2019
BUSINESS STUDIES
Full Marks: 100
Pass Marks: 30
Time: Three hours
The figures in the margin indicate full marks for the questions
1. Answer the following questions: 8
a) What are the different types of business activities?
Ans: Three: Trade, Commerce and Industry
b) Business of Hindu University Family (HUF) are controlled and managed by one person known as _____.
Ans: Karta
c) Which organization is formed by state and central legislation?
Ans: Statutory corporations
d) Name two different types of bank.
Ans: Private Banks, Public Banks
e) What does ‘e’ stand for in e-business?
Ans: Electronic
f) State the full form of BPO.
Ans: Business Process Outsourcing
g) What is the status of debenture-holders?
Ans: Creditors
h) A retailer is the link between _____ and _____.
Ans: Wholesalers and Consumers
2. Explain the concept of Business. 2
Ans: Business is an economic activity, which is related with continuous and regular production and distribution of goods and services for satisfying human wants.
3. Give two distinctive features of a sole-proprietorship business. 2
Ans: Features:
1. Easy to form and close
2. Unlimited Liability
3. One bearer of profit and loss
4. One man Control
5. No separate entity
4. What is meant by Multinational Corporation? 2
Ans: Global Enterprises/Multinational Companies: A global enterprise is one which owns and manages business in two or more countries. E.g.: Unilever Ltd, Coca cola, LG, Samsung, Hyundai Motors, Proctor and Gamble, etc.
5. Define a cottage industry. 2
Ans: Cottage Industry refers to industrial units which are traditional rural industries located in residential premises and in which manual techniques and simple tools are used.
6. What is meant by promotion of a Company? 2
Ans: Promotion: Promotion refers to the process of establishing new business enterprises .It is grabbing a business opportunity & converting it into a new company. Promotion includes the preliminary work incidental to formation of a company.
7. Discuss three factors responsible for environmental pollution. 3
Ans: Factors responsible for environmental pollution:
a) Wastage from factory
b) Polethene and garbage
c) Emission from vehicles
8. Discuss the advantages of preference shares. 3
Ans: Preference shares are those which carry a preference over dividend and return on capital. The dividend rate on preference shares is fixed. The preference shareholders get the dividend on fixed rate and out of net profits of a company prior to distribution of dividend on equity shares.
Merits of Preference shares:
a) Helps to collect huge funds.
b) No fixed liability.
c) No charge over assets.
9. What are the objectives of WTO? 3
Ans: World Trade Organisation was set up on January 1, 1995 replacing GATT with the sole objective of solving trade problems between countries and providing a forum for multilateral trade negotiations. Following are its objectives:
a) Raising standard of living;
b) Employment generation;
c) Optimal use of world resources;
d) Ensuring that LDC (Least Developed Countries) secures a better share of growth in international trade.
10. State any three differences between E-business and traditional business. 3
Ans: Difference between traditional and e-business are mentioned below:
Basis of distinction | Traditional Business | e – Business |
Ease of formation | It is Difficult to form. | It is quite easy to form e-business. |
Physical Presence | Physical presence is required | Physical presence is not Required |
Cost of Setting Up | Cost of setting up is very high. | Cost of setting up is very low. |
11. Discuss three limitations of E-business. 3
Ans: Limitations of e – Business
1. Low Personal Touch: Interpersonal touch between businessmen and the consumer is very important. e – Business may be high tech but the lacking interpersonal interaction is truly one of its shortcomings.
2. Delayed Delivery: Sometimes order may be placed at once through internet but delivery may be delayed, which may disturb the customers.
3. Need for technological capability and competence of parties: If any one party – either buyer or seller is not familiar with digital technology, e – Business becomes difficult.
12. What is the role of profit in business? 5
Ans: The main objective of a business undertaking is to earn profits. Profit earning is considered necessary for the survival of the business. Economic objectives of a business are
1. Profit earning for existence and expansion of business.
2. Production and sale of Goods to earn profit.
3. Creating Markets to sell products.
4. Technological Improvement to keep pace with the changing business world.
Role of Profit in Business:
a) It is source of income for the business man.
b) It provides funds for expansion
c) It is an indicator of efficiency of business man.
d) It builds up reputation.
13. What is business ethics? Mention the basic elements of business ethics. 5
Ans: Ans: Business Ethics means the business practices which are desirable from the point of view of the society. For instance, business malpractices such as adulteration, hoarding, black-marketing etc. are not desirable from the point of view of the society and so are termed as unethical.
Elements of Business Ethics
1. Top Management commitment: Higher level managers need to be openly and strongly committed to ethical conduct.
2. Publication of a ‘code’: ‘Code’ refers to the written ethical programs followed by a particular business or industry – which normally covers the areas of honesty, adherence to laws, product’s safety and quality and fairness in all dealings.
3. Establishment of Compliance Mechanism: Simply having a written ‘Code of Ethics’ is not sufficient, the business needs to ensure its effective implementation at all levels & throughout the life of the business.
4. Involving employees at all levels: To make ethical business a reality, employees at all levels must be involved.
5. Measuring Results: Measuring the results of ethics programs maybe difficult but can have an audit at regular intervals to monitor compliance with ethical standards and decide about further course of action.
14. Explain the steps involved in formation of a Private Limited Company. 5
Ans: Ans: There are four stages in the formation of a company:
(1) Promotion: Promotion refers to the process of establishing new business enterprises .It is grabbing a business opportunity & converting it into a new company. Promotion includes the preliminary work incidental to formation of a company.
(2) Incorporation: Incorporation of a company means the registration of company as a corporate body under the provisions of Companies Act, 2013.A Company comes into existence from the date of incorporation.
(3) Subscription of Capital: After incorporation, a company takes necessary steps to raise capital from public. For this purpose, a company issue prospectus inviting public to invest in shares or debentures of the company. Prospectus is the circular or invitation given to the general public to subscribe to the shares of the company or invest money in the company. If a company does not want to issue a prospectus to the public for subscription of the shares, a statement in lieu of prospectus is required to be issued to the public for necessary information. The nature of the information of this document is more or less similar to that given in the prospectus.
(4) Commencement of Business: The company can start its functioning after getting certificate of commencement. The certificate of commencement of business is an evidence to start the operations of the business. A private company can commence business after obtaining Certificate of Incorporation.
15. Describe the role played by small business in the development of the country. 5
Ans: Role of Small Business in India:
a) Small industries provide employment opportunities in rural areas
b) They are the second largest employers of human resources
c) They contribute nearly 40% of the gross industrial value added
d) The development of village & rural industries leads to industrialization in rural areas
e) They ensure equitable distribution national income & wealth by reducing income inequalities between rural & urban areas
f) They help in mobilization & utilization of local resources & skills
g) They help generate multiple sources of income to the rural house holds
h) They prevent migrations of rural population to urban areas in search of employment.
16. Explain the need for international business. 5
Ans: The need of international business to various nations are:
a) Optimum utilisation of resources of the country
b) Growth of economy
c) Economies of large scale
d) Increased employment opportunities
e) Stabilisation of prices
f) Increase in standard of living
g) Enhancement of competition
h) Global understanding
i) Opportunity to import the essential goods.
17. Define a retailer. Discuss the functions performed by a retailer. 5
Ans: Services of Retailers: Retailers provide various services to manufacturers as well as to consumers.
Services to Manufacturers/Wholesalers:
1. The services offered by retailers to wholesalers:
2. Wholesalers get a ready market through retailers.
3. Retailers manage the marketing part like advertising, publicity and promote sales.
4. Retail provides the information about market to wholesalers which are downloaded to manufacturer.
The services offered by retailers to customers:
1. It provides the availability of the goods and services to the final consumers.
2. As retailer holds the stock so the customers don’t have to store the goods.
3. It provides a variety of products and services to the consumers.
4. Retailers provide after sales services.
18. Discuss the various facilities provided by a commercial bank to its customers. 5
Ans: Most common functions of commercial banks are:
(1) Accepting the Deposits: A bank accepts deposits from the public through different types of accounts e.g. (i) Fixed Deposit account (ii) Savings deposit account, (iii) Current deposit or current account, (iv) Recurring deposit or recurring account
(2) Lending Money: Bank lends money to Businessmen and other persons through (i) Loans and advances, (ii) Overdraft, (iii) Cash Credit, (iv) Discounting of bills
(3) Agency Functions :( i) Collection of cheques, drafts, bills, hundies, dividend, interest, school fee, rent etc. (ii) Payment of cheques, drafts, hundies, rent, subscription, insurance premium, taxes, fees, electricity and water bills etc (iii) Acts as trustee, executor etc.(iv)Buying and selling securities.(v) Dealing in foreign exchange(vii) Advisory Functions.
(4) General Utility functions: These are certain utility functions performed by the modern commercial bank to its customer for the community. These are:
a) Safe custody of valuables.
b) Issuing letters of credit.
c) Gift Cheques.
d) Dealing in foreign exchange.
e) Credit cards.
19. Define Joint Venture. State the advantages and limitations of a joint venture. 2+6=8
Ans: Meaning: A joint venture is the combination of two or more persons into a single activity. It is a form of partnership which is limited to a specific venture. It is exactly the same as partnership, with the exception that it is one of a business that is to be terminated after the completion of the particular business. Since the business is to be terminated after completion of the venture, a firm name is not generally used. Thus the joint venture is like a temporary partnership without a firm name. It can also be said a particular partnership or partnership for a particular object.
Benefits of Joint Ventures are as follows:
1. It makes possible to undertake a big project requiring huge capital.
2. The risks involved in the new project are shared by the partners in the joint venture
3. It allows a company to expand its operations in forcing markets.
4. The local partner is benefited as the foreign partner contributes foreign capital and foreign technology.
5. The competitive strength of a smaller firm is increased.
Limitations of Joint Ventures are as follows:
1. It is temporary in nature.
2. Chances of success of joint venture depends on thorough research and analysis of the objectives.
3. Lack of co-ordination amongst the co-venturers.
4. Joints venture me result in more complex tax arrangement.
5. Joint venture can be costly.
Or
What is meant by a Government Company? Discuss its merits and limitations. 2+6=8
Ans: Government Company: According to The Indian Companies Act, 1956, a government company is a company in which not less than 51% of the paid up capital is held by the central or state government or both. Subsidiary of a government company is also considered as a government company. E.g.: 1) Hindustan Machine Tools Ltd. (HMT) 2) Bharat Heavy Electricals Ltd (BHEL) 3) Steel Authority of India Ltd.
Merits
1) It can be easily established.
2) It has a separate legal entity.
3) There is no undue departmental interference in the working of the company.
4) It can curb unhealthy business practices by providing goods and services at reasonable prices.
Demerits
1) The company is subject to government control in matters of policy as well as operations.
2) Lack of initiative on part of the directors and officers as they do not gain or loose anything by the company's performance.
3) Change in the political system or the rules directly affect the companies.
4) Evasion of constitutional Responsibilities of the government
20. What is ‘Memorandum of Association’? Explain its clauses. 3+5=8
Ans: Memorandum of association is the most important document of a company which contains the fundamental on which a company is incorporated. The company is bound to act according to the objects and powers contained in its Memorandum of association. It also regulates the relationship of the company with the rest of the world.
There are six clauses of Memorandum of Association:
a) Name Clause: Under this clause the corporate name of the company is stated with the name “limited” or “Private Limited” as the last word in this name. The name should not be identical with the name of any registered company.
b) Registered office Clause: Under this clause the company is required to mention the place in which the company is situated.
c) Objects clause: The object clause must contain the main object of the company and the other objects related with it for the completion of main object. The company is not entitled to carry any of the business which is not mentioned in the object clause.
d) Liability Clause This clause stated that the liability of members is limited to the amount unpaid on their shares.
e) Capital Clause: It shows the amount of share capital with which the company is going to be registered and its division.
f) Association Clause: This clause signifies the desire of the subscribers to form them into a body corporate.
Or
Define ‘Articles of Association’. Write the differences between ‘Memorandum of Association’ and ‘Articles of Association’.
Ans: Article of Association contains the rules & regulation for the internal management of the company. These rules and regulations are framed to carry the objects of the company as stated in the memorandum of association. The articles are subordinate to Memorandum.
The difference between Memorandum of Association & Article of Association is given here:
BASIS OF DISTINCTION | MEMORANDUM OF ASSOCIATION | ARTICLE OF ASSOCIATION |
MEANING | It is the constitution of a company .It defines limits, powers and objects of the company. | It contains rules and regulation for the internal management of the company. |
OBJECTIVES | It governs relationship of company with the external world. | It governs internal relationship between the members of the company. |
STATUS | It is the primary document. It is the foundation of the company. | It is the secondary document & it is based on the memorandum of association. |
COMPULSION | It is a compulsory document for all the companies. | It is compulsory for private companies, unlimited companies and companies limited by guarantee. |
ALTERATION | Alteration can only be done by the permission of court. | It can be altered according to the need of the management by passing a resolution. |
21. Discuss some of the sources of long term capital. 8
Ans: There are two main sources of long term finance:
a) Owner’s Fund: Owner’s fund consists of funds contributed by owners and accumulated profits. Owner’s fund mainly includes equity share, preference shares and retained earnings.
b) Borrowed Fund: It refers to the borrowings of the firm. It is mainly in the form of debentures, loans from financial institutions. Borrowed fund mainly includes debentures and public deposits.
Some of the Sources of long term Finance are stated below:
(a) Equity Shares: According to Indian Companies Act 2013 " an equity share is share which is not preference share". An equity share does not carry any preferential right.
Features of Equity shares:
1. Primary risk-bearers
2. Control over management
3. Higher profits available for equity share holders.
(b) Preference Shares: Preference shares are those which carry a preference over dividend and return on capital. The dividend rate on preference shares is fixed. The preference shareholders get the dividend on fixed rate and out of net profits of a company prior to distribution of dividend on equity shares.
Following are the basic features of preference share:
1. Fixed rate of dividend
2. Preferential payment of dividend
3. Preferential right in redemption of capital in case of winding up of a company.
4. Absence of voting rights
(c) Debentures: Debenture: It constitutes the borrowed funds of the company which is raised against the floating charges on its assets. It is an acknowledgement of debt. Debenture capital may be called DEBT CAPITAL. 2018
Features of Debentures:
1. Debenture holders are the creditors of the company.
2. Debenture is redeemed after a fixed period of time.
3. Debentures may be either secured or unsecured.
4. Debenture holders do not enjoy any voting right.
(d) Public Deposit: Public deposit refers to the unsecured deposits invited by companies from the public. It can invite for a period of six months to 3 years. Public deposit cannot exceed 25% of its share capital & resources.
Merits of Public Deposits:
1. Simple: The system is very simple in raising the loans.
2. Economical: It is cheap method of raising working capital.
3. Elasticity in capital structure: Public deposits keep the capital structure elastic.
4. No security Requirement Deposits are usually unsecured.
(e) Retained Earnings: Like an individual, companies too, set aside a part of their profit to meet future requirements. The portion of profits not distributed among the shareholders but retained and used in business is called retained earnings. It is also referred to as ploughing back of profit. This is one of the important sources of internal financing used for fixed as well as working capital. Retained earnings increase the value of shareholders in case of a growing firm.
Advantages of Retained Earnings:
i. Cheaper Source of Financing:
ii. Financial Stability:
iii. Stable Dividend:
Or
What is share? Discuss the differences between shares and debentures.
Ans: When the capital of a firm is divided into certain number of units these units are called shares. The share of a company is a movable property, transferable in the manner provided by the articles of the company. The capital of a company is divided into shares which are collectively called ‘Share Capital’. The share capital is regarded as owned capital. It is permanent source of finance.
Debenture: It constitutes the borrowed funds of the company which is raised against the floating charges on its assets. It is an acknowledgement of debt. Debenture capital may be called DEBT CAPITAL.
The difference between Share & Debenture is given here:
BASIS | SHARE | DEBENTURE |
NATURE | Shareholder is an owner of the company. | Debenture holder is a creditor of a company. |
RETURN | A shareholder receives dividend. | A debenture holder receives interest. |
SECURITY | A share is not secured by any charge of assets. | A debenture is secured by a floating charge of assets. |
REPAYMENT | Share Capital cannot be repaid. | Debentures can be repaid by the company. |
CONTROL AND VOTING RIGHTS | A shareholder has control over the company. | A debenture holder does not have right to control or vote. |
Forfeiture | Shares can be forfeited for non-payment of allotment or call money. | Debentures cannot be forfeited for non-payment of allotment or call money. |
22. What is business risk? Explain its causes. 2+6=8
Ans: Business Risk: Business risk means possibility of some occurrence, which might lead to some loss for the business. No business can run without some element of risk in it. In fact business means assuming risk. “No risk, no gain” is an important principle which is applicable to all types of businesses. The nature of business and the volume of operations determine the degree of risk.
Causes of business risks may be classified as follows:
a) Natural Causes: Human beings have no control over the nature. Unforeseen events like heavy rains, famine, earthquake etc. affects business adversely.
b) Human causes: These include dishonesty, carelessness and negligence of employee, riots, strikes etc.
c) Economic Causes: Economic causes relate to fluctuations in demand and price or changes in the market conditions.
d) Physical Causes: These include all technical or mechanical causes, which affect the working of the business.
Or
What are the factors that need to be considered while starting a business? Explain. 8
Ans: Basic factors to be considered before starting a Business:
a) Selection of Line of Business: Based on the requirements in the market nature and type of business to be selected.
b) Size of the Firm: Based on the amount of funds available and demand for the product in the market size of the firm i.e. small scale or medium or large scale to be decided.
c) Choice of form of ownership: Based on the amount of capital required, legal formalities to be filled in, liability of the owner, etc. the form of ownership is to be decided.
d) Location of the Business enterprise: Based on the availability of raw material and infrastructure facilities location of the Business is to be selected.
e) Financing the Proposition: Requirement of Capital and its sources must be decided.
f) Physical facilities: Availability of physical facilities including machines and equipment, building and supportive services to be considered before starting a business.
g) Plant layout: Plant layout should draw to show the arrangement of these facilities.
h) Competent and committed worked force: Every business needs work force. So careful planning should be about selection, training and motivation of employees.
i) Tax Planning: Tax liability and its impact on business to be considered.
j) Launching the enterprise: After fulfilling the formalities entrepreneur can launch the business.
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