Plus Two

Kerala State Board New Syllabus Plus Two Accountancy Chapter Wise Previous Questions and Answers Chapter 4 Reconstitution of a Partnership Firm – Retirement/Death of a Partner.

Kerala Plus Two Accountancy Chapter Wise Previous Questions Chapter 4 Reconstitution of a Partnership Firm – Retirement/Death of a Partner

Plus Two Accountancy Reconstitution of a Partnership Firm – Retirement/Death of a Partner 1 Marks Important Questions

Question 1.
Section – 37 of the Partnership Act provides interest on the amount left by the retiring or deceased partner at (March 2010)
a) 5%
b) 6%
c) Bank rate
Answer:
b) 6%

Question 2.
W,X, Y and Z are partners sharing profit and losses in the ratio of 1/3, 1/6, 1/3 and 1/6 respectively. Y retires and W, X and Z decided to share the profit and losses equally. Calculate the gaining ratio. (March 2013)
Answer:
Gaining ratio – New rato – old ratio
Old ratio = \(1 / 2: 1 / 6: 1 / 3: 1 / 6\)
ie. \({ }^{2} /{ }_{6}: 1 /{ }_{6}:{ }^{2}{ }_{6}: 1 /{ }_{6}\)
New ratio = 1 : 1 : 1
W’s gain = \(1 / 3-2 / 6=0 / 6\)
Z’s gain = \(1 / 3-1 / 6=1 / 6\)
Z’s gain = \(1 / 3-1 / 6=1 / 6\)
Gaining ratio = 0:1:1

Question 3.
Retiring Partner’s Capital is transferred to account. (May 2013 (May))
a) Current
b) Loan
c) Profit & Loss
d) Memorandum Revaluation
Answer:
b) Loan account

Question 4.
Profit or loss on revaluation at the time of retirement must be transferred to the partners in (May 2016)
a) Capital ratio
b) Old profit sharing ratio
c) Equally
d) Gaining ratio
Answer:
b) old profit sharing ratio

Question 5.
Write a journal entry for recording unrecorded liability at the time of retirement of a partner. (March 2017)
Answer:
Up Revaluation A/c Dr

Plus Two Accountancy Reconstitution of a Partnership Firm – Retirement/Death of a Partner 2 Marks Important Questions

Question 6.
In which case the following journal entries are required? (March 2010)
i) Retiring partner’s Capital account Dr To Retiring partner’s Loan account
ii) Deceased partner’s executor’s account Dr To Cash/Bank account
Answer:
i) The amount due to the retiring partner is transferred to his loan a/c.
ii) The amount due to the deceased partner is immediately paid to the executors in cash.

Question 7.
Manju, Daniel and Joseph are partners in a firm. Joseph decides to retire from the firm due to ill health. You, as their accountant, explain to them the adjustments required in accounts on the retirement of a partner. (March 2011)
Answer:
The following adjustment are required in accounts on the retirement of a partner.
a) Calculation of gaining ratio
b) Revaluation of assets and reassessment of liabilities
c) Treatment of goodwill
d) Adjustment of reserves and accumulated profits or loss.
e) Ascertainment of profit or loss up to the date of retirement.
f) Settlement of the accounts of a retiring partner.

Question 8.
A, B and C are partners sharing profits in the ratio of 4:3:2. ‘C’ retires from the frim. Calculate new profit sharing ratio and gaining ratio. (March 2012)
Answer:
Old ratio = 4:3:2
New ratio after the retirement of C = 4: 3
Gaining ratio \(A=\frac{4}{7}-\frac{4}{9}=\frac{8}{63}\)
\(B=\frac{3}{7}-\frac{3}{9}=\frac{6}{63}\)
Gaining ratio = 8:6 = 4 : 3

Question 9.
Chithra, Pavitha and Geetha are partners in a firm, Pavitha retires from the firm, on the date of retirement, Rs. 30,000 is due to her. Chithra and Geetha promise to repay the amount in three equal instalments at the end of every year. Prepare Pavitha’s loan a/c if they agreed to pay in three equal yearly instalments together with interest @ 10%. (March 2013)
Answer:
Pavitha’s Loan a/c

Question 10.
The amount due to the retiring partner may be transferred to a Loan Account ¡n his name to be gradually paid off with interest. In this connection give journal entries. (March 2013)
a) for transfer to Loan A/c.
b) for interest
c) for payment of an instalment
Answer:
1) Retiring partner’s capital a/c Dr.
To Retiring partner’s loan a/c.

ii) Interest a/c Dr.
To Retiring partners Loan a/c.

iii) Retiring partners loan a/c Dr.
To cash a/c

Question 11.
Sachin, Rahul and Lakshmanan are partners in the ratio of 2:1:1. Lakshmanan retires and Sachin and Rahul acquire his share equally. Calculate the new ratio and gaining ratio. (March 2014)
Answer:
Ratio of Sachin, Rahul and Lakshmanan = 2:1:1
Retiring partner – Lakshmanan’s share 1/4 is taken up by Sachin & Rahul equally ie. 1/8 each.
New share of Sachin \(=\frac{2}{4}+\frac{1}{8}=\frac{4+1}{8}=\frac{5}{8}\)
New share of Rahul \(=\frac{1}{4}+\frac{1}{8}=\frac{2+1}{8}=\frac{3}{8}\)

New Ratio = 5:3
Gaining ratio = 1:1

Question 12.
Petya, Pd) and VIJI are panels, shading profit and losses in the ratio 014:32. Pdjl retired and goodwill has valued a Rs. 63,000. Play and Viji are decided to share future profits and losses in the ratio of 5:3. Record necessary Journal entry, when goodwill Is raised at Its full value and wrItten off Immediately. (March 2017)
Answer:
Journal

Plus Two Accountancy Reconstitution of a Partnership Firm – Retirement/Death of a Partner 3 Marks Important Questions

Question 13.
Mr. Krishnan died on 1st (March 2011) who was an – active partner in the firm. The other partners were Syam and Sathyan. The books of account reveal the following: (March 2013)
General reserve Rs. 12,000
Capital of Krishnan Rs. 40,000
P & LA/c (Dr.) Rs. 18,000
Drawings of Krishnan Rs. 10,000
Krishnan’s loan to firm Rs. 20,000
Int. on loan due to Krishnan Rs. 2,000
Value of goodwill Rs. 24,000

They share profit and losses equally. Calculate the amount due to his legal heirs.
Answer:
Krishnan’ Capital a/c

Krishnan’s loan to firm = 20000
Krishnan’s Interest on loan = 2000
Total amount due to Krishnan’s legal heirs = Capital a/c balance + Krishnan’s loan + Interest on loan = 36000 + 20000 + 2000 = 58000

Question 14.
Give three distinctions between ‘gaining’ and ‘sacrificing’ ratio. (March 2013)
Answer:
The distinction between gaining ratio and sacrificing ratio.

Sacrificing Ratio	Gaining Ratio
1. It is the ratio in which the older partners sacrifice their share of profit in favour of incoming partner. 2. It is calculated at the time of admission of a partner. 3. It is the excess of old ratio over new ratio.	1. It is the ratio in which the continuing partners share the profit of out­going partners. 2. It is calculated at the time of retirement or death of a partner. 3. It is the excess of new ratio over old ratio.

Question 15.
Sreekuttan, Dhaneesh and Sahil were in partnership and were sharing profits in the ratio of 2:2:1. On 31.03.2013, Sahil left the firm as per their agreement. The following details are available from their books. (March 2014)

Balance Sheet as on 31.03.2013

Capital A/c’s: Sreekuttan Dhaneesh Sahil General Reserve Creditors Bills Payable	50000 30000 20000 10000 42000 4200	Cash Debtors Stock Plant & Machinery Land & Building	1200 30000 50000 25000 50000
	156200		156200

Land and Buildings had been valued at Rs. 140000. The Plant and Machinery was revalued at Rs.22000 and it was agreed that the provision of Rs. 1,000 be created for doubtful debts. Prepare Revaluation Account.
Answer:
Revaluation A/c

Question 16.
A, B and C were in partnership, sharing profits equally. ‘C’ agreed to retire from the partnership on 30th June, 2007, His share of profits to the date of retirement has to be calculated on the basis of the average profits of the preceding three accounting years. The books showed the profits of the last five accounting years (ending on 31st March) as follows: (May 2016)

2002 – 03 = ₹ 12,650
2003 – 04 = ₹ 15,400
2004 – 05 = ₹ 9,900
2005 – 06 = ₹ 8,800
2006 – 07 = ₹ 11,000
Calculate C’s share of profit.
Answer:
Profit for the last three years = 9900+8800+11,000 = 29,700
Average profit \(=\frac{29,700}{3}=9900\)
Profit from the date of last balance sheet to the date of retirement \(=9900 \times \frac{3}{12}=2475\)
C’s share of profit \(=2475 \times \frac{1}{3}=825\)

Question 17.
K, L, M, N and O are in partnership sharing profits and losses as \(\frac{6}{25}, \quad \frac{8}{25}, \quad \frac{4}{25}, \quad \frac{2}{25}\) and \(\frac{5}{25}\) respectively. ‘K’ retires and others continue to share with their ratios immediately before the retirement of K. Calculate the new profit sharing ratio. (March 2016)
Answer:
New profit sharing ratio is 8:4:2:5

Plus Two Accountancy Reconstitution of a Partnership Firm – Retirement/Death of a Partner 5 Marks Important Questions

Question 18. (March 2009)
Mr. Ajithkumar, a partner in a profit-earning partnership firm, retired voluntarily due to ill health. He is very eager to know the amount due from the firm. As an accountant, how will you calculate the amount due to him? Explain the procedure by preparing his capital account using imaginary figures, assuming that he had retired on June 30th and the accounts are closed every year on March, 31st.
Answer:
Ajith Kumar’s Capital A/c

Question 19.
Anu, Manu, & Vinu are partners sharing profits and losses in the ratio 3:2:1. Anu retires from the firm and his share is taken over by Manu and Vinu in the ratio 3 : 2. (June 2009 (May)

On Anu’s retirement, the goodwill of the firm is valued at Rs. 1,20,000/- Finally the amount due to Anu is ‘ transferred to his executor’s loan account. Your valuable suggestions are requested, regarding.

(1) The new profit sharing ratio and gaining ratio.
(2) Treatment of Goodwill on retirement and
(3) Settling the accounts of a retiring partner.
Answer:
Old ratio of Anu, Manu and Vina = 3:2:1
Calculation of gaining ratio.

Anu’s share taken over by Manu \(=3 / 6 \times 3 /{ }_{5}=9 /{ }_{30}\)
Anu’s share taken over by Vinu \(=3 / 6 \times 2 /{ }_{5}=6 /_{30}\)
∴ Gaining ratio \(=9 /{ }_{30}:{ }^{6} /{ }_{30}\)
New ratio = Old ratio + gaining ratio
New ratio of Manu \(=\frac{2}{6}+\frac{9}{30}=\frac{10+9}{30}=\frac{19}{30}\)
New ratio of Vinu \(=\frac{1}{6}+\frac{6}{30}=\frac{5+6}{30}=\frac{11}{30}\)
New ratio = 19:11

Total goodwill of the firm = 1,20,000
Anus share of goodwill = 1,20,000 x 3/6 = 60,000
Manu’s capital Dr. 36,000
Vin us capital Dr. 24,000
To Anus capital 60,000

(Being goodwill adjusted in the gaining ratio)

The amount due Anu can be paid in cash at the time of his retirement or amount can be transferred to his loan account or it can be partly paid in cash and the balance amount can be transferred to his loan account.

Question 20.
Anne, Allyn and Anita are partners sharing profits and losses in 5: 3: 2 ratio. Anita retires from the business. On Anita’s retirement, the respective capitals of Anne and Allyn are Rs. 38,000 and Rs. 24,000 after making all adjustments. The new profit sharing ratio betweenAnneandAllynwillbeequal. It was decided that the capital of the new firm will be Rs. 70,000 and it will be in the new profit sharing ratio. The partners will bring in additional capital or withdraw the excess capital as the case may be. Calculate the amount of capital to be brought in or withdrawn by Anne and Allyn and also draw the necessary journal entries for the same. (March 2010)
Answer:
Total capital of the new firm = Rs. 70,000
New ratio = 1: 1
New Capital of Anne = 70,000 x 1/2 = 35,000
New capital of Allyn = 70,000 x 1/2 = 35,000
Required capital of Anne = 35000
Balance existing in account = 38000
Surplus capital withdraw by Anne = +3000
Required capital of Allyn = 35000
Balance existing in account = 24000
Amount to be brought in by Allyn = -11000

Jurnal

Question 21.
On the date of retirement of C, the Balance Sheet of A, B and C shows the following position: (June 2010)

Balance Sheet

(i) Profits shares in the ratio of capitals.
(ii) Profit and Loss is to be credited to the extent of C, through capital adjustment of partners.
(iii) Bills receivables are collected through a debt collection agency at Rs.9000/-
(iv) Depreciate all fixed assets @ 10%.
Find the amount due to the retiring partner.
Answer:
C’s Capital a/c

Revaluation a/c

Note:
1. Profit and Loss = 24000
C’s share of profit = 24000 x 3/11 = 6545 Rs.6545 is to be credited to the capital a/c of ‘C’ through capital adjustment of A and B.
A’s capital a/c (6545 x 5/8) Dr. 4091
B’s capital a/c (6545 x 3/8) Dr. 2454
To C’s capital a/c 6045

Question 22.
Antony, Basheerand Chandu were partners in a firm sharing profits & losses in the ratio of 5 : 3 : 2. The Balance Sheet of the firm as on 31-03-2008 stood as under: (March 2011)

Basheer has decided to retire from the firm subject to the following conditions.
(1) Provission for doubtful debts be 5%.
(2) Value of building be appreciated by 10%.
(3) Stock be depreciated by Rs. 2,000.
(4) Goodwill of the firm be valued atRs, 35,000.
(5) Basheer shall be paid by bringing sufficient amount by Antony and Chandu so that their capital will be in the profit-sharing ratio.
(6) Bank A/c. shall be maintained with a balance of Rs. 5,000 to meet working capital requirements.

Prepare Revalution a/c, capital A/c and balance Sheet after retirement.
Answer:
Revaluation A/c

Capital A/c

Balance Sheet

Note : Gaining ratio = 5:2
Basheer’s share of Goodwill = 35,000 x 3/10 = 10,500

Question 23.
Anil, Sunil and Vimal were sharing profits and losses in the ratio of 2:2:1. On 31st December 2010. (March 2012)

Vimal decided to retire from the business. The goodwill of the firm is valued at 3 years purchase of the average profit of the proceeding 3 years. The profits for the last 3 years were Rs. 10,000, Rs. 15,000 and Rs. 20,000. Find out Vimal’s share of goodwill and also show the journal entry to adjust his share of goodwill.
Answer:
Calculation of Goodwill (Using Average Profit Method)

Question 24.
Tom, Dick and Harry were in partnership, who were sharing profits and losses in the ratio of 2:2:1. On 31-03-2012, Harry left the firm as per agreement. From the following details available from their books prepare Revaluation Account. (May 2013 (May)

Balance Sheet as on 31-03-2012

Land and Buildings had been valued at Rs. 1,60,000. The Plant and Machinery was revalued at Rs. 32,000. The firm has an unrecorded investment of Rs. 5,000 and it was agreed that a provision of Rs. 1,000 be created doubtful debts.
Answer:
Revaluation A/c

Question 25.
Renjith, Sumesh and Aneesh are partners in a firm. Sumesh retires from the firm. On the date of retirement of Sumesh, Rs, 45,000 become due to him. Renjith and Aneesh promise to pay the amount in instalments. Prepare Sumesh’s loan account, when they agree to pay three yearly instalments of Rs. 15,000 including interest at 12% p.a. on the outstanding balance during the first 3 years and the balance including interest in fourth year. (March 2017)
Answer:
Sumesh’s Loan A/c

Plus Two Accountancy Reconstitution of a Partnership Firm – Retirement/Death of a Partner 8 Marks Important Questions

Question 26.
M, N and O are partners in a firm sharing profits in the ratio of 3:2:1. Their Balance Sheet as on 31 st December, 2008 was as under: (March 2012)

Balance Sheet as on 31st December 2008

N retires on 1st January, 2009 on the following terms:
i) Provision for doubtful debts will be raised by Rs. 1,000.
ii) Stock will be depreciated by 10% and furniture by 5%.
iii) There is an outstanding claim for damages of Rs. 1,100 and it is to be provided for in the books.
iv) Creditors will be written back by Rs. 6,000.
v) Goodwill of the firm is valued at Rs. 22,000, which is not to be shown in the books of the new firm.
vi) N is paid in full with the cash brought in by M and O in such a manner that their capitals are in proportion to their profit-sharing ratio 3 : 2.

Prepare Revaluation Account, Partner’s Capital Account and Balance Sheet of M and O.
Answer:
Revaluation A/c

Note : If creditors Rs. 6000/- is taken on the credit side of the Revaluation A/c, Revaluation profit will be Rs. 600/-.)

Capital A/c

Balance Sheet

Note:
N’s Share of goodwill = 22000×2/6 = 7333
New ratio = 3:2, Old ratio = 3:2:1
Gaining ratio = New ratio – old ratio
M’s gain = 3/5 – 3/6 = 3/30
O’sgain = 2/5 – 1/6 = 7/30

Question 27.
The Balance sheet of Ajith, Babu and Chandu as on 31st March 2008 is given below: (June 2012)

The partners have been sharing profits and losses in 3:2:1. Ajith died on 1st April 2008 and the following adjustments are to be made in the books of accounts.
a) A supplier for Rs. 14000 included in creditors is settled at Rs. 20,000.
b) Salary outstanding Rs.7000 is to record.
c) Creditors of Rs.4000 will not be claimed.
d) Bad debts amounting to Rs.3000 be written off.
e) The entire capital of the firm fixed at Rs. 150000 between Babu and Chandu in their new profit sharing ratio by bringing in or paying off cash as the case may be.
f) Rs.40000 is paid to Ajith by arranging a loan from the bank. The balance is transferred to his Executor’s Loan A/c.

Prepare Revaluation Account, Partners Capital Ac-count, Bank Account and the Balance Sheet as on 1st April 2008.
Answer:
Revaluation a/c

Capital A/c

Bank a/c

Balance sheet

Working Note
1. New Profit sharing ratio = 2:1
2. The total capital of the new firm = 150000
New capital of Babu = 150000 x 2/3 = 100000
New capital of Chandu = 150000 x 1/3 = 50000

Required capital of Babu = 100000
Balance existing in account = 77333
(75000 + 6333-4000)
Amount to be brought in by babu = – 22667

Required capital of Chandu = 50000
Balance existing in account = 61167
(60000 + 3167-2000)
Surplus capital withdrawing by Chandu= +11167

3.

Less creditors will not be claimed 4000
Amount to be shown in the Balance sheet = 34000

Question 28.
A, B and C were sharing profits losses in the ratio of 3:2:1 and their Balance sheet as on 31st December. 2011 was as follows: (May 2013 (May)

B retires from the business on 31st December 2011 on the following terms.
a) Goodwill of the firm should be valued at Rs. 30000 and retiring partners share to be adjusted in the capital accounts of other partners.
b) Motor van to be valued at Rs.60000 and Stock to be valued at Rs. 58,900.
c) Provision for doubtful debts to be increased to 5% of debtors.
d) Creditors include Rs.3000 not likely to be claimed and hence be written back.
e) There was the furniture of the value Rs. 2000 to be brought into books.
f) There is a liability of Rs. 2000 for accident compensation to be paid.
g) The relative profit sharing ratio between A and C is to be maintained.

Give journal entries; prepare Ledger Accounts and Balance Sheet of A and C.
Answer:
Revaluation a/c

Capital A/c

Balance sheet

Journal

Note:
1. Old ratio = 3:2:1, As the relative ratio is not changed, the new ratio between A & C is 3:1.

2. Goodwill of the firm = 30000
B’s share of goodwill = 30000 x 2/6 = 10000
Gaining ratio = 3:1

3. Provision for doubtful debts
= 30000 x 5/100 = 1500

Question 29.
P, Q and R are partners in a firm. Q retires. On his date of retirement, Rs.60,000 becomes due to him. P and R promise to pay him in instalments every year at the end of the year. Prepare Q’s Loan A/c. in the following cases: (March 2016)

a) When the payment is made four yearly instalments plus interest @12% p.a. on the unpaid balance.
b) When they agree to pay three-yearly instalments of Rs. 20,000 including interest @ 12% p.a. on the outstanding balance during the first three years and the balance including interest in the fourth year.
Answer:
a) Q’s Loan A/C

Note: Amount of instalment in each year = 60,000/4 = 15,000
Amount paid each year= Rs.15000 + interest

b) Q’s Loan A/C

Question 30.
A, B and C are in partnership sharing profits in their capital ratio. The Balance sheet on 15th March, 2013 is given below. (March 2014)

Further information on the retirement of B on 15th June, 2013.
Profits for 3 months Rs. 9000
Drawings-
A Rs. 1,000
B Rs. 2,000
C Rs. 3,000
Interest on Capital @ 5% p.a.
Salary to B Rs. 300 p.m.

The firm had a fixed deposit worth Rs.3000 which has not accounted so far has to be brought into the books. Marketable scrips were valued at Rs. 23,000. Prepare Profit and Loss Appropriation account, Capital account and Balance Sheet after ‘B’s retirement.
Answer:
Profit and Loss Appropriation a/c

Revaluation a/c

Capital A/c

Balance sheet

Kerala State Board New Syllabus Plus Two Accountancy Chapter Wise Previous Questions and Answers Chapter 3 Reconstitution of a Partnership Firm – Admission of Partner.

Kerala Plus Two Accountancy Chapter Wise Previous Questions Chapter 3 Reconstitution of a Partnership Firm – Admission of Partner

Plus Two Accountancy Reconstitution of a Partnership Firm – Admission of Partner 1 Marks Important Questions

Question 1.
While transferring the reserves or accumulated profits of the firm on reconstitution, the account to be – credited is (March 2010)
a) New partner’s capital account
b) Old partner’s capital account
c) All partner’s capital account
Answer:
b or c (Old Partner’s capital a/c or All Partner’s capital a/c)

Question 2.
“Profit available in the Balance sheet at the time of admission of a partner is to be credited to all partners’ capitals in new profit sharing ratio.” – Justify this argument. (June 2010)
Answer:
The statement is wrong, because profit available in the balance sheet at the time of admission of a partner is credited only to old partners capital account in old ratio.

Question 3.
At the time of reconstitution of the firm, the value of machinery is found less by 10%. What journal entry will be passed for giving effect to the above? (June 2010)
Answer:
Revaluation a/c Dr.
To Machinery A/c

Question 4.
At the time of admission of a partner in a firm, unrecorded assets will be (March 2012)
a) Debited to Revaluation Account
b) Credited to Revaluation Account
c) Credited to Asset Account
d) None of the above
Answer:
b) Credited to Revaluation Account

Question 5.
Which of the following case do not result in the re-constitution of a firm? (March 2012)
a) Change in profit sharing ratio
b) Change in the location of business
c) Retirement of a partner
d) Amalgamation of two partnership firms
Answer:
b – Change in location of business

Question 6.
Share of Goodwill brought in cash by the new partner is called (March 2012)
Answer:
Premium / Goodwill / Premium for goodwill

Question 7.
Which one of the following is not an occasion for the reconstitution of a partnership firm? (May 2013) (May)
a) Admission of a new partner.
b) Retirement of an existing partner
c) Death of an existing partner
d) Dissolution of the firm
Answer:
d) Dissolution of the firm

Question 8.
On the date of admission of Mr. Vivek as an equal partner, Mr. Vimal an existing partner has taken over the Plant and Machinery worth Rs. 10,000 at Rs. 12,000. Identify from the following journal entry to record thisiransaction. (May 2013) (May)

i) Vimai’s Capital A/c Dr 12,000
Plant and machinery A/c 10,000
Revaluation A/c 2,000

ii) Vimai’s Capital A/c Dr 12,000
Plant and machinery A/c 12,000

iii) Plant and Machinery A/c Dr 12,000
Vimai’s Capital A/c 12,000

iv) Vimai’s Capital A/c Dr 12,000
Revaluation A/c 12,000
Answer:
i) Vimal’s Capital A/c Dr 12,000
Plant and machinery A/c 10,000
Revaluation A/c 2,000

Question 9.
Which of the following is not an element of reconstitution of partnership? (March 2013)
a) Admission
b) Change in profit sharing
c) Death
d) Dissolution of firm
Answer:
d) Dissolution of firm

Question 10.
Biju and Lijo are partners in a firm sharing profits and losess in the ratio of 5:3. They admit Rajan for 1/6 share. The total goodwill of the firm is Rs. 50,000. Existing goodwill is Rs. 25,000. Find the share of goodwill to be brought in by Rajan.  (March 2013)
Answer:
Goodwill to be brought in by Rajan = 50,000 x 1/6 = 8,333

Question 11.
X, Y and Z are partners in a firm. If ‘B’ is to be admitted as a new partner.  (March 2013)
a) Old partnership has to be dissolved.
b) Old firm has to be dissolved.
c) Both old firm and partnership have to be dissolved.
d) Neither firm nor partnership needs to be dissolved.
Answer:
a) Old partnership has to be dissolved.

Question 12.
Consider the following information and ascertain the value of Goodwill.  (March 2014)
Total Capital Employed Rs. 5,00,000
Normal Rate of Return 8%
Average Profit the last 5 years Rs. 60,000
Remuneration to partners Rs. 15,000
Goodwill is estimated at 3 years purchase of super-profits.
Answer:
Average profit = 60000
Remuneration to partner = 15000
Average actual profit = 60000 – 15000 = 45000
Normal profit = Capital employed x Normal rate of Return
= 500000×8/100 = 40000
Super profit = Average Actual profit – Normal Profit
= 45000 – 40000 = 5000
Goodwill = Super profit x No. of years purchase
= 5000×3 = 15000

Question 13.
Which one of the following term is used to denote a chnage in the relationship among the partners which leads to change in the constitution of partnership?  (March 2014)
i) Amalgamation
ii) Reconstitution
iii) Dissolution
iv) Revaluation
Answer:
ii) Reconstitution

Question 14.
Find the odd one out: (March 2014)
A) Superprofit B) Average Profit
C) Capitalization Method
D) Weighted Capitalisation Method
Answer:
D) Weighted Capitalisation Method

Question 15.
The ratio in which the old partners agree to sacrifice their share of profit in favour of incoming partner is (March 2017)
a) New ratio
b) Old ratio
c) Sacrificing ratio
d) Gaining ratio
Answer:
c) Sacrificing ratio

Question 16.
Sanu and Binu are partners in a firm sharing profit and losses in the ratio of 3:1. They admit Jinu for 3/ 7 share. Calculate the new profit sharing ratio. (March 2017)
Answer:
3:1:3

Plus Two Accountancy Reconstitution of a Partnership Firm – Admission of Partner 2 Marks Important Questions

Question 17.
Balamony, a Plus Two student, prepared the follow-ing journal entries in connection with the reconstitu-tion of partnership firm.  (March 2009)

(i) For increase in the value of assets.
Revaluation Account Dr.
Asset Account

(ii) For decrease in the value of liability
Liability Account Dr.
Revaluation Account

(iii) For recording unrecorded asset Partner’s
Capital Account Dr.
Revaluation account

(iv) For transferring loss on revaluation on Partner’s
Capital account.
Cash Account Dr.
Old Partner’s Capital Account

After evaluating the above journal entries, make necessary corrections (if any) and rewrite them. (Score:2)
Answer:
a. Asset A/c Dr
To Revaluation A/c

b. Liability A/c Dr
To Revaluaton A/c

c. Asset A/c Dr
To Revaluaton A/c

d. Old Partner’s
Capital A/c Dr
To Revaluaton A/c

Question 18.
A firm runs by Akhil, Nikhii and Mukil earns a net profit of Rs. 12,000/- per year. Normally the firms in same type of business earns at a rate of 10%. If the firm’s total assets are of Rs. 1,50,000/- and external liabilities are for Rs. 50,000, what will be its value of Goodwill?  (June 2009) (May)
Answer:
Value of goodwill = Total value of business – Net assets
Total value of business
Net Assets = Assets – Liabilities
= 1,50,000 – 50,000 = 1,00,000
Goodwill = 1,20,000 -1,00,000 = 20,000

Question 19.
Merin and Mallu are partners sharing profits in the ratio 3:2. They admit Dillan as a partner for 1 /6th share and he brings Rs.40000 as his capital and could not bring any amount as goodwill. Even then the share of goodwill of Dillan is valued at Rs.10,000/-.  (June 2010)

Pass necessary entries regarding the above.
Answer:
Journal

Note: Since the ratio of the old partner’s does not change, the sacrificing ratio issimilarto old ratio ie. 3:2.
Dillan’s share of goodwill = 10000
Merin’s share of goodwill = 10000 x 3/5 = 6000
Mallu’s share of goodwill = 10000×2/5 = 4000

Question 20.
“At the time of admission of a partner revaluation of assets and liabilities will always benefit old partners”. Is this statement correct? Why?  (March 2010)
Answer:
Yes, when a partner admitted, he acquires the ownership rights of the assets and also makes himself responsible for the firms liabilities. He should not get any benefit from any appreciation in the value of assets or reduction of liabilities nor should he suffer because of any fall or depreciation in the value of assets or -increase of liabilities as on the date of admission. The result of revaluation (May be either profit or loss. It should be credited or debited to Old Partners Capital Account in their old ratio. It must be clearly understood that result of revalution does not concern the new partner, it always goes to old partners.

Question 21.
In the event of admission whether the incoming partner is entitled to the profit on revaluation of assets effected as on the data of admission. Offer your comments.  (March 2011)
Answer:
No. The profit or loss on revaluation should be . transformed to old partners capital account in old profit sharing ratio.

Question 22.
Fill up the empty boxes with correct answers.  (March 2013)

Answer:
I) Assets A/c Dr.
To Revaluation A/c

ii) LiabilityAlc Dr.
To Revaluation a/c.

iii) Asset A/c Dr.
To Revaluation a/c.

iv) Old partners capital a/cl Partners capital a/c Dr.
To Revaluation A/c.

Question 23.
Consider the following information and calculate Goodwill by super profit method.  (May 2013) (May)
1) Total capital employed
2) Normal Rate of Return 8%
3) Average Profit for the last 5 years Rs. 12,000
4) Remuneration to partners Rs. 3,000
5) Goodwill is estimated at 3 years purchase of super profits.
Answer:
Goodwill = Super profit x No. of years of purchase.
Superprofit = Average profit-Normal profit
Average profit = 12000-3000 (Remuneration) = 9000
Normal profit = Capital x Rate /100
= 100000×8/100 = 8000
Super profit = 9000 – 8000 = 1000
Goodwill = 1000×3 = 3000

Question 24.
On the date of admission of Mr.Baby Raj as an equal partner, Mr. Santhosh an existing partner has taken over the Plant and Machinery worth Rs. 30,000 at Rs. 36,000. The journal entry to record this will be (March 2014)

i) Santhosh’s Capital A/c Dr. Rs. 36,000
Plant and Machinery Rs. 30,000
Revaluation a/c Rs. 6,000

ii) Santhosh’s Capital A/c Dr. Rs. 30,000
Revaluation A/c Dr. Rs. 6,000
Plant and Machinery Rs.36,000

iii) Plant and Machinery Dr. Rs. 36,000
Santhosh Capital A/c Rs. 30,000
Revaluation A/c Rs. 6,000

iv) Santhosh’s Capital A/c Dr. Rs. 36,000
Revaluation A/c Rs.36,000
Answer:
i) Santhosh’s Capital A/c Dr. Rs. 36,000
Plant and Machinery Rs. 30,000
Revaluation a/c Rs. 6,000

Question 25.
General Reserve of ₹ 24,000 and Profit and Loss Account (Debit Balance) of ₹ 6,000 appearing in the balance sheet of partner’s P and Q on the admission of R is to be adjusted. Give the journal entries assuming that P and Q are equal partners. (May 2016)
Answer:
i) General reserve a/c Dr 24,000
P’s capital a/c Q’s capital a/

ii) P’s capital a/c Dr 3000
Q’s capital a/c Dr 3000
To P/L a/c

Plus Two Accountancy Reconstitution of a Partnership Firm – Admission of Partner 3 Marks Important Questions

Question 26.
The capital balances of Ram & Gopal at the time of admission of Menon stood as follows: (June 2009) (May)
Capital (Cr.)
Ram – 25,000/-
Gopal – 15,000/-
Other Relevant information:
General Reserve – 10,000/-
Profit & Loss A/c (Dr.) – 5000/-
Profit on revaluation – 3,850/-
Premium forgoodwill contributed by Menon – 5000/-

Profit sharing ratio of Ram & Gopal before the admission of Menon -3 : 2.
Agreed share of profit to Menon – 1/6.

If Ram & Gopal asked Mr. Menon to bring in sufficient cash for capital on the basis of their capitals and new profit sharing ratio, find the capital to be brought in by Menon.
Answer:
Capital accounts of Ram and Gopal

Old ratio = 3:2
New Partner (Menon)s share = 1/6
Ram’s new ratio = 5/6 x 3/5 = 15/30
Gopal’s new ratio = 5/6 x 2/5 = 10/30
Menon’s share = 1/6 = 5/30
Newratio= 15 : 10 : 5 = 3:2:1
Capitals of Ram and Gopal = 6/6 = 33310 + 20540 = 53850
Total capital = 53850 x 6/5 = 10770 x 6 = 64620
Capital to be brought In by Menon = 64620 – 5380 = 10770

Question 27.
Basheer and Firos started business by contributing capitals in the ratio 3: 2, which is their profit sharing ratio too.
TheirAsset – Liability position as on 31 March 2007 is as shown below:  (June 2009 (May)
Fixed Assets – 43,000
Current Assets (including cash Rs. 5,000) – 37,000
Current Liabilities – 30,000
They admit James into Partnership on the date of the Balance Sheet for 1 I 6 share, and agreed the following:
Capital to be contributed by James – 20,000
Revalued figures of Assets & Liabilities:
Fixed Assets – 43,200
Current assets excluding cash – 39,000
Current liabilities – 28,500
Unrecorded items: lnvements – 3,000
Repair bill outstanding – 800
Find the revaluation P & L
Answer:
Revaluation

Question 28.
Prepare a revaluation account from the following:  (June 2010)
Assets:
Plant and Machinery – 10000
Furniture – 3000
Patents – 7000
Stock – 3000
Liabilities: Creditors – 15000

The above items were revalued as follows:
a) Fixed assets revalued at 10% less.
b) Stock damaged wholly by a fire occurred and become valueless.
c) Claims received against the loss of value of stock Rs.2000.
d) Repair bill of Rs.1000 is not in the books of accounts remain unpaid.
Answer:
Revaluation a/c

Question 29.
List out the circumstances in which reconstitution of partnership firm can take place. (March 2011)
Answer:
a) Change in the profit sharing ratio of the existing partners
b) Admission of a new partner
c) Retirement of an existing partner
d) Death of a partner.
e) Amalgamation of two partnership firms.

Question 30.
Profits of Amco Ltd. for the year ended 31st March for the last five years were given below: (May 2011)
Year – Profit
1999 – 25,000
2000 – 40,000
2001 – 75,000
2002 – 35,000
2003 – 45,000
Calculate the value of the Goodwill on the basis of 3 years purchase of the weighted average profit, after weights 1, 2, 3, 4 & 5 respectively to the profit for 1999, 2000, 2001, 2002 & 2003.
Answer:
Goodwill= Weighted Average Profit x No. of years of purchase

Profit	Weight	Product
25000 40000 75000 35000 45000	1 2 3 4 5	25000 80000 225000 140000 225000
	15	695000

Weight Average Profit = \(\frac { 695000 }{ 15 } =\quad 46333\)
Goodwill = 46333 x 3 = 138999

Question 31.
A, B, C are partners in a firm sharing profits and losses in the ratio of 3:2:1, D is admitted into partnership for a %th share in the future profits, which he gets 1/8the form A and 1/8th form B. The total capital of the firm is agreed upon Rs. 1,20,000 and D is to bring in cash equivalent 1/4th of this amount as his capital. The capital of other-partners are to be adjusted in the ratio of their respective shares in the profit and losses. The respective capital of partners after all adjustment have been : A Rs. 40,000, B Rs. 35,000 & C Rs. 30,000. Calculate Final Capital of A, B & C.  (May 2011)
Answer:
New Ratio

18 : 10 : 8 : 12 → 9 : 5 : 4 : 6 Total Capital = 120000 Balance c/d = Total Capital x New Ratio
A = 120000 x 9/24 = 45000
B = 120000 x 5/24 = 25000
C = 120000 x 4/24 = 20000
D = 120000 x 6/24 = 30000
Final Capital of A, B & C
A = 45000 B = 25000 C = 20000

Question 32.
Aditya and Arjun are partners in a firm, sharing profits/ losses in the ratio of 3 : 2. They admitted Abhishek in the partnership for 1/6th share in future profit. Abhishek brought Rs. 24,000/- as his share of goodwill. Out of this goodwill, half of the amount was withdrawn by Aditya and Arjun. (March 2012)

Pass necessary journal entries in the books of the firm.
Answer:
Journal

Question 33.
The profits of Mahesh and Co. for the last five years were: (March 2013)
2005 – Rs. 35,000
2006 – Rs. 30,000
2007 – Rs. 27,500
2008 – Rs.25,000
2009 – Rs.20,000

The capital employed in the firm is Rs. 5,00,000. You are required to calculate the goodwill at 3 years purchase of super-profits. The normal rate of return on capital employed is 5%.
Answer:
Average Profit = \(\frac { 35000 + 30000 + 27500 + 25000 + 20000 }{ 5 }\)
= 27500
Capital employed = 500000
Normal Profit = Capital employed x Normal Rate of Return
= 500000 x 5/100 = 25000
Super Profit = Average Profit – Normal Profit
= 27500 – 25000 = 2500
Goodwill = Super profit x No. of years purchase
= 2500 x 3 = 7500

Question 34.
Menon and Varma are partners sharing profits and losses in the ratio 2:3. They admit Jyothi for2/5th shares which she acquired equally from Menon and Varma. Calculate the new ratio and sacrificing ratio. (May 2013) (May)
Answer:
Old ratio = 2:3
Jyothi’s share of profit = 2/5
Menon’s sacrifice = \(\frac { 2 }{ 5 } +\frac { 1 }{ 2 } +\frac { 2 }{ 10 }\)
Varma’s sacrifice = \(\frac { 2 }{ 5 } +\frac { 1 }{ 2 } +\frac { 2 }{ 10 }\)
Menon’s new share = old share – his sacrifice

Question 35.
A business has earned average profits of Rs.1,44,000 during the last few years and the normal rate of return in similar type of business is 12%. The net assets of the firm are Rs, 8,20,000. Arun dnd company are decided to acquire the business. Help him to calculate the goodwill of the business by capitalization method. (March 2014)
Answer:
Goodwill calculation by Capitalisation of Averacie profit
Goodwill = Total value of the business – Net assets

Question 36.
A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. They decide to admit ‘C’ into partnership with 1/4 share in profits. C brings in Rs.30,000 for capital and the requisite amount of premium in cash. The goodwill of the firm is valued at Rs.20,000. The new profit sharing ratio is 2.: 1:1. A and B withdraw their share of goodwill. Give necessary journal entries. (March 2016)
Answer:
The good will of the firm = 20,000
C’s share of good will = 20,000 x 1/4 = 5000
Old ratio = 3:2
New ratio = 2:1:1
A’s sacrifice = \(\frac { 3 }{ 5 } +\frac { 2 }{ 4 } +\frac { 12-10 }{ 20 } =\quad \frac { 2 }{ 20 }\)
B’s sacrifice = \(\frac { 2 }{ 5 } -\frac { 1 }{ 4 } =\frac { 8-5 }{ 20 } =\frac { 3 }{ 20 }\)
Sacrificing ratio: 2:3

Journal Entries

Question 37.
Anju and Manju are partners sharing profits in the ratio of 2:1. Sanju is admitted into the firm for 1/4 share of profits. Sanju brings in Rs.20,000 in respect of his capital. The capitals of old partners Anju and Manju, after all adjustments relating to goodwill, revaluation of assets and liabilities etc., are Rs. (March 2016)

45.0 and Rs.15,000 respectively. It is agreed that partners capitals should be according to the new profit sharing ratio.

Determine the new capitals of Anju and Manju and record the necessary journal entries assuming that the partner whose capital falls short, brings in the amount of deficiency and the partner who has an excess, withdraws the excess amount.
Answer:
New ratio = Balance share x old ratio
Anju’s new share \(=3 / 4 \times \frac{2}{3}=\frac{6}{12}\)
Manju’s new share \(=\frac{3}{4} \times \frac{1}{3}=\frac{3}{12}\)
Sanju’s share of profit \(=\frac{1}{4}=\frac{3}{12}\)
New ratio = 6:3:3 = 2:1:1
Total capital of the new firm = 20,000 x 4/1 = 80,000
Anju’s new capital = 80,000 x 2/4 = 40,000
Manju’s new capital = 80,000 x 1/4 = 20,000
The existing capital of Anju = 45000
Excess (Anju) = 5000
The existing capital of maju = 15,000
Deficit (Maju) = 5000

Journal Entries

Question 38.
The capital of the firm of Mohan and Rissam is Rs. 75,0 and the rate of interest is 15%. Annual salary to partners is Rs. 5,000 each. The profit forthe last 3 years were Rs.36,000,38,000 and 31,000. Goodwill is to be valued at 2 years purchase of the last 3 years average super profits. Calculate goodwill of the firm. (March 2017)
Answer:
Goodwill = Super profit x No. of years purchase.
Super profit = Actual /Average profit – Normal Profit
Average profit = \(\frac{36,000+38,000+31,000}{3}\)
= 35,000
Normal profit = Interest on capital + Partner’s salary

Plus Two Accountancy Reconstitution of a Partnership Firm – Admission of Partner 5 Marks Important Questions

Question 39.
Suma and Josephine carried on business in partnership since 1995 sharing profits and losses in the ratio of 2:1 respectively. They admitted John on 1st April, 1999 for 2/7 share. The actual value of goodwill, however, on that date was Rs. 21,000. John contributed the following assets towards payment of his capital and goodwill. (March 2010)

Cash – Rs. 1,000
Sundry Debtors – Rs. 5,000
Stock – Rs. 6,000 and
Goodwill – Rs. 5,000

Pass necessary journal entries to give effect to the above. Also give the new profit sharing ratio of the new partners.

Calculation of New Profit sharing ratio Old ratio = 2:1
New partners share of profit = 2/7
New ratio = Old ratio x Balance share
New ratio of Suma = 2/3 x 5/7 = 10/21
New ratio of Josephine = 1 /3 x 5/7 = 5/21
John’s ratio = 2/7 = 6/21
New ratio = 10 : 5 : 6

Journal

Question 40.
M and N are partners sharing profits and losses in the ratio of 2:1. Their Balance Sheet as on 31st December 2010) was as follows: (March 2012)

Balance Sheet

‘P’ is admitted into the firm with %th share in profits on the following terms.
a) Market value of Investments are to be taken at Rs. 4,500.
b) Claim on account of workmen’s compensation is estimated at Rs. 250.
c) Accrued Income not appearing in the books Rs. 100.
d) Building were found undervalued by Rs. 5,000.
e) Patents should be written off
f) Provision for doubtful debts be increased to 10% of debtors
g) P bring Rs. 30,000 as capital and Rs. 10,000 as his share of goodwill.

Pass Journal entries and prepare the Revaluation Account and ascertain the revaluation profit.
Answer:
Journal

Revaluation A/c

Qn. 41.
Violet’ and indigo’ are partners in a flim shanng proirts and losses in the ratio of 5:3 with a capital of Rs. 45,000 and Rs. 35,000 respectively. They admit ‘blue’ as a partner and the new profits sharing ratio becomes 5:3:2. Blue is asked to contribute to proportionate capital. (March 2013)

a) Calculate the amount of capital to be contributed by ‘Blue’.
b) What adjustments are to be made in the capitals of ‘Violet’ and ‘Indigo’ if it is agreed that the capitals of Violet and Indigo, as between themselves, are also to be adjusted in profit sharing ratio by either paying in or withdrawing cash?

Hint: Calculate the total capital of the firm. Then find out the shortage or surplus in the capitals of ‘Violet’ and ‘Indigo’.
Answer:
Total capital of violet and Indigo = 45000 + 35000 = 80000

Question 42.
P & Q are partners sharing profits and losses in the ratio of 3:2. On 1st Jan. 2012) they admitted ‘R’ into the firm. ‘R’ brought in Rs. 2,00,000 for his capital, but he was not in a position to bring his share of goodwill. The goodwill of the firm was valued at Rs. 3.0. 000. Existing goodwill in the book is for Rs. 6.0. 000. The new profit sharing ratio is 2:1:1. Pass necessary entries at the time of admission. (March 2013)
Answer:
Sacrificing ratio = old ratio – new ratio
\(P’s sacrifice =3 /{ }_{5}-2 / 4=2 / 20
Q’s sacrifice =2 /{ }_{6}-1 /{ }_{4}={ }^{3} /{ }_{20}\)
R’s ratio = 1/4
Sacrificing ratio = 2:3
R’s share of goodwill = 300000 x 1/4 = 75000

Question 43.
Anju and Manju were in partnership, who were sharing profits and losses equally. Their Balance Sheet as on 31 -03-2012 was as follows : (May 2013) (May)

Balance Sheet as on 31-03-2012

Sanju is admitted as a partner on 31-03-2012) on the following terms.
a) Sanju will bring in Rs. 40,000 as his capital
b) Plant and Machinery will be increased by Rs. 5,000
c) Furniture should be appreciated by 20%
d) Stock should be reduced by Rs. 3,000
e) Creditors be reduced by Rs. 1000
Answer:
Revaluation A/c

Partners Capital A/c

Question 44.
J and K are partners in a firm, sharing profit and losses in the ratio of 3:2. (March 2017)

Balance sheet of J & K as on 1st April, 2016

L is admitted on the following terms:
1) L will bring Rs. 15,000 as capital and Rs.5,000 as premium for goodwill for 1/6 share.
2) The value of stock is reduced by 10% and plant and machinery increased by 5%.
3) Investment worth Rs.1,500 (not mentioned in the Balance Sheet) is to be taken into account. Prepare revaluation account and capital account of partners.
Answer:
Revaluation A/c

Plus Two Accountancy Accounting for Not For Profit Organisation 8 Marks Important Questions

Question 45.
Asif, Biju and Britto trading in partnership and sharing profits and losses in the proportion of 1/2,1/3 and 1/ 6 respectively desire to keep up a working partner when their balance sheet stood as follows: (March 2009)

They agreed to admit Pradeep into partnership and give him 1/10 share on the following terms.
(i) That Pradeep should bring in Rs. 30,000 as good-will and Rs. 1,28,000 as his capital.
(ii) That machinery is depreciated at 12%.
(iii) That stock be revalued at Rs. 2,61,000.
(iv) That a reserve of 5% be created fordoubtful debts.
(v) That the value of land and buildings be brought upto Rs. 6,20,000.
(vi) That after making the above adjustments the capital accounts of the old partners be adjusted on the basis of proportion of Pradeep’s Capital to his share in the business, (i.e. actual cash to be paid off or to be brought in by old partners, as the case (May be)

Prepare necessary ledger accounts and the balance sheet of the firm as newly constituted. Show your workings regarding determination of new profit shar-ing ratio and capital balances.

Answer:
(a) Revaluation Account

Capital Accounts

New Ratio = 9:6:3:2
Total Capital = 12,80,000

Balance Sheet

Question 46.
The Balance Sheet of Sheena and Shyja who were sharing profits in the ratio of 5:3 respectively as on 31st March, 2007 was as follows: (March 2009)

On the above date, Bindu was admitted on the fol-lowing terms:
(a) Bindu was to get 1/5 share in the profits.
(b) Bindu was to pay Rs. 50,000 as Capital and Rs. 16,0 for her share of goodwill.
(c) Machinery was to be depreciated by 10% and buildings was to be appreciated by 20%.
(d) Stock was revalued at 25% above cost. It was to be brought into the books of the new firm at cost price..
(e) There was a liability for repairs to furniture amounting to Rs. 600, the same was to be recorded in books.
(f) Capital accounts of the old partners were to be adjusted in the new profit sharing ratio by open-ing the necessary current accounts.

Prepare Revaluation Account, Capital Accounts and the initial Balance Sheet of the new firm. Scores:8
Answer:
Revaluation Ale

Capital Account

Balance Sheet

Question 47.
Vinu and Sonu are in partnership sharing in proportion of 3/5 and 2/5 respectively. Their balance sheet as on 31-03-2009) stood as under: (March 2011)

They admit Minu for 1/3 share of the firm upon the condition that she is to pay Rs. 1,000 for goodwill and sufficient capital to give her 1/3 share of the total capital of the new firm. Bad dept provision is to be reduced to Rs. 100, that the stock be revalued at Rs. 2,000 and plant be revalued at Rs. 500.

Pass journal entries to give effect to the above and show Balance Sheet of the new firm.
Answer:
Journal

Balance Sheet

Note:
Sacrificing ratio = 3: 2
New ratio calculation = Balance share x old ratio

Calculation of capital to be brouaht in by Minu based on old partners capital account.
Vinu’s capital after adjustment = 2990
Sonu’s capital after adjustment = 1660
Total capital of Vinu and Sonu = 4650
For 2/3 share in profit, capital required is = 4650
Therefore, total capital of the new firm should be

Question 48.
Sachin and Ganguly are partners in a firm sharing profits and losses equally. (June 2012)

The Balance Sheet on 31 st (March 2008 is given below:

On this date, they admitted Dravid as partner on the following terms:
a) Dravid should bring Rs. 20000 as capital for 1/3 share and Rs.10000 for goodwill.
b) Land and Buildings is revalued at Rs.100000 and Stock at 10% less than book value.
c) Debtors be provided Rs.2500 for doubtful debts. Prepare Revaluation a/c, Capital a/cs and Bal-ance sheet after the admission of Dravid.
Answer:
Revaluation a/c

Capital A/c

Balance sheet

Question 49.
Following is the Balance Sheet of A and B who were sharing profits in the ratio of 3 : 2. (March 2012)

Balance Sheet as on 1st July 2009

On that day C is admitted into the partnership on the following terms:
a) C should bring Rs. 40,000 as capital and Rs. 10,0 as premium for goodwill for 1/6th share of future profit.
b) Value of plant and machinery be reduced by 10%.
c) Stock in trade is revalued at Rs. 30,000.
d) Value of furniture is increased by Rs. 4,000.
e) It was found that creditors included a sum of Rs. 3,000 which was not to be paid.
f) A provision for doubtful debt is to be created on sundry debtors at 5% and Rs. 1,600 is to be created in respect of outstanding printing bill.

Show required journal entries and prepare Revalua-tion and Capital Accounts of Partners.
Answer:
Journal

Revaluation A/c Dr

Capital A/c

Question 50.
Given below is the Balance sheet of Jacob and Joseph who are sharing profits in the ratio of 3:2 as on March 31st 2011.

James is admitted as a new partner on the above date on the following terms: (May 2013) (May)
a) James will bring Rs.10000 for his capital and the necessary amount of premium in cash for 2/7th share in future profits. The goodwill of the firm has been valued at Rs. 140000.
b) Stock revalued at Rs. 70,000.
c) Write down plant and machinery by 10%.
d) Provision for bad and doubtful debts should be increased to Rs. 3000
e) Unexpired insurance of Rs. 1500 should be brought into record.

Record the necessary journal entries and prepare Revaluation Account and Partners Capital Account and show the Balance Sheet after the admission of James.
Answer:
Revaluation A/c

Capital A/c

Balance sheet

Old ratio = 3:2
James’ share of profit = 2/7
Sacrificing ratio = 3:2
The Goodwill of the firm = 140000
James’ share of goodwill = 140000 x 2/7 = 40000
Share of Goodwill credited to Jacob’s capital a/c = 40000 x 3/5 = 24000
Share of Goodwill credited to Joseph’s capital a/c = 40000 x 2/5 = 16000

Question 51.
Aneesh and Akhil were in partnership, who were sharing profits and losses equally. Their Balance Sheet as on 31.03.2013) was as follows: (March 2014)

Balance Sheet as on 31.03.2013

	Rs.		Rs.
Capital A/c’s Aneesh Akhil Creditors Bills Payable	60000 40000 60000 6000	Cash Debtors Stock Furniture Plant & Machinery	6000 40000 80000 10000 30000
	166000		166000

Ajith is admitted as a partner on the date of the Balance Sheet on the following terms:

• Ajith will bring in Rs. 80000 as his capital.
• Plant and Machinery will be increased by Rs. 10,000
• Furniture should be appreciated by 20%.
• Stock should be reduced by Rs. 6,000.
• A provision for bad and doubtful debts is to be created at 5% on debtors.
• Creditors be reduced by Rs. 2,000.

Prepare Revaluation Account and Capital Accounts.
Answer:
Revaluation A/c

Capital A/c

Balance Sheet

Question 52.
Salim and Karim are partners in a firm sharing Profit and Losses equally. Their Balance sheet as on 31st (March 2013) was as follows: (March 2014)

On this day they admitted Rahim as a partner on the following terms:
a) Rahim should bring Rs.20,000 as capital for 1/3 share and Rs. 10,000 for goodwill.
b) Land and Buildings is revalued at Rs.100000 and stock at 10% less than book value.
c) Debtors are provided Rs.2,500 for Doubtful debts. Give journal entries and prepare Revaluation Account, Capital Account and Balance Sheet afterthe admission of Rahim.
Answer:
Journal

Revaluation A/c

Capital A/c

Balance Sheet

Question 53.
a) Dany, Johny and Shony are in partnership, sharing profits in the proportion of 4:3:3 respectively. The partnership agreement states that the goodwill of the firm shall be equal to three times of the average profits of the four years to the date of change. No goodwill account is to be maintained in the books. Profits of the firm have been: (May 2016)
2001 – 12,000
2002 – 9,000
2003 – 15,000
2004 – 16,000
Glady was admitted in to the partnership on 1-01-2005 and the new profit sharing ratios were : Dany 3/10, Johny 3/10, Shony 2/10, and Gladyio 2/10.

Glady brought in to the partnership a Capital of 30,000. The Capital account balances of the old partners on 01-01-2005, were:

Dany ₹ 40,000
Johny ₹ 40,000
Shony ₹ 30,000

You are required to show the Capital accounts of the partners after the admission of Glady.
Answer:
Calculation of good will
Good will = Average profit x 3 years purchase Average Profit

Question 54.
A and B sharing profits and losses in the ratio of 3:2, admit ‘C’ as a partner who is asked to contribute ₹ 30,000 as capital for – share in the future profits of the firm. A and B have capitals of ₹ 60,000 and ₹ 25,000 respectively, after making all adjustments. It is agreed that capital contribution of each partner will be in the profit-sharing ratio taking ‘C’s contribution as basis.Any excess or deficit should be adjusted in cash. Calculate the amounts to be brought in by, or to be paid off to A and B. Also give journal entries for the above adjustments. (May 2016)
Answer:
Total capital of the firm = 30,000 x 4 = 1,20,000
Old ratio = 3:2,

New capital of B = 1 ,20,000 x 6/20 = 36OOO
Existing capital of A = 60,000
A has surplus = 60,000 – 54000 = 6000
Existing capital of B = 25,000
B has deficit = 25000 – 36000 = 11,000

Journal Entry

Kerala State Board New Syllabus Plus Two Accountancy Chapter Wise Previous Questions and Answers Chapter 2 Accounting for Partnership – Basic Concepts.

Kerala Plus Two Accountancy Chapter Wise Previous Questions Chapter 2 Accounting for Partnership – Basic Concepts

Plus Two Accountancy Accounting for Partnership – Basic Concepts 1 Marks Important Questions

Question 1.
Which of the following is not an item in the profit and loss appropriation account? (June 2010)
a) Interest on capital
b) Salary paid to partner
c) Interest allowed to partner’s loan.
d) None of the above
Answer:
d) None of the above

Question 2.
Find the odd one and state reason, (May 2011)
a) Interest on Capital
b) Interest on Loan
c) Salary to partners
d) Bonus to partners
Answer:
b) Interest on Loan – Charge againt profit – All others are appropriation of profit.

Question 3.
Which of the following account is credited with inter-est on capital under fixed capital method? (March 2012)
a) Profit and Loss Appropriation Account.
b) Profit and Loss Account
c) Capital Account
d) Current Account
Answer:
d) Current Account

Question 4.
Partners Salary is debited to a/c (May 2013)
a) Trading
b) Profit and Loss
c) Capital
Answer:
d) Profit and Loss Appropriation p d. Profit and Loss Appropriation a/c

Question 5.
In the absence of any agreement partners will share profit and losses in the ratio. (May 2013)
a) Gaining
b) Equal
c) Sacrificing
d) Capital
Answer:
b-Equal ratio

Question 6.
Under fixed capital method, interest on drawings is debited in A/c. (March 2016)
Answer:
Partner’s current A/c

Question 7.
What is the journal entry to be passed for transferring partners salary to partner’s capital account? (March 2016)
Answer:
Partner’s salary A/c Dr To partner’s capital A/c

Question 8.
If partners are entitled to interest on capital as per agreement, such interest is payable (May 2016)
a) Only out of bank balance
b) Only out of capital
c) Only out of profits
d) Only out of sales
Answer:
c) Only out of profits

Question 9.
Firoz and Shahin are partners in a firm. The firm did not have any partnership deed. Specify how the following situations are treated. (March 2017)
a) Sharing of profit and losses.
b) Interest on advance given by Firoz to the firm.
Answer:
a) Profits and losses are to be shared equally among partners.
b) Firoz is entitled to get an interest of 6% p.a.

Question 10.
Partners capital account and current account are not maintained separately under ………………. method of maintaining capital account. (March 2017)
Answer:
Fluctuating capita method

Plus Two Accountancy Accounting for Partnership – Basic Concepts 2 Marks Important Questions

Question 11.
Partner of a firm withdraw Rs. 6,000/- during the year. The accountant changed Rs, 300/- as interest on the same at 10% rate of interest. If it correct? Show the calculation. (June 2009)
Answer:
Correct
Interest on drawings = Amount of drawings x Rate of interest x 6/12
= 6000 x 10/100 x 6/12 = 300

Assumption : The date of drawings is not given. In such case the interest should be 6 months on the whole of the amount.

Question 12.
Analyse the following table and fill up the blank columns: (March 2010)

Basis of Distinction	Drawings against profit	Drawings against capital
1) Where debited	(a) ?	To capital account
2) Part	Part of the expected profit	(b) ?
3) Effect	(c) ?	Reduces capital
4) Interest	(d) ?	Considered to calculate interest on capital

Answer:
a) Drawing
b) Part of capital
c) Reduces Profit
d) Considered to calculate interest on drawing

Question 13.
Dileep and Vipin are partners. Dileep’s capital is Rs. 10,000 and Vipin’s capital is Rs. 6,000. Interest is payable @ 6% p.a. Vipin is entitled to a salary of Rs. 300 per month. Profit for the current year before interest and salary to Vipin is rs. 8,000. Divide the profit between Dileep and Vipin. (March 2009)
Answer:
P & L Appropriation A/c

Question 14.
Anu, Minu & Sinu are in Partnership with a profit sharing ratio of 2:1 :1, but Sinu is given a guarantee to get a minimum profit of Rs. 20,000/. During the year the firm get a net profit of Rs. 1,00,000/- then what will be the share of profit due to Sinu? (June 2009) (May)
Answer:
A:M:S = 2:1:1
Guaranteed amount of profit = 20,000
Net Profit = 1,00,000
Sinu’s share = 1/4 = 1,00,000x 1/4 = 25,000
Sinu should get her actual share of profit ie.
Rs. 25,000. Since her actual share of profit is more than the guaranteed amount of Rs. 20,000/-.

Question 15.
Kiran and Keerti are partners sharing profits in the ratio 3:2. Their capital accounts as on the closing date of the year was Rs.60,000 and Rs.40000 respectively. During the year they made a net profit of Rs.50,000, it was subsequently found that the interest on capital entitled to the partners @ 6% per annum is omitted to record in the books. During the year they withdrew Rs.10000 and Rs.5000 respectively. Find the amount of interest on capital. (June 2010)
Answer:
Calculation of opening capital

Interest on capital
Kiran = 40000 x 6/100 = 2400
Keerthi = 25000 x 6/100 = 1500

Question 16.
A, B & C are partners haring profits and losses in the ratio of 3:2:1 arid their Profit and Loss A/c showed a credit balance of Rs. 24,000. But, on 1st July of the same yearthey decided to share profits and losses equally. What adjusting entry need be made to make necessary effect without closing the profit and loss account?  (May 2011)
Answer:

C’s Capital A/c Dr To A’s Capital A/c (P & L are adjusted)

4,000

4,000

Question 17.
Prasanth and Janish are partners. They do not have any partnership agreement. What should be done in the following cases? (May 2016)
i) Prasanth spends twice the time that Janish de-votes to business. Prasanth claims that he should get a salary of?3,000 per month for his extra time spent.
ii) Prasanth wants to introduce his son Shenoi as a partner. Janish objects to it.
Answer:
i) No salary will be paid to Prasant
ii) Shenoi will not be admitted as a partner

Plus Two Accountancy Accounting for Partnership – Basic Concepts 3 Marks Important Questions

Question 18.
What is a Partnership Deed? Give any four items to be included in it. (March 2016)
Answer:
Partnership deed is a written document which contains the rules and regulations regarding the conduct of business.

Contents of partnership deed:-

• Name and address of the firm
• Name and address of partner
• Nature of business
• Duration of partnership
• Capital contributions

Question 19.
Anwar a partner in Akbar Travels withdraw money during the year ending 31st (March 2016) from his capital account for his personal use. Calculate interest on drawings on the following situations if rate of interest is 9% p.a.. (March 2017)
a) If he withdrew Rs. 2,500 per month at the begin-ning of the month.
b) If the amount withdrawn were on 1-6-2015, Rs.7,500, on 31-8-2015 Rs. 3,000 and 30-9-2015 Rs. 6,500
Answer:
a) Total amount withdrawn by Anwar = 2500 x 12 = 30,000
Interest on drawings = Total drawings x Rate x Average Period
Average period = \(\frac { 12+1 }{ 2 } =6.5\) months Interest on drawings
= 30,000 x \(\frac { 9 }{ 100 }\) x \(\frac { 6.5 }{ 12 }\) = 1462.50
b)

Date	Amount of Drawings	Months for which interest to be charged	Product
01-6-2015 31-8-2015 30-9-2015	7500 3000 6500	10 (June to March) 7 (Sept. to March) 6 (October to March) Total	75,000 21,000 39,000
			1,35,000

Interest on drawings = 1,35000 x \(\frac { 9 }{ 100 }\) = 12,150
Interest for one month = 12,150 x \(\frac { 1 }{ 12 }\) = 1012.50

Plus Two Accountancy Accounting for Partnership – Basic Concepts 5 Marks Important Questions

Question 20.
Alim and Methew made a serious discussion about the possibilities of starting a bakery shop as a partnership firm. Alim pointed out several peculiar features that their business should have. Mathew insisted for a written partnership deed and put forward _ some contents to be included in it. Imagine their discussion: (March 2009)
(a) Write two points raised by Alim.
(b) Justify Mathew’s argument.
Answer:
(a) 1) Partnership is the relation between two or more persons.
2) Partnership are governed by Indian Partnership Act, 1932.

(b) Partnership deed is a written document containing the rules and regulations regarding the conduct of business. It contains.

• Name and address of the firm
• Names and addresses of partners
• Duration of Partnership
• Nature of business
• Salary, commission etc. payable to partners
• Profit-sharing ratio

Question 21.
Zeema and Neemsa are partners from 1st Jan, 2008 without partnership agreement and they introduced capitals of Rs. 70,000 and Rs. 40,000 respectively. On 1st July, 2008 Zeema advances Rs. 15,000 by way of loan to the firm without any agreement as to interest. The profit and loss account for the year 2008 discloses a profit of Rs. 16,450, but the partners cannot agree upon question of interest or upon the basis of division of profits. You are required to divide the profit between them giving reasons for your method. (March 2010)

Hint: Prepare Profit and Loss Appropriation Account.
Answer:
Profit as per P/L a/c – Rs. 16450
Less: interest on loan to the firm (15000 x 6/100 x 6/12) – Rs. 450
Actual Profit – Rs. 16000
Zeema’s share of profit = 16000 x 1/2 = 8000
Neema’s share of profit = 16000 x 1/2 = 8000

If any partner has given a loan to the firm is addition to his/her share capital, he/she shall be entitled to

interest on such loan @ 6% p.a. Such interest shall be paid even if the firm making any profit. If there is no written agreement, profits and losses are to be shared equally among partners.

Question 22.
Sumi and Mini are partners sharing profits in the ratio of 3: 2. Their capital stood at Rs. 50,000 and Rs. 30,000 respectively. As per the deed interest on capital is payable at 6% p.a. Mini is entitled to an annual salary of Rs. 2,500. The firm has reported a profit of Rs. 12,500 before charging interest on capital but after charging Mini’s salary for the year ending on 31-03-2009). (March 2011)

Towards Manager’s Commission a provision of 5% is to be made.

Prepare P & L Appropriation Account and partner’s Capital A/c.
Answer:
Profit and Loss Appropriation A/c

Capital A/c

Question 23.
Using the following information prepare the Capital Account of Sri. Ganesh and find out his share of profit. (March 2012)

Capital on 1 -4-2009. Rs. 1,00,000
Capital on 31-3-2010. 2,00,000
Drawings during the year 30,000
Interest on drawings 1,500
Additional capital introduced 50,000
Interest on capital 2,500
Salary and commission 3,750
Answer:
Ganesh’s Capital A/c

Question 24.
P, Q and R are partners in a firm sharing profits/ losses in the ratio of 5:3:2. But R is guaranteed with a minimum amount of Rs. 15,000/- as his share of profit every year. Any deficiency arising on that account shall be met by Q. The profits for the 2 years ending on 31st December 2008 and 2009) were Rs. 60,000 and Rs. 90,000 respectively.  (March 2012)

Prepare Profit and Loss Appropriation Account for the two years.
Answer:
Profit and Loss Appropriation A/c for the year 2008 & 2009)

Note:
P’s Share of profit in the year 2008 – 60000 x 5/10 = 30000
P’s Share of profit in the year 2009) – 90000 x 5/100 = 45000
Q’s Share of profit in the year 2008 – 60000 x 3/100 = 18000
Less : Guaranteed amount 15000, 3000
Q’s Share of profit in the year 2009) – 90000 x 3/100 = 27000

Question 25.
Anil and Sunil commenced business as partners on 1st April 2008. Anil contributed Rs. 125000 and Sunil contributed Rs.75000 as their share of capital. The partners decided to share profits and losses in the ratio of 2:1. Anil was entitled a salary of Rs.1500 per month. Interest on capital was to be provided @ 6% p.a.  (June 2012)

The drawings of Anil and Sunil forthe year ending 31st (March 2009) were Rs. 12000 and Rs.24000 re-spectively. The profits of the firm after providing for Anil’s salary and interest on capital were Rs.36000. Draw up the capital accounts of the partners when;
a) Capital are fluctuating
b) Capital are fixed.
Answer:
a) Capital are fluctuating
Partner’s Capital A/c

b) Capital are fixed
Partner’s Capital A/c

Partner’s Current A/c

Question 26.
Arya and Meera are partners. They do not have any partnership agreement. What should be done in the following cases?  (March 2013)
a) Arya wants to introduce her son Hari into the business. Meera objects to it.
b) Meera wants that profits should be distributed in the ratio of capitals but Arya wants that it should be distributed equally. Give reasons for your answer.
Answer:
a) Hari will not be admitted as a partner. According to the Indian partnership Act, a new partner can be admitted into the firm only with the consent of all the existing partners unless otherwise agreed upon.
b) Profit will be distributed equally.
Reason:- In the absence of any written agreement between partners, the profits and losses will be shared equally.

Question 27.
R and S started business on 1st January 2009). On first January 2012), R had a capital balance of Rs.80000 and S had Rs.60000 as capital. According to partnership deed interest on Capital and drawings are 12% and 10% respectively. R and S are to get Rs.2000 and Rs.3000 as salary per month.The profits for the year ending 31st December 2012) before making the above appropriation was Rs. 100300. Drawings of R and S were Rs.40000 and 50000 respectively. Interest on Drawings amounted to Rs.2000 for R and Rs.2500 for S. Prepare Profit and Loss Appropriation Account and Capital Accounts assuming the Capitals are fluctuating. Profits are shared in the ratio 4:3.  (May 2013) (May)
Answer:
Profit and Loss Appropriation A/c

Capital A/c

Kerala State Board New Syllabus Plus Two Economics Chapter Wise Previous Questions and Answers Part I Chapter 1 Introduction.

Kerala Plus Two Microeconomics Chapter Wise Previous Questions Chapter 1 Introduction to Microeconomics

Question 1.
How each of the following affects the Production Possibility Curve of an Economy? (MARCH – 2008)
a) The number of employed workers increase.
b) Tsunami destroys some production facilities.
c) Introduction of capital intensive technique.
d) Increase in fuel price.
Answer:
PPC shifts outward
b) PPC shifts inwards
c) PPC shifts outwards
d) PPC shifts inwards

Question 2.
Below is given a Production Possibility Schedule (MARCH – 2008)

a) Draw the Production Possibility Curve.
b) Prepare the Marginal Opportunity cost in a table based o the PPC.
Answer:
a) 

b)

Cotton	Rice	MOC
350	0	–
300	50	50
250	75	25
170	120	45
100	150	30
50	180	30

Question 3.
Micro Economics is otherwise known as “price theory”. Do you agree with this statement? Justify your answer. (MARCH – 2009)
Answer:
Yes.
It is related to the theory of product and factor pricing.

Question 4.
Some Economic Variables are given below. Classify them in a table based on two branches of Economics. Give suitable titles to the column.
General price level, Aggregate consumption,Rent for a house in a city, Demand forfish in a local market. (MARCH – 2009)
Answer:

Micro	Macro
Rent for a house in a city	General price level
Demand for fish in a local market	Aggregate consumption

Question 5.
A production possibility schedule is given below (MAY-2010)

a) Calculate M.O.C
b) What is the shape of PPC?
Answer:
a)

b) downward slope

Question 6.
Complete the following table : (MARCH-2012)

Features of centrally planned economy	Features of market economy
1.	1.
2.	2.

Answer:

Features of centrally planned economy	Features of market economy
1. Comprehensive planning	1. Price mechanism
2. Public sector	2. Profit motive
3. Public Welfare	3. Private sector

Question 7.
Mention one example for each of the following market structures. (MARCH-2013)
i) Monopoly
ii) Monopolistic competition
Answer:
i) monopoly – Indian railway
ii) monopolistic competition – tooth paste

Question 8.
In a centrally planned economy all important decisions regarding production, exchange and consumption are taken by (MARCH-2014)
a) The Government
b) The Market
c) Either of (a) and (b)
d) The Central Bank
Answer:
The Government

Question 9.
Among the three statements given, which statement is a normative statement? (MAY-2014)
a) People work hard if wages are high.
b) The unemployment rate should be lower
c) Printing too much of money causes inflation.
Answer:
a) people work hard if wages are high.

Question 10.
Who is known as the father of modern Macro Economics? (MARCH-2015)
a) Adam Smith
b) Alfred Marshall
c) J.M.Keynes
d) J.B.Say
Answer:
c) J.M.Keynes

Question 11.
Prepare a production possibility Schedule and draw a production possibility curve on the basis of the schedule, how do you define the PPC? (MAY-2015)
Answer:
Production possibility curve is the locus of combinations of two goods that can be produced when the resources of the economy are fully utilized. Given below a production possible schedule and a production possibility curve.

Production possibilities	Wheat	Rubber
A	0	500
B	5	400
C	10	300
D	15	200
E	20	100
F	25	0

Question 12.
The choice of technology is associated with (MARCH-2016)
a) What to produce?
b) Howto produce?
c) For whom to produce
d) None of these
Answer:
b) How to produce

Question 13.
Central problems faced by an economy can be solved through different ways by different economic systems. (MAY-2016)
a) Which are the important economic systems?
b) How each system solves the central problems?
Answer:
a) Economic systems are:
i) Capitalism
ii) Socialism
iii) Mixed economy
b) Solution of central problems
i) Capitalist economy solves the central economic problems through price mechanism
ii) Socialist economy solves the central economic problems through economic planning.
iii) Mixed economy solves the central economic problems through both price mechanism and central planning.

Question 14.
Identify the curve given below. What does the points A, B, C represents? (MARCH-2017)

Answer:
Production Possibility Curve: It shows various combinations of two goods that an economy can produce with a given level of resources and a given level of technology.
Point ‘A’shows efficient utilisation of resources. Point ‘B’ We can say that at any point above the existing PPC shows the growth of resources and Point ‘C’ inside the production possibility curve implies insufficient utilisation of resources.

Question 15.
Which among the following is not a characteristics of a Capitalist Economy? (MARCH-2017)
a) Wages and prices are administered by the government.
b) Private ownership of means of production.
c) Production takes place for exchange
d) Sale and purchase of labour services at a price is called wage rate.
Answer:
Wages and prices are administered by the government.

Kerala State Board New Syllabus Plus Two Business Studies Previous Year Question Papers and Answers.

Kerala Plus Two Business Studies Previous Year Question Paper Say 2018 with Answers

Board	SCERT
Class	Plus Two
Subject	Business Studies
Category	Plus Two Previous Year Question Papers

Time : 2 1/2 Hours
Cool off time : 15 Minutes
Maximum : 80 Score

General Instructions to Candidates:

• There is a ‘cool off time’ of 15 minutes in addition to the writing time of 2 hrs.
• Your are not allowed to write your answers nor to discuss anything with others during the ‘cool off time’.
• Use the ‘cool off time’ to get familiar with the questions and to plan your answers.
• Read questions carefully before you answering.
• All questions are compulsory and only internal choice is allowed.
• When you select a question, all the sub-questions must be answered from the same question itself.
• Calculations, figures and graphs should be shown in the answer sheet itself.
• Malayalam version of the questions is also provided.
• Give equations wherever necessary.
• Electronic devices except non programmable calculators are not allowed in the Examination Hall.

Answer all questions from 1 to 7. Each carries 1 score. (7 × 1 = 7)

Question 1.
Which of the following is a function of middle level management?
a) Formulation of plans and policies.
b) Directly Oversee the efforts of workforce.
c) Cooperate with other departments for smooth functioning of the organization.
d) Analyse the Enviornment.
Answer:
c) Co-operate with other departments for smooth functioning of the organization.

Question 2.
F. W. Taylor’s functional foremanship in an extension of Henry Fayol’s function.
a) Scalar chain
b) Order
c) Division of work
d) Discipline
Answer:
c) Division of work.

Question 3.
Complete the series Globalisation: Integration of various economies of the world into a global economy.
Liberalisation: ……..?………
Answer:
Minimise governmental restrictions.

Question 4.
Which of the following is not a part of the Responsibility Centre?
a) Cost centre
b) Profit centre
C) Investment centre
d) Management centre
Answer:
d) Management centre

Question 5.
The cheapest sources of finance are………..
a) Equity share
b) Retained earnings
c) Preference share
d) Debenture
Answer:
b) Retained earnings

Question 6.
The settlement cycle in NSE is ………..
a) T + 5
b) T + 3
c) T + 2
d) T + 1
Answer:
c) T + 2

Question 7.
Which of the following firms emphasizes benefits to customers rather than product attributes?
a) Product concept
b) Market concept
c) Sales concept
d) Production concept
Answer:
b) Market concept

Answer any 7 questions from 8 to 15. Each carries 2 scores. (2 × 1 = 2)

Question 8.
Write any two personal objects of management.
Answer:

1. Give adequate remuneration to employees
2. Provide good working condition

Question 9.
“Communication from top to bottom should follow the official chain of command.”
a) Identify the principles of management mentioned above.
b) Name the shortcut proposed by Henry Fayol for speedy communication.
Answer:
a) Scalar chain
b) GangPlank

Question 10.
List out any four types of tests used in the selection process.
Answer:

1. Intelligence tests
2. Aptitude tests
3. Personality test
4. Trade test

Question 11.
Describe the concept of trading on equity.
Answer:
It refers to the use of fixed income securities such as debentures and preference capital in the capital structure so as to increase the return of equity shareholders.

Question 12.
Draw the pattern of any two types of formal communication network.
Answer:
a) Single chain: This chain network exists between a supervisor and his subordinates

b) Wheel Network: In wheel network, all subordinates under one superior communicate through him only.

Question 13.
Name any 2 important Acts framed to safeguard consumer interest in India.
Answer:

1. Consumer Protection Act 1986.
2. Prevention of Food Adulteration Act 1954.

Question 14.
Explain the importance of delegation. (any two)
Answer:

1. It reduces the workload of managers.
2. It helps employee development.

1) Reduces the work load of managers: The managers are able to function more efficiently as they get more time to concentrate on important matters.
2) Employee development: Delegation empowers the employees by providing them the chance to use their skills, gain experience and develop themselves for higher positions.

Question 15.
Give any four features of marketing.
Answer:
Features of Marketing:

1. Needs and Wants: Marketing focuses on the satisfaction of the needs and wants of consumers.
2. Creating a Market Offering: It refers to providing complete information about the product and services like name, type, price, size, etc.
3. Customer Value: A buyer analyses the cost and the satisfaction that a product provides before buying it. The seller should manufacture the product keeping in view this tendency of the customer.
4. Exchange Mechanism: The process of marketing involves the exchange of products and services. Exchange is the essence of marketing.

Answer any 4 questions from 16 to 20. Each carries 3 scores. (4 × 3 = 12)

Question 16.
Gopu argued that profit is the only organizational objectives of the business.
a) Do you agree with him?
b) Give reason
Answer:
a) No, I disagree with him
b) Other organisational objectives of the business are

• survival: Management must survive to ensure the survival of the organisation.
• Profit: Management has to ensure that the organization makes a reasonable profit.
• Growth: management must exploit fully the growth potential of the organisation.

Question 17.
“Though planning is an important tool of management, yet it is not a remedy to all problems.” Explain this statement.
Answer:
Limitations of Planning:

• Planning makes the activities rigid.
• Long term plans are insignificant in the rapidly changing business environment.
• It reduces creativity.

Question 18.
How can an organisation overcome the barriers to effective communication?
Answer:
Measures to overcome barriers to communication:

• The entire problem to be communicated should be studied in-depth, analysed, and stated in such a manner that is clearly conveyed to subordinates.
• Communication must be according to the education and understanding levels of subordinates.
• Before communicating the message, it is better to consult with subordinates.
• The contents of the message, tone, language used, etc. are important aspects of effective communication.
• While conveying a message to others, it is better to know the interests and needs of the receiver.
• Ensure proper feedback.

Question 19.
Describe the features of a good brand name.
Answer:
Qualities of a Good Brand Name:

• The brand name should be short, easy to pronounce, spell, recognise and remember.
• A brand should suggest the product’s benefits and qualities.
• A brand name should be distinctive.
• Brand name should be adaptable to packing or labelling requirements, to different advertising media and to different languages.
• The brand name should be sufficiently versatile to accommodate new products.
• It should be capable of being registered and protected legally.

Question 20.
Consumer grievances are redressed by the three tier machinery under the Consumer Protection Act. Name these three agencies and their jurisdiction limit.
Answer:
1) District Forum: This is established in each district by the state government. The District Forum consists of a president and two other members. A complaint can be made to the appropriate District Forum when the value of the goods or services and compensation claimed does not exceed Rs. 20 lakh. In case the aggrieved party is not satisfied with the order of the District Forum, he can appeal before the State Commission within 30 days of the passing of the order.

2) State Commission: It is established by the state government. The State Commission consists of a president and not less than two other members. A complaint can be filed before the State Commission where the value of goods or services and the compensation claimed exceeds Rs. 20 lakh but does not exceed Rs. 1 crore.ln case the aggrieved party is not satisfied with the order of the State Commission he can appeal to the National Commission within 30 days of passing of the order.

3) National Commission: The National commission was constituted by the central government. The National Commission consists of a president and at least four other members. It is the apex body in the three-tier judicial machinery set up by the government for redressal of consumer grievances. All complaints pertaining to those goods dr services and compensation whose value is more than RS. 1 crore can be filed directly before the National Commission. An appeal can be filed against the order of the National Commission to the Supreme Court within 30 days from the date of order passed.

Answer any 4 questions from 21 to 25. Each carries 4 scores. (4 × 4 = 16)

Question 21.
Write one example of the following plans:
a) Rule
b) Policy
c) Programme
d) Objective
Answer:
a) Rule – No smoking
b) Policy – Promotion is based on merit only
c) Programme – Three day training programme to mangers
d) Objects – Attain Rs. 20,00,000 profit

Question 22.
It is important for a business enterprise to understand its environment. Why?
Answer:
Importance of Business Environment:

1. Identification of opportunities: Environment provides numerous opportunities for business success. Early identification of opportunities helps an enterprise to be the first to exploit them.
2. Identification of threats: Environmental awareness help managers to identify various threats on time and serves as an early warning signal.
3. Tapping useful resources: Business environment helps to know the availability of resources and making them available on time.
4. Coping with rapid changes: Environmental scanning enables the firms to adapt themselves to the changes in the market.

Question 23.
Explain the limitations of controlling.
Answer:
Limitations of Controlling:

• Difficulty in setting quantitative standards: Control system loses some of its effectiveness when standards cannot be defined in quantitative terms.
• Little control on external factors: Generally an enterprise cannot control external factors such as government policies, technological changes, competition, etc.
• Resistance from employees: Control is often resisted by employees. They see it as a restriction on their freedom.
• Costly affair: Control is a costly affair as it involves a lot of expenditure, time and effort.

Question 24.
“Advertising misleads customers and increase the cost of product.”
a) Do you agree with this statement?
b) Give reason
Answer:
a) Yes, I agree with this statement
b) Disadvantages of Advertising

• Advertisement encourages consumers to buy unwanted goods.
• Most of the advertisements are misleading.
• Advertisement may lead to monopoly of a brand.
• Advertisement is a costly affair. So, ultimately it increases the price of the product.

(OR)

a) No. I diagree with this statement
b) Advantages of Advertising

• Advertising helps in introducing hew products.
• It stimulates the consumers to purchase the new products.
• It helps the consumers to know about the various products and their prices.
• Consumers can purchase the better products easily.
• Advertisement helps to create more employment opportunities.
• It provides an important source of income to the press, radio, T.V., etc.

Question 25.
“Entrepreneurship and Management are same.” Comment your views.
Answer:
a) Entreprenuership and management are different

b) Difference between Entreprenurship and Management
Entrepreneurship:

1. The main motive of an entrepreneur is to start a venture by setting up an enterprise.
2. An entrepreneur is the owner of the enterprise.
3. An entrepreneur assumes all risks and uncertainty.
4. An entrepreneur gets profit.

Management:

1. The main motive of a manager is to render his services in an enterprise already set up by someone.
2. A manager is the servant in the enterprise.
3. A manager does not bear any risk involved in the enterprise.
4. A manager gets salary.

Answer any 3 questions from 26 to 29. Each carries 5 scores. (3 × 5 = 15)

Question 26.
Metro Ltd. engaged in the production of soap and it has purchase, production, marketing and finance departments.
a) Suggest a suitable organisation structure.
b) State any two merits and demerits of this organisation structure.
Answer:
a) Functional Organisation Structure
b) Advantages

1. It promotes division of work which leads to specialisation.
2. It promotes control and coordination within a department.

Disadvantages:

1. Each departmental head gives more importance to their departmental objectives than overall organisation objectives.
2. In large functional organisations, taking quick decisions and co-ordination become difficult.

Question 27.
“It is the market for short terror funds which deals in financial assets whose period of maturity is upto one year.”
a) Identify the type of market referred above. (1)
b) Briefly explain the various instruments used in this market. (4)
Answer:
a) Money Market
b) 1) commercIal Paper: Commercial paper is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a maturity period of 15 days to one year. It is sold at a discount and redeemed at par.

2) Call Money: Call money is short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions.

3) Certificate of Deposit: Certificates of Deposit (CDs) are short-term instruments issued by Commercial Banks and Special Financial Institutions (SFIs), which are freely transferable from one party to another. The maturity period of CDs ranges from 91 days to one year.

4) Commercial Bill: A commercial bill is a Bill of Exchange used to finance the working capital requirements of business firms. When goods are sold in credit, the seller draws the bill and the buyer accepts it. The seller can discount the bill before its maturity with the bank. When a trade bill is accepted by a commercial bank it is known as commercial bills.

Question 28.
Hantex offers 30% discount for all their products during Onam season as a part of their promotion technique.
a) Identify the promotion technique used by them.
b) Explain any 2 merits and demerits of this technique.
Answer:
a) Sales Promotion
b) Merits of Sales Promotion

1. Sales promotion activities attract attention of the people.
2. Sales promotion tools can be very effective at the time of introduction of a new product in the market.

Limitation of Sales Promotion:

1. If a firm frequently relys on sales promotion, it creates doubts in the minds of consumers about the quality of the product.
2. Use of sales promotion tools may affect the image of a product.

Question 29.
Explain the functional foremanship technique with a diagram.
Answer:
1. Functional foremanship: Functional foremanship is a technique in which planning and execution are separated. He classified 8 specialist foremen into two departments viz. Planning and Production department. Both departments have four foremen each. Functional foremanship is based on the principle of division of work.

Planning Department:

1. Route Clerk Gang Boss
2. Instruction Card Clerk Speed Boss
3. Time and Cost Clerk Repair Boss
4. Shop Disciplinarian Inspector

Production Department:

1. Gang Boss
2. Speed Boss
3. Repair Boss
4. Inspector

a. Route clerk: To lay down the sequence of operations through which the raw materials have to pass in the production process.
b. Time & cost clerk: To lay down the standard time for completion of the work.
c. Instruction card clerk: He is expected to deal with the instructions to be followed by workers in handling the job.
d. Disciplinarian: He maintains proper discipline in the factory.
e. Gang boss: He arranges material, machine, tool, etc. for operation.
f. Speed boss: He supervises matters relating to the speed of work.
g. Repair boss: He ensures repairs and maintenance of the tools and machines.
h. Inspector: He checks the quality of work done.

Answer any 2 questions from 30 to 32. Each carries 8 scores. (2 × 8 = 16)

Question 30.
It is the process of identifying and choosing the best person out of a number of prospective candidates for a job.
a) Name the process
b) Explain its steps
Answer:
a) Selection
b) Process of Selection
1. Preliminary Screening: Preliminary screening helps the manager to eliminate unqualified job seekers.

2. Selection Tests: Various tests are conducted to know the level of ability, knowledge, interest, aptitude, etc. of a particular candidate. The various types of tests are:

• Intelligence Tests
• Aptitude Test
• Personality Tests
• Trade Test
• Interest Tests

3. Employment Interview: Interview is a formal, in-depth conversation conducted to evaluate the applicant’s suitability for the job.

4. Reference and Background Checks: Many employers request names, addresses, and telephone numbers of references for the purpose of verifying information and; gaining additional information on an applicant.

5. Final Selection: The final decision has to be made from among the candidates who pass the tests, interviews and reference checks.

6. Medical Examination: After selection, the candidates are required to appear for a medical examination for ensuring that he is physically fit for the job.

7. Job Offer: After a candidate has cleared all the hurdles in the selection procedure, he is formally appointed through an order. It contains the terms and conditions of the employment, pay scale, joining time, etc.

8. Employment Contract: Basic information that should be included in a written contract of employment are job title, duties, responsibilities, date of joining, pay and allowances, hours of work, leave rules, disciplinary procedure, work rules, termination of employment, etc.

Question 31.
Explain briefly the elements of the directing function.
Answer:
Elements of Direction:

1. Supervision
2. Motivation
3. Leadership
4. Communication

1) Supervision: Supervision means overseeing the subordinates at work. Supervision is instructing, guiding and controlling the workforce with a view to see that they are working according to plans, policies, programmes and instructions.

Importance of Supervision:

• A good supervisor acts as a guide, friend and philosopher to the workers.
• Supervisor acts as a link between workers and management. It helps to avoid misunderstandings and conflicts between management and workers.
• Supervisor provides good On the Job training to the workers and employees.

2) Motivation: Motivation is the process of stimulating people to action to accomplish desired goals. Motivation depends upon satisfying needs of people.
Features of Motivation:

• Motivation is an internal feeling.
• Motivation produces goal-directed behaviour.
• Motivation can be either positive or negative.

3) Leadership: Leadership can be defined as the process of influencing the behaviour of employees at work towards the accomplishment of organisational objectives.
Features of Leadership:

• Leadership indicates ability of an individual to influence others.
• Leadership tries to bring change in the behaviour of others.
• Leadership indicates interpersonal relations between leaders and followers.

4) Communication: Communication may be defined as an exchange of facts, ideas, opinions or emotions between two or more persons to create mutual understanding.
Importance of Communication:

• Acts as basis of co-ordination: Communication acts as the basis of co-ordination.
• Helps in smooth working of an enterprise: It is only communication which makes smooth working of an enterprise possible.
• Acts as basis of decision making Communication provides needed information for decision making.

Question 32.
Describe the factors that affect the capital structure of a company.
Answer:
Capital Structure: Capital structure refers to the mix between owners, funds and borrowed funds. Owners, fund consists of equity share capital, preference share capital and reserves and surpluses or retained earnings. Borrowed funds can be in the form of loans, debentures, public deposits, etc.

A capital structure will be said to be optimal when the proportion of debt and equity is such that it results in an increase in the value of the equity share.

Factors Affecting Capital Structure:

• Trading on Equity (Financial Leverage): It refers to the use of fixed income securities such as debentures and preference capital in the capital structure so as to increase the return of equity shareholders.
• Stability of Earnings: If the company is earning regular and reasonable income, the management can rely on preference shares or debentures. Otherwise issue of equity shares is recommended.
• Cost of Debt: A firm’s ability to borrow at lower rate, increases its capacity to employ higher debt.
• Interest Coverage Ratio (ICR): The interest coverage ratio refers to the number of times earnings before interest and taxes of a Company covers the interest obligation. Higher the ratio, better is the position of the firm to raise debt.
• Desire for control: If the management has a desire to control the business, it will prefer preference shares and debentures in capital structure because they have no voting rights.
• Flexibility: Capital structure should be capable of being adjusted according to the needs of changing conditions.
• Capital Market Conditions: In depression, debentures are considered good. In a booming situation, issue of shares will be more preferable.
• Period of Finance: If funds are required for short period, borrowing from bank should be preferred. If funds are require for longer period company can issue shares and debentures.

Kerala State Board New Syllabus Plus Two Business Studies Previous Year Question Papers and Answers.

Kerala Plus Two Business Studies Previous Year Question Paper March 2019 with Answers

Board	SCERT
Class	Plus Two
Subject	Business Studies
Category	Plus Two Previous Year Question Papers

Time : 2 1/2 Hours
Cool off time : 15 Minutes
Maximum : 80 Score

General Instructions to Candidates:

• There is a ‘cool off time’ of 15 minutes in addition to the writing time of 2 hrs.
• You are not allowed to write your answers nor to discuss anything with others during the ‘cool off time’.
• Use the ‘cool off time’ to get familiar with the questions and to plan your answers.
• Read questions carefully before you answering.
• All questions are compulsory and only internal choice is allowed.
• When you select a question, all the sub-questions must be answered from the same question itself.
• Calculations, figures and graphs should be shown in the answer sheet itself.
• Malayalam version of the questions is also provided.
• Give equations wherever necessary.
• Electronic devices except non-programmable calculators are not allowed in the Examination Hall.

Answer all questions from 1 to 7. Each carries 1 score. (7 × 1 = 7)

Question 1.
Identify the management principle which states that a manager should repalce “I with We” in all his conversations with workers to foster team spirit.
a) Espirit De Corps
b) Initiate
c) Unity of Command
d) Unity of Direction
Answer:
a) Espirit De Corps

Question 2.
Identify the type of plan which specifies the steps to be carried out in different business activities in a sequential order.
a) Programme
b) Procedure
c) Method
d) Strategy
Answer:
a) Programme

Question 3.
Which among the following is not an organizational objectives of management?
a) Profit
b) Survival
c) Protecting Environment
d) Growth
Answer:
c) Protecting Environment

Question 4.
Grapevine relates to ……..
a) Formal communication
b) Informal communication
c) Formal organisation
d) Informal organisation
Answer:
b) Informal communication

Question 5.
Name the controlling technique which states that only the significant deviations which go beyond the permissible limit should be brought to the notice of management.
Answer:
Management by exception/Control by exception

Question 6.
A company offers 40% of extra shaving cream in a pack of 100 grams. Identify the sales promotion tool used here.
Answer:
Quantity gift

Question 7.
A company gets applications without declaring any vacancies. However, as and when vacancy arises, the company makes use of such applications. Name the source of recruitment mentioned here.
Answer:
Casual callers/Un Solicited applicants

Answer questions 8 and 9 after observing given hint. Each carries 1 score. (2 × 1 = 2)

Question 8.
Hint:- Delegation Transfer of Authority from superior to subordinate.
Decentralisation:- …………
Answer:
Decentralisation refers to systematic delegation of authority throughout all levels of management in an organisation.

Question 9.
Hint:- Long term investment decision:- Capital budgeting decision.
Short term investment decision:-
Answer:
Working Capital Decision

Answer all questions from 10 to 13. Each carries 2 scores. (4 × 2 = 8)

Question 10.
Briefly explain the meaning of financial planning.
Answer:
It ensures adequate funds from various sources.

Question 11.
Classify the following items into appropriate elements business environment:
a) Literacy rate
b) Public debt (Internal and External)
c) Rate of saving and investment
d) Birth and death rate
Answer:
a) Social environment
b) Economic environment
c) Economic environment
d) Social environment

Question 12.
State any two characteristics of a good brand name.
Answer:

1. The brand name should be short
2. A brand name should be distinctive

Question 13.
State the conditions under which a consumer can approach the State Commission forgetting relief for his grievances.
Answer:
It is established by the state government. The state Commission consists of a president and not less than two other members. A complaint can be field before the State Commission where the value of goods service and the compensation claimed exceeds Rs. 20 lakh but does not exceed Rs. 1 crore. In case the aggrieved party is not satisfied with the order of the State Commission he can appeal to the National Commission within 30 days of passing of the order.

Answer any 4 questions from 14 to 18. Each carries 3 scores. (4 × 3 = 12)

Question 14.
State any three significance of Principles of Management.
Answer:

1. Increase efficiency: The understanding of the management principles provides guidelines to the managers for handling effectively the complex problems.
2. Optimum utilization of resources: The principles of management helps in the optimum utilization of resources through division of work, delegation of authority, etc.
3. Scientific decision: Management principles help in thoughtful decision-making. Such decisions are free from bias and prejudices.

Question 15.
Briefly explain the different types of leadership styles.
Answer:
Leadership Styles:

1. Autocratic or Authoritarian Leader: An autocratic leader gives orders and expects his subordinates to obey those orders. Here communication is only one-way with the subordinate.
2. Democratic or Participative Leader: A democratic leader encourages subordinates to participate in decision-making. They respect the other’s opinion and support subordinates to perform their duties.
3. Laissez Faire or Free-rein Leader: Here the followers are given a high degree of independence to formulate their own objectives and ways to achieve them.

Question 16.
Compare Treasury Bill and Commercial Paper, both are used in Indian money market.
Answer:
Difference between Treasury Bills and Commercial papers:
Treasury Bills:

1. It is issued by RBI on behalf of the central Government
2. It is issued in the form of sequred promissiory notes.
3. Risk free money.

Commercial papers:

1. It is issued by Joint Stock Company.
2. It is issued in the form of unsecured promissery notes.
3. It is risky market instrument.

Question 17.
State any three responsibilities of consumers.
Answer:
Consumers’ Responsibilities:

1. Be aware about various goods and services available in the market.
2. Buy only standardised goods as they provide quality assurance.
3. Learn about the risks associated with products and services, follow manufacturer’s instructions and use the products safely.
4. Read labels carefully so as to have information about prices, net weight, manufacturing and expiry dates, etc.
5. Choose only from legal goods and services.
6. Ask for a cash memo on purchase of goods or services.

Question 18.
Explain any three impact of government policy changes on business and industry.
Answer:

1. Competition for Indian firms has increased.
2. The customer’s wider choice in purchasing better quality of goods and services.
3. Rapid technological advancement has changed/ improved the production process.
4. Enterprises are forced to continuously modify their operations.
5. Need for Developing Human Resources arise.
6. There is a shift from production oriented concept to market oriented concept.

Answer any 5 questions from 19 to 24. Each carries 4 scores. (5 × 4 = 20)

Question 19.
Explain the following types of training:
a) Vestibule training
b) Apprenticeship training
Answer:
a) Vestibule Training: This is an off the job training method. Actual work environments are created in a class room and employees use the same materials, files and equipments. This is ususally done when employees are required to handle sophisticated machinery and equipment.

b) Apprenticeship Training: Apprenticeship training is an on the job training method. Here trainee is put under the guidance of a master worker. These are designed to acquire a higher level of skills. The trainees spend a prescribed time with an experienced trainer.

Question 20.
This management function ensures that “all activities are performed as per predetermind plans”.
a) Identify the management function.
b) Explain its first three steps.
Answer:
a) Controlling

b) Steps in control process:

1. Setting Performance Standards: Standards are the criteria against which actual performance would be measured. Standards can be set in both quantitative as well as qualitative terms.
2. Measurement of Actual Performance: After establishing standards, the next step is measurement of actual performance. Performance should be measured in an objective and reliable manner.
3. Comparing Actual Performance with Standards: This step involves comparison of actual performance with the standard. Such comparison will reveal the deviation between actual and desired results.

Question 21.
Briefly explain any two characteristics of entreprenurship.
Answer:
Characteristics of entrepreneurship:

1. It is a systematic and purposeful activity.
2. The object of entrepreneurship is lawful business.
3. Entrepreneurship is a creative and innovative response to the environment and an ability to recognize, initiate and exploit an economic opportunity.
4. It is concerned with employing, managing, and developing the factors of production.

Question 22.
Under this technique of scientific management, one worker is supervised by eight specialist foreman.
a) Identify the technique.
b) Show this technique in a diagram.
Answer:
a) Functional foremanship

b)

Question 23.
State any four regulatory functions of SEBI.
Answer:
Regulatory Functions:

1. Registration of brokers and sub brokers and other players in the market.
2. Registration of Mutual Funds.
3. Regulation of stock brokers, portfolio exchanges, underwriters, etc.
4. Regulation of takeover bids by companies.

Question 24.
State any four differences between marketing and selling.
Answer:
Marketing:

1. Marketing is a wider term consisting of number of activities.
2. It is concerned with product planning arid development.
3. It focuses on maximum satisfaction of the customer.
4. It aims at profits through consumer satisfaction.

Selling:

1. It is a narrow concept.
2. It is concerned with sale of goods already produced.
3. It focuses on the maximum satisfaction of the sellers through the exchange of products.
4. It aims at maximum profit through maximisation of sales.

Answer any 3 questions from 25 to 28. Each carries 5 scores. (3 × 5 = 15)

Question 25.
Mr. Jojo is working as a production manager of a Joint Stock Company.
a) Identify the level of management he belongs to.
b) State any four functions performed by him.
Answer:
a) Middle level

b) Functions of Middle Level Management:

1. Carry out the plans formulated by the top managers.
2. To act as a link between Top Level Management and Lower Level Management.
3. Assign necessary duties and responsibilities to the subordinates.
4. Motivate them to achieve desired objectives.

Question 26.
This management function seeks to bridge the gap between where we are and where we want to go.
a) Identify the management function.
b) Explain any four importance of that function.
Answer:
a) Planning

b) Importance of Planning:

1. Planning provides directions: By stating in advance how work is to be done planning provides direction for all actions.
2. Planning reduces the risk of uncertainty: Planning enables an organisation to predict future events and prepare to face the unexpected events.
3. Planning reduces wasteful activities: Planning serves as the basis of coordinating the activities and efforts of different departments and individuals. It helps to eliminate useless and redundant activities.
4. Planning promotes innovative ideas: Since planning is thinking in advance, there is scope for finding better and different methods to achieve the desired objectives.

Question 27.
This management function begins with work force planning and putting people to job.
a) Name the management function.
b) Explain its first four steps/process
Answer:
a) Staffing

b) Staffing Process:

1. Manpower planning: it is concerned with forecasting the future manpower needs of the organisation, i.e., finding out number and type of employees need by the organisation in future.
2. Recruitment: Recruitment may be defined as the process of searching for prospective employees and stimulating them to apply for jobs in the organisation.
3. Selection: Selection is the process of selecting the most suitable candidates from a large number of applicants.
4. Placement and Orientation: Placement refers to putting the right person on the right job. Orientation is introducing the selected employee to other employees and familiarising him with the rules and policies of the organisation.

Question 28.
Star Ltd. produces three types of products such as cosmetics, garments and medicines.
a) Suggest a suitable organizational structure for Star Ltd.
b) Represent this structure in a diagram.
c) State any two advantages of it.
Answer:
a) Divisional Organisation Structure

b)

c) Advantages

• Each division functions as an autonomous unit which leads to faster decision making.
• It helps in fixation of responsibility in cases of poor performance of the division.

Answer any 2 questions from 29 to 31. Each carries 8 scores. (2 × 8 = 16)

Question 29.
One of the financial decision relates to the amount of profits to be retained in the business.
a) Identify the financial decision.
b) Explain any seven factors affecting this decision.
Answer:
a) Dividend decision

b) Factors affecting Dividend Decision:

• Stability Earnings: A company having stable earnings can declare higher dividends. Otherwise, pay lower dividend.
• Stability of Dividends: Companies generally follow a policy of stabilising dividend per share. Dividend per share is not altered if the change in earnings is small.
• Growth Opportunities: Companies having good growth opportunities retain more money out of their earnings to finance the required investment. In such a case, they can declare dividend at a lower rate.
• Cash Flow Positions: Availability of enough cash in the company is necessary for declaration of dividend.
• Shareholders’ Preference: While declaring dividends, managements must keep in mind the preferences of the shareholders in this regard.
• Taxation Policy: A company is required to pay tax on dividend declared by it. If tax on dividend is higher, company will prefer to pay less by way of dividends whereas if tax rates are lower, then more dividends can be declared by the company.
• Capital Market: Reputed companies have easy access to the capital market and, therefore, they can pay higher dividends than the smaller companies.

Question 30.
Sun Ltd. offers shares to its employees at a price which is lower than market price.
a) Identify the type incentive offered to the employees.
b) Name the incentive.
c) Explain any four similar types of incentives,
Answer:
a) Financial Incentive/Monetary Incentive
b) Employees stock Option Plan (ESOP)
c)

1. Pay and allowances: It includes basic pay, dearness allowances and other allowances.
2. Commission: Under this system, a sales person is guaranteed a minimum wage as well as commission on sales. A commission plan motivates him to work better.
3. Bonus: Bonus is an incentive offered over and above the wages/salary to the employees.
4. Profit Sharing: Profit sharing is meant to provide a share to employees in the profits of the organization.

Question 31.
It is an impersonal form of communication which is paid for by the marketers (sponsors) to promote some goods and services.
a) Name the promotional tool mentioned above.
b) Explain its four merits and three limitations.
Answer:
a) Advertisement

b) Merits of Advertising
Advantages to Manufacturers and Traders:

• Advertising helps in introducing new products.
• It stimulates the consumers to purchase the new products.
• Advertisement helps to increase the sales of new and existing products.

Advantages to Consumers:

• It helps the consumers to know about the various products and their prices.
• Consumers can purchase the better products easily.
• It helps in maintaining high standard of living.

Advantages to the Society:

• Advertisement helps to create more employment opportunities.
• It provides an important source of income to the press, radio, T.V., etc.
• It is a source of encouragement to artists.

c) Disadvantages/Objections to Advertising:

• Advertisement encourages consumers to buy unwanted goods.
• Most of the advertisements are misleading.
• Advertisement may lead to monopoly of a brand.
• Advertisement is a costly affair. So, ultimately it increases the price of the product.

Kerala State Board New Syllabus Plus Two Economics Previous Year Question Papers and Answers.

Kerala Plus Two Economics Previous Year Question Paper Say 2018 with Answers

Board	SCERT
Class	Plus Two
Subject	Economics
Category	Plus Two Previous Year Question Papers

Time: 2½ Hours
Cool off time : 15 Minutes

General Instructions to candidates

• There is a ‘cool off time’ of 15 minutes in addition to the writing time of 2½ hrs.
• Your are not allowed to write your answers nor to discuss anything with others during the ‘cool off time’.
• Use the ‘cool off time’ to get familiar with the questions and to plan your answers.
• Read questions carefully before you answering.
• All questions are compulsory and only internal choice is allowed.
• When you select a question, all the sub-questions must be answered from the same question itself.
• Calculations, figures and graphs should be shown in the answer sheet itself.
• Malayalam version of the questions is also provided.
• Give equations wherever necessary.
• Electronic devices except non programmable calculators are not allowed in the Examination Hall.

Answer all questions from question No.1 to question No. 14 (Total Scores: 26)

Question 1.
The curve showing a set of all possible combinations of two factor inputs that give the same level of output is:
a) Indifference curve
b) Iso-quant
c) Budget Line
d) Rectangular Hyperbola
Answer:
b) Iso-quant

Question 2.
In the following diagrams which one is constant elasticity demand curve?

Answer:
Perfect inelastic demand curve

Question 3.
Identify the type of Economy/Economic System. Basic economic problems regarding allocation of resources are solved through Price Mechanism.
a) Centrally Planned Economy
b) Market Economy
c) Mixed Economy
d) None of the above
Answer:
b) Market Economy

Question 4.
The Great Depression of 1929 affected in the countries of Europe and North America. Which of the following is the outcome of the depression? (1)
a) Increase in GDP Growth rate
b) Increase in employment rate
c) Increase in unemployment rate
d) Increase in per capita income
Answer:
c) Increase in unemployment rate

Question 5.
Give Economic term for the following: (4 × 1 = 4)
a) Pictorial illustration of the interdependence between major sectors of the economy.
b) The total liability of the monetary authority of country.
c) Revenue Expenditure – Revenue Receipts
d) The record of the transactions in goods, services and assets between residents of a country with rest of the world for a specified time period.
Answer:
a) Circular flow of income
b) High powered money
c) Revenue deficit
d) Balance of payment (BoP)

Question 6.
Prepare a demand schedule if the demand function is D(P) = 20 – 2P, if the prices are 2, 4, 6, 8.
Answer:

Price	Quantity
2	16
4	12
6	8
8	4

DP = 20 – 2P
When p = 2, 4, 6, 8, etc……
P = 20 – 2 × 2 = 20 – 4 = 16
= 20 -2 × 4 = 20 – 8 =12
= 20 – 2 × 6 = 20 – 12 = 8
= 20 – 2 × 8 = 20 – 16 = 4

Question 7.
In a perfect competitive firm price must be greater than or equal to LRAC in the long-run. As per this condition verify there is any mistake in the following diagram. If so correct the diagram.

Answer:
Correct diagram showing
P = Minimum LRAC or P > Minimum LRAC

Question 8.
Complete the columns:

Changes in Demand & Supply	Nature of Changes in Equilibrium Price	Nature of Changes in Equilibrium Quantity
Supply remain the same. Demand increases
Demand and Supply increase in same proportion

Answer:

Changes in Demand & Supply	Nature of Changes in Equilibrium Price	Nature of Changes in Equilibrium Quantity
Supply remain the same. Demand increases	Equilibrium price increases	Equilibrium Quantity increases
Demand and Supply increase in same proportion	equilibrium price constant	Equilibrium Quantity increases

Question 9.
Classify the following statements into Micro and Macro Economics:
a) RBI announces a new monetary policy.
b) Ramu purchased banana from the market.
c) GDP growth rate declined.
d) Abnormal profit earn by a monopoly firm.
Answer:
Micro Economics:

• Ramu purchased banana from market
• Abnormal profit earn by a monopoly firm

Macro Economics:

• RBI announces a new monetary policy
• GDP growth rate declared

Question 10.
Consider the items given below. Identify the most likely market situation in which they are produced.
a) Oil Producing Industry
b) Indian Railway
Answer:
a) Oligopoly
b) Monopoly

Question 11.
Explain tax revenue and non-tax revenue sources of revenue receipts of the government budget.
Answer:
Tax Revenue:
The most important source of governments revenue is tax revenue.
Taxes are of two types.

1. Direct tax
2. Indirect tax.
   eg. Income tax, Corporate tax

Non Tax Revenue:
It is the recurring income earned by the government from sources other than taxes.
eg. Customs duty, Service tax

Question 12.
The excess of private investment over saving of a country is ₹ 5,000 crores. The amount of Budget deficit is ₹ 500 crores. What was the volume of Trade deficit of that country?
Answer:
Trade deficit = (M – X) = (I – S) + (G – T)
= 5000 + 500
= 5,500

Question 13.
From the following data
a) Derive the consumption function equation
b) Calculate Aggregate consumption
National Income – 1000 crores
Autonomous consumption – 200 crores
Marginal Propensity of consume – 0.70
Answer:
a) Consumption function equation C = \(\overline{\mathrm{C}}\) + c.y
b) Aggregate consumption = 200 + 0.7 × 1000
= 900

Question 14.
The following figures are based on Balance of Payment accounts:

	In ₹ crores
Import of goods	3, 000
Export of goods	5, 000
Shipping	100
Travel and Tourism	200

a) Write Balance of Trade Equation
b) Calculate Balance of Trade.
Answer:
a) Balance of trade equation = Export – Import
b) Balance of trade = 5000 – 3000 = 2,000

Write any 6 questions from question 15 to question 21. Each carry 3 scores. (6 × 3 = 18)

Question 15.

Production Possibilities	Food	Cloth
A	0	50
B	10	45
C	20	35
D	30	20
E	40	0

By using the production possibility set draw a production possibility frontier and mark the following points:
a) Fuller Utilisation of Resources
b) Under Utilisation of Resources
Answer:

Question 16.
Complete the table.

Increase in Input %	Increase in Output %	Return to Scale
10%	20%
10%	10%
10%	5%

Answer:

Increase in Input %	Increase in Output %	Return to Scale
10%	20%	Increasing returns to sale
10%	10%	Constant returns to sale
10%	5%	Decreasing returns to sale

Question 17.
Observe the following diagram

a) Define the liquidity trap and mark it on the diagram.
b) If r = r_max, what will be the speculative demand for money?
Answer:
a) Liquidity Trap: A situation in the economy may arise when everyone will hold their wealth in money balance. If additional money is injected into the economy, it will not be used to purchase bonds. It will be used to satisfy the people’s drawing for money balance without lowering the rate of interest. Such a situation is called ‘liquidity trap’. The liquidity trap is given in the diagram below.

b) O (M^d_s) = 0

Question 18.
If a shirt costs ₹ 500 in India and $10 in US. The rupee – dollar exchange rate should be ₹ 50 = $1.
Write the effects of the following changes.
(Hint: Increase or decrease)?

Changes in Exchange Rate and Price	Changes in Export of shirt from India to US
Exchange rate changes to ₹ 60 = $1
Price of shirt in India increased to ₹ 700
Exchange rate changes to ₹ 40 = $1

Answer:

Changes in Exchange Rate and Price	Changes in Export of shirt from India to US
Exchange rate changes to  ₹ 60 = $1	Increases
Price of shirt in India increased to  ₹ 700	Decreases
Exchange rate changes to  ₹ 40 = $1	Decreases

Question 19.
Complete the flow chart:

Answer:

Question 20.
The aggregate demand function is AD = 100 + 0.754
a) Calculate the equilibrium income.
b) If Autonomous expenditure increased to ₹ 150 from ₹ 100 calculate the change in equilibrium income.
Answer:
Question is incomplete

Question 21.
a) State the conditions of shutdown point of a firm under perfect competition in the short-run.
b) Represent that shut-down point in a diagram.
Answer:
a) P = Minimum point of AVC
b) The minimum point of AVC is known as shut down point in the short run.

Write any 4 questions (Q. No. 22 to 27). Each carry 5 marks: (4 × 5 = 20)

Question 22.
Short-run cost curves are ‘U’ shaped.
a) Do you agree with this? Give reasons.
b) Draw the SMC and SAC curves on a diagram.
c) Write any two relationship between SAC and SMC.
Answer:
a) Short run cost curves AVC, AC and MC are shaped because of that law of variable proportions.
It operates under the increasing returns due to various internal economics.
b)

c) When due to the operation of the law of increasing returns, SAC falls, SMC also falls.
If a firm operates under the law of diminishing returns, SAC increases, SMC also increases.

Question 23.

a) Find Price, MR and TC in the above table.
b) From the table, find equilibrium level of output at the profit maximisation conditions of perfect competition in the long-run.
c) Find level of profit at the equilibrium output.
Answer:
a)

b) MC = MR
MC non decreasing
equilibrium output is 6. Here TR = TC

c) Profit = TR – TC
= 60 – 60 = 0

Question 24.
Suppose the equilibrium price of Rubber in the market is ₹ 150/kg.
a) The government intervene in the market and fix a price ₹ 200/kg for Rubber, with a view to protect the rubber cultivators. Name the strategy.
b) What are the effects of that strategy?
c) Draw the diagram to illustrate this.
Answer:
a) Price floor/Support price
b) Excess supply
c) It may lead to lower prices for consumers.

In the diagram ep is market determined price. Since this price is very low this, may lead to loss to producers. So the government will intervene in the market and fix p₁ as floor price. This floor price will be higher than market determined price.

Question 25.
Receipts and Expenditure of central government are given below:
Revenue Receipts – 5,250 crores
Revenue Expenditure – 6,200 crores
Borrowing – 1,700 crores
Capital Receipts – 1,800 crores
Capital Expenditure – 850 crores
Calculate by using formula :
a) Gross Fiscal Deficit
b) Revenue Deficit
Answer:
a) Gross fiscal deficit = Net borrowing at home + Borrowing from RBI + Borrowing from abroad.
GFD = 1700
b) Revenue deficit = Revenue expenditure – Revenue receipt
= 6200 – 5250 = 950 crores

Question 26.
Bi-monthly review of RBI reduces the Bank rate from 7% to 6.5%.
a) What are the effects of the policy on money supply and aggregate demand?
b) If cdr = 1 rdr = 0.2 and Higfi powered Money = ₹ 2000 crores. Calculate the total money supply in the economy by using the formula.
Answer:
a) The effect of monetary policy on money supply increases and aggregate demand also increases.

Question 27.
The diagram shows Aggregate equilibrium in the economy:

Show diagrammatically the following changes in the Aggregate demand.
a) Autonomous expenditure (\(\overline{\mathrm{A}}\)) increases.
b) Marginal propensity to consume (C) increases
c) Identify the slope parametric shill and intercept parametric shift in the diagrams (a or b)
Answer:
a) Diagram showing parallel upward shift of aggregate demand (AD)
b) In diagram AD swings upwards
c) Points a & b not given in the diagram

Write any 2 questions (28 – 30). Each carry 8 marks: (2 × 8 = 16)

Question 28.
Compare the market conditions of monopoly and perfect competition by considering Number of Sellers, Nature of Product, Freedom of Entry, Demand Curve and Longrun Equilibrium with AC and MC.
Answer:
Perfect Competition:
There are large number of sellers in perfect competition and the commodity is sold at a uniform price. There is no competition and no rivalry among the firms.

Nature of Product:
The output sold under perfect competition will be homogeneous or identical. There will be no difference among the products. Another feature is that the sellers are price takers.

Freedom of Entry:
There is no restriction among firms entering and existing into the market.

Demand Curve:
Under perfect competition whatever be the level of output, price will remain constant. The price line under perfect competition is parallel to x-axis. This shows that under perfect competition, whatever be the level of output, each firm takes the price that is determined in the market. Since the price line is the demand curve, the demand curve is also a straight line parallel to the X-axis.The demand curve is shown below.

Long run equilibrium with AC and MC:
In the longrun all the costs are variable. When a firm to be in equilibrium the price should be more than or equal to the minimum point of LRAC curve.

Profit maximisation conditions are explain with the help of figure which is given below.

In the diagram 0q0 is the profit maximising level of output. Here all the three conditions of profit maximisation are met
1) P = MR = MC
2) MC curve is non-decrasing
3) Price (p) is more than or equal to minimum point of LRAC.

Monopoly:
Number of sellers: In monopoly market, there is only single seller for a product.
Nature of Product: There is no close substitute in the market. So monopoly firms charge higher price for goods and receive higher profit even in the long run.
Freedom of Entry: There is no freedom of enter into the market. Here firm acts as industry in monopoly market.
Demand Curve: In a monopoly market the firm and the industry are the same. So the firm demand curve and market demand curve would be the same. Demand curve of a monopoly firm will slope negatively which are given below.

AR curve of a monopoly firm is the same as its demand curve. It slopes downwards from left to right. This means, the monopolist firm can sell less quantity at high price and more quantity at lower price.

Long run equilibrium in monopoly:
Under monopoly finan attains equilibrium when two conditions are fulfilled. They are
i) Marginal revenue and marginal cost should be equal. (MR = MC)
ii) MC curve should cut MR curve from below.
Under monopoly since entry of other firms is prohibited. Firm will get the same level of profit in long run as in the short run.

In figure, q is the equilibrium quantity of output that gives maximum profit to the monopoly firm. MR and MC are equal at output q,m MC curve intersects MR curve at point E where MC curve should cut MR curve from below. Under monopoly since price and AR are same, AR at equilibrium quantity is the equilibrium price. Then AR at q is OP. This is the equilibrium price.

Question 29.
Some Macro economic aggregates are given below:

	(In Crores)
Intermediate consumption	150
Wage	350
Consumption Expenditure	400
Changes in Stock	350
Profit	200
Import	150
Export	250
Rent	300
Government Expenditure	200
Interest	150
Sales	800
Investment Expenditure	300

a) Identify the three methods to measuring National Income.
b) Calculate GDP from the above data by using any two methods.
Answer:
a) i) Product method
ii) Income method
iii) Expenditure method

b) Product method = P + In + R + W
= 200 + 150 + 300 + 350
= 1,000
Income method = Rent + Wages and salaries + Interest + Gross profits
= 300 + 350 + 150 + 200
= 1,000
Expenditure method = C + I + G + (X – M)
= 400 + 300 + 200 + (250 – 150)
= 1,000

Question 30.
a) Write the five degrees of elasticity and diagrammatically explain it.
b)

Find elasticity at the points A, B, C.
Answer:
The price elasticity of demand (ed) measures the degree of responsiveness of change in the price on quantity demanded. There are five degrees of elasticity of demand, which are (ep = 0)
i) Perfectly inelastic demand curve (epf = 0)

The demand curve is perpendicular to the x-axis. Even if the price increases or decreases demand will be the same, then demand is perfectly inelastic.

ii) Perfectly elastic demand curve (ep = 0c)

If a very small change in price leads to infinite change in demand. This is known as perfectly elastic demand. The demand curve will be parallel to x-axis.

iii) Unit elastic demand curve (ep = 1)

If a proportionate change in price leads to equal and proportionate change in demand, then demand is unit elastic demand.

iv) Elastic demand curve:

If a proportionate change in price leads to more than proportionate change in demand, it is in the case of elastic demand curve. Here price elasticity of demand is greater than I.

v) Inelastic demand curve

If a proportionate change in price leads to less than proportionate change in demand it is the case of inelastic demand. Here the price elasticity of demand is less than one.

b)

Kerala State Board New Syllabus Plus Two Economics Previous Year Question Papers and Answers.

Kerala Plus Two Economics Previous Year Question Paper March 2019 with Answers

Board	SCERT
Class	Plus Two
Subject	Economics
Category	Plus Two Previous Year Question Papers

Time: 2½ Hours
Cool off time : 15 Minutes

General Instructions to candidates

• There is a ‘cool off time’ of 15 minutes in addition to the writing time of 2½ hrs.
• Your are not allowed to write your answers nor to discuss anything with others during the ‘cool off time’.
• Use the ‘cool off time’ to get familiar with the questions and to plan your answers.
• Read questions carefully before you answering.
• All questions are compulsory and only internal choice is allowed.
• When you select a question, all the sub-questions must be answered from the same question itself.
• Calculations, figures and graphs should be shown in the answer sheet itself.
• Malayalam version of the questions is also provided.
• Give equations wherever necessary.
• Electronic devices except non programmable calculators are not allowed in the Examination Hall.

Match the column B & C with A: (5 × 1 = 5)

Question 1.

A	B	C
General theory of employment interest and money	CRR	Equilibrium Output
SLR	Effective demand	USA
AD = AS	1936	RBI
Public good	1929	J.M. Keynes
Great depression	Defence	Road

Answer:

A	B	C
General theory of employment interest and money	1936	J.M. Keynes
SLR	CRR	RBI
AD = AS	Effective demand	Equilibrium Output
Public good	Defence	Road
Great depression	1929	USA

Qn. No. 2 to 6, write the correct answer. Each question carries 1 score. (5 × 1 = 5)

Question 2.
write the economic term of \(\frac{\text { Change in output }}{\text { Change in input }}\)
Answer:
Marginal output / Marginal product.

Question 3.
Petroleum refining and marketing in India is the closest example of ………..
a) Monopoly
b) Oligopoly
c) Perfect Competition
d) None of these
Answer:
b) Oligopoly

Question 4.
In an open economy, if C = 0.7, m = 0.2. Calculate the value of multiplier.
Answer:
Multiplier = \(\frac{1}{\mathrm{MPS}+\mathrm{MPM}}\)
= \(\frac{1}{0.3+0.2}\) = \(\frac{1}{5}\)
= 2

Question 5.
In a centrally planned economy all major economic decisions are taken by ………..
a) Market
b) Government
C) Private Producers
d) None of these
Answer:
b) Government

Question 6.
When the existing price is higher than the equilibrium price ………..
a) Market demand is higher than market supply.
b) Market supply is higher than market demand.
c) Market demand is equal to market supply.
d) None of these.
Answer:
b) Market supply is higher than market demand.

Answer all questions from 7 – 11. Each carries 2 scores. (5 × 2 = 10)

Question 7.
The supply curve of a firm depends on many factors. Point out any two.
Answer:
The supply curve of a firm depends on different factors.
Two factors are:

1. Technological progress.
2. Input prices.

Question 8.
Differentiate between Balance of Payment (BoP) and Balance of Trade (BoT).
Answer:
Balance of trade is the difference between the visible export and visible import of a country with the rest of the world. It includes the exchange of goods only balance of payment is the complete record of the financial transaction made between a country and the rest of the world. The BOP includes visible and invisible transactions. The BOP account has 4 parts

1. Current account
2. Capital account
3. Official reserve account
4. Errors and omissions

Question 9.
a) Write down two most important characteristics of monopolistic competition.
b) Differentiate the price and output prevailing in the monopolistic competitive market with that of per-fectly competitive market.
Answer:
a) Two important characteristic of monopolistic competition are

1. Large number of buyers and sellers.
2. Product differentiation.

b) In monopolistic competition, price is greater than that under perfect competition. Just as output is differentiated product.
At the same time price is uniform price and output is homogeneous in perfect competition market.

Question 10.
Beginning on 15 August 2018, severe floods affected Kerala due to unusually high rainfall. The state gov-ernment has hiked the excise duty on liquor and by which, it is expected to raise revenue to ₹ 750 crore. Suppose the MPC (Marginal Propensity to Consume) of the same product is, only 0.8, then calculate the tax multiplier and its effect on income.
Answer:
Tax multiplier = \(\frac{\Delta Y}{\Delta T}=\frac{-C}{1-C}\)
= \(\frac{-0.8}{1-0.8}=\frac{-0.8}{0.2}\)
= – 4

Question 11.

a) Complete the given diagram.
b) Mark the real flow and money flow.
Answer:
a)

b) Money flow:

• Expenditure on goods and services
• Factor payment

Real flow:

• Goods and services
• Factor services

Answer any 6 questions from 12 – 18. Each carries 3 scores. (6 × 3 = 18)

Question 12.
In the open market, the price of rice/kg is ₹ 35. Assume that the poor people cannot afford to purchase rice at this price. To protect the poor people, the government decided to offer rice at a minimum price of ₹ 2/kg through ration shop. Identify the economic term of this situation. Draw a diagram to illustrate this.
Answer:
Price selling:

In the diagram, ‘ep’ is the market determined equilibrium price. If this price is very high then the government will interfere in the market and will fix ‘p’ as the price ceiling. This government fixed price ‘p’ is less than the market determined equilibrium price ‘ep’. This leads to the following situations.

• Rationing
• Black marketing
• Dual marketing
• Huge burden of government as subsidy.

Question 13.
Paul A. Samuelson used the concept Production Possibility Curve to explain the economic problem of a society. Draw the Production Possibility Curve on the basis of the given schedule.

Possibilities	Wheat (in lakh tonnes)	Machine (in thousands)
A	0	15
B	1	14
C	2	12
D	3	9
E	4	5
F	5	0

Answer:

Question 14.
Indian Rupee has been on a free fall since past few months. Rupee has lot more than 20% of its value this year when compared to last year. In this context, identify the important factors responsible for such a flexibility in the exchange rate.
Answer:
Factors responsible for flexibility in exchange rate are:

• Inflation rate
• High interest rate
• Government debt
• Recessionary situation
• Increasing oil prices
• Deficit in BOP

Question 15.
Prepare a short note on the concept of speculative demand for money with the help of a diagram.
Answer:
In order to make profits from the purchase and sale of bonds and securities individuals will hold cash. This is known as speculative demand for money. It can be drawn as follows:

There is a negative relationship between the market rate of interest and speculative demand for money. When the market rate of interest reaches r minimum the speculative demand curve will be parallel to ‘x’ axis. This situation is known as liquidity trap.

Question 16.
Suppose the price of tomato per kg. is ₹ 10, Ms. Mittu purchase 2 kg of tomato. If the price rises to ₹ 15, she buys 1 kg. Based on this information.
a) Draw the Demand Curve.
b) Find out the Elasticity of Demand.
Answer:
a)

b) Elasticity of demand:

Question 17.
Great depression was a severe worldwide economic depression that took place mostly during the 1930s, beginning in the United States. Prepare a brief note on it.
Answer:
The great depression of 1929 and the subsequent years created huge economic crisis in countries of Europe and North America. It affected other countries of the world as well. This depression proved that the classical idea of full employment and the automatic working of the economy was wrong. Due to depression production fell down.

Demand for goods in the market was low. Many factories were lying idel. Unemployment rose severely. The classical theory failed to explain the problem of long lasting unemployment in the economy. Keynes book was an attempt to explain this phenominon and remedial measures for it.

Question 18.
Define the concept of GDP deflator. Calculate the GDP deflator from the following data and analyse it.

• In 2015, the GDP at current price is ₹ 8,500.
• In 2015, the GDP at constant price is ₹ 7,000.

Answer:

It shows that the general price level has increased compared to the base year.

Answer any 6 questions from 19 – 23. Each carries 4 scores. (4 × 4 = 16)

Question 19.
Complete the following table:

Answer:

Question 20.
a) Distinguish between MPC and MPS.
b) Calculate the value of multiplier and income generated when there is an additional investment of ₹ 100 crore in an economy.

MPC	Value of multiplier	Income generated
0.2
0.5
0.8

Answer:
a) MPS + MPC = 1
∴ MPC = 1 – MPC
b)

If the values of MPC in an economy is unity the value of MPS will be zero. Thus, there is close relationship between MPC and MPS.

Question 21.
a) Define the monetary policy.
b) Reserve Bank of India controls the money supply in the country though its instruments. Analyse them.
Answer:
a) The policy adopted by RBI to regulate the fluctuations in the economy is known as monetary policy.

b) RBI contrails the money supply in the country through its monetary instruments which are given below.

1. Open market operations: It is the process of increasing or decreasing the volume of high powered money in the economy by purchasing or selling government bonds and securities.
2. Bank rate: It is the rate at which the central bank discounts first class bills of exchange of commercial banks or it is the interest rate charged by RBI on loans given to commercial banks.

3) Varying the reserve deposit ratios: Reserve deposit ratios are of two types:

1. CRR (Cash Reserve Ration): Commercial banks have to keep a certain percentage of their demand deposits and time deposits as reserves with RBI. This percentage is known as cash reserve ratio.
2. SLR (Statutory Liquidity Ratio): Commercial banks have to invest a certain percentage of their demand and time deposits on assets like gold or government securities. This percentage is known as SLR.

RBI in India acts as strong force in controlling credit by monetary policy. The acts of RBI towards control of money supply is also noteworthy.

Question 22.
QD = 500 – P
QS = 300 + P
a) Calculate the equilibrium price and quantity.
b) Draw a diagram based on equilibrium price and quantity.
Answer:
a) QD = 500 – P
QS = 300 + P
500 – P = 300 + P
500 – 300 = +P + P
200 = 2P
\(\frac{200}{2}\) = P
P = 100
Equilibrium price is 100
QD = 500 – P
= 500-100 = 400
Equilibrium quantity = 400

b)

Question 23.
Short run production function is different from long run production functions.
a) Identify any two important differences between the two.
b) Draw the Average Product and Marginal Product Curves. AP, MP
Answer:
a) 1) Under the short run the firm cannot vary all the inputs for a change in output in long run, but in long run firm can vary all inputs for a change in output.
2) Some inputs are fixed under short run while under long run there is no fixed input.

b)

Answer any 2 questions from 24 – 26. Each carries 5 scores. (2 × 5 = 10)

Question 24.
Statement I: Indian Railway (IR) is India’s National railway system operated by the Ministry of Railways.
Statement II: ONGC, ESSAR, Reliance Ltd., etc. are the oil extraction companies in the country.
a) Identify the closest market form associated with the above statements.
b) Point out the features of each market form.
c) List out two differences between these two mar¬ket forms.
Answer:
a) Statement I – associated with monopoly market.
Statement II – associated with oligopoly market

b) Features of monopoly market:

• Only a single seller.
• No close substitues are available.
• Barriers to entry.
• Firm itself is the industry.
• Firm is price maker.

Features of oligopoly market:

• Products may be homogeneous or differentiated.
• There exists selling cost.
• Freedom of entry and exit of firms.
• Interdependence of firms.

c) Difference between these market:
Monopoly:

1. Higher price
2. Single seller

Oligopoly:

1. Price less than monopoly market
2. Few sellers

Question 25.
a) Mention the methods of National Income accounting and explain briefly the expenditure method.
b) Caculate the GNP MP from the following data:

Item	Rupees (in crores)
NDPFC	10,000
Depreciation	2,000
Net Indirect Tax (NIT)	1,000
Net Factor Income from Abroad (NFIA)	5,000

Answer:
a) There are mainly three methods for measuring national income. They are product method, income method and expenditure method.
i) Product method: It is the sum of the gross value added by the entire production units in the economy.
GDP = \(\sum_{i=i}^{N} N V A_{i}+\sum_{i=i}^{N} D_{i}\)

ii) Income method: The income method approaches national income from the income side. National income is the sum total of the rewards earned by the factors of production in an economy in the form of rent, wage, interest and profit.
GDP = W + P + In + R

iii) Expenditure method: Expenditure method is an alternative way to calculate the GDP and it looks at the demand side of the production. The expenditure method estimates national income by measuring final expenditure on gross domestic product.
GDP = C + I + G + X – M

b) GNP_MP = 18000
= 5000 + 1000 + 2000 + 10000
= 18000

Question 26.

The above figure shows an equilibrium in the product market.
Suppose an Autonomous Investment (Al) increases by ₹ 100 crores, and MPC is equal to 0.8, what happens to the AD and equilibrium income? Explain this with the help of a diagram.
Answer:
Question is incomplete

Answer any 2 questions from 27 – 29. Each carries 8 scores. (2 × 8 = 16)

Question 27.
Ms. Sudha wants to consume apple and oranges. Her income is ₹ 400. The price of apple (Good 1) is ₹ 80/kg. and the price of orange is ₹ 50/kg. On the basis of this data.
a) Draw the budget line.
b) Write the equation of budget line.
c) How much kg of apple that Ms. Sudha can consume if she spend the whole income on that good alone?
d) What is the slope of the budget line?
e) Draw the new budget line in the same graph if her income falls to ₹ 200 remaining same the price of two goods.
f) What happens to the budget line if the price of apple rises to ₹ 100 but income and price of orange are remaining constant? Draw a new budget line.
Answer:
a)

b) P₁X₁ + P₂X₂ = M
80 X₁ + 50 X₂ = 400
c) \(\frac{400}{80}\)
d) Slope = \(\frac{-P_{1}}{P_{2}}=\frac{-80}{50}\)
e) Question is wrong.
f) Question is wrong.

Question 28.
In a perfectly competitive market, the firm wishes to maximize its profit.
a) Identify the conditions with the help of a diagram.
b) Explain the profit maximization of a firm in the short run.
c) In the long run, a perfectly competitive firm earns the normal profit. Do you agree with this? Graphically substantiate.
Answer:
a) The main air of a firm under perfect competition is the maximization of profit. The output level at which the firm maximises its profits is called equilibrium of the firm. The following conditions are necessary for the profit maximization. If firm

Condition – 1
Market price (P) should be equal to MC. ‘P’ should not be greater than MC or ‘P’ should not be less than MC.

If the market price (P) is less than MC then for producing each unit of output the firm incurs loss. When the firm produces output at q0 the gross profit is maximum. If q0 is equilibrium output then at q0 level of output market price (P) should be equal to MC.

Condition – 2
At the profit maximising level of output MC should not be decreasing or MC curve should cut MR curve from below.

Condition – 3
In the short run the price (P) should be more than or equal to minimum point of AVC.

Here the equilibrium output is q₁ and equilibrium price is p. If the price line is aboue the minimum point of AVC the loss will decrease. Thus in the short run the price of the firm should be more than or equal to minimum point of AVC.

b) Profit of a firm can be denoted as π. It is the difference between total revenue and total cost. Profit maximisation of firm in the short run takes place through following situations in the market which are given below.
1) P = MC
2) MC curve should cut the MR curve from below.
3) P > AVC.
In the short riff the firm should get at least minimum point of AVC as price, inorder to remain in the production process. So the minimum point of AVC is known as shut down point in the short run. In the short run the minimum point of SAC curve is the break even point.

c) Yes. I agree with this statement.
Each firm in the market will take the price determined in the market by the forces of demand and supply. If a firm changes a higher price than the market determined price then it will loose its entire customers. Since the firm gets only the normal profit he cannot sell below the market determined price.

Question 29.

SI NO.	Item	Amount (₹)
1.	Revenue Receipts	50,000
2.	Capital Receipts a) Borrowing and other liabilities (₹ 15,000) b) Non-debt creating capital receipts (₹ 15,000)	30,000
3.	Revenue Expenditure (including interest payments)	65,000
4.	Capital Expenditure	15,000
5.	Interest Payments	10,000

a) Write down the equation for calculating Revenue deficit, Fiscal deficit and Primary deficit.
b) Calculate Revenue deficit, Fiscal deficit and Primary deficit from the given data.
c) Suggest any two measures to reduce the Fiscal deficit in the country.
Answer:
Revenue deficit = Revenue expenditure – Revenue receipts
Fiscal deficit = Total expenditure – Total revenue excluding borrowing
OR
Fiscal deficit = Total expenditure – Revenue receipt + Capital receipts excluding borroiwng
Primary deficit = Fiscal deficit – Interest payments

b) Revenue deficit = 65000 – 50000 = 15000
Fiscal deficit = 90000 – 50000 – 15000
= 90000 – 65000 = 25000
Primary deficit = 25000 – 10000
= 15000

c) 1) Reduction in subsidies by the government will also help to reduce the deficit.
2) Borrowing from domestic sources

Kerala State Board New Syllabus Plus Two Economics Chapter Wise Previous Questions and Answers Part II Chapter 4 Income Determination.

Kerala Plus Two Macroeconomics Chapter Wise Previous Questions Chapter 4 Income Determination

Question 1.
Classify the following statements into two branches of economics: (MARCH-2008)
a) Firm’s decision about how much to invest.
b) Govt, has adopted devaluation to overcome deficit in balance of payments.
c) RBI has increased Cash Reserve Ratio to control inflation.
d) Price elasticity of luxury good is elastic
Answer:
a) Micro economics
b) Macroeconomics
c) Macroeconomics
d) Microeconomics

Question 2.
Assume the marginal propensity to consume of a State in India is 0.8 (MARCH-2010)
1) Find out tax multiplier and expenditure multiplier.
2) From the above example prove that adding these two policy multipliers brings a balanced budget multiplier.
Answer:

Question 3.
Suppose the income of individual A increases from ₹1,000 to ₹1,100. So his consumption rises from ₹750 to ₹825. Find out MPS and MPC. (MARCH-2010)
Answer:

Question 4.
a) Complete the following table: (JUNE-2010)
–
b) Using the equation prove that MPC + MPS = 1
Answer:
a)

b) MPC + MPS = 1
That is 0.75+ 0.25 = 1

Question 5.
The Central Government sanctioned ₹40 crores to Kerala and Assam for making additional investments. The MPC of Kerala is 0.8 and Assam is 0.5. (JUNE-2010)
a) Find the multiplier and multiplier effect on the income of these two States.
b) Explain the concept of output multiplier.
Answer:
a)


= 80 crores
b) Multiplier denotes the relationship between investment and income. Increase in investment leads to increase in income.

Question 6.
A = C + T = ₹ 50 crores, MPC = 0.8, Y = ₹ 4000 crores (MARCH-2011)
a) State whether the economy has reached in equilibrium or not (Hint: Y = \(\overline{\mathrm{A}}\) + CY)
b) Illustrate your conclusion in a diagram.
Answer:
Y = \(\overline{\mathrm{A}}\) + c. y
Since \(\overline{\mathrm{A}}\) = \(\overline{\mathrm{C}}\) \(\overline{\mathrm{I}}\). we have
Y = \(\overline{\mathrm{C}}\) \(\overline{\mathrm{I}}\) x c. y Putting values, we get
Y = 50 + 0.8 x 4000
=50 + 3200 – 3250
Since 3250 ≠ 4000, equilibrium is not reached in the economy.

Question 7.
Multiplier plays a significant role in Keynesian Macro Economics. (MARCH-2011)
a) Examine the relationship between multiplier and MPC
b) If MPC = 0.8, calculate multiplier.
Answer:
a) The value of multiplier is determined by marginal propensity to consume. Higher the MPC, greater the size of multiplier lower the MPC, smaller the size of multiplier. When income of consumer rises they spend more the value of increase in income ie. multiplier depends on’MPC, greater the value of multiplier depends on greater size of MPC. Thus there is direct relation between multiplier and MPC.
The relation can be expressed in terms of an equation as under

Putting the value of in equation we get,

Thus it is clear from the above equation that the value of MPC and multiplier are positively related
b) MPC = 0.8

Question 8.
Distinguish the terms ‘Ex ante investment’ and ‘Ex post’ investment. (MARCH-2012)
Answer:
Ex ante means ‘anticipated’ while Ex post means realised. In economics ex ante investment refers to anticipated investment in an economy while ex post investment refers to the realised investment.
Ex ante: The planned value of a variable as opposed to its actual value.
Ex post: The actual or realized value of a variable as opposed to its planned value .
Ex ante consumption: The value of planned consumption
Ex ante investment: The value of planned investment.

Question 9.
Explain the concept of aggregate demand with the help of a diagram.(MARCH-2013)
Answer:
The total amount of goods and services demanded in the economy at a given overall price level and in a given time period. It is represented by the aggregate-demand curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide. Normally there is a negative relationship between aggregate demand and the price level. Also known as Total spending”.
Aggregate demand is the demand for the gross domestic product (GDP) of a country, and is represented by this formula:
Aggregate Demand (AD) = C + I + G + (X-M) Where, C = Consumers’ expenditures on goods and services.
I = Investment spending by companies on capital goods.
G = Government expenditures on publicly provided goods and services.
X = Exports of goods and services.
M = Imports of goods and services.
Downward sloping aggregate demand curve

The most noticeable feature of the aggregate demand curve is that it is downward sloping, as seen in . There are a number of reasons for this relationship. Recall that a downward sloping aggregate demand curve means that as the price level drops, the quantity of output demanded increases. Similarly, as the price level drops, the national income increases. There are three basic reasons for the downward sloping aggregate demand curve. These are Pigou’s wealth effect, Keynes’s interest-rate effect, and Mundell- Fleming’s exchange-rate effect. These three reasons for the downward sloping aggregate demand curve are distinct, yet they work together.
The first reason for the downward slope of the aggregate demand curve is Pigou’s wealth effect. The second reason for the downward slope of the aggregate demand curve is Keynes’s interest-rate effect. The third reason for the downward slope of the aggregate demand curve is Mundell-Fleming’s exchange-rate effect.

Question 10.
Distinguish the concepts (JUNE-2014)
a) Ex Ante and
b) Ex Post
Answer:
Ex-ante and Ex-post
Consumption, savings and investment can be classified into Ex-ante and Ex-post variables. The terms Ex-ante and Ex-post have been derived from the Latin word. Ex-ante means planned or desired. Ex-post means actual or realized. In national income accounting, the variables such as consumption, investment and savings are considered as ex-post variables. The rate at which consumption, savings and investment are presented in the ex-post sense.

Question 11.
Explain the concept marginal propensity to consume. How it relates to marginal propensity to save? (JUNE-2014)
Answer:
Marginal Propensity To Consume – MPC’
The proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it. Marginal propensity
to consume is a component of Keynesian macroeconomic theory and is calculated as the change in consumption divided by the change in income. MPC is depicted by a consumption line- a sloped line created by plotting change in consumption on the vertical y axis and change in income on the horizontal x axis.
The marginal propensity to consume (MPC) is equal to AC / AY, where Ac is change in consumption, and AY is change in income.
Marginal Propensity to consume refers to the ratio of change in consumption to change in income. MPC = AC / AY
Marginal Propensity to save refers to the ratio of change in saving to change in income.
MPS = AS /AY
The sum of MPC and MPS is always one and equal to unity.
That is MPC + MPS = 1

Question 12.
The point on the supply curve at which a firm earns normal profit is called _________ (MARCH-2015)
a) Normal profit
b) Super normal profit
c) Break-even point
d) Shut-down point
Answer:
d) Shut-down point

Question 13.
In an economy, investment increases by 500 crores. If MPC is 0.5, what is the increase in total income? (MARCH-2015)
Answer:

Increase in total income
= Kx increase in investment
= 2 x 500 crores
= 1000 crores

Question 14.
If all the people of the economy increases the proportion of income they save, the aggregate savings in the economy will not increase. This phenomenon is known as ______. (MARCH-2015)
a) Paradox of prosperity
b) Paradox of thrift
c) Leontief paradox
d) Giffen paradox
Answer:
Paradox of thrift

Question 15.
Study the following table and answer the questions. (MARCH-2015)

a) Derive the aggregate demand schedule.
b) Show graphically the components of aggregate demand.
Answer:
a) Aggregate desired schedule

Question 16.
a) Explain Effective Demand. (MAY-2015)
b) What are the determinants of the value of aggregate demand?
c) Diagrammatically explain the change in Aggregate demand due to a change in government expenditure.
Answer:
Effective Demand
a) The logical starting point of Keynes General Theory is the principle of effective demand. Effective demand is the aggregate demand for the existing output at prevailing prices. The main reason for unemployment in an economy is the deficiency in aggregate demand. To avoid unemployment, we have to increase effective demand. Income and Employment determination The level of income and employment will be determined at the point where aggregate demand equals aggregate supply.
b) Aggregate demand and its determinants Aggregate demand is the total demand in an economy at various levels of employment. In other words it is aggregate expenditure on all goods and services in the economy. It consists of the four components.
They are:

• Consumption demand
• Investment demand
• Government demand

c) Equilibrium level of income is determined by Aggregate demand (AD) and Aggregate Supply (AS). This situation is shown in figure 1.

Figure 2 shows the effect of change in government expenditure. As government expenditure increases AD curve shifts up to AD¹.This brings new equilibrium point at E¹. So the level of income increases to Y¹.

Question 17.
Distinguish between the terms Ex-ante Investment and Ex-post Investment. (MAY-2016)
Answer:
Ex-ante investment means planned investment. On the other hand, ex-post investment means actual or realised investment.

Question 18.
Consider the following diagram. Answer the following questions: (MARCH-2017)

i) What does the 45° line represent?
ii) What is the difference between A₁ and A₁?
iii) List two possible reasons for an increase in Autonomous Expenditure.
iv) When the economy moved from E₁ to E₂, the Aggregate output is increased more as compared to Aggregate expenditure. Why?
v) Explain the movement of the economy from E₁ to E₂.
Answer:
i) Equilibrium income determination curve (AD curve)
ii) When investment increases the aggregate demand will increase. So equilibrium income will also increase.
iii) To increase public expenditure of govt.
To increase transfer of payment of govt.
iv) When govt, expenditure increases there occurs a change in autonomous component of the aggregate demand curve. The slope will remain constant then equilibrium income will increase. This is due to the operation of the multiplier.
Suppose the govt, expenditure increases, then aggregate demand curve shift from AD₁ to AD₂. So equilibrium income increase form E₁ to E₂. The change in income (∆y) is greater than change in govt, expenditure (∆G). This is due to the effect of multiplier.

Question 19.
Among the following choose the one which represents the multiplier.  (MARCH-2017)

Answer:

Question 20.
Elucidate the working of Autonomous Expenditure Multiplier Mechanism with a suitable example. Show the impact of a decline in MPC on multiplier.  (MARCH-2017)
Answer:
Consumption at zero level of income is called autonomous consumption. When there is increase in autonomous expenditure, the aggregate demand curve shifts upward. Similarly, when there is fall in autonomous expenditure the curve shifts downward.

Here mpc is the decisive factor influencing the value of multiplier. For example, if the value of mpc is 0.75, the multiplier is

Kerala State Board New Syllabus Plus Two Economics Chapter Wise Previous Questions and Answers Part II Chapter 3 Money and Banking.

Kerala Plus Two Macroeconomics Chapter Wise Previous Questions Chapter 3 Money and Banking

Question 1.
Complete the chart. (MARCH-2008)

Answer:

Question 2.
Imagine an economy without money and point out the difficulties faced in the exchange of commodities. Can you suggest an economic term for that situation? (MARCH-2008)
Answer:
a) Difficulties of commodity exchange system are:

• need of the double coincidence of wants.
• need of divisibility
• lack of common measure of value
• lack of proper store of value.

b) This system is called barter system.

Question 3.
In the following table some important monetary policy measures are given. Complete the table appropriately. (MARCH-2008)

Answer:

Question 4.
the questions given below. (MARCH-2008)
1) Central Government wants advice on a financial crisis.
2) Central Government wants an authority as the custodian of foreign exchange reserves.
3) The country needs an institution to regulate the money supply and credit system.
4) Commercial Banks wants an institution for assistance and advice.
a) Which institution can handle all these issues?
b) Analyse each issue and explain how that institution handle and make decision on them.
Answer:
a) RBI or Central Bank
b) 1) Financial adviser
2) Custodian of nation’s foreign exchange reserves
3) Control of credit
4) Lender of last resort

Question 5.
A recent study on film industry in Kerala reveals that even today majority of the producers depend not on banks but on big money lenders for raising the required capital. (JUNE-2009)
a) Comment on it in the background of Indian monetary system.
b) Suggest a remedy for betterment.
Answer:
a) It is a fact that in Kerala many people depend on private money lenders rather than banks. This is because banking activities are time-consuming and will cause unnecessary delay. Moneylenders are easily accessible and therefore people depend on them for financial requirements,
b) Banking system should be made easily approachable.

• Bank facilities should be provided to all.
• Delay in business should be avoided.
• Unnecessary formalities and practices should be avoided.
• Large security requirements of banks should be relaxed.

Question 6.
The RBI has been publishing four alternative measures of money supply in India since 1977. On the basis of this.(MARCH-2010)
a) Complete the following table:
b) Identify aggregate monetary resource.

Answer:

Question 7.
Data regarding the production and cost structure of a firm is given below: (MARCH-2010)

a) If TFC is 60, complete the table.
b) On the same set of axis plot TFC, TVC and TC.
c) Write relevant equations to find out AFC, AVC,
Answer:
a)

Question 8.
Monetary policy is the policy adopted by the RBI to stabilize the economy. One of the instruments of monetary policy is cash reserve ratio. Supplement other three and explain.(MARCH-2010)
Answer:
1) Bank Rate
2) Statutory Liquidity Ratio
3) Open Market Organisations

Question 9.
‘Money supply is a stock variable.’ (JUNE-2010)
a) Define the concept of money supply.
b) Name the four alternative measure of money supply.
c) Classify them into narrow money and broad money.
Answer:
Money supply consists of currency notes and coins issued by the monetary authority of the country.
b) The total stock of money in circulation among the public at a particular point of time is called money supply. RBI publishes figures for four alternative measures of money supply, viz. M₁, M₂, M₃ and M₄. They are defined as follows.
c) M₁ and M₂ are narrow money. M₃ and M₄ are broad money

Question 10.
RBI is the independent authority for conducting monetary policy in the economy. Explain the instruments which RBI uses for conducting monetary policy. (JUNE-2010)
Answer:
Bank rate
Open market operations
Margin requirements

Question 11.
Anand has an account in State Bank of India. He often withdraws some amount of money either through cheque or through ATM card. (MARCH-2011)
Answer:
Demand deposit/Saving deposit/Current deposit

Question 12.
In order to control inflation, Reserve Bank of India (RBI) raised Cash Reserve Ratio (CRR) by 0.75% during January 2010. As part of monetary policy, the RBI adopts some more measures to counter inflation. Discuss any other 2 measures. (MARCH-2011)
Answer:
The instruments which RBI uses for conducting mon-etary policy are as follows.
1) Open Market Operations:
It refers to the sale and purchase of government securities by the central bank. RBI purchases government securities to the general public in a bid to increase the stock of high powered money in the economy.
2) Bank Rate Policy:
As mentioned earlier, RBI can affect the reserve deposit ratio of commercial banks by adjusting the value of the bank rate-which is the rate of interest commercial banks have to pay RBI – if they borrow money from it in case of shortage of reserves. A low (or high) bank rate encourages banks to keep smaller (or greater) proportion of their deposits as reserves, since borrowing from RBI is now less (or more) costly than before.

Question 13.
Observe the graph given. Identify the segment of liquidity trap from the figure and choose the answer from bracket. (MARCH-2011)

Answer:
c to d

Question 14.
Distinguish between the ‘legal tender money’ and ‘flat money’.(MARCH-2012)
Answer:
Money issued by the monetary authority or the government which cannot be refused by any one is called legal tender money.
Eg : Currency notes.
On the other hand fiat money refers to money with no intrinsic value.
Eg : Coins

Question 15.
In India RBI has developed alternative measures of money supply and figures are published accordingly. (MARCH-2013)
a) Prepare a chart showing the alternative measures of money supply in India.
b) Categorise them into ‘narrow money’ and ‘broad money’.
c) Also identify the ‘most’ and ‘least’ liquid forms of money.
Answer:
The total stock of money in circulation among the public at a particular point of time is called money supply. RBI publishes figures for four alternative measures of money supply, viz. M₁, M₂, M₃ and M₄. They are defined as follows.

b) M₁ and M₂ are narrow money M₃ and M₄ are broad money
c) M₁ and M₂ are known as narrow money. M₃ and M₄ are known as tad money. These gradations are in decreasing order of liquidity. M₁ is most liquid and easiest for transactions whereas M₄ is least liquid of all. M₃ is the most commonly used measure of money supply. It is also known as aggregate monetary resources.

Question 16.
“People desire to hold money balance broadly from two motives.” Explain. (MAY-2015)
Answer:
The Transaction Motive: The principal motive for holding money is to carry out transactions. In general, the transaction demand for money in an economy, MdT, can be written in the following form
Mt = k.T
where T is the total value of (nominal) transactions in the economy over unit period and k is a positive fraction. The number of times a unit of money changes hands during the unit period is called the velocity of circulation of money. In general, equation can be modified in the following way
Mt = kPY
where Y is the real GDP and P is the general price level or the GDP deflator. The above equation tells us that transaction demand for money is positively related to the real income of an economy and also to its average price level.
The Speculative Motive : An individual may hold her wealth in the form of landed property, bullion, bonds, money, etc. Everyone in the economy will hold their wealth in money balance and if additional money is injected within the economy it will be used up to satiate people’s craving for money balances without increasing the demand for bonds and without further lowering the rate of interest below the floor level. Such situation is called a liquidity trap. The speculative money demand function is infinitely elastic here.

Question 17.
Distinguish between a stock and flow variables. Illustrate with examples. (MARCH-2017)
Answer:
Stock : It is a variable which can be measured at a particular point of time. Stock is a static concept e.g. wealth, money supply, inventory.
Flow: It is a variable which can be measured over a given period of time. It is a dynamic concept, e.g: income, gross value added (GVA), changes in inventory

Question 18.
Write a note on the interest responsiveness of the following motives for the demand for money. (MARCH-2017)
Answer:
i) Translation motive
ii) Precautionary motives
iii) Speculative motives
The amount of money that people keep as cash will be determined by comparing the advantages of liquidity and interest rates. The demand for money – as arises due to
1. Precautionary motive: People will hold liquid cash in order to meet emergencies. This is known as precautionary motive.
2. Transation motive: The desire of people hold cash in order to make transactions is defined as demand for money. The volume of GDP increases transations demand for money will also increase. It has a positive relationship with GDP.
3. Speculative motive: In order to make profits from the purchase and sale of bonds and securities individuals will hold cash. This is known as speculative motive.
The relationship between interest rate and bond price is negative. When the market rate of interest is high the bond price will be less.

When the market rate of interest reaches minimum the speculative demand curve will be parallel to ‘x’ axis. This situation is known as liquidity troop.

Question 19.
Match the following: (MARCH-2017)
M₁ : Most commonly used measure of money supply
M₂: Least liquid form of money supply
M₃: M₁ + Post Office Savings Deposits M
M₄: CU+DD
Answer:
M₁: CU + DD
M₂: M₁ + Post Office Savings Deposits
M₃: Most commonly used measure of money supply
M₄: Least liquid form of money supply.