Please see below Class 12 Business Studies Sample Paper Term 2 Set D with solutions. We have provided Class 12 Business Studies Sample Papers with solutions designed by Business Studies teachers for Class 12 based on the latest examination pattern issued by CBSE. We have provided the following sample paper for Term 2 Class 12 Business Studies with answers. You will be able to understand the type of questions which can come in the upcoming exams.

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

Short Answer Type Questions – I

1. Identify and explain the source of recruitment where candidates can be evaluated more accurately and economically.
Answer. Internal source of recruitment: Internal recruitment also simplifies the process of selection and placement. The candidates that are already working in the enterprise can be evaluated more accurately and economically. This is a more reliable way of recruitment since the candidates are already known to the organization.

2. “Unicon Securities Pvt. Ltd.” was established to deal in securities. It was registered as a stockbroker with National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) to trade in securities listed at these exchanges. It is also a depository participant with CDSL and NSDL. In the first three years, it developed its business successfully. After that, the composition of Board of Directors changed. Some customers complained to the customer care center of the company that shares purchased by them, and for which the payment has been duly made, were not transferred to their Demat Accounts by “Unicon Securities Pvt. Ltd.”. The executive of customer care center promised the aggrieved customers that their shares will be transferred to their respective Demat Accounts very soon. But the company delayed the matter and didn’t transfer the shares of the customers to their Demat Accounts. This eroded investors’ confidence and multiplied their grievances. On regular inspection and by conducting enquiries of the brokers involved, the Securities and Exchange Board of India
(SEBI) was able to detect this irregularity.
(i) Identify and explain the category of the function of SEBI stated in the above case.
(ii) Also give any one function of the category identified.
Answer. (i) Regulatory Functions: Regulatory functions involve establishment of rules and regulations for the financial intermediaries along with corporate that helps in efficient management of the market.
(ii) Following are the regulatory functions of SEBI:
(a) Registration of brokers and sub brokers and other players in the market.
(b) Registration of collective investment schemes and Mutual Funds.
(c) Regulation of stock brokers, portfolio exchanges, underwriters and merchant bankers and the business in stock exchanges and any other securities market.
(d) Regulation of takeover bids by companies.
(e) Calling for information by undertaking inspection, conducting enquiries and audits of stock exchanges and intermediaries.
(f) Levying fee or other charges for carrying out the purposes of the Act.
(g) Performing and exercising such power under Securities Contracts (Regulation) Act 1956, as may be delegated by the Government of India.

3. State any two merits of internal sources of recruitment.
Answer. Following are the merits of internal sources of recruitment
(i) Employees are motivated to improve their performance. A promotion at a higher level may lead to a chain of promotion at lower levels in the organization. This motivates the employees to improve their performance through learning and practice. Employees work with commitment and loyalty and remain satisfied with their jobs. Also, peace prevails in the enterprise because of promotional avenues.
(ii) Internal recruitment also simplifies the process of selection and placement. The candidates that are already working in the enterprise can be evaluated more accurately and economically.
This is a more reliable way of recruitment since the candidates are already known to the organization.
(iii) Transfer is a tool of training the employees to prepare them for higher jobs. Also, people recruited from within the organization do not need induction training.
(iv) Transfer has the benefit of shifting workforce from the surplus departments to those where there is shortage of staff.
(v) Filling of jobs internally is cheaper as compared to getting candidates from external sources.

4. Malto Ltd. is engaged in manufacturing of machine components. The target of production is 200 units daily. The company had been successfully attaining this target until two months ago. Over the last two months, it has been observed that daily production varies between 150-170 units. Identify and explain the steps to be taken to achieve the desire targets.
Answer. Following steps are to be taken to achieve the desire targets:
(i) Analyzing Deviations: Some deviation in performance can be expected in all activities. It is, therefore, important to determine the acceptable range of deviations. Also, deviations in key areas of business need to be attended more urgently as compared to deviations in certain insignificant areas. Critical point control and management by exception should be used by a manager in this regard.
(ii) Taking Corrective Action: No corrective action is required when the deviations are within acceptable limits. However, when the deviations go beyond the acceptable range, especially in the important areas, it demands immediate managerial attention so that deviations do not occur again and standards are accomplished. Corrective action might involve training of employees if the production target could not be met.

Short Answer Type Questions – II

5. ABC Ltd. is a company which is successfully running in the insurance sector for the past 15 years. It is one of the leading companies and Mr. Ghosh, the Zonal Sales Head has been working in the company for the past 8 years spearheading its sales continuously. He has a wide and rich experience in the insurance sector and has worked with two other major insurance companies previously. In the company, the employees always feel that they are under enormous unnecessary stress, as their manager Mr. Ghosh does not provide any information about future plans but simply instructs them what to do. He also does not listen to any of the suggestions given by the subordinates. Mr. Ghosh does not provide any flexibility to his subordinates; he is extremely rigid while taking decisions and does not like to be interrupted. Thus, he is extremely unpopular as a manager due to his leadership style. But Mr. Ghosh strongly believes in his style of leadership and has seen effective results on account of this. He has been able to increase the sales number of insurance policies in the last quarter of the financial year for the past three years in a row and thus has been able to meet the annual sales targets successfully. On account of this, he has been awarded the ‘Best Employee’ trophy for two years by the management. Identify and explain the leadership style of the manager, Mr. Ghosh?
Answer. The leadership style followed by Mr. Ghosh is Autocratic or Authoritarian.
An autocratic leader gives orders and expects his subordinates to obey those orders. If a manager is following this style, then communication is only one-way with the subordinates, only acting according to the command given by the manager. This leader is dogmatic i.e., does not change or wish to be contradicted. His following is based on the assumption that reward or punishment both can be given depending upon the result. This leadership style is effective in getting productivity in many situations like in a factory where the supervisor is responsible for production on time and has to ensure labour productivity. Quick decision-making is also facilitated.

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

7. “Financial management is concerned with the solution of three major issues relating to the financial operations of a firm” In the light of this statement, explain the three major decisions every manager has to take while performing the finance function.
Answer. The three major decisions every manager has to take while performing the finance function are:
(i) Investment decisions: A firm’s resources are scarce in comparison to the uses to which they can be put. A firm, therefore, has to choose where to invest these resources, so that they are able to earn the highest possible return for their investors. The investment decision, therefore, relates to how the firm’s funds are invested in different assets. Investment decision can be long term or short-term. A long-term investment decision is also called a Capital Budgeting decision. It involves committing the finance on a long-term basis. 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.
(ii) Financing decision: This decision is about the quantum of finance to be raised from various long-term sources. Short-term sources are studied under the ‘working capital management’. It involves identification of various available sources. The main sources of funds for a firm are shareholders’ funds and borrowed funds. The shareholders’ funds refer to the equity capital and the retained earnings. Borrowed funds refer to the finance raised through debentures or other forms of debt. A firm has to decide the proportion of funds to be raised from either source, based on their basic characteristics.
(iii) Dividend decision: Dividend is that portion of profit which is distributed to shareholders. The decision involved here is how much of the profit earned by company (after paying tax) is to be distributed to the shareholders and how much of it should be retained in the business. While the dividend constitutes the current income re-investment as retained earnings increases the firm’s future earning capacity. The extent of retained earnings also influences the financing decision of the firm. Since the firm does not require funds to the extent of re-invested retained earnings, the decision regarding dividend should be taken keeping in view the overall objective of maximizing shareholder’s wealth.

8. Parul has established a small-scale factory after completing a course in textile designing. She has tied up with the big home furnishing retail outlets in the city for supplying good quality designer home furnishing products like bed covers, cushions etc. Her business was running successful. Everything is carried out as per her plans. She believes that a manager needs to exercise effective control over the activities of the subordinates in order to achieve organizational goals. So, every time she gets an order, she sets the standards in terms of the number of personnel required, the estimated requirements in man-hours per product, the requirements of direct materials for the projected production and the amount of normal overhead expenses required at the projected work-load. She also keeps a close watch on the activities so as to ensure that they conform to plans. By doing this, she seeks to reduce wastage and spoilage of resources and helps her to minimise dishonest behavior on the part of the employees. She motivates her employees and helps them to give better performance. In context of the above case:
(i) Identify the function of management being performed by Parul.
(ii) Explain any two points of the importance of the function of the management identified in part (i).
Answer. (i) The function of management being performed by Parul is Controlling.
(ii) The importance of controlling can be understood from the following points:
(a) Accomplishing organizational goals: The controlling function measures progress towards the organizational goals and brings to light the deviations, if any, and indicates corrective action. It, thus, guides the organization and keeps it on the right track so that organizational goals might be achieved.
(b) Judging accuracy of standards: A good control system enables management to verify whether the standards set are accurate and objective. An efficient control system keeps a careful check on the changes taking place in the organization and in the environment and helps to review and revise the standards in light of such changes.
(c) Making efficient use of resources: By exercising control, a manager seeks to reduce wastage and spoilage of resources. Each activity is performed in accordance with predetermined standards and norms. This ensures that resources are used in the most effective and efficient manner.
(d) Improving employee motivation: A good control system ensures that employees know well in advance what they are expected to do and what are the standards of performance on the basis of which they will be appraised. It, thus, motivates them and helps them to give better performance.
(d) Ensuring order and discipline: Controlling creates an atmosphere of order and discipline in the organization. It helps to minimise dishonest behavior on the part of the employees by keeping a close check on their activities.
(e) Facilitating coordination in action: Controlling provides direction to all activities and efforts for achieving organizational goals. Each department and employee are governed by predetermined standards which are well coordinated with one another. This ensures that overall organizational objectives are accomplished.

Long Answer Type Questions

9. Palak went to a shopkeeper to buy a hair oil. The shopkeeper forced her to buy a particular brand of hair-oil out of various available brands, irrespective of the willingness of Palak. Also, after buying a bottle of hair oil, she realizes that the proper ingredients on the bottle were not mentioned by the brand. Which rights of Palak, as a consumer, has been violated? Identify and explains the rights.
                                                                                 OR
State any five 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.
Answer. The Right to choose and the Right to be informed has been violated in the given case.
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. Every consumer has the right to choose the goods needed from a wide variety of similar goods. Very often dealers and traders try to use pressure tactics to sell goods of inferior quality. Sometimes, consumers are also carried away by advertisements on the TV. These possibilities can be avoided if consumers are conscious of this right.
Right to be Informed: The consumer has a right to have complete information about the product he intends to buy including its ingredients, date of manufacture, price, quantity, directions for use, etc. It is because of this reason that the legal framework in India requires the manufactures to provide such information on the package and label of the product. Consumers also have the right to be informed about the purity, standard or grade and price of the goods available so that they can make proper choice before buying any product or service. Also, wherever necessary, the consumer must be informed about the safety precautions to be taken while using the product to avoid loss or injury.
                                                         OR
(i) Reliefs that the Consumer court can grant to the customers are:
(a) To refund the price paid.
(b) To pay punitive damages.
(c) To discontinue the unfair/ restrictive trade practice and not to repeat the same in future.
(d) To pay any amount (not less than 25% of the value of the bottle of water) to be credited to the Consumer Welfare Fund or any other organization/person, to be utilized in the prescribed manner.
(e) To pay adequate costs to the appropriate party.
(ii) Reliefs that the Consumer court can grant to the customers are:
(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.
(d) To pay punitive damages.
(e) To pay any amount (not less than 25% of the value of the defective engine) to be credited to the Consumer Welfare Fund or any other organization/person, to be utilised in the prescribed manner.
(f) To pay adequate costs to the appropriate party.

10. Explain various functions performed by ‘Secondary Market’.
Answer. The following are some of the important functions of a stock exchange.
(i) Providing Liquidity and Marketability to Existing Securities: The basic function of a stock exchange is the creation of a continuous market where securities are bought and sold. It gives investors the chance to disinvest and reinvest. This provides both liquidity and easy marketability to already existing securities in the market.
(ii) Pricing of Securities: Share prices on a stock exchange are determined by the forces of demand and supply. A stock exchange is a mechanism of constant valuation through which the prices of securities are determined. Such a valuation provides important instant information to both buyers and sellers in the market.
(iii) Safety of Transaction: The membership of a stock exchange is well regulated and its dealings are well defined according to the existing legal framework. This ensures that the investing public gets a safe and fair deal on the market.
(iv) Contributes to Economic Growth: A stock exchange is a market in which existing securities are resold or traded. Through this process of disinvestment and reinvestment savings get channelized into their most productive investment avenues. This leads to capital formation and economic growth.
(v) Spreading of Equity Cult: The stock exchange can play a vital role in ensuring wider share ownership by regulating new issues, better trading practices and taking effective steps in educating the public about investments.
(vi) Providing Scope for Speculation: The stock exchange provides sufficient scope within the provisions of law for speculative activity in a restricted and controlled manner. It is generally accepted that a certain degree of healthy speculation is necessary to ensure liquidity and price continuity in the stock market.

11. A public transport corporation has hired 3000 buses for different routes for the passengers of Bangalore. In order to fill vacancies, it advertised in the newspaper and a large number of applicants applied for the same. The company has to now undertake the process of selection to identify and select the best suitable candidate. Explain the steps involved in the process.
Answer. The important steps in the process of selection are as follows:
(i) Preliminary Screening: Preliminary screening helps the manager eliminate unqualified or unfit job seekers based on the information supplied in the application forms. Preliminary interviews help reject misfits for reasons, which did not appear in the application forms.
(ii) Selection Tests: An employment test is a mechanism (either a paper and pencil test or an exercise) that attempts to measure certain characteristics of individuals. These characteristics range from aptitudes, such as manual dexterity, to intelligence to personality.
(iii) Employment Interview: Interview is a formal, in-depth conversation conducted to evaluate the applicant’s suitability for the job. The role of the interviewer is to seek information and that of the interviewee is to provide the same. Though the interviewee also seeks information from interviewer.
(iv) Reference and Background Checks: Many employers request names, addresses, and telephone numbers of references for the purpose of verifying information and, gaining additional information on an applicant. Previous employers, known persons, teachers and university professors can act as references.
(v) Selection Decision: The final decision has to be made from among the candidates who pass the tests, interviews and reference checks. The views of the concerned manager will be generally considered in the final selection because it is, he or she who is responsible for the performance of the new employee.
(vi) Medical Examination: After the selection decision and before the job offer is made, the candidate is required to undergo a medical fitness test. The job offer is given to the candidate being declared fit after the medical examination.
(vii) Job Offer: The next step in the selection process is job offer to those applicants who have passed all the previous hurdles. Job offer is made through a letter of appointment and confirm his acceptance. Such a letter generally contains a date by which the appointee must report on duty. The appointee must be given reasonable time for reporting.
(viii) Contract of Employment: After the job offer has been made and candidate accepts the offer, certain documents need to be executed by the employer and the candidate. One such document is the attestation form. This form contains certain vital details about the candidate, which are authenticated and attested by him or her. Attestation form will be a valid record for future reference. There is also a need for preparing a contract of employment. Basic information that should be included in a written contract of employment will vary according to the level of the job.

12. 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. Explain any five factors that would affect the fixed capital requirement of Pinnacle Ltd.
                                                                                            OR
Beautiful Pvt. Ltd. is the largest hair salon chain in Mumbai, with over a franchise of 100 salons. The company is now planning to set up a manufacturing unit in Delhi for production of various kinds of beauty products under its own brand name. The company has a share capital of ₹ 40,00,000 divided into shares of ₹ 100 each. For expansion purpose, the company requires additional funds of ₹ 15,00,000. The management is considering the following alternatives for raising funds:
Alternative 1: Issue of 10,000 Equity shares of ₹ 100 each
Alternative 2: Issue of 15% Debentures of ₹ 20,00,000
The company’s present Earnings Before Interest and Tax (EBIT) is ₹ 10,00,000 p.a. Assuming that the rate of Return of Investment remains the same after expansion, which alternative should be used by the company in order to maximize the returns to the equity shareholders. The Tax rate is 50%. Show the working.
Answer. Following are the factors affecting the Requirement of Fixed Capital:
(i) Nature of Business: The type of business has a bearing upon the fixed capital requirements. For example, a trading concern needs lower investment in fixed assets compared with a manufacturing organization; since it does not require to purchase plant and machinery, etc.
(ii) Scale of Operations: A larger organization operating at a higher scale needs bigger plant, more space etc. and therefore, requires higher investment in fixed assets when compared with the small organization.
(iii) Choice of Technique: Some organizations are capital intensive whereas others are labour intensive. A capital-intensive organization requires higher investment in plant and machinery as it relies less on manual labour. The requirement of fixed capital for such organizations would be higher. Labour intensive organizations on the other hand require less investment in fixed assets. Hence, their fixed capital requirement is lower.
(iv) Technology Upgradation: In certain industries, assets become obsolete sooner. Consequently, their replacements become due faster. Higher investment in fixed assets may, therefore, be required in such cases. For example, computers become obsolete faster and are replaced much sooner than say, furniture. Thus, such organizations which use assets which are prone to obsolescence require higher fixed capital to purchase such assets.
(v) Growth Prospects: Higher growth of an organization generally requires higher investment in fixed assets. Even when such growth is expected, a company may choose to create higher capacity in order to meet the anticipated higher demand quicker. This entails larger investment in fixed assets and consequently larger fixed capital.
(vi) Diversification: A firm may choose to diversify its operations for various reasons, with diversification, fixed capital requirements increase e.g., a textile company is diversifying and starting a cement manufacturing plant. Obviously, its investment in fixed capital will increase.
(vii) Financing Alternatives: A developed financial market may provide leasing facilities as an alternative to outright purchase. When an asset is taken on lease, the firm pays lease rentals and uses it. By doing so, it avoids huge sums required to purchase it. Availability of leasing facilities, thus, may reduce the funds required to be invested in fixed assets, thereby reducing the fixed capital requirements. Such a strategy is especially suitable in high risk lines of business.
(viii) Level of Collaboration: At times, certain business organizations share each other’s facilities. For example, a bank may use another’s ATM or some of them may jointly establish a particular facility. This is feasible if the scale of operations of each one of them is not sufficient to make full use of the facility. Such collaboration reduces the level of investment in fixed assets for each one of the participating organizations.

The company should use Plan 2 in order to increase the return to the equity shareholders.