1

COMMERCE TERMS
Above The Line and Below The Line : This expression
is mainly associated with Profit and Loss account. The first
part i.e. Above the line segment is used to identify all the
elements in accounting that go to produce the results of
the operations for the year i.e. profit or loss in a clear and
meaningful manner Below the line segment concerns with
the use and state of the profit/loss determined above the
line. e.g. appropriations of profit for dividends and services.
Any balance of the profit and loss of the previous period is
also brought in this part to provide cumulative position of
the profit and loss.
Accelerated Depreciation : Depreciation of a fixed asset
at a rate faster than with straight-line depreciation.
Acceptance : It is a contract of offer and acceptance. If
one person offers to do something for another, the contract
is not complete until the offer is accepted. Acceptance must
be on the same terms as the offer and must be communicated to the second party. A conditional acceptance is neither equivalent to an offer nor is it an acceptance.
Accepting House : A financial enterprise whose principal
function is facilitation of negotiation of Bills of Exchange
either by accepting them or guaranteeing them. The main
offices of these houses are situated near the central bank
and other institutions concerned with the smooth running
of the countrys financial system. The signature of an established acceptance house on a bill of exchange is a sign
of the reliability of that bill and enables the holder to discount it at favourable rates.
Acceptor: The person drawing a Bill of Exchange is the
drawer and the person on whom the bill is drawn is the
drawee. When the drawee has accepted the bill, i.e. has
accepted liability, he is known as the acceptor. The normal
form of acceptance is signature on the face of the bill. Holder
of the bill may present for acceptance before or at the time
of payment. Presentation for acceptance is not obligatory
except where the bill so stipulates or where it is payable
after sight, or payable elsewhere than at the place of business of the drawee.
Accommodation Bill : A bill drawn and accepted not for a
genuine trade transaction but only to provide financial help
to some party. This bill is also called a fictitious bill, a
kite or a wind mill. An accommodation bill is neither supported by any business transaction nor by any consideration. In this case the acceptor simply lends out his name
to the other so that the latter may obtain credit. Party accommodating will not be liable to the party accommodated.
Acceptor will, however, be liable to every subsequent holder
in due course even though the latter had known it to be an
accommodation bill. Accommodating party can claim compensation from the party accommodated after making of
the claim to the holder.
Account Days : A Stock Exchange term for the days set
aside for the settlement of accounts (bargains between members). They are also called settling days, Transactions in
Gilt-Edged Securities are accounted for daily, other transactions may be settled weekly or fortnightly.
Accounting Equation : This means that any increase or
decrease in total assets of a business house must simultaneously produce a corresponding increase or decrease
in the total equities. But since the latter comprise external

(outsider or creditors) equity and internal (owners) equity,

either of these or both change by a variation of total resources. To introduce clarity, liabilities and equityare narrowly used to represent respectively the creditors claims
and proprietors interest. Accordingly, the equation becomes
:
A= L + P
where L stands for outside liabilities and P for proprietors
equity (or proprietorship or capital). Since creditors have
a definite and prior claim against the assets, hence proprietorship is also called residual equity, expressed as
P= A- L.
Accounting Equation : The other form of balance sheet is
known as the equation form of balance sheet. This equation form of balance sheet is known as the accounting equation. Thus the accounting equation is equal to ;
A = L (i.e., assets are always equal to liabilities)
Since liabilities are of two types: one belonging to the owners of the business and the other to outsiders, the accounting equation can be put in this form as well:
A = L + C,
where C stands for the liabilities of the owners and L for
general liabilities. In general liabilities are included the Creditors, Bills Payable, Loans and Mortgages and outstanding
expenses, etc.
The above accounting equation will be affected by every
business transaction. The equation can remain in balance
after the effect of any business transaction only if any one
of the following effects has been created by a transaction:
(a) Increase in assets is accompanied by an equal increase
in liability:
(b) Decrease in assets is accompanied by an equal decrease in assets.
(c) An increase in one asset is accompanied by an equal
decrease in another asset;
(d) An increase in one liability is accompanied by an equal
decrease in another liability.
Accounting Machines: Mechanisation of routine accounting operations has been a recent innovation. Invoicing, ledger posting, preparation of statements, cash receipts, debit
and credit notes, recording of payments, etc, can now be
made by standard mechanical appliances. Accounting machines can perform different sets of accounting operations.
They can be applied for ledger posting and preparation of
statements simultaneously or they can be used for posting
different entries in one operation and automatically for tabulating and dating. As each item is posted, a record is made
on a separate audit sheet which facilitates cross-checking.
There are different types of accounting machines of various
makes. The prominent among them are the Remington
Book-Keeping Machine, National Accounting Machine, the
ABM Automatic Ledger-Posting Machine and the National
Billing and Receipting Machine.
Accounting Period : The life of a business is indefinite
and owner of the business cannot wait for such a long period for the determination of income. The accountants thus
choose some convenient segment of time, generally one
year, for the measurement of income, which is known as
the accounting period.
Accounting Principles: These have been defined as the
body of doctrines commonly associated with the theory
and procedure of accounting, serving as an explanation of
current practices and as a guide for the selection of con-

ventions or procedures where alternatives exist. Rules governing the formation of accounting axioms and the principles derived from them-have arisen from common experiences, historical precedents, statements by individuals and
professional bodies and regulation of government agencies.
In other words, these are guidelines to establish standards
for sound accounting practices and procedures in reporting
the financial status and periodic performance of a business.
Accounting Process : The following diagram illustrates the
various steps in the accounting process.

Accounting Ratio : In assessing the viability or performance

of a business, certain ratios often considered ratios calculated from the figures appearing in the accounts of the business are known as accounting ratios.
Accounting-Scope of: Scope in accounting is restricted
by the money-based recording as it excludes the non-monetary facts or attributes like quality of product, competitors
strategy, labour strikes, rift between production and sales
managers, go-slow policy of the staff, incidence of political
or legislative influence on the economic climate, calibre and
integrity of management, which have a direct bearing on
the earnings of the firm. Thus, accounting fails to give a
complete picture of a concerns happenings.
Accounting Standards: Accounting standards may be defined as the standards issued in writing by professional accounting institutions from time to time, specifying uniform
rules and procedures to be followed for preparing the financial statements and other accounting systems.
Accounting System: It is the methodology of record-keeping employed in an organization. There are many systems,
the most elementary being the single-entry system employed by small businesses. The more complex systems
employed by larger companies are the increasingly sophisticated electronic data-processing systems.
Accounting - Uses of: Accounting data supply to the
owner(s) information regarding the type and magnitude of
property owned, sources and amounts of earnings made or
losses incurred, capital sunk, merchandise kept, debts
owed, etc. They also answer as to whether the debts owed
by the customers are collected as and when due, the debts
owed to suppliers are rapidly paid and benefit of cash discount fully reaped, the expenses are relatively large to sales,
excessive or scanty inventory is maintained, per rupee earning is higher or lower than the normal return in the industry
of which the firm is a unit. Accounting is particularly significant to the management in
(a) evaluating alternatives i.e. whether to buy or produce a
product, purchase a machine or hire labour;
(b) deciding on closing down an unprofitable unit, replacement of fixed assets, expansion of business etc;
(c) planning and budgeting,
(d) controlling cash receipts and payments, purchases and
sales, inventories etc.;
(f) coordinating operations, appraising departmental efficien-

cies, comparing actual performance with the budgeted targets and devising means for minimising deviations.
Besides these decision making and controlling purposes,
management needs it for external reporting. Accounting reports are also useful to creditors who can ascertain the
debtors earning and debt-paying capacity. So also these
help prospective investors. Labour unions also use these
data for higher wages and bonus etc. Government also make
use of the data in deciding on price controls, excise duties,
sales tax etc. Accounting is thus of immense use to almost every segment of society.
Accounts: An account is a book-keeping device used in
recording and summarising the increases and decreases
in each asset or equity item. In its simplest form, an account is division of the page into two-halves by a vertical
line which looks like the letter T (called a T-account).
This T-account has two sides, one side for the increase (or
additions) and the other side for decreases (or subtractions).
By convention, asset-increases are placed on the left side
and asset-decreases on the right side. To maintain the identity between assets and equities, the letters changes are
handled conversely, viz.. equity-increases appear on the
right-side and equity-decreases on the leftside. Changes in
asset and equity accounts appear as below:

Accounts-Classification of : The classification of accounts

can be represented in the following manner:

Accounts, Consolidated : Some companies have subsidiary companies. The holding company must, in addition to
the normal requirements of the Companies Act, file group
accounts; These can take various forms but essentially they
are intended to show the results for the relevant financial
period and the state of affairs at the end of that period, of
the group as a whole.
Accounts Reserves : Reserve is set up on the accounting books in anticipation of the time when the cash pay

COMMERCE
ECONOMICS IMPORTANT POINTS
MONEY AND BANKING
Narrow money - Currency with the public, demand deposits with banks, and other demand deposits with the RBI
Sub prime crisis occurred in UAS Banking system by
over issuing of housing loans is the main reason for economic slow down in 2008 and 2009. Economic slow down
became world wide phenomenon through international financial network via globalization.
The aim of devaluation of currency is to increase exports
and decrease imports.
RBI Head quarter is at Mumbai. The financial year for RBI
is 1 July to 30 th June.
Virtual banking- Banking services made available with
information technology is called as virtual banking.
India became member of IMF and IBRD in 1949.
Purchasing Power Parity (PPP) is the ratio of domestic
currency expenditure of a nation to the international price
value of its output.
Main aim of bearer bonds scheme is to decrease black
money
Paper gold- Special drawing rights of International Monetary fund is called as paper gold.
Dear money policy is to be implemented to control inflation, and cheap money policy is to be implemented to control deflation.
The biggest term lending institution is Industrial Development Bank of India.
Main disadvantage of barter system- Problem of double
co incidence of wants, lack of common measure of value.
Financial sector reforms- Money market and capital market reforms, govt adopted these reforms to increase efficiency of financial institutions and to stabilize financial
markets.
Monometallism- Standard coins are made by using one
single metal only is called Monometallism.
Gold standard- Monetary unit or standard currency of the
country is directly formed or linked with gold.
Core banking- Business conducted by banks with its
retail and small business customers.
Gold standard system was first adopted by Britain in
1816.
All the nations of the world made exit from gold standard
by the year 1933.
Gold standard system for India was recommended by
Hilton Young commission in 1926.
In India the proportional reserve system (keeping 40%
gold/silver and the remaining by approved securities) followed for money supply, i.e. RBI gold reserves should be of
the value of Rs 115 crores and the remaining foreign exchange reserves. This system was followed by India from
1927 to 1957.
India adopted minimum reserve system for issue of currency from 1957.
India now follows managed paper currency standard.
Indian banking regulation act made in 1949 to regulate
the banking business.
The modern commercial bank was started in India in
1806 with the starting up of Bank of Bengal.
Imperial bank of India was started in 1921, it was performed central bank functions until the establishment of

RBI in 1935.
Imperial bank is nationalized and named as SBI.
Agricultural refinance corporation was established in 1963,
it was renamed as Agricultural Refinance Development
Corporation in 1975, and later it became a part of NABARD.
RBI is established in 1935
Insurance of bank deposits was recommended by shroff
committee.
National housing bank was established in 1988.
RBI introduced bills market, i.e. market in commercial
bills in 1952.
Net barter terms of trade - The ratio of price of export
index to price of import index.
Gross barter terms of trade - The ratio of volume of imports to the total physical quantity of exports.
IMF and IBRD was started in 1947.
IMF duty is to assist nations to correct deficit in balance
of payments.
IBRD was established to assist long term investment
needs of member nations.
Greshams law tells that bad money drives out good
money.
If any instrument or asset can converted into cash is called
liquidity.
In case of micro finance, 90% of the self help groups
comprising of only women.
Self help groups approach under Swarna Jayanti Gram
Swarojgar yojana programme was recommended by Hasim
committee to eradicate poverty.
The pioneer apex banking institution to provide micro
finance through NGOs and self help groups -NABARD.
Micro finance development fund was established by
NABARD.
Micro finance system is most prominent in Andhra
Pradesh, Tamil Nadu, and West Bengal.
The intermediary between banks and self help groups in
the case of functioning of micro finance system- Non government organizations.
The stake holders in micro finance system are - banks,
non government organizations and self help groups.
Relationship banking - The linkage between banks, NGOs
and self help groups is called as relationship banking.
Mohammad Yunus - Noble prize awardee, hails from
Bangladesh, is responsible for the prominence of micro finance for poverty eradication.
United nations declared 2005 as international year for
micro finance.
NABARD provides 100% refinance assistance to banks
for refinancing self help groups in the case of micro finance.
In India, cash reserve ratio, statutory liquidity ratio, is
being fixed by reserve bank, and prime lending rate is being
fixed by commercial banks.
There is inverse relation between cash reserve ratio and
credit creation by commercial banks.
The likely effect of deficit financing is inflation.
Long term fiscal policy is came into existence in 1985.
Measures to reduce black money - Demonetization of
rupee, voluntary disclosure scheme, special bearer bonds
Notes and coins are treated as legal tender money.
Features- Securities or goods delivered in future date at
the rate determined right now.
NABARD provides financial help and guidance to co operative banks for more efficient performance of their func-

tions.
Bonds and securities that are issued by the govt are
called as guilt edged securities.
Examples for non banking financial companies -Merchant
banks, mutual funds, leasing companies.
BSE established in 1877, SEBI as a statutory body established in 1988.
Indian money markets can be classified into organised
and un organised markets.
RBI credit control methods can be classified into qualitative and quantitative methods.
One rupee notes and one rupee coins and other smaller
denominations coins are being issued by ministry of finance
govt of India.
RBI started in 1935 and nationalized in 1949. > National
housing bank is apex institution for housing finance in India, which is established by RBI.
Rupee as a unit of currency was introduced in India in
1835.
Lender of last resort - RBI
20 commercial banks are nationalized during the Prime
ministership of indri Gandhi.
New bank of India merged with Punjab national bank in
1993.
Individuals can not open accounts with RBI.
Prime lending rate - Interest rate charged by commercial
banks from its prime borrowers is called as PLR.
Veil of money -Money performs the function of medium of
exchange only.
Near money- Financial assets not having 100% liquidity
which money does. Examples- Time deposits, bills of exchange, treasury bills, travelers cheques, postal savings
deposits.
Rupee (Currency) appreciation- Increase in the value of
rupee due to market forces is called appreciation, if the
value decreases due to market forces is called as depreciation.
Nadakarni committee was recommended, to start national stock exchange
Committee appointed on securities scam in 1992 is janaki
Raman committee.
Ways and means advances are being issued by RBI for
91 days to both central and state governments.
All most all the banks in India are governed in accordance with the negotiable instruments act 1881.
Recognition lag- The time taken between verifying the
monetary situation and decision made to take action is
called recognition lag.
Action lag- The time taken to implement the decision
taken, on new monetary policy.
Sale and purchase of bonds and securities by central
bank on behalf of the government is called as open market
operations.
Reserve bank fixes Repo rate and reverse repo rate.
Guilt edged securities market deals with sale and purchase of govt securities, Guilt edged means gold edged
i.e. risk free.
Barter system Exchange of goods with goods without
use of money.
Capital adequacy - most permanent and readily available
support against unexpected loses to banks.
Capital market is the market for long term funds.
Secondary market deals with securities already issued

by companies.
Primary market- Rising of new capital in the form of equity shares, preference shares, or debentures.
Near money is a close but not perfect substitute of money
Example - bonds, equity shares, NSC certificates, commercial bills.
Liquidity trap - It is a situation of very low rate of interest
where people expect the interest rate will rise in future and
bonds prices will fall.
Treasury bills The short term borrowings of the government, not less than Rs 1 lakh, for the period of not less
than 91 days and for not more than 364 days.
D.Basu recommended Money market mutual Fund
scheme.
Demand deposits or current deposits- Deposits which are
to be paid on demand to the depositors, rate of interests
less than on time deposits.
Time deposits or term deposits are payable only after the
completion of the period mentioned in the deposit. Longer
the period more the rate of interest will be.
Scheduled banks paid up capital is 5 lakhs.
Open market operations- Buying and selling of govt securities and bonds in the open market by the central bank.
Cash reserve ratio- It is the ratio of bank deposits that the
commercial banks are supposed to keep with the central
bank.
Statutory liquidity ratio- it is the ratio of bank deposits
that Commercial banks are supposed to keep in liquid form
like liquid assets in the form of govt securities.
Qualitative credit control measures- Moral suation, margin requirement, down payment, and credit rationing.
Margin requirement - The difference between loan amount
and the market value of the collateral asset.
Moral suasion - Written or oral advice given by the central
bank to the commercial banks on any matter pertaining to
monetary policy.
Inflationary gap - if the aggregate demand is more than
aggregate supply at the level of full employment.
Deflationary gap - if the aggregate supply is more than
aggregate demand at the level of full employment.
Melagan committee on capital market reforms.
A committee on non banking financial companies GM.Vasudeva
Equity share holders have voting right, but Preference share
holders have no voting right.
Bull and bear- The terms concerned with stock market.
Bull- Stock exchange speculator who purchases stocks
in the belief that prices will rise in future. aiming to gain
profits.
Bear- Stock exchange speculator who sells stocks in the
belief that prices will fall in future, aiming to gain profit or to
avoid loses.
In India the co operative movement was initiated with agricultural credit.
Bank rate is the rate at which RBI gives credit to commercial banks.
India has adopted managed float currency exchange rate.
Partial convertibility means 60% of foreign exchange converted at market exchange rate and the remaining at official
rate.
Convertibility on trade account - Only one exchange rate
for both the import and export of visible items.

COMMERCE
IMPORTANT POINTS
CAPITAL MARKET
Capital market is the market for financial assets that have
long or indefinite maturity.
Capital market can be divided into two parts: one, covering the market for corporate securities and the other, covering the market for gilt-edged securities (securities issued
by the Central Government, State Governments and QuasiGovernment bodies).
Capital market may also be divided into two segments:
i) The Primary market
ii) The Secondary market
New issues are made in the primary market. Outstanding
issues are traded (sold or bought) in the secondary market.
When a company wishes to raise capital by issuing securities, it goes to the primary market and raises long term
funds by issuing financial securities. The primary market
facilitates the formation of capital.
There are three ways in which a company may raise capital in the primary market: public issue, rights issue and
private placement. Public issue involves sale of securities
to members of the public. Rights issue is a method of raising further capital from existing shareholders. Private placement is the method of selling securities privately to a selective group of investors.
The secondary market consists of the Stock Exchanges
and OTC Exchange of India. SEBI has been empowered to
oversee the functioning of the securities market and the
operations of the intermediaries.
INSTRUMENTS
Before going into details we should know about following
things .
SHARES AND DEBENTURES
Shareholder has a proprietary interest in a company while
the holder is only a creditor of the company.
Debenture-holder is entitled to fixed interest while the
shareholder is entitled to dividends depending on and varying with profits.
Shareholders have voting rights while the debenture-Holders after 195$ cannot have voting rights.
Debentures may be redeemable while the shares except
preference shares, cannot be redeemable.
Debenture-holders get priority over shareholders when assets are distributed upon winding up of the company Bonds
and Cumulative Convertible Preference Shares (CCPSs)
Bonds are issued by public sector companies and CCP
by public limited companies.
Bonds are not convertible while CCP are convertible into
equity shares between the end of 3rd year and 5th year as
decided by the company.
Interest is paid on bonds while preference dividend is payable on CCPSs upto 10%, till conversion into equity shares.
Bonds are redeemable and CCPSs are non-redeemable.
PSU Bonds
A public sector undertaking bond is a promissory note or
an instrument of debt issued by PSU. Three basic elements
of the bond are:
a) Par value is the value stated on face.

b) Interest or coupon rate is amount payable regularly at

fixed intervals.
c) Maturity varies from 7 to 10 years (may be more in exceptional cases).
As per Central Govt guidelines for issue of bonds by PSUs
issued on Jan 1992, the amount can be raised for:
a) Setting up new project,
b) Expansion or diversification of existing projects,
c) Capital expenditure for modernisation and
d) Augmentation of long term resources for working capital
requirements. Bonds can be issued with face value of Rs
1000,5000 or 10000.
PARTICIPATORY NOTES (PNS)
PNs are typically hybrid/derivative instruments issued in
one country again underlying securities in another, in which
direct trading is disallowed. They are product of financial
engineering - investors abroad who are not allowed to trade
securities in India directly, do so indirectly by trading in
PNs issued against Indian securities in their own country.
INDEX LINKED BONDS
An index bonds implies that the payment of coupon and or
the red value, as the case may be, increase or decrease
according to the movements in inflation rate. In the Indian
case, the focus will be on the movements in the Wholesale
Price Index, inspite of doubts over its reliability.
The govt can raise funds through this instrument and it will
act as a check on inflation as the govt will consciously make
attempts to keep its debt burden low. This could as such,
ultimately turn out to be tool for greater fiscal management.
Yields on inflation-indexed bonds provide vital information
on expected rates of inflation. The downward movement of
yield on indexed bonds is an indication that people expect
prices to rise in future.
There are apprehensions about such bonds working in India
since the inflation rates in India are doctored due to political
considerations. Not a significant percentage of the investment decisions are based on movements in prices. The ideal
tenure of the bonds, is another important question,
i) Secured Premium Note (SPN)
In the area of capital market, this innovative instruments
used for the first time by Tata Iron and Steel Company Ltd
(TISCO). The main features of the instruments are:
a) Each SPN is for a fixed face value and no interest is to
become due or accrue during the first three years after allotment.
b) Thereafter, the SPN is repaid in four equal annual installments from the end of fourth year together with an amount
equal to instalment which will consist of a mix of interest
and premium on redemption (low interest and high premium
or high interest and low premium) at the option to be exercised by the SPN holder at the end of the 3rd year.
c) Each SPN has a warrant attached to it which will give
the holder the right to apply for and seek allotment of one
equity share for cash payment at premium, such right exercisable between first year and one and half year after
allotment, by which time the SPN would be fully paid up.
II) STOCK INVEST (SI)
SI is a new scheme of special payment system for investors in the primary capital market.
SI is a non-negotiable bank instrument - a numbered security form on the lines of a draft or bankers cheque issued
under MICR system and is essentially a combination of a
letter of authority and a guaranteed cheque.

SI is a money management role with banks to manage

their cash and investment positions. Through SI, the investor authorises the issuing bank to pay upto the amount
mentioned therein or a lesser amount to the company by
debit to his Saving/Term/Current deposit account with the
bank.
Payment of the SI is guaranteed by the issuing bank within
the validity Period.
An investor applies for SI of required amount and the bank
issues them after Marking lien on deposits. The SI issued
by the bank will be signed by it and the date of issue will be
indicated on them. The capital issuing companys name is
also Written by the bank. He then encloses the SI alongwith
the application form for a public issue after filling in
companys name, number of shares/debentures applied for,
amount in SI and sends them to the collecting banker. This
is then handed over to the Registrar. On the basis of allotment, the Company and Registrar will fill up the right side
portion of SI indicating the entitlement. If allotted, payment
will be claimed in full/partially as the case may be. On noallotment, the cancelled SI will be returned. The issuing
branch will advise the investor of payment of lifting of the
lien if there is no allotment. Thus, the deposits continue to
earn interest till they get allotment of shares.
SI is an additional facility over and above the current modes
of payment i.e. cash, cheques, drafts, etc.
SI is an additional facility over and above the current modes
of payment i.e., cash, cheques, drafts etc.
This (SI) scheme will address to the problem of delay in
refund of excess application moneys in public issues and
help solve the liquidity problem of investors by reducing the
lock-in period of excess application moneys.
The validity period of SI is now four months from the date of
issue.
This will ease the pressure on the clearing system to and
fro. Some Guidelines on Stock-Invest scheme
All stock-in vests are to be used by the investor within 10
days of purchasing the stock-invest. Stock-invest should
not be used by third parties other than the purchaser.
All stock-invests should be marked A/C payee and made
payable to the company making the issue.
Stock-invests should be utilised by purchasers) only. Purchaser/one of the purchasers should be the applicant/first
named applicant in case of applications in joint names for
shares or debentures.
It is legally in order for banks to refuse to accept stoppayment notice or to refuse to release the banks lien till
the expiry of period of validity of stock-invest if the cancelled or partially encashed instrument is not surrendered
to the bank.
Stock-invest is a guaranteed payment instrument. Banks
will not issue duplicate in the event of loss/theft of stockinvest.
In case an investor is unable to produce the cancelled
stock- invest, the bank may, at its own discretion and risk,
lift the lien on production of a letter from the Registrar to the
issue confirming non-allotment and the date of despatch of
cancelled stock-invest or may require the investor to execute an indemnity bond.
SI scheme is restricted to individual investors and mutual
funds only. Stock brokers, corporate bodies, banks and financial institutions are not to be allowed this facility since
onward sale to clients is not allowed. Stock-invest should

not be issued
a) without adequate deposit cover; and/or against third party
deposits.
b) against available drawing power in cash credit and overdraft limits of the applicant.
c) against uncleared clearing cheques/expected credit.
d) pre-dated (stock-invests),
III) EURO ISSUE GDR
GLOBAL DEPOSITORY RECEIPTS (GDRS)
A GDR is a dollar-denominated instrument traded on the
stock exchanges in Europe or the US or both. Usually they
represent a certain number of equity shares. So, though
the GDR is denominated in dollars, the underlying shares
are denominated in rupees.
The GDRs represent a fixed ratio of Indian shares. The GDRs
are issued by a depository (usually an American bank) denominated in US dollars, while the actual Indian shares are
held by a custodian in India (typically an Indian institution
as (ICICI). It is a negotiable certificate. These depository
receipts may be traded freely in the overseas markets like
any other dollar-denominated security either on a foreign
stock exchange or in the OTC market.
The modus operandi of issuing a GDR is as under:First, a board resolution has to be passed to adopt the
issue. After this an application is made to the Ministry of
Finance (MOF). The approval from the MOF only specifies
the price range at which the issue is to be made. This is
because pricing is finalised only in the last stage.
A prospectus is then prepared called the red herring prospectus which leaves a blank space on the section reserved
for entering the issue price of the share. The underwriter
then markets the issue by organising roadshows. The
shares are issued by the company to an intermediary, the
depository in whose names the shares are registered. The
physical possession of the shares is with the custodian
who is an agent of the depository. Once a GDR is issued it
can be traded freely among investors. However, an investor
who wants to cancel a GDR can do so only after the cooling off period of 45 days.
Once the investor decides to cancel the GDR, the depository instructs the custodian to cancel the GDR, releasing
the underlying shares into the market, and remit the proceeds abroad. Dividend payments are made by the company in rupees, which the depository converts into dollars
and pays to the investor.
The main advantage to the issuer is that he does not take
on any foreign exchange risk.
Initial offering of GDRs were priced at a discount to prices
prevalent on the Indian bourses. This was done primarily for
two reasons. One, to account for the exchange rate. And
two, to attract investor interest. When the demand for Indian paper increased and then boomed with the coming of
FIIs, subsequent issues began to be priced at a premium
over the price prevailing on the Indian bourses.

COMMERCE
PAPER-II AND PAPER-III (A)]
(CORE GROUP)
UNITI
BUSINESS ENVIRONMENT
MEANING AND ELEMENTS OF
BUSINESS ENVIRONMENT
ECONOMIC ENVIRONMENT,
ECONOMIC POLICIES,
ECONOMIC PLANNING
LEGAL ENVIRONMENT OF BUSINESS IN INDIA,
COMPETITION POLICY,
CONSUMER PROTECTION,
ENVIRONMENT PROTECTION.
POLICY ENVIRONMENT:
LIBERALIZATION,
PRIVATISATION AND
GLOBALISATION,
SECOND GENERATION REFORMS,

BUSINESS ENVIRONMENT
Business Environment consists of all those factors that have
a bearing on the business.
Just as the survival and success of any individual depend
on his innate capability - such as the physiological and
physiological factors - to cope with the environment and
the extent to which the environment is conducive to the
development of the individual, the survival and success of a
business firm depend on its innate strength resources
at its command, including physical resources, financial resources, human resources, skill and organisation and
its adaptability to the environment and the extent to which
the environment is favourable to the development of the
organisation. The survival and success of a firm, thus, depend on two sets of factors, viz, the internal factors - the
internal environment - and external factors - the external
environment. However, the term business environment often refers to the external factors.
Any meaningful organisation has certain mission,
objective(s) and goal(s) and a strategy to achieve them.
Formulation of strategy is sometimes defined as establishing a proper firm-environment fit. Indeed, the mission/objectives/goals themselves should be based on an assessment of the external environment and the organisational
factors (i.e., the internal environment).
The external environment has, broadly, two components,
viz, business opportunities and threats to business. Similarly, the organisational environment has two components:
strengths and weaknesses of the organisation. Thus, strategy formulation is properly pitting the organisational factors (the internal environment) against the opportunities and
threats in the external environment. In other words, business decisions are conditioned by two broad sets of factors, viz., the internal environment and the external environment.

INDUSTRIAL POLICYAND IMPLEMENTATION.

INDUSTRIAL GROWTH AND STRUCTURAL CHANGES.

A SWOT analysis (analysis of the strengths and weaknesses of the organisation and opportunities and threats in
the environment), therefore is one of the first steps in the
strategic management process. Business dynamics, to a
large extent, is a dependent factor it depends on, inter
alia, the environmental dynamics. Hence, the importance
of environmental analysis.
TYPES OF ENVIRONMENT
On the basis of the extent of intimacy with the firm, the
environmental factors may be classified in to different types
or levels. As indicated above, there are, broadly, two types
of environment, the internal environment, i.e., factors internal to the firm and external environment, i.e., factors external to the firm which have relevance to it.
The internal factors are generally regarded as controllable
factors because the company has control over these factors; it can alter or modify such factors as its personnel,
physical facilities, organisation and functional means, such

as marketing mix, to suit the environment.

The external factors, on the other hand, are, by and large,
beyond the control of a company. The external or environmental factors such as the economic factors, socio-cultural factors, government and legal factors, demographic
factors, geo-physical factors etc., are, therefore, generally
regarded as uncontrollable factors.
It may, however, be noted that a firm may not sometimes
have complete control over all the internal factors. Also, it
is some times possible to change certain external factors.
Some of the external factors have a direct and intimate
impact on the firm (like the suppliers and distributors of the
firm). These factors are classified as micro environment,
also known as task environment and operating environment.
There are other external factors which affect an industry
very generally (such as industrial policy, demographic factors etc.). They constitute what is called macro environment, general environment or remote environment.
We may, therefore consider the business environment at
three levels.
Internal environment
Micro environment/task environment/operating environment.
Macro environment/general environment/remote environment.
Although business environment consists of both the internal and external environments, many people often confine
the- term to the external environment of business. In this
book too, in the subsequent chapters, the term refers mostly
to external environment of business.
INTERNAL ENVIRONMENT
The important internal factors which have a bearing on the
strategy and other decisions are outlined below.
VALUE SYSTEM
The value system of the founders and those at the helm of
affairs has important bearing on the choice of business, the
mission and objectives of the organisation, business policies and practices. It is a widely acknowledged fact that
the extent to which the value system is shared by all in the
organization is an important factor contributing to success.
The value system of JRD Tata and the acceptance of it by
others who matter were responsible for the voluntary incorporation in the Articles of Association of TISCO its social
and moral responsibilities to consumers, employees, shareholders, society and the people.
After the EID Parry group was taken over by the Murugappa
group, one of the most profitable businesses (liquor) of the
ailing Parry group was sold off as the liquor business did
not fit into the value system of the Murugappa group.
The value system and ethical standards are also among
the factors evaluated by many companies in the selection
of suppliers, distributors, collaborators etc.
VALUES, GOVERNANCE AND EXCELLENCE
Infosys Technologies Limited is a publicly held company
based in India that provides information technology consulting and software services to Fortune 1000 companies
and employs more than 3,000 people worldwide. Infosys
has based its growth on several key principles of corporate
governance: best practices, financial markets, and human,
capital. Its core value: To achieve our objectives in an environment of fairness, honesty, transparency, and courtesy
towards our customers, employees, vendors, and society
at large,
All Infosys activities are continually berichmarked with glo-

bal best practices. The Firms quality control and project

management have helped it achieve total quality management accreditation. Feedback from process audits enable
the reengineering of internal processes when required. International accounting practices are also followed. Infosys
publishes all financial reports according to both U.S. and
Indian Generally Accepted Accounting Practices. Best practices at Infosys are captured through a knowledge management systems that makes experience gained from various client assignments freely available in an intranet repository.
The first Indian-registered direct listing on a U.S. market,
Infosys began trading on Nasdaq in March 1999. Infosys
viewed the listing as a way to achieve a more liquid currency (through stock options) for attracting the best employees and future acquisitions. It anticipates that its presence on Nasdaq will give potential customers greater comfort and confidence in the company.
Infosys views its employees as its key resource. With
wealth
creation for employees as one of its stated objectives,
Infosys provides innovative compensation and benefit packages. Infosys pioneered the concept of the employee stock
ownership plan in India. Infosys also offers such benefits
as training,, asset acquisition, loans, housing, and personal
assistance services. This combination of stock options and
benefits allows Infosys to attract top talent to contribute to
its growth.
Infosys won the first National Corporate Governance Award
(1999),. instituted by the Ministry of Finance and sponsored
by the UTI.
MISSION AND OBJECTIVES
The business domain of the company, priorities, direction
of development, business philosophy, business policy etc.,
are guided by the mission and objectives of the company.
Ranbaxys thrust in to the foreign markets and development have been driven by its mission to become a research
based international pharmaceutical company. Arvind Mills
mission -To achieve global dominance in select businesses
built around our core competencies through continuous product and technical innovation, customer orientation and focus on cost effectiveness, - has driven its future development strategy including the portfolio strategy, and indicated
the thrusts required in the functional areas to help achieve
the mission.
MANAGEMENT STRUCTURE AND NATURE
The organisational structure, the composition of the Board
of Directors, extent of professionalisation of management
etc., are important factors influencing business decisions.
Some management structures and styles delay decision
making while some others facilitate quick decision making.

COMMERCE
COST ACCOUNTING
1. Costing is a technique of _____
(a) Income determination
(b) External reporting
(c) Ascertaining cost
(d) Internal reporting
2. Which of the following function relates to Cost Accounting?
(a) Internal Reporting
(b) External Reporting
(c) Interim Reporting
(d) Routine Reporting
3. _____ is useful not only to ascertain the cost but
also to control the cost
(a) Management Accounting
(b) Cost Accounting
(c) Auditing
(d) Income Tax
4. One of the functions of cost accounting is proper
matching of ___ with revenue
(a) Cost
(b) Production
(c) Sales
(d) Stock
5. Cost Accounting Assists Financial Accounting with
regard to the _____
(a) Valuation of inventory
(b) Determinations of income
(c) Ascertaining the financial positions
(d) Determination of cost
6. Cost Accounting is a tool of _
(a) Financial Accounting (b) Management Accounting
(c) Auditing
(d) Company Accounts
7. Cost Accounting is based on ____ figures
(a) Actual
(b) Estimated
(c) Accrual
(d) Historical
8. Incremental Cost is a type of ______
(a) Differential Cost
(b) Conversions Cost
(c) Job Cost
(d) Historical Cost
9. ____ is the cost which fluctuates with volume of
production
(a) Fixed cost
(b) Variable cost
(c) Semi variable cost (d) Controllable cost
10. _____ per unit increases when production volume
decreases
(a) Variable cost
(b) Semi variable cost
(c) Controllable cost
(d) Fixed cost
11. ____ is useful for making managerial decisions
(a) Conversion cost
(b) Opportunity cost
(c) Fixed cost
(d) Incremental cost
12. _____ is the sum total of Direct Wages, Direct Expenses and Factory Overheads
(a) Opportunity Cost
(b) Differential Cost
(c) Variable Cost
(d) Conversion Cost
13. Cost of goods produced include ________
(a) Work in progress and total cost
(b) Cost of production and prime cost
(c) Cost of productions and work in progress
(d) None of the above
14. Multiple Costing Method is used in ______
(a) knitwear textile industry
(b) Cement industry
(c) Chemical industry
(d) Car manufacturing industry
15. Factory overheads = _____
(a) Work cost
(b) prime cost
(c) Total cost
(d) Cost of goods sold

16. Direct material + Direct labour + Direct expenses

= ______
(a) Factory on cost
(b) Prime cost
(c) Cost of goods sold (d) Total cost
17. ____ costing used in chemical works
(a) Operating
(b) Single
(c) Contract
(d) Process
18. The method of costing used in constructional works
is ____
(a) Job costing
(b) Batch costing
(c) Process costing
(d) Operating costing
19. In a educational institutions, cost unit is _________
(a) Office staff
(b) Students
(c) Childrens
(d) Teachers
20. In hospitals, cost unit is______
(a) Per tone Kin
(b) Number
(c) Per Doctor
(d) Per bed per day
21. Which of following costing methods represent for
group of identical products?
(a) Batch
(b) Uniform
(c) Contract
(d) Standard
22. Rent, interest and wages of self owned resources
are the examples of
(a) Direct cost
(b) Notional cost
(c) Selling over heads
(d) Distribution over heads
23. A statement that sets out the divisional classification of costs is known as _____
(a) Income Statement
(b) Statement of Cost and Profit
(c) Cost Sheet
(d) Financial Statement
24. Which of the following is the main aims of Cost
Accounting ?
(a) Cost Control
(b) Cost Ascertainment
(c) Price Fixation
(d) All the above
25. Whereas direct cost is allocable to cost unit or
cost centers indirect cost can be _____
(a) Allocated
(b) Collected
(c) Apportioned
(d) None of these
26. Direct material is an example of ______
(a) Fixed cost
(b) Variable cost
(c) Semi - variable cost (d) Office on cost
27. Which of the following documents is used for issuing materials to the production department
(a) Materials Inspection Note
(b) Stores Ledger Note
(c) Stores Material Control Record
(d) Materials Requisition
28. ____ is a schedule of materials needed for a job.
(a) Bill of Materials
(b) Purchase Requisition
(c) Stock Verification Inventory Sheet
(d) Materials Transfer Note
29. Proportional Parts Value Analysis is called as _____
(a) Demand and Supply Method
(b) Perpetual Inventory System
(c) ABC Analysis
(d) Break Even Analysis
30. _________ is a tool for controlling inventory
(a) Economic Order Quantity
(b) Budgeting
(c) Fore Casting
(d) Standard Costing
31. The rate of change in the material usage is called
_____
(a) Efficiency Ratio
(b) Turnover Ratio
(c) Activity Ratio
(d) Capital Ratio

10

32. Bin card and the stores ledger are important for
____ records
(a) Economic Order Quantity
(b) Perpetual Inventory
(c) ABC Analysis
(d) Trend Analysis
33. Average Consumption X Maximum Re-order Period for emergency purchases=
(a) Maximum level
(b) Minimum level
(c) Re order level
(d) Danger level
34. Which of the following example is Multiple Costing?
(a) Spare parts manufacturing
(b) Constructional works
(c) Bicycle manufacturing
(d) Brick works
35. ____ = Maximum Consumptions x Maximum Re order period
(a) Danger level
(b) Minimum level
(c) Re order level
(d) Maximum level
36. The quantity of material to be ordered one time is
called as _______
(a) A BC Analysis
(b) Economic Order Quantity
(c) Perpetual Inventory System
(d) Ordering Level
37. ______ helps management to ascertain stock without physical verifications
(a) Material Turnover Ratio
(b) Perpetual Inventory System
(c) Re Order Level
(d) Economic Order Quantity
38. _____ used for calculating the values of materials
on the basis of order of purchase
(a) FIFO
(b) LIFO
(c) Specific Price Method
(d) Weighted Average Price Method
39. _____ is useful for bulky and non-perishable type
of materials
(a) LIFO
(b) FIFO
(c) Simple Average Method
(d) Weighted Average Method
40. Base Stock Method of pricing materials issue may
adopt ____
(a) FIFO
(b) LIFO
(c) Both a and b
(d) Specific Price Method
41. _____ is credited with saleable value of normal
spoilage
(a) Process A/c
(b) Normal Loss A/c
(c) Abnormal Loss A/c (d) Costing Profit and Loss A/c
42. Material losses due to abnormal reasons should
be transferred to____
(a) Profit and Loss A/c (b) Costing Profit and Loss A/c
(c) Material Loss A/c
(d) Abnormal Loss A/c
43. _____ forms part of cost of productions
(a) Abnormal waste
(b) Scrap
(c) Normal waste
(d) None of these
44. Goods damaged beyond rectifications refers to
(a) Spoilage
(b) Scrap
(c) Depreciations
(d) Defects
45. The cost of abnormal spoilage is transferred to
_____
(a) Good units of Output
(b) Costing Profit and Loss Account
(c) Manufacturing Account
(d) Trading Profit and Loss Account

46. Wage Sheet is prepared by _____

(a) Production Department
(b) Human Resource Department
(c) Finance Department
(d) Payroll Department
47. Time and Motion study is conducted by _____
(a) Research Department
(b) Engineering Department
(c) Stores Department
(d) Purchase Department
48. The basic elements of cost are labour cost, Over
head cost and______
(a) Material cost
(b) Distributions cost
(c) Selling cost
(d) Controllable cost
49. Under Replacement Method, labour turnover is
calculate by ______

50. Time Booking is essential for

(a) Idle time workers
(b) Piece workers
(c) Time workers
(d) Efficient workers
51. ______ suitable to measure individual efficiency
(a) Time Wage System
(b) Piece Wage System
(c) Flat time Rate System
(d) Differential Time Rate
52. When time saved is 50% of the standard time, the
total earnings of a worker are same under ____
(a) Halsey Plans
(b) Rowan Plan
(c) Halsey and Rowan Plans
(d) Emersons Plan
53. Taylors Differential Piece Rate System describes
_____
(a) Two Wage Rates System
(b) Three Wage Rates System
(c) Four Wage Rate System
(d) More than Four Wage Rates System
54. ______ Provides for higher rate to efficient workers
(a) Halsey Plan
(b) Taylors Differential Piece Rate
(c) Merricks Multiple Piece Rate System
(d) Rowan Plan
55. If any scrap arises due to change in the method of
production refers to ___
(a) Legitimate Scrap
(b) Administrative Scrap
(c) Defective Scrap
(d) Saleable Scrap
56. _____ is the aggregate of indirect material cost
indirect wages and indirect expenses
(a) Prime Cost
(b) Cost of Production
(c) Overhead Cost
(d) Total Cost
57. ______ remain constant by changes in the level
of production
(a) Fixed Overheads
(b) Variable Overheads
(c) Semi-Variable Overheads
(d) All the above
58. ____ means charging of overheads to cost units
(a) Apportionment
(b) Absorption
(b) Cost Ascertainment
(d) Allocation