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.

The correct answer is a - i,  b - iv, c - ii, d - iii.

 Key Points

• Replacement cost - based approach: This model is based on the cost of replacing an employee. It includes the costs of recruitment, selection, training, and development. This model was proposed by Giles and Robinson in 1967.
• Opportunity cost model: This model is based on the value of an employee in their alternative best use. It is the amount of money that the organization would lose if an employee left. This model was proposed by Hekimian and Jones in 1967.
• Human asset multiplier method: This model is based on the productivity of an employee. It multiplies the employee's salary by a factor that reflects their productivity. This model was proposed by Flamholtz in 1971.
• A model on valuation of human organisation: This model is a non-monetary model that measures the value of human resources in terms of their contribution to the organization's goals. This model was proposed by Likert in 1967.

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.

Sampling is done because it is not possible for a researcher to take a survey of the whole population of respondents, so they choose a random sample of individuals that represent the whole population, and those individuals are considered as the sample size of the research. 

Key-Points

Convenience sampling:

• When a sample is drawn randomly from a readily available list according to the convenience of the researcher.
• It is the most commonly used method as it is an economical, prompt, and uncomplicated technique. 
• This method is also known as Chunk Sampling.
• A chunk refers to that fraction of the population being investigated neither by probability nor by judgment but on the basis of convenience only.

Therefore, Chunk Sampling is also known as Convenience sampling.

Additional Information

Quota Sampling:

• Quota sampling is a non-probability method of sampling used to create a sample involving people that represent a homogenous population.
• A quota sample allows researching a subgroup that shares great interests with the topic of research.
• If a study aims to investigate the characteristics of a certain subgroup, then this technique is considered an ideal one.

Judgment Sampling:

• It is a non-probability sampling technique used where a sample is based on the previous knowledge or judgemental experience of the researcher.
• It is also known as judgemental sampling, purposive sampling, or authoritative sampling.
• This is contrary to probability sampling techniques where units are drawn with some probability from the population.

Cluster Sampling:

• Cluster sampling is defined as a sampling method where the researcher creates multiple clusters of people from a population where they are indicative of homogeneous characteristics and have an equal chance of being a part of the sample.
• This sampling technique is used in an area or geographical cluster sampling for market research.
• A broad geographic area can be expensive to survey in comparison to surveys that are sent to clusters that are divided based on region.

The correct answer is an Unauthorized way to mine for cryptocurrency.

• Cryptojacking has become an increasingly popular way for fraudsters and criminals to extract money from their targets in the form of cryptocurrency.
• One widely publicized hack, the WannaCry worm hack, affected systems on several continents in May 2017.
• In this instance of cryptojacking, fraudsters encrypted victims' files and demanded cryptocurrency ransoms in the form of Bitcoin in order to decrypt them.

Important Points 

• Cryptojacking is a type of cyberattack in which a hacker co-opts a target's computing power to illicitly mine cryptocurrency on the hacker's behalf.
• Cryptojacking can target individual consumers, massive institutions, and even industrial control systems.
• Cryptojacking has become an increasingly popular way for fraudsters and criminals to extract money from their targets in the form of cryptocurrency.
• The lines between cryptojacking and the "legitimate" practice of browser mining are not always clear.

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

Important Points

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

Thus, option 2 is the correct answer.

Additional Information

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

Key-Points

Statement I:

• Working capital is the difference between the current assets .e. accounts receivable, cash, inventories of raw material and fixed goods, and its current liabilities i.e. accounts payable, short-term debt, dividend, etc.
• It is that part of the capital which helps in financing the operating activities in order to achieve short-term goals.
• In other words, " Working Capital is the amount of funds necessary to cover the cost of operating the enterprise." 

Statement II:

• Circulating capital is also known as revolving capital as the money keeps on changing its form in a continuous manner.
• The money involved in circulating capital is used for core business operations and keeps on circulating from cash to current assets and back again to cash.
• It includes current assets like cash, operating expenses, finished goods inventory, raw materials, inventory in the process, and accounts receivable and one can be used to buy another. 
• In other words, "Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another."

Therefore, it is clear from the above explanation that both statements are correct.

The correct Statement is Beta coefficients represent the variability explained by an independent variable.

Important Points

(A) Positive skewness indicates a left-skewed distribution:

• Positive skewness actually indicates a right-skewed distribution.
• Skewness measures the asymmetry of a distribution.
• A positive skewness value means that the tail of the distribution is longer on the right side, indicating that the data is skewed to the right.
• Conversely, negative skewness indicates a left-skewed distribution, where the tail is longer on the left side.

Hence, this statement is incorrect.

(B) Beta coefficients represent the variability explained by an independent variable.

•  Beta coefficients, also known as standardized regression coefficients, represent the variability explained by an independent variable in a regression model.
• They reflect the standardized effect size of the independent variable on the dependent variable, while accounting for the effects of other independent variables.
• Beta coefficients allow for the comparison of the relative importance and contribution of different independent variables in explaining the variation in the dependent variable.

Hence, this statement is correct.

(C) Standard deviation is a measure of central tendency.

• Standard deviation is not a measure of central tendency.
• It is a measure of dispersion or variability in a dataset.
• Standard deviation quantifies how much the individual data points deviate from the mean.
• Measures of central tendency, such as the mean, median, and mode, provide information about the central or typical value of a dataset.

Hence, this statement is incorrect.

(D) Covariance measures the strength of a linear relationship between two variables.

• Covariance measures the relationship between two variables, but it does not provide a standardized measure of the strength of the relationship.
• Covariance indicates the direction (positive or negative) and the extent to which changes in one variable are associated with changes in another variable.
• However, since covariance is influenced by the units and scales of the variables, it cannot be used to compare the strength of relationships across different datasets.
• To measure the strength of a linear relationship, it is common to use the correlation coefficient, which is derived from the covariance and provides a standardized measure of the strength and direction of the relationship.

Hence, this statement is incorrect. 

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 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.

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 An employee compares his or her job's input-outcomes ratio with that of relevant others and then takes steps to correct any inequity.

Key Points Equity Theory:

• The equity theory proposes that employees compare their job's input-outcomes ratio with that of relevant others and then take steps to correct any perceived inequity.
• The equity theory is a motivation theory that seeks to explain how individuals are motivated to maintain a balance between the inputs they bring to a job (e.g. effort, skill, experience) and the outcomes they receive from that job (e.g. salary, recognition, benefits).
• According to the theory, individuals compare their input-output ratio with that of others who are seen as relevant and use this comparison to evaluate the fairness of their job situation.
• If an employee perceives that their input-output ratio is lower than that of others in similar positions, they may feel under-rewarded and become demotivated. In contrast, if an employee perceives that their input-output ratio is higher than that of others in similar positions, they may feel over-rewarded and become complacent.
• To restore equity, the employee may take steps such as adjusting their inputs (e.g. reducing effort), seeking a change in outcomes (e.g. requesting a raise), or changing the comparison level (e.g. comparing themselves to a different group of employees).
• The equity theory highlights the importance of perceived fairness in the workplace and suggests that employees are motivated not just by the absolute level of rewards, but also by the perceived fairness of those rewards relative to others in similar positions.

In statistics, probable error defines the half-range of an interval about a central point for the distribution, such that half of the values from the distribution will lie within the interval and half outside. 

Probable Error of Correlation Coefficient helps in determining the accuracy and reliability of the value of the coefficient that in so far depends on the random sampling. 

In other words, the probable error (P.E.) is the value that is added or subtracted from the coefficient of correlation (r) to get the upper limit and the lower limit respectively, within which the value of the correlation expectedly lies.
Key-Points

The probable error of the correlation coefficient can be obtained by applying the following formula: Probable Error = 

Here, r = correlation coefficient of ‘n’ pairs of observations for any random sample and N = Total number of observations.

Thus, option 2 is the correct answer.

The correct answer is It personalizes consumer experiences and helps to garner consumer loyalty.

Key Points

As per the passage:

• "Technologies like Artificial Intelligence (AI), Machine Learning (ML), Data Analytics, and Social Media platforms have become vital tools in contemporary service marketing efforts. They deliver a dual advantage – personalizing consumer experiences and harnessing consumer loyalty."

  • These two sentences clearly show the significant role that technology plays in modern service marketing in India.

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.

Statement I:

• Working capital is the difference between the current assets .e. accounts receivable, cash, inventories of raw material and fixed goods, and its current liabilities i.e. accounts payable, short-term debt, dividend, etc.
• It is that part of the capital which helps in financing the operating activities in order to achieve short-term goals.
• In other words, " Working Capital is the amount of funds necessary to cover the cost of operating the enterprise." 

Statement II:

• Circulating capital is also known as revolving capital as the money keeps on changing its form in a continuous manner.
• The money involved in circulating capital is used for core business operations and keeps on circulating from cash to current assets and back again to cash.
• It includes current assets like cash, operating expenses, finished goods inventory, raw materials, inventory in the process, and accounts receivable and one can be used to buy another. 
• In other words, "Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another."

Therefore, it is clear from the above explanation that both statements are correct.

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.

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.

The correct answer is Economic environment.

Key PointsEnvironment - Environment can be summarized as the effects of all the living and non-living things that have an impact on human life. Non-living or abiotic elements include water, land, sunshine, rocks, and air, whereas all live or biotic elements are animals, plants, forests, fisheries, and birds.

Important Points Economic environment -

• The business is directly and significantly impacted by the economic environment.
• An organization in the business world completely depends on its economic environment for its survival, expansion, and success.
• Economic conditions, economic policies, and economic systems make up the bulk of the economic environment. Infrastructure, income nationally, and fundamental economic principles.
• In addition to being major components of the overall economic environment, money supply, economic phases associated with saving, and trade cycles are all thought to be important.

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.

Let Current liabilities =X

Working capital = Current assets − Current liabilities

Current assets =Rs.40000×3.5=Rs.140000

Quick Assets = Current assets − Inventories

Let Inventories =Y

100000=140000−Y

Y(Inventories) 

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 incorrect as an increase in rate would decrease the sustainability of Italy’s debt.
• III is incorrect as the debt should be long term in nature so as to be sustainable. A short term maturity would put more burden in terms of repayment.
• II is 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.