Kerala SET Paper 2 Mock Test - 2 (Commerce) - KTET MCQ

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%

The correct answer is Internal Rate of Return

Key Points

Assertion (A): “Price Discovery” is a function of the derivatives market.

Reason (R): ‘Price Discovery’ deals with the study of the influence of futures price on the spot price.

Here Both (A) and (R) are correct. Hence option4 is the correct answer.

Key Points

• Price discovery is the overall process, whether explicit or inferred, of setting the spot price or the proper price of an asset, security, commodity, or currency.
• The process of price discovery looks at a number of tangible and intangible factors, including supply and demand, investor risk attitudes, and the overall economic and geopolitical environment.
• Simply put, it is where a buyer and a seller agree on a price and a transaction occurs.
• The derivatives market serves as an important source of information about prices. Prices of derivative instruments such as futures and forwards can be used to determine what the market expects future spot prices to be.
• The information is accurate and reliable. Thus, the futures and forwards markets are especially helpful in the price discovery mechanism.

Therefore, the only statement I is correct.

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.

The correct answer is Work of the Auditor.

Internal Check is an integral function of the internal control system. It is an arrangement of duties of the staff members in such a way that the work performed by one person is automatically and independently checked by the other.

Auditing is the systematic and scientific examination of the books of accounts and records of a business so as to enable the auditor to satisfy himself that the Balance Sheet and the Profit and Loss Account are properly drawn up so as to exhibit a true and fair view of the financial state of affairs of the business and profit or loss for the financial period.

From the Auditors Point of View,

• The auditor may be relieved of undertaking detailed checking if there is an efficient system of internal checks.
• The system of internal checks facilitates the work of auditors to a great extent by enabling them to rely on test checking.
• He can plan to utilize the time saved thereby in auditing the other important areas.
• He should test the systems of internal checks for his satisfaction. In the event of his dissatisfaction or suspicion, he must probe the matter to the bottom.
• In the absence of any suspicious circumstances, he may rely upon the internal checks in force but is not totally relieved of his responsibility.
• He runs the risk of being held liable for negligence if errors and frauds are de­tected afterward.
• The internal check system is in­troduced not by the auditor but by the client or­ganisation. So, the auditor should appraise the sys­tem for reliability with reasonable skill and care.
• In short, the existence of an efficient internal check system may reduce the auditor’s work vol­ume but does not reduce his liability.

The correct answer is primary, collateral.

Key PointsVoucher

• A voucher denotes a source document, typically created for future reference and maintaining a record of the circumstances surrounding the transaction.
• Because it supports the entries made in the journal, it serves as documentary proof of that transaction.
• It is important to remember that a transaction can only be recorded in the books of accounts if there is documented basis for it.

 Important PointsBased on the source, there are two kinds of vouchers:

1. Primary Vouchers: A primary voucher is considered to be a written document that is in its original form and exists. Purchase invoices, cash receipt counterfoils, and other related documents may be included.
2. Collateral Vouchers: These are Copies of supporting documents that are not available in the original. They are xerox copies. The contracts may be kept in the vaults of banks. The copies are kept in the office for vouching.

Hence, Original vouchers are called primary vouchers and their copies or supporting documents are called collateral vouchers.

Additional InformationTypes of Vouchers on the basis of recording of transactions

1. Transaction Voucher: Simple transactions are those that only include a single debit or credit, and they need the preparation of Transaction Vouchers.
2. Compound Voucher: Transactions are considered compound if they include both a single debit or credit and many debits or credits. Compound vouchers are created for these types of transactions.
3. Complex Voucher: Transactions with multiple debits and multiple credits are referred to as complex transactions, and the journal voucher created for them is a complicated voucher.

The correct answer is Full disclosure of all material facts that can affect the financial statement.

Key Points

• The Full Disclosure Principle states that all relevant and necessary information for the understanding of a company’s financial statements must be included in public company filings.
• For example, financial analysts who read financial statements need to know what inventory valuation method has been used, if there have been any significant write-downs, how depreciation is being calculated, and other critical information for the understanding of the financial statements.

• The full disclosure principle is crucial to ensuring that there is limited information asymmetry between the company’s management and its current shareholders, debtors, or other third parties.

The correct answer is Assertion is incorrect, but Reasoning is correct.

Key PointsAs per the passage, "Despite these advantages, there are challenges, particularly the restriction on individual countries' monetary policies as monetary policy is decided by the ECB, not individual countries."

The correct answer is the European Central Bank.

Key PointsAs per the passage, "Managed by the European Central Bank (ECB) and the Eurosystem which comprises the central banks of the Eurozone, it currently serves as the official currency for 19 of the 27 EU member states collectively known as the Eurozone."

The correct answer is 2002.

Key Points As per the passage, "Introduced in 1999 as an electronic currency for banking and financial transactions and in tangible form in 2002, the Euro is the second most traded currency worldwide after the US Dollar."

Investment in Equity shares is the most risky. The higher the volatility of a stock, or any asset, the higher its risk. Unit trusts that invest only in equities are higher risk than those that invest in other assets. Their prices move further and the chance of loss is higher.

Statement II is also correct for the fact that the reviews posted on the websites of the e-commerce companies are not always true and there is no way to find out if they are true or fake or even the discounts are not always for real. Refer to, “There are no authentic ways to figure out if product reviews, ratings or even discounts are genuine.”

The correct answer is Sustainability.

Key Points

As per the passage 

• "Furthermore, as awareness of environmental and societal concerns has risen, businesses are endeavoring to factor in sustainability into their service design and delivery."

  • This sentence explains how sustainability is being increasingly considered in service design and delivery in India.

The correct answer is It has become more multifaceted.

Key Points

As per the passage:

• "Therefore, service marketing in India has transformed into a multifaceted domain that balances complex business, customer, and societal demands in its broad scope."

  • This sentence shows how the scope of service marketing in India has become more multifaceted.

The correct answer is Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of assertion (A).

Key PointsPrepaid Expenses

• Future expenses that are paid in advance are known as prepaid expenses.
• Prepaid expenses are first recognised as an asset on the balance sheet.
• The sum is recorded as an expense after the assets' benefits are realised over time.
• Example of Prepaid Expenses: Insurance is an excellent example of a prepaid expense, as it is customarily paid for in advance. If a company pays ₹12,000 for an insurance policy that covers the next 12 months, then it would record a current asset of ₹12,000 at the time of payment to represent this prepaid amount. In each month of the 12-month policy, the company would recognise an expense of ₹1,000 and draw down the prepaid asset by this same amount.

Liquid Assets:

• Liquid assets are those that can be quickly converted into cash.
• While assets are valuable belongings that can be turned to cash, not all of them can be sold for cash immediately or without incurring a loss.
• Cash, Bank balance, Accounts receivable, Treasury bills, notes, and bonds are some examples of liquid assets

Important Points Assertion (A): Prepaid expenses are not considered as liquid assets.

• The assertion is True as prepaid expenses are not considered liquid assets
  

Reason (R): Prepaid expenses cannot be converted into cash.

• The Reason (R) is also true & correctly explains the assertion (A) as prepaid expenses and income tax receivables, cannot be sold for cash, which is why they are not considered liquid assets.
• They are recorded as Other current assets, as prepaid expenses are the expenses that have been paid in advance before they are even due for payment. An obligation that is met in advance is an asset for the company,

The correct answer is convenience products.

Key Points

• Any good or service you offer to satisfy a customer's need or desire is a product.
• There are both real and virtual ones. Durable things (such as automobiles, furniture, and computers) and nondurable items are examples of physical products (like food and beverages).
• Services or experiences are offered as virtual products (such as education, software, and streaming services).
• A product could also be a hybrid, containing both real-world and digital components (like a kitchen appliance with its own mobile app).
• As traditionally analog items combine digital technology to better reach and serve customers, hybrid products are becoming more widespread.

 Important Points

Convenience Goods: Convenience goods are regularly bought and require minimal preparation or effort. They are frequently affordable, readily available, and simple to purchase.

For example, periodicals, on-demand applications, and services

Features of Convenience Goods

• Lack of durability
• Convenience stores frequently have them in stock.
• Contains fewer items and is cheaper
• Typically, it only comprises standardized goods.
• Advertising campaigns and promotions are important for its sale.
• Constantly in demand

Note: Creams and medicines are the types of convenience goods because it requires minimal preparation and effort to purchase.

Additional Information

• Shopping Goods: Shopping items cost more and are bought less frequently than convenience items. Before making a purchase, consumers weigh factors like quality, design, and cost. For instance, clothing lines and airline tickets
• Specialty Goods: Products that fit into a certain market or niche have attributes that appeal to that market. In order to reach the correct consumers, this type of product needs more focused advertising. For illustration, consider applications for the real estate or banking markets.
• Unsought Goods: Few buyers are aware of or actively seek out unsought products. Customers do not have an immediate need for these products, hence direct benefit promotion is required to spark interest. Examples include life insurance and dictionaries.

Valuation of shares is the process of determining the fair value of the company shares.

Key PointsYield Or Market Value Method Of Valuation Of Shares:

• Under the yield method, the emphasis goes to the yield that an investor expects from his investment.
• The yield, here we mean, is the possible return that an investor gets out of his holdings—dividend, bonus shares, right issue.
• If the return is more, the price of the share is also more.
• Under this method, the valuation of shares is obtained by comparing the expected rate of return with the normal rate of return.

• The normal rate of return, for individuals, is the average rate of return on all investments, i.e. the average of all returns yields the normal rate of return.
• Determining the normal rate of return for the valuation of shares in the Market value method comprises of following:
  • The risk involved in a particular share or class of share in which amount is to be invested, 
  • Current market rate and trends in companies market value,
  • Cost of capital of particular company so as to find the performance of the company, and
  • The weighted average cost of capital.

Thus, option 4 is the correct answer.

The correct answer is It opens up new market opportunities.

Key Points

• Globalisation is beneficial for firms because it opens up new market opportunities.
• Benefits of Globalization:
  • Access to new cultures.
  • The spread of Technology and Innovation.
  • Lower costs for products.
  • Higher standards of living across the globe.
  • Access to new markets.
  • Access to new talent.
• Global markets can reduce marketing costs, create new market opportunities abroad, and level income streams.

Additional Information

• Liberalization - It refers to a relaxation of government restrictions in the areas of social, political, and economic policies.
• Privatization - It means different things including moving something from the public sector into the private sector.

The correct answer is interest rates are low and expected to remain low.

Key Points Call-Option value:

• The call-option value of a callable bond represents the additional value of the option to call (redeem) the bond before maturity.
• The value of the call option is determined by the difference between the market interest rate and the coupon rate of the bond, as well as the remaining time to maturity and the call price.
• The call-option value of a callable bond is likely to be high when interest rates are falling.
• The call-option value of a callable bond is likely to be high when interest rates are low. This is because when interest rates decrease, the issuer of the bond has the incentive to call (redeem) the bond and refinance it at a lower interest rate.
• When interest rates are low, the probability of the bond being called by the issuer increases, and this expectation of early redemption enhances the value of the call option embedded in the bond.
• This is because when interest rates fall, the value of the callable bond increases due to its higher coupon rate relative to prevailing market rates.
• As a result, the issuer is more likely to exercise the call option and redeem the bond before maturity to refinance at a lower cost of borrowing.

Hence, the correct answer is interest rates are low and expected to remain low.

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

The correct match is given below-

• Differential pricing - Low prices for early and evening movies, weekends discounts for car parking rentals.
• Complimentary service - Customer lounges to sit in while waiting for a table at service centers, etc.
• Reservation system - Airlines, hotel, physician employ extensively.
• Non-peak demand cultivation - Breakfast service by McDonald's and mini-vacation and weekends by hotels.

Median is the middle value among the observed set of values and is calculated by arranging the values in ascending order or in descending order and then choosing the middle value.

The mode is the number from a data set that has the highest frequency and is calculated by counting the number of times each data value occurs.

In the case of a moderately skewed distribution, i.e. in general, the difference between mean and mode is equal to three times the difference between the mean and median. Thus, the empirical relationship as Mean – Mode = 3 (Mean – Median).

If solved further, Mode = 3 Median - 2 Mean and 3 Median = 2 Mean + Mode

Promotion means elevation of employee status. To promote an employee, his / her personal record, performance evaluation and job posting factors are considered. The employee's efficiency and his / her goals are considered to promote his / her achievement. Advertising is not required for promotion.

Pension is a retirement benefit and it is taxed as salary in the hands of an employee. Family pension is taxable under the head "Income from other sources" u/s 57(ii) a standard deduction shall be allowed to the legal heir @33.33% of such pension or Rs. 15,000, whichever is less.

The person who receives the family pension was not an employee but the dependent of the employee. People eligible for pension/family pension are the person himself, his/her spouse, children below 25 years of age, and unmarried daughter.

Therefore, statement (A) is incorrect and (R) is correct.

• Economic crisis is a severe and sudden upset in any part of the economy. It could be a stock market crash, a spike in inflation or unemployment, or a series of bank failures.
• The IMF oversees the stability of the world's monetary system, while the World Bank's goal is to reduce poverty by offering assistance to middle-income and low-income countries
• In 1991, India met with an economic crisis relating to its external debt. India approached the International Bank for Reconstruction and Development (IBRD), popularly known as World Bank and the International Monetary Fund (IMF), and received $7 billion as loan to manage the crisis. Therefore Option 3 is the correct answer.