(Study Material) Commerce : Study Material (Organizational Behaviour)

Human  Relation Movement

MBA Organizational Behaviour
In human relations movement, according to Fred Luthans three major events took place, describe these with suitable examples.
According to Fred Luthans three events are
(a) The great depression
(b) The Hawthorne experiments and
(c) Rise of trade unionism

THE GREAT DEPRESSION:
The economy was operating in the high gear just before the thundering financial crash occurred in 1929.the production and the organization specialists had achieved great result s prior to the crash. After the crash the management began to realize the production could no longer be the only major responsibility of management. Marketing, finance and more importantly personnel were also required in order for a business to survive and grow. The depression‘s due to unemployment, discontent and insecurity brought and cope with. Personnel department were either created or given more importance and most managers now began to develop a new awakened view of the human aspects of their jobs. Thus human relations took an added significance, as an indirect, and in some cases direct.

THE RISE OF TRADE UNIONISM:
Another important factor contributing factor to the rise of human relations role of management was the organized labour movement. Although labour unions were in existence in America as early as 1792, it was not until the passage of Wagner act in 1935 that the organized labor movement made an impact on management. In India, though workers unions existed since the later half of the 19th centaury, they operated under terrible legal constraints. It was only in 1926 with passage of trade union act 1926 that the manager began realizing that the trade union had come to stay in spite of the wishes of the managers or for that matter management. The only go to avoid any portable friction with the trade union was to understand the human relations role of the management

HOW THORNE EXPERIEMENTS:
Western electric co. conducted Hawthorn works a research program in the work situations which affects the morale and productive efficiency of workers. During research the company was aided by suggestion of Prof. Elton mayo and his associates from Harvard University. Because large part that Harvard played in the project it is often referred to as the Hawthrone-Harward experiments or studies The Hawthorne studies represents the pioneer attempts to make a systematic and intensive study of the human factor and to demonstrate the utmost complexity in work setting where people interact in small groups under varied organizational conditions. Like any experiments design the researchers manipulated the independence variable (illumination) to observe its effects on the dependent variable and attempted to hold other factors under control. The following are the broad segments of the study

(a)Illumination experiments (1924-1927)
To study the effects of changed illuminations on work, some groups of employee were formed in one group the illumination remained unchanged throughout the experiments whereas in other group (experimental group) the illumination was enhanced in intensity. Meanwhile the productivity in experimental group showed an improvement. But strangely the output of the control also went up. The researchers then preceded to decreases the illumination for the experimental group. The output went up. Everybody recognized there wads something much more important other than wages, hours, working condition, which influences the productivity.


(b) Relay room experiments.
The relay room experiments were initiated in 1927 represents the actual beginning of the Hawthorne studies. Taking a clue from illumination experiments the research continued taking 2 girls for the experiments. These girls were asked to choose other 4 girls and, made a small group of 6.the group was employed in assembling telephone relays. The experiments started by introducing numerous changes each of which continued for a test period ranging from four to twelve weeks. Under normal working conditions with a forty eight hour week and no rest pauses, each girl produced 2400 relays week. These girls were then placed on piece of work basis for 8 weeks and productivity increased. Next, two five minutes rest pauses introduced and afterwards increased to n10 minutes. Productivity increased sharply. Company provided hot meal free of charge, the productivity increased. After all these amenities withdraw and girls returned to their normal working condition with 48hours/week, and no free meals. But still the productivity was highest. The productivity increased because of girls attitudes towards their works. The group developed a sense of responsibility and self discipline

(c) Second relay room and mica splitting test room experiments
In the mica splitting study, although the isolated test room conditions of the original relay study were reproduced, the workers were engaged under their normal individual piece rate plan rather than small group incentive schemes employed with the lay room experimental subjects. As result the productivity increased 15% during the period of 14 months.


(d) Mass interviewing program
Another major aspect of the Hawthorne studies consisted of 21000 interviews carried out during1928 to 1930.the original objective was to explore information, wich could be used to improve supervisory training. Initially these interviews were conducted by means of direct questioning. But this method had disadvantage of simply yes or no response. Thus the method has changed to non directive interviewing where the interviewer was to listen instead of talk, argue or advice, and take on the role of confidant.
 

(e) Bank wiring room study:
The chief objective was to conduct an observational analysis of the work group.
In this experiment 14 men were chosen for bank wiring. This was the process where two lose wire ends were soldered. In that 9 were wiremen, 3 solder man, 2 inspectors. The job involved attaching wires to switches for certain parts of telephone equipment. The study involved no experimental changes once it had started it were carried out by 2 persons-an observer and an interviewer. The interviewer remained as an outsider and his task was to explore as much possible by interviewing the individual worker .he carried his work in strict confidence, privately and in different part of the company. He never entered wiring room. the result of the bank wiring room which are marked apposite to those obtained relay room, revealed that this small group of workers emerged as a team with informal leaders who had come up spontaneously. The group was indifferent towards the financial incentives of the factory .the output was neither more nor less. This implies that it would be irrational to break up these groups.

Definition

Define organizational behavior, what are the basic assumptions which you come across during the study of this subject.
Organizational behavior is the study of what people think, feel and do in and around organizations. It explores individual emotions and behavior, team dynamics and the systems and structures of organizations. Organizational behavior seeks to provide an understanding of the factors necessary for managers to create an organization that is more "effective" or "successful" than its competitors.

It is the study of the performance of individuals and groups in different structures and cultures within the work place.

According to Keith Davis “organizational behavior is the study and application of knowledge about how people act within organizations. It is human tool for the human benefit. It applies broadly to behavior of people in all type of organization such as business, government, schools, etc. it helps people, structure, technology, and the external environment blend together in to an effective operative system”.

Fred Luthans defines organizational behavior as “understanding, predicting and controlling human behavior at work”.

Stephen Robins defines as a “field of study that investigates the impact that individuals, groups, and structure have an organization for the purpose of applying such knowledge improving an organization’s effectiveness”.
 

THE BASIC ASSUMPTIONS ARE:
An industrial enterprise is an organization of the people.
These people are motivated to work effectively.
The goals of employers and employees are not necessarily coincide.
The policies and the procedure adopted in an enterprise may influence people in the directions not always foreseen by the policy makers.
A Enumerate the basic fundamental concepts of organizational behavior .also give out various 4 models with facets one can read in this subject study
every discipline of study has certain set of individual concepts. They are the foundation stones on which the entire edifice of the discipline is developed. In the discipline of accountancy the fundamental concepts is “for every debit entry there will be a credit entry”. In the natural science the fundamental concepts is the concepts of uniformity of nature. In simple word we can explain fundamental concepts of, organizational behavior revolve around the nature of human being and the nature of organization. These fundamental concepts help manager understand some basics of human behavior at work The discipline of organizational behavior has fundamental concepts revolving round the nature of people and the nature of organizational. The concepts dealing with the nature of individual are four. They are
 

1. Individual difference
2. Whole person
3. Motivation
4. Human dignity

INDIVIDUAL DIFFERENCE:
In spite of all the human being similar every one is different. Every one has a different gift of nature. Different quality of intelligence, Different perception and the different ways of behavior. The concept tells that every person is an entity in him. When it comes to human behavior there can not be a prescriptive solution. Every person is to be treated differently even though two people have the same behavioral problems. The concept tells that manager that he had better be aware of his own stereotype. This concept not only tells that a manger should treat every person as an entity in himself but he should also examine his own stereotypes.

WHOLE PERSON:
In olden day’s employee were refereed to as hands implying that the organization hires only the hands of man. Nothing can be farther from the truth. An organization hires not only the hands of employee but hires complete men with all his pluses and minuses. At the same since a person performs many roles at the same times the happenings is one role are bound to affects the behavior in other roles of the person. The concept tells the manager than when it comes to behavioral problems, he must also take into account the other roles of the person. If the whole person is to be developed than only the benefits will extend beyond the organizational to the entire society. In which the employee lives MOTIVATION: THE concept reminds the manger of the law enunciated by Newton that every action has an equal and opposite reaction. This means the manager, by his own behavior, can cause an employee behave in a particular way. Is he is respectful to his employee they are bound to be respectful to him not otherwise

HUMAN DIGNITY: THIS CONCEPT IS OF DIFFERENT ORDER FROM OTHER THREE BECAUSE IT IS MORE AN ETHICAL PHILOSOPHY TAH A SCINTIFIC CONCLUTION.IT CONFIRMS THAT PEOPLE ARE TO BE TREATED DIFFERENTLY FROM OTHER FACTORS OF PRODUTION. Because they are of higher order, they want to be treated with respect of dignity, when every one, the employee, the manager as the CEO of an organization is engaged in the same pursuit. The pursuit of enabling their organization to achieve the objections for it has come in existence. Thus they are on the equal footing. The concept tells that every person should be respected simply because he happens to be an employee just as the manager is.

Freud Theory

Describes the theory of unconscious behavior as shaped by Sigmund Freud. Give out the characteristics of needs or motives which are directed to satisfy by human behavior.
The concepts of motivation are the central part of organizational behavior. Whenever a Certain behavior is be encouraged is be encouraged give rewards. Whenever a certain behavior is to be discouraged, give punishment. But human behavior is not always motivated either by rewards or by punishment or both. Much of the human behavior is instinctively based. The instincts behavior may be jealously, love, anxiety, fear, lust ext.

Implicit in the industrial approach to human behavior is the hint that human behavior is unconscious behaviorist was Sigmund Freud (1856-1939, Sigmund Freud, physiologist, medical doctor, psychologist and father of psychoanalysis, is generally recognized as one of the most influential and authoritative thinkers of the twentieth century) However, who shaped the theory of unconscious behavior. Freud's theory of the unconscious, then, is highly deterministic, a fact which, given the nature of nineteenth century science, should not be surprising. Freud was arguably the first thinker to apply deterministic principles systematically to the sphere of the mental, and to hold that the broad spectrum of human behavior is explicable only in terms of the (usually hidden) mental processes or states which determine it. Thus, instead of treating the behavior of the neurotic as being causally inexplicable - which had been the prevailing approach for centuries - Freud insisted, on the contrary, on treating it as behavior for which is meaningful to seek an explanation by searching for causes in terms of the mental states of the individual concerned. Hence the significance which he attributed to slips of the tongue or pen, obsessive behavior, and dreams - all, he held, are determined by hidden causes in the person's mind, and so they reveal in covert form what would otherwise not be known at all. This suggests the view that freedom of the will is, if not completely an illusion, certainly more tightly circumscribed than is commonly believed, for it follows from this that whenever we make a choice we are governed by hidden mental processes of which we are unaware and over which we have no control.

The postulate that there are such things as unconscious mental states at all is a direct function of Freud's determinism, his reasoning here being simply that the principle of causality requires that such mental states should exist, for it is evident that there is frequently nothing in the conscious mind which can be said to cause neurotic or other behavior. An 'unconscious' mental process or event, for Freud, is not one which merely happens to be out of consciousness at a given time, but is rather one which cannot, except through protracted psychoanalysis, be brought to the forefront of consciousness. The postulation of such unconscious mental states entails, of course, that the mind is not, and cannot be, identified with consciousness or that which can be an object of consciousness - to employ a much-used analogy, it is rather structurally akin to an iceberg, the bulk of it lying below the surface, exerting a dynamic and determining influence upon the part which is amenable to direct inspection, the conscious mind Deeply associated with this view of the mind is Freud's account of the instincts or drives. The instincts, for Freud, are the principal motivating forces in the mental realm, and as such they 'energies' the mind in all of its functions. There are, he held, an indefinitely large number of such instincts, but these can be reduced to a small number of basic ones, which he grouped into two broad generic categories, Eros (the life instinct), which covers all the self-preserving and erotic instincts, and Thanatos (the death instinct), which covers all the instincts towards aggression, self-destruction, and cruelty. Thus it is a mistake to interpret Freud as asserting that all human actions spring from motivations which are sexual in their origin, since those which derive from Thanatos are not sexually motivated - indeed, Thanatos is the irrational urge to destroy the source of all sexual energy in the annihilation of the self. Having said that, it is undeniably true that Freud gave sexual drives an importance and centrality in human life, human actions, and human behavior which was new (and to many, shocking), arguing as he does both that the sexual drives exist and can be discerned in children from birth (the theory of infantile sexuality), and that sexual energy (libido) is the single most important motivating force in adult life. However, even here a crucial qualification has to be added - Freud effectively redefined the term 'sexuality' here to make it cover any form of pleasure which is or can be derived from the body. Thus his theory of the instincts or drives is essentially that the human being is energized or driven from birth by the desire to acquire and enhance bodily pleasure.

Freud reasoned that human behavior is like an iceberg. Only small part of which is visible. However, the part of iceberg, which is not seen, controls the seen part. According to him human personality are always conflicting with three constructs. The final outcome, which is the observable behaviour, is the product of this conflict. So he got an idea that this is the reason why many a times a human can not verbalize his motivations.

Modern psychologists are prepared to recognize the existence of unconscious behavior. But not like Freud. They believe human behavior is sparked by motive. A motive is felt need. Human behavior is directed to satisfy these needs or motives. They have five characteristics.
 

1. The need having the highest strength dominates the human behavior.
2. A need once satisfied ceases to influence behavior.
3. When a need is satisfied, it gives rise to new need.
4. Needs are recurrent in nature.
5. Needs are ubiquitous. Psychologists do not totally agree on how to classify various human motives. However some psychologists tend to classify motives according as to weather they are unlearned or learned weather they are psychologically based.

Define mechanism serve as an important function of keeping the human personality integrated; bring out these dense mechanism including the psychological process with illustration
Defense mechanism is the behavior occurring to deal with frustration. Frustration occurs when need fulfillment is continually blocked or when ones self image are in jeopardy. Defense mechanisms are unconscious behavior. The defense mechanisms serve an important function of keeping the human personality integrated.
Rationalization is giving pseudo justification to explain ones failures. The common examples are sour grapes or a bad workman quarreling with his tools.
Certain patterns of behavior are learnt during the childhood that are subsequently, in the adult age, replaced by the behaviors acceptable by the society. A superior getting angry with his subordinate and throwing files at him or a person throwing a pen because of the ink not flowing, are the examples of this defense mechanism
Aggression is also known as emotional transference. A superior scolding his subordinate because of something happening at homes is the example of this defense mechanism.
As long as a person is in his imaginary castle he is unhappy but some time or the other he has to come down to the mother earth. When he comes out of the imaginary world the problem starts pinching him again. The increased frequency of fantasizing is a signal that one had better seek some help from a psychiatrist.
Resignation, flight or withdrawal is a complete surrender to the problem situation. This is accepting a situation and ceasing any efforts to deal with the problem.

Describes the theory of unconscious behavior as shaped by Sigmund Freud. Give out the characteristics of needs or motives which are directed to satisfy by human behavior
The concepts of motivation are the central part of organizational behavior. Whenever a Certain behavior is be encouraged is be encouraged give rewards. Whenever a certain behavior is to be discouraged, give punishment. But human behavior is not always motivated either by rewards or by punishment or both. Much of the human behavior is instinctively based. The instincts behavior may be jealously, love, anxiety, fear, lust ext.

Implicit in the industrial approach to human behavior is the hint that human behavior is unconscious behaviorist was Sigmund Freud (1856-1939, Sigmund Freud, physiologist, medical doctor, psychologist and father of psychoanalysis, is generally recognized as one of the most influential and authoritative thinkers of the twentieth century) However, who shaped the theory of unconscious behavior. Freud's theory of the unconscious, then, is highly deterministic, a fact which, given the nature of nineteenth century science, should not be surprising. Freud was arguably the first thinker to apply deterministic principles systematically to the sphere of the mental, and to hold that the broad spectrum of human behavior is explicable only in terms of the (usually hidden) mental processes or states which determine it. Thus, instead of treating the behavior of the neurotic as being causally inexplicable - which had been the prevailing approach for centuries - Freud insisted, on the contrary, on treating it as behavior for which is meaningful to seek an explanation by searching for causes in terms of the mental states of the individual concerned. Hence the significance which he attributed to slips of the tongue or pen, obsessive behavior, and dreams - all, he held, are determined by hidden causes in the person's mind, and so they reveal in covert form what would otherwise not be known at all. This suggests the view that freedom of the will is, if not completely an illusion, certainly more tightly circumscribed than is commonly believed, for it follows from this that whenever we make a choice we are governed by hidden mental processes of which we are unaware and over which we have no control.

The postulate that there are such things as unconscious mental states at all is a direct function of Freud's determinism, his reasoning here being simply that the principle of causality requires that such mental states should exist, for it is evident that there is frequently nothing in the conscious mind which can be said to cause neurotic or other behavior. An 'unconscious' mental process or event, for Freud, is not one which merely happens to be out of consciousness at a given time, but is rather one which cannot, except through protracted psychoanalysis, be brought to the forefront of consciousness. The postulation of such unconscious mental states entails, of course, that the mind is not, and cannot be, identified with consciousness or that which can be an object of consciousness - to employ a much-used analogy, it is rather structurally akin to an iceberg, the bulk of it lying below the surface, exerting a dynamic and determining influence upon the part which is amenable to direct inspection, the conscious mind Deeply associated with this view of the mind is Freud's account of the instincts or drives. The instincts, for Freud, are the principal motivating forces in the mental realm, and as such they 'energies' the mind in all of its functions. There are, he held, an indefinitely large number of such instincts, but these can be reduced to a small number of basic ones, which he grouped into two broad generic categories, Eros (the life instinct), which covers all the self-preserving and erotic instincts, and Thanatos (the death instinct), which covers all the instincts towards aggression, self-destruction, and cruelty. Thus it is a mistake to interpret Freud as asserting that all human actions spring from motivations which are sexual in their origin, since those which derive from Thanatos are not sexually motivated - indeed, Thanatos is the irrational urge to destroy the source of all sexual energy in the annihilation of the self. Having said that, it is undeniably true that Freud gave sexual drives an importance and centrality in human life, human actions, and human behavior which was new (and to many, shocking), arguing as he does both that the sexual drives exist and can be discerned in children from birth (the theory of infantile sexuality), and that sexual energy (libido) is the single most important motivating force in adult life. However, even here a crucial qualification has to be added - Freud effectively redefined the term 'sexuality' here to make it cover any form of pleasure which is or can be derived from the body. Thus his theory of the instincts or drives is essentially that the human being is energized or driven from birth by the desire to acquire and enhance bodily pleasure.

Freud reasoned that human behavior is like an iceberg. Only small part of which is visible. However, the part of iceberg, which is not seen, controls the seen part. According to him human personality are always conflicting with three constructs. The final outcome, which is the observable behaviour, is the product of this conflict. So he got an idea that this is the reason why many a times a human can not verbalize his motivations.

Modern psychologists are prepared to recognize the existence of unconscious behavior. But not like Freud. They believe human behavior is sparked by motive. A motive is felt need. Human behavior is directed to satisfy these needs or motives. They have five characteristics.
 

Herzberg's Theory

Enumerate Herzberg’s two factors theory of motivation including principle of job enrichment.
The motivation-hygiene theory was proposed by psychologist Frederick Herzberg. In the belief that an individual's relation to his or her work is a basic one and that his or her attitude toward this work can very well determine the individual's success or failure, Herzberg investigated the question "What do people want from their jobs?" he asked people to describe, in detail, situations when they felt exceptionally good or bad about their jobs. Their responses were tabulated and categorized. Herzberg suggested that certain extrinsic factors, or hygiene, (those associated with the environment surrounding a job) only have the power to de-motivate while intrinsic factors (those associated with the job itself) have the power to energize, or motivate, behavior. The extrinsic, or hygiene, factors largely correspond to Maslow's lower order physiological and safety needs. They include factors associated with job dissatisfaction such as working conditions, supervision, relations with co-workers, salary, company policy, and administration. Intrinsic factors, or motivators, largely corresponding to Maslow's higher order needs, include the work itself, responsibility, recognition for work well done, advancement, and achievement.

From a philosophical perspective, it is Herzberg's position that it is the responsibility of society's dominant institutions to provide for the growth and well being of people. In our society, one such dominant organization is the business institution. Therefore it is the responsibility of business and industry to provide the means for growth and self actualization.

Herzberg's theory thus posits that there are two classes of factors that influence employee motivation; intrinsic factors and the extrinsic factors. The intrinsic factors were also called the motivator factors and were related to job satisfaction. The extrinsic factors were called hygiene factors and were related to job dissatisfaction. Motivators (intrinsic factors) led to job satisfaction because of a need for growth and self actualization, and hygiene (extrinsic) factors led to job dissatisfaction because of a need to avoid unpleasantness. The most important part of this theory of motivation is that the main motivating factors are not in the environment but in the intrinsic value and satisfaction gained from the job itself. It follows therefore that to motivate an individual, a job itself must be challenging, have scope for enrichment and be of interest to the jobholder. Motivators (sometimes called ‘satisfiers’) are those factors directly concerned with the satisfaction gained from a job, those are Motivators (satisfaction)
The sense of achievement and the intrinsic value obtained from the job itself

• the level of recognition by both colleagues and management
• the level of responsibility
• opportunities for advancement and
• The status provided.
• Motivators lead to satisfaction because of the need for growth and a sense of self-achievement.

A lack of motivators leads to over-concentration on hygiene factors, which are those negative factors which can be seen and therefore form the basis of complaint and concern. Hygiene factors (often referred to as maintenance factors) lead to dissatisfaction with a job because of the need to avoid unpleasantness. They are referred to as hygiene factors because they can be avoided or prevented by the use of ‘hygienic’ methods. The important fact to remember is that attention to these hygiene factors prevents dissatisfaction but does not necessarily provide positive motivation. Hygiene factors are also often referred to as ‘dissatisfiers’. They are concerned with factors associated with the job itself but are not directly a part of it. Typically, this is salary, although other factors which will often act as dissatisfiers include:

Hygiene factors (dis-satisfaction)
 

• perceived differences with others
• job security
• working conditions
• the quality of management
• organizational policy
• administration and
• Interpersonal relations.

JOB ENRICHMENT:
The idea of job enrichment is probably the most significant contribution of Herzberg's theory. Meaningful tasks allow for growth, and job enrichment is a relatively simple method for facilitating this growth:Adding different tasks to a job to provide greater involvement and interaction with the task. Adding tasks can raise the level of challenge in any particular job to a level commensurate with the abilities of an employee. It might be argued that, if a job can not be enriched and it is not challenging to the person in that position, then that person ought to be replaced by someone who will find the job challenging.


Principles of job enrichment according to Herzberg are

• Removing some control while retaining accountability
• Increases accountability for individual own work
• Giving a person a complete natural unit of work
• Granting additional authority to an employee in his activity
• Introducing new and more difficult tasks not handled previously
• Assigning individuals specific or specialized tasks, enabling them to become experts
• motivators involved
• responsibility and personal achievements
• Responsibility and recognition
• Internal recognition
• Growth and learningResponsibility, growth and advancement

Define moral, it is said, the “higher the moral the higher is the productivity”. However it may not be true in all cases, illustrate this through a graph.
According to Keith Davis moral means “the attitude of the employee and groups towards their work environment and towards voluntary cooperation to the full extent of their ability in the best interests of the organization” According to Morris Viteles “Morale refers to the condition of a group where there are clear and fixed group goals that are felt to be important and integrated with individual goals .where there is confidence in the attainment of these goals and the confidence in the means of attainment in the leader, associates and finally in one self.” Morale indicates the happiness of the employee with organizational environment .it also refers to the preparedness of the groups of the employee to the subordinate the individual and the group goals of the organization It represents the integration of an individual with the team and the organizational itself. Generally it can be said that morale has a positive relationship with productivity. The higher the morale the higher is the productivity. However this need not always be so, as can e seen from the following graph

In the above graph

• CURVE –A REPRESENTS HIGH MORALE: LOW PRODUCTIVITY
• CURVE –B HEIGH PRODUCTIVITY BUT LAW MORALE
• CURVE –C REPRESENTS HIGHPRODUCTIVITY

High productivity involves a combination of ability, training, work habits, performance goals ext. curve ‘A’ above where morale is high but productivity is low indicates the management’s failure in the proper discharge of management function: CHIEFLY THE PLANNING FUNCTION. Planning can be high in spite of morale being low because of the rigid systems and controls imposed by the management. The situation where productivity is higher in spite of morale being low or productivity being lower in spite of morale being high does not last long. In the first situation productivity is high because of the strict management controls and close supervision. it also happens in an atmosphere where the people are treated as machines. In this situation the management is apparently creating discontent in the organization which may blow up in its face.

When this happens the productivity also dips. In the second situation when morale is high but productivity is high but productivity is low, slowly people distance themselves from the organization because of the disillusionment about the management abilities in this situation after sometimes the morale comes down. This in both these situation ultimately morale as well as productivity are at their nadir. Every manager is always interested in curve B indicating high morale as well as productivity. But morale is not static phenomenon. Today the morale high but some thing may go wrong and the morale might start coming down. In words a manager must have his fingers on the morale in the organization. No doubt a manager can know the level of morale in his organization by morale surveys. These morale surveys involve drafting of questionnaires, interview people, tabulate and analyze the data. This may be time taking process. Instead he may pay due attention to some of the morale indicators that give an idea about the status of morale at a particular time Therefore a manger has to understand some of the morale indicators in the organization. An attention these indicators may enable him to take some corrective action on time.

Short Notes

WRITE SHORTS NOTES ON ANY FIVE:
(a) PERCEPTION:
Perception is an important cognitive process deciding how a person will behave. Through this complex process people interpret world to themselves. Perception is a unique phenomenon, influencing people behave differently. Externally stimuli selectively are affecting by such factors as the intensity, size, movement, repetition etc. Internally perceptual selectivity is influenced by learning, culture, experience, interest, motivation etc. Perception is the process of receiving, selecting, organizing, interpreting, checking, and reacting to sensory stimuli or data perception is the process by which individuals organize and interpret information about his environment in order to give meaning to their environment.

Kolasa defines perception as the “selection and organization of material which stems from the outside environment at one time or the other to provide the meaningful entity we experience” Perception is much more complex and much more boarder than sensation. The perceptual process can be defines as a complicated interaction of selection, organization, and interpretation of stimuli. The perceptual process overcomes the sensual process and the person “sees” the object as stationary. Perceptual process is of utmost significance in understanding human behavior. It is unique interpretation instead of a precise recording of the situation. Perception involves 5 subprocesses. They are stimulus, registration, interpration, feedback and consequence. Perception initiates with the presence of a stimulus situation. In organizational settings the superior forms the stimulus situation for the subordinate’s perceptual process.

Registration involves the physiological mechanism including both sensory and neural. Interpretation is a highly crucial sub process. Other psychological process assists in perceptual interpretation.

Feedback is important for interpreting the perceptual event data. In work settings, the psychological feedback that is likely to affect a subordinates perception may be in the form of variation in the behavior of superior.

Perception ends in reaction or response, which may be in the overt or convert form. As a consequence of perception, an individual responds to work demands. These sub process indicate the complexity of perception.


(b) ATTITUDE, BELIF AND IDEOLOGY:
An attitude may be defines as a tendency to react positively or negatively in regard to an object. An attitude is a cognitive element. It always remains inside a person. An attitude is always directed towards some object. The notable feature of attitude is that it varies in direction, intensity and the extent of consciousness. An attitude is a tendency in a certain way. That is a person who has an attitude has a redness or disposition to react favorably or unfavorably to anyone of large variety of related situation. Attitude is for or against things. We tend to have favorable attitudes towards sources of gratification and favorable attitudes towards sources of punishment and frustration. A belief is a judgment about something. For example a belief that the world is round is a judgment about its form. Many of our beliefs, of course are emotionally neutral. Others are definitely favorable or unfavorable towards some objectify example, a favorable attitude towards the religion may involve beliefs that the religion helps to curb delinquency, that worshippers are better citizens than are non-devotees, that people who stay away from temples are unhappy and immoral, and so on. When beliefs become organized into system, they are called ideologists.

The capitalists’ ideology, for example, is asset of beliefs that a free enterprises economy is maximally productive; that competition in the long run brings down prices and raises quality; and that events in the mark places do and should determine what is produced. There are ideologies pertaining to all major institution of society, such as the family, the law, the government, and the economic system. Although these ideologies are difficult to verify, we feel strong about them and, as long as thing go well, have great confidence in them. They give us an interpretation and justification for our practice. Like religion, they are matter of faith. They give us an interpretation and justification for our practices. Like religion, they are matter of faith. They give us an interpretation and justification for our practice. Like religion, they are matter of faith. They give us social definition of reality. It is an interesting thing about human behavior that some of the beliefs that we hold most tenaciously with the strongest feelings are not readily subject to proof or disproof.

(c) STRESS AND STATE OF EXHAUSTION:
Stress management defines stress precisely as a person's physiological response to an external stimulus that triggers the "fight-or-flight" reaction. Stress is the "wear and tear" our bodies experience as we adjust to our continually changing environment; it has physical and emotional effects on us and can create positive or negative feelings. As a positive influence, stress can help compel us to action; it can result in a new awareness and an exciting new perspective. As a negative influence, it can result in feelings of distrust, rejection, anger, and depression, which in turn can lead to health problems such as headaches, upset stomach, rashes, insomnia, ulcers, high blood pressure, heart disease, and stroke. With the death of a loved one, the birth of a child, a job promotion, or a new relationship, we experience stress as we readjust our lives. In so adjusting to different circumstances, stress will help or hinder us depending on how we react to it. Stress is a condition or feeling experienced when a person perceives that “demands exceed the personal and social resources the individual is able to mobilize. Stress is a physiological abnormality at the structural or bio-chemical level caused by overloading experience. Stress is an adaptive response to an external situation that results in physical, psychological and or behavioral deviations. According to DR Pestonji the stress can be categorized as
 

• Eustress (caused when person is over-joy)
• Distress (caused when person is suddenly very sad or angry)
• Hyper-work stress (causes due to hyper activity)
• Hypo stress (this stress is caused by less than optimum activity)

Over million of years the life has changed. However the body chemistry is not changed. With the change in the life style, stress have multiplies and diversified in different forms. However the body chemistry has remained the same. The theory of “GENERAL ADAPTION SYNDROME” states that when organism is confronted with threat, the general physiological response occurs in three stages

• Alarm reaction
• Resistance reaction
• State of exhaustion

In state of exhaustion stage, the stress has continued for some time. The body's resistance to the stress may gradually be reduced, or may collapse quickly. Generally, this means the immune system, and the body's ability to resist disease, may be almost totally eliminated. Patients who experience long-term stress may succumb to heart attacks or severe infection due to their reduced immunity. For example, a person with a stressful job may experience long-term stress that might lead to high blood pressure and an eventual heart attack

Symptoms of stress

• heart pounding
• headaches
• sweaty palms
• indigestion
• skin breaks out
• shortness of breath
• holding breath
• cold hands
• sleeplessness
• sleep too much
• fatigue
• nausea
• diarrhea
• tight stomach
• tight muscles
• pain emotional
• moody
• irritability
• depressed anxious
• lack of sense of humor
• abrasive
• hostile
• nervous
• emotional mental
• forgetfulness
• loss of concentration
• poor judgment
• disorganized
• fuzzy perception
• confused
• lack of interest
• math errors
• stop thinking
• diminished fantasy life
• negative self-talk

Best way to prevent stress

1. Doing exercise regularly
2. Away from tobacco
3. Regular medical checkup
4. Drink lot of water

(d) LEADERSHIP AND ITS STYLES:
The successful organization has one major common attribute that sets them apart from unsuccessful organization: Dynamic and effective leadership. Leadership is a learned behavior. Rarely is one born with the ability to lead. Even charisma is learned. Though many may dream of a leadership role, it is often dismissed as "impossible." We often think of leaders as a single personality type, "born to lead." But in reality all that leaders have in common are the initiative and the desire. There is no one leadership personality. Leaders are forged from all types. Leadership is the ability to get people to follow. Leadership is more than getting people to do what is asked. A good leader motivates people to want to do what is asked. A leader must provide a clear vision, a direction. They must know where they are going and why. They must communicate that vision clearly and with a passion. The passion and logic of the vision must motivate the followers to make the vision their own. The significance of leadership also stems from the nature of human membership in the organizational settings. Keith Davis defines leadership as “ability to persuade others to seek defined objectives enthusiastically. It is the human factor that binds people together and motives them towards goals.” Leadership is one form of dominance, in which the followers more or less willingly accept direction and control by another person. Leadership is practiced by leadership style. Which is the total pattern of leaders’ it represents their philosophy, skills, and attitude. Leadership style is the manner and approach of providing direction, implementing plans, and motivating people.

There are three different styles of leadership:

1. Authoritarian (autocratic)
2. Participative (democratic)
3. Delegative (free reign) Although most leaders use all three styles, one of them becomes the dominate one. Authoritarian (autocratic)

This type is used when the leader tells her employees what she wants done and how she wants it done, without getting the advice of her people. Some of the appropriate conditions to use it,when you have all the information to solve the problem, you are short on time, and your employees are well motivated. Some people think that this style includes yelling, using demeaning language, and leading by threats and abuse of power. This is not the authoritarian style...it is an abusive, unprofessional style of leadership. However, if you have the time and you want to gain more commitment and motivation from your employee, then you should use the participative style. Participative (democratic)

This type of style involves the leader including one or more employees in on the decision making process (determining what to do and how to do it). However, the leader maintains the final decision making authority. Using this style is not a sign of weakness; it is a sign of strength that your employees will respect. This is normally used when you have some of the information, and your employees have some of the information. This allows them to become part of the team and allows you to make a better decision. Delegative (free reign)

In this style, the leader allows the employees to make the decision. However, the leader is still responsible for the decisions that are made. This is used when employees are able to analyze the situation and determine what needs to be done and how to do it. You cannot do everything! You must set priorities and delegate certain tasks

(e) PATH GOAL THEORY OF LEADERSHIP:
The Path-Goal Theory of Leadership was developed to describe the way that leaders encourage and support their followers in achieving the goals they have been set by making the path that they should take clear and easy. The Path-Goal Theory has a contingency perspective. But it is different from Fiedler's Contingent Theory in its focus. The Path-Goal Theory focuses on the situation and leader behavior rather than leader personality traits. The Path-Goal Theory also depends on situational factors. Believes that a leader can change a subordinate's expectancy by clarifying the paths between the subordinate's action and the outcome, which is the goal the employee wants to achieve. Whether leader behavior can do so effectively. In particular, leaders:

• Clarify the path so subordinates know which way to go.
• Remove roadblocks that are stopping them going there.
• Increasing the rewards along the route.

Leaders can take a strong or limited approach in these. In clarifying the path, they may be directive or give vague hints. In removing roadblocks, they may scour the path or help the follower move the bigger blocks. In increasing rewards, they may give occasional encouragement or pave the way with gold. This variation in approach will depend on the situation, including the follower's capability and motivation, as well as the difficulty of the job and other contextual factors. House and Mitchell (1974) describe four styles of leadership: Supportive leadership

Considering the needs of the follower, showing concern for their welfare and creating a friendly working environment. This includes increasing the follower's self-esteem and making the job more interesting. This approach is best when the work is stressful, boring or hazardous. Directive leadership Telling followers what needs to be done and giving appropriate guidance along the way? This includes giving them schedules of specific work to be done at specific times. Rewards may also be increased as needed and role ambiguity decreased (by telling them what they should be doing). This may be used when the task is unstructured and complex and the follower is inexperienced. This increases the follower's sense of security and control and hence is appropriate to the situation. Participative Leadership: Consulting with followers and taking their ideas into account when making decisions and taking particular actions. This approach is best when the followers are expert and their advice is both needed and they expect to be able to give it. Achievement-oriented leadership

Setting challenging goals, both in work and in self-improvement (and often together). High standards are demonstrated and expected. The leader shows faith in the capabilities of the follower to succeed. This approach is best when the task is complex Supportive behavior increases satisfaction by the group, especially in stressful situations, while directive behavior is suited to uncertain and ambiguous situations. It is also proposed that leaders who have influence upon their superiors can increase group satisfaction and performance.

Business Environment

Definition of Business
Business means all economic activities which is done for the motive of earning. In these activities, we can include production, manufacturing, purchasing and selling and other market promotion activities. Commerce, trade and aids to trades and enterprise are also included in business.
Two truthful facts about business:-
1. Richest person of the world = Bill Gates
    Net worth in USD = $ 40.0 billion
    Business = Microsoft
2. Oldest company is Kongo Gumi of Japan in the world and its business is construction . This company started his business in 578 in company form.

Concepts of Business Environment
There two concept of business:-
1st Economic concept of business
This is oldest concept of business and according to this concept; main aim of business is to earn profit and never to do any other work. Under this concept, every legal and illegal and scams and fraud are the necessary for doing highest profit from business. Because in old time, there is no competition and trend to earn money is by any way. But now this concept is totally failed and bear a new concept which is successful in world business market.
2nd Social concept of business:-
According to this concept, business’s all activities are done for making stable customers and make them satisfied. Now, all business organization is understood this point and making social networking for promoting business. Even all big business organization is communicating with general public by the way of twitter and face book and linkedin (35 million registered business profiles).

Objective of business
There are also two main objectives
1st objective

• To earn profit
• To growth
• To innovation

2nd objective of business

• To satisfaction of employees

Employees are main asset of business and it is the main object of business to satisfy its employee by providing them fair salary and other incentives because , without this business can not operate well and from time to time development of employee of business is the main need of business .

• To satisfaction of customers

It is also aim or objective of business to satisfy its customers and it should do the work for their welfare. This welfare may by possible by providing product at low cost and high quality. A stable customer can provide stable amount of sale and contribute in the stable growth rate of business.

• To satisfaction of investors

Investors are those persons who invest their money in business and it is the main aim of business to provide them high rate of return and make them satisfied because, if there are satisfied, they will not sell company’s share at low price and financial crisis will not be faced by businessman.

• Other social responsibility

To obey all other responsibility of society is also main objective of business and in this responsibility we can include protection of environment. We are seeing that business are becoming restriction in the way of environment protection but , because of business also dependent on environment and all raw material comes from environment , then it is the duty of businessman to protect environment by growing plantation in their business plants and also starting new programme for protection of environment .

What is business environment?
Definition of Business Environment
Business Environment may be define as all external and internal factors which affects the activities of business. In these factors we can include customers, suppliers, and employees, Govt., Economy and Competitors.

Explanation of Business Environment
One can explain business environment with physical environment of nature . When we see nature , we find many things air , water , sun , moon and so many other things . They create environment . Nature is effected from these factors from time to time and shows his presentation in the form of raining , season and other variations . Same thing happens in business . Business is also affected from its environment . Suppose , If Govt. increases service tax rate or VAT rate . At this time , business has also to increase the price of his products . There is not just a single factor are affecting business but large number of factors affect business .

Elements of Business Environment

Main Elements or factors of Business Environment
Micro business Environment:
This is also known as internal business environment because business has power to control them. In this environment, factors can be divided with following way.
1st Supplier
A supplier provides raw material to business. This is also main factor of business environment because, it affects business very closely. If supplier delay to supply raw material or stop to supply. At this time production of business can be stopped due to not getting raw material. So, for controlling this factor, it is the duty of businessman to make good relation with more than one supplier so that, if one stop or delay at this time, goods can be purchased from other supplier.
2nd Customers
Customers are those people or companies which buy goods from our business. Business sells them his finished product. But time to time tastes of customers also change. So, according to the taste of business customers, new products must be supplied by business. That is the formula for living long life of business.
3rd Market Intermediaries
For promoting sale, it is required to ads by different way, so market intermediaries include sales man and middle man.
This environment is under control of business because, if business starts selling with more ads, his selling will surely increase.
4th Competitors
Competitors of business also create internal business environment. According to competitors, policies, business changes his policies for winning in competition.
5th Financial Intermediaries
As business grows, it needs more money for his growth; either this money can be gotten by issuing new shares or by borrowing money from financial intermediaries. So, financial intermediaries plays a vital role in business environment. If they provides loan at very low rate, at that time business can get and grow fastly but, if they increase in interest rate, at that time business will not get at this rate and its growth may decrease due to lack of fund.


Macro Business Environment or External Factors of Business Environment

1. Economical Environment

Economic environment is main element of business environment. Economy is factor which affects business with following way
Economic policies
Economic policies related to budget , industrial policy , fiscal policy , export and import policy and business should see what changes are done in these and business has to changes their business policies according to these changes .
Economic regulation
Different laws and regulations are at international level and national level . These are all called economic regulation and business has to respect all of these while it is operating business .

2. Natural Environment

Natural environment is also external factor of business . Because , business can not fully control on natural environment . Many points like season , raining , floods , earth quake are natural and happens according to fluctuation in it . These are also main element of business because business has to face all these factors . But some of loss from these factors can be transferred with effective schemes of insurance .

3. Demo – graphic Factors

Size of population and their growth rate includes in demo graphic element and factor of business environment. Increasing trend of population will increase demand of products and support business to produce more products. But if death rate is increasing or demo graphic factor like religion are preventing to use the products of business. At that time business has to change their business or make other plans according to situation.

4. Technological Environment

This is fully concerned with changing of technology and its effect on product . Many technical products are fastly changed by coming new technology .At that time business also have to cover new products according to changes in technology .

5. Political Environment

Political environment is composition of three factors which are following

1. Legislature
2. Executive
3. Judiciary

All above factor affects business and business has to make rules and regulation according to Govt. and political rules and regulation.

6. International Environment

International environment includes WTO, IMF, WB, SARC and G20 meetings and their rules and regulations can effect on any type of business. Business has to exist in world market, and then it should understand their effect and take action according to these rules and regulation.

Definition of Economic Environment
Economic environment is very important factor of business. It means any environment which becomes from economic system, economic planning and economic policies. Main motive of this environment is to effective utilization of resources.
From above definition we get three factor that are :

1. Economic system

Economy works always in any system
There are main three economic systems; any country can adopt any system for making economic planning and economic policy.
Capitalistic economy
In this economy all powers are in private hands, they are free to choose any business and also invest money in any type of business. Govt. just cares the security of country and life of people but it does not disturb to anyone on the basis of business. This economy is in USA.
Socialistic economy
This economy is basically in poor and developing countries and main motive of this economy is to welfare of people and develop the economy. In this economy all businesses are under fully control of govt. and nobody can operate any business freely. Govt. makes rules and regulation for operating business and also appoints authorities for operating it. Because, all powers are in the hand of govt., so there are huge chances of corruption in govt. departments.
Mixed economy
Any country in which both capitalistic and socialistic economy works, and after mixing of both economy, the new economy will comes in our eyes that is called mixed economy. In this economy govt. fixes some sector which are reserves only for govt. investment and no private person can do that business. India is the good example of mixed economy.

2. Economic policies

An economic policy means any policy which is related to fund of nation and its utilization. It also includes fiscal policy and budget of nation.

3. Economic planning

For equal distribution of money and wealth, it is very necessary to make economic plans of development in socialistic economy. These plans are known as economic plans.

Share And Stock

How to calculate the value of Share
Value of share means that price of share which can be sold in the market. If a company’s shares are not quoted in stock
exchange , then there is need to calculate value of share
There are also following situation for valuation of share :-
Ist Situation : When debentures or pref. Shares are converted into shares at that time it is necessary to calculate
value of share.
2nd Situation : When shares are given as a gift, at that time also need to calculate value of share for paying gift
tax. Gift tax is calculated on the total value of Shares .
3rd Situation : When loan is given on security of shares at that time calculation the value of shares is done by
accountant.

Method of valuation of Share
There are two method of valuation of shares.

Net Asset method

Under this method, value of share is equal to net assets. So, we first calculate net assets
Net assets = total tangible assets – total liabilities (Including pref. share capital) + Goodwill
Value of Share = Net Assets / No. of Shares

For example
Suppose total tangible assets are RS. 100000, Goodwill Rs. 10000, pref. share capital Rs. 20000 ,Other liabilities =
RS. 40000 , Equity shares capital is Rs. 60000 of 10000 shares. Calculate the value of shares
Net Asset = 100000 – 20000 -40000 + 10000= 50000
Value of Shares = 50000 / 10000 = Rs. 5

Earning Capacity Method

Under this method, value of share is equal to the proportion of expected earning and normal earning of paid up value of
shares.
Value of Share= Expected earning rate / Normal earning rate X Paid up Value of Shares
Notes
Expected Earning Rate = Expected profit / total equity share capital X 100
Expected profit = Average annual profit – taxation – reserve – pref. dividend

For example
Calculate the value of share with earning capacity method, if company has issued 10000 shares @ 10 each and fully paid
up. Suppose average profit is Rs 20000 and taxation is 2000, reserve is Rs. 500 and pref. share dividend is Rs. 600.
Normal rate of earning is 10 % of total profit before tax.
We know, we first calculate expected profit rate
Expected profit = 20000 -2000-500-600 = 16900
Expected profit rate = 16900 / 100000 X 100 = 16.9 %
Value of Share = 16.9 / 10 X 10 = Rs. 16.90

What is the Holding Company ?
Definition of Holding Company
"Any company who controls other company is called holding company. "
In other words, if any company has any one power from following three powers, then that company will be holding company

If any company has 51 % shares of other company, then this company becomes holding company of other.
Or
If any company has power to appoint board of directors of other company, then this company becomes holding company of
other company.
Or
Main holding company also will the holding company of all subsidiaries’ subsidiary companies.

Explanation with Example
Suppose, H is holding company of S because 51 % shares are of H in S. S is also of holding Company of R because S have
power to appoint the board of directors of R Company and then H is also holding Company of R.

Main features of Holding Company
 

1. Holding Company provides the power to work independently to subsidiary company. Because relationship of holding and
   subsidiary company is not amalgamation or merge but both company joins for cutting the cost of competition and getting
   the benefits of monopoly.
2. Holding company can also deal with subsidiary company and it is also recorded in both books .
3. Under Company act of India 1956 , it is required to attach the copy of final accounts of subsidiary company with the
   annual report of holding company .

World Organizations

What is IMF ?
IMF is UNO recognized international monetary fund or reserve which helps its members. It established in 1946 after bretton wood meeting. It has 185 members across the all nations but soviet Russia and its member are not linked with IMF. All work is done by its board of directors which is made by board of governors. Every country’s finance minister is as the governor from his respective country. There are two type directors in board of directors of IMF. One is quota and other is non quota. USA, UK, Germany and India are quota country and one member is taken in board of directors and other from non quota countries. Total no. of directors are 20.

Objective and functions of IMF

1. Provide loan to the members for removing unfavorable balance of payment.
2. Determine the value of currency of member countries.
3. Determine the economic policies’ main contents of member’s countries.
4. To make plan for increasing per capita income of member countries.
5. To collect money from member countries in the form of fun or reserves.
6. Latest objective in IMF is that it will support 3 trillion dollars under his budget for decreasing the pressure of 2000 recession.

Eligibility for membership in IMF
Any country can become the member of IMF but for getting eligibility the following procedure is adopted by IMF. First of all membership is accepted by board of directors after accepting membership , board of directors send this proposal to board of governors with supported all documents and subscription and quota amount as per the terms of membership .

World bank or IBRD
World Bank is international financial institution for reconstruction and development of member countries. So, its other name is international bank of reconstruction and development (IBRD). This bank is established in 1944 after bretton woods meeting of 20 major countries. This bank provides long term loan to its members and all work is done by executive directors which is nominated by shareholders of member countries and board of governors.

Bank has own 20 billion dollar paid up capital. Bank provides loan but before providing loan it sees the project and after accepting project, the loan is given under strict terms and conditions of World Bank. In which includes the interest on loan, commission and administration charges.

GATT and its functions and policies
In 1944 , developed countries participated in bretton woods meeting . In this meeting they wanted to make international trade organisation but all countries could not agree on its terms but 1948 , they had made a general agreement for tariffs and trade after signing GATT in 1947 by 23 countries including India. Now no. of member countries reached up to 184 .

Objectives and functions of GATT
 

• Reduce international restriction
• Reduce tax problems
• Development in international trade
• Policies of GATT
• Non discrimination policy
• No quantitative restrictions Opinions

WTO and its functions and policies
Full form of WTO is world trade organisation . It is an international organisation which established after conversion of GATT in 1995 . In 1944 , when bretton woods conference was completed . In that meeting leaders of developed countries wanted to make international trade organisation but they accepted only GATT's policies in 1948 . After Uruguay discussion , all GATT members included in WTO . Main objective of making WTO is to reduce restrictions in international trade with more globalisation and liberalisation policy.

Functions and policies of WTO
1. Reduction of the rate of Tariffs :
Tariffs means tax on imported goods . For developing international trade , it is compulsory to all member countries to
reduce 24 % to 30 % tariffs with in 6 to 10 years .
2. Reduction the subsidy to domestic trade
For more smooth competition , WTO has made rule to reduce the amount of subsidy or other assistance which is given by govt. to their domestic industry .
3. TRIPS
Trips means trade and intellectual property rights . WTO has made some rules for prohibiting piracy in intellectual property rights . All countries will have to accept these trips .
4. Other GATT rules
Some of GATT rules will still apply

Balance Sheet

How to prepare Consolidated Balance Sheet of Holding Company
Under Indian Company Act , there is no need to prepare combined or consolidated final accounts of holding and subsidiary company in the books of holding company but holding company attaches the copy of balance sheet , one copy of profit and loss account and one copy of audit report of subsidiary company with his final accounts . But for showing true financial position, often holding company prepare consolidated balance sheet. It is easy to understand that consolidated balance sheet is a balance sheet in which all the assets and liabilities of holding company and subsidiary company are added with each other but practically, it is tough to make consolidated balance sheet of holding and subsidiary company.

Steps for preparing consolidated balance Sheet of the holding company and its subsidiary company.

1st Step
Add all the assets of subsidiary company with the assets of holding company. But Investment of holding company in Subsidiary company will not shown in consolidated balance sheet because, investment in subsidiary company will automatically adjust with the amount of share capital of subsidiary company in holding company.

2nd step
Add all the liabilities of subsidiary company with the liabilities of holding company. But Share capital of subsidiary company in holding company will not shown in the consolidated balance sheet in the books of holding company. Because, this share capital automatically adjust with the amount of the investment of holding company in to subsidiary company .

3rd Step
Calculate of Minority Interest
First of all we should know what minority interest is. Minority interest is the shareholder but there is not holding company’s shareholder. So, when holding company shows consolidated balance sheet, it is the duty of accountant to show minority interest in the liability side of consolidated balance sheet.

We can calculate minority interest with following formula

Total share capital of Subsidiary company = XXXXX
Less Investment of Holding company in to subsidiary company = - XXXX
Add proportionate share of the subsidiary company‘s profit and
Reserves or increase in the value of assets + XXXX
Less proportionate share of the subsidiary company’s loss and decrease
In the value of total assets of company - XXXXX
Value of Minority Interest XXXXX

4th Step
Calculate cost of capital / Goodwill or Capital Reserve
If holding company purchases shares of subsidiary company at premium, then the value of premium will be deemed as goodwill or cost of capital and shows as goodwill on the assets side of consolidated balance sheet. But if holding company purchases the shares of subsidiary company at discount, then this value of discount will be capital reserve and show in the liability side of consolidated balance sheet.

5th Step
Treatment of Pre – Acquisition of reserve and profit
Pre – acquisition profit and reserve of subsidiary company will be shown as capital reserve in consolidated balance sheet but the value of minority interest’s profit or reserves deducts from it and add in minority interest value.

Total profit before acquisition of subsidiary company = XXXX
Less share of minority interest - XXXX
Value of profit X minority interest’s value of shares in subsidiary company / total share capital of subsidiary company.
Pre – acquisition profit and reserve shown as capital reserve XXX

6th Step
Calculate post acquisition profits
After the date of purchasing the shares of subsidiary company , profit of subsidiary company will also deem of holding company and it include in the profit of holding company and we also separate the part of profit of minority interest and add in minority interest’s value and shown in liability side .

7th Step
Elimination of common transactions
All common transaction between holding company and subsidiary company will not show in the consolidated balance. There
following common transaction:
1. goods sold and goods purchase on credit and the value of debtor or creditor either subsidiary company or holding company
    will not shown in consolidated balance sheet
2. Value of bill payable or bill receivable of holding company on subsidiary company will also not shown but if some bills value is
    discounted from third party then either of both company’s payable value shown as liability in the consolidated balance sheet .

8th Step
Treatment of Unrealized profit
If subsidiary company sells the goods to holding company or holding company sells the goods to subsidiary company at profit and if such goods will not sold in third party , then the profit will not realized , so such unrealized profit will not credited to profit and loss account . At this time a stock reserve account is opened and all amounts of unrealized profit transfers to this account and this accounts total amount is deducted from closing stock of consolidated balance sheet.

Suppose
Closing stock of H 50000
Closing stock of S 50000
Less stock reserve2000
If subsidiary company has also other outsider’s shares then holding company makes reserve up to his shares proportion.

9th Step
Treatment of Dividends
If holding company gets the dividends from subsidiary company, then this will divide into two parts. If subsidiary company declare dividend out of capital profits, then this will add in capital reserves in consolidated balance sheet. But, if subsidiary company has declared the profit out of revenue gains, then this dividend will add in general profit and loss account and will shown in the liability side of consolidated balance sheet.

Accounting Standards

Accounting Standards in India – Simple Explanation -(AS 1 to AS 12 )
After becoming Indian Accounting standard board as the prime authority for making Indian Accounting Standard in 1977, it made Indian Accounting Standards in 1979. These are also called Indian GAAP. This board also made many amendments in these Accounting standards. I have already made AS 1 to AS 32 content list in General Accepted accounting principles (GAAP) article. But I could not write its simple explain. So, today, this tutorial is just simple explanation of Accounting Standard especially for students who are doing chartered Accountancy in India and accountants who is practicing accounting profession in India .

1. Accounting Standard 1(AS 1)
(Disclosure of accounting policies)
This accounting standard guides to company accountants for making their companies financial statements. After making financial statement, it should disclose all financial information of business because business of company is not the business of one man. It is also duty of accountant to make and disclose also extra accounting policy if company is using different depreciation, stock and investment valuation method. This accounting standard is made also for public interest and providing them full financial information. After they can take the decision of investment by purchasing the shares of company from stock exchange.

2. Accounting Standard 2 ( AS 2 )
(Valuation of Inventories)
This accounting standard is very helpful to calculate the value of inventories. ASB comprise all stocks which is purchased for sale or production in inventories. Value of stock is not fixed by single formula but this standard provides following guidelines for calculating the value of inventories.
1st
Stock must be valued on cost or net realizable value which is lower .
2nd
Every company is free to use FIFO, LIFO or weighted average method for proper calculation of the value of inventories.
3rd
Cost of inventories= cost of raw material + cost of direct labour + cost of direct expenses
4th
Companies are also free to use standard cost method or retail cost method for calculating the value of inventories.
5th
Inventories does not encompass the value of tools which is used for repair of machinery

3. Accounting Standard 3 ( AS 3)
(Cash flow statement)
Accounting standard three which is revised in 1997 states that cash flow statement is a necessary statement under this standard for banks , financial institute or any institute whose annual turnover is more than Rs. 50 crores or any institute who has borrowed money more than Rs. 10 crores . This standard does not provide the Proforma of cash flow statement but deeply explain the two way of making this statement .
Ist way Direct method
Under this method, cash flow statement is made by inflow and outflow of cash in operating , investing and financial activities .
2nd way indirect method
It is different from direct method. Under this method cash from operating activities is calculated on the basis of net profit after different adjustments of non cash and non operating items like depreciation , interest , dividend paid and also adjusting net changes in working capital . All other part of cash flow from investing and financial activities are as same as direct method.

4. Accounting standard 4 (AS 4)
(Contingencies and events occurring after the balance sheet date)
Accounting standard four provides the rules of accounting treatment of losses due to contingencies and event happening after balance sheet date but before approving of balance sheet by board of directors. Any contingencies like loss by fire or liabilities due to employee’s accident should be provided in financial statement after these contingencies losses are confirmed.
Impairment losses of assets is also covered under AS 4. Any losses due to happening of any event is also shown in financial statement before approving financial statement


5. Accounting standard 5 ( AS 5)
Profit or loss for the period prior of changing accounting policies:-
ICAI’s this standard explains two simple rules

1. All ordinary and extraordinary item relating to the financial statement should be disclosed if it effects on profit or loss period before changing of accounting policies.
2. If accounting policies are changed. Then it is the duty of enterprise to disclose all important items relating to income and expenditures, so that profit or losses before the period and after period of changes of accounting policies can easily compare with other enterprises business.

6. Accounting standard 6 (AS 6 )
Accounting of Depreciation
Accounting standard 6 explains rules and regulations regarding charging of depreciation on any fixed asset . These rules can be explained in following way.

1. Depreciation must be charged on fixed assets which is used in business for more than one year.
2. Depreciation should charge with consisted method of charging depreciation. Two famous method of charging depreciation are straight line and reducing balance method.
3. Rate of depreciation should be according to company law 1956 and if it is not written in it then companies are free to charge depreciation with appropriate rate of depreciation.
4. Any company can also change the method of charging depreciation. But its effect in the form of deficiency or surplus also should show in profit and loss account of business .
5. Deficiency due to changing the method of depreciation will be debited in profit and loss account and surplus due to changing the method of depreciation will be credited in profit and loss account of business.

7. Accounting standard 7 ( AS 7 )
Accounting of construction contracts
Construction contracts are those contracts relating to build of dam, building, pipelines, ships and other fixed assets. The nature of business is different from business of general manufacturing. Because time of completing contract is more than the time of accounting period. So, ICAI makes some rules and regulation that should be adopt in the business relating to construction.
 

1. Construction Company should identify all their resources of revenue. It may be fixed at the time of contract or it may be cost plus profit basis. So, it is necessary to make contract account statement in which all revenue of construction business must be shown.
2. Costs of contract comprise all raw material labour and other expenses which incurred for completing of contact. These costs should also calculate and deduct from revenue for calculating net earning from each contract.

8. Accounting standard 8 (AS 8)
(Accounting for research and development)
Research and development is important department of any company. AS 8 cares its accounting treatment and related to calculate its proper cost and charging on profit and loss account.
Ist Part
Calculate the cost of research and development with following formula
= Cost of raw material used in research and development + Cost of wages and salaries of employees working in this
department +depreciation of assets used in this department + amortization cost of patents and licenses + other related cost
2nd part
This part is related to charge the written off proportion to profit and loss account. For this company’s accountant should see what will company gets future benefits and how many years will company get these profits. On this estimation, company will charge written off cost to debit side of profit and loss account and rest amount of deferred expenditure of research and development will be shown in balance sheet’s asset side under miscellaneous expenditures .

9. Accounting Standard 9 ( AS 9 )
Revenue recognition
Accounting standard of India explains the concept of revenue deeply. When goods are sold or services rendered. At this time it is deemed that money is earned by enterprise. There is also revenue from interest, royalty and dividend. Revenue recognition standard comprises different earning relating to advertising and other services projects when these are completed by professionals. But this standard also provides guidance about revenue recognition in following cases.

• If stock is sold on approval basis then, revenue is generated only when the buyer gives the approval.
• In case of agency business revenue will be recognized when risk of ownership also transferred under consignment.

10. Accounting Standard 10 (AS 10 )
(Accounting of fixed assets)
Accounting standard 10 of ICAI helps professional accountants for proper accounting treatment of fixed assets.
Determination of cost of fixed assets=Assets purchase value + all cost to bring the fixed assets to plant.
New extension of fixed assets. Any new extensions are capital nature expenditure and it will include in the total value of respective fixed assets. Goodwill is also treated as fixed asset in balance sheet if the amount is for this paid. In fixed assets, Enterprise will also include the amount of know how and patents.

11. Accounting standard 11 ( AS 11 )
Effect of changes of foreign exchange rates
There are two main reasons for providing effect of changes of foreign exchange rates on accounting.
 

1. When goods are sold or buy in price which is dominated in foreign currency.
2. When enterprise is doing any foreign operations.

Calculate the value of foreign exchange profit or loss
It is very simple when any transaction is done, this date is called closing date and we can calculate foreign exchange profit or loss on the basis of exchange rate. If it is rated to purchasing or selling related profit from foreign exchange currency. Then it will show as capital reserve. Otherwise it is revenue earning and it will transfer to profit and loss account.

12. Accounting standard 12 (AS 12)
(Accounting treatment of Govt. grants)
The Govt. grant means any benefit given by govt. in the form of subsidy, reduction in duty and taxes and other non monetary help. Accounting standard accepts two way for providing accounting treatment of govt. grants. If it is received by any special enterprise.
First way
To show as capital earning and include it in the value of shareholder fund in liability side of balance sheet and also shown in bank in current assets side .
2nd Way
Transfer all govt. grants to the credit side of profit and loss account

Consumer Protection

The Consumer Protection Act 1986 and its main provisions and features
Govt of India has made consumer protection act in 1986. The main aim is to protect consumers from immoral practice of business organizations. We see in general when a company or business concern becomes monopolize in market , then that company starts to get benefits of his monopoly powers by illegal ways. This law is very helpful to secure consumers and customers from such cheating and market frauds.

Main features of Consumer protect Act 1986
Under this act, consumers have right to get information of quality, quantity and price of products.
Under this act, consumer has power to sue in district forum and report or complaint against the cheating of businessmen to the authorities and get remedies for this. This act also awakes consumers regarding their rights and powers. In other words, it helps to educate consumers about his rights.
After spending one decade this act becomes more strict for all cheaters who commit cheating with consumers.
Main authorities under Consumer protect act 1986

District forum

• This forum has power to solve the problems of consumers up to Rs. 500000 at district level.
• State govt. has power to make suitable numbers of district forum for protecting the rights of consumers.
• This forum can be made by district judge and other experienced persons in the field of law and commerce.

State commission
Consumer can also appeal to state commission against the decisions of district forum. State commission has power to solve the problems of consumers from Rs. 500000 to Rs. 2000000. This commission can be made by state high court judges and 2 experts in the field of commerce and laws.

National Commission
National commission has power to solve all consumers’ disputes and problems more than Rs 2000000. The chairperson of
this commission will be the retired Supreme Court judges and other 4 experts in the field of commerce and laws and industry. Out of four, it is necessary to include one lady member in the four expert team.

Industry Policy

New Industry Policy of India
Definition of Industrial policy
Industrial policies are action plans of any country’s govt. relating to industries and companies. Every country’s Industrial policies are related two sectors one is public sector and other is private sector. Main objective of making industrial policies are to help industries for their development and also try to increase the sale of industries by making more attractive industrial plans by Govt.

New Industrial policies of India
New industrial policies have been made in India in 1991. It is also part of India’s liberalization policy in which Govt. is providing more powers to the industrial enterprises. There are following features of industrial policies of India.

Licensing policy
When a company starts a new factory in specific industry, it has to get license from Govt. reduced the member of licensed industries from 18 to 8 and these are related to security and social welfare of people. Reducing the no. of industry helps companies to get position in new work and Govt. thinks that it will be help to generate new employment and also will support to private enterprise to enter in all sectors because Govt is closing the trend of reserve only for public sector companies.

The following industries which now reserve under govt. sector.

1. Arms and ammunition and allied items of defense equipment, Defense aircraft and warships.
2. Atomic Energy.
3. Coal and lignite.
4. Mineral oils.
5. Mining if iron ore, manganese ore, chrome ore, gypsum, sulphur, gold and diamond.
6. Mining of copper, lead, zinc, tin, molybdenum and wolfram.
7. Minerals specified in the Schedule to the Atomic Energy (Control of Production and Use) Order, 1953.
8. Railway transport.

Public sector policy
Under new industrial policy, govt. of India started to reconstruct public sector which are getting loss and also encourage private enterprise to purchase shares of PSU .The Public sector company whose turnover is more than 2 crores rupees , govt. has started specially care on them for their stable development .

Direct foreign investment
Under industrial policies, govt. of India has opened doors for all foreigner for investing 51% direct investment in Indian industries . For this they need not take special acceptance from govt. of India.

Technology policy
Govt of India is supporting Indian manufacturer for importing new technology with large paper works. After this, many Indian manufacturers have imported different advance technology for effective production.

Small scale industrial policies
Govt. of India has increased the limit of investment in Small scale industries from Rs. 2 Lakhs to Rs. 5 Lakhs and also power to export up to Rs. 75 lakhs under small scale industries.

Criticisms of New Industrial policy
 

• Ignore to unemployed peoples
• Unprotect small scale industries
• Transfer of India currency to foreign country in the form of profit under new direct foreign investment policy.

Auditing Part-I

Define the auditing
Auditing means checking of books of accounts so that we can remove the errors and mistakes from books of accounts. It is differ from investigation, in other words auditing is normal work of checking the books of accounts. Because before faith on accounting reports it is very necessary to check these report from any professional accountant. A little mistake in accounting is very harmful for entire business. In auditing, auditor’s duty is not check the fraud but check rules and regulation of accounting and laws of company. Auditing is very important for safeguarding the interest of investors and shareholders. Because without auditing, there may some mistake exists in the books of accounts which is very dangerous for business.

Audit Evidence and Method of obtaining evidence
Audit evidence is one of the basic principle governing an audit . Audit evidence includes all internal and external evidence which are base of reporting of auditor. An Auditor should get all evidence in the process of his auditing work. This is the test which tells auditor that internal control is prefect or not .

Method of obtaining evidence

1. Inspection
This is the main method of getting the evidence of audit . Inspection means checks all records , documents , and physical assets and satisfy with their trust

2. Observation
Observation is also main method of audit evidence . In this way auditor gets the Testimony of witnesses.
After this auditor can reach on the pin points of truth .

3. Inquiry and Confirmation
Inquiry is research of internal and outside information relating to accounting. Confirmation consists to responses on inquires . After true confirmation, auditor can trust and audit evidence .

4. Computation
Computation is calculation of correctness of accounting data.

5. Analytical Review
With the medium of Ratio analysis , auditor can check the accounting information , this is called analytical review.


Voucher and vouching
Voucher is a documentary evidence in support of a transaction in the books of account .The act of establishing the accuracy and authenticity of entries in the account books is called vouching .Vouching may be defined as an examination every transaction of a business with relevant valid documentary and other evidence with a view to find out if it is genuine and bona fide. It aims at ascertaining whether a transaction is in order, has been properly authorized and is correctly recorded in the book.

Ronald H. Irish states that vouching is technical term which refers to the inspection by auditor a transaction. Vouching is considered to be the essence of auditing and therefore the auditor should be the very careful while vouching. Vouching means to substantiate an entry in the books of account not only with documentary evidence such as agreements , receipts , counterfoils of receipt books or paying in book contracts , but also to see that the transaction has been properly authorized , recorded and entered in the book , accounts e.g. verification of the entries in the invoice book with the invoices , checking of the cash receipts with the counterfoils of the receipts , book ,the checking of the cash payments with the receipts issued by the payee and so on .

 Vouching means testing the truth of items appearing in the books of original entry. The success of an auditor, in vouching depends upon his intelligence, critical bent of mind, common sense observation and fact with which he handles his work. He should go beyond the books of account and go to the source of a transaction. If he simply compares the entry , say ,on the credit side of a cash book with the voucher , it is possible that he might not have been for the business or the receipt might have been for the previous year .Clever frauds can be discovered only by proper vouching . Therefore, it is very important that the items with great care and intelligence. It is through vouching that an auditor can satisfy himself as to the authenticity and completeness of transaction in the books of accounts. In case he will be held guilty as was decided in case of Armitage V2, Brewer and Knott.

Vouching also means checking of addition ledger positions, extracting of business in the ledger. The extent to which the auditor should check will depend upon the size of the business, the accounts of which he is auditing, if it is a big business, efficient internal check will be in operation and hence the auditor will be justified in relying upon a few test checks, while in a small business, internal check may not be in operation and hence the auditor will have to check every entry. To be on the safe side, the auditor will do well to check the entries in detail because the curtailment of work will not in any way reduce his responsibility.

Basic Principle of Governing the form and contents of working papers
Basic Principle of Governing the form and contents of working papers includes in AAS-3 . In basic principle governing form and contents of working paper includes following matter .

• Different audit plan’s record should be in it in which tells its nature and about its time .
• Form of audit report
• It must be fully complete

Permanent Audit file
Permanent Audit file includes following matter

• Information of company’s nature , history , place of production
• Memorandum of association
• Article of association ‘s copies
• Content list of all important books of company.
• List of working charts.
• Photo copy of all directions of employers.
• Previous years a/c’s audit report.
• List of all reports relating interval audit or interval inspections

Current Audit file
Current audit file include following:-

• Audit and audit programme’s copies
• Clearance the problems and confusion during the time of audit work
• Copies of annual records like trade a/cs and profit and loss account and balance sheet.
• Bank reconciliation statement
• Paper of calculation of tax bonus.
• List of lost proofs
• Paper regarding stock evaluation

Auditing Part-II

Are audit files the property of auditor?
This fact is very important in real situation whether audit files are the property of auditor or not. There are different thoughts on this topic. Some time customers claims that these papers should be in their custody because auditor is the agent of businessman; he deals with bank, directors of other companies or creditors as his agent.
But auditor also claims that this paper should be in their custody because, these papers are created by them and their employees during the work of audit. Second, these papers and files are so important for auditor because if some one Charges that he did not perform his duty well, then auditor can show these files and can protect his side.
This dispute has been solved by the case of syklosnchi V/s bright gram and company (1938) . In this case judge said that all the audit files have the property of auditor. Auditor are entitled of these files and they work independent as the professional not as the agent of company

Are you going for audit for any company accounts?
Remember following points before auditing of companies account:-

1. When you reach the company office, at this time make your face as very serious and behave as you are officer of audit.
2. Never show, the company’s employees that you are enquiry the fraud of accounting. Because you are not deductive and your professional work is to audit not to do doubt on employees.
3. You have the power of demanding evidence of any journal entry in the books of company. So use this power.
4. If you find any fraud in the books of accounts, then do not make responsible to all accounts department. Go in the depth of this case. Never show other if you get content- fraud in the books of accounts of company. Declare after completing the audit procedure and mention effect and part of accounts in which fraud is committed before doing this take care the interests of company.
5. If you are appointed as internal auditor of any company , then keep regular audit so that when independent audit will be done , all work in books of accounts according to rules and regulations of accounting so that you feel proud on your internal auditing .
6. According to my thoughts, in the accounting field there is 90% cause of mistakes in accounts and 10% is the cause of fraud, so never see always accountant as doubted personality.
7. Accountants should also corporate with chartered accountants because both coordination and co-operation can easily complete the complicate process of auditing.
8. In my training as auditor I have visit so many companies for auditing their accounts. I always checked basic rules which applied in these accounts. So Chartered accountant must know up to date PPF , EPF , GRATUITY , income tax rates related to that company , excise rules and custom rules
9. When you are writing your audit report , explain full detail if companies accounts and financial reports are not giving true and fair view of company’s revenue and financial position
10. Before doing audit of company accounts , Chartered accountants must see also amendments in Company laws , If it is Indian company , Indian company law will apply if there is MNC then see the company laws of country where its head office is situated.

What can Chartered accountant in the field of accounting
Today area of accounting is spreading very fast . Jobs is also increasing very fast in the field of accounting . At this pin point what can do a C.A. or A professional accountant in the field of accounting .The answer is not so easy because only doing auditing work or making accounts and calculating some reports have become very traditional or classic .

If you want to become modern accountant or advance chartered accountant then read this article very seriously .

• He should come forward to take online accounting & auditing like as challenge .
• Today C.A. can now take the responsibility Accounting Process outsource and its small name is APO , it is also get popular like BPO .
• They can become good teacher of accounting because their deep knowledge should be benefited to a large community .
• They can also start their online Accounting education website where they can share their experience and knowledge with whole world . They can also do some marketing in this way for growing and developing their business

Accounting Fraud in Satyam Company
Only for material money, Chartered Accountants like Gopalkrishan and Shri Nivas taluri are putting stigma to great Accounting Education. It is the duty of every Indian accountant to develop India with accounting education but what we are seeing that they are using accounting education for doing accounting Scams. In this accounting Scams two facts came in existence:-

1. B. Ramlinga Raju accepted that he showed 13000 excess numbers of employees over actual numbers of employees in Satyam Computers and he was getting 20 Crores Rupees every month with this ghost employee’s accounting .
2. Finance Officer of Satyam Computer Company Shri Nivas has done 7800 Crores of Rs. Accounting Scam. Still enquires and investigation is continue but this is also bad for Indian Economy because, Sensex of Satyam Computer’s Shares had fallen down 78% after reaching this Scam news in Indian Share market .