Fundamentals of Accounting

Suggested Answer
Roll No……………. Maximum Marks - 50

Total No. of Questions - 3 Total No. of Printed Pages -3

Time Allowed - 2 Hours

Marks
Attempt all questions. Working notes should form part of the answer.
1. The following is the Trial Balance of Amar and Co. on 31st December 2015. 15

Particulars Dr. Rs. Cr. Rs.

Cash in Hand 540
Cash at Bank 2,630
Purchase Account 40,675
Sales Account 98,780
Return Inward Account 680
Return Outward Account 500
Wages Account 10,480
Fuel and Power Account 4,730
Carriage on Sales Account 3,200
Carriage on Purchase Account 2,040
Stock as on 01 April 2015 5,760
Building Account 30,000
Freehold Land Account 10,000
Machinery Account 20,000
Patents Account 7,500
Salaries Account 15,000
General Expense Account 3,000
Insurance Account 600
Drawings Account 5,245
Capital Account 71,000
Sundry Debtors 14,500
Sundry Creditors 6,300
Total 176,580 176,580

Adjustments:
(a) Stock at the end at cost Rs. 6,800 (market-value Rs. 7,000.
(b) Machinery is to be depreciated at the rate of 10% and Patents at the rate of 20%.
(c) Salaries for the month of December 2015 amounting to Rs 1,500 were unpaid.
(d) Insurance includes a premium of Rs. 170 per annum a policy which expires on
30th June 2016.
(e) Wages include a sum of Rs. 2,000 spent on the erection of cycle shed for
employees and customers.
(f) A provision for Bad and Doubtful Debts is to be created to the extent of 5% of
Sundry Debtors.
You are required to prepare Trading and Profit and Loss account for the year ended
on 31 December 2015 and Balance sheet as on that date.

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 (2)
Answer:

Amar and Co.

Trading and Profit and Loss Account
For the year ended on 31 December 2015

Particulars Amount (Rs.) Particulars Amount(Rs.)

To Opening Stock 5,760 By sales 98,780
To Purchases 40,675 Less: Returns 680 98,100
Less: Returns 500 40,175 By Closing Stock 6,800

To Wages 10,480
Less: Cycle Shed 2,000 8,480
To Fuel & Power 4,730
To Carriage on Purchase 2,040
Gross Profit C/d 43,715
104,900 104,900

To Salaries 15,000 By Gross Profit b/d 43,715

Add: Outsanding Salary 1,500 16,500
To Carriage on Sales 3,200
To General Expense 3,000
To Insurance Account 600
Less: Prepaid 85 515
To Provision for Bad and
Doubtful A/c 725
To Depreciation
Machinery 2,000
Patents 1,500 3,500

To Net Profit 16,275

43,715 43,715
Balance Sheet of Amar and Co.
As on 31 December 2015
Liabilities Amount (Rs.) Assets Amount(Rs.)
Capital Account 71,000 Machinery 20,000
Less: Drawings 5,245 Less: Depreciation 2,000 18,000
65,755 Patent 7,500
Add Net Profit 16,275 82,030 Less: Depreciation 1,500 6,000
Sundry Creditors 6,300 Building 30,000
Outstanding Salaries 1,500 Add: Cycle Shed 2,000 32,000
Freehold Land 10,000
Closing Stock 6,800
Sundry Debtors Less Provision 13,775
Insurance Prepaid 85
Cash at Bank 2,630
Cash in Hand 540

89,830 89,830
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 (3)
2.
a) You are given the Balance Sheet of M/S JNW & Co. as on 31.12.2015 consisting of
three partners Mr. J, Mr. N and Mr. W sharing profits and losses equally.
JNW & Co.
Balance Sheet as at 31.12.2015
Liabilities Rs. Assets Rs.
Capital Accounts: Plant and Machinery 236,500
J 100,000 Furniture 45,000
N 160,000 Stock 200,000
W 140,000 Debtors 205,400
Creditors 100,000 Bank Balance 113,100
Loan 300,000
Total 800,000 Total 800,000

Mr. N died on 1.1.2016. The following information is available:

1) Rs. 22,600 received from Mr. Y as rent was credited to Y's Account. He has
already a debit balance for other transactions.
2) Machine purchased on 26.12.2015 for Rs. 60,000 was debited to purchase
account. An erection charge of Rs. 10,000 was charged to repairs account.
3) Interest of Rs. 24,080 was paid in advance. But the entire amount was charged
to profit and loss account in 2015.
4) Machine is valued at 20% below the book value after adjustment for (ii)
above.
5) Debtors are estimated to be worth 95% of book value.
6) Goodwill account is to be raised to the extent of deceased partners' share.
Goodwill is to be valued at three years' purchase of the average profits of the
years 2013, 2014 and 2015.
7) Profits for the years 2013, 2014 were Rs. 180,000 and Rs. 200,000
respectively. Profit for the year 2015 subject to the adjustments (i), (ii) and
(iii) above was Rs. 138,420.
8) One-half of the dues to the deceased are to be met immediately by cash to be
brought in by continuing partners in their profit sharing ratio. Balance will
continue as loan with 12% interest p.a. in the name of executor of the
deceased partner.
Show Partners' Capital Account and Balance Sheet of the firm as on 1.1.2016. 10

b) Lalita for mutual accommodation draws a bill for Rs 3,000 on Sumita. Lalita
discounted the bill for Rs. 2,925 and remits Rs. 975 to Sumita. On the due date
Lalita is unable to remit her dues to Sumita to enable her to meet the bill. She,
however, accepts a bill for Rs 3,750 which Sumita discounts for Rs 3,525. Sumita
sends Rs 175 to Lalita. Lalita becomes insolvent and a dividend of 80 paisa in rupee
is received from her estate.
Pass Journal Entries and show the account of Sumita in the books of Lalita. 10
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 (4)
Answer:

OPTION A- VALUATION OF GOODWILL USING SIMPLE AVERAGE METHOD

a)
Partners' Capital Accounts
Particulars J W N's Particulars J W N's
Executor Executor
To Cash A/C - - 193,180 By Capital A/C 100,000 140,000 160,000
To N's Executor's Loan - - 193,180 By PL Adj. A/C (WN 1) 14,660 14,660 14,660
By Goodwill (WN 2) - - 211,700
To Balance c/d 211,250 251,250 - By Cash 96,590 96,590 -
Total 211,250 251,250 386,360 Total 211,250 251,250 386,360

JNW & Co.

Balance Sheet
Liabilities Amount Assets Amount
Partners' Capital A/C: Goodwill (WN) 211,700
J 211,250 Plant and Machinery:
W 251,250 462,500 Given 236,500
N's Executor 12% Loan 193,180 Add: Addition 60,000
Sundry Creditors 100,000 Add: Erection 10,000
Loan 300,000 306,500
Less: Revolution Loss 61,300 245,200
Furniture 45,000
Stock 200,000
Debtors:
Given 205,400
Add: Wrong Credit
on Y's A/C of rent 22,600
228,000
Less: Written Off 11,400 216,600
Prepaid Interest 24,080
Bank Balance 113,100
1,055,680 1,055,680

Working Notes:
1. Profit and Loss Adjustment Account
Particulars Rs. Particulars Rs.
To Machinery (20% of Rs.306,500) 61,300 By Rent (Received from Y) 22,600
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 (5)
To Sundry Debtors By Purchase Account 60,000
(Loss @ 5% on 205,400+22,600) 11,400 By Repair Account 10,000
To Partners Capital A/C: By Prepaid Interest 24,080
J 14,660
N 14,660
W 14,660 43,980
116,680 116,680

2. Computation of Goodwill: Simple Average method

Profits of the three years
2013 Rs.180,000
2014 Rs. 200,000
2015 (Rs. 138,420+116,680) = Rs. 255,100
Total Rs. 635,100
Average Profits Rs. 211,700
Goodwill (3 Years purchase) = Rs. 211,700×3 = Rs. 635,100
Goodwill to be raised (N's Share only) = Rs. 211,700
Option B- VALUATION OF GOODWILL USING WEIGHTED AVERAGE METHOD
Partners' Capital Accounts
Particulars J W N's Particulars J W N's
Executor Executo
r
To Cash A/C - - 199,438.5 By Capital A/C 100,000 140,000 160,000
ToN's Executor's - - 199,438.5 By PL Adj. A/C 14,660 14,660 14,660
Loan (WN 1)
To Balance c/d 214,379.25 254,379.25 By Goodwill (WN
- - - 224,217
2)
-
By Cash 99,719.25 99,719.25
Total 214,379.25 254,379.25 398,877 Total 214,379.25 254,379.25 398,877

JNW & Co.

Balance Sheet
Liabilities Amount Assets Amount
Partners' Capital A/C: Goodwill (WN) 224,217
J 214,379.25 Plant and Machinery:
W 254,379.25 468,758.50 Given 236,500
N's Executor 12% Loan 199,438.50 Add: Addition 60,000
Sundry Creditors 100,000 Add: Erection 10,000
Loan 300,000 306,500

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 (6)
Less: Revolution Loss 61,300 245,200
Furniture 45,000
Stock 200,000
Debtors:
Given 205,400
Add: Wrong Credit
on Y's A/C of rent 22,600
228,000
Less: Written Off 11,400 216,600
Prepaid Interest 24,080
Bank Balance 113,100
1,068,197 1,068,197

Working Notes:
1. Profit and Loss Adjustment Account
Particulars Rs. Particulars Rs.
To Machinery (20% of Rs.306,500) 61,300 By Rent (Received from Y) 22,600
To Sundry Debtors By Purchase Account 60,000
(Loss @ 5% on 205,400+22,600) 11,400 By Repair Account 10,000
To Partners Capital A/C: By Prepaid Interest 24,080
J 14,660
N 14,660
W 14,660 43,980
116,680 116,680

Computation of Goodwill: Weighted Average method

Year Profit Weights Product
2013 180,000 1 180,000.00
2014 200,000 2 400,000.00
2015 255,100 3 765,300.00
Total 6 1,345,300.00
Weighted Average Profit = Rs.1,345,300/6 =Rs. 224,216.67
Goodwill (3 Years purchase) = Rs. 224,216.67×3 = Rs. 672,650
Goodwill to be raised (N's Share only) =Rs. 224,216.67 eqv toRs.242,217
Note-In the question it is specifically asked to raise the goodwill to the extent of deceased partner's
share, hence shown in the Balance Sheet and not written off.

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 (7)

b) Journal Entries in the books of Lalita

S/N Particulars Dr. Amount Rs. Cr. Amount Rs.
1 Bills Receivable A/c 3,000
To Sumita 3,000
(Being acceptance received from Sumita)
2 Bank A/c 2,925
Discount A/c 75
To Bills Receivable A/c 3,000
(Being the amount received and discount
charged on discounting of Sumita’s
acceptance)
3 Sumita A/c 1,000
To Bank A/c 975
To Discount A/c 25
(Being amount remitted to Sumita and
proportionate discount debited to her)
4 Sumita A/c 3,750
To Bills Payable A/c 3,750
(Being acceptance sent to Sumita)
5 Bank A/c 175
Discount A/c 139
To Sumita 314
(Bing amount received form Sumita and
proportionate discounted recorded)

6 Bills Payable A/c 3,750

To Sumita 3,750
(Being the bill having been dishonored due
to bankruptcy)
7 Sumita A/c 2,314
To Bank A/c 1,851
To Deficiency A/c 463
(Being the amount due to Sumita discharged
by payment 80 paisa in a rupee)

NOTE: if narration is not given only 50% of allotted marks to be allowed.

Sumita’s A/c
Particulars Dr. Amount Rs. Particulars Cr. Amount Rs.
To Bank A/c 975 By Bills Receivable A/c 3,000
To Discount A/c 25 By Bank A/c 175
To Bills Payable A/c 3,750 By Discount A/c 139
To Bank A/c 1,851 By Bills Payable A/c 3,750
TO Deficiency A/c 463
7,064 7,064

Working Notes:
Discount charges to be borned by Lalita with reference to entry no. 5

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 (8)
= Rs 225/3525* (2,000+175) = Rs. 139.

3.
a) The Machinery Account of a Factory showed a balance of Rs. 1,90,000 on
1st January, 2015. Its accounts were made up on 31st December each year and
depreciation is written off at 10% p.a. under the Diminishing Balance Method.

On 1st June 2015, a new machinery was acquired at a cost of Rs. 28,000 and
installation charges incurred in erecting the machine works out to Rs. 892 on the
same date. On 1st June, 2015 a machine which had cost Rs. 4,374 on 1st January
2013 was sold for Rs. 750. Another machine which had cost Rs. 437 on 1st
January, 2014 was scrapped on the same date and it realized nothing.

Write a plant and machinery account for the year 2015, allowing the same rate of
depreciation as in the past calculating depreciation to the nearest multiple of a
Rupee. 5
b) Answer the following questions: (2×5=10)
i) Mention the basic considerations on the basis of which capital and revenue
expenditures are distinguished from each other.
ii) Write short notes on meaning of inventory.
Answer:
a)

Plant and Machinery A/C

Dr Cr.
Particulars Amount Particulars Amount
Rs. Rs.
2015 2015

Jan 01: To Balance B/d 1,90,000 June 1: By Bank 750

By Depreciation on sold machine (WN
June 1: To Bank ( 28000+892) 28,892 1) 148

By loss of sale of machine (WN 1) 2,645

By Depreciation on scrapped machine

(WN 2) 16

By loss on scrapped machine (WN 2) 377

December 31: By Depreciation- WN 3 20,292

December 31: By Bal c/d (bal fig) 1,94,664

2,18,892 2,18,892

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 (9)
Working Notes : Amount
Rs.
WN1 : Calculation of loss on sale of Machine on June 01,
2015
Cost on 1-1-2013 4,374

Less : Depreciation @ 10% on Rs. 4,374 (437)

W.D.V. on 31-12-2013 3,937

Less : Depreciation @ 10% on Rs. 3,937 (394)

W.D.V. on 31-12-2014 3,543

Less : Depreciation @ 10% on Rs. 3,543 for 5 months (148)

3,395

Less : Sale proceeds on 1-6-2015 (750)

Loss 2,645

WN 2: Calculation of loss on scrapped Machine on June

01, 2015
Cost on 1-1-2014 437

Less : Depreciation @ 10% on Rs. 4,374 (44)

W.D.V. on 31-12-2014 393

Less : Depreciation @ 10% on Rs. 393 for 5 months (16)

377
Less : Sale proceeds on 1-6-2015 -
Loss 377

WN 3: Computation of Depreciation
WDV of machines on 1.1. 2015 1,90,000
Less: WDV on 1.1. 2015 of

Machine sold ( WN1) (3,543)

Machine scrapped (WN 2) (393)

WDV on 1.1. 2015 of other machineries 1,86,064
Depreciation on 186,064 for 12 months @10% 18,606
Depreciation for 7 months on 28892 1,685
20,292

b)
i) The basic considerations in distinction between capital and revenue expenditures are:
(i) Nature of business: For a trader dealing in furniture, purchase of furniture is
revenue expenditure but for any other trade, the purchase of furniture should be
treated as capital expenditure and shown in the balance sheet as asset. Therefore, the
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 (10)
nature of business is a very important criteria in separating an expenditure between
capital and revenue.
(ii) Recurring nature of expenditure: If the frequency of an expense is quite often in an
accounting year then it is said to be an expenditure of revenue nature while non-recurring
expenditure is infrequent in nature and do not occur often in an accounting year. Monthly
salary or rent is the example of revenue expenditure as they are incurred every month
while purchase of assets is not the transaction done regularly therefore, classified as
capital expenditure unless materiality criteria defines it as revenue expenditure.
(iii)Purpose of expenses: Expenses for repairs of machine may be incurred in course of
normal maintenance of the asset. Such expenses are revenue in nature. On the other hand,
expenditure incurred for major repair of the asset so as to increase its productive capacity
is capital in nature. However, determination of the cost of maintenance and ordinary
repairs which should be expensed, as opposed to a cost which ought to be capitalised, is
not always simple.
(iv) Effect on revenue generating capacity of business: The expenses which help to
generate income/revenue in the current period are revenue in nature and should be
matched against the revenue earned in the current period. On the other hand, if
expenditure helps to generate revenue over more than one accounting period, it is
generally called capital expenditure. When expenditure on improvements and repair of a
fixed asset is done, it has to be charged to Profit and Loss Account if the expected future
benefits from fixed assets do not change, and it will be included in book value of fixed
asset, where the expected future benefits from assets increase.
(v) Materiality of the amount involved: Relative proportion of the amount involved is
another important consideration in distinction between revenue and capital. Even, if
expenditure does not increase the productive capacity of an asset, it may be
capitalized because the amount is material or expenditure may increase the asset value
and yet to be expensed because the amount is immaterial.

ii) Inventories are defined in Nepal Accounting Standard (NAS) as:

Inventories are assets:
a) Held for sale in the ordinary course of business, or
b) In the process of production for such sales, or
c) In the form of materials or supplies to be consumed in the production process or in the
rendering of services.
By the above definition, for the trading concern inventories encompass goods purchased
and held for resale, whereas for the manufacturing concern, finished goods produced,
work in progress being produced, raw materials, consumables, maintenance supplies and
loose tools awaiting use in the production process consist of inventories.

CKQ
 Mercantile Laws
Suggested Answer
Roll No……………. Maximum Marks - 25

Total No. of Questions - 2 Total No. of Printed Pages -4

Time Allowed - 1 Hour

Marks

Attempt all questions.

1. Answer the following questions:

a) What are the particulars to be fulfilled in the application for registration of a
partnership firm? 5
b) What norms shall subject to an agreement between partners be followed in the
course of settling the accounts of a Partnership Firm after its dissolution pursuant
to the Nepalese Partnership Act, 2020? Discuss. 5
Answer:
a) An application must be submitted before the concerned department, of
Government of Nepal along- with the prescribed fees in schedule 2(a) and a
duly attested copy of the partnership agreement Further, following particulars
need to be submitted along with application form for registration of
partnership firm:-
 Full name of partnership firm,
 Main address of the partnership firm,
 Brief information of the business i.e. commodities of the business which wants to
deal in the service,
 Full name and permanent address of the partners,
 Detail of restrictions, if any, on the right of any partner,
 Types of partner/s and capital contributed by each partner,
 Name of partners who represent the partnership firm,
 Certified copy of citizenship,
 Method of sharing the profit or loss of the partnership firm,
 Method of determining the profit or loss, of the partnership firm
 Any other particulars directed by the concerned department of Government of Nepal ,

b) Norms to be followed for making settlement of account between partners after the
dissolution of a partnership firm is provided under section 37 of the Partnership Act,
2020. They can be discussed as below:
In the course of settling the accounts of a partnership firm after dissolution, the following
norms shall, subject to an agreement between partners and Section 32 of Partnership
Act, 2020 to be followed:

JYF
 (2)

(a) Making valuation of the total property of the firm in monetary form.,
(b) Losses including deficiencies of capital shall be
i) First out of profit
ii) Second out of partnership capital if it is not sufficient
iii) Last out of individual assets of each partner.

(c) The priority for making up the deficiencies shall be as follows:

(1) To pay the debts of the firm to the partnership third parties;
(2) To pay to each partner proportionately (Damasahi) what is due to him/her from
the Partnership firm for the debt as distinguished from capital;
(3) To pay to each partner proportionately (Damasahi) what is due to him/her on
account of capital; and
(4) The residue, if any, shall be divided among each partner in proportion to which
they are entitled to share profits of partnership firm.
2. Answer the following questions:
a) What do you mean by a quasi contract? What are the rights and duties of a finder
of lost goods? (2+3=5)
b) Explain the circumstances under which a contract needs not be performed
pursuant to the Contract Act, 2056. 5
c) Define and point out the main features of public carrier. 5
Answer:
a) A quasi contract or an indirect contract is a type of contract whereby a party becomes
liable to perform some legal obligations though s/he had not entered a contract formally.
The obligation is imposed by the law, but not by an agreement. Such quasi contract is
performed through obligation or duty, not the right.
The position of a finder of lost goods is similar to that of a bailee in a bailment contract
and owes, in general, all the rights and duties of the bailee.
The rights of a finder of lost goods are
 Right to possess the goods
 Right to sue for rewards
 Right to lien on goods
 Right to sell the goods, in case, the bailor does not pay the expenses within a
reasonable time or in case the goods perish if not sold, or in case the expenses
incurred to maintain the goods become more than one third of the value of the
goods.

The duties of a finder of lost goods are:

 To try to find the real owner of the goods
BQX
 (3)

 Not to mix the goods found with own goods

 To return the goods to the true owner
 To take reasonable care of the goods
 Not to make any unauthorized use of the goods

b) Conditions of Contract need not to be performed

A contract is made by the parties to do or not to do something and the obligations raised by it
must be performed by them. They are bound to perform it, but it is not an absolute rule.
There are some conditions under which a contract need not to be performed. Such conditions
are mentioned under section 73 of Contract Act, 2056.
Following are the conditions under which contract need not to be performed
i. Released from party: where a party to a contract relieves/releases the other party from
performing his obligations wholly or partially, a contract need not to be performed by the next
party.
ii. Voidable contract: A contract without free consent of the party is voidable at the option of such
aggrieved party. If the aggrieved party rescinds the contract through legal action, the other party is
also released from performing the contract.
iii. Breach of term of contract: If one party to the contract breaches any terms of the contract, the
other party is discharged from performing the liability of the contract and, hence, the contract need
not be performed beach of the conditions of the contract by former party.
iv. Application of any legal provision: When a contract becomes impossible to perform due to the
application of any provisions of the law in force, the contract need not be performed.
v. Subsequent impossibility: Where a contract becomes impossible to perform subsequently due
to the changes in law or circumstances as prescribed under section 79 of the Contract Act, 2056, the
contract need not be performed. The destruction of subject-matter, death or personal incapacity may
be the examples of subsequent impossibility.
c) A public carrier is a person either an individual or company or a firm other than the
government carrier who carries the goods of other people on a regular business of carrier
for price through a fixed or customary route from one place to another place by the
different means of carrier without any discrimination.
The main features of public carrier are as follows:

 It is a non-gratuitous carrier.
 An individual, a firm, or a company may be a public carrier.
 A public carrier must be ready to provide service for the people on a regular basis.

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 (4)

 A public carrier shall carry the goods through a fixed or customary route in proper
time and place.
 A public carrier provides the service for fare without any discrimination between the
consigner and consignor.
 The Government cannot be a public carrier.

BQX
 Fundamentals of Economics
Suggested

Roll No……………. Maximum Marks - 25

Total No. of Questions - 2 Total No. of Printed Pages -5
Time Allowed – 1 Hour
Marks
Attempt all questions.

1. Long Answer Questions: (2×5=10)

a) Define supply. Explain the two cases under shift in supply with the help of
schedule and diagram.

b) Introduce Nepalese agriculture. Explain its importance in economic

development of Nepal.
Answer
a) Generally supply refers to the total quantity of the commodity available in the market for sale
but in economics, total quantity is termed as stock. Supply is a part of stock which the seller is ready
and able to sell at given prices and given period of time. Supply is flow concept and changes directly
with change in price and other determinants.

There are so many factors affecting supply. When there is change in determinants, there will be
change in supply as well. When there is change in other determinants of supply keeping price
constant, it will shift the supply curve either rightwards or leftwards from its original position. It is
called as shift if supply curve. There are two cases under shift in supply curve, which can be
explained as following:

a) Increase in supply: When supply of the product increases due to favorable impact of
determinants of supply except price of the product, it shifts supply curve rightwards from its original
position. It is called as increase in supply. The main causes of increase in supply are: Technological
development, availability of raw materials, infrastructure development etc.

b) Decrease in supply: When supply of the product decreases due to unfavorable impact of
determinants of supply except price of the product, it shifts supply curve leftwards from its original
position. It is called as decrease in supply. The main causes of decrease in supply are: Decrease in
supply of raw materials, technological backwardness, scarcity of inputs etc.

The above stated two cases under shift in supply curve can be explained with the help of following
table and diagram.

Price Quantity Supplied at Quantity supplied at Quantity supplied at

normal Situation (S1) favorable condition (S2) unfavorable condition(S3)
Rs.10 3 Kg 5 Kg 1 Kg
Rs.20 4 Kg 6 Kg 2 Kg
Rs.30 5 Kg 7 Kg 3 Kg
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 (6)

30 S1 S2
S3
Price ….Rs.

20

10 Increase in
Decrease in
supply supply

O 1 2 3 4 5 6 7 8
O

Quantity Supplied … Kg

In the above diagram, S1 is the initial supply curve stating various quantities supplied at
various prices. When there is favorable impact on supply, quantity supplied of the
product at all prices increase and supply curve shifts rightwards from its original position
(from S1 to S2). It is called as increase in supply. Similarly, when the determinants show
unfavorable impact on supply, quantity supplied of the product at all prices decrease and
supply curve shifts leftwards from its original position (S1 to S3). It is called as decrease
in supply.
b) Agriculture is the primary sector of the Nepalese economy. More than 50% people of Nepal
regard agriculture as the major occupation for their survival. Major portion of Nepal’s export trade
depends on agriculture. Even though the contribution of agriculture sector in GDP is decreasing but
agriculture is main source of survival of the country. Agriculture sector includes cash crops, food
crops, horticulture and floriculture, forestry, fisheries etc.
Due to various problems like small size of land holdings, lack of irrigation facilities, absence
of industrialized farming, primitive farming practice, and subsistence farming etc. productivity as
well as contribution of agriculture sector in National GDP is not satisfactory despite of major portion
of population involve in this sector.
The main importance of agriculture in economic development of Nepal are explained below.
1. Agriculture is the main source of industrial raw materials such as furniture, paper and paper
related products, textiles, handicrafts, medicine etc. Nepal can achieve high growth through
development of those sectors only.
2. Agriculture is the main basis of employment opportunities. A country can develop only by
creating employment opportunities. It can not only help to increase the volume of GDP but also help
to achieve growth.
3. Agriculture is the main basis of foreign trade. Most of the exportable items of Nepal are
agriculture based. Export helps to earn foreign currency and increase in national income through
which Nepal can shift from less developed economy to developing economy.
4. Increase in living standard of rural people. Generally, due to lack of other opportunities rural
people’s main source of income is from agriculture. Hence, Agriculture can help to increase living
standard of rural people and balanced growth of the economy.
5. Main source of National income and sectoral development. Since, agriculture is the main
occupation of majority people of Nepal. Agriculture contributes to national income and sectoral
development of the economy.

NDU
 (7)
From above stated points it is clear that agriculture plays very important role in development and
growth of the country.
2. Short Answer Questions (Any Five): (5×3=15)
a) Explain any three uses of microeconomics in business decision making.
b) Define production function. State the difference between short run production
function and long run production function.
c) Explain any three problems of international trade.
d) Explain any four features of perfect competition.
e) Define monopoly. Why a monopoly firm always obtains supernormal/excess
profit in long run?
f) Define LAC. Why is it U-shaped?
Answer
a) Micro economics is a branch of economics that studies the nature, relationship and behavior
of individual households and firms in making decisions on the allocation of limited resources.
Microeconomics examines how these decisions and behaviors affect the supply and demand for
goods and services, which determines prices, and how prices, in turn, determine the quantity supplied
and quantity demanded of goods and services.
Microeconomics has enormous uses in business decision making. Main three uses of
microeconomics in business decision making can be explained as following:
1. Microeconomics can help in optimum allocation of resources: As we know the resources
used in business are limited. To earn more profit by the business organization the resources
should be allocated in optimum way. It can be understood from microeconomic point of
view.
2. Microeconomics helps in Pricing of product as well as factors through interaction of demand
and supply. It is also another main use of microeconomics in business decision making.
3. Microeconomics helps in increasing efficiency of factors of production. Efficiency refers to
the relationship between scarce resources and output. Each business organization want to
achieve efficient situation for this we need microeconomic study.

b) The functional or technical relationship between units of inputs and output is called as production
function.
Mathematically,
Q= f (Ld, L, K, O)
Where, Q= output produced
Ld = Land L= Labor K=Capital O= Organization
In economics, short run refers to the time period in which only variable factors can be
changed keeping fixed factors as constant. Short run production function can be defined as the
functional relationship between quantity of output produced and units of variable factors used in
production process.
Mathematically, Q= f(Nvf)
Where, Q=Output Nvf= number of variable factors of production.
In short run, the producer can only change one factor keeping others as constant therefore short run
production function can also be termed as single variable production function. Law of variable
proportions is the example of short run production function.

Long run is that time period in which all the factors are variable. Long run production function can
be defined as the functional relationship between quantity of output produced and units of all inputs
used in production process. Since, it reveals the composite effect of all the inputs to output it is also

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called as multi-variable production function. The law of returns to scale, Cobb-Douglas production
function etc. are the examples of long run production function.
Mathematically, Q = f(Ld, L, K, O) or Q= f(L,K)
Where, Q= Output Ld= land L= Labor K= Capital, O=Organization
c) The main Problems of international trade are as follows
1.Geographical Location: Nepal is a land locked country surrounded by India in three sides and by
China in one side i.e., north. Due to over dependence on India Nepal's foreign trade is hindered. It
is very difficult to trade freely with overseas countries.
2.Concentrated on limited goods: Nepal's export is limited only to on few goods. The main items
of Nepal's are primary products while the imports are finished goods and machineries. This results
to the increase in imports and decrease in exports. Nowadays Nepal's main items are carpets and
exports readymade garments. Their exports are also in declining trend.
3.Low quality goods: The goods produced in Nepal are of inferior quality. There are complaints that
even the quality of carpets and garments are deteriorating. The goods produced also involve high
cost. Thus, Nepalese products of low quality involving high cost cannot compete in international
market with foreign products.

d) Perfect competition is a form of market in which there will be large number of buyers and
sellers. The product of the different producer will be homogenous. A firm can't affect the price by its
individual efforts. A perfect competition market is characterized by the following features:
1.Large numbers of buyers and sellers:- The first condition of perfect competition is large number
of buyers and sellers. The market must have such a large number of sellers that no seller is able to
dominate in market. Similarly, there should be large number of buyers.
2.Homogenous Product:- under this market the firms or sellers must sell homogenous goods. There
shouldn't be any differentiation of products in quality, variety, colour, design, packing or other
selling conditions of the product.
3.Free entry and exist for firms:- Under perfect competition there is absolutely no restriction on the
entry of new firms in the industry or the exit of the firms in the industry who want to leave it.
4.Perfect mobility of factors of production:- All factors of production should freely move from one
firm to another. If labour of the same type moves from a low paid occupation to a highly paid
occupation, the price of labour i.e. the wage rate will be similar in all the occupation or firms.
5.Perfect knowledge:- Another condition of perfect competition is that both sellers and buyers must
have perfect knowledge about the market conditions. Seller must know the prices of the commodity,
which is prevailing in the market similarly the buyers must know the price being charged by different
sellers.
6.Absence of transportation cost:- Price of the product should not be affected by the cost of
transportation cost. In other words, the market price charged by sellers should not be different due to
the presence of transportation cost.

e) Monopoly is a type of market Structure in which single seller and large number of buyers are
dealing with the product which has no substitutes. There is restriction/barriers to entry of new firms
in the industry without government regulation.
The main characteristics of monopoly market are as follows:
1. Single seller large number of buyers
2. No close substitutes
3. Barriers to entry of new firms
4. Firm is same as industry
5. Firm itself is price maker
6. Negatively sloped demand curve etc.

The firm operating in monopoly market always obtains excess profit in long run due to the
following reasons.

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a) Monopoly firm has sufficient time to replace all the inefficient factors of production in long
run by efficient ones which creates favorable condition to obtain profit.
b) Since, there are barriers to entry of new firms industries. There is no fear of competition
being the firm as single in the market.

The firm itself is price maker. So, the firm determines the price in such a way that it could earn
excess profit.

f) LAC is a locus representing minimum cost points of the plants that can be operated in shortrun. It
means LAC is derived by joining various minimum SACs of producing various levels of output. It is
called tangent curve, envelope curve, planning curve and so on. It is less pronounced than SACs,
because the firm will have better chance of getting profit with change of factors of production.

Due to the application of laws of returns to scale in longrun production function and presence of
economies and diseconomies of scale, LAC is U- shaped.
When IRS operates, LAC falls, when DRS operates LAC rise and when CRS operates, LAC reaches
at its minimum and constant.

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 Commercial Mathematics & Statistics
Suggested
Roll No........................ Maximum Marks - 25
Total No. of Questions - 2 Total No. of Printed Pages -4
Time Allowed - 1 Hour Marks
Attempt all questions.
1.
(4×4=16)
a) From the data given below, calculate the trend values and estimate the price
for the year 2016.
Year 2009 2010 2011 2012 2013 2014 2015
Price 13 17 15 22 26 23 28
What is the monthly increase in the price?
b) In an observation 10 measurements were taken on two related variables X and
Y and analyzed. The following results obtained
=320, =380, =12067, =10380. Using regression equation
estimate the value of Y for X= 30.
c) The value of a machine which was purchased 2 years ago, depreciates on
diminishing balance at 12% per annum. If its present value is Rs. 96,800 for
how much was it purchased?
d) Compute Bowley's price index number from the following data:
A 1 6 5 8
B 2 7 4 7
C 3 8 3 6
D 4 9 2 5

Answer

a) L
et Year = t, price = Y and X = t-2012

Trend
2
t X Y XY X values
2009 -3 13 -39 9 13.28
2010 -2 17 -34 4 15.71
2011 -1 15 -15 1 18.14
2012 0 22 0 0 20.57
2013 1 26 26 1 23
2014 2 23 46 4 25.43
2015 3 28 84 9 27.86
Total 0 144 68 28

Here ∑X = 0,

Therefore, b 
 XY 
68
 2.43 and a  Y   
Y 144
 20.57
X 2
28 N 7
Trend line is = a + b X i. e. = 20.57 + 2.43 X
Trend values are
2009 = 20.57+2.43×(-3) = 13.28
Y'(2010) = 20.57+2.43×(-2) = 15.71and so on.

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 Estimated price for the year 2016 (i.e. X=4) = 20.57+2.43×(4) = 30.29
Here b is yearly increment
Monthly increment = Yearly increment /12 = b/12 = 2.43/12 = 0.2025

b) Here,

n = 10 , =320 , = 380, = 12067 =10380

= = 32
= = 38
Regression equation of Y on X is
Y- = bYX(X- )
Where bYX =
=
=
= -0.66
Now, regression equation of Y on X is
Y- 38 = - 0.66 (X- 32)
or, Y = - 0.66X + 59.12
when X = 30
Y= -0.66 30 + 59.12
or, Y= 39.32

c) Scrap Value (S) = Rs 96,800

Time (n) = 2 years
Rate (R) = 12%
Original Value (v) = ?
We know,
n
 r 
S  V 1  
 100 
2
 12 
96,800  V 1  
 100 
V  Rs125, 000

d) Computation table
p0 q0 p1 q1 p1 q0 p0 q0 p1 q1 p0 q1
A 1 6 5 8 30 6 40 8
B 2 7 4 7 28 14 28 14
C 3 8 3 6 24 24 18 18
D 4 9 2 5 18 36 10 20
 p1 q0 =100  p0 q0 =80  p1 q1 =96  p0 q1 =60
Bowley's price index number
[2]
=

=
= 142.5

2.
(3×3=9)

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 a) The following data gives evaluation score (out of 100 full marks) in two
subjects performance and morale of ten government employees of a certain
office:
Score in 80 85 88 89 92 93 92 95 98 97
performance
Score in morale 75 68 70 73 88 80 87 90 92 88
Calculate the coefficient of correlation using Spearman's rank method.
b) A person buys a house for which he agrees to pay Rs. 1,000,000 and Rs. 5,000
at the end of each month for 8 years. If the interest is 12% p.a. compounded
monthly, what is the cash price of the house?
c) In how many different ways can the letters of the word 'CENTRIFUGAL' be
arranged so that the vowels always come together?

Answer

a) Let X=Score in performance and Y=Score in morale

And R1=Rank in performance and R2=Rank in morale

d=R1-
X Y R1 R2 R2 d2
80 75 10 7 3 9
85 68 9 10 -1 1
88 70 8 9 -1 1
89 73 7 8 -1 1
92 88 5.5 3.5 2 4
93 80 4 6 -2 4
92 87 5.5 5 0.5 0.25
95 90 3 2 1 1
98 92 1 1 0 0
97 88 2 3.5 -1.5 2.25

∑d2=23.5
In R1 rank 5.5 has repeated 2 times and in R2 rank 3.5 has repeated 2 times, m1=2
and m2=2
Correction factor for first repeated case= m1 (m1  1) / 12  2(2  1) / 12  0.5
2 2

Correction factor for second repeated

case= m2 (m2  1) / 12  2(2  1) / 12  0.5
2 2


6  d 2  m1 (m12  1) / 12 m2 (m22  1) / 12 1
Rank correlation coefficient= 1 
N3  N
623.5  .5  .5 147
 1  1   0.8515
10 3  10 990
b) Cash payment=Rs.1000000
P=Rs 5000
n=8 12=96
r=12% p.a
= %p.month
=1% per month
i= =1/100 =0.01
Present value of immediate annuity=?
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 Present value of immediate annuity= [1- ]
= [1- ]

= 500000[ 1- ]
= 500000(1- )
= 500000(1-0.385)
=307500 (approximate)
Hence cash price of house = Rs. (1000000+ 307500)
= Rs. 1307500(approximate)

c) In the word 'CENTRIFUGAL', we treat the vowels EIUA as one letter.

Thus, we have CNTRFGL (EIUA).

This has 8 (7 + 1) letters.

Number of ways of arranging these letters = 8! = 40320

Now, 4 vowels can be arranged in 4! or 24 ways

Required number of ways =8! = 4032024 = 967680

UGR
 Fundamentals of Management
Suggested Answer

Roll No……………. Maximum Marks - 25

Total No. of Questions - 2 Total No. of Printed Pages -4
Time Allowed – 1 Hour
Marks
Attempt all questions.

3. Long Answer Questions: (2×5=10)

a) Discuss about the steps of rational decision making process in brief.
b) Summarize the concept and components of human resource management.

Answer:
a) Rational decision can be defined as a systematic process in defining problems, evaluating
decision alternatives and selecting the best alternative decisions available as follows;

i. Defining Problems:
The first step in rational decision making is to identify the problem. At this stage, a manager
needs to identify the problems faced, the source of the problems and how to resolve them. For
example, your office is facing delayed work problems. When analyses, it is found that the
problems originates from shortage of computers in the office. Therefore, the management agrees
to purchase more computers for office use.
ii. Identifying the Decision Criteria:
After identifying the problems, the next step in rational decision-making is to establish the
decision criteria. The decision criteria refer to the standards or features that will be taken into
consideration when making a decision. Referring to the above example, since the management
had decided to purchase new computers, then what are the criteria that will be taken into
consideration when selecting the new computers? Based on the aspects of pricing, quality,
compatibility with the other equipment and warranty, that is the after sales guarantee. These
factors of price, quality, compatibility and warranty are the factors in decision criteria.
iii. Allocating Weights to Each Criteria:
After identifying the criteria that needs to be taken into consideration when making decision, the
next step will be to allocate weights to each of the criteria by comparing criteria directly each
other. That helps to identify which are the most important criteria, the second important criteria
and thereafter the next lesser important criteria for the decision maker. Meaning to say, decision
criteria are arranged according to priorities. The priorities of an individual might be different from
another individual. Based on the example given above, you might place the quality factor as the
most important, followed by compatibility factor, pricing factor and lastly the warranty factor.
iv. Generating Alternatives Solutions:

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Once you have identified and allocated weights to the criteria decision, the next step is to
develop as many alternative solutions as possible. The more alternatives generated, the better the
process. Based on the examples above, in order to purchase a new computer, the alternatives
that can be taken into consideration will be Acer, IBM, NEC, Serindit, Compaq and others.
v. Evaluating Alternatives:
At this level, every alternative will be compared with each decision criteria. This is to determine
the extent of the alternatives to fulfil the decision criteria that had been set. Usually, this level
takes the longest time as there is a lot of information that must be collected first before
comparisons can be made. It also involves the use of a huge sum of money. This means, all the
alternative solutions, which are Acer, IBM, NEC, Serindit and Compaq, will be evaluated from
the aspects of quality, compatibility, pricing and warranty (decision criteria). The more decision
criteria that are fulfilled by an alternative, the better the alternative will be.
vi. Selecting the Optimal Decision:
The last step in the process of making rational decision is to select the best alternative solution
available. The best alternative is the alternative that fulfils all the decision criteria according to the
importance that has been arranged. However, if there are no alternative that could fulfill all the
decision criteria according to the arrangement set, then the alternatives that fulfill the most of the
top criteria will be selected.

b) Human resource management is concerned with human element in organization. Organizations

employ people to work for getting success of their purposive establishment. Properly managed
people help to increase productivity through their full commitment and capability. So human
resource management is one of the key elements in management and coordination of work and
people in organization.
The concept of human resource management encompasses people as the most valuable resource.
It is an improved version of the personnel management that encompasses the functions like
recruitment, selection, training, performance evaluation and emphasizes the integration of
strategic and operational activities to achieve the desired results. It is defined as the set of
organizational activities directed at attracting, developing and maintaining an effective
workforce.

Components of human resource management consist of acquisition, development, utilization and

maintenance. Acquisition ensures the entry of right people through human resource planning, job
analysis, recruitment, selection, placement and socialization. Development ensures proper
competencies of employees to handle jobs assessing development need followed by employee
training and career development. Utilization is concerned with improving productivity by
motivation, performance appraisal and reward management. Maintenance consists employee
discipline, grievance handling and welfare.

4. Short Answer Questions (Any Five): (5×3=15)

a) Nature of organization
b) Non-programmed decision
c) Decentralization of authority
d) Methods of planning
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e) Democratic leadership style
f) Matrix organization
Answer:
a) Nature of organization
Organization is defined as a system composed of people, structure and technology for achieving
common goals in a dynamic environment. The nature of organization consists goal-orientation,
collection of people, structure, technology, continuity and environment.

Goals provide reason for existence of organization and bind its members together. Goals might
be profit, service or welfare, which give direction to action of organization. People perform
variety of activities to achieve goals interacting and working together. Structure defines their
formal relationships and positions in the organization with differentiation of activities and
integration of efforts. Represented by equipment, techniques and skills, people use technology to
perform activities. Organization adapt to changing environment to survive taking care of its
continuity element. Continuity provides stability to the organization.

b) Non-programmed decision
Non-programmed decision are unique and non repetitive. If a problem has not arisen before or if
there is no clear cut method for handling it then it must be handled by a non-programmed
decision. It becomes necessary due to certain unexpected and unprecedented situations. It is a
complex decision and hence requires a creative process of problem solving which is specifically
tailored to meet the requirements of the situation. There are no any guidelines to follow or past
data to refer and manager needs to collect a lot of information before he takes the decision. The
example of non-programmed decision is whether to merge with other organizations, diversify,
open a new branch in a foreign country etc.

Non-programmed decisions are taken by managers confronting emergency situations, in

consultations with higher level of management.

In non-programmed decisions each manager may use his own judgments, intuition and beliefs to
bear on the decision process. It is possible for two managers to reach distinctly different
solutions to the same problem, each claiming that he is acting rationally. There is no consistency.

c) Decentralization of authority
Every organization has to decide how much authority should be centralized into the hands of top
executive and how much should be distributed among the managers at lower levels. In
decentralized organization, the decision making authority is delegated to the lowest level. In
decentralized organization, the role of subordinates increases.
Decentralization of authority is the systematic and consistent delegation of authority to the
lowest level where the work is performed. It is the philosophy of the top management of an
enterprise under which maximum authority is distributed among middle and lower level
managers. The management keeps minimum authority.
No doubt the decentralization permits quicker and better decision making-decision, but there
cannot be absolute decentralization of authority because the manager cannot delegate all his
authority without surrendering his position of a manager.

d) Methods of planning

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Planning is looking ahead in a systematic way. Planning helps managers to focus on goals.
Planning ensures commitment of managers and employees to goals and courses of actions. The
methods of planning are top-down, bottom-up, participative and team.

Top-down method of planning assumes that top management possesses knowledge, skills and
authority for planning. It is generally used in highly centralized organization. Middle and lower
level managers drive bottom-up method of planning. It is decentralized approach and those
responsible for implementation are involved in planning. Participative method of planning is a
blend of both. Here the top management provides broad parameters and guidelines and the
middle and lower level management formulates the plans. Such plans are forwarded to top
management for review and approval. The team method of planning entrust to a work team for
planning. The team members can be line managers and staff experts who function as a unit.

e) Democratic leadership style

In this type of leadership, the subordinates are consulted and their feedback is taken into
consideration while making decision. The leader’s job is basically of a moderator, even though
he makes the final decision and he alone is responsible for the results. Hence the group is not
dependent upon him as an individual and can function effectively in his absence. Subordinates
have considerable freedom of action. The leader shows greater concern for the people than for
high production.

The leader consistently receives the best information, ideas, suggestions and talent of his people.
This style is suitable, when subordinates are performing repetitive tasks involving their ego. By
involving them into the decision making process, their ego will get satisfied and their support is
easily assured.
But some leaders may use it as a way of avoiding responsibility.

f) Matrix organization
Matrix organization is also known as the project organization, grid organization or multiple
command system. In matrix structure, managers group people and responsibilities in two ways
simultaneously; by function and by product or work project. This is the modern type of structure
and is suitable in the solution of fast changing activities. Employees are grouped into functions to
allow them to learn from another and become more skilled and productive. In addition,
employees are grouped into project teams, teams in which members of different function work
together to develop a specific product. There is a complex network of reporting relationships
among product teams and functions. This structure violates the rule of the unity of command so
why are complicated to manage. The project managers may obtain expertise from all specialist
and experts working in the organization as when needed.

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