June 2011

Fundamentals of Accounting
CAP-I, June 2011
Maximum Marks - 100

Total No. of Questions - 6
Time Allowed - 3 Hours
Marks
Attempt all questions. Working notes should form part of the answer.
1. The following are the balances as at 31st December, 2010 extracted from the books of
National Trading :-
Rs. Rs.
Plant & Machinery 40,500 Bad Debt 2,200
Furniture & Fittings 15,250 Bad debt recovered 1,250
Bank Overdraft 1,60,000 Salaries 32,650
Capital Account 1,15,000 Outstanding Salaries 5,350
Drawings 15,000 Prepaid Rent 500
Purchases 230,500 Rent 6,500
Opening Stock 1,32,250 Carriage inward 2,350
Wages 22,325 Carriage outward 3,250
Provisions for Doubtful Debts 5,700 Sales 2,90,600
Provision for discount on 1,375 Advertisement expenses 6,750
debtors
Sundry Debtors 1,52,500 Printing & stationery 2,200
Sundry Creditors 77,500 Cash in hand 2,300
Cash at Bank 7,250
a) Difference in the trial balance, if any, can be taken as miscellaneous expenses or

miscellaneous income
b) Bank overdraft is secured against hypothecation of stock. The bank overdraft
outstanding as on 31.12.2010 accounted for 80% of drawing power. Such drawing
power is ascertained by deducting 20 % as margin from the value of stock as on
that date.
c) Purchases include sales return of Rs. 5,500 and sales include purchase returns of
Rs. 4,750.
d) Goods withdrawn by proprietor of National Trading Rs. 7,500 included in
purchases.
e) Wages paid for installation of plant & machinery amounting to Rs. 750 were
included in wages account.
f) Depreciation is to be provided on plant & machinery @15% p.a. and on furniture
& fittings @10% p.a.
g) Create a provision for doubtful debts @ 5% and provision for discount on debtors
@ 2 ½ %.
h) A debit balance of Rs. 2,500 in the account of Ram, a creditor, is included in the
list of sundry debtors.
i) Free samples distributed for publicity costing Rs. 1,250.
Prepare a Trading and Profit & Loss Account for the year ended 31st December, 2010. 20
GNM P.T.O.
(2)
Answer No. 1
Trading and Profit and Loss Account of National Trading
For the year ended 31st December 2010
Rs Rs Rs Rs
To opening stock 132,250 By sales 2,85,850
To Purchase 2,16,250 Less Sales Returns 5,500
Less purchase Returns 4,750 ------- 2,80,350
--------- 2,11,500
By Closing Stock 2,50,000
To Wages 21,575 (1,60,000x100/80x100/80)
To carriage on Purchase 2,350
To Gross Profit c\d 1,62,675
5,30,350 5,30,350
To Salaries By Gross Profit b\d 1,62,675

32,650
To Rent
6,500 1,250
To Advertisement Expenses By Bad debt recovered
8,000 17,500
To Printing & Stationery 2,200 By Misc. Income
To Bad debt
2,200
To Carriage outward
3,250
To Provision for doubtful debts
1,800
(7,500-5,700)
To provision for discount on debtors 2,188
(3,563-1,375)
To Depreciation on
Plant & Machinery @15% p.a.
6,187
Furniture & fitting @10% p.a.
1,525
To Net Profit transferred to
Capital account
1,14,925
1,81,425 1,81,425
Working notes:
i) Trial balance of National Trading (After rectification)

As on 31st December, 2010
Particulars Dr. Amount in Cr. Amount in

Rs. Rs.
Plant & Machinery 41,250
Furniture & Fittings 15,250
Bank Overdraft 160,000
Capital Account 115,000
Drawings 22,500
Purchases 216,250
Returns outward 4,750
Opening stock 132,250
Wages 21,575
Provisions for doubtful debts 5,700
Provision for discount on debtors 1,375
Sundry Debtors 150,000
Sundry Creditors 77,500
Advance to suppliers 2,500
Bad debt 2,200
Bad debt recovered 1,250
Salaries 32,650
Outstanding salaries 5,350
GNM P.T.O.
(3)
Prepaid rent 500

Rent 6,500
Carriage inward 2,350
Carriage outward 3,250
Sales 285,850
Returns inward 5,500
Advertisement expenses 8,000
Printing & stationery 2,200
Cash in hand 2,300
Cash at bank 7,250
Miscellaneous income (balancing figure) 17,500
Total 674,275 674,275
ii) Closing Stock

Bank overdraft 1,60,000
Drawing Power 2,00,000
Stock 2,50,000
iii) Purchase 2,30,500

Less: Sales return 5,500
2,25,000
Less: Drawing of goods 7,500
2,17,500
Less: Free Sample Distributed 1,250
2,16,250
iv) Sales 2,90,600

Less: Purchase return 4,750
2,85,850
v) Wages 22,325
Less: Installation of machine 750
Net wages 21,575
vi)a) Depreciation
Plant & Machinery 40,500
Add: Installation charge 750
41,250
Depreciation @ 15% 6,187.5 ~ 6,188
b) Furniture & fitting 15,250

Depreciation @10% 1,525
vii)Sundry Debtor 1,52,500

Less: Debit balance of creditor 2,500
Sundry Debtors (rectified) 1,50,000
Less: Provision for doubtful debts @5% 7,500
Good debtors 1,42,500
Less: Provision for discount on
GNM P.T.O.
(4)
Debtors @ 2 ½ % 3,563
Net Debtors 1,38,937
========
viii) It has been assumed that additions to plant & machinery were made at the beginning of the year.
2.
a) A & B enter into a joint venture to prepare a film for the government. The
government agree to pay Rs 2,00,000. A contributes Rs 20,000 and B contributes
Rs 30,000. These amounts are paid into joint bank account. Payments made out of
joint bank account were as follows:
Purchase of equipment Rs. 12,000
Hire of equipment Rs. 10,000
Wages Rs. 90,000
Materials Rs. 20,000
Office Expenses Rs. 10,000
A paid license fees of Rs 4,000. On completion, the film was found defective and
the government made a deduction of Rs 20,000. The equipment were taken over
by B at a valuation of Rs. 4,000. Separate books were maintained for the joint
venture whose profits were divided in the ratio of A 2/5 and B 3/5.
Prepare Joint Bank Account, Joint Venture Account and co-venturer Accounts. 10
b) A, B & C were partners, carrying on business under the name and style of ABC &
Co., sharing profits and losses in the proportion of 4 : 3 : 2. Their Balance Sheet
as at 31st December, 2010 was as under:
Balance Sheet
As on 31st December, 2010
Liabilities Rs. Assets Rs.
Sundry Creditors 400,000 Cash at Bank 20,000
Capital Accounts: Sundry Debtors 180,000
A 400,000 Stock in Trade 200,000
B 200,000 Motor Car 150,000
C 100,000 700,000 Land & Building 550,000
1,100,000 1,100,000
They agreed to dissolve the partnership on that date. A agreed to take over Stock
and Debtors at a discount of 10%. B took over the Motor Car for Rs. 160,000.
Land and Building was sold for Rs. 750,000 and expenses of sale amounted to Rs.
16,000. Creditors were settled at a discount of 1.5%.
Show the relevant ledger accounts to give effect to the above arrangement. 10
Answer No. 2
a) Joint Bank Account
Particulars Rs Particulars Rs
To A 20,000 By Joint Venture A/c –
To B 30,000 Equipment 12,000
To Joint Venture A/c 1,80,000 Hire of Equipment 10,000
Wages 90,000
GNM P.T.O.
(5)
Materials 20,000
Office Expenses 10,000
By A 39,200
By B 48,800
2,30,000 2,30,000
Joint Venture A/c

To Joint Bank A/c – By Joint Bank A/c 1,80,000
Equipment 12,000 By B(equipment taken over) 4,000
Hire of Equipment 10,000
Wages 90,000
Materials 20,000
Office Expenses 10,000
To A (Licensing Fees) 4,000
To profit transfer to:
A 15,200
B 22,800
1,84,000 1,84,000
A A/c
To Joint Bank A/c - repayment 39,200 By Joint Bank Account 20,000
By Joint Venture A/c (license fees) 4,000
By Joint Venture A/c (profit) 15,200
39,200 39,200
B A/c
To Joint Bank A/c - repayment 48,800 By Joint Bank Account 30,000
To Joint Venture A/c (equipment 4,000 By Joint Venture A/c (profit) 22,800
taken over)
52,800 52,800
b)
Realisation Account
Particulars Rs. Rs. Particulars Rs. Rs.
To Sundry Debtors 180,000 By Sundry Creditors 400,000
To Stock in Trade 200,000 By A's A/c:
To Motor Car 150,000 Debtors 162,000
To Land & Building 550,000 Stock 180,000 342,000
To Cash – Creditors 394,000 By B's A/c 160,000
To Cash – Expenses 16,000 By Cash – Land & Building 750,000
To Capital A/c – Profit
GNM P.T.O.
(6)
A 72,000
B 54,000
C 36,000 162,000
1,652,000 1,652,000
A's Capital Account

Particulars Rs. Particulars Rs.
To Realisation A/c – Assets taken 342,000 By Balance b/d 400,000
To Cash A/c 130,000 By Realisation A/c – Profit 72,000
472,000 472,000
B's Capital Account

To Realisation A/c – Assets taken 160,000 By Balance b/d 200,000
To Cash A/c 94,000 By Realisation A/c – Profit 54,000
254,000 254,000
C's Capital Account

To Cash A/c 136,000 By Balance b/d 100,000
By Realisation A/c – Profit 36,000
136,000 136,000
GNM P.T.O.
(7)
Cash Account
To Balance b/d 20,000 By Realisation A/c – Creditors 394,000
To Realisation A/c – Sale of By Realisation A/c – Expenses 16,000
Land & Building 750,000
By A's A/c 130,000
By B's A/c 94,000
By C's A/c 136,000
770,000 770,000
Working Notes:
1. Stock & Debtors taken over by A:

Particulars Rs. Rs.
Book Value of Stock 200,000
Less: Discount @ 10% 20,000 180,000
Book Value of Debtors 180,000
Less: Discount @ 10% 18,000 162,000
Total 342,000
2. Settlement of Creditors:
Particulars Rs.
Amount due 400,000
Less: Discount @ 1.5% 6,000
Amount Paid 394,000
3. Partner's Share of Profit on Realisation:

Particulars Rs.
th
A's Share : 4/9 of Rs. 162,000 72,000
B's Share : 3/9th of Rs. 162,000 54,000
C's Share : 2/9th of Rs. 162,000 36,000
GNM P.T.O.
(8)
3.
a) From the following particulars ascertain the value of stock as on 31st March,
2011.
Rs.
Stock as on 1.4.2010 213,750
Purchases 1,143,750
Manufacturing Expenses 225,000
Administrative Expenses 45,000
Selling and Distribution Expenses 90,750
Financial Charges 32,250
Sales 1,867,500
At the time of valuing stock as on 31st March, 2010, a sum of Rs. 26,250 was
written off on a particular item, which was originally purchased for Rs. 75,000
and was sold during the year for Rs. 67,500. Barring the transaction relating to
this item, the gross profit earned during the year was 20 percent on sales. 5
b) The Balance Sheet of a firm as at 31st March, 2011 stood as follows:

Capital & Liabilities Rs. Assets Rs.
Property, Plant &
Share Capital 100,000 125,000
Equipment
Reserves 40,000 Debtors 60,000
Trade Creditors 70,000 Cash at Bank 25,000
210,000 210,000
You are required to pass necessary opening entries and prepare ledger accounts
for next year. 5
c) A provision for Depreciation and Repairs and Renewals was made every year at
15% of the original cost of a machine purchased at Rs. 50,000. The provision for
Depreciation and Repairs and Renewals Account that was opened for the purpose
was, therefore, debited with the actual costs of repairs and renewals which were
as stated below:
1st year –Rs. 1,500,
2nd year- Rs. 1,600,
3rd year – Rs. 2,100,
4th Year – Rs.3,000 and
5th year –Rs.4,200.
At the end of 5th year, the machine was sold out at Rs.20,000 after utilizing a few
of its parts value at Rs.4,000 in installing in its place a new machine purchased at
Rs 75,000. The resulting loss in the disposal of the old machine was debited to
revenue.
Write up “Provision for Depreciation and Repairs and Renewals Account” for the
5 years and the Old and New Machine Account at the end. 10
Answer No. 3
GNM P.T.O.
(9)
a)
Statement of Stock in Trade as on 31st March, 2011.
Particulars Rs. Rs.
Stock as on 01.04.2010 213,750
Less: Value of abnormal stock Rs.(75,000 – 26,250) 48,750 165,000
Purchases 1,143,750
Manufacturing Expenses 225,000
1,533,750
Cost of goods sold:
Sales as per books 1,867,500
Less: Sale of abnormal item 67,500
Sale at normal selling price 1,800,000
Less: Gross Profit @ 20% 360,000 1,440,000
Value of Stock as on 31st March,2011 93,750
b) Opening Entry as on 01.04.2011:

Debit Credit
Particulars
Rs. Rs.
Property, Plant and Equipment A/c 125,000
Debtors A/c 60,000
Cash A/c 25,000
To Share Capital A/c 100,000
To Reserve A/c 40,000
To Trade Creditors A/c 70,000
(Being opening balances brought forward)
Ledger Accounts:
Property, Plant and Equipment Account
Date Particulars Rs. Date Particulars Rs.
01.04.'11 To Balance b/d 125,000
Debtors Account
01.04.'11 To Balance b/d 60,000
GNM P.T.O.
(10)
Cash Account
01.04.'11 To Balance b/d 25,000
Share Capital Account

01.04.'11 To Balance b/d 100,000
Reserve Account
01.04.'11 To Balance b/d 40,000
Trade Creditors Account

01.04.'11 To Balance b/d 70,000
c)
Provision for Depreciation and Repairs and Renewals
1st year To Repairs A/c 1,500 1st year By Profit & Loss A/c 7,500
To Balance c/f 6,000
7,500 7,500
2nd To Repairs A/c 1,600 2nd year By Balance b/f 6,000
Year
To balance c/f 11,900 By Profit & Loss A/c 7,500
13,500 13,500
3rd year To Repairs A/c 2,100 3rd year By Balance b/f 11,900
To Balance c/f 17,300 By Profit & Loss A/c 7,500
19,400 19,400
th
4 year To Repairs A/c 3,000 4th year By Balance b/f 17,300
To Balance c/f 21,800 By profit & Loss A/c 7,500
24,800 24,800
th
5 year To Repairs A/c 4,200 5th year By Balance b/f 21,800
To Old Machinery A/c 25,100 By Profit & Loss A/c 7,500
29,300 29,300
Old Machinery A/c

Date Particulars Rs Date Particulars Rs.
th th
5 year To Balance b/d 50,000 5 year By New Machinery A/c 4,000
By Bank A/c 20,000
By provision for
Depreciation and Repairs
and Renewals A/c 25,100
By Profit & Loss A/c 900
50,000 50,000
GNM P.T.O.
(11)
New Machinery A/c

5th year To Old Machinery A/c 4,000 5th year By Balance c/d 79,000
To Bank A/c 75,000
79,000 79,000
4. Attempt any three from the followings: (3×5=15)

a) Following errors were found in the books of Sri Ganesh Traders. Give the
necessary journal entries to correct them:
i) A purchase of goods from Mr. Ram amounting to Rs. 15,000 has been wrongly
entered through the Sales Book.
ii) A credit sale of goods worth Rs. 12,000 to Mr. Ramesh has been wrongly
passed through the Purchase Book.
iii) On 32nd Ashadh, 2067 goods of the value of Rs. 30,000 were returned by Mr.
Hari Saran and were taken into stock on the same date but no entry was passed
in the books.
iv) An amount of Rs. 20,000 due from Mr. Mahesh, which had been written off as
a bad debt in a previous year, was unexpectedly recovered and had been posted
to his personal account.
v) A cheque for Rs. 10,000 received from Mr. Man Mohan was dishonoured and
had been posted to the debit of Sales Returns Account.
b) A draws upon B three bills of exchange of Rs. 3,000, Rs. 2,000 and Rs. 1,000
respectively. A week later his first bill was mutually cancelled and B agreeing to
pay 50% of the amount in cash immediately and for the balance plus interest Rs.
100, he accepted a fresh bill drawn by A. All these bills were retained till maturity
when all were duly met.
Give necessary journal entries recording the above transactions in the books of A.
c) Prepare a bank reconciliation statement from the following particulars:
The cash book of a firm showed a bank balance of Rs. 30,000 as on 31st
December, 2010 and following information were provided to you:
i) Cheques have been issued for Rs. 25,000 out of which cheques worth Rs.
20,000 only were presented for payment.
ii) Cheques worth Rs. 7,000 were paid on 28th December but had not been
credited by the bank. One cheque for Rs. 2,500 was entered in the cash book
on 30th December but was banked on 3rd January, 2011.
iii) A cheque from Mohan for Rs. 2,000 was paid in on 26th December but was
dishonoured and the advice was received on 2nd January, 2011.
iv) Bank Statement showed bank charges of Rs. 100 debited by the bank. It also
showed Rs. 4,000 collected by the bank as interest.
v) One of the debtors deposited a sum of Rs. 2,500 in the account of the firm on
20th December. Intimation in this respect was received from the bank on 2nd
January, 2011.
d) On 1st January, 2008 Gadgets Limited, patentees of a new type of electric razor,
issued a licence to Domestic Utilities Limited for the manufacture and sale of the
GNM P.T.O.
(12)
razors. On the same date, Domestic Utilities Limited issued to Trimmers Limited
a sub-licence for the same purpose.
The licence issued by Gadgets Limited provided for a royalty of Rs. 100 per razor
sold, subject to a minimum sum of Rs. 750,000 per annum, and the sub-licence
issued by Domestic Utilities Limited provided for a royalty of Rs. 150 per
finished razor manufactured, subject to a minimum sum of Rs. 300,000 per
annum. Both the licence and sub-licence provided that, should the royalties for
any calendar year be less than the specified minimum, the shortworkings could be
recouped out of royalties, in excess of the minimum, for either of the two
immediately following calendar year.
You are given the following information:
Sales by Domestic Sales by Stock held by
Year
Utilities Ltd. Trimmers Ltd. Trimmers Ltd.
2008 4,520 Razors 1,220 Razors 340 Razors
Prepare statements showing Royalty Payable A/c. Do not pass journal entries.
Answer No. 4
a) Journal entries in the books of Sri Ganesh Traders:

Debit Credit
Particulars
Rs. Rs.
Purchases A/c 15,000
Sales A/c 15,000
To Mr. Ram 30,000
(Being correction of wrong entry in the sales book for a purchase of
goods from Mr. Ram)
Mr. Ramesh 24,000
To Purchases A/c 12,000
To Sales A/c 12,000
(Being correction of wrong entry in the purchases book for a credit
sale of goods to Mr. Ramesh)
Return Inwards A/c 30,000
To Mr. Hari Sharan 30,000
(Being entry of goods returned by Mr. Hari Sharan and taken to
stock omitted from records, now rectified)
Mr. Mahesh 20,000
To Bad Debts Recovered A/c 20,000
(Being correction of wrong credit to personal account in respect of
recovery of previously written off bad debts)
Mr. Man Mohan 10,000
To Sales Return A/c 10,000
(Being correction of wrong debit to sales return account for
dishonoured cheque received from Mr. Man Mohan)
GNM P.T.O.
(13)
b) Journal of A
Particulars Dr (Rs.) Cr. (Rs.)
Bills Receivable A/c Dr 6,000
To B 6,000
(three bills of Rs. 3,000, Rs. 2,000 and Rs. 1,000 drawn on
B and duly accepted by him received)
B Dr 3,000
To Bills Receivable A/c 3,000
(Bills received from B cancelled for renewal)
Bank A/c Dr 1,500
Bills Receivable A/c Dr 1,600
To B 3,000
To Interest A/c 100
(50% amount received on cancellation of the first bill along
with a new bill for 50% of the amount plus interest Rs.100)
Bank A/c Dr 4,600
To Bills Receivable A/c 4,600
(Amount received on maturity of second, third and new bill)
c)
Bank Reconciliation Statement of a Firm
as on 31st Dec 2010
Particulars Rs. Rs.
Bank balance as per cash book 30,000
Add: Cheques issued but not presented for payment 5,000

(Rs.25,000-20,000)
Interest collected by the bank but not recorded in the cash book 4,000
Amount deposited by the customer directly in to the bank 2,500
--------- 11,500
---------
41,500
Less: Cheques paid into bank but not credited 7,000
Cheque entered in the Cash Book but omitted to be banked 2,500
Cheque from Mohan paid into bank dishonoured 2,000
Bank Charges 100
-------------- 11,600
---------
Balance as per bank statement 29,900
======
d) In the Books of Domestic Utilities Ltd.

Statement of Royalty Payable
Sales Royalty Minimum Shortworkings (Rs) Royalty

Year
Unit* (Rs) Rent (Rs) Occurred Recoverable Irrecoverable Payable (Rs)
2008 5,740 574,000 750,000 176,000 - - 750,000
2009 8,970 897,000 750,000 - 147,000 - 750,000
GNM P.T.O.
(14)
2010 7,615 761,500 750,000 - 11,500 17,500 750,000
* Royalty must be paid on the sales made through sub lease also.
In the Books of Trimmers Ltd.

Statement of Royalty Payable
Shortworkings (Rs) Royalty

Output Royalty Minimum
Year Receivable
Unit* (Rs) Rent (Rs) Occurred Recoverable Irrecoverable (Rs)
2008 1,560 234,000 300,000 66,000 - - 300,000
2009 2,510 376,500 300,000 - 66,000 - 310,500
2010 2,280 342,000 300,000 - - - 342,000
* Sales + Closing Stock – Opening Stock.

Year Sales Closing Stock Opening Stock Output
2008 1,220 340 - 1,560
2009 2,790 60 340 2,510
2010 1,940 400 60 2,280
5.
a) State with reasons whether the following statements are true or false: (5×2=10)
i) Expenses incurred on repainting of old house purchased before shifting to that
old house is revenue expenditure.
ii) Amortization of patent reduces the cash balance.
iii) Accrual basis of accounting does not record cash transactions.
iv) Relationship of principal and agent exists between consignor and consignee.
v) Error of principle does not affect the trial balance.
b) Describe the qualitative characteristics of financial statements. 5
Answer No. 5
a)
(i) False, any incidental expenditure incurs while purchasing capital item before it is put to use, is
capital expenditure.
(ii) False, amortization of patent is a non-cash expenditure. Therefore, it does not reduce the cash
balance.
(iii) False, as per accrual basis of accounting economic transactions are recognized in the books as
and when it occurs. The economic transaction may be in cash or in credit.
(iv) True, as per consignment accounting the ownership of goods remains with the consignor, only
physical possession of goods is transferred from consignor to consignee.
(v) True, error of principle is only a accounting treatment error for eg. treating capital expenditure
to revenue expenditure or vice versa. The trail balance can only check the arithmetical errors
and not error of principle.
GNM P.T.O.
(15)
b) Qualitative characteristics are attributes that make the information provided in financial statement
useful to the users. There are four principal qualitative characteristics of the financial statements
prescribed in the framework for the preparation and presentation of financial statements in the Nepal
Accounting Standards which are as follows:
 Understandability – an essential quality of the information provided in financial statement is
that it is readily understandable by the users. For this purpose, users are assumed to have a
reasonable knowledge of business and economic activities and accounting and a willingness to
study the information with reasonable diligence.
 Relevance- information must be relevant to the decision making needs of users. Information
has a quality of relevance when it influences the economic decision of the users by helping
them evaluate past, present or future events of confirming or correcting their past evaluations.
The relevance of information is affected by its nature and materiality. Information becomes
material if its omission or misstatement could influence the economic decision of the user
taken on the basis of the financial statement.
 Reliability – the information provided by financial statement must also be reliable. Information
has the quality of reliability when it is free from material error and bias and can be depended
upon by users to represent faithfully that which it either purports to represent or could
reasonably be expected to represent.
 Comparability – the financial statement should allow the users to compare the financial
position and performance of an entity through time in order to identify trends in its. Further it
must allow the user to compare the financial statements of different entities in order to evaluate
their relative financial position, performance and change in financial position.
6. Write short notes on any four the following: (4×2.5=10)

a) Accrued Revenue
b) Cash and Cash Equivalents
c) Endorsement.
d) Capital Expenditure
e) Measurement Bases
Answer No. 6
a) Revenue which has been earned in an accounting period but in respect of which no enforceable
claim has become due in that period by the enterprise. It may arise from the rendering of services
which at the date of accounting have been partly performed, and are not yet billable.
b) Cash comprises cash on hand and demand deposits. Whereas cash equivalent are short term highly
liquid investments that are readily convertible to known amounts of cash and which are subject to
an insignificant risk of changes in value. For e.g. marketable securities with maturity of three
months or less from the date of acquisition.
c) A cheque can be passed on by the payee to another person and by that person to someone else, and
so on, unless it is crossed "A/c Payee only" or the cheque otherwise restrict the payment to a
particular person only. A bearer cheque can be passed on by mere delivery – nothing needs to be
written at the back of the cheque. If the cheque is made out in favour of any party or order, that is,
it is an order cheque; it can be passed on only by endorsement and delivery. A cheque which has
been "endorsed" but not delivered has not been really endorsed. Endorsement means the writing of
instructions to pay the cheque to a particular person and then singing it. This is done at the back of
the cheque. The signatures must have the same spelling as mentioned on the face of the cheque.
GNM P.T.O.
(16)
d) Of the total expenditure incurred in a given period in a business, some are of capital nature while
others are of revenue nature. Capital expenditure is that expenditure which results in the
acquisition of asset, tangible or intangible, which can be later sold and converted into cash or
which results in an increase in the earning capacity of a business or which afford some other
benefits of enduring nature to the firm. In a nutshell, if the benefits of expenditure are expected to
accrue for a long time, the expenditure is capital expenditure. Examples of capital expenditure are
land, building, machinery, patents etc. All these items stay with the business and can be used over
and over again. It should also be noted that all amounts spent up to the point an asset is ready for
use should be treated as capital expenditure. Examples are: fees paid to a lawyer for drawing up the
purchase deed of land, overhaul expenses of second hand machinery etc.
e) Measurement bases are the various methods to recognize the monetary value of financial
transactions in accounting system. Measurement bases are the methods developed for determining
the accounting periods in which revenues and cost should be recognized in the income statement
and amount at which material items should be stated in the balance sheet. There are four generally
accepted measurement bases. These are:
 Historical cost
 Current cost
 Realizable cost
 Present cost
GNM P.T.O.
Fundamentals of Economics
CAP-I, June 2011
Maximum Marks - 100

Marks
Attempt all questions.
Part – 'A'
1. Answer the following questions (Any Two):

a) Define price elasticity of demand. How is it computed by point method? (4+6=10)
b) Explain the law diminishing returns. Does it apply only to agriculture? (8+2=10)
c) Explain how price and output are determined under monopolistic competition in the
long-run? 10
Answer No. 1
a) Law of demand only shows the functional relationship between quality demanded and price. It does not show the
extent or the magnitude of this relationship, which is given by price elasticity of demand. It may be defined as the
responsiveness of demand to the charge in price. In other words, what would happen on quantity demanded when
there is a one percentage change in price is given by elasticity of demand. It is denoted by Ep and can be expressed
as the ratio of percentage change in demand to percentage change in price.
Ep= Percentage change demand = ΔQ X P

Percentage change in price ΔP Q
Where, ΔQ= Change in demand

ΔP= Change in Price
P = Price
Q= Quantity
Price elasticity of demand is always negative because there is an inverse relationship between price & quantity
demanded.
In point method, we measure elasticity at a given point on a demand curve. It is to be noted that elasticity is
different at different points on the same demand curve. Under this method, following formula is used to measure
price elasticity at a given point.
Ep= lower segment of demand curve

Upper segment of demand curve
Price elasticity on linear demand curve, as in Fig.X.
ep  
A
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ep  1
ep  1
Pr ice
ep  1
ep  0
quantity
At midpoint of demand curve, price elasticity is equal to one

i.e.=ep (E) =EB=1(Viz.EB=EA)
EA
At any points lying between mid-point and B point (which lies on X-axis), price elasticity is less than one
i.e.ep(C)=CB <1 (Viz. CB<CA)
CA
Similarly, at any points lying between mid-point and A point which lies on Y axis, price elasticity is greater than
one i.e., ep(D)=DB >1,(Viz. DB>DA)
Lastly, price elasticity at a point is infinity at point A and at B point zero.

Price elasticity on non-linear as in fig.(Y)demand curve.
If demand curve is non-linear then the price elasticity of demand at a point on it can be measured by drawing a
tangent to that point & then given formula is used. For example , at point E in fig. Y,the point elasticity of demand
is EB/EA.
b) The law of diminishing returns show the short-term input out put relation. The gist of this law is that if the
quantity of a factor (say labor) in increased, keeping the quantity of other factors constant, eventually the
marginal and average product decline. This law explains three affection output. They are:
i) Increasing returns.
ii) Diminishing returns.
iii) Negative returns.
This law is based on following assumptions:-
i) The state of technology is given and constant.
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ii) The quantity of at least one factor should be kept fixed.

iii) The ratio which different factors are combined should be liable to vary.
iv) All unit of variable factor are homogeneous.
This law can be illustrated by the help of a table and a figure.
Production schedule.
Unit of labour Total product Average Product Marginal product

1 8 8 8
2 24 12 16
3 48 16 24
4 64 16 16
5 72 14.4 8
6 72 12 0
7 64 9.1 -8
First Stage
Total product and average product increase rapidly in this stage. The marginal product is maximum when 3
units of labour is used and diminishes thereafter. The average product is maximum when marginal product and
average product are equal. The first stage is called the "stage of increasing returns". It is due to the trend of average
product. This stage in mainly cause by (i) indivisibility of fixed input (ii) specialization of variable input through the
process of division of labour.
Second stage
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In this stage, total product continues to increase in diminishing rate the average and marginal product both
decline. This stage ends when the total product is maximum and the marginal product is zero. In table it happens
when 7th unit of labour is used. This stage is called the "stage of diminishing returns". It is due to the trend of
average and marginal product. This
stage is mainly caused by (i) fuller utilization of fixed input (ii) imperfect substitution of variable input with fixed
inputs.
Third stage : Here, MP is negative, AP continuous to fall at slow rate.The negative MP pulls TP down. It is due to
variable inputs..
No, it does not apply only to agriculture sector, but it applies every sector agriculture as well as industries where
there is one factor of production is kept fixed and another factor variable. The law of variable proportions applies in
every industry and agriculture sector. But in agriculture this applies sooner. Then in any other sector.
c) Monopolistic competition is the market structure which has following characteristics.

i. There is a large number of buyer and seller in the market
ii. Product of different firm are differentiated; yet they are closed substitutes for one another.
iii. There are no restrictions for the new firm to enter into the industry and for an existing firm to exit out
from the industry.
iv. The objective of all the firms is to maximize profit.
v. There is imperfect knowledge about market.
Since, the objective of the firm is to maximize profit, a firm under monopolistic competition is said to be in
equilibrium when the profit for the firm is maximized and the profit maximize when the firm produced where
following two conditions are fulfilled.
i. MC=MR
ii. MC curve cuts MR curve from bellow
Firm, under monopolistic competition determines price of its product on the basis of low of demand. Each firm
has to formulate effective sales strategies to with their rival firms.
Moreover, in the long run, a new firm can easily enter into the industry and an existing firm can easily exit from the
industry. Therefore, even if the firm making profit by producing at the quality of MC and MR, there may be
disequilibrium in the market. This is because due to the profit enjoyed by the existing firms, new firms are attracted
and they will enter the industry there by reducing the market share of already exiting firms. This lead to leftward
shifts in the demand curve and corresponding MR Curve, which reduces the amount of profit. The process will
continue as long as the existing are making what is called economic profit.
One the other hand, when the existing firms are making losses, they start leaving the product group and thereby
shifting right the demand curve of the remaining firms. The MR curve also shifts to right thereby reducing the
amount of losses. This process also continues as long as the firms are making losses. Hence, a firm under
monopolistic competition will be in equilibrium in the longrun when they are producing where, MC=MR and all the
firms are making normal profit.
Equilibrium of the firm
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MC
AC
R
P
Cost and Revenue
E
A
MR R
o Q X
Output
According to the given figure, firm is equilibrium at point E where Mc=MR and MC curve cuts MR curve from
bellow thus,
Total Revenue (TR) = PQ= OPxOQ=Area OPAQ
Total cost (TC)=CQ=OPxOQ=Area OPAQ
Here, the area of TR= Area of TC.
Hence, firm obtains normal profit.
2. Answer the following questions (Any Three):

a) State the differences between micro economics and macro economics. 5
b) Define and derive the marginal rate of substitution. 5
c) Define Explicit cost and Implicit Cost. 5
d) How is the interest determined according. to the liquidity preference theory of
interest? 5
e) Show the relationship between AR and MR under different market structure 5
Answer No. 2
a) Micro economics and macroeconomics are two major branches of economics. Micro economics is concerned
with the individual entitles while macroeconomics deals with the aggregate economics variables. There are many
differences as given below.
Micro economics Macroeconomic

1. Microeconomics refers to that branch of 1. Macroeconomics is that branch of
economics, which is concerned with the economics, which is concern with the economy
particular unit of economy. as a whole.
2. The objective of microeconomics is to 2. The objectives of macroeconomics is to
explain principles, problem and policies related
explain principles, problems and policies
to optimum allocation of resources. related to the full employment and economic
stability & economic growth.
3. Microeconomics analyzes economic 3. Macro economic seeks to analyzes on how
variables assuming that there is full resources can be fully employed.
employment of resources in the economy.
4. The basis of macroeconomics is the price 4. The basic of macroeconomics is the national
mechanism, which operates with the help of output, national income and employment,
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demand & supply forces. which are determined by aggregate demand

and aggregate supply.
5. Microeconomics deals with the absolute 5. Macroeconomics deals with the general price
prices, i.e. price of particular economics. level, which is the weighted average of prices
of goods and services.
6. Theory of pricing, i.e. product pricing and 6. Theory of determining employment and
factor pricing are the subject matters of micro output, theory of economic growth, etc.
economics. comprise the subject matters of
macroeconomics.
b) Indifference curve use to keep the satisfaction level same the concept of marginal rate of substitution. It is the
rate at which one commodity is substituted for another. In other words, the rate at which one commodity is
substituted to another is known as marginal rate of substitution.
Graphically, slope of indifference curve is known as marginal rage of substitution.
MRSxy= ∆Y
∆X
It can be explained by the help of the following table.
Combination X-Goods Y-Goods MRS
A 1 50 -
B 2 30 20
C 3 20 10
D 4 12 8
E 5 8 4
Initially, a consumer gives up 20 units of Y for one unit going in X so MRS is 20. Similarly while moving from B to
C and then from C to D and then from D to E, the MRS of X for Y is 10, 8 and 4 respectively. The following facros
are responsible for diminishing MRs
1. The want for particular goods is satiable so that as the consumer has more and more of a good the intensity of his
want for that goods goes on declining. So, as the stock of good x increases, the intensity of desire for it falls. On the
other hand, as the stock of good Y decreases, the intensity of desire for it increases.
2. Two goods are not perfect substitute if they were the increase and decrease would be constant rate of substation.
In figure, the rate of substitution while moving from A to B is ∆Y1, and the
∆X1
Rate of substitution while moving from B to C is ∆Y2and
∆X2
∆Y1 > ∆Y2
∆X1 ∆X2
X-Good
c)
i)Explicit Cost:
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The Costs involving direct payment of money for factors of production not owned by the firm are
known as explicit costs. These are the payments made by firms to other factor owners for
purchasing or hiring their services. Such payments are the wages and salaries, expenses on raw
materials, power, and advertisement, transportation charges, tax paid to the government, overhead
costs and depreciation charges. Such expenses involve direct payment of money. That is why they
are called explicit cost.
ii) Implicit cost :

When a firm produces goods, it owns certain factors of production by himself. Even though the
firm is not required to make any payments for such factors, their value has to be imputed. Such a
value is equal to what the factors owned by him could earn if they were to be hired out to some
other firms. For example it the manager of a firm is the owner himself, he would have earned some
salary if he was to work elsewhere. Similarly the capital he invests into his business would have
earned him some interests if it were lent out. There could be more other factors such as the land
owned by the firm; his family members helping him out carry the business and so on. The value of
all such factors is imputed so as to estimate their cost. Such costs are known as the implicit cost of
production in economics.
d) Liquidity preference theory was developed by economist J. M. Keynes. So it is also known as

Keynesian theory of interest. According to Keynes, interest is purely monetary phenomenon as it is
calculated in terms of money. Keynes defines rate of interest is the reward paid for parting with liquidity
for specific period of time. Money Demand (Md) and Money Supply (Ms) are two determinants of rate of
interest.
It means the rate of interest is determined where liquidity preference (Md) is equals to money supply (Ms).
Demand for money: Md is the main and active determinant of rate of interest, given the money supply.
Liquidity preference is the term used by Keynes for the demand for money. It is the amount of money
which is desired to hold by the individual firms, households rather than other types of non-money assets
like bonds and shares. Keynes assumes income as a constant and liquidity preference is interest elastic.
There are 3 motives of liquidity preference according to Keynes. They are –
a) liquidity preference for transaction purpose
b) liquidity preference for precaution purpose
c) liquidity preference for speculative purpose
There are two main determinants of liquidity preference i.e.
1. Income – Higher the income in the economy greater the liquidity preference and vice versa.
2. Rate of interest -- Higher the rate of interest in the economy lower will be the liquidity
preference and vice versa. But at the minimum level of rate of interest it is perfectly elastic. So
Liquidity preference curve is downward sloping from left to right and at a lower point it is
horizontal.
Supply of Money: Ms is the amount of money circulated in the economy. Keynes assumes it an interest
inelastic as it will be exogenously determined by the central bank. So Md Curve will be vertical in nature.
Ms
Interest excess supply

R1
R excess demand Lp (Md)

R2
O
Md & Ms
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Here OR is the equilibrium rate of interest where Md =Ms. This eq. interest will change when there will
be change in Md and Ms. Ms and eq interest has positive relation and Ms and eq. interest has a negative
relation.
e) AR is the amount received from selling one unit of good. It is the per unit price. It is received by
dividing the total revenue with its output i.e. AR = TR/Q. Marginal revenue (MR) is the total amount of
money received from the sale of an extra unit of output. It is received by dividing the change in total
revenue with change in the total output. Mathematically: MR = TRn – TRn-1
The relationship between AR and MR are ---

1. In perfect competition market marginal revenue will be equals to average revenue. So AR curve
coincide with MR curve and be a horizontal.
Table:
Output Price Total revenue Marginal revenue Average revenue
(in units) (in Rs) (in Rs) (in Rs) (in Rs)
10 10 100 10 10
20 10 200 10 10
30 10 300 10 10
40 10 400 10 10
2. In monopolistic and monopoly both marginal revenue and average revenue decreases. The
decreasing rate of MR is more than decreasing rate of AR. So both AR curve and MR curve slopes
downward from left to right and MR curve will be below the AR curve
Table:
Output Price Total revenue Marginal revenue Average revenue
(in units) (in Rs) (in Rs) (in Rs) (in Rs)
10 10 100 10 10
20 9 180 8 9
30 8 240 6 8
40 7 280 4 7
3. In case of straight line MR decreases double than AR.
4. In case of convex AR and MR curve, decreasing rate of MR is more than double of decreasing
rate of AR.
5. In case of concave AR and MR curve, decreasing rate of MR is less than double of decreasing
rate of AR.
Fig.
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Y Y
Fig.1 Fig.2
AR and MR
AR and MR
E Q Q
P P E
AR
MR AR MR
O O X
X
Quantity Quantity
Y
Fig.3
P Q
E
AR and MR
MR AR
O Quantity X
3.
a) Justify the following statements with appropriate reasons. (5×1=5)
i) Production possibility curve always concave to origin.
ii) Supply curve slopes upward from left to right.
iii) Isoquants do not intersect each other.
iv) Average Revenue curve (demand curve) of monopolistic market is flatter than
monopoly market
v) Law of diminishing marginal rate of substitution is considered superior than law
of diminishing marginal utility.
b) Write short notes on (Any Four): (4×2.5=10)
i) Arc method of measuring price elasticity of demand.
ii) Shift in demand curves.
iii) Marginal Product
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iv) Constant returns to scale

v) Monopoly Market
Answer No. 3
a)
i) This statement is false. The shape of the production possibility curve depends on the nature of the
opportunity costs. If opportunity costs remain constant, production possibility curve becomes a
straight line. When the opportunity cost rises, the production possibility curve becomes concave to
the origin.
ii) This statement is true. Due to positive relationship supply curve slopes upward from left to right.
Higher the price, profit would be higher. Thus seller wants to supply more with high price and vice
versa.
iii) This statement is true. Each isoquant refers different level of output and an isoquant further away
from the origin denotes the higher level of output. If two isoquants are intersected or touched to
each other both isoquants may show the same level of output, which is absurd.
iv) AR curve is flatter in monopolistic market than monopoly market is due to the large number of
producers with product differentiation of goods. There is availability of higher degree of
substitutions which cause a small change in price brings greater change in quantity demand.
v) The law of diminishing marginal rate of substitution between two goods of Ordinal utility analysis
is consider superior to the law of diminishing marginal utility of Cardinal utility analysis as law of
diminishing marginal rate of substitution is based on the ordinal measurement of utility and it is
analysis whereas Law of diminishing marginal utility is based on cardinal measurement of utility
and a single commodity analysis.
b)
i) When the price change is some what larger or when price elasticity is to be found between the two pints on the
demand curve. Then arc method of measuring price elasticity can be used. Different points on demand curve have
different elasticity so, average of both price and quantities are taken as base. The arc elasticity can be found by
using the formula.
Change in Demand
Ep = (initial demand + New demand)/2
Change in price
(initial price + new price)/2
Or,
q P1  P 2
ep= .
p Q1  Q2
Computation by arc Method.
In figure, price elasticity between the two points A and B on demand curve is calculated by taking average price and
average quantity
 ep at A and B = ∆Q X P1+P2
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∆P Q1+Q2
ii) When there will be change in demand due the change in other factor other than price, like income of the
consumer, price of related goods, taste and preferences, government policy, advertisement etc
other than price, there will be shift in demand curves. It means when demand changes without
any change in price, it is called shift in demand curves. Shift in demand curve is of two types i.e.
increase in demand curve and decrease in demand or upward shift in demand or downward shift
in demand.
Increase in demand curve: Demand curve will increase when either demand increase with same
price or demand same with increase in price. Example – Even price is same a person buys more
if his income increases. Similarly in the time of Dashin demand for meat will be high even price
increases. So here the demand has changed not due to price.
Decrease in demand: When either demand decreases with same price or demand same with
decrease in price there the demand curve will decrease. Example – Even price is same a person
buys less if his preference for that good is weak. Similarly in the time of winter demand for thin
cloths will be low even price decreases. So here the demand has changed due to other factors
rather than price.
Diagram D1
D Here D1- Increase in Demand curve
D2 D2- Decrease in demand curve
Price
O Demand X
iii) Marginal Product is the change in total product resulting from the use of one more (or one less) unit of
the variable factor. In short it is called as incremental product. The marginal product thus measures the
rate at which total product is changing as one factor is varied.
TP
Hence MP =
F
MP = Marginal Product
TP = Change in the total product
F = Change in the factor input that caused TP to change.
Marginal product can also be calculated with the help of the following formula.
MP= TPn-TPn-1
TPn= Total Product of the nth units of a factor.
(TPn-1) = Total product of the (n-1) th units of a factor.
iv) In case of constant returns to scale, production increase by the same proportion to the proportionate
change in input, for example by doubling input, output also doubles incase of constant returns to scale.
Capital Labour Productions

5 10 20
10 20 40
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K³ c
Quantity of Capital
IQ³
K² b
IQ²
K¹ a
IQ¹
45°
O X
L¹ L² L³
Quantity of Labor
v) The monopoly market is such market, which is the opposite extreme from that of perfect competition. It
exists whenever an industry is in the hands of a single producer. In the case of perfect competition,
there are so many individual producers that no one of them has any power over the market, whereas,
on the other hand, in monopoly market, monopolist has power to influence the market and market
price. By reducing its output it can force the price-up, and by increasing its output, it can decrease the
price.
The word monopoly is made of two words Mono+poly. Here „mono‟ means single & „poly‟ means the
trader. Thus monopoly refers to that form of market organization where in there a single firm or
producer is producing a commodity for which there are no close substitutes.
Characteristics of Monopoly:
i) Single seller.
ii) No close substitutes.
iii) Barriers to entry.
iv) Independent price policy.
v) Government interference.
Part – 'B'
4. Answer the following questions (Any Two):
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a) What is national income and how can it be measured? (2+8=10)

b) Explain the role of banking system in economy. 10
c) What is protectionism? Explain the arguments infavour of protectionism. 10
Answer No. 4
a) National Income is the total sum of money value of all the final goods and services produced in a
country during the period of one year from productive activities. NI is the sum of the income received
by all the citizens of a country during a certain period of time from their productive activities. People
will receive income through using factor of production i.e. land, labor, capital, entrepreneurship in the
form of rent, wage, interest, profit. So NI is the sum of rent, wage, interest and profit. One's income is
another's expenditure. So NI is the total amount of expenditure done by its people in a year.
Different economists have defined the term NI differently. According to Prof. Marshall NI is annual
production from the labor and capital of a country acting on its natural resources. According to A.C.
Pigou NI is the income of the economy, which can be measure in money including income derived
from abroad.
Irving Fisher said NI is the total money value of consumption rather than production. World Bank
1995 " NI comprises GDP plus net income from abroad.
There are three methods to measure it. They are –
1. Product method i.e. final product method and value added method
2. Income method
3. Expenditure method
1. Product method: This method calculates the NI from production side. First, the whole economy will
be divided into the three sectors like primary, secondary and tertiary sectors. Primary sector includes
agriculture, forestry, mining etc. Manufacture, Construction comes on the secondary sector. Tertiary
sector includes transportation and communication, banking, trade and commerce etc. After this it can
apply any one method.
a. Final Product Method: Here the total value of the production will be calculated through the value
of the entire final product produced in different sectors and get GDP by adding it. If we add net
foreign income (value of export minus value of import) in GDP, we will get GNP. From GNP if we
deduct depreciation, NNP will be received. Adding the subsidy and subtracting indirect tax in NNP,
we will get NI.
Table
Sectors Values(in Rs)
1. Primary Sector 4000
2.Secondary Sector 2000
3.Tertiary Sector 3000
GDP 9000
+ Net f. income (X-M) + 500
GNP 9500
- depreciation -200
NNP 9300
+subsidy + 1000
- Indirect tax -500
NI 9800
b. Value added Method: Here NI will be calculated by adding value added of the product in different
sectors. Value added is the difference between value of output and value of input i.e. intermediate
product at each stage of production.
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Example--- suppose a farmer has seeds of wheat of Rs.10. He produces and sells wheat of
Rs.25 to a miller and he makes Rs.30 from flour. A baker uses that flour of Rs.30 in making
bakery of Rs.40, which will be ultimately consumed by consumers. Here bakery is the final
goods, whose value is Rs.40. Beside, from value added side a farmer has Rs10 in the
beginning and Rs.15 is value added by him. A miller and a baker add value equal to Rs.5 and
Rs.10 respectively. So total value added is Rs.40. In this way value of final goods and value
added on that goods are same.
In this way when we get the value added of every goods of each sector and add it, we will get the
total value added in that sector. Than adding value added in all sectors we will get GDP. In similar
above manner we can calculate GNP, NNP, and NI.
Table
Sectors outputs Inputs Values(in Rs)
1. Primary Sector 5000 1000 4000
2.Secondary Sector 12000 10000 2000
3.Tertiary Sector 8000 5000 3000
GDP 25000 16000 9000
GNP 9500
- depreciation -200
NNP 9300
+subsidy + 1000
- Indirect tax -500
NI 9800
2. Income Method: According to this method NI will be calculated by adding up all the income
received by its citizens in a particular year from economic activities. Individuals receive their income
through hiring the factors of production i.e. land, labor, capital, entrepreneurship, in the production
process and gets income in the form of rent, wage, interest and profit respectively. Beside these
items it also includes dividends, undistributed profit direct and indirect taxes social securities etc.,
which are the income of the citizens. This will be a GDP and GNP, NN, NI will be calculated in
same way.
Table
Income Values(in Rs)
Wage 1000
Rent 1500
Interest + Dividend 1800
Profit + undistributed profit 1700
Direct tax 1000
Others(depreciation, social securities etc) 2000
GDP 9000
GNP 9500
- depreciation -200
NNP 9300
+subsidy + 1000
- Indirect tax -500
NI 9800
3. Expenditure Method: According to this method NI is calculated by adding up the entire

expenditure done by the citizens of the society during a year. From expenditure point of view the
whole society or economy can be classified into four sectors i.e. household sector, business sector,
government sector and foreign sector, which respectively do consumption expenditure, investment
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expenditure, government expenditure and foreign expenditure. . : C + I + G = GDP and C+ I + G

+Xn (net foreign income i.e. X – I) = GNP. This method shows relative importance of different
groups of the society in NI. Example-
Table
Expenditure Values(in Rs)
Consumption Exp. 3000
Investment Exp. 2000
Government Exp. 4000
GDP 9000
GNP 9500
- depreciation -200
NNP 9300
+subsidy + 1000
- Indirect tax -500
NI 9800
All three methods give same results and among these which method is to be used depends upon the
availability of data in the particular country and the purpose in a hand.
b) Well developed banking system is a necessary pre-condition for economic development in a modern
economy. The role of banking system in the economy can be explained under the following headings.
i. Mobilization of saving:-
The excess of income over consumption is called saving. Amount of money saved may be
small or large. These remain scattered in various households and institutions. When savings
are deposited in banks, total amount becomes sufficient enough to serve useful purposes.
Thus, savings are mobilized through banking channels. Banks provide attractive interest on
saving and fixed deposits which encourages people to save more.
ii. Capital formation:-

The capital formation is very important for the economic development of a country. The
developing countries like Nepal are suffering from low capital formations. The banks
collect idle money from people and canalized it to the individuals business and government
for productive investments.
iii. Monetization of economy:-

The rural areas in the developing countries are still non-monitized. It means that there is still
practice of barter transactions. People have no banking habits. If the branches of the banks
are spread in the rural areas, people will keep their excess money in banks and withdraw at
the time of need. This leads to the monetization of rural areas. It makes easier to implement
government fiscal and monetary policies.
iv. Promotion of employment:-

Unemployment is a serious problem of the country. It results social, economic and political
problems. In the developing countries like Nepal, large proportion of the labour force is
unemployed and underemployed. The development of banking sector helps to solve
unemployment problem directly and indirectly. Staff personal and workers are employed in
banks and branches. Similarly credit provided by banks for enterprise development expands
employment opportunities.
v. Poverty alleviation :-
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Banks help to alleviate poverty. They make available loans to poor people on reasonable rate of
interest. This helps to carry out income generating activates from agricultural and non-
agricultural works. In Nepal, Rural development banks and agricultural development bank are
playing very important role in poverty alleviation. Rural development banks are providing loan
to the poor without collateral. Similarly Agricultural Development Bank and commercial banks
in Nepal have implemented special projects to alleviate poverty.
vi. Remittance of Money:-

Money can be transferred easily from one place to another and from one country to
another by the help of a bank. It has facilitated transactions in distant places. This, in turn, has
expended interval & external trade. The credit instruments issued by banks such as cheque,
draft, credit cards, etc have facilitated the transfer of money
vii. Removal of exploitation:-

The local or traditional money lender exploits poor by charging high rate of interest. But banks
provide loan at reasonable rate of interest. In the absence of banks, the needy will have no
alternative. They will have to borrow from the traditional sources at the high rate of interest.
c) Protectionism is a policy, which encourages the national industries by imposing restrictions on the
import of foreign goods or by providing facilities to the domestic products. In other words, the
protection is that policy under which the government makes the partial or whole control on the import
of the foreign products for the development and expansion of the industries established in the country.
There are two types of method of protection i.e. Tariff barrier and Non-Tariff barrier. Tariff barrier
refers to the high custom duty imposed on the import of foreign goods. And non-tariff barrier includes
the methods of licensing and quota system of imports, exchange control, provision of direct subsidy
and foreign trade through government enterprises etc.
The arguments infavour of Protectionism are given below:-
I. Need for protecting infant industries:-

National industries of developing countries are in infant stage. They cannot compete with the well-
flourished industries of developed counties. They should be protected till they grow. If protection
is not given to the infant industries they cannot survive and the industrializations of a country may
be handicapped.
II. Generation of employment opportunities:-

Generally the people of developing countries are suffering from unemployment, underemployment
and disguised unemployment. Protectionism can help to promote new industries. By imposing
tariff and non-tariff barrier, the market of domestic products can be expanded and the development
of national industries is accelerated.
III. Correction of balance of payments:-

The trade policy of protectionism is an effective measure to correct the adverse balance of
payments. When the value of imports exceeds the value of exports the balance of payments
becomes adverse. It is corrected when the exports are increased and imports are decreased. Higher
Taxes can reduce the imports and facilities can increase the exports.
IV. Development of key industries:-

It is argued that the development of key industries within the country is necessary for the rapid
industrialization. The key industries produce the basic materials like machines, tools chemicals,
power etc, which are required for other industries. A developing country should not depend on
imports for such materials. So protectionism is necessary for such industries.
V. To preserve natural resources:-
GNM P.T.O.
(17)
The trade policy of protectionism can help to preserve the natural resources of the developing
countries. If the free trade policy is adopted such resources are exported rapidly in the form of raw
materials. It is economically harmful to the developing countries because the raw materials are
exported at a lower price and it is necessary to preserve them by the method of protectionism.
5. Answer the following questions (Any Three):

a) What are the causes of poverty in Nepal? Explain any four. 5
b) Explain the role of monetary policy in developing countries. 5
c) Introduce the direct tax and indirect tax. 5
d) What are the problems of Nepalese foreign trade? 5
e) Explain the concepts of Balance of Trade and Balance of Payment. 5
Answer No. 5
a) Poverty is defined as the inability to attain a minimum standard of living. The main cause of poverty in Nepal are
as follows.
I) Low economic growth - one of the main causes of poverty is the low economic growth. The
economic growth and population growth rate in the last three decades were about 3% and 2.5%
respectively. The economic growth rate in Nepal in not only very low but its annual variation is
very high. Due to the very dependence on agriculture and slower development of industries
economic growth low and unstable which incise the poverty situation in a country.
II) Subsistence agriculture: Majority of the population still depends on agriculture for their
livelihood. Due to slower development of agriculture, those people who depend on agriculture
are poor.
III) Mass unemployment -Due to high population growth, heavy dependent on agriculture and
slower development of industries, there is problems of mass unemployment in Nepal. Poverty
increases with the increases in the unemployment.
IV) High population growth – because of population growth, there arises the problem of
employment opportunities.
b) Monetary Policy can serve the following development requirements.

(i) Developing role:-
In a developing economy, the monetary policy can play a significant role in accelerating economic
development by influencing the supply and uses of credit, controlling inflation and maintaining
balance of payment.
(ii) Effective central baking:-

To meet the developmental needs the central bank of an underdeveloped
country must function effectively to control and regulate the volume of credit through various
monetary instruments like bank rate, open market operations, cash reserve ratio etc.
(iii) Monetization of economy:-

An underdeveloped country is also marked by the existence of large non-monetized sector.
In this sector, all transactions are made through barter system and cheques in money supply and
the rate of interest do not influence the economic activity at all. The monetary authority should
take measure to monetize this non-monetized sector and bring it under its control.
(iv) Developing banking habits:-

The monetary authority of a less developed country should take appropriate measure to
increase the proportion of bank money in the total money supply of the county. This requires
increase in the bank deposits by developing the banking habits of the people and popularizing the
use of credit instruments i.e., cheques, draft etc.
GNM P.T.O.
(18)
(v) Long-term loans for industrial development.

Monetary Policy can promote industrial development in the under developed
countries by promoting facilities of medium-term & long-term loans to the manufacturing units.
The monetary authority should induce those banks to grant long-term loans to the industrial units
by providing facilities.
c) Tax, a compulsory payment given to the government without receiving direct return, is the main source
of the government revenue. Tax can be classified into two group i.e. direct tax and indirect tax
according to possibility of shifting.
Direct tax is that tax, which is paid by the person to whom it is legally imposed. Income tax, wealth
tax, land tax, property tax, death tax are the examples of direct taxes. In this tax the impact and
incidence of tax will be on the same person and shifting of tax is impossible. It is basically considered
equitable as progressive in nature, certain and economic as imposed in source, productive as this can
be used on productive sector, civic consciousness as paid separately, elastic etc. But it also can be
evaded by showing low value and discourage saving. But its advantages are more than disadvantages.
Indirect tax is that tax which will be imposed on one and paid partly or wholly by other. Value added
tax, custom duties, excise duties are the example of indirect taxes. There will be chances of shifting of
the tax. So impact and incidence of tax will be in different person in this tax. It is also considered as
equitable if imposed on luxurious goods, elastic, non- evaded as imposed in the price, check harmful
consumption, etc. Besides, it is regressive in nature, uncertain, uneconomical (costly in collection), no
civic consciousness as included in the price etc.
d) The exchange of goods and services between different countries refers to the foreign trade. Imports and
the exports are the two components of the foreign trade. Basically, Nepal is exporting textiles,
handicraft etc which can be produced at lower cost and vice versa in case of import. So the main cause
of foreign trade is production efficiency. Foreign trade has a great significance in economic
development of Nepal as it is the source of foreign currency, employment, competition, government
revenue; it provides maximum satisfaction to the consumer and maximum profit to producer etc.
There are many problems of Nepalese foreign trade, though it has great importance in Nepalese
economy. They are ---
1. The most crucial problem of Nepalese foreign trade is that it is suffering from Balance of Trade
deficit. Its import is continuously increasing, whereas export is decreasing because its export
consists of low valued agriculture as well as unfinished goods and import is of high valued capital
and finished goods. Besides, the use of child labor, low quality raw materials, its export is
increasing and as the member of WTO less import duties has increased the import etc.
2. Nepal is landlocked country. Due to landlockedness trade of goods and services is difficult as well
as costly. Besides, it has hindered the export trade from time to time.
3. Nepalese export is concentrated to the limited goods and countries like woolen carpet to
Germany, textile and readymade garment to USA, Pashmina in UK etc.
4. Lack of modern technology production of export is low in quantity as well as of low quality.
5. Government policy of Nepal is defective i.e. liberal policy. This increased the competitiveness
which decreased the export and increased import. Now government can‟t use the import
substitution and export incentive policies.
6. Other problems include – lack of export credit, loadsheding, lack of research, political instability,
bandhas etc.
e) The term balance of trade means the difference between exports & imports of visible material goods.
The process of exports & imports is a continuing feature. The trade involves the payment also. As such,
GNM P.T.O.
(19)
we have to calculate the amount payable and receivable. We are also required to calculate the balance of
trade in order to determine our economic status.
The term balance of trade refers to the total volume of amount of exports & imports of goods &
services of a country with rest of the countries in the world. It includes the value of the transactions of
visible exports & imports of items of a country with the rest the world.
When the value of exports exceeds the value of imports it in called favorable balance of trade. But
when the value of imports exceeds the value of exports it is called unfavorable balance of trade.
Main features of balance of trade.

(i) Exports & Imports:- The element of the balance of trade are exports & imports.
(ii) Visible goods:- Balance of trade constitutes imports & exports of goods. The important
features of these goods are that it must be visible. These goods must be seen and touched,
counted, measured and weighed.
(iii) Material goods:- Goods constituting our imports & exports must be material. It means that non-
material goods & services will not contribute our imports & exports.
Balance of Payment is the complete statement of the country‟s receipts and payments in foreign
exchange. It is different from balance of trade, which is the difference between value of imports & exports
only. Balance of payment is balance of trade plus various other receipts and payments on different
accounts from abroad. The term balance of payments refers to the total amount of visible trade and the
total amount of invisible trade that takes places between or among the countries during a given period of
time.
Main features of balance of payment:-
(i) Visible Items:- All types of physical goods imported & exported are known as visible items.
(ii) Invisible Items:- All services which are exported and imported such as banking, insurance,
traveling, donation etc constitute invisible items.
(iii) Capital Transfer:- Items consisting of capital receipts and capital payments are known as
capital transfer.
6.
a) Justify the following statements with appropriate reasons. (5×1=5)
i) The Income earned by domestic people from abroad is included in GDP.
ii) Central Bank is a profit seeking institute.
iii) Tax rates should be reduced to control inflationary pressure in the economy.
iv) Nepalese economy is dualistic in nature.
v) Agriculture is the backbone of Nepalese economy.
b) Write short notes on (Any Four): (4×2.5=10)

i) Circular flow of income in simple economy.
ii) Consumption function
iii) Progressive Tax
iv) SAFTA.
v) World Trade Organization
Answer No. 6
a)
GNM P.T.O.
(20)
i) Incorrect, because GDP includes all the income earned by the factors of production located within
the domestic terriory of a country of a country in a year. Hence, the income earned by the domestic
people from abroad is the part of that country is GDP where they reside but it is included in GNP.
ii) Incorrect : Because, it is the monetary authority, bank of the bank and bank of the government. Its
major function is to formulate and implement the monetary policy for the country, regulates and
supervises the banks and financial institution fixing exchange rate etc. Hence, it is not the profit
seeking institution.
iii) This statement is false. Inflationary pressure can be controlled by increasing the rate of Tax not by
reducing it. When Tax rate increase the purchasing power and demand will decrease and which leads
to reduction in the price level.
iv) This statement is correct. In Nepal, there is dualistic and mixed economic system. It has the
characteristics of both traditional & modern sectors.
v) Correct: because about 66 percent of Nepalese people are engaged in agriculture, provide
employment opportunity to more than 70 of active labour force and contributes about 3 percent in
GDP.
b)
i) Here simple economy refers to the two sector economy i.e. Household (HH) and Business (B) sector
without government and foreign sector. Circular flow of income is the model of economy which
shows the supply of goods, services, factors and flow of their income round the economy.
In simple economy HH sector will supply factor of production to the B sector and in turn B sector
flows the income to the HH sector in the form of their remuneration i.e. rent, wage, interest and
profit. In contrast B sector will supply goods and service to the HH sector and gets income from
HH sector as a price. In this way one‟s income will be others expenditure and there will be flow of
income.
HH Sector
Good & service Factors Factor income Price
B Sector
ii) The relationship between consumption and income is called the consumption function Consumption
function shows the relationship between consumption and income. In terms of an equation, it is written
as under.
C= f(y)
This equation states that there is a direct relation between consumption and the level of income. As the
level of income increases, consumption also increase but the increase in consumption is less than the
increase in income. The concept of consumption function can be illustrated by means of the following
consumption schedule and curve.
Income Consumption
Rs. Crores
0 50
GNM P.T.O.
(21)
100 100
200 150
300 200
400 250
500 300
The above table and diagram show that as the income increases, consumption also increase but
increase in consumption is less than increase in income.
iii) Progressive tax is a system in which the rate of tax increases with the rising level of income and
wealth. The tax rate increases equal to or more than proportionate to the increase in the income level.
In other words the rate of tax rises when the income rises but the proportion of the rate of tax is equal
to or higher than the proportion of the increase in income
Income Level Tax Rate
10000 5%
20000 10%
30000 25%
40000 35%
As the income increases from 10000 to 40000 the tax rate also increases from 5 to 35% It indicates
that higher the income, higher the tax rate and vice versa.
iv) The South Asia Free Trade Area was agreed to among the seven South Asian Countries that form
the South Asian Association for Regional Cooperation (SAARC): Bangladesh, Bhutan, India,
Maldives, Nepal, Pakistan and Sri Lanka.
SAFTA came into effect on 1 Jan. 2006. The concept of SAFTA was introduced in 10th SAARC
summit held in Kathmandu. The final agreement regarding its implementation was made in 11th
SAARC summit held in Islamabad. Pakistan & India are to complete implementation by 2012, Sri
Lanka by 2013, Bangladesh, Bhutan, Maldives and Nepal by 2015. It is a new business strategy to
promote regional trade among the SAARC nations. It replaces the earlier South Asia preferential
Trade Agreement (SAPTA)
v) WTO is an international body established in 1995 to supervise and encourage the international
trade. Though it is relatively young international institution, it has its origins in the Bretton Woods
Conference at the end of World War II. It has replaced the General Agreement on Tariffs and Trade
(GATT). Till 2003 the WTO consists of 146 members, accounting for approximately 97 percent of
world trade. WTO has been enormously successful at reducing tariff and other trade barriers among an
ever-increasing number of countries. The WTO mediates and settles disputes on international trade
among its members. Nepal became WTO member in 2004.
The main principles of WTO are reciprocity and nondiscrimination. Reciprocity refers to the practice
that if one country offers to reduce a barrier to trade and a second country “reciprocates” by offering to
GNM P.T.O.
(22)
reduce one of its own trade barriers. Nondiscrimination, or equal treatment, means that if one member
offers a benefit or a tariff concession to another member, it must offer the same benefit or a tariff
concession all its members.
GNM P.T.O.
Mathematics
CAP-I, June 2011
Maximum Marks – 100
Total No. of Questions – 10

Marks
Section:-‘A’
7.
c) A man obtains a loan of Rs. 200,000 and agrees to repay it in 10 equal installments at 8.5%
compound interest. The first payment is to be made at the end of the first year. Find the
amount of each installment. 5
d) What are the advantages of using hexadecimal system? Convert into

hexadecimal system. (1+4=5)
Answer No. 1
a) Given,
Present value = Rs. 200,000;
Payment mode is annual at the end of each year
Number of installments (n) = 10
Rate of interest (i) = 8% = 0.085
Amount of each installment (P) =?
We know, P
or
Therefore, the amount of each installment = Rs. 30,481.54.
b) Hexadecimal system is developed to overcome the limitations of binary system. Hexadecimal

system is mainly used in computer system. Because of 16 different digits even a large number of
decimal system can be represented as small number. Programmers use these systems to
communicate with the programming language.
Conversion of integral part:

Base Number Remainder
(divisor)
16 482594 2
16 30162 2
16 1885 13 = D
16 117 5
16 7 7
16 0
GNM P.T.O.
(2)
Conversion of fractional part:

Number Integral Part
o.34375 = 5.5 5
0.5x16 = 8.0 8
Hence,
8.
a) From 6 gentlemen and 4 ladies a committee of 5 is to be formed. In how many ways can
this be done so as to include at least one lady? 5
b) Define the term Geometric progression.

1
Find the sum of the series 27 + 9 + 3 + ..............+ (1+4=5)
81
Answer No. 2
a) Number of gentlemen = 6 , Number of ladies = 4
Required Committee should be of 5 in which one lady should be included
Now,
Number of selecting 4 Gentlemen out of 6 and 1 lady out of 4
= C(6,4) × C(4,1) Ways
Again ,
Number of selecting 3 Gentlemen out of 6 and 2 ladies out of 4
= C(6,3) × C(4,2) Ways
Again,
Number of selecting 2 Gentlemen out of 6 and 3 ladies out of 4
= C(6,2) × C(4,3) Ways
Again,
Number of selecting 1 Gentleman out of 6 and 4 ladies out of 4
= C(6,1) × C(4,4) Ways
Total number of ways of forming committee

= C(6,4) × C(4,1) + C(6,3) × C(4,2) + C(6,2) × C(4,3) + C(6,1) × C(4,4)
= × + × + × + ×
= × + × + × + ×
= 60+120+60+6
= 246 ways
b) If the ratio between any two consecutive terms in a progression is same then the progression is
said to be Geometric progression. [1]
1
Here , a  27, r  t2 t1  1 3 , t n 
81
using formula,
t n  ar n 1
 27. 13 
1 n 1
or
81
GNM P.T.O.
(3)
or 3n 1  27  81
or 3n 1  33 , 34
or 3n 1  37
or n 1 7
or n 8
Again, using s n 

a 1 rn 
1  r 
  1 8 
 27 1    
  3  
1  13
 1 
 27 1 
 6561
2
3
27  3  6560

2  6561
3280

81
40
 40
81
9.
a) A stationery shop sells English, mathematics and Nepali books on Sunday, Monday and
Tuesday as follows:
Sun Mon Tue
English 20 15 25
Mathematics 25 10 20
Nepali 15 25 30
i) Find the total sale of each book in all three days. 1

ii) Find the revenue of all books on each day when cost of English, Mathematics and Nepali
are Rs. 10, 15 and 20 respectively. 2
iii) Find the total revenue of all books on all three days 2
b) A group of engineers is interested in forming a company to produce smoke detectors. They
have developed a design and estimate that variable cost per unit including material, labor,
and marketing costs, are $22.50. Fixed costs associate with the formation, operation,
management of the company, purchase of equipment and machinery is total $250,000.
They estimate that the selling price will be $30 per detector.
i) Determine the number of smoke detectors which must be sold in order to reach the break
even. 3
ii) Preliminary marketing data indicate that the firm can expect to sell approximately
30,000 smoke detectors over the life of the project if the detectors are sold for $30 per
unit. Determine expected profits at this level of output 2
Answer No. 3
a) i)
GNM P.T.O.
(4)
Solution
Let A =
Let B =
The total sale of each book on all three days
AB =
ii)
Solution
The total revenue of all books on each day
=
=[ ]
Sun. Mon. Tue.
= [ 875 800 1150 ]
iii) The total revenue of all books on all three days.
=[10 15 20 ]
=[10×60+15×55+20×70]
= 600+825+1400
= Rs. 2825
b)
If x equals the number of smoke detectors produced and sold, the total revenue function is
represented by the equation R(x) = 30x
The total cost function is represented by the equation
C(x) = 22.50x + 250,000

(i) The break even condition occurs when total revenue equals total costs
R(x) = C(x)
Or, 30x = 22.50x + 250,000

Or, 7.5x = 250,000
GNM P.T.O.
(5)
units
(ii) Profit function is
P(x) = R(x) –C(x) =7.5x -250,000

With sales projected at 30,000 smoke detectors,
P(30,000) = 7.5(30,000) – 250,000
= -$ 25,000
The firm can expect to lose $25,000 on the venture
10.
a) Upon completing the construction of his house, Mr. Jha discovers that 96 square feet of
plywood scrap and 80 square feet of white pine scrap are in usable form for the
construction of tables and bookcases. It takes 16 sq. ft. of plywood and 8 sq. ft. of white
pine to make a table and 12 sq.ft. of plywood and 16 sq. ft. of pinewood are required to
construct a bookcase. Express the case using linear inequalities and draw the graph of
common region. 5
b)
i) Prove that:
Sin  Sin5  Sin5  Sin 7
 tan 4 Type equation here.
cos  cos 3  cos 5  cos 7 3
ii) Find the exact value of tan 75 without using Calculator. 2
Answer No. 4
a) Let x and y be the units of table and bookcase produced respectively.
[2]
Inequality Boundary Two boundary Testing Conclusion
Line points Point
(6,0), (0,8) (0,0) 0 24, True
(10,0), (0,5) (0,0) 0 ,10 True
Again, x 0 represent the half plane right to x = 0.

And y 0 represent the half plane above y = 0.
This means feasible region lies in first quadrant. [1]
GNM P.T.O.
(6)
y
10
6
5C
4 B
A
O0 2 4 6 8 10 x
The shaded region OABC is the common solution region.
Sin   Sin 3  Sin 5  Sin 7

b) (i) L.H .S . 
cos  cos 5  cos 3  cos 7
(sin   sin 7 )  (sin 3  sin 5 )

(cos   cos 7 )  (cos 3  cos 5 )
  7   7 3  5 3  5 )
2 sin( ) cos( )  2 sin(
) cos(
 2 2 2 2
   7     7   3  5   3  5 
2 cos  cos   2 cos  cos 
 2   2   2   2 
2 sin 4 cos( 3 )  2 sin 4 cos(  )

2 cos 4 cos( 3 )  cos 4 cos(  )
2 sin 4 [cos 3  cos ]

2 cos 4 [cos 3  cos ]
 tan 4
= R.H.S.
(ii) tan 75  = tan 45  30 
GNM P.T.O.
(7)
tan 45  tan 30

=
1  tan 45 tan 30
1 1 3
=
1  1. 1 3
3 1
=
3 1
11.
a) A manufacturer has determined a cost function which expresses the annual cost of
purchasing, owning and maintaining its raw material inventory as a function of the size of
each order. The cost function is where q equals the size of
each order (in tons) and C equals the annual inventory cost.
i) Determine the order size q which minimizes annual inventory cost. 4
ii) What is the minimum inventory cost expected to equal? 1
b) Evaluate 
1
x 2 log e x dx 5
Answer No. 5
a)
(i) Average inventory cost
Then
For maximum or minimum annual inventory cost,
We neglect the negative value of q because it is not possible.

Thus q = 80 tons
Now,
When q = 80,
Which shows that the annual inventory cost is minimum for order size q = 80 tons.
(ii) Minimum inventory cost can be found by substituting q = 80 in the cost function.
Thus minimum inventory cost
 x l0g
2
b) For e x dx
Using integrating by Parts,
d
 dx

 1og e x  x 2 dx    log e x   x 2 dx dx 


x3 1 x3
  x 1og e x .   . dx
2
3 x 3
GNM P.T.O.
(8)
x3 1 x3
 1og e x  .
3 3 3
x3 1
  x 2 1og e x dx  1og e x  x 3
3 9
x 3
1 e
Now,  x 2 1og e x dx   1og e x  x 3 
3 9 1
 e3 1   13 1 
  1og e e  e 3    1og e 1  13 
3 9  3 9 
 e3 e3   1 1
  .1     .0  
3 9  3 9
2 3 1
 e 
9 9
 
e
1
  x 2 1og e x dx  2e 3  1
1
9
GNM P.T.O.
Statistics
CAP-I, June 2011
Maximum Marks - 100

Marks
Section:-‘B’
12. Mr. Ram Chandra, president of „Ram Financial Services‟ believes that the sale depends
upon the regular contact with clients. To document this assumption, he gathered following
information:
S.N. 1 2 3 4 5 6 7 8 9 10 Total
No. of 14 12 20 16 46 24 48 50 50 50 330
contacts
Sales 24 14 28 30 80 30 90 84 120 110 610
(NRs.
„000)
a) Find the correlation between the variables and state whether Mr. Ram Chandra‟s
assumption holds good or not. 4
b) Obtain the regression equation that best estimates the given data. 4
c) Estimate the sales of „Ram Financial Services‟ if the regular contact with clients reach
to 100. 2
Answer No, 6
(a) Correlation coefficient
r = ( n∑XY -∑ X. ∑ Y ) / √[(n∑ X2 - ( ∑X)2)] √ [(n∑ Y2 - ( ∑Y)2)]
No. of Contacts Sales (Rs. '000)

SN (X) (Y) X.Y X2 Y2
1 14 24 336 196 576
2 12 14 168 144 196
3 20 28 560 400 784
4 16 30 480 256 900
5 46 80 3680 2116 6400
6 24 30 720 576 900
7 48 90 4320 2304 8100
8 50 84 4200 2500 7056
9 50 120 6000 2500 14400
10 50 110 5500 2500 12100
Total 330 610 25964 13492 51412
Correlation Coefficient
r = [10 *(25964) – (330 x 610 )] / √ [ 10 *13492 – (330)2] √[ 10 *51412 – (610)2]
= (259640 – 201300) / √ [134920 – 108900] √ [514120- 372100]

= 58340 / √ 26020 √ 142020 = 58340 / (161.307) (376.855) = 58340/60789.349
= + 0.9597
GNM P.T.O.
(2)
The correlation coefficient between the number of regular contacts with customers and the sales is
obtained as + 0.9597, that is positive 95.97 %
Therefore, it can be concluded that the assumption of Mr. Ram Chandra holds good.
b) Regression line that fits best to the given data is Y = a + b X
Where b = (∑XY -∑ X. ∑ Y) / (∑ X2 - (∑X)2/n) =

n
And a = Y – b X
The regression coefficient b = [10 *(25964) – (330 x 610 )] / [ 10 *13492 – (330)2]
= (259640 – 201300) / [134920 – 108900] = 58340 / 26020 = 2.242

That is, b = 2.242
And, a = 61 – 2.242 x 33 = 61 – 73.986 = - 12.986
Hence, the estimated regression line is Y = – 12.986 + 2.242 X
c) The estimated sale of the „Ram Financial Services‟ is
Yest = - 12.968 + 2.242 * 100 = 211.232 („000) = Rs. 2,11,232
13.
a) From a batch of 13 students who had appeared for an examination, 4 students have
failed. The marks of successful candidates were 41, 57,38,61,36,35,75,50 and 40.
Calculate the median marks for all students. Also calculate the median marks for
passed students. 5
b) F
ollowing table gives the group index of commodities, calculate the cost of living index
using geometric mean. 5
Group I II III IV V
Index 350 100 240 160 250
Weight 5 1 1 2 3
Answer No. 7
a)
Let X1, X2, X3, and X4 be the marks of failed students.
Marks of all students: X1,X2,X3,X4,35,36,38,40,41,50,57,61,71
Median marks of all students is given by
Md= Size of (n+1)th item

2
=Size of ( 14 )th item
2
th
=Size of 7 item
=38
GNM P.T.O.
(3)
Similarly, marks of passed students: 35, 36, 38,40,41,50,57,61,71
Median marks of passed students is given by
Md=Size of (n+1)th item

2
= Size of (10/2)th item
= size of (5)th item

=41
b) The table for computation
Group I II III IV V Total

Index(I) 350 100 240 160 250
Weight(w) 5 1 1 2 3 12
W log I 12.72034 2 2.380211 4.40824 7.19382 28.70261
Cost of living index = Anti log(

 W log I ) = Anti log
28.70261
= 246.538.
W 12
14.
a) Calculate the seasonal indices by ratio to moving average method. 5
Quarters
Years I II III IV
2040 75 86 90 100
2041 60 65 72 78
2042 54 63 66 72
2043 59 80 85 93
b) A supplier imports fruit from three sources A, B and C. He/she imports 46 % from A,
28 % from B and 26 % from C. Previous records show that 1% of the fruit boxes from
A, 1.6% from B and 2% from C were delivered underweight. The lot inspector
randomly selected a box from the current lot and is found under weight. What is the
probability that the box was delivered from the source C? 5
Answer No. 8
a) To calculate the seasonal indices by ratio to moving average we us multiplicative model of time series
Yt =T.S. C.E
Trend eliminated value= Yt /M.A
Seasonal index = average of trend eliminated values.
The computational Table:-
year yt M.A Central Yt/CMA
M.A(CMA)
2040 75 - - -
I
II 86 - - -
III 90 87.75 85.875 104.8035
IV 100 84 81.375 122.8879
2041 60 78.75 76.5 78.4314
I
GNM P.T.O.
(4)
II 65 74.25 71.5 90.9091

III 72 68.75 68 105.8824
IV 78 67.25 67 116.4179
2042 54 66.75 66 81.8182
I
II 63 65.25 64.5 97.6744
III 66 63.75 64.375 102.5243
IV 72 65 67.125 110.7263
4043 59 69.25 71.625 82.3735
I
II 80 74 76.625 104.4046
III 85 79.25 - -
IV 93 - -
The seasonal index for 4 quarters is given in the following table.

year I II III IV Total
2040 - - 104.8035 122.8879
2041 78.4314 90.9091 105.8824 116.4179
2042 81.8182 97.6744 102.5243 110.7263
2043 82.3735 104.4046 - -
Total 242.6231 292.9881 313.2102 350.0321
Average 80.8744 97.6627 104.4034 116.6774 3.996179
SI 80.9517 97.7561 104.5032 114.3482 400
Correction factor k=400/ 399.6179 =1.000956
b) Let A, B and C are three events for fruits from three sources A, B and C respectively.
Then from given information, P (A) = 0.46, and P (B) =0.28 and P(C) =0.26.
Let D be the event for the underweight box.
Now, the conditional probability is given by P (D/A) =0.01, P (D/B) =0.016, and P (D/C) =0.02
P (C/D) =?
Using Bayes theorem the conditional probability is given by,
P(C ).P( D / C )
P(C / D) 
P(C ).P( D / C )  P( B).P( D / B)  P( A).P( D / A)
0.26  0.02

0.26  0.02  0.28  0.016  0.46  0.01
=0.36
Hence the probability of selected underweight box is from source C = 0.36.
15.
a) Differentiate between stratified sampling and cluster sampling methods 5
b) Quarterly production of pine lumber of board feet from Terai Lumber Pvt. Ltd. since
2000 is as follows:
Year Winter Spring Summer Fall

GNM P.T.O.
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2000 78 102 147 93

2001 69 116 175 93
2002 89 97 153 101
2003 107 124 168 107
2004 92 136 171 103
Determine the seasonal pattern for the production data using simple average method. 5
Answer No. 9
a) Stratified sampling: It is used when the characteristics of population are heterogeneous. In this
sampling method the population is divided into different strata in such a way that the characteristics of
units are homogeneous within strata and heterogeneous between strata. Then sample is drawn from each
stratum by using simple random sampling method. Example; if we want to study about the production of
crops in Nepal, first of all we divide the whole Nepal into three regions as mountain, hill and terai in such
way that within the regions the characteristics of crops are homogeneous but between the regions the
characteristics of crops are heterogeneous. Then samples are drawn from each region.
Cluster sampling: It is a technique of random sampling. In this sampling method, the population is
divided into different clusters in such a way that the characteristics of units within the cluster are
heterogeneous and between the clusters is homogeneous. So that the number of sampling units in each
cluster should be approximately equal. Then a cluster is selected as sample by using simple random
sampling method. Example; if we want to study about the economic condition of people of Kathmandu
metropolitan city, first of all we divide the metropolitan into different wards in such a way that the
economic condition of people within wards is heterogeneous and between the wards are homogeneous.
Then a ward is selected as a sample by using simple random sampling method.
b)
Year Winter Spring Summer Fall
2000 78 102 147 93
2001 69 116 175 93
2002 89 97 153 101
2003 107 124 168 107
2004 92 136 171 103
Total 435 575 814 497
Average 87 115 162.8 99.4
Seasonal 74.97 99.10 140.28 85.65
Index No.
The grand average (average of average) is [108.75 + 143.75 + 203.50+ 124.25] / 4
= =116.05
The seasonal average = [The season‟s average / Grand Average ] * 100
Winter Index = 100 = 74.97
Spring Index = 100 = 99.10
Summer Index = 100 = 140.28
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(6)
Fall Index = 100 = 85.65
The total index of all the four quarters = [74.97 + 99.10 + 140.28 + 85.65] / 4
= 400 / 4 = 100
16.
a) Write down the difference between primary and secondary data 5
b) Fill in the blanks with suitable answer: (5×1=5)
i) G
. M of a variable whose one value is zero, is …………………………..
ii) A
distribution has mean 26 with standard deviation 2, the coefficient of variation
will be …………………………..
iii) A
n event with probability 0 is known as…………………event.
iv) I
f and then
v) A
distribution with β=3 is known as ……………………………..
Answer No. 10
a)
Primary data Secondary data
The data which is first time collected by The data which is collected by one and
investigator or his/her agents or used by another.
organization.
It is original in characters. It is not original in characters.
It takes more money, time and efforts. It may not take more money, time and
efforts.
It can be collected by interview methods It can be collected by published and
and questionnaire method. unpublished sources
.
b)
I) G. M of a variable whose one value is zero, is ……Zero……………………..
II) A distribution has mean 26 with standard deviation 2, the coefficient of variation will be
………7.69%…………………..
III) An event with probability 0 is known as
…………impossible…………….…………………event.
IV) If and then
V) A distribution with β=3 is known as …normal……or Mesokurtic.
GNM P.T.O.
Management & Organizational Relation
CAP-I, June 2011
Maximum Marks - 100
Marks
17. R
ead the following and answer the question accordingly: (4×5=20)
The Taza Khaza Enterprise was an older grocery products business established in
Dharan Sunsari. The head office and the production unit were in Sunsari headed by one
General Manager since its establishment. He has got sole ownership in the organization.
It had a top-down conservative culture and traditional line organization structure. The
superiors exercise control over the performance of subordinates. It is superior-
subordinate oriented. The General Manager desires for dominance and have low self-
confidence.
Due to the construction of road and linkages to rural areas the product has been
demanded in many village markets not only of Sunsari districts but also Morang and
Jhapa. There has been change in habit of customers to get ready made food. There were
no other food factories which can substitute to it. Previously it was possible to produce
at one place and distribute to nearby markets. Now the demand from far geographic
areas has been increased in such a volume that production is needed in many locations.
The General Manager does not like to change the organization structure. He feels
reluctant to delegate authority. So he followed the strategy of distributing through
different marketing channels making production at only one place. But he could not
harmonize the effort of product department and marketing outlets.
Recently, there is a big complaint of consumer that most of the products with expired
date challenged their health. It could not maintain the quality due to long gap of time in
production and distribution. The Taza Khaza Enterprise could not take benefit from
opportunity of high market possibility. In contrary, it lost its fame of good quality.
Gradually, the volume of sales has been lowered down.
a) W
hat type of problem The Taza Khaza Enterprise is facing?
b) E
xplain the advantages if the authority has been delegated by the General Manager.
c) D
oes the Matrix Organization structure work in the above situation?
d) S
uggest the General Manager about the possibility of handling problem of the
particular enterprise from management perspective.
Answer No. 1
(a)
The basic problem of the enterprises is no adaption to changing needs. The market was expanding
and the demand for its products was increasing. It is a great opportunity to the profit making
organization. But the enterprises could not tap the opportunity as it is rigid in traditional
management practice. It did not followed the bottom up style. So it could not get feedback and
suggestions from the staffs and local managers in time. So it lost its name and fame which is very
difficult to regain. The flavor of this enterprise was the freshness of product. It could not select the
best distribution pattern and packaging. It did not make timely decision of operating production at
different locality near to market.
GNM P.T.O.
(2)
It seems that the owner scare to make involvement of experts and subordinates. He is afraid of
delegating authority with fear of threat to his own career as General Manager. So The Taja Khaza
Enterprises is facing the problem of organizing management due to low self-confidence of the
General Manager. If it has been well planned and made good strategy for distribution the product
would be fresh at time the costumer consume it. If the general manager has tried to integrate new
technology of packaging for large period preservation of food, the problem of the expired date
would not come. So the desire for dominance created the problem.
(b)
The delegation of authority is the process by which formal authority is transferred to subordinates
for completion of specific jobs. It the General Ganager of The Taja Khaza Enterprises, would have
been wished to get things done in proper manner through subordinates, it could increase the profit
instead of losing the market share and fame. It would have of advantages if the authority has been
delegated. Delegation of authority helps use the expertise of subordinates in addressing the
particular problem. It helps develop subordinates by participating in decision making. They learn
about overall operations and support the organization. They accept the responsibility. Delegation
reduces the burden of manager‟s workload and top manager has more time to engage in strategic
planning and management. The granting of authority and responsibility motivates subordinates to
perform better and effectiveness increases in achieving organizational goals. The most important
thing is that the delegation of authority improves involvement and commitment of employees. The
organizational climate represented by the quality of working environment improves. If the
authority has been delegated by the General Manager and other functional managers of The Taja
Khaja Enterprises, the decision making speeds would be accelerated and corrective action could be
taken before the sales volume has been lowered down.
(c)
The Taja Khaza Enterprises had adopted the traditional line organization structure. In this type of
organization structure, authority flows from top to bottom in the organizational hierarchy. It is
simple and easy to understand. But the organizing function of management has been so developed
that new forms of organizational structures have been evolved. The matrix organization structure is
the modern form. This structure superimposes project structure on functional structure. Here the
basic organization structure is functional and the temporary project structure is superimposed over
functional structure. Specialists from functional departments are assigned to work on projects. This
structure is widely used for project management.
In situation of The Taja Khaza Enterprises, it is not necessary, to have project management‟s form
of organization. Simply the line and staff organization structure is fine to it but the delegation of
authority is needed. It does not mean that matrix organization structure does not work in the
specific case of The Taja Khaza Enterprises. The important issue here is the change in environment
and the matrix structure is able to adapt changes. This structure fosters flexibility throughout the
organization. Various skills can be brought together so new threats and requirements can be
addressed in positive way. The above enterprises would not have to face different problems of the
structure itself encourages the delegation of authority. The matrix form foster participative
management and improves coordination Employees develop this skills and knowledge through
interdisciplinary interactions in matrix organization. So the production as project in different
geographic regions would help the above enterprises.
(d)
I would like to suggest the General Manager of The Taja Khaza Enterprises to follow the
principles of management. Delegation of authority is one of the basic principles which have under
application for management system. As he was reluctant to delegate authority and establishing
GNM P.T.O.
(3)
production unit at different places, various types of problems have been emerged. There is a
principle of span-of-control. It states that there is a limit to the number of subordinates that a
supervisor can supervise.
One more suggestion is the strategic planning. Strategic planning is a systematic approach to
analyze the opportunities and threats in the environment, assessing the organization‟s strengths and
weaknesses, identifying opportunities of competitive advantage and matching them with
organization is expected resources in a long term perspective.
From the management perspective, he could handle the problem by proper planning, organizing
and controlling mechanism. If it could decide in advance about the expansion of market and
choose the course of action, the problem would not be in such a challenging way. One of the
possible means to handle the problem is grouping task and designing authority-responsibility
structure. It should focus on coordination mechanism too. As it is in threat of losing fame and in
process of getting low return, immediately the corrective actions should be taken.
18.
a) D
efine decision making. Explain the decision making process. (4+6=10)
b) W
hat is human resource management? Explain the components of human resource
management. 10
Answer No. 2
a) Decision making is a managerial process and function of choosing a particular course of action out of
several alternative courses for the purpose of achieving the given goals. All levels of managers make
decisions and all decisions influence managerial performance. It can be termed as the managerial response
to problems. It is a path selected for moving the organization from existing state to desired goal state.
Decision making is an important step towards reducing the gap between the existing situation and the
desired situation through solving problems and making use of opportunities. Most of the managerial
decisions are directed towards making the organization survive, succeed, grow and prosper.
In management term, decision can be defined as an act to answer a question about possible course of
action. According the James Stoner, “Decision making is the process of identifying and selecting a course
of action to solve a specific problem." Decision making is a continuous job of managers which is goal
oriented and dynamic. Decisions involve long term commitment. Managers need information to make
decision and decision must be made timely.
Decision making is a circular process that continues in an ongoing pattern. There are six basic steps in the
decision making process.
1. Identification of decision problem: The decision making process begins with the uncovering of
or discovering a problem situation which is basically either unsatisfactory or a promising
situation calling for a conscious intervention. The failure to define problem in right way or the
wrong problem identification make the rest of the decision making process completely useless.
2. Identify appropriate alternatives: Almost all problems have alternatives for solution and
appropriate alternative courses of actions to solve the problem should be identified. In order to
find alternatives, information should be gathered and analyzed. So the sources of alternatives
may be experts, opinions, discussion with different groups, management information system,
brainstorming or alike.
3. Evaluate the possible alternatives: The possible alternatives existing in the situation would be
numerous and only the most likely possibilities should be retained for further consideration. So
each possible alternative should be evaluated in terms of decision criteria. The key
considerations for evaluation are feasibility, affordability and satisfactoriness.
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4. Choosing the best alternative: Choosing consists of selecting the alternative with the highest
possible payoff. Cost, time, effectiveness and productivity are the important considerations for
making one better than other. The judgment of the decision maker is important in selecting the
best alternative.
5. Implement the selected alternative: Implementation is putting the selected decision in action
which should be preferred and accepted by the concerned people. For effective implementation
of decision, action plans are developed to indicate more precisely the various roles and
responsibilities.
6. Evaluation and follow up: After the decisions have been implemented their progress must be
monitored and their success evaluated. The manager should be sure that the decision has served
the purpose for which it was made. Proper and timely evaluation of decisions allows manager
to take corrective actions if needed.
b) People working in organizations are human resources. It is referred as the most valuable resource
because of their talents and energies which can contribute to the creation and achievement of the
organization‟s mission. Human resource management is concerned with people. If properly managed,
people help to increase productivity through their full commitment and capability and enable the firm to
compete in local and global markets.
The term human resource management is the improved version of the personnel management. Thus the
human resource management consists the elements like staffing, rewarding, and work design of traditional
personnel administration, personnel development and a specific management philosophy that regards
human beings as being able and willing to grow and develop. Decenzo and Robbins gave definition as
“Human resource management (HRM) is concerned with the people dimension in management”. Human
resource management is the strategic and operational management of activities focusing on the human
resources in an organization. It emphasizes integrated approach to development and utilization of human
competencies. Human resource management is the set of organizational activities directed at attracting,
developing and maintaining an effective workforce. Human resource management responsibilities revolve
around formulation and implementation of human resource plans and policies. Acquisition, development,
utilization and maintenance are the components of human resource management.
1. Acquisition: Acquisition ensures entry of right number of people at the right place at right time
in the organization. It consists of human resource planning, job analysis, recruitment, selection
and socialization. Human resource planning is the process of predetermining future human
resource requirements. So the steps involved are the assessment of current human resources,
forecasting demand and supply, matching demand with supply and preparing action plans. Job
analysis specifies job requirement and determine the qualifications needed for various job.
Recruitment involves attracting candidates to fill the position and selection consists of
choosing qualified persons from among the perspective candidates. Socialization makes
employee feel at home.
2. Development: Development is one of the components that ensure proper competencies of
employee to handle jobs. For this purpose the human resource development needs for
employees are assessed, the programmes of employee‟s skill development and executive
managers‟ conceptual abilities enhancement are operated and career paths are tracked for
employees to match long term needs of the individual and the organization.
3. Utilization: Utilization ensures willingness of employees for increasing productivity by doing
jobs effectively. Motivation and job enrichment are important components for increased levels
of effort and responsibility. Utilization encompasses the systematic periodic evaluation of
employee performance on the job. Intrinsic and extrinsic rewards play important role in
utilization component. So incentive schemes are designed to boost performance.
4. Maintenance: The retention of competent employees in the organization is another important
component of human resource management. So the maintenance consists labour relations,
GNM P.T.O.
(5)
employee discipline, welfare and grievance handling. The scope of labour relations consists of
unionization, collective bargaining, dispute resolution and good relations. Employee discipline
ensures adherence by employees to rules and standards of acceptable behavior. Welfare
schemes and grievance handling mechanism are essential for maintenance.
19.
a) “
Leadership and Management are often related, but also different.” Describe the
concept and functions of leadership. 10
b) E
xplain training and development as the measures to develop ability of managers and
capabilities of staff. 5
Answer No. 3
a) Leadership is the key to effective managerial performance. Success of managers depends on their
quality of leadership. Leadership is the ability to influence a group and people toward the achievement of
goals. Management is the art of getting things done with and through people. So these two are related. In
order to have perfection in art of getting things done, one should have better knowledge and skill to
influence people in one‟s leadership. Management cannot be effective without effective leadership. But
these two are different. Management is a set of activities including planning, organizing, staffing, decision
making, leading, coordinating and controlling. Leading is one of the functions of management. Leadership
is at the heart of management.
Managers establish organizational goals, decide what is to be done and motivate people to do it. So the
effective managers are good leaders. Although the leadership and management are related, they are not the
same. However, all managers are not leaders and all leaders are not managers. Leaders decide where the
organization should go and managers decide how to get there. It can be said that leaders develop
organization with long term vision and managers maintain the organization achieving the stated goal.
Basically the leaders ask what and why and the managers ask how and when. Leaders do the right things
and managers do things right. Leadership establishes direction for managers to plan and control.
Leadership is a continuous process of guiding and influencing followers. Follower, leader and situation are
three elements for leadership. Leaders use power to influence and followers willingly obey. Situations
make or break leaders. In fact the leadership is a position of power held by an individual in a group. So the
facilitation of interaction and work as well as support is the functions of leadership. The functions of
leadership are discussed below:
1. Goal determination: Leadership provides vision, mission and direction. From the management
perspective it is concerned with establishing goals for the organization.
2. Environmental adaptation: Leadership is innovative and change-oriented. It adapts the
organization to the dynamic changes in the environment. It takes risk
3. Task focus: Leadership gives close attention to planning and organizing of tasks. Work related
goals and activities are specified for groups and individuals.
4. People Focus: Leaders are friends and guides for followers. They facilitate interactions. They
maintain people focus through coordination, motivation and communication.
5. Representation: Leadership represents the organization to the outside world. Agreements are
reached with the employees and outside parties.
6. Organizational Climate: Leaders define and maintain organizational climate mutually in the
interest of employees and management. Open communication for free expressions of ideas and
feelings of employees are increased and a general climate of trust and faith has been developed.
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The Leadership functions include directing, supervising and coaching. Training, developing and
organizing group activities and also helping employees improve their performance come under the
functions of leadership. Motivating and communicating can be taken as function of leadership as it
facilitate to create the pride in job and reduce conflict originating from differences of opinion.
Maintaining and mediating are same crucial functions of leadership.
(b)
Training and development programmes are the measures to develop ability of managers and capabilities of
staffs. Those are necessary in any organization for improving the quality of work of the employees at
changing technologies, changing values and environment.
Training is a short term process utilizing a systematic and organized procedure by which non managerial
personnel acquire technical knowledge and skills for a definite purpose. It refers to instructions in
technical and mechanical operations like operation of some machine. It is designed primarily for non-
managers. New labour and staff require detailed instructions for effective performance on the job. Old
employees also need refresher training.
Development is a long term educational process utilizing a systematic and organized procedure by which
managerial personnel get conceptual and theoretical knowledge. It refers to skills in operation but to
philosophical and theoretical educational concepts which provides insights to manage the work effectively
and efficiently. Society is facing a rapid change and managers need to be developed as they have to tackle
the problems.
Training and development can follow the methods of on-the-job or off-the-job. Training and development
is needed to assist the employees to function more efficiently and to encourage mangers to grow in this
capacity.
20.
a) E
xpress your view in respect of motivation in organizations. 5
b) W
hy is controlling considered important function of management? 5
c) H
ow does political environment influence business? 5
Answer No. 4
a) Productivity or performance is determined by many factors and one of the important determinants of
performance is motivation. Motivation, one of the vital factors in the productivity equation, has been a
subject of great concern to managers. Motivated workforce is essential for efficient working and
productivity and thus for attaining organizational objectives.
Motivation is inducement for better performance towards goal achievement. It is the act of stimulating or
energizing employees for higher performance. In an organizational setting, motivation means to make an
employee act in a desired manner. They should act in an efficient and productive manner as desired in the
interest of the organization. Therefore, they should be induced, persuaded, stimulated and even compelled
to act in a disciplined manner which may help in attaining an organizational objective. Motivation really
comprises all the internal urges which are described as desires, wishes, drivers, needs, etc. which make a
person strive for doing a thing. Motivation is what makes people perform or do things. It is an inner state
that energize, directs and sustains behavior towards goal achievement. Motivation is the set of forces that
cause people to behave in certain ways. Motivation is a process that starts with a psychological deficiency
or need that activates behavior or drive that is aimed at a goal.
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Motivation can be extrinsic which is externally induced. It can be intrinsic which is self generated. It is
complex and continuous process. There is an assumption that human beings seek to maximize their
pleasure and to minimize their pains. In the context of what forces within people and environments lead to
motivation, several theories have been developed.
(b)
Controlling is a function that compares achieved results with planned goals and identify the needs for
adjustment. It provides the space to improve the quality of goods and services. The control system guides
the organizational activities and assures certain minimum standards. It enables the management to identify
the causes of work deficiencies if any. It enables managers to recognize gaps in knowledge and skills of
the employees and arrange for appropriate training and also provide opportunities to rewards good work.
The controlling function of management has close relationship with the planning function. The control is
the central activity to the effectiveness of managers and organizations. It is the process of ordering,
evaluating and providing feedback to the management system. In fact, control is the sub-system of the
overall management system. It should be viewed as a part of the process function of the management
system.
It is interrelated with planning. Planning sets performance targets and control monitors actual
performance. So the problems anticipated by planning can be corrected through control. So this
continuous corrective process is considered as one of the important function of management.
Control has the purpose of environmental adaptation. It scans change and managers can take timely action.
Control monitors the performance of subordinates and it improves employee accountability. Control limits
the accumulation of errors. Control helps eliminate waste and duplication of efforts and costs get
minimized. Control monitors working hours, absenteeism, indiscipline and facilitates to maintenance of
discipline. So for improving the quality and standardize the process, control plays vital role. Essentially
the control is the most important function of management.
(c)
The external as well as internal environmental forces influence on organization of any type. The political
environment, one component of the external environment, mainly refers to the political system, political
parties, political institutions, political philosophies including government. The government‟s basic
objective is to attain economic growth, employment, social justice and equity. The legislature enacts laws
and executive as government implements the decisions of the legislature. The government-business
relations are crucial for the growth of business activities. The business activities cannot flourish if the
government does not respond to the problems facing by the business sector. Unless the business activities
have been expanded the attainment of government objectives like development, greater employment and
greater service to public is not possible.
Political instability affects the business negatively. When the political system is weak it would be difficult
to enact business supportive laws, implement the business friendly policies and procedures. Political
philosophies also influence business activities. The role of political parties is crucial in the development of
democratic system. Democracy provides greater role to private sector and mixed philosophies provide
roles both to private and state. It counts a lot to business organization that which party is in government
and which party supports the pressure group. Political forces pose a number of risks to business
organization. Business needs investment and there would be a threat from the new rules and policies of the
government. The management of the business organization should undertake political risk analysis prior to
investing in any business project. Some restrictions and regulation from government side can hamper or
support the business.
GNM P.T.O.
(8)
21. W
rite short notes (any five) of the following: (5×3=15)
a) H
ierarchy of needs theory
b) C
ontingency theory
c) C
hange Management
d) A
pproaches to Social responsibility
e) G
lobalization
f) M
anagement scenario in Nepal
Answer No. 5
a) Human beings seek satisfaction of different needs in order of importance. The satisfaction of needs
motivates individuals. Abraham Maslow developed the motivation theory with concept that people have
hierarchy of five categories of needs. Physiological, safety, social, ego and self actualization needs are
sequence of needs from lower to higher order. Physiological needs are the lowest order needs with top
priority because these are the basic necessities of life like food, clothing and shelter, Secondly people need
protection from physical and psychological harm for safety by getting pension and providing fund. Then
the needs for affection, belongingness, friendship and social acceptances come with next priority. Needs
for status, self-respect, praise, prestige and recognition as ego comes next. Lastly at highest level self-
actualization concerns with needs for opportunities to achieve things an individual considers important in
life for personal growth. The theory is that the higher order needs do not become important until the lower
level needs have been satisfied.
b) The contingency theory emerged from the experiences of many managers and practitioners. They found
that the management concepts do not produces the same results across situations. The concepts, tools and
techniques which are highly effective in one situation, are not all effective in another situation. Therefore,
the conclusion was that management concepts are contingent on a particular situation. Results differ
because situations differ. The situational characteristics are called contingencies.
The contingency theory highlights the contextual perspective of management. The contingency theory,
also called situational theory, regards the effectiveness of organizations as dependent or contingent on the
particular situation. This theory does not agree with other theories believing in universalism. The crucial
message of contingency theory is that there is no one best way to manage. The desired outcomes of the
organization can be achieved in several ways. The prevailing contingency variables like organization size,
task technology, environmental uncertainty, individual difference and type of work being done determine
management approach and practice. In application of contingency theory, understanding the situation and
matching the management approach to the situation is needed.
c) Change is inevitable in organizations. Ability to adopt to changing environment is the essence of

organizational effectiveness. Managers are change agents. Change management is part of their job.
Change implies departure from status quo. It is making things different. Change can be major
revolutionary or incremental evolutionary nature. It can be reactive or planned. Today, organizations
operate in a dynamic and changing environment. The external environmental forces like economic,
political, technological and socio-cultural as well as internal environmental forces like goals, structure and
organizational climate act as stimulants for change.
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In context of change, there will be resistance too. Habit, fear, security, vested interest and poor
communication are the individual sources of resistance. Organizational resistance to change are structural
inertia, group inertia, threat to resource allocation, threat to power relationships, conflicts and
organizational culture. But overcoming the resistance to change is necessary and managing the change is
important.
d) Social responsibility is concerned with what organizations ought to do. There are various types of
social obligations of business organization. Basically there are four approaches to social responsibility:
legal, ethical, philanthropic and internal accountability. Legal responsibilities are to obley relevant
national laws and regulations. The responsibility for legal compliance falls on divisional managers.
Finance manager is responsible for true financial reporting and marketing manager is responsible for
compliance of sales and consumer protection laws. Ethical responsibilities include meeting social
expectations. Ethical compliance can be in terms of the prohibition of bribe, lay down the standards,
transparency with honesty and the like. Organizations contribute money to charity or support education
health, culture etc. These voluntary responsibilities are additional behaviours and activities that society
finds desirable as philanthropic action. Social audit makes assessment of the social performance of the
organization. They should produce goods and services at reasonable price and should satisfy its
obligations to investors too. Its internal accountability is to take proactive approach and solve the problem
before they arise.
e) The world business scenario has been changing very fast. The economic integration of the globe has
moved ahead. A multilateral framework now connects the globe. Now the global context of business
becomes very important for managers. Globalization is the emerging concept in management. Competition
is everywhere and from competition view, globalization is domestic companies competing with global
companies on the home ground. Globalization means multi-plant operations around the world from
company view. It involves crossing national boundaries. Globalization means integration with the world
economy from economic perspective. So globalization means different thing to different people and
perspective. In short, globalization is the process by which an activity or undertaking becomes worldwide
in scope.
Globalization has the feature of economic interdependence of all the countries in the world. It integrates
national economies into one global economy. Free movement of products across borders makes world as a
single market with no trade barriers and quotas. Globalization supports free flow of capital, labour,
technology and management knowhow across the borders. Increased globalization creates both
opportunities and threats for nations. The three important mechanisms adopted by developing countries to
attain globalization are open economy, liberalization and privatization.
f) Management scenario in Nepal reflects the traditional practices. Modern management concepts are
relatively new for Nepalese business organizations. The top management is often authoritarian. The
traditional top-down approach is widely practiced. Managers plan and give instructions which are
implemented by other employees. Plan implementation is more problematic. Decision making is
unnecessarily centralized and the delays in decision making creates problem in competencies and
productivity. Lack of effective interpersonal skills in managers often leads to problem of conflict and
misunderstanding. Communication systems are defective. People without adequate knowledge and skills
are appointed being relatives or friends even at managerial position.
Human resources are one of the poorly managed areas of Nepalese management. Most business
organizations face behavioural problems like lack of motivation and trust. Increased incidence of stress
and conflict, negative attitude to work and difficult interpersonal relations are problems of management
here. Managers are more concerned about their own survival rather than organizational effectiveness.
Nepalese management lacks professionalism.
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22. D
istinguish between (any five) of the following: (5×3=15)
a) G
oal succession and goal displacement.
b) P
rocess barriers and Physical barriers to communication
c) T
heory X and Theory Y
d) T
actical goal and Operational goal
e) V
irtual organization concept and work team concept
f) O
pportunities and threats.
Answer No. 6
a) As we know that goals are the desired outcomes for individuals, group or entire organisation. But the
question arise "what next if the desired outcomes occur? What happens when a business make a goal to
train the new recruit and gets it done? What happens to the Bill Gate's goal of AIDS prevention when
AIDS vaccine invented for its complete cure? Goal succession is an advance thinking or planning for
the next goal after achieving the desired goals. After providing training programme, the next goal will
be to place the trained candidates. After inventing AIDS vaccine the next job for the Bill Gate is to
make them reach among the poor Asian and African communities who are suffering from the disease.
Goal displacement becomes particularly necessary when the survival of the organization becomes more
important than the original goal it was established to obtain. A restaurant may start with the intention of
offering only vegetarian food. After a few years, however, it may turn out that if this goal does not pay.
The owners may be economically involved with debts and interest to pay, and there may also be
emotional involvement. The original goal may seem less important than the survival of the restaurant.
In such case, they may decide to offering non-vegetarian food for the survival of restaurant.
b) There are many blocks and barriers to effective communication. Process barriers and physical barriers
are two different types of barrier that disrupt the flow of communication. Process barriers concern to
process like defect in encoding and decoding process, filtering of information by the sender with his
own interest and conflicting messages. The environment of fear and mistrust as well as poor listening
skills of the receiver are process barrier which result in communication breakdown. Lack of openness
and frankness and no feedback system also distort the process of communication.
Physical barriers are those factors which are separate and different from process. Physical distance is
not built in process of communication but makes the communication breakdown. The physical barriers
result when the sender and receivers are physically separated in far distance places. Similarly the
heirachical structure and office designs can disrupt the flow of communication. The status and authority
difference can create physical barrier. If the chamber of the higher level managers are fenced or closed,
the lower level staff not have easy access to communication. Physically if the message should travel
long, distortion is more possible. Physical barrier is concerned to distance of sender and receiver where
as process barrier is concerned to perception and ability of sender and receiver.
c) Douglas McGregor invented the Theory X and Theory Y, also known as “hard guy, soft guy”
approaches of managing people in the organization. According to McGregor, there are two sets of
assumptions to manage people in the organization. One set of assumptions, known as Theory X,
describes employees with relatively negative views. On the other hand, Theory Y, with another set of
assumptions, describes employees positively. The Theory X assumptions are more applicable to
traditional types of organizations where decision making is highly centralised, management system is
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hierarchic and requires external control system. This theory assumes that people are motivated by
satisfying their lower-level needs whereas Theory Y assumes that employees are satisfied by satisfying
their higher-level needs
d) Organizations set many types of goals. If classified it on the basis of level of organization, they are
corporate goal, tactical goal, operational goal and individual goal.
The focus of tactical goals is on how to operationalize actions necessary to achieve corporate goal.
These goals involve the middle level managers and generally they are goals for departments. They state
action needed generally for one year or shorter time span. These goals are more specific and concrete
and made for department.
The operational goals are set for lower level management. The main concern here is with shorter-term
issues associated with tactical goals. The supervisory level staff members are responsible for
developing and implementing operational goals. Activities and resources are assigned to individuals
and groups to carry out some portion of the operational goals. The operational goals affect employee‟s
day to day activities. They are for a month or quarter and more specific in terms of result.
e) The virtual organization is a temporary network of companies. They come together to quickly exploit
fast changing opportunities and get benefit of flexibility. It the management feels that outsiders can
undertake the managerial functions of marketing, account keeping, etc in a better and cheaper way,
such functions are out sourced. Management role is to concentrate on strategies and co-ordination. Its
foundation is the strong information technology platform. Partners do not come face to face but they
trust. They share costs, skills and access to global markets.
The work team is not out sourcing and generally the network is not outside the organization. The team
concept breaks down departmental barriers and decentralizes decision making to the level of the work
team. A small organization is itself in the form of a team. In bigger organizations, teams are also
formed at operating levels to improve productivity and achieve flexibility. Teams are also created
around cross-functional levels. The team based environment enhances performance, reduces stress and
promote the climate of creativity and innovation in the organization. Naturally, the team performance is
greater than the total performance of members as individual. So different types of work team are
formed now a days and virtual team is one type of work team.
f) Opportunities are the situations where companies will gain something by planning and exploiting its
resources strategically. They arise with the changes in technology, demographic situation, economic
development, improvement in the clientele relations (customers, creditors etc.). Every firm has to use
its internal resources strategically to get the opportunity from the external environment.
Threats represent an unfavorable situation for a company restraining to compete to make profits which
ultimately challenges survival of a firm. Such a situation arises when there is an increasing number of
competing firms in the industry, enactment of new regulation which is more favorable for the
competing firms, slow pace of market growth, increasing bargaining power of the suppliers or
customers etc.
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Business Communication
CAP-I, June 2011
Maximum Marks-100
Total No. of Questions-8
Time Allowed -3 Hours Marks
All questions are compulsory.
1. Analyze the formal and informal communication networks and their importance in a
business organization. 15
Answer No. 1
Communication networks may also be categorized as formal or informal. Communicating with the
president of your university probably requires that you go through specified channels. You probably
cannot just dial the president‟s number and reach him or her directly. At the very least, you will have to
talk first with the administrative staff, who will probably follow particular guidelines to decide whether
and how to relay your message. Most organizations have such hierarchical (layered) formal
communication networks and channels. For instance, it might be standard practice for the executive
director to convey a policy change via memo to the supervisors, who convey it via phone call to the shift
leads, who share it with the line staff at a weekly meeting.
The formal network of communication in general travels through any of the four directions: downward;
upward; lateral or horizontal; and diagonal. Downward (1) communication involves communication from
higher to lower levels so that leadership can communicate goals, strategies or role expectations. Upward
(2) communication flows from lower levels to higher levels of the organisation, for example, when there is
a need to communicate problems, results or suggestions.
Horizontal (3) communication occurs across the same level and involves for example, coordination of
activities with peers (teams, committees), dissemination of useful information from one department to
another (for example sales forecasts from the sales department to production, and problems such as a
problem with product design from the production department to research and development). Horizontal
communication facilitates the l inking of different areas of expertise and this may encourage innovation.
Diagonal (4) channels may potentially cause conflict as they involve communication between the lower
level of one department to a higher level in another. In the diagram above, this may cause friction between
the employee in accounting department C and the Vice-President (VP) of Accounting as the employee has
gone around his or her own superior. Nevertheless this type of communication may be useful as it may
simply be information relevant to the Marketing Department and the VP Accounting does not need to be
involved.
Not all groups have formal communications networks, but all groups have informal communication
networks. Early in the life of the group, an informal communication structure tends to form based on
participation rates, with one or a few members sending and receiving a majority of communications
(Davies, 1996). This structure tends to mirror status and attraction patterns in the group (Forsyth, 1999;
Shaw, 1964). In other words, higher-status members tend to be more central in the communication
structure, sending and receiving more messages, and the patterns of communication in the group usually
reflect members‟ liking for one another in that members who like one another communicate more
frequently.
GRAPEVINES AND GOSSIP

Informal communication networks often arise to make up for shortcomings in the formal network. Such is
the case with grapevines-the name for the channels through which gossip, rumors, and other unofficial
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information travels through the group. Grapevines are often a source of information for those who are left
out of the formal communication loop because of their lower status.
Gossip and rumors also travel through the group via the grapevine. Gossip can be defined as news about
the affairs of another or as any hearsay of a personal nature, be it positive or negative, spoken or in print
(Rosnow & Fine, 1976). Although gossip and rumor are often treated as the same, they can be
distinguished in that the basis of rumor is always unsubstantiated, whereas gossip may or may not be
based on a known fact (Rosnow & Fine, 1976). Gossip and rumor are frequently considered forms of
female communication, and males are rarely said to gossip. However, recent research indicatesthat
although we may be less likely to label what males do as gossip, they in fact gossip about as much as
females (Harrington & Bielby, 1995; Johnson, 1994; Nevo & Nevo, 1993).
Gossip has the potential to both create and destroy social bonds in the group. To be trusted with gossip
builds member bonds because it “indicates who is trustworthy and who is not” (Merry, 1984, p. 291). We
can feel closer to another member who trusts us enough to share secret information. However, we all
know that gossip and rumor can be damaging to a group and to individual members. For instance,
mistakenly treating a rumor as fact can lead the group to make a poor decision. Gossiping about other
group members may cause damage to their reputations and to member relationships if there is the
perception that confidences were violated or that the gossiper‟s intention was to harm. This can contribute
to conflict and to member dropout.
2. As computers are being used more and more in education, there will be soon no role for
teachers in the classroom. Do you agree or disagree with this statement? Take a position
and write a five paragraph essay. 15
Answer No. 2
There is no doubt that education and the learning process has changed since the introduction of computers.
The search for information has become easier and amusing, and connectivity has expedited the data
availability. Though expert systems have made computers more intelligent, they have not yet become a
substitute of the human interaction in the learning process. In my opinion; what can be expected, is a
change of the teachers‟ role but not their disappearance from the classroom.
Nobody can argue that the acquisition of knowledge is more fun and easier with computers. The mere
activity of touching and exploring this device constitutes an enjoyable task for a kid. This, accompanied
with the relaxing attitude and software interactivity, usually conduce to a better grasping of new
knowledge. At a higher educational level; the availability of digital books, simulator and other academic
materials, provide the student with an ever accessible source of information, that otherwise would not be
at hand.
But, besides the increasing complexity and behavior of intelligent software, which is usually embedded in
the academic digital material, the need of human interaction in the learning process will always be present,
at least in the foreseeable future. There is the necessity for a human being to be able to determine what the
specific needs of each individual are. The expertise of a teacher in how to explain and adapt complex
concepts to different individuals can hardly be mimicked by a computer, no matter how sophisticated its
software is.
As computers are becoming a common tool for teaching, teachers should be more aware of their role as
guides in the acquisition of knowledge rather than transmitters of facts. They have to be open minded to
the changes that are taking place, keep updated and serve as a problem solvers in the learning process, thus
allowing students to discover the facts for themselves.
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To summarize; in my personal view, teachers play and will continue to play an important role in the
classroom, especially at the primary level. No matter how complex computers become, there will be no
replacement for the human interaction, but in the way this interaction takes place.
3. Answer any THREE of the following questions: (3×5=15)
a) Discuss the role of audience analysis in oral presentation.

b) Briefly explain the barriers that culturally derived words create in business
communication.
c) What do you mean by decoding? How is it related to encoding in the process of
communication?
d) What is a memorandum? What are some basic guidelines you should follow while
writing a memorandum?
Answer No. 3
a) A group to whom you consistently speak needs less analysis than a new audience. It is this latter
group that demands more of your time. Learn something of your audience‟s up-front interests and
attitudes, the occasion, and the location where the speech will be given.
1. Know the degree of interest and attitudes of your audience. Determine the kind of audience you
are going to face, are they friendly, neutral, uninterested or hostile? And prepare accordingly.
2. Make sure that you have perfectly understood the occasion of your presentation.
3. Know the physical arrangement, find out whether you will have a podium or table.
b) Business communication requires very systematic and apparent channels for exchanging messages. There
are a number of events in which communication has barriers in these channels. The barriers are derived
from different sources, such as physical environment, noise, background knowledge, affective factors
(attitudes, fear, etc.), cultural norms, and so on. The culturally derived words require specific knowledge on
the cultural values and norms. So, the words may stand as barriers for the speakers of foreign cultures. They
have diffulties at the interpretation of these words.
c) Decoding is a process of perceiving the meaning of the message sent by the sender. It is all acts of
understanding and interpreting message and information. The receiver decodes the message being
best on the context and linguistic symbols. The act of decoding is affected by mental filters,
cultural differences etc.
Decoding is directly related to the process of encoding. The message is decoded by the receiver
only when it is encoded and sent by the sender. The process of encoding facilitates the process of
decoding. However, the message encoded by the sender can be misunderstood if it is not decoded
properly. Encoding and decoding should undergo the same understanding mechanism of sender
and receiver.
d) A memorandum is a type of short letter that is used inside a business organization; it is an internal
letter. In rare cases, it may be used in communicating outside the business as well. When writing a
memo, one has to be aware of form, formality, organization, etc. Particularly, the following points
should be considered while preparing a memorandum.
i) Use a given format of the memo; it is written on the page with the letter-head of the
organization.
ii) Make the memo short, clear and specific.
iii) Mention clearly the route of the message, i.e. The sender, the receiver, date, subject should
be specified.
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For example
To: …………….
From: ……………..
Date: …………………
Sub: …………..
iv) State the purpose in opening.
v) Present the detail of information, notice or message.
vi) Finally, the signature of the source person of memorandum should be kept at the end of the
sheet.
4. “A technological ombudsman carries out a number of activities as a significant deterrent

to technological irresponsibility.” Explain this extract with reference to Alvin Toffler‟s
essay „A Technological Ombudsman‟. 10
Answer No. 4
A Technological Ombudsman is a public agency responsible for receiving, investigating, and acting on
complaints. Tax-payers are made responsible for correcting the adverse effects of use of technology. They
are bound to bear the costs of pollution created by other common people, industries, public
organizations/institutions/agencies and unknown and unidentified bodies.
A technological ombudsman plays a significant role in addressing most of the above problems one way or
the other – by focusing media attention on the seriousness of the problems. The ombudsman exerts
pressure for more intelligent use of new technology. Apart from this, he carries out a number of activities
as a significant deterrent to technological irresponsibility.
The ombudsman, worried about public health and industrial hazards, raises public awareness towards
irresponsible use of technology and builds pressure on the government, non-governmental organizations
and the media to take necessary actions towards correcting the unwise use of technology. The ultimate
goal of this type of mission is to protect public health from insensible use of industrial products. Even in
such a situation, governments do not seem to be worried about the effects of technological irresponsibility
and its impact on the lives of the people at large. The task of controlling irresponsible use of technology
seems to be nobody‟s business until the technological ombudsman makes an intervention in the matter. In
this way, a technological ombudsman carries out a number of activities as a significant deterrent
technological irresponsibility.
5. Attempt these questions: (7+8=15)
a) As marketing Directors of Everest Attire, Write a letter of recommendation for an

employee who has been a marketing representative in your company for over fifteen
years, and is now seeking the position of Assistant Marketing Director.
b) Write a letter to the Executive Director of Save Insurance Company, Thapathali,
informing him/her about the loss in your factory because of fire caused by an
explosion and requesting him/her first for assessment of the loss, and then for the
arrangement of an early settlement of your claim.
Answer No. 5
a) Answers will vary, but the letter should have an introduction that states the writer‟s purpose; a body that has
the applicant‟s achievements in the field and applicability in the position to which s/he is applying; and a
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conclusion that effectively sums up the argument and ends with a formal statement of request. A sample of
writing is given below:
Everest Attire
New Baneshwor, Kathmandu.
Ref No: ………
Date: June 3, 2011
Mr. Parasuram Acharya , Director

Alpha Beta Publishers
Putalisadak.
Dear Mr. Acharya

It gives me pleasure to write a letter of recommendation in request of Mr. Sajan Karna who is – I assure _
one of the genuine candidate for the position of Assistant Marketing Director at your company. Mr. Karna
has been a marketing representative in our company for more than a decade. He has outstanding
performance in his job required, and most importantly, we have experienced positive attitude and
diplomatic marketing style in him during his work and stay at our office.
I wish entire success of Mr. Karna.
Sincerely,
…………..
Rajesh Barma
Head, Department of Internal Affairs.
b) ABC Garments Ltd

Thimi, Bhaktapur
June 2, 2011
Mr. Surendra Malla,

Executive Director
Save Insurance Company
Thapathali
Dear Mr. Malla,
This is to inform you that a fire caused by an explosion caught and destroyed our factory at
Bhaktapur on 1st June, 2011 at 8pm. The fire brigade personnel did their best to control the fire and
minimize the loss. Despite great efforts of all, the fire caused a heavy loss, nearly worth Nrs.20 crore.
We request you to send your office team to assess the loss and arrange an early settlement of our claim.
We look forward to an early action.
Thanking you.
Sincerely
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………………..
Raju Shakya
Office Manager
6. Answer these questions: (2×5=10)
a) Why is it said that communication is always imperfect? Give reasons.
b) Briefly discuss the general principles of an effective meeting.
Answer No. 6
a) It‟s an obvious truth that communication is never perfect. It is not the highly precise activity some
people think it is.
The most obvious explanation lies in the countless variations that exist in human filters. Since
meanings are determined through filters, no two of which are precisely alike, meanings any two
people give to a set of symbols vary. For the same reason, a message sent by one person never is
precisely the message received by another.
The imprecision of the symbols used in communication is the second explanation for imperfect
communication. The symbols we use are only the crude substitute for reality. Typically, symbols
have multiple and vague meanings and they are inconsistently used.
Yet another explanation for imprecise communication is that people vary in their ability to encode
meanings. Not all people know the same symbols, nor are all equally proficient at selecting and
coordinating the symbols to be used in messages. For example, two people with varying encoding
abilities who try to communicate the same message would select different symbols and
arrangements of them. The result would be to change the message and convey different meanings.
b) A meeting is an assembly of two or more persons with a pre-notice for discussing any topic of
common interest. It is conducted under certain rules and regulations and certain codes of conducts.
These make general principles of an effective meeting. These are as follows:
i. Validity: to be valid, a meeting must be governed by the established set of rules. Every
organization has such rules and regulations that frame the decision and enhance the validity
of the decision of meeting.
ii. Privileges: the chair person must see that the privileges of the members are acknowledged
this is to say every member has freedom of discussion, freedom of voting and so on.
iii. Quorum: quorum is necessary to make the meeting valid. The number of members defines
the quorum which depends on the rule of organization.
iv. Proceeding: the agendas of the meeting should be discussed and passed by the adopting a
proper procedure of voting, and should be recorded in the minute book. It should be duly
signed by the chair person and members.
7. Answer ALL of the questions:

a) Rewrite the following sentences removing a grammatical flaw in each of them: (5×1=5)
i) She has not already had her bags check.

ii) Let they go, will you?
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iii) Did you notice them there?

iv) She came and her husband does not.
v) He was died in an accident.
b) Rewrite the following sentences as directed in the bracket. (5×1=5)
i) The president is of the opinion that the tax was paid. (use economical wording)
ii) We must assemble together at 10:00 AM in the morning. (eliminate needless
repetition)
iii) Job rotation is when you train people by moving them from place to place. (avoid
illogical construction)
iv) We have received your report of May 1. (write in you-viewpoint)
v) We regret to inform you that we must deny your request for credit. (write in
positive language)
Answer No. 7
a) i) She has not had her bags checked yet.
ii) Let them go, will you?
iii) Did you notice them there?
iv) She came but her husband did not.
v) He died in an accident.
Or He was killed in an accident.
b) i) The president is of the opinion that the tax was paid. (use economical wording)
 The president believes the tax was paid.
ii) We must assemble together at 10:00 AM in the morning. (eliminate needless repetition)
 We must assemble at 10:00 AM.
iii) Job rotation is when you train people by moving them from place to place. (avoid illogical
construction)
 Job rotation is a training method in which people are moved from job to job.
iv) We have received your report of May 1. (write in you-viewpoint)
 Thank you for your report of May 1.
v) We regret to inform you that we must deny your request for credit. (write in positive language)
 For the time being, we can serve you on a cash basis only.
8. Write short notes on (any four) of the following: (4×2.5=10)

a) Resume
b) Executive summary
c) Grapevine
d) Non-discriminatory language
e) Buffer
Answer No. 8
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a) Students should provide a definition similar to the following: A résumé is a document used by
individuals to present their background and skill sets. Résumés can be used for a variety of reasons but
most often to secure new employment. A typical résumé contains a summary of relevant job experience
and education. They can also expand upon how it impacts employers‟ perception of the applicant.
b) Executive summary denotes a short document that summarizes a longer report, proposal or group of
related reports in such a way that readers can rapidly become acquainted with a large body of material
without having to read it all. It will usually contain a brief statement of the problem or proposal covered
in the major document(s), background information, concise analysis and main conclusions. It is
intended as an aid to decision making by business managers.
c) Grapevine is an informal form of communication. It is an unofficial communication system in which

truth and correct lines of communication may not be found. A rumour or a gossip can be the form of
grapevine. It has exaggerated information. Although the grapevine may never be completely eradicated,
management should take steps to reduce its influence on business communication.
d) Non-discriminatory language is language that treats all people equally. It does not use any
discriminatory words, remarks, or ideas. It is very important that the business writer communicate in a
way that expresses equality and respect for all individuals. Has to be free of bias based on such factors
as race, ethnicity, religion, age, sexual orientation, and disability.
e) Buffer is an opening of the bad news message that identifies the subject of the message but does not indicate
overtly that negative news is coming. That is, it raises the topic of the message but does not indicate what the rest
of the message will say about it.
A buffer can be neutral or positive. A neutral buffer might simply acknowledge the receipt of the reader‟s earlier
message and indicate the writer‟s awareness of what it said. A positive buffer might thank the reader for bringing
a situation to the writer‟s attention or for being a valued customer or employee.
GNM P.T.O.
Fundamentals of IT
CAP-I, June 2011
Roll No………. Maximum Marks - 100
Total No. of Questions -10 Total No. of Printed Pages – 1
Time Allowed - 3 Hours Marks

1.
a) Convert the following from one number system to another (2+1+2=5)
i) (F8E6.39) 16 = ( ) 10
ii) (1110 1001 0111 0100) 2= ( )16
iii) (21.5)10= ( ) 2
b) Fill in the blanks with relevant word/phrase. (5×1=5)
i) Network ……………. is the geography of the physical connection of computers.

Topology
ii) …………… is a program that serves as an interface between application a program and a
set of coordinated and integrated physical files. DBMS
iii) The symbol used in C programming for address operator is………. &
iv) ………………… establishes the coordination among various units and parts within
microprocessor. Control unit
v) A RAM which capacity is 4 KB can store …………….. bits of data.
Answer No. 1
a) i) F8E6 = 15*163+8*162+14*16+6*1+3*16-1+9*162
= 61440+2048+224+6+0.1875+0.0352
= 63718.2227
ii)
1110 equivalent to hex: E
1001 equivalent to hex : 9
0111 equivalent to hex: 7
0100 equivalent to hex : 4 then
(1110 1001 0111 0100) 2= (E974)16
iii)
Firstly split 21.5 into two parts 21 and fraction 0.5 and applying separate conversion
i.e. 2 )21( 1
)10( 0
)5( 1
)2( 0
1 i.e (21)10 = (10101)2
And 0.5*2=1 =1 and carry 0
Finally (21.5)10= (10101.1)2
b)
i) Network topology is the geography of the physical connection of computers.
ii) DBMS is a program that serves as an interface between applications a program and a set of
coordinated and integrated physical files.
iii) The symbol used in C programming for address operator is &
iv) Control unit establishes the coordination among various units and parts within microprocessor.
GNM P.T.O.
(2)
v) A RAM which capacity is 4 KB can store 32768 bits (4096 bytes) of data.
2. What do you understand by branching statement in programming language? Explain different

types of branching statements used in C language with examples. (2+4+4=10)
Answer No. 2
Those statements which are used to divert the sequential flow of control of program are called as the
branching statement. These statements make the program simpler and programmer can use them in
solving various types of problems. The branching of the program can be done in two types. When the
branching is done based upon some condition it is called as the conditional branching and if the branching
is done without checking any condition is called as the unconditional branching.
If Statement
The simplest form of the control statement is the If statement. It is very frequently used in decision
making and allowing the flow of program execution.
The If structure has the following syntax
if(condition)
statement;
/*Calculate the absolute value of an integer */

# include < stdio.h > //Include the stdio.h file
void main ( ) // start of the program
{
int numbers; // Declare the variables
printf ("Type a number:"); // message to the user
scanf ("%d", & number); // read the number from standard input
if (number < 0) // check whether the number is a negative number
number = - number; // If it is negative then convert it into positive.
Printf ("The absolute value is % d \n", number); // print the value
}
The If else Statement
The if else is actually just on extension of the general format of if statement. If the result of the condition
is true, then program statement 1 is executed, otherwise program statement 2 will be executed. If any case
either program statement 1 is executed or program statement 2 is executed but not both when writing
programs this else statement is so frequently required that almost all programming languages provide a
special construct to handle this situation. The syntax of the If else statement is as follows
if (condition)
Program statement 1;
else
Program statement 2;
Example
#include < stdio.h > //include the stdio.h header file in your program
void main ( ) // Start of the main
{
int num; // declare variable num as integer
printf ("Enter the number"); //message to the user
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scanf ("%d", &num); // read the input number from keyboard

if (num < 0) // check whether number is less than zero.
printf ("The number is negative");
else // else statement.
printf ("The number is positive");
}
Nested if Statement
if (condition1)
if (condition2)
statement-1;
else
statement-2;
else
statement-3;
Switch Statement
The switch-case statement is a multi-way decision making statement. Unlike the multiple decision
statements that can be created using if-else, the switch statement evaluates the conditional expression and
tests it against the numerous constant values. During execution, the branch corresponding to the value that
the expression matches is taken.
The value of the expressions in a switch-case statement must have to be an ordinal type i.e. integer, char,
short, long, etc.Double and Float are not allowed.
The syntax of switch statement is as follows :
switch( expression )
{
case constant-expression1: statements1;
[case constant-expression2: statements2;]
[case constant-expression3: statements3;]
[default : statements4;]
}
#include<stdio.h>
main()
{
int n=7;
printf(“enter n”);
scanf(“%d”, &n);
switch(n) {
case 0:
printf("You typed zero.\n");
break;
case 3:
case 5:
case 7:
printf("n is a prime number\n");
break;
case 2: printf("n is a prime number\n");
case 4:
case 6:
case 8:
GNM P.T.O.
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printf("n is an even number\n");

break;
case 1:
case 9:
printf("n is a perfect square\n");
break;
default:
printf("Only single-digit numbers are allowed\n");
break;
}
}
3. Draw an ER diagram to represent simple operation of a library having following entity book,
publisher, supplier and library member. 10
Answer No. 3
GNM P.T.O.
(5)
4. What is function? Write a program in C to find the maximum of given N numbers: (2+8=10)
Answer No. 4
A function is a self contained program segment that carries out some specific, well defined task. A
function will carry out its intended action whenever it is accessed from other part of the program.
Program
# include <stdio.h>
# include <conio.h>
main()
{ int i,A[20],max;
printf (“How many numbers?\n”);
Scanf(„%d”,&N);
printf(“please enter the %d numbers\n”, N);
for (i=0;i<N;i++)
GNM P.T.O.
(6)
scanf (“%d”, &A[i]);
max =A[0];
for (i=1 ; i<N;i++)
{ if (max<A[i])
max =A[i]
}
printf (“The maximum element is %d”, max);
}
5. What do you mean by microprocessor? How each unit of microprocessor operates to execute
any instruction? (3+7=10)
Answer No. 5
Microprocessor is a central device of computer system which is used to perform actual processing of the
data and establishment of coordination among all the devices used in computer based system.
Microprocessor is also called as the brain of the computer as it performs all the analytical, mathematical
and conditional operational among the data. A simple block diagram of microprocessor is represented as
ALU Register Banks
Control Unit
Figure: Basic units of microprocessor
The basic functional units of microprocessor are:

 Arithmetic Logical Unit
 Control Unit
 Register Banks
Arithmetic Logical Unit:
This is the main functional processing unit of microprocessor. This is made of some sequential and
combinational logic circuits to perform the arithmetic and logical operations to the data given to the
microprocessor. It performs the operations and gives the results to the registers. It indicates the
peculiarities in the operations with the help of the flags.
Control Unit:
This part of the microprocessor is responsible to establish the coordination among various internal unit
and external units of the microprocessor. The control unit generates various types of signal to control and
coordinate the various parts of microprocessor and accessories of computers. Control unit enable and
disable the devices according to their needs.
Register banks:
GNM P.T.O.
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This is the internal memory of microprocessor which is used to store the data temporarily before and after
the operations. The registers banks also have some flip-flops to indicate various peculiarities during the
operations of data. The registers of microprocessor enable the hardware programming in computer system.
6. Design a LAN to Connect 250 computers in 5 store building having 5 rooms in each floor
with 10 computers in each. . 10
Answer No. 6
Here each room are equipped with 10 computers. To accommodate 10 computers each room is provided
with the 16 ports hub/switch. Though there wastage of some ports, the smallest commercially available
switch for 10 devices is a 16-port switch. Remaining ports can be used later for further expansion. From
the central 32 port hub there is separate connection to each room.
10 Comp
10 Comp
10 Comp
10 Comp
10 Comp
10 Comp
10 Comp
10 Comp
5 10 Comp
10 Comp
32 Ports Central
Hub
5 10 Comp
10 Comp
10 Comp
10 Comp
5 10 Comp
5
10 Comp
10 Comp
10 Comp
10 Comp
10 Comp
10 Comp
10 Comp
10 Comp
10 Comp
10 Comp
7.
a) Define system software. Mention the major functions of operating system. (1+5=6)
b) Briefly explain the feature of word processing and spread sheet. (2+2=4)
Answer No. 7
GNM P.T.O.
(8)
a) System Software - Programs that manage and support the resources and operations of a computer
system as it performs various information processing tasks.
An operating system is an integrated system of programs that supervises the operation of the CPU,
controls the input/output storage functions of the computer system, and provides various support
services. An operating system performs five basic functions:
 a user interface for system and network communications with users,
 Resource management for managing the hardware resources of a computer system,
 File management for managing files of data and programs,
 Task management for managing the tasks a computer must accomplish, and
 Utilities and other functions that provide miscellaneous support services.
b)
Word processing packages computerize the creation, editing, revision, and printing of documents by
electronically processing text data. Some of the features of these packages include:
 Desktop publishing capabilities
 Can be used to convert documents to HTML format for publication as web pages on corporate
intranets or the World Wide Web.
 Advanced features such as spell checker, thesaurus, grammar and punctuation capabilities.
 Suggest possible improvements in your writing style with grammar and style checker functions.
 Idea processor or outliner functions, which help you, organize and outline your thoughts before
preparing a document or developing a presentation.
 Design and create pages from scratch for an Internet or intranet web site.
Microsoft Word, OperOffice Writer etc are examples of popular word processing applications.
Electronic spreadsheet packages are programs that are used for business analysis, planning, and
modelling. They provide electronic replacement for more traditional tools such as paper worksheets,
pencils, and calculators. They generate an electronic spreadsheet, which is a worksheet of rows and
columns, which can be stored on your PC, a network server, or converted to HTML format and stored
as a web page or web-sheet on the World Wide Web. Data and formulas are entered into the
worksheet via the keyboard. The computer performs the calculations based on the formulas entered.
Most packages also have graphic capabilities.
A spreadsheet package can also be used as a decision support tool to perform what-if analysis. For
example: “What would happen - If you did something else”. Microsoft Excel, OperOffice Calc are
examples of electronic spreadsheets.
8. Draw a decision table on the case describe here 10

City centre give the gift voucher to the customer who purchase the good equal to or greater
than Rs. 5000 and pay the bill through the credit card. The female who uses credit card of
Nabil Bank and purchase Rs 3000 to Rs 5000 also get the gift voucher. Assume that it
accepts only credit card.
Answer No. 8
Step 1 - Name the conditions and the values for each condition -
 Type of payment cc of Nabil – Yes and other credit cards=No

 Amount of payment greater than Rs 5000 , and between Rs 3000 to 5000
 Customer Female- Yes or No
GNM P.T.O.
(9)
Step 2 - name all possible actions
 Gift Voucher
 No Gift Voucher
Step 3 - list all possible rules
2 x 2 x 2 = 8 rules
Rules
Conditions 1 2 3 4 5 6 7 8
Nabil CC Y Y Y Y N N N N
>3000 >3000 >3000 >3000
Amount 5000 5000 & & 5000 5000 & &<500
<5000 <5000 <5000 0
Female
Y N Y N Y N Y N
Customer
Actions
Gift
X X X - X X -
Voucher
No Gift
- - X - X X
Voucher
9.
a) Write functions of DBA 5
b) Write major advantages of Computer Network. 5
Answer No. 9
a) Functions of DBA (Database Administrator) are as:
i) Schema definition: It is created by writing a set of definitions that is translated by the DDL
compiler to a set of tables that is stored permanently in the data dictionary.
ii) Storage structure and access method definition: It is created by writing a set of definitions which
is translated by the data-storage and data-definition-language compiler.
iii) Schema and physical-organization modification: Modification can be performed by writing a

set of definitions that is used by either by DDL compiler or the data-storage and data-definition-
language compiler as per requirement.
iv) Granting and monitoring of authorization for data access: DBA create grants role and
privileges to all user according to the policy and monitor.
v) Integrity constraint specification: Integrity constraints are defined to make the data consistent.
It is kept in a special system structure that is consulted by the database system whenever an update
takes place in the system.
vi) Performance and tuning of the database systems.
vii) Backup and recovery of the whole data and databases.

GNM P.T.O.
(10)
b)
The major advantages of computer network are as:
i) Hardware sharing: Computer hardware like printer, fax machine, scanner, and storage device are
expensive. It is not practical to purchase such equipment for every computer desk. If the network is
present, all computers can share the same priter/scanner/fax machines over the network. This
enables sharing and optimum utilization of hardware resources.
ii) Sharing of data and software: Data can be shared by all users in the networked computers.
Client server network environment can also enable computers in a network to share applications
with other computers.
iii) Access to remote database: It is very simple to make air ticket reservation or hotel reservation
or e-payment through Internet enabled computer from even home, anywhere in the world.
iv) Communication facility: Message can be sent or received very fast from one PC to another PC
in the network.
v) Cost factor: Sharing of hardware and software reduces the cost.
10. Write short note on (2×5=10)

a) OSI model
b) Centralized Data base system
Answer No. 10
a) OSI model:
The OSI known as the Open System of interconnection is developed by the International Organization of
Standardization to establish a common model of the networking and data communication. Any
organization which develops the networking software or hardware has to follow all the process and
protocols that are proposed under this model. This enables the global possibility of the computer
networking without any sorts of conflict.
According to the OSI model the communication process of the data from the source to destination has to
undergo through the seven accepted layer. These layers are:
GNM P.T.O.
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 Application layer: This layer is mainly concentrated on execution of the application program
which are directly accessible to the common users. http, smtp etc are the protocol which runs
on this layers.
 Presentation layer: This layer is mainly responsible in the syntax and semantics of the data
transmission process.
 Session layer: This layer establishes the session between two computers between which the
data transmission process has to be carried out. It also does the data encryption and
decryptions.
 Transport layer: It is mainly responsible in breaking of the big file size into small chunks which
are to be delivered through the data path.
 Network layer: This layer helps in defining of the optimum data path between source to
destination which may have numerous alternatives.
 Data link layer: This layer helps in the error detection and correction of the transmission
process, formation the frame for transmission and defining of the channel.
 Physical layer: It defines the physical property of the data communication. The timing and
voltage binary data are represented by this layer. It defines the modulation mechanisms of
communication process.
b) Centralized Data-Base System:

Centralized data base is the storage of the data generated in all branches of an organization by replicating
them in the central server data base system so that whenever essential it can be accessed from any point.
For the case of the centralized data base system it needs strong technical infrastructure. The main
advantage of the centralized data base system is that whenever one branch needs information of another
branch it can be accessed from the storage without getting connected with that particular branch. It can be
understand pictorially as below.
GNM P.T.O.
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Head Office
Data Base
Branch Office Branch Office
Fig: Centralized Data Base

The main advantage of centralized data base system is that the storing, monitoring and resource utilization
is efficient and cost effective. The change in data base is replicated to all branches in the same time.
However it is not free from the drawback. If the central database system all the branches have to halt their
operation. The dependency to central office is higher.
GNM P.T.O.

June 2011

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Fundamentals of Accounting

CAP-I, June 2011

Maximum Marks - 100

a) Difference in the trial balance, if any, can be taken as miscellaneous expenses or

To Salaries By Gross Profit b\d 1,62,675

i) Trial balance of National Trading (After rectification)

Particulars Dr. Amount in Cr. Amount in

Prepaid rent 500

ii) Closing Stock

Drawing Power 2,00,000

iii) Purchase 2,30,500

iv) Sales 2,90,600

Depreciation @ 15% 6,187.5 ~ 6,188

b) Furniture & fitting 15,250

vii)Sundry Debtor 1,52,500

Joint Venture A/c

A's Capital Account

B's Capital Account

C's Capital Account

1. Stock & Debtors taken over by A:

3. Partner's Share of Profit on Realisation:

b) The Balance Sheet of a firm as at 31st March, 2011 stood as follows:

b) Opening Entry as on 01.04.2011:

Share Capital Account

Trade Creditors Account

Old Machinery A/c

New Machinery A/c

4. Attempt any three from the followings: (3×5=15)

a) Journal entries in the books of Sri Ganesh Traders:

Particulars Rs. Rs.

Bank balance as per cash book 30,000

Add: Cheques issued but not presented for payment 5,000

d) In the Books of Domestic Utilities Ltd.

Sales Royalty Minimum Shortworkings (Rs) Royalty

2010 7,615 761,500 750,000 - 11,500 17,500 750,000

In the Books of Trimmers Ltd.

Shortworkings (Rs) Royalty

* Sales + Closing Stock – Opening Stock.

b) Describe the qualitative characteristics of financial statements. 5

6. Write short notes on any four the following: (4×2.5=10)

Total No. of Questions - 6

Time Allowed - 3 Hours

1. Answer the following questions (Any Two):

Ep= Percentage change demand = ΔQ X P

Where, ΔQ= Change in demand

Ep= lower segment of demand curve

At midpoint of demand curve, price elasticity is equal to one

Lastly, price elasticity at a point is infinity at point A and at B point zero.

ii) The quantity of at least one factor should be kept fixed.

Unit of labour Total product Average Product Marginal product

c) Monopolistic competition is the market structure which has following characteristics.

Equilibrium of the firm

Cost and Revenue

2. Answer the following questions (Any Three):

Micro economics Macroeconomic

demand & supply forces. which are determined by aggregate demand

ii) Implicit cost :

d) Liquidity preference theory was developed by economist J. M. Keynes. So it is also known as

Interest excess supply

R excess demand Lp (Md)

The relationship between AR and MR are ---

3. In case of straight line MR decreases double than AR.

iv) Constant returns to scale

r = [10 (25964) – (330 x 610 )] / √ [ 10 13492 – (330)2] √[ 10 *51412 – (610)2]

The regression coefficient b = [10 (25964) – (330 x 610 )] / [ 10 13492 – (330)2]