CONCEPTS OF

COMMERCE CLASS

XII

NAJMI SALIM NARESH HANDA SWARUP BISWAS

ISC CONCEPTS OF

COMMERCE

In accordance with the latest syllabus prescribed by the Council for the Indian School Certificate Examination, New Delhi.

ISC CONCEPTS OF

COMMERCE CLASS XII

Najmi Salim Former Principal, St. Xavier’s School, Pratapgarh Coordinator, Aga Khan Education Service, Tanzania Ex-Vice Principal, Al-Rayyan National (Pvt.) School, Abu Dhabi, UAE Ex-Headmaster, Devprayag School, Allahabad

Swarup Biswas M.Com., B.Ed. St. Joseph’s School, North Point, Darjeeling

OSWAL PUBLISHERS 1/12, Sahitya Kunj, M. G. Road, Agra-282 002

No part of this book can be reproduced in any form or by any means without the prior written permission of the publisher.

Edition : 2019

ISBN : 978-93-87660-82-3

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Preface We are absolutely delighted to place this excellent book in the hands of teachers and students. The content of this book is customized to meet the academic needs of the students based on the latest ISC syllabus. Considerable time has been invested and meticulous care taken in ensuring that the content of this book, while in line with the Council’s syllabus, is also in sync with today’s globalised business conditions so as to enable Commerce students to keep in tune with time. Dynamics of modern marketing has been kept in mind, and societal marketing has been duly given its rightful place. Our objective is to draw out students from the shadows of knowledge to the daylight of learning. End of chapter questions have been framed with the specific purpose of ensuring students put on their thinking caps, catalyze their understanding and come up with carefully thought out original answers. Progress will come to a grinding halt if we cease efforts to improve. We welcome all critical comments which will be of immense help to us to improve this book. Author

SYLLABUS There will be two papers in the subject. Paper I : Theory Paper II : Project Work

3 hours

(80 Marks) (20 Marks)

PAPER–I (THEORY)–80 Marks Part I (20 marks) will consist of compulsory short answer questions testing knowledge, application and skills relating to elementary/fundamental aspects of the entire syllabus. Part II (60 marks) will consist of eight questions out of which candidates will be required to answer five questions, each carrying 12 marks.

1. Business Environment Concept and importance of Business Environment. Meaning, features and importance of Business Environment. Dimensions of Business Environment– Micro (Internal and External factors) and Macro (Economic, social, technological, political and legal)– meaning and components. S.W.O.T. Analysis– A basic understanding of S.W.O.T. (Strength, Weakness, Opportunity and Threat) Analysis.

2. Financing (i)

(ii)

(iii)

Capital : Sources of finance for sole trader; partnership; joint stock company; financial planning. Importance of finance for business. Sources of finance for different types of business firms. Meaning, features and importance of financial planning. Factors affecting capital structure. Fixed capital– meaning, factors affecting fixed capital. Working capital– meaning, types, factors affecting working capital. Comparison between fixed and working capital. Sources of finance for a Joint Stock Company. (a) Different types of shares : equity, preference. Bonus shares, Rights issue, ESOP, Sweat equity shares, Retained earnings. Long-term sources of funds. Equity shares– features, advantages and disadvantages. Preference shares– features, types, advantages and disadvantages; distinction between equity shares and preference shares. Bonus and rights issue, ESOP and Sweat equity shares– meaning. Distinction between bonus shares and right shares. Retained earnings– meaning, merits and demerits. (b) Loan capital : debentures. Debentures– meaning, kinds of debentures, advantages and disadvantages of debentures. Distinction between shares and debentures. (c) Loans from Commercial Banks and Financial Institutions. Loans from Commercial Banks and Financial Institutions– meaning, advantages and disadvantages. (d) Short-term sources of funds. Short-term sources of funds– different types of short-term financial assistance by Commercial Banks; public deposits, trade credit, customer advances, factoring, inter corporate deposits and installment credit. Meaning, advantages and disadvantages of various sources of funds. Banking– latest trends. Online services– transfer of funds through Real Time Gross Settlement (RTGS), National Electronic Funds Transfer (NEFT), issue of demand drafts online meaning and features. Online payments, e-Banking– meaning and features, advantages and disadvantages. Mobile Banking– SMS alerts, transfer of funds, making payments– advantages and disadvant-ages. Debit Cards v/s Credit Cards, ATM (Automated Teller Machine)– Meaning; Debit card and Credit card : features and differences.

3. Management (i)

(ii) (iii) (iv)

(v)

Management : Meaning, objectives and characteristics of management. Meaning of Management : as an activity; as a group; as a discipline; as a process. Objectives and characteristics of management. Nature of Management : Science, Art and Profession. Self explanatory. Importance of Management. Self explanatory. Principles of Management : Nature of principles; need for principles. Nature of principles of management; need for principles of management; Taylor’s 5 scientific principles of management; Fayol’s 14 principles of management; Relevance of the principles of management in today’s business scenario. Comparison of Taylor’s and Fayol’s principles. Functions of Management : Planning; Organising; Staffing; Directing; Controlling and Coordinating. (a) Planning : Meaning, steps, importance and limitation; Types of plans; objectives, policy, procedures, method, rule, budget, program– meaning, features and differences. (b) Organising : Meaning, importance, steps; Structure of organisation (line, line and staff; functional and divisional; formal and informal organisation)– Meaning, features, merits, demerits and differences between line and line and staff, functional and divisional, formal and informal; Meaning and importance of delegation of authority; Decentralisation v/s Centralisation, comparison between delegation and decentralisation, merits and demerits. (c) Staffing : Meaning, steps and importance; Recruitment– Meaning and sources; Selection– Meaning and procedure; Training and development– Meaning, types of training, difference between selection and recruitment, Training and Development. (d) Directing : Meaning and importance; Supervision– Meaning, functions and span of control; Motivation– Meaning and Maslow’s theory; Leadership– Meaning and qualities of a good leader; Communication– Meaning, objectives and process. Barriers to communication and overcoming barriers to communication. (e) Controlling : Meaning, steps and importance; Relationship between Planning and Controlling; Management by Exception. (f) Coordination : Meaning of Coordination; Coordination as an essence of management.

4. Marketing (i)

(ii)

(iii)

Marketing : Concept and functions. Meaning of markets and marketing. Concept of marketing : traditional v/s modern. Comparison between marketing and selling. Objectives of marketing, importance of marketing; functions of marketing. Marketing Mix. Product– Goods and services, branding, labeling and packaging (meaning only). Price– Meaning, factors determining price. Place– Channel of distribution (direct and indirect : meaning only) and physical distribution (meaning only). Factors affecting choice of channel of distribution. Promotion– Meaning and elements; promotion mix. Elements– Advertising, sales promotion, personal selling and publicity– meaning, features, objectives and differences. Consumer protection : Rights of consumers, methods of consumer protection. Need for consumer protection; rights of consumers; methods of consumer protection– self help, legislative measures and consumer associations, Consumer Protection Act, 1986.

PAPER–II (PROJECT WORK)–20 Marks Candidates will be expected to have completed two projects from any topic covered in Theory. The project work will be assessed by the teacher and a Visiting Examiner appointed locally and approved by the Council. Mark allocation for each Project [10 Marks] : Overall format

1 mark

Content

4 marks

Findings

2 marks

Viva-voce based on the Project

3 marks

A list of suggested Projects is given below : 1. Compare marketing strategies adopted by two different companies of the same industry (FMCG/Telecommunication/Media/Education industry, etc.) keeping in mind the follow-ing : Product Mix Price Mix Place Mix Promotion Mix 2. Collect newspaper/magazine clippings of five cases filed by consumers in the Consumer Court. Find out the rights violated, and the redressal mechanism used. What was the outcome of each case ? 3. Visit a Commercial Bank. Find out the procedure to open a savings account. Find out the details of various Agency and General utility services provided by the bank. 4. Compare the interest rates offered by five different commercial banks on fixed deposits under various categories (general and senior citizens) and various time durations. Find out the procedure and formalities for opening a fixed deposit account. What is the procedure for closing the account on maturity and before maturity period ? 5. Select five different companies across varying industries such as I.T., Textiles, FMCG, Health Care, etc., included in the SENSEX. Keeping a hypothetical base money of Rupees one lakh, invest in the shares of the selected companies. The movement of share prices selected by you should be monitored over a period of one month on a daily basis. A uniform/standard practice of either using the opening price or the closing price on a particular day of the week should be used by all students in the class. At the end of the month, analyse your invetment in a spread sheet and give reasons for your choice of scripts. 6. Find out the names of companies under various sectors (FMCG, Pharma, Automobile, etc.) included in the NIFTY and the SENSEX. Make a chart of the same and track its movements over a period of one week. 7. (a) Study the sources of recruitment and steps involved in the selection procedure adopted by two companies of the same industry. (b) Compare and evaluate the sources of recruitment and the selection process adopted by the selected companies. 8. Formulate a capital plan for a hypothetical business organisation. Justify your formulated plan. 9. Choose two companies of the same industry. Study their organisational structure. Also give information with regard to : (i) Hierarchy (ii) Centralisation and delegation of authority (iii) Flow of information (scalar chain) (iv) Span of control (v) Channel of communication 10. Select any business undertaking. Study the selected business in terms of ownership, capital and profitability. Make a S.W.O.T. analysis and present it in a tabular form. NOTE : No question paper for Practical work will be set by the Council.

3

4

6

4

5

2

2007

2006

2008

2009

2010

2011

2012

6

20

8

6

4

13

8

20

12

16

24

4

6

4

4

24

6

1

6

7

Overall

2

1

9

2013

1

7

4

35

Long

7

20

27

18

8

8

Short

15

12

8

4

Long

3

Total

6

11

4

4

2

5

6

2

Short

2

Short

Contents

Long

2014

Short

2015

Long

Sources of Finance for a Joint Stock Company

3

2

10

4

4

4

Short

2

2

2

2

4

4

4

2

16

4

6

13

12

4 13

2

6

6

5

12

4

10

4

Banking : Latest Trends Long

Financing : Fixed & Working Capital

2 Short

Management : Meaning & Nature Long

Business Environment

1

2

2

10

4

2

4

2

2

Short 4

10

6

6

10

13

4

4

6

Principles of Management Long 8

8

5

7

2

7

5

12

10

7

12

8

6

3

4

3

2

4

Old Syllabus

7

11

1

15

7

Unit-III Management

Long

Unit-II Financing

Short

Functions of Management & Coordination Long

Planning Short

2

5

4

5

4

19

12

7

Long 19

9

Organising Short

2

2

4

2

10

Staffing Short

Unit-I Business Environment

9

10

4

13

5

9

5

4

Long

Short 2

3

2

25

11

Directing 25

16

9

Long

2

2

15

7

2

12

Controlling 4

Long

Unit

Short

Based on questions set in ISC Councils Examination (2006 to 2015

2

4

2

4

2

2

4

2

13

2

3

4

27

6

4

3

4

8

23

4

19

Unit-IV Marketing

6

6

6

6

2

4

2

6

4

2

2

Short

Scanner Table

Short

Marketing : Concepts & Functions Long

14

20

10

14

9

16

6

10

7 10

12 5

19

17

4

4

21

8

9

15

Consumer Protection Short

Marketing Mix Long

Ch. No.

Ranking

12

4

8

Long

CONTENTS UNIT–I : BUSINESS ENVIRONMENT 1.

BUSINESS ENVIRONMENT

11–22

UNIT–II : FINANCING 2.

FINANCING : FIXED AND WORKING CAPITAL

23–36

3.

SOURCES OF FINANCE FOR A JOINT STOCK COMPANY

37–59

4.

BANKING : LATEST TRENDS

60–71

UNIT–III : MANAGEMENT 5.

MANAGEMENT : MEANING AND NATURE

72–85

6.

PRINCIPLES OF MANAGEMENT

86–94

7.

FUNCTIONS OF MANAGEMENT AND COORDINATION

8.

PLANNING

108–123

9.

ORGANISING

124–146

10.

STAFFING

147–160

11.

DIRECTING

161–177

12.

CONTROLLING

178–187

95–107

UNIT–IV : MARKETING 13.

MARKETING : CONCEPT AND FUNCTIONS

188–202

14.

MARKETING MIX

203–230

15.

CONSUMER PROTECTION

231–238

PROJECT WORK

239–248

1

Business Environment

LEARNING RESULT After reading this chapter, you should be able to : Understand the concept and importance of Business Environment. Identify the dimensions of Business Environment. Comprehend Micro and Macro Environment. Evaluate the importance of using of SWOT Analysis. The business environment is a set of factors Business Environment is the climate in having an impact on a business organisation. which business activities are conducted. The business organisation has to interact with these influences on a continuing basis. Thus, its performance is subject to these influences.

CONCEPT OF BUSINESS ENVIRONMENT According to Arthur Weimer, business environment “encompasses the climate or set of conditions, economic, social, political, or institutional in which business operations are conducted.” We can say that business environment is the aggregate effect of all forces that influence a business, adversely, or favourably. These can be the competitors, government, suppliers of raw material or the consumers. As a result the business environment comes to posses certain features or characteristics. These features are listed below : 1. Correlation– One characteristic of business environment is that the forces in a business environment are correlated. One factor influences another factor. For example, a change in the political environment will bring about economic changes which will impact the different firms in an industry. 2. Specific and general influences– Business environment has influences that are specific to an industry. These will affect all firms in the industry, but with varying intensity. The general influences exert equal influence on all firms within the industry or business. The specific influences can be in the form of customers, suppliers, investors, competing firms while general influences are political, legal, technological forces. 3. Dynamic– It is the affect of continuThe competent and successful manageous changes that imparts dynamism to the ment must be capable of adapting to the business environment. Consumer likes and business environment. preference may change. What is considered in fashion today may get out of fashion the next month. New technology may bring radical changes in methods of production. These factors make the nature to the business environment ever changing.

12 | Concepts of Commerce for ISC – XII

4. Complexity– The interrelation of factors lends a great complexity to the business environment. Changes in one factor may cause changes in not just one but many other interrelated areas of business. The difficulty lies in not being able to know the impact as well as how intensive the impact of these changes is. 5. Relativity– Business environment is a concept of relativity. Changes in one country or a part of the market leave impact on the business located in another country. If the raw materials are being imported from country X, political disturbances in the country X will hamper the supply of raw materials to the business based in country Y. Similarly, the demand for goods in both countries X & Y will be influenced. 6. Unpredictability– There is always an element of uncertainty attached with the business environment. It cannot be predicted with any degree of accuracy, what changes might come and when.

IMPORTANCE OF BUSINESS ENVIRONMENT We are in an environment which is subject to great and continual changes. These changes could be political, environmental, social and cultural. Changes can be technological as well. The nature of these changes is subject to the dynamics of a fast-paced world. The business unit has to strive to survive in such a dynamic environment. The survival and subsequent growth of an organisation is dependent on how well it can anticipate the changes in an environment, readapt itself and its strategies to those changes. The organisation has to continually scan the horizon for signs of changes, be in a state of flux and ready to bring about changes. These changes could be a change in strategy or tactics, adjustments in size of plant and machinery, or realignment of its objectives and goals. It could also be a change in the attitude and culture of its workforce. The points listed below will help to understand the importance of business environment better. 1. Gives direction for growth– Business environment gives a direction for growth to the organisation. By scanning the business environment, the organisation can identify new areas for its growth and expansion. It can exploit new business opportunities. 2. Helps business identify its weakness and strength– The business environment can help the organisation identify its areas of strength and weakness to take steps for plugging those loopholes and benefit from the advantages it enjoys over its competitors. By continually scanning the business environment, it can go from strength to strength. 3. Helps to identify hindrances and opportunities– Opportunities and threats can be identified early if the organisation pays attention to its business environment. Then it can place itself in a better position to make the best use of opportunities while fortifying its position to take care of situations that could represent potential threats to its survival. 4. Lends flexibility and adaptability– The business environment provides flexibility and dynamism to a business entity because is it necessary for a company to keep adjusting itself to changing trends. The management remains alive and proactive to rapid changes required. 5. Helps build strategy for growth– Business environment is the basis of strategy building. By careful observation of the environment, a company can devise a long term business strategy for growth and expansion. The business strategy can also be used by

Business Environment | 13

the company to stay ahead in the market and for coping up with the dynamics of the changing business environment. 6. Image building– The business environment helps in image building. By observing the changes in the environment and its likely impact on the organisation’s image, the organisation can create a favourable public image which helps it in furthering its goals.

DIMENSIONS OF BUSINESS ENVIRONMENT We can divide the business environment into two parts, namely, the micro and the macro environment. The micro environment consists of factors that are beyond or within the control of the organisation to varying extent. These factors may be internal or external to the business organisation. The macro environment consists of general factors such as the political or technological environment that are completely beyond the influence of business and affect all business organisations equally.

Fig. 1.1 Dimensions of Business Environment

Micro Environment Micro environment consists of all those factors that directly influence the working of the business organisation. It is also known as the Direct Task Environment. These factors may be internal or external to the business organisation. Micro Fig. 1.2 Components of environment will include those factors that are in very close Micro Environment touch with the business organisation and influence the organisational functioning. Micro environmental factors do not affect all firms within an industry in the same way; their impact varies from firm to firm.

14 | Concepts of Commerce for ISC – XII

Internal Factors The internal factors are all those elements that are internal to a business organisation. In other words, all those influences that operate within an individual business unit, and which are considered controllable by the business organisation will be internal factors or the internal environment for that business unit. We do not take into account the extent or degree of control by the business organisation over these factors. The business unit may have complete control or partial control over these factors. For better understanding, let us take the example of the size of the workforce of an organisation. The business unit can increase or decrease the size of this workforce. Thus, it will be considered an internal factor. The major internal factors that affect the working of a business unit are listed and explained below. 1. Organisational culture– The organisational culture needs to be in tune with time. When business organisations realise that their work culture does not match with the changed circumstances, they employ outside agencies to bring about a cultural change across the entire organisation and make it fit to match prevailing culture. Some business units resort to major overhaul of their management in case it fails to embrace the required new organisational culture. 2. Management structure– A business unit can alter its management structure for adjusting to changed conditions. This practice has become common now-a-days considering the frequent upheavals in the economy. 3. Organisational goals and objectives– An organisation has the power to bring about a change of direction in its organisational objectives and goals keeping in view new business dynamics prevailing in the market. 4. Technology– High-octane technology is being increasingly used in plant and machinery in all types of industry these days. The plant and machinery tend to become outdated if the company continues using old technology. If companies do not adapt themselves to the changing technological environment, they may get beaten down by the competitors. They may also find their production capacity declining compared to that of the firms that deploy comparatively better technology available in that industry. Technology has become a very important internal factor that influences the firm. 5. Workforce– The size of organisational workforce can be increased or cut down as per the requirements of the company. This trend of downsizing is very common now-adays even in India. The objective is to retain the position of the business in the market. The workforce can also be retrained to learn new technology that the firm may use in view of changed business environment. 6. Capital structure– Capital is a set of resources with which a business organisation seeks to achieve its objectives doing business and earning profit. This capital consists of the plant and machinery, infrastructure, and the finances required to conduct the organisation’s business. The efficiency and quality of the plant and machinery affects the production and subsequently the profitability of the organisation. Similarly, the timely availability or non-availability of adequate funds also affects the daily working of the firm. The infrastructure is the physical and organisational structure that is required

Business Environment | 15

for the firm to accomplish its daily working. Thus, capital is an important internal factor for a business firm.

External Factors The external factors of the micro environThe external environment creates both ment are those groups or bodies with which risks and opportunities for a business the business organisation will have direct entity. interaction in the course of its business activity. They are also called as stakeholders because of their direct interest in the business. These stakeholders or factors, as we may choose to call them may not affect all firms in the industry equally. In other words, they affect business units differently, depending upon how the business organisations interact with them. The external factors of the micro environment are listed and explained below : 1. Competitors– Competitors are persons or business units producing similar goods, can impact a firm by reducing its market share and cut down its profitability. This directly influences the firm’s revenue and profitability. For example, Samsung mobiles face direct competition from other leading brands like LG, Sony, Micromax and Microsoft to name a few. Likewise, a cinema house faces indirect competition from other entertainment entities. 2. Public– Public include all those groups who have a real or latent interest in or impact on a company’s ability to achieve its objectives. Entities like social organisations, vigilante groups and media groups can affect a business. They can put social as well as legal pressure and compel businesses to adhere to certain morals and code of conduct. They can also have financial implications for business. Union Carbide India Ltd., the pesticide company based in Bhopal, closed down due to immense legal and social pressure brought about by social and political organisations, after the leakage of poisonous gas killed lakhs of people. 3. Distribution channels– The distribution channel or the middlemen are very important functionaries that ensure the firm’s products reach the buyers at the right time. They move the products from the point of production to the point of sale. They also store the products to create time utility. Thus, the distribution channels are very important factor influencing the business environment. They are categorized as external factor because the business firm has very little or almost no control over them. 4. Suppliers– These are the sources who supply the raw materials to the producer. The producer turns these raw materials into finished goods ready for consumption by the consumer. The suppliers control the price and supply of the raw materials and thus they are in a position to influence the business. An increase in price of raw materials can resultantly increase the price of the finished goods. It can also decrease the profit level of the firm by eating into his profits. Thus, the suppliers are together an important factor externally in the business environment. 5. Customers– The focus of all business activities - the consumer - can make or break even the biggest business organisation of the world. It is the consumer’s demand, preference, likes and wishes that keep the producer’s plant and machinery working. The

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