Category: Commerce Notes PPT

Before we start with the valuation of goodwill, let us briefly revise the concept of goodwill. 

Goodwill is primarily an intangible asset that is related to the purchase of one company by another. The concept covers such a portion of the purchase price, which is higher than the total net fair value of the assets that have been bought. 

The importance of goodwill may be understood by its importance for increasing the business value. It is also instrumental in acquiring more customers. In common parlance, the goodwill of a company is understood to be its proven track record.

There are a whole host of factors that influence the goodwill of a company. Such factors are more likely to include the capital requirement nature of business, market situation, the reputation of owners, and profit trends, among others.

An example of goodwill – When company X purchases company Y for greater than the fair value of company X’s debts and assets, the amount that remains is recorded as goodwill in the balance sheet of company X. 

Now that we have revised our knowledge of goodwill let us move on to the methods of valuation of goodwill.

Valuation of Goodwill

The valuation of goodwill essentially means that the calculation of these intangible assets is used to determine the remaining value of a company in the event it is purchased. The valuation of a business takes into account different parameters such as the reputation of its owners, efficiency in the management, the situation in the market, and special advantage if any.

The need for valuation of goodwill arises from a range of different scenarios

• In Partnership – If partners retire, expire, or are newly admitted, there is a need for goodwill valuation. It also becomes important in case of alterations in profit-sharing ratio or amalgamation.

• In Company – In the instance of amalgamation of a company or acquiring controlling interest, another would require goodwill valuation.

• In Sole Proprietorship – Purchase considerations of selling off business are some of the situations where the valuation of goodwill is needed.

Methods for Valuation of Goodwill 

A company adopts the valuation method consistent with the market practices of the trade and the position maintained by it. The different methods of valuation of goodwill are mentioned below. 

1. Average Profits Method 

The average profits method primarily takes the following two forms –

1. Simple Average 

Here, the goodwill is evaluated by the calculation of average profit against the number of years purchased. 

2. Weighted Average 

This method is usually used in the instances of alterations of profit while also focusing on the current year’s profit. It calculates the previous year’s profit for obtaining the valuation. 

2. Super Profits Method

The super profit method of valuation of goodwill covers the excess of the maintainable profits in the future as opposed to the normal profits. The formula is indicated below.  

(Super profit = Average / Actual profit – Normal profit 

Normal profit = (Capital employed X Normal rate of return) / 100)

The super-profits method can be undertaken by either of the two following methods.

1. Annuity Method of Goodwill

The annuity method in the valuation of goodwill uses the average super profit over a specific number of years. The current value of an annuity is found on the basis of a discounted amount of super profit at the established rate of interest.

2. Purchase Method by Number-of-Years 

Super profits in a definite number of purchase years are evaluated for establishing goodwill.

3. Capitalisation Method 

In the goodwill capitalization method, there are two ways in which the calculation can be done. 

1. Average Profits Method 

The calculation covers the deduction of its actual capital that has been employed from the average profits of the capitalized value. It is undertaken based on the normal rate of return.

(Capitalised average profits = Average profits X 100 / Normal rate of return 

Actual capital employed = Total assets (excluding goodwill) – Outside liabilities)

2. Super Profits Method of Valuation of Goodwill

In these methods, super profits are directly capitalized for the valuation of goodwill. 

Test your skill 

Question: Kumar & Sons, Pvt. Ltd. has an average profit of Rs. 60,000. The capital is Rs. 4,00,000 and the business’s normal rate of return has been found to be 10%. Calculate the goodwill value by the capitalization method of the goodwill of the super-profits method.   

If you want to know more about different valuation methods of goodwill, refer to the online articles that are available over ’s platform. Do not forget to install the app on your device.

DK Goel textbooks are well known among students in the Commerce field. DK Goel Accountancy solutions are great reference material for students in Classes 11 and 12. This is a useful study resource for students preparing for regular exams as well as their board exams since a detailed and comprehensive understanding is required to score good marks. Commerce students can access the material by simply downloading

DK Goel Accountancy Solutions PDFs online. These solutions are easy to understand and provide detailed solutions for every chapter. 

How to Score Good Marks in Class 11 and 12 Accountancy Exams?

Students encounter Accountancy for the first time in the 11th standard and it is important to develop a strong foundation in the subject from the beginning. To score good marks in the 11th and 12th standards, students need to have a strong understanding of accounting concepts like making balance sheets, understanding assets and liabilities. The DK Goel Solutions is sure to guide you in your quest for academic excellence.

While studying, it is important to follow your textbook in sequence. Start from the very first chapter as all the other chapters will build on it. If you have difficulty understanding the chapters at the beginning, the following chapters might confuse you. Accounting is a theory-based as well as a practical subject. You must not rote learn Accountancy instead spend time to understand what you’re learning. 

The best way to start is to make a habit of practising Accountancy. After studying a chapter, try to solve questions related to it. If you have a doubt, you can always refer to DK Goel solutions. Students can also solve previous year’s question papers. These are easily available online. Answering question papers will help students understand the topics from which questions are usually asked, question paper pattern, and marks allocation. Remember, there are no shortcuts, you need to practice and study smart. 

Why is it Important to Study Class 11 and 12 Accountancy?

Accountancy is a very important subject when studying Commerce. If you want to become a CA, CMA, or ICWA, it is important to have a strong understanding of Accountancy.  Class 11 Accountancy syllabus is designed to give the student a complete understanding of the subject and helps build a strong foundation in Accountancy which will help them in many professional courses. 

Some of the reasons why a student must learn the subject well is –

1. One of the most obvious reasons why a student must prepare well for Accountancy is so that they pass the exam with flying colours.
2. Having a good knowledge of Accountancy will also pave a student’s way towards a successful career. 
3. The Class 11 and 12 Accountancy curriculum is designed to build a comprehensive understanding of accounting concepts. Hence, studying the syllabus well will prepare students for future advanced courses they may undertake.
4. If you prepare effectively for Class 11 and 12 accountancy, you will be confident in your accounting ability and can grab well-paying and satisfying careers in this field.

Features of the DK Goel Accountancy Solutions

1. The  DK Goel Solutions are available free of cost and students simply need to download them to gain access.
2. The solutions are written in a very clear, straightforward and understandable manner. Even difficult questions are explained in a precise and easy-to-understand way.
3. These solutions are organized in a very hassle-free way for students. It includes detailed solutions to every question in each chapter.
4. The DK Goel Solutions are designed in accordance with the latest CBSE syllabus. Hence, some of these questions might even appear in examinations.
5. These solutions are useful for students, as they can use them while practising as well as when revising for examinations. Students can practice solving questions, and if they face any trouble, they can look through the solutions for detailed answers. 

DK Goel Solutions for Class 11 And 12 Accountancy Chapters Free PDF download 

Here is a brief overview of what is included in the 27 chapters of DK Goel Accountancy Solutions for Class 11.

Chapter 1: Meaning and Objectives of Accounting

This chapter has 23 questions on the conceptual aspects of Accounting. This is followed by 9 questions based on Higher-Order Thinking Skills. Finally, you have 18 value-based questions in the first chapter of DK Goel solutions.

Chapter 2: Basic Accounting Terms

This chapter again includes questions based on thinking skills and value assessment. Students learn about common accounting terms like revenue, asset, expenditure, profit, and so on.

Chapter 3: Accounting Principles

The 3rd chapter in the solution of DK Goel includes questions on accounting statements, equations, characteristics of accounting principles, etc.

Chapter 4: Process and Basis of Accounting

In this chapter, students can read easy answers to questions about the accounting process, the accrual basis of accounting, etc.

Chapter 5: Accounting Standards and International Financial Standards (IFRS)

Chapter 5 of DK Goel Accountancy contains details about the nature, advantages, and objectives of international accounting standards.

Chapter 6: Accounting Equations

This chapter provides easy solutions to numerical questions on accounting equations.

Chapter 7: Double Entry System

The 7th chapter in the DK Goel Accountancy Solutions for Class 11 contains solutions on accounting methods, account types, etc.

Chapter 8: Origin of Transactions: Source Documents of Accountancy

This chapter gives you answers on accountancy documents like source documents, vouchers, cheques, invoices, etc.

Chapter 9: Books of Original Entry – Journal

In Chapter 9 of DK Goel Accountancy Solutions, you have questions and answers on the process of recording financial transactions.

Chapter 10: Accounting for Goods and Services Tax (GST)

Solutions in this chapter are on the new tax regime, GST (including CGST, SGST, IGST).

Chapter 11: Books of Original Entry- Cash Book

Chapter 11 of the Accountancy DK Goel Solution contains numerical solutions on cash book posting of transactions.

Chapter 12: Books of Original Entry – Special Purpose Subsidiary Books

Chapter 12 includes numerical sums and solutions on subsidiary book posting of transactions.

Chapter 13: Ledger

This chapter also carries numerical solutions. These are based on journal and ledger posting of transactions.

Chapter 14: Trial Balance and Errors

Chapter 14 of DK Goel Accountancy Solutions teaches the meaning of trial balance, the error of commission, compensating error, errors of principle, and so on. It is followed by numerical sums on the trial balance.

Chapter 15: Bank Reconciliation Statement

This chapter includes sums and solutions on bank reconciliation statements of firms.

Chapter 16: Depreciation

The 16th chapter in DK Goel Accountancy Solutions teaches how to calculate depreciation after finding out the ledger postings of a transaction.

Chapter 17: Provisions and Reserves

In Accountancy Chapter 17, Class 11 students learn the meaning of provisions, reserves, capital reserves, revenue reserves, dividend equalization reserve, etc.

Chapter 18: Bills of Exchange

Chapter 18 of DK Goel Accountancy Solutions gives solutions to questions on due date calculation, discounting charges, etc.

Chapter 19: Rectification of Errors

Here, students learn about simple solutions on how to rectify journal entries.

Chapter 20: Capital and Revenue

This lesson provides easy-to-understand answers on revenue expenditure and capital expenditure. This is followed by practice sums on the same.

Chapter 21: Financial Statements

In this chapter of DK Goel Accountancy Solutions, students learn how to calculate the cost of goods sold, gross profit, closing stock, net sales, etc.

Chapter 22: Financial Statements – With Adjustments

Here you will find detailed solutions to sums based on adjusted financial statements of a company.

Chapter 23: Accounts from Incomplete Records

Chapter 23 includes numerical problems and their solutions based on accounts from incomplete records of any firm.

Chapter 24: Introduction to Computers

Chapter 24 of DK Goel solutions details the computer’s definition, its key components, hardware, software, computer system, and so on.

Chapter 25: Introduction to Accounting Information System

Here, the solutions are based on the purpose and mechanism of the accounting information system.

Chapter 26: Computerised Accounting System

Chapter 26 of DK Goel Accounting solutions discusses manual accounting, computerized accounting, and their differences.

Chapter 27: Accounting Software Package – Tally

The last chapter of DK Goel solutions teaches about tally software and its uses.

Chapters Included in the DK Goel Accountancy Solutions for Class 12

Here are some of the chapters included in Volume 1 of DK Goel Class 12 accountancy solutions:

Chapter 1: Accounting for Partnership Firms- Fundamentals

This chapter includes numerical solutions on profit-sharing and interest on net drawings.

Chapter 2: Changes in Profit Sharing Ratio Among the Existing Partners

Here, through the appropriate solutions, students learn how a change in the profit-sharing ratio impacts the profit of a partner.

Chapter 3: Admission of a Partner

Chapter 3 of DK Goel Accountancy solutions shows how the admission of a new partner can affect the profit-sharing ratio and the sacrificing ratio of existing partners.

Chapter 4: Retirement or Death of a Partner

This chapter deals with how the death, withdrawal, or retirement of a partner can impact the shares of other partners.

Chapter 5: Dissolution of a Partnership Firm

The last chapter details the consequences of firm dissolution on a partnership contract.

Chapter-Wise Brief of DK Goel Accountancy Solutions for Class 12 Volume 2:

Chapter 1: Financial Statements of Companies

Here, you learn how to calculate the reserves and surplus of a company’s funds.

Chapter 2: Financial Statements Analysis

In this chapter of DK Goel accountancy solutions, students learn objectives, importance, uses, etc. of financial analysis.

Chapter 3: Tools for Financial Analysis: Comparative Statements

Here, students will learn everything about comparative balance sheets.

Chapter 4: Common Size Statements

You learn about a common size balance sheet and how to solve sums on them.

Chapter 5: Accounting Ratios

Accounting ratios like current ratio, quick ratio, etc. are discussed here.

Chapter 6: Cash Flow Statement

You get to understand the different categories of activities concerning cash flow statements in the last chapter of Class 12 DK Goel Accountancy Solutions.

Business firms adopt several measures and techniques to assess and analyze their business ventures’ proficiency and profitability. With the report thus availed, business owners tend to make necessary adjustments to boost their income and to portray a favorable financial image. 

 

Also, prospective business partners and investors base their decision of investing in the venture of a company entirely on its financial standing.  Notably, both business owners and potential investors use financial tools like accounting ratios to gauge the proficiency of a business firm both in terms of earning profits and meeting liabilities. 

 

On that note, let’s proceed to learn more about ratios in accounts.

 

What is an Accounting Ratio?

Typically, a ratio can be described as a mathematical expression that indicates the relationship between various items. Similarly, when ratios are computed with the help of financial data recorded in a company’s financial statements, they are known as accounting ratios. Notably, there is more than one type of such ratio, but we will check them out once we become familiar with the fundamental aspects of accounting ratio in general. 

 

The Objective of a Ratio Analysis in Accounting

The accounting ratio analysis objectives are as follow –

• Assessment of a business’s operating efficiency

• Identifying problematic areas and formulating suitable adjustments

• Facilitate analysis of a firm’s liquidity, profitability and solvency

• Effective budgeting and forecasting

 

Benefits of Ratio Analysis

Here are the benefits of accounting ratios –

• It helps to understand data of financial statements more effectively.

• Comes in handy to compare a company’s performance with its competition.

• Helps to measure the profitability and operating efficiency of a firm.

• Proves effective in gauging the short-term financial standing of a firm.

• Enables to identify future trends of business and subsequently helps formulate an effective budget.

Hence, ratios in accounts prove quite useful in analyzing and assessing financial data. However, there is a certain limitation of Ratio Analysis in Accounting One should become aware of. 

 

With that being said, let’s find out about the types of accounting ratios in brief.

 

Types of Accounting Ratios

There are four types of ratios in accounting. Find more about them below –

1. Liquidity Ratio

This particular accounting ratio helps to measure a firm’s liquidity or its ability to repay its short-term financial liabilities at any given point in time. The liquidity ratio is further divided into two types, namely –

1. The Working Capital Ratio or Current Ratio

It indicates a relationship between all the current assets or all income and accounts receivable and current liabilities or short-term debts and accounts payable of a firm. The said ratio is expressed as –

Current ratio = [frac{text{Current assets}}{text{Current liabilities}}] 

2. Acid Test Ratio/Quick Ratio or Liquid Ratio

This ratio expresses a relationship between the quick assets and current liabilities of a firm. It is expressed as –

Liquid ratio = [frac{text{Quick assets}}{text{Current liabilities}}]

Quick Assets = Marketable Securities + Accounts Receivable + Cash And Cash Equivalents

Quick Assets = Marketable Securities + Accounts Receivable + Cash And Cash Equivalents

Test Your Knowledge: With the help of the table below, segregate the items as current assets and current liabilities.

 

2. Solvency Ratio

The said ratio helps to determine the solvency or the ability of a business to pay its stakeholders for the long-term contractual obligation. Solvency ratio is of 4 types –

1. Debt-Equity Ratio

It is one of the most potent ratios in accounting, as it shows the relation between a firm’s long-term debts and its share of the equity. The ratio is expressed as – 

Debt-equity ratio= [frac{text{Long-term debts}}{text{Shareholders’ funds}}]

Do It Yourself: Show a breakdown of all the components of shareholders’ fund before you proceed to the new accounting ratio. 

2. Total Asset to Total Debt Ratio

It helps one to measure a firm’s efficiency in covering its share of long-term debts. It is expressed as – 

Total assets to total debt ratio = [frac{text{Total assets}}{text{Long-term debt}}]

3. Interest Coverage Ratio

This accounting ratio helps to measure a relationship between the bulk of profits that is available to a firm for interest payment and the value of long-term debts. It is expressed as – 

Interest coverage ratio = Net profit [frac{text{(before interest payment)}}{text{Long-term debts}}]

4. Proprietary Ratio

It signifies the relationship between shareholder’s funds to the capital employed or total assets. Typically, it is expressed as –

Proprietary ratio = Proprietors’ fund [frac{text{(shareholders’ funds)}}{text{capital employed or total assets}}]

3. Profitability Ratio

The particular set of ratios helps to measure the profit and efficiency of a firm. There are five types of profitability ratio. Check them out below –

1. Operating Ratio

Operating Ratio = [frac{text{(Cost of earnings generated through operations + Operating cost)}}{text{Net earnings from operations × 100}}]

2. Operating Profit Ratio

Operating Profit Ratio = [frac{text{(Revenue from operation – Cost of operation)}}{text{Revenue from operation × 100}}]

3. Gross Profit Ratio

Gross Profit Ratio = [frac{text{Gross Profit}}{text{Net earnings from operations × 100}}]

4. Net Profit Ratio 

Net Profit Ratio = [frac{text{Net profit}}{text{Revenue from Operations × 100}}]

5. Return on Investment or Capital Employed

Return on Investment or Capital employed = [frac{text{Gains before tax and interest}}{text{Capital employed × 100}}]

4. Turnover Ratio / Efficiency Ratio

This ratio in accounting tends to signify the frequency at which a firm performs its operation by employing its assets. Notably, a higher turnover ratio indicates effective utilization of assets and in turn, hints at proficiency. 

It is Further Divided into Four Types – 

1. Inventory Ratio 

Inventory turnover ratio = [frac{text{Cost of revenue}}{text{Average inventory}}]

2. Trade Payable Turnover Ratio

Trade payable turnover ratio = [frac{text{Net credit purchases}}{text{Average trade payables}}]

3. Trade Receivable Turnover Ratio

Trade receivable turnover ratio= [frac{text{Net credit revenue}}{text{Average trade receivable}}]

4. Working Capital Ratio

Working capital turnover ratio = [frac{text{Net earnings through operation}}{text{Working capital}}]

Learn about these accounting ratios and accounting ratio analysis in detail by joining ’s live online classes. Also, by accessing our PDF solutions, you would learn how to solve numerical using ratios in accounting to determine the financial standing and efficiency of a firm. 

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In any organization, there are two ways of operation: centralization and decentralization. There is a hierarchy of formal authority in centralization for making all the organization’s important decisions. Decentralization means that decision-making is delegated to the lower levels of the organization.

Before heading onto the advantages and disadvantages of Centralization and Decentralization, one needs to understand properly, what do the terms- Centralization and Decentralization are. Only then, you can fully understand the merits and demerits of Centralization and Decentralization. As they both help us determine the fiscal situation of a firm or country. 

So, let us now understand what the terms centralization and decentralization mean in the coming section.

What is Centralization?

Centralization is an organizational structure that gives the ability of decision-making responsibilities to higher management. Few selected members are given the authority to create and determine strategies and goals. It also clarifies the motives and mission of the organization, which must follow to achieve its goals. 

In centralization, the type of organizational structure allows higher management to create the rules including procedures that are used to communicate with lower-level employees. Lower-level employees have to obey the rules made by the higher management organization without doubting the rules and regulations.

What is Decentralization?

Decentralization is an organizational structure where the delegates are assigned to manage the organization. They are selected by the higher authorities. The selected candidates are mostly their middle and lower subordinates. 

The decentralization type of management helps to organize daily duties. They also take part in minor decision-making. A lot of responsibilities are given to the middle and lower levels subordinates. 

Because of the well-distributed job roles, the higher management authorities get a chance to focus more on major business decisions.

Advantages and Disadvantages of Centralization

There are numerous advantages and disadvantages of Centralization. Let us learn them in detail below.

Merits of centralization:

• Centralization has a very important role in providing a disciplined environment in an organization. The higher level of the management doesn’t only look after taking essential decisions for the organization, they are also the hearing aid for the employees when they face problems regarding work. Whenever the employees of middle to lower-level management face a concern regarding work and need a few changes, they can go to the higher-level management authorities. Centralization makes the decision-making, problem-solving matters easy as it helps them to keep them in proper order and all the final decisions are taken by the higher management authority.

• All the middle to lower-level employees is the workers under higher management authorities. Whatever works they are given by higher-level management, they keep a check on them because every lower lever worker is answerable to higher authorities. So, in fear of supervision, they tend to do their daily duties properly. It is one of the reasons for a better quality of work with high productivity.

• The higher-level of management has more experience than other people. They tend to have more business experience and knowledge. They have the idea of how to deal with specific situations and how to not. With their knowledge based on their experience, they tend to be better decision-makers for the centralized organization.

• Every organization be it centralized or other, they have a plan or a vision that they want to see accomplished in the coming years. For the success in the future, it can’t be expected from the efforts but if they have centralized or higher-level authorities which have power in the hand for deciding for the company’s good. They can decide on their vision for the future with full focus. They will make the workers of the company achieve the goals for the company.

• Whenever more people are involved in the decision-making process, more time will increase the decision-making process. And it will tend to make it slow because more people shall give more opinions and views about certain objectives. So, having a centralized organization will have only the top management for decision-making while the employees will be responsible for only work, not for decision-making.

• In a centralized organization, the higher authorities are those who started the business. So, they save the money for hiring any other business experts for the decision they need to make.

Demerits of Centralization:

• They don’t have the exposure to show their skills as they have to follow the rules and orders by the higher authorities. They feel demotivated while working, as they have no chance of getting a promotion.

• In a centralized organization, the decision-maker has the power. Employees tend to work under them according to their rules. In such situations, their work outcome is not creative. With the controlled nature of the centralized organization, their productivity suffers the most.

• As the worker is constantly working under rules and supervision via higher authorities, they get the feeling of slaves rather than organization employees. This leads to disloyalty, and they tend to leave when they receive a better opportunity.

Merits and Demerits of Decentralization 

There are several advantages and disadvantages of fiscal decentralization. Decentralized decision-making advantages and disadvantages also, helps us to understand the correct way to approach any fiscal problem and take adequate decisions. So without any further ado, let’s find out the advantages and disadvantages of Decentralization.

Merits of Decentralization:

• In a decentralized organization, the decision-making process is quite quicker than centralization. From the middle to the lower level, employees are allowed to make minor decisions. Based on the situation, they can take ownership of the required action and implementation.

Demerits of Decentralization

• In a decentralized organization, many employees are required to be hired according to their work experiences and knowledge. This criterion increases the cost of the company, as more money is spent to hire the most eligible people for the job profile.

Centralization and decentralization are opposite ways to transfer decision-making power and to alter the organizational structures.

There must be a good balance between centralization and decentralization of authority and power. It is necessary to avoid extremes of centralization and decentralization.

Conclusion

Centralization obtains consistent methods and activities and uses closer powers to work units. It can successfully handle the crisis immediately. Decentralization guarantees the dynamic work of the staff and stimulates their enthusiasm. The true realization of joint relies on a reasonable combination of centralization and decentralization. No complete centralization or complete decentralization was found in the association. It only exists in principle. Therefore, a legitimate blend of the two is required. Centralization and decentralization are tangled points. Nor is it a reliable and correct arrangement. Professional issues, such as server organization, and non-technical issues, such as authoritative structures, can be combined or dispersed. Both topics are related to making changes. When introducing such unavoidable improvements, we recommend that you consider the following core values: understanding the clear problem you are understanding; understanding your inspiration for introducing improvements; Incorporate as much as is possible for the time being; recognize that, like any new administration, it requires careful planning; and, most importantly, listen to your clients.

Introduction to Balance Sheet

A financial statement that reports a company’s assets, liabilities and shareholders’ equity at a specific point in time is known as Balance Sheet. Balance Sheet provides a basis for computing the rates of return and it evaluates the capital structure of the firm. The sheet provides a snapshot of what a company owns by itself and owes to its creditors. The amount invested by the shareholders in the company is also represented here in Balance Sheet. 

But what else is recorded in a Balance Sheet? We will know about those in detail in the following sections to learn more effectively about ‘Balance Sheet’.

Definition of Balance Sheet

Balance Sheet can be simply said as the – “financial statement of a company”. Balance Sheet includes assets, liabilities, equity capital, total debt at a specific point of time. Balance sheet represents the assets on one side, and liabilities on the other side. A balance sheet must tally to reflect the true picture of both assets and liabilities.
Balance Sheets are calculated after every quarter or six months or even after one year.

 

Balance Sheet Assets and Liabilities

As already discussed, the balance sheet is a snapshot of representing the state of a company’s finances at a particular time. A disadvantage of it is that it cannot give a sense of the trends over a longer period. For this reason, the balance sheet is only used to compare with those of the previous periods and to be compared with other businesses in the same industry as different industries have different approaches to financing.

Assets

In the section of assets, they are listed in order of their liquidity. In our list too, we will follow the same order as in a balance sheet. 

First comes the current assets:

• Cash and Cash Equivalents – they are the most liquid assets. Treasury bills and short-term certificates of deposit are perfect examples of cash and cash equivalents. 

• Marketable Securities – they are the equity and debt securities which they have a market for.

• Accounts receivable – are the money that the customers owe the company.

• Inventory – these are the goods available for sale, they are generally valued lower than the market price.

• Prepaid expenses – value which has already been paid for, like insurance, advertising contracts or paying of rent in advance.

While, Long-term assets include the following:

• Long-term investments – are the securities which cannot be turned into cash in the next year.

• Fixed assets – are the land, machinery, equipment, buildings and other durable capital assets.

• Intangible Assets – include non-physical assets like intellectual property and goodwill. Real intangible assets are included in the balance sheet if they are acquired, not developed.

Liabilities

Liabilities are the money which a company owes to the third or outside parties, these are the bills which have to be paid to the suppliers. Current liabilities are due within one year and are listed in order of their due date in the balance sheet. While the long-term liabilities are due at any point after a period of one year.

Current liabilities include:

• Current portion of the long-term debt.

• Bank indebtedness to be paid by the business.

• Interest payable to the third party.

• Wages payable to the workers.

• Customer prepayments, orders to be sent.

• Dividends payable.

• Accounts payable

• Next, Long-term liabilities can include:

• Long term debt – These are the interest and principal on bonds.

• Pension fund liability – is the money that a company is required to pay into its employees’ respective retirement accounts.

• Deferred tax liability – taxes which have been accrued but will not be paid for another year.

Economics is not only a subject but also a regular practice in every individual’s life. It is a way of balancing the financial inputs and outputs. Whether it is a small family or large family, small business firm or a big organization, and individuals pocket money, etc. whatever it is one should plan before the month or count at the end of the month or year. This is what economics is trying to balance the unlimited requirements with limited resources.

With this being said, we will begin our discussion on the subject ‘Economics’. This content is readable for especially those students who just started their journey of Commerce in class XI. In short, we can say that Economics is a scoring and intellectual subject which will be a worthy study for the quest for knowledge.

Definition of Economics 

Economics is defined as a technique or a tool of balancing most of the needs which can be termed as a credit and the limited resources, which can be termed as a debit. Keeping a proper and healthy balance between these two terms is nothing but economics. It is one of the Economics basic definitions. Apart from this, we have different basic definitions of Economics there, based on the scenario. Before going to the fundamentals of economics, it has two streams. Namely- macroeconomics and microeconomics. 

Macroeconomics: Macro means large. Macroeconomics deals with large economic-related issues like a whole entity or a big organization or the entire nation or the whole city or a complete project etc. Inflation, annual budgets, scarcity, poverty, etc. can come under macroeconomics.

Microeconomics: On the other hand, micro means small. Microeconomics deals with small units, single apartments, individual plants, household activities, part of your project, a single event, etc. that come under the microeconomics.

List and Explain the Basic Concepts of Economics

Along with the meaning and the definition of economics, it is important to understand the basic economic terms and concepts in detail to get the awareness of maintaining a proper budget for the house or task or any organization. We have five fundamental economic concepts in general. They are as follows- 

1. Supply and demand

2. Scarcity

3. Opportunity cost

4. Time value of money

5. Purchasing power

• Supply and Demand: – It is one of the basic economic concepts and theories. Supply and demand can be seen everywhere in our daily life. To understand this concept more clearly, let’s take a common example like food products. If we take food and drinks, they need to travel from the farmer to the consumer with multiple mediators. So, the price may vary. The exact point of the price at which the buyer and consumer will get to a compromising position, that point is nothing but the state of supply and demand, it means where the demand meets the supply.

• Scarcity: – This is also the basic concept of economics, which also acts as a factor of demand and supply. Because the supply doesn’t meet the demand, then the condition is termed as a scarcity of that particular utility, whether it is food or product or money or any other.

• Opportunity Cost: – It is one of the 5 basic concepts of economics. It is like a trade-off market. It is also termed as an exchange policy like if we want something we need to give others in the form of cash or product or whatever it is. We are creating an opportunity to sell our goods in return for getting our requirements.

• Value for Money: – It is one of the important concepts in economics because the value of money may vary from time to time based on different factors. The best example of this is the stock market. If the value of a particular stock is about 100 rupees today and it goes on the increase to ＄200 or ＄500 within hours or days because of inflation. At the same time, the price decreased because of deflation.

• Purchasing Power: – Another fundamental economic concept is the purchasing power of consumers because if we take gold as an example, even though the price of gold is reduced, the buyer may not have the ability to purchase food at that particular time. If he can purchase some amount of gold, the price may increase. That ability of the consumer is called the purchasing power.

These are some basic concepts of economics. As it is a wide concept, its scope spreads broadly and can derive several definitions in different scenarios. Among the five basic concepts, 3 fundamentals of economics were most important. Supply and demand, the value of money, scarcity. So, it is always important to have a good knowledge of economics to maintain equality in our balanced budgets.