Please refer to Class 12 Business Studies Sample Paper Term 2 Set C with solutions below. The following CBSE Sample Paper for Class 12 Business Studies has been prepared as per the latest pattern and examination guidelines issued by CBSE. By practicing the Business Studies Sample Paper for Class 12 students will be able to improve their understanding of the subject and get more marks.
CBSE Class 12 Business Studies Sample Paper for Term 2
Short Answer Type Questions – I
1. Identify and explain the source of recruitment which is run by the Government and are regarded as a good source of recruitment for unskilled and skilled operative jobs.
Answer. Employment Exchange: Employment exchanges run by the Government are regarded as a good source of recruitment for unskilled and skilled operative jobs. In some cases, compulsory notification of vacancies to employment exchange is required by law. Thus, employment exchanges help to match personnel demand and supply by serving as link between job-seekers and employers. Unfortunately, the records of employment exchange are often not up to date and many of the candidates referred by them may not be found suitable.
2. Rajni Auto Manufacturers has been into business for the last 30 years and have decided to give a special privilege to their existing shareholders to subscribe to the new issue of shares where they will be given shares according to the proportion of shares held by them. The company always gives special treatment to its loyal stakeholders and also ensures that they remain associated with the organization for longer durations. Last year, the company was successfully dealing through the capital market where both the buying and selling of securities were taking place. The owner of the company is a man of ethical business. He often contributes to business magazines by writing articles and editorials. He recently wrote an article about the watchdog of stock market. The article gained a lot of popularity and now is part of the curriculum of MBA students.
(i) Explain the method of floatation which was used by Rajni Auto Manufacturers?
(ii) Which type of capital market was this company dealing in?
Answer. (i) The method of floatation which was used by Rajni Auto Manufacturers is Rights Issue. Rights Issue is a privilege given to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company. The shareholders are offered the ‘right’ to buy new shares in proportion to the number of shares they already possess.
(ii) The type of capital market this company was dealing in is the secondary market. The secondary market is also known as the stock market or stock exchange. It is a market for the purchase and sale of existing securities. It helps existing investors to disinvest and fresh investors to enter the market. It also provides liquidity and marketability to existing securities.
3. Explain ‘Apprenticeship Programmes’ as a method of training.
Answer. Apprenticeship Programmes: Apprenticeship programmes put the trainee under the guidance of a master worker. These are designed to acquire a higher level of skill. People seeking to enter skilled jobs, to become, for example, plumbers, electricians or iron-workers, are often required to undergo apprenticeship training. These apprentices are trainees who spend a prescribed amount of time working with an experienced guide, or trainer. A uniform period of training is offered to trainees, in which both fast and slow learn here, are placed together. Slow learners may require additional training.
4. An important project at AMB Consultants is running behind schedule by a month. This has upset their clients and might affect the reputation of the company in the long run. No managerial action like assigning more workers, equipment or giving overtime has been able to solve the problem. What managerial action may now be taken by the company to avoid such a situation from arising in future?
Answer. Managerial action may now be taken by the company to avoid such a situation from arising in future is to judge accuracy in standards. A good control system enables management to verify whether the standards set are accurate and objective. An efficient control system keeps a careful check on the changes taking place in the organization and in the environment and helps to review and revise the standards in light of such changes.
Short Answer Type Questions – II
5. Pratap Singh is the Chief Executive Officer of Nissar Enterprises. It is an automobile parts manufacturing company. The enterprise has a functional structure in which jobs of similar nature have been grouped together as Production, Finance, Marketing and Human Resource. Nissar Enterprises has its manufacturing unit at Manesar. The factory has been plagued with many problems for a long time which was in the knowledge of the Production Manager, Varun Sharma. The workers had internal differences. Again and again, there were misunderstandings between the management and the workers. Keeping the problems in mind, Varun Sharma appointed Siyaram Singh who had 14 years of experience of working with the actual work force and passing on instructions of the middle management to the workers. Siyaram Singh met Varun Sharma to understand what the management wanted. Thereafter, he met the workers and conveyed the ideas of management to them. He also promised the workers to convey their problems to the management. In this way, he cleared the misunderstanding between the management and the workers. He also sorted out internal differences and was able to unite the workers within a month of his joining. His work was acknowledged and he was given a certificate of good performance along with 10% increase in salary. Explain the incentives provided to Siyaram Singh.
Answer. (i) Pay and allowances – Financial Incentive: Pay and allowances: For every employee, salary is the basic monetary incentive. It includes basic pay, dearness allowance and other allowances. Salary system consists of regular increments in the pay every year and enhancement of allowances from time-to-time. In some business organizations, pay hike and increments may be linked to performance.
(ii) Employee Recognition Programmes – Non-Financial Incentive: Most people have a need for evaluation of their work and due recognition. They feel that what they do should be recognized by others concerned. Recognition means acknowledgment with a show of appreciation. When such appreciation is given to the work performed by employees, they feel motivated to perform/work at higher level. Some examples of employee recognition are: Congratulating the employee for good performance, displaying on the notice board or in the company news letter about the achievement of employee, installing award or certificate for best performance, distributing mementos, complementaries like T-shirts in recognition of employee services, rewarding an employee for giving valuable suggestions etc.
6. Explain the concept of informal communication.
OR
Explain Maslow’s Need Hierarchy Theory of Motivation which is considered fundamental to the understanding of motivation.
Answer. Communication that takes place without following the formal lines of communication is said to be informal communication. Informal system of communication is generally referred to as ‘grapevine’ because it spreads throughout the organization with its branches going out in all directions in utter disregard to the levels of authority. The informal communication arises out of needs of employees to exchange their views, which cannot be done through formal channels. Workers chit chatting in a canteen about the behavior of the superior, discussing about rumors that some employees are likely to be transferred are some examples of informal communications. The grapevine/informal communication spreads rapidly and sometimes get distorted. It is very difficult to detect the source of such communication. It also leads to generate rumors which are not authentic. People’s behavior is affected by rumors and informal discussions and sometimes may hamper the work environment.
OR
Maslow’s Hierarchy of Human Needs: Maslow classified all human needs into different categories and they were arranged by him in the order of their priority. This arrangement is known as the Hierarchy of Needs.
(i) Physiological needs: These needs are basic essential needs necessary for human survival and include the need for food, air, shelter, clothing, water, sleep, etc.
(ii) Security or safety needs: These refer to the needs for physical safety, protection and economic security which include safety of person and property and come into picture only when physiological needs are satisfied.
(iii) Social needs: These needs include love, affection, sense of belongingness, acceptance, approval and friendship or companionship.
(iv) Esteem needs: These needs refer to factors such as self-respect, independence, status, recognition, appreciation and attention and their satisfaction leads to increased confidence.
(v) Self-actualization needs: It refers to the highest level of need in the hierarchy. It deals with the drive to become what one is capable of becoming by attaining one’s true potential and includes growth, self-fulfillment, etc.
7. What is meant by financing decision? State any two factors affecting the financing decision.
Answer. Financing Decision: It refers to the determination as to how the total funds required by the business will be obtained from various long-term sources. Long-term financial sources chiefly include equity share capital, preference share capital, retained earnings, debentures, long-term loans, etc. The
following factors affect the financing decision
(i) Cost: The cost of raising funds through different sources is different. A prudent financial
manager would normally opt for a source which is the cheapest.
(ii) Risk: The risk associated with each of the sources is different. From companies point of view
debt is more risky than equity. So, a company should analyze its financial risk bearing capacity
and choose a source accordingly
(iii) Floatation Costs: Higher the floatation cost, less attractive the source.
(iv) Fixed Operating Costs: If a business has high fixed operating costs (e.g., building rent, insurance premium, salaries, etc.), It must reduce fixed financing costs. Hence, lower debt financing is better. Similarly, if fixed operating cost is less, more of debt financing may be preferred.
(v) Control Considerations: Issues of more equity may lead to dilution of management’s control over the business. Debt financing has no such implication. Companies afraid of a takeover bid would prefer debt to equity.
(vi) State of Capital Market: Health of the capital market may also affect the choice of source of fund. During the period when stock market is rising, more people invest in equity. However, depressed capital market may make issue of equity shares difficult for any company.
8. Kapil and Kamal & Co. is a large manufacturing unit. Recently the company had conducted time and motion studies and concluded that on an average, a worker could produce 300 units per day. However, it has been noticed that the average daily production of a worker is in the range of 200-225 units.
(i) Name the function of management and identify and explain the step in the process of this function which helped in finding out that the actual production of worker is less than the set target.
(ii) To complete the process of the function identified in (a) and to ensure the performance as per time and motion studies, identify and explain what further step a manager has to take.
Answer. (i) The function of management is ‘Controlling’. This is the third step of controlling process i.e., comparison of actual performance with established standards. This step involves finding deviations and their extent and in identifying the causes of such deviations.
(ii) Taking corrective actions: This is the last step of controlling process. By comparing actual performance with established standards, deviations are revealed. The remedial or corrective action is to be taken to remove deficiencies. Here, it involves change in working methods, material, machines, policies and procedures. It may also require improvement in the motivation, supervision and modifications in the business plans.
Long Answer Type Questions
9. State any five reliefs available to the consumer, if the court is satisfied about the genuineness of the complaint.
OR
State any five responsibilities that a consumer should discharge while purchasing, using and consuming goods and services.
Answer. If the Consumer Court is satisfied with the genuineness of the complaint, it can issue one or more of the following directions to the aggrieved party as a relief:
(i) To remove the defect in goods or the deficiency in service.
(ii) To replace the defective product with a new one, free from any defect.
(iii) To refund the price paid for the product, or the charges paid for the service.
(iv) To pay a reasonable amount of compensation for any loss or injury suffered by the consumer due to negligence of the opposite party.
(v) To pay punitive damages in appropriate circumstances.
(vi) To discontinue the unfair/restrictive trade practices and not to repeat the same in future.
(vii) Not to offer hazardous goods for sale.
(viii) To withdraw hazardous goods from sale.
(ix) To cease manufacture of hazardous goods and to desist from offering hazardous services.
(x) To pay any amount (not less than 25% of the value of the defective goods or deficient services provided), to be credited to the Consumer Welfare Fund or any other organisation/person, to be utilized in the prescribed manner.
(xi) To issue corrective advertisement to neutralize the effect of a misleading advertisement.
(xii) To pay adequate costs to the appropriate party.
OR
Responsibilities that a consumer should discharge while purchasing, using and consuming goods and services:
(i) Be aware about various goods and services available in the market so that an intelligent and wise choice can be made.
(ii) Buy only standardised goods as they provide quality assurance. Thus, look for ISI mark on electrical goods, FPO/FSSAI mark on food products, Hallmark on jewellery, etc.
(iii) Learn about the risks associated with products and services, follow manufacturer’s instructions and use the products safely.
(iv) Read labels carefully so as to have information about prices, net weight, manufacturing and expiry dates, etc.
(v) Assert yourself to ensure that you get a fair deal.
(vi) Be honest in your dealings. Choose only from legal source and discourage unscrupulous practices like black-marketing, hoarding, etc.
(vii) Ask for a cash memo on purchase of goods or services. This would serve as a proof of the purchase made.
(viii) File a complaint in an appropriate consumer forum in case of a shortcoming in the quality of goods purchased or services availed. Do not fail to take an action even when the amount involved is small.
(ix) Form consumer societies which would play an active part in educating consumers and safeguarding their interests.
(x) Respect the environment. Avoid waste littering and contributing to pollution.
10. Discuss how dematerialization is beneficial or convenient.
Answer. Holding shares in dematerialized (DEMAT) form is very convenient as it is just like a bank account.
(i) There exists no danger of loss, theft or forgery, forced transfers, transfer delays of share certificates.
(ii) The demat securities can also be used as a security and pledged or hypothecated to avail loans.
(iii) It enables shares to be transferred to another account just like cash and ensures settlement of all trades through a single account in shares thereby making trading simple and convenient.
(iv) It enables easy conversion of physical shares into electronic form or electronic holdings to be reconverted into physical certificates through rematerialization.
(v) It is less cumbersome as paperwork management is minimum.
11. The FMCG major India Unilever Ltd. is terminating the employment of its senior managers if, after evaluating their performance against pre-determined standards, which was found to be lacking. On account of these dismissals, analysts say that a large number of existing work forces may become redundant unless they learn new skills and apply the knowledge to work on new and emerging technologies. India Unilever Ltd. is ready to facilitate employee learning, through its in-house centers.
Answer. (i) The function of management being performed by India Unilever Ltd. to maintain a satisfactory work force is Staffing.
(ii) The two steps of staffing discussed above are:
(a) Training and Development: This can be facilitated by having either internal training centres or agreements with training and educational institutes to ensure continuous learning of their employees. This proves beneficial for the organizations as well.
(b) Performance Appraisal: Organizations can use formal or informal means of appraising their employee’s performance. Performance Appraisal means assessing an employee’s current and/or previous performance against certain pre-set standards. The performance appraisal process includes activities like defining the job, appraising performance, and providing feedback.
(iii) Given below are the two steps in the process of staffing that the management had to perform before performing the above steps:
(a) Estimating manpower requirements: It involves knowing how many persons the company needs and also of what type. This would necessitate workload analysis and workforce analysis.
(b) Recruitment: It is defined as the process of looking for suitable employees and encouraging them to apply for jobs in the organization. The idea is to create a pool of prospective employees.
(c) Selection: It is the process of choosing from among the pool of the prospective candidates which was developed at the recruitment stage. It ensures that the organization gets the best among the available.
(d) Orientation: It is introducing the selected employee to his peers, superiors as well as subordinates and familiarizing him with the rules and policies of the organization. Placement refers to the employee taking up the position or post on which he has been selected.
11. (i) Name the function of management performed by India Unilever Ltd. to maintain a satisfactory work force.
(ii) Identify and discuss the two steps in the process of the function of management discussed above.
(iii) Also state any two steps of the function of management discussed, that the firm undertook before performing the above steps.
Answer.
12. ‘G. Motors’ is the manufacturer of sophisticated cranes. The Production manager of the company, reported to the Chief Executive Officer, Ashish Jain that one of the machines used in manufacturing sophisticated cranes had to be replaced to compete in the market, as other competitors were using automatic machines for manufacturing cranes. After a detailed analysis, it was decided to purchase a new automatic machine having the latest technology. It was also decided to finance this machine through long term sources of finance. Ashish Jain compared various machines and decided to invest in the machine which would yield the maximum returns to its investors.
(i) Identify and explain the financial decision taken by Ashish Jain.
(ii) Explain the factors affecting the decision identified in (a) above.
OR
‘Viyo Ltd.’ is a company manufacturing textile. It has a share capital of ₹ 60 lakh. The earnings per share in the previous year were ₹ 0.50. For diversification, the company requires additional capital of ₹ 40 lakh. The company raised funds by issuing 10% debentures for the same. During the current year the company earned profit of ₹ 8 lakhs on capital employed. It paid tax @ 40%.
(i) State whether the shareholders gained or lost, in respect of earning per share on diversification. Show your calculations clearly.
(ii) Also, state any two factors that favour the issue of debentures by the company as part of its capital structure.
Answer. (i) Investment decision/Capital Budgeting/ Long-term Investment decision: A firm’s resources are scarce in comparison to the uses to which they can be put. A firm, therefore, has to choose where to invest these resources, so that they are able to earn the highest possible return for their investors. The investment decision, therefore, relates to how the firm’s funds are invested in different assets. Investment decision can be long term or short-term. A long-term investment decision is also called a Capital Budgeting decision. It involves committing the finance on a long-term basis.
(ii) Factors affecting Investment decision/Capital Budgeting/ Long-term Investment decision:
(a) Cash flows of the project: When a company takes an investment decision involving a huge amount. It expects to generate some cash flows over a period. These cash flows are in the form of a series of cash receipts and payments over the life of an investment. The amount of these cash flows should be carefully analyzed before considering a capital budgeting decision.
(b) The rate of return: The most important criterion is the rate of return of the project. These calculations are based on the expected returns from each proposal and the assessment of the risk involved. Suppose, there are two projects, A and B (with the same risk involved), with a rate of return of 10 per cent and 12 per cent, respectively, then under normal circumstance, project B should be selected.
(c) The investment criteria involved: The decision to invest in a particular project involves a number of calculations regarding the amount of investment, interest rate, cash flows and rate of return. There are different techniques to evaluate investment proposals which are known as capital budgeting techniques. These techniques are applied to each proposal before selecting a particular project.
OR
(i) Earnings per share before diversification = ` 0.50
Calculation of Earnings per share after issue of Debentures:
(Assuming face value of `100 per share)
This clearly shows that the shareholders have gained after the issue of debentures since the Earning per share has increased from 0.50 to 4.
OR
Calculation of Earnings per share after issue of Debentures:
(assuming face value of ` 10 per share)
This clearly shows that the shareholders have lost after the issue of debentures since the Earning per share has decreased from 0.50 to 0.40.
Note: In case, a student has calculated Return on Investment as 8% i.e., 8, 00, 000/1, 00, 00, 000
and compared it with the rate of interest which is 10% and concluded that the shareholders have lost after the issue of Debentures since the interest rate is greater than the Return of Investment, 1 mark is to be awarded.
(ii) Factors that favour issue of debentures by the company:
(a) A good cash flow position makes debt funding more viable.
(b) High Interest Coverage ratio lowers the risk of company failing to meet its interest payment obligations.
(c) High debt service coverage ratio indicates better ability to meet the debt service obligations.
(d) If Return on Investment of the company is higher than the interest rate on debt, its ability to use debt is greater.
(e) Lower the cost of debt, higher is the ability to employ debt.
(f) High tax rate makes debt relatively cheaper.
(g) If the stock market conditions are bearish, a company may be able to easily raise funds through debt.
(h) If the company does not want dilution of control, it will favour debt as a source of finance.
(i) Inclusion of debt in the capital structure makes the capital structure flexible.
(j) If the business risk is lower, its capacity to use debt is higher.
(k) Raising funds through debt involves low floatation costs.
