Nta Ugc Net Commerce

1|Page HILAL-AHMED: WHATSAPP=9906837425
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
3 BUSINESS ECONOMICS
4 BUSINESS STATISTICS
5 BUSINESS MANAGEMANT
6 MARKETING MANAGEMENT
7 BUSINESS ENVIRONMENT
8 HUMAN RESOURCE MANAGEMENT
9 BANKING & FINANCIAL INSTITUTIONS
10 INTERNATIONAL BUSINESS
11 ACCOUNTING & FINANCE
12 INCOME-TAX LAW & PLANNING
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.
METHODS OF ACCOUNTING FOR PRICE LEVEL CHANGES:

I. CURRENT PURCHASING POWER TECHNIQUE (CCP) – CCP technique of
accounting requires the companies to keep their records and present the financial
statements on conventional historical cost basis but it further requires
presentation of supplementary statements in terms of current purchasing power
of currency at the end of accounting period. In this method financial statements, are
adjusted with the help of general price index.
II. CONVERSION TECHNIQUE: In this method items to be presented in income
statement & balance sheet are adjusted with the help of recognized general
price index. Historical figures are converted with the help of conversion factor
which can be calculated as under:
Conversion factor= Current Price Index / Previous Price Index at the date of
Existing figure.
2) HUMAN RESOURCE ACCOUNTING – It is basically an information system that tells

management what changes are occurring over time to the human resources of the business.
HRM is the measurement & quantification of human organizational inputs such as
recruitment, training, experience & communication.
MODELS FOR HUMAN RESOURCE ACCOUNTING

I. HISTORICAL COST MODEL: This approach was basically developed by Brummet,
Flamholtz & Plye. Historical cost incurred on acquiring and developing human
resource of an enterprise are capitalized and written off over the expected useful life
of human resources. Historical cost of human resource can be divided into two
parts:-
Acquisition cost of human resources include recruitment & selection cost incurred
on human resource.
Development cost of human resources include cost of orientation, expenses
incurred for off the job training & expenses incurred for on the job traning, any
amount spent for increase in efficiency of human resources.
II. REPLACEMENT COST MODEL: The replacement cost model is based on the
replacement cost of human resources, which is defined as the sacrifice would have
to be incurred today to replace human resources presently employed. Flamholtz
emphasized on positional replacement cost, which refers to the sacrifice that would
have to be incurred to replace a person with a substitute of same caliber, capable of
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.
3) SOCIAL ACCOUNTING- social accounting and audit is a framework which allows an

organization to build on existing documentation and reporting and develop a process
whereby it can account for its social performance and draw up an action plan to improve
on that performance and through which it can understand its impact on the community and
be accountable to its key stakeholders.
Social Accounting, also known as Social Responsibility Accounting, Social Economic

Accounting, Social Reporting & Social Audit, aims to measure & inform the general
public about social welfare activities i=undertaken by the enterprise & their effects
on the society.
MODELS OF SOCIAL ACCOUNTING

ABT’s MODEL: This model was developed by Abt associates in United States. Under this
model social information is presented in a quantitative form through social statements. It
consists of two parts- Social Income Statement & Balance Sheet.
RALPH’S COMPREHENSIVE SOCAL BENEFIT COST MODEL: Ralph has proposed a

comprehensive model and reporting format for social corporate reporting in his
book “corporate social accounting” Ralphs model is based on two items- Social
Benefits & Social Costs.
4) RESPONSIBILITY ACCOUNTING- The framework of responsibility accounting was

developed by Prof. AJE Sorgdrager titled particularization of Indirect cost. Responsibility
accounting is a method of budgeting and performance reporting created around the
structure of the organization. It is designing the accounting system according to
answerability of the managers also called profitability account and activity account.
Responsibility accounting is a system of accounting that recognizes various decision centers
throughout an organization and traces costs to the individual managers who are primarily
responsible for making decisions about the costs in question.
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.
TYPES OF RESPONSIBILITY CENTRES:
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).
CLASSIFICATION OF FINANCIAL MARKET

A financial market consists of two major segments: (a) Money Market; and (b) Capital Market.
While the money market deals in short-term credit, the capital market handles the medium
term and long-term credit.
Financial Market Classification
 Money Market.
 Call Money.
 Treasury Bill.
 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.
10 | P a g e HILAL-AHMED: WHATSAPP=9906837425
 Secondary market deals in securities already issued or existing or outstanding e.g.

stock market. It is second hand market.
 It was the Chakravarthy committee which for the first time underlined the need of
an organized money market in the country and the Vahul Committee laid the blue print
for its development.
 Money market has two segments 1) unorganized market 2) organized market.
 Unorganized money market divided in to three different categories- 1) Unregulated
non- bank financial intermediaries – in the form of Chit Funds and Nidhis. 2)
Indigenous bankers like Guajarati shroffs, Multan or shikarpuri shroffs, Marwari
kayas, chettiars. 3) Money lenders
FOR COMPLETE
BOOK
POINTS TO REMEMBER:
PRIVATE PLACEMENT: Private Placement means any offer of securities or invitation to

subscribe securities to a selected group of persons by a company. It is other than by way of
public offer. For this purpose a private placement offer letter is to be issued.
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
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.
Importance of Credit Rating

Better Investment Decision: No bank or money lender companies would like to
give money to a risky customer. With credit rating, they get an idea about the credit
worthiness of an individual or company (who is borrowing the money) and the risk factor
attached with them. By evaluating this, they can make a better investment decision.
Safety Assured: High credit rating means an assurance about the safety of the
money and that it will be paid back with interest on time.
Easy Loan Approval: With high credit rating, you will be seen as low/no risk
customer. Therefore, banks will approve your loan application easily.
Considerate Rate of Interest: You must be aware of the fact every bank offers loan
at a particular range of interest rates. One of the major factors that determine the rate of
interest on the loan you take is your credit history. Higher the credit rating, lower will the
rate of interest.
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
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.
PORTFOLIO ANALYSIS: A portfolio is a group of securities held together as

investment. Investors invest their funds in a portfolio of securities rather than in a
single security because they are risk averse. By constructing a portfolio, investors
attempt to spread risk by not putting all their eggs into one basket. Thus,
diversification of one’s holdings is intended to reduce risk in investment.
Security analysis provides the investor with a set of worthwhile or desirable

securities. From this set of securities an indefinitely large number of portfolios can
be constructed by choosing different sets of securities and also by varying the
proportion of investment in each security.
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
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
A depository is an organization which holds securities (like shares, debentures,

bonds, government securities, mutual fund units etc.) of investors in electronic form
at the request of the investors through a registered Depository Participant. It also
provides services related to transactions in securities. At present two Depositories
viz. National Securities Depository Limited (NSDL) and Central Depository Services
(India) Limited (CDSL) are registered with SEBI.
National Securities Depository Limited (NSDL) is an Indian central securities

depository based in Mumbai. It was established on 8 November 1996 as the first
electronic securities depository in India with national coverage.
 Type - Central securities depository

 Industry Business Services
 Founded August 8, 1996
 Headquarters Mumbai, India
 Key people - G.V. Nageswara Rao (Managing Director & CEO)
 Products Depository Services
Central Depository Services Limited
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.
 Industry Business Services

 Founded February 1999
 Headquarters Mumbai, India
Meaning of Demat Account
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.
How Demat Account Works?
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?
Dematerialization is the process of converting the physical shares into electronic

form.
FOR
COMPLETE
BOOK

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1|Page HILAL-AHMED: WHATSAPP=9906837425

2|Page HILAL-AHMED: WHATSAPP=9906837425

STAY CONNECTED WITH MY YouTube CHANNEL

METHODS OF ACCOUNTING FOR PRICE LEVEL CHANGES:

2) HUMAN RESOURCE ACCOUNTING – It is basically an information system that tells

MODELS FOR HUMAN RESOURCE ACCOUNTING

3) SOCIAL ACCOUNTING- social accounting and audit is a framework which allows an

Social Accounting, also known as Social Responsibility Accounting, Social Economic

MODELS OF SOCIAL ACCOUNTING

RALPH’S COMPREHENSIVE SOCAL BENEFIT COST MODEL: Ralph has proposed a

Benefits & Social Costs.

4) RESPONSIBILITY ACCOUNTING- The framework of responsibility accounting was

TYPES OF RESPONSIBILITY CENTRES:

CLASSIFICATION OF FINANCIAL MARKET

 Secondary market deals in securities already issued or existing or outstanding e.g.

PRIVATE PLACEMENT: Private Placement means any offer of securities or invitation to

Importance of Credit Rating

PORTFOLIO ANALYSIS: A portfolio is a group of securities held together as

Security analysis provides the investor with a set of worthwhile or desirable

A depository is an organization which holds securities (like shares, debentures,

National Securities Depository Limited (NSDL) is an Indian central securities

 Type - Central securities depository

Central Depository Services Limited

 Industry Business Services

Meaning of Demat Account

How Demat Account Works?

Dematerialization is the process of converting the physical shares into electronic

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