Tag: Corporate Governance

Management Notes

Debenture Definition, Types, Advantages and Disadvantages

indiafreenotesby indiafreenotes2

Debenture is a type of debt instrument that is unsecured by physical assets or collateral. Debentures are issued by companies to borrow money for a fixed term at a fixed interest rate. Debenture holders are not owners of the company but are creditors. The company promises to pay the debenture holder a fixed interest at predetermined intervals (typically annually or semi-annually) and return the principal on the maturity date.

Debentures can either be convertible or non-convertible, and they often have specific terms outlining the interest rate, payment schedule, and maturity date. If the company defaults on its payments, debenture holders may have legal recourse to recover their investment.

Types of Debentures:

  1. Convertible Debentures:

These debentures can be converted into equity shares after a specified period or at the discretion of the debenture holder. This type allows investors to gain potential equity ownership in the company.

  1. Non-Convertible Debentures (NCDs):

These debentures cannot be converted into equity shares. They remain purely a debt instrument throughout their tenure. NCDs typically offer higher interest rates since they don’t provide the opportunity to convert to equity.

  1. Secured Debentures:

Although most debentures are unsecured, some may be secured by the company’s assets. In the event of default, secured debenture holders have a claim on specific company assets.

  1. Unsecured Debentures:

These are not backed by any collateral, making them riskier for investors compared to secured debentures. Unsecured debentures rely entirely on the company’s creditworthiness.

  1. Redeemable Debentures:

These are debentures that the company agrees to repay after a specific period. They can be redeemed at the maturity date, ensuring that investors get back their principal.

  1. Irredeemable (Perpetual) Debentures:

These debentures do not have a fixed maturity date. The company is not obligated to repay the principal but must continue to pay interest to debenture holders indefinitely.

  1. Registered Debentures:

These are debentures issued in the name of the holder, meaning that the company keeps a register of the debenture holders. They can only be transferred by signing a transfer deed.

  1. Bearer Debentures:

These are not registered in the name of any specific holder and are transferable by mere delivery. The holder of the physical certificate is considered the owner of the debenture.

Advantages of Debentures:

  • Fixed Interest Payments:

Debenture holders are entitled to a fixed rate of interest, providing a regular and predictable income stream. This makes debentures an attractive investment for individuals seeking consistent returns.

  • Non-Dilutive Financing:

By issuing debentures, a company can raise capital without diluting the ownership structure. Shareholders do not lose any control over the company as they would with issuing additional equity shares.

  • Priority in Payments:

In the event of liquidation, debenture holders have a higher claim on the company’s assets compared to equity shareholders. They are paid before shareholders in case of insolvency, reducing the risk of total loss.

  • Tax Deductibility:

The interest paid on debentures is typically considered a business expense for the issuing company and is tax-deductible, reducing the company’s taxable income.

  • Flexibility:

Companies can choose different types of debentures (secured, unsecured, convertible, etc.) depending on their financial needs and the preferences of investors. This flexibility allows companies to structure debentures in a way that aligns with their financial strategies.

  • Cost-Effective:

Issuing debentures may be less expensive than issuing new equity shares or taking out a traditional bank loan. Interest rates on debentures may also be lower compared to the returns that would need to be offered to attract equity investors.

  • Convertible Options:

Convertible debentures give investors the option to convert their debentures into equity shares, offering them the potential to benefit from share price appreciation in the future, in addition to regular interest payments.

Disadvantages of Debentures:

  • Fixed Financial Obligation:

Debentures create a fixed financial liability for the company, as interest payments must be made regardless of the company’s profitability. If the company faces financial difficulties, it still has to meet these payment obligations, which can strain cash flow.

  • Risk of Default:

If a company is unable to meet its interest payments or repay the principal amount upon maturity, it defaults on the debenture. This can damage the company’s reputation and lead to legal proceedings initiated by the debenture holders.

  • Interest Rate Sensitivity:

Debenture holders receive a fixed interest rate, but market interest rates can fluctuate. If interest rates rise, debentures may become less attractive as other investment options offering higher returns become available.

  • No Voting Rights:

Debenture holders do not have any voting rights in the company, unlike equity shareholders. They cannot influence the company’s management or participate in key decision-making processes.

  • Inflation Risk:

Debentures provide fixed returns, which may be eroded by inflation over time. If inflation rises, the purchasing power of the fixed interest payments may decrease, making debentures less appealing to investors.

  • Callable Debentures:

Some debentures may be callable, meaning the company has the right to repay the debentures before their maturity date. This can be disadvantageous for investors if the debenture is called during a period of falling interest rates, as they may have to reinvest their funds at a lower rate.

  • Creditworthiness Risk:

The security of debentures depends largely on the issuing company’s financial health. If the company’s credit rating is downgraded or it experiences financial difficulties, the value of the debentures can decrease, making them riskier for investors.

Management Notes

One-man company

indiafreenotesby indiafreenotes0

Section 2(62) of Companies Act defines a one-person company as a company that has only one person as to its member. Furthermore, members of a company are nothing but subscribers to its memorandum of association, or its shareholders. So, an OPC is effectively a company that has only one shareholder as its member.

Such companies are generally created when there is only one founder/promoter for the business. Entrepreneurs whose businesses lie in early stages prefer to create OPCs instead of sole proprietorship business because of the several advantages that OPCs offer.

The Companies Act, 2013 completely revolutionized corporate laws in India by introducing several new concepts that did not exist previously. On such game-changer was the introduction of One Person Company concept. This led to the recognition of a completely new way of starting businesses that accorded flexibility which a company form of entity can offer, while also providing the protection of limited liability that sole proprietorship or partnerships lacked.

Several other countries had already recognized the ability of individuals forming a company before the enactment of the new Companies Act in 2013. These included the likes of China, Singapore, UK, Australia, and the USA.

Features of a One Person Company

  • Private company: Section 3(1)(c) of the Companies Act says that a single person can form a company for any lawful purpose. It further describes OPCs as private companies.
  • Single-member: OPCs can have only one member or shareholder, unlike other private companies.
  • Nominee: A unique feature of OPCs that separates it from other kinds of companies is that the sole member of the company has to mention a nominee while registering the company.
  • Company may be a One Person Company (OPC) which requires only one person as a subscriber to form a company and such a company will be treated under the Act as a private company.
  • A person, who registers one-person company, is not eligible to incorporate more than one one-person company
  • The memorandum of OPC must indicate the name of a person (other than the subscriber), with his prior written consent in the prescribed form, who will become a member of the OPC when the subscriber dies or is incapacitated to contract.
  • The nominee to the memorandum of one person company shall not be eligible to become a nominee for more than one such company.
  • No perpetual succession: Since there is only one member in an OPC, his death will result in the nominee choosing or rejecting to become its sole member. This does not happen in other companies as they follow the concept of perpetual succession.
  • Minimum one director: OPCs need to have minimum one person (the member) as director. They can have a maximum of 15 directors.
  • No minimum paid-up share capital: Companies Act, 2013 has not prescribed any amount as minimum paid-up capital for OPCs.
  • Special privileges: OPCs enjoy several privileges and exemptions under the Companies Act that other kinds of companies do not possess.

Privileges of One Person Companies

  • They do not have to hold annual general meetings.
  • A company secretary is not required to sign annual returns; directors can also do so.
  • Provisions relating to independent directors do not apply to them.
  • Their financial statements need not include cash flow statements.
  • Their articles can provide for additional grounds for vacation of a director’s office.
  • Several provisions relating to meetings and quorum do not apply to them.
  • They can pay more remuneration to directors than compared to other companies.

Membership in One Person Companies

Only natural persons who are Indian citizens and residents are eligible to form a one-person company in India. The same condition applies to nominees of OPCs. Further, such a natural person cannot be a member or nominee of more than one OPC at any point in time.

It is important to note that only natural persons can become members of OPCs. This does not happen in the case of companies wherein companies themselves can own shares and be members. Further, the law prohibits minors from being members or nominees of OPCs.

Formation of One Person Companies

A single person can form an OPC by subscribing his name to the memorandum of association and fulfilling other requirements prescribed by the Companies Act, 2013. Such memorandum must state details of a nominee who shall become the company’s sole member in case the original member dies or becomes incapable of entering into contractual relations.

This memorandum and the nominee’s consent to his nomination should be filed to the Registrar of Companies along with an application of registration. Such nominee can withdraw his name at any point in time by submission of requisite applications to the Registrar. His nomination can also later be canceled by the member.

Advantages

  • Compliance Burden:

The One-person Company includes in the definition of “Private Limited Company” given under section 2(68) of the Companies Act, 2013. Thus, an OPC will be required to comply with provisions applicable to private companies. However, OPCs have been provided with a number of exemptions and therefore have lesser compliance related burden.

  • Organized Sector of Proprietorship Company:

OPC will bring the unorganized sector of proprietorship into the organized version of a private limited company. Various small and medium enterprises, doing business as sole proprietors, might enter into the corporate domain. The organized version of OPC will open the avenues for more favorable banking facilities. Proprietors always have unlimited liability. If such a proprietor does business through an OPC, then liability of the member is limited.

Minimum Requirements:

  • Minimum 1 Shareholder
  • Minimum 1 Director
  • The director and shareholder can be same person
  • Minimum 1 Nominee
  • No Need of any Minimum Share Capital
  • Letters ‘OPC’ to be suffixed with the name of OPCs to distinguish it from other companies

Limited Liability Protection to Directors and Shareholder:

  • The most significant reason for shareholders to incorporate the ‘single-person company’ is certainly the desire for the limited liability.
  • All unfortunate events in business are not always under an entrepreneur’s control; hence it is important to secure the personal assets of the owner, if the business lands up in crises
  • While doing business as a proprietorship firm, the personal assets of the proprietor can be at risk in the event of failure, but this is not the case for a One Person Private Limited Company, as the shareholder liability is limited to his shareholding. This means any loss or debts which is purely of business nature will not impact, personal savings or wealth of an entrepreneur.
  • If the business is unable to pay its liabilities, the individual has to pay such liabilities off in the case of sole proprietorship; and the individual is not responsible for such liabilities in the case of a one-person company.
  • An OPC gives the advantage of limited liability to entrepreneurs whereby the liability of the member will be limited to the unpaid subscription money. This benefit is not available in case of a sole proprietorship.

Legal Status and Social Recognition For Your Business

One Person Company is a Private Limited Structure; this is the most popular business structure in the world. Gives suppliers and customers a sense of confidence in business. Large organizations prefer to deal with private limited companies instead of proprietorship firms. Pvt. Ltd. business structure enjoys corporate status in society which helps the entrepreneur to attract quality workforce and helps to retain them by giving corporate designations, like directorship. These designations cannot be used by proprietorship firms.

Adequate Safeguards:

In case of death/disability of the sole person should be provided through appointment of another individual as nominee director. On the demise of the original director, the nominee director will manage the affairs of the company till the date of transmission of shares to legal heirs of the demised member.

Easy to Get Loan from Banks

Banking and financial institutions prefer to lend money to the company rather than proprietary firms. In most of the situations Banks insist the entrepreneurs to convert their firm into a Private Limited company before sanctioning funds. So, it is better to register your startup as a One Person private limited rather than proprietary firm.

Perpetual Succession:

An OPC being an incorporated entity will also have the feature of perpetual succession and will make it easier for entrepreneurs to raise capital for business. The OPC is an artificial entity distinct from its owner. Creditors should therefore be warned that their claims against the business cannot be pressed against the owner.

Tax Flexibility and Savings

In an OPC, it is possible for a company to make a valid contract with its shareholder or directors. This means as a director you can receive remuneration, as a lessor you can receive rent, as a creditor you can lend money to your own company and earn interest. Directors’ remuneration, rent and interest are deductible expenses which reduces the profitability of the Company and ultimately brings down taxable income of your business.

Ownership limitations:

As per Rule 2.1 (1) of the Draft Rules under Companies Act, 2013 only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company.

Thus, the person incorporating the OPC must be a natural person implying that it cannot be formed by a juristic person or an artificial person e.g. any type of company incorporated under Companies Act 2013.  This restricts the ownership of only individuals and not corporations.

This provision also discourages foreign direct investment by disallowing foreign companies and multinational companies to incorporate their subsidiaries in India as a One Person Company. Hence, an OPC will have to change their legal status to a private limited company to bring in investors. Foreigners and NRIs are allowed to invest in a Private Limited Company under the Automatic Approval route where 100% FDI is available in most sectors.

Restrictions on conversion

An OPC cannot be incorporated under Section 8 (Formation of companies with charitable objects etc) of Companies Act 2013. An OPC is also not allowed to carry out Non-Banking Financial Investment activities. This includes investing in securities of any body corporate.

An OPC can only convert into either a private or public company once the following conditions are met:

  1. The OPC must have been in existence for a minimum of two years; or
  2. It must have a paid up share capital which has increased beyond Rs. 50,00,000/- (rupees fifty lakh); or
  3. Its average turnover must have exceeded Rs. 2,00,00,000/- (rupees two crore).

Such restrictions stifle an entrepreneur’s desire for diversity and expansion.

ESOPs

Since an OPC can have only one shareholder, there can be no sweat equity shares or ESOPs to incentivize employees. ESOPs can only be implemented if OPC converts into a private or public limited company. A private or public limited company can easily expand by an increase of authorized capital and further allotment of shares to even third parties.

Hence, a private company is a preferable option for start-ups who want to encourage their employees by way of stock options.

Management Notes

Fundamentals of Management and Life Skills

indiafreenotesby indiafreenotes3

Unit 1 Management {Book}
Introduction, Meaning, Definitions, Characteristics, Importance and Scope of Management VIEW
Management as a Science, as an Art and as a Profession VIEW
Meaning and Definitions of Administration VIEW
Differences between Management and Administration VIEW
Unit 2 Principles and Functions of Management {Book}
Principles of Management VIEW
Management Nature and Importance VIEW
FW Taylor’s Scientific Management VIEW
Henry Fayol’s 14 Principles of Management VIEW
Management of objectives (MBO): Meaning, Definitions, Need, Benefits and Limitations VIEW
Management of Exception (MBE): Meaning, Definitions, Need, Benefits and Limitations VIEW
Management functions: Meaning, Definitions, Characteristics VIEW
Benefits & Limitations of Planning VIEW
Benefits & Limitations of Organizing VIEW
Benefits & Limitations of Staffing VIEW
Benefits & Limitations of Directing VIEW
Benefits & Limitations of Co-ordinating VIEW
Benefits & Limitations of Reporting VIEW
Benefits & Limitations of Controlling VIEW
Unit 3 Leadership and Motivation {Book}
Leadership Meaning, Definition, Characteristics VIEW
Role and Qualities of a Good Leader VIEW
Leadership Styles: Autocratic, Democratic, Free-rein, New age leadership styles-servant leadership, Level-5 leadership, Transformation leadership, Transactional leadership, Negotiation leadership, Moral leadership, Women leadership and Global business leadership style VIEW
Motivation Nature, importance VIEW
Theories of Motivation:
Maslow’s Need Hierarchy Theory VIEW
McGregor’s Theory X and Theory Y VIEW
Herzberg’s Two Factory Theory VIEW
Unit 4 Communication Skills {Book}
Meaning and Definitions of Communication VIEW VIEW
Types of Communication: Formal Communication & Informal Communication VIEW VIEW
Modes of Communication:
Verbal Communication VIEW
Non-Verbal Communication (Body Language, Gestures and Facial Expressions) VIEW
Etiquette and mannerism in Personal and Business meetings VIEW
E-communication: Video and virtual Conferencing VIEW
Written Communication VIEW
Email Writing VIEW
Characteristics Effective Communication VIEW
Importance of Effective Communication VIEW
Barriers to Effective Communication and Measures to Overcome Barriers VIEW
Measures to Overcome Barriers to Effective Communication VIEW
Effective Communication Skills: Active Listening, Speaking, Observing, Empathizing VIEW VIEW
Tips for Improving Communication Skills VIEW
Unit 5 Life Skills, Personality and Attitude {Book}
Life Skills Meaning, Definitions VIEW
Elements of life skills: Behavior, Attitude, Mannerism, Manners, Etiquette, Ethos, Morality, Determination commitment, Courageousness, Perseverance VIEW
Personality-Meaning, Definition, Characteristics VIEW
Personality Determinants VIEW
Personality Types VIEW
Sources of Personality VIEW
Difference between Trait and Personality VIEW VIEW
Attitude: Meaning, Definition, Components VIEW
Characteristics/Functions of Attitude VIEW
Factors influencing attitude VIEW
Types of Attitude VIEW

Management Notes

Corporate Directors, CEOs, Expatriates and Executives

indiafreenotesby indiafreenotes0

One of the major issues that gained attention after the 2007 and 2009 financial crisis due to Wall Street movement was the unduly high compensation being paid to executives of financial institutions even when the corporations were in a state of collapse. This movement against the executive remuneration gained momentum throughout the world. In U.S and many other countries there was a lot of hue and cry about excessive compensation being paid to top executives. Even though in India the situation regarding excessive executive remuneration has not reached alarming levels yet this issue needs to be taken seriously at this stage itself. If not given proper attention then it is not long enough when this problem would be quite glaring in India too.

Many recent corporate frauds such as Satyam fraud, Kingfisher’s fraud and many others have brought into light the dark side of Indian corporate governance practices. In almost all these frauds the executives were drawing a huge salary from the company at the expense of other stakeholders of the company be it shareholders or creditors etc.They used tricks to defraud the investors as well as creditors. Thus, this issue needs adequate attention else it would lead to more such frauds.

Various studies on remuneration schemes of executives in Indian Companies have reflected majorly 3 issues:

  1. The remuneration is not strictly based on performance. The highest paid executives are usually not from the best performing companies and many a times even when the value of shares is declining constantly there is no major effect on the remuneration of top executives.
  2. There is a huge gap in the compensation level of executives and median employees. The supports for high remuneration state that this is due to the dearth of talent at the top level but even then such a glaring difference in the basic pay as well as in the % increase in pay as compared to median employees is not justified.
  3. Also, the studies have found that the promoter CEOs are paid much more in comparison to Non promoter CEOs.

In this paper I would basically study the reasons behind the above findings and would majorly focus on efficiency of current regime in curbing the same and also the role of other interested entities which can serve as a control mechanism on executive remuneration.

For this purpose firstly, analyze the context of executive remuneration and the issues associated with it wherein will focus on agency problem and also the role of ownership structure in enhancing the problem. Then would annalyse the efficacy of checks provided by the current regime on Executive remuneration i.e. Shareholders say on pay, Remuneration committee and linking Remuneration to performance. Lastly, examine the role of Institutional investors as a control mechanism against executive remuneration.

Meaning of Remuneration

Remuneration has been described in section 2(78) of the Companies Act 2013.As per this definition any payment in the form of money or its equivalent would be counted as remuneration. Perquisites would also be included in determining total remuneration. Perquisites in this case are those as defined under the Income tax Act, 1961.

Remuneration can be paid in various forms like cash, medical benefits, retirement benefits, share options, shares, sitting fee and perks and allowances like contribution to provident fund, rent free accommodation, travelling expenses, car etc. It is usually a combination of various forms. Certain perquisites and compensations are explicitly exempted from being counted as a part of remuneration

Role of Executive Remuneration

The role of executive remuneration is to attract and retain top talent at executive position and incentivize them in the way that they work for the benefit of the company while furthering the objective of the company and increasing the value of the firm.

Interplay Between Fixed and Variable Component

The role of fixed component is to fulfill the immediate needs of the employees. All types of companies are open to certain sector specific risks and fixed component reduces the effect of this risk by assuring certain determined amount of income.

On the other hand, variable component can be used to align the interest of executives to the interest of company. For example, if the executives are provided with certain number of shares as a part of remuneration then better performance would lead to increase in the share value of the company and would also increase executive’s compensation.

If the executives receive just fixed remuneration with no variable component then instead of working as incentive, it would actually dilute its effect and if the compensation would include only variable component then this would also frustrate the employee.

Thus, there must be combination of fixed as well as variable component wherein the fixed component work as an incentive to work and the variable component makes sure that the work is done in the interest of the company. Also, it is necessary that there must be interaction between various forms of compensation and the remuneration scheme must be arranged in a way that it is incentive based.

Management Notes

Capital Gain (Section. 45, 48, 49, 50 and 54)

indiafreenotesby indiafreenotes1

The income from capital gains is not an income which accrues or arises from day-to-day during a specific period but it arises at fixed point of time, namely, on the date of the transfer of a capital asset. Specifically, the income from capital gains is the amount by which the sale price of a capital asset, net of any expense incurred in connection with the sale of the asset, exceeds the acquisition cost of the capital asset. The taxation of capital gains is justified by the taxation policy and law on the premise that capital gains increases the ‘ability to pay’ capacity of the person receiving such a gain.

The provisions related to taxation of capital gains were first introduced in 1947 and then in 1956 and then said section 12B in Income tax Act, 1922 was retained as such in the relevant provisions in Income tax Act, 1961.

Charging sections – Sections 45, 46 and 46A

The charging section explains the subject matter of taxation. Thus, there is one charging section for each head of income for salaries, income from house property, business income and income from other sources. However, for capital gains, there are three independent and separate charging sections:

(i) Section 45: Capital gains

(ii) Section 46: Capital gains on distribution of assets by companies in liquidation

(iii) Section 46A: Capital gains on purchase by company of its own shares or other securities

Section 45 is the general provision while sections 46 and 46A are special provisions.

Incomes to be taxed under the head, ‘Capital Gains’

Thus, the following incomes are taxable as ‘capital gains’:

Sr. No. Particulars Section
(1) Any profits and gains arising from the transfer of a capital asset effected in the previous year. Section 45(1) to (5)
(2) Any profits and gains arising from the receipt of any money or other assets under an insurance from an insurer on account of damage to, or destruction of, any capital asset, as a result of (i) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature; or (ii) riot or civil disturbance; or (iii) accidental fire or explosion; or (iv) action taken by an enemy or in combating an enemy. 45(1A)
(3) Capital gains in respect of any money or other assets received by shareholder of a company from the company on its liquidation 46(2)
(d) Difference between (i) value of consideration received by shareholder or holder of specified securities from company on buyback of its own shares or other specified securities; and (ii) cost of acquisition 46A

The situs/location of capital asset matters only for non-resident assessees and not to others. In the cases of Non-resident assessees, if capital asset located outside India is transferred outside India and sale proceeds are received outside India, no taxability to capital gains arises in view of section 5 of the Act. Such assessees will be liable to be taxed under section 9(1) (i) in respect of capital gains accruing or arising “through the transfer of any capital asset situate in India”.

Important Definitions in capital gains

Sr. No. Term Definition Exceptions and remarks
1 Capital Asset A capital asset means property of any kind held by an assessee, whether or not connected with his business or profession

Any securities held by an FII

 Assets Listed:

(a) jewellery;

(b) archaeological collections;

(c) drawings;

(d) paintings;

(e) sculptures; or

(f) any work of art

(g) Land other than agricultural land

(h) Rights in a company
2 Exclusions:

(i) any stock in trade

(ii) movable assets for personal use

(iii) agricultural land in India

(iv) Gold bonds issued by GoI

(v) Special bearer bonds

(vi) Gold Deposit Bonds
2 Agricultural land Land not situated within municipal jurisdiction or Cantt. Board and having population of more than 10000

Within 2 kms of municipal limits of jurisdiction with a population 10000>100000 and 6 kms for jurisdiction with population 100000>1000000 and 8kms for population >1000000

 This amendment is applicable from A Y 2014-15 and the distance from municipal limits has to be measured aerially and not on the ground.
3 Transfer Sale, exchange or relinquishment of the asset

Extinguishment of rights in the asset

Compulsory acquisition under the law

Conversion of asset into stock in trade

Maturity or redemption of a zero coupon bond

Part performance of a contract

Enjoyment of a property through acquisition of shares
Indexed Cost of acquisition an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later; From A Y 2018-19, the year 1981 shall be replaced by 2000
Indexed Cost of any improvement An amount which bears to the cost of improvement the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asset took place
Cost Inflation Index Such Index as the Central Government may, having regard to seventy-five per cent of average rise in the (Consumer Price Index (urban)) for the immediately preceding previous year to such previous year, by notification in the Official Gazette, specify, in this behalf

Meaning of Transfer [Section 2(47)]

“Transfer”, in relation to a capital asset, includes:

(i) Sale, exchange or relinquishment of the asset;

(ii) Extinguishment of any rights in relation to a capital asset;

(iii) Compulsory acquisition of an asset;

(iv) Conversion of capital asset into stock-in-trade;

(v) Maturity or redemption of a zero coupon bond;

(vi) Allowing possession of immovable properties to the buyer in part performance of the contract;

(vii) Any transaction which has the effect of transferring an (or enabling the enjoyment of) immovable property; or

(viii) Disposing of or parting with an asset or any interest therein or creating any interest in any asset in any manner whatsoever.

Transactions which are not regarded as transfer [Section 47]

Following transactions shall not be regarded as transfer (subject to certain condition). Hence, following transaction shall not be charged to capital gains:

Section Particulars
46(1) Distribution of asset in kind by a company to its shareholders at the time of liquidation
47(i) Distribution of capital asset on total or partial partition of HUF
47(iii) Transfer of capital asset under a gift or will or an irrevocable trust
47(iv) Transfer of capital asset by a company to its wholly owned subsidiary company
47(v) Transfer of a capital asset by a wholly owned subsidiary company to its holding company
47(vi) Transfer of capital assets in a scheme of amalgamation
47(via) Transfer of shares in an Indian company held by a foreign company to another foreign company under a scheme of amalgamation of the two foreign companies
47(viab) Transfer of share of a foreign company (which derives, directly or indirectly, its value substantially from the share or shares of an Indian company) held by a foreign company to another foreign company under a scheme of amalgamation (subject to conditions)
47(viaa) Transfer of capital assets in a scheme of amalgamation of a banking company with a banking institution
47(vib) Transfer of capital assets by the demerged company to the resulting company in a demerger
47(vic) Transfer of shares held in an Indian company by a demerged foreign company to the resulting foreign company
47(vica) Any transfer of a capital asset by the predecessor co-operative bank to the successor co-operative bank in a business reorganization.
47(vicb) Any transfer of capital asset (being shares) held by a shareholder in the predecessor co-operative bank if the transfer is made in consideration of the allotment to him of any shares in the successor co-operative bank in a scheme of business reorganization
47(vicc) Transfer of share of a foreign company (which derives, directly or indirectly, its value substantially from the share or shares of an Indian company) held by a demerged foreign company to resulting foreign company in case of demerger (subject to conditions)
47(vid) Transfer or issue of shares by the resulting company to the shareholders of the demerged company in a scheme of demerger
47(vii) Allotment of shares in amalgamated company in lieu of shares held in amalgamating company
47(viia) Transfer of capital assets (being foreign currency convertible bonds or GDR) by a non-resident to another non-resident
47(viiaa) Any transfer made outside India, of a capital asset (being rupee denominated bond of an Indian company issued outside India) by a non-resident to another non-resident
47(viiab) Any transfer of following capital assets by a non-resident on a recognised stock exchange located in any International Financial Services Centre:

a) Bond or GDR

b) Rupee Denominated Bond of an Indian Co.

c) Derivative

d) Such other Securities as may be prescribed.
47(viib) Transfer of capital assets (being a Government security carrying periodic payment of interest) outside India through an intermediary dealing in settlement of securities by a non-resident to another non- resident
47(viic) Redemption of capital asset being sovereign gold bond issued by RBI under the Sovereign Gold Bond Scheme, 2015
47(ix) Transfer of a capital asset (being work of art, manuscript, painting, etc.) to Government, University, National museum, etc.
47(x) Transfer by way of conversion of bonds or debentures into shares
47(xa) Transfer by way of conversion of bonds [as referred to in section 115AC(1)(a)] into shares or debentures of any company
47(xb) Any transfer by way of conversion of preference shares into equity shares
47(xi) Transfer by way of exchange of a capital asset being membership of a recognized stock exchange for shares of a company
47(xii) Transfer of land by a sick industrial company which is managed by its workers’ co-operative
47(xiii) Transfer of a capital asset by a firm to a company in the case of conversion of firm into company
47(xiiia) Transfer of a capital asset being a membership right held by a member of a recognized stock exchange in India
47(xiiib) Transfer of a capital asset by a private company or unlisted public company to an LLP, or any transfer of shares held in the company by a shareholder, in the case of conversion of company into LLP
47(xiv) Transfer of a capital asset to a company in the case of conversion of proprietary concern into a company
47(xv) Transfer involved in a scheme of lending of securities
47(xvi) Transfer of a capital asset in a transaction of reverse mortgage made under a scheme notified by the Government
47(xvii) Transfer of a capital asset (being share of a special purpose vehicle) to a business trust in exchange of units allotted by that trust to the transferor
47(xviii) Transfer of units of a mutual fund pursuant to consolidation of two or more schemes of equity oriented mutual fund or of two or more schemes of a mutual fund other than equity oriented mutual fund
47(xix) Transfer of units of a mutual fund from one plan to another pursuant to consolidation of plans within scheme of mutual funds.

Full Value of Consideration

Full value of consideration is the consideration received or receivable by the transferor in lieu of assets, which he has transferred. Such consideration may be received in cash or in kind. If it is received in kind, then fair market value (‘FMV’) of such assets shall be taken as full value of consideration.

However, in the following cases “full value of the consideration” shall be determined on notional basis as per the relevant provisions of the Income-tax Act, 1961:

S. No. Nature of transaction Section Full Value of Consideration
1. Money or other asset received under any insurance from an insurer due to damage or destruction of a capital asset 45(1A) Value of money or the FMV of the asset (on the date of receipt)
2. Conversion of capital asset into stock-in-trade 45(2) FMV of the capital asset on the date of conversion
3. Transfer of capital asset by a partner or member to firm or AOP/BOI, as the case may be, as his capital contribution 45(3) Amount recorded in the books of accounts of the firm or AOP/BOI as the value of the capital asset received as capital contribution
4. Distribution of capital asset by Firm or AOP/BOI to its partners or members, as the case may be, on its dissolution 45(4) FMV of such asset on the date of transfer
5. Money or other assets received by share- holders at the time of liquidation of the company 46(2) Total money plus FMV of assets received on the date of distribution less amount assessed as deemed dividend under section 2(22)(c)
6. Buy-back of shares and other specified securities by a company 46A Consideration paid by company on buyback of shares or other securities would be deemed as full value of consideration. The difference between the cost of acquisition and buy-back price (full value of consideration) would be taxed as capital gain in the hands of the shareholder.

However, in case of buy-back of shares by a domestic company (whether listed* or unlisted), the company shall be liable to pay additional tax at the rate of 20% under section 115QA on the distributed income (i.e., buy-back price as reduced by the amount received by the company for issue of such shares). Consequently, capital gain arising in hands of shareholder shall be exempt by virtue of section 10(34A) in such cases.
*With effect from 05/07/2019, section 115QA has been amended to levy additional tax on buy back of shares by listed companies as well. Consequently, section 10(34A) has also been amended to exempt income arising in hands of shareholder on account of buy back of shares by listed companies. x
7. Shares, debentures, warrants (‘securities’) allotted by an employer to an employee under notified Employees Stock Option Scheme and such securities are gifted by the concerned employee to any person Fourth Proviso to Section 48 Fair Market value of securities at the time of gift
7A. Conversion of capital asset into stock-in-trade 49 FMV of the inventory as on the date of conversion
8. In case of transfer of land or building, if sale consideration declared in the conveyance deed is less than the stamp duty value 50C The value adopted or assessed or assessable by the Stamp Valuation Authority shall be deemed to be the full value of consideration. However, no such adjustment is required to be made if value adopted for stamp duty purposes does not exceed 110% of the sale consideration.

Note: Where the date of agreement (fixing the amount of consideration) and the date of registration for the transfer of property are not the same, the value adopted or assessed or assessable by Stamp Valuation Authority on the date of agreement may be taken as full value of consideration.
8A. Where consideration for transfer of unquoted shares is less than the Fair Market Value 50CA The Fair Market Value (so determined in prescribed manner) shall be deemed to be the full value of consideration

Note: The Board may prescribe transactions undertaken by certain class of persons to which the provisions of Section 50CA shall not be applicable. (w.e.f. Assessment Year 2020-21)
9. If consideration received or accruing as a result of transfer of a capital asset is not ascertainable or cannot be determined 50D FMV of asset on the date of transfer

Cost of Acquisition

Cost of acquisition of an asset is the amount for which it was originally acquired by the assessee. It includes expenses of capital nature incurred in connection with such purchase or for completing the title of the property.

However, in cases given below, cost of acquisition shall be computed on notional basis:

S. No. Particulars Notional Cost of Acquisition
1. Additional compensation in the case of compulsory acquisition of capital assets Nil
2. Assets received by a shareholder on liquidation of the company FMV of such asset on the date of distribution of assets to the shareholders
3. Stock or shares becomes property of taxpayer on consolidation, conversion, etc. Cost of acquisition of such stock or shares from which such asset is derived
4. Allotment of shares in an amalgamated Indian co. to the shareholders of amalgamating co. in a scheme of amalgamation Cost of acquisition of shares in the amalgamating co.
5. Conversion of debentures into shares That part of the cost of debentures in relation to which such asset is acquired by the assessee
5A. Conversion of preference shares into equity shares The part of the cost of preference shares in relation to which such asset is acquired by the assessee.
6. Allotment of shares/securities by a co. to its employees under ESOP Scheme approved by the Central Government a) If shares are allotted during 1999-2000 or on or after April 1, 2009, FMV of securities on the date of exercise of option

b) If shares are allotted before April 1, 2007 (not being during 1999-2000), the amount actually paid to acquire the securities

c) If shares are allotted on or after April 1, 2007 but before April 1, 2009, FMV of securities on the date of vesting of option (purchase price paid to the employer or FBT paid to employer shall not be considered)
6A. Listed Equity Shares or Units of Equity Oriented Funds or Units of Business Trust as referred to in Section 112A acquired before February 1, 2018. Higher of :

(i) Cost of acquisition of such asset; and

(ii) Lower of:

(A) The fair market value of such asset; and

(B) The full value of consideration received or accruing as a result of transfer of such asset.

Note: For meaning of ‘Fair market Value’ refer Explanation to Section 55(2)(ac).
7. Property covered by section 56(2)(vii) or (viia) or (x) The value which has been considered for the purpose of Section 56(2)(vii) or (viia) or (x)
8. Allotment of shares in Indian resulting company to the existing shareholders of the demerger company in a scheme of demerger Cost of acquisition of shares in demerged company ? Net book value of assets transferred in demerger ? Net worth of the demerged company immediately before demerger
9. Cost of acquisition of original shares in demerged company after demerger Cost of acquisition of such shares minus amount calculated above in point 8.
10. Cost of acquisition of assets acquired by successor LLP from predecessor private company or unlisted public company at the time of conversion of the company into LLP in compliance with conditions of Section 47(xiiib) Cost of acquisition of the assets to the predecessor private company or unlisted public company
11. Cost of acquisition of rights of a partner in a LLP which became the property of the taxpayer due to conversion of a private company or unlisted public company into the LLP Cost of acquisition of the shares in the co. immediately before conversion
12. Depreciable assets covered under Section 50 Opening WDV of block of assets on the first day of the previous year plus actual cost of assets acquired during the year which fall within the same block of assets
13. Depreciable assets of a power generating unit as covered under Section 50A* WDV of the asset minus terminal depreciation plus balancing charge
14. Undertaking/division acquired by way of slump sale as covered under Section 50B Net worth of such undertaking
15. New asset acquired for claiming exemptions under sections 54,  54B, 54D, 54G or 54GA if it is transferred within three years Actual cost of acquisition  minus exemption claimed under these sections
16. Goodwill of business or trade mark or brand name associated with business or right to manufacture, produce or process any article or thing or right to carry on any business or profession, tenancy right, stage permits or loom hours a) If these assets were acquired by gift, will, etc., under section 49(1) and the previous owner had purchased these assets: Cost of acquisition to the previous owner

b) If the owner has purchased these assets: Actual cost of acquisition

c) If these assets are self-generated: Nil
17. Right shares Amount actually paid by assessee
18. Right to subscribe to shares (i.e., right entitlement) Nil
19. Bonus shares a) If allotted to the assessee before April 1, 1981: Fair market value on that date

b) In any other case: Nil
20. Allotment of equity shares and right to trade in stock exchange, allotted to members of stock exchange under a scheme of demutualization or corporatization of stock exchanges as approved by SEBI a) Cost of acquisition of shares: Cost of acquisition of original membership of the stock exchange

b) Cost of acquisition of trading or clearing rights of the stock exchange: Nil
21. Capital asset, being a unit of business trust, acquired in consideration of transfer as referred to in section 47(xvii) Cost of acquisition of shares as referred to in section 47(xvii) [applicable from AY 2015-16]
Units allotted to an assessee pursuant to consolidation of two or more scheme of a mutual fund as referred to in Section 47(xviii) Cost of acquisition of such units shall be the cost of acquisition of units in the consolidating scheme of the mutual fund
Shares in a company acquired by the non-resident assessee on redemption of Global Depository Receipts referred to in Section 115AC(1)(b) Cost of acquisition of such shares shall be calculated on the basis of the price prevailing on any recognized stock exchange on the date on which a request for such redemption was made.
24. Any other capital asset: a) If it became property of taxpayer before April 1, 2001 by gift, will, etc., in modes specified in section 49(1): Cost of acquisition to the previous owner or FMV as on April 1, 2001, whichever is higher.

Note: The FMV on 1st April, 2001 shall not exceed the stamp duty value of such asset as on 1st April, 2001 where such stamp duty value is available. (this amendment will be applicable w.e.f. AY 2021-22)

b) If it became property of taxpayer before April 1, 2001 : Cost of acquisition or FMV as on April 1, 2001, whichever is more

Note: The FMV on 1st April, 2001 shall not exceed the stamp duty value of such asset as on 1st April, 2001 where such stamp duty value is available. (this amendment will be applicable w.e.f. AY 2021-22)

c) If it became property of taxpayer after April 1, 2001 by gift, will, etc., in modes specified in section 49(1): Cost of acquisition to the previous owner

d) If it became property of taxpayer after April 1, 2001 : Actual cost of acquisition

* Terminal Depreciation/Balancing Charge:

  1. a) Balancing Charge = Sales Consideration – WDV of the depreciable asset
  2. b) Terminal Depreciation = WDV – Sales Consideration
Management Notes

Methods of Supervision and Control of Sales Force

indiafreenotesby indiafreenotes0

Control

The last but not the least significant phase is control of sales force operations. In any sphere of activity, supervision and control of salesmen is essential with a view to achieve the maximum success. The sales operations are to be materialized as per plans laid down, followed by scientific control of efforts and resources. A plan is necessary when you construct a building. In the same way, in business also a chalked out plan is a sine-qua-non and the plan to be under a successful control is essential.

What is control? It simply means a check, a means of controlling or testing. Control involves such functions as checking, verifying, standard selling, and directing or guiding. One may say, “Control means watching results and translating them into positive action.” Control is a process to establish the standard of performance measuring the work done. Through control salesman’s performance can be appraised.

All the organisations must have the operation of control, as a tool, for their progress and successful working. It is an act of checking or verifying the performance as per the plans. “Control consists in verifying whether everything occurs in conformity with the plans adopted, the instructions issued and the principles established. Its objective is to point out weaknesses and errors in order to rectify them and prevent their recurrence. It operates on every thing-things, people and actions.”

Is Control Necessary?

The manager exercises the control over the activities of salesmen through supervision. The planned sales operations are to be carried out systematically in order to get success over the aimed result.

Salesmen are human beings; the need for supervision arises because of:

  • Salesmen may be working independently and may be at a longer distance from the sales manager. There may arise a problem of co-ordination, of salesmen’s effort with the other sales efforts i.e., publicity, sales promotions etc. To ensure co-ordination, control is a must.
  • The sales effected by each salesman should be known to the sales manager, who compares the actuals with the targets, to find negative variation, which should be rectified by corrective actions. There may be mistakes in the approach of a salesman, laziness in activities etc.,. These must be traced out and the salesman guided in order to channelize his efforts into desired path.
  • Efforts of the salesman have to be directed to maximize profits to firm in the light of progressive ideas and techniques to ensure the proper utilization of men and materials.
  • “Of all the assets customers are the most valuable.” To build a sound public relation, complaints of different types of customers are to be redressed. Thereby, it is possible to build a good image in the minds of the public. The salesman is guided by the sales manager, who tries to satisfy the customers through salesmen.

Prerequisites of Control

  • The sales manager should know what exactly he expects a salesman to do. (through fixing the sales quota).
  • Salesman should be given an idea of what he is expected to do. (through training).
  • Sales manager should know that the salesman is doing exactly what he is expected to do. (through reports).
  • Salesman should be made to know that the sales manager knows what he does, (through personal talk and reports).
  • Salesman should know that the sales manager appreciates what he does, (through reports).

Elements Involved in Control

The following steps are involved in the process of control:

  1. Analysis of Performance

All controls involve the setting of a standard and the measurement of performance against their standard. The performances are analysed and compared with reference to the objectives, budgets and standards. This will reveal the variances between the performance and the standard.

  1. Analysis of Variance

After finding out the variance, the first question is whether this variance is significant. If the variance is significant, the next question is usually, “What went wrong with the performance?” and possibly a better question will be “What is wrong with the standard?” Effective sales control should reveal poor execution of sales policies or indicate when sales policies need changing.

Sales Control may not, however, disclose the reasons for poor execution. For instance, poor execution may be due to ignorance of sales policies, inability to perform the tasks, resentment, discontent etc. The significant variances are considered carefully to enable the authority to take corrective steps.

  1. Measures to Deal with Unfavorable Variance

The function of control is to identify the weakness and errors in the sales efforts. Reasons and causes are found out and their remedial measures are formulated in order to correct the weakness and errors in a speedy manner. These enable the sales manager to guide the individual salesman when necessary. All these are done in order to improve the sales programme performance.

Methods of Control

Control is essential in order to secure optimum performance from salesmen. Sales managers effect controls, by common methods, through personal contacts, correspondence and report.

  1. Personal Contact

Personal contacts are more effective than other methods. Sales manager himself or through branch managers or field supervisors, exercises controls over the salesmen. Salesmen can be assisted and inspired, and corrective steps can be taken.

  1. Correspondence

This method is commonly accepted and is economical. Through correspondence, instructions are passed on to the salesmen and replies received from the salesmen. The salesmen are supervised or controlled through letters.

  1. Report

They are not in the form of letters. Printed report forms are used by the salesmen to make reports to the sales manager. In certain cases, the report may be oral.

Bases of Control

The control of salesman is based on:

  • Reports and Records
  • Sales Territories and Sales Quotas
  • Determination of salesman’s authority
  • Field Supervision and
  • Remuneration Plans.

Importance of Supervision and Control in a Sales Organization

In an organization, the success of planning largely depends on the efficient supervision and control of the sales force. It is an important aspect of the management of the sales force.

In fact, the activities of the salesmen have to be supervised and controlled to ensure that the job is done properly and efforts are being made towards the achievement of the sales objectives. Supervision and control of salesmen is essential for the sales organization to achieve maximum success.

An organization may have a talented and efficient sales force with adequate training and the compensation plan may be attractive, but unless the activities of the sales force are properly supervised and controlled, it is hardly possible for the organization to achieve the sales targets.

Therefore, an effective method of supervision, direction and control of the sales force is extremely important in order to secure the most productive and economical performance from them. The establishment of sales territories and sales quotas are the specific control devices by which the sales manager exercises control on the salesmen.

Control is the process of trying to achieve conformity between goals and actions. Controlling is an act of checking and verifying an act to know whether everything is taking place in accordance with the predetermined plan. In other words, control covers the direction and guidance towards securing desired objectives.

To M.C. Niles, ‘controlling is maintaining of a balance in activities directed towards a goal or a set of goals.’ Therefore, control consists of the steps taken to ensure that the performance of the organisation conforms to the plans. The process of control consists of a few steps, namely

  • Establishing standards or measures for performance,
  • Measuring and recording of actual performance
  • Comparing actual with the planned measures to find out the deviations
  • Taking corrective measures, if needed. Thus, control is one of the important ingredients for the success of the sales department.

Reports and Records

Report

Every sales manager needs accurate and up-to-date information, on the basis of which he formulates policies for future business. Formulation of policies may not be practical in the absence of information. For the growing needs of the organization, expanding the professions, widening activities of the business etc., it has become essential to look for the information.

A report is a presentation of facts on the basis of activities. Salesmen’s reports-daily, weekly, monthly, provide valuable information relating to the salesmen’s activities for a sales organization. Salesmen, who are the primary source of information, being the eyes and ears of the selling firms, are asked to send reports periodically.

Advantages of Reports

  • Salesman’s report is a good guide and indicator for building future plan-a barometer.
  • Competitors’ attitude can be known.
  • Sales manager does not waste time in formulating the policies for future, because of the brevity in reports.
  • Salesmen takes little time in writing the reports.
  • The report is a good form of control as it reveals the weakness and strong points of the salesmen.
  • The changes in demand and attitude of the consumers can be known.
  • It is a tool by which the activities of the salesmen can be sharpened.
  • Sales manager is able to divert his attention to the situation warranted on the basis of importance.
  • Salesman himself develops the habit of self-activity analysis.
  • The two-way communication assures employee morale.

Sales Territories and Sales Quotas

Sales manager must try to know the sales field well in advance, before the production starts. He must know the area of demand for the products and for this he should know the habits and economic position of the customers; and the type of demand and quality of products usually in demand. In short, a detailed study of consumers is important. The sources of information are year books, census reports, publications, professional organisations etc.

Sales Territory

Almost all the firms divide their markets, after the sales field is located into different territories. Sales territory is a particular grouping of customers and prospects assigned to a salesman. A sales territory is a geographical area which contains present and potential customers, who can be served effectively and economically by a single salesman.

Its aim is to facilitate management’s task in matching sales efforts with the sales opportunities. An efficient salesman can successfully discharge his duties and responsibilities if the territory allotted to him is of workable and suitable size. A good sales planning is based on sales territory, rather than taking the whole market area.

That is, the market of a firm’s product is divided into small segments or territories or areas, so that each territory can be allotted to each salesman.

When allotting perfect sales territories, which have been planned carefully, the following objectives are aimed for the reasons thereof:

  • Sales effort can be fruited more effectively in the assigned territory.
  • It is possible to have increased market coverage, not losing the orders to competitors. He meets the competition wisely as it is pre-planned, because he knows the local condition.
  • It prevents the duplication or overlapping sales efforts.
  • Headquarters of each sales territory can be located in a place, where greater number of customers are located.
  • Work load for each salesman can equitably be distributed, in terms of sales volume.

Sales Quota

Apart from the allocation of sales territories, salesmen are further controlled by fixing sales quota. Almost all the companies use quota system of defining and evaluating the task expected of the salesmen. Sales quota may be defined as the estimated volume of sales that a company expects to secure within a definite period of time.

Quota is the amount of business, in terms of value or in terms of units of sales, which is fixed for every salesman. It may be fixed for a geographical area to be achieved within a definite period of time, a month or a year. Shorter the period, the better it is. It is a target or a standard of performance that the salesman has to attain. The quota is fixed on the basis of sales forecast. For an effective control, smaller area and shorter period are preferred.

A sales quota, to be effective, practical and successful, should satisfy the following:

  • Sales quota must be attainable and fair.
  • It must be scientifically calculated. It should not be too small or too big.
  • It must provide definite incentive to salesman.
  • It must be flexible.
  • It must be simple and must be fixed in consultation with the salesman.

Sales quota brings the following benefits

  • The sales quota can be used as yardstick to assess the performance of the salesmen.
  • It is a measuring rod with which the sales operations are directed and controlled to more profitable channels.
  • It is possible and easier to locate strong markets and weak markets.
  • It is a device to adopt more effective compensation plans.
  • It fixes the responsibility on each salesman and so they work hard to attain the goal. The salesmen never allow the sales to fall below the quota.
  • It facilitates sales contests and is a base.

Weaknesses

  • In many cases the sales quota is fixed arbitrarily.
  • If situations are changed, the quota fixed may become ineffective.
  • If the quota is too small, the salesman will relax and if the quota fixed is too large or unattainable, the salesman loses initiative.
  • It is difficult to set an accurate quota.

Bases Necessary for Fixing Quota:

  • Purchasing power of the prospects.
  • Past sales figures compared by analysis.
  • Demand trend for the products.
  • Position and degree of competition prevailing.

At the end of the quota period, it is a must to measure the effectiveness of quota by comparing the performance of salesman, in relation to the quota. To keep salesmen’s effort on the right path, quotas can be used as a control mechanism. Departure of sales activities from the projected quota is a main problem to the sales management. If sales volume is not satisfactory, the fault may lie with quota plans. Quota, as a diagnostic aid, cautions the authority to take corrective steps and especially, when the sales volume takes a negative departure from the past sales.

In all fairness, quota should be aimed at equitable distribution. It should be equal for all salesmen. Should all the salesmen have the same quotas? The answer depends upon the territories, which are not the same in respect of competition, extent, customers etc. the ability of the salesman is also different. The ‘better’ salesman with ‘better’ territory exceeds the quota and ‘poor’ salesman with ‘poor’ territory fails to achieve even the quota. By considering all these, fairness of the quote decision takes place.

Types of Quotas

  • Sales volume, in value or units by product line, consumer type etc.
  • Salesmen activity, such as calls, new accounts, demonstrations, display arranged etc.
  • Expenses quota, either in value or percentage of sales obtained.
  • Gross Margin from sales obtained etc.

Quota can be used as a management tool, if it is set scientifically.

Salesmen’s Authority

If the sales manager goes for doing all the works of a firm, it is very difficult to conduct the business Moreover, he lacks time. Therefore, the job is divided and entrusted to the salesmen. When the authority is passed on to the salesmen, there is transfer of power to the salesmen i.e., delegation of power. Delegation is the required authority to the salesmen to discharge their assigned job.

When one is delegated the authority, it means permission is given to do the duties. When authority is conferred on salesmen, they know their responsibilities. Customers may not be willing to deal with a salesman having no authority.

There are no hard and fast rules as to how much authority be given to a salesman. In modern time, the degree of authority is reduced. The authority and freedom of salesmen varies from firm to firm. To what extent the authority is given to a salesman depends upon the size and nature of the firm.

Since the salesmen are representing the firm and deal with customers, who have no direct contact with the firm, the salesmen’s authority be well-defined. Generally, catalogue, price lists advertisements etc., reveal the prices, guarantees, quality and other details of the products. And the salesmen are being relieved of these botherations.

However, salesmen may be conferred with certain measure of authority in dealing with the matters, such as special concessions, discount rates, granting credit, settlement of claims, settlement of damages, defective, unsalable items etc. But it is important that salesmen are watched in their acts which must be in accordance with the instructions by the sales manager and their activities are subject to the approval of the sales manager.

Field Supervision

Performance of a function or service by an individual is called duty; activities that an individual is required to perform are a duty on him. Authority is a right or power required to perform a job on the basis of duty assigned to one. An authorized person is empowered to do the assigned job Responsibility must always be followed by corresponding authority or power. Authority and responsibility move in opposite directions.

Authority always moves from the top downward, whereas responsibility moves upwards. Authority is derived from sales manager to whom the salesmen are responsible for proper performance of their activities. The individual responsibility and freedom of the sales personnel vary from firm to firm. A good degree of control is essential over the activities of the salesmen.

Generally the sales manager or any senior sales personnel or field supervisor; are appointed to check the activities of the salesmen so as to:

  • Know whether the salesman is doing his job in best way
  • Find out deficiencies if any
  • Make suggestions for further improvement
  • Check the procedure of orders taking
  • Evaluate the performance of salesman
  • Provide spot motivation to salesman
  • Secure maximum coverage of the market

Control aims at appraisal of salesman’s performance. It must be done periodically and on continuing basis as to determine the compliance of policies and attainment of targeted quota in respect of job. Supervision and control are different. Supervision aims at direction for working and control includes supervision and evaluation of past performance.

Routing and Scheduling

Time must be used wisely while a salesman travels in his respective territorial area. Salesman will be encouraged to get maximum sales by reducing the wastage of time. Routing and scheduling is one of the techniques of controlling a salesman’s day to day activities. A planned routing of the salesman will facilitate easy communication, maximum territorial coverage and thereby reduce the waste time.

Management has a closer control. A clear tour plan is there and reveals route, location of customers, transport facilities, maps etc. The planned routes and schedules are to be followed by the salesman. The reports sent by the salesman can be compared with the planned routes and schedules and this reveals the deviations.

Management Notes

Functional Strategies, Features, Importance, Challenges

indiafreenotesby indiafreenotes1

Functional Strategies refer to the specific tactics and actions developed by various departments within an organization to support overarching business strategies and objectives. Each functional area—such as marketing, finance, human resources, operations, and information technology—crafts its strategy to optimize performance and contribute to the company’s goals. These strategies are tailored to the unique capabilities, processes, and needs of each function and are crucial for the efficient allocation of resources, coordination of activities, and achievement of competitive advantage. Effective functional strategies ensure that each department aligns with the broader strategic vision of the organization, creating synergy and improving overall operational effectiveness to maximize business success and sustainability.

Features of Functional Strategies:

  • Specificity:

Functional strategies are detailed and tailored to address the unique challenges and opportunities within a specific department such as marketing, finance, operations, or human resources.

  • Alignment:

They are designed to align with the overall corporate strategy, ensuring that each functional area contributes effectively to the overarching goals of the organization.

  • Resource Allocation:

Functional strategies involve specific plans for allocating resources within a department to maximize efficiency and effectiveness in achieving set objectives.

  • Goal-Oriented:

These strategies are goal-oriented, focused on achieving specific outcomes that contribute to the success of the entire organization.

  • Measurability:

They include measurable targets and key performance indicators (KPIs) that help assess the performance of each functional area and its impact on the organization’s success.

  • Adaptability:

Functional strategies are flexible, allowing departments to adapt to changes in the external environment, including market conditions, technology, and regulatory changes.

  • Integration:

Effective functional strategies are integrated with each other, ensuring that the activities of different departments are coordinated and mutually supportive, avoiding silos within the organization.

  • Competitive Advantage:

They are often designed to leverage the strengths and core competencies of a functional area to provide a competitive advantage, such as innovation in product development or excellence in customer service.

Importance of Functional Strategies:

  • Enhanced Coordination:

Functional strategies help coordinate activities within individual departments and ensure that these activities are aligned with the broader strategic goals of the organization, leading to more cohesive and effective operations.

  • Resource Optimization:

They facilitate the optimal use of resources within each department, ensuring that resources such as time, money, and personnel are utilized efficiently and effectively to achieve specific functional goals.

  • Goal Achievement:

Functional strategies are essential for translating high-level organizational goals into actionable plans within each department, which helps in achieving specific and measurable outcomes that contribute to the overall success of the business.

  • Improves Accountability:

By setting specific objectives for each department, functional strategies improve accountability by making it easier to track performance and hold individual departments responsible for their results.

  • Increases Adaptability:

They allow departments to quickly adapt to changes in the market or industry by having strategies that are tailored to the specific dynamics and challenges faced by each functional area.

  • Supports Innovation:

Functional strategies can foster innovation by encouraging departments to develop creative solutions and improvements within their specific areas of expertise, thus contributing to competitive advantage.

  • Enhances Communication:

Clear functional strategies improve communication within and across departments by defining clear roles, responsibilities, and expectations, which helps in reducing conflicts and enhancing synergy.

  • Drives Competitive Advantage:

By maximizing the efficiency and effectiveness of each department, functional strategies contribute to building and sustaining a competitive advantage. For example, a cutting-edge marketing strategy can help capture greater market share, while an innovative R&D strategy can lead to the development of unique products.

Challenges of Functional Strategies:

  • Alignment with Corporate Strategy:

One of the primary challenges is ensuring that functional strategies align well with the overall corporate strategy. Misalignment can lead to efforts that do not support or even contradict other organizational goals.

  • Resource Constraints:

Functional areas often compete for limited resources, such as budget, personnel, and technology. Balancing these resources effectively across various departments can be challenging and may impact the effectiveness of functional strategies.

  • Interdepartmental Coordination:

Ensuring coordination and cooperation among different functional areas can be difficult. Lack of coordination can lead to silos that hinder information sharing and collaborative problem-solving.

  • Adaptability to Change:

External changes such as market dynamics, economic conditions, and technological advancements require functional strategies to be flexible. Adapting strategies in response to these changes can be challenging, particularly in larger, less agile organizations.

  • Measuring Performance:

Developing clear, measurable KPIs that accurately reflect the performance of functional strategies can be complex. Without precise metrics, assessing effectiveness and making informed decisions becomes problematic.

  • Skill Gaps:

Effective implementation of functional strategies often requires specific skills and expertise. Skill gaps within teams can lead to suboptimal execution of these strategies.

  • Cultural Fit:

Functional strategies must fit within the organizational culture to be effective. Strategies that clash with the established culture may face resistance, reducing their effectiveness or leading to failure.

  • Innovation Constraints:

While functional strategies aim to optimize current operations, they can sometimes constrain innovation by focusing too heavily on refining existing processes and products. Balancing operational excellence with innovation is a significant challenge.

Management Notes

Strategy Evaluation and Strategy Control

indiafreenotesby indiafreenotes1

Strategy Evaluation is a crucial phase in the strategic management process where the effectiveness of a strategic plan is assessed. This involves systematically analyzing the performance of implemented strategies to determine their success in achieving organizational goals. The evaluation process includes monitoring ongoing performance, comparing actual outcomes against predefined objectives, and identifying deviations. It also entails assessing the relevance of the current strategy in the face of evolving external and internal conditions. Strategy evaluation helps organizations to understand whether strategic choices are delivering the desired results, and it provides the basis for necessary adjustments. Effective strategy evaluation ensures that an organization remains aligned with its objectives and can adapt to changing circumstances, thereby maintaining competitiveness and sustainability.

Nature of Strategy evaluation:

  • Continuous Process:

Strategy evaluation is not a one-time activity but a continuous process that occurs throughout the implementation of a strategy. It requires regular monitoring and assessment to ensure that strategies are responsive to changes in the internal and external environment.

  • Multidimensional:

The evaluation involves assessing multiple dimensions of performance, including financial results, market share, customer satisfaction, and internal operational efficiency. This comprehensive approach helps in understanding the overall impact of the strategy.

  • Objective and Systematic:

Effective strategy evaluation must be objective, relying on measurable data to assess performance. It should be systematically integrated into the strategic management process, with clear criteria and methodologies for assessment to avoid biases and ensure consistency.

  • Forward-Looking:

While it often reviews past and current performance, strategy evaluation is also forward-looking. It involves forecasting and scenario planning to anticipate future challenges and opportunities, allowing organizations to proactively adjust their strategies.

  • Adaptive:

Strategy evaluation must be adaptive, offering the flexibility to modify strategies as needed. This adaptiveness is crucial in today’s fast-paced business environments where internal and external factors can change rapidly.

  • Integrated with Decision-Making:

The insights gained from strategy evaluation should directly influence decision-making processes. This integration ensures that strategic adjustments are informed by concrete evaluation data, leading to better-aligned and more effective strategic moves.

Importance of Strategy evaluation:

  • Performance Assessment:

Strategy evaluation allows organizations to assess whether strategic initiatives are meeting their intended goals. It provides metrics and feedback on the effectiveness of strategies in real time, helping managers understand where they are succeeding and where improvements are needed.

  • Adaptability:

In today’s fast-changing business environment, the ability to adapt strategies based on performance and changing conditions is crucial. Strategy evaluation provides the data necessary to make informed decisions that can pivot or redirect resources as needed.

  • Resource Allocation:

Effective strategy evaluation helps ensure that resources are being used efficiently. By regularly assessing the outcomes of strategy implementation, organizations can optimize the use of their resources, reallocating them from underperforming areas to those with greater potential.

  • Risk Management:

It helps in identifying risk factors in strategies and their implementation. Early detection of potential risks allows organizations to take corrective actions proactively, thereby mitigating losses and leveraging opportunities more effectively.

  • Alignment with Objectives:

Regular evaluation helps maintain alignment between the strategy and the organization’s long-term objectives. It ensures that all strategic activities contribute towards the overarching goals, and adjustments can be made to keep efforts on track.

  • Feedback Loop:

Strategy evaluation establishes a critical feedback loop for continuous improvement. Feedback from the evaluation phase is essential for refining strategies, enhancing processes, and improving outcomes over time.

  • Organizational Learning:

It facilitates organizational learning by documenting successes and failures. This learning contributes to better strategic planning in the future as insights are gathered on what works and what doesn’t.

  • Stakeholder Confidence:

Regular and transparent evaluation processes improve credibility and stakeholder confidence. Investors, management, and other stakeholders are more likely to support an organization that actively evaluates and adapts its strategies based on solid data.

Strategy Control

Strategy Control is the systematic process used by organizations to monitor and regulate the implementation of their strategies to ensure that strategic objectives are being met effectively and efficiently. It involves the ongoing assessment of performance against established goals and the external environment to identify any deviations or operational setbacks. Strategy control allows for corrective actions to be taken when performance does not align with expectations. This control process is essential for adapting strategies in response to changes in market conditions, competitive dynamics, or internal organizational shifts. By providing a mechanism for continuous feedback and adjustment, strategy control ensures that an organization remains on track towards achieving its strategic goals, thus enhancing overall strategic management and organizational resilience.

Nature of Strategy Control:

  • Integrative:

Strategy control integrates with all levels of strategic planning and implementation. It connects long-term objectives with operational activities and aligns them to ensure that every action contributes toward achieving strategic goals.

  • Dynamic:

It is dynamic and adapts to changes in the internal and external environments. As market conditions, competitive landscapes, and organizational capacities evolve, strategy control mechanisms help managers adjust their strategies in real-time to stay relevant and effective.

  • Continuous Process:

Strategy control is not episodic; it is a continuous process that happens throughout the lifecycle of a strategy. It involves regular monitoring and revising of strategies to ensure that they are effective under current circumstances.

  • Preventive and Corrective:

It serves both preventive and corrective functions. Preventive controls are designed to anticipate and mitigate potential deviations before they occur, while corrective controls are implemented to adjust strategies after deviations have been identified.

  • Feedback-Oriented:

Central to strategy control is the use of feedback. This feedback, derived from various performance metrics, allows organizations to evaluate their progress against set benchmarks and make necessary adjustments.

  • Decision Supportive:

Strategy control provides essential information that supports strategic decision-making. By assessing performance and identifying trends and anomalies, it guides leaders in making informed decisions about future strategic directions or necessary adjustments to current strategies.

Importance of Strategy Control:

  • Ensures Alignment with Objectives:

Strategy control is crucial for ensuring that all actions and initiatives within the organization remain aligned with the strategic objectives. It helps in monitoring whether the activities at different levels of the organization contribute towards the overall goals.

  • Adaptability to Environmental Changes:

The business environment is dynamic, with frequent changes in market conditions, competition, regulations, and technology. Strategy control allows organizations to respond to these changes promptly by adjusting strategies in a timely manner to maintain competitiveness and relevance.

  • Optimizes Resource Utilization:

Effective strategy control helps in ensuring that resources are not wasted on non-productive or less effective activities. It aids in optimizing the allocation and use of resources (financial, human, and operational) to enhance efficiency and effectiveness.

  • Mitigates Risks:

By continuously monitoring progress and performance, strategy control helps identify potential risks and issues before they become significant problems. This proactive approach allows organizations to implement corrective measures early, thereby reducing potential losses and taking advantage of emerging opportunities.

  • Facilitates Decision Making:

Strategy control provides management with critical feedback based on performance data. This feedback is integral for making informed decisions regarding the continuation, modification, or termination of strategies based on their effectiveness and efficiency.

  • Improves Organizational Learning and Development:

Through continuous monitoring and evaluation, strategy control contributes to organizational learning by highlighting what is working well and what is not. This process encourages a culture of continuous improvement and helps build a knowledge base that can influence future strategies.

Key differences between Strategy evaluation and Strategy Control

Aspect Strategy Evaluation Strategy Control
Purpose Assess effectiveness Ensure alignment
Focus Outcome analysis Process monitoring
Timing Periodic Continuous
Orientation Retrospective Proactive and corrective
Primary Role Judgment Adjustment
Scope Broader assessment Specific performance checks
Feedback Type Strategic insights Operational feedback
Outcome Decision-making support Performance alignment
Decision Influence Strategic redirection Tactical adjustments
Typical Tools SWOT, KPI analysis Dashboards, real-time alerts
Information Flow Often top-down Both top-down and bottom-up
Implementation Analytical and reflective Dynamic and directive

Management Notes

Strategic Decision Making

indiafreenotesby indiafreenotes0

Strategic decision-making is the process of charting a course based on long-term goals and a longer term vision. By clarifying your company’s big picture aims, you’ll have the opportunity to align your shorter term plans with this deeper, broader mission giving your operations clarity and consistency.

Strategic decision making involves the following 3 things:

  • The long term way forward for the company
  • Selection of proper markets for the company
  • The products and tactics needed to succeed in the targeted market.

Features of Strategic Decision Making

  1. Strategy is at many times at tangent with Marketing Decisions

Where marketing decisions are short term, strategic decision making might consider a long term initiative, such as launching a very new and innovative product, or changing the existing product lines radically. Technology or innovation is at the crux of strategic decision making.

The reason that marketing decisions and strategy decisions are difference is because marketing is focused on retaining the existing customer base with the existing technologies. But the customer base is sure to get tired soon of the existing products and the innovators and adopters will keep searching for new products in the market. And hence, through strategic decisions, the firm has to stay in a place of continuous development.

  1. There is immense risk involved while taking strategic decisions

Naturally, when you are implementing plans which will show positive or negative results only after 4-5 years, the risk in strategic decision making is huge. Think about the time and energy, not to say natural resources wasted to implement a plan which failed after 4-5 years.

Yet, even after the risk involved, companies have to implement risky strategic decisions from time to time just because the directors thought a unique product had demand in the market, or that another product is required in the market. Strategic decisions involve necessary risk and success is not guaranteed.

  1. Strategic decisions involve a lot of Ifs and Buts

Think of a mind map and the number of branches and nodes that can form the complete mind map. When a brain starts thinking, the central thought might have further branches, and these branches will have even more nodes (or sub branches if you want to call them)

Similar to the mind map, a business can face many problems in the course of its run. A competitor can crop up, the market can become penetrative, the external environment can change, and many other unforeseen situations can happen. The strategic decision making has to consider all these alternatives, whether positive or negative. And the plan has to also include the action that the firm will take, if any of the above business problems or factors come into play.

  1. Strategy implementation timelines

Whenever we make a schedule in our personal lives, we always start things when we have enough time in our hand. For example you will plan a holiday, when office work is not hectic. You will not plan it when there is a product launch nearby. Similarly, when in business, timelines are very important.

If a product is to be launched, the launch date is decided at least a year back, the sales phase has to be implemented at least 2 months before the actual launch so that you have sellers in place when the product is launch. Moreover, the service network is also to be planned before the launch, so that service issues are sorted out when there are problems after the product launch. If these concepts are not implemented, the marketing strategy and hence the product can fail miserably.

  1. Preparing for the competition’s response

Whenever you change the market equilibrium, the competitors, whose businesses you have directly challenged, are sure to respond. When they respond, the market changes and you have to change your strategy accordingly.

In general there are 2 ways that a company directly affects the competition and the market.

  • The company creates a completely new operating norm in the market itself.
  • It raises customer expectations and thereby changes the market equilibrium.

Most strategic decisions will call for radical changes in the way the company operates in the existing market. Accordingly, the perception of competitors and customers will change for the company. The company has to in turn be prepared for the response of competitors in such a case.

Implementation of strategic decisions While implementing strategic decisions, you need to have eyes at the front as well as the back of your head. You need to look at what was decided at the start, as due to short term pressure, it is very much possible to deviate from the path which was already set.

Management Notes

International Trade Laws Objectives Set 2

indiafreenotesby indiafreenotes3
  1. The exchange of goods and services are known as …………………………
  • Domestic Trade
  • International Trade
  • Trade
  • None of these.

 

  1. Which of the following is not considered as factors of production?
  • Land
  • Labour
  • Money
  • Capital

 

  1. Trade between two countries is known as ………….
  • External
  • Internal
  • Inter-regional
  • None of Above

 

  1. International Trade is most likely to generate short-term unemployment in:
  • Industries in which there are neither imports nor exports
  • Import-competing industries
  • Industries that sell to domestic and foreign buyers.
  • Industries that sell to only foreign buyers

 

  1. Free traders maintain that an open economy is advantageous in that it provides all the following except:
  • Increased competition for world producers
  • A wider selection of products for consumers
  • Relatively high wage levels for all domestic workers
  • The utilization of the most efficient production methods

 

  1. Which of the following is not a benefit of international trade?
  • Lower domestic prices
  • Development of more efficient methods and new products
  • A greater range of consumption choices
  • High wage levels for all domestic workers

 

  1. Which is not an advantage of international trade:
  • Export of surplus production
  • Import of defence material
  • Dependence on foreign countries
  • Availability of cheap raw material

 

  1. Trade between two countries can be useful if cost ratios of goods are …………..
  • Equal
  • Different
  • Undetermined
  • Decreasing

 

  1. Foreign trade creates among countries ………………
  • Conflicts
  • Cooperation
  • Hatred
  • Both a. and b.

 

  1. All are advantages of foreign trade except ………….
  • People get foreign exchange
  • Cheaper goods
  • Nations compete
  • Optimum utilization of countries’ resources

 

Q.2. Fill in the blanks.

  1. International Trade means trade between …………………. (Provinces/ Countries/ Regions)
  2. Two countries can give from foreign trade if ………… are different. (Effect/ Tariff/ Cost)
  3. ………….. encourages trade between two countries. (Different tax system/Reduced tariffs/ National currencies)
  4. Drawback of protection system is ……… (Consumers have to pay higher prices/ Producers get higher profits/ Quality of goods may be affected/ All above)
  5. ………….. is a drawback of free trade. (Prices of local goods rise/ Govt. looses incomes from custom duties/National resources are underutilized)
  6. International trade is possible primarily through specialization in production of …… goods. (All/ One/ Few)
  7. A country that does not trade with other countries is called …… country. (Developed/ Closed/ Independent)
  8. Policy of Protection in trade ……… (Facilitates trade/ Protects foreign producers/ Protects local producers/ Protects exporters)
  9. The largest item of Indian import list is ……….. (Consumer goods/ Machinery/ Petroleum/ Computers)
  10. Trade between two states in an economy is known as …… (External/ Internal/None)

 

SET 2

Q.1. Multiple Choice Questions.

  1. Who among the following enunciated the concept of single factoral terms of trade?
  • Jacob Viner
  • G.S.Donens
  • Taussig
  • J.S.Mill

 

  1. ‘Infant industry argument’ in international trade is given in support of:
  • Granting Protection
  • Free trade
  • Encouragement to export oriented small and tiny industries
  • None of the above

 

  1. Terms of trade that relate to the Real Ratio of international exchange between commodities is called:
  • Real cost terms of trade
  • Commodity terms of trade
  • Income terms of trade
  • Utility terms of trade

 

  1. The main advantage in specialization results from:
  • Economies of large-scale production
  • The specializing country behaving as monopoly.
  • Smaller Production runs resulting in lower unit costs.
  • High wages paid to foreign workers.

 

  1. Net export equals ……
  • Export * Import
  • Export + Import
  • Export – Import
  • Exports of service only

 

  1. A tariff ………………….
  • Increase the volume of trade
  • Reduces the volume of trade
  • Has no effect on volume of trade
  • Both a. and c.

 

7. Terms of Trade of developing countries are generally unfavourable because …….

  • They export primary goods
  • They import value added goods
  • They export few goods
  • Both a. and b.

 

  1. Terms of Trade a country show ……………
  • Ratio of goods exported and imported
  • Ratio of import duties
  • Ratio of prices of exports and imports
  • Both a. and c.

 

  1. Terms of trade between two countries refer to a ratio of …..
  • Export prices to import prices
  • Currency values
  • Export to import
  • Balance of trade to Balance of payments

 

10. Rich countries have deficit in their balance of payments ……..

  • Sometimes
  • Never
  • Alternate years
  • Always

 

Q.2. Fill in the blanks.

  1. BOP means balance of Receipts and payments of …… (all banks/ State bank/ Foreign exchange by a country/ Government)
  2. Favourable trade means exports are ……. than imports. (More/ Less/ Neutral)
  3. Net barter terms of trade is also known as …. Terms of trade.(Commodity/ Income/Utility)
  4. ….. is not a factor affecting TOT. (Reciprocal demand/ Size of demand/ Price of demand)
  5. If tariff is higher, then the imports will …… (Increase/ Decrease/ Same as before)
  6. ……. has given the concept of reciprocal demand. (Mills/ Adam/ Ricardo)
  7. ……… is the curve, which expresses the total demand for one good (imports) in terms of the total supply of another good (exports). (Offer/ Official / Corporate)
  8. Balance of payment is prepared by an economy ……. (Yearly/ Monthly/ Weekly)
  9. …….. kinds of accounts are included in BOP. (2/ 3/4)
  10. …….is not a type of disequilibrium in BOP. (Cyclical/ Seasonal/ Frictional/ Disguised)

 

SET 3

Q.1. Multiple Choice Questions.

  1. The first classical theory of International Trade is given by …………………..
  • Keynes
  • Adam Smith
  • Friedman
  • Heckscher-Ohlin

 

  1. In classical theory of International Trade, the exchange of goods and services takes on the basis of ………….. system?
  • Barter
  • Money
  • Labour
  • capital

 

  1. If capital is available in large proportion and labour is less, then that economy is known as ……………..
  • Capital Intensive
  • Labour Intensive
  • Both a. and b
  • None of above

 

  1. In Heckscher Ohlin theory, what is assumed to be same across the countries?
  • Transportation cost
  • Technology
  • Labour
  • capital

 

  1. Opportunity cost is also known as ……………………
  • Next Best alternative
  • Transformation cost
  • Both a. and b
  • None of above.

 

  1. Factor proportions theory is also known as the
  • comparative advantage theory
  • laissez faire theorem.
  • HeckscherOhlin theorem
  • product cycle model.

 

  1. Trade between two countries can be useful if cost ratios of goods are:
  • Equal
  • Different
  • Undetermined
  • Decreasing

 

  1. According to Hecksher and Ohlin basic cause of international trade is:
  • Difference in factor endowments
  • Difference in markets
  • Difference in political systems
  • Difference in ideology

 

  1. The theory explaining trade between two countries is called:
  • Comparative disadvantage theory
  • Comparative cost theory
  • Comparative trade theory
  • None of the above

 

  1. David Ricardo presented the theory of international trade called:
  • Theory of absolute advantage
  • Theory of comparative advantage
  • Theory of equal advantage.
  • Theory of total advantage

 

Q.2. True or False.

  1. Absolute advantage theory is given by Adam Smith.

True

  1. Ricardo has supplemented Absolute advantage theory.

 True

  1. Heckscher and Ohlin have given comparative cost advantage theory of International Trade.

False

  1. Multilateral trade means one country comes into trade with more than one country.

True

  1. Opportunity cost means unforgiving cost.

False

  1. Modern theory of International Trade is given by Ricardo.

False

  1. 2×2×2 model of International Trade is known by Heckscher Ohlin model.

True

  1. Transformation cost is also known as opportunity cost.

True

  1. Gravity model of trade was first used by Jan Tinbergen.

True

  1. Adam Smith advocated free trade and specialized.

True

 

Set 4

Multiple Choice Questions.

  1. GATT was made in the year ………………..
  • 1945
  • 1947
  • 1950
  • 1951

 

  1. The new world Trade organization WTO., which replaced the GATT came into effect from____
  • 1ST January 1991
  • 1st January 1995
  • 1st April 1994
  • 1st May 1995

 

  1. 5 banks of BRICS nations have agreed to establish credit lines in ….. currencies.
  • Legal
  • Plastic
  • Crypto currency
  • National

 

  1. Where was the 11th meeting of BRICS Trade Ministers held from 13 Nov 2019 – 14 Nov 2019?
  • Shanghai
  • Beijing
  • Tokyo
  • Brasilia

 

  1. What is the name of the SAARC satellite to be launched on May 5, 2017?
  • South Asia Satellite
  • South Asian Association Satellite
  • South East Asia satellite
  • SAARC satellite

 

  1. Full form of SAFTA is ……………………..
  • South Asia Free Trade Agreement
  • South Asia Foreign Trade Agreement
  • South Asia Framework Trade Agreement
  • Both a and b

6. Which of the following commitments has not been made by India to WTO?

  • Reduction in tariffs
  • Increase in quantitative restrictions
  • Increase in qualitative restrictions
  • Trade related Intellectual Property Rights

 

  1. The European Union was formally established on …..
  • November, 1993
  • April, 1995
  • January, 1997
  • May, 1996

 

8. SAARC was established in …..

  • 1980
  • 1985
  • 1990
  • 1995

 

  1. NAFTA came into effect in …..
  • 1990
  • 1994
  • 1998
  • 2004

10. The dominant member state of OPEC is ……………..

  • Iran
  • Iraq
  • Kuwait
  • Saudi Arabia

 

Q.2. Fill in the blanks.

  1. Headquarter of WTO is in ………….. Geneva/USA/Germany.
  2. Before WTO, ……………… was working instead of that. GATY/ GATR/ GATT.
  3. …………….. round negotiations initiated the establishment of WTO. Uruguay/ Urdun/ Urbuny .
  4. India had joined WTO in the year …………. (1995/ 1996/ 1997)
  5. In …………….. , SAARC was established. (1985/ 1986/ 1987)
  6. The first SAARC summit was organized at …….. (Dhaka/ Kathmandu/ Nepal)
  7. ……..is not a country in SAFTA. (India/ Nepal/ Pakistan/ USA)
  8. ……… countries are member of OECD. (34/ 35/ 36)
  9. ………… is not a country under OECD. (Norway/ Canada/ China)
  10. ………….. are the member states of European Union. (28/ 29/30)
error: Content is protected !!