UGC NET Paper 2 Commerce Mock Test - 5 - UGC NET MCQ

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.

Purchase Consideration:

In the case of amalgamation, purchase consideration is the agreed amount that the transferee company (Purchasing company) pays to the transferor company (Vendor company) in exchange of the ownership of the transferor company. It may be in form of cash, shares, or any other assets as agreed between both companies.

Key-Points

Methods of Purchase Consideration:

There are four various methods that can be used in this calculation:

1. Net asset method:

The purchase consideration is equal to the total net assets of the transferor company.

The total agreed amount of asset – Total agreed amount of liabilities

2. Net payment method:

Payment made to the shareholders of the transferor company in form of cash, shares, or debentures.

3. Lump-sum method:

Fixed amount paid by the transferee company to the transferor company. This method does not require any calculation as the amount is decided by the mutual consent of both companies.

4. Intrinsic value/ Share exchange method:

It is calculated by dividing the net asset value of the transferor company by the price of one share of the transferee company.

The resulting figure then divided by the number of existing shares of the transferor company to find out the ratio.

Therefore, Gross Receipts Method is NOT a method for calculating or ascertaining the amount of purchase consideration.

The correct answer is 'option 2'

Key Points

• The shape of a production possibility curve (PPC) reveals important information about the opportunity cost involved in producing two goods.
• When the PPC is a straight line, opportunity costs are the same no matter how far you move along the curve.
• When the PPC is concave (bowed out), opportunity costs increase as you move along the curve.
• When the PPC is convex (bowed in), opportunity costs are decreasing. 

Therefore, the correct answer is '1 and 2'

Additional Information

Constant Opportunity Cost and International Trade:

• When production is governed by constant returns to scale, the marginal rate of transformation between two commodities, say X and Y, remains constant and the opportunity cost curve or transformation curve is a falling straight line.
• In such a case the relative cost of producing the commodities remains unchanged, irrespective of the ratio in which they are demanded.
• If the slopes of transformation curves in two countries are the same, so that the opportunity cost curves are parallel to each other, no trade can be possible.
• The gains from trade can emerge only when the slopes of the transformation curves are different.
• It signifies the presence of differences in relative cost ratios. These two cases have been explained through Figure.

Increasing Opportunity Cost and International Trade:

• The production under constant returns to scale can be possible when it is assumed that there are fixed factor proportions and that factors of production have equal efficiency in producing relative outputs of two commodities.
• In actual life, factor specificity, lack of perfect substitution and varied efficiency of factor units in different lines of production lead to decreasing returns to scale and the opportunity cost may go on increasing.
• The international trade in such a situation is explained through Figure.
• In the situation of increasing costs, the countries will probably not specialize completely because the increased production may result in a loss of comparative advantage vis-a-vis the other country.

The correct answer is Both (A) and (R) are true but (R) is NOT the correct explanation of (A).

Measures of Central Tendency:

• Often in statistics, we tend to represent a set of data by a representative value which would approximately define the entire collection.
• This representative value is called the measure of central tendency, and the name suggests that it is a value around which the data is centered.
• These central tendencies are mean, median, and mode.

Key Points

Median:

• Generally median represents the mid-value of the given set of data when arranged in a particular order.
• Median: Given that the data collection is arranged in ascending or descending order, the following method is applied:
• If the number of values or observations in the given data is odd, then the median is given by [(n+1)/2]th observation.
• If in the given data set, the number of values or observations is even, then the median is given by the average of (n/2)th and [(n/2) +1]th observation.
• Thus Assertion A is true.

Mode:

• In statistics, the mode is the value that is repeatedly occurring in a given set.
• We can also say that the value or number in a data set, which has a high frequency or appears more frequently, is called a mode or modal value.
• Mode is not affected by extreme values.
• Thus Reason R is also true.
• However, the Assertion and Reason are not related to one another and do not establish a relation between median and mode.

Hence, the correct answer is Both (A) and (R) are true but (R) is NOT the correct explanation of (A).

The correct answer is Both 1 and 2.

• Call money market (CMM):
  • The call money market (CMM) the market where overnight loans can be availed by banks to meet liquidity.
  • It is an inter-bank money market which is borrowed and lent for one day. Hence statement 1 is correct.
  • Banks who seek to avail liquidity approach the call market as borrowers and the ones who have excess liquidity participate there as lenders.
  • No collateral security is required to borrow from the money market. Hence statement 2 is correct.

Key Points

• Characteristics of the money market are as follows-
  • It is a short-term financial market of an economy.
  • Money market operates both in the organised and unorganised way.
  • No collateral security is required to borrow from the money market.

Additional Information

• What is the money market?
  • The money market is a market for short-term financial assets that are close substitutes of money.
  • The most important feature of a money market instrument is that it is liquid and can be turned over quickly at low cost and provides an avenue for equilibrating the short-term surplus funds of lenders and the requirements of borrowers.
  • The call/notice money market forms an important segment of the Indian money market.
  • Under the call money market, funds are transacted on an overnight basis and under notice money market, funds are transacted for the period between 2 days and 14 days.

Assertion (A): Purchase decisions are not based on how customers perceive prices but on the marketer’s stated price.

Explanation:

1. The purchase decision is the thought process that leads a consumer from identifying a need, generating options, and choosing a specific product and brand.
2. Before making a purchase decision, a consumer evaluates various factors such as the price of the product, quality of the product, service, etc., and then takes a decision which is best suited to him.
3. Thus, a purchase decision is a consumer-centric aspect and is based on the customer's perception of the price.
4. A marketer might set any amount but it's up to the customer to decide whether the purchase decision is suitable with his budget.

Thus, the assertion is incorrect.

Reason (R): Customers may have a lower price threshold, below which prices signal inferior or unacceptable quality and an upper price threshold where the product appears not worth the money.

Explanation:

1. For instance, a consumer is planning to buy a television set.
2. Now assuming that the average price of a suitable quality television set ranges between Rs.25,000 to Rs.30,000.
3. This notion usually gets fixed in the consumer's mind and affects him at a psychological level.
4. Thus, if a television set is priced below this average, he thinks that the product is inferior, and if the television set is priced above this range, he thinks that there is unnecessary window-dressing involved and it is not worth the money.
5. Thus, customers may have a lower price threshold, below which prices signal inferior or unacceptable quality and an upper price threshold where the product appears not worth the money.

Thus, the assertion is incorrect but the reason is correct.

The correct answer is Franchising.

Key Points

•  A system based on the licensing of the right to duplicate a successful business format in foreign markets is known as franchising. Franchising is a business model in which a franchisor (the owner of a successful business format) grants a franchisee (an individual or company) the right to operate a business under the franchisor's name and using the franchisor's business model and system.
• The franchisor typically provides the franchisee with training, marketing support, and other resources to help the franchisee succeed. In return, the franchisee pays the franchisor a fee and a share of the franchise's profits.
• Franchising is a popular business model for both franchisors and franchisees. Franchisors benefit from the ability to expand their business without having to invest in new locations or hire new employees. Franchisees benefit from the support and resources of the franchisor, as well as the proven business model.
• There are many different types of franchises, including restaurants, retail stores, and service businesses. Some of the most popular franchises include McDonald's, Subway, and Dunkin' Donuts.
• Franchising can be a successful business model, but it is important for both franchisors and franchisees to do their research before entering into a franchise agreement. There are a number of factors to consider, such as the size of the market, the competition, and the financial resources of the franchisee.

The correct answer is Provision for doubtful debts.

Key PointsProvisions - Provisions in accounting relate to the amount set aside from profits in order to cover a potential future expense or asset value drop, even if the exact amount is unclear. Provisions are two types -

• Short term Provisions 
• Long Term Provisions

Important PointsShort Term Provision - The amount of provision settled within 12 months from balance sheet date or within operating cycle period from date of its recognition is classified as short term provisions. It is shown under current liabilities on the face of balance sheet. Short term provisions are :

• Provision for doubtful debts
• Provision for Discount on debtors 
• Provision for taxes etc. 

Thus, Provision for doubtful debts will be shown under the sub head, short-term provisions and under the head of current Liabilities.

Additional Information

• Long term Provisions -  Other than short term provisions are depicted as long-term provisions under non-current liabilities in balance sheet. Long Term provision are for more than one years periods. Shown under the head of non-current liabilities in balance sheet.
• Provision for gratuity - Gratuity is a monetary benefit given by the employer, but not paid as part of the regular monthly salary and provision for gratuity is for long term purpose.  These are long-term provisions.
• Employee's Provident fund - Employees' Provident Fund (EPF) is a social programme established to ensure that employees have a brighter future. It is a legislative benefit provided to personnel after they retire or leave the military. These are also long term provisions.
• Securities Premium Reserve - The additional amount levied on the face value of any share when it is issued, redeemed, or forfeited is known as the Security Premium Reserve. Shown under the head of Reserve & Surplus in balance sheet.

The correct answer is Rs. 100 crores.
Key Points

• A life insurance company is a financial institution that provides life insurance policies to individuals and businesses.
• Life insurance is a contract between an insurance company and a policyholder, where the insurance company agrees to pay a sum of money to the policyholder's beneficiaries upon the policyholder's death.

 Important Points

• The minimum capital requirement for a life insurance company in India is Rs. 100 crores, as per the Insurance Regulatory and Development Authority of India (IRDAI).
• This requirement is specified in the Insurance Act, 1938.
• The purpose of the minimum capital requirement is to ensure that life insurance companies are financially sound and able to meet their obligations to their policyholders.
• The requirement also helps to protect the interests of policyholders in the event of a company's insolvency.
• The minimum capital requirement is one of several factors that IRDAI considers when evaluating applications for new life insurance licenses.
• Other factors include the promoters' experience and track record, the company's business plan, and its management team.
• IRDAI has also specified minimum capital requirements for other types of insurance companies, such as general insurance companies and health insurance companies.
• The minimum capital requirement for general insurance companies is Rs. 500 crores, and the minimum capital requirement for health insurance companies is Rs. 100 crores.

The correct answer is Both A and R are false.

Key Points

As per the passage:

• "Unlike tangible products, services involve intangible elements, thus the marketing strategies applied for services vastly differ."

  • This sentence directly contradicts with the assertion (A) and approves the reasoning (R) that services involve intangible aspects and therefore need different marketing approaches.

The correct answer is Both A and R are true, and R is the right explanation of A.

Key Points

As per the passage: 

• "In addition, the emphasis has shifted from providing a mere transactional service to offering an experiential one. Thus, customer-centricity and exceptional after-sales services have become paramount..."
  • These sentences provide the basis for the assertion (A) about the importance of offering an experiential service and the reasoning (R) that explains it.

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 basic objective of Export Promotion Councils is to develop and promote the exports of the nation. Each Council is in charge of the promotion of a specific group of projects, products, and services. The council helps in sponsoring the development of export-related industries.

Hence, the correct option (D).

Planning begins with the determination of objectives. It highlights the purposes for which various activities are to be undertaken. In fact, it makes objectives more clear and specific. Planning helps in focusing the attention of employees on the objectives or goals of the enterprise. Planning compels the manager to prepare a blueprint of the courses of action to be followed for the accomplishment of objectives. Therefore, planning brings order and rationality into the organization. Planning minimizes uncertainties. There are risks of various types due to uncertainties. Planning helps in reducing uncertainties of the future as it involves anticipation of future events. Although the future cannot be predicted with cent percent accuracy planning helps management to anticipate the future and prepare for risks by necessary provisions to meet the unexpected turn of events.

The correct match is given below:

World Trade Organisation (WTO):

• The World Trade Organisation (WTO) is the only global international organisation dealing with the rules of trade between nations.
• At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments.

Reciprocity: It involves reducing the potential for free riding caused by the MFN rule. It makes it possible to obtain trade liberalisation in exchange for something.

Non-discriminatory: The W.T.O.'s main clause is non-discrimination. This provision grants all members MFN (Most Favoured Nation) status, which mandates that goods made in the other Member Country must be treated equally.

Binding and enforceable commitments: A list of agreements includes the tariff pledges made by WTO members during a multilateral trade negotiation and upon membership.

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.

Identifying the target market is the most important retail marketing decision that a retailer has to make. The target market indicates the market where the retailer can sell maximum products, where demand for customers is high and desired profits can be earned.

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.

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 Spearman's rho :

Key Points

• Spearman's rho :
  • The Spearman rank-order correlation coefficient (Spearman's correlation, for short) is a nonparametric measure of the strength and direction of association that exists between two variables measured on at least an ordinal scale.
  • It is denoted by the symbol rs (or the Greek letter ρ, pronounced rho).

Additional Information

• Chi-square
  • It is a statistical test used to examine the differences between categorical variables from a random sample in order to judge the goodness of fit between expected and observed results.
  • A chi-square test is a statistical test used to compare observed results with expected results. The purpose of this test is to determine if a difference between observed data and expected data is due to chance, or if it is due to a relationship between the variables you are studying.
• Cramér's V
  • It is an effect size measurement for the chi-square test of independence. It measures how strongly two categorical fields are associated.
  • Cramer's V must lie between 0 (reflecting complete independence) and 1.0 (indicating complete dependence or association) between the variables.

The scheduled commercial banks are those banks that are included in the second schedule of the RBI Act 1934.

• It carries out the normal business of banking such as accepting deposits, giving out loans and other banking services.
• The major difference between Scheduled Commercial Banks and Scheduled Cooperative Banks is their holding pattern since cooperatives are registered under the Cooperative Societies Act as cooperative credit institutions.
• Scheduled Commercial Banks can be further divided into four groups:
  • Public Sector Banks: This includes:
    • SBI & Associates
    • Nationalized Banks
    • Other Public Sector Banks
  • Private Banks
  • Foreign Banks
  • Regional Rural Banks

Thus, it is clear that In India a scheduled commercial bank is one that is included in the II schedule of the Reserve bank of India Act.

The correct answer is option 3.

Concept:

​Copyright Infringement:

The unauthorized use of someone else's copyrighted work is called copyright infringement. As a result, it is the unauthorized use of another person's copyrighted work, infringing on the copyright holder's rights to reproduce, distribute, exhibit, or perform the protected work.

Explanation:

Consider the following real-life example.

PersonX is free to record a TV program to view it later, but if he transfers or distributes it PersonY. So the given example is copyright Infringement.

• Copyright infringement occurs when a third party infringes on the copyright holder's rights, such as the exclusive use of a work for a specified period of time.
• Music and movies are two of the most well-known kinds of entertainment that are subjected to substantial copyright violations. Infringement lawsuits may result in contingent liabilities, or funds set aside in the event of a lawsuit.

Hence the correct answer is Copyright Infringement.

Additional Information

• Hacking is the act of unauthorized access to a computer, computer network, or any digital system. Hackers usually have the technical expertise in hardware and software.
• Identity thieves increasingly use personal information stolen from computers or computer networks, to commit fraud by using the data gained unlawfully.
• Cyberbullying is bullying with the use of digital technologies. It can take place on social media, messaging platforms, gaming platforms, and mobile phones.

Commercialization is the last stage in the new product development process that involves the launching of the product on a full scale.

At this stage, new product developments have gone mainstream, consumers are purchasing the good or service, and technical support is consistently monitoring progress.

A corporate-level strategy is a multi-tiered company plan that leaders use to define, outline and achieve specific business goals.A plant generally consists of the physical capital, like the building and the equipment at a particular location that is used for the production of goods. A plant is also called a factory.

The Right to Information Act passed in 2005 extends to all states and union territories of India excepting the state of Jammu and Kashmir. This act gives Indian citizens the right to access information about any public authority or institution, including non-government organizations substantially funded by the government.

The main aims of the RTI Act are to provide clarity of the information to the citizens of India, to contain corruption, and to promote accountability in the working of every public authority.

• I is correct as the populists chose a person who is a Eurosceptic economist as their finance minister.

Refer to: ‘Foreigners are also unlikely to have suffered much direct harm from the fall in bond prices (the corollary of rising yields).’

• II is correct.
• III has not been mentioned in the passage and is incorrect.
• Only I and II are correct.

Our first responsibility is to our customers are the ethics code.

For any kind of business their intent clearly in the opening line: "our first responsibility is to our customers". Our customer services team not only embodies this culture but, more specifically, takes responsibility for line six of the credo: "your orders will be serviced promptly and accurately". To ensure we are meeting these commitments, a number of measures have been put in place.

Legal relationship between the middleman and the businessperson is governed by the law of agency.

The agency is the agreement in which one party entrusts another party to conduct business on their behalf. The agency agreement comes in the following forms: Express agreement (both oral and written) Implication.