Please refer to Class 12 Business Studies Sample Paper Term 2 Set D 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 provide a nationwide service in matching personnel demand and supply.
Answer. Placement Agencies and Management Consultants: In technical and professional areas, private agencies and professional bodies appear to be doing substantive work. Placement agencies provide a nationwide service in matching personnel demand and supply. These agencies compile bio – data of a large number of candidates and recommend suitable names to their clients. Such agencies charge fee for their services and they are useful where extensive screening is required. These professional recruiters can entice the needed top executives from other companies by making the right offers.
2. Caro Ltd. a reputed automobile manufacturer needs ₹ 20 crores as additional capital to expand its business. Mohit Bajaj, the CEO of the company wanted to raise funds through equity. On the other hand, the Finance Manager, Poonam Kumar said that the public issue may be expensive on account
of various mandatory and non-mandatory expenses. Therefore, it was decided to allot the securities to institutional investors. Identify and explain the method through which the company decided to raise additional capital.
Answer. Private placement is method through which the company decided to raise additional capital. Private Placement: Private placement is the allotment of securities by a company to institutional investors and some selected individuals. It helps to raise capital more quickly than a public issue. Access to the primary market can be expensive on account of various mandatory and non mandatory expenses. Some companies, therefore, cannot afford a public issue and choose to use private placement.
3. “Training is beneficial for both the organization as well as for the employees.” Explain any two benefits of training towards the organization and any two towards the employees.
Answer. Benefits of training to employees:
(i) It leads to better career of the individual.
(ii) It helps them to earn more by increased performance.
(iii) It increases the satisfaction and morale of the employees.
(iv) It makes the employees more efficient to handle machines and therefore, lesser prone to accidents.
Benefits of training to organizations:
(i) It avoids wastage of efforts and money by systematic learning of skills.
(ii) It enhances employee’s productivity leading to higher profits in the organization.
(iii) It equips the future manager who can take over in case of an emergency.
(iv) It reduces absenteeism and increases turnover of the organization by increasing employees’ morale.
(v) It helps in obtaining an effective response to a fast-changing environment.
4. Arun works as an interior designer. He completed his interior designer course from a reputed university. He gets a contract to redesign a play school in his local residence. He employs three painters on the site assuming that an average painter will be able to paint 10 desks in a day. At the end of the first day of their work, Arun finds that the painter A, painter B and painter C have painted 12, 14 and 15 desks respectively. On comparing the actual performance with the planned performance, he realizes that the standard set by him is too low. Consequently, he decides to review and revise the standard and raise it. In context of the above case, identify and explain the function of management being performed by Arun.
Answer. Controlling is the function of management being performed by Arun.
Controlling is one of the important functions of a manager. In order to seek planned results from the subordinates, a manager needs to exercise effective control over the activities of the subordinates. In other words, controlling means ensuring that activities in an organization are performed as per the plans. The controlling function finds out how far actual performance deviates from standards, analyses the causes of such deviations and attempts to take corrective actions based on the same. This process helps in formulation of future plans in the light of the problems that were identified and, thus, helps in better planning in the future periods.
Short Answer Type Questions – II
5. Kunal joined as a shop level manager in the production department of a textile company in the year 2005. Because of his good work, he became the Deputy Production Manager of the company in the year 2010. He had status and prestige and was well respected by all in the company. On 1st March, 2019, he was promoted as the General Manager of the company. Kunal was very happy about his promotion as now he had become what he was capable of becoming. As a good manager, Kunal decided to motivate his subordinates, after understanding the Need Hierarchy theory which is based on various assumptions. He realized that people’s behavior is based on their needs and the manager can influence the behavior of his employees by satisfying their needs.
(i) One of the assumptions of Need Hierarchy theory is stated in the above paragraph. State the other two assumptions of this theory.
(ii) Explain the needs of Kunal which are being satisfied through promotion.
Answer. (i) The following are the assumptions of Maslow’s Need Hierarchy theory other than the one discussed above:
(a) People’s needs are in hierarchical order, starting from basic needs to other higher-level needs.
(b) A satisfied need can no longer motivate a person; only next higher-level needs can motivate him.
(c) A person moves to the next higher level of the hierarchy only when the lower needs are satisfied.
(ii) Needs of Kunal which are being satisfied through promotion are:
(a) Esteem Needs, which refer to the need for self-respect, autonomy status, recognition and attention.
(b) Self Actualization needs which refer to the drive to become what one is capable of becoming. These needs include growth, self-fulfillment and achievement of goals.
6. Briefly explain the following elements of directing:
(i) Motivation
(ii) Communication
OR
Briefly explain the following styles of Leadership:
(i) Autocratic
(ii) Democratic
Answer. (i) Motivation means incitement or inducement to act or move. In the context of an organization, it means the process of making subordinates to act in a desired manner to achieve certain organizational goals. It is the process of stimulating people to action to accomplish desired goals. Motivation depends upon satisfying needs of people. Motivation can be either positive or negative. Positive motivation provides positive rewards like increase in pay, promotion, recognition etc. Negative motivation uses negative means like punishment, stopping increments, threatening etc. which also may induce a person to act in the desired way.
(ii) Communication is defined as a process of exchange of ideas, views, facts, feelings etc., between
or among people to create common understanding. Communication can be formal and informal. Formal communication flows through official channels designed in the organization chart. This communication may take place between a superior and subordinate, a subordinate and superior or among same cadre employees or managers. 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 the ‘grapevine’ because it spreads throughout the organization with its branches going out in all directions in utter disregard to the levels of authority.
OR
(i) Autocratic or Authoritarian leader: An autocratic leader gives orders and expects his subordinates to obey those orders. If a manager is following this style, then communication is only one-way with the subordinate only acting according to the command given by the manager. This leader is dogmatic i.e., does not change or wish to be contradicted. His following is based on the assumption that reward or punishment both can be given depending upon the result. This leadership style is effective in getting productivity in many situations like in a factory where the supervisor is responsible for production on time and has to ensure labour productivity. Quick decision-making is also facilitated.
(ii) Democratic or Participative leader: A democratic leader will develop action plans and makes
decisions in consultation with his subordinates. He will encourage them to participate in
decision making. This kind of leadership style is more common now-a-days, since leaders also
recognise that people perform best if they have set their own objectives. They also need to
respect the other’s opinion and support subordinates to perform their duties and accomplish
organizational objectives. They exercise more control by using forces within the group.
7. Explain any three factors that affect the dividend decision of an enterprise.
Answer. Factors that affect the dividend decision of an enterprise are discussed below:
(i) Amount of Earnings: Dividends are paid out of current and past earning. Therefore, earnings are a major determinant of the decision about dividend.
(ii) Stability Earnings: Other things remaining the same, a company having stable earning is in a better position to declare higher dividends. As against this, a company having unstable earnings is likely to pay smaller dividend.
(iii) Stability of Dividends: Companies generally follow a policy of stabilizing dividend per share. The increase in dividends is generally made when there is confidence that their earning potential has gone up and not just the earnings of the current year. In other words, dividend per share is not altered if the change in earnings is small or seen to be temporary in nature.
(iv) Growth Opportunities: Companies having good growth opportunities retain more money out of their earnings so as to finance the required investment. The dividend in growth companies is, therefore, smaller, than that in the non– growth companies.
(v) Cash Flow Position: The payment of dividend involves an outflow of cash. A company may be earning profit but may be short on cash. Availability of enough cash in the company is necessary for declaration of dividend.
(vi) Shareholders’ Preference: While declaring dividends, management must keep in mind the preferences of the shareholders in this regard. If the shareholders in general desire that at least a certain amount is paid as dividend, the companies are likely to declare the same. There are always some shareholders who depend upon a regular income from their investments.
(vii) Taxation Policy: The choice between the payment of dividend and retaining the earnings is, to some extent, affected by the difference in the tax treatment of dividends and capital gains. If tax on dividend is higher, it is better to pay less by way of dividends. As compared to this, higher dividends may be declared if tax rates are relatively lower. Though the dividends are free of tax in the hands of shareholders, a dividend distribution tax is levied on companies.
(viii) Stock Market Reaction: Investors, in general, view an increase in dividend as good news and stock prices react positively to it. Similarly, a decrease in dividend may have a negative impact on the share prices in the stock market. Thus, the possible impact of dividend policy on the equity share price is one of the important factors considered by the management while taking a decision about it.
(ix) Access to Capital Market: Large and reputed companies generally have easy access to the capital market and, therefore, may depend less on retained earnings to finance their growth. These companies tend to pay higher dividends than the smaller companies which have relatively low access to the market.
(x) Legal Constraints: Certain provisions of the Companies Act place restrictions on payouts as dividend. Such provisions must be adhered to while declaring the dividend.
(xi) Contractual Constraints: While granting loans to a company, sometimes the lender may impose certain restrictions on the payment of dividends in future. The companies are required to ensure that the dividend does not violate the terms of the loan agreement in this regard.
8. Ashish started a cafe and a joint eating food shop in a nearby market. His business was doing well. He ensured that the food was properly cooked, a standard taste was maintained, packing of food was done effectively and the orders were executed on time. But unfortunately, he met with an accident and was advised three months bed rest. In his absence, his cousin Tarun took charge of his business.
When he resumed his work after three months, he realized that his clientele had dropped. The people were not happy with the services as the quality of food had deteriorated and the delivery time for orders had increased considerably. In context of the above case:
(i) Identify any two aspects about his business that Ashish was controlling in order to make it successful.
(ii) Explain briefly any two points of the importance of the controlling function.
Answer. (i) The two aspects about his business that Ashish was controlling in order to make it successful are listed below:
(a) A standard taste was maintained.
(b) The orders were executed on time.
(ii) The two points that highlight the importance of the controlling function are listed below:
(a) Accomplishing organizational goals: The controlling function measures progress towards the organizational goals and brings to light the deviations, if any, and indicates corrective action. It, thus, guides the organization and keeps it on the right track so that organizational goals might be achieved.
(b) Judging accuracy of 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.
(c) Making efficient use of resources: By exercising control, a manager seeks to reduce wastage and spoilage of resources. Each activity is performed in accordance with predetermined standards and norms. This ensures that resources are used in the most effective and efficient manner.
(d) Improving employee motivation: A good control system ensures that employees know well in advance what they are expected to do and what are the standards of performance on the basis of which they will be appraised. It, thus, motivates them and helps them to give better performance.
(e) Ensuring order and discipline: Controlling creates an atmosphere of order and discipline in the organization. It helps to minimise dishonest behavior on the part of the employees by keeping a close check on their activities
(f) Facilitating coordination in action: Controlling provides direction to all activities and efforts for achieving organizational goals. Each department and employee are governed by predetermined standards which are well coordinated with one another. This ensures that overall organizational objectives are accomplished.
Long Answer Type Questions
9. What is meant by ‘Consumer Protection’? Explain the following rights of consumers provided by Consumer Protection Act, 2019:
(i) Right to be Protected
(ii) Right to Consumer Education
OR
State any ten responsibilities that a consumer should discharge while purchasing, using and consuming goods and services.
Answer. Consumer protection means the act of providing adequate protection to consumers against the unscrupulous, exploitative and unfair trade practices of manufacturers and service providers.
(i) Right to be protected: The consumer has a right to be protected against goods and services which are hazardous to life and health. For instance, electrical appliances which are manufactured with substandard products or do not conform to the safety norms might cause serious injury. Thus, consumers are educated that they should use electrical appliances which are ISI marked as this would be an assurance of such products meeting quality specifications.
(ii) Right to Consumer Education: The consumer has a right to acquire knowledge and to be a well-informed consumer throughout life. He should be aware about his rights and the reliefs available to him in case of a product or service falling short of his expectations. Many consumer organizations and some enlightened businesses are taking an active part in educating consumers in this respect.
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. Arpita got ` 20,00,000 after selling her parental property and jewellery which she had got as a gift from her grandmother. Her friend advised her to invest in securities in the stock market. Arpita was a novice and was unaware of the procedure for the same. Her friend introduced her to a stock broker, who was registered with NSE. Arpita approached the broker who guided her to open a Demat account with a Depository, as well as a Bank account. Arpita opened a Bank account and Demat account with Exim Bank.
(i) Identify the steps in the trading procedure for buying and selling of securities which have been discussed above.
(ii) State the next three steps of the trading procedure.
Answer. (i) The steps discussed in above para are:
(a) Selection of broker: The buying and selling can be through a SEBI broker. For this purpose, a broker is to be selected and the investor has to sign a client-broker agreement with him which will enable the broker to buy/sell securities on behalf of the investor.
(b) Opening Demat account with a depository participant: The investor has to open a ‘demat’ account or ‘beneficial owner’ (BO) account with a depository participant (DP) for holding and transferring securities in the demat form. He will also have to open a bank account for cash transactions in the securities market.
(ii) The next three steps of the trading procedure are:
(a) Placing an order: Investor places an order with the broker to buy or sell shares. He can communicate the same via e-mail or telephone or personally. Brokers go ahead with the deal and order confirmation slip is issued to the investor by the broker.
(b) Matching the order: The broker then will go online and connect to the main stock exchange and match the share and best price available.
(c) Executing the order: When the shares can be bought and sold at the price mentioned, it is updated to the broker terminal and order is executed electronically. The broker then issues trade confirmation slip to the investor.
11. Vinay belongs to a small village in Odisha. Being the only literate person in his immediate family, he decides to settle in a city. So, he opens his own shop in Bandra, Mumbai as he possesses extraordinary skills. Very soon he starts getting requests from his cousins in the village to engage them in some kind of job in his business. Considering it to be his moral obligation, he engages five of his cousins in his business without paying any specific attention to their individual capabilities. This leads to wastage of materials, time, effort and energy, resulting in lower productivity and poor quality of products. As a result, the profitability of his business starts falling. Soon, he realized that for the success of the business it is essential that right kind of people must be available in right number at the right time. In the context of the above case:
(i) Identify and explain the function of management that has been overlooked by Vinay.
(ii) Describe briefly any three points of the importance of the function of management as identified in part (i).
Answer. (i) Staffing is the function of management that has been overlooked by Vinay.
Staffing is the process of manning the roles designed into the organizational structure. It is concerned with obtaining, utilizing and maintaining a satisfactory and satisfied work force. It has been described as the managerial function of filling and keeping filled the positions in the organization structure. This is achieved by, first of all, identifying requirement of work force, followed by recruitment, selection, placement, promotion, appraisal and development of personnel, to fill the roles designed into the organization structure.
(ii) The importance of the staffing function of management is described below:
(a) Discover competent personnel: It helps in discovering and obtaining competent personnel for various jobs within an organization.
(b) Higher performance of the employees: By putting right person on the right job, it leads to a higher performance of the employees.
(c) Survival and growth of the enterprise: It ensures the continuous survival and growth of the enterprise through the succession planning for managers.
(d) Optimum Utilization of Human Resources: It helps to ensure optimum utilisation of the human resources. By avoiding over manning, it prevents under-utilisation of personnel and high labour costs. At the same time, it avoids disruption of work by indicating in advance the shortages of personnel.
(e) Improves morale of the employees: It improves job satisfaction and morale of the employees through objective assessment and fair rewarding for their contribution.
12. Sohan inherited a very large area of agricultural land in Uttar Pradesh after the death of his grandfather. He plans to sell this piece of land and use the money to set up a small-scale paper factory to manufacture all kinds of stationery items from recycled paper. Being an amateur in business, he decides to consult his friend Krishna who works in a financial consultancy firm. Krishna helps him to prepare a blue print of his future business operations on the basis of sales forecast in next five years. Based on these estimates, he helps Sohan to assess the fixed and working capital requirements of business. In context of the above case:
(i) Identify and explain the type of financial service that Krishna has offered to Sohan.
(ii) Briefly explain any three points highlighting the importance of the type of financial service identified in part (i).
OR
Rolto Tech Ltd. is one of the top IT companies in India. The company provides all kinds of hardware and software services nationally and internationally. The company has a share capital of ₹ 50,00,000 divided into shares of ₹ 100 each. For expansion purpose, the company requires additional funds of ₹ 30,00,000. The management is considering the following alternatives for raising funds:
Alternative 1: Issue of 10,000 Equity shares of ₹ 100 each
Alternative 2: Issue of 40% Debentures of ₹ 10,00,000
The company’s present Earnings Before Interest and Tax (EBIT) is ₹ 20,00,000 p.a. Assuming that the rate of Return of Investment remains the same after expansion, which alternative should be used by the company in order to maximize the returns to the equity shareholders. The Tax rate is 50%. Show the working.
Answer. (i) Financial planning is the type of financial service that Krishna has offered to Sohan.
Financial planning is essentially the preparation of a financial blueprint of an organization’s future operations. The objective of financial planning is to ensure that enough funds are available at right time. If adequate funds are not available the firm will not be able to honour its commitments and carry out its plans. On the other hand, if excess funds are available, it will unnecessarily add to the cost and may encourage wasteful expenditure. Financial planning thus aims at smooth operations by focusing on fund requirements and their availability in the light of financial decisions.
(ii) The points highlighting the importance of financial planning are as follows:
(a) It helps in forecasting what may happen in future under different business situations. By doing so, it helps the firms to face the eventual situation in a better way. In other words, it makes the firm better prepared to face the future. For example, a growth of 20% in sales is predicted. However, it may happen that the growth rate eventually turns out to be 10% or 30%. Many items of expenses shall be different in these three situations. By preparing a blueprint of these three situations the management may decide what must be done in each of these situations. This preparation of alternative financial plans to meet different situations is clearly of immense help in running the business smoothly.
(b) It helps in avoiding business shocks and surprises and helps the company in preparing for the future.
(c) If helps in coordinating various business functions, e.g., sales and production functions, by providing clear policies and procedures.
(d) Detailed plans of action prepared under financial planning reduce waste, duplication of efforts, and gaps in planning.
(e) It tries to link the present with the future.
(f) It provides a link between investment and financing decisions on a continuous basis.
(g) By spelling out detailed objectives for various business segments, it makes the evaluation of actual performance easier
The company should use Plan 2 in order to increase the return to the equity shareholders.