accounting economics and business 12 nov ii

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

ACCOUNTING, ECONOMICS & BUSINESS

AFTERSCHO☺OL – DEVELOPING CHANGE MAKERS

CENTRE FOR SOCIAL ENTREPRENEURSHIP -PGPSE PROGRAMME –

World’ Most Comprehensive programme in social entrepreneurship & spiritual entrepreneurship

OPEN FOR ALL FREE FOR ALL


ACCOUNTING, ECONOMICS & BUSINESS

Dr. T.K. Jain.

AFTERSCHO☺OLCentre for social entrepreneurship

Bikaner M: 9414430763

[email protected]

www.afterschool.tk, www.afterschoool.tk

http://www.afterschool.tk/

http://www.afterschoool.tk/


FINANCIAL ANALYSIS – PREPARE THE BALANCE SHEET

• You are given the following figures:• Current ratio 2.5 Liquid ratio 1.5• Net working capital Rs. 3,00,000• Fixed assets turnover ratio• (on cost of sales) 2 tImes• Average debt collection period 2 months• Stock turnover ratio• (cost of sales/closing stock) 6 times• Gross profit ratio 20%• Fixed assets/shareholders net worth 0.80• Reserve and surplus/capita! 0.50


SOLUTION

• LIABILITIES• Equity + reserve =

900000• (reserve is 300000 and

equity 600000) • Current liabilities 200000

• ASSETS • Current assets • Debtors 250000• Cash / bank 50000• Total Liquid assets 3

lakhs

• Inventory = 2 lakhs

• Total 500000• Fixed assets 600000• TOTAL = 11 LAKHS


Other information

• Cost of Sales = 6* inventory = 12 lakhs

• GP on cost of Sales 12 *25/100 = 3 lakh.

• (20% on sales, therefore we take 25% on cost of sales)

• Thus sales = 12+3 = 15 lakhs

• Cost of sales / Fixed assets = 2

• So fixed assets are 6 lakhs


Continued

• Avg. Debtors / Sales * 12 = 2

• Avg. Debtors = 2 * 1500000/12

• =2,50,000 • Fixed assets / net worth = .8

• 600000/Net worth = .8

• Net worth = 750000


State, explain and critically discuss the Cambridge version of Quantity

Theory of Money.

• Prices depend on quantity of money. If quantity of money increases, prices will increase and vice versa. There are two popular theories : Fisher and Cambridge

• Fisher = MV = PT

• M= money V = velocity of money

• P = prices T = volutme of items sold.


Solution ….

• Cambridge:

• P = KR / M

• P = prices• K = Proportion of money that people want

to keep with them

• R = Real resources

• M = quantity of money.


What are the factors which determine cash deposit ratio of a bank? What are the sources of cash reserves of the banking

system?

• It denotes the cash that banks have to keep with themselves. Suppose deposit is Rs. 100 and CD ratio is 20%, the banks have to keep Rs. 20 with them. Higher the CD ratio, less will be credit creation. CD ratio depends on inflation, liquidity, demand of money and monetary policy etc


How would you define money? What are alternative approaches

for doing so?

• Money is defined in terms of the functions that it performs. There are 4 functions that it performs. These are :

2. Medium of exchange

3. Store of value

4. Measure of value

5. Standard for deferred payments.


Continued…

• There are two basic approaches to defining money: 1. functional approach 2. liquidity approach

• Functional approach – define money in terms of functions that it performs (the main being medium of exchange).

• Liquidity approach - money is considered 100% liquid resources. Other assets are comparatively less liquid.


WHAT IS GRESHAM’S LAW?

• Bad currency will throw out good currency from circulation.


What are the functions of money?

• Store of value

• Exchange value

• Security • Measurement


Draw production possibility curve with the following information . .

• There are 2 goods – one from 0 to 5 and another from 30 to 0. if we increase production of first from 2 units to 4 units, what is the opportunity cost?

• It is 14 units of 2nd item.

01018242830

543210


There are two types of products, what is the opportunity cost of producing 10 units of first unit instead of 0 units?

• Answer 5 units of second unit.

• If we have 30 units of first and 45 units of second unit, would you go for it?

• Solution: No as we can get 30 + 75 so why should we go for 30+45. answer.

060

3050

5540

7530

9020

10010

1050


Solve the following?

• Sudha quit her job at a private company where she earned Rs. 2,90,000 a year. She withdrew Rs. 4,00,000 in a savings account that earned 10% interest annually to buy a second hand mini bus to commune passenger between Cannaught Place and Noida. There arc 1000 passengers who will pay Rs. 4000 a year each for commuter services; Rs. 2800 from each passenger goes for petrol, maintenance, depreciation etc.


Find opportunity cost of Sudha?

• The opportunity cost of Sudha is : Rs. 2,90,000 which she was getting in a company.


What is the accounting cost of Sudha?

• The cost is : • Interest : Rs. 40000• Plus petrol / diesel / other expenses • @ 2800 per pessenger (this is variable

expneses = as it depends on route etc.)• 2800*1000 = 28,00,000 answer. • Income = 4000*1000• =4000000 answer.


What is the economic cost of Sudha?

• Economic cost = opportunity cost + accounting cost

• = 290000 +2800000 answer.


What should a developing economy do ?

• It should initially promote heavy industries – because they can help in providing infrastructure, basic facilities, services etc. thus they will create a base for rapid industrialisation

• It should initially build infrastructure so that FDI flows in and industries are set up thus employment generation takes place.


In the previous PPC (production possibility curve) if production of

second unit is increased from 10 to 24, what is the opportunity cost?

• Two units of first units.


We make DahiBada and cost structure is as under?

106060

79050

54040

40030

30020

21010

1000

TCMCAFCAVCVCFCTCQty


If price of DahiBada is Rs. 14 each, what is the best output?

-220840106060

-9070079050

2056054040

2042040030

-20280 30020

-70140 21010

-1000 1000

ProfitTRTCMCAFCAVCVCFCTCQty


Solution

• The best output is at 30 unit and 40 unit level. We may explore further and the best out put may be at 35.


What is VC when 60 DahiBada are made?

• VC = TC – FC

• =1060 – 100

• =960


A contracts with B to buy jewellery made of pearls whereas in fact it IS

made of imitation pearls of no value. B knows that A is mistaken and takes no steps to correct the error. NOW A wants to cancel the

contract on the basis of fraud. what should he do?


Solution

• There is no proof that B had committed fraud. He didn’t give any false information. Let the buyer beware – and therefore it was the duty of A to inquire about the product.


what is AFC?

• Average fixed Cost

• = Total fixed cost / total number of units manufactured

• Suppose total fixed cost is Rs. 500, and we have made 200 units, the AFC is 2.5

• If suppose we make 500 units AFC will come down to only Re. 1.


If this is the cost schedule, what is the AFC & AVC when we make 6 units?


Solution

• Fixed cost = 240

• 240/6 = 40 per unit. (AFC)

• AVC = TotalVariable cost / Total no. of units

• Variable cost = TC – FC

• =690 – 240 = 450

• AVC = 450 / 6 = 75 per unit answer.


What will happen if utility obtained in first unit is 10, 2nd unit 7, 3rd unit

3, and 4th unit = -4. show total utility


In the previous question, how many units will the consumer

consume and what will be his total utility?

• The consumer will consumer 3 units and his total utility will be 20. (the consumer will not use fourth unit). Marginal utility will be 3 at that time.


When do you find marginal return diminishing?

6906

6105

5404

4803

4102

3301

2400

TCunits


Solution

806906

706105

605404

704803

804102

903301

2400

MCTCunits


Solution …

• As in the previous graph we can see that the marginal cost (MC) is reducing initially - but it starts increasing when we make 5th unit. Marginal returns decrease when MC starts increasing. Thus marginal returns start decreasing from 5th unit. Answer.


What do you understand by equilibrium of a firm? Explain your

answer.

• The firm is said to be in equilibrium when MR = MC. There are different market conditions like perfect market, monopoly or monopolistic competition, in each of these conditions the equilibrium is when MR = MC and MC curve cuts from below.


Example:EQUILIBRIUM OF THE FIRM


Clarify the statement that a firm is a price taker under perfect

competition but not so in monopoly or monopolistic competition. Give

reasons for youranswer.

• In perfect market, the prices are determined purely by industry and not by individual firm. The firm has no role in price decision. There are very large number of firms and no firm can alone influence price.


Illustration . .as we can see in the graph below : (there are different firms, each trying to match

industry..


Detailed explanation

• Perfect market is the market condition where the aggregate demand and aggregate supply decide the price. Purely the market forces work (all the goods are homogenous) and they determine price, which has to be followed by the firms.


Graph of perfect market.


Explain the concept of optimum output. Under what conditions is it

achieved by a firm ?

• Optimum output can be achieved in the long run. In short run the firm can only vary only one factor = labour. It cannot change the other factor of production. Thus in short run only one factor is variable.

• MC curve of the firm is also taken as supply curve for the firm.


Solution

• Optimum output is achieved when the firm is having MC = MR and has minimum cost of production. It is the condition when the firm is able to use its resources to the best. Conditions:

• MR = MC• The factors of production can be adjusted

to have the best utilisation of factors of production.


Graph


What will happen if prices increase and income of the people also

increase. Presently you are at 1.


Solution

• If price increase, demand should fall, however, income also increase therefore demand curve will again increase thus demand curve will remain constant. Supply curve will remain as it is (as there is no information about cost or supply). We will remain at 1.

• Answer.


Explain the determination of long term equilibrium of a firm under perfect competition. Show, inter

alia, that it will produce at the least possible average

cost of production.• In the long run, no firm is able to earn

super normal profit. The MR= AR and at this point MR = MC (equilibrium) and in long run MC = AC (at the point of equilibrium) – no firm earning profit / loss.


Graph…


A shopkeeper sells gel pen at Rs. 10 per pen. At this price he can sell 120 per month.

After some time, he raises the price to Rs. 15 per pen. Following the price rise:

• Only 60 pens were sold every month.• The number of refills bought went down from

200 to 150.• The number of ink pen customers bought

went up from 90 to 180 per month.

The Cross elasticity of monthly demand for refills when the price of gel pen increase from

Rs. 10 to Rs.15 is equal to:


Solution

• Change in demand / change in price

• Change in demand =

• = 50/200 *100 = 25%• Change in price = 5/10*100 = 50%

• Thus solution = 25/50 = - .5 answer.

• (it is always negative)


The cross elasticity of monthly demand for ink pen when the price of gel pen increases from Rs.10 to

Rs. 15 is equal to:

• Change in demand / change in price

• Change in demand = • = 90/90 *100 = 100%

• Change in price = 5/10*100 = 50%

• Thus solution = 100/50 = 2 answer.

• (it is always positive)


ABOUT AFTERSCHO☺OL

Afterschoool conducts three year integrated PGPSE (after class 12th along with IAS / CA / CS) and 18 month PGPSE (Post Graduate Programme in Social Entrepreneurship) along with preparation for CS / CFP / CFA /CMA / FRM. This course is also available online also. It also conducts workshops on social entrepreneurship in schools and colleges all over India – start social entrepreneurship club in your institution today with the help from afterschoool and help us in developing society.


Why such a programme?

• To promote people to take up entrepreneurship and help develop the society

• To enable people to take up franchising and other such options to start a business / social development project

• To enable people to take up social development as their mission

• To enable people to promote spirituality and positive thinking in the world


Who are our supporters?

• Afterschoolians, our past beneficiaries, entrepreneurs and social entrepreneurs are supporting us.

• You can also support us – not necessarily by money – but by being promotor of our concept and our ideas.


About AFTERSCHO☺OL PGPSE – the best programme for developing great

entrepreneurs• Most flexible, adaptive but rigorous programme• Available in distance learning mode• Case study focused- latest cases

• Industry oriented practical curriculum• Designed to make you entrepreneurs – not just

an employee• Option to take up part time job – so earn while

you learn • The only absolutely free course on internet


Workshops from AFTERSCHO☺OL

• IIF, Delhi• CIPS, Jaipur• ICSI Hyderabad Branch• Gyan Vihar, Jaipur• Apex Institute of Management, Jaipur• Aravali Institute of Management, Jodhpur• Xavier Institute of Management, Bhubaneshwar • Pacific Institute, Udaipur• Engineering College, Hyderabad


Flexible Specialisations:

• Spiritualising business and society• Rural development and transformation• HRD and Education, Social Development• NGO and voluntary work• Investment analysis,microfinance and inclusion • Retail sector, BPO, KPO• Accounting & Information system (with CA / CS /CMA)• Hospital management and Health care• Hospitality sector and culture and heritage• Other sectors of high growth, high technology and social

relevance


Salient features:• The only programme of its kind (in the whole world)• No publicity and low profile course• For those who want to achieve success in life – not just a

degree• Flexible – you may stay for a month and continue the rest of

the education by distance mode. / you may attend weekend classes

• Scholarships for those from poor economic background• Latest and constantly changing curriculum – keeping pace

with the time• Placement for those who are interested• Admissions open throughout the year • Latest and most advanced technologies, books and study

material


Components • Pedagogy curriculum and approach based on IIM Ahmedabad and ISB

Hyderabad (the founder is alumnus from IIMA & ISB Hyderabad)• Meditation, spiritualisation, and self development • EsGotitial softwares for business• Business plan, Research projects• Participation in conferences / seminars• Workshops on leadership, team building etc. • Written submissions of research projects/articles / papers• Interview of entrepreneurs, writing biographies of entrepreneurs• Editing of journals / newsletters• Consultancy / research projects • Assignments, communication skill workshops• Participation in conferences and seminars• Group discussions, mock interviews, self development diaryng • Mind Power Training & writing workshop (by Dr. T.K.Jain)


Pedagogy

• Case analysis,• Articles from Harvard Business Review • Quiz, seminars, workshops, games, • Visits to entrepreneurs and industrial visits• PreGotitations, Latest audio-visuals• Group discussions and group projects• Periodic self assessment• Mentoring and counselling• Study exchange programme (with institutions out of

India)• Rural development / Social welfare projects


Branches

• AFTERSCHO☺OL will shortly open its branches in important cities in India including Delhi, Kota, Mumbai, Gurgaon and other important cities. Afterschooolians will be responsible for managing and developing these branches – and for promoting social entrepreneurs.


Case Studies

• We want to write case studies on social entrepreneurs, first generation entrepreneurs, ethical entrepreneurs. Please help us in this process. Help us to be in touch with entrepreneurs, so that we may develop entrepreneurs.


Basic values at AFTERSCHO☺OL

• Share to learn more• Interact to develop yourself• Fear is your worst enemy• Make mistakes to learn • Study & discuss in a group• Criticism is the healthy route to mutual support

and help • Ask fundamental questions : why, when, how &

where?• Embrace change – and compete with yourself

only


www.afterschoool.tk social entrepreneurship for better

society

http://www.afterschoool.tk/

accounting economics and business 12 nov ii

Economy & Finance