CBSE Class 11 Business Studies
Sample Paper 5
Class – XI
Time allowed: 3 hours, Maximum Marks: 90
(i) Answers to questions carrying 1 mark may be from one word to one sentence.
(ii) Answers to questions carrying 3 marks may be from 50 – 75 words.
(iii) Answers to questions carrying 4 – 5 marks may be about 150 words.
(iv) Answers to questions carrying 6 marks may be about 200 words.
(v) Attempt all parts of a question together Marks are given at the end of each question.
1. Why is business considered as economic activity?
Ans. Business is considered to be an economic activity because it is undertaken with the object of earning money or livelihood and not because of love, affection, sympathy or any other sentimental reason.
2. What is meant by business risk?
Ans. The term ‘business risks’ refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events. For example, demand for a particular product may decline due to change in tastes and preferences of consumers or due to increased competition from other producers.
3. What is meant by the partnership deed?
Ans. The written agreement which specifies the terms and conditions that govern the partnership is called the partnership deed.
4. What is meant by E-Banking?
Ans. E-banking or internet banking means any user with a PC and a browser can get connected to the banks website to perform any of the virtual banking functions and avail of any of the bank’s services. There is no human operator to respond to the needs of the customer.
5. “Outsourcing involves contracting out” comment on this statement.
Ans. Literally, outsourcing means to source from outside. Many companies have started outsourcing these activities, i.e., they have entrusted outside agencies to perform these activities for their organisations on a contractual basis.
6. What is meant by the land pollution?
Ans. Land pollution: Dumping of toxic wastes on land causes land pollution. This damages the quality of land making it unfit for agriculture or plantation. Restoring the quality of the land that has already been damaged is a big problem.
7. Give any one advantage or benefit of factoring.
Ans. Obtaining funds through factoring is cheaper than financing through other means such as bank credit.
8. What is meant by Internal Trade?
Ans. Buying and selling of goods and services within the boundaries of a nation are referred to as internal trade.
9. What is meant by Tertiary Industries?
Ans. Tertiary industries: These are concerned with providing support services to primary and secondary industries as well as activities relating to trade. These industries provide service facilities. As business activities, these may be considered part of commerce because as auxiliaries to trade these activities assist trade. Included in this category are transport, banking, insurance, warehousing, communication, packaging and advertising.
10. Give any three advantages of Partnership firm?
Ans. Advantages of partnership firm: (i) Ease of formation and closure: A partnership firm can be formed easily by putting an agreement between the prospective partners into place whereby they agree to carryout the business of the firm and share risks. There is no compulsion with respect to registration of the firm. Closure of the firm too is an easy task.
(ii) Balanced decision making: The partners can oversee different functions according to their areas ofexpertise. Because an individual is not forced to handle different activities, this not only reduces the burden of work but also leads to fewer errors in judgements. As a consequence, decisions are likely to be more balanced.
(iii) More funds: In a partnership, the capital is contributed by a number of partners. This makes it possible to raise larger amount of funds as compared to a sole proprietor and undertake additional operations when needed.
11. Describe any three limitations of Departmental Undertakings.
Ans. Limitations of Departmental Undertakings: (i) Departmental undertakings fail to provide flexibility, which is essential for the smooth operation of business.
(ii) The employees or heads of departments of such undertakings are not allowed to take independent decisions, without the approval of the ministry concerned. This leads to delays, in matters where prompt decisions are required.
(iii) These enterprises are unable to take advantage of business opportunities. The bureaucrat’s over-cautious and conservative approval does not allow them to take risky ventures.
12. Explain the “Utmost good faith” Principles of insurance.
Ans. Utmost good faith: A contract of insurance is a contract of uberrimae fidei i.e., a contract found on utmost good faith. Both the insurer and the insured should display good faith towards each other in regard to the contract. It is the duty of the insured to voluntarily make full, accurate disclosure of all facts, material to the risk being proposed and the insurer to make clear all the terms and conditions in the insurance contract. Thus, it is binding on the proposer to disclose all material facts about the subject matter of the proposed insurance. Any fact, which is likely to affect the mind of a prudent insurer in deciding to accept the proposal of insurance or in fixing the rate of premium is material for this purpose. Failure to make disclosure of material facts by the insured makes the contract of insurance voidable at the discretion of the insurer.
13. Give any two limitations of e- Business.
Ans. (i) Low personal touch: High-tech it may be, e-business, however, lacks warmth of interpersonal interactions. To this extent, it is relatively less suitable mode of business in respect of product categories requiring high personal touch such as garments, toiletries, etc.
(ii) Incongruence between order taking/giving and order fulfilment speed: Information can flow at the click of a mouse, but the physical delivery of the product takes time. This incongruence may play on the patience of the customers. At times, due to technical reasons, web sites take unusually long time to open. This may further frustrate the user.
14. Briefly explain (a) Ethical Responsibility (b) Discretionary Responsibility
Ans. Ethical responsibility: This includes the behaviour of the firm that is expected by society but not codified in law. For example, respecting the religious sentiments and dignity of people while advertising for a product. There is an element of voluntary action in performing this responsibility.
Discretionary responsibility: This refers to purely voluntary obligation that an enterprise assumes, for instance, providing charitable contributions to educational institutions or helping the affected people during floods or earthquakes. It is the responsibility of the company management to safeguard the capital investment by avoiding speculative activity and undertaking only healthy business ventures which give good returns on investment.
15. Explain the Transaction risks involved in online buying.
Ans. Transaction risks: Online transactions are vulnerable to the following types of transaction risks:
16. What type of documents are required for the commencement of business?
Ans. Documents required : 1. A declaration that shares payable in cash have been subscribed for and allotted up to the minimum subscription mentioned in the prospectus;
2. A declaration that every director has paid in cash, the application and allotment money on his shares in the same proportion as others;
3. A declaration that no money is payable or liable to become payable to the applicants because of the failure of the company to either apply for or obtain permission to deal in its securities on a stock exchange.
4. A statutory declaration that the above requirements have been complied with. This declaration can be signed by a director or secretary of the company.
17. What are the advantages of preference shares?
Ans. Merits of preference shares: (i) Preference shares provide reasonably steady income in the form of fixed rate of return and safety of investment;
(ii) Preference shares are useful for those investors who want fixed rate of return with comparatively low risk;
(iii) It does not affect the control of equity shareholders over the management as preference shareholders don’t have voting rights;
(iv) Payment of fixed rate of dividend to preference shares may enable a company to declare higher rates of dividend for the equity shareholders in good times;
(v) Preference shareholders have a preferential right of repayment over equity shareholders in the event of liquidation of a company;
(vi) Preference capital does not create any sort of charge against the assets of a company.
18. Explain any four advantages or merits of Super Markets.
Ans. Merits of Super Markets: (i) One roof, low cost: Super markets offer a wide variety of products at low cost under one roof. These outlets are, therefore, not only convenient but also economical to the buyers for making their purchases.
(ii) Central location: The super markets are generally located in the heart of the city. As a result, these are easily accessible to large number of people staying in the surrounding localities.
(iii) Wide selection: Super markets keep a wide variety of goods of different designs, colour, etc., which enables the buyers to make better selection.
(iv) No bad debts: As generally the sales are made on cash basis, there are no bad debts in super markets.
(v) Benefits of being large scale: A super market is a large scale retailing store. It enjoys all the benefits of large scale buying and selling because of which its operating costs are lower.
19. Explain why International business is important these days.
Ans. International Business: The fundamental reason behind international business is that the countries cannot produce equally well or cheaply all that they need. This is because of the unequal distribution of natural resources among them or differences in their productivity levels. Availability of various factors of production such as labour, capital and raw materials that are required for producing different goods and services differ among nations. Moreover, labour productivity and production costs differ among nations due to various socioeconomic, geographical and political reasons. Due to these differences, it is not uncommon to find one particular country being in a better position to produce better quality products and/ or at lower costs than what other nations can do. In other words, we can say that some countries are in an advantageous position in producing select goods and services which other countries cannot produce that effectively and efficiently, and viceversa. As a result, each country finds it advantageous to produce those select goods and services that it can produce more effectively and efficiently at home, and procuring the rest through trade with other countries which the other countries can produce at lower costs. This is precisely the reason as to why countries trade with others and engage in what is known as international business.
20. Explain multiple objctives of Business.
Ans. Multiple objectives of Business: (a) Market standing: Market standing refers to the position of an enterprise in relation to its competitors. A business enterprise must aim at standing on stronger footing in terms of offering competitive products to its customers and serving them to their satisfaction.
(b) Innovation: Innovation is the introduction of new ideas or methods in the way something is done or made. There are two kinds of innovation in every business i.e.,
(i) innovation in product or service; and
(ii) innovation in various skills and activities needed to supply products and services. No business enterprise can flourish in a competitive world without innovation. Therefore, innovation becomes an important objective.
(c) Productivity: Productivity is ascertained by comparing the value of output with the value of inputs. It is used as a measure of efficiency. In order to ensure continuous survival and progress, every enterprise must aim at greater productivity through the best use of available resources.
(d) Physical and financial resources: Any business requires physical resources like plants, machines, offices, etc., and financial resources, i.e., funds to be able to produce and supply goods and services to its customers. The business enterprise must aim at acquiring these resources according to their requirements and use them efficiently.
(e) Earning profits: One of the objectives of business is to earn profits on the capital employed. Profitability refers to profit in relation to capital investment. Every business must earn a reasonable profit which is so important for its survival and growth.
21. Explain the limitations of Government Companies.
Ans. Limitations of Government Companies: (i) Since the Government is the only shareholder in some of the Companies, the provisions of the Companies Act does not have much relevance;
(ii) It evades constitutional responsibility, which a company financed by the government should have. It is not answerable directly to the Parliament;
(iii) The government being the sole shareholder, the management and administration rests in the hands of the government. The main purpose of a government company, registered like other companies, is defeated.
22. How would you categorised the financial needs of a business? Explain.
Ans. The financial needs of a business can be categorised as follows:
(a) Fixed capital requirements: In order to start business, funds are required to purchase fixed assets like land and building, plant and machinery, and furniture and fixtures. This is known as fixed capital requirements of the enterprise. The funds required in fixed assets remain invested in the business for a long period of time. Different business units need varying amount of fixed capital depending on various factors such as the nature of business, etc. A trading concern for example, may require small amount of fixed capital as compared to a manufacturing concern. Likewise, the need for fixed capital investment would be greater for a large enterprise, as compared to that of a small enterprise.
(b) Working Capital requirements: The financial requirements of an enterprise do not end with the procurement of fixed assets. No matter how small or large a business is, it needs funds for its day-to-day operations. This is known as working capital of an enterprise, which is used for holding current assets such as stock of material, bills receivables and for meeting current expenses like salaries, wages, taxes, and rent. The amount of working capital required varies from one business concern to another depending on various factors.
23. Differentiate between Departmental stores and Multiple shops.
Ans. Difference Between Departmental stores and multiple shops: (i) Location: A departmental store is located at a central place, where a large number of customers can be attracted to it. However, the multiple stores are located at a number of places for approaching a large number of customers. Thus, central location is not necessary for a multiple shop.
(ii) Range of products: Departmental stores aim at satisfying all the needs of customers under one roof. As such, they have to carry a variety of products of different types. However, the multiple stores generally aim to satisfy the requirements of customers relating to a specified range of their products only.
(iii) Services offered: The departmental stores lay great emphasis on providing maximum service to their customers. Some of the services, provided by them include alteration of garments, restaurant and so on. As against this, the multiple shops provide very limited service confined to guarantees and repairs if the sold out goods turn out to be defective.
(iv) Pricing: The multiple shop chains sell goods at fixed prices and maintain uniform pricing policies for all the shops. The departmental stores, however, do not have uniform pricing policy for all the departments; rather they have to occasionally offer discounts on certain products and varieties to clear their stock.
24. (a) Explain the limitations of sole proprietorship. (b) Mr. Vinod running a business of manufacturing toothpaste and toothbrushes. He decided to donate 200 toothbrushes and toothpastes every month to the economically backward students becuase they could not afford to buy toothbrush and toothpaste. Identify the values disclosed by Mr. Vinod.
Ans. Limitations of sole proprietorship:
(i) Limited resources: Resources of a sole proprietor are limited to his/her personal savings and borrowings from others. Banks and other lending institutions may hesitate to extend a long term loan to a sole proprietor. Lack of resources is one of the major reasons why the size of the business rarely grows much and generally remains small.
(ii) Limited life of a business concern: In the eyes of the law the proprietorship and the owner are considered one and the same. Death, insolvency or illness of a proprietor affects the business and can lead to its closure.
(iii) Unlimited liability: A major disadvantage of sole proprietorship is that the owner has unlimited liability. If the business fails, the creditors can recover their dues not merely from the business assets, but also from the personal assets of the proprietor. A poor decision or an unfavourable circumstance can create serious financial burden on the owners. That is why a sole proprietor is less inclined to take risks in the form of innovation or expansion.
(iv) Limited managerial ability: The owner has to assume the responsibility of varied managerial tasks such as purchasing, selling, financing, etc. It is rare to find an individual who excels in all these areas. Thus decision making may not be balanced in all the cases. Also, due to limited resources, sole proprietor may not be able to employ and retain talented and ambitious employees.
Values: (i) Care for society
(ii) Aware people for cleanliness
25. Explain the meaning and small business units in India as per their categories.
Ans. Small Business: Government of India has described small industries on the basis of the investment in plant and machinery. This measure seeks to keep in view the socio-economic environment in India where capital is scarce and labour is abundant. One more important point to note is that a definition exists only for small and tiny units but not for large and medium units. Small business units can fall in any of the following categories:
(i) Small scale industry: A small scale industrial undertaking is defined as one in which the investment in fixed assets of plant and machinery does not exceed rupees one crore. However, to cater to the needs of small industries whose thrust is on export promotion and modernisation, investment ceiling in plant and machinery is rupees five crores.
(ii) Ancillary small industrial unit: The small scale industry can enjoy the status of an ancillary small industry if it supplies not less than 50 per cent of its production to another industry, referred to as the parent unit. The ancillary small industry can manufacture parts, components, subassemblies, tools or intermediate products for the parent unit. Apart from catering to the needs of the parent unit, it can do business on its own. Ancillary units have the advantage of assured demand from parent units. Normally, the parent unit assists the ancillary unit by giving technical guidance as well as financial help.
(iii) Export oriented units: The small scale industry can enjoy the status of an export oriented unit if it exports more than 50 per cent of its production. It can avail the incentives like export subsidies and other concessions offered by the government for exporting units.
(iv) Small scale industries owned and managed by women entrepreneurs: An enterprise promoted by women entrepreneurs is a small scale industrial unit in which she/they individually or jointly have share capital of not less than 51 per cent. Such units can avail the special concessions offered by the government, like low interest rates on loans, etc.
(v) Tiny industrial units: A tiny unit is defined as an industrial or business enterprise whose investment in plant and machinery is not more than Rs. 25 lakhs.
26. Explain the main elements of Life insurance. Also identify the values involved in the concept of insurance.
Ans. Main elements of life insurance: (i) The life insurance contract must have all the essentials of a valid contract. Certain elements like offer and acceptance, free consent, capacity to enter into a contract, lawful consideration and lawful object must be present for the contract to be valid;
(ii) The contract of life insurance is a contract of utmost good faith. The assured should be honest and truthful in giving information to the insurance company. He must disclose all material facts about his health to the insurer. It is his duty to disclose accurately all material facts known to him even if the insurer does not ask him;
(iii) In life insurance, the insured must have insurable interest in the life assured. Without insurable interest the contract of insurance is void. In case of life insurance, insurable interest must be present at the time when the insurance is affected. It is not necessary that the assured should have insurable interest at the time of maturity also. For example, a person is presumed to have an interest in his own life and every part of it, a creditor has an insurable interest in the life of his debtor, and a proprietor of a drama company has an insurable interest in the lives of the actors;
(iv) Life insurance contract is not a contract of indemnity. The life of a human being cannot be compensated and only a specified sum of money is paid. That is why the amount payable in life insurance on the happening of the event is fixed in advance. The sum of money payable is fixed, at the time of entering into the contract. A contract of life insurance, therefore, is not a contract of indemnity.
Values: (i) awareness (ii) Care (iii) Help and Support (iv) Faith and Trust
27. Explain any 3 differences between International Business & Domestic Business.
Ans. Difference between Interenational Business & Domestic Business:
(i) Nationality of buyers and sellers: Nationality of the key participants (i.e., buyers and sellers) to the business deals differs between domestic and international businesses. In the case of domestic business, both the buyers and sellers are from the same country. This makes it easier for both the parties to understand each other and enter into business deals. But this is not the case with international business where buyers and sellers come from different countries. Because of differences in their languages, attitudes, social customs and business goals and practices, it becomes relatively more difficult for them to interact with one another and finalise business transactions.
(ii) Nationality of other stakeholders: Domestic and international businesses also differ in respect of the nationalities of the other stakeholders such as employees, suppliers, shareholders/partners and general public who interact with business firms. While in the case of domestic business all such factors belong to one country, and therefore relatively speaking depict more consistency in their value systems and behaviours; decision making in international business becomes much more complex as the concerned business firms have to take into account a wider set of values and aspirations of the stakeholders belonging to different nations.
(iii) Mobility of factors of production: The degree of mobility of factors like labour and capital is generally less between countries than within a country. While these factors of movement can move freely within the country, there exist various restrictions to their movement across nations. Apart from legal restrictions, even the variations in socio-cultural environments, geographic influences and economic conditions come in a big way in their movement across countries. This is especially true of the labour which finds it difficult to adjust to the climatic, economic and sociocultural conditions that differ from country to country.