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class 12 commerce online preparation material

 class 12 commerce online preparation material

class 12 commerce online preparation material:- We provide complete class 12 commerce online preparation material in this article.

class 12 commerce online preparation material

class 12 commerce online preparation material

class 12 commerce online preparation material

class 12 commerce online preparation material:-Accountancy : Company Accounts and Analysis of Financial Statements

Public Company

A public company is defined as a company that offers a part of its ownership in the form of shares, debentures, bonds, securities to the general public through stock market. There must be atleast seven members to form a public company. As per the section 3 (1) (iv) of Companies Act 1956, public company means a company which:

a) is not a private company,

b) has a minimum paid up capital of Rs 5,00,000 or such higher paid up capital, as may be prescribed,

c) is a private company, being a subsidiary of a company which is not a private company.

A public company should not be mistakenly understood as a publicly-owned company, as the latter is exclusively owned and controlled by the government. A public company issues its share to general public without any restriction on maximum number of persons. A public company can be segmented into two types:

1. Listed Company– A Company whose shares are listed and traded in the stock exchange like, Tata Motors, Reliance, etc.

2. Unlisted Company– A Company whose shares are not listed in the stock exchange and thereby these shares cannot be traded in the stock exchange.

Nature of the Financial Statements.

The financial statements are the end-products of the accounting process. The financial statements not only reveal the true financial position of the company but also help various accounting users in decision making and policy designing process. The nature of the financial statements depends upon the following aspects like recorded facts, conventions, concepts, and personal judgment

1. Recorded facts– The items recorded in the financial statements reflect their original cost i.e. the cost at which they were acquired. Consequently, financial statements do not reveal the current market price of the items. Further, financial statements fail to capture the inflation effects.

2. Conventions– The preparation of financial statements is based on some accounting conventions like, Prudence Convention, Materiality Convention, Matching Concept, etc. The adherence to such accounting conventions makes financial statements easy to understand, comparable and reflects the true and fair financial position of the company.

3. Accounting Assumptions – These basic accounting assumptions like Going Concern Concept, Money Measurement Concept, Realisation Concept, etc are called as postulates. While preparing financial statements, certain postulates are adhered to. The nature of these postulates is reflected in the nature of the financial statements.

4. Personal Judgments- Personal value judgments play an important role in deciding the nature of the financial statements. Different judgments are attached to different practices of recording transactions in the financial statements. For example, recording stock either at market value or at the cost requires value judgment. Similarly, provision on various assets, method of charging depreciation, period related to writing off intangible assets depends on personal judgment. Thus, personal judgments determine the nature of the financial statements to a great extent.

Private Limited Company

Private limited company is a company that is limited by shares or by guarantee by its members. A private company is defined as a company that has a minimum paid up share capital of Rs 1,00,000. As defined by the Section 3 (1) (iii) of Companies Act 1956, private limited company is defined by the following characteristics.

a) It restricts the right to transfer its shares.

b) There must be atleast two and a maximum of 50 members (excluding current and former employees) to form a private company.

c) It cannot invite application from the general public to subscribe its shares, or debentures.

d) It cannot invite or accept deposits from persons other than its members, Directors and their relatives.

Unlike public company, a private company cannot issue its shares or debentures to general public at large as shares of these companies are not traded in the stock exchange, for example, Coca-Cola India Private limited, etc.

Significance of the Financial Statements.

The importance of financial statements is mentioned below.

1. Provides Information– Financial statements provide information to various accounting users both internal as well as external users. It acts as a basic platform for different accounting users to derive information according to varying needs. For example, the financial statements on one hand help the shareholders and investors in assessing the viability and return on their investments, while on the other hand, the financial statements help the tax authorities in calculating the amount of tax liability of the company.

2. Cash Flow– Financial statements provide information about the cash flows of the company. The financial statements help the creditors and other investors in determining solvency of company.

3. Effectiveness of Management– The comparability feature of the financial statements enables management to undertake comparisons like inter-firm and intra-firm comparisons. This not only helps in assessing the viability and performance of the business but also helps in designing policies and drafting policies. The financial statements enhance the effectiveness and efficacy of the management.

4. Disclosure of Accounting Policies– Financial statements provide information about the various policies, important changes in the methods, practices and process of accounting by the company. The disclosure of the accounting policies makes financial statements simple, true and enables different accounting users to understand without any ambiguity.

5. Policy Formation by Government– It needs information to determine national income, GDP, industrial growth, etc. The accounting information assist the government in the formulation of various policy measures and to address various economic problems like employment, poverty etc.

6. Attracts Investors and Potential Investors– They invest or plan to invest in the business. Hence, in order to assess the viability and prospectus of their investment, creditors need information about profitability and solvency of the business.

Government Company

As per the Section 617 of Company Act of 1956, a Government Company means any company in which not less than 51% of the paid up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one on more State Governments and includes a company which is a subsidiary of a Government Company as thus defined.

Limitations of Financial Statements.

The following are the limitations of financial statements.

1. Historical Data– The items recorded in the financial statements reflect their original cost i.e. the cost at which they were acquired. Consequently, financial statements do not reveal the current market price of the items. Further, financial statements fail to capture the inflation effects.

2. Ignorance of Qualitative Aspect– Financial statements does not reveal the qualitative aspects of a transaction. The qualitative aspects like colour, size and brand position in the market, employee’s qualities and capabilities are not disclosed by the financial statements.

3. Biased– Financial statements are based on the personal judgments regarding the use of methods of recording. For example, the choice of practice in the valuation of inventory, method of depreciation, amount of provisions, etc. are based on the personal value judgments and may differ from person to person. Thus, the financial statements reflect the personal value judgments of the concerned accountants and clerks.

4. Inter- firm Comparisons– Usually, it is difficult to compare the financial statements of two companies because of the difference in the methods and practices followed by their respective accountants.

5. Window dressing– The possibility of window dressing is probable. This might be because of the motive of the company to overstate or understate the assets and liabilities to attract more investors or to reduce taxable profit. For example, Satyam showed high fixed deposits in the Assets side of its Balance Sheet for better liquidity that gave false and misleading signals to the investors.

6. Difficulty in Forecasting– Since the financial statements is based on historical data, so they fail to reflect the effect of inflation. This drawback makes forecasting difficult.

Listed Company

Those public companies whose shares are listed and can be traded in a recognised stock exchange for public trading like, Tata Motors, Reliance, etc are called Listed Company. These companies are also called Quota Companies. The listing of securities (shares) helps the investor to determine the increase/decrease in value of their investment in a concerned listed company. This provides ample indication to the potential investors about the goodwill of the company and facilitates them to take various investment decisions and also to assess the viability of their investment in a company.

class 12 commerce online preparation material:-Economics : Introductory Microeconomics

class 12 commerce online preparation material:-Characteristics of a Perfectly Competitive Market

Perfect Competition

This type of market structure refers to the market that consists of a large number of buyers and also a large number of sellers. No individual seller is able to influence the price of an existing product in the market. All sellers in a perfect competition produce homogenous outputs, i.e. the outputs of all the sellers are similar to each other and the products are uniformly priced.

Features of Perfectly Competitive Market

1) A large number of buyers and sellers

There exist a large number of buyers and sellers in a perfectly competitive market. The number of sellers is so large that no individual firm owns the control over the market price of a commodity.

Due to the large number of sellers in the market, there exists a perfect and free competition. A firm acts as a price taker while the price is determined by the ‘invisible hands of market’, i.e. by ‘demand for’ and ‘supply of’ goods. Thus, we can conclude that under perfectly competitive market, an individual firm is a price taker and not a price maker.

2) Homogenous products

All the firms in a perfectly competitive market produce homogeneous products. This implies that the output of each firm is perfect substitute to others’ output in terms of quantity, quality, colour, size, features, etc. This indicates that the buyers are indifferent to the output of different firms. Due to the homogenous nature of products, existence of uniform price is guaranteed.

3) Free exit and entry of firms

In the long run there is free entry and exit of firms. However, in the short run some fixed factors obstruct the free entry and exit of firms. This ensures that all the firms in the long-run earn normal profit or zero economic profit that measures the opportunity cost of the firms either to continue production or to shut down. If there are abnormal profits, new firms will enter the market and if there are abnormal losses, a few existing firms will exit the market.

4) Perfect knowledge among buyers and sellers

Both buyers and sellers are fully aware of the market conditions, such as price of a product at different places. The sellers are also aware of the prices at which the buyers are willing to buy the product. The implication of this feature is that if any individual firm is charging higher (or lower) price for a homogeneous product, the buyers will shift their purchase to other firms (or shift their purchase from the firm to other firms selling at lower price).

5) No transport costs

This feature means that all the firms have equal access to the market. The goods are produced and sold locally. Therefore, there is no cost of transporting the product from one part of the market to other.

6) Perfect mobility of factors of production

There exists geographically and occupationally perfect mobility of factors of production. This implies that the factors of production can move from one place to other and can move from one job to another.

7) No promotional and selling costs

There are no advertisements and promotional costs incurred by the firms. The selling costs under perfectly competitive market are zero.

class 12 commerce online preparation material:-Central Problems of an Economy.

Every economy faces three central problems due to scarce availability of resources. This scarcity challenges the best possible usage of these available resources to fulfil the unlimited demands. The three central problems of an economy are as follows:

  1. What to produce and in what quantities?

The very first problem encountered by any economy is to decide what goods are to be produced and in what quantities or amount. There is a lot to be decided; whether to produce consumer goods or luxury goods; agricultural goods or investment goods; whether to cater education and healthcare sector or to strengthen country’s military. An appropriate example was set by the Latin American nation Costa Rica; they dismantled their military in 1949 and invested the money, which earlier was spent on the maintenance of their army, on education and healthcare. Once it is decided, what to produce, the next decision is to estimate the amount or quantity of the production. So the economy constantly struggles to choose what to produce and in what quantities.

  1. How to produce?

The second problem that arrives is how to harvest the given or available resources? That is, what technique is to be used for producing various goods and services? It depends majorly on the nation’s endowment of resources in deciding the optimum technique. It has to be decided whether efficient production is possible through labour-intensive or capital-intensive techniques. This decision rest on the present economic conditions and also that the selected technique shall not only reduce the cost of production but also add to the social and economic welfare. For example, if a country is facing wide unemployment possibly due to huge population, then it is wise to opt for labour-intensive technique so that there is reduction in unemployment.

  1. For whom to produce?

Finally, the purposeful distribution of final goods and services produced (national income) has to be done; that is, who gets what and how much? The economy needs to decide the best suitable mechanism for distribution of the final products among different segments of the society. The objective behind selecting such mechanism is to reduce inequality of income, to reduce poverty and to add to the social welfare and standard of living of people.

class 12 commerce online preparation material:-Production Possibilities of an Economy

Production possibilities of an economy imply those numerous alternative combinations of goods and services, which a particular economy can produce, with the given technology and employing the available resources fully and efficiently. In other words, it refers to various feasible bundles of goods and services that can be produced together by efficiently utilising the given technology and available resources.

class 12 commerce online preparation material:-Distinguish between a centrally planned economy and a market economy.

Points of Difference

Centrally Planned Economy

Market Economy

1Ownership of factors of productionFactors of production are publically owned; i.e., public ownership.Factors of production are privately owned.

2

Production motiveThe motive of production is social welfare.The main motive is profit making.

3

Governing factorThe production is governed by planning mechanism; i.e. according to the government plans.The production is governed by price mechanism; i.e., by demand and supply.

4

Income distributionThe degree of inequality of income is low.There exists unequal distribution of income.

5

Government’s roleThe main role is played by the government – from production to distribution.The main role is played by private players. They decide what to produce, while the role of a government is limited to maintaining law and order in the nation.

class 12 commerce online preparation material:-Positive Economic Analysis

Positive economic analysis refers to the analysis in which we study what is or how an economic problem is solved by analysing various positive statements and mechanisms. These are factual statements and describe what was, what is and what would be. These statements can be tested, proven or disproven and do not involve personal value judgments. For example, if someone says that it is raining outside, then the truth of this statement can be verified. It deals with actual or realistic situations.

class 12 commerce online preparation material:-Distinguish between microeconomics and macroeconomics.

Points of Difference

Microeconomics

Macroeconomics

1Study mattersIt studies about individual economic units like households, firms, consumers, etc.It studies about an economy as a whole.

2

Deals withIt deals with how consumers or producers make their decisions depending on their given budget and other variables.It deals with how different economic sectors such as households, industries, government and foreign sector make their decisions.

3

MethodIt uses the method of partial equilibrium, i.e. equilibrium in one market.It uses the method of general equilibrium, i.e. equilibrium in all markets of an economy as a whole.

4

VariablesThe major microeconomic variables are price, individual consumer’s demand, wages, rent, profit, revenues, etc.The major macroeconomic variables are aggregate price, aggregate demand, aggregate supply, inflation, unemployment, etc.

5

TheoriesVarious theories studied are:

1) Theory of Consumer’s Behaviour and Demand

2) Theory of Producer’s Behaviour and Supply

3) Theory of Price Determination under Different Market Conditions

Various theories studied are:

1) Theory of National Income

2) Theory of Money

3) Theory of General Price Level

4) Theory of Employment

5) Theory of International Trade

class 12 commerce online preparation material:-Business Studies : Principles and Functions of Management

class 12 commerce online preparation material:-The main points in the definition of planning

Planning is a psychological process of ‘thinking and deciding in advance’ about ‘what is to be done’ and ‘how it is to be done’. It is a mental activity, in which the manager decides about the goals to be achieved, and actions through which they are to be accomplished. It is futuristic in nature as it involves looking ahead, along with analysing and predicting the future. Planning can be defined as a process of setting up of goals and objectives for a given period of time, formulating alternatives for the course of action to be taken, and finally deciding an appropriate action from the various alternatives. The following are the main points in the definition of planning.

i. Setting Objectives: Planning must pertain to a particular objective. That is, there must be a definite objective for the achievement of which planning is to be done. 

ii. Time Period: The plan must be formulated for a definite time period. If planning is not done with a time frame, it may prove futile. This is because with time business environment changes and requires fresh planning and action. 

iii. Formulating Alternatives for Course of Action: Once the objective is decided, the next task is to decide how it is to be achieved. For the achievement of any objective there can be various alternative course of action. These alternatives must be appropriately formulated. 

iv. Deciding a Course of Action: From the various available alternatives, the best one must be decided.

class 12 commerce online preparation material:-Why is it that organisations are not always able to accomplish all their objectives?

For the attainment of the desired objectives, organisations make plans. Planning is an essential activity for any organisation and sets the basis for its functioning. However, sometimes the things do not go as per the plan. Unforeseen changes in the business environment often dampen the plans of the organisation. Moreover, the process of planning has its own limitations that hinder the accomplishment of all the objectives of an organisation. Following are some of the limitations of planning which may result in the abandoning of the organisational objectives.

(i) Rigidness: Planning is rigid in nature. Once a plan regarding the objectives to be achieved and the course of action to be followed is formulated, the manager may not be able to change it. Such rigidity creates hurdles at times of unforeseen changes. At times of unexpected changes, the managers may require certain degree of flexibility so as to cope with the changes in an appropriate manner. Thus, rigidity in plans sometimes creates obstacles in the completion of the objectives. 

(ii) Cannot Deal With Dynamic Environment: Business environment is dynamic and thereby, very uncertain. However, planning cannot foresee such changes and fails at times of changes and uncertainties. This may lead to failure in the accomplishment of objectives. An organisation must adapt its functioning to the changing environment. 

(iv) Gigantic Costs: Formulation of plans involves huge costs in terms of time and money. As planning is based on future predictions, it requires a lot of thinking and analysing. It involves scientific calculations along with the figures and the facts, which are to be used in formulating the course of action. This involves high costs. Moreover, sometimes it might also happen that the benefits derived from planning fall short of the costs incurred.

(v) False Security: Good planning does not mean a guarantee to success. Often the mangers tend to rely on pretested plans that have worked well in the past. However, it is not always true that if a plan had worked well in the past, it will also be successful in the future. Many unforeseen changes may crop up that may fail the plan. Sometimes managers think that planning can prevent the problems from occurring, however, they neglect the fact that planning just provides a base for predicting the future. It does not give straight away solutions to the problems. 

(vi) Time Consuming: Formulating plans is a very time consuming task, as it involves looking forward in the unforeseen situations. It involves a lot of research and evaluation. This increases the time consumed by the managers and the actual actions may get delayed.

class 12 commerce online preparation material:-Define ‘Organising’

Organising refers to the procedure of aligning the activities in a certain order. It contains designing the roles and directing the people towards accomplishment of goals. Human efforts along with the resources are brought together and coordinated under this function. The focus of the function lies in enabling people to work together and implementing the plans for successful attainment of objectives. Through organising the working relationships of an organisation gets clearly defined, thereby ensuring its smooth functioning. The process of organising involves

i. Identifying the work and dividing them according to the plans

ii. Grouping the work of similar nature and making departments for the same.

iii. Assigning authorities to the right personnel

iv. Designating the reporting relations

class 12 commerce online preparation material:-The steps in the Process of Organising

The following are the steps involved in a successful process of organising.

(i) Identifying and Dividing the Work: Under organising, the very first step deals with identifying the activities and dividing them according to the defined plans. The actions are divided as per the objectives. A clear division of work is done so as to avoid any duplicity. 

(ii) Creating Departments: Herein, the divided actions are further grouped into units based on the similarity in nature. That is, similar activities are grouped together. Such departmentalisation promotes specialisation. Each department specialises in a particular task. Departments can be formed on the basis of several criteria such as working profiles, regions, product, etc. 

(iii) Assigning Duties: The third step under organising deals with assigning the roles and responsibilities to the personnel. Under each department work is allocated to different members as per their skill and ability. While assigning the duties it must be ensured that the best suited and proficient person is selected for the work.

(iv) Establishing the Relationships: Any organisation needs a proper hierarchic structure to work efficiently. Every person should know whom he’s working under and to whom he needs to report. Clear establishment of such relationships help in smooth functioning of an organisation.

class 12 commerce online preparation material:-Divisional Structure and Discuss its advantages and limitations.

Divisional structure refers to an arrangement where activities are separated on the basis of products. There are different units and divisions which deal with varied products. Each division has its own divisional manager who supervises the whole unit and has the authority for it. Organisations that are large in size and deals in a diversified range of products or categories opt for this type of structure. Under each head of divisional structure, a functional structure develops itself, i.e. each divisional unit is further divided on the basis of its functions. For example, a company dealing with varied products have divisional heads such as clothing, shoes and electronics. Now these units will have further functional departments such as, under shoes, there will be resource inputs, advertising, production, sales, etc. Similarly, under clothing also there will be departments of resources, advertising, production and sales. The same will be under the electronics division. Here, each division has to take care about its profit and loss and is responsible for its own work.

Following are a few prominent advantages of a divisional structure.

(i) Managerial Efficiency: Divisional structure facilitates the development of the managers and the workers by providing them numerous opportunities. Along with product specialisation it also leads to development of the skills and knowledge of the working personnel. The divisional head gains experience as he deals with a vast variety of functions which he has to be responsible for. This helps him to grow and become more proficient in his working.

(ii) Gauging Performance: Under divisional structure each head is responsible for the profit and loss of his own division. This helps in clear identification of the performances by each department separately. Once the head is accountable for the revenues and costs of their own department, it becomes easier to gauge the actions of each. This also helps in taking corrective actions in case of poor performance.

(iii) Flexibility and Initiative: As under divisional structure, each division functions independently, decision making becomes quick. Once the departments are divided, the heads have the authority to take their own decisions whenever needed. This promotes initiative among the personnel as they are now able to take decisions at the right place and right time.

(iv) Growth: Under divisional structure expansion of an organisation becomes easier as new divisions can be easily added without affecting the functioning of other divisions. 

A divisional structure has certain disadvantages as well. The following are some of the disadvantages of a divisional structure.

(i) Departmental Conflicts: Strife may arise among various divisions with regard to decisions and actions of organisation such as those relating to allocation of funds and resources. For example, suppose a company dealing in leather products such as shoes, bags, etc. decides to allocate the resource (workforce) to each department. Here, a conflict may arise among different division as which department gets more workforce.

(ii) Increase in Cost: Under divisional structure duplication of activities takes place. As there are same set of functions in each department, the probability of overlapping of activities occur. This results in a rise in cost for the organisation. For example, suppose there are two units of advertising in two different product divisions and they follow the same techniques of advertising. Now, although the products are different but still due to the same methodology, the cost to the organisation increases as the duplication of work takes place.

(iii) Ignorance of overall objectives: One of the disadvantages of having divisions is that in due course of time, there may be chances that the organisational goals take a back-seat. Divisional heads handling different units mainly focus on attainment of their own divisional objectives. This may lead to ignorance of the organisational objectives as a whole and in the race of getting ahead each department may target their own interests at the cost of the overall interests of the organisation.

class 12 commerce online preparation material

Recommended Read:- class 12 commerce revision materials

class 12 commerce revision materials

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