Short Type Questions - Business Arithmetic, Entrepreneurship, Class 12 | Additional Study Material for Commerce PDF Download

Q1. What is financial management ? What is the main objective of financial management ? (TBQ) (4 marks)
Ans. Financial management means planning, organizing, directing and controlling the financial activities. It is an activity which is concerned with acquisition and conservation of capital funds in meeting financial needs. It means applying general management principles to financial resources for the enterprise.
The main objectives of financial management is wealth maximization of shareholders. Its other objectives are :
(i) To ensure regular and adequate supply of funds to the concern.
(ii) To ensure adequate returns to the shareholders.
(iii) To ensure optimum fund utilization.

Q2. What are the key elements in the process of Financial Management. Explain them. (TBQ) (4 marks)
Ans.
(i) Financial planning : Management need to ensure that enough funding is available at the right time to meet out the need of the business.
(ii) Financial control : It addresses the questions such as :
(a) Are assets being used efficiently ?
(b) Are the business assets secure ?
(iii) Financial decision-making : Its key aspects relate to investment, financing and dividends.

Q3. What are the key aspects of financial decision marking ? (TBQ) (3 marks)
Ans. The key aspects relate to investment, financing and dividends :
• Investments must be financed in some way - however there are always financing alternatives that can be considered. For example it is possible to raise finance from selling new shares, borrowing from banks or taking credit from suppliers.
• A key financing decision is whether profits earned by the business should be retained rather than distributed to shareholders via dividends.
• If dividends are too high, the business may be starved of funding to reinvest in growing revenues and profits further.

Q4. What is a budget ? What are the essentials of a budget ? (TBQ) (3 marks)
Ans. Budget means allocation of resources.
Essentials of a budget include :
(i) To control resources.
(ii) To communicate plans to various responsibility center managers.
(iii) To motivate managers to strive to achieve budget goals.
(iv) To evaluate the performance of managers.
(v) For accountability.

Q5. What is cash flow, cash inflow and cash outflow ? (TBQ) (3 marks)
Ans. Cash flow refers to the movement of money in and out of a business during a specific period of time. Cash inflow is the movement of money into a business. Cash outflow is movement of money out of a business.

Q6. Name the types of budget. (3 marks)
Ans.
(i) Sales budget,
(ii) Production budget,
(iii) Capital budget,
(iv) Cash flow/cash budget,
(v) Marketing budget and
(vi) Project budget.

Q7. Explain Budget. Give example. (4 marks)

Ans. A budget is a predetermined statement of management policy during a given period which provides a standard or target to company with actual results achieved.
Example : Budgetary target revenue = ` 100 crore.
Actual revenue = ` 80 crore
Management can know there is deficiency of ` 20 crore. They can find out the reasons for deviation and suggest measures, so that in future such deviation would not occur.

Q8. Write the steps in operation of budgetary control. (4 marks)
Ans.
(i) Establish a plan or target of performance which coordinates all activities of the business.
(ii) Record the actual performance.
(iii) Compare the actual performance with planned.
(iv) Calculate the difference of variance and find out the reasons for them.
(v) Act immediately to solve the situation and suggests measures so that in future such difference does not occur.

Q9. Classify budgets according to time. (4 marks)
Ans.
(i) Long-term Budgets : They are made for a period of 1 to 10 years.
(ii) Short-term Budgets : They are ususally prepared for a period of one year. It is a production plan in monetary terms which also helps to know the requirement of working capital.
(iii) Current Budgets : They cover the period of a month. They are adjusted with the prevailing situation.

Q10. When an entrepreneur’s business is expanding, his business outflows can be more than his business inflows. Do you agree ? How ? (4 marks)
Ans. Yes, when an entrepreneur’s business is expanding, his business outflows can be more than his business inflows.
It is so because there is always a lag between spending on raw materials, labour, etc. and receiving the sales revenue. Receipt of sales revenue may be delayed because of credit sales or large size production to cater to high demand in festive season, resulting in temporarily holding of finished goods stock.

Q11. What is the importance of financial control. (4 marks)
Ans. Financial control helps in ensuring that the business is meeting its objectives. It addresses the following points :
(i) Efficient usage of all business assets.
(ii) Security of all business assets.
(iii) Taking interest of all shareholders of the company and going in accordance with business rules.

Q12. “The budget period for all the business are same”. Do you agree ? Explain. (4 marks)
Ans. No, the budget period for all business is not same. Budget period will depend upon the type and size of business enterprise and control aspect. For seasonal enterprises small budgets generally covering one season are made.

For big industries with heavy capital expenditure, the budget period is generally long.

Q13. Name and explain the chief cost of budget process. (4 marks)
Ans. The chief cost of budget process is time. In some corporations the process takes on a life of its own and becomes a convoluted exercise of excessive complexity which prevents unit managers from doing any thinking. Their time is consumed in efforts to comply with a most array of requirements dictated from above.

Q14. Distinguish between budget and budgeting. (4 marks)
Ans.