Accounting Economics And Business 17 Nov


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Accounting Economics And Business 17 Nov

  2. 2. ACCOUNTING, ECONOMICS & BUSINESS Dr. T.K. Jain. AFTERSCHO☺OL Centre for social entrepreneurship Bikaner M: 9414430763 [email_address] ,
  3. 3. Books of Ram shows on 1st January 2006 furniture Rs. 20,000. During the year a part of the furniture whose book value on 1st January 2006 is Rs. 1,200 has been exchanged with another furr by paying additional Rs. 500. Ram charge depreciation @ 10% p.a. The net amount of the furniture to be shown in the balance sheet will be (on 31 December 2006, on closure of books of accounts)
  4. 4. Differentiate : ‘Cardinal approach of utility analysis’ and ‘ordinal approach of utility analysis’. <ul><li>Cardinal approach says that we can measure utility and quantify it accurately. Ordinal approach says that we cannot measure and quantify the utility. Thus both the approaches are very much different. According to ordinal approach, we can only give order (ranking as 1,2,3) to utility and cannot exactly quantify it. Ans. </li></ul>
  5. 5. Define utility? <ul><li>Utility means the benefit that we derive. There are 2 approaches – ordinal and cardinal. Ordinal approach says that utility is subjective experience and cannot be measured. Cardinal approach says that utility can be measured. </li></ul>
  6. 6. Differentiate : ‘Inferior goods’ and ‘status related goods’. <ul><li>Inferior goods or Giffin goods are those which a person buys because he is not able to buy normal goods. These goods are low priced goods. When dearness rises, then a person is forced to buy inferior goods. For example, a person buys second hand clothes, jawar (instead of wheat) only when the dearness is very high. Inferior goods are those where law of demand is not applicable. Status symbol goods are those which are purchased due to status symbol. Thus their demand will increase when prices increase. Similarly, in case of inferior goods, demand will increase,when prices increase (because there are other goods, which are also becoming dearer). </li></ul>
  7. 7. Prepare a graph to show relation between income and demand in case of inferior goods and status goods?
  8. 8. Cross elasticity of demand between cominodity-X andYis (—) 0.5. Is X a complementary commodity or a competitive commodity to Y? <ul><li>As we can see that the cross elasticity is negative. Negative elasticity of demand is possible only in case of complementary goods. Thus both the goods (X and Y) are complementary goods. Answer. </li></ul>
  9. 9. income elasticity of demand for goods-X for a household is (+). If the ncome.of the household rises, will the share of income spent on goods-X rise or fall? <ul><li>As the income elasticity is +, it is natural that if income will rise, demand will also rise and if income will fall, demand will also fall. Thus when income increases, money spent on goods X will also increase. </li></ul>
  10. 10. Graph on relation between income and demand?
  11. 11. INCOME ELASTICITY? <ul><ul><li>When income increases, if people use more and more items and consumption increases faster, the income elasticity is more than one. </li></ul></ul>
  12. 12. Perfectly inelastic supply? <ul><li>As you can see that quantity will remain the same irrespective of the price. </li></ul><ul><li>Even if price increase / decrease, the quantity will remain the same. </li></ul>QUANTITY Price
  16. 16. WHAT IS CAPITAL FORMATION? <ul><li>When people save the money and invest this money, it is called capital formation. </li></ul><ul><li>Higher the capital formation, higher will be the industrial progress. </li></ul>
  17. 17. What is the difference in return to scale and returns to scale. <ul><li>Return to scale applies to short term, but returns to scale applies in the long run. </li></ul><ul><li>Return to scale is also called law of variable proportion </li></ul><ul><li>When there is short run, the firm cannot increase its production capacity or set up a new plant. In the long run the firm can increase / decreas its production capacity and can also change labour . </li></ul>
  19. 19. TYPES OF INFLATION <ul><li>DEMAN PULL INFLATION (increasing prices due to rising demand) </li></ul><ul><li>COST PUSH INFLATION (increasing prices due to increasing cost – for example, due to rising petrol prices, there is inflation) </li></ul><ul><li>STAGFLATION (when production is stable, but pricing are rising – it is very dangerous). </li></ul><ul><li>DEFLATION (when prices are falling due to decreasing demand, it is very bad). </li></ul>
  20. 20. Deficit financing? <ul><li>When the government uses deficit for the purpose of developmental work, it is called deficit financing. Suppose Govt. revenue is Rs. 100, but expenditure is Rs. 120 (there is deficit of Rs. 20). This defict helps in the development of the country. </li></ul>
  21. 21. Valuation of shares? <ul><li>We have to undertake valuation of shares for the following purpose: </li></ul><ul><li>Unquoted shares </li></ul><ul><li>Shares of private companies </li></ul><ul><li>As per the court order </li></ul><ul><li>Transfer of shares of large blocks </li></ul><ul><li>Merger / amalgamation decisions </li></ul>
  22. 22. How to undertake valuation of shares? <ul><li>Net assets method (intrinsic value method) </li></ul><ul><li>Yeild method (divide total earnings by the rate expected). </li></ul><ul><li>Capitalisation rate of return. </li></ul>
  23. 23. Discuss the graph?
  24. 24. Discussion … <ul><li>This is a graph which shows different situations in short run. In the short run a company cannot change its supply. This graph also shows that AR = MR – this is a situation in perfect market. In perfect market the industry determines the prices by the combination of demand and supply. The firm just takes the price as determined by industry. The firm may have profit or loss. </li></ul>
  25. 25. Continued .. .. <ul><li>If AC is more than AR, the firm is in loss. If AC <AR, the firm is in profit. If the AVC is more than AR, the firm is not able to recover its variable cost even, and in this case the firm will close down (shut down point as when AVC > AR). </li></ul><ul><li>F = super normal profit </li></ul><ul><li>A & B & C = shut down points </li></ul><ul><li>E = BEP level </li></ul>
  26. 26. The difference between compound Interest and Simple Interest on a certain sum for 2 years at 6% p.a. is Its. 13.50. Find the principal? <ul><li>Let us assume the amount to be 100. the different in amount will be 6*.06 = .36 </li></ul><ul><li>Thus the amount will be : 100*13.5/.36 </li></ul><ul><li>=3750 answer. </li></ul>
  27. 27. Long term equilibrium in perfect market and in monopoly? <ul><li>Long term equilibrium in perfect market is always of no profit no loss ( AC = AR and TC = TR). </li></ul><ul><li>In monopoly, a firm can earn profit in long run also (AR > AC and TR >TC). Monopoly is the only condition that can have such condition in the long run. </li></ul>
  28. 28. A share of Rs. 200 each issued at discount of 10% is forfeited for non-payment of final call @ Rs.50 per share . The maximum loss it can bear in the re-issue of shares will be <ul><li>The amount already collected is : 200-50-20 = 130. (face value – call not received and discount) </li></ul><ul><li>The maximum loss it can bear is 200-130 = 70 per share. </li></ul>
  29. 29. There are 60,000 preference shares of Rs 10 each fully called up. But there are call in arrears of Rs 4,000 @ Rs 2 per share . Company can redeem at present <ul><li>The company redeem only 58000 shares (which are fully paid), for 2000 shares, it has to ask shareholders to deposit the calls in arrears and then only it can redeem those shares. </li></ul>
  30. 30. What is the pricing decision making in both the Chamberlin and kinked demand curve models by the oligopolists? <ul><li>The oligopoliset cannot change the price. The oligopolist is independent and can change the price, but there are two demand curves – one elastic and one inelastic. If the price is increased, the demand curve is elastic and if the price is reduced (competitors may also reduce price), the demand curve is inelastic. In both the cases the firm looses, therefore the firm tries to keep the prices constant. </li></ul>
  31. 31. NANO-DAT QUAD NON HABIT? <ul><li>Result to pay the price of goods </li></ul><ul><li>Nobody can give that he himself does not have </li></ul><ul><li>Title is not clear </li></ul><ul><li>Delivery is not possible </li></ul><ul><li>SOLUTION: </li></ul><ul><li>(NOBODY CAN GIVE THAT HE / SHE DOES NOT HAVE, ONLY AN OWNER CAN SELL.) </li></ul>
  32. 32. What are the dismantling and demolition charges? <ul><li>When a company demolishes old buildings, old machines etc, then the company has to pay some money in the process. This money spent is called dismantling and demolition charges. These charges are paid in order to set up new machines. These charges are revenue charges as they are a part of maintenance activity. </li></ul>
  33. 33. Ramu has taken loan from village landlord P Singh. P Singh forces Ramu to take a new loan to repay the old loan. P Singh puts unconsciouable conditions. Is tche new contract voidable? <ul><li>Yes </li></ul>
  34. 34. 400 units were sold @ Rs. 200 per unit. Print price Rs. 110 per unit. Special commission @ 25% over Rs. 150 per unit. What is the commission? <ul><li>(200-150 = 50 *.25*400 =5000 </li></ul>
  35. 35. What will happen if demand increases from D1 to D2. We are at supply curve S1 (market period) ?
  36. 36. Solution <ul><li>In market period, supply cannot change, thefore we have new equilibrium at 5 (from 1). Answer. </li></ul>
  37. 37. If demand falls from D2 to D3, what will be equation in market period?
  38. 38. Solution <ul><li>The equilibrium point will change from 5 to 6. </li></ul>
  39. 39. What will happen if demand curve changes from D1 to D2 in very long period? <ul><li>In very long period, supply can change in any direction and therefore the supply curve will also shoft to S2 and the equilibrium will remail from to 1 to 7. The prices will thus remain constant. </li></ul>
  40. 40. Compute the values of equity shares of companies A and B on the basis of dividend and that of yield on capital employed. Equity expectation is 10% return. <ul><li>Company A </li></ul><ul><li>Profit : $ 100000 </li></ul><ul><li>Preference (7%) $200000 </li></ul><ul><li>Equity $800000 (Face value 100) </li></ul><ul><li>Company B </li></ul><ul><li>Profit : $100000 </li></ul><ul><li>Preference : (7%) $800000 </li></ul><ul><li>Equity $200000 (face value 100) </li></ul>
  41. 41. Valuation <ul><li>Company A: </li></ul><ul><li>Net profit after preference divident : </li></ul><ul><li>100000-14000 = 86000 </li></ul><ul><li>Equity valuation: 86000/.10 = 8,60,000 (total value 2+8.6 = 10.6 lakhs) </li></ul><ul><li>Company B: </li></ul><ul><li>Net profit after preference divident : </li></ul><ul><li>100000-56000 = 44000 </li></ul><ul><li>Equity valuation: 44000/.10 = 4,40,000 Total value = (8+4.4) = 12.4 Lakhs </li></ul><ul><li>Total value of company B is more. </li></ul><ul><li>Market price per share : A 860000/8000 = 107.5 B 440000/2000=220. </li></ul>
  42. 42. Write a note on population policy of India? <ul><li>India was the first in the world to start a systematic population policy in 1952. Again National Health Policy was framed in 1983. Again National Population pOlicy was formulated in 2000. . </li></ul><ul><li>The objectives are : </li></ul><ul><li>Reduced CBR (crude birth rate) </li></ul><ul><li>Reduce IBR (infant mortality rate) </li></ul><ul><li>Achieve instituitonal deliveries </li></ul><ul><li>Achieve 100% registration of births etc. </li></ul>
  43. 43. Industrial sickness <ul><li>Industrial sickness refers to loss making units, which are not able to make payment of their liabilities. </li></ul><ul><li>The number of Sick units has increased manifold during last decade (from 23000 SSI Sick units to 2.5 lakh SSI Sick units and from 1400 non-SSI Sick units to more than 3300 Non-SSI Sick units. There are many reasons for sickness.. </li></ul>
  44. 44. Reasons for SICKNESS <ul><li>Poor management </li></ul><ul><li>Lack of raw material </li></ul><ul><li>Technology (outdated) </li></ul><ul><li>Old machineary </li></ul><ul><li>Poor planning </li></ul><ul><li>Competition </li></ul><ul><li>Lack of skilled labour </li></ul><ul><li>Etc. </li></ul>
  45. 45. Service Sector in India <ul><li>The role of service sector has been improving. Today it has more than 60% share in our economy and it is growing at the fastest pace. </li></ul><ul><li>It includes sectors like telecom, hospitality, education, health care, tourism etc. </li></ul>
  46. 46. Role of PSUs <ul><li>Public sector has played an important role in Indian economy. The government is now undertaking disinvestment of PSUs. Every year about Rs. 5000 crores are realised through PSUs. There are a large number of PSUs which are in losses. There are many Navratna units also = which are able to show impressive perforance. </li></ul>
  47. 47. Limitaitons of PSUs <ul><li>PSUs suffer from many limitations like : </li></ul><ul><li>Intereference from government departments, officers and ministers </li></ul><ul><li>Lack of initiative </li></ul><ul><li>Lack of incentive to work hard and innovate </li></ul><ul><li>Bureaucracy. </li></ul>
  48. 48. Strengths of PSUs <ul><li>Give lot of support to government work for national priorities </li></ul><ul><li>Always prepared to sacrifice for the cause of the nation </li></ul><ul><li>Always prepared to keep the national objectives paramount and work for national objectives </li></ul><ul><li>Employment generation </li></ul><ul><li>Security, and national priority </li></ul>
  49. 49. Important PSUs <ul><li>BHEL </li></ul><ul><li>BEL </li></ul><ul><li>ONGC </li></ul><ul><li>HPCL </li></ul><ul><li>IOC </li></ul><ul><li>BEML </li></ul><ul><li>BPCL </li></ul>
  50. 50. Small scale industries … <ul><li>ALL THOSE UNITS WITH INVESTMENTS IN PLANTS AND MACHINERY LESS THAN RS. 1 CRORES COME IN SSI CATEGORY. </li></ul><ul><li>SSI contribute to about 40% of Industrial production, 40% to exports and 6% to GDPs. </li></ul>
  51. 51. Benefits of SSI <ul><li>Less investment, more flexible </li></ul><ul><li>Less legal hurdles, more government support (rebates, incentives etc.) </li></ul>
  52. 52. Problems in SSI <ul><li>Less investment, therefore problems in marketing, financial management etc. </li></ul><ul><li>Lack of professional management </li></ul><ul><li>Lack of support from Government sector </li></ul><ul><li>SSIs have limited network and limited access to international markets </li></ul><ul><li>Unable to compete with global brands and international marketing companies. </li></ul>
  53. 53. Methods for measuring national income? <ul><li>Income method (add up the total income) </li></ul><ul><li>Production method (add up the total production) </li></ul><ul><li>Expenditure method (add up the total expenditure) </li></ul><ul><li>Use any of these methods or combinations of them. </li></ul>
  54. 54. FACTOR COST V/S MARKET PRICES? <ul><li>Cost and prices are not the same. Factor cost refers to the actual cost of production. However, subsidies reduce the cost and taxation increase the cost. Thus we can say that : </li></ul><ul><li>Market Price – taxation + subsidies = Factor cost. </li></ul><ul><li>Market price reflect current prevailing prices, but factor costs refer to the actual cost. </li></ul>
  55. 55. What do you mean by accounting equation? <ul><li>Capital = Assets – Liabilities </li></ul>
  56. 56. Which of them is nominal account? <ul><li>(I) Stationery Account </li></ul><ul><li>(U) Depreciation Account - </li></ul><ul><li>(iU) Cash Account </li></ul><ul><li>(iv) Bank Current Account </li></ul><ul><li>(v) Goodwill Account - - </li></ul><ul><li>(vi) Interest Account </li></ul><ul><li>(vU) Patents and Trade Marks Account </li></ul><ul><li>(viii) Capital Account </li></ul><ul><li>(ix) Bank Loan Account </li></ul><ul><li>(x) Freight Account </li></ul><ul><li>(xi) Drawings Account - </li></ul><ul><li>(xii) Rent Account </li></ul><ul><li>(xiii) Account of Goti, a customer </li></ul>
  57. 57. Solution <ul><li>(I) Stationery Account - nominal </li></ul><ul><li>(ii) Depreciation Account - nominal </li></ul><ul><li>(iii) Cash Account – real </li></ul><ul><li>(iv) Bank Current Account - personal </li></ul><ul><li>(v) Goodwill Account - - real </li></ul><ul><li>(vi) Interest Account – nominal </li></ul><ul><li>(vii) Patents and Trade Marks Account – real </li></ul><ul><li>(viii) Capital Account- personal </li></ul><ul><li>(ix) Bank Loan Account – personal </li></ul><ul><li>(x) Freight Account – nominal </li></ul><ul><li>(xi) Drawings Account - personal </li></ul><ul><li>(xii) Rent Account – nominal </li></ul><ul><li>(xiii) Account of Goti, a customer – personal </li></ul>
  58. 58. Which of these are expenses / assets? <ul><li>(i) Purchasing typewriters </li></ul><ul><li>(ii) Acquiring trade marks - </li></ul><ul><li>(Ui) Paying salaries </li></ul><ul><li>(iv) Acquiring a lease of land for 15 years </li></ul><ul><li>(v) PayIng Interest </li></ul><ul><li>(vi) PurchasIng furnIture </li></ul><ul><li>(vu) Paying coVnpsn to Injured worker8 </li></ul>
  59. 59. Solution <ul><li>(i) -Purchasing typewriters – asset </li></ul><ul><li>(ii) Acquiring trade marks - asset </li></ul><ul><li>(iii) Paying salaries - expense </li></ul><ul><li>(iv) Acquiring a lease of land for 15 years - asssets </li></ul><ul><li>(v) PayIng Interest - expenses </li></ul><ul><li>(vi) PurchasIng furnIture - assets </li></ul><ul><li>(vii) Paying compensation to Injured workers – expenses </li></ul>
  60. 60. What is the difference between financial accounting, cost accounting & management accounting? <ul><li>Financial accounting helps you in recording and analysing day to day transactions as per requirements of law and it gives true and fair picture of profits and assets and liabilities. </li></ul><ul><li>Management acct. helps you in decision making (which is based on information provided by financial accounting). </li></ul><ul><li>Cost accounting helps you in ascertaining costs and in controlling costs </li></ul>
  61. 61. Solve it <ul><li>Goti is a small cloth merchant, who has not kept full double entry records. His position as on 1St January, 2007 stood as follows </li></ul><ul><li>Cash in hand As 1 520, balance at bank Rs 13 900 stock As 25,200, sundry </li></ul><ul><li>debtors As 9,000, furniture As 4 000 and sundry creditors As 8 620 His position on 31st December of 2007 is as follows </li></ul><ul><li>Cash In hand As 940, balance at bank as per bank pass book As 11 860, </li></ul><ul><li>stock Rs 33,400, sundry debtors As 12,640 furniture Rs 4 000, scooter </li></ul><ul><li>Rs 8,000 and sundry creditors As 10,600 </li></ul><ul><li>During the year he had withdrawn Rs 800 per month for his personal expenses and purchased a cooter for his business use for As. 8,000. A cheque for As. 2,000 issued on 29.12.2007 was presented for payment on </li></ul><ul><li>12.1.2008. </li></ul><ul><li>Prepare a statement showing his trading results for the year ended 31st December, 2007 and a balance sheet as on 31st December, 2007 after a) providing 10% depreciation on furniture and 20% depreciation on cooter; (b) writing off As. 640as actual debts; and (c) making a 5% provision for likely haddebts. </li></ul>
  62. 62. Goti and Kap are partners. Goti without authority of Kap buys shares of Reliance in his own name with the money of the firm. Are the shares so purchased the property of the partners? <ul><li>No. it is personal property of Goti and it will be treated as personal withdrawal by Goti and he will have to give profit to the firm. </li></ul>
  63. 63. Goods delivered on sale or return basis were pledged by the delivery. Can the original owner recover the goods from the pledgee? <ul><li>Yes – as the title to the goods has not yet transferred, the original owner can recover the goods from pledgee. </li></ul>
  64. 64. When the obligation is not probable on the amount expected to be paid to settle the liability – which cannot be measured with sufficient reliability, what is it called? <ul><li>Because we are not able to measure the liability accurately and the liability is not certain also , it is called contingent liability. It is shown as a footnote to the balance sheet. </li></ul>
  65. 65. Revenue is said to be realized when: <ul><li>(a) Cash is received </li></ul><ul><li>(b) Sales are made </li></ul><ul><li>(c) Goods are manufactured </li></ul><ul><li>(d) Cheque is realised </li></ul>
  67. 67. Solution - Prepare statement of affairs for the two years. 1 jan 2007 <ul><li>Capital 45000 </li></ul><ul><li>(balancing figure) </li></ul><ul><li>Creditors 8620 </li></ul><ul><li>Cash 1520 </li></ul><ul><li>Bank 13900 </li></ul><ul><li>Stock 25200 </li></ul><ul><li>Furniture 4000 </li></ul><ul><li>Debtors 9000 </li></ul><ul><li>Total : 53620 </li></ul>
  68. 68. Statement of affairs on 31 dec. 2007 <ul><li>Creditors 10600 </li></ul><ul><li>Capital =55000 </li></ul><ul><li>(balancing figure) </li></ul><ul><li>Cash 940 </li></ul><ul><li>Bank 11860 – 2000 </li></ul><ul><li>= 9860 </li></ul><ul><li>Stock 33400 </li></ul><ul><li>Debtors 12640 - 640 – provision for debt 600 </li></ul><ul><li>= 11400 </li></ul><ul><li>Furniture 4000 – 400=3600 </li></ul><ul><li>Scooter 8000-1600 = 6400 </li></ul><ul><li>Total : 66208 </li></ul>
  69. 69. Statement of profit <ul><li>Difference in capital in end and in the beginning: (55000 – 45000) = 10000 </li></ul><ul><li>Adjust withdrawals: </li></ul><ul><li>(9600 – 8000) = 1600 </li></ul><ul><li>=11600 answer. </li></ul>
  70. 70. Solve the following <ul><li>A party agrees to pay 10 lakhs to another party if first party brings to earth a star from sky, this is known as.---- </li></ul><ul><li>(a) Contingent contract </li></ul><ul><li>(b) Quasi Contract </li></ul><ul><li>(c) lmplied contract </li></ul><ul><li>(d) Wagering contract </li></ul><ul><li>(e) Void contract </li></ul><ul><li>Solution : void contract. </li></ul>
  71. 71. What is the full form of CRR? <ul><li>Cash reserve ratio </li></ul>
  72. 72. What is SLR? <ul><li>Statutory liquidity ratio </li></ul>
  73. 73. Solve the following <ul><li>A person who supplies “necessaries” to a minor is entitled to be reimbursed from the personal property of the minor on the basis of : </li></ul><ul><li>(a) Valid contract </li></ul><ul><li>(b) Voidable contract </li></ul><ul><li>(c) Quasi contract </li></ul><ul><li>(d) Contingent contract </li></ul><ul><li>Solution </li></ul><ul><li>C – quasi contract </li></ul>
  74. 74. Solve it … <ul><li>Fine may be made the essence of a contract by self sequent notice also. This Statement is </li></ul><ul><li>(a) True </li></ul><ul><li>(b) Partly true </li></ul><ul><li>(c) False </li></ul><ul><li>(d) Partly false </li></ul>
  75. 75. Example of quasi contract <ul><li>It is the duty of the finder of goods to trace the true owner of the goods, and if does not do so, he shall be guilty of </li></ul><ul><li>(a) Theft </li></ul><ul><li>(b) Extortion </li></ul><ul><li>(c) Criminal misappropriation of property </li></ul><ul><li>(d) None of the above </li></ul><ul><li>Solution </li></ul><ul><li>(a) </li></ul>
  76. 76. Bank overdraft as per trial balance is Rs. I .60 crore. Bank has allowed the customer 80 % of the hypothecated goods. Hypothecation of stock has been done by the bank at 80% of the original closing stock value. What is the amount of closing stock
  77. 77. Solution <ul><li>1.6 *100/80 = 2 crore is the value of hyp. </li></ul><ul><li>Value of hyp. Is takes as 80% of stock </li></ul><ul><li>Therefore stock is 2*100/80 = 2.5 crores </li></ul><ul><li>Thus stock of goods is 2.5 crores. Answer. </li></ul>
  78. 78. What is day to day market period? <ul><li>It is a very short period, in this period the suppliers cannot change their supply, therefore supply curve is like a straight vertical line. Prices solely depend on demand. If demand increases, prices will increase and vice versa. Supply is fixed and cannot change in this period. </li></ul>
  79. 79. Why is demand curve convex to the origin? <ul><li>The demand cannot touch either side of the axis because even if prices increase very much there would be some buyers at least. </li></ul><ul><li>CONVEX SHAPE </li></ul>
  80. 80. What is equilibrium of the firm in day to day market period in perfect competition? <ul><li>During day to day period, the firm has to decide whether to sell or not. The firm cannot increase production or supply, the only decision the firm has to take is whether to sell or not. If the prices increase due to increased supply, the firm may wish to sell otherwise may not sell. </li></ul>
  81. 81. A company purchased 3 years lease on 1st April, 2004 for Rs. 50,000. It is decided to provide for the replacement of the lease at the end of 3 years by setting up a depreciation fund. It is expected that investment will fetch at 12%. The investments are sold for Rs. 28,500.
  82. 82. Solution <ul><li>Let us find out the amount that will be Rs. 50000 at the end of 3 years so that we may deposit that amount every year. </li></ul><ul><li>A((1+rate)^n -1)/rate = 50000 </li></ul><ul><li>((1.12)^3-1)/(.12*50000) = 1/annuity </li></ul><ul><li>Annuity = 14817.45 </li></ul>
  83. 83. Solution <ul><li>Each year we will transfer Rs. 14817.45 in depreciation fund account and at the end of 3 years the investments will be sold in the market. </li></ul>
  84. 84. A machine purchased on 1.4.2003 for Rs. 10 lakhs was depreciated on straight line basis over its useful life of 10 years. On 1-4-5, it was found that machine is in a good condition and will be used in the production for another 10 years. The amount of depreciation for the year 31-3-06 will be? <ul><li>In the two financial 2003-4 and 2004-5 we have already provided depreciation of Rs 200000 (1 lakh each year). Now remaining value is Rs. 8 Lakhs to be depreciated in next 10 years. So we will charge dep. Of rs. 80000 only. Answer. </li></ul>
  85. 85. Goti of Kolkala sends goods costing 100000 to Pawan of Mumbai at cost + 25%. Consignor’s expenses Rs 2,000. 3/5’ of the goods were sold by consignee at 85000. Commission 2% on sales + 20% of gross sales less all commission exceeds in-voice value. amount of total commission will be: <ul><li>Goods of cost Rs. 60000 were sold for 85000. general commission = 1700 </li></ul><ul><li>Their invoice price = 60000*1.25=75000 </li></ul><ul><li>Additional commission = 20/120*(10000-1700) = 1383 Total commission = 3083 ans. </li></ul>
  86. 86. FINANCIAL ANALYSIS – PREPARE THE BALANCE SHEET <ul><li>You are given the following figures: </li></ul><ul><li>Current ratio 2.5 Liquid ratio 1.5 </li></ul><ul><li>Net working capital Rs. 3,00,000 </li></ul><ul><li>Fixed assets turnover ratio </li></ul><ul><li>(on cost of sales) 2 tImes </li></ul><ul><li>Average debt collection period 2 months </li></ul><ul><li>Stock turnover ratio </li></ul><ul><li>(cost of sales/closing stock) 6 times </li></ul><ul><li>Gross profit ratio 20% </li></ul><ul><li>Fixed assets/shareholders net worth 0.80 </li></ul><ul><li>Reserve and surplus/capita! 0.50 </li></ul>
  87. 87. SOLUTION <ul><li>LIABILITIES </li></ul><ul><li>Equity + reserve = 900000 </li></ul><ul><li>(reserve is 300000 and equity 600000) </li></ul><ul><li>Current liabilities 200000 </li></ul><ul><li>ASSETS </li></ul><ul><li>Current assets </li></ul><ul><li>Debtors 250000 </li></ul><ul><li>Cash / bank 50000 </li></ul><ul><li>Total Liquid assets 3 lakhs </li></ul><ul><li>Inventory = 2 lakhs </li></ul><ul><li>Total 500000 </li></ul><ul><li>Fixed assets 600000 </li></ul><ul><li>TOTAL = 11 LAKHS </li></ul>
  88. 88. Other information <ul><li>Cost of Sales = 6* inventory = 12 lakhs </li></ul><ul><li>GP on cost of Sales 12 *25/100 = 3 lakh. </li></ul><ul><li>(20% on sales, therefore we take 25% on cost of sales) </li></ul><ul><li>Thus sales = 12+3 = 15 lakhs </li></ul><ul><li>Cost of sales / Fixed assets = 2 </li></ul><ul><li>So fixed assets are 6 lakhs </li></ul>
  89. 89. Continued <ul><li>Avg. Debtors / Sales * 12 = 2 </li></ul><ul><li>Avg. Debtors = 2 * 1500000/12 </li></ul><ul><li>=2,50,000 </li></ul><ul><li>Fixed assets / net worth = .8 </li></ul><ul><li>600000/Net worth = .8 </li></ul><ul><li>Net worth = 750000 </li></ul>
  90. 90. State, explain and critically discuss the Cambridge version of Quantity Theory of Money. <ul><li>Prices depend on quantity of money. If quantity of money increases, prices will increase and vice versa. There are two popular theories : Fisher and Cambridge </li></ul><ul><li>Fisher = MV = PT </li></ul><ul><li>M= money V = velocity of money </li></ul><ul><li>P = prices T = volutme of items sold. </li></ul>
  91. 91. Solution …. <ul><li>Cambridge: </li></ul><ul><li>P = KR / M </li></ul><ul><li>P = prices </li></ul><ul><li>K = Proportion of money that people want to keep with them </li></ul><ul><li>R = Real resources </li></ul><ul><li>M = quantity of money. </li></ul>
  92. 92. What are the factors which determine cash deposit ratio of a bank? What are the sources of cash reserves of the banking system? <ul><li>It denotes the cash that banks have to keep with themselves. Suppose deposit is Rs. 100 and CD ratio is 20%, the banks have to keep Rs. 20 with them. Higher the CD ratio, less will be credit creation. CD ratio depends on inflation, liquidity, demand of money and monetary policy etc </li></ul>
  93. 93. How would you define money? What are alternative approaches for doing so? <ul><li>Money is defined in terms of the functions that it performs. There are 4 functions that it performs. These are : </li></ul><ul><li>Medium of exchange </li></ul><ul><li>Store of value </li></ul><ul><li>Measure of value </li></ul><ul><li>Standard for deferred payments. </li></ul>
  94. 94. Continued… <ul><li>There are two basic approaches to defining money: 1. functional approach 2. liquidity approach </li></ul><ul><li>Functional approach – define money in terms of functions that it performs (the main being medium of exchange). </li></ul><ul><li>Liquidity approach - money is considered 100% liquid resources. Other assets are comparatively less liquid. </li></ul>
  95. 95. WHAT IS GRESHAM’S LAW? <ul><li>Bad currency will throw out good currency from circulation. </li></ul>
  96. 96. What are the functions of money? <ul><li>Store of value </li></ul><ul><li>Exchange value </li></ul><ul><li>Security </li></ul><ul><li>Measurement </li></ul>
  97. 97. Draw production possibility curve with the following information . . <ul><li>There are 2 goods – one from 0 to 5 and another from 30 to 0. if we increase production of first from 2 units to 4 units, what is the opportunity cost? </li></ul><ul><li>It is 14 units of 2 nd item. </li></ul>0 10 18 24 28 30 5 4 3 2 1 0
  98. 98. There are two types of products, what is the opportunity cost of producing 10 units of first unit instead of 0 units? <ul><li>Answer 5 units of second unit. </li></ul><ul><li>If we have 30 units of first and 45 units of second unit, would you go for it? </li></ul><ul><li>Solution: No as we can get 30 + 75 so why should we go for 30+45. answer. </li></ul>0 60 30 50 55 40 75 30 90 20 100 10 105 0
  99. 99. Solve the following? <ul><li>Sudha quit her job at a private company where she earned Rs. 2,90,000 a year. She withdrew Rs. 4,00,000 in a savings account that earned 10% interest annually to buy a second hand mini bus to commune passenger between Cannaught Place and Noida. There arc 1000 passengers who will pay Rs. 4000 a year each for commuter services; Rs. 2800 from each passenger goes for petrol, maintenance, depreciation etc. </li></ul>
  100. 100. Find opportunity cost of Sudha? <ul><li>The opportunity cost of Sudha is : Rs. 2,90,000 which she was getting in a company. </li></ul>
  101. 101. What is the accounting cost of Sudha? <ul><li>The cost is : </li></ul><ul><li>Interest : Rs. 40000 </li></ul><ul><li>Plus petrol / diesel / other expenses </li></ul><ul><li>@ 2800 per pessenger (this is variable expneses = as it depends on route etc.) </li></ul><ul><li>2800*1000 = 28,00,000 answer. </li></ul><ul><li>Income = 4000*1000 </li></ul><ul><li>=4000000 answer. </li></ul>
  102. 102. What is the economic cost of Sudha? <ul><li>Economic cost = opportunity cost + accounting cost </li></ul><ul><li>= 290000 +2800000 answer. </li></ul>
  103. 103. What should a developing economy do ? <ul><li>It should initially promote heavy industries – because they can help in providing infrastructure, basic facilities, services etc. thus they will create a base for rapid industrialisation </li></ul><ul><li>It should initially build infrastructure so that FDI flows in and industries are set up thus employment generation takes place. </li></ul>
  104. 104. In the previous PPC (production possibility curve) if production of second unit is increased from 10 to 24, what is the opportunity cost? <ul><li>Two units of first units. </li></ul>
  105. 105. We make DahiBada and cost structure is as under? 1060 60 790 50 540 40 400 30 300 20 210 10 100 0 TC MC AFC AVC VC FC TC Qty
  106. 106. If price of DahiBada is Rs. 14 each, what is the best output? -220 840 1060 60 -90 700 790 50 20 560 540 40 20 420 400 30 -20 280 300 20 -70 140 210 10 -100 0 100 0 Profit TR TC MC AFC AVC VC FC TC Qty
  107. 107. Solution <ul><li>The best output is at 30 unit and 40 unit level. We may explore further and the best out put may be at 35. </li></ul>
  108. 108. What is VC when 60 DahiBada are made? <ul><li>VC = TC – FC </li></ul><ul><li>=1060 – 100 </li></ul><ul><li>=960 </li></ul>
  109. 109. A contracts with B to buy jewellery made of pearls whereas in fact it IS made of imitation pearls of no value. B knows that A is mistaken and takes no steps to correct the error. NOW A wants to cancel the contract on the basis of fraud. what should he do?
  110. 110. Solution <ul><li>There is no proof that B had committed fraud. He didn’t give any false information. Let the buyer beware – and therefore it was the duty of A to inquire about the product. </li></ul>
  111. 111. what is AFC? <ul><li>Average fixed Cost </li></ul><ul><li>= Total fixed cost / total number of units manufactured </li></ul><ul><li>Suppose total fixed cost is Rs. 500, and we have made 200 units, the AFC is 2.5 </li></ul><ul><li>If suppose we make 500 units AFC will come down to only Re. 1. </li></ul>
  112. 112. If this is the cost schedule, what is the AFC & AVC when we make 6 units?
  113. 113. Solution <ul><li>Fixed cost = 240 </li></ul><ul><li>240/6 = 40 per unit. (AFC) </li></ul><ul><li>AVC = TotalVariable cost / Total no. of units </li></ul><ul><li>Variable cost = TC – FC </li></ul><ul><li>=690 – 240 = 450 </li></ul><ul><li>AVC = 450 / 6 = 75 per unit answer. </li></ul>
  114. 114. What will happen if utility obtained in first unit is 10, 2 nd unit 7, 3 rd unit 3, and 4 th unit = -4. show total utility
  115. 115. In the previous question, how many units will the consumer consume and what will be his total utility? <ul><li>The consumer will consumer 3 units and his total utility will be 20. (the consumer will not use fourth unit). Marginal utility will be 3 at that time. </li></ul>
  116. 116. When do you find marginal return diminishing? 690 6 610 5 540 4 480 3 410 2 330 1 240 0 TC units
  117. 117. Solution 80 690 6 70 610 5 60 540 4 70 480 3 80 410 2 90 330 1 240 0 MC TC units
  118. 118. Solution … <ul><li>As in the previous graph we can see that the marginal cost (MC) is reducing initially - but it starts increasing when we make 5 th unit. Marginal returns decrease when MC starts increasing. Thus marginal returns start decreasing from 5 th unit. Answer. </li></ul>
  119. 119. What do you understand by equilibrium of a firm? Explain your answer. <ul><li>The firm is said to be in equilibrium when MR = MC. There are different market conditions like perfect market, monopoly or monopolistic competition, in each of these conditions the equilibrium is when MR = MC and MC curve cuts from below. </li></ul>
  120. 120. Example: EQUILIBRIUM OF THE FIRM
  121. 121. Clarify the statement that a firm is a price taker under perfect competition but not so in monopoly or monopolistic competition. Give reasons for your answer. <ul><li>In perfect market, the prices are determined purely by industry and not by individual firm. The firm has no role in price decision. There are very large number of firms and no firm can alone influence price. </li></ul>
  122. 122. Illustration . .as we can see in the graph below : (there are different firms, each trying to match industry..
  123. 123. Detailed explanation <ul><li>Perfect market is the market condition where the aggregate demand and aggregate supply decide the price. Purely the market forces work (all the goods are homogenous) and they determine price, which has to be followed by the firms. </li></ul>
  124. 124. Graph of perfect market.
  125. 125. Explain the concept of optimum output. Under what conditions is it achieved by a firm ? <ul><li>Optimum output can be achieved in the long run. In short run the firm can only vary only one factor = labour. It cannot change the other factor of production. Thus in short run only one factor is variable. </li></ul><ul><li>MC curve of the firm is also taken as supply curve for the firm. </li></ul>
  126. 126. Solution <ul><li>Optimum output is achieved when the firm is having MC = MR and has minimum cost of production. It is the condition when the firm is able to use its resources to the best. Conditions: </li></ul><ul><li>MR = MC </li></ul><ul><li>The factors of production can be adjusted to have the best utilisation of factors of production. </li></ul>
  127. 127. Graph
  128. 128. What will happen if prices increase and income of the people also increase. Presently you are at 1.
  129. 129. Solution <ul><li>If price increase, demand should fall, however, income also increase therefore demand curve will again increase thus demand curve will remain constant. Supply curve will remain as it is (as there is no information about cost or supply). We will remain at 1. </li></ul><ul><li>Answer. </li></ul>
  130. 130. Explain the determination of long term equilibrium of a firm under perfect competition. Show, inter alia, that it will produce at the least possible average cost of production. <ul><li>In the long run, no firm is able to earn super normal profit. The MR= AR and at this point MR = MC (equilibrium) and in long run MC = AC (at the point of equilibrium) – no firm earning profit / loss. </li></ul>
  131. 131. Graph…
  132. 132. A shopkeeper sells gel pen at Rs. 10 per pen. At this price he can sell 120 per month. After some time, he raises the price to Rs. 15 per pen. Following the price rise: • Only 60 pens were sold every month. • The number of refills bought went down from 200 to 150. • The number of ink pen customers bought went up from 90 to 180 per month. The Cross elasticity of monthly demand for refills when the price of gel pen increase from Rs. 10 to Rs.15 is equal to:
  133. 133. Solution <ul><li>Change in demand / change in price </li></ul><ul><li>Change in demand = </li></ul><ul><li>= 50/200 *100 = 25% </li></ul><ul><li>Change in price = 5/10*100 = 50% </li></ul><ul><li>Thus solution = 25/50 = - .5 answer. </li></ul><ul><li>(it is always negative) </li></ul>
  134. 134. The cross elasticity of monthly demand for ink pen when the price of gel pen increases from Rs.10 to Rs. 15 is equal to: <ul><li>Change in demand / change in price </li></ul><ul><li>Change in demand = </li></ul><ul><li>= 90/90 *100 = 100% </li></ul><ul><li>Change in price = 5/10*100 = 50% </li></ul><ul><li>Thus solution = 100/50 = 2 answer. </li></ul><ul><li>(it is always positive) </li></ul>
  135. 135. ABOUT AFTERSCHO☺OL <ul><li>Afterschoool conducts three year integrated PGPSE (after class 12 th along with IAS / CA / CS ) and 18 month PGPSE (Post Graduate Programme in Social Entrepreneurship) along with preparation for CS / CFP / CFA /CMA / FRM . This course is also available online also. It also conducts workshops on social entrepreneurship in schools and colleges all over India – start social entrepreneurship club in your institution today with the help from afterschoool and help us in developing society. </li></ul>
  136. 136. Why such a programme? <ul><li>To promote people to take up entrepreneurship and help develop the society </li></ul><ul><li>To enable people to take up franchising and other such options to start a business / social development project </li></ul><ul><li>To enable people to take up social development as their mission </li></ul><ul><li>To enable people to promote spirituality and positive thinking in the world </li></ul>
  137. 137. Who are our supporters? <ul><li>Afterschoolians, our past beneficiaries, entrepreneurs and social entrepreneurs are supporting us. </li></ul><ul><li>You can also support us – not necessarily by money – but by being promotor of our concept and our ideas. </li></ul>
  138. 138. About AFTERSCHO☺OL PGPSE – the best programme for developing great entrepreneurs <ul><li>Most flexible, adaptive but rigorous programme </li></ul><ul><li>Available in distance learning mode </li></ul><ul><li>Case study focused- latest cases </li></ul><ul><li>Industry oriented practical curriculum </li></ul><ul><li>Designed to make you entrepreneurs – not just an employee </li></ul><ul><li>Option to take up part time job – so earn while you learn </li></ul><ul><li>The only absolutely free course on internet </li></ul>
  139. 139. Workshops from AFTERSCHO☺OL <ul><li>IIF, Delhi </li></ul><ul><li>CIPS, Jaipur </li></ul><ul><li>ICSI Hyderabad Branch </li></ul><ul><li>Gyan Vihar, Jaipur </li></ul><ul><li>Apex Institute of Management, Jaipur </li></ul><ul><li>Aravali Institute of Management, Jodhpur </li></ul><ul><li>Xavier Institute of Management, Bhubaneshwar </li></ul><ul><li>Pacific Institute, Udaipur </li></ul><ul><li>Engineering College, Hyderabad </li></ul>
  140. 140. Flexible Specialisations: <ul><li>Spiritualising business and society </li></ul><ul><li>Rural development and transformation </li></ul><ul><li>HRD and Education, Social Development </li></ul><ul><li>NGO and voluntary work </li></ul><ul><li>Investment analysis,microfinance and inclusion </li></ul><ul><li>Retail sector, BPO, KPO </li></ul><ul><li>Accounting & Information system (with CA / CS /CMA) </li></ul><ul><li>Hospital management and Health care </li></ul><ul><li>Hospitality sector and culture and heritage </li></ul><ul><li>Other sectors of high growth, high technology and social relevance </li></ul>
  141. 141. Salient features: <ul><li>The only programme of its kind (in the whole world) </li></ul><ul><li>No publicity and low profile course </li></ul><ul><li>For those who want to achieve success in life – not just a degree </li></ul><ul><li>Flexible – you may stay for a month and continue the rest of the education by distance mode. / you may attend weekend classes </li></ul><ul><li>Scholarships for those from poor economic background </li></ul><ul><li>Latest and constantly changing curriculum – keeping pace with the time </li></ul><ul><li>Placement for those who are interested </li></ul><ul><li>Admissions open throughout the year </li></ul><ul><li>Latest and most advanced technologies, books and study material </li></ul>
  142. 142. Components <ul><li>Pedagogy curriculum and approach based on IIM Ahmedabad and ISB Hyderabad (the founder is alumnus from IIMA & ISB Hyderabad) </li></ul><ul><li>Meditation, spiritualisation, and self development </li></ul><ul><li>EsGotitial softwares for business </li></ul><ul><li>Business plan, Research projects </li></ul><ul><li>Participation in conferences / seminars </li></ul><ul><li>Workshops on leadership, team building etc. </li></ul><ul><li>Written submissions of research projects/articles / papers </li></ul><ul><li>Interview of entrepreneurs, writing biographies of entrepreneurs </li></ul><ul><li>Editing of journals / newsletters </li></ul><ul><li>Consultancy / research projects </li></ul><ul><li>Assignments, communication skill workshops </li></ul><ul><li>Participation in conferences and seminars </li></ul><ul><li>Group discussions, mock interviews, self development diaryng </li></ul><ul><li>Mind Power Training & writing workshop (by Dr. T.K.Jain) </li></ul>
  143. 143. Pedagogy <ul><li>Case analysis, </li></ul><ul><li>Articles from Harvard Business Review </li></ul><ul><li>Quiz, seminars, workshops, games, </li></ul><ul><li>Visits to entrepreneurs and industrial visits </li></ul><ul><li>PreGotitations, Latest audio-visuals </li></ul><ul><li>Group discussions and group projects </li></ul><ul><li>Periodic self assessment </li></ul><ul><li>Mentoring and counselling </li></ul><ul><li>Study exchange programme (with institutions out of India) </li></ul><ul><li>Rural development / Social welfare projects </li></ul>
  144. 144. Branches <ul><li>AFTERSCHO☺OL will shortly open its branches in important cities in India including Delhi, Kota, Mumbai, Gurgaon and other important cities. Afterschooolians will be responsible for managing and developing these branches – and for promoting social entrepreneurs. </li></ul>
  145. 145. Case Studies <ul><li>We want to write case studies on social entrepreneurs, first generation entrepreneurs, ethical entrepreneurs. Please help us in this process. Help us to be in touch with entrepreneurs, so that we may develop entrepreneurs. </li></ul>
  146. 146. Basic values at AFTERSCHO☺OL <ul><li>Share to learn more </li></ul><ul><li>Interact to develop yourself </li></ul><ul><li>Fear is your worst enemy </li></ul><ul><li>Make mistakes to learn </li></ul><ul><li>Study & discuss in a group </li></ul><ul><li>Criticism is the healthy route to mutual support and help </li></ul><ul><li>Ask fundamental questions : why, when, how & where? </li></ul><ul><li>Embrace change – and compete with yourself only </li></ul>
  147. 147. social entrepreneurship for better society