Author Archives: Swati

NCERT Most important question:

Question 1.
Explain the need and benefits of services.
Answer:
The need for Service Sector: Modern trade is the symbol of modem civilization. It has crossed every barrier and reached even the distant and remote parts of the world. It has touched every man. The economic welfare of mankind has been made possible by trade. The physical distribution of goods requires series of interrelated activities, which help in the flow of goods from the producer to the final consumer.

Serv ice sector ensures the smooth supply of goods and services. The service sector consists of a series of interrelated activities concerned with producers to consumers. Service facilities help ensure the supply of the right quantity of the right products to the right place at file right time.

Benefits of Services:
1. Quick and economical services to customers: Efficient service to customers is the only way to have an edge over the competitors. Customer satisfaction can be gained by providing quick, economical, and efficient services to consumers.

2. Minimisation of cost: The distribution costs are part of the price of goods. The costs of transportation, insurance, warehousing, and financing increase the price of the commodities. The efficient and cheap supply of these services minimizes the cost, which is beneficial to consumers.

3. Additional sales volume: The service sector through its efficient transportation, communication, warehousing, and advertising facilities helps increase demand and supply of sales. These services provide knowledge about the commodity and also help in their distribution. Services improve the faith and loyalty of customers.

4. Stabilisation of prices: Transportation helps in the transfer of goods from areas of abundant supply to the areas of scarcity, so the price remains almost the same everywhere. Warehousing adjusts the supply according to demand to avoid violent fluctuations in prices.

5. Removal of time and place barrier- There is a time gap between the production and consumption of the commodities. The warehousing services keep the commodity in their safe custody for the period between production or purchases and sale. This service protects goods from damage and destruction. Modem transport facilities have enabled the movement of commodities from one place to other places.

Question 2.
What are the various types of financial services? Explain in brief.
Answer:
Types of Financial Services: In addition to the traditional financial services of Banking and Insurance the following new financial services have emerged.
1. Merchant Banking: Services of intermediary regarding the issue, management, underwriting corporate restructuring are referred to as merchant banking. They provide growth of the capital market and help in developing an investment climate in the country.

2. Loan Syndication: The approach of borrowers to several banks willing to syndicate a loan, specify ing the amount, and the tenure of the loan is termed as loan syndication.

3. Venture Capital: Subscribing the equity shares of borrowers in return for part of ownership.

4. Factoring: The practice of selling accounts receivable to other companies or agencies for raising funds is termed factoring.

5. Leasing: The legal agreement by which the user of an asset may make payment of lease rent to the owner of the asset in return of use. At the end of the agreement, the lessee takes possession of the assets.

6. Mutual Funds: A company that pools funds from individuals to invest in shares or debentures and in short-term securities.

Question 3.
What are the various types of life insurance policies undertaken by the policyholders?
Answer:
Types of Life Insurance Policies: The life insurance corporation has got different policies suiting to the needs of different persons. These policies are as Under:
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1. Whole life policy: This policy reins throughout the whole life of the assured. The sum assured becomes payable to the beneficiary only after the death of the insured. The amount of premium is comparatively lesser in this policy. The period of the policy is indefinite. Its payment is made to the dependents of the insured only.

2. Endowment policy: This policy is for a fixed amount and specified period. If the policyholder survives for the period of the policy he is paid the specified amount of the policy with a bonus. An endowment policy provides both protection as well as savings for old age.

3. Joint life policy: This life policy is taken by two or more persons jointly. These persons may be partners of the firm, employees of an organization, members of the family, etc. According to the terms of the policy, the premium is paid jointly. On the death of anyone member of the group, the entire amount of the policy or the amount as per agreement is paid.

4. Annuity life policy. In this policy, the amount of the policy is paid before the maturity of the policy after one year or the year or the expiry of the fixed period. The entire amount of the policy is paid on the death of the policyholder or after the expiry of the period of the policy, whichever is earlier.

Question 4.
Differentiate Life Insurance and Fire Insurance.
Answer:
Difference between Life Insurance and Fire Insurance:

Points of difference	Life Insurance	Fire Insurance
I. Element of safety/investment	It has got both thethe element of safety and investment.	It has got an element of safety only.
2. Surrender value	The assured can surrender the policy before its maturity.	The insured cannot surrender the policy.
3. Contract of indemnity	It is not a contract of indemnity.	It is a contract of indemnity.
4. Number of years	The life insurance policy is taken for many years.	Fire insurance policy is taken for one year. It has to be renewed after one year if it has to be continued.
5. Insurable interest	It must be present at the time of the contract	It must be present both at the time taking policy and at the time of loss.

Question 5.
Explain the term Double Insurance and Re-Insurance and differentiate the two.
Answer:
Double Insurance: Any person is free to take more than one insurance policy for the same property or goods. But he cannot recover more than the amount of loss actually suffered because a contract of insurance is a contract of indemnity.

Reinsurance: When an insurer risks that are beyond his control, he may get the whole or a part of his risk reinsured with other insurers. This is known as reinsurance.

Points of difference	Double Insurance	Reinsurance
1. Meaning	Ensuring the same risk with two or more companies is Double Insurance.	It is a contract of sub-insurance between the insurer and the reinsurer.
2. FilingClaim	A claim can be filed with all insurers but restricted to an actual loss in case of fire and marine policies.	The insured will claim compensation from the original insurer, who will claim compensation from reinsurers.
3. Contribution	The contribution will be made by each insurer in proportion to the sum insured.	Reinsurers are not directly required to contribute to losses.

Question 6.
What is the role or advantages of insurance in business?
Answer:
Role/Advantages Of Insurance In The Business: The future is always uncertain. Uncertainties in the business make plans futile and investments valueless. In order to minimize risk different types of insurance policies are taken. Insurance policies are advantageous in the following respects:

Role/Advantages of Insurance in the Business:

1.	Protection
2.	Indemnity
3.	Diffusion of Risk
4.	Social utility
5.	Industrial Development

1. Protection: Insurance provides protection against the risk of loss. Incaseoflife insurance the loss of an individual cannot be compensated but the receipt of the insured amount from Life Insurance Corporation helps him in standing. Insurance enables the businessman to carry on business with confidence and peace of mind.

2. Indemnity: The loss caused by fire and other mishappenings is compensated by the insurance company. Insurance, as such is the protection against losses and businessman feels secured and free from anxiety.

3. Diffusion of Risk: The burden of loss is distributed among a large number of persons through insurance. The impact of loss on one industry is not unduly heavy, that can be transferred by the insurance company to others.

4. Social utility: Insurance provides safety to the common man. It is a means of social security. It also generates employment opportunities.

5. Industrial Development: The insurance companies collect a huge amount as a premium. These funds are invested in industrial ventures and cause industrial development.

Question 7.
What do you understand by the term Merchant Bankers? Mention in brief the services provided by Merchant Bankers.
Answer:
Merchant Bankers: Merchant bankers or lead managers undertake the management of new capital issues of companies. A merchant banker helps the company intending to raise fresh capital in drafting the prospectus (or statement in lieu of prospectus), the arrangement of underwriters, selection of brokers, publicity, the appointment of the registrar to the issue, etc. In India, several banks have specialized divisions or subsidiaries for offering merchant banking services.

Merchant bankers provide a wide variety of financial services to the corporate sector. They look into various legal and procedural aspects involved in the issue of securities and the raising of loans. They also provide consultancy in matters of investment, capital restructuring, valuation, merger, acquisition, etc.

Question 8.
Define Reserve Bank of India and its important functions:
Answer:
Reserve Bank of India: It was incorporated on April l, 1935 as a shareholders’ bank. The majority of shares were held by the central government. After independence, the Reserve Bank of India was nationalized on April l, 1949. Reserve bank of India performs the following important functions:

Functions Of Reserve Bank Of India:
A. Primary functions:

1. Issuingcurrencynotes(except one rupee note, which is issued by the ministry of finance)
2. Bank of the government
3. Working as the banker of banks
4. Controlling bank rate or rate of interest
5. Controlling exchange rate.

B. Subsidiary functions:

1. Dealing in foreign exchange
2. Discounting bills of different banks
3. Dealing in government securities
4. Accepting deposits without interest
5. Managing clearing houses
6. Managing agricultural credit
7. Extending short-term loans to banks and financial institutions
8. Regulating developmental, industrial, and commercial activities in India.

Question 9.
Explain the term E-banking and the services of E-banking in today’s economic world.
Answer:
E-Banking (Electronic Banking): Many banks have introduced electronic banking services for their customers. Like IDBI Bank, UTI Bank, Global Trust Bank, Citibank, State Bank of India, etc. They make use of computers and satellites for the transfer of funds and communication. E-banking includes the following services:

1. EFT (Electronic Fund Transfer System): It is a cost-saving scheme for the convenience of customers. Under the schemes accompany may transfer wages and salaries from its bank account to the personal accounts of its employees. Similarly, a company can distribute dividends to its shareholders electronically. This is a very safe method of transfer of money as compared to banker’s draft, traveler’s cheque, etc.

2. ATMs (Automated Teller Machines): Many banks have installed ATMs in big cities. An ATM renders a teller’s job 24 hours a day. It is a self-service terminal that renders the facility of withdrawal and deposit of money to the bank customers. Each customer is given a separate plastic card to avail of the services at the ATM.

The customer has to insert the plastic card into the terminal and enter his identification code. The machine would then respond to the customer’s instruction of giving cash, taking a deposit, and handling other banking transactions.

3. Credit Card: The card issued to selected customers to enable them to make payment of credit bills of the credit limit. It is also called plastic money as it allows the credit cardholder to withdraw money without making any deposit into the bank. It allows an overdraft facility to the customer up to a specified limit. The cardholder can use the card for making payments for goods and services to the suppliers having Internet service is provided in India by many companies like VSNL, Bharti Telecom, and MTNL known as Internet Providers.

Any individual or organization can open an account with any Internet Service Provider who will give an account number for a monthly or yearly charge. Then the user may have access to the internet and the e-mail through it.

4. Debit Card: This is the card issued to the holder of a bank account against the balance amount in the account to facilitate and simplify the payment, withdrawal, and transfer of money any time, anywhere through the computer is known as a debit card.

Question 10.
Banking is the lifeblood of the economy. Mention the role or importance of Banking in the economy.
Answer:
Role/Importance Of Banking In National Economy:
As capital is the lifeblood of trade, commerce, and industry, so banking, in the same way, is the lifeblood of the economy. The importance of banking can be justified on the following grounds:

The modem economy is helpless without banking services. Banking as the lifeblood of the economy has assumed the following significance.
1. Credit creation: Banks accept deposits, retain a nominal percentage of the deposit as a cash reserve, and the best major part is lent to trade, industry and commerce at a higher rate of interest. It is known as credit creation.

2. Mobilisation of savings: Banking accept surplus savings and return together with interest, whenever required. It inculcates the habit of savings among people. It is responsible for capital formation.

3. Safe custody of valuables: The banks provide locker services and keep our valuables like ornaments, notes, documents, etc. safe, we can take them from banks whenever required.

4. Promotion of foreign trade: Finance is the lifeblood of all trading activities, even foreign trade. Banks are the source of funds, help in the payment and transfer of money, provide foreign exchange, issue letter of credit, and provide assistance to foreign trade in many ways.

5. Social and national welfare: Surplus funds of the people are accepted as deposits by banks and lent to trade, commerce, and industry for productive purposes. It promotes the welfare of the people.

Question 11.
Define the term internet and its various benefits and uses in the modern world.
Answer:
Internet is a worldwide or global network of computers, connected through telephone lines and other high-speed links. It is a facility of communicating and sharing information with mi 11 ions of people all over the World Internet Service is provided in India by many companies like VSNL, Bharti Telecom, and MTNL, known as internet service providers.

Any individual or organization can open an account with any internet service provider who will give an account number for a monthly or yearly charge. Then the user may have access to the internet and the e-mail through its information in a variety of forms.

Benefits/Uses of the Internet: Nowadays the internet is being used in every place and every sphere of life, whether it is a share market, shopping complex, companies, organization, departments, or Government understandings. There are a lot of buyers and sellers who use the internet as their buying and selling market. A newspaper or magazine can be read out through it. Seminars, conference, workshop, meeting, the conversation is also possible on the internet.

Thus, the benefits/uses of the internet can be classified as follows:
1. Sharing information: The first and foremost use of the internet is to share information. Company employees and many other people can share research and business data among colleagues and like-minded individuals

2. Communication- Internet facility is also used for communication Through the internet individuals can make communicate directly in various “chat-sessions” and E-mail facilities. With the help of modern technology people can talk face-to-face with the help of a Digital Camera which is possible only with the internet.

3. Marketing of products: Various Multinational Companies (MNC’s), departmental stores, shopping complexes, manufacturers, organizations, etc. used the internet for selling their products. Buyers also used interest to buy different kinds of goods from different corners of the world.

4. Entertainment: The Internet is a good source of entertainment. It offers a lot of entertainment programs as you can play any game by downloading it on your computers. You can come to know the latest Hollywood and Bollywood information about your favorite stars and films. You can hear songs and see films on the internet.

5. Making of queries: The Internet provides the facility to make queries regarding various places, products, films, books, personalities, institutions, etc. That’s why. a high and suitable institute, college, or school with its features and co-curricular activities can be approached.

6. Feedback and suggestions: Through the internet, many institutions and governments can take feedback and suggestions about their decisions and orders (e.g. Daily voting regarding decisions in Hindustan Times and Aaj Ki Baat).

7. Other uses: The Internet facility is also used to find out vacancies and provide opportunities. It can also be used for matrimonial and many more things.

Question 12.
Discuss the various characteristics of an Ideal warehouse.
Answer:
Characteristics Of An Ideal Warehouse: Efficient storage facilities are essential for the smooth flow of trade and commerce.

The essential features of good storage facilities are as follows:
1. Economy: An ideal warehouse must not be very expensive. The benefits provided by it should be much greater than the cost involved in its establishment and maintenance. Its hire charges should be reasonably low.

2. Safety: A good warehouse must provide adequate protection to the goods stored in it. It should be properly constructed to safeguard the goods from heat, moisture, rats, fire, theft, etc.

3. Proximity: The warehouse should be easy Iy accessible. It should be centrally located so that goods can be loaded, unloaded, and transported quickly at the minimum possible cost. It should provide easy or convenient entry and exit of goods.

4. Security: A good warehouse should facilitate pledging or hypothecation of the goods kept therein. It should provide for the supervision and control of the pledged goods. It should be capable of being insured at low rates of premium.

5. Control-There must be proper arrangements for the inspection, measurement, identification, etc. of goods. Proper care should be taken of the stored goods. There should be trained and experienced staff to manage the warehouse.

Question 13.
Differentiate between Private Warehouses and Public Warehouses.
Answer:
Difference between Private Warehouses and Public Warehouses:

Points of Difference	Private Warehouse	Public Warehouse
1. Capital	Large investment in equipment. trained personnel and other facilities.	There is no need for capital investment in public warehouses.
2. Risk	More risk of obsolescence due to change in demand and technology.	Minimum risk is involved investment in public warehouses.
3. Tax benefit	Advantages of depreciation allowance white calculating taxable income.	No property advantage due to free-port State real estate is taxless.
4. Operating cost	Operating costs are lower. if sufficient volume is stored.	Higher due to inclusion of profit factor. selling and advertising costs.
5. Economies of scale.	Depends on company volume.	Possible due to serving a large number of customers.
6. Storage and handling Cost	Only estimated costs of storage and handling are made.	Storage and handling costs depend on decision making.

Question 14.
What are Bonded Warehouse and its significance in business?
Answer:
Bonded warehouses are those licensed by the government to accept imported goods for storage before the payment of customs duty by the importers of such goods. Such warehouses work under the supervision and control of customs authorities. Bonded warehouses are located near ports. The goods stored in a bonded warehouse cannot be withdrawn without payment of necessary duty charges. These warehouses are very useful in foreign trade.

Significance Or Objectives Of Bonded Warehouse:
1. Facility in the payment of customs duty: The importer after depositing goods with the bonded warehouse gets sufficient time to arrange funds for the customs duties. There is also an opportunity to pay customs in parts and get the required quantity of goods cleared from the bonded warehouse.

2. Possibility of sales even without clearance of goods: Warehouse receipt is a negotiable instrument, so goods can be sold by endorsing warehouse receipt to the purchaser, who will have to pay customs duty for clearing goods.

3. Exemption from customs duty in case of the report: If goods are imported for exporting abroad, the importer can get it cleared from the bonded warehouse without the payment of customs duty’.

4. Encouragement to foreign trade: Bonded warehouse facilitates foreign trade by its location at the ports and deferred payment of custom duty.

5. Borrowing facility: Warehouse receipt issued by bonded warehouses can be deposited with the bank as security for obtaining loans.

Question 15.
Differentiate between service and goods.
Answer:
Difference between service and goods:

Points of Difference	Services	Goods
1.Nature	An activity or Process	A Physical Product
2. Type	Heterogeneous	Homogenous
3. Tangibility	Intangible	Tangible
4. Ownership	Not transferable	Transferable
5. Inventory	Cannot be kept as stock	Can be kept as stock
6. Involvement	Participation of customers at the time of service delivery	Transferable at the time of delivery not possible
7. Inseparability	Simultaneous production and consumption	Separation of production and consumption
8. Production	Services are performed not produced	Goods are produced

Question 16.
Write a short note on types of services?
Answer:
Services can be classified into:

1. Business Services
2. Personal Services
3. Social Services

1. Business Services: Business services are those services which are used by business to conduct its day to day work. Like Warehousing, Transport, Banking, Insurance, Communication, etc. There are gaps of distance, time, knowledge, and risk between the production and consumption of goods. Business services bridges these gaps. The need for services arises because production is concentrated whereas customers are scattered widely.

2. Personal Services: Those services which are experienced differently by different customers are called personal services. These services are not consistent in nature. They will differ depending upon the service provider. They will also depend upon the customer’s preferences and demands, for example, tourism, restaurants, etc.

3. Social Services: Social services are those services that are performed for the benefit of society. They provide voluntarily in pursuit of certain goals. These goals may improve the standard of living of the weaker sections of the society or may educate them or provide health care and hygienic conditions in slum areas. For example health care and education services provided by certain NGOs and government agencies.

Question 17.
Explain the various types of Banks?
Answer:
Banks can be classified into the following:

1. Commercial Banks
2. Cooperative Banks
3. Specialized Banks
4. Central Banks

1. Commercial Banks: These banks perform all kinds of banking business. They accept deposits from the public and provide short term loans and advances to customers. They act as financial intermediaries or dealers in debt. Commercial banks are regular banks.

In India, there are three types of commercial banks:

1. Public Sector Commercial Banks
2. Private sector commercial banks
3. Foreign Banks

2. Cooperative Banks: These banks are formed and set up the principles of cooperations. They are registered under Cooperative Societies Act. They provide credit and other facilities to their members. The members may be farmers, small scale traders, etc. They accept deposits from the members and grant loans to them at low rates of interest.

3. Specialised Banks: Specialised banks are foreign exchange banks, industrial banks, development banks, export-import banks catering to specific needs of these unique activities. They provide financial aid to industries, heavy turnkey projects, and foreign trade.

4. Central Bank: Central bank is the apex institution that supervises and controls the entire banking system of the country. Every country has a central bank. The Reserve Bank of India is the central bank of our country. A central bank does not deal directly with the public and its aim is not to earn profits. It also acts as a government banker. It controls and coordinates the currency and credit policies of any country. It maintains the exchange rate. It is the custodian of foreign currency reserves of the country.

Question 18.
What do you understand by insurance? How is it facilitates business?
Answer:
Insurance is a means of spreading risks. It involves the pooling of risks. A group of people who are subject to an insurable risk contributes regularly and the fund so created is utilized to compensate those unfortunate few members of the group who actually suffer a loss due to some unexpected density:

In other words, Insurance is a social device for pooling arid dividing risks among a large number of persons.

Importance of Insurance: Insurance plays a very important role in business. It provides the following advantages of businessman:
1. Protection against risks: It provides protection against risks of loss. By providing security against heavy risks and losses, insurance stimulates the expansion of trade and industry.

2. Division of labor- It facilitates the division of labor. A businessman can concentrate fully on his own business because his risks are taken over by an insurance company that is a specialist in risk-bearing.

3. Ability to face competition- It helps in improving the efficiency of business because an insured businessman feels more safe and active. Insurance contributes to the survival and continuity of business.

4. Better utilization of capital: In absence of insurance facilities businessmen will have to maintain large reserves to face risks due to loss. Insurance avoids the need for such reserves and the fund so released can be invested to generate additional wealth.

5. Facility for loan: Insurance companies provide loans and underwriting facilities to businessmen and also invest in industrial securities. After insuring his goods, the creditworthiness of the businessman increases.

NCERT Most important question:

Question 1.
What are the major objectives of public enterprises?
Answer:
Public enterprises are guided by several socio-economic and political objectives.

Importance/Need/Objectives of Public Enterprises: Public enterprises have got the following motives:
1. Economic Motive/Objectives:
(a) Availability of essential commodities of life in sufficient quantity at cheaper rates: These industries aim at supplying essential commodities at cheaper rates to the people. Mother Daily and Delhi Milk Scheme in Delhi are its examples. Water, electricity, and gas supply are also in this category.

(b) Establishment of basic industries: In order to accelerate the pace of economic growth, basic industries are a must. These industries require heavy expenditure and Carry a lot of risks. This is why private entrepreneurs hesitate in establishing basic industries. These industries are iron and steel, locomotives, aircraft, and ship-building, etc.

(c) Balanced regional development: Private industries are not keen to set up industries in remote and backward regions due to a lack of facilities and infrastructure. It leads to the haphazard and unbalanced development of the country. Public enterprises aim at balanced regional development of the country in addition to their economic motive.

2. Social Motive: Involvement of the government in these enterprises is because of the social welfare of the people. Satisfying the basic needs of the people at cheaper rates shows the social motive of these enterprises. They help to check malpractices on the part of private entrepreneurs.

3. Political Motive: Ministers, Members of Parliament and Legislative Assemblies try to establish a public enterprise in their constituencies for political gain This results in the growth of the area, and the states of the politician, and thus political motive is achieved and regional imbalance takes place.

4. Reduced wasteful expenditures: Wasteful expenditures can be reduced with the nationalization of industries, because under private ownership company may not be managed efficiently, so expenditures of 11 that company may be excessive. Therefore, there is a need b nationalization.

5. Self-Reliance: These enterprises save valuable foreign exchange through import substitution In addition, public sector enterprises export goods on a large scale to attain the goal of economic self-reliance.

6. Infrastructure: Transport, communication, irrigation, power, etc. can be developed only on large scale, with huge resources but a private owner cannot have huge resources. So there should be a nationalization of infrastructure.

Question 2.
Differentiate between Private and Public Sector Enterprises.
Answer:
Difference between Private and Public Sector Enterprises:

Basis	Private Sector Enterprise	Public Sector Enterprise
1. Ownership	It is owned and controlled by private individuals.	It is owned and controlled by the Central or State Govt
2. Profit motive	The profit motive is very important and essential for its survival.	The profit motive is not the main guiding factor. It serves social objectives as well.
3. Purpose	The motivating factor is to earn profits.	Its main objective is to promote public welfare.
4. Social Objectives	Social objectives are not seriously undertaken.	It is guided by social objectives like the development of backward regions, the creation of employment, and the equitable distribution of wealth.
5. Efficiency	Quick decision-making promotes efficiency.	Decision-making is not fast. There is red-tapism. bureaucratic control has reduced its efficiency.
6, Government Control	It is not subject to strict financial control by the Government	It is subject to strict financial control by the Government.
7, Management	It is managed by professional managers.	It is managed mostly by Government officials.
8. Public Accountability	It is accountable to the owners.	It is accountable to the public through Parliament.

Question 3.
Mention, in brief, the significant features/characteristics of Global Corporations.
Answer:
Features of Global Corporation: The important features of most multinational corporations are as under:
1. Giant-Size: The assets and sales of MNCs run into billions of dollars and they make huge profits through their operations. For example, the physical assets of IBM are worth around 8 billion dollars. The sales turnover of some global corporations exceeds the gross national product of several developing countries.

2. International Operations: An MNC operates in many countries through a parent corporation in the home country. It runs its operations through a network of branches, subsidiaries, and affiliates in host countries. Production, marketing, and other operations are scattered in different countries to get the economies of local operations.

3. Centralized Control: An MNC has its headquarters in the home country in order to control the branches and subsidiaries. The local management of branches and subsidiaries operate within the policy framework of the parent corporation. This is possible due to the fact the parent-company holds40% to 100% of the equity of the subsidiary company.

4. Oligopolistic Power: Many multinational corporations enjoy oligopolistic power. They occupy a dominant position in the market. Through the process of merger and takeover of other firms, an MNC may acquire a huge economic power. This makes it oligopolistic in character because of which it has a dominant position in the market. For example, Hindustan Lever Limited acquired Tata Oil Mills to improve its market shares.

5. Collective Transfer of Resources: A multinational corporation facilitates a multilateral transfer of resources. Such transfer takes place in the form of a” package” which includes technical know-how, machinery, and equipment, raw materials, management expertise, etc.

6. Professional Management: These corporations employ professional skills, specialized knowledge, and training. These managers have specialized training and skills in different functional areas like finance, marketing, and human resources.

7. International Market: MNCs have access to international markets as a result of vast resources and superior marketing skills. Because of this, MNCs are in a position to sell whatever products they manufacture in different countries throughout the world.

Question 4.
Explain the term Foreign Collaboration in brief.
Answer:
Foreign Collaboration: Enterprises having equity participation V of foreign units is known as foreign collaboration. It is an enterprise jointly owned, managed, and controlled by Indians and foreigners. These enterprises are enjoying the vast resources of the country and abroad. It combines the financial resources and managerial and technological expertise of two or more countries.

The amount of profit is shared ( between the Indian owner and the foreign partner. The government these days has liberalized its policies regarding foreign participation in Indian i: enterprises. According to New Industrial Policy, 1999 approval will be given for direct foreign investment up to 51% equity in high priority industries and automatic permission will be given to foreign technology agreements in identified high priority industries.

Question 5.
What do you mean by the term “Disinvestment of Shares”?
Answer:
Disinvestment of Shares-The major plank of the privatization program in India has been the disinvestment of government shareholdings in a select number of public enterprises. The rationale behind this program is to raise a non-inflationary form of finance for the budget.

The program commenced in 1991-92 and till 1995-96 the „ government had disinvested a part of its equity in 40 public sector enterprises and had raised an amount of Rs. 10,915 crore through the various rounds of disinvestment undertaken between this period. The shares were offered to financial institutions, mutual funds, private sector enterprises, and the general public as well.

The Union Government constituted Disinvestment Commission in August 1996 to advise it on the disinvestment program of public sector enterprises. The government referred 40 public sector undertakings to the Commission for advice about disinvestment. The government has now been taking steps to implement the report of the Disinvestment Commission.

To ensure transparency in the Disinvestment program, bids are invited for the sale of shares of selected public enterprises and the shares are sold to the highest bidder. During 2000-01, the Government raised Rs. 1,869 crores through disinvestment in public undertakings as compared to Rs. 1,829 crores during 1999-2000 and Rs. 5,371 crores during 1998-99. The target of disinvestment for the year 2002-03 was Rs. 0 crores.

Question 6.
What is Departmental Undertaking? Mention its advantages and disadvantages.
Answer:
Departmental Undertaking – It works as the ministry or a department of the government. The budget of these departmental organizations is presented to the parliament just like other ministries. Indian Railways and Post and Telegraph departments are its examples.

Departmental organizations are entirely owned and controlled by either the Central Government or by a State Government.

Advantages of Departmental Undertaking: Departmental organization enjoy the following merits:
1. Service Motive: These enterprises are formed with a service motive. Public interest and social welfare hold priority for them. These undertakings also help to reduce the burden of tax on the public.

2. National Importance: Activities that have got national importance are performed by these departmental organizations. The risk of misuse of public money minimized due to strict budget, accounting, and audit.

3. Secrecy: These organizations are capable of maintaining secrecy. because these are under the control of the government. The government can avoid disclosure of facts on the plea of public interest.

4. Proper Management: These enterprises are managed by qualified government staff. Their work is systematic. They are properly v managed and supervised. Such control and management keep the government official alert.

Disadvantages of Departmental Undertaking – Departmental organization suffer from the following disadvantages:
1. Least profit earning venture: Departmental organization is owned and controlled by the government. It is formed with a service motive, so it does not remain an excellent profit earning venture.

2. Red tape: Employees follow the beaten track. They do not take much interest in the work. They are careless and bother much for their salaries. Officers worry much for their status and respect. Decisions are generally delayed due to bureaucratic procedures and political considerations.

3. Lack of competent workers: Government employees are not much efficient in business affairs. They have sufficient administrative experience but not experienced enough to manage the activities of, the enterprise. Promotion to the higher rank is based upon seniority, so competent employees are not recruited.

4. Political evils: Every important decision in the departmental organization has a political motive. It is managed and controlled by the minister, who is the representative of a political party. The minister has to look after the interest of his party.

5. Lack of competition: Generally departmental organizations have the status of monopoly. Lack of competition makes them incompetent. In the absence of competition and profit motive, there is little incentive for hard work and efficiency. There is hardly any link between reward and performance.

Question 7.
What are statutory/public corporations? Present their advantages and disadvantages.
Answer:
Statutory/Public Corporations: Public corporations are; formedbythespecialactofParliamentorLegislativeAssemblies. Their existence is separate from the government. This is why these corporations are called autonomous bodies. Though these corporations are independent in financial matters, even then they remain under the control of the government. It is an autonomous body fully financed by the government.

AccordingtoMorrison, “Public corporation is a combination of public ownership, public accountability, and business management for the public end.” Examples of such corporations are Air India, Life Insurance Corporation of India, etc.

Merits/Advantages of Statutory Corporations – Public corporations enjoy the following merits:
1. Free from government control: These are autonomous bodies, which are not under the direct control of the government.

2. Service motive: These corporations are also formed in the public interest for social welfare like other public enterprises. Service motive dominates their activities.

3. Independent decision: Public corporations are independent in making their own decisions, policies, and plans.

4. Efficient management: These corporations are benefited from efficient management because they are managed by a competent board of directors, who are professional in their attitude and work. As changes in government do not affect its stability, it can take long term policy decisions.

5. Economic self-independence: Public corporations are financially independent. They have to arrange their own finances. It is free from political interference by ministers and bureaucrats.

Demerits/Disadvantages of Statutory Corporations – Public corporations have got the following disadvantages:

1. Red Tape: Like other public enterprises and government departments public corporations are also victims of red-tapism.
2. Rigid structure: The constitution of such a corporation is rigid. The objects and powers of such corporations cannot be changed without amending the statute, which is a time-consuming and cumbersome process.
3. Theoretical autonomy: The autonomy of these corporations exist only on paper. In actual practice, interference by political bosses and ministers gives the wrong signal to their autonomy. Red-tapism and bureaucratic control reduce the flexibility of operations.

Question 8.
What is a Government Company? Define its merits and demerits.
Answer:
Government Company – A Government company is a company in Which not less than 51 percent of paid-up capital is held by the Central Government or State Government jointly by both Governments. It is formed and registered under the Companies Act 1956.

Merits of a Government Company: A government company enjoys the following benefits:
1. Internal autonomy: A government company is a separate entity and so can manage its affairs on its own. There is the absence of direction. parliamentary and ministerial control. Thus, it is an autonomous body. It can be operated on commercial principles. It can manage its affairs independently.

2. Flexibility in operations: It can be operated on commercial principles because of independence in respect of internal management, finance, and appointment of person.

3. Collaboration: It is the only form of organization by which the Government can make use of managerial skill, technical know-how, and expertise of the private sector.

4. Easy formation: It is relatively easy to form a government company as no statute is required to be enacted. It can be created by the executive decision of the Government.

5. Expert management: Since the annual report on the working of the enterprise is placed before the Parliament or the State Legislature, the management of a government company tends to be cautious, and efficient to avoid its criticism.

6. Sound management policies: It cannot afford to follow unsound policies because its working can be compared with similar companies in the private sector.

Demerits of a Government Company-The government companies usually suffer from the following weaknesses:
1. Board composed with yes men: The Board of Directors of a government company usually consists of politicians and civil servants which may not be able to follow sound business principles.

2. Theoretical autonomy: The independent character of a government company exists in paper only. Government officials, ministers, and politicians often interfere with its work.

3. Lacking responsibilities: A government company evades the constitutional responsibilities which other state enterprises owe to the Parliament. The Parliament is not, taken into confidence for its creation as government decision is sufficient in this regard. The accounts of a government company need not be audited by the Comptroller and Auditor General of India. Thus, it concentrates more power in the hands of the Government than a statutory corporation.

4. The practice of forming government companies has been regarded as a fraud on the Companies Act because the Government is empowered to specify the provisions of the Company Act to be followed or applied and modifications if any.

Question 9.
Present a comparative view of different forms of public enterprises.
Answer:
A comparative view of different forms of Public Enterprises:

Basis of comparison	Departmental Organisation	Statutory Corporation	Government Company
1. Formation	It is formed by a Ministry Concerned.	Formed by Special Act of Parliament or State Legislature	It is established Under the Companies Act by a Ministry with or without private sector participation.
2. Ownership	The departmental organization is wholly under Government Department.	It is wholly owned by the Government Central or State.	At least 51 percent of paid-up share capital owned by the Government.
3. Legal Status	No separate entity is distinct from the Government Department.	It enjoys a separate legal entity.	Separate legal entity as per Companies Act 1956.
4. Control /Management	Control vested with Government officials from the Ministry concerned.	Control is exercised by the Nominated Board of Directors.	Board of Directors as required under Companies Act 1956.
5. Staffing System	Staff mainly consists of Civil Servants- Govt. Service	It is managed by professionals under a contract of service (not Govt. Service)	Managed by professionals under a contract of service (not Govt. Service)
6. Financing	Budgetary allocation, can’t borrow from the general public.	Separate arrangements can borrow also.	Separate arrangements can borrow also.
7. Autonomy	It enjoys no autonomy. Sufficient autonomy.	Govt does not interfere in day-to-day affairs.	Sufficient autonomy Government does not interfere so much in operations.
8. Public Accountability (Parliamentary control)	Highest	Higher	High accountability for investors and creditors.
9. Suitability	The public utility, defense, etc.	Industrial and Commercial Undertakings,	Industrial and Commercial undertakings, providing for the participation of domestic and foreign private capital.

Question 10.
The role of the public sector is not satisfactory. What are the suggestions for improvement in public sector operations?
Answer:
Suggestions for the improvement of Public enterprises- In order to make public sector enterprises more efficient and prone to public welfare the government set up various committees from time to time. Some important committees set up by the government are as under:

Name of Committee	Year of Inception of Committee/Commission
(1) Chagla Commission	1958
(2) Krishna Mohan Gupta Committee	1959
(3) Administrative Reforms Committee	—
(4) F. Mohammad Committee	1980
(5) Arjunsen Gupta Committee	1998

NCERT Most important question:

Q1. Partners in affirm has different roles and liabilities, Identify and explain the type of partner in a firm from the given examples: 

a) Rama is a partner in a business who has no actual interest in business trade or its profits but she is Paid fee by the firm for lending its name to firm. 

Ans: Rama is a nominal partner in a firm who has no genuine interest in the firm’s trade or earnings, but is paid a fee by the firm for providing its name to the firm.

b) In Ram Hari & co. Ltd, Ram & Hari declare Gopal as a partner with knowing that Gopal remain silent then Gopal will be liable to third parties for any loss.

Ans: Ram & Hari declare Gopal as a partner in Ram Hari & Co. Ltd, knowing that if Gopal remains silent, Gopal will be accountable to third parties for any losses.

c) What type of partner is Geeta if she only contribute capital, shar profit and loss if any? 

Ans: Geeta is a sleeping partner if she merely contributes capital and shares profit and loss if any.

d) What type of patner is Giri in Ram Hari & co. Where he is an outsider but represent himself as a partner.

Ans: Giri in Ram Hari & co, Where he is an outsider but represent himself as a partner-Partner by Estoppel 

Q2. Explain the forms: sole proprietorship, H.U.F & Joint stock company on the basis of following points: Liability, members & Continuity

Ans: The difference between sole proprietorship, H.U.F & Joint stock company is given below:

Basis	Sole Proprietorship	HUF	Joint Stock Company
Liability	Unlimited Liability	Karta’s culpability is boundless, and his personal property is used to pay off his debts. Coparceners’ liability is restricted to their part of the risk, which is precisely defined and precise.	Members’ responsibility is restricted to the amount of money they contribute to a corporation. Members can only be requested to contribute to the loss up to the amount of unpaid share that they own.
Member	Owner is the member	To start a joint hindu family business, at least two family members are required. At the time of birth, one becomes a member.	In a public corporation, the minimum number of employees is seven, and the maximum number is unlimited; in a private firm, the minimum number of employees is two, and the maximum number is 200.
Continuity	Death, insanity, incarceration, physical illness, and bankruptcy all have an impact on a firm and can lead to its closure.	Company operations are not halted, and business continuity is not jeopardised.	It will only be decommissioned after a precise procedure known as winding up is finished. Members may come and leave, but the company remains in existence.

Q3. Explain the concept of mutual agency in partnership with suitable example.

Ans: The legal relationship between participants in a partnership in which each has authorisation powers and the authority to engage the partnership into business contracts is known as mutual agency. To put it another way, each partnership member has the capacity to make business decisions that commit or tie the partnership as a whole to a business deal with a third party or entity. Even though the partnership agreement expressly forbids it, a grocery store partner who purchases a delivery vehicle makes a legally binding contract in the name of the partnership. On the other hand, if a law firm partner bought a snowmobile for the firm, such behaviour would be illegal.

Q4. What is meant by partner by estoppel OR Mr. Singh is in ‘lighting’ business for the post 15 years. To help his friend, Mr Yadav, a beginner he projected himself as a partner before Mohd. Abdul, a whole sale dealer of fancy lights. Mohd. Abdul gave Mr. Yadav the stock without asking for payment and gave him credit limit of one month. Will Mr. Singh be liable to Md. Abdul if Mr. Yadav does not pay him on time ? Classify Mr. Singh’s role here along with an explanation

Ans: Partner by Estoppel is a legal term that refers to a legally binding partnership that can exist even though there is no formal partnership agreement in place. A person who advertises himself or herself as a partner in a firm through conduct or words, or enables himself or herself to be represented as such, is accountable for the credit or loans received by the firm on the basis of such representation. Also known as partnership presumption. The partner does not contribute to the capital or administration of the company, yet his responsibility is limitless.

Q5. What is secret partner

Ans: A secret partner is a person or partner who is not publicly known in a venture or business. He contributes money to the cause. He’s a part of the management team, but only behind closed doors. He also shares in the profits and losses of the firm. His, and others’, responsibilities are infinite.

Q6. Write a short note on producer co-operative society

Ans: Producers’ Cooperative Societies were formed to safeguard the interests of small farmers. Producers interested in obtaining inputs for the creation of items to meet consumer demand are among the members. Profits are divided based on their contributions to the society’s overall pool of products produced or sold.

Q7. Explain a co-operative organisation in democratic setup.

Ans: A cooperative society is a voluntary group of people who get together for the common good of its members. The cooperative society is governed by the premise of “one man, one vote.” Each member has the same number of votes. As a result, democratic values govern cooperative society.

Q8. Shiv, Anandi & John were partners John died in a car accident Both Shiv & Anandi decided to admit his son Ryan who was 16 years old as partner. Can they do so? Justify.

Ans: Yes, they can admit Ryan as a partner to the partnership firm’s advantages with the permission of the partners. A minor is a person who is under the age of eighteen. Because a minor is incapable of forming a legally binding contract. He is unable to become a partner in a firm. A minor can, however, be added to the advantages of an established partnership business with the agreement of all other partners. It’s unrealistic to expect him to absorb the losses. His responsibility will be limited to the amount of money he has put into the business. He will be unable to engage fully in the running of the company.

Q9. Differentiate between private co. and public company

Ans: Difference between private company and public company are as following:

Basis for Comparison	Public Company	Private Company
Meaning	A publicly traded firm that is owned and exchanged by the general public.	a privately held and traded corporation
Minimum member	7	2
Maximum Member	unlimited	200
Minimum Director	3	2
Suffix	Limited	Private  limited
Start of Business	Following receipt of a certificate of incorporation and a certificate of company start-up,	Following receipt of the certificate of incorporation
Statutory Meeting	Compulsory	Optional
Issue of Prospectus/ Statement in lieu of Prospectus	Obligatory	Not required
Public Subscription	Allowed	Not allowed
Quorum at AGM	5 members must present in person	2 members must present in person
Transfer of shares	Free	Restricted

Q10. Akriti, Sonam & Supreeti were friends who started a partnership business. They did not get their firm registered as it was optional. Soon, Sonam & Supreeti started having conflicts. Sonam wanted to approach a lawyer. If you were a lawyer than how would you guide her ? OR Mangal, Sazia & Suqhbeer Singh wish to start a business in partnership. They want to make a partnership deed, Suggest what aspects of the deed should be included in it ? 

Ans :The term “partnership” refers to a relationship between people who have agreed to split the profits from a firm that is run by all of them or by one of them acting on behalf of all of them. Although firm registration is optional, a partnership deed might be produced to avoid problems between partners. The partnership deed is a written agreement that contains the rules and conditions that govern the partnership.:

A partnership deed generally has the following elements:

• Firm name 

• Nature of company and location of operation 

• Duration of business 

• Each partner’s investment 

• Profit and loss distribution

• The partners’ responsibilities and obligations 

• The partners’ salaries and withdrawals 

• The terms regulating a partner’s admission, retirement, and expulsion

Q11. Explain limitations of Joint Stock Company

Ans: The following are the restrictions: 

• When ownership as well as management are separated, there is a lack of effort and personal commitment on the part of the company’s executives.

• A company’s information is periodically given to the Registrar of Companies, and therefore information is available to the general public. This restricts a company’s operational flexibility and wastes a significant amount of time, effort, and money.

• Communication and acceptance of various ideas to top, middle, and lower level management may cause delays in not just making choices but also carrying them out.

• The Board of Directors is made up of the company’s owners, the shareholders.

Q12. Which form of business is suitable for following types of business and why ? 

(a) Beauty Parlour

Ans: Sole Proprietorship for a Beauty Salon. Created and operated in a simple and cost-effective manner. On his or her personal tax return, the owner declares profit or loss.

(b) Coaching Centre for science students 

Ans: Partnership with a science coaching centre. It’s easy to make and run, and it’s cheap. On their personal tax returns, partners record their share of profit or loss.

(c) Hotel 

Ans: Joint Stock Companies in the Hotel Industry The limitation on their owners’ personal liability for company debts and court judgements against the firm is the major aspect of LLCs and corporations that attracts small enterprises. Another issue to consider is income taxes: you can establish up an LLC or a corporation to take advantage of lower tax rates. Furthermore, an LLC or corporation may be able to offer a variety of fringe benefits to its employees (including the owners) and deduct the cost as a business expense.

(d) Shopping mall 

Ans: JSCs (joint stock companies) are shopping malls. Owners’ personal liability for commercial debts is limited .

(e) Restaurant 

Ans: Sole proprietorship of a restaurant. Created and operated in a simple and cost-effective manner. On his or her personal tax return, the owner declares profit or loss.

(f) Small repair business

Ans: Sole Proprietorship for a small repair business. Created and operated in a simple and cost-effective manner. On his or her personal tax return, the owner declares profit or loss.

Q13. In what type of business, individuals associate voluntarily for profit, having capital dividend into transferable shares, the ownership of which is the condition of membership? Explain with features

Ans: A joint stock company is a voluntary group of people founded for the purpose of carrying out profit-making business activities. It has a different legal position from its members and a capital structure that is divided into transferable shares. A corporation is a legal entity that possesses its own legal identity, perpetual succession, and common seal. The shareholders are the company’s owners, and the Board of Directors is the company’s top management body, which is elected by the shareholders.

The company’s capital is divided into smaller units called “shares,” which can be freely transferred from one shareholder to another (except in a private company). The following are the characteristics of a joint stock company: 

• A corporation is a fictitious person. It is a legal creation that exists independently of its members. 

• A corporation acquires its own legal personality. The business and its owners are not considered one and the same by the law.

• Starting a business is a time-consuming, expensive, and difficult process. It is necessary for businesses to be incorporated. 

• It will only be decommissioned after a specialised procedure known as winding up is finished. Members may come and leave, but the company remains in existence. 

• A company’s affairs are managed and controlled by the Board of Directors, which appoints top management for corporate operations. 

• A company may or may not have a common seal. 

• The risk of a company’s losses is shared by all shareholders.

Q14. If registration is optional, why do partnership firms willingly go through this legal formality? Explain the reason with procedure to get them registered.

Ans: The registration of a partnership firm is optional. However, it is preferable to have a formal agreement to avoid problems between partners. The following are the implications of a firm’s failure to register: 

I. A partner in an unregistered firm cannot sue the firm or other partners; 

Ii. The firm cannot sue third parties; and 

iii. The firm cannot bring a case against the partners. 

The partnership deed is a written agreement that contains the rules and conditions that govern the partnership.

The following elements are usually included in a partnership deed:

• Name of firm 

• Nature of business and location of business 

• Duration of business 

• Investment made by each partner 

• Profit and loss distribution 

• Partners’ duties and obligations 

• Salaries and withdrawals of partners 

• Terms governing admission, retirement, and expulsion of a partner 

• Interest on capital and interest on drawings 

• Procedure for dissolution of a partnership

Firm registration procedure:

1. Submit an application to the Registrar of Firms in the specified form. The following information should be included in the application:

• The firm’s name 

• its location 

• the names of other locations where the firm does business 

• the date each partner joined the firm 

• the partners’ names and addresses 

• the duration of the relationship All of the partners should sign this application.

2. Make a fee deposit with the Registrar of Firms.

3. Following approval, the Registrar will enter the firm into the register of firms and provide a certificate of registration.

Q15. Who have equal ownership right over the property of an ancestor? Highlight with its essential characteristics

Ans: A Joint Hindu Family is a type of organisation in which the members of the Hindu Undivided Family own and operate the business (HUF). Membership in the company is based on birth in a certain family, and three generations can be members. The eldest member of the family, known as karta, is in charge of the family’s company. Co-parceners are members of a Joint Hindu Family Business who have equal ownership rights over an ancestor’s property.

The following are the characteristics of a joint Hindu family business: 

• There is no need for an agreement because membership is by birth. 

• All members, excluding the karta, are only liable for their part of the business’s co-parcenery property. The liability of the karta is limitless. 

• The family business is controlled by Karta, and his decisions are binding on everybody. 

• The business continues even after Karta’s death, as the next eldest son becomes Karta.

Q16. Why cooperative forms of organisation are formed? Explain various types of cooperative societies

Ans: A cooperative society is a voluntary group of people who get together for the common good of its members. They are driven by a desire to protect their economic interests against potential abuse by middlemen who are just out to make more money. The procedure of forming a cooperative organisation is straightforward, and all that is required is the approval of at least ten adult individuals. The capital of a society is raised by issuing shares to its members. Following its registration, the society gains an unique legal identity.

Consumer Cooperative Societies are one type of cooperative society. 

• It was established to safeguard the interests of consumers.
• The society aims to eliminate middlemen in order to achieve operational efficiencies. It buys goods in bulk directly from wholesalers and sells them to members. 
• Profits are distributed based on either capital contributions to the society or individual member purchases.
• Producers’ Cooperative Societies are a type of producer cooperative society. 

• It was created to protect the interests of small farmers.
• Producers seeking inputs for the creation of commodities to meet consumer wants make up the members. 
• Profits are dispersed based on their contributions to the total pool of goods produced or sold by the society.
• Marketing Cooperative Societies This organisation was founded to assist small producers in selling their goods. 

• The members are producers who want to get fair pricing for their goods. 
• It combines the production of individual members and engages in marketing operations such as shipping, storage, packaging, and so on in order to sell the items at the highest possible price. Profits are distributed according on how much each participant contributed.
• Farmers’ Cooperative Societies are founded to defend farmers’ interests by offering superior inputs at a fair cost. 

• Members are farmers who want to take up farming activities together. 
• The goal is to reap the benefits of large-scale farming while increasing production. Improves yield and returns to farmers while also addressing the issues that come with farming on fragmented land holdings.
• Cooperative Credit Societies: It was founded to provide members with quick credit on affordable terms. 

• The members are those who are looking for financial assistance in the form of loans. 
• The goal of such organisations is to safeguard members from being exploited by lenders who charge exorbitant interest rates on loans.
• Cooperative Housing Societies are a type of cooperative housing organisation. 

• It was created to assist low-income people in building dwellings at an affordable cost. 
• People who want to get a cheaper place to live make up the members of these societies. 
• The goal is to solve the members’ housing concerns by building houses and allowing them to pay in instalments.

Q17. Dhirubhai Chaurasiya operates a textile business. His family is joint and has a lot of ancestral property. All the 15 family members are a part of this business. He is the eldest male member in the family so he heads the business. He is liable to all the creditors of the business as he is the decision maker. Dhirubhai’s grandson has just born a few days ago and he is also the member of the business. 

(a) Which form of business is being undertaken by Dhirubhai Chaurasiya ? 

Ans: Dhirubhai Chaurasiya is involved in a joint Hindu family business.

(b) Identify the features of this form of business based on the information given. 

Ans: The following are the features of a joint Hindu family company based on the previous information:

• As 15 family members are involved in the business and have a lot of ancestral property, there should be at least two individuals in the family and ancestral property to be inherited by them.

• Except for the karta, all members’ responsibility is restricted to their share of co-parcenery property. The karta has unrestricted liability to all business creditors since he is the decision maker.

(c) Textile business is part of which type of industry according to you ?

Ans: Textile business is part  of Agro based industries.

Q18. ‘Reva Chemicals’ is a partnership firm. Sona and Mona one two partners in this firm. It is recorded in the Partnership Deed that Sona’s liability is unlimited, whereas Mona’s is limited. Sona wants to set up the Anti-Pollution plant in his factory, but Mona does not let him do so. Almost all the transactions of this firm are done through the internet. The firm Sells its goods to other Business units only. The firm gets its Research and Development work done by another firm, who is a specialist of such work.  

i. Describe the type of partnership.  

Ans: It’s a limited partnership in which at least one partner’s liability is limitless, but the others may have limited liability. Limited partners have no management powers and are unaffected by the firm’s or other partners’ activities. A partnership of this nature must be registered.

ii. identify the two values being overlooked.  

Ans: The following are the two ideals that are being overlooked: 

• Government rules are being broken; 

• The social responsibility clause is not being followed.

iii. Name the type-business being done by the firm

Ans: It is a B2B (Business to Business) transaction. Short for business-to-business electronic commerce, B2B e-commerce (sometimes written as e-Commerce, eCommerce, or similar variants) is the sale of items or services between businesses over the internet using an online sales portal. In general, it is utilised to help businesses become more efficient. Instead of manually processing orders over the phone or by e-mail, ecommerce allows orders to be processed digitally.

Q19. Ravi, Pradeep, Satyender and Dharmender are partners in a partnership firm. Ravi and Satyender take active part in the operation of business whereas Pradeep has contributed in Capital but do not take part in day to day activities of the business. Dharmender is a nominal partner. All four make partnership for a specified time period and also make written agreement to govern the partnership but they does not get the firm registered.  

a. What is meant by nominal partner? 

Ans: A nominal partner is one who permits a firm to use his or her name. He neither contributes to the capital nor participates in the administration of the company. He usually does not share profits or losses, and his liability is infinite.

b. Which type of partnership is there between the partners in above?  

Ans: The partners have formed a general partnership. In a general partnership, the partners’ responsibility is limitless and joint. The partners have the right to participate in the firm’s management, and their actions are binding on both the partners and the firm.

c. What is written agreement between the partners called?

Ans:  The partnership deed is a written agreement between the partners. The partnership deed is a written agreement that contains the rules and conditions that govern the partnership.

d. What type of partners Pradeep and Ravi are?

Ans:  Ravi is a hands-on partner. Active partners are individuals who actively participate in the firm’s business on behalf of their fellow partners. They invest money and participate in the operation of the company. He shares in the partnership’s profit and loss. His legal responsibility is limitless.

Pradeep is my sleeping companion. Sleeping partners are those who do not participate in the day-to-day operations of the company. They invest capital but do not participate in the management of the company. He shares in the partnership’s profit and loss. His legal responsibility is limitless.

e. Give two merits of getting firm registered.

Ans: The following are two advantages of registering a business: 

• An unregistered firm’s partner cannot sue the firm or other partners; 

• The firm cannot sue third parties.

Q20. Explain different types of Partnership on the basis of duration and liability?

Ans: Types of Partnership are as follows:

On the basis of duration: It can endure as long as the partners want it to, and it will terminate when one of them gives written notice of his or her intention to leave the relationship. A partnership created for the aim of completing a specified project, such as the construction of a structure or the performance of a time-limited activity.

On the basis of Liability: Partners have unlimited and joint liability; they have the right to participate in the firm’s management, and their acts bind them as well as the firm. 

The limited partners have no authority over the firm or the other partners, and their acts have no legal consequences for the firm or the other partners. It is necessary to register such a partnership.

NCERT Most important question:

Q1. What are the causes for the possibility of inadequate profits due to uncertainties or unexpected events?

OR

No business is risk free in the light of this statement, explain the concept of business risk and it’s any three causes.

Ans: No business can function without taking risk as there is always a possibility of inadequate profits or even losses. The uncertainty of profits puts business at risk, like change in demand, change in technology, change in government policies etc.

Business risks are the uncertainties or unexpected events which may result in inadequate profits or losses.

The three causes of business risk are:

• Natural causes: These are due to natural causes such as floods, earthquakes, etc. Every person has little control or no control over these causes.
• Human causes: These causes include unexpected events caused by man, such as negligence of employees, power failure, employee’s or customer’s dishonest practices etc.
• Economic causes: The economic causes involve the changes and variations taking place in the economy such as uncertainties due change of technology and method of production,political disturbances, change in prices, tax rates etc.

Q2. Compare between Business, profession & Employment on the basis of the following:

a) Capital Investment

b) Risk

c) Transfer of interest

Ans: The difference between Business, profession & Employment are:

Basis	Business	Profession	Employment
Capital Investment	Owner needs to organise investment through personal or other sources depending on the size and nature of the business.	Limited capital needed to establish.	No investment required.
Risk	Risk arises due to uncertainty of profits.	A professional usually receives a  pre-determined or agreed fee thus moderate risk.	Salaries are fixed, they do not depend on the company’s performance therefore no risk at all.
Transfer of interest	Interest can be transferred for consideration or otherwise after following legal formalities.	Not possible	Not possible

Q3. What is business risk?

Ans: Business is the possibility of earning inadequate profits or losses due to uncertainties and unexpected changes in the market conditions. Business risk may be due to natural causes, human causes, economic causes and external causes.   

Nature of Business Risks

• Risk is an essential part of every business. It can only be reduced but not eliminated in full.
• It arises due to uncertainties like natural calamities such as earthquakes, floods etc., which are unavoidable.
• The extent of risk depends upon the nature and size of business.
• ’No risk, no gain’ is applicable to every business. Hence, profit is the reward for risk taking.

Q4. Explain any four objectives of business?

Ans: Objectives are the purpose for which activity is performed. The four objectives of business are as follows:

• Profit earning: Profit earning is necessary for successful survival and continuous growth of the organisation. Profits can be maximised by reducing cost and minimum wastage. Profits are the rewards for taking risks.
• Productivity: Productivity can be calculated by comparing the value of output and value of input. Productivity can be increased by optimum utilisation of the physical and human resources.
• Innovation: For surviving in the market, the business should take opportunities and become the first one to bring a new change in product, technology etc. A business should take first mover advantage against its competitors.
• Market Standing: The business must convert its potential customer to actual customer and must maintain its actual customers as permanent customers. This will maintain the position of business in the market.

Q5. Define commerce, why is it of great importance in modern life?

Ans: Commerce acts as a link between the producer and consumers to enhance efficient distribution of goods and services. 

Importance of Commerce:

• It helps in free and smooth flow of goods and services between the producer and customer. 
• It creates employment opportunities.
• It helps in the growth of industrial development. 
• It helps in increasing the standard of living of the society.

Q6. Distinguish between primary and secondary industry Give examples.

Ans:  The difference between primary and secondary industry is given below:

Basis	Primary Industry	Secondary Industry
Meaning	It involves production and extraction of natural resources.	It processes raw material by primary industry to produce goods for final consumption.
Scope	It includes extractive and genetic industries.	It includes manufacturing and construction industries.
Examples	Farming, Fishing, Mining, etc.	Automobile industry, petroleum, kerosene oil, etc.

Q7. “Business is an institution organized to provide goods and services under the incentive of private gain.” Discuss.

OR

Define business. Explain the characteristics of business (any three)

Ans: Business is an economic activity which is regularly engaged in production or purchase and sale of goods and services to satisfy human needs and wants with an aim to earn profit.

The characteristics of business are as follows:

• Production and/or procurement: Business is related to conversion of raw material into finished goods or sale and purchase of goods and services in the market. As a result, a business either manufactures the goods on its own or purchases them from producers, and then sells them to end customers.
• Economic Activity: Business is an economic activity as it is done to earn money for livelihood. It satisfies human needs by providing goods and services for earning profits.
• Regular Activity: To constitute a business there should be dealings in goods and services on regular intervals. Doing one single transaction does not constitute business. For example selling your old books, or furniture and purchasing a new one is not termed as business.
• Element of Risk: Business is associated with a certain amount of risk as there is possibility of inadequate profits or losses due to change in tastes and preferences of customers, change in technology, fire theft, natural calamities, etc

Q8. Write differences among industry, commerce and trade on any five bases.

Ans: The difference between Industry, Commerce, and Trade

Basis	Industry	Commerce	Trade
Meaning	It involves the production and manufacture of goods and services.	It refers to smooth flow of goods and services from producer to consumers.	It refers to exchange of goods and services.
Scope	It includes primary, secondary and tertiary industry.	It includes trade and auxiliaries to trade.	It includes internal and external trade.
Utility	It creates form utility	It creates time and place utility.	It creates place utility.
Capital Requirement	Large amount of capital investment required	Comparatively lesser capital investment required	Less capital requirement
Risk	Maximum risk involved	Lesser risk involved than industry	Least risk involved

Q9. “Commerce comprises trade and all the services that make trade possible.” Discuss.

Ans: Commerce includes all the activities which are required for the exchange of goods and services. Commerce maintains smooth flow of goods and services from producer to customers by removing all the hindrances related to people, place, time, finance and information. It includes two types of activities: 

• Trade: The buying and selling of goods and services with an aim to earn profit is termed as trade. The people who are involved in trade are referred to as traders
• Auxiliaries to trade: Auxiliaries to trade assists the buying and selling of the goods and services by removing the hindrances of place, people, time, finance, risk and information. 

Q10. What provides the necessary link between producers & consumers with all those activities which are necessary for maintaining a free flow of goods & services? Discuss all those activities.

OR

In business activities, there are some activities that are involved in the removal of hindrances in process of exchange i.e. from the producer to the consumer. Identify them. Also classify the activities which help in removing the following hindrances:

(i)Hindrance of place (ii) Hindrance of risk (iii) Hindrance of time (iv) Hindrance of finance (v) Hindrance of information

OR

Tea is mainly produced in Assam, while cotton in Gujarat & Maharashtra but they are required for consumption in different parts of the country. How can this hindrance of place be removed? Also under what business activity will it be categorised.

OR

Commerce is the sum total of activities that remove hindrances in the free flow of goods from producers to consumers. Explain.

OR

Q11.How do traders remove the hindrance of person?

Ans: Commerce maintains smooth flow of goods and services from producer to customers by removing all the hindrances related to people, place, time, finance and information. 

Auxiliaries to Trade

Auxiliaries to trade assists the buying and selling of the goods and services by removing the hindrances of place, people, time, finance, risk and information. 

• Transportation: It facilitates smooth flow of goods and services from the place of production to the place of consumption. Hence, it removes the hindrance of place. Example- Selling of mobile in Lucknow which is manufactured in Bangalore, tea produced in Assam, while cotton in Gujarat & Maharashtra but they are transported for consumption in different parts of the country. 
• Communication: Effective and timely communication between the supplier, producer and consumers leads to successful trading. Thus, it removes the hindrance of information. 
• Banking: Banks and financial institutions help producers or traders in providing finance required them in the form of loans, trade credit, overdraft, etc and hence, removing the hindrance of finance.
• Warehousing: Producers and traders cannot sell the entire goods produced and thus stock of goods is always maintained by the producers or traders. Warehousing provides the facility to store unsold goods and hence removing the hindrance of time.
• Insurance: Insurance removes the hindrance of risk. It facilitates business to reduce the risk of damages due to fire, theft, natural calamities, etc.
• Advertising: Advertising acts as a link between producers, traders and consumers. It brings awareness among consumers about the goods and services available. Hence, removing the hindrance of information.

Q12. Starters of a new business are largely responsible for the success of the business they undertake various functions. Discuss the basic factors which influence the starter functions.

OR

Explain any six factors that are important to be considered while starting a business.

Ans: The factors that are important to be considered while starting a business are as follows:

• Size of business: The decision regarding the size of the business largely depends on the demand of the product and services in the market, the amount of risk and investment involved.
• Choice of form of ownership: The choice of suitable form of business depends on the factors like legal formalities, line of business, capital requirement, liability of the business, profit etc. The entrepreneur can decide the form of business as:
• Sole proprietorship
• Partnership
• Joint stock company
• Cooperative society
• Location of business enterprise: Location of a business directly affects the availability of raw material and labour, cost of production, and services like banking, transportation, warehousing etc.
• Financing proposition: Finance is required not only to start a business but also for surviving in the market in the long run. Financial planning includes the amount of finance required for the capital and its source.
• Physical facilities: While starting a business, the availability of physical facilities like land and building, plant and machinery and others services required for commencing business.
• Competent workforce: Human resource is the greatest asset of any business. Competent and skilled workforce helps the business in reaching the height of the success. Thus, every business should wisely do the recruitment of personnel and must have training and development plans to increase the potential level of the workforce.

Q13. Profit maximization cannot be the sole objective of a business. Explain.

OR

“Overemphasis on objective to earn profit may exploit the business”. What does a business should do to enable itself to bring the balance?

Ans: Business is established for earning livelihood and for this maximisation of profit is the main objective. But it is not the sole objective of business as it operates in the society and uses the resources of the society. 

So, it also has some social objectives that could is undertaken to maintain balance, these are as follows:

Social Objectives

• Supply of desired goods and services: Business must supply goods and services of proper quality and with all required certifications. It must aim for customer satisfaction. 
• Social and Fair Trade Practices: Business must not indulge into malpractices like black marketing, hoarding, compromising on quality or safety of products. Business must work for society.
• Employment Opportunities: Business must create employment opportunities for the society especially for less advantaged sections of society.
• Welfare of Employees: Businesses must work for growth and development of employees like training social and personal skills, and a good working environment. As employees directly contribute to productivity and profitability.
• Social Welfare: Businesses must utilize their profits towards society like setting up schools, charitable hospitals, etc that are necessary for the development of society.

Or

“Profit is not an objective but a requirement of business.” Do you agree with the statement? Support your answers with reasons

Ans: I agree that profit is a requirement of a business. The reasons are:

• Long term survival: A business can survive in the market in the long run, only when it earns profit. This is because finance is needed by business in all the activities, and in all the areas. From day to day expenses, to expansion of business, finance is needed. Hence if a firm will not earn any profit, it won’t be able to pay expenses, or grow or survive in the market, leading to its closure.
• Growth: Profits are needed for the growth, diversification and expansion of business. A business with no or less profit cannot implement such growth policies.
• Efficient performance: Profits act as a motivating factor to the owners as well as the employees. Higher profits leads to higher efficiency and productivity on the part of people in the organization, thus leading to quality performance.
• Reputation: Decent profit making enables the firm to pay out its expenses on time, in terms of salaries, wages, dividends, rents, etc. Hence all the stakeholders, and shareholders remain happy and content with the firm, thus leading to a high reputation and goodwill of the business in the market.
• Fulfil social objectives: All other objectives of the business could be achieved only if the business earns sufficient profit. A business cannot fulfil the societal needs, and contribute towards the society if it does not earn satisfactory profits.
• Innovation: Change is the law of nature. Hence, an organisation needs to keep changing and innovating to match with the changing and challenging environment. However, innovation requires skilled manpower, intense research, and high end technology, which is only possible when the business is able to generate suitable profits.
• Reward for risk-bearing: A business undertakes multiple risks to keep the operations going, hence profits act as the reward of risk bearing.

Q14. ‘Kodak Pics’ is an advertisement agency initiated by Rahul, Sushmita & Prema. They have called a meeting to discuss the below given points

(i) Increase the profit margin by 20% in july.

(ii) Aiming bigger share in the market.

(ii) Making use of better lenses & improved techniques.

(iv) Making best use of cameramen, finance etc. employed by the business

(v) Improve efficiency in functioning of business.

(a) Which aspects of business objectives are being referred to here?

Ans: Economic Objectives are reflected here.

(b) Also develop each point to be discussed in the meeting by classifying the objective.

Ans: The objective are:

• Increase the profit margin by 20% in july: Profit earning: Profit earning is reflected in this point. Profits can be maximised by reducing cost and minimum wastage. Profits are the rewards for efforts and investment put in by the owner.
• Aiming bigger share in the market: Market Standing:  Market standing is reflected in this point. The business must convert its potential customers to actual customers and must maintain its actual customers as permanent customers. This will maintain the position of business in the market.
• Making use of better lenses & improved techniques: Innovation: Innovation objective is highlighted here. It means developing new products or modification in existing products. Every business in order to survive in a competitive environment should  innovate its products or  develop new ideas to tackle competition.
• Making best use of cameramen, finance etc. employed by the business: Physical and financial resources: This objective is reflected in this point. Business must use its resources according to the requirement and with minimum wastage.
• Improve efficiency in functioning of business: Productivity: This objective is reflected in this point. Productivity t is a measure of efficiency. Every business must aim at increasing its productivity through the efficient use of resources. Productivity can be increased by optimum utilisation of the physical and human resources.

Q15. Jawaharlal prepares ‘Ghujiya’ for customers during Holi season every year. He prepared more ‘Ghujiya’ than he could sell this year. He employed women and children also and paid them less salary manufacturing on the packages. This way he generated profit for himself.

(a) Do you think he is fulfilling all the objectives of business?

Ans: No, he is not fulfilling all the objectives of business.

(b) If not which aspects of this objective is not being fulfilled? 

Ans: Social Objectives are not fulfilled as Jawaharlal is paying less salary to the women and children, and keeping all the profits to himself.

(c) Write any two values lacking in Jawaharlal.

Ans: 

• Wastage of time and resources by preparing excess ghujia.
• Fair and just behaviour by paying less salary to women and childre.

Q16. Different situations in different business are being elaborated below:

(i) Raghunath Gorkha had a match stick factory in Nepal which got destructed by the recent earthquake.

(ii) Mr Arya, a senior manager in a telecom company shared confidential information about the company with a competitor which led to huge losses for the company.

(iii) Vodafone Co. was charged with evasion of tax and asked to pay fine in cross which would lead to heavy losses for the company.

(iv) Type writers becoming redundant.

(a) Which characteristic of business is being referred to in all the above cases? 

Ans: ‘Business Risk’ is reflected in the above cases.

(b) How can you classify the different cases based on this characteristic?

Ans:  The classification is given below:

1. Raghunath Gorkha had a match stick factory in Nepal which got destructed by the recent earthquake.

Natural Causes: These are due to natural causes such as floods, earthquakes, etc. Every person has little control or no control over these causes.

2. Mr Arya, a senior manager in a telecom company shared confidential information about the company with a competitor which led to huge losses for the company.

Human Causes: These causes include unexpected events caused by man, such as negligence of employees, power failure, employee’s or customer’s dishonest practices etc.

3. Vodafone Co. was charged with evasion of tax and asked to pay fine in cross which would lead to heavy losses for the company.

Human Causes: These causes include unexpected events caused by man, such as negligence of employees, power failure, employee’s or customer’s dishonest practices etc.

4. Type writers becoming redundant.

Economic Causes: he economic causes involve the changes and variations taking place in the economy such as uncertainties due change of technology and method of production,political disturbances, change in prices, tax rates etc.

Q17. Dr. Sanvi is an orthopedic surgeon in AIIMS Hospital and Dr Maruti, her friend is a Pediatrician who has set his own clinic. Dr Maruti’s wife, Ms. Aditi operates her Cosmetic store. Compare & differentiate the nature of tasks undertaken by them.

Ans: Dr. Sanvi is involved in employment, Dr Maruti is involved in Profession and Ms. Aditi is involved in business.

The differences between business, profession and employment are:

Basis	Business	Profession	Employment
Meaning	Business is an economic activity which is regularly engaged in production or purchase and sale of goods and services with an aim to earn profit.	Any economic activity which is carried out by a person with specialised knowledge and skills in order to serve society is called profession.	Employment is an occupation in which people work for others as per agreed terms and conditions and receive salary in return.
Mode of establishment	Established after fulfilling some required legal formalities.	A certificate of practice required.	Starts after receiving an appointment letter.
Nature of work	Selling and buying of goods and services.	Rendering specialized services	Work is as per the contract and the rules of service.
Qualification	No minimum qualification required.	Formal qualification and training from a professional body is a must.	Qualification requirements differ with job type.
Reward or return	Profit	Professional fee	Wages or salary earned
Capital investment	It is dependent upon the type and size of business.	Limited capital needed.	No capital.
Risk	High uncertainty and risk.	Little or limited risk	No risk
Transfer of interest	Possible	Not possible	Not possible
Code of conduct	No code of conduct is prescribed.	Professional code of conduct is there.	Rules set by the employer are to be followed.
Example	A person having his shop, factory etc.	Chartered Accountants, Lawyers, Doctors are all professionals.	Jobs in banks, companies etc.

Q18. Zainab, Shelly & Ravina are friends. They have just completed a fashion designing course. They wish to start a business together. They have Rs.10,00,000 savings put together and are planning to take a bank loan of additional Rs.10 lakhs. They have found a prime location in KarolBagh where they can set their boutique. They decide that they will initially not take very big orders. Based on this information, quote the lines associated with factors affecting the decision to start a business and classify them.

Ans: The Factors are:

• Selection of type of business:  A person can enter primary, secondary or tertiary industry, based on the possibility of profit, demand, customer preference etc. In the case above they selected the business to be a boutique.

Quotation: “They have just completed a fashion designing course. They wish to start a business together.”

• Financing proposition:  For every business, availability of capital or funds is an important factor while starting a business. Because capital is needed in each activity and aspect of business, such as in investment in fixed assets, stocks, meeting day to day expenses, etc.

Quotation: “They have Rs.10,00,000 savings put together and are planning to take a bank loan of additional Rs.10 lakhs.”

• Location of business enterprise: It’s an important factor while starting a business. The location of business is dependent on the easy availability of raw materials and labour, banking services, transportation services nearby etc. Any mistake in this can result in high losses to business.

Quotation: “They have found a prime location in KarolBagh where they can set up their boutique.”                                                                                                                                   

• Size of Business: Every person has to decide whether it wants to operate on a large scale or at a medium scale.  It depends upon demand for the product and the necessary capital that person has. If a person is optimistic about all the factors, he can open up his business on a large scale, and vice versa.

Quotation: “They decide that they will initially not take very big orders.”

NCERT Most important question:

Q1. What do you mean by operating environment?

Ans: The operating environment of a computerized accounting system is a collection of integrated software that allows users to work. An operating environment, also known as an integrated applications environment in computer software, is the context in which users operate application software.

Q2. What do you understand by manual accounting system?

Ans: A manual accounting system is a method of recording business transactions using bookkeeping techniques rather than a computer system. Financial statements are manually created in this case.

Q3. What do you understand by computerized accounting system?

Ans: Computerized Accounting System is a method of keeping track of transactions using a computer-based system that includes both hardware and software. It rapidly records transactions and generates financial statements.

Q4. What is a DBMS?

Ans: A database management system (DBMS) is software that stores and retrieves data for users while taking necessary security precautions. It is made up of a collection of applications that alter the database. The DBMS accepts an application’s request for data and directs the operating system to supply the requested data. A database management system (DBMS) aids users and other third-party applications in storing and retrieving data in big systems.

Q5. How working on a computer effect the health of the user?

Ans: Working at a computer may result in back, neck, and shoulder discomfort, as well as headaches, eyestrain, and arm and hand overuse problems. Proper furniture, improved posture, and excellent working habits can all help you avoid computer-related injuries.

Q6. Describe the advantages of ready-made accounting software.

Ans: The following are some of the benefits of ready-made accounting software are: 

1. It is quite inexpensive, even with simple standard features.
2. It requires very little training to learn.
3. It is usually appropriate for small businesses.
4. It does not necessitate the use of advanced computer equipment.
5. It is readily available on the market.

Q7. Describe the disadvantages of ready-made accounting software.

Ans: The following are some of the benefits of ready-made accounting software: 

1. It can only be used by a restricted number of people.
2. Because it is designed for small businesses, it will not meet the needs of medium and large businesses.
3. Data secrecy is low, allowing data to be easily disclosed to anyone.
4. Connectivity with other software is limited.

Q8. What are the advantages of customised accounting software?

Ans: The benefits of customised accounting software include: 

1. It is tailored to the company’s specific needs.
2. While it will be more expensive than ready-made software, it will last longer.
3. It is more secure because just one organisation will use it.
4. It is designed to meet the company’s changing needs.
5. It is better compatible with the company’s other software.

Q9. What are the disadvantages of customized accounting software?

Ans: The downsides of customized accounting software are as follows: 

1. It necessitates a high degree of programming, thus it can only be built by a highly skilled programmer.
2. It takes time in developing such software.
3. Employees will need to be trained on how to use it.
4. It will be difficult to update or add new features.

Q10. What are the disadvantages of tailor made software?

Ans: The following are some of the drawbacks of custom software: 

1. It is expensive to maintain and install.
2. Learning it will be difficult for new employees.
3. It will necessitate extensive user training.
4. It is unaffordable for small businesses.

Q11. Describe the two basic requirements of computerized accounting system.

Ans: Computerized accounting systems are software programmes kept on a company’s computer, network server, or accessible remotely over the Internet. It is used by a company to create numerous reports.

As a result, it aids in the evaluation of the company’s operations, efficiency, and profitability. Most significantly, under this system, companies produce their reports in accordance with Generally Accepted Accounting Principles (GAAP).

The following are the two essential requirements of a computerised accounting system: 

1. Accounting Framework: An accounting framework is made up of a set of accounting codes, principles, and grouping structure. In other words, they are a set of standards for recognizing, measuring, disclosing, and presenting information in a company’s financial statement.
2. Accounting Procedure: The accounting system is designed to fit into the company’s operating environment so that it can easily blend in and handle the company’s complex routine operations

Q12. Describe the advantages of tailor made software.

Ans: Customized software (also known as bespoke software or tailor-made software) is software that is created specifically for a company or individual.

The following are some of the benefits of tailor-made software:

1. It is created to meet the specific requirements and needs of the firm that will be utilising it.
2. It is capable of meeting the needs of medium and large businesses.
3. It has a high level of security, reducing theft by allowing only authorised people access.
4. It improves accounting efficiency.
5. It will be very simple to link it with other information software because it is tailored to the needs of the firm.
6. The danger of spending a big sum of money is negligible.

Q13. Describe the problems adopting in Computerized Accounting System?

Ans: The following are some of the issues that arise while using a computerised accounting system:

1. Hardware Requirements: If a corporation intends to computerise its accounting system, it will need a computer system with printing capabilities.
2. User Training: Users must be properly trained in order to comprehend the fundamentals of computers, operating systems (such as Windows and IOS), accounting software, and data.
3. System Failure: In a computerised environment, a whole system or only a hard drive crash could be a significant concern. In the system of accounting Even if software fails or is lost, It is possible that a lack of connectivity will result in a major issue on a regular basis. This danger is possible to be diversified by keeping a copy of every data on hand. This is also known as technical failure.
4. Time Consuming: When there is a technical issue, a substitute arrangement requires to be made to prevent loss of work. This is so time consuming to get back to the regular processes.
5. Health Issues: Heavy uses of computers could lead to various health issues like: Muscular pain, eye sight problems, Ache etc. which leads to inefficiency in the work and expenses for the medicines increases as well.

Q14. Differentiate between manual and computerized accounting system.

Ans: The difference between a manual accounting system and a computerised accounting system are as follow:

Sr.no	ComputerizedAccounting System	Manual AccountingSystem
1. 2. 3. 4. 5.	It takes relatively little time to process data and provide reports. It is more precise when it comes to calculating. It is more expensive because it necessitates the use of an entire computer system and printer. It is less difficult to keep a backup. Data may be accessed from any location because of internet connectivity.	Data processing and report creation require time. Calculations must be double-checked. It necessitates the use of standard stationery. Making a backup will necessitate making copies of the entire database. Data must be accessed from the location where it is stored.

Q15. What are the basic four requirement of use of computer in any database?

Ans: The following are the four basic requirements for using a computer in a database:

1. Database for the Back End: It is a data storage system that is concealed from the user and reacts to the user’s needs to the degree that the user has been granted access. This can only be used by authorised users. Any other user cannot access the database since it is hidden.
2. User Interface: It’s an interactive link or a conversation between a user and database-oriented software that allows the user to speak with the database on the back end. For example, a transaction involving the purchase of products may be handled by the accounting system via a purchase voucher, which displays on the computer monitor of the data input operator and is saved in the database once entered into the system. The same information may be accessed via a reporting system, such as a purchase analysis software application.
3. Data Processing: It is a set of procedures that are followed to convert data into meaningful information. i.e. this is the action of transforming, retrieving, or classifying data into meaningful information for decision-making.
4. Reporting System: The report is made up of an integrated set of items. i.e. it is the process of combining a set of objectives in order to collect data and generate reports using a management information system.

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NCERT Most important question:

Q1. Name the elements of computer system. 

Ans: The elements of computer system are as follows:

i. People

ii. Hardware

iii. Software

iv. Procedure

v. Data

vi. Connectivity

Q2. What are the capabilities of a computer? 

Ans: The capabilities of a computer are as follows:

i. Speed

ii. Accuracy

iii. Reliability

iv. Versatility

v. Data Storage

Q3. What do you understand by internal and external transactions? 

Ans: If material is provided from the shop to any department of the same company it’s thought of as internal dealings. Whereas if a department purchases any material from outside it’s thought of as external dealings.

Q4. What are the limitations of a computer system? 

Ans: The limitations of a computer system are as follows:

i. It doesn’t have any good judgment and it’s zero intelligence quotients (IQ)    

ii. It isn’t able to make decisions on its own.

Q5. State the activities involve in business process in the marketing department. 

Ans: The activities involve in business method within the marketing department are:

i. Contact creation

ii. Inquiry

iii. Entry of orders

iv. Billing to customers

v. Dispatch of goods

Q6. What are the advantages of computer accounting? 

Ans: The advantages of computer over accounting are as follows:

i. All calculations are done mechanically by a computer.

ii. It is more correct in minute details so it is more reliable.

iii. Computer storage is more secure.

iv. Through web connectivity, information will be accessed from anyplace.

v. It reduces human effort so it is also cost-effective.

Q7. State the features of computerized accounting system. 

Ans: The features of computerized accounting system are:

i. Printing sales and buying invoices.

ii. Storing accounting information online.

iii. Coding each account and transaction using unique code.

iv. Reporting all finances instantly.

v. Filing tax, return, GST, stock valuation and payroll report.

Q8. State the activities involve in business process in the production department. 

Ans: The activities involve in business method within the production department are:

i. Getting ready schedules and plans.

ii. Provision job cards and material requisition forms.

iii. Provision inventory.

iv. Issue orders for acquisition of raw materials.

v. Releasing payment of vendors.

Q9. What is the process of designing accounting reports from accounting data? 

Ans: The process of designing accounting reports from accounting data is:

i. Process the objective: Like the decision to be made from the report and who will be the user of the report.

ii. Report structure: the fashion of presenting the report, the knowledge that is needed within the report.

iii. Querying with the database: Queries associated with the accounting and methodology needed whereas interacting the database and.

iv.  Finalising the report.

Q10. What are the relationship between decision and information? 

Ans: Information is the fundamental necessity in facilitating the selection so information is one of the most valued resources of any organization. 

The management information system provides data for decision making and the decision support system helps in supporting decisions of the company.

Every organisation receives inputs and turns them into outputs like a system. Via a process of resource allocation, which is done through the process of management decision-making, every organisation system strives to achieve a certain goal. Information aids an organization’s pursuit of its goal by assisting decision-making on resource allocation.

Q11. Describe Management Information System and Accounting Information System. 

Ans: Management information system (MIS) may be a tool that helps the manager in higher cognitive processes by recording, gathering, coordinating, dominant, analysing, and visualizing info in a corporation. MIS is a computer-based system. MIS aids the company, particularly managers, in organising and evaluating data and information, as well as providing information in a timely and efficient manner. This also aids managers in making choices based on the data and analysis provided by the MIS.

Accounting Information System (AIS), like MIS, is a computer-based system that allows a company to make critical financial decisions. An AIS will gather, process, analyse, and store a company’s financial data. And it will extract and disclose such data to its users, such as accountants, consultants, financial officers, CFO, auditors, government tax authorities, and so on, as called upon.

MIS works in making a piece of information for future use by providing its accessibility to authorised persons whereas an accounting information system (AIS) may be a system the helps the organization in grouping, gathering, storing, managing, processing, consulting and retrieving accounting and monetary knowledge in order that the accountants, business analysts, consultants, chief money officers (CFOs), managers, auditors, tax agencies, and regulators will use it for higher cognitive process.

Q12. Why computerized accounting is needed? 

Ans: The various needs of computerized accounting is as follows:

i. Large corporations need varied transactions in common place with high speed and accuracy.

ii. Instant coverage of accounts is required for deciding computerised accounting to give instant coverage of information.

iii. It needs a computer therefore reducing paper work.

iv. Making charts, graphs and tables instantly.

v. Accounting queries associated with some external parameters like client due are often reported simply.

vi. Information is often unbroken confidential in an extremely secured system which may solely be accessed by a licensed person solely.

vii. Its requirement stems from the advantages of increased speed, accuracy, and decreased transaction costs. 

viii. It also has the capacity to accurately and quickly record a huge number of transactions. Because of its speed and precision, it provides for rapid and high-quality reporting.

Q13. Define the various types of Management information system report.

Ans: The various types of Management information system report are:

i. Summary report: It reports the whole summary of the corporate like profit and loss account and balance sheet.

ii. Client and provider report: Report of individual client and provider relating to sales and get account/ invoice, client reminder letters, purchase analysis.

iii. Demand report: it’s ready on condition that management needs it like stock valuation report, debt report.

iv. Exception report: Report like inventories, stock standing etc.

v. Management control reports: Budgets, cost centre reports, scenario reports, and other tools will be used to keep track of operations.

Q14. Describe the various component of the computer system. 

Ans: The Central Processing Unit, Input Devices, and Output Devices are the three components of a computer system. Input devices send data to the processor, which processes it and creates meaningful information for the user to see via output devices.

The various components of computer system in details:

i. Input unit: Input unit is the device to computer file into the pc system like keyboard, mouse, scanner, pen-drive, code and QR code scanner etc.

ii. Central process unit: it is the brain of the computer. It performs all the activities within a computer like reworking knowledge into helpful info. It consists of 3 units as management Unit Memory Unit Arithmetic Logic Unit (ALU).

iii. Output unit: once the info in the method by central process unit output is accessible to the finished user by the help of hardware devices like monitor, printer etc.

Q15. What are the roles of computer in accounting? 

Ans: The role of computer in accounting is as follows:

i. Recording transaction: It records daily transactions by either getting in it manually or by the help of a code or QR code scanner. It in addition assigns distinctive code to every account thus it’ll merely be better-known .

ii. Preparing accounting documents: It prepares bills, cash memos, sales invoice consumer vouchers etc. The manual method of documenting accounting transactions necessitates the keeping of account books such as three journals, a casebook, special purpose books, and a ledger, among others.

iii. Preparing budget: It transfers data into ledger automatically and prepares trial balance, profit and loss account and record .

iv. Storing data: It stores data for future use into a knowledge base management system.  With computerised accounting, it is now easier to keep track of accounting records.

NCERT Most important question:

Q1.What do you mean by Incomplete Record?

Answer: Incomplete record refers to those records which are not arranged according to the principles of double-entry.

Q2.Give two features of Incomplete Record?

Answer: The two features of incomplete record are.

• Lack of uniformity in the records.
• It is a mixed system of recording transactions of the business.

Q3.Give two reasons for keeping Incomplete Record?

Answer: The two reasons for keeping incomplete record are.

• Convenient Method- It is an easy and uncomplicated method of registering the company’s transactions as it does not demand any individual knowledge of the principles of double-entry
• Limited resources required – Since only cash book and few ledger accounts are recorded in this system, the staff required for support is also smaller as compared to the double-entry system.

Q4.Give two limitations of keeping Incomplete Record?

Answer: The two limitations of keeping incomplete record are.

• Trial Balance preparation is not possible- This system does not record both the debit and credit aspect of a transaction. Due to which the trial balance cannot be prepared, and the accuracy of the financial transaction cannot be rectified.
• Incomplete system- It is incomplete because of the fact that this system does not record both the aspect of a transaction (credit & debit). Also, this system does not follow any set of rules.

Q5.State two account maintained in an account from incomplete records.

Answer: The two account maintained in an account from incomplete records are.

• Cash account
• Personal Account

Q6.What is the common objective of single entry system and the double-entry system?

Answer: The common objective of single entry system and double entry system is to determine the net profit or loss of the company.

Q7.Which accounting principle is followed under single entry and also in double entry system?

Answer: Monetary unit principle

Q8.Which accounting principle is neglected under single entry and followed in double entry system?

Answer: Dual Aspect Concept

Q9.Which two methods are used in determining profit and loss in a single entry system?

Answer: The two methods are used in determining profit and loss in a single entry system are.

• Statement of Affairs Method
• Conversation Method

Q10.The single entry system account is maintained by.

1. Sole Trader

2. Company

3. Society

4. Government

Answer: Sole Trader

Q11.Single entry system of bookkeeping is.

1. Inaccurate

2. Unsystematic

3. Unscientific

4. All of these

Answer: All of these

Q12.When closing capital is more than opening capital, it denotes.

1. Profit

2. Loss

3. No Loss, No Profit

4. Profit, if there is no introduction of fresh capital

Answer: Profit, if there is no introduction of fresh capital

Q13.Can a limited company maintain its account under single entry system?

Answer: No, a limited company maintain its account under single entry system

Q14.What does it mean if closing capital is less than opening capital?

1. Profit

2. Loss

3. Loss, if there is no drawing

4. None of the above

Answer: Loss, if there is no drawing

NCERT Most important question:

Q1. Why adjustments are necessary for financial accounting?

Ans: A single transaction might have an impact on the cost and income of multiple financial periods. As a result, accounting adjustments are used to comply with the accrual concept. 

It can also be utilized if a transaction occurred during the period but was not recorded. Only a few incomes and costs from the current year need to be recorded in the company’s books of accounts.

Q2. Give details of few items which need adjustments.

Ans: The following are the things in the books of accounts that need to be adjusted:

• Defaulted debts
• Depreciation is the second type of depreciation.
• Earnings that have been accumulated
• Capital interest
• Earnings of the manager
• Closing the stock market

Q3. Pass the adjustment entry of the following items:

a. Closing stock

b. Outstanding expenses

c. Prepaid expenses

d. Accrued income

e. Income received in advance

Ans: Adjustment entries for the following items are as follows:

a. Closing stock :

Particular	Amount	Amount
Closing Stock A/c                       Dr.To Trading A/c	–	–

b. Outstanding expenses:  

Particular	Amount	Amount
Concerned Expenses A/c              Dr.To Outstanding expenses A/c	–	–

c. Prepaid expenses:

Particular	Amount	Amount
Prepaid expenses A/c               Dr. To Concerned  Expenses A/c	–	–

d. Accrued income:

Particular	Amount	Amount
Accrued income A/c          Dr. To Concerned income A/c	–	–

e. Income received in advance :

Particular	Amount	Amount
Concerned income A/c                  Dr.To Income received in advance  A/c	–	–

Q4. Give an example of Provision for bad and doubtful debts.

Ans: Provision for doubtful debts is shown on the balance sheet and deducted from the company’s debtors on the asset side. Rishi, for example, believes that 6% of his creditors from March will default on their payments in the coming year. The current year’s bad debts total Rs 13,000. This indicates that bad debts total Rs. 780 (13,000 * 6%).

Q5. What will be the adjustment entry of rent received in advance of Rs. 5,000?

a. Credit the rent account and debit the rent received in the advance account.

b. Debit rent account and credit rent received in the advance

account.

c. Debit profit and loss account and credit rent account.

d. All of the above.

Ans: The correct answer is b, which debits the rent account and credits the rent received in the advance account.

Q6. Explain the following items with adjustments entry:

a. Closing Stock

b. Outstanding expenses

c. Income earned but not received

d. Income received in advance

e. Depreciation

f. Manager’s commission

Adjustment Entry Treatment in

Ans: 

Adjustment	Adjustment Entry	Treatment in the balance sheet
Closing stock	Closing stock A/c          Dr.  To trading A/c	Shown on the asset side
Outstanding expenses	Expenses A/c                 Dr. To outstanding A/c  Expenses	Shown on the liabilities side
Income earned but not received	Accrued Income A/c     Dr. To Income A/c	Shown on the asset side
Income received in advance	Income A/c                   Dr. To Income received in Advance A/c	Shown on the liabilities side
Depreciation	Depreciation A/c        Dr. To Assets A/c	Deduction from the value of assets
Managers commission	Manager commission A/c To  o/s commission A/c	Shown on the liabilities side

Q7. From the following balances prepare a Profit and loss account.

Debit Balance	Amount	Credit balance	Amount
PurchaseWagesFuel andpowerOpeningstockSalariesGeneralexpensesInsurance	2,5842,35421,48824,20012,412 4,124 12,900	SalesRent	65,00070,000

Ans:

Expenses/ losses	Amount	Profit/gain	Amount
OpeningstockPurchaseWagesFuel andpowerGross profitc/d SalariesGeneralexpensesInsuranceNet profit	24,200 2,5842,35421,48814,374 65,000 12,4124,124 12,90054938	Sales Gross profitb/d Rent	a
	84,374

Q8. From the following balances, prepare the Profit and loss account and balance sheet.

Debit Balance	Amount	Credit Balance	Amount
PurchaseWagesOpening stockSalariesPostagePrinting andstationeryBills receivables	90,0007,88021,60012,4126,35412,900 5,640	SalesClosing stockOffice expensesSundry debtorsSundry creditorsCash at Bank	165,00070,0001,24714,50021,02013,487

Ans:

Trading Profit and loss A/c

Expenses/profit	Amount	Profit /gain	Amount
Opening stockPurchaseWagesGross profit c/dSalariesOffice expensesPostagePrinting andstationeryNet profit	21,60090,0007,8801,15,5202,35,000 12,4121,2476,35412,90082,607	SalesClosing stockGross profit b/d	165,00070,0002,35,000 1,15,520
	1,15,520		1,15,520

Balance sheet as of March 31

liabilities	Amount	Asset	Amount
Sundry creditorsAdd: Net profit	21,02082,607	Cash at bankBills receivablesSundry debtorsClosing stock	13,4875,64014,50070,000
	1,03,627		1,03,627

Q9. From the following balances, prepare the Profit and loss account and balance sheet.

Debit Balance	Amount	Credit Balance	Amount
PurchaseWagesOpening stockSalariesPostageBad debtsPrinting andstationeryBuildingBills receivablesRate and insurance	70,0005,98011,20021,1008,7991,99015,500 30,00015,0002,900	SalesOffice expensesSundry debtorsSundry creditorsCash at BankRent (Cr.)	198,0006,21415,85715,21015,2006,530

Prepare profit and loss account and Balance sheet keeping in regards the following adjustment:

a. Write off further bad debts with Rs. 780.

b. Rent receivables of Rs. 650.

c. Unexpired insurance Rs. 390.

Ans: Trading Profit and loss A/c

Expense/profit	Amount	Profit/gain	Amount
Opening stockPurchaseWagesGross profit c/d SalariesOffice expensesPostagePrinting andstationeryRate and insurance2,900 Less: unexpired insurance 390 Bad debts 1,990 Add: Further bad debts 780 Net profit	11,20070,0005,9801,10,820 1,98,000 21,1006,2148,79915,500 2,510 2,770  61,107	Sales Gross profit b/dRent 6,530Add: Accruedrent 650	198,000 1,98,000 1,10,820 7,180
	1,18,000		1,18,000

Balance sheet as of March 31

Liabilities	Amount	Assets	Amount
Sundry creditors Add: Net profit	15,210 61,107	Cash at bank Bills receivables Building Sundry debtors 15,857 Less: Bad debts 780 Accrued rent Unexpired insurance	15,200 15,000 30,000 15,077 650 390
	76,317		76,317

Q10. Define following terms with adjustment entries : 

Ans: Following terms are defined with their adjustment entries:

A. Provisions for bad and doubtful debts. 

Provision for bad and doubtful debts occurs when there is a possible reason for debtors who are doubtful that they will not pay the debts on time.

Particular	Amount
Profit and loss A/c                                                      Dr	–
To provision for doubtful debts          A/c	–

B. Depreciation:

Depreciation means the value of an asset is declined due to its usage in the passage of time +9*or wear and tear. It is usually treated as business expenses and is debited in profit and loss account. 

Particular	Amount
Depreciation A/c                                    Dr. To Concerned Asset A/c	–       –

C. Accrued income: The items of income that are earned during the accounting year but actually it is not received at the end of the same year.

Particular	Amount
Accrued income A/c                              Dr. To Concerned Income A/c	–     –

D. Prepaid expenses: Prepaid expenses are the expense need to be paid in future but they are paid in advance.

Particular	Amount
Prepaid expenses A/c                           Dr.   To Concerned Expenses A/c	–    –

E. Outstanding expenses: Prepaid expenses are the expense need to be paid in future but they are paid in advance.

Particular	Amount
Expenses A/c (Required)                      Dr. To Outstanding expenses A/c	–    –

NCERT Most important question:

Q1. Describe fixed assets

Ans: Fixed assets are assets that are expected to stay with the company for a long time and are not likely to be transformed into cash quickly. They are employed to generate capital revenue for the company. Land development, plant, machinery, equipment, furniture, and automobiles are only a few examples.

Q2. What are the needs to prepare a trading account?

Ans: The following are the reasons for keeping a trading account: 

i. To keep track of the company’s gross profit and gross loss.

ii. To obtain information on the company’s equity.

iii. It contains information about factory expenses.

iv. It also informs the company about the direct costs associated with the activity.

Q3. Why it is necessary for the company to prepare a profit and loss account.

Ans: The company must create a profit and loss account for the following reasons: i. It provides information on the company’s administrative expenses.

ii. The profit and loss statement determines the firm’s profitability.

iii. It aids in determining the company’s earnings per share.

Q4.  What do you mean by current liabilities and how they are treated in the financial statement?

Ans: The amount due to the creditor within a year is referred to as current liabilities. It could include a short-term loan, an account receivable, an advance, an unclaimed dividend, a variety of creditors, and income tax due, among other things. On the liabilities side of the balance sheet, current liabilities are added

Q5. Describe Earnings before interest and tax (EBIT).

Ans:  The difference between operating revenue and operating expense is known as operating profit. In other words, operating profit is the profit generated by business operations.

EBIT, or earnings before interest and taxes, is another term for operating profit. Net profit is added to non-operating expenses, and then non-operating income is subtracted to arrive at EBIT.

Q6.  State the purpose of preparing the financial statement in a business.

Ans: The objective of preparing a financial statement in a business is to:

i. Aid in the presentation of the true and fair value of the company’s performance.

ii. It aids the stakeholder in determining the company’s genuine position.

iii. It aids in determining the company’s overall profitability.

iv. It serves as the foundation for determining the annual dividend paid to shareholders.

v. It alerts the company to its flaws.

Q7. Differentiate between Capital Expenditure and Revenue Expenditure

Ans: Differentiate between Capital Expenditure and Revenue Expenditure. Given below:

Sr. No	Capital Expenditure	Revenue Expenditure
1.	It boosts the company’s earnings.	It helps to keep the company’s earning capability.
2.	It’s used to get the job done. for the fixed assetsCompany.	It is utilised for the company’s day-to-day expenses.
3.	It’s usually a one-time expense.	It is a recurrent company expense that provides advantages for one
4.	It is beneficial in more ways than one. one year or longer an era of accounting	It is a recurrent company expense that provides advantages for one accounting period.
5.	They’re written down ina financial statement	It is documented in the trading and profit and loss accounts.

Q8. Describe briefly the types of financial statements.

Ans: The two forms of financial statements created by any firm are

i. Trading and Profit & Loss Account – This account is also known as the company’s income statement since it shows the profit and loss earned by the company during a financial year. The trade account indicates the company’s gross profit from operations, whereas the profit and loss account shows the company’s net profit.

ii. The financial statement. A balance sheet is used to determine the financial position of a company’s assets and liabilities. I also assist in estimating the rate of return and reviewing the company’s capital structure.

Q9. Explain any five items of a trading account

Ans: The following are the five relative items in a trading account:

i.Opening stock: The opening stock is the previous year’s closing stock that can be used in the current year.

ii. Purchase: The gods are the things that the corporation buys from the supplier, whether on credit or in cash.

iii. Purchase return: Purchase return refers to goods that are returned to the provider.

iv. Freight inward: This refers to the expense of carriage or transportation to the company’s factory or warehouse.

v. Wages: Wages are the remuneration paid to factory workers.

Q10. Explain any five items of a profit and loss account

Ans: The five relative items in a profit and loss account are:

i. Salaries: The salaries paid to the office employee for administrative purposes. It

includes the cash salary and it is also paid in kind for accommodation, rent, transportation, medical etc.

ii. Commission paid: Commission paid to the agent for selling the goods.

iii. Electricity and power: power and electricity charges for an office building

iv. Rent: Rent paid on the office building 

v. Miscellaneous: A few little expenses are grouped together to save money.

referred to as Miscellaneous Expense.

NCERT Most important question:

Q1. Name any two types of commonly used negotiable instruments.
Ans
Cheques and Bills of exchange are the commonly used negotiable instruments.

Q2. Write two points of distinction between bills of exchange and promissory note.
Ans

Q3. State any four essential features of bill of exchange.
Ans
Essential features of bills of exchange are as follows:

1. A bill of exchange is a written order to make payment.
2. It is an unconditional order to make payment by a person i.e. drawee.
3. The amount of bill of exchange and the date of payment are certain.
4. It is signed by the drawer of the bill.
5. It is accepted by the drawee by signing on it.
6. The amount specified in the bill of exchange is payable either on demand or on the expiry of a fixed period.
7. The amount specified in the bill is payable either to a certain person or to his order or to the bearer of the bill.
8. It is stamped as per legal requirements.

Q4. State the three parties involved in a bill of exchange.
Ans
There are three parties in a bill of exchange:

1. Drawer is the person who makes the bill of exchange. She/he is a person who has granted credit to the person on whom the bill of exchange is drawn. The drawer is entitled to receive money from the drawee (acceptor).
2. Drawee is the person on whom the bill of exchange is drawn for acceptance and to whom credit has been granted by the drawer. He/she is liable to pay money to the creditor/drawer.
3. Payee is the person who receives the payment from the drawee. Usually the drawer and the payee are the same person.

Q5. What is meant by maturity of a bill of exchange?
Ans
The date calculated after adding 3 days of grace to the due date of a bill is called the date of maturity of a bill. It is to be noted that when a bill is to be payable on demand/at sight, then days of grace is not applicable. When the period of a bill is mentioned in days, the maturity of bill is calculated in days. Similarly, when the period of a bill is mentioned in months, the maturity of bill is calculated in months. In certain cases, when the maturity date of any bill falls on a public holiday, then the maturity date of the bill will be the previous business day.

Q6. What is meant by dishonour of a bill of exchange?
Ans
When the drawee of the bill fails to make the payment on the maturity date of the bill, then the bill is said to have been dishonoured. Hence, liability of the acceptor is restored. Entries made for recording dishonour of the bill of exchange are as follows:
In the books of drawer

Q7. Name the parties to a promissory note
Ans
There are two parties to a promissory note:

1. Maker- The person who makes the note and undertakes to pay the amount.
2. Payee- The person who receives the payment.

Q8. What is meant by acceptance of a bill of exchange?
Ans
A bill of exchange is a written instrument which contains an unconditional order directing a person to pay a certain amount on an agreed date. In other words, it is drawn by the creditor on her/his debtors to make a payment of a certain amount on the mentioned date. Such a bill comes into existence after the consent of both the parties. A bill cannot come into existence without the acceptance of a debtor. Hence, the debtor of the bill has to accept the terms of the bill, sign the same and make it a legal document.

Q9. What is noting of a bill of exchange?
Ans
When the drawee of the bill fails to make the payment on the maturity date of the bill, then the bill is said to have been dishonoured. To have a legal proof of the dishonour, the bill gets noted by the notary public who is approved by the central/state government. The notary public charges fees called the noting charges for noting and protesting the bill of exchange of its dishonour.

Q10. What is meant by renewal of a bill of exchange?
Ans
When the drawee does not have enough funds to make the payment, he may approach the drawer and ask for an extension of time for the payment. If the drawer agrees, then a new bill is drawn which is known as renewal of bill. The new bill may include interest for the extended period.

Q11. Give the performa of a Bills Receivable Book.
Ans

Q12. Give the performa of a Bills Payable Book.
Ans

Q13. What is retirement of a bill of exchange?
Ans
When the drawee of the bill pays off the amount of the bill before the maturity of the bill it is called retirement of the bill. Holder of the bill may give discount for such earlier payment which is called as ‘rebate’.
Entry in the books of the holder of the bill

Q14. Give the meaning of rebate.
Ans
If the drawee wishes to pay the bill before the due date of the bill to the holder and the holder accepts such request, then due to the early payment, the holder may give some discount to the drawee. Such a discount is termed as rebate.

Q15. Give the performa of a Bill of Exchange.
Ans
Performa of a Bill of exchange is given below.