CBSE Class 12 Business Studies Term 2 Sample Paper Set D

Sample Paper Class 12

See below CBSE Class 12 Business Studies Term 2 Sample Paper Set D with solutions. We have provided CBSE Sample Papers for Class 12 Business Studies as per the latest paper pattern issued by CBSE for the current academic year. All sample papers provided by our Class 12 Business Studies teachers are with answers. You can see the sample paper given below and use them for more practice for Class 12 Business Studies examination.

CBSE Sample Paper for Class 12 Business Studies Term 2 Set D

Short Answer Type Questions – I

1. Identify and explain the source of recruitment where employees work with commitment and loyalty and remain satisfied with their jobs and also peace prevails in the enterprise because of promotional avenues.
Answer. Internal source of recruitment: Under internal source of recruitment, the vacant job positions are filled by inducing the existing employees of the organization. It implies shifting of the existing employees from one place/post to another place or post. It also implies shifting an employee to a higher position carrying higher responsibilities, facilities, status and pay, through promotions. Employees are motivated to improve their performance. A promotion at a higher level may lead to a chain of promotion at lower levels in the organization. This motivates the employees to improve their performance through learning and practice. Employees work with commitment and loyalty and remain satisfied with their jobs. Also peace prevails in the enterprise because of promotional avenues.

2. Rajesh is the CEO of a leading petrochemical company. Recently, the company issued share capital to cover some expenses. However, in order to meet the floating cost of issuing shares, the company decided to conduct Bridge Financing. Therefore, it decided to issue a money market tool. The CEO’s  decision wisely met the company’s requirements. Three months later, the company decided to issue new shares in the primary market again. According to the floating method it involves, it decided to adopt the method mainly adopted by listed companies and attract the masses by directly contacting the public. Again, success came from the company’s approach and the realization of its goals. Explain the type of money market instrument which was issued by the company.
Answer. Commercial Paper: Commercial paper is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period. It is issued by large and creditworthy companies to raise short-term funds at lower rates of interest than market rates. It usually has a maturity period of 15 days to one year. The issuance of commercial paper is an alternative to bank borrowing for large companies that are generally considered to be financially strong. It is sold at a discount and redeemed at par. The original purpose of commercial paper was to provide short-terms funds for seasonal and working capital needs.

3. Explain ‘Vestibule Training’ as a method of training.
Answer. Vestibule Training is a method of training which is conducted on the equipment and machines employees will be using, away from the actual place of work. Employees learn their jobs on the equipment they will be using, but the training is conducted away from the actual work floor. Actual work environment is created in a class room and employees use the same materials, files and equipment. This is usually done when employees are required to handle sophisticated machinery and equipment.

4. Identify and explain the step in the Controlling process which states that comparison becomes easier when standards are set in quantitative terms.
Answer. Comparing Actual Performance with Standards: This step involves comparison of actual performance with the standard. Such comparison will reveal the deviation between actual and desired results. Comparison becomes easier when standards are set in quantitative terms. For instance, performance of a worker in terms of units produced in a week can be easily measured against the standard output for the week.

Short Answer Type Questions – II

5. Mr. Sunil Diali is a safety officer in a reputed PSU, ECL. He supervises the workers towards the predetermined goals of the organization and directs how to eliminate unsafe practices of inundation, fire breakouts, existence of inflammable gases, etc. On one such instance, there was huge fire breakout in the underground mines and the workers morale was low and demotivated because of several risk hazards. Mr. Diali observed the whole situation and consulted all his workers and constantly monitored, guided and inspired them to integrate their efforts and accept the situation as a challenge and take adequate safety measures for extinguishing the fire and subsiding its effects. So, he decided to bring changes in the organization to motivate his employees. Thereby, production turnover was outstanding and outperformed other subsidiaries. Mr. Diali was recognized with Bravery Award from ECL. Identify and explain the important functions of directing discussed in the above case.
Answer. The following functions of directing are discussed in the case:
(i) Initiates action: Directing is the starting point of action. It initiates action based on planning, organizing and staffing. Action is initiated when the managers provide direction to their subordinates for carrying out the task. Therefore, the directing function provides a set of guidelines to the employees on how to start working towards achieving the goals of the organization. Directing helps to initiate action by people in the organization towards attainment of desired objectives. For example, if a supervisor guides his subordinates and clarifies their doubts in performing a task, it will help the worker to achieve work targets given to him.
(ii) Directing facilitates changes: Directing facilitates introduction of needed changes in the organization. Generally, people have a tendency to resist changes in the organization. Effective directing through motivation, communication and leadership helps to reduce such resistance and develop required cooperation in introducing changes in the organization. For example, if a manager wants to introduce new system of accounting, there may be initial resistance from accounting staff. But, if manager explains the purpose, provides training and motivates with additional rewards, the employees may accept change and cooperate with manager.

6. Explain the concept of formal and informal communication.
“Financial incentives refer to incentives which are in direct monetary form or measurable in monetary term and serve to motivate people for better performance.” In the light of this statement explain any three financial incentives used by the organizations.
Answer. Formal Communication: Formal communication flows through official channels designed in the organization chart. This communication may take place between a superior and subordinate, a subordinate and superior or among same cadre employees or managers. The communications may be oral or written but generally recorded and filed in the office. Formal communication may be further classified as – Vertical and Horizontal. Vertical communication flows vertically i.e., upwards or downwards through formal channels. Upward communications refer to flow of communication from subordinate to superior whereas downward communication indicates communication from a superior to subordinate. Horizontal or lateral communication takes place between one division and another. 
Informal Communication: Communication that takes place without following the formal lines of communication is said to be informal communication. Informal system of communication is generally referred to as the ‘grapevine’ because it spreads throughout the organization with its branches going out in all directions in utter disregard to the levels of authority. The informal communication arises out of needs of employees to exchange their views, which cannot be done through formal channels. The grapevine/ informal communication spread rapidly and sometimes get distorted. It is very difficult to detect the source of such communication. It also leads to generate rumors which are not authentic. People’s behavior is affected by rumors and informal discussions and sometimes may hamper work environment.
The financial incentives generally used in organizations are listed below:
(i) Pay and allowances: For every employee, salary is the basic monetary incentive. It includes basic pay, dearness allowance and other allowances. Salary system consists of regular increments in the pay every year and enhancement of allowances from time-to-time. In some business organizations, pay hike and increments may be linked to performance.
(ii) Productivity linked wage incentives: Several wage incentive plans aims at linking payment of wages to increase in productivity at individual or group level.
(iii) Bonus: Bonus is an incentive offered over and above the wages/salary to the employees.
(iv) Profit Sharing: Profit sharing is meant to provide a share to employees in the profits of the organization. This serves to motivate the employees to improve their performance and contribute to increase in profits.
(v) Co-partnership/ Stock option: Under these incentive schemes, employees are offered company shares at a set price which is lower than market price. Sometimes, management may allot shares in lieu of various incentives payable in cash. The allotment of shares creates a feeling of ownership to the employees and makes them to contribute for the growth of the organization. In Infosys the scheme of stock option has been implemented as a part of managerial compensation.
(vi) Retirement Benefits: Several retirement benefits such as provident fund, pension, and gratuity provide financial security to employees after their retirement. This acts as an incentive when they are in service in the organization.
(vii) Perquisites: In many companies perquisites and fringe benefits are offered such as car allowance, housing, medical aid, and education to the children etc., over and above the salary. These measures help to provide motivation to the employees/ managers

7. Charu and Arpita, who are young fashion designers, left their jobs with a famous fashion designing chain to set up a company ‘Trends Pvt. Ltd’. They decided to run a boutique during the day and coaching classes for entrance examination of National Institute of Fashion Designing in the evening. For the coaching centre, they took the first floor of a nearby building on lease. Their major expense was money spent on photocopying of notes for their students. They thought of buying a photocopier knowing fully that their scale of operations was not sufficient to make full use of the photocopier. In the basement of the building of ‘Trends Pvt. Ltd.’, Ramesh and Suresh were carrying on a printing and stationery business in the name of ‘Fine Prints Pvt. Ltd.’ Charu approached Ramesh with the proposal to buy a photocopier jointly which could be used by both of them without making separate investment. Ramesh agreed to this. Explain any three factors affecting the fixed capital requirements of Trends Pvt. Ltd.
Answer. Factors affecting the fixed capital requirements of Trends Pvt. Ltd are explained below:
(i) Diversification: A firm may choose to diversify its operations for various reasons, with diversification, fixed capital requirements increase e.g., a textile company is diversifying and starting a cement manufacturing plant. Obviously, its investment in fixed capital will increase. 
(ii) Financing alternatives: A developed financial market may provide leasing facilities as an alternative to outright purchase. When an asset is taken on lease, the firm pays lease rentals and uses it. By doing so, it avoids huge sums required to purchase it. Availability of leasing facilities, thus, may reduce the funds required to be invested in fixed assets, thereby reducing the fixed capital requirements. Such a strategy is especially suitable in high risk lines of business.
(iii) Scale of operations: A larger organization operating at a higher scale needs bigger plant, more space etc. and therefore, requires higher investment in fixed assets when compared with the small organization.
(iv) Level of collaboration: At times, certain business organizations share each other’s facilities. For example, a bank may use another’s ATM or some of them may jointly establish a particular facility. This is feasible if the scale of operations of each one of them is not sufficient to make full use of the facility. Such collaboration reduces the level of investment in fixed assets for each one of the participating organizations.

8. PQR Ltd. is engaged in manufacturing machine components. The target production is 200 units per day. The company had been successfully attaining this target until two months ago. Over the last two months, it has been observed that daily production varies between 150-170 units.
(i) Identify the management function to rectify the above situation.
(ii) Briefly state the procedure to be followed so that the actual production may come up to the target production.
Answer. (i) The controlling function of management is needed to rectify the above situation.
(ii) The procedure to be followed so that the actual production may come up with the target production is as follows:
(a) Providing training to workers if the workers are not well versed with the production process.
(b) Improving the work environment if it is not conducive to efficient working.
(c) Ensuring timely availability of the raw materials and other equipment if they are not made available on time.
(d) Replacing the machinery if it is defective or has become obsolete.

Long Answer Type Questions

9. As per the Consumer Protection Act, 2019, who can make a complaint?
Under the Consumer Protection Act, 2019, how are the consumer grievances redressed by the three tier machinery?
Answer. The following can make a complaint as per the Consumer Protection Act, 2019:
(i) a consumer; or
(ii) any voluntary consumer association registered under any law for the time being in force; or
(iii) the Central Government or any State Government; or
(iv) the Central Authority; or
(v) one or more consumers, where there are numerous consumers having the same interest; or
(vi) in case of death of a consumer, his legal heir or legal representative; or
(vii) in case of a consumer being a minor, his parent or legal guardian;
The three-tier machinery to redress consumer grievances under Consumer Protection Act, 2019 is as follows:
(i) District Commission: The District Commission consists of a President and two other members, one of whom should be a woman. They all are appointed by the State Government concerned. A complaint can be made to the appropriate District Commission when the value of the goods or services in question, along with the compensation claimed, does not exceed Rs. 1 crore. On receiving the complaint, the District Commission shall refer the complaint to the party against whom the complaint is filed. If required, the goods or a sample thereof shall be sent for testing in a laboratory. The District Commission shall pass an order after considering the test report from the laboratory and hearing the party against whom the complaint is filed. In case the aggrieved party is not satisfied with the order of the District Commission, he can appeal before the State Commission within 45 days of the passing of the order.
(ii) State Commission: Each State Commission consists of a President and not less than four other members, one of whom should be a woman. They are appointed by the State Government concerned. A complaint can be made to the appropriate State Commission when the value of the goods or services in question, along with the compensation claimed, exceeds Rs. 1 crore but does not exceed Rs. 10 crore. The appeals against the orders of a District Commission can also be filed before the State Commission. On receiving the complaint, the State Commission shall refer the complaint to the party against whom the complaint is filed. If required, the goods or a sample thereof shall be sent for testing in a laboratory. The State Commission shall pass an order after considering the test report from the laboratory and hearing the party against whom the complaint is filed. In case the aggrieved party is not satisfied with the order of the State Commission, he can appeal before the National Commission within 30 days of the passing of the order.
(iii) National Commission: The National Commission consists of a President and at least four other members, one of whom should be a woman. They are appointed by the Central Government. A complaint can be made to the National Commission when the value of the goods or services in question, along with the compensation claimed, exceeds Rs. 10 crore. The appeals against the orders of a State Commission can also be filed before the National Commission. On receiving the complaint, the National Commission shall refer the complaint to the party against whom the complaint is filed. If required, the goods or a sample thereof shall be sent for testing in a laboratory. The National Commission shall pass an order after considering the test reportfrom the laboratory and hearing the party against whom the complaint is filed. In case the aggrieved party is not satisfied with the order of the National Commission, he can appeal before the Supreme Court within 30 days of the passing of the order.

10. Discuss the steps involved in the trading procedure for buying and selling of securities on a Stock Exchange.
Answer. Trading procedure on a Stock Exchange is as follows:
(i) Selection of a Broker: If an investor wishes to buy or sell any security he has to first approach a registered broker or sub-broker and enters into an agreement with him. The investor has to sign a broker-client agreement and a client registration form before placing an order to buy or sell securities. He has also to provide certain other details and information. These include: PAN number (this is mandatory), Date of birth and address, Educational qualification and occupation, Residential status (Indian/NRI), Bank account details, Depository account details, Name of any other broker with whom registered, Client code number in the client registration form etc.
(ii) Opening a Demat Account: There are two national depositories in India – NSDL (National Securities Depositories Ltd.) and CDSL (Central Depository Services Ltd.). A demat account is opened by the investor with a depository participant (bank stock broker) to trade in listed securities in electronic form and maintain the balance of securities with depositories on the basis of necessary details like PAN, residential status, bank details, etc.
(iii) Placing the order: The order to buy or sell specific security is to be communicated to the broker stating which shares should be bought or sold. This can be done choosing any mode i.e., e-mail, telephone or personally.
(iv) Executing the order and Issuing of contract note: When the shares are bought or sold at the price mentioned, it will be communicated to the broker’s terminal and the order will be executed electronically. The broker will issue a trade confirmation slip to the investor. After the trade has been executed, within 24 hours the broker issues a Contract Note. This note contains details of the number of shares bought or sold, the price, the date and time of deal, and the brokerage charges. This is an important document as it is legally enforceable and helps to settle disputes/claims between the investor and the broker. A Unique Order Code number is assigned to each transaction by the stock exchange and is printed on the contract note.
(v) Settlement: A ‘T+2’ rolling settlement cycle is followed in Indian stock market which means that transactions in securities are to be settled within 2 days after the trade date. Delivery of shares is made in dematerialized form and each exchange has its own clearing house which assumes all settlement risk.

11. ‘Entertainment India Ltd.’ has been incorporated with the objective of entertaining people by organizing festivals, programmes and other similar events depicting the rich cultural heritage of the country. The company management has renowned personalities from the field of art, literature and culture. They decided to give a platform to young budding musicians, poets and artists. The company decided its organizational structure by grouping similar jobs together. Thereafter, the heads of different departments were also appointed. Nisha, one of the heads, did an analysis of the number, type and qualification necessary for people to be appointed. The information generated in the process of writing the job description and the candidate profile was used to develop ‘Situations vacant’ advertisement. This was published in print media and flashed in electronic media. This brought in a flood of response. Explain the other five steps which Nisha has to perform to complete the process being discussed above.
Answer. Other steps which Nisha has to perform to complete the process being discussed above are:
(i) Selection: Selection is the process of choosing from among the pool of the prospective job candidates developed at the stage of recruitment. Even in case of highly specialised jobs where the choice space is very narrow, the rigour of the selection process serves two important purposes: (a) it ensures that the organization gets the best among the available, and (b) it enhances the self-esteem and prestige of those selected and conveys to them the seriousness with which the things are done in the organization
(ii) Placement and Orientation: Joining a job marks the beginning of socialization of the employee at the workplace. The employee is given a brief presentation about the company and is introduced to his superiors, subordinates and the colleagues. He is taken around the workplace and given the charge of the job for which he has been selected. This process of familiarization is very crucial and may have a lasting impact on his decision to stay and on his job performance. Orientation is, thus, introducing the selected employee to other employees and familiarizing him with the rules and policies of the organization. Placement refers to the employee occupying the position or post for which the person has been selected.
(iii) Training and Development: Training and Development is an attempt to improve the current or future employee performance by increasing an employee’s ability to perform through learning, usually by changing the employee’s attitude or increasing his or her skills and knowledge. Organizations have either in house training centers or have forged alliances with training and educational institutes to ensure continuing learning of their employees. The organizations too benefit in turn. If employee motivation is high, their competencies are strengthened; they perform better and thus, contribute more to organizational effectiveness and efficiency. By offering the opportunities for career advancement to their members, organizations are not only able to attract but also retain its talented people.
(iv) Performance Appraisal: After the employees have undergone a period of training and they have been on the job for some time, there is a need to evaluate their performance. All organizations have some formal or informal means of appraising their employee’s performance. Performance appraisal means evaluating an employee’s current and past performance as against certain predetermined standards. The employee is expected to know what the standards are and the superior is to provide the employee feedback on his/her performance. The performance appraisal process, therefore, will include defining the job, appraising performance and providing feedback.
(v) Promotion and Career Planning: It becomes necessary for all organizations to address career related issues and promotional avenues for their employees. Managers need to design activities to serve employees’ long-term interests also. They must encourage employees to grow and realize their full potential. Promotions are an integral part of people’s career. They refer to being placed in positions of increased responsibility. They usually mean more pay, responsibility and job satisfaction.

12. ‘Spun Ltd.’ is a company manufacturing cotton Yarn for the past 15 years. It has been consistently earning good profits for many years and is a market leader. This year too, it has been able to generate enough profits. There is availability of enough cash in the company and good prospects for growth in future as the demand for its products has been consistently increasing. It is a well-managed organisation and believes in quality, equal employment opportunities and good remuneration practices and has been able to maintain the same for the past several years. It has many shareholders who prefer to receive a regular income from their investments. It has taken a loan of ` 40 lakh from ICICI and is bound by certain restrictions on the payment of dividend according to the terms of loan agreement. The above discussion about the company leads to various factors which decide how much of the profits should be retained and how much has to be distributed by the company.
(i) Explain what is meant by dividend decision.
(ii) Also, explain, by quoting lines from the above paragraph the factors affecting the dividend decision of Spun Ltd.?
Capital structure refers to the mix between owners’ and borrowed funds. Considering this statement, explain the following as factors which affect the choice of Capital Structure :
(a) Floatation Costs
(b) Stock Market Conditions
Answer. (i) Dividend is that portion of profit which is distributed to shareholders. The decision involved here is how much of the profit earned by company (after paying tax) is to be distributed to the shareholders and how much of it should be retained in the business. While the dividend constitutes the current income, re-investment as retained earnings increases the firm’s future earning capacity. The extent of retained earnings also influences the financing decision of the firm.
(ii) (a) ‘It has been consistently earning good profits for many years’. This statement represents ‘Stability of earnings’ factor affecting the dividend decision of Spun Ltd. Other things remaining the same, a company having stable earning is in a better position to declare higher dividends. As against this, a company having unstable earnings is likely to pay smaller dividend.
(b) ‘There is availability of enough cash in the company.’ This statement represents ‘Cash flow position’ factor affecting the dividend decision of Spun Ltd. The payment of dividend involves an outflow of cash. A company may be earning profit but may be short on cash. Availability of enough cash in the company is necessary for declaration of dividend.
(c) ‘It has many shareholders who prefer to receive regular income from their investments This statement represents ‘Shareholders preference’ factor affecting the dividend decision of Spun Ltd.
While declaring dividends, management must keep in mind the preferences of the shareholders in this regard. If the shareholders has a general desire that at least a certain amount is paid as dividend, the companies are likely to declare the same. There are always some shareholders who depend upon a regular income from their investments.
(d) ‘It has taken a loan of Rs. 40 Lakh from ICICI and is bound by certain restrictions on the payment of dividend according to the terms of loan agreement.’ This statement represents ‘Contractual constraints’ factor affecting the dividend decision of Spun Ltd.
While granting loans to a company, sometimes the lender may impose certain restrictions on the payment of dividends in future. The companies are required to ensure that the dividend decision does not violate the terms of the loan agreement in this regard.
(i) Floatation Costs: Floatation costs refer to those expenses which are incurred while issuing securities, e.g., underwriters’ commission, brokerage, stationery expenses, etc. Conversely, the  cost of issuing debt capital is lesser than the share capital. Hence, a company may prefer more debt in its capital structure.
(ii) Stock Market Conditions: If the stock markets sentiments are bullish then equity shares are sold more easily even at a higher price. Use of equity is mostly preferred by companies in such a situation. However, during a bearish phase a firm may find raising of equity capital much more difficult and it may thus opt for debt.