entrepreneur is a person 1) who exercise the function or 2) initiating coordinating controlling or institute major change in a business enterprise and or 3) bearing those risk of operation which arise from the dynamic nature of society and imperfect knowledge of the future which can cast through transfer calculation or elimination

According to encyclopedia Britannica:

“Entrepreneur as the individual who bears the risk of operating a business in the face of uncertainty about future condition and who is rewarded accordingly by his profit or losses”.

Richard cotillion says, “Entrepreneur is the agent who purchased the means of production for combination into marketable product”.

So we can say that entrepreneur a person who takes risk for establishing a new venture or business in order to create utility for the welfare of human being as well as for him of herself. She or he is always a person who seeks out opportunities and takes on challenges.

2. Meaning and Definition of entrepreneurship:

 Entrepreneurship is considered as of assuming the risk of an entrepreneur.

According to Natheal H. Leff: 

Entrepreneurship is the capacity for innovation investment and expansion in new markets product and techniques.

Webster highlights entrepreneurship as economic venture organizing and risk taking capabilities.

Joshep a Schumpeter describe entrepreneurship is the force of creative destruction whereby established way of doing things are destroyed by the creating of new and better ways to get things done.

According to S. S. Kanaka: 

Entrepreneurships is a process involving various actions to be taken to establish an enterprise.

From the functional view point entrepreneurship is defined as the combination of activities such as perception of market opportunities gaining command over scarce resources purchasing input producing and marketing of product responding to competition and maintaining relation with political administration and public bureaucracy for concession licenses and taxes etc.

3. Characteristics of an Entrepreneur:

An entrepreneur is a person who initiates a business venture. there are some essential feature of an entrepreneur which are describe below.

  • Risk taking capability: every business has risk of time money etc .so an entrepreneur must have the risk taking capability.
  • Creativity and innovation: an entrepreneur has an initiator possesses creativity and innovative power.
  • Need for achievement: the entrepreneur has strong desire to achieve the goal of business. he is always driven by the needs for achievement.
  • Need for autonomy: an entrepreneur does not like to be under anybody. it is the need for autonomy which drives a person to be an entrepreneur.
  • Internal locus of control: an entrepreneur believes in him his work.
  • External locus of control: he also believes in fate for ultimate result.
  • Self confident: an entrepreneur has confidence in him.
  • Leadership capability: an entrepreneur must have leadership capability to lead works under him
  • Industriousness: a successful entrepreneur must have leadership capability to lead workers working under him.
  • Decision making capability: the entrepreneur has capability to take quick decision
  • Adaptability: he has the capacity to adapt with any kind of situation that arise in the enterprise
  • Foresightness: The entrepreneurs have a good foresight to know about future business environment.
  • Others; the other feature are dynamism, ambition, education and training, long term involvement, future orientation.
4. Qualities of successful entrepreneur:

To become a successful as an entrepreneur in its business life, a businessman should possess a quite a number of essential qualities. Those are noted below:

1. Moderate risk taking: an entrepreneur always takes calculated risk to operate the organization

2. Hard work: an entrepreneur is very much hard worker, he or she always busy with various types work.

3. Accountability: a successful entrepreneur is accountable well as his associates always accountable to him.

4. Educated in real sense: successful entrepreneur is educated In real sense .he tries to implement his organizational objectives through his education.

5. Analytical mind: a successful entrepreneur is analytical minded. he scrutinizes every activity on the organization.

6. Dynamic leadership: a successful entrepreneur is always dynamic to operate the organization

7. Presence of mind: a successful entrepreneur is always at present of mind he is always aware of activities that to happening in the organization and around him

8. Accommodative: a good entrepreneur has the capacity to make his own place at every sector

9. Courageous and tactful: Corsages and techniques is very much essential for a successful entrepreneur

10. Maker of right decision: A successful entrepreneur makes right decision in right time in right place

11. Foresighted: a successful entrepreneur foresights the future and take decision accordingly

12. Right perception of things: A successful entrepreneur things in a right way

13. Enjoy simple life: A successful entrepreneur always deals a simple life a general people of the society

14.  Strong desired to success: A successful entrepreneur have a strong desire to success. he is driven by the desire to success

15. Innovation: innovation is the process of making new something. A successful entrepreneur is innovative

16. Self confidence: A successful entrepreneur is self confidence. does not really on other for decision or fate

17. Goal setting: a successful entrepreneur set the goal

18. Keen observation: A successful entrepreneur always observes the origination

19. Sociable: A successful entrepreneur is sociable person

20. Loves to work; A successful entrepreneur is very much addicted to work

21. Loves new ideas: A successful entrepreneur loves new ides of the organization

22. Team builder: A successful entrepreneur builds a suitable team

23. Clean understanding: A successful entrepreneur clearly understands every things

24. Ability to conceptualize: A successful entrepreneur is able to conceptualize the reality

25. Other: the other qualities are patience, optimistic ,strategist, etc


5. Relationship between entrepreneur and entrepreneurship: 

The relationship between entrepreneur and entrepreneurship are discussed below:

6. Entrepreneur vs Entrepreneurship:

  • Entrepreneur is a person: Entrepreneurship is a process.
  • Entrepreneur is an organizer. Entrepreneurship is an organization. 
  • Entrepreneur is an innovator: Entrepreneurship is an innovation. 
  • Entrepreneur is a risk bearer : Entrepreneur is a risk bearing. 
  • Entrepreneur is a motivator : Entrepreneur is a motivation.
  • Entrepreneur is a creator : Entrepreneur is a creation.
  • Entrepreneur is a visualizer. 
  • Entrepreneur is a vision.
  • Entrepreneur is a leader.
  • Entrepreneurship is a leadership.
  • Entrepreneur is an imitator.
  • Entrepreneurship is an imitation.
7. Distinction between an entrepreneur and a manager:

Sometimes the word entrepreneur and manager are used as synonyms. In fact there are some differences between them. They are described below:

Subject matter    ------------    Entrepreneur     ------------         Manager

1. Motive:

Thinking function. His main motive is to start a new venture by setting up an enterprise. 

Doing function. His main motive is to render service to the organization already established. 

2. Status:

  • Entrepreneur is the owner of the enterprise. 
  • Manager is the service holder or servant of the enterprise.
3. Risk bearing:

  • Being owner of the enterprise assume all risk and uncertainty involved in the enterprise. 
  • As the servant don’t take or bear risk and uncertainty involved in the organization. 
 
4. Reward:
  • Reward is profit which is highly uncertain. 
  • Get salary as a reward which is fixed and certain.
5. Innovation:

  • An entrepreneur is an innovator. 
  • A manager is not an innovator in that sense he implements the plan prepared by the entrepreneur. 

6. Qualification:

  • They are not highly qualified but have extraordinary experience forecasting. 
  • They are highly qualified (institutional education). 
  • After the above discussion we can say that at a time an entrepreneur can be a manager but a manager cannot be an entrepreneur.

8. Different types of entrepreneurs:

On the basis of nature Clarence Danhof classified entrepreneurs into four categories. These are:

  1.  Innovative entrepreneurs: An innovative entrepreneur in one, who introduces new goods, inaugurates new method of production, discovers new market and recognizes the enterprise. It is important to note that such entrepreneurs can work only when a certain level of development is already achieved and people look forward to change and improvement.

  2.  Imitative entrepreneurs: These types of entrepreneurs creatively imitate the innovative technical achievement made by another firm. Imitative entrepreneurs are suitable for underdeveloped countries as it is hard for them to bear the high cost of innovation. 

  3. Fabian entrepreneurs: Fabian entrepreneurs are characterized by very great caution and skepticism to experiment any change in their enterprises. They usually do not take any new challenge. They imitate only when it becomes perfectly clear that failure to do not so would result in a loss of the relative position in the enterprise. 

  4. Drone entrepreneurs: They are characterized by a refusal to adopt any change even at cost of severely reduction of profit. 

Some other types of entrepreneurs: 

(i) Solo operators: These are the entrepreneurs who essentially work alone and if needed at all employ a few employees. In the beginning most of the entrepreneurs start their enterprises like them. 

(ii)  Active partners: Active partners are those entrepreneurs who start or carry on an enterprise as a joint venture. It is important that all of them actively participate in the operations of the business. 

(iii)  Innovators: Such entrepreneurs with their competence and creativity innovate new products. Their basic interest lies in research and innovative activities. 

(iv) Buyers’ entrepreneurs: These are the entrepreneurs who do not like to bear much risk. They do not take the risk of production but take the risk of marketing a product i.e. wholesaler and retailer. 

(v) Life timers: These entrepreneurs believe business as an integral part of their life. These entrepreneurs actually inherit their family business i.e. goldsmith, potter etc. 

(vi) Challengers: These are the entrepreneurs who initiate business because of the challenges it presents. They believe that ‘No risk, No gain’. When one challenge seems to be met, they begin to look for new challenges. 

Beside these, there are Govt. and Non-govt. entrepreneurs. 

9. Factors of Entrepreneurship development:

 A. Personal factors:

  1. Ability to cope with the situation
  2. Age
  3. Education
  4. Personality
  5. Intrapersonal communication ability
  6. Achievement motivation
  7. Self-confidence
  8. Competence
  9. Emotion
  10. Understanding capacity

B. Environmental factors 

         i.  Socio-cultural factors :
  • Religion
  • Values
  • Rural-urban orientation
  • Marginality
  • Education
  • Tradition

       ii. Political and legal factors:
  • Govt. legal bindings
  • Govt. policies
  • Rules and laws related to the industry and business

C. Institutional factors:
  1. Financial institution
  2. Training and development institution
  3. Consulting firms
  4. Incubators organization (old & pioneer)
  5. Research organization

D. Micro factors:
  1. Enterprise itself
  2. Suppliers
  3. Intermediaries
  4. Customers
  5. Competitors
  6. Public

E. Macro factors:
  1. Demographic factors
  2. Economic factors
  3. Physical factors
  4. Technological factors
  5. Cultural/social factors

F. Others:
  1. Venture capital
  2. Experience entrepreneurs
  3. Technically skilled labor force
  4. Supplier’s accessibility
  5. Proximity to universities
  6. Availability of land facilities
  7. Accessibility of transportation
  8. Favorable loan and financial policies
  9. Decepted population
  10. Availability of supportive
  11. Suitable living condition
  12. Capital intensiveness
  13. Research and development activities
  14. Capital incentive ness
  15. Proximity to corporate head quarters
  16. Competitive situation

10. Causes of success and failure of entrepreneur:  

An entrepreneur may sometime become successful and sometime becomes failure. There are some causes of such success and failure. They are noted below:

1. Selection of business: It is an important aspect. That means an entrepreneur has to determine what type business he is going to start. Form various points of view the feasibility of the business should be tested. 

2. Proper planning: Proper planning me s also important. For planning, planning premises like political, economic, social premised should be considered first. The steps of planning should be followed properly. 

3. Initial capital: if the initial capitals are not an optimal level the organization would fall. So whether the enterprise is big or small the initial capital should be sufficient enough. 

4. Determination o0f market demand: Through research the demand in the market should be identified. Both for long term and short term it should be considered. 

5. Marketing of product: If the promotion policy, channel of destitution, transportation is not good the enterprise would fall.

6. Education and experience: One of the important tasks of the entrepreneurs is to select right person for the right post because the success of an enterprise depends on the right selection of employees.

7. Joint initiative: One may have much money and another may have more merit. Through joint initiative it can be balanced. But sometime for joint initiative misunderstanding arise, or sometimes corruption occur which may result in fall of enterprise. 

8. Employment: Recruitment and appointment should be properly done. Those who have specialized skill should be appointed to that specialized job. Inefficient, corrupted employees may be responsible for fall of business. 

9. Location of business: Site selection is an important factor. While starting a new business, an entrepreneur should think about the location of the business. In this case, many factors should be considered such as availability of raw materials, proper communication system, availability of labor, marketing facilities and so on. 

10.  Qualities of management: The management must have a minimum quality to success otherwise it would fall.

These are the common causes for which one enterprise may become successful and another may fall.
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Lesson Posted on 30/03/2017 Exam Coaching/CA Coaching Exam Coaching/ICWA Coaching Tuition/MBA Tuition +4 Tuition/MCom Tuition Tuition/BCom Tuition Tuition/BBA Tuition Tuition/Class XI-XII Tuition (PUC) less

Incorporation of a Company

Ca Prashanth Reddy

I enjoy teaching and interacting with students. Teaching is my passion, profession and hobby. Every student...

What are the four stages of formation of a company? There are four stages in the formation of a company: STAGE I- Promotion of a company STAGE II- Registration and incorporation of a company STAGE III- Raising of capital STAGE IV- Commencement of business What do you mean by ‘promotion of... read more

What are the four stages of formation of a company?

There are four stages in the formation of a company:

STAGE I- Promotion of a company

STAGE II- Registration and incorporation of a company

STAGE III- Raising of capital

STAGE IV- Commencement of business

What do you mean by ‘promotion of a company’ and ‘promoter’?

Promotion of a Company:

Promotion is the first stage in the formation of a company. Certain persons who wish to carry on some business come together to form a company.

These persons are known as promoters.

  • ‘Promotion’ means the   preliminary steps   undertaken by   the promoters to bring a Company into existence.

It refers to all those steps which are taken from the time of having an idea of starting a company to the time of actual starting of a company.

Meaning Of Promoter:

  • Promoter’ means a person who thinks of forming a Company and actually brings it into
  • He takes all the effective steps to incorporate
  • A person, who was not associated with the initial formation of the Company but subsequently helps in floating its capital, will also be regarded as
  • Persons assisting the promoters by acting in a professional capacity are not promoters. However, if he goes further than this, like, introducing his clients to a person who may be interested in purchasing the shares in the proposed Company would be regarded as
  • A person who originates a scheme for the formation of the company, has the Memorandum and Articles prepared, executed and registered, and finds the first Directors, settles the terms of preliminary contracts and prospectus (if any), and makes arrangements for advertising and circulating the prospectus and placing the capital, is a

The relationship between the promoter and the company starts from the day the work of floating the company starts and continues up to the time the Directors take into their hands what remains to be done in the way of forming the company. Thus, the status of a promoter is generally terminated when the BOD has been formed and the Board starts governing the company.

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Consignment Meaning & Features

Ca Prashanth Reddy

I enjoy teaching and interacting with students. Teaching is my passion, profession and hobby. Every student...

Meaning & Features Of Consignment Meaning: Consignment means the transaction of sending goods by one person (called CONSIGNOR) to another (called CONSIGNEE) who is to sell those goods on behalf of the Ist person. Features The relation between consignor and consignee is that of principal and... read more

Meaning & Features Of Consignment

Meaning: Consignment means the transaction of sending goods by one person (called CONSIGNOR) to another (called CONSIGNEE) who is to sell those goods on behalf of the Ist person.

Features

  • The relation between consignor and consignee is that of principal and agent.
  • Only the possession and not ownership is transferred to
  • Risk of goods remains with Consignor and not with the
  • Only movable property is subject matter of the
  • Consignment goods are dispatched on the basis that the goods will be sold on behalf of, at the expense and at the risk of the consignor.
  • Consignor sends Pro-forma Invoice and not Sales
  • Consignee sends Account Sales (which contains information as to Sales, Expenses, Commission, Advance, and Balance due).
  • The Profit or Loss on consignment belongs to Consignor and not Consignee.
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Working Capital

Ca Prashanth Reddy

I enjoy teaching and interacting with students. Teaching is my passion, profession and hobby. Every student...

Introduction A firm invests a part of its permanent capital in fixed assets and keeps a part of it for working capital e., for meeting the day to day requirements. We will hardly find a firm which does not require any amount of working capital for its normal operations. The requirement of working... read more

Introduction

  • A firm invests a part of its permanent capital in fixed assets and keeps a part of it for working capital e., for meeting the day to day requirements.
  • We will hardly find a firm which does not require any amount of working capital for its normal operations. The requirement of working capital varies from firm to firm depending upon the nature of business, production policy, market conditions, seasonality of operations, conditions of supply
  • Working capital to a company is like the blood to human body. It is the most vital ingredient of a
  • Working capital management if carried out effectively, efficiently and consistently, will assure the health of an

Meaning of Working Capital :

Working capital is defined as the excess of current assets over current liabilities.

Current assets are those assets which will be converted into cash within the current accounting period or within the next year as a result of the ordinary operations of the business. They are cash or near cash resources. These include:

  • Cash and Bank Balances
  • Receivables
  • Inventory
    • Raw materials, stores and spares
    • Work – in - progress
    • Finished goods
  • Prepaid expenses
  • Short-term advances
  • Temporary investments

The value represented by these assets circulates among several items. Cash is used to buy raw – materials, to pay wages and to meet other manufacturing expenses. Finished goods are produced. These are held as inventories. When these are sold, accounts receivables are created. The collection of accounts receivable brings cash into the firm. The cycle starts again. Current liabilities are the debts of the firms that have to be paid during the current accounting period or within a year.

These include:

  • Creditors for goods
  • Outstanding expenses e., expenses due but not paid.
  • Short – term
  • Advances received against
  • Taxes and dividends payable
  • Other liabilities maturing within a

Working capital is also known as circulating capital, fluctuating capital and revolving capital. The magnitude and composition keep on changing continuously in the course of business.

Gross and Net Working Capital

Generally the Working capital has its significance in two perspectives – ‘Gross working capital’ and ‘Net Working capital’.

Gross Working capital: The gross working capital refers to investment in all the current assets. The total of investments in all current assets is known as gross working capital.

Net Working Capital:

  • It is the excess of current assets over current This is, as a matter of fact, the most commonly accepted definition. Some people define it as only the difference between current assets and current liabilities.
  • It is that portion of a firm’s current assets which is financed by long – term

Need for Working Capital

The basic objective of financial management is to maximize shareholders’ wealth. This is possible only when the company earns sufficient profit. The amount of such profit largely depends upon the magnitude of sales. However, sales do not convert into cash instantaneously. There is always a time gap between the sale of goods and receipt of cash. Working capital is required for this period in order to sustain the sales activity. In case adequate working capital is not available for this period, the company will not be in a position to sustain the sales since it may not be in a position to purchase raw materials, pay wages and other expenses required for manufacturing the goods to be sold.

Permanent and Temporary Working Capital:

Working capital can be divided into two categories on the basis of time:

  1. Permanent Working Capital
  2. Temporary or Variable Working

Permanent working capital represents the assets required on continuing basis over the entire year, whereas temporary working capital represents additional assets required at different items during the operation of the year.

Permanent working capital: This refers to that minimum amount of investment in all current assets, which is required at all times to carry out minimum level business activities. In other words, it represents the current assets required on a continuing basis over the entire year. Tandon Committee has referred to this type of working capital as “Hard Core current basis”.

The following are the characteristics of this type of working capital:

  1. Amount of permanent working capital remains in the business in one form or This is particularly important from the point of view of financing. The suppliers of such working capital should not expect its return during the life-term of the firm.
  2. It also grows with the size of the In other words, greater the size of the business, greater is the amount of such working capital and vice versa.

Permanent working capital is permanently needed for the business and therefore, it should preferably be financed out of long – term funds.

Temporary working capital: It refers to that part of total working capital which is required by a business over and above permanent working capital. It is also called variable working capital. Since the volume of temporary working capital keeps on fluctuating from time to time. In other words, it represents additional currents assets required at different times during the operating year. For example, extra inventory has to be maintained to support sales during peak sales period. Similarly, receivable also increase and must be financed during period of high sales. On the other hand investment in inventories, receivables, etc., will decrease in periods of depression. Temporary working capital is generally financed from short – term sources of finance such as bank credit.

Permanent working capital is fixed over a period of time, while temporary working capital is fluctuating. The permanent working capital is increasing over a period of time with increase in the level of business activity. This happens in case of a growing company. Hence, the permanent working capital line is not horizontal with the base line.

 

 

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