KVS BRINGS STUDY MODULE FOR CLASS XI ACCOUNTANCY

KVS
(RAIPUR REGION)
Brings for its students
STUDY MODULE
For
CLASS-XI - Accountancy (2016-17)
Under the leadership of

Ms.P.B.S.Usha
Deputy Commissioner
(Chief Patron)
Mr. Girish Chand

Principal, KV-Nabarangpur
(Patron)
Content Updation by:
Sh.R.K. Thakur, PGT- Commerce, KV-No.2, Raipur.
Ms. Monaly.D.P. Mukherjee, PGT-Commerce KV, Bilaspur
Sh.V. Jaiswal, PGT-Commerce, PGT-commerce, KV, BMY Bhilai

KVS RAIPUR REGION
STUDY MODULE
CLASS-XI – Business studies
Points deserve your attention while taking examination:-
*Put the question number clearly on the middle of the page and highlight it by underlining.
*Utilise the early 15 minutes to read the question paper carefully. Plan and organise your answers in mind.
Also try to analyse and break a long question in small parts for easy understanding. As internal choice is
provided only in questions carrying 6 marks, select the questions to be attempted.
* Write your answers in points as far as possible. Avoid writing in paragraphs. If a question carries a
long answer but has been allotted comparatively less marks, focus on points and sub-points
*to make presentation effective; underline the headings/main points and keywords.
* Don’t get confused with the question starting with words like “ list out , outline, state, enumerate, explain “.
In such questions ,answer with complete sentence should be given for each point. Question started with the
word like “ state” give brief description(one sentence each). However, you may check the marks assigned to the
question and accordingly write your answer within the given word limit.
*You can make your answers more effective by supporting it with illustrations, diagrams, views of
management experts, latest example or data, wherever necessary.
*Questions based on distinction must be answered in tabular form with the basis of distinction clearly specified.
*Do not spend more than requisite time on a particular question.
*Use your watch to keep track of time so as to finish the paper well in time and do a quick revision before the
exam ends.
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CHAPTER - 1
NATURE AND PURPOSE OF BUSINESS
Content mapping
Concept andcharacteristics of business.

• Business, profession and employment -Meaning and their distinctive features.
• Objectives of business - Economic and social, role of profit in business
• Classification of business activities: Industry and Commerce.
• Industry - types: primary, secondary, tertiary - Meaning and sub groups
• Commerce - trade: types (internal, external, wholesale and retail; and auxiliaries to trade: banking, insurance,
transportation, warehousing, communication, and advertising.
• Business risks - Meaning, nature and causes.
All Human beings have different types of needs. So, in order to fulfill those needs they have to perform some or the
other activity. Human activities are classified as
1. Economic activities. Economic activities are those by which we can earn our livelihood.
2. non economic activities. non-economicactivities are those which are performed out oflove, sympathy,
sentiments, patriotism.
Economic activities may befurther divided into three categories namely;
1. Business 2.Profession 3. Employment
Business- Meaning:
business refers to an occupation in which people regularly engage in activities related to purchase, production and/or
sale of goods and services with a view to earning profits.
Characteristics of Business activities:
 An Economic activity: It means an activity aimed at earning money. Business is also aimed at earning money or
livelihood by satisfying human needs.
 Production and procurement of goods and services: Every business enterprise must either manufacture the goods
or it acquires from producers. Goods may be consumer goods or Capital goods. Services means facility offered to
consumers like banking, insurance etc.
 Sale or exchange of goods and services: Business involves transfer or exchange of goods and service for value.
 Dealing in goods and services on a regular basis: It should be a regular activity. One time sale or exchange will
not be considered as business.
 Profit earning: Business always aims at earning profit.
 Uncertainty of earning: There is always a possibility of less amount of profit or even loss in business.
 Element of Risk: There is always a possibility of Uncertainty of earnings.
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 Comparison of Business, Profession and Employment:
Basis Business Profession Employment
1. How to Start? Based on Getting membership of Getting an

entrepreneurs a professional body appointment letter
/owners decision
2. What is its nature? Providing goods Rendering of Performing work as

and services to personalized expert per service contract
the public services
3. Qualification/Who can No minimum Requires qualification Requires

start? qualification and training in a qualification and
specific field training
4. Return/What will you Profit Professional Fees Salary

get?
5. Capital/How much you Requires capital Requires limited No capital required
need to start? as per the size of capital
the Business
6. Risk involved More risk Less risk No risk
7. Transfer of Interest – Is possible with Not possible Not possible

Can you transfer? some formalities
8. Code of conduct No code of Professional code of Code of conduct is

conduct is conduct to be followed prescribed by the
prescribed employer to be
followed
 Classification of Business Activities:
Business
Industry
Commerce
 Industry: Production or processing of goods and services. It is concerned with changing the form of the
products. It gives form utility to the products. It is classified into the following:
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Industry
(Producing or processing of Goods as well as breeding of animals)
1. Primary 2. Secondary 3. Tertiary
Extraction and Processing the Support services

production of natural materials got in the to primary and
resources and primary industries secondary
reproduction and industries
development of
living organisms,
plants etc.
1. Primary Industry
a. Extractive Industry b. Genetic Industry
Mining, lumbering, Breeding plants and

hunting and fishing animals, Poultry
operations farming and fish
hatchery
2. Secondary Industry
a. Manufacturing Industry b. Construction Industry
Production and Construction of

processing of goods Buildings, dams,
creating form utilities bridges, etc.,
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2.a. Manufacturing Industry
(i). Analytical (ii). Synthetical (iii). Processing (iv). Assembling

Industry Industry Industry Industry
Separates Combines Involves series Assembles

different various of activities different
elements from ingredients components
E.g., Sugar and
the same
E.g., Cement, Paper E.g., Television,
materials
Textiles, etc., Car, Computer,
E.g., Petrol,
Diesel,etc.,
 Commerce: It includes all those activities which are concerned with removing all the hindrances in the
movement of goods from the manufacturer to the consumers. It includes the following activities.
COMMERCE
INDUSTRY TRADE
Commerce includes the following activities :

1. Industry
2. Trade – Export, Import
3. Transport and communication
4. Banking
5. Insurance
6. Advertisement
7. Packaging
8. Warehousing etc.,
 Trade : Trade means exchange of goods and services between sellers and buyers with profit motive.
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 Auxiliaries to Trade:
1. Transport and communication : Physical movement of goods from the place

where there is no demand to the place where there is demand. Creates place
utility to the product.
2. Banking and Finance : Helps in removing financial hindrances. Facilitates production,

buying and selling by providing funds by way of loans.
3. Insurance: It facilitates business by ensuring compensation for various types of risks.
4. Warehousing: It keeps the goods in tact till they are in demand. It creates time utility
to the product.
5. Advertising: It provides information about availability of goods and services. It

induces the consumers to buy the product.
 Role of Profit in Business:

 It is source of income for the business man.
 It provides funds for expansion
 It is an indicator of efficiency of business man.
 It builds up reputation.
Innovation
Productivity
Physical and
vvity
financial resources
Objectives of Business
Earning profits
Manager performance and

 development
Worker performance and

attitude
Social Responsibility
 Business Risk: It refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected
events.
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Nature Of Business Risks
 Business risks arise due to uncertainties

 Risk is an essential part of business
 Degree of risk depends upon the nature and size of
business
 Profit is the reward for risk taking.
 Causes of Business Risks:

1. Natural Causes : Risk may be due to Flood, earth quake, lightning, heavy rains etc.
2. Human Causes: It includes dishonesty, carelessness or negligence of employees, strikes, riots, etc.
3. Economic Causes: It includes uncertainties relating to demand for goods, competition, price, collection of
dues from customers, changes in economic policies etc.
4. Other Causes: It includes political disturbances, mechanical failures etc.
MCQ:
Q.1 Identify the occupation in which people work for other and get remunerated:
(a) Business (b) Employment (c) Profession (d) Social Service
Q.2 Which profession is related to “Bar Council of India”?
(a) Teacher (b) Doctor (c) Lawyer (d) Chartered Accountants
Q.3 Which profession is related to “Medical Council of India”?
Q.4 Which profession is related to ICAI?
Q.5 The persons who engaged in profession is known as:
(a) labour (b) manager (c) professional (d) worker
Q.6 The occupation which required special knowledge and skill to be applied by individuals is known as:
(a) Business (b) Employment (c) Profession (d) Social Service
Q.7 What is the reward or return in “Business”?
(a) satisfaction (b) salary or wages (c) profit (d) professional fees
Short Answer type Questions :

1. State the different types of economic activities.
Ans. Business, profession and Employment. (1)
2. Name the trade where the goods are bought from the foreign country.
Ans. Import trade. (1)
3. State examples of Analytical industries.
Ans. Petrol, diesel (1)
4. Which industry provides services to primary and secondary industry?
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Ans. Tertiary industry (1)
5. What is meant by Business Risk? Explain the features of it.
Ans. Meaning and Features (3)
6. Describe the meaning of Commerce. (3)
Ans. Meaning of commerce.
Long Answer type Questions:
7. Profit play an important role in business. Give four reasons to justify the statement.
Ans. Role of profit in business (4)
8. Give the meaning and two examples of Economic activities. (4)

Ans. Meaning. Ex. A person selling tea and coffee in the railway station 2. Doctor treating patients at his clinic.
9. Explain the meaning and causes of business risk.

Ans.Refer Meaning and causes. (5)
10. Compare the business, profession and employment.
Ans.Table showing the comparison above. (5)
11. Explain the features of business. (6)
HOTs:
12. Harish produces wheat for personal consumption. Will it be a business activity?
Ans.No.As it is not for performed for earning profit. (1)
13. A person sells his old car at a profit. Can it be termed as a business activity? Explain. (4)
Ans. No. because business involves dealing in goods on regular basis. Brief Explanation of features of
business.
14. Risk is an inherent element of a Business. Do you agree? Explain. (4)

Ans. Meaning and Nature of Business Risks .
15. A chartered Accountant advised his client how to save tax by hiding income.which values affected in this
case?
Ans. Value of violating code of conduct and cheating government by helping in paying less tax.
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CHAPTER - 2
FORMS OF BUSINESS ORGANISATION
Content mapping
Sole Proprietorship- Concept, merits and limitations.

• Partnership- Features, types, merits and limitations of partnership and partners, registration of a partnership firm,
partnership deed. Type of partners.
• Hindu Undivided Family Business: Concept.
• Cooperative Societies- features, types, merits and limitations.
• Company: merits and limitations. Types;private and public company – Concept.
• Formation of a company- four stages, important document (MOA, AOA, relevance certificates of incorporation and
certificate of commencement.
• Choice of form of business organization.
 Meaning of Sole Proprietorship: It refers to a form of business organization which is owned, managed and
controlled by an individual who is in receipt of all profits and bearer of all risks.
Features:
(i) Easy to form and close (ii) Liability (iii) Only bearer of profit and loss (iv) Control
(v) No separate entity. (vi) Lack of business continuity.
Merits:
(i) Quick decision making (ii) Personal satisfaction (iii) Information will be kept secretly (iv) Direct incentive (v)
Ease of formation and closure.
Demerits:
(i) Limited resources (ii) Limited life of a business concern. (iii) Unlimited liability (iv) Limited
managerial ability.
 Meaning of Joint Hindu Family Business:

 It refers to a form of organization wherein the business is owned and carried on by the members of the Hindu
Undivided Family (HUF) and controlled by karta. It is governed by the Hindu Law.
Features:
(i) Formation (ii) Liability (iii) Control (iv) Continuity (v) Minor members.
Merits:
(i) Effective control (ii) Continuity of business (iii) limited liability of members (iv) Increased loyalty.
Demerits:
(i) Limited resources (ii) unlimited liability of karta (iii) Karta’s dominance (iv)limited managerial skills.
 Meaning of Partnership: Relation between persons to share the profits of the business carried on by all the
partners or any one of the partner acting on behalf of all the other partners
Features:
(i) Formation (ii) Liability (iii) Risk bearing (iv) decision making (v) continuity (vi) Member
Merits:
(i) Easy to start and close (ii) proper decision making (iii) More money (iv)secrets are maintained.
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Limitations:
(i) Unlimited liability (ii) Fights exist (iii) Chances for closure (iv) No public confidence.
Types of Partners :
1. Active partner: An active partner is a partner who gives capital, participates in
management, shares the profits and losses and has unlimited liability.
2. Sleeping partner: A Partner who do not take part in the business activities.
3. Secret partner: A partner who has association with the firm but unknown to the
public.
4. Nominal partner: A partner who allows his name to be used by the firm
5. Partner by estoppel: A person who by behaviour sets an impression to others
that he/she is a partner of the firm.
6. Partner by holding out: A person who is not a partner but allows himself to be
represented as partner in a firm.
Consequences of Non Registration:
1. A Partner of an unregistered firm cannot file a case against the firm or other
partners.
2. The firm cannot file a case against third parties.
3. The firm cannot file a case against the partners.
Kinds of partnership:
(i) At Interest (ii) Formed for completing a work
Partnership deed: It is written agreement which contains the rules and regulations for carrying on partnership.
 Meaning of Cooperative Society: It is a voluntary association of persons formed for protecting the mutual
interest of members from exploitation of middlemen.
Features:
(i) Voluntary association (ii) service motive (iii) power to take decisions (iv) limited liability.(v) Registration is
compulsory so they have legal status.
Merits:
(i) Equal voting rights. (ii) Continuous existence (iii) low cost of operation (iv) Government support (v) Easy to
start (vi) limited liability.
Limitations:
(i) Resources are little (ii) Difference of opinion. (iii) Management is not proper (iv) Strict rules from the
government.
Types:
(i) Consumer (ii) Producer (iii) Marketing (iv) Farmer’s (v) Credit (vi) Cooperative housing societies.
 Meaning Of Joint Stock Company: Company is an artificial person created by law with continuous existence&
common seal. Its capital is divided into shares.
Features:
(i) Artificial person (ii) Formation is difficult (iii) Company has separate identity (iv)Continuous existence (v)
Control of the company is made by directors.(vi)liability is limited.(vii) Common seal.
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Merits:
(i) Liability is limited (ii) Chances are there for expansion (iii) Managed by professional people (iv) Continuous
existence (v) Shares can be easily transferred from one person to another person.
Demerits:
(i) Very difficult to form (ii) No secrecy (iii) No personal involvement.(iv)More rules and regulations. (v) Very
slow in decision making (vi) owners have less control.
Types of Companies:
(i) Private company (ii) Public company.
 Public Company:
1. Members: Minimum 7, Maximum unlimited
2. Minimum number of directors: 3
3. Index of members: Compulsory.
4. Transfer of shares: Shares can be transferred easily from one person to another.
5. Invitation to public: It can invite the public to purchase the share and debentures
 Private Company:
1. Members: Minimum 2, Maximum -200.
2. Minimum number of directors: 2
3. Index of members: Not compulsory.
4. Transfer of shares: Shares cannot be transferred from one person to another.
5. Invitation to public: It cannot invite the public to purchase the share and debentures.
 Memorandum of Association:
1. It defines the objects for which the company is formed.
2. This is the main document of the company.
3. This defines the relationship of the company with outsiders.
4. Every company has to file Memorandum of Association.
5. Alteration of Memorandum of Association is difficult.
 Articles of Association:
1. It defines the objectives of the company that are to be achieved.
2. This is the subsidiary document of the company which can be substituted by Table “F” of companies act.
3. Articles define the relationship of the members and the company.
4. It is not necessary for the public limited company.
5. It can be altered by passing a special resolution.
Choice of form of Business organization:
(i) less costly in setting up the organization (ii) Limited liability (iii) continuous existence (iv) Form of raising
capital (v) Control to be made (vi) Nature of business.
 Formation of a Company
STAGES:
 1 Promotion. 2 Incorporation. Capital subscription.4 Commencement of Business:

Promotion: Functions of a Promoter:
(i) Finding out a business opportunity (ii) Conducting studies (iii) Getting the name approved. (iv) Fixing up
persons to sign Memorandum of association
(v) Appointment of professionals (vii) preparation of necessary documents.
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Documents: Memorandum of association:
(i) Name clause (ii) Registered office clause (iii) Objects clause (iv) Liability clause (v)Capital clause (vi)
Association clause. (vii) Articles of association. (viii) Consent of directors (ix) Agreement with managing
director or whole time director (x) statutory declaration
Incorporation:The memorandum of association must be duly stamped, signed and witnessed. (ii) The articles of
association duly stamped and witnessed. (iii)Written permission of the directors. (iv) Agreement with the
managing director/manager.(v)A copy of the registrar’s letter giving permission for the name. (vi) A declaration
that all the legal requirements are followed.(vii) A notice about the exact office of the registered office. (viii)
Documents showing the payment of fees.
Capital subscription:
(i) SEBI approval (ii) Filing of prospectus. (iii) Appointment of brokers, bankers etc., (iv) Collection of
minimum subscription (v) Application to stock exchange (vi) Allotment of shares.
 Commencement of Business:
(i) A declaration about meeting minimum subscription requirement. (ii) A declaration regarding the application
and allotment money paid by the directors as same as others. (iii) A declaration that no money is payable to the
applicants because of the failure of the company. (iv) A statutory declaration that the above particulars are
followed. (v) The registrar shall examine the documents if these are found satisfactory a certificate of
commencement of business will be issued.
MCQs ( 1 MARK)
1. ‘Profit do not have to be shared.’ This statement refers to
(a) Partnership (b) JHF (c) Sole proprietorship *(d) Company
2. Which of the following is not the feature of the sole trade?
(a) Individual Ownership (b) Limited Liability *
(c) Secrecy (d) Undivided Risk
3. Which of the following is not the advantage of the sole trade?
(a) Easy Formation (b) Unlimited Liability *
(c) Quick Decision (d) Personal Control
4. Which of the following is the limitation of the ‘Sole Trade’?
(a) Unlimited Liability (b) Limited Source of Capital
(c) Unbalanced Management (d) All of the above *
5. The head of the JHF Business is popularly known as
(a) Proprietor (b) Director (c) Karta * (d) Manager
6. The ‘Karta’ in the JHF Business has ……………………
(a) Limited Liability (b) Unlimited Liability *
(c) No Liability (d) Joint Liability
7. Which of the following is not the advantage of the JHF Business

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(a) Easy to Start (b) Limited Resource *
(c) Secrecy (d) Direct Contact with Customers
 Very Short Answer type Questions: (1 Mark)

Q.1 For which of the following types of business do you think a sole proprietorship form of organisation would be
more suitable, and why?
(a) Grocery store (b) Medical store (c) Legal consultancy
(d) Craft centre (e) Internet café (f)Chartered accountancy firm.
Q.2 Sole trade is good for which type of business?
Q.3 Explain the following terms in brief
(a) Perpetual succession (b) Common seal (c) Karta (d) Artificial person
Q.4 What is meant by ‘partner by estoppel’? Explain.
Q.5 If registration is optional, why do partnership firms willingly go through this legal formality and get
themselves registered? Explain.
Q.6 Distinguish between partnership and sole proprietorship on the basis of:
(i) Number of members (ii) Capital Contribution (c) Secrecy
Short Answer Question
1. Varun is the only owner of his restaurant. Name the form of business organization.
Ans: Sole proprietorship.
2. Name the form of organization found only in India
Ans: JHF
3. List two merits of Sole proprietorship.
Ans: (i) Single ownership (ii) Full control.
1. Name any one business in which sole proprietorship is most suitable.

Ans: Tailoring
2. Name the type of partnership which is formed to accomplish a specific project for a specific time.
Ans: Particular partnership
3. State any one consequence of non registration of a partnership firm.

Ans: An unregistered firm cannot file a case against third parties.
4. What is the minimum number of persons required to form a cooperative society?

Ans: Ten
5. Name the type of company which can invite the public to subscribe for the shares or debentures.
Ans: Public.
6. Name the process by which a joint stock company is registered.
Ans: Incorporation.
7. Name the document which defines the object and powers of the company.
Ans: Memorandum of Association.
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 Short Answer Type Questions: (3 or 4 Marks)
1. State three advantages of joint Hindu Family business.
Ans (i) Effective control (ii) Continuity of business (iii) limited liability of
members (iv) Increased loyalty. (any three)
2. Explain the features of a Joint Hindu Family business.

Ans: (i) Formation (ii) Liability (iii) Control
3. List any three advantages of partnership.

Ans: (i) Easy to start and close (ii) proper decision making (iii) More money (iv) secrets are maintained.
4. State the important features of partnership.

Ans: (i) Formation (ii) Liability (iii) Risk bearing (iv) decision making
(v) continuity (vi) Member .
5. What are the consequences of nonregistration of a partnership firm?
Ans: A Partner of an unregistered firm cannot file a case against the firm or other partners.
The firm cannot file a case against third parties.
The firm cannot file a case against the partners.
6. Explain any three features of a company.

(i) Artificial person (ii) Formation is difficult (iii) Company has separate Identity.
7. Enumerate the various types of cooperative societies.

(i) Consumer (ii) Producer (iii) Marketing (iv) Farmer’s (v) Credit (vi) Cooperative housing societies
8. What are the functions of a promoter?

(i) Finding out a business opportunity (ii) Conducting studies (iii) Getting the name approved. (iv)
Fixing up persons to sign Memorandum of Association. (v)Appointment of professionals.(vii)
preparation of necessary Documents.
 Long Answer Type Questions: (5 or 6 Marks)

1. Distinguish between Memorandum of Association and Articles of Association.
Answer :
2.Distinguish between a private company and public company.

3. Why is company form of organization preferred than other forms of organization?
4. List and explain the factors which help in choosing an appropriate form of Organization.
HOTs
1. “One man control is the best in the world if that man is big enough to manage
everything”. Explain.
Answer : Discuss Merits of sole proprietorship:
2. “A private company avoids many of the defects of a public company”.
Explain.
Answer : Discuss Merits:
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3. State the reasons for issuing prospectus:
Answer :
1. It serves as an invitation to the public to invest in the shares and debentures of the company.
2. It acts as an advertisement for inducing the investors to invest in the company.
3. It serves as an record of the terms and conditions on which shares and debentures are issued.
4. It helps to protect the interest of the investors.
4. “A company is said to be an artificial person created by law, having a separate entity with perpetual
succession and a common seal”. Discuss the above statement.
Answer : Discuss Features.
5. What value s are involved in 1.Cooperative society and 2.Partnership?
Answer : 1.Cooperative society; values of mutual help and values of protecting interest of
weaker section of society.
2.Partnership; values of sharing and values of mutual help.
Question. Kiran is a sole proprietor. Over the past decade, her business has grown from operating a neighbourhood
corner shop selling accessories such as artificial jewellery bags, hair clips and nail art to a retail chain with three
branches, she is wondering hither she should form a company to better manage the business. She also has plans to
open branches countrywide
(a) Explain two benefits of remaining a sole proprietor.

(b) Explain two benefits of converting to a joint stock company.
(c) What role will her decision to go nationwide play in her choice of from of the organization?
(d) What legal formalities will she have to undergo to operate business as a company?
Ans. (a) Two benefits of remaining sole proprietor are:
(i) Sole beneficiary of profits (ii) Personal touch
(b)Two benefits of converting in joint stock company are
(I ) Large amount of capital (ii) Limited liability
(c)If she plans to go nationwide then she will have to change her form of business from sole proprietorship to
joint stock company.
( d) If she plans to operate as joint stock company. She will have to complete many legal formalities such as:
(i) Getting certificate of incorporation

(ii) Getting certificate of commencement of business, if she plans to operate as public ltd.co.
(iii) Appoint professional experts, brokers, who charge high fees.
(iv) Prepare various documents such as: Prospectus, Memorandum of Association, Articles of
association etc.
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Chapter :3
Public, Private and Global Enterprises
Content mapping;
• Private sector and public sector enterprises;concept.
• Forms of public sector enterprises: features, merits and limitations of departmental undertakings, statutory
corporation and Government Company.
• Changing role of public sector enterprises.
• Global enterprises, Joint ventures, Public Private Partnership –concept, Features
Introduction:
Since the Indian economy consists of both privately owned and government owned business enterprises, it is known as
a mixed economy. The Government of India has opted for a mixed economy where both private and government
enterprises are allowed to operate. The economy, therefore, may be classified into two sectors viz., private sector and
public sector.
The private sector:

The private sector consists of business owned and managed by individuals or a group of individuals, as you have
learnt in the previous chapter. The various forms of organisation are sole proprietorship, partnership, joint Hindu
family, cooperative and company.
The public sector:

The public sector consists of various organisations owned and managed by the government. These organisations may
either be partly or wholly owned by the central or state government. They may also be a part of the ministry or come
into existence by a Special Act of the Parliament. The government, through these enterprises participates in the
economic activities of the country.
In the Industrial Policy Resolution 1948, the Government of India had specified the approach towards development of
the industrial sector. The roles of the private and public sector were clearly defined and the government through
various Acts and Regulations was overseeing the economic activities of both the private and public sector. The
Industrial Policy Resolution, 1956 had also laid down certain objectives for the public sector to follow so as to
accelerate the rate of growth and industrialization.
The 1991 industrial policy was radically different from all the earlier policies where the government was deliberating
disinvestment of public sector and allowing greater freedom to the private sector.
At the same time, foreign direct investment was invited from business houses outside India. Thus, multinational
corporations or global enterprises which operate in more than one country gained entry into the Indian economy. Thus,
we have public sector units, private sector enterprises and global enterprises co existing in the Indian economy.
The forms of organisation which a public enterprise may take are as follows:
(A) Departmental undertaking (B) Statutory corporation (C) Government company
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(A) Departmental Undertakings
(i) This is the oldest and most traditional form of organising public enterprises.
(ii) The funding of these enterprises come directly from the Government Treasury and is an annual appropriation
from the budget of the Government. The revenue earned by these is also paid into the treasury;
(iii) They are subject to accounting and audit controls applicable to other Government activities;
(iv) They act through the officers of the Government and its employees are Government employees.
(v) It is generally considered to be a major subdivision of the Government department and is subject to direct
control of the ministry;
(vi) They are accountable to the ministry since their management is directly under the concerned ministry.
(vii) These ensure a high degree of public accountability;
(viii) The revenue earned by the enterprise goes directly to the treasury and hence is a source of income for the
Government;
(ix) Where national security is concerned, this form is most suitable since it is under the direct control and
supervision of the concerned Ministry.
Limitations:
(i) Departmental undertakings fail to provide flexibility, which is essential for the smooth operation of business;
(ii) The employees or heads of departments of such undertakings are not allowed to take independent decisions,
without the approval of the ministry concerned. This leads to delays, in matters where prompt decisions are
required;
(iii) These enterprises are unable to take advantage of business opportunities. The bureaucrat’s over-cautious and
conservative approval does not allow them to take risky ventures;
(iv) There is red tapism in day-to-day operations and no action can be taken unless it goes through the proper
channels of authority;
(v) There is a lot of political interference through the ministry;
(vi) These organisations are usually insensitive to consumer needs and do not provide adequate services to them.
(B) Statutory Corporations: (RBI, FCI, etc.)

(i) Statutory corporations are set up under an Act of Parliament and are governed by the provisions of the Act.
The Act defines the objects, powers and privileges of a statutory corporation;
(ii) This type of organisation is wholly owned by the Government (central/state). The government has the ultimate
financial responsibility and has the power to appropriate its profits. At the same time, the state also has to bear
the losses, if any;
(iii) A statutory corporation is a body corporate and can sue and be sued, enter into contract and acquire property
in its own name;
(iv) This type of enterprise is usually independently financed. It obtains funds by borrowings from the government
or from the public through revenues, derived from sale of goods and services. It has the authority to use its
revenues;
(v) A statutory corporation is not subject to the same accounting and audit procedures applicable to government
departments. It is also not concerned with the central budget of the Government;
(vi) The employees of these enterprises are not government or civil servants and are not governed by government
rules and regulations. The conditions of service of the employees are governed by the provisions of the Act
itself.
(vii) They enjoy independence in their functioning and a high degree of operational flexibility. They are free from
undesirable government regulation and control;
(viii) Since the funds of these organisations do not come from the central budget, the government generally does not
interfere in their financial matters, including their income and receipts;
(ix) Since they are autonomous organisations they frame their own policies and procedures within the powers
assigned to them by the Act. The Act may, however, provide few issues/matters which require prior approval
of a particular ministry;
Limitations:
(i) In reality, a statutory corporation does not enjoy as much operational flexibility as stated above. All actions
are subject to many rules and regulations;
(ii) Government and political interference has always been there in major decisions or where huge funds are
involved;
(iii) Where there is dealing with public, rampant corruption exists;
(iv) The government has a practice of appointing advisors to the Corporation Board. This curbs the freedom of the
corporation in entering into contracts and other decisions. If there is any disagreement, the matter is referred to
the government for final decisions. This further delays action.
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(C) Government Company (SAIL, BHEL, GAIL, BEML etc.)
(i) It is an organisation created and regulated under the Indian Companies Act, 1956;
(ii) The company can file a suit in a court of law against any third party and be sued;
(iii) The company can enter into a contract and can acquire property in its own name;
(iv) The employees of the company are appointed according to their own rules and regulations as contained in the
Memorandum and Articles of Association of the company.
(v) These companies are exempted from the accounting and audit rules and procedures. An auditor is appointed
by the Central Government and the Annual Report is to be presented in the parliament or the state legislature;
(vi) The government company obtains its funds from government shareholdings and other private shareholders. It
is also permitted to raise funds from the capital market.
(vii) According to the Indian Companies Act 1956, a government company means any company in which not less
than 51 percent of the paid up capital is held by the central government, or by any state government or partly
by central government and partly by one or more state governments. The shares of the company are purchased
in the name of the President of India.
(viii) It has a separate legal entity, apart from the Government;
(ix) It enjoys autonomy in all management decisions and takes actions according to business prudence;
(x) These companies by providing goods and services at reasonable prices are able to control the market and curb
unhealthy business practices.
Limitations
(i) Since the Government is the only shareholder in some of the Companies, the provisions of the Companies Act
does not have much relevance;
(ii) It evades constitutional responsibility, which a company financed by the government should have. It is not
answerable directly to the Parliament;
(iii) The government being the sole shareholder, the management and administration rests in the hands of the
government. The main purpose of a government company, registered like other companies, is defeated.
CHANGING ROLE OF PUBLIC SECTOR

The Indian economy is in a stage of transition. The Five Year Plans in the initial stages of development gave
lot of importance to the public sector. In the post 90’s period, the new economic policies, emphasized
liberalisation, privatisation and globalisation. The role of public sector was redefined. It was not supposed to
play a passive role but to actively participate and compete in the market with other private sector companies in
the same industry. They were also held accountable for losses and return on investment. If a public sector was
making losses continuously, it was referred to the Board for Industrial and Financial Reconstruction
(BIFR) for complete overhauling or shut down. Various committees were set up to study the working of
inefficient public sector units with reports on how to improve their managerial efficiency and profitability.
The role of public sector is definitely not what was envisaged in the early 60’s or 70’s.
(i) Development of infrastructure: Investments were to be made to:

(a) Give infrastructure to the core sector, which requires huge capital investment, complex and upgraded
technology, big and effective organisation structures like steel plants, power generation plants, civil aviation,
railways, petroleum, state trading, coal, etc. ;
i) Regional balance: The government is responsible for developing all regions and states in a balanced way and
removing regional disparities. After 1951, the government laid down in its Five Year Plans, that particular
attention would be paid to those regions which were lagging behind and public sector industries were
deliberately set up.
(iii) Economies of scale: Electric power plants, natural gas, petroleum and telephone industries are some examples of
the public sector setting up large scale units. These units required a larger base to function economically
which was only possible with government resources and mass scale production.
(iv) Check over concentration of economic power: The public sector acts as a check over the private sector. The
public sector is able to set large industries which requires heavy investment and thus the income and benefits
that accrue are shared by a large of number of employees and workers. This prevents concentration of wealth
and economic power in the private sector.
(vi) Import substitution: Obtaining foreign exchange was a problem in second five year plan and it
was difficult to import heavy machinery required for a strong industrial base. At that time,
public sector companies involved in heavy engineering which would help in import substitution
were established.
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Government policy towards the public sector since 1991: The Government of India had introduced four major
reforms in the public sector in its new industrial policy in 1991. The main elements of the Government policy
are as follows:
• Restructure and revive potentially viable PSUs
• Close down PSUs, which cannot be revived
• Bring down governments equity in all non-strategic PSUs to 26 per cent or lower, if necessary; and
• Fully protect the interest of workers.
(a) Reduction in the number of industries reserved for the public sector from 17 to 8 (and then to 3): In
the 1956 resolution on Industrial policy, 17 industries were reserved for the public sector. In 1991, only 8
industries were reserved for the public sector, they were restricted to atomic energy, arms and communication,
mining, and railways. In 2001, only three industries were reserved exclusively for the public sector. These are
atomic energy, arms and rail transport. This meant that the private sector could enter all areas (except the
three) and the public sector would have to compete with them.
(b) Disinvestment of shares of a select set of public sector enterprises: Disinvestment involves the sale of
the equity shares to the private sector and the public. The objective was to raise resources and encourage
wider participation of the general public and workers in the ownership of these enterprises. The government
had taken a decision to withdraw from the industrial sector and reduce its equity in all undertakings.
The primary objectives of privatizing public sector enterprises are:
• Releasing the large amount of public resources locked up in nonstrategic Public Sector Enterprises (PSEs),
so that they may be utilized on other social priority areas such as basic health, family welfare and primary
education.
• Reducing the huge amount of public debt and interest burden;
• Freeing these enterprises from government control and introduction of corporate governance; and
• In many areas where the public sector had a monopoly, for example, telecom sector the consumers have
benefitted by more choices, lower prices and better quality of products and services.
(c) Policy regarding sick units to be the same as that for the private sector: All public sector units were
referred to the Board of Industrial and Financial Reconstruction to decide whether a sick unit was to be
restructured or closed down. The Board has reconsidered revival and rehabilitation schemes for some cases
and winding up for a number of units. There is a lot of resentment amongst workers of the units which are to
be closed down. A National Renewal Fund was set up by the government to retrain or redeploy retrenched
labour and to provide compensation to public sector employees seeking voluntary retirement.
(d) Memorandum of Understanding: Improvement of performance through a MoU (Memorandum of
Understanding) system by which managements are to be granted greater autonomy but held accountable for
specified results. Under this system, public sector units were given clear targets and operational autonomy for
achieving those targets. The MoU was between the particular public sector unit and their administrative
ministries defining their relationship and autonomy.
Global Enterprises:
MNCs are gigantic corporations which have their operations in a number of countries. They are characterized
by their huge size, large number of products, advanced technology, marketing strategies and network of
operations all over the world. Global enterprises thus are huge industrial organisations which extend their
industrial and marketing operations through a network of their branches in several countries. Their branches
are also called Majority Owned Foreign Affiliates (MOFA). These enterprises operate in several areas
producing multiple products with their business strategy extending over a number of countries. They have an
impact on the international economy also.
Features of Global Enterprises:
(i) Huge capital resources: They are able to tap funds from various sources. They may issue equity shares,
debentures or bonds to the public. They are also in a position to borrow from financial institutions and
international banks.
(ii) Foreign collaboration: Global enterprises usually enter into agreements with Indian companies pertaining to the
sale of technology, production of goods, use of brand names for the final products, etc. These foreign
collaborations have given rise to the growth of monopolies and concentration of power in few hands.
(iii) Advanced technology: These enterprises possess technological superiorities in their methods of production. They
are able to conform to international standards and quality specifications. Computerization and other inventions
have come due to the technological advancements provided by MNCs.
(iv) Product innovation: Qualitative research requires huge investment which only global enterprises can afford.
(v) Marketing strategies: The marketing strategies of global companies are far more effective than other companies.
They use aggressive marketing strategies in order to increase their sales in a short period. They posses a more
reliable and up-to-date market information system. Their advertising and sales promotion techniques are
normally very effective.
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(vi) Expansion of market territory: Their operations and activities extend beyond the physical boundaries of their
own countries. Their international image also builds up and their market territory expands enabling them to
become international brands.
(vii) Centralized control: They have their headquarters in their home country and exercise control over all branches
and subsidiaries.
JOINT VENTURES:
When two or more than two business organisations join hands together for common purpose and mutual
benefit and form a new organization is called a joint venture. These two organisations may be private,
government-owned or a foreign company.
a joint venture is the pooling of resources and expertise by two or more businesses, to achieve a particular
goal. The risks and rewards of the business are also shared.
The reasons behind the joint venture often include business expansion, development of new products or
moving into new markets, particularly in another country.
Benefits of Joint Venture:
(i) Increased resources and capacity: Joining hands with another or teaming up adds to existing resources and
capacity enabling the joint venture company to grow and expand more quickly and efficiently.
(ii) Access to new markets and distribution networks: When a business enters into a joint venture with a partner
from another country, it opens up a vast growing market. For example, when foreign companies form joint
venture companies in India they gain access to the vast Indian market. Their products which have reached
saturation point in their home markets can be easily sold in new markets.
(iii) Access to technology: Technology is a major factor for most businesses to enter into joint ventures. Advanced
techniques of production leading to superior quality products saves a lot of time, energy and investment as
they do not have to develop their own technology.
(iv) Innovation: The markets are increasingly becoming more demanding in terms of new and innovative products.
Joint ventures allow business to come up with something new and creative for the same market.
(v) Low cost of production: When international corporations invest in India, they benefit immensely due to the lower
cost of production. They are able to get quality products for their global requirements. India is becoming an
important global source and extremely competitive in many products.
(vi) Established brand name: When two businesses enter into a joint venture one of the parties benefits from the
other’s goodwill which has already been established in the market. If the joint venture is in India and with an
Indian company, the Indian company does not have to spend time or money in developing a brand name for
the product or even a distribution system.
Public Private Partnership:
Public Private Partnership (PPP, P3, or P3) is a legally binding contract between government and private
business firms for the provision of public assets (Project) and / or public services for the benefits of public.
The goal of PPP is to combine the best capabilities of the public and private sectors.
Government remains actively involved throughout the projects life cycle.
The private sector is responsible for the more commercial functions such as project design, construction,
finance and operations. Ownership is automatically transferred after specific period.
Features of PPP:
1. Arrangement with private sector entity: The public assets and / or public service under an arrangement will
be provided by the Private Sector Entity to the Public.
2. Investments and / or management by Private Sector: It provides for both investment and non-investment
PPPs.
3. Operations or management for a specified period: The PPP arrangement is for a specific period, after which
the arrangement with private sector comes to an end.
4. Risk sharing with Private Sector: The PPP project involves sharing of risks with the private sector.
5. Performance linked payments: It aims to provide central focus on performance and not merely provision of
facility or service.
Benefits of PPP:
1. Inflow of Private Investment: PPP attracts private investment which is of utmost importance to undertake
such essential projects.
2. Increased Efficiency: Involvement of private sector will bring efficiency in implementation of projects and
cut down time and cost.
3. Innovation: PPP helps in bringing innovative design and construction practices.
4. Sharing of Project Risks: The structuring of a PPP project allocates the risks to the agency best-suited to
handle the same.
5. Better Viability: Involvement of experienced and creditworthy sponsors and commercial lenders could
enhance viability of the project.
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HOTS – Higher Order Thinking Skills Questions:
1. Identify the form of public sector enterprise in the following cases: (1 mark each)
(a) It is under the control of concerned Minister of the department
(b) It enjoys maximum autonomy in all management activities.
(c) LIC and Air India are the examples of this form of enterprise.
(d) Minimum 51% of the paid up capital is held by the government.
(e) This enterprise is most suitable when national security is concerned.
(f) These enterprises are set up under a special act of parliament.
2. Why are MNCs in a position to exercise massive control on the world economy? [3]
3. Which enterprise is formed when two or more firms join together for a common purpose and mutual benefits.
What are the benefits of such enterprise? Which value is violated if it is done for exploitation of consumers?
[4]
4. Even though public sector played a significant role in economic development, still the number of industries
reserved for it, were reduced to 3. Why? [3]
5. “Multinational Corporations are a mixed blessing to the developing countries”. Comment on this. (Hint:
Merits & Demerits) [6]
6. “Global corporations are giant both in terms of assets and operations.” Explain this statement.(Hint: features
of Global enterprise) [6]
7. “The basic rationale of public sector has changed significantly.” In the light of this statement, state any four
initiatives taken by the government. [5]
8. “Statutory corporations has been the most common form of organisation for public enterprises in recent times.”
State the characteristics and merits of a public corporation. [6]
MCQ.
1. Reliance Industries Limited an exampleof;
(a) Joint Venture (b) Private sector (c) Public sector (d) Foreign Enterprise
2. Indian Oil Corporation Limited is a
(a) Statutory Corporation (b) Departmental undertaking
(c) Government Company (d) Private Company
3. Which one of the following bases is used for measuring efficiency of a public enterprise?
(a) Public service provided (b) Profit earned
(c) Government control exercise (d) Management process adopted
4. Which one of the following types of enterprises is a part of Government?
5. Which one of the following roles of public sector is true after Industrial Policy 1991?
(a) Balance regional development (b) Employment generation
(c) Privatization (d) Mobilization of resources
6. Which one of the following is a feature of global enterprise?
(a) Giant size (b) Government ownership
(c) Joint venture (d) Moderate technology
7. Which of the following is not the form of Private Enterprises?
(a) Sole Proprietorship (b) Departmental undertaking
(c) Partnership (d) Joint Stock Company
8. A private company is related with
(a) Private sector (b) Public sector (c) Govt. Sector (d) Mixed Sector
9. A public company is related with
(a) private sector (b) Public sector
(c) Govt. undertaking (d) All of the above
10. The units of public sector are also known as
(a) State Enterprises (b) Public Sector Undertakings
(c) Mixed Sector (d) All of the above
11. UCO Bank is the example of which sector?
(a) Private sector (b) Public sector (c) Mixed sector (d) None of the above
12. Indian Railways is the example of ______________ form of public enterprises.
(a) Departmental Undertakings (b) Public Corporations
(c) Govt. Company (d) None of the above
13. A government company is any company in which the paid-up capital held by the government is not less than
(a) 49% (b) 51% (c) 50% (d) 25%
14. ‘Food Corporation of India” is the example of ________________ form of public enterprises
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15. PSEs are organisations owned by
(a) Joint Hindu Family (b) Government
(c) Foreign Companies (d) Private Entrepreneurs
16. ‘Hindustan Machine Tools’ is the example of _____________ form of public enterprises:
17. How many industries are reserved for public sector
(a) Three (b) Four (c) Eight (d) Seventeen
18. Which of the following industries in not reserved for public sector?
(a) Atomic Energy (b) Sugar Industry (c) Arms (d) Rail Transport
19. Reconstruction of sick public units is taken up by
(a) MOFA (b) MoU (c) BIFR (d) NRF
20. Disinvestment of PSEs implies
(a) Sale of equity shares to the Private Sector (b) Closing down operations
(c) Investing in new areas (d) Buying shares PSEs
21. Centralized control in MNCs implies control exercised by
(a) Branches (b) Subsidiaries (c) Headquarters (d) Parliament
22. Which of the following is not an advantage of MNCs?
(a) Increase in foreign investment (b) Increase in employment
(c) End of Monopoly (d) Danger for domestic industries
23. Which type of organisation has a disadvantage namely ‘No benefit to poor people’?
(a) Sole Proprietorship (b) Partnership
(c) MNCs (d) All of the above
24. Which of the following is not Indian MNCs?
(a) Ranbaxy (b) Infosys (c) Brook Bond (d) Asian Paints
25. Which of the following is not the MNC of the USA?
(a) Lipton (b) Coca-Cola (c) Ford Motors (d) Pepsi
26. When two business enterprises agree to join together for a common objective and mutual gain, it gives rise to
(a) Partnership (b) Joint Venture (c) Company (d) MNC
27. Which of the following is not a feature of a global enterprise?
(a) Its operations are spread out in several countries.
(b) It attempts to maximise profits world over.
(c) It is of huge size and has control over large assets.
(d) It operates on a small scale.
28. The interference of the government in the day to day working is the highest in case of:
(a) Departmental undertaking (b) Government Company
(c) Statutory Corporations (d) None of the above
29. Which of the following is not a form of organizing public enterprise?
30. Public enterprises are owned by:
(a) Government (b) Joint Stock Companies
(c) Private entrepreneurs (d) Multinational Corporations
31. There are businesses which operate in more than one country known as:
(a) Global Enterprises (b) MNCs (c) Both (d) None of these
32. The post office, in your locality is owned by the ............... Department, Government of India.
(a) Post (b) Telephone (c) Railway (d) Post & Telegraph
33. There are people providing you services like legal services, medical services, being owned by more than one
person i.e.,
(a) Sole Proprietorship (b) partnership firms
(c) HUF (d) Departmental Undertaking
34. Railways is an organisation wholly owned and managed by the government is the example of:
(a) Government Company (b) Statutory Corporation
(c) Departmental Undertaking (d) None of these
35. Indian economy consists of both privately owned and government owned business enterprises, it is known as a
...................
(a) Joint economy (b) Joint Venture (c) PPP (d) Mixed economy
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36. The 1991 industrial policy was radically different from all the earlier policies where the government was
deliberating disinvestment of public sector and allowing ....................... to the private sector.
(a) less freedom (b) greater freedom (c) no freedom (d) None of these
37. The government has a major role to play in the formation of the ....................
(a) public sector (b) private sector (c) joint sector (d) mixed sector
38. These public enterprises are owned by the public and are accountable to the public through the .............
(a) Supreme court (b) President (c) Parliament (d) Prime minister
39. In .......................... the government acts through its people, its offices, employees and they take decisions on
behalf of the government.
(a) public sector (b) private sector (c) joint sector (d) mixed sector
40. ………………… checks over concentration of economic power
(a) Private sector (b) public sector (c) court (d) government
Chapter :4
BUSINESS SERVICES
Content Mapping-
Banking: Types of bank accounts- savings, current, recurring, fixed deposit and multiple option depositaccount.
Banking services with particular reference to issue of bank draft, bankers cheque (pay order), RealTime Gross
Settlement (RTGS), National electronic Funds Transfer (NEFT), bank overdraft, cash creditand e-banking
Insurance-: Principles, Types –life, health, fire and marine insurance –concept
Postal and telecom services: Mail, Under Postal Certificate (UPC), Registered Post, Parcel, Speed Post and Courier
and other services
Types of Services
1. Business Services 2. Social Services 3. Personal Services
Business Services
1. Banking Service 2. Insurance Service 3 . Transport Service
4. Warehousing 5. Communication
I. Banking Services:-
B) Functions of Commercial Banks
Acceptance of Deposits Lending of Funds Cheque Facility
C) Types of Accounts
Savings Account Recurring Deposit Account Multiple Option Deposit Account
Current Account Fixed Deposit Account
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Types of Accounts ;
A. Fixed Deposit Account; Money is deposited in the account for a fixed period. After expiry of specified period
person can claim his money from the bank. Usually the rate of interest is maximum in this account. The longer the
period of deposit, the higher will be the rate of interest on deposit.
B. Current Deposit Account Current deposit Accounts are opened by businessman. The account holder can deposit
and withdraw moneywhenever desired. As the deposit is repayable on demand, it is also knownas demand deposit
Withdrawals are always made by cheque. Normally No interest is paid on current accounts. Rather charges are taken
by bank for services rendered by it.
C. Saving Deposit Account The aim of a saving account is to mobilize savings of the public. A person can open this
account by depositing a small sum of money. He can withdraw money from his account and make additional deposits
at will. Account holder also gets interest on his deposit in this account though the rate of interest is lower than the rate
of interest on fixed deposit account.
D. Recurring Deposit Account The aim of recurring deposit is to encourage regular savings by the people. A
depositorcan deposit a fixed amount, say Rs. 100 every month for a fixed period. The amount together with interest is
repaid on maturity. The interest rate on this account is higher than that on saving deposits.
E. Multiple Option Deposit Account It is a type of saving Bank A/c in which deposit in excess of a particular limit
gets automatically transferred into Fixed Deposit. Therefore, the account holder has twin benefits from this amount (i)
he can earn more interest and (ii) It avails benefitsof saving account.
Functions :
1. Accepting Deposits Accepting deposits is the main function of commercial banks. Banks offer different types
of Bank accounts to suit the requirements and needs of different customers.
2. Lending Money With the help of money collected through various types of deposits, commercial banks lend
finance to businessman, farmers, and others.
3. Ageny Functions;As an agent of its customers, a commercial bank provides the following services :
(a) Collecting bills of exchanges, promissory notes and cheques
(b) Collecting dividends, interest, rent etc.
(c) Payment of interest, insurance premium, etc
(d) Transferring funds from one branch to another and from one place to another
4.. General Utility Functions; Commercial banks also perform the following miscellaneous functions.
(a) Providing lockers for safe custody of jewellery and others valuables ofcustomers.
(b) Giving references about the financial position of customers.
(c) Providing information to a customer about the credit worthiness ofother customers.
E-banking;
E-banking refers to electronic banking or banking using electronic media. E-banking includes a range of services like
Electronic Funds Transfer (EFT), Automated Teller Machine (ATM), Electronic Data Interchange (EDI), Credit Cards
and Electronic or Digital Cash.
Banking Services with special reference:
1. Electronic Fund Transfer; Under it, a bank transfers wages and salaries directly from the company s account to the
accounts of employees of the company. The other examples of EFTs are on line payment of electricity bill,
water bill, insurance premium, house tax etc.
2. Automatic Teller Machines (ATMs); ATM is an automatic machine with the help of which money can be
withdrawn or deposited by inserting the card and typing your personal Identity Number (PIN). This machine operates
for all the 24 hours.
3. Debit Card; A Debit Card is issued to a customers in lieu of his money deposited in the bank. The customers can
make immediate payment of goods purchased or services obtained on the basis of his debit card provided the terminal
facility is available with the seller.
4. Credit Card; A bank issues a credit card to those of its customers who enjoy good reputation. This is a sort of
overdraft facility. With the help of this card the holder can buy goods or obtain services upto a certain amount even
without having sufficient deposit in their bank accounts.
5. National Electronic Fund Transfer : NEFT refers to a nation wide systemthat facilitates individuals, firms and
companies to electronically transfer funds from any branch to any individual, firm or company having an account with
any other bank branch in the country.
6. Real Time Gross Settlement; RTGS refers to a funds transfer system where transfer of funds takes place from one
bank to another on a Real time and on Gross basis. Settlement in Real time means transactions are settled as
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soon as they are processed and are not subject to any waiting period. Gross settlement means the transaction is settled
on one to one basis without bunching or netting with any other transaction. This is the fastest possible money transfer
system through the banking channel. In RTGS transaction minimum amount is 2,00,000.
The basic difference between RTGS and NEFT is that while RTGS transactions are processed continuously, NEFT
settles transactions in batches.
7. Bank Draft; It is a financial instrument with the help of which money can be remitted from one place to another.
Anyone can obtain a bank draft afterdepositing the amount in the bank.
8.Banker s cheque or Pay Order; It is almost like a bank draft. It refers to that bank draft which is payable within the
town. In other words banks issue pay order for local purpose and issue bank draft for outstations.
9.Bank Overdraft; The customer who maintains a current account with the bank, takes permission from the bank to
withdraw more money than deposited in his account. The extra amount withdrawn is called overdraft. This facility is
available to trustworthy customers for a small period. This facility is usually given against the security of some assets
or on the personal security of the customer. Interest is charged on the actual amount overdrawn by the customer.
10. Cash Credit Under this arrangement, the bank advances cash loan up to a specified limit against current assets and
other securities. The bank opens an account in the name of the borrower and allows him to withdraw the borrowed
money from time to time subject to the sanctioned limit. Interest is charged on the amount actually withdrawn.
Advantages of e- banking are-
i) It provides 24 hours, 365 days a year services to the customers of the bank.
ii) It lowers the transaction cost.
iii) It inculcates a sense of financial freedom.
II. Insurance Services
Insurance is a contract by which the loss is likely to be caused by an uncertain event is compensated by the insurer.
A. Functions of Insurance
Providing certainty Protection Risk Sharing Assist in Capital formati
B. Principles of Insurance
Utmost good Faith Proximate Cause Contribution Mitigation

Insurable Interest Indemnity
C. Types of Insurance
Life Insurance Fire Insurance Marine Insurance
Whole Life Policy Joint Life Policy Children’s endowment Policy
Endowment Life Assurance Policy Annuity Policy
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Principles of Insurance : These principles are :
1. Utmost Good Faith : Insurance contracts are based upon mutual trust and confidence between the insurer and the
insured. It is a condition of every insurance contract that both the parties insurer and the insured must disclose each
fact and information related to insurance contract to each other.
2. Insurable Interest : It means some pecuniary interest in the subject matter of insurance contract. The insured must
have insurable interest in the subject matter of insurance i.e., life or property insured, the insured will have to incur
loss due to this damage and insured will be benefitted if full security is being provided. A businessman has insurable
interest in his house, stock, his own life and that of his wife, children etc.
3. Principle of indemnity applies to all contracts except the contract of life insurance because estimation regarding
loss of life cannot be made. The objective of contract of insurance is to compensate to the insured for the actual loss he
has incurred. These contracts provide security from loss and no profit can be made out of these contracts.
4. Causa Proxima : The insurance company will compensate for the loss incurred by the insured due to reasons
mentioned in insurance policy. But if losses are incurred due to reasons not mentioned in insurance policy than
principle of proximate cause or the nearest cause is followed.
5. Principle of Subrogation This principle applies to all insurance contracts which are contracts of indemnity. As per
this principle, when any insurance company compensates the insured for loss of any of his property, then all rights
related to that propertyautomatically get transferred to insurance company.
6. Principle of Contribution According to this principle if a person has taken more than one insurance policy for the
same risk then all the insurers will contribute the amount of loss in proportion to the amount assured by each of them
and compensate him for the actual amount of loss because he has no right to recover more than the full amount of his
actual loss.
7. Mitigation of loss According to this principle the insured must take reasonable steps to minimize the loss or
damage to the insured property otherwise the claim from the insurance company may be lost.
Types of Insurance; C. Types of Insurance
Life Insurance Fire Insurance Marine Insurance

Life Insurance : Under life insurance the amount of Insurance is paidon the maturity of policy or the death of policy
holder whichever is earlier. If thepolicy holder survives till maturity he enjoys the amount of insurance. If he dies
before maturity then the insurance claim helps in maintenance of his family. The insurance company insures the life of
a person in exchange for a premium which may be paid in one lump sum or periodically say yearly, half yearly,
quarterly or
monthy.
Types of Life Insurance Policies.
1. Whole Life Police; Under this policy the sum insured is not payable earlier than death of the insured. The sum then
becomes payable to the heir of the deceased.
2. Endowment Life Assurance Policy; Under this policy the insurer undertakes to pay the assured or his heirs or
nominees a specified sum on the attainment of a particular age or on his death which every is earlier.
3. Joint Life Policy It involves the insurance of two or more lives simultaneously. The policy money is payable upon
the death of any one of lives assured and the assured sum will be payable to the survivor or survivors.
4. Annuity Policy; This policy is one under which amount is payable in monthly, quarterly, half yearly or annual
installments after the assured attains a certain age. This is useful to those who prefer a regular income after a certain
age.
Fire Insurance : It provides safety against loss from fire. If property of insured gets damaged due to fire the insured
will receive the value of damaged property as compensation from insurance company. If no such event happens,
insured will
not receive anything. For such service insurance company charges premium depending upon the amount of loss
insured.
Marine Insurance : Marine insurance provides protection against loss during sea voyage. The businessmen can get
their goods insured whereas the ship owner can get his ship insured by paying the premium fixed by the insurance
company.
Communication;
It is an important service that helps in establishing links between businessmen, Organisation, suppliers, customers etc.
It overcomes the problem of distance between people, businessmen and institutions and thus helps in smooth running
of trade, industrial and commercial activities. In this fast moving and competitive world it is essential to have
advanced technology for quick exchange of information with the help of electronic media.
The main services can be classified into postal and telecom;
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Postal Services; Every business sends to outsiders and receives from outsiders several letters, market reports, parcel,
money order etc. every day. All these services are provided by the post and telegraph offices scattered throughout the
country. The postal department performs the following services.
1. Financial Services They provide postal banking facilities to the general public and mobilise their savings through
the following saving schemes like public provident fund (PPF), Kisan Vikas Patra, National Saving Certificate,
Recurring Deposit Scheme and Money Order facility.
2. Mail Services The mail services offered by post offices include transmission of messages through post cards, Inland
letters, envelops etc. transmission of articles through parcel facility, registration facility and speed post to provide
security of transmitted letters and articles.
The various mail services are :
1. UPC (under postal certificate);When ordinary letters all posted the past office does not issue any receipt. However,
if sender wants to have proof then a certificate can be obtained from the post office on payment of prescribed fee. This
paper now serves as a evidence of posting the letters.
2. Registered Post; Sometimes we want to ensure that our mail is definitely delivered to the addressee otherwise it
should come back to us. In such situations the post office offers registered post facility which serves as a proof that
mail has been posted.
3. Parcel; Transmission of articles from one place to another in the form of parcels is known as parcel post. Postal
charges vary according to the weight of the parcels.
4. Speed Post It allows speedy transmission of articles (within 24 hours) to people in specified cities.
5. Courier Services Letters, documents, parcels etc. can be sent through the courier service. It being a private service
the employees work with more responsibility.
Telecom Services; Todays global business world, the dream of doing business across the world, will remain a dream
only in the absence of telecom services. The various types of telecom services are
1. Cellular mobile services cordless mobile communication device including voice and non-voice messages, data
services and PCO services.
2. Radio Paging Services means of transmitting information to persons even when they are mobile.
3. Fixed Line Services; including voice and non-voice messages and data services to establish linkage for long
distance traffic.
4. Cable services; Linkages and switched services within a licensed area of operation to operate media services which
are essentially one way entertainment related services.
5. VSAT Service (Very small Aperture Terminal); is a Satellite based communication service. It offers government
and business agencies a highly flexible and reliable communication solution in both urban and rural areas.
6. DTH Services (Direct to Home); a Satellite based media services provided by cellular companies with the help of
small dish antenna and a set up box.
1 Marks Questions
Q.1 What do you mean by Debit Card?
Q.2 What is Credit Card?
Q.3 Write the meaning of E- Banking.
Q.4 Define Insurance.
Q.5 Principle of Indemnity is not applicable to which insurance and why?.
Q.6 Name the type of insurance where in insurable interest need not exist
when the policy in taken.
Q. 7 What are the two categories of communication services?
Q.8 Name any two companies that offer DTH service in our country.
3-4 Marks Questions
Q.9 When insurable interest must be present in the following case;
(1) Life Insurance (2) Fire Insurance (3) Marine Insurance.
Q.10 Explain the meaning of Bank Overdraft.
Q.11 Name the accounts generally opened in the Bank.
Q.12. Write about Multiple option Deposit Account is 40 words.
Q.13 Name any four services offered by electronic banking.
Long Answer Question (5-6 Marks)
Q.14 A factory owner gets his stock of goods insured but he hide the fact that the electricity board has issued him
statutory warning letter to get his factory s wiring changed later on, the factory catches fire due to short circuit which
principle is violated in this case. Explain.
Q.15 Why is insurance said to be mechanism of risk coverage and investment.
Q.16 Write a detailed note on various facilities offered by Indian Postal Department.
Q.17 Briefly discuss the various type of accounts by which banks attract
deposit from the public.
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Q.18 Write notes on RTGS system and NEFT.
Q.19 Why principle of indemnity not applicable to life insurance?
HOTS (High Order Thinking Skill)

1. Name the type of banking under which ATM, Credit card and EFT facilities areavailable.
2. Isha obtained a life insurance policy of her husband. After 3 years, Mala divorced her husband. After one year of
divorce, her husband died in a car accident. Can Mala claim the amount of policy from the insurance company?
3. Ships carrying oil are called _________.
4. Cellular companies offer satellite based media service. The service can be viewed on ________.
CHAPTER -5
EMERGING MODES OF BUSINESS
Content mapping
E-business-scope and benefits, resources required for successful e-business implementation, online transaction,
payment mechanism, security and safety of business transactions Outsourcing-Concept: Business process Outsourcing
(BPO) and Knowledge Process Outsourcing (KPO)- Concept, need and scope Smart cards and ATM‟s meaning and
utility
Key Terms
e – Business
e – Business refers to the process of performing Business activities electronically through the means of internet.
Scope of e – Business
The scope of e – Business is quite vast, it includes the following :-
1. B2B Commerce :- Refers to electronically conducted business transactions between business to business.
2. B2C Commerce :- Refers to electronically conducted Business transactions to Customers.
3. Intra-B Commerce:- Refers to electronically conducted business transactions within a given business firm.
4. C2C Commerce :- Refers to electronically conducted Business transactions between Consumer to Consumer.
1. Easy to form
Very easy to start e – business because host of procedures required for traditional business are not required for e –
Business.
2. Requires Less Investment
Both big and small business gets the benefits of internet equally. Thus even one start of small business with less
investment can derive the benefit of e –Business.
3. Convenience
Internet offers the convenience of 24 hours X 7 days a week with a less investment – i.e. one can access anything,
anywhere, any time.
4. Speed
Any business transaction can be made simply at the click of the mouse button, for e.g. Electronic Funds Transfer takes
place at the speed of light
5. Global reach/access
In e – Business both businessmen and consumers have no national boundaries because internet is without such
boundaries. In absence of such internet, globalization may be restricted in scope and speed.
6. Movement towards paperless society
Cutting thousands and thousands of trees to make paper adversely affects the environment but internet has
considerably reduced the dependence on paper.
Resources Required for Successful e-Business Implementation
The resources required for the e-Business are :
1. Computer system - The presence of computer system is the first
requirement of e-Business. The computer can be linked with Internet by just
pressing its keys.
2. Internet connection - Internet connection is very essential and now a days
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we can get this facility by sitting at home.
3. Preparing the web-Page- web page has the greatest importance in the use
of e-Business. It is also known as Home Page. Any product that is to be
shown on Internet is displayed on web page.
4. Effective telecommunication system- e-business requires on effective
telecommunication system in the form of telephone lines etc.
On Line Transactions
On line transaction means receiving information about goods, placing an order, receiving delivery and making
payment through medium of internet. Under this system, the sale purchase of every type of thing, information and
service is possible.
Payment Mechanism
Payment for the purchases through online shopping may be done in following ways :
1. Cash on delivery (CoD) - Cash payment can be made at the time of physical delivery of goods.
2. Net-banking transfer - The customer can make electronic transfer of funds (EFT) to account of online vendor over
the internet.
3. Credit or Debit cards - The customer can make payment for online transaction through debit or credit card by giving
the number and name of bank of card.
Security and Safety of e-Transactions
The following methods can be used to ensure security and safety of online transactions.
1. Confirming the details before the delivery of goods - The customer is required to furnish the details such as credit
card no., card issuer and card validity online.
2. Anti Virus Programs - Installing and timely updating anti virus programs provides protection to data files, folders
and system from virus attacks.
3. Cyber crime cells - Govt. may set up special crime cells to look into the cases of hacking and take necessary action
against the hackers.
Business Process Outsourcing (BPO)

The process of contracting out non-core business activities to Third parties in order toreduce costs and time involved.
Need for BPO
BPO is essential for following reasons :
1. Obtaining Good Quality services - If a company attempts to perform all theactivities itself, there is every possibility
of quality of services being affectedadversely. In order to avoid this difficulty, the need for obtaining services from
outside is felt.
2. Avoiding Fixed Investment in Services - If a company attempts to get these services from within the organisation
itself, it has to establish different departments for this purpose which involves huge investment. Therefore it appears
justified to get these services from outside the organisation at a little cost.
3. Smooth running of business - outsourcing of services is needed in order to run the business smoothly. The attention
of businessman gets distracted from various small things and will be focused on the main activity.
Scope of BPO
In modern business many outside services are used. Out of these services, the following are the important ones :
1. Financial Services - These services means those outside services which help the company in some way or other in
the management of finance.
2. Advertising services - Advertisement is very necessary for increasing sales. If this service is obtained from outside
agency, it will cost less and the quality of advertisement will also be good.
3. Courier services - These services means delivering goods, documents, parcels from company to customers and vice-
versa.
4. Customer support service - These services means delivering goods to customers and to give after sale services also.
Generally, the manufacturers of TV, Fridge, AC etc. use these services.
KPO (Knowledge Process Outsourcing)
KPO refers to obtaining high end knowledge from outside the organisation in order to run the business successfully
and in cost effective manner. Unlike conventional BPO where the focus is on process expertise, in KPO the focus is
on knowledge expertise.
Need of KPO
In today s competitive environment focus is to concentrate on core specialization areas and outsources the rest of
activities. Many companies have come to realize that by outsourcing the non-core activities, not only costs are
minimised and
efficiency improved but the total business improves because the focus shifts to key growth areas of business.
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Debit Card; A Debit Card is issued to a customers in lieu of his money deposited in the bank. The customers can
make immediate payment of goods purchased or services obtained on the basis of his debit card provided the terminal
facility is available with the seller.
Credit Card; A bank issues a credit card to those of its customers who enjoy good reputation. This is a sort of
overdraft facility. With the help of this card the holder can buy goods or obtain services upto a certain amount even
without having sufficient deposit in their bank accounts.
Automatic Teller Machines (ATMs); ATM is an automatic machine with the help of which money can be
withdrawn or deposited by inserting the card and typing your personal Identity Number (PIN). This machine operates
for all the 24 hours.
Business vs. Traditional Business
Basis of distinction Traditional Business e – Business

Ease of formation Difficult Simple
Physical Presence Required Not Required
Location Requirements Need to be near market or Raw None
Materials
Cost of Setting Up High Low
Nature of Contact with Indirect through intermediaries Direct
suppliers & Customers
Nature of Internal From top Direct to all levels
Communication Hierarchical level management
Short Answer type Questions

1. What is e – Business?
9. What is meant by the term “BPO”?
10. What is Online Trading?
12. What are called Call Centres?
16. What does B2B - Commerce stands for?
17. What does B2C – Commerce stands for?
18. What does Intra-B Commerce mean?
19. What does C2C stands for?
Long Answer type Questions
1. Briefly explain benefits of e – Business.
3. Briefly explain different payment mechanisms available for online shopping.
4. Briefly explain the “Need for Outsourcing”.
5. Briefly explain the “Concerns of Outsourcing”.
6. State any five differences between Traditional Business & e – Business
· Question of Higher Order Thinking Skills (HOTS)
1. ‘Outsourcing results in cost reduction’. How? Explain with an example.
Ans. Refer to Concepts Explanation –> Need For Outsourcing – Cost Reduction
2. Mr. Singh placed an online order of Juicer with Flip Cart but even after ten
days the product was not delivered. On enquiry he comes to know that it was
delivered at a wrong address. Identify the risk involved in it and briefly explain other
such possible risks.
Ans. Refer to Concepts Explanation – Transaction Risks
3.Which value is affected if goods supplied are not as per specification shown in the advertisement?
Ans. Dishonesty/wrong trade practice,etc.
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CHAPTER - 6
SOCIAL RESPONSIBILITIES OF BUSINESS & BUSINESS ETHICS
Content Mapping
- Concept of social responsibility– Need/Case for social responsibility- Arguments for social responsibility
- Social Responsibility towards Investors, Consumers, Employee, Government and Community.
-Business and Environmental Protectionand Business;- Meaning and role.
- Business Ethics– Concept and Elements.
Concept of Social Responsibility

Social Responsibility of business refers to its obligation to take those decisions and perform those actions which are
desirable in terms of objectives and values of our society.
Need for Social Responsibility
Opinions are divided over this issue, for some - Business is responsible only to its owners & for others - It needs to be
responsible for social welfare also. Anyhow a better business can survive & grow only in a better society because it
takes all resources from the society and serve to the society. So businesses become integral part of the society,
therefore they should assume social responsibility.
Arguments for social responsibility
-Justification for existence and growth
-Long term interest of the firm
-Avoidance of government regulations
-Maintenance of Society.
-Availability of Resources with Business
-Converting problems with opportunities
-Better environment for doing business
-Holding business responsible for social problems
Social Responsibility towards different interest groups
A business unit has to decide in which areas it should carry out social good. Few areas
are explained below.
Responsibility towards shareholders or owners
To provide fair return on their investment, ensure safety of their investment and to
provide regular, accurate and full information about the business.
Responsibility towards the workers
To provide opportunities for meaningful work, create the right kind of working conditions, respect the democratic
rights of the workers and ensure a fair wage deal from the management.
Responsibility towards the consumer
To provide right quality and quantity of goods and services at reasonable prices and to avoid adulteration, hoarding,
dishonest and misleading advertisements.
Responsibility towards the government & community
To respect the laws of the country and pay taxes regularly and honestly and act according to well accepted values of
the society and to protect environment.
Business & Environmental Protection
Protection of the environment is a serious issue that confronts business managers and decision makers. Business
organizationsare major pollutants so they have to do something to control pollution.
Causes of Pollution
Waste generated by various industries, agriculture, mining, construction, energy production, transportation etc., cause
pollution.
Need for Pollution Control
To preserve precious environmental resources & improve the quality of human life pollution control becomes
essential. Let us list out some reasons for pollution control.
Reduction of health hazard
Pollution control measures can check diseases like cancer, heart attack & lung complications and support a healthy life
on earth.
Reduced Risk of Liability
When people are affected by toxicity released by any business, the business is liable to pay compensation. If the
business installs pollution control devices, it can escape from such a liability.
Cost Saving
Pollution control needs improved production technology which automatically reduces cost.
Improved Public Image
A firm that promotes the cause for environment will enjoy public confidence and good reputation.
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Other social benefits
Cleaner buildings, cleaner roads, clearer visibility, better quality of life, availability of natural products in a purer
form are some of the other social benefits the society can get through proper pollution control system.
Role of business in environmental protection
Most of the pollution is caused by business enterprises and therefore they should take the lead in providing their own
solutions to environmental problems. Some of the specific steps that can be taken by a business are as follows.
1. A definite commitment by top management to systematically protect environment.
2. Involving all divisions and sections of employees in environmental protection.
3. Developing clear cut policies and programs with regards to quality, method and process of production and disposal
of waste.
4. Complying with laws of the land in relation to environmental protection.
5. Participation in government programs such as management of waste, afforestation etc.
6. Periodical assessment of pollution control programs of their own, with a view to improve them.
7. Arranging educational workshops and training materials to share technical information with everyone involved in
pollution control.
Business Ethics
Business ethics refers to the socially determined moral principles which should govern business activities.
Examples of Business Ethics
- Charging fair prices
- Using correct/accurate weights
- Giving fair treatment to all employees
- Avoiding adulteration, hoarding etc.
- Not engaging in any illegal methods of operation and not doing anything which is being considered as undesirable by
the society.
- Using environmentally friendly products, methods and processes.
Benefits of doing Ethical Business
- Ethical business is good business
- It improves public image and support
- Earns people’s confidence and trust
- Leads to greater success
- Helps in long-term standing
Elements of Business Ethics
Top Management commitment
Higher level managers need to be openly and strongly committed to ethical conduct. They should continuously try and
uphold the values of the organization and the society.
Publication of a ‘code’
‘Code’ refers to the written ethical programs followed by a particular business or industry –which normally covers the
areas of honesty, adherence to laws, product’s safety and quality and fairness in all dealings.
Establishment of Compliance Mechanism
Simply having a written ‘Code of Ethics’ is not sufficient, the business needs to ensure its effective implementation at
all levels & throughout the life of the business.
Involving employees at all levels
To make ethical business a reality, employees at all levels must be involved.
Measuring Results
Measuring the results of ethics programs maybe difficult but can have an audit at regular intervals to monitor
compliance with ethical standards and decide about further course of action.
Short Answer type Questions
For answers, please refer to Key terms.
1. What is Social Responsibility?
2. Define Environment.
3. Define Business Environment.
4. What is Environmental Protection?
5. Define Business Ethics.
Long Answer type Questions
1. Briefly explain any five points in favour of Social Responsibility of Business.
Ans. Refer to Arguments for Social Responsibility
2. What is meant by Social Responsibility? & Briefly explain the responsibility of business towards;
i. Shareholders. ii. Employees. iii. Consumers. iv. Government
Ans. Refer to Key Term – Social Responsibility & Concepts Explanation - Social
Responsibility towards different interest groups
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3. Explain role of business in environment protection.
Ans. Refer to role of business in environment protection.
Higher Order Thinking Skills Questions (HOTS)
Q1.You are appointed as a CEO of a leading manufacturing company having many branches
across the country. Explain the steps which you can take to ensure business ethics in your
organization.
Ans. Refer to Concepts Explanation – ‘Elements of Business Ethics’
Q2. ‘Installation of effective pollution control system will reduce the cost and risk of liability
and improve public image’. Explain.
Ans. Refer to ‘Need for Pollution Control’
Q3. A business indulges in following activities. Say, social responsibility towards of which
group is being violated.
a) Pay lesser wages than what is fair
b) Providing product of substandard quality
c) Manipulates its accounts to show lesser profits and to pay lesser tax
d) Releases toxic waste material into the air
e) Indulges in price discrimination
Ans. Social responsibility towards employees, consumers, government, society & consumers.
CHAPTER - 7
SOURCES OF BUSINESS FINANCE
Content Mapping:-
Concept of business finance, Owners‟ funds- equity shares, preferences, share, Global Depository receipt (GDR),
American
Depository Receipt (ADR), International Depository Receipt (IDR) and retained earnings, Borrowed funds:
debentures and bonds, loan from financial institution, loans from commercial banks, public deposits, trade credit, Inter
Corporate Deposits (ICD).
Business cannot be run without money. Funds required to carry out business is called Business Finance. This chapter
throws light on how the finances for the business can be arranged, what are the sources of funding and what terms and
conditions are governed with each type of funding.
Sources of Funds :
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Period Basis; On the basis of period, the differentsources of funds can be categorizedinto three parts. These are long-
termsources, medium-term sources andshort-term sources.
Ownership Basis; On the basis of ownership, the sources can be classified into ‘owner’s funds’ and ‘borrowed
funds’.
Owner’s funds; means funds that are provided by the owners of an enterprise.
‘borrowed funds’; on the other hand, refer to the funds raised through loans or borrowings.
Retained Earning; A company generally does not distributeall its earnings amongst theshareholders as dividends. A
portion ofthe net earnings may be retained in thebusiness for use in the future. This is
known as retained earnings.
MERITS; (i) Retained earnings is a permanent source of funds available to an organization;
(ii) It does not involve any explicit cost in the form of interest, dividend or floatation cost;
(iii) As the funds are generated internally, there is a greater degree
of operational freedom and flexibility.
LIMITATIONS; (i) Excessive ploughing back may cause dissatisfaction amongst the shareholders as they would get
lower dividends;
(ii) It is an uncertain source of funds as the profits of business are fluctuating;
(iii) The opportunity cost associated with these funds is not recognized
by many firms. This may lead to sub-optimal use of the funds.
Trade Credit; Trade credit is the credit extended by one trader to another the purchaseof goods and services.
MERITS; (i) Trade credit is a convenient and continuous source of funds;
(ii) Trade credit may be readily available in case the credit worthiness of the customers is known to the seller;
(iii) Trade credit needs to promote the sales of an organization.
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LIMITATIONS; (i) Availability of easy and flexible trade credit facilities may induce a firm to indulge in overtrading,
which may add to the risks of the firm;
(ii) Only limited amount of funds can be generated through trade credit;
(iii) It is generally a costly source of funds as compared to most other
sources of raising money.
Public Deposits; The deposits that are raised byorganizations directly from the publicare known as public deposits.
Rates ofinterest offered on public deposits are usually higher than that offered on
bank deposits.
MERITS; (i) The procedure of obtaining deposits is simple and does not
contain restrictive conditions as are generally there in a loan agreement;
(ii) Cost of public deposits is generally lower than the cost of borrowings
from banks and financial institutions;
(iii) Public deposits do not usually create any charge on the assets of
the company. The assets can be used as security for raising loans
from other sources;
(iv) As the depositors do not have voting rights, the control of the
company is not diluted.
Limitations; (i) New companies generally find itdifficult to raise funds throughpublic deposits;
(ii) It is an unreliable source of finance as the public may not respond
when the company needs money;
(iii) Collection of public deposits may prove difficult, particularly when
the size of deposits required is large.
Share: The amount of capital to be raised from public is divided into units of equal values. These units are known as
SHARE.
Equity (Ordinary) shares; are those which do not carry any special or preferential rights.
Equity (Ordinary) shares;
Merits Demerits
1. Convenience 1. Low dividend

2. No charge on assets 2. Uncertain
3. No obligation 3. Unbalanced growth
4. Dependable 4. Misuse and Speculation
5. Growth and Expansion
Preference shares; are those which carry two special or preferential rights.(i) receiving a fixed rate of dividend,
before any dividend is declared for equity shareholders; and (ii) receiving their capital before equity shareholders.
MERITS; (i) Preference shares provide reasonably steady income in the

form of fixed rate of return and safety of investment.
(ii) Preference shares are useful for those investors who want fixed
rate of return with comparatively low risk.
(iii) It does not affect the control of equity shareholders over the
management as preference shareholders don’t have voting rights.
LIMITATIONS; (i) Preference shares are not suitable for those investors who are willing to take risk and are
interested in higher returns.
(ii) Preference capital dilutes the claims of equity shareholders over
assets of the company.
(iii) The rate of dividend on preference shares is generally higher than the rate of interest on debentures.
Debenture: A company can raise funds through issue of debentures, which bear a fixed rate of interest. The debenture
issued by a company is an acknowledgment that the company has borrowed a certain amount of money, which it
promises to repay at a future date.
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Types Of Debentures
• Secured Unsecured
• Redeemable Irredeemable
• Convertible Non- Convertible
• Registered Bearer
Debentures
MeritsDemerits
1. Regular return 1.Charge on assets

2. Safety of investment 2.No voting rights
3. Economic sources 3.Permanent burden of
4. Flexibility interests
5. Tax relief
Differences between Shares and Debentures
BASIS SHARES DEBENTURES
1.Types of funds Owner's funds Borrowed funds
2.Return Flexible Fixed
3.Voting rights Available No voting rights
4.Status of holders Owners of the company Creditors of the company
5. Redemption Not redeemable Mostly Redeemable
6.Charge No charge on assets Charge on assets
7. Degree of risk for

High Low
Holders
Public deposits:
Refers to the unsecured deposits invited by companies from the public. It can invite for a period of six months to 3
years. Public deposit cannot exceed 25% of its share capital & resources.
MERITS DEMERITS
1. Simplicity 1. Uncertainty
2. Economical 2. Temporary finance
3. No charge on assets 3.Unsuitable for new
4. No loss on control company
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Loans From Commercial Banks
Business can raise finance from commercial banks in the following ways;
Term Loan: Cash Credit: Discount of bill: Overdraft:

For medium Interest is Banks provide short Current Account
term charged on the term finance in holders is allowed
amount exchange for bill. to overdraw his
actually A/c.
MERITS;(i) Banks provide timely assistance to business by providing funds as and when needed by it.
withdrawn.
(ii) Secrecy of business can be maintained as the information supplied to the bank by the borrowers is kept
confidential.
(iii) Formalities such as issue of prospectus and underwriting are not required for raising loans from a bank. This,
therefore, is an easier
source of funds.
LIMITATIONS; (i) Funds are generally available for short periods and its extension or renewal is uncertain and
difficult;
(ii) Banks make detailed investigation of the company’s affairs, financial
structure etc., and may also ask for security of assets and personal
sureties. This makes the procedure of obtaining funds slightly difficult;
(iii) In some cases, difficult terms and conditions are imposed by banks.
for the grant of loan. For example, restrictions may be imposed on the
sale of mortgaged goods, thus making normal business working difficult.
Financial Institutions; The government has established anumber of financial institutions all overthe country to
provide finance tobusiness organizations.These institutions are established bythe central as well as state
governments.They provide both owned capital and
loan capital for long and medium term requirements like IFCI, ICICI, IDBI, etc.
MERITS; (i) Financial institutions provide long term finance, which are not provided by commercial banks;
(ii) Besides providing funds, many of these institutions provide financial,
managerial and technical advice and consultancy to business firms;
(iii) Obtaining loan from financial institutions increases the goodwill
of the borrowing company in the capital market. Consequently,
such a company can raise funds easily from other sources as well;
(iv) As repayment of loan can be made in easy installments, it does not
prove to be much of a burden on the business;
(v) The funds are made available even during periods of depression, when other sources of finance are not available.
Limitations (i) Financial institutions follow rigidcriteria for grant of loans. Too manyformalities make the
proceduretime consuming and expensive.
(ii) Certain restrictions such asrestriction on dividend payment are
imposed on the powers of the borrowing company by the financial institutions.
Inter Corporate Deposits (ICD);

The Board of Directors
International Sources of Finance: Financial institutions and investors in foreign countries can invest in the shares and
debentures of Indian companies. Two main instruments used by Indian companies to tap international sources of
finance are:
Global Depository Receipts; (GDR’s): The local currency sharesof a company are delivered to thedepository bank.
The depositorybank issues depository receiptsagainst these shares. Suchdepository receipts denominated in US dollars
are known as GlobalDepository Receipts (GDR). GDR is a negotiable instrument and can betraded freely like any
other security. A holder of GDR can atany time convert it into the number of shares it represents. The holdersof GDRs
do not carry any voting rights but only dividends andcapital appreciation.
38
American Depository Receipts(ADR’s): The depository receipts
issued by a company in the USA are known as American Depository
Receipts. ADRs are bought and sold in American markets like regular
stocks. It is similar to a GDR except that it can be issued only to
American citizens and can be listed and traded on a stock exchange
of USA.
IndianDepository Receipts(IDR’s): The Indian Depository Receipt is a financial instrument denominated in Indian
Rupees in the form of a depository receipt created by a domestic/Indian depository against the underlying equity of
issuing company .It enables the foreign companies to raise funds from the Indian securities market. The custodian of
securities must be registered with the SEBI.
Difference;
ADR GDR
(American Depository Receipt) (Global Depository Receipt)
1. Raised from equity markets in USA. 1. Traded on a stock exchange

2. Funds from ADR are available in in Europe or US or both.
US Dollars.
3. No broker is needed. Issued only to 2. No voting right
American citizens
Gist of the Lesson;
1.Business finance is of three types – Long term, Medium term, Short term
2.There are two sources of business finance – Owners funds, Borrowed funds
3.Shares are of two types – Equity and Preference shares
4.Retained profits refer to the undistributed profits which are re-invested in business.
5.ADRS ,GDRS and IDRS are the main International sources of finance.
VALUE BASED QUESTION;
Q. The Board of Directors of “Suzy ltd.” Decided to purchase a new machinery, which require an investment of 5
crore .The actual cost of machinery was 4 crore but The Board of Directors had an understanding with the supplier
that he will prepare an invoice of 5 crore and payback the difference to the directors in cash, personally. What values
did The Board of Directors ignore in the above case.
Ans. 1. Honesty 2. Breach of trust 3. Integrity.
VSA (Very short Answer type questions ) (1mark)
1. What is ADR?
2. What is meant by convertible debenture?
3. Explain the term ‘ICD’ ?
SA (Short Answer type questions ) (3 or 4 marks)
1. Describe the various types of finance?

2. Explain three sources of owners funds.
3. Explain any two types of preference shares.
4. Explain the advantages of equity share.
5. What is IDR?
39
LA (Long Answer type questions ) (5 or 6 marks)
1. Distinguish between Equity shares and Preference shares.

2. What are retained profits? Discuss their merits and demerits.
3. Explain the disadvantages of shares.
4. Explain the merits and demerits of public deposits.
HOTS
1. Name the capital invested in permanent assets.

2. What is self financing?
3. Name the funds needed for day to day operations of business.
CHAPTER - 8
SMALL BUSINESS
Content mapping
Small scale enterprise as defined by MSMED Act 2006 (Micro, Small and Medium Enterprise Development
Act)
Role of small business in India with special reference to rural areas
Government schemes and agencies for small scale industries (National Small Industries Corporation)and
District Industrial Centre (DIC) with special reference to rural, backward and hilly areas
Small Business: Definitions of Micro, Small & Medium Enterprises Development (MSMED)
In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006
the Micro, Small and Medium Enterprises (MSME) are classified in two Classes
The investment on Plant & Machinery/equipment for manufacturing /service enterprises under
MSMED Act 2006, are as under:-.
MANUFACTURING SERVICE
ENTERPRISES ENTERPRISES
Micro -Upto Micro Upto

Rs.25 Lakhs Rs.10 Lakhs
Small -Upto Small -Upto

Rs.5 crore Rs.2 crore
Medium Medium
Upto Rs.10 Upto
crore Rs.5crore
(a) Manufacturing Enterprises-

The Manufacturing Enterprise are defined in terms of investment in Plant & Machinery.
40
(b) Service Enterprises:
The enterprises engaged in providing or rendering of services and are defined in terms of
investment in equipment.
 Role of Small Business in India (With Special Reference to Rural Areas)
 Generation of employment in rural areas

Small industries provide employment opportunities in rural areas. They are the second
largest employers of human resources
 Rural development
The development of village & rural industries leads to industrialization in rural areas
 Equitable distribution of national income
They ensure equitable distribution national income &wealth by reducing income inequalities
between rural & urban areas. They contribute nearly 40% of the gross industrial value added
 Mobilization of local resources

They help in mobilization & utilization of local resources & skills
 Multiple source of income
They help generate multiple sources of income to the rural house holds
 Prevent migration
They prevent migrations of rural population to urban areas in search of employment.
Role of small scale industries in socio economic development of India

 Employment generation
 Output generation
 Export promotion
 Balance regional development
 Development of entrepreneurship
 Complementary to large scale industries
 Problems Of Small Scale Industries

 Finance: Small scale industries find it difficult to get loans from banks & other financial institutions.
 Quality They are not able to get quality raw materials at reasonable prices.
 Management skillsThey are usually run by people who may not have managerial skills.
 Labor They cannot pay higher salaries to employees so they leave the business.
 Global competition They face competition from global enterprises.
 Technology They use outdated machineries & technologies.
 Raw materials Their quality of goods is low.
 Marketing Due to lack of marketing skills & lack of demand, half of the capacity is not utilized so
the operating cost is more.
 Government Schemes and Agencies for Small-Scale Industries in Rural, backward and
Hilly Areas.
Government Measures and Schemes
 Land is supplied at a concessional rate to industries setup in back ward areas.
 Power is supplied at a concessional rate.
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 Water is supplied on no profit no loss basis.
 In all union territories SSI’s are exempted from sales tax.
 Scarce raw materials are supplied on priority basis.
 Loans are offered at concessional rate.
 They are exempted from payment of tax for 5 or 10 years.
Measures taken by the government (Point wise)

 Protective measures
 Credit and finance
 Marketing assistance
 Incentives
 Institutional support
 Institutional support
1. National bank for agriculture and rural development (NABARD) 1982
 It provides assistance to units in SSI sector for rural development.
 It supports cottage and rural industries and artisans by offering cancelling and consultancy
service.
 It provides easy credit facilities
 It organise training and development programmers for rural areas.
2. National small industries corporation(NSIC) 1955

 It supplies imported machines and raw materials to SSI’s on easy hire purchase schemes
 It exports the products of SSI’s
 It provides technologies to SSI’s and creates awareness on technological up gradation
3. District Industrial centers (DIC) 1978
 They provide an integrated administrative frame work at the district level
 They provide all the services and support facilities to the entrepreneurs for setting up small
and village industries
4. Small industries development bank of India (SIDBI) 1989
 It provides term loans to SSI units for modernization, technology up gradation and
diversification.
 It provides assistance for working capital requirements for SSI’s and tiny industries.
 It provides assistance for rehabilitation of potentially viable sick units in SSI sector.
 It undertakes discounting of bills for small business.
 It provides services like factoring, leasing, etc.
 It extends financial support to various institutions engaged in the promotion of small
business, such as the state financial corporation (SFC), state industrial development
corporations (SIDC), etc.
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 It has formulated a credit guarantee fund trust (CGFT) for small industries for guaranteeing
the loans and advance up to Rupees 10 lakh.
 Very Short Answer Type Questions:
1. Name the two categories of village and small industries sector in India.
Ans. Traditional small industries –handlooms, handicrafts, coir, sericulture, khaki, and village
industries
Modern small industries- small scale industries and power looms.
2. Give the full form of NABARD.
Ans.National Bank for Agriculture and Rural Development.
 Short Answer Type Questions:
1. Explain four important problems of small business in India.

Ans. The following points should be explained
 Finance
 Management skills
 Marketing
 Quality
4. Explain any 3 incentives offered by got to small scale enterprise so that they can contribute in the
development of overpopulated country like India.
Ans. As above
5. What is the definition of MSMED?
6. What is Small Business?
Ans. Small Business includes :
a) Small Industries having investment up to 1 Crore
b) Ancillary industrial undertakings
c) Tiny Units
d) Cottage Industries
e) Small Scale Industries owned by women
f) Khadi and village industries
g) Agro based industries.
7. Write the features / Characteristics for small scale enterprises?
Ans. The features / Characteristics of Small scale enterprises are:-
a. Personal Character
b. Independent management
c. Dominance of Labour
d. Limited Investment
e. Limited Area of Operations
f. Located in Rural and Semi-Urban Area
g. Engaged in Light Consumer Goods
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8. Give the Assistance and Special Schemes for Industries in Rural Backward and Hilly Areas by the
Government?
Ans. a. Institutional Support
i. National Small Industries Corporation (NSIC)
ii. The District Industries Centres (DICs).
b. Incentives Offered to Industries in Rural, Backward and Hilly Areas
i. Land at Concessional Rate
ii. Location of Public Sector in Backward Area
iii. Establishment of Industrial Estate
iv. Development of Infrastructure
v. Tax Concession
vi. Providing Finance at Concessional Rate
vii. Providing Subsidies such as Transport Subsidy, Capital Subsidy and Infrastructure
Subsidy
viii. Development of Backward Areas.
 Long Answer Type Questions:
1. The path of small scale industries is full if hurdles.” In the light of this statement,
discuss the problems faced by small scale industries.
Ans. The following Problems of small scale industries should be explained
 Finance
 Management skills
 Marketing
 Quality
 Underutilisation of capacity
 Raw materials
 Labor
 Technology
 Global competition
2. Describe the role of small business in rural India.

Ans. The following points should be explained
 Generation of employment in rural areas
 Multiple source of income
 Prevent migration
 Mobilization of local resources
 Rural industrialization
 Reduction in income inequalities
 Equitable distribution of national income.
3. Identify any 6 major industry groups in the small sector in India.
Ans. 1. Food products
2. Chemicals and chemical products
3. Hosiery and garments
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4. Leather and leather products
5. Repair services
6. Beverages, tobacco and tobacco products.
4. Mention the forms of support to small industries by the govt.
Ans.1. Institutions for credit facilities.
2. Provision of training facilities.
3. Supply of machinery on hire purchase system.
4. Technical assistance.
5. Financial assistance for technological up gradation.
6. Incentives for setting up enterprises in backward areas.
Chapter 9
INTERNAL TRADE
Content mapping
Services rendered by a wholesaler and a retailer . Types of retail-trade-Itinerant and small

scale fixed shops. Large scale retailers-Departmental stores, chain stores, mail order
business. Concept of automatic vending machine . Chambers of Commerce and Industry:
Basic Functions Main documents used in internal trade: Performa invoice, invoice, debit
note, credit note. Lorry receipt (LR) and Railways Receipt (RR). Terms of Trade: Cash on
Delivery (COD), Free on Board (FOB), Cost, Insurance and Freight (CIF), Errors and Omissions
Excepted (E&OE).
Meaning of Internal Trade:

Buying and selling of goods & services takes place within the boundaries of a nation is referred as Internal
Trade.
Types of Internal Trade:
Itinerant retailer – traders who move from one place to another in search of customers and do not have
fixed place to sell their goods, is called ‘Itinerant retailer’. Examples are – peddlers & street hawkers,
pavement vendors, market traders, cheap jacks etc. and they are sold the goods as vegetables, fruits, daily
needs goods, home utility items etc.
Hawkers move from one place to other carrying goods in a bicycle, a hand cart or cycle rickshaw whereas
peddlers carry goods on their heads and move from one place to other in search of customers. They deal in
non-standardized and low valued products.
Market trader’s deals in low valued, low priced of one line or a variety of products by setting temporary
shops at different places on fixed days or dates. i.e. garments, crockery items, general kitchenware or
other day to day utilities.
Street traders are the small retailers who sell their goods at places which are surrounded by huge floating
population. They sell items of daily needs or immediate consumption.
Cheap jacks are petty retailers who run independent, temporary shop in a business locality. They usually
pay a fix amount to the fixed shop owner and set up their temporary shop in the area assigned by the fixed
45
shop owner. They deal in consumer items and change their place depending up on the potential
customers. They can offer better quality products at cheaper prices due to low overhead cost.
Fixed Shop Retailers: (1) Small Scale Fixed Shop retailers (2) Large Scale Fixed Shopretailers
Small scale fixed shops
Examples: General Stores, Street Stall Holders, Speciality Shop Holders, Second hand goods dealers, Single
Line Shop.
General stores are the small shops which sell a variety of consumer products procured from varied
manufacturers. They operate in a local market or residential areas, so they aim to sell products which
would satisfy the day to day needs of the consumers in nearby areas.
Speciality shops are small shops which deal in a specific line of products manufactured by varied
manufacturers. These shops provide customers an opportunity to select a product from a wide variety of
brands. Example- readymade garments shop for school uniforms.
Second-hand goods shops are run by retailers dealing in second hand goods. They sell second hand items
at very low prices.
Single line stores are the shops which deal in a single product. They sell wide variety of items of the same
line. Example- Novelty Shoe store, sell shoes of different brands for all – men, women and children.
Seconds shop sells such goods which were not produced as per the specification or may have
manufacturing defects. The customers are well informed about the defect before buying the product.
Large scale Fixed Shops:
Departmental stores
A departmental store is a large retailing business which offers a wide variety of speciality products with a
sole aim of catering to every customer under the one roof. It is organized into well-defined departments
where each department looks after the activities related to a specific line of products. They offer
medicines, groceries, clothes, toiletries, furniture, electronics, dress materials, shoes and the list goes on.
Example- Big Bazar.
Features:
(1) Varied Service – A departmental store, besides providing widest possible range of goods under the one
roof it also provides services like restaurant, telephone booth, restrooms, information counter,
entertainment facility etc.
(2) Central Location – The stores are located at a place which is well connected with all part of the city.
(3) Huge Investment – The stores are deals in all types of goods with wide variety at large quantity and
they have high overhead cost therefore, needs heavy investment in fixed and working capital.
(4) Corporate Status – The stores are formed as joint stock companies to meet the requirement of huge
investments. They are managed by a board of directors.
(5) Bulk Purchasing – They purchases the goods in large quantities directly from manufacturers. They have
their own warehouse.
(6) Centralized Purchases – The store has centralized purchasing but decentralized sales.
(7) Organized as Departments – The store is organized in various departments and each department is
responsible to sell a line of products.
Chain Stores (Multiple Shops):
A chain store is the network of identical retail shops owned and operated by manufacturer or
intermediaries. These are located at different places across the country, deal in same products, have
similar appearance and operate under the same ownership.
Example – Bata Shoe Stores, Pizzahut etc.
Features:
1. Location – located at the places which attract large number of customers.
2. Huge Investment – involves huge investments to open identical stores across the country.
3. Single line store – specialize in one line of products of entire variety.
4. Uniformity – sell same products, follow same prices, have identical strategies and displays as decided by
the head office.
5. Purchases & Sales – centralized purchases and decentralized sales.
46
6. Management – the day to day business affairs are managed by branch managers who are accountable to
the head office.
7. Cash Sale – sell on cash basis and deposit the daily sales into a local bank account on behalf of the head
office.
8. Controlled by Head Office -
Mail order business:
Mail order houses are the retail outlets selling their products through mail. There is no personal contact
between the buyer and seller. Advertisement is the medium of sale targeting literate customers. This is not
limited to any geographical boundaries. Mail orders are suitable for consumer goods which are
standardized, have continuous demand and long expiry and can be easily transported. Example – books,
cloths, toys, footwear etc.
Advantages of Departmental, Chain Stores and Mail order houses
Departmental Stores Chain Stores Mail Order Houses
1. Attract large number of customers 1. Economies of scale 1. Limited capital required
2. Provides convenience in buying 2. Standard quality 2. Elimination of middlemen
3. Provides variety of services 3. Elimination of middlemen 3. No bad debts
4. Enjoy economies of large scale 4. No bad debts 4. Wide reach
operations 5. Transfer of goods 5. Convenience
5. Promote sales by various schemes & 6. Diffusion of risk
offers 7. Low cost
6. Good quality of products 8. Flexibility
Centralized plan & control
Limitations of Departmental, Chain Stores and Mail order houses
Departmental Stores Chain Stores Mail Order Houses
1. Lack of personal attention 1. Limited selection of goods 1. Lack of personal contact
2. High operating cost 2. Lack of initiative 2. High promotion cost
3. Inconvenient location 3. Lack of personal touch 3. No after sale services
4. High possibility of loss 4. Difficult to change demand 4. No credit sales
5. Huge investment 5. Huge investment 5. Delayed delivery
6. No credit sales 6. Possibility of fraud
7. Dependency on mail
Automatic Vending Machine:
Automatic vending machines are the latest addition to the means of retail business. A coin or a token is
used to purchase a product. The customer inserts the coin or token in the machine and receives the
product. The automatic vending machines are usually places with floating population for example, airports,
railway stations, malls, petrol pumps, office complex etc.
* to withdraw the money with debit card
* to get milk from mother dairy booths
* to get cold drinks from cold drink machines
* Coffee/tea machines
Services rendered by Wholesaler:
Services rendered to manufacturers:
1. Facilities large scale production – collects various small orders from retailers and places large orders with
manufacturers.
2. Bearing risk – market risks for change in demand or prices are borne by the wholesaler.
3. Provides financial assistance – pays either cash or advance for goods purchased.
4. Expert advice – provides latest market information about competitors, tastes and preferences of
customers.
5. Help in marketing functions – distributes goods to millions of customers through retailers.
6. Provides continuity to production activity.
7. Act as storing base for manufacturers – wholesaler store, grade, repack in smaller quantities and
transport to retailers.
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Services rendered to retailers:
1. Enables retailers to keep/store/sell products of different manufacturers in smaller quantities.
2. Provides market support
3. Provides financial support by selling goods on credit
4. Updates retailers with technological changes, information about new products, competitor’s products.
5. Shares the risk of theft, price fluctuation, etc. by way of storing goods on behalf of retailers.
Services rendered by Retailer:
Services rendered to manufacturers/wholesalers:
1. Helps in getting orders, distribution of goods and collection of payments.
2. Makes efforts to sell goods direct customers enabling manufacturer to operate at a large scale.
3. Provides updated market information with concerned to customers preferences.
4. Promotes new products using direct contact with customers.
5. Shares risks.
Services rendered to Consumers:
1. Makes regular availability of goods
2. Provides information related to new products
3. Provides consumers the convenience of quantity and place of buying.
4. Provides wide variety of goods
5. Provides after sale service for sold product
6. Provides consumers the credit facility.
Chamber of Commerce and Industry: Role & functions in the promotion of internal trade
1. Provides help in promotion of interstate movement of goods
2. Ensures that local taxes do not affect the smooth transportation and local trade
3. Interacts with forming cooperatives to streamline subsidies, marketing policies for agriculture products.
4. Interacts with government for formulation and implementation of policies related to weights, measures
and brands.
5. Collaborates with government for development of infrastructure.
6. Interacts with government on issues related to labour laws.
Documents used in internal trade:
Performa Invoice – Preliminary bill sent by the seller with details of goods to be delivered. Invoice –
Detailed of goods delivered such as name of firms and goods, quantity, quality, prices and other terms &
conditions.
Debit note – Business receives from customer to inform sales return.
Credit note – Business sends to customer to acknowledge goods received against sales return. Lorry receipt
– Receipt issued by road transporter against accepting goods for delivery to a specific destination.
Railway receipt – Receipt issued by rail authority against accepting goods for delivery to specified
destination.
Terms of Trade:
Cash on delivery (COD) – Payment for goods purchased at the time of delivery of goods.
Free on board (FOB) – Seller pays transportation cost up to the point of delivery to the transportation
mode.
Cost, Insurance and Freight (CIF) – Seller pays for cost of goods, insurance and transportation cost at the
time of delivery of goods.
Errors and Omissions Excepted (E & OE) – Phrase used on legal documents to reduce liability for incorrect
or incomplete information.
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Chapter 10
INTERNATIONAL BUSINESS
International Business- Meaning & Types
Features , Problems, Importance,
Export Procedure, Import Procedure,
Principal Documents, Important Terms.
One Mark questions:
Q.N.1 What do you mean by international business?
Ans: International business refers to those business activities that take place beyond the geographical
limit of the country.
Q.N.2 What do you mean by Indent?
Ans: Indent is a supply order of goods containing complete description of goods ordered , prices to be
paid , terms of delivery etc.
Q.N.3 Who does issue Mate’s Receipt ?
Ans: Mate’s Receipt is issued by the captain (commanding officer) of the ship to the exporter after the
cargo is loaded on the ship.
Q.N.4 Distinguish between domestic business and international business on the basis of Nationality of buyers and
sellers.
Ans: In domestic business both buyers and sellers belong to same country ,while in International
business both belong to different country.
Q.N.5 What do you understand by ‘ Letter of Credit’ ?
Ans: Letter of credit is a guarantee issued by the importer’s bank to honour payment of the export bills
to the bank of the exporter.
Q.N.6 What is WTO?
Ans: Word Trade Organization(WTO) is a newly globalised trade organization to promote International
Trade.
Q.N.7 What do you mean by Enterport trade?
Ans: When goods are imported from one country and re-exported the same to another country , it is
known as enterpot trade
Q.N.8 What is proforma invoice?
Ans: It is a document issued by the exporter containing detailed information regarding price, quality
,grade, size, weight and all other conditions on which their export will take place.
Q.N.9 State any two functions of WTO ?
Ans: (i) Undertakes the task to settle the trade related dispute among the members countries. (ii)
Provides environment for mitigating grievances by the members countries.
Q.N.10: State one reason for International Business.
Ans: Unequal distribution of natural resources.

Q.N.11: Where is the head quarter of WTO located?
Ans: It is located in Geneva, Switzerland. 159 countries are the members of WTO.
Q.N.12: What do you mean by ‘bill of lading’
Ans: Bill of lading is a document issued by shipping company as an evidence that the shipping company
49
has accepted the goods for carrying them to the port of destination.
(SHORT ANSWER QUESTIONS) 3-4 Marks

Q.N.13 State any three characteristics of international business.
Ans: (i) It involves two or more than two countries . (ii) Foreign currency is used as the medium of
payment.(iii) legal obligation to follow rules regulation of the country (iv) It involves high degree of risk.
Q.N.14: Discuss any three reasons which justify the need of International Business.
Ans: (a) Uneven distribution of Natural Resources : All the natural resources are not available in all
the country of the world but the resources are the need of every country.
(b) Specialization: Some countries are specialized in the production of those goods and services for
which they have some advantages of high labour productivity, technical know-how , and suitable climate
conditions etc.
(c) Cost benifits: Production cost differs in different countries due to socio- economic, geographical and
political conditions .Each country concentrates on production of of such goods and services , which are
most economical to produce.
Q.N.15: State any four problems of International business.
Ans: (a) Different currencies: Every county has its own currency therefore importer has to make
payment in the currency exporter ‘s country.so there is a risk of loss due to exchange rate fluctuations.
(b) Language barrier: Due to different language in different countries , it become difficult for
traders to understand the terms and conditions of the contract.
(c) Legal formalities : International business is subject to large number of legal formalities and
restrictions . So it involves a heavy documentation.
(d) Mobility of factors of production: The Mobility of factors of production especially labours and
capital is difficult between nations due to legal restrictions, variation in social, cultural, geographical ,
economical environment .
Q.N.16: Describe any four advantages of International Business.
Ans: (a) Earning of foreign exchange : Export of goods and services to other countries generate
foreign exchange which can be used to import capital goods , technology and other product as required
by the country.
(b) Optimum utilization of resources: The country produce those goods and services which it can
produce efficiently from the available natural resources . The option of exporting the surplus production
prompts the producers to utilize available resources to achieve maximum production .
(c) Increases employment opportunities: International trade directly increase the level of production
and thus it creates employment opportunities for people .
(d) Increase standards of living : The international trade provides the better quality and cost
effective goods and services produced in other countries . Which improves the standards of living of the
people .
Q.N.17: State any four any four differences between domestic business and International business.
Basis domestic business International business

Concept domestic business takes place with International business takes place
in the geographical boundries of a beyond the geographical boundries of
country. a country.
Nationality Both buyers and sellers belong to Both buyers and sellers are from
the same country. different countries.
Currency of payment Payments are done in local Importer make the payment in the
currency of the country. currency of the exporting country.
Rules and regulations domestic business follows rules International business follows rules and
regulations of the country. regulation of multiple countries.
Q.N.18: State any four objectives of WTO.
50
Ans: (1) To ensure the reduction of tariffs and others trade barriers imposed by different countries.
(2) To facilitate the optimal use of the world’s resources for sustainable development.
(3) To improve the standards of living ,create employement , increase income and effective
demands and facilitates higher production and trade.
(4) To ensure protection and preservation of the environment.
Q.N.19:State any four fuctions of WTO.
Ans: (i) Promotes an environment for member countries to mitigate their grievances at WTO.
(ii) Formulates a code of conduct which is acceptable to all member countries to reduce tariffs and
trade barriers.
(iii) Acts as dispute settlement body.
(iv) Cunsult IMF and IBRD and other affiliated agencies to create better understanding and
cooperation in global economic policy making.
Q.N.20: What do you mean by shipping bill and certificate of origin?
Ans: shipping bill:It is a permission to export, received after the custom clearance of goods to be
exported . It contains details of the goods exported , the name of vessel, discharge port , destination
country ,exporters name and address etc.
certificate of origin: It is document which acts as a proof certifying that the goods have been
manufactured in the exporting country. It is issued by the trade consultant of the exporting country.
LONG ANSWER QUESTIONS) 5-6 Marks

Q.N.21: Discuss the procedure to be followed for export of goods.
Ans: (1) Receipt of enquiry and sending quotations: Exporter Receives an enquiry with complete
product details from the prospective buyer requisting information regarding price , quality , and terms
and conditions for export of goods . The exporter send quotation in reply to the inquiry in the form of the
proforma invoice .
(2) Indent or Receipt of order: Indent is a supply order, received from the prospective buyer satisfied
with the quotation sent. It contains the description of the goods ordered , price to be paid , delivery term
and packing and marking details.
(3) Securing guarantee for payment(demond for letter of credit): To minimize the risk of non-
payment , exporter generally demands a ‘letter of credit ‘ from the importer. Letter of credit is a
guarantee issued by the importer’s bank to honour payment of the export bills to the bank of the
exporter.
(4) Obtaining export license : The exporter is required to obtain ‘Export License ‘ before exporting the
goods from’ Directorate General of Foreign Trade ‘
(5) Obtaining pre- shipment finance And production or procurement of goods: After receiving letter
of credit , the firm may approach bank to get pre- shipment finance to meet financial requirement to
execute the export order.And the exporter starts the manufacturing or procuring the goods.
(6) Pre – shipment inspection : The inspection can be done by inspection agencies authorized by the
government under export quality control and inspection Act, 1963.
(7) Excise clearance : As per Central Exise Tariff Act , exporter is required to pay excise duty on certain
excisable goods and to obtain ‘Excise Clearance certificate ‘ for the same.
(8) Obtaining Certificate of Origin: The exporter obtain the certificate of origin from the consultant and
provide the same to the importer to avail exemption from importing goods from a particular country.
(9) Reservation of shipping space : The exporter has to book shipping space to export goods. After
reservation the shipping company issue ‘shipping order ‘
(10) Packing and forwarding : The goods are then properly packed and marked with necessary details
such as name and address of importer , gross and net weight, port of shipment and destination ect.
(11) Insurance of goods : The goods are insured with an insurance company to avoid the risk.
(12) Custom clearance: Goods can be loaded on the ship only when they get custom clearance. For
this purpose the exporter prepares shipping bill and it is submitted to custom appraiser at the custom
house along with all impotant documents.
(13) Obtaining mate’s receipts : After getting the custom clearance , the goods are loaded on ship for
which the captain of the ship issues a receipt to the port superintendent , known as mate’s Receipt.
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(14) Payment of freight and issuance of bill of lading : After getting mate’s Receipt the exporter
submit the mate’s Receipt to the shipping company for computation of freight . Once the freight is paid
the shipping company issues the ‘Bill of Lading ‘. Which is an evidence that the shipping company has
accepted the goods for carrying them to the destination port.
(15) Preparation of invoice : After sending the goods the exporter prepares an invoice for the goods
exported . The invoice will contain details about the quantity of goods sent and the amount to be paid by
the importer .
(16) Securing payment: After the shipment , the exporter inform the importer and sends following
documents so that the importer can claim title of the goods (i) Invoice (ii) Bill of Lading (iii) Packing list
(iv) insurance policy (v) Certificate of origin (vi) Letter of Credit . The exporter’s bank delivers these
documents to the importer only when the importer accepts the ‘Bill of Exchange’
Q.N.22: What do you mean by import trade ? Describe the steps involved in import procedure.
Ans: : Import trade: It refers to buying of goods and services by a firm of home country from a firm of
foreign country.
Import procedure : (1) Trade Enquiry : Trade Enquiry is a written request from the importer to the
exporter to provide information (quotation) regarding the price ,terms and conditions on which the
exporter is able to supply goods.
(2) Procurement of import license: In case license is mandatory for the given goods , then the importer
must obtain license from the licensing authority. The authorities are Directorate General of Foreign
Trade, Regional import export licensing authourity.
(3) Obtaining Foreign Exchange; The importer has to procure foreign exchange (currency) as payment
for import has to be made in the currency of exporting countrys or US dollar. In India all foreign
exchange transactions are regulated and sanctioned by exchange control department of RBI.
(4) Indent or Placing Order: After obtaining Foreign Exchange , the importer places order for the goods
to be imported. Which is known as Indent.
(5) Obtaining letter of Credit: The exporter ensures the credit worthiness of the importer , so the
importer obtain the letter of credit from its banker and forward it to the exporter .
(6) Arranging for finance: The importer should make arrangements to pay in advance to the exporter.
(7) Receipt of shipment advice: After loading goods on the ship , the exporter despatches the shipment
advice to the importer. Which contains information regarding shipment of goods like Invoice , Bill of
Lading , Packing list, Name of the ship, description of goods etc.
(8) Retirement of import documents : After loading goods on the ship, the exporter prepares necessary
documents and submits it to his banker such as invoice , B/L , Certificate of origin, insurance policy,
Packing list etc. The exporter’s bank delivers these documents to the importer only when the importer
accepts the ‘Bill of Exchange’ .
(9) Arrival of goods : When the goods arrive at the port of the importer’s country , the incharge of the
carrier (ship) provides ‘Import General Manifest’ to the concerned officer in-charge at the port .On the
basis of the documents the goods are unloaded from the carrier .
(10) Custom clearance and release of the goods : In India , delivery of imported goods can be taken only
after custom clearance. Which involves the following steps (i) Obtaining delivery order or bill of lading
(ii)Payment of dock charge (iii) Filling Bill of Entry for assessment of custom import duty (iv) Payment of
custom duty and delivery of goods .
Q.N. 23: Describe the following documents required in export and import trade . (i)Certificate of origin
(ii)Bill of Lading (iii) Shipping order (iv) Shipping Bill
Ans: (i)Certificate of origin : It is document which acts as a proof certifying that the goods have been
manufactured in the expoting country. It is issued by the trade consultant of the exporting country.On
the basis of this certificate the importer avail exemption on importing goods from a particular country.
(ii) Bill of Lading : Bill of lading is a document issued by shipping company as an evidence that the
shipping company has accepted the goods for carrying them to the port of destination.It is also a
document of the title of the goods .
(iii) Shipping order: The exporter has to book shipping space to export goods. After reservation the
shipping company issue ‘shipping order ‘ .Shiping order is an instruction to the captain of the ship to
receive the specified goods on board after clearance from the cutom.
52
(iv) Shipping Bill:A shipping bill is the main documenton the basis of which the the custom officegrant
permission for the export .Which contains details regarding the name of the vessel, berth , date of the
shipment , description of the package , marks and number , name and address of exporter , destination
country etc.
Q.N.24 What is WTO? State any five functions of WTO.
Ans: WTO:Word Trade Organization(WTO) is a newly globalised trade organization to promote

International Trade. The Word Trade Organization(WTO) was established on Jan. 1, 1995 to replace the
General Agreement on Trade and Tariff (GATT). It ensures that International Trade flows as smoothly
and freely as possible .
Functions of WTO:
(i) Promotes an environment for member countries to mitigate their grievances at WTO.
(ii) Formulates a code of conduct which is acceptable to all member countries to reduce tariffs and
trade barriers.
(iii) Acts as dispute settlement body.
(iv) Consult IMF and IBRD and other affiliated agencies to create better understanding and
cooperation in global economic policy making.
(v) Ensuring that all the rules and regulations are duly followed by the member countries to settle
their disputes.
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KVS BRINGS STUDY MODULE FOR CLASS XI ACCOUNTANCY

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KVS BRINGS STUDY MODULE FOR CLASS XI ACCOUNTANCY

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KVS

CLASS-XI - Accountancy (2016-17)

Under the leadership of

Mr. Girish Chand

Content Updation by:

Sh.R.K. Thakur, PGT- Commerce, KV-No.2, Raipur.

Ms. Monaly.D.P. Mukherjee, PGT-Commerce KV, Bilaspur

Sh.V. Jaiswal, PGT-Commerce, PGT-commerce, KV, BMY Bhilai

CLASS-XI – Business studies

Points deserve your attention while taking examination:-

Concept andcharacteristics of business.

Characteristics of Business activities:

Basis Business Profession Employment

1. How to Start? Based on Getting membership of Getting an

2. What is its nature? Providing goods Rendering of Performing work as

3. Qualification/Who can No minimum Requires qualification Requires

4. Return/What will you Profit Professional Fees Salary

6. Risk involved More risk Less risk No risk

7. Transfer of Interest – Is possible with Not possible Not possible

8. Code of conduct No code of Professional code of Code of conduct is

 Classification of Business Activities:

(Producing or processing of Goods as well as breeding of animals)

1. Primary 2. Secondary 3. Tertiary

Extraction and Processing the Support services

a. Extractive Industry b. Genetic Industry

Mining, lumbering, Breeding plants and

a. Manufacturing Industry b. Construction Industry

Production and Construction of

(i). Analytical (ii). Synthetical (iii). Processing (iv). Assembling

Separates Combines Involves series Assembles

Commerce includes the following activities :

1. Transport and communication : Physical movement of goods from the place

2. Banking and Finance : Helps in removing financial hindrances. Facilitates production,

3. Insurance: It facilitates business by ensuring compensation for various types of risks.

5. Advertising: It provides information about availability of goods and services. It

 Role of Profit in Business:

Manager performance and

Worker performance and

 Business risks arise due to uncertainties

 Causes of Business Risks:

(a) Business (b) Employment (c) Profession (d) Social Service

Q.2 Which profession is related to “Bar Council of India”?

(a) Teacher (b) Doctor (c) Lawyer (d) Chartered Accountants

Q.3 Which profession is related to “Medical Council of India”?

(a) Teacher (b) Doctor (c) Lawyer (d) Chartered Accountants

Q.4 Which profession is related to ICAI?

(a) Teacher (b) Doctor (c) Lawyer (d) Chartered Accountants

Q.5 The persons who engaged in profession is known as:

(a) labour (b) manager (c) professional (d) worker

(a) Business (b) Employment (c) Profession (d) Social Service

Q.7 What is the reward or return in “Business”?

Short Answer type Questions :

Long Answer type Questions:

8. Give the meaning and two examples of Economic activities. (4)

9. Explain the meaning and causes of business risk.

14. Risk is an inherent element of a Business. Do you agree? Explain. (4)

Sole Proprietorship- Concept, merits and limitations.

(v) No separate entity. (vi) Lack of business continuity.

 Meaning of Joint Hindu Family Business:

(i) At Interest (ii) Formed for completing a work

(i) Private company (ii) Public company.

 1 Promotion. 2 Incorporation. Capital subscription.4 Commencement of Business: