CU-MCOM-SEM-IV-Business finance -Second Draft

MASTER OF COMMERCE SEMESTER IV BUSINESS FINANCE

CHANDIGARH UNIVERSITY Institute of Distance and Online Learning SLM Development Committee Prof. (Dr.) H.B. Raghvendra Vice- Chancellor, Chandigarh University, Gharuan, Punjab:Chairperson Prof. (Dr.) S.S. Sehgal Registrar Prof. (Dr.) B. Priestly Shan Dean of Academic Affairs Dr. Nitya Prakash Director – IDOL Dr. Gurpreet Singh Associate Director –IDOL Advisors& Members of CIQA –IDOL Prof. (Dr.) Bharat Bhushan, Director – IGNOU Prof. (Dr.) Majulika Srivastava, Director – CIQA, IGNOU Editorial Committee Prof. (Dr) Nilesh Arora Dr. Ashita Chadha University School of Business University Institute of Liberal Arts Dr. Inderpreet Kaur Prof. Manish University Institute of Teacher Training & University Institute of Tourism & Hotel Management Research Dr. Manisha Malhotra Dr. Nitin Pathak University Institute of Computing University School of Business © No part of this publication should be reproduced, stored in a retrieval system, or transmitted in any formor by any means, electronic, mechanical, photocopying, recording and/or otherwise without the prior written permission of the authors and the publisher. SLM SPECIALLY PREPARED FOR CU IDOL STUDENTS 2 CU IDOL SELF LEARNING MATERIAL (SLM)

First Published in 2021 All rights reserved. No Part of this book may be reproduced or transmitted, in any form or by any means, without permission in writing from Chandigarh University. Any person who does any unauthorized act in relation to this book may be liable to criminal prosecution and civil claims for damages. This book is meant for educational and learning purpose. The authors of the book has/have taken all reasonable care to ensure that the contents of the book do not violate any existing copyright or other intellectual property rights of any person in any manner whatsoever. In the event, Authors has/ have been unable to track any source and if any copyright has been inadvertently infringed, please notify the publisher in writing for corrective action. 3 CU IDOL SELF LEARNING MATERIAL (SLM)

CONTENT Unit - 1 Business Finance Environment................................................................................. 5 Unit – 2 Finance V/S Accounting ........................................................................................ 21 Unit – 3 Role Of Board Of Directors ................................................................................... 35 Unit – 4 Business Finance ................................................................................................... 50 Unit – 5 Conceptual Framework For Strategic Management ................................................ 67 Unit - 6 Management Of Working Capital........................................................................... 86 Unit – 7 Just In Time......................................................................................................... 100 Unit – 8 Financial Accounts Of Companies ....................................................................... 112 Unit - 9 Small Business Finance In India........................................................................... 123 Unit - 10 Sources Of Business Finance.............................................................................. 144 Unit – 11 Corporate Restructuring..................................................................................... 163 Unit – 12 International Aspects Of Business Finance ........................................................ 182 Unit – 13 International Investment And Financing Decisions ............................................ 200 Unit – 14 : International Investment And Financing Decisions .......................................... 218 4 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT - 1BUSINESS FINANCE ENVIRONMENT 5 STRUCTURE 1.0 Learning Objectives 1.1 Introduction 1.2 Meaning and Definition 1.2.1 Business Finance 1.2.2 Business Environment 1.3 Scope of Business Finance and Environment 1.4 Significance of Business Finance and Environment 1.5 Nature of Business Finance 1.6 Principles of business finance 1.7 Role of Business Finance in an Organisation 1.8 Risk and Business Finance 1.9 Difference between Business Risk and Business Finance 1.10 Summary 1.11 Keyword 1.12 Learning activity 1.13 Unit end questions 1.14 References 1.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Explain the concept of Business Finance and Environment  Know the scope and significance of Business Finance and Environment CU IDOL SELF LEARNING MATERIAL (SLM)

 Know the principle of Business Finance  State the role of Business Finance in an Organisation  Know difference between Business Risk and Business Finance 1.1 INTRODUCTION Each Business need Riches. Wealth is needed at the hour of firing up of the business, is in endeavour and furthermore, it's fills in height and expands. Foundation of any business is unimaginable without finance. Business finance implies the administration of ownership and thriving. Today, finance is fundamental for any organization. Its essential centre is to build income and underestimate monetary peril. Business finance alludes to riches and status utilized in business. It includes creating and utilizing of assets so business might have the option to complete their approaches successfully and proficiently. Business finance incorporates a wide range of assets utilized in business. Business finance is required in a wide range of associations huge or little, collecting or bargaining and some other sort. The advancement of each business relies to a great extent upon its capacity to get moulded to climate. For example, if the public authority variates its monetary strategies, the firm ought to reasonably react to that unrest. Similarly, a firm ought to strongly identify and answer appropriately to the logical changes fit for understanding of the current items old fashioned. Consequently, it tends to be perceived that the relationship among business and its current circumstance is exceptionally close and persistent. This affiliation helps the business firm to build up its proficiencies and dispense its assets all the more productively. 1.2 MEANING AND DEFINITION Business finance is about a wide assortment of occasions and trains in regards to the administration of cash and other cherished assets. Entrepreneurs should have a dense insightful guideline of money to keep their organizations productive. Business finance alludes to cash and appreciation utilized in business. Speculation is the rudimentary of business. It is needed to buy resources, products, crude materials and for the other program of financial exercises. Business finance plans for colleges tell understudies with bookkeeping systems, contributing strategies and powerful obligation the board. Business Environment can be characterized as the combination of interior and outer highlights that impact an organization's working condition. The business climate can incorporate factors, for example, supporters and suppliers; its contention and owners; upgrades in innovation; laws and government exercises; and market, social and financial patterns. 6 CU IDOL SELF LEARNING MATERIAL (SLM)

1.2.1 Business Finance Scott and Brigham “Finance is concerned with decision about money or more aptly cash flows.” Professor Gloss and Baker “Business finance is concerned with the sources of funds available to enterprises of all sizes and the proper use of money or credit obtained from such sources.” E.W Walker “Business finance is to planning, coordinating, controlling and implementing of financial activities of business institution.” 1.2.2 Business Environment Professor Paire and Anderson “It is set of those inputs to an organisation which are under the control of other organisations or interest groups or are influenced by interaction of several groups, such as economy” Mr. J.A. King and Mr. C.J. Duggan “Environment consists of all external and internal influence the complex interaction of the market, production and finance, the three basic components of our business world.” 1.3 SCOPE OF BUSINESS FINANCE AND ENVIRONMENT The scope of business finance is very extensive. While accounting is disturbed with the routine type of exertion, business finance is concerned with financial development, policy design and regulator. Earnest W. Walker and William are of the opinion that the financial function has always been important in business management. The financial organization depends upon the nature of the organization whether, it is an exclusive organization, a partnership firm or trade body. The consequence of the finance function depends on the nature and size of a business firm. There are various fields covered by business finance and some of them are: 1. Financial Planning and Control: Any business firm must manage and make their financial analysis and planning. To make these planning’s and management, the financial manager must have acquaintance about the present financial condition of the firm. On the source of this information, he/she regulates the strategies and managing approaches for future financial situation of the firm with in different economic situation. Financial budget also trusts in these financial plans. Financial budget serves as the basis of control over financial plans. The firms on the basis of budget, finds out the nonconformity between the plan and the performance and tries to correct them. Hence, business finance contains of financial planning and control. 7 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Deciding Capital Structure: The Capital structure refers to the kind and number of different securities for floating funds. After deciding about the significant of funds required it should be decided which type of securities should be raised. It may be wise to finance fixed assets through long-term debts. Even if incubation period is longer, then share capital may be most suitable. Long-term funds should be raised. It may be wise to finance fixed assets through long-term debts. Even here if incubation period is longer, then share capital may be most apt. Long-term funds should be employed to finance working capital also, if not absolutely then partially. Totally depending upon overdrafts and cash creditors for meeting working capital needs may not be suitable. A decision about various sources for funds should be connected to the cost of raising funds. If cost of raising funds is very high then such sources may not be useful for long. 3. Selection of Source of Finance: After preparing a capital structure, an appropriate source of finance is selected. Various sources, from which finance may be raised, include: share capital, debentures, financial institutions, commercial banks loans, public deposits, etc. If finances are needed for short periods, then banks, public deposits and financial institutions may be suitable; on the other hand, if long-term finances are required then share capital and debentures may be useful. If the concern does not want to tie down assets as securities, then public deposits may be a suitable source. If management does not want to dilute ownership, then debentures should be issued in preference to share. 4. Financial Statement Analysis: Another opportunity of business finance is to analyses the financial reports. However, it also analyses the financial situations and problems that arises in the upgrading of the business firm. This statement consists the financial aspect related to the promotion of new business. Organizational difficulties arise at the time extension, necessary alterations for the restoration of the firm also in hitches. 5. Working Capital Management: The financial decision making that relates to current assets or short-term assets is known as working capital management. Short-term persistence is a precondition of long-term success and this is the important factor in business. Therefore, the current assets should be efficiently managed so that the business won’t suffer any insufficient or superfluous funds locked up in future. This aspect implies that the individual current assets such as cash, receivable and inventory should be very efficiently managed. Hence, the efficiency in the management of working capital ensures the balance between liquidness and profitability. 6. Capital Building: Financial decision making related to long-term assets is known as capital budgeting or long-term investment decision. This scope is related to the selection of an investment proposal out of the many related alternatives available to the firm. However, the acceptance of the proposal depends on the returns associated with that particular proposal. Here, the capital budgeting technique measures the worth of the investment proposal. This 8 CU IDOL SELF LEARNING MATERIAL (SLM)

technique studies the method of appraising investment proposals. It also analysis the risk and uncertainty, as the returns from the investment proposal extends into the future. All the returns are evaluated in relation to the risk. 7. The board of Financing: Managing financing is one more significant space of business finance. The administration of money is worried about the blend of resources or construction of the resources of the firm. As the firm ought to consistently give extraordinary consideration to its resources. The firm ought to appropriately blend the proportion of obligation and value capital while principal speculation. As capital construction is the proportion of obligation and value capital. Presently, the capital design comprising of the legitimate proportion of obligation and value is known as ideal capital construction. Henceforth, the monetary supervisor should settle on choice in regards to ideal capital construction and the proportion of asset to be raised to boost the profits for the investors. Authoritative climate manages various powers which have an immediate bearing on per-formance of the business association. In this interaction, we for the most part incorporate explicit environ-ment and general climate, controllable climate and wild climate, miniature climate and full-scale climate. By and large, association climate is made out of two sort's surroundings: interior environ-ment and outer climate inner climate incorporates that load of powers, which are inside the association and have ability to impact the association and its exhibitions. Inner climate factors are those elements, which are inside an association and confer qualities or cause shortcomings in administration measure. These powers are proprietors and share-holders, the administering board, representatives, association, culture, and so on Outer climate fuses every one of the elements which are outside the association and impact the capacity to accomplish authoritative objectives. It is by and large characterized as all variables out-side the association and that are pertinent to its activity. It implies outside factors influence the association in external setting. 1.4 SIGNIFICANCE OF BUSINESS FINANCE AND ENVIRONMENT Businesses have to consider their finances for so many purposes, ranging from survival in bad times to improving the next success in good ones. How you finance your business can affect your ability to employ staff, purchase goods, acquire licenses, expand and develop. While finances are not necessarily as important as vision and a great product, they are crucial to making the good issue happen. 1. Beginning Capital: Every new pursuit needs seed cash. Business people just have dreams and thoughts until they have some funding to place their thoughts moving. Regardless of 9 CU IDOL SELF LEARNING MATERIAL (SLM)

whether it's an item or administration, you will require an approach to make and convey it just as enough cash and time to lay the basis of selling and setting up significant connections. Most entrepreneurs face the basic decision among obligation and value financing. A private venture advance leaves you allowed to claim and have supreme command over your organization while it likewise leaves you enduring monetary commitments. Value gives you cash, however you need to share the achievement. The basic choice in your financing will decide how your business will function starting there forward. 2. Obligation Ratios: Finances are about more than cash in your grasp. While most organizations have some measure of obligation particularly in the early phases an excessive amount of obligation contrasted and incomes and resources can leave with a bigger number of issues than making your credit instalments. Sellers and providers frequently run credit checks and may restrict what you can purchase on layaway or keep tight instalment terms. Obligation proportions can influence your capacity to draw in financial backers including funding firms and to get or rent business space. 3. Business Cycles: No matter how well your business is getting along, you need to plan for blustery days and even tempests. Business and financial cycles bring foreboding shadows you can't foresee. That is the reason brilliant organizations make monetary designs for slumps. Money reserve funds, great credit, savvy ventures, and positive stock and land courses of action can help a business stay above water or even keep up with energy when the business environment is troublesome. 4. Development: Success can carry a business to a troublesome junction. Now and then to take on more business and accomplish better progress, an organization needs huge monetary venture to gain new capital, staff or stock. At the point when business administrators hit this crossroads, they need to swim through their monetary alternatives, which may include implantations of value capitals maybe from financial speculators. Each circumstance is unique, yet savvy supervisors consider the expense of achievement and their alternatives for acquiring development financing. 5. Finance: Nothing spells unavoidable demise like an organization being not able to make finance. Indeed, even the most devoted staff will not stay close by long once the checks stop. The bigger an association gets, the bigger the work costs. Most importantly, organizations need to guarantee they have sufficient money available to make finance for no less than two finance cycles ahead if not more. Monetary wanting to guarantee your finance accounts are fit as a fiddle are fundamental for the trustworthiness and life span of your organization. 6. Uncovering openings and dangers: Keen perception on the association's current circumstance will draw out the chances and dangers covered up in the climate, so the firm can address difficulties victoriously. 10 CU IDOL SELF LEARNING MATERIAL (SLM)

7. Giving direction to development: Firms will be coordinated towards new edges of development on the off chance that it has some appropriate correspondence and association with its current circumstance. 8. Makes a firm solid or frail: It is the inside variables of a professional representative productivity, proficiency in asset use, better administration of expenses and so on make an association solid or feeble. To be strong and tough, a firm should keep up its interior climate strong. 9. Ceaseless learning: The administration can undoubtedly face difficulties with appropriate climate examination. The energetic climate moves administrators to recharge and modify their colleague and attention to meet the predicted varieties in business region. 10. Encourage impression: A firm turns into a symbol among different firms in the business on the off chance that it emphatically helpless to the climate inside which they are. For instance, taking into account the call out against natural contamination, numerous organizations are creating eco-accommodating items. 1.5 NATURE OF BUSINESS FINANCE Business finance is accessible effectively from various sources yet the expense/interest/reimbursement terms engaged with the idea of business finance shifts. The conditions to be considered regarding the different factors and afterward will probably be discovered the idea of business money and decision must be taken whether it will be savvy to procure business finance from a portion of the accessible sources. Interest on the money is the cost for its highlights or advantages. Nature of business finance likewise signifies the viewpoint of the moneylender to which the borrower may maybe not have a sense of security. A present moment or a drawn-out finance moreover deciding element of nature of money for a business. Monetary administration is consistently to think concerning the reason for which money is vital; it might for extremely long-lasting speculation or venture that is brief timeframe for current resources or fixed resources. Here likewise is the important inquiry of nature of money. The foremost unbiased of money is to make a point to help the worth of the corporate. This means, business finance surveys dangers to sort out the best money gains. A ton of thought goes into the idea of business finance, which means, there are a few parts of study that need anybody to analyse all aspects of money prior to settling on a decision that is self-evident. For instance, venture identifies with value and exactly how to consider obligation as opposed to delivering profits or offering more offers. Current resources, cash, liabilities, inventories, and business financing, all have part in what decisions that are monetary made. A business 11 CU IDOL SELF LEARNING MATERIAL (SLM)

will burn through cash on others, even in the stock trade to significantly assist with expanding their property. A few organizations use financial backers to acquire a speculation capital, to have the option to develop and excel. The part of money supervisor/finance division is to distribute money to different offices, and furthermore guidance for appropriate usage of business finance. The idea of business finances the board has under-gone changes which are significant of different features. For instance: approaches of various governments or new arrangements is one of these. Contest is another region that is basic to choices that are monetary. Your opposition decides, regardless of whether a proceeding with business is ahead or behind. To have ahead, it has a keen individual to keep harmony between an excessive amount of obligation and development that is barely enough. Purchasers are important for the condition that is monetary however income delivered from clients is negligible in certain associations. Money is additionally about obligation and precisely how to get around monetary commitment problems. Planning, bookkeeping, in addition to considerably more are completely associated with business finance. 1.6 PRINCIPLES OF BUSINESS FINANCE 1. Standards of hazard and return: Higher the danger, higher the return. Along these lines, there ought to be a compromise among hazard and return. 2. Standards of the time worth of cash: This rule expresses that a dollar close by today is valued at in excess of a dollar to be gotten in the future on the grounds that the dollar close by today can be contributed to procure revenue to yield in excess of a dollar later on. 3. Standards of income: A monetary supervisor places significance on incomes instead of on benefit. 4. Standards of benefit and liquidity: This guideline expresses that there ought to be a compromise among productivity and liquidity. 5. Supporting rule: This standard expresses those current resources ought to be gotten together by current liabilities and long haul helps ought to be gotten together by long haul liabilities. 6. Standards of variety: This rule expresses that all the cash ought not be put resources into a venture, rather speculation ought to be enhanced. 7. Standards of the business cycle: According to this rule, every one of the monetary choices ought to consider the business cycle. 12 CU IDOL SELF LEARNING MATERIAL (SLM)

1.7 ROLE OF BUSINESS FINANCE IN AN ORGANISATION • It influences the endurance, productivity and development of the firm. • It is important for the advancement of an association. • It guarantees precise working of an association. • Finance is spine of each business. • It carries steadiness to undertakings. • Expansion, modernization and broadening is conceivable just when there are sufficient assets of a business. • It upholds other useful spaces of a business. • It helps in gathering the target of abundance augmentation. 1.8 RISK AND BUSINESS FINANCE Running a business takes hard work, which can reap the rewards of customers, revenue and satisfaction. While success is the ultimate goal, business risk may stop you from achieving the goals you set. When it comes to risk management, there are steps you can take, however. Here are seven types of business risk you may want to address in your company. 1. Monetary Risk The economy is continually changing as the business sectors vacillate. Some sure changes are useful for the economy, which lead to blasting buy conditions, while adverse occasions can diminish deals. Watch changes and patterns to conceivably distinguish and get ready for a financial slump. 2. Consistence Risk Entrepreneurs face a wealth of laws and guidelines to agree with. For instance, ongoing information insurance and instalment preparing consistence could affect how you handle certain parts of your activity. Remaining knowledgeable in material laws from government organizations like the Occupational Safety and Health Administration (OSHA) or the Environmental Protection Agency (EPA) just as state and neighbourhood offices can assist with limiting consistence hazards. 13 CU IDOL SELF LEARNING MATERIAL (SLM)

3. Security and Fraud Risk As more clients utilize on the web and versatile channels to share individual information, there are likewise more noteworthy freedoms for hacking. Reports about information breaks, fraud and instalment extortion outline how this sort of hazard is developing for organizations. In addition to the fact that this risks sway trust and notoriety, yet an organization is likewise monetarily obligated for any information breaks or misrepresentation. To accomplish compelling undertaking hazard the board, centre around security arrangements, misrepresentation recognition devices and representative and client schooling about how to distinguish any likely issues. 4. Monetary Risk This business hazard may imply credit stretched out to clients or your own organization's obligation load. Loan fee variances can likewise be a danger. Making acclimations to your marketable strategy will assist you with abstaining from hurting income or making a surprising misfortune. Downplay obligation and make an arrangement that will begin bringing down that obligation load quickly. On the off chance that you depend on the entirety of your pay from a couple of customers, your monetary danger could be critical on the off chance that one or both at this point don't utilize your administrations. Begin showcasing your administrations to broaden your base so the deficiency of one will not annihilate your main concern. 5. Notoriety Risk There has consistently been the danger that a miserable client, item disappointment, negative press or claim can unfavourably affect an organization's image notoriety. Be that as it may, web-based media has enhanced the speed and extent of notoriety hazard. Only one negative tweet or awful survey can diminish your client following and cause income to plunge. To plan for this danger, influence notoriety the executives’ techniques to routinely screen what others are saying about the organization on the web and disconnected. Be prepared to react to those remarks and assist with tending to any worries right away. Keep quality top of brain to stay away from claims and item disappointments that can likewise harm your organization's standing. 6. Functional Risk This business hazard can happen inside, remotely or include a mix of elements. Something could startlingly happen that makes you lose business congruity. 14 CU IDOL SELF LEARNING MATERIAL (SLM)

That unforeseen occasion could be a catastrophic event or fire that harms or annihilates your actual business. Or on the other hand, it's anything but a worker blackout brought about by specialized issues, individuals, or force cut. Numerous functional dangers are likewise individuals related. A representative may make botches that cost time and cash. Regardless of whether it's a group or cycle disappointment, these functional dangers can antagonistically affect your business as far as cash, time and notoriety. Address every one of these possible functional dangers through preparing and a business coherence plan. The two strategies give an approach to consider what could turn out badly and build up a reinforcement framework or proactive measures to guarantee tasks aren't influenced. For instance, more organizations are utilizing distributed storage to secure organization information and depend in far off colleagues to keep up with tasks. Mechanizing more cycles likewise assists with lessening individuals’ disappointments. 7. Contest (or Comfort) Risk While a business might know that there is in every case some contest in their industry, it's not entirely obvious out on the thing organizations are offering that may engage your clients. For this situation, the business hazard implies an organization chief getting so familiar with their prosperity and the state of affairs that they don't search for approaches to turn or make constant enhancements. Expanding rivalry joined with a reluctance to change may bring about a deficiency of clients. Venture hazards the board implies an organization should consistently revaluate their exhibition, refine their technique, and keep up with solid, intuitive associations with their crowd and clients. Moreover, watch out for the opposition by routinely investigating how they utilize on the web and web-based media channels. 1.9 DIFFERENCE BETWEEN BUSINESS RISK AND BUSINESS FINANCE Business Risk is the likelihood of acquiring a relatively low benefit or even endure misfortunes in light of changes in the economic situations, client requests, unofficial laws and financial climate of business. Because of such danger, the firm won't produce sufficient benefit to meet out its everyday costs. The danger is unavoidable in nature. Each business association works in a monetary climate. The monetary climate incorporates both miniature and full-scale climate. The progressions in the elements of the two conditions straightforwardly impact the business, and the danger emerges. A portion of those elements’ changes in client tastes and inclinations, swelling, change in the arrangements of the public 15 CU IDOL SELF LEARNING MATERIAL (SLM)

authority, normal catastrophes, strikes, and so forth the business hazard is partitioned into different classifications: •Compliance Risk: The danger emerging because of the adjustment of government laws. •Operational Risk: The danger starting because of the hardware separate, measure disappointment, lockouts by labourers, and so on •Reputation Risk: The danger arising because of any deceptive notice, claim, analysis of terrible items or administrations, and so forth •Financial Risk: The danger emerging because of the utilization of obligation capital. •Strategic Risk: Every business association deals with a technique, yet because of the disappointment of system the danger emerges. Monetary Risk is the vulnerability emerging because of the utilization of obligation finance in the capital construction of the organization. The capital design of the organization can be comprised of value capital or inclination capital or obligation capital or the blend of any. The firm, whose capital design contains obligation finance are known as Levered firms while Unlevered firms are the organizations whose capital construction is sans obligation. In addition, monetary danger doesn't wind up here as it is a bunch of dangers which are given as under: Market Risk: Risk emerging because of the vacillations in the monetary resources. Conversion standard Risk: The danger emerging out of the varieties in the money rates. Credit Risk: The danger arising as a result of non-instalment of obligation by a borrower. Liquidity Risk: The danger beginning because of a monetary instrument isn't exchanged rapidly on the lookout. Comparison Chart Basis For Comparison Business Risk Financial Risk Meaning The risk of insufficient profit, Financial Risk is the risk to meet out the expenses is arising due to the use of debt known as Business Risk. financing in the capital structure. 16 CU IDOL SELF LEARNING MATERIAL (SLM)

Evaluation Variability is EBIT Leverage Multiplier and Debt to asset ratio. Connected with Economic environment Use of debt capital Minimization The risk cannot be minimized. If the firm does not use debt funds, there will be no risk. Types Compliance risk, operational Credit risk, Market risk, risk, reputation risk, financial Liquidity risk, exchange rate risk, strategic risk etc. risk, etc. Disclosed by Difference in net operating Difference in the return of income and net cash flows. equity shareholders. Table 1.1 Comparison Chart 1.10 SUMMARY The term 'business finance' is thorough. It suggests funds of business exercises. Business can be sorted into three gatherings: trade, industry and administration. It is a cycle of rising, giving and overseeing of all the cash to be utilized regarding business exercises. It includes money of sole exclusive associations, association firms and corporate associations. Hazard and Return are firmly interrelated as you have heard ordinarily that on the off chance that you don't bear the danger, you won't get any benefit. Business Risk is a nearly greater term than Financial Risk; even monetary danger is a piece of the business hazard. Monetary Risk can be disregarded;however, Business Risk can't be stayed away from. The previous is effortlessly reflected in EBIT while the last can be displayed in EPS of the organization. 1.11 KEYWORD  Business Activity: The business (or loss) activity of the applicant business prior to any consideration of affiliation.  Liquidity: 1) the state of being liquid; 2) cash issued by a central bank or other monetary authority to render assets more liquid.  Finance: It is defined as the position of money at the time it is wanted. 17 CU IDOL SELF LEARNING MATERIAL (SLM)

1.12 LEARNING ACTIVITY 1. Explain about Financial Risk. ___________________________________________________________________________ ___________________________________________________________________________ 2. Explain about Capital Building. ___________________________________________________________________________ ___________________________________________________________________________ 1.13 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Define Business Environment? Explain the scope of Business Environment. 2. Elaborate about the nature of business finance. 3. What are the principles of Business Finance? 4. Explain the Significance of Business Environment. 5. What do you mean by Business Risk and Finance Risk? Long Questions 1. Define Business Finance? Explain the scope of Business Finance. 2. What are the types of business Risk? 3. Distinguish between Business Risk and Finance Risk. 4. Explain the role of Business Finance in an organisation. 5. Explain the Significance of Business Finance. B. Multiple Choice Questions 1. The Capital structure refers to the kind and proportion of different securities for raising _____________ 18 CU IDOL SELF LEARNING MATERIAL (SLM)

a. Planning b. Funds c. Controlling d. Organizing 2. The risk arising out of the variations in the currency rates is called as __________ a. Exchange Rate Risk b. Market Risk c. Credit Risk d. Liquidity Risk 3. ____________is the state and local agency that can help minimize compliance risks. a. END b. EPF c. ABC d. EPA 4. The economy is constantly changing as the _________ fluctuate a. Funds b. Plan c. Markets d. Environment 19 CU IDOL SELF LEARNING MATERIAL (SLM)

5. Financial decision making related to long-term assets is known as ____________ a. Procurement b. Capital budgeting c. Compensation d. All of these Answers 1-b, 2-a, 3-d, 4-c, 5-b 1.14 REFERENCES  Financial Management- Hogland  Advanced Financial Management – Dr. N. M. Vechalekar  Indian Economy by Mishra & Puri.  Business & Government by Francis Cherunelum.  Financial Management- S. C. Saxena 20 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT – 2 FINANCE V/S ACCOUNTING 21 STRUCTURE 2.0.Learning Objectives 2.1.Introduction 2.2.Meaning of Accounting and Finance 2.3.Distinction between Book-keeping and Accounting 2.4.Distinction between Accounting and Accountancy 2.5.Relationship between Accounting and Finance 2.6.Nature of Accounting 2.7.Objectives of Accounting 2.8.Role of Accounting 2.9.Limitations of Financial Accounting 2.10. Summary 2.11. Keyword 2.12. Learning activity 2.13. Unit end questions 2.14. References 2.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Define accounting and trace the origin and growth of accounting.  Distinguish between Business Finance and Accounting.  Explain the nature and objectives of accounting.  Discuss the relationship between business finance and accounting. CU IDOL SELF LEARNING MATERIAL (SLM)

2.1 INTRODUCTION Accounting has appropriately been named as the language of the business. The fundamental capacity of a language is to fill in as a method for correspondence Accounting likewise serves this capacity. It imparts the consequences of business activities to different gatherings who have some stake in the business viz., the owner, banks, financial backers, Government and different organizations. However, bookkeeping is for the most part connected with business yet it's difficult business which utilizes bookkeeping. People like housewives, Government and others likewise utilize a bookkeeping. For instance, a housewife needs to track the cash got and spent by her during a specific period. She can record her receipts of cash on one page of her \"family journal\" while instalments for various things like milk, food, clothing, house, instruction and so forth on some other page or pages of her journal in a sequential request. Such a record will help her in thinking about: (i) The sources from which she got cash and the reasons for which it was used. (ii) Whether her receipts are more than her instalments or the other way around? (iii) The equilibrium of money close by or shortage, if any toward the finish of a period. In the event that the housewife records her exchanges routinely, she can gather significant data about the idea of her receipts and instalments. For instance, she can discover the aggregate sum spent by her during a period (say a year) on various things say milk, food, training, amusement, and so forth Also, she can discover the wellsprings of her receipts like compensation of her better half, lease from property, monetary rewards from her family members, and so forth Subsequently, toward the finish of a period (say a year) she can see with her own eyes about her monetary position i.e., what she possesses and what she owes. This will help her in arranging her future pay and costs (or making out a spending plan) generally. The requirement for bookkeeping is all the more prominent for a maintaining an individual business. He should know: (i) What he claims? (ii) What he owes? (iii) Whether he has procured a benefit or endured a misfortune by virtue of maintaining a business? (iv) What is his monetary position i.e., regardless of whether he will be in a situation to meet every one of his responsibilities sooner rather than later or he is currently turning into a bankrupt? 22 CU IDOL SELF LEARNING MATERIAL (SLM)

2.2 MEANING OF ACCOUNTING AND FINANCE The fundamental reason for bookkeeping is to learn benefit or misfortune during a predetermined period, to show monetary state of the business on a specific date and to have command over the association's property. Such bookkeeping records are needed to be kept up with to quantify the pay of the business and impart the data so it could be utilized by supervisors, proprietors and other invested individuals. Bookkeeping is a control which records, groups, sums up and deciphers monetary data about the exercises of a worry so smart choices can be made about the worry. The American Institute of Certified Public Accountants has characterized the Financial Accounting as \"the craft of recording, ordering and summing up in as critical way and as far as cash exchanges and occasions which to some extent, basically of a monetary person, and deciphering the outcomes thereof\". American Accounting Association characterizes bookkeeping as \"the way toward recognizing, estimating, and imparting financial data to allow educated decisions and choices by clients regarding the data. From the over the accompanying ascribes of bookkeeping arise: (i) Recording: It is worried about the chronicle of monetary exchanges in a precise way, before long their event in the legitimate books of records. (ii) Classifying: It Is worried about the precise investigation of the recorded information to gather the exchanges of comparable sort at one spot. This capacity is performed by keeping up with the record where various records are opened to which related exchanges are posted. (iii) Summarizing: It is worried about the planning and show of the characterized information in a way valuable to the clients. This capacity includes the readiness of fiscal reports like Income Statement, Balance Sheet, Statement of Changes in Financial Position, Statement of Cash Flow, Statement of Value Added. (iv) Interpreting: Nowadays, the aforementioned three capacities are performed by electronic information handling gadgets and the bookkeeper needs to focus fundamentally on the understanding parts of bookkeeping. The bookkeepers ought to decipher the assertions in a way valuable to activity. The bookkeeper ought to clarify what has occurred as well as (a) why it occurred, and (b) what is probably going to occur under indicated conditions. Money is a more extensive and wide term that intently depicts the two exercises for example to evaluate how the accounts or cash will be overseen and how required assets will be gained. Cash, Credit, Banking, Capital business sectors, Leverage, Investments, Dis-speculations are not many ideas that are remembered for finance. The money holds its foundations in Microeconomics and Macroeconomics implies surveying each part of the accounts from \"how-to\", \"what to\", \"where to\" and \"when to\" oversee. Money is classified as: 23 CU IDOL SELF LEARNING MATERIAL (SLM)

1. Individual accounting – How a family or individual deals with their cash or resources like defining monetary objectives for marriage, schooling, investment funds for retirement, surveying charges, and distinguishing all present moment or long-haul needs. 2. Public Finance – It is identified with the public authority arrangements that impact spending, charges, obligation issuance, and planning. Its primary target is to realize how the public authority will pay for public administrations. 3. Corporate Finance – It considers the monetary operations of individual corporates or partnerships i.e., how they began, developed, and supported throughout some undefined time frame. 2.3 DISTINCTION BETWEEN BOOK-KEEPING AND ACCOUNTING Accounting is a piece of bookkeeping and is worried about the chronicle of exchanges which is frequently standard and administrative in nature, though bookkeeping performs different capacities too, viz., estimation and correspondence, other than recording. A bookkeeper is needed to have a lot more significant level of information, applied agreement and logical ability than is expected of the clerk. An accountant plans the bookkeeping framework, oversees and checks crafted by the accountant, readies the reports dependent on the recorded information and deciphers the reports. These days, he is needed to partake in issue of the executives, control and arranging of monetary assets. 2.4 DISTINCTION BETWEEN ACCOUNTING AND ACCOUNTANCY Although in practice Accountancy and Accounting are utilized conversely yet there is a delicate line of boundary between them. The word Accountancy is utilized for the calling of bookkeepers - who accomplish crafted by bookkeeping and are learned people. Bookkeeping is worried about recording all deals methodically and afterward orchestrating as different records and fiscal summaries. Also, it is a particular order like financial aspects, material science, cosmology and so forth the word accounting attempts to clarify the idea of crafted by the accountants (experts) and the word Accountancy refers to the calling these individuals embrace. 2.5 RELATIONSHIP BETWEEN ACCOUNTING AND FINANCE No doubt Accounting and Finance share a few fundamental characteristics as both fields are concerned with proper money management and both need the advanced level of education to perform the required task with quantitative & analytical skills but still, both are different. 24 CU IDOL SELF LEARNING MATERIAL (SLM)

1. Book keeping chips away at what's going on though Finance sees how we can help a superior future. Bookkeeping has a bunch of rules and rules while Finance is simply founded on the insightful abilities, inclination, sharpness, and mastery of the individual. 2. Book keeping centres more around the day-by-day development of cash inside the domain of associations i.e., what comes in and what goes out. Though in Finance centre is around the expansive administration of associations' resources and cash, and to arrange for how monetary development can be maintained or made in sure terms. 3. In Accounting, the accentuation is more on revealing the monetary occasions that occurred before and to guarantee consistence with bookkeeping standards. However, in Finance, the accentuation is more on distinguishing approaches to expand assets or cash and forestall any misfortunes. 4. Book keeping experts should be critical with substantial consideration regarding subtleties, while in Finance proficient should be long haul visionary and masterminds. 5. Subjects like bookkeeping hypothesis, bookkeeping practices, business and assessment law, and bookkeeping morals make the foundation of study for bookkeeping. Furthermore, in Finance, monetary designing, microeconomics, and macroeconomics subjects make the examination base. 2.6 NATURE OF ACCOUNTING The various definitions and explanations of accounting has been propounded by different accounting experts from time to time and the following aspects comprise the nature of accounting: a. Accounting as an assistance movement: Accounting is a help action. Its capacity is to give quantitative data, essentially monetary in nature, about financial substances that is expected to be helpful in settling on monetary choices, in settling on contemplated decisions among elective strategies. It implies that bookkeeping gathers monetary data for the different clients for taking choices and handling business issues. Bookkeeping in itself can't make abundance however, on the off chance that it produces data which is valuable to other people, it might aid abundance creation and upkeep. b. Accounting as a calling: Accounting is a lot of a calling. A calling is a profession that include the gaining of specific conventional training prior to delivering any assistance. Bookkeeping is an organized collection of information created with the improvement of exchange and business over the previous century. The bookkeeping instruction is being conferred to the examinees by public and global perceived the bodies like The Institute of Chartered Accountants of India (ICAI), New Delhi in India and American Institute of 25 CU IDOL SELF LEARNING MATERIAL (SLM)

Certified Public Accountants (AICPA) in USA and so on the applicant should breeze through a vivacious assessment in Accounting Theory, Accounting Practice, Auditing and Business Law. The individuals from the expert bodies normally have their own affiliations or associations, where in they are needed to be enlisted obligatorily as Associate individual from the Institute of Chartered Accountants (A.C.A.) and individual of the Institute of Chartered Accountants (F.C.A.). As it were, bookkeeping as a calling has accomplished the height practically identical with that of legal counsellor, medication or design. c. Accounting as a social power: In early days, bookkeeping was uniquely to serve the interest of the proprietors. Under the changing industry climate, the control of bookkeeping and the bookkeeper both need to watch and ensure the interests of others who are straightforwardly or in a roundabout way connected with the activity of current business. The general public is made out of individuals as client, investors, banks and financial backers. The bookkeeping data/information is to be utilized to tackle the issues of people in general everywhere like assurance and controlling of costs. In this way, protecting of public interest can all the more likely be worked with the assistance of appropriate, satisfactory and dependable bookkeeping data and because of it the general public everywhere is profited. d. Accounting as a language: Accounting is appropriately alluded the \"language of business\". It is one method for revealing and imparting data about a business. As one needs to gain proficiency with another dialect to chat and convey, so likewise bookkeeping is to be scholarly and polished to impart business occasions. A language and bookkeeping have normal highlights as respects rules and images. Both are put together and propounded with respect to principal rules and images. In language these are known as linguistic principles and in bookkeeping, these are named as bookkeeping rules. The articulation, show and show of bookkeeping information, for example, a numerals and words and charges and acknowledge are acknowledged as images which are interesting to the control of bookkeeping. e. Accounting as science or craftsmanship: Science is an organized assortment of information. It builds up a relationship of circumstances and logical results in the different related marvel. It is additionally founded on some central standards. Bookkeeping has its own standards e.g., the twofold passage framework, which clarifies that each exchange has two- crease angle i.e., charge and credit. It additionally sets down rules of journalising. Along these lines, we can say that bookkeeping is a science. Workmanship requires an ideal information, interest and experience to accomplish a work productively. Craftsmanship likewise shows us how to accomplish a work in the most ideal manner by utilizing the accessible assets. Bookkeeping is a craftsmanship as it likewise requires information, interest and experience to keep up with the books of records in a precise way. Everyone can't turn into a decent bookkeeper. It very well may be finished up from the above conversation that bookkeeping is a craftsmanship just as a science. 26 CU IDOL SELF LEARNING MATERIAL (SLM)

f. Accounting as a data framework: Accounting control will be the most valuable one in the obtaining of all the business information soon. You will understand that individuals will be continually presented to bookkeeping data in their regular day to day existence. Bookkeeping data serves both benefits looking for business and non-benefit associations. The bookkeeping arrangement of a benefit looking for association is a data framework intended to give pertinent monetary data on the assets of a business and the impact of their utilization. Data is important and significant if the leaders can utilize it to assess the monetary results of different other options. Book keeping for the most part doesn't create the essential data (crude monetary information), rather the crude monetary information result from the everyday exchanges of the business. As a data framework, bookkeeping joins a data source or transmitter (by and large the bookkeeper), a channel of correspondence (for the most part the fiscal summaries) and a bunch of collectors (outer clients). 2.7 OBJECTIVES OF ACCOUNTING The following are the main objectives of accounting: 1. To keep efficient records: Accounting is done to keep an orderly record of monetary exchanges. Without bookkeeping there would have been fantastic weight on human memory which much of the time would have been difficult to bear. 2. To secure business properties: Accounting gives insurance to business properties from ridiculous and inappropriate use. This is conceivable because of bookkeeping providing the accompanying data to the administrator or the owner: (i) The measure of the owner's supports put resources into the business. (ii) How much the business needs to pay to other people? (iii) How much the business needs to recuperate from others? (iv) How much the business has as (a) fixed resources, (b) cash close by, (c) cash at bank, (d) supply of crude materials, work-in-progress and completed merchandise? Data about the above issue helps the owner in guaranteeing that the assets of the business are not really kept inactive or underutilized. 3. To find out the functional benefit or deficit: Accounting helps in learning the net benefit acquired or shortfall endured by virtue of conveying the business. This is finished by keeping a legitimate record of incomes and cost of a specific period. The Profit and Loss Account is ready toward the finish of a period and if the measure of income for the period is more than 27 CU IDOL SELF LEARNING MATERIAL (SLM)

the consumption caused in acquiring that income, there is supposed to be a benefit. In the event that the use surpasses the income, there is supposed to be a misfortune. Benefit and Loss Account will help the administration, financial backers, lenders, and so forth in knowing if the business has end up being profitable. On the off chance that it has not end up being gainful or beneficial, the reason for such a situation will be explored and vital healing advances will be taken. 4. To determine the monetary situation of the business: The Profit and Loss Account gives the measure of benefit or misfortune made by the business during a specific period. Notwithstanding, it's anything but enough. The money manager should think about his monetary position i.e., where he stands? what he owes and what he claims? This goal is served by the Balance Sheet or Position Statement. The Balance Sheet is an assertion of resources and liabilities of the business on a specific date. It fills in as indicator for learning the monetary strength of the business. 5. To work with level headed dynamic: Accounting these days has taken upon itself the errand of assortment, investigation and revealing of data at the necessary places of time to the necessary degrees of expert to work with sane dynamic. The American Accounting Association has likewise focused on this point while characterizing the term bookkeeping when it says that bookkeeping is the way toward recognizing, estimating and conveying monetary data to allow educated decisions and choices by clients regarding the data. Obviously, this is in no way, shape or form a simple errand. Notwithstanding, the bookkeeping bodies everywhere on the world and especially the International Accounting Standards Committee, have been attempting to wrestle with this issue and have made progress in setting out some fundamental hypothesizes based on which the bookkeeping explanations must be ready. 6. Data System: Accounting capacities as a data framework for gathering and imparting financial data about the business venture. This data helps the administration in taking fitting choices. This capacity, as expressed, is acquiring enormous significance now a days. 2.8 ROLE OF ACCOUNTING Bookkeeping assumes a significant and valuable part by fostering the data for giving responses to numerous inquiries looked by the clients of bookkeeping data: (1) How fortunate or unfortunate is the monetary state of the business? (2) Has the business action brought about a benefit or misfortune? (3) How well the various divisions of the business have acted previously? 28 CU IDOL SELF LEARNING MATERIAL (SLM)

(4) Which exercises or items have been productive? (5) Out of the current items which ought to be ended and the creation of which wares ought to be expanded? (6) Whether to purchase a segment from the market or to make something similar? (7) Whether the expense of creation is sensible or unreasonable? (8) What has been the effect of existing arrangements on the benefit of the business? (9) What are the reasonable consequences of new approach choices on future acquiring limit of the business? (10) In the light of past execution of the business how could it anticipate future to guarantee wanted outcomes? Previously mentioned are not many instances of the kinds of inquiries looked by the clients of bookkeeping data. These can be acceptably replied with the assistance of reasonable and vital data given by bookkeeping. In addition, bookkeeping is likewise helpful in the accompanying regards: (a) Increased volume of business brings about huge number of exchanges and no money manager can recollect everything. Bookkeeping records deter the need of recalling different exchanges. (b) Accounting records, ready based on uniform practices, will empower a business to contrast aftereffects of one period and another period. (c) Taxation specialists (both personal expense and deals charge) are probably going to accept the realities contained in the arrangement of bookkeeping books whenever kept up with as per sound accounting guidelines. (d) Accounting records, upheld by appropriate and verified vouchers, are acceptable proof in an official courtroom. (e) If a business is to be sold as a going concern, then, at that point the upsides of various resources as displayed by the asset report helps in haggling appropriate cost for the business. 29 CU IDOL SELF LEARNING MATERIAL (SLM)

2.9 LIMITATIONS OF FINANCIAL ACCOUNTING Benefits of book keeping examined in this exercise don't recommend that book keeping is liberated from impediments. Any individual who is utilizing bookkeeping data ought to be very much aware of its impediments moreover. Following are the constraints: (a) Financial book keeping licenses elective medicines: No uncertainty bookkeeping depends on ideas and it follows \"sound accounting guidelines\", yet there exists more than one standard for the treatment of any one thing. This licenses elective medicines inside the system of sound accounting guidelines. For instance, the end supply of a business might be esteemed by any of the accompanying strategies: FIFO (First-in-first-out); LIFO (Last-in-first-out); Average value, Standard cost and so forth, Application of various techniques will give various outcomes yet the techniques are for the most part acknowledged. In this way, the outcomes are not same. (b) Financial book keeping is Influenced by close to home decisions: In spite of the way that understanding of separation is regarded in bookkeeping yet to record certain occasions gauges must be settled on which requires individual choice. It is exceptionally hard to expect precision in future appraisals and fair-mindedness endures. For instance, to decide the measure of deterioration to be charged each year for the utilization of fixed resource it is needed to gauge (a) future existence of the resource, and (b) scrap worth of the resource. Along these lines, in bookkeeping we don't decide however quantify the pay. As such, the pay revealed by bookkeeping isn't definitive yet estimate. (c) Financial book keeping overlooks significant non-money related data: Financial bookkeeping takes into examination just those exchanges and occasions which can be portrayed in cash. The exchanges and occasions, notwithstanding significant, if non-financial in nature are unseen i.e., not recorded. For instance, degree of rivalry looked by the business, specialized advancements moved by the business, steadfastness and productivity of the workers and so forth are the significant issue where the board of the business is profoundly intrigued however bookkeeping isn't custom-made to observe such matters. In this way, any client of monetary data is, normally, dejected of indispensable data which is of non-financial person. (d) Financial book keeping doesn't give ideal data: Financial bookkeeping is intended to supply data as revelations (Balance Sheet and Profit and Loss Account) for a period, regularly, one year. Along these lines, the data is, best case scenario, of verifiable interest and just dissection investigation of the past can be directed. The business requires convenient data at normal stretches to allow the administration to plan and make a restorative move. For instance, if a business has planned that during the current year deals ought to be Rs. 6,00,000 then it requires data – regardless of whether the deals in the primary month of the year added 30 CU IDOL SELF LEARNING MATERIAL (SLM)

up to Rs. 50,000 or less or more? Generally, monetary bookkeeping should supply data at more limited breaks than one year. (e) Financial book keeping doesn't give itemized investigation: The data provided by the monetary bookkeeping is in validity absolute of the monetary dealings throughout the year. Obviously, it empowers to consider the general consequences of the business action during the bookkeeping time frame. For appropriate running of the business the data is required with respect to the expense, income and benefit of every item except monetary bookkeeping doesn't give such nitty gritty data item savvy. For instance, if a business has procured an all- out benefit of, say, Rs. 2,50,000 during the bookkeeping year and it sells three items to be specific petroleum, diesel and portable oil and needs to realize benefit procured by every item. Monetary bookkeeping isn't probably going to help him. (f) Financial book keeping doesn't uncover the current worth of the business: In monetary bookkeeping is the site of the business as on a specific date is displayed by an assertion known as asset report. In monetary record the resources are displayed based on going concern idea. In this way, it is assumed that business has generally longer life and will keep on existing endlessly, consequently the resource esteems are going concern esteems. The acknowledged worth of every resource whenever sold today can't be known by examining the accounting report. 2.10 SUMMARY  In every sphere of business, Accounting and Finance are involved in such a way that business cannot survive for a long time without them. If you want to know its importance, just imagine what would be the condition of a company if both of them were not there. There will be no records of transactions, no profits could be determined, there won’t exist any basis on which the inventories and investments would be valued, management of capital is unimaginable, risk factor will increase, no comparison could be made, budgeting and analysis of cash would not be possible, etc.  Accounting and finance both are critical and vital for every business organization as they both decide the present and future of organizations’ success. Both are challenging fields as a minor mistake at any point will lead to catastrophe business failure. The two fields are not a world apart but it is essential to know the important differences between them to make informed decisions. 2.11 KEYWORD • Book-keeping: It is the art of recording in the books of accounts the monetary aspect of commercial or financial transactions. 31 CU IDOL SELF LEARNING MATERIAL (SLM)

• Accounting: It is the means of collecting, summarising and reporting in monetary terms, information about the business. • Financial accounting: Financial accounting deals with the maintenance of books of accounts with a view to ascertain the profitability and the financial status of the business. • Transaction: A transaction is a stimulus from one person and a related response from the. 2.12 LEARNING ACTIVITY 1. What is finance? ___________________________________________________________________________ ___________________________________________________________________________ 2. What is accounting? ___________________________________________________________________________ ___________________________________________________________________________ 2.13 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Discuss the objectives of accounting. 2. What is meant by book-keeping and accounting? 3. Distinction between accounting and accountancy 4. Is accounting a science or art? 5. Explain the categories of finance. Long Questions 32 1. Explain the role of finance. 2. What are the limitations of financial accounting? 3. Explain the relationship between accounting and finance. 4. What are the objectives of finance? CU IDOL SELF LEARNING MATERIAL (SLM)

5. Explain the nature of accounting. B. Multiple Choice Questions 1. _______________________is concerned with the recording of financial transactions in an orderly manner, soon after their occurrence in the proper books of accounts. a. Planning b. Accounting c. Controlling d. Funds 2. __________ accounting does not disclose the present value of the business a. Financial b. Cost c. Management d. Institution 3. The Profit and Loss Account gives the amount of profit or loss made by the business during a particular a. Day b. Week c. Month d. Period 4. ___________is related to the government policies that influence spending, taxes, debt issuance, and budgeting. a. Funds 33 CU IDOL SELF LEARNING MATERIAL (SLM)

b. Plan c. Finance d. Environment 5. Finance is purely based on the __________--of the person. a. Procurement b. Analytical skills c. Compensation skill d. Managerial skill Answers 1-b, 2-a, 3-d, 4-c, 5-b 2.14 REFERENCES  S.N. Maheshwari, Advanced Accountancy  R.L. Gupta, Advanced Accountancy  M.C. Shukla and T.S. Grewal, Advanced Accounts  Financial Management- Hogland  Advanced Financial Management – Dr. N. M. Vechalekar 34 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT – 3 ROLE OF BOARD OF DIRECTORS 35 STRUCTURE 3.0.Learning Objectives 3.1.Introduction 3.2.Meaning and Definition of Corporate Governance 3.3.Objective of corporate governance 3.4.Elements of good Corporate Governance 3.5.Importance of corporate governance 3.6.Important issues in corporate governance 3.7.Need of Corporate Governance 3.8.Scope of Corporate Governance 3.9.Participants to Corporate Governance 3.10. Role of Corporate Governance 3.11. Duties and Responsibilities of the Board of Directors 3.12. Roles and Responsibilities of the Chairman of the Board 3.13. Summary 3.14. Key words 3.15. Learning activity 3.16. Unit end questions 3.17. Reference 3.0LEARNING OBJECTIVES After studying this unit, you will be able to:  Define corporate governance CU IDOL SELF LEARNING MATERIAL (SLM)

 Explain the needs and importance of corporate governance  Discuss the issues and benefits of corporate governance  Discuss the roles, responsibilities and duties of the board of directors and chairman 3.1 INTRODUCTION Corporate administration is a focal and dynamic part of business. The term 'administer ance' gets from the Latin gubernare, signifying 'to guide', as a rule applying to the steering of a boat, which suggests that corporate administration includes the capacity of heading instead of control. There are numerous methods of defining corporate governance, going from limited definitions that attention on organizations and their investors, to more extensive definitions that consolidate the responsibility of organizations to many different gatherings of individuals, or 'partners'. 3.2 MEANING AND DEFINITION OF CORPORATE GOVERNANCE Many management scholars have documented that strong corporate governance is vital to resilient and vibrant capital markets and is an important tool of investor protection. Giving to The Institute of Company Secretaries of India, “Corporate Governance is the submission of best administration performs, agreement or jaw in true letter and life and obedience to ethical standards for effective management and distribution of wealth and discharge of social responsibility for acceptable development of all patrons”. Cadbury Committee (U.K.), 1992 has well-defined corporate governance as “Corporate governance is the system by which trades are directed and controlled. It covers the entire procedure of the working of a company and efforts to put in place a system of forms and balances between the investors, managers, employees, auditor and the management.\" Other group of academics explained the term corporate governance as “process and construction by which the business and matters of the company are directed and managed in order to improve long term bondholder value through attractive corporate performance and answerability, whereas taking into account the interests of other stakeholders\". Firms at overall level seeing that better corporate organization builds the worth of their useful show in the going with habits: • It deals with fundamental theory at the top by tolerating free bosses who bring a plenitude of contribution, and a huge assembly of remarkable considerations. 36 CU IDOL SELF LEARNING MATERIAL (SLM)

• It legitimizes the organization and inspection of danger that a firm faces around the world. • It limits the promise of senior organization and bosses, through cautiously articulating the unique cooperation • It ensures the dependability of money related reports. • It has long stretch reputational impacts among chief accomplices, both inside and distantly. 3.3 OBJECTIVE OF CORPORATE GOVERNANCE The focal objective of corporate organization is to help and lift financial backer regard and secure the premium of different accomplices. World Bank portrayed Corporate Governance as blend of law, rule and legitimate wilful private region practices which engages the firm to attract money related and HR to perform capably, set itself up by delivering long stretch monetary impetus for its financial backers, while in regards to the interests of accomplices and society with everything taken into account. Corporate organization has various objections to build up monetary benefactor's conviction and colleague prompts speedy turn of events and advantages of associations. These are referred to under: • A suitably coordinated Board equipped for taking free and target decisions is set up accountable for issues. • The Board is changed as regards the depiction of a sensible number of non-boss and free bosses who will manage the interests and thriving of the overall huge number of accomplices. • The Board recognizes clear procedures and practices and appears at decisions on the strength of good information. • The Board has an incredible framework to understand the concerns of accomplices. • The Board keeps the financial backers instructed in regards to critical enhancements influencing the association. • The Board suitably and regularly screens the working of the administrative group. • The Board stays in amazing control of the endeavours of the association reliably. 3.4 ELEMENTS OF GOOD CORPORATE GOVERNANCE It has been set up in different administration reports that parts of good corporate administration include straightforwardness of corporate constructions and tasks, the responsibility of supervisors and the sheets to investors, and corporate obligation towards 37 CU IDOL SELF LEARNING MATERIAL (SLM)

partners. While corporate administration essentially sets out the structure for making long haul certainty among organizations and the outside suppliers of capital. There are various components of corporate administration which are referenced beneath:  Straightforwardness in Board's cycles and freedom in the working of Boards. The Board ought to give viable initiative to the organization and the executives to acknowledge supported thriving for all partners. It ought to give autonomous judgment to accomplishing organization's targets.  Responsibility to partners so as to serve the partners and record to them at standard spans for activities taken, through solid and supported correspondence measures.  Fair-mindedness to all partners.  Social, administrative and ecological concerns.  Clear and express enactment and guidelines are basics to compelling corporate administration.  Great administration climate that incorporates setting up of clear goals and appropriate moral system, building up due measures, clear articulation of duty and responsibility, sound business arranging, building up clear limits for worthy conduct, setting up execution assessment measures.  Expressly endorsed standards of moral practices and implicit rules are conveyed to every one of the partners, which ought to be unmistakably perceived and followed by every individual from the association.  The goals of the enterprise should be unmistakably perceived in a drawn-out corporate methodology including a yearly field-tested strategy alongside reachable and quantifiable execution targets and achievements.  A very much formed Audit Committee to function as contact with the administration, inner and legal evaluators, exploring the sufficiency of inward control and consistence with critical strategies and methods, answering to the Board on the central questions.  Hazard is a significant segment of corporate working and administration, which ought to be unmistakably recognized, examined for taking proper restorative measures. To manage such circumstance, Board ought to detail a component for intermittent audits of interior and outer dangers. 38 CU IDOL SELF LEARNING MATERIAL (SLM)

 An unmistakable Whistle Blower Policy whereby the workers may unafraid report to the administration about deceitful conduct, genuine or associated cheats or infringement with organization's implicit rules. There ought to be some system for satisfactory protect to faculty against exploitation that fills in as informants. 3.5 IMPORTANCE OF CORPORATE GOVERNANCE The Organization for Economic Cooperation and Development (OECD) features the meaning of good corporate administration in the worldwide and homegrown financial climate. As per OECD, if nations are to receive the full rewards of the worldwide capital market, and in the event that they are to draw in long haul \"patient\" capital, corporate administration plans should be valid and surely known across borders. Regardless of whether organizations don't depend fundamentally on unfamiliar wellsprings of capital, adherence to great corporate administration practices will assist with working on the certainty of homegrown financial backers, may lessen the expense of capital, and at last actuate steadier wellsprings of financing (Principles of Corporate Governance, 1990). 3.6 IMPORTANT ISSUES IN CORPORATE GOVERNANCE There are number of significant issues in corporate administration. Every one of the issues are entomb related and associated to manage one another. Each issue connected with corporate administration have various needs in every one of the corporate bodies. The issues are referenced underneath:  Worth based corporate culture  All-encompassing perspective  Consistence with laws  Divulgence, straightforwardness, and responsibility  Corporate administration and human asset the board  Development  Need of legal changes  Globalization helping Indian organizations to become worldwide monster’s dependent on great corporate administration.  Exercises from Corporate disappointment 39 CU IDOL SELF LEARNING MATERIAL (SLM)

 Worth based corporate culture: For smooth activity of any firm, it is important to foster certain morals, values. Since quite a while ago run business needs to have esteem based corporate culture. Worth based corporate culture is acceptable practice for corporate administration. It is a bunch of moralities, standards which are sacred.  All-encompassing perspective: This comprehensive view is strict standpoint which helps for viable activity of association. It's anything but simpler to receive it, it needs exceptional endeavours and when embraced it prompts creating characteristics of honourability, resilience and sympathy.  Consistence with laws: Those organizations which truly need headway, have high ethical qualities and need to run since quite a while ago run business, they weather and contract to rules of Securities Exchange Board of India (SEBI), Foreign Exchange Regulation Act, Competition Act 2002, Cyber Laws, Banking Laws.  Divulgence, straightforwardness, and responsibility: Disclosure, straightforwardness and responsibility are significant component for great administration. Convenient and exact data ought to be unveiled on the issue like the monetary position, execution. Straightforwardness is required all together that administration has confidence in corporate bodies. Straightforwardness is required towards corporate bodies so that because of gigantic rivalry in the commercial centre the clients having options don't move to other corporate bodies.  Corporate Governance and Human Resource Management: In corporate culture, representatives are fundamental for achievement of firms. Each individual ought to be treated with singular regard, his accomplishments ought to be perceived. Every individual staff and representative ought to be offered best chances to demonstrate their value and these should be possible by Human Resource Department. Hence in Corporate Governance, Human Resource has an extraordinary job.  Advancement: Every corporate body should include in development rehearses for example development in items, in administrations and it assumes a basic part in corporate administration.  Need of Judicial Reform: There is prerequisite of legal change for a decent economy and furthermore in the present shifting season of globalization and advancement. Legal arrangement of India however having performed helpful job this load of years, absolutely are getting old and obsolete throughout the long term. The deferral in legal executive is because of a few interests associated with it. In any case, then, at that point with changing situation and quickly developing rivalry, the legal executive necessities to bring upgrades likewise. It needs to speedily resolve questions in practical way. 40 CU IDOL SELF LEARNING MATERIAL (SLM)

 Globalization assisting Indian Companies with turning out to be worldwide monster’s dependent on great administration: In the present cutthroat climate and because of globalization, a few Indian Corporate bodies are turning out to be worldwide organizations which are conceivable simply because of good corporate administration.  Exercises from Corporate Failure: Corporate body have certain approaches which if goes as a disappointment they need to gain from it. Disappointment can be both inner just as outside whatever it could be, in acceptable administration, corporate bodies need to gain from their disappointments and need to move to the way of progress. 3.7 NEED OF CORPORATE GOVERNANCE A partnership is an assembly of different partners, to be specific clients, representatives, financial backers, seller accomplices, government and society. An enterprise should to be reasonable and upfront to its partners in the entirety of its exchanges. This has gotten basic in the present globalized business world where companies need to get to worldwide pools of capital, need to draw in and hold the best human resources from different pieces of the world, need to join forces with sellers on super coordinated efforts and need to live in congruity with the local area. Except if an organization embraces and shows moral lead, it won't succeed. Corporate administration is about moral lead in business. Morals is worried about the code of qualities and standards that empower an individual to pick among good and bad and, in this way, select from elective strategies. Further, moral difficulties emerge from clashing interests of the gatherings in question. In such manner, chiefs settle on choices dependent on a bunch of standards affected by the qualities, setting and culture of the association. Moral initiative is useful for business as the association supposedly conducts its business in accordance with the assumptions for all partners. Corporate administration is past the domain of law. It originates from the way of life and attitude of the executives and can't be controlled by enactment alone. Corporate administration manages directing the issues of an organization to such an extent that there is reasonableness to all partners and that its activities advantage the best number of partners. It is about transparency, uprightness and responsibility. What enactment can and ought to do is to set out a typical structure – the \"structure\" to guarantee guidelines. The \"substance\" will at last decide the validity and respectability of the interaction. Substance is unyieldingly connected to the attitude and moral principles of the executives. Companies need to perceive that their development requires the participation of all the partners; and such participation is improved by the company sticking to the best corporate administration rehearses. In such manner, the administration needs to go about as trustees of the investors everywhere and forestall lop-sidedness of advantages between different areas of investors, particularly between the proprietor supervisors and the remainder of the investors. 41 CU IDOL SELF LEARNING MATERIAL (SLM)

3.8 SCOPE OF CORPORATE GOVERNANCE Corporate governance covers the following useful areas of governance: 1. Readiness of organization's budget reports: Financial divulgence is a vital what's more, basic part of corporate administration. The organization should carry out strategies to autonomously confirm and shield the uprightness of the organization's monetary detailing. Exposure of material issue concerning the association ought to be opportune what's more, adjusted to guarantee that all financial backers’ approach clear, authentic data. 2. Interior controls and the autonomy of substance's evaluators: Internal control is carried out by the directorate, review board, the executives, and other faculty to give affirmation of the organization accomplishing its goals identified with dependable monetary detailing, working productivity, and consistence with laws and guidelines. Inner reviewers, who are given obligation of testing the plan and carrying out the inside control systems and the unwavering quality of its monetary revealing, ought to be permitted to work in a free climate. 3. Audit of remuneration game plans for CEO and other senior chiefs: Execution based compensation is intended to relate some extent of pay to singular execution. It could be as money or non-cash instalments like offers also, share choices, superannuation or different advantages. Such impetus plans, nonetheless, are responsive as in they give no instrument to forestalling botches or crafty conduct, and can evoke near-sighted conduct. 4. The manner by which people are named for the situations on the board: The Board of Chiefs have the ability to recruit, fire and repay the top administration. The proprietors of a business, who have dynamic power, casting a ballot authority, and explicit obligations, which for each situation is independent and particular from the position, and obligations of proprietors and supervisors of the business substance. 5. The assets made accessible to chiefs in completing their obligations: The obligations of the chiefs are the guardian obligations like those of a specialist or trustee. They are endowed with satisfactory ability to control the exercises of the organization. 6. Oversight and the board of hazard: It is significant for the organization to be completely mindful of the dangers confronting the business and the investors should realize that how the organization is going to handle the dangers. Essentially the organization ought to likewise know about the openings lying ahead. 3.9 PARTICIPANTS TO CORPORATE GOVERNANCE Corporate administration is worried about the overseeing or administrative body (for example the SEBI), the President, the top managerial staff and the board. Different partners who 42 CU IDOL SELF LEARNING MATERIAL (SLM)

participate incorporate providers, representatives, banks, clients, and the local area on the loose. Investors delegate choice rights to the directors. Administrators are required to act in the interest of investors. This outcome in the deficiency of successful control by investors over administrative choices. Subsequently, an arrangement of corporate administration controls is carried out to help in adjusting the impetuses of the administrators to those of the investors to restrict self-satisfying openings for supervisors. The top managerial staff assumes a critical part in corporate administration. It is their obligation to underwrite the association's technique, foster directional arrangement, name, oversee and compensate senior chiefs and to guarantee responsibility of the association to its proprietors and specialists. A critical factor in a person's choice to partake in an association (for example through giving monetary capital or aptitude or work) is believe that they will get a decent amount of the hierarchical returns. On the off chance that someone gets more than their reasonable return (for example excessive chief compensation), then, at that point the members may decide not to keep taking part, possibly driving to a hierarchical breakdown (for example investors pulling out their capital). Corporate administration is the vital component through which this trust is kept up with across all partners. 3.10 ROLE OF CORPORATE GOVERNANCE The role of operative corporate governance is of enormous significance to the society as a whole. It can be summarised as follows: 1. Corporate administration guarantees the proficient utilization of assets. 2. It makes the assets stream to those areas or substances where there is proficient creation of labour and products and the return is sufficiently satisfactory to fulfil the requests of partners. 3. It accommodates picking the best supervisors to manage scant assets. 4. It assists administrators with staying zeroed in on further developing execution and ensuring that they are supplanted when they neglect to do as such. 5. It compresses the association to follow the laws, guidelines and assumptions for society. 6. It helps the manager in controlling the whole monetary area without favouritism and nepotism. 7. It expands the investors' worth, which draws in more financial backers. Consequently, corporate administration guarantees simple admittance to capital. 43 CU IDOL SELF LEARNING MATERIAL (SLM)

8. As corporate administration prompts higher purchaser fulfilment; it helps in expanding portion of the overall industry and deals. It additionally lessens publicizing and advancement costs. 9. Representatives are more fulfilled in associations that follow corporate administration strategies. This lessens the representative turnover, which brings about the decrease in the expense of human asset the board. Just a fulfilled representative can make a fulfilled client. 10. Corporate administration diminishes the obtainment and stock expense. It helps in keeping up with a decent affinity with providers, which brings about better and more practical stock the executives framework. 11. Corporate administration helps in establishi7ng great affinity with wholesalers giving better admittance to the market, yet additionally diminishing the expense of creation. 3.11 DUTIES AND RESPONSIBILITIES OF THE BOARD OF DIRECTORS a) Release their obligations and manage the activity of the Company to guarantee exacting consistence with laws, targets, articles of affiliation, and goals of the Annual General Meeting while at the same time sticking to the \"Code of Best Practice for Directors of Listed Company\" standards as given by the Stock Exchange of Thailand. b) Devote time to and perceive the meaning of the dreams, missions, headings, and techniques of the Company. Each Director is needed to go to no under 75% of Board Meetings that are planned for advance toward the start of the monetary year. c) Notwithstanding, this necessity doesn't reach out to any executive gatherings that are planned later in the year. Chiefs should likewise state their viewpoints completely and look for data which could be valuable for setting up organization bearing. d) Survey and support key techniques and strategies, just as the monetary destinations and functional plans of the Company. Empower advancement and utilization of innovation and development in business tasks. e) Administer and screen the administration, on a yearly premise, to empower consistence with the set up functional plans as per the heading and the methodologies of the association. This is to guarantee that the administration is able to do effectively conveying results from the set-up dreams, headings, and methodologies, just as having the option to rapidly adjust to evolving conditions. 44 CU IDOL SELF LEARNING MATERIAL (SLM)

f) Set up a corporate administration and business set of accepted rules strategy which accommodates favoured acts of Directors, Executives and all Employees including Contract Staff. g) This approach should zero in on the consciousness of duty to one's obligations. Complete arrangement and severe recognition of this strategy should be needed close by the Company's articles of relationship to guarantee reasonableness to all partners. h) Decide the ability to support matters outside the extent of the assigned specialists doled out to the President and Chief Executive Officer, as indicated in the Company's Articles of Association. Such matters include the endorsement of financial plans, ventures, and task activities of the Company and its auxiliaries. i) They additionally incorporate going into significant arrangements and delegating new Directors to supplant those leaving during the year and to serve on Sub-Committees. j) The Board of Directors is likewise to decide the approved Directors, put it down on the calendar for the Annual General Meeting of Shareholders and pronounce the break profit instalment. k) Carry out a believable bookkeeping framework, monetary detailing and review. Furnish for a methodology with which the appropriateness of inside control and review frameworks can be effectively assessed. l) Survey conceivable significant dangers and build up a thorough danger the board rule. Guarantee that the Executives have the effective danger the board frameworks or methodology, look for potential business openings emerging from such dangers and carry out adequate and proficient interior controls. m) Oversee and resolve possible Conflicts of Interests and Related Transactions by auditing huge exchanges to guarantee most extreme advantage to the investors and partners. n) Orchestrate proper channels of correspondence with each gathering of investors. Manage divulgence of data to guarantee accuracy, cognizance, straightforwardness and validity of the best expectations. o) Consistently assess one's own presentation and release of obligations, just as those of the Chief Executive Officer. 45 CU IDOL SELF LEARNING MATERIAL (SLM)

3.12 ROLES AND RESPONSIBILITIES OF THE CHAIRMAN OF THE BOARD a) Backing the activity of the administration yet have no association in the Company's standard organization. b) Oversee the activity of the Board to guarantee its adequacy and autonomy from the administration. c) Decide, along with the President and Chief Executive Officer, the gathering plan according to the Board's obligations and duties. d) Fill in as a successful Chairman of the Board's gatherings and the Shareholders' gatherings. e) Urge all Directors to participate in the gatherings. f) Assume a fundamental part in empowering Directors' consistence with the extent of obligations and duties expected of the Board of Directors, laws, and the Good Corporate Governance and Business Code of Conduct standards of the Company; Directors should likewise release their obligations with duty to investors and any partners concerned. 3.13 SUMMARY  Corporate governance comprehends systems and procedures intended to structure authority, balance responsibility and provide accountability to stakeholders at all levels. Fundamentally, corporate governance is about harmonising achievement with sustainability. Management literature have shown that corporate Governance is a set of ideas, innovation, creativity, thinking having certain ethics, values, principles which gives direction and shape to its people, personnel and possessors of companies and help them to succeed in worldwide market. Corporate administration appreciates the structure of rules, connections, frameworks and measures inside and by which trustee authority is practiced and controlled in enterprises.  Corporate administration manages leading the undertakings of an organization to such an extent that there is decency to all partners and that its activities advantage the best number of partners. The inception of the interaction of corporate administration in PEs is probably going to result into a series of significant advantages.  Corporate possession structure has been considered as affecting frameworks of corporate administration, albeit numerous different elements influence corporate 46 CU IDOL SELF LEARNING MATERIAL (SLM)

administration, counting overall sets of laws, social and strict practices, worlds of politics and financial occasions. 3.14 KEYWORD  Ethical conduct: It refers to the behaviour on standards of right and wrong.  Shareholder’s Wealth: It is equal to the market price of his holdings in shares.  Stakeholders: Who has direct or indirect concerns in the organisation  Corporate governance: It is the system by which businesses are directed and controlled. 3.15 LEARNING ACTIVITY 1. Who are the participants of corporate governance? ___________________________________________________________________________ ___________________________________________________________________________ 2. What is need of corporate governance? ___________________________________________________________________________ ___________________________________________________________________________ 3.16 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Do you think corporate governance is necessary? Give your own viewpoints. 2. “Corporate governance is beyond the realm of law”. Analyse the statement. 3. Explain the roles and responsibilities of the Chairman of the board. 4. What is the role of corporate governance? 5. Explain the scope of corporate governance. Long Questions 1.Define corporate governance. What do you understand by the term governance? 47 CU IDOL SELF LEARNING MATERIAL (SLM)

2. “Corporate governance is a continuous process”. Give your views. 3. In the light of the dynamic business environment, discuss the need of corporate governance. 4. What functional areas does corporate governance cover? 5. Discuss the role of various stakeholders in the corporate governance process. B. Multiple Choice Questions 1. ___________divulgence is a vital what's more, basic part of corporate administration. a. Planning b. Financial c. Controlling d. Funds 2. Corporate administration guarantees the proficient utilization of_______. a. Assets b. Cost c. Management d. Institution 3. The Board keeps the ___________-educated regarding significant improvements affecting the organization a. Day b. Week c. Month d. Investors 48 CU IDOL SELF LEARNING MATERIAL (SLM)

4. ___________helping Indian organizations to become worldwide giant’s dependent on great corporate administration. a. Funds b. Finance c. Globalization d. Environment 5. The central goal of corporate administration is to support and boost investor _________and secure the premium of other partners a. Procurement b. Esteem c. Compensation skill d. Managerial skill Answers 1-b, 2-a, 3-d, 4-c, 5-b 3.17 REFERENCES Reference’s book  C V Baxi, Corporate Governance.  Geeta Rani, R K Mishra, Corporate Governance: Theory and Practice, Excel Books.  Mallin, Christine A., Corporate Governance, Oxford University Press, 2004.  S Singh, Corporate Governance. 49 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT – 4 BUSINESS FINANCE 50 STRUCTURE 4.0. Learning Objectives 4.1.Introduction 4.2.Meaning And Definition of Finance 4.3.Characteristics of Finance 4.4.Definition of Long-Term Financing 4.5.Purpose of Long-Term Finance 4.6. Long-Term Sources of Finance 4.7.Meaning of Liquidation 4.8.Definition of Winding-up of a Company 4.9. Modes of Winding-up 4.10. Contributory 4.11. Liquidator 4.12. Procedure of Preparation of Statement of Affairs 4.13. Lists to be Attached to the Statement of Affairs 4.14. Summary 4.15. Key words 4.16. Learning activity 4.17. Unit end questions 4.18. Reference 4.0 LEARNING OBJECTIVES After studying this Unit, you should be able to: CU IDOL SELF LEARNING MATERIAL (SLM)