ECO - 01: BUSINESS ORGANISATION | IGNOU SOLVED ASSIGNMENT 2020 - 21 | B.COM | FREE SOLVED ASSIGNMENT

IGNOU FREE SOLVED ASSIGNMENT (2020-21)
Elective Course in Commerce
ECO-01: BUSINESS ORGANISATION
For July 2020 and January 2021 admission cycle



Dear Students,
As explained in the Programme Guide, you have to do one Tutor Marked Assignment in this Course. Assignment is given 30% weightage in the final assessment. To be eligible to appear in the Term-end examination, it is compulsory for you to submit the assignment as per the schedule. Before attempting the assignments, you should carefully read the instructions given in the Programme Guide.
This assignment is valid for two admission cycles (July 2020 and January 2021). The validity is given below:
1)         Those who are enrolled in July 2020, it is valid up to June 2021.
2)         Those who are enrolled in January 2021, it is valid up to December 2021.
You have to submit the assignment of all the courses to The Coordinator of your Study Centre. For appearing in June Term-End Examination, you must submit assignment to the Coordinator of your study centre latest by 15th March. Similarly for appearing in December Term-End Examination, you must submit assignments to the Coordinator of your study centre latest by 15th September.

TUTOR MARKED ASSIGNMENT
COURSE CODE: ECO-01
COURSE TITLE: BUSINESS ORGANISATION
ASSIGNMENT CODE: ECO-01/TMA/2020-2021
COVERAGE: ALL BLOCKS
Maximum Marks: 100

Attempt all the questions:

1. Describe essential features of business. What are the main objectives of business? (10+10)

Ans: Business is an economic activity, which is related with continuous and regular production and distribution of goods and services for satisfying human wants.

Lewis Henry defines business as, "Human activity directed towards producing or acquiring wealth through buying and selling of goods."

Thus, the term business means continuous production and distribution of goods and services with the aim of earning profits under uncertain market conditions.

Characteristics or features of business are discussed in following points:

a)      Exchange of goods and services: All business activities are directly or indirectly concerned with the exchange of goods or services for money or money's worth.

b)      Deals in numerous transactions: A businessman regularly deals in a number of transactions and not just one or two transactions. If there is only one transaction, it cannot be said to be business.

c)       Profit is the main Objective: The business is carried on with the intention of earning a profit.

d)      Business skills for economic success: To be a good businessman, one needs to have good business qualities and skills.

e)      Recurring Transactions: The activities of exchange are recurring in nature. For example if a person sells his watch and gets money, it is not business unless he keeps a stock of watches and continues selling and maintaining his stock. Thus continuity of dealings is an essential characteristic of business.

f)       Risk Factor: The element of risk is inherent in every business activity. Risk stands for some possibility of loss. There is uncertainty in the market and the entrepreneur faces all such uncertainties and risks. Risks may be caused by the following factors:

(a) Changes in fashions, tastes of consumers.

(b) Changes in technology.

(c) Wrong decisions and possible loss that might be faced.

(d) Labour uncertainty and disturbances.

(e) Shortage or non-availability of raw-materials.

(f) Risk in competition.

(g) Natural calamities, like flood, earth quake etc.

(h) Fire, theft etc.

The main objective of a business undertaking is to earn profits. Profit earning is considered necessary for the survival of the business. The objectives of the business may be categorised under these headings:

(a) Economic Objectives

(b) Human Objectives

(c) Social Objectives

(a) Economic Objectives: Economic objectives of a business are

1. Profit earning for existence and expansion of business.

2. Production and sale of Goods to earn profit.

3. Creating Markets to sell products.

4. Technological Improvement to keep pace with the changing business world.

(b) Human Objectives: Human objectives of business are that a workable balance should be maintained among the claims of various interested groups like employees, shareholders and consumers. These objectives can be discussed as follows.

1. Welfare of employees by providing physical comfort, material incentives, appreciation, and dignity of labour.

2. Satisfaction of Consumers should be given due weightage.

3. Satisfaction of Shareholders by giving reasonable return on the money invested by the shareholders.

(C) Social Objectives or Social Responsibility of the Business: The social responsibility of the business can be studied as follows. 

1.   To make Goods and Services available to meet requirements of the society.

2.  To Supply Quality Goods at reasonable price.

3.  Co-operation with the Government.

4. To make proper Financial Planning to make sure that adequate funds are raised at the minimum cost.

2. What are the requisites of an ideal form of business organization? Compare briefly various forms of business organizations. (10+10)

Ans: Requisites of Modern Business

1. Objectives: It is necessary of every business to have a set of objectives or targets (i.e. goals) to be achieved during the forthcoming periods. Objectives must be classified as a main or primary objective together with secondary or subsidiary goals.

2. Planning: Proper argumentation of resources, division of work among the employed persons, is necessary to achieve the goals set before the business.

3. Financial Resources: Financial is the fuel of administration and soul of a business. Adequate financial resources long-run as well as short-term requirements should be arranged in order to run the business effectively and to serve it from insolvency.

4. Proper Location – Layout and Size: Proper location, layout and size of business unit is highly essential and vital to the progress of an unit.

5. Proper and Efficient Organisation: Through organisation the goals set to be achieved in a given period of time are achieved. In this way organization is an agency through which the plans are implemented and results are secured.

6. Efficient Management: Management is the guiding force behind the successful operation of a business. “A manager is a person who attempts to achieve stated objectives by directing human activities in the production of goods or services.

7. Morale of the Employees: High degree of morale among the employees keeps a business away from any kind of inefficiency and uncertainty. It is the demand of the time that collective entrepreneurship should be conceived.

8. Innovation: Innovation refers to efficiency or ability to adopt changes in the various fields of a business activity caused by changes in the technical know-how and continuous research.

9. Efficient Marketing System: Marketing of products is one of the greatest fight to be fought by a business in modern times. Like scientific production, marketing system too, ought to be scientific and up-to-date.

10. Modern Technology: A business must be equipped with proper machines and other necessary implements for better result. There should be proper man – machine adjustment and a happy amalgamation of technical know-how with modern machinery.

Comparison of Sole Trade, Partnership and Company for of organisation

Basis

Sole Trade

Partnership

Company

1.Definition

Sole trade is a business which is owned, management and controlled by one person.

Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

A Company means a company formed and registered under this Act or an existing Company.

2.Legal Person

It is not a legal entity separate from the owner.

A firm is not a legal Entity.

A Company on the other hand, is a Legal Person.

3. Liability

Liability of a sole trader is unlimited.

In a Partnership, the liability of partners is unlimited.

In case of a company, which is limited, the liability of the members is limited to the extent of its share capital.

4.Registration

Registration of a sole trade business in not compulsory

Registration of a firm is not compulsory under the Partnership Act, 1932.

Registration of a company is compulsory under the Companies Act, 2013.

5.Management

Management is in the hand of sole trader.

Management vests in the hands of the Partners except in the case of Sleeping Partners.

Management vests in the board of Directors, elected periodically by the shareholders.

6.Statutory obligations

A sole trade business has less or no statutory obligations.

A partnership has less statutory obligations

A company is strictly regulated under the Companies Act, 2013.

7. Decision making

Decision making is very quick because it is made by one person.

There is delay in decision making in case of partnership business.

In case of company, every decision requires approval from board of directors or shareholders.

 

3. Describe various financial institutions for assisting industrial enterprises (20)

Ans: Financial Institutions for assisting industrial enterprises are listed below:

(1) IFCI: The Industrial Finance Corporation of India (IFCI) was established in 1948 under a special Act of Parliament. It was the first development bank of our country. It was set up to make medium and long term credits to industrial concerns in India. IFCI grants loan mainly for starting new ventures, expansion of existing capacity, replacement or renovation. IFCI has been converted into a public limited company with effect from 1-7-1993 in which 50% shares are held by IDBI and remaining 50% shares are held by commercial banks, insurance companies and co-operative banks.

Objectives and functions of IFCI:

a)      Granting loans or advances to industrial concerns repayable within a period of 25 years.

b)      Underwriting and direct subscription to the shares of industrial concerns.

(2) IDBI: The full form of IDBI is Industrial Development Bank of India. It was established in July, 1964. However, in February 1976, the IDBI was taken over by the government and was made an autonomous institution. It was established with the object of recognizing and integrating the structure of the existing financial institution in the country for gearing up the needs of rapid industrialization.

The functions of IDBI are:

a)      It renders technical, managerial and administrative assistance for promotion, management and expansion of industry.

b)      It provides financing facilities to IFCI, SFC and other financial institutions approved by the Government.

c)       It co-ordinates the activities of other financial institutions for the promotion and development of industries.

d)      By purchasing and / or underwriting shares and debentures of industrial concerns it provides capital.

e)      It also provides guarantee for deferred payments due from industrial concerns and for loans raised by them.

(3) SFC’s: In order to provide finance to small and medium scale industries need for a separate financial institution was felt. Accordingly, the government of India passed the State Financial Corporation Act in 1951, enabling the state government to set up State Financial Corporation. As a result, the first SFC was set up by the Punjab Government in 1953. In Assam, Assam Finance Corporation was set up in 1954. The SFC meets the financial requirements of small industrial concerns in private sector.

Objective: The main objective of the SFCs is to provide financial assistance to medium and small scale industrial concerns. SFC especially comes into the picture when traditional banking system does not provide requisite funds. The assistance by SFC is for medium and long term capital requirements. They help both new as well as existing units for purposes of establishment, modernization, renovation, expansion and diversification.

(4) NABARD: Ans: The National Bank For Agriculture and Rural Development (NABARD), a developing bank, came into existence on July 12, 1982, under an Act of Parliament with an initial capital of Rs. 100 crores. It is an apex institution set up for providing and regulating credit and other facilities for the promotion and development of agriculture, small scale industries, cottage and village industries, handicrafts and other rural crafts and other allied economic activities in rural areas. The NABARD has taken over the functions of ARDC (Agricultural Refinance and Development Corporation) and refinancing functions of RBI in respect of co-operative banks and the RRBs.

Objectives/Functions of NABARD

a)      Integrated rural development.

b)      To provide training and Research facilities for rural Development.

c)       To keep a check on all the projects which are refinanced by NABARD; through timely inspection, monitoring and evaluation.

d)      To Act as a coordinator and regulator for rural credit institutions.

(5) SIDBI: Small Industries Development Bank of India (SIDBI) was established in April 1990 under an Act of parliament. It is a wholly-owned subsidiary of Industrial Development Bank of India (IDBI). It serves as the principal financial institution for Promotion, Financing, Development if industry in the small scale sector and Coordinating the functions of other institutions engaged in Similar activities. The Small Scale industry (SSI) sector, which is vibrant and dynamic sub-sector of the India’s industrial economy, is the prime area of SIDBI’s business.

(6) SIDC: The State Industrial Development Corporation were incorporated under the Companies Act, 1956 as wholly owned state Govt. undertaking for promoting industrial development. Their main objective is the development of medium and large scale industries in their respective states. At present there are 28 SIDCs in India.

Functions of SIDCs:

a)      Providing term loans to medium and large scale industries.

b)      Underwriting and direct subscription of shares / debentures of industries.

c)       Undertaking Entrepreneurship development programmes in respective states.

d)      Administration of incentive scheme of Central and State Govt.

e)      Technical guidance and assistance in plant location.

4. What is the role of advertising agencies in promoting business? Explain the factors that influence choice of media. (5+15)

Ans: Advertising agency performs following functions

1)      Contacting Clients: Advertising agency first of all identifies and contact firms which are desirous of advertising their product or services. Ad-agency selects those firms which are financially sound, makes quality products or services, and have efficient management.

2)      Planning Advertisement: Advertising agency's next function is to plan ad for its client. For ad planning following tasks are required to be performed by ad-agency:

a)      Study of client’s product to identify its inherent qualities in relation to competitor’s product.

b)      Analysis of present and potential market for the product.

c)       Study of trade and economic conditions in the market.

d)      Study of seasonal demand of the product

e)      Study of competition and competitor’s spending on advertising.

f)       Knowledge of channels of distribution, their sales, operations, etc.

g)      Finally, formulation of advertising plan

3)      Creative Function: Creative people like - the copywriters, artists, art-directors, graphic-specialists have to perform the creative function which is most important part of all advertising function.

4)      Developing Ad-Copy: Ad-agency with the help of their writers, artists, designers, animators, graphic-designers, and film-directors prepares and develops Ad-copy.

5)      Approval of Client: Ad-copy is shown to the client for his approval.

6)      Media Selection and scheduling: It is very important function of ad-agency to select appropriate media for its clients. Ad agency has to consider various factors like- media cost, media coverage, ad-budget, nature of product, client's needs, targeted customer, and etc while selecting media.

Factors that influence choice of suitable medium for advertising

Selection of a suitable medium for advertising is really a complex problem to the advertiser. There are a number of kinds and classes of media in the modern advertising. Hence, the advertising media selection means not only the choice of the right classes of media out also the individual medium within the class or classes. Besides there is no single medium that is best suited for all advertisers. In reality, a medium which is best suited for one may be almost useless for another. The medium once employed for advertising a particular product itself may be found unsuited subsequently. Therefore, the right choice of a medium calls for a careful analysis. If the medium is unsuited the whole amount of money spent on the advertising campaign shall turn to be a waste. The advertiser, therefore, while selecting the media, should consider the following factors:

1) Class of the audience: Firstly, the advertiser must note the class of the audience to be influenced by the medium. The audience can be classified into different groups by their social status, age, income, educational standard, religion, cultural interests. They may also be divided into men and women.

2) Extent of coverage: Secondly, the advertiser must consider the number of audience to be covered by the medium. Every media has a general as well as an effective circulation. The general circulation is made up of the total number of people who read or subscribe to the media. The effective circulation is the number prospective customers who read it and the number of those who influences sales, though they may not buy for themselves. Effective circulation must be considered while estimating the number of people to be covered. The extent to which the medium reaches the same audience as that covered by some other media i.e., the percentage of over-lapping must also be taken into account.

3) Nature of the product: Nature of the product itself is a principal factor governing the selection of the medium. Products can be classified into various kinds – consumer‘s products and manufacturer‘s products etc.

4) Nature of the competition: The nature of the competition has greater influence of the selection of the media. If the competition is stiff utmost care is needed in the selection of medium and a larger advertising budget is also required. In many cases, where the advertising copy is similar or the choice of the media solely determines the effectiveness of the campaign as compared with that of the other competitors.

5) Reputation of the medium: Newspapers and magazines can offer a beautiful illustration for the reputation of the media. There are a few newspapers and magazines which have international reputation with a high readership. Advertisements in such magazines and newspapers are generally recognized and believed as true. Such advertisements also add prestige to the product.

6) Cost of the media: Cost of the medium in most cases, is an important factor in the selection of the medium. Advertisements in certain media are expensive, for instance, TV and Radio advertisements. Magazines and newspaper advertisements are generally considered as less expensive. Yet, certain magazines and newspapers, having larger circulation and high reputation charge higher rates. The rates also differ depending upon the space occupied and the preferential positions. The first page of a newspaper is rarely missed by the reader. Hence they have more attention value, than the advertisements presented anywhere inside the newspaper.

7) Time and location of buying decisions: The location of the audience and the time by which it should reach them must also be looked into. This consideration also enables the advertiser to keep his retail outlets in the proximity of the customers.

8) Trade Acceptance: The degree of acceptance that a medium can generate among the advertiser’s intermediaries such as wholesale and retailers would generate more favourable effect. Accordingly, the message and the media should be such that these intermediaries are enthusiastic about it. For example, an advertisement placed in a trade journal which is popular among intermediaries will have a positive effect on them which would in turn be carried to consumers.

5. Write short notes on the following:  4x5=20

a) Methods of raising capital

Ans: There are two sources of finance: Owner’s fund and borrowed fund.

Owner’s Fund: Owner’s fund consists of funds contributed by owners and accumulated profits. Owner’s fund includes:

a) Issue of Equity shares

b) Issue of Preference shares

c) Retained earnings

Owner’s fund has the following features

a) It is a permanent source of capital of the firm

b) Normally no security is necessary in case of owner’s fund.

c) There is no dilution of control.

Merits of Owner’s Fund:

A) Permanent capital.

B) No security is required to raise capital.

C) Improve credit-worthiness of the company.

Demerits of owner’s fund:

A) Diffusion of control

B) Under-utilisation of capital

Borrowed Fund: It refers to the borrowings of the firm. It is mainly in the form of debentures, loans from financial institutions. Borrowed fund includes:

a) Issue of debentures

b) Issue of bonds

c) Short term and long term loans

d) Trade credit and advances

Borrowed fund has the following features

A) Finance for fixed time

B) Security required

C) Regular payment of interest.

Merits of Borrowed Fund:

A) No interference in decision making.

B) Interest as an expense.

C) Fixed rate of interest.

Demerits of Borrowed fund:

A) Adequate security required

B) Fixed liability

C) Regular interest payment irrespective of profits.

b) Functions of wholesalers

Ans: Wholesalers provide various services to manufacturers as well as to retailers. These are the following services offered by the wholesalers to manufactures:

a)      Large Scale Production-Wholesalers purchase large quantities and facilitate large scale production

b)      Concentration on Production- Wholesalers allow manufacturer to concentrate on production only & wholesaler handle the distribution activities

c)       Market Information-Wholesalers provide market information to manufacturer regarding new product ideas, product modification, and competitor’s activities.

d)      Financial Assistance- Wholesalers provide financial assistance to manufacturer they purchase goods on cash .Sometimes they give advances to manufacturer.

e)      Risk Bearing: Wholesalers undertake the risk of dealing in the goods produced by the manufacturer. He bears the risk of fluctuation in demand and price.

f)       Storage Wholesalers provide storage facilitates for finished goods.

Services To Retailers:

a)      Availability of goods to retailers: They make available goods to the retailers for the purpose of sale to the consumers.

b)      Marketing support: Wholesalers provide necessary marketing materials and support to the retailers.

c)       Credit facilities: They sometimes sale goods on credit to the retailer. It is good source of finance at cheapest cost for the retailers.

d)      More knowledge about products: They inform the retailers about the new product manufactured and also inform them about the features of the product.

e)      Sharing of risk: A wholesaler share the risk of fluctuation in demand and price of the product with the retailers.

c) Role of commercial banks

Ans: Banks play an important role in the economic growth of a country. In the modern set up, banks are not to be considered dealers in money but as the leaders of development. The importance of bank for a country’s economy can be explained in following ways:

1. Promote Saving: Banks by playing attractive interest rate on deposits try to promote thrift and savings in an economy. The investment of these savings in productive channel results in capital formation.

2. Channelisation of savings to optimum use: The scattered small savings in the country can be put to optimum use by commercial banks. Banks utilize this amount by giving loans to industrial houses and the government. By providing funds to the entrepreneurs, bank help in increasing productivity of capital.

3. Remittance of money from one place to another: Banks help in remitting money from one place to another. The cheque, bank draft, letter of credit, bills, Hundies enable traders to transfer large sums of money from one place to another.

4. Credit creation: By their ability to create credit, the banks have placed at the disposal of the nation a large amount of money. The bank can increase the supply of money through credit creation.

5. Increase in Employment: With the growth of banking activity, employment opportunity in the country has increased to a considerable extent.

6. Capital formation: The banks help in capital formation in the country. A high rate of saving and investment promote capital formation.

7. Protection of depositor’s property: Money deposited in the bank and other precious items are now absolutely safe. For keeping valuables, banks are providing locker facilities. Now people are free from any type of risks.

d) Stock Exchange

Ans: STOCK EXCHANGE: A stock exchange is highly organised financial market where the second hand securities can be bought and sold. Its main functions are to create a link between the buyers and sellers of securities so that investments can change hands in the quickest, cheapest and fairest manner. Under the Securities Contract (Regulation) Act, 1956, the term stock exchange has been defined as “as association, organisation or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities”.                

FEATURES OF STOCK EXCHANGE

The important features of stock exchange are as follows:

a)      Stock exchange is a market where dealings take place in shares, debentures and bonds issued by the company’s corporations, government, etc.

b)      Only those securities could be traded that are included in the official list of stock exchange.

c)       It also deals in government securities.

d)      Stock exchange is organisation in the form of an association or a company or a body of individuals.

e)      It is a common meeting place of buyers and sellers of second hand securities.

f)       In stock exchanges, brokers serve as a link between the buyers and sellers.

g)      Stock exchanges frame their rules and regulations.

h)      The areas of operations of stock exchange or geographical jurisdiction is well defined.

i)        In India, stock exchanges operate as per guidelines issued by the Securities and Exchange Board of India.

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