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SAGAR GROUP TUITIONS

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STD: XI CBSE PHONE: 9898039012
CASE STUDIES SUB: BST

CHAPTER: 1 (NATURE AND PURPOSE OF BUSINESS)

1. Armaan is very fond of playing indoor games, he requested his father to buy him some indoor
games. His father sold his old laptop on OLX.com and bought him a new play station from
Cromaelectronix.com.
Can the transaction by Armaan’s father to sell the laptop be termed as a business
transaction? Name the related feature of business to support your answer.
Solution: No, the transaction by Armaan’s father cannot be termed as business transaction.
The related feature of business is dealing in goods and services on regular basis.
2. GMR Industries entered the airports space in early 2000s and is today counted amongst the
top 5 airport private airport developer and operators globally. GMR Industries presently owns
and operates Delhi International Airport and Hyderabad International Airports. Apart from
being the largest private airport company in India, GMR Industries is the only Indian airport
developer to have developer to have developed and operated airports outside India.
Identify the types of industry and its category being discussed in above case.
Solution: GMR Industries is a secondary industry, it’s category is construction industry.
3. Shiela after graduating from college went back to her home town in Meghalaya. It was small
town with very few job opportunities. The karbi tribal women in that area were uneducated
but still practiced the method of obtaining traditional colours from natural wild herbs. Their
most popular dye was indigo obtained from the leave called ‘sibu’. Using these colours they
added variety to their textiles. The women were mainly confined to their homes and they did
not know how to make a living out their talent. Shiela went from door to door and analyzed
the problem that existed. She thought of setting up the business of buying textiles from them
and converting them to suits in her factory in Noida. Her business turns out to be a great
success.
On the basis of the given information about Shiela, answer the following questions:
a) Identify the types of business activity Shiela is engaged in.
b) Specify the category of the type of business activity performed by Shiela.
c) Which type of business activity is undertaken by Karbi tribal women by getting indigo
obtained from the leave called ‘sibu’?

Solution:

a) The type of business activity Shiela is engaged in Industry.

b) The category of the type of business activity performed by Shiela is Secondary
Industry (Manufacturing Industry).
 c) The type of business activity undertaken by karbi tribal women is Primary Activity.
4. Apoorvi, from the young age had a deep connection with traditional Indian textiles and
craftsmanship. Founder and designer Apoorvi kher who fulfilled her lifelong dream of making
a career in fashion by leaving her professional life behind and pursued a design programme at
the Los Angeles School of Design and Merchandising. Thus, Apoorvi got maximum real world
fashion exposure. With her love from these Indian fabrics and her arsenal of fashion
knowledge she now intends to glorify these national treasures with her readymade store
‘Armaniya’.
‘Armaniya’ is an initiative to incorporate a perfect mix of latest trends, luxury fabrics, Indian
traditional weaves and culture all under one roof. She manages the business along with two
employees i.e., salesman and a cashier. She usually takes advice from her father in case of
any managerial issue.
Now-a-days, Apoorvi is facing a lot of problem as trends in the field are continually changing,
meaning businesses must continually adapt to market demands, this ever-changing market
along with strong competition has added to the trouble of declining sales. Furthermore, one
day Apoorvi found her cashier doing some embezzlement of cash.
a) Identify the different causes of business risks discussed in the above case. Also quote
the lines for the identified cause.
b) Are the above identified risks pure risk or speculative risk? Give reason in support of
your answer.

Solution:

a)
Cause of Business Line Quoted
Risk
i. Economics Now-a-days, Apoorvi is facing a lot of problem as,
causes trends in the field are continually changing, meaning
business must continually adapt to market demands,
this ever-changing market along with strong
competition has added to the trouble of declining
sales.
ii. Human Furthermore, One day Apoorvi found her cashier
causes doing some embezzlement of cash.

b) The identified risk are pure as these risk involves only the possibility of loss or no
loss.
5. The banking system in India dated back to 1750 BC. In ancient India there is evidence of loans
from the Vedic period. From the writing of many foreign travellers during Mughal period we
came to know about the use of various instruments in the then great commercial centers. In
the Mughal periods historians found the evidence of loan deeds which were called dastawez.
There were two types of dastawez – one was payable on demand and other was payable
after a stipulated time. The most important class of credit instruments of exchange evolved in
India at that time. Their use was most widespread in the twelfth century, and has continued
till today
On the basis of the given information about the banking system in India, answer the following
questions:
 a) Identify the instrument of exchange prominent in the great ancient commercial
centres of India.
b) State two important features of the instrument of exchange identified in part (a).
Solution:
a) Hundi is an instrument of exchange, which was prominent in the subcontinent.
b) The two important features of Hundi are:
I. A Hundi is a financial instrument developed for use in trade and credit
transactions to transfer money from place to place.
II. It is capable of exchange through transfer by valid negotiation.
6. The merchant community derived power and prestige from guilds. Even kings were supposed
to accept and respect the rules of these guilds. The guild chief dealt directly with the king or
tax collectors and settled the market toll on behalf of its fellow merchants at a fixed sum of
money. The guild merchants also acted as custodians of religious interests. They undertook
the task of building temples and made donations by levying a corporate tax on their
members. The commercial activity enabled big merchants to gain power in the society.
On the basis of the given information about the merchant community, answer the following
questions:
a) “Even kings were supposed to accept and respect the rules of these guilds”. Identify
the guild being specified in the case.
b) Enlist the main functions of the guilds whose rules were accepted by even kings.

Solutions:

a) Merchants Corporations are the guilds being indicated in the case.

b) The main functions of the guilds are:
I. Merchants Corporations were autonomous corporations formed to protect
the interests of the traders.
II. Merchants Corporations are organized on formal basis, framed their own
rules of memberships and professional code of conduct, which even kings
were supposed to accept and respect.
7. Monica Khanna is a jewellery designer. She started her career from scratch and took
advanced designing course at Jewellery Product Development Center. In the completion of
the course she got the job at Gitanjali Gems. Being an experienced jewellery designer,
Monica Khanna focuses on maintaining the originality and creativity of the ornaments that
are custom designed and developed by her.
On the basis of the given information about Monica Khanna, answer the following questions:
a) Identify the type of economic activity that Monica Khanna is engaged in.
b) State any three features of the type of economic activity is identified in part (a).

Solution:

a) The occupation of Monica Khanna is Employment.

b) The features of employment are:
I. The employee is required to perform work as per service contract or
rules of service.
II. The employee is required to possess qualification and training as
prescribed by the employer.
8. Sunstar Steel Ltd., a leading manufacturer of iron and steel decided to open up a new branch
in a remote area in Rajasthan. So that unemployed youth from the rural areas could get same
opportunities as those available in the urban areas. This initiative has raised the standard of
 living of people in rural areas. All children in these families are getting good education and
these families are also actively contributing to nation building process through their
dedicated work.
On the basis of the given information about Sunstar Steel Ltd., answer the following
questions:
a) Identify and explain the objective of business which is followed by the company.
b) Explain one other objective which the company should follow apart from objective
identified in part (a).

Solutions:

a) The objective of business which is followed by the company is Social Objectives.

Social Objectives refer to consistently creating economic value for various sections
of the society. Business is an integral part of society. It makes use of resources of
society .It earns profit by selling its products or services to the members of society.
So, it becomes obligatory on the part of the businessman to do something for the
society.
The important social objectives of business are as follows:
I. Production and supply of quality goods and services.
II. Using fair trade practices.
III. Generation of employment.
IV. Employee welfare.
V. Community service.
VI. Helping government at time of natural calamity etc.
b) Other objective which business should follow is Economic Objectives.
The main objectives are as follows:
I. Profit earning: Profit is the difference between the revenues and the
expense of particular period. Earning profits is the primary objective of
any business enterprise. Profit is the livelihood of any business. Profit
helps the businessman to earn a livelihood and expand the business by
reinvesting a part of profit.
II. Survival: Every business faces competition. Another economic objective
of business is to ensure that the business survives in the long run. A
business should use resources like men, materials, money, machines etc.
to the best possible way such as employ efficient workers, full usage of
machines, reduce wastage etc.
III. Growth: A business should not in the long run, it should also ensure that
it grows in terms of market share, capital invested as well as in terms of
the market value of its shares. Giving quality goods at reasonable prices
will ensure that more customers are attracted for existing and new
products. This can be achieved by marketing strategies.
9. Ajit was running a trading business in India now he extended its operations to Dubai and USA
by establishing places of business in these countries. In order to increase sales in Dubai the
company adopted selling strategies like sales promotion and advertising. As the company had
an excellent credibility in the capital market, it was able to meet all its financial requirements
by borrowing from Citi Bank.
On the basis of the given information about Ajit, answer the following questions:
 a) Identify and explain the auxiliaries to trade used by Ajit for running his business. Also
quote lines.
b) Identify the type of trade carried on by Ajit earlier and now.

Solution:

a) Advertising , Banking
b) Trade carried earlier- Internal
Trade carried now- External.
10. Rohit and Gurvinder are partners selling electronic products across India. They import the
components from their friend Atul who does his business in China and assemble them in their
factory established in a rural area Jharkhand most of the workers in the factory are children
and women. They are paid very less salaries thus owner save on labour cost. They store their
stocks in a warehouse but do not take proper safety measurs against fire, burglary. There was
a short circuit in the factory and as a result most of the stock was damaged.
On the basis of the given information about Rohit and Gurvinder, answer the following
questions:
a) Specify the type of business activity performed by Rohit and Gurvinder.
b) Specify the type of business activity performed by Atul.
c) Specify the auxiliary to trade used by Rohit and Gurvinder.
d) Identify any value which has been violated by Rohit and Gurvinder.
Solution:
a) The business activity performed by Rohit and Gurvinder is Secondary Industry
(Assembling)
b) The business activity performed by Atul is Trade (Export trade)
c) The auxiliary to trade used by Rohit and Gurvinder is warehousing.
d) The value which Rohit and Gurvinder have violated is fulfilling social responsibility/
concern for law.
11. Katherine wants to start a retail business of fashionable items. Change in taste and
preferences of customers may result in loss in such type of business. She is hesitating as she
is aware of risks which are inherent in every business. She approaches her friends Kristina
who is the owner of a retail shop. Krishtina advises her to go ahead with her idea as she will
get profit as return for undertaking risk. She also told her that some risks in business can be
insured by taking insurance policy.
On the basis of the given information about Katherine answer the following questions:
a) What is Business Risk?
b) Identify the main features of business risk discussed in the above case. Also quote
the lines for the identified features.
c) Is change in taste and preferences of customers, pure risk or speculative, why?

Solution:
a) Business risk refers to the possibility of inadequate profits or even losses due to
uncertainties or unexpected events.
b)
Features of Business Risk Line Quoted
 (i) Risk is an essential part of every “She is aware of risks which are
business inherent in every business”

(ii) Profit is the reward for risk “She will get profit as return for
taking undertaking risk”

c) Change in taste and preferences of customers are speculative risk as it involves

both, the possibility of gain as well as the possibility of loss.
12. Ratan after doing his B.Pharma degree from a reputed government college started two
chemist shops in two different localities of his home town. Encouraged with the success of
these shops, he started six more shops in different cities of the state. His strategy was to cut
price, focus on lower and middle class patients and open shops near hospitals. He earned
good profit margins. But the staff of the shops did not give much attention to the customers.
Because of this mis-management he started incurring huge losses and his business failed.
On the basis of the given information about Ratan, answer the following questions:
a) Identify and explain the main cause behind the business failure of Ratan.
b) Explain any two other causes of risk associated with Ratan’s business.

Solution:
a) The main cause behind the business failure of Ratan is Human Cause.
Human Causes: Human causes include such unexpected events, like dishonesty,
carelessness or negligence of employees, stoppage of work due to power failure,
strikes, riots, management inefficiency, etc.
b) The other causes of business risks are:
I. Natural causes: Human beings have little control over natural calamities like
flood, earthquake, famine etc. They result in heavy losses of life, property
and income in business.
II. Economic Causes: They are related to a chance of loss due to change in
market condition e.g., fluctuation in demand and prices, competition,
change in exchange rate etc.
13. It was early 1970s, when Sh.M.P. Sharma started the journey towards a brighter future. Then
the small sweet shop has now flourished into a family owned enterprise which consist of
many outlets in Delhi. These outlets serve sweets, and cuisines spanning Indian, Continental,
Chinese, South Indian and Regional foods. Mehar sweets follows the casual dining concept
and provides a warm and hospitable ambience in the outlets. Today, Mehar Sweets is a food
business group with special ventures focused on Bengali Sweets and Multicusine. During
Diwali season this year, the shop owner prepared more Bengali Sweets than he could sell
year. He employed women and children for meeting the urgent orders and paid them
marginal and limited salary. This way Mehar sweets generated more than expected profit.
On the basis of the given information about Mehar sweets, answer the following questions:
a) Do you think Mehar Sweet5ts is fulfilling all the objectives of business? If not which
aspects of this objective are not being fulfilled?
b) Identify any two values which the company has violated.

Solution:
a) No, Mehar sweets is not fulfilling all the abjectives of business. Mehar sweets is not
focusing on social objectives.
b) The values which the company has violated are:
 I. Fulfilling social responsibility / Concern for Law.
II. Concern for employees.

14. Vijay Plastic Pvt.Ltd. are makers of plastic toys for children; earning a huge profit. A research
conducted by the Indian Council of Child Welfare on the toys shows that colors used in
manufacturing toys are harmful for the children. The test was conducted on toys
manufactured by the company and case was filed against Vijay Plastics Pvt. Ltd. for using sub-
standard colors. However, managing director assured that the company will use standard
colors only after certification from the research laboratory. The company will expand its
production capacity by employing labour from unprivileged sections of the society.
On the basis of the given information about Vijay Plastic Pvt. Ltd., answer the following
questions:
a) Specifying the type of business activity performed by Vijay Plastic Pvt. Ltd.
b) Specify the category of type of business activity identify in part.
c) Specify the social value ignore by the company and social value taken into account
by the company.
Solution:
a) The type of business activity performed by Vijay Plastic Pvt. Ltd. is Industry.
b) The category of the type of business activity is Secondary industry (Manufacturing
Industry).
c) Value ignore by the company is concern for law (As colors used in manufacturing
toys are harmful for the children).
The value followed by the company is concern for the customers (As managing
director assured that the company will use standard colors only after certification
from the research laboratory.)

15. Go Earth Ltd. manufactures jute bags and its factory have been set up in a residential area.
The company has employed unskilled and semi- skilled workers and pay them lower wages
on the pretext of at least providing jobs as the employment opportunities in the area is quite
limited. During the production process, lots of residual is left. In order to decrease cost and
increase profitability, the company dumps residual in the residential area which is sold after
substantial time gap. This practice causes lot of inconvenience to the residents of that area.
On the basis of the given information about Go Earth Ltd., answer the following questions:
a) Identify and explain the objective of management which is ignored by the company.
b) Identify any two values which the company has violated.

Solution:
a) The objective of management which is ignored by Go Earth Ltd., is Social Objectives.
Social Objective refer to consistently creating economic value for various sections of
the society. Business is an integral part of society. It makes use of resources of
society. It earns profit by selling its products or services to members of society. So it
becomes obligatory on the part of the businessman to do something for the society.
The important social objective of business are as follows:
I. Production and supply of quality goods and services.
II. Using fair trade practices.
III. Generation of employment.
IV. Employee welfare.
 V. Community service.
VI. Helping government at time of natural calamity etc.
b) The values which the company has violated are:
I. Fulfilling social responsibility / Concern for environment.
II. Concern for employees.
16. Different situations about different business are being elaborated below:
I. Raghunanda Biswas had a match stick factory in Indonesia which got destructed by
the recent earthquake.
II. Rajiv Menon, a senior manager in a telecom company shared confidential
information about the company with a competitor which led to huge losses for the
company.
III. Readyfone Co. was charged with evasion of tax and asked to pay fine in crores which
would lead to heavy losses for the company.
IV. Type writers becoming redundant due to invention of personal computers.
On the basis of the given information about different business, answer the following
questions:
a) Which characteristic of business is being highlighted in the above situations?
b) Identify the different causes of concept identified in part (a) from the above
information?
Solution:
a) Characteristic of business which is being highlighted in the above situations is
element of risk.
b) The different causes of business risk are:
I. Natural Causes: Human beings have little control over natural calamities like
flood, earthquake, famine etc. They result in heavy losses of life, property
and income in business.
II. Human Causes: Human causes include such unexpected events like
dishonesty, carelessness or negligence of employees, strikes, ritos,
management inefficiency etc.
III. Economic Causes: They are related to a chance of loss due to change in
market condition. E.g., fluctuations in demand and prices, competition,
change in exchange rate etc.
IV. Other Causes: These are unforeseen events, like political disturbances,
mechanical failures, such as the bursting of boiler, fluctuations in exchange
rates,etc., which lead to the possibility of business risks.

17. For Proctor and Gamble (P&G) producers of vicks, purpose; values and principles are the
foundation for P&G’s unique culture. Throughout its history of over 170 years, business has
grown and changed while these elements have endured, and will continue to be passed
down to generations of P&G people to come.
Company’s purpose unifies personnel in a common cause and growth strategy of improving
more consumers’ lives in small but meaningful ways each day. It inspires P&G people to make
a positive contribution every day. P&G brands and P&G people are the foundation of P&G’s
success.
P&G people bring the values to life as company focus on improving, the lives of the world’s
consumers. P&G always this to do the right things with the aim of earning the gains coupled
with enhancement in goodwill and customer satisfaction.
 On the basis of the given information about Proctor and Gamble Ltd., answer the following
questions:
a) Identify the main objectives of the company discussed in the above case. Also quote
the lines for the identified objective.
b) Identify any two values which the company is trying to communicate to the society.

Solution:

a) Organizational Objectives refer to the utilization of human and material resources

considering the interest of all stakeholders. The main organizational objectives of an
enterprise are:
 Survival
 Profit
 Growth
Lines: “P&G always tries to do the rights things with the aim of earning the gains
coupled with enhancement in goodwill and customer satisfaction.”
Social Objectives refer to consistently creating economic value for various sections
of the society. The main social objectives of an enterprise are:
 Providing quality products at reasonable prices.
 Generating employment opportunities.
 Community progress and development by providing schools and creches to
employees.
 Environmental friendly methods of production.

Lines: “P&G people bring the values to life as company focuses on improving, the
lives of the world’s consumers.”

b) Values which the company is trying to communicate to the society are:

I. Good work culture.
II. Fulfilling social responsibility/ concern for the society.
18. Start- ups are usually small and initially financed and operated by a handful of founders or
one individual. These companies offer product or service that is not currently being offered
elsewhere in the market, or that the founders believe is being offered in an inferior manner.
What does it take to Start – ups? A brilliant idea? A great team? Money? Yes. All of those
things. But more than anything what it takes, is belief. A belief that there is significance to the
problem being addressed, and that the solution is something which the consumer wants. It is
really amazing how most large companies have such humble stories of starting up. All of
them started with nothing but just plain conviction. Even with such conviction they fail
because of an inherent factor present in business.
On the basis of the given information about Start-ups. Answer the following questions:
a) Identify this inherent factor which led to failure of business enterprise.
b) Explain any three features of the factor identified in part (a).

Solution:

a) Start-ups fail because of inherent factor i.e., Business Risk.

b) The features of business risks are:
 I. Business risks arise due to uncertainties: Lack of knowledge of what is going to
happen in future create uncertainties in business. It may be due to natural
calamities, change in demand and prices, strikes etc.
II. Risk is an essential part of every business: No business can avoid risk although
the amount of risk may vary from business to business. Risk can be minimized
but cannot be eliminated.
III. Degree of risk depends mainly upon the nature and size of business: Nature of
business and size of business are the main factors which determine the amount
of risk in a business. Level of risk is lower for small scale business while it is
higher for larger scale organization.
IV. Profit is the reward for risk taking: A business gets profit as return for
undertaking risk. Greater the risk involved in a business, higher is the chance of
profit.
19. Alex David is a legal advisor in a multinational company. He gets Rs.65,000 per month as his
salary. On weekends, Alex David goes to nearby village and teaches some slum children, he
does not charge anything from them, he does it out of sympathy and concern for poor
children. This given him mental and psychological satisfaction.
On the basis of the given information about Alex David, answer the following questions:
a) Specify the types of human activity performed by Alex David.
b) Differentiate between types of human activity identified in part (a) on any two
basis.
c) Identify any value which Alex David is trying to communicate to the society.

Solution:

a) The human activities performed by Alex David are:

I. Working as legal advisor in a multinational company is an economic activity.
II. Teaching students in slum is anon economic activity.
b) The difference between economic and non- economic activity are:
Basis Economic activity Non- economic activity

Meaning The activity whose The activities whose aim

objectives is to earn
money and create wealth
is not to earn money, but
to satisfy social,
psychological and
emotional need. For
example, love, sympathy,
patriotism etc.

Examples  People working in  A house wife

factories. cooking food foe
 Cooking food in a her family.
restaurant family.
 A teacher teaching
in a school
  A teacher training
his daughter at
home.

c) The value which Alex David is trying to communicate to the society is fulfilling social
responsibility/ concern for the society.
20. Phoenix Technologies Ltd., have developed such a washing machine through years of
research which requires very less water for washing clothes and cleans them without
damaging the cloth, as compared to other washing machines presently being sold in the
market.
This machine use 3D wash system, whereby there are 3 nozzles to spray water inside the
drum while it rotates 360 degree. This facilitates complete of detergents and deep
penetration of detergents into the clothes while washing. During the rinsing stage, the 3D
wash system helps better penetration of fresh water in to the clothes, thereby minimizing
any detergent traces in the clothes.
This machine is available at a highly competitive price to motivate people from lower middle
class to buy it. The company wants to provide information about new features, price,
availability and brand name to the maximum potential customers.
On the basis of the given information about Phoenix Technologies Ltd., answer the following
questions:
a) Explain the service facility/ aids to trade which the company can utilize to generate
maximum sales.
b) Explain other service facility/aids to trade facilitating smooth movement of goods
from the producer to the ultimate consumers.

Solution:

a) The aids to trade which the company can utilize is advertising.

Advertising is one of the most important methods of promoting the sale of products,
particularly for consumer goods. Advertising helps business activities to overcome
the hindrance of information. Advertising helps to inform the potential buyers about
the uses, quality, prices, competitive information about the goods etc.
b) The other services facility/ aids to trade facilitating smooth movement of goods
from the producer to the ultimate consumers are:
I. Banking: Business activities cannot be undertaken unless funds are available
for acquiring assets and meeting the day-to-day expenses. Banking helps
business activities to overcome the problem of finance.
II. Insurance: Business involves various types of risks. Factory building,
machinery, furniture, etc., must be protected against fire, theft and other
risks. Material and goods held in stock or in transit are subject to the risk of
loss or damage. Insurance provides protection against business risk. On
payment of a nominal premium, the amount of loss or damage and
compensation for inquiry, if any, can be recovered from the insurance
company. So, insurance helps business activities to overcome the problem
of risk.
III. Transportation and Communication: Production of goods generally takes
place in particular locations. But these goods are required for consumption
in different part of the country. The obstacle of place is removed by
 transport- road, rail or coastal shipping. Transport facilities movement of
raw material to the place of production and the finished products from
factories to the place of consumption. There is also a need for
communication facilities so that producers, traders and consumers may
exchange information with one another.
IV. Warehousing: Usually, goods are held in stock to be available as and when
required. 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 facilities the availability of goods when needed. So,
Warehousing helps business activities to overcome the problem of time.
Prices are thereby maintained at a reasonable level through continuous
supply of goods.
21. Suzanne after completing her MBA realized that her family needs extra income as her father
was about to retire. So, she decided to set up a garment manufacturing unit. She received
order for 500 shirts. Suzanne started purchasing raw materials from local suppliers and
completed first order of shirts. As she completed the order on time the other purchasers also
started giving orders to Suzanne on regular basis. Her hard work and sincerity resulted in
huge profits and led to the growth of the business. After two years there were communal
riots in her city due to which her profits were adversely affected and availability of labour
also became tough and Suzanne started suffering loss. After analyzing the situation for few
months she decided to shut down the business.
Identify the different features of business discussed in the above case. Also quote the lines
for the identified feature.

Solution:

Feature Identified Line Quoted

Production or procurement of goods Suzanne started purchasing raw

and service. materials from local suppliers and
completed first order of shirts.

Dealing in goods and services on a As she completed the order on time

regular basis. the other purchasers also started giving
orders to Suzanne on regular basis.

Profit earning. Resulted in huge profits and led to the

growth of the business.

Uncertainty of return Suzanne started suffering loss.

Element of risk After two years there were communal

riots in her city due to which her profits
were adversely affected and availability
of labour also became tough.
22. Aman and Sandeep completed their studies and planned to start their own business instead
of looking for job. Aman’s father is working in Portland cement manufacturing company as
supervisor. He told them that common materials used to manufacture cement include
limestone, shells, and chalk or marl combined with shale, clay, slate, blast furnace slag, silica
sand, and iron ore. He also told them that limestone is most often mined from a quarry which
is done by Adarsh Ltd. He told them that his company is facing a problem of storing the
limestone because of shortage of space. This gave them an idea to start a warehousing
business.
On the basis of the given information, answer the following questions:
a) Identify the different types of industries being discussed in above case.
b) Specify the category of type of industries to which the industries identified in part
(a)

Solution:

a) The different types of industries being discussed above are:

I. Portland Cement Company: Secondary industry.
II. Adarsh Ltd.: Primary industry.
III. Warehouse Business: Tertiary industry.
b) The category of aforesaid industries are:
I. Portland Cement Company: Manufacturing industry. (Synthetic industry).
II. Adarsh Ltd.: Extractive industry.

23. An auto company, Car Generation Ltd.is facing a problem of declining market share due to
increased competition from other new and existing players in the market. Its competitors are
introducing lower priced models for mass consumers who are price sensitive. For quality
conscious consumers, the company is introducing new models with added features and new
technological advancements.
On the basis of the given information about Car Generation Ltd., answer the following
questions:
a) Identify the concept of business highlighted in the above case.
b) Enumerate the different methods of dealing with business concept identified part (a).

Solution:

a) The concept of business highlighted in the above case is Business Risk.

b) Although no business enterprise can escape the presence of risk, there are many
methods a business enterprise can use to deal with risk situations. For instance, the
enterprise may:
I. Decide not to enter into risky transaction.
II. Take insurance policy to transfer risk to insurance company.
III. Assume risk by making provisions in the current earnings as is the case of
provision for bad and doubtful debts.
IV. Share risks with other enterprises as manufacturers and wholesalers may
do by agreeing to share losses which may be caused by falling prices.
24. In ancient India, the Greeks sailed from Egypt in the month of July and arrived at Muziri in
about 40 days. They stayed on the Malabar Coast for about three months and commenced
 their return journey from Muziri in December or January. As the Indian seas were infested by
pirates, The Greek merchants brought with them cohorts of archers on board their ships.
Egypt being at this period subject to Rome, the archers who accompanied the Greek
merchants were Roman soliders. The Pandyan kings sent embassies to Rome and had
employed Roman soldiers as guards. There was a colony of Yavana merchants at Kaveri
pattanam, whose existence in an index of properity of merchant communities and
professional classes. That Roman gold pound largely into Tamil Country at this period is
attested by the numerous Roman coins dating from the region of Augustus to that of Zeno
which have been found buried in different parts of Tamilnadu.
On the basis of the given information about ancient India, answer the following questions:
a) State the concept used in ancient India whose existence is an index of prosperity of
merchant communities and professional classes.
b) Enlist the important kinds of concept whose existence is an index of prosperity of
merchant communities and professional classes.
c) Enlist a few examples of the concept used in ancient India whose existence is an index
of prosperity of merchant communities and professional classes.

Solution:

a) The existence of Trade Centre is an index of prosperity of merchant communities and

professional classes.
b) Trade Centre were all kinds of towns like port towns, manufacturing towns,
mercantile towns, the sacred centres, and pilgrimage towns
c) The following were the leading trade centres in ancient India:
I. Pataliputra: Known as Patna today. It was not only a commercial town, but
also a major centre for export of stones.
II. Peshawar: It was an important exporting centre for wool and for the import
of horses. It had a huge share in commercial transactions between India,
China and Rome in the first century A.D.
III. Taxila: It served as a major centre on the important land route between India
and Central Asia. It was also a city of financial and commercial banks. The city
occupied an important place as a Buddhist centre of learning. The famous
Taxila University flourished here.
IV. Indraprastha: It was the commercial junction on the royal road where most
routes leading to the east, west, south and north converged.
V. Mathura: It was an emporium of trade and people here subsisted on
commerce. Many routes from South India Mathura and Broach.
25. Dr. Anant Kumar is an orthopedic surgeon in Jaipur Golden Hospital and Dr. Sukumar Anand,
his friend is a Pedetrician who has set his own clinic. Dr. Sukumar Anand’s wife Ms. Sukumar
Priya Anand operates a retail store specializing in the selling of antiques.
On the basis of the given information about different business, answer the following
questions:
a) Identify the type of economic activity undertaken by, Dr Anant Kumar, Dr. Sukumar
Anand and Ms. Sukumar Priya Anand.
b) Differentiate between them on basis of nature, capital investment, and transfer of
interest.

Solution:
 a) The type of economic activity under taken by:
I. Dr. Anant Kumar is employment.
II. Dr. Sukumar Anand is profession.
III. Ms. Sukumar Priya Anand is business.
b) The difference between type of economic activities is highlighted below:
Basis Business Profession Employment

Nature Provision of goods Personalized Work allotted by

services to the services of expert the employer
public. nature. according to the
contract.

Capital Capital needs Limited capital for No capital

according to its establishment. requirement
nature and size. investment.

Transfer of Transfer of interest Transfer of interest Transfer of

interest is possible is not possible. interested is not
possible.

26. The Cake Plaza specializes in delivering a variety of traditional cakes, designer cakes, dry
cakes and cookies, chocolates etc. made to order using the finest ingredients available in a
wide array of different tastes, colors, designs and themes. You can get a cake of your choice
customized with your personal message at your doorstep to celebrate any event, occasion,
festival, get together etc. Josephine the owner of The Cake Plaza stays in Delhi. She wants to
expand her business to other parts of country but lacks the required funds for the same. She
also wants that even the people from other states come to know about her tasty cakes and
cookies. At the same time she is afraid that her shop may catch fire as it happened with one
of the neighboring shops last week.
On the basis of the given information about The Cake Plaza, answer the following questions:
a) Specify any three business activities that will Josephine her achieve her goals.
b) Explain any three business activities that will Josephine her achieve her goals.

Solution:

a) The business activities that will Josephine her achieve her goals:
I. Banking
II. Advertising
III. Insurance
b) The business activities that will Josephine her achieve her goals:
I. Banking: Business activities cannot be undertaken unless funds are available
for acquiring assets and meeting the day-to-day expenses. Banking helps
business activities to overcome the problem of finance.
II. Advertising: Advertising is one of the most important methods of promoting
the sale of products. Advertising helps business activities to overcome the
problem of information Thus, for sales promotion, information about the
goods available, its features must reach potential buyers. It also helps to
 2persuade potential buyers about the uses, quality, prices, competitive
information about the goods etc.
III. Insurance: Business involves various types of risks. Factory building,
machinery, furniture, etc., must be protected against fire, theft and other
risks. Material and goods held in stock or in transit are subject to the risk of
loss or damage. Insurance provides protection against business risk. On
payment of a nominal premium, the amount of loss or damage and
compensation for injury, if any can be recovered from the insurance
company. So Insurance helps business activities to overcome the problem of
risk.
27. Mariah had done a diploma in fashion designing. She is very creative. She saw a picture of a
party gown in international fashion magazine having a price tag of Rs. 50,000. She decided to
make that gown herself with some customization. She calculated that for making of gown,
she has spent Rs. 4000. Her friend liked the gown very much, so Swati sold that gown to her
friend for Rs. 8,500 and made a profit of Rs 4,500 Swati decided to open a boutique of selling
readymade dresses for girls.
On the basis of the given information about Mariah, answer the following questions:
a) Will the transaction between Mariah and her friend be termed as business?
b) State the underlying feature of business.
c) Explain the other features of business?

Solution:

a) No, the transaction between Mariah and her friend will not termed a business.
b) The related feature of business is dealings in goods and services on a regular basis:
There should be regularity of dealings or exchange of goods and services. One single
transaction of sale or purchase does not constitute business.
c) The feature of business are as follows:
I. An Economic Activity: Business in considered as an economic activity as it
is undertaken with the objective of earning money and not because of
love, affection, sympathy or any other sentimental reason.
II. Production or Procurement of Goods and services: Business includes all
the activities concerned with the production or procurement of goods
and services for sales. Services include transportation, banking, insurance
etc.
III. Profit Earning: The main purpose of business is to earn profit. A business
cannot survive without making profits. No business can survive for long
without earning profit.
IV. Uncertainty of Return: Every business invests money with the objective of
earning profit but the amount of profit earned may very also there is
always a possibility of losses in spite of the best efforts put into the
business.
V. Element of Risk: All business activities carry some elements of risk
because future is uncertain and business has no control over several
factors like strikes, fire, theft and change in consumer taste etc.
28. Sunny wants to start a business of room heaters. He is facing a lot of problems as this his first
venture. The demand for room heaters is high in winters and he wants to make sure that he
can meet the orders as and when demanded. There is a lot of competition and he does not
 know how to inform the potential buyers about his product. To beat the existing players in
the market, he wants to sell his product in five cities and does not know how to find potential
buyers in different cities. Not only this, he has to ensure that the room heaters reach the
customers in different cities. All this required a lot of money which is another problem.
Identify four problems faced by sunny by quoting lines from the above and briefly explain
how he can overcome them?

Solution:

Problem How to Overcome Problem

Demand for room heaters is high in winters He can make use of warehousing and can
and he wants to make sure that he can produce them in bulk and store in the
meet the orders and when demanded. warehouse to meet the orders when
demanded.

There is a lot of competition and he does He can make use advertising to inform and
not know how to inform the public about persuade customers about his product.
his product.

Not only this, he has to ensure that the He can make use of transportation to
room heaters reach the customers in transfer finished products from factories to
different cities. the place of consumption.

All this requires a lot of money which is He can make use of Banking as, commercial
another problem. banks lend money by providing overdraft
and cash credit facilities, loans and
advances to business.

29. Myra Info system Ltd. is a company engaged in IT enabled services. The company’s profit
enough for the survival and growth. The management of the company believes that a
satisfied employee creates a satisfied customer, who in turn creates profits that lead to
satisfied shareholders. So, it pays competitive salaries and perks to all its employees. All the
employees are happy working in the organization because pf personal growth and
development.
The company had a strong sense of social responsibility. It has set up an Engineering College
in which one-third of the students’ are girls to whom the company grants annual
scholarships.
On the basis of the given information about Myra Info system Ltd., answer the following
questions:
a) Mention the objectives of the management discussed above.
b) Also explain the role of profit in business.

Solution:

a) The objectives of business highlighted are Economic and Social Objectives.

b) The role of profit in business is as follows:
 I. It is a source of income for business persons: Business man invests capital in
business and undertaken risks associated with business. Profit is reward for
business man and also his source of income.
II. It can be a source of finance for meeting expansion requirements of
business: All businessmen want their business to expand and to grow. For
development of business additional capital is needed. Retained earnings are
a very good source of capital.
III. It indicate the efficient working of business: Profit is that power which
motivates both the parties- owner and workers to do their best. As they
know that in case of good profits they will get good compensation for their
efforts so it finally helps in increasing the efficiency of business.
IV. It can be taken as society’s approval of the utility of business: Profit alone
help a business to continue to exist for a long period. In the absence of profit
the establishment of a particular business loses its justification.
V. It build up the reputation of a business enterprise: For gaining prestige in the
society Business had to satisfy all the parties concerned. It has to supply
good quality product/service at reasonable price to customers, adequate
remuneration to employees, to pay sufficient dividend to the shareholders
etc. and all these are possible only if the business is earning good profit.
30. The Indian economy is one of the fastest growing economics in the world today and a
preferred FDI destination. Rising incomes, savings, investment opportunities, increased
domestic consumption and younger population ensures growth for decades to come. The
high growth sectors have been identified, which are likely to grow at a rapid pace world over
and the recent initiatives of the Government of the India and roll out of the Foreign Trade
Policy (FTP 2015-20) is expected to help the economy in terms of exports and imports and
trade balance.
On the basis of the given information about the Indian economy, answer the following
questions:
a) State the recent initiatives of the Government of India which is expected to boost the
economy.
b) Explain these recent initiatives of the Government of India expected to boost the
economy.

Solution:

a) The recent initiatives of the Government of India are’ Make in India’, Skill India’,
Digital India’.
b) The recent initiatives of the Government of India are:
I. Make in India: Make in India campaingn is a new plan launched by the
Prime Ministers of India, Sh. Narendra Modi, to give foreign investors a
chance to invest in India in number of businesses. It is an initiative
campaign run by the Government of India to cheer up multinational
companies as well as domestic companies at national and international
level in order to manufacture products in India. It is the effort made by
the Prime Minister to bring employment in India. This campaign was
launched by the Prime Minister on 25th of September in 2014 at the
Vigyan Bhawan in New Delhi.
 II. Skill India: Skill India Programme is aimed to equip and train the nation’s
massive, enviable workforce with employable skills and knowledge. Over
400 million women and men in the country will be trained in various
industrial and trade skills by the year 2022. Skill India Programme was
launched on July15, 2015 to enable India economy and industry to
benefit from the country’s young work force.
With these missions, Prime Minister Sh. Narendra Modi launched:
 National Skill Development Mission.
 National Policy for Skill and Entrepreneurship.
 Pradhan Mantri Kaushal Vikas Yojana (prime minister Skill
development skill)
 Rural India Skill
III. Digital India: digital India is the Champaign run by the government of
India to make this country a digitally empowered country. The aim of
launching this campaign is to provide Indian citizens electronic
government services by reducing the paperwork. This initiative was
started on 1st of July in 2015 to connect people of rural areas with the
high-speed internet networks to access any information needed.
The important elements of digital India are like:
 Creation of digital infrastructure.
 Digital Literacy.
 Delivering services digitally all over the country.
31. Mahendra Singh Dhoni is an Indian international cricketer. At the beginning of his career he
worked as a Train Ticket Examiner in 2001 at Kharagpur railway station, in West Bengal. His
father pan Singh, worked for Public Sector Undertaking and his mother Devki Devi is a
housewife. He has an elder brother, Narendra Singh Dhoni, who is a politician, and a sister,
Jayanti Gupta, who is a teacher.
On the basis of the given information about Mahendra Singh Dhoni, answer the following
questions:
a) State by giving reasons, whether he and his family members are engaged in
economic or non-economic activity.
b) Also state which type of economic or non-economic activities they are engaged in.

Solution:

a) Mahendra Singh Dhoni, his father, brother, sister- Economic Activity.

b) All of them are engaged in Employment. (Except his mother).
32. Newland Tea Ltd. is a Singapore based company dealing in import of tea from India and re-
exporting it to many South- East Asian Countries. It has a huge godown near the sea port
where it has made scientific arrangements for storing tea till it is re-exported.
On the basis of the given information about Newland Tea Ltd., Answer the following
questions:
a) Name and explain the type of trade referred above?
b) Name the aids to trade being utilized by Newland Tea Ltd., and which utility does it
create?

Solution:
 a) Entrepot trade.
b) Warehousing, time utility.
33. Sona Technologies Ltd. have developed a hand powered, portable washing machine that can
clean your clothes in a flash. Their product is very different as compared to other washing
machines presently sold in the market. The profit margins are kept low to motivate people
from lower middle class to buy the product. The company wants to provide information
about new features, price, availability and brand name to the target market. Presently the
company is only delivering their product in Japan but they are planning to tie up with Amazon
for delivering it to other parts of world too.
On the basis of the given information about Sona Technologies Ltd., answer the following
questions:
a) Name and explain the service facility/aids to trade which the company can utilize to
inform the target market about their product.
b) Which hindrance of commerce is removed by Amazon?

Solution:

a) Advertising.
b) Hindrance of persons.
34. National Mineral Corporation of India, Incorporated in 1958 as a Government of India fully
owned public enterprise. Under the administrative control of the Ministry of Steel,
Government of India, the NMDC is India’s single largest iron ore producer, presently
producing about 30 million tons of iron ore from 3 fully mechanized mines.
The NMDC is actively involved in the exploration of a wide range of minerals including iron
ore, copper, rock phosphate, lime stone, dolomite, gypsum, bentonite, magnesite, diamond,
tin, tungsten, graphite, beach sands etc.
On the basis of the given information about National Mineral Corporation of India, answer
the following questions:
a) Identify the types of industry and its category being discussed in above case.
b) Mention the other industry which falls in same category and give two examples.

Solution:

a) Primary, Extractive.
b) Genetic, examples: poultry farms and fish hatchery.
35. About 6 billion passengers travel in Indian Railways each year. If anyone of us has traveled
they will vouch for the fact that currently the availability of quality food in Indian Trains is
something not to be excited about. Travelkhana solves this very problem for the railway
passenger.
It offers a variety of choices to a railway passenger so that the passengers can order food as
per their liking and at their price point while they are travelling. The Travelkhana automated
platform tracks trains in real time across India and ensures that fresh food is delivered to the
passenger as per their choice in real time. It also helps vendors and restaurants in terms of
effective and efficient fulfillment. Additionally, it completes an entire fulfillment cycle right
from the point of ordering to Delivery, Customer feedback and Reconciliation. What is most
exciting is that railway passengers are served fresh food thanks to the patented technology
behind Trvelkhana? Travelkhana was started by Mr. Pushpinder Singh.
On the basis of the given information about Travelkhana, answer the following questions:
a) Identify the types of industry being discussed in the above case.
 b) What values are being exhibited by the above business?

Solution:

a) Tertiary Industry
b) Concern for customers: Adaptability.
36. Raman started a gym named as’ Stay Healthy Gym’. He installed large number of machines
and equipment’s of different types and appointed trained trainers to help the customers in
the use of machine. Initially he kept a low fee per hour so that the boys and girls belonging to
poor families may also avail the facilities of the gym. Very soon his gym became popular and
he started operating in three shifts. For this, he pointed additional trainers. He also installed
extra machines so that more customers could be enrolled. In two years, he started earning
good profits. He took a nearby building on rent and started a ‘Recreation and Health Club’ for
the senior citizens of the locality on very nominal charges. He also encouraged trainers
working under him to participate in the cleanliness drive started by the Prime Minister. They
agreed and started giving one hour daily for the cleanliness of the nearby areas.
a) Identify the types of economic activity done by Raman and Trainers.
b) Also, identify any two values that Raman tried to propagate.

Solution:

a) Raman: Economic activity (business) and Non-economic activity.

Trainers: Economic activity (employment) and Non-economic activity.
b) Values: Concern for poor, Concern for elderly people.
37. Mr. Smit is a well-qualified dentist with lots of patients. He open medical store in partnership
with his friend John within the premises of the nursing g home. In order to earn money
quickly, he started procuring medicines from substandard pharmaceutics companies on
which more commission was available. He used to prescribe only those medicines which
were available in his medical store.
On the basis of the given information about Mr. Smit, answer the following questions:
a) Name the economic activity which Mr. Smit is doing as a dentist
b) Also, state the type of economic activity done by him with his friend John.
c) Identify two values ignored by Mr. Smit.

Solution:

a) Profession
b) Business
c) Value ignored : Concern for customer , concern for law

38. Harshit runs well known departmental store in Delhi. He procures different kinds of product
from all over the country through railways, road ways and airways. He also owns a godown
to hold the stock. He has taken an insurance policy worth Rs 10 crore for his business.
Moreover, he has taken a loan of Rs 2 lakh from ICICI bank in order to meet all short terms
needs of business. He has also placed information about his store on bill boards, hoardings
etc. in the context of the above information about Harshit’s business, answer following
questions.
a) Identify the auxiliaries of trade that are being used by Harshit in the business by
quoting lines from above paragraph.
 Solution:

a) Transportation, banking, insurance warehousing, advertising.

39. Tarun is engaged in Lumbering. He thinks of diversifying his business and decides to import a
new cattle breed from aboard. For the movement of cattle he appoints fast n Quick Ltd. that
deals in transportation of livestock. Once his goods are ready, the consumer s are made
aware by advertisements and other sales promotion techniques.
On the basis of the given information about business done by Tarun, answer the following
questions:
a) Identify the types of Industry and the category of Industry in which Tarun is dealing.
b) Identify and explain industry in which fast n Quick Ltd. is dealing.
c) Identify the values portrayed above.

Solution:

a) Primary Industry, Genetic Industry.

b) Tertiary Industry
c) Value: Concern for organizational objectives.

40. NIRMA became a huge success and all this was a result of karsanbhai Patel’s entrepreneurial
skills. Karsanbhai Patel had good knowledge of chemicals and he came up with Nirma
detergent which was a result of innovative ingredients. Indigenous methods were used, and
also the detergent was more environment friendly. Consumers had a quality detergent
powder, having an affordable price tag. Nirma focused on cost reduction strategies to make a
place for itself in the market and earned a lot of profit. Nirma has always been known for
offering quality products at affordable prices and thus creating good value for consumer’s
money.
On the basis of given information about Nirma, answer the following questions:
a) Identify and explain the type of objectives which the company has set. Quote the
line from each type from above para.
b) Identify any two values which company kept in mind while setting these objectives.

Solution:

a) Economic and social objectives

b) Values: concern for society, concern for environment.

41. Robert has just completed his post-graduation in fashion designing from a premier institute
of designing. Being from a fashion industry, trends of dresses and choices are well known to
him. He opened a huge business house for ladies clothing of latest fashion. He is well versed
with the trend but does not possess any business experience. His target is to capture not only
the national market but also the international. He participated in many fashion shows where
his designs were liked by people. He received a bulk export order. But due to negligence of
his employees the shipment was rejected and he suffered a huge loss.
On the basis of given information about Robert, answer the following questions:
a) Identify the cause of business risk by quoting the line.
b) State causes of business risk other than identified in part (a) above.
 Solution:

a) Human causes
b) Natural, economic and other causes

42. Mr. Akash Patel is the owner of a business enterprise manufacturing leather bags. He was
earning lot of profit and wanted to expand his business. He appointed Sam as his project
head. Sam suggested to establish paper bags, since plastic led to pollution. It not only affects
human beings but also the animals and nature as a whole. Opening a unit in tribal area would
also generate employment for the people to that area. Akash appreciated him and accepted
his proposal. He reinvested hi profit in starting this new business. He appointed Harmet,
Albert, and Zaid as heads of sales, accounts and purchase departments. (Albert was a
differently abled but a very intelligent person.)
He paid good salaries and provided good working conditions to his employees. His business
earned a good reputation in market in a short span of time.
On the basis of the given information about Akash Patel, answer the following questions
a) Identify three points of role of profit from above information.
b) Which objectives of business are being pursue by Akash?
c) Identify any one value which Akash he is trying to communicate to the society.

Solution:

a)
I.It is a source of income for business persons.
II.It can be a source of finance for meeting expansion requirements of
business.
III. It builds up the reputation of a business enterprise.
b) Economic and Social
c) Value: Concern for differently abled people and Concern for employees.

43. Mr. Amar has two sons Vikas and Sanjay. After completing their graduation his sons decided
to start their own business of manufacturing readymade men’s clothes. Since they had a
commercial space with them near their house so they started a factory. They purchased the
cloth in bulk for trousers and shirts from wholesale market. They employed 10 tailors and 2
salesman. Since some of their relatives were already in same line, they did not face any
problem in finding the buyers. They earned 20 percent profit in their first year of operation.
During the second year of their operation due to theft in their factory, they suffered a loss of
Rupees 50,000. Their father told them to not lose heart as risk is a part of every business.
Their business start flourishing and they opened their own outlet at a populous location in
city after few years of operation and due to tough competition in business of men’s clothing
they decided to enter into women’s clothing line too.
On the basis of the given information about business done by Vikas and Sanjay answer the
following questions:
a) Identify any five features of business by quoting the line from the above case.
b) Also, state the feature of business not identified above.

Solution:

a)
i. An economic activity.
ii. Production or procurement of goods and services.
 iii. Sale or exchange of goods and services for the satisfaction of human needs.
iv. Element of risk.
v. Profit earning.
vi. Uncertainty of return.
b) Dealings in goods and services on a regular basis.

44. Aman, who is working in a multinational company gets a salary of Rs.85,000 per month. He
met his friends Lakhsay, who is a Chartered Accountant and Manoj, who is a retailer of shoes.
Aman calls both his friends as businessmen.
On the basis of the given information about three friends, answer the following questions:
a) Do you think Aman is right in calling both his friends businessmen, how would you
classify Aman, Lakshay and Manoj as? Give reasons for the same.
b) Differentiate between the activities performed by these three friends on any two
basis.

Solution:

a) Lakshay- Professional, Manoj- Businessmen.

b) Employment, profession and business any two differences.

45. Raisha is a young, ambitious and creative girl who wishes to make her parents proud of what she
is. Since childhood, she was interested in art and craft and won various prizes in school and
inter- school competitions. After passing class XII from commerce stream, she is pursed B.Com
from a reputed college of Delhi University. To continue her creative passion along with her
studies and to support her family economically, she started giving art and classes to kids,
comprising of skills such as paper quilling, clay modeling, paper craft, table mats, mask- making,
pot decoration, flower making etc. The noteworthy point was that she used to give such classes
free of cost to the kids of poor parents living in slums near to her place. She herself used to give
material to learn artistic skills without paying anything and she posted pictures of such craft
items, so prepared, on her face book page. She started getting orders of such craft items, which
led to huge revenues. Whenever she got such orders, she called the parents of those kids and
gave some amount of the revenue received to them. Raisha’s parents were very happy and
satisfied with her work. But they, were astonished to know what Raisha was also earning
reasonable profits since last two years from her work. On the basis of the given information
about Raisha, answer the following questions:

a) Identify any one economic and one non-economic activity from the above para by
quoting relevant lines
b) Which type of economic activity is being performed above? Define it
c) What was the main objective of Raisha?
d) Raisha is very sure that her economic activity is completely risk-free. Do you agree
with her? Justify giving reasons

Solution:

a) She used to give such classes free of cost: Non –economic activity
b) She started giving orders for such craft items which led to huge revenue: Economic
activity
c) Business
d) Social objective
 e) No, risk is present in every business

CHAPTER: 2 (FORMS OF BUSINESS ORGANISATION)

1. Rani is a friend of Seema who is a partner in a software firm Simplex Solutions. On Seema’s
request, Rani accompanies her to a business meeting with Mohan Software and actively
participants in thee negotiation process for a business deal and gives the impression that she
is also a partner in Simplex Solutions. Three months credit is extended to simples Solutions
on the basis of these negotiation.
On the basis of the given information about Rani, answer the following questions:
a. Will Rani be liable to the lender if Seema does not make payment to him by the due
date?
b. Specify and explain Rani’s role in the aforesaid situation.

Solution:

a) Yes, Rani would also be liable for repayment of such debt, because she has become
partner by Estoppel.
b) Partner by Estoppel: A person is considered a partner by estoppel if, through his
own initiative, conduct or behavior, he gives an impression to others that he is a
partner of the firm. Such partners are held liable for the debts of the firm because in
the eyes of the third party they are considered partners, even though they do not
contribute capital or take part in its management.
2. A group of eight people decided to make a company and hence approached Foresight
Business Consultants, a professional unit for seeking appropriate advice. This company
helped them in identifying the different business opportunities and suggested to set up a
mobile manufacturing company. Before converting this business opportunity into a real
project, Foresight Business Consultants made certain arrangements for conducting technical
and professional accountants, lawyers and engineers.
On the basis of the given information about, answer the following questions:
a) What are these groups of eight people called as?
b) Identify and explain the functions performed by them in aforesaid situation for the
formation of company.

Solution:

a) The group of eight people are called as Promoters

b) The functions performed by Promoters in the aforesaid situation for the formation
of company are:
i. Identification of business Opportunity: The first and foremost activity of
promoter is to identify a business opportunity. The opportunity may be in
 respect of producing a new product or service or making some product
available through a different channel or any other opportunity having an
investment capital
ii. Feasibility studies: it may not be feasible or profitable to convert all
identified business opportunities into real projects. The promoters,
therefore , undertake detailed feasibility studies to investigate all aspects of
the business they intent to start, depending upon the nature of the project,
the following feasibility studies may be undertaken , with the help of the
specialists:
 Technical feasibility
 Financial feasibility
 Economic feasibility

3. Anuj and Ahmed are the partners in a firm. They admit John are a new partner, who is
physically challenged. Anuj asked Ahmed and John to get the firm registered. But Ahmed
and John didn’t agree and said that registration procedure will involve a lot of formalities.
If you are Anuj, how will you convince them to get the new firm registered?

Solution: I will convince them to get the firm registered by explaining to them the
consequences of non-registration of a firm which are as follows:
a) A partner of an unregistered firm cannot file a suit against the firm or others
partners.
b) An unregistered firm cannot file a suit against third parties.
c) An unregistered firm cannot file a case against the partners.
4. Lalitha – Devi did her post-graduation from Manipur University, Imphal. She had offers to
join some reputed firms in metropolitian cities like Delhi and Mumbai. Instead of joining any
of these firms she decided to do some creative work on Imphal. She observed that a special
type of chili is grown by a farmers in most of the villages in Imphal. This chili has a distinct
flavour and pickle made from this chili has a taste which may be like by people from the rest
of the country. But the farmers were neither trained for this kind of farming of this kind of
chili on the large scale nor was there a secured market for their produce. Lalitha Devi met 18
like-minded women of the same area and formed an organization for doing the business of
pickle manufacturing. Each of them contributed Rs.20, 000 each towards its capital and were
equally responsible for its management. On one hand they assured the farmers to purchase
their chili and on other hand, the organization with the help of local agriculture department
arranged for the training of the farmers. They also employed 10 local unemployed graduate
girls for doing the various operations of pickle making.
On the basis of the given information, answer the following questions:
a) Identify the kind of organization that was formed by Lalitha Devi.
b) Explain the type of the kind of organization that was formed by Lalitha Devi.

Solution:

a) The kind of organization formed by Lalitha Devi is Cooperative society.

b) Producer’s Cooperative Society: These societies are set up to protect the interest of
small producers. The members comprise of producers desirous of procuring inputs
for production of goods to meet the demands of consumers. The society aims to
fight against the big capitalists and enhance the bargaining power of the small
 producers.it supplies raw materials, equipment and other inputs to the members
and also buys their outputs for sale. Profits among the members are generally
distributed on the basis of their contributions to the total pool of goods produced or
old by the society.
5. Deepak and Gaurav joined the prestigious law university in Ahmedabad in the year 2010.
During the course of the study they became good friends and they both realized that their
common interest lies in the field of corporate law. After completion of their degree they
decided to start a firm of their own, namely ‘Corpo Law Firm’ wherein both of them will be
co-owners dividing the profit and loss. After successfully running the firm for a year, they
realized that there are certain rights which are denied to their firm as it is not registered.
Explain the consequences of non – registration of their firm.

Solution: Consequences of non-registration of a partnership firm:

I. A partner cannot file a suit in any court against the firm or other partners for the
enforcement of any right arising from a contract or right conferred by the
Partnership Act.
II. A right arising from a contract cannot be enforced in any court by or on behalf of
the firm against the third party.
III. The firm or any of its partners cannot claim a set off or other proceedings in a
dispute with a third party.

6. Akshay is a shareholder in a company holding 2000 shares of Rs.10 each on which he has
already paid Rs.7 per share.
What will be his liability in the event of company’s failure to pay debts? Give reason in
support to your answer.

Solution: Akshay has already paid Rs 7 per share. His liability in the event company’s failure
to pay debts can only up to Rs 6000 that is the unpaid amount of Rs 3 per share on 2000
shares held in the company. Beyond this, he is not liable to pay anything towards the debts
or losses of the company. The liability of the members is limited to the extent of the capital
contributed by them in a company. The members can be asked to contribute to the loss only
to the extent of the unpaid amount of share held by them.

7. Mohan and Radha want to start a shop to sell Rajasthani sweets. They did not know how to
develop the agreement for this purpose. So, they approached a Chartered Accountant who
advised them to prepare a document which may stipulate the terms and conditions of the
agreement.
On the basis of given information, answer the following questions:
a) Name the document about which the chartered accountant advised Mohan and
Radha.
b) State any four important items they should include in the agreement name, nature
and place of business.

Solution:

a) The chartered accountant advised Mohan and Radha about the Partnership Deed.
b) The Contents of the agreement besides the name, nature and place of business are:
I. Amount of capital to be contributed by each partner.
 II. Profit sharing ratio between the partners.
III. Duties, powers and obligations of partners.
IV. Maintenance of accounts and arrangement for their audit.
8. Ajay is the sole owner of a shoe manufacturing factory. He took a loan of Rs.20 lakhs from
Ace finance company for the expansion of his business. Because of continuous losses
however, he was not able to repay the loan on time. Assets of the business were not enough
for repaying liabilities in full. As a result, the finance company asked him to repay their loan.
He refused to do so on the ground that the loan was taken by his business and not by him
for his personal use. The company filled a case against him. The court gave decision in favor
of the company on the ground that Ajay was operating as the sole proprietor and a sole
proprietor did not have separate entity distinct of his own. The court further stated that Ajay
had unlimited liability and held him liable to repay the loan even by selling his personal
property, if need be.
Identify and explain two features of the form of business organization formed by Ajay by
quoting the lines from the case.

Solution:

Feature Identify Explanation Line quoted

I. Liability Sole proprietor have unlimited liability.
This implies that the owner is
personally for the payment of debts in
case the assets of the business are not
satisfied to meet all the debts. As such
the owner’s personal possessions such
as his/ her personal car the other assets
could be sold for repaying debt.
II. No In the eyes of the law, no distinction is
separate made between the sole trader and his
entity business, as business does not have an
identity separate than the owner. The
owner is therefore, held responsible for
all the activities of the business.
The court further stated
that Ajay had unlimited
liability and held him liable
to repay the loan even by
selling his personal
property if need be.
Sole proprietor did not
have a separate entity
distinct from his own.

9. Harsh, Dinesh and Kunal were partners in a financing firm. Harsh and Kunal had gone for a
meeting London for analyzing business prospectus in that country. In the meanwhile, Dinesh
invested a huge amount in buying shares of a new company by borrowing money from
Rajesh. This turned out to be a bad deal as the share prices soon fell down. When harsh and
Kunal came back they saif they were not liable to pay the Rajesh as they did not take the
money.
On the basis of the given information, answer the following questions:
a) Were Harsh and Kunal right in doing so?
b) Under which aspect of partnership are they bound? Explain.

Solution:
 a) No, harsh and Kunal are not right in doing because of the implied authority of the
partner.
b) In partnership business can be carried on by all or any of the partners acting for all.
In other words, every partner is both an agent and a principle. He is an agent of
other partners as he represents them and thereby binds them through his acts. He is
principle as he too can be bound by the acts of other partners.
10. Saurabh and Gaurav felt that there was an opportunity of business in providing a service
of online grocery stores to working people residing in Mumbai. They analyzed the idea in
terms of technical, financial and economic feasibility. Once they found all aspects to be
satisfactory they decided to start a company called ‘Grocery At Home Private Ltd’. They
got the name registered with registrar of the companies.
On the basis of the given information about Saurabh and Gaurav, answer the following
questions:
a) Identify the step in the formation of company highlighted in above case?
b) Enumerate the next three stages to be formed after the conclusion of aforesaid
stage in the step identified in part (a).

Solution:

a) The step in formation of a company is promotion.

b) The next three stages to be followed after the conclusion of aforesaid stage of
promotion are:
I. Fixing up signatories to the Memorandum of Association: promoters have
to decide about the members who will be signing the Memorandum of
Association of the proposed company. Usually the people signing
Memorandum are also the first directors of the company. Their return
consent to act as directors and to take up the qualification shares in the
company is necessary.
II. Appointment of Professionals: certain professionals such as mercantile
bankers, auditors etc, are appointed by the promoters to assist them in the
preparation of necessary documents which are required to be with the
Registrar of the Companies.
III. Preparation of necessary documents: the promoters takes up the steps to
prepare certain legal documents, which have to be submitted under the law,
to the Registrar of the Companies for getting the company registered. These
documents are Memorandum of Association, Articles of Association and
Consent of the Directors.

11. Two years ago Gopal started manufacturing low fat, sugar free ice cream on a small scale
basis in his home town, Vishakhapatnam. After some time his ice cream became popular
among the health conscious young customers and old persons specially those having
diabetes or some heart ailment. Because of the popularity of the ice cream the demand
has increased manifold. Gopal is unable to meet the same, because of his limited
managerial ability and limited capital. Gopal also felt that whenever he fell sick his
business was temporarily closed. To overcome this problem he decided to admit in the
business his friend Mohan who has recently completed his MBA and is ready to invest
money for the expansion of the business. Mohan advised Gopal to get their firm
registered.
 On the basis of the given information about Gopal, answer the following questions:
a) Enlist three limitations indicated in the above case from which Gopal’s business
suffered.
b) Why did Mohan advice Gopal to get the firm registered?

Solution:

a) The limitation from which Gopal’s business suffered are;

I. limited capital
II. limited managerial ability
III. lack of continuity
b) Mohan advised Gopal to get the firm registered so that his firm does not face
consequences for non – registration of a partnership firm:
I. A partner cannot file a suit in any court against the firm or other partners
for the enforcement of any right arising from a contract or right
conferred by the partnership act.
II. A right arising from the contract cannot be enforced in any court by or on
behalf of the firm against any third party.
III. Further the firm or any of its partners cannot claim a set of other
proceedings in a dispute with a third party.
12. Gopaldas, in order to promote local craftsmen of Gujarat, formed an organization where
in the purpose voluntarily associate themselves to promote common economic interest.
The basic purpose of this organization was to help this craftsmen to find market for their
products. It had a managing committee that was elected on the basis of ‘one member one
vote’.
On the basis of the given information, answer the following questions:
a) Identify the form of business organization set up by Gopaldas.
b) Quoting the lines from the above para, Enlist any three features of this form of
organization.

Solution:

a) Co-operative organization
b) The features of co-operative organization are
a. Voluntary association:
Lines: “Gopaldas, formed an organization wherein the persons
voluntarily associate themselves to promote common economic
interest.”
b. Democratic management:
Lines: “it had a managing committee that was elected on the basis of
‘one member one vote’”.
c. Service motive:
Lines: “the basic purpose of this organization was to help these
craftsmen to find market for their products”
13. Gupta Brothers inherited some ancestral property. They decided to form a Hindu
Undivided Family (HUF) consisting of four male members and invested the ancestral
property into the business. The family is headed by Shyamsundar Gupta. The business
took a loan of Rs.10, 00,000 from Syndicate bank for a term of 3 years. Due to poor
financial position of the business, the family members were unable to repay the loan. The
 bank filed a suit for the recovery of loan. Shyamsundar Gupta pleaded the court that as
the entire loan was taken for the purpose of business all members of the business were
liable for the repayment of the loan. The court gave a decision and stated that all the
members except shyamsundar Gupta, are liable for the repayment of the loan only to
extent of their share of co-parcenary property of business. However shyamsundar Gupta
had to pay the balance amount form his personal property.
On the basis of the given information, answer the following questions:
a) Why did the court hold Shyam sundar Gupta responsible for paying the business
liabilities out of his personal assets?
b) Explain any three disadvantages of a Hindu Undivided family Business (HUF) not
and discussed above.

Solution:

a) The court held Shyam Sundar Gupta responsible for paying his business liabilities
out of his personal assets because he is the Karta has unlimited liability.
b) The disadvantages of Hindu Undivided Family business are
I. Limited resources: he joined Hindu family business faces the problem of
limited capital as it depends mainly on ancestral property. This limits the
scope for expansion of business.
II. Dominance of Karta: the Karta individually manages the business which
may at times nor be acceptable to other members. This may cause
conflict amongst them and may even lead to break down of the family
unit.
III. Limited managerial skills: since the Karta cannot be expert in all the
areas of management, the business may suffer as a result of his unwise
decisions. His inability to decide effectively may result into poor profits or
even losses for the organization.
14. A, B,C and D are partners in a firm with unlimited liability. But after 1991, A, B and C decided
that they did not want to bear unlimited risk. With the consent of D, they made
amendments in the partnership deed and changed the liability. Now A, B and C are
responsible for the losses only to the extent of the capital unvested by them.
On the basis of the given information, answer the following questions:
a. Name two types of partnership formed before and after 1991.
b. State four difference between them.

Solution:

a) The type of partnership formed before 1991 is general partnership and after 1991 is
limited partnership.
b)
Basis General partnership Limited partnership

Liability The liability of partners is The liability of at least one partner

unlimited and joint is unlimited whereas the rest may
have limited liability.
 Registration Registration of the firm is Registration of the firm is
optional. compulsory.

Continuity of firm The existence of the firm is
affected by the death, lunacy,
insolvency or retirement of the
partners.
Managemnet The partners enjoy the right to
participate in the management of
the firm and their acts are
binding on each other as well as
on the firm.
Does not get terminated with the
death, lunacy or insolvency of the
limited partners.
The limited partners do not enjoy
the right management and their
acts do not bind the firm or the
others partners.

15. Mahesh Chandra Sharma operates an iron and steel business for last 25 years. His family is
joint and has a lot of ancestral property. All the 20 family members are a part of his business.
He is the eldest male member in the family so he heads the business. He is liable to all the
creditors of the business as he is also a member of the business.
On the basis of the given information about Mahesh Chandra Sharma, answer the following
questions:
a. Which form of business is being undertaken by Mahesh Chandra Sharma?
b. Identify the features of the form of business identified in part (a).

Solution:

a) The form of business undertaken by Mahesh Chandra Sharma is Joint Hindu

Family Business.
b) The feature of Joint Hindu Family Business are:
I. Formation: For a joint Hindu Family Business, there should be at least
two members in the family and ancestral property to be inherited by
them. The business does not require any agreement as membership is
by birth is by birth. It is governed by the Hindu Succession Act, 1956.
II. Control: The control of the family business lies with the karta. He takes
all the decisions and is authorized to manage the business. His
decisions are binding on the other members.
III. Minor Members: The inclusion of an individual into the business
occurs due to birth in a Hindu Undivided Family. Hence, minors can
also be members of the business.
16. Sahara India Pariwar owns many companies. Sahara India Life Insurance company limited is
the first wholly Indian owned private life insurance company. It offers an exhaustive range of
competitive products/plans that caters to everyone from all segments along with prompt
and quality customer services and support. Sahara Asset Management Company private
limited is a professional mutual fund house which manages many mutual fund schemes.
On the basis of the given information about Sahara India Pariwar, answer the following
questions:
a. Sahara India Pariwar owns both public and private companies. How is a public
company different from private company?
b. Give two similarities between company and cooperative society form the business
organizations.
 Solution:
a)
Basis Public Company Private Company
Members Minimum7, Maximum unlimited Minimum 2, Maximum
200

Invitation to public It can invite the public to purchase its It cannot invite the public
share and debentures. to purchase its shares
and debentures.

b)
Basis Company Corporate society

Liability Liability of members is limited. Liability of members is limited.

Continuity Life of company is not dependent Life of cooperative society is not

on life of members. dependent on life of members.

17. Shikha is a sole proprietor. Over the past decade, her business has grown from operating a
neighborhood corner shop selling accessories such as artificial jewellery, bags, hair clips and
nail polish to a retail chain with three branches in the city. She looks after the varied
functions in all the branches, but now she wants to change her form of business as she also
has plans to open branches countrywide. She is also planning to collect the funds by issue of
shares.
On the basis of the given information about shikha, answer the following questions:
a. Which form of business is suitable for shikha for expansion of business? Also
mention any two benefits of that form of business.
b. Explain two benefits of remaining a sole proprietor.

Solution:

a) The form of business suitable for Shikha for the expansion of business is Joint
Stock Company.
The benefits of Joint Stock Company are:
I. Limited liability: The shareholders are liable to the extent of the
amount unpaid on the shares held by them. Also, only the assets of the
company can be used to settle the debts, leaving the owner’s persona
property free from any charge. This reduces the degree of risk borne by
an investor.
II. Transfer of Interest: The ease of transfer of ownership adds to the
advantage of investing in a company as the shares of a public limited
company can be sold in the market and as such can be easily converted
into cash in case the need arises. This avoids blockage of investment
and presents the company as a favourable avenue for investment
purposes.
b) The benefits of being a sole proprietorship are:
 I. Quick Decision Making: A sole proprietor enjoys considerable degree of
freedom in making business decisions. Further the decision making is
prompt because there is no need to consult others. This may lead to
timely capitalisation of market opportunities as and when they arise.
II. Direct Incentive: A sole proprietor directly reaps the benefits of his/her
efforts as he/she is the sole recipient of all the profit. The need to share
profit does not arise as he/she is the single owner. This provides
maximum incentive to the sole trader to work hard.

18. Dev runs a successful coach business in Bengaluru. Private commuters, tourist and business
clients are among his customers. Dev has also operated a daily bus service between
Bengaluru and Mysore for some years, which has proved to be most popular service
provided by his business to commuters. He is currently operating as a sole proprietor.
However, he is considering the option of entering into a partnership with his friend Natasha,
who is physically challenged. Natasha is very good in managing company’s accounts but is
unable to find a job.
On the basis of the given information, answer the following question:
a. State two advantages of form of business organization which dev is currently
undertaking.
b. State any three merits of the form of business in which Dev is planning to enter his
friend, Natasha.
c. Identify the value communicated by Dev to the society by forming partnership with
his physically challenged friend. (any two)

Solution:
a) The disadvantages of sole proprietorship are:
I. Limited Resources: Resources of a sole proprietor are limited to his/her
personal saving and borrowing from others. Bank and other lending
institutions may hesitate to extend a long term loan to a sole proprietor.
Lack of resources in one of the major reasons why the size of the
business rarely grows much and generally remains small.
II. Limited Life of a Business Concern: In the eyes of the law the
proprietorship and the owner are considered one and the same. Death,
insolvency or illness of a proprietor affects the business and can lead to
its closer.
b) The merits of partnership are:
I. Easy of Formation and Closure: A partnership firm can be formed easily
by putting an agreement between the prospective partners into place
whereby they agreed to carry out the business of the firm and share
risks. There is no compulsion with respect to registration of the firm.
Closure of the firm too is an easy task.
II. Balance Decision-making: The partners can oversee different functions
according to their areas of expertise. Because an individual is not forced
to handle different activities, this not only reduces the burden of work
but also leads to fewer errors in judgments. As a consequence, decisions
are likely to be more balanced.
 III. More Funds: In a partnership, the capital is contributed by a number of
partners. This makes it possible to raise larger amount of funds as
compared to a sole proprietor and undertake additional operations
when needed.
c) The Values communicated by Dev are concern for differently abled and
empathy.

19. Indian coffee house is a restaurant chain in India. It has strong presence across India with
nearly 400 coffee houses. These are governed by managing committees elected by
employees. These are completely owned and managed by employees only. These have also
received application and support from government and public. The voting rights in these are
neither tied to investment nor patronage.
On the basis of the given information about Indian coffee house, answer the following
questions:
a. Which form of business organization is highlighted in the above case?
b. Discuss any three merits of business organization identified above.
c. Name any two types of business organization identified in part (a) above.

Solution:
a) The form of business organization highlighted in the above case is Cooperative
Society.
b) Merits of cooperative society are:
i. Equality in Voting Status: The principle of ‘one man one vote’ governs
the cooperative society. Irrespective of the amount of capital
contribution by a member, each member is entitled to equal voting
rights.
ii. Limited liability: the liability of members of a cooperative society is
limited to the extent of their capital contribution. The personal assets of
the member are, therefore, safe from being used to repay business
debts.
iii. Stable Existence: Death, bankruptcy or insanity of the members do not
affect continuity of a cooperative society. A society, therefore, operates
unaffected by any changes in the membership.
c) The type of cooperatives societies are:
i. Consumer’s society.
ii. Producer’s society.
20. Identify the type of cooperative societies highlighted in the following situations:
a. Cooperative societies formed to protect the interest of general consumers.
b. Cooperative societies formed to protect the interest of small producers.
c. Cooperative societies formed by small producers and manufactures who find it
difficult to sell products individually.
d. Cooperative societies establishes to protect the interests of farmers for providing
better inputs at a reasonable cost.
e. Cooperative societies formed to provide financial support to the members.
f. Cooperative societies formed to provide residential houses to members.

Solution:
 a) Consumer’s cooperative societies d) Farmer’s cooperative societies
b) Producer’s cooperative societies e) Credit cooperative societies
c) Marketing cooperative societies f) Cooperative housing societies

CHAPTER: 3 (PRIVATE, PUBLIC AND GLOBAL ENTERPRISES)

1. Post and telegram department is a major part of Ministry of communication. It is organized,
financed and controlled by the Communication Ministry. The finance is arranged by annual
appropriation from the government treasury. Being under the control of the government
budget accounting and auditing are applicable as in government department
Identify the type of the public sector enterprise highlighted in aforesaid case?
Solution:Department Undertaking

2. Identify the type of public sector undertakings in the following situations:

a) Business enterprise established by the government and controlled by the Ministry
concerned.
b) Enterprise incorporated under a special Act of Parliament or State Legislature.
c) Enterprise managed by the government and subject to strict budgetary, accounting
and audit control.
d) Enterprise established by the government and registered under the companies Act.

Solution:

a) Departmental undertaking
b) Statutory Corporation.
c) Government Company.
d) Government Company.

3. Many early post-independence leaders, such as Nehru, were influenced by socialist ideas
and advocated government intervention to guide the economy, including state ownership of
key industries. As a result after Independence, government has taken several steps to
develop the country. Some of these steps are:
i. Setting up four major steel plants in the backward regions of the country.
ii. Setting up public sector companies like producing heavy engineering goods so as to
avoid importing these capital goods from other countries.
On the basis of the given information about public sector, answer the following questions:
a) Identify the role of Public Sector that the government is trying to achieve by taking
these steps.
b) State the roles played by public sector in growth of nation.

Solution:

a) The role of public sector that the government is trying to achieve by taking these
steps are:
I. Regional Balance: the government is responsible for developing all regions
and states in a balanced way and removing regional disparities. Therefore,
the government has to locate new enterprises in backward areas and at the
same time prevent the mushrooming growth of private sector unit in already
advanced area.
 II. Import substitution:During the second and third 5 year plan period, India
was aiming to be self – reliant in many spheres. Public sectors companies
involved in heavy engineering which would help n import substitution where
established. Simultaneously several public sector companies like STC and
MMTC have played an important role in expanding exports of the country.
b) The role of public sector enterprise for the growth of nation are as follows:
I. Development of Infrastructure: The process of industrialization cannot be
sustained without adequate transportation and communication facilities,
fuel and energy and basic and heavy Industries. It is only the government
which could mobilize huge capital, coordinate industrial construction and
train technicians and work force.
II. Economies of scale: Where large scale industries are required to be setup
the huge capital layout, the public sector has to step in to take advantage of
economies of scale. Electric power plants, natural gas, petroleum and
telephone industries are some examples of the public sector setting up large
scale units.
III. Check over concentration of economic power: In the private sector there
are very few industrial houses which would be willing to invest in heavy
industries with the result that wealth gets concentrated in a few hands and
monopolistic practices are encouraged. The public sector is able to set large
industries which requires heavy investments and thus the income and
benefits that accrue are shared by a large of number of employees and
workers. These prevents concentration of wealth and economic power in
the private sector.
4. Mumbai Metro is a rapid transit system which is under construction in Mumbai. The system
is designed to address both present and future needs of public transportation. The project
was implemented under Built, Own, operate and transfer (BOOT) method and has been
India’s first special metro project in which few phases (construction and maintenance) were
given to private players. The project involved an elevated 11 km Light Rail Transit (LRT)
system linking Andheri and Ghatkopar, via Asalpha, Marol, Chakala and Saki Naka. The
construction of Mumbai Metro involved building up of a total of 146 km of track, of which 32
km is underground. The project was approved by the Government of Maharashtra in August
2004 and global bids were invited through an Expression of Interest.
On the basis of the given information about Mumbai Metro, answer the following questions:
a) State the type of public sector enterprise highlighted in above case.
b) Enlist any three features of this form of business enterprise.
c) Which kinds of applications are preferred to be undertaken by such enterprises?

Solution:

a) Mumbai metro is a public private partnership.

b) The features of public private partnership are:
I. Contract with the private party to design and build public facility.
II. Facility is financed and owned by the public sector.
III. Key driver is the transfer of design in construction risk.

c) The application of public private partnership are:

 I.Capital projects with small operating requirements.
II.Capital projects where the public sector wishes to retain the operating
responsibility.
5. NourishCo Beverages Ltd., the strategic alliance between Tata Global Beverages and Pepsi Co
India has plans of delivering healthy beverages for a healthier India. The company is set to
disrupt the hydration category in India by delivering enhanced wellness through innovative
and affordable ready-to-drink beverages. Science, technology and research forms the
foundation of every product in the NourishCo portfolio. The key product of NourishCo
Beverages Ltd., is Himalayan Orchard Pure available in three flavors viz., Apple, Strawberry
and Peach. The reasons for this alliances is complementary capabilities and resources such as
distribution channels, technology of both the parties.
On the basis of the given information about NourishCo Beverages Ltd., answer the following
questions:
a) Identify the kind of business enterprise formed by Tata Global Beverages and PepsiCo
India.
b) Explain the benefits of the kind of business enterprise highlighted in above case.

Solution:

a) Joint Venture is a strategic alliance formed by Tata Global beverages and PepsiCo
India.
b) The benefits of joint venture are as follows:
I. Greater resources and capacity: In a joint venture the resources and
capacity of two or more firms are combined which enables to grow quickly
and efficiently.
II. Access to advanced technology: It provides access to advanced techniques
of production which increases efficiency and then helps in reduction in cost
and improvement in quality of production.
III. Access to new market and distribution network: A foreign company gains
access to the vast Indian market by entering into a joint venture with Indian
company. It can also take advantage of well established distribution system
of the local firms.
IV. Innovation: Foreign partners in joint ventures have the ideas and the
technology to develop innovative products and services. They have
advantage in highly competitive and demanding market.
V. Low cost of production: raw materials and labor cheap in developing
countries so if one partner is from developing country they can be benefited
by the low cost of production.
6. In 1983, when Stride Acrolabs was set up, it only dealt with two cities in India- West Bengal
and Bihar. In 1985, it started trading nationally and by 2000, company made its way through
the international market. Products used in cardiology were manufactured in 1987 and at that
time, Monotrate was one of the first products that was launched and went on to become a
best seller. In 1993, Stride Pharmaceuticals Industries set up their own research institute
STIRI.STIRI became popular by generating knowledge and honing process development skills
across the world. In 1994, Stride Pharma enrolled itself in the main stock exchanges in India.
Stride Pharmaceuticals shifted its headquarters in Mumbai as it is at the center of Indian
commercial trade. The company began its first international acquisition with an amount of US
 $ 7.5 million, acquiring international Pharm Lab in Detroit. Later on the company introduced
a few more treatment areas which include orthopedics, gynecology, and oncology.
On the basis of the given information about Stride Arcolabs, answer the following questions:
a) Identify the type of business enterprise highlighted by quoting the lines from above
case.
b) Explain any four features of the type of business enterprise identified in above
question.

Solution:

a) Stride Acrolabs is a global enterprise/ multinational corporation.

Lines: “Stide pharmaceuticals shifted its headquarters in Mumbai as it is at the
center of Indian commercial trade. The company began its first international
acquisition with an amount of US $ 7.5 million, acquiring international Pharm Lab in
Detroit. ”
b) The Multinational cooperation’s have distinct features which are as follows:
I. Huge capital resources:These enterprises are characterized by processing
huge financial resources and the ability to raise funds from the different
sources. They are able to tap funds from various resources. They may issue
equity share debentures or bonds to the public. Because of their financial
strengths they are able to survive under all circumstances.
II. Advanced technologies: these enterprises possesstechnological
superiorities in their method of production. They are able to confirm to
international standard and quality specifications. These lead to industrial
progress of the country in which such cooperation’s operate since they are
able to optimally exploit local resources and raw materials.
III. Product innovation:These enterprises have highly sophisticated research
and development departments engaged in the task of developing new
products and superior designs of existing products.
IV. Marketing strategies:The marketing strategies of the global companies are
far more effective than the companies. They use aggressive marketing
strategy in order to increase their sales in a short period. They possess a
more reliable and up-to-date market information system. Their advertising
their sakes promotion techniques are normally very effective.

CHAPTER: 4 (BUSINESS SERVICES)

1. Akash Juneja, a businessman is involved in daily dealings of cash through his current account
in Axis Bank. Due to unavailability of funds and an urgent need to pay to his creditors, he
approaches the bank to withdraw more than the balance available in his account, using the
facility provided to him by the bank owing to his creditworthiness.
Identify the facility provided by the commercial bank of Akash.
Solution:Overdraft facility
2. Ramesh is softwareprofessional working in a software development company located at
Hyderabad. He has a saving bank account with the state bank of India but he has not opted
for e-Banking. His family members are residing in Delhi. Ramesh’s father asked him to send
Rs.4, 50,000 at the earliest. His father has a saving bank account with Bank of Baroda.
 Explain Ramesh the method he should adopt for sending money as early as possible.
Solution: The fastest method Ramesh should adopt is Real Time Gross Settlement (RTGS).
Settlement in Real Time means transactions are settled as soon as they are processed and
are not subject to any waiting period. Gross settlement means the transaction is settled on
one to one basis without bunching or netting with any other transaction. This is the fastest
possible money transfer system through the banking channel.
3. A factory owner took a fire insurance policy for his factory from New India Assurance
Company by hiding the fact that the electricity board has issued him statutory warning letter
to get his factory wiring changed at the earliest. Later on the factory catches accidental fire
due to short circuit in the electric board.
Explain the principle of insurance violated in this situation.
Solution:The principle of insurance violated is the principle of utmost Good Faith.
4. Rajesh Sachdeva insured his factory for Rs.45 lakhs against the fire. Due to fire, he suffered a
loss of stock worth Rs.24 lakhs.
How much amount can be recover from the insurance company? Why? State the relevant
insurance principle in this regard.
Solution:Rajesh sachdeva can only Rs. 24 lakhs recover from the Insurance Company
because he has suffered the loss of only Rs.24 lakhs. The contract of the fire insurance is a
contract of strict indemnity. The insured can, in the event of loss, recover the actual amount
of loss from the insurer. This is subject to the maximum amount for which the subject
mattered is insured.
The relevant insurance principle in this regard is principle of Indemnity.

5. Sarthak has taken fire insurance policy for his warehouse. Due to fire, he suffered a loss of
Rs.5, 00,000 and gets a compensation claim from the insurance company. The damaged
stock can be sold for Rs.15, 000.
Who has the right over this amount? Why? State the relevant insurance principle in this
regard.
Solution:The insurance company has the right over the amount recovered from sale of
damaged stock because after the insured is compensated for the loss or damage to the
property insured by him the right of ownership of such property passes on to the insurer.
The insured should not be allowed to make any profit, by selling the damaged property.
Subrogation: It refers to the right of the insurer to stand in the place of the Insured, after
settlement of a claim, as far as the right of insured in respect of recovery from an alternative
source is involved.
6. Balaji transport Company has maintained a fleet of registered transportation vehicles to
ensure fresh delivery of Fruits and Vegetables from Nagpur and other parts of the country.
The consignment is always sent to the most direct route, with fewest transit stops, thereby
minimizing the elapsed time and eliminating unnecessary climatic changes Balaji Transport
Company has accident insurance policy for all its vehicles. A truck of the company carrying
oranges from Nagpur to Varanasi met with an accident. There was no damage to the
oranges but the consignment had to be reloaded in a new truck. Due to the time consumed
in unloading and reloading, the oranges got spoiled.
On the basis of given information, answer the following questions:
a. Will the company get compensation for the loss of oranges from the insurance
company? Give reason in support of answer.
b. Explain the relevant principle of insurance.
 Solution:

a) No, the company will not get compensation for the loss of oranges from the
insurance company because nearest cause of losses is time consumed loading and
unloading which is not covered in insurance policy.
b) Principle of Causa proxima/ proximate cause: According to this principle, an
insurance policy is designed to provide compensation only for such losses as are
caused by the perils, which are stated in the policy. When the loss is the result of
two or more causes, the proximate cause means the direct, the most dominant and
most effective cause of which the loss is the natural consequence. In case of loss
arising out of any mishap, the most proximate cause of the mishap should be taken
into consideration.
7. Satish took an insurance policy for his car. But he sold the car within a year to his friend
Ramesh and got the registration done in Ramesh’s name. After few months the car was
stolen from Ramesh’s Garage. Satish made a claim to Insurance Company. But his claim was
rejected on the ground that he has not suffered any financial loss due to theft of the car.
On the basis off given information about Satish, answer the following questions:
a. Explain the insurance principle followed by Insurance Company in rejecting the
claim?
b. Who can claim the compensation from insurance company and why?

Solution:

a) The insurance principle followed by Insurance company is rejecting the claim is

Principle of Insurable interest. As per this principle, the insured must have an
interest in the preservation of the thing or life insured, so that he/ she will suffer
financially on the happening of the event against which he/ she is insured. In case of
insurance of property, insurable interest of the insured in the subject matter of the
insurance must exist at the time of happening of the event.
b) Mr. Ramesh can claim the compensation from Insurance Company as he has
insurable interest in car at the time of loss.
8. Manish Roy purchased a new car and got it insured with oriental insurance company for
Rs.3, 00,000 and National Insurance Company for Rs. 4, 00,000. In an accident car was
damaged. He claimed for a compensation of Rs.70, 000 from both the companies.
a. Is he entitled to get a compensation from both the companies?
b. Explain the relevant principle of insurance applicable in this regard.
c. How much compensation will be received from both the companies?

Solution:

a) No, he not entitled to get a compensation from both the companies.

b) Principle of contribution: According to this principle if a person has taken more than
one insurance policy for the same risk then all the insurer will contribute the amount
of loss in proportion to the amount assured by each of them and compensate him
for the actual amount of loss because he has right to recover more than the full
amount of his actual loss.
 c) He suffer a loss of Rs.70, 000 due to accident. The liability of each insurer will be
calculated as follows:
𝑠𝑢𝑚 𝑖𝑛𝑠𝑢𝑟𝑒𝑑 𝑏𝑦 𝑒𝑎𝑐ℎ 𝑖𝑛𝑠𝑢𝑟𝑒𝑟
× Amount of loss
𝑇𝑜𝑡𝑠𝑙 𝑠𝑢𝑚 𝑖𝑛𝑠𝑢𝑟𝑒𝑑 𝑏𝑦 𝑎𝑙𝑙 𝑖𝑛𝑠𝑢𝑟𝑒𝑟𝑠

3,00,000
Liability of oriental insurance company = × 70,000 = Rs.30, 000
7,00,000

4,00,000
Liability of National Insurance Company = = × 70,000 = Rs.40, 000
7,00,000

Thus, the total amount of compensation received by Manish cannot be more than
his actual amount of loss i.e., Rs. 70, 000.

CHAPTER: 5 (EMERGIING MODES OF BUSINESS)

1. FAST BIKES Ltd. is a well-known manufacturer in the field of automobiles. It manufactures

different models of sports bikes. The company officials interact with the suppliers on regular
basis through internet. Speedo Steel Ltd.is the leading supplier of and steel to them .Fast
bikes Ltd. Uses internet for placing orders, keeping track of different suppliers, delivery of
components, payments etc. the company personnel finds the use of internet very
convenient and time saving. Moreover use of internet provides the company with a wide
variety of suppliers to choose from. Thus, internet has not only widened their market but
has given them much wider choice as well.
In which direction fast bikes Ltd., Electronic transactions can be visualized to be extending?
Solution: B2B commerce which is a firm’s interactions with other business firms.
2. In today’s competitive environment focus is to concentrate on core specialization areas and
contract out the rest of activities. Many companies have come to realize that by getting the
non- core activities done from others not only costs are minimized improve but the total
business efficiency done from others not only costs are minimized improve but So, the
companies are getting high end task like research and technical analysis done from outside
the organization in order to run the business in cost effective manner.
Identify the concept of business highlighted in the above case.
Solution: knowledge process Outsourcing.
3. Prabhakaran wants to buy a new furniture for his house, but he does not have enough space
to keep it. He plans to sell his old furniture via Quikr.com to get some surplus money and
space for the new one. He receives a good response of the post in this respect on the
company’s webpage. Finally, he selects the buyer who offered him the biggest price.
In which direction Prabhakaran electronic transaction can be visualized to be extending?
Solution: C2C commerce: here, the business originates from the consumer and the ultimate
destination is also consumer.
4. Giftease.com aims to make giving gifts as delightful servicing them! Giftese.com offers a
handpicked range of attractive items at great prices, helps to make it easy to find and send a
suitable gift for any person, occasion and budget. As a gifting specialist, company provided
recommendations to match the personality or occasion if you are undecided about the
perfect gift. With the range of gift wrapping choices, personalization options, fixed – date
delivery and a strong focus on customer care, company make sure that it deliver delight with
each order.
 Recently the company got an order for 100units of family collage personalized photo frame
from a company for its employees. Giftese.com arranged for the items and delivered them
on time but the company returned the whole lot saying that a wrong item has been
delivered. Giftese.com had to accept the rejected order back as due to the lack of proper
record of the item selected by the company.
On the basis of the given information about giftese.com, answer the following questions.
a) Identify the e-business risk faced by giftese.com
b) Identify the category of e-business risk identified in the part (a)
c) Explain the two more risks of the same category identified in the part (b)

Solution:

a) The e-business risk faced by Giftease.com is Default on delivery.

b) The category of e-business risk is Transaction risk.
c) The types of Transaction risk are:
I. Default on order taking/given: Seller denies that the customer ever placed
the order of the customer denies that he ever placed the order.
II. Default on payment: Seller does not get the payment for the goods
supplied whereas the customer claims that the payment was made.
5. Invincible publishers is an independent publishing and marketing platform founded to
design, publish, promote and sell professional quality printed books. Invincible publishers,
aim to make this very process as quick, smooth and hassle-free as possible. With its brilliant
team of editors, designers and marketers, company goal to bring many stories to life and
give them the readership they deserve.
To achieve its objective of delivering the quality content at reasonable prices with the
competitive royalties and aggressive marketing company appointed Rachel as the marketing
manager. During a sales meeting she suggested to sell books online. Everyone in the meeting
looked surprised because from last many years they have been selling books by visiting
booksellers and stories
The sales director asked Rachel to prepare a detailed report on online selling concept. Soon
the books were available online. Within three months the publisher received a big order
from Canada. This would be their first export so the sales manager is now trying to
understand the export procedure.
On the basis of the given information about invincible publishers, answer the following
questions:
a) State the stages involved in the concept of selling books online.
b) Discuss any four payment mechanism for online business.

Solution:

a) The three stages involved in online transactions are:

I. Firstly, the pre-purchase/sale stage including advertising and information
seeking.
II. Secondly, the pre-purchase/sale stage including steps such as price
negotiation, closing of the purchase/sales deal and payment.
III. Finally, the delivery stage.
b) The payment mechanism for online business has following options:
I. Cash on delivery: The payment for the goods ordered online may be made
in cash at the time of physical delivery of goods.
 II. Net banking transfer: The facility of electronic transfer of funds over the
net. In this case, the buyer may transfer the amount for the agreed price of
the transaction to the account of online vendor who may, then, proceed to
arrange for the delivery of goods.
III. Credit card: It allows its holder to make purchase in credit. The amount due
from the card holder to the seller is assumed by the card issuing bank, who
later transfers the amount involved in the transaction to the credit of the
seller.
IV. Debit card: It allows its holder to make purchases through it to the extent of
the amount lying in the corresponding account. The moment any
transaction is made, the amount due as payment is deducted electronically
from the card

CHAPTER: 6 (SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS)

1. Ramgopal is a sweet maker, who collects milk from many villagers and prepares sweets on
festivals. Due to increased demands, he purchased milk from other shopkeepers which was
adulterated because it was not possible to meet the requirement from the limited quantity
of milk. For quick preparation of sweets he has not maintained cleanliness. He employed few
children for packing the sweets and two young girls to collect the cash at the counter.
Do you think the sweet maker is a socially responsible dealer? Give reason in support of your
answer.
Solution: the sweet maker is not socially responsible dealer because he is ignoring his social
responsibility towards customers and society.

2. Kalakriti limited is a new startup by the prime minister’s campaign on startup India and
stand up India. It provides a diverse collection of pottery, paintings and crafts items using
eco- friendly materials. It provides skill development programme for the artists working for
them. It decides to spend 10% of its profits to build toilets for the rural people to support
‘swatch bharat Abhiyan’.
State the kind of social responsibility the company is trying to achieve by contributing to
‘Swatch Bharat Abhiyan’?
Solution:Discretionary Responsibility: this refers to purely voluntary obligation that an
enterprise assumes, for instance, providing charitable contributions to educational
institutions or helping the affected people during floods or earthquakes.

3. The fragrance deodorants are true classics in the company’s body care range. Whether the
customer prefer a spray or a roll-on, they are sure to find their favorite deodorant. The
company’s products namely sprays, roll-ons, atmoisers are affective against the body odour
and provides a long lasting feeling of freshness. But the fragrance deodorants while
advertising its range presents female in a derogatory manner which offends religious group
also.
Which kind of social responsibility is being neglected by the company?
Solution: Ethical responsibility
4. Info system limited is a global leader in technology services. The company enable clients in
45 countries to create and execute strategies for their digital transformation. The company
officials follow the vision of “reaching new heights with its people on its side”. It not only
provides quality products but also provides various facilities to its employees for 5years
service. While Info system foundation in India creates opportunities for the underprivileged
and strives to build a more equitable society.
On the basis of the given information about the Info system Ltd, answer the following
questions:
a) Is Info system Ltd. following the business ethics? Also define the business ethics
b) Identify the business group towards which the business is fulfilling its social
responsibilities.

Solution:

a) Yes, infosystem Ltd. is following business ethics. Business ethics refers to the moral
values or standards or norms which governs the activities of a businessman.
b) Infosyspem Ltd is fulfilling its social responsibilities towards employees and society.

5. Unfortunately as the saying goes ‘Everything that glitters is not gold, though BPO as an
industry looks bright and has huge untapped potential, the sector doesn’t seem to be very
attractive for BPO employees in long term for many reasons. BPO employees have to work
mostly on night shifts due to geographical differences, which is against nature. There are so
many adverse effects of it on personal as well as on professional life. Not to forget, BPO is a
choice of people who otherwise failed to get a secured job in Indian or Foreign MNC’s. Most
of the BPO companies in India supports the overseas operations and majority of the
employees have the night shifts. After working long time in night shifts employees get
frustrated. Even though employees work 5 days a week, for rest of the two days it is not
easy to sleep early as they have different sleeping timing.
On the basis of the given information about the outsourcing companies, answer the
following questions:
a) Specify the interest groups towards which the outsourcing companies is not fulfilling
its social responsibilities.
b) Enlist the social responsibilities to be discharged towards the group identified in part
(a).
c) Enumerate the values which the outsourcing companies have violated.

Solution:

a) The interest group towards which outsourcing companies is not fulfilling its social
responsibility its employees.
b) The various social responsibilities towards employees are:
I. Fair and regular wages. V. Training and development
II. Good working conditions VI. Job security
III. Opportunities to Workers for meaningful work.
IV. Right to form unions.
c) The values which the outsourcing companies has violated is concerned for the
employees’ health.
6. Nothing is more important to Reliance Ltd, than making sure that the company does what is
right and nothing puts it at risk more than failure to do it. In its code of conduct the company
is focused on the most important principles and expectations rather than specifying detailed
rules. It does not specify address every potential form of unacceptable faced with difficult
choices and that they will be guided by the good judgment. The above paragraph highlights
an important aspect which every business should follow.
On the basis of the given information about Reliance Ltd., answer the following questions:
a) Identify the important aspect that every business should follow like Reliance Ltd.
b) Discuss the important elements of the concepts identified in part (a).

Solution:

a) The important aspect that every business should follow like Reliance Ltd. is Business
Ethics.
b) The key elements of Business Ethics are:
i. Top management commitment: The CEO and higher level managers must
be committed to ethical norms of behavior. This would set an example for
all employers and encourage them to follow ethical practice.
ii. Publication of code: code of ethics is a formal written document of the
principles, values and standers that guide a firm actions. It may cover areas
like honesty, quality, safety, health care etc.
iii. Establishment of compliance Mechanism: a suitable mechanism should be
developed to comply with the ethical standards of the enterprise. The
mechanism should be properly communicated to all in the organization.
iv. Employee involvement: it is the employees of the lower levels who
implement ethical principle so they must be involved in the process of
developing ethical code.
v. Measuring results: Although it is difficult to measure the ethical results but
it must be verified and audited that have for work is being carried according
to the ethical standards.

CH 7 (Sources of Business Finance)

1. After reading an email about the upcoming public issue of preference shares of
National Solar Power Company, Rajeev made up his mind to invest money in the
issue. He discussed his plan with his uncle Mr. Ajay Menon who is a stock broker. He
advised Rajeev to invest in upcoming public issue of equity shares of National
Building Corporation of India.
Give any three reasons due of which Mr. Ajay Menon wants Rajeev to invest in
equity shares only:

Solution: Mr. Ajay Menon wants Rajeen to invest in equity shares due to following
reasons:
 a. Equity shares are suitable for investors who are willing to assume risk for
higher returns.
b. Democratic control over management of the company is assumed due to
voting rights of equity shareholders.
c. The return available to equity shareholders is more if the profits of the
company are high.
2. Electro Steel Tubes Ltd. is a multi- product company, manufacturing tubes and pipes
in exotic material and steel pipes, in wide ranges, for wide spectrum of applications.
It now wants to carter to the American market and decided to invest in new hi- tech
machines. Since the investment is large, the finance manager want to raise funds
through the financial instruments which can be issued to American nationals only.
and explain the source of finance used by company to meet its fund requirement.

Solution: The source of finance used by company to meet its fund requirement is
American Depository Receipts (ADRs).

American Depositary Receipts are the depository receipts issued by a company in

the USA. ADRs are bought and sold in American markets, like regular stocks. It can
be issued only to American citizens and can be listed and traded on a stock exchange
of USA.

3. Standard Chartered began its journey in the India in 1858, its local operations
coinciding with the start of the Crown rule in the subcontinent The London- listed
bank, had leveraged its 150- year history in India while pitching to investors the
opportunity to part- own the bank and participate in its global growth by issue of
shares in Indian Capital Market.
State the instrument through which it can raise funds from the Indian capital
market.

Solution: Indian Depository Receipt (IDRs): Indian Depository Receipts is a financial

instrument denominated in Indian Rupees in the form of a Depository Receipt. It is
created by an Indian Depository to enable a foreign company to raise funds from the
Indian securities market. IDRs are issued to Indian Residents in the same way as
domestic shares are issued.

4. Quest Corp a company dealing in electronics is planning to expand their business on

account of growing demand of consumers electronics. So the company requires
additional funds. The finance manager reported that company is not in a position to
bear extra burden of explicit cost and equity shareholders insisted not to issue more
shares as there is risk of losing control.
On the basis of the given information about Quest Corp., answer the following
questions:
a. Suggest a source of owner’s fund most suitable for the company.
b. Enlist the merits of source of owner’s fund identified in part (a).

Solution:

a. Retained earnings is the most suitable source of owner’s fund for the
company.
b. The merits of retained earnings as a source of finance are as follows:
 i. Retained earnings is a permanent source of funds available to the
company.
ii. It does not involve any explicit cost in the form of interest,
dividend or flotation cost.
iii. As the funds are generated internally, there is a greater degree of
operational freedom and flexibility.
5. Infosystem Ltd., a reputed company in India want to tap the large amount of funds
for its growth and expansion from London for long-term needs. It also needs money
for a period of less than three years to meet its medium as well as short- term
needs the company is following practice of educating and giving employment of
underprivileged females.
On the basis of the given information about Infosystem Ltd., answer the following
questions:
a) Explain GDR as a source of finance used by the company to meet its
requirement.
b) What is the role of European depository in GDR?
c) What instrument will be used if an European company wants to raise funds
from Indian financial market?

Solution:

a) Global depository receipts: GDR is an instrument issued abroad by an

Indian company to raise funds in some foreign currency and is listed and
traded on a foreign stock exchange. A holder of GDR can at any time
convert it into the number of shares it represents. The holders of GDRs do
not carry any voting rights but only dividends and capital appreciation.
b) The local currency shares of a European company are delivered to the
depository bank. Depository bank issues depository receipts against these
shares.
c) An European company planning to raise funds from Indian financial market
will issues Indian Depository Receipts (IDR).
6. Oasis lights Ltd. manufactures LED Bulbs. At present, it is a debt free company with
an equity capital of Rs. 50 Lakhs and general reserves of Rs. 35 Lakhs. It wants to
increase its manufacturing capacity and needs Rs. 40 Lakhs for it. The management
wants to use a combination of internal source of funds of finance this expansion
programme.
Specify the most appropriate source of funds suitable for the company to finance its
expansion programme.
Solution: The most appropriate source of funds suitable for the company to finance
its expansion programme are:
a) Retained earnings: A company generally does not distribute all its earnings
amongst the shareholders as dividends. A portion of the net earnings is
retained in the business for use in the future. This is known as retained
earnings. It is a source of internal financing of self-financing or ‘ploughing
back of profits’. Retained earnings is a permanent source of funds available
to an organisation. It does not involve any explicit cost in the form of interest,
dividend or floatation cost. As the funds are generated internally, there is a
greater degree of operational freedom and flexibility.
b) Debentures: A company can raise funds through issue of debentures, which
bear a fixed rate of interest. The debenture issued by a company is an
acknowledgment that the company has borrowed a certain amount of
 money, which it promises to repay at a future date. Debenture holders are,
therefore, termed as creditors of the company. As debentures do not carry
voting rights, financing through debentures des not dilute control of equity
shareholders on management. Financing through debentures is less costly as
compared to cost of preference or equity capital as the interest payment on
debentures is tax deductible.
7. Ratnamani metals & tubes Ltd. is a multi-location, multi-product company,
manufacturing tubes and pipes in stainless steel/exotic material in wide size ranges,
for wide spectrum of applications. It now wants to cater to the Asian market and
decided to invest in new hi-tech machines. Since the investment is large, the finance
manager wants to raise funds through cheapest long-term source of finance.
On the basis of the given information about Ratnamai Metals & Tubes Ltd., answer
the following questions:
a) Identify and explain the source of finance to be used by company to meet
its funds requirement.
b) State any four merits of the source of finance identified in part (a).

Solution:

a) Debentures are an important instrument for raising long term debt

capital. A company can raise funds through issue of debentures,
which bear a fixed rate of interest. The debentures issued by a
company is an acknowledgment that the company has borrowed a
certain amount of money, which it promises to repay at a future
date.
b) The merits of raising funds through debentures are as follows:
i. It is preferred by investors who want fixed income at lesser risk.
ii. Debentures are fixed charge funds and do not participate in
profits of the company.
iii. As debentures do not carry voting rights, financing through
debentures does not dilute control of equity shareholders on
management.
iv. Financing through debentures is less costly as compared to cost
of preference or equity capital as the interest payment on
debentures is tax deductible.
8. Automotive systems corporation Ltd. is one of the largest suppliers of road vehicles
electronic and mechanical security system. The company has a diversified product
portfolio encompassing from mechanical and electronic security system, electronic
controllers for electric vehicles and plastic interiors across the globe. The company
plans to set up a new unit to manufactures die casting parts and high class surface
finishing parts for auto and consumer durable industry.
The company needs rupees seventy crore as additional capital to fund its new unit.
Atul Jalan, the CEO of the company wanted to raise funds through issue of equity
shares. On the other hand, the Finance Manager Nimi Sahdev said that the public
issue may be expensive on account of various mandatory and non-mandatory
expenses. Therefore, it was decided to borrow from a special financial institutions.
On the basis of aforesaid information, answer the following questions:
a) Identify and explain the source of fund used by company to its new unit.
b) State any two merits of raising funds through the source specified in part
(a).
 c) State any two demerits of raising funds through the social specified in part
(a).

Solution:

a) Loans from financial institution: The government has established a number

of financial institutions all over the country to provide finance to business
organisations. These institutions are established by the central as well as
state governments. They provide both owned capital and loan capital for
long and medium-term requirements and supplement the traditional
financial agencies like commercial banks. As these institutions aim at
promoting the industrial development of a country, these are also called
‘development banks’.
b) The merits of raising funds through financial institutions are as follows:
i. Financial institutions provide long-term finance, which are not
provided by commercial banks.
ii. Besides providing funds, many of these institutions provide financial,
managerial and technical advice and consultancy to business firms.
c) The demerits of raising funds from financial institutions are given below:
i. Financial institutions follow rigid criteria for grant of loans. Too
many formalities make the procedure time consuming and
expensive.
ii. Financial institutions may have their nominees on the board of
directors of the borrowing company thereby restricting the powers
of the company.
9. VTM textile Mills is one of the largest manufacturer of various types of textiles
products from Ahmedabad, Gujarat. The company is equipped with state-of-the-art
dyeing printing, and processing and garmenting facilities. Due to slackness in the
market demand company is facing shortage of funds.
The company needs funds for meeting its day to day expenses like daily wages and
overhead etc. The finance manager of the company approach one of its suppliers to
grant two months credit on purchase of raw cotton. This would enable the company
to get cotton supplies without making immediate payment.
On the basis of the given information about VTM Textile Mills answer the following
questions:
a) Identify and explain the source of finance highlighted in the above case.
b) Explain any four merits of the source of finance identified in part (a).

Solution:

a) Trade credit is the credit extended by one trader to another for the
purchase of goods and services. Trade credit facilitates the purchase of
supplies without immediate payment. Trade credit is commonly used by
business organisations as a source of short-term financing. It is granted to
those customers who have reasonable amount of financial standing and
goodwill.
b) The important merits of trade credit are as follows:
i. Trade credit is a convenient and continuous source of funds.
ii. Trade credit may be readily available in case the credit worthiness of
the customers is known to the seller.
iii. Trade credit needs to promote the sales of on organisation.
 iv. Trade credits does not create any charge on the assets of the firm
while providing funds.
10. Emami paper mills, a part of Emami Group, specializes in the manufacture of
newsprint, writing and printing paper and multilayer coated board. Emami paper
Mills had been successful in increasing capacity of multi-layer coated board
manufacturing unit at Balgopalpur in Odisha at an estimated cost of Rs. 650 crore,
Encouraged by good market response and growth in packaging sector, the company
is now conceptualising another big ticket expansion in the form of similar plant at
Balasore with somewhat similar capacity is looking for a suitable source of finance.
On the basis of aforesaid information about Emami paper Mills, answer the
following questions:
a) Specify the most suitable source of fund for meeting the financial
requirements of Emami paper mills.
b) State any two merits of raising funds through the source specified in part (a).
c) State any two demerits of raising funds through the source specified in part
(a).

Solution:

a) Public deposits is most suitable source of fund for meeting the financial
requirements of Emami paper Mills.
b) The merits of public deposits are as follows:
i. The procedure of obtaining deposits is simple and does not contain
restrictive conditions as are generally there in a loan agreement.
ii. Cost of public deposits is generally lower than the cost of
borrowings from banks and financial institutions.
c) The demerits of public deposits are as follows:
i. New companies generally find it difficult to raise funds through
public deposits.
ii. It is an unreliable source of finance as the public may not respond
when the company needs money.
11. Daffodils Tech Ltd. is a software engineering company, a technology partner to
many dynamic organisations across the globe. The company ability to look beyond
technologies and deliver innovative and progressive solutions has been lauded by
its clients as well as the tech community worldwide.
The company experiment with the latest technologies, design approaches and
development methodologies o build cutting edge software products.
The company has issued equity and preference shares to meet its financial
requirements.
Other sources of finance have not been considered for fund raising. This has
resulted in payment of large amount of taxes to the government. The company
wants to seek tax benefits and hence approaches its financial consultant for an
advice.
On the basis of the given information about Daffodils Tech Ltd., answer the
following questions:
a) Why does issue of preference shares do not provide tax benefits to the
company?
b) List ant two sources which will provide such benefit to the company.
c) State any two merits and demerits of sources of funds specified in part (b).

Solution:
 a) The issue of equity and preference shares do not provide tax benefits to the
company because the dividend paid is not deductible from profits as
expense. Thus, there is no tax saving as in the case of interest on
borrowings.
b) The sources which provide tax benefit to the company are:
i. Debentures.
ii. Loans from commercial banks.
c)
i. The merits of raising funds through debentures are as follows:
 As debentures do not carry voting rights, financing through
debentures does not dilute control of equity shareholders
on management.
 Financing through debentures is less costly as compared to
cost of preference or equity capital shareholders on
management.
ii. The demerits of raising funds from a commercial bank are as
follows:
 Banks provide timely assistance to business by providing
funds as and when needed by it.
 Secrecy of business can be maintained as the information
supplied to the bank by the borrowers is kept confidential.
12. Started in 2002 as an electrical-contracting Agency by Mr. Surinder Singh, Amber
Electrotech has now evolved into a full-fledged turnkey solution provider with
activities ranging from substation, internal and external electrification for
conventional as well as high end solutions. Amber Electrotech works with an aim to
provide best-in-class electrical-services for internal and external electrification and
substation jobs at highly competitive prices.
With a highly-passionate team of engineers on board, amber Electrotech believes in
not only meeting customer expectations, but to exceed them by miles. Right now,
the company needs large amount of funds to a new electrical substation project of
western railways for which it received some advance from railway department.
Currently the company is incurring very high fixed operating costs. So, the company
needs funds to meet its working capital requirements.
On the basis of the given information about Amber Electrotech, answer the
following questions:
a) Suggest two sources through which amber Electrotech can meet its working
capital requirement.
b) State two merits and demerits of any one the source specified in part (a).

Solution:

a) The sources through which Amber Electrotech can meet its working
capital requirements are:
i. Trade credit
ii. Loans from commercial banks.
b) The merits of trade credit are as follows:
i. Trade credit is a convenient and continuous source of
funds.
ii. Trade credit may be readily available in case the credit
worthiness of the customers is known to the seller.
 The demerits of trade credit are as follows:

i. Availability of easy and flexible trade credit facilities may

induce a firm to indulge in overtrading, which may add
to the risks of the firm.
ii. Only limited amount of funds can be generated through
trade credits.

13. Joseph Harry wants to set up a business of manufacturing stationery items. But he is
an amateur in the field of business and thus decides to use the services of a
consultancy firm. The consultancy firm helped Joseph Harry is preparing a blue print
of his proposed business idea. This helped Joseph Harry to know about his financial
requirements of business. The consultancy firm suggested Joseph Harry to meet the
financial requirements of business by introducing his own funds and taking a loan
from a banking institution.
On the basis of the given information about Joseph Harry, answer the following
questions:
a. What is business finance? Explain in brief, the need of the finance for a
business firm.
b. Identify and explain the two categories of fund suggested by the
consultancy firm.

Solution:

a. Money required for carrying out business activities is called business

finance. Almost all business activities require some finance. Availability of
adequate finance is very crucial for survival and growth of a business.

A business firm needs finance for following two purposes:

i. Finance is needed to establish a business, to run it to modernize it

expand or diversify it. It is required for buying a variety of assets,
which may be tangible like machinery, furniture, factories, buildings,
offices or intangible such as trademarks, patents, technical expertise
etc.
ii. Finance is needed for day to day operations of business like buying
materials, paying bills, salaries, collecting cash from customers etc.
needed at every stage in the life of a business entity.
b. The two categories of fund suggested by the consultancy firm:
i. Owner’s Fund: Owner’s funds means funds that are provided by the
owners of an enterprise. The owner’s capital remains invested in the
business for a longer duration and is not required to be refunded
during the life period of the business. Equity share and retained
earnings are the two important sources from where owner’s funds
can be obtained.
ii. Borrowed Funds: Borrowed funds refer to the funds raised through
loans or borrowings. The sources for raising borrowed funds include
loans from commercial banks, loans from financial institutions, issue
debentures, public deposits and trade credit. Such sources provide
funds for a specified period, on certain terms and conditions and
have to be repaid after the expiry of that period. A fixed rate of
 interest is paid by the borrowers on such funds. Generally,
borrowed funds are provided on the security of some fixed assets.
14. Steel India Limited is manufacturing steel at its plant in India. It is enjoying a
buoyant demand for its products as economic growth is about 7%- 8% and the
demand for steel is growing. It is planning to set up a new steel plant to cash on the
increased demand it is facing. It is estimated that company will require about Rs.
5000 crores to set up the plant and about Rs. 50 crore for power, fuel and operation
of the new plant.
On the basis of the given information about steel India limited, answer the following
questions:
a) Identify and explain the two types of capital requirements specified
above by quoting lines from the case.
b) State the two factors that affect the requirements of each of the
two types of capital as identified in part (a).
Solution:
a) The two types of capital Requirements of the company are:
i. Fixed capital requirements: In order to start business, funds
are required to purchase fixed assets like land and building,
plant and machinery, and furniture and fixtures. This is
known as fixed capital requirements of the company.
Lines: ”Company will require about Rs 5000 crores to set up
the plant.”
ii. Working capital requirements: the financial requirements of
a company do not end with procurement of fixed assets. No
matter how small or large a business is, it needs funds for its
day-to-day operations. This is known as working capital of
the company, which is used for holding current assets and
for meeting current expenses
b) The factors that affect the requirements of fixed and working
capital are:
i. Nature of business: a manufacturing concern requires more
fixed and working capital as compared to trading concern.
ii. Growth and expansion: The requirement for fixed and
working capital increases with the growth and expansion of
the company.
15. Greentech paints India has started preliminary work for expansion of water based
paint and resin manufacturing plant in Goa with the amount available in the general
reserves of the company. The board of directors of Greentech paints India has
decided to install a new water based paint plant with a capacity of about 1 lakh
tonnes per annum in South India at an estimated cost of rupees five crore, but are
unable to deecide whether to issue equity shares or debentures for this purpose.
As a finance manager of the company you are required to advise the directors to
raise money through issue of equity shares debentures for the aforesaid purpose.

Solution: let us compare the merits and demerits of equity shares and debentures
for the company before advising the directors about the most appropriate source of
finance.

a) Equity shares:
 The merits of raising funds through issuing equity shares are given
below:
i. Payment of dividend to the equity shareholders is
not compulsory. Therefore, there is no burden on
the company.
ii. Equity capital is a permanent source of capital as it
is to be repaid only at the time of liquidation of a
company.
iii. Funds can be raised through equity issue without
creating any charge on the assets of the company.
The assets of a company are, therefore, free to be
mortgaged for the purpose of borrowings.

The major limitations of raising funds through issue of

equity shares areas follows:

i. The cost of equity shares is generally more as

compared to the cost of raising funds through other
sources.
ii. Issue of additional equity shares dilutes the voting
power, and earnings of existing equity shareholders.
b) Debentures:
The merits of raising funds through debentures are as follows:
i. Debentures are fixed charge funds and do not participate in
profits of the company.
ii. As debentures do not carry voting rights, financing through
debentures does not dilute control of equity shareholders
on management.
iii. Financing through debentures is less costly as compared to
cost of preference or equity capital as the interest payment
on debentures is tax deductible.

The demerits of raising funds through debentures are as follows:

i. As fixed charge instruments, debentures put a permanent

burden on the earnings of a company. There is a greater risk
when earning of the company fluctuate.
ii. With the issue of debentures, the capacity of a company to
further borrow funds reduces.
The decision of the directors to install a new water based
paint plant in South India at an estimated cost of rupees five
crore is not a risky project. So the company should issue
debentures for raising the funds due to the relative
advantages of this source over equity shares.

CH 8 (Small Business)
1. Shivani had set up a tiny industrial unit in her village in Andhra Pradesh for
manufacturing clothes for kids. Her total investment in sewing and embroidery
 machinery is about Rs. 5,93,000. She availed the tailoring services of the local
people who belong to the weaker sections of the society.
State the category into which her tiny industrial unit will be placed as per the Micro,
small and medium Enterprise Development Act, 2006.

Solution:Micro Manufacturing Enterprise

2. Shalini Khanna is a jewellery designer, she started her career from the scratch and
took advanced designing course at jewellery designing boutique providing designing
advice related to small decorative items worn for personal adornment, such as
brooches, rings, necklaces, earnings, pendants, and bracelets with an investment of
Rs 20,00,000 in boutique equipments. Being an experienced jewellery designer,
Shalini Khanna focuses on maintaining the originality and creativity of the
ornaments that are custom designed by her.
State the category into which jewellery designing boutique will be placed as per the
Micro, small and medium Enterprise Development Act, 2006.

Solution: Small service enterprises.

3. Rakesh Virmani started Railrestra, an e-catering company that directly connects

railway passengers with restaurants with an intial investment of Rs. 2crore.
Railrestra is India’s first online meal booking platform for railway passenger with
wide coverage to builds up a link between passenger and restaurants of the route
and thus facilitating online food ordering in train, which is delivered on the
passenger seat itself. Now respective passenger’s can enjoy cuisines from different
cities like vegetarian, non-vegetarian, North Indian, South Indian, Gujarati, Chinese,
Biryani, pizza or Fast foods The company has proved to be a boom for the
Passengers travelling from the train in which no pantry car has been provided.
Identify and explain the category into which Railrestra will be placed as per the
Micro, small and medium Enterprise Development Act, 2006.

Solution: Small service enterprises.

4. Zaclon lighting enterprise has been involved in to the production of wide range of
consumer durable utility products including LED lighting products of immense use
and applications since its inception in 2007. The total investment in plant and
machinery is about Rs. 4,50,00,000. The product list comprises of LED Torch-both
normal standard type and Rechargeable versions, Rechargeable Bulb Torch, Non-
chargeable and rechargeable LED lamp and lantern, USB fan and USB fan with LED
etc. The products of enterprise are highly acclaimed for their superior performance
efficacy. The products are well known for their superior quality and durability and
has helped the enterprise to earn a long list of satisfied customers.
Identify and explain the category into which Zalcon Lighting Enterprise will be
placed as per the Micro, small and medium Enterprise Development Act, 2006.

Solution: Small manufacturing enterprises.

5. Gauri had set up Gauri Plastics in the Year 1984, with just one injection moulding
machine and one single mould. Her emphasis on quality and innovation quickly won
Gauri plastics the trust of thousands of customers. Today her enterprise had many
moulding machines with a capital investment of around Rs. 9crore. The enterprise
 extensive provides a wide range of products like bathroom accessories,
kitchenware, utility products, containers etc. to its customers.
On the basis of the given information about Gauri plastics, answer the following
questions:
a) Identify the category into which Gauri Plastics will be placed as per
the Micro, small and medium Enterprise Development Act, 2006.
b) Explain the category into which Gauri Plastics will be placed as per
the Micro, small and medium Enterprise Development Act, 2006.

Solution:

a) Medium manufacturing enterprises.

b) Medium manufacturing enterprises: It is an enterprise where the
investment in machinery is more than Rs. 5crore rupees but does
not exceed Rs. 10crore rupees.
6. Madhulika, a dropout from 10th standard is forced by her mother to start working as
a domestic help. Madhulika agrees on the condition to do only cooking in 2-3
houses. One family turns out to be Punjabi, other Gujarati, and the third one is
Rajasthani. She cooked their kind of food for a year and to everyone’s surprise, she
expressed her desire to open up a small eating joint of her own. All alone,
determined, she finally opens Apni Rasoi, a small eating joint with her savings. It
became a hot spot because of the fusion food platter being offered by Madhulika.
Do you think Madhulika is an entrepreneur? Give reasons in support of your
answers.

Solution: Yes, Madhulika is an entrepreneur because of following reasons:

i. Madhulika’s one year occupational experience provides her confidence to

start her own business.
ii. She converted her hobbies into reality by sheer hard-work and application
of mind.
iii. Her desire to work independently and potential efforts, helped her to
reduce the element of uncertainty.
iv. She is an innovator of idea, products, practises, services to meet the
perceived opportunity, a lot of effort has done by Madhulika to convert her
dream into reality.
7. You are an entrepreneur who is deciding the operational plan for your business.
While deciding for the technology to be used, you come across two alternatives:
a) Use a cheaper technology which lets you dispose of the waste water and
lets you fix the price of your product low.
b) Use a technology that is a little expensive as it lets you recycle that waste
into water fit for drinking. In this case you will have to fix the price a little
higher in order to earn profits.
c) Use the technology that recycles the waste, do not change the price. And go
about cost cutting through efficient utilization of resources.

As an entrepreneur select the best alternative. Give reasons in support of your

answers.

Solution:As an entrepreneur I will go for the third alternative i.e. alternative C

because of following reasons:

a) Alternative C indicates the efficient utilization of resources.

 b) Alternative C will ensure proper utilization and re-utilisation of resources.
c) Alternative C reflects the entrepreneur’s concern for environment.
8. Endless Robotics was started in 2016 with the vision of making intelligent robots
that can be used by people, businesses, industries and governments across the
world to solve problems that directly or indirectly impact quality of human
resources, capital, environment and global lifestyles. This company is working
towards innovation, development or commercialisation of processes driven by
technology.
This company drive and integrated advances in robotics, computer vision,
mechanism design and material sciences to build system, products, solutions and
services that revolutionize everyday life for people across the world. This company
with the simple mindset of helping the world make a seamless transition into the
industrial revolution.
On the basis of the given information about endless Robotics, answer the following
questions:
a) Identify under which flagship initiative of the government of India endless
Robotics was started.
b) State the meaning of enterprise established under the flagship initiative of
the government of India.

Solution:

a) The start-up India scheme is a flagship initiative of the government of India

under which endless robotics was started.
b) A start-up means:
i. An entity incorporated or registered in India.
ii. Not older than five years.
iii. Annual turnover does not exceed Rs. 25Crore in any preceding year.
iv. Working towards innovation, development or commercialisation of
products/ services/processes driven by technology or IPRs and
patent.
9. An individual wants to start an enterprise that manufactures steam iron with raw
materials, which can be imported from Germany. The material available in Germany
is of better in quality. However, there are no safety issues with the one available in
India.
Which material would you go for and why? Give reason in support of your answers.

Solution:As an entrepreneur I will go for the material available in India because of

following reasons:

i. It is the social responsibility of the entrepreneur to go for the betterment

and the development of the country.
ii. This will also mean that the entrepreneur is going for import-substitution.
This will save the precious foreign exchange for the country.
iii. By import substitution he will be fulfilling the requirement of the people,
indicating that he cares for the society and the problems of the people.
10. After doing her M.com from ‘Himachal Pradesh University of Shimla’,Komalika went
back went back to her village in Kinnaur district of Himachal Pradesh. She wanted
to contribute for the development of women of her village. So she formed an
organisation, the membership of which was open for all the women villagers on a
voluntary basis by paying Rs 500 only which will be treated as their capital.
 Komalika knew that the land of her village was suitable for the farming of medicinal
plants. So she motivated the members of her organisation for growing medicinal
plants in their fields under the guidance and help of the local agricultural
department. It was also decided that the organisation will purchase the produce of
each member and sell the same to drug manufacturing companies at a very good
price which was not possible for the members individually. The main objective of
the organisation is to render services to its members rather than to earn profit. A
computer training center for young boys and girls of the village was started under
the guidance of Komalika from the surplus of the profits.
On the basis of the given information about Komalika, answer the following
questions:
a) Name the process that helped Komalika in developing an idea into an
opportunity.
b) Identify the kind of organisation that was formed by Komalika.
c) State any two values which Komalika wanted to communicate to the
society.

Solution:

a) Enterpreneurship.
b) Co-operative society form of business organisation.
c) Two values which Komalika wanted to communicate to the society are:
i. Social Responsibility
ii. Sensitivity to environment.
11. Karan, a rural boy, identifies the potential of Organic Farming in the village. He
meets the zonal agricultural officer, who, looking at the determination of organic
farming. The zonal agricultural officer helps him to arrange and procure multiple
resources required for his farm land. Karan takes a loan of Rs 50,000 from SBI as his
seed money of Rs 10,000 is not enough to cater the requirement. Karan ties up with
a nearby city’s vegetable shop owner to sell his yield. His hard work pays and the
organic vegetables are a hit.
Do you think Karan, organic vegetables producer exhibits good entrepreneurial
skills? Give reasons in support of your answers.

Solution: Yes, Karan, organic vegetables producer exhibits good entrepreneurial

skills.

An entrepreneur is a person who starts an enterprise and converts a situation into

opportunity. He searches for change and responds to it. Entrepreneurship is the
freedom to do what one likes to do. It is a passion and all about commercial risks. A
true entrepreneur uses not only his senses one to five, but six, seven, eight and nine.
Six to nine do not really exist, but he develops them through his exposure,
experience, failures and following the concept of listening to understanding.

12. ITC Ltd/ challenged Britannia Industries Ltd. For the use of their trade secret of no
added sugar and no maida in a range of their biscuits named Sunfeast Farmilte
Biscuits. As per the former co, latter co’s product Nutrichoice Digestive Zero was
also a no added sugar and no maida product and also had a packaging which was
 deceptively similar to product packaging of Sunfeast Farmlite. Allegedly, both the
products were being sold in the colour combination of yellow and blue.
On the basis of the given information about ITC Ltd., answer the following
questions:
a) Which concept of business protection laws can help ITC Ltd. to protect
themselves against Britannia Industries?
b) What is the basic purpose served by the above identified concept?

Solution:

a) Intellectual Property Rights Laws can help ITC Ltd. to protect themselves
against Britannia Industries.
b) The basic purpose served by Intellectual Property are:
i. It encourages creation of new, path breaking inventions, such as
cancer cure medicines.
ii. It incentivises inventors, authors, creators, etc., for their work.
iii. It allows the work created by a person to be distributed and
communicated to the public only with his/her permission.
Therefore, it helps in the prevention of loss of income.
iv. It helps authors, creators, developers and owners to get
recognition for their works.

13. When J.K. Rowling wrote the first Harry Potter book, she was poor but she owned
the copyright in her book. So, she was the only person allowed to make copies of
the book and sell them. Of course, she didn’t do this herself. She gave permission to
a publishing company to do it in return for payment.

But she didn’t just own copyright in the words, she owned copyright in the story
and the characters. So, her copyright also meant she was the only person with the
right to produce and sell a film of her story. Again, she didn’t do this herself. She
gave permission of a film production company to make and sell the film in return for
payment. Without copyright, anyone else could have printed copies of the book as
soon as it was published. And anyone could have copied the film or shown it in
cinemas. Those people could have made money from the story without the author
benefiting.

On the basis of the given information about J.K. Rowling, answer the following
questions:

a) Which concept has restricted anyone else to use the film or shown it
in cinemas?
b) Explain the advantages that an individual can derive from the above
identified concept?

Solution:

a) Intellectual Property Right laws has restricted anyone else to use the
film or shown it in cinemas.
b) The advantages that an individual can derive from Intellectual
Property are:
i. It encourages creation of new, path breaking inventions.
 ii. It incentivises inventors, authors, creators, etc., for their
work.
iii. It allows the work created by a person to be distributed and
communicated to the public only with his/her permission.
Therefore, it helps in the prevention of loss of income.
iv. It helps authors, creators, developers and owners to get
recognition for their works.
14. A landless woman from Bihar has been nominated among the top 25 farmers in
Asia by a Mexican website. Forty five years old Lalmuni Devi was a daily wage
labourer when she decided to take destiny into her own hands and transformed
herself into a successful mushroom farmer. Today she manages to make Rs 12,000
every year for an investment of only Rs 600. Her feat finds mention on a Mexican
website that has grouped her as the top 25 inspirational farmers in its photo gallery.
“I am a poor woman. I thought that mushroom farming would profit hence forth I
started it Now, I can earn a living for my family”, said Lalmuni Devi. The success
story has caught on with many women in the Azadpur village on the outskirts of
Patna. “It is effortless farming, which we can even do in our village. Working in the
scorching heat is very tiring. Mushroom farming generates more profit”, said Urmila
Devi.
Lalmuni and other landless women have been encouraged by the Indian council for
agriculture research to take up Mushroom farming. It is to help the poorest of the
poor through alternative livelihood support system. For that we have chosen a
village where people have no land and they have to share croppers’, said Dr. A.R.
Khan, principal Scientist, ICAR, Patna. Lalmuni’s efforts have paved the way for
many other landless women to take up mushroom farming and earn a livelihood for
their family with little effort.
On the basis of the given information about Lalmuni Devi, answer the following
questins:
a) What inspiring feat did Lalmuni Devi perform?
b) Do you feel that you can also become an entrepreneur?
c) What qualities of entrepreneur did Lalmuni Devi exhibit?

Solution:

a) A forty five year old woman Lalmuni Devi from Bihar was a daily wage
labourer, then she decided to transform herself by starting mushroom
farming. This step proved an inspirational step and she was among the top
25 farmers in Asia by Mexican website.
b) Lalmuni efforts have paved the way for others. Similarly, we can also
become an entrepreneur and for that we should have following qualities:
i. Initiate the business.
ii. Grab the opportunities.
iii. High quality work
iv. Efficiency
v. Risk taking abilities
vi. Concern for employee’s welfare
c) Lalmuni have following qualities:
i. She recognised the opportunity and grab it.
ii. She managed efficiently and effectively.
iii. She was a chaser and faced the difficulty
 iv. She was self-confident.
v. She took required steps to solve the problems.
15. Sheela had set up a small scale industry in her village in Andhra Pradesh for
manufacturing handicraft items. She decided to hire local women from their nearby
locality for increasing their production. But the problem with her business was that
it had a small capital base. So, she could not afford to pay higher salaries to the
employees, which affected their willingness to work and produce more. She had
sound technical knowledge but was not successful in marketing the output. Due to
limited demand for her handicraft items, the business firm has to operate below full
capacity leading to increase in operating expenses.
Identify the four problems of small scale business discussed in the above case. Also
quote the lines for the identified problems.

Solution: The four problems faced by small scale industry of sheela are:

i. Non-availability of adequate finance to carry out its operations.

Lines : “but the problem with her business was that it had a small capital
base.”
ii. Lower remuneration offered, attracting talented people is a major problem.
Lines : “she could not afford to pay higher salaries to the employees, which
affected their willingness to work and produce more.”
iii. Marketing is a weaker area of small organisations.
Lines : “she had sound technical knowledge but was not successful in
marketing the output.”
iv. Small business firms have to operate below full capacity due to which their
operating costs tend to increase.
Lines : ”due to limited demand for her handicraft items, the business firm
has to operate below full capacity leading to increase in operating
expenses. ”
16. After completing her graduation from ‘summer hills university of Shimla’, Hemlata
went back to her village in kangra district of Himachal Pradesh. She wants to start a
small scale unit for manufacturing hand bags and jute bags by employing women
from her villages. The head of gram panchayat advised her to seek help of
government since there are number of government incentives and agencies for
small units.
On the basis of the given information about Hemlata, answer the following
questions:
a) Enlist few incentives offered by the government to small scale industries.
b) Enumerate the main institutions established by the government to render
help to small scale industries.

Solution:

a) The incentives offered by the government to small scale industries are:

i. Land: Availability of land at concessional rates.
ii. Power: supply of power at 50% and even exemption of payment
of power.
iii. Water: water is supplied at no profit, no loss.
iv. Sales tax: exemption from sales tax for 5 years.
v. Raw material: raw materials are supplied on priority basis.
vi. Finance: loan are offered at concessional rates.
 vii. Tax holiday: Loans are offered at concessional rates.
viii. Reservation: 800 items are exclusively reserved to be produced
only by SSI’s.
b) The main instituions established by the government to render help to small
scale industries are:
i. National small industries corporation.
ii. District industries centres.

Chapter 9 (Internal Trade)

1. Sanjana went to a retail shop to buy a perfume. She was surprised by the
salesman’s behaviour towards him. The salesman was so kind to her and showed a
concern for her product requirements. Sanjana got so impressed with effective
display of products and the personal selling efforts of this salesman that she
purchased a perfume and a fairness kit without any plan to buy it. She also referred
this salesman to her friends because of his courteous behaviour.
Identify and state the service of retailer towards consumer highlighted in aforesaid
instance.

Solution: The service of retailer towards consumer is products information.

Retailers provided important information about the arrival, special features, etc., of
new products to the customers by arranging for effective display of products and
through their personal selling efforts. This serves as an important factor in the
buyers decision making process.

2. Prakash is a pretty trader who carry different varieties of fruits on his hand cart and
move from one colony to another to sell his merchandise at the doorstep of the
customers. State giving reason the type of retailer and its category under which
Prakash should be placed.

Solution: Prakash is an itinerant retailar (hawker) because he does not have fixed
place of to operate from. He keep on moving with his goods from one colony to
another in search of customers.

3. Pradeep is a pretty trader who sells newspapers and magazines near janpath metro
station, where huge floating population gathers. He did not change his place of
business so frequently.
State giving reason the type of retailer and its category under which Pradeep should
be placed.

Solution: Pradeep is an itinerant retailer because he does not have a fixed place of
business to operate from. He is a street trader as he is located at a place where
huge floating population gathers. He does not change his place of business
frequently.

4. Knowledge is priceless but the books come with a bill. The bookshop, dealer of used
books is committed to bring to buyers the best of the brilliant from the world of
written text, at prices which are literally a steal. The bookshop assures that now the
buyer have to never scan to the price tag again as you pretend to read the
preference .
 State giving reason the type of retailer and its category under which the bookshop
should be placed.

Solution: The bookshop is a fixed shop small retailer. The category under which the
bookshop should be placed is second-hand goods shop because the shop deals in
used books, generally persons with modest means purchase books from this shop.
The books are sold at lower prices.

5. Ethos Ltd., is an authorized retailer selling several luxury watch brands. Every watch
that Ethos sells comes with the brand warranty and also places its Ethos stamp.
Well enjoyable and unforgettable experience. Now, Ethos Ltd. with an outlet of
watches exclusively for men at Lajpat Nagar, Delhi, is planning to open a branch in
Rohini, Sector 13 to meet the increasing demand. It operates with the polic of cash
sales and is very particular about the timings of the store.
On the basis of the given information about Ethos, Ltd., answer the following
questions:
a) Quoting the lines from the above paragraph, identify the type of fixed shop
small retailing business of Ethos Ltd.
b) Which type of fixed shop large retailing business is Ethos Ltd. planning to
engage in? Also, state any two features of the same business.

Solution:

a) Ethos Ltd. is specialty shops as instead of selling a variety of products of

different types, this store specializes in the sale of a specific line of products.
Lines: “Ethos Ltd. is an authorized retailer selling several luxury watch
brands”
b) Ethos Ltd. planning to start the multiple chain store.
The features of multiple chain store are:
i. These shops are located in fairly populous localities, where sufficient
number of customers can be approached. The idea is to serve the
customers at a point which is nearest to their residence or work
place, rather than attracting them to a central place.
ii. The prices of goods in such shops are fixed and all sales are made on
cash basis. The cash realised from the sales of merchandise is
deposited daily into a local bank account on behalf of the head
office.
6. Dinesh is a needy boy. His mother works as a house help in some houses nearby her
cottage. Dinesh doesn’t go to school and wanted to help her mother by making
some money. Dinesh borrowed Rs 500 from his friend and bought some cheap
plastic toys to sell it near the parks in evening.
On the basis of the given information about Dinesh, answer the following questions:
c. Identify the type of itinerant retail work Dinesh is doing.
d. State the various types of itinerant not identified in part (a).

Solution:

a. The type of itinerant retail work Dinesh is doing is peddling.

b. The types of itinerant retailers not specified in the case are:
i. Market Traders
ii. Street Traders
 iii. Cheap Jacks
7. Identify the main documents used in internal trade:
a. A confirmed purchase order containing the term and condition on which
buyer and seller agree on the product detail and cost.
b. This document is an evidence of contract between buyer and seller. This
document contains detailed description of goods quantity, price, total value,
term of payment etc.
c. A document of title issued by the transporters when goods are sent by
roadways.
d. A document of title issued by the railway authorities when goods are sent by
railways.

Solution:

a. Perform Invoice
b. Commercial Invoice
c. Lorry Receipt
d. Railway Receipt
8. Safe Electronics, an European company manufacturing washing machines wish to
expand its product line by launching new products in India namely air conditioners
and refrigerator. Out of the list of authorised dealers the company selected a
twenty five year old, electronic wholesale firm whose proposals was very
competitive. This wholesale firm of washing machines took the services of Rohit
Enterprises to sell washing machines at competitive price in Delhi. Rohit informed
wholesales firm that the consumers of Delhi wish to buy vacuum cleaner of same
brand. He assured wholesale firm that he will take appropriate steps to implement
the company’s promotional schemes and offers from time to time.
On the basis of the given information about Safe Electronic, answer the
following questions:
a) Explain two services rendered by Rohit Enterprises to wholesale firm
which are highlighted in the above case.
b) Explain two services rendered by Rohit Enterprises to the consumers.

Solution:

a. The services rendered by Rohit Enterprises to wholesale firm are:

i. Collecting Market information: As retailers remain in direct and
constant touch with the buyers, they serve as an important
source of collecting market information about the tastes,
preferences and attitudes of customers. Such information is
considered very useful in taking important decisions in an
organisation.
ii. Help in Promotion: From time-to-time, Manufacturers and
distributors have to carry on various promotional activities in
order to increase the sale of their products. For example, they
have to advertise their products and offer short-term incentives
in the form of coupons, free gifts, sales contests, and so on.
b. The services rendered by Rohit enterprises to the consumers are as
follows:
i. Regular Availability of products: The main service of a retailer to
consumers is to maintain regular availability of various products
 produced by different manufacturers. This enables the buyers to
buy products as and when needed.
ii. Convenience is buying: Retailers buy goods in large quantities
and sell these in small quantities, according to the requirements
of their customers. They are normally situated very near to the
residential areas and remain open for long hours. This offers
convenience to the customers in buying products of their
requirements.
9. Vedantika Industries produces a wide variety of beauty products. Their range of skin
polishing scrubs, shampoos, face washes and acne masks, and healthy drinks aids in
promoting natural beauty is very promising and impressive. Since they were new in
the market, they decided to sell their products through wholesalers. They
appointed one wholesaler in each district and promised them that they will remain
the exclusive dealers in that area. After few years, during one of the general
meeting Sophia, newly appointed sales manager suggested that if they sells the
product directly to retailers they will be able to offer competitive prices which will
increase the sales turnover and eventually the profits. Sophia was directly
supporting the elimination of wholesalers,
Do you agree with Sophia suggestion? Give reasons in support of your answer.

Solution: I do not agree with Sophia, newly appointed sales manager suggestion of
the elimination of wholesalers.

The wholesaler offers the following services to manufacturer which will not be
available if they are eliminated:

i. Facilitating large scale production: wholesalers collect small orders from a

number of retailers and pass on the pool of such orders to the
manufacturers and make purchases in bulk quantities. Their enables the
producers to undertake production on a large scale and take advantage of
the economies of scale.
ii. Bearing risk: The wholesales deal in goods in their own name, take delivery
of the goods and keep the goods in their warehouses. In the process, they
bear variety of risks such as the risk of fall in prices, theft, spoilage, fire, etc.
To that extent, they relieve the manufacturers from bearing these risks.
iii. Financial assistance: the wholesalers provide financial assistance to the
manufacturers in the sense that they generally make cash payment for the
goods purchased by them. So, the manufacturers need not block their
capital in the stocks.
iv. Expert advice: as the wholesalers are in direct contact with the retailers,
they are in a position to advice the manufacturers about various aspects
including customer’s tastes and preferences, market conditions,
competitive activities and the features preferred by the buyers.
v. Facilitate production continuity: the wholesalers facilitate continuity of
production activity throughout the year by purchasing the goods as and
when these are produced and storing them till the time these are
demanded by retailers or consumers in the market.
vi. Storage: Wholesalers take delivery of goods when these are produced in
factory and keep them in their warehouses. This reduces the burden of
manufacturers of providing for storage facilities for the finished products.
They thus provide time utility.
10. Sanchit, after completing his entrepreneurship course from Sweden returned to
India and plans to set up a different type of business of selling standardized
cosmetics under the name Cosmos traders by sending catalogues to the local
residents does not require heavy expenditure on infrastructural facilities. It results
in lots of savings to the buyers as well as sellers. The goods were delivered at the
doorstep of customers. He is also aware of the fact that in this system, there are
more possibilities of misunderstanding and mistrust between buyers and sellers.
The receipt and execution of orders will involve long time and delays.
On the basis of the given information about Cosmos traders, answer the following
questions:
a) Quoting the lines from the above paragraph, identify the fixed shop large
retailing business in which Cosmos traders in engaged in.
b) Explain any three merits of the type of fixed shop large retailing business
identified in part (a).
c) Explain any two limitations of the above identified business.

Solution:

a) The fixed shop large retailing business in which Cosmos traders is engaged in
Mail order business.
Lines: “A different type of business of selling standardized cosmetics under
the name Cosmos traders by sending catalogues to the local residents of
Lucknow and supplying goods to them through courier.”
b) The advantages of mail order business are:
i. Limited capital requirement: Mail order business does not require
heavy expenditure on building and other infrastructural facilities.
Therefore, it can be started with relatively low amount of capital.
ii. Elimination of middle men: The biggest advantage of mail-order
business is that unnecessary middlemen between the buyers and
sellers are eliminated. This may result in lot of savings both to the
buyers as well as to the sellers.
iii. Wide reach: Under this business the goods can be sent to all the
places having postal services. This opens wide scope for business as
a large number of people throughout the country can be served
through mail.
c) The limitations of mail order business are:
i. No Credit Facilities: The mail order houses do not provide credit
facilities to the buyers. Thus, customers with limited means may not
be interested in this type of trading.
ii. Delayed Delivery: There is no immediate delivery of goods to the
customers, as receipt and execution of order through mail takes its
own time.
11. Identify the type of retailer in the following situation:
a) Sohanlal pays a monthly charge to a bank to put up his stall in the evening
and sell readymade garments.
b) Ramratan sells cold drinks in a passenger train.
c) Crocs official store has an exciting range of clogs, shoes, sandals, boots, flip
flops, flats, sneakers for men, women and kids.
d) Rajesh kumar buys goods from the wholesale market and sells them by
displaying on a pavement at different places on different days.
 e) A store in select city mall which not only sells from ‘a pin to an almirah’ and
also has recreational area for children, rest areas for elderly people.
f) The retail shops where same types of products are sold at uniform prices
located all over the country.

Solution:

a) Itinerant retailer (street traders).

b) Itinerant retailer (peddlers).
c) Fixed shop small retailer (specialty stores).
d) Itinerant retailer (Market traders).
e) Fixed shop large retailer (departmental stores).
f) Fixed shop large retailer (Multiple chain shops).
12. During a commerce symposium held at Vidya public School, Ahmedabad. Radhika,
the key speaker stressed on the role of an association. She pointed that this
association acts as the national guardian of trade and industry. She also praised this
association for playing a catalytic role in strengthening internal trade to make it an
important part of overall economic activity.
On the basis of the given information about radhika, answer the following
questions:
a) Identify the type of organisation highlighted by Radhika in the above case.
b) Explain the important interventions made by the aforesaid organisation in
the various areas.

Solution:

a) The type of organisation highlighted by Radhika is The Chamber of

Commerce and Industry.
b) The important interventions made by The Chamber of Commerce and
Industry in the various areas are:
i. Transportation or interstate movement of goods: The Chamber of
Commerce and industry help in many activities concerning
interstate movement of goods which includes registration of
vehicles, surface transport policies, construction of highways and
roads.
ii. Octroi and other local levies: Octroi and local taxes are the
important sources of revenue of the local government. These are
collected on the goods and from people entering the state or the
government and chambers of commerce should ensure that their
imposition is not at the cost of smooth transportation and local
trade.
iii. Excise Duty: central excise is the chief source of the government
revenue levied across states by the central government. The excise
policy play an important role in pricing mechanism and hence the
associations need to interact with the government to ensure
streamlining of exercise duties.
iv. Promoting Sound Infrastructure like road, poet, electricity, railways
etc., plays a catalytic role in promoting trade. The chambers of
commerce and industry in collaboration with the government needs
to take up heavy investment projects.
v. Weights and Measures and prevention of duplication Brands: Laws
relating to weights and measures and protection of brands are
 necessary to protect the interest of the consumers as well as the
traders. They need to be enforced strictly. The Chambers of
Commerce and industry interact with the government to formulate
such laws and take action against those who violate rules and
regulations.
13. Shoppers stop has opened a new retail outlet in Patna. It offers a wide variety of
products, classified into well-defined units each one is confined to one kind of
product to satisfy every customer’s need under one roof. It purchases goods
directly from the manufacturers and thus eliminate middlemen.
On the basis of the given information about shoppers stop, answer the following
questions:
a) Identify the types of large scale retail outlet by quoting the lines from above
case.
b) State five points of distinction between the above type of retail outlet and
multiple chain stores.

Solution:

a) Shoppers stop is a departmental store,

Lines: “it offers a wide variety of products, classified into well-defined units,
each one is confined to one kind of product to satisfy every customer’s need
under one roof.”
b) The key difference between departmental stores and multiple chain stores
are:
i. Location: a departmental store is located at a central place, where a
large number of customers can be attracted to it. As against this, the
multiple stores are located at a number of places for approaching a
large number of customers.
ii. Range of products: Departmental stores aim at satisfying all the
needs of customers under one roof. As such, they have to carry a
variety of products of different types. As against this, the multiple
store generally aim to satisfy the requirements of customers relating
to a specified range of their products only.
iii. Services offered: the departmental stores lay great emphasis on
providing maximum services to their customers. Some of the
services, provided by them include alternation of garments,
restaurant and so on. As against this, the multiple shops provide
very limited services confirmed to graduates and repairs if the sold
out goods turn out to be defective.
iv. Pricing: The multiple shop chains sell goods at fixed prices and
maintain uniform pricing policies for all the shops. As against this,
the departmental shops. As against this, the departmental stores do
not have uniform pricing policy for all the departments.
v. Credit Facilities: All sales in the multiple shops are made strictly on
cash basis. As against this, the departmental stores may proide
credit facilities to some of their regular customers.
14. Sarthak is dealing in goods on large scale. He buys the goods directly from the
manufacturing industries in bulk and supply the same to the shops in the local
areas. He is not dealing with the customers directly. He even provides financial
support to manufacturer, by providing advance while placing order. Sarthak
 maintains huge quantity of stock, due to which he has to maintain large amount of
capital.
On the basis of the given information about sarthak, answer the following
questions:
a) Which type of business Sarthak is engaged in?
b) Name the parties between which Sarthak is acting as a linking pin.
c) Discuss the services rendered by Sarthak to any one party identified in part
(b).

Solution:

a) Sarthak is engaged in Wholesale trade.

b) The parties between which Sarthak is acting as Linking pin are
Manufacturers and retailers.
c) The services rendered by Sarthak to Manufacturers are:

i. Facilitating Large scale production: Wholesalers collect small orders

from a number of retailers and pass on the pool of such orders to
the manufacturers and make purchases in bulk quantities. This
enables the producers to undertake production on a large scale and
take advantage of the economies of scale.
ii. Bearing risk: the wholesale is deal in goods in their own name, take
delivery of the goods and keep the goods purchased in large lots in
their warehouses. In the process, they bear variety of risks such as
the risk of all in prices, theft, spoilage, fire, etc. so, they relieve the
manufacturers from bearing these risks.
iii. Financial assistance: the wholesalers provide financial assistance to
the manufacturers in the sense that they generally make cash
payment for the goods purchased by them. To that extent, the
manufacturers need not block their capital in the stocks.
iv. Expert advice: As the wholesalers are in the direct contact with the
retailers, they are in a position to advice the manufacturers about
various aspects including customer’s tastes and preferences, market
conditions, competitive activities and the features preferred by the
buyers.
15. After a 17-year roller-coaster ride, the government of India, following the credo of
‘one Nation and one Tax’ and wanting a unified market in order to ensure the
smooth flow of goods across the country implemented at the stroke of midnight on
1 july, 2017, in response of the Constitution Amendment Bill, a special reform
approved by the President of India in a the dignified function much like the one
which marked India’s independence.
Addressing a packed central hall of parliament, prime Minister specified the historic
nature of the reform. The government has launched an app to facilitate a smooth
transition to the new reform.
On the basis of the given information about reform, answer the following questions:
a) State the special reform approved by the President of India in the
dignified function much like the one which marked India’s Independence.
b) What is the main aim of this special reform approved by the President of
India.
 c) Enlist the key features of the special reform approved by the President of
India.

Solution:

a) The goods and services tax (GST) the special reform approved by the
President of India in the dignified function much like the one which
marked India’s independence.
b) The main aim of GST is to make life easier for manufacturers, producers,
investors and consumers. GST is a destination-based single tax on the
supply of goods and services from the manufacturer to the consumer,
and has replaced multiple indirect taxes levied by the Central and the
State Governments, thereby, Converting the country into a unified
market.
c) The key features of GST are:
i. GST is applicable on the ‘supply’ of goods or services as against
the present concept of tax on the Manufacture or sale of goods
or on the services.
ii. It is based on the principle of destination-based consumption
tax against the present principle of origin-based taxation.
iii. Import of goods and services is treated as inter-state supplies
and would be subject to IGST in addition to the application
custom duties.
iv. CGST, SGST and IGST are levied at rates mutually agreed upon
by the Central and the state under the aegis of the GST Council.
 Ch10 (International Business)

1. India, known as the home of spices, boasts a long history of trading with the
ancient civilisation of Rome and China. Today, Indian spices are the most sought-
after globally, given their exquisite aroma, texture, taste and medicinal value. India
is the world’s largest producer, consumer and exporter of spices; the country
produces about 75 of the 109 varieties and accounts for half of the global trading in
spices.
Top spices produced in the country include pepper, cardamom, chilli, ginger,
turmeric, coriander, cumin, celery, fennel, dill seed, garlic tamarind, clove, and
nutmeg among others Major importers of Indian spices are USA, China, Vietnam,
UAE, Indonesia, Malaysia, UK, Sri Lanka, Saudi Arabia, and Germany.
On the basis of the aforesaid information about spices, answer the following
questions:
a) Enumerate the two benefits available to the Indian business firms who are
engaged in spice export.
b) How do the different nations engaged in trade of spices stands to gain?

Solution:

a) The benefits available to the Indian business firms engaged in spice export
are:
i. Prospects for Higher Profits: International business can be more
profitable than the domestic business. When the domestic prices
are lower, business firms can earn more profits by selling their
products in countries where prices are high.
ii. Improved Business Vision: The growth of international business of
many companies is essentially a part of their business policies. The
vision to become international comes from the urge to grow, the
need to become more competitive, the need to diversify and to
gain strategic advantages of internationalisation.
b) Some of the benefits of international business to the nations are:
i. Earning of Foreign Exchange : International business helps a
country to earn foreign exchange which it can later use for meeting
its imports of capital goods, technology, petroleum products,
pharmaceutical products and a host of other consumer products
which otherwise might not be available domestically.
ii. Improving Growth Prospects and Employment Potentials: Producing
solely for the purposes of domestic consumption severely restricts a
country’s prospects for growth and employment. Many countries,
especially the developing ones, could execute their plans to
produce on a larger scale, and thus create employment for people
by getting involved in international business.
 2. Designco Indian is one of the fastest growing handicrafts export company, offering
customers every choice in terms of materials like wood, glass, cloth, metal and
stone with multiple finishes. Designco provides sophisticated, one- stop – shop
solutions to meet the buyer’s specific needs and helps to create a platter of
offerings. The most important innovators in the handicrafts exports market had
recently developed a lot of Brass Chunari This product is considered auspicious
during prayer rituals, religious ceremonies and festival celebration while offering
prayers to God. Brass Chunari is decorated with multicolored stones, laces, patches
beads, pearls and decorated with brass. The company received an export order of
these chunari from a Thai trader, since company has ready stock of brass chunari
the other formalities need to be completed before reservation of shipping space.
On the basis of the aforesaid information about Designco India, answer the
following questions:
c) What are the various formalities that need to be completed by Designco
before reservation of shipping space?
d) State the document to be issued by shipping company on the receipt of
request for reservation of shipping space.

Solution:

a) The various formalities that need to be completed by Deignco before

reservation of shipping space are:
i. Pre- shipment Inspection: The compulsory inspection of certain
products by a competent agency as designated by the government.
The government has passed Export Quality Control and Inspection
Act, 1963 for this purpose and has authorised some agencies to act
as inspection agencies. The exporter needs to contact the Export
Inspection Agency (EIA) or the other designated agency for
obtaining inspection certificate.
ii. Excise Clearance: As per the Central Excise Tariff Act, excise duty is
payable on the materials used in manufacturing goods. The
exporter, therefore, has to apply to the concerned Excise
Commissioner in the region with an invoice.
iii. Obtaining certificate of origin: Some importing countries provide
tariff concessions or other exemptions to the goods coming from a
particular country. For availing such benefits, the importer may ask
the exporter to send a certificate of origin. Their certificate can be
obtained from the trade consulate located in the exporter’s country.
b) The exporting firm applies to the shipping company for provision of shipping
space. On acceptance of application for shipping, the shipping company
issues a shipping order. A shipping is an instruction to the capital of the ship
that the specified goods after their customs clearance at a designated port
be received on board.
3. Sheetal and Shilpi are closed business friends engaged in a discussion on benefits
trade. Shilpi feels trade between nations is highly beneficial while sheetal feels an
economy can only develop and grow if trade within the nation is strong. She also
praised the supportive associations for playing a catalytic role in strengthening
trade within the nation to make it an important part of economic activity.
On the basis of the aforesaid information, answer the following questions:
 a) Identify and explain the type of trade being supported by Sheetal and Shilpi.
b) Enumerate the benefits of the type of trade highlighted by Shilpi.

Solution:

a) The type of trade being supported by Sheetal is domestic trade. The type of
trade being supported by Shilpi is International trade.
b) The benefits of international trade is as follows:
i. Benefits to the nations:
 Earning of foreign exchange.
 More efficient use of resources.
 Improving growth prospects and employment potentials.
ii. Benefits to the firms:
 Prospects for higher profits.
 Increased capacity utilization.
 Prospects for growth.
4. Balanpur plantations & industries limited, having its headquarters in Chikmaglur
district of Karnataka decided to export coffee beans. For the same they appointed
Nand Exports Cleearing Services Ltd. as their C&F agents. Nand Exports clearing
services Ltd., started the entire procedure for eexporting the high quality coffee
beans to various parts of Africa. They applied for licence and arranged the required
finance to export beans, got the consignment cleared from excise and at last they
packed the consignment in such a manner that the beans will remain fresh and
necessary forwarding formalities were also completed.
Explain in detail the net steps which have to be followed by Nand Exports Clearing
Services Ltd.

Solution: The next which have to be followed by Nand Exports Clearing Services Ltd. are:

i. Insurance of goods: The exporter gets the goods insured with an

insurance company to protect against the risk of loss or damage of
the goods due to the perils of the sea during the transit.
ii. Customs clearance: The goods must be cleared from the customs
before these can be loaded on the ship. For obtaining customs
clearance, the exporter prepares the shipping bill. Shipping bill is the
main document on the basis of which the customs office gives the
permission for export. Shipping contains particulars of the goods
being exported, the name of the vessel, the port at which goods are
to be discharged, country of final destination, exporter’s name and
address, etc.
Five copies of the shipping bill along with the following documents
are then submitted to the customs appraiser at the customs house:
 Export contract or export order.
 Letter of credit.
 Commercial invoice.
 Certificate of origin.
 Certificate of inspection, where necessary.
 Marine insurance policy.

After submission of these documents, the Superintendent of the

concerned port trust is approached for obtaining the carting order.
 iii. Obtaining mate receipt: The goods are then loaded on board the
ship for which the mate or the capital of the ship issues mate’s
receipt to the port superintendent. A mate receipt is a receipt issued
by the commanding officer of the ship when the cargo is loaded on
board, and contains the information about the name of the vessel,
berth, date of shipment, description of packages, marks and
numbers, condition of the cargo at the time of receipt on board the
ship, etc.
iv. Payment of freight and issuance of bill of landing: The C&F agent
surrenders the mates receipt to the shipping company for
computation of freight. After receipt of the freight, the shipping
company issues a bill of lading which serves as an evidence that the
shipping company has accepted the goods sent and the amount to
be paid by the importer. The C&F agent gets it duty attested by the
customs.
v. Preparation of invoice: After sending the goods, an invoice of the
dispatched goods is prepared. The invoice states the quantity of
goods sent and the amount to be paid by the importer. The C&F
agent gets it duly attested by the customs.
vi. Securing payment: After the shipment of goods, the exporter
informs the importer about the shipment of goods. The exporter
then needs to send a set of documents to the banker, which is to be
handed over to the importer on acceptance of a bill of exchange.
After receiving the bill of exchange, the importer will instruct its
bank to transfer money to the exporter’s bank account. Finally, the
exporter would be required to collect a bank certificate of payment,
which will state that the necessary documents, along with the bill of
exchange, have been presented to the importer for payment, and
that the payment has been received in accordance with the
exchange control regulations.
5. Luz lights Ltd., are major designer lights producers in Mumbai. They have been
dealing in lights for past 25 years. The company decided to expand their operations
to various parts of the country and so they decided to import high quality from Italy.
For the same they appointed Victory Exports Clearing Services Ltd.to be their C&F
agents. Victory Exports Clearing Services Ltd. took up the process and identified the
importer, procured import licence, and place the indent.
Explain the various steps the C&F agents has to follow after placing the indent.

Solution: The various steps to be followed by C&F agents after placing the indent are:

i. The importer will be required to send a letter of credit to the Italian

exporter. This letter is obtained from the importer’s bank and acts as a bank
guarantee that a draft of a specified amount drawn on it by the exporter
will be honoured.
ii. The next step is for the importer to arrange for finance in order to make
payment to the exporter on the arrival of the goods. This is necessary to
avoid penalties on account of any delay in payment.
iii. Once the goods are shipped, the exporter will send a shipment advice to
the importer. This document is proof of dispatch of the goods and contains
information about the bill of lading, name of the vessel with date, port of
export, description of goods, etc.
 iv. The importer must then prepare a bill of exchange that is to be handed over
to the exporter’s banker in exchange for the export documents. After this is
done, the importer is required to instruct its bank to transfer money to the
exporter’s bank account.
v. An import general manifest will be issued by the person in charge of the
carrier in which (ship or airliner) the goods are being imported. This is done
in order to inform the officer in charge at the dock or the airport about the
arrival of the goods. This document contains information about the goods
being imported, and it is on the basis of this document that unloading of
the cargo will take place.
vi. Once the goods arrive at the port, the importer must get customs
clearance, which in turn requires a delivery order, a port duty receipt and a
bill of entry.
6. Mr. Sanjeev Saxena wants to export pink diamonds to Mr. Akio Ibuka in Japan. Mr.
Akio Ibuka has asked for an enquiry regarding this from Mr. Sanjeev Saxena. Mr.
Sanjeev Saxena sends a reply to this enquiry in the form of a quotation called
proforma invoice containing details of information about his products.
Mr. Akio Ibuka has found the export price and other terms and conditions
acceptable, so he prepares an indent containing a description of goods, their price
and other important instructions. Once Mr. Akio Ibuka sent the export order to Mr.
Sanjeev Saxena. He obtains an export license and arranges the preshipment finance.
Enumerate the next steps to be followed by Mr. Sanjeev Saxena related to the
export procedure.

Solution: The next steps to be followed by Mr Sanjeev Saxena related to the export procedure are:

i. Production or procurement of goods.

ii. Pre- shipment inspection.
iii. Excise clearance.
iv. Obtaining certificate of origin.
v. Reservation of shipping space.
vi. Packing and forwarding.
vii. Insurance of goods.
viii. Customs clearance.
ix. Obtaining mate receipt.
x. Preparation of invoice.
xi. Securing payment.
xii. Payment of freight and issuance of bill of lading.

7. Mr. Naresh Sethi, a resident of India wants to import electronic goods from
Mr.Charles Ahnita in Korea. He sends a trade enquiry to him for collecting
information regarding the export prices and terms of exports. After receiving the
trade enquiry, Mr. Charles Ahnita prepares a quotation called by Mr. Naresh Sethi
related to the import procedure.

Solution: The next steps to be followed by Mr. Naresh Sethi after related to the import prodecure:

i. Obtaining letter of credit.

ii. Arranging for finance.
iii. Receipt of shipment advice.
iv. Retirement of import documents.
 v. Arrival of goods.
vi. Customs clearance and release of goods.
8. Mr. Rajesh Shetty, a resident of India wants to import farm equipments from Mr.
Christoph Bert in Germany. He sends a trade enquiry to him for collecting
information regarding the export prices and term of exports. After receiving the
trade enquiry, Mr. Christoph Bert prepares a quotation called proforma invoice and
sends it to Mr. Rajesh Shetty. Mr Rajesh Shetty has now received an intimation
about the arrival of goods in India.
State the various formalities that Mr. Rajesh Shetty have to complete before taking
the delivery of goods.

Solution: There are various formalities that Mr. Rajesh Shetty have to complete before taking
the delivery of goods. It is advised that he should appoint C&F agents who are well
versed with such formalities and play an important role in getting the goods customs
cleared through following steps:

i. Firstly, the importer agent has to obtain a delivery order which is otherwise
known as endorsement for delivery. Generally when the ship arrives at the
port, the importer agent obtains the endorsement on the back of the bill of
lading. This endorsement is done by the concerned shipping company. This
order entitles the importer agent to take the delivery of goods.
ii. The importer agent has to pay the freight charges before he can take
possession of the goods.
iii. The importer agent has to submit to the landing and shipping Dues Office
two copies of a duly filled in form known as application to import. The
landing and shipping Dues office levies a charge for services of dock
authorities which has to be borne by the importer.
iv. After payment of dock charges, the importer agent is given back one copy of
the application as a receipt. This receipt is known as port trust dues receipt.
v. The importer agent then fills in a form bill of entry for assessment of
customs import duty. One appraiser examines the document carefully and
gives the examination order. The importer agent procures the said
document prepared by the appraiser and pays the due, if any.
vi. After payment of the import duty, the bill of entry has to be presented to
the dock superintendent. The same has to be marked by the superintendent
and an examiner will be asked to physically examine the goods imported.
The examiner gives his report on the bill of entry.
vii. The importer agent or his agent presents the bill of entry to the port
authority. After receiving necessary charges, the port authority issues the
release order.

9. Fabindia is India’s largest private platform for products that are made from
traditional techniques, skills and hand- based processes. It started as a wholesale
export company and has since successfully established itself as a major retail player
in the Indian market. Fabindia’s first retail store opened in New Delhi in 1976.
Today, Fabindia has 196 retail stores across India, two stores in Singapore and one
store each in Bhutan, Dubai, Italy, Nepal and Mauritius. Fabindia links over 55,000
craft based rural producers to modern urban market, thereby creating a base for
skilled, sustainable rural employment, and preserving India’s traditional handicrafts
in the process. The product range consists of garments for men, women, children
 and infants; garment accessories; home furnishings- bed, bath, table and kitchen
linen, upholstery fabric, curtains, floor coverings; and a range of non- textile
products like furniture, lights, lamps and stationery.
On the basis of the aforesaid information about Fabindia, answer the following
questions:
a) Identify the two kinds of trade Fabindia is engaged in.
b) Differentiate between the two kinds of trade Fabindia is engaged in.

Solution:

a) The two kinds of trade in which FabIndia is engaged are:

i. Domestic trade.
ii. International trade.