UGC NET Paper 2 Commerce Mock Test - 2 - UGC NET MCQ

The correct answer is ​option 3.

Key Points

• The National Financial Reporting Authority (NFRA):
  • The National Financial Reporting Authority (NFRA) was constituted in 2018 by the Government of India under Sub Section (1) of section 132 of the Companies Act, 2013.
  • As per the Companies Act, 2013, the duties of the NFRA are to:
    • Recommend accounting and auditing policies and standards to be adopted by companies for approval by the Central Government. Hence, option 3 is correct.
    • Monitor and enforce compliance with accounting standards and auditing standards;
    • Oversee the quality of service of the professions associated with ensuring compliance with such standards and suggest measures for improvement in the quality of service;
    • Perform such other functions and duties as may be necessary or incidental to the aforesaid functions and duties.

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.

Admission of Partner:

• Whenever a firm requires additional capital or managerial help or both for the expansion of its business, a new partner may be admitted to supplement its existing resources.
• According to the Partnership Act 1932, a new partner can be admitted into the firm only with the consent of all the existing partners, unless otherwise agreed upon.
• The profit-sharing ratio among the old partners will change, keeping in view their respective contribution to the profit-sharing ratio of the incoming partner.

Solution:

C's share = 1/4

Remaining share = 1 - (1/4) = 3/4

A's share = 2/3 of 3/4 = 6/12

B's share = 1/3 of 3/4 = 3/12

New C's share = 1/4 of 3/3 = 3/12

• It has been assumed that the new partner acquired his share from old partners in the old ratio.
• Thus, the new profit share ratio will be 6 : 3 : 3 i.e. 2 : 1 : 1.
• If C invests a capital of Rs.12,000, so the adjusted capital of other partners according to the profit share ratio will be:
  • Adjusted capital of A = A's share ratio, i.e. 2 * 12,000 = Rs. 24,000.
  • Adjusted capital of B = B's share ratio i.e. 1 * 12,000 = Rs. 12,000.

Therefore, the adjusted capital of B will be Rs. 12,000.

Chalapathi Rao Committee was constituted for the restructuring of Regional Rural Banks in India.

Key Points

1. Regional Rural Banks have been in existence for around three decades in the Indian financial scene.
2. The inception of regional rural banks (RRBs) can be seen as a unique experiment as well as an experience in improving the efficacy of rural credit delivery mechanisms in India.
3. With joint shareholding by Central Government, the concerned State Government, and the sponsoring bank, an effort was made to integrate commercial banking within the broad policy thrust towards social banking keeping in view the local peculiarities.
4. The genesis of the RRBs can be traced to the need for a stronger institutional arrangement for providing rural credit.
5. The financial viability of RRBs has engaged the attention of the policymakers from time to time.

Important Point

1. The committee under the Chairmanship of Chalapathy Rao in 2003 (Chalapathy Rao Committee) recommended that the entire system of RRBs may be consolidated while retaining the advantages of the regional character of these institutions.
2. As part of the process, some sponsor banks may be eased out.
3. The sponsoring institutions may include other approved financial institutions as well, in addition to commercial banks.

The correct answer is Larry Ellison.

Key Points

• Oracle is an American multinational computer technology corporation headquartered in Austin, Texas. The company was formerly headquartered in Redwood Shores, California until December 2020 when it moved its headquarters to Texas.
• It was started by Larry Ellison, Bob Miner and Ted Oates on 16 June, 1977.
• Oracle offered first commercial SQL Relational Database Management System (RDBMS).

Additional Information

• Larry Page along with Sergey Brin founded Google on 4th September 1998. It is the most popular search engine in the world.
• Sean Parker is an American entrepreneur and philanthropist, most notable for co-founding the file-sharing computer service Napster, and serving as the first president of the social networking website Facebook.
• Bill Gates and Paul Allen started Microsoft on 4th April, 1975. It has since been an important part of the tech world as it has offered the widely used Windows UI, MS- Office and its CRM app known as Dynamics CRM.

Responsibility budget:

•  The term "responsibility budget" refers to a firm's operating budget that is built around responsibility areas.
• Such a budget outlines the goals and the people in charge of attaining them.
• The management employs it as a management tool to assess the effectiveness of executives in charge of various cost centres.
• Their performance is compared to the goals (budgets) they were given, and the appropriate steps are made in the event of unfavourable outcomes.
• The size, nature, and organisational structure of business activities all affect the types of responsibility zones.

Important Points Responsibility areas may be classified under three broad categories:

1. Cost Centers: 

• A cost centre is an organizational segment in which a manager is held responsible only for costs.
• These responsibility centres clearly connect the expenses incurred and the goods or services delivered.
• Managers need to understand this connection and structure it appropriately within responsibility accounting.

2. Profit Centre:

• An organisational division known as a profit centre has a manager who oversees both revenues and expenses (such as a Starbucks store location).
• A profit centre structure is the most complicated of the responsibility centres we've looked at so far because a manager must know methods to raise revenues, cut costs, and boost profits while also achieving the organisational strategy.

3. Investment Centers:

• It is essential for leaders to make ongoing investments in the company.
• Managers must make investments that enhance the value of the company by enhancing customer satisfaction, boosting client retention, and eventually enhancing the value of the company. 
• The last responsibility centre, the investment centre, considers and assesses the investments made by the managers of the other responsibility centres.
• To ensure that segment managers make investments that add value and aid the firm in achieving its strategic goals, the investment centre structure was created.

Hence, it can be concluded that the Loan centre is not a Responsibility area.

The correct answer is (3) Data processing system

Key Points

Data processing system is one of the following MIS systems which is designed to capture, collect or enter the data to process in a certain specified manner for further processing.

Additional Information

Business function processing system: Business processes are a collection of actions involving one or more business functions that assist in achieving the objectives of the organization.

Transaction processing system: The data transactions of an enterprise are gathered, stored, modified, and accessed using this kind of information system.

Data processing system: It is a kind of information system that gathers raw data, transforms it into a more useful format, and then stores it for later processing.

Integrated information processing system: It consists of various information sets that are logically connected.

In the Perceived-Value Pricing method, a firm sets the price of a product by considering what product image a customer carries in his mind and how much he is willing to pay for it. In other words, pricing a product on the basis of what the customer is ready to pay for it, is called Perceived-value pricing.

Negotiable Instruments Act, 1881 governs the transactions through cheques.

The entire processing of cheques and their payment are all governed under the covenants of the Negotiable Instruments Act, 1881, which necessitate that these instruments are in writing and have to be physically presented for payment in due course.

`Option (A) is correct since it is mentioned in the passage that around 99.3% currency has come back into the banking system after the demonetization. This proves that the demonetization drive has failed completely in India. Refer to, “The Reserve Bank of India’s annual report for 2017-18 reveals that 99.3% of currency notes that were demonetised at midnight on November 8, 2016 have returned to the banking system. This is only marginally higher than its provisional estimate last year that over 99% — or Rs 15.28 lakh crore worth of the old Rs 500 and Rs 1,000 notes — out of the Rs 15.44 lakh crore that were in circulation at the time had been deposited by June 30, 2017.”

Option (B) is also correct since the RBI is now facing the same issue of counterfeiting the currencies of Rs 500 and Rs 2000 newly launched by the RBI. This has been reported in the annual report of the RBI. Refer to, “Nevertheless, the RBI report, which points to a spurt in counterfeiting of the new Rs 500 and Rs 2,000 notes, raises the old question all over again.”

Option (C) is not correct since there is no reference in the passage that the law and order implementing agencies are too excited regarding arresting the offenders. This is completely irrelevant in the context of the information given in the passage.

Refer to, “Even as these issues are sorted out, the larger lesson must be heeded: sudden shocks to the economy don’t always yield intended policy objectives.“

The summary of the passage is that the government may think that any sudden decision may yield intended policy objectives but it is not always true and it may also be the case that such policy decisions will affect the health of the economy more than contributing to its growth.

Among the given options, option (D) is the correct choice since it perfectly captures the essence of the passage and other options are not relevant as per the information given in the passage.

The Kruskal - Wallis test is the nonparametric equivalent of the one - way ANOVA and essentially tests whether the medians of three or more independent groups are significantly different.

Financial risk is the risk associated with the company having debts and arises when the company is not able to meet its debt obligations. It is related to the debt obligations of the company. Earnings available before interest and tax are used to pay interest on the debts taken, it gives earning before tax. More debts mean more financial risk is associated.

As per Section 10 (1), agricultural income earned by the taxpayer in India is exempted from tax. Agricultural income is defined under Section 2 (1A) of the Income Tax Act.

Quid pro quo’, quo stands for the monopoly granted for the term of the patent.

“Quid pro quo” means “this for that.” It is a phrase used to indicate that something is given in exchange for something else.

In the case of patents, the exchange is that one discloses to the patent office, and therefore to the public, the great invention that they have made or are working on.

In return, the government will give you a limited monopoly on your invention, for about 20 years, to keep competitors at bay.

In other words, the government is dangling this benefit to get one to share their invention ideas with the world.

They hope that this will increase the development of new technologies because ideas are being shared. 

When the expected level of EBIT exceeds the indifferent point for two alternative financial plans (Equity financing and Debt financing), then the use of debt financing (fixed cost source of the fund) would be advantageous to increase EPS and financial leverage would be favourable. The higher the degree of financial leverage, the more volatile the EPS. Since interest is a fixed expense, leverage magnifies returns and EPS.

The audit engagement letter, generally, should include a reference to each of the following except a description of the auditor’s method of sample selection.

Key Points An audit engagement letter is a written agreement used by auditors when signing a new client. This letter serves as a legal contract between both parties. It also defines their rights and responsibilities for their business relationship. The requirement for these letters comes from auditing and accounting standards. These require both the client and auditors to agree on the terms and conditions of an audit engagement.

Important Points

Auditors should only accept a new audit engagement or continue an existing audit engagement if the 'preconditions for an audit required by ISA 210 Agreeing to the terms of audit engagements are present.

ISA 210 requires the auditor to:

• Determine whether the financial reporting framework to be applied in the preparation of the financial statements is appropriate; and
• Obtain the agreement of management that it acknowledges and understands its responsibilities.

If the preconditions for an audit are not present, the auditor should discuss the matter with management, and should not accept the engagement unless required to do so by law or regulation.

Additional Information

What Are The Elements Of The Audit Engagement Letter?

1. The Objectives And Scopes Of The Audit Engagement
2. The Responsibilities Of The Auditor
3. The Responsibilities Of The Management
4. Identification Of The Applicable Financial Reporting Framework That The Entity Uses In Order To Prepare The Financial Statements
5. Reference To The Expected Form And Content Of Any Applicable Reports To Be Issued By The Auditors.
6. Others

The above sections are compulsory for any audit engagement letter. Apart from the above, this letter also includes other elements. These requirements come from ISA 210. The additional sections include the following.

• Reference to relevant professional standards, regulations as well as legislation that are applicable to the audit engagement.
• Limitations of an audit engagement
• Expectations that management will provide written representations
• The basis on which the fees are calculated
• Agreement of management to notify the auditor of subsequent events after the auditor’s report is signed
• Agreement of management indicating the provision of the draft financial statements in time to allow the audit to be completed by the deadline
• Form (and timing) of any other means of communication during the course of the audit
• The audit engagement letter may also cover other matters. These include the following.
• Any arrangements that concern the involvement of internal auditors and other staff of the entity
• Limitations to the auditor’s liability.

The correct answer is Marginal cost pricing

Key PointsMarginal Cost Pricing:

• Marginal-cost pricing is the practise of adjusting a product's price to equal the additional cost of producing an extra unit of production.
• According to this strategy, a manufacturer only charges the addition to total cost arising from materials and direct labour for each product unit sold.
• During periods of low sales, businesses frequently set prices close to marginal cost.

Important Points

• Marginal Cost Price is a pricing strategy that requires businesses to determine prices for goods and services at a rate higher than the marginal cost of production, or MCP.
• This is a relatively simple statistic that can be used to represent the cost of producing an additional unit of a given output of any type of setting using this special pricing tool.
• It is common for the approach to play a role in setting prices for utilities and other situations in which competition for consumers follows the pricing method.

Assertion (A): There is no difference between futures and forwards excepting that the former requires a margin.

Reason (R): Futures are standardized, marked to market, and traded in organized exchanges. Forwards are tailor-made instruments and traded on the OTC market.

Here (A) is incorrect, but (R) is correct. Hence Option1 is the correct answer.

Key Points

A forward contract is a private and customizable agreement that settles at the end of the agreement and is traded over-the-counter.

A futures contract has standardized terms and is traded on an exchange, where prices are settled on a daily basis until the end of the contract.

Additional Information

Forward Contracts

1. The forward contract is an agreement between a buyer and seller to trade an asset at a future date. The price of the asset is set when the contract is drawn up. Forward contracts have one settlement date—they all settle at the end of the contract.
2. These contracts are private agreements between two parties, so they do not trade on an exchange. Because of the nature of the contract, they are not as rigid in their terms and conditions.
3. Many hedgers use forward contracts to cut down on the volatility of an asset's price. Since the terms of the agreement are set when the contract is executed, a forward contract is not subject to price fluctuations.
4. Because of the nature of these contracts, forwards are not readily available to retail investors. The market for forward contracts is often hard to predict. That's because the agreements and their details are generally kept between the buyer and seller, and are not made public. Because they are private agreements, there is high counterparty risk. This means there may be a chance that one party will default.

Futures Contracts

1. Futures contracts involve the agreement to buy and sell an asset at a specific price at a future date. The futures contract, however, has some differences from the forward contract.
2. First, futures contracts are marked-to-market daily, which means that daily changes are settled day by day until the end of the contract. Furthermore, a settlement for futures contracts can occur over a range of dates.
3. Because they are traded on an exchange, they have clearing houses that guarantee the transactions. This drastically lowers the probability of default to almost never. Contracts are available on stock exchange indexes, commodities, and currencies. The market for futures contracts is highly liquid, giving investors the ability to enter and exit whenever they choose to do so.
4. These contracts are frequently used by speculators, who bet on the direction in which an asset's price will move, they are usually closed out prior to maturity and delivery usually never happens. In this case, a cash settlement usually takes place.

The correct answer is C, A, D, B, E.

Key Points

Estimating the demand equation using regression analysis typically involves the following sequence:

• Model specifications: The first step is usually to decide on the model to be used. This means specifying the dependent variable (which will usually be the quantity demanded) and the independent variables (these will be the factors we hypothesise to influence the quantity demanded).
• Obtaining data on each variable or its proxy: Once we have decided on the variables, the next step is to obtain data on each of these variables. The data has to be relevant and reliable.
• Deciding on the functional form of the demand equation: The functional form of the equation (for example, linear, logarithmic, etc.) is then selected based on the relationship expected between the variables.
• Estimating slope coefficients: Using the data and the form of the equation, the regression is run to estimate the slope coefficients, which tell us how much the dependent variable changes when the independent variables change.
• Evaluation of regression results: The final step is to evaluate the results, checking if the model fits the data well (through measures like R-squared), and if the results are statistically significant.

The correct answer is Efficient supply chain.

Key Points

• The supply chain strategy that focuses on optimizing each segment of the supply chain independently, aiming for cost reduction, is indeed "Efficient Supply Chain Management."
• This approach involves streamlining each step in the supply chain to minimize costs, reduce waste, and improve operational efficiency.
• While cost reduction is a primary goal, it's essential to strike a balance between efficiency and effectiveness to ensure that customer satisfaction and overall supply chain performance are not compromised.

Value analysis is defined as the process of objectively studying every item purchased or manufactured-standard or special, to eliminate every cost factor which does not contribute to usefulness or utility.
Key Points

Customer Value Analysis:

• Customer Value Analysis (CVA) is a research method used to identify how an organization is perceived by the competitors and by consumers.
• It is extremely significant because it allows an organization to gauge how they are judged in comparison to their industry rivals.
• Thus, managers conduct a Customer Value Analysis to know the company’s weaknesses and strengths relative to those of various peers.
• Studies have shown that product or service value perceived by customers is the single best predictor of a company's market share.
• The major benefit of CVA is that it helps a company to identify the specific attributes of its products and services that drive its customer's perception of value.
• This data will help the company proactively respond and grow its market share position.

Therefore, managers conduct a Customer Value Analysis to know the company’s weaknesses and strengths relative to those of various peers.

Therefore, Corporate income tax is paid by companies from the revenue they earn.

Reasoning (R): While the main focus of the Government is on growth, the RBI always focuses on inflation.

Income Tax and Corporate Tax are direct taxes.

A direct tax is paid directly by an individual or organization to the imposing entity. A taxpayer pays direct taxes to the government for different purposes, including real property tax, personal property tax, income tax. A corporate tax is a direct tax imposed by a jurisdiction on the income or capital of corporations. Excise duty is a form of tax imposed on goods for their production, licensing, and sale. It is an indirect tax. Customs Duty is levied when goods are transported across borders between countries. It is an indirect tax.

The correct combination is a - (i), b - (ii), c - (iii), d - (iv).

The foreign trade of India is guided by the Export-Import policy of the Government of India. Exim Policy is prepared and announced by the central government. Exim Policy of India aims to develop export potential, improving export performance, encouraging foreign trade and creating a favorable balance of payment position.

Every society constructs its own social environment. Some of the customs, beliefs, practices and behaviours are similar across cultures, and some are not.

The political-legal environment is a combination of a lot of factors such as the current political party in power, the degree of politicization of trade and industry, the efficiency of the current government, government policies, current legal framework, the public attitude towards the economy, etc.

Break-even point should be achieved by a business firm at the earliest.

The break-even point (BEP) in economics, business and specifically cost accounting is the point at which total cost and total revenue are equal, i.e. "even". There is no net loss or gain, though opportunity costs have been paid and capital has received the expected return.

Employee development is more future-oriented and more concerned with education than employee training is a true statement.The apprenticeship programme is one of the most widely used off-the-job training methods is a false statement