Please refer to Class 12 Business Studies Sample Paper Term 2 With Solutions Set C provided below. The Sample Papers for Class 12 Business Studies have been prepared based on the latest pattern issued by CBSE. Students should practice these guess papers for class 12 Business Studies to gain more practice and get better marks in examinations. The Term 2 Sample Papers for Business Studies Standard 12 will help you to understand the type of questions which can be asked in upcoming examinations.
Term 2 Sample Paper for Class 12 Business Studies With Solutions Set C
Short Answer Type Questions – I
1. Identify and explain the function of management which may involve any combination of employees including daily wagers, consultants and contract employees.
Answer. Staffing is that part of the process of management which is concerned with obtaining, utilizing and maintaining a satisfactory and satisfied work force. Today, staffing may involve any combination of employees including daily wagers, consultants and contract employees. Staffing recognizes the importance of every single person employed by an organization as it is the individual worker, who is the ultimate performer.
2. The basic purpose of SEBI is to create an environment to facilitate efficient mobilisation and allocation of resources through the securities markets. Who are the constituents of this market for whom SEBI aims at creating a conducive environment?
Answer. The basic purpose of SEBI is to create an environment to facilitate efficient mobilisation and allocation of resources through the securities markets. It also aims to stimulate competition and encourage innovation. This environment includes rules and regulations, institutions and their interrelationships, instruments, practices, infrastructure and policy framework. This environment aims at meeting the needs of the three groups which basically constitute the market, viz, the issuers of securities (Companies), the investors and the market intermediaries.
3. Give the meaning of ‘Training’ and ‘Development’.
Answer. Training: Training refers to the process of increasing the knowledge, skills and abilities of employees for doing a particular job. It is a systematic and continuous process for improving skills. Training aims to enable the employees to perform their job better. It is a process by which the aptitudes, skills and abilities of employees to perform specific jobs are increased. It is a process of learning new skills and application of knowledge. It attempts to improve their performance on the current job or prepare them for any intended job.
Development: Development refers to overall growth of the employees. It seeks to prepare employees for handling more responsible and challenging jobs by developing their hidden qualities and talents. Development refers to the learning opportunities designed to help employees grow. It covers not only those activities which improve job performance but also those which bring about growth of the personality, help individuals in the progress towards maturity and actualization of their potential capacities so that they become not only good employees but better individuals.
4. Name and explain the function of management which helps in the formulation of future plans, in the light of the problems that were identified and thus, helps in better planning in the future period.
Answer. Controlling is one of the important functions of a manager. In order to seek planned results from the subordinates, a manager needs to exercise effective control over the activities of the subordinates. Controlling means ensuring that activities in an organization are performed as per the plans. Controlling also ensures that an organization’s resources are being used effectively and efficiently for the achievement of predetermined goals. Controlling is, thus, a goal-oriented function.
Short Answer Type Questions – II
5. A behavior study was performed on total 100 employees of an organization. Group A (of 50 employees) was appreciated by the manager for their work. All these employees were given the option of flexible working hours and were paid wages at a higher piece rate. On the other hand, Group B (of the remaining 50 employees) was criticized for their poor performance. Their increments were stopped and they were paid wages at a lower piece rate.
(i) Identify and explain the feature of motivation highlighted in the above case.
(ii) What type of leadership is followed by the manager? Justify your answer.
Answer. (i) Motivation can be either positive or negative: Positive motivation provides positive rewards like increase in pay, promotion, recognition etc., Negative motivation uses negative means like punishment, stopping increments, threatening etc. which also may induce a person to act in the desired way.
(ii) Autocratic leadership style: An autocratic leader gives orders and expects his subordinates to obey those orders. If a manager is following this style, then communication is only oneway with the subordinate only acting according to the command given by the manager. This leader is dogmatic i.e., does not change or wish to be contradicted. His following is based on the assumption that reward or punishment both can be given depending upon the result. This leadership style is effective in getting productivity in many situations like in a factory where the supervisor is responsible for production on time and has to ensure labour productivity. Quick decision-making is also facilitated.
6. Briefly explain the positive and negative aspects of the type of communication which arises out of the need of employees to exchange their views.
“Directing is the heart of the Management Process.” Do you agree? Give any three reasons in support of your answer.
Answer. Positive aspects of informal communication:
(i) Sometimes, grapevine channels may be helpful as they carry information rapidly and therefore, may be useful to the manager at times.
(ii) Informal channels are used by the managers to transmit information so as to know the reactions of his/her subordinates.
Negative aspects of informal communication:
(i) The grapevine/informal communication sometimes gets distorted. It also leads to generating rumors and informal discussions and sometimes may hamper the work environment.
(ii) It is very difficult to detect the source of such communication.
The importance of directing can be understood by the fact that every action in the organization is initiated through directing only. Directing guides towards achievement of common objectives. The points which emphasise the importance of directing is presented as follows:
(i) Directing initiates action: Directing helps to initiate action by people in the organization towards attainment of the desired objectives. For example, if a supervisor guides his subordinates and clarifies their doubts in performing a task, it will help the worker to achieve the targets given to him.
(ii) Directing integrates employees’ efforts: Directing integrates employees’ efforts in the organization in such a way that every individual effort contributes to the organizational performance. Thus, it ensures that the individuals work for organizational goals. For example, a manager with good leadership abilities will be in a position to convince the employees working under him that individual efforts and team effort will lead to achievement of organizational goals.
(iii) Directing guides employees to realize their potential: Directing guides employees to fully realize their potential and capabilities by motivating and providing effective leadership. A good leader can always identify the potential of his employees and motivate them to extract work up to their full potential.
(iv) Directing facilitates changes: 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 manager explains the purpose, provides training and motivates with additional rewards, the employees may accept change and cooperate with manager.
(v) Directing brings stability and balance in the organization: Effective directing helps to bring stability and balance in the organization since it fosters cooperation and commitment among the people and helps to achieve balance among various groups, activities and the departments.
7. Explain the three major decisions every manager has to take to while performing the finance function.
Answer. The three major decisions every manager has to take while performing the finance function are:
(i) Investment Decisions: 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. Short-term investment decisions (also called working capital decisions) are concerned with the decisions about the levels of cash, inventory and receivables. These decisions affect the day-to-day working of a business. These affect the liquidity as well as profitability of a business.
(ii) Financing Decisions: This decision is about the quantum of finance to be raised from various long-term sources. Short-term sources are studied under the ‘working capital management’. It involves identification of various available sources. The main sources of funds for a firm are shareholders’ funds and borrowed funds. The shareholders’ funds refer to the equity capital and the retained earnings. Borrowed funds refer to the finance raised through debentures or other forms of debt. A firm has to decide the proportion of funds to be raised from either source, based on their basic characteristics and other factors. Interest on borrowed funds have to be paid regardless of whether or not a firm has earned a profit.
(iii) Dividend Decision: The third important decision that every financial manager has to take relates to the distribution of dividend. Dividend is that portion of profit which is distributed to shareholders. The decision involved here is how much of the profit earned by company (after paying tax) is to be distributed to the shareholders and how much of it should be retained in the business. While the dividend constitutes the current income re-investment as retained earnings increases the firm’s future earning capacity. The extent of retained earnings also influences the financing decision of the firm. Since the firm does not require funds to the extent of re-invested retained earnings, the decision regarding dividend should be taken keeping in view the overall objective of maximizing shareholder’s wealth.
8. Vinber Ltd. set up a manufacturing unit at Bhiwadi in Himachal Pradesh to manufacture electric geysers and supply them to dealers all over the country. Their production target was 500 geysers per week. It was decided by the management that variation in production up to 10 units would be acceptable. At the end of the first week, the production was 450 geysers. The next week, production increased to 470 geysers. A week later, production was 460 geysers. On investigation, it was found out that fluctuation in production was due to irregular supply of electricity. The above para discusses some of the steps of one of the functions of management. Explain the steps.
Answer. Steps in the process of Controlling discussed in the above para:
(i) Setting performance standards: The first step in the controlling process is setting up of performance standards. Standards are the criteria against which actual performance would be measured. Thus, standards serve as benchmarks towards which an organization strives to work. Standards can be set in both quantitative as well as qualitative terms. For instance, standards set in terms of cost to be incurred, revenue to be earned, product units to be produced and sold, time to be spent in performing a task, all represents quantitative standards. Sometimes standards may also be set in qualitative terms. Improving goodwill and motivation level of employees are examples of qualitative standards.
(ii) Measuring 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. As far as possible, performance should be measured in the same units in which standards are set as this would make 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.
(iii) Analyzing deviations: Before taking any corrective action, managers should try to ascertain the reasons for the occurrence of 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 needs 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.
Long Answer Type Questions
9. Mr. X purchased a car for ₹ 15 lakh but he is not satisfied with the quality and performance of the car. The company of the car did not provide any remedy to him. Under which authority of Consumer Protection Act, 2019 can he file an appeal?
Sandeep purchased a packet of biscuits from a nearby shop. He observed that the ingredients given on the label were not legible. He complained about it to the customer care of the company. The company sent a written apology besides stating that it will be ensured that the existing packets in the market will be withdrawn with immediate effect and new packets with legible labels will be made available. Which consumer right/rights did Sandeep exercise?
Answer. Under district commission, he can file a complaint. The District Commission consists of a President and two other members, one of whom should be a woman. They all are appointed by the State Government concerned. A complaint can be made to the appropriate District Commission when the value of the goods or services along with the compensation claimed, does not exceed ` 1 crore. On receiving the complaint, the District Commission shall refer the complaint to the party against whom the complaint is filed. If required, the goods or a sample thereof, shall be sent for testing in a laboratory. The District Commission shall pass an order after considering the test report from the laboratory and hearing the party against whom the complaint is filed. In case the aggrieved party is not satisfied with the order of the District Commission, he can appeal before the State Commission within 45 days of the passing of the order.
Following consumer rights were exercised by Sandeep:
(i) Right to be Informed: The consumer has a right to have complete information about the product he intends to buy including its ingredients, date of manufacture, price, quantity, directions for use, etc. It is because of this reason that the legal framework in India requires the manufactures to provide such information on the package and label of the product. Also, wherever necessary, the consumer must be informed about the safety precautions to be taken while using the product to avoid loss or injury. Taking the example of gas cylinder, the supplier must inform the user to stop the flow of gas with the help of the regulator when it is not in use.
(ii) Right to be Heard: The consumer has a right to file a complaint and to be heard in case of dissatisfaction with a good or a service. It is because of this reason that many enlightened business firms have set up their own consumer service and grievance cells. Many consumer organizations are also working towards this direction and helping consumers in redressal of their grievances. This right means that consumers have a right to be consulted by Government and public bodies when decisions and policies are made affecting consumer interests. Also, consumers have a right to be heard by manufactures, dealers and advertisers about their opinion on production and marketing decisions. Consumers have the right to be heard in legal proceedings in law courts dealing with consumer complaints.
10. Explain the methods of floatation of new issues in the Primary Market.
Answer. There are various methods of floating new issues in the Primary Market:
(i) Offer through Prospectus: This involves inviting subscription from the public through issue of prospectus. A prospectus makes a direct appeal to investors to raise capital through an advertisement in the newspapers and in the magazines. The issues may be underwritten and also are required to be listed on at least one recognized stock exchange. The contents of the prospectus have to be in accordance with the provisions of the Companies Act and SEBI Disclosure and Investor Protection Guidelines.
(ii) Offer for Sale: Under this method, securities are not issued directly to the public but are offered for sale through the intermediaries like issuing houses or stock brokers. In this case, a company sells securities in bulk at an agreed price to brokers who, in turn, resell them to the investing public.
(iii) Private Placement: Private Placement is the allotment of securities by a company to institutional investors and some selected individuals. It helps to raise capital more quickly than a public issue. Access to the primary market can be expensive on account of various mandatory and non-mandatory expenses. Some companies, therefore, cannot afford a public issue and choose to use private placement.
(iv) Rights Issue: This is a privilege given to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company. The shareholders are offered the ‘Right’ to buy new shares in proportion to the number of shares they already possess.
(v) e-IPOs: A company proposing to issue capital to the public through the online system of the stock exchange has to enter into an agreement with the stock exchange. This is called an Initial Public Offer (IPO). SEBI registered brokers have to be appointed for the purpose of accepting applications and placing orders with the company. The issuer company should also appoint a registrar to the issue having electronic connectivity with the exchange. The issuer company can apply for listing of its securities on any exchange other than the exchange through which it has offered its securities. The lead manager co-ordinates all the activities amongst intermediaries connected with the issue.
11. Moga Industries Ltd.’ approached a well-established university in the city of Madurai to recruit qualified personnel for various technical and professional jobs. They selected Tanya, Ritu, Garima and Chetan for various vacancies in the organization. After the selection and placement, ‘Moga Industries Ltd.’ felt the need to increase their skills and abilities, and the development of the positive attitude of the employees to perform their specific jobs better. The company also realized that learning new skills would improve the job performance of the employees. Hence, the company decided to take actions for the same.
(i) Name the step of the staffing process regarding which the company decided to take action.
(ii) State any four benefits of the action to ‘Moga Industries Ltd.’
Answer. (i) Training and Development
(ii) Benefits of training to ‘Moga Industries Ltd.’:
(a) Avoids wastage of efforts and money: It avoids wastage of efforts and money as training is a systematic learning, better than hit and trial methods.
(b) Enhances employee productivity: It enhances employee productivity both in terms of quantity and quality leading to higher profits.
(c) Equips the future manager: It equips the future manager to take over in an emergency.
(d) Reduces employees’ turnover: It reduces employees’ turnover as it increases employee morale and reduces absenteeism.
(e) Effective response: It helps in obtaining effective response in a fast-changing environment
12. MM Ltd. is manufacturing small cars at its manufacturing unit in Pune. The demand of its cars is increasing at the rate of 20% annually. It is planning to set up a new car manufacturing unit at Indore. For this, the company will require approximately ₹ 1,500 crore as fixed capital and ₹ 400 crores as working capital. The company has already arranged for its working capital. Explain any five factors that the finance manager should keep in mind while arranging its fixed capital.
Viola Limited has a share capital of ₹ 10,00,000 divided into shares of ₹ 100 each. For expansion purpose, the company requires additional funds of ₹ 4,00,000. The management is considering the following alternatives for raising funds:
Alternative 1: Issue of 10,000 Equity shares of ₹ 100 each
Alternative 2: Issue of 30% Debentures of ₹ 5,00,000
The company’s present Earnings Before Interest and Tax (EBIT) is ₹ 4,00,000 p.a. Assuming that the rate of Return of Investment remains the same after expansion, which alternative should be used by the company in order to maximise the returns to the equity shareholders. The Tax rate is 50%. Show the working.
Answer. Factors affecting the requirements of fixed capital are as follows:
(i) Nature of Business: The type of business has a bearing upon the fixed capital requirements. For example, a trading concern needs lower investment in fixed assets compared with a manufacturing organization; since it does not require to purchase plant and machinery, etc.
(ii) Scale of Operations: A larger organization operating at a higher scale needs bigger plant, more space etc. and therefore, requires higher investment in fixed assets when compared with the small organization.
(iii) Choice of Technique: Some organizations are capital intensive whereas others are labour intensive. A capital-intensive organization requires higher investment in plant and machinery as it relies less on manual labour. The requirement of fixed capital for such organizations would be higher. Labour intensive organizations on the other hand require less investment in fixed assets. Hence, their fixed capital requirement is lower.
(iv) Technology Upgradation: In certain industries, assets become obsolete sooner. Consequently, their replacements become due faster. Higher investment in fixed assets may, therefore, be required in such cases. For example, computers become obsolete faster and are replaced much sooner than say, furniture. Thus, such organizations which use assets which are prone to obsolescence require higher fixed capital to purchase such assets.
(v) Growth Prospects: Higher growth of an organization generally requires higher investment in fixed assets. Even when such growth is expected, a company may choose to create higher capacity in order to meet the anticipated higher demand quicker. This entails larger investment in fixed assets and consequently larger fixed capital.
(vi) Diversification: A firm may choose to diversify its operations for various reasons, with diversification, fixed capital requirements increase e.g., a textile company is diversifying and starting a cement manufacturing plant. Obviously, its investment in fixed capital will increase.
(vii) Financing Alternatives: A developed financial market may provide leasing facilities as an alternative to outright purchase. When an asset is taken on lease, the firm pays lease rentals and uses it. By doing so, it avoids huge sums required to purchase it. Availability of leasing facilities, thus, may reduce the funds required to be invested in fixed assets, thereby reducing the fixed capital requirements. Such a strategy is especially suitable in high risk lines of business.
(viii) Level of Collaboration: At times, certain business organizations share each other’s facilities. For example, a bank may use another’s ATM or some of them may jointly establish a particular facility. This is feasible if the scale of operations of each one of them is not sufficient to make full use of the facility. Such collaboration reduces the level of investment in fixed assets for each one of the participating organizations.
• Distinguish between factors affecting working capital, fixed capital and the capital structure.
The company should use Plan 2 in order to increase the return to the equity shareholders