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21st March 2015, 04:49 PM
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Re: Bcom solved assignment

Hello sir would you please provide me B.com solved assignment of Indira Gandhi National Open University??/
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21st March 2015, 05:13 PM
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Re: Bcom solved assignment

Hello friend as you want the B.com solved assignment of Indira Gandhi National Open University so here I am providing you the same please have a look…..

Indira Gandhi National Open University was established in the 1985, it is run by the central government of India, It offers distance education courses.

1. Briefly explain various sources from which companies may raise long term capital.(20)
Solution: The Long-Term Finance may be Raised by the Companies from the following Sources :==

Capital Market
Capital market denotes an arrangement whereby transactions involving the procurement and supply of long-term funds takes place among individuals and various organisations. In the capital market, the companies raise funds by issuing shares and debentures of different types. When long-term capital is initially raised by new companies or by existing companies by issuing additional shares or debentures, the transactions are said to take place in the market for new capital called, as 'New Issue Market'. But, buying and selling of shares and debentures already issued by companies takes place in another type of market called as 'the Stock market'.

Individuals and institutions which contribute to the share capital of the company become its shareholders. They are also known as members of the company. Before shares are issued, the directors of the company have to decide on the following matters:-

* The amount of capital which is to be raised by issue of shares.

* The types of shares which will be issued.

* The time of issuing shares.

When a company decides to issue additional shares at any time after its formation or after one year of the first allotment of shares, it is required under law that such shares must be first offered to the existing shareholders of the company. If the offer is declined by the existing shareholders, only then shares can be issued to the public. Such an issue is called 'rights issue' and these shares are known as 'right shares'. The Government controls the issue of shares and debentures under the Capital Issues (Control) Act, 1947.

Special Financial Institutions

A large number of financial institutions have been established in India for providing long-term financial assistance to industrial enterprises. There are many all-India institutions like Industrial Finance Corporation of India (IFCI); Industrial Credit and Investment Corporation of India (ICICI); Industrial Development Bank of India(IDBI) , etc. At the State level, there are State Financial Corporations (SFCs) and State Industrial Development Corporations (SIDCs). These national and state level institutions are known as 'Development Banks'. Besides the development banks, there are several other institutions called as 'Investment Companies' or 'Investment Trusts' which subscribe to the shares and debentures offered to the public by companies. These include the Life Insurance Corporation of India (LIC); General Insurance Corporation of India (GIC); Unit Trust of India (UTI) , etc.

Leasing Companies

Manufacturing companies can secure long-term funds from leasing companies. For this purpose a lease agreement is made whereby plant, machinery and fixed assets may be purchased by the leasing company and allowed to be used by the manufacturing concern for a specified period on payment of an annual rental. At the end of the period the manufacturing company may have the option of purchasing the asset at a reduced price. The lease rent includes an element of interest besides expenses and profits of the leasing company.

Foreign Sources

Funds can also be collected from foreign sources which usually consists of :-

* Foreign Collaborators :- If approved by the Government of India, the Indian companies may secure capital from abroad through the subscription of foreign collaborator to their share capital or by way of supply of technical knowledge, patents, drawings and designs of plants or supply of machinery.

* International Financial Institutions :- like World Bank and International Finance Corporation (IFC) provide long-term funds for the industrial development all over the world. The World Bank grants loans only to the Governments of member countries or private enterprises with guarantee of the concerned Government. IFC was set up to assist the private undertakings without the guarantee of the member countries. It also provides them risk capital.

* Non-Resident Indians :- persons of Indian origin and nationality living abroad are also permitted to subscribe to the shares and debentures issued by the companies in India.

Retained Profits or Reinvestment of Profits

An important source of long-term finance for ongoing profitable companies is the amount of profit which is accumulated as general reserve from year to year. To the extent profits are not distributed as dividend to the shareholders, the retained amount can be reinvested for expansion or diversification of business activities. Retained profit is an internal source of finance. Hence it does not involve any cost of floatation which has to be incurred to raise finance from external sources.

2. “Company form of organization is the most ideal form for all types of business.” Discuss.(20)
Solution: A company is a voluntary association of persons, recognized by law, having a distinctive name, a common seal, formed to carry on business for profit, with capital divisible into transferable shares, limited liability, a corporate body and perpetual succession. An analysis of this definition will bring out the distinctive characteristics of a company.

Creature of law:
A company is a creation of law, and is sometimes called artificial person. It exists only in contemplation of law and therefore has no physical shape or form. Although invisible and intangible, as a legal person, it enjoys almost all the rights of natural person. It has a right to enter into contracts and own property. It can sue and can be sued. The legal personality is one of its distinctive features.

Distinct legal entity:
Being a creature of law, a company is a legal entity, something distinct from the persons who are its members. A shareholder is not liable for the acts of the company, even though he holds almost all of the shares. Also the shareholders cannot bind the company by their acts. They are not its agents. As the company is an artificial creature of law, distinct and separate from its members, a shareholder can both own its share and be its creditor. The life of the company is independent of the lives of its members. Even if all the members die, the company does not come to an end because of their demise.

Limited liability of members:
The limited liability is another important feature of a company. A person, by buying shares in a company, acquires an interest in the company, and is at liberty to dispose of these shares whenever he likes. If anything goes wrong with the company, his liability is limited by the nominal amount of the shares held by him. In other words, while he stands to lose the money he has invested, he cannot be called upon to pay a paisa out of his private property in order to help meet the company’s obligations.

Perpetual Succession
The incorporation process brings into being a corporate body distinct and separate from the member who constitute it. The right given to shareholders to transfer their shares without in any manner affecting the position of the company gives the company continuity. As a natural consequence of incorporation and transferability of shares, the company has perpetual succession or interrupted existence. As we have noted above, the life of the company being independent of the lives of its member, its life expectancy is not limited to that of various founders. Members may come and members may go, but the company goes on uninterrupted (until, of course, wound up according to law). The law creates the company and the law brings it to an end.

Common Seal
The law requires every company to have a seal with its name engraved on it. As the company has no physical form, it cannot sign its name of a contract. Therefore, originally all documents and contracts required the affixing of the seal. But now most of the transactions are signed by the directors who act as its agents. When it is affixed on nay document, two directors must witness its affixation.

Divorce between Ownership and Management
The personality of the company is separate and distinct from those humans who compose it-the shareholders. Therefore, the shareholders cannot bind the company by their acts. Since the investors of capital are a heterogeneous group of people residing far and wide, they cannot manage the affairs of the company. They leave this task to their representatives-the Board of Directors. This characteristics of a company militates against the Golden Rule of Capitalism, which will be discussed later
The chief implication of the above analytical description of the company mat be summarized as follows:
1. It is a voluntary association
2. Of mutually agreeing persons, natural and legal;
3. It is an autonomous legal unit,
4. Distinct from its associating members
5. In name, in the duration of its life, and its liability to creditors;
6. It exists because the State has by statute enabled to exist.
In all respects company organizations differs radically from a partnership business.



3. Distinguish between the following:
(a) Primary market and Secondary market
Solution: The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Primary markets create long term instruments through which corporate entities borrow from capital market.
The secondary market, also called aftermarket, is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold. Another frequent usage of "secondary market" is to refer to loans which are sold by a mortgage bank to investors such as Fannie Mae and Freddie Mac. The term "secondary market" is also used to refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market (for example, corn has been traditionally used primarily for food production and feedstock, but a "second" or "third" market has developed for use in ethanol production).With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case of treasuries. After the initial issuance, investors can purchase from other investors in the secondary market.

The secondary market for a variety of assets can vary from loans to stocks, from fragmented to centralized, and from illiquid to very liquid. The major stock exchanges are the most visible example of liquid secondary markets - in this case, for stocks of publicly traded companies. Exchanges such as the New York Stock Exchange, Nasdaq and the American Stock Exchange provide a centralized, liquid secondary market for the investors who own stocks that trade on those exchanges. Most bonds and structured products trade “over the counter,” or by phoning the bond desk of one’s broker-dealer. Loans sometimes trade online using a Loan Exchange.



(b) Public limited company and Co-operative organization (2 ×10)
Solution: A public limited company (legally abbreviated to plc with or without full stops) is a limited liability company that sells shares to the public in United Kingdom company law, in the Republic of Ireland and Commonwealth jurisdictions. It can be either an unlisted or listed company on the stock exchanges. However, certain public limited companies (mostly nationalised concerns) incorporated under special legislation are exempted from bearing any of the identifying suffixes. Some companies in Finland, referred to as "Osakeyhtiö (julkinen)" in Finnish, are called "plc"s in English, which is nothing more but a direct translation of the fact that an "Oyj" is a company listed on the stock exchange

A cooperative (also co-operative or co-op) is a business organization owned and operated by a group of individuals for their mutual benefit.[1] A cooperative is defined by the International Cooperative Alliance's Statement on the Cooperative Identity as "an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through jointly owned and democratically controlled enterprise".[2] A cooperative may also be defined as a business owned and controlled equally by the people who use its services or by the people who work there. Various aspects regarding cooperative enterprise are the focus of study in the field of cooperative economics.



4. Write short notes on the following:
(a) Listing of a security on a stock exchange
Solution: A company, desirous of listing its securities on the Exchange, shall be required to file an application, in the prescribed form, with the Exchange before issue of Prospectus by the company, where the securities are issued by way of a prospectus or before issue of 'Offer for Sale', where the securities are issued by way of an offer for sale. The company shall be responsible to follow all the requirements specified in the Companies Act, the listing norms issued by SEBI from time to time and such other conditions, requirements and norms that may be in force from time to time and included hereafter in these Bye-laws and Regulations to make the security eligible to be listed and for continuous listing on the Exchange.
The Exchange may grant approval to the issuer for any security sought to be listed on the Exchange on completion of the listing conditions, requirements and norms by the issuer, as may be specified by the Exchange from time to time. Such security shall be called listed security.


(b) Entrepreneurship and characteristics of an entrepreneur(2 ×10)
Solution: Entrepreneurship is the act of being an entrepreneur, which can be defined as "one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods". This may result in new organizations or may be part of revitalizing mature organizations in response to a perceived opportunity.

Characteristics of an entrepreneur:

1. Discipline: Plenty of business experts claim that you can’t get anywhere as an entrepreneur without vision or creativity, but that’s simply not the truth. Instead, the one quality that no entrepreneur can be successful without is discipline. To build an idea into a business, you have to have the discipline to spend time slogging through the least fun parts of running a business (like the bookkeeping), rather than taking that time to do something fun. When you’re the boss, there’s no one to keep you at work except yourself — and there’s no short-term consequences for skipping out early. Sure, if an entrepreneur plays hooky enough he knows that the business just won’t happen, but it’s very hard to convince someone that ‘just this once’ won’t hurt (and to keep ‘just this once’ from becoming a daily occurrence).
2. Calm: Things go wrong when you run your own business. Most entrepreneurs go through crises with their businesses — and more than a few wind up with outright failures on their hands. But when you’re responsible for a business, you have to be able to keep calm in any situation. Any other reaction — whether you lose your temper or get flustered — compounds the problem. Instead, a good entrepreneur must have the ability to keep his cool in an emergency or crisis. It may not make the problem easier to solve, but it certainly won’t make it harder. If an entrepreneur can handle failure without frustration or anger, he can move past it to find success.
3. Attention to Detail: Restricting your attention to the big picture can be even more problematic than ‘sweating the small stuff.’ As an entrepreneur, unless venture capital has magically dropped out of the sky, a small expense can be a killer. It’s attention to detail that can make a small business successful when it has competition and it’s attention to detail that can keep costs down. Attention to detail can be difficult to maintain — going over ledgers can be tedious even when you aren’t trying to pay close attention — but keeping your eye on a long-term vision is just asking for a problem to sneak in under a radar. After a business grows, an entrepreneur might be able to hire someone to worry about the details. In the beginning, though, only one person can take responsibility for the details.
4. Risk Tolerance: No entrepreneur has a sure thing, no matter how much money he stands to earn on a given product. Even if a product tests well, the market can change, the warehouse can burn down and a whole slew of other misfortune can befall a small business. It’s absolutely risky to run a business of your own and while you can get some insurance, it’s not like most investment options. Even worse, if something does go wrong, it’s the entrepreneur’s responsibility — no matter the actual cause. In order to deal with all of that without developing an ulcer, you have to have a good tolerance for risk. You don’t need to channel your inner frat boy and take on absolutely stupid risks, but you need to know just how much you can afford to risk — and get a good idea of how likely you are to lose it. If the numbers make you uncomfortable, the risk is too great. An entrepreneur has to be willing to accept pretty big risks, with some level of comfort.
5. Balance: You can take any characteristic too far. There’s a point at which attention to detail can become obsession or calm can become unemotional response. As an entrepreneur, you have to be able to balance your characteristics, getting the most of them without going over the edge. But balance for an entrepreneur goes far beyond keeping your characteristics in check, though. Just as an entrepreneur doesn’t have a boss to keep him at work when necessary, he doesn’t have one to send him home when he’s done. If you are working for yourself, you have to decide how to balance your work and home life — and if you have a day job to add into the equation, balance just gets more complicated.



5. Comment very briefly on the following statements:
(a) There is no element of risk in business.
Solution: There is element of risk in business, following are types of risk occur in Business=

Strategic Risk
Strategic risks result directly from operating within a specific industry at a specific time. So shifts in consumer preferences or emerging technologies that make your product-line obsolete--eight-track, anyone--or other drastic market forces can put your company in danger. To counteract strategic risks, you’ll need to put measures in place to constantly solicit feedback so changes will be detected early.

Compliance Risk
Risks associated with compliance are those subject to legislative or bureaucratic rule and regulations, or those associated with best practices for investment purposes. These can include employee protection regulations like those imposed by the Occupational Safety and Health Administration (OSHA), or environmental concerns like those covered by the Environmental Protection Agency (EPA) or even state and local agencies.

Financial Risk
Direct financial risks have to do with how your business handles money. That is, which customers do you extend credit to and for how long? What is your debt load? Does most of your income come from one or two clients who might not be able to pay? Financial risks also take into account interest rates and if you do international business, foreign exchange rates.

Operational Risks
Operational risks result from internal failures. That is, your business’s internal processes, people or systems fail unexpectedly. Therefore, unlike a strategic risk or a financial risk, there is no return on operational risks. Operational risks can also result from unforeseen external events such as transportation systems breaking down, or a supplier failing to deliver goods.

Reputational Risk
Loss of a company’s reputation or community standing might result from product failures, lawsuits or negative publicity. Reputations take time to build but can be lost in a day. In this era of social networking, a negative Twitter posting by a customer can reduce earnings overnight. According to Matt McGee, a search engine optimization consultant, “One negative blog post or product review can spread online in a flash and change the direction of a company.”

Other Risks
Other risks are more difficult to categorize. They include risks from the environment, such as natural disasters. Difficulties in maintaining a trained staff that has up-to-date skills to operate your business is sometimes called employee risk management. Health and safety risks not covered by OSHA or state agencies fall into this category as do political and economic instability in countries you import from or export to.



(b) Loans are sanctioned for short term only.
Solution: Loans are sanctioned not only for short term but also for long term finance requirement:

Long-term bank loans are always supported by a company's collateral, usually in the form of the company's assets. The loan contracts usually contain restrictive covenants detailing what the company can and cannot do financially during the term of the loan. For example, the bank may specify that the company cannot take on more debt during the life of the long-term loan. Long-term loans are usually repaid by the company's cash flow over the life of the loan or by a certain percentage of profits that are set aside for this purpose.
The Purpose of Long-Term Loans

Businesses should generally follow the rule of tying the length of their financing to the life of the asset they are financing. So, if a business needs to make a major capital improvement, such as purchasing a piece of equipment for their manufacturing process that will last 10 years, a long-term business loan would be the appropriate type of financing. A short-term business loan would not be appropriate in this case.If a business needs to buy capital equipment, buildings, other businesses, or undertake construction projects, a long-term loan is the way to go.
Obtaining a Long-Term Business Loan

Long-term business loans are difficult for start-up businesses to obtain. Usually, only established businesses with some years of financial success are approved for long-term bank loans. The business has to produce their business plan and several years of historical financial statements in order to secure a long-term loan. In addition, it has to prepare forecasted financial statements to prove to it can repay the loan. Before a small business seeks a long-term loan, they should always compare the cost of the loan with the cost of leasing the asset they are looking to finance.
The interest rates on a long-term loan are usually a few points lower than the interest rates on a short-term loan in a normal economy. If you are aware of the prime rate of interest, you can add a few points to that and come up with something close to the interest rate the bank will charge on your loan. Those few points will reflect how risky they feel your company is. The riskier your company, the more points they will add to the prime rate of interest. In assessing the risk of your company, banks will look at the 5C's of creditworthiness of your company.


(c) There is no difference between the money market and capital market.
Solution: There is aot difference between the money market and capital market. Here it is :

The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Participants borrow and lend for short periods of time, typically up to thirteen months. Money market trades in short-term financial instruments commonly called "paper." This contrasts with the capital market for longer-term funding, which is supplied by bonds and equity. The core of the money market consists of interbank lending--banks borrowing and lending to each other using commercial paper, repurchase agreements and similar instruments. These instruments are often benchmarked to (i.e. priced by reference to) the London Interbank Offered Rate (LIBOR) for the appropriate term and currency. Finance companies, such as GMAC, typically fund themselves by issuing large amounts of asset-backed commercial paper (ABCP) which is secured by the pledge of eligible assets into an ABCP conduit. Examples of eligible assets include auto loans, credit card receivables, residential/commercial mortgage loans, mortgage-backed securities and similar financial assets. Certain large corporations with strong credit ratings, such as General Electric, issue commercial paper on their own credit. Other large corporations arrange for banks to issue commercial paper on their behalf via commercial paper lines.

A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year,[1][dead link] as the raising of short-term funds takes place on other markets (e.g., the money market). The capital market includes the stock market (equity securities) and the bond market (debt). Money markets and capital markets are parts of financial markets. Financial regulators, such as the UK's Financial Services Authority (FSA) or the U.S. Securities and Exchange Commission (SEC), oversee the capital markets in their designated jurisdictions to ensure that investors are protected against fraud, among other duties. Capital markets may be classified as primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors via a mechanism known as underwriting. In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere



(d) All the business risks are insurable.(4 ×5)
Solution: When you have a business, there are various risks involved that could result in the failure of your business. However, not all the risks can be insured.

Factors determining uninsurable risk

* A risk is uninsurable when an insurance company cannot calculate the probability of the risk and therefore cannot work out a premium that the business must pay. For example, you cannot take out insurance against possible failure of your business.
* Risk is too widespread, for example, when there is a war in the country.
* When the loss is incurred due to your own deliberate actions, it cannot be insured. If, for example, you have financial problems in your business and decide to set fire to your business in order to get a cash payout from insurance, this will be a void claim.
* You cannot insure a business for:
o price fluctuations from the time the order for goods is placed and the delivery of the goods
o different price levels at different places
o new inventions that replace old technology, eg. in the IT industry
o nuclear weapons or war
o changes in fashions when goods become obsolete


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