Business Arithmetic Class 12 Entrepreneurship Exam Questions

Exam Questions Class 12

Please refer to the Business Arithmetic Class 12 Entrepreneurship Exam Questions provided below. These questions and answers for Class 12 Entrepreneurship have been designed based on the past trend of questions and important topics in your class 12 Entrepreneurship books. You should go through all Class 12 Entrepreneurship Important Questions provided by our teachers which will help you to get more marks in upcoming exams.

Class 12 Entrepreneurship Exam Questions Business Arithmetic

Class 12 Entrepreneurship students should read and understand the important questions and answers provided below for Business Arithmetic which will help them to understand all important and difficult topics.


Question. What are the key aspects of financial decision-making?
Answer: The key aspects of financial decision-making relate to investment, financing and dividends. Investments must be financed in some way however there are always financing alternatives that can be considered. For example, it is possible to raise finance from selling new shares, borrowing from banks or taking credit from suppliers:
1. A key financing decision is whether profits earned by the business should be retained rather than distributed to shareholders via dividends.
2. If dividends are too high, the business may be starved of funding to reinvest in growing revenues and profits further.

Question. There are three key elements in the process of financial management. Explain them.
Answer:1. Financial planning: Management need to ensure that enough funding is available at the right time to meet the needs of the business.
(а) The short term funding may be needed to invest in equipment and stocks, pay employees and fund sales made on credit.
(b) The medium and long term funding may be required for significant additions to the productive capacity of the business or to make acquisitions.
2. Financial control: It ensures that the business is meeting its goals and objectives. Financial control addresses questions such as:
(a) Are assets being used efficiently?
(b) Are the business assets secure?
(c) Does management act in the best interest of shareholders and in accordance with business rules?
3. Financial decision-making: The key aspects of financial decision-making relate to investment, financing and dividends. For example, it is possible to raise finance from selling new shares, borrowing from banks or taking credit from suppliers.
(a) A key financing decision is whether profits earned by the business should be retained or distributed to share¬holders through dividends.
(b) If dividends are too high, the business may be starved of funding to reinvest in growing revenues and profits further.


Question. Ramu is buying and selling ice-cream.Explain his working capital requirement.
 Ramu is a trading entrepreneur.
1. Trading entrepreneur is one who undertake trading activities, whether domestic or overseas.
2. They deal in buying and selling of manufactured goods.
3. Before launching the business they identify the potential market for his product in order to stimulate the demand.
They believe in creating a demand in the market to market survey and push many ideas ahead of others in the form of demonstration to promote
Operating cycle or cash conversion cycle for trading business:

Business Arithmetic Class 12 Entrepreneurship Exam Questions

1. Money needed to fund the normal, day to day operations of a business is known as the Working Capital.
2. For trading, where there is no manufacturing (or conversion), the operating cycle will be shorter.
3. Ramu needs less amount of working capital as ice-cream is a perishable goods and can’t keep for a long time period.
4. Therefore, Ramu has to purchase and sale of goods through cash only.

Question. Calculate working capital of Raja & Co. has the following items in its Balance sheet: Stock — 50,000; Trade creditors – 32,000; Debtors – 75000; Cash -1,00000; Dividend payable – 50,000; Tax – 44,000; Short term loan – 61,000; Short term investments – 76,000. Calculate gross and net working capital.
Answer: 1.Total Current Assets = Debtors + Stock + Cash + Short term investment Total Current Assets = (Rs 75000 + Rs 50,000 + Rs 1,00000 + Rs 76,000) Total Current Assets = Rs 3,01,000

2. Total Current Liabilities = Sundry Creditors + Dividend Payable + Tax + Short Term loan) Total Current Liabilities = (Rs 32,000 + Rs 50,000 + Rs 44,000 + Rs 61,000) = Rs 1,87,000

3. Gross Working Capital = Total Current Assets Gross Working Capital = Total Current Assets = Rs 3,01,000

4. Net Working Capital = Total Current Assets – Total Current Liabilities Net Working Assets = Rs 3,01,000 – Rs 1,87,000 = Rs 1,14,000

(a) Gross Working Capital = Rs 3,01,000
(b) Net Working Assets = Rs 1,14,000


Question. What are “Carrying Costs”?
Answer: It is defined as the cost of holding and handling materials inside or outside the stores. It is important to examine the inventory level and to maintain optimum balance of inventory.

Question. What does the acronym EBITDA stand for?
Answer: Earnings Before Interest, Tax, Depreciation and Amortization.

Question. Give four examples of items are hazardous in nature and special precautions have to be taken in their manufacturing.
Answer: In a factory manufacturing safety matches, phosphorous and potassium chlorate are not stored in the same or even adjoining areas, for fear of accidental mix up.

Question. What does ROE Indicate?
Answer: ROE (Return On Equity) is a good indicator to know a true measure of how own money is being used.

Question. What do you understand by Budget Period?
Answer: It refers to the period for which a budget is prepared and implemented.

Question. What does ROI Indicate?
Answer: ROI (Return On Investment) is a good indicator to know a true measure of how total money is being used. ROI, on the other hand, gives an indication of how the total money is being used.

Question. Give one difference between amortisation and depreciation.
Answer: Depreciation is applicable for tangible assets (Building, Machinery) and amortisation is available for intangible assets (Goodwill, Patent, Trademark). Depreciation may write off slow but amortisation may write off fast.

Question. What do you mean by shelf-life? Give two examples.
Answer: The length of time a product may be stored without becoming unsuitable for use or consumption. Items like vegetables, fruits, flowers and equipments – cold storage, freezers, etc. These have financial implications. Similarly some of the manufactured food or medicinal products have expiry dates – beyond which they are not fit for consumption. This imposes certain constraints on inventory management.

Question. What do you mean by Unit of Sales?
Answer: Unit of sales can be defined as the measure of what products are sold.

Question. What do you mean by Gross Profit?
Answer: Excess of Unit Price over Unit Cost is known as the Unit Gross Profit or Unit Gross Margin. This represents the business’s profit from selling a product or providing service before deducting fixed expenses such as salaries, rent, and other expenses. Gross Profit = Unit Price — Unit Cost

Question. What is meant by ‘financial management’? Pareto’s Law formed the basis for a technique. Name it.
Answer: The financial management is the process of procurement, allocation and control of financial resources of a concern.


Question. Name the commonly used tags for tracking while using SKU.
Answer: Bar Codes and RFID (Radio Frequency Identification) tags are used in tracking containing electronically stored information.

Significance: The significance of computing this ratio is to find out how efficiently the long term funds supplied by the outsiders or creditors and owners are being used. It gives an indication of how the total money is being used.

Example: If an entrepreneur spends X 100,000 to open a grocery shop and makes a net profit of Rs. 20,000 in one year, your annual ROI equals (20,000/100,000) x 100 = 20 per cent. When calculating ROI, the investment will include not only what the investor spent out of his/her pocket, but also all borrowed funds.

Question. Name and explain the chief cost of budget process.
Answer: The chief cost of the budget process is time. In some corporations the process takes on a life of its own and becomes a convoluted exercise of excessive complexity which, moreover, prevents unit managers from doing any thinking: their time is consumed in efforts to comply with a vast array of requirements dictated from above Much of the negative attitude that has developed concerning this activity has its roots in unnecessary bureaucratic impositions on the one hand and unreliability because of the rapid change, a few months out.

Question. Explain the concept of ROE (Return on Equity).
Answer: Meaning: It is the ratio of net profit after interest and tax and owner’s investment. Significance: The significance of computing this ratio is to find out how efficiently the owners funds supplied by the shareholders/owners are being used. Example, if Sushmita the owner of a grocery shop has an equity stake of Rs 70,000 in the business, she has borrowed Rs 30,000 (rate of interest is 10%). This will attract an interest of 3,000 @ 10% per annum. If the Net Profit is Rs 14,000 then: ROE=Rs 14,000/Rs 70,000 x 100 =20% 

Question. Make a SKU form for “Shirts” for the given number, classify them in Style, colour, date, month, year, size: 01234- 021-R- Ma 31-10-40 M.
Answer: Style: 01234-021, Colour: R-Red, Month: Ma-May, Date: 31st, Year: 2010, Size: 40 Medium.

Question. What do you understand by sales mix? State the assumptions made for the calculation of break even point for sales mix.
Answer: Sales mix is the proportion in which two or more products are sold. For the calculation of break even point for sales mix, following assumptions are made:
1. The proportion of sales mix must be predetermined.
2. The sales mix must not change within the relevant time period.
3. All cost can be categorized as variable or fixed.
4. Sales price per unit, variable cost per unit and total fixed cost are constant.
5. All units produced are sold. 

Question. Name few different system of inventory control.
1. ABC Analysis
2. Economic Order Quantity
3. Just-in- time (JIT),
4. Perpetual inventory, etc.

Question. Is ‘Break-even Analysis’ useful to achieve the target level of profit?
Answer: Yes, organisation’s identify those products, which yield the highest contribution. ‘Break even Analysis’ helps the firm in selecting and ranking those products, based on contribution, to achieve the targeted level of profit.

Question. What is RFID?
Answer: Radio-Frequency Identification (RFID) is the wireless use of electromagnetic fields to transfer data, for the purposes of automatically identifying and tracking tags attached to objects. The tags contain electronically stored information. 


Question. State the advantages of‘cost plus’ method of pricing. 
Answer: Advantages of Cost Plus method of pricing:
1. Easy: This method of pricing is very simple method. It can easily be used for determining the price.
2. Flexible: Any changes in the cost of production or the margin of profit change the price in the same direction. It automatically gets adjusted to the change.
3. Visible profit margin: Profit margin is not to be calculated. It is already fixed. Thus by multiplying the profit per unit with the volume of the product, the total profit can be determined.
4. Increases efficiency: Any upward rise in cost is easily visible. This provides an idea to the entrepreneur to adjust his production for keeping the cost as low as possible.
5. Less calculation: Comparatively less calculations are involved. Which makes the implementation of this method simple,
6. Easy implementation: This method can easily be implemented because of its simplicity to understand and easy calculations.

Question.Explain the following features of a cooperative society:
1. Democratic management
2. Capital and return thereon
3. Distribution of surplus

Answer:Features of Co-operative societies:
1. Democratic management: The management of a co-operative organisation is vested in the hands of the managing committee elected by the members on the basis of ’one member-one vote’. Democracy is, thus, the keynote of the management of a co-operative society.
2. Capital and return thereon:The capital is procured from its members in the form of share capital. A member can subscribe subject to a maximum of 10% of the total share capital or Rs 1,000 whichever is higher. Shares cannot be transferred but surrendered to the organisation. The rate of dividends paid to the members/ shareholders is restricted to 9% as per the Co-operative Societies Act, 1912.
3. Distribution of surplus: After giving dividends to the members, the surplus of profits, if any, is distributed among the members on the basis of goods purchased by each member from the society.

Question. Explain ABC Analysis of Inventory Control. Or Which items of inventory claim bulk of the values?
Answer: A firm maintains several types of inventories. To control them properly the firm adopts a selective approach which is called ABC Analysis. In this the firm classifies all items according to values so that the most valuable items may be paid highly, more attention is given regarding their safety and care as compared to other items. It has been observed that out of a long list of inventory, A category list are small in number say 5-10 per cent of the total value but they are quite valuable of total value. The value being 70-75 per cent of the total value of stocks. B category is in between A and C categories having 15 to 20 per cent of the number of items and 15 to 20% of the total value. C category items are 70-75% in numbers but carrying little value ranging from 5-10%. We can see following categorization:

Business Arithmetic Class 12 Entrepreneurship Exam Questions

The above three categories vary from product to product and organization to organization. Great care and control is to be exercised on items of “A” list, as any loss or breakage or wastage of any item of this list may prove to be very costly, proper care is to be taken on “B” list items and comparative list control is needed for “C” list items.

Class 12 Entrepreneurship Exam Questions Business Arithmetic