UPSC Mains - How to Prepare for Commerce and Accountancy Optional

Commerce and Accountancy Optional

Commerce as an optional is very technical in nature and hence a sufficient number of candidates are opting for this optional. It is a good scoring optional and provides an advantage to commerce graduates as the undergraduate and professional studies are utilized in both paper 1 & 2. Also, the fact that commerce and accountancy are your parent subjects; it makes the preparation a whole lot easier. A large portion of commerce syllabus is static in nature. Commerce is indeed a lengthy optional in terms of preparation time and revision.

Pros & Cons of Commerce as an Optional Subject

Pros and Cons are part and parcel of every subject, but still,

  • Commerce is a good subject as an optional if one has a sound knowledge of what subject demands and a strong foundation comes in handy.
  • Commerce is an interesting subject and also gives an aspirant, an opportunity to have an idea about various financial aspects.

However, it is a fact that an optional should be chosen by an aspirant only if he/she finds it interesting and something which can be handled until the wee end.

Cons of Commerce as optionals

The biggest hurdle an aspirant faces in this optional is that it requires intensive and vast reading and integration from different sources. This eventually leads to comprehensive coverage in paper 1 and paper 2. But there is no denial in the fact that it requires a high level of competence since the UPSC numericals are very unpredictable.


Commerce and Accountancy consist of 2 papers i.e. paper 1 and 2.

a) Paper 1 consists more of practical questions which upon regular practice can be quite scoring and one can easily score above 200. Hence the key for scoring more marks in paper 1 is Practice and it doesn’t extend only to practical questions but also encompasses theory-based questions as most of the compulsory questions are theory-based questions only and off late few current affairs related questions are also included. If one has a careful look at the syllabus of Paper 1, one can notice that the level of Paper 1 is equivalent to CA Inter or B.Com Hons, hence books of that level are more than sufficient to cover the entire syllabus.

b) Paper 2 of Commerce on the other hand is totally theoretical and poses a challenge for many aspirants due to non-availability of good material. Writing practice and use of relevant examples from current affairs help one fetch better marks in paper 2.

Paper – I: Accounting and Finance

Accounting, Taxation & Auditing

  1. Financial Accounting:

Accounting as a Financial Information System; Impact of Behavioral Sciences. Ac-counting Standards e.g., Accounting for Depreciation, Inventories, Research and Development Costs, Long-term Construction Contracts, Revenue Recognition, Fixed Assets, Contingencies, Foreign Exchange Transactions, Investments and Government Grants, Cash Flow Statement, Earnings Per Share. Accounting for Share Capital Transactions including Bonus Shares, Right Shares, Employees Stock Option and Buy-Back of Securities. Preparation and Presentation of Company Final Accounts. Amalgamation, Absorption and Reconstruction of Companies.

  1. Cost Accounting:

Nature and Functions of Cost Accounting. Installation of Cost Accounting System. Cost Concepts related to Income Measurement, Profit Planning, Cost Control and Decision Making. Methods of Costing: Job Costing, Process Costing, Activity Based Costing. Volume – cost – Profit Relationship as a tool of Profit Planning. Incremental Analysis/ Differential Costing as a Tool of Pricing Decisions, Product Decisions, Make or Buy Decisions, Shut-Down Decisions etc. Techniques of Cost Control and Cost Reduction: Budgeting as a Tool of Planning and Control. Standard Costing and Variance Analysis. Responsibility Accounting and Divisional Performance Measurement.

  1. Taxation:

Income Tax: Definitions; Basis of Charge; Incomes which do not form part of Total Income. Simple problems of Computation of Income (of Individuals only) under Various Heads, i.e., Salaries, Income from House Property, Profits and Gains from Business or Profession, Capital Gains, Income from other sources, Income of other Persons included in Assessee’s Total Income. Set – Off and Carry Forward of Loss. Deductions from Gross Total Income. Salient Features/Provisions Related to VAT and Services Tax.

  1. Auditing:

Company Audit: Audit related to Divisible Profits, Dividends, Special investigations, Tax audit. Audit of Banking, Insurance, Non-Profit Organizations and Charitable Societies/Trusts/Organizations.

 Financial Management, Financial Institutions and Markets

  1. Financial Management:

Finance Function: Nature, Scope and Objectives of Financial Management: Risk and Return Relationship. Tools of Financial Analysis: Ratio Analysis, Funds-Flow and Cash-Flow Statement. Capital Budgeting Decisions: Process, Procedures and Appraisal Methods. Risk and Uncertainty Analysis and Methods. Cost of capital: Concept, Computation of Specific Costs and Weighted Average Cost of Capital. CAPM as a Tool of Determining Cost of Equity Capital. Financing Decisions: Theories of Capital Structure – Net Income (NI) Approach, Net Operating Income (NOI) Approach, MM Approach and Traditional Approach. Designing of Capital structure: Types of Lever-ages Operating, Financial and Combined), EBIT- EPS Analysis, and other factors. Dividend Decisions and Valuation of Firm: Walter’s Model, MM Thesis, Gordan’s Model Lintner’s Model. Factors Affecting Dividend Policy. Working Capital Management: Planning of Working Capital. Determinants of Working Capital. Components of Working Capital -Cash, Inventory and Receivables. Corporate Restructuring with focus on Mergers and Acquisitions (Financial aspects only)

  1. Financial Markets and Institutions: 

Indian Financial System: An Overview

Money Markets: Participants, Structure and Instruments. Commercial Banks. Reforms in the banking sector. Monetary and Credit Policy of RBI. RBI as a Regulator.

Capital Market: Primary and Secondary Market. Financial Market Instruments and Innovative Debt Instruments; SEBI as a Regulator.

Financial Services: Mutual Funds, Venture Capital, Credit Rating Agencies, Insurance and IRDA.


Organisation Theory and Behaviour, Human Resource Management and Industrial Relations Organisation Theory and Behaviour

  1. Organisation Theory:

Nature and Concept of Organisation; External Environment of Organizations -Technological, Social, Political, Economical and Legal; Organizational Goals – Primary and Secondary goals, Single and Multiple Goals; Management by Objectives.

Evolution of Organisation Theory: Classical, Neo-classical and Systems Approach. Modern Concepts of Organisation Theory: Organisational Design, Organisational Structure and Organisational Culture. Organisational Design–Basic Challenges; Differentiation and Integration Process; Centralization and Decentralization Process; Standardization / Formalization and Mutual Adjustment. Coordinating Formal and Informal Organizations. Mechanistic and Organic Structures. Designing Organizational structures–Authority and Control; Line and Staff Functions, Specialization and Coordination. Types of Organization Structure –Functional. Matrix Structure, Project Structure. Nature and Basis of Power, Sources of Power, Power Structure and Politics. Im-pact of Information Technology on Organizational Design and Structure.
Managing Organizational Culture.

  1. Organisation Behaviour:

Meaning and Concept; Individual in organizations: Personality, Theories, and Determinants; Perception – Meaning and Process. Motivation: Concepts, Theories and Applications. Leadership-Theories and Styles. Quality of Work Life (QWL): Meaning and its impact on Performance, Ways of its Enhancement. Quality Circles (QC) – Meaning and their Importance. Management of Conflicts in Organizations. Transactional Analysis, Organizational Effectiveness, Management of Change.

Human Resources Management and Industrial Relations

  1. Human Resources Management (HRM):

Meaning, Nature and Scope of HRM, Human Resource Planning, Job Analysis, Job Description, Job Specification, Recruitment Process, Selection Process, Orientation and Placement, Training and Development Process, Performance Appraisal and 360° Feed Back, Salary and Wage Administration, Job Evaluation, Employee Welfare, Promotions, Transfers and Separations.

  1. Industrial Relations (IR):

Meaning, Nature, Importance and Scope of IR, Formation of Trade Unions, Trade Union Legislation, Trade Union Movement in India. Recognition of Trade Unions, Problems of Trade Unions in India. Impact of Liberalization on the Trade Union Movement. Nature of Industrial Disputes: Strikes and Lockouts, Causes of Disputes, Prevention and Settlement of Disputes. Worker’s Participation in Management: Philosophy, Rationale, Present Day Status and Future Prospects. Adjudication and Collective Bargaining. Industrial Relations in Public Enterprises, Absenteeism and Labour Turnover in Indian Industries and their Causes and Remedies. ILO and its Functions.

Booklist and Sources to refer:



  • Corporate Accounting – Naseem Ahmed (Selective Reading)
  • Accounting Standards – D.S. Rawat (Focus more on this segment particularly for numerical and have working notes)

Cost Accounting:

  • Cost Accounting Theory and Problems – Maheshwari & Mittal (Be selective and study as per the syllabus and equal emphasis should be given to theory as well)


  • Student’s Guide to Auditing – Aruna Jha


  • Income Tax by Girish Ahuja or V.K. Singhania

Financial Management:

  • Financial Management – RP Rastogi

Financial Markets & Institutions:

  • Indian Financial System – Bharati V Pathak (Relevant chapters only and important to keep a track of initiatives by RBI, SEBI, IRDA etc.)


Organisation Theory and Behaviour:

  • Organisation Theory and Behaviour – B.P. Singh & T.N. Chabra, SP Robbins
  • Organisation Behaviour – L.M. Prasad

Human Resource Management:

  • Human Resource Management – C.B. Gupta

Industrial Relations:

  • Industrial Relations – T.N Chabra and R.K Suri


  • The basic preparation should start with a general reading and develop an enhanced conceptual clarity with subsequent reading focusing upon vital definition by authors and thinkers, establishing clear links with various topics/chapters.
  • Note making is extremely crucial wherein all diagrams, examples, definitions and core points should be listed out without much explanation. Also, all the topics from various sources should be integrated into one place.
  • While practising the numerical, working notes should be all maintained at one place before or after the main answer.
  • While writing long answers, the introduction can be followed by some lines in an indirect manner or direct with a general explanation followed by an exact definition.
  • Use of diagrams can help fetch more marks in paper 2.
  • Ensure that the answer is written in a simple and easy language but maintain the essence and do not deviate from the question.
  • As we have mentioned time and again, end the answers on a positive/visionary note and give an apt solution with examples.

Rely on the above-mentioned sources and strategy and analyze the past year questions for detailed clarity. Coaching can help but only to an extent. Rest depends on the systematic application and hard work.

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