Solved Board Paper For ICSE Class 12 Commerce

ii. Cost of equity: This refers to the expected rate of return on equity shares. When a company increases debt, the financial risk faced by the equity holders increases and consequently, their desired rate of return may also increase. Hence, a company can use debt only upto a certain level to keep the cost of equity within limits.

iii. Need for flexibility: Capital structure should be flexible to allow adjustments. Raising debt capital reduces the firm’s chances of leveraging the opportunity of raising funds further.

(b) Preference shares are shares which carry certain privileges or preferential rights – both regarding the dividend and return of capital.

A company enjoys following advantages from the issuance of preference shares:

i. Appeal to cautious investors: These types of shares greatly appeal to those investors who look for reasonable safety of their capital along with a fixed but higher return than that obtainable on debentures.

ii. No burden on profits: Preference shares do not put any fixed burden on finances as dividends are payable only out of profits. The cost of finance is also less.

iii. No interference in management: These shares do not carry any voting rights. Therefore, promoters can retain exclusive control over the company by issuing preference shares to outsiders.

(c) The working capital requirements of an enterprise depend on the following factors:

i. Nature of business: A trading or services providing organisation does not require much working capital due to absence of processing. On the other hand, a manufacturing firm requires large working capital since it involves a longer operating cycle for converting raw material into finished goods before any sales can become possible.

ii. Scale of operations: The requirement of working capital increases, if a firm operates on a large scale. This is because such firms would need to maintain high stock of inventory and debtors. On the other hand, if the scale of operation is small, the requirement of working capital is less.

iii. Production cycle: It refers to the time span between the receipt of raw materials and their conversion into finished products. If an organisation has longer production cycle, there will be a higher requirement of working capital due to inventories and related expenses. On the contrary, if production cycle is short, the requirement of working capital will be less.

iv. Seasonal variations: In peak season, higher amount of working capital is required because of higher level of activity. So, working capital requirement is large. As against this, in seasons of lower level of activity, the requirement of working capital is less.

v. Goodwill of business: An enterprise enjoying good reputation in the market can easily and quickly obtain short-term loans from commercial banks. Hence, it requires lesser amount of working capital.

i. Articles of Association of the company must permit the issue of bonus shares.

ii. The company should have sufficient undistributed profits.

iii. The bonus issue is as per the guidelines issued by the Securities and Exchange Board of India (SEBI).

(b) RTGS (Real Time Gross Settlement) is a funds transfer system under which funds are transferred from one bank to another on a ‘Real Time’ and ‘Gross’ basis. i.e. Transaction is settled as it is processed, without bunching with any other transaction.

The main features of RTGS are:

i. This facility is provided only by CBS enabled bank branches in India.

ii. RTGS transactions are processed individually and continuously throughout banking hours rather than in batches.

iii. The minimum amount in a RTGS transaction is 2 lakh, with no upper ceiling.

iv. The receiving or beneficiary bank must credit the customer’s account within two hours of receiving the funds transfer message.

(c) Macro environment of business consists of the following components:

i. Economic Environment: It consists of those factors and forces which are concerned with the production and distribution of wealth. It’s main components are- economic policies, economic indices, nature of country’s economic system, industrial infrastructure, etc.

ii. Social Environment: It consists of all the social and cultural forces within which business firms operate. The main components are-demographic trends, social attitudes, education levels, etc.

iii. Technological Environment: It refers to the state of science and technology in the country and related aspects such as the rate of technological change, development and application of new technology, etc. Advancement in technology helps to improve productivity and quality.

iv. Political Environment: It consists of the forces concerning management of public affairs and their impact on business. The viability of a business depends upon the ability with which it can meet the challenges arising out of political and legal changes. It’s components are- political system, political structure, foreign policies, etc.

v. Legal Environment: This component provides the regulatory framework within which business has to function. It consists of all the laws relating to business and judicial system of the country.

(b) The rights of consumers under the Consumer Protection Act, 1986 are:

i. Right to safety: A consumer has the right to be protected against those goods and services which are hazardous to life and health. Therefore, consumers should be educated about the proper usage of such goods.

ii. Right to be informed: A consumer has the right to have complete information about the product he intends to buy like its ingredients, price, etc. Such information needs to be provided by the manufacturers on the package and label of the product.

iii. Right to choose: A consumer has the right to choose from a variety of goods and services offered at competitive prices. Thus, retailers or suppliers should offer variety in terms of quality, brand, price, etc., which allows customers to make a choice.

iv. Right to be heard: A consumer has the right to register his dissatisfaction and get his complaint heard at appropriate forums. This right includes the right to make protest and to represent in the government and in other policy making bodies.

(c) Managers can follow following principles while directing their subordinates:

i. Harmony of objectives: Individuals join an organisation to satisfy their physiological and psychological needs, while, they are expected to work for the achievement of organisational objectives. Hence, management should reconcile personal goals of employees with organisational goals.

ii. Maximum individual contribution: Organisational objectives are achieved at the optimum level when every individual in the organisation makes maximum contribution towards them. Managers should, therefore, try to elicit maximum possible contribution from each subordinate.

iii. Unity of command: A subordinate should get orders and instructions from one superior only. If he is made accountable to two bosses simultaneously, there will be confusion, conflict, disorder and indiscipline in the organisation. Thus, every subordinate should be asked to report to only one manager.

iv. Direct supervision: Direction becomes more effective when there is direct personal contact between a superior and his subordinates. Such direct contacts improve morale and commitment of the employees.

v. Effective leadership: Managers should act as leaders so that they can influence the activities of their subordinates without dissatisfying them. As leaders, they should guide and counsel subordinates in their personal problems too which would help them in winning their confidence and trust.

i. It helps to initiate action by people in the organisation towards attainment of desired objectives.

ii. It is necessary to integrate the efforts of every individual towards the achievement of organisational goals.

iii. This function of management promotes development of employees by making them realise their potential through effective motivation and leadership.

(b) The major limitations of planning are:

i. Rigidity: A well defined plan decides the future course of action and managers may not be in a position to change it. This type of rigidity in plan does not provide managers enough flexibility to cope with the changing circumstances.

ii. Reduces creativity: Plans are usually formulated at the top level. Middle and lower level managers are expected to follow them. Much of the initiative and creativity inherent in them gets lost since they are expected to abide by the plans.

iii. Costly process: Planning is an expensive process. Money, time and efforts have to be spent in forecasting, collection of information, evaluation of alternatives, etc.

iv. Time consuming process: Planning requires collection of information, its analysis and interpretation. This involves a lot of time and effort, leaving lesser time for the implementation of plans.

(c) Organising refers to the process of identifying and grouping various activities, bringing together physical, financial and other resources and establishing authority relationships among various job positions.

The following points highlight the crucial role that organising plays in any business enterprise:

i. Benefits of specialisation: Through organising, all the activities are sub-divided into various parts and each individual is assigned a particular task. He continuously does the same job and hence, gains specialisation in that particular work.
ii. Optimum utilisation of resources: The proper assignment of jobs avoids any overlapping and duplication of work. Thus, organising leads to the best possible use of all the human, material and financial resources.

iii. Development of personnel: Effective delegation of authority provides subordinates with an opportunity to innovate. It also develops in the subordinates the ability to deal with challenges and enables them to realise their full potential.

Thus, the principle of span of control requires that no single executive should have more people looking to him for guidance than he can effectively control. It depends on factors such as- capacity of manager, ability of subordinates, nature of work, etc.

(b) Line Organisation: This type of organisation structure refers to a direct chain of command through which authority flows from top to bottom. There is a straight unbroken line (scalar chain) and all orders and communications flow down the line.

Every superior has complete command over his subordinates and every subordinate is directly accountable to only one superior immediately above him.

It could be either Pure line organisation or departmental line organisation.

This type of structure is simple to establish, enables quick decision making, ensures discipline, allows fixation of responsibility, etc.

It is suitable for organisations with small number of people and few levels of authority.

(c) Modern concept of marketing: According to the modern concept of marketing, marketing is the process of discovering and translating consumer needs into products and services.

This concept focuses attention on the consumers and satisfaction of customers’ needs. According to this view, marketing begins much before production and continuous after sales services.

The modern approach to marketing is known as the Marketing concept and its main features are:

i. Customer orientation: All business activities should be oriented towards the recognition and satisfaction of customers’ needs and wants.

ii. Integrated approach: Different elements of marketing should be properly coordinated.

iii. Marketing research: Relevant information about the markets and customers should be collected continuously.

Some of the advantages of branding to the marketers are:

i. Product differentiation: It helps a firm to distinguish its products from those of its competitors. This enables a firm to secure and control the market for its products.

ii. Differential pricing: Branding enables a firm to charge different prices for its products than that charged by the competitors. This is because customers who like a brand and become habitual of it are willing to pay a little higher for it.

iii. Ease in introduction of new product: A new product which is introduced in the market by using an existing and popular brand name is likely to receive a good response from customers.

(b)

(i) SMS Alert: Through this service provided by bank, a customer receives all the information about his account without visiting the bank. For this, the bank keeps a record of the mobile number of the customer in its computer system in the customer’s account. Whenever there is a transaction by the customer (debit or credit), the customer automatically receives an SMS on mobile. The SMS states the nature, amount and date of transaction and the balance in the account as on that date.
(ii) Taylor’s principle of Harmony, not discord: According to this principle, there should be healthy cooperation between the employer and employees. Taylor advocated a complete ‘Mental Revolution’, i.e. change in the attitude of both management and workers, for brining harmony between them. Management should adopt an enlightened attitude and share the gains of productivity with workers. Workers on their part should work with discipline and loyalty. Hence, both of them should realise that they require one another.

(c) The various types of selection tests are categorised into:

i. Proficiency tests: These types of employment tests are designed to measure the skills and knowledge of a candidate which are already possessed by him. They are helpful in verifying a candidate’s claim about his knowledge and skills. There are following two types of proficiency tests:

a. Achievement or trade test: It seeks to measure the applicant’s level of knowledge and skill in a particular trade or occupation.
b. Skill or dexterity test: It seeks to measure how quickly and efficiently a candidate performs the job in question.

ii. Aptitude tests: These tests are designed to measure the potential for acquiring necessary knowledge and skills for doing a job well in future. Aptitude tests are of following types:

a. Intelligence test: It measures the level of intelligence quotient of an individual. It is an indicator of an individual’s learning ability or the ability to make decisions and judgements.

b. Interest test: It seeks to measure candidate’s interest in a particular kind of work. This type of test is helpful in finding out the work for which the candidate has the greatest liking.

c. Personality test: It seeks to measure temperament and emotional make-up of a person. It also provides clues to a person’s emotions, maturity level and value system.

i. Budget: A budget is a plan which states expected results of a given future period in numerical terms. It is a plan of action or blueprint designed to achieve a specific goal. It is expressed in terms of time, money or physical units.
ii. Rule: It is defined as a specific statement which specifies what is to be done or not to be done. It is the simplest type of plan which acts as a guide to behaviour. It prescribes fine or penalty for violation.
iii.Strategy: A strategy is defined as the comprehensive and integrated plan which indicates the desired future of the organisation. It is a blueprint of an organisation’s desired destination, direction and image.

(b) Some of the measures taken to overcome the barriers to effective communication are:

i. Clarify the idea: A manager should study the idea in depth and analyse it before communicating. The message should be so stated that subordinates can easily and correctly understand it.

ii. Use of proper language and tone: The type of language to be used in communication should be understandable to the receiver. The message and its tone should not offend the receiver’s sentiments; rather these should evoke a positive response.

iii. Two way communication: Both the parties – receiver and sender should participate in the process of communication. It should be a two-way traffic involving both telling and listening. Sharing of information helps to improve understanding.

iv. Empathetic listening: One should be a good listener to communicate effectively. Superiors should develop the habit of patient listening and encourage free flow of information from the subordinates. It is necessary to have control over emotions.

(c) The term ‘price’ may be defined as the amount of money paid by a buyer (or received by a seller) in consideration of the purchase of a product or a service. Price is an important factor which affects the success or failure of a product in the market.

The important factors that affect the determination of the price of a product are:

i. Product cost: This includes the cost of producing, distributing and selling the product. The cost sets the minimum level or the floor price at which the product can be sold. It is important that the price of a product should cover total costs in the long run including a margin of profit over and above the costs.

ii. Utility and demand: The utility provided by the product and the intensity of demand of the buyer sets the upper limit of product price, which a buyer is willing to pay. It is affected by the elasticity of demand of the product.

iii. Extent of competition in the market: The price of a product is affected by the nature and degree of competition in the market. The price tends to reach the upper limit in case there is a less degree of competition, while under conditions of free competition; the price is set at the lowest level.

iv. Government and legal regulations: In order to protect the interest of public against unfair practices in the field of price fixing, government may intervene and regulate the price of commodities.

(ii) An ESOP (Employee Stock Option Plan) is a scheme under which an employee of the company is given a right to purchase a specified number of its shares at a stipulated price (usually below the market price) during a given period of time. Only those employees are given this right who are able to fulfil specified eligibility conditions.

(iii) The differences between cumulative and non-cumulative preference shares are:

(iv) The characteristics of management are:

(a) Goal oriented: Management aims at achieving organisational objectives by uniting the efforts of different individuals in the organisation towards common goals.

(b) Pervasive: It is universal in nature which is required in all types of organisations big or small, business or non-business. The basic functions of management are performed at every level of authority – top, middle or lower.

(v) The differences between gross working capital and net working capital are:

(vi)A trademark is referred to as a brand or part of a brand that enjoys legal protection. The firm which gets its brand registered gets the exclusive right for its use and no other firm can use it in other country. It should be short and simple so that people can easily remember it.

(vii) The differences between the two terms marketing and selling are:

(viii) According to Section 81 of the Companies Act, 1956, whenever a company proposes to increase its subscribed capital through a further issue of shares, it should first offer such shares to the existing members of the company. Such shares which are so offered to the existing members are called right shares; and the right of the members to be so offered is called right of Pre-emption.

(ix) The differences between training and development are as follows:

(x) The preferential rights which are enjoyed by preference shareholders over equity shareholders are:

(a) Dividend at a fixed rate is payable on preference shares before any dividend is paid on equity shares.

(b) In the event of winding up of a company, capital of preference shares must be paid back before the capital of equity shares.