Business simulation game MY BUSINESS-MY STRATEGIES

Welcome to the RIMSR’s Learning Centre.
Experience running your business in your own way and build your
strategies to success.
“MYBUSINESS-MY STRATEGIES,” an engaging virtual business
experience.
INTRODUCTION
Business and the markets in which we operate constantly evolve. But whether
you manufacture the latest wearable electronics or sell tickets to upcoming
events, the essential building blocks of business – Marketing, finance and
operations management – remain the same. Through this game, you get the
chance to develop a holistic understanding of basic business principles from the
very beginning in an engaging learning experience. Each business discipline has its
broad body of knowledge and can be mastered in theory, but experience how
business works in practice can be the ideal foundation for deep and ongoing
learning.
WHAT IS THE GAME ABOUT?
Get introduced to the basics of business. Know the various business parameters
and how they relate to each other. Get exposed to business lexicon, and
understand the business terminologies. Observe the intricacies that you confront
in a real-life business situation.
The game allows you to establish and successfully run a simulated company that
manufactures, and markets “bottled-water.” What is applicable in the simulated
environment is near true of real-life business situation. The interactive interface
provides you with experience in building a profitable, sustainable business.
PREPARING MANAGERS FOR SUCCESS IN A CHANGING WORLD Page 1

By running a whole business, you not only get a practical introduction to
individual disciplines, but develop a realistic context as the basis for a more
complete understanding.
Key concepts include making essential decisions in financial investment,
estimation of project cost, what are the means of finance, implementation of the
project, working out fixed and variable costs, capacity utilization and its impact on
profitability, break-even point, investing on marketing and sales and the
consequential impact. Last but not the least you get information as to how to
setup your business, the licenses required, and the authorities to be contacted.
However, note that the take-away from this business simulation experience at
Level I is the foundation of any business house, be it mega or micro. While you
get to know the most basic business concepts in Level I of the game, in higher
levels you get to know cost control techniques, concepts of supply-chain
management, inventory management, and fundamentals of preparing financial
statements. In the advanced level you get to understand analysis of financial
statements, financial ratios, risk assessment and mitigation, and exposure to an
ERP solution through TALLY software.
WHY USE THE BUSINESS GAME?
Establishing a solid understanding of the basics of business is critical. Research
shows people learn best by doing. The simulation game allows you to experience
the inevitable compromises and trade-offs inherent in the decisions managers
make every day in finance, operations, marketing and other areas.
To grasp how the individual parts of a business impact the entire
organization, nothing beats the experience of running a business in a competitive
marketplace. “MY BUSINESS – MY STRATEGIES” provides that experience—
without the real-world risk—along with the opportunity to build a product
portfolio, manage costs, analyze the market, and develop forecasts, all with an
eye on cash flow and balance sheet management.

TIPS & BUSINESS TERMINOLOGIES-
EXPLAINED
PROJECT COST
Project Cost refers to the all the costs under major-cost headings that are
essential for the implementation of the project. It encompasses several specific
cost-centers. This is the basis to work out the project budget.
Beginning with estimating, actual historical data is used to accurately plan all
aspects of the project. As the project continues, job control uses data from the
estimate with the information reported from the field to measure the cost and
production in the project. From project initiation to completion, project cost
management has an objective to simplify and cheapen the project experience.
The major-cost headings are:
01. Land & Development Expenses
02. Building and Civil Works
03. Plant & Machinery
04. Miscellaneous Assts
05. Margin for Contingencies
06. Preliminary and Pre-operative Expenses
07. Interest During Implementation
08. Start-up Expenses
09. Deposits
10. Working Capital Margin
11. Technical Know-How and Engineering Fee Expenses.
Estimation of the project-cost after project-implementation is key to the success
of the project. One-can know before-hand, whether the project is within his

reach or not. Importantly, be realistic in the estimation of project cost, because if
it is understated, it will seriously hurt at the implementation stage, leading to
time, and cost escalation.
It’s not a bad idea to provide for cash losses in the project cost, although it is not
common practice.
TECHNICAL KNOW-HOW
“Technical Know-how” is a term for practical knowledge on how to accomplish
something, as opposed to "know-what" (facts), "know-why" (science), or "know-
who" (communication). Know-how is often tacit knowledge, which means that it
is difficult to transfer to another person by means of writing it down or verbalizing
it.
In the context of industrial property (now generally viewed as intellectual
property - IP), know-how is a component in the transfer of technology in national
and international environments, co-existing with or separate from other IP rights
such as patents, trademarks and copyright and is an economic asset. When it is
transferred by itself, know-how should be converted into a trade secret before
transfer in a legal agreement.
Know-how can be defined as confidentially held, or better, "closely held"
information in the form of unpatented inventions, formulae, designs, drawings,
procedures and methods, together with accumulated skills and experience in the
hands of a licensor firm's professional personnel which could assist a
transferee/licensee of the object product in its manufacture and use and bring to
it a competitive advantage. It can be further supported with privately maintained
expert knowledge on the operation, maintenance, use/application of the object
product and of its sale, usage or disposition.

One should clearly know whether the product proposed for the manufacture
requires high-end technology. Note the other important factors:
• The suitability and the source of technology are very important, and are
critical to the survival of the project.
• As always, “technical know-how” involves expenditure, and the project that
the promoter intends promoting should do a “cost-benefit analysis” before
the “technical know-how” is bought out.
• The promoter should have the necessary technical background and
experience to run the unit proposed successfully.
• If the promoter does not have the necessary technical background or
expertise, then he should explore the possibility of hiring a technical-
expert, and here again the promoter should be aware of the costs involved.
PRE-OPERATIVE COSTS
Preliminary and pre-operative expenses, constitute a distinct component in the
project cost. This covers a number of items of expenditure many of which have to
be incurred before the unit can go on stream. Expenditure on this account is
generally more in respect of long gestation projects`.
WORKING-CAPITAL
Working capital (abbreviated WC) is a financial metric which represents operating
liquidity available to a business, organization or other entity, including
governmental entity. Along with fixed assets such as plant and equipment,
working capital is considered a part of operating capital. Gross working capital is
equal to current assets. Working capital is calculated as current
assets minus current liabilities. If current assets are less than current liabilities, an
entity has a working capital deficiency, also called a working capital deficit.

A company can be endowed with assets and profitability but short of liquidity if its
assets cannot readily be converted into cash. Positive working capital is required
to ensure that a firm is able to continue its operations and that it has sufficient
funds to satisfy both maturing short-term debt and upcoming operational
expenses. The management of working capital involves managing inventories,
accounts receivable and payable, and cash.
If land, building, and plant& machinery are the bones and muscles of an
enterprise, working-capital constitutes its blood. It is the working-capital which
turns the wheels and makes the enterprise “GO.” Therefore, it is highly advisable
that promoters make adequate provision for working-capital. “Fist-Generation
Promoters,” often tend to under estimate the importance of working capital,
which is catastrophic. Without adequate working-capital, an enterprise will come
to a grinding-halt.
INTEREST PAYABLE DURING
IMPLEMENTATION
Many times a promoter tends to grossly under estimate this element in the cost
of the project and sometimes even ignore it altogether. The linkage is simple, a
project takes certain period of time for implementation. This is also referred to as
“gestation-period.” During this period, the promoter has to bear the interest cost
on the borrowings. If a portion of this is not provided for in the Project Cost, then
the promoter will not be able to service the interest-component and tends to
default on the payment of interest amount to the lending institution. This means
delayed implementation, loss of banker’s confidence, and stressed financials.

ESCALATION/CONTINGENCY
We live in inflationary times, marked by continuous upward movement of all
prices. In a situation like this where prices are constantly rising, escalation
become an everyday affair. Therefore, it is a good idea to provide for this
contingency which ensures smooth implementation of the project.
PLANT AND MACHINERY
Proper selection of plant and machinery is of crucial importance. The machinery
selected must not only be suitable for the operations intended to be performed
but must also be the most economical machinery that can perform the task in
question. The foremost thing you should bear in mind is whether the plant and
machinery selected are suitable for the purpose intended and whether they
constitute the most economical way of performing the operations envisaged.
Whenever more than one machine is planned, it has to be ensured that the
capacities of the machines match each other and there is no mismatch and should
be balanced.
Generally, there is a tendency to carry out all the operations in-house (that is by
yourself). Avoid this. If any particular operation or group of operations can be
got done by an outside agency more economically, there is no reason as to why
they should be done in-house.
Most importantly, note that capacity utilization of the plant and machinery is
critical and directly impacts the profitability of the firm. Therefore, watch out at
the stage of selection of plant and machinery. Selecting machines purely based
on their price, may lead to problems. Often, these machines may break-down
and thus impacting capacity utilization. Note the relationship; higher the capacity
utilization is higher the production; higher the production, higher will be the

effort to market more; higher the marketing higher will be the sales revenue; and
higher the sales revenue, higher will be firm’s profitability.
NET-WORTH
Net worth is a concept applicable to individuals and businesses as a key measure
of how much an entity is worth. A consistent increase in net worth indicates good
financial health; conversely, net worth may be depleted by annual operating
losses or a substantial decrease in asset values relative to liabilities.
Basically net worth is the value of all assets, minus the total of all liabilities. Put
another way, net worth is what is owned minus what is owed.
LEASED PROPERTY
A lease is a contract outlining the terms under which one party agrees to rent
property owned by another party. It guarantees the lessee, the tenant, use of an
asset and guarantees the lessor, the property owner or landlord, regular
payments from the lessee for a specified number of months or years. Thus,
a lease is a contractual arrangement calling for the lessee to pay the lessor
(owner) for use of an asset. Renting, also known as hiring or letting, is an
agreement where a payment is made for the temporary use of a good, service or
property owned by another.
MEANS OF FINANCE
After the cost of the project has been determined, the next question that arises is
how the cost of the project is going to be met, who are the persons who are going

to subscribe to the capital and what are the other sources from which the funds
are likely to come.
While raising the resources to meet the cost of the project proper financial
planning is an imperative. You need to carefully map-out the different sources of
finance, and the cost of availing the required finance. Obviously your investment
in the project is most critical. Higher is your investment, lower will be the
expenditure towards servicing of loans. Ideally, a ratio of 1 : 1, that is 50% of your
own investment, and 50% of loan will not burden the project much. However,
banks and financial institutions do go up to a ratio of 2 : 1, which means 33% of
the project cost will be met by your personal investment, 66% of the project cost
will be met out of loans. However, some of the banks and financial institutions do
go up to 3 : 1, which means 25% of the project cost will be met by your own
investment and 75% will be met out of the loans which you raise. The loans
could be institutional loans or loans availed from your friend and relatives.
Generally, the loans availed by your from friends and relatives is kept out of
picture while calculating the ratio of either 2 : 1 or 3 : 1. But, it is prudent,
although harsher, to take all the loans into cognizance, because, at the end of the
day you need to repay the loans, be it that of an institution or a friend. The
bottom line is that the revenue generated by your business should be capable of
fully meeting the interest cost and the repayment of the loan installments.
PROMOTERS’ CAPITAL/EQUITY
The first obvious of funds for any project is the capital contributed by the persons
promoting the project. They are the persons who have conceived the project,
intend launching it and are likely to be its beneficiaries.
The capital contributed by the promoters is termed differently in financial
parlance depending on the constitution of the industrial enterprise. It is called,
the case of proprietary concerns. “Proprietor’s Capital,” in the case of “Hindu

Undivided Families, it is called “Capital Contributed By HUF.” And, in the case of
partnership, “Partners’ Capital.” On the other hand, in the case of limited
companies, public or private, it is referred to as equity and/or preference shares
subscribed to by promoters.
Proprietor’s capital is the capital contributed by the proprietor as his share in
financing the project, of which he is the sole beneficiary. As Proprietor’s capital
being the substratum on which the edifice of industrial project is built, it is not
allowed by the lending agencies to be withdrawn during the period of the loan is
in currency. By definition, the proprietor’s capital will not be eligible for payment
of any interest.
DEBT
WHAT IS 'DEBT?'
Debt is an amount of money borrowed by one party from another. Debt is used
by many corporations and individuals as a method of making large purchases that
they could not afford under normal circumstances. A debt arrangement gives the
borrowing party permission to borrow money under the condition that it is to be
paid back at a later date, usually with interest.
BREAKING DOWN 'Debt'
The most common forms of debt are loans, including mortgages and auto loans,
and credit card debt. Under the terms of a loan, the borrower is required to repay
the balance of the loan by a certain date, typically several years in the future. The
terms of the loan also stipulate the amount of interest that the borrower is
required to pay annually, expressed as a percentage of the loan amount. Interest
is used as a way to ensure that the lender is compensated for taking on the risk of
the loan while also encouraging the borrower to repay the loan quickly in order to
limit his total interest expense.

CORPORATE DEBT
In addition to loans and credit card debt, companies that need to borrow funds
have other debt options. Bonds and commercial paper are common types of
corporate debt that are not available to individuals.
Bonds are a type of debt instrument that allows a company to generate funds by
selling the promise of repayment to investors. Both individuals and institutional
investment firms can purchase bonds, which typically carry a set interest,
or coupon, rate. If a company needs to raise ₹1 million to fund the purchase of
new equipment, for example, it can issue 1,000 bonds with a face value of ₹1,000
each. Bondholders are promised repayment of the face value of the bond at a
certain date in the future, called the maturity date, in addition to the promise of
regular interest payments throughout the intervening years. Bonds work just like
loans, except the company is the borrower, and the investors are the lenders,
or creditors.
Commercial paper is simply short-term corporate debt with a maturity of 270
days or less.
GOOD DEBT VS. BAD DEBT
In corporate finance, there is a lot of attention paid to the amount of debt a
company has. A company that has a large amount of debt may not be able to
make its interest payments if sales drop, putting the business in danger
of bankruptcy. Conversely, a company that uses no debt may be missing out on
important expansion opportunities.
Different industries use debt differently, so the "right" amount of debt varies
from business to business. When assessing the financial standing of a give
company, therefore, various metrics are used to determine if the level of debt,
or leverage, the company uses to fund operations is within a healthy range.
Bad Debt is referred to as “Non-Performing Asset (NPA), and Good Debt is
expressed as “Standard Asset.”

UNSECURED DEBT
A debt (also referred to as a loan) that is not backed by any security, either
primary or collateral is called an “unsecured debt or loan.” This is also
called “signature loan.”
SECURED DEBT
Secured loans are those loans that are protected by an asset or collateral of some
sort. The item purchased, such as a home or a car, can be used as collateral, and a
lien is placed on such item. The finance company or bank will hold the deed or
title until the loan has been paid in full, including interest and all applicable fees.
Other items such as stocks, bonds, or personal property can be put up to secure a
loan as well.
Secured loans are usually the best (and only) way to obtain large amounts of
money. A lender is not likely to loan a large amount with assurance that the
money will be repaid. Putting your home or other property on the line is a fairly
safe guarantee that you will do everything in your power to repay the loan.
Secured loans are not just for new purchases either. Secured loans can also be
home equity loans or home equity lines of credit. Such loans are based on the
amount of home equity, which is simply the current market value of your home
minus the amount still owed. Your home is used as collateral and failure to make
timely payments could result in losing your home. Secured loans usually offer
lower rates, higher borrowing limits and longer repayment terms than unsecured
loans. As the term implies, a secured loan means you are providing "security" that
your loan will be repaid according to the agreed terms and conditions. It's
important to remember, if you are unable to repay a secured loan, the lender has
recourse to the collateral you have pledged and may be able to sell it to pay off
the loan.

DEBT EQUITY RATIO (DER)
This is one of the important financial ratios. It indicates the relationship between
the loan capital and the capital raised by way of equity.
A good equity base always places the unit in a comfortable position, while a large
loan portfolio will make the financial commitment of the firm precarious.
A debt equity ratio of 1:1 represents an ideal situation. This is the “high-point” of
the financial comfort of the firm.
On the other hand, a debt equity ratio of 5:1 gives a very narrow equity base
making the incidence of interest unduly high. This is the “low-point” of the
financial comfort of the firm.
However, a debt equity ratio of 2:1 would meet the cannons of financial
propriety.
The formula for calculation the DER is D/E=DER, where D refers to Debt, E refers
to Equity, and DER refers to Debt Equity Ratio.
It’s prudent to keep the debt portion as low as possible, because, higher the debt,
higher will be the interest costs, which directly impacts the profitability.
WORKING CAPITAL
Working capital (abbreviated WC) is a financial metric which represents operating
liquidity available to a business, organization or other entity, including
governmental entity. Along with fixed assets such as plant and equipment,
working capital is considered a part of operating capital. Gross working capital is
equal to current assets. Working capital is calculated as current
assets minus current liabilities. If current assets are less than current liabilities, an

entity has a working capital deficiency, also called a working capital deficit. In the
Indian situation 40% of the turnover is considered as working capital margin.
PROFIT MARGIN
It is the amount by which revenue from sales exceeds costs in a business.
Profit margin is calculated with selling price (or revenue) taken as base times 100.
It is the percentage of selling price that is turned into profit, whereas "profit
percentage" or "markup" is the percentage of cost price that one gets as profit on
top of cost price. While selling something one should know what percentage of
profit one will get on a particular investment, so companies calculate profit
percentage to find the ratio of profit to cost.
The profit margin is used mostly for internal comparison. It is difficult to
accurately compare the net profit ratio for different entities. Individual
businesses' operating and financing arrangements vary so much that different
entities are bound to have different levels of expenditure, so that comparison of
one with another can have little meaning. A low profit margin indicates a low
margin of safety: higher risk that a decline in sales will erase profits and result in a
net loss, or a negative margin.
Profit margin is an indicator of a company's pricing strategies and how well it
controls costs. Differences in competitive strategy and product mix cause the
profit margin to vary among different companies.
• If an investor makes ₹10 revenue and it cost him ₹1 to earn it, when he takes
his cost away he is left with 90% margin. He made 900% profit on his $1
investment.
his cost away he is left with 50% margin. He made 100% profit on his $5
investment.
his cost away he is left with 10% margin. He made 11.11% profit on his ₹9
investment.

TURNOVER
Business turnover is a numeric value representing total sales. It is essentially the
value of sales you make in a set period. It is generally measured over a year's
period, whether that's the calendar year, tax year or fiscal year. In other words,
the annual sales volume net of all discounts and sales taxes. It indicates the
number of times an asset (such as cash, inventory, raw materials) is replaced or
revolves during an accounting period. Turnover is an accounting term that
calculates how quickly a business collects cash from accounts receivable or how
fast the company sells its inventory.
BREAKING DOWN 'TURNOVER'
Two of the largest assets owned by a business are accounts receivable and
inventory. Both of these accounts require a large cash investment, and it is
important to measure how quickly a business collects cash. Turnover
ratios calculate how quickly a business collects cash from its accounts receivable
and inventory investments.
How Accounts Receivable Turnover Is Calculated?
Accounts receivable represents the total amount of unpaid customer invoices at
any point in time. Assuming that credit sales are sales not immediately paid in
cash, the accounts receivable turnover formula is credit sales divided by average
accounts receivable. The average accounts receivable is simply the average of the
beginning and ending accounts receivable balances for a particular time period,
such as a month or year.
The accounts receivable turnover formula tells you how quickly you are collecting
payments, as compared to your credit sales. If credit sales for the month total
₹300,000 and the account receivable balance is ₹50,000, for example, the
turnover rate is six. The goal is to maximize sales, minimize the receivable
balance, and generate a large turnover rate.

BREAK-EVEN POINT
This is the most important parameter to know the level of production/sales at
which the enterprise breaks even, that is, neither makes profits nor incurs losses.
There are two ways to go about calculating the break-even point. First, where the
enterprise breaks even taking only the variable costs into consideration. Second,
at which the enterprise breaks even taking both the variable and the fixed costs
into consideration.
The formula for calculating the break-even point is as below:
1. Variable Costs / Total Sales (per annum)
2. Fixed Costs + Variable Costs / Total Sales (per annum)
It is financially prudent to calculate the break-even point based on the second
formula since it covers all the costs and there is chance of the enterprise incurring
a loss, so long as the break-even point is met.
PRODUCT COSTING
Production cost refers to the cost incurred by a business when manufacturing a
good or providing a service. Production costs include a variety of expenses
including, but not limited to, labor, raw materials, consumable manufacturing
supplies and general overhead. Additionally, any taxes levied by the government
or royalties owed by natural resource extracting companies are also considered
production costs.
BREAKING DOWN 'PRODUCTION COST'
Also referred to as the cost of production, production costs include expenditures
relating to the manufacturing or creation of goods or services. For a cost to

qualify as a production cost it must be directly tied to the generation of revenue
for the company. Manufacturers experience product costs relating to both the
materials required to create an item as well as the labor need to create it. Service
industries experience production costs in regards to the labor required to provide
the service as well as any materials costs involved in providing the
aforementioned service.
In production, there are direct costs and indirect costs. For example, direct costs
for manufacturing an automobile are materials such as the plastic and metal
materials used as well as the labor required to produce the finished product.
Indirect costs include overhead such as rent, administrative salaries or utility
expenses.
DERIVING UNIT COSTS FOR PRODUCT PRICING
To figure out the cost of production per unit, the cost of production is divided by
the number of units produced. Once the cost per unit is determined, the
information can be used to help develop an appropriate sales price for the
completed item. In order to break even, the sales price must cover the cost per
unit. Amounts above the cost per unit are often seen as profit while amounts
below the cost per unit result in losses.
If the cost of producing a product outweighs the price that is paid for it, this may
lead producers to consider temporarily ceasing operations. For example, in
January 2017, the selling price of a barrel of oil fell to ₹40 a barrel. With product
costs varying from ₹20 to ₹50 a barrel, a cash negative situation occurs for those
with production costs on the higher end. Those producers may choose to cease
production efforts until sale prices return to profitable levels which lowers the
amount of supply available within the market and may encourage oil prices to rise
based on the shifting supply and demand models.
PRODUCTION COSTS AND ASSET RECORDING
Once a product is complete, it can be recorded as a company asset until the
product is sold. This allows the value of the product to be accounted for within

financial statements and other accounting documents, and provides a way to
keep shareholders informed and reporting requirements to be met.
CASH FLOW
Cash flow is the net amount of cash and cash-equivalents moving into and out of
a business. Positive cash flow indicates that a company's liquid assets are
increasing, enabling it to settle debts, reinvest in its business, return money to
shareholders, pay expenses and provide a buffer against future financial
challenges. Negative cash flow indicates that a company's liquid assets are
decreasing. Net cash flow is distinguished from net income, which
includes accounts receivable and other items for which payment has not actually
been received. Cash flow is used to assess the quality of a company's income, that
is, how liquid it is, which can indicate whether the company is positioned to
remain solvent.
BREAKING DOWN 'CASH FLOW'
The accrual accounting method allows companies to count their chickens before
they hatch, so to speak, by considering credit as part of a company's income.
"Accounts receivable" and "settlement due from customers" can appear as line
items in the assets portion of a company's balance sheet, but these items do not
represent completed transactions, for which payment has been received. They do
not, therefore, count as cash. (Note that the credit vs. cash distinction is not the
same as it is in everyday terminology; proceeds from credit card transactions are
considered cash once they are transferred.)
The opposite can also be true. A company may be receiving massive inflows of
cash, but only because it is selling off its long-term assets. A company that is
selling itself for parts may be building up liquidity, but it is limiting its potential for
growth in the long term, and perhaps setting itself up to fail. In the same vein, a
company may be taking in cash by issuing bonds and taking on unsustainable
levels of debt. For these reasons it is necessary to view a company's cash flow
statement, balance sheet and income statement together.

DEPRECIATION
Depreciation is an accounting method of allocating the cost of a tangible
asset over its useful life. Businesses depreciate long-term assets for both tax and
accounting purposes. For tax purposes, businesses can deduct the cost of the
tangible assets they purchase as business expenses; however, businesses must
depreciate these assets in accordance with AS (Accounting Standards) rules about
how and when the deduction may be taken.
BREAKING DOWN 'DEPRECIATION'
Depreciation is often a difficult concept for accounting students as it does not
represent real cash flow. Depreciation is an accounting convention that allows a
company to write-off the value of an asset over time, but it is considered a non-
cash transaction.
DEPRECIATION EXAMPLE
For accounting purposes, depreciation expense does not represent a cash
transaction, but it indicates how much of an asset's value has been used up over
time. For example, if a company buys a piece of equipment for ₹50,000, it can
either write the entire cost of the asset off in year one, or it can write the value of
the asset off over the life of the asset, which is 10 years. This is why business
owners like depreciation. Most business owners prefer to expense only a portion
of the cost, which artificially boosts net income. In addition, the equipment can be
scrapped for ₹10,000, which means it has a salvage value of ₹10,000. Using these
variables the analyst calculates depreciation expense as the difference between
the cost of the asset and the salvage value, divided by the useful life of the asset.
The calculation in this example is: (₹50,000 - ₹10,000) / 10, which is ₹4,000.
This means the company's accountant does not have to write off the entire
₹50,000, even though it paid out that amount in cash. Instead, the company only
has to expense ₹4,000 against net income. The company expenses another
₹4,000 next year, and another ₹4,000 the year after that, and so on, until the
value of the equipment is completely written off in year 10.

GOODS AND SERVICES TAX (GST)
Goods and Services Tax (GST) is an indirect tax which was introduced in India on 1
July 2017 and was applicable throughout India which replaced multiple cascading
taxes levied by the central and state governments. It was introduced as The
Constitution (One Hundred and First Amendment) Act 2017, following the
passage of Constitution 122nd Amendment Act Bill. The GST is governed by a GST
Council and its Chairman is the Finance Minister of India. Under GST, goods and
services are taxed at the following rates, 0%, 5%, 12% ,18% and 28%. There is a
special rate of 0.25% on rough precious and semi-precious stones and 3% on gold.
In addition a cess of 22% or other rates on top of 28% GST applies on few items
like aerated drinks, luxury cars and tobacco products. GST replaced a slew of
indirect taxes with a unified tax and is therefore set to dramatically reshape the
country's 2 trillion dollar economy.
PROFIT BEFORE TAX
Profit before tax (PBT) is a profitability measure that looks at a company's profits
before the company has to pay corporate income tax by deducting all expenses
from revenue including interest expenses and operating expenses except for
income tax. Also referred to as "earnings before tax" or "pretax profit", this
measure combines all of the company's profits before tax, including operating,
non-operating, continuing operations and non-continuing operations. PBT exists
because tax expense is constantly changing, and taking it out helps give an
investor a good idea of changes in a company's profits or earnings from year to
year.
BREAKING DOWN 'PROFIT BEFORE TAX - PBT
EBT (Earnings Before Tax) may be listed on a company’s income statement. It is
typically the third to last line on the income statement as the second to last line is

the total income tax expense followed by total net income displayed at the
bottom.
CALCULATION OF EBT
EBT encompasses all income earned regardless of source. This includes sales,
commissions, service revenue and interest. All expenses are subsequently
deducted except for corporate income tax. Additionally, EBT may be calculated by
taking the net income of an organization and adding the corporate income tax.
PROFIT AFTER TAX
Profit After Tax is the total amount that a business earns after all tax
deductions have taken place. It is used as a barometer to determine how much a
business really earns and how much it can utilize for it’s day to day activities.
Profit after tax is also seen as a measure of a company’s profitability after all its
expenses have been deducted and can be fully utilized by the company to
conduct its business. Shareholders are also paid dividends from this amount.
Profit after tax is often a better assessment of what a business is really earning
and hence can use in its operations than its total revenues.

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