FII and its Role in Capital Market

FII means Foreign Institutional Investors. When some investors who have same interest to invest in foreign company, they create the company and start to invest in foreign companies. In India, SEBI defines all these investors as foreign institutional investors.


Wikipedia states about FII

In countries like India, statutory agencies like SEBI have prescribed norms to register FIIs and also to regulate such investments flowing in through FIIs. In 2008, FIIs represented the largest institution investment category, with an estimated US$ 751.14 billion.

Role of FII in Indian Capital Market 

• As on that date the net cumulative investments made by Flls are around USD 35.9 billion representing around 6.55% of India's market capitalization.
• Net Investments by Flls (Rs Cr.) 41416.45 in 2004-05 in Indian Companies.
• Yet, we intuitively know that the FIIs are important for the market. They typically start a market rally. Subsequently flows come from all classes of investors. At this stage, the market behaves like a self-organised system. No single class of investors drives the market — asset prices go up, driven by the collective momentum of all investors. Finally, the market enters the state of self-organised critically. This is when any negative information could have non-linear effect on the market. The FIIs play a major role during this phase too. link

FIIs can Invest in Axis Bank without Restriction FIIs can Invest in Axis Bank without Restriction FIIs can Invest in Axis Bank without Restriction

 Due to increase the foreign direct  investment from 49% to 62% of Axis Bank's paid up equity share capital, RBI has allowed to FIIs to invest in Axis Bank's share without any restriction. Now, all the FIIs and NRIs are free to buy under new FDI policy. This rule will apply immediately after RBI's decision.

Following are the main reason behind this.

1. # Government wants more direct investment in India. By withdrawing this restriction, there is the chance of inflow of Rs. 7250 crores in India through foreign direct investment in Axis bank.

2. # This decision came because of flexible FDI policy. Same decison will apply on all the subsidiaries of Axis bank. There are seven subsidiaries of Axis bank. Now any NRI can invest in any subsidiary of Axis Bank without any restriction.

3.# Aug. 2013, RBI had banned to buy Axis bank after 49% of total paid up capital. At that time 64 Rs. per dollar rate. I think, Govt. thinks, due to more inflow of foreign investment, Indian currency's value will strong. Now Indian Rupee's rate  is Rs. 61.92 per dollar.

Cash Book Examples

Like journal, cash book is made also on the basis of double entry system. In this book, we debit all the receipts because it increases our cash which is the part of our current asset. We credit all the payments  because it decreases our current asset (cash). Following cash book examples will help you to understand the cash book deeply.


1st Example :

Making of Simple Cash Book  (Single Column Cash Book )

Mr. M starts business with Rs. 20,000 on 1st April 2012. Of this he pays Rs. 15000 into his bank account. His cash transactions during the week were:
April 1 Purchased stationery for cash Rs. 100
April 2 Purchased goods for cash Rs. 2500
April 2 Cash Sales Rs.1500
April 3 Received from J Brown Cash on account Rs. 1000
April 4 Paid to J. R Cash Rs. 2200
April 5 Paid for Advertisement Rs. 400
April 6 Cash Sales Rs. 1800
April 6  Purchased old machinery Rs. 800
April 6 Purchase from sham on credit Rs. 6000

Make out a single column cash book .

Dr.	Cash Book								Cr.
Date	Receipts	V.No.	L.F.	Amount	Date	Payments	V.No.	L.F.	Amount
April 1, 2012	To Capital a/c			20000	April 1, 2012	By Bank a/c			15000
April 2	To Sale a./c			1500	April 1	By Stationery a/c			100
April 3	To J. Brown a/c			1000	April 1	By Purchase a/c			2500
April 6	To Sales a/c			1800	April 4	By J.R. a/c			2200
					April 5	By Advertisement a/c			400
					April 6	By Machinery a/c			800
					April 6	By Bal. c/d			3300
				24300					24300
April 7	By Bal. b/d			3300

Remember : Cash book never records credit transactions. So, we will not record of purchase
from sham on credit in cash book.

2nd Example 

Making of Double Column Cash Book

We can also make the double column cash book. In this double column cash book, we have to record all the transactions relating to cash and discount. If we receive the money from debtor, we allow the discount. If we pay the money to creditor, we receive the discount. So, both record will also be in the double column cash book. With following example, you can understand it.

Enter the following transactions of Mohit in double column cash book :

Jan. 1 2013 : Balance of cash in hand = Rs. 3200
2 : Paid to Mohan and Sons (discount allowed Rs. 35) = Rs. 765
3 : Cash Sales = Rs. 850
4. Sales of old newspapers = Rs. 35
4  : Paid for office machinery = Rs. 2000
4 : Withdraw from Bank = Rs. 800
5 : Received from Raghav ( in full settlement of his debt of Rs. 1200) = Rs. 1150
6. Sale of Old Furniture = Rs. 600
8 : Receive from Prashant (allowed him discount Rs. 40) = Rs. 800
8 : Paid wages and salaries in cash = Rs. 1000
9 : Received from Akram khan against debt previously written off = Rs. 450

Dr.	Cash Book (Double Column)								Cr.
Date	Receipts	L.F.	Discount Allowed	Amount	Date	Payments	L.F.	Discount Received	Amount
2013 Jan. 1	To Balance b/d			3200	2013 Jan. 2	By Mohan and sons a/c		35	765
Jan. 3	To Sales a/c			850	Jan. 4	By office machinery a/c			2000
Jan. 4	To old newpaper a/c			35	Jan. 8	By wages and salaries a/c			1000
Jan. 4	To Bank a/c			800	Jan. 9	By Balance c/d			4120
Jan.5	To Raghav a/c		50	1150
Jan.6	To Furniture a/c			600
Jan.8	To Prashant a/c		40	800
Jan.9	To Bad debts recovered a/c			450
			90	7885				35	7885
Jan. 10	To Balance b/d			4120

Remember : We do not calculate the balance of discount column because discount column is not as discount account. We will again open the discount allowed account and discount received account where we will calculate the balance of discount which will go to trail balance.

3rd Example 

Making of Triple Column Cash Book

In modern business, we complete almost all the transactions through bank. We pay off cash through check or online bank transfer. We also collect money through check. So, it is necessary to show one more column in cash book except cash column and discount column. With following example, you can understand it deeply.

Write out the following transactions in the Triple column cash book of Sitaram:
2013
Jan. 1 Sitaram commences his business with cash = Rs. 30000
Jan 2 He pays into bank current account = Rs. 20000
Jan. 3 He receive cheque from kulwant rai on account = Rs. 1000
Jan. 7 He pays kulwant rai's cheque into bank = Rs. 1000
Jan. 10 He pays Radha Sharan by Cheque = Rs. 1980
and receive discount = Rs. 20
Jan. 11 He receive cheque from Wasim = Rs. 970
 and allow him discount = Rs. 30
Jan. 15 He makes sales for cash = Rs. 2000
Jan. 17 Cash deposited into bank = Rs. 3000
Jan. 19 He purchased a motor car by cheque = Rs. 6500
Jan. 20 He purchased goods by cheque = Rs. 1500
Jan. 22 He pays jajoo traders in cash = RS. 2000
and receives discount = Rs. 100
Jan. 29 He withdraws from bank for office use = Rs. 500
Jan. 30 He purchases furniture by cheque = Rs. 1200
Jan. 30 Cheque received from sham endorsed to Ram = Rs. 5000

Dr.	Cash Book (Triple Column)								Cr.
Date	Receipts	Discount allowed	Cash	Bank	Date	Payments	Discount received	Cash	Bank
2013 Jan. 1	To Capital		30000		2013 Jan. 2	By Bank (C)		20000
Jan. 2	To Cash (C)			20000	Jan. 7	By Bank (C)		1000
Jan. 3	To Kulwant Rai		1000		Jan. 10	By Radha sharan	20		1980
Jan. 7	To Cash (C)			1000	Jan.  17	By Bank (C)		3000
Jan.11	To Wasim	30		970	Jan. 19	By Motor Car			6500
Jan.15	To Sale		2000		Jan. 20	By Purchase			1500
Jan.17	To Cash (C)			3000	Jan. 22	By Jajoo traders	100	2000
Jan.29	To Bank (C)		500		Jan. 29	By Cash (C)			500
					Jan. 30	By Furniture a/c			1200
					Jan. 30	By Balance C/d		7500	13290
		30	33500	24970			120	33500	24970
May 1	To Balance b/d		7500	13290

Remember : a) If we deposited money into bank or withdraw money from bank we have to show such amount both cash column in one side and bank column in other side. So, these are the contra entries and its double entry has completed in cash book. We show c just front of entries.

b) Before showing discount column, we have to show ledger folio column both side, due to shortage of space, we did not show.

c) When we get a cheque but we have endorsed to some other person, it is recorded in cash book because this is neither receipt nor payment from cash or our bank. Its record will be done through journal entry. So, we will not show jan. 30 endorsement transaction in cash book.Like journal, cash book is made also on the basis of double entry system. In this book, we debit all the receipts because it increases our cash which is the part of our current asset. We credit all the payments  because it decreases our current asset (cash). Following cash book examples will help you to understand the cash book deeply.


1st Example :

Making of Simple Cash Book  (Single Column Cash Book )

Mr. M starts business with Rs. 20,000 on 1st April 2012. Of this he pays Rs. 15000 into his bank account. His cash transactions during the week were:
April 1 Purchased stationery for cash Rs. 100
April 2 Purchased goods for cash Rs. 2500
April 2 Cash Sales Rs.1500
April 3 Received from J Brown Cash on account Rs. 1000
April 4 Paid to J. R Cash Rs. 2200
April 5 Paid for Advertisement Rs. 400
April 6 Cash Sales Rs. 1800
April 6  Purchased old machinery Rs. 800
April 6 Purchase from sham on credit Rs. 6000

Make out a single column cash book .

Dr.	Cash Book								Cr.
Date	Receipts	V.No.	L.F.	Amount	Date	Payments	V.No.	L.F.	Amount
April 1, 2012	To Capital a/c			20000	April 1, 2012	By Bank a/c			15000
April 2	To Sale a./c			1500	April 1	By Stationery a/c			100
April 3	To J. Brown a/c			1000	April 1	By Purchase a/c			2500
April 6	To Sales a/c			1800	April 4	By J.R. a/c			2200
					April 5	By Advertisement a/c			400
					April 6	By Machinery a/c			800
					April 6	By Bal. c/d			3300
				24300					24300
April 7	By Bal. b/d			3300

Remember : Cash book never records credit transactions. So, we will not record of purchase
from sham on credit in cash book.

2nd Example 

Making of Double Column Cash Book

We can also make the double column cash book. In this double column cash book, we have to record all the transactions relating to cash and discount. If we receive the money from debtor, we allow the discount. If we pay the money to creditor, we receive the discount. So, both record will also be in the double column cash book. With following example, you can understand it.

Enter the following transactions of Mohit in double column cash book :

Jan. 1 2013 : Balance of cash in hand = Rs. 3200
2 : Paid to Mohan and Sons (discount allowed Rs. 35) = Rs. 765
3 : Cash Sales = Rs. 850
4. Sales of old newspapers = Rs. 35
4  : Paid for office machinery = Rs. 2000
4 : Withdraw from Bank = Rs. 800
5 : Received from Raghav ( in full settlement of his debt of Rs. 1200) = Rs. 1150
6. Sale of Old Furniture = Rs. 600
8 : Receive from Prashant (allowed him discount Rs. 40) = Rs. 800
8 : Paid wages and salaries in cash = Rs. 1000
9 : Received from Akram khan against debt previously written off = Rs. 450

Dr.	Cash Book (Double Column)								Cr.
Date	Receipts	L.F.	Discount Allowed	Amount	Date	Payments	L.F.	Discount Received	Amount
2013 Jan. 1	To Balance b/d			3200	2013 Jan. 2	By Mohan and sons a/c		35	765
Jan. 3	To Sales a/c			850	Jan. 4	By office machinery a/c			2000
Jan. 4	To old newpaper a/c			35	Jan. 8	By wages and salaries a/c			1000
Jan. 4	To Bank a/c			800	Jan. 9	By Balance c/d			4120
Jan.5	To Raghav a/c		50	1150
Jan.6	To Furniture a/c			600
Jan.8	To Prashant a/c		40	800
Jan.9	To Bad debts recovered a/c			450
			90	7885				35	7885
Jan. 10	To Balance b/d			4120

Remember : We do not calculate the balance of discount column because discount column is not as discount account. We will again open the discount allowed account and discount received account where we will calculate the balance of discount which will go to trail balance.

3rd Example 

Making of Triple Column Cash Book

In modern business, we complete almost all the transactions through bank. We pay off cash through check or online bank transfer. We also collect money through check. So, it is necessary to show one more column in cash book except cash column and discount column. With following example, you can understand it deeply.

Write out the following transactions in the Triple column cash book of Sitaram:
2013
Jan. 1 Sitaram commences his business with cash = Rs. 30000
Jan 2 He pays into bank current account = Rs. 20000
Jan. 3 He receive cheque from kulwant rai on account = Rs. 1000
Jan. 7 He pays kulwant rai's cheque into bank = Rs. 1000
Jan. 10 He pays Radha Sharan by Cheque = Rs. 1980
and receive discount = Rs. 20
Jan. 11 He receive cheque from Wasim = Rs. 970
 and allow him discount = Rs. 30
Jan. 15 He makes sales for cash = Rs. 2000
Jan. 17 Cash deposited into bank = Rs. 3000
Jan. 19 He purchased a motor car by cheque = Rs. 6500
Jan. 20 He purchased goods by cheque = Rs. 1500
Jan. 22 He pays jajoo traders in cash = RS. 2000
and receives discount = Rs. 100
Jan. 29 He withdraws from bank for office use = Rs. 500
Jan. 30 He purchases furniture by cheque = Rs. 1200
Jan. 30 Cheque received from sham endorsed to Ram = Rs. 5000

Dr.	Cash Book (Triple Column)								Cr.
Date	Receipts	Discount allowed	Cash	Bank	Date	Payments	Discount received	Cash	Bank
2013 Jan. 1	To Capital		30000		2013 Jan. 2	By Bank (C)		20000
Jan. 2	To Cash (C)			20000	Jan. 7	By Bank (C)		1000
Jan. 3	To Kulwant Rai		1000		Jan. 10	By Radha sharan	20		1980
Jan. 7	To Cash (C)			1000	Jan.  17	By Bank (C)		3000
Jan.11	To Wasim	30		970	Jan. 19	By Motor Car			6500
Jan.15	To Sale		2000		Jan. 20	By Purchase			1500
Jan.17	To Cash (C)			3000	Jan. 22	By Jajoo traders	100	2000
Jan.29	To Bank (C)		500		Jan. 29	By Cash (C)			500
					Jan. 30	By Furniture a/c			1200
					Jan. 30	By Balance C/d		7500	13290
		30	33500	24970			120	33500	24970
May 1	To Balance b/d		7500	13290

Remember : a) If we deposited money into bank or withdraw money from bank we have to show such amount both cash column in one side and bank column in other side. So, these are the contra entries and its double entry has completed in cash book. We show c just front of entries.

b) Before showing discount column, we have to show ledger folio column both side, due to shortage of space, we did not show.

c) When we get a cheque but we have endorsed to some other person, it is recorded in cash book because this is neither receipt nor payment from cash or our bank. Its record will be done through journal entry. So, we will not show jan. 30 endorsement transaction in cash book.