Category: Commerce Notes PPT

A formal letter is a type of letter which is used to convey thankfulness or complaining against a person or situation who is generally an official. This letter has a particular format and has several forms too. Formal letters can be used in a wide range. The places include schools, colleges, offices and government places. 

The message in a letter should be precise, unambiguous, concise, intriguing, and easily understandable. This article deals with the study of different types of formal letters. We shall discuss in detail formal letter formats,  letter templates, and layout.

Formal Letter Format

The details of the formal letter format are given below.

• Sender’s Address

• Date

• Name/Designation of Addressee

• Address of the Addressee

• Salutation

• SubjectBody – Introduction, Content, Conclusion

• Complimentary Close

• Signature / Name of the Sender

• Designation of the Sender

Types of Formal Letters & Formal Letter Format

A. Letter of Inquiry

Just like the name implies, these letters are the means of collecting any information. Usually, the letter of inquiry is chosen by people as a Business letter or a formal letter. People use this letter to gain information or knowledge regarding some academic or professional course or job inquiry, charges of various services, cost of goods, terms, and conditions or working agreements, etc. One must keep the following points in mind while writing a letter of inquiry.

• Give a brief introduction about yourself.

• Include the name of the organization (if possible).

• The area of inquiry should be present in a clear and precise form.

• Be clear and concise while writing down your queries and doubts.

• Clearly mention the deadlines. 

B. Order Letter 

An order letter is broadly used to place an order for buying products. This letter is drafted by the customer and the three major parts of the order letter are as follows.  

• The features and specifications of the ordered items or the products must be stated clearly.

• Proper details about the quantity or number of specific products to be ordered, model number, and other such relevant information must be mentioned. 

• The details related to the shipping of the products must be given precisely and clearly. For example, the information regarding the mode of transportation, shipping location, and the desired date for the goods to be delivered must be distinctly mentioned in the order letter.

• All the inquiries related to the payment, including the date, mode and terms & conditions regarding the payment must be mentioned. 

Let us suppose you placed an order for a few things and the quality of the actual items received differs from that as assured by the seller. What can be the solution to this sort of problem? In such a case, it is so obvious to either ask for the replacement of goods or a payment refund. To do so, you need to write a letter of complaint to the organization at which you placed the order. 

The Below-Given Points Will Help You to Write An Order Letter

• One must give all the details of the issue. 

• State the actions that you want to be taken.

• Provide information like the date of shipment/delivery of the items, order number, or the details of the previous complaint (if any).

• A deadline for the response as expected by the customer filing the complaint must be mentioned.

•  A specimen or a copy of the invoice must be attached.

•  One must be respectful in the writing tone but using assertive words is necessary so that the issue is taken seriously by the seller. 

• Any fake allegations against the seller should not be made in the order letter.

C. Reply to a Letter of Complaint

Suppose you received a letter of complaint and you want to respond to it. It is most necessary to look into such allegations minutely, as they may cost you your organization’s purposes, and reputation. To provide better customer services, it is essential for you to:

• Address the problem and its effect on the customer.

• Express your genuine concern and regrets about the issue.

• Assert the course of actions you will take for the issue.

• Mention a tentative deadline by which you can provide the services.

• Assure the customer of no more similar complaints and troubles in the future.

• Be very precise about every detail regarding the products.

D. Promotion Letter

The type of letters used for promoting new developments and up-gradations are known as promotion letters. The below-given points will help you to write a promotional letter. 

• Use clear, definite terms.

• Use proper punctuation and correct spelling.

• Avoid the use of any slang or fancy terminologies of jargon.

• Discuss the promotion precisely.

• Avoid the use of abbreviations.

E. Sales Letters

These letters are written to give information about a product to the customers for selling purposes. The facts and figures must be easily understandable, to strengthen the partnership relations and joint ventures. The basic yet extremely important points to be kept in mind while drafting a sales letter are as follows.

• Use of formal language that is clear and easily understandable. 

• Do not use any abusive or informal words or phrases.

• Avoid using abbreviations. Make clear and concise content. 

• Do not add unnecessary details that make the letter long. 

• Provide adequate details and features clearly that are to be conveyed to the reader.

F. Recovery Letters

The objective of writing a recovery letter is to recover the money from a consumer without bothering or annoying him. This type of letter should cover specifications and information regarding the following aspects.

G. Sick leave application

H. Resignation letter

I. Job offer letter

J. Complaint letter

K. Business letter

L. Appointment letter

M. Leave application (marriage /maternity)

The Points to be kept in mind while writing the Recovery Letter are as Follows

• It is a polite reminder. 

• The information and details must be provided in an easy language that is understandable by the customer. 

• Use of formal language while drafting the email. 

• Nothing about the necessary details should be skipped in the letter. The letter should not contain unnecessary details. Try to be to the point and never write out of the topic.

• Only note down the things that are important and the subject matter. So, neither your time is wasted nor the readers.

• A formal letter should be written in a formal tone but try to avoid a friendly tone because the person to whom you are sending this letter is not your friend.

• The first thing a person is going to notice is your salutation. Make it appropriate so that it would sound proper and decent and not over-friendly.

• Do not forget to mention the date in the formal letter. It should be mentioned properly either at the top of the letter or at the end of the letter. Most preferably, it is present at the beginning.

• Do not forget to mention your name or the name of the person you are writing on the behalf of. It can be for a firm or any organization you are writing for. If not you can also use a stamp or seal for the particular organization on whose behalf you are writing it.

• Express your gratitude at the end of the formal letter and do not end it casually. It should be formal, professional and appropriate.

• The rest of the things which should be taken care of are the address, subject matter, date and salutations on the same side.

• In addition, it is better to keep some space left if a letter needs to be stapled for some reason.

Formal Letter Format

While maintaining accounts, one has to make sure of the correct values of any increment/decrement. When depreciation happens, that is, the value of fixed assets drops down, it is important to record this decrement carefully. There are various methods by which this can be accounted for, and one of the approaches is ‘uniform charge method.’ In this method, the value of depreciation is charged in a uniform manner year after year in the form of a fixed instalment method and many more. However, this method is best applicable to productive assets. There are some sub-methods that fall under this. Listed below are their names and a small explanation for each one of them.

Depreciation Formula

Amount of Depreciation = [frac{text{Cost of an asset – Net residual value}}{text{useful life}}]

Various Methods included in Uniform Charge Method

There are four sub-methods that come under this major method.

Fixed Instalment Method

In the fixed instalment method, a particular cost of depreciation is noted down with respect to the utility of the asset’s life. When the utility of the asset’s life ends, this depreciation value either lowers down to zero or is changed to its residual value.

Annuity Method

In this method, the depreciation value is derived from the cost of the asset and the interest loss in the capital’s expenditure. This method prevails on the assumption that there might have been a better outcome if the investment was made in some other place. That is why we calculate interest loss, too, to keep a clean record of depreciation value. 

Depreciation Fund Method 

This method is used when the cost of depreciation is too high, and the new asset can not be bought with the remaining sources. Even though the depreciation cost is noted every year with proper terms and conditions, sometimes the company may lack resources to further buy the next asset. During such times, this method comes in use.

Insurance Policy Method 

In this method, the company does not purchase securities; instead, it buys an insurance policy. This insurance policy is equal to the cost of the asset, which needs to be replaced. Every year, in the beginning, the company will have to pay some money, known as premium. In exchange for the premium, the insurance company agrees to pay a specific sum of money to them.

These are the various sub-methods that come under the Uniform Charge Method. All of these have their own advantages and disadvantages. While applying any of these, the company should look upon its resources and capability, and make the correct approach.

The relevance of Uniform Charge Method

In the sector of accounting, this method is very brief, and it is easy to keep a record of this. For a company, the correct cost of depreciation to be noted down is very important, as it adversely affects the economic growth of the company. Any error in this often results because of the use of poor methods. Thus, the Uniform Charge Method is a neat process, which, if applied, yields out correct results, thus being of great help to the company.

Did You Know?

This method is also known as Straight Line Method or Fixed Percentage on the Original Cost Method because this method changes the depreciation cost every year uniformly, thus avoiding any hindrance and abnormalities in the outcome. The original cost plays a vital role while using this method; its other names go along completely with the process.

India is amongst the largest countries in the world and has a population growth of one percent every year. With the labour market in India expanding and becoming more complex, types of employment in India, as well as the types of workers, are changing at a rapid rate, in businesses. There are up to five or six kinds of employees working in a company on today’s date. Here we will learn about what is employment in economics and also see some casual employment examples.

Introduction of Work and Employment in India

India is a developing market economy, with the main employment sectors in India being agriculture, industries, and services. The maximum share of employed individuals belongs to the agriculture sector. In the year 2017, factories had employed 11 million workers in the country. The image below represents the state of different employment sectors in India.

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Work Definition Economics

The word “work” has a broad meaning. It is not just a means to bring money home but also gives us a sense of worth. If we have to give an economic definition, work would mean doing something that helps build the national income of our country. 

Employment Definition Economics

So how do we define what is employment in economics? In the terms of economics, employment means the state of having a job or being employed. If one has to employ someone, they have to pay them. The one who employs is called the employer, and the one who is getting paid for providing services is the employee. Employers can be an organization or an individual, etc. People can also be self-employed where they work for themselves and earn money through their business. 

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Types of Workers

With the growing trend of freelancers and work from home employees, the types of workers are also growing. At any time a business can have 5 to 7 types of workers in their workforce. Having different types of workers helps organizations in adjusting their staff requirements during economic ups and downs so that they can enjoy peak productivity always. To answer who is a hired worker, we need to consider the different kinds of workers an employer can have in his or her organization.

If we have to define them in broad terms, the following types of workers are there in the industry.

Employees who come under this category usually work 30 to 40 hours a week. Employers determine the minimum number of hours. An employer who has more than 50 full-time employees is considered as an ALE (applicable large employer). Full-time employees receive many benefits from the organization like paid time off, health insurance, provident fund, maternity leaves, etc. As per FLSA (Fair labor standards act), there is no standard definition of a full-time employee, and employers have the freedom to decide how they employ their full-time and part-time employees.

When an employee works for less than 26 hours for an organization, they come under the part-time employees’ bracket. Such employees usually do not get the benefits that are offered to full-time employees, but employers must pay the same taxes for employing part-time employees as they pay for full-timers.

During peak seasons like summer months or holidays, employers need to hire people to cover their productivity needs. For example, a retail company needs more people during the holidays. Many of the seasonal employees are non-immigrant or H-2B visa holders. To employ people in this category, employers must fulfill all labor certification documents and DOL requirements while requesting visas for these employees. Since they are not permanent employees, they are not eligible for other benefits, but the unemployment and social security benefits still apply to them.

These employees get hired for a fixed period under a contract. A company hires temporary employees to meet the needs of a certain project or task and let go of them once the project is over. Mostly the time period is 6 months, but it could vary based on the project. Like seasonal employees, the benefits of unemployment and social security apply to temporary employees too. Employers can hire temporary employees on their own, or they can go to a recruiting or consulting agency.

When a staffing agency hires an employee and then leases the employee to a company for a specific project, such employees are termed as leased employees. Typically such employees work with a company that they are leased to for 1 year or more. Leased workers exist on the payroll of the staffing agency who employed them and leased them out, and not the organization they work for. The leased employees also receive other benefits of a full-time employee through the staffing agency.

Accounting involves tracking and keeping a record of the financial transactions of an organization. Multiple functions build accounting into what it is, which are classifying, summarising, verifying, interpreting, recording, etc. data related to the finances of that particular institution. 

From the viewpoint of an organization, it should be noted that accounting also deals with profits and losses incurred due to the trading of goods and services. Additionally, it also keeps records of assets and liabilities for a company. 

Naturally, the data relating to accounting is represented in numbers, and deriving the right conclusion from an interpretation requires the proper use of the accounting formula. You should note that these formulas are the foundations of accounting. To build a stronghold on accounting and indulge in higher studies relating to accounts, you need to grasp the methods right from their grassroots.

Here is a detailed analysis of accounting and its formulas that are important in studying accounting.

What is an Accounting Formula?

To assess the functioning of a small business or even a large one, there is a set of specific accounting equation formulas that is most handy. They can be used as first-hand solutions to derive a conclusion depending on the business needs.

The formulas are listed below for your convenience.

• Current Ratio = Current Assets/ Current Liabilities

• Net Income = Income – Expenses

• Cost of Goods Sold = Opening inventory value + Purchases of inventory – Closing inventory value

• Gross Profit = Sales – Cost of Goods Sold

• Gross profit Margin = Gross Profit/ Sales

• Break-Even Point = Fixed costs / (Sales per unit cost – Fixed cost per unit)

• Inventory Turnover Ratio = Costs of Goods Sold/ Inventory

• Accounts Receivable Turnover Ratio = Sales on Credit/ Accounts Receivable

• Quick Ratio = (Current Assets – Inventory)/ Current Liabilities

• Return on Assets = Net Income/ Average Total Assets

• Return on Equity = Net Income/ Average Shareholder’s Equity

Merely learning these formulas is less likely to be effective in dealing with numerical that are included under this topic. Therefore, a student has to build the basics of all these terminologies to tackle numerical and advanced concepts. 

Understanding the Concepts

Let us understand some essential terms included in the accounting formula that is given below.

Income or Revenue

The cash inflows to a company or business are considered under revenue.

Expenses

The expenditure that is related to conducting production and sales activities is categorised under expenses. 

Fixed Costs

Regular expenses that are incurred in a business to keep it functioning despite the productivity level, such as building rent and warehouse maintenance.

Variable Cost

Costs or expenses that differ based on the sales volume or productivity of business are variable. 

Sales Price

It is the retail price at which a company or business sells its products or services to the public.

Current Assets

Assets that are likely to be converted into cash or probably consumed or exhausted within a financial year are termed as current assets.

Current Liabilities

The debts or liabilities that a company is expected to make good within a year are classified as current liabilities.

Total Equity

Total equity refers to the owned capital of an organization held by the shareholders or private owners. It is the difference between the total assets and total liabilities of a company.

Inventory

Inventory refers to the value of goods (raw materials, semi-finished and finished products) held by an organization. 

Hence, it is crucial to understand all these terms before delving deeper into the topics of accounting. You must have a holistic understanding of all these to strengthen your foundation so that you can navigate through the advanced topics more conveniently. 

What is the Basic Accounting Equation?

The basic accounting equation is Assets = Equity + Liability.

It is also known as the balance sheet equation. The double-entry bookkeeping system is founded on this very equation, as it represents that the total credit balance equates to a total debt balance. 

What is the Comprehensive Accounting Equation?

A comprehensive formula for the basic accounting equation is its expanded form. Commerce students have to note that multiple different factors are included in a firm, proprietorship, or company. 

Hence, while calculations are carried out, there might be a slight change in the parameters that are considered. For instance,

In the case of a corporation, Assets = Liabilities + Paid-in Capital + Revenues – Expenses – Dividends – Treasury Stock

Similarly, in the case of a sole proprietorship is: Assets = Liabilities + Owner’s Capital + Revenues – Expenses – Owner’s Draws

Hence, it is evident that certain parameters differ based on the entity for which the valuation of assets is being done.

To know more about accounting activities and their formulas in calculating those, look into our online learning programmes for a clear understanding. We provide high-quality study materials prepared by subject professionals to guide you on the right path towards effective exam preparation. So, get your notes now and jumpstart your exam preparation.

Goodwill is a term widely used in accounting. When a buyer acquires an already existing business, goodwill tends to arise. It is an intangible asset that cannot be self-created and can only be acquired through accession. It tends to represent assets that are not identified separately. 

Goodwill is computed on the basis of the profits that are expected in excess of normal profits. In other words, it indicates the firm’s capacity to earn a higher profit in the future on the basis of its track record. 

Methods of Treating Goodwill

In a situation or case of admission of a new partner, the accounting treatment of goodwill is as follows: 

• Premium method: 
  According to this method, when the new partner brings their share of goodwill (in cash), the already existing members or partners tend to share it in the sacrificing ratio. But, if the new partner privately pays the amount of goodwill (in cash) to the old partner, then no kind of entry is passed in the books of the firm or organisation. In this case, the share of goodwill that the new partner brings in can be credited to their capital account and then adjust the capital accounts of the existing partners in their sacrificing ratio.

  And when goodwill already exists in the books of the firm, then: 

  (a). Either it does not appear in the books of the organisation in the future. 

  (b). Or it continues to show up in the books of the firm in the future. In this case, the new partner is supposed to bring in his share of goodwill, but only with respect to the difference between the book value and the new value. 

• Revaluation method: 
  If the new partner makes a decision not to bring in his/her share of the goodwill, then the revaluation method is utilised. In such a situation, the goodwill account in the books of the firm or organisation is raised. This is done by debiting the goodwill account and crediting the capital accounts of the old partners or members in the old profit sharing ratio. 

Factors that Affect the Value of Goodwill

The factors that affect goodwill are as follows: 

1. Location of the business: While ascertaining goodwill, this factor should always be taken into account. This is mainly because if the firm is located somewhere centrally, then it would be able to attract more and more customers, thereby leading to an increase in turnover. 

2. Nature of the business: This tends to include various aspects like the nature of goods, the risk involved, the benefits of trademarks and patents, raw material that is easily accessed, and the monopolistic nature of the business. 

3. Time: The amount of time since a firm has catered to its customers also tends to make a difference and influences the value of goodwill. Between an old firm and a new one, the former would be better known by its customers, as a result of which, it may earn a relatively more commercial reputation. 

4. Efficiency of management: If the management is efficient and effective, then it can be of great help to increase the value of goodwill. 

5. The trend of profit: the basis of the rate of return or fluctuations in the amount of profit also affect the value of goodwill; if the trend of profit rises, then the value of goodwill is likely to increase and vice versa.

6. Other factors like capital required, the government policies, the condition of the money market, the possibility of competition, etc., also tend to influence the value of goodwill. 

How is Goodwill Calculated?

Based on the Accounting Standards, the following are the purposes based on which goodwill of a firm is to be computed: 

In each case, goodwill is first calculated by the partners, the existing goodwill is distributed, and then further steps are taken.

The appointment of Directors in a company isn’t just an essential regulatory prerequisite, but it is a procedural necessity that must be satisfied by each organization. Under the Companies Act, just an individual can be delegated as a Director; a corporate, affiliation, firm, or other body with legitimate counterfeit character can’t be selected as a Director. The duties of directors are to act truly and practice sensible consideration and expertise while playing out their obligations.

How to Appoint a Director? 

The procedure for appointment of directors in a company, which is either public or a privately owned business auxiliary of a public organization, usually requires 66% of the all-out quantities of Directors to be named by the investors. The staying 33% is designated as per the way recommended in Articles bombing, which, the investors must name the staying 33% of the Directors. The Articles of a public organization or a privately owned business auxiliary of a public organization may accommodate the apparent multitude of Directors’ retirement at each AGM. 

In a privately owned business, which is anything but an auxiliary of a public organization, the Articles can endorse all the Directors’ way of arrangement. If the Articles are quiet, the Directors must be delegated by the investors. 

Likewise, the Companies Act allows the Articles to accommodate the arrangement of 66% of the Directors as per the standard of relative portrayal if so embraced by the organization being referred to. Nominee Directors can be selected by an outsider or by the Central Government in the event of mistreatment or blunder. 

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The picture above shows a meeting of board members for the appointment of directors in a company. The person on the head of the table is the appointed director of the company.

Appointment of Managing Directors

A Managing Director must be an individual and selected for a maximum term of five years one after another. An individual who is now a Managing Director or Manager of a public organization or a privately owned business auxiliary of a public organization can have an appointment of managing directors or Manager of just a single other organization with the earlier consistent endorsement of the board of such organization. In any case, no such limitations are material to a Manager or a Managing Director of unadulterated privately owned businesses. 

Suppose there should be an occurrence of a public organization or a privately owned business that is an auxiliary of a public organization. In that case, if the arrangement isn’t as per Parts I and II of Schedule XIII Companies Act, such an arrangement must be affirmed by the Central Government.

Conditions for Appointment of Directors

Under Schedule XIII, the Companies Act also endorses certain different conditions that are to be satisfied for the arrangement of a Managing or a Whole-time Director or Manager if there should be an occurrence of a public organization and a privately owned business that is an auxiliary of a public organization. Likewise, no individual will be qualified for the arrangement as a Manager, a Managing Director, or a Whole-time Director on the off chance that the person neglects to fulfil the accompanying conditions: 

1. The individual in question ought not to have been condemned to detainment for any period, or a fine forced under any of the accompanying rules. 

2. The person in question ought not to have been confined or sentenced for any period under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974. 

3. The person ought to be more than 25 years old, yet be less than seventy (70) years. Be that as it may, this age limit isn’t relevant if the arrangement is affirmed by an exceptional goal passed by the organization by and large gathering or the Central Government’s endorsement is obtained. 

4. The individual ought to be administrative in at least one organisation and draws compensation from at least one organisation subject to the roof determined in Section III of Schedule XIII. 

5. The person ought to be an occupant of India. Inhabitant incorporates an individual who has been remaining in India for a persistent time of at the very least twelve a year promptly going before the date of their arrangement as an administrative individual and who has come to remain in India for taking up work in India or for carrying on business or job in India. Nonetheless, this condition isn’t relevant for organizations in the Special Economic Zone, as advised by the Department of Commerce.