Business Arithmetic Class 12 Entrepreneurship Important Questions

Important Questions Class 12

Please refer to Business Arithmetic Class 12 Entrepreneurship Important Questions with solutions provided below. These questions and answers have been provided for Class 12 Entrepreneurship based on the latest syllabus and examination guidelines issued by CBSE, NCERT, and KVS. Students should learn these problem solutions as it will help them to gain more marks in examinations. We have provided Important Questions for Class 12 Entrepreneurship for all chapters in your book. These Board exam questions have been designed by expert teachers of Standard 12.

Class 12 Entrepreneurship Important Questions Business Arithmetic

Long Answer Type Questions

Question. What is ABC analysis?
Answer :
ABC analysis is an inventory control technique derived from Pareto principle. As per this an business unit analyzes its inventory and classifies them into three categories.
The categorization is not a standard one and varies from one company to the other.
From the perspective of inventory it refers to arriving at relative ratio of the quantity of stock and monetary value of the purchased/consumed stock.
a. A – Items that need to be tightly controlled and are of outstanding importance.
It closely monitor the stock and maintenance the inventory based on the future demand estimates, to ensure that the inventory never runs out and at the same time ensure that the order is not too much so as to cause the inventory obsolete. class A items account for 10 to 20% of the items and contribute 70 to 80% of the consumption of items.
b. B – Items whose stock need to be monitored closely. As these items are of average importance, the company orders them less often. class B items account for 15 to 25% of the items and contribute 10 to 20% of the consumption of items.
c. C – Least expensive items and are of relatively low importance. These items are ordered in bulk loosely controlled. However, the monitoring strategy is in such a way that the company never run out of stock of these items. class C items account for 65 to 75% of the items and contribute 5 to 10% of the consumption of items.

Question. Differentiate between cash flow project & cash flow statement?
Answer :

Cash Flow ProjectionCash Flow Statement
1. It shows the cash that is predicted to be generated or expended in a given time-frame.1. It shows how the cash is flowing into and out of the business.
2. It is anticipation of future.2. It is a record of the past events
3. It is a very important management tool for successfully running the business.3. It is not a management tool and can not manage the daily requirements. It is similar to
the Balance Sheet or Income Statement.

Question. There are three key elements in the process of financial management. Explain them.
Answer :
The following are the three elements that play key role in the process of financial management.
1. Financial Planning: Financial planning makes sure that the funding is available to the business at all times needed.
a. Funding is needed in the short term to invest in stocks and equipment, fund the credit sales, salaries and wages.
b. Funding is needed in the long term expand the business operations and fund the acquisitions.
Financial control: Financial control is a key element that help the business to meet the objectives. It deals with
a. efficient utilization of the assets
b. securing the business assets
c. management acting in accordance with the best interest of the shareholders and in compliance with the business rules.
Financial decision making: This key element deals with the investment, financing and dividends.
a. Investments must be financed in one way or the other. However the business should also consider raising finance through alternate business alternatives like borrowing from banks, sale of new shares or getting the materials or goods from suppliers on credit.
b. When the business earns profits, financial decision should be taken to ensure that the profits should be re-invested into the business or it should be distributed to shareholders through dividends.
c. Dividends should be optimally decided. If they’re high, then the business will run into lack of funds and may not be able to reinvest to grow the revenues and to earn more profits.

Question. What is a budget? What are the essentials of a budget?
Answer :
Budget: The term budget is synonymous to the “allocation of resources”. Budget is defined as the quantitative expression of a plan for a given period of time, for a given business. Few aspects the budget covers are
a. Costs and expenses
b. Sales volumes and revenues
c. Resource quantities etc.
Essential of budget: The essentials of budget include
a. For accountability
b. To control the resources
c. To communicate the plans to corresponding managers who are responsible for.
d. To encourage managers to put their best efforts to reach the budget goals.
e. To evaluate the performance of managers

Question. What is a budgeting process?
Answer :
Budgeting is followed in the large corporations collectively by various department in the organization. These departments prepare their plan keeping them in alignment with the organization goals, which are set by the top management team in the organization. Each department prepares these plans so that they help the organization realize the goal. Managers from each of these departments come up with the various allocations for
a. Capital requirements
b. projections of sales
c. operating costs
d. Overhead costs etc. Considering these elements, the operating profits and the returns on the investment they want to use are computed.
Budget will project all these values over the next fiscal/financial or calendar year.
During this process, each department prepares its plans and the estimated budget.
◆These budget plans are then presented to the upper management.
◆The upper management will then negotiate and propose the required changes in the budget allocation.
The budget planning document contains
a. Description of the details
b. Documentation
c. Reasons justifying the numbers quoted.
The road-map for the operations over the upcoming year depend solely on the approved budget. In an ideal scenario, there should be monthly or quarterly budget reviews to monitor the effective utilization of the budget.
During these reviews, the deviation between the allocated budget and actual budget spending is tracked and if required additional budget might be approved. The performance of the managers usually is decided by how effectively they justify the budget allocated to them.

Question. Explain the two dominant forms of budgeting process.
Answer :
The most widely used forms of the budgeting process are
1. Traditional budgeting: In this form of budgeting the historical performance of the budgeting process is evaluated. After the review the budget is projected based on this information after introducing the appropriate changes. In the event where in the inflation is high, the cost variations over the past several years are projected in place. In such cases the adjustments are made for
a. inflation
b. projected growth or decline in business activities.
In this case, the historical sales patterns are projected using the trend followed in the sales growth. In case new products are introduced, the new sales are then included.
2. Zero-based budgeting: While following this strategy to create the budget, the budget is prepared right from scratch without any consideration to the historical information. When this form of budgeting is followed, each and every expenditure as well as income is documented and justified.

HOTs Question

Question. Ramu is buying and selling ice-cream. Explain his working capital requirement.
Answer :
 The working capital requirement of Ramu for buying and selling ice creams is as follows.
1. Assets:
A .Stocks
b. Cash
c. Debtors
d. Short term investments
2. Liabilities:
a. Outstanding expenses
b. Short term loans
c. Trade creditors