Term-End Examination: December, 2012
Note : Attempt both Part - A and Part - B.
PART-A
1. Distinguish between any two of the following : 5+5
(a) Entrepreneur and promoter.
Ans: Distinction between Entrepreneur and Promoter:
Basis
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Entrepreneur
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Promoter
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(b) Ownership capital and borrowed capital.
Ans: Capital contributed by the owner or entrepreneur of a business, and obtained, for example, by means of savings or inheritance, is known as own capital or equity. It included equity shares and preference shares.
Capital which is granted by another person or institution is called borrowed capital, and this must usually be paid back with interest. It included debentures and loan.
(c) Intensive distribution and exclusive distribution.
Ans: Intensive distribution (also called Mass Distribution) is where a company supplies their product to all markets (essentially they are found everywhere). These products can be found in almost every place a person shops (grocery stores, gas stations, supermarkets, etc.).
Exclusive distribution is, essentially, an extreme modification of selective distribution. Companies are far more selective with where their product can be purchased at. Exclusive distribution uses one distributor for entire regions.
(d) Time deposits and demand deposits.
Ans: Time Deposits: Time deposits are also known as term deposits or fixed deposits, are deposits in banks or financial institutions for pre-decided or fixed period of time. The depositor is promised a fixed rate of interest for the said period by the financial institution. However, there are some restrictions for the depositors as far as withdrawing money is concerned. In the time deposits, it is not possible to withdraw money before the stipulated time of investment
Demand Deposits: In the case of demand deposits, the depositor is free to withdraw his funds from the account which he holds with the bank any time, without giving any notice to the bank for the withdrawal. Though getting back funds fast is the main advantage of demand deposits, the major disadvantage is that fees charged for these accounts are higher and interest rates offered are not good enough.
2. Write short notes on any two of the following : 5+5
(a) Partnership deed.
Ans: Partnership deed: Agreement forms the basis of partnership. The written form of the agreement is the basis of a document of partnership. It contains terms and conditions regarding the conduct of the business. It also explains relationship amongst the partners. This document is called partnership deed. Every firm can frame its own partnership deed in which the rights, duties and liabilities of the partners are stated in detail. It helps in settling the disputes arising among the partners in the general conduct of business.
Contents of Partnership Deed: The partnership deed generally contains the following :
(i) Name and address of the partnership firm;
(ii) Nature and objectives of the business;
(iii) Name and address of each partner;
(iv) Ratio in which profits is to be shared;
(v) Capital contribution by each partner;
(vi) Rate of Interest on capital if allowed;
(b) Factoring.
Ans: Factoring is a source of finance for small businesses. Factoring is a financial transaction between a business owner and a third party that provides instant cash to the former in exchange for the account receivables of the business. Account receivables are an asset belonging to the business, but they are generally sold at a discount, since the third party will agree to pay cash only if it is making some profit in the bargain. The discount obviously reduces the profit the small business may have made, but it gets the money needed to continue operations.
Factoring is not a loan, but a sale of invoices of the business. It falls in the same category of financial instruments as forfeiting and invoice discounting, all of which enable the small business to raise funds. Factoring involves the sale of all the receivables of the business and is a firm based operation.
(c) Speculation and gambling.
Ans: Speculation: Speculation involves entering into futures contracts (contracts where is effected on a future date), whereby one party agrees to buy (sell) and the other party agrees to sell (buy), a specified quantity of a specified asset (share, commodity, etc) at the today agreed upon price.
The person who sells now expects the price of the underlying asset to come down by the time the futures contract is due for settlement. He is called the ‘bear’ speculator. If his calculations go right, the other party’s calculations go wrong. The other party is asked to give the difference in prices and wind-up the contract. There is no physical delivery, but only settlement of price difference.
Gambling: Gambling is wagering. Wagering refers to a game of chance. Gambling is a very short period investment and the results of the so-called. Investments are known by the roll of the dice or the turn of a card or the performance of a sports team or the pace of the racing horse and so on. There are certain strategies betting known as speed betting and odds betting. The former is used in sports games and latter is used for betting on elections, horses, etc.
(d) Hire purchase trading.
Ans: Hire Purchase Trading: A trader could sell goods either for cash or for credit. For goods sold on credit, the payments may be made by the buyer in lump sum on a future date, or in installments spread over for a specified period of time. When goods are sold on credit, for which payment is made by the buyer in installments over a period of time, it is called purchase system or installment system.
Hire Purchase System defers to the system wherein, the seller of goods delivers the goods to the buyer without transferring the ownership of goods. The payment for the goods will be made by the buyer in installments. If the buyer pays all the installments, the ownership of the goods will be transferred, on payment of the last installment. However, if the buyer does not pay for any installment, the goods will be repossessed by the seller.
PART-B
Attempt any three of the following questions :
3. "Company form of organization is most suitable in the modern times". Do you agree with this view ? Explain.10
Ans: There different forms of business ownership, i.e., Sole Proprietorship, Partnership, Joint Hindu Family Business, Company and Cooperative Society. We must have noticed that no particular form of business organisation can meet all kinds of our requirements. Some may require more financial and managerial resources while others involve large risk. That is the reason why we find different forms of business organisations prevailing in our economy. So while selecting a form of business organisation, we must analyse different factors and try to choose the most suitable form according to our financial and managerial capabilities.
A joint stock company is suitable where the volume of business is large, the area of operation is widespread, the risk involved is high and there is a need for huge financial resources and manpower. It is also preferred when there is need for professional management in its operations. In certain businesses like banking and insurance, joint stock company form is the most suitable. Now-a-days, it is a preferred form for most areas of business because of the preference for operating on large scale. A joint stock company is very popular form of business organisation because it has the following advantages over other form of business organisation:
a) Distinct legal entity: Being a creature of law, a company is a legal entity, something distinct from the persons who are its members. A shareholder is not liable for the acts of the company, even though he holds almost all of the shares. Also the shareholders cannot bind the company by their acts. They are not its agents. The life of the company is independent of the lives of its members. Even if all the members die, the company does not come to an end because of their demise.
b) Limited liability of members: The limited liability is another important feature of a company. If anything goes wrong with the company, his liability is limited by the nominal amount of the shares held by him. In other words, while he stands to lose the money he has invested, he cannot be called upon to pay out of his private property.
c) Perpetual Succession: The incorporation process brings into being a corporate body distinct and separate from the members who constitute it. The right given to shareholders to transfer their shares without in any manner affecting the position of the company gives the company continuity. As a natural consequence of incorporation and transferability of shares, the company has perpetual succession or interrupted existence.
d) Common Seal: The law requires every company to have a seal with its name engraved on it. As the company has no physical form, it cannot sign its name of a contract. Therefore, originally all documents and contracts required the affixing of the seal. But now most of the transactions are signed by the directors who act as its agents. When it is affixed on nay document, two directors must witness its affixation.
e) Large Resources: A joint stock company can raise large financial resources because of its large number of members and it can raise funds through debentures, public deposits, loans from financial institutions without much difficulty.
f) Benefits of Large-scale Operation: The joint stock company is the only form of business organisation which can provide capital for large-scale operations. It results in large-scale production consequently leading to increase in efficiency and reduction in the cost of operation. It further opens the scope for expansion.
g) Liquidity: The transferability of shares acts as an added incentive to investors as the shares of a public company can be traded easily in the stock exchange. The public can buy shares when they have money to invest and convert shares into cash when they need money.
h) Professional Management: Companies, because of the complex nature of their activities and large volume of business, require professional managers at every level of organisation. Because of the size of their business and the financial strength they can afford to appoint such managers. This leads to efficiency in management of their affairs.
i) Research and Development: A company generally invests a lot of money on research and development for improved processes of production, designing and innovating new products, improving quality of product, new ways of training its staff, etc.
j) Tax Benefits: Although the companies are required to pay tax at a high rate, in effect their tax burden is low as they enjoy many tax exemptions under Income Tax Act.
Form the above discussion; it is clear that a company enjoys various advantages over other form of business organisation that is why it is considered to be most suitable form of business organisation.
4. What do you mean by capital structure ? Explain the factors determining the capital structure of a manufacturing company. 2+8
Ans: Refer above
5. What is a stock exchange ? Explain its main functions. 2+8
Ans: Refer above
6. Explain the merits and demerits of various advertising media. 10
Ans: Advantages and disadvantages of the different types of advertising media.
1. TV: TV is the ultimate advertising medium to use because pretty much everyone watches TV so it has the potential to reach lots of people. Also, because it has a mix of audio and visual it tends to be recalled more easily.
Merits: a. Good for reaching large numbers of people; b. Good for most target audiences (less so for youth)
Demerits: Relatively expensive but it depends on the size of the population. A major city might be cost prohibitive but if you want to advertise in a small town or region it could be affordable
2. Newspapers: Print media are generally on the decline but newspapers still serve a purpose – especially in regional areas.
Merits: It works well for call-to-action advertising e.g. if we have got a sale on over the weekend or some kind of special promotion.
Demerits: But it is Relatively expensive and can be used for a special deal or promotion. It reaches a broad demographic. One of the better ways to reach business people, not so good for housewives though
3. Magazines: Whilst broad print media are on the decline, niche magazines are holding their own and they are an affordable option for small businesses.
Merits: Magazines allow to reach a tightly defined niche – can be very well targeted advertising. Often have an intimate relationship with their readers – readers trust what they say and also seem to therefore trust the advertising in it Opportunities for editorial & promotions.
Demerits: Longer lead times – not so good for date/time specific advertising
4. Radio: Cost-wise radio advertising is one of the more affordable types of advertising media for small businesses. It works well for some small businesses but are choosy about which stations we use.
Merits: The major benefit of radio is that listeners will hear our ad lots of times. It is relatively cheap/easy to get creative work produced.
Demerits: a. It doesn’t reach as many people as TV necessarily but they will have more opportunities to hear it. b. Doesn’t usually have the same impact like other media.
5. Outdoor (Out of Home/Posters): Outdoor media are rarely viable options for small businesses – they are costly both for the media space and print costs. Only consider it if there’s a really good deal being offered or if there’s a tactical opportunity to buy a site close to your business location as signage.
6. Cinema: Unless our target audience is youth, cinema advertising should probably not be one of your first choices when determining which types of advertising media to use. It does tend to be effective when people see our ad but it’s a slow-burn.
Merits: Captive audience and the mix of visual/audio means there is often a strong recall of cinema advertising. It is useful when target is youth.
Demerits: Relatively low reach because most people watch some TV everyday but do not go for cinema regularly.
7. "Foreign trade is an engine of economic growth in a country". Comment on this statement in Indian context.10
Ans: Refer below, Importance of foreign trade will be its answer.
8. State the essential characteristics of public utility undertakings. Highlight the problems faced by them. 6+4
Ans: Refer below for part, Problems of Public enterprise and public utility are same.