PAPER

ISBN 978-81-8441-876-7 4
FOUNDATION COURSE
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P
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FOUNDATION COURSE - BUSINESS AND COMMERCIAL KNOWLEDGE- PART - II

BUSINESS AND
COMMERCIAL
KNOWLEDGE
PART - II

Board of Studies
The Institute of Chartered Accountants of India October | 2020 | P2748 (Revised)
ICAI Bhawan, A - 29, Sector - 62, Noida - 201 309 BOARD OF STUDIES
Phone : 0120 - 3045930 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI)
E-mail : bosnoida@[Link]
(SET UP BY AN ACT OF PARLIAMENT)
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NEW DELHI

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THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

This Study Material has been prepared by the faculty of the Board of Studies. The objective of the Study
Material is to provide teaching material to the students to enable them to obtain knowledge in the subject. In
case students need any clarifications or have any suggestions to make for further improvement of the material
contained herein, they may write to the Director of Studies.

All care has been taken to provide interpretations and discussions in a manner useful for the students.
However, the Study Material has not been specifically discussed by the Council of the Institute or any of its
Committees and the views expressed herein may not be taken to necessarily represent the views of the Council
or any of its Committees.

Permission of the Institute is essential for reproduction of any portion of this material.

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© The Institute of Chartered Accountants of India

 BEFORE WE BEGIN

The Board of Studies, ICAI is pleased to present the study material for Foundation Course (Entry Level Exam to the
Chartered Accountancy Course).
The study material conforms to the guidelines prescribed by the International Accounting Education Standards Board
(IAESB) and the International Federation of Accountants (IFAC). The purpose is to enable and empower the learners
toward becoming well rounded, competent, and globally competitive Accounting Professionals.
Like the curriculum and the study material, we have also aligned the assessments in accordance with the
IAESB standards. Thus, our learners may expect a portfolio of subjective and objective examination pattern
such that admission to the CA Course is an affirmation of your competence and confidence.
As part of the Foundation, the subject of the Business and Commercial Knowledge (BCK) has been introduced for
the first time in the curriculum. For an accounting professional today, it has become important to not only acquire
knowledge in the core areas of the profession but also to remain well versed with the vast general knowledge related
to business and commercial world. The knowledge so gained will be a step towards developing holistic professional
acumen.
The Institute of Chartered Accountants of India envisaged this paper with an objective to familiarize the learners with
the philosophies, lexicon, and grammar of the world of business and commerce. It is also directed towards
developing general aptitude to assimilate the key developments happening around them. The students of this
subject are expected to have a keen eye on the day to day developments around them and accordingly they are
expected to scan through various sources of knowledge and not limit themselves to this study material. The
material is merely a steppingstone towards the business and commercial world.
The students are expected to read at least one financial newspaper and one business magazine on a regular basis.
Be advised also to browse business channels to remain updated about the developments. Business is and must be
socially instituted and environmentally sensitive. Its objective should not be pursuit of profits. Corporations are
important constituents of the society and play a crucial role in its overall growth. Just as the corporations more so the
accounting profession is entrusted with alignment of a community’s resources with the community’s i n t e r e s t s .
The study material on Business and Commercial Knowledge traverses, albeit cursorily, the trajectories set forth here.
Even after passing the Foundation level students need to continue their pursuit to acquire such knowledge of
business and commercial world.
The study material has been designed keeping in mind the needs of home study and distance learning students. The
main features of the study material are stated in Feature Box.

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3

Feature Box : BCK Design

♦ The entire syllabus has been divided into six chapters. Chapter 1 provides an introduction to BCK
domains. Context of the BCK and the elements of environment of business and commerce are
elaborated in Chapter 2. In Chapter 3 we introduce the learners to select business organisations in
India’s corporate sector. Since Independence, government policy has tremendously impacted and
facilitated the performance and growth of business. In India, we have come full circle toward continuing
liberalization, privatization, and globalization of the economy. Here students should watch the
developments related to these and other business organisations. Chapter 4 addresses the government
policy changes from time to time. This is followed up by a discussion on the institutional framework for
spurring the spirit of enterprise and the process of sustainable development of the country in Chapter
5. Last, but not the least, Chapter 6 provides framework for internalizing BCK into personal learning
and grooming for a successful career as a Chartered Accountant. Various terminologies have been
introduced so that the students are aware of the jargon and make them part of their daily life. Many of
these terms are routinely used in the newspapers and magazines. Thus, the chapter will help the
students to appreciate the developments in business world in a better manner.
♦ Each chapter follows a professional evolved instructional design. We have used the visuals and the
narratives to clarify the concepts, keeping in mind the learner diversity.
♦ At the end of each chapter, an exercise based on Multiple Choice Questions (MCQs) is provided for
self-confirmation of one’s learning.

Study materials, teachers are generally believed to be best sources of knowledge. However, learning is a personal
experience, a subjective journey. For professionals, learning does and must not cease with attainment of
qualifications but a lifelong endeavour. The world of business and commerce is ever expanding and evolving. Its
credibility paradoxically has been ever declining.
The professionals have to be much farther sighted to be able to foresee where the business can go wrong and astute
enough to provide for checks and balances ex ante rather than ex post facto. Thus, be advised to maintain a lifelong
journal entitled ‘My Journal of BCK perspectives.’

Happy Reading and Best Wishes!

© The Institute of Chartered Accountants of India

 PAPER – 4: BUSINESS ECONOMICS AND BUSINESS AND COMMERCIAL KNOWLEDGE
(one paper – two hours – 100 marks)
PART – II: Business and Commercial Knowledge (40 marks)
Objective:
To develop an understanding of common business and commercial concepts and to keep abreast with
developments in the business and commercial world.
Contents:
1. Business and Commercial Knowledge – An Introduction
Nature of Business, Profession and Employment, Objectives of Business. Economic and Non-
Economic Activities, Forms of Business Organizations.
2. Business Environment
Micro and Macro Environment, Elements of Microenvironment – Consumers/Customers, Competitors,
Organization, Market, suppliers, Intermediaries, Elements of Macro Environment – Demographic,
Economic, Political-legal, Socio-cultural, Technological, Global Environment.
3. Business Organizations
Overview of selected Indian and Global Companies.
4. Government Policies for Business Growth
Policies creating conducive business environment such as Liberalization, Privatization, Foreign
Direct Investment.
5. Organizations Facilitating Business
(i) Indian Regulatory Bodies - RBI, SEBI, CCI, IRDAI
(ii) Indian Development Banks- NABARD
6. Common Business Terminologies
(i) Finance, Stock & Commodity Markets Terminology.
(ii) Marketing Terminology.
(iii) Banking Terminology.
(iv) Other Business Terminology.
Note: Students are expected to read at least one financial newspaper and one business magazine on a regular
basis. They may also watch a business channel to remain updated about the developments related to commercial
world.

© The Institute of Chartered Accountants of India

5

CONTENTS

CHAPTER – 1: BUSINESS AND COMMERCIAL KNOWLEDGE-AN INTRODUCTION

Chapter overview .......................................................................................................................................... 1.2

1.1. Introduction ....................................................................................................................................... 1.2

1.2 Domains of Business and Commercial Knowledge (BCK) .................................................................. 1.4

1.3 Importance of BCK for Chartered Accountant .................................................................................... 1.5

1.4 Human Activities- Economic and Non-Economic ............................................................................... 1.7

1.4.1 Distinguishing Characteristics of Economic Activities ........................................................... 1.9

1.4.2 Business as an Economic Activity .......................................................................................1.10

1.4.3. Distinguishing Characteristics of Business vis-à-vis Other ................................................1.12

1.5 Forms of Business Organisation .......................................................................................................1.17

1.5.1 Sole Proprietorship .............................................................................................................1.18

1.5.2 Hindu Undivided Family (HUF) Business .............................................................................1.20

1.5.3 Partnership .........................................................................................................................1.21

1.5.4 Limited Liability Partnership (LLP) .......................................................................................1.22

1.5.5 Company ............................................................................................................................1.24

Summary ......................................................................................................................................................1.26
Test Your Knowledge ..................................................................................................................................1.27

CHAPTER – 2: BUSINESS ENVIRONMENT

Chapter overview .......................................................................................................................................... 2.1

2.1 Introduction ....................................................................................................................................... 2.2

2.2 Meaning of Business Environment .................................................................................................... 2.3

2.3 Characteristics of Business Environment ........................................................................................... 2.3

2.4 Importance of Business Environment ................................................................................................ 2.4

2.5 Relationship between Organization and its Environment ................................................................... 2.5

2.6 Environmental Influences on Business .............................................................................................. 2.7

2.7 Why Environmental Analysis? ........................................................................................................... 2.9

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 2.7.1 Utility of environmental analysis ........................................................................................... 2.9

2.7.2 Purpose of environmental analysis ......................................................................................2.10

2.8 Environmental Scanning ...................................................................................................................2.10

2.9 Components of Business Environment .............................................................................................2.11

2.9.1 Internal Environment ...........................................................................................................2.12

2.9.2 External Environment ..........................................................................................................2.12

2.9.3 SWOT Analysis ...................................................................................................................2.13

2.10 Micro and Macro Environment ..........................................................................................................2.14

2.11 Elements of Micro Environment ........................................................................................................2.16

2.11.1. Consumers/Customers........................................................................................................2.16

2.11.2. Competitors ........................................................................................................................2.16

2.11.3 Organization .......................................................................................................................2.17

2.11.4 Market ................................................................................................................................2.17

2.11.5 Suppliers.............................................................................................................................2.18

2.11.6 Intermediaries .....................................................................................................................2.19

2.12 Elements of Macro Environment .......................................................................................................2.19

2.12.1 Demographic Environment ..................................................................................................2.19

2.12.2. Economic Environment .......................................................................................................2.21

2.12.3 Political-Legal Environment .................................................................................................2.23

2.12.4 Socio-Cultural Environment.................................................................................................2.23

2.12.5 Technological Environment .................................................................................................2.24

2.12.6 Global Environment ............................................................................................................2.26

2.13 PESTLE Analysis .............................................................................................................................2.27

2.14 Strategic Response to the Environment ............................................................................................2.29

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7

Summary. .....................................................................................................................................................2.31
Test Your Knowledge ..................................................................................................................................2.31

CHAPTER – 3: BUSINESS ORGANIZATIONS

Chapter overview .......................................................................................................................................... 3.2

3.1 Introduction ....................................................................................................................................... 3.3

3.2 Company Overview ........................................................................................................................... 3.4

3.3 Overview of Selected Indian Companies ........................................................................................... 3.6

3.4 Overview of Selected Global Companies ..........................................................................................3.48

Summary ......................................................................................................................................................3.64
Test Your Knowledge ..................................................................................................................................3.64

CHAPTER – 4: GOVERNMENT POLICIES FOR BUSINESS GROWTH

Chapter overview .......................................................................................................................................... 4.1

4.1 Introduction ....................................................................................................................................... 4.2

4.1.1 Policy Framework in India - A Historical Sketch ................................................................... 4.2

4.1.2 Spectre of government policies for business ........................................................................ 4.4

4.1.3 Macro Policy Indicators and Business Conduciveness ......................................................... 4.6

4.1.4 Policy Formulation and Impact Transmission Process .......................................................... 4.7

4.2 Types of Government Policies by Intended Impact ............................................................................ 4.7

4.3 The Economic Change Process ........................................................................................................ 4.8

4.3.1 Liberalization ...................................................................................................................... 4.8

4.3.2 Privatization ........................................................................................................................4.10

4.3.3 Inward Foreign Direct Investment in India (IFDI) .................................................................4.10

4.3.4 Foreign Institutional Investors (FIIs) ....................................................................................4.11

4.3.5 Investment from India Abroad (OFDI) ..................................................................................4.12

Summary……..… ..........................................................................................................................................4.12

Test Your Knowledge ..................................................................................................................................4.12

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CHAPTER – 5: ORGANIZATIONS FACILITATING BUSINESS

Chapter overview .......................................................................................................................................... 5.1

5.1 Introduction ....................................................................................................................................... 5.2

5.1.1 Government as a Business Facilitator .................................................................................. 5.3

5.2 Non-Funding Institutions for Business Facilitation in India (Indian Regulatory Bodies) ...................... 5.4

5.2.1 Reserve Bank of India (RBI)................................................................................................. 5.5

5.2.2 Securities and Exchange Board of India (SEBI) ................................................................... 5.8

5.2.3 Competition Commission of India (CCI) ..............................................................................5.10

5.2.4 Insurance Regulatory and Development Authority of India (IRDAI)......................................5.12

5.3 Funding Institutions (Indian Development Banks) .............................................................................5.16

5.3.1 NABARD .................................................................................................................................5.16

Summary ......................................................................................................................................................5.18
Test Your Knowledge ..................................................................................................................................5.18

CHAPTER – 6: COMMON BUSINESS TERMINOLOGIES

Chapter overview .......................................................................................................................................... 6.2

6.1 Introduction ....................................................................................................................................... 6.2

6.2 Business-Many facets of the same reality .......................................................................................... 6.3

6.2.1 Technical Facet ................................................................................................................... 6.3

6.2.2 Commercial Facet ................................................................................................................ 6.3

6.2.3 Financial Facet .................................................................................................................... 6.3

6.2.4. HR Facet ............................................................................................................................. 6.4

6.2.5 Administrative Facet ............................................................................................................ 6.4

6.3. Finance, Stock and Commodity Market Terminology ......................................................................... 6.5

6.4 Market Terminology ..........................................................................................................................6.11

6.5 Banking Terminology ........................................................................................................................6.17

6.6. Other Business Terminology ............................................................................................................6.21

Test Your Knowledge ..................................................................................................................................6.24

© The Institute of Chartered Accountants of India