1. Fresherslive  » 
  2. Education  » 
  3. NCERT  » 
  4. NCERT Solutions for Class 11 Ncert solutions 2020

NCERT Solutions for Class 11 Ncert solutions 2020

Updated: Aug 29,2019 14:15 IST

Karishma

NCERT Solutions for Class 11 Business Studies is given here. Students who are looking for NCERT Solutions for Class 11 Business Studies here. NCERT Solutions for Class 11 Business Studies includes detailed answers of all the questions of all chapters of Business Studies which is given in NCERT book. Download the NCERT Solutions for Class 11 PDF for free here. We provide detailed NCERT Solutions for Class 11 for the students.

NCERT Solutions for Class 11 Ncert solutions 2020

NCERT Solutions for Class 11 Ncert solutions 2020

NCERT Solutions for Class 11 Business Studies and Read NCERT Class 11 Business Studies Notes

FreshersLive acts as a great provider of NCERT Solutions for Class 11 Business Studies. Students who are looking for Class 11 Business Studies notes can get it here. NCERT Solutions for Class 11 Business Studies for all chapters is provided here for student's reference. Download the complete solution for Class 11 Business Studies Question and Answers for free. Besides, students can acquire the NCERT Solutions for Class 11 Business Studies in the PDF format soon. CBSE students of Class 11 can use the solutions given here for all chapters to prepare for the exams. Prepare for your exam by referring the NCERT Solutions for Class 11 Business Studies to score good marks.

NCERT Class 11 Business Studies Chapter Wise Solutions

Chapter 1- Nature and Purpose of Business

Chapter 2 - Forms of Business Organisation

Chapter 3 - Private, Public and Global Enterprises

Chapter 4 - Business Services

Chapter 5 - Emerging Modes of Business

Chapter 6 - Social Responsibilities of Business

Chapter 7 - Formation of a Company

Chapter 8 - Sources of Business Finance

Chapter 9 - Small Business

Chapter 10 - Internal Trade

Chapter 11 - International Business - I

Chapter 12 - International Business - II

Chapter 1

Business, Trade and Commerce

Multiple Choice Questions

1. Which of the following does not characterise business activity?

  1. Production of goods and services
  1. Presence of risk
  2. Sale or exchange of goods and services
  3. Salary or wages

Answer (d) Salary or wages are paid as remuneration to workers who work for others and is not a characteristic of business.

2. Which of the broad categories of industries covers oil refinery and sugar milts?

  1. Primary
  2. Secondary
  3. Tertiary
  4. None of these

Answer (b) Oil refinery and sugar mills process tharnateriats (crude oil and sugarcane) which have already been extracted at the primary stage.

3. Which of the following cannot be classified as an auxiliary to trade?

  1. Mining
  2. Insurance
  3. Warehousing
  4. Transport

Answer (a) Activities which are meant for assisting trade are known as auxiliaries to trade. These do not comprise of mining as it is not a support service for trade.

4. The occupation in which people work for others and get remunerated in return is known as

  1. Business
  2. Employment
  3. Profession
  4. None of these

Answer (b) People engaged in business are entrepreneurs who earn income in the form of profit.

Professionals provide services directly to clients and do not work for others.                                                                                                                                                                                                   

5. The industries which provide support services to other industries are known as

  1. Primary industries
  2. Secondary industries
  3. Commercial industries
  4. Tertiary industries

Answer (d) Tertiary industries provide support services to facilitate activities of primary and secondary industries.

6. Which of the following cannot be classified as an objective of business?

  1. Investment
  2. Productivity
  3. Innovation
  4. Profit earning

Answer (a) Investment has to be made to start and run a business, thus it is an Input and not an objective of business.

7. Business risk is not likely to arise due to

  1. changes in government policy
  2. good management
  3. employee dishonesty
  4. power failure

Answer (b) Good management does not cause any chance of loss or reduction in profits.

Short Answer Type Questions

Question 1. State the different types of economic activities.

Answer 

Economic activities are those by which we can earn our livelihood. Economic activities may be further divided into three categories, namely business, profession and employment e.g, a person running a garment business a doctor operating in his chnic and a teacher teaching in a school- all three are doing so to earn their livelihood and are, therefore, engaged in economic activity.

Question 2. Why is business considered an economic activity?

Answer

Business may be defined as an economic activity involving the production and sale of goods and services undertaken with a motive of earning profit by satisfying human needs in society Business IS considered to be an economic activity because it is undertaken with the aim of earning money or livelihood and not because of any sentimental reason like love, affection or sympathy

Question 3. Explain the concept of business.

Answer

The term ‘business’ is derived from the word busy’. Thus, business means being busy. However, in a specific sense, business refers to any occupation In which people regularly engage in an activity with an objective of earning profit. The activity may consist of production or purchase of goods for sale, or exchange of goods or supply of services to satisfy the needs of other people in the society.

 Question 4. How would you classify business activities?

Answer

Various business acnvmes may be classified into two broad categories industry and commerce. industry is concerned With the production or processing of goods and materials. Industries may be divided into three broad categories namely primary, secondary and tertiary Commerce includes all those activities which are necessary for facilitating the exchange of goods and services. Commerce includes two types of activities, via., trade and auxiliaries. 

Question 5. What are various types of industries?

Answer

Industry refers to economic activities which are connected With conversion of resources into useful goods. Industnes may be divided into three broad categories namely primary, secondary and tertiary

  1. Primary Industries include all those activities, which are connected with the extraction and production of natural resources and reproduction and development of living organisms. plants etc.
  2. Secondary Industries are concerned with using or processing the materials which have already been extracted at the primary stage
  3. Tertiary Industries are concerned with providing support services to primary and secondary industries. They also Include activities relating to trade.

Question 6. Explain any two business activities which are auxiliaries to trade.

Answer

Activities which are meant for assist.nq trade are known as auxiliaries to trade. These acuvmes are generally. referred to as services because these are in the nature of facilitating the activities relating to Industry and trade. Two business activities which are auxiliaries to trade are:

  1. Transport and Communication Production of goods generally takes place In particular locations. Transport facilitates movement of raw material to the place of production and the finished products from factones to the place of consumption. Communication facilities help the producers. traders and consumers in exchanging information With one another. Thus, postal services and telephone facilities may also be regarded as auxiliaries to business activities.
  2. Warehousing Goods are not sold or consumed Immediately after production They are held in stock to be available as and when demand comes. Special arrangement must be made for storage of goods to prevent loss or damage Warehousing helps business firms to overcome the problem of storage and facilitates the availability of goods when needed.

Question 7. What is the role of profit in business?

Answer

Every business operates with an aim to earn more than what has been invested and profit is the excess of revenue over cost. Profit plays an Important role In business

  • It is a source of Income for business persons.
  • It can be a source of finance for meeting expansion requirements of business.
  • It indicates the efficient working of business
  • It can be taken as society’s approval of the utility of business
  • It builds up the reputation of a business enterprise.

Question 8. What is business risk? What is its nature?

Answer

The term business risk refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events. BUSiness risks are of two types speculative and pure Speculative risks Involve both the possibility of gall as well as the possibility of loss Speculative risks arise due to changes In market conditions, changes in prices or changes In fashion and tastes of customers Pure risks involve only the possibility of loss or no loss. The chances of fire, theft or strike are examples of pure risks.

Nature of business risks can be understood in terms of the following characteristics

  • Business risks arise due to uncertainties.
  • Risk is an essential part of every business.
  • Degree of risk depends mainly upon the nature and size of business.
  • Profit is the reward for risk taking.

Long Answer Type Questions

Question 1. Explain the characteristics of business.

Answer

Business refers to any occupation in which people regularly engage in an activity with an objective of earning profit. The activity may consist of production or purchase of goods for sale, or exchange.

If goods or supply of services to satisfy the needs of other people in the society, Business has the following characteristics:

1.Economic Activity

Business is considered to be an economic activity because it is undertaken with the aim of earning money or livelihood and not because of any sentimental reason like love, affection or sympathy.

2.Production or Procurement of Goods and Services

Goods are offered to consumers after they are either produced or procured by business enterprises. Thus, every business enterprise either manufactures the goods It deals in or it acquires them from other producers, to be further sold to consumers or users. Goods may be consumer goods like television, tea, pen, etc or capital goods like machinery, furniture, etc Services may include facilities offered to consumers in the form of transportation, banking electricity, etc.

3.Sale or Exchange of Goods and Services

Business involves transfer or exchange of goods and services for value addition. If goods are produced for self consumption and not for selling purpose, it cannot be called a business activity Cooking food at home for the family is not business, but cooking food and selling it to others in a restaurant is business. Thus, one essential characteristic of business is that there should be sale or exchange of goods or services between the seller and the buyer.

4.Regular Dealings in Goods and Services

Business involves dealings in goods or services on a regular basis. Therefore, one Single transaction of sale or purchase does not constitute business. e.g., if a person sells his/her old washing machine even at a profit. it will not be considered a business activity. But if he/she sells washing machines regularly it will be termed as a business.

5.Profit Earning

One of the main objectives of business is to earn profit. No business can survive for long without earning profit. It is a source of income for business persons and a source of finance for meeting expansion requirements of business. Hence, businessmen make all possible efforts to maximise profits, by increasing the sales revenue or reducing costs.

6.Uncertainty of Return

Uncertainty of return refers to the lack of surety relating to the amount of money-that the business is going to earn in a given period. Every business invests capital in its activities with the objective of earning profit. But it is not certain as to what amount of profit will be earned. There is even a possibility of losses being incurred even after the best efforts.

7.Element of Risk

Risk involves the possibility of inadequate profits or even losses due to uncertainties or unexpected events. It is caused by some unfavourable or undesirable event. The risks are related with certain factors like changes in consumer tastes and fashions, changes in methods of production, strike or lockout in the workplace, increased competition in the market, fire, theft, accidents, natural calamities, etc. No business can eliminate risks altogether.

Question 2. Compare business with profession and employment.

Answer

Economic activities may be divided into three major categories

  1. Business Business refers to those economic activities, which are connected with the production or purchase and sale of goods or supply of services with the main object of earning profit. People engaged in business earn income in the form of profit.
  2. Profession Profession includes those activities, which require special knowledge and skill to be applied by individuals in their occupation. Those engaged in professions are known as professionals and are generally subject to guidelines or codes of conduct laid down by professional bodies. e.g., lawyers are engaged in the legal profession, governed by the Bar Council of India and Chartered Accountants belonging to the accounting profession are subject to the regulations of the Institute of Chartered Accountants of India.
  3. Employment Employment refers to the occupation in which people work for others and get remunerated in return. Those who are employed by others are known as employees. Thus, people who work in factories, offices of banks, insurance companies or government department, etc at various posts are the employees of these organisations. They receive wages and salaries.

Comparison of Business, Profession and Employment

 

Basis

Business

Profession

Employment

Mode of establishment

Entrepreneur's decision and other legal formalities if necessary

Membership of a professional body and certificate of practice

Appointment letter and service agreement

Nature of work

Provision of goods and services to the public

Rendering of Personalised, expert services

Performing work as per service contract or rules of service

Qualification

No minimum qualification is necessary

Expertise and training In a specific field is a must

Qualification and training as prescribed by the Employer

Reward or return

Profit earned

Professional fee

Salary or wages

Capital investment

Capital Investment required as per size and nature of business

Limited capital needed for establishment

No capital required

Risk

Profit are uncertain and irregular; risk is present

Fee is generally regular and certain; some risk

Fixed and regular Pay; no or little risk

Transfer of Interest

Transfer possible with some formalities

Not possible

Not possible

Code of conduct

No code of conduct is prescribed

Professional code of conducts is to be followed

Norms of behaviour laid down by the employer are to be followed

 

Question 3. Explain with examples the various types of industries.

Answer

Industry refers to economic activities, which are connected with conversion of resources into useful goods. Industry is concerned with the production or processing of goods and materials as well as breeding and raising of animals. The term industry is used for activities in which mechanical appliances and technical skills are involved. The term industry is also used to mean groups of firms producing similar or related goods. SeNices such as banking and transport are also referred to as industries sometimes.

Industries may be divided into three broad categories namely primary, secondary and tertiary.

i.Primary Industries These Include all those activities, which are connected with the extraction and production of natural resources and reproduction and development of living organisms, plants etc.

These industries may be further subdivided as follows:

Extractive Industries

These industries extract or draw out products from natural sources. Extractive Industries are suppliers of basic raw materials that are mostly products of the geographical or natural environment products of these Industries are usually transformed into useful goods by manufacturing mdustnes Farming, mining. lumbering. hunting and fishing-operations are some important extractive industries.

Genetic Industries

These industries are concerned with the breeding of plants and animals for their use in further reproduction Seeds and nursery companies cattle breeding farms. poultry farms and fish hatchery are examples of genetic Industries

ii.Secondary Industries These are concerned with USing and processing the materials. which have already been extracted by the primary sector to produce goods for final consumption or for further processing by other industrial units e g., the iron ore extracted by mining which is a primary industry. is processed Into steel and hence. steel Industry is a secondary industry Secondary industries may be further divided as follows

Manufacturing Industries

These industries are engaged In producing goods for Intermediate or final consumption through processing of raw materials and thus creating form utilities. Manufacturing industries may be further divided Into four categories on the basis of method of operation for production.

Analytical Industry

Which analyses and separates different elements from the same materials, eg. oil refinery

Synthetical Industry

Which combines various Ingredients Into a new product. E.g. cement industry

Processing Industry

Which involves successive stages for manufacturing finished products, e.g.. sugar and paper industries.

Assembling Industry

Which assembles different component parts to make a new product. e.g. car and computer industries.   

Construction Industries

These industries are involved in the construction of buildings, dams, bridges, roads, tunnels, and canals. Engineering and architectural skills play an important role in construction mdustnes. These Industries are Important for infrastructure development.

iii.Tertiary Industries These comprise of support services to primary and secondary industries as well as activities relating to trade These industries provide service facilities. These may be considered as a part of commerce because as auxiliaries to trade they assist trade. Transport, banking, insurance, warehousing. communication. packaging and advertising are examples of tertiary industries.

 Question 4. Describe the activities relating to commerce.

Answer

Commerce includes two types of activities, viz.,

(i) trade

(ii) auxiliaries to trade

Buying and selling of goods is termed as tradel. On the other hand, activities that are required to facilitate the purchase and sale of goods are called services or auxiliaries to trade. The various activities included in commerce are discussed below

  1. Trade

The hindrance of persons is removed by trade thereby making goods available to the consumers from the producers. Trade is an essential part of commerce. It refers to sale, transfer or exchange of goods. It helps in making the goods produced available to ultimate consumers or users. Businessmen are engaged in trading activities as middlemen like wholesalers and retailers to make the goods produced at a large scale in one place, available to consumers in different markets. Trade may be internal or external.

  1. Auxiliaries to Trade

Activities which are meant for assisting trade are known as auxiliaries to trade. These activities are generally, referred to as services because these are in the nature of support service facilitating the activities relating to industry and trade. These activities help in removing various hindrances which arise in connection with the production and distribution of goods. Auxiliaries to trade are briefly discussed belowAnchor

Transport and Communication

Transport removes the hindrances of place. Transport facilitates through road, rail or coastal shipping facilitate movement of raw material to the place of production and the finished products from factories to the place of consumption. Along with the transport facility, there is also a need lor communication facilities to enable the producers, traders and consumers to exchange information with one another. Thus, postal services and telephone facilities are also regarded as auxiliaries to business activities.

Banking and Finance Capital required to acquire assets and meeting the day-to-day expenses is provided by banking and financing institutions.

Commercial banks lend money to business organisations by providing: loans and advances. Banks also undertake collection of cheques, remittance of funds to different places, and discounting of bills on behalf of traders. In foreign trade, payments are arranged by commercial banks on behalf of importers and exporters.

Insurance The risk of loss or damage to the factory building, machinery, furniture, goods held in stock or goods in course of transport due to theft, fire, accidents, etc is removed by insurance of goods. By payment of a nominal premium, the amount of loss or damage and compensation for injury, if any, can be recovered from the insurance company.

Warehousing:

Storage and warehousing activities remove the hindrance of time by facilitating holding of stocks of goods to be sold as and when required. Warehousing helps business firms to overcome the problem of storage to prevent loss or damage and facilitates the availability of goods when needed Continuous supply of goods and thus stable prices can thus be maintained

Advertising:

Advertising makes it possible for producers and traders to promote the goods and services available in the market thus removing the hindrance of information. It is practically impossible for producers and traders to contact each and every customer Advertising helps in providing information about the goods available its features, price, etc, and Inducing customers to buy particular items.

Question 5. Why does business need multiple objectives? Explain any five such objectives.

Answer

Need for Multiple Objectives It is generally believed that profit earning is the primary objective of business. However, as per modern thinking, business needs to have several objectives. Consistent and sustainable profit can be earned only If the business performs useful services to society BUSiness requires multiple objectives since It has to balance a number of needs and goals related to various aspects of society. Following only one objective cannot lead business towards excellence.

Objectives are needed in every area where performance and results affect the survival and prosperity of business. Five of the objectives of business are described below:

i. Profit Maximisation

Profit is defined as excess of revenue over cost Profitability refers to profit in relation to capital Investment. Although earning profit cannot be the only objective of business, ItS importance cannot be ignored. Every business makes an attempt to reap maximum profit as possible in the given market conditions. Profit may be regarded as an essential objective of business for various reasonsAnchor

  • It is a source of income for business persons.
  • It can be a source of finance for meeting the expansion requirements of the business.
  • It indicates the efficient working of the business.
  • It can be taken as society’s approval of the utility of business.
  • It builds up the reputation of a business enterprise.

ii. Market Standing

Market standing refers to the position of an enterprise In relation to ItS competitors. A business enterprise must aim at standing on stronger footing In terms of offering competitive products to its customers and provide customer satisfaction.

iii. Innovation

Innovation is the introduction of new ideas or methods. There are two kinds of innovation in every business

Product Innovation

In product innovation a new product or service or an improved version of existing product is developed

Process Innovation

This Involves innovation in the methods, skills and activities needed to produce or supply products.

Product demand starts declining after a span of time. At this stage, the business must introduce a new innovation to create fresh demand for the existing product by introducing new features in it or bring out a new product to sustain in the market.

iv. Productivity

Productivity is calculated by comparing the value of outputs With the value of inputs. It is used as a measure of efficiency. Higher productivity leads to reduction In costs as the same amount of output is produced with lesser amount of inputs. This ensures survival and growth of the enterprise.

v. Social Responsibility

Every business operates within a society. It uses the resources of the society and depends on the society for its functioning. This creates an obligation on the part of business to look after the welfare of society. So, all the activities of the business should be such that they will not harm, rather they will protect and contribute to the interests of the society The activities of business towards the welfare or the society earn goodwill and reputation for the business In the eyes of consumers as well as government.

Question 6. Explain the concept of business risk and its causes.

Answer

The term ‘business risk’ refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events. e.g., decline in demand for a product due to change in tastes and preferences of consumers resulting in lesser sales and profits; shortage of raw materials in the market leading to rise in its price and in turn raising cost for the business which uses them thereby reducing profits.

Business risk is of two types

  1. Speculative Risks involve both the possibility of gain as well as the possibility of loss. Speculative risks arise due to changes In market conditions including fluctuations in demand and supply, changes in prices or changes in fashion and tastes of customers.
  2. Pure Risks involve only the possibility of loss or no loss. The chance of fire, theft or strike is example of pure risks. Their occurrence may result in loss whereas non-occurrence may explain absence of loss, instead of gain.

Business risks arise due to a variety of causes, which are classified as follows

Natural Causes

Natural calamities like flood, earthquake, lightning, heavy rains famine etc are beyond human control. They result In heavy loss of life, property and income.

Human Causes

Human causes include such unexpected events like carelessness, negligence or dishonesty of employees, stoppage of work due to power failure, stokes. riots, management inefficiency etc.

Economic Causes

These include uncertainties caused due to economic fluctuations such as changes In demand for goods, competition, price, collection of dues from customers, change of technology or method of production, etc Financial problems like rise In interest rate and higher taxation, etc also come under economic causes as they raise the cost of operation of business unexpectedly.

Other Causes

These are unforeseen events ‘like political disturbances, mechanical failures, fluctuations in exchange rates, etc which lead to the possibility of business risks

Question 7. What factors are important to be considered while starting a business? Explain.

Answer

Business firms encounter some basic problems while starting a business. Various decisions have to be taken regarding the business while starling it. Some of the basic factors to be considered while starting a business are as follows

1.Selection of Line of Business

The first thing to be decided by any entrepreneur of a new business is the nature and type of business to be undertaken. One should enter an Industry which is in growth phase and thus has a higher possibility of profits. Technical knowledge and Interest the entrepreneur has for producing a particular product is also important in this regard.

2.Size of the Firm

Size of the firm refers to the scale of its operation. Business can be started at a large scale If the entrepreneur is confident that the demand for the proposed product is likely to be high over time and he has the necessary skills and capital for business. Business should be started at a small or medium scale if the market conditions are uncertain and risks are high.

3.Form of Ownership

There are various forms of ownership in a business organisation like sole Proprietorship, partnership or a Joint stock company. The choice of the suitable form of ownership will depend on such factors as the capital requirements, liability of owners, division of profit, transferability of interest and so on.

4.Location of Business Enterprise

Plant location is an Important factor to be considered at the start of the business. Availability of raw materials and labour; power supply and services like banking, transportation, communication, warehousing, etc, are Important factors while making a choice of location.

5.Financing Decisions

Financing is concerned with providing the necessary capital for starting as well as for continuing the proposed business Capital is required for Investment In fixed assets and current assets. Proper financial planning must be done to determine the requirement, source and allocation of funds.

6.Physical Facilities

Availability of physical facilities including machines and equipment building and supportive services is a very important factor to be considered at the start of the business. The decision relating to this factor will depend on the nature and size of business, availability of funds and the process of production

7.Plant Layout

Plant layout refers to a layout plan showing the arrangement of physical facilities such as machines and equipments for production It should be drawn by the entrepreneur after deciding about the scale of operation and physical facilities to be acquired.

8.Competent and Committed Employees

In present time, the most crucial resource for a business is the human resource. Every business depends on the competence and commitment of its workforce to perform various activities so that physical and financial resources are converted Into desired outputs in an effiCient and effective manner.

9.Tax Planning

Every business has to pay certain taxes as levied by the government. Tax planning and management for reducing tax liability as far as possible is acceptable both legally and ethically The entrepreneur must consider in advance the tax liability under various tax laws and its Impact on business decisions.

10.Launching the Enterprise

After the decisions relating to the above-mentioned factors have been taken, the entrepreneur can go ahead with actual launching of the enterprise which would mean mobilising various resources, fulfilling necessary legal formalities, starting the production process and initiating the sales promotion campaign.

Chapter 2

Forms of Business Organisation

Multiple Choice Questions

1. The structure in which there is separation of ownership and management is called

  1. Sole proprietorship
  2. Partnership
  3. Company
  4. A business organisations

Answer (c) The management and control of the affairs of the company is undertaken by the Board of Directors, which appoints the top management officials to the business. The managers are accountable to shareholders who are the owners of the company

2. The karta in Joint Hindu family business has

  1. limited liability
  2. unlimited liability
  3. no liability for debts
  4. joint liability

Answer (b) The joint Hindu family business is controlled by the head of the family who IS the eldest member and is called Karta. The kerte has unlimited liability while the liability of all other members is limited to their share of coparcenary property of the business.

3. In a co-operative society. the principle followed is

  1. one share one vote
  2. one man one vote
  3. no vote
  4. multiple votes

Answer (b) The principle of one man one vote governs the co-operative society Each member is entitled to equal voting rights reserved of the amount of capital contribution by him/her.

4. The board of directors of a joint stock company is elected by

  1. General public
  2. Government bodies
  3. Shareholders
  4. Employees

Answer (c) The shareholders are the owners of the company while the Board of Directors is the chief managing body elected by the shareholders.

5. The maximum number of partners allowed in the banking business are

  1. Twenty
  2. Ten
  3. No limit
  4. Two

Answer (b) The Minimum number of partners needed to start a partnership firm is two while the maximum number is ten In case of ban!(ing Industry and twenty In case of other businesses.

6. Profits do not have to be shared. This statement refers to

  1. Partnership
  2. Joint Hindu family business
  3. Sole proprietorship
  4. Company

Answer (c) Sole proprietorship refers to a form of organisation where business is owned, managed and controlled by a single Individual who bears all the risks and is the only recipient of all the profits.

7. The capital of a company is divided into number of parts each one of which are called

  1. Dividend
  2. Profit
  3. Interest
  4. Share

Answer (d) The capital of the company is divided into small parts called ‘shares’ which can be transferred freely from one shareholder to another person (except in a private company). The shareholders are thus the owners of the company.

8. The Head of the Joint Hindu family business is called

  1. Proprietor
  2. Director
  3. Katta
  4. Manager

Answer (c) The joint Hindu family business is controlled by me head of the family who is the oldest member and is called Karta.

9. Provision of residential accommodation to the members at reasonable rates is the objective of

  1. producer’s co-operative
  2. consumer’s co-operative
  3. housing co-operative
  4. credit co-operative

Answer (c) Co-operative housing societies are established to help people with limited income to construct houses at reasonable costs and giving the option of paying in instalments.

10. A partner whose association with the firm is unknown to the general public is called

  1. Active partner
  2. Sleeping partner
  3. Nominal partner
  4. Secret partner

Answer (d) A secret partner is one whose association with the firm is unknown to the general public. He is like the rest of the partners in all other aspects

Short Answer Type Questions

1. For which of the following types of business do you think a sole proprietorship form of organisation would be more suitable and why?

  1. Grocery store
  2. Medical store
  3. Legal consultancy
  4. Craft centre
  5. Internet cafe
  6. Chartered accountancy firm

Answer

Sole Proprietorship will be most suitable in case of a Grocery store as in this case, initial business setting-up costs are not very high, the legal requirements are minimum and the scale of operations is small.

Besides, direct personal contact is needed with the customers in the case of a grocery store and hence, sole proprietorship where there is a single person who owns and manages the business may be more suitable as he would be able to know his customers well and thus serve them better.

Question 2. For which of the following types of business do you think a partnership form of organization would be more suitable and why?

  1. Grocery store
  2. Medical store
  3. Legal consultancy
  4. Craft centre
  5. Internet cafe
  6. Chartered accountancy firm

Answer

Partnership form of organisation would be most suitable for all Internet cafe as this business needs greater capital Investment and varied skills It can come into existence easily through a legal agreement by putting an agreement between the prospective partners into place whereby they agree to carry out the business of the firm and share risks. There is no compulsion with respect to registration of the firm In case of lack of demand closure of the firm too is not difficult Further the partners are jointly and individually liable for payment of debts which does not put the liability on one person as in sole proprietorship.

Question 3. Explain the following terms in brief

  1. Perpetual succession
  2. Common seal
  3. Karta
  4. Artificial person

Answer

a) Perpetual Succession

Company is a legal entity separate of its owners or members It can be brought to an end only by law as it is created by the law. It will only cease to exist when a specific procedure for lis closure. ca led winding up, is completed. Members may come and go but the company continues to exist through consecutive succession of old members by new members on a continuous basis We can say that perpetual succession’ Implies permanent existence which is not affected by death, retirement insolvency of members.

b) Common Seal

A company is a creation of law and exists Independent of its members Company is thus considered to be an artificial person who acts through its Board of Directors, When the Board of Directors enters into an agreement with others. It indicates the company’s approval through a common seal The common seal is the engraved equivalent of an official signature Any agreement which does not have the company seal put on it is not legally binding on the company.

c) Karta

The head of the Hindu Joint family who is the eldest member and controls the Joint Hindu family business which IS a specific form of business organisation found only in India is called Karta Joint Hindu family business refers to a form of organisation wherein the business is owned and carried on by the members of the Hindu Undivided Family (HUF) It is governed by the Hindu Law The control of the family business lies with the karta He lakes all the decisions and is authorised to manage the business. His decisions are binding on the other members. The karta has unlimited liability while the liability of all other members is limited to their share of coparcenary property of the business.

d) Artificial Person

A company is called an artificial person because just like natural persons, a company can own’ property, incur debts, borrow money, enter into contracts, sue and be sued but unlike them it cannot breathe, talk, walk, eat, etc. A company is a creation of law and exists as an artificial person independent of its members.

Question 4. Compare the status of a minor in a Joint Hindu Family Business with that in a partnership firm.

Answer

When the inclusion of an individual into the business occur due to the birth in the Hindu Undivided Family (HUF) is known as Minor. On the other hand partnership is based on legal contract between two persons who agree to share the profits or losses of a business carried on by them and a minor is incompetent to enter into such a valid contract with others.

Hence, a minor cannot become a partner In any firm. However, a minor can be admitted to the benefits of a partnership firm with the mutual consent of all other partners.

Question 5. If registration is optional, why do partnership firms willingly go through this legal formality and get themselves registered? Explain.

Answer

Registration of partnership firm means recording of the firm’s name and its relevant prescribed particulars, in the Register of firms kept with the Registrar of firms. It provides conclusive proof of the existence of a partnership firm. It is optional for a partnership firm to get registered still most of the partnership firms voluntarily get themselves registered as in case of non-registration, the firm has to face the following consequences

A.partner of an unregistered firm cannot file file suit against the firm or another partner.

B.The firm cannot file suit against third parties.

C.The firm cannot file a case against the partners.

Hence, to avoid these disadvantages, partnership firms register themselves.

Question 6. State the important privileges available to a private company.

Answer

The following are some of the privileges of a private limited company compared to a public limited company.

  1. The minimum number of members required to form a private company is only two while at least seven people are needed to form a public company.
  2. A private company does not need to issue a prospectus as public is not Invited to subscribe to its shares.
  3. Allotment of shares can be done without receiving the minimum subscription.
  4. A private company can start business as soon as it receives the certificate of incorporation and does not have to wait for the receipt of certificate of commencement as in case of a public company.
  5. A private company needs to have only two directors as against the minimum of three directors in the case of a public company.
  6. A private company is not required to keep an index of members unlike a public company.
  7. There is no restriction on the amount of-loans to directors in a private company while in case of a public company permission from the government is required.

Question 7. How does a co-operative society exemplify democracy and secularism? Explain.

Answer

The word co-operative means working together with others tor a common purpose. The co-operative society is a voluntary association of persons, who join together with the motive of welfare of the members.

The membership of a co-operative society is voluntary. A person is free to join a co-operative society and can also leave anytime without any compulsion. The decision making power in a co-operative society lies in the hands of an elected managing committee. Every member has one vote and this right to vote gives the members a chance to elect the members of the managing committee.

All these features lend the co-operative society a democratic character Further, the membership of a co-operative society is open to all. Irrespective of their religion caste and gender. The co-operative society through its purpose lays emphasis on the values of mutual help and welfare. These features prove the secular nature of co-operative societies.

Question 8. What is meant by ‘partner by estoppel’? Explain.

Answer

A partner by estoppel is a person who gives an impression to others that he/she is a partner of the firm through his/her own initiative, conduct or behaviour. Such partners are held liable for the debts of the firm because in the eyes of others, they are considered partners. even though they do not contribute capital or take part in its management e.g., Mr Sharma is a friend of Mr Mathur who is a partner in a pharmaceutical firm-Health First. On Mr.Mathur’s request, Mr.Sharma accompanies him to a business meeting with Wellness Pharmaceuticals and actively participates in the process of negotiation for a business deal anc gives the impression that he is also a partner in Health First. If credit is extended to Health First on the basis of these negotiations. Mr Sharma would also be liable for repayment of such debt, as il he is acting as the partner of the firm.

Long Answer Type Questions

Question 1. What do you understand by a sole proprietorship firm? Explain its merits and limitations?

Answer

Sole proprietorship refers to a form of business organization which is owned, managed and controlled by an individual who is the recipient of all profits and bearer of all risks. The word “sole” implies “only” and “proprietor” refers to “owner”.

Hence, a sole proprietor is the only owner of a business. This form of business is particularly common in small scale business and areas of personalised services.

Features of Sole Proprietorship

  1. Formation and Closure
  2. Very few legal formalities are required to start a sole proprietary business, except in the fields where a license is required. Closure of the business can also be done easily.
  3. Unlimited Liability Sole proprietors have unlimited liability. This implies that the owner is personally responsible for payment of debts in case the assets of the business are not sufficient to meet all the debts.
  4. Sole Risk Bearer and Profit Recipient: The sole proprietor bears the risk of failure of business all alone and also receives all the business profits which are a reward for his risk bearing.
  5. Control and Decision Making
  6. The sole proprietor has the absolute right to run the business and make all decisions regarding the business without any interference from others He is the king in all aspects.
  7. No Separate Entity. No distinction is made. between the sole proprietor and his business In terms of the law as the business does not have an identity separate from the owner. The owner is, therefore, held responsible for all the activities of the business.
  8. Lack of Business Continuity Sole proprietorship lacks continuity as death. insanity. imprisonment, physical ailment or bankruptcy of the sole proprietor will have a negative effect on the business and may even cause closure of the business.

Merits of Sole Proprietorship

(i) Prompt Decision Making

        The decision making is prompt under sole proprietorship. As there is a considerable degree of freedom in making business decisions and there is no need to consult others. This results in the timely capitalisation of market opportunities.

(ii) Confidentiality

All the information related to business operations is kept confidential and secrecy is maintained as the sole decision making authority rests with the proprietor. A sole proprietor is also no bound legally to publish firm’s accounts.

(iii) Direct Incentive

The sole proprietor receives al the business profits as a reward for bearing the business risk. He/she is the single owner and does not need to share profit. This provides an incentive to the sole proprietor to work hard.

(iv) Sense of Accomplishment

There is a sense of personal satisfaction involved In working for oneself. It insu s a sense of accomplishment and confidence in the individual.

(v) Ease of Formation and Closure

An Important merit of sole proprietorship s the possibility of entering into business with minima legal formalities. There is no separate law that governs sole proprietorship. As sole proprietorship is the least regulated form of business, it is easy to start and close the business as per the wish of the owner Limitations of sole Proprietorship.

1. Limited Resources

Resources of a sole Proprietor are limited to his/her personal savings and borrowings from others Banks and other financial Institutions hesitate to provide long term loan to a sole proprietor and hence, the size of the business generally remains small.

2. Limited Life of a Business

Concern Death, Insolvency or illness of a proprietor has a detrimental effects on the business and can lead to its closure.

3. Unlimited ability

A major disadvantage of sole proprietorship is the unlimited liability of the owner In case of failure of business, the creditors can recover their dues not only from the business assets but also from the personal assets of the proprietor

4. Limited Managerial

Ability An individual may not be good in all managerial tasks such as purchasing. seiling, financing, etc. Thus. decision making of a sole proprietor may not be effective in all the cases.

Though sole proprietorship suffers from certain limitations, many entrepreneurs opt for ttus form of orqamsat-on because it requires less amount of capital and is best suited for small businesses and where customers demand personalised services.

Question 2. Why is partnership considered by some to be a relatively unpopular form of business ownership? Explain the merits and limitations of partnership.

Answer

The Indian Partnership Act, 1932 delnes partnership as the relation between persons who have agreed to share the profit of the business carried on by all or anyone of them acting for all. Some people consider partnership to be relatively unpopular because the inherent features of partnership such as JOint risk bearing and profit sharing, collective decision making. unlimited liability of partners. etc Sometimes lead to conflicts among partners and undue burden on some of the partners Besides. public confidence in partnership firm is low. But partnership as a form of business organisation actually has both merits and limitations as discussed below:

Merits of Partnership

  1. Ease of Formation and Closure A partnership firm can be formed with minimal legal formalities by an agreement between the prospective partners whereby they agree to carryout the business of the firm and share risks. Registration of the firm is also not compulsory Closure of the firm can be done easily too.
  2. Varied Expertise and Effective Decisions The partners can look after different functions according to their areas of expertise. This reduces the burden of work on individual partners and leads to more effective decisions.
  1. More Capital In partnership. the capital is contributed by many partners. Thus larger amount of funds are available as compared to a sole proprietor to undertake additional operations when needed.
  2. Risk Sharing All the partners share the risks involved in running a partnership firm. This reduces the anxiety burden and stress on individual partners.
  3. Secrecy A partnership firm is not legally required to publish its accounts and submit reports. Hence, it can maintain confidentiality of information relating to its operations.

Limitations of Partnership

(i) Unlimited Liability

The partners of a firm have unlimited liability. Personal assets may be used for repaying debts if the business assets are insufficient. Further, the partners are Jointly and individually liable for payment of debts Hence if some partners are unable to pay the debt proportionate to their share, the others will have to repay the entire debt causing excessive burden on them.

(ii) Limited Resources

Partnership firms usually do not operate on a large scale as there is a restriction on the number of partners and hence. contribution in terms of capital investment remains Insufficient for business expansion beyond a point.

(iii) Conflicts Decision making authority in a partnership is shared by all the partners Difference In opinion may thus lead to conflicts between partners Decisions of one partner are binding on other partners and a wrong decision by one may result in financial problem for all others.

If a partner decides to leave the firm due to conflicts thrs can result in termination of partnership as there IS a restriction on transfer of ownership.

(iv) Lack of Continuity

Partnership comes to an end with the death, retirement. Insolvency or lunacy of any partner It may result in lack of continuity if the remaining partners do no enter Into a fresh agreement to continue the business.

(v) Low Public Confidence

Due to lack of transparency in the business of a partnership firm, the confidence of the public in partnership firms is generally low. It is difficult for the public to ascertain the true financial status of a partnership firm as it is not legally required to publish its financial reports or make other related information public.

Question 3. Why is it important to choose an appropriate form of organisation? Discuss the factors that determine the choice of form of organisation.

Answer

After studying various terms of business organisations. it is evident that each form has certain advantages as well as disadvantages.

The important factors deterrn.nmq the choice of organisation are discussed below:

  1. Cost and Ease of Starting Business

Sole propnetorshrp is started easily as far as initial business setting-up costs and legal requirements are concerned. In case of partnership also, the advantage of less legal formalities and lower cost is there because of limited scale of operations. Registration is compulsory in case of co-operative societies and companies Formation of a company involves a lengthy and expensive legal procedure.

  1. Liability

In case of sole proprietorship and partnership firms, the liability of the owners/partners IS unlimited. This may result in payment of debt from personal assets of the owners. In joint Hindu family business, only the karta has unlimited liability. In co-operative societies and companies, however, liability is limited and creditors can force payment of their claims only to the extent of the company’s assets.

  1. Continuity

The continuity of sole proprietorship and partnership firms is affected by events such as death, insolvency or Insanity of the owners. However, such factors do not affect the continuity of business in the case of organisations like Joint Hindu family business, co-operative societies and companies.

  1. Managerial Ability

It is difficult for a sole proprietor to have expertise in all functional areas of business. In other forms of organisations like partnership and company, there is division of work among the members which allows the managers to specialise in specific areas, leading to better decision making. But this may sometimes lead to conflicts due to differences of opinion Company form of organisation is a better alternative if the operations are complex in nature and require professional management.

  1. Capital Requirements

For large scale operations, company form is the most suitable as large amount of funds can be arranged by issuing shares In this form. For medium and small sized business, one can opt for partnership or sole proprietorship. Capital requirements for expansion can also be met more easily in company form.

  1. Degree of Control

Sole proprietorship provides direct control over operations and absolute decision making power. But if the owners want to share control for more effective decision making, partnership or company form of organisation can be adopted. In company form of organisation, professionals are appointed to manage the affairs of a company as there is complete separation of ownership and management.

  1. Nature of Business

Sole proprietorship is more suitable for businesses in which direct personal contact is needed with the customers such as in the case of a beauty parlour or grocery store. The company form of organisation is suited for large manufacturing units. Partnership form is much more suitable in case of professional services. The factors stated above are inter-related and therefore, all the relevant factors must be taken into consideration while making a decision with respect to the form of organisation.

Question 4. Discuss the characteristics, merits and limitations of co-operative form of organisation. Also describe briefly different types of co-operative societies.

Answer

According to The Indian Co-operative Societies Act, 1912, “Co-operative organisation is a society which has its objectives for the promotion of economic interests of its members in accordance with co-operative principles.”

Features of a Co-operative Society

1. Voluntary Membership

The membership of a co-operative society is voluntary. There is no compulsion for anyone to join or quit a society after serving a notice procedurally. Membership is open to all, irrespective of their religion, caste and gender.

2. Legal Status

Registration of a co-operative society is compulsory. This accords a separate Identity to the society which is distinct from its members. The society can enter into contracts and hold property in its name, sue and be sued by others. As a result of being a separate legal entity, it is not affected by the entry or exit of its members.

3. Limited Liability

The liability of the members of co-operative society is limited to the extent of the amount contributed by them as capital. This defines the maximum risk that a member can be asked to bear.

4. Control

In a co-operative society, the power to take decisions lies in the hands of an elected managing committee. The right to vote gives the members a chance to choose the members who will constitute the managing committee and this leads the co-operative society a democratic character.

5. Service Motive

The co-operative society through its purpose lays emphasis on the values of mutual help and welfare. Hence, the motive of service dominates its working. If any surplus is generated as a result of its operations, it is distributed amongst the members as dividend in conformity with the bye-laws of the society.

Merits of Co-operative Society

1. Equality in Votes

Co-operative society is governed by the principle of ‘one man one vote’. Each member is entitled to equal vote rights irrespective of the amount of capital contributed by a member.

2. Limited Liability

The liability of members of a co-operative society is limited to the extent of their capital contribution and hence, the personal assets of the members cannot be used to repay business debts.

3. Continuity Death, bankruptcy or insanity of the members do not affect continuity of a co-operative society.

4. Economy in Operations

The focus of co-operative society is on elimination of middlemen which helps in reducing costs. The members generally ofter honorary services to the society and the risk of bad debts is lower as customers or producers are members of the society too.

5. Government Support

The co-operative society is supported by the government in the form of low taxes, subsidies and low interest rates on loans.

6. Ease of Formation

The co-operative society can be started with a minimum of ten members and the registration procedure is done under Co-operative Societies Act, 1912.

Limitations of Co-operative Society

1. Limited Resources

Capital contributions in a cooperative society are from the members with limited means.

2. Inefficient Management

The members of co-operative societies are not professionals and offer honorary services on a voluntary basis. They are not equipped to carry out the management functions effectively.

3. Lack of Secrecy

It is difficult to maintain secrecy about the operations of a co-operative society due to open discussions in the meetings and disclosure obligations as per the Societies Act, (7).

4. Government Regulations

Co-operative societies have to comply with several rules and regulations related to auditing of accounts. submission of accounts. etc and also work under control of state co-operative departments.

5. Internal Conflicts

Internal conflicts arise when personal interests start dominating the welfare motive.

Types of Cooperative Societies

1. Consumer’s Co-operative Societies

The consumer co-operative societies are comprises to protect the Interests of consumers as Its aim is eliminating middlemen to achieve economy in operations and provide good quality products at reasonable prices it purchases goods in bulk directly from the wholesalers and sells goods to the members.

2. Producer’s Co-operative Societies

These societies are comprise to protect the interest of small producers and are set up to provide the supplying of raw materials equipment and other Inputs to the members and buying their output for sale Profits among the members are distributed on the basis of their contributions to the society.

3. Marketing Co-operative Societies

Such societies consist to help the small producers who wish to obtain reasonable prices for their output and want to market their products. Its members jointly perform marketing functions like transportation. warehousing, packaging, etc to sell the output at the best possible price and profits are distributed according to each member’s contribution to the pool of output.

4. Farmer’s Co-operative Societies

These societies comprise of farmers as members who Jointly take up farming activities to gain the benefits of large scale farming and Increase the productivity. Such societies provide better quality seeds, fertilisers, machinery and other modern techniques to member farmers.

5. Credit Co-operative Societies

Credit co-operative societies are formed for providing easy credit on reasonable terms to the members These societies provide loans at low rates to members out of the amounts collected as capital and deposits from the members thereby eliminating exploitation by moneylenders.

6. Co-operative Housing Societies

Co-operative housing societies help people with low income to construct houses at reasonable costs and giving them the option of paying in instalments. These societies construct flats or provide plots to members for construction of houses.

Question 5. Distinguish between a Joint Hindu family business and partnership.

Answer

Basis

Partnership

Joint Hindu Family Business

Formation

Easy formation with An agreement between partners

Easy formation with An agreement between partners

Members

Minimum members should be 2 and maximum 10 for banking and 20 for others

Minimum members should be 2 and maximum 10 for banking and 20 for others

Registration Requirement

Registration is optional

Exemption from registration

Capital Contribution

Limited but more than that can be raised In case of sole proprietorship

The capital contribution comes from Ancestral property

Liability

Liability of members is unlimited and joint

Liability is unlimited only for Karta while it is limited for other members

Control and Management

Partners take decisions Joint and consent of all partners is needed

Karta takes decisions which are binding on other members

Continuity

Stable but affected by status of partners

Stable business, continues even in Karta dies through Succession in family

Question 6. Despite limitations of size and resources, many people continue to prefer sole proprietorship over other forms of organisation? Why?

Answer

Sole proprietorship refers to a form of business organisation which is owned, managed and controlled by an individual who bears all risks and receives all profits. This form of business is suited mainly in areas of personalised services and small scale activities due to shortage of capital and limited abilities of an individual who is the proprietor. Still many people continue to prefer sole proprietorship over other forms of organisation as sole proprietorship offers many advantages such as:

1. Prompt Decision Making

The decision making is prompt under sole proprietorship as there is considerable degree of freedom in making business decisions and there is no need to consult others as in case of partnership or co-operative. This results in effective capitalisation of market opportunities as and when they arise.

2. Confidentiality

All the information related to business operations is kept confidential and secrecy is maintained as the sole decision making authority rests with the proprietor unlike partnership or co-operative form. A sole proprietor is also not bound legally to publish firm’s accounts as in case of a company.

3. Incentive to Work

The sole proprietor receives all the business profits as a reward for bearing the business risk He/She is the single owner and does not need to share profit. This provides an incentive to the sole proprietor to work hard.

4. Sense of Accomplishment

There is a sense of personal satisfaction involved in working for oneself. It instills a sense of accomplishment and confidence in the individual as he/she is the one who takes all the decisions without any interference from others which is present in all other forms of organisation.

5. Ease of Formation and Closure

An important merit of sole proprietorship is the possibility of entering into business with minimal legal formalities. There is no separate law that governs sole proprietorship unlike other forms like co-operative or company. As sole proprietorship is the least regulated form of business, it is easy to start and close the business as per the wish of the owner.

Application Type Questions

Question 1. In which form of organisation is a trade agreement made by one owner binding on the others? Give reasons to support your answer.

Answer

In partnership form of organisation, a trade agreement made by one owner is binding on the others.

The Indian Partnership Act, 1932 defines partnership as “the relation between persons who have agreed to share the profit of the business carried on by all or anyone of them acting for all”.

The definition of partnership highlights the fact that it is a business carried on by all or anyone of the partners acting for all. One partner is an agent of other partners as he/she represents them and thereby binds them through his/her acts. He/She is a principal as he/she too can be bound by the acts of other partners Hence, every partner is both an agent and a principal. This is the reason why a trade agreement made by one owner is binding on the others.

Further, the partners are jointly responsible for the payment of debts and they contribute in proportion to their share in business and as such are liable to that extent. The partners share amongst themselves the responsibility of decision making and control of day-to-day activities.

Question 2. The business assets of an organisation amount to ₹ 50,000 but the debts that remain unpaid are ₹ 80,000. What course of action can the creditors take if:

  1. The organisation is a sole proprietorship firm.
  2. The organisation is a partnership firm with Anthony and Akbar as partners.

Which of the two partners can the creditors approach for repayment of debt? Explain giving reasons.

Answer

a. The organisation is a Sole Proprietorship firm. Sole Proprietors have unlimited liability. This implies that the owner is personally responsible for payment of debts in case the assets of the business are not sufficient to meet all the debts. As such the owner’s personal possessions such as his/her personal car and other assets could be sold for repaying the debt. In the given case the total debts that remain unpaid are ₹ 80,000 but the organisational assets amount to ₹ 50,000 only. In such a situation the creditors can demand from the proprietor to pay ₹ 30,000 from his/her personal sources even If he/she has to sell his/her personal property to repay the firm’s debts.

b. The organisation is a partnership firm with Anthony and Akbar as partners. The partners of a firm have unlimited liability. Personal assets may be used for repaying debts In case the business assets are insufficient. As the total debts that remain unpaid are ₹ 80,000 but the organisational assets amount to ₹ 50,000 only, the creditors can demand from both or any of the partners Anthony and Akbar to pay ₹ 30,000 from their personal sources even if they have to sell their personal property to repay the firm’s debts.

In the given situation, creditors can demand the payment of debt from both Anthony and Akbar as the partners are jointly liable for payment of debts and they contribute in proportion to their share in business as they are liable to that extent However, if one of them is not available or is unable to pay, the other partner will have to pay the creditors as each partner can be held responsible for repaying the debts of the business Such a partner can later recover from the other partner an amount of money equivalent to the share jn liability defined as per the partnership agreement

Question 3. Kiran is a sole proprietor. Over the past decade, her business has grown from operating a neighbourhood corner shop selling accessories such as artificial jewellery, bags, hair clips and nail art to a retail chain with three branches in the city. Although, she looks after the varied functions in all the branches. She is wondering whether she should form a company to better manage the business.She also has plans to open branches country wide.

a. Explain two benefits of remaining a sole proprietor.

b. Explain two benefits of converting to a Joint Stock Company.

c. What role will her decision to go nationwide play in her choice of form of the organisation?

d. What legal formalities will she have to undergo to operate business as a company?

Answer

a. Iran may have the following two benefits of remaining a sole proprietor.

  • Being the sole proprietor Kiran can enjoy all the profit earned from the business without having the need to share it with anyone.
  • She does not have to publish accounts or be regulated under any law governing sole proprietorship which maintains secrecy of the business activities.

b. Kiran may have the following two benefits of converting to a Joint Stock Company.

  • She will be able to acquire the funds required for expansion of her retail chain branches country wide through share capital in a Joint Stock Company.
  • Public has more faith in a Joint Stock Company than in a sole Proprietorship firm which will help In increasing the customer base for Kiran’s business.

c. Her decision to go nationwide involves an increase in her scale of operation, requirement of capital and management abilities. As a sole Proprietor, she may face limitations of resources and her limited managerial ability. She may not be good In all managerial tasks such as purchasing. selling. financing, etc. Thus, her decision making may not be effective in all the situations especially when there are complexities of large scale operation. Besides, she will have to bear more risk individually if she remains a sole proprietor and her liability will increase to a large extent. All these factors will definitely playa role in her choice of form of organisation and she will have much stronger reasons to form a Joint Stock Company in this case.

d. The formation of a company requires greater time, effort and extensive knowledge of legal requirements and the procedures involved. To operate her business as a company. first of all, Kiran will have to prepare several documents and will have to ensure compliance with several legal requirements before it can start functioning. She will have to register her company registration of the company is compulsory as provided under the Indian Companies Act. 1956.

The Companies Act requires each public company to provide a lot of information to the office of the registrar of companies from time-to-time which Kiran will have to provide. The functioning of a company is subject to many legal provisions and compulsions A company has to comply with various restrictions including audit, voting, filing of reports and preparation of documents, and is required to obtain various certificates from different agencies such as registrar, SEBI, etc.

Chapter 3

Private, Public and Global Enterprises

Multiple Choice Questions

1. A government company is any company in which the paid up capital held by the government is not less than

  1. 49 per cent
  2. 51 per cent
  3. 50 per cent
  4. 25 per cent

 

Answer (b) According to the Indian Companies Act. 1956, a government company means any company in which not less than 51 per cent of the paid up capital is held by the Central Government, or by any State government or partly by Central Government and partly by one or more State Governments.

2. Centralised control in MNCs implies control exercised by

  1. Branches
  2. Subsidiaries
  3. Headquarters
  4. Parliament

Answer (c) MNCs have their headquarters in their home country and exercise control over all branches and subsidiaries Thus control IS limited to the broad policy framework and there IS no interference In day-to-day operations of the subsidies.

3.  PSE’s are organisations owned by

  1. Joint Hindu Family
  2. Government
  3. Foreign Companies
  4. Private Entrepreneurs

Answer (b) PSE stands for Public Sector Enterprise i.e., an enterprise in the public sector which is under government ownership.

4.  Reconstruction of sick public sector units is taken up by

  1. MOFA
  2. MoU
  3. BIFR
  4. NRF

Answer (c) If a public sector unit is making losses continuously and is declared Sick, it is referred to the Board for Industrial and Financial Reconstruction (BIFR) for complete overhauling or shut down.

5. Disinvestments of PSEs implies

  1. sale of equity shares to private sector/public
  2. closing down operations
  3. investing in new areas
  4. buying shares PSE’s

Answer (a) Disinvestment refers to the sale of the equity shares to the private sector and the public The objective of disinvestment IS to raise funds and encourage wider participation of the general public and workers in the ownership of these enterprises.

Short Answer Type Questions

Question 1. Explain the concept of public sector and private sector.

Answer

Indian Economy consists of mixed economy. A mixed economy refers to an Economic system where both private and government enterprises co-exist. The economy is therefore classified into two sectors viz., private sector and public sector.

The private sector consists of business enterprises owned by individuals or a group of individuals. The various forms of organisation are sole proprietorship, partnership, joint Hindu family, co-operative and company.

The public sector consists of business enterprises owned and managed by the government. These organisations may either be partly or wholly owned by the Central or State Government with an equity stake of at least 51 % with the government. They may also be a part of the ministry or might have come into existence by a Special Act of the Parliament. The government participates in the economic activities of the country through public sector.

Industrial policy resolutions announced by the government from time-to-time define the area of activities in which the private sector and public sector are allowed to operate.

Question 2. State the various types of organisations in the private sector.

Answer

The various types of organisations in private sector are:

(i)  Sole Proprietorship

It refers to the form of organisation where business is owned, managed and controlled by a single individual who bears all the risks and enjoys the whole profit.

(ii)  Partnership

It defined as an association of two or more persons who agree to carry the business together and share the profit as well as bear risks collectively.

(iii)  Joint Hindu Family

This business is owned and carried on by the member of a Hindu undivided family which is governed by the Hindu Law.

(iv)  Company

It may be defined as an artificial person existing only in the eyes of law with perpetual succession, having a separate legal entity and common seal. It’s of two types-Private and Public.

(v)  Multinational Corporations

They are huge industrial organisations which extend their industrial and marketing operations through a network of their branches in several countries.

Question 3. What are the different kinds of organisations that come under the public sector?

Answer

The forms of organisation which a public enterprise may take are as follows:

(i)  Departmental Undertaking

These enterprises are established as departments of the ministry and are considered as part or an extension of the ministry Itself. These undertakings may be under the Central or the State Government. Examples: Railways and; Post and Telegraph Department.

(ii)  Statutory Corporation

Statutory corporations are public enterprises brought into existence by a Special Act of the Parliament, which defines its powers and functions. It IS a financially independent corporate body created by the legislature and has a clear control over a specified area or a particular type of commercial activity.

(iii)  Government Company

According to the Indian Companies Act, 1956, a government company means any company in which at least 51 per cent of the paid up capital is held by the Central Government, or by any State Government or partly by Central Government and partly by one or more State Governments. These are established purely for business purposes.

Question 4. List the names of some enterprises under the public sector and classify them.

Answer

Some enterprises under the public sector are:

(i) Indian Railways: Departmental Undertaking

(ii) Indian Post and Telegraph: Departmental Undertaking

(iii) Steel Authority of India Limited (SAIL) : Government Company

(iv) Bharat Heavy Electricals Limited (BHEL) : Government Company

(v) Life Insurance Corporation (LIC) of India: Statutory Corporation

(vi) State Trading Corporation: Statutory Corporation

Question 5. Why is the government company form of organisation preferred to other types in the public sector?

Answer

The government company form of organisation is preferred to other types in the public sector because of the following advantages it offers

 

(i) Simple Procedure of Establishment

A government company can be easily formed as compared to other public enterprises. There is no need to get a bill passed by the Parliament or State Legislature. It can be formed simply by following the procedure laid down by the Companies Act.

(ii) Working on Business Principles

The government company works on business principles, It is independent in financial and administrative matters. Its Board of Directors usually consists of professionals and persons of repute.

(iii) Efficient Management

The management of a government company ensures efficiency in managing the business as it is more accountable than other forms of public enterprises because the annual report of the government company is placed before both the House of Parliament.

(iv)  Competition

These companies pose a healthy competition to private sector which ensures availability of goods and services at reasonable prices and good quality.

Question 6. How does the government maintain a regional balance in the country?

Answer

One of the major objectives of planning in India has been that of removing regional disparities. During the pre-independence period most of the industrial progress was limited to a few areas like the port towns. After the inception of planning in 1951, the government started paying special attention to those regions which were lagging behind and public sector industries were deliberately set up in those backward regions.

Four major steel plants were set up in the backward areas to accelerate economic development, provide employment to the workforce and develop ancillary industries. e.g., with the establishment of Bhilai Steel Plant in Madhya Pradesh, several new small mudstones have come up in that state.

The private businessmen hesitate to establish their enterprises in the backward areas due to lack of infrastructure facilities, skilled workforce, etc but these regions cannot be neglected in public interest. Therefore, the government located new enterprises in backward areas and at the same time prevented the mushrooming of private sector units in already advanced areas.

Long Answer Type Questions

Question 1. Describe the Industrial Policy,1991, towards the public sector.

Answer

Government of India introduced four major reforms in the public sector in its new Industrial Policy, 1991. Which were as follows

(i) Dereservation

In the 1956, Industrial Policy Resolution, 17 industries were reserved for the public sector. In 1991, only 8 industries were reserved for the public sector, they were restricted to the areas of atomic energy, arms and ammunition, defence, mining, and railways. This meant that the private sector could enter all areas except these eight (now three since 2001) giving competition to public sector.

(ii) Disinvestment of Public Sector Enterprises

Disinvestment involves the sale of the equity shares to the private sector and the public. This was done with an aim to raise funds and encourage wider participation of the general public and workers in the ownership of these enterprises. This was expected to result in improved managerial efficiency and financial discipline.

(iii) Policy Regarding Sick Units

All public sector units were referred to the Board of Industrial and Financial Reconstruction (BIFR) to decide whether a sick unit was to be restructured or closed down. A National Renewal Fund (NRF) was set up by the government to retrain or redeploy labour retrenched from a sick unit and to provide compensation to public sector employees seeking voluntary retirement,

(iv) Memorandum of Understanding Management of public sector units was granted greater autonomy but held accountable for specified results through signing of Memorandum of Understanding (MoU) between the particular public sector unit and their administrative ministries. Under this system, public sector units were given clear targets and operational autonomy for achieving those targets.

Question 2. What was the role of the public sector before 1991?

Answer

Public sector had a prominent role before 1991 as discussed below:

(i) Development of Infrastructure and Heavy Industries

At the time of independence, basic infrastructure was not developed and hence industrialisation was difficult due to lack of adequate transportation and communication facilities, fuel and energy, and basic and heavy industries. The private sector did not take initiative to invest in heavy industries and infrastructure due to heavy capital requirements and long gestation periods involved in these projects. Therefore, government took the lead in these projects through public sector enterprises.

(ii) Regional Balance

After the inception of planning in 1951, the government started paying special attention to those regions which were lagging behind and public sector industries were deliberately set up in those backward regions. Four major steel plants were set up as public sector units in the backward areas to accelerate economic development, provide employment to the workforce and develop ancillary industries.

(iii) Economies of Scale

Average cost of production is lowered when the scale of production is large. But large scale industries require huge capital outlay and hence the public sector had to step in to take advantage of economies of scale. Units of electric power. natural gas, petroleum, etc were set up in public sector as these units required a larger base to function economically which was possible only with government resources and mass production.

(iv) Concentration of Economic Power

At the time of independence, there were very few industrial houses which had the required capital to invest in heavy industries and if public sector units were not established, wealth could get concentrated in a few hands giving rise to monopolistic practices. The public sector ensures that the income and benefits that accrue are shared by a large of number of employees and workers.

(v) Self Reliance

One of the major objectives of Five Year Plans WaS self-reliance. It was difficult to import heavy machinery required for a strong industrial base due to shortage of foreign exchange. At that time, public sector companies involved in heavy engineering helped in import substitution. Simultaneously, public sector companies like STC and MMTC played an important role in expanding exports of the country.

Question 3. Can the public sector companies compete with the private sector in terms of profits and efficiency? Give reasons for your answer.

Answer

It is difficult though not impossible for the public sector companies to compete with the private sector in terms of profits and efficiency due to following reasons:

(i) Difference in Objective

Private sector firms operate with the objective of profit maximisation while public sector companies have social welfare as the prime objective and hence they cannot be completely profit oriented.

(ii) Difference in Ownership

The government is the sole or major shareholder in public sector companies. The management and administration of these companies therefore rests in the hands of the government which may not make economically sound policies due to political considerations.

(iii) Difference in Management Public sector companies are managed by government officials who may not be professionally trained while private sector companies are run and managed by professional managers. This leads to higher efficiency in private sector.

 

(iv)  Difference in Area of Operation Private sector operates in all areas with adequate return on investment while public sector operates mainly in basic and public utility sectors where returns are not very high.

Question 4. Why are global enterprises considered superior to other business organisations?

Answer

Global enterprises are large industrial organisations which extend their industrial and marketing operations through a network of their branches or subsidiaries in several countries. These enterprises are Considered superior to other private sector companies and public sector enterprises because of certain features which are as follows:

(i)  Availability of Funds These enterprises can survive in crises and register higher growth as they possess huge financial resources as they have the ability to raise funds from different sources such as equity shares, debentures or bonds. They are also in a position to borrow from financial institutions and international banks as they have high credibility.

(ii)  Diversification of Risk Global enterprises usually operate in different countries and enter into joint ventures with domestic firms of the host country. Thus, losses in one country may be compensated by profits in another country. Risk is also shared by the domestic partner in case of joint venture.

(iii)  Advanced Technology Global enterprises conform to international standards and quality specifications as they possess superior technologies and methods of production.

(iv)  Research and Development (R&D) High quality research involves huge expenditure which only global enterprises can afford. Therefore, these enterprises have highly sophisticated research and development departments which regularly come up with product as well as process innovations making these firms globally competitive.

(v)  Marketing Strategies Global companies use aggressive marketing strategies in order to increase their sales. Their market information systems are reliable and up-to-date leading to effective advertising and sales promotion. They manage their brands effectively as they have a global brand equity.

 

(vi)  Wider Market Access The operations and marketing of global companies extend to many countries in which they operate through a network of subsidiaries, branches and affiliates. Due to this they enjoy a far wider market access than domestic firms.

Question 5. What are the benefits of entering into joint ventures?

Answer

When two businesses agree to join together for a common purpose and mutual benefit, it gives rise to a joint venture. The major benefits of joint ventures are as follows

(i)  Increased Resources and Capacity When two firms come together, it enables the joint venture company to grow and expand more quickly and efficiently as the new business pools in financial and human resources. It is able to face market challenges and capitalise new opportunities more effectively.

(ii)  Access to New Markets and Distribution Networks When foreign companies form joint venture with companies in a host country, they gain access to the market of host country. They can also take advantage of the established distribution channels i.e., the wholesale and retail outlets in different local markets which may be very expensive for them otherwise.

(iii)  Access to Technology Most businesses enter into joint ventures to get access to an advanced technology which IS not possible or economically feasible to be developed on their own. Technology adds to efficiency and effectiveness, thus leading to reduction in costs and superior quality products.

(iv)  Innovation Products become outdated after sometime and demand for them starts falling. Consumers have become more demanding in terms of new and innovative products. JOint ventures enable companies to come up with innovative products because of new ideas and technology acquired from the partner In the joint venture.

(v)  Low Cost of Production When international corporations invest in developing countries through joint ventures. they are able to benefit from low cost of raw materials and labour The international partner is

 

thus able to produce the products of required quality and specification at a much lower cost than what is prevailing In the home country

(vi)  Established Brand Name When two businesses enter into a joint venture one of the parties benefits from the other’s goodwill already established in the market. In such cases, there is a ready market waiting for the product to be launched which saves expenditure on marketing activities otherwise required to launch a new product.

Chapter 4

Business Services

Multiple Choice Questions

1. DTH services are provided by

(a) transport companies

(b) banks

(c) cellular companies

(d) None of these

Answer (c) DTH (Direct to Home) is a satellite based media service provided by cellular companies.

2. The benefits of public warehousing includes.

(a) control

(b) flexibility

(c) dealer relationship

(d) None of these

Answer (b) The benefits of public warehousing include flexibility in the number of locations, no fixed cost and value added services like packaging and labelling.

3. Which of the following is not a function of insurance?

(a) Risk sharing

(b) Assist in capital formation

(c) Lending of funds

(d) None of these

Answer (c) Functions of insurance include providing certainty, protection, risk sharing and assisting in capital formation.

4. Which of the following is not applicable in life insurance contract ?

(a) Conditional contract

(b) Unilateral contract

(c) Indemnity contract

(d) None of these

Answer (c) Life insurance contract is not a contract of indemnity as the lite of a human being cannot be compensated and only a specified sum of money is paid.

5. CWC stands for

(a) Central Water Commission

(b) Central Warehousing Commission

(c) Central Warehousing Corporation

(d) Central Water Corporation

Answer (c) A central government undertaking CWC i.e., Central Warehousing Corporation provides warehousing services for businessmen across the country.

Short Answer Type Questions

Question 1. Define services and goods.

Answer

Services are essentially intangible activities which are separately identifiable and provide satisfaction of wants. We cannot kept it in stock. Their purchase does not result in the ownership of anything physical. Services involve an interaction to be realised between the service provider and the consumer.

A good is a physical product capable of being delivered to a purchaser and involves the transfer of ownership from seller to customer. Goods also refer to commodities or items of all types, except services, involved in trade or commerce.

Question 2. What is e-banking? What are the advantages of e-banking?

Answer

The growth of internet and e-commerce is dramatically changing everyday, with the model world wide web and e-commerce the world is transforming into a digital global village. In Simple terms, internet banking means any user with a PC and a browser can get connected to the banks website to perform the banking functions and avail the bank’s services.

e-banking refers to electronic banking or banking using electronic media. Thus, e-bankmq is a service provided by banks that enables a customer to conduct banking transactions, such as checking accounts, applying for loans or paying bills over the internet uSing a personal computer, mobile telephone or handheld computer.

e-banking includes a range of services like Electronic Funds Transfer (EFT), Automated Teller Machine (ATM), Electronic Data Interchange (EDI), Credit Cards, and Electronic or Digital Cash

Advantages of e-banking

(i) e-banking provides 24 hours, 365 days a year services to the customers of the bank,

(ii) It lowers the transaction cost.

(iii) It inculcates a sense of financial discipline and promotes transparency.

(iv) It reduces the load on bank branches.

Question 3. Write a note on various telecom services available for enhancing business.

Answer

There are various type of telecom services which facilitate business.

These include:

(i) Cellular Mobile Services These include all types of mobile telecom services including voice and non-voice messages, data services and PCO services utilising any type of network equipment within their service area.

(ii) Radio Paging Services Radio Paging Service is a means of transmitting information to persons even when they have mobile. It is an affordable one way information broadcasting solution which includes tone only, numeric only and alpha/numeric paging.

(iii) Fixed Line Services These include all types of fixed services including voice and non-voice messages and data services used to establish linkages for long distance traffic utilising any type of network equipment connected through fibre optic cables.

(iv) Cable Services These include linkages and switched services within a licensed area of operation to operate media services which are essentially one way entertainment related services.

(v) VSAT Services VSAT (Very Small Aperture Terminal) is a satellite-based communications service which is highly flexible, uninterrupted and reliable communication solution for applications such as newspapers-on-line and tele-education in both urban and rural areas.

(vi) DTH Services DTH (Direct to Home) is a satellite based media service provided by cellular companies. One can receive media services directly through a satellite with the help of a small dish antenna and a set top box.

Question 4. Explain briefly the principles of insurance with suitable examples.

Answer

The specific principles of a valid insurance contract consist of the following

(i) Utmost Good Faith:

A contract of insurance is a contract of uberrimae fidei i.e., a contract found on utmost good faith. It is the duty of the insured to voluntarily make full, accurate disclosure of all facts, material to the risk being proposed and the insurer to make clear all the terms and conditions in the insurance contract. e.g., if any person has taken a life insurance policy by hiding the fact that he is a cancer patient and later on if he dies because of cancer then insurance company can refuse to pay the compensation as the fact was hidden by the insured.

(ii) Insurable Interest:

The insured must have an insurable interest in the subject matter of insurance. Insurable interest means some pecuniary interest in the subject matter of the insurance contract. The insured must have an interest in the preservation of the thing or life insured. e.g.; If a person has taken the loan against the security of a factory premises then the lender can take fire insurance policy of that factory without being the owner of the factory because he has financial interest in the factory premises.

(iii) Indemnity:

According to it the insurer undertakes to put the insured in the same position that he occupied immediately before the loss due to happening of the event insured against. The principle of indemnity is not applicable to life insurance e.g., A person insured a car for 2.5 lakh against damage or an accident case. Due to accident he suffered a loss of 1 5 lakh, then the insurance company will compensate him 1.5 lakh only not the policy amount i.e. 2.5 lakh as the purpose behind it is to compensate not to make profit.

(iv) Contribution:

Under this principle, an insurer who has paid a claim under insurance has the right to call upon other liable Insurers to contribute for the loss of payment. e.g . A person gets his house insured against fire tor e.g.,1 lakh with insurer A and for 50000 with insurer B A loss of 75000 occurred Then A is liable to pay 50000 and B is liable to pay 25000.

Question 5. Explain warehousing and its functions.

Answer

Warehousing was initially viewed as a provision of static unit for keeping and storing goods in a SCientific and systematic manner so as to maintain their original quality, value and usefulness but now it is viewed as a logistical service provider of the right quantity, at the right place. in the right time. In the right physical form at the right cost.

Functions of Warehousing

(i) Consolidation The warehouse receives and consolidates materials/goods from different production plants and dispatches the same to a particular customer on a Single transportation shipment

(ii) Break the Bulk The warehouse divides the bulk quantity of goods received from the production plants into smaller quantities and then transported according to the requirements of clients 10 their places of business.

(iii) StockPiling Goods or raw materials which are not required immediately for sale or manufacturing are stored in warehouses to be made available to business depending on customers demand. This type of warehouse is also known as the storehouse of surplus goods.

(iv) Value Added Services Provision of value added services such as in transit mixing, packaging and labelling is also a function of modern warehousing.

(v) Price Stabilisation Warehousing performs the function of stabilising prices by adjusting the supply of goods according to demand.

(vi) Financing Warehouse owners provide loans to the owners on security of goods and further supply goods on credit terms to customers. The warehouse keepers issue a receipt when goods are kept in warehouse. This receipt can be used as security to get loans from banks and owners In this way it also helps in financing.

Long Answer Type Questions

Question 1. What are services? Explain their distinct characteristics?

Answer

Services are essentially intangible activities which are separately identifiable and provide satisfaction of wants. Their purchase does not result in the ownership of anything physical. Services involve an interaction to be realised between the service provider and the consumer.

There are five distinct characteristics of services as discussed below:

(i) Intangibility

Services are intangible, i.e., they cannot be touched. They can only be experienced and hence the quality of the service cannot be determined before consumption Therefore, the service providers consciously work on creating a desired service so that the customer has a favourable experience. e.g, service in a restaurant should be a favourable experience for customer to visit again.

(ii) Inconsistency

Services have to be performed exclusively each time according to different consumer demands as there is no standard tangible product on offer. Hence inconsistency is an important characteristic of services. Service providers need to modify their oHer to closely meet the requirements of the customers. e.g., services provided by nationalised banks are quite different from the banking services provided by private banks.

(iii) Inseparability

Activities of production and consumption are performed simultaneously in case of services which makes the production and consumption of services seem to be inseparable as services have to be consumed as and when they are produced. e.g., we cannot separate the medical services provided by a doctor.

(iv) Absence of Inventory

Services are intangible and perishable and hence cannot be stored for future use. This implies that the supply needs to be managed according to demand as the service has to be performed as and when the customer asks for it. e.g., a medicine can be stored but the medical care will be experienced only when the doctor provides It.

(v) Involvement

Participation of the customer in the service delivery process is an Important characteristic of services as the customer has the opportunity to get the services modified according to his/her specific requirements e g., cinema halls are providing services to watch movie but the customer has to visit to the hall to experience the movie in cinema hall.

Question 2. Explain the functions of Commercial Banks with an example of each.

Answer

Banks perform a variety of functions including the basic or primary functions and the agency or general utility functions as discussed below:

(i) Accepting Deposits

Banks accept deposits and pay interest on them as these deposits form the basis of loans given by banks. These deposits are generally taken through current account, savings account and fixed deposits Current account and savings accounts deposits can be Withdrawn at any time without any prior notice while Fixed reasons are time deposits of fixed maturity. Higher rate of interest is paid on fixed deposits as compared to the savings accounts.

(ii) Lending of Funds

Second major function of commercial banks is to provide loans and advances to individuals and businesses out of the money received through deposits. These advances can be made in the form of overdrafts, cash credits, discounting trade bills, term loans, consumer credits and other miscellaneous advances.

(iii) Cheque Facility

Banks collect the cheques of their customers drawn on other banks. The cheque is a developed credit instrument for the withdrawal of deposits which serves as a convenient and Inexpensive medium of exchange.

There are two types of cheques mainly:

(a) bearer cheques, which are encashable Immediately at bank counters

(b) crossed cheques which are to be deposited only in the payees account.

(iv) Remittance of Funds

Commercial banks provide the facility of fund transfer from one place to another, on account of the interconnectivity of branches. The transfer of funds IS administered by using bank drafts, pay orders or mail transfers on which the bank charges a nominal commission. The bank issues a draft for the amount on its own branches at other places or other banks at those places. The payee can present the draft on the drawee bank at his place and collect the amount.

(v) Allied Services

In addition to above functions, banks also provide allied services such as bill payments, locker facilities, underwriting services. Banks also perform other services like opening demat and trading accounts of customers for buying and selling of shares and debentures on instructions and other personal services like payment of insurance premium, collection of dividend etc.

Question 3. Write a detailed note on various facilities offered by Indian Postal Department.

Answer

Indian post and telegraph department provides various postal services across India. For providing these services the whole country has been divided into 22 postal circles. These circles manage the functioning of the various head post offices, sub-post offices and branch post offices. There are 154149 post offices and 564701 letter boxes processing 1575 crore mails every year. The various facilities provided by postal department are broadly categorised into:

(i) Financial Facilities

Post Office Savings Bank is the largest retail bank having 150000 plus branches. Financial facilities are provided through the post office’s savings schemes like Public Provident Fund (PPF), Kisan Vikas Patra, and National Saving Certificates apart from retail banking functions of monthly income schemes, recurring deposits, savings account, time deposits and money order facility.

(ii) Mail Facilities

Mail services consist of parcel facilities that is transmission of articles from one place to another; registration facility to provide security of the transmitted articles and insurance facility to provide insurance cover for all risks in the course of transmission by post.

(iii) Allied Facilities

(a) Greeting Post Indian post offers a beautiful and varied range of greeting cards for every occasion.

(b) Media Post Indian corporates can use media post which is an Innovative and effective vehicle to advertise their brand through postcards, envelopes, aerograms, telegrams, and also through letter boxes.

(c) Direct Post It is for direct advertising which can be both addressed as well as unaddressed.

(d) International Money Transfer Indian post has a collaboration with Western Union financial services, USA, which enables remittance of money from 185 countries to India.

(e) Passport Facilities Indian post has a unique partnership with the ministry of external affairs for facilitating the process of passport application.

(f) Speed Post Indian post has over 1000 destinations covered under the speed post facility in India and links with 97 many countries across the globe.

(g) e-bill Post It is the latest offering of the Indian post and telegraph department to co’ eet b, payment across the counter for SSNL and Bharti Airtel.

Question 4. Describe various types of insurance and examine the nature of risks protected by each type of insurance.

Answer

Insurance may be classified as follows:

(i) Life Insurance

A life Insurance policy protects against the uncertainty of life though its scope has now. Widened to suit the various insurance needs of an individual like disability insurance, health/medical insurance, annuity insurance and life insurance proper,

Life Insurance may be defined as a contract In which the Insurer In consideration of a certain premium. agrees to pay to the assured, or to the person for whose benefit the policy is taken.

the assured sum of money on the happening of a specified event contingent on the human life or at the expiry of certain period.

There are various types of life Insurance policies like:

(a) Whole Life Policy

(b) Endowment life Assurance Policy

(c) Joint Life Policy

(d) Annuity Policy

(e) Children’s Endowment Policy

(ii) Fire Insurance

Life insurance Is a contract whereby the insurer, in consideration of the premium paid undertakes to make good any loss or damage caused by fire dUring a specified period upto the amount specified in the policy

The fire Insurance policy is generally taken for a period of one year after which it is to be renewed from time to lime.

A claim for loss by fire is considered valid only if it satisfies the following two conditions:

(a) There must be actual loss 

(b) Fire must be accidents and unintentional

The fisk covered by a fire Insurance contract is the loss resulting from fire which is the proximate cause of the loss If damage is caused due to o overheating without ignition, it is not regarded as a fire loss within the meaning of fire Insurance and the loss cannot be claimed from the Insurer

(iii) Marine Insurance

A marine insurance contract is an agreement whereby the insurer undertakes to Indemnify the insured In the manner and to the extent thereby agreed against manne losses. Marine insurance provides protection against loss by marine perils or perils of the sea.

There are three things involved in marine insurance:

(a) Ship or Hull Insurance

Since the ship is exposed to many dangers at sea, the Insurance policy is for Indemnifying the insured for losses caused by damage to the ship.

(b) Cargo Insurance

An insurance policy can be issued to cover against the risks to cargo while being transported by ship. These risks may be at risk of theft lost goods or on voyage etc.

(c) Freight Insurance

Shipping company is insured under freight insurance for reimbursing the loss of freight to the shipping company If the cargo does not reach the destination due to damage or loss in transit.

Question 5. Explain in detail the warehousing services.

Answer

Warehousing was Initially viewed as a provision of static unit for keeping and storing goods in a scientific and systematic manner so as to maintain their original quality, value and usefulness but now it is viewed as a logistical service, that is, making available the right quantity, at the right place, in the right lime. In the right physical form at the right cost.

The various warehousing services are as follows:

(i) Consolidation

The warehouse receives and consolidates materials/goods from different production plants and dispatches the same to a particular customer on a single transportation shipment.