APSET Paper 2 Mock Test - 2 (Commerce) - AP TET MCQ

Therefore, customer portfolio analysis helps the business to identify the Most Valuable Customer.

WTO (World Trade Organisation) is a permanent inter-governmental body governing and regulating international trade in goods and services. The WTO has the following objectives: 

• To set and enforce rules for international trade 
• To provide a forum for negotiating and monitoring further trade liberalisation
• To resolve trade disputes
• To increase the transparency of decision-making processes 
• To cooperate with other major international economic trade-related issues

Managerial economics

• The study of managerial economics focuses on the application of economic theory to corporate management.
• It deals with the use of economic theories and principles of business decision-making.

​Important Points

Definition of Managerial economics

According to M.H. Spencer and L. Siegelman-

“Business Economics (Managerial Economics) is the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by management.”

• They believe that the theory of decision-making acknowledges the diversity of objectives and pervasiveness of uncertainty in the real management world.
• The decision-making theory rejects the idea of a single optimal solution in favor of the idea that the goal is to find a solution that "satisfies" as opposed to "maximizes."
• It delves into an examination of motivation, the relationship between rewards and aspirational levels, and the distribution of power.
• Hence, the correct answer is Spencer.

Additional InformationHaynes, Mote, and Paul definition

“Managerial Economics refers to those aspects of economics and its tools of analysis most relevant to the firm's business decision-making process."

Mansfield definition

"Managerial Economics is concerned with the application of economic concepts and economic analysis to the problems of formulating rational managerial decisions."

According to Prof. Evan J Douglas

‘Managerial economics’ is concerned with the application of economic principles and methodologies to the decision-making process within the firm or organization under the conditions of uncertainty”.

The correct option is Tax revenues.

Key Points As per the passage:

• "The revenue budget details the projections of revenue from various sectors and facets including taxation, fees, and fines."
• This shows that tax revenues are a primary source of income for the government, as outlined in the revenue budget.

Calculation of net cash flow from financing activities:

• Note: Cash proceeds from the issue of shares (including premium) = Increase in equity share capital of Rs.1,00,000 from previous year to current year + Increase in securities premium of Rs.10,000 from previous year to current year.
• Net cash flow from financing activities = Cash proceeds from the issue of shares (including premium) - Interest paid on Debentures - Redemption of Debenture.

The correct answer is Increasing returns to scale

Key Points
The CES Production Function:

• The Constant Elasticity of Substitution (CES) function was established by Arrow, Chenery, Minhas, and Solow in their 1961 work.
• Three variables, Q, C, and L, and three parameters, A, θ and, α make up this function.

It may be expressed in the form:

Q = A [aC^-θ+ (l-α)L^-θ] ^-1/θ

where,

Q is the total output,

С is capital, and L is labour.

A is the efficiency parameter indicating the state of technology and organisational aspects of production

Important Points

• The CES production function is a neoclassical production function, which shows a constant elasticity of substitution.
• In other words, the percentage change in the marginal rate of technical substitution.
• Due to this there is a constant percentage change in the ratio of factors (like labour and capital) in production technology.
• If the scale parameter > 1 there will be increasing returns to scale.
• If the scale parameter < 1 there will be decreasing returns to scales.
• If the scale parameter = 1 there will be constant returns to scale (case of linear homogenous CDPF)

Key Points

Zero interest Fully Convertible Debentures:

• These debentures are issued at a reduced price but do not have a coupon for periodic interest payments.
• Interest is applied to the difference between a bond's nominal price and issue price.
• For instance, a debt obligation with a nominal value of 100 rupees is issued at 70 rupees, and its redemption value is 100 rupees. Therefore, Rs. 30 is considered interest in this case, and it will be distributed during the life of the debenture.

Important Points

• These are zero interest fully convertible debentures will not have any interest accrued by the issuer throughout the lock-in term.
• Fully paid FCDs will, however, automatically and compulsorily convert into shares after a specified length of time.
• In case of 'Zero interest Fully Convertible Debentures', (ZFCD) return to debenture holders is available in the form of difference between the issue price of ZFCD and the market price of converted share.
• Return to debenture holders = Issue price of ZFCD - Market price of converted share.

​Hence, it can be concluded that in case of 'Zero interest Fully Convertible Debentures', (ZFCD) return to debenture holders is available in the form of difference between the issue price of ZFCD and the market price of converted share.

Debtor-Creditor, Agent-Principal, Licensor-Licensee, Bailor-Bailee, Pledger-Pledgee, etc. are various kinds of relationships between the banker and the customer.

Licensor-Licensee:

• When a banker provides the locker facility to a customer, the relationship between them is that of licensor and licensee or lessor and lessee.
• A bank is a licensor and the customer who hires the bank is the licensee.

Debentures:

• Section 71 of the Companies Act, 2013 permits a company to issue debentures with an option to convert debentures into shares either wholly or partially at the time of redemption.
• Provided that this conversion of the debenture to shares shall be approved by a special resolution passed at a general meeting.
• The Companies Act 1956, Section 2(12) defines debentures as, "Debenture includes debenture stock, bonds and any other securities of a company whether constituting a charge on the Company’s assets or not. Debenture means a document, which either creates a debt or acknowledges it, and any document which fulfills either of these two conditions is a debenture."
• Thus, debentures are governed by company law.

The correct answer is A is true but R is false.

Key Points

Assertion ‘A’: When holding company holds more than 50% (but not whole) shares of a company, then the holders of the rest of shares will be known as "Minority". 

The term "minority" refers to shareholders who hold less than 50% of the shares of a company. This means that if a holding company holds more than 50% of the shares of a subsidiary company, the remaining shareholders are considered the minority shareholders.

Reason ‘R’: Minority interest is calculated by considering proportionate shares and reserves of Holding Company. However, the reason provided in Reason 'R' is incorrect. Minority interest refers to the proportionate share of a subsidiary's net assets that are not owned by the parent company. It is calculated based on the ownership percentage of the minority shareholders in the subsidiary company, not by considering the shares and reserves of the holding company.

Therefore, Assertion 'A' is true as it correctly defines minority shareholders, but Reason 'R' is false as it provides an incorrect explanation of minority interest calculation.

An insurance premium paid to bring the equipment from the place of purchase to the place of installation is a capital expenditure.

Important Points

• Capital expenditures refer to funds that are used by a company for the purchase, improvement, or maintenance of long-term assets to improve the efficiency or capacity of the company.
• Long-term assets are usually physical, fixed, and non-consumable assets such as property, equipment, or infrastructure, and that have a useful life of more than one accounting period.
• Also known as CapEx or capital expenses, capital expenditures include the purchase of items such as new equipment, machinery, land, plant, buildings or warehouses, furniture and fixtures, business vehicles, software, or intangible assets such as a patent or license.
• Capital expenditures (CAPEX) are a company's major, long-term expenses that are not incurred on a day-to-day basis. 
• An insurance premium paid to bring the equipment from the place of purchase to the place of installation is a capital expenditure as it is not a recurring expense and has to be paid probably only once unlike a life insurance premium which has to be paid after every regular interval till policy exists.

Thus, option 2 is the correct answer.

Additional Information

• All the expenditures which are incurred in the day-to-day conduct and administration of a business and the effect of which is completely exhausted within the current accounting year are known as "revenue expenditures".
• Revenue expenditures are short-term expenses used in the current period or typically within one year.
• Revenue expenditures include the expenses required to meet the ongoing operational costs of running a business, and thus are essentially the same as operating expenses (OPEX).
• Deferred Revenue Expenditure is an expenditure that is revenue in nature and incurred during an accounting period, however, related benefits are to be derived in multiple future accounting periods.

The correct answer is Closed economy, unemployment in the economy, constant marginal propensity to consume.

Key Points

• The investment multiplier is an important part of economic theories suggested by notable economist John Maynard Keynes.
• According to this concept, in the event of an increase in investment activities either public or private which can be in the form of private consumption spending, or government spending in an economy, there is a corresponding increase in the Gross Domestic Product (GDP) of the economy by a value more than the amount invested.
• In simple words, the investment multiplier refers to the increase in the aggregate income of the economy as a result of an increase in the investments done by the government in the form of new projects.
• The size of the investment multiplier is determined by the decisions of the households in an economy in the areas of spending (which is known as the marginal propensity to consume) or saving (known as the marginal propensity to save).

Important Points Formulae:

K = ΔY / ΔI

• Where, ΔY = Increase in GDP or National Income
• ΔI = Increase in Investment

K = 1/ 1- MPC

• Where k = Investment Multiplier
• MPC = Marginal Propensity to Consume

K = 1/ MPS

• Where k = Investment Multiplier
• MPS = Marginal Propensity to Save

Keynes’ multiplier principle is based on the fol­lowing assumptions:

• Autonomous Investment
• Lump-Sum Taxes
• Availability of Consumption Goods
• Continuity of Investment
• Positive Net Investment
• Stability of MPC
• Closed Economy
• No Time Lag Between Successive Expenditures on Con­sumption Goods
• Unemployed Resources

Hence, a Closed economy, unemployment in the economy, and constant marginal propensity to consume may not render the investment multiplier inapplicable as there are the main assumptions of the investment multiplier.

The correct answer is 1 only.

Key Points

• The Forex Reserves (foreign exchange reserves) of an economy are its ‘foreign currency assets’ added with its gold reserves, SDRs (Special Drawing Rights), and Reserve Tranche Position (RTP) in the IMF. In a sense, the Forex reserves are the upper limit up to which an economy can manage foreign currency in normal times if need be.
• India's forex reserves comprise foreign currency assets (FCAs), gold reserves, special drawing rights (SDRs), and the country's reserve position with the International Monetary Fund (IMF).
• Foreign exchange reserves reached an all-time high of US$ 583.8 billion as of February 19, 2021, covering about 18 months of imports. At present, India is the fifth-largest foreign exchange reserves holder among all countries of the world after China, Japan, Switzerland, and Russia. Hence, statement 1 is correct.
• Foreign Currency Assets (US$ 542.1 billion) constitute the largest component of the forex reserves followed by Gold (US$ 35.2 billion) and Special Drawing Rights (US$ 1.5 billion). Hence, statement 2 is not correct.
• The Reserve Bank of India Act, 1934 provides the overarching legal framework for the deployment of reserves in different foreign currency assets and gold within the broad parameters of currencies, instruments, issuers, and counterparties. In brief, the law broadly permits the following investment categories:
  • Deposits with other central banks and the Bank for International Settlements (BIS);
  • Deposits with commercial banks overseas;
  • Debt instruments representing sovereign/sovereign-guaranteed liability with residual maturity for the debt papers not exceeding 10 years;
  • Other instruments/institutions as approved by the Central Board of the Reserve Bank.
• Hence, statement 3 is not correct.

Marginal Product Curve shows the relation between marginal product and the quantity of the variable input. This curve shows the incremental change in output at each level of a variable input. Its shape is in the form of a hump or an inverse U because of increasing marginal returns in the beginning followed by decreasing and then diminishing marginal returns.

Key-Points

Masala Bonds

• Masala Bonds are rupee-denominated bonds issued outside India by Indian entities. They are debt instruments that help to raise money in local currency from foreign investors.
• Masala bonds are bonds issued outside India but denominated in Indian Rupees, rather than the local currency. Masala is an Indian word and it means spices. The term was used by the International Finance Corporation to evoke the culture and cuisine of India. 
• It is a debt instrument issued by an Indian entity in foreign markets to raise money, in Indian currency, instead of dollars or local denomination. In 2019, Kerala became the first Indian state to issue Masala Bonds worth Rs. 2,150 crore on the London Stock Exchange.
• Masala bonds allow Indian companies to raise overseas debt in the Indian currency. The instrument shields the issuers from currency fluctuations mainly because interest payments and redemption are in rupees. At the same time, investors get interest rates that are higher than in their domestic markets. In the third statement, the most popular market for Masala bonds currently in London.

Therefore Option 3 is not a correct statement with respect to Masala Bonds.

The South Asian Association for Regional Cooperation (SAARC) is the regional intergovernmental organization and geopolitical union of nations in South Asia. Its member states include Afghanistan, Bangladesh, Bhutan, India, Nepal, the Maldives, Pakistan, and Sri Lanka. SAARC comprises 3% of the world's area, 21% of the world's population, and 3.8% of the global economy, as of 2015. SAARC was founded in Dhaka on 8th December 1985. Its secretariat is based in Kathmandu, Nepal. The organization promotes the development of economic and regional integration. It launched the South Asian Free Trade Area in 2006. SAARC maintains permanent diplomatic relations at the United Nations as an observer and has developed links with multilateral entities, including the European Union.

The exchange concept of marketing deals with the Exchange of products between sellers and buyers covering distribution and price aspects. 

The central idea of marketing is the exchange of products between the seller and the buyer. Exchange covers the distribution aspect and the price mechanism of the product. 

Marketing theorists consider the exchange to be the central concept without which there would be no such thing as marketing.

HRD does not focus on autonomous workgroups. HRD focuses on all the human resources of the organisation i.e. individual staff members.

The correct answer is A - IV, B - III, C - II, D - I.

Key Points

• Angel investing is a type of financing that is provided by wealthy individuals or groups of individuals to start-up businesses. Angel investors typically invest in businesses that are in the start-up stage, and they often provide more than just financial capital. They may also offer advice and mentorship to the entrepreneurs.
• Sweat equity is a form of compensation that is given to employees in lieu of cash. Employees who receive sweat equity are essentially given shares in the company, and they are rewarded for their hard work and dedication with an ownership stake in the business. Sweat equity is typically used in the growth and development stage of a business, when the company is still too small to afford to pay its employees a competitive salary.
• Venture capital is a type of financing that is provided by professional investors to start-up and early-stage businesses. Venture capitalists typically invest in businesses that have the potential for high growth, and they are willing to take on a high degree of risk in exchange for the potential for high returns. Venture capital is often used in the follow-on funding stage of a business, when the company has already raised some initial capital from angel investors or other sources, but it needs more money to grow and scale.
• Initial public offering (IPO) is a process by which a company offers its shares to the public for the first time. IPOs are typically conducted by mature businesses that are seeking to raise additional capital to fund their growth. IPOs are typically seen as a sign that a company has reached the mature stage of its development.

As the period of the moving mean in the time series increases, the trend curve will be further from the original curve.

The moving mean model is probably the simplest way of modeling time series.

This model simply states that the next observation is the mean of all previous observations.

Simply put, this model can be surprisingly good and it represents a good starting point.

Otherwise, the moving mean can be used to identify interesting trends in the data.

We can define a window to flatten the time series and apply the moving mean model to uncover different trends.

Section 114 (2) of Companies Act, 2013:

A resolution shall be a special resolution when—

• the intention to propose the resolution as a special resolution has been duly specified in the notice calling the general meeting or other intimation given to the members of the resolution.
• the notice required under this Act has been duly given; and
• the votes cast in favour of the resolution, whether on a show of hands, or electronically or on a poll, as the case may be, by members who, being entitled so to do, vote in person or by proxy or by postal ballot, are required to be not less than three times the number of the votes, if any, cast against the resolution by members so entitled and voting.

Important Points

As per Companies Act 2013, a special resolution needs to be passed in the following instances:

• Alteration of the memorandum of association or articles of association of a company.
• Change of the company's name.
• Conversion of a public company into a private company or vice versa.
• Issuance of shares with differential voting rights.
• Reduction of share capital of a company.
• Merger or amalgamation of a company with another company.
• Voluntary winding up of a company.
• Appointment of a director who is not a retiring director.
• Removal of a director before the expiry of their term.
• Appointment of an auditor other than the retiring auditor.
• Approval of a scheme of arrangement or reconstruction.
• Issuance of debentures with an option to convert them into shares.
• Approval of related party transactions.

Hence, Section 114 (2) describes 'special resolution" as per Companies Act, 2013.

The correct answer is 18 per cent

Key Points Sustainable Growth Rate:

• The maximum rate of growth that a business or social enterprise may maintain without needing to raise more capital or take on more debt is known as the sustainable growth rate (SGR).
• It measures how quickly a business can expand using only internal revenue and without borrowing money from other sources.

Important Points

The sustainable growth rate of the company that enjoys return on equity = 30 percent and a dividend payout ratio of 40 percent is 18%

Complex Buying Behavior is spotted when there are significant differences between brands and also there is high involvement.

• Complex buying behavior occurs when the consumer is highly involved with the purchase and when there are significant differences between brands.
• This behavior can be associated with the purchase of a new home or a personal computer.
• Such tasks are complex because the risk is high (significant financial commitment), and the large differences between brands or products require gathering a substantial amount of information prior to purchase.
• This may include informing the consumer about the product category and its important attributes, providing detailed information about product benefits, and motivating sales personnel to influence final brand choice.

1. Variety Seeking Buying Behavior:

• Variety-seeking buyer behavior is the buying tendency of those consumers that do not have a high involvement with a product when there is a significant difference between brands.
• These types of consumers seek variety for no valid reasons at all and become bored quite easily with products.

2. Dissonance Reducing Buying Behavior:

• Dissonance-reducing buying behavior occurs when the consumer is highly involved but sees little difference between brands.
• This is likely to be the case with the purchase of a lawnmower or a diamond ring.
• After making a purchase under such circumstances, a consumer is likely to experience the dissonance that comes from noticing that other brands would have been just as good, if not slightly better, in some dimensions.
• A consumer in such a buying situation will seek information or ideas that justify the original purchase.

3. Habitual Buying Behavior:

• Habitual buying is that kind of buying behavior of customers where they don't think much before buying the product and involvement in the decision-making is very low.
• The product is perceived as a commodity and doesn't provide much difference from its rivals.

The correct answer is Internal Rate of Return

Key Points

The European Legislative Council is not associated with the EU organization.

The European Union adopts legislation through a variety of legislative procedures. The procedure used for a given legislative proposal depends on the policy area in question.

Most legislation needs to be proposed by the European Commission and approved by the Council of the European Union and European Parliament to become law. Therefore, there is no such body as the European legislative council.

Section 68 of Companies Act 2013: Power of company to purchase its own securities

A company may purchase its own shares or other specified securities (hereinafter referred to as buy-back) out of—

• its free reserves;
• the securities premium account; or
• the proceeds of the issue of any shares or other specified securities

Important Points

• The term "free reserves" refers to those reserves which are available for distribution as dividend to shareholders, i.e. reserves which are not required to be maintained as per law or by the terms of the issue of share capital.
• The securities premium account is the account where the amount received in excess of the face value of the shares is credited.

Net profits of the company cannot be utilized for the purpose of buy-back of shares.

Hence, as per Section 68 of the Companies Act 2013, companies may purchase their own shares out of its free reserves, the securities premium account, or the proceeds of the issue of any shares or other specified securities.

It performs the following functions as per the Reserve Bank of India Act, 1934:

1. Banking functions:

• The Reserve Bank acts as the Banker, Agent, and Adviser to the Government of India and states. It performs all the banking functions of the State and Central Government and it also tenders useful advice to the government on matters related to economic and monetary policy. It also manages the public debt of the government.
• It performs the same functions for the other commercial banks as the other banks ordinarily perform for their customers. RBI lends money to all the commercial banks of the country.

2. Supervisory functions:

• It supervises other banks and governments into various economic conditions and guides them at the time of inflation or deflation in the economy.

3. Promotional functions:

• The central bank also performs promotional functions which include integrating with world economies and maintaining foreign reserves. They represent the country's economy internationally.

Key-Points

Parametric tests:

• A statistical test, in which specific assumptions are made about the population parameter is known as a parametric test.
• Parametric tests make certain assumptions about a data set; namely that the data are drawn from a population with a normal distribution.
• This test is only used where a normal distribution is assumed.
• The most widely used parametric tests are the t-test (paired or unpaired), ANOVA (one-way non-repeated, repeated; two-way, three-way), linear regression, and Pearson rank correlation. 
• Parametric tests in general are more powerful (require a smaller sample size) than nonparametric tests.
• A parametric test is preferred because it has a better ability to distinguish between the two arms.
• In other words, it is better at distinguishing the weirdness of the distribution.
• Nonparametric tests are only about 95% as powerful as parametric tests.

Therefore, (A) is correct and (B) is incorrect.

Markup pricing refers to a pricing method in which the fixed amount or the percentage of the cost of the product is added to the product’s price to get the selling price of the product. Markup pricing is more common in retailing in which a retailer sells the product to earn a profit.

P = ATC + (m × ATC) is the expression.

The process of adoption over time is typically illustrated as a classical normal distribution or "bell curve". The people to adopt a new product first are called innovators.

Key Points

Trademark:

• Any word, phrase, symbol, design, or combination of these that distinguishes your products or services might be considered a trademark.
• Customers use it to recognise you in the marketplace and set you apart from your rivals.
• Both trademarks and service marks can be referred to by the term "trademark."

Important Points

Statement 1: It may be a word signature, name, device, label, numerals or combination of colours.

• A trademark is one that incorporates a brand, device, heading, ticket, label, name, word, signature, letter, the shape of goods, numeral, packaging, combination of colors, or any such combination, according to Section 2(m) of the Trademarks Act, 1999.

Thus, option 1 is correct.

Statement 2: It prevents imitation of the offering.

• A trademark is protected against infringement when registered under the Act, meaning that a third party cannot use the registered brand for their goods or services without authorization. Intellectual property such as trademarks, copyrights, and patents which prohibits duplicating and replicating commercial concepts and market trends that are in the public domain. It prevents imitation of the offering.

​​Hence, option 2 is correct.

Statement 3: Registration of a trademark is mandatory In India.

• Trademark registration is not mandatory in India, it is usually suggested to do so in order to protect both its mark and their company. When submitting a trademark registration application for a product, the symbol "TM" is used with the trademark.

Thus, option 3 is incorrect.

Statement 4: The term of registration of a trademark is 10 years.

• The lifespan of a trademark is limited at 10 years. If they want to continue receiving legal protection for their asset after that, it must be renewed. The TM-12 form is used to submit a trademark renewal application.

Thus, option 4 is correct.