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Business Studies
Business Studies XII Introductory
Accountancy XII Accountancy XII PART-A MACROECONOMICS
PART-A PART-B A Textbook for Economics Class XII
Principles and Functions of Management
Accounting for Not-for-Profit Accounting for Companies and A Wealth of Objective Type Questions, MCQs
PART-B
Organisations and Partnership Firms Analysis of Financial Statements Subhash Dey Edition 2020 < NUMERICAL QUESTIONS (with solutions) and ‘Do it yourself’ exercises
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Chapter 9: Financial Management 7
Chapter 9
Financial Management
CBSE Syllabus
Topics Learning Outcomes
 Concept, role and objectives of Financial Management After going through this chapter, the students will be
 Financial decisions: investment, financing and dividend- able to:
Meaning and factors affecting  Understand the concept of financial management.
 Financial Planning - concept and importance  Explain the role of financial management in an organisation.
 Capital Structure – concept and factors affecting capital  Discuss the objectives of financial management
structure  Discuss the three financial decisions and the factors
 Fixed and Working Capital - Concept and factors affecting them.
affecting their requirements  Describe the concept of financial planning and its
objectives.
Content
 Explain the importance of financial planning.
9.1 Financial Management: Concept, Objectives, Role  Understand the concept of capital structure.
and Financial Decisions  Describe the factors determining the choice of an
9.2 Financial Planning: Concept, Objectives and appropriate capital structure of a company.
Importance  Understand the concept of fixed and working capital.
9.3 Capital Structure: Concept and Factors determining  Describe the factors determining the requirements of
the choice of an appropriate capital structure fixed and working capital.
9.4 Fixed and Working Capital: Concept and Factors
determining their requirements
8 Business Studies XII Part-B – by Subhash Dey
Financial Business To Enhance Enterprising Skills

Quote
Management  Finance is the life blood of business.
When Tata Steel Acquired Corus Introduction

Tata Steel, the biggest steel producer in the In the given case, these decisions require careful financial
Indian private sector has acquired Corus, planning, an understanding of the resultant capital structure and
(formerly known as British Steel) in a deal the riskiness and profitability of the enterprise. All these have a
worth $8.6 billion in 2007. This makes bearing on shareholders as well as employees. They require an
Tata Steel the fifth largest steel producer
understanding of business finance, major financial decision areas,
in the world. A financial decision of this
magnitude has significant implicitness for
financial risk, and working capital requirements of the business.
both Tata Steel and Corus as well as their Finance, as we all know, is essential for running a business.
employees and shareholders. To mention Success of business depends on how well finance is invested in
some of them: assets and operations and how timely and cheaply the finances
 Tata Steel raised a debt of over $8 billion are arranged, from outside or from within the business.
to finance the transaction. The deal will Meaning of Business Finance
be paid for by Tata Steel UK, a special
Money required for carrying out business activities is called
purpose vehicle (SPV) set up for the
business finance. Almost all business activities require some
purpose. This SPV received funds from
Tata Steel routed through a Singapore finance. Finance is needed to establish a business, to
subsidiary. Another company of the run it, to modernise it, to expand, or diversify it. It is required
Tata group, Tata Sons Ltd., invested $ 1 for buying a variety of assets, which may be tangible like
billion dollars for preference shares along machinery, factories, buildings, offices; or intangible such as
with Tata Steel which will invest an equal trademarks, patents, technical expertise, etc. Also, finance is
amount. central to running the day-to-day operations of business, like
 Tata Steel, the acquirer company, arranged buying material, paying bills, salaries, collecting cash from
about 36,500 crores of rupees to finance customers, etc. needed at every stage in the life of a business
the take-over. entity. Availability of adequate finance is, thus, very crucial for
 Tata Steel raised this amount through the survival and growth of a business.
debt or equity or a combination of both.
Some amount came from internal accruals
also. This financing decision affected the
capital structure of Tata Steel.
 Needless to emphasise, decisions like
this affect the future of the organisation.
These decisions are almost irrevocable
after they have been formalised.
Source: The Economic Times
Financial Management: Concept, Decisions, Objectives

9.1
and Role
Concept of Financial Management
Financial Management is concerned with optimal procurement as well as the usage of finance.
• For optimal procurement, different available sources of finance are identified and compared in terms of
their costs and associated risks.
• Similarly, the finance so procured needs to be invested in a manner that the returns from the investment
exceed the cost at which procurement has taken place.
Financial Management aims at reducing the cost of funds procured, keeping the risk under control and achieving
effective deployment of such funds. It also aims at ensuring availability of enough funds whenever required as
well as avoiding idle finance.
Definitions of Financial Management

 Financial Management is concerned with management of flow of funds and involves decisions relating
to procurement of funds, investment of funds and distribution of earnings to the owners.
 Financial Management means planning, organising, directing and controlling the financial activities of
an organisation.
Decisions taken in Financial Management

(or Financial Decisions)
Financial management is concerned with three broad financial
decisions—investment, financing and dividend decisions.
1. Investment Decision
The investment decision relates to how the firm’s funds are
invested in different assets so that they are able to earn the
highest possible return for their investors.
Investment decision can be long-term or short-term.
• Long-term investment decision (also called a Capital
Budgeting decision) involves committing the finance
on a long-term basis. For example, making investment
in a new machine to replace an existing one or acquiring
a new fixed asset or opening a new branch, etc.
• Short-term investment decisions (also called Working
Capital decisions) are concerned with the decisions
about the levels of cash, inventory and receivables.
These decisions affect the day-to-day working of a
business.
Essential ingredients of sound working capital
management:
(i) Efficient cash management
(ii) Efficient inventory management
(iii) Efficient receivables management
2. Financing Decision
This decision is about the quantum of finance to be raised from various long-term sources.
Top Tip
Short-term sources are studied under the ‘working capital management’.
The main long-term sources of funds are shareholders’ funds and borrowed funds. A firm has to decide the
proportion of funds to be raised from either sources, based on their basic characteristics.
• Shareholders’ funds (equity) refer to the equity share capital, preference share capital and reserves and
surpluses or retained earnings.
• Borrowed funds (debt) refer to the finance raised through debentures, long-term loans, public deposits, etc.
3. Dividend Decision
The third important decision that every financial
manager has to take relates to the distribution of
dividend. Dividend is that portion of profit which is
distributed to shareholders.
Dividend decision involves 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 earning increases the firm’s future
earning capacity. The extent of retained earnings also
influences the financing decision of the firm since the
firm does not require funds to the extent of re-invested
retained earnings.
Top Tip
The decision regarding dividend should be taken keeping in view the overall objective of maximising shareholder’s wealth.
Objectives of Financial Management

The primary aim/objective of financial management
is to maximise shareholders’ wealth, which is referred
to as the wealth-maximisation concept.
The market price of a company’s shares is linked to the
three basic financial decisions. This is because a company
funds belong to the shareholders and the manner in
which they are invested and the return earned by them
determines their market value and price. It means
maximisation of the market value of equity shares. The
market price of equity share increases, if the benefit
from a financial decision exceeds the cost involved. All
financial decisions aim at ensuring that each decision is
efficient and adds some value. Such value additions tend
to increase the market price of shares. Therefore, those
financial decisions are taken which will ultimately prove gainful from the point of view of the shareholders. The
shareholders gain if the value of shares in the market increases. Those decisions which result in decline in the
share price are poor financial decisions.
Thus, the objective of financial management is to maximise the current price of equity shares of the
company or to maximise the wealth of owners of the company, that is, the shareholders.
Therefore, when a decision is taken about investment in a new machine, the aim of financial management is to
ensure that benefits from the investment exceed the cost so that some value addition takes place. Similarly, when
finance is procured, the aim is to reduce the cost so that the value addition is even higher.
In fact, in all financial decisions, major or minor, the ultimate objective that guides the decision-maker is that
some value addition should take place.
The objective of maximisation of shareholders’ wealth is achieved by:
1. Ensuring availability of sufficient funds at reasonable cost.
2. Ensuring effective utilisation of funds.
3. Ensuring safety of funds procured by creating reserves, reinvesting profits, etc.
Role of Financial Management
The overall financial health of a business and its future depends a great deal on the quality of its financial
management.
1. Financial Management is concerned with optimal procurement as well as the usage of finance.
2. Good financial management aims at procuring funds at a lower cost, keeping the risk under control and
achieving effective deployment of such funds in most productive activities, so that they are able to earn
the highest possible return for their investors.
3. It also aims at ensuring availability of enough funds whenever required as well as avoiding idle finance.
4. The financial statements, such as Balance Sheet and Statement of Profit and Loss Account, of a business
are largely determined by financial management decisions taken earlier.
Example
Suppose Krishna Ltd., a steel manufacturing company in India, is enjoying a buoyant demand for its products
as economic growth is about 10%-12% and the demand for steel is growing. It is planning to set up a new steel
plant to cash on the increased demand. It is estimated that it will require about ` 500 crore to set up and about
` 50 crores of working capital to start the new plant.
This is a capital budgeting decision (i.e., a long-term investment decision).
• It will raise the size of fixed assets block in the Balance Sheet by ` 500 crores.
• With an increase in the investment in fixed assets, there is a commensurate increase in the working
capital requirement, say `50 crores. Therefore, the quantum of current assets and its break-up into cash,
inventory and receivables is also influenced by this decision.
• Of the total long-term finance, the proportions to be raised by way of debt and/or equity is a financing
decision, which affects the amounts of debt and equity.
• These financial decisions will also affect the items in the Statement of Profit and Loss, e.g. Interest,
Depreciation, etc.
Long-Term Investment Decision/Capital Budgeting Decision
A long-term investment decision/A capital budgeting decision involves committing the finance on a long-term
basis. In other words, it refers to investment in long-term assets or fixed assets. These long-term assets last for
more than one year.
Capital budgeting decision involves allocation of firm’s capital to different projects or assets with long-
term implications for the business.
It is also called ‘Management of Fixed Capital’.
Examples of capital budgeting decisions:

• Acquiring a new fixed asset such as land, building, plant and machinery, etc.
• Opening a new branch
• Expenditure on acquisition, expansion, modernisation and their replacement
• Launching a new product line
• Investing in advanced techniques of production
• Major expenditures on advertising campaign or research and development programme
Top Tip
It must be financed through long-term sources of capital such as equity or preference shares, debentures, long-term loans
and retained earnings of the business. Fixed Assets should never be financed through short-term sources.
Why are investment or capital budgeting decisions important?

Capital budgeting decisions are very crucial for any business since they affect its earning capacity in the long run.
The size of assets, profitability and competitiveness are all affected by capital budgeting decisions.These decisions
affect the growth, profitability and risk of the business in the long run. . The management of fixed capital or
investment or capital budgeting decisions are important for the following reasons:
1. Long-term growth: These decisions have bearing on the long-term growth. The funds invested in long-
term assets are likely to yield returns in the future. These will affect the future prospects of the business.
2. Large amount of funds involved: These decisions normally involve huge amounts of funds being
blocked in long-term projects.
3. Risk involved: Fixed capital involves investment of huge amounts. It affects the returns of the firm as
a whole in the long-term. Therefore, investment decisions involving fixed capital influence the overall
business risk complexion of the firm.
4. Irreversible decisions: These decisions once taken, are not reversible without incurring heavy losses.
Abandoning a project after heavy investment is made is quite costly in terms of waste of funds.
Thus, capital budgeting decisions should be taken with utmost care only after evaluating each detail or else the
adverse financial consequences may be very heavy. A bad capital budgeting decision normally has the capacity to
severely damage the financial fortune of a business.
Factors affecting Capital Budgeting Decision
A number of projects are often available to a business to invest in. But each project has to be evaluated carefully
after considering the following factors:
1. The rate of return: The most important criterion is the expected rate of return of the project. If there is
only one project, its viability is seen in terms of the rate of return. However, if there are more than one
projects, a particular project with the highest rate of return is selected. Suppose, there are two projects,
A and B (with the same risk involved), with a rate of return of 10 per cent and 12 per cent, respectively,
then under normal circumstance, project B should be selected.
2. Cash flows of the project: When a company takes an investment decision involving huge amount of
funds, it expects to generate some cash flows over a period. These cash flows are in the form of a series
of cash receipts and payments over the life of the investment. The amount of these cash flows should be
carefully analysed before considering a capital budgeting decision.
3. The investment criteria involved: The decision to invest in a particular project involves a number of
calculations regarding the amount of investment, interest rate, cash flows and rate of return. There are
different techniques, such as Pay Back Period, Net Present Value(NPV), Internal Rate of Return(IRR),
etc. to evaluate investment proposals which are known as capital budgeting techniques. These techniques
are applied to each proposal before selecting a particular project.
Financing Decision
Financing decision relates to the financing pattern or the
proportion of debt and equity. It is concerned with the decisions
about how much to be raised from which source.
A firm needs to have a judicious mix of both debt and equity in
making financing decisions.
Debt and Equity differ significantly in terms of their cost and risk
for the firm. ‘Cost of debt’ means the expected rate of return of
lenders on debt capital for assuming risk. ‘Cost of equity’ means
the expected rate of return on equity capital for assuming risk.
• Cost of debt is lower than cost of equity for a firm because
the lender’s risk is lower than the equity shareholder’s risk.
Since the lenders earn an assured return (fixed interest) and repayment of capital on maturity, therefore,
they should require a lower rate of return. Moreover, interest paid on debt is a deductible expense for
computation of tax liability whereas dividends are paid out of after-tax profits. Therefore, increased use of
debt is likely to lower the overall cost of capital of the firm.
Debenture (Debt) is the cheapest source of finance, not Retained Earnings!

Some people believe that ‘retained earnings’ is the cheapest source of finance. But this is not true. The cost of retained earnings is
equal to the cost of equity shares. If earnings are not retained, they would be paid to the equity shareholders as dividends. Thus, the
cost of retained earnings must be considered as the opportunity cost of the foregone dividends. Since equity shareholders forego
dividends, their expected rate of return on equity capital also increases.
Thus, Cost of retained earnings = Cost of equity shares
Since cost of debt is less than cost of equity, therefore, debenture (debt) is the cheapest source of finance, tax deductibility of interest
makes it still cheaper.
• Debt is cheaper, but is more risky for a business because the payment of interest and the return of principal
is obligatory for the business. Any default in meeting these commitments may force the business to go
into liquidation. There is no such compulsion in case of equity, which is therefore, considered riskless for
the business.
Higher use of debt increases the fixed financial charges (i.e., interest payment) of a business. As a result, increased
use of debt increases the financial risk.
Financial risk is the chance that a firm would fail to meet its payment obligations, i.e., interest and
principal amount.
The overall financial risk depends upon proportion of ‘Debt’ in the total capital.
Thus, financing decision determines the overall cost of capital and the financial risk of the enterprise.
Factors Affecting Financing Decision
1. Cash Flow Position: A stronger cash flow position may make debt financing more viable than funding
through equity. On the other hand, if the cash flow position of a company is weak, more debt financing is
not recommended because interest on debt has to be paid regardless of whether or not there is availability
of cash. Likewise, the borrowed funds (debt) have to be repaid at a fixed time. Shareholders’ funds (equity)
involve no commitment regarding the payment of returns or the repayment of capital.
2. Fixed Operating Costs: If a business has high fixed operating costs (e.g., building rent, insurance
premium, salaries, etc.), it must reduce fixed financing costs(i.e. interest on debt). Hence, lower debt
financing is better. Similarly, if fixed operating cost is less, more of debt financing may be preferred.
Risk
Floatation
Cost Costs
Fixed Operating Control

Costs Considerations
Factors Affecting
Cash Flow State of Capital
Position Financing Market
Decision
3. Cost: The cost of each type of finance has to be estimated. Some sources may be cheaper than others. A
prudent financial manager would normally opt for a source which is the cheapest. For example, debt is
considered to be the cheapest of all the sources; tax deductibility of interest makes it still cheaper.
4. Risk: Associated risk is also different for each source, e.g., it is necessary to pay interest on debt and
redeem the principal amount on maturity. There is no such compulsion to pay any dividend on equity
shares.
Use of more debt increases the financial risk of a business. Financial risk refers to a position when a
company is unable to meet its fixed financial charges namely interest payment, preference dividend and
repayment obligations. Apart from the financial risk, every business has some operating risk (also called
business risk). Business risk depends upon fixed operating costs. Higher fixed operating costs result in
higher business risk and vice-versa. The total risk depends upon both the business risk and the financial
risk. If a firm’s business risk is lower, its capacity to use debt is higher and vice-versa.
5. Floatation Costs: The fund raising exercise also costs something (e.g., brokerage, commission, printing
of applications and advertising, etc.). This cost is called floatation cost. Higher the floatation cost, less
attractive the source. Public issue of shares and debentures requires considerable expenditure. Getting a
loan from a financial institution may not cost so much. These considerations may also affect the choice
between debt and equity.
6. Control Considerations: Debt normally does not cause a dilution of control. Issues of more equity,
however, may reduce the management’s holding in the company and make it vulnerable to takeover.
Therefore, companies afraid of a takeover bid would prefer debt to equity.
7. State of Capital Market: Health of the capital market or the stock market conditions often affect the
choice between debt and equity.
• During the period when stock market is rising(i.e., a bullish phase), more people invest in equity.
Equity shares are more easily sold even at a higher price. Use of equity is often preferred by
companies in such a situation.
• However, during the period of depressed capital market(i.e., a bearish phase) a company may find
raising of equity capital more difficult and it may opt for debt.
Dividend Decision
Dividend decision involves how much of the profits earned by a company (after paying tax) will be
distributed as profit and how much will be retained in the business.
Factors affecting dividend decision
1. Amount of Earnings: Dividends are paid out of
current and past earning. Therefore, earnings is a
major determinant of the dividend decision.
2. Stability Earnings: Other things remaining the
same, a company having stable earnings is in a better
position to declare higher dividends. As against this,
a company having unstable earnings is likely to pay
smaller dividend.
3. Stability of Dividends: Companies generally follow
a policy of stable dividend per share. The increase in
dividends is generally made when the earning potential
of the company increases and not just the earnings of
the current year. In other words, dividend per share is not altered if the change in earnings is small or
seen to be temporary in nature.
4. Growth Opportunities: Companies having good growth opportunities retain more money out of their
earnings so as to finance the required investment and therefore, pay smaller dividend. On the other hand,
non-growth companies are likely to pay more dividend, other things remaining the same.
5. Cash Flow Position: 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.
6. Shareholders’ Preference: While declaring dividends, management of a company must keep in mind
the preferences of the shareholders in this regard. If the shareholders in 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.
7. Stock Market Reaction: Generally, investors view an increase in dividend as a good news and hence
market price of shares increases in the stock market. On the contrary, a decrease in dividend reduces the
market price of shares.
8. Access to Capital Market: Large and reputed companies generally have easy access to the capital market
and, therefore, may depend less on retained earning to finance their growth. These companies are likely
to pay higher dividends than the smaller companies which have relatively low access to the market.
9. Legal Constraints: Certain provisions of the Companies Act place restrictions on pay outs as dividend.
Such provisions must be adhered to while declaring the dividend. (As per the Indian Companies Act,
2013, the rate of dividend declared cannot exceed the average of the rates declared by the company in
three preceding years and after dividend reserves should not be less than 15% of its paid up share capital.)
10. Contractual Constraints: While granting loans to a company, sometimes banks/financial institutions
may impose certain restrictions on the payment of dividends in future. The companies are required to
ensure that the dividend does not violate the terms of the loan agreement.
Budget 2020 has removed Dividend Distribution Tax and made dividends taxable in the hands of investors. Also, it has introduced tax
deduction at source (TDS) at 10 per cent if the dividend declared by mutual funds exceeds `5,000 in a year.
Extra Shots
India Inc. Issues Bonus Shares and Dividends
Corporate India has opened its purse strings to shareholders with interim dividends and bonus shares. At least 60 companies have
declared interim dividend or announced plans to do so in the first three weeks of January. In addition, around 12 companies have
announced bonus share issues this month, about three times more than January 2006.
There are range of things that a company can do for maximising shareholder value and dividend is the most direct and simple form of
it. Ideally companies need to balance it up between paying cash and building value of the stock for total shareholder returns.
This trend of dividends and bonuses is in synchronisation with the good profits being posted by companies. It’s a way of rewarding
shareholders.
A number of companies have also announced plans of bonus shares for their shareholders. Most of the companies who have already
declared bonus issues or announced that they would be taking it up in their next board meeting are small or mid-sized companies.
Source: The Economic Times
RECAP
Concept, Role and Objectives of Financial Management

Financial Management means planning, organising, directing and controlling the financial activities of an organisation.
Or Financial Management refers to management of flow of funds and involves decisions relating to procurement of funds,
investment of funds and distribution of earnings to the owners.
Role of Financial Management
(i) Ensures availability of sufficient funds at reasonable cost.
(ii) Ensures effective utilisation of funds.
(iii) Ensures safety of funds procured by creating reserves, reinvesting profits.
Objectives of Financial Management
The objective of financial management is to maximize shareholders wealth, i.e. to maximize the market price of equity shares
of the company. This is because a company’s funds belong to the shareholders and the manner in which these are invested and
the return earned on them determines the market value or price of shares.
Decisions taken in Financial Management
1. Investment Decision: Investment decision involves deciding about how the funds are invested in different assets so that
they are able to earn the highest possible return for their investors. Investment decision can be long-term or short-term.
Long-term investment decision/Capital Budgeting Decision: Decision to invest in fixed assets is known as capital budgeting
decision. Examples: • Acquiring a new fixed asset such as land, building, plant and machinery, etc. • Opening a new branch
• Expenditure on acquisition, expansion, modernisation and their replacement • Launching a new product line • Investing in
advanced techniques of production • Major expenditures on advertising campaign or research and development programme
Reasons that make capital budgeting decision to be made carefully:
(a) These decisions have a bearing on the long term growth.
(b) These decisions result in a substantial portion of capital funds being blocked in long-term project.
(c) These decisions influence the overall business risk complexion of the firm.
(d) These decisions once taken, are not reversible without incurring heavy losses.
Short-term investment decisions (also called working capital decisions) are concerned with the decisions about the levels
of cash, inventory and receivables. These decisions affect the day-to-day working of a business. Efficient cash management,
inventory management and receivables management are essential ingredients of sound working capital management.
2. Financing Decision: It relates to the quantum of finance to be raised from various long term sources—Shareholders’ funds
(or Equity) and Borrowed funds (or Debt). Financing decision determines the overall cost of capital and the financial risk of
the enterprise.
3. Dividend Decision: It relates to how much of the profit earned by the company (after paying tax) is to be distributed to the
shareholders as dividend and how much of it should be retained in the business. The decision regarding dividend should be
taken keeping in view the overall objective of maximising shareholders' wealth.
Factors affecting Investment Decision/ Capital Budgeting Decision
1. Cash flows of the project: The amount of cash flows should be carefully analyzed before considering the decision.
2. Rate of return of the project: The rate of return of the project based on expected return and assessment of the risk involved
from each proposal should be analyzed.
3. Investment criteria: The decision to invest in a particular project involves a number of calculations regarding the amount
of investment, interest rate, cash flows and rate of return.
Factors affecting Financing Decision FORC3
1. Cost: The cheapest source of finance should be selected, i.e., debt. The cost of debt is lower than the cost of equity for a
firm because the lender requires a lower rate of return as his risk is lower than the equity shareholder. Moreover, interest
paid on debt is a tax deductible expense whereas dividends are paid out of after-tax profits. Therefore, increased use of
debt is likely to lower the overall cost of capital of the firm.
2. Risk: The less risky source of finance should be preferred, i.e., equity. Debt is more risky for a business because the
payment of interest and the return of principal amount are obligatory for the business which increases the financial risk of
a company whereas there is no such compulsion in case of equity, making it riskless for the company. Financial risk is the
chance that a firm would fail to meet its payment obligations, i.e. interest and principal amount.
3. Floatation costs: Cost of raising funds is called floatation cost, e.g. costs of advertising, printing prospectus, etc. Issue of
equity involves floatation cost while loan from a bank does not involve floatation costs.
4. Cash flow position: Debt financing is better than funding through equity if cash flow position of the company is strong.
5. Control: Debt normally does not cause a dilution of control while issue of equity shares may reduce management control
over the business. (Therefore, companies afraid of a takeover bid would prefer debt to equity.)
6. Level of fixed operating costs: If a business has high fixed operating costs (e.g., building rent, insurance premium, salaries,
etc.), i.e. high business risk, lower debt financing is better.
7. State of the capital market: During the period when stock market is rising (i.e., a bullish phase), equity shares are more
easily sold even at a higher price. However, during a bearish phase a company may opt for debt.
Factors affecting Dividend Decision SAS ECG
1. Amount of earnings: Dividends are paid out of current and past earnings. Therefore, earnings is a major determinant of
the dividend decision.
2. Stability of earnings: A company having stable earnings is in a position to declare higher dividends.
3. Stability of Dividends: Companies generally follow a policy of stable dividend per share. The increase in dividends is made
only when the earning potential increases and not just the earnings of the current year.
4. Cash Flow position: A good cash flow position is necessary for declaration of dividend.
5. Growth opportunities: If a company has good growth opportunities, it pays out less dividend and retain more profits to
invest in new projects.
6. Shareholders’ preference: Shareholders' preference is kept in mind by the management before declaring dividends.
7. Access to capital market: Large companies can raise funds easily from the capital market to invest in new projects. So, they
can pay higher dividend.
8. Stock market reaction: Increase in dividend increases the market price of shares in the stock market.
9. Legal constraints: Certain provisions of the Companies Act, 2013 place restrictions on pay outs as dividend.
10. Contractual constraints: While granting loans to a company, sometimes banks/financial institutions may impose certain
restrictions on the payment of dividends in future.
Objective Type Questions 9.1
1. As a part of its capital structure, ‘Venus Ltd.’ had `50 lakhs as Equity Share Capital and a loan of `20 lakhs from Neon Bank.
On earning a good profit, Venus Ltd decided to give dividend to the Equity Shareholders but were surprised when the Neon
Bank imposed restrictions on the payment of dividend.
The factor affecting dividend decision which allows Neon Bank to impose restrictions on the payment of dividend by
‘Venus Ltd.’ is ____________________ . (Fill up the blank with correct answer)
2. Koby Ltd. is an 87-year-old reputed consumer goods company. It is known for offering good quality electronic products
at reasonable prices. It has branches all over India. It has a large shareholder base. The shareholders desired that some
dividend is paid every year on their investments. Company’s management understands that it is important to keep the
shareholders happy and satisfied. As a matter of policy, they declare a certain amount of dividend every year out of profits
rather than reinvesting the whole as retained earnings. The factor affecting dividend decision being highlighted in the
above situation is __________________ . (Fill up the blank with correct answer)
3. A decision is taken in financial management to distribute certain parts of the profit to shareholders after paying tax. This
decision is called ________. (Fill up the blank with correct answer)
4. For optimal procurement of funds, a finance manager identifies different available sources and compares those in terms
of costs and associated risks. The concept highlighted in the above lines is ________.
5. A decision is taken in financial management to put capital of the company in different assets. This decision is called
________. (Fill up the blank with correct answer)
6. Capital budgeting decisions are very crucial for any business because _______. (Fill up the blank with correct answer)
7. Capital budgeting decisions need to be taken with utmost care because _______. (Fill up the blank with correct answer)
8. While taking investment decision, if there is only one project, its viability is assessed ______.
(Fill up the blank with correct answer)
9. ‘The size of assets, the profitability and competitiveness are affected by one of the financial decisions’.
The decision involved with reference to the given statement is _______. (Fill up the blank with correct answer)
10. The decision involved in launching a new product line or opening of a new branch is called _____.
11. The decision involved in expenditures on advertising campaign or research and development programme is called _____.
12. The financial decision which will help a businessman in opening a new branch of its business is called ______.
13. The decision in financial management which influences the overall business risk complexion of the firm is called ______.
14. The decision in financial management which affects the growth, profitability and risk of the business is called _____.
15. What is the effect of increased use of debt on the overall cost of capital?
16. Name the decision in financial management which determines the overall cost of capital and the financial risk of the
enterprise.
17. The source of finance carrying two fixed obligations, viz., interest and redemption is _____.
18. What does a higher business risk indicate?
19. The decision in financial management which should be taken keeping in view the overall objective of maximising
shareholders’ wealth is _______. (Fill up the blank with correct answer)
20. Avik is the finance manager of Mars Ltd. In the current year, the company earned high profit. However, Avik thinks that it
is better to declare smaller dividend as he is unsure about the earning potential of the company in the coming years. Avik’s
choice of dividend decision is based on which of the factor that affect it?
21. ___________ is concerned with optimum procurement as well as the usage of finance. (Fill up the blank with correct answer)
22. _____________ aims at reducing the cost of funds procured, keeping the risk under control and achieving effective
deployment of such funds. (Financial management/Financial planning). (Fill up the blank with correct option)
23. _____________ aims at mobilisation of financial resources at a lower cost and deployment of these in most lucrative
activities. (Fill up the blank with correct answer)
24. The primary aim of financial management is _______________. (Complete the sentence)
25. The primary aim of financial management is shareholders wealth maximisation, which means __________________
(Complete the sentence)
26. Financial management is concerned with the solution of three major issues relating to the financial operations of a firm,
namely decisions.
27. _______________ relates to how the firm’s funds are invested in different assets. (Fill up the blank with correct answer)
28. A long-term investment decision is also called a _____________________. (Fill up the blank with correct answer)
29. ______________ involves committing the finance on a long-term basis. (Fill up the blank with correct answer)
30. Making investment in a new machine to replace an existing one or acquiring a new fixed asset or opening a new branch,
etc. are __________________ (Short-term Investment Decisions/ Capital Budgeting Decisions)
(Fill up the blank with correct option)
31. Capital Budgeting Decisions are very crucial for any business since _________________. (Complete the sentence)
32. The size of assets, profitability and competitiveness are all affected by _________________.
33. The risk of default on payment of interest on borrowed funds and the repayment of debt is known as ______________.
34. ___________________ normally involve huge amounts of investment and are irreversible except at a huge cost. Therefore,
once made, it is often almost impossible for a business wriggle out of such decisions. Therefore, they need to be taken with
most care. (Fill up the blank with correct answer)
35. Short-term investment decisions are also called ________________________. (Fill up the blank with correct answer)
36. _______________ decisions are concerned with the decisions about the levels of cash, inventory and receivables.
37. _______________ decisions affect the day-to-day working of a business. (Fill up the blank with correct option)
38. _______________ decisions affect the liquidity as well as profitability of a business. (Fill up the blank with correct option)
39. If there is only one project, its viability in terms of ______________ and its comparability with the industry average is
seen. (Fill up the blank with correct answer)
40. Which of the following is a factor affecting Capital Budgeting Decision? (Choose the correct alternative)
(a) Cash flows of the project (b) The rate of return of the project
(c) Amount of investments, interest rate, etc. (d) All of these
41. The most important criterion for evaluation of projects (based on capital budgeting decision) is __________________.
42. Suppose there are two projects, A and B (with the same risk involved), with a rate of return of 10% and 12% respectively,
then under normal circumstance, ___________ (Project A/ Project B) should be selected.
43. The decision to invest in a particular project involves a number of calculations regarding. (Complete the sentence)
44. There are different techniques to evaluate investment proposals which are known as _______________. These techniques
are applied to each proposal before selecting a particular project. (Fill up the blank with correct answer)
45. _____________ is about the quantum of finance to be raised from various long-term sources.
(Choose the correct alternative)
(a) Investment Decision
(b) Financing Decision
(c) Dividend Decision
(d) Capital Budgeting Decision
46. _______________ (Shareholder’s funds/Borrowed funds) involve no commitment regarding the payment of returns or the
repayment of capital. (Fill up the blank with correct option)
47. _______________ is considered to be the cheapest of all the sources of finance, tax deductibility of interest makes it still
cheaper. (Fill up the blank with correct answer)
48. The overall financial risk depends upon __________________. (Complete the sentence)
49. The fund raising cost is called_____________. (Fill up the blank with correct answer)
50. This decision determines the overall cost of capital and the financial risk of the enterprise. (Choose the correct alternative)
(a) Investment Decision
(b) Financing Decision
(c) Dividend Decision
(d) All of these
51. A stronger cash flow position may make ____________ financing more viable than funding through ___________.
(Equity/Debt) (Fill up the blank with correct option)
52. If a business has high fixed operating costs (e.g. building rent, insurance premium, salaries, etc)__________(higher/lower)
debt financing is better. (Fill up the blank with correct option)
53. Companies afraid of a take over bid would prefer ____________ (debt/equity) (Fill up the blank with correct option)
54. During the period when stock market is rising, more people invest in equity. However, depressed capital market may make
issue of equity shares difficult for any company.
55. Dividend decision involves how much of the profit earned by company ____________ (before paying tax/ after paying tax)
is to be distributed. (Fill up the blank with correct option)
56. The extent of retained earnings also influences the financing decision of the firm. True/False? Give reason.
57. Dividend division should be taken keeping in view the overall objective of maximising shareholders wealth. True/False?
58. ______________ is a major determinant of the decision about dividend. (Fill up the blank with correct answer)
59. Abandoning a project after heavy investment is made is quite costly in terms of waste of funds. Therefore, these decisions
should be taken only after carefully evaluating each detail or else the adverse financial consequences may be very heavy.
The financial decision highlighted above is _____________. (Fill up the blank with correct answer)
60. “Other things remaining the same, a company having stable earnings is in a better position to declare higher dividends.”
(True/False)
61. Dividend per share is not altered if the change in earnings is small or seen to be temporary in nature. The increase in
dividends is generally made when there is confidence that their earning potential has gone up and not just the earnings of
the current year.
The factor affecting dividend decision highlighted in the above para is __________. (Fill up the blank with correct answer)
62. The dividend in growth companies is smaller than that in the non-growth companies. True/False? Give reason.
63. The statement of Profit and Loss of Govinda Ltd. shows huge profits but the company is short on cash. So, it can pay less
dividend.
The factor affecting dividend decision highlighted here is _____________. (Fill up the blank with correct answer)
64. There are always some shareholders who depend upon a regular income from their investments. If the shareholders in
general desire that at least a certain amount is paid as dividend; the companies are likely to declare the same.
65. Higher dividends may be declared if tax rates are relatively higher. True/False? Give reason.
66. Investors, in general, view an increase in dividend as a good news and stock prices react positively to it . Thus, the possible
impact of dividend policy on the equity share price is one of the important factors considered by the management while
taking about it.
67. Large and reputed companies generally tend to pay higher dividends than the smaller companies because
________________. (Complete the sentence)
68. Decision to invest in fixed assets must be taken very carefully as the investment usually quite large.
Such decisions once taken are irrevocable except at a huge loss. Such decision are called __________.
69. ___________________ decisions involve allocation of firm’s capital to different projects or assets with long-term
implications for the business. These decisions affect the growth profitability and risk of the business in the long run.
70. ______________ decision include purchase of land, building, plant and machinery, launching a new product line or
investing in advanced techniques of production. (Fill up the blank with correct answer)
71. Major expenditures such as those on advertising campaign or research and development programme having long-term
implications for the firm are examples of _____________ (Fill up the blank with correct answer)
72. Capital Budgeting Decision are important because: (Choose the correct alternative)
(a) These decisions have bearing on the long-term growth.
(b) These decisions result in a substantial portion of capital funds being blocked in long-term projects.
(c) These decisions once taken, are nit reversible without incurring heavy losses.
(d) All of the above
73. These decisions result in a substantial portion of capital funds being blocked in long-term projects.
Therefore, these investments are planned after a detailed analysis is undertaken. This may involve decisions like where to
procure funds from and at what rate of interest.
The financial decision highlighted above is _____________. (Fill up the blank with correct answer)
74. ________________ decisions influence the overall business risk complexion of the firm.
Case Studies 9.1

Analysing, Evaluating & Creating Type Questions
Q.1 ‘Monisha Consumer Goods’ is a leading consumer goods chain with a network of 46 stores primarily
across Mumbai, Delhi and Pune. It was started by Monisha Gupta in 1987. It has a large market share in
Mumbai, Delhi and Pune. Looking for an opportunity to expand, it has decided to open a new branch in
Kerala. It has decide on what new resources it will invest in so that it is able to earn the highest possible
return for investors. Once the company believes that it will be able to generate higher revenues and
profits, it also has to decide on how this project will get funded. The finance manager, Atul was told to
have an optimal capital structure by striking a balance between various sources of getting the project
funded so as to increase shareholders’ wealth. Atul, after assessing the cash flow position of the company,
evaluated the cost of different sources of finance and compared the risk associated with each source as
well as the cost of raising funds.
(a) State the two financial decisions discussed in the above situation.
(b) Explain any two factors affecting each of the decisions that still have to be considered by the finance
manager. (6 marks)
Ans. (a) (i) Investment decision/ Capital budgeting decision/ Long term Investment decision
(ii) Financing decision
(b) (explain the meaning and factors of these financial decisions)
Q.2 Sudha is an enterprising business woman who has been running a poultry farm for the past ten years.
She has saved ` 4,00,000 from her business. She shared with her family her desire to utilise this money
to expand her business. Her family members gave her different suggestions like buying new machinery
to replace the existing one, acquiring altogether new equipments with latest technology, opening a new
branch of the poultry farm in another city and so on. Since these decisions are crucial for her business,
involve a huge amount of money and are irreversible except at a huge cost, Sudha wants to analyse all
aspects of the decisions, before taking any final decision.
(i) Identify and explain the financial decision to be taken by Sudha.
(ii) Also, explain the briefly the factors that will affect this decision. (5 marks)
Ans. (i) Investment decision/Capital budgeting decision
Investment/Capital budgeting decision involves deciding about how the funds are invested in different
assets so that they are able to earn the highest possible return for their investors.
(ii) Factors that affect capital budeting decision are:
(a) Cash flows of the project (b) Rate of return of the project (c) Investment criteria (explain)
Q.3 ‘Sarah Ltd.’ is a company manufacturing cotton yarn. It has been consistently earning good profits for
many years. 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. It is a well managed organisation and believes
in quality, equal employment opportunities and good remuneration practices. It has many shareholders
who prefer to receive a regular income from their investments.
It has taken a loan of ` 40 lakhs from IDBI 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.
Quoting the lines from the above discussion identify and explain any four such factors. (6 marks)
Ans. Factors affecting dividend decision: (Explain any four)
(i) Stability of earnings – ‘ It has been consistently earning good profits for many years’.
(ii) Cash Flow position – ‘ There is availability of enough cash in the company’.
(iii) Growth Prospects – ‘Good prospects for growth in the future.’
(iv) Shareholders’ preference – ‘It has many shareholders who prefer to receive regular income from their
investments.’
(v) Contractual constraints – ‘ It has taken a loan of ` 40 Lakhs from IDBI and ... agreement.’
Q.12 Rizul Bhattacharya after leaving his job wanted to start a Private Limited Company with his son. His son
was keen that the company may start manufacturing of Mobile-phones with some unique features. Rizul
Bhattacharya felt that the mobile-phones are prone to quick obsolescence and a heavy fixed capital investment
would be required regularly in this business. Therefore he convinced his son to start a furniture business.
Identify the factor affecting fixed capital requirements which made Rizul Bhattacharya to choose furniture
business over mobile-phones. (1 mark)
Ans. Technology upgradation
Q.13 Harish is engaged in warehousing business and his warehouses are generally used by the businessmen to store
fruits. Identify the working capital requirements of Harish giving reason in support of your answer. (1 mark)
Ans. Since Harish is providing warehousing service, it does not have to maintain inventory and thus, require less working capital.
Key Terms
Financial Management is concerned with management of flow of funds and involves decisions relating to procurement
of funds, investment of funds and distribution of earnings to the owners.
Investment decision relates to how the firm’s funds are invested in different assets so that they are able to earn the
highest possible return for their investors.
Capital Budgeting decision involves committing the finance on a long-term basis. For example, making investment in a
new machine to replace an existing one or acquiring a new fixed asset or opening a new branch, etc.
Working Capital decisions are concerned with the decisions about the levels of cash, inventory and receivables. These
decisions affect the day-to-day working of a business.
Financing decision is about the quantum of finance to be raised from various long-term sources.
Dividend decision involves 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.
Financial risk is the chance that a firm would fail to meet its payment obligations, i.e., interest and principal amount.
Floatation Costs—The fund raising exercise also costs something (e.g., brokerage, commission, printing of applications
and advertising, etc.). This cost is called floatation cost.
Financial planning is essentially the preparation of a financial blueprint of an organisation’s future operations.
Capital structure refers to the mix between shareholders' funds (equity) and borrowed funds (debt).
Financial leverage—The proportion of debt in the total capital is also called financial leverage.
Trading on Equity refers to the increase in profit earned by the equity shareholders due to presence of fixed financial
charges like interest.
Favourable financial leverage—When ROI is higher than cost of debt, financial leverage is favourable. In such cases,
companies often employ more of cheaper debt to enhance the EPS.
Unfavourable financial leverage—When ROI is less than cost of debt, financial leverage is unfavourable. In such cases,
the use of debt reduces the EPS. Trading on equity is clearly unadvisable in such a situation.
Optimum capital structure—A capital structure is said to be optimum when the proportion of debt and equity is such
that it results in an increase in the price of the equity shares. In other words, all decisions relating to capital structure
should emphasise on increase in shareholders’ wealth.
Business risk depends upon fixed operating costs (e.g. building rent, insurance premium, salary, etc.). Higher fixed
operating costs result in higher business risk and vice-versa.
Interest Coverage Ratio (ICR)—It refers to the number of times Earnings Before Interest and Tax (EBIT) of a company
covers the interest obligation.
Fixed capital refers to investment in long-term assets or fixed assets.
Fixed assets are those which remain in the business for more than one year, usually for much longer, e.g., plant and
machinery, furniture and fixture, land and building, vehicles, etc.
Working capital refer to investment in current assets. This investment facilitates smooth day-to-day operations of the
business.
Current assets are expected to get converted into cash or cash equivalents within a period of one year. Examples of
current assets (in order of their liquidity) are cash in hand/cash at bank, marketable securities, bills receivable, debtors,
finished goods inventory, work-in-progress, raw materials and prepaid expenses.
Current liabilities are those payment obligations which are due for payment within one year; such as bills payable,
creditors, outstanding expenses and advances received from customers, etc.
Net Working Capital may be defined as the excess of current assets over current liabilities.
Production cycle is the time span between the receipt of raw materials and their conversion into finished goods.
Self Assessment Test 1
Time allowed : 1 hour Maximum Marks : 25
Q.1 Vikrant joins his father’s business of Organic masalas, near Kotgarh in Himachal after completing his MBA. In
order to capture a major share of the market, he decided to sell the product in small attractive packages by using
the latest packaging technology. His father suggested that they hire financial consultants to estimate the amount
of funds that would be required for the purpose & timings when it would be required. The concept being
discussed by Vikrant’s father, links which financial decision with the investment decision? (1 mark)
(a) Dividend decision (b) Financial Planning
(c) Capital structure decision (d) Financing decision
Q.2 A company wants to establish a new unit in which a machinery of worth ` 10 lakhs is involved. Identify the
type of decision involved in financial management. (1 mark)
Q.3 The aspect of financial management that enables to foresee the fund requirements both in terms of ‘the quantum’
and ‘the timings’ is _________________. (1 mark)
Q.4 ‘G. Motors’ is the manufacturer of sophisticated cranes. The Production manager of the company, reported to the
Chief Executive Officer, Ashish Jain that one of the machines used in manufacturing sophisticated cranes had to be
replaced to compete in the market, as other competitors were using automatic machines for manufacturing cranes.
After a detailed analysis, it was decided to purchase a new automatic machine having the latest technology. It was
also decided to finance this machine through long term sources of finance. Ashish Jain compared various machines
and decided to invest in the machine which would yield the maximum returns to its investors.
The financial decision taken by Ashish Jain is _________________ . (1 mark)
Q.5 Mr. Rohit is into transport business. His buses are hired by schools for transportation of students. He is willing
to expand and diversify his business to inter-state transportation purposes.
Enumerate any six factors that will affect his fixed capital requirements. (3 marks)
Q.6 Discuss the two objectives of financial planning. (3 marks)
Q.7 “A capital budgeting decision is capable of changing the financial fortunes of a business.” Do you agree? Give
reasons for your answer. (4 marks)
Q.8 S Ltd. is manufacturing steel at its plant in India. It is enjoying a buoyant demand for its products as economic
growth is about 7%-8% and the demand for steel is growing. The company has decided to set up a new steel
plant to cash on the increased demand. It is estimated that it will require about ` 2000 crore to set up and about
` 500 crore of working capital to start the new plant.
(a) Identify the decision taken by the finance manager in the above case.
(b) Explain any two factors affecting the fixed capital requirements of S Ltd. (5 marks)
Q.9. What is working capital? How is it calculated? Discuss four important determinants of working capital
requirement. (6 marks)
Q.1 A decision to acquire a new & modern plant to upgrade an old one is known as __________decision. (1 mark)
(a) Financing decision; (b) working capital decision;
(c) Investment decision; (d) Dividend decision.
Q.2 Financial management aims at ______________ . (1 mark)
(a) ensuring availability of enough funds (b) reducing the cost of funds procured
(c) effective deployment of funds (d) All of these
Q.3 A proper matching of funds requirements and their availability is sought to be achieved by one of the concepts
of financial management. It takes into consideration the growth, performance, investments and requirement of
funds for a given period. Identify the concept. (1 mark)
Q.4 Companies with a higher growth pattern are likely to: (1 mark)
(a) pay lower dividends
(b) pay higher dividends
(c) dividends are not affected by growth considerations
(d) none of the above
Q.5 How does working capital affect both the liquidity as well as profitability of a business? (3 marks)
Q.6 “Capital structure decision is essentially optimisation of risk-return relationship.” Comment. (3 marks)
Q.7 Define financial management. What are the main objectives of financial management? Briefly explain. (4 marks)
Q.8 Explain briefly any five factors affecting working capital requirements of a business. (5 marks)
Q.9 The Capital of India has been declared as the most polluted city in the world. Benguluru, Mumbai, Patna,
Ahmedabad, Lucknow, Kanpur and Ludhiana are also the highly polluted Indian cities. This has resulted into
a dramatic increase in the sale of home air purifiers. The prices of these devices range from `2,000 to `25,000
depending upon the pollutants these purifiers remove. Looking at the increasing demand of these home air
purifiers ‘Pure Air Technology India Ltd.’ has developed a low cost home air purifier in its R. & D. Lab. The
company has estimated that a commercial production of 1,00,000 units per year may cost the company `500
per unit. For this capital of `100 crores will be required. The company decided to have both equity and debt
in its capital structure. Explain any four factors that the company should consider while deciding its capital
structure. (6 marks)
Q.1 A long-term investment decision is called a _________ . (1 mark)
(a) capital budgeting decision (b) working capital decision
(c) financial decision (d) dividend decision.
Q.2 Mahindra Ltd. takes a decision to raise money for long-term capital needs of business from certain sources.
Which type of decision is this? (1 mark)
Q.3 The cheapest source of finance is: (1 mark)
(a) debenture (b) equity share capital
(c) preference share (d) retained earning
Q.4 ‘XY Ltd.’ is registered with an authorised capital of `10 crore. The paid-up capital of the company is `6 crore.
The company was facing shortage of funds. The management of the company decided to raise funds by issue
of 1,00,000 equity shares of `100 each. The issue was fully subscribed. After this it was realised that the funds
raised were in excess of the actual requirement. The concept which was not considered by the company before
deciding the amount of funds to be raised is ____________ . (1 mark)
Q.5 Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order
to cater to international market. For this purpose the company needs additional `80,00,000 for
replacing machines with modern machinery of higher production capacity. The company wishes to
raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%.
The EBIT for the previous year of the company was ` 8,00,000 and total capital investment was
` 1,00,00,000. Suggest whether issue of debenture would be considered a rational decision by the company.
Give reason to justify your answer. (3 marks)
Q.6 Indian equity markets are going through a phase of boom. There is a huge growth potential for innovative
technologies. This has resulted in lots of new ventures vying for a market share and old enterprises trying to keep
up with the pace with which changes are taking place in the economy. This technological innovation has helped
even smaller businesses to compete on a global scale.
Identify and explain the three factors highlighted above which affect the working capital requirements of such
enterprises. (3 marks)
Q.7 ‘There is no restriction on payment of dividend by a company.’ Comment. (4 marks)
Q.8 Explain briefly any five factors affecting the fixed capital requirements of a business. (5 marks)
Q.9 Explain the term ‘Trading on Equity’. Why, when and how it can be used by a company? Explain with the help
of an example. (6 marks)
Q.1 Capital budgeting decisions are called ‘irreversible’ decisions because ________. (1 mark)
Q.2 The decision in financial management which determines the proportion between debt and equity is known as:
(1 mark)
(a) Financing decision (b) Operating decision
(c) Capital budgeting decision (d) Dividend decision.
Q.3 Companies with higher growth potential are likely to (1 mark)
(a) pay lower dividends
(b) pay higher dividends
(c) dividends are not affected by growth considerations
(d) None of the above.
Q.4 Financing decision is about the quantum of finance to be raised from various short-term sources. True/False?
Give reason. (1 mark)
Q.5 “A capital budgeting decision is capable of changing the financial fortunes of a business.” Comment. (3 marks)
Q.6 Cost of debt is less than cost of equity. Still a company cannot go with entire debt. Why? (3 marks)
Q.7 Aval Ltd. is engaged in the business of export of canvas goods and bags. In the past, the performance of the
company had been upto the expectations. In line with the latest demand in the market, the company decided
to venture into leather goods for which it required specialised machinery. For this, the Finance Manager Prabhu
prepared a financial blueprint of the organisation’s future operations to estimate the amount of funds required
and the timings with the objective to ensure that enough funds are available at right time. He also collected
the relevant data about the profit estimates in the coming years. By doing this, he wanted to be sure about the
availability of funds from the internal sources of the business. For the remaining funds, he is trying to find out
alternative sources from outside. Identify the financial concept discussed in the above paragraph. Also, explain
the objectives to be achieved by the use of financial concept so identified. (4 marks)
Q.8 ‘Smart Stationery Ltd.’ wants to raise funds of `40,00,000 for its new project. The management is considering
the following mix of debt and equity to raise this amount: (5 marks)
Capital Alternative
Structure I (`) II (`) III (`)
Equity 40,00,000 30,00,000 10,00,000
Debt 0 10,00,000 30,00,000
Other details are as follows:

Interest Rate on Debt 9%
Face Value of Equity Shares (`)100 each
Tax Rate 30%
Earning Before Interest and Tax (EBIT) (`) 8,00,000
(a) Under which of the three alternatives will the company be able to take advantage of Trading on Equity?
(b) Does Earning Per Share always rise with increase in debt?
Q.9 Name the decision a financial manager takes, keeping in view the overall objective of maximising shareholders’
wealth. Explain any five factors affecting this decision. (6 marks)
Q.1 Higher dividend per share is associated with: (1 mark)
(a) high earnings, high cash flows, unstable earnings and higher growth opportunities
(b) high earnings, high cash flows, stable earnings and high growthopportunities
(c) high earnings, high cash flows, stable earnings and lower growth opportunities
(d) high earnings, low cash flows, stable earnings and lower growth opportunities
Q.2 For optimal procurement of funds, a finance manager identifies different available sources and compares those in
terms of costs and associated risks. The concept highlighted in the above lines is ________. (1 mark)
Q.3 A decision to acquire a new and modern plant to upgrade an old one is a: (1 mark)
(a) financing decision
(b) working capital decision
(c) investment decision
(d) None of the above
Q.4 ________________ are essential ingredients of sound working capital management. (1 mark)
Q.5 Neelabh Sarin, the Finance Manager and Atul Chopra, the Managing Director of Ghokerns Ltd. were discussing
regarding the source of finance to be raised for modernization of their existing plant. Quoting that ‘Sensex has
soared by 5078 points’ in the last three years, Neelabh Sarin suggests that equity should be preferred while Atul
Chopra wanted to opt for debt.
Keeping in mind the high operating costs of the company, suggest the source of finance that should be used for
modernization of existing plant. Also, explain the two factors highlighted above which should be kept in mind
for taking this decision. (3 marks)
Q.6 Pinnacle Ltd. deals in the sale of stationery and office furniture. They source the finished products from reputed
brands who give them four to six months credit.
Seeing the demand for electronic items, they are also planning to market these items by opening outlets
throughout India. For this, they have decided to join hands with a japanese electronic goods manufacturer.
Identify and state any two factors that would affect the fixed capital requirement of Pinnacle Ltd. as discussed
above. (3 marks)
Q.7 The directors of a manufacturing company are thinking of issuing ` 20 crores worth additional debentures for
expansion of their production capacity. This will lead to an increase in debt equity ratio from 2 : 1 to 3 : 1. What
are the risks involved in it? Explain any three factors other than risk do you think the directors should keep in
view. (4 marks)
Q.8 Tata International Ltd. earned a net profit of ` 50 crores. Ankit the finance manager of Tata International Ltd.
wants to decide how to appropriate these profits. Identify the decision that Ankit will have to take and also
discuss any four factors which help him in taking this decision. (5 marks)
Q.9 Explain briefly any four factors which affect the choice of capital structure of a company. (6 marks)
Check List to Objective Type Questions
Objective Type Questions 9.1 46. Shareholder’s funds

1. Contractual constraints. 47. Debt.
2. Shareholders preference 48. The proportion of debt in the total capital.
3. Dividend decision 49. Flotation cost.
4. Financial management 50. Financing Decision.
5. Investment decision 51. Debt; Equity.
6. they affect the earning capacity of the business in the long 52. Lower.
run. The size of assets, the profitability and competitiveness 53. Debt.
are all affected by the capital budgeting decisions. 54. State of Capital market.
7. these decisions involve huge amount of investment and are 55. after paying tax
irreversible except at a huge loss. 56. True: Because the firm does not require funds to the extent
8. in terms of the rate of return of the project of re-invested retained earnings.
9. Capital budgeting decision 57. True
10. Investment or Capital budgeting decision 58. Earnings
11. Investment or Capital budgeting decision 59. Capital Budgeting decision/ Long-term investment decision
12. Capital Budgeting decision/Investment decision 60. True
13. Capital budgeting decision (long-term investment decision) 61. Stability of dividend
14. Capital budgeting decision (long-term investment decision) 62. True: This is because companies having good growth
15. Increased use of debt is likely to lower the overall cost of opportunities retain more money out of their earnings so
capital/funds of the firm. as to finance the required investment.
16. Financing decision 63. Cash Flow Position
17. Debt 64. Shareholders’ Preference
18. Higher business risk means higher fixed operating costs 65. False: If tax rate on dividend is higher, it is better to pay
(e.g., building rent, salaries, etc.), which indicates that less dividend. Though the dividends are free of tax in the
company’s capacity to use debt is lower. hands of shareholders, a dividend distribution tax is levied
19. Dividend decision on companies.
20. Stability of Dividend. 66. Stock Market Reaction
21. Financial management. 67. they generally have easy access to the capital market and,
22. Financial management. therefore, may depend less on retained earning to finance
23. Financial management. their growth.
24. To maximise shareholders wealth. 68. capital budgeting decisions
25. Maximisation of the market value of equity shares of the 69. capital budgeting decisions
company. 70. Capital Budgeting
26. Investment; Financing; Dividend. 71. Capital Budgeting Decisions
27. Investment decision. 72. (d) All of the above
28. Capital Budgeting Decision. 73. Capital Budgeting Decisions
29. Capital Budgeting Decision. 74. Capital Budgeting/ Long-term investment
30. Capital Budgeting Decisions. Objective Type Questions 9.2
31. Since they affect its earning capacity in the long run. 1. (c) ensuring that the firm faces neither a shortage nor a
32. Capital Budgeting Decisions. glut of unusable funds
33. Financial risk. 2. Financial planning
34. Capital Budgeting Decisions. 3. Financial Planning
35. Working capital decisions. 4. Financial planning
36. Working capital. 5. Financial Planning.
37. Working capital. 6. to ensure that enough funds are available at right time.
38. Working capital. 7. True: Financial management aims at choosing the best
39. Rate of return on investment. investment and financing alternatives by focusing on
40. (d) All of these. their costs and benefits. Its objective is to increase the
41. The rate of return of the project. shareholders’ wealth. Financial planning, on the other
42. Project B. hand, aims at smooth operations by focusing on fund
43. The amount of investment, interest rate, cash flows and requirements and their availability in the light of financial
rate of return. decisions.
44. Capital Budgeting techniques 8. Financial Planning
45. (b) Financing Decision. 9. Financial Planning
10. Financial Planning 24. Equity.

11. Financial Planning 25. True: Because there is no compulsion of payment of
12. True: Long-term financial planning relates to long-term dividend in case of loss and repayment of capital.
growth and investment. It focuses on capital expenditure 26. Financial risk.
programmes. Short-term financial plan is called budget. 27. True: Because higher use of debt increases the fixed financial
13. Budget charges of a business, the payment of which is obligatory for
14. Financial Planning the business, even if the firm incurs losses.
15. financial planning 28. Financial risk.
16. Financial Planning 29. Capital structure.
17. financial planning 30. The proportion of debt and equity is such that it results in
18. Financial Planning an increase in the value of the equity share,i.e. increase in
Objective Type Questions 9.3 the shareholder’s wealth.
1. Capital Structure 31. (c) Both (a) and (b)
2. (a) Trading on equity. 32. Debt/Equity or Debt/Debt+ Equity
3. Trading on Equity 33. of increased use of cheaper debt but the financial risk
4. True: An increase in debt may enhance the EPS but, it also increases.
raises the financial risk. Ideally, a company must choose that 34. Cost of debt (rate of interest) is lower then return on
risk-return combination which maximises shareholders’ Investment (ROI).
wealth. The debt-equity mix that achieves it, is the optimum 35. (d) EPS
capital structure. 36. Favourable financial leverage.
5. Capital structure
37. Trading on Equity.
6. (b) ROI is higher than cost of debt
38. (b) Trading on Equity.
7. (b) 7%
39. Reduces.
8. Return on investment (ROI)
40. Unfavourable.
9. Trading on Equity
10. (b) ROI is more than the rate of interest on debt. 41. Trading on Equity.
11. (c) higher degree of financial risk 42. True: An increase in debt may enhance the EPS but it also
raises the financial risk.
12. A company must choose that risk-return combination
which maximises shareholders’ wealth. That debt-equity 43. Optimum capital structure.
mix is the optimum capital structure. 44. Capital structure.
13. (a) make the debt relatively cheaper 45. True: ICR = EBIT/Interest. A higher ICR means more
14. Debt number of times EBIT covers the interest obligation.
15. As the proportion of debt in the total capital (i.e., financial 46. False: A firm may have a high EBIT but low cash balance. A
leverage) increases, the overall cost of capital declines but part from interest, repayment obligations are also relevant.
the financial risk (i.e., risk of default in payment of interest 47. True: A higher DSCR indicates better ability to meet cash
and principal amount) increases. commitments and consequently, the company’s potential
16. Financing decision. to increase debt component in its capital structure.
17. Capital structure. 48. Return on Investment (ROI)
18. Debt-equity ratio (i.e. Debt/Equity) or as the proportion of 49. True: If the ROI of the company is higher, it can choose to
debt out of the total capital (i.e. Debt/Debt+Equity). use trading on equity to increase its EPS,i.e. its ability to use
19. True: Because the lender’s risk is lower than the equity debt is greater.
shareholder’s risk, since the lender earns an assured return 50. Trading on Equity.
and repayment of capital and therefore, they should require
51. True: A firm’s ability to borrow at a lower rate increases its
a lower rate of return.
capacity to employ higher debt. Thus, more debt can be
20. Interest on debt ; Dividend. used if debt can be raised at a lower rate.
21. False: Not always ! Increased use of debt is likely to lower 52. Interest on debt is a deductible expense for computation of
the overall cost of capital of the firm provided the cost of tax liability.
equity remains unaffected.
53. 9%.
22. Debt.
54. A higher tax rate makes relatively cheaper than equity since
23. The payment of interest and the return of principal is
interest on debt is a deductible expense for computation of
obligatory for the business any default in meeting these
tax liability.
commitments may force the business to go into liquidation.
55. Cost of equity. 5. (b) within one year

56. True: When a company increases debt, the financial risk 6. Level of collaboration
faced by the equity holders increases. Consequently, their 7. (a) a long-term liability
desired rate of return (cost of equity) may increases. If debt
8. long-term sources of capital (shares, debentures, etc.)
is used beyond a level, cost of equity may go up sharply
inspite of increased EPS. 9. short-term sources
57. False: If debt is used beyond a level, financial risk faced by 10. Working capital requirements of Yogesh would be less as it
equity shareholder’s increases. Consequently, their desired is a trading business. There is no processing.
rate of return (i.e. cost of equity) may increases sharply, 11. Working capital requirements of Manish would be more as
and share price may decrease inspite of increased EPS. it is a manufacturing business. So raw material needs to be
Consequently, for maximisation of shareholders wealth converted into finished goods before any sales can become
debt can be used only up to a level. possible.
58. Flotation costs. 12. Less working capital is required as service industries which
59. Financial risk. usually do not have to maintain inventory require less
working capital.
60. Business risk.
13. The working capital requirement would be less as he is
61. Fixed operating costs (e.g. building rent, Insurance
engaged in ‘service industry’, which usually do not have to
premium, salaries, etc).
maintain inventory.
62. True: Because lower business risk means lower fixed
14. Low, as it is a service industry, which usually do not have to
operating costs (e.g. building rent, insurance premium,
maintain inventory.
salaries, etc). Therefore, the firm’s capacity to use debt is
higher as it can afford to pay fixed financial charges, i.e. 15. Working capital decision (or short-term investment
interest. decision).
63. Flexibility. 16. (c) both types (i.e. long and short term liabilities)
64. Debt. 17. (a) higher current ratio, higher risk and higher profits
65. Control. 18. Net working capital
66. Regulatory Framework. 19. (a) - (iii), (b) - (iv), (c) - (i), (d) - (ii)
67. False: During a bearish phase, a company may find raising of 20. True: Fixed assets must be financed through long-term
equity capital more difficult and it may opt for debt. sources of capital such as equity or preference shares,
debentures, long-term loans and retained earnings of the
68. True: If the stock markets are bullish, equity shares are more
business.
easily sold even at a higher price. Use of equity is often
preferred by companies in such a situation. 21. nature of business
69. equity 22. scale of operations
70. It cannot afford the same financial risk. 23. higher
Objective Type Questions 9.4 24. True: Because labour intensive organisation less investment
in fixed assets, their fixed capital requirement is lower.
1. fixed capital
25. technology upgradation
2. False: The working requirement of the firm will be ‘less’ as
26. higher
it is a service industry which does not normally maintain
inventory. 27. False: Higher fixed capital is required to create higher
capacity to meet the anticipated higher demand quicker.
3. True: Investment in current assets is called working capital.
Current assets are usually more liquid but contribute less to 28. increase
the profits than fixed assets. Insufficient investment in current 29. reduce
assets may make it more difficult for an organisation to meet 30. a developed financial market.
its payment obligations. However, these assets provide little
31. The scale of operations of each one of them is not sufficient
or low return. Hence, a balance needs to be struck between
to make full use of the facility.
liquidity and profitability.
32. Level of collaboration
4. False: Some part of current assets is usually financed
through short-term sources, i.e., current liabilities. The 33. working capital
rest is financed through long-term sources and is called 34. True: Working capital means investment in current assets,
net working capital. Thus, NWC = CA – CL (i.e. Current current assets are usually more liquid as these are expected
Assets – Current Liabilities.) to get converted into cash or cash equivalents within a
period of one year. However, current assets provide little 41. reduced
or low return, and hence contribute less to the profits them 42. lower
fixed assets. Thus, working capital affects both the liquidity
43. (a) a higher inventory turnover ratio and a higher trade
as well as profitability of the business.
receivables turnover ratio.
35. True: Service industries which usually do not have to
44. smaller
maintain inventory require less working capital.
45. (d) Lead time
36. There is usually no processing; hence no distinction between
raw materials and finished goods. Sales can be effected 46. True: Larger the lead time (i.e. the time lag between the
immediately upon the receipt of materials, sometimes even placement of order and the actual receipt of the materials),
before that. In a manufacturing business, however, raw larger the quantity of material to be stored and larger shall be
material needs to be converted into finished goods before the amount of working capital required.
any sales become possible. 47. it is able to meet higher production and sales target when
37. Because in a large scale organisation , the quantum of ever required.
inventory and debtors required is generally high. 48. True: Because higher level of competition may necessitate
38. business cycle larger stocks of finished goods to meet urgent orders from
customers. Also, the firm may have to extend liberal credit
39. False: Working capital requirement is higher if the processing
terms. As a result, working capital requirements increases.
cycle/production cycle is longer because funds are blocked
in raw materials and expenses for longer duration. 49. True: Because with higher rate of inflation, larger amounts
are required even to maintain a constant volume of
40. True: More credit period allowed to debtors due to a liberal
production and sales.
credit policy will cause more working capital requirements.
50. high risk lines of business
Answers to Self Assessment Tests Questions
Self Assessment Test 9.1 term sources. Short term sources are studied under the
1. (d) Financing decision “Working capital management”.
2. Capital budgeting decision 5. The given statement is true. Capital budgeting decisions
3. Financial planning are very crucial for any business since they affect its earning
4. Investment decision/ Capital Budgeting/ Long term capacity in the long run. The size of assets, profitability
Investment decision. and competitiveness are all affected by capital budgeting
8. (a) Investment decision decisions. Moreover, these decisions normally involve huge
amounts of investment and are irreversible except at a huge
(b) Factors affecting fixed capital requirements of S Ltd.:
cost. Therefore, they need to be taken with utmost care.
(i) Nature of business: Since it is a steel manufacturing
6. Because debt is more risky for a business, since payment of
company, it needs higher investment in fixed assets
interest and return of principal amount is compulsory for the
such as plant and machinery, etc. Therefore, its
business. Any default in meeting these commitments may force
fixed capital requirement will be larger.
the business to go into liquidation. That is, increased use of
(ii) Scale of operations: Since it is a large scale
debt increases financial risk of a business (the chance that a firm
organisation, its fixed capital requirement is more
would fail to pay interest on debt and the principal amount).
as it needs bigger plant, more space, etc.
7. Financial Planning
Self Assessment Test 9.2 8. (a)
1. (c) Investment decision Alternative Alternative Alternative
2. (d) All of these Equity 40,00,000 30,00,000 10,00,000
3. Financial management 9% Debt – 10,00,000 30,00,000
4. (a) pay lower dividends Capital 40,00,000 40,00,000 40,00,000
Employed
Self Assessment Test 9.3
Earning before 8,00,000 8,00,000 8,00,000
1. (a) capital budgeting decision Interest and Tax
2. Financing Decision Less Interest @ 9% – (90,000) (2,70,000)
3. (a) debenture Earning before Tax 8,00,000 7,10,000 5,30,000
4. Financial Planning Less Tax @30% (2,40,000) (2,13,000) (1,59,000)
5. No, issue of debenture would not be a rational decision Earnings After Tax/ 5,60,000 4,97,000 3,71,000
by the company. Reason: Cost of Debt (10%) is more Profit Available to
than ROI which is 8%. shareholders
EBIT Earning Per 5,60,000/ 4,97,000/ 3,71,000/
ROI = × 100 Share 40,000 30,000 10,000
Total capital investment
= `14 = `16.57 = `37.1
= `8,00,000/ ` 1,00,00,000 × 100 = 8%
6. (i) Business Cycle (ii) Growth Prospects Thus, under Alternative III, the company will be able
(iii) Level of competition to take advantage of Trading on Equity.
7. The given statement is false. There are Legal and Contractual (b) No, Earning Per Share (EPS) does not always rise with
Constraints on the payment of dividend by a company. increase in debt. When cost of debt is greater than
Legal Constraints: Certain provisions of the Companies Act ROI, use of more debt decreases the EPS.
place restrictions on payouts as dividend. Such provisions 9. Dividend decision
must be adhered to while declaring the dividend. Self Assessment Test 9.5
Contractual Constraints: While granting loans to a 1. (c) high earnings, high cash flows, stable earnings and
company, sometimes the lender may impose certain lower growth opportunities
restrictions on the payment of dividends in future. The 2. Financial management
companies are required to ensure that the dividend does 3. (c) investment decision
not violate the terms of the loan agreement in this regard. 4. Efficient cash management, inventory management and
Self Assessment Test 9.4 receivables management.
1. these decisions once taken, are not reversible without 5. Equity: (a) Stock market conditions/ State of capital market.
incurring heavy losses. (b) Fixed operating costs/ Risk considerations.
2. (a) Financing decision 6. Two factors that would affect the fixed capital requirement
3. (a) pay lower dividends of Pinnacle Ltd. are: (Explain)
4. False: Financing decision is about the quantum of (i) Diversification (ii) Level of collaboration
finance to be raised from various long - term sources 7. Financial risk (Explain); Other factors affecting capital
not (i.e. Shareholder’s funds and borrowed funds) short- structure: (Explain any three)
8. Dividend decision
Chapter 12: Consumer Protection 159
Chapter 12
Consumer Protection
CBSE Syllabus
Topics Learning Outcomes
 Concept and importance of consumer protection After going through this chapter, the students will be
 Consumer Protection Act able to:
– Consumer Rights and Responsibilities  Understand the concept of consumer protection.
– Who can file a complaint?  Describe the importance of consumer protection.
– Redressal machinery  Discuss the scope of Consumer Protection Act
– Remedies available  Understand the concept of a consumer according to the
 Consumer awareness - Role of consumer organizations Consumer protection Act
and Non-Governmental Organizations (NGOs)  Explain the consumer rights
 Understand the responsibilities of consumers
 Understand who can file a complaint and against whom?
Topics
 Discuss the legal redressal machinery under Consumer
12.1 Consumer Protection: Consumer Rights and
Responsibilities; Role of Consumer Organisations protection Act
and NGOs  Examine the remedies available to the consumer under
12.2 Redressal Machinery and Remedies under the Consumer protection Act
Consumer Protection Act, 2019  Describe the role of consumer organizations and NGOs
in protecting consumers’ interests.
Consumer Business To Enhance Enterprising Skills

Quotes
Protection
 Answer the phone by the third ring, give due importance to your
customer.
 Customers should be able to “hear” your smile over the phone.
Consumer forum fines SBI

customer’s problem
for ignoring
Introduction
The given case is just one of the examples of the many problems that
Now, if you do not get money from ATMs, it consumers might have to face in the purchase, use and consumption of
would be considered as lack of service on part
goods and services. The case also highlights the need for an appropriate
of bank, due to which it can also be penalized.
In a similar case, Consumer Forum imposed a legal protection to be provided to consumers to protect them from
fine of Rs 2,500 on State Bank of India after various forms of exploitation from the seller. Have you ever thought
considering reduction in bank service.Bank what would be the plight of consumers if adequate protection is not
officials believe that it is possible that the penalty provided to them? Can the present day businesses afford to ignore the
on the bank due to lack of service in ATM. It is interests of consumers? The area of consumer protection has emerged
probably the first matter. Lawyer Rajiv Aggarwal as a very important area of study having significance for both the
went to SBI ATM to withdraw money on 25, 26 consumers and businesses alike.
and 30 April, 2017. On May 4, 2017, he filed
A consumer is said to be a king in a free market economy. The
a petition in the Consumer Forum.
earlier approach of caveat emptor, which means “Let the buyer beware”,
In front of the forum, the bank gave a unique
has now been changed to caveat venditor (“Let the seller beware”).
argument. The bank told the forum that
although ATM runs with Internet connectivity, However, with growing competition and in an attempt to increase
so at the time when users use ATM, at that their sales and market share, manufacturers and service providers may
time he is not directly our client, so if money be tempted to engage in unscrupulous, exploitative and unfair trade
not withdrawn from ATM, then it cannot be practices like defective and unsafe products, adulteration, false and
considered as a reduction in service. misleading advertising, hoarding, black-marketing etc. This means
On this, the forum said that bank is taking that a consumer might be exposed to risks due to unsafe products,
an ATM fee every year from the customer and might suffer from bad health due to adulterated food products, might
then this argument does not mean that he is be cheated because of misleading advertisements or sale of spurious
not a customer of the bank. The forum rejected products, might have to pay a higher price when sellers engage in
the bank’s logic completely. The petitioner has overpricing, hoarding or black-marketing etc. Thus, there is a need
presented photo and video recording at the time
for providing adequate protection to consumers against such practices
of withdrawal as evidence in front of forum.
Forum acknowledged that the consumers at
of the sellers.
various times go to ATM to withdraw money THE CONSUMER PROTECTION ACT, 2019
every time the message of ‘cash not available’ is
the lack in service. he Consumer Protection Bill, 2019 was introduced in Lok Sabha by
T
The forum accepted the petition. After hearing the Minister of Consumer Affairs, Food and Public Distribution, Mr.
the arguments of both the parties, the forum Ram Vilas Paswan on July 8, 2019. The Bill replaces the Consumer
ordered that if the bank will not provide ATM Protection Act, 1986.
service to the customer, then it will be considered Key features of the Bill include:
a reduction in service. The forum has ordered the
 Definition of consumer: A consumer is defined as a person who
bank to pay `1500 for the mental harassment
suffered by the complainant and `1000 for a buys any good or avails a service for a consideration. It does not
judicial expense within 30 days. include a person who obtains a good for resale or a good or service
Source: http://dailypost.in/news/consumerforum- for commercial purpose. It covers transactions through all modes
fines-sbi-ignoring-customers/ including offline, and online through electronic means, teleshopping,
multi-level marketing or direct selling.
 Rights of consumers: Six consumer rights have been defined in the Bill, including:
(i) the right to be protected against the marketing of goods, products or services which are hazardous to life and
property;
(ii) the right to be informed about the quality, quantity, potency, purity, standard and price of goods, products or
services, as the case may be, so as to protect the consumer against unfair trade practices;
(iii) the right to be assured, wherever possible, access to a variety of goods, products or services at competitive
prices;
(iv) the right to be heard and to be assured that consumer's interests will receive due consideration at appropriate
forum;
(v) the right to seek redressal against unfair trade practice or restrictive trade practices or unscrupulous exploitation
of consumers; and
(vi) the right to consumer awareness.
 Central Consumer Protection Authority: The central government will set up a Central Consumer Protection
Authority (CCPA) to promote, protect and enforce the rights of consumers. It will regulate matters related to
violation of consumer rights, unfair trade practices, and misleading advertisements. The CCPA will have an
investigation wing, headed by a Director-General, which may conduct inquiry or investigation into such violations.
CCPA will carry out the following functions, including:
(i) inquiring into violations of consumer rights, investigating and launching prosecution at the appropriate forum;
(ii) passing orders to recall goods or withdraw services that are hazardous, reimbursement of the price paid, and
discontinuation of the unfair trade practices, as defined in the Bill;
(iii) issuing directions to the concerned trader/manufacturer/endorser/advertiser/publisher to either discontinue a
false or misleading advertisement, or modify it;
(iv) imposing penalties, and
(v) issuing safety notices to consumers against unsafe goods and services.
 Penalties for misleading advertisement: The CCPA may impose a penalty on a manufacturer or an endorser of up
to `10 lakh and imprisonment for up to 2 years for a false or misleading advertisement. In case of a subsequent
offence, the fine may extend to `50 lakh and imprisonment of up to 5 years.
CCPA can also prohibit the endorser of a misleading advertisement from endorsing that particular product or service
for a period of up to one year. For every subsequent offence, the period of prohibition may extend to three years.
However, there are certain exceptions when an endorser will not be held liable for such a penalty.
 Consumer Disputes Redressal Commission: Consumer Disputes Redressal Commissions (CDRCs) will be set up
at the district, state, and national levels. A consumer can file a complaint with CDRCs in relation to:
(i) unfair or restrictive trade practices;
(ii) defective goods or services;
(iii) overcharging or deceptive charging; and
(iv) the offering of goods or services for sale which may be hazardous to life and safety.
Complaints against an unfair contract can be filed with only the State and National. Appeals from a District CDRC
will be heard by the State CDRC. Appeals from the State CDRC will be heard by the National CDRC. Final
appeal will lie before the Supreme Court.
 Jurisdiction of CDRCs
— The District CDRC will entertain complaints where value of goods and services does not exceed `1 crore.
— The State CDRC will entertain complaints when the value is more than ` 1 crore but does not exceed
`10 crore.
— Complaints with value of goods and services over ` 10 crore will be entertained by the National CDRC.
 Product liability: Product liability means the liability of a product manufacturer, service provider or seller to
compensate a consumer for any harm or injury caused by a defective good or deficient service. To claim compensation,
a consumer has to prove any one of the conditions for defect or deficiency, as given in the Bill.
Consumer Protection: Consumer Rights and Responsibilities;

12.1
Role of Consumer Organisations and NGOs
Consumer Protection: Concept and Importance
Concept of Consumer Protection
Consumer protection refers to protection of
consumers from unscrupulous, exploitative and
unfair trade practices of manufacturers, traders,
sellers and service providers.
Consumer Protection not only includes educating
consumers about their rights and responsibilities, but
also helps in getting their grievances redressed.
Importance of Consumer Protection

From Consumers’ Point of View From the Point of View of Businesses
1. Widespread Exploitation of Consumers: 1. Business uses Society’s Resources: Business organisations
Consumers might be exploited by unscrupulous, use resources which belong to the society. Thus, they have a
exploitative and unfair trade practices like responsibility to supply such goods and services which are in
defective and unsafe products, adulteration, false public interest.
and misleading advertising, hoarding, black- 2. Social Responsibility: A business has social responsibilities
marketing etc. Consumers need protection against towards various interest groups. Business organisations make
such malpractices of the sellers. money by selling goods and providing services to consumers.
2. Consumer Ignorance: In the light of widespread Thus, consumers form an important group among the many
ignorance of consumers about their rights and stakeholders of business and like other stakeholders, their
reliefs available to them, it becomes necessary to interest has to be well taken care of.
educate them about the same so as to achieve 3. Moral Justification: It is the moral duty of any business
consumer awareness. to take care of consumers’ interests and avoid any form of
A consumer, who is well-informed about his their exploitation. Thus, a business must avoid unscrupulous,
rights and reliefs available to him, would be in a exploitative and unfair trade practices like defective and
position to raise his voice against any unfair trade unsafe products, adulteration, false and misleading advertising,
practices of sellers. hoarding, black marketing etc.
3. Unorganised Consumers: Consumers need to be 4. Long-term Interest of Business: Enlightened business firms
organised in the form of consumer organisations realise that it is in their long-term interest to serve and satisfy
which would take care of their interests. the customers. Satisfied customers not only lead to repeat sales
Consumer organisations play an important role but also provide good feedback to prospective customers and
in educating consumers about their rights and thus, help in increasing the customer-base of business. Thus,
providing protection to them. These organisations business firms should aim at long-term profit maximisation
can force business firms to avoid malpractices and through customer satisfaction. Socially responsible firms follow
exploitation of consumers. ethical standards and practices in dealing with their customers.
Though, in India, we do have consumer 5. Government Intervention: A business engaging in any
organisations which are working in this direction, form of exploitative trade practices would invite government
adequate protection is required to be given intervention or action. This can impair and tarnish the image
to consumers till these organisations become of the company. Therefore, business organisations should
powerful enough to protect and promote the voluntarily resort to such practices where the customers’ needs
interests of consumers. and interests will be taken care of.
Redressal Machinery and Remedies under the Consumer

12.2
Protection Act, 2019
Three-Tier Redressal Machinery under the Consumer Protection Act, 2019
1. District Consumer Dispute Redressal Commission
• The State Government shall establish a District Consumer Disputes Redressal Commission, to be known
as the District Commission, in each district of the State.
• Each District Commission shall consist of— Supreme Court
(a) a President; and
(b) not less than two and not more than such number of members as National Commission
may be prescribed, in consultation with the Central Government.
• The District Commission will entertain complaints where value of State Commission
goods and services does not exceed `1 crore.
• Any person aggrieved by an order made by the District Commission District Commission
may prefer an appeal against such order to the State Commission on
the grounds of facts or law within a period of 45 days from the date Redressal Agencies under the
Consumer Protection Act, 2019
of the order.
2. State Consumer Disputes Redressal Commission
• The State Government shall, by notification, establish a State Consumer Disputes Redressal Commission,
to be known as the State Commission, in the State.
• Each State Commission shall consist of—
(b) not less than four or not more than such number of members as may be prescribed in consultation
with the Central Government.
• The State Commission shall have jurisdiction to entertain complaints where the value of the goods
or services paid as consideration, exceeds `1 crore, but does not exceed `10 crore.
Top Tip
The State Commission shall have jurisdiction to entertain complaints against unfair contracts, where the value of goods
or services paid as consideration does not exceed `10 crore. Appeals against the orders of any District Commission within
the State can also be made in the State Commission.
• Any person aggrieved by an order made by the State Commission may prefer an appeal against such
order to the National Commission within a period of 30 days from the date of the order.
3. The National Consumer Disputes Redressal Commission
• The Central Government shall establish a National Consumer Disputes Redressal Commission, to be
known as the National Commission.
• The National Commission shall consist of:
(b) not less than four and not more than such number of members as may be prescribed.
• The National Commission shall have jurisdiction to entertain complaints where the value of the
goods or services paid as consideration exceeds rupees `10 crore. Appeals against the orders of any
State Commission can also be filed in the National Commission.
• Any person, aggrieved by an order made by the National Commission may prefer an appeal against
such order to the Supreme Court within a period of 30 days from the date of the order.
1. Every complaint shall be disposed of as expeditiously as possible and endeavour shall be made to decide the complaint within
a period of 3 months from the date of receipt of notice by opposite party where the complaint does not require analysis or
testing of commodities and within 5 months if it requires analysis or testing of commodities.
2. Any manufacturer or service provider who causes a false or misleading advertisement to be made which is prejudicial to the
interest of consumers shall be punished with imprisonment for a term which may extend to 2 years and with fine which may
extend to 10 lakh rupees; and for every subsequent offence, be punished with imprisonment for a term which may extend to
5 years and with fine which may extend to 50 lakh rupees.
Reliefs/Remedies Available
If the consumer court is satisfied about the genuineness of the complaint, it can issue one or more of the
following directions to the opposite party.
1. To remove the defects in goods or deficiencies in the services in question.
2. To replace the goods with new goods of similar description which shall be free from any defect.
3. To return the price, or the charges paid by the complainant along with interest.
4. To pay compensation to the consumer for any loss or injury suffered by the consumer due to the
negligence of the opposite party.
5. To discontinue the unfair trade practice or restrictive trade practice and not to repeat them.
6. Not to offer the hazardous or unsafe goods for sale.
7. To withdraw the hazardous goods from being offered for sale.
8. To cease manufacture of hazardous goods and to desist from offering services which are hazardous in
nature.
9. To pay such sum as may be determined by it, if it is of the opinion that loss or injury has been suffered by
a large number of consumers who are not identifiable conveniently, provided that the minimum amount
of sum so payable shall not be less than 25 per cent of the value of such defective goods sold or service
provided, as the case may be, to such consumers.
10. To issue corrective advertisement to neutralise the effect of misleading advertisement at the cost of the
opposite party responsible for issuing such misleading advertisement.
11. To provide for adequate costs to parties.
12. To cease and desist from issuing any misleading advertisement.
Definition of a ‘Consumer’ as per the Consumer Protection Act 2019
"Consumer" means any person who
(i) buys any goods for a consideration which has been paid or promised or partly paid and partly promised,
or under any system of deferred payment and includes any user of such goods other than the person
who buys such goods for consideration paid or promised or partly paid or partly promised, or under
any system of deferred payment, when such use is made with the approval of such person, but does not
include a person who obtains such goods for resale or for any commercial purpose; or
(ii) hires or avails of any service for a consideration which has been paid or promised or partly paid and
partly promised, or under any system of deferred payment and includes any beneficiary of such service
other than the person who hires or avails of the services for consideration paid or promised, or partly
paid and partly promised, or under any system of deferred payment, when such services are availed of
with the approval of the first mentioned person, but does not include a person who avails of such service
for any commercial purpose.
For the purposes of this clause

1. the expression "commercial purpose" does not include use by a person of goods bought and used by him exclusively for the
purpose of earning his livelihood, by means of self-employment;
2. the expressions "buys any goods" and "hires or avails any services" includes offline or online transactions through electronic
means or by teleshopping or direct selling or multi-level marketing;
Who can File a Complaint under the Consumer Protection Act, 2019?
1. A consumer; or
2. Any voluntary consumer association registered under any law for the time being in force; or
3. The Central Government or any State Government; or
4. The Central Authority; or
5. One or more consumers, where there are numerous consumers having the same interest; or
6. In case of death of a consumer, his legal heir or legal representative; or
7. In case of a consumer being a minor, his parent or legal guardian.
Against whom a complaint can be filed?
1. In case of any defective good supplied, a complaint can be filed against the manufacturer or seller or
dealer.
2. For any deficient services rendered, a complaint can be filed against the provider of services.
Top Tip
• ‘Defect’ means any fault, imperfection or shortcoming in the quality, quantity or purity of goods.
• ‘Deficiency’ means any imperfection, shortcoming or inadequacy in the quality, nature and manner of performance
of services.
1. Sheela went to a free eye camp and got her eyes operated for cataract. The surgery was not done properly, due to which
she lost her vision. Where can she file a complaint under consumer protection act? (Choose the correct alternative)
(a) At District forum
(b) State commission
(c) National Commission
(d) None of these
2. Which one of the following cannot file a complaint under Consumer Protection Act, 2019? (Choose the correct alternative)
(a) Any consumer under the definition of Consumer Protection Act.
(b) Central or State Government
(c) Legal heir of a deceased consumer
(d) A person who obtains the goods with no consideration.
3. An order passed by the National Commission is appealable before the ______________.
4. When can a consumer get more than one relief?
5. ________________ is the apex institution under the Consumer Protection Act, 2019. (Fill up the blank with correct
answer)
6. As per the provisions of the Consumer Protection, consumer does not include a person who obtains goods for resale or for
any commercial purpose. (True/False)
7. "Consumer means any person who buys any goods or hires/avails any services for a consideration which has been paid or
promised or partly paid and partly promised__________" (Fill up the blank with correct answer)
The expressions "buys any goods" and "hires/avails any services" includes offline transactions only. True/False? Give
reason.
8. Each District Commission consists of _______________. (Complete the sentence)
9. Every complaint must be disposed off within ______________ from the date of receipt of notice by opposite party where
the complaint does not require analysis or testing of commodities and within ______________ if it requires analysis or
testing of commodities. (Fill up the blank with correct answer)
10. Any person aggrieved by an order made by the District Commission on the grounds of facts or law within a period of
______________ from the date of the order. (Fill up the blank with correct answer)
11. Each State Commission shall consist of ________________. (Complete the sentence)
12. The State Commission has the jurisdiction to entertain complaints where the value of the goods or services paid as
consideration, exceeds ________________ but does not exceed _______________. (Fill up the blanks with correct answers)
13. Each National Commission shall consist of ________________. (Complete the sentence)
14. The National Commission has the jurisdiction to entertain complaints where the value of the goods or services paid as
consideration exceeds _______________. (Fill up the blank with correct answer)
15. Any person aggrieved by an order made by the State Commission may prefer an appeal against such order to the
______________ within a period of ______________ from the date of the order. (Fill up the blanks with correct answers)
16. Any person aggrieved by an order made by the National Commission may prefer an appeal against such order to the
______________ within a period of ______________ from the date of the order. (Fill up the blanks with correct answers)
17. The District Commission, the State Commission or the National Commission shall not admit a complaint unless it is filed
within _____________ from the date on which the cause of action has arisen. (Fill up the blank with correct answer)
18. Any manufacturer or service provider who causes a false or misleading advertisement shall be punished with imprisonment
for up to _____________ and with fine which may extend to ______________. For every subsequent offence, (s)he will be
punished with imprisonment up to _____________ and with fine which may extend to ______________.
(Fill up the blanks with correct answers)
19. A consumer can file a complaint against on unfair contract at any Consumer Disputes Redressal Commission at the district,
state and national levels. True/False? Give reason.
20. Appeals from a District Commission will be heard by the State Commission. Appeals from the State Commission will be
heard by the National Commission. Final Appeal will lie before _________________. (Fill up the blank with correct
answer)
21. The District commissions will entertain complaints where the value of goods and services does not exceed
______________. (Fill up the blank with correct answer)
Case Studies 12.2

Analysing, Evaluating & Creating Type Questions
Q.1 Anchal purchased a food processing machine for `10,000 from ‘Kajal Machinery Pvt. Ltd.’ She found
that the machine was not working properly. Despite many complaints, the defect was not rectified by
Kajal Machinery Pvt. Ltd.
(a) Identify the consumer right that has been violated by Kajal Machinery Pvt. Ltd.
(b) Suggest the appropriate forum where Anchal can file her complaint.
(c) Can she appeal to the Supreme Court if she is not satisfied with the order of the appropriate forum?
Give reason in support of your answer. (3 marks)
Ans. (a) Right to be heard
(b) District Commission; because the District CDRC will entertain complaints where value of goods and
services does not exceed `1 crore.
(c) Yes; because appeals from a District CDRC will be heard by the State CDRC. Appeals from the State
CDRC will be heard by the National CDRC. Final appeal will lie before the Supreme Court.
Q.2 A school owned a swimming pool and offered swimming facilities to the public on payment of a fee. The
school conducted winter and summer training camps to train boys in swimming and for this purpose
engaged a coach. Mr. Ajay enrolled his only son for learning swimming under the guidance of the coach.
That due to the negligence of the coach, the boy drowned and died. The school denied any responsibility
on its part. The coach claimed that he had considerable experience in coaching young boys for swimming.
Mr Ajay decided to file a case in the appropriate consumer court and decided to claim ` 50 lakh.
(a) Against whom can Mr. Ajay file a case in the consumer court? Justify your answer.
(b) Where can Mr. Ajay file the case? Give reason.
(c) If the school authorities are not satisfied with the order of the consumer court, where Mr. Ajay had
filed the case, what option is available to them? (4 marks)
Ans. (a) Mr. Ajay can file a case against the school as well as the coach.
Reason: Failure to provide basic safeguards in the swimming pool by the school and the negligence of the
coach amounts to deficiency in services.
(b) Mr. Ajay can file the case in the District Commission since he decided to claim ` 50 lakh, which does not
exceed ` 1 crore.
(c) If the school authorities are not satisfied with the order of the district commission, they can appeal before
the State Commission within 45 days of the passing of the order.
Q.3 Mr. Man Mohan Singh and his wife Kamlesh had bought a railway journey cum-reservation ticket for `2,000
at Ahmedabad for travel from New Delhi to Kanpur Central by the Shatabdi Express. The details on the
ticket, including the coach number, the date of journey, etc., were illegible. Hence, they were forced to buy
another ticket for journey from New Delhi to Kanpur. They applied for a refund for the earlier ticket but,
as the Forum noted, they had to suffer much for the purpose. In spite of the couple’s giving the Ahmedabad
residential address for sending the refund, the Railways sent it to their Delhi address. They approached
Consumer Education and Research Society (CERS), Ahmedabad for help. CERS filed a complaint against
the Railways before a District Consumer Dispute Redressal Forum, Ahmedabad City and claimed that the
two senior citizens had to face mental harassment due to the deficiency in service by the Railways.
(a) Can CERS file a complaint against the Railways before the District Consumer Dispute Redressal
Forum, Ahmedabad? Justify your answer.
(b) Which consumer right is being promoted by CERS in this case?
(c) State any two reliefs available to Mr. Man Mohan Singh and his wife Kamlesh. (4 marks)
Ans. (a) Yes, CERS can file a complaint against the Railways before the District Consumer Dispute Redressal
Forum, Ahmedabad since as per the Consumer Protection Act, 2019 a complaint before the appropriate
consumer forum can be made by any registered consumers’ association also.
(b) ‘Right to be heard’ is being promoted by CERS in this case.
(c) The District Commission may order the Railways:
(i) To refund `2,000, the charges paid for the railway journey cum-reservation ticket, and/or
(ii) To pay adequate costs or reasonable amount of compensation for any loss suffered.
Q.4 On Sonika’s birthday her mother gave her a pair of gold earrings. After one month Sonika observed that
the ear-rings are losing their shine. She checked the mark on the ear-rings and found that it was not
a proper Hallmark and her mother had been cheated by the shopkeeper. So, she filed a complaint in
the district forum which rejected it. Not satisfied by the decision of district forum, she was very much
disturbed and after two months decided to appeal further.
Can Sonika appeal against the decision of the district forum? Give reason in support of your answer.
(CBSE 2015) (1 mark)
Ans. No, Sonika cannot appeal now as the appeal has to be filed within 30 days of passing of the order by the
district forum.
Q.5 Sirajuddin purchased a car for `15 lacs from an automobile company and found that its airbags were
defective. After many complaints with the company that went unheard, he filed a case in the District
Forum. He was not satisfied with the orders of the District Forum. He then appealed before the State
Commission and on being dissatisfied with the orders of State Commission, he appealed before the
National Commission. Sirajuddin was not satisfied with the orders of National Commission. Suggest him
the highest authority where he could appeal against the decision of the National Commission.
(CBSE SQP 2017) (1 mark)
Ans. He cannot appeal to any other higher authority as only those matters which have been directly filed in the
National Commission and where the value of goods and services in question along with the compensation
claimed exceed ` 1 crore are appealable before Supreme Court.
Q.6 Harish purchased a medicine from ‘Hari Govind Medical Stores’ for his son who had high fever. Even
after giving the medicine his son’s condition did not improve and he had to be hospitalised. The doctor
informed Harish that the medicine given to his son was spurious. Harish complained about this to ‘Hari
Govind Medical Stores’. As a result, ‘Hari Govind Medical Stores’ decided to file a complaint against the
manufacturer in the consumer court. Can ‘Hari Govind Medical Stores’ do this? Give reason. (1 mark)
Ans. No, ‘Hari Govind Medical Stores’ cannot file a complaint against the manufacturer in the consumer court. The
Medical Stores is not a consumer since it buys medicine for re-sale or commercial purpose.
Q.7 State any two reliefs that the Consumer court can grant to consumers in case of genuine complaints in
each of the following situations:
(i) Divya was charged more than the printed maximum retail price (MRP) for a bottle of water.
(ii) Clara was sold a car with a defective engine.
(iii) Antony suffered injury while using newly bought defective electric heater. (CBSE 2017) (6 marks)
Ans. (i) Reliefs that the Consumer court can grant to the customers are:
(a) To refund the price paid
(b) To discontinue the unfair/restrictive trade practice and not to repeat the same in future.
(ii) Reliefs that the Consumer court can grant to the customers are: (any two)
(a) To remove the defect in engine.
(b) To replace the defective engine with a new one, free from any defect.
(c) To refund the price paid.
(iii) Reliefs that the Consumer court can grant to customer are: (any two)
(a) To remove the defect in electrical heater.
(b) To replace the defective electrical heater with a new one, free from any defect.
(c) To refund the price paid.
(d) To pay a reasonable amount of compensation for any loss or injury suffered by the consumer due to
negligence of the opposite party.
(e) Not to offer hazardous goods like defective electrical heater form sale.
(f ) To cease manufacture of hazardous goods like defective electrical heater.
(g) To pay adequate costs to the appropriate party.
Q.8 Sudhanshu saw a weight reducing electric machine advertisement on the television. He purchased it and
decided to use it. The moment he plugged the machine he got an electric shock. As a result he died instantly.
His relatives suggested Vedant, Sudhanshu’s son to file a case claiming compensation of `50 lakh.
(a) Who can file a case against the company?
(b) Where should the complaint be filed and why? (3 marks)
Ans. (a) A complaint in a consumer court can be filed by Vedant, legal heir or representative of the deceased
consumer, Sudhanshu or any registered consumers’ association, etc.
(b) The complaint can be filed at the District Commission since the amount of compensation claimed does
not exceed `1 crore.
Q.9 Prakhar purchased an ISI mark electric iron from ‘Bharat Electricals’. While using he found that it was
not working properly. He approached the seller and complained for the same. The seller satisfies Prakhar
by saying that he will ask the manufacturer to replace this iron. The manufacturer refused to replace and
Bharat Electricals decided to file a complaint in the consumer court.
(a) Car ‘Bharat Electricals’ file a complaint in the consumer court against the manufacturer of the
electric iron? Give reason in support of your answer.
(b) Who can file a complaint as per the provisions of the Consumer Protection Act, 2019? (4 marks)
Ans. (a) No, ‘Bharat Electricals cannot file a complaint in the consumer court against the manufacture of the
electric iron since Bharat Electricals is not a consumer. As per the provisions of the Consumer Protection
Act, 2019, definition of a consumer does not include a person who obtains goods for resale or any
commercial purpose.
(b) A complaint before the appropriate consumer court can be made by:
(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.
Key Terms
Consumer protection refers to protection of consumers from unscrupulous, exploitative and unfair trade practices of
manufacturers, traders, sellers and service providers.
Right to Safety – The consumer has a right to be protected against goods and services which are hazardous to life and
health.
Right to be Informed – The consumer has a right to have complete information about the product he/she intends to buy
including its ingredients, date of manufacture, price, quantity, directions for use, etc.
Right to Choose – The consumer has the freedom to choose from a variety of products at competitive prices. This
implies that the marketers should offer a wide variety of products in terms of quality, brand, prices, size, etc. and allow
the consumer to make a choice from amongst these.
Right to be Heard – The consumer has a right to file a complaint and to be heard in case of dissatisfaction with a good
or a service.
Right to Seek Redressal – The consumer has a right to get relief(s) in case the product or service falls short of his
expectations.
Right to Consumer Education – The consumer has a right to acquire knowledge and to be a well-informed consumer
throughout life. He should be aware about his rights and the reliefs available to him in case of a product or service falling
short of his expectations.
District Commission – Each District Commission shall consist of a President; and not less than two members. The
District Commission will entertain complaints where value of goods and services does not exceed `1 crore.
State Commission – Each State Commission shall consist of a President; and not less than 4 members. The State
Commission shall have jurisdiction to entertain complaints where the value of the goods or services paid as consideration,
exceeds `1 crore, but does not exceed `10 crore.
National Commission – The National Commission shall consist of a President; and not less than 4 members. The
National Commission shall have jurisdiction to entertain complaints where the value of the goods or services paid as
consideration exceeds rupees `10 crore.
Consumer – A consumer is defined as a person who buys any good or avails a service for a consideration. It does not
include a person who obtains a good for resale or a good or service for commercial purpose.
Consumer Protection
Time allowed : 1 hour. Maximum Marks : 25
Q.1 Under which consumer right does a business firm set up consumer grievance cell?
(Choose the correct alternative) (1 mark)
(a) Right to safety (b) Right to be heard
(c) Right to seek redressal (d) Right to consumer education
Q.2 State, giving reason, whether the following statement is true or false. (1 mark)
A complaint can to be made to a District Commission when the value of the good or service does not exceed `20 lakhs.
Q.3 Your mother purchased a washing machine for ` 10,000 from an authorised dealer of the manufacturer with
an oral guarantee that the machine will be replaced with a new one if any of its parts becomes defective within
3 months from the date of purchase. The motor of the machine was burnt within 15 days of its purchase.
On complaining, the seller refused to replace the machine. Name the redressal agency under the Consumer
Protection Act where your mother can file the complaint. (1 mark)
Q.4 Pankaj purchased a car from Abhishek Motors for ` 50 lakh. The company offered many attractive gifts to Pankaj,
like free insurance for two years, free pick-up and drop facilities for free servicing up to 20,000 km, etc. But after a
few days Pankaj noticed that the pick-up of the car was not good and there was some problem in the engine. The
company serviced the car free of cost but even then Pankaj was not satisfied with its performance and Abhishek
Motors was not giving him due response. So he filed a complaint in the State Commission but was not satisfied
with its decision also. He was very much disturbed and after two months decided to appeal against it.
Can Pankaj appeal against the decision of the State Commission? Give reason in support of your answer. (1 mark)
Q.5 Suman bought a box of cheese of a requted brand from a local shopkeeper. On opening the box she found a
piece of stone in the cheese. She reported the matter to the shopkeeper who forwarded her complaint to the
concerned company. Within a week the representative of the company visited Suman’s residence with an apology
and as a replacement offered her a new cheese pack with four other varieties of cheese as compensation for the
incovenience to her. Identify and explain the consumer right which Suman exercised. (3 marks)
Q.6 Deepak purchased a book from a book-seller and got the cash memo of ` 400 which he paid for the book.
Later, he found that the actual price of the book is ` 380 but the book-seller had put a sticker of ` 400 on
the original price. Can Deepak recover the extra money that he paid? What other options are available to him
against book-seller if he is refused to give the extra money he paid? (3 marks)
Q.7 Tanya purchased some household goods from a ‘General store’. After reaching home she found a face cream
which she had not billed for. After checking the date of expiry and other details, she started using it. Her face
burnt due to the use of the cream. Where should Tanya file a complaint? Justify. Under Consumer Protection
Act, 2019 who can file a complaint? (4 marks)
Q.8 State any five responsibilities of a consumer after purchasing a product. (5 marks)
Q.9 Indian Youth Organisation (IYO) organised a visit of its members to an old age home to inculcate the habit of
social work among them. The visit revealed that the living conditions of the inmates of the old age home were
not hygienic. So, the IYO members decided to clean the premises. During their cleanliness drive, they realised
that the old age home also required pest control. But some of the inmates of old age home were reluctant for
it because they believed that the pest control may create health problems for them. IYO, therefore decided to
provide ethical, safe and odourless pest control. They showed to inmates of old age home a pamphlet of the
proposed pest control product which promised easy, inexpensive and long lasting pest control. The inmates
happily agreed and the pest control was carried out. It worked for a fortnight but to their dismay the effect
started wearing off. IYO contacted the pest control company which kept on postponing their visit. After waiting
for a month, IYO filed a case in the consumer court.
The consumer court was satisfied about the genuineness of the complaint and issued necessary directions to the
pest control company.
State any six directions that might have been issued by the court. (6 marks)
Consumer Protection
Q.1 Mamta bought a branded computer for ` 50,000 from an authorised dealer but does not take a receipt. She was
given oral guarantee of one year on the computer. When she used the computer at home, she detected that DVD
writer was not functioning properly. What remedy can seek from the company? (1 mark)
Q.2 The certification mark used for agricultural products is ___________________. (1 mark)
Q.3 The component of product mix that helps the consumer to exercise the right to information is
_____________. (1 mark)
Q.4 FSSAI (Food Safety and Standards Authority of India) has made a proposal for hotels and other food outlets to
declare the kind of oil/fat used in cooking each of the food items on their menus. The Consumer Right being
reinforced by this proposal is ____________________. (1 mark)
Q.5 Vivek purchased a bike from Saranath Automobiles with a written guarantee to repair or replace, if necessary,
within six months or 5,000 kms of distance travelled whichever is earlier. After covering the distance of 400 kms
in two months, the gears of the bike started giving problems. Vivek took the bike to the dealer who refused to
listen to his complaint. He was confused about what he should do.
Identify and explain the rights that Vivek may exercise in the above case. (3 marks)
Q.6 Bhavya visited his friend, Raghav. On his returning from Raghav’s home, Raghav booked a taxi for Bhavya from
‘Ganga Travels’. The taxi driver drove UBAR Co. car very fast and his behaviour was rude with Bhavya.
Bhavya told about this to Raghav who in turn complained to the proprietor of ‘Ganga travels’.
(a) Can Raghav file a complaint against UBAR Co.? Give reason.
(b) Can Bhavya file a complaint against UBAR Co.? Give reason.
(c) Can Ganga travels file a complaint against UBAR Co. ? Give reason. (3 marks)
Q.7 Explain the role of consumer organisations and NGOs in protecting and promoting consumers’ interests by
given four points. (4 marks)
Q.8 Suman wanted to purchase a sandwich toaster. She checked about the various sandwich toasters available online
and compared the prices so that an intelligent and wise choice could be made. Then she went to a nearby
market to buy the sandwich toaster. Being an informed consumer, she looked for the correct standardisation
mark. The shopkeeper showed her different toasters but was quoting higher price than the price she had checked
online. After negotiating with the shopkeeper, she was able to bring the price down. As a responsible consumer,
she asked for a cash memo against the amount paid for the product and took the toaster home. On opening the
package, she found an instruction booklet, which she read carefully. Then she followed all instructions step by
step and made nicely toasted paneer sandwiches for her family.
(a) State the consumer responsibilities, which have been discharged by Suman besides asking for a cash memo.
(any two)
(b) Explain the three rights being discussed in the above case. (5 marks)
Q.9 Explain any three points importance of consumer protection from the point of view of a business and a
consumer. (6 marks)
Consumer Protection
Q.1 Match the columns: (1 mark)
(i) Business firms set up consumer grievance cell. (A) Labelling
(ii) Consumer organisations take active part in creating awareness (B) AGMARK
about consumer rights and reliefs.
(iii) Quality certification mark used for agricultural products. (C) Right to be heard
(iv) Component of product mix that helps the consumer to exercise the (D) Right to consumer
right to information. education
Q.2 Which of the following is not an appropriate role for a Non Government Organization (NGO) in consumer
protection? (Choose the correct alternative) (1 mark)
(a) Providing legal assistance to consumers
(b) Filing legal suits on behalf of the consumers
(c) Maintaining consumer documents like cash memos etc. safely
(d) Educating the general public about consumer rights
Q.3 Sheela went to a free eye camp and got her eyes operated for cataract. The surgery was not done properly, due to
which she lost her vision. Where can she file a complaint under consumer protection act?
(a) At District forum (b) State commission
(c) National Commission (d) None of these
Q.4 "Consumer means any person who buys any goods or hires/avails any services for a consideration which has been
paid or promised or partly paid and partly promised..."
The expressions “boys any goods” and “hires/avails any services” includes offline transactions only.
True/False? Give reason. (1 mark)
Q.5 Archana is a pure vegetarian. She went to a popular food chain shop and asked for a packaged ‘Veg- Biryani’.
While eating the same she noticed that it had some non-vegetarian content. Neither the advertisement nor the
label on the package showed that the product had non-vegetarian content.
Identify and explain the consumer right which Archana can claim for compensation as per the provisions of
Consumer Protection Act, 2019. (3 marks)
Q.6 ‘Grahak Shakti’, an N.G.O. organised a workshop to discuss various issues relating to consumers. During
the discussion, one of the members drew attention towards exploitation of consumers due to defective and
unsafe products, adulteration, black marketing, hoarding etc. To this another member argued that consumers
themselves are responsible as they do not raise collective voice against the exploitation. The Chairperson of
the organization was of the opinion that it was also the duty of the businessman to take care of the interests
of various stakeholders. Business organizations earn money by selling goods and services to consumers. So the
interests of the stakeholders have to be well taken care of.
State three points that highlight the need for consumer protection as discussed in ‘Grahak Shakti’s workshop.
(3 marks)
Q.7 A school owned a swimming pool and offered swimming facilities to the public on payment of a fee. The
school conducted winter and summer training camps to train boys in swimming and for this purpose engaged a
coach. Mr. Ajay enrolled his only son for learning swimming under the guidance of the coach. That due to the
negligence of the coach, the boy drowned and died. The school denied any responsibility on its part. The coach
claimed that he had considerable experience in coaching young boys for swimming.
Mr Ajay decided to file a case in the appropriate consumer court and decided to claim `50 lakh.
(a) Against whom can Mr. Ajay file a case in the consumer court? Justify your answer.
(b) Where can Mr. Ajay file the case? Give reason.
(c) If the school authorities are not satisfied with the order of the consumer court, where Mr. Ajay had filed the
case, what option is available to them? (4 marks)
Q.8 ‘VOICE’ is an an important consumer organisation. It organised workshops in the months of December in
Delhi/ NCR for consumers. The theme was ‘Organic Food –From Farm to Plate’ to spread awareness on the
importance of organic farming and to encourage consumers to switch from conventional food that contains
chemicals and pesticides to organic food. Expert speakers from farmers’ community explained the harmful effects
of usage of pesticides in farming and the importance of organic food. People were informed that the organisation
regularly tests samples to detect adulteration like presence of heavy metals or pesticides. The results of the tests
are published in their monthly magazine’ Consumer Voice’ to make people aware of quality of different products.
It also provides aid and legal advice to the consumers in seeking a remedy. State the functions performed by the
Consumer Voice for the protection and promotion of consumer interest by quoting lines from the above para.
(5 marks)
Q.9 State any two reliefs that the Consumer court can grant to consumers in case of genuine complaints in each of
the following situations:
(i) Divya was charged more than the printed maximum retail price (MRP) for a bottle of water.
(ii) Clara was sold a car with a defective engine.
(iii) Antony suffered injury while using newly bought defective electric heater. (6 marks)
Financial Management, Financial Markets, Marketing and Consumer Protection

Time allowed : 1 hr. 30 min. Maximum Marks : 40
Q.1 Which consumer right suggests that all information regarding the product, its ingredients, date of manufacture,
precautions of use, etc. should be enumerated either on the package or label of the product?
(a) Right to be heard (b) Right to choose
(c) Right to safety (d) Right to be informed.
Q.2 _____________ is the quality certification mark used in case of food products.
(a) ISI (b) FPO
(c) AGMARK (d) Hallmark
Q.3 ________________ is the apex institution under the Consumer Protection Act, 2019.
(Fill up the blank with correct answer) (1 mark)
Q.4 Each State Commission shall consist of ________________. (Complete the sentence) (1 mark)
Q.5 Rizul Bhattacharya after leaving his job wanted to start a Private Limited Company with his son. His son was keen
that the company may start manufacturing of Mobile-phones with some unique features. Rizul Bhattacharya felt
that the mobile-phones are prone to quick obsolescence and a heavy fixed capital investment would be required
regularly in this business. Therefore he convinced his son to start a furniture business.
Identify the factor affecting fixed capital requirements which made Rizul Bhattacharya to choose furniture
business over mobile-phones. (1 mark)
Q.6 Harish is engaged in warehousing business and his warehouses are generally used by the businessmen to store
fruits. Identify the working capital requirements of Harish giving reason in support of your answer. (1 mark)
Q.7 Reshu’s father has gifted her shares of a large cement company, with which he had been working. The securities
were in physical form. She already has a bank account and does not possess any other forms of securities.
She wished to sell the shares and approached a registered broker for the purpose. One mandatory detail which she
will have to provide with the broker is ________________. (Fill up the blank with correct answer) (1 mark)
Q.8 ABC Ltd. issued prospectus for the subscription of its shares for ` 500 crores in 2008. The issue was
oversubscribed by 20 times. The company issued shares to all the applicants on pro-rata basis. Later SEBI
inspected the prospectus and found some misleading statement about the management of the company in it.
SEBI imposed a penalty of ` 5 crores and banned its three executive directors for dealing in securities market for
three years.
Identify the function and its type performed by SEBI in the above case. (1 mark)
Q.9 B Ltd sees a profitable business opportunity in the field of producing soft drinks. There are large number of
factors affective marketing decisions. Which of the following is a controllable factor? (1 mark)
(a) Whether the new soft drinks will be promoted by putting up advertisements in newspaper or magazine or
on radio or televisions.
(b) The government policy on whether to allow any technical or financial collaboration with a foreign
manufacturer of soft drinks.
(c) Rate of inflation prevailing in a given period.
(d) A credit policy of the central Bank affecting the total availability of money in the market.
Q.10 Match the following : (1 mark)
(i) Discounts to customers, traders and credit terms, etc. (a) Product
(ii) Price discounts, free samples, etc. (b) price
(iii) Discounts, promotional campaigns, etc. to the intermediaries (c) place
(iv) Packaging, labelling and branding (d) Promotion

Q.11 Anchal purchased a food processing machine for `10,000 from ‘Kajal Machinery Pvt. Ltd.’ She found that the
machine was not working properly. Despite many complaints, the defect was not rectified by Kajal Machinery
Pvt. Ltd.
(a) Identify the consumer right that has been violated by Kajal Machinery Pvt. Ltd.
(b) Suggest the appropriate forum where Anchal can file her complaint.
(c) Can she appeal to the Supreme Court if she is not satisfied with the order of the appropriate forum? Give
reason in support of your answer. (3 marks)
Q.12 Rita Sharma who works as a guard in a school, purchased two shirts for `460 each for her son. When she went
back home, she realised that the shirt was small in size for her son. She decided to ask for return of money or
exchange of the shirt with an appropriate size.
But the store owner refused to return the money or exchange the shirt. Rita
Sharma was disheartened. Her friend advised her to go to ‘Seva Sadan’, an autonomous voluntary organisation
working for the protection of consumer welfare.
The organisation helped her by explaining to her the legal procedure, as well as educated her about her rights as
a consumer and helped her in filing the complaint and getting relief. With the help of the organisation Rita was
able to get her money back from the store.
Enumerate the rights of a consumer which Rita Sharma was able to exercise with the help of the voluntary
organisation. (3 marks)
Q.13 Mr. Man Mohan Singh and his wife Kamlesh had bought a railway journey cum-reservation ticket for `2,000
at Ahmedabad for travel from New Delhi to Kanpur Central by the Shatabdi Express. The details on the ticket,
including the coach number, the date of journey, etc., were illegible. Hence, they were forced to buy another
ticket for journey from New Delhi to Kanpur. They applied for a refund for the earlier ticket but, as the Forum
noted, they had to suffer much for the purpose. In spite of the couple’s giving the Ahmedabad residential address
for sending the refund, the Railways sent it to their Delhi address. They approached Consumer Education and
Research Society (CERS), Ahmedabad for help. CERS filed a complaint against the Railways before a District
Consumer Dispute Redressal Forum, Ahmedabad City and claimed that the two senior citizens had to face
mental harassment due to the deficiency in service by the Railways.
(a) Can CERS file a complaint against the Railways before the District Consumer Dispute Redressal Forum,
Ahmedabad? Justify your answer.
(b) Which consumer right is being promoted by CERS in this case?
(c) State any two reliefs available to Mr. Man Mohan Singh and his wife Kamlesh. (4 marks)
Q.14 Aditya Khosla, the Managing Director of ‘D.L.W. Ltd.’ and Rajesh Puri, the Finance Manager were discussing
about the avenues of investing the idle funds of the company. Aditya Khosa was of the opinion that money
should be invested in the capital market whereas Rajesh Puri, being more conservative, feels that it would be
better if the investment was made in money market.
Since the economy was buoyant, the Managing Director convinced Rajesh that they should take advantage of
it and invest in the capital market to get good returns. Ultimately it was decided to invest the idle funds in the
capital market.
(a) What kind of instruments should the company buy?
(b) Why is the capital market expected to give a better return in a buoyant economy? State the reason.
(c) Why and how safe are the securities in this market as compared to money market? (4 marks)
Q.15 Since childhood Niru and Janak had been watching their grandmother procuring wheat form the market,
washing it well drying it and getting it converted into atta. They conducted a survey to collect data to identify
whether there is demand for readymade atta and realised that with the growing number of working women, it
is the need of the hour to manufacture high quality atta. They named their product ‘Srijan’ and set up ‘Srijan
Atta Factory’ at Jaunpur Village. To penetrate in the market, they decided to keep the price low. For maintaining
smooth flow of their product into the market and avoiding delays in delivery, it was decided to store wheat at
SKM Services which had scientific processes and logistics facilitating quick delivery. They also set up an online
complaint portal to take care of consumer grievances.
By quoting the lines from the above paragraph, state any four marketing functions undertaken by Niru and
Janak for successful marketing of ‘Srijan’ atta. (4 marks)
Q.16 Gopal, Mohan and Shyam are three friends having their separate small manufacturing units in an industrial
estate. They are hard-working and honest and undertake their respective production activities following the
good practices of business. They use good quality raw materials and adopt standardised process. They fix the
prices of their products with a reasonable profit margin. But all of them are worried about the malpractices
like manufacturing sub-standard, duplicate and defective goods by the fellow manufacturers. Therefore, they
decided to form an organisation with a constitution of its own which is free from government interference. This
organisation would encourage consumers to strongly protest and take action against unscrupulous, exploitative
and unfair trade practices of sellers.
State six other functions which may be performed by this organisation in addition to those mentioned above.
(6 marks)
Q.17 Explain briefly any six factors affecting the capital structure of a company. (6 marks)
Financial Management, Financial Markets, Marketing and Consumer Protection

Time allowed : 1 hr. 30 min. Maximum Marks : 40
Q.1 Any person aggrieved by an order made by the District Commission on the grounds of facts or law within a
period of ______________ from the date of the order. (1 mark)
Q.2 A consumer can file a complaint against on unfair contract at any Consumer Disputes Redressal Commission at
the district, state and national levels. True/False? Give reason. (1 mark)
Q.3 The consumer has a right to acquire knowledge and to be a well informed consumer throughout life. He
should be aware about his rights and the relief available to him in case of a product or service falling short of
his expectations. Many consumer organisations and some enlightened businesses are taking an active part in
educating consumers in this respect.
The consumer right highlighted above is _______________. (1 mark)
Q.4 Consumer must ask for a _____________ on purchase of goods and services. This would serve as a proof of the
purchase made. (1 mark)
Q.5 Sun-flag Iron Ltd. is manufacturing steel at its plant in India. It is enjoying increased demand for its steel as
economic growth of the country is about 8%. It is planning to set up a new plant to avail the benefits of increased
demand. It is estimated that it will require about `4,000 crore for setting up of a plant and about `600 crore for
other expenses to start the new plant. To collect the above mentioned funds, the sources to be used and the quantity
to be collected from different sources had to be considered. The concept discussed above is __________.
(Fill up the blank with correct answer) (1 mark)
Q.6 ABC Ltd. has Debt Equity ratio of 3:1 whereas XYZ Ltd. has Debt Equity ratio of 1:1. Name the advantage
ABC Ltd will have over XYZ Ltd, when the rate of interest is lower than the rate of return on investment of the
company. (Choose the correct alternative) (1 mark)
(a) Trading on equity (b) Low risk
(c) Low cost of equity (d) Greater flexibility
Q.7 _____________ is unsecured, negotiable, short-term instrument in bearer form, issued by commercial banks
and development financial institutions. It helps to mobile a large amount of money for short periods.
(a) Treasury Bill (b) Commercial paper
(c) Certificate of Deposit (d) Commercial Bill
Q.8 A stock exchange is a market in which existing securities are resold or traded. Through this process of
disinvestment and reinvestment savings get channelised into their most productive investment avenues.
The function of a stock exchange highlighted above is : (1 mark)
(a) Spreading of equity cult
(b) Providing liquidity and marketability to existing securities
(c) Contributes to capital formation and economic growth
(d) Both (b) and (c)
Q.9 The product costs sets the minimum level or the floor price at which the product may be sold whereas, the
utility provided by the products and the intensity of demand of the buyer sets the upper limit of price which a
buyer would be prepared to pay. Between the lower limit and the upper limit where would the price settle down?
This is affected by __________________. (1 mark)
(a) Extent of competition in the market.
(b) Government and legal regulations.
(c) Pricing objectives.
(d) Marketing methods used.
Q.10 ______________ refers to producing goods of pre-determined specifications, which helps in achieving
uniformity and consistency in the output. (1 mark)
(a) Product designing and development (b) Packaging
(c) Standardisation (d) Grading
Q.11 "Consumer Protection has a wide agenda." Comment. (3 marks)
Q.12 Sudhanshu saw a weight reducing electric machine advertisement on the television. He purchased it and decided
to use it. The moment he plugged the machine he got an electric shock. As a result he died instantly. His relatives
suggested Vedant, Sudhanshu’s son to file a case claiming compensation of `50 lakh.
(a) Who can file a case against the company?
(b) Where should the complaint be filed and why? (3 marks)
Q.13 Mrs. Mathur sent a jacket to a laundry shop in January 2020. The jacket was purchased at a price of `4,500.
She had previously sent the jacket for dry cleaning with Shine Dry Cleaners and the jacket was cleaned well.
However, she noticed that her jacket had white discoloration marks when she collected the jacket this time.
On informing the dry cleaner, Mrs. Mathur received a letter confirming that discolouration indeed appeared
after the jacket was dry cleaned. She contacted the dry cleaner multiple times and requested for compensation
for discoloured jacket but to no avail. Upon Consumer court’s intervention, Shine Dry Cleaners agreed to
compensate ` 2,500 to Mrs. Mathur for the discoloured jacket.
(a) Which right was exercised by Mrs. Mathur at the first instance?
(b) Name and explain the right which helped Mrs. Mathur to avail the compensation.
(c) State which consumer responsibility has been fulfilled by Mrs. Mathur in the above case. (4 marks)
Q.14 “A capital budgeting decision is capable of changing the financial fortunes of a business.” Do you agree? Give
reasons for your answer. (4 marks)
Q.15 What are the functions of a Stock Exchange? Explain any four. (4 marks)
Q.16 Aman a degree holder in Entrepreneurship came to know about Piplantri Village located in Rajasthan, where in
2006 an initiative was started, in which 111 trees are planted every time a girl child is born.
To keep termites away from the trees the villagers have planted 2.5 million Aloe Vera plants around the trees.
This has turned the village into an oasis, as the planting of trees led to higher water levels.
Aman decided to visit the village to start a business unit, for the processing and marketing of Aloe Vera into
juices, gels and other products.
However, on visiting the village Aman found that the villagers were suffering exploitation at the hands of local
merchants who were engaged in unscrupulous, exploitative trade practices like hoarding and black marketing of
food products and also selling unsafe, adulterated products to the villagers.
After looking at their plight instead of a business organisation he decided to set up an organisation for the
protection and promotion of the consumer interest of the villagers.
State the functions that the organisation established by Aman will be performing. (Any six points) (6 marks)
Q.17 ‘Pushpanjali Ltd.’, is manufacturing chocolates, biscuits, cakes and other similar products. The company is not
generating enough profits. Saurabh, the Marketing manager of the company got a survey conducted to find
out the reasons. The finding of the survey revealed that in spite of better quality, the customers were not able
to distinguish the products of the company from its competitors. Though the customers wanted to buy the
products of ‘Pushpanjali Ltd.’ again and again because of its goods quality, but they were not able to identify
its products in the market. Because of this, the sales of the company could not pick up resulting in inadequate
profits. Saurabh, the Marketing manager now realised that ‘Pushpanjali Ltd.’ had forgotten to take one of the
most important decisions related to the product.
What decision should ‘Pushpanajali Ltd.’ take so that its customers are able to identify its products in the market?
Explain the benefits that may result to ‘Pushpanjali Ltd.’ and its customers if the above decision is taken. ( 6 marks)
Check List to Objective Type Questions
Objective Type Questions 12.1 35. Right to be Heard

1. False 36. Right to seek redressal
2. (d) Right to be informed 37. (d) Right to seek redressal
3. (i) – (C), (ii) – (D), (iii) – (B), (iv) – (A) 38. Right to consumer education
4. (a) Right to be heard 39. (a) – (iv), (b) – (iii), (c) – (i), (d) – (ii)
5. (c) Right to safety 40. (a) – (iii), (b) – (ii), (c) – (iv), (d) – (i)
6. (d) Right to be informed. 41. Cash Memo
7. (a) Right to be heard 42. False
8. Right to Consumer Education 43. Right to consumer education
9. (b) Right to choose 44. Right to be Heard
10. Right to seek redressal
11. Right to be heard
12. (c) Maintaining consumer documents like cash memos etc 1. (d) None of the above.
safely. 2. (d) A person who obtains the goods with no consideration.
13. Cash Memo 3. Supreme Court
14. False: ISI is the quality certification mark used in case of 4. If the consumer court is satisfied about the genuineness
electrical goods. of the complaint, the consumer can get more than one
15. (b) FPO relief, e.g., removal of defects from the product, refund
16. (c) AGMARK of the price paid, payment of reasonable amount of
17. To receive a reasonable amount of compensation for any compensation, etc.
loss or injury suffered by the consumer. 5. National Consumer Disputes Redressal Commission
18. Right to be heard (National Commission)
19. If we don’t have cash memo (the proof of purchase) or 6. True
fail to file a complaint within two years, we are not in a 7. False: The expressions also includes online transactions
position to resolve our grievances. through electronic means or by teleshopping or direct
20. To look for the AGMARK label. selling or multi-level marketing.
21. By FPO mark label 8. a President, and not less than two other members.
22. By Hallmark label 9. 3 months; 5 months
23. Right to safety 10. 45 days
24. Right to choose 11 a President, and not less than four other members.
25. By ISI mark label 12. `1 crore; `10 crore
26. Right to Consumer Education. 13. a President, and not less than four other members.
27. Cash Memo. 14. `10 crore
28. The Consumer Protection Act (CPA), 2019 15. National Commission; 30 days
29. Right to Safety 16. Supreme Court; 30 days
30. (a) Right to safety 17. 2 years
31. Right to be informed 18. 2 years; `10 lakh; 5 years; `50 lakh
32. False: The consumer right highlighted is 'Right to be 19. False: complaints against an unfair contract can be filed
informed'. with only the State or National Commissions.
33. Right to choose 20. the Supreme Court
34. Right to be heard 21. `1 crore
Answers to Self Assessment Tests Questions
Self Assessment Test 1 Self Assessment Test 2

1. (b) Right to be heard 1. No, Mamta cannot seek any remedy from the company as
2. False: A complaint can to be made to a District she does not have Cash Memo, which serves as the proof
Commission when the value of the good or service does of purchase.
not exceed `1 crore. 2. AGMARK
3. No, my mother cannot file a complaint against the dealer 3. Labelling
or the manufacturer in the consumer court since she does 4. Right to be informed
not have cash-memo. She had purchased the washing 5. Right to Safety and Right to seek redressal (explain)
machine with an oral guarantee only. 6. (a) Yes, Raghav can file a complaint against UBAR Co.
4. No, Pankaj cannot appeal against the decision of State since he is a ‘consumer’ as per the definition of a
Commission since he has failed to appeal before the consumer under the Consumer Protection Act, 2019
National Commission with 30 days of the passing of the “A consumer is any person who hires or avails of any
order. services for a consideration, which has been paid
5. Right to seek redressal (Explain) or promised, or partly paid and party promised, or
6. Deepak is a responsible consumer since he has got the under any system of deferred payment.”
Cash Memo for the book he purchased. Cash memo is the (b) Yes, Bhavya can also file a complaint against UBAR
proof of purchase. A consumer must have the cash memo Co. since he is a ‘consumer’ as per the definition of a
to file a complaint in a consumer court. So, Deepak can ‘consumer’ under the consumer protection Act, 2019.
recover the extra money he paid (` 20) from the book- A consumer includes “any beneficiary of such services
seller. with the approval of the person concerned.....”
If the book-seller refused to give back ` 20, Deepak can file (c) No, ‘Ganga Travels’ cannot file a complaint against
a complaint against the book-seller in the District Forum UBAR Co. since it is not a consumer as per the
and get reliefs, such as (i) refund of the price paid for the definition of a ‘consumer’ under the consumer
book (` 400), (ii) payment of adequate costs incurred for protection Act, 2019 – “A consumer does not include
filing the complaint. any person who avails of such services for any
7. Tanya cannot file a complaint in any consumer court since commercial purposes.”
she does not have the proof of purchase, i.e., Cash memo. 8. (a) Consumer responsibilities, which have been discharged
She did not fulfil her responsibility of an honest consumer. by Suman besides asking for a cash memo: (any two)
She should have gone back to the general store to get its (i) She was aware about various goods and services
billing. available in the market and made an intelligent
Under the Consumer Protection Act, 2019, any of the and wise choice.
following can file a complaint: (ii) She bought standardised product as standardistion
(i) A consumer; or provides quality assurance.
(ii) Any voluntary consumer association registered under (iii) She learnt about the risks associated with product
any law for the time being in force; or and followed manufacturer’s instructions
(iii) The Central Government or any State Government; or (iv) She asserted herself to get a fair deal.
(iv) The Central Authority; or (b) Rights discussed in the above case are:
(v) One or more consumers, where there are numerous (i) Right to choose
consumers having the same interest; or (ii) Right to be informed
(vi) In case of death of a consumer, his legal heir or legal (iii) Right to safety (explain)
representative; or
(vii) In case of a consumer being a minor, his parent or
legal guardian. 1. (i) -(C), (ii) - (D), (iii) - (B), (iv) - (A)
9. Directions that might have been issued by the court: 2. (c) Maintaining consumer documents like cash memos
(i) To remove the deficiency in service. etc safely
(ii) To refund the price paid for the service provided. 3. (d) None of these
(iii) To pay a reasonable amount of compensation for any 4. False: The expressions also includes online transactions
loss suffered by the inmates of old age home. through electronic means or by teleshopping or direct
(iv) To pay punitive damages. selling or multi-level marketing.
(v) To discontinue the unfair/restrictive trade practice 5. Right to seek redressal (explain)
and not to repeat the same in future. 6. (i) Widespread exploitation of consumers.
(vi) To issue corrective advertisement to neutralize the (ii) Unorganized consumers.
effect of misleading pamphlet. (iii) Social responsibility. (explain)
7. (a) Mr. Ajay can file a case against the school as well as (d) To pay a reasonable amount of compensation for
the coach. any loss or injury suffered by the consumer due
Reason: Failure to provide basic safeguards in the to negligence of the opposite party.
swimming pool by the school and the negligence of (e) Not to offer hazardous goods like defective
the coach amounts to deficiency in services. electrical heater form sale.
(b) Mr. Ajay can file the case in the District Commission (f ) To cease manufacture of hazardous goods like
since he decided to claim ` 50 lakh, which does not defective electrical heater.
exceed ` 1 crore.
(c) If the school authorities are not satisfied with the
order of the district commission, they can appeal 1. (d) Right to be informed.
before the State Commission within 45 days of the 2. (b) FPO
passing of the order. 3. The National Commission
8. Functions performed by the Consumer Voice for the 4. a President, and not less than four other members.
protection and promotion of consumer interest: 5. Technology upgradation
(a) Educating the general public about consumer rights 6. Since Harish is providing warehousing service, it does not
by organising training programmes, seminars and have to maintain inventory and thus, require less working
workshops. capital.
‘organised consumer workshops in the months of 7. Permanent Account Number (PAN)
December in Delhi/ NCR on the theme, of ‘Organic 8. Prohibition of fraudulent and unfair trade practices
Food –From Farm to Plate’, as a part of its initiative to Protective function
spread awareness on the importance of organic farming’ 9. (a) Whether the new soft drinks will be promoted by
(b) Publishing periodicals and other publications to putting up advertisements in newspaper or magazine
impart knowledge about consumer problems, legal or on radio or televisions.
reporting, reliefs available and other matters of 11. (a) Right to be heard
interest. (b) District Commission; because the District CDRC
‘The results of the tests are published in their monthly will entertain complaints where value of goods and
magazine’ Consumer Voice’ to make people aware of services does not exceed `1 crore.
quality of different products’ (c) Yes; because appeals from a District CDRC will be
(c) Carrying out comparative testing of consumer heard by the State CDRC. Appeals from the State
products in accredited laboratories to test relative CDRC will be heard by the National CDRC. Final
qualities of competing brands and publishing the test appeal will lie before the Supreme Court.
results for the benefit of consumers. 12 (a) Right to be heard
‘People were informed that the organisation regularly (b) Right to seek redressal
tests samples to detect adulteration like presence of heavy (c) Right to consumer education
metals or pesticides’ 13. (a) Yes, CERS can file a complaint against the Railways
(d) Providing legal assistance to consumers by the way before the District Consumer Dispute Redressal
of providing aid, legal advice etc. in seeking legal Forum, Ahmedabad since as per the Consumer
remedy. Protection Act, 2019 a complaint before the
‘It also provides aid and legal advice to the consumers in appropriate consumer forum can be made by any
seeking a remedy’ registered consumers’ association also.
9. (i) Reliefs that the Consumer court can grant to the (b) ‘Right to be heard’ is being promoted by CERS in
customers are: this case.
(a) To refund the price paid (c) The District Commission may order the Railways:
(b) To discontinue the unfair/restrictive trade (i) To refund `2,000, the charges paid for the
practice and not to repeat the same in future. railway journey cum-reservation ticket, and/or
(ii) Reliefs that the Consumer court can grant to the (ii) To pay adequate costs or reasonable amount of
customers are: (any two) compensation for any loss suffered.
(a) To remove the defect in engine. 14. (a) Shares, debentures, bonds
(b) To replace the defective engine with a new one, (b) Capital market is expected to give a better return in a
free from any defect. buoyant economy as:
(c) To refund the price paid. (i) The securities are held for a longer duration
(iii) Reliefs that the Consumer court can grant to (ii) There is a scope of earning capital gains on
customer are: (any two) shares.
(a) To remove the defect in electrical heater. (c) Securities in capital market are riskier with respect
(b) To replace the defective electrical heater with a to return and principal repayment. Issuing company
new one, free from any defect. may fail to perform as promoters may defraud
(c) To refund the price paid. investors.
17. Three other functions which may be performed by this 12. (a) A complaint in a consumer court can be filed by Vedant,
organisation in addition to those mentioned above are: legal heir or representative of the deceased consumer,
(i) Educating the general public about consumer rights Sudhanshu or any registered consumers’ association, etc.
by organising training programmes, seminars and (b) The complaint can be filed at the District Commission
workshops. since the amount of compensation claimed does not
(ii) Publishing periodicals and other publications to exceed `1 crore.
impart knowledge about consumer problems. 13. (a) Right to be heard
(iii) Carrying out comparative testing of consumer (b) Right to seek redressal
products in accredited laboratories. The consumer has a right to get relief in case the product
(iv) Providing legal assistance to consumers. or service falls short of his expectations. The Consumer
(v) Filing complaints in appropriate consumer courts on Protection Act provides a number of reliefs to the consumers
behalf of the consumers. including:
(vi) Taking an initiative in filing cases in the interest of • replacement of the product,
general public. • removal of defect in the product,
Self Assessment Test 5 • compensation paid for any loss or injury suffered by
the consumer, etc.
1. 45 days
(c) The consumer responsibility which has been fulfilled by
2. False: complaints against an unfair contract can be filed
Mrs. Mathur:
with only the State or National Commissions.
File a complaint in an appropriate consumer forum in
3. Right to consumer education
case of a shortcoming in the quality of goods purchased or
4. Cash Memo
services availed. Do not fail to take an action even when the
5. Capital Structure
amount involved is small.
6. (a) Trading on equity.
16. Functions of an NGO/Consumer organisation in protecting
7. Certificate of Deposit
and promoting consumers’ interests. (Any six)
8. (d) Both (b) and d (c)
17. The decision which ‘Pushpanajali Ltd.’ should take so that
9. Extent of competition in the market.
its customers are able to identify its products in the market
10. (c) Standardisation
is Branding.
11. The given statement is correct. Consumer Protection not
Benefits that may result to Pushpanjali Ltd.: (Any three)
only includes educating consumers about their rights and
(i) Enables marking product differentiation.
responsibilities, but also helps in getting their grievances
(ii) Helps in advertising and display programmes.
redressed. It not only requires a judicial machinery for
(iii) Differential pricing.
protecting the interests of consumers but also requires
(iv) Ease in introduction of new product.
the consumers to get together and form themselves into
Benefits that may result to the customers: (Explain any two)
consumer associations for protection and promotion of
(i) Helps in product identification.
their interest.
(ii) Ensures quality.
(iii) Status symbol.
Preparing for Examinations and Sample Papers 195
Preparing for Examinations

The aim of this guide is to help you prepare for your examinations by:
 informing you about the various skills and abilities that are assessed in the CBSE Business Studies XII examinations.
 helping you with a few tips on how to plan your preparation for examinations in an effective way.
 telling you why some students do not succeed or perform to their true ability in the CBSE examinations.
 making you feel confident in tackling CBSE examination questions and knowing what examiners expect when
marking your script.
Important tips for attempting CBSE Business Studies XII Examination
CBSE Sample Question Paper 2020 with Solutions through Author’s Pen
20 Sample Question Papers (based on new sample question paper design of CBSE)
You can help yourself greatly in preparing for the final CBSE Business Studies XII Examination by following some
important steps. No one likes examinations but there is no need to be afraid of them if you prepare yourself well.
The seeds for success are sown long before you enter the examination room. The key thing is to be prepared. It is
worth remembering:
‘If you fail to prepare, you are preparing to fail.’
Why not put this on your wall? But if you do, remember to practice what it says.
A few hints on how to study effectively

 Read through your book on a daily basis and feel confident that you have understood the main subject
content. When reading, underline or highlight the key points. They make notes on what you have read.
Writing and working in this way greatly enhances your understanding of a topic.
Tick off each topic (from the syllabus given at the start of each unit) as you revise and understand it.
When you have completed a chapter, Attempt ‘Self-Assessment Tests’—ideally without referring to the
book—so as to evaluate the understanding of concepts of the chapter.
 Revision is not something that is only confined to the last week or so before an examination. So:
‘make study a habit; make revision a habit.’
 Managing your time in an effective way is crucial. Remember:
‘it is not how much time you have but how you manage it.’
There should be regular periods in the week when you have spare blocks of time that you can devote to
studying Economics. Even if it is only 1 hour, if this is spent effectively, it will be of much value to you.
Remember:
‘it is not so much how long you study but how effective you are in your studying.’
 You should also try to have set places where you can study, ideally free from distractions such as loud
music, talking, television noise and so on. This may not be easy but try to have set times and places for
your study and stick to a routine. Put yourself in a position where you can concentrate on your study.
This is most unlikely to happen if your favourite television programme is on in the same room.
 Short sessions, but lots of them. Psychological studies have shown that our learning abilities decline
sharply after around 50 minutes of intensive study. The attention span of most people is 40-60 minutes.
After such a period, have a drink and a rest, may be do something else before studying for a further
period. Be as detailed as possible in your timetable; for example:
‘Saturday–revise Financial Management is not detailed enough. Better to lay out your timetable like this:
Saturday: 9.00 am to 10.00 am – Financial Management: Concept, Decisions, Objectives and Role
Break – 10 minutes
10:10 am to 10:50 am – Financial Planning: Concept, Objectives and Importance
Break – 20 minutes
11.10 am to 12.10 pm – C apital Structure: Concept and Factors affecting
12.10 pm – lunch and rest
1:30 pm to 2:30 pm – Fixed and Working Capital: Concept and Factors affecting their
requirements
All of these simple things should help you feel relaxed and confident when you take the examinations.
Important Tips for Attempting CBSE Business Studies XII Examination

 During 15 minutes Reading Time, read all questions carefully. Select the Option to be answered in questions
having internal choice. When reading, underline the key lines with pencil which help you to write answers.
 In Case Problems, before reading the whole question first you must read what is required in the question as given
in the last line(s) of the question.
 Timing is an essential ingredient of success. Business Studies paper is worth 80 marks and must be completed in
180 minutes. Allowing 20 minutes revision time, this leaves 160 minutes or 2 minutes per mark. So, do not spend
10 minutes on a question worth just 3 marks! Do not exceed the time you have allocated for each question.
There are 5 types of questions in the CBSE Business Studies Examinations. These are:
Types of Questions Marks Word limit Number of Total Marks Estimated

Questions Time
OTQs/MCQs 1 One word to a sentence 20 20 30 min.
SA-I 3 50-75 words 5 15 30 min.
SA-II 4 120 words 3 12 25 min.
LA 5 150 words 3 15 30 min.
Essay type questions 6 200 words 3 18 45 min.
20 Minutes – Revision
Total 34 80 180 min.
 Write impersonally. In other words, do not use ‘I’ or ‘We’ in your answers. For example, do not write — “I don’t
agree with the statement.” Rather you must write — “The given statement is not correct.”
 Take care with sentences and punctuation. In general, try to write short sentences.
 The following table shows a list of key directive words which are most likely to occur in CBSE Business Studies
examination questions. You should read these carefully and understand what each means.
Directive Words The examine is supposed to:

Name/Identify/Which Write the name of the concept/term only
State Make clear
List/Enumerate/State Write the statements without giving heading
Explain/ Describe Give the heading and then explanation/description with reasons and examples, if
required.
Comment Give your reasoned opinions on
 Remember the weightage of the units. This helps you when you are not able to find the unit from which a
particular question has been put up.
Unit Weightage
I. Nature and significance of management, Principles of management and Business Environment 16 marks
II. Planning and Organising 14 marks
III. Staffing, Directing and Controlling 20 marks
IV. Financial Management and Financial Markets 15 marks
V. Marketing and Consumer Protection 15 marks
Total 80 marks
 To score 100% marks, the presentation of answers is as much important as their content.
 Write the main heading in capital letters. (Use dark and bold pen like Pilot V10)
 Underline the headings with pencil.
 Explanation/description from next line of heading.
 Use bullets while giving explanation.
 In the question where process or steps of a management function are asked, write the steps in sequential order.
 Attempt all parts of a question together.
 Give answer in points, as far as possible, rather than in paragraphs.
 Leave one line space between two headings
 Leave at least 2-3 lines space between two answers of 1 mark questions.

 Attempt all questions from new page (except answers to 1 mark questions).

 You may use ‘Quotes’, ‘Diagrams’ and ‘Tag Lines’ while answering Long questions/Essay type questions to
make the answers more presentable.
 During last 20 minutes of revision, first of all make sure that you have attempted all the questions and written
Question Number for each answer. If any question(s) left, attempt it first. Don’t leave it even if you don’t know the
proper answer. Remember that writing something is always better than leaving it at all. Then check the calculations
in Numerical Questions one by one. Then, read your answers one by one underlining the key lines using pencil.
Important Quotes
1. Successful organisations do not achieve their goals by chance but by following a deliberate process called
‘management’.
Management = Manage : Men + T (things)
2. Individuals say ‘I’.... Team says ‘We’. A successful team beats with one heart.
TEAM (Together Everyone Achieves More)
3. Failing to plan is planning to fail.
4. The right people can take a business to the top; the wrong people can break the business.
5. Directing is the heart of management process.
6. Like a traffic signal, controlling guides the organisation and keeps it on the right track.
7. Planning and controlling are mutually interrelated and interdependent activities. They are inseparable twins of
management.
8. Finance is the life blood of business.
Important Diagram and Cartoon

A
We do same job.
Why partiality?
B L Your salary Your salary

` 15000 ` 20000
C M
Boss
D N Worker 'B' Worker 'A'
Scalar Chain Gang Plank

‘Equity’ principle is violated
Managing
Director
Human
Marketing Finance Production
Resource
Organisation chart showing FUNCTIONAL STRUCTURE

Managing
Director
FOOTWEAR GARMENTS
Division Division
HR Marketing Finance Production HR Marketing Finance Production
Organisation chart showing DIVISIONAL STRUCTURE
Functional Formanship: Separation of planning and execution functions
C A
A C A
A C A
A B C
B C
B C
B A D
BB AA DD
B C D E D E
B CC D EE D D E E
ABis the leader:
AAisisthe
D A Aisisthe
theleader: A is
is the
theleader:
leader:
the leader:
leader: A is the leader:
leader: A isAthe leader:
Boss-Centred
Boss-Centred Leadership Group-Centred
Group-CentredLeadership
Leadership Subordinate–
Subordinate– Centred
Centred Leadership
Leadership
Boss-Centred Leadership
Leadership Group-Centred Leadership Subordinate– Centred Leadership
Autocratic
Autocratic
AutocraticLeadership
Leadership
Leadership Democratic
DemocraticLeadership
Democratic Leadership
Leadership Free-rein
Free-rein Leadership
Leadership
Free-rein Leadership
Financial Decisions
Households FINANCIAL Business Firms

(Savers) MARKETS (Investors)
Money
Market
Instruments
Commercial Treasury bill Call money Certificate of Commercial

paper deposit bill
Inventory Order
control processing
Components
of Physical
Distribution
Warehousing Transportation

• Promotion Mix • Product Mix

• Advertising • Product Quality
• Personal Selling • New Product
• Sales Promotion • Design and Development
• Publicity • Packaging
• Public Relations • Labelling
• Branding
• Price Level
• Channel Strategy • Margins
• Channel Selection • Pricing Policy
• Channel Conflict • Pricing Strategies
• Channel Cooperation • Price Change
• Physical Distribution
Manufacturer Cunsumer
Direct Channel (Zero Level)
Manufacturer Retailer Cunsumer
One level channel
Manufacturer Wholesaler Retailer Cunsumer
Two level channel
Manufacturer Agent Wholesaler Retailer Cunsumer
Three level channel
Personal Sales Supreme Court

Selling Promotion
National Commission
Promotion
Mix State Commission
Public District Commission

Advertising Relations
Redressal Agencies under the
Consumer Protection Act, 2019
Tag Lines
Features

 The basic characteristics of management are as follows:

 The following points summarise the nature of principles of management:

 The planning function of the management has certain special features. These features throw light on its nature
and scope.
Importance

 The significance of principles of management can be discussed in terms of the following points:

 The importance of business environment can be appreciated if we consider the following facts:

 The following points highlights the crucial role that organising plays in any business enterprise:

 Proper Staffing ensures the following benefits to the organisation:

 Controlling is an indispensable function of management. A good control system helps an organisation in the
following ways:
Limitations

 The major limitations of planning are given below:
Process
 Organising involves a series of steps that need to be taken in order to achieve the desired goals. These steps are
given below:
 The important steps in the process of selection are as follows:
 During last 20 minutes of revision, first of all make sure that you have attempted all the questions. If any question(s)
left, attempt it first. Don’t leave it even if you don’t know the proper answer. Remember that writing something is
always better than leaving it at all.
Then, read all questions and their answers one by one. While reading, underline the key words/lines with a pencil.
If you want to add something to make your answer better, or you had missed some important point, you could
write. That’s why attempting all questions from new page is always better option than writing next answer from
the next line itself.
To conclude, it is very important for you to be well-organised and to be able to plan ahead if you are to score 100%
marks in CBSE Business Studies examination. Revision should be an ongoing process, not just a last-minute activity you
carry out just before a written examination. A lack of time and an inability to understand the relevance of directive words
are the most common causes of under performance.
I know Board examinations create a lot of anxiety among students. Everyone expects good performance so as to get
admission in a college of repute. My advice to you is:
To work hard and give your 100%.
Remember: Success will never lower its standard to accommodate you. You have to raise your standard to achieve it. For
every bird, God provides food but not in their nest.
Always believe in yourself. Don’t give up.
One thing keep in mind: You are something! Because God does not create garbage.
Always remember God.
Without Him, your all efforts are in vain! 0 0 0 0 0 0 0 = 0. But if you put 1 before these zeros, you get 1 crore (10000000).
We human beings are zeros without Him! And 1 is God!
I’ll feel pleasure to solve any of your queries/doubts related to the subject through my social media handles.
Phone/Whatsapp Number 9810475716

Facebook: Subhash Dey’s Shree Radhey Publications & Academy: https://www.facebook.com/Subhash-Deys-Shree-
Radhey-Publications-Academy-537031643452290/
Instagram: subhashdey_20: https://www.instagram.com/subhashdey_20/
Email: [email protected]
Mobile App: Shree Radhey Publications: https://play.google.com/store/apps/details?id=com.
shreeradheypublications&hl=en
Finally I pray the Supreme Divine to bestow the best of blessings on you!
Regards
Your servant
SUBHASH DEY
B.Com. (Hons.), M.Com. (DSE), M.A. (Economics), PGDBA (Finance), B.Ed, PGD in Labour and Administrative Laws
• Author and Publisher of CBSE Books – Accountancy, Business Studies, Economics, Mathematics and English
• M.Com (Delhi School of Economics)– Gold Medalist, Topper of Delhi University
• Consecutive four years’ Economics topper of Delhi University
• Ex-Lecturer of Commerce in Hindu College, Delhi University
• Resource Person and Educationist conducting Workshops/Seminars of Teachers and Students
• Founder/Director of ‘Shree Radhey Academy, The Gurukul’ (C-3/6 Yamuna Vihar, Delhi-53)
Sample Question Papers
CBSE Question Paper Design

Business Studies XII (Code No. 054)
Marks: 80 Duration: 3 hrs.
Objective Short Short Long Long
S. No. Typology of Questions Type/ MCQ Answer I Answer II Answer I Answer II Marks
1 Mark 3 Marks 4 Marks 5 Marks 6 Marks
1. Remembering
Exhibit memory of previously learned 5 1 1 1 1 23
material by recalling facts, terms, basic
concepts, and answers.
2. Understanding
Demonstrate understanding of facts and
ideas by organizing, comparing, translating, 5 2 1 – 1 21
interpreting, giving descriptions, and stating
main ideas
3. Applying
Solve problems to new situations by applying 5 1 – 1 1 19
acquired knowledge, facts, techniques and
rules in a different way.
4. Analysing and Evaluating
Examine and break information into parts
by identifying motives or causes. Make
inferences and find evidence to support
generalizations.
Present and defend opinions by making
judgments about information, validity of 5 1 1 1 – 17
ideas, or quality of work based on a set of
criteria.
Creating
Compile information together in a different
way by combining elements in a new pattern
or proposing alternative solutions.
TOTAL 20x1=20 5x3=15 3x4=12 3x5=15 3x6=18 80 (34)
There will be Internal Choices in questions of 1 mark, 3 marks, 4 marks and 6 marks in both sections (A & B). In all,
total 8 internal choices.
Sample Question Paper - 1

(CBSE Sample Question Paper 2020)
Section - A (1 mark each – Answers in one word or a sentence)

Q.1 Management is (Choose the correct alternative)
(a) A Science (b) An Art
(c) both science and art (d) Neither
Q.2 The purchase, production and sales managers at Sharda Ltd, a firm manufacturing ready made garments are generally at a
conflict, as they have their own objectives. Usually each thinks that only they are qualified to evaluate, judge and decide on
any matter, according to their professional criteria. Name the concept which will be required by the CEO Mr. Raman, to
reconcile the differences in approach, interest or opinion in the organisation.
Q.3 Principles of management are NOT: (Choose the correct alternative)
(a) Applicable only in large firms (b) Formed by practice and experience of managers
(c) Flexible (d) Contingent
Q.4 ____________ is considered a major element of the political environment: (Choose the correct alternative)
(a) The extent and nature of government intervention in business
(b) planned outlay in public and private sectors
(c) Expectations from the work force
(d) Administrative order issued by government authorities.
Q.5 Name the step in the process of planning which is considered the “real point of decision making”.
Q.6 ______________ gives shape to the organisation structure. (Choose the correct alternative)
(a) Extent of delegation (b) Span of Management
(c) No. of employees (d) Planning
Q.7 Astra Builders has to deliver the flats to its buyers on time. Due to this there is a sudden rush of work. Therefore, the
company needs to arrange workers to work at the sites at a short notice. The source of recruitment which may be used by
the company to tap the casual vacancy is: (Choose the correct alternative)
(a) Direct recruitment (b) Advertisement
(c) Recommendation of employees (d) Employment Exchange
Q.8 SCT services CEO Rajan Gopinath’s compensation includes salary, commission and other allowances. The company also
pays for his insurance and vacations. Identify one indirect payment being made by the company to the CEO.
(a) Employer paid Insurance (b) Salary
(c) Commission (d) Allowances
Q.9 At Support.com, there is no reward or appreciation for a good suggestion. Thus, the subordinates are not willing to offer
any useful suggestions to their superiors. Identify the type of barrier to communication that has been created in the firm due
to this. (Choose the correct alternative)
(a) Semantic barrier (b) Personal barrier
(c) Organisational barrier (d) Psychological barrier
Q.10 M.R. Sarthi, the Ex-chairman of Swadesh Ltd, built up his successor before retiring. Following the norms set up by himself,
he handed over the reins of the company to the co-founder Mr. Shravan, who had the potential to bring about change in
the behaviour of others. Name the concept of management which was the reason why Mr. Sarthi chose Mr. Shravan to be
his successor. (Choose the correct alternative)
(a) Motivation (b) Leadership
(c) Communication (d) Staffing
Q.11 An important project at AMB consultants is running behind schedule by a month. This has upset their clients and might
affect the reputation of the company in the long run. No managerial action like assigning more workers, equipment or
giving overtime has been able to solve the problem. What managerial action may now be taken by the company to avoid
such a situation from arising in the future? (Choose the correct alternative)
A. Revise the schedule B. Assigning additional workers and equipment to the project
C. Get permission for further overtime work D. Both B & C
Q.12 A decision to acquire a new & modern plant to upgrade an old one is known as ________. (Choose the correct alternative)
(a) Financing decision (b) Working capital decision
(c) Investment decision (d) Dividend decision
Q.13 ABC Ltd. has Debt Equity ratio of 3:1 whereas XYZ Ltd. has Debt Equity ratio of 1:1. Name the advantage ABC Ltd will
have over XYZ Ltd, when the rate of interest is lower than the rate of return on investment of the company.
(a) Trading on equity (b) Low risk
(c) Low cost of equity (d) Greater flexibility
Q.14 Vikrant joins his father’s business of Organic masalas, near Kotgarh in Himachal after completing his MBA. In order to
capture a major share of the market, he decided to sell the product in small attractive packages by using the latest packaging
technology. His father suggested that they hire financial consultants to estimate the amount of funds that would be required
for the purpose & timings when it would be required. The concept being discussed by Vikrant’s father, links which financial
decision with the investment decision? (Choose the correct alternative)
(a) Dividend decision (b) Financial Planning
(c) capital structure decision (d) Financing decision
Q.15 Raghav’s friend Raman works as a Chartered Accountant in Solutions Ltd. Raman in a meeting with the Board of Directors
of the Company came to know that the firm would soon be declaring a Bonus issue which would result in increase in the
price of shares. Considering this, Raman advised Raghav to purchase the shares of Solutions Ltd., who acted on his advice
and bought the shares before time. Which function of SEBI can control such malpractices?
(a) Protective functions (b) Regulatory functions
(c) Development functions (d) All the above
Q.16 Large scale production done to reduce the average cost of production is the essence of __________concept of Marketing
management.
(a) Product (b) Selling
(c) Production (d) Marketing
Q.17 Saumya decided to start a business of selling dress material from her house. She did various online surveys to find out about
the preferences of prospective customers. Based on this, she prepared a detailed analysis of the business. She then made
important decisions including deciding about the features, quality, packaging, labelling and branding of the dress material.
Identify the element of Marketing Mix discussed above.
(a) Promotion (b) Market
(c) Product (d) Place
Q.18 Tomato Ltd., a food delivery service app has recently faced criticism for the tampering of their product, by their delivery
boys. Tomato Ltd. decided to put a hologram seal on the food packets in order to protect the contents from spoilage,
leakage, pilferage, damage, along with a tag with a safety warning for the consumers to check the seal. Which concept of
marketing discussed above is performing the important function of communicating with the potential buyer and promoting
the sale.
(a) Branding (b) Product designing and development
(c) labelling (d) packaging
Q.19 Asserting oneself to ensure that one gets a fair deal, is the right of a consumer. (True/False)
Q.20 Sheela went to a free eye camp & got her eyes operated for cataract. The surgery was not done properly, due to which she
lost her vision. Where can she file a complaint under consumer protection act?
(c) National Commission (d) None of above
Section - B (3 marks each – Answers in 50-75 words)

Q.21 List any three tasks that Mr. Armstrong needs to do, as a production manager, in his firm, to carry out the plans laid down
by the top managers.
OR
Enumerate the three economic objectives of management.
Q.22 “Delegation of authority, undoubtedly empowers an employee to act for his superior, but the superior would still be
accountable for the outcome. Explain the elements of delegation of authority discussed above.
Q.23 Banwari Lal is a cloth merchant in Karol Bagh. His grandsons are requesting him to let them diversify the business into
bridal wear. Banwari Lal has agreed but on the condition that they will follow the function of management he has always
followed, which helps an organisation in keeping track of the progress of activities and ensures that the activities conform to
the standards set in advance so that the organisational goals are achieved.
(a) Name the function of management which Banwari Lal is asking his grandsons to follow.
(b) List any two reasons why it is considered an indispensable function of management.
Q.24 The Research & Development department of Healthy Production Ltd. has decided to diversify from manufacturing health
drinks to cereals made from millets. They are well aware of the fact that the company will have to communicate to the
people the benefits of eating millets. For this purpose, they plan to sponsor various events like marathons and encourage
people to switch to healthy eating through newsletters.
(a) Identify and briefly explain the promotional tool being discussed above.
(b) Also explain any two other promotional tool that can be used by the company, apart from the one discussed above.
Q.25 Rita Sharma who works as a guard in a school, purchased two shirts for `460 each for her son. When she went back home,
she realised that the shirt was small in size for her son. She decided to ask for return of money or exchange of the shirt with
an appropriate size. But the store owner refused to return the money or exchange the shirt. Rita Sharma was disheartened.
Her friend advised her to go to ‘Seva Sadan’, an autonomous voluntary organisation working for the protection of consumer
welfare. The organisation helped her by explaining to her the legal procedure, as well as educated her about her rights as a
consumer and helped her in filing the complaint and getting relief. With the help of the organisation Rita was able to get
her money back from the store.
Enumerate the rights of a consumer which Rita Sharma was able to exercise with the help of the voluntary organisation.
Section - C (4 marks each – Answers in about 120 words)

Q.26 The Government is considering a pioneer proposal to launch a single debit-cumcredit card to increase the ease and usage
for the consumers. The card which will be called the “National Mobility Card” will have unique advantages for making
payments in metro, buses, parking and making transactions during visits abroad.
After hearing this news, Mega Bank decided to launch a “Mega Mobility Card” on similar lines , so that they could be the
first to exploit the opportunity, arising due to the increasing trend of digitization. In order to improve their performance,
they laid down a plan to hire more people in their marketing department and prepared guidelines to train their sales force
to market the new card facility being launched by the bank. By quoting the lines, identify and explain any two points of
importance of understanding Business Environment discussed above.
Q.27 Infocom has diversified itself into several product lines: Telecommunications, Engineering, financial services. Each subsidiary
is self-sufficient with their-own administrative functions, propagating the belief that people can assume the responsibility
for the effective implementation of their decisions and should be given autonomy. This has reduced the need for direct
supervision by superiors, has promoted flexibility, initiative and faster decision making. The orders of customers are never
delayed, as a result of good policy decisions of top management.
(a) Identify and explain any two points of importance of the concept being discussed above.
(b) Name and briefly explain a suitable framework for the company within which the managerial and operating task are to
be performed.
Q.28 State any four factors which affect the determination of the price of the product.
OR
State the four components of physical distribution.
Section - D (5 marks each – Answers in about 150 words)

Q.29 Name and explain with a suitable example the technique of Scientific Management given by Taylor, with the objective of
determining the number of workers to be employed for a task.
OR
Name and explain with a suitable example the technique of Scientific Management given by Taylor to differentiate between
the efficient and the inefficient workers.
Q.30 An Auto Company, Win ltd is facing a problem of declining market share due to increased competition from other new and
existing players in the market. Its competitors are introducing lower priced models for mass consumers who are price sensitive.
The Board of Directors of the Company announced a meeting to discuss the decisions regarding pricing and launching a new
range of models, in order to increase the market share of the company.
Attending the meeting was not a discretion for the directors and a penalty was announced for not attending the meeting.
The following decisions were taken in the meeting:
(a) to define the desired future position of the company, as acquiring a dominant position in the market by increasing the
market share to 10% in 1 year.
(b) to change the criteria for choosing vendors for procuring supplies;
(c) to invest in development of the human resources of the organisation by providing training to higher levels by holding
seminars and providing on the job training for the supervisory management.
What are standing plans and single use plans? Briefly explain the plans discussed above, which can be classified as standing
plans, by quoting the lines.
Q.31 What is meant by Capital Budgeting? State any four factors affecting fixed capital requirement of a firm.
OR
Enumerate any five points of importance of financial planning.
Section - E (6 marks each – Answers in about 200 words)

Q.32 Ali Mohammad the CEO of Super Ltd believes that human resource is the most important asset of the firm. He believes
that no organisation can be successful unless it can fill and keep filled the various positions provided for in the structure
with the right kind of people. Identify the function of management being discussed above and state the benefits to the
organisation that its proper application in the firm will ensure.
Q.33 What is the meaning of Directing? State any four points of importance of Directing as a function of management.
OR
What is the meaning of motivation? State the features of motivation as an element of Directing.
Q.34 Kynaa, a beauty products e-commerce company, is diversifying into men’s grooming. It is also tapping the demand for
beauty products in the fashion industry and amid professionals such as make-up artists. As it diversifies its online presence,
Kynaa is also expanding its physical presence. They have 41 outlets across 18 cities presently and plan to expand to 180
outlets. Each store requires a capital expenditure of 60-80 lakh rupees. The company has decided to raise funds by issuing
equity shares but not directly to the public, rather by offering them for sale through brokers.
Identify and briefly explain the method of floatation followed by the company.
Also name & explain the other methods of floatation that can be used by the company for raising funds from the public, in
the primary market.
OR
Radhika got 10,00,000 rupees after selling her parental property which she had got as a gift from her grandmother. Her
friend advised her to invest in securities in the stock market. Radhika was unaware of the procedure for the same. Her friend
introduced her to a stock broker, who was registered with the National Stock Exchange. Radhika approached the broker.
The broker guided her to open a DEMAT account with a Depository, as well as a Bank account. Radhika opened a Bank
account & DEMAT account with Exin Bank.
(a) Identify the steps in the trading procedure for buying and selling of securities which have been discussed above.
(b) State the next four steps of the trading procedure.
ANSWERS
(through Author’s Pen)








SOLUTIONS

SOLUTIONS

Sample Question Paper - 20

Section - A (1 mark each – Answers in one word or a sentence)
Q.1 The principles of management are significant because of (Choose the correct alternative)
(a) Increase in efficiency (b) Initiative
(c) Optimum utilisation of resources (d) Adaptation to changing technology
Q.2 Which of the following is not an indicator of growth of an organisation? (Choose the correct alternative)
(a) Increase in number of employees
(b) Increase in number of products
(c) Increase in capital investment
(d) None of the above
Q.3 In a formal organisation, poor organisation practices may not provide adequate recognition to creative talent, since
________________ . (Complete the sentence)
Q.4 Which of following is not a function of management? (Choose the correct alternative)
(a) planning (b) staffing
(c) coordination (d) controlling
Q.5 In which year the SEBI was established by the Government of India? (Choose the correct alternative)
(a) 1980 (b) 1988
(c) 1992 (d) 1993
Q.6 A firm may sell its products at a price, which does not cover all the costs. True/False? Give reason.
Q.7 The marketing manager of a firm has to take decisions in the areas that relate to managing inventory, storage and
warehousing and transportation of goods from the place it is produced to the place it is required by the buyers.
Which of the following element of marketing mix has been described above? (Choose the correct alternative)
(a) Product (b) Price
(c) Physical distribution (d) Promotion
Q.8 Sheela went to a free eye camp and got her eyes operated for cataract. The surgery was not done properly, due to which she
lost her vision. Where can she file a complaint under consumer protection act? (Choose the correct alternative)
(c) National Commission (d) None of these
Q.9 Current assets of a business firm should be financed through: (Choose the correct alternative)
(a) current liability only
(b) long-term liability only
(c) both types (i.e. long and short term liabilities)
Q.10 Public issue of shares and debentures have to be made under SEBI guidelines. Raising funds from banks and other financial
institutions require fulfillment of other norms. The relative ease with which these norms can, be met or the procedures
completed may also have a bearing upon the choice the source of finance.
The factor affecting the choice of capital structure is _____________. (Fill up the blank with correct answer)
Q.11 ______________ seeks consistent, integrated and articulated programmes while ____________seek to compel events to
conform the plans. (Fill up the blanks with correct answers)
Q.12 Sometimes people evaluate meaning of message before the sender completes his messages due to pre-conceived notions or
prejudices against the communication.
Identify the type of barrier discussed above: (Choose the correct alternative)
(a) Semantic barrier (b) Psychological barrier
(c) Organisational barrier (d) Personal barrier
Q.13 Which of the following is not a selection test? (Choose the correct alternative)
(a) Intelligence test (b) Aptitude test
(c) Trade test (d) Medical fitness test
Q.14 ___________ take the course of forming the organisation’s identity in the business environment.
(a) Objectives (b) Strategies
(c) Policies (d) Programmes
Q.15 Alliance Ltd. is engaged in manufacturing plastic buckets. The objective of the company is to manufacture 100 buckets a
day. To achieve this, the efforts of all departments are coordinated and interlinked and authority-responsibility relationship
is established among various job positions. There is clarity on who is to report to whom.
Name the function of management discussed above.
Q.16 ‘Indian Logistics’ has its own warehousing arrangements at key locations across the country. Its warehousing services help
business firms to reduce their overheads, increase efficiency and cut down distribution time.
State with reason, whether the working capital requirements of ‘Indian Logistics’ will be high or low.
Q.17 ‘Beauty Products Ltd’ is a natural and ethical beauty brand famous for offering organic beauty products for men and
women. The company uses plant based materials for its products and is the No.1 beauty brand in the country. It not only
satisfies its customers but also believes in overall protection of the planet.
Identify the marketing management philosophy being followed by ‘Beauty Products Ltd.’
Q.18 On Sonika’s birthday her mother gave her a pair of gold earrings. After one month Sonika observed that the earrings are
losing their shine. She checked the mark on the earrings and found that it was not a proper Hallmark and her mother had
been cheated by the shopkeeper. So, she filed a complaint in the district commission which rejected it. Not satisfied by the
decision of district commission, she was very much disturbed and after two months decided to appeal further. Can Sonika
appeal against the decision of the district commission? Give reason in support of your answer. (1)
Q.19 ‘Ganesh Steel Ltd.’ is a large and credit-worthy company manufacturing steel for the Indian market. It now wants to cater
to the Asian market and decides to invest in new hi-tech machines. Since the investment is large, it requires long-term
finance. It decides to raise funds by issuing equity shares.
The issue of equity shares involves huge floatation cost. To meet the expenses of floatation cost the company decides to tap
the money market.
Name the money-market instrument the company can use for the above purpose. What is the duration for which the
company can get funds through this instrument?
Q.20 Sets the upper limit of price, which a buyer would be prepared to pay. (Choose the correct alternative)
(a) Product cost (b) The utility and demand
(c) Extent of competition in the market (d) Pricing objective
Section - B (3 marks each – Answers in 50-75 words)

Q.21 “The management may not be successful in implementing changes if the informal organisation opposes them. Such
resistance to change may delay or restrict growth.” Can informal organisation be altogether eliminated by the management?
Give reasons in support of your answer.
OR
It is defined as the framework within which managerial and operating tasks are performed. Identify it.
When is the need for it felt by an enterprise? Why?
Q.22 Pramod was a supervisor at a ‘Annapurna Aata’ factory. The factory was producing 200 quintals of aata every day. His job
was to make sure that the work goes on smoothly and there was no interruption in production. He was a good leader who
would give orders only after consulting his subordinates and work out the policies with the acceptance of the group.
Identify and describe the leadership style being adopted by Pramod.
Q.23 Neeraj, a sales representative of ‘Omida Ltd’ has changed seven jobs in the last one year. He is a hard working person but
is not able to finalise deals with the customer due to his inadequate vocabulary and omission of needed words. Sometimes
he uses wrong words because of which intended meaning is not conveyed. All this created a misunderstanding between him
and his clients.
(a) Identify the communication barrier discussed above.
(b) State the category of this communication barrier.
(c) Explain any other communication barrier of the same category.
Q.24 Samir Gupta started a telecommunication company, ‘Donira Ltd.’ to manufacture economical mobile phones for the Indian
rural market with 15 employees. The company did very well in its initial years. As the product was good and marketed well,
the demand of its products went up. To increase production the company decided to recruit additional employees. Samir
Gupta, who was earlier taking all the decisions for the company had to selectively disperse the authority. He believed that
subordinates are competent, capable and resourceful and can assume responsibility for effective implementation of their
decisions. This paid off and the company was not only able to increase its production but also expanded its product range.
(a) Identify the concept used by Samir Gupta through which he was able to steer his company to greater heights.
(b) Also explain any two points of importance of this concept.
Q.25 ‘Aapka Vidyalaya’ believes in holistic development of students and encourages team building through a mix of curricular,
co-curricular and sports activities. On its founders day a stage performance had to be put up. A committee of ten prefects
was constituted to plan different aspects of the function. They all decided to use recycled paper for decoration. There was a
spirit of unity and harmony and all members supported each other. With mutual trust and belongingness the programme
was systematically planned and executed. Kartik, one of the prefects realized that unknowingly the group had applied one
of the principles of management while planning and executing the programme. He was so inspired by the success of the
function that he asked his father to apply the same principle in his business. His father replied that he was already using this
principle.
Identify and explain the principle of management applied for the success of the programme.
Section - C (4 marks each – Answers in about 120 words)

Q.26 ‘Financial market plays an important role in the allocation of scarce resources in an economy by performing many important
functions’. Explain any four such functions.
Q.27 Explain any two rights and two responsibilities of a consumer.
OR
Explain any two points of importance of consumer protection from the point of view of a business and a consumer.
Q.28 Sanchit, after completing his entrepreneurship course from Sweden returned to India and started a coffee shop
‘Aroma Coffee Can’ in a famous mall in New Delhi. The speciality of the coffee shop was the special aroma of
coffee and a wide variety of flavours to choose from. Somehow, the business was neither profitable nor popular.
Sanchit was keen to find out the reason. He appointed Sandhya, an MBA from a reputed college, as a manager to
find out the causes for the same. Sandhya took feedback from the clients and found out that though they loved the
special unique aroma of coffee but were not happy with the long waiting time being taken to process the order. She
analysed and found out that there were many unnecessary obstructions in between which could be eliminated. She
fixed a standard time for processing the order.
She also realised that there were some flavours whose demand was not enough. So, she also decided to stop the
sale of such flavours. As a result within a short period Sandhya was able to attract the customers.
Identify and explain any two techniques of scientific management used by Sandhya to solve the problem.
Section - D (5 marks each – Answers in about 150 words)

Q.29 The workers of ‘Vyam Ltd.’ are unable to work on new and hi-tech machines imported by the company to fulfill the
increased demand. Therefore, the workers are seeking extra guidance from the supervisor. The supervisor is overburdened
with the frequent calls of workers. Suggest how the supervisor, by increasing the skills and knowledge of workers, can make
them handle their work independently? Also state any four benefits that the workers will derive by the decision of the
supervisor.
Q.30 What are the main features to be considered by the management while planning? State any five.
OR
What are the first five steps taken by management in the planning process?
Q.31 With the help of a diagram explain ‘Functional Foremanship’ as a technique of scientific management.
OR
With the help of a diagram explain ‘Scalar Chain’ as a principle of management.
Section - E (6 marks each – Answers in about 200 words)

Q.32 Smita had been working as an assistant manager with ‘Johnson Enterprises’ for the last ten years. She was very popular
amongst her colleagues because of her commitment and dedication towards the work. When the manager senior to her
retired, all her colleagues thought that now Smita would be promoted. But to everyone’s surprise the vacant post was filled
by an outsider, Mrs. Rita. Smita felt demoralised and her performance started declining. She would abstain herself often and
could not meet her targets. Mrs. Rita was a good leader, who would not only instruct her subordinates but would also guide
and inspire them. She noticed Smita’s behaviour and felt that her performance could be improved. She started involving
Smita in decision making issues related to the organization and made her a part of high level jointmanagement committee.
Smita was now punctual in office and her performance started improving.
(i) Identify the function of management being performed by Rita.
(ii) Name the element of the above function of management which helped Rita to improve Smita’s behaviour.
(iii) State any four features of the element identified in (ii) above.
OR
A company was manufacturing ‘LED bulbs’ which were in great demand. It was found that the target of producing 300
bulbs a day was not met by the employees. On analysis, it was found that the workers were not at fault. Due to electricity
failure and shortage of workers, the company was not able to achieve the set targets and alternative arrangements were
needed.
(a) Identify the function of management discussed above.
(b) Explain briefly the two techniques/principles used by the manager of the company while analysing the difference
between the actual number of bulbs produced per day by the employees and the target of producing 300 bulbs per day.
Q.33 ‘Sarah Ltd.’ is a company manufacturing cotton yarn. It has been consistently earning good profits for many years. 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. It is a well managed organisation and believes in quality, equal employment opportunities and good
remuneration practices. It has many shareholders who prefer to receive a regular income from their investments. It has taken
a loan of `40 lakh from IDBI 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.
Quoting the lines from the above discussion identify and explain any four such factors.
Q.34 ‘Hayaram’ is a famous chain selling a large variety of products in the Indian market. Their products include chips, biscuits,
sweets and squashes. It charges a comparatively higher price than its competitors as it sells quality products. Besides, it
offers regular discounts to its customers and easy credit terms to its retailers. It has five of its own retail shops. It also sells its
products through various grocery stores so that the products are made available to customers at the right place, in the right
quantity and at the right time. It regularly uses different communication tools to increase its sales.
The above para describes the combination of variables used by Hayaram to prepare its market offering. Identify and explain
the variables.
ANSWERS/HINTS
Sample Question Paper-2 26. (i) Legal environment

1 (a) The entry is restricted through an examination. (ii) Technological environment
2 (b) Analyses the strategies of other chips companies and (iii) Social environment (explain any two)
formulates the goals of company. 27. Delegation (Give the meaning)
3. Stability of personnel Importance of delegation: (explain three points)
4. (i) – (A), (ii) – (B), (iii) – (C), (iv) – (D) 31. (a)
5. (i) – (b), (ii) – (d), (iii) – (a), (iv) – (c) Alternative Alternative Alternative
6. (a) Narrow span of management Equity 40,00,000 30,00,000 10,00,000
7. Workforce analysis 9% Debt – 10,00,000 30,00,000
8. (d) Medical fitness test Capital Employed 40,00,000 40,00,000 40,00,000
9. Motivation Earning before Interest 8,00,000 8,00,000 8,00,000
10. (b) Organisational barrier and Tax
11. Management by Exception/Control by Exception Less: Interest @ 9% – (90,000) (2,70,000)
12. (a) higher current ratio, higher risk and higher profits Earning before Tax 8,00,000 7,10,000 5,30,000
Less: Tax @30% (2,40,000) (2,13,000) (1,59,000)
13. fixed capital
14. Shareholders preference Earnings After Tax/Profit 5,60,000 4,97,000 3,71,000
Available to shareholders
15. PAN (Permanent Account Number)
16. Marketing planning Earning Per Share 5,60,000/ 4,97,000/ 3,71,000/
40,000 30,000 10,000
17. Two level channel, i.e. Manufacturer – Wholesaler – = `14 = `16.57 = `37.1
Retailer – Customer
18. Product/Product mix. Thus, under Alternative III, the company will be able to
19. (d) Right to be informed take advantage of Trading on Equity.
20. (c) Maintaining consumer documents like cash memos etc (b) No, Earning Per Share does not always rise with
safely increase in debt.
21. Ashita is effective but not efficient. 33. (a) Controlling and Directing
Reason: She was able to produce 500 bracelets within the (b) Employee recognition programmes (non-financial
stipulated time but at a higher cost of `110 per bracelet. incentive) – Employees psychological, social and
Lakshita is efficient but not effective. emotional needs are satisfied.
Reason: Though she was able to achieve a lower cost (c) Democratic/Participative style of leadership (explain)
of `90 per bracelet but could not produce the target (d) Two positive aspects of informal communication
production of 500 bracelets. She was able to produce only (explain)
450 bracelets. 34. Subsequent steps involved in the screen-based trading are:
22. Divisional Structure (i) Lalita will provide her PAN number, Bank Account
Two advantages of divisional structure (explain) Details, etc. and place an order with the broker to buy
23. (a) Controlling shares of Akbar Enterprises, specifying the number of
(b) The steps of controlling function of management shares and the price. An order confirmation slip will
discussed are: be issued to Lalita by her broker, Kushvinder.
(i) Comparing actual performance with standards (ii) The broker then will go on-line and connect to the
(ii) Analysing deviations (explain) main stock exchange and match the share and best
24. A. (a) The voice and opinion of the general public is price available.
important as they may be interested in the company (iii) When the shares can be bought at the price
and its product and have an impact on the business mentioned, it will be communicated to the broker’s
ability to achieve its objectives. Thus, it is imperative terminal and the order will be executed electronically.
to manage public opinion and the company’s The broker will issue a trade confirmation slip to
relation with the public on a regular basis. Lalita.
(b) Consumer Activist groups need to be satisfied because (iv) After the trade is executed, within 24 hours the
they can impose restriction on the sales of the firm’s broker will issues a Contract Note, which contains
products directly by urging customers to refrain from details of the number of shares bought, the price, the
buying them through the imposition of laws. date and time of deal, and the brokerage charges.
B. The following departments in the firm can be given the (v) Now, Lalita has to pay cash for the shares bought
task to disseminate information and build goodwill: to the broker immediately after receiving the contract
(a) The marketing department. note or before the day when the broker shall make
(b) A separate department to manage public relations. payment to the exchange. This is called the pay-in
28. Dimensions of business environment: 17. Societal marketing concept.

(i) Economic environment 18. No, Sonika cannot appeal now as the appeal has to be
(ii) Technological environment filed within 30 days of passing of the order by the district
29. (a) Motivation forum.
31. (a) Functions performed by Financial market: 19. Commercial paper; 15 days to one year
(i) It mobilises savings and channelises them into most 20. The utility and demand.
productive use. 21. II part: Organisation structure
(ii) It provides liquidity to financial assets by facilitating 22. Democratic style of leadership
easy purchase and sale of securities through stock 23. (a) Badly expressed message
exchanges. (b) Semantic barrier which arises from problems and
(b) Functions of stock exchange, other than those stated in the obstructions in the process of encoding and decoding of
above case (any two): message into words or impressions.
(i) Pricing of securities 24. (a) Decentralisation
(ii) Ensures safety of transactions 25. Principle of management — Espirit de corps
(iii) Contributes to economic growth 28. Techniques of Scientific management used by Sandhya to
(iv) Provides scope for speculation solve the problem were:
(i) Motion Study
32. Informal organisation
(ii) Time Study
33. (a) Formal communication (iii) Simplification of Work (Explain any two)
‘When the General Manager came to know about it,
29. Training of employees/ Vestibule training/ On the job
he ordered for fumigation in the company premises and
training
cleanliness of the surroundings.’
Informal communication 32. (i) Directing (ii) Motivation
‘One of his colleagues sent a text message about it to his OR
immediate superior ‘Mr. Narain’. (a) Controlling
OR (b) Management by Exception and Critical Point Control
‘Mr. Narain’ in turn sent a text message to the employees of 33. Factors affecting dividend decision: (Any four)
the organisation requesting them to donate blood for Arun’. (i) Stability of earnings
34. (a) Labelling ‘It has been consistently earning good profits for many years’.
(ii) Cash Flow position
Sample Question Paper-20
‘There is availability of enough cash in the company’.
1. (c) Optimum utilisation of resources (iii) Growth Prospects
2. (d) None of the above ‘Good prospects for growth in the future’.
3. it does not allow any deviations from rigidly laid down (iv) Shareholders’ preference
policies. ‘It has many shareholders who prefer to receive regular income
4. Management is: (a) an art. (b) a science. from their investments’.
(c) both art and science. (d) neither art nor science. (v) Contractual constraints
5. (b) 1988 ‘It has taken a loan of `40 Lakhs from IDBI and ….agreement’
6. True: At the time of introducing a new product or while 34. The combination of variables used by Hayaram to prepare
entering a new market, the products may be sold at a its market offering are:
price, which does not cover all the costs. But in the long (i) Product
run, a firm cannot survive unless at least all its costs are ‘Their products include chips, biscuits, sweets and squashes’.
covered. (ii) Price
7. (c) Physical distribution. ‘It charges a comparatively higher price than its competitors’.
8. (d) None of the above. Or
9. (c) both types (i.e. long and short term liabilities) ‘It offers regular discounts to its customers and easy credit
10. Regulatory Framework. terms to its retailers’.
11. Planning, Controlling. (iii) Place/Physical Distribution
‘It has five of its own retail shops’.
12. (b) Psychological barrier
Or
13. (d) Medical fitness test
‘It also sells its products through various grocery stores….right time’.
14. (b) Strategies
(iv) Promotion
15. Organising
‘It regularly uses different communication tools to increase its
16. Low, as it is a service industry, which usually do not have sales’.
to maintain inventory.
Project Work 313
20 Marks
CBSE Guidelines for Project Work
and Sample Project
Introduction
The course in Business Studies is introduced at Senior School level to provide students with a sound understanding of
the principles and practices bearing in business (trade and industry) as well as their relationship with the society. Business
is a dynamic process that brings together technology, natural resources and human initiative in a constantly changing
global environment. With the purpose to help them understand the framework within which a business operates, and
its interaction with the social, economic, technological and legal environment, the CBSE has introduced Project Work
in the Business Studies Syllabus for Classes XI and XII. The projects have been designed to allow students to appreciate
that business is an integral component of society and help them develop an understanding of the social and ethical
issues concerning them.
The project work also aims to empower the teacher to relate all the concepts with what is happening around the world
and the student’s surroundings, making them appear more clear and contextual. This will enable the student to enjoy
studies and use his free time effectively in observing what’s happening around.
By means of Project Work the students are exposed to life beyond textbooks giving them opportunities to refer materials,
gather information, analyze it further to obtain relevant information and decide what matter to keep.
Objectives
After doing the Project Work in Business Studies, the students will be able to do the following:
 develop a practical approach by using modern technologies in the field of business and management;
 get an opportunity for exposure to the operational environment in the field of business management and related
services;
 inculcate important skills of team work, problem solving, time management, information collection, processing,
analysing and synthesizing relevant information to derive meaningful conclusions
 get involved in the process of research work; demonstrate his or her capabilities while working independently
and
 make studies an enjoyable experience to cherish.
GUIDELINES FOR TEACHERS

Students are supposed to select one unit out of four and are required to make only ONE project from the selected
unit. (Consist of one project of 20 marks)
1. Help students to select any ONE Topic for the entire year.
2. The topic should be assigned after discussion with the students in the class and should then be discussed at every
stage of the submission of the project.
The teacher should play the role of a facilitator and should closely supervise the process of project completion.
The teachers must ensure that the project work assigned to the students whether individually or in group are
discussed at different stages right from assignment to drafts review and finalization. Students should be facilitated
in terms of providing relevant materials or suggesting websites, or obtaining required permissions from business
houses, malls etc for their project. The periods assigned to the Project Work should be suitably spaced throughout
the academic session. The teachers MUST ensure that the student actually go through the rigors and enjoy the
process of doing the project rather than depending on any readymade material available outside.
3. The students must make a presentation of the project before the class.
4. The teachers must ensure that the student’s self-esteem and creativity is enhanced and both the teacher and the
student enjoy this process.
5. The teachers should feel pride in the fact that they have explored the different dimensions of the project in an
innovative way and their students have put in genuine work.
Project One Elements of Business Environment

The teachers should help the students in selecting any ONE element of the following:
Changes witnessed over the last few years on mode of packaging and its economic impact.
The teacher may guide the students to identify the following changes:
a) The changes in transportation of fruits and vegetables such as cardboard crates being used in place of wooden
crates, etc. Reasons for above changes.
b) Milk being supplied in glass bottles, later in plastic bags and now in tetra-pack and through vending machines.
c) Plastic furniture [doors and stools] gaining preference over wooden furniture.
d) The origin of cardboard and the various stages of changes and growth.
e) Brown paper bags packing to recycled paper bags to plastic bags and cloth bags.
f ) Re use of packaging [bottles, jars and tins] to attract customers for their products.
g) The concept of pyramid packaging for milk.
h) Cost being borne by the consumer/manufacturer.
i) Packaging used as means of advertisements.
Project Work 315
The reasons behind changes in the following:

Coca-Cola and Fanta in the seventies to Thums up and Campa Cola in the eighties to Pepsi and Coke in nineties.
The teacher may guide the students to the times when India sold Coca Cola and Fanta which were being manufactured
in India by the foreign companies.
The students may be asked to enquire about:
a) Reasons of stopping the manufacturing of the above mentioned drinks in India THEN.
b) The introduction of Thums up and Campa cola range.
c) Re entry of Coke and introduction of Pepsi in the Indian market.
d) Factors responsible for the change.
e) Other linkages with the above.
f ) Leading brands and the company having the highest market share.
g) Different local brands venturing in the Indian market.
h) The rating of the above brands in the market.
i) The survival and reasons of failure in competition with the international brands.
j) Other observations made by the students
The teacher may develop the following on the above lines
 Changing role of the women in the past 25 years relating to joint families, nuclear families, women as a bread
earner of the family, changes in the requirement trend of mixers, washing machines, micro wave and standard of
living.
 The changes in the pattern of import and export of different Products.
 The trend in the changing interest rates and their effect on savings.
 A study on child labour laws, its implementation and consequences.
 The state of ‘anti plastic campaign,’ the law, its effects and implementation.
 The laws of mining /setting up of industries, rules and regulations, licences required for running that business.
 Social factors affecting acceptance and rejection of an identified product. (Dish washer, Atta maker, etc)
 What has the effect of change in environment on the types of goods and services?
The students can take examples like:
a) Washing machines, micro waves, mixers and grinder.
b) Need for crèche, day care centre for young and old.
c) Ready to eat food, eating food outside, and tiffin centres.
 Change in the man-machine ratio with technological advances resulting in change of cost structure.
 Effect of changes in technological environment on the behaviour of employee.
Project Two Principles of Management

The students are required to visit any one of the following:
1. A departmental store
2. An Industrial unit
3. A fast food outlet
4. Any other organisation approved by the teacher
They are required to observe the application of the general Principles of management advocated by Fayol.
Fayol’s principles
1. Division of work 2. Unity of command
3. Unity of direction 4. Scalar chain
5. Espirit de corps 6. Fair remuneration to all
7. Order 8. Equity
9. Discipline 10. Subordination of individual interest to general interest

11. Initiative 12. Centralisation and decentralisation
13. Stability of tenure 14. Authority and Responsibility
OR
They may enquire into the application of scientific management techniques by F.W. Taylor in the unit visited.
Scientific techniques of management
1. Functional foremanship 2. Standardisation and simplification of work
3. Method study 4. Motion Study
5. Time Study 6. Fatigue Study
7. Differential piece rate plan
Tips to teacher
(i) The teacher may organize this visit.
(ii) The teacher should facilitate the students to identify any unit of their choice and guide them to identify the
principles that are being followed.
(iii) Similarly, they should guide the students to identify the techniques of scientific management implemented in the
organisation.
(iv) It may be done as a group activity.
(v) The observations could be on the basis of
• The different stages of division of work resulting to specialisation.
• Following instructions and accountability of subordinates to higher authorities.
• Visibility of order and equity in the unit.
• Balance of authority and responsibility.
• Communication levels and pattern in the organisation.
• Methods and techniques followed by the organisation for unity of direction and coordination amongst all.
• Methods of wage payments followed. The arrangements of fatigue study.
• Derivation of time study.
• Derivation and advantages of method study.
• Organisational chart of functional foremanship.
• Any other identified in the organisation
(vi) It is advised that students should be motivated to pick up different areas of visit. As presentations of different
areas in the class would help in better understanding to the other students.
(vii) The students may be encouraged to develop worksheets. Teachers should help students to prepare observation
tools to be used for undertaking the project. Examples: worksheets, questionnaire, interviews and organisational
chart etc.
Project Three Stock Exchange

The purpose of this project is to teach school students the values of investing and utilising the stock market. This project
also teaches important lessons about the economy, mathematics and financial responsibility.
The basis of this project is to learn about the stock market while investing a specified amount of fake money in certain
stocks. Students then study the results and buy and sell as they see fit.
This project will also guide the students and provide them with the supplies necessary to successfully monitor stock
market trends and will teach students how to calculate profit and loss on stock.
The project work will enable the students to:
• understand the topics like sources of business finance and capital market;
• understand the concepts used in stock exchange; and
• inculcate the habit of watching business channels, reading business journals/newspapers and seeking information
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from their elders.

The students are expected to:
a) Develop a brief report on History of Stock Exchanges in India. (your country)
b) Prepare a list of at least 25 companies listed on a Stock Exchange.
c) To make an imaginary portfolio totalling a sum of Rs. 50,000 equally in any of the 5 companies of their choice
listed above over a period of twenty working days.
 The students may be required to report the prices of the stocks on daily basis and present it diagrammatically
on the graph paper.
 They will understand the weekly holidays and the holidays under the Negotiable Instruments Act.
They will also come across with terms like closing prices, opening prices, etc.
 During this period of recording students are supposed to distinctively record the daily and starting and closing
prices of the week other days under the negotiable instrument act so that they acquire knowledge about closing
and opening prices.
 The students may conclude by identifying the causes in the fluctuations of prices. Normally it would be related
to the front page news of the a business journal, for example,
• Change of seasons
• Festivals
• Spread of epidemic
• Strikes and accidents
• Natural and human disasters
• Political environment
• Lack of faith in the government policies
• Impact of changes in government policies for specific industry
• International events
• Contract and treaties at the international scene
• Relations with the neighbouring countries
• Crisis in developed countries, etc.
The students are expected to find the value of their investments and accordingly rearrange their portfolio. The
project work should cover the following aspects:
1. Graphical presentation of the share prices of different companies on different dates.
2. Change in market value of shares due to change of seasons, festivals, natural and human disasters.
3. Change in market value of shares due to change in political environment/ policies of various countries/crisis in
developed countries or any other reasons
4. Identify the top ten companies out of the 25 selected on the basis of their market value of shares.
It does not matter if they have made profits or losses.
Project Four Marketing

1. Adhesives 2. Air conditioners 3. Baby diapers
4. Bathing Soap 5. Bathroom cleaner 6. Bike
7. Blanket 8. Body Spray 9. Bread
10. Breakfast cereal 11. Butter 12. Camera
13. Car 14. Cheese spreads 15. Chocolate
16. Coffee 17. Cosmetology product 18. Crayons
19. Crockery 20. Cutlery 21. Cycle
22. DTH 23. Eraser 24. e-wash
25. Fairness cream 26. Fans 27. Fruit candy
28. Furniture 29. Hair Dye 30. Hair Oil
31. Infant dress 32. Inverter 33. Jams
34. Jeans 35. Jewellery 36. Kurti

37. Ladies bag 38. Ladies footwear 39. Learning Toys
40. Lipstick 41. Microwave oven 42. Mixers
43. Mobile 44. Moisturizer 45. Music player
46. Nail polish 47. Newspaper 48. Noodles
49. Pen 50. Pen drive 51. Pencil
52. Pickles 53. Razor 54. Ready Soups
55. Refrigerator 56. RO system 57. Roasted snacks
58. Salt 59. Sarees 60. Sauces/ Ketchup
61. Shampoo 62. Shaving cream 63. Shoe polish
64. Shoes 65. Squashes 66. Suitcase/ airbag
67. Sunglasses 68. Tea 69. Tiffin Wallah
70. Toothpaste 71. Wallet 72. Washing detergent
73. Washing machine 74. Washing powder 75. Water bottle
76. Water storage tank 77. Wipes
Any more as suggested by the teacher.
Note: The teacher must ensure that the identified product should not be items whose consumption/use is discouraged by the
society and government like alcohol products/pan masala and tobacco products, etc.
Identify one product/service from the above which the students may like to manufacture/provide [pre-assumption].
Now the students are required to make a project on the identified product/service keeping in mind the following:
1. Why have they selected this product/service?
2. Find out ‘5’ competitive brands that exist in the market.
3. What permission and licences would be required to make the product?
4. What are your competitors Unique Selling Proposition [U.S.P.]?
5. Does your product have any range give details?
6. What is the name of your product?
7. Enlist its features.
8. Draw the ‘Label’ of your product.
9. Draw a logo for your product.
10. Draft a tag line.
11. What is the selling price of your competitor’s product?
(i) Selling price to consumer (ii) Selling price to retailer (iii) Selling price to wholesaler
What is the profit margin in percentage to the
• Manufacturer • Wholesaler • Retailer
12. How will your product be packaged?
13. Which channel of distribution are you going to use? Give reasons for selection?
14. Decisions related to warehousing, state reasons.
15. What is going to be your selling price?
(i) To consumer (ii) To retailer (iii) To wholesaler
16. List 5 ways of promoting your product.
17. Any schemes for
(i) The wholesaler (ii) The retailer (iii) The consumer
18. What is going to be your ‘U.S.P?
19. What means of transport you will use and why?
20. Draft a social message for your label.
21. What cost effective techniques will you follow for your product.
22. What cost effective techniques will you follow for your promotion plan.
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At this stage the students will realise the importance of the concept of marketing mix and the necessary decision
regarding the four P’s of marketing – • Product • Place • Price • Promotion
On the basis of the work done by the students the project report should include the following:
1. Type of product /service identified and the (consumer/industries) process involve there in
2. Brand name and the product
3. Range of the product
4. Identification mark or logo
5. Tagline
6. Labeling and packaging
7. Price of the product and basis of price fixation
8. Selected channels of distribution and reasons thereof
9. Decisions related to transportation and warehousing. State reasons
10. Promotional techniques used and starting reasons for deciding the particular technique
11. Grading and standardization
Mode of Presentation/Submission of the Project
At the end of the stipulated term, each student will prepare and submit his/her project report.
Following essentials are required to be fulfilled for its preparation and submission.
1. The total length of the project will be of 25 to 30 pages.
2. The project should be handwritten.
3. The project should be presented in a neat folder.
4. The project report should be developed in the following sequence:
• Cover page should include the title of the Project, student information, school and year
• List of contents
• Acknowledgements and preface (acknowledging the institution, the places visited and the persons who have
helped)
• Introduction
• Topic with suitable heading
• Planning and activities done during the project, if any
• Observations and findings of the visit
• Conclusions (summarized suggestions or findings, future scope of study)
• Photographs (if any)
• Appendix
• Teacher’s observation
• Signatures of the teachers
• At the completion of the evaluation of the project, it should be punched in the centre so that the report may not
be reused but is available for reference only
• The project will be returned after evaluation. The school may keep the best projects
ASSESSMENT Allocation of Marks = 20 Marks

The marks will be allocated under the following heads:
S. No. Heading Marks Allotted
1. Initiative, cooperativeness and participation 2 Marks
2. Creativity in presentation 2 Marks
3. Content, observation and research work 4 Marks
4. Analysis of situations 4 Marks
5. Viva 8 Marks
Total 20 Marks
Marketing of Perfumes
INTRODUCTION
Marketing is a social process where in people interacts with others, in order to persuade them to act in
a particular way, say to purchase a product or a service. Marketing helps the consumers to obtain what
they want according to their needs. On the part of the marketers, the effort involves creation of a market
offering. Marketing facilities exchange of products and services for money or something considered
valuable by the people. Marketing focuses on the satisfaction of customers need.

Why I have Selected This Product

Perfume is for everyone, young and old because perfume is one of the important products used in our daily life. From
younger to older and men to women everyone likes to use the perfume of their choice. Perfume reflects the nature and
personality of the person, therefore, it must be chosen wisely. Perfumes of different types and fragrance are available for
different occasions and events. It is one of the most loving gift items among the masses and therefore the gift packaging
of perfume is of utter importance. The human remember 35% of what smells and 5% of what you see. If you want to be
always perfect, from head to toe, it is preferable to choose a fragrance for the day and another for the night, or you can
even choose one for every occasion, but recalls that the perfume is part of your personality and so always uses that make
you feel fantastic!
The production and manufacturing of perfume is also not easy but it can make more profit. It requires particular license or
permission for producing the perfume.
It is mandatory to get license in all the sectors. Obviously at the end there is a quality check which is again mandatory in
all goods often their production.
Thus manufacturing of perfume is preferred as many legal restrictions are imposed and has mass and growing demand for
them.
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COMPETITIVE BRANDS
1. Armani
Giorgio's first foray into perfumes was in 1981 with the release of Giorgio by Giorgio Beverly Hills, the first Armani
branded perfume was released in 1982. Simply called Armani, this chypre perfume for women (now discontinued) was
to be the first of many successful perfumes to be released under the signature Giorgio Armani label. This was followed in
1984 by the release of the first Armani fragrance for men called Armani Eau Pour Homme.
Over the years the following designers have worked at the company:
• Alberto Morillas • Olivier Cresp • Loc Dong
• Antoine Lie • Anne Flipo • Antoine Maisondieu
• Dominique Ropion • Clement Gavarry • Annick Menardo
• Carlos Benaim

2. Burberry
Burberry is a luxury British design house founded by Thomas Burberry in 1856. This house distinguished itself with
fashion and accessories, including a now-iconic trench coat and the brand's unique and recognizable tartan pattern which
has become one of the most-copied motifs in fashion. Burberry was granted a Royal Warrant for Clothing from the
British Royal Family.
Designer Burberry has 78 perfumes in their fragrance base. The earliest edition was created in 1981 and the newest is
from 2017. Burberry fragrances were made in collaboration with perfumers Creations Aromatiques, Michel Almairac,
Philippe Roques, Mark Buxton, Emilie (Bevierre) Coppermann, Francis Kurkdjian, Dominique Ropion, Nathalie Gracia-
Cetto, Antoine Maisondieu, Antoine Lie, Anne Flipo, Olivier Polge, Sonia Constant, Jean-Marc Chaillan, Beatrice
Piquet, Domitille Bertier, Michel Girard, Jean-Pierre Bethouart and Nathalie Lorson.

3. Chanel
At present the production of Chanel’s fragrances is overseen by Jacques Polge who has been in the helm from 1978. The
company focuses a lot on innovation in products.
Chanel has sourced its flowers from grasse for close to a century, and since 1987, it has been actively contributing to the
sustainable farming of jasmine and rose. Today, the crops have expanded to include other flowers for fragrances, namely
iris, geranium and tuberose: all exceptional crops, exclusively reserved for chanel scents. Just as haute couture protects the
unique skills of the artistic professions it encompasses, chanel fragrances contribute to safeguarding a legendary heritage.
Following are its newest offerings:
• N’5 Eau De Parfum Spray • Coco Mademoiselle Parfum
• N’5 Eau De Parfum Refillable Spray • N’19 Poudre Eau De Parfum Spray
• Coco Noir Eau De Parfum Spray

4. Calvin Klein
Calvin Klein Inc. is an American fashion house founded by the fashion designer Calvin Klein and childhood friend Barry
K. Schwartz. The company is headquartered in Midtown Manhattan, New York City and is currently owned by PVH.
Calvin Klein is one of the top global brands when it comes to perfumes. It offers separate products for Europe, the
Americas, and the rest of the world. In the international arena its products can be classified into 3 major groups – women,
summer scents, and men. Some of its leading products are:
• Calvin Klein SHEER BEAUTY • Euphoria Men
• Calvin Klein BEAUTY • CK One Summer
• Encounter
Calvin Klein has various lines of perfumes and colognes, including Obsession and Eternity. Until May 2005, their perfumes
and the corresponding fragrance lines were maintained by Calvin Klein Cosmetics Company (CKCC), a Unilever company.
Cosmetics giant Coty, Inc. of New York bought the fragrance licensing agreements from Unilever.

5. Christian Dior
Christian Dior is the perfumery and cosmetics (makeup and skincare) line of the French fashion house, Christian Dior
S.A.. However, the line belongs to the perfumes and cosmetics portfolio of the world's largest luxury group, the LVMH
Group. Nevertheless, both Christian Dior S.A. and LVMH are headed by chairman Bernard Arnault, and Christian Dior
S.A. is the major shareholder of LVMH.
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Begun in 1947 with the introduction of the women's Miss Dior perfume, Parfums Christian Dior has since come to
include men's fragrances and a variety of cosmetics sold at Dior retail stores and fine cosmetics counters worldwide. It is
headquartered at 33 Avenue Hoche in the 8th arrondissement of Paris, France.
Dior is one of the leading fashion brands of the world that also specializes in fashion and accessories, and jewelry and
timepieces in addition to fragrance and beauty products. Following are the leading fragrances on offer from Dior:
• J’Adore
• Eau Sauvage
• Les Escales De Dior
• La Collection Privee Christian Dior
• Dio Homme

Permission and Licensing

Manufacturing, distribution and sale of cosmetic products in India are regulated by provision under drug
and cosmetics Act, 1940. The permissions and licenses are required for manufacturing in India. We need
permission from the Drug Control Authority of that particular area for manufacturing of cosmetics. If
there are going to be any pollution discharge/emission during the course of manufacture, there we need
approval from the PCB (Pollution Control Board) of our area. Apart from generis permissions/license for
our let-up, S&E, labour , power, SSI, commercial Tax, Central Excise, etc., would be needed.

RANGE OF PERFUMES
Floral fragrances are said to cover the largest category of the different
types of perfumes which draw inspiration from different sweet
1. Floral
smelling flowers like roses, jasmine, orange blossoms, gardenias and
carnations amongst others.
Citrus-based perfumes have the essence of citrus to offer a tangy feel.

These perfumes are said to be lively and are perfect for person with
2. Citrus
a bubbly nature. Citrus fragrances are derived from lime, lemon,
tangerine and mandarin; and some can feature real sharp tangy notes.
A combination of wood and moss is the main theme of these Woody

fragrances, and are most commonly referred as chypre fragrances.
The predominant use of oak moss, citrus, patchouli, bergamont as
3. Woody
well as sweet earthy aromas help in creating a very soothing perfume.
Chypre fragrances usually refer to fragrances for female category and
sometimes the unisex, but are not for the male category.
Oriental perfumes are a mix of earthy and musky fragrances.

Ingredients like amber, musk, and animalistic base scents are often
4. Oriental seen in Oriental perfumes. These are claimed to be ideal when one
wants to attract attention or seduce that very special person. It is ideal
for wearing on a special date or a romantic night out.
Fruity smells are also very pleasant and largely popular due to their
sweetness. They have a blend of spicy and fruity notes which help
5. Fruity make these ideal for usual dates and romantic outings. These include
smells like apple, berry, mango, peach and other juicy fruits or
possibly the essence of these fruits.
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Green fragrances are known to be very good choices for daytime

casual events, as they offer scents of fresh leaves and newly mown
6. Green grass. Green fragrances are known to be sporty and in most cases tend
to be unisex perfumes. These perfumes are considerately mild and
should be worn on casual events or occasions.
Oceanic fragrances are claimed to be a relatively newer type of

perfumes containing synthetic aromas to resemble smells of mountain
7. Oceanic
air, clean linen etc. These fragrances are claimed to be very good
choices for job interviews and official events
These fragrances pack in those kitchen smells like cinnamon, ginger,

cardamom, cloves, pepper and more. Spicy fragrances claim to have
8. Spicy their own alluring scents and are very luxurious in an old fashioned
sense. These fragrances are a huge hit for casual occasions and
brunches.
OUR PRODUCT FEATURES

Effacer is a Personal Care brand used by customers all around the world. It’s Perfumes are known for its best quality and
affordable prices, with the intention of persuading the consumers. The marketing strategy will touch one’s more interactive
methods to involve customers to increase mass awareness.
The Brand provides various range of Perfume which comes in various variants suited for individual needs- luscious like:
floral, citrus, woody, oriental, fruity, green, oceanic and spicy.
 Floral fragrances cover the largest category of the different types of perfumes from different sweet smelling flowers
like roses, jasmine, orange blossoms, gardenias and carnations amongst others.
 Citrus-based perfumes have the essence of citrus to offer a tangy feel.
 Woody fragrances are a combination of wood and moss are most commonly referred as chypre fragrances. The
predominant use of oak moss, citrus, patchouli, bergamont as well as sweet earthy aromas help in creating a very
soothing perfume.
 Oriental perfumes are a mix of earthy and musky fragrances.
 Fruity smells are also very pleasant and largely popular due to their sweetness.
 Green fragrances are known to be very good choices for daytime casual events, as they offer scents of fresh leaves and
newly mown grass.
 Oceanic fragrances are claimed to be a relatively newer type of perfumes containing synthetic aromas to resemble
smells of mountain air, clean linen etc.
 Spicy fragrances pack in those kitchen smells like cinnamon, ginger, cardamom, cloves, pepper and more.
Key Features
• The Design • Unique Aroma
• Elegance • Distinctiveness
USP of this product is that it has unique range of product.
Product Front Label Product Back Label
TAGLINE Logo of A Product
• Logo of Effacer is a perfect representation of freshness, joyness of a person.

• The logo symbolizes that everyone are smart.
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COMPETITOR USP
1
Armani
Parental Company : Giorgio Armani

USP : Providing quality, sophistication & style-timeless values with global
appeal
Segment : Fashion meant for affluent & elite males and females in the
premium segment
Target Group : Man and women with high spending power from urban areas.
2
Burberry
Parental Company : Burberry

Burberry is a brand with a distinctive British sensibility, strong
USP :
international recognition and differentiating brand values that
resonate across a multi-generational and dual- gender audience
Target Group : Elite fashion for males and females in the premium segment who
appreciate the smart and timeless classic style.
Middle aged men and women from upper class
Segment :
3
Chanel
Parental Company : Chanel.S.A

Chanel is a leaders in haute couture and ready to wear clothes
USP :
Men and women who practice an active lifestyle and are interested in
Segment :
high fashion
Target Group : Urban men and women from higher affluent class
4
Calvin Klein
Parental Company : Phillips-Van Heusen

USP : Comfort that wearer gets
Segment : Customers looking for high end best products, fashion conscious
Target Group : Urban upper class youth and business executives
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5
Christian Dior
Parental Company : Christian Dior S.A

USP : Christian Dior is the complete lifestyle designer luxury brand
Segment : Urban upper class men and women
Target Group : Fashion conscious men and women from the premium class
Packaging of Product
Effacer bottle colors are according to their fragrances & heart shape is a signature pack. Like light purple colour
chosen for Effacer jasmine fragrance. Effacer diverse range requires a diverse packaging portfolio.
There are certain necessities undertaken for perfume packaging before shipping or transferring:
Delicate and sensitive
The perfumes is in glass bottles, therefore the packaging material is made up of soft sponges and of shock absorbing
fluffed plastic so that they are easily handle with care and there will be limited chances of glass break.
Design
The Effacer with jasmine fragrance perfume has purple glossy heart shaped bottle.
Effacer’s care packaging is a key to success. Effacer employs mix of standard and custom packaging of its products.
Tailored sizing strategy in perfume meets varying consumer needs. Developing regions exert different pack require-
ment of Effacer bottles.
IDO brand design and Innovative was considered to design packaging for the range of products.
The secondary packages of the perfumes are made up of simple cardboard. The color & designs use on the pack-
et is as same as the fragrances of the perfume. The Effacer‘s transportation packets comes in a spongy cardboard
packaging. These boxes are made of recycled material as we believe to tick every box and promote recycling.
Primary packaging Secondary packaging Transportation packaging
Pricing of Product
When a product is bought, some money is paid for it. This money represents the sum of values that consum-
ers exchange for the benefit of having or using the product & is referred to as the price of the product.
Factors affecting the price
1. Product cost:- This includes cost of producing, distributing & selling of the product. It should also cover profit
margin.
2. Utility and demand:- The price of the product is affected by the elasticity of demand of the product. In elastic
demand, the total revenue increases due to increase in price & goes down when the price reduced.
3. Govt & legal regulations:- Protect the interest of public against unfair practices in price fixing.
4. Pricing objectives:- Obtaining market share leadership, surviving in competitive market & attaining product quality
leadership. The price of the items is different for the wholesalers and customers.
Customers commonly buy the product in number of units but wholesalers buy in bulk.
Pricing of different ranges

RANGES WHOLESALER RETAILER CONSUMER
FLORAL 120 150 160
WOODY 150 165 170
CITRUS 170 182 190
FRUITY 200 210 220
SPICY 230 250 275
OCEANIC 250 272 290
GREEN 270 282 295
ORIENTAL 300 325 340

Strategy
Product strategy
We have the competitive advantage that is our quality. It is recognized throughout the world and our product is a
convenient product which provides various ranges according to the need of the customers.
Promotion strategy
We can distinguish ourselves from the competitors on the following criteria. Effacer advertises its perfumes through wide
range of media like TV Ads, social networking sites, hoardings, magazines etc. Promotional strategy is the direct way to
connect and attract the customers to buy the product. Promotional strategy requires a lot of creativity & innovation.
Project Work 331
Positioning strategy
More for different: As we are offering the high quality with different range of perfumes according to different needs of
people.
Brand strategy
We will position our brand at its attributes that is its innovative ingredients and good quality with touch of nature and
strong beliefs and values as Armani perfumes, we also have many loyal customers. The brand is licensed and is an irrational
brand.
Main objective
Objective is to achieve revenue growth of 20% per year. Increase earnings by 15% annually. Increase divi-
dends per share by 7% per year.
Promotion of a product
Promotion is the process of communication with the potential buyers involving information, persuasion & influence. It
includes all types of personal & impersonal communication with customers.
Radio advertising
A catchy jingle & quick tagline can enhance radio ad’s effectiveness. Matching a
station you choose with your target demographic is key to success. If you want
to reach adults aged 35 to 64, an adult contemporary station is a good bet. An
alternative or urban station is good to reach youth aged 18 to 24.
Door hangers and flyers
Canvassing the neighborhood, placing the flyers in mail boxes or hanging ads
on door knobs, is a good way to target a specific area and to make sure your
potential customers have seen your information. Even if most home owners will
descant the information, gaining a hand full of clients may be enough for a
positive return on the marketing campaign investment.
Hoardings
Posters of the product can be placed on the hoardings which can be seen by the people passing through the roads.
Advertisement
The promotion strategy also involves heavy TV & magazine advertising. Their advertisement shows how perfumes can
change the personality of a person. Models and popular slogans are used as well as to promote their products better.
Website
The customers can visit the website of the product or brand. There are lots of facilities available, for example customers
can check the product’s contents & feedback of other users. Also customers get to know any discount scheme on products.
Distribution of the product

Place element of marketing mix refers to distribution of products
make them available to customers for purchase and consumption.
Distribution is very important as if the products are not distributed
and are not made available to the customers at the right place, time
& quantity they would not buy the product.
Warehousing
Goods are produced in the factories on a continuous basis and they
are not sold immediately after production.
Location of warehousing for storage of the goods depends on the nature of the product. Since perfumes are necessity
goods, widest possible distribution is desirable.
Channels of distribution
A channel of distribution is the route or path along which products flow from one point of production to the point of
ultimate consumption or use. It starts from producers and ends with the consumers.
There are different channels of distribution for different products.
Our Company has chosen the two level channel where the producer sells the products to dealer, dealer sells the product to
wholesaler, wholesaler sells the product to the ultimate consumer.
Using the two levels or three levels would be the price of the product to the customers.
BIBLIOGRAPHY
http://Wikipedia.com
Magazine http://slideshare.com
Glossary of Key Terms 333
Key terms used in CBSE Business Studies XII Exam
Advertising is an impersonal form of communication, which is paid for by the marketers (sponsors) to promote some goods or service.
Allocative function – A financial market helps to link the savers and the investors by mobilising funds between them. In doing so it
performs the ‘allocative function’. It allocates or directs funds available for investment into their most productive investment opportunity.
Branding is the process of giving a name, or a sign or a symbol to a product which helps in identifying and distinguishing it from the
competitors’ product.
Business risk depends upon fixed operating costs (e.g. building rent, insurance premium, salary, etc.). Higher fixed operating costs result
in higher business risk and vice-versa.
Call money is short term finance used for inter-bank transactions. Call money is a method by which banks borrow from each other to
be able to maintain the cash reserve ratio.
Capital Budgeting decision involves committing the finance on a long-term basis. For example, making investment in a new machine
to replace an existing one or acquiring a new fixed asset or opening a new branch, etc.
Capital market refers to facilities and institutional arrangements through which medium and long-term funds, both debt and equity are
raised and invested.
Capital structure refers to the mix between shareholders’ funds (equity) and borrowed funds (debt).
Certificates of deposit (CD) are unsecured, negotiable, short-term instruments in bearer form, issued by commercial banks and
development financial institutions.
Channels of distribution mean the path through which the ownership as well as possession of goods passes from the producer to the
consumer.
Commercial bill is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms.
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/financially strong companies to raise short-term funds at lower rates of
interest than market rates.
Consumer – A consumer is defined as a person who buys any good or avails a service for a consideration. It does not include a person
who obtains a good for resale or a good or service for commercial purpose.
Consumer protection refers to protection of consumers from unscrupulous, exploitative and unfair trade practices of manufacturers,
traders, sellers and service providers.
Contract 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.
Current assets are expected to get converted into cash or cash equivalents within a period of one year. Examples of current assets (in
order of their liquidity) are cash in hand/cash at bank, marketable securities, bills receivable, debtors, finished goods inventory, work-in-
progress, raw materials and prepaid expenses.
Current liabilities are those payment obligations which are due for payment within one year; such as bills payable, creditors, outstanding
expenses and advances received from customers, etc.
DEMAT account – The investor has to open a ‘Demat’ account or ‘Beneficial Owner’ (BO) account with a depository participant
(DP) for holding and transferring securities in the demat form.
Dematerialisation is a process where securities held by the investor in the physical form are cancelled and the investor is given an
electronic entry or number so that she/he can hold it as an electronic balance in an account.
Depositories – Just like a bank keeps money in safe custody for customers, a depository also is like a bank and keeps securities in
electronic form on behalf of the investor.
Direct channels of distribution – It means making goods available to consumers directly by the manufacturers, e.g., selling goods
through own retail outlets (e.g. Bata), Door to door selling, mail order selling, Internet selling.
District Commission – Each District Commission shall consist of a President; and not less than two members. The District Commission
will entertain complaints where value of goods and services does not exceed `1 crore.
Dividend decision involves 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.
Exchange refers to the process through which two or more parties come together to obtain the desired product or service from someone,
offering the same by giving something in return.
e-IPOs – A company proposing to issue capital to the public through the on-line system of the stock exchange has to enter into an
agreement with the stock exchange. This is called an Initial Public Offer (IPO).
Favourable financial leverage – When ROI is higher than cost of debt, financial leverage is favourable. In such cases, companies often
employ more of cheaper debt to enhance the EPS.
Financial intermediation – The process by which allocation of funds is done is called ‘financial intermediation’.
Financial leverage – The proportion of debt in the total capital is also called financial leverage.
Financial Management is concerned with management of flow of funds and involves decisions relating to procurement of funds,
investment of funds and distribution of earnings to the owners.
Financial Market – A financial market is a market for the creation and exchange of financial assets.
Financial planning is essentially the preparation of a financial blueprint of an organisation’s future operations.
Financial risk is the chance that a firm would fail to meet its payment obligations, i.e., interest and principal amount.
Financing decision is about the quantum of finance to be raised from various long-term sources.
Fixed assets are those which remain in the business for more than one year, usually for much longer, e.g., plant and machinery, furniture
and fixture, land and building, vehicles, etc.
Fixed capital refers to investment in long-term assets or fixed assets.
Floatation Costs –The fund raising exercise also costs something (e.g., brokerage, commission, printing of applications and advertising,
etc.). This cost is called floatation cost.
Grading is the process of classification of products into different groups, on the basis of some of its important characteristics such as
quality, size, etc.
Indirect channels of distribution – It means making goods available to consumers by employing one or more intermediaries.
Interest Coverage Ratio (ICR) – It refers to the number of times Earnings Before Interest and Tax (EBIT) of a company covers the
interest obligation.
Investment decision relates to how the firm’s funds are invested in different assets so that they are able to earn the highest possible return
for their investors.
Labelling is the process of designing the label and putting it on the package to provide information regarding the product, its contents,
method of use etc.
Labelling refers to designing and developing the label to be put on the package. The label may vary from a simple tag to complex
graphics.
Market offering refers to a complete offer for a product or service, having given features like size, quality, taste, etc. at a certain price;
available at a given outlet or location and so on.
Marketing Concept – The marketing efforts start from the identification of needs of the target market. Its focus is on satisfaction of
customers’ needs. It uses integrated marketing as a means to achieve the objective. Its objective is to earn profits by satisfying needs of the
target market better than the competitors.
Marketing is a process whereby people exchange goods and services for money or for something of value to them.
Marketing Mix is described as the set of marketing tools that a firm uses to pursue its marketing objectives in a target market.
Marketing planning – Another important function of marketing is to develop appropriate marketing plans to achieve the marketing
objectives of the organisation, covering various important aspects such as increasing the level of production, promotion of the products, etc.
Glossary of Key Terms 335
Money market is a market for short term funds which deals in monetary assets whose period of maturity is up to one year.
National Commission – The National Commission shall consist of a President; and not less than 4 members. The National Commission
shall have jurisdiction to entertain complaints where the value of the goods or services paid as consideration exceeds rupees `10 crore.
Net Working Capital may be defined as the excess of current assets over current liabilities.
Offer for sale – Under this method securities are not issued directly to the public but are offered for sale through intermediaries like
issuing houses or stock brokers. In this case, a company sells securities en-bloc at an agreed price to brokers who, in turn, resell them to
the investing public.
One level channel (Manufacturer – Retailer – Customer)– Only one intermediary i.e., retailers is used
Optimum capital structure – A capital structure is said to be optimum when the proportion of debt and equity is such that it results
in an increase in the price of the equity shares. In other words, all decisions relating to capital structure should emphasise on increase in
shareholders’ wealth.
Packaging means the act of designing and producing the container or wrapper of a product and putting the product into it.
Pay-in day – Cash is paid or securities are delivered to the stock exchange by the broker on pay-in day, which is before the T+2 day as
the deal has to be settled and finalised on the T+2 day.
Pay-out day – On the T+2 day, the stock exchange will deliver the shares or make payment to the other broker. This is called the pay-out
day.
Personal selling involves oral presentation of message in the form of conversation with one or more prospective customers for the
purpose of making sales.
Place or Physical Distribution is concerned with making the goods and services available at the right place, in right quantity and at the
right time so that the consumers can purchase the same.
Price may be defined as the amount of money paid by the buyer (or received by the seller) in consideration for the purchase of a product
or a service.
Price Mix involves different Pricing Methods, Pricing strategies, Pricing Policies and Price Changes.
Pricing means to determine the price of a product or a service.
Primary market is also known as the New Issues Market. It deals with new securities being issued for the first time.
Primary package refers to the product’s immediate container. It is kept till the consumer is ready to use the product or it may be kept
throughout the entire life of the product.
Private placement – Private placement is the allotment of securities by a company to institutional investors and some selected individuals.
Product Concept – The focus of business activity changed to bringing continuous improvement in the quality, incorporating new
features, etc. Profit maximisation through product quality improvements became the objective of a firm, under the concept of product
orientation.
Product designing and development – It is an important marketing activity that relates to designing and developing the product in such
a way that it attracts the target customers.
Product means goods and services or ‘anything of value’, which is offered to the market for exchange.
Product mix is the combination of all products offered for exchange by a company. It relates to decisions regarding planning, designing
and developing the right type of products and services for the consumers. It includes branding, labelling and packaging.
Production Concept – During the earlier days of industrial revolution, the focus of business activities was on quantity of product. It was
believed that profits could be maximised by producing at large scale, thereby reducing the average cost of production.
Production cycle is the time span between the receipt of raw materials and their conversion into finished goods.
Promotion mix refers to combination of promotional tools (or elements) used by an organisation to achieve its marketing objectives – (i)
Advertising, (ii) Personal selling, (iii) Sales promotion, (iv) Public relations.
Promotion mix refers to combination of promotional tools used by an organisation to achieve its communication objectives.
Promotion of products and services involves informing the customers about the firm’s product, its features, etc. and persuading them to
purchase these products.
Public relations involve a variety of programmes designed to promote or protect a company’s image and its individual products in the
eyes of the public.
Right to be Heard – The consumer has a right to file a complaint and to be heard in case of dissatisfaction with a good or a service.
Right to be Informed – The consumer has a right to have complete information about the product he/she intends to buy including its
ingredients, date of manufacture, price, quantity, directions for use, etc.
Right to Choose – The consumer has the freedom to choose from a variety of products at competitive prices. This implies that the
marketers should offer a wide variety of products in terms of quality, brand, prices, size, etc. and allow the consumer to make a choice
from amongst these.
Right to Consumer Education – The consumer has a right to acquire knowledge and to be a well-informed consumer throughout life.
He should be aware about his rights and the reliefs available to him in case of a product or service falling short of his expectations.
Right to Safety – The consumer has a right to be protected against goods and services which are hazardous to life and health.
Right to Seek Redressal – The consumer has a right to get relief(s) in case the product or service falls short of his expectations.
Rights issue – This is a privilege given to existing shareholders to subscribe to a new issue of shares according to the terms and conditions
of the company. The shareholders are offered the ‘right’ to buy new shares in proportion to the number of shares they already hold.
Sales promotion refers to short-term incentives, which are designed to encourage the buyers to make immediate purchase of a product
or service, e.g. free gift offers, free sample distribution, etc.
Secondary market is also known as the stock market or stock exchange. It is a market for the purchase and sale of existing securities.
Secondary Packaging refers to the additional layers of protection. When the consumer starts using the product, the secondary packing
is disposed off.
Securities and Exchange Board of India (SEBI) – The Securities and Exchange Board of India was established by the Government of
India on 12 April 1988 as an interim administrative body to promote orderly and healthy growth of securities market and for investor
protection.
Selling Concept – Selling concept is based on the belief that profits could be maximised by increasing sales volume by undertaking
aggressive selling and promotional efforts. It uses aggressive selling and promotional techniques like advertising, personal selling and sales
promotion to achieve the objective.
Societal Marketing Concept – The marketing efforts start from the identification of needs of the target market and the society. It takes care of
long term well being of the consumers as well as the society. Its objective is to earn profits through customer satisfaction and social welfare.
Standardisation refers to producing goods of pre-determined specifications, which helps in achieving uniformity and consistency in the
output.
State Commission – Each State Commission shall consist of a President; and not less than 4 members. The State Commission shall
have jurisdiction to entertain complaints where the value of the goods or services paid as consideration, exceeds `1 crore, but does not
exceed `10 crore.
Stock exchange is an institution which provides a platform for buying and selling of existing securities.
Three level channels (Manufacturer – Agent – Wholesaler – Retailer – Customer): This channel is used when the manufacturer
carries a limited product line and has to cover a wide market. An agent in each major area is appointed, who in turn contact the
wholesalers.
Trading on Equity refers to the increase in profit earned by the equity shareholders due to presence of fixed financial charges like interest.
Transportation – It is the means of carrying the goods and raw materials from the point of production to the point of sale.
Transportation Packaging refers to the package necessary for storage, identification or transportation.
Treasury bill is an instrument (in the form of a promissory note) issued by Reserve Bank of India on behalf of the Central government
to meet its short term requirements of funds.
Two level channels (Manufacturer – Wholesaler – Retailer – Customer) – This channel is used for most consumer goods like soaps, oils,
clothes, rice, sugar and pulses.
Unfavourable financial leverage – When ROI is less than cost of debt, financial leverage is unfavourable. In such cases, the use of debt
reduces the EPS. Trading on equity is clearly unadvisable in such a situation.
Warehousing refers to the act of storing and assorting products in order to create time utility in them.
Working Capital decisions are concerned with the decisions about the levels of cash, inventory and receivables. These decisions affect
the day-to-day working of a business.
Working capital refer to investment in current assets. This investment facilitates smooth day-to-day operations of the business.

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Other Textbooks by SUBHASH DEY Completely based on Latest CBSE Syllabus and NCERT Book

for Class XI & XII 2020 Edition

Business Studies XII

INDIANECONOMIC Business Studies Statisticsfor

Financial Business To Enhance Enterprising Skills

When Tata Steel Acquired Corus Introduction

Financial Management: Concept, Decisions, Objectives

Definitions of Financial Management

Decisions taken in Financial Management

Objectives of Financial Management

Examples of capital budgeting decisions:

Why are investment or capital budgeting decisions important?

Debenture (Debt) is the cheapest source of finance, not Retained Earnings!

Fixed Operating Control

Concept, Role and Objectives of Financial Management

Objective Type Questions 9.1

Case Studies 9.1

Self Assessment Test 1

Self Assessment Test 2

Self Assessment Test 3

Self Assessment Test 4

Other details are as follows:

Self Assessment Test 5

Check List to Objective Type Questions

Objective Type Questions 9.1 46. Shareholder’s funds

10. Financial Planning 24. Equity.

55. Cost of equity. 5. (b) within one year

Answers to Self Assessment Tests Questions

Consumer Business To Enhance Enterprising Skills

Consumer forum fines SBI

Consumer Protection: Consumer Rights and Responsibilities;

Importance of Consumer Protection

Redressal Machinery and Remedies under the Consumer

For the purposes of this clause

Objective Type Questions 12.2

Case Studies 12.2

Self Assessment Test 1

Self Assessment Test 2

Self Assessment Test 3

Self Assessment Test 4

Financial Management, Financial Markets, Marketing and Consumer Protection

(iv) Packaging, labelling and branding (d) Promotion

Self Assessment Test 5

Financial Management, Financial Markets, Marketing and Consumer Protection

Check List to Objective Type Questions

Objective Type Questions 12.1 35. Right to be Heard

Answers to Self Assessment Tests Questions

Self Assessment Test 1 Self Assessment Test 2

Preparing for Examinations

A few hints on how to study effectively

Important Tips for Attempting CBSE Business Studies XII Examination

Types of Questions Marks Word limit Number of Total Marks Estimated

Directive Words The examine is supposed to:

Important Diagram and Cartoon

B L Your salary Your salary

Scalar Chain Gang Plank

Organisation chart showing FUNCTIONAL STRUCTURE

HR Marketing Finance Production HR Marketing Finance Production

Organisation chart showing DIVISIONAL STRUCTURE

Functional Formanship: Separation of planning and execution functions