KENDRIYA VIDYALAYA SANGATHAN HYDERABAD REGION

MARKING SCHEME
XII PRE BOARD -I EXAM TERM-II
SUBJECT: BUSINESS STUDIES (054)

Ans 1: Off the job training means training the employees by taking them away from their work position
which means employees are given a break from the job and sent for training. (1 mark)
Example of Off the job method of training is Vestibule School. (1 mark)

Ans 2: (a) Controlling (1/2 mark)

Controlling means comparison between actual and planned output to find out the reasons fordeviations
and taking corrective measures to stop such deviations in future. (1 mark)
(b) Taking corrective measures (1/2 mark)

Ans 3: Recruitment is a positive process as it attracts more and more job seekers to apply for the post.
Conversely, Selection is a negative process as it rejects all the unfit candidates. (2 marks)

Ans 4: (a) Insider Trading (1 mark)

(b) SEBI keeps a strict check when insiders are buying securities of the company and take strict
action on insider trading. (1 mark)

Ans 5: (a) (i) Co-partnership/Stock option (1/2 mark)

(ii) Employees' recognition (1/2 mark)
(b) Monetary Incentive: Incentive which can be calculated in the terms of money is knownas
monetary incentive (1 mark)
Non-monetary incentive: Incentive which cannot be calculated in the terms of money is
known as non-monetary incentive (1 mark)
OR
Three monetary incentives are:
i. Pay and Allowances: Pay and allowances are the chief monetary incentives for every employee.
Salary includes basic pay and dearness allowance along with other allowances. The employees remain
motivated with the annual increment in pay and allowances.
ii. Productivity Linked Wage Incentive: The employees can be motivated by linking productivity with
their salary. In other words, the increment in salary will be in direct proportion of increase in productivity.
iii. Bonus: Bonus refers to that payment to employees in addition to their regular remuneration which is
paid as a reward of their good services. The bonus plan helps in establishing cordial relations between
owners and employees. These days, the payment of bonus to employees is prevalent in almost all
industries. The payment of bonus may be in cash or kind. For example, an employee can be given cash
reward or sent abroad in recognition of his/her services.
iv. Retirement Benefits: Every employee remains concerned about his future after retirement. If he is
offered financial security for his post-retirement period, his future will be secured. This situation will
certainly motivate him. Provident Fund and Gratuity are the best examples of post-retirement benefit.
v. Perquisites: Perquisites are those facilities which an employee gets free from the employer e.g., rent
free accommodation, car, facility of a servant, etc. These facilities play an important role in motivating the
employees.
VI. Profit Sharing:
VII.

VIII. Commissions: Commissions are common financial incentives for professionals who work in
sales. For instance, retailers and automobile companies often provide sales professionals with a
commission in addition to their regular wages for selling goods or services. Typically, sales
professionals earn a specific amount in commissions for every product or service they sell to
customers.

(Any three with explanation) (1 mark each)

Ans 6: Any three importance of controlling (3 marks)

(i) Accomplishing organisational goals The controlling function measures the performance
against the pre-determined standards and corrects deviations. This helps in ensuring that
organisation is moving on right track to achieve the organisational goals. In other words, by
controlling, the manager ensures that resources are obtained and used economically and
efficiently for the achievement of organisational objectives.
(ii) judging accuracy of standards A sound controlling system helps the management to verify
whether the standards set are accurate and objective. It keeps a careful check on the changes,
which are taking place in the organisation and helps in revising standards as and when required.
(iii) Making efficient use of resources By exercising control, a manager seeks to reduce
wastage and spoilage of resources. Each activity is performed in accordance with pre-determ
ined standards and norms. This ensures that resources are used in the most effective and
efficient manner.
(iv)It improves employees’ morale The implementation of controlling makes all the employees
to work with complete dedication because they are aware that their performance wiil be
evaluated and they will have a chance to build their reputation in the organisation. The
employees who show good performance are rewarded by giving them promotions, cash prizes,
etc.
(v)It helps in better performance Planning and controlling are closely inter-related as the real
test of planning is controlling. Control reveals deficiencies and deviations, suggests corrective
actions for prevention of deviations and deficiencies through modified planning.
(vi) Facilitates coordination Control keeps all activities and efforts within their fixed boundaries
and makes them move towards the set goals. Thus, control facilities coordination, it provides
unity of direction.

Ans 7: Working capital refers to excess of Current Assets over Current Liabilities. (1 mark)
Factors affecting the working capital (any 2 with explanation) (2 marks)
Following are the factors affecting working capital of a company:
(i) Length of operating cycle/Production cycle: Operating cycle refers to the length of the
manufacturing cycle, i.e. the periods taken to convert raw materials into finished products.
Longer period means more working capital is required and vice-versa.

(ii) Credit policy/Credit allowed: If liberal credit terms are given and a liberal policy is
followed, then the company would require more working capital as there is less cash
inflow and vice-versa.
 (iii) Nature of business: Manufacturing firm requires high amount of working capital as
compared to a trading organisation, to convert raw materials into finished goods.

(iv) Scale of operations: Large amount of working capital is required by firms operating on
a large scale of operations in terms of debt, inventory, etc. as compared to small scale
firms.

(v) Seasonal factor: Higher amount of working capital is required by the organisation
during its peak season as the level of activities is higher as compared to lean season.

(vi) Business cycle: During boom period, when sales are high, higher amount of working
capital is required as compared to depression period.

(vii) Credit availed: If it is difficult to avail credit by the firm (on its purchases) from
suppliers then, higher amount of working capital is required.

(viii) Available of raw material: Higher lead time (i.e. time lag between the placement of
order and actual receipt of the materials) and interrupted availability of raw materials will
raise the requirement of working capital.

(ix) Operating efficiency: Less requirements of working capital will be there in a firm in the
presence of best sales efforts, ideal debtors turnover ratio and higher inventory turnover
ratio.

(x) Level of competition: Working capital requirements will be more if level of competitions
is high.

(xi) Inflation: At a higher rate of inflation, working capital requirement will also be higher.

(xii) Growth prospects: If an organisation has planned for higher growth prospects then
its requirement for working capital will be higher.

Ans 8: (a) Authoritative or Autocratic style of leadership is followed by the manager. The
autocratic leader gives the order to be obeyed by the subordinates. He centralizes decision-
making power in himself. He determines the policies or decisions for the group without
consulting them. This style is like “bossing people around”. (1.5 marks)

(b) Any other style of leadership:

i)Democratic or Participative leadership style (1.5marks)
A participative leader gives order only after consulting the group and works out the policies
with the acceptance of the group. He asks people to do things after sketching out the
detailed plans and makes it clear that praise or blame will be shared by all the group
members. Thus, there is a two-way communication in the organization. Using this style is of
mutual benefit. Subordinates become part of the team and help the leaders make better
decisions and achieve objectives.

or
ii) Laissez Faire or Free rein leadership style (1.5marks)

Under this style, the leader gives full freedom to the subordinates in setting goals. Such a leader
avoids use of power. The leader does not interfere in the activities of the subordinates. Group
members work themselves as per their own choice and competence. It is called subordinate
centered leadership

Ans 9: (a) Debt (1 mark) Reason

(any one) (1 mark)
1. Due to weak cash flow position, the firm may not be able to pay interest on debt capital.
2. Increased fixed operating cost will increase the business risk therefore debt should notbe
issued as it further increases the financial risk.
3. The stock market condition being bullish, the investors will prefer to buy equity shares.

Other factors with Shalini should keep in mind are: (any three with explanation, 1 mark each)
1. Interest coverage ratio : The interest coverage ratio refers to the number of times earnings
before interest and taxes of a company covers the interest obligation. Which is calculated as
follows:
ICR=EBIT/ Interest
• Higher the Interest coverage ratio, lower shall be the risk of the company failing to meet its
interest payment obligations.

2. Debt Service Coverage Ratio: The cash profits generated by the operations are compared with
the total cash required for the service of the debt and the preference share capital. It is calculated
as follows:

3. Return On Investment If return on investment of the company is higher, the company can
choose to use trading on equity to increase its EPS, i.e., its ability to use debt is greater.
4. Cost Of Debt: More debt can be used if cost of Debt is raised at a lower rate.
5. Tax Rate :A higher tax rate makes debt relatively cheaper and increases its attraction as
compared to equity as a company can avail tax benefit on interest payment.
6. Cost Of Equity • If a company uses more debt, the financial risk faced by equity holders
increase so their desired rate of return may increase. • If debt is used beyond a point, cost of
equity may go up sharply and share price may decrease in spite of increased EPS.
7. Floatation Cost • Floatation cost is the cost involved for raising funds from the capital market. •
Cost of Public issue is more than the floatation cost of taking a loan. • The floatation cost may
affect the choice between debt and equity and hence the capital structure.
8. Flexibility
• If the firm uses its debt potential to its full capacity, it loses the flexibility to use more debt. • To
maintain flexibility the company must maintain some borrowing power to take care of unforeseen
circumstances.
9. Control Debt normally does not cause dilution of control whereas a public issue makes the firm
more vulnerable to takeovers. In order to retain control, firm should issue debt.
10. Regulatory Framework Every company has to operate within a regulatory framework provided
by the law e.g., public issue of shares and debentures have to be made under SEBI guidelines.
11. Capital Structure of other Companies: A useful guideline in the capital structure planning is
the debt equity ratios of other companies in the same industry. For e.g, if the business risk of a
firm is higher, it cannot afford the same financial risk.
 1. Cash flow position: The size of the projected cash flows should be considered before
deciding the capital structure of the firm. If there is sufficient cash flow, debt can be used but it
must cover fixed payment obligations. The company has certain cash payment obligation such
as ( I ) normal business operations (ii) Investment in fixed assets ( iii) Meeting debt service
commitments as well as provide a sufficient buffer.
2.Risk Consideration The total risk of business enterprise depends upon both the business
risk and financial risk. If a firm‘s business risk is lower, its capacity to use debt is higher and
vice versa.
3.Stock Market Conditions: If the stock markets are bullish, equity shares can be sold even
at a higher price.

OR
Working Notes
Sources Situation I Situation II

Equity Shares 90,00,000 90,00,000

Debt NIL 40,00,000

Total Capital 90,00,000 1,30,00,000

EBIT (15%) 13,50,000 19,50,000

Less: Interest NIL 4,00,000

EBT 13,50,000 15,50,000

Less: Tax (30%) 4,05,000 4,65,000

EAT 9,45,000 10,85,000

9,45,000/9,00,000 10,85,000/9,00,000
EPS
1.05 1.21
(4 marks)
Comment: Yes, the decision to raise debt is justified as EPS is increased by including debt in capital
structure of the company. (1 mark)

Ans 10: Selection can be defined as discovering the most promising and most suitable
candidate to fill up the vacant job position in the organisation. Selection is a procedure to
choose the appropriate candidates out of the numerous aspirants. (1 mark)
Various steps involved in staffing process are: (with explanation) (4 marks)

(i) Preliminary Screening: To begin with, it is necessary to eliminate those candidates who do not fulfill
the basic criteria and qualification required for the job. This is done through preliminary screening by
examining the information provided in the application forms. These forms may be in the form of online
application or paper applications. Along with this, preliminary interviews can also be conducted to bring
out the facts which are not written in the application forms and thereby, help in rejecting the misfits.

(ii) Employment Test: Test is a mechanism that helps in judging certain characteristics of the aspirants.
These characteristics can be regarding skills, knowledge, intelligence, etc. Various forms of testing are
Intelligence test, Aptitude test, Personality test, Trade test and Interest test. They assess the individuals on
different platforms and find out the suitable candidates for further selection process. For example,
personality tests judge the candidate for characteristics such as maturity level, emotional control, etc.
Similarly, trade test examine the skill and knowledge of the individual.
(iii) Personal Interview: Personal interviews are an integral part of selection process that includes
conversation of the candidates with the managers. Herein, in-depth conversations are conducted to judge
the suitability of the individual for the job. Sometimes, the individual may also seek information regarding
the organisation in such interviews.

(iv) Checking references and background: Once the individuals pass through the interviews, some
organisations ask for references of other persons such as previous employers, other known persons. From
these references the organisation aims at verifying the information provided by the candidate. Moreover,
these references also act as a source of additional information of the candidate.

(v) Selection Decision: After the tests and interviews are completed, the final selection is done. The
appropriate candidates are chosen by the concerned managers.

(vi) Medical Examination: Few organisations emphasise on conducting a medical examination to check
the health of the candidates. The job offer is given after they are declared fit by a medical practitioner.

(vii) Job Offer: Next step is offering the job letter to the selected applicants. It refers to an appointment
letter given by the organisation to confirm that the individual has been selected. Such letter generally
comprises of such information as date of joining and the time of reporting.

(viii) Employment Contract: Once the job letter is given, the candidates have to fill-up some forms that are
necessary for the future references. One such form is attestation form that holds information about the
candidates which are attested by him/her. Another document is the contract of employment. It comprises of
details such as salary, date and terms of joining, leave rules, working hours, allowances, etc.

Ans 11:
(a) Right of consumer
Right to safety: Consumer has the right to be protected against products, & services which are
hazardous to health & life (with explanation) (1 mark)
Responsibility of consumer
Insist on cash memo :Ask for a cash memo on purchase of goods or services. This would serve as a
proof of the purchase.Do not forget to get cash memo and guarantee/warranty card (with explanation) (1
mark)
(b) Other rights of consumers

(i) Right to be Informed The consumer has a right to have complete information about the product,
he intends to buy including its ingredients, date of manufacture, price, quality, quantity, directions for
use, etc.
(ii) Right to Seek Redressal The consumer has a right to get relief in case the product or service
falls short of his expectations. The consumer protection provides a number of reliefs to the
consumers including replacement of the product, removal of defect in the product, compensation paid
for any loss or injury suffered by the consumer, etc.
(iii) Right to Choose A consumer has a right to choose from a wide variety of products at competitive
prices. This implies that the marketers should offer a wide variety of products in terms of quality,
brand, prices size, etc and allow the consumer to make a choice amongst them.
(iv) Right to be Heard A consumer has a right to file a complaint and to be heard in case of
dissatisfaction with regard to a good or a service. It is because of this reason that many enlightened
business firms have set up their own consumer service centres and grievance cells. Many consumer
organisations are also working towards this direction and helping consumers in redressal of their
grievances.
 (v) Right to Consumer Education The consumer has a right to acquire knowledge and to be a well
informed consumer throughout life. Many consumer organisations and some business are actively
educating consumer. He should be aware about his rights and the reliefs available to him in case of a
product or service falls short of his expectations.
(Anyone with explanation) (1 mark)

Other Responsibilities of consumer (anyone with explanation, 1 mark)

(i) Consumer must exercise his rights Consumers must be aware of following rights with
regard to the products or services they buy from markets

• Right to Safety
• Right to Choose
• Right to be Heard, etc

(ii) Cautious consumers Before purchasing, consumer must insist on getting all information on
the quality, quantity, price, utility, etc of the goods/services. This will ensure a better purchase as
he will not depend entirely on a seller.
(iii) Filing complaint Sometimes, consumers ignore the deception of traders believing that the
loss is small but this attitude encourages corrupt business practices to continue. On the other
hand, some consumers also make excessive claims for compensation on small defects in goods
which are not justified.

(iv) Quality conscious This is the only way to eradicate the problems of adulteration and spurious
goods. While making purchases, consumers must look for standard quality certification marks like ISI,
Agmark, FPO, Wool mark, etc.

(c)No, She cannot lodge a complaint against the shopkeeper because she does not possessthe cash
memo which is the proof of purchase. (1 mark)
OR
Any five rights with explanation (1 mark each)
The Rights of the Consumers as per the Consumer Protection Act are as follows:
1.Right to safety: Every consumer has a right to be safeguarded and protected from goods which are
either dangerous or harmful to life and property.
2.Right to information: The consumers have the right to be informed about the quality, quantity,
potency, purity, and price while they are choosing a product.
3.Right to choose: The consumer has the right to choose the goods and services on the basis of their
financial ability and their preferences.
4.Right to be heard: Consumers have a right to express their opinions relating to the quality and
prices of goods or services(use of grievance cell).
5.Right to seek redressal: Consumer has the right to get relief in case the product or service falls
short of his expectations or is dangerous. He may be provided with replacement/removal of defect or
compensation for any loss. Various redressal forums are set up by the Govt. at National and State level
6.Right to consumer education: Every consumer has the right to get information about low
quality, adulterated and dangerous goods. Consumer has the right to acquire knowledge and to be well
informed throughout life. He should be made aware of his rights and reliefs available to him in case of
the product or service falls short of his exceptions. The Govt. of India has included consumer
education in the school curriculum & is making use of media to make consumers aware of their rights.
Ans 12: Regulatory functions performed by SEBI are: (any five) (1 mark each)
1. SEBI has framed rules and regulations and a code of conduct to regulate the
intermediaries such as merchant bankers, brokers, underwriters etc.
2. These intermediaries have been brought under the regulatory purview and private
placement has been made more restrictive.
3. SEBI registers and regulates the working of stock brokers, sub- brokers, share transferagents,
trustees, merchant bankers and all those who are associated with stock exchange in any
manner.
4. SEBI registers and regulates the working of mutual funds etc.
5. SEBI regulates take over of the companies.
6. SEBI conducts enquiries and audit of stock exchange.

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