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SEMESTER - II

SEMESTER - II. ENTR E PRENEURSHIP DEVELOPMENT. MEANING: Entrepreneurship refers to starting a new business or venture with his own capital. The person who starts the business is called as entrepreneur. DEFINITION:

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SEMESTER - II

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  1. SEMESTER -II

  2. ENTREPRENEURSHIP DEVELOPMENT

  3. MEANING: • Entrepreneurship refers to starting a new business or venture with hisown capital. The person who starts the business is calledas entrepreneur. • DEFINITION: • The definition of "entrepreneur" or "entrepreneurship" is the word "entrepreneur" comes from the French verb entreprendre, meaning "to undertake". • Entrepreneurship refers to the process of creating a new enterprise andbearing any of its risks, with the view of making theprofit. • CHARACTERISTICS: • There are some characteristics, theyare • Profit • Riskbearing • ContinuousProcess

  4. SKILLS: The skills required to become an Entrepreneurare Knowledge about theproduct Managementskills Technicalskills Decision MakingSkills MarketingSkills LIMITATIONS: Some of the limitationsare Lack of Marketingskills Lack ofFinance Lack ofpatience Lack ofknowledge

  5. TYPES: There are different types of Entrepreneurs. Theyare Innovator Imitator Researcher Hustler PROJECTAPPRAISAL: Project appraisal is the process of assessing, in a structured way, thecase forproceedingwithaprojectorproposal,ortheproject'sviability. It often involves comparing various options, using economic appraisalor some other decision analysistechnique. STEPS: ConceptAnalysis ConceptBrief ProjectOrganization ProjectApproval

  6. WOMENENTREPRENEURSHIP MEANING: Women entrepreneurship is the process where womenorganise all the factors of production, undertake risks, and provide employment toothers. DEFINITION: Kamal Singh who is a woman entrepreneur from Rajasthan, has defined woman entrepreneur as “a confident, innovative and creative woman capable of achieving self-economic independence individually or in collaboration, generates employment opportunities for others through initiating, establishing and running the enterprise by keeping pace with her personal, family and sociallife.”

  7. ADVANCEDACCOUNTING

  8. ShareCapital

  9. ShareCapital Share: Total capital of the company is divided into a number of small units of a fixed amount and each such unit is called aShare. ShareHolder: Holder of the share is called ShareHolder. Liability of ShareHolder: The liability of the share holder is limited to the issue price ofshare.

  10. ShareCapital ShareCapital: As the total capital of the company is divided into shares, the capital of the company is called ShareCapital. Nominal / Par / Face value of a share: The fixed value ofashare printedonthe share certificate iscalled Nominal / Par / Face value of a Share.

  11. SEBI guidelines on issue price: Company is free to price its issue -if. Existingcompany If it has a three year track record of consistentprofitability Newcompany If it is promoted by a company with a five year track record of consistentprofitability.

  12. Classification of ShareCapital: Authorised Capital – capital authorised bymemorandum Issued Capital – capital offered to public forsubscription Subscribed Capital – capital for which applicationsreceived Called-up Capital – capital demanded by the company to bepaid Paid-up Capital – amount paid by shareholders ReserveCapital: Portion of subscribed uncalled capital shall not be called-up except in the event of winding up of thecompany

  13. Types ofShares PreferenceShares EquityShares

  14. PreferenceShares: Preference shares are those which carry preferential rights over other classes ofshares. Paymentofdividend - at a fixed rate during the life of theco. Repayment of Capital – in the event of windingup Holders – Preference Shareholders. Do not get any votingright Companies Act 1956 prohibits the issue of irredeemable pref.Shares Normally these are – Cumulative and non participating

  15. Equity Shares: • Equity shares are those which are not preferenceshares • These shares do not carry any preferential rights in thematters • Payment ofDividend • Repayment ofCapital • Rate of Dividend – is recommended by the board of Directors and vary from year toyear • These shares carry votingrights • Unless otherwise stated – shares of a company are deemed to beequity

  16. PrivateCompany: Privatecoareprohibitedbylawtoissueanyprospectus,inviting public to subscribe towards its sharecapital. These depend up on private sources – from promoters, relatives and friends. PublicCompany: Issue prospectus – Invite public to subscribeshares Or Statement in lieu of prospectus – If it arrange from othersources Issue ofShares

  17. Collection of Sharevalue: i. Sharepriceisreceivedinfullalongwiththeapplication i. Price is received in installments – these are knownas. First Installment - Second Installment - Third Installment - Fourth Installment - Last Installment- Application Money Allotment Money First Call money Second Call Money Final Callmoney

  18. ApplicationMoney: As per Sec 69(3) of the companies act1956 Application money must be atleast 5% of the face value ofshare As per SEBIguidelines Itshall not be less than 25% of the issue price As perSEBI Company must receive a minimum of 90% subscription againstthe entire issue otherwise refund within 15 days from the date of closure of issue w.e.f 28-8-2008, in case of delay interest for delayed period 4% –15%

  19. MinimumSubscription: Public co cannot make any allotmentunless The amount of minimum subscription stated in prospectus has been subscribed and received by theco.. The minimum subscription to be disclosed in prospectus by board of Directors – taking into accountfollowing Preliminary expenses of the co Commission payable on issue ofshares Cost of fixedassets Working capital required – any other exp foroperations

  20. General provisions laid down in Table A. No call shall be for more than 25% of the nominal value ofshare There can be maximum of Threecalls Period of al least one month must be there between twocalls At least 14 days notice must be given to share holders regardingcalls SEBI guidelines: If size of the issue is upto 500 crores – issue is made fully paid within 12 months from the date ofallotment

  21. Journalentries - Issue of shares atPar On receipt of ApplicationMoney BankA/c ….Dr To Share ApplicationA/c OnAllotment Share ApplicationA/c ToShareCapitala/c Dr ShareAllotmentA/c Dr ToShareCapitalA/c Banka/c Dr To Share AllotmentA/c

  22. OnCalls ShareCallsA/c Dr To Share CapitalA/c BankA/c Dr To Share CallsA/c

  23. PartnershipAccounts

  24. ADMISSION OF APARTNER On the admission of a new partner, the following adjustments becomenecessary: Adjustment in profit sharingratio Adjustment for revaluation of assets and reassessment ofliabilities Distribution of accumulated profits andreserves Adjustment ofGoodwill Adjustment of partners’capitals.

  25. Calculation of New Profit sharingRatio (i) Only the new partner’s share is given Deepak and Vivek are partners sharing profit in the ratio of 3 : 2. They admit Ashu as a newpartnerfor1/5shareinprofit.Calculatethenewprofitsharingratioand sacrificing ratio. Solution: Calculation of new profit sharingratio: Let us assume that the total Profit =1 New partner’s share = 1/5 Remaining share = 1 – 1/5 =4/5 Deepak’s new share = 3/5 of 4/5 i.e. 3/5X4/5 = 12/25 Vivek’s new share = 2/5 of 4/5 i.e. 2/5X4/5 = 8/25 Ashu’s Share =1/5 The new profit sharing ratio of Deepak, Vivek and Ashu is: = 12/25 : 8/25 : 1/5 = 12 : 8 : 5/25 = 12 : 8 :5 So Deepak Sacrificed = 3/5 – 12/25 = 15 – 12/25 =3/25 Vivek Sacrificed = 2/5 – 8/25 = 10 – 8/25 = 2/25 Sacrificing Ratio = 3 :2 Sacrificing ratio of the existing partners is same as their existingratio.

  26. (ii) The new partner purchases his/her share of the profit from the Existing partner in a particularratio. Neha and Parteek are partners, sharing profit in the ratio of 5 : 3. They admit Nisha as a new partner for 1/6 share in profit. She acquires this share as 1/8 from Neha and 1/24 share from Parteek. Calculate the new profit sharing ratio and sacrificingratio. Solution Neha’s and Parteek existing ratio is 5 :3 Neha’s new share = 5/8-1/8 = 4/8 or12/24 Parteek’s new share = 3/8-1/24 =8/24 Nisha’s share = 1/8+1/24=4/24 The new profit sharing ratio of Neha, Parteek and Nishais 12/24 : 8/24 :4/24 = 12 : 8 : 4 = 3 : 2 :1 (ii) Sacrifice ratio = 1/8 : 1/24 or 3 :1

  27. (iii) Existing partners surrender a particular portion of their share in favour of a new partner. Him and Raj shared profits in the ratio of 5:3. Jolly was admitted asa partner. Him surrendered 1/5 of his share and Raj 1/3 of his share in favour of Jolly. Calculate the new profit sharingratio. Solution : Him surrenders 1/5 of his share, i.e., = 1/5 of 5/8= 1/8 Raj surrenders 1/3 of his share, i.e., = 1/3 of 3/8 = 1/8 So, sacrificing ratio of Him and Raj is 1/8 : 1/8 orequal. Him’s new share = 5/8 – 1/8 = 4/8 and Raj’s new share = 3/8 – 1/8 = 2/8 Jolly’s New share = 1/8 + 1/8 =2/8 New profit sharing ratio of Him’s, Raj’s and Jolly’sis =4/8:2/8:2/8or4:2 :2or2 :1:1.

  28. REVALUATION OF ASSETS ANDLIABILITIES On admission of a new partner, the firm stands reconstituted and consequently the assets are revalued and liabilities are reassessed. It is necessary to show the true position of the firm at the time of admission of a new partner. For this purpose a ‘Revaluation Account’ isprepared. This account is credited with all increases in the value of assets and decrease in the value ofliabilities. It is debited with decrease on account of value of assets and increase in the value of liabilities. The balance of this account shows a gain or loss on revaluation which is transferred tothe existing partner’s capital account in existing profit sharing ratio Thefollowingjournal entries made for this purposeare:

  29. For increase in the value ofassets: Asset A/c Dr.(individually) To RevaluationA/c For decrease in the value ofAsset Revaluation A/c Dr.(individually) To AssetA/c For increase in the value ofLiabilities: Revaluation A/c Dr.(individually) To LiabilitiesA/c For decrease in the value ofLiabilities: Liabilities A/cDr. To RevaluationA/c

  30. For unrecorded Assets Asset A/c [unrecorded]Dr. To RevaluationA/c For unrecorded Liability: Revaluation A/cDr. To Liability A/c[unrecorded] For transfer of gain onrevaluation: Revaluation A/cDr. To Existing Partner’s Capital/CurrentA/c For transfer of loss onrevaluation: Existing Partner’s Capital/Current A/cDr. To RevaluationA/c

  31. ADJUSTMENTS OF RESERVES AND ACCUMULATED PROFIT ORLOSSES Any accumulated profit or reserve appearing in the balance sheet at the time of admission of a new partner, is credited in the existing partner’s capital account in existing profit sharing ratio. If there is any loss, the same will be debited to the existing partner in the existing ratio. For this purpose the following journalentries are made as: For distribution of undistributed profit andreserve. Reserves A/c Dr Profit & Loss A/c(Profit)Dr. To Partner’s Capital A/c[individually] [Reserves and Profit & Loss (Profit) transferred to all partners capitals A/c in existing profit sharingratio] For distribution of loss Partner’s Capital A/c Dr.[individually] ToProfit and Loss A/c[Loss] [Profit&Loss(loss)transferredtoallpartnerscapitals A/cin existingprofitsharingratio]

  32. TREATMENT OF GOODWILL The new partner acquires his/her share profit from the existing partners. This will result in the reduction of the share of existing partners. Therefore, he/she compensates the existing partners for the sacrifices. He/she compensates them by making payment in cash or in kind. The payment is equal to his/her share in the goodwill.

  33. INTRODUCTION Management of Working Capital isalso an important part of financial manager. The main objective of the Working Capital Management is managing the Current Asset and Current Liabilities effectively and maintaining adequate amount of both CurrentAsset and Current Liabilities. Simply it is called Administrationof CurrentAssetandCurrentLiabilities of the of key cash, business concern. Management componentsofworkingcapitallike inventories and receivables assumes paramount importance due to the fact the major potion of working capital gets blocked in theseassets.

  34. Meaning Working capital planning,organizing management isanactof the and controlling components of working capital like cash, bank balance inventory, receivables, payables, overdraft and short-termloans

  35. According to Smith K.V, “Working capital management is concerned with the problems that arise in attempting to manage the current asset, current liabilities and the interrelationship that exist betweenthem”. • According to Weston and Brigham, “Working capital generally stands for excess of current assets over current liabilities. Working capital management therefore refers to all aspects of the administration of both current assets and currentliabilities” DEFINITIONS

  36. Introduction Inventories constitute the most significant part of current assets of the business concern. It is also essential for smooth running of the business activities. A proper planning of purchasing of raw material, handling, storing and recording is to be considered as a part of inventory management. Inventory management means, management of raw materials and related items. Inventory management considers what to purchase, how to purchase, how much to purchase, from where to purchase, where to store and when to use for productionetc. INVENTORYMANAGEMENT

  37. Meaning The dictionary meaning of the inventory is stockof goods or a list of goods. In accounting language, inventory means stock of finished goods. In a manufacturing point of view, inventory includes, raw material, work in process, stores,etc.

  38. KINDS OFINVENTORIES Inventories can be classified into five majorcategories. Raw Material It isbasic and important part of inventories. These are goods which have not yet been committed to production in a manufacturing business concern. Work in Progress These include those materials which have been committed to production process but have not yet beencompleted. Consumables These are the materials which are needed tosmoothrunningofthemanufacturingprocess. D.FinishedGoods Thesearethefinaloutputofthe production process of the business concern. It is ready for consumers. E. Spares It is also a part of inventories, which includes small spares andparts

  39. Inventory occupy 30–80% of the total current assets of the business concern. It is also very essential part not only in the field of Financial Management but also it is closely associated with production management.Hence, inany Objectives of InventoryManagement workingcapitaldecisionregardingthe and inventories,it production will affect both financial functionoftheconcern. Hence, efficient essential management of inventoriesisan kind of manufacturing part of any processconcern.Themajorobjectivesofthe inventory management are asfollows:

  40. To efficient and smooth productionprocess. • Tomaintainoptimuminventory tomaximize theprofitability. • To meet the seasonal demand of theproducts. • To avoid price increase infuture. • Toensurethelevelandsiteofinventories required. • Toplanwhentopurchaseandwhereto purchase • Toavoidbothoverstockandunderstockof inventory

  41. CASHMANAGEMENT Businessconcernneedscashto makepaymentsfor acquisition of resources and services for the normal conduct of business. Cash is one of the important andkey parts of the current assets. Cash is the money which a business concern can disburse immediately without any restriction. The term cash includes coins, currency, cheques held by the business concern and balance in its bank accounts. Management of cash consists of cash inflow and outflows, cash flow within the concern and cash balance held by the concernetc.

  42. Motives for HoldingCash Transaction motive It is a motive for holding cash or near cash to meet routine cash requirements to finance transaction in the normal course of business. Cash is needed to make purchases of raw materials, pay expenses, taxes, dividendsetc. Precautionary motive It is the motive for holding cash or near cash as a cushion to meet unexpected contingencies. Cash is needed to meet the unexpected situation like, floods strikesetc.

  43. 3. Speculative motive It is the motive for holdingcash to quickly take advantage of opportunities typically outside the normal course of business. Certain amount of cashis needed materials tomeetanopportunity topurchaseraw atareducedpriceormakepurchaseat favorableprices. 4. Compensating motive It is a motive for holding cash to compensate banks for providing certain services or loans. Banks provide variety of services to the business concern, such as clearance of cheque, transfer of funds etc

  44. The term receivable is defined as debt owed to the concern by customers arising from sale of goods or services in the ordinary course of business. Receivables are also one of the major parts of the current assets of the business concerns. It arises only due to credit sales to customers, hence, it is also known as Account Receivables or Bills Receivables. Management of account receivable is defined as the process of making decision resulting to the investment of funds in these assets which will result in maximizing the overall return on the investment of the firm. The objective of receivable management is to promote sales and profit until that point is reached where the return on investment in further funding receivables is less than the cost of funds raised to finance that additionalcredit. RECEIVABLEMANAGEMENT

  45. The costs associated with the extension of credit and accountsreceivables are identified as follows: A. Collection Cost B. Capital Cost C. Administrative Cost D. DefaultCost. Collection Cost This cost incurred in collecting the receivables from the customers to whom credit sales have beenmade. Capital Cost This is the cost on the use of additional capital to support credit sales which alternatively could have been employedelsewhere. Administrative Cost This is an additional administrative cost for maintaining account receivable in the form of salaries to the staff kept for maintaining accounting records relating to customers, cost of investigationetc.

  46. Default Cost Default costs are the over dues that cannot be recovered. Business concern may not be able to recover the over dues because of the inability of the customers. Factors Considering the Receivable Size Receivables size of the business concern depends upon various factors. Some of the important factors are asfollows: 1. Sales Level Sales level is one of the important factors which determines the size of receivable of the firm. If the firm wants to increase the sales level, they have to liberalise their credit policy and terms and conditions. When the firms maintain more sales, there will be a possibility of large size ofreceivable

  47. Credit Policy Credit policy is the determination of credit standards and analysis. It may vary from firm to firm or even some times product to product in the same industry. Liberal credit policy leads to increase the sales volume and also increases the size of receivable. Stringent credit policy reduces the size of thereceivable. Credit Terms Credit terms specify the repayment terms required of credit receivables, depend upon the credit terms, size of the receivables may increase or decrease. Hence, credit term is one of the factors which affects the size ofreceivable. Credit Period It is the time for which trade credit is extended to customer in the case of credit sales. Normally it is expressed in terms of‘Net days’.

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