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PREFACE
I am glad indeed to place this title 5TH EDITION NTA COMMERCE in the
hands of those students who are preparing for NTA exam.
This book is written strictly according to the prescribed syllabus. In preparing
this book, I have freely drawn the material both from the books of Indian &
foreign authors.
The book is divided into 12 units.
I request every teacher and the taught to bring such mistakes to the notice of
the author so that they can be redressed in the nest edition.
I welcome every constructive suggestion that goes in improving the quality of
the work and the utility of the book.
2019
Srinagar-J&K
190001
HILAL AHMED
(B.COM/M.COM/PGDBA)
AHMADHILAL850@GMAIL.COM
9906837425 / 7006246674
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CONTENTS
UNIT
No. TITLE
1 FINANCIAL MANAGEMENT
(THEORY + REFERENCE)
2 FINANCIAL & MANAGEMENT
ACCOUNTING
(THEORY + REFERENCE)
3 BUSINESS ECONOMICS
(THEORY + REFERENCE)
4 BUSINESS STATISTICS
(THEORY + REFERENCE)
5 BUSINESS MANAGEMANT
(THEORY + REFERENCE)
6 MARKETING MANAGEMENT
(THEORY + REFERENCE)
7 BUSINESS ENVIRONMENT
(THEORY + REFERENCE)
8 HUMAN RESOURCE MANAGEMENT
(THEORY + REFERENCE)
9 BANKING & FINANCIAL INSTITUTIONS
(THEORY + REFERENCE)
10 INTERNATIONAL BUSINESS
(THEORY + REFERENCE)
11 ACCOUNTING & FINANCE
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(THEORY + REFERENCE)
12 INCOME-TAX LAW & PLANNING
(THEORY + REFERENCE)
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UNIT-11
ACCOUNTING & FINANCE
SOME IMPORTANT TYPES OF ACCOUNTING –
1) INFLATION ACCOUNTING- Inflation rate is the percentage of change in the price
level from the previous period. Inflation a/c is to correct the conventional historical cost
accounts for the understatement of inventory and plant used in production i.e the cost of
goods sold & depreciation in order to prevent erosion of capital during inflation.
Conversion factor= Current Price Index / Previous Price Index at the date of
Existing figure.
providing same set of services. He was of the view that there are three basic
elements of positional replacement cost that is, acquisition cost, development
cost & separation cost.
III. OPPORTUNITY COST MODEL: This model was developed by Hekimian & Jones. It
values human resources on the basis of economic concept of opportunity cost.
This cost is linked with scarcity. This model is based on the fact that every human
asset has a value only when it is scarce. This model will be suitable only in case of
scarce employees. The investment manager will bid for the scare employees, they
need to recruit. In other way model does not consider any human resource as an
asset which is not included in scarce. The investment centre with the highest bid
would win the resources & include the price in its investment base. This model is
also known as Competitive Bidding Model.
IV. HERMANSON’S MODEL: Roger H Hermanson has given this model in Michigan in
1964. This model is also known as adjusted discount future wage model. This
model is based on the assumption that a relationship can be established between
employee’s salary & his value to organization. The present value of discounted
wages of future is calculated for each year for coming 5 years.
V. FLAMHOLTZ’S MODEL: This model is also known as stochastic model for valuation
of human resource. Flamholtz was of the view that human beings cannot be
purchased or owned by organization like other physical assets. They are free to
either serve or turnover. He emphasized on dual aspect of an individual’s Value, one
is the amount that organization could potentially realize from his services if he stays
within the organization & the other aspect refers to the amount actually expected to
be derived, taking into account the persons likelihood of leaving. The ultimate
measure of a human’s value is expected realizable value which is dependent
upon his conditional value multiplied by probability of maintaining
organizational membership.
VI. COMPENSATION MODEL: Compensation model popularly known as Schwartz’s
model, determines present value of future earnings of a person in an
organization.
RESPONSIBILITY CENTRES: Responsibility centre is used to measure inputs and outputs. Any
organizational or functional unit headed by a manager who is responsible for the activities of
that unit is called a responsible center. The manager is responsible or accountable for the
accomplishments of the tasks set in his unit.
The total organizational task is divided into sub-tasks, which are performed by different
departments. In this sense, all departments in an organization are responsibility centers.
All responsibility centers use resources [inputs or costs] to produce something [output or
revenues]. Typically responsibility is assigned to a revenue, expense, profit and/or investment
center.
1. COST CENTRE: Cost centers are segments in which the managers are
responsible for costs incurred but have no revenue responsibility.
2. PROFIT CENTRE: Responsibility centers may have both inputs and outputs. The
inputs are taken as costs and outputs are revenues. The difference between the
revenue and costs incurred will be profit.
3. INVESTMENT CENTRE: An investment centre is an entity segment in which a
manager can control not only revenue and costs but also investment.
FINANCIAL MARKET
Financial market is the market that facilitates transfer of funds between investors/ lenders and
borrowers/ users. Financial market may be defined as ‘a transmission mechanism between
investors (or lenders) and the borrowers (or users) through which transfer of funds is
facilitated’. It consists of individual investors, financial institutions and other intermediaries
who are linked by a formal trading rules and communication network for trading the various
financial assets and credit instruments. It deals in financial instruments (like bills of exchange,
shares, debentures, bonds, etc).
Money Market.
Call Money.
Treasury Bill.
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Commercial Paper.
Certificate of Deposit.
Trade bill.
Capital Market.
Securities Market
Primary Market : IPOs, Book Building, Private Placements.
Secondary Market : Equity Market, Debt Market, Commodity Market, Futures and
Options Market. (Secondary Market can be basically divided into two – spot market and
forward market. Forward market has two divisions – futures and options/derivatives. Again,
there are two types of options – put option and call option.)
Non-Securities Market
Mutual Funds.
Fixed Deposits, Savings Deposits, Post Office savings.
Insurance
FOR COMPLETE
BOOK
POINTS TO REMEMBER
Money Market is the market deals in short term funds i.e. in funds with maturity
period of up to one year.
The RBI is the major constituent of money market which comes within the direct
purview of RBI regulations.
Capital market is the market which deals with long term funds i.e. maturity period
above 1 year.
Primary market deals in the new financial claims or new securities known as new
issue market.
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FOR COMPLETE
BOOK
POINTS TO REMEMBER:
RIGHT ISSUES- Shares offered to existing shareholders are called right shares.
BOOK BUILDING: Book Building is an exercise where investors submit bids throughout
the offer period, indicating demand & price sensitivity. Investors play at a single price
determined after book-building to solicit indications of demand by the company &
underwriters, usually lower than the highest bid to create an over-subscription & stable
after market. It is a blessing for the company as the investor himself determines the
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optimum issue price. Book building is the process of price discovery that is there is no
predetermined price for the shares. As an alternative, the firm issuing the shares declares a
price band. When a firm is offering shares to the public via book building process, it sets a
price band that defines the minimum and maximum price limits at which investors can
make bids for acquiring the shares of the company. The floor price signals the minimum
price at which the investors may bid for the shares, cap is the maximum price at which
investors can make bids. Bids are then offered for the shares. Each investor states how
many shares he wants and what he is willing to pay for those shares (depending on the
price band).
CREDIT RATING
Credit Rating is an assessment of the borrower (be it an individual, group or company) that
determines whether the borrower will be able to pay the loan back on time, as per the loan
agreement. Needless to say, a good credit rating depicts a good history of paying loans on
time in the past. This credit rating influences the bank’s decision of approving your loan
application at a considerate rate of interest.
It is usually expressed in alphabetical symbols. Although, it is a new concept in Indian
financial market but slowly its popularity has increased. It helps investors to recognize the
risk involved in lending the money and gives a fair assessment of the borrower’s
creditability.
POINTS TO REMEMBER:
It is defined as an act of assigning values to credit instruments by estimating or
assessing the solvency i.e. the ability of the borrower to repay debt, and expressing them
through pre-determined symbols.
Credit rating is done by specialized, expert, reputed & accredited institutions.
Debt instruments
It began in 1988 in India by the ICICI and UTI jointly.
Fixed deposit most important instruments
The concept was first introduced by John Moody in the USA in 1909.
BOSTON CONSULTING
Boston Consulting Group, Inc. (BCG) is an American multinational management
consulting firm with more than 90 offices in 50 countries. Founded in 1963 by Bruce
Henderson, it advises clients in management decisions across private, public, and
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Nonprofit organization sectors around the world, including more than two-thirds of
the Fortune 500, and is one of the "Big Three" strategy consulting firms known as
"MBB". Considered one of the most prestigious management consulting firms in a
branche-internal survey, BCG was ranked fourth in Fortune's "100 Best Companies
to Work For" in 2018.
FOR
COMPLETE
BOOK
PORTFOLIO MANAGEMENT
The art of selecting the right investment policy for the individuals in terms of minimum
risk and maximum return is called as portfolio management.
INVESTMENT
Investment refers to purchase of financial assets. While Investment Goods are those
goods, which are used for further production.
TYPES OF INVESTMENT
FOR
COMPLETE
BOOK
SPECULATION
People who buy & sell securities in the stock exchanges may have different
motivations for doing so. A person may be interested in getting a good rate of return,
earned on a rather consistent basis, for a relatively long period of time. For this he
will choose the shares of a company which is fundamentally strong & has the
potential for growth in the future. Such a person is a genuine investor who invests
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his money in securities for long-term returns. There may be other persons who have
a short-term perspective on their trading activities on the stock exchanges. A person
may be interested in making a quick short-term profit from the fluctuations in the
prices of securities in the stock market. Such a person is known as a speculator.
Speculators are traders who intend to make high returns within a short span of time,
making use of the short-term fluctuations in security prices.
TYPES OF SPECULATORS:
FOR
COMPLETE
BOOK
DEPOSITORY
Central Depository Services (India) Ltd (CDSL), is the second Indian central
securities depository based in Mumbai. Its main function is the holding securities
either in certificated or un-certificated (dematerialized) form, to enable book entry
transfer of securities.
Demat account or dematerialized account is an account that holds the shares and
securities of an individual in an electronic form. When an individual indulges in
trading or investing in shares or securities all the transactions are done through the
DA. To put it another way, just like the banks hold the money of the individuals.
Similarly, the DA holds the shares and securities of the individual in the account.
Demat account is a service that is provided by depositories like NSDL and CDSL via
intermediaries or depository participants or brokers etc. Investors make an account
with depository participants and indulge in the transaction of shares and securities.
The DA consists of a unique id that is given to every individual who opens an account.
NSDL and CDSL are the main authorities who hold all the demat accounts. The
depository participants act as a middleman. The DA shall hold your purchases and
you can view it anytime in your portfolio. In addition, with every transaction, the DA
get continuously updated every time you conduct a transaction.
What is Dematerialization?
FOR
COMPLETE
BOOK