Notes And Study Material for Exam Papers

What is Polyembryony and Parthenocarpy?

2017-05-22T00:02:00.009+05:00

Difference Between Polyembryony and Parthenocarpy

Polyembryony:

In several genera of angiosperms, more than one viable embryo in the seed has been observed. It is more frequent in Gymnosperms than in angiosperms. This condition arises in various ways:

The oospore produces more than one embryo during development as a result of splitting. This is known as cleavage polyembryony and is very common in gymnosperms (e.g. Pinus) and angiosperms e.g. Allium, citrus, and some orchids.
An ovule may contain more than one functional megaspore producing as many embryo sacs and oospheres which on fertilization give rise to more than one embryo in the seed.
In addition to the normal embryo produced from a fertilized oosphere, the embryo may also be formed from the synergids (e.g. Dandelion) or rarely the antipodals with or without fertilization.

(iv) Additional embryos may be produced as a result of saprophytic budding by the division of the cells of the nucellus (e.g. lemon) or integument (e.g. onion).

Parthenocarpy:

Parthenocarpy is the development of fruit without fertilization.

As a rule, the development of the ovule into seeds and the enlargement of the ovary into fruit follow only after pollination and fertilization have occurred. In most species of flowering plants, the failure of pollination results in the failure of seed and fruit formation. This usually happens in mature of pollinating insects are not active or the destruction of pollen occurs. In many kinds of fruit trees, if heavy rains fall during the time when pollen is maturing the pollen grains are washed out of the flowers, pollination does not occur and as a consequence few or no flowers set fruits. In some plants, fruits are formed even in the abundance of pollination and fertilization. Such fruits are always seedless. These are succulent and more desirable than normal seed-containing fruits. They are said to be parthenocarpy, while the phenomenon concerned with their formation is termed Parthenocarpy.

There are two main types of parthenocarpy: natural and artificial.

Induced parthenocarpy: When seed-less fruits are produced by spraying the stigmas of flowers with ether or water extract of pollen grains or by injecting such growth-promoting substances as in indole acetic acid and naphthalene acetic acid into the ovaries of plants.
Natural parthenocarpy: When seedless fruits are produced without any special treatment from the ovaries in the absence of pollination and fertilization. Familiar examples are the naval oranges, grapes, bananas, and pineapples.

Describe Endosperm formation and its function

2016-11-23T00:25:00.005+05:00

Development of Endosperm

It begins before that of the embryo, arises from the primary endosperm nucleus (also known as triple fusion nucleus) formed as a result of the triple fusion of three nuclei i.e. two polar nuclei and a male nucleus. The primary endosperm nucleus is triploid (3N). It undergoes a series of divisions resulting in the formation of many free nuclei lying within the embryo sac. A vacuole appears in the center so that the nuclei are pushed to the periphery.

Later on, unless the endosperm is absorbed by the embryo in the free nuclear stage, wall formation takes place starting from the periphery towards the center of the embryo sac, and by further centripetal growth, the embryo sac is filled with a compact cellular tissue around the embryo without any intercellular spaces. This tissue is endosperm occasionally as in coconut a vacuole persists in the center of the embryo sac as it is not completely filled by the endospermic tissue. This type of endosperm development since it involves the process of free nuclear division is called the nuclear type e.g. Fritillaria bi flora. This is the most common method of endosperm development. In some plants as in Silphium Lacimatum, each division of the primary endosperm nucleus is followed by wall formation, so that the endosperm is formed at once. This type of endosperm development is known as the cellular type.

In some groups, endosperm may develop as a few free nuclei only so that it may be regarded as suppressed as in Helobiales and orchids. Several members of Sympetalae a few families of Archichlamydae and monocotyledons show prominent endospermic Fostoria which forms a very efficient absorptive system.

Function of endosperm

Endosperm serves as storage tissue as its cells are laden up with food material absorbed through the placenta. The reserve food is stored in large quantities in its cells. This may be deposited as Hemi cellulose on the cell walls which often become very thick as in the date and so-called vegetable ivory. In most monocots and some dicots (e.g. castor, buttercup, cotton, and all grasses) endosperm persists as permanent tissue in the seed. Such seeds are called albuminous or endospermic.

Short Note - Structure of Ovule (Megasporangium)

2016-11-23T00:23:00.003+05:00

An ovule (megasporangium) may arise from the placenta at the base of the ovary or on the inner surface of the ovary. It is borne on a distinct stalk, the funicle which is attached to the body of the ovule at a point called the hilum. The central and somewhat conical part of the ovule is the nucellus. It consists of a mass of parenchymatous cells. It represents the metasporangium proper and is invested by two-layered integuments in monocotyledons and primitive dicotyledons (Archicliamydeae) but by single-layered integument in the higher dicotyledonous families (metachlamydeae); very rarely unitegmic and bitegmic ovules occur in the same family.

In many cases, single integument has resulted due to the fusion of two separate primordials or by elimination of one of the two integuments. The third integument in the form of aril is found in plants like Asphodehus and Trianthema, while Ricinus and several other plants of the family, Euphorbiaceae, show an integumentary proliferation called the caruncle at the micropylar end.

A very peculiar condition is reported in opuntia where the funicle becomes very long and completely surrounds the ovule, thus looking like a third integument. In parasites like Santalum (Sandal wood) and Loranthus, there is no integument. The integuments arise from the chalaza which constitutes the basal part of the nucellus. They grow upward in close contact with the nucellus and enclose the latter completely, leaving only a small opening, the micropyle at the apex. An embryo sac is embedded in the nucellus towards the micropylar end.

The embryo sac as will be seen later bears the embryo and is the most important part of the ovule. In a mature ovule, the embryo sac bears towards the micropylar end three protoplasts constituting the egg apparatus one is the egg or oosphere while the other two are the synergids or help cells. At the chalazal end are three antipodal cells enclosed in the cell wall. In the center of the embryo sac lies the secondary nucleus.

The vascular supply of the ovule is supplied by a vascular strand that runs through the funicle and extends upwards, but rarely beyond chalaza.

In some cases as in Gmynosperms, the vascular bundles enter the integuments or even the nucellus also. Sometimes the integuments are green due to the presence of chlorophyll e.g. Amaryllis and bear stomata e.g. Nerium and Gossypium.

Describe structure and development of Anther and Microsporangia

2015-11-04T00:28:00.001+05:00

A cross section of young anther shows that each anther lobe contains two pollen sacs or microsporangia but the number may vary among different angiosperms from one to many. As a rule microsporangia extend as longitudinally running sacs through the entire length of the anther. Later on as the anther matures, the intervening tissue breaks down between each pair of pollen sacs and the two pollen sacs coalense into one, thus forming two large cavities instead of four in each anther. In Malvaceae anthers are one called (monotherous) as there are two instead of four pollen sacs per anther and these also coalesce at maturity to form single loculus. Very rarely four celled sacs may remain separate in a mature anther.

Within each pollen sac of an angiosperm as within a Microsporangium of Salaginella or Pinus are produced small numbers of micropyle mother cells surrounded by a conspicuous layer of nutritive cells, the tapetum outside the tapetum is the wall of the sporangium consisting of a number of layers of cells. Outermost wall layer just beneath the epidermis shows characteristic band-like fibrous thickenings. This layer is the endothecium which assists mechanically in the dehiscence of the anther opposite the partition between each pair of sporangia (pollen sacs) the cells of endothecium are thin walled and constitute the stomium which marks the line of dehiscence or opening of ripe anther. Each microspore mother cell after two successive divisions of its nucleus divides to produce four pollen grains (microspores). As this occurs and as the pollen grains mature, the tapetum disappears, the products of its disintegration are absorbed and used as food by the developing pollen grains.

Pollen grains are liberated as a result of dehiscence of ripe anther which may take place in various ways. In tulips, lily and Datura the opening is longitudinal e.g. the slit appears above the line of fusion of two pollen sacs; in others as barberry, it is effected by uplifting valves; in still others by means of pores at the top as in tomato, potato and certain other grasses by transverse slits in Hibiscus esculentus.

Describe structure of ovule (Megasporangium)

2015-11-04T00:27:00.001+05:00

A very peculiar condition is reported in opuntia where the funicle becomes very long and completely surrounds the ovule, thus looking like a third integument. In parasites like Santalum (Sandalwood) and Loranthus, there is no integument. The integuments arise from the chalaza which constitutes the basal part of the nucellus. They grow upward in close contact with the nucellus and enclose the latter completely, leaving only a small opening, the micropyle at the apex. An embryo sac is embedded in the nucellus towards the micropylar end.

The embryo sac as will be seen later bears the embryo and is the most important part of the ovule. In a mature ovule, the embryo sac bears towards the micropylar end three protoplasts constituting the egg apparatus of those one is the egg or oosphere while the other two are the synergids or help cells. At the chalazal end are three antipodal cells enclosed in the cell wall. In the center of the embryo sac lies the secondary nucleus.

The vascular supply of the ovule is supplied by a vascular strand that runs through the funcile and extends upwards, but rarely beyond the chalaza.

In some cases as in Gmynosperms, the vascular bundles enter the integuments or even the nucellus also. Sometimes the integuments are green due to the presence of chlorophyll e.g. Amaryllis and bear stomata e.g. Nerium and Gossypium.

Describe Endosperm formation and its function

2015-10-26T00:32:00.001+05:00

Development of endosperm begins before that of embryo. It arises from the primary endosperm nucleus (also known as triple fusion nucleus) formed as a result of triple fusion of three nuclei i.e. two polar nuclei and a male nucleus. Primary endosperm nucleus is triploid (3N). It undergoes a series of divisions resulting in the formation of many free nuclei lying within the embryo sac. A vacuole appears in the centre so that the nuclei are pushed to the periphery. Later on unless the endosperm is absorbed by the embryo in free nuclear stage, wall formation takes place starting from the periphery towards the centre of embryo sac and by further centripetal growth, the embryo sac is filled with a compact cellular tissue around the embryo without any intercellular spaces. This tissue is endosperm occasionally as in coconut a vacuole persists in the centre of the embryo sac as it is not completely filled by the endospermic tissue. This type of endosperm development since it involves the process of free nuclear division is called the nuclear type e.g. Fritillaria biflora. This is the most common method of endosperm development. In some plants as in Silphium Lacimatum, each division of the primary endosperm nucleus is followed by wall formation, so that the endosperm is formed at once. This type of endosperm development is known as cellular type.

In some groups endosperm may develop as a few free nuclei only so that it may be regarded as suppressed as in Helobiales and orchids. Several members of Sympetalae a few families of Archichlamydae and monocotyledons show prominent endospmeric loustoria which form very efficient absorptive system.

Function of endosperm:

Endosperm serves as storage tissue as its cells are laden up with food material absorbed through the placenta. The reserve food is stored in large quantities in its cells. This may be deposited as hemi cellulose on the cell walls, when often become very thick as in date and so called vegetable ivory. In most of monocots and some dicots (e.g. castor, butter cup, cotton and all grasses) endosperm persists as permanent tissue in the seed. Such seeds are called albuminous or endospermic.

Describe polyembryony and parthenocarpy

2015-10-26T00:30:00.002+05:00

In several genera of angiosperms more than one viable embryo in the seed has been observed. It is more frequent in Gymnosperms than in angiosperms. This condition arises in various ways:

(i) The oospore produces more than one embryo during development as a result of splitting. This is known as cleavage polyembryony and is very common in gymnosperms (e.g. Pinus) and angiosperms e.g. Allium, citrus and some orchids.

(ii) An ovule may contain more than one functional megaspore producing as many embryo sacs and oospheres which on fertilization give rise to more than one embryo in the seed.

(ii) In addition to the normal embryo produced from a fertilized oosphere, embryo may also be formed from the synergids (e.g. Dandelion) or rarely the antipodals with or without fertilization.

(iv) Additional embryos may be produced as a result of sporophytic budding by the division of the cells of the nucellus (e.g. lemon) or integument (e.g. onion).

Parthenocarpy:

As a rule the development of the ovule into seeds and the enlargement of the ovary into fruit follow only after pollination and fertilization has occurred. In most species of flowering plants, the failure of pollination results in the failure of seed and fruit formation. This usually happens in mature of the pollinating insects are not active or destruction of pollen occurs. In many kinds of fruit trees, if heavy rains fall during the time when pollen is maturing the pollen grains are washed out of the flowers, pollination does not occur and as a consequence few or no flowers set fruits. In some plants fruits are formed even in the abundance of pollination and fertilization. Such fruits are always seed less. These are succulent and more desirable than normal seed containing fruits. They are said to be partheocarpic while the phenomenon concerned in their formation is termed Parthenocarpy. Parthenocarpy is of two types:

(a) Induced parthenocarpy: When seed less fruits are produced by spraying the stigmas of flowers with ether or water extract of pollen grains or by injecting such growth promoting substances as in indole acetic acid and naphthalene acetic acid into ovaries of plants.

(b) Natural parthenocarpy: When seed less fruits are produced without any special treatment from the ovaries in the absence of pollination and fertilization. Familiar examples are the naval oranges, grapes, bananas and pine apples.

The process of Meiosis and its significance or various stages of reduction division of cell

2014-08-17T18:54:00.001+05:00

Meiosis or reduction division is complicated type of cell division occurring in the reproduction of germ cells at the time of gametic formation. In animals it occurs during gametes formation. Every species has definite number of chromosomes and that this number remains constant in its somatic cells, generation after generation. To keep the number constant the chromosome number in gametes is reduced to half. When male and female gametes and their nuclei fuse, normal number of chromosomes characteristic of each species is restored. The somatic or vegetative cells having the complete number of chromosomes are called diploid (2n). While gametes containing half of the original number of chromosomes are called haploid (n) or monoploid.

The events of Meiosis:

Meiosis consists of two successive divisions of mother cells. First division is reduction division, during which the chromosome number (2n) in both daughter cells is reduced to half (n), the second division is simple mitotic division resulting in four cells, each having same reduced number (n) of chromosomes.

Both, first and second divisions are divisible into four stages known as prophase I, metaphase I, Anaphase I and Telophase I in first meiotic division and prophase II, Metaphase II, Anaphase II and Telophase II in second meiotic division.

First Meiotic division:

Prophase I:

It is division of longer duration and has five sub stages (i) Leptotene (ii) Zygotene (iii) Pachytene (iv) Diplotene and (v) Diakinesis.

(i) Leptotene: Leptotene initiates meiosis. Cells become large in size and has large nucleus. It has diploid chromosome number. Chromosomes in this stage are observed to be thin, long threads and longitudinally single rather than double as in mitosis. Each chromosome presents beaded appearance due to the presence of dense granules of chromosomes at irregular intervals along its entire length.

(ii) Zygotene: Zygotene commences with the movement of similar chromosomes brought together by attraction between them. Thus the chromosomes of each homologous pair approach each other and become intimately associated to form bivalent. Pairing of homologous chromosomes is known as synapsis. It starts at one or more paints along the length of chromosomes and the chromomere of one homologue synapse exactly with corresponding one of the other. This nucleus now appears to have half the number of chromosomes.

(iii) Pachytene: During this stage paired chromosomes of each bivalent get shortened and thickened and are more readily distinguishable. The homologous chromosomes twice around each other and each starts splitting into two sister chromatids longitudinally splitting each pair into four chromatids called tetrads.

(iv) Diplotene: in these stage synaptic forces of attraction between each bivalent consisting of four chromatids laps and the chromosomes uncoil and separate. The separation is incomplete and paired chromosomes are in contact with each other at one or ore points. These points of contact are known as chiasmata. Exchange of chromatid parts takes place between paired chromosomes due to the breakage and rejoining of segments of chromatids at chiasmata. This is known as crossing over. The important thing to keep in mind is that whole blocks of genes are transferred between non sister chromatids of a tetrad during crossing over.

(v) Diakinesis: It takes place by the disappearance of nuclear membrane, nucleolus and completion of spindle apparatus. The separation of bivants is completed by the process terminalization in which the movement of chiasmata from the centromere towards the ends of the chromosome arms take like a zipper, and at the end of diakinesis two chromatids are held together only at their ends by the centromeres. Now the bivalents become more thickened, contracted and prominently visible. Prophase I end here.

Metaphase I:

The bivalents now line up at the equatorial plane. The tetrads then attach themselves to half spindle fibres at the centromeres. Each chromosome of the bivalent becomes connected to the half spindle fibres of one pole and the other half with half spindle fibres of the opposite pole.

Anaphase I:

In this stage each chromosome of homologoues is pulled towards the opposite pole by the contraction of half spindle fibres. Anaphase is completed when two sets of chromosomes reach the opposite poles of the cell.

Telophase I:

When chromosomes reach opposite poles, two new nuclei begin to form. New nuclear membranes appear and the chromosomes uncoil. A brief pause in the meiotic process may follow. However the chromosomes are still double stranded (consist of two chromatids) thus they are ready to divide again and second meiotic division begins.

Second Meiotic Division:

Telophase I is followed by short interphase which corresponds with mitotic interphase. Sometimes the interphase may persist for considerable length of time. At the interphase between two meiotic divisions there is no replication of chromosomes. These are now haploid in number although each one consists of two chromatids.

Prophase II:

The centrioles divide and the spindles are formed which are at right angles to the first meiotic division. The nuclear membrane disappears and the splitted chromosomes (diads) arrange themselves at the equatorial plane.

Metaphase II:

Half or discontinuous spindle fibres attach at the centromeres of the diads and two chromatids get separated at the centromere from each other.

Anaphase II:

Movement of two sets of chromatids of each spindle starts towards the opposite poles. Each chromatid is now called monad. Anaphase finishes when the monads reach the poles.

Telophase II:

Chromosomes uncoil and form separate groups and around each group a nuclear membrane is formed. Cytoplasmic division or cytokinesis is followed resulting in four daughter cells, each with haploid number of chromosomes.

Significance of Meiosis:

(1) It is logical and necessary part in the life cycle of sexually reproducing animals as it helps in restoring the definite number of chromosomes. As a result of meiosis the gametes are formed, each gamete possesses haploid (n) number of chromosomes and the fusion of gametes at the time of fertilization results in the diploid (2n) number. Thus meiosis helps in the maintenance of chromosomal number in species generation after generation. In the absence of meiosis, the number of chromosomes would have been doubled giving rise to abnormal growth, changes in species characteristics and at the same time may prove fatal.

(2) During process of meiosis crossing over takes place between two homologous chromosomes. Crossing over and chiasmata formation result in exchange of chromosome species between two homologues. Thus new combination of genetic material are facilitated which lead to the evolution of new forms.

Describe game formation. Mension process of spermatogenesis and oogenesis

2014-08-17T18:49:00.002+05:00

During life cycle of most animals some diploid cells undergo meiosis and haploid gametes form in a process called gametogenesis. The testes of the male, produces sperms and is called spermatogenesis, in the ovaries of female, the production of oval (eggs) is called oogenesis.

Spermatogenesis:

Spermatogenesis produces mature sperm as follows:

(1) Spermatogenesis begins in unspecialized germ cells called spermatogomia (singular spermatogonium). The spermatogonium enlarges and becomes primary spermatocyte.

(2) A primary spermatocyte undergoes meiosis (meiotic division I) and produces two smaller secondary spermatocytes).

(3) Both secondary spermatocytes undergo second meiotic division (meiotic division II) to form spermatids each primary spermatocyte gives rise to four spermatids, each with the haploid number of chromosomes.

(4) Spermatids develop into mature sperm (spermatozoa) without undergo going any further cell division.

Oogenesis:

Oogenesis, the maturation of ova (singular, ovum) or eggs differ from spermatogenesis in several ways and proceeds as follows:

(1) Oogenesis begins in unspecialized germ cells called oogonia which undergo mitosis.

(2) An oogonium develops and grows into primary oocyte which contains diploid number of chromosomes. The primary oocyte undergoes first meiotic division to produce two daughter cells of unequal size.

(3) Larger of the daughter cells in the secondary oocyte, which contains almost all of the primary occytes, food rich cytoplasm which provides nourishment for the developing ovum.

(4) Smaller of the two daughter cells is first polar body and is essentially only a nucleus. It may divide again but eventually it degenerates.

(5) In some animals, if the secondary oocyte is fertilized, it begins second meiotic division, producing haploid ovum and another tiny polar body forms. This second polar body is also destined to disintegrate. With the haploid sperm now ovum nuclei merge (syngamy), the ovum becomes a zygote. Notice that in oogenesis each primary oocyte gives rise to only one functional gamete instead of four as in spermatogenesis.

What is animal systematic and describe classification of organization

2013-12-06T10:57:00.004+05:00

Animal Systematics:

The goal of animal systematics is to arrange animals into group, that reflect evolutionary relationship.

Monophyletic group: When groups include single ancestral species and all of its descendents such a group is called monophyletic group, in searching out monophyletic groups, taxonomists look for animal attributes called characters that indicate relatedness.

Character: A character is virtually anything that has a genetic basis and can be measured from an anatomical feature to a sequence of nitrogenous bases in DNA or RNA.

Polyphyletic groups: They have members that can be traced to separate ancestors. Since each group should have single ancestor, a polyphyletic group reflects insufficient knowledge of the group.

Paraphyletic group: It includes some, but not all, members of a lineage. Paraphyletic groups result when knowledge of the group is insufficient.

Evolutionary Systematics: It is the oldest of three approaches. It is also called traditional approach. A basic assumption of evolutionary systematics is that organisms closely related to an ancestor will resemble that ancestor more closely than they resemble distantly related organisms. Two kinds of similarities between organisms are recognized.

(1) Homologies are resemblances that result from common ancestry and are useful in classifying animals. Example is the similar arrangement of bones in the wing of a bird and the arm of human.

(2) Analogies are resemblances that result from organisms adapting under similar evolutionary pressures. This process is sometimes called convergent evolution. Analogies do not reflect common ancestry and are not used in animal taxonomy e.g. similarity between wings of birds and insects in an analogy. Evolutionary systematics often portray the results of their work on phylogenetic trees where organisms are grouped according to their evolutionary relationships.

Numerical Taxonomy: It emerged during 1950s and 1960s and represents opposite end of the spectrum from evolutionary systematics. The founders of numerical taxonomy believed that the criteria for grouping taxa had become too arbitrary. They tried to make taxonomy more objective.

Taxonomists use mathematical models and compute aided techniques to group samples of organisms according to overall similarity. They do not attempt to distinguish between homologies and analogies. Difference between evolutionary systematic and numerical taxonomy is that numerical taxonomists limit discussion of evolutionary relationships to closely related taxa. Numerical taxonomy is the least popular of three taxonomic schools. However; all taxonomists use compute programme that numerical taxonomists developed.

Phylogenetic Systematics: It is third approach to animal systematic. The goal of cladistics is similar to evolutionary systematics the generation of hypotheses of genealogical relationships among monophyletic groups of organisms. Cladists contend that their methods are more open to analysis and testing and thus are more scientific, than those of evolutionary systematics.

Like evolutionary systematics, cladists differentiate between homologous and analogies. They believe that homologies of recent origin are most useful in phylogenetic studies.

Symplesiomorphies: Characters that all members of a group share are referred to as symplesiomorphies. (sym=together+plesio=near+morphe=form).

These characters are homologues that may indicate a shared ancestry but they are useless in describing relationships within the group.

Out group: To decide what character is ancestral from a group of organisms. Cladists look for a related group of organisms called an out group that are included in the study group.

Synapomorphies: Characters that have arisen since common ancestry with the out group are called derived characters or synopomorphies (syn=together, apo=away and morphe=form).

Cladogram: A cladogram is interpreted as a family tree depicting a hypothesis regarding monphyletic lineages. New data is the form of newly investigated characters or reinterpretation of old data are used to test the hypothesis, the cladogram describes. The tumicates and cephalochordates are an out group for the entire vertebrate lineage. Derived characters are

(1) Extra embryonic membrane is a synapomorphy used to define the clade containing the reptiles, birds and mammals and absent in any of the fish taxa or the amphibians.

(2) Derived characters, the shell, distinguishes turtles, from all other members of the clade

(3) Skill characters distinguish the lizard/crocodile bird lineage from the mammal lineage

(4) and haris, mammary glands and endothermy is a unique mammalian character combination. A synapomorphy at one level of taxonomy may be a symplesiomorphy at different levels of taxonomy. Extra embryonic membrane is synapomorphic for reptiles, birds and mammals because it is ancestral for the clade and cannot be used to distinguish among members of these three groups. Zoologists widely accept cladistcs. This acceptance has resulted in some non traditional interpretations of animal phylogeny. Generations of taxonomists assigned class level status (Aves) to birds and reptilian to reptiles.

Cladistic analysis: It has show that birds are more closely tried by common ancestry to alligators and crocodiles than to any other group.

According to cladistics interpretation birds and crocodiles should be assigned to a group that reflects this close common ancestry. Birds would become a subgroup within larger group that included both birds and reptiles. Crocodiles would be depicted more closely related to birds than they would be to snakes and lizards.

Traditional evolutionary systematics maintain that the traditional interpretation is still correct because it takes into account the greater importance of key characters of birds (e.g. feathers and endothermy) that make the group unique. Cladists support their position by pointing out that the designation of key characters involves value judgments that cannot be tested. Debates are the fuel that force scientists to examine old assumptions. Animal systematics is certain to be lively and exciting field in future years.

What do you know about kingdoms of life

2013-12-06T10:55:00.003+05:00

In 1969, Whittaker described a system of classification that distinguished between kingdom according to cellular organization and mode of nutrition. According to this system members of kingdom monera are bacteria and cyanobacteria. They are prokaryotes members of kingdom protista are eukaryotic and consist of single cells or colonies of cells. Members of kingdom plantae are eukaryotic, multi-cellular and photosynthetic. Plants have walled cells and are usually non motile. Members of kingdom fungi are also eukaryotic and multi-cellular. They also have walled cells and are usually non motile. Fungi are decomposers. Members of kingdom animalia are eukaryotic and multi-cellular and they usually feed by ingesting other organisms or parts of other organisms. Their cells lack walls and they are usually motile.

For the first two billion years of life on the earth, living forms were prokaryotic microbes. Molecular studies of variations in base sequences of ribosomal RNA from more than two thousand organisms are providing evidence of relationship rooted within this two billion year period. Emerging picture is that five kingdoms do not represent distinct evolutionary lineages.

Evolutionary Conservation: Ribosomal RNA is excellent for studying the evolution of early life on earth. It is an ancient molecule and it is present and retains its function in virtually all organisms. In addition ribosomal RNA changes very slowly. This showness of change is called evolutionary conservation. It indicates that the protein producing machinery of a cell can tolerate little change and still retain its vital function. Closely related organisms (recently diverged from a common ancestory) are likely to have similar ribosomal RNAs. Distantly related organisms have ribosomal RNAs that are less similar but the differences are small enough that the relationship to some ancestral molecules are still apparent.

Method: Molecular systematic compare the base sequences in ribosomal RNA of different organisms to find the number of positions in RNAs where bases are different. They enter these data into computer programmes and examine all possible relationships among different organisms. The systematic then decide which arrangement of the organisms best explains the data.

Conclusion: Studies of ribosomal RNA have let systematic to the conclusion that all life shares a common ancestor and that there are three major evolutionary lineages. Each of these lineage is called domain. Archara are prokaryotic microbes that live in extreme environments such as high temperature rift valleys on the ocean floor or high salt or acidic environments. They environments may reflect conditions on the earth at the time of life’s origin. The archara are the most primitive life forms known. Ancient archaras gave rise to two other domains of organisms Eubacteria and Eukarya. Eubacteria are true bacteria and are prokaryotic micro-organisms. Eukarya include all eukaryotic organisms eukaraya diverged more recently related to Archara than Eubacteria to Archara.

Eubacteria to Archara:

Eukarya arose about 1.5 billion years ago. Photosynthetic accumulation of oxygen in the atmosphere probably resulted in the production of ozone which shielded the planet from ultra violet light. Eukarya then underwent late, but raid, evolutionary diversification into modern lineages of protests, fungi, plants and animals.

What is fiscal policy? Discuss in brief the main objectives of fiscal policy

2013-11-28T12:22:00.002+05:00

Fiscal policy is the deliberate change in government spending and taxes to stimulate or slow down the economy. In the words of F. R. Glahe “By fiscal policy is meant the regulation of the level of government expenditure and taxation to achieve full employment without inflation in the economy.” J. M. Keynes describes fiscal policy as the steering wheel for the aggregate economy.

Main objectives of Fiscal Policy:

The objectives of fiscal policy differ with the state of development in the country. In advanced countries of the world, the goal of fiscal policy may be the maintenance of full employment without inflation. In developing countries, the objectives of fiscal policy may be to achieve maximum level of employment and reduction economic inequalities. However, the main objectives of fiscal policy are in brief as under.

Removing deflationary gap: J. M. Keynes is of the view that fiscal policy can play a major role in lifting the economy out of depression and closing the deflationary gap. When the economy is a depression, it is faced with rising unemployment falling income, severe declining investment and shrinking of economic activities. The government by undertaking public works programme increases its expenditure which helps in raising the level of aggregate demand of employment in the economy. The government can also induce changes in aggregate investment by reduction of taxes, tax, relieves, abolition of sales tax, reducing excise duties etc. The tax relief measures are also an effective method to raise the level of aggregate demand and removing deflationary gap from the economy.

Fiscal policy in Inflation: If the economy of a country is faced with inflationary gap, then anti-cyclical fiscal policies should be adopted to bring down the prices and for closing the inflationary gaps. The main fiscal measures to bring down the excess demand in the economy are:
1. Reduction in government expenditure
2. Increase in taxes
3. Creating a budget surplus
By adopting contractionary fiscal policy, the aggregated demand curve shifts downward, and the economy begins to operate at the desired potential level of income.

Counter Cyclical fiscal policy: Another important objective of fiscal policy is to minimize the fluctuations in aggregate demand so that the economy is always at its target and potential level of income. The fluctuations in the economy which are associated with the business cycles can be smoothed in a number of ways. For example when the aggregate demand rises rapidly in the expansionary phase of the business cycle, it can be tuned by reducing government expenditure or raising taxes. This will help in dampening down the expansionary phase. In the recessionary phase the problem of unemployment and low growth can be covered and remedied by cutting taxes and raising government expenditure. If timely counter cyclical fiscal measure is adopted the problems of excess or deficiency of demand will never be severe and economy operates at the potential level of income which is called fine tuning.

Equilibrium in balance of payment: The level of national income is also affected by the balance of payments position of the country. If the country has a favourable balance of payments it will lead to increase in income. This rise in aggregate demand will shift the demand line upward and will increase the level of national income. The all in the balance of payments has effect. The government uses fiscal policy in such a way that the balance of payments remains in equilibrium in the short run.

Economic Growth: The elements of Keynes fiscal policy were developed in 1930’s. Since then, the Keynesian fiscal policy is in action. The economists believe even now that if the economy is operating below its potential level, the increase in government expenditure and cut in taxes is the perfect medicine to bring the economy back to its full employment level. The economist’s stress that government should encourage investment to increase the rate of capital formation by using timely proper fiscal measures. The government borrowing for financing schemes of development, the increase in ratio of savings to national income, cut in taxes to increase investment spending can accelerate the rate of capital for nation in the country and lead to economic growth.

Define Budget also the difference parts of expenditure of federal budget

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The budget of a government is a statement of its finances for a particular year. It indicates how the government or a public body concerned proposes to raise its revenue and incur its expenditure. If the expenditure happens to be in excess of revenue, the government state how the gap is to be met through raising various types of taxes or loans.

A government in Pakistan whether federal or provincial has two sections of the budget

(1) Revenue budget (2) Capital budget. The revenue budget is concerned with the current needs and functions of government like defence, civil administration, judicial services, police and beneficent activities in the field of education, health, agriculture etc.

The capital budget of the government is concerned with the building of lasting works of a capital nature, like irrigation, canals, dams, roads and other constructions.

Major Expenditure Heads of the Federal Budget:

As we know Public Expenditure may be (i) Development Expenditure which is shown in the Capital Budget or what may be called Development Budget. The expenditure in the Revenue Budget is mostly Non-Development Expenditure. The major heads of expenditure are discussed below.

i) Debt Services: Under this head are included interest on debt and other obligations and provisions for reduction and avoidance of debt. This expenditure has been on the increase.

ii) Defence Services: Next to debt services comes the most important spending department of the Federal Government and takes away a high proportion of its total is defence services.

iii) Development Expenditure or ADP: The Annual Development Programme of the Government in the Public

Sector has following objectives.

a) To consolidate investment level.

b) To bring about improvement in the standard of living of the common man.

c) To build up social and physical infrastructure, particularly the efficient transport and communication system which can help in achieving the objectives of balanced development and integration of the economy.

d) To enlarge employment opportunities by identifying areas in which labour-intensive intermediate technology can be effectively used.

e) To give a maximum push to agriculture as well as to industries serving it and based on it.

f) To accelerate the pace of development in the less developed areas.

g) To make provision for implementing policies in the field of health, education labour and wages.

h) To implement people’s works and other rural development programmes.

Within this framework, ADP seeks.

1) To earmark more funds for major ongoing projects such as Motorway and power projects.

2) To protect the requirement of agricultural inputs which yield quick returns?

3) To expand the water logging and salinity control work in view of its importance for agricultural development.

direct and indirect taxes, give examples and examine their comparative advantages and disadvantages

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Direct Tax: A tax is said to be direct when impact and incidence of a tax are on one and same person i.e. when a person on who tax is levied is the same who finally bears the burden of tax. For instance income tax is a direct tax because impact and incidence falls on the same person.

Advantages of Direct Tax: Following are advantages of direct tax.

1. Direct taxes afford a greater degree of progression. They are therefore more equitable.

2. They entail less expense on collection and as such are economical.

3. They satisfy canons of certainty, elasticity productivity and simplicity.

4. They create civic consciousness in people. When a person has to bear burden of tax, he takes active interest in affairs of state.

Disadvantages of Direct Tax: Disadvantages of direct tax are as follows:

1. It is easy to evade a direct tax than an indirect tax. Tax payer is seldom happy when he pays tax. It pinches him that his hard earned money is being taken by government. So he often submits false statements of his income and thus tries to evade tax. Direct tax is in fact a tax of honesty.

2. Direct tax is very inconvenient because tax payer has to prepare lengthy statements of his income and expenditure. He has to keep a record of his income up to date throughout the year. It is very laborious for tax payer to prepare and keep these records.

3. Direct tax is to be paid in lump sum every year while income which a person earns is received in small amounts. It often becomes difficult by tax payer to pay large amounts in one instalment.

Indirect Taxes: Indirect taxes are those taxes which are paid in the first instance by one person and then are shifted to some other persons. The impact is on one person but the incidence is on another person. For example sale tax on saleable articles is usually an indirect tax because it can be shifted onto the customers.

Advantages of Indirect Tax: Advantages of indirect taxes are as under.

1. It is not possible to evade indirect tax. The only way to avoid this tax is not to by taxed commodities.

2. They are more convenient because they are wrapped in prices. Customer does not know often that he is paying tax.

3. Every member of the society contributes something towards the revenue of the state.

4. Indirect tax is also elastic to a certain extent. State can increase its revenue with in limits by increasing rates of taxes.

5. If state wishes to discourage consumption of intoxicants and harmful drugs, it can raise their prices by taxing them. This is a great social advantage which a community can achieve from tax.

Disadvantages of Indirect Tax: Disadvantages of indirect tax are as under.

1. A very serious objection levelled against indirect taxation is that it is regressive in character. It is inequitable. Burden of tax falls on poor people than rich.

2. Indirect tax is also uneconomical. State has to spend large amounts of money on collection of indirect taxes.

3. Revenue from indirect taxes is uncertain. State cannot correctly estimate as to how much money it will receive from this tax.

4. An indirect tax is wrapped in prices; therefore, it does not create civic consciousness.

5. If goods produced by manufacturers are taxed at higher rates, it hampers trade and industry and causes widespread unemployment in the country.

What are the various Canons or Principles of taxation followed by the modern government

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Adam Smith, the father of modern political economy has laid down four principles or canon of taxation in his famous book “Wealth of Nations”. These principles are still considered to be the starting point of sound public finance. Adam Smith’s celebrated canons of taxation are:

(1) Canon of equality or ability.

(2) Canon of certainty

(3) Canon of convenience

(4) Canon of economy

(5) Other canons.

These canons of taxation are described as under.

1) Canon of equality or ability: Canon of equality or ability is considered to be a very important canon of taxation. By equality we do not mean that people should pay equal amount by way of taxes to the government. By equality is meant equality of all sacrifice, which is people, should pay taxes in proportion to their incomes. This principles point to progressive taxation. It states that the rate of percentage of taxation should increase with increase in income and decrease with decrease in income. In the words of Adam Smith “The subject of every state of ought to contribute towards the support of the government as early as possible in the proportion to their respective abilities that is in proportion to the revenue which they respectively enjoy under the protection of the state.”

2) Canon of certainty: The canon of certainty implies that there should be certainty with regard to the amount which tax payer is called upon to pay during the financial year. If the tax payer is definite and certain about the amount of the tax and its time of payment, he can adjust his income to his expenditure.

The state also benefits from this principle, because it will be able to know roughly in advance the total amount which it is going to obtain and the time when it will be at its disposal. If there is an element of arbitrariness in a tax, it will then encourage misuse of power and corruption. Adam Smith in this connection remarks, “The tax which each individual is bound to pay ought to be certain and not arbitrary. The time of payment the manner of payment, the quantity to be paid all ought to be clear and plain to the contributor and to every other person.”

3) Canon of convenience: By this canon, Adam Smith means that the tax should be levied at the time and the manner which is most convenient for the contributor to pay it. For instance, if tax on agriculture land is collected in instalments after the crop is harvested, it will be very convenient for the agriculturists to pay it. Similarly property tax, house tax, income tax etc should be realised at a time when tax payer is expected to receive income. The manner of payment of tax should also be convenient. If the tax is payable by cheques, the contributor will be saved from much inconvenience. In the words of Adam Smith “Every tax ought to be levied at the time or in the manner in which it is most likely to be convenient for the contributor to pay it.”

4) Canon of economy: The canon of economy implies that the expenses of collection of taxes should not be excessive. They should be kept as little as possible consistent with administration efficiency. If the government appoints highly salaried staff and absorbs major portion of the yield, the tax will be considered uneconomical. Tax will also be regard as uneconomical if it checks the growth of capital or cause to immigrate to other countries. In the words of Adam Smith, “Every tax is to be so contrived as both to take out and keep out of pockets of the people as little as possible over and above what it brings into the public treasury of the state.”

5) Other canons: Some writers on Public Finance have formulated four other important principles of taxation. They in brief are as follows.

(i) Canon of productivity: The canon of productivity indicates that a tax when levied should produce sufficient revenue to the government. If a few taxes imposed yield a sufficient fund for the state, then they should be preferred over a large number of small taxes which produce less revenue and are expensive in collection.

(ii) Canon of elasticity: Canon of elasticity states that the tax system should be fairly elastic so that if at any time the government is in need of more funds, it should increase its financial resources without incurring any additional cost of collection. Income tax, railway fares, postal rates etc are very good examples of elastic tax. The government by raising these rates a little can easily means its rising demand for revenue.

(iii) Canon of simplicity: Canon of simplicity implies that the tax system should be fairly simple, plain and intelligible to the tax payer. If it is complicated and difficult to understand, then it will lead to oppression and corruption.

(iv) Canon of diversity: Canon of diversity says that the system of taxation should include a large number of taxes which are economical. The government should collect revenue from its citizens by levying direct and indirect taxes. Variety in taxation is desirable from the point of view of equity, yield and stability.

Describe the various sources of public revenue and Kinds of Taxation

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The modern states have to perform multifarious duties for promoting the welfare of their citizens. For the performance of these functions, money is needed. Every government therefore tries to meet its annual expenditures from taxes and from sources other than taxation. The revenue of the state can be classified under the following heads.

1. Revenue from Private Income: A government derives revenue from citizens by taxation and from other non-tax resources such as fees, prices, special assessments, rates etc.

2. Irregular Revenue: Under this heading, we include all items such as gifts, penalties, war indemnities etc.

3. Revenue from State Ownership: A government also obtains incomes from the different assets which it owns. For instance government receives money from state buildings, crown lands, and other productive enterprises such as railways, postal service canals etc. We have given classification of public revenue under above mentioned heads; let us make clear distinction between all these various types of taxation.

Kinds of Taxation:

1. Tax: A tax is compulsory contribution to the public authority to cover the cost of services rendered by state for the general benefit of its people.

2. Fee: A fee is a payment made by the citizens of the country to state for obtaining a definite service in return. Fee like taxes is not compulsory contribution. It is only paid by those persons who enjoy the special benefit of the services rendered by the state. The amount of the fee is generally less than the cost of rendering service. For instance student’s tuition fee is not equal to the cost of service rendered to him. Some part the total cost is covered by fees and some by taxes.

3. Price: Price is like fees, it is also payment made by persons for obtaining a definite service in return. The difference between a fee and a price is that public purpose is more prominent in fee than price. Price is a voluntary payment with a quid pro quo. When a government runs a business, it receives revenue. For instance government sells timber from its mines, it also charges fare on state buses or from railways. The total revenue which the government receives from such services of business character is called price in economics.

4. Special Assessment: Special assessment is a compulsory contribution made by the owner of a property for some benefit conferred to his property by the public authority. We can say that special assessment is a compulsory payment for improvement. For instance a corporation provides water, electricity, drainage, paves streets, lays out parks etc in a particular locality of the city. The value of all the property situated in the locality will go up. The corporation has every right to share a part of this unearned increment by taxing the owners of the property who have benefited from the improvement. This tax which is levied in respect of improvement made to the property by the public authority is called special assessment. Special assessment is more or less in proportion to the benefits enjoyed by the owners of the immoveable property.

principles which should govern public expenditure and bring out their implications

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The main principles or canons that should govern public expenditure are:

The principle of Maximum Social Advantage: The government expenditure should be incurred in such a way that it should benefit the community. The aim of public expenditure is the provision of maximum social advantage. If one section of society or one particular group receives the benefit of the public expenditure at the expense of society, then that expenditure cannot be justified in any way because it does not result in the greatest good to the public. So we can say that public expenditure should secure the maximum social advantage.
The Principle of Economy: The principle of the economy requires that the government should spend money in such a manner that all wasteful expenditure is avoided. The economy does not mean miserliness or niggardliness. By economy, we mean that public expenditure should be increased without any extravagance and duplication. If the hard-earned money of the people, collected through taxes, is thoughtlessly spent, the public expenditure will not confirm the canon of the economy.
Principe of Sanction: According to the principle all public expenditure should be incurred by getting prior sanction from the competent authority. The sanction is necessary because it helps in avoiding waste, extravagance, and overlapping of public money. Moreover, prior approval of the public expenditure makes it easy for the audit department to scrutinize the different items of expenditure and see whether the money has not been overspent or misappropriated.
Principle of Balanced Budgets: Every government must try to keep its budgets well balanced. There should be neither recurring surpluses nor deficits in the budgets. Ever-recurring surpluses are not desired because they show that people are unnecessarily heavily taxed. If expenditure exceeds revenue every year, then that too is not a healthy sign because this is considered to be a sign of the financial weakness of the country. The government, therefore, must try to live within its own means.
The Principle of Elasticity: The principle of elasticity requires that public expenditure should not in any way be rigidly fixed at all times. It should be rather fairly elastic. The public authorities should be in a position to vary the expenditure as the situation demands. During the period of depression, it should be possible for the government to increase expenditure so that the economy is lifted from the low level of employment. During a boom period, the state should be in a position to curtail the expenditure without causing any distress to the people.
No Unhealthy Effect on Production and Distribution: Public expenditure should be arranged in such a way that it should not have an adverse effect on production or distribution in the country. Public expenditure should aim at stimulating production and reducing inequalities in wealth distribution. If, due to unwise public spending, wealth gets concentrated in a few hands, then its purpose is not served. The money really goes to waste then.

Discuss the role of state in economic activity

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The role of the state in economic affairs is a complex and controversial topic. The political thinkers are divided about the extent and mode of state interference in economic activity. The Anarchists hold the view that a day will come when people will be lifted so much morally that there would be no need of government at all. The society will be so much conscious of its duties that it will regulate its affairs itself. The view of the Anarchists seems to be only a dream and wishful thinking and is not likely to be realized at any stage.

The Mercentillists believe that the state should actively participate in the social and economic spheres. The Physiocrates were the view that the state should not impose any artificial barriers on individual’s economic behaviour. They believe in the law of Nature.

Adam Smith, the father of Political Economy, believes that the state should not interfere in the internal economic life of the citizens of a country as it hampers economic progress. He advocates the doctrine of non-interference or laissez-faire Adam Smith, however justifies certain cases in which state interference is necessary. They are (i) defence of the country (ii) expenses on administration to safeguard the legitimate rights of the citizens and (iii) free education for needy students.

The Communist on the other hold, the opposite view. The advocate that state should own all factors of production. The decisions of what to produce, how much to produce and for whom to produce should all be carried out by the state. The state, in other words, should have minute supervision on the economic activities of the individuals. They believe firmly that there should not be any individual economic liberty, because it leads to exploitation of the poor by the rich. Moreover, the policy of non-interference causes widespread business fluctuation and mass unemployment in the country. So they say why to involve ourselves in such distress and misery? They, therefore strongly advocate complete state control in social and economic spheres.

In between these two extremes view held by Adam Smith and the communists, the modern capitalist government have struck a happy mean. The state intervenes directly or indirectly in all those economic and social activities where the community as a whole can benefit.

What is the difference between public finance and private finance

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Public finance studies the income-getting and income-spending activities of the public bodies or the state. Private finance deals with the way a private person gets and spends his income. There are certain differences between the principles underlying public finances and those of private finances. These are explained below.

1. Adjustment of Income and Expenditure: An individual usually adjusts his expenditure to his income. But the public authority generally adjusts its income to its expenditure. In other words, we can say that an individual cuts his coat according to his cloth. While the public authority first decides the size of the coat and then tries to produce cloth according to the size of its coat. The public authority prepares on estimate of the total expenditure to be incurred during a fiscal year and then devices ways and means to raise the required amount. The individual on the other hand tries to live within his own means. His expenditure is generally determined by his income.

2. Unit of Time: The public authority balances its budget during a given period which is generally a year. For an individual there is no period of time in the course of which the budget must be balanced. The individual generally continues earning and spending without keeping any record of his budget by a particular date. The public authority however has to keep full records of its income and expenditure and the accounts are to be in balance during the financial year.

3. An individual cannot borrow from himself: If at any time an individual is in need of money, he cannot borrow from himself. He can raise the loan from other individuals or can utilize his past savings, but he cannot borrow internally. The public authority, on the other hand, can borrow internally from its own people and externally from other nations.

4. Issue of Currency: Government has full control over the issue of currency in the country. No other person except the state can print notes. If an individual does so, he will be put behind the bars.

5. Provision for the Future: The government has to make a solid provision for the future. It spends large amounts of the money on those projects which the future generation is only to benefit. The individuals on the other hand are not generally liberal and far-sighted. They discount the future at a higher rate and so usually make inadequate provisional for the future.

6. Big and deliberate changes in public finance: It is easier for the government to make big and deliberate changes in its income, and expenditure but for an individual it is very difficult affair. A few individuals may succeed in increasing their incomes but all the persons cannot do so. The public authority can also make deliberate decrease in its income without feeling any difficulty. But for individuals, reduction in income is very painful as they are used to certain standard of living.

7. Surplus Budgeting: For an individual, excess of income over expenditure or surplus budgeting is considered to be a virtue but for the public authority it is not as such, it is expected from the government that it should raise only as much revenue as it needs during a calendar year. After all what is the fun of showing persistently surplus budgets? It is not better to give relief to the tax-payer than to show surplus budgets.

8. Mystery shrouds Individual Finance: Individuals finance is usually shrouded in mystery. Every body likes that his financial position should remain a closely guarded secret but this is not the case with public authorities. The government publishes its budget and gives due publicity to it.

causes of disequilibrium in the balance of payment of any country? Suggest the remedial measures

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When the value of imported visible and invisible items of trade exceeds the exported visible and invisible items of trade, the demand for titles to trade exceeds the supply of it, it creates a gap between the receipts and payments which pares the way for the out flow of gold reserves of the foreign exchange reserves of the past had depleted on it forces the country to borrow from abroad which in debits the country. Such a situation is known as disequilibrium in the balance of payment. Temporary and timely short term disequilibrium may not be the source of worry for any country, but the long term disequilibrium is really alarming.

Following are the main causes of disequilibrium.

1) Deficit in Export: The decline in exports results the decline in foreign exchange earnings. Fall in the exports may be due to geographical reasons i.e. draught, untimely rainfalls, floods, pests, water logging, salinity and soil erosion, shortage of irrigation facilities etc. political reasons i.e. out break of wars, embargo on imports by the foreign countries or the development of home industries and protection by importing countries, cut throat competition in the foreign markets, high cost of production due to the rise in the prices of factors and low quality exports or the discovery of cheap substitutes in the importing countries. Higher domestic consumption due the zooming growth of population or industrialization may also figure among the factors which reduce the volume of exports.

2) Rise in Imports: Import may shoot up due to geographical, economic, social and political reasons. Economic development necessitates the imports of capital goods and fuel zooming growth of population which forces the country to import food stuff or emergencies like famine or epidemic require the import of necessary goods.

3) Inflation: The prides of goods and services rise when prevail inflationary conditions in the country. This situation discourages exports and encourages imports.

4) Depression: During depression the purchasing power of the people falls and the demand for goods declines. The decline in prices results low receipts from abroad.

5) Terms of Trade: In case of adverse terms of trade the receipts from exports decline where as payments increase. If the rise in prices of exports does not tally with the prices of imports, it creates gap between payments and receipts.

6) Trade Restrictions: If the importing countries put embargo on the imports of goods from abroad it results decline in exports and consequently adverse balance of payment.

7) Devaluation: If a country devaluates its currency, its exports become cheaper while the imports become expensive. If the importing country devaluates its country, it surely affects the trade and economy of the exporting country.

8) Invisible Items: If the burden of foreign loans increases the debt service charges cause disequilibrium in the balance of payment. Similarly if the country is dependant upon others for its banking. Insurance shipping services, its balance of payment is adversely affected.

Remedial Measures

Following remedial measures are suggested.

1) Devaluation: To rectify the disequilibrium in the balance of payment, the country devaluates its currency which cheapens the exports and makes the import dearer.

2) Deflation: Central bank implements the monetary, policy and adopts the monetary measures like bank rate policy, open market operation, and credit rationing change sin the reserve and liquidity ratio to deflate the currency and bring down the prices. When the prices fall, they boost up exports. If the quality of exportable goods also improves it further pushes up the exports.

3) Exchange Central: Under this policy, the exporters are required to surrender the earned foreign exchange to the central bank which in return gives them the local currency. The importers are required to seek the permission before placing on the foreign firm. The central bank grants permission keeping in view the available reserves of the foreign exchange.

4) IMF: IMF also lends to rectify the disequilibrium in the balance of payment. It also suggests the changes in the rate of exchange to achieve the results.

5) Proper Utilization of National Resources: Disequilibrium can also be remedied by proper utilization of the national resources through planning, producing the import substitutes, persuading the people to prefer the consumption of home product, adopting simplicity. Import restrictions like license systems quota system; increase in custom duties may also be enforced. Export promotion measures including the introduction of home product in foreign markets after their thorough surveys, bilateral and multilateral trade agreements will help in boosting up exports and rectify the in-balances of the balance of payment.

What do you mean by the terms of balance of trade and balance of payment, Differentiate between the two

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Foreign trade means export and import of goods; and goods passing from one country to another have to be paid. The difference between the exports and imports of a country is called the balance of trade. When the value of exports of a country exceeds that of its imports the balance of trade is called favourable or positive. When the value of imports of country exceeds that of its exports, it is called unfavourable or negative balance of trade. The favourable balance of trade of a country enables it to earn gold from foreign countries to the amount of balance. When balance is unfavourable the country has to pay gold to foreign countries. For instance Pakistan exported goods worth Rs. 200 million to Iran and imported goods worth Rs. 150 million from

Iran

. Pakistan has a favourable balance of trade with

Iran

to the amount of Rs. 50 million. The means, Pakistan would realize this balance from

Iran

in terms of gold, as ultimately foreign payments are made in terms of gold. Balance of trade is not the true index of the economic position of any country.

A country may have a favourable balance of trade, but may not have favourable balance of accounts. For instance,

Pakistan

has normally got the favourable balance of trade. But is doubtful whether she was favourable balance of accounts or payments. Because she has to pay a huge sum to foreign countries on account of the use of foreign ships, aeroplanes, banks, insurances and on account of the study and the travel of Pakistanis in foreign countries and also as interests of foreign capital.

England

may have her balance of trade unfavourable. But she gets big sum on invisible items. So normally, her balance of accounts may be favourable.

The difference between “Balance of trade” and “Balance of Payments” should be clear “Balance of Payments” on current accounts refers to the net position of all the “credits” (payments due to a country) and “Debits” (payment made by a country) on account of merchandise, trade, services and un-required transfers. If there is a deficit this is covered by net “inflow” of foreign and in the form of loans; and what is still left is met by monetary movements i.e. short period borrowings and running down of the past accumulated balance of gold and Foreign Exchange Reserves. In the case of surplus these reserves increase in their size.

When we talk of “Balance of Trade” sometimes both goods and services are included. Invisible items are sometimes also called Invisible Trade. But unless this is specifically mentioned “Balance of Trade” means only the balance between Merchandise Trade and Visible Trade i.e. imports and exports of goods. If the value of imports exceeds the value of exports, we say that the balance of trade is unfavourable or is deficit. If the value of exports exceeds the value of imports we say that the balance of trade is favourable or surplus.

Describe the expenditure based approach of GDP measurement

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A different perspective on components of GDP is obtained by looking at the expenditure side of the national income accounts. The expenditure approach measures GDP as total spending on final goods and services produced within a country or nation during a specified period of time. Four major categories of spending are added to get GDP i.e. consumption, investment, government purchases of goods and services and net exports of goods and services. In symbols we can describe as

Y = GDP = Total output or product

= Total income

= Total expenditure

C = Consumption

I = Investment

G = Government purchases of goods and services

NX = Net exports of goods and services

With these symbols, we express the expenditure approach to measuring GDP as

Y = C + I + G + NX ------------------ (1)

This equation is called income-expenditure identity because it states that income Y, equals total expenditure

C + I + G + NX. Let us discuss the components which constitute the GDP measurement.

A—Consumption

Consumption is spending by domestic households on final goods and services including those produced abroad. It is largest component of expenditure usually accounting for about two thirds of GDP. Consumption expenditure are grouped into three categories.

1. Consumer durables: Consumer goods are long-lived consumer items such as cars, TV’s, furniture and major applications.

2. Nondurable goods: Non durable goods are short-lived items such as food, clothing and fuel.

3. Services: Services such as education, health care, financial services and transportation.

B—Investment

Investment includes both spending for new capital goods called fixed instrument and increases in firms inventory holdings called inventory investment. Fixed investment in turn has two major components.

1. Business of fixed investment: It is spending by business on structures such as factories, warehouses and office buildings and equipments such as machines, vehicles and furniture.

2. Residential investment: It is spending on the construction of new houses and apartment buildings.

C—Government Purchase of Goods and Services

Government purchases of goods and services include any expenditure by the government for a currently produced good or service, foreign or domestic are the third major component of spending.

D—Net Exports

Net exports are exports minus imports. As we know export are goods and services produced within a country that are the goods and services produced abroad that are purchased by country’s residents. Net exports are positive if exports are greater than imports and negative if imports exceed exports.

Exports are added to total spending, because they represent spending by foreigners on final goods and services produced in a country. Imports are subtracted from total spending because consumption, investment and government purchases are defined to include imported goods and services. Subtracting imports ensures that total spending C + I + G + NX reflects spending only on output produced in the country. For example an increase in imports of

America

means that Americans are buying Japanese cars instead of American cars.

What is Gross Domestic Product (GDP) Explain the different techniques of GDP measurement

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Gross Domestic Product (GDP) is the name we give to the total market value of the final goods and services produced within a nation or country during a given period of time. GDP is the most comprehensive measure of a nation’s total output of goods and services. It is the sum of the dollar values of consumption (C) gross Investment (I) government purchase of goods and services (G) and net exports (X) produced within a nation or country during a given period of time say year. In symbols we can express as

GDP = C + I + G + X

GDP is used for many purposes but the most important one is to measure the overall performance of an economy.

Methods to Measure GDP

1. Product Method of Measuring GDP: The product approach defines a nation’s Gross Domestic Product (GDP) as the market values of final goods and services newly produced within a nation during a fixed period of time.

2. The Expenditure Method of Measuring GDP: A different perspective on the components of GDP is obtained by looking at the accounts expenditure side of the national income. The expenditure approach measures GDP as total spending on final good and services produced within a nation or country daring a specified period of time. Four major categories of spending are added to get GDP i.e. consumption, investment, purchase of goods and services and net exports of goods and services. In symbols we can express as

Y = C + I + G + NX

Y = GDP = Total Production (or output)

= Total Income

= Total Expenditure

C = Consumption

I = Investment

G = Government purchase of goods and services

NX = Net exports of goods and services

Above equation is the one of basic relationship in macroeconomics and this equation is called the income-expenditure identity because it states that income Y, equals total expenditure

C + I + G + NX

3. The Income Method of Measuring GDP: The third and final way to measure GDP is the income approach. It calculates GDP by adding the income received by producers including profits and taxes paid to the government. A key part of the income approach is concept known as national income. National income is the sum of five types of income i.e. compensation of employees, proprietor’s income, rental income of persons, corporate profits and net interest.

National Income and explain its various concepts and give the importance of each concept.

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Professor Marshall defines National Income as “Sum of all the physical goods produced and services provided by utilizing the natural resources of the country with the help of labour and capital. In addition to this net income from abroad is also included. Accordingly, National Income is the summation of all the goods produced and services provided and the net income from abroad.”

Apparently Marshallian definition seems to be very simple and comprehensive, but it has some practical shortcomings.

(1) Statistically it is difficult to estimate accurately about the produced goods and services.

(2) There may be possibility of double and multiple counting.

(3) Certain portion of produced goods is kept for personal consumption.

Because of such shortcomings Pigou defined National Income as “Only those goods and services will be included in National Income which are gold against money.” But Pigou’s definition is not acceptable for those countries where there is limited use of money and many a goods are traded under barter system.

Professor J. M. Keynes has used three methods to define National Income.

1. The sum of all expenditures which are made on consumption and investment goods is known as National Income. This method is known as Expenditure method.

2. The sum of incomes of all the factors of production engaged in production process is also known as National Income. This method is known as National Income at Factor Price Method.

3. If we subtract the cost production from total output produced in the economy we will get National Income. This method to define National Income is known as Subtraction of Costs Production from Aggregate Output Method.

According to present ideas National Income may be defined as the aggregate factor income which arises from the current production of goods and services by nation’s economy.

Concepts of National Income

There are five concepts of National Income which are discussed below.

1. Gross National Product (GNP): Gross National Product (GNP) is defined as the total market value of all final goods and services produced in a year. It is a measure of the current output of economic activity in the economy. Two things must be noted in regard to Gross National Product.

(i) It measures the market value of the annual output. In other words GNP is a monetary measure. There is no other way of adding up the different sorts of goods and services produced in a year except with their money prices. But in order to know accurately the change sin physical output, the figure of Gross National Product (GNP) is adjusted for price changes by comparing to a base year as we do when we prepare index numbers.

(ii) For calculating Gross National Product (GNP) accurately, all goods and services produced in any given year must be counted once, but not more than once. Most of the goods go through services of production stage before reaching market. As a result, parts or components of many goods are brought and sold many times. Hence to avoid counting several times the parts of goods that are sold and resold, gross national product only includes the market value of final goods and ignores transactions involving intermediate goods.

2. Net National Product (NNP): The second important concept of National Income is that of Net National Product (NNP). In the production of Gross National Product (GNP) of a year, we consume or use up some capital i.e. equipment, machinery etc. The capital goods like machinery wear out or depreciate in value as a result of its consumption or use in the production process. This consumption of fixed capital or fall in value of capital due to wear and tear is called depreciation. When charges for depreciation are deducted from Gross National Product (GNP), we get Net National Product. It means the market value of all final goods and services after providing for depreciation. Therefore it is called “National Income at market prices”. Thus

Net National Product = Gross National Product – Depreciation

3. National Income at Factor Cost: National Income at Factor cost means the sum of all income earned by resources supplies for their contribution of land, labour capital and entreprenial ability which go into the year’s net production or in other words nation’s income at factor cost shows how much it costs society in terms of economic resources to produce net output. It is the national income at factor cost for which we use the term National Income.

4. Personal Income (PI): Personal Income is the sum of all incomes actually received by all individuals or households during a given year. National Income; that is income received, must be different for the simple reason that some income which earned as social security, contributions, corporate income taxes and undistributed corporate profits is not actually received by households and conversely some income which is received as transfer payments is not currently earned. Accordingly if we include transfer payments and subtract undistributed profits etc from National Income we get Personal Income (PI). It is as

PI = NI + R + PT – UP

Here PT is taxes on profits, R is transfer payment UP is undistributed profits.

5. Disposable Personal Income (DPI): After a good part of personal income is paid to government in the form of personal taxes like income tax, personal property tax etc. What remains of personal income is called disposable income.

If personal taxes are subtracted from personal income we get Disposable Personal Income (DPI)> it is as

DPI = PI – TP = C + S

Difference between Nominal GNP and Real GNP, What is implicit price deflator for GNP

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Inflation or deflation complicates GNP because GNP is a price times-quantity figure. The changes either in the price level or the change in output produced may affect the size of GNP. Then there rises a distinction between nominal GNP and real GNP. The nominal GNP is the representation of GNP in monetary terms while the real GNP is the representation of GNP in quantity or physical terms. Broadly, the nominal or current price GNP measures the value output at the prices prevailing in the period during which the output is produced. While the real GNP or constant price GNP measures the output produced in any period at the prices of some base year. Real GNP which values the output produced in different years at the same prices implies an estimate of the real or physical change in production or output between any specified years. If we assume 2000 as a base year, it will serve as the base year for real output measurement. US nominal GNP was $4864 billion in 1988 and it was $1598 billion in 1975.

Thus nominal GNP grew at an average rate of 8.9% during the period 1975 – 1988. While if we measure the value of output produced in a year say 1990 on the prices of a given year say 1982 this will be a case of real GNP. US real GNP was $3996 billion in 1988 and $2695 billion in 1975. This shows that real grew at an average of 3.1% per year over the period. If we divide real GNP by the population of 246 million people in 1988 in the US i.e. we divide $3996 billion by 246 million population we get per capita real GNP which was $1644 per member of the population.

From the above figures, we see that in the US nominal GNP has risen much more rapidly than real GNP. The increase in nominal incomes as compared to real income is attributed to inflation. The difference in the growth rate of the nominal GNP (8.9%) and the real GNP (3.1%) represents inflation (5.8%). In other words, the nominal increase in GNP is due to price-like inflation.

From the above discussion, we come to know that the nominal, monetary, unadjusted, or current GNP reflects inflation. Therefore to assess the real GNP also some constant price level GNP will have to be deflated in the case when prices are rising. On the other hand, if the prices are falling, then to know the constant price, adjusted or real GNP will have to be inflated. The process of deflating or inflating gives us the real or constant price index of GNP. We know that the GNP deflator of a specific year tells us the ratio of that year’s prices to the prices of the same goods in the base year. GNP deflator or GNP price index therefore can be used to inflate or deflate nominal GNP figures. The outcome of this adjustment is that GNP for each year gets expressed in real terms. The method adopted for deflating or inflating a year’s nominal GNP is to express that year’s index number in decimal form and divide it into nominal GNP. It is as

What is Gross National Product (GNP) which transaction in the economy are included in GNP

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The Gross National Product (GNP) is the summation of all those finally produced goods and services which the labour and capital like factors of production have produced by utilizing all the resources of the country in a year. If we represent such all aggregate output in the form of money we get GNP.

If we define GNP from market prices point of view then “GNP” is the market value of all goods and services produced in a country in a year.”

The GNP is a flow variable, because it represents the amount of goods and services produced during some particular period of time i.e. a year. If we represent the produced goods and services by Q₁, Q₂, Q₃, Q₄……..and their prices by P₁, P₂, P₃, P₄………..then the GNP of a country will be as

GNP = P₁Q₁ + P₂Q₂ + P₃Q₃ + P₄Q₄………..P_nQ_n

But the measure of GNP by this method we have to make the following cares.

1. To ensure GNP the value final goods will be included while the value of intermediate goods or those goods which are used for preparation of final goods will not be included. Because if it is done the value of a good will be counted twice. In this situation National Income will be over estimated. Therefore either the price of final goods be included or the value added method be adopted.

2. In the measurement of GNP the non-productive transactions will not be included. It is told that the productive transactions consist of final purchase of newly produced goods. In our economic life most of transactions are of non-productive nature. It is as:

(i) The sale and purchase of old share and securities: If any body sells or purchases the old securities no economic activity comes into being-just transfer of ownership. There to measure GNP such like transactions will not be included.

(ii) The Government Transfer Payments: If government makes the payments to the people etc without their services, they are known as transfer payments as the case of social security, unemployment allowances, persons or scholarships to the student. All such payments will not be included in National Income.

(iii) The Private Transfer Payments: In addition to government transfer payments, there are private transfer payments. Such payments consist of dowry, charity, zakat and pocket money etc, all such payments are not included in GNP because they have not been paid against productive services etc.

(iv) The Sale of used goods: If any person sells his second hand car, TV or Fridge etc, such transactions will not be included in current production. It is so because their value in GNP has already been included. If their value is re-included the national income statistics will be misleading.

What is National Income And What are various methods of estimating national income

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Professor Marshall defines National Income as the “Sum of all the physical goods produced and services provided by utilizing the natural resources of the country with the help of labour and capital. In addition to this, the net income from abroad is also included. Accordingly, the National Income is the summation of all the goods produced and services provided and the income from abroad.”

According to present ideas, National Income may be defined as the aggregate factor income i.e. earning of labour and property which arises from the current production of goods and services by the nation’s economy. Professor Keynes has used three methods or approaches to define National Income.

1. The sum of all expenditures which are made on consumption and investment goods is known as National Income. Such definition of National Income on the one side, considers total output of the economy as National Income. While on the other side the total expenditures are accorded as National Income, this method of defining National Income is known as the Income-Expenditure Method of National Income.

2. The sum of incomes of all the factors of production engaged in production process is also known as National Income. This method to define National Income is known as National Income at Factor Prices Method.

3. If we subtract the cost of production from the total output produced in the economy we will get National Income. This method to define National Income is known as Subtraction of Costs of Production from Aggregate Output Method.

After Keynesian thinking, post Keynesian economists defined National Income in a better three flows at the same time. Those flows are, (1) Incomes (2) Outputs (3) Expenditures. It is explained as “when goods and services are produced in the economy, the factors of production (who produce the goods and services) will get the payments. Then factors will spend those incomes on consumption and investment goods.”

All this denotes that,

1. The summation of produced goods and services represents National Income.

2. The summation of all incomes earned by the factors represents National Income.

3. Summation of all expenditures made by the factors of the production is also known as National Income.

Detail Note on Modern Theory of Wages

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We have studied various theories which explain the determination of wages but they all stand discredited as they do not offer satisfactory explanation of wages. The modern economists are of the opinion that just as the price of a commodity is determined by the interaction of the forces of demand and supply, the rate of wages cal also be determined in the same way with the help of usual demand and supply analysis. Let us now discuss in brief as to what we mean by demand and supply of labour.

1) Demand for Labour:

There are various factors which influence the demand for labour. These factors in brief are as under.

(a) Demand for labour is derived demand: Demand for labour is not a direct demand. It is derived from the demand for the commodities and services, it helps to produce. If the demand for a product is high in the market, the demand for labour producing that particular commodity will also be high. In case the demand for commodity is small the demand for that labour will also be low.

(b) Elasticity of demand for the product: If the demand for a particular product is inelastic, the demand for the type of labour that produces this product will also be inelastic. The demand for labour will be elastic if cheaper substitute of the product are available in the market or the demand for the commodity it produces is elastic.

(c) Proportion of labour cost to total cost: If the wages of workers account for only a small proportion to total cost of product then the demand for labour will tend to be inelastic. In capital intensive industry. For instance, a slight increase in the workers wages will have little effect on unit cost of product; so the rise in wages will not reduce the demand for labour.

(d) Availability of substitutes for labour: If the substitutes of labour producing a particular product are easily available in the market, the demand for labour will then be elastic.

After considering the various factors which influence the demand for labour, we now take up the demand price of labour.

Demand Price of Labour: An employer hires a labour in order to make profit. He while employing a worker, compares the cost of hiring a worker to the contribution he is expected to make the total revenue of the firm. So long as the addition made by the labour to the revenue is greater then the cost of employing him, the entrepreneur will engage that labour. In other words we can say that so long as the marginal revenue product of labour is higher than the cost of employing him, the employer employs that worker. The entrepreneur will continue hiring the worker up to the point at which the cost of employing a worker is just equal to the marginal revenue product of the labour.

2) Supply of Labour:

The supply of labour for the entire economy is influenced by various factors such as wage rate, size of population, age composition, availability of education and training, the length of training period, provision of opportunities for women to work, the social security program etc.

The supply of labour for the industry as a whole is less elastic in short run. The supply of labour here depends on the availability of workers in the locality and from the nearby areas ad the willingness of the labour to work overtime. In the long run supply of labour for the industry is more elastic. The labour can be affected by offering hire wages, providing training facilities, making working conditions pleasant etc. So the supply of the labour for the industry is of the normal shape rising upward from left to right.

In the above figure supply curve of labour to an industry shows an upward slope. At OW wage rate, ON workers are ready to work. At OW' wage, the supply of labour increases to ON'.

Wage Determination: So far we have discussed the forces operating behind the demand for and supply of labour in competitive market. At regards the price or the wage of particular grade of labour, it is determined by the interaction of the forces of demand for and supply of in the competitive market. The determination of wage rate is explained with the help of following diagrams.

In figure (a) DD' is the demand curve of labour say carpenters to the industry. It is found by summations of the demands of carpenters of all the firms. Similarly SS' represents the supply curve of carpenters to industry. The market demand curve DD' intersects the market supply curve SS' at point ON. The equilibrium wage rate NL or Rs. 20 and the number of workers hired at the equilibrium wage rate (Rs. 20) is 200 thousand. Figure (b) shows that a firm in competitive market takes the market wage rate of carpenters as given. So the supply curve which it faces is a horizontal one. A firm will continue hiring labour so long the MRP is higher then the wage rate. When the MRP and the wage rate are equal, it will stop employing further labour. The firm at the wage rate of Rs. 20 per hour employs 40 workers. We thus conclude that in a competitive market the wages are set in the market much like other prices.

Difference between nominal and real wages and factors of real wages

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Nominal Wage:

By nominal wage is meant the total amount of money earned by a person during a certain period. For instance one employs a servant and pays him Rs. 2600 per month for the services he renders to him. The amount which is paid in terms of money only is named as normal wages.

Real Wages:

Real wages refer to the total amount of satisfaction which a worker receives in the form of necessities, comforts and luxuries in return for the services. Real wages generally include money wages and other facilities like free clothing, free housing, free accommodation, free electricity etc. If we are to judge the standard of living of the masses it can be estimated not from the nominal wages of the workers but from the real wages. In other words of Adam Smith, the labour is rich or poor, is well or ill rewarded in proportion to the real not nominal wages of the labour.

Factors for Determining Real Wages

If we are to determine the real wages of a labour the following factors are to be taken into consideration

(i) Purchasing Power of Money: The purchasing power of money does not remain the same. It continues fluctuating from time to time. When the prices of the commodities go up, the purchasing power of money falls and when the prices fall, the purchasing power of money rises. The real wages of a labour depend upon the purchasing power of money. If the nominal wages are quite high and prices are low, then we can say that the real wages of labour are high but in case the cost of living is high, then the real wages will be low. Thus we conclude that other things remaining the same, the higher the cost of living, the lower the real wages and vice versa.

(ii) Opportunity of Extra Earning: If a person has an opportunity of earning extra income in a certain occupation, than his real wages will be higher then the one who does not have. For instance a Professor can increase his income by writing books, contributing articles of journals, newspapers etc but a superintendent working in are office does not have opportunity for supplementing his income. So his real wages will be low as compared to professor’s income even if both are getting the same salary.

(iii) Nature of Work: In computing real wages, we have to take into consideration the nature of work also. If the work is pleasant and agreeable then real wages will be high, even if the nominal wages are low. For instance Rashid is working as a pilot in the PAF and is getting Rs. 50,000 per month. Another man Hamid is magistrate and is receiving Rs. 20,000 monthly. There is no doubt that Rashid’s nominal wage is higher but his duty is of such a nature that his life is always in danger. On the other hand the duty of the magistrate is pleasant and has a social status. So we can say that the real wage of the magistrate is high because his work is pleasant while that of the pilot is low because his work is risky.

(iv) Future Prospects: The prospects of success in the future also play a dominant role in determining the real wage of a person. If in a certain occupation, the chance of future prospects are dark, then the real wage of that man who is working in such occupation is lower than the one who is getting low wages in a certain job but his chances of getting promotion in the future are certain and bright.

(v) Hours of Work: When we are to measure the real wages of two different persons earning the same amount, the number of working hours should also be taken into account. For instance if a worker receives Rs. 5000 monthly by working four hours a day and the other 8 hours a day. The real wage of the former will be higher than the later.

(vi) Tenure of Service: Employments are of two types; permanent and seasonal. If a person is engaged in a work which is regular and permanent then the other things remaining the same, his real wages will be higher than the one who is working in a seasonal occupation.

(vii) Form of Payment: While determining the real wages of a labour, the form of payment should also be taken into consideration. If a labour is receiving Rs. 6000 monthly and there is no extra payment in kind such as clothing, food, shelter etc then his real wages will be lower than the one who earns Rs. 5000 monthly and also receives additional facilities in kind.

(viii) Expenses of Trainings: Expenses of training are also one of the very important elements in determining the real wages of a labour. For instance the nominal wages of two labourers are the same but their period and the cost of training differ. One labour has spent 16 years of his life in getting education and has spent Rs. 10 lacs. The cost and the period of training of the other labour is Rs. 40,000 and two years only. It is quite evident that the real wages of the later are higher than that of the former.

(ix) Social Status: Real wages also depend upon social status. The money wages of magistrate and a professor may be equal but the former’s position is held in great social esteem in this country. So we ca say that real wages of the magistrate are higher then the professor’s.

What do you mean by wages? Explain critically the important theories of wages

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Wages are remuneration paid to labour in return for the services rendered. The term labour in Economics is used in under sense. It includes the work of skilled or unskilled professional or amateur, salaried or non-salaried persons etc who put the efforts mentally or bodily in return for some reward. The reward may be paid in cash or in kind or in both. The unit of time for the payment of remuneration may be a day, a week, a month or a year.

Benham has defined the term ‘wages’ in a restricted sense. According to him ‘a wage may be defined as a sum of money paid under contract by an employer to a worker in exchange for services rendered.

Theories of Wages

1. Subsistence Theory

This theory originated with Physiocrats and was commonly accepted during the 18^th century. The German economist Lassale called it the ‘Iron Law of Wages’. Karl Marx made it the basis of his theory of exploitation. According to this theory wages tend to settle at the level just sufficient to maintain the worker and his family at a minimum subsistence. If for some reason wages rise above this level, it is said that the workers would be encouraged to marry, their numbers would increase by higher birth rate until the larger supply of labour brings down the wages to the subsistence level. If on the other hand wages fall below this level, marriages and births are discouraged, under nourishment increases the death rate and ultimately labour supply is decreased. Hence wages will rise and reach the subsistence level.

In this theory, it is supposed that the supply of labour is infinitely elastic. That is its supply would increase if the price offered rises.

Criticism: This theory seems to be applicable to backward countries like Pakistan where labourers are extremely poor and their standard of living incredibly low. But the theory does not apply to more advanced countries. Evidently the theory is based on Malthusian Law of Population.

But it is wrong to say that every increase in wages must inevitably be followed by an increase in birth-rate. An increase in wage maybe followed by a higher standard of living, which in turn influences the wage level. Another criticism of the theory is that the subsistence level is more or less uniform for all working classes with certain exceptions. The theory thus does not explain differences of wages in different employments.

Further, the fundamental wakens of the subsistence theory lies in its long-term character. It explains the adjustment of wages over the life-time of a generation and does not explain fluctuations from year to year. As such it has little practical value.

2. Wages Fund Theory

This theory is associated with the name of J. S. Mill “Wages” wrote Mill, “depend on the demand and supply of labour or as it is often expressed on the proportion between population and capital. By population here it meant the number of the labouring classes or rather those who work for hire and capital only circulating capital, and not even the whole of that but the part which is expected on the direct purchase of labour.”

According to this theory, wages depend on the quantities (i) the wages fund set aside by the employer for the payment of wages and (ii) the number of labourers seeking employment. The actual rate of wage can be found by dividing the fund by the number of workers.

According to this theory therefore wages cannot rise unless either the wages fund increases or the number of working class people decreases. According to the advocates of this theory, if the wages are pushed up by strikes, it will be simply at the expense of employees. Their profits will decrease, capital will emigrate and the workers themselves will suffer as a consequence of decrease in the volume of employment.

Criticism: The theory has been widely criticized and even Mill himself recanted from it in the second edition of his “Principles of Political Economy.” There is no wages fund rightly fixed by employer for payments of wages. If it is worthwhile to employ more labour, the employers some how manage to find out more capital for paying to this additional labour.

When the theory says that the wages can be ascertained by dividing the fund by the number of workers, it is mere truism. It simply tells us what is self-evident and does not give satisfactory explanation of the determination of wages.

Further, it assumes a degree of antagonism between labour and capital that does not exist. Wages are not always increased at the expense of capital. During a boom both wages and profits increase.

Farther it is wrong to assume that forcing up of the wages will necessarily drive capital abroad. Capital is not so sensitive.

This theory does not help us to understand why wages differ in different occupations.

Finally the wage rates in different countries do not correspond to the total amount of capital available. In a few countries where capital is scanty, the wages are high.

3. Residual Claimant Theory

This theory was advanced by the American Economist Walker. According to him, wages are residue leftover after the other agents of production have been paid. Walker says that rent and interest are governed by contracts, profits are determined by definite principles and that there are no similar principles operating in regard to wages. Out of the total production, therefore, when rent, interest and profit have been paid, the remainder goes to the workers as wages.

As compared with previous two theories, this theory is quite optimistic. It holds out to the workers a possibility of increasing their wages and thus bettering their lot if they worked hard. If by working more they produce more, then according to this theory, the whole of the extra production will go to them.

The theory admits the possibility increase in wages through greater efficiency of labour. In this sense, it is an optimistic theory, where as the subsistence theory and wages fund theory are pessimistic.

Criticism: This theory too has been rejected by most economists. In first place it does not explain how trade unions are able to raise wages.

Secondly it ignores the influence of supply of labour on wages.

Thirdly one fails to understand why the same laws of demand and supply that explain the remuneration of other factors of production should not be applied to wages as well.

Finally the residual claimant is not the worker but the entrepreneur, who undertakes to pay other factors of production before he can expect to get any thing.

Explain briefly Modern Theory of Profit

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Briefly Explanation of the Modern Theory of Profit

Several theories have been put forward to explain the determination of profits. There is the risk theory of profit and also uncertainty-bearing theory. Some economists regard profit as the rent of ability. There are others who advocate the dynamic theory of profit. The question arises which theory shall we accept? How do profits arise? Here we are thinking of not gross profit but net profit. The fact is that in the real world, there are several causes that give rise to profit, but the principal cause is uncertainty. It is certain this is the basic cause of profit.

This uncertainty is due to the dynamic nature of the world. In this real world of ours, some or other change is always taking place. But only such changes are the cause of profit, as can not be foreseen as we have read in Knight’s theory. No entrepreneur can foresee all these changes nor are the circumstances under his control. The world is dynamic due to two sets of factors (a) internal and (b) external. In other words, there are certain changes that the entrepreneur himself brings about such as innovations and there are other changes that are brought about by external forces.

The external changes are of two kinds (a) regular changes like trade fluctuations which affect all profits and (b) irregular as breaking of fire, earthquakes, floods, strikes, changes in tasks, changes due to government policies, war, etc. Thus profit arises out of changes. In a static world there is no change, hence no profit. In an economy where nothing changes there can be no profit. But only such changes are the causes of profits which cannot be foreseen as we have read in Knight’s theory.

However, in the static world profits can arise in one way i.e. owing to monopoly – The monopoly profits arise in a dynamic world also. Besides monopoly profit can arise also from any other position of advantage.

In short, we can say there are two sources of profit (a) uncertainty and (b) position of special advantage, monopoly, or otherwise.

Thus there is no one theory that will explain profit but a synthesis of all the theories mentioned above. Profits are a reward for the services of the entrepreneur. The supply of entrepreneurial ability is limited. Whereas the demand for their services is very great.

The rate of profit at any given moment will depend on the interaction of demand and supply of entrepreneurial ability, risking capital and in the long run, it must be such as to call forth and maintain the supply of entrepreneurial services.

State and explain Rent Theory of Profit

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The Rent Theory of Profit is associated with the name of American Economist, Francis. A Walker. According to him profits are of the same gains as rent. The main points of Walker’s Theory of Profit can be summed up as under.

1. Profit is rent in character. Just as superior grades of land earn more rent than the inferior grades of land, similarly superior entrepreneurs due to their exceptional ability or opportunity earn more profit than the inferior entrepreneurs.

2. As in the case of land there is no rent of marginal land, so in the business also is a non-profit or marginal entrepreneur. The marginal entrepreneur is one whose ultimate receipts from the sale of all commodities just cover his total cost.

3. Just as rent is measured from non-rent land in the same way profits of the superior businessman are calculated from the marginal entrepreneur.

4. The rent does not enter into price of agriculture production of manufactured goods.

From all the main points stated above it can be calculated that profits are the reward of differential business ability.

Criticism:

The modern economists have discarded the Walkers rent theory of profit on the following grounds.

1. It simply provides a measure of profit. It does not throw light on the nature of profit which is of more importance.

2. Marshall is of the opinion that there is much difference between the rent of land and the entrepreneur’s profit. The rent of land can either be positive or zero, but in case of business the total receipts from the sale of product can fall short of total costs, so the entrepreneurs may suffer losses and thus his profit may be in the negative. In the opinion of the Marshall the price of the commodity in the market is determined not by the cost of production of the marginal firm but by the representative is that which has a fairly long lease of lift and has a fair degree of success, which is managed with normal ability and which has access to the normal economics of production.

3. It is also pointed out that profit may not form a part of the cost of production of a commodity in the sort period but in the long period if the business is to be continued, it must enter in the price of profit.

4. Profit does not arise simply because of superior or exceptional ability of the entrepreneur, but they can also result due to change gains or monopolistic position of the entrepreneur or they may be of the nature of the windfall income.

What is the Dynamic Theory of Profit

2013-01-19T12:54:00.009+05:00

Clark's Dynamic Theory of Profit And Its Criticism

The Dynamic Theory of Profit is associated with the name of an American Economist, J. B. Clark. In the world of reality, according to J. B. Clark, profit arises only in a dynamic economy.

An economy is said to be dynamic when there is a change in population growth or change in the method of production or a change in the consumer’s wants, etc. A society which is without these changes is called a static society. In a static society, only monopoly profits continue to exist. All other economic profits are gradually eliminated by competition.

In a dynamic society, an entrepreneur is always confronted with continuous unpredictable changes in demand for his product. The variation in demand may take place due to changes in fashions, tastes, the standard of living, distribution of income, population, new inventions, international repercussions, technological advances, etc. A prudent entrepreneur will always keep an eye on future demand for his products. If he succeeds in increasing his sales by lowering the cost of production or by adopting an innovation, then he can secure profits.

Thus, we find that profits are the reward of progress. Schumpeter calls it the reward of innovation. In a dynamic economy, if an entrepreneur produces a new thing and creates a demand for his products, then he is likely to obtain big profits. But profits of the entrepreneur can not continue to exist for a long period. The other entrepreneurs also adopt innovation and produce similar products. As total output increases, the profits gradually come down. Thus, we find that perpetual profits are the result of perpetual successful innovations.

Criticism

Professor Knight has criticized the Clarkian theory of profit on the grounds that it is wrong to attribute all profits to dynamic changes. According to him, there are certain changes that are of a recurring and calculable nature. They can be anticipated and the output can be adjusted according to that. The profits do not arise on those regular changes but on those which are unforeseen or unpredictable. He thus observes that “It is not dynamic changes, not only changes as such which cause profits but the divergence of actual conditions from those which have been expected and on the basis of which business arrangements have been made.”

Advantages

The dynamic theory of profit is more realistic than the static theory of profit. This is because it considers the fact that economies are constantly changing and evolving.

The dynamic theory of profit can help to explain why some businesses are more successful than others. This is because it considers the role of innovation, entrepreneurship, and risk-taking in economic growth.

The dynamic theory of profit can help to guide economic policy. This is because it can help policymakers to understand the factors that contribute to economic growth and how to promote these factors.

Disadvantages

The dynamic theory of profit is more complex than the static theory of profit. This can make it difficult to understand and apply.

The dynamic theory of profit is based on several assumptions that may not be accurate. For example, it assumes that businesses are always willing to take risks and innovate.

The dynamic theory of profit does not consider all the factors that can affect economic growth. For example, it does not consider the role of government policy or the natural environment.

Overall, the dynamic theory of profit is a more realistic and comprehensive theory of profit than the static theory of profit. However, it is also more complex and difficult to understand.

What is profit? Difference between net and gross profit

2013-01-19T12:47:00.000+05:00

Profit is the reward of the entrepreneur. It is the return on the fourth agent of production viz enterprise. Actually what people call profit is not wholly a reward for then entrepreneurial function i.e. they do not get the whole of it as entrepreneurs but they get a part of it in the capacity of land lord, a capitalist or a manager. What people ordinarily call profit is really gross profit. In order to find pure or net profit many deductions will have to be made out of it.

Gross profit = Total receipts – Total costs

Gross profit is distinguished from net profit is the reward which goes to the owner of the industry for entrepreneurial work. This reward includes the payment for risk-taking, management of business and the control of the industry due to the special business ability of the entrepreneur. Net or pure profit is only one of the element of gross profit. The chief constituents of gross profit are as follows.

1) Reward for other factors supplied by the entrepreneur:

There are many business in which the entrepreneur contributes the factors of production himself. He may produce a part or whole of the land or capital or he may himself work as a manager. If an entrepreneur has invested his own capital in business, than he must add in the total costs of production of an amount which he would have earned if capital had been loaned to another concern. So is also the case with the factory premises owned by entrepreneur himself. If owner of the business assumes the function of entrepreneur himself, than he must include his remuneration in the cost of production and this must be equal to the amount which would have obtained if he had worked in some other concern. All these costs are in fact a part of the normal costs of production. So while finding out net profit of the firm, these costs are to be deduced from the gross profit of the firm.

2) Depreciation and Maintenance charges:

When a business is set up, a certain amount of fixed capital in the form of machinery and building etc has to be invested. During the process of production, this fixed capital does not remain in its original condition. It wears out with use. A wise entrepreneur has to set aside a part of his income for repairs, depreciation and renewals of worn out, obsolete machinery so that the capital should remain intact. While calculating the expenses of the business these costs should form a part of normal cost of production.

3) Monopoly gains:

If a businessman is a sole producer of a particular commodity, then he can charge higher prices for his product from the consumers then what he can get in a competitive market. The total profit which a monopolist has thus earned is not due to his extra-ordinary ability but parts of it are due to his monopolistic position. So while ascertaining the net profit, the gain arising out of monopoly must be deducted from gross profit.

4) Special gains:

Special gains are those gains which arise not due to special foresight or ability of businessman but because he has acquired, copyrights or patent etc from the state. The profit which occurs due to these advantages to the businessman should be excluded from the gross profit while estimating the net profit.

5) Chance gains:

Some time it so happens that entrepreneur earns an unexpected gain from the stock of the commodity which he possesses. For instance if all of a sudden war breaks out in a country, the prices of essential goods all at once go up. The businessman who has a stock of these goods will earn abnormal profit. While arriving at net profits, these chance gains are to be deducted from gross profits.

6) Net profit:

Net profit as we have stated earlier, is the reward of the entrepreneur work. If we make allowances from the gross profit for above five items, we are left with net profit. Net profit is thus only a part of gross profit, which goes to the entrepreneur for risk-taking, coordinating and organizing the business.

Discuss the nature of profit and critically examine Professor Knight’s theory of profit

2013-01-19T12:45:00.001+05:00

Profit may be defined as the reward earned by the entrepreneur for his two fold services to production, namely management and risk-taking. The entrepreneur plans the business, hires the services of land, labour and capital and organizes then to his best ability. He pays rent, wages and capital at fixed rate. What remains after paying those is called Profit. The amount of profit is thus uncertain.

According to Professor Knight, profit is the reward for uncertainty-bearing and not for risk, taking in a business. According to him there are two kinds of risks which entrepreneur has to bear? Some risks are of such a nature that they can be anticipated to a fair degree of accuracy e.g. the risk of death, accident etc and so can be insured in return for premium. The entrepreneur can include the payment made in the form of premium in the total cost of production. So such risk which can be calculated and inscribed should not entitle entrepreneur to a profit.

On the other hand, there are some risks which are unpredictable and unforeseen and so they are non-insurable. For instance, if the demand for product of entrepreneur suddenly comes down due to change sin fashions, tastes etc, then he may no be able to cover his total costs of production. Such risks which are unforeseen and cannot be statistically measured are called by Knight as uncertainty-bearing risks. Profits according to him are the reward of uncertainty-bearing rather than risk taking which is insurable.

Criticism:

Professor Knight’s Theory of profit can be criticized on the following grounds.

1. The total profits which an entrepreneur receives cannot be attributed solely to the element of uncertainty in a business. He performs other functions also such as coordinating, bargaining and innovation in the business. So he must be paid for these services also.

2. It is not simply due to uncertainty bearing that the supply of entrepreneur is restricted. There are other factors also which influence the supply of the entrepreneur. For instance lack of knowledge, lack of capital, lack of opportunity etc do restrict the supply of an entrepreneur in a business.

3. Uncertainty bearing can not be elevated to the status of a factor of production. It is an element of real costs which means exertion, abstinence, sacrifice etc as distinguished from money cost. Cost is not generally measured in terms of real cost. We know that capital is a factor of production but no abstinence that is needed to have capital.

4. Knight’s theory does not seem to have much relevance to the real world. Business combines to estimate profits ex-ante in defiance of this theory. This theory has been criticised as heavily insulated from empirical testing and empirical relevance.

Critically examine the classical Theory of Interest OR Fisher’s Time Preference Theory of Interest

2012-12-30T23:57:00.003+05:00

The Classical Theory of Interest or Real Theory of Interest seeks to explain the determination of rate of interest by real factors like productivity and thrift i.e. productivity of capital goods and saving of goods. According to this theory the rate of interest is payment for savings. The rate of interest in this theory is determined by demand for savings to invest in capital goods and the supply of savings. Let us explain there demand and supply side.

Demand for Savings:

The demand for capital goods comes from firms which desire to invest, that are to purchase or to make new capital goods. Capital goods are demanded because they have a revenue productivity like all other factors. For any given type of capital assets e.g. a machine, it is possible to draw marginal revenue productivity curve showing the addition made to the total revenue by additional unit of machine at various levels of stock of that machine. We have said that capital like other factors of production has marginal revenue productivity. But marginal revenue productivity of capital is more complex concept than that of other factors, because capital has a lie of many years.

A capital asset continues to yield returns for many years. Therefore the entrepreneurs have to take into consideration the uncertainties of the future and estimate the percentage yield or returns from capital after making allowance for maintaining and operating costs. In other words they have to find out the net expected return of the marginal unit of capital expressed as percentage of the cost of the capital assets. The more capital assets of given kind of entrepreneur has the less revenue or income he will expect to earn by purchasing one more machine of the same kind. Therefore the marginal revenue productivity curve of capital slopes down ward towards the right. Now under perfect competition, it is profitable for a firm to purchase any factor up to the point at which the price of that factor equals to its marginal revenue productivity. The price of the savings required to purchase the capital goods is obviously the rate of interest. Hence the entrepreneur will demand capital goods or will demand savings to purchase capital goods up to the point at which the expected net rate of return on the capital goods equals the rate of interest. Since the marginal revenue productivity curve of capital goods slopes down words, it follows that as the rate of interest falls, more capital goods will be demanded and also more money will be required to purchase these capital goods.

Here MRP is the marginal revenue. On the Y-axis net rate of return on capital and rate of interest are shown, while X-axis represents the amount of capital. At or rate of interest, OM amount of capital is demanded. This is so because only at OM amount of capital the falling net rate of return on capital becomes equal to prevailing rate of interest Or. Now if the rate of interest fall, from Or to Or', then the amount of capital demanded will increase from OM to OM', the falling net rate of return equal to the new interest rate Or'.

Thus it is clear that marginal revenue productivity curve of capital shows the demand for capital and further that the demand for capital or demand for savings to buy the capital, the capital slopes downwards to the right. This is true for individual industries and for the community as a whole.

Thus we conclude that demand for individual capital goods and for capital goods in general will increase at the rate of interest falls.

Supply of Savings

According to this theory, the money which is to be used for purchasing capital goods is made available by those who save from their current income. By postponing consumption of a part of their current incomes, they release resources for productive purpose. Saving involve the element of waiting for the future enjoyment of saving. But people prefer the present enjoyment of goods and services to the future enjoyment of then. Therefore if people are to be persuaded to save money and to lend it to entrepreneurs they must be offered some interest as reward. More savings the people will do, the more consumption they will have to postpone, the higher must be rate of interest they will to make such postponement worth while. Thus to induce people to save higher rates of interest must be offered. Moreover higher rates of interest have also to be paid if savings have to come from those persons whose rate of time preference are relatively more strongly in favour of present satisfaction. The supply curve of capital will therefore slope upward to the right.

Equilibrium between Demand and Supply

The rate of interest is determined by the interaction of the forces of demand for capital or investment and the supply of savings. The rate of interest at which the demand for capital or demand for savings to invest capital goods and the supply of savings are in equilibrium will be determined in the market.

Here SS is the supply curve of savings and II is the demand curve of savings to invest in capital goods (II is also called curve for investment). The demand for investment and supply of savings are in equilibrium at Or rate of interest, where the curve intersect each other. Hence Or is the equilibrium rate of interest, which will come to stay in the market. In this equilibrium position OM amount of capital is lent, borrowed and invested. If any change in the demand for investment tend to supply of savings come about, the curve will shift accordingly, and therefore the equilibrium rate of interest will also change.

Criticism

The Classical Theory of Interest came in for serious criticism at the hands of Keynes.

i) It is pointed out that Classical Theory of Interest is based upon assumption of full employment of resources. In other words it assumes that an increase in production of one thing must mean the withdrawal of some resources from the production of other things. With in the framework of the system of the theory built on the assumption of full employment, the notion of interest as a reward for waiting or abstinence is highly plausible. It is the premise that resources are typically fully employed that lacks plausibility in the contemporary world. If at any time in the country, unemployed resources are found on large scale to wait in order that more resources should be devoid to the production of capital goods.

ii) According to Classical theory of Interest, more investment can take place only by curtailing consumption. Greater the reduction of consumption more is the saving and therefore more investment. But a decrease in the demand of consumer goods is likely to lessen the incentive to produce capital goods and therefore will affect investment adversely.

iii) By assuming full employment, the Classical Theory has neglected changes in the income level. By neglecting the change sin the income level, the Classical theory is led into error of viewing the rate of interest as the factor which brings quality between savings and investment is brought about not by changes in the rate of interest but by changes in the level of income.

iv) According to Classical Theory the investment demand schedule can change or shift without causing a change or shift in saving curve schedule. For example according to Classical Theory, if investment demand schedule or curve shifts downwards, then the new equilibrium rate of interest will be determined. Where this new investment demand curve cuts the old saving curve which has remained unchanged. But this is wrong. As we know from Keynesian Economics, fall in investment leads to decrease in income and out of the reduced income, less is saved and therefore savings curve also changes. Thus we see that Classical Theory ignores the effect of changes in investment on savings.

v) Classical Theory as pointed out by Keynes is indeterminate. Position of the savings schedule or curve depends upon the income level, which is the position of savings curve or schedule will very with the level of incomes. There will be different savings schedules for different levels of incomes. As income rises for example the savings scheduled or curve will shift to the right. Thus we can not know what the rate of interest will be unless we already know the income level without already knowing the rate of interest, since a lower rate of interest will mean a large volume of investment and so via the multiple, a higher level of real income.

The Classical Theory therefore offers no solution and is determinate.

What is interest? Account for variation in rates of interest on loans of different kinds.

2012-10-31T23:41:00.004+05:00

Interest is the price paid by borrower to the lender for the sue of loan able funds during a certain period. It is normally expressed as a percentage on the funds loaned or borrowed. In the word of Esthan, “Interest is the payment for parting with the advantage of liquid control of money balances.”

According to Betch, “Interest is the price paid for use of money or credit.”

There is an element of monopolistic competition in the money market in as much as different borrowers are charged different rates of interest. It may be noted however, the pure interest tends to be the same if calculated over the same period of time in the same money market. The actual differences that prevail are difference in the degrees of risk involved and inconveniences suffered by the lenders.

Differences in Pure Interest:

If pure interest is calculated over the same period of time in the same money market, it will tend to be the same. It can however differ in different markets on account of the following reasons.

1) Difference in the period of loan: If a borrower takes a long term loan from lender then he will charge a higher rate of interest than what he charges for short period loan. It is because the lender has to part with his money for a longer period, so he must demand a higher rate of interest.

Secondly in long term loan, the risk of the loss of funds due to dishonesty or incapability of the borrower is more than on a short term loan.

Thirdly businessmen demand money for fairly long period in order to invest that fund in fixed equipments, like building, machinery etc, so they are ready to pay higher rate of interest.

Fourthly, the lender hesitates to lockup their money for longer period, keeping in view the various risks involved. Due to all those factors stated above the supply of loan able funds runs short of demand for loan able funds, and the rate of interest goes up. On the other hand for short period, the risk for loss of capital is less than on long period. The supply is generally in excess of demand for this fund. So the rate of interest is usually low.

Short term and long term rates of interest generally move in the very same direction. If short term rate of interest is high, the long term rate of interest is also generally low.

2) Difference due to Distance: Pure interest can also differ due to difference in the distance of money market. It is the desire of every money lender to reduce the risk of non-payment of money. So they will prefer to invest their amounts near at home at a lower rate of interest than at a higher rate of interest at long distance.

3) Difference in Size of Loan: Pure interest can also differ due to the difference in the amount of loan demanded. The higher the amount demanded for loan, the higher the rate of interest and vice versa.

Difference in Gross Interest Rates:

Differences in rates of gross interest are mentioned as below.

1) Difference in the Social Status: If a borrower enjoys good reputation in the society for his honesty and prompt payment of loan or he can offer good security, then he can get loan at a comparatively low rate of interest.

2) Difference in Productivity: If the entrepreneur is satisfied that the investment of borrowed capital in a particular enterprise is profitable, then he will be ready to pay higher rate of interest. But he expects the reward to below, then naturally he will not be willing to pay higher rate of interest. Thus variations in gross interest can also arise due to the difference in productivity. In the words of Richard: “The interest rate charged on individual business is usually determined in the personal negotiation between Bank and borrowers. It reflects such attributes as the borrower’s size and general credit standing, the access to alternative credit source, the size and maturity of loan the character of the borrowers business, the value to the bank of his deposit amount and of other business relationship and the nature of security if any to be pledged.

Explain Ricardian Theory of Rent

2012-08-28T22:53:00.006+05:00

The theory of economic rent was first propounded by the English classical economist David Ricardo. David Ricardo in his book “Principles of Political Economy and Taxation” defined rent as “That portion of produce of the earth which is paid to a land lord on account of the original and indestructible powers of the sil.” Ricardo in his theory of rent has emphasized the rent is reward for the services of the land which is fixed in supply. Secondly it arises due to original qualities of land which are indestructible. The original indestructible powers of the gil include nature soil fertility, mineral deposits, climatic conditions etc.

Rent under extensive cultivation:

According to Ricardo, all the units of land are not of the same grade. They differ in fertility and location. The application of the same amount of labour, capital and other cooperating resources give rise to difference in productivity. The difference in productivity or the surplus which arises on the superior unit of land over the inferior unit is an economic rent. The Ricardian Theory of rent is explained by taking an example. Let us look at the following schedule.

Grade of Land	Yield in quintals Per Acre	Price per quintal	Total returns
A B C D	50 35 20 15	Rs. 500 Rs. 600 Rs. 700 Rs. 800	25000 21000 14000 12000

In the above schedule we assume that there are four grades of land in an uninhabited country. A grade level is more fertile than B grade land. B grade land is superior to C grade land and so is C grade land to D grade land. Following Ricardo let us assume a batch of settlers to migrate to this island. They begin to cultivate A grade land which yields 60 quintals of wheat per acre. The population of that island increases and A grade land is not sufficient to meet the food requirements of growing population. Then the people of that island brought B grade land under cultivation that yields 35 quintals of wheat per acre. A surplus of 15 quintals of wheat which arises with the same outlay on A grade land is an economic rent. B grade land being marginal land gives no rent. When owing to the pressure of growing population and a rise in demand for food. C grade land is brought under cultivation. It yields only so quintals of wheat with identical amount of labour and capital.

With the cultivation of C grade land the economic rent of A grade land is now raised to 30 quintals of wheat per acre. C grade land is no rent land as it is cultivated at the margin. If expenses of production on A grade land yielding 50 quintals of wheat are Rs. 25000 than A grade land only will be brought under cultivation. A grade land here is marginal land. If the price of agricultural produce increases (Rs. 600 per quintal) and the expenses of producing wheat on B grade land are equal to the market price of produce i.e. Rs. 21000 then B grade land which were hitherto neglected would be brought under cultivation. B grade land then become marginal land. Similarly D grade land will be the marginal land when it compensates the cultivator by giving a yield of Rs. 12000 and enjoys no surplus over cost. Marginal land is thus not fixed. It varies with the change in price of agriculture produce.

The Ricardian model is now explained will the help of diagram.

In the above figure the various grades of land in the descending order of fertility are plotted on the OX axis. The cultivated area due to pressure of population and the rising demand of food is pushed to D grade of land which is marginal land. The owner of A grade land get surplus or economic rent of 35 quintals of wheat on b 20 quintals and on C the rent is 5 quintals of wheat.

Rent under intensive cultivation:

The theory of rent which has been discussed above applies to intensive margin of cultivation. The surplus or economic rent also arises to the land cultivated intensively. This occurs due to the operation of the famous law of diminishing returns. When the land is cultivating intensively the application of additional doses of labour and capital bring in less and less of yield. The dose whose cost just equates the value of marginal return is regarded marginal or no rent dose. The rent arises on all the infra marginal dose. For example the application of first unit of labour and capital piece of land yields 25 quintals of wheat, the second dose gives 15 quintals and third dose down the 10 quintals only. The farmer applies 3 doses of labour and capital as the total outlay on the third dose equals its return. The rent when measured from the third or marginal dose is 15 quintals (25 – 10 = 15) on first dose and 5 quintals on second dose (15 – 10 = 5). The third dose is no rent dose.

What is Modern Theory of Rent?

2012-08-27T21:00:00.001+05:00

The modern economists like Pareto, Mrs. Joan Robinson, Boulding, Singer, and Shepherd have tried to simplify and generalize the Ricardian Theory of Rent. According to them the Ricardian theory of rent is too closely related to land. This creates an impression that rent is a peculiar earning a land only. The fact however is that other factors of production i.e. labour, capital and entrepreneurship may also be earning economic rent. The determination of economic rent, the modern economists say, can be explained in the same manner as the reward of other factors, which is by demand and supply factor.

Demand and Supply Analysis

A) Demand for a factor: The demand for a factor which may be land labour or capital is a derived demand. Land say for instance is demanded for its produce. The higher the produce, the greatest is the demand for land. A firm will pay rent equal to the marginal revenue productivity of land. The rent diminishes as more land is used due to the operation of law of diminishing returns. The demand curve of a factor is therefore negatively sloped which means more land will be used only at lower rents, other things of course remaining the same.

B) Supply of a factor: The supply of land to a particular use, say industry is quite elastic. It can be shifted to other uses by offering higher than that being earned by it now. The supply of a factor to an industry is therefore rent elastic. If higher rent is paid, the supply of a factor can be increased by withdrawing it from other uses. The supply curve of factor (industry) sloped upward to the right.

Determination of Rent

The economic rent is determined by the representation of demand and supply curves for a factor.

In the above figure, the demand curve for factor says labour in a particular is D D' and the supply curve of workers is S S'. The wage rate of factor price of labour as determined by the market forces is OW. The total workers employed in a particular industry at OW wages rate is OL. The total earning of the workers employed is equal to the area OWEL. At wage rate OW there are workers who would work at lower pay but they are also paid at OW wage rate. Those workers whose transfer earnings are less than this wage rate will be getting economic rent. The total economic rent earned by all the intra marginal workers is equal in the area WES. The marginal worker i.e. L^th worker is not obtaining any rent or surplus.

C) Rent is a Surplus Return: The modern economists are also of the view that rent as a surplus can be earned by other factors also. It is not peculiar to land alone as explained by Ricardo. The modern theory of rent is that it is the difference between the actual earning of a factor until over its transfer earnings. The transfer earnings of a factor of production are the minimum payment required for preventing that factor for transferring it to some other use. It is called the factor supply price in it present occupation. For example a worker earns Rs. 6000 per month in a factory in the next best employment, he can excess of Rs. 1000 which a worker is earning over and above the minimum payment necessary for inducing him to work in present occupation is the economic rent.

Economic rent depends on the elasticity of supply of the factor of production.

In the study of Montainge, what is the Humanist’s Solution

2012-07-12T09:04:00.002+05:00

In such a situation a humanist not merely relaxes and ignores the problem. He must call upon his studies, his philosophy, and his ancient friends, to guide him. He must grid up his soul to the vigor and tension necessary for meeting the ills of life head on. But precisely why?

Montainge seems to sense that this is the weakest point in his argument. Although he says that lack of preparation costs us too much in panic and torment at death, his explanation of the frequent bravery of simple people is not convincing, and he seems to know it; for he offers it tentatively and never repeats it. He knows that common people, whole nations, even cowards, can often perform the bravest actions even without study. He does not insist on the strictest possible regime of preparation, as do those who seek our privation. He says that we may use the body to help us if the soul is not strong enough alone; that all honourable assistance against the ills of life is not only permissible but even laudable.

To Montainge at this stage of his development, however preparation for trouble seems not only the way to freedom from fear but also, and above the vulgar and, indeed, the thing that distinguishes the truly superior man.

Montainge now fully shares the typical humanist attitude toward man’s lot, which has been well defined as “an aristocratic optimum for the Sage, a pessimism as far was the Vulgar were concerned.” The man he admires is the learned sage whom he calls “the man of understanding.” It is he who can fight the fear to which the vulgar are prone; who has lost nothing so long as he himself; in whole head Montainge cannot imagine lodging the brutish nonchalance of not thinking about death. “I cannot believe,” Montainge writes, “that meanness of understanding can do more than vigor; or that the effect of reason cannot match the effects of habit.” If reason sometimes fails to prepare us as well as ignorance, we are probably not using it properly. This is what he suggests when he tells for the first time a story he was to repeat in a later essay-how the philosopher Pyrrho encouraged his frightened fellow passengers in a terrible storm at sea by pointing to a tranquil pig that was literally in the same boat. “The intelligence,” Montainge asks, “that has been given us for our greatest good, shall we use it for our ruin, combating the plan of nature.

Actually we should be grateful that pain exists, since it gives us our main chance for distinction. Man is much alike; but we have it in us to confine pain by endurance and to keep the soul if not the body on an even keel. If there were no pain, what credit would there be for valor, magnanimity, and resoluteness? If we do not have it to bear with triumphant calm, “how shall we acquire the advantage that we wish to have over the common heard?”

As a matter of fact, consistency as well as bravery sets the wise man apart from the vulgaire. Only the sage really exists, for only he is constant; the rest of mankind is in such a state of flux that it can hardly be said to exist at all.

Thus Montainge’s problem in the early Essays is not merely the human one of seeking happiness in liberation from fear but that of the humanist, who must rise above the common herd by his readiness of meet pain and death like a sage. Much as he admires Cato, his solution is not merely the stoic one, since all concur in it. It is the humanist’s solution that seeks guidance in books, in the ancient sages, in self-mastery, in the power of the soul and of rational philosophy, to arm us against the ills of life. Montainge cannot believe that reason and understanding, properly used, are not the best weapons of defense. The way he hopes to break his siege by apprehension is the humanist’s way.

Features of markets and profit maximization in perfect competition

2012-07-09T20:57:00.003+05:00

Firms do not operate in a vacuum, they interact with their customers and with other firms. These interactions take place in markets and economics has developed models of markets that predict how firms will behave in certain situations. The three major markets are 1. Perfect competition, 2. Perfect monopoly, and 3. Monopolistic competition.

Perfect competition is the most intense form of market interaction and though it may be intense, it is not as rare as many would have us believe. Perfect competition is characterized by the following:

1. There are many firms selling a homogenous product.

2. There are many buyers.

3. There are no barriers to entering or exiting the industry.

4. Firms in the industry have no advantage over new entrants.

5. There are no transaction costs.

6. There are no externalities.

7. Firms and buyers in the industry have complete information.

Given the assumptions of perfect competition, it is unlikely that a firm can unilaterally influence the market price of a good will be. Hence, firms are called price takers. This is because there is nothing that the firm can do unilaterally to raise or lower the price of the goods it produces.

Perfection competition, satisfying all five requirements, does not happen that often, but many industries can satisfy three or four of the assumptions, and the industry approaches perfect competition. Hence the model’s results are still valid and can lend insight into what happens in reality.

What is an example of a price taker? Major applications of this occur in agriculture. If you grow soybeans and you grow 50 acres of beans, your beans are no better than the thousands of other acres of soybeans and there is nothing you can do to command a higher price for your beans. You are a price taker.

From the fact that a firm is a price taker, we can look at the individual firm’s demand curve,

The firm faces a perfectly elastic demand curve (Recall that perfect elasticity implies that a percentage change in price will lead to an infinite percentage change in quantity demanded). If the firm harvests 60 acres of soybeans instead of 50 acres, it can sell the extra 10 acres at the same price, and it can do this forever at the prevailing market price. (Reality may not support this proposition, but recall that economic models are not supposed to exactly represent reality, but should approximate reality. Therefore this assumption of the model may not directly apply to reality).

The firm is a price taker and has to compare with other firms by mimicking what they do and trying to get ahead at the same time. Therefore, the competitive firm has to make some decisions if it continues to stay in the industry. A perfectly competitive firm has to make the following decisions:

1. Whether to stay in the industry or leave it.

2. Whether to produce or to temporarily shut down.

3. How much to produce.

Assume that the firm wishes to stay in the industry and it is going to produce. We know that the firm wants to maximize profits, but how is it going to do that?

We know that for the firm:

How price and output is determined under oligopoly

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In oligopolistic industry, there are only a few big firms which control the supply of a commodity and each firm produces a significant portion of the market. They are, therefore, mutually interdependent. In other words, we say the behaviour of the firm directly affects and is affected by the action of the rival firms. The firms under oligopoly are motivated by two opposing forces, one force moves them to co-operate with one another so that the profit of each firm are maximized. The other force takes the away from the joint profit maximizing price and profit.

Under oligopoly the pricing theory is fundamentally the same with the difference that the larger the number of firms, the greater will be the differences in the marginal costs and more remote will be the possibility of collusion or agreement, whether taxeit or explicit. When they all deal in a standardized product and each is producing a considerable portion of total output, the price and output policy of each is likely to affect the other apprcialy but none can foretell precisely how. The price which will be fixed in oligopoly without product differentiation is thus inderminate.

In case there is a product differentiation monopoly agreement are even less likely. Since the products are not similar, any producer in oligopoly can raise or lower his price without any fear of losing customers or of immediate reactions from his rivals. Cut throat competition is unlikely. However keen rivalry among them may create conditions of monopolistic competition. The price in the long run may settle at a level between the monopoly price and that under cut throat competition.

It is often noticed that price under oligopoly is stable. It is neither much responsive to changes in demand nor to the changes in the supply. For instance if demand increases, no firm will venture to raise the price for fear that other firms may not raise the price and it may lose the market. Nor will it lower price for the fear that the other firms may also lower their price and deprive it of any initial advantage.

Similarly, changes in costs too, do not much affect price and output under oligopoly. For instance, if wages have gone down, each firm may like to reduce the price, but it is not sure if others too will not lower theirs. In competitive industry action of no single firm can affect the conditions in the industry, for the number of firms is very large. But under oligopoly the number of firms is very small and step taken by anyone firm is likely to produce some reaction on the others. As Tarshis remarks “Thus it is quite possible for demand and cost to change frequently and yet to produce no changes, or at any rate very few changes in price. Thus existence of oligopoly accounts for some of the price inflexibility that characterises our economy.

The oligopolists avoid experimenting with price changes. He knows that if he raises the price, he will lose his customers and if he lowers it, he will offend his rivals. He has a clientele of his own when there is product differentiation. Why shout he experiment? He is therefore content to leave price and output as they are.

What is Oligopoly? Explain the causes of Oligopoly

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Oligopoly is the market organization in which there are a few or small number of firms in an industry and they produce the major share of the market. The word ‘a few’ or small number is vague. The economists therefore refer to oligopoly as that market situation in which the number of firms is small but each firm in the industry takes into consideration the reaction of the rival firms in the formulation of price policy. The number of firms in the industry thus may be only two or more than two say 5, 10, 20. The basic condition for the existence of oligopoly is that a firm in the ‘group product’ formulate its price policies with an eye to their effects on its rivals.

There is thus a great deal of interdependence between or among the small number of firms. The oligopolistic industries are classified in a number of ways. If there are only two giant firms in an industry and they produce identical products. It is called perfect on pure duopoly. In case the goods produced by the two firms are differentiated, the duopoly is said to be imperfect or impure. When the number of firms dominating the product market is so small (more than two) that each firm takes into consideration the reactions of the rivals firms in formulating its own policy, the industry is said to be oligopolstic. The oligopoly like duopoly can also be pure or improve. If firms sell identical products like, cement, steel etc. the oligopoly is said to be pure. But if the products of the firms are not standardized and so are not perfect substitutes of one another, the oligopoly is called impure or differentiated.

Cause of Oligopoly

The main reasons which give rise to oligopoly are as follows:

1. Economies of Scale: If the productive capacity of few firms is large and are able to capture a greater percentage of the total available demand for the product in the market, there will then be a small number of firms in an industry. The firms in the industry with heavy investment using improved technology and reaping economies of scale in production, sales promotion etc. will complete and stay in the market. The firms using outdated machinery and old techniques of production will not be able to compete with the low units costs producing firm and eventually wipe out from the industry. Oligopoly is, thus promoted due to the economies of scale.

2. Barriers to entry: In many oligopolies, the new firms cannot enter the industry as the big firms have ownership of patents or control over the essential raw material used in the production of an output. The heavy expenditure on the advertising by the oligopolistic industries may also be a financial barrier for the new firms to enter the industry.

3. Merger: If the new firms in the industry smell the danger of entry of new firms, they then immediately merge and formulate a joint policy in the pricing and production of the products. The joint action of a few big firms discourages the entry of new firms into the industry.

4. Mutual Interdependence: As the number of firms is small in an oligopolistic industry, therefore they keep a strict watch of the price charged by rival firms in the industry. The firm generally avoid price war and try to create conditions of mutual interdependence.

Problem of Pain & Death in the Montainge’s study

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Montainge’s early view of life was a rather Epicurean pessimism. “The wretchedness of our condition,” he was to write, “makes us have less to desire than to fear...That is why the sect of philosophy that set the greatest value on voluptuousness and raised it to its highest price still ranked it with mere freedom from pain. To have no ill is to have the happiest state of well being that man can hope for.”

Though he said that he had thus far lived reasonably happily, except for the loss of his friend, this was a great exception. Moreover, his other bereavements were to contribute their share to his pessimism. Fifteen years later the mere expressions that reminded him of his grief could still revive it: “My poor master! Or, My great friend! Alas, my dear father! Or, My good daughter!” in his gloomy apprehension, he looked for security in preparation, like the healthy young men he had seen carrying pills around to take in case of a cold. As the surest way to the negative contentment that seemed to him the best he could hope for, he sought not merely local retirement but withdrawal from all close human contacts.

We should have wife, children, goods, and above all health, if we can; but not bind ourselves to them so strongly that our happiness depends on them. We must reserve a back shop all our own, entirely free, in which to establish our real liberty and our principle retreat and solitude…where to talk and laugh as if without wife, without children, and without possessions, without retinue and without servants, so that, when the time comes to lose them, it may be nothing new to us to do without them……

We have lived enough for others; let us live at least this remaining bit of life for ourselves…it is no small matter to arrange our retirement securely…Since God gives us leisure to make arrangements for moving out…let us pack our bags; let us take an early leave of the company…We must untie these bonds that are so powerful, and henceforth love this and that, but be wedded only to ourselves. That is to say, let the other things be ours, but not joined and glued to us so strongly that they cannot be detached without tearing off our skin and some part of our body as well. The greatest thing in the world is to know how to belong to oneself.

In the essay just quoted, “Of Solitude” (I:39), four principal menaces are listed, Death, Poverty, Contempt and Disease. In another early essay (I:14) Montainge mentions only three: Death, Poverty, and Pain. Contempt did not disturb him seriously for very long, for he soon learned to know himself better than anyone else could know him and to rely on his laws and his court to judge himself. Poverty worried him somewhat for a while, but he knew that what we fear in it is pain. Pain and death are the great enemies, each with its claim to the first rank-death because it alone is inevitable, pain because it is what we fear even in death. Pain is more surely an evil, since death may be good fortune is painless; death is an evil more sure. Montainge had seen both at close range. Death had been all around, and he thought and spoke of it most of all.

His thoughts on the subject are those of La Boetie. All ideas he exchanged with his dying friend recur: that death is the test of our lives and our studies, the aim of philosophy and the proof that we have learned its lesson; that our own death should be an example that will encourage others to rise bravely above such accidents. Montainge is not so much afraid of death-or-pain as apprehensive about how well he will be able to endure them.

The early essays are full of the problem. One of them (I:19) takes its title from Solon’s famous pronouncement, “That Our Happiness Must not be Judged until after Our Death.” Solon was right, says Montainge, since only in death can we tell what was mask and what was true philosophy in a man’s life.

Apprendre is never closer to apprehend than in Montainge’s central chapter on death, “To Philosophize Is to Learn to Die” (I:20). Although generally stoical in tone, this is the mosaic of an electric humanist who draws on Pliny. Plutarch, and especially Lucretius, as well as on Cicero and Seneca. All sects agree, he says that the main function of philosophy and reason is to teach us how to die. Death is universal, as pain and poverty are not. Ignorance is of no use, for it makes us suffer more when the time comes. We must practice death, get used to it, think about it constantly. The premeditation of death is premeditation of liberty. Leave life, she tells us, as you entered is simply and unafraid; your death is a part of the order of things, an order you should not even whish to change.

With pain it is much the same for Montainge. The great question here is the degree of truth in his chapter life. “That the Taste of Good and Evil Depends in Large Part on the Opinion. We Have of Them”. It would be fine indeed if this were true, he says; unfortunately it does not seem to be. For pain is the real stuffy, whose essence we truly and certainly know; our senses are the judges. It is what we fear in poverty and in death.

Montaigne as The Apprehensive Humanist

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The religious wars, which had broken out a year and a half before La Boetie’s death, were to involve Montaigne deeply and to form the somber background of the last half of his life. There were intervals of comparative peace, some of them rather long. But they were never better than armed truces, for no settlement could satisfy both sides, and during most of them, sporadic violence continued in one part of

France

or another. The Protestants were never comparable in numbers to the Catholics; but these were sharply divided, with the government generally holding to a policy at first of tolerance, then of moderation, while the extremists opposed all concessions.

After three lasting each year or two, the Reformists reached their highest peak of influence when their leader Coligny came to court in 1570 and gained greater favour with King Charles IX. But the Catholics grew alarmed as Coligny pressed for armed intervention in the Protestant Netherlands against Catholic Spain. When thousands of Protestants flocked to Paris for the marriage of Henry of Navarre, tension rose. When a hired assassin wounded Coligny, it became explosive. Threats flew back and forth, and the king was finally persuaded by his mother, his brother, and others to order the terrible Massacre of St. Bartholomew’s Day, so Coligny and thousands of other Protestants were killed.

Navarre

was forced to adjure his Protestantism and remain at court, almost a prisoner until his party regained its strength.

In these first ten years of war, and later too, southwest

France

was a center of trouble. Bearn and parts of Gascony and Guyenne were deeply Protestant, and nearly everywhere opinion was divided. In the region around the court of Navarre at Nerac, there were always Protestant soldiers, and often armies. Catholic Bordeaux, sixty or seventy miles to the northwest, was in a state of almost constant alarm. Most members of the Parliament favored a sterner policy than the government usually did; those who did not were often in hot water with their colleagues. In one period of a year and a half (March, 1569-August, 1570), the court condemned over 1,200 people to death in absentia, to be sure. Again and again, it assigned its members to actual police duties for the preservation of law and order.

Montaigne had taken from the first the position of determining loyalism that he never changed. We have noted already his anger at the more compromising Lagebaston soon after La Boetie’s death and his willing oath of fidelity in Paris the year before. In October of that same year (1562) he was with the king’s army at the siege of Protestant Rouen; it was there that he met his Brazilian cannibal. And in December 1567, he wrote from his chateau a letter to his friend Belot to be read in Parlement, warning them of the passage of Protestant troops. All his actions suggest that, Like La Boetie, he regarded the Reformists as primary rebels against their country and their king.

Meanwhile, after a diversionary sowing of wild oats, Montaigne married, settled down, inherited his father’s estate, translated long theological treaties, requested and was refused more meaningful employment in the Parliament, resigned his position there, published La Boetie’s works, retired to his manor, and started to write his Essays.

He married Francoise de la Chssaigne, daughter of a conservative president of the Parliament (September 25, 1565), at his father’s urging and without enthusiasm, as a social obligation. He would have avoided marrying. Wisdom herself, he says, if she had wanted him. The domestic economy was not his dish, nor building, which his father had enjoyed. What he wanted of his home were freedom and peace, and apparently, he did not always get them. For all their children, the marriage lacked intimacy and warmth, and Montaigne's remarks about it are generally caustic. It has even been argued plausibly that his wife was unfaithful to him, and with his brother at that. With the possible exception of the early years, the marriage seems to have gone best when each partner had the most privacy.

Montaigne’s translation is interesting in many ways. In 1546 or earlier his father had a visit from Pierre Bunel, one of his admired humanists, who left with him, as an antidote for the Lutheranism that he saw spreading in France, the Latin “Book of Creatures, or Natural Theology” of the fifteenth-century Spaniard Raymond Sebond. Sometime before the death of Adrianus Turnebus in 1565 Montainge himself had shown an interest in the book by asking him about it. Though Pierre de Montainge knew Latin, and though there was already a French translation and also an adaptation, he asked his son to translate it, which he did. The book appeared in 1569; the dedication to Montainge’s father is dated from Paris, June 18, 1568-the day his father died.

A thousand pages of the “Natural Theology” are an elaborate demonstration of the existence and nature of God by the analogies observable in his creation. From man’s superiority to the lower levels of creatures-animal, vegetable, inanimate-God’s superiority is elucidated. The book opens with a preface, or prologue, claiming that it is virtually infallible and more useful than the Scriptures. In 1558 or 1559 the book was put on the Index of Prohibited Books; the body of the work was removed from the Index in 1564, but the Prologue was retained.

Montaigne showed great skill in his first literary labor. The translation is smoother and gayer than the original. As he says he has docked it out a bit, a la Francoise. But he has fully understood his author and rendered his meaning faithfully—at least throughout the now innocent body of the book.

Not so in the peccant Prologue. Montainge cuts all of Sebond’s extravagant claims down to size. “Necessary becomes “useful’; “infallibly” disappears. The book no longer claims to teach “all the truth necessary to man” (about God and man) but “the truth, so far as this is possible for natural reason”: not the knowledge “necessary to man” but the knowledge “necessary to man before all others.” This superb Latinist and faithful translator has deliberately mistranslated in at least twenty places, always to attenuate the presumption of the author’s claims.

Many explanations of this fact are possible. Almost certainly Montainge knew that the Prologue was on the Index. Clearly he wanted his translation to be wholly orthodox-as indeed it was; it was never troubled by censure. There may even be some influence of his father. At all events, Montainge clearly appears at this time to have been thinking and conforming Catholic, willing to undertake a sizable literary chore if his father thought it might help the good cause or work for conciliation between the warring sects. And already he was highly skeptical of the power of unaided human reason in matters divine. The germ of the “Apology for Raymond Sebond” exists already in Montainge’s version of the Prologue to the “Natural Theology.”

These were ten hard years for him. Besides the public bloodshed and alarm, which was terrible in Guyenne, he had private grounds for grief and apprehension. In 1561, without warning, his father had fallen grievously ill with a kidney stone, which after seven painful years was to kill him. Montainge’s own fear of the stone, which grew intense until experience cured it, probably goes back to the early days of his father’s suffering. Two years later his beloved friend had been morally stricken in his thirty-third year. Five years afterward, while Montainge was away, his father died in great pain. Now that Montainge for the first time had money of his own, even this began to worry him. Soon after his father, a brother, Arnaud de Saint-Martin, a brave young captain of twenty-three, died as a result of being hit over the ear by a tennis ball. In the same period Montainge came close to death in the most unlikely way-an accidental collision on horseback; this, too was a reminder. Another two years and Thoinette was born, his long-awaited first child, to live only two months. A second child, born in the next year survived, but in 1573 a third child died an infant, and later still another and another and another. “When these examples, so frequent and so ordinary, pass before our eyes,” Montainge writes of his brother’s death, “how is it possible that one can get rid of the thought of death, and that at every instant it should not be seen to us that she holds us by the throat?”

What is meant by market? Distinguish between perfect and imperfect market

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In ordinary language, a market means a place where things are bought and sold. But in Economics a different meaning has been given to the term. Professor Chapman says “Economically interpreted the term ‘market’ refers not to a place but to a commodity or commodities and buyers and sellers of the same who are in direct competition with one another.” Thus we speak of cotton market, share market etc. There is a market for every commodity that has buyers and sellers, even though there is no specified place where they meet. All that is required to constitute a market therefore is a commodity that can be bought and sold some are willing to buy and others are willing to sell.

The buyers and the sellers can communicate with one another by words of mouth, by letter, telephone, cable, internet or by wireless, the method or place does not matter. The definition of the market points out two main features of an economic market. Firstly there must be a free competition among buyers and sellers. Secondly, as a result of this competition there must be competitive price. The more organized a market is, the greater is the tendency to the same price for the same thing at the same time through out the market, even if it is worldwide.

Perfect and Imperfect Market

On the basis of competition between the sellers and buyers of a commodity, market may be classified into two categories, namely Perfect Market and Imperfect Market.

Perfect market implies the following conditions:

(a) A large number of sellers and buyers

(b) Buyers know the prices charged by the different sellers of the commodity

But these conditions rarely exist in reality. The number of sellers or of buyers may be small and as a result the competition between them may not be free or perfect. When there are a small number of sellers, they can influence the price by selling more or less of the commodity. The buyers may also be smaller in number and they can also influence the purchase price by purchasing more or less of the thing. Different sellers may sell at different prices because each seller controls a large part of the total supply. The same is the true of the big purchasers. The buyers may be ignorant of the prices charged by the sellers or buyers may have preference for particular sellers. As a result the sellers can sell at different price than others. These conditions make market imperfect.

Role of Land in the process of production

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The term Land has been given a special meaning in Economics. It does not mean soil as in ordinary speech but is used in much wider sense. It also includes all natural resources which are free gift of nature.

In Marshall’s words, “land means the materials and the forces which nature gives freely for man’s aid in land and water in air and light and heat.”

Importance of Land

Land in economics is a term which is often used in a wider sense. It does not mean soil as in ordinary speech. Land stands for all natural resources which yield income or which have exchange value. It represents those natural resources which are useful and scarce actually or potentially. Land is absolutely indispensable for human being and nothing can be produced without land. Land is an important factor of production and survival of human being is directly linked with land.

Fertility and productivity of land is essential for economic development. The developed countries have reached the climate of economic development and increased their production due to rich and abundant natural resources, on the other hand under developed countries will have explored their natural resources in order to achieve economic welfare. Marshall says in favour of importance of land by saying that land provides space for the human activities and struggles. Land is the first and the foremost factor of production without which it is difficult to start a business. For example if we want to establish cotton industry, we need raw material which will come from land. In this way in all economic activities the role of land is maximum and the question of land is foremost goal of all economic activities to start. Moreover the following points further elaborate its importance.

(i) Land provides all food to human beings.

(ii) It provides space for all human activities like banking, trade, industry etc.

(iii) Fertile and productive lands pave way for economic development of a country.

(iv) Agriculture development of a country is possible only when all lands are fertile and suitable for all crops.

(v) Agriculture raw material plays a vital role in industrial development which comes from nature i.e. land.

(vi) Land provides way to transfer commodity from one place to another which leads to economic development for a country.

Entrepreneur is the Essential Factor of Production, Critically examine this statement and also explain the role of the Entrepreneur.

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In earlier times, wants were few. Each man did his own efforts and produced things he was in need of. He had his own land, his own labour and capital and thus produced the essential things. But nowadays production is highly organized and complex. The invention of machines has revolutionised the system of production. The modern process of production is very long. It is carried on with the help of hired labourers. The work for producing even an insignificant thing is now divided into a number of operations. This results in the division of labour. Each man or each group of men is engaged in performing only one particular operation. This complexity of modern production has brought the question of organization or entrepreneurship into prominence.

The organizer or entrepreneur may not be a risk-taker. He is the captain of the industry. The armies of the industry can no more be raised, equipped, held together, moved and engaged without their commanders or entrepreneurs. He has to select a suitable site for his factory. He has to secure machinery and tools required for production. He has to purchase his raw materials from and sell the finished products at the best market. In short an entrepreneur is a person who has to collect, adjust and Marshall the forces of production in such a manner as to derive the maximum profit from the industry. The role that the entrepreneur plays consists of coordinating and correlating the other factors of production.

He starts the work, organizes and supervises it. He undertakes to remunerate all the factors of production, to pay rent to the landlord, interest on the borrowed capital and wages to labour and pay them in advance of the sale of goods. The residue if any is his. Nothing may be left after he has made the necessary payments. In that case, his venture will have been miscarried. But it is also possible that he may be lucky to make a handsome profit. Whatever may be the outcome, he must be prepared to accept it. He thus takes the final responsibility for the business. If he has anticipated the consumer’s wishes origin and interpreted them correctly, he is amply rewarded. Organizing or risk-taking or uncertainty bearing as it is sometimes called are the two chief functions of the modern entrepreneurs.

The entrepreneur is the inventor. Innovation by the entrepreneur implies a variety of things. It may mean the introduction of a new method of production or an improvement in the old methods. It may consist of the introduction of a new commodity like the transistor radio sets or a new make of old product e.g. yet another brand of toothpaste. Innovation may refer to the discovery of new materials, fresh sources of old materials, or new uses for materials or final goods. It also includes the opening of new markets. Innovation may also take the form of new techniques in the way of administration, finance, marketing or human relations inside the business and public relations outside i.e. with suppliers of materials and consumers of products. It is involved finally, when new forms of business organizations are instituted, such as chain stores, the merger of several establishments or a monopolistic combination among producers.

It will be easily understood that uncertainty is inherent in the making of the decisions like those enumerated above and also in any innovations that may be adopted. The all-embracing function that the entrepreneur performs is therefore that of uncertainty bearing.

What is Capital Accumulation? Discuss the factors that influence Capital accumulation

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Capital formation or capital accumulation means the increase of the stock of real in a country. In other words, capital formation involves making more capital goods, such as machines, tools, factories, transport, equipment, materials, electricity, etc., which are used for the further production of goods. For making an addition to the stock of capital savings investments and technical progress are essential. Capital accumulation is the very core of economic development. It may be a predominantly private enterprise system like the American one or a socialist economy like

China

and

Cuba

. Economic development cannot take place with technical progress such as the construction of irrigation works, the production of agricultural tools and equipment and reclamation, the building of dams, bridges, and factories with machines installed in them, roads, railways and airports, ships and harbors, all the produced means of further production associated with high-level productivity. In the view of many economists, capital formation occupies the central and strategic position in the process of economic development.

Factors influencing Capital Formation:

Capital formation is not an automatic process. The rate of capital formation is different in different countries. This shows that capital formation is conditioned by certain factors. The following are the chief factors that govern capital formation in a country.

(a) Saving Creation: Savings are done by individuals or households. They do savings by not spending all their income on consumer goods. When individuals or households save they release resources from the production of goods. Workers' natural resources, materials, etc. thus released are made available for the production of capital goods.

A high rate of savings is possible if people are prepared to put forth the effort to maximize output even with the resources available and are willing to keep down their expenditures within reasonable limits. In other words level of savings in a country depends upon the power to save and the will to save. The power to save or the saving capacity of an economy mainly depends upon the average level of income and the distribution of national income. The greater the level of income greater will be the amount of savings. Another source of savings is government. The government savings constitute the money collected as taxes and profits made by the state undertakings i.e. government enterprises. Foreign trade constitutes third source of savings. Foreign trade is easily amenable to State control for revenue and other purposes.

(b) Mobilizing of Savings: Next step in process of capital formation is that the savings of the household must be mobilized and transferred to businessmen or enterprise that requires them for investment. This stage depends on the efficiency of machinery for the collection of savings viz, the capital market, banks, insurance companies, etc.

(c) Channelising Savings into investment: For savings to result in capital formation, they must be invested. In order that investment of savings should take place, there must be a good number of honest and dynamic entrepreneurs in a country who are able to take risks and bear the uncertainties of production. Given that a country has got enough good and venturesome entrepreneurs, the investment will be made by them only if there is sufficient inducement to invest. Inducement to invest depends on the marginal efficiency of capital i.e. progressive rate of profit on the one hand and rate of interest on the other hand.

(d) Foreign Capital: Capital formation in a country can also take place with the help of foreign capital or foreign savings. Foreign capital can take the following form.

(i) Direct private investment by foreigners.

(ii) Loans or grants by foreign governments and

(iii) Loans by international agencies like World Bank.

essays “On the Educating of Children” about Montaigne’s Hedonism

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Montaigne as a boy stands well revealed in the essay “On the Education of Children”. Independent and tenacious but slow to move, he was in danger of doing not wrong, but nothing at all-a reproach he was to hear all his life. Secure in the intelligent love of the father he loved dearly in return, he spent a boyhood generally happy but marred by his first seven years of formal education. These gave him his first real taste of folly and injustice: and from what he tells us of his mind at the time, he may well even then have judged much as he did later the inanity and severity that could come of knowledge and authority misapplied. No matter what his father did, “It was still school.”

Montaigne’s Catholicism must have been the result of a real decision. When this came, we do not know, nor even just when his brother and sister-or possibly two sisters-were converted to Protestantism. But his father was presumably concerned about the matter by the time Montaigne was thirteen, for it was no later than that his friend Bunel gave him Sebond’s “Book of Creatures, or Natural Theology” as a support for Catholics against heresy. Many young nobles in the fifteen-forties and fifties, for love of adventure and many other reasons, had at least a mild flirtation with the new could. Montaigne himself was somewhat drawn to it in its days of adversity and at one time tended to scout certain points of Catholic doctrine. His independence of mind takes one wonder what were his exact reasons for remaining in the fold. The Protestants had not yet done the harm that he was to emphasize later. Earlier it may have been an intellectual conviction, a premonition of trouble to come, skepticism about new ideas, allegiance to the faith of his father, or some combination of these and perhaps still other motives. We can only conjecture which one was dominant. But in a family so divided, Montaigne’s decision was an important one.

From thirteen to twenty-one, from schoolboy to fledgling magistrate, Montaigne is almost lost in sight. We have a better picture, fragmentary but suggestive, of his sixteen years in the courts of Perigueux and Bordeaux; that their due precedence was long denied and often challenged, even when at last acknowledged; and that on one such occasion Montaigne spoke out for the first time, to point out that their precedence had already been recognized in fact. We sense from the Essay how much he learned in the Parliament: the broad experience of human behavior, especially of sham and cussedness, the “capacity to sift the truth,” weighing evidence and probing into motivation, the conviction that however undemonstrable the standard, things were either right or wrong, and that thoughtful investigation and understanding must lead ultimately to right judgment.

More conspicuous than the profit was the vexation. It was bad enough to be confined mainly to reporting and not judging; it was worse than even this had to be based not on equity but on the interpretation of a cumbersome and often unfair body of law. The Essays are full of Montaigne” direct comments.

Consider the form of this justice that governs us: it is a true testimony of human imbecility, so full it is of contradiction and error…Poor devils are sacrificed to the forms of justice…How many condemnations I have seen which were more criminal than the crime…

Now laws remain in credit not because they are just, but because they are laws…They are often made by fools, more often by people who, in their hatred of equality, are wanting equity; but always be men, vain and irresolute authors.

There is nothing so grossly and widely and ordinarily defective as the laws. Whoever obeys them because they just do not obey them for just the right reason.

Here is at least one source of Montaigne’s constant vexation with ceremony, of his awareness of human injustice, and most important, his skepticism. It did not take Sextus Empiricus to teach him the vanity of the human intellect; he had learned it for sixteen hard years.

The outstanding characteristic of the young Montaigne as seen by his older self is independence. Brought up to freedom and adaptability, he “loves to give his freedom elbow room in all directions. He hates to feel indebted, or even to ask favors, because of “a little natural pride, inability to take a refusal, contraction of my desires and designs, inability in all sorts of affairs, and my most favorite qualities-idleness freedom.” Almost equally he hates to involve himself unnecessarily or excessively. Few things grip him, and he has cultivated this inborn trait: temperamentally incapable of solicitude, he would lend his blood as readily as his care. By nature and by reason he is frank. He would rather be importunate and indiscreet than a dissimulating flatterer. Even in his amours, he is wholly honest, indeed blunt, in his approaches. Impatient of any constraint, he learns better from contrast than example, from good fortune than bad. Even the constraint of habit he has rained himself to avoid. Never that he can remember has he taken advice-nor often given it. He sees the illusions of age as well as those of youth. Impatient as a youngster when people competing with him would not try their hardest, he has always wanted to be treated as a man and felt that he should be. Too much is made of mere seniority he thinks in us to show, we have shown it at twenty.

Not all his traits of temperament are easy to assort. As is natural, he seems somewhat less phlegmatic early than late. He takes little trouble, he tells us, to correct his natural inclinations. Rather gay than melancholy, his native good spirits are tinged with seriousness but not sadness. He is lively; his legs are full of quicksilver; it is a good sermon that can keep him still and attentive. He is impetuous: even in his later years he eats greedily and sometimes bites his fingers in the process once when challenged in the Parliament, he replies with what the official report describes as “all the vivacity of his character.” Though not an ambitious man, he is by no means free from ambitions as indeed he is never to be. Even his study as a youth, he says, is for ostentation, as are certain purchases of books. He is neither truly gregarious nor a pure solitary: his nature is outgoing and communicative. Altogether, his best quality of temperament is a full firm vigor.

Not a big man but solid, lively, and full of health, a touch of pride showing in certain gestures, he is careless with money, gay and debonair, imaginative, a lover of poetry, of adornment, of excitement and variety. In short, a typical well-adjusted young man setting out to conquer the world and enjoy it. The splendor of the court draws him again and again in his twenties. Judging by the volume of his confidence in his youth, he is drawn most of all to the pursuit of women.

His attitude toward them is not completely simple. Like so many of the ancients and of his own contemporaries, he generally regards them as potentially decorative lightweights, incapable either of good sense or of mental or spiritual elevation. True friendship is beyond their reach; their love is nothing but sexual gratification. Constitutionally enslaved either to passion or to prudery, they have been denied by nature the freedom that allows some men to attain the dignity of fully human living. The essay “Of Three Good Women” (II:35), which is pointedly followed by “Of the Most Excellent Men,” and the goodness of the three heroines consists simply of great devotion to their husbands.

Yet Montaigne likes them and wants to be liked by them. The several essays that he dedicates to women; their society is one of the three associations that he enjoys. And his most licentious essay, “on Some Verses of Virgil,” written, he says, so that women will take his book from their salons into their boudoirs, and concludes that men have been unfair to them and kept them from their rightful equality. His usual attitude in the Essays, which is mainly that of his fifties, is the affectionate condescension of maturity toward the chard and folly of adolescence.

In his youth, his dominant feeling apparently is frank desire. He says he cannot remember when he was a virgin: can imagine chastity but has never practiced it. He has suffered the flame and pangs of love. Though he has avoided paid amours, he has not escaped a bout or two of venereal disease. No professional ladies’ man, always perfectly frank in his affairs, he will not stoop to deceit. Sexual intercourse he greatly enjoys as a healthy, natural, and therefore legitimate function. If he seems to treat it rather like eating, at least he finds it much more exciting.

Altogether, it is a lively young magistrate that the Essays fondly evoke. Yet his liveliness is not giddy. Even later he fights the illusions of age, so now he fights those of youth. While his passions disport, his judgment remains as an uncommitted observer. Looking back later on his youthful amours, he finds that he had himself pretty well in hand and would do not better now if exposed to such strong temptation. He is prudent in concealment when necessary. By an effort he can oppose his passion with diversion and reason: he can recognize the face of vice under the mask of pleasure. Independent above all, he vigorously and successfully fights any bondage to love. “In his business, I did not wholly let myself go; I enjoyed it, but I did not forget myself; I kept in its entirely that bit of sense and discretion that nature gave me, to the advantage of my partners and to mine: a bit of emotion, but no folly.”

Besides judgment and self-control, another serious trait marks the young Montaigne. Whatever he did, he says, death was never far from his thoughts. We can only guess at the cause of this near obsession. Certainly, it is not uncommon in youth, to whose long, long thoughts the limits, as well as the possibilities of life, often seem closer and more real than they do later. Montaigne does not let death worry him, but he feels its nearness constantly:

There is nothing with which I have at all ages more occupied my mind than with images of death. Even in the most licentious season of my age…amid ladies and games, someone would think me involved in digesting some jealousy by myself, or the uncertainty of some hope, while I was thinking about I don’t remember whom, who had been overtaken a few days before by a hot fever and by death, on leaving a similar feast, his head full of idleness, love, and a happy time, like myself; and that the same chance was hanging from my ear….I did not wrinkly my forehead any more over that thought than any other…Otherwise, for my part, I would have been in continual fear and frenzy; for never did a man so distrust his life, never did a man set less faith in his duration.

Montaigne as the Young Hedonist

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We usually thing of Montaigne as a meditative middle-aged man, reading and writing alone in the tower of his manor. This is proper enough, for it was in his last twenty years that he wrote the Essays that make him live today. Our knowledge of the first two-thirds of his life is still tantalizingly fragmentary. There are some facts to go on most of them external and some judgments and insights, a few by his friends La Boetie, the majority by himself. Most of these need weighing as well as arranging to give a true and clear picture of young Montaigne.

He was born at bright moment for French humanists and for the peaceful religious reform they sought. Inspired by Erasmus and Lefevre d’Etaples (Faber Stapulensis), they wanted mainly to know the Bible better through humanistic inquiry and make it available and understandable to all. They were bitterly attacked by the powerful conservative theologians of the Sorbonne but were protected by King Francis I, who had never liked the Sorbonne, and by his sister, Queen Marguerite of

Navarre

, who was almost a disciple of Leffevre. To the delight of the evangelistic umanists, Francis had recently founded the first non-theological school of higher learning in France the school which later became the College de France-and he continued to support it against the fury of the conservatives. Rabelais in his Gragantua and Marot in his poems could feel secure in mocking the ignorant Sorbonne and hailing the new academy as inaugurating a golden age of learning.

But before Montaigne was two years old the situation changed abruptly. The “Affaire des Placards,” the posting of handbills violently attacking the Mass and the papaey, in Paris an devan on the King’s chamber door at Amboise, on the night of October 17, 1534, was the decisive event; for it convinced Francis that reform had become seditious. Prosecution and persecution began immediately. Calvin fled to prepare his Institutes and to build in Geneva a fortress of militant reform. The day of the moderates was past.

It was Calvinism that now spread through

France

, underground but steadily, until the outbreak of hostilities. Even the violent repressive measures taken by Francis’s sons Henry II (1547-59) could not halt its growth. His death and that of his son Francis II a year later left the monarchy weak, for his other sons were minors, and his widow Catherine de’Medici, the regent, was a foreigner. The Protestants demanded freedom of worship. When Catherine and her chancellor, Michel de l’Hospital, granted it to them, Catholic opinion was outraged. A colloquy was held at poissy (October 1561) to try to reconcile the doctrinal differences, but it only emphasized them. Incidents on both sides, such as the attempt to capture the Catholic leader Francois de Guise, Fanned the flames of violence that were already raging. When Guise was provoked by some of his Protestant subjects who were worshipping illegally at Vassy (March 1, 1562), he and his men attacked the, wounded over a hundred, and killed over twenty. Alarmed Protestant leaders raised troops, and open war began.

Though Montaigne grew up in this atmosphere of mounting tension, he seems to have remained for his first thirty years an observer, concerned but not involved. He was born on February 28, 1533 of a line of important Bordeaux merchants ennobled since 1477 by the purchase of the “noble land” of Montaigne on a breezy hill in the Dordogne vally region between Bordeaux and Perigueux. His father, Pierre Eyquem de Montaigne, he dearly loved; of his mother, ne Antoinette de Louppes, he almost never speaks. She too was of prosperous merchant stock; her family were converted Spanish Jews well established in Bordeaux. Two or three of their eight children became Protestants; Michel and the rest remained Catholics like their parents.

When Michel Eyquem de Montaigne-he was later to drop the bourgeois name Eyquem-was born, two older brothers had already died. His father, a vigorous, original man who had served in the wars in

Italy

and was alive to new ideas, gave his full attention to bringing up his oldest surviving son.

To draw him close to humble folk. Michel had peasant godparents and was sent out to nurse at a nearby village. On his return nothing was spared to make his life pleasant; hardly ever punished, he was even awakened every morning by music. To teach him Latin easily and well-he and his father later picked up a little Greek as a game-he was put in the charge of a German tutor who knew no French, and of two assistant, and heard nothing but Latin spoken until he was six. At the College de Guyenne in Bordeaux, where he spent the next seven years, even the best Latinists of a brilliant faculty feared to accost him, so fluent was he; and he played leading roles with great enjoyment in some of their Latin plays. However, despite his father’s special arrangements, he found here the seamy side of education-monotomy, pointless confinement, severity and even cruelty in punishment: “a real jail of captive youth. His Latin grew rusty; all he got out of this schooling was a fondness for a few authors such as Ovid, Virgil, Terence, and Plauntus, whom a wise private tutor put in his way and lured him into reading on the sly.

Of the next eight years of Montaigne’s life (1546-54) we know only that he must have studied law probably at Toulouse-and that at the age of fifteen he witnessed in Bordeaux an act of mob violence that he was never to forget. The governor, M. de Moneins, tried to go from one safe place to another though streets full of townspeople ready for riot. His actin, Montaigne tells us, may not have been unwise; but his woeful lack of assurance incited the mob, and he was killed. Years later, as mayor of Bordeaux, Montaigne was to remember this lesson and meet a similar situation successfully with a firm and confident demeanor.

In 1554 the king created a new court in Perigueux, the Cour des Aides, to deal with special tax cases, and also to bring in money to the treasury from the customary sale of the newly-created offices. Montaigne’s father bought himself a place and promptly resigned it in favour of his son to take up his new duties as mayor of Bordeaux. The new court was opposed so strongly that three years later the king dissolved it and ordered its members to be accepted into the Parlement of Bordeaux. Though they were most grudgingly received, young Montaigne thus became at twenty-four a member of a very important body, in which he remained for thirteen years. Less powerful than the Paris Parlement because less central, the regional parlements had the same rights and functions. New edicts needed their promulgation to be carried out in their districts; in times of trouble they had much to do in support-theoretically at least-of the royal authority. Primarily, however, they were king’s judicial arm. The Bordeaux Parlement, comprising many learned and distinguished men, was dividing into two main chambers and a third smaller one. Though their actions were taken jointly, the Chamber des Enquetes mainly prepared and reported on cases, whereas the Grand’ Chamber handed down the decisions. Montaigne began, as was natural, in the Chamber des Enquetes, and to his chagrin was never able to change.

His years as a magistrate seem to have been a mixed experience but mainly a bad one. Although this was a fairly good court, still there was some corruption and hypocrisy, much cruelty and inequity, and too much pomp and ceremony. Once in the Essays, starting to write little about himself, Montaigne says he finds himself “entangled in the laws of ceremony” and decides to “let her alone for the moment.” That was possible in his book, but easier said than done in the Parlement of Bordeaux.

Certainly he was absent much of the time-by permission, to be sure-at the court of the king, mostly on mission but on missions that he had requested. It is positively known that he made nine such trips before his retirement; it is likely that he went about once a year. Here was a gayer and more exciting life than in the Parlement, with history being made before your eyes; this had a great appeal to the young Gascon gentleman. But here, too, you could not be yourself; there you were a machine, here a mask.

Only one unmixed blessing came to Montaigne from these long years: his friendship with Etienne de la Boetie. Even this did not last, for after four or five years his friend died young. With his death ended a period in Montaigne’s life.

In trying to picture young Montaigne we must avoid two opposite extremes. The sage of fifty was not a sage in his twenties. Nor was he on the other hand as gay, heedless, and lascivious as we might assume from certain remarks in La Boetie’s verses and later in the Essays. All these remarks must be judged in context. The verses are monitory, not descriptive; no giddy reprobate could have been the bosom friend of the high-minded La Boetie. When Montaigne tells us of his wanton youth, he is aging, failing in body, struggling to avoid going sour; almost all his descriptions are in terms of contrast, and exaggerated. When he gives us a more balanced picture that seems more reliable.

The Permanence and Change in the development of Montaigne’s Thoughts

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In studying the development of Montaigne’s thought we must not, of course, forget the element of permanence. Often he remarks on how little he has changed. “I am nearly always in place, like heavy and inert bodies,” he writes. “For the firmest and most general ideas I have are those which, in a manner of speaking, were born with me.” In himself as in others he finds a ruling pattern that successfully opposes any radical change. Many views, attitudes, and feelings of the young Montaigne were only confirmed by age and experience, Young or old, he is still Montaigne.

His mental temper, for example, seems always to have been skeptical. Skeptical in the etymological sense of one who judiciously stops to look before he takes a mental leap, who considers all sides before he commits himself. Skeptical because his mind is always more sensitive to diversity than to uniformity; because nature as he sees it, has made things more unlike than like, so that all comparisons are lame and all statements oversimplifications. Skeptical because his historical and personal perspective always reminds him that the views of his time, his country, and himself are by no means absolute truths. Skeptical from experience and judgment, which have shown him his own intellectual follies and those of others. Skeptical finally because he is deeply aware of the unceasing change in us and in all earthly things which keeps anything constant and permanent like absolute truth from dwelling in us.

But his was not the pure skepticism of unending consideration that never leads to decision or action. His strong poetic streak, the proud impetuosity of the Gascon noble mean, the hard-headed common sense of the son of able merchants-all these kept him from withdrawal into a dubitative shell Montaigne was a wholly practical man whose dominant concern was living. Thinking is a part of living; but to do nothing but think about living is be only partly alive. Even if absolute truth is beyond us, there are relative, subjective, human truths that we can live by. Our experience of it-as Descartes was to see later-is something that we know. Thus experience teaches us to be skeptical and at the same time not to be utterly skeptical. Here as everywhere moderation is the rule.

One realm that Montaigne always places beyond doubt is the Catholic religion. Even the critics who think he undermines it se no change in his theory that skepticism about human knowledge is the securest basis for religious faith. For Montaigne, everything here below is becoming and not being, appearance and not reality God alone is his truths alone are eternal and absolute. In this rather Platonic dualism there is no way, no ladder of love or progressive abstraction, by which man unaided may climbed to the realm of truth. God alone can raise man up, and by his grace, not by any merit of ours. Thus God and his truth, infinitely remote, are as inaccessible and immune to our judgment as to our efforts. It is for God to know and to command, for us to accept and to obey. This fideism of Montaigne, no longer orthodox but acceptable then as a weapon against Protestant exegetical presumption, seems constant. So does his conviction that our helplessness to rise toward Gold leaves us free to work out our own lives on human terms with a clear conscience.

Again we come back to Montaigne’s central concern-man and his life. It is hard to prove just when and how he came to see that he was the subject of his book and that he and man were one, but it is clear that from the first his subject was man and that he knew it. The here and the now, men and their neighbours, why they behave as they do and how they should behave-these were always his meat, and all else was futile and insipid.

Human conduct is the central point of all. Keen psychologist though he was, Montaigne was always ultimately a moralist. His curiosity was always alert, but his judgment was always waiting to assess and apply the results. All the learned about himself and others was only partly an end in itself. It was also a means to his only final end: to live life well and appropriately, and-when he had learned how-to teach others to do so.

As constant as his central concern is Montaigne’s central rule-follow natural. The precise meaning of the phrase may change a little, but the principle remains constant. So do the vices that Montaigne ridicules, notably presumption and her daughter ambition, and those he hates, notably falsity, hypocrisy, treacher, cruelty. Nature is on the other side, that of wisdom, integrity, good humour, and happiness: and so is Montaigne.

But if Montaigne is always Montaigne, still he changes; and he knows it. “I want,” he says, “to represent the course of my humours, and for people to see each part at its birth. I wish I had begun earlier, and would take pleasure in recognizing the train of my mutations.” Over and over in his late essays he tells how the years have altered him in soul and body and how he is fighting the illusions and excesses of age as he used to fight those of youth. Concerning the first appearance of his Essays, in 1850, he writes: “Since then I have grown older by a long stretch of time; but certainly I have not grown an inch wiser. Myself now and myself a while ago are indeed tow; but when better, I simply cannot say.”

Montaigne knew that he had in him both permanence and change. So long as we do not forget the first, we may now turn to the other.

Functions of Wagner, Martha and Valentine

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The dull, unimaginative but honest Wagner is a parody of bourgeois pedantry. His characterization emphasizes the differences between the search after knowledge for its own sake or for worldly rewards and the search for true understanding.

After Wagner departs, Faust returns to bitter thoughts about human impotence. The sight of a skull makes him think of suicide as the solution to his problems. He is about to drink a glass of poison when the pealing of church bells and the melodious singing of a choir remind him of the Easter message of resurrection and eternal life. Faust does not literally believe in these concepts, but they bring back memories of his childhood religious faith and their symbolic meaning restores his self-confidence.

Martha, the neighbour, is Gretchen’s friend. At the opening of the scene she is alone,, thinking about the long absence of her husband. Gretchen runs in and tells Martha that she has found another casket of jewels, but this time has not told her mother. Martha advises that she continue to keep it a secret, otherwise these will be taken from her also.

Martha’s worldliness and materialism make her an effective contrast to the innocent and romantic Gretchen, and a human counterpart to Mephistopheles. This scene is important because it shows Gretchen’s first moral lapse in her decision to keep the second casket of jewels a secret, and thus is the first step leading to her eventual downfall. Gretchen’s motives are not evil-she is moved by a naïve joy in what seem to her only pretty baubles. Gretchen’s sins will become more serious, but the simplicity and innocence of her motives will not change. She will be victimized by her lack of experience and her faith in human nature.

Classification of investigation

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Classification of investigation has following types

1. Evaluation investigation 4. Analysis investigation

2. Review investigation 5. Special audit

3. Survey investigation 6. Statutory investigation

1. Evaluation Investigation:

Evaluation investigation is conducted to determine the real worth of business proposed to be purchased or sold, or to determine the performance of machinery or efficiency of the personnel of an organization. In case of proposed purchase of business, the investigation relates to valuating the assets and liabilities and ascertaining the present earning potential and future prospects. In case of sale of business, net worth of business is determined. In case of evaluation of machinery and personnel, the performance of machinery and efficiency of personnel is determined.

2. Review Investigation:

Review investigation is usually conducted to determine the reliability of business data, or to ascertain the compliance with the terms of a contract. Where payment of commission, royalty, subsidy or similar items is based on output or turnover, investigation shall be conducted to determine the correctness of data provided by the party. The secured creditors may desire to know that the borrower has, in fact created a charge, as agreed, on the assets in their favour.

3. Survey Investigation:

Survey investigation is conducted to determine the accounting system, costing methods, manpower efficiency and similar matters. A survey of accounting system, may be carried out to overcome the weaknesses pointed out in audit report, to introduce a budgetary control system, or necessity of strengthening internal check or introduction of internal audit. A survey of cost system may be with a view to improve existing procedures. A survey of manpower may be undertaken to determine the real number of employees required, surplus staff, inefficient workers, etc.

4. Analysis Investigation:

Analysis investigation is conducted with a view to facilitate the decision making by top management in areas of vital importance like price fixation, cost of products or services, reasons for increase in price, ways to control them.

5. Special Purpose Audit:

Special purpose audit is in fact an investigation conducted with a view to determine fraud, losses caused by fire, loss of production due to machinery breakdown, loss of profit as a consequence of fire.

6. Statutory Investigation:

Companies Ordinance provides for statutory investigation in section 263 to 282. Such an investigation may be made on:

a. The report of register of companies.

b. The application of members of the company.

c. In other cases like special resolution of company or under court order.

a. On report of register section 263 (1):

The Securities and Exchange Commission upon a report by the registrar of companies, under section 261 (6) appoint inspector to investigate the affairs of the company and to report thereon, (Section 163(1)).

If the company does not furnish the information required by the registrar, under section 261 (1) within the time allowed or if the information submitted disclose an unsatisfactory position or does not disclose full and fair position, the registrar shall report the position to commission whereupon the commission may order investigation.

b. On application of member section 263 (1) & 264:

Securities and Exchange Commission may appoint inspector to investigate the affairs of any company and to report thereon in such manner as Commission may direct:

Such appointment shall be made as under:

i. In case of company having share capital on the application of members holding at least one-tenth voting powers.

ii. In case of company not having share capital on the application of at least 1/10^th of members.

The application by members must be supported by such evidence as the Commission may require, supporting their claim for investigation. The applicant shall also give security for the payment of cost of investigation, section 264.

c. Investigation in other cases section 263 (1):

Securities and Exchange Commission may order investigation, according to section 265, in the following two circumstances:

a. When company passes a resolution in general meeting required investigation.

b. When investigation is ordered by the court.

When investigation is mandatory section 265 (a)

The shareholders, by a resolution, desire the commission to appoint inspector to investigate the affairs of the company. They need not specify the circumstances in the resolution due to which they desire investigation. This right can be exercised in whosoever hand the company may be i.e. director, receiver appointed by debentures holders, administrator appointed by the court.

When investigation is discretionary section 265 (b)

Securities and Exchange Commission may appoint inspector to investigate company’s affairs if in its opinion there are circumstances suggesting.

a. That the business is conducted with intention to defraud creditors, members or any other person.

b. Company was formed fraudulent or unlawful purpose.

c. Person involved in formation or management is guilty of fraud, misfeasance or other misconduct.

d. Members have not been given full information.

Powers of Inspector

1. Investigate affairs of any other company in the same group.

2. Require officer to produce books, etc, and to assist.

3. Require anybody corporate to give information.

4. Keep books and papers in custody.

5. Examine officers on oath.

6. Seize books and papers.

Inspectors report section 269

The inspector may make interim report, or on the conclusion of investigation shall make a final report to the Commission.

What is Investigation? Distinguish between Audit and Investigation, define the scope and objectives of investigation

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Investigation involves inquiry into facts behind the books and accounts, into the technical, financial and the economic position of the business or organisation.

Investigation is an examination of books and records preliminary of financing or for any specified purpose, sometimes differing in scope from the ordinary audit.

Investigation implies an examination of and record for some special purpose.

Audit and Investigation distinguished

1. Legal binding

Audit of annual financial statements is compulsory under the Companies Ordinance, 1984.
Investigation is not compulsory under Companies Ordinance but voluntary depending upon necessity.

2. Object in view

Audit is conducted to ascertain whether the financial statements show a true and fair view.
Investigation is conducted with a particular object in view, viz to know financial position, earning capacity, prove fraud, invest capital, etc.

3. Period covered

Audit is conducted on annual basis.
Investigation may be conducted for several years at a time, say three years.

4. Parties for whom conducted

Audit is conducted on behalf of shareholders (or proprietor, or partners).
Investigation is usually conducted on behalf of outsiders like prospective buyers, investors, lenders, etc.

5. Documents

Audit is not carried out of audited financial statements.
Investigation may be conducted even though the accounts have been audited.

6. Extent of work

Audit is normally conducted on test verification basis.
Investigation is a through examination of books of accounts.

7. Report

Audit report is addressed to shareholders (or proprietors or partners).
Investigation report is addressed to the party on whose instruction investigation was conducted.

8. Adjustment in net profit

In case of audit net profit disclosed by audited accounts is final without further adjustments.
In case of investigation in order to determine real earnings certain adjustments are always essential.

9. Person performing work

Audit is to be conducted by a chartered accountant.
Investigation may be undertaken even by a non-chartered accountant.

Nature of Investigation

Investigation is an enquiry into the financial statements of a number of past years with a view to know the real financial position or earning capacity. It is in fact a kind of special audit with predetermined scope depending upon the purpose to be achieved. Investigation is neither accounting nor auditing. Investigation is carried out not in substitution of audit, but in addition to audit. The investigating auditor may even have to investigate the audited accounts.

Scope of investigation

No general principle can be laid down with regard to the scope of every type of investigation. Scope of investigation, in each case, would be limited to the period or area to be covered by the investigator.

An investigation on behalf of a person intending to purchase running business of a sole trader will be restricted to the determination of value of assets, liabilities, reserves, existing potential and future prospects. An investigation to settle suspected irregularities in cash or stock would normally cover a period from three to six months.

Objectives of Investigation

The real objective of conducting an investigation by an auditor on behalf of his client is to provide him the desired information in the form of a report about the matter specified. Normally the objective of investigation is to collect, analyze and evaluate facts in respect of desired field of activity with a view on some special purpose as determined by the person on whose behalf the investigation is undertaken. In short investigation is to ascertain the financial position and earning capacity of a business on behalf of a certain person.

The common objectives of investigation are listed below:

1) Proposed purchase of business.

2) Proposed sale of business.

3) Reasons for low profitability.

4) Cause of high employee turn over.

5) Reliability of business data.

6) Proposed investment in particular securities.

7) Suspected fraud.

8) Joining in existing partnership business.

9) Borrowing funds.

10) Lending funds.

11) Proposed purchase of controlling shares in a company.

12) Suspected misfeasance against directors.

13) Detection of undisclosed income for tax purposes.

14) Suspected misappropriation by trustees.

Special Audit of a Sugar Company

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Sugar Manufacturing Company is a manufacturing company where raw material is converted into finished product. In addition to various other important considerations from audit point of view, some special consideration will receive attention on the part of an Auditor. They may be as under:

1- Raw material is purchased in sufficient large quantities either from the farmers or contractors. In this behalf, various types of receipts issued to the farmers or contractors should be checked. Also the stock of goods should be physically checked in order to ensure the quality and quantity of raw material purchased.

2- Sugar industry is a process industry and proper and strong cost accounting system is required. Necessary accounts pertaining to work-in-process, material, factory overhead and finished goods are to be properly maintained. Production record is to be properly maintained by the Factory and information in this behalf conveyed to the Head Office.

3- Sugar industry is a seasonal industry. Necessary record is to be checked to ensure that the various expenses etc pertain to the period in which the factory was working. No worth while expenses are to be incurred during the closure of the factory.

4- Considerable quantity of by-product is available in a sugar factory. This by-product is usually sold and considerable amount is received. So it is required that all the incomes and expenses of by-product department should be properly vouched.

5- Considerable expenses are incurred in the transportation-in of raw material and transportation-out of finished product. Necessary record should be checked to ensure that all these expenses are properly accounted for.

6- Necessary machinery etc might be imported and the finished goods exported. Hence necessary export and import documents in this behalf are to be thoroughly checked to ensure that all these transactions are properly and correctly recorded.

Special Audit of a Textile Mill

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Textile Mill is a manufacturing concern where raw-material is purchased and finished product in the form of yarn and cloth etc is obtained. From Auditor’s point view so many important aspects will require special consideration. These may be as under:

1- System of internal check / internal control should be studied in order to ensure that it is satisfactory and is serving the best interest of the organization.

2- Considerable amount is spent on the procuring raw cotton which is purchased either directly from farmers or contractors. Proper record in this behalf must be maintained. Quantity and quality of stock is to be checked and the rates etc, verified.

3- Although an auditor is not supposed to be an expert to check the quality of raw material, but he is supposed to be pay special visits to the Mill to the quality of stock physically maintained and as shown in the books.

4- Proper accounting system must be followed by the Mill Factory Accountant will be responsible for properly maintaining the work in process, material, factory overhead and finished goods etc. Other accounts are to be maintained by the Head Office Accountant.

5- Waste of cotton may be a by-product and its proper accounting is required. So income from such items are to be properly ascertained and ensured that these incomes have been accounted for correctly.

6- Considerable amount of stock of raw material and other spare parts etc, is to be carried by a manufacturing concern. Physical stock-taking is necessarily required in order toe ensure that figures of physical stock taking tally with the figures as shown by the books.

7- Considerable expenses are incurred on the transportation of raw material and the finished goods. Such carriage expenses may be paid on the purchase of raw material and the dispatch of finished goods. CIF and other terms should be checked to make clear the expenses of insurance, freight etc.

8- Considerable quantity of manufactured good may be exported. Hence it is required to check the various important documents with regard to export and import. Letter of credit and other sale and purchase agreements will be inspected in order to ascertain exact quantity sold, rate per unit and number of shipments to purchaser.

Special Audit of a Cinema

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While auditing the accounts of a Cinema, the following points will receive special consideration on the part of an Auditor:

1- Auditor will examine the working of the system of internal check in operation in the business particularly in relation to cash receipts and payments ad un-issued tickets. He will see that un-issued tickets are kept under proper control and the issued tickets are duly signed by a responsible officer of the business.

2- Auditor will check the daily returns for the tickets sold for different shows. He will see that the collections are daily deposited into the bank. He can vouch receipts from tickets sold with the amount of entertainment tax paid.

3- Auditor will check other sundry receipts from contracts to supply refreshments, receipts from advertisements, hire charges of opera glasses, space allotted for display of goods etc, with the necessary documentary evidence available.

4- Auditor will carefully examine the film hire contracts. He will ascertain the terms and will see that the films purchased but not shown are properly valued and recorded. He will distinguish film hire from film purchases.

5- Auditor will carry out a thorough vouching of the operating expenses paid. He will see that they have been properly allocated between capital and revenue.

6- Auditor will see that all outstanding liabilities have duly been provided for and that adequate provision has been made for depreciation of buildings, furniture, machines and other assets.

7- Auditor will thoroughly vouch Cash Book, Pass-Book, Petty Cash Book, Employees Register and Wages Records.

He will ascertain the terms of charity performances, if any.

Special Audit of a Hotel

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While auditing the accounts of a big hotel, auditor will pay his special attention to the following points:

1- Examination of the system of internal check in operation in the business will be the first and the most important duty of the auditor.

He will thoroughly enquire into the system of internal check with regard to cash receipts and the preparation of customer’s bills.

2- Auditor will carry out complete checking of Cash Book and Pass Book. He may prepare Bank Reconciliation Statement to reconcile the amount of cash at bank as shown by both the books.

3- Auditor will vouch all payments made from the Cash Book and Petty Cash Book. He will check the posting of cash transactions to their respective ledger accounts.

4- Auditor will see that room rent receipts and bar receipts are recorded in separate accounts and are properly accounted for. He will vouch visitor’s ledger and the income there from. Auditor will be careful to examine that items paid out on account of visitors are properly recorded, charged and collected.

5- Auditor will carry out a detailed checking of the periodical posting from the window ledge into impersonal accounts in the general ledger.

6- Auditor will carry out a detailed voucher of wages, purchases and stock books. He will see that wages and salaries are properly paid, certified and receipted. He will verify the balances of creditors and debtors with the statements and confirmation letters received.

7- Auditor will see that adequate provision for depreciation of beddings, crockery, cutlery, utensils, furniture etc, has been made out of the profits of the business on a fair and consistent basis.

8- Auditor will carefully vouch capital expenditure. He will check that the rents realized from the rooms are properly accounted for.

9- Auditor will examine the terms and conditions of employment of those employees, who are entitled to free boarding and lodging.

Amount spent for the proprietors of the hotel shall be ascertained and treated by an auditor as their personal drawings.

10- In cases where there are several petty cash payments, auditor shall verify the balances of all of them simultaneously n order to prevent manipulations.

11- Auditor will see that the firm has made adequate reserve for redecoration expenditure in addition to provision for depreciation of the existing items.

12- In those cases where the firm has obtained furniture on hire purchase basis, auditor will see that revenue is duly charged with the internet on the hire portion of the instalment paid.

Special Audit of a Newspaper

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The primary object of such an audit is to give an idea to the advertisers about the effectiveness of their advertisements. In order to eliminate the effect of temporary factors contributing to sudden increase or decrease in circulation of a newspaper, it is always better to select short durations, say a month or a quarter of the year, for the purposes of investigation in the accounts of a newspaper. Auditor must remain on guard throughout his work against attempts made to show a false increase in the circulation of a newspaper by including the names of dummy subscribers. Leading advertisers in the country have set up an Audit Bureau, which has developed the procedure to be followed by auditors while conducting such audit.

The audit programme for verifying the circulation of a newspaper will be on the following lines:

1- Auditor will verify the number of copies printed from the printers voucher and the entry for the issue of newsprint to the press out of the stock held by the company.

2- Auditor will pay greater attention to the verification of the record of the issue of the copies of the newspaper. He shall examine the subscribers list for the copies issued to subscribers, dispatch notes sent to the news agents to verify copies issued to them.

3- Auditor will examine the copies of bills issued and the record of copies of newspaper issued to the subscribers, news agents, hawkers etc, in order to verify the accuracy of debit entries passed into their ledger accounts.

4- Auditor will then proceed to vouch cash collections, the duplicates of the receipts issued and the credit entries passed therefore into the accounts of various types of the customers.

5- All additions and deletions to the subscribes list should be examined carefully in order to confirm that the list contains only the names of genuine subscribers to whom the newspaper had been issued.

6- Total of the copies issued daily should be compiled from the financial records of sales and distribution and should be compared and reconciled with the total number of copies printed. Causes for wide discrepancy in two figures should be enquired into.

Average daily issues will constitute the total circulation of the newspaper. On deduction of free circulation copies, auditor will get the total of the net paid circulation.

What steps are involved in audit of accounts of hotels and commercial banks, enumerate

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In the course of audit examination, the auditor will have to keep in mind the different situations existing in different types of organizations. There may be some very important steps to be taken by an auditor in a certain type of audit examination which may not be so important in other organizations. Audit examination of manufacturing organizations such as Textile and Sugar Companies will require different emphasis to be laid by the auditor which may be totally different in case of a trading concern or a banking company. However some general points may be discussed which may be applicable in every type of business. These general points may be summarized as under:

1- To check the efficiency or otherwise of Internal Control System in the organization;

2- In order to ensure the liquid position of the organization to verify the cash in hand;

3- Verification of bank balance is also a must almost in all the organizations;

4- Various types of legal documents are to be prepared by every organization, these are to be thoroughly checked;

5- To compare the current balance sheet with the previous years;

6- Capital and Revenue distinctions are to properly ensured;

7- Inspection of Payroll of employees;

8- Schedules of Accounts Receivable and Payable are to be thoroughly checked;

9- Adequate supporting documents are to be obtained and inspected.

Special Audit of a Bank

Auditor will begin his work by carrying out a thorough verification of the assets and liabilities of the banking company. Points to which he must pay his special attention in the performance of this work with regard to each individual asset and liability are discussed below:

1- Cash in hand / with other banks – Auditor will attend on the last date of the period under audit and will verify cash in hand or bullion by actual counting or weighing. He will compare and tally the balance with the Cash Book, the Day Book. Balances with the State Bank or other banks shall be verified.

2- Investments – Auditor shall obtain a list of the investments of the bank. He shall verify these investments at the close of the year by carrying out an actual inspection of the scripts or other documentary evidence available with the bank. He must take utmost care to see that the same investments are not shown to him twice.

3- Advances, Overdrafts, Loans and Cash Credits – Auditor shall obtain a schedule of all loans, advances, cash credits and overdrafts etc from the bank and will then proceed to verify them with the balances of respective leaders. The totals will be compared and checked up with the respective total accounts maintained in the general ledger.

The responsibilities of the auditor with regard to the verification of loans and advances etc are very heavy. He will have to pay special attention with regard to the different kinds of advances such as:

a) Advances against government securities;

b) Advances against stock in trade;

c) Advances against properties;

d) Advances against Life policies;

e) Advances against fixed deposits;

f) Advances against bullion.

4- Bills Discounted and Purchased – Auditor will verify bills discounted and purchased as recorded in the books with those which are in the actual possession of the bank. He shall see that the limits fixed by the Board of Directors have not been exceeded and that the total of the Bills Discounted Ledger agrees with the balance of the control account in the General Ledger. He will examine the date of maturity of each bill in order to verify the amount of overdue bills.

5- Contra Accounts – Usually they relate to the following types of accounts (a) Bills for collection (b) acceptances, guarantees, letters of credit etc, opened on behalf of the customers. These items appear on both sides of the balance sheet as they constitute both the assets and liabilities of the bank.

6- Branch adjustments – This item discloses the combined effect of the difference sin the inter-branch balances. Auditor shall verify this item from the certificates of balances received from branches preparing reconciliation statements.

7- Other Assets – Other assets of the bank shall include premises, furniture and fixtures, stock of stationary, interest accrued on investments etc. Auditor shall examine the title deeds or any other type of documentary evidence in order to ascertain that the assets of the bank, on the date of the Balance Sheet, do exist in the name of the bank and that they have been properly valued.

8- Liabilities – Important items which usually appear on the liabilities side of the Balance Sheet of a bank are the customer’s deposits, borrowings from other banks or agents etc, bills payable, branch adjustments, liabilities for outstanding expenses and contingent liabilities etc. Auditor will try to check up the understatement or overstatement of liabilities.

relationship between the two parts of Faust. In what ways do they differ? In what ways to they serve a similar and interconnected purpose

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Goethe himself once described the differences between the two sections of his poem by saying:

The first part is almost entirely subjective; it proceeded entirely from a perplexed, impassioned individual, and his semi-darkness is probably highly pleasing to mankind. But, in the second part, there is scarcely anything of the subjective; here is seen a higher, broader, clearer, more passionless world, and he who has not looked about him and had some experience, will not know what to make of it.

The two parts of the poem are essential elements of a single whole, but their relationship is an indirect and metaphorical one. They present alternative views of the human yearning for truth and fulfilment by exploring different aspects of this same problem. Part One is concerned mainly with highly personal experience, while Part Two treats society as a whole, and Faust develops from a single individual into a symbolic figure who represents the striving spirit of man in the modern world. This distinction between the two parts of the poem has been compared by some critics to the medieval philosophical conception of the microcosm and macrocosm; Part One is said to portray the “small world” or inner experience and Part Two the “great world” of social institutions, ideological systems and intellectual institutions. Thus, both sections mirror different aspects of the same philosophical theme.

The second part of Faust is less fragmentary than the first in structure, and adheres to the conventional dramatic organization of acts and scenes, but in fact it is far more disorganized and difficult to follow. It has often been pointed out, also, that the general tone of Part One is Gothic and Romantic, while of Part Two is Classic and staid. Part One is often read as an individual and self-contained work, but this approach overemphasizes Gretchen’s tragedy and hinders the reader from grasping the poem’s full meaning. Only by studying the two sections of Faust in conjunction is it possible to fully appreciate what Goethe intended and to understand the philosophical message he was communicating.

Do Goethe’s doctrines about sin, salvation, and the nature of the universe as presented in Faust conform to orthodox Christian theology? What use does Goethe make of Christian symbolism in Faust

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Although there are many elements of Catholic religious symbolism in this scene, they were adopted by Goethe only because he saw in them a means to give tangible expression to his beliefs, and do not demonstrate his adherence to orthodox Christianity.

Faust has been saved as a result of the heightened knowledge and insight gained through great experience. The presence of all these figures in the place to which Faust’s soul is brought, indicates that striving for union with the ultimate is part of the essential character of all life, and is the basis from which immortality arises.

The angles who bring in Faust’s soul reveal that he has not yet attained Salvation. Now that he has been liberated from sin, however, he will commence his purification and will free himself from the remaining traces of his earthly existence. He will be reborn, in a sense, like the spirits of the innocent children, and with them will rise to the higher levels of Salvation. This indicates the Salvation is most surely gained by altruistic concern for others, which is also the message of Faust’s great project in behalf of humanity. The striving which characterized Faust’s life will be continued, but in another sphere and another form.

Is the “Walpurgis Night’s Dream” episode related to the rest of the drama? What, if anything, is its function? Why is the scene that follows it written in prose

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The scene is particularly praised by critics for its poignant portrayal of Gretchen’s madness. Gretchen’s restoration to sanity when she sees Faust illustrates the regenerative power of love. He refusal to escape is based on her acknowledgment of responsibility for her acts and her acceptance of God’s law. She has a simple and clear-cut conception of right and wrong which is incomprehensible to the still inwardly doubling Faust.

Gretchen is granted salvation by God’s grace (the voice from Heaven) because her crimes were the result of inexperience and her motives were never sinful or impure. Gretchen was led into sin by following her instincts, but in Goethe’s thought it is part of being human to err. One is redeemed in the end if his conscience learns to know the difference between good and evil, rejects sinfulness, and repents. Gretchen’s final words, “Heinrich! I shudder to look at you,” express her horror at the ungodly, negativistic life Faust has chosen by maintaining his association with Mephisto, rather than any change in her feelings for him.

This is the end of the first part of the tragedy, a portion of a larger work but at the same time complete in itself. So far Mephisto has lost his wager with the Lord and failed to secure Faust’s soul. God’s faith in man has been upheld by Faust’s moral renewal on the Walpurgis Night and his final though misguided effort to do a good deed. Despite his filtration with sensuality and evil, Faust’s love for Gretchen had developed into something more than lust.

Faust, however, has still not found happiness or fulfilment in life, and is not sufficiently purged of sinfulness to terminate his alliance with the devil. Thus, the resolution of Faust’s struggle with his soul is in doubt, but a passionate and moving love story has come to a tragic end. At its close Faust seems at last to be on the right path.

Gretchen’s salvation and her loving concern for him right up to the moment of her death are lessons, which will make a permanent impression on him. Faust knows now that he cannot find himself through uninhibited sensuality, but he must taste all the world has to otter before he learns that only in God lies human fulfilment.

At the end of Part One Gretchen’s refusal to leave the prison prevented Faust from becoming absolutely dependent on Mephisto’s power, and thus made his ultimate salvation possible. At the end of Part Two her sacrifice is rewarded by the joy of guiding Faust to the highest level of Paradise and, with the aid of his Love, herself rising to the highest sphere.

symbolic meaning of “Walpurgis Night” scene? What change in Faust’s outlook becomes evident in this scene

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It has been nearly a year since Valentine’s death and Faust has again abandoned Gretchen. Now it is Walpurgis Night (April 30^th), the time of the annual gathering of witches and spirits at the top of the Brocken in the Harz Mountains (located in central

Germany

) to celebrate a satanic orgy. The mountaintop is covered with swarms of demons dancing and singing. While coupled in an erotic dance with a young female witch, Faust suddenly notices a mouse coming out of his partner’s mouth. The shock of this causes him to remember Gretchen. He has a vision of her in chains, becomes distressed, and starts to wander away.

This episode can be interpreted symbolically as the descent into Hell promised in the “Prelude in the Theatre.” The witches and demons whom Faust encounters are incarnations of all the many facets of evil. Faust is made to face the awful reality of his degeneration, but at the last moment his moral sensibility makes a final effort to assert itself. He remembers Gretchen and the love for her, which was his first real participation in life.

Discuss the characterization and function of Gretchen. Why is she a tragic figure? What responsibility does she have for her own downfall? Why is she received into Heaven at the end of Part One?

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Gretchen:

Gretchen is a simple, innocent, and pious maiden who develops into a figure of genuine tragic stature. She is essentially pure and innocent, but becomes a willing victim of Faust’s seduction due to loneliness, inexperience, resentment of her mother’s strictness, and an idealistic naivete that leads her to assume that Faust’s love will be as permanent and unselfish as her own. In a sense her crimes are the result of her innocence, although this does not negate her own responsibility for her downfall. Gretchen has an innate religious sense, and one critic has called her the only the Christian in the poem.

This is why she is able to accept her punishment at the end of Part One, and also explains her intuitive aversion to Mephisto and her insight that Faust’s plan for escape would be morally unbearable. Gretchen is admitted to Heaven at the close of Part One because, despite her acts, she was never motivated by evil intentions and had acted according to her natural instincts. Although in Goethe’s view, positive action is better than negative action, nonetheless humans are basically creative and good, and action is better than non-action, so this entitled Gretchen to an opportunity to find salvation.

While Faust’s earthly adventures have continued, she has purged herself of sin and has progressed toward the attainment of ultimate Salvation. Her final entrance to Paradise is dependent on the aid of Love, which for Gretchen is represented by Faust. She welcomes him into Heaven because the highest and purest fulfilment of both of them can only be achieved together.

Difficulties in Obtaining Evidence

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Following difficulties are faced by an auditor in obtaining audit evidence.

1. Inadequate records maintained.

2. Existence of mass of data.

3. Client’s assistance facility not available.

4. International concealment and falsification

5. Accounting procedures problems

1. Inadequate records maintained: An audit or expresses his opinion on the financial statement prepared by the client from the books and records maintained by it. The opinion is to be the truth and fairness of financial statements.

When a client has not maintained proper and systematic financial records of his business activities, adequate and acceptable audit evidence will not be available to the auditor. He would, therefore, find it difficult to form an opinion with regard to the financial statements prepared from such record. Resultantly, it would be very difficult for him to collect necessary evidence to ensure himself about the accuracy of the financial statement.

2. Existence of mass of data: In big organization financial records comprise of huge volume of documents. Even if such record is proper and systematic, the auditor may find it difficult to obtain audit evidence in respect of each and every item out of mass of information due to a number of limitations e.g. time, cost, and planning, supervision, assistance from client’s office etc. The auditor may decide not to go in greater details to acquire audit evidence.

3. Client’s assistance facility: Certain situations arise during the course of an audit where a client hesitates, avoids or is reluctant to provide the information desired by an auditor. Under such circumstances, it becomes difficult for the auditor to form an opinion about the position reflected in the financial statements and to certify a true and fair view of the state of affairs of things.

4. International concealment and falsification: A serious difficulty may arise for an auditor where a client has adopted a planned technique for concealing material facts and to falsify the accounting records with a view to present a very bright, sound, and progressive financial position through the financial statement. The existence of such concealment and falsification cannot come to the knowledge of auditor by routine planning. His planning and verification techniques should be such to expose falsification and concealment.

5. Accounting procedures problems: In case of organizations having multiple business locations not at all visited by the auditor a problem may arise for him in respect of the verification of certain items like closing inventory, cash, work-in-process, etc.

International Standard Auditing and Audit Evidence

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ISA8 describe audit evidence as:

“Audit evidence means the information obtained by the auditor in arriving at the conclusions on which the audit opinion is based. Audit evidence comprises source documents and accounting records rendering the financial statements and corroborating informations from other sources.”

ISA8 requires that an auditor should obtain sufficient appropriate audit evidence through the compliance procedures and substantive procedures to enable him to draw reasonable conclusions therefore to form the basis of his opinion on the financial statements.

ISA8 contains three important standards relating to nature and sources of audit evidences:

(a) ISA8.2: The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion.

(b) ISA8.10: When obtaining audit evidence from tests of control, the auditor should consider the sufficiency and appropriateness of the audit evidence to support the assessed level of control risks.

(c) ISA8.12: When obtaining audit evidence from substantive procedures, the auditor should consider the extent to which the evidence supports the relevant financial statement assertions.

Sufficient Appropriate Audit Evidence

Sufficient and appropriateness are interrelated and apply to both tests of controls and substantive procedures:

a. Sufficiency is the measure of the quantity of audit evidence.

b. Appropriateness is the measure of the quality or reliability of the audit evidence.

The auditing standard points out that the quantity of audit evidence required cannot be prescribed but is a matter of professional judgement. Factors influencing the decision include:

1. Auditor’s assessment of the nature and level of inherent risks at both the financial statement level and the account balance or class of transactions level.

2. Nature of the accounting and internal control system and the assessment of control risk.

3. Materiality of the item being examined.

4. Experience gained during previous audit.

5. Result of auditing procedures.

6. Source and reliability of information available.

If the auditor is unable to obtain sufficient appropriate audit-evidence, the auditor should consider the need to qualify his audit report.

Test of Control

Test of control means tests performed by the auditor to obtain audit evidence about the suitability of design and effective operation of the accounting and internal control system:

(a) Design: The accounting and internal control system are suitably designed to prevent or detecting and correcting material misstatements.

(b) Operation: The systems exist and have operated effectively throughout the relevant period.

Substantive Procedures: Substantive procedures mean tests performed to obtain audit evidence to detect material misstatement in the financial statement.

Procedures for Obtaining Audit Evidence

An auditor obtains audit evidence by conducting one or more for the following procedures.

1. Inspection

2. Observation

3. Inquiry

4. Confirmation

5. Computation

6. Analytic procedures

1. Inspection:

Consists of examination of client’s records, documents or tangible assets. The reliability of audit evidence obtained by inspection of records and documents varies according to the nature or source and effectiveness of internal control over their processing. Three major categories of documentary audit evidence exist, given here in descending degree of reliability as audit evidence.

a. Created and provided to auditor by third parties.

b. Created by third parties and held by entity.

c. Created and held by entity.

Inspection of tangible assets provides reliable audit evidence about their existence but not necessary as to their ownership or value.

2. Observation:

Observation involves looking at a procedure while it is being performed by others. The standard examples of observation are attendance at the wages payments, stocktaking, general security measures including high risk areas like computer centre, directorate’s office. Observation tests are generally compliance assurance because the client’s staff may be on their best when auditor is watching and less conscientious at other times.

3. Enquiry:

Enquiry involves seeking information from client’s staff or external sources. Enquiries may range from formal written ones to third parties to oral ones to persons inside the entity. Responses may provide the auditor with:

(a) information not previously possessed; or

(b) corroborator audit evidence

4. Confirmation:

Confirmation aims to verify what is shown in client’s accounting records. Examples of confirmation include direct confirmation by debtors, banks, creditors, lawyers, etc. The strength of the evidence depends on the knowledge and integrity of the source. Internal anguishes may be part of either compliance testing of substantive testing approaches but most external request for confirmations are example of substantively based exquisites.

5. Computation:

Computation includes checking the arithmetical accuracy of source documents, depreciation calculations, payroll deductions, reconciliation’s inventory valuation, control accounts etc. So the auditor carries out computational audit test during both the compliance and substantive phase of the audit.

6. Analytic procedures:

Analytical procedures consist of analysis of significant ratios and trends including resulting investigation of fluctuation and relationship that are inconstant with other relevant information or deviate from predicted amounts.

Common Law Evidence in Auditing

Common law evidence rules determine what facts are relevant to a particular issue before a court, which party is required to prove, what material can be tendered to and accepted by a court as evidence. The burden of providing evidence rests upon a party to proceedings to issue. Failure by such a party to adduce sufficient evidence on an issue would result in the case being lost. Such a party, however is not required to produce absolute evidence. Any single piece of cogent evidence can be sufficient to satisfy the burden of proof cast upon him. Evidence will be considered by a court only if it is both.

(a) Relevant to the issue before the court and

(b) Is capable of being admissible as evidence.

The evidence which is admissible can be oral, documentary or real.

Concludingly, common law evidences requirements are:

a. Evidence should be reasonably admissible

b. Evidence should be relevant

c. Evidence should be provided by the party claiming existence of certain facts.

d. Evidence may be oral or documentary

e. Failure to adduce evidence results in loosing the case

The main principles or rules of common law evidence are equally applicable in auditing on account of similarity of action. In common law, the judge is to decide the acceptance or otherwise of evidence which must be sufficient and admissible. Same is the situation with auditing. The auditor has to decide the sufficiency and acceptability of evidence and the client is required to produce evidence. Which may be oral or documentary.

In auditing a client must prove by sufficient evidence the facts that have been recorded in his books of accounts and must prove their correctness, authentically genuineness and relevancy to the business of the undertaking. If he so succeeds and the evidence is admissible the auditor shall accept such evidence, otherwise the same will be liable to be rejected. Thus common law rules and principles of evidence are equally applicable in auditing.

Source of Audit Evidence

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Audit evidence may be obtained from various sources, but the basic factor is that, irrespective of the source, the evidence must be acceptable, relevant and reliable so that the auditor can fulfil his statutory duty and form an opinion.

Audit evidences collected by an auditor may be divided into the following categories:

a. Observations

b. Testimony from independent third parties

c. Authoritative outside documents

d. Authoritative inside documents

f. Satisfactory internal control

g. Subsequent events

h. Relationship evidence

i. Computation and comparison

j. Calculations and analysis by auditor

k. External events.

Observations:

Auditor’s own observation of the existence of an item, asserted the existence of the item which is the strongest audit evidence. The Observation comprises of the following aspects.

a. Physical examination

b. Witnessing internal control and book keeping procedures.

c. Presence of record to ensure that procedures have been carried out.

Physical examination of cash, inventory, investments, assets provides satisfactory evidences of their existence. However, such observation is evidence of existence only and not of ownership or qualitative assertion.

Testimony from independent third parties:

The second strongest audit evidence available is written or oral statement by an independent third party e.g. confirmation from debtors, bills receivable, deposits, banks and employees.

Authoritative documents:

Documentary evidence prepared outside or inside the entity can be relied upon as audit evidence e.g. (outside) title deed, share certificates, loan documents, insurance policies, leases, contracts, invoices, (inside) minutes, copy of invoice, goods received notes, petty cash vouchers and payrolls.

Statement by directors and officers:

The auditor asks a number of questions from the directors and other officers formally and informally. In case of important matters written replies are obtained and in case of other matters verbal answers are regarded as enough. The answers, though constitute audit evidence, still they must be thoroughly verified as they do not form the strongest evidences.

Satisfactory internal control:

Soundly conceived and efficiently operated internal control system would offer a reasonable assurance regarding correctness of accounting record. The internal audit evidence available ensues the reliability of the data.

Subsequent events:

Events after the balance sheet date but before the signing of accounts provides a reliable audit evidence.

Relationship evidence:

Audit evidence confirming the truth about one item may tend to confirm the truth about another item e.g. evidence supporting receipt of investment income also confirms the existence of investment.

Computation and comparison:

Verification is facilitated by ratios, budgets, graphs and diagrams showing comparison with previous charts provide good audit evidence.

Calculations and analysis by auditor:

Usually arithmetical calculations are made by audit staff. The auditor in order to prove their accuracy must recheck material items and record the fact of re-computation to create useful evidence for the future.

External events:

The auditor should use his knowledge of current events in assessing and examining financial statements.

What is Audit Evidence and give its examples

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The overall objective of an examination of the financial statements is to render an opinion as to the fairness of the financial statements in conformity with the “Generally Accepted Accounting Principles (GAAP).” In order to render an opinion the auditor has to gather and evaluate certain information called audit evidence.

Meaning: “Audit Evidence” is a mixture of observations made by audit inquiry and data compiled via analysis of other data which, when combined, enables the auditor to from and substantiate an opinion on financial statement.

Audit separates all the confirmations that the auditor has obtained and that

(a) Is relevant to what the auditor is trying to determine.

(b) Influences the auditor in formulating an opinion as to fairness of the financial statements.

Assertion by Management

Financial statements assertions are the representations of the directors that are embodied in the financial statements. The directors by approving the financial statements are making representations about the information thereon. So every item in the financial statements constitutes one or more assertions from the management.

Examples

a. If there is an item in the current assets section of the balance sheet which states as: Cash Rs. 1, 00,000.

In this case the management’s assertions are:

Company has cash in hand of Rs. 1, 00, 000.
Asset cash is free and available for expenditure as the management directs.

b. Like wise an item is states as:

Accounts Receivables Rs. 3, 00,000 asserts that:

company has accounts receivable from its customers of Rs. 3, 00, 000.
such accounts are considered collectible within the operating cycle
they are expected to receive Rs. 3, 00, 000 in cash or an amount very close to it from the debtors who purchased goods on credit.

Management produces financial statements and in doing so it asserts that the individual items are correctly described and show figures which are mathematically correct or fairly estimated. Further, the accounts are a whole show, a trace and fair view of financial state of affairs of the concerned enterprises.

The assertion of representations that are usually made are in this connection are:

a. Existence: An asset or a liability exists on the date of balance sheet.

This is an obvious assertion in respect of items like land, building, merchandise and others.

b. Rights and obligations: An asset or liability pertains to the entity on the date of balance sheet.

The enterprise has ownership of an asset i.e. it has all sorts of rights and obligations relating to a given asset or liability.

c. Occurrence: A financial transaction or event took place which pertains to the entity during the relevant accounting period. Even when false transaction have been recorded, the assertion is that all record transactions actually took place.

d. Completeness: There are no unrecorded assets, liabilities, transactions or events or undisclosed financial items.

This is essential for all items of balance sheet but is particularly important in respect of liabilities.

e. Valuation: An asset or liability is recorded at an appropriate carrying value. Appropriate means it is in accordance with the generally accepted accounting principles, Companies Ordinance and Accounting Standards.

f. Measurement: A transaction or event is recorded as the proper amount and revenue or expense allocated to the proper period.

g. Presentation and disclosure: An item is disclosed, classified and described in accordance with applicable reporting framework.

Example: An overdraft of Rs. 80,000 appears in a balance sheet. So the directors are made the following assertions:

1. There exists a liability to companies’ bankers.

2. In balance sheet data the liability of Rs. 80,000 is exhibited.

3. The said amount is agreed by bank.

4. Overdraft was payable on demand.

5. Overdraft was unsecured.

6. Memorandum and Articles of Association authorise borrowings.

7. Bank reconciliation statement has been prepared.

8. Bank is willing to allow the overdraft to continue.

Notice that if no overdraft appears in the balance sheet, there is an assertion that on the date of balance sheet no overdraft liability existed.

What is Flexible Audit Programme

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Nomenclature: Also called Progressive Audit Programme or Special Audit Programme.

Definition: A flexible audit programme may be defined as a plan which only outlines general scope, character and limitations of the audit engagement, and makes no mention of audit procedures to be followed, the nature of work to be performed by individual staff, and time allocated for each item.

Under flexible audit programme, the staffs have much discretion in improving it as the audit work progresses. The staff can also display its initiative.

Construction of Audit Programme:

Audit programme containing detailed directions to audit staff regarding the audit work to be carried out is prepared to ensure intended implementation of the strategy set up in the planning memorandum.

The audit programme of different clients would of course, contain similar points but still programme for each must be written individually in the light of the needs and circumstances of each particular audit. The programme for the current audit should be based on the planning memorandum (explained separately) using previous year’s programme and working papers as a guide. The check list issued by the Institute of Chartered Accountants of Pakistan should be referred to. The audit manager should before audit steps are carried out, should review the audit programme to ensure that the planned scheme would achieve the desired objectives.

The audit steps identified in the audit programme should be detailed enough to enable the audit staff to carry out any particular audit step without seeking further instruction. So each audit step should specify the relevant documents and records, direction for test, method of selection and cross-reference to relevant points in audit manual (if any) or permanent notes on record.

Every group of audit steps should be proceeded by a statement of the relevant audit objectives. Where reliance on internal control is planned the internal control objectives relevant to the audit objectives should be included in the audit programme and cross-reference should be made to the internal control and Accounting System Evaluation Schedules.

Audit programme may differ depending upon the nature of business but the principle behind the preparation of audit programme will remain the same. The programme will usually commence with the basic and routine audit tests and will lead up to the signing of the audit opinion (i.e. audit report). Care should be taken to ensure that audit steps are not repeated under different heads.

Types of Audit Programme

2012-06-26T00:23:00.003+05:00

Types of Audit Programme

Definition: A fixed audit programme may be defined as a plan based on organized thinking and deep deliberations and contains general, standardized and all conceivable audit instruction and procedures irrespective of their applicability to the audit engagement.

Drawback of fixed audit programme are:

a. Fixed audit programme lays down a rigid framework for conducting audit examination.

b. Audit staff members are not free to use their own imagination and initiative.

c. It is unsuitable in case of clients where working conditions may vary from year to year.

Existing Concept of Fixed Programme

An audit process, from initial planning through formation of final audit opinion, is highly complex. From a liability point of view professional auditing firm cannot afford to allow each and every one of their qualified staff to determine their own personalized audit programme. Audit Manuals prepared by large audit firms dictate the course of both compliance and substantive audit testing, are an integral part of whole audit process Standardized audit testing, are an integral part of whole audit process. Standardized audit programme are made available for the following areas of audit work.

Liabilities

a. Share capital

b. Reserves

c. Borrowing-debentures, loans, etc

d. Creditors

Assets

a. Bank and cash transactions

b. Debtors

c. Investments

d. Stock and work-in-progress

e. Fixed assets

f. Inter-company accounts

General

a. Analytical review

b. Commitment and contingencies

c. Minutes of directors

d. Minute of AGM

e. Taxation

f. Statutory books

g. Balance sheet

h. Profit and loss account items

The standardized audit programme in respect of these items are not rigid but are only intended to be used as an indication of the way in which the areas should be audited. Such programme provide lowest common requirements and all audits should be carried out at least at that level. The audit manager should always modify such programme under specific situations.

What do you mean by Capital? What are its forms? State briefly functions and importance of capital

2012-06-25T00:13:00.004+05:00

In the ordinary language capital means the money one invests in a business. But according to economists the capital does not mean money. They say that money is simply a medium of exchange capital may be measured in terms of money but money is not capital. Capital really consists of goods like machines, buildings, plants, raw materials etc which are invested to produce more goods. It is that part of the produced wealth which is invested for further production.

Capital is therefore wealth. But all wealth is not capital, it is only part of wealth. Only that part of wealth is capital which is invested in further production. The wealth which is directly consumed by its owner for satisfying his immediate wants is not capital. Whether an article of wealth is capital or not depends, not on any inherent quality in that article, but on the use to which it is put by its owner. Suppose a man possesses an engine or a boiler, it cannot be called capital; but if he uses it in a factory, it will certainly be called capital. Capital is a produced means of production, it is the creation of human efforts and does not include free gifts of nature like land. It is only a part of economic goods i.e. of wealth.

In short, to be capital of thing must e wealth but it must be produced wealth invested for more production.

Forms of Capital

Capital has been classified into different kinds from different standpoints.

(a) Fixed Capital: The fixed capital means that capital which exists more or less in a durable shape for a comparatively long period of time and renders repeated services till it is worn out. For instance, machines, buildings, furniture and similar other things which are not exhausted by a single use.

(b) Circulating Capital: The circulating capital means the capital which performs only a sing operation in production and changes its shape by a single use. Cotton, sugar-cane or any other raw-material comes under this class of capital.

(c) Consumption Capital: Consumption capital refers to that kind of capital which helps production indirectly and which a man uses in satisfying the wants of his workers directly. Thus when an industrialist give rice to provide his labourers with food or builds a house for residence of his labourers, then the rice and the building become consumption capital.

(d) Auxiliary or Production Capital: Production capital means capital like machines, raw-materials etc, which help the worker directly in producing goods.

(e) Sunk Capital: Sunk or specialised capital means that capital goods which are highly specialised and cannot be used generally in more than one industry. For example blast furnace.

(f) Floating Capital: Floating capital consists of those capital goods which are not specialised and can be easily withdrawn from one industry and invested in another.

Importance of Capital:

Capital plays an important part in the modern system of production. It is one of the factors of the production. Without some form of capital there can be no production.

Modern system of production is a round about process. In modern times instead of spending our labour directly in the satisfaction of wants, we first product capital goods like machines. The process requires a huge capital. In fact in the modern capitalistic system of production, capital is the chief factor of production. Modern civilization with its huge production of goods would have been impossible without the enormous growth of capital. So the modern production is known as capitalistic production and modern civilization as capitalistic civilization because of the dominant part played by capital in the modern production system.

Functions of Capital:

(i) Capital increases Productivity as a whole: The more the capital, the round about is the process of production and the round-about process of production is certainly more productive. The machine enables labourers to produce a larger volume of goods. A weaver with modern weaving machinery can produce larger quantities of cloth then he can do with his simple old fashioned weaving loom. A cultivator with the help of a tractor and other modern agricultural machines can produce larger harvests from his and than he can do with his primitive tools. Thus by increasing the total output, capital diminishes the cost of production, consequently things become cheaper.

(ii) Capital improves the efficiency of Workers: Capital also improves the efficiency of labourers and removes the strain on their muscles. It makes possible to provide labourers with up to date machines. The labourers have only to regulate machineries. The whole process of production is splitted up into so many small operations. Every worker has to do only one operation repeatedly. Thus he becomes expert in regulating the particular machinery and becomes specialised in his work. At the same time he is relieved of strain on his muscle.

(iii) Capital Saves time: Capital saves time in two ways. It saves time in the sense that it helps to produce large volume of goods in a comparatively short period. The work of expert has been replaced by specialised machines. Thus much their time is saved. Now each particular process of production is finished with in a twinkling of an eye.

(iv) Capital enables workers to get remuneration in time: Capital also enables the labourers to get their remuneration during the process of production i.e. before their products are marketed. Formerly an artisan used to make a thing from beginning to end, and he had to wait for payment till the finished products could not sold. Now he gets his wages daily, weekly or monthly. The industrialist advances wages to the workers from his capital. In short capital plays an important role in the modern economic system. Capital is necessary for the purchase of raw-materials, for the construction of factory, for the purchase of mills and machinery and for paying wages to the labourers during the long process of production.

What is EDivision of Labour? What are its forms? State its advantages and disadvantages

2012-06-25T00:11:00.002+05:00

Division of labour is an outstanding feature of the modern organization of production. In its modern sense, it means the splitting up of the process of production. In primitive societies, every man produced what he required for his own use. There was no division of labour. But with the progress of civilization men learnt that it was not economic for the same man to be a hunter, a fisherman, a weaver and a farmer. So each began to adopt one particular occupation. Some, for example, adopted the profession of pottery, others became cobblers, still others carpenters, and so on. Thus specialization in occupation began. Division of labour has therefore, resulted in specialization.

Every one became specialized in producing one article. A man secured his other necessities in exchange of his surplus products. Division of labour therefore also means exchange.

With the passing of time, the division of labour has been carried further. In our present economic system every productive function has been divided into the minute processes, and each process has been entrusted to different sets of individual. Nowadays nothing can be produced without co-operation among the individuals or groups who are entrusted with different processes in producing a thing. Now, none produces a thing from beginning to end. For instance in the

USA

the making of shoes is now divided into as many 185 different processes, each of which is done by one group of persons. To produce a shoe these 185 groups must co-operate one another.

So the division of labour now means specialization, exchange and co-operation. The same fact has been stated by Henry Clay he said, “From the point of view of the individual the division of labour means specialization; from one point of view the it means co-operation.”

Forms of Division of Labour:

According to Pensons, there are four kinds of division of labour. These forms of Division of Labour are stated as under.

1. Division of labour into trades and Professions: It means one person adopts only one profession or trade. He produces a particular thing from the beginning to the end. The caste-system was based on this principle, for example some persons became weavers, some cobblers, some warriors, some priests and so on. Every caste is engaged in one particular occupation and produces a thing from the beginning to the end. This type of division was known even to the earliest society.

2. Division of labour into Complete Process: With the advance of civilization the division of labour proceeded further. For example, the function of cobbler is now divided into different parts and every part is done by a separate group of persons. One group rears cattle, another collects hides and another tans them. The finished product of one group provides for the raw materials for another group. Hence this division of labour is called division into complete processes.

3. The Division of labour into incomplete Processes: In modern times with the invention of machines each process in production is further divided and sub-divided. The tanning of leather which is a complete process is now, for example, divided into minute incomplete processes. Some scrape the hides, other cure them, still others tan them and so on. In a modern shoe making factory, some perhaps simply cut the leather, others stick it, some others sew the shoes and still other sew the uppers and so on. Thus each complete process has been sub-divided into many incomplete operations.

4. The Territorial Division of Labour: With the rapid development of the transport system each territory specialises in the production of a commodity for the production of which it possesses special advantages. This is also known as localisation of industries. For example

Bangladesh

specialises in producing jute,

Pakistan

in cotton and Lancashire in cotton goods.

These latter two types of division labour are also known as complex division of labour. Modern division of labour is the complex or minute division of labour in which one man does only a small fraction of the whole work.

Advantage of the Division of Labour:

The division of labour has the following advantages.

(i) It increases skill and dexterity of labourer. Due to division of labour every worker has to perform one single operation repeatedly through out the life. Thus the constant repetition of the same work makes him perfect, efficient and expert.

(ii) Division of labour makes easy distribution of works according to ability of workers. The skilled workers may be engaged in those operations which need skill and unskilled may be put to those works which require no skill.

(iii) Division of labour saves time. As each worker has to de-continuously only a single operation, he has not to waste time in passing from on work to another work or from one tool to another.

(iv) It also leads to saving tools. As each worker has to perform only one operation, he requires only one set of tools. He engages his tools continuously. If on the other hand, he has to do more than one operation, he has to keep different sets of tools. The result would be that when he works with one set of tools, the other sets may remain idle. So the division of labour makes possible a great economy in the use of tools.

(v) It gives maximum satisfaction at minimum effort. Because it enables the people of different regions to devote their labour in producing those commodities for which they have special facilities. This arrangement for production gives maximum satisfaction at minimum efforts.

(vi) The net result of division of labour is vast increase in output. The increased output result in reduction of cost which in its turn reduces the cost of living. Thus standard of living is raised.

Disadvantages of Division of Labour:

(i) It hampers the general efficiency of labour. A labourer who specialises himself in buttoning shoes may become expert in doing it but will remain incapable of doing any thing else and thus unsuitable to any other kinds of work.

(ii) Too much specialization leads to monotony of work. Such monotony of work deadens his mental faculties, curbs the artistic sense and narrows his vision.

(iii) The worker is deprived of the pleasure of completing a work and therefore he finds no interest in work.

(iv) Division of labour leads to factory system with all its evils, such as over-crowded towns, insanitary bustees, loss of health and character etc.

Need and Purpose of Auditing Programme

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Need and Purpose of Auditing Programme

The main purposes of an audit programme are:

a. Describe in detail the work to be carried out and its objectives.

b. Facilitate the prior approval of the planned steps.

c. Provide continuous control by means of comparison of actual work to planned work.

d. Facilitate review of work done.

e. Provide evidence of the work done according to generally accepted auditing standards.

f. Provide a basis for planning the next year’s audit.

g. Maintain a close vigil over the performance of audit work.

h. Ensures that the work is performed in an ordinary manner.

i. Fix responsibility as regards individual staff members for the work done.

j. Detect shortcomings and lapses in the distribution and performance of work such that the same do not occur again in the audit programme in future.

Main contents and advantages and disadvantages of Audit Programme

2012-06-25T00:07:00.004+05:00

Advantages and Disadvantages

The advantages of Audit Programme are:

1. Provides a clear set of instruction on the work to be done.

2. Provides clear record of work done and by whom.

3. Work can be reviewed by senior auditor.

4. Work will not be duplicated.

5. No important work will be overlooked.

6. Evidence of work done is available for use in defending charge for negligence.

7. Audit Programme serves as a shield against any charge of negligence by a client on the part of the auditor.

8. It provides an assurance that no material aspect of audit examination has been overlooked.

9. It pinpoints the audit work to be done by audit staff and that has already been done.

10. IT facilitates in the distribution of work among the audit staff according to their knowledge.

11. Audit programme of last year serves as a basis in preparing the audit programme for subsequent year.

12. Before signing the audit report, final review of work done can be easily made.

13. It ensures the adherence to International Accounting and Auditing Standards.

14. Responsibility of each audit staff (articled clerk) is fixed.

Disadvantages of Audit Programme

The disadvantage of Audit Programme are as follows:

1. Work may become mechanical.

2. Parts may be executed without regard to whole scheme.

3. Programme may rigidly followed.

4. Initiative may be lost.

5. Audit staff may not have opportunity of showing independent thinking, intelligence and initiative due to adherence to audit programme.

6. Audit programme may not cover everything that might come up during the course of audit.

7. It may create rigidity in audit examination if not frequently reviewed and updated.

8. Audit staff is bound to follow audit programme mechanically irrespective of changes in internal control introduced by the client.

9. Audit staff may defend by claiming that a particular audit examination was not provided by audit programme.

10. Fixed auditing programme will have its own limitations.

11. Clients staff knowing the extent and methods of checking followed by auditor may devise means to escape detection of fraud by auditor.

What is Audit Programme? Point out the meaning and nature of Audit Programme

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Definition:

Audit programme may be defined as the auditor’s plan of action indicating the work to be accomplished, the audit tests and procedures to be followed, the persons responsible for the accomplishment of the work, and the time within which the work is to be accomplished.

Some Authoritative Definitions

“An Audit programme is a detailed plan of the auditing work to be performed, specially the procedures to be followed in verification of each item in the financial statements and giving the estimated time required”.
An audit programme is a flexible planned procedure of examination.

Meaning & Nature of the Audit Programme

Audit programme consists of a set of detailed guiding points or instructions describing the nature, timing and extent of the audit procedures required to implement the overall audit plan. It is a description, memorandum, outline or written scheme designed to identify the work to be done. It is the auditor’s plan indicating the work to be accomplished, the audit tests and procedures to be followed, the persons responsible for the accomplishment of the work, and the time within which the work is to be accomplished. The audit programme includes audit objectives for each area. The level of detail in the audit programme depends upon the complexity of audit.

What is auditing evidence and define types of audit evidences available to an auditor in the course of audit examination

2012-06-25T00:05:00.001+05:00

The role of the auditor is that of an independent professional critic who investigates, analyses and evaluates the information underlying the statements as a means of reaching a conclusion as to their fairness. Before an auditor can express an opinion on financial statements, he must have sufficient Evidence that –

a) The items in the financial statements are supported by the balances in the ledger accounts;

b) The balances in the ledger accounts summarize correctly the numerous debit and credit entries;

c) The debit and credit entries in the accounts represent proper accounting interpretation of all the transactions entered into by the business.

In the audit of a company, this chain of evidence extends from documents describing individual transactions through the books of original entry to ledger accounts, and from ledger accounts to financial statements. The making of an audit may be thought of as the process of gathering and evaluating sufficient evidence to provide an adequate basis for expression of an opinion on financial statements.

The auditor makes tests of the accounting records for the purpose of gathering evidences. We need evidence that transactions have been properly analyzed and recorded, evidence of arithmetical accuracy in the records, and evidence that the work of summarizing the accounts and preparing the statements has been performed accurately in accordance with generally accepted accounting principles. Other auditing procedures are also carried out for the purpose of collecting evidences. We need evidence by physical inspection that the assets listed on the balance sheet actually exist and owned by the client, evidence that all liabilities owed by the client are included in the financial statements, and evidence from banks, customers, and other sources outside the business that will tend to substantiate the evidence gathered from the accounting records.

Types of Evidence

As a basis for his opinion the auditor gathers various types of evidences which are as under:

1) Internal control

2) Physical evidence

3) Documentary evidence

(a) Documentary evidence created outside the organization and transmitted to auditor;

(b) Documentary evidence created outside the organization and held by the client;

4) Ledgers and Journals

5) Comparisons and Ratios

6) Computations

7) Oral evidence

Digital Image Processing (DIP) LAB-2

2012-06-24T13:07:00.001+05:00

Digital Image Processing –DIP- LAB 2

Objective: Introduction to image processing functions in Matlab.

Fundamentals:

A digital image is composed of pixels which can be thought of as small dots on the

screen. A digital image is an instruction of how to color each pixel.

Image Processing Toolbox:

Overview

The Image Processing Toolbox provides a comprehensive set of reference-standard

algorithms and graphical tools for image processing, analysis, visualization, and

algorithm development. You can restore noisy or degraded images, enhance images for

improved intelligibility, extract features, analyze shapes and textures, and register two

images. Most toolbox functions are written in the open MATLAB® language. This

means that you can inspect the algorithms, modify the source code, and create your own

custom functions.

The Image Processing Toolbox supports engineers and scientists in areas such as

biometrics, remote sensing, surveillance, gene expression, microscopy, semiconductor

testing, image sensor design, color science, and materials science. It also facilitates the

learning and teaching of image processing techniques.

Key Features:

Image enhancement, including linear and nonlinear filtering, filter design, deblurring, and

automatic contrast enhancement Image analysis, including texture analysis, line detection, morphology, edge detection, segmentation, region-of-interest (ROI) processing, and feature measurement Color image processing, including color space conversions and device-independent ICC profile import and export Spatial transformations and image registration, including a graphical tool for control-point selection Image transforms, including FFT, DCT, Radon, and fan-beam projection

DICOM import and export Interactive image display and modular tools for building image GUIs Support for multidimensional image processing

Image formats supported by Matlab

The following image formats are supported by Matlab:

• BMP

• HDF

• JPEG

• PCX

• TIFF

• XWB

Working formats in Matlab

Intensity image (gray scale image)

This is the equivalent to a “gray scale image”. It represents an image as a matrix where

every element has a value corresponding to how bright/dark the pixel at the

corresponding position should be colored. There are two ways to represent the number

that represents the brightness of the pixel: The double class (or data type). This assigns a

floating number (“a number with decimals”) between 0 and 1 to each pixel. The value 0

corresponds to black and the value 1 corresponds to white. The other class is called uint8

which assigns an integer between 0 and 255 to represent the brightness of a pixel. The

value 0 corresponds to black and 255 to white. The class uint8 only requires roughly 1/8

of the storage compared to the class double. On the other hand, many mathematical

functions can only be applied to the double class.

Binary image

This image format also stores an image as a matrix but can only color a pixel black or

white (and nothing in between). It assigns a 0 for black and a 1 for white.

Indexed image

This is a practical way of representing color images. An indexed image stores an image

as two matrices. The first matrix has the same size as the image and one number for each

pixel. The second matrix is called the color map and its size may be different from the

image. The numbers in the first matrix is an instruction of what number to use in the

color map matrix.

RGB image

This is another format for color images. It represents an image with three matrices of

sizes matching the image format. Each matrix corresponds to one of the colors red, green

or blue and gives an instruction of how much of each of these colors a certain pixel

should use.

Conversion between different formats

The following table shows how to convert between the different formats.

Image format conversion

(Within the parenthesis type the name of the image you wish to

convert.)

Operation:

Matlab

command:

Convert between intensity/indexed/RGB formats to binary format. dither()

Convert between intensity formats to indexed format. gray2ind()

Convert between indexed formats to intensity format. ind2gray()

Convert between indexed formats to RGB format. Ind2rgb()

Convert a regular matrix to intensity format by scaling. Mat2gray()

Convert between RGB formats to intensity format. Rgb2gray()

Convert between RGB formats to indexed format. Rgb2ind()

Reading Image files

Reading and writing image files

Operation:

Matlab

command:

Read an image.

(Within the parenthesis type the name of the image file you wish to read.

Put the file name within single quotes ‘ ‘.)

imread()

Write an image to a file.

(As the first argument within the parenthesis type the name of the image

you have worked with.

As a second argument within the parenthesis type the name of the file

and format to write the image to.

Put the file name within single quotes ‘ ‘.)

imwrite( , )

Displaying an image in Matlab

Here are a couple of basic Matlab commands (do not require any tool box) for displaying

an image.

Displaying an image given on matrix form

Operation: Matlab command:

Display an image represented as the matrix X. imagesc(X)

Adjust the brightness. S is a parameter such that

-1<s<0 gives a darker image, 0<s<1 gives a brighter image.

brighten(s)

Change the colors to gray. colormap(gray)

Displaying an image given on matrix form (with image processing

tool box)

Operation:

Matlab

command:

Display an image represented as the matrix X. imshow(X)

Zoom in (using the left and right mouse button). zoom on

Turn off the zoom function. zoom off

Digital Image Processing (DIP) LAB-1

2012-06-24T13:03:00.003+05:00

Digital Image Processing (DIP)

Lab 1

Title: Writing and Running Programs with Matlab.

Problem 1.1.

Using the Matlab editor/notepad editor generate the following two data files.

The first data file you should save under the name winter_rain.dat. It should contain the

following values:

5 2.5

6 3.3

7 2.4

8 3.2

9 3.6

10 2.7

The first data file you should save under the name summer_rain.dat. It should contain the

following values:

11 2.5

12 2.3

1 2.4

2 1.8

3 1.6

4 2.4

Both data files should be stored in the same directory for example ~/Labs/

The first column of each file denotes the month (for example 5 corresponds to May) and the second column gives the average monthly rain water level in milimeters.

Problem 1.2.

Using the Matlab editor write a Matlab program performing the following operations:

1. Reads the from file winter_rain.dat into array winterdata

2. Reads the from file summer_rain.dat into array summerdata

%Lab01.m

%Read the input data

f1=fopen('winter.dat','r');

f2=fopen('summer.dat','r');

winterdata=fscanf(f1,'%d %f',[2,6]);

summerdata=fscanf(f2,'%d %f',[2,6]);

fclose(f1);

fclose(f2);

winterdata=winterdata';

summerdata=summerdata';

3. Generates a single plot representing rain levels across the whole year (starting from

January and ending at December). This plot should be base on data stored in both

arrays: summerdata and winterdata.

for i=1:6

for j=1:2

annualdata(i,j)=winterdata(i,j);

end

for i=1:6

for j=1:2

annualdata(i+6,j)=summerdata(i,j);

end

sannualdata = sortrows(annualdata);

%plot the separate summer and winter graphs

figure(1);

plot(sannualdata(:,1),sannualdata(:,2));

xlabel('month');

ylabel('rain level in mm');

axis([1 12 0 4]);

grid;

4. Substracts the annual average rain level value from the rain levels of each month and

stores the results in the array annualraindata. This should be done by a user-defined

function subtractaverage.m stored in the same directory (for example ~/Labs/ ).

[annualraindata,averagerainlevel]=subtractaverage(sannualdata);

display(averagerainlevel);

display(annualraindata);

function[data,average]=subtractaverage(x)

average = mean(x(:,2));

data = x;

data(:,2)=x(:,2)-average;

5. Prints out the average annual rain level in mm.

6. Generates a continuous-line plots, representing annual rain levels based on the data in

annualraindata. Note that in this plot the zero level represents an annual average rain

level.

7. Stores the data from array annualraindata in the text file annualrain.dat. This

should be saved in the same directory as the original input files (for example

~/Labs/).

%plot the separate summer and winter graphs

figure(2);

plot(annualraindata(:,1),annualraindata(:,2));

xlabel('month');

ylabel('rain level in mm, zero represents annual average');

axis([1 12 -4 4]);

grid;

f3=fopen('anualrain.dat','w');

%fwrite(f3,annualraindata);

for i=1:12

fprintf(f3,'%d %f\n',annualraindata(i,1),annualraindata(i,2));

end

fclose(f3);

What is Mobility of Labour

2012-06-24T12:49:00.002+05:00

The word mobility of labour means shifting of labour from one place, occupation or grade to another. When mobility of labour means shifting of labour from one locality to another, it is called geographical mobility, when it means shifting from one kind of job to another it is called horizontal mobility and when it means shifting of one grade or rank to another grade or rank it is known as vertical mobility.

Mobility of labour helps economic progress of a country. If there is free mobility of labour, the labourers who are sitting idol on account of the unemployment in particular place may easily move to a place where there is demand for their services. Thus the problem of unemployment is solved. Mobility from one trade to another helps greatly in the matter of ameliorating the distress of the workers occasioned by the temporary or permanent depression of an industry or trade. Mobility from one grade to another with in the same trade service as an incentive to the labourers for hard labour, skill and efficiency. If a labourer can move from lower to higher grade, man born of poor parents can hope to improve their prospects.

In our country, mobility of labour is generally hampered due to some factors or obstacles. The most important factors are as follows:

(i) Family attachment often discourages our labourers from moving from one place to another. This trend is now on decline.

(ii) Lack of training facilities often prevent them from shifting from one industry to another. In European countries one labourer is often found skilled in many occupations and techniques.

(iii) Lack of knowledge and information of the demand for their labour in different areas or times.

For the proper utilization of our labour force in industrializing of our country we must create opportunities of free and easy mobility of our labour.

Difference between the Malthusian Theory and the Optimum Theory of the Population

2012-06-24T12:44:00.001+05:00

Malthusian Theory of Population in following terms.

(i) Malthus is pessimistic and afraid of an increase of population. But the optimum theory is optimistic because it holds that an increase of population may increase the productivity of the country. An increase of population is welcomed so long the actual number is less than optimum.

(ii) Malthus considers the problem of population in relation to the food stuffs of the country only. But optimum theory considers it in relation to the total wealth of the country. A country may be short in her food stuffs, but she may be rich in other resources.

Great Britain

produces only a part of her necessary food-stuffs. But she can meet her shortage by selling her industrial products and various other services such as banking, shipping etc and by importing food from abroad.

(iii) But the defect of the optimum theory lies in the fact that there is no means to determine the optimum number of a country. Moreover optimum for a country is not fixed. With the change of data i.e. resources the optimum also changes. For example if Pakistan possesses optimum number today, and if tomorrow she discovers some new mines or oil fields, the optimum number of today may be under- population tomorrow. Conversely with the loss of a good market for cotton etc the optimum population may be turned into over population.

Thus theory is not very useful in practice because by a plan or policy we can not achieve the optimum. The actual population may coincide with the optimum only as accident.

Optimum Theory of Population

2012-06-24T12:43:00.003+05:00

Modern economists have rejected the Malthusian theory of maximum population, which if exceeded will spell misery in the country. Instead of the maximum population the modern economists have substituted the idea of optimum population.

By optimum population is meant the ideal number of the population that a country should have considering its resources. The optimum means the best and the most desirable size of a country’s population. When a country’s population is neither too big nor too small, but just that much which the country ought to have, it is called the optimum population. Given a certain amount of resources, state of technical knowledge and a certain stock of capital, there will be a definite size of the population at which real income of goods and services per capita will be the highest. This is optimum size. The optimum number can therefore be defined as the one at which per capita income is the highest.

If the population of a country is below the optimum, i.e. below what it ought to be, then the country is said to be under-populated. The number of the people is insufficient to take the fullest possible advantage of the natural and capital resources of the country. This is what happens in a new country. There resources are vast. Much can be produced, but there are not enough men to carry on the work of production efficiency. If, however, the population still goes on increasing and the optimum is exceeded, then we shall have a state of over-population. There will then be too many people in the land. The resources will not be sufficient to provide gainful employment to all. Per capita income will diminish; standard of living will fall; war, famine and disease will be constant companions of such a people. These are the symptoms of over population.

Critically examine the Malthus Theory of Population

2012-06-24T12:41:00.004+05:00

Thomas Robert Malthus an English clergyman made scientific study of the problem of population and published a book “Essay on the Principle of Population”. The book for a century influenced the thinking of the people all over the world. It is still a living influence today. His conclusion, which consists of three general proportions are known as Malthus Theory of Population and are as follows:

(1) Population increases much faster than the increase of food. While population increases in geometrical progression like 1, 2, 3, 4, 8, 16, 32, 64 etc. In other words food supply does not keep pace with the growth of population.

(2) The increase in population must be checked by means of preventive check like latter marriage, artificia birth control etc.

(3) If people do not apply preventive checks, population will continue to grow and will soon outstrip the available food supply. Nature shall then, intervene and positive checks like epidemics, wars, murders and famines shall come into force and ultimately wipe out the surplus of population.

Malthus recommended the use of preventive check. Other wise “Nature” said Malthus “will restore the equilibrium if man fails to check his own growth. Malthus said, “The table to nature is laid for a limited number of guests and those who come uninvited must starve”.

Criticism of the Theory:

The Malthus Theory of Population has been vehemently criticised by modern writers. Malthus has in fact, been called a dismal economist and a gloomy prophet. The main points of criticism are as follows:

1. Malthusian Theory of Population is not entirely correct. It was certainly correct at the tiem when Malthus propounded it; but since then the world has considerably changed and many forces unforeseen by Malthus have come into play and have rendered with theory inapplicable to modern times. During the time when Malthus lived, the population of

Great Britain

was on an increase food supply was getting scanty. But these conditions have now become things of past. In recent times population of

Great Britain

has increased only insignificantly.

England

has today become a great manufacturing nation and though she does not produce enough food for her dense population, she can exchange her manufactured products with the agricultural products of other countries and sustains a much larger population than what Malthus could imagine.

2. Malthus, in fact exaggerated the rate of increase of population.

(a) He did not realise the biological fact that the fecundity of human beings diminishes with advance of civilization.

(b) A general rise in standard of living of the world population has decreased births. Malthus did not foresec all these developments.

3. Malthus also failed to foresee the rapid increase in the production of food stuffs which modern nations can command.

(a) He did not realise that law of Diminishing Returns could be checked by improvements in methods of agriculture.

(b) He did not also understand that food-supply produced by a nation is not an effective limit to her population, the limit is in fact set by the quantity of food-stuffs that a country can command, either by herself producing it or by importing it from other countries. A manufacturing country may grow very little food-stuffs but may export its manufactured goods and import food supplies instead and may thus support a very heavy population.

What is labour force and how the efficiency of labour can be improved

2012-06-24T12:41:00.001+05:00

Labour force is regarded as the second original factor of production. Labour means all kinds of activity, mental or physical, which are undertaken for the creation of utilities. In short any productive effort is called labour.

Efficiency of Labour:

The number of able-bodied men being more or less fixed, the supply of labour mainly depends on the efficiency of labour. The contribution of labour to production depends not only upon the number of production but also upon the efficiency of labour itself. The more efficient is the labour the larger will be the amount of the supply of labour and vice versa.

The efficiency of labour means the fitness of the labour for the production of wealth. The efficiency of labour depends upon the power to work, will to work and efficiency or organization. The factors are discussed as under:

1. Power to Work: The power to work is a question of fitness. The fitness may be physical, technical, intellectual and moral.

(i) Physical Fitness: It means that a worker must possess a sound health, so that he may undertake works. The physical fitness depends on some factors. It can be improved by undertaking following factors.

(a) An adequate supply of nutritious food sufficient clothing, well ventilated house and other necessities of life. In short, it depends greatly on the standard of living of the murder.

(b) It also depends on the climate of a country. Extreme hot or cold climate causes early exhausting and is not favourable to prolonged activity. It is temperate climate which is suitable for hard work. Climate also influences health and strength by determining the nature of food the worker consumes.

(c) Physical fitness also depends to some extent on the racial qualities of the worker. People of some races are naturally hardier than those of other races.

(ii) Technical Fitness: A worker must also possess technical fitness. Workers must be given technical training to make them skilled in their work. Because trained workers are more efficient than untrained ones. Technical fitness also leads to physical fitness by raising the standard of living through higher wages. The technical fitness depends upon the opportunities for the training of the labourer.

(iii) Intellectual Fitness: Mere technical training is not sufficient for improving the efficiency of workers. Efficiency of a labourer depends upon his intellectual qualities and foresight. To develop these qualities, and foresight. To develop these qualities, the workers must be given general education. Compulsory and universal education has greatly improved the efficiency of labour in Europe,

America

and

Russia

(iv) Moral Fitness: Moral fitness depends on the qualities of mind which will constitute character. Such qualities depend upon the system of training and discipline which the workers get at their home and school and from persons with whom they associate. Honesty, regularity and responsibility are the basis of moral fitness.

2. The Will to Work: The will to work is mainly dependent on the conditions of employment. If the job is promising with a prospect of rapid promotion. If there is a system of giving rewards to good and energetic workers, and a system of granting certain percentage of profits to them, they will show great zeal to work hard. Again, security of job, holidays with pay and fair and graded wages also help and induce them to be efficient. Lastly to prevent the growth of a dull and num to feeling among the workers there should be freedom and opportunities to change the types of works.

3. Efficiency of Organization: The system of organization displays a great part in making workers efficient. A good employer may contribute greatly to the efficiency of his labourers by providing them with proper tools and raw materials. Even an efficient worker cannot work efficiently with bad tools. The organizer must familiarize labourers with up-to-date machines and methods of production. He must be intelligent enough to pick up the proper man for proper work.

Elasticity of Supply? What are its determinants and how it’s measured

2012-06-23T13:10:00.000+05:00

Degree of responsiveness in the quality supplied due to a given change in price is known as elasticity of supply, when a small rise in price brings about a greater change in supply (both extension or contraction) it is said, that supply is elastic on the other hand when a greater change in price results a smaller change in supply, the supply is said to be inelastic.

1. Perishable goods like fruit and vegetables have low elasticity of supply while the stable goods like cloth and shoes have high elasticity.

2. Goods produced at higher cost of production like machinery and car always have a low elasticity. Supply of such goods cannot be increased even at higher prices.

3. Nature dominated sectors agriculture always have a low elasticity while the sectors where man plays the vital and dominant role, the elasticity is quite high there.

4. In case where technique of production is quite complicated, extension there is not so easy whereas in the simple technique supply can be extended and contracted very easily and thus the elasticity is high.

5. Goods produced under the law of increasing return command high elasticity where as the operation of the law of decreasing return does not allow free extension and thus the elasticity is low.

6. Goods which can be easily and quickly made tend to have elastic supply and where fairly long time is required the elasticity is low.

Determinants of Elasticity of Supply

If due to full utilization of the internal and external economies the cost falls the supply will rise as it is profitable for producers to increase the supply. The supply decreases when the cost rises.

If due to innovations, research and experiments, some new technology is evolved which causes the reduction in cost, the supply will definitely increase. In the reverse case the supply will decrease.

Any discovery of raw material or the improvement and development in the means of transport and communication will surely causes the increase in supply while in the opposite case supply decreases.

Monetary, fiscal, commercial, income and price policies of government not only regulate the economy but also accelerate the pace of economic development. It consequently increases Gross National Product (GNP) and raises the level of employment and standard of living of people.

Stable political conditions, maintenance of internal law and order and security against foreign aggression set the stone rolling and bring about great change in the supply market.

Measurement of Elasticity of Supply

Like demand, the elasticity of supply can be measured in terms of unity.

(i) Equal to Unity: If the percentage in price is equal to the percentage change in supply, the elasticity of supply is said to be equal to unity.

Importance of Basic Audit Techniques and basic methods employed for securing information

2012-06-23T13:05:00.002+05:00

Audit Techniques are the methods generally applied in the collection of evidences or securing information. They are the means available to an auditor on the application of which be can collect evidences from his clients. These techniques are not the evidences by themselves rather they are only means and methods to force technically the clients to produce the evidences and proof regarding the genuineness of a particular business transaction. Techniques are applied first; evidences are then collected as a result of the application of these techniques. If these techniques are not applied, the auditor may not be able to collect some of the evidences and the clients may hide them. In this case, the auditor may not be able to throw his professional light on the reliability of the accounting data.

Mautz has defined ‘Audit Techniques’ as “The expression ‘Audit techniques’ may be used to describe the basic methods of collecting evidences used by auditors, the technique in itself is not evidence; it supplies the evidence required by the auditor to inform him sufficiently on the subject so that he can give a professional opinion”.

Which technique should be applied at a particular time and situation, depends upon the auditor’s knowledge, experience, skill and judgment capacity. He cannot ‘smell’ out the errors in the records without applying audit techniques.

Ten Basic Techniques

The various basic techniques or methods of securing information may be listed as under:

1) Physical examination and count

2) Confirmation

3) Examination of authoritative documents

4) Re-computation

5) Retracing book-keeping procedures

6) Scanning

7) Inquiry

8) Examination of subsidiary records

9) Correlation with related information

10) Observation of pertinent activities and condition.

These techniques are discussed here in some detail:

Physical Examination & Count

Physical examination implies count, identification, and, to at least a limited degree, verification of genuineness and quality. No responsibility can be established for the auditor in regard to quality and genuineness because be cannot be expected to be an expert in every type of material. On the other hand, he cannot dredge responsibility by merely stating that he is not an expert. In fact, the real solution of the problem lies somewhere in between these two extremes.

Physical examination is known as eye-witness in Auditing. But it involves certain subsidiary ideas which require attention:

1) First of all, it requires identification of the item being examined. It does little good to examine an inventory of purchased parts unless some can tell with reasonable accuracy what is being examined and can later relate it to the information in the accounting records. One must be convinced that he has examined the specific thing which he is supposed to be verifying.

2) The auditor should try his best to distinguish quality of whatever be is examining. It is a difficult job for the auditor.

3) Quantity should also be given consideration. Count is a part of physical examination. For example, one who is verifying the existence of three trucks, he must count and should not be content if he is shows but two.

4) Physical examination tells nothing about the ownership of the thing. Hence additional consideration must be given to establish the fact of ownership.

Limitation of the technique of physical examination is that this technique is restricted to those assets which are either material or have some tangible evidence of existence. It is extremely useful in regard to cash, inventories, fixed property additions, and the like.

In many cases, this technique can be applied satisfactorily only if advance preparations have been made to get the items to be examined in position and condition for inspection. Material in transit, in process of manufacture, packaged or partially assembled goods may make effective examination and count impossible.

Confirmation

Confirmation consists of obtaining a written statement from someone outside the enterprise on a fact which that person is qualified to affirm. Properly applied, it is one of the useful techniques available to an auditor and supplies evidence of considerable reliability of some accounts. It may be applied to verify:

1) Accounts Receivable

2) Accounts Payable

3) Bank Balances

4) Contingent Liabilities

5) Inventory in Warehouse

6) Title to property

7) Advances to outside parties

8) Investments.

This technique is applied by writing letters to the parties concerned to confirm a particular amount. Obviously, it depends upon the reliability of the parties concerned and influence of the clients on the party concerned. The difficulty in applying this technique is that the outside parties are not under any legal obligation to supply any information to the auditor. The auditor has no relation with the outside party whereas the clients are elated with the party. They may not listen to the auditor but they may listen to their business relations. Therefore, as a matter of courtesy, the request for information should come not from the auditor but from the company. Another control that involves is this: that the answer to all requests should be sent directly to the auditor without any interference of the company in any way.

Examination of Original Documents

In modern business, almost every transaction is evidenced by a document of some king. Included in this idea of documentary evidence for transactions are purchases and sales invoices, cheques, remittance advices, insurance policies, contracts, stock certificates, guarantees, requisitions, purchase orders, receiving reports, and a host of specialised papers.

Business papers of this of type provide the original record of the given transaction and constitute the evidence of that transaction. Some of the examples are as follows:

1) Purchases invoices will be examined and compared with the purchase book;

2) Cancelled cheques will be examined and compared with the cheque register or cash disbursement book;

3) Petty cash tickets will be examined and compared with the record of petty cash disbursements.

It is practically not possible to examine all the documents due to audit expenses. Therefore, random sampling may be applied. Further, if the auditor is satisfied with the internal control system, he may reduce his work. If he gets errors and irregularities in the selected transactions, then he may increase his area of examination to a large number of transactions.

Re-computation

By ‘Re-computation’ we mean to compute or calculate again to verify accounting figures, where necessary. Generally, auditors are given tape-runs in support of the accounting figures. But the rule “never accept a client’s tape” is a very practical one and should never be broken by the auditor without recognition of the risk which follows.

Re-computation is at once the most simple and the most valid verification technique. It is complete in itself. Once the auditor proves the accuracy of a particular figure by his own calculation, he accepts he arithmetical accuracy without further question. The technique of re-computation may be applied to:

1) Footing of books of original entry

2) Ledger account balances

3) Depreciation and bad debt computation

4) Bonus calculation

5) Write offs of prepaid insurance and patents.

It should be noted that the technique of re-computation proves only arithmetical accuracy and nothing more. Other tests are required to establish the validity of component figures.

Retracing Book-Keeping Procedures

In this technique, the auditor has to repeat what has already been done by the accounts staff. The discover any errors which may have been made in such book-keeping procedures as posting from the book of original entry to the ledger, or in taking total balances, it is necessary for the auditor to repeat the particular procedure. This technique is applied in order to ensure that the accounts were correctly processed, posted and finally presented correctly on the financial statements. Errors noted during application of this technique are required to be rectified by the accounts staff. A record of errors observed should, however, be kept by the auditor and any abnormal feature should be reported to the management for the preventive action.

Scanning

To scan means to scrutinise or to examine point by point. In auditing, it refer to the critical study of an account, a book of original entry, or any other record or summary of information. This is said to be a technique which approaches the ‘sixth sense’ attributed to an auditor mistakenly. An experienced and alert auditor looks a given page and immediately conclude not only that something is peculiar but also state exactly where the trouble lies. However, there is nothing miraculous about such a diagnosis. The auditor is merely summoning up all his accounting knowledge and experience on that particular type of information to evaluate that which he sees as being either normal and ordinary or as being unusual and therefore subject to suspicion. His eyes stop itself if there is anything unusual. For example, a general ledger account for cash in most cases will receive one debit a month from the cash receipt book and one credit a month from the cash disbursements records. Thirteen credits in the space of a single year should arouse one’s interest as to what the necessity for the thirteenth item might be. In the same way a debit to cash from some source other than the cash receipts book would bear investigation.

Scanning is perhaps the most indefinite – audit technique commonly employed, and it is one which seldom gives rise to easily established evidence. In many cases it merely establishes the necessity for further verification of some other kind. Yet in the hands of an experienced man it is an extremely valuable tool and one never to be overlooked.

Inquiry

Inquiry consists of asking questions and of obtaining satisfactory answers to those questions. The answers range from formal statements in writing to casual conversational comments. Yet by a careful use of the questioning procedure one can learn a great deal about matters which might otherwise be obscure. The answer to a single question is seldom a reliable bit of evidence. The answers to several related questions may provide very satisfactory evidence if they are all reasonable and consistence.

It is not a good practice to allow those keeping the records to feel that an auditor is willing to rely on their unsupported statements. In this case they will not give careful and accurate replies.

Occasionally one is forced to obtain additional information by telephoned questions, but it should be

apparent that such information is rarely subject to real verification. The man who earns himself a reputation as a “telephone auditor” does not have a particularly enviable rating among his fellow practitioners.

Examination of Subsidiary Records

In large organisation a good number of accounts are operated and they are controlled by “Control Accounts” techniques. These control accounts are supported by subsidiary ledger accounts. For example, Account Receivable Control is supported by Account Receivable Subsidiary Ledger. Accounts Payable Control is supported by Accounts payable Subsidiary Ledger. Selling Expense – Control is supported by selling Expense Subsidiary Ledger.

These subsidiary records should be checked by the auditor in order to ensure that the Control Accounts are correct. Control account figures should not be accepted without examining the corresponding subsidiary records. There may be a number of discrepancies, irregularities, wrong postings or castings in the subsidiary records and if this record is not checked in detail, the errors may pass undetected resulting in the Control accounts being inaccurate.

The subsidiary records may be checked on percentage of sample basis depending on the system or degree of satisfactory internal control system.

The subsidiary records may be checked on percentage or sample basis depending on the system or degree of satisfactory internal control system.

Correlation with Related Information

Within the double entry system of accounting, there is a great tendency for items in one place to relate to those in another. For example, there is generally a relationship between the amount of insurance expense for the year and the decrease in the unexpired insurance account balance. Similarly, there is relationship between the increase in the estimated uncollectible and the bad debt expense account. Auditors should continually be on the look-out for possibilities of exploiting such relationship. An asset account which is related to an expense account is not fully verified until that expense account has been reconciled with the asset in some way. The same is true of liability accounts such as accrued taxes and accrued interest.

The internal harmony or consistency of related accounts is certainly some evidence that accounts are free of at least mechanical errors, if no others.

Observation

During the course of a normal audit engagement, an auditor has a great many opportunities to exercise his powers of observation. He will examine and count portion of the inventory, probably take a tour of the plant, see the various employees at work, note the facilities for protection of company assets and records, and observe various phases of the internal control programme. At all times he should be alert to any activities or conditions pertinent to the reliability of the financial statement assertions. For example, while observing the inventory the may note damaged or obsolete stock. Similarly he may note that appropriate control procedures are neglected in the handling of cash.

Observation is perhaps the most general of all the basic audit techniques. It does not apply to specific verification problems in the way that confirmation or re-computation does, rather it is of some usefulness in almost all phases of the examination and should never be overlooked.

What are contingent liabilities? Give examples of different types of such liabilities show how they should appear in a company’s Balance Sheet

2012-06-23T13:02:00.003+05:00

A future uncertain liability which is dependent on the happening of some event is known as contingent liability. It may or may not arise incidence of such a liability is conditional. It will crystallise into an actual liability in the event of a certain contingency arising which is outside the control of the proprietors of the business. Contingency may be with regard to the arising or not arising of the liability.

Contingent liabilities may be of two types:

1) Liability which involves loss;

2) A liability which involves the acquisition of an asset of an equivalent amount, if such asset is not likely to be equal in value to the contingent liability there will be a contingent loss.

Following are some of the instances of contingent liabilities:

1) Liability on bills discounted outstanding or bills accepted on behalf of others;

2) Liability under a guarantee given in favour of others;

3) Liability for disputed claims and cases pending decision of the count;

4) Calls on partly paid shares held as investments;

5) Liability for arrears of dividends on cumulative preference shares;

6) Contracts entered into for future delivery of goods when the price of the goods has increased;

7) A guarantee given by a company in respect of a loan or over-draft ranted to a managed company;

Procedure of verifying Investments in a big organization

2012-06-23T13:00:00.004+05:00

To avoid carrying excess amounts of cash over stock, over slack buying seasons of the year, to accumulate a secondary reserve in case of need, or to establish satisfactory relations with another company for supply or other purposes, many concerns invest excess cash temporarily in bonds or shares of stock of other companies. These investments in other companies and transactions affecting them entered into throughout the period under examination should be verified by the auditor in order to determine the reliability of the accounting statement and records.

He must satisfy himself that the securities or investments, a concern claims to own are actually possessed by the company; that transactions during the period have been properly accounted for; that the securities are valued fairly in the financial statements, and that income from them has been properly accounted for. To do this, the following steps are necessary:

1) Examine and count all securities on hand (simultaneously with cash and other negotiable instruments):

(a) If securities are not available for count because in the hands of other for safe-keeping or for any other reasons, their existence and ownership by the company should be verified confirmation;

(b) In examining or confirming the existence of company’s investments, the possibility of any being pledged as security for loans should be kept in mind. Such pledging requires disclosure in the financial statements and may lead to discovery or unrecorded or unauthorised transactions;

(c) The reasons why security certificates are not on hand should be given attention. Unless a valid business reason justifies their absence, further investigation may be required, particularly if the certificates are held by an officer or other individual.

2) The total of securities counted or confirmed should be agreed with the balance of the amount shown in the Balance Sheet or in the general ledger account.

3) Transactions in securities entered into during the period should be verified by reference to documentary evidence, the propriety of the accounting should be reviewed, and the entries tied in with the beginning ending balance of the general ledger balances.

4) The appropriateness of the company’s valuation of investments should be listed by comparison with current market quotations where available or by such other evidence as can be obtained.

5) The classification and description of the securities for Balance Sheet purposes should be reviewed critically.

6) Income for the period from the investments held during the period should be determined independently of the company’s records and traced into cash receipts and bank deposits.

7) Any related accrued interest should be verified by computation and tied in with the interest income accounts.

What is the attitude toward the Church and institutionalize religion that Goethe reveals in both parts of Faust

2012-06-23T12:59:00.002+05:00

This scene reiterates Goethe’s low opinion of the established Church, which has already been noted in Commentary to Part One. The Emperor’s indiscriminate rewarding of his courtiers and his neglect of his kingdom’s real problems emphasizes the decadence of his Empire and any other human institution that is not organized according to sound and harmonious moral principles. In payment for his services, the Emperor gives Faust a large strip of what he thinks is worthless land. This is an additional demonstration of the Emperor’s lack of imagination and good sense. It also serves to call attention to Faust’s courage and dedication in attempting to reclaim the land for human use.

Faust’s great project, an achievement that is of widespread and permanent value to mankind, is seen through the eyes of a simple peasant couple. The couple’s prayer in the chapel to the “old God” is a symbolic expression of resistance to Faust’s new regime. The names Philemon and Baucis evoke ian idyllic old Greek legend in which a couple with the same names offered hospitality to Zeus and Hermes when the gods were travelling through the earth incognito. It is an ironic portent of events to come, but also definitively establishes the old people’s virtue and innocence.

Faust, now more than one hundred years old, broods in his palace garden about his failure to acquire the old couple’s house and orchard. Mephisto and the Three Mighty Men return from a pirating expedition and land at the new port that Faust has built. They report the success of their voyage to him. He orders them to evict Philemon and Baucis from their cottage and secure the property for him.

The innocent and peaceful lives of Philemon and Baucis make him feel guilty and uneasy. Faust’s comment that their cottage is situated on high. “Original” ground, i.e. land not created by his drainage projects and his annoyance when he hears the bells from the chapel where they are praying, shows that he resents the natural life enjoyed by Philemon and Baucis because he is unable to participate in it. He believes foolishly that the possession of their land will satisfy his moral craving and bring him the peace he desires.

Deep Night

Faust learns to his sorrow that Mephisto and the Three Mighty Men have carried out his orders with more violence than he intended. Philemon and Baucis and their wanderer friend have been killed, and the house and orchard, which Faust coveted, have been burned. Faust is overcome by remorse and anger at this miscarriage of his plans. Left alone, he begins to feel strange premonitions.

Now he is genuinely sorry for what has happened and realizes that he is completely responsible for their deaths, even though this had not been the intent of the orders he gave Mephisto. This is the first time that Faust has taken on himself the full blame for the evil consequences of his acts and is a major step in his personal moral development.

Faust has been rapidly coming to a state of moral regeneration as a result of meditations on his experiences caused by the needless deaths of Philemon and Baucis. He has at last rejected his constant obsession about his own destiny, and by so doing has begun to find himself through service to others and active leadership in humanity’s struggle to build a better world.

Analyze Faust’s religious belief as they are explained by him Gretchen. Do Faust’s ideas on this subject reflect those of Goethe

2012-06-23T12:58:00.002+05:00

Faust and Gretchen are together in the garden. She has noticed that he never participates in any religious rites, and she is concerned about the state of his soul. She asks whether he believes in religion.

In answer Faust states his tolerance for the beliefs of other people, despite his contempt for conventional religion and orthodox theology. He defines God as the creative spirit of the universe and describes his personal faith in Nature and human emotions as manifestations of this cosmic guiding force. He explains:

Then call it what you will-Happiness! Heart! Love! God! I have no name for it! Feeling is all;

Name is mere sound and reek Clouding Heaven’s light.

Faust’s answer is an equivocating one and demonstrates contempt for reason and analytical thought. His creed, as given here, visualizes God as a dynamic force that imbues all of life with vitality and form. It can only be known by feeling and intuition, and not through artificial rituals or system of belief. To recognize this force is to worship it, and the name one uses is of no importance. To a certain extent this is a statement of Goethe’s own beliefs, but Faust overemphasizes the importance of sensory experience because of the influence Mephisto has on him. Faust’s real concern here is not to give a complete or even a truthful answer, although he is truthful, but only to overcome a potential barrier between himself and Gretchen.

Faust’s reply has not fully satisfied Gretchen, but she turns to another source of anxiety—her intuitive distrust and fear of Mephistopheles. Faust reassures her, then asks permission to come to her room that night. Gretchen’s only objection is that her mother might overhear. Faust gives her a sleeping potion for the old woman. They arrange their rendezvous and Gretchen leaves.

The devil’s keen understanding of Faust’s character is shown by his observation that Faust is really not loathe to violate Gretchen’s trust and that the spirituality in her, that Faust continually praises, is just another source of her sensual attraction for him.

What is supply and define its determinants

2012-06-22T21:18:00.001+05:00

Supply is the scarce goods. It is the amount of a commodity that sellers are able and willing to offer for sale at different prices per unit of time. In other words of Meyer “Supply is a schedule of the amount of a good that would be offered for sale at all possible prices at any period of time; e.g. a day, a week and so on.”

Determinants of Supply

When the supply of a commodity rises or falls due to non-price determinants, the supply is said to have increased or decreased. The increase or decrease, or the rise or the fall in supply may take place on account of various factors. They are stated briefly as under.

1. Change in Factor Prices: The rise or fall in supply may take place due to change in the cost of production of a commodity. If prices of various factors of production used in the production of a particular commodity increase, it will result in the increase of its total cost of production. There will be a reduction in the supply of that commodity at each price because the amount demanded decreases with a rise in price. Conversely, if prices of the various factors of production fall down, it will result in lowering the cost of production and so an increase in supply on varying prices.

2. Changes in Technique: The supply of a commodity may also be affected by progress in technique. If an improvement in technique takes place in a particular industry. It will help in reducing its cost of production. This will result in greater and so an increase in the supply of the commodity. The supply curve will shift to the right of original supply curve.

3. Improvement in the Means of Transport: The supply of a commodity may also increase due to improvement in the means of communication and transport. If the means of transport are cheap and fast, then supply of the commodity can be increased at a short notice at lower prices.

4. Climatic changes in case of Agricultural Products: The supply of agricultural product is directly affected by the weather conditions and the use of better methods of production. If rain is timely, plentiful, well-distributed and improved methods of cultivation are employed, then other things remaining the same, there will be bumper crops. It would then be possible to increase the supply of the agriculture products.

5. Political Changes: The increase or decrease in supply may also take place due to political disturbances in a country. If a country wages war against another country, or some kind of political disturbances takes place just as we had at the time of Partition, then the channels of production are disorganised. It results in the decrease of certain goods. The supply curve shifts to the left of original supply curve.

6. Taxation Policy: If a government levies heavy taxes on the import of a particular commodity or commodities then the supply of these commodities is reduced at each price. The supply curve shifts to the left. Conversely, if the taxes on output in a country are low and government encourages, the import of foreign commodities, then the supply can be increased easily. The supply curve shifts to the right of original supply curve.

7. Goals of Firms: If the firms expect higher profits in the future they will take the risk and produce goods on the large scale resulting in larger supply of the commodity. The supply curve shifts to the right.

What is Supply? Explain in detail the law of Supply

2012-06-22T21:16:00.002+05:00

Supply is the amount of a commodity that sellers are able and willing to offer for sale at different prices per unit of time. In the words of Mayer “Supply is a schedule of the amount of a good that would be offered for sale at all possible prices at any period of time e.g. a day, a week, and so on.”

The Law of Supply

There is a direct relationship between the price of a commodity and its quantity offered for sale over a specified period of time. When the price of a good rises, other things remaining the same, its quantity which is offered for sale decreases. This relationship between prices and the quantities which suppliers are prepared to offer for sale is called the law of supply. The law of supply, in short states that ceteris paribus sellers supply more goods at a higher price than they are willing at lower price. The supply function is now explained with the help of schedule and a curve.

Market Supply Schedule of a Commodity

In the table above, the producers are able and willing to offer for sale 100 units of a commodity at price of Rs.4. As the price falls the quantity offered for sale decreases. At price of Rs. One the quantity offered for sale is only 40.

Supply Curve

The market supply data of commodity X as shown in the supply schedule is presented graphically as under.

In the above figure price is plotted on the vertical axis OY and the quantity supplied on the horizontal axis OX. The four points d, c, b, and a show each price quantity combination. The supply curve SS' slopes upward from left to right indicating that less quantity is offered for sale at lower prices and more at higher prices by the sellers. The supply curve is usually positively sloped.

The supply function can also be expressed in symbols.

procedure of Inventory Verification to be followed by an Auditor

2012-06-22T21:03:00.000+05:00

Inventory in one of the most important and difficult verification problems with which the auditor is faced. It is commonly the single greatest current asset and is often the largest asset in the entire Balance Sheet. An error in inventory affects the net income directly.

Problems of various types are going to be faced in the verification of Inventory. Some such problems are as under:

a) Physical existence and ownership of Inventory;

b) The quantities included in making inventory extensions;

c) The prices used in making inventory extensions;

d) The arithmetical accuracy of extension, footings, forwarding, and final totals.

The most difficult problem is that of Pricing.

Essentials of Verification

1) To determine physical existence and to test quantities:

A) Be present when physical inventory is taken by company representative.

a) Observe existence of inventory;

b) Observe inventory taking procedure including the efficiency with which the members of the inventory crews perform their tasks.

c) Make and record test counts of inventory counts;

d) Inventory completeness of count by checking areas and divisions of inventory from tags or other evidence of count.

B) Trace test counts into inventory listings to discover whether quantities counted are properly listed;

C) Trace some of company’s inventory counts into inventory listing to discover whether counts are properly listed;

D) Account for all inventory tags or tickets;

E) Review purchases and sales cut-off and make tests to discover accuracy or inventory count with respect to shipments close to the balance sheet date.

2) To determine reasonableness of pricing:

A) Test specific prices used by the company by comparing them with recent invoice or quoted prices;

B) Review method of pricing with intention of determining a generally accepted pricing policy has been followed:

a) Determine and evaluate general pricing practice;

b) Review composition and application of burden rate;

c) Investigate balances of any standard cost variation accounts of the disposition thereof;

C) To determine the quality and grade as reasonable:

a) During observation of physical inventory, determine by observation and inquiry whether inventory is in merchantable condition;

b) Review detail inventory records for slow moving and obsolete items;

c) Refer to purchase invoices for major inventory items to determine whether that grade or quality is handled in the quantities indicated.

3) To discover the degree of clerical accuracy in the inventory complication:

a) Test inventory extensions and footings by re-computation;

b) Trace all page total and sub-total into summaries and into the final inventory amounts.

4. To review accuracy of inventory amount in general:

A) Obtain an inventory representation from company officers or employees:

a) Enquire as to any merchandise held on consignment held for others, or otherwise on hand but not the property of the Co under examination, and any property belonging to the Co but not available for count;

b) Inquire as to method of determining all quantities and prices used in compiling inventory total.

B) Apply gross profits test for its equivalent;

C) Review any production record available and relate beginning inventory, production sales, and ending inventory on a quantity basis, if possible.

How would you verify the Accounts Receivable and Sales

2012-06-22T21:01:00.003+05:00

The term “receivables” is used broadly to include almost all amounts receivable by a concern from its customers, offices, branches, and affiliated or subsidiary concerns, except those which are evidence by a bond or other security. From the verification point of view they can be divided into here classes:

a) Accounts Receivable from customers

b) Notes Receivables

c) Other Receivables.

Purpose of verification of Receivables may be stated as under:

1) To determine whether the Balance Sheet or general ledger amount or receivables is supported by valid accounts.

2) To determine where the receivables as stated are collectible;

3) To determine whether the receivables are properly classified and described;

4) Determine whether sales transactions have been accounted for properly during the period.

Audit Programme for Accounts Receivables and Sales

1) To determine the specific debtors making up the total amounts receivable, obtain a detailed list of the receivables, compare with the subsidiary ledger accounts, foot and agree total with Control Accounts or Balance Sheet amount.

2) Obtain independent verification of balances:

a) Send confirmation requests to a representative portion of the debtors;

b) Obtain satisfactory explanations for any confirmation returned with exceptions of differences;

c) Investigate the propriety of any accounts for which confirmation were requested and not returned.

3) To consider collectibility of account balances:

a) Review accounts with credit manager or over due balances;

b) Review collection on account in period following balance sheet date;

c) Ensure that Reserve for Bad Debts is adequate to cover all uncollectible accounts plus a reasonable provision for doubtful debts.

4) To Test arithmetical accuracy of accounts, both controlling account and subsidiary ledger, foot and balance ledger accounts for receivables:

a) General Ledger control account or accounts;

b) A representative portion of subsidiary ledger accounts.

5) To test reliability of book-keeping procedures:

A) Test postings to books of original entry:

(a) General Ledger control account or accounts;

(b) A representative portion of subsidiary ledger accounts;

B) Investigate propriety of any unusual entries in the general ledger controlling account or accounts.

6) To verify sales transactions for a test period:

a) Compare duplicate sales invoices with entries in sales book

b) Foot sales book;

c) Trace postings to general ledger accounts;

d) Examine documentary evidence supporting sales returns and sales allowance transactions;

e) Account for all sales invoices and for all credit memos issued for the test period;

f) Foot and balance the Sales account.

g) Investigate propriety of any unusual entries in the Sales account.

7) To determine whether sales book has been help open past the closing date or receipts of the book with date of deposit and date of remittance advice if available, for last cash receipts of the period and first cash receipts of the following period.

8) Prepare any necessary adjusting or re-classifying journal entries.

How would you verify the Cash at hand and Bank

2012-06-22T00:47:00.001+05:00

Cash provides one of the most difficult and one of the most interesting verification problems with which an auditor must deal. With regard to verification, the auditor should review the internal control over cash. If for example, one person has complete control over cash disbursements including approval of invoices for payment writing and signing cheques, mailing cheques to creditors, and reconciling the bank statement, the possibilities of errors – international or un-international are much greater than they would be if those duties were all separated or carefully reviewed by a superior. Here the extent of the verification procedures necessary to satisfy an auditor that all was well would be much greater than in a situation where such duties were sub-divided among several people each of whom acted independently of the others.

Basic requirements of Cash verification is that the auditor must satisfy himself:

a) What the balance of cash actually is?

b) What the records show the balance of cash should be?

c) Whether transactions have been properly recorded?

Essentials of verification Programme

A) To ascertain that all cash is there that is Said to be there:

I) Count cash on hand:

1) Count all cash on hand simultaneously;

2) Count each fund or other part of cash on hand in the present of custodian and obtain acknowledgement;

3) Include in work papers adequate details of item counted to permit subsequent investigation of peculiar items;

4) Control any un-deposited receipts until they are deposited in the bank and obtain duplicate copy of bank deposit receipt;

5) Investigate any such means as seems satisfactory any unusual item included in cash submitted for count.

II) Determine cash in bank by reconciliation with bank statement:

1) Prepare own Bank Reconciliation, or if client has already prepared one, review the same thoroughly:

i) Determine outstanding cheques from a comparison of cancelled cheques returned by bank;

ii) Determine deposits in transit from comparison of Cash Receipt Book with deposits shown on bank statement;

iii) Investigate, any other reconciling items until satisfied about their validity.

2) Obtain a confirmation from the bank covering the balance per bank on the reconciliation date;

3) Obtain a “cut off” bank statement direct from the bank:

a) verify outstanding cheques by comparison of cancelled cheques accompanying cut-off statement with list of outstanding cheque on reconciliation date;

b) verify deposits in transit by tracing in to deposits listed on cut off statement;

c) review all cheques returned with cut off statement for unusual items and for cheques not recorded at reconciliation date.

III) Compare cash balances determined by cut and reconciliations with cash balances per general ledger.

IV) Clear non-cash items from the Cash account balances by adjusting journal entry.

B) To Ascertain that all cash is there that Should be there:

1) Foot cash books (including cross-footing);

2) Trace postings into general ledge;

3) Foot and balance cash account;

4) Investigate and peculiar entry in Cash account;

5) Examine documentary evidence in support of entries in cash record;

6) Review Bank Reconciliations made during the year;

7) Reconcile receipts per books with deposits per bank and disbursements per book with cheques paid per bank;

8) Compare detail of duplicate deposit tickets with detail of cash receipt record;

9) Account for all cheque numbers;

10) Examine any outstanding cheques at previous audit date which did not clear with cut-off statement obtained at that time.

valuation and verification of assets from an auditor’s point of view

2012-06-22T00:46:00.003+05:00

It is an important duty of an auditor to see that assets and liabilities are reasonably valued. The accuracy of the Balance Sheet and Profit and Loss Account entirely depends upon the correct valuation of assets and liabilities. Balance Sheet will not disclose the true financial state of affairs if the assets are in appropriately valued.

Though valuation is done by the responsible officers of the concern, auditor must use his common sense in finding out if the assets have been valued on the basis of some scientific principles. An auditor cannot be taken to be an expert in valuation. In his work, he can rely on the valuations put by the responsible officers of the business or to the certificates of component persons such as valuers, surveyors etc. He would do well to disclose the basis of valuation of assets in the Balance Sheet. He is more concerned in checking the values of the assets to see that they represents their real worth to the business as a going concern on the date of Balance Sheet.

He must impress upon the business that assets should be valued on some reasonable basis and scientific principles. According to London and General Bank case and Kingston Cotton Mills Co. Case, though it is no part of an auditor’s duty to value assets and liabilities, yet he must exercise reasonable skill and care in scrutinising the basis of valuation. He should test correctness of the values as put by the officers of the business. In any case, the auditor cannot guarantee the accuracy of the valuation.

Since the coming into force of the new Company Ordinance, the auditor is required to see that the Balance Sheet represents the financial state of affairs of the company truly and fairly. Auditor should therefore, in no case permit under-valuation or over-valuation of assets. He should not allow the creation of secret reserves, final accounts prepared by the company’s accountants must not be certified by him as correct unless they are fair to all the parties interested in the affairs of the company. Auditor must be careful to see that one party has not been given preference over the other. All the objects discussed above cannot be achieved until the assets are shown in the books at their proper and real values.

In spite of the fact that auditor is not an expert valuer, he must be cautious and painstaking in verifying the values of the assets at which they are shown in the books. All the relevant facts and evidences may be taken into consideration in ascertaining the fair value of the assets.

Verification

Verification of the existence of an asset is very much different from the vouching of the expenditure incurred in the purchase of an asset. Vouching of an entry in the books goes to prove that the asset ought to exist. It is the duty of an auditor to satisfy himself that the asset actually does exist.

Verification entails the inspection of such evidence as well satisfy the auditor that such assets are actually in the possession of his clients on the date of Balance Sheet. False assets should not be created and real assets should not be suppressed. The auditor must also guard against substitution of assets, an auditor would not be able to detect misappropriations and may be held liable for negligence in the performance of his duties as was decided in the case of “The London Oil Storage Co. Vs. Sean Husluch & Co.”

To sum sup, the verification of assets involves the following points:

1) To compare the ledge accounts with the Balance Sheet;

2) To verify the physical existence of assets as on the date of Balance Sheet and to see that these assets are acquired by proper authority and for business purposes;

3) To satisfy that the assets are free from any charge or mortgage or encumberence and that the business under audit is the real owner thereof and that they are under proper custody;

4) To verify that it is properly valued and correctly stated in the Balance Sheet, to ascertain their relation to the corresponding items at the end of the previous year and where necessary, earlier year;

5) The suitability of the description used;

6) Adequate disclosure of information.

Fixed Assets are those of a permanent nature, by means of which are held for the purpose of earning income, and not for the purpose of sale.

Current assets are these in which the business deals, and which are acquired for the purpose of sale and the subsequent stages of their conversion into cash.

Although, it is not possible for an auditor to inspect each and very asset, e.g. all the items of stock, yet he remains liable for all undetected errors and frauds. The fact that certain assets of the business at the date of Balance Sheet are in the hands of third parties will not in any way diminish the auditor’s responsibility in relation there. However, he can rely upon the responsible officers, because if this duty is imposed on him, it may take weeks and months for him to actually inspect each and every asset. It was also held in the case of Kingston Cotton Mills, that “it is no part of an auditor’s duty to take stock. No one contends that it is. He must rely on other people for the details of the stock-in-trade in hand.” But, by adopting different indirect methods of checking the accuracy of stock sheets, he can verify this item and such other items also. Auditor must exercise reasonable skill and care in accepting certificates from third parties or the responsible officers of the business.

Ordering Point or Re-order Level related solved problems

2012-06-21T10:01:00.004+05:00

Problem

From the following information, you are required to determine:

(a) Ordering Point or Re-order Level

(b) Minimum Limit or Minimum Stock Level

(d) Danger Level

Maximum daily requirement 800 units

Time required to receive emergency

supplies 4 days

Average daily requirement 700 units

Minimum daily requirement 600 units

Time required for fresh supply one month

(30 days)

Economic Order Quantity 29000 units

Solution:

(a) Ordering Point = Maximum daily requirement × lead time

Ordering Point or Re-order Level = 800 × 30 = 24000 Units

(b) Minimum Limit = Ordering Point – Average Consumption

Minimum Limit or Level = 24000 – (700 × 30)

Minimum Limit or Level = 24000 – 21000 = 3000 Units

while the replacement order is outstanding + E.O.Q

Maximum Limit or Maximum Stock Level =

24000 – (600 × 30) + 29000

Maximum Limit or Maximum Stock Level =

24000 – 18000 + 29000 = 35000 Units

(d) Danger Level = Average daily consumption × time required to receive emergency supply

Danger Level = 700 × 4 = 2800 Units

Standard Cost Method and solved problem

2012-06-21T09:59:00.005+05:00

Standard Cost Method

Sometimes materials are charged in the factory at an estimated price which represents the normal price. This price is also known as pre-determined price or budgeted price or standard price or standard cost. The determination of a standard price is difficult because prices are controlled by market conditions than by the Board of Directors of the manufacturing company. The standard price is not fixed for all time but it is kept under constant review and is always subject to adjustments for regular increase or decrease in prices.

The standard cost of a material may or may not always coincide with actual price paid. In case the two prices differ, a standard price variance occurs.

Problem :

5,00 units of Material-C 5 with a standard price of Rs. 250 are purchased at Rs. 258. Calculate standard price variance and the unit cost difference.

Solution:

Quantity Units Unit cost Amount

Rs. Rs.

Actual 5,000 × 258 (Actual) 12, 90, 000

Actual 5,000 × 250 (Standard) 12, 50, 000

Standard Price Variance 5,000 × 8 40, 000

Unit Cost Difference 8

Sometimes a factory can work out not only the standard cost of the material but also the standard quantity of consumption of materials for a given job or process. Under these circumstances, we may have to calculate not only the price variance but also the quantity variance.

Cost Accounting Solved Problems

2012-06-21T09:59:00.000+05:00

The records of Derajat Manufacturing Co. Ltd. show the following data relative to material no: E-4:

Balance: February, 1, 1967 700 units at Rs. 20.50

Purchases: February 3, 1967 800 units at Rs. 21.00

12, 1967 400 units at Rs. 22.00

24, 1967 200 units at Rs. 21.50

Issued: February 2, 1967 500 units

18, 1867 600 units

28, 1967 200 units

Required: Calculate the moving average cost of the material issued and also calculate the cost of inventory balance.

Solution:

Cost of materials issued:

Concept of consumer’s surplus and its importance

2012-06-21T01:51:00.003+05:00

Consumer surplus is sued to measure the welfare of a group of consumers who purchase a particular product at a particular price. Consumer surplus is defined as the difference between what consumers are willing to pay for a unit of the good and the amount consumers actually do pay for the product. Willingness to pay can be read off of a market demand curve for a product. The market demand curve shows the quantity of the good that would be demanded by all consumers at each and every price that might prevail. Read the other way, the demand curve tells us the maximum price that consumers would be willing to pay for any quantity supplied to the market.

A graphical representations of consumer surplus can be derived by considering the following exercise. Suppose that only one unit of a good is available in a market. As shown in the adjoining Figure, that fill unit could be sold at the price P₁. In other words there is a consumer in the market who would be willing to pay P₁. Presumably that person either has a relatively high desire or need for the product or the person has a relatively high income. To sell two units of the good the price would have to be lowered to P₂. (This assumes that the firm cannot perfectly price discriminate and charge two separate prices of two consumers). A slightly lower price might induce another customer to purchase the product, or might induce the first consumer to buy two units. Three units of the good could be sold if the price is lowered to P₃, etc.

The price that ultimately prevails in a free market is that price which equalizes market supply with market demand. That price will be P in the diagram as long as the firms do not price discriminate. Now go back to the first unit that could have been sold. The person who would have been willing to pay P₁ for a unit of the good ultimately pays only P for the unit. The difference between the two prices represents the amount of consumer surplus that accrues to that person. For the second unit of the good, someone would have been willing to pay P₂ but ultimately pays P. The second unit generates a smaller amount of surplus than the first unit.

We can continue this procedure until the market supply at the price P is reached. The total consumer surplus in the market is given by the sum of the areas of the rectangles. If many units of the product are sold then a one-unit width would be much smaller than shown in the diagram. Thus total consumer surplus can reasonably be measured as the area between the demand curve and the horizontal line drawn at the equilibrium market price. This is shown as the black triangle in the diagram. The area reporting consumer’s surplus is measured in dollars.

Changes in Consumer Surplus

Suppose the supply of a good rises, represented as a rightward shift in the supply curve from S to S’ in the adjoining diagram. At the original price P₁, consumer surplus is given by the blue area in the diagram. (That’s the triangular area between the P price line and the demand curve). The increase in supply lowers the market price to P₂. the new level of consumer surplus is now given by the sum of the blue and yellow areas in the Figure. (That’s the triangular area between the P₂ price line and the demand curve). The change in consumer surplus, Q is given by the yellow area in the Figure.

(That’s the area denoted by a and b). Note that the change in consumer surplus is determined as the area between the price that prevails before, the price that prevails after, and the demand curve. In this case consumer surplus rises because the price falls. Two groups of consumers are affected. Consumers who would have purchased the product even at the higher price P₁, now receive more surplus (P₁ – P₂) for each unit they purchase. These extra benefits are represented by the rectangular area a in the diagram. Also, there are additional consumers who were unwilling to purchase the produce at the price P₁, but are now willing to purchase at the price P. Their consumer surplus is given by the triangular area b in the diagram.

Importance of Consumer’s Surplus:

The concept of consumer’s surplus has both theoretical as well as practical importance.

Theoretical Importance: The idea of consumer’s surplus reveals the benefits which we derive from our purchase of commodity in the market. For example when we purchase salt, or match box, we are willing to pay the amount much higher than their market value. For example a consumer would be willing to pay Rs. 10 for match box rather than go without it. But he actually pays Re one only on the purchase of match box. Consumer’s surplus on the purchase of match box thus is Rs. 9.0.

Practical Importance:

1. A monopolist can charge higher price for his product if the consumer’s are enjoying large consumer’s on the use of his product.

2. The inhabitants of a country derive consumer’s surplus when they import commodities from abroad. They are usually prepared to pay more for them than what they actually pay.

3. A finance minister imposes taxes of the commodities yielding consumer’s surplus.

4. An entrepreneur before investing capital in a project evaluates the consumer’s surplus to be derived from it. If benefits to be obtained are greater than the costs the investment is under taken.

How would auditor vouch the petty cash book maintained on the basis of imprest system

2012-06-21T01:49:00.002+05:00

The ‘Imprest System’ of maintaining petty cash book implies periodical reimbursements of the amount actually expended by the petty cashier. Actual cash in hand with the petty cashier plus the total vouchers for payments made since the date of last reimbursement shall not exceed, at any time, the amount of the imprest. This system ensures maintenance of petty cash book regularly and up to date. Possibilities of cash defalcations will also be kept limited to the extent of the amount of total petty cash.

An Auditor shall conduct the vouching of the petty cash book according to the following audit programme:

1) Auditor will commence his work by ascertaining the name of the petty cashier, the amount of the imprest, by whom it was fixed and when. He should also ascertain as to who handles petty cash during the absence of the petty cashier.

2) Auditor will require all the voucher to be numbered consecutively and filed in that very order. He will also ascertain the name of the person who is authorised to approve vouches for payments out of petty cash and also the replenishment of the imprest.

3) Auditor should carry out surprise counting of petty cash in the hands of the petty cashier and reconcile it with the balance shown by the petty cash book. All petty cash books, if more than one are used, must be produced at the same time. Costs and cross costs and also the postings of the total to the impersonal ledger must be thoroughly checked.

4) Auditor should also compare a few of the entries for petty cash cheques drawn with the entries in the petty cash book, with special reference to the dates.

5) All vouchers over a certain amount must be thoroughly examined by the auditor. Posting of the totals of the impersonal ledge must also be checked.

6) Auditor should also inspect the postage books to see that they are regularly balanced and the expenditure appears to be reasonable. Stamps in hand must also be counted.

7) If the audit takes place sometime after the date of the balance sheet auditor must check the petty cash transactions to the date of audit and verify the petty cash balance on that date.

Law of diminishing marginal utility

2012-06-19T21:05:00.002+05:00

The law of diminishing marginal utility describes a familiar and fundamental tendency of human behaviour. The law of diminishing marginal utility states that “as a consumer consumes more and more units of a commodity, the utility from successive unit goes on diminishing. Mr. H. Alfred Marshall later on restated this law in the following words “The additional benefit which a person derives from an increase of his stock of a thing diminishes with every increase in the stock that he already has”.

The basis of this law is fundamental feature of wants. It states that when people go to the market for the purchase of the commodities, they do not attach equal importance to all the commodities which they buy. In case of some commodities they are willing to pay more and in some less. There are two main reasons for this difference in demand (1) the liking of the consumer for the commodity and (2) the quantity of the commodity which the consumer ahs with himself. The more one has of a thing, the less he wants the additional units of it. In other words, the marginal utility of a commodity diminishes as the consumer gets larger quantities of it. This in brief, is the axiom of law of diminishing marginal utility.

The law of diminishing utility is based up two facts. First total wants of a man are unlimited but each single want can be satisfied. As a man gets more and more units of a commodity, the desire of this want for that good goes on falling. A point is reached when the consumer no longer wants any more units of that good. Secondly different goods are not perfect substitutes for each other in the satisfaction of various particular wants. As such the marginal utility will decline as the consumer gets additional units of a specific good.

Explanation of the law:

This law can be explained by taking very simple example. Suppose a man is very thirsty. He goes to the market and buys one glass of sweet water. The glass of water gives him immense pleasure or we say the first glass of water has great utility for him. If he takes second glass after that the utility will be less than that of the first one. It is because the edge of his thirst has been blunted to a great extent. If drinks third glass of water, the utility of third glass will be less than that of the second and so on. The utility goes on diminishing with the consumption of every successive glass of a water till it drops down to zero. It is the position of consumer’s equilibrium or maximum satisfaction. If the consumer is forced further to take a glass of water it leads to disutility causing total utility to decline. The marginal utility will become negative. A rational consumer will stop taking water at the point at which marginal utility becomes negative even if the good is free. In short the more we have a thing, the less we want still more of that or to be more precise “In a given span of time, the more of a specific product a consumer obtains, the less anxious he is to get more units of that product.” Or we can say that as more units of a good are consumed additional units will provide less additional satisfaction than previous units.

Concept, Determinants of consumption and its impact on other variables

2012-06-19T21:03:00.003+05:00

Consumption is the value of goods and services bought by people. Individual buying acts are aggregated over time and space.

Consumption is normally the largest GDP component. Many persons judge the economic performance of their country mainly in terms of consumption level and dynamics.

Composition of Consumptions

First, consumption may be divided according to the durability of the purchased objects. In this vein, a broad classification separates durable goods (as cars and television sets) from non-durable goods (as food) and from services (as restaurant expenditure). These three categories often show different paths of growth.

Second, consumption is divided according to the needs it satisfies. A commonly used classification identifies ten chapters of expenditure:

1. Food

2. Clothing and foot wear

3. Housing

4. Heating and energy

5. Health

6. Transport

7. House furniture and appliances

8. Communication

9. Culture and schooling

10. Entertainment

People in different position in respect to income have systematically different structures of consumption. The rich spend more for each chapter in absolute terms, but they spend a lower percentage in income for food and other basic needs. The percentage values of an aggregation over all the households in a country can thus be used for judging income distribution and the development level of the society.

The rich have both higher levels of consumption and savings. In differentiated product markets, the rich can usually buy better goods than the poor. This happens also because they tend to use different decision making rules. In other words, consumption depends on social groups and their behaviours, as well as their proneness to advertising.

Third, for exactness’ sake, one should distinguish “consumption” as use of goods and services from “consumption expenditure” as buying acts. For durable goods this difference may be relevant, since they are sued for long time periods.

Fourth, only newly produced goods enter into the definition of consumption, whereas the purchase of, say, an old house is not considered consumption, since it was already counted in the GDP of the year in which it was built.

Determinants of Consumption

Current income is the most relevant determinant of consumption. Income comes from labour (employment and wages), capital (e.g. profits leading to dividends, rents, etc.), remittances from abroad.

Cumulated savings in the past can be squeezed in case of necessity and give rise to a jump in consumption, similarly with what happens with wealth increase, due for instance to stock exchange boom or house prices boom.

Expectations on future income, especially if concerning short-term credible events, may also play an important role.

At household level, there are many possible rules set to control monthly, weekly or even daily consumption expenditure. They relate not only to income but also to the following factors among others:

1. General lifestyles, in particular attitudes toward savings or consumption as “values” in itself;

2. A standard level of consumption the family tries to maintain over time;

3. Decisions regarding active saving strategies, like an investment scheme for pension aims;

3. The relative success of past investment in shares or other financial instruments; in fact, a stock-exchange boom is likely to promote an euphoria tide with growing consumption;

5. Opportunities of consumer credit, depending in turn by interest rates and marketing strategies by banks and special consumer credit institutions;

6. Past decisions on durables. For instance, a family having bought a car will reduce expenditure on public transport in favour e.g. of fuel;

7. Status symbols diffusion – “social musts”;

8. New employment perspectives, also as far as the corresponding investments in human and physical capital are concerned;

9. Innovative sale proposals in terms of both new products and new services, effectively advertised;

10. Temporary money (cash) excess.

According to age of the decision-maker, individual and household consumption varies, both in values and composition. Thus, aggregate consumption may be influenced by demographic factors, such as an older and older population, even though one should not rely too much on these relationships since demographic variables are extremely slow in changes, whereas consumptions clearly reacts to economic climate.

Other things equal, a higher price level (inflation) reduces the real current income, thus real consumption.

Impact on other variables

A GDP component as it is, consumption as an immediate impact on it. An increase of consumption raises GDP by the same amount, other things equal. Moreover, since current income (GDP) is an important determinant of consumption, the increase of income will be followed by a further rise in consumption: a positive feedback loop has been triggered between consumption and income.

An autonomous increase of consumption, if at the same level of income, would reduce savings, but the positive loop just described (known as the “Keynesian multiplier”) will imply an increase of income level with a positive impact on future savings.

If directed to goods and services produced abroad, an increase of consumption will immediately push up imports, while a similar indirect effect will result from consuming domestic products requiring foreign raw materials, energy, semi-manufactured goods.

Since usually the States separately tax consumption (say with a VAT tax), an increase of consumption will also boost this type of State revenue, as well as import duties revenue in the case of imported goods. The growth mechanism of consumption-income will also provide State revenue through income taxes.

To the extent firms decide to invest forecasting future demand and comparing it with present production capacity, an increase of consumption may induce new investment. In particular:

1. Soaring consumption raises the production capacity utilization, with positive effects on profits;

2. It improves expectations on future demand;

3. It improves the financial conditions for funding investment both through profits and loans.

If exports are a second-best solution for domestic firm, an increase of domestic consumption might decrease export, since at the same level of production firms would prefer to sell inside the country. To verify this by yourself, try and play “You are an exporter”.

An increased demand may also induce firms to increase prices, the more so when they operate at full production capacity or they operate on monopolized markets. Thus increased price level and accelerated inflation can be an effect of booming consumption.

Long-term trends

In Western countries, consumption has always grown in the last 50 years, except in few deep recessions. Its growth is smoother than investment’s rise or net exports’ growth. In particular, services have always systematically grown at a fairly steady pace, non-durables have often mirrored the business cycle and durables have often over-shot the fluctuations in GDP.

Business cycle behaviour

As the main component of GDP, it is pro-cyclical almost by definition: any large all in consumption would reduce GDP. Consumption has a smoother dynamics than GDP. During a recovery, it sustains and stabilises the trend. Durable goods are particularly cyclical and they may peak shortly before GDP.

Discuss the meaning of the “Prologue in Heaven” and its similarity to the Biblical Book of Job

2012-06-19T20:59:00.002+05:00

The songs of the three archangels express Goethe’s belief that the universe is a dynamic continuum where action is the law that dominates Nature and man. In this system the only absolute sin is non-action; man, despite many errors of judgment or wrong turns can find the path of righteousness, but only if he continues striving. He eventually will succeed if he keeps up the struggle because striving is itself a moral act and his intuitive yearnings all point toward a good end.

Mephisto represents the spirit of negativistic cynicism, of endless denial. He can be a force for good or evil inducing a man to surrender to his lowest instincts and give up the quest, or driving him by persistent prodding and frustration to find the fulfilment of his ideals, i.e. salvation. He is unmoved by Mephisto’s threats to Faust because he knows that man has an innate will for good, and that errors or backsliding are natural incidents in the human progression toward righteousness.

The conversation and bargain between god and Mephistopheles are reminiscent of a similar scene at the opening of the Book of Job. This Biblical connection is emphasized by Goethe’s use of an archaic German style in this section. It creates an exalted and sacred background for the worldly tribulations of Faust and invites the reader to compare Goethe’s conception of the universe, where man is free to err and strive, with that of Job, where he must blindly accept his fate.

The setting of the prologue to the poem in Heaven implies that the life and fate of Faust are matters of universal significance, which will clarify the relationship of God and man, good and evil, existence and non-existence. Aside from this important purpose, the prologue, presents another crucial question, which is symbolically expressed in Mephisto’s ager-whether the Lord has been competent as a Creator and whether his creation, the world and its inhabitants, is worthy of survival.

Traditional portrayals of the devil? What philosophical principles does he represent? What is his function in the divine plan an din regard to Faust’s ultimate attainment of salvation?

Mephistopheles

Goethe’s Mephisto is very different from the crude devil of medieval legend and the original Faust story. He is a cultivated, witty, and cynical exponent of materialism and nihilism, and preaches a sophisticated doctrine of philosophical negation. Mephisto’s most outstanding characteristic is scepticism; the inability to believe in anything. Ironically, although Mephisto represents evil, he can also be an unconscious force for good. This is first indicated by his presence at the side of God in the “Prologue in Heaven,” which implies that evil is an accepted and natural part of God’s universal system. This view is emphasized by Mephisto’s relationship with Faust.

Mephisto’s specific observations about humanity and the universe are usually right, because it is easy form him in his role as a “cosmic outsider” to discern real faults in the established system. At the same time, however, his vision is narrow and his total outlook is wrong. As a result he never fully understand Faust, makes inadequate plans for the seduction of his victim, and is finally defeated by Love, a force which he never recognized or comprehended.

On another level Mephisto represents the negative elements in Faust’s own personality. This is why the devil and his intended victim are able to remain so close throughout both parts of the poem, and why, at certain points, like the Walpurgis Night in Part One where Faust’s evil side is dominant, Mephisto is able to come so close to winning him. Mephisto fails, however, because he cannot understand or appreciate the positive sides of Faust’s character (or human nature in general), and does not attribute any powers of resistance or resilience to Faust in the struggle for his soul.

How would you vouch the Receipts side of your client’s Cash Book

2012-06-19T20:58:00.000+05:00

Cash Book is one of the most important books of account and the objects, for which a detailed audit of the cash books is carried out, are to ensure that all receipts have been accounted for and that the payments made and recorded are neither inaccurate nor improper and that the amount of cash in hand and the balance at bank are correct.

The vouching of the receipts side of the Cash Book is more difficult than the payment side, since only indirect evidence can, as a rule, be obtained.

The auditor has to guard against the omission of cash receipts and has to rely considerably on the system of internal check in force. Therefore, he should carefully examine the system of internal check relating to the receipts and should pay special attention to its weak points.

Auditor may proceed with the work of vouching cash receipts on the following lines:

1) Opening Balance – It should be compared with the balance shown in the audited balance Sheet of the previous year to ensure that actual balance has been brought down;

2) Cash Received from A / Receivables – The auditor should see that the persons handling remittances received take no part in the preparation and sending out of statements to Debtors. Vouch counterfoils of the receipts issued with the entries in the Cash Book, and ascertain that the issue and custody of Receipt Books is in the hands of a responsible officer of the firm.

3) Cash Sales – In this case records available will largely depend upon the nature of the business, but the auditor should see all available evidence when vouching Cash Sales, because this forms a most likely avenue for frauds. Assuring a proper system of internal check in force he should check the carbon copies of cash memos with the salesman’s summaries and the cashier’s abstracts, tracing the total of daily cash sales in the cash sales book;

4) Capital Receipts – Capital contributed can be vouched by obtaining confirmation from the proprietors of the business. Where any capital assets, such as plant and machinery, investments, etc, are sold, auditor should vouch the sale proceeds with contracts of sale, correspondence or other documents and see that the proceeds less any expense incurred have been fairly accounted for.

5) Proceeds of Bill Receivable – Check cash receipts from bills discounted or matured with the Bills Receivable Book and see that all matured bills have been accounted for.

6) Income from Interest, Dividends etc – Interest received on accounts of fixed Deposits in the bank should be vouched with the bank Pass Book, the genuineness of Pass Book must be ascertained. Dividends received can be checked from the counter-foils of “tops” of the Dividend Warrants or the letters covering cheques. Interest received on Securities can be vouched from the securities themselves or from the investment ledger as to the date of the receipt of interest, amount, rate, etc.

7) Commission – It can be checked with the account of the parties from whom commission is to be received. Agreements regarding rate of commission should also he inspected.

8) Miscellaneous Receipts – Any other receipt, such as rents, bad debts, dividends, subscriptions, contributions, insurance claim money share capital, income from hire purchase agreements etc, can be checked from relevant evidence available, such as leases, correspondence, agreements, receipts etc.

What points must an auditor give special attention while vouching payments

2012-06-19T20:57:00.001+05:00

The object of vouching the payments is not merely to ascertain that money has been paid away, but the auditor should vouch payments for the following purposes:

a) To ascertain that all the payment have been made properly on behalf of the business and that they are a proper business charge;

b) To ensure that payments have been received by the correct payees;

c) To see that the payment relate to the period under audit;

d) To detect if any fraudulent payments have been made;

e) To see that the payments have been correctly recorded in the books.

An auditor will examine the efficiency and reliability of internal check before beginning to vouch cash payments. In vouching payments auditor will pay special attention to the following points:

1) All vouchers (receipts for payments) should be collected, properly filed, serially numbered and arranged date-wise. Duplicates of lost vouchers should be obtained;

2) All vouchers pertaining to a particular period and vouched at the same time. Vouchers, which are checked should be cancelled by a rubber stamp and auditor should put his initials on them so that they may not be produced more then once in support of other entries;

3) Auditor should see that all vouchers have been made out in the name of client’s business and that they pertain to the business. They must comprise all the documentary evidence considered necessary. Auditor should verify that the benefit of the payment has been received by the business only and not by anybody else connected with the management directly or indirectly. Auditor must see that the goods or services mentioned in the voucher have actually been received by the business.

4) The date of the voucher must be checked by an auditor to ascertain that it does not belong to the period not under audit. The date of the voucher must fall within the period under audit and it must correspond with the date of its entry in the Cash Book;

5) The transaction must be in conformity with the nature of the client’s business. All unusual transactions must be carefully inquired into;

6) Missing vouching should be carefully noted and brought to the knowledge of the owner of the business;

7) Explanations and informations regarding any voucher should be obtained at the earliest opportunity;

8) Receipts for payments of more than a certain amount must bear a revenue stamp for a specific amount;

9) The details in the voucher should agree with those entered in the books in all details, e.g. date, amount, etc, calculations and totals must be correct;

10) All vouchers must be checked and passed for payment by some responsible official;

11) Auditor should ascertain that amounts have been correctly posted to the appropriate accounts and distinction has thoroughly been observed between Capital and Revenue expenditure;

12) In case of payments for expenses, auditor period beyond the period under audit. This would disclose to the auditor all the payments made in advance;

13) Payments on account of wages, postage etc, should be checked by reference to subsidiary registers containing a detailed record of such payments;

14) Most of the business follow the practice of making payments of large amounts by cheques. If large amounts appear to have been paid in cash, contrary to the usual practice of the business, auditor must ascertain the circumstances in which it was considered necessary.

15) Auditor must ascertain that no payments have been made contrary to the terms and conditions of the agreements and that benefits of cash discounts have been properly adjusted in the accounts.

Solved problems No.5 related to cost accounting

2012-06-18T13:44:00.003+05:00

The records of Rajshahi Manufacturing Co. Ltd. show the following data relative to Material No: R-172:

Balance: April 1, 1967…2,700 units at Rs. 41

Received: April 4, 1967….2, 800 units at Rs. 42

13, 1967….2, 400 units at Rs. 44

25, 1967….2, 200 units at Rs. 43

Issued: April 3, 1967……2, 500 units

19, 1967….2, 600 units

30, 1967….2, 200 units

Instruction: Find out the inventory balance and the cost of issue of the material on the basis of weighted average.

Solution:

Cost of the material purchased and on hand

However, the weighted average works out Rs. 42,4257 or Rs. 42.43 because the different values have to be multiplied by different frequency weights i.e. different quantities have been purchased at different prices. If purchase is always done in an uniform quantity, the prices need not be multiplied by the quantities purchased because simply average of unit prices paid for in different purchase transactions would yield the same result.

In weighted average basis, the costs are taken into account at the end of the month.

Moving Average Cost

The moving average cost is the weighted average cost calculated at the time of each issuance of materials. This is known as moving average because the cost moves upwards or backwards according to each purchase and / or issue of materials.

Problems of Cost Accounting and Fifo Versus Lifo Methods

2012-06-18T13:41:00.003+05:00

The Sanghar Manufacturing Co. Ltd. reports purchases and issues of material no: Special – C as under:

Purchases Issued

Date Units Unit Price Units

Rs.

July 2, 1967 1,000

3, 1967 2,000 42/00

5, 1967 1,500

7, 1967 1,000 43/50

10, 1967 2,000

15, 1967 2,000 44/00

31, 1967 1,000

The opening inventory on July 1, 1967 consisted of 3000 units valued at Rs. 1,21,500

Required: Calculate the cost of the material issued under the following assumptions:

(1) The Lifo, costs calculated at the time of issuance of the material.

(2) The Lifo, costs calculated at the end of the month.

Solution:

(1) Lifo method: Costs calculated at the time of issuance of the material.

Cost of the material issued:

July 2, 1967 Rs.

(to be issued from

opening balance). 1,000 units at 40/50 40,500

July 5, 1967 1,500 units at 42/00 63,000

Rs.

July 10, 1967 1,000 units at 43/50 43,500

500 units at 42/00 21000

500 units at 40/50 20,250

(issued out of opening 84,750

balance)

July 31, 1967 1,000 units at 44/00 44,000

Cost of the

material issued. 5,500 units 2,32,250

Cost of the ending inventory: Rs.

Material at hand July 1, 1967 1500 units 40/50 60,750

Purchase of July 15, 1967 1000 units at 44/00 44,000

2500 units 1,04,750

(2) Lifo method: Cost calculated at the end of the month.

Cost of the material issued: Rs.

Purchase of July 15, 1967 – 2,000 units at 44/- 88,000

Purchase of July 7, 1967 – 1,000 units at 43/50 43,500

Purchase of July 3, 1967 – 2,000 units at 42/00 84,000

Material on hand, July 1,1967 -

500 units at 40 / 50 20,250

Cost of the material issued: 5,500 units 2, 35,750

Cost of the ending inventory:

Comprising of 2,500 units at Rs. 40 / 50 Rs

that were on hand on July 1, 1967….. 1, 01, 250

Fifo and Lifo method

Looked at from the long term point of view both fifo and lifo methods yield the same cost of production. In the periods of rising prices, the fifo method results in increased net income because the oldest costs are matched against the income. As against fifo method, the lifo results in reduced net income in periods of rising prices because the altest costs are charged against the income. Lifo is being widely used because these are the years of rising prices.

The use of lifo method may result in losses if the manufacturer is forced to sell away a substantial part of his stock of materials at a price different from the one shown against the stock. The application of lifo may stimulate profit manipulation. The manufacturer may purchase unduly large quantities of materials at the close of the period to show high profits or the purchases may be postponed so that the costs of prior periods may be matched against income.

Weighted Average Cost Method

The average cost of various units of materials in stock is used when it becomes impractical to identify cost with the materials as these move forward. Average costs carry the effects of high as well as low prices of raw materials and thereby these costs render the cost estimates somewhat more reliable and stable. By average cost is meant the ‘weighted’ average cost and not the ‘simple’ average cost. The weighted average cost is a more dependable concept as compared to simple average cost because these costs are more realistic and dependable.

Distinctive features of Emerson’s transcendentalism. How far is it related to his individualism?

2012-06-18T13:37:00.001+05:00

Transcendentalism is a word which has been variously interpreted. “Transcendent” means ‘beyond’ and ‘above’, hence a transcendentalist is one who believes in the existence of a divine world, beyond and above the world of the senses. The divine cannot be known by reason or rational analysis, but it can be felt and experienced by the spirit through intuition. The divine is referred to as ‘the over-soul’ by Emerson and it was referred to as the “Soul of all the Worlds” by Wordsworth. The external world is but the raiment or outer covering of the divine. Men can know the divine and ultimately become one with it through the agony of Nature which speaks to the soul and not to the reasoning faculty. If man comes to Nature in a mood of ‘wise passivity’ and allows influences from Nature to enter into his soul, he can see into “the heart of thing.” Thus there is oneness of God. Man and Nature. Emerson stressed the worth of the individual, the dignity of the human soul. He taught Man to rely on himself, on his own intuitions, natural instincts and impulses, and not on any authority outside himself or on tradition, however sacred or old. Thus his transcendentalism is closely linked with his individualism.

His teachings harmonised with the rise of democracy, the rise of romanticism, and the revolt against Puritan Orthodoxy which was begun by the Unitarians and carried by the transcendentalist to its natural conclusion. The Unitarians asserted the doctrine of the freedom of the will. In so doing, they laid the foundations for Emerson’s central doctrines of self-reliance, the moral sense, and the exact correspondence between natural and moral law. An intense faith in the individual is at the root of his faith in religious liberalism, in political democracy, and in literary romanticism. In this way, he produced works of art from the substance of American experience. Emerson’s Transcendentalism is an amalgam of various philosophies or ways of thought, both of the east and the west, both ancient and modern.

The transcendentalists believed in the unity of man. Nature and god, and the immanence of God in the world. Because of this indwelling of divinity, everything in the world is a microcosm containing within itself all the laws and meaning of existence. Likewise, the soul of each individual is identical with the soul of the world (or over-soul) which contains all that the world contains. Man may fulfil his divine potentiality either through a mystical state, in which the divine is infused into the human; or through coming into contact with the truth, beauty and goodness embodied in nature and originating in the Oversoul. “Thus originated the doctrine of correspondence between the tangible world and the human mind and the identity of moral and physical laws. Through belief in the divine authority of the soul’s intuitions and impulses, based on this identification of the individual and his soul with God, there developed the doctrine of self-reliance and individualism, the disregard of external authority and tradition, and logical demonstration and absolute optimism of the movement.”

Emerson’s Nature—“the Bible of Transcendentalism”—states his basic concept of the unity of Man, Nature and God. His subsequent lectures and essays are primarily illustrations or elaborations of those concepts with the help of new insights he gained. In Nature, Emerson has tried to locate man in relation to nature, on the one hand, and God, on the other. He has also made an attempt to see how man fulfils his destiny and realises his end. He places man at the centre of nature. Nature is helpful to him in the realisation of his higher ends and in the fulfilment of his destiny. At the physical level, it caters to his bodily needs and the needs of the senses. He considers body as a part of nature and, therefore, like it, an inferior incarnation of God in the unconscious. Man is God’s superior incarnation in the conscious. Nature is the shadow that we, our essential selves, cast. It is even the creation of our own mind. When we perceive the underlying principle in Nature, we come to know our essential self. Through the perception of the exterior beauty of Nature man becomes conscious of the spiritual beauty of the Universe. This is not automatic, but only when our senses are properly sharpened and harmonised with our inner self that we begin to see more than mere outward beauty. This is the moment when we are awakened to our essential being. Through Nature’s beauty we begin to see our own selves. This is the way in which Nature is made “to conspire with spirit to emancipate us”. The ground of our being is this beauty, this underlying principle and once we apprehend this truth we begin really to exist.

To Emerson, beauty and truth are one and the same things. When he says, “our life is embosomed in beauty” he means by beauty the over-soul, within which every man’s particular being is contained. Once we realise this we do not see surface facts alone, but the Soul that is immanent. Through the triangular relationship of man and Nature and of man and God, the position of man is explained and ascertained. However, Emerson knows it is not possible for him to explain why and how the universal Soul incarnates in man and thus the major part of this mystery cannot be unravelled. But there is no uncertainty in Emerson’s thought as to the over-soul being the ground of man’s existence. The foundation of man are not in matter, but in Spirit. “Because of the soul’s participation in the Divine substance, there is no limit to the possibilities in man’s life. Emerson called it the “infinitude of the private man,” and this he preached all his life. This means that man’s essential self is capable of transcending the finitude of existence and of becoming one with the infinite. Ineffable bliss is the union of man and god. One great miracle is the daily rebirth of God in the individual soul. “The purpose of man’s life, therefore, is to recognize his own essential self and the cosmic unity. It is in the very constitution of man to speak and strive in order to realise this unity in his life.”

Freedom of the individual is dear to Emerson, it is man’s most precious inheritance. Man has various faculties, they must be given free scope to develop to the fullest extent. The soul must have a free play. “When it (man’s soul) breathes through his intellect, it is genius; when it breathes through his will, it is virtue; when it flows through his affection, it is love.” No doubt great men are representatives of the essential humanity and, therefore, their “thought and feeling cannot be impounded by any fence of personality.” But great men are also those who have their special faculty developed to the highest pitch, and who never remind us of others. Such men are born once in centuries. On the other hand, every individual is left free to grow independently. “Nature wishes everything to remain itself” and it “steadily aims to protect each against every others.” Each is self-defended. Nothing is more marked than the power by which individuals are safeguarded from other individuals.

Main instruments or tools of fiscal policy

2012-06-17T00:43:00.003+05:00

The government uses various fiscal instruments or tools in order to achieve rapid economic growth. The main tools of fiscal policy are grouped under two main heads (i) Non discretionary controls or measures. (ii) Discretionary fiscal policy.

(i) Non-discretionary Measures

(1) Automatic or Built-in Stabilizers: The automatic fiscal stabilizers are those which contribute to keep economic system in balance without human control. These controls are built into the economy and so are called built in stabilizers. The main automatic stabilizers are as follows.

(a) Progressive income tax: Personal income taxes are the largest source of revenue to the government. The tax rate, the individuals pay on their rising income is progressive. When the disposable income of the people increases in the boom period, the higher amount of the tax reduces disposable income, reduces consumption and decreases the aggregate demand which helps in curbing economic boom. A reduction in income tax increases disposable personal income, increases consumption, increases aggregate demand and thus helps in curbing recession. The expansionary and contractionary fiscal policies can be summed up and brought under two approaches.

A) Demand Side Fiscal Policy.

B) Supply Side Fiscal Policy.

A) Demand side policy originated as a direct result of Keynesian belief. According to Keynes during recession, the goal is to raise aggregate demand to the full employment level. This objective may be achieved by (1) an increase in government spending (G) (2) a decrease in tax revenue (T) brought about by reduction in tax rates.

During a period of rapid inflation the goal is to lower aggregate demand to full employment level. The fiscal policy will be 1) a decrease in government expenditure 2) an increase in taxes brought about by rise in the rates.

B) Supply side policy is a new approach to fiscal policy. The modern economists are of the view that fiscal policy can also influence the level of economic activity through their impact on aggregate supply. When the firms experience an increase in resource costs due to sharp rise in the world price of major raw material say oil, the higher costs cause a decrease in aggregate supply creating a recessionary gap. Therefore an expansionary fiscal policy in the form of reduced corporate taxes and pay roll tax can help in closing the recessionary gap. Conversely, an increase in the corporate tax rate and pay roll tax etc can hep in closing inflationary gap.

(b) Unemployment compensation: In advanced countries of the world people receive unemployment compensation and other welfare payments when they are not of job. As soon as they get job these payments are stopped. During boom years, the unemployment compensation reserve funds help in moderating the inflationary pressure by curtailing income and consumption. When the economy is contracting unemployment, consumption and other welfare payments augment the income stream and they prove a powerful factor in increasing income output and employment in the country.

(c) Farm Aid programmes: Farm aid programmes also stabilize against the wave like cyclical fluctuations. When the prices of the agricultural products are falling and economy is threatened with depression, government purchases the surplus products of the farmers at the set prices. The income and total spending of the agriculturists thus remain stabilized and conration phase is warded off to some extent. When economy is expanding the government sells these stocks and absorbs surplus purchasing power. It thus reduces inflationary potential by increasing the supply of goods and contracting the pressure of too great spending.

(d) Corporate Savings and Family Savings: The credit of having automatic or built in stabilizer does not go to the state alone. The corporations and companies and wise family members too play an important part to contract cyclical fluctuations. For example, the companies pay a fixed amount every year to the share holders and with hold the part of dividends of the boom year to pay in the depression years. Thus holding back some earnings of goods years contracts the purchasing power and releasing of money in poorer years expands the purchasing power of the people.

(ii) The Discretionary Fiscal Policy

By discretionary policy is meant the deliberate charging of taxes and government spending for the purpose of off setting cyclical fluctuations in output and employment. The discretionary fiscal policy has short run as well as long run objectives. Let us examine these one by one.

Short-run Counter Cyclical Fiscal Policy: The main weapons or stabilizers of short-run discretionary fiscal policy are (1) Precautions (2) Changes in tax rates (3) Varying public works expenditure (4) Credit aids (5) Transfer payments.

(1) Guide Maps: In a capitalistic society, the entrepreneurs are not aware of each others investment plans. They therefore in competition with one-another over invest capital in a particular industry or industries thus cause over production and unemployment in the economy. Similarly in depression period there is no agency to guide them. If the government publishes the total investment plans and marginal efficiency of capital in various industries, much of the investment can proceed at a moderate sped and there can be stability to some extent in income, out put and employment.

(2) Change in Tax Rates: It is an important weapon of fiscal policy for eliminating the savings of business cycle. When the government finds that planned investment is exceeding planned savings and the economy is likely to be threatened with inflationary gap. It increases the rate of taxes. The higher taxes, other thins remaining the same, reduce the disposable income of people they are forced to cut down their expenditure. The economy is thus saved from inflationary situation.

(3) Varying Public Works Expenditure: Another important factor which influences economic activity is public expenditure. In times of depression the government can contribute directly to the income stream by initiating public works programmes and in boom period it can withdraw funds from the income stream by curtailing them.

(4) Credit Aids: The government can also avert depression by offering long term credit aids to the needy industrialists for starting or expanding the business. It can also give financial help to insurance companies and bankers to prevent their failures.

(5) Transfer Payments: Variation in transfer expenditure programmes can also help in moderating the business cycle. When the business is brisk the government can refrain from giving bonuses to the workers and thus can lessen the pressure of too great spending to some extent. When the economy is in recession, these pagmerts can be released and more bonuses can be given to stimulate aggregate effective demand.

The role of state in Islam

2012-06-17T00:41:00.002+05:00

In Islam state is administered in the name of God. The state is merely an instrument for realisation of spiritual and material goals. The concept of sovereignty is completely absent in Islamic state. Authority belongs to Allah alone. In Islam authority or power to rule is a trust of the people not the birth right of any individual. It is therefore to be exercised through democratic process, as Quran says “And consult them in affairs”. “And they conduct their affairs by mutual consultation.”

A) Spiritual Values

The role of state in Islam is welfare oriented. It not only looks after the moral and spiritual health of the people but also to the material (well-being of the people. For building up the moral and spiritual values in individual and society it helps in.

1) Creating environments suitable for the brought up of children.

2) In cultivating the spirit of Islam by providing Islamic education and practical training to the young generation who should lead the people of the world in art and science and trade and industry.

3) Strict enforce must of Islamic laws with strict punishment to those who violate them.

B) Basic Needs Approach

Another feature of Islamic state is that it recognizes the equality in the basic needs of every man. It is prineiy duty of the state to provide basic needs to individuals which are:

1) Availability of sufficient food to maintain body.

2) Suitable clothing.

3) Adequate shelter.

4) Suitable proper education.

C) Economic Role of the State

The economic role of the state of Islam is different from that of Capitalism and communism. It is to some extent compromise between two systems. The main functions of the state in Islam are as under.

1) Social and Economic Justice: Islam recognizes social and economic justice for all the individuals irrespective of creed, colour and caste. It is the duty of the state to see that no individual is exploited by another individual. Social and individual welfare is complementary and not competitive in Islam.

2) Utilization of Resources: Economic resources of the country in an Islamic state are placed at the disposal of the state. Since these resources are a trust from God. It is therefore the responsibility of the state to make full utilization of economic resources for the economic welfare of the people.

3) Stability in Prices of Commodities: It is the duty of the state to follow a fiscal policy which creates minimum fluctuations in the value of currency of the country. Since the changes in the value of money do not affect all persons equally, there for social justice and economic welfare demands that there should be minimum erosion in the value of money, so the prices should not rise.

4) Social Security: It is the primary duty of the Islamic state to see that there is complete equality among its citizens for the provision of basic needs. Islam guarantees a minimum standard of living for all its people. It gives equal treatment to all individuals and does not differentiate on the basis of colour, race or any other distinction. Man’s worth is determined not by wealth he possesses but by character, ability and his sense to mankind.

5) Wider Circulation of Wealth: Islam is against the concentration of wealth in a few hands. It believes in fair distribution of income. An Islamic state therefore enforces distributive justice for every individual.

6) Maintenance of Law and Order: it is the primary duty of the state to enforce law and order in the country. If the life and property of the citizens is secure and safe, they can work with peace. When every one in the society is satisfied, it leads to economic progress and stability in the country.

7) Harmonous Relations with Other Countries: It is the duty of state to develop harmonous relations with Muslim countries of the world in particular and other countries in general. The role of Islamic state is to work for the welfare of mankind. It should cooperate with those who are right and pious and shun the aggression and sin.

8) Fiscal Measure: There is an active intervention of Islamic state in the social and economic affairs of the country. For the performance of various functions it needs money. An Islamic state can raise revenue through (1) Zakat and Usher (2) Taxation and (3) Borrowing.

What is Zakat? Distinguish between Zakat and Tax

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The word Zakat literarymeans purification. By purification is meant the purification of soul, character, life and wealth. Purification thus covers all the aspects of human life. Technically Zakat is a compulsory tax which is imposed on the wealthy Muslim people for providing social justice to community. In Holy Quran there are three words which have been repeatedly used for alms and charity for the poor. There are Sadqat, Infaq and Zakat. The first two i.e. Sadqat and Infaq are optional. The third one i.e. Zakat is compulsory tax on wealth of Muslim members of the state alone. It is levied to attain the following objectives.

1) Purification of Soul: Zakat purifies the soul of contributor from the evils of miserliness. It makes them humble and God-fearing.

2) Healthy growth of the Community: The payment of Zakat leads to the healthy growth of the community. The amount collected through Zakat is spent for the uplift of the less fortunate members of the society.

3) Mobilization of resources: Zakat is the hub of Islamic public finance. It is the chief source of income of the state which is spent for the greater benefit of the society by the state and rooting out poverty.

4) Right of the Poor: Payment of the zakat is the divine order. It is therefore the right of the poor to get share from the wealth of the rich in a Muslim society.

5) Enemy of hoarding: Zakat is levied on the hoarded wealth. Due to fear of God and the fear of the Day of Judgment, the Muslims are supposed to declare their hoarded wealth which is subject to zakat. Zakat therefore is the enemy of hoarding.

Difference between Zakat and Tax

Zakat is different from tax. The main differences between the two are as under.

1. Zakat has religious sanctity behind it. A tax on the other hand is compulsory contribution to the public authorities to cover the cost of services rendered by the state for the general benefit of the people. There is no religious duty involved in it.

2. Zakat is levied only on the Muslim members of the society, where as tax is levied on the citizens in proportion to their ability to pay.

3. Zakat is a compulsory payment which must be paid by Muslims. Zakat is not remitted. Tax though compulsory payment yet is remitable by the government.

4. In case of Zakat the sources and the rates are fixed by Holy Quran and cannot be changed by the government. Rates of taxes and their sources on the other hand can be changed by the government from time to time.

5. The income collected Zakat can only be spent on the specified items laid down by Holy Quran. Taxes can however be spent on various requirements as determined by the government.

6. Zakat is paid to the needy, the poor and whose hearts are reconciled to truth. The revenue collected from tax is spent for the general benefit of all its citizens.

7. Zakat is levied on all types of goods even animals, gold and silver ornament etc. held with individuals. Tax on the other hand is levied on the income earned from various sources.

8. Zakat is uncompromising enemy of hoarding. On the other hand tax is paid on the recorded income. The hoarded wealth remains exampled from tax.

9. Zakat rate is not variable, it is fixed while tax rate is variable not fixed.

What is voucher and vouching in audit, describe routine checking and its objects

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Voucher

‘Voucher’ is the original documentary evidence in support of any payment or receipt of money by the business. It would be with the help of the voucher that the accuracy of entry can be checked. Voucher alone can tell us about the nature and sources of the transaction, its value and authority. It substantiates the book entries and confirms their reality. Such evidence may be primary and collateral. Certain Vouchers provide primary evidence while others constitute collateral evidence.

The following may be a few of the examples of vouchers for certain transactions:

1) Cash Received – Counterfoils of Receipts issued, Contracts, Minutes, Correspondence, Confirmation of balances by Debtors etc,

2) Cash Paid – Original receipts from Payees, Invoice Bills, Demand Notes, Wages Books, Salaries Books, Contracts, Correspondence, Confirmation by Creditors etc,

3) Purchases – Invoices, Books, Copies of Orders, Correspondence etc.

4) Sales – Copies of Invoices, Orders Record, Goods Outward Book, Correspondence etc.

similarly, evidence can be had with regard to transactions like Purchases and Sales Returns, Bills Receivable and Payable and Journal Entries.

All vouchers relating to business transactions should be carefully preserved and properly filed.

Vouching

Vouching is the essence of auditing and is also the most important duty of an auditor. Examination of the vouchers is called ‘vouching’. The term vouching means a careful examination of the original documentary evidence, such as invoices, receipts, statements, correspondence, minutes, contracts, etc, with a view to prove the accuracy of the entries in the books of account and to ascertain as far as possible that no transactions have been omitted from books. ‘Vouching’ implies the substantiation of the entries in the books by reference to any documentary or other evidence of an authoritative nature offered in support of the transactions. It is a method of verifying the accuracy and the authenticity of the entries recorded in the books. To vouch a statement is to confirm it by evidence. Vouching helps an auditor in establishing the truth of entries in the books of account and completeness of the record.

Vouching is the very essence of the auditing, the whole success of an audit will depend upon intelligent and thorough vouching of the documentary evidence. No amount of internal check can reveal serious discrepancies, errors of principles or carefully planned frauds. Vouching is indispensable in order to ascertain genuineness of the entries though their sources as to whether (a) they are in conformity with the general nature of the business, (b) they have been duly authorised, (c) they have been correctly recorded in the books.

The mere checking of the arithmetical accuracy of the postings and the totals is no proof that the books contain true entries in respect of all transactions. The book-keeper, for example, may pass an entry through the books in respect of a purchase from A, but this entry alone does not prove that the goods were, in fact, actually received; the purchase may be entirely fictitious, it being arranged, in collusion with other members of the staff, to misappropriate the amount of the cheque drawn in payment thereof. Again goods may be sold to B, but no record thereof made in the books, cheque later received from B, being misappropriated. In either case the books are arithmetically correct, but are certainly not actually correct. Apparent accuracy of the books may not be able to ensure their real accuracy, while vouching an auditor will also see that no entries have been omitted from the of account.

The duty of the auditor is to ascertain that the books are actually correct in accordance with the best of his information and he obtains this information from the documents from which the books have been written up, and any other evidence or explanations he can obtain. His examination of the evidence, as such, is termed ‘vouching’. It will not only be confined to the receipts and payments of cash alone but will also extend to the purchase and sale of goods and all other transactions of the business which involve, or should involve entries in the books. He is not only to ascertain that every transaction recorded in the books is supported by a voucher, but is also to see that every transaction which should have been properly recorded in the books of account, have in fact been properly recorded in the books.

Vouching is very much different from routine checking. It is much wider in its scope than routine checking. In fact, routine checking is included in vouching. Vouching differs from routine checking both in its meaning and objects.

Routine Checking

The term ‘routine checking’ means

(a) The checking of casts, sub-casts, carry forwards, extensions and other calculations in the books of original entry;

(b) The checking of postings into ledgers, and

(c) The checking of ledger accounts, as regards their casts, balancing the carrying forward of balances and the transfer of balances and the transfer of balances to the Trial Balance.

For this purpose, Auditors usually employ ticks of different kinds. Very often coloured pencils are used to distinguish one type of ticks from other.

The objects of routine checking are:

1) Verification of the arithmetical accuracy of the original books;

2) Ascertainment of postings from books of original entry to the correct accounts in the ledgers;

3) Ensuring, by special ticks, that no figures are altered after they have been checked.

Contrary to this the objects of vouching are much wider in their scope. In addition to the objects of routine checking discussed above, auditor undertakes the work of vouching with the object of going behind the books and to completely satisfy himself that the transactions recorded in the books are (i) properly authorised and (ii) correctly entered into. His attempt would be in the direction of finding out facts behind the figures. Careful and intelligent vouching would help an auditor to a very great extent in detecting frauds. The extent of vouching to be performed by an auditor would depend upon the systems of book-keeping and internal check in operation in the business.

Objectives, Limitations and Evaluation of Internal Control

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Objectives of Internal Control

Internal control relating to accounting system is concerned with achieving objectives such as:

1. Transactions are executed in accordance with proper authorization.

2. All transactions and other events are promptly recorded at the current amount, in the appropriate accounts and in proper accounting period so to permit preparation of financial statements in accordance with an identified financial reporting framework.

3. Access to assets is permitted only in accordance with proper authorization.

4. Recorded assets are compared with the existing assets at reasonable intervals and appropriate action is taken with regard to any difference.

Limitations of Internal Control

Internal control system has the following inherent limitations:

1. Management’s usual requirements that the cost of an internal control does not exceed the expected benefits to be desired.

2. Most internal controls lead to routine transaction rather than non-routine transaction.

3. Potential for human error in the operation of internal control due to carelessness, distraction, mistakes of judgement and the misunderstanding of instructions.

4. Possibility of control being by-passed due to collision of two or more persons, whether inside or outside the entity.

5. Possibility that a person responsible for exercising an internal control could abuse that responsibility by overriding and internal control.

6. Possibility that procedures may become inadequate due to changes in conditions, and compliance with procedures may deteriorate.

Evaluation of Internal Control

The evaluation of internal control by an auditor is necessary. There are no set rules for such evaluation. However, there are enquiries which have to be made. The auditor while making such inquiries should select actual transactions in order to determine the proper functioning of systems, procedures and polices. The auditor is to ensure that these procedures are not on paper only but are in fact in operation.

First inquiry would be whether there are any documents in the form of manuals, charts, circulars, forms, etc, laid down by the organization that are to be followed within the organization. This record will assist the auditor in ascertaining whether there is functional regression of duties between responsible personnel.

Enquiry regarding financial and accounting procedures will be made to ensure whether the transactions are properly received to establish the propriety of the transactions and accuracy in their recording. This enquiry will help the auditor to determine whether the flow of process helps in detection and reduction of errors.

Enquiry about the financial statements will enable the auditor to find out.

(a) The responsibility and authority of person reporting.

(b) Performance of personnel and the organization.

The auditor for the purpose of evaluation will find the following facts:

1. Whether the system ensures the accuracy of records and financial statements.

2. Whether the system prevents or detects errors.

3. Whether the system prevents or discloses losses occurring due to negligence, inefficiencies or inadequacies.

4. Whether the system ensures compliance with set policies.

Types and components of Internal Control, its procedure and features

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Internal Control may be of following types:

a. Organisation

b. Segregation of duties

c. Physical

d. Authorisation and approval

e. Arithmetical and accounting

f. Personnel

g. Supervision

h. Management

i. Acknowledgment of performance

j. Budgeting

Organization: An entity should have a plan of organisation which should define and allocate responsibilities, and identify the line of reporting.

Segregation of duties: A single person should not handle recording and processing of a complete transaction. Several persons should be entrusted with these works. Functions that should be separated are: initiation, authorisation, execution, custody, issues of delivery order, and recording.

Physical: Physical custody and access: Authorisation and approval. All transaction should require authorisation or approval by a senior auditor and his limits of authority be specified.

Arithmetical and Accounting: This can be achieved through arithmetical accuracy of records, and checking of totals, reconciliations, control accounts, trial balance, accounting of documents.

Personnel should be designated to ensure that the task assigned has been properly done.

Supervision: All actions at all levels of authority should be supervised.

Management: Certain controls should be enforced like, services by management, comparison with budgets, internal audit, or any special services procedure.

Acknowledgement of performance: Persons doing the work must initial, or put rubber stamp to identify responsibility.

Budgeting is the common technique used in business.

Components of Internal Control

Internal control comprises of the following

a. Control environment

b. Control procedures

(a) Control Environment: Control environment has been defined by (ISA 6.8) as:

Control environment means the overall attitude, awareness and actions of directors and management regarding internal control and their importance in the entity. The control environment encompasses the management style, and corporate culture and values shared by all employees.

Factors reflected in the control environment include:

1. Function of the directors and its committees.

2. Management philosophy and operating style.

3. Entity’s organizational structure and methods of assigning authority and responsibility.

4. Management’s control system including internal audit function, personal policies and procedures.

Control Procedures are those policies and procedures in addition to the control environment which are established to provide a management with procedure so that specific entity objectives are achieved.

Specific control procedures include:

1. Reporting, review and approving reconciliations.

2. Checking arithmetical accuracy of records.

3. Controls over computerized application and information technology environment.

4. Maintaining and reviewing control accounts and trial balances.

5. Approving and controlling documents.

6. Comparing internal data with external sources of information.

7. Comparing results of cash, security and inventory accounts with accounting records.

8. Limiting direct physical access to assets and records.

9. Comparing and analyzing financial results with budget.

Essential Features of Internal Control

A system of internal control will have the following features or characteristics.

1. Plan of organization

2. Authorization, recording and control procedures.

3. Sound practice in performance of functions.

4. Competency of personnel

1. Plan of organization: It should establish clear line of duties, responsibilities, segregation of operations, and subordination of each member of the staff. Organization structure must provide for adequate independence for various functions performed at different levels. The division of duties should be such that activities of a department are controlled by records maintained outside it.

2. Authorization, recording and control procedures: They should ensure that (a) every item of expenditure has been properly authorized and accounted for, (b) every item of receipt has in fact been received and accounted for, (c) there is proper custody of the funds and assets, and (d) there is no misapplication or misuse of any property of the enterprise.

3. Sound practice in performance of functions: An effective system of internal check should lie down that no single person should alone handle any transaction completely from beginning to end. The system should provide that the work of one person will be checked by another, the management shall be able to detect errors and frauds.

4. Competency of personnel: It means the competency of departmental heads, key personnel and all persons performing routine tasks at different levels. This will require proper selection, training, effective direction, supervision and control, quick corrective action to avoid violation of prescribed procedures.

Auditor’s Interest in Internal Control

In the case of a large enterprise and sometimes even in case of a medium sized organization, it is not possible for the auditor to complete the audit if he indulges himself in verifying all, or even a major portion of the transactions. In such situation he should apply sampling technique in carrying out a routine verification of transaction. In order to determine up to what extent he can reduce his work would depend upon the effectiveness of the internal control system. So there should be a proper study and evaluation of the existing internal control as a basis for reliance thereon and for the determination of the resultant extent of the tests to which auditing procedures are to be restricted.

An auditor is only interested in assessing policies and procedures which are relevant to financial statement assertions. The understanding of relevant aspects of the accounting and internal control system enables the auditor.

a. to assess the adequacy of the accounting system as a basis for preparing the financial statement.

b. to identify the types of potential misstatement that could occur in the financial statement.

c. to consider the factors that effect the risks of misstatements, and

d. to design appropriate audit procedure.

The auditor should place reliance on internal controls, only after ascertaining and evaluating these controls. If the auditor has reasons to believe that a client has set up a strong system of internal control, the reliance on that system will help the auditor to reduce the detailed checking which would otherwise be undertaken.

What is internal control System and define its nature

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Nature: Internal control is not necessarily a control over finance only. Its scope is wider. It covers the control of the whole management system. The control may be financial or even non-financial. But the main objectives are to safeguard all the assets of the entity, to run the business smoothly and to have accuracy and reliability of all the records. So the control may spread even to the books of accounts. The internal control may be in respect of production or even quality.

The internal control is the responsibility and function of the management. The management is responsible not only for establishing an adequate system of internal control but also to see that such an adequate system is maintained throughout. Where internal control is good, the recording of fictitious or fraudulent transactions would be rare. Chances of fraud in accounts or in documents would be reduced to the minimum. Where, however, there is no system of internal control or such a system in inadequate, the chances of fraud and error may be more.

The auditor should study and evaluate the internal control existing in the organization of the client. He should ascertain whether the system is adequate or otherwise. On the evaluation of internal control will depend the extent of the test checks which the auditor may apply during the audit of such organization.

International Control Defined

Internal control system is defined by ISA as follows:

“The internal control system means all policies and procedures (internal control) adopted by the management of an entity to assist in achieving management objective of ensuring, as far as practicable the orderly and efficient conduct of its business, including:

a. Adherence to management policies.

b. Safeguarding of assets.

c. Prevention and detection of fraud and error.

d. Accuracy and completeness of accounting records.

e. Timely preparation of financial statements.

2. Millichamp has defined the expression internal control as:

Internal control system—the whole system of controls, financial and otherwise, established by the management in order to carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to management’s policies, safeguard the assets and secure as far as possible to completeness and accuracy of the records.

Note: The individual components of an internal control system are known as controls or internal controls.

From the above definition the following salient points emerge:

a. Whole system: Internal control can be seen as a whole system rather than as single system.

b. Financial and otherwise: Financial includes the use of control accounts and otherwise includes physical access restriction to computer terminals.

c. Established by management: Internal control is established by management either directly or by means of external consultants, internal auditor accounting personnel.

d. Carry on-efficient manner: This is acceptable to every business.

e. Ensure adherence to management policies: Budget or selling prices are expressions of management policies and adherence to them can be achieved by variance analysis.

f. Safeguarding assets: Assets are not to be allowed to be broken, lost or stolen – there must be locks and keys. An assets register should be kept. The debtors’ balances should be reviewed regularly.

g. Secure-Completeness: All transactions should be recorded and processed.

h. Accuracy of records: This includes the checking of work of one person by another.

Solved problems related to material costing

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Records of the Sylhet Co. Ltd. show the following data relative to Material No. e—71:

Balance: July 1, 1967 … 1,050 units at Rs. 10/25

Purchases: July 3, 1967 … 1,200 units at Rs. 10/50

12, 1967 … 600 units at Rs. 11/00

24, 1967 … 300 units at Rs. 10/75

Issued: July 2, 1967 … 750 units

18, 1967 … 900 units

29, 1967 … 300 units

Required: calculate the inventory balance and the cost of the material issued on each of the following bases:

(1) Last-in, first-out, Perpetual inventories are maintained and costs are charged out currently.

(2) Last-in, first-out. No book inventory is maintained.

Solution: (1) Lifo-perpetual inventory

Material No. E—71

Cost of the material issued Rs. 20,662/50

(2) Lifo-no book inventory

Cost of purchases of the material:

Rs.

1,050 units at 10/25 (Inventory) 10,762/50

1,200 units at 10/50 12,600/00

600 units 11/00 6,600/00

300 units at 10/75 3,225/00

33,187/50

Less inventory of the material (earliest costs):

July 1, 1967 (inventory), 1,050 units

at Rs. 10/25 10,762/50

3, 1967 (balance) 150 units

at Rs. 10/50 1,575/00

12,337/50

Cost of the material issued. Rs. 20,850/00

(It will be observed that there was no difference in the cost of the material issued by fifo system both under perpetual inventory and under no book inventory, but here the two figures are different).

Material Costing - Solved Problem No.2

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The records of the Khulna Manufacturing Co. Ltd. Show the following data relative to Material No: B—198:

Balance: March 1, 1967 1,350 units at Rs. 20.50

Received: March 4, 1967 1,400 units at Rs. 21.00

13, 1967 1,200 units at Rs. 22.00

25, 1967 1,100 units at Rs. 21.50

Issued: March 3, 1967 1,250 units

19, 1967 1,300 units

30, 1967 1,100

Instructions: Find out the inventory balance and the cost of issue of the material on each of the following bases:

(1) Fifo. Perpetual inventories are kept and costs are charged out currently.

(2) Fifo. No book inventory is kept.

Solution:

(1) Fifo – Perpetual Inventory

(2) Fifo – No Book Inventory Rs.

Cost of purchases of the material 1,07,125

Less inventory of the material (latest costs):

January 25, 1967: 1100 units at Rs. 21/50 = 13,650

13, 1967: 300 units at Rs. 22/00 = 6,600

30,250

Cost of the material issued: 76,875

Last—in, First—out (LIFO) Method:

Under this method the materials purchased are issued in the opposite order to FIFO i.e. the items last entered in the stores are first to be issued. Under this method also the value assigned to the materials issued is same as paid for. This method has the following advantages:

(1) As the most recent costs are charged, it renders the calculation of earnings more accurate.

(2) The fluctuations of net earnings are minimised on account of latest costs being matched with current revenues.

(3) As the most recent purchase prices are charged under this system, it enables in the periods of rising prices to postpone partially the payments of income-taxes because the profits are shown at reduced figures.

The method is a little difficult to operate on account of various types of calculations to be made. Moreover, as the oldest purchases are shown at the purchase prices then ruling, ruling market prices, particularly in the event of rising prices. This system can be applied easily where there are not more than three purchased lots on the stores cards.

The Lifo method ensures that the most recent costs are charged to work-in-process or other operating expenses by leaving the oldest costs in the inventory valuations.

In the words of Matz, Curry and Frank, “The lifo method of inventory valuation does not give an appropriate measure of consumed materials costs in many types of business, and detailed issues on the lifo basis are appropriate in relatively few situations……The lifo method is more appropriate in process costing where individual material requisitions are seldom used and the materials move into process in bulk lots as in flour mills, spinning mills, oil refineries, and sugar refineries.”

Sometimes instead of charging the materials with the different costs of purchases, the latest cost is used for all the issues of materials. But this method should be used only when very frequent purchases and issues are involved. If this is not so sometimes a negative value might have to be assigned on the stores card. For example:

It will be seen that although 1,000 lbs are on hand, there is a negative value of Rs. 15,000 on the stores card.

We give below two problems to explain the procedures involved in the lifo method.

Limitations of Audit and Objects of Auditing

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Audit in spite of having valuable advantages has a number of vital limitations, namely:

1. Vital aspects like finances, business ethics, managerial efficiency and effectiveness are not dealt with by audit.

2 clever manipulation of books and records, etc, are not disclosed by audit.

3. Since audit of books does not tell the whole story additional information, clarification and explanation is to be sought to form an audit opinion.

4. Audited accounts may not mirror correct position due to faulty judgement of the auditor.

5. Audited accounts may lack authenticity as the external evidence may not be wholly reliable.

6. Audit techniques employed for collection of evidence may not be consistent with the nature of businesses.

7. Audit does not provide proof of certain representations.

8. Certain organisations cannot bear the cost of audit examination.

9. Since auditor is not expert in all fields he may rely upon the opinion of other experts e.g. engineers, architects, values, legal advisors.

10. Though under the law shareholders appoint auditors but in fact the directors appoint them, so there is no independence of auditors.

11. The explanation and information given by the client may not be correct and may affect the audit opinion.

12. Accounts are prepared on a number of judgements depending on such factors which may not remain constant.

objects of Auditing [B. Com]

Ans: The following chart exhibits at a glance the objects (or purposes) of auditing.

The objects (or purposes) of auditing can be classified into two broad parts:

1. Primary a. Opinion Reporting on financial statements.

2. Secondary b. Detection and prevention of errors.

c. Detection and prevention of fraud.

(a) Opinion as regards financial statements:

According to ISA-1, the objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared in all material respects, in accordance with an identified financial reporting framework. Section 255 of the Companies Ordinance requires a company auditor to state whether in his opinion – (a) the balance sheet gives a true and fair view of the state of company’s affairs as at the end of the financial year; and (b) the profit and loss account gives a true and fair view of the profit or loss for the financial year. In other words the main purpose of auditing is the expression of auditors opinion, adherence to accounting principles, consistency and conformity thereto and the fairness with which the statements present the financial position and operating results.

(b) Detection and Prevention of Errors:

One of the incidental objective is to detect the errors occurring in the books and records of the enterprise. Whatever be the nature of error it is bound to affect either the trading results or the financial position or both. Consequently, the financial statements would not reflect true and fair position. Detection of errors can be achieved by a thorough examination of all the entries and financial records.

Prevention of errors must follow detection of errors. This can be achieved by instituting both physical and moral check. The knowledge of the fact that accounts will be audited will put moral influence over client’s staff and they will be more cautious and careful in their work. This will prevent errors to a great extent.

ISA11 provides standard, guidance and auditor’s responsibilities to consider the risk of material misstatement resulting from errors.

(c) Detection and Prevention of Fraud

Detection of fraud is another important object of auditing. The auditor should keep in mind the possibility of frauds while auditing. If he suspects its existence he must probe unto its roots and unearth or discover it.

Prevention of fraud can be achieved by a system of internal check. If such system is defective, suggestion be made for its improvement. Auditing itself indirectly exercises moral influence over the fraudulent intentions by creating a fear of being found out. In addition method of internal check introduced through auditing limits the possibilities of fraud.

Importance and advantages of audit

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Audit is an examination of financial statements with a view to express an opinion on the fairness with which they present financial position, results of operations and changes in financial positions in conformity with generally accepted accounting principles.

In view of the above nature of audit its importance may be listed below:

a. detection of fraud.

b. detection of errors.

c. vigilance over personnel.

d. reliance by third parties on audited accounts.

e. reliance by owners on audited accounts.

f. improvement of internal control.

g. legal obligations.

Audit detects and prevents fraud by employees by limiting the temptation to perpetrate fraud. Sound system of audit detects errors and provides effective internal control. Due to fear of audit the employees become regular, vigilant and keep the books and record up to date and accurate. Audited statements are considered reliable for tax, claims, borrowing, and proposed sale. The joint owners of business rely on audited accounts. Internal control is improved in view of weaknesses pinpointed by auditor.

Advantages of audit:

(a) For the enterprise. (b) For owners of enterprise. (c) For other.

(a) Advantages for Enterprise:

1. Accounting staff, is regular, careful, and systematic in work.

2. Errors and fraud are detected promptly as audit exercises moral check.

3. Enterprise can obtain loan and credit without difficulty as audited accounts are reliable basis.

4. Liability or income-tax, sales-tax etc, can be easily determined.

5. In case of sale of business purchase consideration can be reasonably determined.

6. Disputes with employees for higher wages and other benefits can be mutually satisfactorily settled.

7. Insurance claims can be determined more speedily.

8. Remedial steps may be taken to improve internal check and internal control.

9. Maintenance of statutory records is ensured.

10. Enterprise can benefit from the professional competence and experience of the auditor.

(b) Advantages to Owners:

1. Owners of Proprietary business: By securing audited accounts becomes satisfied that there are no errors and fraud.

2. Partnership: Audited accounts serve as an evidence of proper management and provide a solid basis for admission, retirement or death of a partner.

3. Companies: Shareholders, through audited financial statements become satisfied that their investment is safe.

4. Trusts, Co-operative Societies: Prove to the beneficiaries that their interest is being properly and effective safeguarded.

(c) Advantages to Others:

Audited financial statements are relied upon by outsider for a number of purposes.

(a) Banks: Largely rely on audited financial statements for making decision as to grant of loans, overdrafts etc.

(b) Insurance Companies: Depend on audited statements to settle claims for damages or loss of business assets.

Differentiate between bookkeeper, accountant and auditor from professional point of view

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Bookkeeper: Means a person whose job is to maintain and keep the books of accounts. He is a junior employee having elementary knowledge of maintaining accounts, books. He does not possess refined knowledge and specialized training in the field of accounts. He works under the supervision of a senior employee having good knowledge of accounts. The work of a bookkeeper is of route and mechanical nature which he can grasp by a little devotion.

Accountant: Is a senior employee of the organization. He supervises the bookkeeping function and is responsible for the preparation of periodical financial statements, making year-end adjustments, drawing up trial balance, preparation of various schedules, working out depreciation charge, providing for bad debts, closing books, reconciliations, and much other required information. He suggests improvements and advises the management on various financial matters and attends taxation proceedings. The accountant also looks after the audit of accounts and provides every information and assistance desired by the auditor.

Auditor: Is an outsider and an independent professional. He is qualified person and a member of an accountancy body of the country. He has practicing certificate and entitled to certify financial statements. He possesses high knowledge of principles of accountancy. An auditor goes behind the books to form an opinion.

Distinctive qualities of Emerson’s poetry

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Emerson was an inspired poet who writes from inner conviction and not according to rules and regulations. His philosophy of life, based essentially on the authenticity of intuition and – genuine emotion, is, in sense, a poetic view of life. His views on the nature and function of poets and poetry have been forcefully expressed in the essay on The Poet. His poetry is to be assessed in terms of his general philosophical outlook. As a theorist of aesthetic experience, he always emphasized the supremacy of poetic inspiration over more technical skill. A poet, according to him, is not a mere craftsman, but a seer and a visionary, “It is not metres,” he says in his essay on The Poet, “but a metre-making argument that makes a poem.” And is not, “

America

a poem in our eyes that may not wait long for metres.”

“It is in me, and shall out” This statement embodies the fundamental tenet of Emerson’s theory of poetic communication. It is only thought “Expression is all we need, not knowledge, but power to express.” Emerson further elaborates his concept of expression as an activity that seeks consummation only through complete freedom of thought and emotion. True expression cannot permit authority or dogma to sap its vitality. The poet knows that he speaks adequately then only when he speaks somewhat wildly, or “with the flow of the mind,” not with the intellect used as an organ, “but with the intellect released from all service and suffered to take its direction from its celestial life.”

According to Emerson, the poets are liberating gods. They are free and they make us free. An imaginative book renders us much more service at first, by stimulating us through its figurative language. Then afterward we arrive at the special sense of the author. “I think nothing is of any value in books excepting the transcendental and extraordinary. If a man is influenced and carried away by his thought to that degree that he forgets the authors and the public and has only this one dream which holds him like an insanity, let him read his paper and you may have all the arguments and histories and criticism.

Emerson’s theory of poetic diction carries over-tones from Wordsworth’s theory of ‘lingua communist’. Like Wordsworth he believes that the language of poetry should be simple, unvarnished and shorn of all artificialities. It should be spontaneous and never strained or bent to a specific purpose. It is the same belief in the potency and vigour of the simple word that explains the irresistible charm of Whitman’s poetry. In fact, it has now been established that Whitman in working out his own theory of poetic language, was greatly influenced by his Master, Emerson.

Emerson was a rebel, like Shelley, against tradition and orthodoxy and this note of revolt is there, in his poetry also. As is clear from his essay on “The Poet”, he had a high conception of poetry and regarded the poet as ‘pivotal man’ who must think in his own original way and reject all that is hackneyed in thought or in word and phrase, in language, diction and versification and imagery. He believed that poetry comes into being as the result of inspiration. In that moment the poet sees the very essence of things. The poet makes the unseen visible by means of language. But he is not the conscious creator. “His vision shows him the symbols and the thought takes it own form in language that is rhythmical. Because of this, there is a certain indwelling beauty in poetry……poetry is spiritual and forms a link between the visible and invisible world.”

Emerson valued the poet because the poet uses his imagination to discern the meanings of sensuous facts. The poet sees and expresses the beauty in Nature; he recognizes the spiritual meaning of natural phenomena. He takes old symbols and gives them new uses, thereby making nature the sign of God. The poet’s insight is “a very high sort of seeing,” a way of transcending conventional modes in order to attend directly to the forms of things. “The poets are thus liberating gods, they are free, and they make us free.”

In some of his poems, Emerson achieves epigrammatic terseness and near perfection of diction. According to Paul Elmer More, “his noblest work in verse must be sought in those quatrains which need no context for their comprehension and might be called “spiritual ejaculations.” Such quatrains are “exceptional” not in Emerson alone; they are exceptional in literature. One would have to search far to find anything in English equal to them. They have the clarity and radiance of the best poets. They may look easy, but as a matter of fact the ethical epigram is an extremely difficult genre, and to attain this union of gravity and simplicity requires the nicest art. Sometimes, as in Days, Emerson achieves “a haunting beauty” rare in poetry.

Emerson was a poet among philosophers, and a philosopher among poets. We have already noted above the expression of Hindi philosophy in his poetry. In the poem Merlin he tells us that the poet who turns his lyre to Nature’s music will rediscover for himself essential truth. “Poetry to Emerson was not merely a suggestive art through which the poet could teach direct lessons of wisdom; it was a function of his own being as an individual seeking truth. The poet is the student the receiver of wisdom; not the teacher. Poetry is moral, but it is no didactic.”

The inspiration for Emerson’s poetry and for his poetic theory came directly from Plato and from the seventeenth century British “metaphysical” poets, George Herbert, John Donne, and their fellows. From for him was inherent in substance, because the laws of art must be equivalent at every point with the laws of Nature. The poets who san in that great age of scientific inquiry, following the disturbing discoveries of Galileo and Newton, were forced to open their minds to the evidence of Nature, even where they seemed to be in conflict with the supposed rules of an arbitrary God. The nineteenth century was facing a similar intellectual crisis. Once, again, the spirit of scientific inquiry was destroying old dogmas and re-asking the old questions. It was the very confusion of thinking in his age that attracted Emerson, as that of an earlier age had attracted Donne, to an attitude of scepticism.

Emerson’s favourite image of the Aeolian harp, the lyre that plays when its strings are caught by the breeze, aptly describes his view of the primary role of the poet. “Poetry was all written before time was,” he tells us in his essay on The Poet, “and whenever we are so finely organized that we can penetrate into that region where the air is music, we hear those primal warblings and attempt to write them down.” The poet has his special function in the order of nature; he is, “the sayer, the namer, and he represents beauty.” He is important to his age because. “The experience of each new age requires a new confession and the world seems always waiting for its poet.”

“In stating so clearly his case for an organic view of art,” Emerson was describing not only his own method but the instinctive approach of most really great American writers. Only when the artist takes upon himself the responsibility for rediscovering a central vision can he hope to deal with a new experience. The earlier American writers had hoped to borrow their forms and methods from Old World authors, but Emerson told them, “It is not metres but a metre-making argument that makes a poem—the thought and the form are equal in the order of time, but in the order of genesis the thought is prior to the form.” Only by a totally fresh evaluation of his own experience, he might have added, could the American artist hope to find the form which is inherent in what he discovers.

Next to organicism, his most important contribution to American poetry was his use of the symbol. For him Nature was itself a symbol of the spirit, and particular natural facts were symbols of particular spiritual facts; finally, words were symbols of natural facts. The poet who discovers the right symbol has revealed his share of truth. He is an intellectual and pictorial music, not heard but seen. His own poems at their best are rugged in metre, but their argument is conveyed in sustained symbols. The modern “metaphysical” poetry was Emerson’s invention for

America

. One of the oldest of the methods of art, it required a reaffirmation before it could be used for the new experience freely by Thoreau, Emily Dickinson, T. S. Eliot and others.

But Emerson lacked the gift of sustained construction and development and is at his best only in his shorter pieces. According to W. C. Brownwell, “the major shortcomings of Emerson’s poetry, are the absence of art, lack of communication with the world; its esoteric and elusive, nature.” His poetry is meant to please himself, it has “experimental, tentative, adventurous air.” Woodberry maintains that Emerson was, “fundamentally a poet with an imperfect faculty of expression.” He is rather deficient in sentiment, “Neither passion for pathos, nor indeed any depth of feeling properly to be called human, fell in with Emerson’s scheme of things.” His idealism was, in essence, intellectual. One may almost say that he shrinks from feeling. “His poetry lacks Donne’s wit, Milton’s loftiness of style and vocabulary. The ardour and lyricism of the great Romantic poets, too, is not there, nor is there the restraint of the classicists and their formal perfection. Emerson’s real greatness appears in the Essays, and not in his poems.”

Emerson seldom wrote? Perfect poem because of his failure to abandon the arbitrary laws of metre and rhyme that he rejected in theory and that he could not himself master. But in their singleness of vision and in their symbolism, his best poems are designed on a grander scale than anything before Whitman.

Emerson’s prose-style. What are its merits and demerits

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Emerson’s prose-style is noted for its aphoristic quality and its epigrammatic terseness. The essay is with him, as with Bacon, a series of short, quotable assertions without the logical unity of the discourse, but all bound together by the intellectual atmosphere of the source from whence they proceed. Very many of the sentences are remarkable for their force, subtlety, and impressiveness, and some for their poetical beauty. The imagery is of great range, from the sun and stars and down to the meanest weed or insect, and the diction is quaint and original but not in the lest affected. With Emerson prose is the other harmony, i.e. poetry. He is one of the greatest writers of poetic-prose. His sentences have the rhythm and cadence of poetry.

He has used a number of stylistic devices such as figures of speech, analogy, antithetically balanced sentences, epigrams, rhetorical etc. The use of these various devices can easily be illustrated from any of his essays – For example take the following: “It is one central fire, which, flaming now out of the lips of Etna, lightens the capes of Sicily, and now out of the throat of Vesuvius, illuminates the towers and vineyards of Naples. It is one light which beams out of thousand stars. It is one soul which animates all men” Here there is the fine cooperative contact achieved between the phrases, “the lips of Etna” and “the throat of Vesuvius” and between the verbs lightens and illuminates, enabling Emerson to repeat himself without repetition.

The perception of analogy takes also the less direct and more forceful form of metaphor. Literary fashions are seen as “the mere remains of foreign harvests.” He expects confidently a time, “when the intellect of this continent will look out from its iron lids.” The young scholar is, “a school boy under the bending dome of day.” Books are lamps to guide our steps to the East again, where the dawn is.

To the poet’s privilege of metaphor, Emerson adds the idealist’s prerogative of paradox, which is at once a way of seeing things as well as a way of saying them. It is a philosopher’s game, played with appearance and reality. Diversity and even contrariness are to him only a dramatic presentation of some great designs. “The drop is a small ocean,” “The near explains the far,” “One design unites and animates the farthest pinnacle and the lowest trench”, and, of course, the most basic paradox of all is the one in which, “Everything that tends to insulate the individual ……tends to true union as well as greatness.”

Emerson reminds us often of Milton, specially in The American Scholar, by his eloquence, by the amplitude and sweep of his sentences, the rhythm and the poetry of his descriptions. He reminds us just as often of Bacon with his confident aphorisms. The fullness of the longer sentences is balanced by the sharpness of epigram and the greatness of antithesis. He has a whole series of antithetically balanced sentences, where he describes how experience becomes truth and art in the crucible of the scholar’s mind. Readily noticeable also is the skilful use of rhetorical devices, like inversion, repetition or interrogation. “Emerson has the poet’s ear for the music of words, and something even of the more obvious phonetic and musical satisfaction of verse may be found in Emerson’s prose. Apart from the usual balancing of sound with the sense, characteristic of the antithetical construction, we notice also the devices of rhythm, the balancing of sound through repetition and contrast in passages like this one:

“Every day, the sun; and after sunset. Night and her stars. Ever the winds blow; ever the grass grows. Every day, men and women cover sing and beholding.”

According to a noted critic, it is idle to analyse Emerson’s style, if we think of style as meaning order and arrangement: for his method of writing—by stringing together selections from his note-books—made it impossible that his works should have any continuity of thought or unity of expression. But if we think of style simply as manner, as the reflection of personality, and then consider Emerson’s most characteristic paragraphs which suggest stars, flowers and glimmering crystals, then there is no style to compare with his in our literature.

There can be no denying the fact that Emerson is one of the greatest of prose-stylist in the English language, but he has also glaring faults and short-comings. He lacked the gift of sustained construction. His style is best illustrated in selected passages. The sentences are terse, vital, epigrammatic; yet they are always poetic rather than practical, and always hint at much more than they express. Because he lives much out of doors and is intimate with earth, air and water, Emerson’s figures have an elemental quality unlike those of any other writer.

The dew and fragrance of the morning are in all his works. Because he has read widely he gives an air of culture to the most homely matters by associating them with the great characters and the great books of the world. He has a large vocabulary at perfect command, but his instinct leads him to the simplest and most picturesque words. He chooses his expressions from the most unexpected places, here from the nursery, there from the Apocalypse or from the mystic books of the East; and not even Lowell approaches him in the ability to clothe his thought in a new dress, making its appeal as fresh and original as if it had been spoken in Eden at the spring time of the world.

Emerson is always striving after eloquence of expression, not to convince his hearers—such a personal motive would never occur to him—but simply because it is in his blood, because eloquence seems to hi Man’s natural expression, his unconscious reflection of his harmony with the universe.

Material Costing - Solved Problems

2012-06-14T10:19:00.001+05:00

Problem:

With the help of the following data calculate the cost of the ending inventory of Material No: c—154 on the basis of the most recent costs (fifo).

Solution: Material No: C—154

Differentiate between book-keeping, Accountancy and Auditing

2012-06-14T00:38:00.002+05:00

The book-keeping, accountancy and auditing are different from each other in their meaning, scope, advantages, interest served, recording, analysis and reliability. However, the difference between these can be expressed as follows:

Book-keeping: May be defined as the act of recording financial transactions of an independent unit in suitably ruled books, whether maintained manually or electronically, kept for the purpose of each accounting cycle.

Book-keeping is concerned with maintaining a regular, correct and automatic record of day to day financial transactions of economic unit. It is a work of a more or less mechanical nature and does not require knowledge of the principles of accounting. Bookkeeping includes (i) entering the financial transaction in various books (ii) summarizing the same in the relevant ledger accounts, (iii) casting such accounts and striking the balance, (iv) proving the arithmetical accuracy of ledger, and (v) providing financial data for the preparation of financial statements.

Auditing: May be defined as the analytical and critical examination of the books of accounts checking and verification of evidence in support of entries appearing in the books of accounts, and ascertaining the authenticity of the assertions made in the financial statements. Auditing is a systematic examination of the financial statements, to determine how far they have adhered to the management policies and generally acceptable accounting principles.

Auditing is quite different from book-keeping and accountancy and is not concerned with the writing up of books of accounts or the preparation of financial statements.

Concisely: Bookkeeping, as the name implies, is the writing up and keeping of books of accounts (both subsidiary and main).

Accountancy, refers to the preparation of periodical financial statements for presentation to owners and others. Auditing, is the examination, verification, valuation and giving professional opinion on the books, records and financial statements prepared by the enterprise.

Concluding:

(a) Bookkeeping begins simultaneously with the introduction of capital, whether in cash or in kind of partly in each form and comes to an end with the return of capital of the owner;

(b) Accountancy begins where bookkeeping ends.

(c) Auditing has nothing to do with bookkeeping and accountancy but is a critical and investigative examination of financial data collected, classified and summarized according to proper and generally accepted principles.

Need and origin of auditing

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Origin: The origin of auditing may be traced to Middle Ages but the audit in its present form and concept can be traced after the introduction of large-scale production as a result of industrial revolution during the 18^th century. Stabilised governments, expansion of banking facilities and introduction of limited companies, improved means of communication are all responsible for the origin of auditing.

Need: The expansion of business activities, more and more involvement of owners in controlling business, increase in responsibilities of the lords and manners in government matters, delegation of funds by investors and others, management of business by directors, managers etc, made the direct control and supervision loose and less effective. The administrators of businesses and government funds became the sole authority. So it was found necessary to put some kind of check and moral pressure on their free-hand working; lavish expanding and misappropriations. The introduction of government levies and tax, their recovery and spending also increased the importance of some sort of check. Hence the need for auditing.

The need of auditing may well be expressed by saying that auditing is a careful searching of the books of accounts by comparing them with the documents and papers from which they have been written up and thus trying to find out whether the profit or loss for a particular period and the financial position as shown by the balance sheet are correct and true and fair.

Hemingway’s use of the ‘Stream of Consciousness’ technique in his major novels

2012-06-14T00:28:00.001+05:00

Hemingway is an experimenter in prose style. He had lived in Paris, and had contacts with Joyce, Gertrude Stein, who had been deeply influenced by Bergson’s concept of time and reality. Joyce and Gertrude Stein had known also William James, the originator of phrase, ‘The Stream of Consciousness.’ Hemingway knew that Bergson had denounced mechanical or clock time which does not help in our comprehending reality. He has delineated the stream of consciousness of some of his characters in For Whom the Bell Tolls, The Old Man and the Sea and The Snows of Kilimanjaro.

He refers to The Fourth and the Fifth Dimension achieved through prose, in Greek Hills of Africa. This remark has been interpreted by various critics in different manners. Carpenter in Hemingway’s Fifth Dimension’ observes: “The fourth dimension clearly has something to do with the concept of time and with fictional techniques of describing it.” Harry Levin has pointed out that ‘Hemingway’s style is lacking in the complexity of structure that normally describes the third dimension but that it offers a series of images (much like the moving picture) to convey the impression, of time, sense and immediacy.’ Joseph Warren Beach has suggested that the fourth dimension is related to an ‘aesthetic factor’ achieved by the hero’s recurrent participation in the moral order of world.

And Malcolm Cowley has also related the fourth dimension of time to ‘the almost continual performance of rites and ceremonies’ suggesting the recurrent pattern of human experience, but has also called the fifth dimension a mystical meaningless figure of speech. Thus, Hemingway’s fourth dimension has been interpreted in different ways. It has something to do with psychological time of Henri Bergson. Gertrude Stein, another exponent of the inner time, was friendly with Hemingway. Even if the fourth dimension is treated ‘the aesthetic factor’ or the hero’s participation in the moral order of the world, it cannot be separated from the concept of the inner time. Carpenter holds the view that the fifth dimension connotes the psychological time. Tracing the origin of the phrase ‘the fifth dimension’ he points out:

“Actually the specific phrase ‘the fifth dimension’ was used in 1931 by P.D. Ouspensky, who defined it to mean the ‘perpetual now.’ Ouspensky, a mystic, was an admirer of Bergson and of William James. Bergson (also an admirer of James had also emphasized that difference between psychological time and physical time). And both these ideas go back go William Jame’s ‘philosophy of radical empiricism’ (that is of immediate or pure experience), which Gertrude Stein (a former pupil of James) had adopted for literary purpose.”

Hemingway also seems to be preoccupied with this question of inner time. “His literary ideal has been that of immediate empiricism. And his ‘fifth dimensional prose’ has attempted to communicate the immediate experience of perpetual now.” Ouspensky has given the characteristics of the ‘fifth dimension’ and ‘perpetual now’ in his work, A New Model of Universe, published in 1931. The ‘fifth dimension’ forms a surface in relation to the line of time……”Though we are not aware of it, sensations of existence of other time continually enter our consciousness. The ‘fifth dimension’ is movement in the circle, repetition, recurrence, “Ouskpensky has elaborated his views about the ‘perpetual now’ drawing inspiration from Jame’s moment of consciousness and Bergson’s conception of Elan Vital, It is not certain that Hemingway had read Ouspensky, the Russian philosopher.

Henry Bergson expounded his conception of time and reality. Reality cannot be grasped with intellect and cannot be analysed by reason. It is ‘immediate experience’ and is in a state of ‘flux’. Analysis and description have distorted the feeling. It is real duration, ‘the time perceived indivisible.’ The present penalties into the past and merges with the future. It is difficult to pinpoint that it is the present. There can be no instant anterior to it. The question of the present instant is mere abstraction. “Duration is the continuous progress of the past which gnaws into the future and which revels as it advances.” This duration or the psychological time is opposed to the mechanical time and is unbreakable.

This inner duration or reality can be comprehended through intuition. In the intuitive experience the subject and the object become one. It is the perception of the mind through intuition. Bergson has enunciated his theory of personality. It is dynamic and in a state of flux. A man’s experience is being enriched every moment and the human personality is always evolving and growing. Hemingway’s characters are engrossed in the present, ‘the perpetual now’. Hemingway introduced repetition, recurrence in the structure of his fiction and depicted inner time of his characters in some of his novels.

Farewell to Arms celebrates the religion of death

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His Knowledge of Death

Hemingway had the knowledge of death as a boy in the Indian camp in the company of his father. He has loved to portray death in his novels and short stones. He had seen death in the world wars and in the bull fights. The charge was levelled against him that he had sought death throughout his life. But the claim was rebutted by Hemingway himself. During his hunting in Central Africa, his “plane crashed and he was taken to be dead.” His assumed death was published in the newspapers. Hemingway escaping alive, refuted that claim, saying, “Can one imagine that if a man sought death all his life, he could not have found her before the age of fifty four. It is one thing to be in proximity of death to know more or less what she is; and it is quite another thing to seek her. She is the most easy thing to find that I know of.” He has, thus, shown a great awareness of violence, death and brutality.

Death in ‘A Farewell to Arms’

A Farewell to Arms portrays the life of Fredric Henry—the young American volunteer, serving in the Italian ambulance. He has borne the wounds of the battle as Hemingway himself did. An appropriate atmosphere of war has been created with the description of the troop movements, camouflage of guns, retreating soldiers and brothels. Henry has fallen in love with a V.A.D. nurse, Catherine Barkley. He later escapes to

Switzerland

to escape the punishment for having deserted the Italian army. Barkley did in the child-birth. The birth of the child and its mother’s death has aggrieved him most. He is disgusted with the chaos, killings and the confusion of the army. In their retreat, the Italians have killed their own men. Henry has then seen the ghastly savagery of war, as well as the infiltration of the German soldiers. The hero has participated in the war and has experienced despair, disillusionment, cruelty and barbarity.

Hemingway’s Injury

In A Farewell to Arms, the hero is Hemingway himself in another guise with his sense of suffering. Hemingway’s injury at Fossalta has background of this work. Hemingway himself had served in the Ambulance unit at Fossalta. Fredric Henry was also engaged in the war in

Italy

and had served in the Ambulance Unit. Henry narrates in A Farewell to Arms how he stayed in the main dressing room, and how the Austrian searchlights were moving over the mountains.

There was also a shell-burst while Henry was preparing to sit to eat. There was an explosion, Henry describes as:

“I ate the end of my piece of cheese and took a swallow of wine. Through the other noise, I heard a cough; then came the chuh…….chuh …….chuh…….chuh…….then there was a flash as a blast furnace door is swung open and a roar that started white and went red and go on and on in a rushing wind. I tried to breathe but my breath would not come out and out all the time bodily in the wind. I went out swiftly all of myself and I knew I was dead and that it had all been a mistake to think you just died. The I floated and instead of going back, I felt myself slide back. I breathed and I was back. The ground was torn up, and in front of my head, there was a splintered beam of wood. In the jolt of my hed, I heard somebody crying. I thought somebody was screaming. It was Passini and when I touched him, he screamed. His legs were towards me, and I saw in the dark and the light that they were both smashed above the knee. One leg was gone and the other was held by tendons and the part of the trousers, and the stump twitched and jerked as though it were not connected. He bit his arm and moaned—“oh, mamma mia; mamma mia………” Then “Dioti salvic Maria; Dioti salvi Maria.”

Fredric’s Experience

Fredric Henry’s “service in the ambulance corps, the shell-shock, the smashing of his friend’s legs by the fire, these experiences remind one of Hemingway’s own injury at Fossalta. Even Fredric’s love with Barkley has an autobiographical element. Hemingway’s love with a nurse while he convalesced in Milan hospital was a transitory phase. The war has caused devastation. It has upset the future. Henry’s fiancee is dead and he is lonely and disillusioned like Hemingway.

Views of a Critic

Dr. Mullick observes, “In A Farewell to Arms, we find that fullest account of this kind of death. Fredric Henry’s wound is received in the same manner as the actual experience of A Farewell. Certain facts of the novel’s war setting are very important. Here we have Gorizia, the nice town with its hospitals, its cafes, its two brothels (one reserved for the officers), its artillery and its upside streets. The two important ministers to the faith and security of the soldiers are the priest and Rinaldi, the surgeon. Dominating the town are the artillery pieces, which in the summer are covered with green branches to disguise them as part of the landscape. In the mountains at the front, which are hidden from view, one can only see the smoke from the guns:

“You saw the flesh, then heard the crack, then saw the smoke ball distort and thin in the wind.” No one cares for the advice of the priest, the whole life has been reduced to its secular minimum.

Death of Catherine

The death of Catherine Barkley, though its setting is remote from that of the war, is very much similar to the defeat and confusing terror of the war itself. The long, slow, almost monotonous life of waiting in

Switzerland

intensifies the terror and bitterness of the final scene. The two deaths are a transitory of the impersonal cruelty with which the novel abounds. The child is stillborn and the mother dies in her attempt to give him-life. There is no priest here, who would talk of love and God. There is nothing expect death and rain inside. Moreover, Catherine’s death is another example of the unreasonable wound, most pathetic, because it completely defeats the plan to which Lieutenant Henry had irrevocably committed himself.

Wound and Death as the Themes

The wound and the violent death are the themes of Hemingway’s works. This death, the violent death, is the special feature of the twentieth century and the wound caused is unreasonable. Hoffman comments “Hemingway can claim that of having honestly attempted an explanation of a form of death to which the twentieth century is particularly heir, death that comes as a violent disruption of life. It is unreasonable (that is, it is not properly motivated cannot be understood in terms of an ordinary system of motivation). It puts traditional securities to shame, since they cannot satisfactorily keep pace with its discriminate destructiveness. It demands a new form of resourcefulness and courage and in Hemingway’s case a new type of moral improvisation. The sudden violent injury inflicted impersonally by efficient guns and planes, too remote from the victim—to hold him any special grudge, is the symbol of this type of death and of death in life to which it is consequence.

Conclusion

Hemingway’s world is uniquely his own, a small segment of the twentieth-century world. It is a world of unparallel violence born of the horrors of the First World War and the intellectual and disillusionment which followed it. Most of its inhabitants lead a life of sensation only, usually mistaking sexual desire for love, devoting themselves to excitement rather than positive achievement. Uninterested in ideals or ideas they value courage above all other virtues and admire physical skills more than any other accomplishments, particularly when skill and courage can be combined in one activity such as in bullfighting or lion hunting. The joy of food, drink, sport, and fortification are their preoccupation because they are haunted by the spectre of death. To face death with courage is the supreme human virtue in the universe of Hemingway. Those who have not faced it, preferably in battle, are demonstrably inferior things.

What is Material Costing

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Generally raw materials form a very big proportion of the total cost of production. Materials costing involves the determination of the cost of materials acquired, the cost of materials issued and the cost of the inventory. Cost of materials acquired (also called the ‘acquisition cost’) includes the net price paid to the vendor plus freight-in plus the costs of maintaining the purchasing department, the stores department, the accounting department and the costs of inspection, testing and insurance. A great proportion of the requisition costs consists of fixed expenses.

On account of this fixed factor and also on account of various complications, generally the materials are priced at the net amount paid to the seller. It does not mean that the cost referred to above is in any case not relevant to the concept of acquisition cost. This extra cost is generally charged to production as manufacturing overhead.

Generally the perpetual inventory system is used because it ensures a continuous book record of various materials in stock. The main advantages of a perpetual inventory system are: (i) control over inventory is easy and effective because the latest inventory position is always available and (ii) the book inventory can always be compared with the results of physical counting.

The net amount paid to the seller is entered by the stores clerks on the stores ledger cards. He enters both the unit cost and the total cost. Then the problem which arises relates to pricing the materials issued. The following methods of costing materials issued are generally used:

(i) First-in, First-out (FIFO).

(ii) Last-in, First-out (LIFO).

Solved Problems of Cost Accounting

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Problem 5:

The Rustam Company has developed the following data to assist in controlling one of its inventory items:

Economic Order Quantity: 1000 Kg

Average daily use: 100 Kg

Minimum daily use: 80 Kg

Maximum daily use: 120 Kg

Working days per year 250 days

Safety stock 400 Kg

Cost of carrying Inventory Rs. 1.00 per Kg. per year

Lead Time 7 working days

Required:

(i) Order Point

(ii) Average Inventory

(iii) Normal Maximum Inventory

(iv) Absolute Maximum Inventory

(v) Cost of Placing one order.

Solution:

(i) Order Point = Normal daily use x lead time + safety stock

Order Point = (100 x 7) + 400 = 1100 Kg.

Inventory Turn Over:

Inventory turnover is a ratio of the value of materials used or finished goods sold during a certain period to the average inventory of materials or finished goods held during the period. In the form of formula, it may be written as following:

Solved answers of Inventory Quantity Standards

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Problem 4:

The ABC Company provides the following information:

Estimated requirements for next year: 2400 units

Per unit Cost: Rs. 150

Ordering Cost (Per order): Rs. 20

Carrying Cost: 10%

From the above information you are required to calculate:

(a) Economic Order Quantity

(b) The Number of orders to be placed per year

(d) Prove your answer

Solution:

* From the above table, it is clear that if 3 orders are placed per year according to the Economic Order Quantity of 800 units per order; then the total cost (carrying + order cost) comes to Rs. 120 which is the lowest of all other different combinations. Hence it is proved that the most Economic Order Quantity is 800 units.

Note: When 800 units (EOQ) are purchased the ordering costs and carrying costs are equal.

Solved Problems of Inventory Quantity Standards

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Problem 1:

Normal usage: 100 units per day

Maximum usage: 130 units per day

Minimum usage: 70 units per day

Economic Order Quantity:5000 units

Re-order Period: 25 to 30 days

From the above information you are required to calculate:

(i) Re-order Level

(ii) Minimum Level

(iii) Maximum Level

Solution:

(i) Re-order Level = Maximum daily usage × Maximum Re-order period

Reorder Level = 130 × 30 = 3900 units

(ii) Minimum Level = Re-order Level – Average usage for average re-order period.

Minimum Level = 3900 – (100 × 27.5)

Minimum Level = 3900 – 2750 = 1150 units

(iii) Maximum Level = Re-order Level – Minimum quantity used in re-order period + Economic Order Quantity

Maximum Level = 3900 – (70 × 25) + 5000

Maximum Level = 3900 – 1750 + 5000 = 7150 units

Problem 2:

Two types of materials A and B are used as follows:

Minimum usage: 20 units per week each

Normal usage: 40 units per week each

Maximum usage: 60 units per week each

Re-order Quantity (EOQ): A 400 units, B 600 units

Reorder Period: A: 3 to 5 weeks, B: 2 to 4 weeks

Calculate for two types of materials:

(a) Ordering Point or Re-order Level

(b) Minimum Level

(d) Average Stock Level

Solution:

(a) Ordering Point or Re-order Level = Maximum usage × Maximum re-order period

Ordering Point of Material A = 60 × 5 = 300 units

Ordering Point of Material B = 60 × 4 = 240 units

(b) Minimum Level = Ordering Point – (Normal usage × Normal re-order period)

Minimum Level of Material A = 300 – (40 × 4) = 140 units

Minimum Level of Material B = 240 – (40 × 3) = 120 units

Maximum Level of Material A = 300 – (20 × 3) + 400

Maximum Level of Material A = 300 – 60 + 400 = 640 units

Maximum Level of Material B = 240 – (20 × 2) + 600 = 800 units

(d) Average Stock Level = ½(Minimum Level + Maximum Level)

Average Stock Level of Material A = ½(140 + 640) = 390 units

Average Stock Level of Material B = ½(120 + 800) = 460 units

Equation problems related to Inventory Quantity Standards

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From the following information, you are required to determine:

(a) Ordering Point or Re-order Level

(b) Minimum Limit or Minimum Stock Level

(d) Danger Level

Maximum daily requirements 800 units

Time required receiving emergency supplies 4 days

Average daily requirement 700 units

Minimum daily requirement 600 units

Time required for fresh supply one month (30 days)

Economic Order Quantity 29000 units

Solution:

(a) Ordering Point = Maximum daily requirement × lead time

Ordering Point or Re-order Level = 800 × 30 = 24000 units

(b) Minimum Limit = Ordering Point – Average Consumption

Minimum Limit or Level = 2400 – (700 × 30)

Minimum Limit or Level = 24000 – 21000 = 3000 units

Maximum Limit or Maximum Stock Level =

24000 – (600 × 30) + 29000

Maximum Limit or Maximum Stock Level =

24000- 18000 + 29000 = 25000 units

(d) Danger Level = Average daily consumption × time required to receive emergency supply

Danger Level = 700 × 4 = 2800 units

Fictional technique of Ernest Hemingway

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A Poet and a Stylist

In the last analysis Hemingway will be remembered for his fictional technique, his dialogue consisting of short, concrete statements, his concentration on the physical world of violent action, his passionate search for the exact word which will express an exact and limited truth, his experiments with prose rhythms which have transformed the staccato rattle of his early writing into the liquid, cadenced ripple of some of his later work. The truth is that Ernest Hemingway is a stylist and a fine one. He is also a poet. His sensitivity to the light, colour, form and atmosphere of particular places, is lyrical; his ability to suggest an emotional atmosphere usually of an elementary sort is remarkable. Mr. Hemingway is unquestionably a master literary craftsman. What his mind can conceive his typewriter will transfer to paper with superb skill.

The rules arc build upon the great abstractions mentioned above. They are so bound up with the procedure for their application that the procedure itself might be considered to be a rule or better, that neither rules nor procedure exist without one another. Hemingway’s philosophy of manhood is a philosophy of action; a man is honest when he reacts honestly, he is humble when he acts humble, he loves when be is loving or being loved. Thus, taking an awareness of abstractions for granted, Hemingway concerns himself primarily with the presentation of procedure. The procedure is carefully outlined; it is meticulously detailed. If no part of it is overlooked or sloughed off, it must result in a satisfying experience almost in and of itself.

The Bull Fight

This procedure, this ritual—for such is what the procedure actually amounts to is most clearly evident in Hemingway’s treatment of the bullfight. Death in the Afternoon is devoted to an evaluation of the Manhood of various bullfighters on the basis of their ability to abide by the rules, and to a description of the ritual by means of which they prove possession and communicate the satisfaction to be gained from a proper performance of function to the spectator. War, the prize-ring, fishing, hunting, and making love are some of the other celebrations by means of which Hemingway’s religio-philosophy of man is conveyed. But the bullfight is the greatest, because besides possessing, as the others do also, a procedure inviolate, intimately related to the great abstractions, it always ends in death.

It assumes the stature of a religious sacrifice by means of which a man can place himself in harmony with the universe, can satisfy the spiritual as well as the physical side of nature, can purify and elevate himself in much the same way that he can in any sacrificial religion. The difference between Hemingway’s religion of man and formal religion is simply—yet profoundly that in the former the elevation does not extend beyond the limits of the world, and in the latter Christianity for example, the ultimate elevation is totally otherworldly.

Other Examples

It is not only in his treatment of the bull fight that this second aspect of Hemingway’s total work is evident though there it may be most immediately apparent. The abstractions, the rules, the ritual, the sacrifice dominate the details of the Old Man and the Sea as they dominate those of The Undefeated and The Sun Also Rises. We are told carefully, painstakingly how the Old Man performs his function as fisherman; how

he prepares for the hoped-for struggle:

“Before it was really light he had his baits out and was drifting with the current. One bait was down forty fathoms. The second was at seventy-five and the third and fourth were down in the blue water at one hundred and one hundred and twenty-five fathoms. Each bait hung head down with the shank of the hook inside the bait fish, tied and served solid and all the projecting part of the hook; the curve and the point, was covered with fresh sardines. Each sardine was hooked through both eyes so that they made a half-garland on the projecting steel. Each line as thick around as a big pencil was looped onto a green sapped stick so that any pull or touch on the bait would make the stick dip and each line had two forty-fathom coils which could be made fast to the other spare coil so that, if it were necessary, a fish could take out over three hundred fathoms of line.”

We are told how he hooks the fish and secures the line, waiting suspensefully for the fish to turn and swallow the bait, then waiting again until it has eaten it well, then striking, “with all the strength of his arms and the pivoted weight of his body”, three times, setting the hooks; then placing the line across his back and shoulders so that there will be something to give when the fish lunges, and the line will not break. We are told specifically, in terms reminiscent of such descriptions of the bull fight, how the kill is made:

The old man dropped the line and put his foot on it and lifted the harpoon as high as he could and drove it down with all his strength he had just summoned, into the fish’s side just behind the great chest fit that rose high in the air to the altitude of the man’s chest. He felt the iron go in and he leaned on it and drove it further and then pushed all this weight after it.”

Conclusion

The immanence of death for the sacrificer as well as for the sacrificed, and his total disregard of its possibility, are made clear at the climax of the struggle when the old man thinks, “You are killing me, fish. Come on and kill me. I do not take care who kills who.”

Inventory Quantity Standards

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Inventory Quantity Standards

1. Ordering Level or Ordering Point or Re-ordering Level:

This is that level of material at which a new order for supply of material is to be placed. In other words, at this level a purchase requisition is made out. This level is fixed some where between maximum and minimum levels. Order points are based on usage during time necessary to requisition order, and receive materials, plus an allowance for protection against stock out.

The order point is reached when inventory on hand and quantities due in are equal to the lead time usage quantity plus the safety stock quantity.

The following two formulas are used for the calculation of re-ordering level or point:

(i) Ordering Point or Re-order level = Maximum daily or weekly or monthly usage × lead time

(Lead time would mean the time required to get fresh or new supply of material)

The above formula is used when usage and lead time are known with certainty; therefore, no safety stock is provided.

When safety stock is provided then the following formula will be applicable:

(ii) Ordering point or Re-order Level = Normal daily or weekly or monthly usage × lead time + Safety Stock.

2. Minimum Level or Minimum Limit:

The minimum stock or level is the lowest level to which the inventory should be allowed to fall. It is the cushion stock which allows some margin of safety.

In other words, the minimum level is that level of stock below which stock should not normally be allowed to fall. In case of any item falling below this level, there is danger of stoppage of production and, therefore, the management should give top priority to the acquisition of new supplies.

Minimum level or limit may be calculated as follows:

Minimum Limit or Level = Re-order Level or Ordering Point – Average or Normal Usage × Normal reorder period

Or it can be written as follows:

Minimum Level = Reorder Level – Average usage for normal reorder period.

3. Maximum Level or Maximum Limit:

The maximum stock limit is upper level of the inventory and the quantity that must not be exceeded without specific authority from management. In other words, the maximum stock level is that quantity of material above which the stock of any item should not normally be allowed to go. This level is fixed after taking into account such factors as: Capital available, rate of consumption of materials, storage space available, insurance cost, risk of deterioration and obsolescence, and Economic order quantity.

The maximum level or limit may be calculated by the help of following formula:

Maximum Limit or Level = Reorder Level – minimum usage × minimum reorder period + Economic Order Quantity.

4. Danger Level:

Some enterprises also calculate ‘danger level’. When this level of stock is reached, then emergency steps are taken by the management to acquire material supplies. When this level is reached, the try is made to purchase materials from the nearest possible source or place so that the workers and plant and machinery may not remain idle due to shortage of material supplies. It may be calculated as follows:

Danger Level = Average daily requirement × time required to get emergency supply.

5. Economic Order Quantity

economic Order Quantity is that size of the order which gives maximum economy in purchasing any material and ultimately contributes towards maintaining the material at the optimum level and at the minimum cost. In other words, the Economic Order Quantity is the amount of inventory to be ordered at one time for purposes of minimising annual inventory cost.

The quantity to order at a given time must be determined by balancing two factors (1) the cost of possessing (carrying) materials and (2) the cost of acquiring (ordering materials). Purchasing a larger quantities may decrease the unit cost of acquisition, but this saving may not be more than offset by the cost of carrying materials in stock for a longer period of time.

The carrying cost of inventory may include:

Interest on investment of working capital; property tax and Insurance, storage cost, handling cost, deterioration and shrinkage of stocks, obsolescence of stocks.

The different formulas have been developed for the calculation of Economic Order Quantity.

The following formula is usually used for the calculation of Economic Order Quantity (E. O. Q):

Autobiographical elements in A Farewell to Arms

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Introduction

Some, literature can be satisfactorily read and discussed taking the author into account. Other literature seems inseparable from the person who created it. To an extraordinary degree Hemingway and what he has written exist in a synergetic relationship, reinforcing and fulfilling each other; he has created a personal legend which serves as an ambience in which we read him.

Autobiographical Touches

The novel A Farewell to Arms autobiographical elements. The love-affair between Fredric and Barkley, the hero’s injury in the battlefield, his despair and frustration, the hero’s separate peace with life are some of the characteristics of Hemingway’s life. Hemingway himself had received the injury caused by the mortar-shell at Fossalta, and he was admitted into the Milan hospital for recuperation in the late summer and autumn of 1918. He fell in love with the nurse in the Milan hospital. Carlos Baker has thrown light on this fact. In A Farewell to Arms Hemingway was dealing imaginatively with his own first adult love affair which had taken place in Milan at the base hospital during his recuperation there in the late summer and autumn of 1918.

Harold Lock alludes to it in The Way It Was, New York, 1959, stating, erroneously that the girl was English. She was in fact Agnes Von Kurowsky, an American of Polish ancestry working as Red Cross nurse. It was she who voluntarily ended the association by letter after Hemingway’s return to the

United States

early in 1919. I am indebted for materials documenting the episode to Mr. J. C. Buck. The Portrait of Catherine Barkley appears to have been influenced by Hemingway’s recollection of his first wife, Hadley Richardson. It is not only the love affair which is connected with the life of the author. The frustration, defeation, and despair and disgust with the war were also experienced by Hemingway when he had fallen a victim to it. He wished to drown his miseries in fishing in his native land. He was like a wounded animal and had hallucinations of the war.

There are similarities between the hero-narrator and the creator. Both of them are Americans. Both drive ambulances. Both are wounded in the war. When the bomb fell, “there was a flash as when a blast furnace door is swung open, and a door that started white and when red.”

Hemingway’s Love-Affair

Hemingway’s second experience was a love-affair with an American Red cross nurse in Milan. Her name was Agnes Von Kurowsky. She was experienced, young, beautiful and energetic. Hemingway fell in love with her in the hospital. It was his first adult love-affair. When Hemingway sailed for New York in January 1919, he planned to get a job in a newspaper, save money, and bring back his girl to the

United States

. But his plans were smashed. After second thoughts Agnes came to the conclusion that it would be wrong to live with peace with a war hero. She was also undecided over the issue whether she should give up her job or not. Her decision came as a heavy blow to Hemingway. He married, but he could not forget Agnes.

Caporetto Retreat

The Caporetto retreat narrated in the novel came of before Hemingway’s joining the Italian army. Hemingway had read accounts of this retreat in the newspapers. During the war working as a correspondent in Star Weekly, he could be a witness to the retreat of the Greek army following the attack by the Turkish forces. This experience of the retreat, had been incorporated in the novel. In the novel In Our Time he described the retreat thus:

Minarets struck up in the rain out of Adrianpole across the mud flats. The carts were jammed for thirty miles along the Karagatch road. Water buffaloes and cattle were hauling carts through the mud. There was no end and no beginning. Just carts loaded with everything they owned. The old men and women, soaked through, walked along keeping the battle vobbing along through them, Greek cavalry herded along the profession. The women and children were in the carts, crouched with mattresses; mirrors, sewing machines, bundles. There was a woman-having a baby with a young girl holding a blanket over her and crying. Scared sick looking at it. It rained all through the evacuation.

Changes in the Novel

In 1928, Hemingway revised the manuscript of A Farewell to Arms for publication. When he was in the final chapters, his second wife, Pauline, lay in hospital with labour pains on June 27, 1928. Her labour pains were terminated by Caesarian section on June 28. The new-born child was healthy. This event forms the climax of the novel. While in the novel the mother, Catherine Barkley dies along with the child in Caesarian section, in real life they survive. It is difficult to give reasons behind this change.

Three Elements

Thus three elements in Hemingway’s life shaped many of his attitudes, and indeed shaped much of his work; The fact that in World War I, he suffered a painful and terrible mortar wound; which made him conscious of the dread possibilities of the loss of manhood; The fact that his father committed suicide; and the fact of his growing old………and the fears created by old age itself. Similar to Fredric Henry in ‘A Farewell’, Jake Barnes in The Sun Also Rises and Santiago in The Old Man and the Sea. Hemingway was afflicted with the fear of letting go and fear of thinking. The nightmare of chaos, of passively, loss of will, loss of initiative, loss of masculine role—was a terrible nightmare and one to be’ avoided at all costs.

What is Material Control? Explain the its need and define the requirements of system of cost control

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Material control is the system that ensures the provision of the required quantity of material of the required quality at the required time with the minimum of capital investment. It covers the following functions:

(i) Stock control

(ii) Scheduling of requirements

(iii) Purchasing

(iv) Receiving and inspecting

(v) Storing and issuing.

Need for Material Control:

One of the first steps in the installation of a cost system is planning the proper control of materials and supplies from the time orders are placed with supplier until they have been consumed in plant and office operation or have been sold as merchandise. Material represents an important asset and is the largest single item of cost in almost every business; accordingly, the success or failure of a concern may depend largely upon efficient material purchasing, storage, accounting, utilisation and control.

Where materials are not properly controlled, excess stock of some items are likely to occur with a result unnecessary tying up of capital and loss through deterioration and obsolescence. Shortages of other materials may arise at the time when they are urgently needed and production will then be delayed.

The purchasing of materials is a highly specialized function. By ordering the right quantity and quality of material at the most favourable price, and by ensuring that it arrives at the right time, the efficient buyer is able to make a valuable contribution to the success of a business.

Efficient material control costs out losses and forms of waste that otherwise tend to pass unnoticed. Theft, misappropriation, deterioration, breakage and additional storage costs can be reduced to a minimum by proper controls, and much avoidable idle time in the factory will be cut out if materials are available to meet the demands of the production staff. Finally, and most important to the cost accountant, it is impossible to produce reliable costing information if the records of material issues are unsatisfactory, because a cost statement cannot be more accurate than the information on which it is based.

Requirements of a System of Material Control

The important requirements or essentials of adequate and satisfactory system of material control are as follows:

(i) Proper co-ordination: Proper co-ordination of all departments involved, in material purchasing, receiving, testing, approving, storage, issue and in accounting, is essential.

(ii) Competent Purchasing agent: Centralisation of purchasing in a purchasing department under the direct and authority of a competent and trained purchasing agent is also considered essential.

(iii) Use of Standard Forms: The use of standard forms for orders, requisitions etc, upon which written and signed instruction are given, are essential for proper control of materials.

(iv) Control by budgeting material and Equipment: Use of materials, supplies and equipment budgets so that the economy in purchasing and use of materials can be realized, is important factor for adequate control of material.

(v) Storage Location: Storage of all materials and supplies should be in a designated location properly safe guarded under supervision and proper planning should be there for storing and issuing of materials.

(vi) Operation of perpetual Inventory: Operation of proper perpetual inventory system should be used so that it is possible to determine at any time the amount and value of each kind of material in stock. It also enables the comparison of book inventory with the results of physical counting.

(vii) Standards or Levels to be fixed: A minimum quantity of each item of material, below which point the inventory is not allowed to drop, and a maximum quantity, above which stock is not carried should be fixed. In the same manner ordering level and Economic Order Quantities may be determined.

(viii) Storage Control and Issue: The proper operation of a system of stores control and issue is introduced so that there will be delivery of materials upon requisitions to departments in the right amount at the time they are needed.

(ix) Internal Check: The operation of internal check should be introduced to ensure that transactions involving materials and equipment are checked by reliable and independent officials.

(x) Development of Controlling Accounts and Subsidiary Records: Controlling accounts and subsidiary records reveal summary of detailed materials costs at each stage of material receipt and consumption from the store room to finished goods.

(xi) Regular Reports: Regular reports and informations should be provided to the management in connection with the purchases of materials, issues from stock, inventory balances, obsolete stock, goods returned to vendors, and spoiled or defective units.

Need, Importance and Advantages of Cost Accounting

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The science of cost accounting has developed primarily to serve the needs of the management. The techniques of cost accounting are the best tools by which management may conduct a business towards profitable operations. It is so much allied to management that it is difficult to indicate where the cost accounting ends and managerial control begins.

Cost Accounting has many advantages. The following are the most important advantages of a good cost accounting system:

1. Profitable and unprofitable Activities:

In Cost Accounting profitable and unprofitable activities are disclosed. Management can take steps to eliminate or to reduce those activities from which little or no profit is earned. It can change the method of production in order to render such activities more profitable.

2. Classification and Subdivision of costs:

Costs are accumulated and classified by every possible division of business. In a good costing system data regarding costs by functions, departments, processes, jobs or orders, contracts and services can be easily computed. Thus it helps management to ascertain the profitability of each product, sales area, division etc. in order to improve profit.

3. Cost Finding and Price-Fixing:

It provides accurate cost data which help in the fixation of selling price and for submitting quotations. In periods of depression it enables the management to determine the extent to which prices can be reduced.

4. Control of Materials and supplies:

Since in all types of cost accounting, materials and supplies must be accounted for in terms of departments, processes, and units of production or services; a system of receiving, handling, and issuing materials and supplies is an essential part of cost control. This will eliminate or reduce misappropriation, embezzlement, obsolescence, and losses from scrap, defective, and spoiled materials and supplies.

5. Control of Wages and Salaries:

Cost Accounting activities encourage accounting for labour by jobs and by operations. In many manufacturing concerns daily summary reports are prepared to show the number of hours and minutes worked and the wage rate for each worker per job or operation.

Cost Accounting is a benefit to the employer by establishing standards to measure the efficiency of labour to assist in assignment of work to employees best fitted for it, and to determine the unit cost of labour arising from each activity.

6. Overhead costs:

The Cost accountant first separates costs into direct and indirect items. Direct costs consists of materials and labour that can be definitely

Difference between Cost Accounting and Financial Accounting

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The function of every accounting is to provide financial information for different parties. Both financial accounting and cost accounting are concerned with the accumulation and presentation of information to serve the needs of management and outsiders. The source of the two accounts recording the transactions is the same. Cost Accounting is based on the same principles regarding debit and credit as are applied in financial accounting. However, the two differ in their purpose and scope.

The following are the important points of difference:

1. Purpose:

Cost Accounting and financial accounting have different purposes. Financial Accounting provides information about the enterprise in a general way. It safeguards the interests of business and other parties by providing suitable information in the financial statements i.e. Profit and Loss Account and Balance Sheet. Cost Accounting gives information for the guidance of the management for the proper planning, operation, control, and decision-making.

2. Recording:

Financial Accounting consists of classification, recording, and analysis of transactions in a subjective manner according to the nature of expenditures. Cost Accounting records expenditures in an objective manner, i.e. according to the purpose for which costs are incurred.

3. Analysis of Profit:

Financial Accounting reveals the profit and loss of the business as a whole at the end of a trading period, usually a year. Cost Accounting discloses the result of each operation, process, and product.

The total results, at the end of a certain period, as reported by the financial accountant will not be of much help to the management for control and various other purposes; while the cost accountant reveals the profit and loss as and when the job or process is completed which helps the management in taking prompt and effective measures.

4. Control:

Financial Accounting lays emphasis on the recording aspect, no consideration is given to the control aspect. Cost Accounting provides information for a detailed system of control with the help of standard costing and budgetary control.

5. Periodicity of Reporting:

Financial Accounting reports about the business performance and financial state of affairs usually at the end of the accounting year. Cost Accounting supplies cost data and other related information in the form of cost reports to management promptly and quite frequently. In General or Financial Accounting, day-to-day cost information is not available thus costs can not be controlled.

6. Checking of Efficiency:

General or Financial Accounting does not give the costs of each process or activity, therefore management is unable to judge the efficiency and inefficiency of each department or worker. While in Cost Accounting, efficiency and inefficiency in the consumption of materials, labour, and other costs can be judged, compared, analyzed, and controlled.

7. Classification of Costs:

In Cost Accounting, costs are classified according to functions (manufacturing, selling, distribution, and administration); elements of cost (Direct Materials, Direct Labour, and Factory Overhead); according variability (Fixed Cost, Variable Cost, and Semi Variable Cost). These classifications indicate controllable and uncontrollable production costs, but this information cannot be obtained from financial accounting.

Purpose of Cost Accounting

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The principal activities or tasks of Cost Accounting include:

(i) Determining costs and profit for an accounting period.

(ii) Preparing data to aid in the control, reduction or improvement of cost.

(iii) Aiding and participating in the creation and execution of budgets.

(iv) Creating inventory values for costing and pricing purposes and, at times, controlling physical quantities.

Scope of Cost Accounting:

Cost Accounting is generally considered and discussed as being applicable only to manufacturing operations. Undoubtedly, cost accounting in this field has reached its highest development. However, almost every type of financial activity can benefit from cost accounting.

In modern times, cost accounting concepts, techniques, standards, and cost controls have been applied in the field of marketing, administration, banking, insurance, public utilities, finance companies, departmental stores, hospitals, hotels, education institutions, local government agencies, transportation companies, rail roads, airlines, shipping companies, and even in professional offices, such as lawyers, doctors, teachers and accountants.

Hemingway has wedded the themes of love and war in A Farewell to Arms

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This article is also related to these questions

The artistic unity of A Farewell to Arms is due to the complete subordination of the theme of war and love to the intention of the novelist. Discuss.

A Farewell to Arms is a novel of love and war in which we might be overestimating the relative importance of war in the plot, as a whole. Discuss.

Discuss how in A Farewell to Arms is a positive reaction against war considered as evil, in favour of conjugal love considered as good.

What views of war and of (conjugal_ love does Hemingway convey through Farewell to Arms?

Introduction

A Farewell to Arms, a tragedy, published in 1929, spread the fame of its author. This novel, like other works of Hemingway, depicts the human predicament, despair and disillusionment of man. Hemingway has heightened the tragic effects of the novel with his irony and symbolism. When he prepared the first draft of the novel, the events and incidents of his own life influenced the tone of the creative work. His second son Patrick was delivered in Kansas City by Caesarian section, and while “I was rewriting, my father killed himself in Oak Park, Illinois. The fact that the book was a tragic one, did not make me unhappy, since I believed that life was a tragedy and knew it could have only one end.” Hemingway had the experiences of happy and unhappy incidents in his own life. These experiences went deeper into the production of his work which has tragic overtones, and has been compared to Romeo and Juliet by Hemingway himself.

The Story

The story of the novel depicts the intense love affair between Fredric Henry, an American volunteer serving in the Italian army, and Catherine Barkley, an English nurse. The novel created an atmosphere of war in which the hero Fredric Henry has been injured, and admitted in the hospital in Milan, where he develops intimacy with Barkley. The third part of the book portrays the defeat and the retreat of the Italian forces at Caporetto. Fredric and Barkley have been living as husband and wife. Henry is fed up with the war and suspected to be a German spy. He deserts the army to escape the persecution of the Italian police. Barkley has left nursing and is pregnant. Both of them have run away to

Switzerland

, a neutral country, to live in space, but the tragedy overwhelms him with grief when Barkley dies in childbirth, and Henry is the sole spectator of the tragedy. The subject-matter has been built upon ironical contract between the sacred and the unsacred love.

War as a Compelling Inspiration

Hemingway’s compelling inspiration was war, both as personal and symbolic experience and as a continuing condition of mankind. New treaders of the Second World War and beyond still found inspiration in his symbolic ritualism dedicated to the survival of selfhood in the midst of chaos……A Farewell to Arms based on his Italian service, is a distinguished war novel, although lingering sentiment breaks through the taut economy of the stylized language. Here he rejects the classic tragic unity in the catastrophic defeat of the lovers, who have hazardously, escaped to safe harbour, only to face the cruel futility of Catherine’s fatal accident in childbirth. Dying, she murmers to Fredric Henry, ‘I’m not a bit afraid. It’s just a dirty trick.’ The author’s naturalistic reinterpretation of fate was consistent.

The Two Themes Harmonised

Henry is left, at the end with nothing. There are no ways for him. Philip Young writes about how the novelist has harmonised the two themes as one: “In his affair with the war Henry goes through six phases: from desultory participation to serious action and a wound, and through his recuperation in Milan to retreat which leads to his desertion. Carefully interwoven with all this is his relationship with Catherine, which undergoes six precisely corresponding stages; from a trifling sexual affair to actual love and her conception, and then through her confinement in the Aps to a trip as the hospital which leads to her death. By the time the last farewell is taken, the stories are as one in the point, let there be any sentimental doubt about it, that life, both personal and social, is a struggle in which the loser takes Nothing, either.”

Primarily a Love-Affair

Norman Friedman believes that through Hemingway has successfully tried to blend the two themes of love and war into one story, it is primarily a love-affair. According to him the story has been divided into five Books. Book I and a major portion of Book III deal with the war, but the remaining portion of the Book deals with the love-affair.

A Farewell to Arms is the story of the experiences of Fredric Henry during the First World War. Both the events in his story and his manner of narration illustrate the weakening of the power of world during the war.

Fredric sees the way in which words do not describe what happens in the war. His being wounded suddenly becomes transformed into a heroic action for which he is awarded a medal. He learns of the debasement of ideals of service to one’s own country through Passini’s story of the arbitrary execution of every tenth man in a unit that refused to fight. A Farewell to Arms is also Hemingway’s way of describing the war without using the words that it has weakened. As a result of his own traumatic experiences during the war, Hemingway came to see that the only way to write truly was to write as simply as possible.

A Love Story Against the Backdrop of War

Thus it can be said that the novelist has told a tragic love story against the backdrop of war. However, he does not let the sub-plot dominate the scene. The tenderness of love is contrasted with the ruthlessness of war. This contrast is worth noticing.

Structure of A Farewell to Arms

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Fusion of Two Themes

A Farewell to Arms has the fusion of the two themes of love and war. Both the themes have been successfully and skilfully woven into one. The development of the two themes runs parallel. Referring to the structure of A Farewell to Arms. A King says, A Farewell to Arms is divided into five books. Although Hemingway made this division after he wrote the first draft of the manuscript, the relationships among the five books of the novel establish parallels between Frederic’s experiences of war and of love. These structural parallels reinforce the basic theme of the novel: ‘That was what you did. You died.’

A Drama in five Acts

The five-book structure could be compared to the five acts of a dramatic tragedy. Book I introduces the themes in a fairly low key; the climax of the war theme occurs at the centre in Book III; the tragic denouement (resolution) occurs in Book V. As in each Act of a play, in each book there is one moment of tension; Frederic’s wounding, his return to the front, his threatened arrest, Catherine’s death. In a manner reminiscent of Shakespeare’s tragedies, each book contains a number of incidental scenes that do little to advance the plot, but rather provide a realistic, lower-keyed contrast to the intensity of the tragic action. There is also comic relief: the mess hall conversations in Book I, the satire on the three incompetent physicians in Book II, the joking of the ambulance drivers at the officers’ quarters in Book III, the Swiss officials arguing about winter sports in Book IV.

It is also possible to consider the interweaving of the themes of love and war as comparable to the alternation of two musical themes or motifs. Book I introduces both themes. Books II and IV develop the love motif in a calmer and happier mode. Book III develops the war motif. Book V leads to the resolution of both the motifs of love and war.

Frederic’s Initial Reactions

In Book I, Frederic’s initial reactions to love and war are similar. He describes his first year in the Italian army, his rather detached participation in the officers’ mess, his bantering friendship with Rinaldi, and his vague sympathy for the priest. Not fully engaged with the men with whom he works, Frederic is mainly an observer of the progress of the war. His first meeting with Catherine in Book I are also a kind of game in which he is not emotionally involved. Gradually, however, he seeks her out and finds he is lonely without her. Similarly he becomes more actively engaged in the war when he takes his ambulances to the attack at the Plava and is wounded.

The wounding is the climax of Book I, as first defeat that life presents him. In retrospect, however, it is not very significant to Frederic. If Hemingway’s own wound in

Italy

during the war was a central event in life, it is relegated to a minor place in the opening book of A Farewell to Arms. Book I closes with a series of visits Frederic receives in the field hospital. Rinaldi’s and the priest’s discontent with war, and their discussion of sexual and religious love, pre shadow the later developments of the story.

In Book II Frederic’s stay in the hospital is set against the development of his relationship with Catherine. Having withdrawn temporarily from the war he is free to devote himself to love the theme of war remains present in his thoughts, in his conversations with Eitore and the British major, in his awareness that he will have to return to the front. Book II ends with his departure shortly after Catherine has told him she is pregnant. Again the difficulties of war and love are interwined and a feeling of the doom awaiting Frederic in both areas in introduced.

Book III begins with Frederic’s return to his unit in Gorizia. It is not, he says, ‘a homecoming’, a phrase that contrasts his relationship to his comrades with his love for Catherine, and links Book III to the conclusion of Book II, where even the hotel room in Milan was a ‘home’. If Book II is primarily about love, Book III is primarily about the war. Love sustains Frederic, but only in his thoughts. Book III is also linked to Book I, which ends with Frederic’s conversations with Rinaldi and the priest; Book III opens with more distressing conversations, in a series of scenes that prepare for the moral and physical disaster of the retreat from Caporetto.

During the retreat Frederic is motivated by the desire to save himself and his men. At the bridge, he is separated from all those he knew in the Italian army and has no more responsibilities. The climax of Book III, his jump into the river to save him from being summarily executed, marks his withdrawal from the war, a necessary step in his isolation from society so that he can devote himself completely to Catherine.

Book IV, like Book II, begins with a return to Catherine after the disasters of war. Again scenes of civilian life contrast in intensity with those of the war. Frederic listens to Simmons talk about opera, stays in a luxurious hotel and drinks champagne with Count Greffi. The war is now present only as a threat of arrest. Ironically, this threat proves to be less serious than that posed by Catherine’s pregnancy, a threat only occasionally suggested in the Joyful reunion of the lovers. Book IV again concludes with obstacles overcome when Frederic and Catherine arrive in neutral

Switzerland

In Book V the action again begins calmly. Winter in the mountains is peaceful; defeat comes with the rains and the descent to Lausanne. The war reappears in the background; Frederic sees newspapers at the café where he waits while Catherine is suffering. He cannot, however, read the papers, the war is no longer part of his life. Ironically he meets death in his union with Catherine, which he hoped would save him from the demoralization of the war. When Catherine dies, he is left in total isolation.

Short Notes on Folkways, Cultural Change and Social Change

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Folkways:

Folkways have become a common expression to designate customs. The folkways then are the recognised or accepted ways of behaving in society. The include conventions, form of etiquette and the myrid modes of behaviour men have evolved and continued to evolve with which to go about the business of social living. They are like products of natural forces which men unconsciously set in operation or they are like the instinctive ways of animal, which are developed out of experience, which reach a final form of maximum adaptation to an interest, which are handed down by tradition and admit of no exception or variation, yet change to meet new conditions, still with the same limited methods, and without rational reflection or purpose. But Gillin and Gillin have defined “Folkways by saying that Folkways are behaviour patterns of every day life which generally arise unconsciously in a group”. Another sociologist defines the folkways in different way that Folkways are simple habits of action common to the members of group. They are the way of folk that are some what standardised and have some degree of traditional sanctions for their persistence.

Cultural Change:

The cultural is the aspect of society, which includes norms while the learning of these norms in groups is social, the inventions of television and Radio-set are cultural changes the change brought in attitudes and behaviour of the people by these inventions are social changes all innovations including fact finding in research are cultural changes. The changes brought in society by the application of these innovations are social change, cultural change becomes social change. First there is cultural change which becomes social change in social life.

Social Change:

A social Change is difference of material objects and the attitudes of using things along the time and space. Social change involves such idea an interaction, movement, growth and function. Again he holds, that social change means that large number of person engaging some time before. We found our Pakistani society expanding its production of manufacturing industries by increase of almost six fold during the period 1950-61. Social change is meant only such alteration as occur in social organization that is the structure and function of society. It means leaving a thing or an attitude and adopting by a society is called social change.

Short Notes on Migration and Mores

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Migration:

Migration refers to the shifting of people from one area (usually rural areas) to another area (mostly cities) within the same country. International migration refers to the mass exodus of people primarily settled in one country to another country in the face of any natural (storms, famines earth quakes) or forced (war, economic depression) event.

About 3 million people migrated from

Afghanistan

Pakistan

during 1980-90 owing to Russia-Afghan war. These people remained in Pakistan for over 10 years, and they still live here in the wake of socioeconomic devastation that the on going civil war has caused in Afghanistan, Pakistan, has there fore, had to bear the burden of food, shelter, health and other necessities of life. This is an example of international as well as international migration. Refugees from

Afghanistan

first settled down in the northern areas of

Pakistan

when they crossed over. However with the passage of time and in search of better economic opportunity within

Pakistan

, they have migrated to the urban areas of

Pakistan

. Thus, further straining the already inadequate resources of these cities. It is estimated that 70 to 80 thousand people migrate to Karachi annually from other parts of

Pakistan

. It is further estimated that 4% population annually is from rural to urban areas of

Pakistan

Similarly, Muslims of the Indian occupied Kashmir are leaving there households at the hands of Indian artro cities, and are migrating into Azad Kashmir to seek shelter and protection. Millions of Bihais are still lying helpless in the camps of

Bangladesh

. They claim themselves to be Pakistanis and claim their migration to

Pakistan

Bangladesh

government does not take their responsibility as its citizens. Their socioeconomic condition is very poor. They want permanent settlement of their citizenship in either country. They are facing an acute problem of international migration lying in camps.

Internal (from rural to urban) and international (from neighbouring countries) migration of population have created a number of problems for

Pakistan

Mores:

Whereas the folk ways are norms of behaviour our mores regulate our social behaviour. In fact the distinction between folk ways and mores is mores is more of degree rather than that of nature. MacIver has said that Hence we should not think of the mores as something different the folk ways. They are the folk ways, in their capacity as instruments of contral. They express the group standard, the group sense of what is fitting, right and conducive to well being”. Green has defined mores as “common ways of acting which are more definitely regarded as right and proper than the folk ways and which bring greater certainly and surety of punishment if violated are the mores” supnmer has said that “I mean by mores the popular usage and traditions when they include a judgment that there are conducive to social welfare and when they exert coercion on the individual to confirm to them although they are not coordinated by any authority according to Gillin and Gillin “Moreover are those customs and group routine which are thought by the members of society to be necessary to the groups continued existence”.

What is Over Population and Cause of Poverty

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Over Population:

Over population is one of the most dominant cotemporary social problems. World population is increasing at a rate of 1.9% per annum. While in

Pakistan

, population is growing at a rate of 3.0% per annum. Ideally speaking population growth is problem only if the rate of increase in population surpasses the parallel growth in resources required to sustain that population. In reality, it is absorbed that with the increase in population, rate of progress decreases and national resources go to waste.

Pakistan

is facing this problem on a very serious level because the resources (mainly land) are decreasing due to water logging and salinity. Yield per acre, from the land that is cultivated, is also tremendously low. This is depicted by the fact that our 28% population is engaged in our crop supply.

Population expansion is a boom for a nation because no country destroys its men, women, and their children. Sociologists feel this expansion is a great menace to human life. They say that most of the resources are consumed by exceeding number of family-members, which brings down standard of living every one.

Cause of Poverty:

Poverty is a social problem of

Pakistan

because majority of the population dwells on the subsistence level, and some even below that. These people are deprived of modern facilities of education, health, communication and education. These people are mostly illiterate and they associate with the same stratum of the society.

Poverty is considered a social problem because these people lag behind the powerful and affluent members of the society. They do not understand the ways of progress and are caught in a “Vicious Circle” of poverty hampering their opportunity to get a head in life, and this lack of opportunity further deteriorating their present level of poverty. Due to their pathetic condition, they get frustrated and may resort to a variety of criminal behaviours disturbing the stability and balance of the peaceful social existence.

Causes and Solution:

1. Illiteracy, because in the competitive economic world of today an illiterate, or for that matter, a moderately literate person can not land a “well-paying” job.

2. Inheriting poverty is another factor for being poor.

3. Wasting time in idle activities and not keeping a check on ones income and outflows also lead to poverty.

4. Wastage of inherent resources in criminal, delinquent and other idle activities is also a cause of poverty in our society.

Short Notes on Poverty and Terrorism

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Poverty:

The head of the World Bank James Wolfensohn said in Tokyo that solving Asian’s grappling economic crisis required not just financial rescues packages but wholesale social development. The president of the World Bank has rightly maintained that the need in Asian is to pay particular attention to the social development, whose profile is low particularly South Asia as a whole. The observations of the President merit attention of governments in

India

and

Pakistan

I am reminded of late Dr. Mahboob ul Haq’s two classic reports on Human development in South Asia 1987, 1988. He emphasized the need for promoting human resource development, though his realization dawned on him when his trickle downs these justifying the creation of income inequalities to achieve high growth rate, yielded frustration to him. The over emphasis placed on growth led to a woeful neglect of the social sectors in

Pakistan

. The sense of remorse itched him which is reflected in his later book “Poverty Curtain”. He becomes a staunch advocate of social sectors including education. The trend is reflected in both the reports and the ground dismal realities attract the attention of reader. It is in the fitness of things that a resume of the reports is presented to acquaint the general reader with the gruesome realities.

Terrorism:

Some scattered incidents of blood-letting sabotage, terrorism and chaos have accompanied the New Year in

Pakistan

. Not at all in unfamiliar ways have people including children in imam bargahs, mosque, trains, and on frequented roads been targeted. Mounting deaths inevitably proliferate fear. The unprecedented January 3 attempt on the prime Minister’s life has merely underscope both vulnerability and reach the vulnerability of people at all levels and the reach of those engineering sabotage and terrorism.

The distressing murder of twenty citizens at a Muzaffargarh imam bargah and the Raiwind bomb explosion merely reiterated the cyclic curse of terrorism that appears to have found root in

Pakistan

. In 1998 over 700 were killed in Punjab and over 500 in Karachi. The question therefore that Pakistani citizen must inevitably ask is whether they are now fated to periodic terrorism? Whether the government is competently and resolutely dealing with the problem of terrorism?

Along the way weak minded and string armed military men remained on the loose perpetuating the quick-fix brand of politics. True to general Zia-ul-Haq’s tradition, they continued to deploy men and weapons to fix’ errant politicians. All together they cooked a witch’s broth. Today deadly terrorism oozes from this broth.

Short Notes on Microbodies, DNA and RNA

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MICROBODIES (GLYOXYSOMES AND PEROXYSOMES)

In plant cell they are of following two types:

(1) Peroxysome: They are single membrane bounded microbodies that contain enzymes for transferring hydrogen atom to oxygen forming hydrogen peroxide (H₂O₂), a toxic molecule that is immediately broken down t water by the enzyme catalase. Peroxysome are abundant in cells that are metabolizing alcohol. Peroxysome are believed to help in detoxification of alcohol.

(2) Glyoxysome: They are another type of microbodes. Each glyoxysome has single layered bounding membrane enclosing fine granular stroma. Glyoxysome contain enzymes that can metabolize some of the molecules involved in Photosynthesis process and respiration through oxidation of fatty acid.

DNA (DEOXYRIBO NUCLEIC ACID):

They are important constituents of cell. They occur in nuclear reticulum (chromosome). DNA has deoxyribose with one less oxygen atom in ints molecule. DNA is double strended molecule Biologists view that all secrets of life are embodied in DNA. It is the chemical basis of life. DNA is the controlling centre of all vital activities of the cell. DNA is sole genetic (hereditary) material migrating intact from generation to generation through the reproductive units or gametes and is responsible for the development of specific characters of a plant. It also controls biosynthetic process of cell including Protein synthesis. In 1953 Watson and Crick gave the model of DNA.

Each pair is made of two distinct nitrogenous bases Purines and Pyramidines. Altogether there are two Purnes adnine and guanine and two Pyrimidines thyamine and cytosine. It is a rule that a specific purine always pairs with a specific pyrimidine.

RNA (RIBONUCLEIC ACID):

RNA occurs in Nucleoli, chromosomes and cytoplasm (about 90% of the cells RNA occurs in the cytoplasm). RNA chemically consists of 5 carbon ribose sugar. RNA is single stranded molecule/ RNA is chemical messenger and plays a key role in the process of Protein synthesis,

RNA consists of sugars, bases and Phosphoric acid. Sugar is ribose against Deoxyribose in DNA. In RNA the bases are adenine, guanine, uracil and cytosine i.e. they mine of DNA is replaced by uracil. Various types of RNA are found in plant cells. These are (a) messenger RNA (mRNA) which carries the information contained in DNA (b) transfer RNA (t RNA) also known as soluble RNA which work as adaptor molecules for carrying amino acids to the site of Protein synthesis (c) ribosomal RNA (r RNA) which is associated with ribosome. All these three types are monogenetic RNA.

Short Notes on Anaeoploidy, Euploidy and Vacuole

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ANAEOPLOIDY

It is change in number of chromosome which can be either due to loss of one or more chromosomes or due to addition or deletion of one or more chromosomes. It leads to variations in chromosome number and do not involve the whole of the Karyothype. The nuclei of the aneuploids contain chromosomes whose number is not true mullyple of the basic number (n). The aneuploidy arises due to non disjunction. The loss of one chromosome produces a Monosomic (2n—1) and the condition is termed as Monosomy. The gain of one chromosome produces Trisomic (2n—1) and the condition is known as Trisomy. In the same way the addition of two or more chromosomes is respectively known as Tetrasomy and Pentasomy, the individuals are known as Tetrasomic and Pentasomic. In some cases a pair of homologous chromosomes is lost (2n—2), such indivividuals are termed as Nullisomic and the condition is called Nullisomy.

EUPLOIDY:

It is a condition where one or more full sets of chromosomes are present in an organism. The euploids may e Monoploids, Diploids or Polyploids. Monoploids can be distinguished from haploids as they have a single basic set of chromosomes are in Barley 2n = x = 7 or in corn 2n = x = 10 while the Haploids have the half the somatic number of chromosomes found in normal individual i.e. each chromosome is represented once. In some cases as in male insects the haploids are produced due to parthenogenesis. In these insects the queen and drones are diploid females. The haploids also originate due to development of egg parthenogenetically in following plants such as Tomatoes and Cotton. The haploids also originate from pollen tube rather than from egg, synergids or antipodals of the embryo sac. Such haploids are known as Androgenic Haploids.

Significance: Haploids are characterised by a reduction in size of all vegetative and floral parts than a diploid. Haploids are used in production of homozygous diploids as haploids can be doubled by colchicines treatment. These homologous diploids are used for cultivation e.g. rice, wheat and tobacco.

VACUOLE:

Vacuoles are non protoplasmic liquid filled cavities in the cytoplasm and are surrounded by a membrane called the tonoplast. Tonoplast is selectively permeable; it allows certain substancesto enter in the vacuole. They are clear in plant cells. They are prominent in nature cells. They are filled with cell sap and act as store house, which often plays role in plant defence,

Which is necessary for plant cell enlargement. Plant vacuoles sometimes act as lysosome as they contain hydrolytic enzymes and after death of cells tonoplast lose its differential permeability and its enzyme causes lysis of the cell. Vacuole is filled with a fluid called cell sap which is water containing large number of soluble chemical substances such as inorganic salts, organic acids, soluble carbohydrates e.g. sugar, soluble proteins, and amino acids and in certain cells mucilage, anthocyamins, tannins, latex and alkaloids in varying proportions. The vacuole is this a tiny reservoir of the cell from which the cytoplasm draws water and other material according to its need.

Evolution of vertebrate immune system, Intra cellular and extra cellular digestion and feeding strategy in animals

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Evolution of vertebrate immune system:

It parallels that of lymphatic system. Jaw less vertebrates (cyclostomes), cartilaginous fishes (chondrichthuns) and bony fishes (osteichthians) have network of small blind vessels that accompany the veins and help the capillaries to drain the tissues. These vessels are developed from veins and empty into them at frequent intervals. These represent the earliest stage in the evolution of lymphatic system; however no lymph nodes or lymphocytes are present. Teleosts and Tetrapods have independently evolved lymphatic system in which lymphatic capillaries help to drain most of tissues of the body. Lymph nodes and lymphocytes occur in few aquatic birds and are abundant in mammals.

Intra cellular and extra cellular digestion:

Intra cellular digestion: In simple animals (protitsts and sponges) some cells take in whole food particles directly from the environment by diffusion, active transport and endocytosis and break them down with enzymes to obtain nutrients. It is called intracellular (within the cell) digestion. It circumvents the need for the mechanical breakdown of food or for a gut or other cavity in which to chemically digest food. It limits animal’s size and complexity only very small pieces of food can be used. It provides all or some of the nutrients in protozoa, sponges, cnidarians, platyheliminthes, rotifers, bivalve molluscs and primitive chordates.

Extra cellular digestion: Larger animals have evolved structures and mechanisms for extra cellular digestion; the enzymatic breakdown of larger pieces of food into small molecules usually in special organ or cavity. Digested food then passes into body cells lining the organ or cavity and can take part in energy metabolism or biosynthesis.

Feeding strategy in animals:

(1) Suspension Feeders: It is the removal of suspended food particles from the surrounding water by capturing trapping or filtration structure. It has three steps (i) Transport of water past the feeding structure (ii) Removal of nutrients from water (iii) Transport of nutrients to the mouth of digestive system e.g. sponges, ascidians, bivalves, crustaceans, polychaetes, gastropods and some chordates.

Deposit feeders: It involves primarily omnivorous animals. These animals obtain their nutrients from sediments of soft bottom habitats or terrestrial soils. Direct deposit feeders simply swallow large quantity of sediment. Usable nutrients and digested and the remains pass out the anus. E.g. polychaete annelids, some snails etc.

Herbivory: It is consumption of macroscopic plants. It requires the ability to bite and chew large pieces of plant matter (macroherbivory). Biting and chewing mechanisms evolved in a number of invertebrate lineages are often characterized by the development of hard surface (teeth) that powerful muscles manipulate e.g. Molluscs, polychaete worms, arthropods and sea urchins.