AglaSem Schools
Sample Question Paper—D Ans. 1. Departmental Undertakings, Statutory Corporations and Govt. Company. 1 Ans. 2. Oligarchic management means management by few who concentrates the decision making power in their hands according to their higher voting rights. 1
to the needy business concerns. Therefore Banking & financing removes hindrance of finance to enable smooth functioning of business. 3
Ans. 3. Joint Ventures.
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Ans. 4. Auxillaries to trade.
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Ans. 5. Multinational Companies/Global Enterprises. 1
Ans. 14.The essential elements of Life Insurance : (a) Premium of life insurance may be paid annually, half yearly, quarterly or monthly as agreed by the insurer and the insured. (b) The insurer is liable to pay the insured amount either on the death of the insured or expiry of the specified period whichever is earlier. (c) Life Insurance contract is not an idemnity contract but a simple contract in which payment of the insured amount is must, though the timing of payment may be uncertain. It has an element of investment and protection or both. 3
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Ans. 6. By assuming its social responsibility to do fair & legal business in interest of all the members of society. 1
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Ans. 7. (a) Development of Infrastructure facilities. 1
(b) Development of Backward Areas.
Ans. 8. By installing anti-virus programme. 1 1
Ans. 10. Three industries reserved exclusively for the public sector are : Atomic energy, Defence and Railways. 1
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Ans. 11. Centralised control in case of MNC's because the plans and policies for running them are framed by the headquarters and the subsidiaries, branches in lost countries only implement them under the control of headquarters. 1
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Ans. 12. Debentures can be issued for a period greater than three years by both Public Ltd. and Pvt. Ltd. companies but Public Deposits are issued for not more than 3 years only by the public Ltd. company. 1 Ans. 13. (a) Transportation : Refers to the physical means used to transfer person, goods from one place to another. It facilitates transfer of labour, raw-material, finished goods from one place to another. Transportation creates palce utility and removes hindrance of place. (b) Banking and Finance : A business requires finance for its establishment, modernisation and diversification expansion & growth and to meet day to day expenses etc. Banks and financial institutions provides finance
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Ans. 15. Features of Fixed shop retailers are : (a) Relatively large scale operations : Compared with itinerant traders normally they have greater resources and operate at a relatively large scale. (b) Permanent Establishments : The retailer have some permanent establishment to sell their merchandise. They do not move from place to place to serve their customer. (c) Greater Credibility : This category of retailers has greater credibility in the minds of customers, and they are in a position to provide greater services to the customers such as home delivery, guarantees, repairs etc. 3 Ans. 16. Letter of credit is a document which is issued by the importer's bank to the exporter and shows an undertaking that it will honour payment up to a certain amount of export bills. Letter of credit has very high relevance in foreign trade because the exporter may not know the importer's credit worthiness & there may be default in payment. So for the security of payments it is required. 3
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Ans. 9. Memorandum of Association.
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Ans. 17. Two services provided by wholesaler to manufacturer : (a) Wholesalers undertakes the responsibility of distribution of goods as he maintains close contacts with retailers in the areas of his operation. Thus he save producers time effort & money.
AglaSem Schools (2) ADR is listed for trading, only in US stock exchanges GDR may be listed in any foreign stock exchange.
(b) The wholesaler assumes risk in the process of storing the goods, selling the goods. Services to Retailers :
(3) ADR has different levels — level I to level III with each level having different types of preference GDR is equal to high preference receipt of Level II & Level III.
(a) A wholesaler maintains regularity of supply of goods as he stores these goods in bulk and supply them to retailers as & when demanded. (b) The wholesaler assumes risk even on the behalf of the retailers because the wholesalers stores goods bought from the producers at a given price & supplies them to retailers on the basis of market price. Thus retailers become risk free. 3
(4) ADR is negotiable only in the US but GDR is negotiable throughout the world. 4 Ans. 21. Partner by estoppel is a nominal partner who accepts that he is a partner in the partnership firm by his own words or conduct or behaviour and gives an impression to others that he/she is a partner of firm. Such partners are held liable for the debts of the firm because in the eyes of the third party they are considered partners even though do not contribute capital or take part in its management. 4
Ans. 18. Lorry Receipt (LR) is a document issued by a road transporter when goods meant for transportation are handed over by the consigner to the transporter whereas Railway Receipt (RR) is a document issued by the Indian Railways when goods meant for transportation are handed over by the consigner to the Indian Railways. 3 Ans. 19. The values involved in this decision are :
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(a) Optimum utilisation of Govt. resources for economic development. (b) Benefits of professional management will be achieved.
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Nature of Business risk :
(c) No unnecessary and undesired political interference in these enterprises.
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(d) Effective and efficient accomplishment of goals & objectives of Public Sector Units. 4
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Ans. 22. Business risk refers to the possibility of losses or inadequate profits due to uncertainities or unexpected events, which are beyond control. For example, demand for a product may decline due to change in tastes and preferences of the customers or due to change in fashion etc. (a) Business risk arises due to uncertainities of future on which there is no control of business.
Ans. 20. Following are the differences between ADR & GDR :
(b) Risk in an important characteristics of business. No business can avoid risk although degree of risk may vary risk can be reduced but can't be eliminated.
(1) ADR may be issued only in the US financial market by a non-US Company while GDR may be issued by any foreign company throughout the world.
(c) The degree of risk depends upon the type nature and size of the business. Risk is higher in case of firms producing fashion items firms operating at large scale. 4
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Ans. 23. Differences between Life Insurance and Fire Insurance : Basis
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Life Insurance
Fire Insurance
1. Subject matter
The subject matter of insurance is The subject matter is any physical property or assets. human life.
2. Element
It has element of protection as well It has element of protection only. as investment.
3. Insurable interest
Insurable interest must be present Insurable interest must be present at the time of taking the policy. at the time of taking policy as well as at the time of loss.
4. Duration
Generally it ranges from 5 to 30 Duration is one year only. years or for whole life.
5. Indemnity
Principle of indemnity does not ap- Principle of indemnity is applicable. ply as loss of life is not measurable. So on the happening of the uncertain event, the actual loss suffered by the insured is indemnified by insurer as here the loss is measurable.
Ans. 24. The scope of e-business is viewed in the terms of parties involved in transactions. In this context a firm's electronic transactions and network can be categorised as : (a) B2B : In these transactions both the parties involved are business firms. In other words, it is business to business transactions. The transaction and necessary functions regarding business requires to business to interact with a number of other business which may be suppliers, or vendors of input or output. (b) B2C : B2C indicates business to customers. In this case, business tries to reach customers through online shopping. Apart from online shopping B2C also takes care of registering customers complaints, delivery of products, online payment etc. Companies can increase customer touch points helps company to identify their weaker areas to minimise customer pair. (c) Intra B-Commerce : Parties involved in the electronic transaction are from within the business firm. That is why it is called Intra—BCommerce. It has made manufacturing flexible, helps in efficient inventory control, cash management, taking faster decision, 'Human Resource Management.' (d) C2C : Customer to customer interaction made available through computerised network is an additional benefit. Customers can interact with one another on the basis of a perspective buyer and seller, payment intermediaries etc. 1×5=5 Ans. 25. The reasons, which justify the need for pollution : (a) Reduction of Health Hazards : Pollution control is must to ensure healthy life of people. Pollution is the root cause of many diseases. Air pollution is the main cause of heart & lung diseases and cancer. Water pollution is the cause of liver problems and problems of Kidney etc. (b) Reduced Risk of Liability : It is possible that an enterprise is held liable to pay compensation to people affected by the toxicity of gaseous, liquid and solid wastes it has released into environment. Therefore it is sound Business policy to install pollution control devices in its premises to reduce the risk of liability. (c) Cost Savings : An effective pollution control programme is also needed to reduce waste disposal cost and cost of cleaning the plants because of improper production technology. So to minimise such economic losses pollution control is must. (d) Improved Public Image : The business and society is becoming conscious of environment quality. The policies & practices of a firm devoted to control any type of pollution will bring goodwill from customers. A firm that promotes the cause
AglaSem for environment will be able to enjoySchools a good reputation and will be perceived as a socially responsible enterprise. (e) Maintain National Beauty : Pollution is having direct affect on the natural beauty. The natural beauty consists of mountains, rivers, trees, land etc. Polluted environment creates health hazards for the people. The beautiful buildings & monuments which add to the beauty are getting blackened with pollution. Pollution free environment will help in maintaining natural beauty. 1×5=5
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Ans. 26. Various types of Itinerant Retailers are explained below : (a) Hawkers and Peddlers : They are the itinerant traders who move from street to street in search of customers. A hawker carries the goods on pushcarts, wheel-carts or on the back of animals and a peddler carries the goods on his own head or back. These retailers usually deal in consumer goods of a low prices, unbranded and local goods. (b) Cheap Jacks : They do not stay long at one place of business but differ from hawkers and peddlers in the sense that while the latter do not have shops of their own cheap jacks do hire small shops in residential localities or use tents to display their wares. They shift from locality to locality according to the prospects of business. They deal in low priced household goods. (c) Market Traders : They are small scale sole proprietors who hold stalls at different locations on specific days which may be once in a week. They deal in a variety of cheap goods which are of customers interest and which are of daily use. Farmer mandis are the best example of this type of itinerant retailers where farmers bring fresh products from the fields & sell at different places on fixed days. (d) Street Traders : They are pavement retailers who display and sell their products on pavements footpath. They are usually seen in crowed cities and handle light goods. They deal in low-priced products of common use. They are very popular. People find it convenient to pick up items on their way back from work. 1½×4=6 Ans. 27. Sole proprietorship organisation also called sole trade single entrepreneurship is the oldest & simplest form of organisation According to L.H. Haney — “The individual entrepreneurship is the form of business organisation on the head of which, stands an individual as the one, who is responsible, who directs its operations, who alone runs the risk of failure. So, a soleproprietorship form of organisation is the one in which a single person/owner carries on business exclusively. He takes all the decisions
and receives all the profits & takes responsibility for losses. MERITS OF SOLE PROPRIETORSHIP (Any 2) (1) Ease in formation & Closure : Sole Trading is the only form of organisation where no legal formalities are required to be performed in setting up and closing the business sole trader can close the business whenever he desires. (2) Direct Incentive : In this form of organisation there is direct relationship between the efforts and rewards which means if proprietorship puts extra efforts then profit increases & proprietorship gets extra income, which motivates him to work extra. (3) Personal Touch : In sole proprietorship concern, generally all the work is carried out by the owner himself so he can maintain direct contacts with the customers and employees and can make changes in the products according to the demands & expectations of the customer. LIMITATIONS (Any 2) (a) Limited Liability : The liability of a sole trader is unlimited. His private property can also be assigned for meeting the business loss. Unlimited liability also restricts his working. It acts as a deterrent to the growth of his business activities. (b) Limited Resources : A sole trader depends entirely upon his wealth or borrowings. There is a limit to the credit raising capacity of a single person. This reduces the scope for expansion & growth of business. (c) Limited Managerial Skills : In this form of organisation all the activities are performed by a single individual. A single individual cannot be expert in all the fields. He may be a good salesperson but not a good manager. So his managing capacities are limited. Moreover, his limited resources will not allow him to use services of professional people Limited managerial capacity will hinder the growth of the business. 2+2+2=6 OR Ans. Following steps are to be undertaken for getting registration of a partnership firm : (1) To get the firm registered the partners have to apply to the Registrar of Partnership firm of his state in a prescribed form. Along with application the following information must be supplied : – Name of the firm, address of the Head Office. – Address of the Branch Office. – Date of admission of the partners, their names & permanent address of all the partners. – Duration of the firm.
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AglaSem Schools (2) Deposit of required fees with the Registrar of firm. (3) The Registrar after approval will make an entry in the register of firms and will subsequently issue a certificate of registration. Though it is optional for a partnership firm to get registered. In case a firm does not get registered it is deprived of many benefits. In a view of these benefits, it is therefore advisable to get the firm registered. According to Indian Partnership Act 1932, the partners may get the firm registered with the Registrar of Firms of the state in which the firm is situated at the time of its formation or at any time during its existence. Registration provides a conclusive proof of the existence of a partnership firm. (6) Ans. 28. No public sector companies cannot compete with private sector in terms of profits and efficiency due to following reasons : (i) Motive : The motive of public sector enterprises is providing services whereas private sector operates fully on commercial basis to have profit motive. (ii) Management : The public sector enterprises are managed by bureaucrats and their management is very poor and inefficient. Private sector is managed by private individuals who are professionals & experts of their fields & efficient. (iii) Political Interference : The public sector enterprises are subject to ministerial control as the concerned ministry makes appointments of directors. Private sector does not work under any ministry so it is free from any such political interference in the business. So they operate their business smoothly without any fear of ministerial accountability & control. (iv) Freedom of Operations : There is no or limited freedom of operations in public sector enterprises. All actions of these enterprises are subject to many rules and regulations which restricts their managers to take timely decisions and to grab market opportunities. On the other hand Private Sector enjoys complete operational freedom and takes advantage of business opportunities, increasing their profits & efficiency. (v) Employees : The employees of public sector are generally the civil servants or Govt. servants subject to govt. rules & regulations. They show their lethargic & indifferent work attitude due to their job securities. This results in losses to PSUs. In Private sector the employees are selected through regrous selection process and are fired out if they do not perform up to the desired level so efficiency & productivity of personnel in private sector is very high. (vi) Decisions : A lot of bureaucracy and red tapism in public sector limits the profitability of these enterprises as this leads to delay in taking
AglaSem Schools (5) Voting rights of equity shareholders assures democratic control over management.
prompt decisions and lack of initiativeness on the part of management to take risky ventures. But in Pvt. sector prompt decisions are taken according to the needs of changing environment which leads to maximising their profits & efficiency. 1×6=6 OR Ans. Multinational corporations are those companies who incorporate themselves in their own (work) country but operate their business in many other countries through network of their branches, subsidiaries etc. For e.g. : Coca-Cola, Sony, L.G., Samsung etc. The main features of MNCs are : (a) Giant Size : The assets and sales of MNCs are quite large. These companies operate on large scale. Their operations are so huge that sometime their sales turnover exceeds the Gross Nationalised Product of an underdeveloped country. MNCs enjoy a high credit worthiness. (b) International Operates : MNCs operate in more than one country. It has its own branch, factories offices etc. (c) Professional Management : A MNC enjoys professional experts, specialised people and keep updating the knowledge and skill of their employee by imparting them training from time to time. It employs professional to handle the advance in technology. (d) Centralised Control : The branches of MNC spread in different countries are controlled and managed from headquarters located in Home Country. All the branches operate within the policy framework formed by headquarters. (e) Sophisticated Technology : MNCs make use of latest technology to supply world class products. They employ capital itensive technology and innovative techniques of production. 1+1×5=6 Ans. 29. A large industrial enterprises can raise capital for financing modernisation and expansion from the following sources : (a) Equity Shares : It is the most important source of raising long term capital by a company. Equity shares represent the ownership of a company and thus the capital raised by issue of such shares is known as ownership capital. Following are the merits of issuing equity shares : (1) Payment of dividend on these shares is not compulsory. (2) It serves as a permanent source of capital. (3) Funds can be raised through this source without creating any charge on the assets of the company.
(b) Preference Shares : The preference share holders enjoy a preferential position over equity shareholders in two ways : (i) receiving a fixed rate of dividend out of the net profit of the company before any dividend paid to equity shareholders. (ii) receiving their capital after the claims of the company's creditors have been settled, at the time of liquidation. The shareholders do not get voting rights. A fixed rate of dividend is paid to preference shareholders which enable a company to pay higher dividends to equity shareholders. (c) Retained Earnings : The portion of the net earnings retained in the business for use in future, is known as retained earnings. It is a source of internal financing or self financing. The amount of undistributed profits or retained earnings vary from company to company depending on the factors like net profits, dividend policy and age of the organisation. Its a permanent, free of cost source of financing which gives greater freedom and flexibility, enhancing the capacity of the business to absorb unexpected losses. It may also lead to increase in the market price of equity shares of a company.
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(4) Equity capital provides credit worthiness to the company.
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(d) Debentures : Debenture is an acknowledgement of the debt taken by the company from the public. It is a source of long term debt capital. Debentureholders are therefore termed as creditors of the company. Debenture holders are paid a fixed stated amount of interest at specified intervals. Debentures creates a charge on assets of the company, increases financial risk. Debentures does not dilute control of equity shareholders on management but reduces the credit worthiness of the company.
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(e) Loans from Financial Institutions : The govt. has established a number of financial institutions all over the country to provide both owned capital & loan capital for long and medium term requirement of the finances. As these insts aim at promoting industrial development, they provide financial, managerial and technical advice & consultancy to business firms. Moreover, the funds are made available even during periods of depression, when other sources of finance are not available. At times these financial units impose certain restriction on payment of dividend on the borrowing companies to secure their payments. (f) Loans from Commercial Banks : Bank credit is not a permanent source of funds though Banks have started extending loans for longer period generally such loans are used for medium to short periods. The borrower is required to provide some security or create a charge on the assets of the firm before loan is sanctioned by a
AglaSem Schools (2) Facilitate regular Supply of goods at door steps : Itinerants like peddlers, hawkers carry their products from place to place, at the door step of customer. Thus provide convenience in buying to consumers.
commercial bank. Formalities such as issued of prospectus, and underwriting are not required for raising loans from a bank. Thus it is an easier source of funds. (1+3+2)=6 OR
(3) Low Degree of Risk : They do not have any fixed shops or permanent establishment and carry their wares with them or keep at home or at some other place so their capital investment in very low & associated risk is also very low.
Ans. Advantages of issuing debentures over the issue of equity shares are : (1) Benefits of Trading on Equity : Issue of debenture may lead to trading on equity by keeping equity low and earnings high on that to increase earnings per share. Issue of more equity may decrease earning per share. (2) Tax Benefits : Debentures have fixed financing cost in the form of interest which is deductible from the profit resulting in lower tax burden. But dividends paid on equity capital is not tax deductible.
(4) Personal Touch : These retailers move from place to place to sell their merchandise at the door step of the customers, so they maintain their rapport with their regular customers.
(3) No Dilution of Control : Equity share holders have voting rights in proportion to the number of shares hold by them through which they exercise control over management, thus diluting the control. But debentures holders do not get voting rights therefore there is no possibility of dilution of control.
(5) Sell Fast Moving Consumer Goods : They normally deal in consumer products of daily use such as toiletry products, fruits & vegetables thus provides fresh goods at lowest possible prices.
(4) Reliable Source : Debentures are the first choice of investors who want regular & fixed income on their investment. Even in depression, and bearish market situation, a company can raise capital through issuing debentures. On the other hand as on equity capital no regular & fixed dividends may be given, so it scores less than debentures by the investors.
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(6) Returns : As the rate of return paid on debentures is fixed so when earnings of the company are large out of profits only a certain amount is paid as interest & rest of the profits is used for paying high dividends. Thus debentures give scope for retained earnings & capital appreciation on equity shares. 1×6=6 Ans. 30. Inspite of tough competition from Large Scale Retailers, Itinerants have been integral part of internal trade due to their following role : (1) Low Investment : Itinerants are the small traders operating with limited resources. So they operate their business with lowest amount of investment and keeps very low profit margin.
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Ans. Features of Co-operative Stores :
(1) Formation : A co-operative store requires at least 10 adults members to form this store. There is no limit on maximum number of members.
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(5) Redemption : A company has to redeem debentures on their expiry date thus reducing its financial obligation & can issue more debentures if more capital is required but this flexibility is not allowed by issue of equity capital as equity shares can be redeemed only at winding up of the company.
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(6) Ample Opportunity for Entrepreneurship : These petty traders creates self employment for themselves with their limited resources. Thus helps in promoting entrepreneurship and trade in the country. 1×6=6
(2) Democratic Management : Co-operative Societies are democratically managed through management committies which are elected by the members. Each member has one vote irrespective of the number of shares held by him/her. (3) Lower Prices : A co-operative store purchases directly from manufacturers or wholesalers and sells them to members & others. Elimination of middlemen results in lower prices for the consumer goods to the members. (4) Cash Sales : The consumer co-operative stores normally sell goods on cash basis. As a result the requirement for working capital is reduced. (5) Convenient Location : These stores are generally opened at convenient public places where the members and others can easily buy the products as per their requirement. (6) Limited Liability : The liability of the members in a co-operative society store is limited to the extent of capital contributed by them. They are not liable personally to pay for the debts of society in case the liabilities are greater than its assets. 1×6=6
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