+1 Answer Key Business Studies Model Exam,February 2020

 First Year Higher Secondary Secondary Model Examination,February 2020
Subject-Business Studies

Answer key
Answer all the questions from 1 to 9.Each carries 1 Score (9 X 1 =9)
 

1.(c) Entrepot Trade
2.(a) Perpetual Succession
3.(c) Life
4(d) Credit or debit Card (as per NCERT Text ).Cash on delivery is also
very popular mode of payment
5.(c) Air
6.(a) Memorandum of Association
7.(b) National Small Industries Corporation (NSIC) (As per NCERT Text)
All institutions do their part.
8.(b) Specialty shops (All others are Itinerant Traders)
9.Mate Receipt
 

Answer any 6questions from 10-16.Each carries 2 scores (6X 2 = 12)

10(a) Government Company
    (b)Statutory Corporation or Public Corporation
 

11.
 Convenience
E-business offers the advantage of accessing anything, anywhere,
anytime.
Reduced cost of purchase
In e-business a customer can order his goods from his house itself with
the help of internet. This will save his time, money and energy.
Provide global market for buyers
E – Business provides global market for buyers. Buyers can select his
needed goods from anywhere in the world with the help of internet.
Speed
Through e-business information can be exchanged, buying and selling
etc can be done just with the click of a mouse.
 

12.
Responsibilities of business towards its workers are:
To pay fair wages and salaries regularly.
To provide good working conditions.
To provide welfare schemes such as housing, medical care,
reservation etc.
To protect trade union rights including the right of participation in
management.
To guarantee freedom of religion and political views.
To give timely training to its employees.


13.Advantages of retained earnings
1.It is the most convenient source of finance. It requires no
advertisement, no issue of prospectus or no legal formalities.
2. Retained profits create no charge on the assets of the company.
Further loans can be raised on the security of assets.
3. Management can retain its control when it uses retained profits.
4. Retained profits increases the financial strength and earning
capacity of the business. The company enjoys more borrowing
capacity also.
5. As an internal source, it is more dependable than external source.
There is no fixed obligation to pay dividend on the profits reinvested.
 

14. (a) Second hand Goods shop
      (b) Hawkers
 

15. Contract manufacturing
Contract manufacturing refers to a type of international business where
the firm enters into a contract with one or a few local manufacturers in
foreign countries to get certain components or goods produced as per
its specifications. Contract manufacturing can be any of the following
three forms:
➢ Production of certain components.
➢ Assembly of components into final products.
➢ Complete manufacture of the products.
Goods are produced or assembled by the local manufacturers as per
the technology and management guidance provided to them by the
foreign company.
 

16.Exporting and Importing-Advantages
1. In this mode the exporting firm is not required to invest that much
money and time as is needed when they desire to enter into joint
ventures or set up manufacturing plants and facilities in host countries.
2. Since exporting/importing does not require investment in foreign
countries, it is less risky as compared to other modes of entry into
international business.
 

Answer any 4 questions from 17-21.Each carries 3 score (4X 3=12)

17.Causes Business Risks

1. Natural causes

Natural calamities are unpredictable and are beyond the control of a
businessman. Flood, earthquake, heavy rains, lightning famine, storm
etc. are examples of natural risk.
2. Economic Causes
Economic causes include uncertainties relating to demand for goods,
competition, price, collection of dues from customers, change of
technology, etc. Financial problems like rise in interest rate for
borrowings, high tax rates etc also come under economic causes as
they result in higher unexpected cost of operation of business. These
are also beyond the control of a businessman.
3. Human Causes
Human causes include unexpected events like dishonesty,
carelessness, or negligence of employees, strikes, riots, stoppage of
work due to power failure, management inefficiency etc.
4.Government policy
Change in Government policy, changes in import export policy,
licensing policy, tax structure etc. may cause heavy losses to a
business man.
5.Physical Causes
Physical Cusses include loss due to mechanical defects, accidents
from defective machinery etc.
 

18.Advantages or Merits of Departmental undertakings

1.Easy formation
It is created by the administrative decision of the government and
involves no legal formalities.
2.Government control
Total government controls helps implementation of government
policies.
3.Public accountability
It is fully owned and controlled by the government and is answerable
to the parliament. Such control keeps the management alert.
4.Secrecy
Where national security is concerned, this form is most suitable.
5.Proper use of money
The risk of misuse of the public money is relatively less due to the
strict budget, accounting and audit controls.
6. Revenue
The revenue earned by these departments’ acts as a source of income
for the government, as it goes directly to government treasury.
 

19 (a) B2C
     (b) C2C
     (c) B2B

20.Functions of Promoters or Stages in Promotion 

a.Discovery of business idea
The promotion stage begins with the discovery of an idea to set up a
business. There may be several ideas in his mind and he has to decide
which is the most feasible and profitable one.
 b.Feasibility study:
After analyzing all the concepts related to the idea discovered, the
promoter starts doing detailed investigation to give practical shape to
the idea. He does detailed investigation regarding cost, profitability,
production process, demand of the product etc.While doing this, the
promoter takes the help of a specialists or experts such as charted
accountant, engineers etc. Feasibility study includes technical
feasibility, economic feasibility, financial feasibility etc.

c.Appointment of bankers, brokers, solicitors and under writers:
The promoter appoints the brokers and underwriters to ensure the
availability of capital by sale of a company’s securities and solicitors
are appointed to deal with then legal matters of the company.
 

d.Assembling the factors of production:
Once satisfied with practicability and profitability of the proposal, the
promoter assembles the factors of production like land, labour, capital
and managerial personnel. Assembly of resources involves making
contracts for purchase of material, land, machinery, recruitment of
staff etc. Promoters also find out persons who are willing to act as the
first directors of the company.
 

e.Preparation of Preliminary Documents
The promoter takes up the steps to prepare necessary documents of the
company which have to be submits to the Registrar at the time of
incorporation.
 

f.Entering into preliminary Contracts
The promoters enter into contracts with different parties before
registration of the company. After registration the company approves
these contracts.
 

21.INTERNATIONAL SOURCES OF FINANCE

1.International agencies and development banks
A number of international agencies and development banks have
emerged over the years to finance international trade and business.
These bodies provide long and medium term finance to trade and
industries. Examples for international bodies are International Finance
Corporation (IFC) Asian Development Bank etc.
 

2.International capital market
Through the process of liberalization, Indian companies are now free
to access global capital markets for raising finance. Thus, international
finance has become accessible to Indian corporate enterprises. The
main instruments through which companies in India can raise finance
from the international capital market are (GDRs) and (ADRs)

A.Global Depository Receipts (GDR)
Global Depository Receipts are created by overseas depository Bank
and issued to non-resident investors against the issue of ordinary
shares of issuing company. They are dollar denominated instruments.
After getting approval from the Ministry of Finance and completing
other formalities the issuing company issue shares to the overseas
depository Bank and overseas depository then issues dollar
denominated Global Depositing Receipts (GDR) against the shares
registered with it. The non-resident investors purchase GDR and not
shares of Indian Company.
 

B. American Depository Receipt (ADR)
ADRs are negotiable receipts issued to nonresident, investors by an
authorized depository, normally a US Bank, in lieu of shares of the
issuing (Indian) Company, which is actually held by the
Depository.ADRs can be listed and traded in US based stock exchange
and help the Indian company to be known in the highly liquid US
stock exchanges. ADR also help in the US based and other foreign
investors to have the twin benefits of having share holding in a high
grown Indian company and the convenience of trading in a highly
liquid and well known stock exchange. The depository receives
dividend directly from Indian company in rupees and issue dividend
cheques to ADR holders in dollars.
 

3.Foreign Direct Investment (FDI)
FDI refers to direct subscription to the equity capital of an Indian
company by a multinational corporation.
Until 1991, FDI was
permitted up to 40% of the equity capital of the company.
This
ceiling was since removed and the government is encouraging 100%
FDI.
 

Questions 22 to 26 answer any four. Each carries 4 score (4 X 4=16)
 

22Advantages of cooperative societies-

a.Easy formation-Any ten adult persons can form a cooperative society.
 

b.The registration procedure is simple involving a few legal formalities.
c.Limited liability-The liability of the members of a cooperative society
is limited to the extent of the amount contributed by them as capital.
d.Democratic Management-The principle one man one vote guarantees
democratic management.
e.Government assistance-Government gives all kind of support to
cooperative societies in the form of relief in taxation, subsidies and
low interest rates on loans.
f.Socialimportance-Aco-operativemovementeliminatesconcentration of wealth in a few and provides employment to manypeople.
g.Stable existence-A co-operative society has a separate legal existence
from its members. So, its life is not affected by death, insolvency,
bankruptcy etc of a member.
h.Economic upliftment of weaker sections-The Co-operative Societies
give financial assistance at lower rates of interest to poor farmers,
artisans etc. Hence they save the members from being exploited by
local money lenders and merchants.
 

23Features of MNC/Global Enterprises

1.International operations
Multinational companies operate globally.
2. Giant size
The most important feature of a multinational company is its gigantic
size. Their assets and sales are always billions of dollars and they also
make supernormal profit.
3.Centralized Control
The branches of Multinational companies spread all over the world
and are controlled and managed from the headquarters situated in the
home country.
4.Advanced technology
MNC possess latest and advanced technology. They are able to
conform to international standards and quality specifications.
5.Product Innovation
They are characterized by having highly sophisticated research and
development departments engaged in the task of developing new
products, new designs etc.
6. Huge capital resources
They are in a position to raise huge funds from different sources. They
can issue equity shares, debentures or bonds to the public.
7.Expansion of market territory
Their operations and activities extend beyond the physical boundaries
of their own countries. Their international image also builds up and
their market territory and enabling them to become international
brands.

24. 

 25. Problems of small business
 1.Lack of managerial experience
Small business is generally promoted and operated by a single
person, who may not possess all managerial skills required to run the
business.
 2.Inadequate finance
These units frequently suffer from lack of adequate working
capital. Banks generally do not lend money without adequate
collateral security. As a result they heavily depend on local financial
resources and are frequently the victims of exploitation by money
lenders.
 3.Irregular supply of raw materials
The quality, quantity and regularity of supply of raw materials
are another problem of small scale industries. They depend local
sources for raw materials requirements and regular supply can’t be
ensured. Further, units are forced to go for small quantity purchase
and pay high prices. They can’t enjoy economies of bulk purchase.
 4.Problem of marketing
Small units find it difficult to popularize the brand name of
their products due to the tough competition from big business
houses. They can’t undertake costly advertisement campaigns.
 5.Outdated technology
Use of out dated technology is one of the problem facing small
scale industries today. It results in low productivity and uneconomical
production.
 6.Inefficient labour
Small business firms can’t afford to pay higher salaries to the
employees. Therefore it is not in a position to attract efficient
employees.
7.Lack of proper machinery and equipments
Because of the financial problems, many small units use
outdated machinery and equipments for production. This affects the
quality and quantity of production. In effect the result will be high
cost of production.
8.Lack of technical know- how
Small business entrepreneurs do not have much knowledge
about different alternative technologies to improve the quality of
products and thereby reduce costs.
9.Global competition
Because of liberalization and globalisaton, small business firms
now face competition not only from medium and large scale
industries but also from multinational companies
 

26.Major trade promotion measures and schemes to boost
international business

1.Export Manufacturing Under Bond Scheme
This facility entitles firms to produce goods without payment
of excise and other duties. The firms desirous of availing such facility
have to give an undertaking (i.e, bond) that they are manufacturing
goods for export purposes and will export such products on their
production.
2.Exemption from payment of sales tax
Goods meant for export purposes are not subject to sales tax.
Now this benefit of exemption from income tax is available only to
Prepared By: BINOY GEORGE, HSST, MKNM HSS, Kumaramangalam, Thodupuzha, Idukki Dt.Ph-9447980247100% Export Oriented Units and units setup in Export Processing
Zones (EPZs)/Special Economic Zones (SEZs) for selected years.
3.Advance License Scheme
It is a scheme under which the exporter is allowed duty free
supply of domestic as well as imported inputs required for the
manufacture of export goods.
4.Export Promotion Capital Goods Scheme (EPCG)
The main objective of this scheme is to encourage the import
of capital goods for export production. This scheme allows the export
firms to import capital goods at lower rate of customs duties.
Supporting manufacturers and service providers are also eligible to
import capital goods under this scheme. This scheme is especially
beneficial to the industrial units interested in modernization and up
gradation of their existing plant and machinery.
5.Scheme of recognizing export firms as export house, trading
house and super star trading house:
With an objective to promote established exporters and assist
them in marketing their products in international markets,
government grants status of Export House, Trading house, Star
Trading house to select export firms. This status is granted to a firm
on its achieving a prescribed average export performance in past
selected years. These houses are given national recognition for export
promotion.
6.Export finance
Exporters require finance for the manufacture of goods. Two types of
export finances are made available to the exporters by authorized
banks. They are termed as pre-shipment finance and post shipment
finance. The finance is available at concessional rates of interest to
the exporters.
7.Export Processing Zones (EPZ)
EPZs are established as special enclaves separated from
domestic tariff area. It provides an internationally competitive and
duty free environment for the production of export goods. The units
located in this zone will get infrastructural facilities at a lower cost.
They can import capital goods and raw materials for production of
export goods without license. They are also permitted to sell 50% of
their product in the domestic market at concessional rate of duty. This
enables the products of EPZs to be competitive, both quality wise and
price wise in the international market.
8. Special Economic Zones (SEZ)
Recently the EPZs have been converted into Special economic
Zones (EPZ) which are more advanced form of EPZ. It is a special area
deemed to be a foreign territory for the purpose of trading and for
imposing duties. Goods coming from SEZ area to Domestic Tariff
Area (DTA) is treated as deemed imports and goods going to SEZ area
from DTA is treated as deemed exports. SEZs is free from all rules and
regulations governing imports and exports units except relating to
labour and banking.
9. Hundred percent (100% )Export Oriented Units
They are eligible for all benefits provided to the units in the EPZ.
These units can be established anywhere in the country. They are
established with the main purpose of exporting their entire production.
 

Answer question number 27, carries 5 score (1 x5=5)
 

27.Match the following

(a) ADR---(3) International Source
(b) Equity Shares---(4) Voting right
(c) Preference Shares---(5) Fixed Rate of Dividend
(d) Debenture---(1) Interest
(e) Commercial Paper---(2) Short term Source
 

Answer any 2 questions from 28 to 30 .Each carries 5 scores (2 X 5 =10)
 

28.Auxiliaries to trade

1.Transportation
Production of goods generally takes place in particular locations. But
these goods are required for consumption in different parts of the
country. The hindrance of place is removed with the help of various
transportation facilities like road transport, rail transport, air transport
etc.
2.Banking and Finance
Business activities can’t be undertaken unless funds are available for
acquiring assets and meeting day to day expenses. Banking helps
business firms to overcome the problem of finance by giving necessary
funds
3.Insurance
Business involves various types of risks. Risk may arise due to fire
natural calamities, accidents etc. Insurance provides protection in all
such cases. On payment of a nominal premium the amount of loss can
be recovered from the insurance company.
4. Warehousing
There is time gap between the production and consumption of goods.
They are to be kept in good condition and make them available as and
when required. Warehousing helps business firms to overcome the
problem of storage and facilitates the availability of goods when
needed.
5. Advertising
Advertisement plays on important role in the process marketing.
Through advertisement consumers get information about a particular
product and its use. Advertisement removes hindrance of knowledge in
the process of trade.
6. Communication
Communication means exchange of ideas, facts, opinions, emotions,
information etc. between two or more persons. The successful
operation of the business requires that there must be proper
communication between buyer and seller. Communication between
them is required for placing order, making complaints, making
payments, deciding the terms of transactions etc. The various means of
communication are telephone, email, mobile phone, fax etc.
 

29.Importance of social responsibility in business/ why should business is
socially responsible?
 

Social responsibility is a voluntary effort on the part of business.
Business is expected to be responsible to society due to the following
reasons.
1.Public Image
The activities of business towards the welfare of the society earn
goodwill and reputation for the business. The earnings of business also
depend upon the public image of its activities.
2.To Avoid Govt. Regulation
To avoid govt. regulations business should discharge their duties
voluntarily. For example. If any business firm pollutes the environment
it will naturally come under strict government regulation, which may
ultimately force the firm to close down its business.
3.Employee Satisfaction
Business must maintain better relation with employees. Employees are
to be provided with better wages, better working conditions,
participation in management etc...in order to avoid class conflict.
4.Consumer awareness
Now –a-days consumers are very conscious about their
rights. They protest against the supply of inferior and harmful products
by forming different groups.
So business must protect the interest
of the consumer by providing quality products at reasonable price.
5.Moral Justification
Every business enterprise is an integral part of society and depends on
society in a number of ways. So, there is every moral justification on the
part of business to contribute to well being of the society.
6.Survival and Growth
Every business is a part of the society. So, for its survival and growth
support from society is very much essential. Business should spend a
part of its profit for the welfare of its society.
7.Better environment for doing business
If a business firm voluntarily helps in solving society’s problems such as
poverty, unemployment, illiteracy, etc.it gets better environment to
conduct its business.


30.Difference between Memorandum of Association and Articles of Association
 

Memorandum ofAssociation                                    ArticlesofAssociation
1 Purpose :To define the objects and powers of acompany --------- To lay down rules and  regulations for management
2. Status :Fundamental document,Constitution of the company------ Subsidiary to
Memorandum

3. Drafting: Compulsory for alltypes of companies -------Not compulsory for public companylimited by shares
 

4.Relationship: Regulates the relationship between company and outside world ----- Define the internal Relationshi relationship between company and itsmembers.
5.Supremacy: Memorandum is An subordinate to the Act
article
5. Supremacy:  subordinate to the Act subordinate to only ------- An article is subordinate to theMemorandum andCompanies Act
6.Alteration : Difficult  --------- Easy
 

Answer any 2 questions from 31 to 33. Each carries 8 scores ( 2 X 8 = 16) 

31. (a) Hindu Undivided Family or Joint Hindu Family Business ( Refer Text Book for Detailed Answer)


31.(b) Types of partners :
1.Active or working partner
A partner who contributes capital and takes active interest in the day to day
affairs of the firm is called active partner. He manages and controls the
business and his liability is unlimited.
2.Sleeping or dormant partner
A partner who does not take part in the working of the concern is called a
sleeping or dormant partner. He contributes to the capital of the firm. He is
entitled to share the profits of the firm. His liability is unlimited. He is not
known to the public as a partner.
3.Secret Partner
A secret partner is one whose association with the firm is unknown to the
general public. He contribute capital to the firm, takes part in the
management, shares its profit and losses and his liability is unlimited.
4.Nominal or Ostensible Partner
A nominal partner neither contributes capital nor takes any active part, in the
management of the business. He only knowingly allows himself to be
represented as a-partner. His reputation may be benefited to the firm. He is
liable to third partners for all debts of the firm. He is also called a quasi-
partner.
5.Partner in profits only
When a partner is admitted in a partnership by a special agreement so that he
is entitled to share in the profits of the firm but not in the losses, he is known
as ‘partner by profit only’. He contributes to the capital of the firm. But he has
no right to take part in the activities of the business. His liability is unlimited.
6. Partner by estoppels
If a partner by his talk or action gives an impression to third parties that he is
a partner, then he is known as partner by estoppels. He is not entitled to
share the profit of the firm and does not participate in the management. Such
a partner is liable as a true partner to third parties
7.Partner by holding out
When a person is declared as a partner and he does not deny even after
becoming aware of it, he is called a partner by holding out. He becomes liable
to those who lent money to the firm on the basis of such declaration. He does
not bring any capital nor does participate in the management and profits.
 

31. (c) Difference between Public and Private Companies (Refer Text Book for Detailed Answer)


32. PRINCIPLES OF INSURANCE
 

1.Principle of Utmost Good Faith(Uberrimate fide)
Insurance is a contract of utmost good faith. Both the parties to the
contract should be absolutely honest to each other in regard to the
contract. The insured is liable to disclose all material facts known to him.
Similarly, the insurer is also liable to disclose honestly the scope of
insurance which he is prepared to grant. If there is non-disclosure or
misrepresentation of any material fact, the agreement will be invalid.
2.Principle of Indemnity
Indemnity means that in case of any loss, the insured shall be
compensated, but the amount of compensation shall never be more than
the actual loss. It denotes that the insured is not allowed to make any
profit out of his loss.
3.Principle of Insurable Interest
According to this principal the insured person must have insurable
interest in the life or property insured. Otherwise he cannot claim at the
time of loss .Insurable interest means that the insured must have some
financial interest in the object, property or life which he is insuring. No
person can enter into a contract of insurance unless he has insurable
interest in the subject matter of insurance.
4.Principle of Causa Proxima
Proximate cause literally means the ‘nearest cause’ or ‘direct cause’. This
principle is applicable when the loss is the result of two or more causes.
Insurer pays the claim money only if the nearest cause is insured
5.Principle of Subrogation
It is an extension of the principle of indemnity. As per this
principle after the insured is compensated for the loss due to damage to
property insured, then right of ownership of such property passes on to
the insurer. If the damaged property has any value left, that cannot be
given to the insured. This is because the insured should not be allowed to
make any profit, by selling the damaged properties.
6.Principle of Mitigation of Loss
Insured can claim for loss or damage only if the loss arises due to
reasons beyond the control of the insured. According to this principle the
insured is expected to take reasonable care to protect the insured property
from loss or damage and has taken effective measures to minimize the
loss. The insured must not neglect or behave irresponsibility during such
events just because the property is insured In case insurer finds out the
loss is due to carelessness of the insured, then the insured losses the right
to be compensated for the loss.
7. Principle of Contribution
It is applicable to all contracts of indemnity. According to
this principle, an insured can insure the same subject matter with two or
more insurance companies but he can claim the compensation only to the
extent of actual loss either from all insurers or from any one insurer. If one insurer pays the full compensation then that insurer can claim
proportionate compensation from other insurers
 

33. Advantages of mail order business
Limited Capital: -This type of business can be started with limited
capital as it does not require huge buildings, fixtures and fittings and
stock of goods.
Convenience in buying :- Goods are available at the door steps of
customer. Hence it is free from troubles, inconveniences and expenses of
going to bazar.
Avoidance of middlemen:- Avoidance of middle man help in reducing
the cost of marketing.
No bad debts :- There is no risk of bad debts as sales are made on cash
basis.
Lower cost :- Elimination of middle man result in avoiding expenses
like sales man salary, shop maintenance etc. It makes possible to fix a
reasonable price or lower prices.
Wider scope:- Area of operating is very wide. Even international trade is
possible.
Avoidance of ever stocking of goods ;- Goods are collected only after
receiving the order. Hence there is no need for stocking large quantities
of goods.
 

Disadvantages of mail order business:

Heavy expenses on advertising: - Mail order business depends on
advertisements. It has to spend a large amount on advertisement as
compared to other forms of retail business.
Absence of personal contact: - There are no direct contacts with the
buyer and seller.
No Personal inspection: - Buyer can’t inspects the goods before buying
it.
Not suitable for all items: - Only limited type of goods can be sold on
this basis.
Delay in delivery: - Goods are not available in due time.
Absence of credit facility: - Goods are sold only on cash basis. Credit
facility is not available.
Unsuitable to illiterate class: - Mail order business is based on
advertisement. It is not suitable for illiterate class as they are unable to
know about the product.