Class 12 Business Studies Sample Paper Term 2 With Solutions Set D

Sample Paper Class 12

Please refer to Class 12 Business Studies Sample Paper Term 2 With Solutions Set D below. These Class 12 Business Studies Sample Papers will help you to get more understanding of the type of questions expected in the upcoming exams. All sample guess papers for Business Studies Class 12 have been designed as per the latest examination pattern issued by CBSE. Please practice all Term 2 CBSE Sample Papers for Business Studies in Standard 12.

Sample Paper Term 2 Class 12 Business Studies With Solutions Set D

Short Answer Type Questions – I

1. “It improves job satisfaction and morale of employees through objective assessment and fair reward for their contribution and helps to ensure optimum utilisation of the human resources.”. Identify and explain the function of management discussed in the above lines.
Answer. The function discussed in the lines is ‘Staffing’.
Staffing has been described as the managerial function of filling and keeping filled the positions in the organization structure. It improves job satisfaction and morale of employees through objective assessment and fair reward for their contribution. It also helps to ensure optimum utilisation of the human resources. By avoiding overmanning, it prevents under-utilisation of personnel and high labour costs. At the same time, it avoids disruption of work by indicating in advance the shortages of personnel.

2. Hemu’s mother owns the shares of a large IT company. The securities were in physical form. She has a bank account but does not possess any other forms of security. She wanted to sell the shares and approached a registered broker. Which of the mandatory details she needs to provide the broker?
Answer. The mandatory detail which she needs to provide the broker is Permanent Account Number. If an investor wishes to buy or sell any security, he has to first approach a registered broker or subbroker and enter into an agreement with him. The investor has to sign a broker-client agreement and a client registration form before placing an order to buy or sell securities and also has to provide certain other details and information such as PAN number.

3. State any two limitations of external sources of recruitment.
Answer. Limitations of external sources of recruitment:
(i) It may lead to dissatisfaction among existing employees as they may feel that their chances of promotion are reduced.
(ii) It is a lengthy process as the vacancies have to be notified and applications received before selection.
(iii) It is a costly process as a lot of money is spent on advertisement and processing of applications.

4. Mehta textiles Limited is a large manufacturing unit engaged in manufacturing best quality fabric since 1975. Recently the company conducted time and motion studies and concluded that on an average, a worker could produce 500 units per day. However, it has been noticed that the average daily production of a worker is in the range of 100-200 units.
(i) Name the function of management and identify and explain the step in the process of this function which helped in finding out that the actual production of worker is less than the set target.
(ii) To complete the process of the function identified in (i) and to ensure the performance as per time and motion studies, identify and explain what further step a manager has to take.
Answer. (i) The function of management is ‘Controlling’.
This step involves comparison of actual performance with the standard. Such comparison will reveal the deviation between actual and desired results. Comparison becomes easier when standards are set in quantitative terms.
(ii) Taking corrective actions: This is the last step of Controlling process. By comparing actual performance with established standards, deviations are revealed. The remedial or corrective action is to be taken to remove deficiencies. Here, it involves change in working methods, material, machines policies and procedures. It may also require improvement in the motivation, supervision and modifications in the business plans. Corrective action might involve training of employees if the production target is not met. Similarly, if an important project is running behind schedule, corrective action might involve assigning additional workers and equipment to the project and permission for overtime work.

Short Answer Type Questions – II

5. Irma is the chief executive officer of a reputed company. She introduced appropriate skill development programmes and a sound promotion policy for the employees of her company. To motivate and retain the best talent in the company, she designed the jobs of the managers to include greater variety of work content. Explain any three other non-financial incentives that may be introduced by Irma other than those already introduced by her to further motivate the employees of her company.
Answer. Incentives that may be introduced by Irma other than those already introduced by her to further motivate the employees of her company are:
(i) Status: In the organizational context, status means ranking of positions in the organization. The authority, responsibility, rewards, recognition, perquisites and prestige of a job indicate the status given to a person holding a managerial position. Psychological, social and esteem needs of an individual are satisfied by status given to their job.
(ii) Organizational climate: Organizational climate indicates the characteristics which describe an organization and distinguish one organization from the other. These characteristics influence the behavior of individuals in the organization. Some of these characteristics are–individual autonomy, reward orientation, consideration to employees, risk-tasking etc., If managers take positive measures regarding these aspects, it helps to develop better organizational climate.
(iii) Employees recognition programmes: Most people have a need for evaluation of their work and due recognition. They feel that what they do should be recognized by others concerned. Recognition means acknowledgment with a show of appreciation. When such appreciation is given to the work performed by employees, they feel motivated to perform/work at higher level.
(iv) Job security: Employees want their job to be secure. They want certain stability about future income and work so that they do not feel worried on these aspects and work with greater zeal. However, there is one negative aspect of job security. When people feel that they are not likely to lose their jobs, they may become complacent.
(v) Employee participation: It means involving employees in decision making of the issues related to them. In many companies, these programmes are in practice in the form of joint management committees, work committees, canteen committees etc.
(vi) Employee empowerment: Empowerment means giving more autonomy and powers to subordinates. Empowerment makes people feel that their jobs are important. This feeling contributes positively to the use of skills and talents in the job performance.

6. “Every action in the organization is initiated through directing.” Explain any three points of importance of directing in the light of this statement.
What is Laissez Faire Leadership Style? Give its two disadvantages.
Answer. Importance of Directing:
(i) Integrates employees’ efforts: The organizational goals are achievable only when individual efforts are integrated. Directing integrates employee’s endeavours in such a manner that independent individual efforts add to the organizational performance.
(ii) Facilitates changes: An enterprise operates in a constantly changing environment. In case an appropriate system of direction exists in an organization, then it helps in motivating the workers to take up challenges of unfamiliar situations. Thus, directing helps a firm to become dynamic and responsive to new developmental changes.
(iii) Initiates action: Direction helps an organization to progress. With the help of directing, other managerial functions get initiated and operational. It helps the management to supervise, exchange information, guide and encourage people at work to perform in the desired way for achieving organizational aims and objectives.
(iv) Directing guides employees to realize their potential: Every employee is capable and has potential and capacity to generate results and this needs to be harnessed by their seniors. The elements of direction, i.e., Supervision, Motivation, Leadership and Communication, can be used to raise the efficiency of employees through willing cooperation.
(v) Brings stability and balance in the organization: Directing promotes cooperation and commitment among the employees and helps to achieve stability and balance among various internal stakeholders, activities and departments.
Laissez Faire Leadership Style: The Laissez Faire or non-interfering type of leader passes on the responsibility for decision-making to his subordinates and takes a minimum of initiative in the administration. He gives no direction and allows the group to establish its own goals and work out its own problems. The leader plays only a minor role. His idea is that each member of the group when left to himself will put forth his best effort and the maximum results can be achieved in this way. Such a leader does not believe in the use of power unless it is absolutely essential. The followers are given a high degree of independence to formulate their own objectives and ways to achieve them. The group members work on their own tasks resolving issues themselves. The manager is there only to support them and supply them the required information to complete the task assigned.
(i) It ignores the contribution of leadership.
(ii) Subordinates may work in a different direction and result in chaos as they do not get guidance and support of the leader.

7. “Sound Financial Planning is essential for the success of any enterprise.” Explain this statement by giving any three reasons.
Answer. The importance of financial planning can be explained as follows:
(i) It helps in forecasting what may happen in future under different business situations. By doing so, it helps the firms to face the eventual situation in a better way. In other words, it makes the firm better prepared to face the future. For example, a growth of 20% in sales is predicted. However, it may happen that the growth rate eventually turns out to be 10% or 30%. Many items of expenses shall be different in these three situations. By preparing a blueprint of these three situations the management may decide what must be done in each of these situations. This preparation of alternative financial plans to meet different situations is clearly of immense help in running the business smoothly.
(ii) It helps in avoiding business shocks and surprises and helps the company in preparing for the future.
(iii) If helps in coordinating various business functions, e.g., sales and production functions, by providing clear policies and procedures.
(iv) Detailed plans of action prepared under financial planning reduce waste, duplication of efforts, and gaps in planning.
(v) It tries to link the present with the future.
(vi) It provides a link between investment and financing decisions on a continuous basis.
(vii) By spelling out detailed objectives for various business segments, it makes the evaluation of actual performance easier.

8. Explain any three points of importance of the Controlling function of management.
Answer. Importance of controlling can be understood from the following points:
(i) Accomplishing organizational goals: The controlling function measures progress towards the organizational goals and brings to light the deviations, if any, and indicates corrective action. It, thus, guides the organization and keeps it on the right track so that organizational goals might be achieved.
(ii) Judging accuracy of standards: A good control system enables management to verify whether the standards set are accurate and objective. An efficient control system keeps a careful check on the changes taking place in the organization and in the environment and helps to review and revise the standards in light of such changes.
(iii) Making efficient use of resources: By exercising control, a manager seeks to reduce wastage and spoilage of resources. Each activity is performed in accordance with predetermined standards and norms. This ensures that resources are used in the most effective and efficient manner.
(iv) Improving employee motivation: A good control system ensures that employees know well in advance what they are expected to do and what are the standards of performance on the basis of which they will be appraised. It, thus, motivates them and helps them to give better performance.
(v) Ensuring order and discipline: Controlling creates an atmosphere of order and discipline in the organization. It helps to minimise dishonest behavior on the part of the employees by keeping a close check on their activities.
(vi) Facilitating coordination in action: Controlling provides direction to all activities and efforts for achieving organizational goals. Each department and employee is governed by predetermined standards which are well coordinated with one another. This ensures that overall organizational objectives are accomplished.

Long Answer Type Questions

9. ‘Old help’ is an organization that helps old people in providing housing facilities. Recently, they organized a visit of its members to an old age home to inculcate the habit of social work among them. The visit revealed that the living conditions of the inmates of the old age home were not hygienic. So, the members of the organization decided to clean the premises. During their cleanliness drive, they realized that the old age home also required pest control. But some of the inmates of old age home were reluctant for it because they believed that the pest control may create health problems for them. The organization, therefore decided to provide ethical, safe and odourless pest control. They showed to the inmates of old age home a pamphlet of the proposed pest control product which promised easy, inexpensive and long-lasting pest control. The inmates happily agreed and the pest control was carried out. It worked for a fortnight but to their dismay the effect started wearing off. The organization contacted the pest control company which kept on postponing their visit. After waiting for a month, the organization filed a cased in the consumer court. The consumer court was satisfied about genuineness of the complaint and issued necessary directions to the pest control company. State the five reliefs that might have been issued by the court to the pest control company.
Explain the following rights of consumers provided by Consumer Protection Act, 2019:
(i) Right to be Protected.
(ii) Right to Consumer Awareness.
Answer. If the Consumer Court is satisfied with the genuineness of the complaint, it can issue one or more of the following directions to the aggrieved party as a relief:
(i) To remove the defect in goods or the deficiency in service.
(ii) To replace the defective product with a new one, free from any defect.
(iii) To refund the price paid for the product, or the charges paid for the service.
(iv) To pay a reasonable amount of compensation for any loss or injury suffered by the consumer due to negligence of the opposite party.
(v) To pay punitive damages in appropriate circumstances.
(vi) To discontinue the unfair/ restrictive trade practices and not to repeat the same in future.
(vii) Not to offer hazardous goods for sale.
(viii) To withdraw hazardous goods from sale.
(ix) To cease manufacture of hazardous goods and to resist from offering hazardous services.
(x) To pay any amount (not less than 25% of the value of the defective goods or deficient services provided), to be credited to the Consumer Welfare Fund or any other organization/person, to be utilized in the prescribed manner.
(xi) To issue corrective advertisement to neutralize the effect of a misleading advertisement.
(xii) To pay adequate costs to the appropriate party.
(a) Right to be Protected: The consumer has a right to be protected against goods and services which are hazardous to life and health. For instance, electrical appliances which are manufactured with sub-standard products or do not conform to the safety norms might cause serious injury. Thus, consumers are educated that they should use electrical appliances which are ISI marked as this would be an assurance of such products meeting quality specifications.
(b) Right to Consumer Awareness: The consumer has a right to acquire knowledge and to be a well-informed consumer throughout life. He should be aware of his rights and the reliefs available to him in case of a product or service falling short of his expectations. Many consumer organizations and some enlightened businesses are taking an active part in educating consumers in this respect.

10. Financial markets perform many important functions by allocating the scarce resources in an economy. Considering this statement, explain the concept and functions performed by Financial Markets.
Answer. 10. Concept of financial market: A business is a part of an economic system that consists of two main sectors – households which save funds and business firms which invest these funds. A financial market helps to link the savers and the investors by mobilizing funds between them. In doing so it performs what is known as an allocation function. It allocates or directs funds available for investment into their most productive investment opportunity. Thus, a financial market is a market for the creation and exchange of financial assets. Financial markets exist wherever a financial transaction occurs. Financial transactions could be in the form of creation of financial assets such as the initial issue of shares and debentures by a firm or the purchase and sale of existing financial assets like equity shares, debentures and bonds.
Functions of financial market:
(i) Mobilisation of Savings and Channelizing them into the most Productive Uses: A financial market facilitates the transfer of savings from savers to investors. It gives savers the choice of different investments and thus helps to channelize surplus funds into the most productive use.
(ii) Facilitating Price Discovery: In the financial market, the households are suppliers of funds and business firms represent the demand. The interaction between them helps to establish a price for the financial asset which is being traded in that particular market.
(iii) Providing Liquidity to Financial Assets: Financial markets facilitate easy purchase and sale of financial assets. In doing so they provide liquidity to financial assets, so that they can be easily converted into cash whenever required. Holders of assets can readily sell their financial assets through the mechanism of the financial market.
(iv) Reducing the Cost of Transactions: Financial markets provide valuable information about securities being traded in the market. It helps to save time, effort and money that both buyers and sellers of a financial asset would have to otherwise spend to try and find each other. The financial market is thus, a common platform where buyers and sellers can meet for fulfillment of their individual needs.

11. Welcome Prints Pvt. Ltd. is a publishing company. Its book on Accountancy for class XII is very popular among the students. On account of this, the employees in the marketing department are always facing high pressure in tense situations. The employees have to devote extra time at work and even on holidays to cater to the demand. Consequently, they cannot avail their leaves as well. Managers in the marketing department are always worried as they have to handle more than two territories. The work stress has led to discontent among the employees and managers.
(i) Which step of staffing process has not been performed properly.
(ii) Explain the next two stages immediately following the step identified in part (i).
Answer. (i) Step: Estimation of manpower requirement
Meaning: It involves finding out the number and type of people that the performance of each job necessitates and the appointment of an appropriate person to the job who possesses the specific set of educational qualifications, work experience etc. This calls for undertaking workload analysis and workforce analysis necessarily.
(ii) (a) Recruitment: It is a process where the organization searches for its prospective employees. It stimulates them to apply for job openings in the organization. There are two sources of recruitment – Internal and External. Recruitment from within the company is an internal source e.g., transfers and promotions. A company has to explore the external sources as well for different positions because all the vacant positions cannot be filled through internal sources e.g., direct recruitment, campus recruitment, etc.
(b) Selection: It is the process where the organization chooses from among its pool of the potential job-seekers, which was developed by it at the recruitment stage. Thus, it helps to choose the most suitable candidate and reject the unsuitable ones. The selection procedure includes tests and interviews which helps to ensure that the organization is able to hire the best among the available talent pool.

12. ‘A business that doesn’t grow dies’, says Mr. Himesh, the owner of Himesh Granite Ltd. with glorious 5 years of its grand success having a capital of ₹100 crores. Within a short span of time, the company could generate cash flows which not only covered fixed cash payment obligations but also created sufficient buffer. The company is on the growth path and a new breed of consumers is eager to buy the Italian granite sold by Himesh Granite Ltd. To meet the increasing demand, Mr. Himesh decided to expand his business by acquiring a mine. This required an investment of ₹150 crores. To seek advice in this matter, he called his financial advisor Mr. Sameer, who advised him about the judicious mix of equity (40%) and Debt (60%). Mr. Sameer also suggested him to take loan from a financial institution as the cost of raising funds from financial institutions is low. Though this will increase the financial risk but will also raise the return on equity shareholders. He also apprised him that issue of debt will not dilute the control of equity shareholders. At the same time, the interest on loan is a tax-deductible expense for computation of tax liability. After due deliberations with Mr. Sameer, Mr. Himesh decided to raise funds from a financial institution.
(i) Identify the concept of Financial Management as advised by Mr. Sameer in the above situation.
(ii) Explain any four factors affecting the concept as identified in part (i) above which have been discussed between Mr. Himesh and Mr. Sameer.
Working capital refers to investment in current assets to ensure smooth day-to-day operations. In the light of this statement, give any two examples of current assets and explain the following as factors affecting the requirements of working capital:
(a) Nature of business
(b) Scale of operations
(c) Seasonal factors
(d) Production cycle
Answer. (i) The concept of Financial Management as advised by Mr. Sameer in the situation is capital structure.
(ii) Factors affecting capital structure as discussed between Himesh and Sameer are as follows:
(e) Cost of debt: A firm’s ability to borrow at a lower rate increases its capacity to employ higher debt. Thus, more debt can be used if debt can be raised at a lower rate.
(f) Tax Rate: Since interest is a deductible expense, cost of debt is affected by the tax rate. A higher tax rate makes debt relatively cheaper and increases its attraction vis-a-vis equity.
(g) Cost of Equity: Stock owners expect a rate of return from the equity which is commensurate with the risk they are assuming. When a company increases debt, the financial risk faced by the equity holders, increases. Consequently, their desired rate of return may increase. It is for this reason that a company cannot use debt beyond a point. If debt is used beyond that point, cost of equity may go up sharply and share price may decrease in spite of increased EPS. Consequently, for maximization of shareholders’ wealth, debt can be used only upto a level.
(h) Floatation Costs: Process of raising resources also involves some cost. Public issue of shares and debentures requires considerable expenditure. Getting a loan from a financial institution may not cost so much. These considerations may also affect the choice between debt and equity and hence the capital structure.
(i) Risk Consideration: Use of debt increases the financial risk of a business. Financial risk refers to a position when a company is unable to meet its fixed financial charges namely interest payment, preference dividend and repayment obligations. Apart from the financial risk, every business has some operating risk (also called business risk). Business risk depends upon fixed operating costs. Higher fixed operating costs result in higher business risk and vice-versa. The total risk depends upon both the business risk and the financial risk. If a firm’s business risk is lower, its capacity to use debt is higher and viceversa.
(j) Control: Debt normally does not cause a dilution of control. A public issue of equity may reduce the managements’ holding in the company and make it vulnerable to takeover. This factor also influences the choice between debt and equity especially in companies in which the current holding of management is on a lower side.
Examples of current assets:
(i) Inventory
(ii) Debtors
(i) Nature of business: Manufacturing firms require larger amount of working capital as compared to a trading organization in order to convert raw materials into finished products.
(ii) Scale of operations: Larger amount of working capital is needed by firms operating on a largescale of operations in terms of debt, inventory, etc. as compared to the small- scale firms.
(iii) Seasonal factor: Higher amount of working capital is required by the firm during high demand as the level of activities is higher as compared to the lean or dull season.
(iv) Production cycle: Operating cycle denotes the length of the manufacturing cycle, i.e., the time taken to convert raw materials into finished goods. Longer operating cycle means more working capital requirement and vice- versa.