TS SET Paper 2 Mock Test - 6 (Commerce) - TS TET MCQ

FIFO and LIFO accounting are methods used in managing inventory and financial matters involving the amount of money a company has to have tied up within inventory of produced goods, raw materials, parts, components, or feedstocks. They are used to manage assumptions of costs related to inventory, stock repurchases (if purchased at different prices), and various other accounting purposes.

Key Points

1. FIFO:

• "FIFO" stands for first-in, first-out, meaning that the oldest inventory items are recorded as sold first but do not necessarily mean that the exact oldest physical object has been tracked and sold.
• In other words, the cost associated with the inventory that was purchased first is the cost expensed first.

2. LIFO:

• Last-in First-out (LIFO) is an inventory valuation method based on the assumption that assets produced or acquired last are the first to be expensed.

Important Point

1. Last-in, first-out, or LIFO, uses the most recent cost first. When prices are rising, you prefer LIFO because it gives you the highest cost of goods sold and the lowest taxable income thereby leading to a lower valuation of inventory.
2. First-in, first-out, or FIFO, applies the earliest costs first. In rising markets, FIFO yields the lowest cost of goods sold and the highest taxable income.

Therefore, when prices show a rising trend, LIFO methods of inventory valuation will result in lower-income and lower valuation of inventory.

Sales and Goods Act was created from the sections of the Indian Contract Act 1872.

The Indian Contract Act codifies the way we enter into a contract, execute it and the way we implement its provisions. The act is divided into total 266 sections. Important sections among those are:

• Section 1 to 75 – General Provisions
• Section 76 to 123 – Sales of Goods.
• Section 124 to 147 – Indemnity and Guarantee
• Section 148 to 181 – Bailment and Pledges
• Section 182 to 238 – Agency
• Section 239 to 266 – Partnership

In 1930 and 1932 the government separated some sections from the Indian Contract Act and created separate acts to deal with them. These acts are Sale of Goods Act, 1930 and Indian Partnership Act, 1932.

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 1/3 of total strength or 2 directors; whichever is higher

Key Points

Additional Information
For section 8 Companies, the quorum for the BM, is either 8 members or 25% of its total strength whichever is less, however, the quorum shall not be less than two members.

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.

• A Type I error is essentially the rejection of the true null hypothesis in statistical hypothesis testing.
• False positive error is another name for type I errors.
• In other terms, it implies incorrectly that a phenomenon that does not exist exists.
• Example: When a test indicates you have a coronavirus when you don't.

Important PointsRelationship between sample size and Type 1 error

• Assuming a constant alpha level, increasing the sample size has no effect on the Type I error.
• However, everything else being equal, the probability of a Type II error diminishes with increasing sample size (i.e., the alpha level and the size of the true population effect).

​How to reduce Type 1 error

• The significance level (or alpha) that you select determines the likelihood of making a Type I error. You determined that figure at the start of your research to determine the statistical likelihood of getting your results (p value).
• The typical significance level is 0.05 or 5%. If the null hypothesis is accurate, your results only have a 5% chance or less of occurring.
• You might choose a lower significance level to lessen the likelihood of Type I errors.

Hence, it can be concluded that As the sample size becomes larger, the type-I error probability does not change.

A) Fair Value = Rs. 36,000

B) Municipal Value = Rs. 36,000

C) Higher Of A and B = Rs. 36,000

D) Standard Rent = Rs. 40,000

E) Expected Rent (Lower Of C and D) = Rs. 36,000

F) Actual Rent = Rs. 32,000

The correct option is Contingency approach

Key Points

• There are mainly four approaches available to study the organization's behavior

​1)Human resource approach

2)productivity approach

3)System approach

4) contingency approach

• The contingency approach is stress that there is no single way to manage effectively under all circumstances
• each situation demands different approaches based on the type and nature of the event 
• Depending on the individual and groups the approaches are applied 
• It is the duty of the manager to identify which approach should be undertaken for the particular situation 
• According to circumstances, the approaches may differ from one to another 
• As there is no such single approach that can be followed and it may differ from time to time

Hence the correct answer is Contingency approach.

The correct answer is Issue of Bonus Shares

Key Points

Ordinary business is the business which must be transacted at an annual general meeting. As per section 102 of the Companies Act, 2013 following are ordinary business:

• The consideration of financial statements and the reports of the Board of directors and auditors;
• The declaration of dividend;
• The appointment of directors in place of those retiring;
• The appointment of, and the fixing of remuneration of, the auditors.

Thus, if the four items of business mentioned above is transacted at Annual General Meeting, then it is considered as ordinary business and every other business transacted at Annual General Meeting will be considered as special Business.

The correct answer is Trading and Equity.

Key Points The objective of operation management is to efficiently and effectively use resources to create goods and services that meet the needs of customers. The four objectives you mentioned are all important for operation management, but trading and equity is not.

• Improve product quality is important because it can help to increase customer satisfaction and loyalty.
• Reduce cost of production is important because it can help to increase profits.
• Material cost of control is important because it can help to reduce waste and inefficiency.
• Trading and equity is not an objective of operation management because it is not directly related to the production of goods and services. Trading and equity are more related to the financial aspects of a business.

Here are some other objectives of operation management:

• Meet customer demand
• Ensure compliance with regulations
• Minimize environmental impact
• Improve safety
• Increase employee satisfaction

Overall, the objective of operation management is to create value for customers and the organization by efficiently and effectively using resources.

Under the Income Tax Act, 1961 every assessee is required to pay income tax on the income earned during the previous year at the rates announced in the Annual Finance Act. According to Section 5 of the Income Tax Act, the scope of the total income of an assessee depends on his residential status. The residential status is determined on the basis of the assessee's period of residence in India during the previous year. Section 6 of the Income Tax Act, 1961 describes the rules for determining the residential status of various assesses e.g. Individual. Hindu Undivided Family, Firm, and Company. An individual is said to be a resident of India if he is in India in the previous year for a period of 182 days or more (60 days if the person is a member of the crew of an Indian ship) He is in India for a period of 365 days or more within 4 years preceding the assessment year AND periods amounting to all to 60 days or more in that year The exception is given to a member of the crew of an Indian ship because they work for moths together on duty on the seas.

The correct answer is Variable cost.

Key PointsVariable costs are those costs of items that vary in total amount proportionally and directly with quantity.

Important Points

A production expense known as a variable cost can increase or decrease in response to shifts in a company's manufacturing activities.

For example, the raw materials required to make a product's components are variable costs since they frequently change depending on the volume of units produced.

Examples of variable costs are as follows:

1. Direct material
2. Packing material
3. Piece rate labour
4. Freight out
5. Wages etc.

Additional Information

1. Sunk Cost: A sunk cost is money that has already been spent and cannot be recovered. In business, the axiom that one has to "spend money to make money" is reflected in the phenomenon of the sunk cost.
2. Volume Cost: When a company allocates factory overhead costs to a single cost pool (for example, factory overhead), it then employs volume-based cost drivers to allocate those costs to specific goods or services. This method is known as volume based costing, also referred to as traditional costing. The company employs unit-based cost drivers that are based on the volume of units produced. Labor hours, machine hours, and labour costs are common cost bases (or drivers).
3. Fixed Cost: Fixed costs are expenses that a business must cover regardless of any particular business operations. These costs are fixed throughout a predetermined time frame and are unaffected by production levels.

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

Matching principle is the accounting principle that requires that the expenses incurred during a period be recorded in the same period in which the related revenues are earned. This principle recognizes that businesses must incur expenses to earn revenues.

Materiality is a concept in accounting which states that firm can ignore small information which does not have any significant impact on the business. This also means that a business must include all other information in its financial statements which is material/significant enough.

The principle of conservatism in accounting gives guidance when recording cases of uncertainty or estimates. In other words, you should always lean towards the most conservative side of any transaction.

The cost principle is an accounting principle that requires assets, liabilities, and equity investments to be recorded on financial records at their original cost.

The correct answer is TATA Group.

Key Points

•  The philosophy of "Good Thoughts, Good Words, Good Deeds" is the motto of the Indian business house Tata Group. It is a Zoroastrian maxim that emphasizes the importance of positive thinking, speech, and action. The Tata Group has adopted this motto as a guiding principle for its business practices and its commitment to social responsibility.
• The Tata Group is one of the largest conglomerates in India. It was founded in 1868 by Jamsetji Tata, a Zoroastrian. Tata believed that businesses should not only make profits, but also contribute to society. He adopted the motto of "Good Thoughts, Good Words, Good Deeds" to reflect this belief.
• The Tata Group has a long history of social responsibility. It has donated billions of rupees to charitable causes, and it has set up several educational institutions and hospitals. The group has also been a pioneer in corporate social responsibility initiatives, such as the Tata Business Excellence Model (TBEM) and the Tata Sustainability Index (TSI).
• The Tata Group's commitment to "Good Thoughts, Good Words, Good Deeds" has made it a role model for other businesses in India. It is an example of how businesses can be profitable and socially responsible at the same time.

Hence, the correct answer is TATA Group

The first step in the Customer Experience Management Process is to develop ​customer experiences that lead to lasting relationships and referrals.

• Customer experience is defined as your customers’ perceptions – both conscious and subconscious – of their relationship with your brand resulting from all their interactions with your brand during the customer life cycle.
• Customer experience management is the practice of designing and reacting to customer interactions to meet or exceed customer expectations and, thus, increase customer satisfaction, loyalty, and advocacy.
• Customer experience management is about more than serving your customers.
• It’s about more than knowing where customers shop and what brand of dog food they buy.
• It's about knowing your customers so completely that you can create and deliver personalized experiences that will entice them to not only remain loyal to you but also to evangelize to others about you – and that’s the most valuable form of advertising there is.
• The crux of having a customer experience management process involved in business activity is to give customers such experiences that lead to lasting relationships and referrals.

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

The correct answer is Olaf Helmer and Norman Dalkey.

Key Points

•  The Delphi method was invented by Olaf Helmer and Norman Dalkey of the RAND Corporation in the 1950s. It is a forecasting method that uses a panel of experts to reach a consensus on a particular issue. The Delphi method is based on the idea that experts can provide better forecasts if they are isolated from each other and allowed to interact anonymously.
• The Delphi method works in a series of rounds. In the first round, the experts are asked to provide their individual forecasts on the issue at hand. In the second round, the experts are given the results of the first round and are asked to revise their forecasts based on the feedback from the other experts. This process continues until the experts reach a consensus on the issue.
• The Delphi method has been used to forecast a wide range of events, including technological developments, economic trends, and political events. It is a valuable tool for forecasting because it allows experts to provide their input without being influenced by the opinions of others.

Here are some of the benefits of using the Delphi method:

• It can be used to forecast a wide range of events.
• It is anonymous, which allows experts to provide their input without being influenced by the opinions of others.
• It is iterative, which allows experts to revise their forecasts based on the feedback from the other experts.
• It is a relatively inexpensive method to use.

Here are some of the drawbacks of using the Delphi method:

• It can be time-consuming.
• It can be difficult to get a quorum of experts.
• The experts may not be representative of the population as a whole.
• The experts may not be willing to participate in the Delphi process.

The correct answer is Sorting and transferring products from inbound trucks to outbound trucks with minimal storage time.

Key Points

• In supply chain management, "cross-docking" refers to a logistics practice where products from suppliers are distributed directly to retail stores or customers with little or no handling or storage time.
• Essentially, it involves unloading incoming shipments from suppliers' trucks or containers and then immediately loading them onto outbound trucks or vehicles, often with minimal or no warehousing in between.
• The primary purpose of cross-docking is to streamline the distribution process, reduce storage costs, minimize handling, and improve the overall efficiency of the supply chain. This method is particularly useful for products with high turnover rates or those that are time-sensitive, such as perishable goods or items in high demand.
• Cross-docking helps in achieving faster order fulfillment, reducing transit times, and ultimately ensuring that products reach the end customers more quickly and efficiently.

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.

ADB (Asian Development Bank) was established in 1966.

Asian Development Bank (ADB):

• It was established on 19 December 1966.
• Its headquarters is in Manila, Phillippines.
• It has currently 68 members.
• Masatsugu Asakawa is the current President.
• The ADB is a social development organization that is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration.
• ADB provide loans, grants and information sharing in infrastructure, health care services, financial and public administration systems, helping nations prepare for the impact of climate change or better manage their natural resources for its member states.

Hence Option 2 is the correct answer.

Road blocking advertisement refers to advertising a product on multiple TV channels at the same time.

Road Blocking Advertisement is the practice of placing an advertisement on each available media within a market, to appear at exactly (or as near as possible) the same time.

Road blocking is most often used as a means of building high reach levels within a short period of time.

The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality of data distribution, adequacy of sample size and equality of variance in standard deviation.

The correct answer is Both 1 and 2

​Key Points

Guarantee Insurance

• Guarantee insurance is used as security for the performance of a piece of work, which has been agreed upon in a contract.
• It is also used as security for advance payments or payments on account of services agreed upon in a contract.
• Therefore, Workmen's compensation and third-party insurance are examples of guarantee insurance.

Reinsurance

• Reinsurance, or insurance for insurers, transfers risk to another company to reduce the likelihood of large payouts for a claim.
• Reinsurance allows insurers to remain solvent by recovering all or part of a payout.
• Companies that seek reinsurance are called ceding companies.
• Types of reinsurance include facultative, proportional, and non-proportional.
• It is prevalent in fire and marine insurance due to the high-risk nature of the industries.