Scope of Modern Marketing Research

 Q. Discuss in detail the scope of modern marketing research.

Ans. Marketing research is more comprehensive, it covers all marketing functions relating to product, price, promotion and distribution. Marketing policies, programmes and strategies are guided by it. There is hardly any area in marketing where research is not possible or needed. The area of marketing research can be classified as: 

I. Problem Identification Research: It helps to identify problems that are exist or are likely to arise in the future. This type of research provides information about the marketing environment and helps to diagnose a problem. Problem identification research covers the following areas:

(i) Market Share Research

(ii) Market Potential Research

(iii) Market Features Research

(iv) Market Image Research

(v) Sales Analysis Research

(vi) Business Trend Research

II. Problem Solving Research: Once a problem is identified, problem solving research is undertaken to arrive at some solution. The findings of problem solving research are used in making decisions that will solve specific marketing problems. Problem solving research covers the following areas:

(i) Product Research

(ii) Pricing Research

(iii) Promotion Research

(iv) Segmentation Research

(v) Distribution Research

Marketing Research can be applied in almost every aspect of marketing. A wide range of marketing activities are covered by the marketing research. The scope of marketing research is very wider but it may be summarised in following manner: 

1. CONSUMER RESEARCH: Consumer Research is concerned with the studies of consumer behaviour. It probes into different factors such as economic, sociological and psychological that influence the consumers in their decision to buy the product. Generally, consumer research is in the form of attitude studies which offer clues in distinguishing the appeals of competitive brands to certain type of customers.

Consumer research can also provide consumer suggestions when they feel certain deficiency or when they would like to have some improvement in the product or service.

Consumer research may be undertaken not only at macro level but also at different segment level. Consumer research generally covers the following areas:

(i) To know the demographic features of both present and potential consumers.

(ii) To identify the needs and expectation level of consumers regarding product or service.

(iii) To know the buying motives and buying habits of the consumers.

(iv) To determine the level of consumer satisfaction.

2. MARKET RESEARCH: Market research is the study of markets with regard to certain products of a company. The market research involves analysis of market potential for existing products and estimating demand for new products, sales forecasting, characteristics of product markets, analysis of sales potentials and studies of market trends. 

Market Research develops market and sales potentials and sales quotas by determining how much of a commodity in a given market is expected to be sold. It helps in determining the sales territories of salesmen, distributors and dealers.

Market Research involves investigation of various elements of consumer demand, such as total demand, relative demand and replacement demand. Market research provides answer to the question, 'who may buy and who is buying the product. 

Market Research collect the information on following aspects:

(i) Forecasting of sales and demand

(i) Nature and extent of competitive forces

() Geographical location of markets.

(iv) Strength's and weaknesses of the firm and the competitors

(v) Assessment of government policies on the marketing efforts of the firm.

3. PRODUCT RESEARCH: Product Research refers to the efforts made to have knowledge about new and existing product, to meet the specific requirements of consumers regarding quality, design, shape, size, style, durability, purity, packaging, branding, etc. It aims at finding out new product or combination of products. On the basis of product and packaging research, a business firm can develop suitable market segment strategies. It may also emphasized that the product research is concerned with every stage of product life cycle viz. introduction, growth, maturity and decline. 

The major area of product research are: 

(i) Evaluating the product performance of the firm in terms of turnover, profits, market segments and competition.

(ii) Market testing for new products of the firm.

(iii) Research on consumer acceptance of firm’s products and services as compared to similar products of competitors.

(iv) Research on development of new products.

(v) Evaluation of new competitive products.

(vi) Appraisal of product diversification and simplification plans.

(vii) Determining product modifications on the basis of their quality, design, varieties, colours and appearance, etc.

(viii) Research on causes and extent of consumer dissatisfaction with firm’s products when sales are rapidly declining.

4. SALES RESEARCH: Sales Research covers the problems relating to the sales of products of the firm. It examine various sales outlets or sales territories to find out sales potentials to improve the existing level. Such a research can be product wise in addition to the overall performance. Sales research helps in determining the effectiveness of the sales force and identifying specific factors that may improve its performance. Sales research can be used:

(i) For measuring sales performance in terms of volume and profits.

(ii) For determining and revising sales territories and sales quotas.

(iii) For assessing firm’s position in the market in relation to its main competitors.

(iv) For analysing and appraising the sales methods and sales force performance.

(v) For finding out ways and efforts by which sales opportunities can be exploited successfully.

5. PRICING RESEARCH: Pricing Research examine all the questions relating to the consumer’s ability to pay for the products and services. It examine the policies relating to prices, discounts and allowances.

The areas of pricing research are:

(i) Testing of alternative price strategies.

(ii) Studying the price policies and strategies of the competitors.

(iii) Determining the suitable price policy for a product.

(iv) Determining price expectation of the consumers in different market areas or segments.

(v) Measuring the consumers reactions and responses to firm’s product prices.

6. PROMOTION RESEARCH: Promotion Researches are conducted to know past trends, present performance and future plans in connection with the promotional policies of the company and its competitors. The research on promotional policies includes advertising research, analysing advertising and selling practices, selection of advertising media, designing advertising copy and testing advertising message, determining sales territories, evaluating present and proposed sales methods, evaluating promotional tools viz., premiums, price-offs, contests, trade shows, exhibitions, etc. 

Promotion research is getting more importance because huge amount is spent by al fe companies on advertising, publicity, personal selling and sales promotion activities. Following are the important areas of promotional research:

(i) Measuring effectiveness of alternative advertising copies designed.

(ii) Media research ie., studying alternative media television, radio, newspapers and magazines, etc.

(iii) Evaluating and selecting the media mix.

(iv) Determining the advertising messages and appeals in the light of research findings.

(v) Identifying the consumer motives, attitudes and emotions to find out the ways and means of motivating the people to increase the sales.

7. DISTRIBUTION RESEARCH: Distribution Research has two major areas namely, channel research and physical distribution research. Channel research is concerned with the problems of middlemen and their solution. Physical distribution research is concerned with the problems of and solutions to storing. transporting and handling of products. Distribution research is concerned with designing of distribution channels, handling and packaging of merchandise, location of warehouses, transportation, inventory control, material handling, etc.

The areas of distribution research are:

(i) Studying the existing and potential channels with evaluation of channel performance.

(ii) Determining optimum inventory levels and storage facilities.

(iii) Making cost analysis of various elements of distribution mix like, warehousing, transporting, inventory control and material handling, etc.

(iv) Determining dealers needs and behavioural factors.

8. POLICY RESEARCH: Policy Research is concerned with the study of the policies in all the areas of an organisation and their post-operative effects on marketing. Marketing as a specialised activity is going to be a grand success if other specialised activities contribute to it. The areas of policy research are:

(i) Studying the existing policies and strategies in production, finance, personnel, etc.

(ii) Determining the best policies to better the results with reduced efforts and investments.

(iii) Studying the marketing policies adopted by the competitors.

(iv) Evaluating the impact of change in firm’s policies on marketing efforts.

9. CORPORATE RESEARCH: Corporate Research is gaining importance because of increasing consumer awareness. Corporate research is conducted on anti-pollution devices, consumerism, attitude of consumers towards package designs and promotional strategies, etc. A company might be interested to see whether the consumers are unintentionally harmed by the company by adding to the pollution of environment, adding to the social costs, excessive expenditure on packaging and promotion, not allowing consumers to know about the product quality and manufacturing, etc. Corporate research covers the following areas:

(i) Studying the awareness among consumers regarding product quality and manufacturing methods.

(ii) Evaluating attitudes of consumers to package designs and promotional strategies, company’s addition to social costs, etc.

(iii) Studying the impact of business on the environment and cost of using anti-pollution devices.

10. MOTIVATION RESEARCH: Motivation Research is qualitative research, that answers, why do people buy or do not buy a particular product. It also studies impact of motives, attitudes and ability to pay on consumer purchase decisions. The areas of motivation research are:

(i) Knowing the consumer reactions in terms of consumer expectations and aspirations.

(ii) Finding out the ways and means which motivate the consumers to buy company’s products or services.

(iii) Identifying the consumer motives, attitudes, emotions and other hidden reasons which influence the buying decisions.

(iv) Knowing the consumer likes and dislikes about the product or service.

From the above description it is clear that the scope of marketing research is very wide. It spans over the marketing activities in the areas of consumer, product, market, sales, pricing, promotion, distribution, business policies, advertising, motivation, etc. In addition to the above broad areas, there are many other areas of marketing research which are also equally important. However, The actual scope of marketing research is determined by the specific needs of the firm.

 Scope of Modern marketing Research 

What do you mean by international advertising ? How international advertising is different from domestic advertising ?

 Q. What do you mean by international advertising ? How international advertising is different from domestic advertising ?

Ans. MEANING OF INTERNATIONAL ADVERTISING: The advertising activities undertaken in different nations constitute international advertising. It aims to inform, persuade and remind target audience of multiple nations about the advertiser’s products and services offered. 

International advertising is a communication process of dissemination of advertising message to the target audience in more than one nation. Sometimes, these advertisements differ from country to country depending upon the domestic environment of different nations. The domestic environment of various nations differs in terms of culture, language, literacy rate, level of economic development, government regulations, consumption pattern, fashion, taste, value system, religion etc. Due to these differences, global companies design different ad-copies for different nations. In short, international advertising is a communication process for disseminating ad-message in different nations which may differ in terms of communication, style, culture, consumption pattern, literacy level, language, value system, level of economic development etc. 

INTERNATIONAL ADVERTISING Vs. LOCAL ADVERTISING: International advertising refers to communication of marketing message to target customers in more than one country. Local advertising here refers to advertising within a country. International advertising is different from local advertising in following ways: 

(1) Coverage: It refers to market area. In local advertising, the coverage area is maximum up to one nation or it can be a few states within a nation, or a few regions with in a nation. But the coverage of international advertising is very wide. International advertising campaign may be undertaken for many nations. Some MNCs like Coca Cola advertise their products in more than 150 nations, so the coverage of international advertising is wider than that of local advertising.

(2) Cultural Diversity: As local advertising is confined to a nation or a part of it, so the problem of cultural diversity is not very serious because within a nation the culture may be same or cultural diversity may not be very significant. But in case of international advertising, the problem of cultural diversity is very serious as advertising campaign is undertaken in many nations which may have altogether different culture. There may be different interpretation and perception of colours, symbols, ad-appeals, body gestures, etc. in case of international advertising due to cultural diversity.

(3) Language Problem: In case of local advertising, the problem of language diversity is not very serious as every nation has its national language/mother tongue. But in case of international advertising, different ad-copies have to be prepared as the language spoken in different nations may be entirely different. For example, although India and China are neighbouring countries, yet their spoken languages are entirely different.

(4) Government Regulations: The problem of inconsistency in government regulations related to advertising arises in case of international advertising. Different nations have different code of conduct for T.V. advertising, print media advertising, etc. Similarly, there are different types of regulations for tobacco-advertisements, alcohol-advertisements, etc But this problem is not very serious in case of local advertising.

(5) Media of Advertising: In local advertising, media with local circulation is selected. It can be cable TV, local newspaper, local radio channels, local T.V. channels. The media with global circulation is not selected for local advertising. But in case of global advertising, media with national or international circulation is selected. Online media is very popular in international advertising because it has global circulation. But at the same time, local media may also be used along with global media for intensive market coverage of global advertising.

(6) Selection of Ad-Message Source: In international advertising, such persons are selected as ad-message source for communicating the message as have global popularity. But in case of local advertising, local persons are selected as ad-message source persons.

(7) Selection of Advertising Agency: In case of international advertising, marketing message is to be communicated in many nations, so such ad-agencies are selected for undertaking advertising campaigns as have global network. In case of local advertising, local ad-agencies are selected for executing ad-campaigns.

(8) Advertising Budget: In case of international advertising, commercial message is communicated to target audience in more than one country. Some MNCs undertake ad-campaigns in many nations which may be even more than 150 nations. So ad-budget in case of international advertising may run in million or billion dollars. But in case of local advertising, the ad-message is communicated within one nation only, so ad-budget involves lesser funds.

(9) Mutual Dependence: The international advertiser may undertake local advertising campaigns along with global ad campaigns so as to meet local market requirements of each nation. But local advertiser never undertakes global ad-campaigns. 

What do you mean by international advertising ? How international advertising is different from domestic advertising ?

What is Secondary Market? Explain major defects of Secondary Market.

 Q. What is Secondary Market? Explain the major problems or defects of Secondary Market.

Ans. MEANING OF SECONDARY MARKET: The market where the outstanding securities are traded is known as secondary market. This market is popularly known as stock market or stock exchange. In this market, the investors can sell and buy shares or debentures of companies. Stock markets deal in equity shares primarily, but the debt instruments like bonds and debentures are also traded in stock market. The growth of primary market depends on the secondary market. It also promotes capital formation. 

Definition: The Securities Contracts (Regulation) Act, 1956 defines a stock exchange as “an established association, organisation or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities.” 

MAJOR PROBLEMS OR DEFECTS OF SECONDARY MARKET: The Indian Secondary Market is suffering from certain defects. These are:

1. Weak Management of Stock Exchanges: The management of stock exchanges is weak and deficient in India. The Indian stock exchanges are governed by the member brokers for their own benefit. The Executive Director has also failed to perform his regulatory functions freely as he is also responsible to the governing body. 

2. Lack of Integration: There are 23 stock exchanges in India which are scattered throughout the country. But these exchanges lack in integration. Due to lack of integration among the stock exchanges, the prices of securities vary considerably between different markets at the same time.

3. Arbitrary Classification of Specified and Non-specified Shares: The Indian stock exchanges have been following an arbitrary practice of classifying listed shares into specified and unspecified groups. This type of arbitrary categorisation favours artificial encouragement to a few large companies and promotes speculation in it. 

4. Ignoring Investors’ Interest: The Indian stock exchanges are ignoring the genuine interests of investors. Complaints made by investors remain uncared and unattended.

5. Domination of Financial Institution: Indian capital market is dominated by financial institutions and big operators. UTI, LIC, GIC, ICICI and 3-4 big operators are the main players in the Indian stock markets. Transactions done by these institutions set the trend in the market. If these institutions buy the stocks, the market gets bullish and on the reverse side, the market becomes bearish because of selling by them. Individual investor has no say in the stock market. 

6. Poor Liquidity: The Indian stock exchanges suffer from poor liquidity. A small number of stocks are traded everyday and most of the times, thin volumes can be seen at the stock exchanges. 

7. Less Floating Stocks: Scarcity of floating stocks in the Indian stock exchanges is another reason for their weaknesses. The shares and debentures offered for sale are a small portion of total stock. Financial institutions do not offer the scrips they have purchased for sale. It creates shortage of floating stocks.

What is Secondary Market? Explain the major defects of Secondary Market.

What do you understand by Auditing ? Briefly explain the advantages and limitations of Auditing.

Q. What do you understand by Auditing ? Briefly explain the advantages and limitations of Auditing. 

Ans. MEANING OF AUDITING: The English word ‘Auditing’ is derived from the Latin word ‘Audire’, which literally mean ‘to hear’. Auditing implies the examination of books of accounts and related documents of an organisation in order to correctly estimate their accuracy, completeness and regularity. Such an examination is carried out by a competent and unbiased person with the help of evidences, documents, information and explanations given to him. For example, if a person goes to a doctor to have himself examined, the doctor, only after a thorough examination of his body, gives his report as to whether he is healthy or not, and if not, what is the ailment he is suffering from. In the same manner, a businessman gets his books of accounts examined by a doctor of books of accounts (i.e the auditor) who, after a thorough examination of the books, gives his report as to whether or not they give a true and fair view of the statement of affairs of the business, and if not then what are the errors, deficiencies and faults in them. 

According to Montgomery, “Auditing is a systematic examination of the books and records of a business or other organisation in order to ascertain or verify and to report upon, the facts regarding its financial operation and the result thereof.” 

Thus, Auditing is a special and critical examination of the books of accounts of a business organisation, conducted by a competent and unbiased person with the help of vouchers, documents, information and explanations provided by the organisation, on the basis of which he can report on the books of accounts for a specific period as to:

(a) Whether the accounts are complete and drawn up according to conventions or not,

(b) Whether the Balance Sheet gives a true and fair view of the financial position of the organisation, and

(c) Whether the Profit and Loss Account depicts the true profits or losses of the organisation or not.

ADVANTAGES OF AUDITING: The various advantages of audit are as follows: 

(I) General Advantages: The general advantages of audit are as follows: 

(1) Knowledge of the Actual Position of the Business: Through an audit the actual position of the business comes to light. The owners of the business are assumed that the results being shown by the Profit and Loss Account and Balance Sheet are correct. 

(2) Detection of Frauds and Errors: During the examination of accounts in the course of the audit, the frauds and errors contained therein, also come to light. This also reduces the chances of frauds and errors being committed in the future. 

(3) Moral Pressure on Employees: When the employees are aware of the fact that their work is going to be examined by an independent person, there is an indirect fear among them, and they do their work with much greater regularly, competency and caution. They do not have to do anything wrong or be negligent. As a result of this the possibilities of frauds and errors being are also reduced. 

(4) Alertness among Employees and Management: Audit makes the employees and the management more alert as it results in healthy criticism of their work. The employees become more disciplined and adopt better policies and procedures. Work gets completed as per schedule. The control exercised through the audit also helps in reducing corruption and judging the honesty and capability of employees.

(5) Proper Valuation of Business: If any business is to be sold or in case a firm is to be converted into a company, then audited accounts are helpful in proper valuation of the business and the valuation of goodwill. In fact, audited accounts are considered more dependable than unaudited ones. 

(6) Increase in Goodwill: Public puts greater faith in accounts of organisations who get their accounts audited, which enhances the goodwill of the business. The increase in goodwill makes it very easy for the organisation to obtain loans from banks and other financial institutions.

(7) Helpful in Receiving Compensation: In case of accidents such as fire, theft, etc., audited accounts are more helpful in receiving compensation from insurance companies.

(8) Helpful in Assessment of Tax: Assessment of tax is much easier on the basis of audited accounts otherwise officers usually define tax liability arbitrarily. Hence, audited accounts are helpful in preventing arbitrary assessment of tax.

(9) Helpful in Getting Declared as Insolvent: When the state of the business becomes so bad, that its liabilities exceed its assets, then the businessmen often wants to be declared as insolvent so that he may be relieved of his liabilities. In such cases, the description provided by audited accounts serves as a better evidence in courts.

(10) Helpful in Formulating Dividend and Bonus Plan: The audit of accounts certifies the truthfulness of the Profit and Loss Account, and as a result, it becomes easier to declare and distribute dividends as well as proper disbursement of bonus is facilitated. This is because the shareholders and the workers consider the audited accounts as correct and have faith in them.

(11) Availability of Valuable Suggestions: The auditor from fime to time keeps on giving

suggestions to his client regarding book-keeping and accountancy, so.as to prevent frauds and errors. Apart from this, the suggestions of the auditor are also useful in other business matters.

(II) Advantages to Various Organisations:

(A) To Sole Proprietorship Concerns: Apart from the above benefits, audit has the following advantages in case of a sole proprietorship concern:

(1) Proof in Court: If in any business dispute any fact is to be established through the books of accounts, then audited accounts can be produced as evidence in courts.

(2) Helpful in Conversion of Business into Partnership: In case a sole proprietor wants to convert his business into a partnership firm, i.e. wants to take in another person as a partner in his business, or himself wants to become a partner in another firm, then audited accounts prove very helpful.

(3) Comparative Study Possible: In case the accounts for a number of years need to be compared, on the basis of the audit reports of the said years the accounts of one year can be compared with those of another. This makes a comparative study of profits and losses or income and expenditure possible.

(4) Helpful in Assessment of Wealth Tax: If the sole proprietor has a lot of assets, and upon his death taxes are to be paid upon his wealth, audited accounts prove very helpful.

(5) Helpful in Assessment of Income Tax and Sales Tax: While determining the liability for income tax and sales tax the concerned officers lay much greater reliance upon audited accounts.

(B) To Partnership Firms: Audit has the following advantages in case of a Partnership firm:

(1) Mutual Confidence among Parties: Normally, all the partners do not participate in the day-to-day running of the business of the firm. If the accounts of the partnership firm have been audited, it helps in building mutual confidence among the partners. In case the firm also has sleeping partners, the audit of the accounts of the firm becomes even more necessary since the sleeping partners do not have complete information about the business of the firm. Hence, audited accounts reduce the chances of disputes at the time of division of profits among the partners, and the work of the firm can proceed without any hindrance.

(2) Helpful in Valuation of Business and Goodwill: In case of admitting a new partner into the business of the firm, or at the time of retirement or death of a partner, the valuation of the business, and the valuation of its assets and liabilities and the goodwill of the firm, is greatly facilitated if the accounts have been audited.

(3) Peaceful Settlement of Accounts: At the time of dissolution of the firm, the assets and liabilities of the firm can be divided among the partners in a peaceful manner on the basis of audited accounts. 

(C) To a Joint Stock Company: The advantages of audit to a joint stock company, apart from the general advantages mentioned above, are as follows:

(1) Confidence among Shareholders in Management: A company has a system of representative management. The management of the company is in the hands of a few selected shareholders (the directors). The remaining shareholders do not participate in the management of the company. Hence, the managers of the company with the help of getting the accounts audited assure the shareholders that they have been working properly and that they have not misused their position in the company in any manner.

(2) Easy Availability of Investment: A company accumulates capital by issuing shares and debentures to the public. The public has faith on audited accounts and it is on the basis of the same that it invests capital in the company.

(3) Helpful in Declaration of Dividends: Since audit certifies the profits of the company, hence at the time of declaration and distribution of dividends no suspicious are aroused. The auditor certifies in his report that the dividend has been declared and distributed at an appropriate rate.

(4) Facilitates Amalgamation, Absorption and Reconstruction of Companies: Whenever, companies are amalgamated, absorbed or reconstructed, then deciding the purchase consideration is greatly facilitated by audited accounts. In such situations, audited accounts are considered to be more reliable.

(D) To other Parties: Audit has the following advantages for other parties:

(1) When any property is placed in a trust for the benefit of a particular person then the trustee, in order to present in front of others that he has done the work of the trust honestly, gets the accounts of the trust audited.

(2) Audited accounts of a business are helpful for an insurance company when the amount of loss is to be estimated in case of a fire. The insurance companies on the basis of the audited accounts of the organisation can find out whether the claim filed by the organisation is correct or not. This becomes very difficult in case the accounts have not been audited.

(3) Banks and other money lending institutions can take decisions as to whether or not to lend money to a particular organisation on the basis of audited accounts.

(4) If any external person wants to purchase an organisation, then audited accounts a very helpful in deciding the purchase consideration. In case the accounts have bee audited and certified they serve as a basis for the purchasers to decide upon t purchase consideration.

(5) Audited accounts are very helpful for government employees. While levying sales tax, income tax, wealth tax and expenditure tax. 

(6) The court, in any case, can also rely upon audited accounts as evidence. One can present one’s case better in front of courts by providing audited accounts as evidence.

LIMITATIONS OF AUDITING: Despite the exercise of utmost diligence, caution and competence on the part of the auditor some frauds and errors in the books of accounts may escape getting detected. Hence, before reaching any conclusions on the basis of the auditor’s report, the following limitations of audit must be kept in mind:

(1) Auditing is not a Conclusive Proof of the Honesty of Employees: If the organisation has a system of internal check and the auditor is satisfied with the working of the same, then he may certify the accuracy of the accounts by resorting to test checking. In a system of internal check also, two or more people can team up and commit fraud, and such frauds may not come to light during the audit. Hence, getting the accounts audited doesn’t certify that the employees of the organisation have worked honestly throughout the period under review. 

(2) Auditing doesn’t Guarantee cent-per-cent Accuracy: Normally, large organisations have a very large number of transactions during the financial year. Hence, it is not possible for the auditor to examine each and every transaction in detail, nor it is viable in terms of wastage of time, effort and money. In such cases the auditor resorts to test checking and hence it is only natural that some frauds and errors may remain undetected.

(3) Minor things are not paid attention: The auditor, during the course of his examination,  gives full attention only to matters related to Profit and Loss Account and Balance Sheet. He does not pay much attention to small transactions or transactions entered into by the lower staff of the organisation. Hence, it is possible that a few irregularities may remain undetected at the lower levels, despite the audit. 

(4) Certain Frauds may Remain Undetected: Despite the exercise of due diligence, competency and efficiency on the part of the auditor, intentional and pre-planned frauds committed by the top managers or other responsible employees of the organisation may escape getting detected.

(5) Auditor does not understand the Nature of all Business Transactions: Even though the auditor examines the accounts of organisation in a variety of fields, it is not necessary for him to understand the nature of each and every transaction. Hence, it is not possible for the auditor to certify as to whether a particular transaction makes business sense or not. During the course of audit, transactions are examined from the legal point of view and not from the point of view of appropriateness.

(6) Auditor merely expresses his Opinion: The auditor merely expresses his opinion on the accounts of the organisation. By expressing his opinion that the Profit and Loss Account and Balance Sheet are correct does not mean that there can be no irregularity in the books of accounts. Even though he gives his opinion after due examination, he is also human, and human beings make mistakes.

(7) Auditor does not Enjoy Practical Freedom: Even though an auditor is considered to be an independent person, since his rights, duties and responsibilities have been specified by the Companies Act, 2013, in practice the managers of the company appoint their own persons as auditors of the company. The auditor is influenced by the management of the company, and hence is not able to conduct a completely independent examination of the books of accounts and give his report on the same. 

What do you understand by Auditing? Briefly explain the advantages and disadvantages of Auditing. 

What is meant by Management Accounting? Discuss its main tools and techniques.

 Q. What is meant by Management Accounting? Discuss its main tools and techniques.

Ans. MEANING OF MANAGEMENT ACCOUNTING: Management accounting is also known as Management-oriented Accounting, Management Accountancy, and Accounting for Management, etc. The term ‘Management Accounting’ represents a merger of two words ‘Management’ and ‘Accounting’. Management refers to the functions of planning, direction and control, etc. while ‘Accounting’ refers to record, compilation, analysis and presentation of various financial transactions. In this context that form or system of accounting may be called management accounting which provides all such accounting informations as are required by management for planning, direction and control of business activities.

DEFINITION OF MANAGEMENT ACCOUNTING: 

1. “Management Accounting is the presentation of accounting information in such a way as to assist management in the creation of policy and the day-to-day operations of an undertaking./ of the business.” 

— Anglo-American Council on Productivity

2. “Management Accounting is concerned with the accounting information that is useful to management.” 

— Robert N. Anthony

3. “Management Accounting is the term used to describe the accounting mehods, systems and techniques which, coupled with special knowledge and ability, assist management in its tasks of maximising profits or minimising losses.” 

—J. Batty

4. “Management Accounting may be defined as the application of accounting techniques to the provisions of information designed to assist all levels of management in planning and controlling the activities of the firm.” 

—John Sizer

5. “Any form of accounting which enables a business to be conducted more efficiently can be regarded as Management Accounting.” 

— The Institute of Chartered Accountants of England and Wales 

Thus, when accounting information are collected, presented, analysed, interpreted and reported to help the management in taking various decisions, then it is known as Management Accounting. Management Accounting is the process of identification, measurement, presentation, analysis, interpretation and communication of accounting information that assists the management in planning, decision making and control to achieve the organizational objectives. 

TOOLS AND TECHNIQUES OF MANAGEMENT ACCOUNTING: Some important tools and techniques are as follows;

1) Analysis of Financial Statements: Analysis of financial statements is a systematic process of critical evaluation of the financial information given in financial statements so that these informations may be understood properly. For the purpose of analysis individual items are studied, their relationship with other relevant figures is established, the data is sometimes re-arranged to have better understanding of the informa-tion with the help of various techniques or tools, such as (i) Comparative Financial Statement or Analysis, (ii) Common-size Statement or Analysis, (iii) Trend Analysis, (iv) Ratio Analysis, (v) Funds Flow Analysis and (vi) Cash Flow Analysis.

2) Cost Accounting Technique: Cost accounting and management accounting are closely related to each other. The data of historical costing available from cost records help in determination of costs of products, processes, job and operations and preparation of budgets.

3) Budgetary Control: It is a technique which uses budgets as a tool for planning and control. The budgets of all functional departments are prepared in advance, in which limits of expenditure and targets of functions are determined. The actual performance is recorded and compared with budgetary data and on this basis management can assess the performance of various departments and officers in the organisation.

4) Standard Costing: This costing occupies an unique place among the techniques of management accounting. Under this technique, standard cost of various elements of costs are determined in advance. Such determination is based on a systematic analysis of existing conditions. The actual costs are compared with standard costs. The variances, if any, are analysed, their reasons are ascertained and necessary corrective actions are taken.

5) Marginal Costing: Marginal cost is that cost which results in the form of changes in costs due to change in volume of production. Under marginal cost the total cost is divided into two parts— fixed cost and variable (marginal) cost. The management, on the basis of marginal costing, establishes relationship among cost, volume and profit and takes decisions in respect of various managerial problem, such as change in product mix, determination of optimum product mix, decision of make or buy, evaluation of sales promotion schemes, etc.

6) Decision Accounting: Decision-making is the core function of top management and for this purpose the technique of decision accounting is used in management accounting. Decision-making involves a choice of best possible option from various alternatives, viz., which model out of various models of machine should be purchased? Whether a particular item should be produced or purchased from the market? Whether a specific order received at a lower price should be accepted or not? Decision accounting considers financial implications of each alternative course of action and enables management to select the best course of action. Marginal Costing and Differential Costing are important components of decision accounting.

7) Revaluation Accounting: Revaluation accounting is used to denote the methods employed for overcoming the problems connected with fixed asset replacement in a period of rising prices. It is, therefore, also known as 'Replacement Accounting'. Under this method, fixed assets are shown at current prices also in addition to their historical cost so as financial statements may present true and fair view of the concern. The preservation of capital in the business is the main object of revaluation accounting and for this purpose the profits are calculated in such a way that capital is preserved in real terms.

8) Financial Planning: Financial planning involves management of finance according to objectives of the business concerned. This tool is applied to determine following financial policies— (i) amount of capitalisation, (ii) sources of capital, (iii) ratio of debt and equity, (iv) limits of short-term and long-term borrowings, (v) disposal of profit and retained earnings.

9) Control Accounting: Control accounting is not a separate accounting system but all those devices of accounting, which are used from the view of control, are collectively called as control accounting. In this context, standard costing and budgetary control both are the parts of control accounting. We can also include internal check, internal audit, statutory audit, responsibility accounting, etc. as a device of control accounting.

10. Managerial Reporting: It is an important tool of management accounting in which reporting is prepared from time to time on the basis of analysis of various informations and thereafter they are communicated to different levels of management. It may be mentioned that timely reporting and effective communication is the essence of management accounting.

11. Management Information System (MIS): With the development of electronic devices for recording, classifying and communicating data MIS has become an important technique in management accounting

12. Quantitative Techniques: Now-a-days many such quantitative techniques are also being used which are based on mathematics and statistics. Some of such techniques are: (i) Operational Research, (ii) Linear Programming, (ii) Games Theory, (iv) Queing Theory, (v) Network Analysis, (vi) Simulation Theory.

What is meant by Management Accounting? Discuss its main tools and techniques.

Management Accounting means accounting designed for the management, i.e. accounting which provides necessary information to the management for discharging its functions. It is basically concerned with presentation of accounting information in a manner which can assist the management in the creation of policy and in the day-to-day operations of an undertaking. Its aim primarily is to assist the management in performing its functions effectively.

Meaning of Sales Organisation. Steps in setting up Sales Organisation.

Q. What do you mean by Sales Organisation? Explain the various steps in setting up Sales Organisation. 

Ans. MEANING OF SALES ORGANISATION: Whenever two or more persons perform activities for the purpose of achieving any objective together, a necessity to distribute the work among them arises and the coordination between the different activities is made. The organising element is required to fulfill this necessity. Thus, organization is a coordinated effort of different individuals working in an enterprise to achieve its goals. Industrial marketing organisation in an enterprise means the integration and coordination of individual marketing efforts to achieve the cherished goals of the business enterprise. Industrial marketing organisation is a time tested mechanism that enables people to live and work together. With the help of industrial marketing, organizing the task is allocated among the employees according to their specialization. Each employee gets the work of his own interest and therefore, they perform their work efficiently. This leads to the expansion and growth of the business enterprise.

DEFINITIONS OF INDUSTRIAL MARKETING ORGANIZATION

According to C.L. Bolling. “An industrial marketing organization is one where functions of marketing department have been carefully planned and coordinated towards the objective of selling the product to the customers, the whole efforts being effectively supervised and managed so that each function is carried out in the desired manner.”

According to H.R. Tosdal, “An industrial marketing organization consists of human beings working together for the marketing of products manufactured by the firm or marketing of commodities which have been purchased for resale.”

STEPS IN SETTING UP SALES ORGANISATION: 

1. Setting the Objectives: The first step in the process of setting industrial marketing organization is to set its objectives. Top management defines the long term objectives for the enterprise like profit maximization, improving reputation, increasing size of enterprise, etc. Marketing department sets specific objectives for achieving the long term objectives set by the top management. These objectives can be: (a) To increase sales, (b) To control selling expenses, (c) To increase market share, (d) To increase profit through customer satisfaction.

2. Defining Necessary Marketing Activities: After having learnt about the objectives of the marketing organization, necessary functions are required to be performed to achieve the determined objectives. The necessary marketing activities can be personal selling. sales promotion, publicity, advertising, marketing research, distribution of goods and services, etc.

3. Grouping Marketing Activities into Jobs, Positions: After identifying various marketing activities to be performed to achieve marketing objectives, the next step is to classify and group the similar and related tasks into various jobs or positions. Some of the marketing activities are crucial in nature; these are classified as high level jobs. Others are of routine nature and are classified as lower level jobs. For proper coordination and control, jobs of similar nature are brought together to form departments.

4. Assignment of Duties: After dividing the various activities into different positions, various persons are assigned the charge of these positions. The jobs are is assigned to the marketing personnel according to their capabilities and specialization. While assignment of job, the principle of 'right man on right job' is followed. The work to be performed by every individual is clearly defined and made known to him. In order to avoid misunderstandings, duplication or overlapping in the work, every one should know what he is required to do.

5. Establishing Reporting Relationship: In this step, every individual is given the authority required to carry out the responsibility assigned to him. A hierarchical structure, i.e., a chain of command is created through successive delegation of authority. Reasonable powers are delegated to heads and supervisory staff to enable them to do their task with ease and efficiency.

What do you mean by Sales Organisation? Explain the various steps in setting up Sales Organisation. 

Material Management: Functions, Challenges.

 Q. Discuss the functions of ‘Materials Management’. Mention the challenges of Materials Management in today’s competitive business. 

Ans. Materials management is ideal for industries who track the flow and manage the materials in their enterprises. The functions of materials management are as follows: 

1) Material Requirement Planning: The material require planning includes production scheduling and inventory control. It is a control system through which adequate inventory levels can be maintained to assure the adequate and required material can be provided as and when needed. This is not suitable for job shops or for continuous processes that are tightly linked with each other. MRP system meets the following three objectives:

i) To ensure that materials are available for production and products are available for delivery to customers.

ii) To maintain lowest possible level of inventory.

iii) To plan manufacturing activities, delivery schedules and purchasing activities.

Or 

The basic function of material management is material requirement planning. This planning can be done with the help of computer and it includes production and inventory control scheduling.

2) Purchasing or Procuring of Materials: The materials department is supposed to provide the right material at right time in right quantity at right price. The department should procure the material from the right source. For this the materials department is to select the best sources of supply from the available alternatives. 

3) Storage of Materials: Once the material is received, its physical control, preservation, minimization of obsolescence, loss or theft or damage should be safeguarded through efficient handling. Proper records should be maintained and stocking is done in stores at proper locations. Storing function also includes inspection of material purchased and issuing of materials. This function also includes coding of items, preparing indexes showing code number and place or room number or godown number or cupboard number or preparation of bin-cards etc. 

Or 

The storage of various types of materials and spare parts as inventory is very important before delivering it to the end users and to different production centres for use by them. Proper records....... same as above.

4) Issue of Materials: Issue of materials mean supply of material from store to those various departments of the organisation who demands it. For this purpose, the department is to submit requisition slip to the store. On the basis of requisition slip, the storekeeper will issue the material to the concerned department.

5) Inventory Control: Inventory control involves the procurement, care and disposition of materials. Inventory includes raw materials, work-in-progress, and finished goods. The reasons for inventory control may be for maintaining the continuity of production and sale, minimising the stock-out cost, controlling the investment of working capital in stock, etc. Therefore, it is necessary to ensure the sufficient goods on one hand to avoid stock-outs and the safeguard the wastage of material on the other to protect the capital. Different techniques like EOQ, minimum and maximum stock levels, reorder level, ABC analyses, stock register, etc., can be followed. The process of inventory control involves the following:

(i) Determination of optimum levels of inventory,

(ii) Determination of level of control required.

(iii) Designing the inventory control system

(iv) Establishing the inventory control organisation.

6) Material Handling: After receiving the materials, the stores incharge has to check the weight and inspect the quality of them. If it is found right, then he stores them properly so that it can be issued to factory when needed for production. Material handling involves movement, packaging, transfer and delivery of materials starting from receiving of materials to final distribution of finished goods to consumers.

7) Disposal of Scrap: Scrap is the waste that either has no economic value or only the value of its basic material content by selling that. It includes wastage, spoilage, used and repairable tools, oils, equipment, etc. In addition, it also includes the obsolete parts. It is the duty of the materials manager to dispose off or selling of those materials by inviting tenders from scrap dealers or through auction.

8) Vendor Evaluation and Vendor Rating: Under this system, evaluation of a supplier is

done through recording and ranking of performance in terms of a variety of issues including quality of materials and delivery performance. This process is necessary for effective purchasing. Vendor rating is the result of a formal vendor valuation system vendors or suppliers are given standing, status or title according to their attainment of some level of performance such as delivery, lead time, quality, price, etc. The purpose of vendor rating is to improve the quality level of the suppliers performance and to use the results of the evaluation in the qualification system and when awarding contracts.

9) Purchase Analysis and Research: Analysis  and research in the purchase is the systematic investigation of all related aspects. It also includes the investigation of all sources of supply and selection of best and suitable material from the various available materials. This function also includes the analysis and research of the fact that how the prices of materials can be reduced and the quality can be improved. What can be the alternative sources of supply in case of short supply of material, etc.

10) Transport and Traffic Management: Materials manager supervise many aspects of transportation systems including planning, logistics, maintenance and repair. These managers focus on getting materials, people and goods from one place to another while considering safety, efficiency and cost. Transport management helps in enlarging the market for finished goods. Under the transport management, the materials manager has to arrange the safe, rapid and economical transportation for incoming and outgoing materials. It will help in increasing the number of perfect orders, improve the quality of customer service, etc.

CHALLENGES OF MATERIALS MANAGEMENT: The materials management has to face the following challenges: 

1) What to Stock?: The first and the most important challenge faced by materials management is what items need to be stocked? Which items are available on demand and which are not available. Whether the goods can be arranged from alternative vendors or not. 

2) How Much to Stock?: After deciding the goods to be stocked the materials manager has to decide how much stock is to be maintained in the store. For this purpose, they have to calculate minimum and maximum inventory levels, reorder points safety stocks economic order quantity, etc., for each type of raw material separately. 

3) Inventory Turnover: Inventory turnover ratio is very important from the view point

of profitability and liquidity. Higher ratio indicates that the less amount is locked up in inventory and as quickly as the stock is converted into sales, it will result in profits. Therefore materials management has to fix the desired turnover ratio. They also have to develop the techniques for improving the ratio without impacting maintenance and operations.

4) Forecasting of Demand: Materials planning is done on the basis of short-term sales forecast. Hence the materials planners have to always find out how much material will be required because neither the material supply should be in short nor in excess.

5) Government Policies: If the material is to be imported from other countries. Then the materials department may have to depend on the import policy of the government, foreign exchange availability, credit availability, etc.

6) Scarce Financial Resources: Scarce financial resource is the another challenge for materials management as on the one hand money/finance is limited and on the other hand sufficient material should be available for production on right time. Thus the materials manager has to maintain the balance between the two and has to arrange the material within limited resources.

7) Storage Space: Storage space is the another challenge for materials management. As everyone knows the prices of land and building are rising, therefore the management may allocate a little space for storage. The materials manager has to keep the stock of raw-materials and spare parts in the allocated space.

8) Obsolete and Surplus Material: The presence of obsolete and surplus material is a problem for all the companies. Obsolete materials may exist due to change in engineering activities. Whereas surplus material may be due to over procurement, uncontrolled production operations and inefficiency. In both the cases firm has to bear the expenses for space as well as for wastage of material. The materials manager has to plan for reducing such type of costs.

9) Selection of Appropriate Vendors: The another challenge for materials manager is the selection of appropriate vendors. Evaluation of suppliers is a process that leads companies to select their desired suppliers. It has two objectives, to reduce all costs of purchasing and to increase the overall value of engineering. Thus the materials manager has to maintain a balance between the cost and quality.

10) Managing Information: The materials manager has to keep himself updated always regarding new materials, new spare parts, new machinery, new techniques so that they could be implemented in the organisation.

Discuss the functions of ‘Materials Management’. Mention the challenges of Materials Management in today’s competitive business. 

Best Judgement Assessment.

Q. What is meant by the expression ‘Best Judgement Assessment’? Under what circumstances can recourse be had to this method of assessment? Are there any remedy open to the assessee against such assessment? 

Ans. MEANING OF BEST JUDGEMENT ASSESSMENT: In Best Judgement Assessment, assessing officer should really base the assessment on the best of his judgement. The law states he must act honestly not vindictively (बदला लेते हुए). He must make fair estimate of the income for the proper assessment. For that, he must be able to take into consideration the local knowledge and repute in regard of assessee’s circumstances and his own knowledge regarding previous returns and assessments of the assessee and other matters which he thinks will help him in making proper assessment. It is purely a guess work. It is also known as ex-parte assessment. If appeal is file against Best Judgement Assessment, the assessing officer shall have to disclose the basis of a judgement befote appellate authority. 

Best Judgement Assessment can be compulsory or discretionary. 

Compulsory Best Judgement Assessment: Sec. 144 empowers the Assessing Officer to make assessment to the best of his judgement in the following circumstances:

(i) Where assessee has failed to file voluntarily return u/s 139(1) or no return has been made in response of the notice of the Assessing Officer.

(ii) Where there has been failure to comply with the terms of notice issued u/s 142(1) requesting the assessee to produce the books of accounts or he fails to get his accounts audited u/s 142(2A).

(iii) To verify the correctness of the return, assessing officer serve the notice upon the assessee u/s 143(2) asking him to attend the office or to produce the evidences in support of the return but the assessee does not comply with the terms of such notice. 

Consequences of Best Judgement Assessment: There are four consequences of a Best Judgement Assessment: 

(i) The assessee becomes liable to penalties u/s 272A. 

(ii) The assessee becomes liable to prosecution u/s 276CC and 276D.

(iii) A refund may not be granted.

(iv) The assessee is prevented (रोक दिया जाता है) from bringing on record any new facts before the appellate authority if appeal is filed under best judgement assessment. 

Remedies against Best Judgement Assessment: If assessee is in opinion or feels that excess tax has been imposed by the assessing officer then–

(i) He can appeal to the Commissioner (appeal) against the order of assessing officer.

(ii) He can appeal to the Tribunal against the order of Commissioner (appeal).

(iii) He may go to high court.

(iv) He may apply to the Commissioner for revision.

Discretionary Best Judgement Assessment: If assessing officer is in the opinion that the accounts maintained by the assessee are incorrect or no proper system employ for maintaining accounts ot income has not been computed in proper way, he can make the assessment at his own discretion.

Define an Entrepreneur. Explain the characteristics and functions of entrepreneur.

 Q. Define an Entrepreneur. Explain the characteristics and functions of entrepreneur.

Ans. MEANING OF ENTREPRENEUR: The word ‘Entrepreneur’ is derived from the French word ‘entreprendre’ which means to undertake. Thus, entrepreneur is the person who undertakes the risk of new enterprise. 

The meaning of the term entrepreneur varies from person to person and from period to period. To a layman, an entrepreneur is a person who starts his own budiness or industry and organises different factors of production and marketing processes for the purpose of earning profits. It has also different meaning from different area of subject. To an economist, an entrepreneur is a person who combines the different factors of production for enhancing his values and initiates changes. To a psychologists, he is a person who ventures in the dark and deep area of uncertainty and unknown opportunities and explores new possibilities. To a businessman, he is a person who peruses his capabilities aggressively and explores new opportunities amidst changing environment. In many countries, the entrepreneur is often associated with a person who starts his own new and small business. Business may be manufacturing, transport, trade and other self employed vocations in the service sector. 

DEFINITION OF AN ENTREPRENEUR: An entrepreneur is someone who utilises land & labour, invests in capital and resources and aims at producing goods or delivering services. 

1) Richard Cantillon was the first person to use the term entrepreneur to refer to economic activities. He defined an entrepreneur as– “An entrepreneur is the agent who buys factors of production at a certain price in order to combine these into a product with a view to sell it at uncertain prices.” 

2) According to F.H. Knight, “Entrepreneurs are a specialised group of persons who bear risk and deal with uncertainty.” 

CHARACTERISTICS OF AN ENTREPRENEUR: Some common characteristics of the entrepreneur can be commitment, leadership, risk bearing, motivator, confident etc. The important features are as follows:

1) Calculated Risk Taker: Every business situation involves the possibility of profit or loss. An entrepreneur always goes for a calculated risk taker. He accepts the risk as a challenge. He acoids the low risk situation due to absence of challenge but ar the same time he does not involve himself in highly risky situation as he knows the chances of failure. He maintains the balance between two situations and goes for achievable/affordable challenges. He prefers to take realistic risk because he wants to succeed. So, an entrepreneurs are not risk taker rather they are risk eliminators. They work in such a way that obstacles that come in the way of their project can be removed. 

2) Desire for Responsibility: This is a fundamental characteristic of an entrepreneur who feels deep sense of personal responsibility for the results of the project he starts. He prefers to control over the resource, which he uses for achieving self determined goals. 

3) High level of Energy: or Hard working: Entrepreneur is more energetic than the ordinary man. Hard work and long working hours are common feature of an entrepreneur. They are inspired by inner urge and by the motivational stories of great achievers. The young intelligent and creative entrepreneur like to work 12 hours or more a day just to avoid having to work 8 hours a day for some one else. 

4) Innovator: An innovative entrepreneur sees the opportunity for introducing a new technique or a new product or a new market. He explores new market and organises the enterprise. He exploits the invention commercially and thus produces new and better goods which give him profit and satisfaction. 

5) Creative: Creativity is a special ability to find new ideas implementing such changes in an acceptable way. Further successful innovation depends upon the creativity. It is one of the most important requirements of an entrepreneur to be creative. 

6) Commitment and Determination: Entrepreneurs generally have high level of energy due to which they are committed to the successful execution of their plan. They are devoted to their business with a deep sense of determination for success. Both commitment and determination is generally seen in their action. 

7) Future orientation (Vision): Entrepreneur looks beyond the present and concerns himself with considering what can be done in the future rather than brooding on what was done in the past. They do not like to sit back. They stay focused on the future. They work with a vision for growth, committed to constructive change. 

8) Self confidence and Optimistic: Entrepreneurs direct their abilities towards the accomplishment of goals with ups and down in the strength. They have to face many ups and down in the business. But they believe in themselves and handle the situation confidently. They work with a positive approach and optimistic attitude. Entrepreneurs not only maintain their confidence and optimism, but they also raise the level of their team members also. 

9) Organiser: An entrepreneur knows now to bring together the right people for accomplishing a task. He effectively and efficiently combines jobs and people and transforms his vision-into reality.

10) Integrity and Reliability: Entrepreneurs do not like to be controlled by others. They prefer to work independently specially for themselves. They like to take initiative for solving the problem. They always own the responsibility for the outcome of the project with which they are associated.

11) Socially Responsible: Entrepreneur remains fully aware abut his responsibility towards society. He understands that fact the society also expects from him. He tries to do so by creating employment opportunities, by creating new product, innovative products, quality products, fair price and quality assurance etc. He does things in an effective and efficient way. Proper Utilisation of resources made by him, i.e. also considered as a contribution to society. So, the old concept of making profit for only himself is no more followed or accepted these days.

12) Flexibility: Entrepreneur keeps himself updated regarding changes in the environment. He is capable of adapting himself to the varying demands of business and customers. He clearly understands that rigidity (inability to change) may lead to failure in today fast changing global economy.

13) Technically Competent: Technological change is the prime mover in the process of economic growth. Inventions and innovation have led the process of development in the world. The success of an enterprise largely depends upon the adoption of the present prevailing technology. Entrepreneurs are technically competent these days. They generally have a reasonable level of technical knowledge. They keep themselves updated in the changing pattern of production, suited to their requirement. 

14) Communication Ability: Communication plays an important role in the success of an enterprises. Entrepreneurs these days possess the quality of good communication. They are well equipped with the importance of communication and the use of latest technology in the process of communication.

15) Tolerance for Ambiguity: Entrepreneur tend to have a high tolerance for ambiguity, especially in the face of uncertainty and unknown outcomes. They handle the uncertainty with their will and skill by making bold decisions. They face the adversity bodly and bravely.

FUNCTIONS OF AN ENTREPRENEUR: Entrepreneur is a person who performs many useful functions. He undertakes a venture, assumes risks and earns profits. Some of his most important functions are as under: 

1) Assumption of Risk: Risk taking or uncertainty bearing implies assuming the responsibility for loss that may arise due to unforeseen contingencies of the future. A business risk also involves the risk due to possibility of change in the taste of consumers, technique of production, new invention etc. The entrepreneur has to bear these high degree of risks. He assumes all possible risks of the business. Thus, risk assumption and risk bearing is the most important function of an entrepreneur. He tries to reduce risk with his initiatives, knowledge and skills and good decisions. 

2) Business Decision: Entrepreneur has been stated as a decision maker also. He has to decide the nature and type of goods to be produced or services to be rendered in the society. He decides the specific industry into which he will work and get a reasonable return. He has to decide the best possible method of production. He makes suitable changes in the size of business, its location, technique of production and does everything that is needed for the maintenance and development of the business.

3) Managerial Functions: Entrepreneur has to perform a lot of managerial functions in his enterprise. There are different types of managerial functions that an entrepreneur has to perform and these are based on the size and activities of the enterprises. These functions include formulation of production plan, arrangement of finance, purchase of raw material. procurement of production facilities, organisation of sales, personnel management and so on. Further administrative functions of recruitment, selection, etc. This is considered to be very tough job. However, in a large establishment, these managerial functions can be delegated to the paid subordinates.

4. Functions of Innovation: According to Schumpeter, an entrepreneur is basically an innovator who introduces new combinations of means of production. It is the entrepreneur who conceives the idea for the improvement in the quality of product line. He considers the economic viability and technological feasibility of the total project. It is this function of the entrepreneur which injects the elements of dynamism into the economic system.

Thus, Generally, an entrepreneur performs many useful functions for the development of the society and it satisfies the needs of the various stakeholders in the enterprises.

Define an Entrepreneur. Explain the characteristics and functions of entrepreneur.

Personal Selling: Meaning, Advantages and Limitations

 Q. What is Personal Selling? Explain its advantages and limitations.

A. Meaning of Personal Selling: Personal selling is one of the elements of promotion mix of marketing along with advertising, sales promotion and publicity. In personal selling, direct contact is made between salesman and customer. It is a face to face communication. Personal selling is a process involving face to face interaction between prospective buyer and salesman, where the purpose is to persuade the buyer to purchase the product. Personal-selling makes use of direct personal communication to influence target customers. Personal selling is more flexible than other tools of promotion mix, because salesmen can adjust their message according to the response of prospective customers.

Advantages of Personal Selling: The main advantages of personal selling are as follows: 

(1) Immediate Feedback: Unlike advertising, personal selling is a two-way communication that takes place between buyer and salesman. So, salesman can get immediate feedback from the prospective buyer. 

(2) Flexible: Personal selling is flexible as sales presentation can be adjusted as per the need, reaction, availability of time and response of prospective buyer.

(3) Demonstration: Personal selling is the only component of promotion mix where physical demonstration of product is possible. Salesman demonstrate the product and explain the method of using the product. 

(4) Most suitable for Technical and Industrial Products: Technical and industrial products are marketed through personal selling as their number of customers is small, the producer are costly, requiring personal convincing, products are technical, requiring detailed explanation of technicalities of the product. So, in case of technical and industrial products, personal selling is more suitable than advertising.

(5) Minimum Wastage of Selling Efforts: In personal selling, selling efforts can be directed towards target customers, whereas in case of advertisement, message is directed to the mass audience, which may include persons who have no interest in the advertised product.

(6) Clarification of Doubts, Queries and Objections: While making sales call, the prospective customer can raise his doubts, queries and objections. The salesmen can solve his doubts, which is not possible in case of other components of communication mix. 

(7) Performs Entire Selling Job: Personal selling performs all the activities of selling process like informing about the product, persuading the buyer to buy the product, actual selling of product, whereas in advertising, actual selling cannot be done. For example, companies like Amway, Tupperware are selling their products through personal selling.

(8) More Customer Satisfaction: In personal selling, there is face-to-face communication between salesmen and customer. Customer gets his doubts cleared, he also learns about the method of using the product from salesman, hence customer feels more confident in his purchase decision. All this promotes level of customer satisfaction.

(9) Very Suitable for Marketing of Services: Services like banking, insurance can better be marketed through personal selling, because through personal persuasion, the buyer is made to realise the need of services.

(10) Creation of Demand: Pioneering salesmen are helpful in creating new uses of the product, searching new customers, thus creating demand and promoting sales of the organisation. These salesmen create desire in the mind of prospective customer and convert this desire into demand.

(11) Promotes New Products: With the fast changes in technology, various new products are entering into the market. Personal selling is very useful in marketing of such new products. Personal salesmen carry these products and convince the prospects regarding the uses of these new products. It helps the organisation to promote the new products. 

(12) Increases Knowledge of Customers: While making sales calls salesmen display the product, convey its uses, method of handling the product and clarify the doubts, queries of the prospects. Salesmen also provide knowledge about the product viz., how this product can be installed, from where it can be purchased, repaired, etc. All this increases the knowledge of customers.

(13) Collects Market Information: Salesmen are in direct contact with the prospective buyers in the actual market situation. Salesmen collect first hand information about the liking, disliking, desires, doubts, objections, queries, suggestions of customers and send all this information to the top management. This information is very useful in future decision making and sales planning.

(14) Increases Employment: Personal selling provides employment to various persons who are working as salesmen.

(15) Helpful in Facing Competition: Personal selling helps the organisation in facing competition. In case of high competition, personal selling is very useful tool of promotion mix.

(16) Helpful in Relationship Marketing: Through personal selling, organisations can develop and maintain long term relationship with customers. Personalised customer services are provided which improve relations with customers. It, in turn, helps to procure repurchase orders.

Limitations of Personal Selling: Despite its benefits, personal selling has some limitations which are as follows:

(1) Very Costly: For personal selling, business unit will have to appoint a large sales force. If number of customers is large and customers are scattered, then personal selling proves very costly as travelling expenses of sales force will be more.

(2) Turnover of Sales Force: Business unit has to spend large amount on recruitment, selection and training of sales force. But when salesmen leave the job, it is a loss to the business unit. Salesmen turnover also badly affects the image of business unit.

(3) Not Much Useful for Convenience Consumer Goods: Personal selling is not much useful for selling convenience consumer goods like toothpaste, soap, pens, etc as here profit margin is low and it cannot justify the cost of sales call.

(4) Inefficient Sales Force: If sales force is inefficient, untrained, short-tempered, inexperienced, then personal selling will not be effective.

(5) Time Consuming: It takes lot of time to contact prospective customers. If immediate results are required, personal selling is not suitable.

(6) Busyness of Customers: Now-a-days, everyone has very busy life. The target customers often avoid salesman. When a salesman comes to make sales call, people don't even allow him to enter the house on one pretext or the other.

(7) Wrong Tactics Adopted by Some Salesmen: Some salesmen cheat the buyers by stating wrong facts about the product. This affects the profession of salesmanship badly as salesmen lose trust-worthiness.

What is Personal Selling? Explain its advantages and limitations.

“A company is an artificial person created by law having a separate entity with a perpetual succession and a common seal.” Explain this statement and discuss the basic features of the company.

 Q. “A company is an artificial person created by law having a separate entity with a perpetual succession and a common seal.”  Explain this statement and discuss the basic features of the company.

Ans. A company is an artificial person created by law. It has not any hand, leg, heart or physical body. Its existence comes when a company is formed and registered under company law. After coming in existence, it can do all business work like a human businessman. It can open its bank account. Company can buy or sell any asset on its own name. Company gets loan on its own name. It can sell own shares in the market. 

There will not any effect on the company whether any shareholder will come or go. Company will live if any shareholder sells his all shares. Other person who will buy the shares will become the new owner of the company. Company will not have any personal relation with shareholder. Every shareholder’s liability upto his bought shares.

It has also its own a common seal. This seal will use in all the agreements which will done on the name of company. Company cannot sign, so it is very necessary for making common seal which company can use as showing his identity on every agreement. All the documents will only legal if authorised person’s sign will be on the document and company’s seal will be on the same document.

FEATURES OF COMPANY: The main features of a company are as follows: 

(1) Incorporated Association: A company is established by law, and can exist till such time as it is recognised by law. Under companies Act, it is necessary for a company that is formed to be registered i.e., it needs to be incorporated.

(2) Artificial Person: Another important characteristic of a company is that it is an artificial person created by law. It is called an ‘artificial person’because its birth is not a natural birth. It is invisible, intangible and immortal artificial person that has an identity only in the eyes of law. It has no body, no soul and suffers no pain and enjoys no pleasure. Being an artificial person, it cannot take an oath, be imprisoned or personally appear in a court of law. It cannot get married or become a professional like a doctor or a lawyer. But it cannot be treated as a 'fictional person' or a 'fictitious entity' because it really does exist. Like a natural person, a company can buy and sell properties, make agreements or enter into contracts and employ people on its payroll. It can also be penalised if it does not abide by law. In other words, it can be said that a company, though lifeless, enjoys the privileges of a living person.

(3) Separate Legal Entity: The most important characteristic of a company is that it is a separate legal entity. As per-law, the company acquires a separate legal entity after it is incorporated which is distinct from the entity of its members. As a result, a company can enter into a contract with any of its members, buy property in its name, borrow or lend money, open a bank account or file a suit in a court of law against a third party. Likewise, others can also file a suit against the company. In other words, a company can do all such acts which a natural person would do in the course of his business. The case of Solomon Vs. Solomon & Co. is an illustration.

(4) Perpetual Succession: Perpetual succession is another important characteristic of a company. Its existence is not dependent on that of its shareholders or directors. The shareholders or the directors might change, but the company goes on. Death, insolvency or lunacy of its members has no effect whatsoever on the existence of the company. Members may come and members may go, but the company goes on forever. 

(5) Common Seal: A company is an artificial person and, as such, it cannot put its signature on documents. That is why it is mandatory under law that every company must have a common seal with its name engraved upon it. The common seal is the symbol of the company’s identity and is as good as a signature. When it puts its seal on a document, the company becomes bound by the contents of the document.

(6) Limited Liability: The liability of the shareholders of the company is limited. In case of financial loss to the company, howsoever heavy, the liability of the shareholders is limited to the amount unpaid on their shares, and their personal property cannot be used to pay the company debts.

(7) Number of members: The minimum number of members in a public company is seven and the maximum can be as much as the shares issued by the company. In other words, the maximum number of members in a public company is indefinite and is not specified. In a private company, the minimum number of members is two, and the maximum is two hundred, excluding members who are or were employees of the company.

(8) Representative Management: A company is deemed to be an artificial and imaginary person and, as such, it cannot manage its own affairs. A company, is administered and managed by representatives appointed by the shareholders. The shareholders are too many in number and scattered far and wide– which makes it impossible for the company affairs to be controlled by them. Besides, the objective of the shareholders is to make a profit– not to run the company’s business.

(9) Limitation of Action: A company is incorporated for the realisation of a specific objective or objectives. The objectives of the company are described in its prospectus and define the limitation of the companies activities. No company can cross this 'limitation of action' and engage itself in an activity which is not listed in its prospectus. If a company does that, its actions are not recognised by law and are deemed to be beyond the sphere of its authority. A company cannot, of its own will, start a new business or change its field of activity and do something which does not conform to its objectives.

(10) Transferability of Shares: The capital of a company is made up of shares of a definite value, and is contributed by its shareholders. According to Section 44 of the Companies Act, 2013, each shareholder can freely transfer his or her shares. But in some specific situations, the company may impose restrictions on the transfer of shares.

(11) Termination of Existence: Like it is born by an act of law, a company may also be terminated by law.

(12) Company is not a Citizen: A company is, without doubt, a legal ‘person’ or entity, but

under Article 19 of the Indian Constitution, it is not a citizen. It has no 'fundamental rights like a citizen has. As such, a company cannot take the recourse of law to press for its fundamental rights like a citizen can. For example, a company does not have the right to franchise.

“A company is an artificial person created by law having a separate entity with a perpetual succession and a common seal.” Explain this statement and discuss the basic features of the company.