ISC Class 12 Commerce Board Exam Question Paper 2016 with Solutions

ISC Class 12 Commerce Board Exam Question Paper 2016 with Solutions

Part - I (20 Marks)

Question 1. [20 Marks]
Answer briefly each of the questions (i) to (x):

(i) State two components of legal environment of a business concern. [2 Marks]

Answer:
Two components of the legal environment of a business concern are:
1. Laws and administrative orders enacted by the government.
2. The judicial system and various judgments of the courts.

Teacher's Note:
a) The legal environment includes all laws, rules, and government regulations that businesses must comply with.
b) Students should mention specific and distinct legal components rather than general economic factors.

(ii) Why is working capital also known as circulating capital ? [2 Marks]

Answer:
Working capital is known as circulating capital because it keeps moving or circulating continuously within the business operations in a regular cycle - cash is converted into inventory, inventory into receivables, and receivables back into cash.

Teacher's Note:
a) It represents the short-term funds required for day-to-day operations.
b) Emphasize the continuous operating cycle (cash conversion cycle) to score full marks.

(iii) What is meant by participating preference shares ? [2 Marks]

Answer:
Participating preference shares are those shares which, in addition to receiving a fixed rate of dividend, also have a right to share in the surplus profits of the company that remain after paying dividends to equity shareholders up to a certain limit.

Teacher's Note:
a) These shares carry dual benefit: a fixed preferential dividend and a share in leftover profits.
b) Do not confuse them with cumulative preference shares which accumulate unpaid dividends.

(iv) Distinguish between advertising and personal selling. [2 Marks]

Answer:

Teacher's Note:
a) Present differences in a tabular format with clear bases for clarity.
b) Highlight that advertising targets a mass audience while personal selling involves direct interaction.

(v) Why is feedback an important element in the communication process ? [2 Marks]

Answer:
Feedback is important because it enables the sender to know whether the receiver has accurately received, understood, and interpreted the message sent, thereby completing the communication loop.

Teacher's Note:
a) Feedback removes barriers and measures the effectiveness of communication.
b) Without feedback, communication remains a one-way and incomplete process.

(vi) Explain the principle of Esprit decorps as advocated by Henry Fayol. [2 Marks]

Answer:
The principle of Esprit de Corps states that management should promote team spirit, unity, and harmony among employees. It emphasizes that "union is strength" and teamwork yields better results than individual efforts.

Teacher's Note:
a) Fayol suggested replacing "I" with "We" in all organizational communications.
b) Ensure correct spelling and clear explanation of team synergy.

(vii) What is meant by a product ? [2 Marks]

Answer:
A product is anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need, including physical goods, services, experiences, events, persons, places, properties, organizations, information, and ideas.

Teacher's Note:
a) In modern marketing, a product is not merely a physical object but a bundle of utilities and satisfaction.
b) Mention both tangible goods and intangible services for completeness.

(viii) Explain the meaning of coordination, as a function of management. [2 Marks]

Answer:
Coordination is the process by which an manager synchronizes the activities of different departments and individuals to ensure unity of action towards achieving common organizational goals.

Teacher's Note:
a) Coordination is considered the essence of management as it binds all other functions together.
b) Do not confuse coordination with mere cooperation; coordination is a deliberate managerial effort.

(ix) What are bonus shares ? [2 Marks]

Answer:
Bonus shares are additional shares issued free of cost by a company to its existing equity shareholders in proportion to their existing shareholding out of accumulated undistributed profits or reserves.

Teacher's Note:
a) Issuing bonus shares capitalizes the free reserves of the company.
b) Shareholders do not pay any cash to acquire bonus shares.

(x) Explain the concept of management by exception. [2 Marks]

Answer:
Management by Exception is a principle of control where only significant deviations from plans or standards that exceed prescribed tolerance limits are brought to the attention of top management, while routine matters are handled by subordinates.

Teacher's Note:
a) This technique saves valuable time and attention of top-level executives.
b) It focuses managerial attention on critical problem areas.

Part - II (60 Marks)

Question 2.
(a) Explain any three external elements of micro business environment. [3 Marks]

Answer:
1. Suppliers: They provide inputs like raw materials and components to the business. A reliable network of suppliers is essential for uninterrupted production.
2. Competitors: Rival firms offering similar or substitute products directly influence the market share, pricing strategies, and marketing tactics of a business.
3. Customers: The ultimate buyers of goods and services whose preferences, tastes, and demands dictate the revenue and survival of the enterprise.

Teacher's Note:
a) Micro environment factors directly affect a specific business enterprise.
b) Give clear headings and concise explanations for each point.

(b) Briefly explain any two sources of short term finance. [4 Marks]

Answer:
1. Trade Credit: It refers to the credit extended by suppliers of goods and services to a business firm in the normal course of business, enabling purchase without immediate cash payment.
2. Public Deposits: These are unsecured fixed deposits raised directly from the general public by business organizations for a period ranging from six months to three years to meet working capital requirements.

Teacher's Note:
a) Short-term finance refers to funds required for a period not exceeding one year.
b) Clearly state the nature and duration of each source.

(c) Explain the meaning of debentures. State any four disadvantages of debentures [5 Marks]

Answer:
Meaning: A debenture is a formal document or certificate issued by a company under its common seal acknowledging a debt, containing provisions regarding repayment of principal and payment of a fixed rate of interest.
Disadvantages of debentures:
1. Fixed Obligation: Interest must be paid regularly regardless of whether the company earns profits or incurs losses.
2. Charge on Assets: Debentures are generally secured by a charge on the fixed assets of the company, reducing borrowing capacity for future needs.
3. Reduction in Creditworthiness: Excessive reliance on debt increases financial risk, which lowers the credit standing of the company among lenders and financial institutions.
4. No Voting Rights: Debenture holders do not possess voting rights and cannot participate in the management or control of the company.

Teacher's Note:
a) Debenture holders are creditors, not owners, of the company.
b) Ensure both definition and four distinct disadvantages are clearly listed.

Question 3.
(a) Write any four features of equity shares. [4 Marks]

Answer:
1. Primary Risk Bearers: Equity shareholders bear the ultimate risk of loss in the business as they are paid dividends and capital return only after all other claimants are satisfied.
2. Claim over Residual Income: They are entitled to the residual profits of the company left after paying all fixed commitments like interest and preference dividends.
3. Voting Rights: Equity shareholders enjoy voting rights, enabling them to participate in the election of the Board of Directors and policy formulation.
4. Permanent Capital: Equity share capital is irredeemable during the lifetime of the company, serving as permanent core capital.

Teacher's Note:
a) Equity shares represent ownership capital.
b) Highlight the risk-bearing nature as the primary characteristic.

(b) Explain any four factors that affect the capital structure of a company. [8 Marks]

Answer:
1. Cost of Debt: If a company can raise debt at a lower cost than the rate of return it earns on investments, it can use trading on equity to increase earnings per share (EPS).
2. Cash Flow Ability: A company with steady and predictable cash inflows can comfortably service higher debt obligations compared to a company with fluctuating earnings.
3. Floatation Costs: The cost of floating and issuing securities (such as underwriting fees and brokerage) influences the choice between shares and debentures.
4. Control Consideration: Issue of equity shares dilutes existing management control, whereas raising funds through debt preserves ownership control.

Teacher's Note:
a) Capital structure refers to the proportion of debt and equity in total capital.
b) Explain each factor thoroughly with financial reasoning to secure full marks.

Question 4.
(a) Briefly explain any three demerits of public deposits. [3 Marks]

Answer:
1. Uncertainty: Public deposits are considered an unreliable source of finance because depositors may panic and withdraw funds during adverse economic conditions.
2. Unsuitable for Long-term Needs: Since public deposits are raised for short periods (upto three years), they cannot be utilized for long-term capital investments.
3. Hindrance to Capital Market: Widespread reliance on public deposits can divert household savings away from organized capital market securities and industrial shares.

Teacher's Note:
a) Public deposits are unsecured short-term borrowings.
b) List three clear demerits as requested.

(b) Differentiate between line organisation and line and staff organisation. [4 Marks]

Answer:

Teacher's Note:
a) Use clear comparative headings.
b) Emphasize the role of staff specialists in line and staff organizations.

(c) Write five features of an informal business organisation. [5 Marks]

Answer:
1. Spontaneous Formation: Informal organizations arise naturally and spontaneously within a formal organization as a result of social interactions among employees.
2. Unplanned and Informal Structure: There is no written rulebook, fixed hierarchy, or predefined chart governing relationships.
3. Based on Personal Relations: It is founded on common interests, personal likes, mutual trust, friendship, and shared backgrounds.
4. Voluntary Membership: Membership is voluntary and informal, and individuals can belong to multiple informal groups simultaneously.
5. Unstable and Short-lived: Informal groups lack permanence and may dissolve or change composition rapidly with employee transfers or turnover.

Teacher's Note:
a) Contrast informal organization with formal organization in understanding.
b) List all five requested features clearly with distinct points.

Question 5.
(a) Why is management considered as a science ? [3 Marks]

Answer:
Management is considered a science because it possesses a systematic body of knowledge consisting of generalized principles, theories, and concepts based on continuous observation and experimentation. However, it is an inexact or social science because its principles deal with human behavior, which is dynamic, complex, and unpredictable.

Teacher's Note:
a) Highlight both the systematic knowledge aspect and the behavioral limitation.
b) Conclude that management is both an art and a science.

(b) Differentiate between centralization of authority and decentralization of authority. [4 Marks]

Answer:

Teacher's Note:
a) Distinguish clearly between concentration and dispersal of authority.
b) Ensure appropriate comparison points are included.

(c) State and explain the principles of management as laid down by F. W. Taylor. [5 Marks]

Answer:
F. W. Taylor propounded the following scientific management principles:
1. Science, not Rule of Thumb: Scientific investigation should replace trial-and-error methods to determine the best way of doing a job.
2. Harmony, not Discord: There should be complete mental revolution and mutual understanding between managers and workers.
3. Cooperation, not Individualism: Management and workers should cooperate closely rather than compete, promoting mutual trust and teamwork.
4. Development of Each and Every Person: Employees should be scientifically selected and trained continuously to achieve maximum efficiency and prosperity.

Teacher's Note:
a) F. W. Taylor is known as the father of Scientific Management.
b) Clearly distinguish Taylor's scientific principles from Henri Fayol's administrative principles.

Question 6.
(a) Explain any three objectives of management. [3 Marks]

Answer:
1. Organizational Objectives: These include survival, profit maximization, and growth of the enterprise through optimum utilization of human and physical resources.
2. Social Objectives: Fulfilling commitments toward society, such as supplying quality goods at fair prices, generating employment, and protecting the environment.
3. Personal Objectives: Fulfilling the individual needs of employees, such as fair remuneration, peer recognition, job security, and opportunities for personal growth.

Teacher's Note:
a) Management objectives are broadly classified into organizational, social, and personal objectives.
b) Provide clear sub-headings for each category.

(b) Explain the terms :
(i) Labelling
(ii) Packaging [4 Marks]

Answer:
(i) Labelling: It refers to designing and developing the label to be put on a product package. It provides crucial information such as ingredients, manufacturing date, expiry date, price, usage instructions, and manufacturer details.
(ii) Packaging: It refers to the act of designing and producing the container or wrapper of a product. It protects the product from damage, pilferage, and spoilage during transit and storage, and serves as a silent salesperson.

Teacher's Note:
a) Distinguish clearly between labelling (information provider) and packaging (protective wrapper/container).
b) Both are vital elements of product mix in marketing.

(c) Discuss the first five steps involved in the process of staffing. [5 Marks]

Answer:
1. Estimating Manpower Requirements: Assessing the number and type of personnel required by analyzing workload and workforce.
2. Recruitment: Searching for prospective candidates and stimulating them to apply for vacant positions in the organization.
3. Selection: Choosing the most suitable candidates through screening, tests, and interviews.
4. Placement and Orientation: Introducing the selected candidate to superiors and colleagues, explaining rules, and assigning the right job.
5. Training and Development: Providing systematic learning programs to upgrade employee skills and efficiency.

Teacher's Note:
a) Staffing is the managerial function of filling and keeping filled positions in the organizational structure.
b) List the steps sequentially as chronological order is essential in staffing.

Question 7.
(a) Distinguish between method and procedure. [3 Marks]

Answer:

Teacher's Note:
a) Both are types of plans but differ in scope and specificity.
b) Present points clearly in tabular form.

(b) What is marketing ? State two features of the modern concept of marketing. [4 Marks]

Answer:
Meaning: Marketing is a social and managerial process whereby individuals and groups obtain what they need and want through creating, offering, and freely exchanging products and services of value with others.
Two features of modern marketing:
1. Customer Satisfaction: The primary focus is on identifying customer needs and satisfying them effectively.
2. Market Research: Decisions are based on continuous collection and analysis of market information to understand changing consumer preferences.

Teacher's Note:
a) Modern marketing is customer-oriented, whereas traditional marketing was product-oriented.
b) Ensure both definition and two distinct features are explicitly covered.

(c) Explain the need for consumer protection. [5 Marks]

Answer:
1. Consumer Ignorance: Most consumers are unaware of their rights, safety standards, and remedies, making them vulnerable to exploitation.
2. Widespread Exploitation: Businesses sometimes engage in unfair trade practices like adulteration, false advertising, and overcharging.
3. Unorganized Consumers: Consumers in developing markets are largely unorganized and lack collective bargaining power.
4. Long-term Business Interest: Ethical business practices and consumer satisfaction are essential for long-term survival and reputation.
5. Moral Responsibility: Businesses utilize societal resources and therefore have a moral obligation to protect consumer welfare.

Teacher's Note:
a) Consumer protection safeguards buyers against unfair commercial practices.
b) List five distinct points with clear justifications.

Question 8.
(a) State three objectives of sales promotion. [3 Marks]

Answer:
1. To stimulate short-term sales by offering incentives like discounts, contests, and free samples.
2. To introduce new products in the market and encourage trial purchases by consumers.
3. To meet competition effectively and maintain market share during promotional campaigns by rival firms.

Teacher's Note:
a) Sales promotion consists of short-term incentives to encourage purchase.
b) State three concise and distinct objectives.

(b) Explain the meaning of e-banking. State any three features of e-banking. [4 Marks]

Answer:
Meaning: E-banking (Electronic Banking) refers to the provision of banking services and products through electronic and internet channels, such as ATMs, electronic fund transfers, and mobile banking.
Features of e-banking:
1. 24/7 Availability: Customers can access banking services round the clock from anywhere.
2. Speed and Efficiency: Transactions like fund transfers (NEFT/RTGS) are executed instantly.
3. Reduced Paperwork: Digital transactions significantly lower operational costs and paperwork for banks.

Teacher's Note:
a) E-banking has revolutionized financial transactions globally.
b) Provide both clear definition and three distinct features.

(c) Explain five factors that affect the pricing decision of a product. [5 Marks]

Answer:
1. Cost of Production: Total cost (fixed and variable costs) sets the floor price below which a product cannot be profitably sold in the long run.
2. Demand and Utility: High utility and strong consumer demand allow businesses to charge higher prices, whereas low demand requires competitive pricing.
3. Competition in Market: The intensity and pricing strategy of rival firms dictate the upper and lower limits of product pricing.
4. Government Regulations: Statutory price controls and regulations on essential commodities restrict price fixation by enterprises.
5. Pricing Objectives: Objectives such as maximizing profit, capturing market share, or surviving market competition influence pricing policy.

Teacher's Note:
a) Pricing is a crucial element of the marketing mix.
b) Explain each factor clearly with appropriate marketing logic.

Question 9.

Write short notes on :
(a) SWOT analysis. [4 Marks]
(b) Marketing research. [4 Marks]
(c) Bank overdraft. [4 Marks]

Answer:
(a) SWOT Analysis: It is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a business project or venture. Strengths and weaknesses are internal organizational factors, while opportunities and threats are external environmental factors.
(b) Marketing Research: It is the systematic gathering, recording, and analysis of data about issues related to marketing goods and services. It helps managers understand customer needs, market trends, and competitor behavior to make informed decisions.
(c) Bank Overdraft: It is a credit facility granted by a commercial bank allowing current account holders to withdraw money in excess of their actual account balance up to a sanctioned limit. Interest is charged only on the exact daily overdrawn amount.

Teacher's Note:
a) Short notes require concise, accurate, and comprehensive explanations covering all key components.
b) Ensure definitions and applications are clearly stated for each term.