ISC Commerce Question Paper 2011 Solved for Class 12

ISC Commerce Previous Year Question Paper 2011 Solved for Class 12

• Candidates are allowed additional 15 minutes for only reading the paper. They must NOT start
  writing during this time.
• Answer Question 1 from Part I and seven questions from Part II.
• The intended marks for questions are given in brackets [ ].

Part – I
(Compulsory)

Question 1.
Answer briefly each of the questions (i) to (xv). [15 × 2]
(i) State two advantages of a joint-stock company.
(ii) Mention the steps necessary for the incorporation of a joint-stock company.
(iii) What are the qualification shares?
(iv) What is the statutory requirement regarding the number of Directors of a Public Limited Company?
(v) What is meant by Balanced Mutual Funds?
(vi) What is meant by Universality of Management?
(vii) Give two advantages of press media over audio-visual media of advertising.
(viii) What is the Principle of Equity, as laid down by Henri Fayol?
(ix) Mention any two specific differences between selling and marketing.
(x) Outline the steps involved in the process of communication.
(xi) Write two objectives of a Prospectus of a company.
(xii) How is cash credit different from a loan?
(xiii) Briefly describe any two aims of sales promotion.
(xiv) Explain the meaning of buying and assembling as a function of marketing.
(xv) Mention two circumstances under which a private limited company is deemed to be a public limited company.
Answer:
(i) (a) Joint-stock companies shares are freely transferable. All shareholders are free to transfer their shares without the consent of anyone.
(b) The liability of the members of a Joint-stock co.are limited to the face value of the shares they possess or to the amount of guarantee accepted by them.

(ii) The steps necessary for the incorporation of a joint-stock co. are threefold. Initially, a necessary document has to be prepared and filed, this is followed by payment of necessary fees and lastly by obtaining the certificate of incorporation.

(iii) Qualification shares are the no. of shares that the first directors of the company have to subscribe and pay for. The qualification shares taken by the directors is prescribed in the Articles.

(iv) The size of the Board of Directors varies from company to company however under the Companies Act, the minimum no. of directors for a Public Limited Co. is (3) Three.

(v) Mutual funds that invest in equity shares, as well as bonds, are known as Balanced Mutual Funds. The idea is to provide both growth and income benefits to investors.

(vi) According to F. W. Taylor, the fundamental principles of management are applicable to all human activities and all types of organisation. Managerial knowledge can be transferred from one organisation to another.

(vii) While press media of Advertising has a wide circulation, audio-visual media has a limited circulation. While the cost of press media is moderate, the cost of audiovisual media is high.

(viii) The principle of equity as laid down by Henri Fayol states that there should be equity in dealing with subordinates. There should be no discrimination made between employees. Favouritism should be avoided.

(ix) Marketing is a wide concept including a host of activities while selling is a narrow concept and is a part of marketing. Marketing focus is on the needs of the buyer. While the focus of selling is on the needs of the seller.

(x) The steps involved in the process of communication are:

• Sender – The person sending the message.
• Message – It’s the subject matter of communication.
• Encoding – The matter has to be translated into a mutually known language,
• Channel – A medium has to be chosen to send the message.
• Receiver – The person who is supposed to receive the message.
• Decoding – Interpreting the message to understand it.
• Feedback – It completes the process of communication.

(xi) Two objectives of a prospectus of a company :
(a) To provide information about the company to the public so that they may be attracted to invest in the company’s shares or debentures.
(b) To let the investors know the terms and conditions as well as the guidelines with regards to the company’s shares and other instruments on offer.

(xii) (a) In case of a loan, a specified amount is sanctioned by the bank which the borrower may
withdraw in Lumpsum or by cheques against the sum. In case of cash credit, the bank places the specified amount to the credit of the borrower, the borrower draws the money as and when required.
(b) Interest on the loan is charged on the full amount used or not used. Interest on cash credit is charged only on the amount actually used by the borrower.

(xiii) Two aims of sales promotion are:

• To create demand, to arouse interest in the buyer so that the interest may be converted to a desire for the product ending in the sale of the product.
• To stabilise sales earlier demand must be sustained, these activities reassure the customers about the quality and price of the product and helps in facing competition.

(xiv) Buying is the first step in the process of marketing. It means the procurement of raw materials, components and finished products. It involves several activities such as selecting the source of supply, ascertaining the suitability of goods and negotiating the terms of purchase. Assembling begins after the goods have been purchased. It involves the collection of goods already purchased from different sources at once commonplace. It facilitates standardisation and grading.

(xv) A Private limited company is deemed to be a public limited company under the following circumstances:

• Where a private company holds 25% or more of the paid-up share capital of a public company.
• Where the average sales turnover of a private company for the last three years is more than five crore rupees.

Part – II
(Answer any seven questions)

Question 2.
(a) Explain in brief, any four advantages of a multinational company. [4]
(b) The Memorandum is considered as the prime document in company formation. Give three reasons to justify this statement. [6]
Answer:
(a) The merits of a Multinational company may be stated as follows:
(i) Research and development activities: Multinational corporations have greater capability for research and development activities in comparison to national companies. Multinationals survive in the international market through their advanced research and development activities.

(ii) Foreign capital: Multinationals have huge capital resources at their command. They provide foreign investment by setting up subsidiaries and joint ventures in host countries. They promote capital formation and ensure a sound choice of projects. They have access to external capital markets.

(iii) Lower cost of production: Multinational corporations carry on operations on a large-scale, which ensures economies in material, labour and overhead costs. The lower cost of production has benefitted the consumers since they get better quality goods at cheaper prices.

(iv) Professional managers: Multinationals employ highly sophisticated techniques of management and develop professional managers. These corporations help to increase specialisation, speed up decision-making and improve operational efficiency. They shape the composition and character of world markets.

(b) The Memorandum of Association is the most important document of a company. It defines the objects and powers of a company and the company’s relationship with the outside world.
It is the most essential document for a company due to the following reasons:

• Informing the name, address, object, capital and liability of the company to outsiders is very important as it builds trust and confidence among investors.
• It lays down the objects and scope of activities of the company. It also states the limits up to which a company can move.
• The provision of this document cannot be changed without passing a special resolution (75% majority). In certain cases, the changes can be made by seeking permission from the company Law Board or Central Government.

Question 3.
Distinguish a Public Limited Company from a Private Limited Company. [10]
Answer:
1. Number of members: A private company can be registered with two members while a public company must have at least seven members. A private company cannot have more than fifty members excluding its past and present employees. A public company can have any number of members.

2. Invitation to the public: A private company cannot invite the public by issue of the prospectus to subscribe to its share capital. On the other hand, a public company is free to invite public to subscribe to its share capital. However, it is under no legal binding to invite public to subscribe to its shares or debentures.

3. Transferability of shares: There is a restriction on the transfer of shares in a private limited company. The transfer shall not be allowed unless agreed to by all the existing members of the company.

4 Commencement of business: A private company can start its business immediately after incorporation. A public company must obtain the certificate of commencement of business before starting its business operations.

5. Articles of association: A private limited company must prepare and file its own articles of association. But a public limited company may adopt the model Articles as given in the Companies Act.

Question 4.
(a) Mention any four duties of a Director of a company. [4]
(b) Explain any three methods of appointment of directors. [6]
Answer:
(a) The duties of Directors depends upon the nature and size of the company. It is necessary for the Directors to carefully examine the Articles of the company before exercising the powers and performing their duties.
Statutory Duties:

• Disclosure of relevant facts: It is the duty of the Directors to see that the prospectus issued by the company makes disclosure of all relevant facts and figures.
• Holding qualification shares: It is the duty of the elected Directors to purchase qualification shares and to hold them.
• Attending Board meeting: It is the duty of the Directors to attend Board meetings regularly in the best interest of the company.
• Getting permission for loans from the Central Government: It is the duty of the Directors to get permission from the Central Government while taking loans from the company.

(b) Methods of appointment of Directors:
The appointment of Directors may be made in the following manner:
(i) Appointment of first Directors by promoters of the company [Section 254]: The first Directors of the company are usually appointed by the promoters. Otherwise, the signatories to the Memorandum are deemed to be the Directors, till the first Directors are elected at the first annual general meeting.

(ii) Appointment of Directors by shareholders at the annual general meeting [Section 255]: Subsequent appointment of Directors is made by the shareholders at the annual general meetings. In case of a public company and a subsidiary private company, two-thirds of the total number of Directors must be appointed by the company at the annual general meeting. At every annual general meeting, one-third of the elected Directors shall retire by rotation. The retiring Directors may be re-appointed.

(iii) Appointment of Directors by the Central Government [Section 408]: The Central Gov eminent may appoint some Directors for a period of not more than three years, in the case of mismanagement of company affairs.

Question 5.
(a) Discuss any four advantages of ploughing back of profits from the company’s point of view. [4]
(b) Explain any four sources of working capital of a company. [6]
Answer:
(a) Ploughing back of profits from the company’s point of view offers the following benefits:

• It is the most convenient and economical method of finance, no legal formalities are involved and no negotiations are to be made. No return is to be paid on retained earnings and no fixed obligations are created.
• The financial structure of the company remains fully flexible. No charge is created against the assets and no restrictions are put on the freedom of management to raise further finance by floating new securities in the market.
• Ploughing back of profits adds to the financial strength and creditworthiness of the company. A company with large reserves can face unforeseen contingencies and trade cycles with ease and economy.
• Retained earnings can be used to redeem debts and to replace obsolete assets. A company with large reserves can take advantage of business opportunities.

(b) (i) Nature of Business: Public utilities and service organisations require little working capital as sales are on a cash basis. There is a little time gap between production and sales and these enterprises do not maintain large stock of goods. In trading and manufacturing concerns, on the other hand, a large amount of working capital is needed to maintain stocks and to sell goods on credit.

(ii) Size of the Enterprise: The volume of business has a direct influence on working capital requirements. Large firms require working capital for investment in current assets and to pay current liabilities.

(iii) Length of Operating cycle: Complex and roundabout process about production require a long time to prepare the finished product. Greater is the time and cost involved in production higher is the investment in inventories and wage bill. For instance, a firm manufacturing an aircraft requires a larger amount of working capital than a firm producing confectionery. When the cost of raw materials is a major part of the total cost working capital requirements are high. In the sugar industry sugarcane continues more than two-third of the cost of sugar.

(iv) Terms of purchase and sale: A firm buying raw materials and other resources on credit and selling goods on a cash basis will require less investment in working capital. On the other hand, an enterprise which purchases raw materials on a cash basis but sells the finished product on a credit basis will need greater working capital. The credit policy’ of the firm while selling goods to customers and efficiency in collection of debts also influence the amount of working capital in a firm.

Question 6.
(a) Mention any four functions of IFCI. [4]
(b) State any six utility functions of a commercial bank. [6]
Answer:
(a) (i) To provide medium and long term assistance to industrial concerns for:

• setting up of new industrial undertakings.
• expansion on diversification of existing concerns.
• modernization and renovation of existing concerns.
• meeting working capital requirements.
• meeting existing liabilities.

(ii) To grant loans to industrial concerns repayable within 25 years.
(iii) To underwrite shares stocks, bonds etc. of the industrial enterprise to be disposed of within 7 years.
(iv) To subscribe directly to the shares and debentures of public limited companies.

(b) (i) Safe Custody of valuables: Bank accepts previous articles like gold, silver, insurance policies etc. for safe custody. Bank maintains safe deposits values for these valuables.

(ii) Issues of Letter of Credit: Bank issues a letter of credits, drafts, circular notes etc. to their customers and thus help the customers in making money available to them at the place of requirement.

(iii) Issue of traveller’s cheques: Bank often issue travellers’ cheques for the benefit of tourists travellers’ cheque can be easily encashed in another branch of the same bank. This relieves the tourists from the anxiety of carrying cash during the tour.

(iv) Accepting bills of exchange: Bank often accepts bills of exchange on behalf of its customers for a small commission. This enables the customers to obtain superior credit of the bank,

(v) Underwriting of Capital issues: Bank provides service of understanding capital issues and loans raised by Government and companies. Bank charges a commission at a specified rate for these services.

(vi) Providing Credit Information: Banks are frequently requested to provide information relating to the creditworthiness of their customers. This service is useful to the sellers specially in credit sales.

Question 7.
(a) Why is Coordination considered to be the essence of Management? [4]
(b) Describe the following principles of Management: [6]
(i) Authority and Responsibility.
(ii) Stability of tenure.
(iii) Division of work.
Answer:
(a) Coordination is a conscious and national managerial function of pulling together. Various components of organised activity pre-determined goals. The significance of co-ordination may be understood on the basis of the following factors :
(i) The backbone of Management: Management is essentially a task of co-ordination of all internal as well as external forces and activities that affect the organisation. Co-ordination may be regarded as a mother function of management in which all other functions (like planning, organising directing and controlling) are embedded.

(ii) Unification of activities: Co-ordination reduces diversity among various departments and individual employees. It is not possible to achieve the specialised task of various departments and individual employees. It is not possible to achieve specialist tasks of various departments without perfect co-ordination. Coordination welds the various sequents and parts of the organisation into one entry.

(iii) Core of Group efforts: Co-ordination is indispensable in group efforts for accomplishing common goals. Co-ordination integrates various activities for effective achievement of common goals. Co-ordination reconciles the employee’s goals with both department and organisation goals.

(b) (i) Authority and Responsibility: Authorin’ is a right to give order and power to exert obedience.
Responsibility implies the obligation to perform the work in the manner desired and directed. Authority and responsibility must go by side. There should be parity between authority and responsibility. Authority without responsibility leads to irresponsible behaviour while responsibility without authority makes a person ineffective.

(ii) Stability of Tenure: This principle states that one subordinate should receive orders from one superior only. The subordinate should be accountable to that superior from whom he received orders. In other words every employee should have only one boss. Dual on multiple commands creates chaos in the organisation since it undermines authority. Authority should be delegated in such a manner that a subordinate works under one superior only.

(iii) Division of work: Division of work implies dividing the total task into compact jobs and allocating these compact jobs to different individuals. The object of division work is to facilitate specialisation and improve efficiency. Due to the division of work higher productivity’ and better performance is possible. When an individual does the same job on a repetitive basis he specializes in his task and thus acquires speed and accuracy in the performance.

Question 8.
(a) Explain any four objectives of communication. [4]
(b) Give any six differences between formal and informal communication. [6]
Answer:
(a) (i) Promotion of managerial efficiency: Communication is a lubricant to string the smooth operation of the management process. It keeps people working in accordance with the decisions of the management.

(ii) Co-operation through understanding: It induces human being to put forth genuine efforts in work performances. It inculcates the understanding of employees and leads them to greater efforts. It ensures efficiency in work in all respects.

(iii) The motivation of employees: It helps in moulding employees behaviour favourably. It encourages the employees to accept new ideas for the completion of the works systematically. It leads to better employer-employee relations.

(iv) Basis of leadership action: Effectiveness of leadership is greatly influenced by the adequacy and clarity of communication. Personal communication is essential for maintaining man to man relationships in leadership.
(b)

Question 9.
(a) Explain any four facilitating functions of Marketing. [4]
(b) “Advertising is a social waste.” Comment. [6]
Answer:
(a) (i) Financing: This is the service of providing credit and money necessary for the producer on
the seller to make goods available to the consumers. Financial is the lifeblood of modern business. It is the lubricant that facilitates the marketing of products. The prosperity working and future of a business unit mainly depends on the availability of adequate finance. Finance should also be available in sufficient amounts to face trade cycles, recession etc.

(ii) Price Determination: This is the process of fixing the price of a product on service. Generally, the price of a product is determined by the following factors:

• The demand for the product
• Nature of the product
• Cost of the product
• Extent of competition
• Government regulation if any etc.
• Condition of product

The price of a product should be determined in such a way that it brings in the largest volume of sales with a sufficient margin of profit.

(iii) Grading: This refers to the classification of goods into well-defined classes on the basis of certain standards. The main objective of grading to introduce uniformity. It facilitates the fixation of prices of various grades in advance. It is costly to sell graded goods as consumers.

(iv) Sales Promotion: This is an effort to stimulate consumers to purchase more and more of a particular commodity. It is a marketing effort the function of which is to inform customers about the merits of a product on sen ice. It is used to create; capture and maintain demand. It influences the attitudes of behaviour and the purchase decision of consumers.

(b) Some people consider advertising a social waste. They point out the following limitations and dangers of advertising:
1. Higher Prices: Advertising involves huge expenditure thereby increasing the cost of distribution. Manufacturers and traders charge higher prices from consumers to recover the money spent on advertising. However, excessive and unbalanced advertisements increase cost and prices. Effective advertisement help to reduce costs and price by widening markets and providing economies of large scale operations.

2. Artificial living: Advertising multiplies the needs of people and encourages wasteful consumption. It persuades people to buy products which they do not need or cannot afford. People are encouraged to buy even products which are harmful to their health eg. cigarettes, wine, etc. Advertising promotes artificial living and extravagance by creating demand for trivial goods.

3. Misleading: Advertising often deceptive and misguides consumers. Exaggerated and false claims are made in advertisements to dupe innocent people. Bogus testimonials and other questionable means are used to sell goods of doubtful value.

4. Growth of monopolies: Advertising creates brand preference and restricts free competition. Large and well-established firms spend huge amounts on advertisements to kill new and small concerns. Advertising encourages the survival of the mightest rather than of the best.

5. Wastage of national resources: Manufacturers create trivial and artificial differences in their products to develop brand loyalty through advertising. The natural resources, capital equipment and labour which go into the production of such items amount of waste as these could better be employed in creating new industries, valuable stationery, time and energy used in advertisement go waste because most of the advertisement either escape the attention of people or are ignored by them. It is also regarded as a waste because of most of the advertisement shift demand from the one brand to another instead of increasing the total demand.

6. Unethical many advertisements are highly objectionable because they undermine moral values and ethics. Vulgar advertisements may also spoil the landscape and divert the attention of people driving on roads.

Question 10.
Write short notes on:
(a) Holding company. [2]
(b) The crossing of cheques. [4]
(c) Management – Science and Art. [4]
Answer:
(a) Holding Company: A holding company is one that directly or indirectly holds more than 50% of equity’ share capital or controls the composition of the Board of Directors of some other companies.
A company may become a holding company in any of the following three ways:

• By holding more than 50% of the paid-up equity’ share capital of another company: or
• By holding more than 50% of the voting rights of another company: or
• By holding the right to appoint the majority of the Directors of another company.

(b) A crossed cheque is a cheque, the amount of which is payable through the account of the payee. It cannot be cashed at the counter of the bank. If it is stolen, nobody can encash the cheque. Two parallel lines are to be drawn across the face of the cheque with the words ‘Account Payee’ in order to make a cross cheque.
A cheque is said to be crossed when two transverse parallel lines are drawn across its face (with or without any words):

• The crossing of a cheque ensures security and protection to the true owner of the cheque.
• It helps to detect the bonafide owner of the cheque.

(c) Management as a science: Science is a systematised body of knowledge, which can be acquired through observations and experimentations. The basis of science is to search for information by means of determining the cause-effect relationship through observations and experimentation.
The essential features of science are as follows:

• Systematised body of knowledge.
• Continued observations.
• The universal validity of principles.
• Principles-based on experiments.

Now let us see how far management fulfils these requirements to qualify as a science.

(i) Systematised body of knowledge: Science is a systematised body of knowledge which is based on a cause-effect relationship. Management viewed science as it is also a systematised body of knowledge built up by management make use of scientific methods for observations followed by management practitioners and experts over a period of time. The principles of management make use of scientific methods for observations.

(ii) Continued observations: Science uses the scientific methods of observations which are unbiased and objective. The knowledge of management has been acquired through the continuous efforts of many experts and practitioners over a period of years. The methods of observations followed by management are not completely objective, since management deals with human beings whose behaviour cannot be predicted.

Management as an Art
Art refers to the application of skill and knowledge to attain the desired result. Art is concerned with the practical application of theoretical knowledge. The function of Art is to accomplish concrete ends. It represents the methods of doing specific things and indicates how an objective is to be achieved. Every art is practical and is concerned with the creation of something.
Art has the following five essential features:

• Practical knowledge.
• Personal skills.
• Result – Oriented approach.
• Constructive skill (i.e. creativity).
• Regular practice aimed at further improvement.

Now let us see how far management fulfils these requirements to qualify as an art:
(i) Practical knowledge: Art presupposes the existence of theoretical knowledge. Art is concerned with the application of theoretical knowledge. Therefore, every form of art has both theoretical and practical aspects. Management is an art of getting things done through people to accomplish desired results. Management is concerned with putting the available knowledge into practise so as to accomplish predetermined goals.

(ii) Personal skills: Every manager has his own style of working the taste of management lies in the skillful used of one’s technical knowledge to ensure maximum productivity and profitability. The manager has to use his personal skill and knowledge in solving many complicated problems to accomplish desired results. Therefore, management is a practice and performance.

ISC Class 12 Commerce Previous Year Question Papers