Category: Commerce Notes PPT

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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If you ever happen to observe any of your parents who are responsible for managing all the finance’s related matters, you would have noticed that all their economic decisions and activities are based on their budget. So, the budget here is nothing but the sum total of all the expenses and income. Every individual can have a different budget in accordance with their incomes and expenses.

In a similar fashion, the government has to run a nation and requires finance to support all the developments and the economic activities. Article 312 of the Indian constitution mentioned in detail the procedure and process of the Annual Financial Statement i.e, the Budget of India. 

In this detail, we will discuss and learn about the following concepts – 

• Government Budget – An Introduction

• Need for Government Budget 

• Importance of Government Budget

• Components of Government Budget

• Key points from the Chapter 

• Frequently Asked Questions (FAQs)

Government Budget and The Economy in Detail

A budget is made to get an estimate of income and expenditure. It is different from an account which is a recording of a financial transaction. The budget is an extremely vital part of the economy of any nation since it helps in planning and controlling its financial affairs. The need for a government budget arises from the fact that income and expenditure do not happen at the same time. A revenue receipt and expenditure flow do not coincide in time. 

Introduction of Government Budget and the Economy

A government budget is made to approach and address the needs and issues of a country. It is an annual financial statement where an itemized estimate of revenue expected and expenditure anticipated are listed for the current fiscal year which runs from April 1 of one year to March 31 of the next year. The basic elements of a government budget are as follows:

Government purchase of goods and services to serve the public with services like health care, education, defense, etc.

Payment of social security and other such transfers to individuals and offering subsidies payment to industries and commercial companies.

• Revenues: The government finds ways and means to earn revenue to meet their expenditure. 

• Actual Receipts and Expenditure List: When the financial year closes on March 31st, a detailed list of actual revenue and expenditure is provided along with reasons for deficits (or surplus) that have occurred during that financial year.

• Economics Government Budget: The financial policy for the coming fiscal year is disclosed, which include taxation proposals, spending programs, revenue prospects, and the introduction of new schemes or projects.

 

The Need for Government Budget

A government budget is the means of providing control over expenditure and revenue by the government. Budgets help in maintaining stability and control over the government’s finances and are also a means of providing accountability through financial reporting. The following points can help you understand the importance of the Government Budget:

• Resource Reallocation: With the social and economic condition of the country in mind, the government can distribute resources properly.

• Reduce the Difference in Income and Wealth: The economic equality of different classes in the country can be better maintained by the government. They can impose taxes on the elite class and spend that money on the welfare of poor people.

• Improvement in Economic Growth: The overall rate of investment and savings can be raised by focusing on providing adequate resources to the public sectors. The rate of investment and savings determine a country’s economic growth.

• Reduce Differences in Regional Development: Region inequalities can be reduced by installing production units in underdeveloped areas.

 

The Importance of Government Budget

Every country aims to improve the standard of living of its people and eradicate issues like poverty, illiteracy, unemployment, income inequality, etc. Budget measures help the government in meeting these goals. A budget gives an overview of the fiscal policy of the government. The public can see how much and on what items the government spent in the last fiscal year. The budget also shows itemized receipt, which reveals the sources from the revenue for these expenditures that were generated.

 

Components of a Budget

There are mainly two components of a government budget:

• Revenue Budget: Revenue receipts and revenue expenditure make up the revenue budget.

• Revenue Receipts: The money which the government earns through taxes (excise tax, income tax, etc.) and other non-tax sources (such as dividend income, profits, interest receipts, etc.) come under this category of the budget component. The revenue receipts do not impact the assets and liabilities of the government directly.

• Revenue Expenditure: Expenses that do not impact the assets and liabilities of the government directly are called revenue expenditure. A few examples of this type of expenditure are pensions, salaries, administrative expenses, and interest payments.

• Capital Budget: This comprises capital receipts and expenditures. It is divided into two subparts:

• Capital Receipts: Any receipt which indicates a decrease in the government’s assets and increases in its liabilities is termed as capital receipt. Examples include:

Money that is received through repayments of loans by states.

Money earned through disinvestments like selling of shares of public enterprises.

Expenditure or long-term investments in creating assets such as hospitals, roads, etc.

Money lent by the government to states in the form of loans

 

Key Points from the Chapter

• Every nation needs a budget for the optimum utilization of its resources and growth 

• The budget represents the blueprint of the developmental plan of a nation

• The Government in advance tell their income sources and the area of expenditure 

• Economic Survey of India is presented before the presentation of the budget

• Since 2016, the railway budget has been merged with the general budget 

• In a democratic nation like India, the budget-making process is transparent and available for public scrutiny 

• The budget is broadly divided as revenue receipt and expenditure, capital receipts and expenditure. 

• The budget is divided into three parts – Revised budget, Actual Budget, and Estimated Budget

• The budget is prepared on the first week of February every year

A good manager knows that the work is best done when he or she can share the responsibility with others. Micromanaging your team can suffocate them, and too little management would leave the team in the dark. Hence, this is where the importance of delegation comes into play. A good leader would assign the task to his team along with the broad vision and clarity of the work involved. Delegation is the process of shifting authority of a task or activity from a person (usually a manager or leader) to another person. Here, you will go through the importance of delegation in leadership and what are the various steps in a delegation of authority.

What Delegation Does Not Mean

Some could misunderstand the meaning of delegation as just disowning responsibilities. Let us clear the misconceptions around delegation and understand what delegation does not mean:

• Delegation is not about surrendering one’s responsibility and dumping it on another. It is about spreading it out to people in a way that is in the best interest of the company’s long and short-term goals.

• Delegation does not tell people exactly what to do and how to do it. In delegation, the leader would explain the outcomes and results that the team is expected to achieve. The team can then decide the best course of action to reach those goals.

• The delegation will change depending on the situation. It means there are a lot of factors that go into determining what to delegate, when to delegate, etc. It needs planning, time, and effort to figure all this out.

• Delegation is not a sign of weakness on the leader’s part. Instead, it means that you are strong enough to identify and delegate projects which best suits a specific team. It does good to you, the team, and the organization on the whole.

Importance of Delegation in Management

The very first thing that delegation brings to the table is that leaders can focus on high-value activities and be more productive with their time. There are certain tasks that only leaders can perform like coaching the team in which delegation lets them do with more focus. The importance of effective delegation can be understood from the points discussed below:

• Prioritization of tasks gains priority – In the process of delegation, managers understand what can be delegated and what can not. This way, they can prioritize tasks and determine who can do the delegated tasks. Based on factors like time sensitivity, importance, routine, etc., leaders can effectively delegate tasks.

• Employees feel empowered – By taking on new work, employees feel empowered, and they can showcase many aspects of their capabilities. They get more invested in their work as the decision-making lies with them now. The importance of delegation of power can be seen by an overall deep sense of engagement and commitment amongst employees.

• Supports the development of new skills – The importance of delegation in an organization is also about new skills being built across the firm. The team leaders, along with their direct reports, start taking responsibility for the outcome of every task. An effective delegation builds competencies and accountability in employees.

Steps of Delegation of Authority

Choose the appropriate task to delegate – This is done by splitting up upcoming tasks into various categories like 

• urgent (and important)

•  non-urgent (and important),

• urgent (and not important)

•  non-urgent (and not important). 

Once you have done that you must choose to delegate tasks that fall in urgent (and not important) and non-urgent (and not important) since you do not need to spend your precious time on these tasks. The first two categories would require more planning, but they can be delegated too. 

Decide Who to Delegate to  

Here you will have to consider the following aspects in determining the right person for the delegate job:

• Experience and skills of an individual

• The existing workload of the person.

• Who will be able to develop new skills by delegating the current task?

• What is the preference or working style of the individual?

You must consider that delegation benefits you as well as the person you choose to delegate the work to.

Plan and Set Clear Objectives  

Objectives set must be measurable, time-bound, specific, and realistic. You need to provide all the information to the person the task is being delegated to. The person must also be granted the necessary authorities and resources required to carry out the tasks.

Implementation of Delegation

In this step, you gain the commitment of the individual for the work being delegated. You would need to do the following:

• Ask them open questions to ensure they have the correct understanding of the work and are committed to it.

• Get an understanding of how they feel about the work and what approach are they going to take to go forward with the activity.

• Agree on a timeframe for the completion of the task.

• Explain to them the consequences of not completing the job on time.

Monitor 

Delegation must be monitored by the manager through informal chats or regular reviews. You must also be available to support the team as and when they need it.

Evaluate 

Once the task is over, evaluate and review it with feedback to the team. Constructive feedback is very vital for the development of the team. Feedback must be given sensitively using coaching models like the GROW model.