Class 12 Business Studies: CBSE Sample Question Papers- Term II (2021-22)- 3 | Sample Papers for Class 12 Commerce PDF Download

General instructions: 

• This is a Subjective Question Paper containing 12 questions. 
• This paper contains 4 questions of 2 marks each, 4 questions of 3 marks each and 4 questions of 5 marks each. 
• 2 marks questions are Short Answer Type Questions and are to be answered in 30-50 words. 
• 3 marks questions are Short Answer Type Questions and are to be answered in 50-80 words. 
• 5 marks questions are Long Answer Type Questions and are to be answered in 80-120 words. 
• This question paper contains Case/Source Based Questions.

Two sources of internal recruitment:

(i) Promotion refers to shifting of an employee to a higher position, carrying higher responsibilities, facilities, status and pay.
(ii) Transfer involves shifting of an employee from one job to another, one department to another, without substantive change in the responsibilities and status of the employee.

Detailed Answer:
(i) Promotions: Business enterprises generally follow the practice of filling higher jobs by promoting employees from lower jobs. Promotion leads to shifting an employee to a higher position, carrying higher responsibilities, facilities, status and pay. Promotion is a vertical shifting of employees. This practice helps to improve the motivation, loyalty and satisfaction level of employees. It has a great psychological impact over the employees because a promotion at the higher level may lead to a chain of promotions at lower levels in the organization.
(ii) Transfers: It involves shifting of an employee from one job to another, one department to another or from one shift to another, without a substantive change in the responsibilities and status of the employee. It may lead to changes in duties and responsibilities, working condition etc., but not necessarily salary. Transfer is a good source of filling the vacancies with employees from overstaffed departments. It is practically a horizontal movement of employees. Shortage of suitable personnel in one branch may be filled through transfer from another branch or department.

Offer for Sale: Under this method securities are not issued directly to the public but are offered for sale through intermediaries like issuing houses or stock brokers. In this case, a company sells securities at an agreed price to brokers who, in turn, resell them to the investing public.

(i) Workload analysis: This would enable an assessment of the number and types of human resources necessary for the performance of various jobs and accomplishment of organizational objectives.

(ii) Workforce analysis: This would reveal the number and type of manpower available.

(i) Controlling

(ii) Measurement of actual performance
Once performance standards are set, the next step is measurement of actual performance.
Performance should be measured in an objective and reliable manner. There are several techniques for measurement of performance. These include personal observation, sample checking, performance reports, etc.
Detailed Answer:
Once performance standards are set, the next step is measurement of actual performance. Performance should be measured in an objective and reliable manner. There are several techniques for measurement of performance. These include personal observation, sample checking, performance reports, etc. As far as possible, performance should be measured in the same units in which standards are set as this would make their comparison easier. It is generally believed that measurement should be done after the task is completed. However, wherever possible, measurement of work should be done during the performance.

The need of Hema which is being fulfilled is security needs. Once an individual’s physiological needs are satisfied, the needs for security and safety become salient. People want to experience order, predictability and control in their lives. These needs can be fulfilled by the family and society (e.g. police, schools, business and medical care).

The need of Hema which is not being fulfilled is belongingness Needs and Esteem Needs. Belonging needs refer to affection, sense of belongingness, acceptance and friendship. Esteem needs include factors such as self-respect, autonomy status, recognition and attention.

Q.6. Explain briefly how Directing: 
(i) Facilitates introduction of needed changes in the organization.
(ii) Brings stability and balance in the organization
OR
Briefly explain the any two elements of Directing.

(i) Directing facilitates introduction of needed changes in the organization. Generally, people have a tendency to resist changes in the organization. Effective directing through motivation, communication and leadership helps to reduce such resistance and develop required cooperation in introducing changes in the organization. For example, if a manager wants to introduce new system of accounting, there may be initial resistance from accounting staff. But, if the manager explains the purpose, provides training and motivates with additional rewards, the employees may accept change and cooperate with manager.
(ii) Effective directing helps to bring stability and balance in the organisation since it fosters cooperation and commitment among the people and helps to achieve balance among various groups, activities and the departments.
OR
The elements of Directing are as follows:
(i) Motivation: Motivation means incitement or inducement to act or perform. In the context of an organization, it means the process of making subordinates to act in a desired manner to achieve certain organizational goals. It is the process of stimulating people to action in order to accomplish desired goals of the firm. It is an internal feeling of an employee and leads to goal- directed attitudes and behavior. Motivation depends primarily on the needs of individuals. It helps individuals and groups in the enterprise to give improved performance.
(ii) Leadership: It is the process of persuading people to strive willingly for group goals and objectives. A good leader should have many qualities. Some of them are courage, will power, conviction judgement, enthusiasm, knowledge, integrity, confidence, etc. Though in reality, all these qualities cannot be present in a single person and at times do not always contribute to success.  
(iii) Communication: Communication refers to process of exchange of information and ideas between or among people that creates an understanding. The process of communication involves the elements of source, message encoding, channel, receiver, decoding and feedback. In all organizations, formal and informal communication takes place simultaneously.

Q.7. Explain briefly any three factors that affect the working capital requirements of a company.

Factors affecting the working capital requirements of a company are as follows:

(i) Nature of Business: The basic nature of a business influences the amount of working capital required. A trading organization usually needs a smaller amount of working capital compared to a manufacturing organization. This is because there is usually no processing. Therefore, there is no distinction between raw materials and finished goods. Sales can be effected immediately upon the receipt of materials, sometimes even before that. In a manufacturing business, however, raw material needs to be converted into finished goods before any sales become possible. Other factors remaining the same, a trading business requires less working capital. Similarly, service industries which usually do not have to maintain inventory require less working capital.
(ii) Scale of Operations: For organizations which operate on a higher scale of operation, the quantum of inventory and debtors required is generally high. Such organizations, therefore, require large amount of working capital as compared to the organizations which operate on a lower scale.  
(iii) Business Cycle: Different phases of business cycles affect the requirement of working capital by a firm. In case of a boom, the sales as well as production are likely to be larger and, therefore, larger amount of working capital is required. As against this, the requirement for working capital will be lower during the period of depression as the sales as well as production will be less.
(iv) Seasonal Factors: Most business has some seasonality in their operations. In peak season, because of higher level of activity, larger amount of working capital is required. As against this, the level of activity as well as the requirement for working capital will be lower during the lean season.  
(v) Production Cycle: Production cycle is the time span between the receipt of raw material and their conversion into finished goods. Some businesses have a longer production cycle while some have a shorter one. Duration and the length of production cycle, affects the amount of funds required for raw materials and expenses. Consequently, working capital requirement is higher in firms with longer processing cycle and lower in firms with shorter processing cycle.
(vi) Credit Allowed: Different firms allow different credit terms to their customers. This depends upon the level of competition that a firm faces as well as the credit worthiness of their clientele.  A liberal credit policy results in higher amount of debtors, increasing the requirement of working capital.
(vii) Credit Availed: Just as a firm allows credit to its customers it also may get credit from its suppliers. To the extent it avails credit on purchases; the working capital requirement is reduced.
(viii) Operating Efficiency: Firms manage their operations with varied degrees of efficiency. For example, a firm managing its raw materials efficiently may be able to manage with a smaller balance. This is reflected in a higher inventory turnover ratio. Similarly, a better debtor’s turnover ratio may be achieved by reducing the amount tied up in receivables. Better sales effort may reduce the average time for which finished goods inventory is held. Such efficiencies may reduce the level of raw materials, finished goods and debtors resulting in lower requirement of working capital.  
(ix) Availability of Raw Material: If the raw materials and other required materials are available freely and continuously, lower stock levels may suffice. If, however, raw materials do not have a record of un-interrupted availability, higher stock levels may be required. In addition, the time lag between the placement of order and the actual receipt of the materials (also called lead time) is also relevant. Larger the lead time, larger the quantity of material to be stored and larger shall be the amount of working capital required.
(x) Growth Prospects: If the growth potential of a concern is perceived to be higher, it will require larger amount of working capital so that it is able to meet higher production and sales target whenever required.  
(xi) Level of Competition: Higher level of competitiveness may necessitate larger stocks of finished goods to meet urgent orders from customers. This increases the working capital requirement. Competition may also force the firm to extend liberal credit terms discussed earlier.
(xii) Inflation: With rising prices, larger amounts are required to maintain a constant volume of production and sales. The working capital requirement of a business thus, becomes higher with higher rate of inflation. 

Q.8. A critical point control (CPC) approach is followed by Mc Donald’s in the cooking and handling process so that any food safety threat can be prevented, eliminated, or reduced to an acceptable level. Hence, continuous monitoring of activities is undertaken to ensure that the process is right at each critical point control. The main principle followed for cooking at Mc Donald’s is “fewer amounts much time” which can ensure the high quality and increased freshness level of the food. For instance, if four hamburgers have to be made, a worker cannot cook all the four hamburgers at one time. The time figured out for making one hamburger is one hundred and forty-five seconds. Moreover, nearly all foods in items the Mc Donald’s have a specific holding time, the holding time for hamburgers is ten minutes and for French fries it is seven minutes. If it is not sold within that time it is thrown away. Also, the temperature of the milk sent by the supplier must be under 4° C, otherwise, it will be returned.
(i) Identify and explain the steps in the process of controlling discussed in the above case. 
(ii) Identify and explain any one point which highlights the importance of the controlling function in the above text.

(i) Following are the steps discussed in the case:

(a) Analyzing Deviations: Some deviation in performance can be expected in all activities. It is, therefore, important to determine the acceptable range of deviations. Also, deviations in key areas of business need to be attended more urgently as compared to deviations in certain insignificant areas. Critical point control and management by exception should be used by a manager in this regard.
(b) Taking Corrective Action: No corrective action is required when the deviations are within acceptable limits. However, when the deviations go beyond the acceptable range, especially in the important areas, it demands immediate managerial attention so that deviations do not occur again and standards are accomplished. Corrective action might involve training of employees if the production target could not be met. Similarly, if an important project is running behind schedule, corrective action might involve assigning of additional workers and equipment to the project and permission for overtime work.
(ii) Following are the point which highlights the importance of the controlling function in the above text:
(a) Accomplishing organizational goals: The controlling function measures progress towards the organizational goals and brings to light the deviations, if any, and indicates corrective action to be taken. It, thus, guides the organization and keeps it on the right track so that organizational goals can be achieved.
(b) Making efficient use of resources: By exercising control, a manager seeks to reduce wastage and spoilage of resources. Each activity is performed in accordance with predetermined standards and norms. This ensures that resources are used in the most effective and efficient manner.
(c) Judging accuracy of standards: A good control system enables management to verify whether the standards set are accurate and objective. An efficient control system keeps a careful check on the changes taking place in the organization and in the environment and helps to review and revise the standards in light of such changes.

Q.9. State any five reliefs available to the consumer, if the court is satisfied about the genuineness of the complaint.
OR
State any five responsibilities that a consumer should discharge while purchasing, using and consuming goods and services.

If the Consumer Court is satisfied with the genuineness of the complaint, it can issue one or more of the following directions to the aggrieved party as a relief:
(i) To remove the defect in goods or the deficiency in service.
(ii) To replace the defective product with a new one, free from any defect.
(iii) To refund the price paid for the product, or the charges paid for the service.
(iv) To pay a reasonable amount of compensation for any loss or injury suffered by the consumer due to negligence of the opposite party.
(v) To pay punitive damages in appropriate circumstances.
(vi) To discontinue the unfair/restrictive trade practices and not to repeat the same in future.
(vii) Not to offer hazardous goods for sale.
(viii) To withdraw hazardous goods from sale.
(ix) To cease manufacture of hazardous goods and to desist from offering hazardous services.
(x) To pay any amount (not less than 25% of the value of the defective goods or deficient services provided), to be credited to the Consumer Welfare Fund or any other organisation/person, to be utilized in the prescribed manner.
(xi) To issue corrective advertisement to neutralize the effect of a misleading advertisement.
(xii) To pay adequate costs to the appropriate party.
OR
Responsibilities that a consumer should discharge while purchasing, using and consuming goods and services:
(i) Be aware about various goods and services available in the market so that an intelligent and wise choice can be made.
(ii) Buy only standardised goods as they provide quality assurance. Thus, look for ISI mark on electrical goods, FPO/FSSAI mark on food products, Hallmark on jewellery, etc.
(iii) Learn about the risks associated with products and services, follow manufacturer ’s instructions and use the products safely.
(iv) Read labels carefully so as to have information about prices, net weight, manufacturing and expiry dates, etc.
(v) Assert yourself to ensure that you get a fair deal.
(vi) Be honest in your dealings. Choose only from legal source and discourage unscrupulous practices like black-marketing, hoarding, etc.
(vii) Ask for a cash memo on purchase of goods or services. This would serve as a proof of the purchase made.
(viii) File a complaint in an appropriate consumer forum in case of a shortcoming in the quality of goods purchased or services availed. Do not fail to take an action even when the amount involved is small.
(ix) Form consumer societies which would play an active part in educating consumers and safeguarding their interests.
(x) Respect the environment. Avoid waste littering and contributing to pollution.

Q.10. Discuss how dematerialization is beneficial or convenient.

Holding shares in dematerialized (DEMAT) form is very convenient as it is just like a bank account.

(i) There exists no danger of loss, theft or forgery, forced transfers, transfer delays of share certificates.
(ii) The demat securities can also be used as a security and pledged or hypothecated to avail loans.
(iii) It enables shares to be transferred to another account just like cash and ensures settlement of all trades through a single account in shares thereby making trading simple and convenient.
(iv) It enables easy conversion of physical shares into electronic form or electronic holdings to be reconverted into physical certificates through rematerialization.
(v) It is less cumbersome as paperwork management is minimum. 

Q.11. The FMCG major India Unilever Ltd. is terminating the employment of its senior managers if, after evaluating their performance against pre-determined standards, which was found to be lacking. On account of these dismissals, analysts say that a large number of existing work forces may become redundant unless they learn new skills and apply the knowledge to work on new and emerging technologies. India Unilever Ltd. is ready to facilitate employee learning, through its in-house centers. 
(i)   Name the function of management performed by India Unilever Ltd. to maintain a satisfactory work force.
(ii) Identify and discuss the two steps in the process of the function of management discussed above. 
(iii) Also state any two steps of the function of management discussed, that the firm undertook before performing the above steps.

(i) The function of management being performed by India Unilever Ltd. to maintain a satisfactory work force is Staffing.

(ii) The two steps of staffing discussed above are:
(a) Training and Development: This can be facilitated by having either internal training centres or agreements with training and educational institutes to ensure continuous learning of their employees. This proves beneficial for the organizations as well.
(b) Performance Appraisal: Organizations can use formal or informal means of appraising their employee’s performance. Performance Appraisal means assessing an employee’s current and/or previous performance against certain pre-set standards. The performance appraisal process includes activities like defining the job, appraising performance, and providing feedback.  
(iii) Given below are the two steps in the process of staffing that the management had to perform before performing the above steps:
(a) Estimating manpower requirements: It involves knowing how many persons the company needs and also of what type. This would necessitate workload analysis and workforce analysis.
(b) Recruitment: It is defined as the process of looking for suitable employees and encouraging them to apply for jobs in the organization. The idea is to create a pool of prospective employees.  
(c) Selection: It is the process of choosing from among the pool of the prospective candidates which was developed at the recruitment stage. It ensures that the organization gets the best among the available.
(d) Orientation: It is introducing the selected employee to his peers, superiors as well as subordinates and familiarizing him with the rules and policies of the organization. Placement refers to the employee taking up the position or post on which he has been selected. 

Q.12. ‘G. Motors’ is the manufacturer of sophisticated cranes. The Production manager of the company, reported to the Chief Executive Officer, Ashish Jain that one of the machines used in manufacturing sophisticated cranes had to be replaced to compete in the market, as other competitors were using automatic machines for manufacturing cranes. After a detailed analysis, it was decided to purchase a new automatic machine having the latest technology. It was also decided to finance this machine through long term sources of finance. Ashish Jain compared various machines and decided to invest in the machine which would yield the maximum returns to its investors. 
(i) Identify and explain the financial decision taken by Ashish Jain. 
(ii) Explain the factors affecting the decision identified in (a) above.
OR
‘Viyo Ltd.’ is a company manufacturing textile. It has a share capital of ₹ 60 lakh. The earnings per share in the previous year were ₹ 0.50. For diversification, the company requires additional capital of ₹ 40 lakh. The company raised funds by issuing 10% debentures for the same. During the current year the company earned profit of ` 8 lakhs on capital employed. It paid tax @ 40%. 
(i) State whether the shareholders gained or lost, in respect of earning per share on diversification. Show your calculations clearly.
(ii) Also, state any two factors that favour the issue of debentures by the company as part of its capital structure.

(i) Investment decision/Capital Budgeting/ Long-term Investment decision: A firm’s resources are scarce in comparison to the uses to which they can be put. A firm, therefore, has to choose where to invest these resources, so that they are able to earn the highest possible return for their investors. The investment decision, therefore, relates to how the firm’s funds are invested in different assets. Investment decision can be long term or short-term. A long-term investment decision is also called a Capital Budgeting decision. It involves committing the finance on a long-term basis.
(ii) Factors affecting Investment decision/Capital Budgeting/ Long-term Investment decision:
(a) Cash flows of the project: When a company takes an investment decision involving a huge amount. It expects to generate some cash flows over a period. These cash flows are in the form of a series of cash receipts and payments over the life of an investment. The amount of these cash flows should be carefully analyzed before considering a capital budgeting decision.
(b) The rate of return: The most important criterion is the rate of return of the project. These calculations are based on the expected returns from each proposal and the assessment of the risk involved. Suppose, there are two projects, A and B (with the same risk involved), with a rate of return of 10 per cent and 12 per cent, respectively, then under normal circumstance, project B should be selected.  

(c) The investment criteria involved: The decision to invest in a particular project involves a number of calculations regarding the amount of investment, interest rate, cash flows and rate of return. There are different techniques to evaluate investment proposals which are known as capital budgeting techniques. These techniques are applied to each proposal before selecting a particular project.
OR
(i) Earnings per share before diversification = ₹ 0.50
Calculation of Earnings per share after issue of Debentures:
(Assuming face value of ₹100 per share)

This clearly shows that the shareholders have gained after the issue of debentures since the Earning per share has increased from ₹ 0.50 to ₹ 4.
OR
Calculation of Earnings per share after issue of Debentures:
(assuming face value of ₹ 10 per share)

This clearly shows that the shareholders have lost after the issue of debentures since the Earning per share has decreased from ₹ 0.50 to ₹ 0.40.
Note: In case, a student has calculated Return on Investment as 8% i.e., (8,00,000)/(1,00,00,000)

and compared it with the rate of interest which is 10% and concluded that the shareholders have lost after the issue of Debentures since the interest rate is greater than the Return of Investment, 1 mark is to be awarded.
(ii) Factors that favour issue of debentures by the company:
(a) A good cash flow position makes debt funding more viable.
(b) High Interest Coverage ratio lowers the risk of company failing to meet its interest payment obligations.
(c) High debt service coverage ratio indicates better ability to meet the debt service obligations.
(d) If Return on Investment of the company is higher than the interest rate on debt, its ability to use debt is greater.
(e) Lower the cost of debt, higher is the ability to employ debt.
(f) High tax rate makes debt relatively cheaper.
(g) If the stock market conditions are bearish, a company may be able to easily raise funds through debt.
(h) If the company does not want dilution of control, it will favour debt as a source of finance.
(i) Inclusion of debt in the capital structure makes the capital structure flexible.
(j) If the business risk is lower, its capacity to use debt is higher.
(k) Raising funds through debt involves low floatation costs.