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Grade XIBusiness Studies(Mock Test)

Ques. 1

What is meant by the term „disinvestment‟? (1 mark)

Ques. 2

„In case of insufficient funds, the personal property of the owner can be utilised to meet the

obligations.‟ Which feature of business is being referred to here? (1 mark)

Ques. 3

What is a synthetic industry? (1 mark)

Ques. 4

Name any two associations that have been developed to promote trade and commerce in India.

(1 mark)

Ques. 5

What do you understand by „Indent‟? (1 mark)

Ques. 6

Friends & Co. is an outsourcing company that collects debts and discounts bills on behalf of its

clients. Which type of financial service is provided by the company? (1 mark)

Ques. 7

„It is a written instrument whereby the person issuing the instrument directs the other party to

pay a specified amount to a certain person or the bearer of the instrument‟. Name the instrument

that is being referred to in the above line. (1 mark)

Ques. 8

What do you mean by entrepot trade? (1 mark)

Ques. 9

List any three services provided by wholesalers to retailers. (3 marks)

Ques. 10

Explain any four major steps that can be taken by business enterprises to protect the

environment. (3 marks)

Ques. 11

Identify the sources of finance indicated by the following statements.

i. “The owners of these shares are called residual claimants of the business.”

ii. “These instruments are used for raising foreign currency. They provide an added benefit to the

holders by giving them the option of convertibility.”

iii. “The finance obtained by ploughing back profits.” (3 marks)

Ques. 12

List and explain any three international instruments that can be used for raising foreign currency.

(3 marks)

Ques. 13

“These groups are formed by the voluntary association of individuals and are granted the status

of a separate legal entity.” Identify the type of business organisation mentioned. Explain any two

features of this form of organisation. (3 marks)

Ques. 14

What was the rationale behind privatising the public sector enterprises? (3 marks)

Ques. 15

Raj plastics Ltd. is a factory located on the banks of a river. In order to make higher profits, the

factory makes use of the old techniques of production which in turn generates large amount of

smoke polluting the environment arround. In addition to this, the by products are discharged on

the banks of the river polluting the river as well. List down the types of pollution created by Raj

plastics Ltd. (4 marks)

Ques. 16

List down the various types of partners in a partnership firm? (4 marks)

Ques. 17

Identify and briefly explain the following organisations:

i. In this type of organisation, two or more organisations come together for mutual benefits.

ii. This organisation was established under the Indian Companies Act, 1956.

iii. Food Corporation of India (FCI), Life Insurance Corporation (LIC) are examples of this type

of corporation.

iv. These organisations work directly under the ministry and ensure a high degree of public

accountability. (4 marks)

Ques. 18

Briefly describe the role played by DIC in the promotion of small-scale industries.

(4 marks)

Ques. 19

Explain why a company form of organisation is considered to be the most superior form of

business? (4 marks)

Ques. 20

Sunny wants to open a retail store but is confused about opening a departmental store or a

multiple-chain store. Discuss the factors that can affect his decision. (5 marks)

Ques. 21

The directors of Mehta & Sons Pvt. Ltd. are planning to install a new plant with an estimated

cost of Rs. 10 crores and want the finance manager to recommend an appropriate source of

finance. Suppose you are the finance manager of the company. How will you convince the

directors to issue equity shares for the purpose? (5 marks)

Ques. 22

What is a Marine insurance policy? Explain in detail the main elements of a Marine insurance

policy. (5 marks)

Ques. 23

(i) Geeta is the sole owner of „Galaxy‟ (a luxury wardrobe store). She treats all her employees

fairly and celebrates her success with them. This behaviour has helped her company to earn huge

profits by gaining the trust of the consumers. To attract more customers, Geeta is planning to

start her business online (e-commerce). Mention any three resources that Geeta would require to

start her business online.

(ii) Briefly discuss the risks involved in online transactions. (5 marks)

Ques. 24

„A company form of organisation is considered to be the most superior form of business as

compared to other forms of business organisation‟. Elucidate. (6 marks)

Ques. 25

Monica wishes to export chairs to a company in Sri Lanka, but is completely unaware about the

process of securing payment from the company. Briefly discuss the procedure she needs to

follow. (6 marks)

Ques. 26

Explain any three merits and demerits of trade credit as a source of finance. (6 marks)

Ques. 27

Define auxiliaries to trade. Briefly explain any five business activities that can be considered

auxiliaries to trade. (6 marks)

Answer 1

Disinvestment refers to the selling or liquidating of equity by the government to the private

sector industries and the general public.

Answer 2

The feature being referred to is Unlimited Liability. According to this, in case a business finds it

difficult to repay the business debts and the business assets are also insufficient to repay them,

then the personal property of the owner can be utilised to pay the outstanding obligations.

Answer 3

A synthetic industry is a type of manufacturing industry which combines two or more raw

materials that serve as ingredients to form a completely new product. For example, various

chemicals are used to make soaps, paints, etc.

Answer 4

The following are the two associations that have been developed to promote trade and commerce

in India:

i. Associated Chambers of Commerce and Industry (ASSOCHAM)

ii. Federation of Indian Chambers of Commerce and Industry (FICCI)

Answer 5

„Indent‟ refers to the purchase order which is received by an exporter from his buyer (importer)

in the other country. It consists of necessary information such as quantity and quality of goods,

price to be charged, method of delivery and mode of payment, among others.

Answer 6

The type of financial service that is provided by Friends & Co. is factoring. Under this service,

various financial services such as collecting bill receivables, discounting of bills, etc., are

provided by a company to its clients.

Answer 7

The instrument that is being referred is to in the above line is „Bill of Exchange‟. It is a written

instrument wherein the person issuing the instrument directs the third or other party to pay a

specified amount to a certain person or the bearer of the instrument.

Answer 8

Entrepot trade is a type of trade which involves the import of goods from a country with the

purpose of exporting them to another country at a higher price.

Answer 9

The following services are provided by wholesalers to retailers:

i. Availability of goods: Retailers have to store a wide variety of goods to satisfy varied demands

of their customers. In this regard, wholesalers supply goods produced by different manufacturers

at one time.

ii. Marketing of goods: Wholesalers perform a variety of marketing functions like advertising to

induce the customers to purchase goods. This, in turn, helps retailers to save their time and

money in promoting their products.

iii. Grant of credit: Wholesalers offer goods to retailers on credit basis. This, in turn, reduces the

working capital requirement of the retailers.

Answer 10

Business enterprises can take the following steps to protect the environment.

i. Use of Eco-friendly techinques- They must use Eco-friendly techniques in the production of

goods and services. This will help in reducing the damage caused to the environment.

ii. Compliance with laws- Business enterpriuse must strictly follow all the laws designed for

environmental protection. In addition to this, the business enterprises must participate in various

various programmed enacted for environmental protection such as tree plantation, cleaning of

rivers, etc.

iii. Promote awareness- These enterprises must work towards spreading awareness among the

public about the consiquences of environmental degradation and the need for maintaing the eco-

logical balance. Thus, encouraging the public to participate in environemental protection.

iv. Scientific treatment of waste- The business enterprises should use scientific methods to treat

the affluents before releasing them into the envronement. This will help in reducing emission

into the environment.

Answer 11

Equity shares: “The owners of these shares are called residual claimants of the business.”

Equity shares represent the ownership capital of a company. The holders of such shares are

known as equity share holders, and they enjoy a say in the management and gain higher returns

when the profits are high. They are also called the owners of the company or residual owners,

since payments are made to them only after external debts or claims have been settled.

ii. Foreign Currency Convertible Bonds (FCCBs): “These instruments are used for raising

foreign currency. They provide an added benefit to the holders by giving them the option of

convertibility.”

FCCBs are debt securities that are convertible into equity shares or depository receipts after a

specific period of time. The terms and prices of such conversions are generally specified in

advance. The return on such securities is also pre-fixed and is lower than the return on similar

non-convertible securities.

iii. Retained earnings: “The finance obtained by ploughing back profits.”

Firms generally keep a certain fraction or part of profits before distributing dividends to the

shareholders. These undistributed profits are known as retained earnings, as these earnings are

retained in the business for future use.

Answer 12

Following are the three international instruments that can be used for raising foreign currency:

i. Global Depository Receipts (GDRs)- These are the receipts issued by depository banks against

the shares of a company, for instance, shares issued by an Indian company abroad in order to

raise foreign currency. These depository receipts are usually denoted in US dollars and can easily

be converted into shares at any point of time. GDRs can also be listed and traded on the stock

exchange of any foreign country other than the US.

ii. American Depository Receipts (ADRs)- These are the receipts issued by a foreign company in

the US. They are usually traded like any other securities in the market. However, such trading is

restricted to the American securities markets only. In addition, such instruments are sold only to

the American citizens.

iii. Foreign Currency Convertible Bonds (FCCBs)- FCCBs are the debt securities that can be

converted into equity shares or depository receipts after a specific period of time. The terms and

prices of such conversions are generally specified in advance. The return on such securities is

pre-fixed and lower than the return on similar non-convertible securities.

Answer 13

The form of business organisation that is being referred to here is a cooperative society. These

societies are formed by the voluntary association of individuals who join together with the

motive of protecting and promoting their common interests.

The following are two features of a cooperative society:

i. Separate legal entity: Registration of a cooperative society is compulsory under the

Cooperative Societies Act, 1912. Once the registration is complete, the cooperative society is

granted the status of a separate legal entity. This implies that the cooperative society can hold

properties in its own name and enter into contracts with other parties. It can sue others and can

be sued by others.

ii. Management and control: A cooperative society is a democratic form of organisation as it is

managed and controlled by a managing committee elected by the members of the society on the

principle of “one member, one vote”.

Answer 14

The following are some of the reasons behind the privitisation of PSEs.

a. Diverting resources to social priority areas- By privatising the less important PSEs, the

government aimed at utilising the funds (that were earlier allocated to the less important PSEs) in

the social priority areas such as health and education. This was done in order to enhance the

social welfare of the society.

b. Risk transferring- Often, the funds so allocated to the PSE's were not optimally utilised. This

misutilisation of funds together with bureaucratic corruption led PSEs to incur heavy losses,

which exerted an acute financial burden on government. Therefore, by privatising, the

government aimed at shifting this commercial risk to the private sector. This also ensured that

the private sector will invest their funds only in the feasible and worthy projects.

c. Reduction of public debt- After the privatization of PSEs, there was no need for the

government to allocate any funds to these PSEs. Thus, there was no need to acquire funds by

incurring fresh public debts.

Answer 15

The following are the types of pollution created by Raj plastics Ltd:

i. Air pollution- This kind of pollution is caused by the emission of harmful gases into the

atmosphere. As the factory is emmitting smoke and other chemicals in the air, it is degrading the

air quality and as a result causing air pollution.

ii. Water pollution- Discharge of industrial and household wastes into the rivers, streams or lakes

causes degradation of the water quality. This increase in water pollution overtime often result in

the deaths of several animals while posing serious threats to the human life. Thus, by discharging

the chemicals into the rivers, the factory is creating water pollution as well.

iii. Land pollution- This is caused due to the dumping of toxic material and wastes in land

segments and areas which in turn damages the quality of land. All these thereby make the land

unfit and unproductive for agriculture and crop plantation. As the factory is dumping the by

products on the banks of the rivers, it is leading to land pollution.

Answer 16

The following are the different types of partners in a partnership.

i. Active partner: These are the ones who contribute capital, have a say in the management and

share the profits and losses in a partnership firm. They have unlimited liability and cary out

functions on behalf of other partners.

ii. Sleeping partner: these are dormant partners who do not take part in the daily workings of the

business. However, they contribute capital and share profits and losses like any partner.

iii. Secret partner: A secret partner in a firm is a partner whose association with the firm is

unknown to the general public. They do not contribute any capital to the business but have

participation rights in the management of the partnership firm. They are also entitled to a share in

the profits and losses of the business and have unlimited liabilities.

iv. Nominal partner: these partners allow the use of their name in the business as a partner but

do not contribute any capital in the business. Also, they do not have a share in the profits and

losses of the business but are however, liable for the repayments to a third party.

Answer 17

i. Joint venture- It is a type of organisation formed by two or more organisations for mutual

benefits. Business organisations engaged in a joint venture not only share their physical,

financial and human resources but also the risks and profits of the business.

ii. Government company- It is a type of company established under the Indian Companies Act,

1956. In this type of organisation, at least 51% of the company‟s shares are held either by the

central or the state government.

iii. Statutory corporation- FCI and LIC are examples of such a corporation . This type of

organisation is formed by passing a special Act of Parliament and is an initiative of private

enterprises having the power of the government.

iv. Departmental undertaking- It is an organisation that works directly under the ministry and

ensures a high degree of public accountability. Such an organisation is formed by the ministry of

the government and have no seperate legal existence.

Answer 18

District Industries Centers (DICs) It is an institutional support measure established by the government with an objective to provide

unified administrative structure at the district level. Basically, it caters to the need of small and

village entrepreneurs by providing them support services such as identification of suitable

schemes for them, providing machinery, raw material etc. DICs also aim at integrating the

neglected factors such as rural artisans, craftsman etc with the process of rural development,

taken care by other programmes and schemes. In this manner, DICs aim at maintaining economic

growth and development at the district level.

Answer 19

A company form of organisation is the one wherein a group of persons form an association in

order to perform business activities together. This form of organisation is considered to be the

most superior form of business organisation due to the various benefits enjoyed by it.

Following are some of these benefits:

i. Limited liability- In a company form of organisation, the liabilities of the shareholders is

limited to the amount paid by them on the shares purchased. This implies that in case of unpaid

debts, personal property of the shareholders cannot be used for repaying the outstanding business

liabilities. Thus, only the company‟s assets and funds can be used for repaying the debts.

ii. Perpetual existence- A company being a separate legal entity cannot come to an end by itself.

In fact, it will continue to operate even if all its members die. This is because situations such as

death, retirement or insolvency of any of the members of an organisation (particularly of a

company) cannot cease its existence. Thus, a company has a perpetual existence.

iii. Scope for expansion- For any company, it is easy to grow and expand its capital. This is

because the capital of a company comprises of the amount received on its shares. As a result, the

company enjoys a large financial resource base. Thus, in case of expansion, the company can

raise additional funds by issuing fresh new shares.

iv. Professional management- A company‟s sound financial resource base enables it to hire

professional and specialised managers for handling its complex operations. This contributes to

the overall growth and development of the company by ensuring greater efficiency.

Answer 20

The following are the factors that can affect Sunny‟s choice between opening a departmental

store and a multiple-chain store:

i. Range of products offered to the customer- This is a major factor affecting the choice between

the two. Departmental stores offer a wide variety of products to customers, while multiple-chain

stores deal in a single line of product and specialise in it. Thus, Sunny should opt for a store

depending on the range of products he wants to serve.

ii. Providing customer service- Departmental stores provide a wide variety of customer services

in comparison to multiple-chain stores. Therefore, if Sunny is willing to offer a large number of

services to his customers, then he may choose to open a departmental store. On the other hand, if

he wants to offer limited services, then he may opt for multiple-chain stores.

iii. Location of the store- If Sunny wants to open a network of stores dealing in a single line of

product, he may choose to open multiple-chain stores in different localities. However, if he

wants to open a centrally located store dealing in a variety of products, then he may opt for a

departmental store.

iv. Pricing policy of the products- As both types of stores follow different pricing policies, it

becomes a crucial factor at the time of making a choice between the two. Thus, if Sunny wants to

follow a fixed pricing policy across the shops, then he may choose to start a multiple-chain store.

However, if he wants to follow a flexible pricing policy across departments, then he can start a

departmental store.

v. Cost of failure- This is the prime factor affecting the decision-making. The cost of failure is

very high in case of departmental stores as compared to multiple-chain stores. This is because

departmental stores involve huge initial and operating expenses, while multiple stores require

less initial investment and the losses of one shop can be covered by the profits of other stores.

Thus, depending on the type of risk Sunny is willing to bear, he should make a choice between

the two types of stores.

Answer 21

The directors of the company can be convinced to issue equity shares by informing them about

the merits of such shares, some of which are as follows:

i. Permanent source of capital- Funds raised from the issue of equity shares remain invested in

the business till the time of liquidation of the company. These funds also act as a financial

cushion for creditors, as they receive their claims before the equity shareholders.

ii. No obligation of payment- As the equity shareholders receive dividends from the profits that

are left out after all the payments and claims of the company have been settled, they are regarded

as the residual claimants or residual owners of the company. There is no obligation on the

company to pay dividends to the equity shareholders.

iii. Democratic control- Equity shareholders are entitled to equal voting rights in the company.

This results in democratic management of the company.

iv. No charge on assets- Issue of equity shares does not create any charge on the company‟s

assets. As a result, the company's assets can be used as securities for raising loans in the future.

v. Suitable for risk takers- Equity shares offer a higher return in exchange for the high risk borne

by the investors. Thus, equity shares provide a good means of investment to those willing to take

risks.

Answer 22

A marine insurance policy protects the owner of a ship or cargo against complete or partial loss

or damage caused to the ship or cargo at sea. It provides protection against the perils of the sea

such as collision of the ship with a rock, attack on the ship by enemies and pirates, and damage

caused by fire. The insured pays a certain amount as premium to the insurer.

The following are the main elements of a Marine insurance policy:

i. Contract of insurable interest- The party taking the marine insurance policy must have an

insurable interest in the object being insured. The insurable interest must be present at the time of

taking the policy and at the time of loss.

ii. Contract of utmost good faith- The insured party must clearly and truthfully disclose all the

necessary facts to the insurer. This implies that a marine insurance policy is a contract of utmost

good faith wherein all the parties truthfully disclose all the necessary facts to each other.

iii. Contract of indemnity- In case of a marine insurance policy, the insured will be compensated

for the actual loss caused to the insured object and not the full compensation. This implies that a

marine insurance policy is a contract of indemnity.

iv. Proximate cause- There can be several reasons of loss cause to the object insured in the

marine insurance policy, In such case the nearest cause of loss will be considered for making the

compensation. In other words, the compensation will depend on the proximate cause of damage.

Answer 23

(i)

Geeta would require computer hardware, an internet connection and a website for her store

(Company) to start an online business.

(ii)

The following types of risks are involved in online transactions:

a. Default on order taking or giving- Under this type of risk, either the seller denies that the

customer has placed the order or the customer denies that he had placed the order.

b. Default on delivery- This situation arises when either the wrong goods are delivered at the

right address, or the right goods are delivered at the wrong address or the goods might not even

be delivered at all.

c. Default on payment- This type of risk is faced by the seller when he does not receives the

payment while the customer claims that he has already made the payment.

Answer 24

A company form of an organisation is one wherein a group of persons forms an association in

order to perform business activities together. Such companies are considered to be the most

superior form of business organisation due to the various benefits offered by them. The

following are some of these benefits:

a. Limited liability- In such an organisation, the liabilities of the shareholders is limited to the

amount paid by them on the shares purchased. This implies that in case of unpaid debts, the

personal property of the shareholders cannot be used for repaying the outstanding business

liabilities. Thus, only the company‟s assets and funds can be used for repaying the debts.

b. Perpetual existence: A company being a separate legal entity cannot come to an end by itself.

In fact, it will continue to operate even if all its members pass away. This is because situations

such as death, retirement or insolvency of any of the members of the organisation (particularly of

a company) cannot cease its existence. Thus, a company has a perpetual existence.

c. Scope for expansion: For any company, it is easy to grow and expand its capital. This is

because the capital of a company comprises of the amount received on its shares. As a result of

this, the company enjoys a large financial resource base. Thus, in case of expansion, the

company can raise additional funds by issuing fresh new shares.

d. Professional management: Due to its sound financial base and resources, a company can hire

professionals and specialised managers for handling its complex operations. This contributes to

the overall growth and development of the company by ensuring greater efficiency.

e. Transfer of interest: The ownership of shares is freely transferable in a company. This

benefits the company as it acts as an incentive for the investors to invest in it. This is because in

case a person needs cash, he/ she can transfer the shares in return for cash or cash equivalents.

Thus, as the funds are not locked up in any kind of investment, the transfer of shares puts the

company in a favourable position.

Answer 25

In order to claim payment for the chairs, Monica first needs to inform the importer about the

shipment of the goods once it is done. In order to claim the title of the goods, the importer is

required to submit various documents such as a copy of the invoice, the bill of lading, packaging

list, insurance policy, certificate of origin and letter of credit. These documents need to be sent

by Monica and provided by her bank, but only when the bill of exchange has been signed and

accepted by the importer. The bill of exchange states the amount that the importer must pay to

the bearer. Once this bill is received and accepted, the importer‟s bank is instructed by the

importer to transfer the sum to Monica‟s bank account.

In case Monica wants immediate payment from her bank, even if the payment has not been

released by the importer, then she needs to sign a letter of indemnity. This letter acts as an

undertaking that Monica will indemnify the bank in case of non-payment on the part of the

importer, along with the accrued interest.

Last, when Monica receives payment from the bank, she obtains a bank certificate of payment.

This certificate states that the documents necessary, along with the bill of exchange, were

presented to the importer for payment, and that payment has been received in accordance with

the exchange control regulations.

Answer 26

Trade credit refers to the amount of credit extended by the supplier to the purchaser of goods or

services. This promotes the purchase of the goods and services concerned, as it does not require

the purchaser to make immediate cash payments.

Merits of trade credit as a source of short-term finance:

i. It helps business firms in the accumulation of inventories for meeting any future increase in

sales.

ii. As the trade creditors do not have any rights over the assets of the company, the company can

mortgage its assets to raise money from other sources.

iii. If the credit worthiness of the purchaser is known to the seller, then the purchaser can

temporarily use the funds payable to seller for other purposes in the short term, thereby acting as

a source of funds.

Demerits of trade credit as a source of short-term finance:

i. Easy availability of trade credit can result in over-trading, which in turn increases the future

liabilities of the buyer.

ii. The amount of trade credit is limited to the financial capacity of the supplier or creditor.

iii. Trade credit may prove to be a costly source of finance for raising funds in comparison to the

other sources, because failure to clear the credit may affect the relationship between the seller

and the borrower.

Answer 27

Auxiliaries to trade include trade-related activities that facilitate the exchange and transportation

of goods and services. Among the major auxiliaries to trade are transport, advertisement,

packaging, warehousing, banking and communication.

The following is a brief explanation of the various auxiliaries to trade.

i. Banking and finance: Finance is the most important input to carry on any business. Thus, the

absence of a banking and finance system can obstruct the free movement of goods. An efficient

banking facility ensures the easy and ready availability of cheap credit to businessmen, thus

acting as an auxiliary to trade.

ii. Advertising: The importance of advertisement in today‟s world is well known. It is through

advertisements that businesspersons can reach out to a large number of potential buyers through

television, the radio, the Internet, newspapers and other media by making them more aware of

products. Advertising helps businesspersons to increase their sales and plays the role of an

auxiliary to trade.

iii. Warehousing: Warehousing performs various functions such as holding and preserving

goods until they are ready for final consumption or in case they need to be stored for a period.

Warehouses help businesses to store goods and facilitate the availability of these goods when

required.

iv. Insurance: Every business activity involves various types of risks because of factors beyond

control. Insurance acts as a protection against these risks. On payment of a premium, business

enterprises can recover their losses from insurance companies.

v. Transport: Transport enables a producer to sell goods in different regions and to get raw

materials and other inputs from distant places. Thus, transport facilitates the selling and buying

of goods.