Students must start practicing the questions from CBSE Sample Papers for Class 11 Business Studies with Solutions Set 4 are designed as per the revised syllabus.
CBSE Sample Papers for Class 11 Business Studies Set 4 with Solutions
Time : 3 Hours
Maximum Marks : 80
General Instructions:
- This question paper contains 34 questions.
- Marks are indicated against each question.
- Answers should be brief and to the point.
- Answers to the questions carrying 3 marks may be from 50 to 75 words.
- Answers to the questions carrying 4 marks may be about 150 words.
- Answers to the questions carrying 6 marks may be about 200 words.
- Attempt all parts of the questions together.
Question 1.
From a very young age, Aarav was interested in traditional Indian textiles and craftsmanship. To make a career
in this field, she pursued a course in Design and Merchandising from an International University. After acquiring considerable knowledge, Aarav now wants to use his knowledge and experience in fashion and merchandising to glorify the Indian textiles. For this, he wishes to open a store. This store is going to be an initiative to incorporate the latest trends, luxury fabrics, Indian traditional weaves and culture. He has kept two employees- one salesman and a cashier. If he faces any managerial issue, he consults his father. However, he is facing a lot of problems as the competition is increasing and the trends keep on changing. His sales have declined considerably. One day he found that his cashier is doing some embezzlement of funds. Which risk is he facing? [1]
(A) Speculative Risk
(B) Pure Risk
(C) Partial Risk
(D) Both (A) and (B)
Answer:
Option (B) is correct.
Explanation: He is facing pure risk. Pure risk is the risk which involves only the possibility of loss or no loss.
Question 2.
In order to meet the social goals like improving the standard of living for weaker sections of the society, providing health care and hygienic conditions in slum areas, etc. which services are provided? [1]
(A) Personal services
(B) Business services
(C) Social services
(D) None of these
Answer:
Option (C) is correct
Explanation: Social services are generally provided voluntarily in pursuit of certain goals.
Question 3.
Mr. Krishna Kumar is a businessman, dealing in confectionery items. His marketing strategy and quality control
system has enabled him to create a niche market for his products. He has opened an account with PNB and every day he makes a number of transactions, both deposits and withdrawals to conduct his business smoothly. Sometimes he even withdraws more than the balance available in his account. But he doesn’t earn any interest on this account. Apart from this account, he has opened Recurring Deposit Account also in which he deposits ^10,000 monthly. He believes that money should not be kept idle, rather it should be invested in productive channels as money begets money. [1]
Identify the bank account stated in the above line.
(A) Savings Account
(B) Fixed Deposit Account
(C) Current Account
(D) Demat Account
Answer:
Option (C) is correct
Explanation: Current bank accounts are operated to run a business. It is a non-interest bearing bank account. It needs a higher minimum balance to be maintained as compared to the savings account. Penalty is charged if minimum balance is not maintained in the current account.
Question 4.
Wholesalers are very important because they just not buy goods from manufacturers but, also help the manufacturers in marketing of the product by:
(A) Making payment in cash
(B) Providing transportation facility
(C) Storing goods in Bulk quantity
(D) Conveying retailers’ feedback to manufacturer [1]
Answer:
Option (D) is correct
Explanation: The wholesalers are in direct contact with the retailers. Therefore, they advise the manufacturers about various aspects related to the customer’s tastes and preferences.
Question 5.
One of the basic problems which are faced by the people engaged in international business is that different
countries have different currencies. To resolve this issue, which of the following currency is considered as the most popular currency in the international trade? [1]
(A) US Dollar
(B) UK Euro
(C) Japanese Yen
(D) Indian Rupee
Answer:
Option (A) is correct
Explanation: The US Dollar (USD) is widely considered the most popular currency in international trade. It is often used as a medium of exchange for global transactions and serves as a reserve currency for many countries.
Question 6.
The following image showcases an oil refinery. Which type of industry is an oil refinery? [1]
(A) Genetic
(B) Synthetic
(C) Analytic
(D) Processing
Answer:
Option (C) is correct
Explanation: Analytical industry analyses and separates different elements from the same material.
Question 7.
The person whose risk is insured is called …………….. and the firm which insures the risk of loss is known as ……………….. . [1]
(A) Insured, Insurer
(B) Insurer, Insured
(C) Insurer, Assurance underwriter
(D) Assurance underwriter, Insurer
Answer:
Option (A) is correct
Explanation: Insurance is a contract or agreement under which one party agrees in return for a consideration to pay an agreed amount of money to another party to make a loss, damage or injury to something of value in which the insured has a pecuniary interest as a result of some uncertain event. The agreement/contract is put in writing and is known as ‘policy’. The person whose risk is insured is called ‘insured’ and the firm which insures the risk of loss is known as insurer/ assurance underwriter.
Question 8.
Karigar Furniture Ltd., a company manufacturing and trading furniture, was started by Saransh with five of his friends under Start Up India Program. It provides a diverse collection of wooden, plastic, cane, bamboo, and steel furniture at reasonable rates to the customers. They import raw-material from China for the same abiding by the government policy and procedures for imports. The company is earning good profits and donating 5% of profits earned’for plantation of trees on highway roadside. The company organises training and skill development programme for its workers. The efficient planning and marketing strategy of the company has offered the owners of the company reasonable appreciation of capital employed. [1]
Providing furniture at the reasonable rates is an example of social responsibility towards which of the following? [1]
(A) Consumers
(B) Community
(C) Creditors
(D) Owners
Answer:
Option (A) is correct
Explanation: By offering furniture at reasonable rates, Karigar Furniture Ltd. is demonstrating a social responsibility towards its consumers. This action implies that the company is considering the affordability and accessibility of its products for the customers. It shows a commitment to providing value for money and ensuring that consumers can afford the furniture they need.
Question 9.
Which of the following statements is false: [1]
(A) Long-term funds fulfil the financial requirements for a period exceeding 5 years.
(B) Medium-term sources provide funds for a period of more than one year but less than five years.
(C) Medium-term sources provide funds for a period of more than one year but less than three years.
(D) Short-term funds are required for a period not exceeding one year.
Answer:
Option (C) is correct
Explanation: Where the funds are required for a period of more than one year but less than five years, medium-term sources of finance are used. These sources include borrowings from commercial banks, public deposits, lease financing and loans from financial institutions.
Question 10.
Read the following statements: Assertion (A) and Reason(R). Choose the correct alternative from those given below: [1]
Assertion (A): The preference shareholders enjoy a preferential position over the equity shareholders. Reasoning (R): They receive a fixed rate of dividend, out of the net profits of the company, before any dividend is declared for equity shareholders.
Alternatives:
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
(C) Assertion (A) is true but Reason (R) is False
(D) Assertion (A) is False but Reason (R) is True
Answer:
Option (A) is correct.
Explanation: It states that preference shareholders enjoy a preferential position over equity shareholders. This is true because preference shareholders have certain preferential rights and privileges compared to equity shareholders.
It preference shareholders receive a fixed rate of dividend out of the net profits of the company before any dividend is declared for equity shareholders. This is also true, as preference shareholders are entitled to receive dividends at a pre-determined fixed rate or percentage of the face value of their shares before dividends are distributed to equity shareholders.
Question 11.
Preference shares that can be converted into ……………….. within a specified period of time are known as convertible preference shares. [1]
(A) Debentures
(B) Equity shares
(C) Commercial paper
(D) Bonds
Answer:
Option (B) is correct.
Explanation: Preference shares that can be converted into equity shares within a specified period of time are known as convertible preference shares. This means that the holders of these preference shares have the option to convert them into equity shares of the company at a pre-determined conversion ratio and within a specified timeframe. By converting their preference shares into equity shares, the shareholders can become owners of the company and enjoy the benefits and risks associated with equity ownership, such as voting rights and potential capital appreciation. The conversion is usually based on certain conditions and terms outlined in the company’s issuance of the convertible preference shares.
Question 12.
Madhu, Himanshu and Mayank are doing business in partnership. As per the terms, the liability of Madhu and Mayank is limited while the liability of Himanshu is unlimited. What type of partnership is being followed by them? [1]
(A) Secret Partnership
(B) Limited Liability Partnership
(C) Nominal Partnership
(D) Active Partnership
Answer:
Option (B) is correct.
Explanation: In a limited liability partnership, the liability of at least one partner is unlimited whereas the rest may have limited liability.
Question 13.
Statement I: The debenture holders of the company enjoy voting rights in the company. [1]
Statement II: Debentures are fixed charged funds and do not participate in profits of the company.
Choose the correct option from the following:
(A) Statement I is true and II is false
(B) Statement II is true and I is false
(C) Both the statements are true
(D) Both the statements are false
Answer:
Option (B) is correct.
Question 14.
Sensing the business opportunities in Food industry, Sagar Bagada after completing his graduation in Agriculture
engineering, decided to open his own enterprise. His dream turned into reality when his enterprise, “Swaad Food Industries” set up its food and beverages processing plant in ‘Mitrapura”, one of the rural area of Rajasthan, under Start-up India Scheme launched on 16th January, 2016.
The enterprise opted for labour intensive technique, due to easy availability of labour at lower cost. Within no time,he came in the list of successful entrepreneurs. [1]
“The enterprise opted for labour intensive technique, due to easy availability of labour at lower cost.” Identify the need for entrepreneurship satisfied in the given statement.
(A) Organization of production
(B) Generation of employment
(C) Economic efficiency
(D) Generation of business opportunities for others
Answer:
Option (C) is correct
Explanation: By opting for a labor-intensive technique in the food and beverages processing plant, “Swaad Food Industries” aimed to achieve economic efficiency. The decision to utilize labor-intensive methods was driven by the easy availability of labor at a lower cost. This choice allows the enterprise to minimize production costs and improve efficiency in its operations. Economic efficiency is a key aspect of entrepreneurship, as entrepreneurs strive to optimize resource allocation and maximize output with the available resources. In this case, by choosing a labor-intensive technique, “Swaad Food Industries” was able to make the most efficient use of the labor available in the area, leading to cost savings and increased productivity.
Question 15.
Which of the following fixed shop small retailers sell rare objects of historical value and antique items at heavy prices to people who have special interest in such antique goods? [1]
(A) Second-hand goods shop
(B) Speciality shops
(C) General stores
(D) Street stall holders
Answer:
Option (A) is correct.
Explanation: These shops deal in second-hand or used goods, like books, clothes, automobiles, furniture and other household goods. Generally, persons with modest means purchase goods from such shops. The goods are sold at lower prices. Such shops may also stock rare objects of historical value and antique items which are sold at rather heavy prices to people who have special interest in such antique goods.
Question 16.
Statement I: Mail order houses are the retail outlets that sell their merchandise through mail
Statement II: There is generally no direct personal contact between the buyers and the sellers in this types of trading.
Choose the correct option from the following: [1]
(A) Statement I is true and II is false
(B) Statement II is true and I is false
(C) Both the statements are true
(D) Both the statements are false
Answer:
Option (C) is correct
Explanation: Mail Order Houses are retail outlets selling directly to consumers. For obtaining orders, potential customers are approached through advertisements in newspapers or magazines, circulars, catalogues, samples and bills, and price lists sent to them by post.
Question 17.
Govind wants to open a retail organisation where some type of commodities are sold at uniform prices all over
the country. Help him to identify the name of such retail organisation. [1]
(A) Multiple shops
(B) Departmental stores
(C) Consumer Cooperative Store
(D) Mail Order Houses
Answer:
Option (A) is correct.
Explanation: Chain stores or multiple shops are networks of retail shops that are owned and operated by manufacturers or intermediaries. Under this type of arrangement, a number of shops with similar appearance are established in localities, spread over different parts of the country. These different shops normally deal in standardised and branded consumer products, which have rapid sales turnover. These shops are run by the same organisation and have identical merchandising strategies, with identical products and displays.
Question 18.
Match the following sources of finance given in column I with their merits given in column II. [1]
Column I | Column II |
1. Merchandise | (i) Intangible Services |
2. Franchising | (ii) Permitting party to produce goods under your trademark |
3. Licensing | (iii) Tangible goods |
4. Invisible trade | (iv) Permitting party to provide services under your trademark |
(A) 1. (ii), 2. (iv), 3. (iii), 4. (i)
(B) 1. (iv), 2. (i), 3. (ii), 4. (iii)
(C) 1. (iii), 2. (ii), 3. (iv), 4. (i)
(D) 1. (iii), 2. (iv), 3. (ii), 4. (i)
Answer:
Option (D) is correct.
Column I | Column II |
1. Merchandise | (iii) Tangible goods |
2. Franchising | (iv) Permitting party to provide services under your trademark |
3. Licensing | (ii) Permitting party to produce goods under your trademark |
4. Invisible trade | (i) Intangible Services |
Question 19.
Every importer is required to secure the sanction of foreign exchange in order to make the payment. For obtaining such a sanction, the importer has to make an application to whom among the following authority: [1]
(A) Exchange Control Department of RBI
(B) Any bank authorized by RBI to issue foreign currency
(C) EXIM
(D) DGFTAE
Answer:
Option (B) is correct
Explanation: Since the supplier in the context of an import transaction resides in a foreign country, he/she demands payment in a foreign currency. Payment in foreign currency involves exchange of Indian currency into foreign currency. In India, all foreign exchange transactions are regulated by the Exchange Control Department of the Reserve Bank of India (RBI). As per the rules in force, every importer is required to secure the sanction of foreign exchange. For obtaining such a sanction, the importer has to make an application to a bank authorised by RBI to issue foreign exchange. The, application is made in a prescribed form along with the import licence as per the provisions of Exchange Control Act.
Question 20.
……………… is a written request to the exporter to provide information regarding price, terms and conditions, etc. on which the exporter will be able to supply goods. [1]
(A) Trade Enquiry
(B) Proforma Invoice
(C) Quotation
(D) None of the above
Answer:
Option (A) is correct
Question 21.
Mr. Sanjay is the Karta of JHF business. He has the absolute power of taking business decisions and his decisions are binding on the other members. Once he took a wrong decision of buying machinery which soon got obsolete and the business suffered the heavy loss.
(i) Identify and explain limitation of JHF highlighted here.
(ii) What are the options available to co-partners to avoid this situation. [3]
Answer:
(i) Dominance of Karta: The karta individually manages the business and takes all the decision and coparceners can’t go against his decision.
(ii) If the coparceners are not satisfied with the performance of Karta, with the mutual consent of members business can be terminated.
Question 22.
What are the various types of Industries ? [3]
OR
Explain how industry, trade and commerce are interrelated. [3]
Answer:
The various types of Industries are:
(i) Primary Industry: Includes all activities related to:
(a) Extraction and production of natural resources,
(b) Reproduction and development of living organisms, plants, etc.
(ii) Secondary Industry: These industries process raw material supplied by primary industries to produce goods for further processing by other industries or for final consumption.
(iii) Tertiary Industry: Tertiary industries provide supporting services to primary industries, secondary industries and to all activities related to trade, removing hindrances arising dtuing the process of production and distribution of goods.
OR
Industry, commerce and trade are closely related to each other in a number of ways:
(i) Industry is related to the production of goods and services and commerce helps to distribute the goods and services produced by the industry to the final consumer.
(ii) Industry and commerce are interdependent on each other. They cannot survive in isolation as both are vital for each other. Commerce will be of no use in the absence of industry and industry cannot survive in the absence of commerce. Commerce is a creator of place utility and time utility and serves the backbone of industry, while industry provides the base for commerce.
(iii) Trade is an integral part of commerce. It refers to the sale and purchase of goods and services. It provides a ground for commerce to play. It not only provides support to industry but also maintains a smooth flow of commerce at the same time.
Question 23.
“The objective of business should not always be economic. No doubt economic object is indispensable for existence and development, but economic objectives can be achieved only when a business has social standing.” In the context of above discussion, state any three social objectives of business. [3]
Answer:
Social objectives are:
- Supply of desired quality of products
- Avoidance of unfair trade practices
- Employment generation
Question 24.
“Retained earnings are better than other sources of finance.” Do you agree with the statement? Give reasons to support your answer. [3]
OR
“Equity shares are the best investment avenue for adventurous investors.’ Justify the statement by giving your views. [3]
Answer:
Retained earnings are better than other sources of finance due to the following reasons:
- Retained earnings are a permanent source of funds available to an organisation.
- It does not involve any explicit cost in the form of interest, dividend or flotation cost.
- As the funds are generated internally, there is a greater degree of operational freedom and flexibility.
OR
Following points justify equity investment as the best investment:
(i) Equity shareholders do not get fixed rate of dividend as in the case of preference shares but they enjoy higher dividends during large profits to the companies. Higher dividends appreciate the market value of equity shares in the market, maximising the shareholders wealth.
(ii) It is a source of long-term investment as the equity capital is not redeemable during the lifetime of the company.
(iii) Equity shares provide the voting rights to the shareholders through which they can exercise control over management.
Question 25.
Explain the following types of partners: [4]
(a) Sleeping partner
(b) Nominal Partner
OR
Discuss the following features of Hindu Undivided family: [4]
(a) Formation
(b) Liability
Answer:
(a) Sleeping Partner: A partner who contributes capital in the firm but does not take active part in the management of the business is known as sleeping partners. However, he has the same duties, rights, liability (unlimited) and status as enjoyed by active partners.
(b) Nominal Partner: If a person neither contributes capital nor shares profits, does not participate in the management of a firm but allows his credit and name to be used by the firm is known as nominal partner.
OR
(a) Formation: At least two members and ancestral property to be inherited by them is the basic requirement. An individual becomes a member by birth; therefore, no agreement is required.
(b) Liability: The liability of Karta is unlimited while that of the other members is limited to the extent of their share.
Question 26.
Write any four merits of departmental undertakings. [4]
OR
State the limitations of statutory corporations? [4]
Answer:
The merits of departmental undertakings are:
(i) Effective control of Parliament: These under¬takings ensure effective control over their operations by the Parliament. Annual reports of the undertakings are laid on the table of both the houses of the Parliament. Hence, Parliament can effectively ensure the efficiency of these undertakings.
(ii) Public accountability: These undertakings are established for some specific work of the ministry. Sometimes government reviews the working of these undertakings through government audit. Hence, they provide a high degree of public accountability.
(iii) Revenue is a source of income for government: Whatever revenue is earned by these enterprises is deposited directly into the government treasury. Hence, their revenue is an important source of income for the government.
(iv) National security : These enterprises work under the direct control and supervision of the concerned ministry. Hence, there is no danger to the national security.
OR
The limitations of statutory corporations are:
(i) Government interference: In the matters related to some important decisions or involving huge investment, there is always government and political interference.
(ii) Corruption: Where it involves dealing with the public, corruption is inevitable. This corruption destructs the whole purpose of creating such enterprises.
(iii) Flexibility on papers only: All decisions of such enterprises are subjected to many rules and regulations of the government. Therefore, the operational flexibility is available on papers only.
(iv) Delays in action: An advisor from the government side is appointed in these enterprises. His presence reduces the freedom of the enterprise to enter into contracts or to take independent decisions. Sometimes, some issues are referred to the government for further clarifications or opinion. All these channels further lead to delays in action.
Question 27.
Naresh took a fire insurance policy from NICL of ₹50 Lakh for his factory at the annual premium of ₹75,000.
In order to avoid premium more than his amount he did not disclose that highly explosive chemicals are being manufactured in his factory. Due to fire his factory gets damaged. The insurance company NICL refused to make the payment for claim as it became aware about the highly explosive chemicals. [4]
(i) Is Naresh entitled to claim?
(ii) Explain the principle of insurance violated by Naresh.
Answer:
(i) No, Naresh is not entitled to receive the claim.
(ii) He has violated Principle of ‘Utmost Good Faith’.
Good faith or disclosure of all material facts: An insurance contract is a contract of good faith. Both parties to the contract are bound to likely affect the acceptance of the proposal by the insurance company. It is known as a contract uberrimae fidei, i.e. contract requiring absolute good faith and the disclosure of all material facts. In ordinary contracts, when consent to an agreement is caused by mis-representation, the agreement is voidable. But in an insurance contract, there should not only be no mis¬representation but also no concealment of any material fact, otherwise, the policy becomes void.
According to Lord Mansfield, “Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain from his ignorance of the fact and his believing the contrary.” The proposer is liable to disclose all material facts before the insurance company which are known to him. Every fact which is likely to influence the mind of prudent insurers in deciding whether to accept the proposal or not or in fixing the rate of premium is material fact.
Question 28.
Discuss the institutional support provided by these government institution to small industries: [4]
(a) National Bank for Agriculture and Rural Development (NABARD)
(b) Th’e Rural Small Business Development Centre (RSBDC)
Answer:
(a) National Bank for Agriculture and Rural Development (NABARD):
- This bank was established in the year 1982 with the main aim to promote rural development. It has designed and implemented many strategies and schemes for the development of rural business.
- Besides agriculture, it supports cottage and rural industries and rural artisans by offering counselling and consultancy services and easy credit facilities.
- It also organises training and development programmes for rural entrepreneurs.
(b) The Rural Small Business Development Centre (RSBDC):
- This centre was established by the World Association for Small and Medium Enterprises. (WASME) NABARD sponsors this centre.
- The main objective of this centre is to provide management and technical support to current and prospective entrepreneurs in rural areas.
- Several programmes on rural entrepreneurship, mobile clinics and trainings, awareness and counselling camps, etc. have been organised by RSBDC in various villages
Question 29.
Identify and state the various risks highlighted in the statement: [4]
(a) Amazon tried to deliver a phone to Mr. Gautam but when the delivery agent reached the spot, a man opened the door and denied that he has placed an order.
(b) Madhav runs an online business but he delivered wrong pens to Mr. Ashish at his residence.
(c) Myntra delivered clothes to Ms. Aarna. She claimed that she has paid for the products but the delivery man denied any kind of payment being done.
(d) Clothes.com stole all the data from Ajio.com
Answer:
(a) Default on order taking or giving: Such a situation arises when either the seller denies that the buyer has placed an order, or the buyer denies that he or she has placed an order.
(b) Default ori delivery: This refers to the situation where the wrong goods are delivered at the right place, or the right goods are delivered at the wrong place, or the goods are not delivered.
(c) Default on payment: This refers to the situation in which the seller does not receive payment, while the buyer claims that he or she has made payment.
(d) Data storage risk: Data stored in a system is subject to various kinds of risks, especially during business transactions. If data gets into the wrong hands, it may be used by individuals to fulfil their own purposes.
Question 30.
If retail shops are eliminated, what difficulties do you think consumers will face? [6]
Answer:
If there is no retail shop, a consumer will face a number of difficulties which are stated below:
- Without a retail shop, a consumer cannot get continuous supply of commodities.
- It will be difficult to have a wide choice to purchase variety of goods manufactured by various manufacturers.
- A consumer will miss the personalised services and credit facilities provided by retailers.
- A consumer will miss the after-sale services provided by the retail shops.
Question 31.
(i) Explain the Following: [3 + 3 = 6]
(a) Export Invoice
(b) Certificate of Inspection
(c) Packing List
(ii) Mention any three special features of International Business.
OR
(i) Explain the following terms: [3 + 3 = 6]
(a) Sight draft
(b) Usance draft
(c) Import general manifest
(ii) Discuss the process involved in securing payment for exports.
Answer:
(i) (a) Export invoice: It is a seller’s bill for merchandise. It provides information about goods like quantity, number of packages, marks on packing, name of ship, port of destination, terms of delivery and payments, etc.
(b) Certificate of inspection: In order to ensure superior quality of goods, the government has made inspection of certain goods compulsory by some authorised agency like Export Inspection Council of India (EICI). After inspecting the goods, the agency issues the certificate of inspection that the consignment has been inspected as required under the Export (Quality Control and Inspection) Act, 1963.
(c) Packing list: This document is in the form of a statement regarding the number of cases or packs and the details of the goods contained in these packs. It provides complete details regarding the goods exported and the forms in which they are being sent.
(ii) Special features of international business are mentioned as under:
- Payment of International Business is made in the foreign currency.
- It is carried on between two different countries.
- Transportation of goods in international business generally takes place through ships and airplane.
- Foreign exchange is required in case of international business. (Any three)
OR
(i) (a) Sight draft: Sight draft is a kind of bill of exchange wherein the exporter instructs his banker to handover the relevant documents to the importer only against payment.
(b) Usance draft: Usance draft is a kind of bill of exchange wherein the exporter instructs his banker to handover the relevant documents to the importer even against acceptance of the bill of exchange.
(c) Import general manifest: It is a document which provides complete details regarding the imported goods. The unloading of the cargo takes place on the basis of this document.
(ii) After the shipment of goods, the exporter informs the importer about the shipment of goods. The importer needs various documents to claim the title of goods on their arrival in his/her country and getting them customs cleared. The documents that are needed in this connection include a certified copy of invoice, bill of lading, packing list, insurance policy, certificate of origin and letter of credit. The exporter sends these documents through his/ her banker with the instruction that these may be delivered to the importer after acceptance of the bill of exchange, a document which is sent along with the above-mentioned documents. Submission of the relevant documents to the bank for the purpose of getting the payment from the bank is called ‘negotiation of the documents.
Question 32.
A garment company has received an order to export 2,000 men’s shirts to ABC imports Ltd. located in Chicago.
Discuss the steps (minimum six) of export procedure along with the documents involved in brief. [6]
OR
Discuss the following principles of Contract of Insurance: [6]
(i) Principle of Indemnity
(ii) Principle of Subrogation
(iii) Principle of Contribution
Answer:
Steps of export procedure are:
(i) Receiving trade enquiry and sending Quotation: Trade procedure starts when an exporter receives trade enquiry in written form from the intending importer. In response to the trade enquiry the exporter sends the quotation or a proforma invoice containing necessary details regarding the detailed condition of sale as delivery schedule, mode of delivery, mode of packing, terms of payment etc.
(ii) Receiving Indent and sending confirmation: After receiving the quotation from the exporter, the importer sends indent which contains all the important particulars of the transaction such as description of goods, their price, quantity, quality, instructions regarding packing, marking, insurance, mode of payment, date and method of delivery etc. For buying goods and the exporter confirms its receipt.
(iii) Obtaining letter of credit: Before dispatching ’ the goods, the exporter assesses the credit worthiness of the importer. For this the importer is requested to send a Tetter of credit’ in favour of exporter. It contains an undertaking of importer’s bank that bills drawn by the exporter upto a specified amount shall be honoured by the importer.
(iv) Obtaining export license and completing other formalities: For exporting goods from India exporters are required to obtain export license, Import Export Code Number, registration membership certificate, RBI code number and registering with ECGC.
(v) Obtaining pre shipment finance and production or procurement of goods: After receiving a letter of credit, the exporter obtains pre shipment finance from his banker and starts manufacturing/procuring goods as per the specifications of the export order.
(vi) Pre-shipment inspection: Before shipment of goods, export Inspection council/Authority inspects the quality of goods and if satisfied, issues export inspection certificate which certifies the quality of goods to be exported.
(vii) Excise clearance: Before exporting the goods, an exporter is required to get a certificate from concerned Regional excise commissioner indicating amount of excise duty levied on the raw materials to get the refund of excise duty.
(viii) Obtaining certificate of origin: To avail tariff concession in the country of the importer, the exporter obtains certificate of origin which is a proof that the goods are actually being manufactured in the country from where these are exported. This certificate can be obtained from trade consulates of exporter’s country.
(ix) Reservation of shipping space: The exporting firm applies to a shipping company for booking a shipping space. On accepting this application the shipping company issues a ‘shipping order’- which is an instruction to the captain of the ship to receive specified goods on board after custom clearance. (Any six)
OR
(i) Indemnity: The purpose of insurance is to restore the insured person to approximately the same financial position that existed prior to the loss. The losses paid here would be approximately the same and the reason for this is to prevent the insured from profiting from insurance to reduce moral hazards. Indemnity can be defined as the compensation of loss or injury sustained.
(ii) Subrogation: Subrogation refers to transfer of rights and remedies for the insured to the insurer who has indemnified the insured in respect of the loss.
(iii) Contribution: The principle of contribution allows the insurer the right to call on other insurers liable for the cost to share the claim payment.
Question 33.
(i) Business is an organised institution that operates to provide goods and services under the incentive of private
gain’. [6]
(a) Which characteristic of business is highlighted in the statement above.
(b) Explain any two more characteristics of business.
(ii) ‘Earning of profit cannot be the objective of business any more than eating is the objective of living’.
(a) Why is earning profit important for a business?
(b) Why is earning profit not the only objective of business?
Answer:
(i) (a) Profit motive: The main purpose of business is to earn profit. If the profit motive is missing in a transaction, then it cannot be considered as business transaction.
(b) (a) Sale or exchange of goods and services for the satisfaction of human needs: Business involves sale or exchange of goods and services. The production of goods or services for self-consumption is not business.
(b) Deals in goods or services on a regular basis: Another important feature of business is that it must sell or exchange goods or services on a regular basis.
(ii) (a) Profit is not an objective but a requirement of business. A business must earn profit because of the following reasons:
- It helps in the long term survival
- It helps in rapid growth of business
- It increases the efficiency of business
- It helps in building reputation and recognition of business
(b) Just as eating is essential for the survival of any human being, Similarly profit is essential and must for the survival of any business. But a person cannot survive for a long time and cannot lead a healthy life only by eating. A person has to perform other activities as well, such as social activities, religious activities and patriotic activities. Similarly, a business with the sole motive of earning profit cannot survive for a long time. To capture a big share in the market and to create the goodwill, businessmen must have social and individual objectives along with the economic objective of earning profit.
Question 34.
Santosh is working as a finance manager in a German Company producing remote operated high – end kitchen equipment. Considering festival demand, the company needs to increase its stock of raw material and finished goods which will require funds of ₹50 Lakhs. The directors of the company have decided to expand the business by opening one more factory in India which will require funds of ₹3 crore and 1 branch is America requiring ₹6 crores and 1 branch in Srilanka requiring ₹5 crore investment, (i) Advise Santosh about the various sources of finance available to meet fund requirement for buying stock of raw material and finished goods, (ii) In case the company does not want to borrow /raise capital from general public and Banks, then through which financial instrument it can raise ₹50 lakhs for short period ? Explain it. [6]
Answer:
Santosh can meet his working capital requirement for short run through following sources of finance: (a) Trade credit, (b) Public Deposits, (c) Loans from Commercial Banks, (d) Commercial Papers, (e) Overdraft, (f) Loans from financial institutions, etc. (ii) Without involving general public and Banks, the option available to the German Company to meet its working capital requirement is: Intercorporate Deposit, Inter Corporate Deposit is an unsecured borrowing by a company from other corporate entities for short-term.