Course Name: Business Accountancy

Course Code: ACCT105

Credits: 3

1
Prepared By Dr. Kalyani P

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Module 1 – Forms of Business
Organisations
• Define, purpose and types of
business organisation -commercial, not for profit,
public sector, Non –
Governmental organisations and cooperatives.
• Stakeholders in business organisations –
definition, types and how it may vary in different
types of business organisations.
• Political and Legal factors affecting the business.
Module 2 - Accounting and Reporting
System – Control and Compliance
 Understanding the relationship between accounting and other business functions -
Financial issues associated with planning, production, marketing, procurement and
information technology.
 Accounting and Finance functions within business –
 Financial Accounting
 Financial Management
 Cost Accounting
 Management Accounting
 Taxation
 Auditing
 Green Accounting
 Social Accounting
Module 3 - Fundamentals of Accounting
 Meaning of Accounting
 Nature of Accounting
 Functions/Objectives of Accounting
 Scope of Accounting
 Advantages of Accounting
 Disadvantages of Accounting
 Types of Accounting
 Financial Accounting
 Cost Accounting
 Management Accounting
 Green Accounting
 Social Accounting
 Hire Purchase
 Joint Venture
 Branch
 Non profit concerns Accounting
 Consignment
 Taxation – Finance and Treasury Functions
Module 4 – IT Application in
Accountancy
 Identify weaknesses, potential for errors and
inefficiencies in accounting systems.
 Identify business uses of computers and IT software
applications:
i) Spreadsheet applications
ii) Database systems
iii) Accounting packages..
Module 5 - Law and Regulations
Governing Accounting and Audit
 Basic Legal Requirements for Retaining and Submitting Proper Accounting
Records
 Regulations governing Preparation and Auditing Financial Reports
 Failure to comply with the legal requirements for maintaining and filing
accounting records
 Concept of International Accountancy as a profession
Module 6 - Ethics in Accounting and Business
 Fundamental Principles of Ethical behaviour
 Role of regulatory and professional bodies in accountancy profession
 Corporate code of ethics
 Ethical conflicts and dilemmas
8

Module 1: Forms of Business Organisation

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 What is a Business Organisation ?
9

“Organisations are Social arrangements for

the controlled performance of collective
goals.” By Buchanan and Huczynski

Key Aspects of This Definition:

➢Social Arrangement
➢Controlled Performance
➢Collective goals

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10 Purpose of Organisations / Why do we
need Organisations ?
 Share Skills and Knowledge
 Specialise
 Pool Resources

This results in synergy where organisations can achieve

more than the individuals could on their own.

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11 Different Types of Organisations

1. Commercial Organisations
2. Not for Profit Organisations

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12 Commercial Organisations
 The main objective of these organisations is profit making.
 There are three common forms that a commercial organisation can take:
Sole Traders
Partnerships
Joint Stock Companies

Another form of commercial business organisation popular in India is

Hindu Undivided Family Business

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13 Sole traders
 Owned and run by one person
 Most simple form of Business organisation
 Suitable for small businesses
 The sole trader bears all the risk and enjoys all the profit
 No separate legal entity
 Unlimited Liability
 Formation and closure of the business are very easy
 Limited Life of the Business organisation

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 Advantages and Limitations of Sole
14 Trading Concern
Advantages
 Quick decision making
 Confidentiality of Business Operations
 Ease of formation and closing of the business
 Enjoys all the benefits
Disadvantages
 Unlimited Liability
 Limited Life of Business
 Limited capital
 Limited Expertise in various functions of business
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15 Partnerships
 The organisation is owned and run by two or more individuals
 Existence of an agreement between the partners
 The formation is governed by the Indian Partnership Act 1932
 No separate legal entity
 Unlimited Liability
 Sharing of risks and profits
 Limited Life
 Sharing of activities and decision making
 Number of members
 All the partners are both agent and principal
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16
Definition of Partnership

Section 4 of the Indian Partnership Act 1932 defines

partnership as “The relation between persons who have
agreed to share the profit of the business carried on by
all or any one of them acting for all.”

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 Advantages and Limitations
17

Advantages
 Increased capital and scale of operations
 Sharing of risks
 Confidentiality of Business Operations
 Better Decision Making
 Formation and closure of the business are easy
Limitations
 Unlimited Liability
 Lack of business continuity
 Limited capital and human resources
 Difficulty in assessing the financial status of the entity by outsiders
 Restriction on transfer of ownership
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18 Types of Partners

 Active Partner
 Sleeping or Dormant Partner
 Secret Partner
 Nominal Partner
 Partner by Estoppel
 Partner by holding out
 Minor as a partner

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 Types of partnerships
19

Based on Duration
 Partnership at Will
 Particular Partnership
Based on Liability
 With Unlimited Liability
 With Limited Liability (Permitted after the introduction of
New small enterprises policy in 1991)

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20 Partnership Deed

 An agreement which specifies the terms and conditions

that govern the partnership is called a partnership deed.

Registration of the Firm – Optional

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21 Joint Stock Company

 In the most simplest terms we can describe a Joint stock company as a

business organisation that is owned jointly by all its shareholders.
 The company form of organisation is governed by the Companies Act 2013
which superseded the companies Act 1956.
 “Joint stock company is a voluntary association of individuals for profit,
having a capital divided into transferable shares, the ownership of which is
the condition of membership”
- Definition by Prof. Haney

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22 Features of a Joint Stock Company

 Separate legal entity

 Artificial person
 Perpetual Succession
 Common seal
 Formation and Closure are difficult
 Limited Liability
 Sharing of risks and benefits among a larger group of members
 Management & Control in the hands of Board of Directors
 Transferability of shares

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 Advantages and Limitations
23
Advantages
 Limited Liability
 Transfer of shares
 Perpetual existence
 Large scale operations
 Expertise in decision making
 Sharing of risks
Limitations
 Formation and closure are difficult
 Agency problem
 Lack of secrecy
 Delay in decision making
 Oligarchic management
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24 Types of Companies

 Public Limited Companies

 Private Limited Companies

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 Public Limited Company
25

 According to companies Act 2013

 A public limited company means a company which is not a private
company
 Minimum paid up capital of Rs.5 Lakhs (prescribed from time to time)
 Minimum of 7 members and no limit on maximum members
 A private company which is a subsidiary of a public limited company is
also treated as a public company
 No restriction on transfer of shares
 Must use the word Limited at the end of its name
 Can invite public to subscribe for its shares and debentures
 Minimum 3 directors and Maximum 15 directors
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26 Private Limited Company

 Minimum two members & maximum 200 members

 Minimum paid up capital of 1 Lakh (prescribed from
time to time)
 Restricts transfer of shares
 It can go for IPO only after meeting some eligibility
criteria.
 Must use the word private limited after its name
 Minimum 2 directors and maximum 15 directors

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Funding Stages
Stage 1 – Promoter Funds
Stage 2 – Angel Investors
Stage 3 – Venture Capital and
Private Equity
Stage 4 – IPO
Why IPO?

 Expansion
 Pare Debt
 Exit to previous investors
 Eligibility Norms for Making an IPO
SEBI has stipulated the eligibility norms for
companies planning an IPO which are as follows:
Entry Norm I (Profitability Route)
Entry Norm II (QIB Route)
 Entry Norm I (Profitability Route)

 a) Net tangible assets of at least Rs. 3 crore in each of the preceding

three full years of which not more than 50% are held in monetary assets.
However, the limit of 50% on monetary assets shall not be applicable in
case the public offer is made entirely through offer for sale.
 b) Minimum of Rs. 15 crore as average pre-tax operating profit in at least
three years of the immediately preceding five years.
 c) Net worth of at least Rs. 1 crore in each of the preceding three full
years.
 d) If there has been a change in the company’s name, at least 50% of
the revenue for preceding one year should be from the new activity
denoted by the new name
 e) The issue size should not exceed 5 times the pre-issue net worth
Entry Norm II (QIB Route)

To provide sufficient flexibility and also to ensure that genuine companies

are not limited from fund raising on account of strict parameters, SEBI has
provided the alternative route to the companies not satisfying any of the
above conditions, for accessing the primary market, as under:

Entry Norm II (QIB Route)

Issue shall be through book building route, with at least 75% of net offer to
the public to be mandatory allotted to the Qualified Institutional Buyers
(QIBs). The company shall refund the subscription money if the minimum
subscription of QIBs is not attained.
For FPO’s

 A listed issuer making a public issue (Further Public Offer i.e. FPO) is required to
satisfy the following requirements:
(a) If the company has changed its name within the last one year, at least 50%
revenue for the preceding 1 year should be from the activity suggested by the new
name.
(b) The aggregate of the proposed issue and all previous issues made in the same
financial year in terms of issue size does not exceed five times its pre-issue net worth
as per the audited balance sheet of the preceding financial year.
Any listed company not fulfilling these conditions shall be eligible to make a public
issue (i.e. FPO) by complying with QIB Route as specified for IPOs i.e. issue shall be
through book building route, with at least 75% to be mandatory allotted to the
Qualified Institutional Buyers (QIBs).

There is no entry norm for a listed company making a rights issue.

Process of Initial Public Offering (IPO)
Step 1 – Hire a Merchant Banker

Step 2 – Due Diligence and Filings

Step 3 – Application to Stock
Exchanges
Step 4 - Distribution

Step 5 – Pricing

Step 6 – Share Allotment

Step 7 – Listing on Stock Exchange

34 Not for Profit Organisations
 Not for profit organisations (NPOs) do not see profitability as their main
objective. Instead they seek to satisfy the particular needs of their members
or sectors of society that they have been set up to benefit.
 NPOs do not issue stock, pay dividends and enjoy tax subsidies
 NPOs can be either in the Public Sector or Private Sector
 Examples of Public sector or Governmental NPOs are Police Department,
Public Transport, Primary education, Healthcare for the poor etc.
 Examples of Private sector NPOs are Red Cross, Blue Cross, Private Hospitals
etc.
 One of the important form of NPOs is Cooperative Society which can be
either in Public Sector or Private Sector

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35 Cooperative Societies

 The main motto of cooperative societies is Working with cooperation and

working for each other in the society
 A cooperative society is a voluntary association of individuals having
common needs and who join hands with the motive of welfare of the
members
 It is compulsory for a cooperative society to be registered under the
cooperative societies Act 1912
 At least 10 persons above the age of 18 years, having the capacity to enter
into a contract with common economic objectives, like farming, weaving,
production etc. are needed to form a cooperative society.
 Once the society gets registered it gets a legal entity.

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36 Features of Cooperative Society

 Voluntary membership
 Separate entity
 Limited liability
 Control of decisions in the hands of managing committee
 Service motive
Examples of Cooperative Societies:
Sri Mahila Griha Udyog Lijjat Papad, Amul ( The Gujarat Cooperative milk
marketing federation Ltd.), Indian farmers Fertiliers cooperative society Ltd.
(IFFCO), Telangana state fishermen cooperative society etc.

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 Advantages and Limitations
37
Advantages
 Equal voting rights
 Limited liability
 Stable existence
 Support from Government
 Ease of formation
Limitations
 Limited resources
 Inefficiency in management
 Lack of secrecy
 Government control
 Chances of Conflicts among members

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38 Types of Cooperative Societies

 Consumer Cooperative Societies

 Producers Cooperative Societies
 Marketing Cooperative Societies
 Farmers Cooperative societies
 Credit Cooperative Societies
 Cooperative Housing Societies

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 Hindu Undivided Family (HUF) Business
39
 It is a specific form of business organisation found only in India
 It refers to a form of business organisation wherein the business is owned
and carried out by the members of the Hindu undivided family. It is
governed by the Hindu law and is regulated by the Hindu succession Act
1956.
Features:
 A minimum of two members must be there in the family
 Existence of ancestral property
 The eldest male member of the family is known as Karta who has the
control and decision making power. His liability is unlimited
 All other members of the family are known as coparceners and have
limited liability
 When Karta dies, the next eldest male person will become Karta. There fore
there will be stability of business

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40 Dayabhaga and Mitakshara Systems

 Two systems of HUF prevail in India.

 Dayabhaga: Prevails in west Bengal and allows both male and female
members of the family to be coparceners
 Mitakshara: Prevails all Over India except West Bengal and allows only
male members to be coparceners in business

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41 Advantages and Limitations

Advantages:
 Limited Liability of members
 Effective control
 Stability of business
 Increased loyalty and cooperation among Karta and coparceners
Limitations
 Unlimited Liability of Karta
 Dominance of Karta
 Limited Resources
 Limited Managerial Skills

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42

Stakeholders in Business Organisations

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 Stakeholders in Business Organisation
43

 A stakeholder is a party that has an interest in a company and can either

affect or be affected by the business.
 Difference between stake holders and share holders:

Stakeholders Shareholders
Have an interest in the business Shareholders own the business
but may or may not own it.
May work for the company May sometimes work as
(Employees) or otherwise transact employees
with the business or may be simply
interested in the business
performance
May or may not benefit from the Benefits directly from increase in
increase in the value of the the value of the business
business
All stakeholders are not All shareholders are stakeholders
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shareholders
44 Types of Stakeholders

 Stakeholders can be classified into two categories:

 Internal stakeholders
 External stakeholders
Internal Stakeholders: individuals or groups that are part of the organisation
are known as internal stakeholders
Ex: Owners, Employees, Board of Directors, Managers
External Stakeholders: Individuals or groups that are not a part of the
organisation, but gets affected by its activities are known as external
stakeholders.
Ex: Suppliers, Customers, Creditors, Intermediaries, Competitors, Government
etc.

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45 Do stakeholders vary in different types
of Business Organisations
 Class Discussion

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46 Stakeholder Management

 Why stakeholders are important ?

 Steps in Stakeholder Management
 Stakeholders Identification
 Stakeholders Analysis
 Action Plan
 Implement the action
 Repeat and Improve

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47 Stakeholder Analysis
 Includes
 Classification of Stakeholders:
 They are external or internal, what kind of data the company has about the
stakeholder, does the company needs any additional information about
the stakeholders etc.
 Prioritisation of Stakeholders: the power interest grid will help us in
prioritisation of our stakeholders.

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48 Stakeholder Analysis

 Includes Power Interest Grid

 Classification of Stakeholders:
 They are external or internal, what
kind of data the company has
about the stakeholder, does the
company needs any additional
information about the
stakeholders etc.
 Prioritisation of Stakeholders: the
power interest grid will help us in
prioritisation of our stakeholders.

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 Political and Legal Factors Affecting Business
49
Political Factors:
 Governmental policies like monetary policy, fiscal policy etc.
 Stability of Government
Legal Factors:
 The various regulations and laws affecting business include
 Companies Act 2013
 Consumers Law
 Import/export law
 Work environment regulations
 Trade Union regulations
 Retirement Laws etc.

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