Kerala SET Paper 2 Mock Test - 3 (Commerce) - KTET MCQ

A transferable letter of credit is a type of financial guarantee, known as a letter of credit, that additionally allows the first beneficiary to transfer some or all of the credit to another party, which creates a secondary beneficiary. The party that initially accepts the transferable letter of credit from the bank is referred to as the first, or primary beneficiary.

Modern marketing concepts emphasize customer relationships. If customers are satisfied with the producer's products, then the market image of the producer will be good. This will lead to more profits and growth. Modern marketing is about customer experience at every touchpoint, building relationships with customers, adapting continuously to the new digital landscapes, and marketing across multiple channels to reach different consumers.

Pure or perfect competition is a theoretical market structure in which all firms sell an identical product (the product is a "commodity" or "homogeneous"). All firms are price takers (they cannot influence the market price of their products). Market share has no influence on prices.

In Monopolistic Competition, a buyer can get a specific type of product only from one producer. In other words, there is product differentiation. The firms have to incur selling expenses since there is product differentiation. The firm can improve or deteriorate the quality of its products too.

Oligopoly is a market structure in which there are a few firms producing a product. When there are few firms in the market, they may collude to set a price or output level for the market in order to maximize industry profits.

In a monopoly, there is a practice of charging different prices for an identical product is called price discrimination. According to Robinson, “Price discrimination is charging different prices for the same product or the same price for the differentiated product.”s a single seller of a product called a monopolist.

The financial break-even point is the level of EBIT where the EPS is zero for a particular given financial plan. Indifference point is the point where the EPS will be the same for the given financial plans irrespective of the debt-equity mix. If the expected level of EBIT exceeds the indifference point, then it would be beneficial to use the fixed charge source of funds to increase the EPS i.e. use of levered funds.

Financial management is concerned with the procurement of funds and their effective utilisation so that unnecessary usage of funds can be avoided. Financial management optimises the output from the given input of funds and attempts to use the funds in the most productive manner.

The act that provides the legal framework for e-Governance in India is the IT Act 2000.

An Act to provide legal recognition for transactions carried out by means of electronic data interchange and other means of electronic communication, commonly referred to as "electronic commerce", which involve the use of alternatives to paper-based methods of communication and storage of information.

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 Competitive Pricing

Key Points Competitive Pricing

• Competitive pricing or competition-based pricing is a pricing strategy where you take into account the prices of your competitors when setting your products’ prices.
• This pricing method is usually used for homogenous products in highly competitive markets and can be also referred to as market-oriented pricing.

Additional Information 1. Value-based Pricing

• Value-based pricing is a strategy of setting prices primarily based on a consumer's perceived value of the product or service in question.
• Value pricing is customer-focused pricing, meaning companies base their pricing on how much the customer believes a product is worth.
• Companies that offer unique or highly valuable products and features are better positioned to take advantage of the value pricing model than companies that chiefly sell commoditized items.

2. Product Pricing

• Product pricing is an essential element in determining the success of your product or service, yet eCommerce entrepreneurs and businesses often only consider pricing as an afterthought. They settle and use the first price that comes to mind, copy competitors, or (even worse) guess.
• Before setting a price for your product, you have to know the costs of running your business. If the price for your product or service doesn't cover costs, your cash flow will be cumulatively negative, you'll exhaust your financial resources, and your business will ultimately fail.

3. Premium Pricing

• Premium pricing is a strategy that involves tactically pricing your company’s product higher than your immediate competition.
• The purpose of pricing your product at a premium is to cultivate a sense in the market of your product being just that bit higher in quality than the rest.

Firstly, the aggrieved employee shall convey his grievance verbally in person to the officer designated by the management for this purpose. The officer has to answer within 48 hours of the presentation of the complaint.

Hence, the correct option (C).

The Correct option is 1 i.e. Subscribed and Fully paid

Important Points

The shares on which the company has called the entire nominal value and also the shareholders paid the entire called up amount. Under these circumstances it is shown under subscribed capital as Subscribed and Fully paid up. Subscribed capital is the part of the issued capital which is subscribed by the public.

A breach of contract can happen in both a written and an oral contract. The parties involved in a breach of contract may resolve the issue among themselves, or in a court of law. There are different types of contract breaches, including a minor or material breach and an actual or anticipatory breach.

The correct answer is (ii), (iii) and (iv).

Key PointsGTI or Gross Total Income is the sum of all revenue sources, whereas TI or Total Income is GTI minus deductions. To compute TI, subtract the following deductions from GTI as per Section 80 in Chapter VI of the Income Tax Act.

Important PointsDeduction from Gross Total Income [Section 80A to 80U] (Chapter VIA)
These deductions are of two types:—

• Deductions on account of certain payments and investments covered under sections 80C to 80GGC.
• Deductions on account of certain incomes which are already included under Gross Total Income covered under sections 80-IA to 80U.
• The income arrived at, after claiming the above deductions from Gross Total Income, is known as Total Income. It may also be called Taxable Income. The Total Income, thus calculated, should be rounded off to the nearest Rs. 10.
• The aggregate of income computed under each head, after giving effect to the provisions for clubbing of income and set off of losses, is known as "Gross Total Income". In computing the total income of an assessee, certain deductions are permissible under sections 80C to 80U from Gross Total Income.

These deductions are however not allowed from the following incomes although these incomes are part of Gross Total Income

1. Long-term capital gains.
2. Short-term capital gain on transfer of equity shares and units of equity oriented fund through a recognised stock exchange i.e. short-term capital gain covered under section 111A.
3. Winnings of lotteries, races, etc.
4. Incomes referred to in sections 115A, 115AB, 115AC, 115ACA, 115AD and 115D.

​Hence, it can be concluded that the deductions under Chapter VI-A of the Income Tax Act, 1961 are allowed after excluding Long-term capital gains, Short-term capital gains under Section 111A and Income from lotteries.

The Prudence principle is the rule of becoming careful. In accounting, we can become careful about future losses. For facing the losses without tension, it is very easy to separate of profit's some part for this. Every type of loss will increase our liability. As per the prudence principle, we should make and record all estimated future losses and forget all estimated future gains. By doing this, we have to make the provisions for future losses. For example, there is a risk of defaulting some debtors. For tolerating this loss, it is good, if we make the provision for doubtful debt. This reserve will deduct our total profit. If this loss will happen, we can easily buy new stock through this provision. This provision is also called the principle of conservatism because this rule is not new. Every time, a businessman wants to play his investment on the safe side. He also wants to control every type of risk by making reserve. At that time of the making of the reserve, he should estimate the future loss correctly, otherwise, it will become a secrete reserve and it is against the principle of full disclosure.

The RBI is the supreme monetary and banking authority in the country and controls the banking system in India. It is called the Reserve Bank' as it keeps the reserves of all commercial banks. Commercial banks may be defined as, any banking organization that deals with the deposits and loans of business organizations. Scheduled commercial banks (SCBs) account for a major proportion of the business of the scheduled banks. SCBs in India are categorized into five groups based on their ownership and/or their nature of operations. Scheduled commercial banks include public and private sector banks, foreign banks, regional rural banks, and cooperative banks.

The incorrect statement is The scheme allows for the settlement of disputed tax without any payment of the disputed amount.

Key Points

• The Vivad Se Vishwas Act, 2020", is a new scheme introduced in the Direct Tax regime.
• This scheme is similar to the Sabka Vishwas-Legacy Dispute Resolution Scheme 2019 under Indirect Tax.

Important Points

• The Vivad se Vishwas Act, 2020 was introduced to resolve and settle pending cases of Income Tax disputes.
• Under this scheme, taxpayers are allowed to pay their taxes and settle disputes by March 31, 2020, with a complete waiver of interest and penalty.
• The scheme applies to disputed tax, interest, penalty, and fee, and it is applicable to disputes pending before various appellate forums including the Supreme Court, High Courts, Income Tax Appellate Tribunals, and Commissioner (Appeals).
• It allows taxpayers to pay their taxes and settle disputes by March 31, 2020, with a complete waiver of interest and penalty.
• If the taxpayer fails to pay by March 31, they can pay by June 30, but with an additional 10% on the tax.

Hence, statement "The scheme allows for the settlement of disputed tax without any payment of the disputed amount." is incorrect.

According to the passage, "Then, start-ups need early stage investment from venture capitalists and corporate investors, ranging from $10 million to US$100 million through multiple rounds of equity financing."

Corporate investors and Venture capitalists provide financial assistance to start-ups in the early stage of a company.

Human Resource Management (HRM) is the term used to describe formal systems devised for the management of people within an organization. The responsibilities of a human resource manager fall into three major areas: staffing, employee compensation and benefits, and defining/designing work.

Method of Mean Deviation does not give accurate results.  The reason is that the mean deviation gives the best results when deviations are taken from the median. But the median is not a satisfactory measure when the degree of variability in a series is very high. And if we compute mean deviation from mean that is also not desirable because the sum of the deviations from the mean (ignoring signs) is greater than the sum of the deviations from the median (ignoring signs). If the mean deviation is computed from a mode that is also not scientific because the value of mode cannot always be determined. Thus, statement (a) is correct.

In a symmetrical distribution, the mean deviation equals 4/5 of standard deviation. Thus, statement (c) is correct.

SUGAM is also known as ITR-4.
Key Points

Explanation:

1. Income Tax Return Form 4, which also called SUGAM, is filed by the taxpayers who have opted for presumptive taxation scheme under section 44AD, section 44Dand section 44AE of the Income Tax Act, 1961.
2. ITR 4 can be filed by individuals, HUF as well as a partnership firm. However, if the annual turnover of business registered under presumptive taxation scheme exceeds Rs. 2 crores, the taxpayer is required to file ITR-3.

The correct answer is "Sought goods".

Key Points

• Products are classified under two categories i.e consumer product and industrial product.
• Durable products, shopping products comes under the category of consumer products.
• Unsought goods comes under the category of consumer goods.
• The products classified as unsought goods are those that consumers don’t put much thought into and generally don’t have a compelling impulse to buy. ​​

Additional Information

• Durable products - A category of consumer products that do not need to be purchased frequently because they are made to last for a long time . They are also called consumer durables or durables.
• Shopping products - Consumer goods in which buying decisions are detailed considerations of price, quality , suitability and value for products are classified as shopping goods. 
• Industrial product - Industrial products are mainly used for further production. They are products bought by individuals and organizations for further processing or for use in conducting a business.

Key Points

• Rules regarding gratuities are specified in the Payments Gratuity Act of 1972.
• It was approved by the Parliament on August 21, 1972, and it went into effect on September 16, 1972.

Important Points
Gratuity Received by a Non-Government Employee covered by the Payment of Gratuity Act, 1972 [Section 10(10)(ii)].
As per section 10(10)(ii), exemption in respect of gratuity in case of employees covered by the Payment of Gratuity Act, 1972 will be lower of following:

• Actual gratuity received, or
• 15 days salary for every completed year, or part thereof exceeding six months 7 days salary for each season in case of employee in seasonal establishment; or ₹ 20,00,000

Any other employees:
Minimum of the following:

• Actual gratuity received
• Half months average salary of each completed year of service.
• ₹ 20,00,000.​​

Additional Information

• Meaning of Gratuity:It's a one-time payment given for an employee's services. The employee may use it following retirement or after five years of continuous employment with the company.
• The Payment of Gratuity Act, 1972, which established the standards for gratuity payments, was first passed in 1972. People who work for an organisation, whether it is a public or private one, are subject to the rules governing gratuities.
• The first cap on gratuity payments was set at Rs. 10 lakhs. If an employee received a gratuity that was higher, they were responsible for paying tax on the excess.
• The gratuity threshold increased to 20 lakhs with the implementation of the 2020 gratuity regulations.

Regulation of combination falls under the Competition Act, not under the MRTP Act.

Regulation of combination: Prohibits the formation of combinations that are likely to have an appreciable adverse effect on competition in the relevant market in India and further declares that such combinations should be deemed void.

Accounting Standards are written policy documents issued by an expert accounting body or by the government or other regulatory body covering the aspects of recognition, measurement, treatment, presentation, and disclosure of accounting standards in financial statements.

Accounting Standard (AS) 6: Depreciation Accounting:-

AS - 6 was made mandatory from the accounting period beginning on or after 1st April 1995.

The terms used in this Standard are explained below:

1. Depreciation:
   • It is a measure of the wearing out, consumption, or other loss of value of a depreciable asset arising from use, effluxion of time obsolescence through technology, and market changes.
   • It is allocated so as to charge a fair proportion of the depreciable amount of each accounting period during the expected useful life of the asset.
   • It includes amortization of assets whose useful life is predetermined.
2. Depreciable assets are assets which:
   • are expected to be used during more than one accounting period,
   • have a limited useful life, and
   • are held by an enterprise for use in the production or supply of goods and services, for rental to others, or for administrative purposes and not for the purpose of sale in the ordinary course of business.
3. Useful life is either
   • the period over which the depreciable asset is expected to be used by the enterprise; or
   • the number of production or similar units expected to be obtained from the use of the asset by the enterprise.
4. The depreciable amount of a depreciable asset is its historical cost or other amount substituted for historical cost in the financial statements, less the estimated residual value.

Accounting Standard (AS) 6, Depreciation Accounting, stands withdrawn from the date AS 10, Property, Plant, and Equipment, becomes applicable as such matters related to depreciation are included in AS 10.

The correct answer is programmed. 

Key Points

• Programmed decisions tend to be well structured, routine and repetitive, occurring on a regular basis.
• They are usually made at lower levels in the organisation, have short-term consequences and are based on readily available information.
• Due to the fact that the organisation is frequently presented with the decision, a decision rule can be developed that tells the organisation or decision maker which alternative to choose once the information is available.
• The decision rule ensures that a definite method for obtaining a solution can be found and that the decision does not have to be treated as something new each time it occurs. Frequently simple formulae can be applied to the situation.
• Examples of programmed decisions include ordering raw materials or office supplies and calculating holiday pay, sick pay or redundancy payments. 
• Non-programmed decisions, in contrast, are new and unstructured and consequently a previously established decision rule cannot be applied.
• In other words, the organisation has no established procedures or records for dealing with the decision, which can therefore appear to be highly complex.
• Non-programmed decisions tend to occur at higher levels in the organisation, have long-term consequences and require a degree of judgement and creativity.
•  Examples of non-programmed decisions include the decision to try an unproven technology or to expand into a previously unknown market. 

A situation where any advantage given by one member of the WTO to another member is extended to all WTO members is referred to as the most favored nation.

Most-favoured-nation (MFN): treating other people equally. Under the WTO agreements, countries cannot normally discriminate between their trading partners.

Dumping in economics is a kind of predatory pricing, especially in the context of international trade. It occurs when manufacturers export a product to another country at a price below the price charged in its home market or below its cost of production. Therefore, when goods in the domestic market are sold at a high price and in the foreign market at a low price, it is a situation of dumping.

The profit maximization rule formula is MC = MR.

Marginal Cost is the increase in cost by producing one more unit of the good.