REVISION

MATERIAL
CLASS XI
BUSINESS
STUDIES - 054

2024-25
 INDEX

SL.No. TOPIC

1 CBSE Syllabus 2024-25

2 Question Paper Design

3 Nature and Purpose of Business

4 Forms of Business Organisations

5 Public, Private and Global Enterprises

6 Business Services

7 Emerging Modes of Business

8 Social Responsibility of Business and Business Ethics

9 Sources of Business Finance

10 Small Business

11 Internal Trade

12 International Business

13 Sample Paper 1 unsolved

14 Sample Paper 2 unsolved

15 Sample Paper 3 unsolved

 SYLLABUS
BUSINESS STUDIES (Code No. 054)
CLASS XI (2024-25)

Theory: 80 Marks
Project: 20 Marks 3 Hours

Units Periods Marks

Part A Foundations of Business

1 Nature and Purpose of Business 18 16
2 Forms of Business Organisations 24
3 Public, Private and Global Enterprises 18 14
4 Business Services 18
5 Emerging Modes of Business 10 10
6 Social Responsibility of Business and 12
Business Ethics

Total 100 40
Part B Finance and Trade
7 Sources of Business Finance 30 20
8 Small Business 16
9 Internal Trade 30 20
10 International Business 14
Total 90 40

Project Work (One) 30 20

 Suggested Question Paper Design
Business Studies (Code No. 054)
Class XI (2024-25)
March 2025 Examination
Marks: 80 Duration: 3 hrs.

SN Typology of Questions Marks Percentage

1 Remembering and Understanding:

Exhibit memory of previously learned material by
recalling facts, terms, basic concepts, and answers.
Demonstrate understanding of facts and ideas by 44 55%
organizing, comparing, translating, interpreting,
giving descriptions, andstating main ideas

2 Applying: Solve problems to new situations by

applying acquired knowledge, facts, techniques 19 23.75%
and rules in a different way.

3 Analysing, Evaluating and Creating:

Examine and break information into parts by
identifying motives orcauses. Make inferences and
find evidence to support generalizations.
Present and defend opinions by making judgments 17 21.25%
aboutinformation, validity of ideas, or quality of
work based on a set of criteria.
Compile information together in a different way by
combining elements in a new pattern or proposing
alternative solutions.

Total 80 100%
 CHAPTER – 1
NATURE AND PURPOSE OF BUSINESS
History of Trade and Commerce
India has Himalayas in the north, bordered by water in south. India got connected
to adjoining foreign countries through the network of roads leading to Silk Route.
The maritime routes linked the east and west by sea and were used for trade of
spices known as a Spice Route.
Role of business in the development of economy
Business activities have been undertaken since the ancient era. There existed
transfer of goods both within and outside the country, and the income
received from such economic business activities were used for further
investments.
Hundi: It is an instrument of exchange used in old times which involved a
contract that warrants the payment of money, a promise or order which is
unconditional, and can be exchanged through transfer by valid negotiation.
HUNDI AS PRACTICED BY INDIAN MERCHANT COMMUNITIES
Name of Classification Functions of Hundi
Hundi
Dhani-jog Darshani Payable to any person-no liability over who received
payment.
Sah-jog Darshani Payable to a specific person, someone ‘respectable’.
Liability over who received payment.
Firman-jog Darshani Hundi made payable to order.
Dekhan-har Darshani Payable to the presenter or bearer.
Dhani-jog Muddati Payable to any person—no liability over who
received payment, but payment over a fixed term.
Firman-jog Muddati Hundi made payable to order following a fixed term.
Jokhmi Muddati Drawn against dispatched goods. If goods lost in
transit, the drawer or holder bears the coasts & the
Drawee carries no liability.

Rise of Intermediaries
• Comprises of Commission agent, broker and distributor.
• Foreign Trade was financed by loans.
• Prominent role in promotion of trade.
• Provide financial security in return of risk taken.
• Later with emergence of credit transaction, exports exceeded import and
benefited indigenous banking system.
• Commercial bank and industrial bank evolved to finance trade and
commerce.
• Agricultural bank evolved to provide short-term and long-term finance to
agriculturist.
Maritime Trade
• Trade maintained by means of sea is referred to as maritime trade.
• Maritime trade was another important branch of global trade network.
• Malabar Coast, on which Muziris is situated. Pepper was particularly valued
in the Roman Empire and was known as ‘Black Gold’.
• It was in the search for an alternate route to India for spices that led to the
discovery of America by Columbus and also brought Vasco-da-Gama to the shores
of Malabar.
• Calicut was such a bustling emporium that it was even visited by Chinese
ships to acquire items, like frankincense (essential oil) and myrrh (fragrant
resin used in perfumes, medicines) from the Middle East, as well as, pepper,
diamonds, pearls and cotton from India.
• On the Coromandel Coast, Pulicat was a major port in the 17th century.
Textiles were the principal export from Pulicat to Southeast Asia.

Merchant Corporation
• Formed to protect the interest of traders.
• Framed their own rules of membership and code of conduct which kings
also accepted.
• Trade and industrial taxes were major source of revenue.
• The chief directly deals with king, tax collector and settle market toll on
behalf of merchant at fixed sum of money.

MAJOR TRADE CENTRES IN ANCIENT TIMES

1. Pataliputra: Known as Patna today. It was not only a commercial town,
but also a major centre for export of stones.
2. Peshawar: It was an important exporting centre for wool and for the import
of horses. It had a huge share in commercial transactions between India, China
and Rome in the first century A.D.
3. Taxila: It served as a major centre on the important land route between India
and Central Asia. It was also a city of financial and commercial banks. The city
occupied an important place as a Buddhist centre of learning. The famous Taxila
University flourished here.
4. Indraprastha: It was the commercial junction on the royal road where
most routes leading to the east, west, south and north converged.
5. Mathura: It was an emporium of trade and people here subsisted on
commerce. Many routes from South India touched Mathura and Broach.
6. Varanasi: It was well placed as it lay both on the Gangetic route and on the
highway that linked North with the East. It grew as a major centre of textile
industry and became famous for beautiful gold silk cloth and sandalwood
workmanship.
7. Mithila: The traders of Mithila crossed the seas by boats, through the Bay
of Bengal to the South China Sea, and traded at ports on the islands of Java,
Sumatra and Borneo. Mithila established trading colonies in South China,
especially in Yunnan.
8. Ujjain: Agate, carnelian, muslin and mallow cloth were exported from Ujjain
to different centres. It also had trade relations through the land route with Taxila
and Peshawar.
9. Surat: It was the emporium of western trade during the Mughal period.
Textiles of Surat were famous for their gold borders (zari). It is noteworthy that
Surat hundi was honoured in far off markets of Egypt and Iran.
10. Kanchi: Today known as Kanchipuram, it was here that the Chinese used
to come in foreign ships to purchase pearls, glass and rare stones and in return
they sold gold and silk.
11. Madura: It was the capital of the Pandayas who controlled the pearl
fisheries of the Gulf of Mannar. It attracted foreign merchants, particularly
Romans, for carrying out overseas trade.
12. Broach: It was the greatest seat of commerce in Western India. It was
situated on the banks of river Narmada and was linked with all important
marts by roadways.
13. Kaveripatta: Also known as Kaveripatnam, it was scientific in its
construction as a city and provided loading, unloading and strong facilities of
merchandise. Foreign traders had their headquarters in this city.
14. Tamralipti: It was one of the greatest ports connected both by sea and
land with the West and the Far East. It was linked by road to Banaras and
Taxila.
TYPES OF HUMAN ACTIVITIES
All human being, wherever they are, required to perform some or the other
activity to satisfy their needs. They pursue different occupations to earn a
livelihood and to get some psychological satisfaction. Activities which human
beings undertake are known as human activities.
Classification of Activities
1. Economic Activities: Economic activities are any activities that are carried out
with the goal of earning money and livelihood. For example, a worker working in
a factory, a teacher teaching in school.
It is majorly of three types:
• Business
• Profession
• Employment.
2. Non-Economic activities: Activities which are performed out of love,
affection, sympathy, etc, and without the aim of earning profit are called non-
economic activities. For Example, social work, religious activities etc.
TYPES OF ECONOMIC ACTIVITIES
Business
Any economic activity that is undertaken regularly and continuously to satisfy
the societal needs as well as to earn profit through the mechanism of sale and
purchase of goods and services is called a business. Characteristics
of Business Activities: -
1. An economic activity: Business consists of sale or exchange of goods and
services with the primary objective of earning money. Hence it is an
economic activity.
2. Sale or exchange of goods and services for creating value: In
business there should be transfer or exchange of goods or services for
value. Production of goods for the purpose of personal consumption is
not termed as business.
3. Regularity in dealings: To constitute a business there should be
dealings in goods and services on regular intervals. Doing one single
transaction does not constitute business. For example, selling your old
books, or furniture and purchasing a new one is not termed as business.
4. Production or procurement of goods and services: In every business
enterprise before the consumption, production takes place. As a result,
a business either manufactures the goods on its own or purchases them
from producers, and then sells them to end customers.
5. Profit earning: The primary objective of every business is to earn more
and more profit. No business can survive without earning profit. Hence all
the efforts of the businessman are directed towards the earning of
sufficient profit.
6. Uncertainty of return: It’s not certain how much profit a business is
going to earn, as there is a possibility of losses as well because of the
changing environment. Every business has to handle both losses as well
as profits.
7. Risk: Every business is exposed to certain risks, these risks can either
be due to natural factors, human factors, financial factors, or personal
factors. Therefore, both profit and losses walk hand in hand and every
business has to take some risk in order to survive.
Profession
Any economic activity which is carried out by a person with specialised
knowledge and skills in order to serve society is called profession. Employment
Any economic activity which involves doing work for someone else in
consideration of money is termed as employment.
Comparison of Business, Profession and Employment

Basic Business Profession Employment

Establishes after Starts after receiving

Mode of fulfilling some A certificate of
an appointment
establishment required legal practice required. letter.
formalities.

Selling and Rendering specialized Work is as per the

Nature of work buying of goods contract and the
services
and services. rules of service.

Formal qualification Qualification

No minimum
and training from a
Qualification qualification requirements differ
professional body is a
required. with job type.
must.

Reward or
Profit Professional fee Wages or salary
return

It is dependent
Capital Limited capital
upon the type and No capital.
investment needed.
size of business.

High uncertainty
Risk Little or limited risk No risk
and risk.

Transfer of
Possible Not possible Not possible
interest

No code of Rules set by the

Code of Professional code of
conduct is employer are to be
conduct conduct is there.
prescribed. followed.

Chartered
A person having
Accountants, Jobs in banks,
Example his shop, factory
Lawyers, Doctors are companies etc.
etc.
all professionals.

OBJECTIVES OF BUSINESS
1. Economic Objectives
2. Social Objectives

1. Economic Objectives: -
Under economic objectives, the following objectives are included:
(i) Market standing: The basic purpose of every organisation is to survive and
exist in the competition market for a long period of time.
(ii) Earning Profit: The most important objective of every organisation is
earning adequate amount of profit. Profit is essential for survival, growth and
expansion of business.
(iii) Innovation: It is the introduction of new ideas or methods in the way
something is done or made
(iv) Increasing productivity: Productivity is ascertained by comparing the
value of output with value of inputs. Every business must aim at greater
productivity through the best use of available resources.
(v) Optimum utilisation of physical and financial resources: The business
enterprise must aim at greater productivity through the best use of available
resources.
2. Social Objectives: -
Social Objectives are those which are desired to be achieved for the benefit of
the society.
(i) Supply of Desired Quality of Products: Customer prefer to buy the
products only when they are of satisfactory quality and are available at a
reasonable price. Today’s customer is a quality conscious customer and he
expects value for money.
(ii) Avoidance of Unfair Trade Practices: Anti-social or unfair trade practices
include black marketing, adulteration, hoarding, overcharging, etc.
Exaggerating in advertisement s about the uses of products is also an unfair
trade practice.
(iii) Employment Generation: The business man must create employment
opportunities and help in overcoming this basic problem of developing countries.
The business employs people to perform different types of work.
(iv) Social Service or Community Service: The big companies can help in
social service programmes run by NGOs and Government organisations by
contributing large amount of funds in the form of donations, charity, etc.
(v) Avoidance of Pollution: As a businessman has added to spreading of
pollution, so it becomes the moral duty of the businessman come forward and
help in solving the problem of pollution.
Role of Profit in the Business:
(i) Survival: A business and businessman cannot survive for a long time without
earning adequate profit. Profit is a source of income for a businessman which
becomes his means of livelihood.
(ii) Expansion and Growth: The business is expanded only when it is earning
sufficient amount of profit. When profit is large, a part of it can always be
reinvested for expansion or diversification of production and other operations of
the business.
(iii) Symbol of efficiency or an Index of Performance: Profits indicate whether
a business is being managed efficiently or not. Higher profits indicate the
efficiency of management and lowest profit indicate inefficiency of management.
(iv) Reward for bearing the risk: Profit is considered as a price or reward
paid to a businessman for bearing the risk. The desire to earn profit motivates
the businessman to bear the uncertainties and unexpected risks.
(v) Helps to gain reputation of goodwill: A profit earning company always has
a better reputation in the market as compared to companies which are running
in loss.

Classification of Business Activities

The Business activities are mainly classified into:

• Industry
• Commerce
o Trade
o Auxiliaries to Trade

A. Industry
It is basically concerned with the production of goods and services for an
economic motive. It is further divided into following categories:
1. Primary 2. Secondary 3. Tertiary
1. Primary Industry
 It includes all those activities which are concerned with the extraction
and production of natural resources and development of plants, etc.
It is further divided into two parts:
a. Extractive industries:
These industries provide some basic raw materials that are mostly
products of the natural environment. It includes farming, mining, etc.
b. Genetic industries:
These industries do breed of plants and animals for their use in further
reproduction. Example- cattle breeding, poultry farms.
2. Secondary Industries
These industries are concerned with further processing of the material extracted
at the primary sector so as to convert them into a finished product. Example,
Mining of iron ore.
It is further divided into two parts:
a. Manufacturing industries: These industries engage in producing goods
through processing of raw materials and creating utilities.
It is further divided into four parts:
Analytical industry: These industries separate and bifurcate different
elements from the basic material, so as to produce various by-products from
the same element. For example, petrol, diesel etc all are made from one basic
material that is crude oil
Synthetically industry: These industries bring together materials and
ingredients from varied sources and combine them to form a new product. For
example, the cement industry.
Processing industry: These industries are involved in the extraction and
processing of resources and raw materials, so as to produce semi-finished or
finished products. For example, the sugar industry, paper industry, textile
industry etc.
Assembling industry: These industries bring together different components
of various firms to form a new product. For example, different components of
various industries are brought together to assemble them and convert it into
a television, computer, car etc.
b. Construction industries: These industries are involved in the construction
sector, and it involves constructive works such as building dams, bridges,
buildings, etc.

3. Tertiary Industry
These industries provide support services to primary and secondary
industries so that they can perform their work without any hindrances. For
Example, banking industry, transportation industry, communication
industry,etc.

B. Commerce
Commerce includes all the activities which are required for the exchange of goods
and services. It also involves all the activities that assists in removal of
hindrances of people, place, time, finance, risk, information faced during the
exchange of goods and services.

Functions of Commerce
1. Removing the hindrance of person- by marking goods available to
consumers from the producers through trade.
2. Transportation removes hindrance of place- by moving goods from the place
of production to the markets for sale.
3. Storage and warehousing activities removes the hindrance of time- by
facilitating holding of stock of goods to be sold as and when required.
4. Insurance removes hindrance of risk of loss or damage of goods due to theft,
fire, accidents etc.
5. Banking removes hindrance of finance- by providing funds to a
businessman for acquiring assets, purchasing raw materials and meeting
other expenses.
6. Advertising removes hindrance of information- by informing consumers
about the goods and services available in the market.

Classification of Commerce
It includes two types of activities:
• Trade
• Auxiliaries to Trade

Trade
The buying and selling of goods and services with an aim to earn profit is termed
as trade. The people who are involved in trade are referred to as traders. Trade
can be classified into two:
(a) Internal Trade (b) External Trade.
(a) Internal Trade: - It refers to buying and selling of goods or services within
the geographical boundaries of a country.
(i) Wholesale trade: It refers to buying and selling of goods and services
in large quantities.
(ii) Retail Trade: It refers to buying and selling of goods and services in
small quantities.
(b) External Trade: - It refers to buying and selling of goods or services beyond
the geographical limits of the country. It involves:
(i) Imports: It refers to the purchase of goods and services from other
countries.
(ii) Exports: Selling goods and services to other countries.
(iii) Entrepot: Importing goods and services from one country & exporting to
some
third country.
Auxiliaries to Trade: -
Auxiliaries to trade assists the buying and selling of the goods and services by
removing the hindrances of place, people, time, finance, risk and information.
The auxiliaries to trade are:
(a) Transport and Communication: Transportation helps in the movement
of raw material and finished products from the place of production to the place
of consumption. Communication enables easy interaction by one party with
another, who is far away from each other. It assists in removal of the
hindrance cause due to place.
(b) Banking and finance: It helps business activities to overcome the problem of
finance by lending loans and credit facilities.
(c) Insurance: It provides protection to businesses from various types of risks
such as due to fire, theft etc. It assists in curbing hindrances of risk.
(d) Warehousing: It helps business firms to overcome the problem of storage
and facilitates the availability of goods. It assists in curbing hindrances of time.
(e) Advertising: It helps them to increase the sales and widen the customer base
by promoting business products or services at a wide spectrum.
Business Risk The risk caused due to inadequate profits or losses as a result
of uncertainties or unexpected events is called business risk.
Nature of Business Risks
• Risk is an essential part of every business. It can only be reduced but
not eliminated in full.
• It arises due to uncertainties like natural calamities such as
earthquakes, floods etc., which are unavoidable.
• The extent of risk depends upon the nature and size of business.
• ’No risk, no gain’ is applicable to every business. Hence, profit is the
reward for risk taking.
Causes of Business Risks
• Natural causes: These are due to natural causes such as floods,
earthquakes, etc. Every person has little control or no control over these
causes.
• Human causes: These causes include unexpected events caused by
man, such as negligence of employees, power failure, employee’s or
customer’s dishonest practices etc.
• Economic causes: The economic causes involve the changes and
variations taking place in the economy such as uncertainties due change
of technology and method of production, political disturbances, change
in prices, tax rates etc.
• Other causes: All those causes which cannot be considered under the
above causes are the other causes, such as exchange rate fluctuations
etc.
MULTIPLE CHOICE QUESTIONS

1. Assertion (A): Business is considered as an economic activity.

Reason (R): It involves exchange of goods and services among people in
the society.
(a) Both A and R are true. R is the correct explanation of A
(b) Both A and R are true, but R is not the correct explanation of A
(c) A is correct, but R is incorrect
(d) A is incorrect, but R is correct
2. Mehak is a practicing Chartered Accountant. She has her C.A. Firm in
Bangalore. She deals in providing Income Tax and GST related services
to her clients against very reasonable consultancy fees. Identify the type
of economic activity performed by Mehak as referred in the above case.
(a) Business
(b) Profession
(c) Employment
(d) None of the above

3. Which of the following cannot be classified as an auxiliary to trade?

(a) Mining (b) Insurance(c) Warehousing (d) Transport

4. “Vishesh” is an NGO operating in the district. It deals in providing medicines

and other medical facilities to the rural, backward, and below- poverty-line
people in the district. In case of need, arrangements are made by the NGO to
shift critical patients to referred hospitals. Name the type of human activities
performed by the NGO “Vishesh”.
a) Economic Activities
(b) Non-Economic Activities
(c) Spiritual Activities
(d) None of the above
1. Amar, Akbar and Anthony and Balvinder pursued their MBA from a
reputed institute in Mumbai. After completion of their studies, all of
them got engaged in different fields. Amar got a job at an Oil Refinery
Industry as a Junior Executive in Finance. Akbar joined his family
business in Textile Industry in Jalandhar, Punjab. Anthony opened his
own Dairy Firm and Balvinder join the construction business. Identify
the type of industry Mr. Akbar worked with as highlighted in the above
case.
(a) Analytical Industry (b) Synthetic Industry (c) Processing Industry
 (d) Assembly Industry

6. Himalaya General Store is a big businessman who deals in selling Nestle

products in his locality. He purchased products of Nestle directly from the
State Distributor in bulk quantities and sold them in the market to small
shopkeepers from different corners of the city. Identify the type of trade
followed by Nutan General Store.
(a) Wholesale Trade
(b) Retail Trade
(c) International Trade
(d) Entrepot Trade

7. Suman’s factory was destroyed due to flood. Identify the type of business
risk:
(a) Economic Causes (b) Human Causes
(c ) Natural Cause (d) Other Causes
8. Warehousing facilitates the availability of goods as and when required. By
doing this, which of the following utilities are provided by Warehousing?
(a) Place Utility (b) Time Utility
(c) Both (a) and (b) (d) Neither (a) nor (b)
9. Read the following statements carefully and choose the correct alternative
Statement 1: Business involves exchange of goods and services on a regular
and recurring basis.
Statement 2: Every business aims to earn profits.
Alternatives:
(a) Both the statements are true.
(b) Both the statements are False.
(c) Statement 1 is true and Statement 2 is false.
(d) Statement 2 is true and Statement 1 is false.
10. Mr. Kumar is engaged in the business of Importing machinery from China
and further selling it to Nepal. Which type trade is Mr. Kumar engaged in ?
(a) Export (b) Import
(c) Entrepot (d) None of the Above
Answers
1.a, 2. B, 3. A, 4.b, 5.c, 6.a, 7.c, 8. B, 9 .a, 10.c

SHORT ANSWER TYPE QUESTIONS (3-4 marks)

1. Samaira took advanced fashion designing course at Beads Academy to

become a fashion designer. After completion of the course, she got a job at
Trendz Fashions. She used her expertise to design modern outfits, which
became famous overnight. Identify and explain the type of economic
activity that Samaira is engaged in.
 Answer : Samaira is engaged in is ‘Employment’.
Employment: Any economic activity which involves doing work for
someone else in consideration of money is termed as Employment.

2. Rohit and Lohith are partners selling electronic products across India. They
import the components from their friend Aman who does his business in
China and assemble them in their factory established in a rural area of
Jharkhand where most of the workers in the factory are children and
women. They are paid very less salaries thus owner
save on labour cost. They store their stocks in a warehouse but do not
take proper safety measures against fire, burglary. There was a short
circuit in the factory and as a result most of the stock was damaged. On
the basis of the given information, answer the following questions:
a) Specify the type of business activity performed by Rohit and Lohith.
b) Specify the type of business activity performed by Aman.
c) Name and explain the auxiliary to trade used by Rohit and Lohith.
Answer:
a) Rohit and Lohith are engaged in an Industrial Activity (Secondary
Industry: Assembling).
b) The business activity performed by Aman is Trade (Export trade)
c) The auxiliary to trade used by Rohit and Lohith is warehousing.
Warehousing: It helps business firms to overcome the problem of
storage and facilitates the availability of goods. It assists in curbing
hindrances of time.
3. Rahul and Sahil completed their studies and planned to start their own
business instead of looking for job. Rahul’s father is working in Portland
cement manufacturing company as supervisor. He told them that
common materials used to manufacture cement include limestone,
shells, and chalk combined with clay, slate, blast furnace slag, silica
sand, and iron ore. He also told them that limestone is most often mined
from a quarry which is done by Antra Ltd. He told them that his
company is facing a problem of storing the limestone because of
shortage of space. This gave them an idea to start a ware housing
business. On the basis of the given information, answer the following
questions:
a) Identify the different types of industries being discussed in above
case.
b) Specify the category of type of industries to which the industries
identified in part(a).
Answer: The different types of industries being discussed above are:
Portland Cement Company: Secondary industry. Antra Ltd.: Primary
industry. Warehouse Business: Tertiary industry.
b) The category of aforesaid industries are
I. Portland Cement Company: Manufacturing industry. (Synthetic
industry)
 II. Antra Ltd.: Extractive industry.

4. Sunita bought a readymade dress for Rs.5,000. Her friend liked the
design of dress very much, so Sunita sold the same dress to her friend
without charging anything. After completing her studies, Sunita opened
a shop of selling readymade dresses for girls.
a) Can transaction between Sunita and her friend be termed as
Business? Give reason in support of your answer.
b) Can the sale of dresses on her shop be called as Business?
Answer :
(a) No. The transaction between Sunita and her friend cannot be termed
as Business. This is because exchange of dress is done without any
consideration. Also, profit motive is not involved and the transaction is
not done on regular basis.
(b) Yes, the sale of dresses on her shop will be called as Business as shop
is opened with the motive of earning profit through regular transactions
of exchange of dress for money.
5. “Earning of profit cannot be the objective of business any more than the
eating is the objective of living”. Do you agree with this statement? Give
reasons in support of your answer.
Answer : Yes, I agree with this statement. Like eating is essential for
survival of any human being, same way profit is essential and a must for
survival of any business. But a person cannot survive for a long time and
cannot lead a healthy life only by eating. A person has to perform other
activities also such as social activities, religious activities and patriotic
activities. Similarly, a business with the sole motive of earning profit
cannot survive for a long time. To capture a big share in market and to
create the goodwill businessman must have social and individual
objectives along with economic objective of earning profit.

LONG ANSWER TYPE QUESTIONS (6 marks)

1. Alex David is a legal advisor in a multinational company. He gets Rs.65,000
per month as his salary. On weekends, Alex David goes to nearby village
and teaches some slum children, he does not charge anything from them,
he does it out of sympathy and concern for poor children. This given him
mental and psychological satisfaction. On the basis of the given information
about Alex David, answer the following questions:
a. Specify the types of human activity performed by Alex David.
b. Differentiate between types of human activity identified in part (a)
on any four basis.
Answer :
a) The human activities performed by Alex David are:
 I. Working as legal advisor in a multinational company is an
economic activity.
II. Teaching students in slum is a non- economic activity.
b) The difference between economic and non- economic activityare:
S.No. Basis Economic activity Non- economic activity

1. Motive These activities are These activities are undertaken

undertaken with an with the social or psychological
economic motive of earning motive.
money and
creation of wealth.
2. Expectation Money income is expected Money income is not expected
from these activities. from these activities.
3. Purpose Creation of wealth Psychological Satisfaction.
4. Outcome Production of goods and Mental satisfaction of person
services. who undertake it.

2. These days almost all corporate offices adopt parks or roads near to
their office complex for maintenance.
(a) Which objective they try to achieve by doing so?
(b) Name and explain the other two objectives of the business.
Answer :
a) Social Objectives. Business diverts the profits earned to maintain the
public property, this way they are able to help society and the employees
working in the areas by providing well maintained facilities. This helps
them to create awareness about the company and builds company
image.
b) Other two objectives of the business are :
i. Economic Objectives (Explain) ii. Human Objectives (Explain)
3. Ajit was running a trading business in India. Now he extended its
operations to Dubai and USA by establishing places of business in these
countries. In order to increase sales in Dubai, the company adopted
selling strategies like sales promotion and advertising. As the company
had an excellent credibility in the capital market, it was able to meet all
its financial requirements by borrowing from Citi Bank. On the basis of
the given information about Ajit, answer the following questions:
a) Identify and explain the auxiliaries to trade used by Ajit for running
his business. Also quote lines.
b) Identify the type of trade carried on by Ajit earlier and now.

Answer : a) Advertising, Banking

“In order to increase sales in Dubai, the company adopted selling
strategies like sales promotion and advertising. As the company had
an excellent credibility in the capital market, it was able to meet all
its financial requirements by borrowing from Citi Bank.”
b) Trade carried earlier- Internal Trade.
 Internal Trade: - It refers to buying and selling of goods or services
within the geographical boundaries of a country.
Trade carried Now- External Trade
External Trade: - It refers to buying and selling of goods or services
beyond the geographical limits of the country.
4. Ratan after doing his B.Pharm degree from a reputed government
college started two chemist shops in two different localities of his home
town. Encouraged with the success of these shops, he started six more
shops in different cities of the state. His strategy was to cut price, focus
on lower- and middle-class patients and open shops near hospitals. He
earned good profit margins. But the staff of the shops did not give much
attention to the customers. Because of this mis-management he started
incurring huge losses and his business failed. On the basis of the given
information about Ratan, answer the following questions:
a) Identify and explain the main cause behind the business failure of
Ratan.
b) Explain any two other causes of risk associated with Ratan’s
business.

Answer:
a) The main cause behind the business failure of Ratan is Human Cause.
Human Causes: Human causes include such unexpected events,
like dishonesty, carelessness or negligence of employees,
stoppage of work due to power failure, strikes, riots, management
inefficiency, etc.
b) The other causes of business risks are:
I. Natural causes: Human beings have little control over natural
calamities like flood, earthquake, famine etc. They result in heavy losses
of life, property and income in business.
II. Economic Causes: They are related to a chance of loss due to change
in market condition e.g., fluctuation in demand and prices, competition,
change in exchange rate etc.

CHAPTER 2
Forms of Business Organisation
The business enterprises which are owned, controlled and managed by private
individuals are known as Private sector enterprises. These enterprises work with
the main motive of earning profit. Various forms of such business organisations
are:
(a) Sole proprietorship
(b) Joint Hindu family business
(c) Partnership
(d) Cooperative societies and
(e) Joint stock company
 a) Sole Proprietorship: The word “sole” implies “only”, and “proprietor”
refers to “owner”. Hence, a sole proprietor is the one who is the only owner
of a business. It refers to a form of business organisation which is owned,
managed and controlled by an individual who is the recipient of all profits
and bearer of all risks.
Features of Sole Proprietorship Business
(i) Formation and closure: Hardly any legal formalities are required to start
a sole proprietary business. Closure of the business can also be done easily. Thus,
there is ease in formation as well as closure of business.
(ii) Liability: Sole proprietors have unlimited liability. She /he has to sell her
personal property to repay the firm’s debts.
(iii) Sole risk bearer and profit recipient: The risk of failure of business is
borne all alone by the sole proprietor. The proprietor enjoys all the benefits also.
(iv) Control: Sole trader can carry out his plans without any interference from
others.
(v) No separate entity: Business does not have an identity separate from the
owner.
(vi) Lack of business continuity: The death, insanity, imprisonment,
physical ailment or bankruptcy of the sole proprietor may even cause closure
of the business.
Merits:
(i) Quick decision making: A sole proprietor enjoys considerable degree of
freedom in making business decisions. Further the decision-making is prompt
because there is no need to consult others.
(ii) Confidentiality of information: Sole decision-making authority enables
the proprietor to keep all the information related to business operations
confidential and maintain secrecy.
(iii) Direct incentive: A sole proprietor directly gets the benefits of his efforts
as he is the sole recipient of all the profit.
(iv) Sense of accomplishment: The knowledge that one is responsible for the
success of the business not only contributes to self-satisfaction but also a
sense of accomplishment and confidence in one’s abilities.
(v) Ease of formation and closure: Sole proprietorship is the least regulated
form of business; it is easy to start and close the business as per the wish of
the owner.
Limitations
(i) Limited resources: Resources of a sole proprietor are limited to his personal
savings and borrowings from others. Lack of resources is one of the major
reasons why the size of the business generally remains small.
(ii) Limited life of a business concern: The sole proprietorship business is
owned and controlled by one person, so death, insanity, imprisonment etc of the
proprietor can lead to its closure.
(iii) Unlimited liability: The liability of the sole proprietor is unlimited. If the
business fails, the creditors can recover their dues not merely from the
business assets, but also from the personal assets of the proprietor.
(iv) Limited managerial ability: It is rare to find an individual who excels in
purchasing, selling, financing, etc. Thus decision making may not be balanced
in all the cases.

b) Partnership
The Indian Partnership Act, 1932 defines partnership as “the relation between
persons who have agreed to share the profit of the business carried on by all
or any one of them acting for all.”
Features
(i) Formation: The partnership form of business organisation is governed by the
Indian Partnership Act, 1932. It comes into existence through a legal agreement.
(ii) Liability: The partners of a firm have unlimited liability. Personal assets may
be used for repaying debts of the business.
(iii) Risk bearing: The partners bear the risks involved in running a business as
a team.
(iv) Decision making and control: The partners share amongst themselves the
responsibility of decision making and control of day to -day activities.
(v) Continuity: The death, retirement, insolvency or insanity of any partner
can bring an end to the business.
(vi) Number of Partners: The minimum number of persons to start a
partnership firm is two. As per Rule 10 of The Companies (miscellaneous)
Rules 2014, at present the maximum number of members can be 50.
(vii) Mutual agency: The business is carried on by all or any one of the
partners acting for all. Every partner is both an agent and a principal.
Merits
(i) Ease of formation and closure: A partnership firm can be formed easily
by putting an agreement between the prospective partners. Closure of the firm
too is an easy task.
(ii) Balanced decision making: The partners can oversee different functions
according to their areas of expertise. So the decisions are likely to be more
balanced.
(iii) More funds: In a partnership, the capital is contributed by a number of
partners. So it can raise larger amount of funds.
(iv) Sharing of risks: The risks involved in running a partnership firm are
shared by all the partners.
(v) Secrecy: A partnership firm is not legally required to publish its accounts and
submit its reports. So it can maintain confidentiality of information.
Limitations:
(i) Unlimited liability: Partners are liable to repay debts even from their
personal resources. Thus, they have unlimited liability.
(ii) Limited resources: Capital contributed by the partners is usually not
sufficient to support large scale business operations.
(iii) Possibility of conflicts: Difference in opinion of partners on some issues
may lead to disputes between partners.
(iv) Lack of continuity: Partnership comes to an end with the death, retirement
or insolvency of any partner. It may result in lack of continuity.
(v) Lack of public confidence: A partnership firm is not legally required to
publish its financial reports. As a result, the confidence of the public in
partnership firms is generally low.
Types of Partnership
Partnership can be classified on the basis of two factors, i.e, duration and liability.
Classification on the basis of duration
(i) Partnership at will: This type of partnership can continue as long as the
partners want and is terminated when any partner gives a notice of
withdrawal from partnership to the firm.
(ii) Particular partnership: Partnership formed for the accomplishment of a
particular project or for a specified time period is called particular partnership.
Classification on the basis of liability
(i) General Partnership: In general partnership, the liability of partners is
unlimited and joint. The partners enjoy the right to participate in the
management.
(ii) Limited Partnership: In limited partnership, the liability of at least one
partner is unlimited whereas the rest may have limited liability. Such a
partnership does not get terminated with the death, lunacy or insolvency of
the limited partners.

Registration
Registration of a partnership firm means the entering of the firm’s name, along
with the relevant prescribed particulars, in the Register of firms kept with the
Registrar of Firms. It is optional for a partnership firm to get registered.
The consequences of non-registration of a firm
(a) A partner of an unregistered firm cannot file a suit against the firm or other
partners,
(b) The firm cannot file a suit against third parties, and
(c) The firm cannot file a case against the partners.
In view of these consequences, it is therefore advisable to get the firm
registered.
Partnership Deed
The written agreement which specifies the terms and conditions of the
partnership is called the partnership deed.
Types of Partners
(i) Active partner: An active partner is one who contributes capital,
participates in the management, shares its profits and losses and has
unlimited liability.
(ii) Sleeping or dormant partner: Partners who do not take part in the day- to-
day activities of the business are called sleeping partners.
(iv) Nominal partner: A nominal partner is one who allows the use of his
name by a firm, but does not contribute capital, does not actively take part in
management, does not share its profit or losses but has unlimited liability.
(v) Partner by estoppel: A person is considered a partner by estoppel if, through
his own initiative, conduct or behaviour, he gives an impression to others that he
is a partner of the firm. Such partners are held liable for the debts of the firm.

c) Joint Hindu Family Business

This is a specific form of business organisation found only in India. It refers
to a form of organisation wherein the business is owned and carried on by the
members of the Hindu Undivided Family (HUF). It is governed by the Hindu Law.
The basis of membership in the business is birth in a particular family and
three successive generations can be members in the business. The business is
controlled by the head of the family who is the eldest member and is called
karta.
Features of Joint Hindu Family
(i) Formation: There should be at least two members in the family and ancestral
property to be inherited by them to start a sole proprietorship
(v) Minor Members: The basis of membership in the business is birth in a
particular family Hence, minors can also be members of the business.
(ii) Liability: The liability of all members except the Karta is limited to their
share of co-parcenery property of the business, But Karta has unlimited liability.
(iii) Control: The control of the family business lies with the Karta. His
decisions are binding on the other members.
(iv) Continuity: The business continues even after the death of the Karta as
the next eldest member takes up the position of Karta, leaving the business
stable.
(v) Minor Members: Minors can become the members of the business.
d) Cooperative Society
The cooperative society is a voluntary association of persons, who join together
with the motive of welfare of the members. The cooperative society is
compulsorily required to be registered under the Cooperative Societies Act 1912.
The consent of at least ten adult persons is required to form a society. The capital
of a society is raised from its members through issue of shares.
Features
(i) Voluntary membership: A person is free to join a cooperative society, and
can also leave at any time. There cannot be any compulsion for him to join or quit
a society.
(ii) Legal status: Registration of a cooperative society is compulsory. This
provides a separate identity to the society which is distinct from its members.
(iii) Limited liability: The liability of the members of a cooperative society is
limited to the extent of the amount contributed by them as capital.
(iv) Control: In a cooperative society, the power to take decisions lies in the
hands of an elected managing committee.
(v) Service motive: The cooperative society through its purpose lays emphasis
on the values of mutual help and welfare. If any surplus is generated, it is
distributed to the members as dividend.
Merits
(i) Equality in voting status: The principle of ‘one man one vote’ governs the
cooperative society.
(ii) Limited liability: The liability of members of a cooperative society is
limited to the extent of their capital contribution.
(iii) Stable existence: Death, bankruptcy or insanity of the members do not
affect continuity of a cooperative society.
(iv) Economy in operations: The members generally offer honorary services to
the society. As the focus is on elimination of middlemen, this helps in reducing
costs.
(v) Support from government: The cooperative society finds support from
the Government in the form of low taxes, subsidies, and low interest rates on
loans.
(vi) Ease of formation: The cooperative society can be started with a minimum
of ten members. Its formation is governed by the provisions of Cooperative
Societies Act 1912.
Limitations
(i) Limited resources: The low rate of dividend offered on investment also acts
as an obstacle in attracting membership or more capital from the members.
(ii) Inefficiency in management: Cooperative societies are unable to attract and
employ expert managers because of their inability to pay them high salaries.
(iii) Lack of secrecy: As a result of open discussions in the meetings of members,
it is difficult to maintain secrecy about the operations of a cooperative society.
(iv) Government control: Control of the government negatively affects its
freedom of operation.
(v) Differences of opinion: Internal conflicts arising as a result of contrary
viewpoints may lead to difficulties in decision making.
Types of Cooperative Societies:
(i) Consumer’s cooperative societies: The consumer cooperative societies are
formed to protect the interests of consumers. It purchases goods in bulk directly
from the wholesalers and sells goods to the members.
(ii) Producer’s cooperative societies: These societies are set up to protect
the interest of small producers. The members comprise of producers desirous of
procuring inputs for production of goods to meet the demands of consumers.
It supplies raw materials, equipment and other inputs to the members and also
buys their output for sale.
(iii) Marketing cooperative societies: Such societies members consist of
producers who wish to obtain reasonable prices for their output. The society aims
to eliminate middlemen and improve competitive position of its members by
securing a favourable market for the products.
(iv) Farmer’s cooperative societies: These societies are established to protect
the interests of farmers by providing better inputs at a reasonable cost. The aim
is to gain the benefits of large-scale farming and increase the productivity.
(v) Credit cooperative societies: Credit cooperative societies are established for
providing easy credit on reasonable terms to the members. The aim of such
societies is to protect the members from the exploitation of lenders who charge
high rates of interest on loans.
(vi) Cooperative housing societies: Cooperative housing societies are
established to help people with limited income to construct houses at reasonable
costs. These societies construct flats or provide plots to members on which
the members themselves can construct the houses as per their choice.
 e) Joint Stock Company
A company is an artificial person having a separate legal entity, perpetual
succession and a common seal. The company form of organisation is governed by
The Companies Act, 2013. The shareholders are the owners of the company while
the Board of Directors is the chief managing body elected by the shareholders.
Features
(i) Artificial person: Like natural persons, a company can own property,
incur debts, borrow money, enter into contracts, sue and be sued. It is,
therefore, called an artificial person.
(ii) Separate legal entity: From the day of its incorporation, a company
acquires an identity, distinct from its members.
(iii) Formation: The formation of a company is a time consuming, expensive and
complicated process which involves the preparation of several documents.
(iv) Perpetual succession: A company being a creation of the law, can be
brought to an end only by law.
(v) Control: The management and control of the affairs of the company is
undertaken by the Board of Directors, which appoints the top management
officials for running the business.
(vi) Liability: The liability of the members is limited to the extent of the capital
contributed by them in a company.
(vii) Common seal: The company being an artificial person cannot sign its
name by itself. Therefore, every company is required to have its own seal
which acts as official signature of the company.
(viii) Risk bearing: The risk of losses in a company is borne by all the
shareholders.
Merits
(i) Limited liability: The shareholders are liable to the extent of the amount
unpaid on the shares held by them.
(ii) Transfer of interest: The shares of a public limited company can be easily
sold in the market and converted into cash in case the need arises. This avoids
blockage of investment.
(iii) Perpetual existence: Existence of a company is not affected by the death,
retirement, resignation, insolvency or insanity of its members as it has a
separate entity from its members.
(iv) Scope for expansion: Capital can be attracted from the public as well as
through loans from banks and financial institutions. Thus there is greater
scope for expansion.
(v) Professional management: A company can afford to pay higher salaries
to specialists and professionals. It can, therefore, employ people who are
experts in their area of specialisations.
Limitations
(i) Complexity in formation: As compared to sole proprietorship and
partnership form of organisations, formation of a company is more complex.
(ii) Lack of secrecy: The Companies Act requires each public company to
provide from time-to-time a lot of information to the office of the registrar of
companies. Such information is available to the general public also. It is,
therefore, difficult to maintain complete secrecy.
(iii) Impersonal work environment: Separation of ownership and
management leads to situations in which there is lack of effort as well as personal
involvement on the part of the officers of a company.
(iv) Numerous regulations: The functioning of a company is subject to many
legal provisions and compulsions. This reduces the freedom of operations of
a company and takes away a lot of time, effort and money.
(v) Delay in decision making: Companies are democratically managed through
the Board of Directors which is followed by the top management, middle
management and lower-level management. Communication as well as approval
of various proposals may cause delays not only in taking decisions but also in
acting upon them.
(vi) Oligarchic management: In most large sized organisations having a
multitude of shareholders and are spread all over the country and a very small
percentage attend the general meetings. The Board of Directors as such enjoy
considerable freedom in exercising their power which they sometimes use
even contrary to the interests of the shareholders.
(vii) Conflict in interests: There may be conflict of interest amongst various
stakeholders of a company. These demands pose problems in managing the
company as it often becomes difficult to satisfy such diverse interests.
Types of Companies: A company can be either a Private or a Public
company and One Person Company
Private Company: A private company means a company which:
(a) restricts the right of members to transfer its shares;
(b) has a minimum of 2 and a maximum of 200 members, excluding the
present and past employees;
(c) does not invite public to subscribe to its securities.
It is necessary for a private company to use the word private limited after its
name.
Public Company A public company means a company which is not a private
company. As per The Companies Act, a public company is one which:
(a) has a minimum of 7 members and no limit on maximum members;
(b) has no restriction on transfer securities; and
(c) is not prohibited from inviting the public to subscribe to its securities.
However, a private company which is a subsidiary of a public company is also
treated as a public company.
Privileges of a private limited company as against a public limited company:
1. A private company can be formed by only two members whereas seven people
are needed to form a public company.
2. There is no need to issue a prospectus as public is not invited to subscribe
to the shares of a private company.
3. Allotment of shares can be done without receiving the minimum subscription.
A private limited company can start business as soon as it receives the certificate
of incorporation.
4. A private company needs to have only two directors as against the minimum
of three directors in the case of a public company. However, the maximum
number of directors for both types of companies is fifteen.
5. A private company is not required to keep an index of members while the
same is necessary in the case of a public company.
One Person Company
One Person Company is a company with only one person as a member. That
one person will be the shareholder of the company. It avails all the benefits of
a private limited company such as separate legal entity, protecting personal
assets from business liability and perpetual succession.
Formation of a Company: Formation of a company is a complex activity
involving completion of legal formalities and procedures. These formalities can
be divided into three distinct stages, which are:
(i) Promotion; (ii) Incorporation and (iii) Subscription of capital.
1. Promotion of a Company: Promotion is the first stage in the formation of
a company. It involves conceiving a business idea and taking an initiative to
form a company so that practical shape can be given to exploiting the available
business opportunity.
Any person or a group of persons or even a company may have discovered an
opportunity. If such a person or a group of persons or a company proceeds to
form a company, then, they are said to be the promoters of the company.
Steps in Promotion:

➢ Identification of Business Opportunity: The first and foremost function

of a promoter is to identify a business idea e.g. production of new product or
service.
➢ Feasibility Studies: After identifying a business opportunity the promoters
undertake detailed studies of technical, Financial, Economic feasibility of a
business.

➢ Name Approval: After selecting the name of company the promotors submit
an application to the Registrar of companies for its approval.

➢ Fixing up signatories to the Memorandum of Association: Promotors have

to decide about the director who will be signing the memorandum of Association.

➢ Appointment of professional: Promoters appoint merchant bankers,

auditors etc.

➢ Preparation of necessary documents: The promoters prepare certain legal

documents such as memorandum of Association, Articles of Association which
have to be submitted to the Registrar of the companies.
2. Incorporation
➢ Application for incorporation: Promoters make an application for the
incorporation of the company to the Registrar of companies.

➢ Filing of necessary documents: Promoters files the following documents:

(i) Memorandum of Association.
(ii) Articles of Association.
(iii) Statement of Authorized Capital
(iv) Consent of proposed director.
(v) Agreement with proposed managing director.
(vi) Statutory declaration.

➢ Payment of fees: Along with filing of above documents, registration fee has to
be deposited which depends on amount of the authorized capital.

➢ Registration: The Registrar verifies all the document submitted. If he is

satisfied then he enters the name of the company in his Register.

➢ Certificate of Incorporation: After entering the name of the company in

the register. The Registrar issues a Certificate of Incorporation. This is called the
birth certificate of the company.
3 Capital Subscription: A public company can raise funds from the public
by issuing shares and Debentures. For this it has to issue prospectus
and undergo various other formalities:
Steps in capital subscription:
1. SEBI Approval: SEBI regulates the capital market of India. A public
company is required to take approval from SEBI.
2. Filing of Prospectus: Prospectus means any documents which invites
offers from the public to purchase share and Debenture of the company.
3. Appointment of bankers, brokers, underwriters: Banker of the company
receive the application money. Brokers encourage the public to apply for the
shares, underwriters are the person who undertake to buy the shares if these are
not subscribed by the public. They receive a commission for underwriting.
4. Minimum subscription: According to the SEBI guide lines minimum
subscription is 90% of the issue amount. If minimum subscription is not received
then the allotment cannot be made and the application money must be
returned to the applicants within 30 days.
5. Application to Stock Exchange: It is necessary for a public company to
list their shares in the stock exchange therefore the promoters apply in stock
exchange to list company shares.
6. Allotment of Shares: Allotment of shares means acceptance of share
applied. Allotment letters are issued to the shareholders. The name and
address of the shareholders submitted to the Registrar.
4. COMMENCEMENT OF BUSINESS: To commence business a public company
has to obtain a certificate of commencement of Business. For this the following
documents have to be filled with the registrar of companies.
1. A declaration that 90% of the issued amount has been subscribed.
2. A declaration that all directors have paid in cash in respect of allotment of
shares made to them.
3. A statutory declaration that the above requirements have been completed
and must be signed by the director of company.
IMPORTANT DOCUMENTS IN THE FORMATION OF A COMPANY
1. Memorandum of Association: It is the most important document as it
defines the objectives of the company. No company can legally undertake
activities that are not contained in its Memorandum of Association.
Contents of Memorandum of Association:
(i) The name clause: This clause contains the name of the company with
which the company will be known.
(ii) Registered office clause: This clause contains the name of the state, in
which the registered office of the company is proposed to be situated.
(iii) Objects clause: It defines the purpose for which the company is formed.
(iv) Liability clause: This clause limits the liability of the members to the amount
unpaid on the shares owned by them.
(v) Capital clause: This clause specifies the maximum capital which the
company will be authorised to raise through the issue of shares.
2. Articles of Association: Articles of Association are the rules regarding
internal management of a company. These rules are subsidiary to the
Memorandum of Association.
Contents of the Articles:
1. The amount of share capital and different classes of shares.
2. Rights of each class of shareholders.
3. Procedure for making allotment of shares.
4. Procedure for issuing share certificates.
5. Procedure for forfeiture and reissue of forfeited shares.
6. Rules regarding casting of votes and proxy voting
7. Procedure for selection and removal of directors
8. Dividend declaration and payment related rules
9. Procedure for capital readjustment
10. Procedure regarding winding up of the company.

3 . Prospectus: Prospectus means any document which invites deposits from

the public to purchase share or debentures of a company.

Choice of form of Business Organisation

(i) Cost and ease in setting up the organisation: From the point of view of
initial cost, sole proprietorship is the preferred form as it involves least
expenditure. Company form of organisation, on the other hand, is more complex
and involves greater costs.
(ii) Liability: In case of sole proprietorship and partnership firms, the liability of
the owners/partners is unlimited. In joint Hindu family business, only the karta
has unlimited liability. In cooperative societies and companies, however, liability
is limited.
(iii) Continuity: The continuity of sole proprietorship and partnership firms
is affected by death, insolvency or insanity of the owners. However, such
factors do not affect the continuity of business in the case of Joint Hindu
family business, cooperative societies and companies.
(iv) Management ability: A sole proprietor may find it difficult to have expertise
in all functional areas of management. If the organisation’s operations are
complex in nature and require professionalised management, company form of
organisation is a better alternative.
(v) Capital considerations: If the scale of operations is large, company form may
be suitable whereas for medium and small sized business one can opt for
partnership or sole proprietorship.
(vi) Degree of control: If direct control over operations and absolute decision-
making power is required, proprietorship may be preferred. But if the owners do
not mind sharing control and decision making, partnership or company form
of organisation can be adopted.
(vi) Nature of business: If direct personal contact is needed with the customers,
sole proprietorship may be more suitable. For large manufacturing
units, however, when direct personal contact with the customer is not
required, the company form of organisation may be adopted. Similarly, in
cases where services of a professional nature are required, partnership form
is much more suitable.
MCQ QUESTIONS
1. The certificate of …………is called as the birth certificate of the
company.
A. Prospectus
B. Certificate of Incorporation
C. Certificate of commencement
D. Memorandum of Association
2. Assertion: A public company inviting funds from the general public
must make adequate disclosure of all relevant information and must
not conceal any material information from the potential investors.
Reason: Prior approval from SEBI is necessary for protecting the
interest of the investors.
(A) Both A and R are true. R is the correct explanation of A.
(B) Both A and R are true, but R is not the correct explanation of A.
(C) A is correct, but R is incorrect.
(D) A is incorrect, but R is correct.
3. Identify the stage which involves conceiving a business idea and taking
an initiative to form a company so that practical shape can be given to
exploiting the available business opportunity.
(A) Company (B) Promotion (C) Partnership (D) None of these
4. It is a popular form of business organisation and is the most suitable form
for small businesses, especially in their initial years of operation.
(A) Company (B) JHF (C) Partnership (D) Sole proprietorship
5. The Memorandum of Association must be signed by at least …. Persons
in case of a public company and by ….. persons in case of a private
company.
A. 1 and 2
B. 2 and 5
C. 2 and 7
D. 7 and 2
6. Assertion: Promoters have to decide about the members who will be
signing the Memorandum of Association of the proposed company. Reason:
The people signing memorandum are also the first Directors of the
Company.
(A) Both A and R are true. R is the correct explanation of A.
(B) Both A and R are true, but R is not the correct explanation of A.
(C) A is correct, but R is incorrect.
(D) A is incorrect, but R is correct.
7. Joint Hindu Family Business is controlled by the head of the family who
is the eldest member and is called…...
A. Karanavar
B. Co-parcener
 C. Kartha
D. Superior
8. A ………… partner is one whose association with the firm is unknown to
the general public. Other than this distinct feature, in all other aspects
he is like the rest of the partners. He contributes to the capital of the
firm, takes part in the management, shares its profits and losses, and
has unlimited liability towards the creditors.
(A) Secret (B) Active (C) Zero (D) None of these
9. Assertion: Articles of Association are the rules regarding internal
management of a company.
Reason: The rules are not subsidiary to the Memorandum of
Association.
(A) Both A and R are true. R is the correct explanation of A.
(B) Both A and R are true, but R is not the correct explanation of A.
(C) A is correct, but R is incorrect.
(D) A is incorrect, but R is correct.

10. As per Rule 10 of The Companies (miscellaneous) Rules 2014, at

Present the maximum number of partners can be …
(A) 2 (B) 200 (C) 50 (D) 100

ANSWERS
1. (B) Incorporation
2. (A) Both A and R are true. R is the correct explanation of A.
3. (B) Promotion
4. (D) Sole proprietorship
5. ( D)Seven, two
6. (A) Both A and R are true. R is the correct explanation of A.
7. (c)Karta
8. (A) Secret
9. (C) A is correct, but R is incorrect.
10.(C) 50
Short Answer questions (3/4 Marks)
1. Read the following text and answer questions(A-D) on the basis of the
same.
Sarah's friends lived in a small town of 1,000 people. They were struggling
to make ends meet. They didn't own a home and were paying heavy rents,
leaving them with minimal funds for other essentials. Sarah was
concerned about their well-being and she wanted to help them. She
listened to their challenges and offering emotional support. Her aim was
to solve the housing problems of that locality by constructing houses and
giving the option of paying in instalments. Sarah and her friends
established an organisation to help people with limited income to
construct houses at reasonable costs. f lats or provide plots to
members on which the members themselves can
 construct the houses as per their choice.
A. Name the form of organisation established by Sarah and her friends
to solve their housing crisis?
(A) Sole proprietorship
(B) Partnership
(C) Cooperative society
(D) Company
B. Under which Act, these organisations are governed?
(A) Indian Partnership Act, 1932
(B) Cooperative Societies Act, 1912
(C) The Companies Act, 2013
(D) Hindu Succession Act, 1956
C. What is the minimum number of persons required to form such
organisation?
(A) 2 (B) 5 (C) 20 (D) 10
D. Who can become the members of the above identified organisation?
(A) Person of Sound mind (B) Has a common interest (C) Any person
who is above 18 years (D) All of the Above
Answer:
1.(C) Cooperative society
2. (B) Cooperative Societies Act, 1912
3. (D) 10
4. (D) All of the Above
2. It can be described as an artificial person having a separate legal
entity, perpetual succession and a common seal. Identify the type of
business organisation. Explain its merits.
Ans: Joint stock company
Merits
i. Limited liability: The shareholders are liable to the extent of
the amount unpaid on the shares held by them.
ii. Transfer of interest: The shares of a public limited company
can be easily sold in the market and converted into cash in
case the need arises. This avoids blockage of investment.
iii. Perpetual existence: Existence of a company is not affected
by the death, retirement, resignation, insolvency or insanity
of its members as it has a separate entity from its members.
iv. Scope for expansion: Capital can be attracted from the public
as well as through loans from banks and financial institutions.
Thus there is greater scope for expansion.
v. Professional management: A company can afford to pay
higher salaries to specialists and professionals. It can,
therefore, employ people who are experts in their area of
specialisations.
3. Partnership firm’s registration is optional, but still why do partnership
firms willingly go through this legal formality and get themselves
registered? Explain.
 Ans: The consequences of non-registration of a firm
a) A partner of an unregistered firm cannot file a suit against the
firm or other partners,
b) The firm cannot file a suit against third parties, and
c) The firm cannot file a case against the partners.
4. Explain the choice of form of business organisation on the basis of:
i) Liability ii) Continuity iii) Management ability iv) Capital
consideration.
i) Liability: In case of sole proprietorship and partnership firms, the
liability of the owners/partners is unlimited. In joint Hindu family business, only
the karta has unlimited liability. In cooperative societies and companies,
however, liability is limited.
(ii) Continuity: The continuity of sole proprietorship and partnership firms is
affected by death, insolvency or insanity of the owners. However, such factors do
not affect the continuity of business in the case of Joint Hindu family business,
cooperative societies and companies.
(iii) Management ability: A sole proprietor may find it difficult to have
expertise in all functional areas of management. If the organisation’s
operations are complex in nature and require professionalised management,
company form of organisation is a better alternative.
(iv) Capital considerations: If the scale of operations is large, company form
may be suitable whereas for medium and small sized business one can opt
for partnership or sole proprietorship.
5. It is a voluntary association of persons, who join together with the motive
of welfare of the members. They are driven by the need to protect their
economic interests in the face of possible exploitation at the hands of
middlemen obsessed with the desire to earn greater profits. Name the
type of business organisation. Explain its types.Ans: Co-operative
society.
(i) Consumer’s cooperative societies: The consumer cooperative societies are
formed to protect the interests of consumers; The society aims at eliminating
middlemen to achieve economy in operations. It purchases goods in bulk
directly from the wholesalers and sells goods to the members.
(ii) Producer’s cooperative societies: These societies are set up to protect
the interest of small producers. The members comprise of producers desirous of
procuring inputs for production of goods to meet the demands of consumers.
It supplies raw materials, equipment and other inputs to the members and also
buys their output for sale.
(iii) Marketing cooperative societies: Such societies members consist of
producers who wish to obtain reasonable prices for their output. The society aims
to eliminate middlemen and improve competitive position of its members by
securing a favourable market for the products.
(iv) Farmer’s cooperative societies: These societies are established to protect
the interests of farmers by providing better inputs at a reasonable cost. The aim
is to gain the benefits of large-scale farming and increase the productivity.
Long answer questions (6 marks)
1. This form of business is particularly common in areas of personalised
services such as beauty parlours, hair salons and small- scale activities like
running a stationery shop in a locality. Identify the form of business
organisation. Explain its advantages.
Ans: Sole proprietorship
Merits
(i) Quick decision making: A sole proprietor enjoys considerable degree of
freedom in making business decisions. Further the decision- making is prompt
because there is no need to consult others.
(ii) Confidentiality of information: Sole decision -making authority enables
the proprietor to keep all the information related to business operations
confidential and maintain secrecy.
(iii) Direct incentive: A sole proprietor directly gets the benefits of his efforts
as he is the sole recipient of all the profit.
(iv) Sense of accomplishment: The knowledge that one is responsible for the
success of the business not only contributes to self-satisfaction but also a
sense of accomplishment and confidence in one’s abilities.
(v) Ease of formation and closure: Sole proprietorship is the least regulated
form of business, it is easy to start and close the business as per the wish of
the owner.
2. It is a specific form of business organisation found only in India which is
one of the oldest types of business organisation in the country. Write a short note
about this form of business.
Ans: Joint Hindu Family Business
This is a specific form of business organisation found only in India. It refers
to a form of organisation wherein the business is owned and carried on by the
members of the Hindu Undivided Family (HUF). It is governed by the Hindu Law.
The basis of membership in the business is birth in a particular family and
three successive generations can be members in the business. The business is
controlled by the head of the family who is the eldest member and is called
karta.
(i) Formation: There should be at least two members in the family and ancestral
property to be inherited by them to start a sole proprietorship.
(v) Minor Members: The basis of membership in the business is birth in a
particular family Hence, minors can also be members of the business.
 (ii) Liability: The liability of all members except the karta is limited to their
share of co-parcenery property of the business, But Karta has unlimited liability.
(iii) Control: The control of the family business lies with the karta. His
decisions are binding on the other members.
(iv) Continuity: The business continues even after the death of the karta as
the next eldest member takes up the position of karta, leaving the business
stable.
(v) Minor Members: Minors can become the members of the business.
3. Compare different types of partners like active partner, dormant partner,
secret partner and partner by estoppel on the basis of capital contribution,
liability, participation in management and profit share.
(i) Active partner: An active partner is one who contributes capital,
participates in the management, shares its profits and losses and has
unlimited liability.
(ii) Sleeping or dormant partner: Partners who do not take part in the day
to day activities of the business are called sleeping partners.
(iii) Secret partner: A secret partner is one whose association with the firm
is unknown to the general public. He contributes to the capital of the firm,
takes part in the management, shares its profits and losses, and has unlimited
liability.
(iv) Partner by estoppel: A person is considered a partner by estoppel if,
through his own initiative, conduct or behaviour, he gives an impression to others
that he is a partner of the firm. Such partners are held liable for the debts of
the firm.
4. Briefly explain the various documents required to be submitted to get the
company registered.
1. Memorandum of Association: It is the most important document as it
defines the objectives of the company. No company can legally undertake
activities that are not contained in its Memorandum of Association.
2. Articles of Association: Articles of Association are the rules regarding
internal management of a company. These rules are subsidiary to the
Memorandum of Association.
3. Prospectus: Invitation to public for subscription of shares.
5. As compared to the sole proprietorship and partnership forms of
organisation, this form of organisation has large financial resources. Further,
capital can be attracted from the public as well as through loans from banks
and financial institutions. Identify the form of business organisation and
explain its demerits.
Ans: Joint stock company.
Limitations
(i) Complexity in formation: As compared to sole proprietorship and
partnership form of organisations, formation of a company is more complex.
(ii) Lack of secrecy: The Companies Act requires each public company to
provide from time-to-time a lot of information to the office of the registrar of
companies. Such information is available to the general public also. It is,
therefore, difficult to maintain complete secrecy.
(iii) Impersonal work environment: Separation of ownership and
management leads to situations in which there is lack of effort as well as personal
involvement on the part of the officers of a company.
(iv) Numerous regulations: The functioning of a company is subject to many
legal provisions and compulsions. This reduces the freedom of operations of
a company and takes away a lot of time, effort and money.
(v) Delay in decision making: Companies are democratically managed through
the Board of Directors which is followed by the top management, middle
management and lower level management. Communication as well as approval
of various proposals may cause delays not only in taking decisions but also in
acting upon them.
CHAPTER-3
Public, Private and Global Enterprises

Indian Economy

Private Sector Public Sector

Difference between Private Sector and Public Sector

Private Sector Public Sector

• It includes the business • It includes the enterprises and
enterprises owned, managed organisations owned and managed by
and controlled by individuals or government (central or state or both)
group of individuals. either fully or partly.
• Enterprises work with the main • These are popularly known as Public
objective of earning profit. Sector Undertakings /Enterprises
• There is more freedom of (PSUs/PSEs).
operation. • Enterprises work with the main motive
• These are directly accountable of providing social welfare.
to general public. • There is less freedom of operation.
• Forms of Private Sector • These are accountable to general public
Enterprises are: as well as to parliament.
o Sole Proprietorship • Forms of Public Sector Enterprises:
o Partnership o Departmental Undertakings
o Joint Stock Company o Statutory Corporations
(Public Corporations)
o Government Company
 (Public Company,
Private Company and
OPC)
o Joint Hindu Family
Business (Hindu
Undivided Family)
o Cooperative Society

Public Sector Enterprises:

1. Departmental Undertakings: These are established as departments of
ministry and financed, managed and controlled by either central government
or state government. Indian Railways, All India Radio, State Public Transportation
(KSRTC, UPSRTC, RSRTC, etc.) are some examples of these.

Departmental Undertakings:
Features Merits Limitations
1. No Separate Entity 1. Parliament has 1. Lack of Flexibility
2. Financed by Effective Control 2. Leads to Delay
Government 2. High Degree of 3. Avoids Risky
3. Accounting & Audit Public Ventures
Control as per Accountability 4. Over Political
Government Rules 3. Source of Revenue Interference
4. Employees are for Government 5. Promotes Red
Government Servants 4. Suitable for Tapism
5. Accountable to the National Security 6. Insensitive to
concerned Ministry Consumer Needs

2. Statutory Corporations: These are established by passing special Act in

the Parliament. The Act defines its power, functions, rules, regulations of
governing employees and its relationship with government. RBI, UTI, ONGC,
LIC are some examples of these.

Statutory Corporations:

Features Merits Limitations

1. Set up under Act of 1. Internal 1. Autonomy for
Parliament Autonomy name’s sake
2. Separate Legal Entity 2. Quick decisions 2. Major Political
3. Employees are not 3. Effective Interference
Government Servants Parliamentary 3. Hub of Corruption
4. Not Subject to Audit & control 4. Appointment of
Accounting like 4. Efficient Advisors by
Government Management Government
Department 5. No Interference by
5. Independently Government in
Financed Finance
6. Wholly owned by
Government
3. Government Company: A government company is a company which is
registered under the Companies Act, 2013 and in which not less than 51% of the
paid-up capital is held by central government or state government or jointly
by both. BHEL, SAIL, NMDC, etc. are some examples of it.

Government Company:

Features Merits Limitations

1. Registered under 1. Easy to 1. Interference of
the Companies Act, Form Ministers and
2013 2. Separate Government
2. Separate Legal Legal Entity Officials
Entity 3. Enjoys 2. Not Directly
3. Management by Autonomy Answerable to
Provisions of the 4. Able to Parliament
Companies Act Control 3. Government is
4. Employees are Market the Sole
appointed as per Shareholder
MOA of Companies 4. Provisions of the
5. Auditor is appointed Companies Act
by Government do not have
6. Permitted to raise much Relevance
funds from Capital
Market

Multi-national Company/Global Enterprise:

• Global enterprises are huge industrial organisations which extend their
industrial and marketing operations through a network of their
branches in several countries but these have their headquarters in one
country in which these are incorporated.
• Walmart, IBM, Microsoft, Toyota Motors, Coca cola, Wipro, Infosys, Apple
Inc. are some examples of MNCs.

Features of MNCs:

1. Centralized control:
• MNCs have headquarters in their home countries from where they exercise
control over all branches and subsidiaries.
• It provides only broad policy framework to them and there is no
interference in their day-to-day operations.
2. International Operations:
• An MNC has production, marketing and other facilities in several
countries.
3. Foreign Collaborations:
• Usually, they enter into agreements relating to sale of technology,
production of goods, use of brand name etc. with local firms in the host
country.
4. Huge Capital Resources:
• MNCs possess huge capital resources and they are able to raise lot of funds
from various sources.
5. Advanced technology: These organisations possess advanced and
superior
technology which enables them to provide world class products &
services.
6. Product Innovations:
• MNCs have highly sophisticated research and development
departments.
• These are engaged in developing new products and superior design of
existing products.
7. Marketing Strategies:
• MNCs use aggressive marketing strategies.
• Their brands are well known and spend huge amounts on advertising
and sale promotion.

Joint Venture:
• When two or more businesses agree to join together for a common
purpose and mutual benefit, it gives rise to a joint venture.
• These two or more organisations may be private, government-owned or
a foreign company.
• In a broader sense, a joint venture is the pooling of resources and
expertise by two or more businesses, to achieve a particular goal.

Benefits of Joint Venture:

(a) Increased resources and capacity:
Joining hands with another or teaming up adds to existing resources and capacity
enabling the joint venture company to grow and expand more quickly and
efficiently.
(b) Access to new markets & distribution networks:
When a business enters into a joint venture with a partner from another
country, it opens up a vast growing market.
(c) Access to technology:
Technology is a major factor for most businesses to enter into joint ventures.
Advanced techniques of production leading to superior quality products save
a lot of time, energy & investment as they do not have to develop their own
technology.

(d) Innovation:
The markets are increasingly becoming more demanding in terms of new and
innovative products. Joint ventures allow business to come up with something
new and creative for the same market.
(e) Low cost of production:
When international corporations invest in India, they benefit immensely due
to the lower cost of production. They are able to get quality products for their
global requirements. India is becoming an important global source and extremely
competitive in many products.
(f) Established brand name:
When two businesses enter into a joint venture, one of the parties’ benefits
from the other’s goodwill which has already been established in the market.
If the joint venture is in India and with an Indian company, the Indian
company does not have to spend time or money in developing a brand name
for the product or even a distribution system.
Public Private Partnership (PPP):
• PPP is defined as a relationship between public and private entities in
the context of infrastructure and other services.
• The public partners in PPP are Government entities, i.e., ministries,
government departments, municipalities or state-owned enterprises.
• The private partners can be local or foreign and include businesses or
investors with technical or financial expertise relevant to the project.
• Under the PPP model, public sector plays an important role and ensures
that the social obligations are fulfilled and sector reforms and public
investment are successfully met.
• The private sector’s role in the partnership is to make use of its expertise
in operations, managing tasks and innovation to run the business
efficiently.
• 135 Km expressway by Kundli Manesar Expressway Ltd., Delhi Metro
Railway Corporation, and Automated Testing Stations are some
examples of PPP projects.
Features of PPP Model:
• Contract with the private party to design and build public facility.
• Facility is financed and owned by the public sector.
• Key driver is the transfer of design and construction risk.
Multiple Choice Questions (MCQs)/One Mark Questions
Q.1 Match the following:
A B

i) Financed through budget allocation 1. Statutory Corporations

ii) Formed by special Act 2. MNCs

iii) Incorporated under Companies Act. 3 Departmental Undertakings

iv) Centralised control over the 4. Government Company

operations

(a) i)-3, ii)-1, iii)-4, iv)-2 (b) i)-4, ii)-2, iii)-3, iv)-1
(c) i)-1, ii)-2, iii)-3, iv)-4 (d) i)-3, ii)-1, iii)-2, iv)-4

Q.2 Government decided to sell the shares in Telecom department to private

sector. This is an example of
(a) Disinvestment (b) Memorandum of Undertaking
(c) Reconstruction (d) Rehabilitation

Q.3 LIC is an example of a................

(a) Multinational Company (b) Departmental Undertaking
(c) Statutory Corporation (d) None of these

Q.4 Public Sector Enterprises (PSEs / PSUs) are owned and managed by

(a) HUF (b) Government

(c) Private Sector (d) Foreign Companies
Q.5 Which among the following is a departmental undertaking?
(a) Air India (b) LIC (c) SBI (d) Indian Railways

Q.6 Pick out the departmental undertaking from the following:

(a) Shipping Corporation of India (b) RBI
(c) Indian Railways (d) LIC

Q.7 Identify the business which is brought in to existence by a Special Act of

Parliament or State Legislature.
(a) Departmental Organisation (b) Public Corporation
(c) Government Company (d) Private Company

Q.8 What is the minimum portion that the Government should hold in the
paid-up capital of a Government Company?
(a) 49% (b) 51% (c) 50% (d) 25%

Instructions: Q.9 to Q.12 are based on Assertion and Reason. In each

question, on the basis of (A) and (R) given in the question, choose the correct
choice from the options given below:
(a) Both (A) and (R) are wrong
(b) Only (A) is right and (R) is wrong
(c) Both (A) and (R) are right and (R) is the correct explanation of (A)
(d) Both (A) and (R) are right but (R) is not the correct explanation of (A)

Q.9 Assertion (A): When a national security is concerned, departmental

undertakings form of public sector enterprises is most suitable.
Reason (R): Departmental undertaking is under the direct control and supervision
of the concerned ministry.

Q.10 Assertion (A): The government generally does not interfere in their financial
matters, including their income and receipts.
Reason (R): The funds of these organisations do not come from the central budget.
Q.11 Assertion (A): Partnership is a relation between two or more persons who
agree to
carry on a business to share profits.
Reason (R): Joint ventures and partnership are same.

Q.12 Assertion (A): MNCs have centralised control.

Reason (R): They only aim at maximising profits irrespective to spreading
their branches all over.
Instructions: Q.13 to Q.16 are based on two statements, in each question,
choose
the correct option from the following:
(a) Both Statements are wrong
(b) Statement I is right and Statement II is wrong
(c) Statement I is wrong and Statement II is right
(d) Both Statements are right

Q.13 Statement I: A statutory corporation is established under the Companies

Act, 2013
and is registered and governed by the provisions of the Act.
Statement II: A government company may be formed as a private limited company
or a
public limited company.

Q.14 Statement I: The shares of a government company are purchased in the

name
of the President of India.
Statement II: The government is the major shareholder and exercises control over
the management of government companies.

Q.15 Statement I: Qualitative research requires huge investment which only

global
enterprises can afford.
Statement II: Global enterprises possess a more reliable and upto-date market
information system. Their advertising and sales techniques are normally very
effective.
Q.16 Statement I: A public private partnership ensures higher quality and timely
provision of public services.
Statement II: Huge industrial organization which extend their industrial
operations
through a network of their branches in several countries are known as global
enterprises.
Read the following and answer Q.17 to Q.20 on the basis of the same:
Indian Railways is a part of Railway Ministry. It is organised, financed and
controlled by
Railway Ministry. The finances are allocated from government treasury and
whatever
revenue it earns is deposited to government treasury only. It is treated as a part of
government and even the appointment recruitment and selection of employees is
done in the same way as that of civil servant.
Gas Authority of India Ltd. (GAIL) is carrying on various projects of energy and
power.
Majority of its shares are held by the government of India. It was registered under
the
previous Companies Act. It enjoys all the characteristics of a company. The board
of
directors are appointed by the government. The Board and shareholders are
responsible
for the efficient working of the company. The company prepares its annual report
and
submit to the appropriate authorities.
Q.17 Name the type of public sector enterprise Indian Railways is:
(a) Government Company (b) Departmental Undertaking
(c) Statutory Corporation (d) Public Company

Q.18 How does Indian Railways get its finance?

(a) Independently financed (b) From government treasury
(c) From Reserve Bank of India (d) From the public

Q.19 Name the type of public sector enterprise GAIL is:

 (a) Government Company (b) Departmental Undertaking
(c) Statutory Corporation (d) Public Company

Q.20 In whose name does the public sector enterprise identified in Q.19 buy
shares?
(a) The Central Bank (b) The Governor of India
(c) The President of India (d) The Prime Minister of India
Answer Key

1 (a) 2 (a) 3 (c) 4 (b) 5 (d) 6 (c) 7 (b) 8 (b) 9 (c) 10 (c)
11 (b) 12 (b) 13 (c) 14 (d) 15 (d) 16 (d) 17 (b) 18 (b) 19 (a) 20 (b)

Very Short Answer Type Questions ( 3 Marks Questions)

Q.1 The Government of India planned to begin a Road Project. The Government
needed management specialists and financial help to complete it. The
Government contacted the private sector to fulfill this requirement. Now, this
project will be completed jointly by both the public sector and private sector.
(a) Identify the form of enterprise.
(b) Give any two features of such enterprise.
Ans. (a) Public Private Partnership
(b) Features:
1. Contract with the private party to design and build public facility.
2. Facility is financed and owned by the public sector.
Q.2 Differentiate between private sector and public sector enterprises.
Ans. Difference between Private Sector and Public Sector
Private Sector Public Sector
• It includes the business • It includes the enterprises and
enterprises owned, organisations owned and managed by
managed and controlled government (central or state or both) either
by individuals or group of fully or partly.
individuals. • These are popularly known as Public
• Forms of Private Sector Sector Undertakings /Enterprises
Enterprises are: (PSUs/PSEs).
o Sole Proprietorship • Forms of Public Sector Enterprises:
o Partnership o Departmental Undertakings
o Joint Stock o Statutory Corporations
Company (Public Corporations)
(Public Company,Private o Government Company
Company & OPC)
o Joint Hindu Family
Business
o Cooperative Society

Q.3 “Departmental Undertakings are a curse for public enterprise.” Do you

agree? Give reasons to support your answer.
Ans. Yes.

Reasons:
1. Lack of Flexibility
 2. Leads to Delay
3. Avoids Risky Ventures
4. Over Political Interference

Q.4 “multi-national corporations are giants both in terms of assets and

operations.” Explain this statement.
Ans.
1. Huge Capital Resources:
MNCs possess huge capital resources and they are able to raise lot of funds
from various sources.
2. International Operations:
An MNC has production, marketing and other facilities in several countries.
3. Foreign Collaborations:
Usually, they enter into agreements relating to sale of technology, production
of goods, use of brand name etc. with local firms in the host country.

Q.5 Why is the government company form of organisation preferred to other

types in the public sector?
Ans. Merits of Government Company:
1. Easy to Form
2. Separate Legal Entity
3. Enjoys Autonomy

Short Answer Type Questions/Four Marks Questions

Q.1 To overcome the difficulties faced by public in public transport system,

the government of India started the METRO project in which the government
involved private sector participation to get the benefits of efficiency of private
sector. The project was great success as lakhs of people are enjoying the metro
service to move from one place to other.
(a) Identify the form of enterprise.
(b) Give any three features of such enterprise.

Ans. (a) Public Private Partnership

(b) Features:
1. Contract with the private party to design and build public facility.
2. Facility is financed and owned by the public sector.
3. Key driver is the transfer of design and construction risk.

Q.2 Distinguish between Departmental Undertakings and Statutory

Corporation on the basis of:
(i) Incorporation (ii) Legal Status
(iii) Autonomy (iv) Suitability

Ans. Departmental Undertakings Vs Statutory Corporation

Basis Departmental Statutory Corporation

Undertakings
 These are not incorporated These are incorporated under
Incorporation under any act but established special act passed in
by the ministry as parliament
department of
government
Legal Status No separate legal entity It has separate legal entity
Autonomy No autonomy Sufficient autonomy
Suitability Where national security is Industrial and commercial
concerned undertaking of national
priority

Q.3 Name the enterprise which is the result of partnership between two
companies. Why do two companies unite together to work as one enterprise?
Give at least three reasons.

Ans. Joint Venture.

Reasons:
1. Increased Resources and Capacity:
Joining hands with another or teaming up adds to existing resources and capacity
enabling the joint venture company to grow and expand more quickly and
efficiently
2. Access to New Markets and Distribution Networks:
When a business enters into a joint venture with a partner from another
country, it opens up a vast growing market.
3. Access to Technology:
Technology is a major factor for most businesses to enter into joint ventures.
Advanced techniques of production leading to superior quality products save
a lot of time, energy & investment as they do not have to develop their own
technology.
Q.4 Name the organisation which is established by passing a Special Act of
Parliament or State Legislature. Give any three characteristics of such
enterprise.
Ans. Statutory Corporation
Characteristics:
1. Set up under Act of Parliament
2. Separate Legal Entity
3. Employees are not Government Servants

Q.5 You must have consumed soft drinks like Coca cola and Pepsi. Identify
these companies and discuss three features of such companies.

Ans. Global Enterprises/Multi-national Corporations

Features:
1. Advanced technology:
These organisations possess advanced and superior technology which enables
them to provide world class products & services.
2. Product Innovations:
MNCs have highly sophisticated research and development departments.
These are engaged in developing new products and superior design of existing
products.
3. Marketing Strategies:
MNCs use aggressive marketing strategies. Their brands are well known and
spend huge amounts on advertising and sale promotion

Long Answer Type Questions/Six Marks Questions

Q.1 The Tata Group, founded by Jamshedji N. Tata in 1868, as a private

trading firm. Presently doing business in different segments like steel,
automobiles, energy, home care products, etc. The group is managed by
professional managers appointed by the Board of Directors. The business
group enjoy global leadership and its main motive is to earn profit and
generate wealth. The group is not accountable to the public.
(i) The given case is referring to the working of a private sector enterprise. Name
the other sector which is also working in our mixed economy.
(ii) In the instant case, the group is not accountable to the public. State to
whom the group is accountable?
(iii) What is the main aim of public sector enterprises?
(iv) In whose hand the management of public enterprises are entrusted?
(v) Does public enterprises have freedom of operations?
(vi) Are public enterprises accountable to the public?
Ans.
(i) Public Sector
(ii) Owners/Investors
(iii) To render services to the public at large.
(iv) The management and control lies in the hands of the Board of Directors
having more of government representatives.
(v) Due to government interference, freedom of operation is less.
(vi) Yes, these enterprises are accountable to the public through Parliament.

Q.2 Explain the characteristics of global enterprises.

Ans. Characteristics of Global Enterprises:
1. Centralized control:
• MNCs have headquarters in their home countries from where they
exercise control over all branches and subsidiaries.
• It provides only broad policy framework to them and there is no
interference in their day to day operations.
2. International Operations:
• An MNC has production, marketing and other facilities in several
countries.
3. Foreign Collaborations:
• Usually they enter into agreements relating to sale of technology,
production of goods, use of brand name etc. with local firms in the host
country.
4. Huge Capital Resources:
• MNCs possess huge capital resources and they are able to raise lot of funds
from various sources.
5. Advanced technology:
• These organisations possess advanced and superior technology which
enables them to provide world class products & services.
6. Product Innovations:
 • MNCs have highly sophisticated research and development
departments.
These are engaged in developing new products and superior design of existing
products.

Q.3 Discuss the benefits of Joint Venture.

Ans. Benefits of Joint Venture:
(a) Increased resources and capacity:
Joining hands with another or teaming up adds to existing resources and capacity
enabling the joint venture company to grow and expand more quickly and
efficiently.
(b) Access to new markets & distribution networks:
When a business enters into a joint venture with a partner from another
country, it opens up a vast growing market.
(c) Access to technology:
Technology is a major factor for most businesses to enter into joint ventures.
Advanced techniques of production leading to superior quality products save
a lot of time, energy & investment as they do not have to develop their own
technology.
(d) Innovation:
The markets are increasingly becoming more demanding in terms of new and
innovative products. Joint ventures allow business to come up with something
new and creative for the same market.
(e) Low cost of production: When international corporations invest in India,
they benefit immensely due to the lower cost of production.

(f) Established brand name:

When two businesses enter into a joint venture, one of the parties benefits
from the other’s goodwill which has already been established in the market.

Q.4 What do you understand by public sector enterprise? Describe the various
forms of public sector enterprises.
Ans. Public Sector Enterprise:
It includes the enterprises and organisations owned and managed by
government (central or state or both) either fully or partly. These are popularly
known as Public Sector Undertakings /Enterprises (PSUs/PSEs).
Forms of Public Sector Enterprises:
• Departmental Undertakings
• Statutory Corporations (Public Corporations)
• Government Company
1. Departmental Undertakings: These are established as departments of
ministry and financed, managed and controlled by either central government
or state government. Indian Railways, All India Radio, State Public Transportation
(KSRTC, UPSRTC, RSRTC, etc.) are some examples of these.
2. Statutory Corporations: These are established by passing special act in
the parliament. The act defines its power, functions, rules, regulations of
governing employees and its relationship with government. RBI, UTI, ONGC,
LIC are some examples of these.
 3. Government Company: A government company is a company which is
registered under the Companies Act, 2013 and in which not less than 51% of the
paid-up capital is held by central government or state government or jointly
by both. BHEL, SAIL, NMDC, etc. are some examples of it.

Q.5 What are public corporations? Narrate their features, merits and
limitations.
Ans. Public Corporations: These are also known as statutory corporations.
These are established by passing special act in the parliament. The act defines
its power, functions, rules, regulations of governing employees and its
relationship with government. RBI, UTI, ONGC, LIC are some examples of
these.
Statutory Corporations:
Features Merits Limitations
1. Set up under Act of 1. Internal Autonomy 1. Autonomy for
Parliament 2. Quick decisions name’s sake
2. Separate Legal Entity 3. Effective 2. Major Political
3. Employees are not Parliamentary control Interference
Government Servants 4. Efficient Management 3. Hub of
4. Not Subject to Audit & 5. No Interference by Corruption
Accounting like Government in 4. Appointment
Government Dept Finance of Advisors by
5. Independently Government
Financed
6. Wholly owned by
Government

CHAPTER 4 BUSINESS SERVICES

BUSINESS SERVICES
Meaning : Business services are those services which are used by business
enterprises for the conduct of their activities. For example, banking,
insurance, transportation, warehousing and communication services.
Types of Business Services
1. Baking
2. Insurance
3. Transportation
4. Warehousing
5. Communication

Banking:
A banking company in India is the one which transacts the business of
banking which means accepting, for the purpose of lending and investment
of deposits of money from the public, repayable on demand or otherwise
and withdrawable by cheques or otherwise.
 Types of Bank Accounts
1. Savings Deposit Account: This type of bank account encourages the
small savings of individuals. The deposits in this account are made by
persons who wish to save a little out of their incomes. Interest is paid at
nominal rate.
2. Current Deposit Account: these deposit accounts are most suitable for
business organization. In this account, a depositor can deposit money
any number of time and can withdraw it as and when requires it. No
interest is paid on these accounts.
3. Recurring Deposit Account: in this type of account a depositor deposits
a fixed amount of money on monthly basis for a fixed period. Rate of
interest on RD account is generally higher than that of Savings account.
4. Fixed Deposit Account: money is deposited in fixed deposit account
for a fixed period. Fixed accounts are time deposits with higher rate of
interest as compared to the savings accounts. The amount of deposit is
repayable by the bank after the expiry of the fixed term.
5. Multiple Option Deposit Account: It is a combination of savings
account and Fixed Deposit Account which provide specific options to
the depositors. It is a type of Savings Deposit Account in which amount
of deposit in excess of a particular limit gets automatically transferred
to Fixed Deposit Account

Banking Services
1. Bank Draft: It is also known as Demand Draft. It is an instrument
which is used for the transfer of funds.
2. Bank Overdraft: The bank allows a customer to overdraw his
current account balance up to an agreed limit. The customer has to pay
interest on the amount overdrawn by him.
3. Cash Credits: It is a short- term cash loan to a company. The
borrower is sanctioned a credit limit up to which it may draw
amounts from the bank. This credit limit is determined by the bank’s
estimation of the borrower’s credit worthiness.
E– Banking:
In simple terms, Internet banking means any user with a PC or
mobile and a browser can get connected to the banks website to
 perform any of the virtual banking functions and avail of any of the
bank’s services.
The range of services offered by e-banking are: Automated Teller
Machines (ATM), Point of Sales (PoS), Electronic Data Interchange
(EDI), Credit Cards, Electronic or Digital cash and Electronic bank
transfer (EFT).
Types of Digital Payments
1) Electronic Funds Transfer (EFT): EFT are electronic transfer of
money from one bank account to another either within a single financial
institution or across multiple institutions.
2) Credit or Debit Cards (Plastic Cards): The customer can make
digital payments for online transactions through credit or debit
cards.
3) Digital Cash: Digital cash (or e-cash) is a system of purchasing cash
credits, storing the credits in computer or digital wallet, and then
spending them while making electronic purchases over the internet
or in person.
4) Aadhaar Enabled Payment System (AEPs): It can be used for
payment transactions. This service can only be availed if Aadhaar
number is registered with the bank.
5) Mobile Wallets: A mobile wallet stores credit card or debit card
information on a mobile device like phone, a tablet, or smartwatch.
Mobile wallets are a convenient way to buy things online or in stores
that are set up to take payments through mobile wallet.
6) Point of Sale (POS): Point of sale (POS) is where a customer makes
the payment for goods purchased in a store. POS can be found at
restaurants, hospitals, gas stations, hotels, etc., to allow a space for
customers to pay their bills.
7) Unified Payments Interface (UPI): It is a way to move money from
one bank account to another using a single window. We can send or
receive money or scan a quick response (QR) code to pay a person, a
merchant, or a service provider to shop, pay bills, or authorize
payments.
8) Bharat Interface for Money (BHIM): It is a UPI enabled initiative to
facilitate safe, easy and instant digital payments through your mobile
phone.
9) Micro ATM: Micro ATMs are like modified point of sales terminals
which can connect to banking network via GPRS to perform banking
transactions. This machine contains card swipe facility.
10) Prepaid Cards: A prepaid card is a card with money loaded on it,
which can be used to pay for things at many stores and online.

INSURANCE: It is a contract or agreement under which one party agrees in

return for a consideration (called premium) to pay an agreed amount of money
to another party to make good a loss, damage or injury to something of value.
 Under the contract of insurance, the person whose risk is insured is called
insured and the firm which insures the risk of loss is known as insurer.

PRINCIPLES OF INSURANCE

(i) Utmost good faith: A contract of insurance is a contract of uberrimae

fidei i.e., a contract found on utmost good faith. Both the insurer and
the insured should display good faith towards each other in regard to the
contract. It is the duty of the insured to voluntarily make full, accurate
disclosure of all facts, material to the risk being proposed and the insurer
to make clear all the terms and conditions in the insurance contract.
(ii) Insurable Interest: The insured must have an insurable interest in
the subject matter of insurance. Insurable interest of the insured in the
subject matter of the insurance must exist at the time of happening of
the event.
(iii) Indemnity: All insurance contracts of fire or marine insurance are
contracts of indemnity. According to it, the insurer undertakes to
compensate the insured for the loss caused to him/her due to damage or
destruction of property insured. The principle of indemnity is not
applicable to life insurance.
(iv) Proximate Cause: According to this principle, an insurance policy is
designed to provide compensation only for such losses as are caused by the
perils which are stated in the policy. In case of loss arising out of any mishap,
the most proximate cause of the mishap should be taken into consideration.
(v) Subrogation: It refers to the right of the insurer to stand in the place of the
insured, after settlement of a claim. After the insured is compensated for
the loss or damage to the property insured by him/her the right of ownership
of such property passes on to the insurer. This is because the insured should
not be allowed to make any profit, by selling the damaged property or in the
case of lost property being recovered.
(vi) Contribution: According to this principle, in case of double insurance,
the insurers are to share the losses in proportion to the amount assured by
each of them. In case there is a loss, when there is more than one policy on
the same property, the insured will have no right to recover more than the
full amount of his actual loss.

Types of Insurance: Life, Fire, Marine and Health

1. Life Insurance: Life insurance may be defined as a contract in which the

insurer in consideration of a certain premium, (either in a lump sum or
by other periodical payments,) agrees to pay to the assured, or to the person
for whose benefit the policy is taken, the assured sum of money, on the
happening of a specified event contingent on the human life or at the
expiry of certain period.

2. Fire Insurance: Fire insurance is a contract whereby the insurer, in

consideration of the premium paid, undertakes to make good any loss or
damage caused by fire during a specified period up to the amount specified in
the policy. Normally, the fire insurance policy is for a period of one year after
which it is to be renewed from time to time.

3. Marine insurance: A marine insurance contract is an agreement whereby

the insurer undertakes to indemnify the insured in the manner and to the
extent thereby agreed against marine losses. Marine insurance provides
protection against loss by marine perils or perils of the sea.

4. Health Insurance: A health insurance is a contract between an insurer

and an individual or group in which the insurer agrees to provide specified
health insurance at an agreed-upon the premium, payable either in a lump
sum or installments.

POSTAL SERVICE

1. Mail Services: Mail services consist of parcel facilities that is transmission

of articles from one place to another; registration facility to provide
security of the transmitted articles and insurance facility to provide
insurance cover for all risks in the course of transmission by post.
2. Registered Post: It is a service provides a higher level of security and
tracking for packages as it is assigned a unique tracking number that helps
to monitor its progress from the time it is dispatched until it is delivered.
3. Parcel: It is a service of post office for sending books, garments etc.
across the country as well as outside the country.
 4. Speed Post: It has over 1000 destinations in India and links with 97
major countries across the globe.
5. Courier Services: It is provided by private post offices for sending and
receiving letters, documents parcels, etc.

TELECOM SERVICES

(i) Cellular mobile services: These are all types of mobile telecom
services including voice and non-voice messages, data services
(ii) Fixed line services: These are all types of fixed services including
voice and non-voice messages and data services to establish linkages
for long distance traffic.
(iii) Cable services: These are linkages and switched services within a
licensed area of operation to operate media services, which are
essentially one way entertainment related services. The two-way
communication including voice, data and information services through
cable network.
(iv) VSAT services: VSAT (Very Small Aperture Terminal) is a satellite-
based communications service. It offers businesses and government
agencies a highly flexible and reliable communication solution in
both urban and rural areas.
(v) DTH services: DTH (Direct to Home) is again a satellite-based media
services provided by cellular companies.

MULTIPLE CHOICE QUESTIONS

1. -------------------is a type of Savings Deposits Account in which amount of

deposit in excess of a particular limit gets automatically transferred to Fixed
Deposit Account. And, in case sufficient funds are not available in Saving
Deposits Account to honour a cheque issued, the required amount gets
automatically transferred from Fixed Deposit Account to the Savings Deposits
Account

(a) Recurring Deposit (RD) Account (b) Multiple Option Deposit Account
(c) Current Deposit Account (d) None of these
2. Which of the following is not included in the range of services offered by
e-banking?

(a) Automated Teller Machines (ATM) (b) Bank Overdraft

(c) Digital cash d) Mobile wallet
3. AlI types of deposits in banks carry interest except----------------
 (a) Savings Account deposits b) Current Deposit Account

(c)Fixed Deposits d) Recurring Deposits

4. Read the following statements carefully – Assertion (A) and Reason (R) and
choose the correct alternative:

Assertion (A): Banking, insurance, transportation, warehousing and

communication services are examples of Business Services

Reason (R): These services are used by business enterprises for the
conduct of their activities.

(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).

(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the
correct explanation of Assertion (A).

(c) Assertion (A) is true, but Reason (R) is false

(d) Assertion (A) is false, but Reason (R) is true

5. Which of the following is not an example of ‘Business Service’?

a) Transportation b) Warehousing c) Banking d) Recreational services

6. “Loss” is not measurable in this type of insurance. Name the type of such
insurance.

a) Life insurance. b) Fire insurance) Marine insurance. d) Accident

insurance.

7. DTH services are provided by

a) Transport companies. b) Banks c) Cellular companies d) None of the

above

8. Mrs. Kavitha is working as an accountant in ABC Ltd. She wants to deposit

₹4,000 every month in a bank in order to meet her son’s future education
expenses. Suggest the best deposit a/c she should open in a bank.

a) Savings Bank a/c b) Fixed Deposit a/c c) Recurring Deposit a/c

d) Multi- Option Deposit a/c

9. The insurance is not only a protection but is a sort of investment because
a certain sum is returnable to the insured at the time of death or at the expiry
of a certain period. Choose the correct option for it.

a) Fire Insurance b) Marine Insurance c) Medical Insurance d) Life Insurance

10. There are two statements marked as Assertion (A) and Reason (R).

Read the statements and choose the appropriate option from the options given
below:
Assertion (A) There is always an element of risk in life and business.
Reason (R) Insurance is a tool which is used to minimise the impact of such
risks.
(a) Both the Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)
(b) Both the Assertion (A) and Reason (R) are true, but Reason (R) is not the
correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true

11. Identifying the emerging mode of business service shown in the picture
below:

a) Communication b) e-Banking
c) Warehousing d) Insurance

12. Roshan, the owner of GB Fertilizers

opened a current account in State Bank of India. One day he needed money more
than the balance in the account. He was worried about how to arrange the
money. He needed the amount for 1 month. One of his friends told him that
the customer having current account in the bank can get the permission to
withdraw money more than the balance in the account after making an
agreement with the bank.
Identify the facility provided by the bank referred to in the above case.
a) Cash credit b)Bankers’ cheque c)Bank draft d)Bank overdraft

13. Assertion (A): According to the principle of Subrogation, the insured should
not be allowed to make any profit by selling damaged property or in case of lost
property being recovered.
Reason (R): Principle of Subrogation is corollary to the principle of Indemnity
and damaged goods will belong to the insurance company, once the
compensation is paid. It also states that insurance is not a contract of making
profit.
a) Both Assertion and Reason are correct and (R)is the correct explanation
to (A).
b) Both Assertion and Reason are incorrect.
c) Assertion is correct, but Reason is incorrect.
d) Assertion is incorrect, but Reason is correct.
14. A contract of insurance is a contact of ‘uberrimae fidei’: which principle of
insurance is being highlighted?
a) Indemnity b) Subrogation c) Utmost good faith d) Insurable interest
15. Insurable interest must exist at the time of loss only in case of
a). Life insurance b). Fire Insurance c). Marine insurance d) all of these.

MCQs ANSWERS
1 b 2 b 3 b 4 a 5 d
6 a 7 d 8 c 9 d 10 a
11 b 12 d 13 a 14 c 15 d

SHORT ANSWER QUESTIONS

1. Identify and explain any three types of digital payments shown in
the picture below:

Ans.1. Credit or Debit Cards (Plastic

Cards) : The customer can make
digital payments for online
transactions through credit or debit
cards.
2. Mobile Wallets: A mobile wallet stores credit card or debit card
information on a mobile device like phone, a tablet, or smartwatch.
Mobile wallets are a convenient way to buy things online or in stores
that are set up to take payments through mobile wallet.
3. Micro ATM: Micro ATMs are like modified point of sales terminals
which can connect to banking network via GPRS to perform banking
transactions. This machine contains card swipe facility.

2.Postal services are important for modern business. Indian Post & Telegraph
department provides various postal services across India through 22 postal
circles. In the light of this statement explain the different
types of postal services.
ANS:
a. Mail Services: Mail services consist of parcel facilities that is
transmission of articles from one place to another; registration facility
to provide security of the transmitted articles and insurance facility to
provide insurance cover for all risks in the course of transmission by
post.
b .Registered Post: It is a service provides a higher level of security and
tracking for packages as it is assigned a unique tracking number that
helps to monitor its progress from the time it is dispatched until it is
delivered.
C Parcel: It is a service of post office for sending books, garments etc.
across the country as well as outside the country.
d. Speed Post: It has over 1000 destinations in India and links with 97
major countries across the globe.
e. Courier Services: It is provided by private post offices for sending and
receiving letters, documents parcels, etc.

4. Explain any three types of insurance.

Ans:

a) Life Insurance: Life insurance may be defined as a contract in

which the insurer in consideration of a certain premium, (either
in a lump sum or by other periodical payments,) agrees to pay to the
assured, or to the person for whose benefit the policy is taken, the
assured sum of money, on the happening of a specified event
contingent on the human life or at the expiry of certain period.
b) Fire Insurance: Fire insurance is a contract whereby the insurer,
in consideration of the premium paid, undertakes to make good
any loss or damage caused by fire during a specified period upto the
amount specified in the policy. Normally, the fire insurance policy is
for a period of one year after which it is to be renewed from time to
time.
c) Marine insurance: A marine insurance contract is an agreement
whereby the insurer undertakes to indemnify the insured in the
 manner and to the extent thereby agreed against marine losses.
Marine insurance provides protection against loss by marine perils
or perils of the sea.

4. Krishna completed her degree course and decided to set up an IAS coaching
class to girls of poor families who couldn’t bear the high fee charged by
reputed coaching centres. Her father agreed for this and gave her Rupees 10
lakh to establish the institute as a start-up. She used Rupees 5 lakh for the
infrastructure facilities and the remaining amount deposited in the savings
bank account. One of her friends was a bank employee, advised her to keep it
in fixed deposit account. But Krishna replied that she would need money any
time, hence could not keep in fixed deposit. Then her friend told her that she
could deposit this amount in such an account which would serve the purpose
of both savings account and fixed deposit account. Identify and explain the
type of bank account which was explained by Krishna’s friend.

Ans. Multiple Option Deposit Account: A kind of deposit scheme

introduced by different banks, where the excess amount in the savings
bank account is transferred to fixed deposit account and the account
holder earns more rate of interest. If the bank receives a cheque for this
account and the balance is not sufficient, the amount will be transferred
from fixed deposit account to savings bank account to clear the
cheque.

5. Vimal took out the life insurance policy of his wife. After one year the couple
got divorced and after two years, his wife met with an accident and died on
the spot. Is Vimal entitled to get compensation from the insurance company?
If Vimal was regularly paying the premium amount?

Ans: Yes, Vimal is entitled to the compensation because in case of the life
insurance policy, the insurable interest must be present at the time of
contract. So, Vimal will get the compensation for the death of his wife even
after divorce
LONG ANSWER QUESTIONS

1.
a) Amit took an insurance policy against his car and after 3 months he sold the
car to Biju. The car was stolen from outside Biju’s house. Amit made a claim to
the insurance company. His claim was rejected on the ground that Amit was
no longer the owner of the car, so he has no right to get the compensation.
(i) Was Amit eligible for compensation from the insurance company?
(ii) Which principle of Insurance is applicable here? Explain.
b) Mr. Hareesh gets his house insured against fire for Rs.10 Lakh with Insurer
A and for Rs. 5 Lakh with B. The house was damaged due to landslide and
incurred a loss of Rs.6 Lakh. How much compensation can Mr. Haree claim
from A and B? Give reason in support of your answer by explaining the
principle of insurance applicable.
Ans. (i) No
(ii) Insurable interest: The insured must have an insurable interest in
the subject matter of insurance. Insurable interest means some pecuniary
interest in the subject matter of the insurance contract.
b) Hareesh can claim ₹4,00,000 from A and ₹1,00,000 from B.
According to the Principle of Contribution, if a person takes out more than
one insurance policy for the same risk, then all the insurers will contribute
the amount of loss in proportion to the amount assured by each of them
and compensate him for the actual loss.
2. Read the following and answer the question that follow on the basis of the
same:

All of us have seen a petrol station. Have your ever thought how a petrol
station owner does his business in a village: How he gets the petrol and diesel to
the villages in the interior? How he gets the money to purchase large quantities
of petrol and diesel: How he communicates to petrol depots for requirement and
also to customers? How he safeguards himself from various risks associated with
this business? The answer to all the above questions lies in the understanding of
business services. The transportation of petrol and diesel from oil refineries to
Petrol pumps is carried out by train and tankers. They are then stored at various
depots of oil companies situated in all major towns across India. Petrol pump
owners use postal, mail and telephone facilities to be in touch with customers,
banks and the depots for the availability of their requirements on a regular
basis. As oil companies always sell the petrol and diesel on advance payment, the
owners have to take out loans and advances from banks to fund their
purchases. Petrol and diesel
being highly risky products, the owners have to safeguard themselves from
various risks by getting the business, the products, the life of people working
there, etc., insure. Thus, we see that a single business of providing petrol and
diesel at a petrol pump is actually a collective outcome of various business
services. These services are
being utilized in the entire process of shipment of petrol and diesel from oil
refineries to the point of sale at petrol pumps, spread across the length and
breadth of India.
a) Give the meaning of Business service
b) Explain briefly various types of business services described above.

Ans. a) Business services are those services which are used by business
enterprises for the conduct of their activities.
b) “The transportation of petrol and diesel from oil refineries to Petrol pumps
is carried out by train and tankers”. -- Transportation
“They are then stored at various depots of oil companies situated in all major
towns across India”. -- Warehousing
“Petrol pump owners use postal, mail and telephone facilities to be in touch
with customers”. ---Communication
“The owners have to take out loans and advances from banks to fund their
purchases”. ---Banking
“The owners have to safeguard themselves from various risks by getting the
business, the products, the life of people working there, etc.” ---Insurance

3. Alan has recently constructed a new godown in the basement of his furniture
showroom. He approached New India General Insurance Company for fire
insurance of his godown. The official there asked for the information regarding
construction type, age of building, fire safety equipment installed etc. The
official of insurance company also made it clear that in the event of any loss
due to a fire, he can recover an actual amount of loss only. Alan to understand that
any loss arising due to fire in godown will lead to loss to his business. Identify and
explain the principles of insurance stated in above paragraph. (any three)

Ans. Principles of insurance identified

(i) Utmost good faith

(ii) Indemnity
(iii) Insurable interest
4. Briefly explain the following principles of insurance

a) Utmost good faith

b) Insurable interest
c) Doctrine of subrogation
d) Causa Proxima
Ans:

a) Utmost good faith: A contract of insurance is a contract of uberrimae

fidei i.e., a contract found on utmost good faith. Both the insurer and
the insured display good faith towards each other in regard to the contract.
b) Insurable interest: The insured must have an insurable interest in the
subject matter of insurance. Insurable interest means some pecuniary
interest in the subject matter of the insurance contract.
c) Subrogation: It refers to the right of the insurer to stand in the place of
the insured, after settlement of a claim, as far as the right of the insured
in respect of recovery from an alternative source is involved.
d) Proximate Cause: According to this principle, an insurance policy is
designed to provide compensation only for such losses as are caused by
the perils which are stated in the policy.
5. Briefly explain the following banking services.

a) Bank Draft b) Bank Overdraft

c) Cash Credits d) E- Banking
Ans :

1. Bank Draft: It is also known as Demand Draft. It is an instrument

which is used for the transfer of funds.
2. Bank Overdraft: The bank allows a customer to overdraw his current
account balance up to an agreed limit. The customer has to pay interest
on the amount overdrawn by him.
3. Cash Credits: It is a short- term cash loan to a company. The
borrower is sanctioned a credit limit up to which it may draw
amounts from the bank. This credit limit is determined by the bank’s
estimation of the borrower’s credit worthiness.
4. e-banking is electronic banking or banking using the electronic
media. Thus, e-banking is a service provided by banks that allows a
customer to conduct banking transactions, such as managing
savings, checking accounts, applying for loans or paying bills over
the internet using a personal computer, mobile phone, etc.
 CHAPTER 5
EMERGING MODES OF BUSINESS
E-Business
⚫ Business operations such as industry, trade and commerce using
computer networks are called E-Business.
⚫ Business functions as well as managerial activities can be carried out
through computer networks.

E-Commerce
⚫ Commercial transactions conducted electronically on the internet
⚫ It is only a part of e-Business
⚫ It covers a firm’s interactions with its customers and suppliers over the
internet

Business To Business (B2B)

⚫ In this case, commercial transactions take place between different
business organizations
Eg: Placing of purchase orders, invoices, quotations etc.
Business To Customers (B 2 C)
⚫ It means Business to Customers transactions
⚫ It includes selling of goods, call centers, After sale service etc.

Intra – B (With in the Business)

⚫ Here the transactions take place within the firm
⚫ It includes the use of computer networks in marketing, finance,
production, purchase, human resource, Research and Development
departments etc.
⚫ It also includes interaction of business with its employees (B2E) like salary
payment, seeking suggestions from employees etc.

Customer To Customer (C2C)

⚫ It is best suited for dealing in goods for which has no established markets
⚫ E.g.eBay.com, olx.com, etc.
⚫ Allows persons to globally search for potential buyers
Differences between Traditional Business and E-Business
 Base Traditional E-Business
Ease of Formation Difficult Simple

Physical presence Required Not required

Location requirement Important Not Important

Cost of setting up High Low Cost

Operating cost High Low

Contact with suppliers Indirect through Direct

and customers Intermediaries

Business process and Long time Short time

length of cycle

Interpersonal touch More Less

Ease of going global Less More

Employees Semi-skilled or Technically and

unskilled professionally
Qualified

Benefits of E-Business
1. Ease of formation

It is very easy to start due to less legal formalities and with a limited
investment.
2. Convenience

Internet offers the convenience of 24 hours business

3. Speed

Internet allows faster services.

4. Global reach

It provides a boundary less market

5. Movement towards a paperless Society

Use of internet has considerably reduced dependence on paperwork

MULTIPLE CHOICE QUESTIONS
1. Out of e-commerce and e-business, which is a broader term?

(a) e-business (b) both e-business and e-commerce are the same thing
 (c) e-commerce (d) None of these
2. Complaint lodged by a customer at the company’s call center is
type of e-business transaction.

(a) C2C Commerce (b) C2B Commerce

(c) B2C Commerce (d) B2B Commerce
3. Here, parties involved in the electronic transactions are from within a
given business firm; hence the name is .

(a) Intra-C Commerce (b) Intra-D Commerce

(c) Intra-B Commerce (d) Intra-A Commerce

4. Mail sent by the Marketing department to the Purchase department

is an example of:
(a) B2B (b) B2C (c) C2C (d) Intra B

5. Length of the business cycle is generally in the case of e-

business.
(a) Longer (b) Shorter (c)Narrower (d)Wider

6. Interaction between any two departments of one firm is a common

feature of commerce.
(a) B2B Commerce(b) B2C Commerce
(c)C2C Commerce (d)Intra-B Commerce

7. Match the following:

1. C2C a. After-sale service
2. B2C b. Collaborations
3. B2B c. Selling antique items
(A) 1-c, 2-a, 3-b
(B) 1-a, 2-b, 3-c
(C) 1-b, 2-c, 3-a
(D) 1-c, 2-b, 3-a

8. Assertion: There is no risk in the traditional business.

Reason: In traditional business, Parties have no personal interaction
while buying and selling.
(a) Assertion is correct, reason is not
(b) Assertion is incorrect, reason is correct.
(c)Assertion and reason both are correct.
(d)Assertion and reason both are incorrect.
9. Assertion: There is more risk in the traditional business.
Reason: In traditional business, Parties have personal interaction
while buying and selling.
(a) Assertion is correct, reason is not
(b) Assertion is incorrect, reason is correct.
(c)Assertion and reason both are correct.
(d)Assertion and reason both are incorrect.
10. Passion Limited is a well-known automobile company in India. In
order to reduce dependence on a single supplier the automobile
 factory works through a network of computers which is used for
placing orders. Identify the constituent of e-business being described
in the given lines.
a) B2B (b) B2C (c) C2C (d) Intra B

ANSWER KEY:
1. Answer: (a) e-business
2. Answer: (b) C2B Commerce

3. Answer: (c) Intra-B Commerce

4. Answer. d) Intra-B
5. Answer. b) Shorter
6. Answer. d) Intra-B Commerce
7. Answer. a) 1-c 2-a, 3-b
8. Answer. d) Assertion and Reason both are incorrect
9. Answer. c) Assertion and Reason both are correct
10. Answer. a) B2B

SHORT ANSWER QUESTIONS:

1. During summer holidays, Mayur visit his grandparents to celebrate
his grandfather’s 90th birthday. His grandmother shares with him that
she would like to buy a special gift for her husband on his birthday, but
she cannot walk comfortably up to the market. Mayur opens an
application of a popular e- commerce company on his smartphone and
shows his grandmother different types of products which are being
offered for sale from distant places and also some product of China
company. Although, initially the grandmother is fascinated by the
concept of purchase online, but is reluctant to make a purchase as
she is not confident about the whereabouts of the seller.
State any two advantages of e-business mentioned in the paragraph.
1. Convenience
Internet offers the convenience of 24 hours business
Ans: 2. Global reach
It provides a boundary less market

2. OLX Is a system of selling where consumers directly interact with the

other consumers through electronic mode. Identify and explain this
system. How in your opinion is this system beneficial to consumers?
This system is called C2C commerce.
⚫ It provides a market for those consumers who wants to deal in
Ans: goods for which there is no established market.
⚫ Consumers directly interact with other consumers through
electronic mode.
Advantage: Allows persons to globally search for potential buyers
3. Govind is a manufacturer of readymade kid’s garments. He sells his
products through various dealers across the country. However, his
sales are decreasing over the years. Recently, his wife gifted him a
jacket. Which she had ordered through Myntra. This gave Govinda an
idea to start selling his products online.
1. What type business was Govind doing earlier and which type of
business he wants switch to?
2. State any two advantage.

Ans: Govind was doing traditional business and he wants to do e-

business.
Benefits of E-Business (any two)
1. Ease of formation
It is very easy to start due to less legal formalities and with a limited
investment.
2. Convenience
Internet offers the convenience of 24 hours business
3. Speed
Internet allows faster services.
4. Global reach
It provides a boundary less market
5. Movement towards a paperless Society
Use of internet has considerably reduced dependence on paperwork

LONG ANSWER QUESTIONS:

1.
Unique enterprise is dealing in auto spare parts. With the expansion in
business the enterprise found that the decisions are delayed and level
of coordination is coming down. The CEO called for a meeting of all
the managers. Ravi a newly appointed manager suggested that
company should have its own internet so that all the employees can
interact and pass important information to each other through internet.
Even short meeting of different departments can be conducted through
Video conferencing to take fast action. The CEO liked the idea and
installed an internet for connecting all the employees in
line.
(a) Which branch of e-business is suggested by Mr.Ravi ?
ANS: (b) What are the benefits provided by e-business ?
: Intra – B (Within the Business)
⚫ Here the transactions take place within the firm
⚫ It includes the use of computer networks in marketing, finance,
production, purchase, human resource, Research and
Development departments etc.
Benefits of E-Business
1. Ease of formation
It is very easy to start due to less legal formalities and with a limited
investment.
2. Convenience
Internet offers the convenience of 24 hours business
 3. Speed
Internet allows faster services.
4. Global reach
It provides a boundary less market
5. Movement towards a paperless Society
Use of internet has considerably reduced dependence on paperwork

2. Melodius Ltd. Is a popular music company. Keeping in line with the

changing trends the company uses various types of e-business activities
to operate successfully. The company interacts through a network of
computers with a number of other businesses firms which may be
suppliers or salespersons. The company carries out of a number of
promotional activities and sometimes even delivery of products that
are carried out online. The company has setup call centres for the
customers to make toll free calls to make queries and lodge complaints
round the clock at no extra cost to them. The company makes use of
intranet for managing interactions and dealings among various
department and persons within the organisations. The company
provides virtual private network technology because of which it is not
necessary for the employees to come to office and the meeting can be
held online via video conferencing. The company uses the financial
intermediaries like ‘paypal’ in order to facilitate payments on line.
Quote the scope of e-business mentioned in the above paragraph by
quoting the line.

Ans: B2B commerce: ‘The company interacts through a network of

computers with a number of other businesses firms which may be
suppliers or salespersons.”
B2C commerce:” The company carries out of a number of
promotional activities and sometimes even delivery of products that
are carried out online”
Intra-B:” The company makes use of intranet for managing
interactions and dealings among various department and persons
within the organisations.”
B2E commerce: The company provides virtual private network
technology because of which it is not necessary for the employees to
come to office and the meeting can be held online via video
conferencing”
C2C commerce: “The company uses the financial intermediaries like
paypal in order to facilitate payments on line.”
3. www.olx.in, www.quicker.com etc. are examples of websites used to
conduct business. Dipti's sofa set got spoiled in the rain. Her friend
suggested that she should change the fabric so that it looks new and put
it for sale on www.olx.com. Dipti followed her friend's advice and got
her sofa repaired so that it looks better and uploaded nicely clicked
pictures on www.olx.com in without disclosing the fact that it was
damaged from inside. She found a customer and sold it for Rs.9,000.
After one week the buyer found the real state of the sofa set and
called Dipti but she did not answer any of the calls.
(i) Name the type of e-business in the above case.
(iii) Explain two advantages of e-commerce
Ans

(i)C2C business.
The Advantages of E-Commerce
1. No Geographical Boundaries: Anyone, at any moment, can order
anything from anywhere. On the one hand, it provides access to the
worldwide market for the seller, while on the other side, it allows the
buyer to select products from nearly any area of the globe.
2. Workable Business Hours: Since the internet is always available.
E-business eliminates the time constraints that local enterprises
face.

4. Binu and Sinu where childhood friends. Both had a passion to start
a textile business. Binu rented a shop and started a business in his
village. He encouraged Sinu also to start a business. As she had only
less capital she thought of selling the dress from Binu’s shop through
online with less investment. Binu had customers from his own
village where as Sinu had customers from all over India. Point out
the difference between the business carried out by Binu and Sinu
from the above paragraph.
Ans:
Binu did traditional business and Sinu did e- business.
Physical presence Required Not required

Location requirement Important Not Important

Cost of setting up High Low Cost

Interpersonal touch More Less

Ease of going global Less More

5.
 Mr Gupta is working at the post of general manager in AU small finance
Haryana. He is transferred to Delhi. So, he sold his old sofa, and bed
through OLX. In Delhi, he brought a new sofa and small bed of his
choice according to the space of the room placing online order to Godrej
furniture. On receiving the delivery of the items, he found colour defect
in the sofa so he filed an online complaint with customer care cell of
Godrej furniture. The head of customer grievances cell forwarded this
complaint mail to the Marketing manager and production manager for
further action. In enquiry, it was found that M/s Touchwood furniture
dealers, online distributor of Godrej furniture in Delhi, took a long
time to deliver the online order to Godrej furniture.
A. ‘So, he sold his old sofa, and bed through OLX’. Identify which type
of e-business model involve in the transaction mentioned here.
B. ‘He found colour defect in the sofa so he filed an online complaint
with the customer care cell of Godrej furniture. Identify the type of
e-business model involved in the transaction mentioned here.
C. ‘The head of the customer grievances cell forwarded this
complaint mail to the Marketing manager and production manager for
further action’. Identify the scope of e-business mentioned in this case.
D. ‘M/s Touchwood furniture dealers, distributors of Godrej furniture
in Delhi made the ‘took a long time on delivery’ while taking online
order from Godrej furniture for making delivery to its online
customers.’ Identify which advantage was not enjoyed by the customer.
Ans:
A. customer to customer
B. C2B
C. Intra-B
D. Speed

Internet allows faster services.

*******************
Chapter 6
Social Responsibility of Business and Business Ethics.
Social Responsibility: Social responsibility of business refers to its obligation to
take those decisions and perform those actions which are desirable in terms of
objectives and values of our society.
Thus, social responsibility relates to the voluntary efforts on the part of the
businessmen to contribute to the social well-being. The businessmen make
use of resources of society and earn money from the members of society so they
must do something for the society.
Need for Social Responsibility. The very concept of social responsibility
implies that it is essentially an ethical issue, since it involves the question of
what is morally right or wrong in relation to the firm’s responsibilities. Social
responsibility also has an element of voluntary action on the part of the
business person who may feel free to perform or not to perform such
responsibilities. They may also exercise their freedom for deciding the extent
to which they would like to serve various sections of society.

Arguments For Social Responsibility. There is a need for social responsibility

of business for existence and growth:

1. Justification for existence and growth: Business is the creation of

society, therefore it should respond according to the demands of the
society. To survive and grow in a society for long run the business must
provide continuous services to the society.
2. Long term interest of the firm: A firm can improve its image and build
goodwill in the long run when its highest goal is to serve the society. If it
indulges in unfair trade practices, e.g., adulteration, hoarding, black
marketing it may not be able to exist for long.
3. Avoidance of government regulations: Business can avoid the problem
of government regulations by voluntarily assuming social responsibilities.
4. Availability of resources with business: Business has valuable financial and
human resources which can be effectively used for solving problems of the
society.
5. Better environment for doing business: Social responsibility creates better
environment for business operations as it improves quality of life and
standard of living of people. So, business will get better community to conduct
business.
6. Contribution to social problems: Some of the social problems have been
created by business firms themselves such as pollution, creation of unsafe
work places, discrimination, etc. Therefore, it is the moral obligation of
business to solve such social problems.

Arguments Against Social Responsibility. Major arguments against social

responsibility are:

1. Profit Motive: A business is an economic entity that is guided by profit

motive. It should not waste its energies and resources in fulfilling social
responsibility.
 2. Burden on Consumers: Involvement of business in social responsibilities
involves a lot of expenditure which will ultimately be borne by the
customers.
3. Lack of Social Skills: The business firms and managers have the skills
to handle business operation. They are not expert to tackle the social
problems like poverty, overpopulation, etc. Therefore, social problems
must be tackled by social experts.
4. Lack of Public Support: Generally public does not like business
involvement in social problems. Therefore, business cannot fulfil social
responsibility because of lack of public confidence and cooperation.
Kinds of Social Responsibility.

1. Economic Responsibility: Basically, a business enterprise is an economic

institution. Therefore, its primary responsibility is to produce the goods and
services according to the demands of the society and to earn profits.
2. Legal Responsibility: The responsibility of every business is to carry out
business activities within the laws of the country. Since these laws are meant for
the good of the society, a law-abiding enterprise is a socially responsible
enterprise as well.
3. Ethical Responsibility: This refers to the behaviour of the firm expected
by the society but not defined by law (example, respecting the dignity of
employees).
4. Discretionary Responsibility: These obligations are assumed by the
enterprises voluntarily. (example, donation to charitable institutions, helping the
affected people during floods, earthquakes, etc).
Social Responsibility Towards Different Interest Groups.

Business has interaction with several interest groups such as shareholders,

workers, consumers, government and community. Business is responsible to
all these groups
Responsibility Towards Shareholders:

a) To ensure a fair and regular return on the investment of shareholders.

b) To ensure safety of their investment.
c) To strengthen financial position of the company.
d) To safeguard the assets of the business.
e) To protect the interest of all types of investors in the business.
Responsibility Towards Workers:

a) Providing fair compensation and benefits.

b) Providing good and safe working conditions.
c) To develop a sense of belongingness.
Responsibility Towards Consumers:

a) To supply right quality of goods and services at reasonable prices.

b) To ensure regular and adequate supply of products.
c) To inform them about new products and new uses of existing products.
d) To handle the customer’s grievance promptly.
Responsibility Towards Government:

a) To pay taxes honestly.

b) To observe rules laid down by the government.
c) To avoid corrupting government employees.
Responsibility Towards Community:

a) To create employment opportunities.

b) To avoid polluting the environment.
c) To uplift the weaker sections of society.

Business and Environmental Protection

Meaning of Environment: The environment is defined as a totality of natural

and man-made things existing around us. It is from the environment that the
business draws its resources.

Meaning of Environmental Pollution: It means injection of harmful substances

into the environment. The greatest problem that industries and businessmen are
creating is that of pollution, which is the result of industrial production. So,
protection of environment is a must.

Role of Business in Environmental protection.

1. Eco-friendly and clean or low wastage technology should be used by the

industrial organisations.
2. Industrial wastes should be recycled as far as possible.
3. Plant & Machinery should be modernized to minimise pollution.
4. The business houses should comply with the laws and regulations enacted
for prevention of pollution.
5. Positive steps to be taken to save environment. These include plantation of
trees, cleaning of rivers, ponds, etc.
Business Ethics:

Business Ethics refers to the moral values or standards or norms which

govern the activities of a businessman. Ethics define what is right and what
is wrong. By ethics we mean the business practices which are durable from
the point of view of society.

Elements of Business Ethics.

1. Top Management Commitment: The CEO and higher-level managers

must be committed to ethical norms of behaviour. This would set an
example for all employees paying taxes to the government honestly.
2. Publication of Code: Code of ethics is a formal written document of the
principles, values and standards that guide a firm’s actions. It may cover areas
like honesty, quality, safety, healthcare, etc.
3. Establishment of Compliance Mechanism: A suitable mechanism should
be developed to comply with the ethical standards of the enterprise. This
mechanism should be properly communicated to all in the organisation.
4. Employees Involvement: It is the employees at the lower levels who
implement ethical principles, so they must be involved in the process of
developing ethical code of conduct.
5. Measuring Result: Although it is difficult to measure the ethical results, it
must be verified and audited that how far work is being carried according to
ethical standards.
Multiple Choice Questions

1. Social responsibility is:

(A) Same as legal responsibility.
(B) Broader than legal responsibility.
(C) Narrower than legal responsibility.
(D) None of them.
2. That an enterprise must behave as a good citizen is an example of its
responsibility towards:
(A) Consumers (B) Owners (C) Workers (D) Community

3. Which of the following is not the part of ethics?

(A) Caring towards well-being of others.
(B) Chemical and waste dumping in water bodies.
(C) Respect for others.
(D) Fairness in dealing.

4. Match the following:

Stakeholders Services expected from business.
1. Employees A. To provide the desired quality of goods and
services.
2. Consumers B. To provide good working conditions and
 satisfactory remuneration.
3. Government C. To provide more employment opportunities.
4. Community D. To respect the laws of the land.
(A) 1. B; 2. A; 3. D; 4. C. (C) 1. C; 2. B; 3. A; 4 D
(B) 1. D; 2.C; 3. B; 4. A. (D) 1. A; 2. B; 3, C; 4. A
5. Smoke and other chemicals from manufacturing plants are type of……
(A) Air pollution. (C) Land pollution.
(B) Noise pollution. (D) None of these.
6. Environmental protection can best be done by the efforts of:
(A) Scientists. (B) Business people (C) Government (D) All of these.
7. Carbon monoxide emitted by the automobiles directly contributes to:
(A) Noise pollution. (C) Water pollution.
(B) Air pollution. (D) Land pollution.
8. Which of the following can explain the need for pollution control?
(A) Reduced risk of liability. (C) Cost savings.
(B) Reduction of health hazards. (D) All of these.
9. Match the following:
Type of pollution Cause of pollution.
1. Land pollution A. Industrial and commercial activities done by
businessmen.
2. Air pollution B. Dumping of waste in water bodies.
3. Noise pollution C. Smoking, chemicals of manufacturing plants created
a hold in the ozone layer, which is created pollution.

4. Water pollution D. Dumping of toxic waste on land.

(A) 1, D; 2, C; 3, A; 4, B. (C) 1, A; 2, B; 3, C; 4, D.
(B) 1, C; 2, B; 3. A; 4, D. (D) 1, D; 2, C; 3, B; 4, A.
10. Noise pollution can be responsible for………….
(A) Loss of hearing. (C) Malfunctioning of heart.
(C) Mental disorder. (D) All of these.
12 Ethics is important for:
(A) Top-level management. (C) Non-managerial employees.
(B) Middle-level management. (D) All of these.
11. Which of the following alone can ensure effective ethics programme in a
business enterprise?
(A) Publication of a code. (C) Establishment of compliance mechanisms.
(B) Involvement of employees. (D) All of these.
12. Primary responsibility of a business is to produce goods and services that a
society wants and sell them at a profit. This is called……………
(A) Legal responsibility. (C) Economic Responsibility.
(B) Personal responsibility. (D) None of these.
13. Every business has a responsibility to operate within the laws of the land as
per the ………………
(A) Legal responsibility. (C) Economic responsibility.
(B) Financial responsibility. (D) Personal responsibility.
14. Respecting the religious sentiments and dignity of people while advertising for
a product is ………………
(A) Economical responsibility. (C) Ethical responsibility.
(B) Legal responsibility. (D) None of these.
15. Providing charitable contributions to educational institutions is ………
(A) Discretionary responsibility. (C) Economic responsibility.
(B) Legal responsibility. (D) Noe of these.
16. A business enterprise has the responsibility to provide a fair return to the
………….
(A) Customers (B) Government (C) Shareholders (D) Tax authority.
17. Which of the following is a responsibility of a business towards the workers?
(A) Providing opportunities to the workers for meaningful work.
(B) Right kind of working conditions.
(C) Fair wages. (D) All of these.
18. Which of the following is an example of responsibility towards consumers?
(A) Fair wages to workers.
(B) Responsibility to provide a fair return.
(C) Supply of right quality and quantity of goods and services.
(D) Responsibility for providing jobs.
19. Responsibility towards government is ………….
(A) Safety of investments provided by the shareholders.
(B) Pay taxes regularly and honestly.
(C) Supply of goods at a reasonable price to consumers.
 (D) None of these.

SHORT ANSWER QUESTIONS

20. “There is a strong case for assumption of social responsibility by business.”
Give any two reasons.
Ans: can write any two points from the segment “Arguments for social
responsibility”
21. Mention a business firm’s social responsibility towards shareholders
Ans: to ensure fair and regular return on investment
22. “Social responsibility is different from legal responsibility.” How?
Ans: Can differentiate on the basis of “compulsion”
23. What is business ethics?
Ans: Moral standards which govern the activities of business
Case Study Questions/Long Answer Questions.

24. Read the following text and answer the questions that follow:
Newlook Furniture Ltd., a company manufacturing and trading
furniture, was started by 5 youths of Mysuru under Start Up India
Scheme. It provides a diverse collection of wooden, plastic, cane,
bamboo and metal furniture at reasonable rates to the customers.
They import raw-materials from Indonesia for the same by abiding
the government policy and procedures for imports. The company is
earning good profits and donating 10% of its profits for plantation
of trees on highway sides. The company also organizes training and
skill development programme for its workers. The efficient planning
and marketing strategy of the company has offered the owners of
the company reasonable appreciation of capital employed.
1. Providing furniture at the reasonable rates is an example of social
responsibility towards which of the following:
(A) Consumers (B) Community (C) Creditors (D) Owners.
2. “Donating 10% of its profits for plantation of trees on highway
 sides”. Identify the kind of social responsibility undertaken by the
company.
(A) Legal (B) Personal (C) Discretionary (D) None of these.
3. “Import raw-materials from Indonesia for the same by abiding the
government policy and procedures for imports”. Identify the kind of
responsibility fulfilled here:
(A) Discretionary (B) Legal (C) Economic (D) Ethical
Answers: 1 A 2 C 3 B
27 Read the following text and answer the questions that follow:
Anand and Adarsh graduated from IIT Kharagpur, joined together
and started a company in Mysuru under the Name Chamundi
Synthetic Fibres Ltd., engaged in producing packing cases. Their
company is outsourced a large order of such packing cases from a
Chinese firm. Getting such business orders from local as well as
foreign firms, the company has expanded the scale of its operations.
They were aware of the fact that their factory is polluting the
environment but no necessary equipment to control air pollution
and for waste disposal were installed by them. It was argued by the
Finance Manager of the company that such decision will involve a
cash outlay of 1 crore which would decrease the working capital of
the company by this amount. After a long discussion, finally the
management of the company decided that the benefits of pollution
control are more than the cost of pollution control. The business
must follow the laws and regulations enacted by the government for
protecting the environment instead of ignoring social responsibility
of the business.

1. Which of the following does not cause any pollution?

(A) Dumping of toxic waste on land.
(B) Dumping waste into rivers, streams and lakes.
(C) Recycling waste instead of disposal.
(D) Smoke and other chemicals from manufacturing plants.

2. “The business must follow the laws and regulations enacted by

 the government for protecting the environment instead of ignoring
social responsibility of the business”. Identify the kind of social
responsibility stated here:
(A) Economical (B) Ethical (C) Legal (D) Discretionary. (B)
3. “The benefits of pollution control are more than the cost of
pollution control.” Identify the benefits of pollution Control:
(A) Reduced risk of liability. (C) Both (A) & (B)
(B) Cost savings. (D) Neither (A) & (B)

4. By adopting pollution control measures the company has

discharged its social responsibility towards:
(A) Government and community. (C) Workers and Owners.
(B) Community and investors. (D) Investors and Employees.
Ans: 1. C 2. C 3. C 4. A

28 ‘It is in the interest of business to fulfil its social responsibilities

towards different interest groups”. Why?
Ans: Hint: Give arguments for assumption of social responsibilities
by the business
29 “Business is not merely a profit-making enterprise but essentially a
social institution.” Explain.
Ans: Hint: Business is a part of society. It gets inputs from the
society and supplies its output to the society. It is also an economic
institution whose aim is to earn profit. However, it must fulfil its
social obligations towards different groups in the society.
30 “Like an individual, a business enterprise should also be a loyal
citizen of the state.” Comment.
Ans: Hint: give responsibilities of business towards government

******************************
 CHAPTER 7
SOURCES OF BUSINESS FINANCE
Concept of Business Finance:
The term finance means money or fund. The requirements of funds by
business to carry out its variousactivities is called business finance.
Finance is needed at every stage in the life of a business. A business
cannot function unless adequate funds are made available to it.

Significance of Business Finance:

● To purchase plant and machinery, land, buildings and other fixed
assets.
● Smooth functioning of day-to-day operations of the business
● Expansion.
Need of Business Finance:
(a) Fixed Capital Requirement: In order to start a business, funds are
needed to purchase fixed assetslike land and building, plant and
machinery. The funds required in fixed assets remain invested in the
business for a long period of time.
(b) Working Capital Requirement: A business needs funds for its
day-to-day operation. This is known as Working Capital
requirements. Working capital is required for purchase of raw
materials, topay salaries, wages, rent and taxes.
(c) Diversification: A company needs more funds to diversify its
operation to become a multi-productcompany e.g. ITC.
(d) Technology upgradation: Finance is needed to adopt modern
technology for example uses ofcomputers in business.
(e) Growth and expansion: Higher growth of a business
enterprise requires
higher investment infixed assets. So, finance is needed for growth
and expansion.
Sources of Finance on the basis of Ownership:
A. Owners' Funds and B. Borrowed Fund.
A. Owners' Fund: Funds provided by the owners of the organisation are
known as Owners' Funds. It includes profits that are reinvested into
the business. The important sources of owners' funds are:
1. quity shares.
2. Preference Shares Retained earnings.
3. Retained Earnings.

B. Borrowed Funds: These are the funds raised through loans and
borrowings. This source includesraising funds from
1. Debentures and bonds.
2. Loans from financial institutions.
3. Loans from commercial Banks.
4. Public deposits.
 5. Trade credit.
6. Inter Corporate deposits (ICD).
Issue of Share (Owner’s Fund - Long-term Source of Finance):

The capital obtained by issue of shares is known as share capital.

The capital of a company is dividedinto small units called share. If a
company issue 10,000 shares of ₹ 10/- each then the share capital
ofcompany is ₹ 1, 00,000. The person holding the share is known as

Types of shares

Equity share Preference share

shareholder.

1. Equity Share:
Equity shares represent the ownership of a company. They have right
to vote and right to participate inthe management.

Merits:
(a) Permanent Capital: Equity share capital is important source of
finance for a long term.
(b) No charge on assets: For raising funds by issue of equity
shares a company does not need tomortgage its assets.
(c) Higher returns: Equity share holder get higher returns in the years
of high profits.
(d) Control: They have right to vote and right to participate in the
management.
(e) No burden on company: Payment of equity dividend is not
compulsory.

Limitations:
(a) Risk: Equity shareholder bear higher risk because payment of equity
dividend is not compulsory.
(b) Higher Cost: Cost of equity shares is greater than the cost of preference
share.
(c) Delays: Issue of Equity shares is time consuming.
(d) Issue depends on Share Market Conditions: Equity
Shareholders are the primary risk bearertherefore the demand of
equity shares is more in the boom time.
 2. Preference Share (Owner’s Fund - Long-term Source of Finance):
Preference shares are considered safer in investment (as compare
to equity shares). They receivedividend at a fixed rate. Preference
shareholders are like creditors. They have no voting right.

Merits:
(a) Investment is safe: Preference shareholders investment is
safe. They have preferential right toclaim dividend and capital.
(b) No Charge on assets: The Company does not need to mortgage
its assets for issue of preferenceshares.
(c) Control: It does not affect the control of equity shareholders because
they have no voting right.
(d) Fixed dividend: They get fixed dividend. So, they are useful for
those investors who want fixedrate of return.
(e) Hybrid Security: The Preference Shares are called hybrid
securities, as these shares have the features of equity shares as
well as features of debentures.
Limitations:
(a) Costly sources of funds: Rate of preference dividend is
greater than rate of interest ondebenture, for a company it
is costly source of funds than Debentures.
(b) No tax saving: Preference dividend is not deductible from profit for
income tax. Therefore, thereis no tax saving.
(c) Not suitable for risk takers: Preference shares are not suitable for
those who are willing to takerisk for higher return.
(d) As dividend on these shares is to be paid only when the
company earns profit, so investors maynot be very attractive to
these.

Difference between Equity Shares and

Preference Shares
Bas Equity Shares Preference Shares
e
1. Dividend After preference shares Priority over equity share

2. Voting Have voting rights. No voting right.

Right
3. Risk Risk bearing securities Less risk

4. Rate of Fluctuates with profit Fixed Rate of dividend

Return
5. Control Control on the management. No control on the
management.
 Retained Earnings (Owner’s Fund- Long-term Source of Finance):
When a company earns profit, a certain amount or percentage of those
profits is retained within the business for future use and this is known
as Retained Earnings. When the business is financed through this
source it is known as ploughing back of profit or internal financing.

Merits:-
(a) Permanent source of funds.
(b) No explicit cost involved in the form of dividend or interest.
(c) Greater degree of operational flexibility and freedom.
(d) Enhances the unexpected loss absorption capacity of the business.
(e) May lead to an increase of the market price of the company's equity
shares.
Limitations:-
(a) Excess retention of profits may lead to dissatisfaction among
shareholders.
(b) Since the profits keep on fluctuating, it is an uncertain source of
funds.
(c) Opportunity cost remains unrecognized so it may lead to sub-optimal
use of funds.
B. Borrowed Funds:
1. Debentures/Bonds (Borrowed Fund- Long-term Source of Finance)
It is an important source of raising funds or long-term debt capital.
It bears a fixed rate of interest.Debenture holders are the creditors
of the company.
Merits:
(a) Investment is Safe: Debentures are preferred by those investors
who do not want to take risk andinterested in fixed income.
(b) Control: Debenture holder does not have voting right. No control over
the management.
(c) Less Costly: Debentures are less costly as compared to cost of
preference shares.
(d) Tax Saving: Interest on Debentures is a tax-deductible expense.
Therefore, there is a tax saving.
Limitation:
(a) Fixed Obligation: There is a greater risk when there is no earning
because interest on debentures has to be paid if the company suffers
losses.
(b) Charge on assets: The Company has to mortgage its assets to issue
secured Debentures.
(c) Reduction in Credibility: With the new issue of debentures, the
company’s capability to furtherborrow funds reduces.
 Base Debentures
Shares
1. Nature Shares are the capital. Debentures are a loan.
2. Return Dividend. Interest.
3. Voting Right Have voting right. No voting right.
4. Holder Owner is called Creditor.
shareholder.
5. Types There are two types of More than two types.
shares.
Secured and generally carry a
6. Security Not secured by any
charge on the assets of the
charge.
company.

2. Loan from Financial Institutions (Borrowed Fund- Long-term

Source of Finance):
The state and central government have established many financial
institutions to provide finance to companies. They are called
development Bank. These are IFCI, ICICI, IDBI, LIC and UTI. etc.

Merits:
(a) Long term Finance: Financial Institution provides long term
finance which is not provided byCommercial Bank.
(b) Managerial Advice: They provide financial, managerial and technical
advice to business firm.
(c) Easy instalments: Loan can be made in easy instalments. It
does not prove to be much of aburden on business.
(d) Easy availability: The funds are made available even during periods
of depression.
Limitations:
(a) More time Consuming: The procedure for granting loan is time
consuming due to rigid criteriaand many formalities.
(b) Restrictions: Financial Institution place restrictions on the
company’s board of Directors.

3. Loan from Commercial Banks (Borrowed Fund- Short & Medium- term
Finance):
Commercial Banks give loan and advances to business in the form of
cash credit, overdraft loans anddiscounting of Bill. Rate of interest on
loan is fixed.

Merits:
(a) Timely financial assistance: Commercial Bank provides timely
financial assistance to business.
 (b) Secrecy: Secrecy is maintained about loan taken from a Commercial
Banks.
(c) Easier source of funds: This is the easier source of funds as
there is no
need to issue prospectusfor raising funds.
Limitations:
(a) Short- or Medium-term finance: Funds are not available for a long
time.
(b) Charge on assets: Required source security of assets before a loan is
sanctioned.

4. Public Deposits (Borrowed Fund- Medium-term Finance):

The deposits that are raised by company direct from the public are
known as Public Deposits. The rate of interest offered on public deposits
is higher than the rate of interest on bank deposits. This is regulated by
the R.B.I. and cannot exceed 25% of share capital and reserves.

Merits:
(a) No charge on assets: The Company does not have to mortgage its
assets.
(b) Tax Saving: Interest paid on public deposits is tax deductible, hence
there is tax saving.
(c) Simple procedure: The procedure for obtaining public deposits is
simpler than share & Debenture.
(d) Control: They do not have voting right therefore the control of the
company is not diluted.

Limitations:
a. For Short Term Finance: The maturity period is short. The
company cannot depend on them forlong term.
b. Limited fund: The quantum of public deposit is limited because
of legal restrictions 25% of shar capital and reserves.
c. Not Suitable for New Company: New Company generally
find difficulty to raise funds throughpublic deposits.

5. Trade Credit (Borrowed Fund- Short-term Finance):

It refers to the extension and provision of credit by one trader to another
for the purchase of goods and services, or other supplies without on-the-
spot payment. This is generally used by organizations as short-term
financing. The terms of trade credit may vary from person to person
based on past records and from industry to industry based on industry
norms.
Merits:
(a) A continuous and a convenient source of funds.
(b) It is readily available if credit worthiness is known to the seller.
(c) It helps in increasing the inventory levels in case of increase in sales
volume.
(d) While providing funds. It does not create a charge on assets of the
firm.
Limitations:
(a) There can be chances of over-trading.
(b) Fulfils only limited financial needs.
(c) Costly in comparison to few other sources.
6. Inter-Corporate Deposits (ICD) (Borrowed Fund- Short-term
Finance):
Inter-Corporate Deposits are unsecured short-term deposits made by
one company with another company. These deposits are essentially
brokered deposited, which led the involvement of brokers.The rate of
interest on their deposits is higher than that of banks and other
markets. The biggest advantage of ICDS is that the transaction is
free from legal hassles.
Features of ICDS:
(a) These transactions take place between two companies.
(b) There are short term deposits.
(c) These are unsecured deposits.
(d) These transactions are generally completed through brokers.
(e) These deposits have no organized market.
(f) These deposits have no legal formalities.
(g) These are risky deposits from the point of view of lender
MULTIPLE CHOICE QUESTIONS (MCQs)
1. Which of the following is a short-term source of finance?
(a) Shares
(b) Debentures
(c) Trade Credit
(d) All of these
2. Out of the following, which one is a type of Inter-Corporate Deposit?
(a) Three Month Depos its (b)Six Month Deposits
(c ) Call Deposit (d)All of these
3. Equity shareholders are called:
(a) Owners of the company
(b) Partners of the company
(c) Executives of the company
(d) Guardian of the company
4. Which of the preferential right is enjoyed by preference shareholders over equity
shareholders?
(a) Right to receive repayment of capital
(b) Right to receive fixed rate of dividend
(c) Both (a) and (b)
(d) Voting rights

5. Which of the following is a source of Borrowed Fund?

(a) Equity Shares (b) Global Depository Receipts
(c) Inter-Corporate Deposits (d) Indian Depository Receipts
6. Out of the following, which one is not a feature of Owners’ Funds?
(a) Risk Bearer Capital (b) Periodic Interest Payment
(c)Permanent Capital (d) No Security Needed
7. The providers of funds have a control over the management of business.
(a) Owners’ (b) Borrowed (c) Both (a) and (b). (d) None of these
8. The liability of equity shareholders is .
(a) Unlimited (b) Limited (c) Zero (d) None of these
9. Preference Shares are referred to as Hybrid Securities because they have features
of both and .

(a) Equity Shares, Debentures (b) Retained Earnings, Debentures

(c) Equity Shares, Public Deposits (d) Retained Earnings, Equity Shares
10. Capital is used for buying Current Assets.
(a) Fixed (b) Working (c) Both (a) and (b) (d) None of these
11. At the time of winding up, refund of is made after the refund of
.
(a) Preference Share Capital, Equity Share Capital
(b) Retained Earnings, Equity Share Capital
(c) Equity Share Capital, Preference Share Capital
(d) None of these
12. Retained Earnings is also known as:
(a) Internal Financing (b) Ploughing Back of Profits
(c)Self-Financing (d) All of these
13. Which source of finance is available in normal course of purchase of goods?
(a) Inter-Corporate Deposits (b) Trade Credit
(c) Public Deposits (d) None of these
14. are more dependable than external sources as they do not depend
on investors’ preference and market conditions.
(a) Equity Shares (b) Preference Shares
(c) Retained Earnings (d) Debentures
15. Which of the following constitutes a source for long-term finance?
(a) Retained Earnings (b) Equity Shares
(c) Debentures (d) All of the above
16. Retained Earnings does not involve any cost in the form of:
(a) Dividend (b) Interest
(c)Floatation Cost (d) All of the above
17. Which of the following source of finance does not create any charge against the
assets of a company?
(a) Equity Shares and Debentures
(b) Preference Shares and Debentures
(c) Equity Shares and Preference Shares
(d) None of the above
18. The term redeemable' is used for:
a) Preference shares
(b) Commercial paper
c) Equity Shares
(d) Public deposits
19. Funds required for purchasing current assets is an example of:
(a) Fixed capital requirement
(b) Ploughing back of profits
(c) Working capital requirement
(d) Lease financing
20. Public deposits are the deposits that are raised directly from:
(a) The public
(b) The directors
c) The auditors
d) The owners
FILL IN THE BLANKS
1. capital refers to that part of total capital, which is required for holding
current assets.
2. funds are permanent source of finance, while funds
provide funds for a specified period.
3. The capital of a company is divided into small units called .
4. The return earned by equity shareholders is known as
(Dividend/Interest).
5. Preference shareholders have right as to the redemption of capital
at the time of winding up of company.
6. The acceptance of public deposits is regulated by the (RBI/SEBI)
in India.
7. Equity shares provide (Permanent/Temporary) capital to the
company.
8. The liability of equity shareholders is (Limited/Unlimited).
9. is the credit extended by one trader to another for the purchase
of goods and services.
 10. As per the RBI guidelines, the minimum period of Inter-Corporate-Deposit
is days which can be extended to year.

TRUE OR FALSE
1. Equity shares create a charge on the assets of the company.
2. Loan money is involved in inter-corporate deposits as it is a secured deposit made
by one company with another company.
3. Equity shareholders are paid dividend only when the company earns sufficient
profits.
4. No charge is created against firm assets for obtaining the trade credit.
5. The issue of preference shares reduces the capacity of the company to further
borrow funds.
6. Inter-corporate deposits are free from bureaucratic and legal hassles.
7. There is tax saving in case of dividend on preference shares as they are deductible
from profits as expense.
8. Preference shareholders enjoy the right to receive a fixed rate of dividend before
any dividend is paid to equity shareholders.
9. Trade Credit may be used to enhance the inventory level of a business enterprise.
10. Interest rates offered on public deposits are usually higher than that offered on
bank deposits.
11. The issue of public deposits dilutes the control of the company.
12. In case of lower earnings of the company, interest to debenture holders is paid
at a lower rate.

ASSERTION REASON QUESTIONS (ARQs)

1. Read the following statements: Assertion and Reason. Choose one of the correct
alternatives given below:
Assertion (A): The importance of business finance has increased tremendously these
days.
Reason (R): Goods are produced on large scale and capital-intensive techniques are
used.
Alternatives:
(a) Both Assertion (A) and Reason (R) are True and Reason (R) is the correct
explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are True and Reason (R) is not the correct
explanation of Assertion (A).
(c) Assertion (A) is True but Reason (R) is False.
(d) Assertion (A) is False but Reason (R) is True.
2. Read the following statements: Assertion and Reason. Choose one of the correct
alternatives given below:
Assertion (A): Equity share capital act as a temporary source of capital for the
business. Alternatives:
Reason (R): Equity Capital is to be repaid at the time of liquidation of a company.
(a) Both Assertion (A) and Reason (R) are True and Reason (R) is the correct
explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are True and Reason (R) is not the correct
explanation of Assertion (A).
(c) Assertion (A) is True but Reason (R) is False.
(d) Assertion (A) is False but Reason (R) is True.
3. Read the following statements: Assertion and Reason. Choose one of the correct
alternatives given below:
Assertion (A): The providers of Owners' Funds have a control over the management
of business.
Reason (R): There is a risk involved in the refund of Owners' Funds as they are the
primary risk bearer,
Alternatives:
(a) Both Assertion (A) and Reason (R) are True and Reason (R) is the correct
explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are True and Reason (R) is not the correct
explanation of Assertion (A).
(c) Assertion (A) is True but Reason (R) is False.
(d) Assertion (A) is False but Reason (R) is True.
4 Read the following statements: Assertion and Reason. Choose one of the correct
alternatives given below:
Assertion (A): Retained Earnings can only be used by an established firm and not by
a new firm.

Reason (R) : Newly established firm has not yet earned any profits to be used as
reserves.
Alternatives:
 a) Both Assertion (A) and Reason (R) are True and Reason (R) is the correct
explanation of Assertion (A)
b) Both Assertion (A) and Reason (R)are True and Reason (R) is not the correct
explanation of Assertion (A)
c) Assertion (A) is True but Reason (R) is False.
d)Assertion (A) is False but Reason (R) is True.

STATEMENT BASED QUESTIONS

1. Read the following statements carefully and choose the correct alternative from
the following:

Statement 1: Borrowed Funds are permanent source of finance.

Statement 2: Borrowers are under legal obligation to pay interest even in case of
losses.
Alternatives:
a. Both the statements are true.
b. Both the statements are false.
c. Statement 1 is true and Statement 2 is false.
d. Statement 2 is true and Statement 1 is false.
2. Read the following statements carefully and choose the correct alternative from
the following:

Statement 1: Owners’ Funds does not require any security.

Statement 2: The providers of borrowed funds do not get the right to control.
Alternatives:
(a) Both the statements are true.
(b) Both the statements are false.
(c) Statement 1 is true and Statement 2 is false.
(d) Statement 2 is true and Statement 1 is false.
3. Read the following statements carefully and choose the correct alternative from
the following:
Statement 1: Retained earnings is an economical method of financing.
Statement 2: Retained earnings have characteristics of both equity shares and
debentures.
Alternatives:
(a) Both the statements are true.
(b) Both the statements are false.
(c) Statement 1 is true and Statement 2 is false.
(d) Statement 2 is true and Statement 1 is false.
4. Read the following statements carefully and choose the correct alternative from
the following:
Statement 1: Raising finance through equity capital is less costly as compared to
debentures.
Statement 2: The liability of equity shareholders is unlimited.

Alternatives:
a) Both the statements are true.
b) Both the statements are false.
c) Statement 1 is true and Statement 2 is false.
d) Statement 2 is true and Statement 1 is false.
5. Read the following statements carefully and choose the correct alternative from
the following:

Statement 1: Interest is not payable on trade credit.

Statement 2: The control of the company is not diluted in case of public deposits.
Alternatives:
a. Both the statements are true.
b. Both the statements are false.
c. Statement 1 is true and Statement 2 is false.
d. Statement 2 is true and Statement 1 is false.

ANSWERS OF OBJECTIVE QUESTIONS

Multiple Choice Questions (MCQs)

1. c 2. d 3. A 4. c
5. c 6. b 7. A 8. b
9. a 10. b 11. c 12. d
13. b 14.c 15. D 16. d
17. c 18.a 19. C 20. a
21. d

Fill in the Blanks

1. Working
2. Owner’s, Borrowed
3. Shares
4. Dividend
5. Preferential
6. RBI
7. Permanent
8. Limited
9. Trade Credit
10. Seven, one
True or False
True 3 4 6 8 9 10
False 1 2 5 7 11 12

Assertion Reason Questions (ARQs)

1.a 2.d 3.b 4.a

Statement Based Questions

1. (d) 2. (a) 3. (c) 4. (b) 5. (a)

VERY SHORT ANSWER TYPE QUESTIONS

Q. 1. What do you mean by business finance?
Ans. Business finance refers to the money required for carrying out business activities.
Q. 2. What is meant by fixed capital?
Ans. Fixed capital is the money invested in fixed assets.
Q. 3. Out of a trading concern and a manufacturing concern, which will have large
amount of fixed capital?
Ans. Manufacturing Concern.
Q. 4. Name the funds needed for day-to-day operations of business.
Ans. Working Capital.
Q. 5. What do you mean by working capital?
Ans. Working capital refers to that part of total capital, which is required for holding
current assets, such as stock, bills receivables, etc.
Q.6. Out of long-term & short-term sources of finance, which source should be
preferred to finance fixed assets?
Ans. Long-term sources.
Q.7. Give any two examples of long-term sources of finance.
Ans. (i) Shares; (ii) Debentures.
Q.8. Mention any two examples of short-term sources of finance.
Ans. (i) Trade Credit; (ii) Loans from commercial banks.
Q. 9. How can you classify sources of funds on the basis of ownership?
Ans. (i) Owners’ Funds; (ii) Borrowed Funds.
Q. 10. What do you mean by owners’ funds?
Ans. The funds provided by the owner of the business enterprise are known as owners’
funds.
Q. 11. What is meant by borrowed funds?
Ans. The funds raised through loans or borrowings, are known as borrowed funds.
Q. 12. Out of owners’ funds and borrowed funds, which one is a permanent source of
finance? Ans. Owners’ Funds.
Q. 13. Give two examples of owners’ funds.
Ans. (i) Equity Shares; (ii) Preference Shares.
Q. 14. Give two examples of borrowed funds.
Ans. (i) Debentures; (ii) Loans from commercial banks.
Q.15. What do you mean by equity shares?
Ans. Equity shares are those shares which do not carry any special or preferential
rights in respect of payment of annual dividend and repayment of capital.
Q. 16. How does equity share capital act as a fixed or permanent capital for the
business?
Ans. Because it is to be repaid only at the time of liquidation of a company.
Q. 17. What are ‘Preference Shares’?
Ans. Preference shares are those shares, which enjoy preferential right in payment of
dividend and repayment of capital.
Q. 18. What is the position of debenture holders in relation to the company?
Ans. Debenture holders are the creditors of the company.
Q. 19. Mention the two preferential rights which preference shareholders enjoy over
equity shareholders.
Ans. (i) Right to receive fixed rate of dividend; (ii) Right to receive repayment of capital
on winding up of the company.
Q. 20. Distinguish between equity shares and preference shares on the basis of ‘Voting
Rights!
Ans.
Basis Equity Shares Preference Shares
Voting Rights Equity shareholders enjoy voting They do not carry voting rights
rights in company. except when dividend remains
unpaid for a specified period.

Q. 21. Distinguish between equity shares and preference shares on the basis of ‘Face
Value.
Basis Equity Shares Preference Shares
Face Value The face value of equity The face value of
share is generally low. preference share is
generally high.

Q. 22. What are retained earnings?

Ans. Retained earnings refer to that part of profits which is kept as reserve for use in
the future.
Q. 23. Why retained earnings cannot be used by a newly established company?
Ans. Because it has not yet earned any profits to be used as reserves.
Q. 24. What do you mean by trade credit?
Ans. Trade credit is the credit extended by one trader to another for the purchase of
goods and services.
Q. 25. How does issue of debentures not affect the control of equity shareholders?
Ans. As debenture holders do not have voting rights.
Q. 26. Distinguish between shares and debentures on the basis of ‘Rate of Return!
Ans.
 Basis Shares Debentures
Rate of Return Dividend fluctuations Interest rate is fixed
depending on residual irrespective of profits.
profits.

Q. 27. Distinguish between shares and debentures on the basis of ‘Degree of risk!
Ans.
Basis Shares Debentures
Degree of risk Shareholders bear a Debenture holders bear
high degree of risk. minimum degree of risk.

Short Answer Type Questions

1. What is business finance? Why do businesses need funds? Explain.

Hint: Business finance refers to the money required for carrying out business
activities. Also discuss “Significance of Business Finance.

2. List sources of raising long-term and short-term finance.

Hint: Long-term Finance: Shares, Debentures, Long-term Borrowings and Loans from
Financial Institutions Short-term Finance: Trade Credit, Loans from Commercial
Banks, etc.

3. What preferential rights are enjoyed by preference shareholders? Explain.

Hint: Preference shareholders enjoy 2 preferential rights: (i) Right to receive fixed rate
of dividend; (ii) Right to receive repayment of capital on winding up.
4. Name any three special financial institutions and state their objectives.
Hint: Refer the heading ‘Special Financial Institutions in India.
Long Answer Type Questions
1. Explain trade credit and bank credit as sources of short-term finance for
business enterprises.

Hint: For explanation of trade credit, refer the heading Trade Credit: For explanation
of bank credit, refer the heading ‘Loans from Commercial Banks.
2. Discuss the sources from which a large industrial enterprise can raise capital
for financing modernisation and expansion.
Hint: Discuss the following sources: Equity Shares, Preference Shares, Debentures
and Loans from Financial Institutions.
CASE STUDY QUESTIONS
Q.1. State with reasons whether the following statements are True or False:
(a) Equity shareholders are to be given dividend irrespective of the fact whether
the company has earned sufficient profits or not.
(b) Retained Earnings can be used by both new as well as old company.
(c) As per the RBl guidelines, the minimum period of Inter-Corporate Deposits
is 30 days.
Ans.
(a) False. There is no obligation on the company to pay dividend as it
depends on the profits available and the decision of directors and
members.
(b) False. Retained earnings cannot be used by a newly established
company and it has to rely on external sources of finance.
(c) False. As per the RBl guidelines, the minimum period of lnter-
Corporate-Deposits is 7 days.

Q. 2. A company needs to increase its stock of raw material and finished goods, which will
require funds of 5 lakhs. What are the various options available with the company to
finance this amount?
Ans. The various options available with the company to finance the working capital
needs of 5 lakhs are:
(i)Trade Credit; (ii) Loans from Commercial Banks; (iii) Public Deposits.
Q. 3. Identify the source of finance highlighted in the following cases:
(i) It facilitates the purchase of goods and services without making immediate payment.

(ii) It refers to that part of profits which is kept as reserve for use in the future.

(iii) This source has characteristics of both equity shares and debentures.

(iv) It is also known as ploughing back of profits.

(v) It is a permanent source of capital and is not redeemed during the life time of the
company.
Ans. (i)Trade Credit; (ii) Retained Earnings; (II) Preference Shares; (iv) Retained
Earnings, (v) Equity Shares.
Q.4. After completing the studies, Priyanka decided to start her own business of
homemade chocolates. After analysing all the pros and cons, she came to a conclusion
that total funds required are 12,00,000. She had 2,00,000 in her savings bank account.
As these funds were insufficient to start the business, she approached Axis Bank for
obtaining a loan of 10,00,000. The loan was approved within a month. On the basis of
given case, answer the following questions:
(a) Categorise the two types of funds on the basis of ownership.
(b) Out of the two sources of funds, which one is a permanent source of finance?
(c) Which source of funds require legal obligation to pay interest at a fixed
rate at regular intervals?

Ans. (a) On the basis of ownership, 2,00,000 in Priyanka’s Savings bank account
constitute the Owner’s Funds, while loan of 10,00,000 constitute the Borrowed
Funds.
(b) Owner’s Funds of 2,00,000 is a permanent source of finance.
(c) Borrowed Funds of 10,00,000 require legal obligation to pay interest at a
fixed rate at regular intervals.
Q. 5. The directors of a company have decided to expand the business activities by
purchasing fully automatic machinery worth 50 crores. As a finance manager, advise
the directors about the various sources of finance available to the company.

Ans. The directors should use long-term sources to finance the purchase of fixed asset,
i.e. machinery. The various sources available are: (i) Equity Shares; (ii) Retained Earnings;
(iii) Preference Shares; (iv) Debentures; (v) Loans from Financial Institutions;
(vi) Loans from Banks.

Q. 6. To meet the problem of short-term capital inadequacy, Tizen Ltd. Borrowed 5

crores from Sky Ltd., which had surplus funds. Although Sky Ltd. Charged higher
interest rates as compared to bank borrowings still Tizen Ltd. Preferred this source as
no security had to be given to raise funds. Identify the source of finance being
discussed in the given case. Also, state its three features.

Ans. The source of finance discussed is Inter-Corporate Deposits (ICD).

Discuss ‘Features of ICD:

Q.7. State with reasons whether the following statements are ‘True’ or ‘False’:

(i) Funds needed for day-to-day operations of business is termed

as fixed capital.
(ii) Debenture holders are paid interest only when the company
earns sufficient profits.
 (iii) Retained earnings are dependable source of finance.
(iv) Preference shares create a charge on the assets of the
company.
(v) Equity capital is a source of permanent capital for the
company.

Ans.
(i) False. It is termed as working capital.
(ii) False. Debenture holders are paid fixed rate of interest at specified
Intervals, irrespective of the fact whether the company has earned
sufficient profits or not.
(iii) True. Retained earnings are dependable source of finance as they do
not depend on investors preference and market conditions and are
permanent funds.
(iv) False. Preference shares are issued without creating any charge on the
fixed assets of the company.
(v) True. Equity capital serves as permanent capital as it is to be repaid only
at the time of liquidation of a company.

Q.8. Jupiter Ltd. is a well-known manufacturer of sanitary fittings. Recently, company was
short of funds for meeting its day-to-day expenses. So, the company approached one of
its suppliers to grant 60 days credit on purchase of raw material. On the basis of
creditworthiness of Jupiter Ltd., the supplier granted the credit. Identify the source of
finance highlighted in the given case. Also, state its four features.

Ans. The source of finance highlighted is Trade Credit: Discuss ‘Features of Trade Credit'.

*******************

CHAPTER – 8
SMALL BUSINESS AND ENTERPRISES
ENTREPRENEURSHIP DEVELOPMENT
Entrepreneurship Development is the process of improving the skills and knowledge of
entrepreneurs through various training and classroom programs.
Entrepreneurship is a systematic, purposeful and creative activity of identifying a need,
mobilizing resources and organizing production with a view to delivering value to the
customers, returns for the investors and profits for the self in accordance with the risk and
uncertainties associated with business.
An entrepreneur is a person or group of persons who establishes an enterprise, takes the risk,
accumulates all the resources required to carry out production or perform services and creates
an innovative product or service.
Characteristics of Entrepreneurship
1. Systematic activity – Entrepreneurship is a systematic, step by step and purposeful
activity. It requires skill, knowledge and competency which can be acquired, learnt and
developed through education, training, observation and experience. Thus we can say the
entrepreneurs are made but not born.
2. Lawful and purposeful activity – The aim of entrepreneurship is to run a lawful
business to create value for personal profit and social gain.
3. Brings innovation and creativity – Entrepreneurship is innovative as it involves
introduction of new products, discovery of new markets and source of supply of inputs,
technological breakthroughs as well as introduction of newer organizational forms for doing
things better, cheaper, faster and in a manner that causes the least harm to the environment.
4. Organizes production – Production requires the combined utilization of diverse factors
of production, land, labour, capital and technology. The entrepreneur brings the idea of
business and the factors of production; thus, he organizes the production activities.
5. Risk taking – The entrepreneur takes all the risks in the business as he brings the factors
of production including capital. The essence of entrepreneurship is the ‘willingness to
assume risk’ arising out of the creation and implementation of new ideas.

NEED FOR ENTREPRENEURSHIP

1. Contribution to Gross Domestic Product (GDP): - Increase in GDP is considered
as the most common indicator for economic development. Entrepreneurs generate
income through organisation of production.
2. Capital Formation: - Entrepreneurial decision is an investment decision that enhances
the productive capacity of the economy, which results in capital formation.
3. Generation of employment: - Entrepreneurship is a source of employment to people
with different abilities, skills and qualifications. It provides livelihood to those who
have capital to earn interest and the land to earn rent.
4. Generation of business opportunities for others: - Every new business creates
opportunities for the suppliers of inputs and marketers of output.
5. Improvement of Economic Efficiency: - Entrepreneurs improve economic
efficiency by improving process, reducing wastes, increasing yield and bringing
technological progress by altering labour capital ratio.

6. Improving spectrum and scope of economic activities:

 -Diversification of economic activities across the geographic, sectoral and technological
scope leads to development of an economy. Entrepreneurs mobilise local and even
overseas resources to augment the productive capacity of a country.
7. Impact on local communities: - As there are no entry barriers in terms of educational
qualifications, entrepreneurship is an attractive career option for marginalized groups
to pursue their economic dreams.

PROCESS OF ENTREPRENEURSHIP DEVELOPMENT

The process of entrepreneurship development consists of the following stages:

I. Idea Generation: - This is the first step in the entrepreneurial process.

An idea can be a problem or solution. Here, the entrepreneur identified an
idea worth pursuing. The entrepreneur will conduct the feasibility study
and take input from other stakeholders.
II. Opportunity Analysis: - After identifying the opportunity, the
entrepreneur will evaluate it. They will see if the opportunity provides any
value to the business or the consumer, whether it will be sustainable in the
long term if the profit is healthy, the market competition, the risks
associated with the opportunity, and whether the entrepreneur’s product
or service will be different or better than the competitor.
III. Developing Plan: - After analyzing the opportunity, the
entrepreneur develops a plan to realize it and launch the company. This is a
crucial step in the entrepreneurial process..
IV. Collecting Resources: - Launching a new business requires resources,
including financing, human labor, materials, and more. If the entrepreneur
is self-sufficient, they can self-finance. However, they may go to investors or
financial institutions to get the funds.
V. Forming Organization: - Once the entrepreneur secures the funds and
resources, they will launch the company and form a legal entity. The
structure of the organization will depend on its requirements.
VI. Growing Business: - After launching the company, it will start
 producing products or offering services. The entrepreneur will ensure
that the business is running smoothly and growing.
START-UP INDIA SCHEME
Startup India Scheme is an important initiative by Govt. of India to promote a strong
eco-system for nurturing innovation and startup (new enterprises) in the country. This
drive will towards sustainable economic growth and generate large scale employment
opportunities.
The main objectives of this scheme are:
(i) To initiate an entrepreneurial culture and inculcate entrepreneurial values in the
society at large and influence the mindset of people towards entrepreneurship.
(ii) To create awareness about the charms of being an entrepreneur and the process of
entrepreneurship.
(iii) To encourage more dynamic startups by motivating educated youth, scientists and
technologists to consider entrepreneurship as a lucrative, preferred and viable
career.
(iv) To Broad base the entrepreneurial supply by meeting specific needs have
underrepresented target groups, like women, socially and economically backward
communities, under-represented regions to achieve inclusiveness and sustainable
development to address the needs of the population at the bottom of the pyramid.
(v) To support the early phase of entrepreneurship development, including the pre-
startup as well as early post startup phase and growth enterprises.
WAYS TO FUND START-UP
The funding for start-ups can be available in the following ways:
1. Boot Strapping – Bootstrapping in business means starting a business without
external help or capital. It is considered as the first funding option because by using
personal savings and resources, entrepreneur is tied to his business.
2. Crowd Funding – Crowd funding refers to the practice of funding a project or
venture by raising money from a large number of people for a common goal. Pooling
resources by a group of people for a common goal especially through internet
platforms.
3. Angel Investment – Angel investors are the individuals with surplus cash who
have keen interest to invest in upcoming startups. They also offer mentoring or
advice along with capital.
4. Venture Capital – Venture capitalists provide professionally managed funds to
companies and startups that have huge potential. It is also called risk capital as it
is invested in new ventures. Venture capitalists provide expertise, mentorship and
evaluate business from sustainability and scalability point of view. Eg: Accel Partners,
Blume Ventures etc.
5. Business Incubators and Accelerators – Incubators provide funds for startups in the
early stage of their business, whereas accelerators help the startups to run or to take
a giant leap in business. Eg: Angel Prime, Khosla Labs, Startup Village
6. Microfinance and NBFCs – Microfinance is a category of financial services
targeted at individuals and small businesses who lack access to conventional
banking or who have not qualified for a bank loan. Eg: BSS Microfinance P Ltd.,
 Asirvad Microfinance Pvt. Ltd. etc.
NBFCs (Non-Banking Financial Companies) are registered under Indian Companies Act
and they perform only lending functions to the public and they cannot accept
demand deposits such as SB A/c, Current A/c etc. Eg: Mahindra & Mahindra
Financial Services Ltd., Muthoot Finance Ltd., Bajaj Finance Ltd. etc.

INTELLECTUAL PROPERTY RIGHTS AND ENTREPRENEURSHIP

Intellectual Property is a category of property that includes intangible creations of
human intellect. Intellectual property (IP) refers to the creations of the human mind,
like inventions, literary and artistic works, symbols, names, images and designs used in
business.
All inventions of creations begin with an ‘idea’. Once the idea becomes an actual product,
i.e., Intellectual Property, one can apply to the authority concerned under the
Government of India for protection. Legal rights conferred on such products are called
‘Intellectual Property Rights’ (IPR). Once it is allotted to a person by the Govt. authority,
he/she can rent, give or sell it to others.
Intellectual property is divided into two broad categories:
1. Industrial property, which includes inventions (patents), trademarks, industrial
designs and geographical indications,
2. Copyrights, which includes literary and artistic works, such as novels, poems,
plays, films, musical works, artistic works, such as drawings, paintings,
photographs and sculptures and architectural designs.
SMALL SCALE ENTERPRISES
Small scale industries, Micro, Small and Medium Enterprises (MSME), contribute
significantly to the development process and act as a vital link in industrialization in
terms of production, employment and exports for economic prosperity by widening the
entrepreneurial base and use of local raw materials and indigenous skills.
SMALL SCALE INDUSTRIES AS PER MSMED Act, 2006
Small business is generally defined in terms of size of the business enterprises. The
definition used by the Government of India to describe MSME is based on the
investment in plant and machinery and turnover.
Classification of Manufacturing and Service Enterprises.
According to MSMED Act 2006(Revised with effect from 1st July 2020) an enterprise,
engaged in providing or rendering of services or manufacture or production of goods
pertaining to any industry specified in the first schedule to the Industries
(Development and regulation) Act, 1951, there are three types of enterprises.
Manufacturing industries are defined in terms of investment in plant and machinery
while service Enterprises are defined in terms of investment in equipment.
● Micro Enterprise: Investment in plant and machinery or equipment does not
exceed ₹ 1 crore and annual turnover does not exceed ₹ 5 crores.
● Small Enterprise: Investment in plant and machinery or equipment is more
than ₹ 1 crore but does not exceed ₹ 10 crores and annual turnover does not
exceed ₹ 50 crores.
● Medium Enterprise: Investment in plant and machinery or equipment
 is more than ₹ 10 crores but does not exceed ₹ 50 crores and annual
turnover does not exceed ₹ 250 crores.
Types of Business Investment in Plant Turnover
and
Machinery
Micro Enterprise 1 Crore Does not exceed 5 crores
Small Enterprise 1 crore >10 Crores Does not exceed 50 crores
Medium Enterprise 10 crores>50 Crores Does not exceed 250 crores

ROLE OF SMALL BUSINESS IN INDIA WITH SPECIAL REFERENCE TO RURAL AREAS

Small business organizations play an important role in the socio-economic development
of the country. Some of them are as follows:

1. It helps the balanced regional development of our country. Small industries in

India account for 95 per cent of the industrial units in the country
2. MSME are the second largest employers of human resources, after agriculture.
They generate a greater number of employment opportunities per unit of capital
invested compared to large industries. It is considered as more labour intensive
and less capital intensive.
3. MSME in our country supplies an enormous variety of products which
include mass consumption goods, readymade garments, hosiery goods,
stationery items etc.
4. MSME which produce simple products using simple technologies and depend
on locally available resources both material and labour can be set up anywhere
in the country. It contributes significantly to the balanced development of the
country.
5. MSME provides ample opportunity for entrepreneurship. The latent skills and
talents of people can be channeled into business ideas which can be converted
into reality with little capital investment.
6. MSME also enjoys the advantage of low cost of production. Locally available
resources are less expensive.
7. Due to the small size of the organisation, quick and timely decisions can be
taken.

GOVERNMENT SCHEMES AND AGENCIES FOR SMALL SCALE INDUSTRIES

Some of the support measures and programmes meant for the promotion of small and
rural industries are as follows.

1. NATIONAL SMALL INDUSTRIES CORPORATION (NSIC)

National Small Industries Corporation (NSIC) is a Government of India enterprise
under the Ministry of Micro, Small and Medium Enterprise. It was set up in 1955
to promote the growth of small business units in the country.

The main functions of NSIC are:

· To Supply indigenous and imported machines on hire purchase basis.
 · To procure and supply indigenous and imported raw materials.
· To support the export of products.
· To provide monitoring and advisory services.
· To serve as technology business incubators.
· To create awareness on technological upgradation.
NSIC has implemented a new scheme of ‘performance and credit rating’ of small
businesses to achieve two objectives.
(i) Sensitising the small industries about the need for credit rating and
(ii) Encouraging the small business units to maintain a good
financial track record.
In addition to this, NSIC has been providing marketing support to Micro and
small enterprises under marketing assistance schemes.

2. DISTRICT INDUSTRIES CENTRES (DICS)

DIC programme was launched on 1st May, 1978 at the district level to provide services
and support facilities to the entrepreneurs for setting up small and village industries.
It provides different kinds of assistance to entrepreneurs.
a. To support small entrepreneurs at district level.
b. To provide all facilities and support to set up small and village
industries.
c. To help the identification of suitable schemes for entrepreneurs by Central
and State Govts.
d. To prepare feasibility reports on each industry.
e. To arrange credit facilities and equipment.
f. To Arrange raw materials.
g. To impart training for artisans, entrepreneurs etc.

MCQ/True or False/Fill in the Blanks(1 mark)

1. Intellectual property is tangible. (True or False)

2. Small businesses generally have a short gestation period. (True or False)
3. are individuals with surplus cash who have keen interest to invest in upcoming
start-ups.
4. (Bootstrapping / Angel Investment) in business means starting a business
without external help and is commonly known as self-financing.
5. is the practice of funding a project by raising money from a large number of people for
a common goal.
6. While calculating the investment in plant and machinery, the cost of pollution
control, research and development, industrial safety devices and such other
items shall be (Excluded/Included)
7. Small industries are the second largest employers of human
 resources, after agriculture. (True or False)
8. As per Ministry of Commerce and Industry, a start-up means an entity
incorporated or registered in India which is not older than five years and its
annual turnover does not exceed 20 crores in any preceding year.
9. Entrepreneurs improve the standard of living of many people, directly and
indirectly.
10. In the case of Manufacturing Enterprise, investment in Plant and Machinery
is more than 1 crore but does not exceed 10 crores.

MATCHING TYPE QUESTIONS

11. Match the statements given under A with the correct options given under B.
A B

1) Medium Manufacturing a. Investment in equipment is

Enterprise more than 10 crores but does not exceed 50 crores

ii) Medium Service Enterprise b. Investment in equipment

does not exceed 10 crores
c. Investment in Plant and
Machinery is more than 10 crores but does not exceed 50
crores

i) Angel Investment a. Self-financing.

ii) Crowdfunding b. Professionally managed funds
which are invested in companies that have huge potential.

iii) Bootstrapping c. Individuals with surplus cash

who invest in upcoming start-ups.

iv) Venture Capital d. Raising money from a large

number of people for a common goal.

Match the statements given under A with the correct options given under B.

12. Which of the following points highlight the role of small-scale business in
the development of the country?
(a) Promotes Balanced Regional Development (b)Employment Generation
(b) Low Cost of Production
(c) All of these
13. Performance and credit rating' scheme is implemented by:
 (a) District Industries Centers
(b) National Small Industries Corporation
c) National Bank for Agriculture and Rural Development
(d) Small Industries Development Bank of India
14. As per the Ministry of Commerce and Industry, a start-up means an entity
incorporated or registered in ------------------------- years.
a) Two (b) Three (c) Four (d) Five
15. Which of the following methods can be used to fund a Start-up?
(a) Crowdfunding (b) Angel Investment
(c) Bootstrapping (d) All of the above
Read the following statements: Assertion and Reason. Choose one of the correct
alternatives given below:
Alternatives:
a) Both Assertion (A) and Reason (R) are True and Reason(R) is the correct explanation of
Assertion (A).
(b) Both Assertion (A) and Reason (R) are True and Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is True but Reason (R) is False.
(d) Assertion (A) is False but Reason (R) is True.
16. Assertion (A): Small business is defined on the basis of investment in plant and
machinery or equipment in India.
Reason (R): In India, there is scarcity of capital and abundance of labour.
17. Assertion (A): Small industries promote balanced regional development of the
country.
Reason (R): In case organisation of small industries, quick and timely decisions can
be taken due to small size of the organization
18. Assertion (A): Small business is an important source of employment generation.
Reason (R): Entrepreneurs of small business command huge capital.
19. Assertion (A): Products of small industries give a tough competition to products of
large companies.
Reason (R): Small industries are unable to use modern technology and it is
difficult for them to invest in quality research.
STATEMENT BASED QUESTIONS
Read the following statements carefully and choose the correct alternative from the
following:
(a) Both the statements are true.
(b) Both the statements are false.
(c) Statement 1 is true and Statement 2 is false.
(d) Statement 2 is true and Statement 1 is false.
20. Statement 1: Boot Strapping refers to the practice of funding a project or venture
 by raising money from a large number of people for a common goal.
Statement 2: Boot Strapping is a good option of funding only if the initial
requirement is small and handy.
21. Statement 1: Micro Enterprise is an enterprise in which
investment in plant and machinery or equipment does not exceed 5 crore and
annual turnover does not exceed 10 crores.
Statement 2: In India, MSMED Act, 2006 was established for
developing and enhancing the competitiveness of large industries.
(a) Statement 1: Small industries are the largest employers of human
resources.
Statement 2: Sm all industries promote balanced regional development of the
country.
22. Statement 1: Medium Enterprise is an enterprise in which investment in
plant and machinery or equipment is more than 10 crores but does not exceed
50 crores and annual turnover does not exceed 250 crores.
Statement 2: In India, small business is defined on the basis of investment in land and
building.
23. Statement 1: Entrepreneurs improve the standard of living of many
people, directly and indirectly.
Statement 2: Entrepreneurship involves bigger risk as compared to career in
employment or practice of a profession.

Answer key

Question No: Question No: Question

No:

1-False 11 -- i-c, ii- a 21 – D

2 - True 12 – i) – c, ii) – d, iii) - a, 22 – B

iv) - b

3 - Angel Investors 13 - D 23 – D

4 - Boot Strapping 14- B 24 – C

5-crowd funding 15 - D 25- A

6 -Excluded 16 - D

7 - True 17 - A

8- False 18 – B
 9 - True 19- C

10- False 20- D

Short Answer Questions/ Long Answer Questions

24. “Small scale industries play a significant role in the developing countries
like India”. Justify statement by giving suitable reasons.
Ans: Yes, I agree with the given statement.
a) It helps the balanced regional development of our country. Small industries in
India account for 95 per cent of the industrial units in the country
b) MSME are the second largest employers of human resources, after agriculture.
They generate a greater number of employment opportunities per unit of
capital invested compared to large industries. It is considered as more labour
intensive and less capital intensive.
c) MSME in our country supply an enormous variety of products which
include mass consumption goods, readymade garments, hosiery goods,
stationery items etc.
d) MSME which produce simple products using simple technologies and
depend on locally available resources both material and labour can be set up
anywhere in the country. It contributes significantly to the balanced
development of the country.
e) MSME provide ample opportunity for entrepreneurship. The latent skills and
talents of people can be channeled into business ideas which can be converted
into reality with little capital investment.

25. Why do banks hesitate to lend money to small scale industries?

Ans: banks hesitate to lend money to small scale industries because of low
creditworthiness and lack of collateral security.
26. Why are small industries unable to supply good quality products?
Ans: small industries are unable to supply good quality products because
of lack of modern technology and shortage of resources to invest in research
and development.
27. “Entrepreneurs succeed by thinking and doing new things or old things in
new ways. Entrepreneurs are those who marry their creative ideas with the
purposeful action and structure of a business. They are able to not only come up
with indigenous ideas, but also turn those ideas into profits:. Which characteristic
of entrepreneurship is being highlighted in the given para?

Ans: Brings innovation and creativity – Entrepreneurship is innovative as it

involves introduction of new products, discovery of new markets and source of
supply of inputs, technological breakthroughs as well as introduction of newer
organizational forms for doing things better, cheaper, faster and in a manner
 that causes the least harm to the environment.

28. There are various types of Intellectual Property Rights which have been
recognised in India. Identify the type in the following statements.
a) It is a right conferred upon the creators of literary, artistic, musical,
sound recording and cinematographic film.
b) It represents collective goodwill of a geographical region, which has built itself
over centuries.
c) It helps in distinguishing similar products in the market from its
competitors.
d) It is a protection given to aesthetic appearance or eye- catching features
and item of its production is valid for 10 years.
e) It is an exclusive right granted by the government which provides the exclusive
right to exclude all others and prevent them from making, using, offering for
sale, selling or importing the invention. Ans: a)
Ans:
Copyright: Copyright is the right to “not copy”.

It is offered when an original idea is expressed by the creator or

author. It is a right conferred upon the creators of literary, artistic, musical,
sound recording and cinematographic film. The copyright is an exclusive right of
the creator to prohibit the unauthorized use of the content which includes
reproducing and distributing copies of the subject matter.
b) Geographical Indication: A Geographical Indication (GI) is
primarily an indication which identifies agricultural, natural or manufactured
products (handicrafts, industrial goods and food stuffs) originating from a definite
geographical territory, where a given quality, reputation or other characteristic
are essentially attributable to its geographical origin.
c) Trademark : A trademark is any word, name, or symbol (or
their combination) that helps us identify the goods made by an individual,
company, organization, etc. Trademarks also let us differentiate the goods
of one company from another.
d) Design: A ‘design’ includes shape, pattern, and arrangement of
lines or colour combination that is applied to any article. It is a protection given
to aesthetic appearance or eye-catching features. The term of protection of a
design is valid for 10 years, which can be renewed for further 5 years after
expiration of this term, during which a registered design can only be used after
getting a license from its owner and once the validity period is over, the design
is in public domain.
e) Patent: A patent is a type of IPR which protects the scientific
 inventions (products and or process) which shows technical advancement over
the already known products. A ‘patent’ is an exclusive right granted by the
Government which provides the exclusive ‘right to exclude’ all others and
prevent them from making, using, offering for sale, selling or importing the
invention.
29. “Entrepreneurs are frequently thought of as national assets to be cultivated,
motivated, and remunerated to the greatest possible extent. In fact, some of the
most developed nations such as United States are world leaders due to their
forward-looking innovation, research and entrepreneurial individuals. Great
entrepreneurs have the ability to change the way we live and work, on local and
national bases. If successful, their innovation may improve standard of living and in
addition to creating wealth with entrepreneurial ventures, they also create jobs and
contribute to a growing economy. The importance of entrepreneurship is not to be
underestimated.”
Do you agree with this? Give reasons to justify your answer.
Ans: Yes, I agree that entrepreneurship is very important. Explain the NEED FOR
ENTREPRENEURSHIP.

30. After completing MBA from FMS, Delhi, Raveena decided to enter into a startup
business. She wants to explore the diary product business after hearing news of
adulteration being found in the milk all over Delhi. She does feasibility studies and
finds there is a demand for healthy and quality products in the market. She is confused
about the options available to her for her startup. Suggest any 6 ways through which
she can finance it.
Ans: The funding for start-ups can be available in the following ways: (Explain the
following)
1. Boot Strapping.
2. Crowd Funding.
3. Angel Investment.
4. Venture Capital.
5. Business Incubators and Accelerators.
6. Microfinance and NBFCs

31. Sushant Singh done his B.Tech in electrical engineering. He has no business
experience but wants to start a small-scale manufacturing unit. He has chosen to
manufacture light engineering goods which will be marketed to manufacturers and
in replacement markets.
Which Govt. agency should he approach for receiving suitable guidance for
stating his unit?
What type of facilities will he be able to get from concerned agency.
 Ans: (a) DIC (b) Role of DIC

32. Preet food Industries set up food and beverages processing plant in the rural
area of Tamil Nadu and opted for labour intensive technique due to easy availability
of labour and to provide employment to local people. Board of director decided to
invest 50 lakhs to acquire plant & machinery, Rs. 1 crore to buy land, Rs. 20 Lakhs
to buy raw material and Rs. 20 lakhs to maintain day to day expenses.
(a) Name the Act of Industries which is applicable to the above industry.
(b) which category of part (a) will the above industry came?
(c) State the investment limit in this category.
Ans: (a) MSMED Act, 2006. Small Scale Industry, Rs. 10 crores.

33. After completing the graduation, three close friends (Raghav, Madhav and
Manohar) decided to start their own business.
a) Raghav established a factory to produce readymade garments and invested ₹
9 crores in plant and machinery.
b) Madhav set up a manufacturing unit to produce sanitary fittings.
He invested ₹ 35 crores in plant and machinery.
c) Manohar started a manufacturing unit to produce stationary items and
invested Manohar started a manufacturing unit to produce stationary items
and invested ₹ 80 lakhs in plant and machinery.
Ans: a) Raghav: Small Enterprise.
b) Madhav: Medium Enterprise.
c) Manohar: Micro Enterprise.
 CHAPTER 9 :

INTERNAL TRADE

MEANING

Internal Trade is the buying and selling of goods and services within the boundaries of
a nation. Internal trade is also known as ‘Home Trade’ or ‘Inland Trade’ or Domestic
trade.

TYPES OF INTERNAL TRADE

Internal Trade can be classified into two broad categories.

(1) Wholesale Trade
(2) Retail

WHOLESALE TRADE

Wholesale trade refers to the buying and selling of goods and services in
large quantities for the purpose of resale or intermediate use. The traders
who deal in wholesale trade are known as wholesalers.

Services of Wholesalers
Wholesalers provide various services to the manufacturers as well as retailers

(a) Services to Manufacturers

1. Facilitates large scale production

As the wholesalers purchase goods from the manufacturers in bulk
quantities, producers are able to undertake production on a large scale and take
advantage of the economies of scale.
2. Bearing risk
The wholesalers deal in goods in their own name, take delivery of the goods
and keep the goods in large quantities in their warehouses. In this process they bear
variety of risks such as the risk of fall in prices, theft, spoilage, fire etc.
3. Financial Assistance
Wholesalers generally purchase goods from manufacturers on cash basis
and sometimes even give advance for bulk orders. In this way wholesalers provide
financial help to the manufacturers.
 4. Expert Advice
As the wholesalers are in direct contact with the retailers, they are in a
position to advice the manufacturers about various aspects including
customer’s taste and preferences, market conditions, competitive activities
and the features preferred by the buyers.
5. Help in marketing function
The wholesalers collects orders from large number of retailers and supply goods
to them, who in turn sells the goods to the consumers. As a result, wholesaler
allows the manufacturer to concentrate more on production activity and relieves
him
from marketing of goods.
6. Facilitates production continuity
The wholesalers purchase goods from producers as and when these are produced.
It helps the manufacturers in maintaining continuity of production
activity.
7. Storage
The wholesaler takes delivery of goods when these are produced in the factory and
store them in their own warehouses. It relieves the manufacturers of the storing
problems.

(b) Services to Retailers

(1) Availability of goods

The wholesalers provides the products of various manufacturers to the retailers
and saves them from keeping large quantities of each product.
(2) Marketing Support
The wholesalers perform various marketing functions and provide support to
the retailers. They undertake advertising and other sales promotional activities to
induce customers to purchase the goods.
(3) Grant of credit
Wholesalers provide financial help to retailers by selling them goods on credit.
They can make payment after receiving the payment from the customers.
(4) Specialised knowledge
Wholesalers specialize in a particular line of products and have expert
knowledge of the market conditions relating to such products. They pass on the
benefit of
their specialized knowledge to the retailers and inform them about new
products, their uses, quality, prices etc.
(5) Risk Sharing
The wholesalers purchase in bulk and sell in relatively small quantities to the
retailers. Being able to purchase merchandise in smaller quantities, retailers
are
in a position to avoid the risk of storage, pilferage, obsolescence, reduction in
prices and demand fluctuations.
RETAIL TRADE
Retail Trade refers to buying of goods and services in relatively small quantities from
wholesalers and selling them to the ultimate consumers. The traders who deal in retail
trades are known as retailers.
Services of Retailers
(a) Services to Manufacturers and wholesalers

1. Helps in distribution of goods

Retailers provide access to the market to manufacturers and wholesalers through
distribution of goods to the final consumers, who may be scattered over a large
geographical area.
2. Personal Selling
By undertaking personal selling efforts, the retailers relieve the producers of this
activity and greatly help them in the process of actualizing the sale of the products.
3. Enabling large scale operations
On account of retailer’s services, the manufacturers and wholesalers are free
from the trouble of making individual sales to consumers in small quantities.
This enables them to operate on, at relatively large scale, and thereby fully
concentrate on their other activities.
4. Collecting market information
As retailers remain in direct and constant touch with the buyers, they
serve as an important source of collecting market information about the
tastes, preferences and the attitude of customers.
5. Helps in promotion
Retailers participate in the promotional activities of the manufacturers and
wholesalers in various ways and thereby help in promoting the sale of the products.
(b) Services to Consumers
1. Regular availability of products.
Consumers are assured of continuous supply of goods and they need not
store the goods in large quantities. A retailer makes available to the customers
all types of commodities.
2. New product information
By arranging for effective display of products and through their personal efforts,
retailer provide important information about the arrival, special features etc. of new
products to the consumers.
3. Convenience in buying
Retailers offer great convenience to the customers in buying small
quantities of products according to their requirements. Retail shops are
usually situated near to residential areas and remain open for long hours.
4. Wide Selection
Retailers generally keep stock of a variety of products of different manufacturers.
This enables the consumers to make their choice out of a wide selection of goods.
5. After sale service
Retailers provide important after sale services in the form of home delivery
, repair of goods in the case of durable items, supply of spare parts and
attending to customers.
6. Provide credit facilities
The retailers sometimes provide credit facilities to their regular buyers. It
enables the customers to increase their consumption level and standard of living.

TYPES OF RETAIL TRADE

The retail trade may be classified into two main categories:
1. Itinerant Retailers 2. Fixed Shop Retailers
Itinerant Retailers
 Itinerant retailers are those traders who do not have a fixed place of business to
operate from. They keep on moving with their wares from street to street or place to
place, in search of customers.
Main features of Itinerant Retailers are:
● They are small traders operating with limited resources.
● They normally deal in consumer products of daily use.
● They mostly sell goods on a cash basis.
● They operate with a very small amount of capital.
● They generally sell goods at prices lower than charged by fixed shop retailers.
● They provide greater service to customers by making the products
available to their doorsteps.

TYPES OF ITINERANT RETAILERS

(1) Hawkers and Pedlars

Hawkers and Pedlars move from street to street in search of customers. The
Hawkers carry their goods in a wheeled vehicle, while the pedlars carry the goods on
their head and back.
They generally deal in non -standardized and low value products such as
fruits vegetables, toys, fabrics, snacks and ice cream etc. The main advantage
of this form Retailing is convenient service to customers.
(2) Market Traders
Market traders are the small retailers who open their shops at different places
on fixed days. These retailers sell their goods at periodical markets such as weekly,
monthly or annually.
Generally they display their goods on temporary structures made outside the
shops which are closed for a weekly holiday. They are mainly catering to lower
income group of customers and deal in low priced consumer items of daily use.
(3) Street Traders (Pavement vendors)
These retailers arrange or display their goods at busy street corners,
pavements and other busy public places like bus stands, railway stations, cinema
halls etc.
They sell consumer items of common use, such as stationery items, eatables,
readymade garments, newspapers and magazines etc.
(4) Cheap Jacks
Cheap Jacks display their goods in hired shops or in tents for a temporary
period in different localities. They keep on changing their business from one
locality to another, depending upon the potentiality of the area. They generally
deal in house hold articles, readymade garments and other low priced goods.

FIXED SHOP RETAILERS

The retailers having a fixed place of sale are known as fixed shop retailers. They
do not move from one place to another in search of customers. Fixed shop retailers
can be further classified into two categories.
(1) Small-scale fixed retail shops
(2) Large scale fixed retail shops

(1) Small-scale fixed retail shops

Small scale fixed retailers are the most common form of retailers. They are mostly
situated in localities to fulfill the needs of people residing in local areas.

TYPES OF SMALL SCALE FIXED RETAIL SHOPS

(a) General Stores
General stores are small shops located in residential areas deals with items of daily
use such as grocery items, soft drinks, toiletry products, stationary and confectionery.
They have a large variety in each line of product. They also provide free home delivery
credit facility and other services to regular customers.
(b) Specialty Shops
These retail shops specialize in sale of a specific line of products. For ex. Men’s
wear shops, stationery shops, medical shops etc.
(c )Street Stall holders
These small vendors are commonly found at street crossing or other places where
the flow of traffic is heavy. They attract floating customers and deal mainly in goods
of cheap variety like hosiery products, toys, magazines, soft drinks etc.

(c) Second hand goods shops

These shops deals in second hand or used goods like books, cloths,
furniture and other household goods. The goods are sold at lower prices.
Generally persons with modest means purchase goods from such shops.

(2) Large scale fixed retail shops

Large scale fixed retailers operate on large scale as they maintain large stock of
goods and purchase of goods in bulk. Two important types of large scale fixed shop
retailers are:
(a) Departmental Stores
(b) Chain Stores or Multiple Shops.

(a) Departmental Stores : A departmental store is a large establishment, which sells a

wide variety of products and aims to satisfy all needs of the customers under one roof.
The store is divided into a number of departments and each department deals in a
particular variety of goods. They satisfy diverse market segments with a wide variety of
goods and services.
Important features of a departmental store:
(i) Central Location: It is generally located at a central place in the city so that
people living in different areas may reach there easily.
(ii) Large variety of goods: These stores maintain a large variety of goods
and customers can purchase almost all their requirements from these
stores.
(iii) Large Size: As the size of these store is very large, they are generally formed
as a joint stock company managed by a board of directors.
(iv) Centralised Purchasing: All the purchases in a departmental store
are made centrally by the purchase department.
(v) Elimination of middlemen: A departmental store purchase goods directly
from the manufacturers, which sells them to the ultimate consumers and
eliminates middlemen.
(vi) Services: A departmental store provide a number of services and facilitates to the
customers such as restaurant, travel and information bureau, rest rooms,
telephone booth etc.

(b) Chain Stores or Multiple shops Chain stores or multiple shops are networks of
retail shops, which are owned and operated by manufacturers or intermediaries.
All the retail shops deal in similar line of standardized and
 branded consumer products. They all have identical merchandising strategies,
with identical products and displays. Bata, Pizza hut, Raymonds etc. are examples
of multiple shops.
Important features of Multiple shops are:
(i) Large Size: Chain stores operate on a large scale. Huge investment is
required to to set up identical shops in different parts of the country.
(ii) Location: These shops are located in fairly populous localities where sufficient
number of customers can be approached.
(iii) Centralised Purchases: The head office makes all the purchases for
all these multiple shops. Thereafter goods are dispatched to different
shops as per their requirements.
(iv) Centralised control: All stores are controlled by the head office, which
formulates policies and get them implemented in different shops.
(v) Specialised in one line: Generally chain stores specialize in one line of product
and variety in that line only is available at all the shops located in different
areas.
(vi) Uniform Prices: The prices of the product charged by chain stores located
in different parts of the country are the same and they sell goods at a fixed
price.
(vii) Elimination of middlemen: Chain stores are generally owned by
manufacturers who sell their goods directly to consumers, so middlemen are
eliminated.
(viii) Cash Sales: In chain stores no credit is given. Goods are sold on cash basis only.

MAIL ORDER BUSINESS: Mail Order Houses are the retail outlets that
sell their merchandise through mail usually without any direct personal
contact between buyers. For obtaining orders, potential customers are
approached through advertisements in newspapers or magazines, circulars,
catalogues, samples and bills and price lists sent to them by post. On receiving
the orders, the items are carefully scrutinized with respect to the specifications
asked for by the buyers and are compiled with through the post office.

GOODS AND SERVICES TAX (GST)

GST or Goods and Services Tax is a comprehensive indirect tax which has
replaced many indirect taxes in India. GST was introduced in India with effect from 1st
July 2017. The Government of India, following the credo of ‘One Nation and One Tax’,
and wanting a unified market in order to ensure the smooth flow of goods across the
country implemented GST. GST is a destination based single tax on the supply of goods
and services from the manufacturer to the consumer, and has replaced multiple
indirect taxes levied by the Central and the State governments, thereby converting
the country into a unified market.

Key features of GST:

1. The territorial spread of GST is the whole country.

2. GST is applicable on the supply of goods or services as against the earlier
concept of tax on the manufacture or sale of goods or on the provision of
services.
3. It is based on the principle of destination based consumption tax against the
earlier principle of origin based taxation.
4. Import of goods and services is treated as Inter-state supplies and would be
subject to IGST in addition to the applicable customs duties.
 5. CGST, SGST and IGST are levied at rates mutually agreed upon by the Centre and
the states under the aegis of the GST council. There are four tax slabs namely
5%, 12%, 18% and 28% for all goods or services.
6. Exports and supplies to SEZ are zero rated.
7. There are various modes of payment of tax available to the tax payer, including
internet banking, debit/credit card and National Electronic Funds Transfer
(NEFT) or Real Time Gross Settlement (RTGS)

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MULTIPLE CHOICE QUESTIONS

1. Which of the following is not a type of Itinerant retailer?
(a) Hawkers (b) Market Traders
(c) Street Traders (d) Street Stalls

2 .......................................... deal in similar line of standardized and branded consumer

products and have identical merchandising strategies, with identical
products and displays.
(a) Departmental Stores (b) Chain Stores
(c) General Stores (d) Speciality shops

3. Which among the following is not a feature of wholesalers ?

(a) Wholesalers acts as a link between producers and retailers
(b) Wholesalers maintain personal relations with the customers.
(c) Wholesalers deal with large quantities of goods.
(d) Wholesalers generally specialize in one line of product.

4. Gopakumar sells vegetables in a cycle rickshaw and moves from place to place.
He provides them at the doorstep of his customers. Which type of itinerant trader
he is?
a) Hawkers b)Pedlars c) Cheap jacks d) Market traders
5. Hameed is the proprietor of a Men’s wear shop located in the city. Which
type of Retail shop is it ?
(a) General Stores (b) Speciality shops
(c) Street Shops (d) Second hand goods shops

6. ‘Bata stores’ is an example for which type of retail shops ?

(a) Departmental Stores (b) General stores
(c) Multiple Shops (d) Speciality shops.

7. Read the following statements, Assertion and Reason and choose the
correct alternative from the given below.
Assertion (A) : The departmental Stores are generally formed as joint stock
company.
Reason (R): All the purchases in a departmental store are made centrally by the
Purchase department.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason(R) is the
correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason(R) is not the
correct explanation of Assertion (A)
(c) Assertion(A) is true, but Reason (R) is false
 (d) Assertion (A) is false, but Reason (R) is true

8. Read the following statements carefully and choose the correct alternative from the
following.
Statement 1: Import of goods and services is treated as inter-state supplies
and would be subject to IGST under GST.
Statement 2: GST is a destination based consumption tax with facility of Input
Tax Credit in the supply chain.
Alternatives:
(a) Both the statements are true.
(b) Both the statements are false.
(c) Statement 1 is true and Statement 2 is false.
(d) Statement 1 is false and Statement 2 is true.
9. Observe the image given below and name the type of itinerant trader

(a) Pedlars (b) Hawkers (c)Market trader (d) Street

trader

10. Government of India, following the credo of “One Nation and One Tax”,
and wanting a unified market in order to ensure the smooth flow of goods across the
country implemented the Goods and Service Tax (GST) from ………………..

(a) April 1, 2020 (b) November 15, 2018

(c) July 1, 2017 (d) August 15, 2016

ANSWER KEY –MULTIPLE CHOICE QUESTIONS

7. (d) 2.(b) 3.(b) 4.(a) 5.(b) 6.(c) 7.(b) 8.(a) 9.(a) 10. (c)

SHORT ANSWER QUESTIONS

1. Ajay is a small trader who sells items of daily use in the weekly market. He has fixed
different days for different places, like Monday, he set up his shop with
temporary Structure in ‘Som Bazar’. On Tuesday, he set up his shop in ‘Mangal
Bazar’ and so on.
(a) Ajay’s shop will be classified under which retail shop ?
(b) State any two
features of it Ans:
Market Traders
Important features of market traders:
● Market traders are the small retailers who open their shops at different
places on fixed days.
● These retailers sell their goods at periodical markets such as weekly,
monthly or annually.
● Generally they display their goods on temporary structures made
 outside the shops which are closed for a weekly holiday.
● They are mainly catering to lower income group of customers and deal
in low priced consumer items of daily use.

2. State any three features of Goods and Service

Tax (GST)
Ans: Key features of GST:
1. The territorial spread of GST is the whole country.
2. GST is applicable on the supply of goods or services as against the earlier
concept of tax on the manufacture or sale of goods or on the provision of
services.
3. It is based on the principle of destination based consumption tax against the
earlier principle of origin based taxation.
4. Import of goods and services is treated as Inter-state supplies and would be
subject to IGST in addition to the applicable customs duties.
5. CGST, SGST and IGST are levied at rates mutually agreed upon by the Centre and
the states under the aegis of the GST council. There are four tax slabs namely
5%, 12%, 18% and 28% for all goods or services.

3. “These retailers are generally seen in areas having high population like bus stands,
Railway stations etc. They deal in common use products, like news papers,
magazines Toys, stationery items etc.”
(a) Identify the type of retailer and state any two features of it.

Ans:
Street Traders (Pavement Vendors)
● These retailers arrange or display their goods at busy street corners,
pavements and other busy public places like bus stands, railway stations, cinema
halls etc.
● They sell consumer items of common use, such as stationery items,
eatables, readymade garments, newspapers and magazines etc.
● They deal in low priced products of common use.
4. Prakash is a retailer, who runs a small retail shop in his locality dealing with a
variety of products required to satisfy the day to day needs of the people in his locality.
He sells on credit to trusted customers and free home delivery also.

(a) Which type of retail shop is run by Prakash ?

(b) Briefly explain any other three small scale fixed retail shops.

Ans: (a) General Stores

(b) (a) Speciality Shops
These retail shops specialize in the sale of a specific line of products. For
example, Men’s wear shops, stationery shops, medical shops etc. The speciality shops
are generally located in a central place in order to attract large number of customers,
and they provide a wide choice to the customers in the selection of the goods.
(b) Street Stall holders
These small vendors are commonly found at street crossing or other places where
flow of traffic is heavy. They attract floating customers and deal mainly in goods of
cheap variety like hosiery products, toys, magazines, soft drinks etc.
(c) Second hand
goods shops
 These shops deals in second hand or used goods like books, cloths,
furniture and other household goods. The goods are sold at lower prices.
Generally persons with modest means purchase goods from such shops.
5. Briefly explain any four services provided by Retailers to
consumers
Ans: Retailers Services to Consumers

1. Regular availability of products.

Consumers are assured of continuous supply of goods and they need not
store the goods in large quantities. A retailer makes available to the customers
all types of commodities.
2. New product
information
By arranging for effective display of products and through their personal efforts,
retailer provide important information about the arrival, special features etc. of new
products to the consumers.
3. Convenience in buying
Retailers offer great convenience to the customers in buying small
quantities of products according to their requirements. Retail shops are
usually situated near to residential areas and remain open for long hours.
4. Wide Selection
Retailers generally keeps stock of a variety of products of different manufacturers.
This enables the consumers to make their choice out of a wide selection of goods.
5. After sale service
Retailers provide important after sale services in the form of home delivery
, repair of goods in the case of durable items, supply of spare parts and
attending to customers.
6. Provide credit facilities
The retailers sometimes provide credit facilities to their regular buyers. It
enables the customers to increase their consumption level and standard of living.

LONG ANSWER TYPE QUESTIONS

1. Rajesh has decided to launch an instant food range by the name of ‘Delicia’. He has
decided to initially launch instant idli mix, dosa mix, gulab jamun mix and pakoda mix
in the market at national level. However, he is not able to decide on the distribution
level. He has the following options available.
(i)
Place his products at departmental stores all across the country.
(ii)
Set up own retail outlets across the country
(iii)
Start an e-portal
(iv)Appoint wholesalers across the country.
He has discussed the various options with his stakeholders and after discussion, he
decided to appoint
wholesalers all over India.
On the basis of the above case , answer the following.
(a) Briefly explain any three services availed by Rajesh by appointing wholesalers across the
country
(b) Briefly explain any three services provided by wholesalers to retailers.
Ans: (a) Services to Manufacturers

1. Facilitates large scale production

As the wholesalers purchase goods from the manufacturers in bulk quantities, producers
are able to undertake production on a large scale and take advantage of the economies of scale.
2. Bearing risk
The wholesalers deal in goods in their own name, take delivery of the goods and keep the goods
in large quantities in their warehouses. In this process they bear variety of risks such as the risk
of fall in prices, theft, spoilage, fire etc.
3. Financial Assistance
Wholesalers generally purchase goods from manufacturers on cash basis and sometimes
even give advance for bulk orders. In this way wholesalers provide financial help to the
manufacturers.
4. Expert Advice
As the wholesalers are in direct contact with the retailers, they are in a position to advice
the manufacturers about various aspects including customer’s taste and preferences, market
conditions, competitive activities and the features preferred by the buyers.

5. Help in marketing function

The wholesalers collects orders from large number of retailers and supply goods to them, who
in turn sells the goods to the consumers. As a result, wholesaler allows the manufacturer to
concentrate more on production activity and relieves him from marketing of goods.

6. Facilitates production continuity

The wholesalers purchases goods from producers as and when these are produced.
It helps the manufacturers in maintaining continuity of production activity.

7. Storage
The wholesaler takes delivery of goods when these are produced in the factory and store them in
their own warehouses. It relieves the manufacturers of the storing problems.

(b) Wholesalers Services to Retailers

(1) Availability of goods
The wholesalers provides the products of various manufacturers to the retailers and saves them
from keeping large quantity of each product.

(2) Marketing Support

The wholesalers perform various marketing functions and provide support to the Retailers.
They undertake advertising and other sales promotional activities to Induce customers to
purchase the goods.
 (3) Grant of credit
Wholesalers provide financial help to retailers by selling them goods on credit.
They can make payment after receiving the payment from the customers.
(4) Specialised knowledge
Wholesalers specialize in a particular line of products and have expert knowledge of the
market conditions relating to such products. They pass on the benefit of their specialized
knowledge to the retailers and inform them about new products, Their uses, quality, prices
etc.

(5) Risk Sharing

The wholesalers purchase in bulk and sell in relatively small quantities to the retailers. Being
able to purchase merchandise in smaller quantities, retailers are in a position to avoid the risk
of storage, pilferage, obsolescence, reduction in prices and demand fluctuations.

2. “Steps Footwear (P) Ltd.” deals in manufacturing of footwear. This company had opened 10 new
branches to sell its products directly to its customers in different parts of the country. The speciality of
these shops is that all its shops the goods available are of the same type and their price is also same.
The layout of the shop is also same for all these shops. The people are happy to buy quality
products directly from producer or manufacturer.
(a) Identify the type of retail shop opened by “Steps footwear (P) Ltd.”
(a) Briefly explain its important features.
Ans: a) Multiple Shops/Chain Stores

Important features of Multiple shops are:

(i) Large Size: Chain stores operate on a large scale. Huge investment is required to to set up
identical shops in different parts of the country.
(ii) Location : These shops are located in fairly populous localities where sufficient number
of customers can be approached.
(iii) Centralised Purchases: The head office makes all the purchases for all these multiple
shops. Thereafter goods are dispatched to different shops as per their requirements.
(iv) Centralised control: All stores are controlled by the head office, which formulates policies
and get them implemented in different shops.
(v) Specialised in one line: Generally chain stores specialize in one line of product and variety
in that line only is available at all the shops located in different areas.
(vi) Uniform Prices: The prices of the product charged by chain stores located in different
parts of the country are the same and they sell goods at a fixed price.
(vii) Elimination of middlemen: Chain stores are generally owned by manufacturers who
sell their goods directly to consumers, so middlemen are eliminated.
(viii) Cash Sales: In chain stores no credit is given. Goods are sold on cash basis only.

3. Ganesh Kumar owns a large scale retail outlet at a central location in Mumbai. The outlet is
divided into a number of sections and each section deals in a particular variety of goods. They
provide number of facilities and services to their consumers such as restaurant, telephone booth,
kids play area etc.
(a) Identify the type of retail outlet being highlighted in the above case.
(b) State the important features of it
Ans: (a) Departmental Stores
Important features of a departmental store:

(i) Central Location: It is generally located at a central place in the city so that people living in
different areas may reach there easily.
(ii) Large variety of goods: These stores maintain a large variety of goods and
customers can purchase almost all their requirements from these stores.
(iii) Large Size: As the size of these store is very large, they are generally formed as a joint
stock company managed by a board of directors.
(iv) Centralised Purchasing: All the purchases in a departmental store are made centrally
by the purchase department.
(v) Elimination of middlemen: A departmental store purchase goods directly from the
manufacturers, which sells them to the ultimate consumers and eliminates middlemen.
(vi) Services: A departmental store provide a number of services and facilitates to the customers
such as restaurant, travel and information bureau, rest rooms, telephone booth etc.

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 CHAPTER 10
INTERNATIONAL TRADE

International Business:
Manufacturing and trade beyond the boundaries of one’s own
country is known as international business. International or
external business can, therefore, be defined as those business
activities that take place across the national frontiers. It involves
not only the international movements of goods and services, but
also of capital, personnel, technology and intellectual property
like patents, trademarks, know-how and copyrights.

Scope of International Business – Major areas of operations of

international business are briefly discussed below:

1. Merchandise exports and imports – Merchandise means goods

which are tangible, ie, those that can be seen and touched.

2. Service exports and imports – It means trade in intangibles,

i.e., those that cannot be seen or touched. It is also known as
invisible trade. Eg. Tourism and travel, transportation,
entertainment, communication, educational service etc.

3. Licensing and franchising – Permitting a person/firm in a

foreign country to produce and sell goods under your trademarks,
patents or copyrights for a fee is another way of operating
international business. Eg. Pepsi, Coca-Cola etc. Franchising is
somewhat similar to licensing with the difference that it is
connected with provision of services. Eg. Mc Donald (fast food
restaurants), KFC etc

4. Foreign Investments – It means investment abroad in exchange

for financial return. It can be in FDI (Foreign Direct Investment)-
directly invested in properties, and FPI (Foreign Portfolio
Investment)- investing by way of acquiring shares or granting loans.
 Difference between International business vs. Domestic business
Basis International Business Domestic Business
1. Nationality of Buyers & sellers come from Buyers & sellers are from the
buyers & Sellers different countries. same country.
2. Nationality of Belong from various Belong to one country &
other stakeholders countries & hence have hence consistency in their
wider set of values and value system and behaviour.
aspirations.
3. Mobility of Mobility with various Free mobility.
factors restrictions.
of production.

4. Customer Difference in taste and Difference in taste and

heterogeneity across preference complicate the task preference does not
markets of designing product in complicate the task of
international market. designing product in
domestic market.

5. Differences in The differences in business The differences in business

business systems & systems and practices are systems and practices are
practices considerably much more considerably less within a
among different countries. country.

6. Political system Political environment differs Predict the impact of political

& risk from one country to another. environment on business
Special efforts are needed. operations.
7. Business Business laws, regulations Business laws, regulations ,
regulations & policies and economic policies differ economic policies are less
among different countries. uniformly applicable within a
country.
8. Currency used The price of one currency No such problem is faced as
in Business expressed in relation to that only home currency is used.
transactions of another country’s currency,
keeps on fluctuating.
Benefits of International Business:-
Benefits to Nations:-
a) International business helps a country to earn foreign exchange
which it can later use for meeting its imports of other goods.
b) Produce what your country can produce more efficiently, and trade
the surplus production so generated with other countries to
procure what they can produce more efficiently.
c) Exporting and flourishing in International trade helped in improving
their growth prospects and created opportunities for employment of
people.
d) Due to International business people in the world community are able
to consume and enjoy a higher standard of living.

Benefits to Firms:-
a) When the domestic prices are lower, business firms can earn more
profits by selling their products in countries where prices are high.
b) Making use of surplus production capacities & thereby improving
the profitability of operations.
c) When demand in home country gets saturated, the company can
think of growth prospects in developing countries.
d) When competition in the domestic market is very intense,
internationalization seems to be the only way to achieve significant
growth.
e) The vision to become international comes from the urge to grow,
the need to become more competitive, the need to diversify and
to gain strategic advantages of internationalization.

Export Trade
Exporting refers to selling of goods and services from the home
country to a foreign country. Export trade is a function of international
trade whereby
goods produced in one country are shipped to another country for sale
or trade.

EXPORT PROCEDURE:

1. Receipt of enquiry and sending quotation – The exporter gets an enquiry

from prospective buyers from a foreign country and sending quotation in the
form of a proforma invoice, which is a document containing all description
about the product such as price, quality, grade, size, weight, mode of delivery,
type of packing, payment terms etc.

2. Receipt of order or indent – If the buyer is satisfied with the conditions in

the proforma invoice, an order will be placed. This order is also called indent.
It contains the description of goods, price, quality etc.
 3. Assessing importer’s creditworthiness and securing a guarantee for
payments – After receiving indent, the exporter conducts an enquiry about
the financial capacity of the importer to ensure the promptness in settlement.
Usually, exporters may demand a letter of credit in this regard.

4. Obtaining export license – In order to get the export license from the Import-
Export Licensing Authority, the exporter has to fulfill the following formalities:

a. Open a bank account.

b. Obtaining Import Export Code (IEC) number from the Directorate General of
Foreign Trade or Regional Import Export Licensing Authority.
c. Registering with appropriate export promotion council. Eg: Apparel Export
Promotion Council, Council for Leather Exports etc.
d. Registering with Export Credit and Guarantee Corporation (ECGC) to cover the
risk of non-payment

5. Obtaining pre-shipment finance – After the confirmation of order the

exporter may approach his bank for getting pre-shipment finance to carry out
export production.

6. Production or procurement of goods – The exporter makes ready the

goods as per specification either by production or by purchasing it from the
market.

7. Pre-shipment inspection – In foreign trade the quality of goods must

conform to international standards. For this compulsory inspection by Export
Inspection Agency – EIA (Govt. of India undertaking) should be done.

8. Excise Clearance – All goods produced are subject to excise duty under
Central Excise and Tariff Act, but exported goods are either exempted or if
paid, it is later refunded. So the exporter has to apply to the Excise
Commissioner for export clearance. If the authority is satisfied, the excise
clearance is given or the claim for refund is allowed. Such refund of duty is
called duty drawback.

9. Obtaining certificate of origin – Some importing countries provide tariff

concession or other exemptions for goods imported from certain countries.
To avail such benefits the exporter has to obtain and submit certificate of
origin along with other export documents. Certificate of Origin is a proof that
the goods are actually been produced in the country from where it is exported.

10. Reservation of shipping space – The exporter has to apply for this by
 furnishing complete information about the goods, probable date of shipment
and port of destination. On acceptance, the shipping company issues a
shipping order

11.Packing and forwarding – Goods are packed and marked with details such
as name and address of importer, gross and net weight, destination port,
country of origin etc. A packing list is attached herewith all other
documents.

12.Insurance of goods – The exporter has to insure the goods with an insurance
company to cover the risk due to sea perils in transit.

13. Customs clearance – Before loading the goods on the ship, customs clearance
should be obtained by the exporter. For this the exporter prepares a shipping
bill.

14. Obtaining mates receipt – After the goods are loaded on the ship, the captain
or mate of the ship issues a certificate called mate’s receipt.

15. Payment of freight and insurance of bill of lading – The C&F agent
(Clearing and Forwarding agent) submits the mate’s receipt to the shipping
company for computation of freight. After the payment of freight, the shipping
company issues a bill of lading.

16. Bill of lading – It is document issued by the shipping company after the cargo
is loaded on the ship. It is prepared on the basis of Mates Receipt. The shipping
company undertakes the delivery of goods to the buyer by producing this
document.

17. Preparation of invoice – The exporter has to prepare an invoice of the goods,
which contains the details such as quantity and the amount to be paid by the
importer.

18. Securing payment – After shipment of goods, the exporter sends the relevant
documents like Bill of lading, bill of exchange, letter of credit, invoice, etc. to the
bank for completing the formalities to receive payment from the importer

IMPORT TRADE:
Import trade refers to buying goods and services from another country.
Countries are most likely to import goods that domestic industries cannot
produce as efficiently or cheaply.
Import trade procedure:
1. Trade enquiry – The importer has to collect information about the
exporters of the products he needs from various sources like trade
directories, trade associations, websites etc. After identifying the
 exporter, he sends the trade enquiry. Trade enquiry is a written request
by the importer to the overseas supplier for getting information such
as price, quality and other terms and conditions for export.
2. Obtain the import license – Certain goods can be imported freely, while
others require license. He has to apply for the import license at DGFT and
obtain IEC number.
3. Obtaining foreign exchange – In import trade, payment is made in
foreign currency, all foreign exchange transactions are regulated by RBI in
India. So that the importer has to get prior sanction for foreign exchange.
4. Placing order or indent – The importer has to place an order or indent
for the supply of goods. It should contain price, quality, quantity, size,
grade and instructions relating to packing, shipping, delivery schedule,
insurance and mode of payment etc.
5. Obtaining letter of credit – The importer should obtain the letter of
credit from his bank and forward it to the exporter.
6. Arranging finance – Importer should arrange fund in advance to pay
to the exporter on arrival of goods.
7. Receipt of shipment advice – It is a document sent by the exporter to the
importer containing information about the shipment of goods after it is
being loaded on the ship.
8. Retirement of import documents – After the goods are shipped, the
exporter submits all the necessary documents with his banker for getting
payment. Here the importer has to retire (receive) the documents either by
ready payment or by accepting a bill of exchange.
9. Arrival of goods – On arrival of goods the person in charge of the ship
informs the officer at the dock through a document called import general
manifest. Import General Manifest is a document contains the details of
imported goods and on the basis of which the cargo is unloaded.

10. Customs clearance and release of goods – After fulfilling all the
formalities at the dock and payment of dock dues, freight if any and the
customs duty, the importer can release the goods from the port.

Documents involved in International Trade

1. Shipping Bill: It is the main document on the basis of which

 permission is granted for the export of goods by the custom office. It
contains full details regarding the goods being exported, name of the
vessel, exporters name & address, country of final destination etc.
2. Mate’s Receipt: This receipt is issued by the captain or mate of the ship
to the exporter after the goods are loaded on board of the ship. It
contains the name of the vessel, description of packages, marks,
conditions of the cargo at the time of receipt onboard the ship etc.
3. Letter to credit: It is a guarantee letter issued by the importer bank stating that
it will honour the export bills to the bank of the exporter up to a certain amount

4. Indent: It is a document in which the importer orders for supply of requisite

goods to the supplier. The order contains the information such as quantity &
quality of goods, price, method of forwarding the goods, nature of packing, mode
of payment etc.
5. Shipping Order: The exporting firm applies to the shipping company for provision
of the shipping space. It is an instruction to the captain of the ship that the
specified goods, after customs clearance at a designated port, be received on
board
World Trade Organization (WTO)
It came into existence on 1st January 1995. The headquarters of WTO
is situated at Geneva, Switzerland. It is a permanent organization
created by an international treaty rectified by the Governments and
legislatures of member states. It is concerned with solving trade
problems between countries and providing a forum for multilateral
trade negotiations.
Objectives of WTO:
1. To reduce the trade tariffs and barriers imported by different
countries in the smooth flow of international trade.
2. To improve the standard of living, create employment, increase
income and effective demand and facilitate higher production
and trade.
3. To maintain sustainable development by optionally using the
world's resources.
4. To promote an integrated, more viable and durable trading
system among nations.

Role/ Functions of WTO:

1. To remove barriers of International trade.
2. To Act as a dispute settlement body by settling trade related
disputes among member nations.
3. To ensure that all the rules and regulations prescribed in the Act are
duly followed by the member countries for settling their disputes.
4. Laying down a commonly accepted code of conduct for international
trade aiming at reducing tariff and non-tariff barriers in
international trade.
5. To consult other agencies to bring better understanding
cooperation in global economic policy making.
6. Providing technical assistance and guidance related to
management of foreign trade and fiscal policy to its member
nations.
7. Taking special steps for the development of the poorest nations.
8. Reviewing trade related economic policies of member countries
with the help of its Trade Policy Review Body.
9. Co-operating with IMF and World Bank and its associates for
establishing coordination in global trade policy making.
10. Acting as a forum for trade liberalization.
MULTIPLE CHOICE QUESTIONS (MCQs)

1. Certificate of Inspection is issued by:

(a) Captain of the ship (b) Exporter’s Bank
(c ) Insurance Company (d) Export Inspection Council of
India
2. Which of the following is not an objective of import trade?
(a) (a) To overcome famine (b) To improve standard of living (c
) To earn foreign exchange (d) To speed up industrialization

3. Cart ticket is also known as:

(a) Cart chit (b) Gate Pass
(b) (c ) Vehicle Pass (d) All of these
 4. The exporter has to open a bank account in any
bank authorised by to deal in foreign
exchange.
(a) State Bank of India (b) Reserve Bank of India (c
) Central Government (d) State Government
5. Pre-shipment Inspection is not compulsory for:
(a) Export Houses (b) 100% Export Oriented Units (c
) Star Trading Houses (d) All of these

6 is subject to rules, laws or taxation policies of various

countries.
(a) International business (b) Domestic Business
(c ) both (a) and (b) (d) None of these

7. Which of the following documents are not required for

obtaining an
export licence?
(a) IEC number
(b) Letter of credit
(c ) Registration cum membership certificate
(d) Bank account number

8. Which of the following documents is not

required in connection with an import transaction?
(a) Bill of lading (b) Shipping bill
(c ) Certificate of origin (d) Shipment advice
9. Which of the following do not form part of the duty drawback
scheme?
(a) Refund of excise duties
(b) Refund of customs duties
(c) Refund of export duties
(d) Refund of income dock charges at the port of shipment.

10.Which one of the following is not a part of export documents?

(a)Commercial invoice (b) Certificate of origin
(c ) Bill of entry (d) Mate’s receipt

Answers:

1 2 3 4 5 6 7 8 9 10

d c d b d a b b d c

ASSERTION REASON QUESTIONS (ARQs)

 Read the following statements: Assertion and Reason.
Choose one of the correct alternatives given below:
Alternatives:

(a) Both Assertion (A) and Reason (R) are True and
Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are True and Reason
(R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is True but Reason (R) is False.
(d) Assertion (A) is False but Reason (R) is True.

1.
Assertion (A) : International Business and
International Trade are one and the same
thing.
Reason (R) : International Business involves the international
movements of goods and services,
capita" personnel, technology and
intellectual property.

2. Assertion (A) : International business is subject to rules,

laws
or taxation policies of various countries.
Reason (R) : Business systems and practices are less homogeneous
in the case of International business.

3.
Assertion (A) : Letter of Credit is the most appropriate
and secure method of payment to settle
international transactions.
Reason (R) : Letter of credit is a guarantee issued by the exporter's
bank.
Answers

1 2 3

d b c

Short Answer Type Questions

1. Differentiate between international trade and international
 business.

Ans: International Business is a much broader concept as compared

to International Trade. International Business involves not only
international movements of goods and services (ie. international
trade), but also of capital, personnel, technology and intellectual
property like patents, trademarks, knowhow and copyrights.
2. What is the major reason underlying trade between nations?
Ans: Uneven distribution of natural resources and factors of
production.
3. What is bill of lading? How does it differ from bill of entry?
Ans: Bill of Lading is a document prepared by the shipping company
to
acknowledge the receipt of goods on board the ship and
gives an undertaking to carry them to the port of
destination.
On the other hand, bill of entry is a document prepared
by the importer to show the details of goods imported
and is used by custom authorities determine import
duty.
4. Explain the meaning of mate’s receipt.
Ans: Mates receipt is the receipt issued by the
commanding officer of the ship to the exporter after the
cargo is loaded on the ship.
5. What is a letter of credit? Why does an exporter need this document?
Ans: Letter of credit is a guarantee issued by the importer's bank
that it will honour payment up to a certain amount of export bills to
the bank of the exporter. Exporter needs this document to minimise
the risk of non-payment.

LONG ANSWER QUESTIONS/CASE STUDIES

Q.1. Ram is a successful businessman who is engaged in

manufacturing of auto spare parts. The products manufactured by him
are sold not only in India, but are also exported to various countries like
Singapore, Switzerland, Belgium, etc. On the basis of given case, answer
 the following questions:
(a) Identify the two kinds of business in which Ramakant is engaged.
(b) Differentiate between the two types of business as
identified in part (a) of the question.
Ans: a) The two kinds of business in which Ram is engaged are:
(i) Domestic Business; (ii) Inter-national Business.
(b) For differences between the two, refer ' Domestic Business
Vs International Business.
Q.2. International business encompasses all commercial activities
that take place to promote the transfer of goods, services, resources,
people, ideas, and technologies across national boundaries. The
Internet and technology have made it much easier for businesses of all
sizes to profit from the international business. Going international
provides access to a world of opportunities to the business: Do you
think that domestic business firms can derive any benefit from
International Business. Give reasons to justify your answer.
Ans: Yes, according to me, domestic business firms can derive
many benefits from International Business. Discuss Benefits to
business.
Q3. Prateek wants to export auto spare parts to Mr. Dev in Switzerland.
Mr. Dev has asked for an enquiry to seek information about availability of
goods, price, quality and terms and conditions for export of goods. In
response to the enquiry, Pradeep sends a reply in the form of Proforma
Invoice. Mr.Dev found the price and terms and conditions acceptable.
So, he placed the order for goods. After verifying the creditworthiness of
Mr.Dev, Pradeep obtains an export license and arranges the pre-shipment
finance. On the basis of given case study, state the next steps to be followed
by Prateek related to the procedure of export trade.

Ans: The next steps to be followed by Prateek in the export trade are:
(i) Production or Procurement of Goods
(ii) Pre-shipment Inspection
(iii) Excise Clearance
(iv) Obtaining Certificate of Origin
(v) Reservation of Shipping Space
(vi) Packing and Forwarding
(vii) Insurance of Goods
(viii) Customs Clearance
(ix) Obtaining Mates Receipt
(x) Payment of Freight and Issuance of Bill of Lading
(xi) Preparation of Invoice
(xii) Securing Payment.

Q.4. Identify the document highlighted in the following statements:

i. This certificate specifies the origin of goods exported.
ii. This document is issued by the commanding officer of
the ship to the exporter after the cargo is loaded on the
ship.
iii. This document is prepared by shipping company
to acknowledge the receipt of goods on ship and gives
an undertaking to carry them to port of destination.
iv. This document is the most appropriate and secure
method of payment to settle international transactions.
v. On the basis of this document, customs office grants
permission for the export.
vi. This document is prepared by the importer and it
shows the details of goods imported and is used by
custom authorities to determine import duty.
vii. On the basis of this document, imported goods are
unloaded from the carrier.
Ans:
(i) Certificate of Origin; (ii) Mates Receipt; (iii) Bill of Lading; (iv) Letter
of Credit; (v) Shipping Bill; (vi) Bill of Entry; (vii) Import General Manifest.

Q.5. It is an international organisation established to

supervise and liberalize world trade. It is the successor to the
General Agreement on Tariffs and Trade (GATT). Although
GATT proved remarkably successful in liberalizing world trade
over the next five decades, but by late 1980s, there were
calls for a stronger multilateral organisation to monitor trade
and resolve trade disputes. Following the completion of the
Uruguay Round (1986-94) of multilateral trade negotiations,
this Organisation began operations on January 1 st , 1995.
(i) Identify the Organisation highlighted in the given case.
(ii) How many countries are members of the organisation
identified in (i) above.
(iii) State any three objectives of the organisation
identified in (i) above. Ans:
1. (i) The Organisation is World Trade Organization (WTO):
(ii) 164 Members.
(iii) Discuss Objectives of WTO:

………………………………
 KENDRIYA VIDYALAYA SANGATHAN
SAMPLE PAPER SET 1 (UNSOLVED)

CLASS XI
BUSINESS STUDIES (054)
SAMPLE QUESTION PAPER (2024-25)
MM – 80 TIME: 3 HOURS

General instructions :

1. This question paper contains 34 questions.

2. Marks are indicated against each question.

3. Answers should be brief and to the point.

4. Answers to the questions carrying 3 marks may be from 50

to 75 words.

5. Answers to the questions carrying 4 marks may be about 150

words.

6. Answers to the questions carrying 6 marks may be about 200

words.

7. Attempt all parts of the question together.

1. The goods were not loaded on the ship as they did not get the customs 1
clearance due to lack of one of the main documents. ―Identify the document
which was required among the following:-

a) Bill of clearance b ) Custom bill

c) Shipping bill d) Bill of exchange

2. Select the type of hundi where the merchant on whom the hundi is 1
drawn has to have certain level of creditworthiness in the market.
a) Nam-jog Hundi b) Sahyog –Hundi
b) Dhani- jog Hundi d) Furman- jog Hundi

3. According to section 464 of maximum number of partners in 1

a partnership firm can be 100, But as per the Companies Rules 2014, the
maximum of members in partnership can be .
a) Companies Act 2013, 50
b) Partnership Act 1932, 50
c) Companies Act 2013, 200
d) Partnership Act 1932, 200

4. Infer the correct option from the following statements, that doesn’t 1
hold true about ‘Trade Credit’.
a) It appears in the records of the buyer firm as 'accounts payable'
b) It depends upon the financial strength of the seller
c) Large amount of funds can be generated through trade credit
d) It depends upon the reputation of the buyer

5. Identify the service highlighted in the picture. 1

a) Banking b)Communication
c) Insurance d) Advertisement
6. Match the columns and choose the correct alternatives: 1
Column I Column II
A. Protects the scientific Inventions i. Copyright
B. A right conferred upon the creators of a ii. Trademark
Cinematographer
C. Protection given to aesthetic appearance iii. Patent
D. Helps in distinguishing similar products iv. Design
a) A – iv, B – iii, C – i, D – ii
b) A – ii, B – iv, C – i, D – iii
c) A – iii, B – i, C – iv, D – ii
d) A – iii, B – iv, C – ii, D –i

7. The funds required by ‘Meesho’ to advertise in the newspapers 1

are an example of .
a) Ploughing back of profits
b) Trade credit
c) Fixed capital requirements
d) Working capital requirements

8. Malkeet Kaur has initiated a food chain specializing in different varieties of 1

baked snacks in India with branches in Delhi, Ahmedabad and Indore.
She managed the initial capital for starting the business by investing her
personal savings and resources. Recognize the funding method used by
Malkeet Kaur for her startup.
(a) Venture capital
(b) Angel investment
(c) Crowd funding
(d) Bootstrapping
9. The society aims to fight against the big capitalists and enhance the 1
bargaining power of the small producers. Select the type of cooperative
society highlighted in above case
a) Consumers cooperative societies
b) Marketing cooperative societies
c) Producers cooperative societies
d) Farmers’ cooperative societies
10. is an acknowledgment that a company has borrowed a certain 1
amount of money which it promises to repay at a future date.
a) Debenture
b) Public Deposits
c) Inter corporate deposits
d) Loan from Commercial Banks
11. Name the segment in which Flipkart and Amazon belongs to. 1
a) B2B Commerce
b) B2C Commerce
c) C2C Commerce
d) Intra-B Commerce
12. The capital of the company is divided into number of parts each of 1
which is called .
a) Dividend
b) Profit
c) Interest
d) Share

13. Indicate the type of trade which aims at equitable distribution of goods 1
within a nation, speedily and at a reasonable cost.

a) Internal trade
b) Wholesale trade
c) Retail trade
d) External trade
14 Select the correct option that doesn’t fall within the scope of 1
geographical indication.
a) Handicrafts
b) Food stuff
c) Agricultural Products
d) Bottles

15 From the following statements, choose the correct option referring to 1

example of insurable interest.
(1) Trustee holding the property on the behalf of others.
(2) A company insuring the life of brand ambassador.
(3) Father taking insurance policy on the life of his son.
(4) Ms. Harshita taking insurance policy in the name of her friend.

a) 1, 2, 3 are correct but 4 is incorrect.

b) 1 and 2 are incorrect but 3 and 4 are correct.
c) 1 is incorrect but 2, 3 and 4 are correct.
d) 1, 4 are correct and 3, 2 are incorrect.

16 Memorize the service offered by the retailer which helps them to manage 1
their business with relatively small amount of working capital.
a) Availability of goods.
b) Grant of credit
c) Specialized knowledge
d) Sharing of risk
17 Identify the product that people are most likely to be uncomfortable 1
buying on the Internet.
a) Books
b) Movies
c) Furniture
d) Medicines
18 Read the following statements carefully and choose the correct alternative: 1
Statement I: Bill of Lading is also a document of title to the goods and as
such is freely transferable by the endorsement and delivery.
Statement II: Like a Bill of Lading, an Airway Bill is a document wherein
an airline company gives its official receipt of the goods on board its
aircraft and at the same time gives an undertaking to carry them to the
port of destination.

a) Both the statements are true.

b) Both the statements are false.
c) Statement I is true, Statement II is false.
d) Statement II is true, Statement I is false.
19 It simply earns an income by investing in shares, bonds, bills, or 1
notes in a foreign country or providing loans to foreign business firms

a) Foreign investment
b) Portfolio investment
c) Foreign Direct Investment
d) Cross licensing

20 type of GST is payable on all interstate supply of goods and services.

a) IGST
b) FGST
c) CGST
d) DSGST
21. (A) The Department of Posts (DoP), trading as India Post, is a 3
government- operated postal system in India, which is part of the
Ministry of Communications under Government of India. It was formed
on 1st October 1854.
a) Identify the type of public sector enterprise which has been described
above
b) Describe any two features of this form of organisation other than the one
which have been mentioned in the given paragraph.

OR
(B) NTPC is carrying on various projects of energy and power. Majority
of its shares are held by the government of India. It was registered under
the previous Companies Act. It enjoys all the characteristics of a
company. The boards of directors are appointed by the government. The
Board and shareholders are responsible for the efficient working of the
company. The company prepares its annual report and submits to the
appropriate authorities.
a) Name the type of public sector enterprise referred to in the above para.
State any two features of the type of public sector enterprise identified in
part (a).
22. (A) Differentiate between Life , Fire and Marine Insurance on any three 3
basis

OR
(B) Categories any three types of telecom services
23. Hari tells Mohan in the presence of Keshav that Keshav is the partner in 3
the firm of Hari Enterprises. Keshav shows no objection to the
statement of Hari. Mohan gives a loan of □ 50,000 to Hari Enterprises
under the impression that Keshav is a partner in the firm. Later on, Hari
enterprise was unable to repay the loan to Mohan. Therefore, Mohan
filed a suit against Keshav to repay the loan. In return Keshav refused to
repay the loan on the ground that he is not a partner in Hari Enterprises.
But court took decision in the favour of Mohan as Keshav knowingly
allowed himself to be represented as a partner in the firm.
a) Identify and explain the type of partner being highlighted in the
above case.
b) Mention the way-out through which Keshav can get away from
the claim of Mohan.

24. Healtho Ltd.' is a popular health management company offering a wide 3

range of healthcare products to the customers. Two years back, the
company started a series of online fitness classes and this segment of
business has been a big hit right from its inception. It has helped the
company to make huge profits. By taking into consideration, the
requests from many of its regular clients, the company has now decided
to start fitness centres at five strategic locations within the country. The
management of the company has decided to use the portion of their
undistributed earnings to finance the new business venture.

Identify and explain any two merits and one limitation of the source of
business finance that the company intends to use for financing its
expansion plans.
25. Three friends Arun, Tarun and Varun are engaged in different types of 4
activities to earn their livelihood. Arun describes his occupation by
saying that, transfer of interest is not possible in case of my occupation
and at the same time it does not require any capital investment." Tarun
remarks," in my occupation also transfer of interest is not possible, but
one needs to possess high degree of specialized knowledge in a
particular field." Varun shares that, in his occupation transfer of interest
is possible with some formalities and also capital investment is essential.
In context of the above case:
(a) Identify the different types of economic activities in which Tarun and
Varun are involved.
(b) Give any three points of difference that have not been mentioned in the
above para between the activities in which Tarun and Varun are involved.

26. (A) Explain the meaning and three advantages of ‘Mail Order House’. 4
OR
(B) Explain the meaning and three limitations of ‘Chain Stores’
27. Latha has decided to persue a Startup Venture to offer organic pet food. She 4
has already done a self-introspection to be assured of her potential in
the concerned field. Furthermore, she has conducted an online research
with participation of pet owners, regarding the extent to which the need
for availability of organic pet food is unsatisfied.

a) Identify the concept through which Latha decided to persue its set up.
b) State the three features of the concept identified.
.
28. Identify the following documents of external trade: 4
a) This receipt is given by the commanding officer of the ship to the
exporter after the cargo of loaded on the ship.
b) A statement of the no. of cases/packs and the details of the goods
contained in these packs.
c) It is a written instrument whereby the person issuing the
instrument directs the other party to pay a specified amount to a
certain person / the bearer of the instrument.
d) It is also known as a vehicle / gate pass.

29. The conduct of industry, trade and commerce using the computer 4
networks is
gaining popularity now days. Identify the concept highlighted in the
given statement and also state its three benefits.
30. (A) The businessmen are responsible for aggravating pollution, so it 4
becomes the moral duty of businessmen to take some positive steps for
controlling this problem." In the light of this statement, explain the role
of businessmen in environmental protection.
OR
(B) Business assumes various responsibilities towards different interested
groups. Explain such responsibilities towards government
and consumers.
31. (A) Radhika Ltd. has good growth prospects. So it is planning to expand its 6
business. For this the company needs additional funds. The finance
manager reports that the company’s assets are free to be mortgaged for the
purpose of borrowings. However, the existing owners have to dilute their
voting powers.

a) Suggest and explain the source of finance most suitable for

Radhika Ltd.
b) Explain the advantages of the source of finance identified above.
OR
(B) Mayur is running a business enterprise needs financial, technical
and managerial services for the smooth functioning of his business
enterprise. He went to an institution that provides medium and long
term finance also aims at promoting industrial development of the
country and conduct market services for his convenience.

a) Recognize the appropriate source of finance discussed in above.

b) Write five merits of the source identified in part (a)
32. (A) Mohit started buying goods from Germany. He collected information 6
about export price and terms of export. He got registered with the DGFT &
obtained an IEC number. Discuss the next four steps he needs to undertake
before buying goods from Germany.

OR
(B) “The Government has passed export quality control and inspection act
1963 for compulsory inspection of certain products by a competent agency
as designated by the government for exporting goods”. Enumerate the
four steps that immediately precedes the step mentioned in above
statement
33. Master Ltd., a foreign company, started its business in an under- 6
developed country. The size of the business is quite large. The company
has plenty of resources. It employs thousands of people in the under-
developed country. The raw materials used by the company are readily
available here. However, since there was not demand for these raw
materials here, the producers were unable to get the best price for it.
Due to this reason, the producers were discouraged. Some local
businessmen used to act arbitrarily earlier, but now they have corrected
themselves. The reason for their becoming better is competition with the
foreign company. Now their arbitrary approach has ended altogether.
Master Ltd. is using completely the latest technology in its various
business activities. As a result, the local people also have got the
opportunity to learn the new technology. Because of using the modern
technology and doing production at a large scale, the company's cost of
production is very low. Because of its huge size and status, the company
occupied a dominant position in the market and took over some
domestic firms.
a) Identify and explain the type of business enterprise is referred to in
the above para
 Also explain any three features of the enterprise identified in (a) by
quoting the lines from the above para.

34. Axis Ltd. made an application for registration to the registrar of the 6
company on 3rd March 2024, with an objective of manufacturing jute
bags to sell it with in the country. The registrar issued the document
on 8th of March, mentioning the date of 5 th March on it. Later on it was
discovered that company had already entered into a contract with Alia
Ltd. On 4th March, which it couldn’t complete and Alia Ltd. filed a suit
against the company and also questioned on the existence of Axis Ltd.
But the court refused the claim of Alia Ltd.
a) Mention the document of formation of company is highlighted
here.
b) Identify and explain the type of contract in which Axis Ltd. Has
entered.
Why the claim of Alia Ltd. was refused by the court of law. Explain
by quoting lines from case.
 KENDRIYA VIDYALAYA SANGATHAN
SAMPLE PAPER SET 2 (UNSOLVED)

General Instructions:
1. This question paper contains 34 questions.
2. Marks are indicated against each question.
3. Answers to the questions carrying 3 marks may be from 50 to 75 words.
4. Answers to the questions carrying 4 marks may be about 150 words.
5. Answers to the questions carrying 6 marks may be about 200 words.
6. Attempt all parts of the questions together.

Q.N. QUESTIO MARK

N S
1. Which of the following comes under Modern Small Industries?
1
a) Khadi b) Handicrafts c) Coir d) Power looms
2. Limit of investment in small scale industry is .
1
a) ten crore b) five crore c) two crore d) one crore
3. consists of various organisations owned and managed
by thegovernment.
1
a) Public sector b) Private sector c) Service
sector d) Manufacturing
sector
4. State which of the following statements regarding reasons for
internationalbusiness are correct:
a) International business transactions involve use of currencies of
more than onecountry.
1
b) Labour productivity and production costs differ among nations
due to varioussocioeconomic, geographical and political reasons
c) Availability of various factors of production differs among nations
d) All of the above
5. A warehouse keeper accepts goods for the purpose of .
1
a) export b) selling c) storage d) packaging
6. B2B commerce means:
1
a) None of these
b) Firm's interactions with other business
 c) Firm's internal processes
d) Firm's interactions with its customers
7. Funds required for purchasing current assets is an example of:
a) Fixed capital requirement
b) Lease financing 1
c) Working capital requirement
d) Ploughing back of profits
8. Equity shareholder are called of the company.
1
a) Owners (b) Partners (c) Executives (d) Guardians
9. are set up under an Act of parliament and are governed
by theprovisions of the Act.
1
a) Limited companies b) Partnership
c) Private companies d) Statutory corporations
10. Which of the following is the form of business organisation?
1
a) Mixed Sector b) Private Sector
c) Public Sector d) All of these
11. Where is WTO headquartered?
1
a) Uruguay b) Doha c) Geneva d) Washington
12. Which of the following statements is correct for wholesalers?
a) They undertake additional activities.
b) They generally take the title of the goods and bear the business 1
risks in theirown name
c) They engage in buying and selling of goods
d) All of these
13. Stages in the formation of a public company are in the following
order
a) Capital Subscription, Promotion, Incorporation, Commencement 1
of Business
b) Incorporation, Capital Subscription, Promotion, Commencement
of Business
c) Promotion, Commencement of Business, Incorporation, Capital
Subscription
d) Promotion, Incorporation, Capital Subscription, Commencement
of Business
14. The term “redeemable” is used for
1
(a) Preference shares (b) Commercial Papers
(c) Equity shares (d) Public deposits
15. Which of the following is not an environmental problem?
1
a) Afforestation b) Danger to biological diversity
c) Ozone depletion d) Global warming
16. Indian Railways is the example of form of public enterprises? 1
a) Public corporations b) Government Company
c) Departmental Undertaking d) None of these
17. The small-scale industry can enjoy the status ofif it supplies not
lessthan 50% of its production to another industry, referred to as the
1
parent unit.
a) ancillary small industry b) export-oriented unit
c) micro business industry d) village industries
18. Cattle breeding farms, poultry farms, and fish hatchery come under
whichindustry?
1
a) Genetic b) None of these c) Manufacturing d)
Extractive
19. The District Industries Centre’s Programme was launched on:
1
a) September 1, 1978 b) July 1, 1978
c) May 1, 1978 d) 15 August 1978
20. Metro is an example of which form of public sector enterprises?
1
a) Government Company b) Public Corporation
c) Multinational Companies d) PPP
21 The forwarding Agent of Paliwal Private Ltd., after getting the goods
loaded on 3
the ship gets the Mate's Receipt. What will the Forwarding Agent
have to doimmediately after it? Explain briefly.
22. Folly is doing his business of buying and selling of garments products
within India. He goes on business trips around his state even on very
short notice. Sometimes through his own car. There are no or very
few formalities involved inFolly's business. Payments are made and
3
received in the home country currency only i.e., no exchange of
currency is required.
i. Buying and selling goods within the geographical area of the
country. Which type of trade is it?
ii. Give types of such trade.
23. Seeta Ram is engaged in the production of ready-made garments. His
son is working as a lawyer and his daughter is working as a manager
in a reputed company.
3
i. Identify the economic activities in which Seeta Ram and his
son and daughter engaged in.

ii. Write any two differences between the economic activities

identified above.
OR
Explain any three hindrances of trade.
24. Why is adequate finance necessary to start the business?
3
OR
What are the advantages of preference shares?
25 State and explain briefly the first four steps of executing the Import
. trade. 4
OR
State the objectives of World trade Organisation (WTO).
26 India is the largest milk producer in the world. Moreover, increasing
.
demand for milk and milk product has made dairy farming a
profitable business. Consideringthese facts Raghu, an industrialist
has decided to set up a dairy farm and a cheese producing unit in
Haryana. He plans to deal in an extensive range of Fresh Mozzarella,
Processed Cheeses, Pizza Cheese, Cheese Singles, Naturally
Flavored Cheeses (with Black pepper, Garlic, Cumin, Herbs
& Spice), Mascarpone, Mozzarella & Grated Cheese for Pizza in
various combinations.
4
In the context of the above case:
i. Identify the different kinds of industries Raghu wants to
set up.
ii. State and explain the categories of types of industries to
which the different kind industries as identified in part (i)
belong to.
OR
Karan is running a grocery shop in the nearby local market whereas
his friend Priyanshu works as a finance manager in a reputed IT
company. In the context ofthe above case:
i. Identify the different types of economic activities both the
friends are engaged in.
ii. Distinguish between the two different types of economic
activities as identified in part (i) of the question (any two
points).
27 After completing a course in gemology, Esha joins her father in the
.
family business of fashion jewellery. Her father owns two
showrooms at different locations in the city and operates his
business through them. However, Esha intends to expand the
business by venturing into online retailing. She also intends to
introduce flexible manufacturing with the use of computer 4
networks wherein the marketing department can interact
constantly with the production department and get the customized
products made as per the requirements of the individual customer.
a. How is the mode of business that Esha intends to adopt
different from theone that her father has been following over
the years?
b. Distinguish between the two different modes of business as
identified in part (a) of the question by giving any four points.
28 Why is the government company form of organization preferred to
. other types in the public sector? 4

29. Britannia Industries Ltd. is committed to helping secure every child's

right to growth and development through good food every day. The
company is working in partnership with Global Alliance for
Improved Nutrition (GAIN) and the Naandi Foundation to supply iron-
fortified Tiger biscuits to supplement the Mid- Day Meal program in
schools. Iron deficiency among Indian children is a key cause of school
4
dropouts as well as decreased productivity. In keeping with its core
essence of "Swasth Khao Tan Man Jagao", the company constantly
strives to find sustainable opportunities to drive home the message
of nutrition and good food habits among children at the right age.
In the context of the above case answer the following questions:
a. Identify the kind of social responsibility being discharged by
Britannia Industries Ltd.
b. Briefly explain any two other kinds of social responsibilities.
30 Suhasini and some of her friends jointly set up 'Trimurti Limited'.
The businessof their company was to manufacture blankets at a
low rate. At the time of setting up the company, they issued 25000
shares of the face value of 100. In this way, they started their
business with a capital of 25 lac. Before collecting the money from
the public, they decided that they would issue such security as
should not let the company undergo any fixed financial burden.
Also, they wished to have the capital from such a source as should
enable the company to keep the capital for a long time. To collect
4
the capital Suhasini and her friends issued a prospectus. Through
it, they told the public that in the coming years, the company
expected to earn a big profit and that the price of its shares would
be very high. As a result, investors would be able to earn extra
profit. In theprospectus, it was also said that the company would
organize its meetings from time to time and that the investors would
be invited to these meetings. They would have the right to cast their
votes in these meetings. The company collected money from the
public and the company's business started. The company started
earning more profit than what had been promised to the investors.
i. Identify and explain the type of shares issued by 'Trimurti
Limited.'
ii. Quoting the relevant lines write about the two advantages
each to the investors and to the company from the shares
identified in (i).
31. Cafe Coffee Day (abbreviated as CCD) is an Indian cafe chain owned
by Coffee Day Global Limited, a subsidiary of Coffee Day
6
Enterprises Limited. There are around 1,600 outlets of CCD across
India. All the outlets of CCD are under the control of the head
office.
a. Identify the type of retail outlet being described in the given
case.
b. State five features of the type of retail outlet as identified
in part (a) ofthe question.
OR
Several middlemen remain present between the producers and
consumers. Their presence causes an unnecessary increase in the
prices of goods. Some consumers of a locality resolved to free
themselves from the clutches of the middlemen. They think that the
 profit which goes to the middlemen should come to them.
You suggest to him what kind of business they should begin. All
these people
know nothing about business. Therefore, tell them about the
demerits or limitations of business also.
32. “Prakash Ltd” is a company manufacturing Electric devices. The
company’s financial manager Mr. Sherlock, in order to fulfil the
long-term financial need, is on the lookout for such a financial
source, on which tax advantage may be available. Advise him about
the financial source which should fulfil his need. Also explain its
merits & demerit.
6
OR
Mohan has been successfully running an industry training company
for the past five years in Bengaluru. His company has become
popular and enjoys a good reputation in the city. He plans to start a
chain of industrial training centres and has identified four strategic
places for the same in the city. Till now he has been managing all the
financial requirements of his business through the profits made in
his business. However, in order to implement his expansion plans
funds will have to be raised internally from his own resources after
giving dividend to shareholders.
In context of the above case: Name the source of the funds
being mentioned in the statement. state it’s any four
features

33 6
Define Company? Discuss five merits of the Company.
 c. Identify the type of retail outlet being described in the given
case.
d. State five features of the type of retail outlet as identified
in part (a) ofthe question.
OR
Several middlemen remain present between the producers and
consumers. Their presence causes an unnecessary increase in the
prices of goods. Some consumers of a locality resolved to free
themselves from the clutches of the middlemen. They think that the
profit which goes to the middlemen should come to them.
You suggest to him what kind of business they should begin. All
these people
know nothing about business. Therefore, tell them about the demerits
or limitations of business also.
34 Danush visited a new restaurant 'Darbaar' with his parents. They
all liked the food served in the restaurant. After a week Danush took
his friends to 'Darbaar' and placed an order for the same dishes that
he had liked during his previous visit. But to his surprise, he found
6
that the taste of the food was not as good as it was during his
previous visit. As a result, he felt very disappointed. In the context
of the above case, answer the following questions:
a. Identify the feature of services being discussed above.
b. Explain briefly three other features of services.
 KENDRIYA VIDYALAYA SANGATHAN
SAMPLE PAPER SET 3 (UNSOLVED)

1 A document that contains details as to the quality, grade, size, rate, 1

price etc. of the products for exporting goods
a) Mate’s Receipts b) Bill of Lading c) Certificate of origin
d) Proforma Invoice
2 Assertion (A): International trade is a much broader term than 1
international business
Reason(R): International business is comprised of both the trade and
production of goods and services across frontiers
a. Both Assertion and Reason are true and Reason is the correct
explanation of Assertion
b. Both Assertion and Reason are true and Reason is not the
correct explanation of Assertion
c. Assertion is true and Reason is false
d. Assertion is false but Reason is true
3 Select the type of hundi where the merchant on whom the hundi is 1
drawn has to have certain level of creditworthiness in the market.
a) Nam-jog Hundi b) Sahyog –Hundi c) Dhani- jog Hundi
d) Furman- jog Hundi
OR
Which of the following cannot be classified as an auxiliary to trade?
a. Mining b. Insurance c. warehousing d. Transport
4 Internal sources of capital are those that are: 1
(а) Generated through outsiders such as suppliers (b) Generated
through loans from commercial banks (c) Generated through issue of
shares (d) Generated within the business
5 STATEMENT I: Market traders are small traders who open their shops 1
at different places on fixed days or dates
STATEMENT II: Unlike market traders, street traders do not change
their place of business frequently.
Choose the correct option:
a. Statement I and II is false
b. Statement II is true and I is false
c. Both the statements are true
d. Both the statements are false
6 According to section 464 of maximum number of partners in 1
a partnership firm can be 100, But as per the Companies Rules 2014,
the maximum of members in partnership can be .
a) Companies Act 2013, 50 b) Partnership Act 1932, 50
c) Companies Act 2013, 200 d) Partnership Act 1932, 200
7 According to ---------------, the insurer gets all the rights against the 1
third party with respect to the subject-matter insured, after
compensating the loss of the insured.
(a)Principle of Subrogation (b) Principle of Contribution (c) Principle of
Mitigation (d) Principle of Indemnity
8 Services provided to by retailers to consumers are: 1
a. Wide selection of goods b. After sale services
 c. provide credit facilities d. all of these
9 Which of the following is not a characteristic of business activity? 1
(a) Production of goods and services (b) Presence of risk (c) Sale or
exchange of goods and services (d) Salary or wages
10 Equity shareholders are called of the company. 1
(a) Owners (b) Partners (c) Executives (d) Guardians
11 One example of Small -scale Fixed retailers among these is 1
A. Pedlars B. General stores C. Hawkers D. Cheap Jacks
12 Which of the following is an example of Statutory Corporation? 1
(a) Life Insurance Corporation Limited (b) Railways (c) Bharat Heavy
electrical Limited (d) All of the above
13 Which of the following documents are not required for obtaining 1
export license?
a. IEC number b. Letter of credit c. Registration cum
membership certificate d. Bank account number
14 Geeta has Rs.20,000 in her account. She doesn’t have any use of these for 1
two years. To earn more interest which type of bank account she would
be opened with the bank?
(a) Recurring Deposit (b) Fixed Deposit (c) Current Account
(d) Saving Account
15 Which of the following is capable of doing maximum good to society? 1
a. Business success b. Laws and regulations c. Ethics
d . Professional management
16 Metro Railway is an example of which form of public sector 1
enterprises?
a) Government Company b) Public Corporation
c) Multinational Companies d) PPP
17 Match the columns and choose the correct alternatives: 1
Column I Column II
A. Protects the scientific Inventions i. Copyright
B. A right conferred upon the creators of a ii. Trademark
Cinematographer
C. Protection given to aesthetic appearance iii. Patent
D. Helps in distinguishing similar products iv. Design
a) A – iv, B – iii, C – i, D – ii
b) A – ii, B – iv, C – i, D – iii
c) A – iii, B – i, C – iv, D – ii
d) A – iii, B – iv, C – ii, D –i
18 Environmental protection can be best done by the efforts of 1
a. Business people b. Government c. Scientists d. All the people
19 Name the segment in which Flipkart and Amazon belongs to. 1
a) B2B Commerce b) B2C Commerce c) C2C Commerce d) Intra-B
Commerce.
OR
Which benefit of e-business is highlighted in the statement ‘accessing
anything, anywhere, anytime’?
(a) Speed (b) Global reach (c) Convenience (d) Low personal touch
20 MSMED Act 2006 has been amended in 1
a) 2000 b) 2020 c) 2019 d) 2016
21 Five friends LLP after getting training from the Entrepreneur skill 3
Centre, Delhi, established Limited Liability Partnership with the
objective of doing something new and better. As their firm fulfilled all
 the conditions of ‘Startup’, the Registration of their firm under the
Scheme was done. To collect funds was a big problem before the
partners. One day, with this objective in view, all the partners had a
meeting. All the partners give their respective suggestions in this way.
The first partner said, we should contact some retired person who are
interested in investing in equity capital. In order to do so, will have to talk
about our Project to them. The second partner said, several such
investors are there in the market as are interested investing money in
small quantities. In order to contact them we should use various social
media Services. The third partner gave his suggestion, for self- financing,
we should invest only our own savings in the business. Besides, we can
also get the help of our friends.
Identify the different methods of fund arrangements suggested in the
above paragraph.
22 Dr. Kunal Singh is working against the post of a senior doctor in a 3
government hospital. He does not discriminate between the rich and
poor while treating his patients medically. When he returns home
from the hospital, he attends to the poor patients at home free of cost
between 7pm to 9pm. Besides, he gives them the information about
the employment opportunities. He advises many young people to go
into the fields of advertising and transportation. They went into these
fields and remarkably succeeded there.
1. What type of activities does Dr. Kunal Singh perform in the
hospital and at home?
2. Explain the auxiliaries to trade mentioned in the above para.
23 Mr. Rajesh wants to buy a new sofa set for his house, but he did not have 3
enough space to keep it. He planned to sell the old sofa through OLX, so
that he could not ger some surplus money and space for new sofa set. He
got a very good response and out of many buyers, he chose the buyer
who gave him the best price.
Identify and explain the type of e-commerce referred in the above case.
24 What preferential rights are enjoyed by preference shareholders? 3
Explain.
OR
Explain the importance of finance for running the business smoothly.
25 Tata Sky is a direct broadcast satellite television provider in India. It 4
is a Joint venture between the Tata group and 21st century fox. Its
primary competitors are dish T.V., reliance digital TV, Airtel etc. In the
context of above case:
(1) Identify the type of telecommunication service provided by Tata Sky.
(2) Explain any other two telecom services provided by Tata Sky.

26 Explain first four steps involved in Export procedure in India 4

OR
Describe the following documents used in International Trade in
India.
a) Letter of Credit. b) Mate’s Receipts c) Proforma Invoice
d)Bill of Lading
27 Mr. Thara Kiran contracted with a firm. According to the contract, he 4
has advanced a loan of ₹30 lakh to the firm and in exchange he got
 the power to take few decisions regarding the firm’s business. Besides
he got 8% interest on loan and 12% of profits earned by the firm.
Is Mrs. Thara Kiran a partner of the firm? Give reasons in support of
your answers.
28 “Build well ltd”. Is a real estate company in India. The activities of the 4
company are governed by values of truthfulness, respect, justice,
commitment, trust and citizenship. The company has 6 branches
across the country. What are the socially determined values which
govern the activities of business known as? Also describe its elements.
OR
The businessmen are responsible for aggravating pollution, so it
becomes the moral duty of businessmen to take some positive steps
for controlling this problem." In the light of this statement, explain the
role of businessmen in environmental protection.
29 Discuss the role of small business in India with special reference to 4
rural areas.
30 A London based manufacturing co. manufacturing washing machines 4
wish to add 2 new products in India namely AC’s and Refrigerators.
Out of a lot of 10 applicants the co. chose two wholesale firms (headed by
females) whose proposals were very competitive and attractive. The
wholesaler firm of AC’s hired the services of a (differently able retailer)
Hari at competitive prices to sell ACs in Delhi, Hari informs his
wholesaler firm's head that the consumers of Delhi wish that their houses
are cold when they reach their homes in the scorching heat of Delhi.
Explain four services rendered by retailers to wholesalers or
manufacturers.

31 Life Insurance Corporation of India is the largest insurance company 6

in India. It is headquartered in Mumbai. It was founded in the year 1956
when the Parliament of India passed the Life Insurance if India Act that
nationalised the private insurance industry in India. Over
245 insurance companies and provident societies were merged to
create the state -owned Life Insurance Corporation.
In the above context:
a. Life Insurance Corporation is classified as which form of public
sector enterprise?
b. Was it necessary for the Parliament of India to pass the Life
Insurance of India Act for its formation? What does the Act define?
c. State three merits of promoting Life Insurance Corporation of
India in a particular form of public sector enterprise as
identified in part(a) of the question
OR
Bharat heavy electrical limited BHEL owned and founded by the
government of India is an engineering and manufacturing company
based in New Delhi India. it was established in 1964 BHEL is India's
largest power generation equipment manufacturer it is managed by
the board of directors nominated by the government. as government
is the majority shareholder it exercises control over affairs of the
company
a) How will you classify BHEL as a form of public sector enterprise
b) State features of this type of public enterprise.
32 Rohit and Aswin felt that there was an opportunity of business in 6
providing a service of online grocery stores for working people. They
analysed the idea in terms of technical, financial and economic
liability. Once they found all the aspects satisfactory, they decided to
start a company called “Anytime @ home” private Ltd. They got the
name registered with the registrar.
a. which steps of formation of company are being referred to here?
b. Explain the next three steps associated with it.
33 ABC Ltd. is planning to modernise its plant with latest technology. The 6
company is not having sufficient money. The finance manager plans to
arrange money for 3 years as after three years, the company is
expected a good return from their previous investment. The finance
manager does not want to spend flotation cost and do not want to
approach stock exchange.
(a) Suggest the suitable source of finance in above case.
(b) How can company approach public without spending on flotation.
(c) State any two benefits of this source of finance
34 Kiran and his brother Sourab own a large- scale retail outlet at a 6
central location in Saltlake, Kolkata to sell different varieties of
products like textiles, footwear, cosmetics etc. which are sold through
different divisions within the establishment.
a) Identify the type of retail outlet being described in the above
paragraph.
b) Explain any five features of the type of business as identified above (a).
OR
Bata India Ltd has been set up shops at different parts of the country
to sell different leather goods to people. It has several branches all
over India. It sells the goods at same price for a same brand in
cash/prompt payment.
a) Identify the type of business by Bata India Ltd.
b) Explain any five features of the type of business as identified above (a).

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