Category: Commerce Notes PPT

What is a Control System?

A control system is the one which manages, commands also directs, or regulates the behaviour of other departments or systems in a company.

 

For continuously devised control systems, a feedback control system is used to automatically control all the processes in an organization.

 

Control System in an organization is very essential, before hitting to the main elements to be present in a good controlling system, first let us know what actually this control system in an organization means? Popularly known as MCS.

 

Management Control System (MCS)

This is a system which gathers and also uses the gathered information to evaluate the performance of different resources of the organization like human resources, physical and financial resources and also the organization as a whole in light of the laid strategies which are attempted to be achieved by the company. Management control systems influence the behaviour of the organizational resources to implement the set organizational strategies. Management control systems might be formal or even informal. 

 

Management control systems are tools to assist the management for an organization piloting toward its strategic objectives and it’s competitive advantage. Management controls are the only tool which managers use in implementing the desired strategies. However, the strategies get implemented with the help of management controls, organizational structure, human resources management and culture. 

 

According to Simons, Management Control Systems are the formal system, information-based routine work and procedures which managers use to maintain or to alter the patterns in an organizational activity. Anthony & Young showed that management control system in an image of a ‘black box’. Black box is used to describe an operation whose exact nature cannot be observed by a layman.

 

Elements of a Good Control System Overview

In every organization it is mandatory to have a good control system. An assured control system only comes with good elements present in it, the selective elements are as follows –

 

1. Planning  

Planning and control are closely connected to each other. Planning without controlling is meaningless and controlling without planning is acting blindly. Planning provides the base for control. Control brings focus to all bottlenecks related to work performance and this operates as a straight pin to the requirement of the situation. It is thus related to the planning function of the manager. Control is the result of all set plans, goals or policies. Thus, we see planning offers and affect control. Properly devised plans become important elements in bringing strong control.

 

2. Action  

Control suggests what actions can be taken to correct the deviation that might occur between the standards and the actual results. Definitely, it should assume the role of an emergency handler who comes into action right when it is the urgency. But deviations do occur in spite of the best guiding from the manager. In such a situation, the manager should be vigilant in his act. He should be quick not only in identifying the deviations, but also in rectifying them with the correct ones. Thus, control means the required and quick action to correct differences or actions which at least try to prevent such variations in future.

 

3. Delegation of Authority 

Delegation of authority only means to grant the authority or power to the subordinates to operate within the prescribed limits. Control means the authority to get the performance and detect it’s deviations and then to take the necessary corrective action. A manager cannot exercise control without the adequate authority. He also has a need to control the operations which are exercised by taking action which may be taken within the limits of his authority. The best policy of delegation is the matching of equitable responsibility and authority. It also suggests that a manager must have corresponding authority as compared to his own responsibility.

4. Information 

For an effective control system, there must be a prompt flow of information to the manager. Managers in the organisation must have adequate information about the performance, standards, and resources being contributed to the achievement of the organizational objectives. The system of communicating back to the manager is called a “feedback” system. An effective feedback system helps the manager to know where and when the deviation from any plan took place. This can then initiate a prompt corrective action. Promptness in reporting and information is vital for quick remedial action.

 

Thus, we see there are these elements which form an effective control system. Every organization must make sure about this system of control in order to control all the resources in the department.

We have often heard about the term ‘shares’ in the financial sector. The definition of the term share lies in the word itself. But we may not know about the term in detail. A share, in the finance market, means a unit used as limited partnerships, mutual funds, and real estate investment trusts. A person who holds the share(s) in a particular company is known as the shareholder of the organisation. In a further technical term, a share is a unit of capital that cannot be divided and it expresses the ownership relationship between the shareholder and the corporation. Everything about shares is not an easy task to understand. For this purpose, we have to understand the basics of the equity shares and preference shares only, in detail. 

Equity Shares

The other name of ‘equity share’ is ‘ordinary share’. It is a subset under the fractional ownership or part ownership in which the shareholder tackles the maximum business risk as a fractional owner. Generally, the members of the company with voting rights are the holders of Equity Shares. Long-term capital is raised with the aid of Equity shares. Equity shareholders are called ‘residual owners’. They are paid the residual amount after the settlement of claims on the company’s income and assets. These shareholders can take part in the management of the company through their voting rights.

Advantages of Equity Share

1. Equity capital is the building block of a company. It is the last thing added in the list of claims and it produces a cushion for creditors.

2. Equity capital generates creditworthiness to the company and boosts up the confidence of various loan producers.

3. Equity shares are preferred by investors who are willing to take larger risks. 

4. It is not compulsory to pay the dividend to the equity shareholders. So, the company will not face any burden for this. 

5. The funds are raised by equity issues without generating any charge on the assets of the company.

6. The management of the company may be controlled by the equity shareholders by their voting rights.

Disadvantages of Equity Shares

1. Risk-averse investors with the preference of fixed income will not like equity shares.

2. The cost of raising funds from other sources is lower than the cost of equity shares. 

3. The voting rights and earnings of existing equity shareholders are dismissed by the issue of the additional equity shares.

4. Equity share is a time-consuming process as it involves various formalities and administrative delays.

Preference Shares

Preference Shares are the shares which guarantee the holder a fixed and steady dividend, whose payment takes priority over the equity share dividends. Capital raised by the issue of preference shares is termed as preference share capital.The basic difference between preference shareholder and equity shareholder is that preference shareholders are in a better position over the equity shareholders. Preference shareholders receive a fixed and steady dividend from the revenue of the company before an equity shareholder gets any dividend. 

Types of Preference Share

There are three types of preference shareholders namely Cumulative and Non-Cumulative, Participating and Non-participating and Convertible and Non-Convertible. 

a) Cumulative and Non-Cumulative

Cumulative preference shares are known as the preference shares that have the power to collect dividends which are not paid in the future years, in case the same is not paid during a year. If the dividend is not accumulated over the unpaid dividends in a particular year it is called Non-cumulative shares. 

b) Participating and Non-Participating

Preference shares which have the power to take part in the extra surplus of company shares which, after dividend, is paid at a fixed rate on equity shares are called participating preference shares. In the case of non-participating preference shares, the above power is not exercised. 

c) Convertible and Non-Convertible

If the preference share is converted into equity shares for a certain period of time, it is called convertible preference share. The rest is called non-convertible preference shares.

Advantages of Preference Share

1. It does not influence the control of equity shareholders over the management.

2. There may be a hike in dividend for the equity shareholders in the good time.

3. The income of the shareholders is steady and fixed.

4. They have a preferential power of repayment over the equity shareholders.

5. Any sort of charge against the assets of a company is not created by the preference capital.

Disadvantages of Preference Share

• The amount dividend is higher than the rate of interest on debentures.  

• The dividend on these shares is regulated by the revenue of the company.

• Risk lovers will not prefer this kind of share.

• Claims of equity shareholders diluted by the preference capital.

• It is not possible to deduct the dividend paid from the profits as an expense.

• So, in a nutshell, shares of certain companies are based on two types of shares namely equity shares and preference shares. Both the shares are equally important in respect of shareholders of companies and both of them have certain merits and demerits. 

Quick Hacks to Test your Knowledge on Equity Shares and Preference Shares Incorporating

A student must be thorough with equity shares as well as preference share by understanding the basic concepts related to this topic. In order to make it convenient for the students, here are listed the differences between equity share and preference–

1. Preference shares can be transformed into equity shares but equity shares can not be transformed or changed into preference shares. 

2. On the basis of Dividends, equity shareholders do not get fixed dividends while preference shareholders have fixed dividend payout who receive the dividends before equity shareholders. 

3. Equity shareholders have the right to vote in the company meetings while preference shareholders enjoy no such votes in the company annual meetings. 

4. The rate of dividend received by the equity shareholders can fluctuate based on the turnovers and profits of the company while preference shareholders enjoy fixed payout on dividends. 

5. Upon winding up of company and liquidation of company assets, preference shareholders receive repayment of capital while equity shareholders do not.  

Upon understanding the difference between them both, a student can understand the advantages and disadvantages of both of the types of shares deeply. It will surely come in handy during preparing for exams. 

The objective of Financial management

A student must understand the importance of financial management since it is an essential concept in Commerce. Here are a few points that explain that throws some light on the objectives of finance management–

1. Financial management delves primarily into maximising the shareholder’s wealth corresponding to the current market rates of equity shares. The wealth can be optimised upon optimum utilisation of present funds. 

2. The cost has to be minimized and in order to achieve that, the funds should be acquired at the lowest minimum price and rate so that the financial planning can come to successful fruition. 

3. The composition of capital must be a perfect balance between funds and debts. 

4. The returns must always exceed the investment so as to optimize the utilization of the funds which in return makes the utilization more effective and efficient. 

5. The investment must be safe and free of risks so that the plan works in favor of shareholders in maximizing their returns.  

• Students can find the notes of Equity shares and Preference shares from ’s official website as well as the mobile application. The solutions to questions on textbooks of Class 11 and 12, sample questions as well as practice papers can also be found and downloaded in PDF formats. 

• Incorporating on a regular study schedule can be beneficial for a student in terms of understanding Equity shares and Preference shares. Live sessions, as well as doubt clearing sessions, are available for students’ ease and convenience. 

• The basic concepts and textbook solutions to the Equity Shares and Preference Shares chapter are also available on the e-learning platform that will surely help the students who are looking for an easy understanding of this topic and make notes for exams. 

• To better understand this topic, a student may also indulge in understanding the market practices and learn from the experts regarding the investment policies as well as stock market practices to make it more elaborate in terms of understanding the shares and investment behind it. 

• A student must study this topic regularly and understand the differences between both of the shares in order to clear the basic concepts and prepare for the exams with more agility and confidence. 

Summary on Equity and Preference Shares

• Equity shares and Preference shares are one of the core topics in a basic understanding of commerce that must be taken seriously but they must be understood along with the concepts of capital structure. 

• Capital structure is the blend of equity funds and debts that results in total capital. Some of the factors of capital structure that centre around equity and preference shares are listed below for a quick reference–

1. Cost of equity 

2. Floatation cost 

3. Cost of debt 

4. Considering risks (Financial risks and operating risks) 

5. Stock market conditions (Bullish phase and Bearish phase) 

6. Cash flow position 

7. High and low return of investment 

• A student must prepare notes and pay minute attention to the definitions and explanations of the concepts without neglecting the advantages and disadvantages of equity shares and preference shares. Writing them down also helps in memorising them. 

• A student can refer to the visual concepts and interactive sessions that are available over . It is helpful for the students to recall the answers later during examinations. 

• The solutions regarding equity shares and preferences that are available over ’s website are curated for easy understanding of the concepts and can be downloaded for incorporating the notes and solutions for revision. 

• The sample papers have proven to be essential for scoring better marks in the exams, however,  textbooks are just as important so a student should pay attention to both of them. 

Production refers to the output produced by a company. It decides the profit and growth of that particular company. However, to get products or output, we need some input. The inputs to the company are land, labour, entrepreneurship, and the most crucial resource: capital.  With the capital, we can get other inputs too. So capital as a factor of production plays a significant role. Now, what is capital? Let us see the meaning of capital in Economics. In any kind of organization, capital refers to the machinery, assets, labour, land, money, etc. 

In simple words, we can say that the factors that drive the production of goods or services, is capital.

Types of Capital in Economics

An essential input for any production is capital. So it is important to understand the types of capital in economics. Many economists have classified the capital in various ways. Let us take a look at the general classification. 

Financial Capital

• Debt

• Equity

• Working capital

• Investment

Natural Capital

• Animals

• Ecologies

• Vegetation

• Commodities

Human Capital

• Social

• Physical

• Intellectual

• Technical

These are the various types of capital in economics. Every organization needs the capital of these kinds. Choosing the capital correctly helps the owner to reduce risk and increase return because all businesses are established with a motto of earning profit and goodwill, including good returns.

Capital as a Factor of Production

An organization can work only with the help of capital. So before going to explain capital as a factor of production, we will take a glance at the attributes of capital as given below. 

• Capital is termed as wealth.

• Capital is durable.

• Capital is not a natural resource.

• Capital is a passive factor.

• Capital is not static. It may vary based on supply and demand.

• Capital is destructible.

• Capital may depreciate in the beginning and increase while growing on like during the expansion of the company.

• Capital can yield all the factors of production.

As capital is an inevitable factor of production, organizations need to search for various sources of capital. Let us find out the ways to develop capital for production. 

• Investment: Investment is the primary source at the initial stage of any kind of company. With some liquid assets, the owner can purchase other resources that are helpful for the process of production.

• Mobility of Savings: It occurs in the case of multiple businesses. The savings of one firm will move to another, and so on.

• Growth of Savings Level: Here, the growth of the organization varies from the growth of savings level. If the income level increases to 10%, one should try to increase the savings level so that it can act as capital for production. 

For every organization, we need various resources. Even though every resource has its significance, capital is an essential resource that can be generated by man. We cannot produce labour, land, or raw materials. They are mostly derived from natural resources. Whereas, we can buy the equipment, machinery, other inputs needed for production using the capital. Capital can be arranged by man and it is the man-made resource for production. That is why it is considered as the wealth of an organization.

Capital, A Factor of Production: Example

Let us consider an example to get a clear idea of the importance of capital. We will derive the capital as the factor of production. 

Let us assume that you are going to start a cold drink company. You need the necessary source of water. So you search for land near water bodies. You also require machinery, vehicles to transport, labour to work, money to install a plant, etc. Except for water, every source needs to be purchased using money by man. Even labour is not a man-made resource, and with money, you pay their wages. 

Thus, we can run an organization with several resources, but capital occupies a significant part among them. Hence we can say that capital is a factor of production. As it has high priority, one should know the meaning of capital in Economics, the types of capital in Economics, and the features of capital too before beginning any kind of business. A prior knowledge always yields the best results as capital is the essential wealth and asset of a firm.

ICICI bank is a multinational banking and financial service company with its registered office in Vadodara and corporate office in Mumbai. It offers a wide range of banking activities. The key products and services that it offers to its customers are retail banking, corporate banking, investment banking, mortgage loans, private banking, wealth management, credit cards, and finance and insurance. It is one of the big four banks of India and has subsidiaries in the United Kingdom and Canada.

Types of Financial Assistance of ICICI

The corporation provides financial assistance to the public in the following ways:

• Sale of industrial securities and underwriting of public issues

• Direct subscription to securities

• Securing loans in rupees payable for up to 15 years

• Providing loans in foreign currency for the ease of payment of imported capital equipment and such technical services

• Guarantee on payment for credits made by others

• It provides financial services like leasing, asset credit, and installment sale.

Functions and Activities of ICICI Bank

The objective of ICICI bank is to meet the needs of the private industry for long and medium-term funds in the private sector. In general terms, the main functions are:

• Assistance in the formation, development, and modernization of business in the non-public sector.

• Provides medium and long-term loans in rupees and foreign currencies.

• Underwrites new issues of debentures and shares.

• Provides equipment finance

• Promoting and supporting the expansion of markets and motivating private ownership of the industrial investment.

The Activities of the ICICI Bank Include the Following

• A guaranteed loan from other private investment sources.

• Provides finance in the form of long term or medium-term loans or equity participation

• Provides funding for reinvestment by rapidly increasing investment.

• Underwriting and sponsorships on new issues of shares and debentures. 

Corporate Social Responsibilities (CSR) Activities Of ICICI Bank

CSR activities form an integral part of the committee. The CSR policy sets out the rule that needs to be adhered to while implementing of any CSR policy or activity. Through CSR policy the objective of the bank is to set up proactive support to socio-economic development in India and also enable a larger number of people to benefit from its economic growth. 

Scope of CSR Policy

The policy ensures compliance with section 135 of the companies act, 2013, and includes the activities covered under Schedule VII to the act and the company’s rules (CSR policy ) 2014. Amended from time to time.

Government Structure

The CSR committee is the governing body that examines the scope of CSR and makes sure it complies with the policy of CSR. The CSR Committee comprises three or more directors of which one is an independent director. The bank has a CSR committee constituted in accordance with the provision of policy and Act.

Operating Framework

• The CSR plan functions as prescribed by the CSR Committee under its supervision

• Activities undertaken include projects implemented directly by the bank as well as contributions to the ICICI Foundation.

• Implementation of identified activities shall be as per the organizational structure.

• Funds are disbursed in accordance with the CSR committee.

Monitoring

• The CSR committee reviews the progress of CSR activities twice a year. 

• The Board Of Directors shall review the policy annually

• The activities of the ICICI Foundation for inclusive growth shall be overseen by the governing council of the ICICI Foundation.

Disclosure

The bank includes the ICICI annual report by the year ending March 31. The disclosure as prescribed under the Companies Act, 2013 and rules as amended from time to time. All such information is displayed on the bank’s website. 

CSR Activities ICICI

ICICI CSR activities focus mainly on the below-mentioned areas.

• Education- Education represents the critical area in any development sector. ICICI bank, both directly and through the ICICI foundation will work to improve the quality of education in government and municipal schools. The bank works on higher education for focused capacity building in specific disciplines.

• Health Care- The health care challenge in India spans the whole country. It includes access to affordable health care for the poor section, availability of benefits, etc. The ICICI bank continues to focus on improving the delivery of healthcare facilities to vulnerable sections of society.

• Skill Development and Sustainable Livelihood- The ICICI academy of skills has been set up to provide job-oriented skills training for youth. Seeing the success, the ICICI Foundation will continue to develop the ICICI Rural Self Employment Training Institutes.

• Financial Inclusion- The ICICI bank continues to focus on expanding its reach through various distribution channels. The banking facility is also made accessible to low-income groups and rural populations.

• Capacity Building- ICICI Foundation continues to focus on CSR initiatives, discussion, and leadership on critical challenges and growth of the economy and sector. The ICICI will continue to support initiatives in low-income groups and rural populations.

The statement that is prepared by an enterprise at a particular period of time and that collects all the fundamentals of the cost associated with a product or a production job is referred to as the “cost sheet”. The cost sheet aims to compile the margins that are earned through a product and which forms the basis of fixing prices of the equivalent product in the future. 

What does a Cost Sheet Depict?

It depicts the cost per unit of a product and also the total cost. There are various elements of cost like production cost, factory cost, prime cost, cost of goods sold, and the total cost. It also reflects the percentage of every expense to the total cost. It also shows the inefficiency by comparing the cost of any two periods. Further, the cost sheet provides information to the management team that they can use in regulating the cost. Most importantly it calculates and gives a summary of the total cost of the product.

The Objective of Cost Sheet

The cost sheet is used for a different purpose. For instance, it helps in determining the selling price of any service or good. It determines the cost of the product and the service at each stage and also finds the total cost of the product Understanding the total cost the management team decides on adding the profit margin and that is how the selling price is decided. Another, the objective of a cost sheet is facilitating the managerial decision making. It means that the cost sheet helps the managers to formulate better decisions. It helps them in buying or producing a component and allows them to decide what price of goods will be suitable to quote in the tender. 

Moreover, they get to decide whether to eliminate or keep the existing machines or to deduct pricing and improve the profit margins. Most importantly they get to decide the products and the services that are beneficial for the growth of their business. The cost sheet allows them to have a broad understanding of the services and products that are not capable of producing profits and should be discontinued from production. 

Another fundamental area that cost sheets help is in the preparation of the budget. By using the current or the previous year’s data, the budget can be obtained. The cost of the next financial year can also be anticipated with the help of the cost sheet and accordingly, the next year’s fund can be arranged. 

While preparing the cost sheet, it is important to understand the elements of cost. There are four elements of cost which are prime cost, factory cost, production cost, and total cost. The prime cost deals with direct material, wages, and expenses. It is, therefore, the material that is consumed, productive remunerations, and direct expenditures. The factory or the work cost signifies the additional cost to the prime cost in indirect labour, material, and expenses. It is also inclusive of incomplete units at the end of the period. 

Now, at the end of the period, the administration and the office cost are added to the factory cost which results in the cost of the products sold or the cost of production. Finally when the production, selling and distribution cost overhead is added it results in total cost. 

How to Prepare a Cost Sheet?

At first, it is important to understand that the prime cost is equivalent to direct material consumed besides the direct labour and direct expenses. Therefore to understand the cost of the direct material opening stock of raw material should be identified eliminating the closing stock of raw material and adding it with the cost of the material purchased. 

Next, to understand the work cost factory cost and the prime cost should be added. It should also be added with the opening work in progress after deducting the close work in progress. In the third step, it is important to understand the production cost. 

To understand that the work cost and office overheads and finished goods should be added. In the last step, the total cost should be evaluated. To get the total cost, selling and distribution overhead should be added with the cost of production. 

With the help of the cost sheet, the management will be able to formulate better strategies. Moreover, they will also be able to decide which product and services should be eliminated from the company and which are the products and goods that are capable of giving them a better profit margin and thus help the organization to grow.  

Money has changed its face and forms through the ages, yet its importance in human life can never be denied. In ancient times, people used cowry shells in Africa, wampum (strings of beads) in America, and stone wheels in Yap in exchange for goods and services. The significance of money lies in the fact that it lets you have more control over your life. Money allows you to give back to your community in ways that you would like to.

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Introduction of Functions of Money and its Demand

Money is that commodity which you can use to run your life. In earlier days, you could exchange goods for goods, but now it is money which one exchanges for any product or service. People save up for the future since they realize the significance of money. Few important facts about money are:

• Money can serve as a good servant, but not a master – You should be the one controlling money, do not let money control you.

• You can earn money in many ways but sustaining it is an art.

• Money stays in the hands of people who know its value.

We use money in our everyday life by earning and spending it. The economic definition of money says it is a commodity that can be used as a final payment for goods and services worldwide.

Money is not an end in itself, you cannot eat rupees. Money has its use in purchasing and selling goods and services. Buyers and Sellers both must accept money as a medium of exchange to give it any value.

Functions of Money

In earlier days, people exchanged goods or services for another, which was called the barter system. In the modern economy, the barter system has proved to be highly inefficient. In an economy where no money exists, two parties should want the things that each has to offer. If one party does not have things that are needed by another party to obtain their goods or services, then an exchange is not possible. Money has solved all the issues which revolved around the barter system with the four main functions money performs in our lives:

1. Store of Value:

If you earn 10,000 rupees, you can hold it with you till you want to spend it, or keep it in the bank and earn interest. In contrast, any other commodity like corn would rot if you hold on to it. For that matter, if you own a pair of shoes and want to use it for exchange, it might go out of style and have no value to exchange it with anything you want at a later point in time. Money, you know, will hold its value the next day or next year too. So, you need not spend it immediately. Money is an efficient store of value though it has its pitfalls. Money is sure to lose its buying power over time, and inflation can erode the purchasing power of money with time.

2. Unit of Account:

Money is like a ruler or yardstick which helps you measure other values in an economic transaction.  It is a common denominator or accounting method which makes trade-offs easy to understand. For example, for 1000 rupees you can pay an engineer to fix your laptop or buy two shoes for 500 rupees each. This is a measure of value that is the same across commodities and services.

3. The Medium of Exchange:

Buyers and sellers use money as an intermediary between their transactions. So, instead of paying someone for his services in corners, one now pays in money. The transaction demand for money makes you confident that when you walk into a store, the cashier will accept money for the items you buy.

4. Standard of Deferred Payment:

You can make purchases today which you can pay at a later date in the form of money. Any future agreement like a loan is stated in monetary terms. This nature of money allows us to buy goods and services today and defer its payment to a future date.

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What is Demand for Money?

The demand for money alludes to the amount of money an individual wishes to hold on to. This holding of assets in the form of money could be either cash or in banks. The demand for money depends on many factors like the income of an individual, interest rates, inflation, uncertainty about the future, etc. Demand for money is also termed as liquidity preference.  The image below depicts that the demand for money is inversely proportional to the rate of interest, which means two things:

• If interest rates are high, people prefer to hold on to bonds rather than money. Bonds give a high-interest payment.

• When interest rates go low, bonds do not give as many returns hence people like to hold money.

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There are three major kinds of demand for money:

1. Transaction Demand for Money – Money is needed for most of the transactions in our day to day life. As per the quantity theory of money, the transaction demand for money is a function of income and price, given the circulation velocity remains stable. So if there is a rise in income, it will lead to a rise in the demand for money.

2. Precautionary Motive – Money might be needed for unexpected expenditures or emergencies (like medical, car repair, etc.) in the future. So, the demand for money is based on payments which are needed immediately; hence people need to hold on to money to be able to do that.

3. Speculative Motive – Money is a form of asset, and like any asset, its demand depends on the rate of return and opportunity cost. In general, money does not provide any rate of return, and inflation causes money to depreciate. Its opportunity cost depends on how much interest rate one can gain by lending money to someone else. The speculative motive for demanding money comes into play in scenarios when holding money is less risky than using it to lend it or invest in any other asset. For example, if someone speculates the stock market to crash, they would sell their stocks to hold on to money since the stock values are going to decrease and give them losses.

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