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केन्द्रीय विद्यालय संगठन KENDRIYA VIDYALAYA SANGATHAN

अहमदाबाद संभाग AHMEDABAD REGION

अध्ययन-सामग्री STUDY MATERIAL

CLASS: XI

BUSINESS STUDIES

सत्र-2015-16

SESSION-2015-16

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CHAPTER - 1

NATURE AND PURPOSE OF BUSINESS

Introduction:

All Human beings where ever they may be require different type of goods and services

to satisfy their needs. Business is a major economic activity in all modern societies

concerned with production and sale of goods and services required by the people. It is

aimed at earning money by satisfying human demands.

Meaning:

Literal meaning of Business is “BUSY”.

Business is defined as an economic activity

Involved in the production and sales of goods and services

Undertaken with the motive of earning profit

By satisfying human needs in the society.

Characteristics of Business activities:

An Economic activity: It means an activity aimed at earning money. Business is also

aimed at earning money or livelihood by satisfying human needs.

Production and procurement of goods and services: Every business enterprise must

either manufacture the goods or it acquires from producers. Goods may be

consumer goods or Capital goods. Services means facility offered to consumers like

banking, insurance etc.

Sale or exchange of goods and services: Business involves transfer or exchange of

goods and service for value.

Dealing in goods and services on a regular basis: It should be a regular activity. One

time sale or exchange will not be considered as business.

Profit earning: Business always aims at earning profit. No business can survive

without earning profit.

Element of Risk / uncertainty of return: There is always a possibility of Uncertainty

of earnings. There is always possibility of losses. It is not certain that a businessman

will always earn adequate profit, as market conditions may change, change in

customer’s taste etc.

Comparison of Business, Profession and Employment:

Basis Business Profession Employment

1. How to Start? Based on

entrepreneurs

/owners

Getting membership

of a professional

body

Getting an

appointment letter

3

decision

2. What is its nature? Providing goods

and services to

the public

Rendering of

personalized expert

services

Performing work as

per service

contract

3. Qualification/ Who can

start?

No minimum

qualification

Requires

qualification and

training in a specific

field

Requires

qualification and

training

4. Return/ What will you

get?

Profit Professional Fees Salary

5. Capital/ How much

you need to start?

Requires capital

as per the size

of the Business

Requires limited

capital

No capital required

6. Risk involved More risk Less risk No risk

7. Transfer of Interest –

Can you transfer?

Is possible with

some

formalities

Not possible Not possible

8. Code of conduct No code of

conduct is

prescribed

Professional code of

conduct to be

followed

Code of conduct is

prescribed by the

employer to be

followed

Classification of Business Activities:

Industry: Production or processing of goods and services. It is concerned with

changing the form of the products. It gives form utility to the products. It is classified

into the following:

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Industry

(Producing or processing of Goods as well as breeding of animals)

1. Primary 2. Secondary 3. Tertiary

1. Primary Industry

a. Extractive Industry b. Genetic Industry

2. Secondary Industry

a. Manufacturing Industry b. Construction Industry

2. a. Manufacturing Industry

(i) Analytical (ii) Synthetical (iii) Processing (iv)Assembling

Industry Industry Industry Industry

Extraction and

production of

natural resources

and reproduction

and development

of living organisms,

plants etc.

Processing the

materials got in the

primary industries

Support services

to primary and

secondary

industries

Mining, lumbering,

hunting and fishing

operations

Breeding plants

and animals,

Poultry farming

and fish hatchery

Production and

processing of

goods creating

form utilities

Construction of

Buildings, dams,

bridges, etc.,

Separates

different

elements from

the same

materials

Eg., Petrol,

Diesel,etc.,

Combines

various

ingredients

Eg., Cement,

Textiles, etc.,

Involves series

of activities

Eg., Sugar and

Paper

Assembles

different

components

Eg., Television,

Car,

Computer,

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Commerce: It includes all those activities which helps directly or indirectly in

distribution of goods to the ultimate consumer. It includes the following activities.

Functions of Commerce:

1. Helps in removing the hindrance of persons

2. Helps in removing the hindrance of place

3. Helps in removing the hindrance of exchange

4. Helps in removing the hindrance of risk

5. Helps in removing the hindrance of time

6. Helps in removing the hindrance of knowledge

Classification of commerce:

(a) Trade

(b) Auxiliaries to trade

Trade: Trade means exchange of goods and services between sellers and buyers

with profit motive.

Auxiliaries to Trade:

1. Transport and communication : Physical movement of goods from the place

where there is no demand to the place where there is demand. Creates place

utility to the product.

2. Banking and Finance : Helps in removing financial hindrances. Facilitates

production, buying and selling by providing funds by way of loans.

3. Insurance: It facilitates business by ensuring compensation for various types of

risks.

4. Warehousing: It keeps the goods in tact till they are in demand. It creates

time utility to the product.

5. Advertising: It provides information about availability of goods and services. It

induces the consumers to buy the product.

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Role of Profit in Business:

It is source of income for the business man.

It provides funds for expansion

It is an indicator of efficiency of business man.

It builds up reputation.

Business Risk: It refers to the possibility of inadequate profits or even losses due to

uncertainties or unexpected events.

Nature of Business Risks

Causes of Business Risks:

1. Natural Causes: Risk may be due to Flood, earth quake, lightning, heavy rains

etc.

2. Human Causes: It includes dishonesty, carelessness or negligence of

employees, strikes, riots, etc.

3. Economic Causes: It includes uncertainties relating to demand for goods,

competition, price, collection of dues from customers, changes in economic

policies etc.

4. Other Causes: It includes political disturbances, mechanical failures etc.

Business risks arise due to uncertainties

Risk is an essential part of business

Degree of risk depends upon the nature and size of

business

Profit is the reward for risk taking.

Innovation

Productivity Innovation

vvity Physical and

financial

resources

Earning profits

Manager performance

and development

Worker performance and

attitude

Social Responsibility

Objectives of Business

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HOTs:

1. What term is used to refer to physical arrangement of machines and

equipment needed to manufacture a product?

Ans. Plant layout

2. ABC Ltd. Is planting trees on roadside. Which objective is trying to achieve?

Ans. Social Objective.

3. What type of industry is banking?

Ans. Tertiary industry

Tutorial Notes:

Types of economic activities: 1.Business 2. Profession 3.Employment

Causes of business Risks: 1.Natural causes2. Human causes3.Economic causes4.

Other causes

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CHAPTER - 2

FORMS OF BUSINESS ORGANISATION

Introduction:

Decision relating to the form of organization plays an important role if one has to

start a business. The forms of private sector enterprises organization are

Sole Partnership Hindu Undivided Co operative Company

proprietorship Family Society

Meaning of Sole Proprietorship: It refers to a form of business organization which is

owned, managed and controlled by an individual who is in receipt of all profits and

bearer of all risks.

Features:

1. Easy to form and close: There are no legal formalities required to start and close

sole proprietorship firm.

2. Unlimited Liability: owner of the firm is personally liable for all debts of the

business.

3. Only bearer of profit and loss: whole risk is borne by a single individual only. The

sole beneficiary of all reward is one individual only.

4. Control: sole owner has full control over business.

5. No separate entity: It has no legal identity separate from that its owner

6. Lack of business continuity: Death, insolvency of owner will have direct effect on

the business

Merits:

1. Quick decision making: sole proprietor has freedom to take decisions without

consult any one.

2. Personal touch: the sole proprietor can maintain direct contact with the

customers and employees

3. Information will be kept secretly: Sole proprietor is not expected to share his

secrets with others.

4. Direct incentive: There is direct relation between efforts and reward. So

proprietor is always motivated to work extra to get extra reward.

5. Ease of formation and closure: no legal formalities are involved in setting up this

type of organisation. It can be closed by without legal formalities.

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Demerits:

1. Limited resources: Funds are not sufficient supplied by the single owner. It

reduces the scope of business growth.

2. Limited life of a business concern: if the proprietor becomes insolvent then the

business may come to an end.

3. Unlimited liability: The sole proprietor is personally liable for all the debts.

4. Limited managerial ability: a single individual cannot be the expert in all the

fields. He cannot afford to appoint professionals.

Meaning of Joint Hindu Family Business: A business carried out by male members of

Hindu Undivided Family is known as Joint Hindu Family Business. Now female

members are also allowed in Joint Hindu Family Business. Karta eldest member of

the family controls the business.

Features:

1. Membership by birth: A person automatically becomes member in JHF by taking

birth in that family.

2. Liability: Liability of karta is unlimited whereas liability of members of JHF

business is limited.

3. Management: JHF business is managed and controlled by the senior most male

member of the family who is called karta.

4. Continuity: after death of karta second senior most member becomes karta and

carries on the work.

5. Minor members: a child becomes a member by birth only so there is no

restriction for minor to become a member.

Meaning of Partnership: Partnership is the relation between two or more persons

who have agreed to share the profits of the business carried on by all or any of them

acting for all. – The Indian partnership Act, 1932

Features:

1. Formation: minimum two members and maximum 20 members.

2. Liability: liability of all the members is unlimited.

3. Profit sharing: the partners share profits in the ratio specified in agreement.

4. Lawful business: a firm may undertake any legal business activity.

5. Management: all the partners are allowed to manage the partnership firm.

6. Registration: it is not compulsory for a partnership firm to get itself registered.

Merits:

1. Easy to start and close: very easy to form and close as no legal formalities are

required.

2. Division of work: the partners can divide the work according to their skills.

3. More money: more scope for expansion due to funds from more persons

4. Secrecy: The activities managed by the partners only so secrecy can be

maintained.

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5. Risk sharing: all the partners share the risk in the same ratio as they share profit.

Limitations:

1. Unlimited liability: liability of all the members is unlimited.

2. Conflicts: conflict may arise between partners due to different backgrounds and

opinions.

3. Risk of mutual agency: contract signed by any one partner is binding on other

partners

4. Lack of public confidence: public trust less because they don’t publish their

annual accounts.

Consequences of Non Registration of partnership firm:

1. A Partner of an unregistered firm cannot file a case against the firm or other

partners.

2. The firm cannot file a case against third parties.

3. The firm cannot file a case against the partners.

Types of Partners:

1. Active partner: An active partner is a partner who gives capital, participates in

management, shares the profits and losses and has unlimited liability.

2. Sleeping partner: A Partner who do not take part in the business activities.

3. Secret partner: A partner who has association with the firm but unknown to the

public.

4. Nominal partner: A partner who allows his name to be used by the firm

5. Partner by estoppel: A person who by behaviour sets an impression to others

that he/she is a partner of the firm.

6. Partner by holding out: A person who is not a partner but allows himself to be

represented as partner in a firm.

Kinds of partnership:

1. At Interest

2. Formed for completing a work

Partnership deed: the document containing the terms and conditions of the

partnership agreement is known as partnership deed.

Meaning of Cooperative Society: It is a voluntary association of persons formed for

protecting the consumers from middlemen.

Features:

1. Voluntary association: any person can join the cooperative society if he has

common interest

2. Service motive: earning profit is secondary motive and main motive is to provide

service.

3. Equal voting rights: work with democratic principle of “one man one vote”

4. Separate legal entity: compulsory to get itself registered under cooperative

societies act

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Merits:

1. Equal voting rights: work with democratic principle of “one man one vote” and

equal chance to participate.

2. Continuous existence: death or insolvency of any member does not affect on

continuity of organization.

3. low cost of operation: economical functioning due to most of activities are

performed by the members

4. Government support: organizations gets benefits from government line tax

rebate, lower interest rate loan

5. Easy to start: ten adult members having common interest can form cooperative

organization.

6. Limited liability: liability of members is limited extent up to their capital

contribution.

Limitations:

1. Resources are little: there is no compulsion to contribute minimum amount to

capital to become a member.

2. Difference of opinion: conflict may arise among managing committee due to

different opinion.

3. Management is not proper: all the activities are performed by the members.

They are not professional experts.

4. Strict rules from the government: cooperative oraganisations get various benefits

from government therefore there is excessive government control on

oraganisations

Types of cooperative oraganisations:

1. Consumer cooperative society

2. Producer cooperative society

3. Cooperative Marketing society

4. Cooperative farming society

5. Cooperative Credit society

6. Cooperative housing society

Meaning Of Joint Stock Company: Company is an artificial person with continuous

existence & common seal.

Features:

1. Artificial person: it is an artificial person created by law

2. Registration: registration is compulsory to get itself registered under compnies

act, 1956

3. Company has separate identity: a company can carry on business in its own

name, can buy and sale assets on its name and enter into contract with outsiders



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5. Liability is limited: liability of members is limited extent up to their share capital

contribution.

6. Common seal: because of artificial person company can’t sign. Sothere is a neeed

of common seal with its name

Merits:

1. Liability is limited: liability of members is limited extent up to their share capital

contribution.

2. Chances are there for expansion: more scope for expansion because of larger

financial resources

3. Managed by professional people: because of huge funds it can easily afford

professionals.



5. Easy transferability of shares: Shares can be easily transferred from one person

to another person

Demerits:

1. Lengthy legal procedure: many legal formalities have to be completed to form

2. No secrecy: secrecy can’t be maintained

3. No personal involvement: managed by professionals not by owners. So there is

no sense of accomplishment

4. Difference of opinion: conflict may arise among managing committee due to

different opinion.

5. Strict rules from the government: excessive government control because it has to

comply with various legal formalities.

Types of Companies:

Distinguish between private company and public company

Public Company Private Company

1. Members: Minimum 7,

Maximum unlimited


Maximum -50.

2. Minimum number of directors:

3


2

3. Minimum paid up capital: 5

lakh.


lakh

COMPANY

PRIVATE PUBLIC

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4. Index of members: Compulsory

to maintain.

4. Index of members: Not

compulsory to maintain.

5. Transfer of shares: Shares can

be transferred easily from one

person to another.

5. Transfer of shares: Shares

cannot be transferred from one

person to another.

6. Invitation to public: It can

invite the public to purchase the

share and debentures

6. Invitation to public: It cannot


share and debentures.

Various stages in formation of company:

Promotion: Functions of a Promoter:

1. Finding out a business opportunity

2. Conducting studies

3. Getting the name approved

4. Fixing up persons to sign Memorandum of association

5. Appointment of professionals

6. Preparation of necessary documents.

Documents: Memorandum of association:

1. Name clause

2. Registered office clause

3. Objects clause

4. Liability clause

5. Capital clause

6. Association clause.

7. Articles of association.

8. Consent of directors

9. Agreement with managing director or whole time director (x) statutory

declaration

Incorporation:

1. The memorandum of association must be duly stamped, signed and witnessed.

2. The articles of association duly stamped and witnessed.

3. Written permission of the directors.

4. Agreement with the managing director/manager

5. A copy of the registrar’s letter giving permission for the name.

6. A declaration that all the legal requirements are followed

7. A notice about the exact office of the registered office.

8. Documents showing the payment of fees.

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Capital subscription:

1. SEBI approval

2. Filing of prospectus

3. Appointment of brokers, bankers etc.,

4. Collection of minimum subscription (v) Application to stock exchange (vi)

Allotment of shares.

Commencement of Business:

1. A declaration about meeting minimum subscription requirement

2. A declaration regarding the application and allotment money paid by the

directors as same as others

3. A declaration that no money is payable to the applicants because of the failure of

the company

4. A statutory declaration that the above particulars are followed

5. The registrar shall examine the documents if these are found satisfactory a

certificate of commencement of business will be issued.

Memorandum of Association:

1. It defines the objects for which the company is formed.

2. This is the main document of the company.

3. This defines the relationship of the company with outsiders.

4. Every company has to file Memorandum of Association.

5. Alteration of Memorandum of Association is difficult.

Articles of Association:

1. It defines the objectives of the company that are to be achieved.

2. This is the subsidiary document of the company.

3. Articles define the relationship of the members and the company.

4. It is not necessary for the public limited company.

5. It can be altered by passing a special resolution.

Basic factors to be considered before starting a Business:

1. Selection of Line of Business: Based on the requirements in the market nature

and type of business to be selected.

2. Size of the Firm: Based on the amount of funds available and demand for the

product in the market size of the firm i.e. small scale or medium or large scale to

be decided.

3. Choice of form of ownership: Based on the amount of capital required, legal

formalities to be filled in, liability of the owner, etc. the form of ownership is to

be decided.

4. Location of the Business enterprise: Based on the availability of raw material and

infrastructure facilities location of the Business is to be selected.

5. Financing the Proposition: Requirement of Capital and its sources must be

decided.

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6. Physical facilities: Availability of physical facilities including machines and

equipment, building and supportive services to be considered before starting a

business.

7. Plant layout: Plant layout should draw to show the arrangement of these

facilities.

8. Competent and committed worked force: Every business needs work force. So

careful planning should be about selection, training and motivation of

employees.

9. Tax Planning: Tax liability and its impact on business to be considered.

10. Launching the enterprise: After fulfilling the formalities entrepreneur can launch

the business.

Choice of form of business enterprise:

1. Nature of business: business activities require personal attention sole

proprietorship and partnership is proffered. Firm requires heavy investment

prefer company form.

2. Legal formalities: sole proprietor, partnership and JHF business no legal

formalities. Company and cooperative oragnisation various legal formalities

3. Capital: business requires less capital prefer sole proprietor and partnership.

Business requires more capital prefers company form.

4. Flexibility: high degree of flexibility in sole proprietor and partnership. Less

flexibility in company form

5. Liability: in company form liability is limited whereas in sole proprietorship

and in partnership liability is unlimited

HOTS:

1. In which business organization is there is separation of ownership and

management?

Ans. Joint stock company

2. In case of heavy loss, creditors can claim the recovery of their dues from

personal assets of sole proprietor. Which features of sole trade is highlighted

here?

Ans. Unlimited liability

3. Who are usually the first directors of the company?

Ans. The signatories to the memorandum of association

4. Which certificate is called the birth corticated of the company?

Ans. Certificate of Incorporation

5. When does a company come into existence?

Ans. From the date of incorporation

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6. Shivam Ltd issues 6,00,000 shares of Rs10 each for public subscription.

Application along with money was received for 5,00,000 shares. Can

company allot these shares? Explain.

Ans. No company can allot these shares because as per companies Act, 1956

company must receive 90% of subscription within 120 days from the date of

issue otherwise allotment cannot be made

Tutorial Notes:

The structure in which there is separation of ownership and management is

called- “Company”

The maximum number of partners allowed in the banking business are “10” and

in others -“20”

A partner whose association with the firm is unknown to the general public

called-“Secret partner”

Stages in formation of a public company:

1. Promotion 2. Incorportaion 3. Capital Subscription 4. commencement of

business.

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CHAPTER - 3

PUBLIC, PRIVATE AND GLOBAL ENTERPRISES

Introduction:

Soma, a student of class XI was reading a newspaper. There was the news item that

Government planned to disinvest its shares in some PSUs as they were incurring heavy

losses. At the same time, it was written that some private companies and MNCs were

earning so much of profits. Maruti Suzuki Ltd which a joint venture of Maruti Company

and Suzuki Company of Japan was launching a new car in the market. She was curious to

know about these terms like PSUs, joint venture etc.

Forms of Business Organisations

Public Sector Private Sector

a. Departmental Undertakings

b. Statutory Corporations

c. Government Companies

a. Departmental Undertakings

This is the oldest form of public sector enterprises. The departmental undertaking is

considered as one of the department o government.

Features

Part of Government-Central or State

Under direct control of the ministry

Funds comes directly from Govt. Treasury

Employees are Govt. employees.

Examples:- Railways, Defence, Post and Telegraphs

Merits

Effective control

Public Accountability

Suitable for national security

Demerits

Lack of flexibility

Delay in decision making

Red tapism

Political interference

Unable to take advantage of opportunities

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b. Statutory Corporations

They are created by Special Acts of the Parliament which contains their powers and

functions, rules and regulations regarding their employees and its relationship with

government departments.

Features

Statutory Corporation is fully owned by the Government.

It is having a separate legal entity.

Its employees are not government employees.

Board of Directors are appointed by the government

It prepares its own budget and can retain its earnings which can be used for its

business.

Profit is not the main motive.

It has public accountability.

Usually it is free from all types of interference.

Merits

Free from undesirable government

The government does not interfere in their financial matters.

It is relatively free from red tapes and can take quick decisions.

Its policies are subject to parliamentary control which ensures protection of

public interest.

Limitations

A statutory corporation’s actions are subject to many rules and regulations.

Government and political interference have always been there where huge funds

are involved or in major decisions.

Where there is dealing with public, corruption exists at a larger level.

The Board of Directors may misuse their powers and indulge in undesirable

practices.

c. Government Company

Meaning: - According to The Indian Companies Act, 1956, a government company is a

company in which not less than 51% of the paid up capital is held by the central or state

government or both.

Subsidiary of a government company is also considered as a government company.

Eg: 1) Hindustan Machine Tools Ltd. (HMT)

2) Bharat Heavy Electricals Ltd (BHEL)

3) Steel Authority of India Ltd.

Features

It is created by the Indian Companies Act, 1956.

It is having a separate legal identity.

Its employees are are appointed according to the rules contained in the

Memorandum and Articles of Association of the company.

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It is exempted from the accounting and audit rules and procedures.

It obtains funds from government shareholdings, private shareholders and

capital market.

Merits

It can be easily established.

It has a separate legal entity.

There is no undue departmental interference in the working of the company.

It can curb unhealthy business practices by providing goods and services at

reasonable prices.

Difference between Statutory Corporation and Government Company

Basis Statutory Corporation Government Company

Formation By an Act of Parliament Under the Companies Act

Management

Control

Nominated board of

directors

board of directors may contain

private individuals

Ownership Wholly owned by

Government

Only 51% of shares owned by

Government

Changing Role of Public Sector

Public Sector was started to achieve the following objectives:

To speed up the economic growth of the country

To achieve a more equitable distribution of income

To create infrastructure facilities

To develop all parts the country equally

Performance of the Public Sector was poor due to unorganized plants, out dated

technology, underutilization of capacity, over staffing, trade unionism, political

interference etc., So the government, in the Industrial Policy 1991, introduced the

following reforms in the public sector.

The number of industries reserved for the public sector was reduced from 17 to 3

industries namely atomic energy, arms and rail transport.

The Memorandum of Understanding signed between a public sector and its

administrative ministry defines its autonomy and the targets to be achieved.

Equity shares of public sector units are sold to private sector and the public

which is known as Disinvestment.

Loss making public sectors which are potentially viable will be restructured and

revived through the Board of Industrial and Financial Reconstruction (BIFR).

Public sector units which cannot be revived will be closed down.

A National Renewal Fund was created to retrain and redeploy retrenched labor

and to compensate employees seeking voluntary retirement.

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Global Enterprises/Multinational Companies

Meaning: A global enterprise is one which owns and manages business in two or

more countries.

Eg: Unilever Ltd, Coca cola, LG, Samsung, Hyundai Motors, Proctor and Gamble, etc.

Features

A global enterprise has huge capital resources.

Giant size: the assets and sales of multinational companies are quite large.

These companies operate on large scale.

It operates through a network of subsidiaries, branches and affiliates in host

countries

Centralized control: It has its headquarters in the home country which

controls all branches and subsidiaries.

Professional management: It employs professionally trained managers.

International operations: It has vast access to international markets.

Latest technology: It has advanced research and development departments

which are engaged in developing new products and superior designs of

existing products. It uses advanced technology to provide world class

products and services.

It uses aggressive marketing strategies.

Joint Ventures

Meaning: A joint venture is a business partnership between two or more companies for

a specified purpose.

Eg: Maruti Udyog, Birla Yamaha Ltd, etc.

Features:

Large capital and resources: A joint venture has greater resources and capacity.

Advanced technology: It has access to advanced technology

It has access to new markets.

Reduction in cost: It can produce products at a lower cost.

New ideas: It has ideas and technologies to develop innovative products and

services.

When one party in a joint venture has well established brands and goodwill, the

other party gets its benefits.

Protection for small companies: small firms can join together to compete with

large firms.

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Public Private Partnership (PPP)

Public Private Partnership means an enterprise in which a project or service is financed

and operated through a partnership between Government and private sectors.

Features

Contract between public and private party: It facilitates partnership between

public and private sector.

It is suitable for big projects whose gestation period is long.

Sharing of revenue: Revenue is shared between government and private

enterprise in the agreed ratio.

Pertaining to high priority projects and public welfare: It is used in the

government projects targeted at public welfare. It is related to high priority

projects.

HOTs:

1. Where national security is concerned, which form of public is most suitable?

Ans. Departmental undertaking

2. Name the three industries, which are reserved exclusively for public since 2001?

Ans. 1. Atomic Energy 2. Arms and ammunition 3. Rail

3. Who are usually the first directors of the company?

Ans. The signatories to the memorandum of association

4. How much percentage of shares must be held by government to call a company as

Government Company?

Ans. 51%

5. Name the company which operates in more than one company?

Ans. Multinational Company

6. What term is used for sale of shares to private/public sector?

Ans. Disinvestment

Tutorial Notes:

Kinds of organizations that come under the public sector: Departmental

undertaking, Statutory Corporation and government Company

Name of Enterprises under the public sector: Departmental undertaking

(Railway, Post ), Statutory Corporation(LIC, Air India State Bank Of India) and

government Company(GAIL,SAIL,BHEL)

Changing Role of public sector:

To speed up the economic growth of the country

To achieve a more equitable distribution of income

To create infrastructure facilities

To develop all parts the country equally

.

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CHAPTER - 4

BUSINESS SERVICES

Introduction (10 Marks)

The chapter Business Services gives you a brief introduction to the characteristics of

business services, the difference between services and goods, classification on types

of business services, the concept of e-banking, identification and classification of

types of insurance policies and the description of different types of warehouses.

Definition

Auxiliaries to trade are also known as business services. Service sector includes

commercial firms engaged in banking, communication, transport, insurance and

warehousing. Business cannot be even imagined in the absence of these services. All

these services collectively constitute the Service Sector.

Nature/Features/Characteristics of services

Difference between Services and goods

Basis Services Goods

Nature

An activity or a process.

e.g., watching a movie in a

cinema hall

A physical object. e.g., a

video cassette of movie

Type Heterogeneous Homogeneous

Intangibility Intangible e.g., doctor

treatment

Tangible e.g., medicines

Inconsistency

Different customers having

different demands e.g.

mobile services

Different customers getting

standardized demands

fulfilled

Inseparability

Simultaneous production

and consumption e.g.,

eating an ice-cream in a

restaurant

Separation of production

and consumption e.g.,

purchasing ice cream from

a store

23

Banking Services

Bank is an institution that accepts deposits, withdrawal by cheques and makes loans and

advances for the purpose of earning profits.

According to Indian Banking Regulation Act, 1949 banking means “Accepting deposits of

money from the public for the purpose of lending or investments.”

Types of accounts:

1. Savings Deposit

2. Current Deposit

3. Recurring Deposit

4. Fixed Deposit

5. Multiple Option Deposit

Types of advances:

1. Overdraft

2. Cash credit

3. Loan

Important services by Banks:

(a) E-BANKING: E-banking means banking transactions carried out with the help of

computer systems (i.e., that is banking over the internet).

1. Electronic Fund Transfer (EFT): Under this system, a bank transfers wages and salaries

directly from the company’s account to the accounts of employees of the company.

24

2. Automatic Teller Machine (ATM): It refers to an electronic terminal that allows

people with plastic card to perform simple banking transactions like withdrawal of cash

24x7 without any help of human teller.

3. Debit Card: It refers to a plastic card that allows the bank to take money from the

customer’s account and transfer it to a seller’s account.

4. Credit Card: It refers to a plastic card that allows the customer to buy now and

payback the loaned amount to bank at a future date.

5. Online Banking: Under this system, when the customer gives instruction on his

computer, the bank computer transfers money from/ to customer’s account to biller’s

account.

(b) bank draft:. Bank draft can be obtained from a bank after depositing the required

amount in the bank.

(c) Banker’s Cheque: It is like bank draft payable within city.

(d) Real Time Gross Settlement (RTGS): funds transfer system where transfer of money

takes place from one bank to another on a real time and gross basis.

(e) National electronic fund transfer (NEFT): fund is directly transferred from one

account to another account.

Insurance:

It is a contract whereby in exchange of fixed consideration one party promises to pay a

fixed amount either at happening of an event or at the expiry of certain period.

Fundamental Principles of insurance:

Principle of utmost faith: refers that no material or important facts should be concealed

by both the parties of insurance contract.

Principle of Insurable Interest: There must be some pecuniary interest in the subject

matter of the insurance contract.

Principle of Indemnity: Refers that the insured can get only the compensation against

actual loss and he cannot make profit out of the insurance.

Principle of Subrogation: when the insured is compensated for the loss to the property

insured by him the right of ownership of property passes to insurer.

Principle of Contribution: Refers if a person has taken more than one policy for the

same subject matter than all insurer will contribute the loss.

Principle of proximate cause: It refers to the direct cause and not the remote cause.

Principle of mitigation of loss: states that it is the duty of the insured to take reasonable

steps to minimize the loss/damage to the insured property.

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Types of Insurance

Life Insurance General Insurance

Fire Marine Miscellaneous

Life Insurance: It is a contract under which the insurer, in consideration of a premium,

undertakes to pay a fixed sum of money on the death of the insured or on the expiry of a

specified period of time, whichever is earlier.

Fire insurance: it is a contract whereby the insurer undertakes to make good any loss/

damage caused by fire during a specified period.

Marine Insurance: A marine insurance is an agreement whereby the insurer undertakes

to indemnify the insured loss against perils of the sea.

Difference between life, fire and marine insurance

BASIS OF

DIFFERENCE

LIFE INSURANCE FIRE INSURANCE MARINE

INSURANCE

1 Subject matter Human life Assets Ship, cargo or

freights

2 Element Both protection

and investment

Protection only Protection only

3 Insurable interest Must be present at

the time of

effecting the policy

Must be present

both at the time of

effecting the policy

as well as when

the claim falls due

Must be present

at the time when

claim falls due

4 Duration Usually exceeds a

year

Does not exceed a

year

Period or voyage

or mixed

5 Indemnity Not based on

principle of

indemnity

Is a contract of

indemnity

Is a contract of

indemnity

6 Surrender value Has a surrender

value

Does not have any

surrender value

Does not have any

surrender value

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Types of Life Insurance Policies (Insurance Products)

Communication services:

These are helpful to business for establishing links with outside world. The main service

is postal and telecommunication.

Postal and telecom services:

Features:

(1) Controlled by government

(2) Provides courier and speed post services

(3) Services are highly reliable

(4) Provides financial services

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Mail services of post offices:

(1) Registered post

(2) UPC (Under Postal Certificate)

(3) Parcel post

(4) Courier services

(5) Speed post

(6) International money trasfer

(7) e-bill post facility

Financial services by post officies:

(1) NSC (National Savings Certificate)

(2) KVP (Kisan Vikas Patra)

(3) Recurring Deposits

(4) Monthly income scheme

(5) PPF (publicf Provident Fund)

HOTs:

1. to which insurance Principle if Indemnity is not applicable?

Ans. Life Insurance

2. What is the full name of A.T.M.?

Ans. Automated Teller Machine

3. Who are the central Bank of our country and which is the largest commercial

bank of our country?

Ans. Reserve Bank of India is central bank of our country and State bank of India is

largest commercial Bank

4. “The Cause for loss must be related to the purpose of insurance” Which principle

of insurance is related to this statement?

Ans. Principle of proximate cause

5. “The insured must have an interest in the subject matter of insurance” Which

principle of insurance is related to this statement?

Ans. Principle of insurable interest

6. What are the two functions of E- Banking?

Ans. 1. ATM (Automated Teller Machine) 2. EFT (Electronic Fund Transfer)

Tutorial Notes:

Types of insurance( Life Insurance, Fire Insurance and Marine insurance)

28

CHAPTER - 5

EMERGING MODES OF BUSINESS

Introduction

Few decades back one can’t think of sitting in one’s own drawing room and

getting railway ticket/ Air Ticket booked but now it is very common:

- Yes, You need not travel from your residence to railway station

- Yes, You need not bother about traffic, signals etc.

on your way to railway station

- You need not wait for a long time in the long queue

- Above all, You need not waste your most precious

time

Yes we are discussing about online booking. ….

Now let us think of…..how it will be…..if we are able to get our needs delivered at our

doorstep.

Key Terms

e – Business

e – Business refers to the process of performing Business activities electronically

through the means of internet.

Virus

Virus stands for Vital Information & Resources Under Siege

e – Trading

e – Trading involves securities trading, i.e. online buying & selling of shares and

other financial instruments.

Digital Cash

Digital Cash refers to electronic cash instead of actual money which exists only in

cyberspace (also known as cyber currency)

Sweat Shopping

Firms that outsource seek to reduce their costs and get maximum benefit from

the low –cost manpower. This is known as “Sweat Shopping”.

e – Commerce

e – Commerce refers to a firm’s interactions with its customers and suppliers

over internet.

Secure Sockets Layer (SSL)

It is the technology used in encrypting and securing vital user information such as

Credit/Debit card details etc. which are used in online transactions.

e – Procurement

It involves internet based – sales between business firms forming digital

marketplaces facilitating online trading between multiple buyers and sellers.

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Business Process Outsourcing (BPO)

The process of contracting out non-core business activities to 3rd parties in order

to reduce costs and time involved.

Online Trading

The act of selling and buying anything online.

e – Bidding

Most shopping sites have “Quote your price” option whereby you can bid for

goods and services. This refers to process of conducting auctions online.

Call Centres

Firms generally outsource their customer support to 3rd parties,

which provide 24x7 Customer Support by the means of tele

calling. The 3rd parties to whom this process is outsourced are

called “Call Centres”.

Captive BPO units

The outsourced - units over which the outsourcing firm has control.

Horizontals

The 3rd parties which undertake outsourcing contracts from many firms and

doing a wide variety of jobs and processes are known as “Horizontals”.

Verticals

The 3rd parties which undertake outsourcing contracts from other firms but are

specialized to do only certain specific non-core to core activities.

B2B Commerce

Refers to electronically conducted business transactions between business to

business.

B2C Commerce

Refers to electronically conducted Business transactions to Customers.

Intra-B Commerce

Refers to electronically conducted business transactions within a given business

firm.

C2C Commerce

Refers to electronically conducted Business transactions between Consumer to

Consumer.

e – Business Vs. Traditional Business

Basis of distinction Traditional Business e – Business

Ease of formation Difficult Simple

Physical Presence Required Not Required

Location Requirements Need to be near market

or Raw Materials None

Cost of Setting Up High Low

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Operation Cost High Low

Nature of Contact with

suppliers & Customers

Indirect – Through

Intermediaries Direct

Nature of Internal

Communication

Hierarchical -From top

level management Direct to all levels

Response time for

meeting requirements Long Instant

Shape of Organizational

Structure Vertical Horizontal

Business Processes &

Length of Cycle Sequential Simultaneous

Opportunity for Inter-

Personal Touch Much More Less

Opportunity for Pre-

Sampling of Products Much More Less

Ease of Going Global Less Much

Government Support Reducing Much & Increasing

Nature of Human Capital Semi Skilled or Unskilled

Manpower needed

Technically highly

qualified professionals

needed

Transaction Risk Low High

e – Business

e – Business refers to all business transactions and functions conducted

electronically.

e – Business Vs. e – Commerce

e – Business is more inclusive term than e – Commerce while e – Commerce

refers to a firm’s interactions with its customers and its supplier over the internet. e –

Business, apart from e – Commerce includes all other electronically conducted business

activities such as inventory management, production, product development, accounting,

finance, etc.,

Scope of e – Business

The scope of e – Business is quite vast, it includes the following :-

1. B2B Commerce :- Refers to electronically conducted business transactions

between business to business.

2. B2C Commerce :- Refers to electronically conducted Business transactions

to Customers.

31

3. Intra-B Commerce:- Refers to electronically conducted business

transactions within a given business firm.

4. C2C Commerce :- Refers to electronically conducted Business transactions

between Consumer to Consumer.

Benefits / Opportunities of e – Business

1. Easy to form

Very easy to start e – business because host of procedures required for

traditional business are not required for e – Business

2. Requires Less Investment

Both big and small business gets the benefits of internet equally. Thus

even one start of small business with less investment can derive the

benefit of e – Business.

3. Convenience

Internet offers the convenience of 24 hours X 7 days a week with a less

investment – i.e. one can access anything, anywhere, any time.

4. Speed

Any business transaction can be made simply at the click of the mouse

button, for e.g. Electronic Funds Transfer takes place at the speed of light

5. Global reach/access

In e – Business both businessmen and consumers have no national boundaries

because internet is without such boundaries. In absence of such internet,

globalization may be restricted in scope and speed.

6. Movement towards paperless society

Cutting thousands and thousands of trees to make paper adversely affects the

environment but internet has considerably reduced the dependence on paper.

Easy to Form

Require Less Investment

Convenience

Speed

Global Reach/ Access

Movement towards

paperless society

Benefits of

e –Business

32

Despite limitations, e – Commerce is the way

Yes, it is absolutely true, because when you wish to buy something especially

from other countries or from distant seller, problems faced by you in traditional business

is more than e – Commerce – thinking in terms of travelling – carrying money – time

required – speed involved – mode of payment etc.

Therefore, despite limitations e – Commerce is the way.

Online Transactions

Involves three stages:-

1. Pre-Purchase/ Sale Stage – Including advertising and information seeking.

2. Purchase / Sale Stage – Comprising of price negotiation, closing deal &

payment.

3. Delivery Stage – Involves physical delivery of goods.

The first two steps – involves only interaction and thus can be effectively done online.

Steps involved in online purchase

1. Registration

Register yourself with online vendor by filling up registration form – i.e. now you have an

account with the online vendor and you receive your account’s password and an

online shopping cart.

2. Placing an Order

You can pick and drop the items of your choice in the online ‘shopping cart’ (Just an

online record) – choose check out and payment option.

3. Payment Options

a. Cash on Delivery(COD)

Pay cash at the time of physical delivery of goods

b. Cheque

Vendor arranges the pick up of the buyer’s cheque(s) – Upon realization the

delivery is made

c. Net-Banking Transfer

Electronic transfer of funds from the buyer to the seller, after which the seller

makes the delivery

d. Credit/Debit Cards

These are also called ‘Plastic Money’, the buyer enters the respective card’s

details and the transaction is made. Credit cards allow the buyer to make

purchases on credit, whereas Debit cards make use of the buyer’s existing

money.

e. Digital Cash

This form of currency exists only in cyberspace. The buyer deposits money

into the Digital Cash account and this money are utilized for making

purchases online.

33

e – Business Risks

There are three types of possible risks as listed below:

1. Transactions Risks

Seller may deny that customer ever placed the order or the customer may

deny that he ever placed the order. It is called “Default on Order taking/

Giving”.

Goods may be delivered at wrong address or wrong goods may be

delivered which is referred as “Default on Delivery”.

Seller may claim/complain that he didn’t receive payment while customer

may claim that payment was over. This is referred as “Default on

Payment”.

2. Data Storage and Transmission Risk

VIRUS – Virus can create annoyance, disrupt functioning, damage target

data even may cause complete destruction of the system.

Interception – Data maybe intercepted in the course of transmission by

others. If it goes in the wrong hands it may be detrimental to the

business.

3. Threat to intellectual property & Privacy

Once the information is made available over the internet, it moves out of

the private domain. So any secret formulae or research findings,

improved/ new method of production and other such intellectual

properties may be stolen by others.

When data furnished goes in the hands of others they may start dumping

with lot of advertising & promotional literature into our

e-mail box.

Outsourcing

Features of Outsourcing

1. Outsourcing involves contracting out

Non – Core activities such as maintaining cleanliness, gardening,

housekeeping etc. maybe contracted out to the outside agencies so that

the business can concentrate on core activities.

2. Generally non-core business activities are outsourced

For some organizations, non-core activities may be their core activities

e.g. House Keeping for hotel business, so every organization used to

identify its own non – core activities and outsource them.

3. Processes may be outsourced to a captive unit or 3rd Party

Multinational Companies (MNCs) normally outsource different processes

such as recruitment, selection, training, pay roll, customer support etc. to

business units created especially for this purpose and ensure efficiency.

34

Scope of Outsourcing

Outsourcing comprises four key segments:

Contract Manufacturing

Contract Sales

Contract Research

Informatics

The following diagram shows the scope of outsourcing in each segment

Benefits / Need for Outsourcing

Outsourcing is being resorted to not out of compulsion but also out of choice. The major

reasons of outsourcing are as follows:

1. Focusing of attention

By contracting out some of the non – core activities, the business may have

sufficient time to focus its attention on core-activities.

2. Quest for excellence

Outsourcing does not mean contracting out some of our work to any outsider but

it means contracting out to a specialist who can perform the contracted work in

an excellent way.

3. Cost Reduction

Due to global competition, not only a firm needs to ensure global quality but also

global competitive pricing. For this the company needs to reduce its cost of

operation by contracting out the work to specialists who are cost-efficient.

35

4. Growth through alliance

A business may have a ownership stake in the other business to whom it is

interested to contract out its own work. By doing so not only the profit of the

outsourcing business goes up but it can have a share in the profit of the

contracted business, as it is a stakeholder in that.

5. Fillip to economic development

Outsourcing stimulates entrepreneurship, employment & exports thus it helps the

economy to develop. For example, as far as global outsourcing in software

development and IT enabled services are concerned, India has 60% of the global

outsourcing share.

Limitations / Concerns over Outsourcing

Outsourcing has its own benefits and has to stay globally but it has its own

limitations as discussed below:

1. Confidentiality

Outsourcing depends on sharing a lot of vital information and knowledge. If the

outsourcing partner passes it on to competitors it can harm the business to a

greater extent. Not only that even the outsourcing partner may start a competent

business.

2. Sweat Shopping

As the firms that outsource seek to lower their costs, they try to get the maximum

from the low-cost manpower of the host countries, this may result in sweat

shopping and the firm that goes in for outsourcing may look for ‘doing’ skill rather

than development of ‘thinking’ skill.

3. Ethical Concerns

In the name of cost cutting, unlawful activities such as child labour, wage

discrimination maybe encouraged in other countries.

4. Resistance in home countries

Contracting out ultimately result in contracting out of employments; this may

create resistance in the home countries. Particularly if the home country is

suffering from problem of unemployment.

HOTs:

1. Name the popular name of Debit and Credit Card.

Ans. Plastic Money

2. Which electronic currency exists in cyberspace?

Ans. Digital Cash

3. Give the full name of BPO?

Ans. Business process units

4 . Which is the common mode of payment under E -Commerce?

Ans. Credit Card

36

5. Name the service in which a firm gets its tasks done by another firm.?

Ans. BPO

6. What does ‘e’ stand for in e-commerce?

Ans. electronic

Tutorial Notes:

Scope of e-business (B2B Commerce, B2C Commerce, Intra-B Commerce

and C2C).

Advantages of e-business(Easy to form ,convenience ,Speed, Global Reach,

Movement towards a Paperless Society)

Need of Out sourcing (Focusing of attention, Quest for excellence, Cost

reduction, Growth through alliance, fillip to economic growth)

Limitations of e-business(Low personal touch, Delay in payment, risk,

Requirement of hardware)

37

CHAPTER - 6

SOCIAL RESPONSIBILITIES OF BUSINESS & BUSINESS ETHICS

Introduction

A business enterprise should always do business keeping the people in mind, business is a part & parcel of the society and it draws all the necessary resources from the society only so it should have some social responsibilities. It should not do anything which is harmful to interest of the society. It must not resort unethical means to increase profits. Here we shall see a few ethics to be followed by businesses.

Key Terms Social Responsibility Social Responsibility of business refers to its obligation to take those decisions and perform those actions which are desirable in terms of objectives and values of our society. Environment The environment is defined as a totality of natural & man-made things existing around us. It is from the environment that the business draws its resources. Business Environment

It is a totality of all external forces with which the business interacts constantly but over

which it does not have any control. The environment influences the business directly to

a great extent.

Environmental Protection

It is the deliberate process of protecting the environment from existing or potential

threats of any nature.

Pollution

It is the process of emission or release of harmful substances into the environment

which harms human life, the life of other species and wasting or depleting scarce

sources.

Ethics

Ethics is concerned with what is wrong & what is right in a society based on its moral

values & beliefs.

Business Ethics

It refers to the socially determined moral principles which should govern the business

activities.

Legal Responsibility

It is the obligation of the business to abide by the laws governing the place at which it

exists.

Code of Ethics

Enterprises with effective ethics programs do define their principles of conduct for the

whole organization which is called the ‘Code of Ethics’.

38

Concepts Explanation

Concept of Social Responsibility

Social Responsibility of business refers to its obligation to take those decisions and

perform those actions which are desirable in terms of objectives and values of our

society.

Need for Social Responsibility

Opinions are divided over this issue, for some - Business is responsible only to its owners

& for others - It needs to be responsible for social welfare also. Anyhow a better

business can survive & grow only in a better society because it takes all resources from

the society and serve to the society. So businesses become integral part of the society,

therefore they should assume social responsibility.

Arguments for / Case for social responsibility

Justification for existence and growth

The ultimate motive of business is profit, as only profit can help the business grow and

expand. Profit should be made as an outcome of service to the society by means of

producing goods and services to satisfy human needs.

Long term interest of the firm

A firm and its image stand to gain maximum profits in the long run when it has its

highest goal as ‘service to society’. When increasing number of members of society feel

that business enterprise is not serving its best interest, they will tend to withdraw their

cooperation to the enterprise concerned. Therefore, it is in its own interest if a firm

fulfills its social responsibility.

Avoidance of government regulations

When a particular business is not socially responsible, government regulations tend to

limit its freedom. Therefore, it is believed that if businessmen are socially responsible,

they can avoid government regulations.

Maintenance of Society

Law alone can’t help out people with all the difficulties they face. When businesses turn

socially responsible they take care of the society’s need, the society is at peace. That

means business houses also have some responsibility to contribute something for social

peace & harmony.

Availability of Resources with Business

The business enterprises have huge financial resources, very efficient managers &

contacts and thereby they can ensure that a social problem can be solved easily, in the

best way possible.

Converting problems with opportunities

Business with its glorious history of making risky situations into profitable deals can not

only solve social problems but also make them effectively useful.

Better environment for doing business

If the business is to run in a society with diverse problems, the success of the business is

limited. Therefore, if the business takes measures to resolve the social problems, the

39

business can create a better environment for its functioning and thereby earn more

profits.

Holding business responsible for social problems

It is argued that many problems are created by the existence of business enterprise

themselves – like environmental pollution, discriminated employment, corruption etc.

Therefore it is the duty of business to set right the problems caused by them.

Reality of social responsibility

1. Threat of public regulation: government expects welfare of society from business

houses. Whenever they are behaving in a socially irresponsible manner, action is

taken against them to regulate their activities.

2. Inpact of consumer consciousness: business firms have started following consumer

oriented pocilies because consumer awareness.

3. Development of business education: professional prefers to perform social

obligations nowadays.

4. Pressure of labour movement: labour unions forces businessmen to take care of

labours by their movements.

Social Responsibility towards different interest groups

A business unit has to decide in which areas it should carry out social good. Few areas

are explained below.

Responsibility towards shareholders or owners

To provide fair return on their investment, ensure safety of their investment and to

provide regular, accurate and full information about the business.

Responsibility towards the workers

To provide opportunities for meaningful work, create the right kind of working

conditions, respect the democratic rights of the workers and ensure a fair wage deal

from the management.

Responsibility towards the consumer

To provide right quality and quantity of goods and services at reasonable prices and to

avoid adulteration, hoarding, dishonest and misleading advertisements.

Responsibility towards the government & community

To respect the laws of the country and pay taxes regularly and honestly and act

according to well accepted values of the society and to protect environment.

Business & Environmental Protection

Protection of the environment is a serious issue that confronts

business managers and decision makers. Business organizations

are major pollutants so they have to do something to control

pollution.

40

Causes of Pollution

Waste generated by various industries, agriculture, mining, construction, energy

production, transportation etc., cause pollution.

Environmental Problems

Pollutions results in following environmental problems identified by UNO

1. Ozone Depletion 5. Deforestation

2. Land Degradation 6. Global Warming

3. Solid & Hazardous Wastes 7. Water Pollution

4. Danger to biological diversity 8. Fresh water quality and quantity

Types of Pollution

Air Pollution

Carbon monoxide emitted by automobiles, smoke and other chemicals from

manufacture and pollutes the air & lowers its quality. It also created a hole in

the ozone layer leading to global warming.

Water Pollution

This is primarily from chemical and waste dumping into water bodies. This lead to death

of several animals and posed a serious threat to human life.

Land Pollution

Dumping of toxic wastes reduces the quality of land and making it unfit for agriculture or

plantation.

Noise Pollution

Noise caused by the running of factories and vehicles create a serious health hazard such

as loss of hearing, malfunctioning of the heart and mental disorders.

Need for Pollution Control

To preserve precious environmental resources & improve the

quality of human life pollution control becomes essential. Let us list

out some reasons for pollution control.

Reduction of health hazard

Pollution control measures can check diseases like cancer, heart attack & lung

complications and support a healthy life on earth.

Reduced Risk of Liability

When people are affected by toxicity released by any business, the business is liable to

pay compensation. If the business installs pollution control devices, it can escape from

such a liability.

Cost Saving

Pollution control needs improved production technology which automatically reduces

cost.

41

Improved Public Image

A firm that promotes the cause for environment will enjoy public confidence and good

reputation.

Other social benefits

Cleaner buildings, cleaner roads, clearer visibility, better quality of life, availability of

natural products in a purer form are some of the other social benefits the society can get

through proper pollution control system.

Ways and means environmental pollution:

1. Environment evaluation: government checks environmental effect before setting up

industry.

2. Standards for pollution control: government has set pollution control standards for

industries.

3. Regulations: government regulates the activities by having licensing policy before

setting the industry.

4. Ban: sometimes government bans the use of hazardeous chemicals and things.

Role of business in environmental protection

Most of the pollution is caused by business enterprises and therefore they should take

the lead in providing their own solutions to environmental problems. Some of the

specific steps that can be taken by a business are as follows.

1. A definite commitment by top management to systematically protect

environment.

2. Involving all divisions and sections of employees in environmental protection.

3. Developing clear cut policies and programs with regards to quality, method

and process of production and disposal of waste.

4. Complying with laws of the land in relation to environmental protection.

5. Participation in government programs such as management of waste,

forestation etc.

6. Periodical assessment of pollution control programs of their own, with a view

to improve them.

7. Arranging educational workshops and training materials to share technical

information with everyone involved in pollution control.

Business Ethics

Business ethics refers to the socially determined moral principles which should govern

business activities.

Examples of Business Ethics

- Charging fair prices

- Using correct/accurate weights

- Giving fair treatment to all employees

- Avoiding adulteration, hoarding etc.

- Not engaging in any illegal methods of operation and not doing

42

anything which is being considered as undesirable by the society.

- Using environmentally friendly products, methods and processes.

Which businesses need to behave ethically?

All businesses irrespective of size (big or small), nature and location should behave

ethically.

Why should businessmen behave ethically?

The businessman gets access to all resources such as finance, human capital, land etc.

from the society and makes profits by selling the same to the society. Therefore he

needs to be ethical and shouldn’t make profit at the cost of society.

Benefits of doing Ethical Business

- Ethical business is good business

- It improves public image and support

- Earns people’s confidence and trust

- Leads to greater success

- Helps in long-term standing

Elements of Business Ethics

Top Management commitment

Higher level managers need to be openly and strongly committed to ethical conduct.

They should continuously try and uphold the values of the organization and the society.

Publication of a ‘code’

‘Code’ refers to the written ethical programs followed by a particular business or

industry – which normally covers the areas of honesty, adherence to laws, product’s

safety and quality and fairness in all dealings.

Establishment of Compliance Mechanism

Simply having a written ‘Code of Ethics’ is not sufficient, the business needs to ensure its

effective implementation at all levels & throughout the life of the business.

Involving employees at all levels

To make ethical business a reality, employees at all levels must be involved.

Measuring Results

Measuring the results of ethics programs maybe difficult but can have an audit at regular

intervals to monitor compliance with ethical standards and decide about further course

of action.

HOTs:

1. When enterprises behave as good citizen, towards which group are they showing

their responsibility?

Ans. Government and community

2. “A Business owes certain obligations towards different groups” Identify those

groups and explain the obligation of business towards those groups.

Ans. Consumer ,Shareholders ,Employees, Government ,Community and Suppliers

3. Which groups expects that the companies must provide good quality and

unadulterated goods and services as their social responsibility?

43

Ans. Consumer group

4. Name the concept which is concerned with what is right and what is wrong?

Ans. Ethics

5. What is the relationship between ethics and moral values??

Ans. Higher moral values lead to higher ethics.

6. Give any two reasons against social obligation.

Ans. 1.Profit Motive 2.lack of social skill

Tutorial Notes:

Business Ethics: It refers to the socially determined moral principles which should

govern the business activities.

Elements of business ethics: Top management commitment, Publication of a

‘code’, Establishment of compliance Mechanism, involving employees at all

levels, Measuring Results

Ways and means of pollution control: 1. Environmental evaluation 2. Pollution

Control standard 3. Regulation 4. Ban

44

CHAPTER - 7

SOURCES OF BUSINESS FINANCE

Introduction:

Business cannot be run without money. Funds required to carry out business is called

Business Finance. This chapter throws light on how the finances for the business can

be arranged, what are the sources of funding and what terms and conditions are

governed with each type of funding.

Sources of Funds :

45

Distinguish between owner’s funds and borrower’s funds.

BASIS OWNER’S FUNDS BORROWED FUNDS

1. Control Loss on control No Loss on control

2. Voting Rights Yes, Voting rights. No Voting rights.

3. Redemption Not redeemable Mostly redeemable

4. Degree of risk High Low

Share: The amount of capital to be raised from public is divided into units of equal

values. These units are known as SHARE.

Equity (Ordinary) shares are those which do not carry any special or preferential rights.

Equity Share

Merits Demerits

1. Convenience 1. Low dividend

2. No charge on assets 2. Uncertain

3. No obligation 3. Unbalanced growth

4. Dependable 4. Misuse and Speculation

5. Growth and Expansion

Retained earnings:

Meaning of Retained Earnings: It is a part of profit, which is invested in business, in

place of distributing it as dividend to shareholders. OR When earnings of a business are

retained, then it is called retained earnings.

46

Merits of Retained Earnings:

1. No dependence on outside financer for business

2. No cost of getting finance (floatation cost) and no cost of using finance (dividend

or rent) for business.

3. Present shareholder’s control is not diluted (divided/minimized).

4. No binding conditions of financer, so high degree of freedom in business

activities.

5. No need to keep assets under any charge / pledge / security.

6. When outside finance is not easy available due to recession, it is only way.

7. Useful for expanding business.

Disadvantages of Retained Profits:

1. Careless use

2. Dissatisfaction among shareholders

3. Over Capitalisation

4. Imbalanced Growth

Debenture: It constitutes the borrowed funds of the company. It is an acknowledgement

of debt. Debenture capital may be called DEBT CAPITAL.

Types of Debentures

• Secured Unsecured

• Redeemable Irredeemable

• Convertible Non- Convertible

• Registered Bearer

Debentures

Merits Demerits

1. Regular return 1.Charge on assets

2. Safety of investment 2.No voting rights

3. Economic sources 3.Permanent burden of

4. Flexibility interests

5. Tax relief

47

• Differences between Shares and Debentures

BASIS SHARES DEBENTURES

1.Types of funds Owner's funds Borrowed funds

2.Return Flexible Fixed

3.Voting rights Available No voting rights

4.Status of holders Owners of the company Creditors of the company

5. Redemption Not redeemable Mostly Redeemable

6.Charge No charge on assets Charge on assets

7. Degree of risk for

holders High Low

• Public deposits:

Refers to the unsecured deposits invited by companies from the public. It can invite

for a period of six months to 3 years. Public deposit cannot exceed 25% of its share

capital & resources.

MERITS DEMERITS

1. Simplicity 1. Uncertainty

2. Economical 2. Temporary finance

3. No charge on assets 3.Unsuitable for new

4. No loss on control company

• Short term funds:

Trade credit: refers to the credit extended by one trader to another for purchasing

goods or service. Small and new firms are usually more dependent on trade credit.

Merits of Trade Credit:

(1) Readily available

(2) Flexdible: there are no rigid rules

(3) No floatation cost

Demeriots of Trade Credit:

(1) Increase in prices

(2) Legal action

48

• Loans From Commercial Banks

Business can raise finance from commercial banks in the following ways

• Loans from financial Institutions:

Institutional finance means finance arranged from financial institutions other than

commercial banks like IFCI, ICICI, IDBI, SFI etc.

• International Sources of Finance:

Financial institutions and investors in foreign countries can invest in the shares and

debentures of Indian companies. Two main instruments used by Indian companies to tap

international sources of finance are:

1. GDRs (Global Depositary Receipts): These are equity offerings of international

market through international bank called depository. The capital collected from issue of

GDRs is in foreign currency.

2. ADRs (American Depositary Receips): American depository receipt is the same as

GDRs except that it can be issued to a Citizen of USA.ADR is an American dollar

denominated instrument. Any American bank functioning as a depository can issue ADR.

3. IDRs: it is like GDRs except that is issued to citizen of India. Foreign company IDRs

will deposit shares to an Indian depositary.depositary isssues receipts to investoirs

against these shares.

Overdraft: Current Account

holders is allowed

to overdraw his

A/c.

Discount of bill:

Banks provide

short term finance

in exchange for

bill.

Term Loan:

For medium

term

Cash Credit:

Interest is

charged on

the amount

actually

withdrawn.

49

ADR GDR

(American Depository Receipt) (Global Depository Receipt)

1. Rose from equity markets in USA. 1. Traded on a stock exchange

2. Funds from ADR are available in in Europe or US or both.

US Dollars. 2. No voting right

3. No broker is needed. Issued only to

American citizens

Differentiate between GDR and ADR.

GDR (Global Depositary Receipt) ADR (American Depositary

Receipt)

1. GDR can be listed and traded on a

foreign stock exchange

ADR can be listed and traded on a

stock exchange of USA

2. GDR is used to raise fund from all

over the world

ADR is used to raise fund only from

USA

3. GDR are issued against issue of

equity shares in the Global market

ADR are issued against issue of

equity shares in USA

4. Annual legal and accounting cost of

maintaining an GDR is lower than

ADR

Annual legal and accounting cost of

maintaining an ADR is much more

higher than GDR

• Factors affecting choice of Source of Funds

1 TIME PERIOD

Long term finance is raised through shares and

debentures.

Short term finance is raised through trade credit,

commercial paper, etc.

2 RISK

There is least risk on Equity shares as the capital need

not be repaid. But in case of loan, interest has to be

paid

3 CONTROL Issue of equity shares may lead to dilution of control

but debt involves no dilution of control.

4 EARNINGS Stability of earnings are important because loan should

be raised only when earning are sufficient.

5 TASK IMPACT Interest on debenture is tax deductible.

Dividend is not tax deductible.

International Sources of Finance

50

HOTs:

1. It is an unsecured promissory note by a firm to raise funds for a short period varying

from 90 days to 364 days. Mention it.

Ans. Commercial paper

2. A company requires fund to meet its working capital. State the sources

availablealong with their features.

Ans. 1.Public deposits 2. Short term loans from commercial banks 3. Trade credit.

3. Which deposits are directly raised from the public?

Ans. Public deposits

4. Why are retained profit called self-financing?

Ans. Because the firm itself generates them.

5. What is the relationship between ethics and moral values?

Ans. Higher moral values lead to higher ethics.

6. Name the fund needed for day to day operations of business.

Ans. 1. Trade credit 2. Banks

Tutorial Notes:

Retained earnings: It refers to undistributed profits after payment of dividend

and taxes.

Features of borrowed fund: 1. Sources of permanent capital2.No security 3.

Provisions of Risk capital

Merits of Loans from commercial banks: 1. Easy financing 2. Keep information

confidential 3. Less formality 4. Flexible

Institutional Finance: it refers to finance raised from financial institutions other

than commercial banks.

51

CHAPTER - 8

SMALL BUSINESS

Introduction:

Small Business enterprises exist in e very country of the world. But in a developing

country like India, they occupy a special place in the industrial structure because they

provide better opportunities for generating employment, for better utilization of local

resources, for equitable distribution of national income.

Meaning:

Industries development and Regulation Act, 1951 as “ Any enterprise which employs not

more than 50 persons when using power and 100 when not using power and with capital

assets not exceeding Rs. 5 lakh.”

As per MSMED Act, 2006 small business is -

The industry that has Ceiling on investment in plant and machinery for manufacturing

enterprise:

Rs. 25 lakh – micro

Rs. 5 crore – small

Ras. 10 crore – medium

The industry that has Ceiling on investment in plant and machinery for service

enterprise:

Rs. 10 lakh – micro

Rs. 2 crore – small

Rs. 5 crore – medium

Features of small scale industry:

1. Personal character: generally owned by the single individual or partnership

2. Labour oriented: generally use labour intensive techniques.

3. Limited investment: requires less amounts of capital

4. Located in rural and semi urban areas: Located in rural and semi urban areas due

to easy availability of labour

5. Produce consumer goods: generally produce light consumer goods

Role of Small Business in India (With Special Reference to Rural Areas)

Small industries provide employment opportunities in rural areas

They are the second largest employers of human resources

They contribute nearly 40% of the gross industrial value added

The development of village & rural industries leads to industrialization in rural

areas

They ensure equitable distribution national income & wealth by reducing income

inequalities between rural & urban areas

They help in mobilization & utilization of local resources & skills

They help generate multiple sources of income to the rural house holds

52

They prevent migrations of rural population to urban areas in search of

employment.

Incentives offered by government for industries in rural area

Land is supplied at a concessional rate to industries setup in back ward areas.

Power is supplied at a concessional rate.

Water is supplied on no profit no loss basis.

In all union territories SSI’s are exempted from sales tax.

Scarce raw materials are supplied on priority basis.

Loans are offered at concessional rate.

They are exempted from payment of tax for 5 or 10 years.

800 items are reserved for exclusive production by SSI’s.

Institutional support

1. National small industries corporation (NSIC)

It supplies imported machines and raw materials to SSI’s on easy hire

purchase schemes

It exports the products of SSI’s

It provides technologies to SSI’s and creates awareness on technological

up gradation

2. District Industrial centers (DICs)

They provide an integrated administrative frame work at the district level

They provide all the services and support facilities to the entrepreneurs

for setting up small and village industries

HOTs:

1. Name the institution which was set up in 1955 to promote the growth of SSI.

Ans. NSIC

2. Give the full form of NABARD.

Ans. National Bank for Agriculture and Rural Development.

3. Give the full name of NSIC and DIC.

Ans. 1. National Small Industries Corporation

2. District industries Centre

4. Explain any 3 incentives offered by got to small scale enterprise so that they can

contribute in the development of overpopulated country like India.

Ans. Protective measures

Credit and finance

Marketing assistance

Incentives

Institutional support

5. Name the institutions and banks set up to promote small industries set up in

rural, backward and hilly areas

Ans. 1. NSIC 2. DICs

53

CHAPTER - 9

INTERNAL TRADE

Introduction:

Buying and selling the goods and services within the boundaries of a nation are referred

to as internal trade.

Important Concept:

Meaning of Internal Trade: Buying and selling of goods and services within the

boundaries of a nation are referred as internal trade. Internal trade can be classified into

two (i) Wholesale trade (ii) Retail trade.

Wholesale trade: Wholesale trade is concerned with the activities of those persons

which sell to retailers but who do not sell to ultimate consumers.

Meaning of Wholesale Trade:

Purchase and sale of goods and services in large quantities for the purpose of

resale .

Wholesalers perform a number of functions in the process of distribution of

Goods and services and provide valuable services to manufacturers and Retailers.

Services of Wholesalers:

Wholesalers provide various services to manufacturers as well as to retailers.

Services to Manufacturers:

1. Facilitating large scale production.

2. Bearing risk.

3. Financial assistance.

4. Expert advice

5. Help in marketing function.

6. Facilitate production continuity.

7. Storage.

Services to Retailers:

1. Availability of goods.

2. Marketing support.

3. Credit facilities.

4. More knowledge about products.

5. Sharing of risk.

Retail Trade: A retailer is a business enterprise that is engaged in the sale of goods and

services directly to the customers.

Meaning Of Retail Trade:

A retailer is a business enterprise what is engaged in the sale of goods and

services directly to the ultimate consumers.

Retailers serve as a link between producers and final consumers.

They provide useful service to consumers, wholesalers and manufacturers in

the distribution of goods and services.

54

Services of Retailers:

Retailers provide various services to manufacturers as well as to consumers.

Services to Manufacturers/Wholesalers:

1. Help in distribution of goods.

2. Personal selling.

3. Helps in carrying large scale production.

4. Collecting market information.

5. Helps in increasing sales.

Services to Consumers:

1. Regular availability of products.

2. New product information.

3. Purchasing made conveniently.

4. More selection of products.

5. After sales service.

6. Giving credit facilities.

Types of Retail Trade:

(A) Itinerant retailers: These are traders who do not have fixed place of business and

they keep moving from place to place.

(a) Hawkers and peddlers: They are small producers who carry the products on a

bicycle or heard. They deal in low value products.

(b) Market traders: These are small retailers who open their shops on fixed days

example on Saturday, Friday etc.,

(c) Street traders: These are traders found where there are huge crowds.

(d) Cheap jacks: They keep on changing their places frequently as they deal with repair

of watches etc.,

(B) Fixed shop retailers: They have permanent shops and they do not move from

one place to another.

(a) They have more money when compared to itinerant retailers.

(b) These retailers may be dealing in different type of products.

(c) These retailers provide greater services to the customers.

Types of small scale fixed retailer:

(a) General stores: general stores are small shops located in residential areas.

(b) Specialty stores: spatiality stores deal in a particular type of product under one

product line only

(c) Street shops: these shops are situated on street crossings or on corners of societies

or on road.

(d) Second hand goods shop: these shops deal with second-hand goods or used articles

such as furniture.

(e) Single line stores: these stores are small shops which deal with one line of products.

55

Types of large scale retailer:

(a) Departmental stores:

1. It is a large store with different types of products.

2. There will be separate departments like medicines, furniture, clothing etc.,

3. These stores are located at the heart of the city.

4. These stores are managed by the board of directors.

5. These stores have storing facilities also.

Advantages:

1. Attract large number of customers.

2. Buying is made easier.

3. More services are provided.

4. Benefits of large scale operations.

5. Sales get increased by advertising.

Limitations:

1. No personal attention is there.

2. More cost of operating the store.

3. More chances for loss.

4. Far away from home.

(b) Chain stores / Multiple shops:

1. These shops are located in popular localities.

2. Goods are dispatched from the head office.

3. Each shop is under the supervision of a branch manager.

4. All the branches are controlled by the head office.

5. All sales are made on cash basis.

6. The head office appoints the inspectors who do supervision.

Advantages:

1. Large scale production takes place.

2. Middlemen are avoided.

3. Cash basis.

4. Risk is reduced.

5. Low cost due to avoidance of middlemen.

6. Place can be changed if there are no profits.

Limitations:

1. Limited varieties are available.

2. No personal touch.

3. Losses in case of change in demand.

4. Delay in decisions.

(c) Mail order houses: These retailers sell their products through mail.

Advantages:

1. Less capital.

2. Middlemen are avoided.

56

3. No bad debt.

4. More customers are reached.

5. Goods are delivered at the door step.

Limitations:

1. No personal contact.

2. Heavy expenditure on advertisements.

3. No after sales service.

4. No credit facilities.

5. Delivery is delayed.

6. Dependence on postal services.

(d) Automatic Vending machines:

Vending machines are proving in selling pre packed brands of low priced products which

have high turnover and which are uniform in size and weight. Mother dairy is selling milk

through vending machine.

(e) Chamber of Commerce and Industry:

Functions of Chamber of Commerce and Industry:

1. Act asspokesman

2. Represents business community

3. Settles disputes

4. Arrangesworkshop, seminars

5. Represents business community

6. Provides Certificate of Origin

7. Provides scope for research

Role of Indian Chamber of Commerce and Industry in promotion of internal trade:

1. Interstate movement of goods.

2. Local taxes act as an income.

3. Value added tax.

4. Marketing agricultural products.

5. Using proper weights and measures.

6. Prevention of duplication brands.

7. Providing proper roads, electricity, railways.

8. Flexible labour laws.

Key points:

DISTRIBUTION OF GOODS

Departmental stores:

PRODUCER WHOLESALER RETAILER CONSUMER

57

Departmental stores are located at the heart of the city.

They aim at satisfying all the needs of the customers under one roof.

They provide services like restaurant to the consumers.

Their price policies are not uniform.

They satisfy the needs of the higher income group.

Goods are sold only on credit basis also.

Multiple shops:

Multiple shops are located at residential areas.

These shops offer only specialized products.

They provide only limited service to the customers.

The pricing policies are uniform.

These shops satisfy the needs of all income groups.

Goods are sold only on cash basis.

Mail Order Houses:

They sell their goods through mail.

They do not have any personal contact with the customers.

They need not have a big place for selling goods.

They are mainly started to avoid middlemen.

They do not offer credit facilities.

HOTs

1. By what name the traders who do not have a fixed place of business to operate

from are known?

Ans. Itinerants

2. Spencer, big Apple and Big Bazar are examples of a type of fixed shop what is it?

Ans: Departmental Store

3. “Both departmental stores and multiple shops are large retail establishment ,yet

they are different.” Explain how.

Ans: Departmental stores:

1. Departmental stores are located at the heart of the city.

2. They aim at satisfying all the needs of the customers under one roof.

3. They provide services like restaurant to the consumers.

4. Their price policies are not uniform.

5. They satisfy the needs of the higher income group.

6. Goods are sold only on credit basis also.

Multiple shops:

1. Multiple shops are located at residential areas.

2. These shops offer only specialized products.

3. They provide only limited service to the customers.

4. The pricing policies are uniform.

5. These shops satisfy the needs of all income groups.

58

(b) Goods are sold only on cash basis.

4. Which trade involves buying and selling of goods and service within the

boundaries of a nation?

Ans: Internal Trade

Tutorial Notes:

1. Link between producers and retailers: Wholesaler.

2. Trader who directly deals with the consumers: Retailer.

3. Full form of FICCI is: Federation of Indian Chamber of Commerce and Industry.

4. Large retail business unit selling a wide variety of consumer goods on self-

service basis: Super market.

5. Large establishment offering a wide variety of products classified into well-

defined departments under one roof: Departmental stores.

6. Retail outlets that sell merchandise through mail : Mail order houses.

7. Whole sale trade purchase and sale of goods and services in large quantities for

the purpose of resale.

8. A retailer is a business enterprise what is engaged in the sale of goods and

services directly to the ultimate consumers.

Retailers serve as a link between producers and final consumers.

They provide useful service to consumers, wholesalers and manufacturers in

the distribution of goods and services.

59

CHAPTER - 10

INTERNATIONAL BUSINESS

Introduction

In this lesson we are going to have overall idea of International Business i.e., how

to sell goods and services to other countries traders/users and how to buy goods

and services from traders of others countries. You are going to learn the

formalities and procedures involved in the process of international trade i.e.,

both imports and exports.

Meaning:

• The buying and selling of goods and services beyond the geographical limits of

the country is known as International Business.

• In other words trade between the countries is known as International business.

• It involves not only the international movements of goods and services, but also

of capital, personnel, technology and intellectual property like patents,

trademarks, knowhow and copyrights.

• If our country buys goods from some other country it is called IMPORT and if we

sell goods to some other country it is called Export Trade.

Difference between Domestic business and International business

Sl.

No.

Domestic Business International Business

1 Both Buyers and Sellers belong to

same country

Buyers and Sellers come from

different country.

2 Various other stake holders are

usually citizens of the same

country

Various other stake holders are

citizens of the different country

3 The degree of mobility of factors

of production is relatively more

with in a country.

The degree of mobility of factors

of production across nation is

relatively less.

4 Currency of domestic country is

used.

Currency of more than one

country is used.

ANY OTHER CORRECT POINT

• Problems of International business: There are various complexities or problems

involved in the international business. The major problems faced are as follows:

1. Different currencies:

Every country has its own currency. So importer has to make payment in the

currency of exporter’s country.

60

2. Legal Formalities:

International business is subject to a large number of legal formalities and

restrictions. The government of every country exercises strict control over

business with other nations.

3. Distance Barriers:

Due to large distance between countries, it is difficult to establish quick and

personal contacts between traders from different countries.

4. Language Barrier:

Due to different languages in different countries, it becomes difficult for traders

to understand the terms and conditions of the contract.

5. Difference in Laws:

International business transactions are subject to laws, rule and regulations of

multiple countries. International business transactions are subject to laws, rule

and regulations of multiple countries.

6. Information Gap:

It is difficult to obtain accurate information about foreign markets and about the

financial position of foreign merchants.

7. Transport Problem:

Water and air transport are the important modes of transport used in

international business. Shipping is less costly but time consuming. On the other

hand airways are faster but the cost involved is very high.

IMPORT PROCEDURE

Trade Enquiry

Procurement of Import License

Obtaining Foreign Exchange

Placing order or Indent

Obtaining Letter of Credit

Arranging for Finance

Receipt of shipment Advice

Retirement of Import Documents

Arrival of Goods

Customs clearance and Release of goods

61

EXPORT PROCEDURE

Receipt of Enquiry and Sending Quotations

Receipt of Order or Indent

Assessing Importer’s Credit worthiness and securing a guarantee for payments.

Obtaining Export license

Obtaining Pre shipment Finance

Production or Procurement of Goods

Pre shipment Inspection

Excise Clearance

Obtaining certificate of Origin

Reservation of Shipping Space

Packing and forwarding

Insurance of Goods

Customs Clearance

Obtaining Mate’s Receipt

Payment of Freight and issuance of Bill of Lading

Preparation of Invoice and Securing Payment

Documents used in Export Transactions

Documents related to

Goods

Documents Related to

Shipment

Documents Related to

Payment

1. Export Invoice:

• It is issued by the

exporter.

• It provides information

like quantity of goods sent,

total value of goods etc.

1. Mate’s Receipt:

It is issued by the

commanding officer of the

ship to the exporter after

the cargo is loaded on the

ship.

It contains details like

name of the vessel, berth,

date of shipment,

description of packages,

marks and numbers etc.

1. Letter of Credit:

It is guarantee issued by

the importer’s Bank that it

will honor payment up to a

certain amount of export

bills to the bank of the

exporter.

62

It is very important

receipt as shipping

company issues the bill of

lading only after getting this

receipt.

2. Packing List:

It indicates the number of

cases or packs and the

details of the goods

contained in these packs

2. Shipping Bill:

It is the main document

on the basis of which

customs office grants

permission for the export.

It contains details

regarding goods to be

exported, exporter’s name

and address, etc.

2. Bill of Exchange:

• It is drawn by the

exporter on the importer.

• It contains instruction to

the importer to pay a

specified amount to a

certain person or the

bearer of the instrument.

3. Certificate of Origin:

• It specifies the country in

which the goods are being

produced.

• It helps to get tariff

concessions.

• It is also required when

there is a ban on imports of

certain goods from selected

countries

3. Bill of Lading:

• It is prepared by Shipping

company acknowledging

the receipt of goods on

board the ship.

• It is a document of title of

goods and is freely

transferable by

endorsement and delivery.

• It contains an undertaking

to carry them to the port of

destination.

3.Bank Certificate of

Payment:

It certifies that necessary

documents relating to the

particular export have been

presented to the importer

for payment.

4. Certificate of

Inspection:

It ensures that only good

quality products are

exported.

Export Inspection Council

of India is one such agency

4 Airway Bill:

It is prepared by the

airline company to

acknowledge the receipt of

goods on board its aircraft.

It is also a document of

title to the goods and is

freely transferable by the

endorsement and delivery.

63

5. Marine Insurance

Policy:

It is an insurance contract.

It is an agreement to

indemnify the insured

against any loss caused due

to perils of the sea in

consideration of payment

called premium.

6. Cart Ticket:

It is prepared by the

exporter, which provides

details regarding export

cargo, like shipper’s name,

number of packages,

shipping bill number etc.

It is also known as a cart

chit, vehicle pass or gate

pass.

• Documents Used In Import Transactions:

1. Trade Enquiry:

It is a written request by the importer to the exporter to provide information

regarding price, terms and conditions etc.

2. Proforma Invoice:

A proforma invoice is a document that contains detailed information regarding

price, quality, grade, grade, size etc.

3. Shipment Advice:

Shipment advice is a document that the exporter sends to the importer.

It informs that the shipment of goods has been made and details regarding it.

4. Bill of Entry:

It is a document prepared by the importer.

It shows the details of goods imported and is used by custom authorities for

determining import duty.

5. Sight Draft:

It is a type of bill of exchange.

Through this the exporter instructs the bank to hand over the relevant

documents to the importer only against payment

64

6. Usance Draft:

It is a type of Bill of Exchange.

Through this the exporter instructs the bank to hand over the relevant

documents to the importer only against Acceptance of Bill of Exchange.

7. Import General Manifest:

It contains details regarding imported goods.

On the basis of this Goods are unloaded from the carrier.

8. Dock Challan:

It is prepared by the importer or his C& F (Clearing and Forwarding agent)

IT specifies the amount of dock dues.

• WORLD TRADE ORGANISATION (WTO)

It was established on 1st January 1995.

IT was established to have a permanent institution to promote free and fair

trade amongst nations.

Role of WTO

Encouraging member countries to come forward to WTO for mitigating their

grievances

Laying down a commonly accepted code of conduct in order to reduce trade

barriers.

Acting as a dispute settlement body.

Ensuring that all rules and regulations prescribed in the Act are duly followed

by the member countries for the settlement of their disputes

Holding consultations with IMF and IBRD and its affiliated agencies to bring

better understanding and cooperation in global economic policy making

Regularly supervising the operations of the revised Agreements and

Ministerial declarations relating to goods, services and Trade Related

Intellectual Property Rights (TRIPS).

HOTs:

1. Name any two Export Processing Zones.

Ans. 1.Santa Cruz 2.Kandla

2. Which documents helps to avoid and solve any ambiguity or conflict between

exporter and importer?

Ans. Indent

3. Why do exporters demand letters of credit?

Ans: Exporters demand letter of credit to minimize the risk of non-payment

by importer

4. Trendz industries has received an export order of 5,000 kids jeans from

Walmart store, USA. What procedure you will follow to execute this export

order?

Ans. Export Procedure.

65

Tutorial Notes:

(1) Documents Used In Import Transactions:Trade Enquiry, Proforma of Invoice

Shipment Advice ,Bill of Entry ,Sight Draft, Usance Draft Import General Manifest,

Dock Challan:

(2) WORLD TRADE ORGANISATION (WTO) was established on 1st January 1995.IT

was established to have a permanent institution to promote free and fair trade

amongst nations.

(3) Problems of International business: 1.Different currencies 2.Legal Formalities 3.

Distance Barriers 4. Language Barrier 5. Difference in Laws 6.formation Gap

7.Transport Problem

(4) Document is issued by the commanding officer of the ship to the exporter after

the cargo is loaded on the ship - Mate’s Receipt.

(5) The document is prepared by shipping company to acknowledge the receipt of

goods on ship and gives an undertaking to carry them to port of destination - Bill

of lading.

66

VALUE BASED/ CASE STUDY BASED/MDQs

NATURE AND PURPOISE OF BUSINESS

1. Mr. Ajay is a partner in a Chartered Accountant firm. He wants to start a business of his own and for this he is planning to open a mobile phone store. The business involves purchasing of mobile phones from cheap Chinese market and selling them in the Indian market at higher price. Name the economic activity Mr. Ajay is engaged in as Chartered Accountant. What are the three objectives that Mr. Ajay is trying to achieve by starting a business?

Ans. Profession Objectives of business apart from earning livelihood.

2. Miss Shaaranya is a social activist. She is working in the remote areas of Uttar

Pradesh. The local artisans of that area are engaged in producing small wooden toys a dying art of Uttar Pradesh. The problem faced by the artisans in the area are that they are not able to find market for their produce and are dependent on the local dealers who purchase from the local artisans at a very low price and sell them in metros and other big cities at very high prices. After a careful study of the situation, Miss Shaaranya discovered that the reason behind the plight of the local artisans is the lack of tertiary industries in the area. List out the various types of services provided by the Tertiary industries and also mention one point as to how they will be helpful in removing the various hindrances of trade. Ans.

(a) Transport removes hindrance of place (b) Banking removes hindrance of finance (c) Insurance removes hindrance of risk (d) Warehousing removes hindrance of time (e) Advertising removes hindrance of knowledge.

3. Mr Atharva is a social activist. He is working in the remote areas of Uttar Pradesh.

The local artisans of that area are engaged in producing small wooden toys a dying art of Uttar Pradesh. The problem faced by the artisans in the area are that they are not able to find market for their produce and are dependent on the local dealers who purchase from the local artisans at a very low price and sell them in metros and other big cities at very high prices. After a careful study of the situation, Mr Atharva discovered that the reason behind the plight of the local artisans is that they are finding it difficult to market their goods individually. Mr Atharva decides to form a cooperative society for the same and help the local artisans in the cause

1. What kind of Cooperative society will Mr Atharva form? 2. List out the main objectives of this kind of cooperative society

67

Ans 1. Producer’s cooperative society Ans 2. i) To ensure steady supply of raw material inputs etc at reasonable prices

ii) To provide latest machinery and new technology of production iii) To ensure smooth distribution and sale of goods produced by members iv) Helping the producers to concentrate their attention on production of goods.

FORMS OF BUSINESS ORGANISATION

1. 4. Riddhi Siddhi Enterprise is into manufacturing soft toys. Over the past decade, their business has grown from operating a neighborhood gift corner shop selling small soft toys and other gift handmade gift items to a retail chain with four branches in Lucknow. Although the two sisters running the firm Riddhi Siddhi Enterprise look after the varied functions in all the branches, they are wondering that they should form a company to better manage the business. They also plan to open branches nationwide.

a) Explain two benefits of remaining as a partnership firm

b) Explain two benefits of converting to joint stock company

c) What role will their decision to go nationwide play in their choice of the form of the

organization?

d) What legal formalities will they have to undergo to operate business as a company?

Ans. a) Motivation, Secrecy, Flexibility, Scope for expansion b) Large amount of capital, Limited Liability c) Convert to Joint Stock Company d) Legal formalities such as

o Getting certificate of incorporation

o Getting certificate of commencement of business, if she plans to operate

as public ltd company

o Appoint professional experts, brokers who charge high fees

o Prepare various documents such as prospectus, memorandum of

association and articles of association.

PRIVATE PUBLIC AND GLOBAL ENTERPRISES

5. Multinational companies establish themselves in developing countries to enjoy huge profits by selling consumer goods or luxury items. They start business by offering wide variety of goods at prices cheaper than local retailers offer. But once they are established they increase their prices. (a) State the values the government of the developing countries ignores while allowing the MNCs to establish in their countries. (b) What values do MNCs violate?

68

Ans: (a) i) Disregard national interest ii) Ignores national sovereignty iii) Indifferent to consumers’ need

(b) i) Fair trade practices ii) Ethical business iii) Opportunities of growth of local people

iv) Depletion of natural resources.

BUSINESS SERVICES

5. Ram and Sons deal in agricultural products. Their main items are wheat and rice, which they purchase directly from farmers and sell them in different cities. Usually they purchase the entire stock and store them in the ware house of the nearest city. Recently they realized that there is no proper warehouse in two villages from where they purchase rice. In the absence of warehouse, it is very difficult for farmers to store their rice. They decided to construct a warehouse in both villages in cooperation with the villagers. This would facilitate farmers to store not only rice but also other goods during bad weather conditions. What values would Mansukhbhai and sons achieve from this action? Ans.: fulfillment of social responsibility Regular supply of necessary goods Cooperation

6. Rekha Garments has a loan of Rs. 2500000 to pay. They are short of funds so they are trying to find means to arrange funds. Their manager suggested to claim from insurance company against stock lost due to fire in the warehouse. He actually meant that they can put their warehouse on fire and claim from insurance company against stock insured. They can use the claim money to repay the loan.

a) Will the company receive claim if the surveyor from the insurance company comes to

know about the real cause of the fire.

b) What values did the company ignore while planning to arrange money from false

claim

c) Which principles of insurance are defeated in the above case?

Ans: a) No, because the indemnity applies only to accidental and unavoidable loss b) Values ignored are: i) Utmost good faith ii) Honesty & integrity iii) Environment protection c) Utmost good faith, Insurable interest, Mitigation of loss

69

EMERGING MODES OF BUSINESS

7. Olx.com, Quickr.com etc are examples of the websites used to conduct e-business. Kumar’s sofa set got spoiled in rain. His friend suggested that he should change the fabric so that it looks new and put it for sale on Olx.com. Kumar followed his friend’s advice and got his sofa repaired so that it looks better and uploaded nicely clicked pictures on Olx.in without disclosing the fact that it was damaged from indside. He found a customer and sold it for Rs. 100000. After one week, the buyer found the real state of the sofa set and called Kumar but Kumar did not picked any of his call. A) What type of business did Mr Kumar do on Olx.in? B) What values did Kumar ignore while selling the sofa? Ans: A) C2C B) i) Honesty ii) Trust iii) Cheating through misleading advertisement

8. Saanvi Garments Ltd outsourced their accounting department to Urvi Associates. The owner of Urvi Associates, Ms Urvi instructed one of her employees to save the sales information of Saanvi Garments Ltd in her personal pen drive and bring it to office. Urvi the owner of Urvi Associates gave this data to her brother who is I the similar business. They contacted buyers of Saanvi Garments Ltd and offered them lower prices. This resulted in gross loss to Saanvi Garments Ltd. What values did Urvi Associates ignore in the above case? Ans: i) Confidentiality ii) Integrity iii) Breach of trust iv) Business ethics SOCIAL RESPONSIBILITIES OF BUSINESS

9. Arif and Rohit are childhood friends. Though they come from different religious backgrounds but there is a very good understanding between them. After completing their MBA, both decided to take their friendship a step further and become business partners. They decided to start a wire manufacture business. They know that the factory of wire manufacturing pollutes environment. They are contemplating on two options. First option is to establish factory in rural area. The poor and illiterate local residents will not be aware of the adverse effect of pollution and thus Arif and Rohit can manufacture wires at low cost. Second option is to fulfill their social responsibility as business but that would require an additional cost of Rs. 135000. After a lot of thinking they decided to go with the second option. A) Do you think Arif and Rohit are right in going with the second option? B) What specific steps their business may take to control pollution? C) Mention the values adopted by Arif and Rohit while setting up their factory.

70

Ans: A) Yes B) i. Use of environmental friendly techniques ii. Sensitizing all its employees towards protection of environment iii. Use of scientific techniques for disposal and treatment of waste iv. Abiding by all law and regulations related to pollution v. Holding workshops and training for all stakeholders to create awareness C) Values

Help weaker section of society, development of backward areas, Social responsibility towards pollution control, Use of advanced technology to produce quality products, Friendship across religion and communal harmony.

SOURCES OF BUSINESS FINANCE

10. State with reason which source of finance you would prefer for the following need for finance: i) An immediate need for cash ii) Raise of finance from owner’s funds for a period of 10 years. iii) To raise funds to buy a sick unit in Singapore iv) Building stock of inventories to gain from bulk buying

v) Issue of funds from public with an aim to save taxes.

Ans: i) Loan from friend or invest additional capital from personal savings.

Easy cheap and quick source of finance with no cost

ii) Redeemable preference shares

Specific medium term finance with fixed rate of dividend and repayment can be done even after scheduled period

iii) Loan from financial institutions or international banks

Requirement of long term foreign currency loan iv) Trade credit / Overdraft

Purchase of stock from suppliers. Depends on creditworthiness of the business

v) Debentures

Fixed rate of interest allowed as a charge against profit thus saves tax liability.

11. Private Investors Ltd. decided to raise funds through issue of equity shares. The

board of directors was in the favour of issuing equity shares because they know that a company has to pay dividend to equity shareholders only when it earns profits. Board of directors decided that they record losses for the first three years so that they do not have to pay dividends to the shareholders.

I) Are the directors right in their thinking? Why? ii) What values they have ignored.

71

Ans: I) No. Money of share holders is used to earn profit and carry out business

activity; they deserve a reasonable return on their investment.

II) Values ignored are:

Fair return to investors

Business ethics

Honesty and integrity

SMALL BUSINESS

11. Surya Bakery Ltd. Has set up their new factory in Gandhinagar, to produce biscuits and cakes. They purchased automatic machinery and to ensure that proper sanitation and cleanliness is maintained, they ensured that the workers washed their hands with sanitizer and wore sanitized caps, overcoats and shoes before entering the factory area.

The company provides free lunch to all employees and every employee must eat food available in the cafeteria irrespective of their post and position. They also organized a crèche with play area for children of women working in the factory. Mention the various values Surya Bakery Ltd has adopted while establishing factory. Ans: I) Equal employment opportunities for men and women

II) Development of backward region

III) Health and safety

IV)Equal treatment of all employees irrespective of their post. Principle of Equity.

V) Staff welfare.

12. Jamshedji Tata conceived an idea of formation of company in 1908 when East India

Company was ruling Indian market. He selected hilly region bordering three states Jharkhand ( the then part of Bihar), Orissa and West Bengal. All states were thickly populated and poor. The area he chose was rich in iron ore, so he decided to develop iron and steel industry. He wanted to tap the unproductive saving of the public and issued capital of Rs. 500000. Area was undeveloped, so he decided to spend 10% of profits every year for providing infrastructure to the employees. To begin with he provided them accommodation and later he spend share of profits for building schools, hospitals, development of playgrounds and gardens and also contributed in road construction. He also built temples mosques and churches. Employees were satisfied and worked hard. As the result the profits grew up substantially every year and more industries were floated by him. Which values lead to these roads to success? Ans: First mover advantage Entrepreneurship Development of backward area Staff welfare Fulfilling social responsibility

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Environment sensitive Reducing illiteracy by spreading education Providing employment opportunities. INTERNAL TRADE

13. Rama Industries was established to manufacture fashion shoes. Since they were new in the market, they decided to sell their products through wholesalers. They appointed one wholesaler in each district and promised verbally that they will remain exclusive wholesalers in the area. After three years during one of the review meetings the sales manager informed that if the company sells directly to retailers, they will be able to offer competitive prices, which will increase their sales volume and consequently their profits. He was directly advocating elimination of wholesalers.

i) Should the company follow sales manager’s suggestion and start direct business with

retailers? Give reason.

ii) What values would the company ignore if they by-pass wholesalers to earn extra

profit.

ANS: i) No. because it is the wholesalers who have put in all the efforts to establish sales

network and prepared a market for the new product. The company verbally, though,

has promised wholesalers the exclusivity to sell so it may not send good signals

about the company in the market. The wholesalers may sell the competitors product

more aggressively, which may affect the company’s sale adversely.

ii) Values ignored:

Mutual Trust

Integrity

Importance to relationships.

14. Great Alpha One Pvt. Ltd. is a company engaged in setting up big departmental stores in big and small towns. Recently they decided to establish a departmental store in a small town on Mehsana. To get demand they will launch products at much cheaper rates. They have plans to provide training on marketing skills to local people and employ them in departmental store. i) What will be the effect of departmental store in the small area? ii) What values are shown by the owners of Great Alpha One Pvt. Ltd. while establishing departmental store in a small town. Ans: Establishing departmental store in a small town will adversely affect the business of small retailers. They will not be able to compete with the prices and variety of goods offered by departmental stores and as a result many of them will lose their business to the departmental store. Values shown by departmental store: Development of backward areas Providing employment opportunities Improving standard of living of the local residents.

73

INTERNATIONAL TRADE

14. ‘V-Connect Pvt. Ltd.’ is a leading mobile phone manufacturer. They manufacture and sell cell phones across the country. Arpita joined in as marketing manager. During a sales meeting she suggested to sell cell phones online. Everyone in the meeting looked surprised because from last many years they have been selling the cell phones through their distributors on their authorized stores only. The sales director asked Arpita to prepare a detailed report on online selling concept. Soon the cell phones were available online. Within three months they received a big order from South Africa. This would be their first export. i) State and explain the concept of selling online

ii) Discuss the payment mechanism of selling online

iii) Explain in brief the export procedure to export cell phones to South Africa.

Ans: i) E-business, where business activities are conducted over internet or any other

computer net work

ii) Cash on Delivery

Cheque

Net Banking Transfer

Debit/Credit Card

Digital Cash

Export procedure: list the steps of export procedure

74

MISCELLANEOUS VALUE BASED QUESTIONS:

Q.1 A Cloth manufacturer distributes its defective product at free of cost (after

getting them repaired from Nari Niketan at lower cost) to orphanage. Which values

are being attested in this solution?

a) Fulfilness of social responsibility

b) Help to needy class of society

c) Employment to members of Nari Niketan

Q.2 A famous doctor charges high for consultation from his patients and refuses to

treat the Poor patients without consultation charges. He also pays attention to the

medical representatives and agents of Pharma co. he takes gifts and commission

also. In your view, is it professional behaviour of doctor? Does he follow the code of

conduct of doctor?

a) Disobey of professional code of conduct

b) Not fulfilling social responsibilities

c) To take care of poor patients also.

Q.3 An electronic company manufacturing TV and Refrigerator wants to bring two

new Products Washing Machines and AC’s in the market. For each product separate

division are to be set up. In charge of working machine division and AC’s division will

be female and disabled person respectively. Which values have been considered

here?

a) Women Empowerment.

b) Promotion of equality.

c) Making handicapped people independent.

d) iv)Increase of job opportunity with production

Q.4 Mr. X is a sweet maker (Halwai), who collects milk from village to village and

prepares Sweet on Deepawali, due to increased demands, he purchased khoya from

other shopkeeper which was adult rated, because it was not possible to meet the

demand from collected milk. For meeting the demand quickly he has not maintained

cleanliness while preparation of sweets. He kept two children for packing the sweet

and one female at cash counter. Which social values he is affecting and how?

a) Use of adulterated khoya will spoil the health of consumer.

b) Child labour is a crime.

c) Spreading diseases due to non-consideration of cleanliness

d) By employing females equal opportunities to females

75

Q.5 An entrepreneur wants to start his business in backward area because govt.

gives many incentives & rebates in taxes. Which results in low cost and he will be

able to see the product at low prices. There he will be able to get large area by

deforestation. Which values are being affected here?

a) Deprivation of environment from deforestation

b) Availability of goods at low cost

c) Development of backward areas

d) Employment opportunities increase in backward area

Q.6 A fast food manufacturing foreign company plans to open chain of cheap fast

food centres near the schools in Delhi. According to you what will be the results of

this plan?

a) Bad effect on the health of students

b) Increase in the tendency of using fast food among students

c) Profit to the foreign company

Q.7 An automobile Company runs a factory in a backward area. It has opened a

training centre to train the people. Which value has been kept in mind here?

a) Development of Backward areas.

b) Helpful in availing trained employees.

c) Increase in productivity and boosting the morale of employees.

d) Increase in employment opportunities.

Q.8 Tobacco manufacturer is planning to sell its products outside the School &

colleges. Which values are violated here from your point of view?

a) Bad effect on students’ health.

b) Deprivation of Morality.

c) Instigation of social evil

Q.9 In recent times the Govt. has increased the prices of diesel and LPG. Which value

is being overlooked here?

a) Fall in Standard of living

b) Increase in Domestic Expenditure

c) Increase in the cost of agricultural products

76

TIPS FOR SCORING GOOD MARKS

Cracking an examination is a skill that can be acquired. As with studying, scoring

good marks too is a combination of managing one’s time well and applying the right

method.

Here are some guidelines that one can follow while attempting to write an exam.

• Answer the question as it is asked.

Read the question at least twice before answering. Be at guard for either/or questions.

Also make sure to tackle all sub-sections of a question.

• Use the marks as a guide

The examination paper mentions the marks each question carry. Use these mark as a

rough guide as to how long their answers ought to be. Do not expand an answer more

than is relevant. This will save a lot of time which can be used while writing a Long-

Answer question.

• Avoid writing irrelevant points

While writing an answer, focus on the nature of the question asked to maintain focus.

Answering something that is irrelevant to the question, no matter how good a

description it is, will not only waste time but also be given low marks.

• Budget your time

Don’t dwell too much on a particular question as remaining questions may get little or

no time if. Despite how much one writes, one can only score the maximum marks

allocated to that question. If facing difficulty in answering a question, move on to other

questions and return to the former later.

• Check and double-check

Always keep some time for revision while budgeting time. In the rush to complete the

paper, some basic spelling mistakes or forgotten, half-attempted questions may spoil all

the effort.

Believe in yourself. Set a goal for yourself.

Accordingly set a timetable for yourself.

Identify a limited number of direct questions which usually come in the exams &

prepare them well.

Apply FRT (Fast reading technique) i.e. to revise more in less time.

Presentation: Be particular about how you write the answers. It should always be

in points with a heading and a brief explanation.

Do not leave out any Questions.

77

Also be careful not to spend too much time on 1 question at the cost of other

questions.

Wherever any process is asked to be explained, write all the steps involved, irrespective

if the marks allotted to that question.

Draw a flowchart/diagram in support of your answer, wherever possible.

Answer those questions first, which you know very well.

Underline all the sub-headings.

Draw small cartoons /diagrams with small captions wherever fits suitable.

Attempt ‘HOTS’ questions at the last.

Utilize the QP paper reading time to plan writing strategies instead of trying to write

answers in advance.

While trying to understand ‘HOTS’ questions keep in mind chapter-wise allotment of

marks for each chapter. Sometimes this helps to guess the chapter from which the

hots question is given.

Especially in case of Application Oriented Questions (HOTS), read Hindi medium

version also, it may give you some clue. It also removes the vagueness in the English

language.

Maintain a separate small hand – book to write only sub-headings for all the

concepts in the subject. It helps as a ready- reckoner.

Read summaries given at the end of each chapter to get a comprehensive idea about

the given chapter. Hots can be given from summaries also.

Refer latest CBSE sample question papers along with previous year Board Question

Papers.

Refer ‘High scoring students’ answer sheets available in the CBSE web site.

78

BLUE PRINT OF SAMPLE QUESTION PAPER

CLASS: XI

BUSINESS STUDIES

TIME: 3 HOURS M M: 90

BLUE PRINT

Units CHAPTERS VSA (1

Mark)

SA (3

Marks)

SA(4

Marks)

LA (5

Marks)

VLA (6

Marks)

TOTAL

PART – A : Foundation Of Business

1 Nature and Purpose of

Business

1(1) 3(1) 4(1) 08

2 Forms of Business

Organization

3(2) 6(1) 12

3 Public, Private and Global

Organization

1(1) 3(1) 4(1) 08

4 Business Services 1(1) 3(1) 6(1) 10

5 Emerging Modes of Business 1(1) 5(1) 06

6 Social Responsibility of

Business and Business Ethics

1(1) 5(1) 06

PART – B : Finance and Trade

7 Sources of Business Finance 4(2) 6(1) 14

8 Small Business 1(1) 5(1) 06

9 Internal Trade 1(1) 5(1) 6(1) 12

10 International Trade 1(1) 3(1) 4(1) 08

1(8) 3(6) 4(5) 5(4) 6(4) 90(27)

There will be Multi-disciplinary question(s) carrying five marks and Value based question(s) carrying four

marks from any of the units.

The numbers shown in the bracket are the number of questions.

79

SAMPLE QUESTION PAPER - I

CLASS: XI

BUSINESS STUDIES

TIME: 3 HOURS M M: 90

---------------------------------------------------------------------------------------------------------------------

General Instructions :-

1. Answers to questions carrying 1 mark may be from ONE word to ONE sentence.

2. Answers to questions carrying 3 marks may be from 50 to 75 words.

3. Answers to questions carrying 4-5 marks may be about 150 words.

4. Answers to questions carrying 6 marks may be about 200 words.

5. Attempt all parts of a question together.

6. Ensure that this question paper contains 27 questions.

1. “The insured must have an interest in the subject matter of insurance” Which principle

of insurance is related to this statement?

1

2. Which document is called as charter of the company? 1

3. Manoj’s father is the Principal of the school. Mention the economic activity in which he

is involved.

1

4. Give the full form of BPO. 1

5. Which group of society expects that the companies must provide good quality and

unadulterated goods and services as their social responsibility?

1

6. State the primary objective of World Trade Organization 1

7. By what name the traders who do not have a fixed place of business to operate from, are

known?

1

8. State the full form of NSIC. 1

9. Discuss any three auxiliaries to trade. 3

10. Explain three merits of sole proprietorship. 3

11. Discuss any three consequences of Non Registration of partnership firm. 3

12. The Government of India has entered into a contract with a private sector company for

developing a national highway under which the company will develop the highway and

charge toll tax from vehicles plying on it. Name the form under which such a project is

undertaken and explain any two features of it.

3

13. Explain any three important services provided by Banks. 3

14. Explain any three problems of International Business. 3

15. Describe the role of Profit in business. 4

16. Define Joint Venture. Explain its any three features. 4

17. Define any four differences between Shares and Debentures. 4

18. Define Retained Earning and explain its three merits as a source of business finance. 4

19. Differentiate between Domestic business and International business. 4

20. Define e-Business and explain any four benefits of e-Business. 5

80

SUGGESTED ANSWERS TO SAMPLE QUESTION PAPER - I

CLASS: XI

BUSINESS STUDIES

TIME: 3 HOURS MM: 90

1. Principle of insurable interest

2. Memorandum of Association

3. Employment

4. Business Process Outsourcing.

5. Consumers.

6. To remove barriers of International trade.

7. Itinerants

8. National Small Industries Corporation.

9. Any three correct answer with explanation

10. a) Quick decision making

b) Personal satisfaction

c) Information will be kept secretly

d) Direct incentive

e) Ease of formation and closure

21. Mr. Patel stays in his own double storey house in a reputed residential area of

Chandigarh. He established a printing press in the basement of his house which had

been lying vacant for years.

The availability of cheap labour from nearby shanties, power supply (without any

licence), and proximity to the market prompted him to set up the press.

The press was a nuisance to the neighbours. It caused lot of noise, sent out strong

fumes at times, caused lack of privacy to the other houses around.

The neighbours often complained to the MCD and electricity departments of the

illegal press being run. But no action was ever taken against Mr. Patel since he would

bribe the officials.

i] Which values are affected by Mr. Patel’s printing press?

ii] Why should he be concerned about pollution control?

5

22. Describe any five features of Small Business in India. 5

23. Clarify any six services of Retailer to Consumers. 5

24. Give six differences between Public Company and Private Company. 6

25. Explain the various principles of Insurance. 6

26. Define ‘Business Finance’. Explain any five Factors affecting choice of Source of Business

Finance.

6

27. Define Departmental Store and explain its five advantages. 6

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11. Consequences of Non Registration:

1. A Partner of an unregistered firm cannot file a case against the firm or other partners.

2. The firm cannot file a case against third parties.

3. The firm cannot file a case against the partners.

12. Name of the form is Public-Private Partnership.

Features:

Contract between public and private party: It facilitates partnership between public

and private sector.

It is suitable for big projects whose gestation period is long.

Sharing of revenue: Revenue is shared between government and private enterprise

in the agreed ratio.

Pertaining to high priority projects and public welfare: It is used in the government

projects targeted at public welfare. It is related to high priority projects.

13. Important services by banks:

(a) E-BANKING: E-banking means banking transactions carried out with the help of

computer systems (i.e., that is banking over the internet).

1. Electronic Fund Transfer (EFT): Under this system, a bank transfers wages and salaries

directly from the company’s account to the accounts of employees of the company.

2. Automatic Teller Machine (ATM): It refers to an electronic terminal that allows people

with plastic card to perform simple banking transactions like withdrawal of cash 24x7

without any help of human teller.

3. Debit Card: It refers to a plastic card that allows the bank to take money from the

customer’s account and transfer it to a seller’s account.

4. Credit Card: It refers to a plastic card that allows the customer to buy now and payback

the loaned amount to bank at a future date.

5. Online Banking: Under this system, when the customer gives instruction on his

computer, the bank computer transfers money from/ to customer’s account to biller’s

account.

(b) Bank Draft:. Bank draft can be obtained from a bank after depositing the required

amount in the bank.

(c) Banker’s cheque: it is like bank draft payable within city.

(d) Real time Gross Settlement (RTGS): funds transfer system where transfer of money

takes place from one bank to another on a real time and gross basis.

(e) National Electronic Fund Transfer (NEFT): fund is directly transferred from one account

to another account.

14. Problems of International business:

1. Different currencies:

2. Legal Formalities:

3. Distance Barriers:

4. Language Barrier:

5. Difference in Laws:

82

6. Information Gap:

7. Transport Problem:

15. Role of Profit in Business:

i. It is source of income for the business man.

ii. It provides funds for expansion

iii. It is an indicator of efficiency of business man.

iv. It builds up reputation.

16. Meaning of Joint Venture: A joint venture is a business partnership between two or more

companies for a specified purpose.

Eg : Maruti Udyog, Birla Yamaha Ltd, etc.

Benefits:

a) A joint venture has greater resources and capacity.

b) It has access to advanced technology

c) It has access to new markets.

d) It can produce products at a lower cost.

e) It has ideas and technologies to develop innovative products and services.

f) When one party in a joint venture has well established brands and goodwill, the

other party gets its benefits.

17. Differences between Shares and Debentures

18. Meaning of Retained Earnings: - It is a part of profit, which is invested in business, in place

of distributing it as dividend to shareholders. OR When earnings of a business are retained,

then it is called retained earnings.

Merits of Retained Earnings :

(i) No dependence on outside financer for business

(ii) No cost of getting finance (floatation cost) and no cost of using finance (dividend or

rent) for business.

(iii) Present shareholder’s control is not diluted (divided/minimized).

(iv) No binding conditions of financer, so high degree of freedom in business activities.

(v) No need to keep assets under any charge / pledge / security.

83

(vi) When outside finance is not easy available due to recession, it is only way. (Vii)

Useful for expanding business.

19. Difference between Domestic business and International business

Sl.

No.

Domestic Business International Business

1 Both Buyers and Sellers belong to

same country


different country.

2 Various other stake holders are

usually citizens of the same country



3 The degree of mobility of factors of

production is relatively more with in

a country.

The degree of mobility of factors of

production across nation is relatively

less.

4 Currency of domestic country is

used.

Currency of more than one country is

used.


20. Meaning of e – Business:-e – Business refers to all business transactions and functions

conducted electronically.

Benefits of e – Business:

1. Easy to form


3. Convenience

4. Speed


6. Movement towards paperless society.

21. (i) The social values affected by Mr Patel’s printing press are:

1. It is causing pollution, both noise & air pollution, which is a health hazard.

2. There is lack of service to society, since it is a nuisance to the neighbours.

3. It is evading governmental rules & regulations by operating in residential area, that

too without necessary license from the electricity authority.

4. It is violating labour laws by not paying minimum wages as mandated by law.

5. It is being unethical by paying bribes to officials.

(ii) Mr Patel should be concerned about pollution control caused by his business since it

affects in the following ways:

1. Reduction of health hazards- Pollution causes many diseases like cancer, lung

infections, heart complications, etc. Control measures are required to control this.

2. Improved public image – By taking measures to control pollution, a business enjoys a

good reputation in the society.

84

22. Features of small scale industry:

1. Personal character: generally owned by the single individual or partnership

2. Labour oriented: generally use labour intensive techniques.

3. Limited investment: requires less amounts of capital

4. Located in rural and semi urban areas: Located in rural and semi urban areas due to

easy availability of labour

5. Produce consumer goods: generally produce light consumer goods

23. Services of Retailer to Consumers:

a. Regular availability of products.

b. New product information.

c. Purchasing made conveniently.

d. More selection of products.

e. After sales service.

24. Distinguish between private company and public company

Public Company Private Company


Maximum unlimited


Maximum -50.


3


2


lakh.


lakh

4. Index of members: Compulsory

to maintain.

4. Index of members: Not

compulsory to maintain.

5. Transfer of shares: Shares can

be transferred easily from one

person to another.

5. Transfer of shares: Shares

cannot be transferred from one

person to another.

6. Invitation to public: It can


share and debentures

6. Invitation to public: It cannot


share and debentures.

25. (1) Principle of Insurable Interest

(2) Principle of Indemnity

(3) Principle of Utmost Good Faith

(4) Principle of Causa-Proxima

(5) Principle of Subrogation

(6) Principle of Contribution

(7) Principle of Mitigation

85

26. Meaning / Concept of Business Finance: - Funds and investment needed for a new

business establishment, its conduction and expansion, is called business finance.

Factors affecting choice of Source of Business Finance:

27. Meaning of Departmental stores: It is a large store with different types of products. There

will be separate departments like medicines, furniture, clothing etc. These stores are

located at the heart of the city.

Advantages:

i. Attract large number of customers.

ii. Buying is made easier.

iii. More services are provided.

iv. Benefits of large scale operations.

v. Sales get increased by advertising.

86

SAMPLE QUESTION PAPER - II

CLASS: XI

BUSINESS STUDIES

TIME: 3 HOURS MM:90

General Instructions :-

1. Answers to questions carrying 1 mark may be from ONE word to ONE sentence.

2. Answers to questions carrying 3 marks may be from 50 to 75 words.

3. Answers to questions carrying 4-5 marks may be about 150 words.

4. Answers to questions carrying 6 marks may be about 200-250 words.

5. Attempt all parts of a question together.

6. Ensure that this question paper contains 27 questions.

1. New India Limited, which is engaged in cement manufacturing, has initiated a

project involving Rs. 2 crore for developing residential houses for weaker sections

of the society residing in the vicinity of the cement factory. What type of objective

is the company pursuing?

1

2. What is Global enterprise? 1

3. Write the full form of ATM. 1

4. Which method of making payment is mostly used in on-line business? 1

5. State any two types of pollution. 1

6. Define small manufacturing enterprise as specified by MSMED Act, 2006. 1

7. Distinguish any one difference between a wholesaler and a retailer. 1

8. State any two countries with whom India trades. 1

9. Discuss the differences between Economic and Non-economic activities. 3

10. Distinguish between Private Company and public company. 3

11. What do you understand by Sole proprietorship firm? Explain its demerits. 3

12. Discuss any three benefits available to the government company? 3

13. Define e-banking. What are the benefits to customers by e-banking? 3

14. Discuss the procedure related to excise clearance of goods. 3

15. Mr. Ajay is a partner in a Chartered Accountant firm. He wants to start a business of his own and for this he is planning to open a mobile phone store. The business involves purchasing of mobile phones from cheap Chinese market and selling them in the Indian market at higher price. (a) Name the economic activity Mr. Ajay is engaged in as Chartered Accountant. (b) What are the three objectives that Mr. Ajay is trying to achieve by starting a business?

4

16. What are the features of joint ventures? 4

17. Distinguish between owner’s funds and borrower’s funds. 4

18. What are the GDR’s and ADR’s? Explain. 4

19. Explain any four benefits of International Business to Firms. 4

87

20. Explain the benefits of e-business. 5

21. Shyam is a sweet maker (Halwai), who collects milk from village to village and

prepares Sweet on Deepawali, due to increased demands, he purchased khoya from

other shopkeeper which was adulterated, because it was not possible to meet the

demand from collected milk. For meeting the demand quickly he has not

maintained cleanliness while preparation of sweets. He kept two children for

packing the sweet and one female at cash counter. Mention any five social values

affected in this case.

5

22. What are the incentives provided by the government for industries in backward and

hilly areas?

5

23. Explain the advantages of Departmental store. 5

24. Distinguish between ‘Memorandum of Association’ and ‘Articles of Association.’ 6

25. What are services? Explain their distinct characteristics. 6

26. What is meant by retained earning? Explain its merits. 6

27. Explain the services offered by wholesalers to manufacturers. 6

SUGGESTED ANSWERS TO SAMPLE QUESTION PAPER - II

CLASS: XI

BUSINESS STUDIES

TIME: 03:00 HOURS MM: 90

Q.NO.

1. Social objective

2. A Global enterprise is one which has its he4adquarters in one country but operates

its business in many countries.

3. Automated Teller Machine (ATM)

4. Credit card or debit cards.

5. Water Pollution, Air pollution ( or any other correct answer)

6. A manufacturing unit having investment in plant and machinery of Rs. 25 lakh and up

to Rs. 1 crore.

7. Volume of goods- Wholesaler deals in large quantities of goods, retailer deals in small

quantities of goods. ( or any other correct answer)

8. U.S.A., Japan (or any other correct answer).

9. Any three differences based:

1. Motive

2. Expectation

3. Purpose

4. Outcome

5. Examples

88

10. Differences based on

1) No. of members

2) Minimum number of Directors

3) Minimum paid up capital

4) Index of members

5) Transfer of shares

6) Invitation to public to subscribe to shares

11. Sole proprietorship refers to a form of organization owned managed and controlled

by individuals who is the recipient of all profits and bearer of risks. (1-M)

(a) Limited resources

(b) Unlimited liabilities

(c) Limited life of a business concern

12. Benefits..

1. Easily established

2. Separate legal entity

3. Enjoys autonomy

4. Curbs unhealthy business practices

13. E-banking means banking transactions carried out with the help of computer systems

(i.e., that is banking over the internet)

a. e-banking provides 24 hours, 365 days a year services

b. Make transaction from office, home or while travelling

c. Recording each and every transaction

14. Excise clearance of goods: As per the Central Excise Tariff Act, excise duty is payable

on the materials used in manufacturing goods. The exporter, therefore, has to apply

to the concerned Excise Commissioner in the region with an invoice. If the Excise

Commissioner is satisfied, he may issue the excise clearance. But in many cases the

government exempts payment of excise duty or later on refunds it if the goods so

manufactured are meant for exports.

15. Profession Explain Objectives of business apart from earning livelihood.

16. Features of joint ventures:

Large capital and resources: A joint venture has greater resources and

capacity.

Advanced technology: It has access to advanced technology

It has access to new markets.

Reduction in cost: It can produce products at a lower cost.

New ideas: It has ideas and technologies to develop innovative products and

services.

When one party in a joint venture has well established brands and goodwill,

the other party gets its benefits.

Protection for small companies

89

17. Distinguish between owner’s funds and borrower’s funds.

BASIS OWNER’S FUNDS BORROWED FUNDS

1.Control Loss on control No Loss on control

2. Voting Rights Yes, Voting rights. No Voting rights.

3. Redemption Not redeemable Mostly redeemable

4.Degree of risk High Low

18. Global Depository Receipts (GDR’s): The local currency shares of a company are

delivered to the depository bank. The depository bank issues depository receipts

against these shares. Such depository receipts denominated in US dollars are known

as Global Depository Receipts (GDR).

American Depository Receipts (ADR’s): The depository receipts issued by a company

in the USA are known as American Depository Receipts. ADRs are bought and sold in

American markets like regular stocks. It is similar to a GDR except that it can be

issued only to American citizens and can be listed and traded on a stock exchange of

USA.

19. Benefits of International Business to Firms :

1. It helps in increasing profits of the firms by selling goods in the countries

Where prices are high.

2. It helps firms in using their surplus production capacities and improving the

profitability of their operations.

3. It helps firms in improving their growth prospects.

4. It acts as one of the ways of achieving growth for firms facing tough market

conditions in the domestic market.

5. It improves business vision as it make firms more competitive, and diversified.

20. 1. Easy to form

Very easy to start e – business because host of procedures required for traditional

business are not required for e – Business


Both big and small business gets the benefits of internet equally. Thus even one start

of small business with less investment can derive the benefit of e – Business.

3. Convenience

Internet offers the convenience of 24 hours X 7 days a week with a less investment –

i.e. one can access anything, anywhere, any time.

4. Speed

Any business transaction can be made simply at the click of the mouse button, for

e.g. Electronic Funds Transfer takes place at the speed of light


In e – Business both businessmen and consumers have no national boundaries

because internet is without such boundaries. In absence of such internet,

globalization may be restricted in scope and speed.

90

6. Movement towards paperless society

Cutting thousands and thousands of trees to make paper adversely affects the

environment but internet has considerably reduced the dependence on paper.

21. a) Use of adulterated khoya will spoil the health of consumer.

b) Child labour is a crime.

c) Spreading diseases due to non-consideration of cleanliness.

d) By employing females equal opportunities to females.

e) Ignoring social objectives for maximisation of sale and profit.

22. The incentives provided by the government for industries in backward and hilly areas:

a) Provide Land,

b) Power at concessional rate,

c) Water at concessional rate,

d) Exempted from sales tax

e) Provide Finance,

f) Abolishing Octroi,

g) Tax holiday.

23. Advantages of Departmental stores

1. Attract large number of customers.

2. Buying is made easier.

3. More services are provided.

4. Benefits of large scale operations.

5. Sales get increased by advertising.

24. Basis of Difference:

(a) Objectives,

(b) Position,

(c) Relationship,

(d) Validity,

(e) Necessity,

(f) Alteration

25. Services are those separately identifiable, essentially intangible activities that provide

satisfaction of wants, and are not necessarily linked to the sale of a product or

another service.

Characteristics of services :

a) Intangibility,

b) Inconsistency,

c) Inseparability,

d) Inventory (less),

e) Involvement.

26. A company generally does not distribute all its earnings amongst the shareholders as

dividends. A portion of the net earnings may be retained in the business for use in

the future. This is known as retained earnings.

91

Merits of retained earnings:

a. Retained earnings is a permanent source of funds available to an organisation;

b. It does not involve any explicit cost in the form of interest, dividend or floatation

cost;

c. As the funds are generated internally, there is a greater degree of operational

freedom and flexibility;

d. It enhances the capacity of the business to absorb unexpected losses;

e. It may lead to increase in the market price of the equity shares of a company.

27. The services provided by wholesalers to manufacturers include

a. facilitating large scale production;

b. bearing risk;

c. providing financial assistance;

d. expert advice;

e. help in marketing function;

f. facilitating continuity

g. storage

92

SAMPLE QUESTION PAPER - III

CLASS: XI

BUSINESS STUDIES


----------------------------------------------------------------------------------------------------------------------

General Instructions:

1) Answer to question carrying 1 mark may be from one word to one sentence.

2) Answer to question carrying 3 marks may be from 50 to 75 words.

3) Answer to question carrying 4-5 marks may be about 150 words.

4) Answer to question carrying 6 marks may be about 200 words.

5) Attempt all parts of a question together.

6) Ensure that this question paper contains 27 questions

1 How will you determine whether a particular activity is an economic activity

or a non-economic activity?

1

2 Give two examples of government companies. 1

3 State the full form of RTGS. 1

4 In which type of e-business transaction, both buyers and sellers are

customers?

1

5 Why do small scale industries have low bargaining power in purchasing raw

material?

1

6 State any one service rendered by a retailer to consumers. 1

7 Name the concept which defines the right and wrong behaviour in the world

of business.

1

8 Ramson InfoTech wishes to buy 400 computers from Australia for its

software development business. Name the procedure to be adopted by the

company.

1

9 Define business risk. Name its two causes. 3

10 “A promoter is called parent of the company.” Do you agree? Name the

steps taken by promoters in the promotion of a company.

3

11 In which form of organisation is a trade agreement made by one owner is

binding on the others? State two limitations of that form of organisation.

3

12 Discuss briefly the role of WTO. 3

13 Explain three benefits of e-banking to customers 3

14 Discuss briefly three merits of Departmental Undertaking. 3

15 What do you mean by Joint Venture? Explain its three features of Joint

Venture.

4

16

(a)

(b)

State any four distinguish between Shares and Debentures on the basis of

Status

Rate of Return

4

93

(c)

(d)

Control

Degree of Risk

17 The founders of present Bajaj Auto Limited were in the business of trading

auto parts since 1946. Around 1960, they decided to enter manufacturing

sector. They considered several alternatives except manufacturing liquor

and mill cloth because of their values and staunch technology belief in

Gandhian ideology which also included producing cloth by using ingenuous

technology which provided employment to more people.

Identify the values which were involved in not considering alternatives of

manufacturing liquor and mill cloth and their effects.

4

18 Briefly discuss the merits and demerits of equity shares as a source of

finance.

4

19 Give any four differences between Domestic Business and International

Business.

4

20 Evaluate the need for outsourcing for our business? 5

21 Discuss any five arguments in favour of social responsibility of business. 5

22 Discuss the features of small scale business. 5

23 Identify the name of large-scale retailer which has many stores of the same

type at different locations and explain its four demerits.

5

24 Discuss the various factors which affect the choice of source of finance. 6

25 Imagine life without your local Market. What difficulties would a consumer

face if there is no retail shop?

6

26 Distinguish between Goods and Services on any six bases. 6

27

(a)

(b)

Mayank, a diploma holder in fashion technology, started his business of

manufacturing ready-made garments in the form of sole trader. His business

achieved considerable success. In order to expand his business, Mayank

wanted to convert the sole trader form into joint stock company form.

What benefits will he lose in converting his present form of organisation

into the proposed form?

What benefits will he derive for his readymade garment business in the new

form of organisation?

6

SUGGESTED ANSWERS TO SAMPLE QUESTION PAPER - III

CLASS: XI

BUSINESS STUDIES


Q.NO.

1 If an activity is performed for monetary benefit, then it will be economic

activity, otherwise it will be a non-economic activity.

94

2 Steel Authority of India Ltd. (SAIL)

Bharat Heavy Electricals Ltd. (BHEL)

Any other correct answer

3 Real Time Gross Settlement

4 C2C commerce (Customer-to-Customer Commerce)

5 Because they purchase raw material in small quantities.

Any other correct answer

6 Home delivery (or any other correct point)

7 Business Ethics

8 Import Procedure

9

a

b

c

Business risk refers to the possibility of inadequate profits or even losses due to

uncertainties or unexpected events.

Causes:

Natural causes

Human causes

Economic Causes

10 (a)

(b)

(c)

(d)

(e)

(f)

Identification of business idea/opportunity

Feasibility studies

Name approval

Fixing up signatories to the Memorandum of Association

Appointment of professionals

Preparation of necessary legal documents

11

a

b

c

d

Partnership

Limitations:

Partners have unlimited liability

Partnership has limited resources as compared to Company business

Any difference of opinion among partners may cause conflict among partners

Life of partnership is highly uncertain and unstable

Due to non-publishing its account to public partnership enjoys less confidence

of the public.

Any correct Limitation

12 a

b

c

d

e

Encouraging member’s countries to come forward to WTO for mitigating their

grievances.

Laying down a commonly accepted code of conduct in order to reduce trade

barriers.

Acting as a dispute settlement body.

Ensuring that all rules and regulations prescribed in the Act are duly followed by

members


95

13 a

b

c

d

It provides 24 X7, 365 days a year services to the customers of the bank.

Customers can make the permitted transactions from any place

It inculcates a sense of financial discipline by recording each and every

transaction.

By offering unlimited access to the bank, it provides greater satisfaction of the

customer

ANY OTHER CORRECT BENEFIT

14 (a) Finance

(b) Accounting System

(c) Management

(d) Appointment of employees

(e) Accountability

(f) ANY OTHER CORRECT POINT

15

a

b

c

d

e

When two or more firms join together for a common purpose and mutual

benefit, it is known as joint venture.

Features

Joint venture leads to pooling causes increased resources and capacity.

Joint venture with a partner from another region or country opens up a vast

growing market.

Joint venture provides access to advanced techniques of production.

Joint venture proves to be very useful in providing new and innovative

products.

With Joint venture it leads to low cost of production because of available

resources in one country to other.

Joint venture helps to get the benefit of goodwill to the other company

16

Basis Shares Debentures

Status Shareholders are the

owners of the company

Debenture holders are the

creditors of the company

Rate of

Return

Dividend fluctuates

depending on profit of

the company

Interest rate is fixed

irrespective of profits

Control Shareholders enjoy

voting rights and can

exercise control over the

management of the

company

Debentures do not carry any

voting rights. So, debenture

holders do not have any

control over the company

Degree of Risk

Shareholders bear a high

degree of risk.

Debenture holders bear a

high degree of risk.

Any correct explanation other than above explanation for mentioned

point can be considered.

96

17 A

b

The values involved in not considering alternatives of manufacturing liquor

and mill cloth were as follows:

Manufacturing of liquor is not in the social interest.

Providing more employment opportunities to people through alternative

businesses.

Effects of the above values were as follows:

Setting example before others not to create social problems by manufacturing

liquor.

Encouragement to ingenuous technology for manufacturing cloth.

18

a

b

c

d

e

f

a

b

c

d

e

Merits

Ideal for adventurous investors

No obligation as to dividend

Source of fixed capital

Provides credit standing

No charge on assets

Democratic management

Any correct answer

Or

Demerits

Risk of fluctuating returns

High cost of capital

Dilution of control

Legal formalities

Danger of over-capitalisation

Any correct answer

19

S No Domestic Business International Business

1 Both Buyers and Sellers

belong to same country


different country.

2 Various other stake

holders are usually

citizens of the same

country



3 The degree of mobility of

factors of production is

relatively more with in a

country.

The degree of mobility of factors of

production across nation is

relatively less.

4 Currency of domestic

country is used.

Currency of more than one country

is used.


97

20 a

b

c

d

e

Focusing of Attention in core competencies

Quest of excellence

Cost Reduction

Growth through Alliance

Fillip (Boost) to Economic Development

21 Arguments

1. Justification for existence and growth.

2. Long term interest of the firm

3. Avoidance of Government Regulation

4. Maintenance of Society

5. Availability of resources with business.

6. Converting problems into opportunities

7. Better environment for doing business

8. Holding business responsible for social problems

22

Features of small scale industry:

(a) Personal character: generally owned by the single individual or

partnership

(b) Labour oriented: generally use labour intensive techniques.

(c) Limited investment: requires less amounts of capital

(d) Located in rural and semi urban areas: Located in rural and semi urban

areas due to easy availability of labour

(e) Produce consumer goods: generally produce light consumer goods

23

a

b

c

d

e

f

The type of retailer is chain store. Its four demerits are as follows:

Huge Capital Requirement

Limited Choice

Absence of Many Services

Lack of Personal Touch

High Overheads

Difficulty in Coordination

ANY OTHER CORRECT DEMERITS

24

a

b

c

d

e

f

g

h

i

j

Cost

Financial Strength and Stability of Operations

Form of Organisation and Legal Status

Purpose and Time period

Risk Profile

Control

Effect on Credit Worthiness

Flexibility and Ease

Tax Benefits

Any other correct Answer

98

25 a

b

c

d

e

f

g

Regular Availability of Products

New Product Information

Convenience in Buying

Wide Selection

After-sales Services

Provide Credit Facilities

Any other correct Answer

26

27 (a)

(b)

Mayank will lose the following benefits:

1. Freedom of managing business according to his Choice

2. Flexibility

3. Ease of formation and closure

4. Secrecy of information

5. Quick decision Making

Any other correct demerit

Benefits that Mayank will derive for his readymade garment business:

1. Large size business operation

2. Better exposure of business to public

3. Higher public confidence

4. Better managerial ability

5. Limited Liability

Any other correct merit