CA Foundation

This CA Foundation Law Notes CA Foundation Business Law Question Paper is designed strictly as per the latest syllabus and exam pattern.

CA Foundation Business Law Question Paper

 

SECTION A – Marks: 60

Question 1.
(a) Mr. X a businessman has been fighting long-drawn litigation with Mr. Y an industrialist. To support his legal campaign he enlists the services of Mr. C a Judicial officer stating that the amount of ₹ 10 lakhs would be paid to him if he does not take up the brief of Mr. Y.

Mr. C agrees but, at the end of the litigation, Mr. X refuses to pay Mr. C. Decide whether Mr. C can recover the amount promised by Mr. X under the provisions of the Indian Contract Act, 1872? (4 Marks)

(b) ABC Limited has allotted equity shares with voting rights to XYZ Limited worth ₹ 15 Crores and issued Non-Convertible Debentures worth ₹ 40 Crores during the Financial Year 2019-20. After that total Paid-up Equity Share Capital of the company is ₹ 100 Crores and Non-Convertible Debentures Stand at ₹ 120 Crores. Define the Meaning of Associate Company and comment on whether ABC Limited and XYZ Limited would be called Associate Company as per the provisions of the Companies Act, 2013? (4 Marks)

(c) Write any four exceptions to the doctrine of Caveat Emptor as per the Sale of Goods Act, 1930. (4 Marks)
Answer:
1. (a) See answer from Chapter 7: Void Agreement, under Unit 1: The Indian Contract Act, 1872 – Pg. 7.6, Q & Ans. 9.
Thus the agreement is valid and enforceable since the restraint imposed on Mr. C does not amount to restraint of trade and Mr. C can recover the amount from Mr. X.

(b) According to the provisions of section 2(6) of the Companies Act, 2013 an Associate Company in relation to another company means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company. For the purpose of this clause: the expression “significant influence” means control of at least 20% of total voting power or control of or participation in business decisions under an agreement.

In the given case XYZ Ltd. is holding Equity shares with voting rights worth ₹ 15 crores and Non-convertible debentures worth ₹ Rs. 40 crores in ABC Ltd. Further in computing “significant influence” as aforesaid, the holding in respect of Non-convertible debentures shall not be considered since they do not carry voting rights.

It is therefore evident that XYZ Ltd. holds voting rights amounting to only 1596 of the total voting power (15/100*100) of ABC Ltd. which is less than 20% of total voting power required minimally to be regarded as a significant influence. Thus it can be concluded that ABC Ltd. is not the Associate Company of XYZ Ltd.

(c) See answer from Chapter 12: Conditions & Warranties, under Unit 2: Sale of Goods Act, 1930 – Pg. 12.3, Q & Ans. 3. – Exceptions.

Question 2.
(a) Define Misrepresentation and Fraud. Explain the difference between Fraud and Misrepresentation as per the Indian Contract Act, 1872. (7 Marks)
(b) State the circumstances under which LLP may be wound up by the Tribunal under the Limited Liability Partnership Act, 2008. (5 Marks)
Answer:
2. (a) Definition
Fraud: See answer from Chapter 5: Free Consent, under Unit 1: The Indian Contract Act, 1872 – Pg. 5.1, Q & Ans. 1. (part up to the definition of Fraud)
Misrepresentation:
According to the provisions of section 18 of the Indian Contract Act, 1872, misrepresentation means and includes:

• positive assertion of such fact, which is not true, in a manner not warranted by the information of the person making it, though he believes it to be true;
• any breach of duty, which without any intent to deceive, gains an advantage to the person committing it, or anyone claiming under him, by misleading another to his prejudice or to the prejudice of anyone claiming under him;
• causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.

Thus misrepresentation is an innocent and unintentional false/ wrong statement made without the positive knowledge of falsehood by a person who himself believes it to be true and makes such representations without any intent to deceive.
Difference between Fraud & Misrepresentation from Chapter 5: Free Consent, under Unit 1: The Indian Contract Act, 1872 – Pg. 5.6, Q & Ans. 8 (b)
(b) See answer from Chapter 18: Limited Liability Partnership Act, 2008, under Unit 4: Limited Liability Partnership Act, 2008 – Pg. 18.13, Q & Ans. 13.

Question 3.
(a) (1) What do you mean by ‘Partnership at will’ as per the Indian Partnership Act, 1932? (2 Marks)
OR
(2) Comment on ‘the right to expel partner must be exercised in good faith’ under the Indian Partnership Act, 1932.

(b) Referring to the Provisions of the Indian Partnership Act, 1932, answer the following: (4 Marks)

• What are the consequences of Non-Registration of Partnership firms?
• What are the rights which won’t be affected by the Non-Registration of the Partnership firm?

(c) In light of provisions of the Indian Contract Act, 1872 answer the following: (6 Marks)

• Mr. S and Mr. R made a contract wherein Mr. S agreed to deliver a paper cup manufacture machine to Mr. R and to receive payment on delivery. On the delivery date, Mr. R didn’t pay the agreed price. Decide whether Mr. S is bound to fulfill his promise at the time of delivery?
• Mr. Y was given a loan to Mr. G of INR 30,00,000. Mr. G defaulted the loan on the due date and the debt became time-barred. After the time-barred debt, Mr. G agreed to settle the full amount to Mr. Y. Whether acceptance of the time-barred debt Contract is enforceable in law?
• A & B entered into a contract to supply unique items, alternate of which is not available in the market. A refused to supply the agreed unique item to B. What directions could be given by the court for breach of such contract?

Answer:
3. (a) (1) See answer from Chapter 15: General Nature of a Partnership, under Unit 3: The Indian Partnership Act, 1932 – Pg. 15.6, Q & Ans. 4(1)- Partnership at will
OR
(2) According to the provisions of Section 33 of the Indian Partnership Act, 1932, a partner may not be expelled from the firm by a majority of partners except by exercise in good faith, of the powers conferred by contract between the partners. It is thus essential that:

• The power of expulsion must have existed in the contract between the partners or expressly stated in the deed;
• The power of expulsion has been exercised by a majority of the partners and
• The power of expulsion has been exercised in good faith.

If all the above conditions are satisfied only then the expulsion is treated as valid and effective and in the bona fide interest of the business of the firm. Further for the power of expulsion to have been exercised in good faith, the test of the following is required:

• The expulsion must be in the interest of the partnership
• The partner to be expelled is served with reasonable notice of expulsion &
• He is given a fair and reasonable opportunity of being heard.

If a partner is expelled otherwise, not only the expulsion is treated as null and void, but at the same time, such an expelled partner shall have a right to proceed against the other partners in a court of law and seek reinstatement as a partner in the firm.

(b) See answer from Chapter 17: Registration of a Firm & Dissolution of a firm, under Unit 3: The Indian Partnership Act, 1932-Pg. 17.2, Q&Ans. 2-Consequences of Non- Registration of partnership and rights unaffected by non-registration.

(c) (1) According to the provisions of Section 51 of the Indian Contract Act, 1872, in the case of a contract consisting of reciprocal promises which are mutual and dependent, the performance of both the promises is required simultaneously. Thus in the case of reciprocal promises, the promisor need not perform his part of the promise unless the promisee is ready and willing to perform his part of the reciprocal promise.

In the given case, Mr. S & Mr. R by way of reciprocal promises contracted to deliver paper cup manufacturing machine and pay on delivery respectively. However, on the date of delivery, Mr. R refuses to pay the agreed price.

Thus applying the above-stated provision it can be concluded that since Mr. R has refused to perform his part of the reciprocal promise, the promisor, Mr. S is also thereby discharged from giving his performance under the contract.

(2) According to the provisions of section 25(3) of the Indian Contract Act, 1872, a promise to pay a time-barred debt is generally not enforceable, since it is without consideration. However, if the following conditions are fulfilled the same shall be validly enforceable:

• Such a promise is made by the debtor in writing
• In respect of a debt which has become time-barred by the law of limitations &
• The promise is signed by the debtor or his authorized agent.

In the given case Mr. G agrees to settle the amount of the time-barred debt of Rs. 30,00,000, owed by him to Mr. Y. Applying the above-stated provisions it can be concluded that if the promise to pay the time-barred debt by Mr. G, is not in writing and is not signed by him or his duly authorized agent, the same cannot be enforced by Mr. Y.

(3) According to the provisions of the Indian Contract Act, 1872, in the event of a breach of a contract, where the amount of damages sustained by the aggrieved party cannot be determined or where the number of damages is not adequate, then the court may award specific performance as a remedy for breach. An order for specific performance implies that the defaulting party shall have to perform the contract in accordance with the stipulated terms. One of the instances where Specific performance of a contract is awarded as a remedy, at the discretion of the court, is when the goods contracted for are unique or rare in nature.

In the given case A refused to supply a unique item to B which is not available in alternatively in the market. Applying the above provisions it can be concluded that since B cannot be adequately compensated for the breach, thus the court may as a remedy for breach to B, order A for specific performance in accordance with the terms of the contract.

Question 4.
(a) Explain any six circumstances in detail in which non-owner can convey better title to bona fide purchaser of goods for value as per The Sale of Goods Act, 1930. (6 Marks)
(b) P, Q, R and S are the partners in M/S PQRS & Co., a partnership firm that deals in trading of Washing Machines of various brands.
Due to the conflict of views between partners, P & Q decided to leave the partnership firm and started competitive business on 31st July, 2019, in the name of M/s PQ & Co. Meanwhile, R & S have continued using the property in the name of M/s PQRS & Co. in which P & Q also has a share.
Based on the above facts, explain in detail the rights of outgoing partners as per the Indian Partnership Act, 1932 and comment on the following:

• Rights of P & Q to start a competitive business.
• Rights of P & Q regarding their share in property of M/s PQRS &Co. (6 Marks)

Answer:
4. (a) See answer from Chapter 13: Transfer of Ownership, under Unit 2: Sale of Goods Act, 1930 – Pg. 13.2, Q & Ans. 2 – Instances when a non-owner can convey a better title to a bona fide purchaser of goods.

(b) (1) According to the provisions of section 36 of the Indian Partnership Act, 1932, an outgoing partner has the right to carry on a business competing with that of the firm and also to advertise the same, provided no (reasonable) restraint on the same has been expressly provided by an agreement to the contrary, made with a view to safeguarding the interest of the firm. However, the outgoing partner may not:

• use the firm’s name,
• represent himself as carrying on the business on behalf of the firm or
• solicit the customers of the firm.

In the given case the outgoing partners P & Q started carrying on a competing business in the name of M/s PQ & Co., which is not the name of the firm. Moreover, no restriction appears to be imposed on such outgoing partners whereby they may be reasonably restrained from carrying on a competing business.

Thus applying the above-stated provisions it can be concluded that outgoing partners, P & Q can validly carry on a competing business as it is in accordance with the requirements of law.

(2) Section 37 of the Indian Partnership Act, 1932 provides that in case the accounts of the outgoing partners remain unsettled and the remaining partners continue to carry on the business of the firm, such an outgoing partner is entitled to receive any of the following whichever is more beneficial to him:

• Interest at the rate of 6 % p.a. on the amount of his share in the property of the firm.
• Alternatively, he may claim such share in the subsequent profits of the firm as is attributable to his share in capital employed in the business of the firm.

In the given case as the firm continues to carry on its business as before without settlement of accounts, the outgoing partners P&Q can ask for a share in the subsequent profits made by the firm as attributable to their share in capital employed or alternatively ask for interest @ 696 on their share from the firm, whichever is beneficial for them.

Question 5.
(a) Ms. R owns a Two Wheeler which she handed over to her friend Ms. K on a sale or return basis. Even after a week Ms. K neither returned the vehicle nor made payment for it. She instead pledged the vehicle to Mr. A to obtain a loan. Ms. R now wants to claim the Two Wheeler from Mr. A. Will she succeed?

• Examine with reference to the provisions of the Sale of Goods Act, 1930, what recourse is available to Ms. R?
• Would your answer be different if it had been expressly provided that the vehicle would remain the property of Ms. R until the price has been paid? (6 Marks)

(b) What are the significant points of section 8 company which are not applicable for other companies? Briefly explain with reference to provisions of the Companies Act, 2013. (6 Marks)
Answer:
5. (a) (1) According to the provisions of section 24 of the Sale of Goods Act, 1930, when the goods are delivered to a buyer “on approval” or “sale or return” basis, the property therein passes to the buyer :

• When he signifies his approval or acceptance to the seller or
• When the buyer does any other act adopting the transaction, such as further sells or pledges them or
• When the buyer retains the goods without giving notice of rejection, beyond the time fixed for the return of the goods or if no time has been fixed, beyond a reasonable time. In short, the property passes either by acceptance or by failure to return the goods within a specified or reasonable time.

In the given case, Ms. R has delivered the motorcycle to Ms. K on a sale or return basis, which she further pledges with Mr. A as security for a loan.
Thus applying the above-stated provisions it is evident that by further pledging the motorcycle Ms. Khas adopted the transaction and has thereby approved the same. With this act of pledging the motorcycle, the property in the motorcycle passes on to Ms. K and as a consequence, Ms. R is entitled to receive the price. She can claim the price of the motorcycle from Ms. K and can also sue for the same, but cannot recover the motorcycle since the ownership has been passed on to Ms. K.

(2) According to the provisions of the Sale of Goods Act, 1930, when the contract of sale expressly provides that the goods will remain the property of the seller until the price has been paid by the buyer, then the property shall pass on to the buyer only on the payment of the price by him.
Thus if in this case, the contract stipulates that, the motorcycle would remain the property of the seller, Ms. R until the payment of the price by Ms. K, then the property in the motorcycle will not pass even on pledging the same with Mr. A. Thus Ms. R shall be entitled to claim back the possession of the motorcycle from Mr. A since the ownership still vests with his (Ms. R).

(b) According to provisions of the Companies Act, 2013, section 8 deals with the formation of companies that are incorporated to promote the charitable objects of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, etc. Such a company intends to apply its profit in promoting its objects and prohibits the payment of any dividend to its members. Examples of section 8 companies are FICCI, ASSOCHAM, National Sports Club of India, etc.

Significant points of section 8 Companies which distinguish it from other companies:

• It is formed only for the promotion of commerce, art, science, religion, charity, protection environment, sports, etc.
• It uses its profits only for the promotion of the objective for which formed.
• It does not declare dividends to members.
• The requirement of minimum share capital does not apply.
• It operates under a special license from Central Government, subject to certain conditions, and the license entitles it to avail certain privileges in comparison to other companies.
• It need not use the word Ltd./Pvt. Ltd. in its name and can adopt names such as club, chambers of commerce, etc.
• The license can be revoked if the conditions subject to which it was issued are, contravened. On revocation, Central Government may direct it to – convert its status and change its name ie. (add Ltd./Pvt. Ltd.) or may order it to wind-up or amalgamate with another company having similar objects, on such terms as the CG may deem appropriate.
• A section 8 company can call its general meeting by giving a clear 14 days’ notice instead of 21 days.
• The requirement of the minimum number of directors, independent directors, etc. does not apply to a section 8 company.
• It need not constitute a Nomination Committee, Remuneration Committee, and Shareholders’ Relationship Committee.
• A partnership firm can be a member of Section 8 Company.

Question 6.
(a) Enumerate the differences between ‘Wagering Agreements’ and ‘Contract of Insurance’ with reference to the provision of the Indian Contract Act, 1872. (5 Marks)
(b) Explain in detail the circumstances which lead to liability of firm for misapplication by partners as per provisions of the Indian Partnership Act, 1932. (4 Marks)
(c) Mike Limited company is incorporated in India and having a Liaison office at Singapore. Explain in detail the meaning of Foreign Company and analyze, whether Mike Limited would be called a Foreign Company as it established a Liaison office at Singapore as per the provisions of the Companies Act, 2013? (3 Marks)
Answer:
6. (a) See answer from Chapter 7: Void Agreement, under Unit 1: The Indian Contract Act, 1872 – Pg. 7.4, Q & Ans. 5- Differences between Wagering and Insurance Contracts.
(b) See answer from Chapter 16: Relations of Partners, under Unit 3: The Indian Partnership Act, 1932-Pg. 16.7, Q&Ans. 6-Liability of the firm for misappropriation by partners.
(c) According to Section 2(42) of Companies Act, 2013 a foreign company means any company or body corporate incorporated outside India which:
(z) has a place of business in India whether by itself or through an agent, physically or through electronic mode, and
(ii) conducts any business activity in India in any other manner.

In the given case Mike Limited is incorporated in India & having a liaison office in Singapore. Thus applying the above-stated provisions, it is evident that since Mike Limited is incorporated in India therefore it would not be called a foreign company under the Companies Act, 2013.

SECTION B – (40 MARKS)

Question 7.
(a) Mr. Ramesh, the HR Head of ABC Insurance Co. Ltd., who is having charge of training and development also, during his twelve years with the company. He had the experience of training and developing numerous employees, only to see many of them leave the firm after getting their advanced degrees. The company has a policy of reimbursement of 90% of the cost incurred on tuition fees, books, etc. for acquiring such qualifications. Only those employees who have taken prior permission of HR before enrolment in such program/degree and completed three years of service are eligible for seeking the reimbursement. A proof of its popularity was that most of the junior and middle-level managers had availed of this facility to advance their qualifications.

Mr. Kumar, a Sales Executive, who had joined the company just three years ago had also availed the aforesaid facility for pursuing a course in Business Management and had recently completed his master’s degree in business management and submitted the same to the company for seeking reimbursement and recording additional qualifications acquired in official records.

Mr. Ramesh congratulated him and added the additional qualifications acquired by him in the company records and assured him to consider him for a higher position keeping in view his qualifications in near future and of course subject to availability of vacancy as per the approved Organisation Chart. Further Mr. Ramesh allowed reimbursement of 90% of the cost incurred as per the Policy. Mr. Kumar on his achievement when he came to see and thank HR Head, but was strongly taken aback when he expressed his intention to leave the Company in favor of a competitor because he did not see any future for himself in ABC Insurance Co. Ltd. Head HR was annoyed as this had happened so many times in the past.

He immediately rushed to see the Marketing Director seek support for reviewing and discontinuing the Policy of educational reimbursement with immediate effect or to put a condition that all those employees who acquired such qualifications and reimbursed 90% of the expenses shall at least serve the Company for a minimum of 3 years after seeking such reimbursement.

• What could be the possible reasons behind employees quitting the Company after acquiring higher qualifications? (2 Marks)
• Is there any need to amend or abandon the Policy of educational reimbursement? (1 Mark)
• What measures do you suggest for overcoming the high employee attrition problem? (2 Marks)

(b) Read the Passage :

• Make Notes, using Headings, Sub-headings, and abbreviations whenever necessary, (3 Marks)
• Write Summary (2 Marks)

Recycling is simply the process of reusing the items from which utility can still be derived. It is important to recycle waste so that we can at least conserve some of our natural resources for the generations to come. Many products such as paper, cardboard, and cups come from trees. In fact, trees are our natural assets; you can conserve trees by recycling the paper products as by doing so we can minimize the number of trees cut down a year. This is one form of waste recycling.

Recycling waste will not only save our natural resources but will also help save energy. By simply recycling an item or making a basic fix to it, we can save all the energy that would have been consumed in the process of making it. The same example can be taken with plastic items. A large amount of energy can be saved by simply reusing plastic items. To recycle waste is to simply reduce pollution. By recycling plastic material, we can reduce air pollution as well as water pollution. Plastic factories produce a large amount of smoke while producing plastic material at the same time; if we don’t have a proper waste disposal system then those waste emissions will cause water pollution. Recycling helps reduce pollution too.

In simple words, recycling waste is essential for both the natural environment and humans. To sum up, recycling minimizes the need for raw materials so that the rainforests can be preserved. Great amounts of energy are used when making products from raw materials. Recycling requires much less energy and therefore helps to preserve natural resources. One needs to know the importance of recycling; at the same time being earth friendly can help make our planet a better place to live in.
Answer:
7 (a) Comprehension:
(1) The following could be the reasons behind the employees quitting the company after acquiring higher qualifications:

• Lack of suitable opportunities in ABC Insurance Co. Ltd., where the employees could apply their newly acquired skills
• Lenient policies of the company in respect of reimbursement of educational costs
• Absence of any policy providing for a minimum service period for employees after availing reimbursement of expenses for their advanced degrees.

(2) The policy of educational reimbursement followed in ABC Insurance Co.Ltd. requires an immediate amendment to containing the attrition of employees. As suggested by Mr. Ramesh, providing for a condition, whereby the employees desirous of availing reimbursement for their educational expenses shall have to compulsorily serve the company for a minimum period of 3 years after seeking such reimbursement, would prove to be remedial.

(3) The following measures can be suggested to the company to overcome the issue of high employee attrition problem:

• The company can amend its educational reimbursement policy and apply the recommendation of Mr. Ramesh and provide for a clause of minimum service of 3 years after availing reimbursement.
• The company can also revise (reduce) the percentage of reimbursement offered by it on the educational costs incurred by its employees for pursuing advanced degrees.
• The company can explore ways to create new job opportunities within the organization which not only involve the application of the skills acquired by the employees through these advanced courses but also offer them growth. This will in turn ensure greater employee retention.

(b) Note Making:
(1) Recycling and its benefits
1. Meaning of Recycling.

• process of reusing items
• imp. to cons, natural resc.
• many pap. prods, from trees
• cons, trees by recyclng. pap. prods.

2. Recylng. waste

• saves resc. & engy.
• reuse plastic items
• recylng plastic reduces air & water pollun.

3. Imprtnce. of recylng.

• essential for humans & natural environ.
• reduce need for raw matrl.
• rainfrst. can be prsrvd.
• recylng. requires less engy.
• preserves naturalresc.
• imp. to make earth better place to live in

Key:

1. Recylng – Recycling
2. imp. – important
3. cons. – conserve
4. resc. – resources
5. pap. – paper
6. prods. – products
7. pollun. – pollution
8. importance- the importance
9. environ. – environment
10. matrl. – materials
11. rainfrst- rainforest
12. prsrvd. – preserved
13. engy- energy

(2) Summary:
Recycling is the process of reusing products made from paper, plastic as well as other items so as to conserve natural resources like trees and the environment. Recycling waste will also help in saving energy and also reduce pollution of air and water which is a consequence of producing more products. Further absence of a waste disposal system also adds to the problem of pollution. Recycling minimizes the need for raw materials and helps in preserving trees and rainforests. It requires less energy and conserves natural resources for the future and makes our planet a better place to live in.

Question 8.
(a) Body language speaks the truth while the speaker may play with words to hide the truth, comment? (2 Marks)
(b) (1) Choose the word which best expresses the meaning of the given word: (1 Mark)

SCINTILLATING

1. Smouldering
2. Glittering
3. Touching
4. Warming

(2) Select a suitable antonym for the word given under : (1 Mark)
Fidelity

1. Commitment
2. Inconstancy
3. Ambitious
4. Devotion

(3) Change the following sentence to indirect speech : (1 Mark)
Varun Said, “Every Kid should learn coding”

(c) Write a precis and give an appropriate title to the passage given below : (5 Marks)
These days, it is not unusual to see people listening to music or using their .electronic gadgets while crossing busy roads or traveling on public transport, regardless of the risks involved. I have often wondered why they take such risks, is it because they want a sense of independence, or is it that they want to tell everybody to stop bothering them? Or is it that they just want to show how cool they are? Whether it is a workman or an executive, earphones have become an inseparable part of our lives, sometimes even leading to tragicomic situations.

The other day, an electrician had come to our home to repair iron. We told him in detail what the fault was and what needed to be done. But after he left, I found that the man had done almost nothing and the iron was not working even after repair. It later turned out that he could not hear our directions clearly because he had an earphone on. Many of such earphones addicts commute by the Metro every day. While one should not begrudge, anyone, their moments of privacy, or their love for music, the fact is ‘iPod oblivion’ can sometimes be very dangerous.

Recently, I was traveling with my wife on the Metro. Since the train was approaching the last station, there weren’t too many passengers. In our compartment, other than us, there were only two women sitting on the other side of the aisle. And then suddenly, I spotted a duffel bag. The bomb scare lasted for several minutes. Then suddenly, a youth emerged from nowhere and picked up the bag. When we tried to stop him, he looked at us, surprised. Then he took off his earpieces, lifted the bag, and told us that the bag belonged to him and that he was going to get off at the next station.

We were stunned but recovered in time to ask him where he was all this while. His answer was that in the compartment, leaning against the door totally involved in the music. He had no clue about what was going on around him. When he got off, earplugs in his hand, we could hear strains of the song.
Answer:
8. (a) See answer from Chapter 20: Communication, Pg. 20.7, Q & Ans. 3
(a) Body Language from Non-verbal communication.
Since body language is often an involuntary response that is an outcome of the mental and emotional state of an individual, it is difficult to control or manipulate it in comparison to spoken words which can be easily played with. Thus is true to say that ‘body language speaks the truth while the speaker may play with words to hide the truth.’
(b)

• (2) Glittering (synonym)
• (2) Inconstancy (antonym)
• Varun said that every kid should learn to code. (indirect speech)

(c) Summary: Earphones – A tragicomic accessory
Earphones have become an integral part of the lives of people nowadays, despite the risks involved. Whether the extensive use of the earphones stems from a need to look cool or to display a sense of independence or to shut out people is worth pondering. From a workman to an executive, earphones are being used by everyone irrespective of the place and time. An electrician who had come to repair iron failed to do his work effectively as he did not hear the directions, because of earphones plugged in. Many people commuting by metro, who have their earphones on, are often completely oblivious to the surroundings which can be dangerous. In another incident, a train approaching its last stop had few passengers and an abandoned duffel bag caught the attention, resulting in a bomb scare that lasted for some time. Later a young man who was in the compartment casually appeared to retrieve the bag, completely unaware of the commotion since he was immersed in music playing through his earphones.

Question 9.
(a) What is formal communication, explain. (2 Marks)
OR
Encoding the matter is an important element of communication, comments? (2 Marks)
(b) (1) Choose the word which best expresses the meaning of the given word: (1 Mark)
Concise

1. Brief
2. Better
3. Important
4. Interesting

(2) Choose the word which best expresses the meaning of the given word: (1 Mark)

Cryptic

1. Pertinent
2. Common
3. Mysterious
4. Loyalty

(3) Change the following sentence to indirect speech : (1 Mark)
“Do you suppose you know better than your own father ?” jeered his angry mother.

(c) Draft Newspaper Report on “Project to interconnect rivers in India” to be published in a national newspaper. (5 Marks)
Answer:
9. (a) See answer from Chapter 20: Communication – Pg. 20.10, Q & Ans. 6 Formal Communication (col)
The formal communication may be vertical, horizontal, or diagonal.
Vertical: Information can flow upward or downwards in the organization
Horizontal: It involves communication between two parts/departments in the organization at the same level of hierarchy.
.Diagonal: It is a cross-functional communication between the employees at different levels of the organizational hierarchy.
OR
Encoding the message implies the translation or conversion of thoughts, ideas, and feelings to be communicated into words, symbols or gestures. Encoding is essential since it is the tool used by the sender to transmit the information he intends to send to the receiver in such a manner that the message can be easily understood by him. While encoding the message, the sender must take into account, the psychological state, the context, the language capability, etc. of the receiver, so that effective communication is ensured.

Sender must have clarity of thought in respect of the message that he desires to transmit. The sender must use such language and symbols that are familiar to the intended receiver and he must step into the shoes of the receiver to visualize the impact of his intended communication on the receiver so that he can draft it more effectively. Thus encoding is an important element of communication since it gives rise to the message that is to be communicated.

(b)

• (1) Brief (synonym)
• (3) Mysterious (synonym)
• His angry mother jeered and asked whether he supposed that he knew better than his father. (indirect speech)

(c) Newspaper Report

“Project to interconnect rivers in India”
Jaswant Sharma 1 New Delhi 1 TOI 1 18.12.2020

The advocates of the rivers’ inter-linking projects claim that inter-connecting rivers in India shall provide the answers to India’s water problem. The project aims to conserve the abundant monsoon water, store it in reservoirs, and deliver; the same to various areas and overtimes when water becomes scarce, by utilizing the canals built under this project. This in turn will solve the problems of flood and will provide water uniformly throughout the year, across the country. Farmers will immensely benefit as they will not be dependent on the monsoon for water.

The Indian Rivers Inter-link is a large-scale civil engineering project that is proposed aims to effectively manage water resources in India by linking rivers by a network of reservoirs and canals to enhance irrigation and groundwater recharge, reduce persistent floods in some parts, and water shortages in other parts of India. Beyond water security, the project is also viewed as a means to develop an inland water transport system through navigation, generate more hydropower and also broaden the income opportunities in rural areas through fish farming.

The project is being managed by India’s National Water Development Agency (NWDA), set up in 1982 by Prime Minister Indira Gandhi, currently under the Ministry of Water Resources. NWDA has studied and prepared reports on 14 inter-link projects for the Himalayan component, 16 inter-link projects for the Peninsular component, and 37 intra-state river linking projects.

The idea of linking rivers was first presented by Sir Arthur Cotton, chief engineer of the Madras Presidency in 1919, 150 years ago. Thereafter many, Governments have championed this cause in their respective tenures but a lot remains to be yet accomplished. On 31 October 2002, the Supreme Court after hearing public interest litigation asked the Central Government to complete this plan expeditiously. A task force was formed under the chairmanship of Suresh Prabhu in 2003 by the then Prime Minister Atal Bihari Vajpayee and it was estimated that this project would cost about 56 billion crore rupees. In 2012, the Supreme Court again directed the Central Government to start this project in the time frame so that the project would be completed with the cost estimated.

In 2017, the Ken-Betwa link project was proposed as a part of this project, in which parts of Uttar Pradesh and Madhya a Pradesh are included at, an estimated cost of 10 thousand crores. Under this project, additional water from Madhya Pradesh will be brought to the Betwa River in Uttar Pradesh through a canal of 231 km. This will result in irrigation of one lakh 27 thousand hectares of land in Bundelkhand, as it is the most drought-affected area. The people who oppose this project are concerned about well-known environmental, ecological, social displacement impacts as well as unknown risks associated with meddling with nature. Others are concerned that these (2 Marks)

(b)

1. Change the sentence from Active to Passive Voice. (1 Mark)
   Question – The crew cleaned the entire stretch of the highway. (1 Mark)
2. Change the sentence from Passive to Active Voice. (1 Mark)
   Question – The house was remodeled by the homeowners to help it sell.
3. Change the following sentence to indirect speech. (1 Mark)
   Question – Socrates said, “Virtue is its own reward.”

(c) Write an article of about 250 words on the topic, “The Pros and cons of online education in India”. (5 Marks)
Answer:
10. (a) Listening is important in ensuring effective communication. The receiver must pay full attention to the message. He must listen for meaning and creating understanding. For communication to be effective the receiver must engage in active and participative listening. He must listen to the message attentively and also make efforts to seek clarifications where the meaning is unclear, rather than making any presumptions. The receiver must not only listen to the words but also pay attention to the body language and paralanguage to find out the true meaning of the speaker’s message. Since there are plenty of distractions, in the form of noise, alarms, bells, etc. in the environment where the communication is taking place, it is the responsibility of the listener to keep himself alert and engaged in the process of communication.

(b)

• The entire stretch of highway was cleaned by the crew. (passive)
• The homeowners remodeled the house to help it sell. (active)
• Socrates said that virtue is its own reward. (since it’s a universal truth) (indirect)

(c) Article on “Pros and cons of Online learning in India”
Learning has evolved over centuries and the diffusion of technology has certainly transformed learning across the globe. The advancement of technology has revolutionized the way education and learning is viewed world-wide and India is no exception. E-Learning has been witnessing exponential growth in India in the recent years, enabling the education to reach the students & professionals at their door-steps. As per a report published by KPMG India and Google the market of online learning in India is expected to grow 8 times from 247 million USD in 2016 to 1.96 billion USD in 2021 and the user engaged in online learning programs are estimated to grow from approx. 1.6 million in 1 2016 to 9.6 million up to the end of 2021.

The propagation of technology, availability of smart phones, increasing awareness & availability of the necessary infrastructure all have certainly paved way for this growth in online learning. But additionally some innate advantages in this mode of learning and education have propelled this growth.

The ease of learning from anywhere, at any time & place is certainly one of the prime attractions of this mode of learning. This not only enables the students to seek education from the best of the institutes across the world but also to seek tutelage from the finest of teachers and collaborate with best of the minds, This flexibility also enables working professionals to seek higher education to continuously up skill themselves along with their jobs and sharpen their competitive edge. The E- learning mode of education is also quite cost- effective as the students have to only pay for the tuition fees in respect of the courses undertaken by them. Thus it turns out to be an economical mode of learning and personal growth. The courses are usually run on ‘study at your own pace basis thereby recognizing the unique learning capabilities of the aspirants. Many courses often allow the students to customize the course as per their own unique requirements of specialization and thereby end up providing more 1 satisfaction to them.

However one of the biggest challenges of online learning is the lack of self. discipline and motivation among students to complete the online courses and to pursue them with dedication. The lack of motivation and personal touch, is one of the major reasons for high drop-out rate of candidates from these courses. Further many fraudulent educational institutes which are not duly accredited or recognized, trap innocent students into subscribing to their courses which are not worthy of investment of time and money. It is also felt that e-learning ‘ mode is unsuitable and inadequate in instances where hands-on-skill, physical training, workshops, demonstrations, live experience etc. are required to educate the candidate. Further it traditional classroom mode of learning allows greater scope of interaction, learning people skills, overall personality development and increased exposure, which is missing in the online learning mode. Thus it often hinders overall personality development.

Despite the limitations of online learning it is certainly rewarding since it opens up possibility of education for everyone. Government of India, in its Digital India initiatives, through MHRD, has also taken various steps like providing NPTEL Swayam platform etc., to strengthen the movement for online education, in India.

Question 11.
(a) Explain Wheel & Spoke network in communication. (2 Marks)
(b) Select the correct meaning of Idioms/Phrases given below :
(1) To be a mastermind (1 Mark)

1. To be a pioneer
2. To be an entrepreneur
3. To be an amateur
4. To be a villain

(2) At wit’s end (1 Mark)

1. Impoverished
2. Drained
3. Completed
4. Perplexed

(3) Change the sentence into Passive voice : (1 Mark)
Question – Will you tell me a story?

(4) Choose the word which best expresses the meaning of the given word: (1 Mark)

COMBAT

1. Conflict
2. Quarrel
3. Feud
4. Fight

(c) Write a letter to an applicant informing him about the postponement of his interview date. (4 Marks)
Answer:
11 (a) See answer from Chapter 20: Communication – Pg.20.6, Q & Ans. 2 (4) Wheel & Spoke network with diagram.

Thus this network is efficient for a small organization where all the employees get direct instructions from the owner/leader and can report back to him promptly and directly, but is extremely unsuitable for a large organization with thousands of employees and several managers. Moreover if the central figure of authority is incompetent then the entire organisation will suffer.

(b)

• (1) to be a pioneer (idiom’s meaning)
• (4) perplexed (idiom’s meaning)
• Will a story be told to me? (by you) (passive)
• (4) Fight (since combat is physical) (synonym)

(c) Letter:
To,
Rishabh Sharma,
128/478, Civil lines,
Lucknow.
Tenacious Ltd.,
Radiance Towers,
Sector 48, Nodia Date: 9.12.2020
Subject: Postponement of Interview scheduled for 15.12.2020, for the post of Accounts Manager.

Dear Rishabh,
This is to inform you, that your interview for the post of Accounts Manager scheduled for, 15th Dec. 2020, at 11:00 am, has been unfortunately postponed.

The Senior HR Manager of our company, Mr. Somesh Kaushik, who was supposed to oversee the entire process of interview and selection, will not be available on the said date due to some personal health issues.

You will be subsequently notified about the date and time of interview when it is rescheduled at our end. We are extremely sorry for the inconvenience and the delay caused and we assure you that we will reach out to you in the next few days once the dates for the interview are finalized.

Please feel free to reach out to us in case of any further query.
Thanking You,
Mr. Ved Prakash
Assistant HRM.
Tenacious Ltd.

Consignment Accounting – CA Foundation Accounts Study Material is designed strictly as per the latest syllabus and exam pattern.

Consignment Accounting – CA Foundation Accounts Study Material

Question 1.
Account sale.
Answer:
Account sale:

• Account sale is a statement sent by consignee to consignor periodically.
• It gives details of transactions entered by consignee on behalf of con-signor during that period and the final balance due.
• It also contains the quantitative details, apart from the financial transactions like Sales, Expenses incurred, Commission due & advances paid.
• On the basis of account sale the consignor records entries in his books periodically.

Question 2.
Del-Credere commission.
Answer:
Del-Credere commission and Bad debt losses:

• In normal course the bad debts loss due to credit sales is the loss of consignor (because he is the owner) and not of consignee.
• But sometimes the consignee agrees to take the risk of bad debt losses and in return he gets extra commission, known as Del Credere commission.
• Therefore, whenever Del Credere commission is payable, the bad debts loss will be borne by consignee and not the consignor.
• The Del Credere commission to be calculated on total sales and not only on credit sales unless otherwise specified.

Question 3.
Treatment of normal loss.
Answer:
Treatment of normal loss:

• We don’t have to value it or to exclude it from the consignment a/c because it is a normal loss.
• But while valuing the closing stock the cost or the expenses, which are incurred for the total quantity and which have to be considered for stock valuation will be divided by the normal quantity and not by the total quantity.
• Thus to that extent cost of good unit’s gets increased or in other words the amount of normal loss gets spread over the normal quantity.
• Normal Qty. = Total Qty. (-) Normal loss
• Scrap value of normal lost quantity should be credited to consignment A/c.
  

Question 4.
Treatment of Abnormal loss.
Answer:
Treatment of Abnormal loss:

• The valuation of abnormal loss should be made like the valuation of closing stock.
• Because it is an abnormal loss, it should not affect the normal profit shown by the Consignment A/c
• Therefore we should exclude such abnormal loss from the consignment A/c by passing following entry.
• Abnormal loss A/c Dr…. To Consignment A/c …
• The scrap value or insurance claim etc. of such abnormal lost quantity should be credited to Abnormal loss a/c & the balance left in that a/c will be transferred to P&L A/c.

Question 5.
Overriding commission.
Answer:
Overriding commission:

• Overriding commission is the extra/additional commission given over and above the normal commission.
• Like for taking the risk of bad and doubtful debts the del credere com-mission is given.
• For selling at higher prices, some % of extra price realized (may be selling price – invoice price) is given.
• Similarly for developing market for new product or selling in new areas extra commission can be given.
• Even higher commission may be offered in lieu of reimbursement of certain selling and administrative expenses.

Question 6.
Advance Vs Security Deposit from consignee.
Answer:
Advance Vs Security Deposit from consignee:
Some times consignee may pay advance at the start or during the period. No special treatment is required it will be credited to consignee and will get adjusted from the amount due on account of sale. But when it is kept as security deposit for goods, then the amount proportionate to closing stock should remain as security deposit at the end i.e. full amount should not get adjusted. It can be treated as security deposit when it is given as some percentage of the value of goods sent to consignee.

Question 7.
Mr. R consigned 10,000 litres of oil @₹ 3 per litre and paid ₹ 2,000 as forwarding expenses. Mr. S, agent of Mr. R received the stock and sold 6,000 litres @ ₹ 6 per litre, and paid ₹ 1,000 as selling expenses. He was entitled for 10% commission on sales. There was a normal loss of 2%. Prepare Consignment account in the books of Mr. R.
Solution:
Consignment Account

Working Note:
1. Calculation of Closing Stock

Question 8.
Mr. A consigned 200 cycles @ ₹ 500 each and paid ₹ 3,000 on freight. During the transit 20 cycles were lost by theft. Mr. B received the remaining stock and paid ₹ 3,600 on its clearing. He sold 150 cycles @ 2 800 per cycle. He was entitled for 10% commission on sales. He paid ₹ 5,000 as miscellaneous expenses. Prepare Consignment Account in books of Mr. A.
Solution:
Consignment Account:

Working Notes:

Question 9.
A consigned 10,000 kg. of oil @₹ 20 per kg. and paid ₹ 4,000 as forwarding expenses. B received the Consignment and sold 6,000 kg @ 50 per kg. He paid ₹ 10,000 as selling expenses. He was entitled for 5% Commission on Sales. He informed that 1,000 kg. of oil was destroyed by fire. There was a normal loss of 2%. Prepare Consignment A/c in the books of A.
Solution:
Consignment Account:

Working Note:
1. Calculation of Abnormal Loss:

2. Calculation of Stock on Consignment (at invoice price):

Question 10.
A Company consigned 200 boxes of ₹ 100 each at an invoice price of ₹ 120 per box. The Company paid ₹ 1200 as forwarding expenses. Agent received the consignment and paid ₹ 800 on carriage, ₹ 1000 on godown rent & charged 10% commission on sales. He sold 150 boxes @ ₹ 200 per box. He informed that 20 boxes were lost by theft in godown. Prepare Consignment Account in the books of the Company.
Solution:
Consignment Account:

Working Note:

Question 11.
Somesh of Calcutta consigned 100 cases of candles to Sailesh of Bankura. Which cost him ₹ 30 per case. He incurred the following costs packing ₹ 40 carriage ₹ 20 and Railway Freight (paid in advance) ₹ 40. Some of the cases were damaged in transit and Sailesh took delivery of 90 cases only. He (Sailesh) spent ₹ 10 for carriage and₹ 40 for godown rent and sold consignment at₹ 35 per case. He sent the net amount to Somesh after deducting his expenses and commission at the rate of 5 per cent on the sale proceeds together with his Account sales. Somesh also received ₹ 180 from the Railway as damages. Show how the transactions would appear in the books of Somesh.
Solution:
In the book of Somesh (consignor)
Consignment Account

With the freight, words ‘paid in advance’ is written it should not be mis-understood as ‘prepaid’ which means for the next financial year. Here it is paid before the journey starts hence advance is written, but it is for this consignment only and hence treated as expense.
Sailesh Account (Consignee):

Goods sent on consignment A/c:

To Trading A/c	3,000	By Consignment A/c	3,000
	3,000		3,000

Abnormal loss A/c

To Consignment A/c	310	By Cash (claim from Railway) By Net abnormal Loss trf. to P&L A/c	180 130
	310		310

Calculation:

	Abnormal Loss (10 Cases)
Basic cost @ (\(\frac {3,000}{10}\) = 30) Freight, packing @  (\(\frac {100}{100}\) = 1)	300 10
Total cost	310

In the books of Sailesh (Consignee)
Somesh (Consignors) a/c

Commission a/c

Particulars	₹	Particulars	₹
To P&L a/c (income transferred)	158	By Somesh a/c	158
	158		158

Question 12.
The Swastik Oil Mills, Bombay, consigned 10,000 Kg. of Castor Oil to Dass of Calcutta on 1st April 2006. The cost of the oil was ₹ 2 per Kg. The Swastik Oil Mills paid ₹ 5,000 as freight and insurance. During transit 250 Kg. were accidentally destroyed for which the insurers paid, directly to the consignors, ₹ 450 in full settlement of the claim.

Dass took delivery of the consignment on the 10th April. On 30th June, 2006, Dass reported that 7,500 Kg. were sold at ₹ 300 the expenses being on godown rent ₹ 200/- on advertisement ₹ 1,000 and on salesman’s ₹ 2,000. Dass is entitled to a commission of 3 per cent plus 1.5 per cent del credere. A party which had bought 1,000 was able to pay only 80% of the amount due from it.

Dass reported a loss of 100 kg. as handling loss. Assuming that Dass paid the amount due by bank draft, show the account in the books of both the parties. The Swastik Oil Mills Ltd. close books on 30th June.
Solution:
In the Books of Consignor
Consignment account

Dass (consignee) account

Goods sent on consignment account

To Trading A/c	20,000	By Consignment A/c	20,000
	20,000		20,000

Consignment stock account

To Consignment A/c	5,429	By balance c/d	5,429
	5,429		5,429

Abnormal loss account

Calculation: Normal quantity = Total qty. – Normal loss = 10000 – 100 = 9900 Closing stock = Total qty.- sold – lost = 10,000 – 7,500 – 250 – 100 = 2,150

In the book of Dass (consignee) Consignor (Swastik oil mill) account

Bad debt account

Commission account

To P&L A/c	1,013	By Consignor A/c	1,013
	1,013		1,013

Question 13.
A cotton Mill at Ahmedabad sends regular consignments of cloth to M/s. Lall & Sons of Lucknow who are agents for selling the cloth at the risk of the Mill and are entitled to a commission of 10 paise per Kg. cloth sold. This includes del credere commission.
Stock of cloth with agents at the beginning 20,000 kg. costing 50,000/-
Total quantity of cloth consigned 1,60,000 kg. at ₹ 3.00 per Kg.
Total Quantity of cloth sold 1,50,000 kg. at ₹ 3.75 per kg.
Total remittances by the agents ₹ 5,10,000.
Railway Freight paid by the agents ₹ 40,000 of sales. M/s Lall & Sons could not collect ₹ 11,000 due to insolvency of a customer.
5,000 of cloth was damaged by the railway for which the agents recovered ₹ 6,000. The damaged goods were sold at the rate of ₹ 1.50 per kg. Record the transactions in the books of the Mill.
Solution:
In the books of cotton mill, Ahmedabad (consignor) account
Consignment Account

M/s. Lall & Sons, Lucknow (Consignee) Account

Goods Sent on Consignment A/c

Particulars	₹	Particular	₹
To Trading A/c	4,80,000	By Consignment A/c	4,80,000

Abnormal loss Account

Consignment stock Account

To Consignment A/c

81,250

By Balance c/f

81,250

Valuation (FIFO method)

Question 14.
On 1st January, 2006 Lila & Co. of Calcutta consigned 100 cases of Milk Powder to Shila & Co. of Bombay. The goods were charged at a proforma invoice value of ₹ 10,000 including a profit of 25% on invoice price. On the same date the consignor paid ₹ 600 for freight and insurance.

On 1st July, the consignees paid import duty ₹ 1,000, dock dues ₹ 200. On 1st August, they sold 80 cases for ₹ 10,500 and sent a remittance for the balance due to the consignor after deducting commission at the rate of 5% on gross sale proceeds. Show the Consignment Account and Shila & Co’s Account in Lila & Co’s Book.
Solution:
Lila & Co’s Ledger
Consignment to Bombay Account

Shila & Co’s Account

Goods sent on Consignment Account

Consignment Stock Account

Particulars	₹	Particular	₹
To Consignment a/c	2,360	By Balance c/f	2,360
	2,360		2,360

Stock Reserve Account

Particulars	₹	Particular	₹
To Balance c/f	500	By Consignment A/c	500
	500		500

Working Notes:

	₹
(i) Loading on goods sent on consignment 25% on ₹ 10,000	2,500
(ii) Loading on Closing Stock 25% on ₹ 2,000	500
(iii) Direct expenses included in valuation of closing stock 1/5 of ₹ 1,800(600 + 1000 + 200)	360

Question 15.
On 1st January, 2006, Pawan sent on consignment to Raman, 10 cases of tea costing ₹ 5,000 each invoiced proforma at ₹ 6,000 each. Freight and other charges on the consignment amounted to ₹ 3,100.
On 31st March, 2006, Raman sent an account sales showing that 4 cases had been sold at ₹ 6,000 each and 3 cases at ₹ 7,000 each while 3 cases remained unsold. Raman also informed Pawan that of the three cases remaining in stock, two cases were badly damaged due to bad packing and that they would be sold at ₹ 3,000 per case (take as NRV).

Raman was entitled to a commission of 5% on gross sales which included del credere commission. Raman could recover ₹ 4,000 only from a customer to whom one case had been sold on credit for ₹ 6,000. Amount of all other sales were duly received. On 31st March, 2006, Raman paid the amount due to Pawan by means of a cheque.
Prepare the ledger accounts in the books of Pawan & Raman.
Solution:
In the books of Pawan (consignor)
Consignment Account

Raman (Consignee) Account

Goods sent on Consignment Account

Abnormal Loss Account

Note: Expected sale value of damaged goods ₹ 3,000 is assumed as net real¬izable value.
Consignment Stock Account

Particulars	₹	Particular	₹
To Consignment A/c	6,310	By Balance c/f	6,310
	6,310		6,310

Stock Reserve Account

Particulars	₹	Particular	₹
To Balance c/f	1,000	By Consignment A/c	1,00
	1,000		1,00

In the books of Raman (consignee)
Pawan (Consignor) Account

Commission Account

Particulars	₹	Particular	₹
To Profit & loss a/c	2,250	By Pawan a/c	2,250
	2,250		2,250

Debtors Account

Bad debt Account

Particulars	₹	Particular	₹
To Debtors a/c	2,000	By P&L a/c	2,000
	2,000		2,000

Note:
(i) Del credere commission is being paid, hence bad debt loss ₹ 2,000/- is to be born by Raman (consignee).

(ii) In the balance sheet stock will be:

Question 16.
D of Delhi appointed A of Agra as its selling agent on the following terms:
(a) Goods to be sold at invoice price or over.
(b) A to be entitled to a commission of 7.5% on the invoice price and 20% of any surplus price realised.
(c) The principal to draw on the agent a 30 days bill for 80% of the invoice price.
On 1st February, 2006, one thousand cycles were consigned to A, each cycle costing ₹ 640 including freight and invoiced at ₹ 800.

Before 31st March, 2006 (when the principal’s books are closed) A met his acceptance on the due date; sold of 820 cycles at an average price of ₹ 930 per cycle, the sale expenses being ₹ 12,500; and remitted the amount due by means of Bank Draft.

Twenty of the unsold cycles were shop-sold and were to be valued at a depreciation of 50%.
Show by means of ledger accounts how these transactions would be recorded in the books of D, and find out the value of closing stock with A at which value D will account for the balance stock.
Solution:
In the Books of ‘D’ (Consignor)
Consignment Account

A (Consignee) Account

B. R. Account

Particulars	₹	Particular	₹
To A	6,40,000	By Bank a/c	6,40,00
	6,40,000		6,40,00

Commission Calculation :

Question 17.
X of Delhi Purchased 10,000 meters of cloth for ₹ 2,00,000 of which 5,000 meters were sent on consignment to Y of Agra at the selling price of ₹ 30 per meter. X paid ₹ 5,000 for freight and ₹ 500 for packing etc.
Y sold 4,000 meters at ₹ 40 per meter and incurred ₹ 2,000 for selling expenses.
Y is entitled to a commission of 5% on total sale proceeds plus a further 20 per cent on any surplus price realized over ₹ 30 per meter.
3,000 meters were sold at Delhi at ₹ 30 per meter less ₹ 3,000 for expenses and commission. Owing to fall in market price, the stock of cloth in hand is to be reduced by 10 per cent.
Prepare the Consignment Account and Trading and Profit & Loss Account and Y Account in Books of X.
Solution:
In the books of X (consignor)
Consignment Account

Goods Sent on Consignment Account

Trading and P & L Account

(i) Calculation

(ii) Valuation of stock (unit 1000)

Kale is entitled to a commission of 5 per cent on sales including del credere commission of 1%. Kale sold 20 bicycles on credit and was not able to recover sale proceeds of 5 bicycles because of insolvency of the debtor. Give Ledger account in the books of H. Ltd. who close their accounts on 31st December.
Solution:
In the book of H. Ltd. (consignor)
Consignment account

Kale’s account

Goods sent on consignment account

Consignment stock account

To Consignment A/c	4,200	By Balance c/d	4,200
	4,200		4,200

Stock reserve account

By balance c/d	1,000	By Consignment A/c	1,000
	1,000		1,000

Bills Receivable account

To Kale A/c	1,000	By Cash/Bank A/c	1,000
	1,000		1,000

Valuation of stock

Note:

• In the book of consignee there will be no change in accounts prepared in case of Invoice Price Method because closing stock & goods sent on Consignment have no entry in book of consignee.
• Abnormal loss will be calculated at cost price only and not at invoice price.
• In balance sheet stock – stock reserve i.e. 4,200 – 1,000 = 3,200 will be shown.

Question 19.
Mr. A of Mumbai consigned 100 units of a commodity to Mr. R of Delhi. The goods were invoiced at ₹ 150 so as to yield a probt of 5096 on cost. Mr. A incurred ₹ 1,000 on freight and insurance. Mr. R incurred ₹ 500 on freight and ₹ 800 on rent. He sold 50 units for cash at ₹ 160 per unit and 20 units for ₹ 175 per unit on credit. He retained his commission of 5 per cent and 1 per cent of the del-credere arrangements and remitted the balance on 31st March, 2000.

Mr. R noticed that 10 units were damaged on account of bad packing and he could sell them only for ₹ 80 per unit after 31st March. A debtor for ₹ 1000 to whom goods were sold by Mr. R became insolvent and only ₹ 0.50 in a rupee was recovered Mr. R sent an account sale on 31 st March, 2000 detailing transactions for the quarter ended on that date and remitted the balance due. Make necessary ledger accounts in the books of Mr. A assuming that Mr. A closes the books every 31st March.
Solution:
Ledger of Mr. A
Consignment to Delhi Account

Goods sent on consignment Account

R’s Account

Working notes:

Question 20.
Shri Ganpath of Nagpur consigns 500 cases of goods costing ₹ 1,500 each to Rawat of Jaipur. Shri Ganpath pays the following expenses in connection with the consignment:

Particulars	₹
Carriage Freight Loading Charges	15,000 45,000 15,000

Shri Rawat sells 350 cases at ₹ 2,100 per case and incurs the following expenses:
Clearing charges – 18,000
Warehousing and Storage charges – 25,000
Packing and selling expenses – 7,000

It is found that 50 cases were lost in transit and another 50 cases were in transit. Shri Rawat is entitled to a commission of 10% on gross sales. Draw up the Consignment Account and Rawat’s Account in the books of Shri Ganpath.
Solution:
In the books of Shri Ganpath
Consignment to Rawat of Jaipur Account

Considered as abnormal loss.
The goods in transit (50 cases) have not yet been cleared. Hence the proportionate clearing charges on those goods have not been included in their value.
Rawat’s Account

Working Notes:

• Consignor’s expenses on 500 cases amounts to ₹ 75,000; it comes to ₹ 150 per case. The cost of cases lost will be computed at 11,650 per case.
• Rawat has incurred ₹ 18,000 on clearing 400 cases, i.e., ₹ 45 per case; while valuing closing inventories with the agent 145 per case has been added to cases in hand with the agent.
• It has been assumed that balance of ₹ 6,11,500 is not yet paid.

Question 21.
Raj of Gwalior consigned 15,000 kgs. of Ghee at ₹ 30 per kg. to his agent Siraj at Delhi. He spent ₹ 5 per kg. as freight and insurance for sending the Ghee at Delhi. On the way 100 kgs. of Ghee was lost due to the leakage (which is to be treated as normal loss) and 400 kgs. of Ghee was destroyed in transit ₹ 9,000 was paid to consignor directly by the Insurance company as Insurance claim.
Siraj sold 7,500 kgs. at ₹ 60 per kg. He spent ₹ 33,000 on advertisement and recurring expenses.
You are required to calculate:
(i) The amount of abnormal loss.
(ii) Value of stock at the end and
(iii) Prepare Consignment account showing profit or loss on consignment, if Siraj is entitled to 5% commission on sales.
Solution:
In the Books of Raj
Consignment A/c

Note:
1. Value of stock per kg after treatment of normal loss:

Rate per kg. = \(\frac { 5,25,000 }{ 14,900 kg }\) = ₹ 35.2348

Note:
2. Abnormal Loss in Transit:

Note:
3. Valuation of Stock:
7000 kg. x 35.2348 = ₹ 2,46,644

True or False

Question 1.
The additional commission to the consignee who agrees to bear the loss on account of bad debts is called overriding commission.
Answer:
False: The additional commission to the consignee who agrees to bear the loss on account of bad debts is called del-credere commission.

Question 2.
The relationship between consignor and consignee is that of principal and agent.
Answer:
True: The relationship between consignor and consignee is that of prin-cipal and agent.

Question 3.
In consignment, the goods are dispatched on the basis that the goods will be sold on behalf of, at the expense of and at the risk of the consignee.
Answer:
False: In a consignment business, goods are generally sold on behalf of, at the expense of and at the risk of the consignor as per its basic characteristic.

Question 4.
Account sales is the statement sent by the consignor to the consignee.
Answer:
False: Account sales is a statement sent by the consignee to consignor, showing the information of sales expenses incurred on behalf of the consignor, the commission earned by the consignee, any advance given to the consignor and the balance due to the consignor.

Question 5.
Loss of stock is said to be normal loss when such loss is not due to inherent characteristics of the commodities.
Answer:
False: Loss due to inherent characteristics of goods is treated as normal loss.

Question 6.
Loss of stock is said to be abnormal loss when such loss is due to inherent characteristics of the commodities.
Answer:
False: Loss incurred by accidents like loss by fire, loss by theft, abnormal spoilage etc., is treated as abnormal loss.

Question 7.
If the consignee is not authorized to get the del-credere commission, then he is liable for all losses on account of non-recovery of debts.
Answer:
False: If the consignee is not authorized to get the del-credere commission, then he is not responsible for any losses on account of non-recovery of debts.

Question 8.
Consignee has no right in the profit on goods sent on consignment.
Answer:
True: The consignee being an agent is entitled for commission only and not for share in profit.

Question 9.
If Del-credere commission is paid to consignee, the loss of bad debts is to be borne by the consignor.
Answer:
False : If Del-credere commission is paid to consignee, then loss of bad debts will be borne by consignee only.

Question 10.
In case of consignment sale, ownership of goods will be transferred to consignee at the time of receiving the goods.
Answer:
False: In case of consignment sale, ownership of goods is not transferred to consignee as per the contract of agency.

Students should practice CA Foundation Economics Chapter 3 MCQs Theory of Production and Cost – CA Foundation Economics MCQ with Answers based on the latest syllabus.

Theory of Production and Cost CA Foundation MCQ Economics Chapter 3

1. What is Production is Economics:
(a) Creating/Addition of Utility
(b) Production of food grains
(c) Creation of services
(d) Manufacturing of goods
Answer:
(a) Creating/Addition of Utility

2. Which of the following is considered as production in economics?
(a) Helping a blind person in crossing the road
(b) Group dance performance in a college annual function
(c) Holding a child who is falling from a wall
(d) Performing an art in a theatre
Answer:
(d) Performing an art in a theatre

3. Which of the following is considered production in Economics?
(a) Tilling of soil.
(b) Singing a song before friends.
(c) Preventing a child from falling into a manhole on the road.
(d) Painting a picture for pleasure.
Answer:
(a) Tilling of soil.

4. Which of the following statements is true?
(a) The services of a doctor are considered production.
(b) Man can create matter.
(c) The services of a housewife are considered production.
(d) When a man creates a table, he creates matter.
Answer:
(a) The services of a doctor are con-sidered production.

5. In Economics, entire process of ________ is nothing but creation of utilities in the form of goods and services.
(a) Consumption
(b) Production
(c) Exchange
(d) Distribution
Answer:
(b) Production

6. Production is defined as:
(a) Creation of matter
(b) Creation of utility in matter
(c) Creation of infrastructural facilities
(d) None of the above
Answer:
(b) Creation of utility in matter

7. According to ________, Production is the organized activity of transforming resources into finished products in the form of goods and services, and the objective of production is to satisfy the demand of such transformed “resources”.
(a) James Bates
(b) J.R. Parkinson
(c) Marshall
(d) Both (a) and (b)
Answer:
(d) Both (a) and (b)

8. ________ to exchange in the market is an essential component of production.
(a) Intention
(b) Ability
(c) Capacity
(d) Possibility
Answer:
(a) Intention

9. Production does not include work done ________.
(a) Within a household out of love & affection
(b) Voluntary services
(c) For self consumption
(d) All of the above.
Answer:
(d) All of the above.

10. Factors of production refer to :
(a) Inputs
(b) Outputs
(c) Both (a) & (b)
(d) Either (a) or (b)
Answer:
(a) Inputs

11. ________ are the factors or resources which make it possible to produce goods and services.
(a) Land, Labour, and Bank
(b) Capital, Owner and manpower
(c) Land, Labour and Entrepreneurial ability
(d) Land, Labour, Capital and Entre preneurial ability
Answer:
(d) Land, Labour, Capital and Entre preneurial ability

12. Which of the following factors of production is a free gift of nature and refers to Natural resources?
(a) Land
(b) Labour
(c) Capital
(d) Entrepreneurial Ability
Answer:
(a) Land

13. Which of the following is not a characteristic of land?
(a) Its supply for the economy is limited.
(b) It is immobile.
(c) Its usefulness depends on human efforts.
(d) It is produced by our forefathers.
Answer:
(d) It is produced by our forefathers.

14. Which of the following is not a characteristics of Land?
(a) It is a free gift of nature
(b) It is a mobile factor of production
(c) It is limited in quantity
(d) Its productive power is indestruc-tible
Answer:
(b) It is a mobile factor of production

15. Which among the following is not a characteristic of land?
(a) It is an active factor
(b) It has variety of uses
(c) Its production powers are inde-structible
(d) Its supply is limited
Answer:
(a) It is an active factor

16. Which of the following statement about factors of production is not true?
(a) Land is a passive factor
(b) Land is a free gift of nature
(c) Land is immobile
(d) Land is perishable
Answer:
(d) Land is perishable

17. No two pieces of land and alike. They differ in fertility and situation. Therefore, Land is ________.
(a) Homogenous
(b) Heterogeneous
(c) Bitrogeneous
(d) None of these.
Answer:
(b) Heterogeneous

18. Which of the following is correct about Land?
(a) It is mobile
(b) It has single use
(c) Its supply is fixed
(d) It is homogeneous.
Answer:
(c) Its supply is fixed

19. The total supply of Land is ________ from the point of view of the economy. However, it is relatively ________ from the point of view of a firm.
(a) Perfectly Inelastic, Inelastic
(b) Perfectly Inelastic, Relatively Elastic
(c) Perfectly Elastic, Inelastic
(d) Perfectly Elastic, elastic
Answer:
(b) Perfectly Inelastic, Relatively Elastic

20. Labour force wants more ________
(a) Facility
(b) Leisure
(c) Benefit
(d) All of the above
Answer:
(b) Leisure

21. Which of the following is not a characteristic of labour?
(a) It is perishable
(b) It has weak bargaining power
(c) Labour and Labour power cannot be separated
(d) Labour is not mobile
Answer:
(d) Labour is not mobile

22. The labour power or efficiency of labour depends upon the ________
(a) Laborer’s inherent and acquired qualities.
(b) Features of work environment
(c) Incentive to work
(d) All of the above.
Answer:
(d) All of the above.

23. Labour is highly perishable in the sense that ________.
(a) A labourer cannot store his labour.
(b) The life of labour is short.
(c) The labourer sells his labour against wages, but retains the capacity to work.
(d) The labour is always low priced.
Answer:
(a) A labourer cannot store his labour.

24. Without the active participation of labour, land and capital may not produce anything. It means labour is factor.
(a) Passive
(b) Active
(c) Working
(d) Executing
Answer:
(b) Active

25. Human capital refers to:
(a) Savings by individuals
(b) Mobilisation of saving
(c) Human skills and abilities
(d) Productive investment
Answer:
(c) Human skills and abilities

26. ________ Capital performs its function is production in a single use and is not available for future use.
(a) Circulating
(b) Fixed
(c) Tangible
(d) Human
Answer:
(a) Circulating

27. Which one of the following may be regarded as a part of social capital?
(a) Roads
(b) Bridges
(c) Machinery
(d) Both (a) & (b)
Answer:
(d) Both (a) & (b)

28. The three stages of capital forma-tion are :
(a) Savings, Mobilization of Savings and investment
(b) Mobilization of Saving, Savings, and investment
(c) Investment, Saving and mobiliza-tion of Saving
(d) Saving, Investment and mobiliza-tion of savings.
Answer:
(a) Savings, Mobilization of Savings and investment

29. ________ means a sustained increase in the stock of real capital in a Country.
(a) Capital formation
(b) Savings
(c) Mobilization of Savings
(d) Mobilization of Capital
Answer:
(a) Capital formation

30. Which one of the following statements is not correct?
(a) Land has indestructible powers
(b) Labour is mobile
(c) Capital is nature’s gift
(d) Land is a passive factor.
Answer:
(c) Capital is nature’s gift

31. Functions of the entrepreneur are:
(a) Risk bearing
(b) Initiating a business enterprise and resource co-ordinating
(c) Introducing new innovations
(d) All of the above
Answer:
(d) All of the above

32. An Entrepreneur undertakes which one of the following functions?
(a) Initiating a business and resource co-ordination
(b) Risk or uncertainty bearing
(c) Innovations
(d) All of the above
Answer:
(d) All of the above

33. Innovation theory of entrepreneur-ship is propounded by:
(a) Knight
(b) Schumpeter
(c) Max Weber
(d) Peter Drucker
Answer:
(b) Schumpeter

34. The most important function of an entrepreneur is to ________.
(a) Innovate
(b) Bear the sense of responsibility
(c) Finance
(d) Earn profit
Answer:
(a) Innovate

35. Who has given the concept of Innovative Entrepreneurship?
(a) Robbins
(b) Adam Smith
(c) Schumpeter
(d) Sweezy
Answer:
(c) Schumpeter

36. The basic minimum objective of all kinds of enterprises is to survive or to stay alive. It may be regarded as ________ objective of the enterprise.
(a) Organic
(b) Economic
(c) Social
(d) National
Answer:
(a) Organic

37. ________ objective implies the profit maximizing behaviour of the firm.
(a) Organic
(b) Economic
(c) Social
(d) National
Answer:
(b) Economic

38. ________ mobilizes factors of production, combines them in the right proportion, initiates the process of production and bears the risks in¬volved in it.
(a) Businessman
(b) Manager
(c) CEO
(d) Entrepreneur
Answer:
(d) Entrepreneur

39. Which one of the following function is performed by entrepreneur?
(a) Initiating Business Enterprise and resource Co-ordination
(b) Risk-bearing or uncertainty bear¬ing
(c) Innovations
(d) All of the above.
Answer:
(d) All of the above.

40. According to ________, the true function of an entrepreneur is to introduce innovations.
(a) Schumpeter
(b) Peter Ducker
(c) Paul Samuelson
(d) None of the above.
Answer:
(a) Schumpeter

41. Which of the following is the best definition of “production function”?
(a) The relationship between market price and quantity supplied.
(b) The relationship between the firm’s total revenue and the cost of production.
(c) The relationship between the quantities of inputs needed to produce a given level of output.
(d) The relationship between the quantity of inputs and the firm’s marginal cost of production.
Answer:
(c) The relationship between the quantities of inputs needed to produce a given level of output.

42. A production function is defined as the relationship between ________.
(a) The quantity of physical inputs and physical output of a firm
(b) Stock of inputs and stock of output
(c) Prices of inputs and output
(d) Price and supply of a firm
Answer:
(a) The quantity of physical inputs and physical output of a firm

43. The production function is a rela-tionship between a given combination of inputs and:
(a) Another combination that yields the same output.
(b) The highest resulting output.
(c) The increase in output generated by one-unit increase in one output.
(d) All levels of output that can be generated by those inputs.
Answer:
(b) The highest resulting output.

44. What is a production function?
(a) Technical relationship between physical inputs and physical output.
(b) Relationship between fixed factors of production and variable factors of production.
(c) Relationship between a factor of production and the utility created by it.
(d) Relationship between quantity of output produced and time taken to produce the output.
Answer:
(a) Technical relationship between physical inputs and physical output.

45. Production function is:
(a) Purely a technical relationship between input & output
(b) Purely an economic relationship between input & output
(c) Both the technical &economical relationship between input & output
(d) None of the above
Answer:
(a) Purely a technical relationship between input & output

46. The production function:
(a) Is the relationship between the quantity of inputs used and the resulting quantity of product.
(b) Tells us the maximum attainable output from a given combination of inputs.
(c) Expresses the technological relationship between inputs and output of a product.
(d) All the above.
Answer:
(d) All the above.

47. ________ shows the overall output generated at a given level of input:
(a) Cost function
(b) Production function
(c) ISO cost
(d) Marginal rate of technical substitution
Answer:
(b) Production function

48. Which function shows relationship between input and output?
(a) Consumption function
(b) Investment function
(c) Production function
(d) Cost function
Answer:
(c) Production function

49. Which of the following statements is true?
(a) After the inflection point of the production function, a greater use of the variable input induces a reduction in the marginal product.
(b) Before reaching the inevitable point of decreasing marginal returns, the quantity of output obtained can increase at an increasing rate.
(c) The first stage corresponds to the range in which the AP is increasing as a result of utilizing increasing quantities of variable inputs.
(d) All the above.
Answer:
(d) All the above.

50. Which one of the following is the assumption underlying any production function?
(d) Relationship between inputs and outputs exists for a period of time.
(b) There is a given “State -of- the act” in the production technology.
(c) Whatever input combinations one included in a particular function, the output resulting from their utilization is at the maximum level.
(d) All of the above.
Answer:
(d) All of the above.

51. The short run, as economists use the phrase, is characterized by:
(a) At least one fixed factor of pro-duction and firms neither leaving nor entering the industry.
(b) Generally a period which is shorter than one vear.
(c) All factors of production are fixed and no variable inputs.
(d) All inputs are variable and pro-duction is done in less than one year.
Answer:
(a) At least one fixed factor of pro-duction and firms neither leaving nor entering the industry.

52. To economists, the main difference between the short run and the long run is that:
(a) In the short run all inputs are fixed, while in the long run all inputs are variable.
(b) In the short run the firm varies all of its inputs to find the least-cost combination of inputs.
(c) In the short run, at least one of the firm’s input levels is fixed.
(d) In the long run, the firm is making a constrained decision about how to use existing plant and equip¬ment efficiently.
Answer:
(c) In the short run, at least one of the firm’s input levels is fixed.

53. In describing a given production technology, the short run is best described as lasting:
(a) Up to six months from now.
(b) Up to five years from now.
(c) As long as all inputs are fixed.
(d) As long as at least one input is fixed.
Answer:
(d) As long as at least one input is fixed.

54. In the short run, the firm’s product curves show that ________
(a) Total product begins to decrease when average product begins to decrease but continues to increase at a decreasing rate.
(b) When marginal product is equal to average product, average product is decreasing but at its highest.
(c) When the marginal product curve cuts the average product curve from below, the average product is equal to marginal product.
(d) In stage two, total product increases at a diminishing rate and reaches maximum at the end of this stage.
Answer:
(d) In stage two, total product increases at a diminishing rate and reaches maximum at the end of this stage.

55. Long period production function is related to:
(a) Law of variable proportions
(b) Laws of returns to scale
(c) Law of diminishing returns
(d) None of the above
Answer:
(b) Laws of returns to scale

56. Long-run does not have:
(a) Average Cost
(b) Total Cost
(c) Fixed Cost
(d) Variable Cost
Answer:
(c) Fixed Cost

57. A fixed input is defined as ________.
(a) That input whose quantity can be quickly changed in the short run, in response to the desire of the company to change its production.
(b) That input whose quantity cannot be quickly changed in the short run, in response to the desire of the company to change its production.
(c) That input whose quantities can be easily changed in response to the desire to increase or reduce the level of production.
(d) That input whose demand can be easily changed in response to the desire to increase or reduce the level of production.
Answer:
(b) That input whose quantity cannot be quickly changed in the short run, in response to the desire of the company to change its production.

58. In the long run, if a very small factory were to expand its scale of operations, it is likely that it would initially experience ________
(a) An increase in pollution level.
(b) Diseconomies of scale.
(c) Economies of scale.
(d) Constant returns to scale.
Answer:
(c) Economies of scale.

59. Paul Douglas and Cobb studied the production function of the ________ manufacturing industries.
(a) American
(b) Japanese
(c) British
(d) Asian
Answer:
(a) American

60. In its original form, the Cobb- Douglas production function applies:
(a) To individual firm
(b) To selected Firms
(c) To whole of manufacturing in the USA
(d) None of the above.
Answer:
(c) To whole of manufacturing in the USA

61. In Cobb-Douglas production function, two inputs are:
(a) Land and Labour
(b) Labour and Capital
(c) Capital and Entrepreneur
(d) Entrepreneur and land
Answer:
(b) Labour and Capital

62. The famous Cobb-Douglas production function is based on studies of ________ industries in the United States of America.
(a) Manufacturing
(b) Construction
(c) Consumer
(d) Aviation
Answer:
(a) Manufacturing

63. If Cobb-Douglas function is given by Q = KL^aC^b, then there will be ________ when (a+b) ________.
(a) Increasing returns, > 1
(b) Increasing returns to scale, > 1
(c) Diminishing returns, < 1
(d) Decreasing returns to scale, = 1
Answer:
(b) Increasing returns to scale, > 1

64. The conclusion drawn from Cobb-Douglas production function is that labour contributed about ________ and capital about ________ of the increase in the manufacturing production.
(a) \(\frac{3^{\text {rd }}}{4}, \frac{1^{\text {st }}}{4}\)
(b) \(\frac{1}{2}, \frac{1}{2}\)
(c) \(\frac{1^{\text {th }}}{4}, \frac{3^{\text {th }}}{4}\)
(d) None of the above
Answer:
(b) \(\frac{1}{2}, \frac{1}{2}\)

65. According to Cobb-Douglas pro-duction function, will get ________ returns to scale?
(a) Constant
(b) Diminishing
(c) Increasing
(d) Any of the above
Answer:
(a) Constant

66. What will be the total product when two labourers are hired according to the table given below?

No. of labourers	Total Product	Marginal product
0	—	—
1	350	350
2	—	250

(a) 680
(b) 580
(c) 350
(d) 230
Answer:
(b) 580

67. Consider the following table:

Labour	Total Output	Marginal Product
0
1	100	100
2		80
3	240

(a) 80
(b) 100
(c) 180
(d) 200
Answer:
(c) 180

68. ________ is the total output resulting from the efforts of all the fac-tors of production combined together at any time.
(a) Total Product
(b) Average Product
(c) Marginal Product
(d) None of the above.
Answer:
(a) Total Product

69. Average product is defined as ________
(a) Total product divided by the total cost.
(b) Total product divided by marginal product.
(c) Total product divided by the number of units of variable input.
(d) Marginal product divided by the number of units of variable input.
Answer:
(c) Total product divided by the number of units of variable input.

70. Suppose the first four units of a variable input generate corresponding total outputs of 200, 350, 450, 500. The marginal product of the third unit of input is:
(a) 50
(b) 100
(c) 150
(d) 200
Answer:
(b) 100

71. Use the following diagram to answer the question given below it

The marginal physical product of the third unit of labour is ________, the MP of the ________ labour is Negative
(a) Six; fourth
(b) Six; third
(c) Six; fifth
(d) Six; sixth
Answer:
(c) Six; fifth

72. At the point of inflexion, the marginal product is:
(a) Increasing
(b) Decreasing
(c) Maximum
(d) Negative
Answer:
(c) Maximum

73. Suppose the first four units of a variable input generate corresponding total output of 150, 200, 350, 550. What will be the marginal product of the third unit of input?
(a) 50
(b) 100
(c) 150
(d) 200
Answer:
(d) 200

74. The production process described below exhibits.

Number of Workers	Output
0	0
1	23
2	40
3	50

(b) Diminishing marginal product of labour.
(c) Increasing return to scale.
(d) Increasing marginal product of labour.
Answer:
(b) Diminishing marginal product of labour.

75. Marginal product, mathematically, is the slope of the ________.
(a) Total product curve.
(b) Average product curve.
(c) Marginal product curve.
(d) Implicit product curve.
Answer:
(a) Total product curve.

76. Which of the following is Correct?
(a) MP_n = TP_n – TP_n-1
(b) MP_n = MP_n – MP_n-1
(c) MP_n = TP_n + TP_n-1
(d) None of the above
Answer:
(a) MP_n = TP_n – TP_n-1

77. Marginal, average and total product of a firm in the short run will not comprise with ________.
(a) When marginal production is at a maximum, average product is equal to marginal product, and total product is rising
(b) When average product is maximum, average product is equal to marginal product, and total product is rising
(c) When marginal product is negative, total product and average product are falling
(d) When total product is increasing, average product and marginal product may be either rising or falling
Answer:
(a) When marginal production is at a maximum, average product is equal to marginal product, and total product is rising

78. When average product rises as a result of an increase in the quantity of variable factor, marginal product is:
(a) Equal to average product
(b) More than average product
(c) Less than average product
(d) Becomes negative
Answer:
(b) More than average product

79. The marginal product curve is above the average product curve when the average product is:
(a) Increasing
(b) Decreasing
(c) Constant
(d) None
Answer:
(a) Increasing

80. Identify the correct statement:
(a) The average product is at its maxi-mum when marginal product is equal to average product.
(b) The law of increasing returns to scale relates to the effect of changes in factor proportions.
(c) Economies of scale arise only because of indivisibilities of factor proportions.
(d) Internal economies of scale can accrue when industry expands beyond optimum.
Answer:
(a) The average product is at its maxi-mum when marginal product is equal to average product.

81. If the marginal product of labour is below the average product of labour, it must be true that:
(a) The marginal product of labour is negative.
(b) The marginal product of labour is zero.
(c) The average product of labour is falling.
(d) The average product of labour is negative.
Answer:
(c) The average product of labour is falling.

82. The average product of labour is maximized when marginal product of labour:
(a) Equals the average product of labour.
(b) Equals zero.
(c) Is maximized.
(d) None of the above.
Answer:
(a) Equals the average product of labour.

83. The marginal, average, and total product curves encountered by the firm producing in the short run exhibit all of the following relationships except:
(a) When total product is rising, average and marginal product may be either rising or falling.
(b) When marginal product is negative, total product and average product are falling.
(c) When average product is at a maximum, marginal product equals average product, and total product is rising.
(d) When marginal product is at a maximum, average product equals marginal product, and total product is rising.
Answer:
(d) When marginal product is at a maximum, average product equals marginal product, and total product is rising.

84. If the marginal product of labour is below the average product of labour. It must be true that:
(a) Marginal product of labour is negative
(b) Marginal product of labour is zero
(c) Average product of labour is fall¬ing
(d) Average product of labour is negative
Answer:
(a) Marginal product of labour is negative

85. In the production of wheat, all of the following are variable factors that are used by the farmer except:
(a) The seed and fertilizer used when the crop is planted.
(b) The field that has been cleared of trees and in which the crop is planted.
(c) The tractor used by the farmer in planting and cultivating not only wheat but also corn and barley.
(d) The number of hours that the farmer spends in cultivating the wheat fields.
Answer:
(b) The field that has been cleared of trees and in which the crop is planted.

86. Law of variable proportion is valid when:
(a) Only one input is fixed and all other inputs are kept variable
(b) All factors are kept constant
(c) All inputs are varied in the same proportion
(d) None of these
Answer:
(a) Only one input is fixed and all other inputs are kept variable

87. Production activity in the short period is analysed with the help of:
(a) Law of variable proportion
(b) Laws of returns to scale
(c) Both (a) & (b)
(d) None of the above
Answer:
(a) Law of variable proportion

88. The Law of Variable Proportions is associated with:
(a) Short period
(b) Long period
(c) Both short and long periods
(d) Neither short nor long period
Answer:
(a) Short period

89. The law of variable proportions is drawn under all of the assumptions mentioned below except the assumption that:
(a) The technology is changing.
(b) There must be some inputs whose quantity is kept fixed.
(c) We consider only physical inputs and not economically profitability in monetary terms.
(d) The technology is given and stable.
Answer:

90. Law of increasing returns is ap-plicable because of ________.
(a) Indivisibility of factors.
(b) Specialization.
(c) Economies of scale.
(d) Both (a) &L (b) above.
Answer:
(d) Both (a) &L (b) above.

91. In the first stage of law of variable proportions, total product increases at the ________.
(a) Decreasing rate
(b) Increasing rate
(c) Constant rate
(d) Both (a) and (b).
Answer:
(b) Increasing rate

92. During 2nd stage of law of Dimin-ishing returns:
(a) MP and TP is maximum
(b) MP and AP are decreasing
(c) AP is negative
(d) TP is negative
Answer:
(b) MP and AP are decreasing

93. A rational producer will produce in the stage in which marginal product is positive and :
(a) MP> AP
(b) MP = AP
(c) MP < AP
(d) MP is zero
Answer:
(c) MP < AP

94. Diminishing marginal returns implies:
(a) Decreasing average variable costs
(b) Decreasing marginal costs
(c) Increasing marginal costs
(d) Decreasing average fixed costs
Answer:
(c) Increasing marginal costs

95. The phenomenon of diminishing returns rests upon the ________ of the fixed factor:
(a) Divisibility
(b) Flexibility
(c) Indivisibility
(d) None of these
Answer:
(c) Indivisibility

96. Law of diminishing returns is applicable in:
(a) Manufacturing industry
(b) Agriculture
(c) Neither (a) nor (b)
(d) Any economic activity at a point of time.
Answer:
(d) Any economic activity at a point of time.

97. In the third of the three stages of production:
(a) The marginal product curve has a positive slope.
(b) The marginal product curve lies completely below the average product curve.
(c) Total product increases.
(d) Marginal product is positive.
Answer:
(b) The marginal product curve lies completely below the average product curve.

98. Diminishing marginal returns implies ________
(a) Decreasing average variable costs
(b) Decreasing marginal costs
(c) Increasing marginal costs
(d) Decreasing fixed costs.
Answer:
(c) Increasing marginal costs

99. The “law of diminishing returns” applies to ________.
(a) The short run, but not the long run
(b) The long run, but not the short run
(c) Both the short run and the long run
(d) Neither the short run nor the long run
Answer:
(a) The short run, but not the long run

100. Diminishing returns occur:
(a) When units of a variable input are added to a fixed input and total product falls.
(b) When units of a variable input are added to a fixed input and marginal product falls.
(c) When the size of the plant is in-creased in the long run.
(d) When the quantity of the fixed input is increased and returns to the variable input falls.
Use the following information to answer questions 14-16.

Hours of Labour	Total Output	Marginal Product
0	–	–
1	100	100
2	–	80
3	240	–

Answer:
(b) When units of a variable input are added to a fixed input and marginal product falls.

101. The concept of Returns to Scale is related with:
(a) Very short period
(b) Short period
(c) Long period
(d) None of above
Answer:
(c) Long period

102. Increasing returns to scale can be explained in terms of:
(a) External and internal economies
(b) External and internal dis-econo- mies
(c) External economics and internal dis-economies
(d) All of these
Answer:
(a) External and internal economies

103. Increasing returns to scale occurs due to:
(a) Economies of scale
(b) Specialization
(c) Indivisibility of factors
(d) All of these
Answer:
(d) All of these

104. Which of the following statements describes increasing returns to scale?
(a) Doubling of all inputs used leads to doubling of the output.
(b) Increasing the inputs by 50% leads to a 25% increase in output.
(c) Increasing inputs by 1 / 4 leads to an increase in output of 1/3.
(d) None of the above.
Answer:
(c) Increasing inputs by 1 / 4 leads to an increase in output of 1/3.

105. Returns to scale will said to be in operation when quantity of :
(a) All inputs are changed
(b) All inputs are changed in already established proportion
(c) All inputs are not changed
(d) One input is changed while quantity of all other inputs remain the same
Answer:
(b) All inputs are changed in already established proportion

106. Which of the following is the reason of the working of law of increasing returns?
(a) Fuller utilisation of fixed factors
(b) Indivisibility of the factors
(c) Greater specialization of labour
(d) All of the above
Answer:
(d) All of the above

107. Consider the following combinations of inputs and outputs:
This production technology satisfies

Labour	Capital	Output
5	10	1
6	12	2
7	14	3
8	16	4
9	18	5
10	20	6

(a) Increasing returns to scale
(b) Diminishing returns to scale
(c) Constant returns to scale
(d) Increasing returns initially, fol-lowing by decreasing returns to scale.
Answer:
(c) Constant returns to scale

108. Linear homogeneous production function is based on:
(a) Increasing returns to scale
(b) Decreasing returns to scale
(c) Constant returns to scale
(d) None of the above
Answer:
(c) Constant returns to scale

109. If decreasing returns to scale are present, then if all inputs are increased by 10% then:
(a) Output will also decrease by 10%.
(b) Output will increase by 10%.
(c) Output will increase by less than 10%.
(d) Output will increase by more than 10%.
Answer:
(c) Output will increase by less than 10%.

109A. In Cobb-Douglas Production function[Q = KL^aC^b], there will be increasing returns to scale if :
(a) a + b > 1
(b) a + b = 1
(c) a + b = 0
(d) a + b < 1 Answer: (a) a + b > 1

110. A change in scale means that ________ factors of production are increased or decreased in the same production.
(a) Two
(b) Three
(c) No
(d) All
Answer:
(d) All

110A. Increase in all input leading to less than proportional increase in output is called ________.
(a) Increasing returns to scale
(b) Decreasing returns to scale
(c) Constant returns to scale
(d) Both increasing and decreasing returns to scale
Answer:
(b) Decreasing returns to scale

111. When output decreases by 20% due to increase in inputs by 20%, this stage is called the law of ________.
(a) Increasing returns to scale.
(b) Decreasing returns to scale.
(c) Constant returns to scale.
(d) None of the above.
Answer:
(d) None of the above.

111 A. Constant Returns to Scale are also called as ________ Production Function.
(a) Linear
(b) Curvilinear
(c) Linear Homogenous
(d) Curvilinear Homogenous
Answer:
(c) Linear Homogenous

112. With a view to increase his production, Hariharan a manufacturer of shoes, increases all the factors of production in his unit by 100%. But at the end of the year, he finds that instead of an increase of 100%, his production has increased by only 80%. Which law of returns to scale is operating in this case?
(a) Increasing returns to scale
(b) Decreasing returns to scale
(c) Constant returns to scale
(d) None of the above
Answer:
(b) Decreasing returns to scale

112A. When output increase in a smaller proportion with an increase in all inputs ________ returns to scale set in.
(a) Increasing
(b) Decreasing
(c) Constant
(d) Circular
Answer:
(b) Decreasing

113. ISO quants are equal to:
(a) Product Lines
(b) Total utility lines
(c) Cost lines
(d) Revenue lines
Answer:
(a) Product Lines

114. ISO quants are also known as:
(a) Production possibility curves
(b) Indifference curves
(c) Production indifference curves
(d) None of the above
Answer:
(c) Production indifference curves

115. An ISO quant is ________ to an ISO cost line at equilibrium point:
(a) Convex
(b) Concave
(c) Tangent
(d) Perpendicular
Answer:
(c) Tangent

116. An ISO quant shows ________.
(a) All the alternative combinations of two inputs that can be produced by using a given set of output fully and in the best possible way.
(b) All the alternative combinations of two products among which a producer is indifferent because they yield the same profit.
(c) All the alternative combinations of two inputs that yield the same total product.
(d) Both (b) and (c).
Answer:
(c) All the alternative combinations of two inputs that yield the same total product.

117. ISO quants are negatively sloped & ________ to the origin due to ________ Marginal Rate of Tech-nical Substitution (MRTS).
(a) Convex, Increasing
(b) Convex, Decreasing
(c) Concave, Increasing
(d) Concave, Decreasing
Answer:
(b) Convex, Decreasing

118. Which of the following statement is true in relation to an ISO Quant Curve?
(a) It represents those combination of two factors of production that will give the same level of output
(b) It represents those combinations of all the factors that will give the same level of output
(c) It slopes upward to the right
(d) It can tough either axis
Answer:
(a) It represents those combination of two factors of production that will give the same level of output

119. Suppose, the total cost of produc-tion of commodity X is ₹ 1,25,000. Out of this cost implicit cost is ₹ 35,000 and normal profits is ₹ 25,000. What will be the explicit cost of commodity X?
(a) 90,000
(b) 65,000
(c) 60,000
(d) 1,00,000
Answer:
(c) 60,000

120. Which of the following is an example of “explicit cost”?
(a) Convex, Increasing
(b) Convex, Decreasing
(c) Concave, Increasing
(d) Concave, Decreasing
Answer:
(a) Convex, Increasing

121. Which of the following is an example of an “implicit cost”?
(a) Interest that could have been earned on retained earnings used by the firm to finance expansion.
(b) The payment of rent by the firm for the building in which it is housed.
(c) The interest payment made by the firm for funds borrowed from a bank.
(d) The Payment of wages by the firm.
Answer:
(b) The payment of rent by the firm for the building in which it is housed.

122. Implicit cost can be defined as ________.
(a) Money payments made to the non-owners of the firm for the self-owned factors employed in the business and therefore not entered into books of account.
(b) Money not paid out to the owners of the firm for the self owned factors employed in a business and therefore not entered into books of account.
(c) Money payments which the self owned and employed resources could have earned in their next best alternative employment and therefore entered into books of account.
(d) Money payments which the self owned and employed resources earn in their best use and therefore entered into books of ac-count.
Answer:

123. Implicit cost may be defined as the:
(a) Costs which do not change over a period of time
(b) Costs which the firm incurs but doesn’t disclose
(c) Payment to the non-owners of the firm for the resources
(d) Money payment which the self employed resources could have earned in their best alternative employment.
Answer:
(d) Money payment which the self employed resources could have earned in their best alternative employment.

124. Which of the following is including in cost of production and is termed as accounting cost?
(a) Wages to workers employed
(b) Prices for the raw materials
(c) Fuel and Power Used
(d) All of these
Answer:
(d) All of these

125. Economic cost excludes which of the following :
(a) Accounting cost + explicit cost
(b) Accounting cost + implicit cost
(c) Explicit cost + Implicit cost
(d) Accounting cost + opportunity cost
Answer:
(a) Accounting cost + explicit cost

126. The cost of resources owned and employed by the entrepreneur himself in his business is termed as ________ cost.
(a) Explicit
(b) Implicit
(c) Fixed
(d) Variable
Answer:
(b) Implicit

127. Cost in terms of pain, discomfort, disability involved in supplying the various factors of production by their owners are termed as ________.
(а) Social cost
(b) Explicit cost
(c) Real cost
(d) Implicit cost
Answer:
(c) Real cost

128. Economic costs of production differ from accounting costs of production because ________.
(a) Economic costs include expenditures for hired resources while accounting costs do not.
(b) Accounting costs include opportunity costs which are deducted later to find paid out costs.
(c) Accounting costs include expenditures for hired resources while economic costs do not.
(d) Economic costs add the opportunity cost of a firm which uses its own resources.
Answer:
(d) Economic costs add the opportunity cost of a firm which uses its own resources.

129. Accounting cost is ________ of Economic cost.
(a) Equal to
(b) Less than
(c) More than
(d) Not Included
Answer:
(b) Less than

130. Economic Costs comprises ________.
(a) Accounting Costs
(b) Implicit Cost
(c) Explicit Cost
(d) Both (a) & (b)
Answer:
(d) Both (a) & (b)

131. Which of the following will be included in implicit Cost?
(a) Normal return on money Capital invested by the entrepreneur himself in his own business.
(b) The wages or Salary not paid to the entrepreneur, but could have earned if the services has been sold somewhere else.
(c) Wages or Salary paid to workers
(d) Both (a) and ( b)
Answer:
(d) Both (a) and ( b)

132. Accounting Costs are also called as ________ costs whereas the cost of factors owned by the entrepreneur himself and employed in his own busi-ness is called as costs.
(a) Explicit, implicit
(b) Implicit, Explicit
(c) Economic, Non-Economic
(d) Explicit, Non-Economic.
Answer:
(a) Explicit, implicit

133. Outlay Costs involve ________ expenditure of funds on wages, mate-rial, returns interest, etc.
(a) Actual
(b) Expected
(c) Fixed
(d) Planned
Answer:
(a) Actual

134. Outlay costs involve ________ expenditure at some point of time and hence ________ recorded in the books of account.
(a) Financial, are not
(b) Financial, are
(c) Non-Financial, are not
(d) Non- Financial, are
Answer:
(b) Financial, are

135. Opportunity cost is:
(a) Direct cost
(b) Total cost
(c) Accounting cost
(d) Cost of forgone opportunity
Answer:
(d) Cost of forgone opportunity

136. The cost of one thing in terms of alternative given up is known as:
(a) Opportunity Cost
(b) Real Cost
(c) Production Cost
(d) Physical Cost
Answer:
(a) Opportunity Cost

137. If the market price of good is more than the opportunity cost of producing it, then:
(a) The market price of the product will increase in the long run
(b) Producers will increase supply in the long run
(c) Resources will flow away from production of the good, causing supply to decline with the passage of time
(d) The situation will remain unchanged as long as supply and demand remain in balance.
Answer:
(b) Producers will increase supply in the long run

138. In which of the following cases opportunity cost concept applies?
(a) Resources have alternative uses
(b) Resources have limited uses
(c) Resources have no use
(d) None of the above.
Answer:
(a) Resources have alternative uses

139. Opportunity Cost is:
(a) Marginal cost
(b) Variable cost
(c) Total fixed cost
(d) None of these
Answer:
(d) None of these

140. Opportunity Cost is ________
(a) Recorded in the books of account
(b) Sacrificed alternative
(c) Both (a) and (b)
(d) None of the above
Answer:
(b) Sacrificed alternative

141. The concept of opportunity cost has to be considered whenever :
(a) Resources are scarce
(b) Decision involving choice of one option over other(s) is involved
(c) Both (a) & (b)
(d) Neither (a) nor (b)
Answer:
(c) Both (a) & (b)

142. Opportunity cost is the ________ value that is foregone in choosing one activity over the alternative.
(a) Subjective, other
(b) Subjective, next best
(c) Principal, other
(d) Principal, next best
Answer:
(b) Subjective, next best

143. Opportunity Cost is the cost of the ________ opportunity and involves a comparison between the policy that was ________ and the policy that was ________.
(a) Other, Chosen, Should be chosen
(b) Missed, Chosen, should be chosen
(c) Missed, Chosen, rejected
(d) None of these
Answer:
(c) Missed, Chosen, rejected

144. Direct Cost is also known as :
(a) Indirect Cost
(b) Traceable Cost
(c) Opportunity Cost
(d) Accounting Cost.
Answer:
(b) Traceable Cost

145. ________ costs are the costs that are readily identified and are traceable to a particular product, operations or plant.
(a) Direct Cost
(b) Traceable Cost
(c) Indirect Cost
(d) Both (a) & (b)
Answer:
(d) Both (a) & (b)

146. ________ may vary according to the changes accruing to the product process or machine.
(a) Direct Cost
(b) Implicit-Cost
(c) Indirect Cost
(d) Non Traceable Cost.
Answer:
(a) Direct Cost

147. Indirect Costs are not easily and definitely identifiable in relation to a plants, products, process or department. These are ________ changed to different jobs or products in stan-dard accounting practice.
(a) Not
(b) Never
(c) Nevertheless
(d) Cannot
Answer:
(c) Nevertheless

148. Identify the indirect Cost.
(a) Common cost incurred for general operations
(b) Wages paid to worker
(c) Material Purchased
(d) Commission Paid
Answer:
(a) Common cost incurred for general operations

149. Theoretically, incremental costs are related to the concept of ________.
(a) Marginal Cost
(b) Fixed Cost
(c) Judgmental Cost
(d) Semi Variable Cost.
Answer:
(a) Marginal Cost

150. Which of the following is part of incremental costs?
(a) Change in product line
(b) Replacement of worn-out machinery
(c) Buy a new production facility
(d) All of these
Answer:
(d) All of these

151. ________ refer to those costs which are already incurred once and for all and cannot be recovered.
(a) Sunk Cost
(b) Fixed Cost
(c) Variable Cost
(d) Incremental
Answer:
(a) Sunk Cost

152. Which one of the following is an example of Sunk Cost?
(a) Expenses on advertising
(b) Research & Development Expenditure
(c) Specialized equipment & fixed facilities
(d) All of these.
Answer:
(d) All of these.

153. Which of the following in incurred first?
(a) Historical Cost
(b) Replacement Cost
(c) Realized Value
(d) None of these
Answer:
(a) Historical Cost

154. ________ Cost refers to the cost incurred in the past on the acquisition of a productive asset.
(a) Current Cost
(b) Historical Cost
(c) Future Cost
(d) Desired cost.
Answer:
(b) Historical Cost

155. A Company is willing to change its existing Machinery (5 years old) by a new machinery at a cost of ₹ 10,00,000. The cost of ₹ 10,00,000 may be regarded as:
(a) Historical Cost
(b) Replacement Cost
(c) New Cost
(d) Market Cost
Answer:
(b) Replacement Cost

156. Other things remaining the same, an increase in price will make ________ cost higher than ________ cost.
(a) Historical, Replacement
(b) Replacement, Historical
(c) Historical, reliable
(d) Fixed, Historical.
Answer:
(b) Replacement, Historical

157. Usually in the case of continuous decrease in price of an asset, which one of the following shall be the highest?
(a) Replacement Cost
(b) Historical Cost
(c) Realisable Value
(d) Variable Cost.
Answer:
(b) Historical Cost

158. Private Costs are costs actually incurred or provided for by firms. These may be ________.
(a) Explicit
(b) Implicit
(c) Either (a) or(b)
(d) None of these
Answer:
(c) Either (a) or(b)

159. The Cost of resources for which the firm is not required to pay price is called as ________ cost.
(a) Fixed
(b) Private
(c) Social
(d) Welfare
Answer:
(c) Social

160. ________ Costs normally figure in business decisions as they Form part of total cost and are inter-nalized by the firm.
(a) Fixed
(b) Private
(c) Social
(d) Welfare
Answer:
(b) Private

161. Which of the following is not a determinant of the firm’s cost function?
(a) The production function.
(b) The price of labour.
(c) Taxes.
(d) The price of the firm’s output
Answer:
(d) The price of the firm’s output

162. Which of the following statements is correct concerning the relationships among the firm’s cost functions?
(a) TC = TFC – TVC.
(b) TVC = TFC – TC.
(c) TFC = TC – TVC.
(d) TC = TVC – TFC.
Answer:
(c) TFC = TC – TVC.

163. In the long run all factors are ________.
(a) Fixed
(b) Variable
(c) All factors remain unchanged
(d) None
Answer:
(b) Variable

164. Cost Function is the mathemati-cal relation between ________ of a Product and the various determinants of ________.
(a) Cost, Costs
(b) Revenue, Revenues
(c) Cost, Revenues
(d) Revenue, Costs.
Answer:
(a) Cost, Costs

165. In a cost function, the dependent variable is unit cost or total cost and the independent variable(s)are ________.
(a) Units sold and purchased.
(b) Price of factor, & size of output
(c) Relevant phenomenon which has a bearing on cost like technology, level of capacity utilisation, efficiency, etc.
(d) Both (b) & (c)
Answer:
(d) Both (b) & (c)

166. Cost function is a function which is obtained from ________.
(a) Production Function
(b) Market Supply of inputs
(c) Market Supply of outputs
(d) Both (a) & (b).
Answer:
(d) Both (a) & (b).

167. The Cost function expresses the relationship between ________ and ________.
(a) Costs, input
(b) Costs, Output
(c) Dependent Variable, Cost
(d) None of these
Answer:
(b) Costs, Output

168. Cost Functions are derived from ________ cost data of the firms.
(a) Actual
(b) Expected
(c) Desired
(d) Standard.
Answer:
(a) Actual

169. Which of the following is a kind of Cost function?
(a) Short-Run Cost Function
(b) Long Run Cost Function
(c) Short/Long Run Cost Curve
(d) Both (a) and (b)
Answer:
(d) Both (a) and (b)

170. A company produces 10 units of output and incurs ₹ 30 per unit as variable cost and ₹ 5 per unit of fixed cost. What will be its total cost of producing 10 units₹
(a) ₹ 300
(b) ₹ 35
(c) ₹ 305
(d) ₹ 350
Answer:
(d) ₹ 350

171. What is the total cost of produc-tion of 20 units, if fixed cost ₹ 5,000 and variable cost is ₹ 2/-?
(a) 5,400
(b) 5,040
(c) 4,960
(d) 5,020
Answer:
(d) 5,020

172. Suppose output increases in the short run. Total cost will:
(a) Increase due to an increase in fixed costs only.
(b) Increase due to an increase in variable costs only.
(c) Increase due to an increase in both fixed and variable costs.
(d) Decrease if the firm is in the region of diminishing returns.
Answer:
(b) Increase due to an increase in variable costs only.

173. Calculate total cost of 4 units :

Units	Total cost (₹)	Marginal cost (₹)
2	80	40
4	–	30

(a) 140
(b) 120
(c) 50
(d) 40
Answer:
(a) 140

174. Calculate total cost of 4 units :

Output	0	10	20
Total cost	₹ 200	₹ 400	₹ 800

(a) ₹ 40
(b) ₹ 20
(c) ₹ 200
(d) ₹ 400
Answer:
(b) ₹ 20

175. ________ Costs do not change with changes in Output.
(a) Fixed
(b) Valuable
(c) Semi Valuable
(d) Both (a) & (b)
Answer:
(a) Fixed

176. If fixed cost is plotted on a graph taking output on X-axis and Cost on Y axis, the Fixed cost will be represented by ________.
(a) Straight line parallel to Y axis
(b) Straight line parallel to X axis
(c) U Shaped Curve
(d) Hyper-parabola Curve.
Answer:
(b) Straight line parallel to X axis

177. Fixed costs are ________ a function of output.
(a) Not
(b) Always
(c) Treated as
(d) Directly related
Answer:
(a) Not

178. Fixed costs may also be called as:
(a) Inescapable
(b) Uncontrollable
(c) Constant
(d) All of the above
Answer:
(d) All of the above

179. Fixed cost curve normally:
(a) Starts from the origin
(b) Is U shaped
(c) Is vertical line
(d) Is horizontal line.
Answer:
(d) Is horizontal line.

180. The vertical difference between TVC and TC curves is equal to:
(a) MC
(b) AVC
(c) TFC
(d) None of the above
Answer:
(c) TFC

181. What will be the TVC if we produce 2 units?

Units	0	1	2
Total cost	20	37	50

(a) 15
(b) 05
(c) 17
(d) 30
Answer:
(d) 30

182. A firm producing 9 units of output has an average total cost of f 200 and has to pay ₹ 630 to its fixed cost of production. How much of the average total cost is made up of variable cost?
(a) ₹ 150
(b) ₹ 130
(c) ₹ 70
(d) ₹ 300
Answer:
(b) ₹ 130

183. Which cost increases continuously with the increase in production?
(a) Average cost.
(b) Marginal cost.
(c) Fixed cost.
(d) Variable cost.
Answer:
(d) Variable cost.

184. Total cost in the short run is clas-sified into fixed costs and variable costs. Which one of the following is a variable cost?
(a) Cost of raw materials.
(b) Cost of equipment.
(c) Interestpaymentonpastborrow- ings.
(d) Payment of rent on building.
Answer:
(a) Cost of raw materials.

185. Which of the following is a vari-able cost in the short run₹
(a) Rent of the factory.
(b) Wages paid to the factory labour.
(c) Interest payments on borrowed financial capital.
(d) Payment on the lease for factory equipment.
Answer:
(b) Wages paid to the factory labour.

186. What will be the TVC if we pro-duce 2 units?

Units	0	1	2	3	4
Total cost	20	30	40	45	50

(a) 2
(b) 3
(c) 4
(d) 5
Answer:
(d) 5

187. If a Firm shuts down for a short period, it will not incur any ________ cost.
(a) Fixed
(b) Semi-Variable
(c) Variable
(d) Both (a) & (b)
Answer:
(c) Variable

188. ________ are those costs which change with changes in output.
(a) Fixed
(b) Semi-Variable
(c) Variable
(d) Both (a) & (b)
Answer:
(c) Variable

189. Semi-Variable Costs are ________ Variable, ________ fixed in relation to the changes in the size of output.
(a) Neither, nor
(b) Neither, nor absolutely
(c) Absolutely, but relatively
(d) Absolutely, but is by nature.
Answer:
(b) Neither, nor absolutely

190. Electricity charges include both a fixed charge and a charge based on consumption. It should be classified as ________.
(a) Fixed Cost
(b) Variable Cost
(c) Semi-Variable Cost
(d) Quasi Cost.
Answer:
(c) Semi-Variable Cost

191. The Semi-Variable Cost: ________
(a) Remains Constant
(b) Remains variable proportionately
(c) Increases in stair-step fashion
(d) Increases proportionately
Answer:
(c) Increases in stair-step fashion

192. Which of the following cost remains fixed over certain range of output but suddenly jump to a new higher level when output goes beyond a given limit?
(a) Total Fixed cost
(b) Total Variable Cost
(c) Both (a) & ( b)
(d) Semi-Variable Cost
Answer:
(d) Semi-Variable Cost

193. The total Cost Curve is obtained by adding ________ the ________ curve and the Curve.
(a) Vertically, Total Fixed Cost, Total Variable Cost
(b) Horizontally, Cost, Total
(c) Vertically, Total Cost, Total Vari-able cost
(d) Horizontally, Cost Valuable
Answer:
(a) Vertically, Total Fixed Cost, Total Variable Cost

194. The costs which remain fixed over certain range of output but sud-denly jump to a new higher level when production goes beyond a given limit are called:
(a) Variable cost
(b) Semi-variable cost
(c) Stair – step variable cost
(d) Jumping cost.
Answer:
(c) Stair – step variable cost

195. Average fixed cost can be obtained through:
(a) AFC = \(\frac { TFC }{ TS }\)
(b) AFC = \(\frac { EC }{ TU }\)
(c) AFC = \(\frac { TC }{ PC }\)
(d) AFC = \(\frac { TFC }{ TU }\)
Answer:
(d) AFC = \(\frac { TFC }{ TU }\)

196. Which one of the following is correct?
(a) AFC = AVC + ATC
(b) ATC = AFC – AVC
(c) AVC = AFC + ATC
(d) AFC = ATC – AVC
Answer:
(d) AFC = ATC – AVC

197. Which of the following cost curves is never ‘U’ shaped?
(a) Average total cost curve
(b) Marginal cost curve
(c) Total cost curve
(d) Total Fixed cost curve
Answer:
(d) Total Fixed cost curve

198. AFC curve is :
(a) Convex & downward sloping
(b) Concave & downward sloping
(c) Convex & upward sloping
(d) Concave & upward rising
Answer:
(a) Convex & downward sloping

199. Which of the following curves never tough any axis but is downward ________.
(a) Marginal cost curve
(b) Total cost curve
(c) Average fixed cost curve
(d) Average variable cost curve
Answer:
(c) Average fixed cost curve

200. The slope of Average Fixed cost curve is?
(a) Falls from left to right
(b) Rises from left to right
(c) Parallel to x-axis
(d) Parallel to y-axis
Answer:
(a) Falls from left to right

201. When the output of a firm increase in the short run, its average fixed cost.
(a) Increases
(b) Decreases
(c) Remains constant
(d) First declines and then rises.
Answer:
(b) Decreases

202. Which statement among below is correct in reference in Average Fixed Cost.
(a) Never becomes zero
(b) Curve never touches x-axis
(c) Curve never touches y-axis
(d) All of the above
Answer:
(d) All of the above

203. Average fixed cost curve is always:
(a) Declining when output increases
(b) U-Shaped, if there are increasing returns to scale
(c) U-Shaped, if there are decreasing returns to scale
(d) Intersected by marginal cost at its minimum point
Answer:
(a) Declining when output increases

204. Which of the following curves never touch any axis but is downward.
(a) Marginal cost curve
(b) Total cost curve
(c) Average fixed cost curve
(d) Average variable cost curve
Answer:
(c) Average fixed cost curve

205. A firm’s average fixed cost is ₹ 20 at 6 units of output. What will it be at 4 units of output?
(a) ₹ 60
(b) ₹ 30
(c) ₹ 40
(d) ₹ 20
Answer:
(b) ₹ 30

206. A firm’s average fixed cost is ₹ 40 at 12 units. What will be the average fixed cost at 8 units:
(a) ₹ 60
(b) ₹ 70
(c) ₹ 90
(d) ₹ 80
Answer:
(a) ₹ 60

207. A firms AFC is ₹ 200 at 10 units of output what will be it at 20 units of output?
(a) 500
(b) 100
(c) 150
(d) 200
Answer:
(b) 100

208. Average cost of producing 50 units of any commodity is ₹ 250 and fixed cost is ₹ 1,000. What will be the average fixed cost of producing 100 units of the commodity?
(a) ₹ 10
(b) ₹ 30
(c) ₹ 20
(d) ₹ 05
Answer:
(a) ₹ 10

209. Average Fixed Cost = ₹ 20
Quantity Produced =10 units
What will be the Average Fixed Cost of 20th unit?
(a) ₹ 10
(b) ₹ 20
(c) ₹ 5
(d) None
Answer:
(a) ₹ 10

210. Find AFC of 3 units :

Units	0	1	2	3
Total cost	15	25	35	45

(a) 5
(b) 10
(c) 15
(d) 25
Answer:
(a) 5

211. What will be the AFC of 2 units according to the table given below:

Units	0	1	2
Total cost (in ₹)	580	689	850

(a) 105
(b) 135
(c) 235
(d) 290
Answer:
(d) 290

212. A firm producing 7 units of output has an average total cost of ₹ 150 and has to pay ₹ 350 to its fixed factors of production whether it produces or not. How much of the average total cost is made up of variable costs?
(a) ₹ 200
(b) ₹ 50
(c) ₹ 300
(d) ₹ 100
Answer:
(d) ₹ 100

213. Consider the following data

Units	0	1	2	3	4
Total cost	25	45	60	85	105

The Average Variable Cost (AVC) for an output of 4 units will be:
(a) ₹ 20
(b) ₹ 35
(c) ₹ 25
(d) ₹ 26
Answer:
(a) ₹ 20

214. A firm produces 10 units of a commodity at an average total cost of ₹ 200 and with a fixed cost of ₹ 500. Find out the component of average variable cost in the total cost:
(a) ₹ 300
(b) ₹ 200
(c) ₹ 150
(d) ₹ 100
Answer:
(a) ₹ 300

215. A firm producing 15 units of output has average cost of ₹ 250 and ₹ 125 as per unit cost for fixed factors of production. Then average variable cost will be ________.
(a) 180
(b) 150
(c) 125
(d) None of the above
Answer:
(a) 180

216. If a firm’s output is zero, then:
(a) AFC will be positive
(b) AVC will be zero
(c) Both of (a) and (b)
(d) None of (a) and (b)
Answer:
(a) AFC will be positive

217. Which of the following statements is true of the relationship among the average cost functions?
(a) ATC = AFC – AVC.
(b) AVC = AFC + ATC.
(c) AFC = ATC + AVC.
(d) AFC = ATC – AVC.
Answer:
(d) AFC = ATC – AVC.

218. A firm has a variable cost of ₹ 1000 at 5 units of output. If fixed costs are ₹ 400, what will be the average total cost at 5 units of output?
(a) ₹ 280
(b) ₹ 60
(c) ₹ 120
(d) ₹ 1400
Answer:
(a) ₹ 280

219. U-shaped average cost curve is based on:
(a) Law of increasing cost
(b) Law of decreasing cost
(c) Law of constant returns to scale
(d) Law of variable proportions
Answer:
(d) Law of variable proportions

220. A firm producing 7 units of output has an average total cost of ₹ 150 and has to pay ₹ 350 to its fixed factors of production. How much of the average total cost is made up of variable cost?
(a) ₹ 200
(b) ₹ 50
(c) ₹ 300
(d) ₹ 100
Answer:
(d) ₹ 100

221. Marginal cost is defined as:
(a) The change in total cost due to a one unit change in output.
(b) Total cost divided by output.
(c) The change in output due to a one unit change in an input.
(d) Total product divided by the quantity of input.
Answer:
(a) The change in total cost due to a one unit change in output.

222. The change in total cost due to one unit change in the output is called ________ cost.
(a) Marginal
(b) Average
(c) Average variable
(d) Average fixed.
Answer:
(a) Marginal

223. Marginal cost changes due to change in ________ cost.
(a) Total
(b) Fixed
(c) Average
(d) Variable
Answer:
(d) Variable

224. In figure below, possible reason why the average variable cost curve approaches the average total cost curve as output rises is:

(a) Fixed costs are falling while total costs are rising at rising output.
(b) Total costs are rising and average costs are also rising.
(c) Marginal costs are above average variable costs as output rises.
(d) Average fixed costs are falling as output rises.
Answer:
(d) Average fixed costs are falling as output rises.

225. MC curve of a firm in a perfectly competitive industry depicts?
(a) Demand curve
(b) Supply curve
(c) Average cost curve
(d) Total cost curve
Answer:
(b) Supply curve

226. When shape of average cost curve is upward, marginal cost:
(a) Must be decreasing
(b) Must be constant
(c) Must be rising
(d) Any of these
Answer:
(c) Must be rising

227. With which of the following is the concept of marginal cost closely related?
(a) Variable cost.
(b) Fixed cost.
(c) Opportunity cost.
(d) Economic cost.
Answer:
(a) Variable cost.

228. What will be marginal cost of 67 units of production accounting to the table given below:

Units of production	0	10	25	3	67
Total cost	160	200	300	500	1,400

(a) 10
(b) 20
(c) 30
(d) 50
Answer:
(c) 30

229. On the basis of the following data what will be the marginal cost of the 6th unit of output?

Output	0	1	2	3	4	5	6
Total cost (in ₹)	240	330	410	480	540	610	690

(a) ₹ 133
(b) ₹ 75
(c) ₹ 80
(d) ₹ 450
Answer:
(c) ₹ 80

230. Solve question no. 77 given below the following table:

Output (Units)	TFC (in ₹)	TVC (in ₹)	MC (in ₹)
0	500	–	–
1	500	400	400
5	500	1600	–

What will be marginal cost, when output is 5 units?
(a) 300
(b) 400
(c) 500
(d) 600
Answer:
(a) 300

231. Marginal cost changes due to changes in ________.
(a) Total cost
(b) Average cost
(c) Variable cost
(d) Quantity of output
Answer:
(c) Variable cost

232. Which of the following statements is correct?
(a) Fixed costs vary with change in output.
(b) If we add total variable cost and total fixed cost we get the average cost.
(c) Marginal cost is the result of total cost divided by number of units produced.
(d) Total cost is obtained by adding up the fixed cost and total variable cost.
Answer:
(d) Total cost is obtained by adding up the fixed cost and total variable cost.

233. If total cost at 10 units is ₹ 600 and ₹ 640 for 11th unit. The marginal cost of 11th unit is:
(a) ₹ 20
(b) ₹ 30
(c) ₹ 40
(d) ₹ 50
Answer:
(c) ₹ 40

234. AT 10 units Total Cost – ₹ 200
20 units Total Cost – 600
Marginal Cost = ?
(a) 50
(b) 40
(c) 30
(d) 400
Answer:
(b) 40

235. The total cost incurred for 10 units is ₹ 400 and 20 units is ₹ 800. Find the marginal cost.
(a) ₹ 400
(b) ₹ 40
(c) ₹ 200
(d) ₹ 20
Answer:
(b) ₹ 40

236. Which of the following statements is correct?
(a) When the average cost is rising, the marginal cost must also be rising.
(b) When the average cost is rising, the marginal cost must be falling.
(c) When the average cost is rising, the marginal cost is above the average cost.
(d) When the average cost is falling, the marginal cost must be rising.
Answer:
(c) When the average cost is rising, the marginal cost is above the average cost.

237. When AC curve is rising, the MC curve must be ________ to it.
(a) Equal
(b) Above
(c) Below
(d) Parallel
Answer:
(b) Above

238. What happens to marginal cost when average cost increases?
(a) Marginal cost is below average cost
(b) Marginal cost is above average cost
(c) Marginal cost is equal to average variable cost
(d) Marginal cost is equal to average cost
Answer:
(d) Marginal cost is equal to average cost

239. When AC Curve is at minimum then MC Curve is ________?
(a) Minimum then AC Curve
(b) Equals to AC Curve
(c) Above AC Curve
(d) Less than AC Curve
Answer:
(b) Equals to AC Curve

240. Which of the following statement is incorrect?
(a) AC is sloping downwards, MC is below AC
(b) AC is sloping downwards, MC must fall
(c) AC is sloping upwards, MC is above AC
(d) MC cuts AC from its lowest point.
Answer:
(b) AC is sloping downwards, MC must fall

241. Which of the following is true of the relationship between the marginal cost function and the average cost function?
(a) If MC is greater than ATC, then ATC is falling.
(b) The ATC curve intersects the MC curve at minimum MC.
(c) The MC curve intersects the ATC curve at minimum ATC.
(d) If MC is less than ATC, then ATC is increasing.
Answer:
(c) The MC curve intersects the ATC curve at minimum ATC.

242. If LAC curve falls as output expands, this is due to :
(a) Law of diminishing returns
(b) Economics of scale
(c) Law of variable proportion
(d) Dis-economics of scale
Answer:
(b) Economics of scale

243. Planning curve is related to which of the following?
(a) Short run average cost curve
(b) Long run average cost curve
(c) Average variable cost
(d) Average total cost
Answer:
(b) Long run average cost curve

244. Which of the following is known as Envelope curve?
(a) Marginal Cost Curve
(b) Average Fixed Cost Curve
(c) Long Run Average cost Curve
(d) Total Fixed Cost Curve
Answer:
(c) Long Run Average cost Curve

245. Which of the following statements concerning the long-run average cost curve is false?
(a) It represents the least-cost input combination for producing each level of output.
(b) It is derived from a series of short- run average cost curves.
(c) The short-run cost curve at the minimum point of the long-run average cost curve represents the least-cost plant size for all levels of output.
(d) As output increases, the amount of capital employed by the firm increases along the curve.
Answer:
(c) The short-run cost curve at the minimum point of the long-run average cost curve represents the least-cost plant size for all levels of output.

246. The negatively-sloped (i.e. falling) part of the long-run average total cost curve is due to which of the following?
(a) Diseconomies of scale.
(b) Diminishing returns.
(c) The difficulties encountered in coordinating the many activities of a large firm.
(d) The increase in productivity that results from specialization.
Answer:
(d) The increase in productivity that results from specialization.

247. A firm’s long-run average total cost curve is.
(a) Identical to its long-run marginal- cost curve as all factors are variable.
(b) Also its long-run total cost curve because it explains the relationship cost and quantity supplied in the long run.
(c) In fact the average total cost curve of the optimal plant in the short run as it tries to produce at least cost.
(d) Tangent to all short-run average total cost the curves and represents the lowest average total cost for producing each level of output.
Answer:
(d) Tangent to all short-run average total cost the curves and represents the lowest average total cost for producing each level of output.

248. The positively sloped (rising) part of the long run average cost curve indicates working of the ________.
(a) Diseconomies of scale
(b) Increasing returns to scale
(c) Constant returns to scale
(d) Economies of scale
Answer:
(a) Diseconomies of scale

249. External economies accrue due to ________:
(a) Increasing returns to scale
(b) Increasing returns to factor
(c) Law of variable proportion
(d) Low cost
Answer:
(a) Increasing returns to scale

250. External Economies arise due to:
(a) Growth of ancillary industries
(b) High cost of technologies
(c) Increase in the price of factors of production
(d) None of the above
Answer:
(a) Growth of ancillary industries

251. External economies can be achieved through:
(a) Foreign trade only
(b) Superior managerial skill
(c) Extension of transport and credit facilities
(d) External assistance
Answer:
(c) Extension of transport and credit facilities

252. Economies of scale exist because as a firm increases its size in the long run:
(a) Labour and management can specialize in their activities more.
(b) As a larger input buyer, the firm can get finance at lower cost and purchase inputs at a lower per unit cost.
(c) The firm can afford to employ more sophisticated technology in production.
(d) All of these.
Answer:
(d) All of these.

253. External Economies of Scale are obtained by:
(a) A firm
(b) A group of firm
(c) Small Production
(d) Society
Answer:
(b) A group of firm

254. External economics are enjoyed:
(a) By large producers only
(b) As firm expands
(c) Both (a) and (b)
(d) None of the above
Answer:
(c) Both (a) and (b)

255. Issue requiring decision making in the context of business are:
(a) How much should be the optimum output at what price should the firm sell?
(b) How will the product be placed in the market?
(c) How to combat the risks and uncertainties involved?
(d) All of the above
Answer:
(d) All of the above

256. Long run price is also called by the name of ________.
(a) Market price
(b) Normal price
(c) Administered price
(d) Wholesale price.
Answer:
(b) Normal price

257. Which of the following equa¬tion represents profit maximization condition?
(a) MC = MR
(b) MC > MR
(c) MC < MR
(d) None
Answer:
(a) MC = MR

258. Which of the following statements is true?
(a) Accumulation of capital depends solely on income of individuals.
(b) Savings can be influenced by government policies.
(c) External economies go with size and internal economies with loca¬tion.
(d) The supply curve of labour is an upward slopping curve.
Answer:
(b) Savings can be influenced by government policies.

259. Supply curve remaining un-changed, an increase in demand will lead to.
(a) A fall in price
(b) A rise in price
(c) No change in price
(d) AN increase in supply
Answer:
(a) A fall in price

260. Price of a commodity is best expressed as ________.
(a) Exchange value
(b) Cost of goods sold
(c) Production cost
(d) Nominal value
Answer:
(b) Cost of goods sold

261. A firm will close down in the short period if its average revenue is less than its:
(a) Average cost
(b) Average variable cost
(c) Marginal cost
(d) Average fixed cost
Answer:
(b) Average variable cost

262. Which of the following statements is incorrect?
(a) The LAC curve is also called the planning curve of a firm.
(b) Total revenue = price per unit X number of units sold.
(c) Opportunity cost is also called alternative cost.
(d) If total revenue is divided by the number of units sold we get marginal revenue.
Answer:
(d) If total revenue is divided by the number of units sold we get marginal revenue.

263. Average Revenue Curve is also known as ________.
(a) Profit curve
(b) Demand curve
(c) Supply curve
(d) Average cost curve
Answer:
(b) Demand curve

Students should practice Free Consent – CA Foundation Business Law MCQ Questions with Answers based on the latest syllabus.

Free Consent – Business Law MCQ Questions with Answers

1. If there is no consent the agreement is:
(a) Void
(b) Voidable
(c) Illegal
(d) Valid
Answer:
(a) Void

2. If consent in not free due to coercion, undue influence, fraud, and misrepresentation then the agreement is:
(a) Void
(b) Voidable
(c) Illegal
(d) Valid
Answer:
(b) Voidable

3. If the agreement is made by obtaining consent by doing an act forbidden by the Indian Penal Code, the agreement would be caused by:
(a) Coercion
(b) Fraud
(c) Misrepresentation
(d) Undue influence
Answer:
(a) Coercion

4. A buys an article thinking that it is worth ₹ 100 when in fact it is worth only ₹ 50. There has been no misrepresentation on the part of the seller. The contract is:
(a) Valid
(b) Void
(c) Voidable
(d) Unenforceable
Answer:
(a) Valid

5. Where a person is in a position to dominate the will of another person and uses that position to obtain on unfair advantage it is called:
(a) Fraud
(b) Coercion
(c) Undue influence
(d) Misrepresentation.
Answer:
(c) Undue influence

6. An agreement caused by unilateral mistake of fact is:
(a) Void
(b) Voidable
(c) Illegal
(d) Valid
Answer:
(d) Valid

7. Unlawfully detaining or threatening to detain any property, to the prejudice of any person making him to enter into an agreement amounts to:
(a) Threat
(b) Coercion
(c) Undue influence
(d) Misappropriation
Answer:
(b) Coercion

8. An agreement made under mistake of fact, by both the parties, forming the essential subject matter of the agreement is:
(a) Void
(b) Voidable
(c) Valid
(d) Unenforceable
Answer:
(a) Void

9. “Active concealment of fact” is associated with which one of the following?
(a) Misrepresentation
(b) Undue influence
(c) Fraud
(d) Mistake
Answer:
(c) Fraud

10. Lending money to a borrower, at high rate of interest, when the money market is tight renders the agreement of loan:
(a) Void
(b) Valid
(c) Voidable
(d) Illegal
Answer:
(b) Valid

11. When a person, who is in dominating position, obtains the consent of the other by exercising his influence on the other, the consent is said to be obtained by:
(a) Fraud
(b) Intimidation
(c) Coercion
(d) Undue influence
Answer:
(d) Undue influence

12. With regard to the contractual capacity of a per-son of unsound mind, which one of the following statements is most appropriate?
(a) A person of unsound mind can never enter into a contract
(b) A person of unsound mind can enter into a contract
(c) A person who is usually of unsound mind can contract when he is, at the time of entering into a contract, of sound mind
(d) A person who is occasionally of unsound mind can contract although at the time of making the contract, he is of unsound mind
Answer:
(c) A person who is usually of unsound mind can contract when he is, at the time of entering into a contract, of sound mind

13. While obtaining the consent of the promisee, keeping silence by the promisor when he has a duty to speak about the material facts, amounts to consent obtained by:
(a) Coercion
(b) Misrepresentation
(c) Mistake
(d) Fraud
Answer:
(d) Fraud

14. ‘A’ threatened to commit suicide if his wife did not execute a sale deed in favour of this brother. The wife executed the sale deed. This transaction is:
(a) Voidable due to under influence
(b) Voidable due to coercion
(c) Void being immoral
(d) Void being forbidden by law
Answer:
(b) Voidable due to coercion

15. A threatens to shoot B, if B does not agree to sell his property to A at a stated price. B’s consent in this case has been obtained by ________.
(a) Fraud
(b) Undue influence
(c) Coercion
(d) None
Answer:
(c) Coercion

16. A master asks his servant to sell his cycle to him at less than the market price. This contract can be avoided by the servant on grounds of:
(a) Coercion
(b) Undue influence
(c) Fraud
(d) Mistake
Answer:
(b) Undue influence

17. If A sells, by auction to B a horse which A knows to be unsound and A says nothing to B about the horse’s unsoundness, this amounts to:
(a) Fraud
(b) Not fraud
(c) Unlawful
(d) Illegal
Answer:
(b) Not fraud

18. Silence is fraud when silence is, in itself equivalent to speech. This statement is:
(a) True
(b) False
(c) Untrue in certain cases
(d) None of these
Answer:
(a) True

19. A person is deemed to be in a position to dominate the will of another if he:
(a) Holds real or apparent authority
(b) Stands in a fiduciary relationship
(c) Both (a) and (b)
(d) Either (a) or (b)
Answer:
(c) Both (a) and (b)

20. If both the parties to a contract believe in the existence of a subject, which infact does not exist, the agreement would be ________.
(a) Unenforceable
(b) Void
(c) Voidable
(d) None of these
Answer:
(b) Void

21. When both the parties to an agreement are under a mistake as to a matter of fact essential to an agreement, the agreement is:
(a) Void
(b) Valid
(c) Voidable
(d) Illegal
Answer:
(a) Void

State Whether The Following Are True or False:

1. A threat to commit suicide does not amount to coercion.
2. A deceit which does not deceive is no fraud.
3. Consent obtained by fraud makes the agreement void.
4. A person who is usually of unsound mind but occasionally of sound mind can always enter into contract.
5. Mere silence as to facts likely to affect the willingness of a person to enter into contract is not fraud.
6. A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact.
7. In the absence of consent, there can be no contract.
8. A threat amounting to coercion must necessarily proceed from a party to the contract.
9. Undue influence involves use of moral pressure.
10. Undue influence can be exercised only by a party to the contract.
11. If there is no damage, there is no fraud.
12. In case of fraud, the aggrieved party loses the right to rescind the contract if he had the means of dis-covering the truth by ordinary diligence.
13. Undue influence can be exercised only between the parties who are related to each other.
14. A promise made without any intention of performing it amounts to fraud.
15. If one of the parties to a contract was under a mistake as to the matter of fact, the contract is voidable.
16. Ignorance of foreign law is put on a same level with ignorance of fact.
17. A contract is not voidable only because there is a mistake of Indian law.

Answer:

1. False
2. True
3. False
4. False
5. True
6. True
7. True
8. False
9. True
10. True
11. False
12. False
13. True
14. True
15. False
16. True
17. True

Students should practice Void Agreements – CA Foundation Business Law MCQ Questions with Answers based on the latest syllabus.

Void Agreements – Business Law MCQ Questions with Answers

1. The period of limitation for simple contract in India is __________.
(a) 2 years
(b) 3 years
(c) 6 years
(d) 8 years
Answer:
(b) 3 years

2. A void agreement is __________.
(a) Illegal
(b) Enforceable by law
(c) Not enforceable by law
(d) None of these.
Answer:
(c) Not enforceable by law

3. An agreement in restraint of parental rights is __________.
(a) Void
(b) Valid
(c) Voidable
(d) Defective
Answer:
(a) Void

4. An agreement will be unlawful if:
(a) There is no consent
(b) Consent is not free
(c) There is no consideration
(d) The object is forbidden by law
Answer:
(d) The object is forbidden by law

5. An agreement in restraint of marriage is:
(a) Voidable
(b) Void
(c) Valid
(d) Illegal.
Answer:
(b) Void

6. An agreement in restraint of trade is:
(a) Voidable
(b) Valid
(c) Void
(d) Illegal.
Answer:
(c) Void

7. A wagering agreement is:
(a) Voidable
(b) Void
(c) Valid
(d) Illegal.
Answer:
(b) Void

8. A contract of insurance is a :
(a) Contract of guarantee
(b) Contract of indemnity
(c) Wagering agreement
(d) Contingent contract
Answer:
(d) Contingent contract

9. In a wagering agreement:
(a) Both the parties win
(b) Both the parties loose
(c) None of the parties wins
(d) One party wins and the other looses.
Answer:
(d) One party wins and the other looses.

10. A wagering agreement in India is declared by the Contract Act as __________.
(a) Illegal and void
(b) Void but not illegal
(c) Voidable at the option of the aggrieved party
(d) Immoral
Answer:
(b) Void but not illegal

11. Agreement to do an impossible act has been declared __________.
(a) Void
(b) Voidable
(c) Enforceable
(d) None of these
Answer:
(a) Void

12. An agreement which restricts a person’s freedom 9 to marry or to marry any person of his choice is against public policy and is __________.
(a) Lawful
(b) Illegal
(c) Void
(d) None of these
Answer:
(c) Void

13. An agreement of service under which an employ¬ee agrees that he will serve a particular employer for a certain duration and that he will not serve anybody else during that period, is a __________.
(a) Valid agreement
(b) Void agreement
(c) Illegal agreement
(d) None of these
Answer:
(a) Valid agreement

14. If the contract is impossible in itself physically or legally the agreement is __________.
(a) Void contract
(b) Voidable
(c) Void ab initio
(d) None of these
Answer:
(c) Void ab initio

15. M, who is a dealer in mustard oil only, agrees to sell to N ‘500 litres of oil’. This agreement is __________.
(a) Valid contract
(b) Void contract
(c) Voidable contract
(d) Unenforceable contract
Answer:
(a) Valid contract

16. A and B agree that A shall pay ₹ 1000 for which B shall afterwards deliver to A either rice or smuggled opium. In this case __________.
(a) The first agreement is void and the second voidable
(b) The first is voidable and the second is void
(c) The first is valid and the second is void
(d) The first is void and the second is valid
Answer:
(c) The first is valid and the second is void

17. A promises B to pay ₹ 100 if it rains on Monday, and B promises A to pay ₹ 100 if it does not rain on Monday. This agreement is __________.
(a) a valid agreement
(b) a voidable agreement
(c) a wagering agreement
(d) an illegal agreement
Answer:
(c) a wagering agreement

18. P engages B to kill C and borrows ₹ 100 from D to pay B. If D is aware of the purpose of the loan, the transaction is __________.
(a) Valid
(b) Void
(c) Illegal
(d) Not enforceable
Answer:
(c) Illegal

19. A leaves a firm doing a particular business in Mumbai. He agrees with the other partners of the firm not to start a similar business as that of the firm in and around Mumbai for 3 years. This agreement is __________.
(a) Valid
(b) Immoral
(c) Illegal
(d) Void
Answer:
(a) Valid

20. A, while filling up the insurance application form, states his age as 25 believing it to be true. His actual age was 27. The Life Insurance Corporation issued a policy in his favour charging a lower premium than what it should have charged if the actual age had been given. This is a case of __________.
(a) Fraud
(b) Misrepresentation
(c) Undue influence
(d) Mistake of fact
Answer:
(b) Misrepresentation

21. B, having discovered a vein of ore on the estate of A, adopts means to conceal, and does conceal, the existence of the ore from A. Owing to A’s ignorance B is enabled to buy the estate at a low price. The contract is __________.
(a) Valid
(b) Void
(c) Voidable at the option of A
(d) Invalid
Answer:
(c) Voidable at the option of A

22. B let a cabin on hire to P a prostitute, knowing that it would be used for immoral purposes. The agreement is __________.
(a) Enforceable
(b) Valid
(c) Voidable
(d) Void
Answer:
(d) Void

23. A asks B to beat C, promising to compensate B against the consequences. B beats C and is fined ₹ 100. B can recover from A __________.
(a) ₹ 50
(b) ₹ 100
(c) Nothing
(d) ₹ 100 plus damages
Answer:
(a) ₹ 50

24. A enters into an agreement with B who has robbed A of ₹ 10,000 to drop prosecution against him (B) in consideration of B’s returning ₹ 8,000. Afterwards B refused to pay. A can get from B __________.
(a) ₹ 8,000
(b) ₹ 100
(c) Nothing
(d) ₹ 10,000 plus damages
Answer:
(c) Nothing

25. A agrees with B to discover treasure by magic for a consideration of ₹ 500. This is __________.
(a) A void agreement
(b) A void contract
(c) A valid agreement
(d) An unenforceable contract.
Answer:
(a) A void agreement

26. X, a tailor, employed Y as his assistant under an agreement that Y, on termination of his employ¬ment shall not start the business of a tailor. This restraint is __________.
(a) Void
(b) Valid
(c) Illegal
(d) Voidable
Answer:
(a) Void

27. X promises to marry Y after the death of his wife. This agreement is __________.
(a) Valid
(b) Void
(c) Illegal
(d) Invalid
Answer:
(a) Valid

28. A promises B to drop a prosecution which he has instituted against B for robbery, and B promis¬es to restore the value of the things taken. The agreement is __________.
(a) Valid
(b) Void
(c) Voidable
(d) A contract
Answer:
(b) Void

29. Rajeev entered into a contract with Lata to marry her on a fixed date. However, before the marriage date. Rajeev went mad. With reference to the Indian Contract Act which is the valid response?
(a) Lata can’t marry till Rajeev dies
(b) The executers of Rajeev can enforce the contract against Lata
(c) The contract becomes void
(d) All the statements are correct
Answer:
(c) The contract becomes void

State Whether The Following Are True or False:

1. An Agreement to discover treasure by magic is valid.
2. An Agreement to refer a future dispute to arbitration is perfectly valid.
3. Lotteries authorised by the Government are not to be taken as of wagering nature.
4. Wagering agreements do not cover insurance contracts.
5. A contract by which two or more persons agree to refer their disputes if any to arbitration shall be illegal.
6. Insurance contracts are basically wagering contracts.
7. Speculative transactions being wagering transactions are void.
8. An agreement which extinguishes personal legal rights of the parties is void.
9. An agreement the meaning of which is not certain or capable of being made certain is not void.
10. Transactions incidental to wagering agreements are not void.
11. An illegal contract is fatal to the main contract, but not to collateral transactions.

Answer:

1. False
2. True
3. True
4. True
5. False
6. False
7. False
8. True
9. False
10. True
11. False

Students should practice Auction Sale – CA Foundation Business Law MCQ Questions with Answers based on the latest syllabus.

Auction Sale – Business Law MCQ Questions with Answers

1. An auction sale is complete on the _________.
(a) delivery of goods
(b) payment of price
(c) fall of hammer
(d) None of the above
Answer:
(c) fall of hammer

2. In the case of sale by auction, where goods are put for sale in lots, each lot is prima facie the subject of _________.
(a) a single contract of sale
(b) a separate contract of sale
(c) either (a) or (b)
(d) both (a) and (b)
Answer:
(b) a separate contract of sale

3. Where a right to bid at the auction has been expressly reserved by the seller, the seller can depute _________.
(a) not more than one agent to bid on his behalf
(b) not more than two agents to bid on his behalf
(c) not more than three agents to bid on his behalf
(d) any number of agents to bid on his behalf
Answer:
(a) not more than one agent to bid on his behalf

4. Where the sale is not notified to be subject to a right to bid on behalf of seller, it shall not be lawful for the seller _________.
(a) to bid for himself
(b) to employ any person to bid at such sale
(c) either (a) or (b)
(d) neither (a) nor (b)
Answer:
(c) either (a) or (b)

5. X purchased a VCD at a public auction. Neither Auctioneer nor X knew at that time that the VCD was a stolen property. In such case, the true owner can _________.
(a) recover the goods from X
(b) sue the Auctioneer for fraud
(c) both (a) and (b)
(d) either (a) or (b)
Answer:
(a) recover the goods from X

6. At an auction sale, the bidder can withdraw his bid _________.
(a) before fall of hammer
(b) at any time during auction
(c) before payment of price
(d) cannot withdraw bid
Answer:
(a) before fall of hammer

7. An act by which an intending bidder is discouraged or dissuaded from bidding in the auction sale is called _________.
(a) Puffer
(b) Damping
(c) Dumping
(d) knockout
Answer:
(b) Damping

8. _________ is a form of combination of buyers to prevent competition among themselves at an auction sale.
(a) Knock-out agreement
(b) monopoly agreement
(c) oligopoly agreement
(d) puffing agreement
Answer:
(a) Knock-out agreement

9. In pretended bidding, sale is _________.
(a) voidable at the option of the seller
(b) valid
(c) voidable at the option of the buyer
(d) illegal
Answer:
(c) voidable at the option of the buyer

10. Unless excluded by an agreement to the contrary, where after a contract has been made but before it has been performed, excise duty is increased:
(a) The buyer would have to pay increased price
(b) The seller cannot charge increased price
(c) The seller can charge increased price
(d) Both ‘a’ and ‘c’
Answer:
(d) Both ‘a’ and ‘c’

11. Any imposition, increase, decrease or remission of (i) Customs or Excise Duty on Goods and (ii) Tax on the Sale or Purchase of Goods, subsequent to the sale, in case of decrease of tax, shall be deducted from the contract price by the Buyer and he shall not be liable to pay or be sued for such deduction.
(a) True
(b) Depends on the contract
(c) False
(d) Both ‘a’ and ‘b’
Answer:
(d) Both ‘a’ and ‘b’

State Whether The Following are True or False:

1. In case of sale by auction, a bid can be recalled at any time before the fall of hammer.
2. An auctioneer shall be liable for damages if the auctioneer had no authority to sell the goods.
3. If the buyer’s possession is disturbed by the auctioneer or the seller then buyer has a right to claim compensation.

Answer:

1. True
2. True
3. True

Students should practice CA Foundation BCK Chapter 2 MCQ with Answers Business Environment – CA Foundation BCK MCQ Questions based on the latest syllabus.

BCK CA Foundation Chapter 2 MCQ Questions – Business Environment

Interaction:

1. Organizations depend upon which environment for Input:
(a) Technological Environment
(b) Social-Economic Environment
(c) External Environment
(d) Legal Environment
Answer:
(c) External Environment

2. What is the single word that can best describe today’s business?
(a) Technology
(b) Persistence
(c) Profit making
(d) Change
Answer:
(d) Change

3. A business is created to provide:
(a) Products to Customers
(b) Services to Customers
(c) Employment opportunities
(d) All of the above
Answer:
(d) All of the above

4. In order to survive over the long term, a company must have the:
(a) Ability to Prosper
(b) Ability to change
(c) Both (a) and (b)
(d) None of the above
Answer:
(c) Both (a) and (b)

5. As per Charles Darwin, who sur-vives?
(a) Strongest
(b) Most Intelligent
(c) Most responsive to change
(d) All of the above
Answer:
(c) Most responsive to change

6. Which one of the following is not true about business ?
(a) It is created to provide products or services to customers.
(b) It creates job opportunities.
(c) It is beneficial to Society.
(d) It always gives return on invest-ment.
Answer:
(d) It always gives return on invest-ment.

7. Read the following three statements:
(i) The environment is constantly changing in nature.
(ii) Various environmental constituents exist in isolation and do not interact with each other.
(iii) The environment has a far reaching impact on organizations.
From the combinations given below select an alternative that represents statements that are true:
(a) (i) and (ii).
(b) (ii) and (iii)
(c) (i) and (iii)
(d) (i), (ii) and (iii)
Answer:
(c) (i) and (iii)

8. Which one of following is not true about Business Environment?
(a) It represents all external forces, factors or conditions that exert same degree of impact on business decisions.
(b) The success of business is affected by business environment.
(c) The business must continuously monitor and adapt itself to the environment.
(d) It includes internal forces only.
Answer:
(d) It includes internal forces only.

9. The integral elements of business environment include.
(a) Internal forces
(b) External Forces
(c) Both (a) and (b)
(d) Either (a) or (b)
Answer:
(c) Both (a) and (b)

10. As per Traditional authors, the integral elements of business environment include:
(a) Internal forces only
(b) External forces only
(c) Internal & External forces
(d) Internal or External Forces
Answer:
(b) External forces only

11. In order to Survive and proposer a business:
I. Must Continuously monitor
II. Must adapt itself to the environment
III. Must Concentrate on its weakness only
IV. Must Concentrate on its Strength only.
(a) I
(b) I and II
(c) II and III
(d) III and IV
Answer:
(b) I and II

12. What is not a characteristic of business environment?
(a) Static
(b) Complex
(c) Far reaching
(d) Multi-faced
Answer:
(a) Static

13. Which of the following are not characteristics of business environment:
(a) Complex
(b) Dynamic
(c) Single Faceted
(d) Far reaching impact
Answer:
(c) Single Faceted

14. Which is not a feature of business environment?
(a) Simple
(b) Complex
(c) Multi fact
(d) Dynamic
Answer:
(a) Simple

15. It is easy to understand the business environment in parts but difficult to grasp in totality. Therefore, Business Environment is _________.
(a) Complex
(b) Dynamic
(c) Multi-faceted
(d) Far Reaching impact.
Answer:
(a) Complex

16. Now-a-days, the film industry generates revenue from ring tones/caller tunes rather than sale of music C.D. It exhibits _________ feature of business environment.
(a) Complex
(b) Dynamic
(c) Multi-faceted
(d) Far Reaching impact
Answer:
(b) Dynamic

17. An organisation like Aditya Birla Group has moved from textile to cement, to retail and to financial services as well as telecom due to changing circumstances. This example is related with _________ feature of Business Environment.
(a) Complex
(b) Dynamic
(c) Multi-faceted
(d) Far Reaching impact
Answer:
(d) Far Reaching impact

18. There is a _________ interaction between Business and Business Environment.
(a) Close
(b) Close and continuous
(c) Close and static
(d) Continuous and Static
Answer:
(b) Close and continuous

19. The interaction between Business and its Environment, helps the business in:
(a) Determining Opportunities and Threats
(b) Continuous learning
(c) Giving directions for growth
(d) All of the above.
Answer:
(d) All of the above.

20. In relation to solving the problem of shortage of Electricity, “CPP” means:
(a) Captive Power Plant
(b) Creative Power Plant
(c) Central Power Plant
(d) Controlled Power Plant
Answer:
(a) Captive Power Plant

21. The interaction between Business and Environment brings out:
(a) Opportunities for the business
(b) Threats to the business
(c) Opportunities for and Threats to the business
(d) Complex and Dynamic analysis.
Answer:
(c) Opportunities for and Threats to the business

22. Which one of the following is not an advantage of Business Environment to the business?
(a) Determination of Opportunities & Threats
(b) Meeting Competition
(c) Image Building
(d) Identification of financial needs.
Answer:
(d) Identification of financial needs.

23. Relationship between organisation and environment can be described through:
(a) Exchange of information
(b) Exchange of resources
(c) Exchange of influence and power
(d) All of the above
Answer:
(d) All of the above

24. Which one of the following is the major areas as regards interaction of organisation and its environment?
(a) Exchange of Information
(b) Exchange of Resources
(c) Exchange of influence power
(d) All of the above.
Answer:
(d) All of the above.

25. The nature of relationship between the organization and the Environment depends upon:
I. Size of organisation
II. Age of organisation
III. Nature of Business
IV. Nature of ownership
V. Degree of Professionalization of management.
(a) I and II
(b) I, II and III
(c) I, II, III & IV
(d) I, II, III, IV & V
Answer:
(d) I, II, III, IV & V

26. Which one of the following is not true about External Environment?
(a) It offers opportunities
(b) It offers limitations also.
(c) It creates pressures & threats
(d) It never affects small business.
Answer:
(d) It never affects small business.

27. Which one of the following Companies is affected by FMCG Company ‘Patanjali’ endorsed by Baba Ramdev?
(a) Hindustan Unilever Ltd.
(b) P&G Ltd.
(c) Dabur Ltd.
(d) Bajaj Auto Ltd.
Answer:
(d) Bajaj Auto Ltd.

28. In relation to resources, “5M” represents:
(a) Men, Money, Method, Machine and Material
(b) Management,Motivation,Money, Machine and Material
(c) Morale, Money, Method, Machine and Material
(d) Mobility, Method, Management, Machine and Material.
Answer:
(a) Men, Money, Method, Machine and Material

29. In the relationship between organizations and its environment, there is exchange of:
(a) Information
(b) Resources
(c) Influence and Power
(d) All of the above.
Answer:
(d) All of the above.

30. Which one of the following Statement is incorrect?
(a) The organisation is dependent on the external environment for disposal of its output of products and services.
(b) The organisation scans the external environmental valuables.
(c) Apart from gathering in form ability, the organization itself transmits information to several external agencies.
(d) The external environment offers strengths and weakness.
Answer:
(d) The external environment offers strengths and weakness.

31. Which one of the following is organization’s response to its Environment?
(a) Administrative
(b) Competitive
(c) Collective
(d) All of the above.
Answer:
(d) All of the above.

32. The formation or clarification of the organization’s mission; the development of objectives, polices and budgets, etc. are the examples of _________ response of organisation to environment:
(a) Administrative
(b) Competitive
(c) Collective
(d) None of the above
Answer:
(a) Administrative

33. The methods like bargaining, Contracting, Co-opting, creating joint ventures, etc. are related with _________ response of organisation to its environment.
(a) Administrative
(b) Competitive
(c) Collective
(d) Ministerial
Answer:
(c) Collective

34. In order to respond appropriately, the organizations must:
(a) Have the Capacity to monitor
(b) Make sense of their environment
(c) Identify and attend the environmental factors
(d) All of the above.
Answer:
(d) All of the above.

35. In order to sustain competitive advantage, organizations must achieve an external position vis-a-vis their competitors or perform internally in ways that is/are:
(a) Unique
(b) Valuable
(c) Difficult to imitate
(d) All of the above.
Answer:
(d) All of the above.

36. Which of the following statement is incorrect as regards organization’s response to its environment?
(a) Organizations must have the capacity to monitor and make sense of their environments.
(b) Organizations must identify and attend to the environmental factors and features that all closely related to goal achievement and performance.
(c) Organizations must have the interval capacity to develop effective responses.
(d) Organisation can function ignoring the environment.
Answer:
(d) Organisation can function ignoring the environment.

37. In relation to a popular cold drink “Pepsi”, which one of the following is not internal factor?
(a) Packaging
(b) Scheme & Promotion
(c) Distribution Networks
(d) Health Awareness
Answer:
(d) Health Awareness

38. Which one of the following statement is incorrect?
(a) Business does not function in an isolated Vacuum.
(b) Business function within a whole gambit of relevant environment.
(c) Businesses have to negotiate their ways through it.
(d) Business must monitor the environment periodically.
Answer:
(d) Business must monitor the environment periodically.

39. A Successful business has to _________ the various opportunities and threats in its environment.
(a) Identify
(b) Identify and appraise
(c) Identify, appraise and respond to
(d) Identify, appraise, suggest and respond to.
Answer:
(c) Identify, appraise and respond to

40. Apart from the natural environ-ment, environment of humans include:
(a) Family
(b) Friends and peers
(c) Neighbours and society
(d) All of the above.
Answer:
(d) All of the above.

41. Which of the following is/are in-cluded in man-made structures within an environment?
(a) Buildings and Roads
(b) Furniture
(c) Other Physical infrastructure
(d) All of the above
Answer:
(d) All of the above

42. Different organizations use different inputs & produce different outputs. The input-output exchange activity is.
(a) Different for organizations
(b) A continuous process
(c) It calls for an active interaction with the external environment
(d) All of the above
Answer:
(d) All of the above

43. Business functions as a part of broader environment. Business converts resources through various processes. This exchange process may bring _________.
(a) Profits
(b) Reputation
(c) Good Piiblic Image
(d) Any of the above
Answer:
(d) Any of the above

44. In an attempt to identify a frame-work for understanding the environ-ment of organizations, various steps are required.
I. Explicit Consideration of immediate environment
II. To Check the nature (Static/ Simple/Complex)
III. Auditing of environmental influ-ences.
The Sequential steps are
(a) I, II & III
(b) I, III & II
(c) II, III and I
(d) III, II and I
Answer:
(c) II, III and I

45. Environmental Analysis helps in:
(a) Providing input for strategic decision making
(b) Turning threat’s to firms advantage
(c) Anticipate opportunities and to take optimal responses
(d) All of the above
Answer:
(d) All of the above

46. Business Environment analysis help in:
(a) Give directions for growth
(b) Determining opportunities and threats
(c) Image building
(d) All of the above.
Answer:
(d) All of the above.

47. Which of the following is not the basic goal of environmental Analysis?
(a) Understanding of Current and potential changes taking place in the environment.
(b) Provide inputs for strategic decision making.
(c) Facilitate and foster strategic thinking in organization.
(d) Provide the internal strengths of the organisation.
Answer:
(d) Provide the internal strengths of the organisation.

48. When the company does not react to the demands of the environment by changing its Strategy, the result is :
(a) Declining performance of the Company
(b) Forgoing of opportunities avail-able
(c) Ignoring the treats to the firm.
(d) All of the above
Answer:
(d) All of the above

49. Which of the following signifies the utility of Environmental analysis?
(a) It gives the time to strategists to anticipate the opportunities
(b) The strategists can plan to take optional response to the opportunities.
(c) Strategists can develop an early warning system to prevent threats.
(d) All of the above
Answer:
(d) All of the above

50. Select the correct statement out of the following:
(a) Environmental factors are totally beyond the control of a single industrial enterprise.
(b) Environmental factors are largely beyond the control of a single industrial enterprise.
(c) Environmental factors are totally within the control of a single industrial enterprise.
(d) None of the above.
Answer:
(b) Environmental factors are largely beyond the control of a single industrial enterprise.

51. Analyzing process of change in the business environment involves conceptualizing its as:
(a) Complex
(b) Static
(c) Dynamic
(d) Diverse
Answer:
(a) Complex

52. _________ is the process by which organizations monitor their relevant environment to identify opportunities and threats affecting their business for the purpose of taking strategic decisions.
(a) Forecasting
(b) Assessment
(c) Scanning
(d) None of the above
Answer:
(c) Scanning

53. Environmental Scanning must identify.
(a) Threats existing in the environ-ment
(b) Opportunities existing in the en-vironment
(c) Threats and opportunities exist-ing in the environment
(d) Threats, Opportunities, Strengths and Weaknesses.
Answer:
(c) Threats and opportunities exist-ing in the environment

54. In environmental scanning, the factor _________ represents certain happening in the internal or external organizational environment which can be observed and tracked.
(a) Events
(b) Trends
(c) Issues
(d) Expectations
Answer:
(a) Events

55. _________ is important and specific occurrence taking place in different environmental sectors.
(a) Events
(b) Trends
(c) Issues
(d) Expectations
Answer:
(a) Events

56. Trends relate to:
(a) Happening of events in internal Environment
(b) Grouping of similar or related events
(c) Demands made by Interested group
(d) None of the above
Answer:
(b) Grouping of similar or related events

57. _________ are the general tendencies or the causes of action along which events take place.
(a) Events
(b) Probability
(c) Trends
(d) Directions
Answer:
(c) Trends

58. The demands made by interested groups in the light of their concern for issues that arise in response to events and trends is called as _________.
(a) Appraisal
(b) Evaluation
(c) Observation
(d) Expectations
Answer:
(d) Expectations

59. The businesses should continu-ously _________ and _________ to the environment if it is to service and prosper.
(a) Identify, appraise
(b) Monitor, adapt
(c) Identify, monitor
(d) Monitor, appraise
Answer:
(b) Monitor, adapt

60. Which one of the following is not a factor which need to be considered for environmental scanning?
(a) Events
(b) Trends
(c) Issues
(d) Strategy
Answer:
(d) Strategy

61. Perceiving the needs of the external environment and catering to them, satisfying the expectations and demands of the clientele groups is:
(a) Reciprocal agreement
(b) Interdependent process
(c) Management process
(d) Interaction process
Answer:
(d) Interaction process

62. Which of the following is a part of process of Environmental Scanning?
(a) Scanning Strategic
(b) Perceived Environment Change
(c) Strategic change
(d) All of the above.
Answer:
(d) All of the above.

63. A threat is _________.
(a) An unfavourable condition in organization environment which creates risk or damage to the Environment
(b) An inherent limitation or con-straint
(c) An unfavourable condition in organization environment which consolidates its strength
(d) None of the above
Answer:
(a) An unfavourable condition in organization environment which creates risk or damage to the Environment

64. Internal Environment includes _________.
(a) Demography
(b) Customer
(c) Economic
(d) Mission and Objective
Answer:
(d) Mission and Objective

65. Opportunity is _________.
(a) Inherent Capacity
(b) Strategic disadvantage
(c) Favourable condition
(d) None of the above
Answer:
(c) Favourable condition

66. SWOT stands for;
(a) Strength, Weakness, Opportunity, Threats
(b) Strong, Weak, occurring, Things
(c) Strong, Weak, Occurring, Things
(d) Strength, Weak, Opportunity, Things
Answer:
(a) Strength, Weakness, Opportunity, Threats

67. Through SWOT analysis:
(a) Strengths and weakness existing within the environment can be matched with opportunities and threats in the organisation.
(b) Strengths and weakness existing outside the organisation can be matched with opportunities and threats with the internal environment.
(c) Strengths and weakness existing outside the organisation can be matched with opportunities and threats with the external environment.
(d) Strengths and weakness existing within an organisation can be matched with opportunities and threats in the environment.
Answer:
(c) Strengths and weakness existing outside the organisation can be matched with opportunities and threats with the external environment.

68. Which one of the following is not a part of interval Environment?
(a) Value System
(b) Mission and objectives
(c) Customers
(d) Labour Union
Answer:
(a) Value System

69. The Micro Environment of external Environment includes:
(a) Market
(b) Technological
(c) Demographic
(d) Economic
Answer:
(a) Market

70. The interval environment of business organisation is composed of multiple elements existing within the organisation. It includes:
(d) Management
(b) Current Employees
(c) Corporate Culture
(d) All of the above
Answer:
(d) All of the above

71. The Micro and Macro environment are the major types of :
(a) Interval Environment
(b) External Environment
(c) Both Internal and External envi-ronment
(d) Business Environment.
Answer:
(b) External Environment

72. The growing demand for the products or services, that a company provides, may be regarded as:
(a) Opportunity
(b) Strength
(c) Weakness
(d) Threat
Answer:
(a) Opportunity

73. The emergence of strong new competitors who are likely to offer stiff competition to the existing Companies in an industry is an example of :
(a) Threat
(b) Weakness
(c) Problem
(d) Hurdle
Answer:
(a) Threat

74. A Company is having superior re-search and development skills which can be used for new product develop-ment so that the Company gains com-petitive advantage. It is an example of:
(a) Potential
(b) Strength
(c) Competitive advantage
(d) Strong Capabilities.
Answer:
(b) Strength

75. Process of strategy formulation starts with:
(a) Appraisal of external and internal environment of the of an organization
(b) Performance analysis
(c) Choice of strategy
(d) None of the above
Answer:
(a) Appraisal of external and internal environment of the of an organization

76. A _________ is inherent capacity which an organisation can use to gain strategic advantage over it’s competitors.
(a) Strength
(b) Opportunities
(c) Threat
(d) Weakness
Answer:
(a) Strength

77. An understanding of the external and internal environment is crucial for the _________ of any organisation.
(a) Existence
(b) Growth
(c) Profitability
(d) All of the above
Answer:
(d) All of the above

78. The opportunities and threats operate in _________ environment.
(a) Internal
(b) External
(c) Internal and External
(d) Micro
Answer:
(b) External

79. An organization should use it’s _________ to minimize impact of _________.
(a) Strengths, weakness
(b) Opportunities, weakness
(c) Strengths, Threats
(d) Opportunities, Threats.
Answer:
(a) Strengths, weakness

80. According to _________, the aim of the business is to create and retain customer.
(a) Peter Drucker
(b) Adam Smith
(c) Henry Ford
(d) Schumpeter
Answer:
(a) Peter Drucker

81. _________ have a vested interest in the well-being of the company.
(a) Shareholder
(b) Directors
(c) Owner
(d) Employees
Answer:
(c) Owner

82. Cost structure of an industry is effected by _________ own bargaining power.
(a) Organizations
(b) Suppliers
(c) Consumer
(d) Intermediary
Answer:
(b) Suppliers

83. All are elements of micro environment except:
(a) Consumer.
(b) Suppliers.
(c) Competitors.
(d) Society.
Answer:
(d) Society.

84. Competition brings direct benefit to _________.
(a) Customers
(b) Suppliers
(c) Government
(d) Intermediaries
Answer:
(a) Customers

85. Competition is beneficial to the competing firms besides benefiting the?
(a) Intermediaries
(b) Customers
(c) Producers
(d) Financiers
Answer:
(b) Customers

86. The market is larger than customers. The market is to be studied in terms of.
(a) Actual and potential size
(b) Growth prospect
(c) Attractiveness
(d) All of the above.
Answer:
(d) All of the above.

87. The price sensitivity of the market is an important factor of which element of Micro environment:
(a) Suppliers
(b) Market
(c) Intermediaries
(d) Customer
Answer:
(b) Market

88. _________ exert a considerable influence on the business organizations. They are the ones who act as a bridge between the manufacture and the marketer.
(a) Customers
(b) Intermediaries
(c) Suppliers
(d) Organisation.
Answer:
(b) Intermediaries

89. The performance of business in the private sector is measured by:
(a) Profitability
(b) Customer Satisfaction
(c) Number of employees
(d) The salary of BOD
Answer:
(b) Customer Satisfaction

90. Environment which is close to business and affect its capacity to work is known as _________ environment.
(a) Micro
(b) Macro
(c) Internal
(d) External
Answer:
(a) Micro

91. _________ is also known as the task environment and affects business and marketing in the daily operating level.
(a) Micro Environment
(b) Macro Environment
(c) Mini Environment
(d) Internal Environment
Answer:
(a) Micro Environment

92. The non-specific elements of the organisations surroundings that may affect its activities are;
(a) Customers, suppliers and employees
(b) Suppliers, owners, employees
(c) Owners, Board of Directors and Employees
(d) Customers, Intermediaries, Suppliers.
Answer:
(c) Owners, Board of Directors and Employees

93. _________ with their own bargaining power affect the cost structure of the industry.
(a) Intermediaries
(b) Suppliers
(c) Consumer
(d) Government
Answer:
(b) Suppliers

94. Who has given the preposition, “we have met the enemy and he is us”?
(a) Pogo
(b) Drucker
(c) Kotler
(d) None of these
Answer:
(a) Pogo

95. All are elements of macro environ-ment except:
(a) Society.
(b) Government.
(c) Competitors.
(d) Technology.
Answer:
(a) Society.

96. Macro Environment includes _________.
(a) Strength
(b) Weakness
(c) Opportunity
(d) All of the above
Answer:
(c) Opportunity

97. Which of the following is not a part of the economic environment?
(a) Market and trade cycles
(b) Consumer buying patterns
(c) Strength of consumer spending
(d) Interest and exchange rates
Answer:
(b) Consumer buying patterns

98. Which of the following factor af-fects the economic environment?
(a) Economic System
(b) Economic Condition
(c) Economic Policies
(d) All of the above
Answer:
(d) All of the above

99. _________ of the government covers all those principles, polices, rules, regulations and procedures, which direct and control the industrial enterprises of the country and shape the pattern of industrial development.
(a) Industrial Policy
(b) Monetary Policy
(c) Investment Policy
(d) Generic Policy
Answer:
(a) Industrial Policy

100. Demographic environment re-lates to:
(a) Characteristics of population in an area, district, country or in the World.
(b) Influence almost all enterprises in a similar manner.
(c) Influence almost all enterprises in a similar manner.
(d) Positive and negative impact of significant international event.
Answer:
(a) Characteristics of population in an area, district, country or in the World.

101. Which of the following statement is not a factor influencing sociocultural environment:
(a) Family structure and changes in it, attitude towards and within the family, and family values.
(b) Educational levels, awareness and consciousness of rights, and work ethics of members of soci-ety.
(c) Opportunities arising out of technological innovation.
(d) Role of women in society, position of children and adolescents in family and society.
Answer:
(d) Role of women in society, position of children and adolescents in family and society.

102. Business and technology are:
(a) Interrelated
(b) Interdependent
(c) Interrelated & Interdependent
(d) None of the above
Answer:
(c) Interrelated & Interdependent

103. Which of the following is not a factor of Demographic Environment?
(a) Ethnic Mix
(b) Legal
(c) Population size
(d) Geographic Distribution
Answer:
(b) Legal

104. The Fiscal Policy includes government policy in respect of :
(a) Public Expenditure
(b) Taxation
(c) Public Debt
(d) All of the above
Answer:
(d) All of the above

105. The important elements in polit-ical-legal environment are:
(a) Government, legal and economical.
(b) Government, legal and political.
(c) Technological, legal and economical.
(d) Government, technological and legal.
Answer:
(b) Government, legal and political.

106. The _________ environment refers to the nature and direction of the economy in which a company competes or may compete.
(a) Sociocultural
(b) Internal
(c) Micro
(d) Economic
Answer:
(c) Micro

107. The Central Government has introduced new GST law which has influenced most of the business. It is related with which of the following elements of Macro environment?
(a) Demographic
(b) Economic
(c) Political-Legal
(d) Sociocultural
Answer:
(c) Political-Legal

108. Study of human population is called as _________ environment.
(a) Political
(b) Demographic
(c) Global
(d) Economic
Answer:
(b) Demographic

109. Which of the following is a factor of Demographic Environment?
(a) Population size
(b) Geographic Distribution
(c) Ethnic Mix
(d) All of the above.
Answer:
(d) All of the above.

110. Which one of the following Statement is incorrect?
(a) Customers are the people who pay money to acquire an orga-nization’s products.
(b) The organizations cannot survive without customers.
(c) Consumer is one who ultimately Consumes or uses the product or service.
(d) Customer is always a Consumer.
Answer:
(d) Customer is always a Consumer.

111. In the PEST framework for en-vironmental analysis what does the letter E stand for?
(a) Ecological
(b) Economic
(c) Ethical
(d) Educational
Answer:
(b) Economic

112. The two E’s in PESTLE stands for:
(a) Economic and Environment
(b) Endless and Economic
(c) Entry and Exist
(d) End and Exit
Answer:
(a) Economic and Environment

113. The term PESTLE analysis is used to describe a framework for analyzing:
(a) Macro Environment
(b) Micro Environment
(c) Both Macro and Micro Environ-ment
(d) None of above
Answer:
(a) Macro Environment

114. Which of the following factor is not included in Traditional model “PEST” available for environmental monitoring?
(a) Political and Legal
(b) Economic and Environmental
(c) Legal and environmental
(d) Economic and Legal.
Answer:
(c) Legal and environmental

115. PESTLE analysis does not include _________.
(a) Legal
(b) Economic
(c) Technology
(d) Policy
Answer:
(d) Policy

116. Which environmental factors regulate the values and beliefs, tradi-tions and customs of society?
(a) Political-legal factors
(b) Technological factors
(c) Economic factors
(d) Sociocultural factors
Answer:
(d) Sociocultural factors

117. _________ describe a framework for analysis of macro environmental factor.
(a) SOCIAL
(b) PESTLE
(c) POLITICAL
(d) MIXED
Answer:
(b) PESTLE

118. In PESTLE Matrix, which of the following is not a part of Social Factor?
(a) Health and Safety law
(b) Demographics
(c) Religious
(d) Lifestyle trends
Answer:
(a) Health and Safety law

119. In PESTLE Analysis, _________ factors are how and to what extent the government intervenes in the economy and the activities of business firms.
(a) Political
(b) Economic
(c) Environmental
(d) Legal
Answer:
(a) Political

120. Environmental factors in PES-TLE Matrix include:
(a) Energy Consumption
(b) Waste disposal
(c) Environmental Hazards/legislation
(d) All of the above
Answer:
(d) All of the above

121. All of the following are the elements of Political factor except.
(a) Political Stability
(b) Market and Trade Cycles
(c) Current and future taxation policy
(d) Regulatory bodies and processes.
Answer:
(b) Market and Trade Cycles

122. Strategically, the businesses show make efforts to :
(a) Exploit the opportunities
(b) Overcome the threats
(c) Both (a) & (b)
(d) Either (a) or (b)
Answer:
(c) Both (a) & (b)

123. The following statement relates to which strategic response approach to the environment:
They seek to monitor the changes in that environment, analyse their impact on their own goals and activities and translate their assessment in terms of specific strategies for survival, stability and strength.
(a) Proceed with caution
(b) Least resistance
(c) Dynamic response
(d) Static Response
Answer:
(a) Proceed with caution

124. Which of the following is not a FMCG Company:
(a) Patanjali
(b) Colgate
(c) Bajaj
(d) Amul
Answer:
(c) Bajaj

125. Which of the following is not a characteristic least resistance strategic response:
(a) Simple goal maintaining
(b) Passive approach
(c) Dynamic
(d) All of the above
Answer:
(c) Dynamic

126. Which of the following ap-proaches of strategic response to the environment is related with controlling the external environment?
(a) Least Resistance
(b) Proceed with caution
(c) Dynamic Response
(d) All of the above
Answer:
(c) Dynamic Response

127. _________ is the highest level response of business where they try to convert threats into opportunities.
(a) Resistance
(b) Caution
(c) Dynamic
(d) Complex
Answer:
(c) Dynamic

128. What is the kind of response that businesses should make efforts to exploit the opportunity and thought the threats:
(a) Strategic Responses
(b) Least resistance
(c) Diversify
(d) Simplify
Answer:
(a) Strategic Responses

129. The strategic approach to the environment followed by “Airtel” may be regarded as:
(a) Wait and watch
(b) Proceed with Caution
(c) Proceed with Dynamic response.
(d) Aggressive.
Answer:
(b) Proceed with Caution

130. In response to the changes in the environment organizations in general should:
(a) Understand the impact of chang-es on the strategy and make ap-propriate modifications.
(b) Make efforts that changes are reverted back so that organiza-tions can function smoothly.
(c) Ignore the changes.
(d) None of the above.
Answer:
(a) Understand the impact of chang-es on the strategy and make ap-propriate modifications.

131. The “Least Assistance approach” of Strategic response to the environ-ment has been followed by the Com-pany:
(a) Airtel
(b) BSNL
(c) Vodafone
(d) None of the above
Answer:
(b) BSNL

132. Which of the following is not true as regards dynamic response?
(a) They want to control external environment
(b) The feedback systems are highly dynamic & Powerful
(c) They Converts threats into op-portunities
(d) They just manage to survive by way of coping with their changing external environments.
Answer:
(d) They just manage to survive by way of coping with their changing external environments.

133. response not merely recognise and ward off threats but also covert threat into opportunities:
(a) Aggressive
(b) Dynamic
(c) Static
(d) Passive
Answer:
(b) Dynamic

Students should practice The Companies Act, 2013 – CA Foundation Business Law MCQ Questions with Answers based on the latest syllabus.

The Companies Act, 2013 – Business Law MCQ Questions with Answers

1. In which case the principle of corporate veil was ignored by the courts:
(a) Determination of character of the company
(b) For protection of revenue of the Government
(c) For prevention of fraud or improper conduct
(d) All of these
Answer:
(d) All of these

2. A company is incorporated in India, but all its members are the Americans. Such company is:
(a) An Indian company
(b) An American company
(c) An illegal association
(d) A government company
Answer:
(a) An Indian company

3. A company cannot be treated as a citizen, yet it has its:
(a) Nationality
(b) Domicile
(c) Residence
(d) All of these
Answer:
(d) All of these

4. Which of the following is called the charter of a company?
(a) Prospectus
(b) Articles of Association
(c) Memorandum
(d) Certificate of Incorporation
Answer:
(c) Memorandum

5. Which of the following tables in Schedule I of the Act does not contain any prescribed form of Memorandum?
(a) F
(b) B
(c) E
(d) D
Answer:
(a) F

6. How many fundamentals clauses are contained in the Memorandum of a company?
(a) 4
(b) 5
(c) 6
(d) 7
Answer:
(c) 6

7. Under the Registered office clause, a company has to give the name of the:
(a) Town
(b) Village
(c) District
(d) State
Answer:
(d) State

8. Acts done by a company ‘beyond its powers’ are termed:
(a) Intra vires
(b) illegal
(c) ultra vires
(d) none of these.
Answer:
(c) ultra vires

9. The regulations contained in which of the following Tables are also called ‘articles’:
(a) A
(b) B
(c) C
(d) none of these.
Answer:
(d) none of these.

10. Articles of Association are the regulator of the behaviour of:
(a) Creditors
(b) Directors and officers
(c) Suppliers
(d) Outside public
Answer:
(b) Directors and officers

11. Articles of Association are subordinate to:
(a) Prospectus
(b) Board of Directors
(c) Memorandum and Companies Act
(d) None of these
Answer:
(c) Memorandum and Companies Act

12. Which of the following documents contains bye- laws that govern the internal management of a company:
(a) Memorandum
(b) Articles
(c) Prospectus
(d) All of these
Answer:
(c) Prospectus

13. Registration of Articles of Association is compulsory for which of the following companies:
(a) Unlimited companies
(b) Companies limited by guarantee
(c) Private companies limited by shares
(d) All of these
Answer:
(d) All of these

14. Which of the following companies may or may not frame (register) their articles of association
(a) Unlimited companies
(b) Private companies limited by shares
(c) Companies limited by guarantee
(d) None, all has to have its own articles.
Answer:
(d) None, all has to have its own articles.

15. The Articles of association must be signed by:
(a) All the directors
(b) All the promoters
(c) The auditors
(d) All the subscribers of the memorandum
Answer:
(d) All the subscribers of the memorandum

16. Which of the following is the necessary condition in case of the Articles of a company:
(a) Be printed
(b) Be divided into paragraphs numbered consecutively
(c) Be signed by each subscriber of the Memorandum
(d) All of these.
Answer:
(d) All of these.

17. Memorandum and Articles of a company are:
(a) Private documents
(b) Public documents
(c) Government documents
(d) All of the above
Answer:
(b) Public documents

18. Under the doctrine or rule of ‘constructive notice’ which of the following persons are presumed to have read the Memorandum and the Articles:
(a) Members
(b) Directors
(c) Outsiders
(d) Officers of the company
Answer:
(c) Outsiders

19. The benefit of the Doctrine of Indoor Management is available only to the:
(a) Directors
(b) Shareholders
(c) Officers of the company
(d) Outsiders
Answer:
(d) Outsiders

State Whether The Following are True or False:

1. ‘Patel & Co.’ is a company in the eyes of the law.
2. A company has its own distinct entity.
3. If the members composing a company die or dissociate themselves from the company, such company gets annihilated along with.
4. The creditors of a company can sue its members for the debts of the company.
5. A company being an artificial person cannot own property and cannot sue or be sued.
6. A private company need not have its own Articles.
7. A company limited by guarantee cannot have share capital.
8. A company that does not hold more than 50% of total share capital of another company, may still be a holding company of that another one.
9. A Government company is that company of which all the share are held by the Government.
10. A licenced company can be registered with limited liability without adding the word ‘Limited’ to its name.
11. A ‘one-man company’ is a legal entity in the eyes of the law.
12. Memorandum is the basic document facilitating the incorporation of a company.
13. It is not necessary for a company to mention the actual address of its registered office in the Memorandum.
14. The domicile and nationality of a company are determined on the basis of its registered office.
15. The acts ultra vires the directors are null and void and therefore cannot be ratified by the shareholders.
16. The transactions ultras vires the Memorandum can be ratified by the unanimous consent of all the shareholders.
17. Articles are rules framed for governing the internal affairs of the company.
18. Articles are bye-laws for the general administration of a company.
19. Memorandum is subsidiary to articles.
20. No form has been prescribed for the articles of companies in the Act.
21. Memorandum and articles bind the company to its members, and also each member to the company inter se.
22. Memorandum and articles are public documents open to public inspection.
23. An outsider dealing with a company is presumed to have knowledge of the provisions of its memorandum and articles.
24. An outsider dealings with a company has a rights to assume that its internal management has no irregularity.

Answer:

1. False
2. True
3. False
4. False
5. False
6. False
7. False
8. True
9. False
10. True
11. True
12. True
13. True
14. True
15. False
16. False
17. True
18. True
19. False
20. False
21. True
22. True
23. True
24. True

Students should practice Offer and Acceptance – CA Foundation Business Law MCQ Questions with Answers based on the latest syllabus.

Offer and Acceptance – Business Law MCQ Questions with Answers

1. Partial acceptance of offer result in _________.
(a) counter offer
(b) unqualified acceptance
(c) binding contract
(d) none of the above
Answer:
(a) counter offer

2. A tender is _________.
(a) an offer
(b) invitation to an offer
(c) acceptance of offer
(d) none of the above
Answer:
(b) invitation to an offer

3. Death or insanity of the proposer will revoke the proposal _________.
(a) Automatically.
(b) If the fact of the death or insanity is known to the offeree.
(c) The knowledge of death or insanity is irrelevant.
(d) Only if the family members of the proposer informs the offeree.
Answer:
(b) If the fact of the death or insanity is known to the offeree.

4. When counter offer is given, the original offer _________.
(a) Lapses.
(b) Remains valid.
(c) Is accepted and becomes a contract.
(d) The original offer can also be accepted.
Answer:
(a) Lapses.

5. For an acceptance to be valid, it must be _________.
(a) Partial & qualified.
(b) Absolute & unqualified.
(c) Partial & unqualified.
(d) Absolute & qualified.
Answer:
(b) Absolute & unqualified.

6. Acceptance takes place as against the proposer, when _________.
(a) When the letter of acceptance is posted by the acceptor.
(b) When the letter of acceptance is received by the proposer.
(c) When the offeree, writes the letter of acceptance, but doesn’t post it.
(d) All the above.
Answer:
(a) When the letter of acceptance is posted by the acceptor.

7. An advertisement for sale goods by auction _________.
(a) Amounts to an invitation to offer.
(b) Amounts to an offer to hold such sale.
(c) Amounts to an implied offer.
(d) Amount to a general offer.
Answer:
(a) Amounts to an invitation to offer.

8. Communication of offer is complete when _________.
(a) It comes to the knowledge of the offeree.
(b) It is posted to the offeree.
(c) When the offeror writes the letter but does not post it.
(d) None of the above
Answer:
(a) It comes to the knowledge of the offeree.

9. An acceptance will be revoked at any time before the communication of acceptance is complete against the acceptor, but not afterwards _________.
(a) True
(b) False
(c) Acceptance once given cannot be revoked.
(d) Acceptance can be revoked at any time.
Answer:
(a) True

10. Acceptance once given cannot be revoked.
(a) True
(b) False
(c) Incomplete information.
(d) None of the above.
Answer:
(a) True

11. A tender and a bid at an auction sale are _________.
(a) Not offers.
(b) Offers.
(c) Acceptance of the offer.
(d) Invitation to offer.
Answer:
(b) Offers.

12. A quotation is:
(a) Not offer.
(b) Offer.
(c) Acceptance of the offer.
(d) Invitation to offer.
Answer:
(d) Invitation to offer.

13. If the offeree does not accept the offer according to the mode prescribed, then _________.
(a) The offeror may accept or reject such acceptance.
(b) The offer lapses automatically.
(c) It is a counter offer.
(d) Offeree commits a breach of contract.
Answer:
(a) The offeror may accept or reject such acceptance.

14. Communication of offer is complete when _________.
(a) The letter is posted to the offeree.
(b) The letter is received by the offeree.
(c) The offer is accepted by the person to whom it is made.
(d) It comes to the knowledge of the offeror that the letter has been received by the offeree.
Answer:
(b) The letter is received by the offeree.

15. A bid at an auction sale is _________.
(a) An implied offer to buy
(b) An express offer to buy
(c) An Invitation to offer to buy
(d) An invitation to come to bid
Answer:
(b) An express offer to buy

16. When the offers made by two persons to each other containing similar terms of bargain cross each other in post, they are known as _________.
(a) Cross offers
(b) Implied offers
(c) Direct offers
(d) Expressed offers
Answer:
(a) Cross offers

17. When the proposal or acceptance is made otherwise than words, the promise is said to be _________.
(a) Expressed
(b) Implied
(c) Accepted
(d) Rejected
Answer:
(b) Implied

18. The communication of an acceptance is complete as against the acceptor _________.
(a) When it is posted by him
(b) When it is put in the course of transmission
(c) When it comes to the knowledge of the proposer
(d) None of these
Answer:
(c) When it comes to the knowledge of the proposer

19. Goods displayed in a shop window with a price label will amount to _________.
(a) Offer
(b) Invitation to offer
(c) Acceptance of offer
(d) None of these
Answer:
(b) Invitation to offer

20. A promisee is _________.
(a) A person who makes a promise
(b) A person who monitors the statement of intentions of two parties
(c) A person to whom the promise is made
(d) None of these
Answer:
(c) A person to whom the promise is made

21. The person making the proposal is called _________.
(a) Promisor
(b) Promise
(c) Participator
(d) None of these
Answer:
(a) Promisor

22. Acceptance in ignorance of the offer is _________.
(a) Valid
(b) Invalid
(c) Void
(d) Voidable
Answer:
(b) Invalid

23. When the contract is perfectly valid in its substance but which cannot be enforced because of certain technical defects. This is called a _________.
(a) Unilateral contract
(b) Bilateral contract
(c) Unenforceable contract
(d) Void contract
Answer:
(c) Unenforceable contract

24. Is telegraphing lowest price on request a mere invitation for an offer?
(a) Yes
(b) No
(c) Not in normal cases
(d) None of these
Answer:
(a) Yes

25. In the case of proposal and acceptance by telephone conversation, contract is made at place where _________ is received.
(a) Offer
(b) Consideration
(c) Proposal
(d) Acceptance
Answer:
(d) Acceptance

26. An offer does not lapse if the _________.
(a) Offeror dies before acceptance
(b) The offeree dies before acceptance
(c) Acceptance is made by the offeree in ignorance of the death of the offeror
(d) Acceptance is made by the offeree with knowledge of the death of the offeror
Answer:
(c) Acceptance is made by the offeree in ignorance of the death of the offeror

27. When a person without expressing his final willingness, proposes certain terms on which he is willing to negotiate, he makes _________.
(a) Counter offer
(b) Standing offer
(c) Offer
(d) Invitation to treat
Answer:
(d) Invitation to treat

28. A subscribed to the “Daily News” for one year. After the expiry of his subscription, the newspa¬per company continued to send him the paper by mail for 3 years. A continued to use the paper but failed to pay the bills.
(a) A is not liable to pay as non-renewal of the subscription is akin to non-acceptance
(b) Non-payment of bills by A can be construed as non-acceptance of the offer made by sending the newspapers
(c) A is bound to pay as his continued use of the newspaper was an acceptance of the offer made by sending the newspaper
(d) A fresh contract is to be entered into after the lapse of the first year
Answer:
(c) A is bound to pay as his continued use of the newspaper was an acceptance of the offer made by sending the newspaper

29. Which one of the following falls into the category of offer?
(a) Newspaper advertisement regarding a sale
(b) Display of goods by a shopkeeper in his window with prices marked on them
(c) An advertisement for a concert
(d) Announcement of reward to the public
Answer:
(d) Announcement of reward to the public

30. The big Corporations like LIC supply ready forms of Contract with all conditions printed; the offeree has either to take all or let go. Such contracts are known as _________.
(a) Company contracts
(b) Corporation contracts
(c) Government
(d) Standard form contracts
Answer:
(d) Standard form contracts

31. A dress is displayed in the showroom of a shop with a price tag attached to the dress. A buyer interested in the dress and ready to pay the price mentioned in the tag approached the shopkeeper for purchasing the dress.
(a) The shopkeeper can refuse to sell the dress
(b) The shopkeeper cannot refuse to sell the dress as the buyer has accepted the offer
(c) In case of refusal, the shopkeeper will be liable for breach of contract
(d) The shopkeeper cannot refuse to sell the dress but may charge higher price
Answer:
(a) The shopkeeper can refuse to sell the dress

32. In one auction sale, ‘X’ is the highest bidder. The auctioneer accepts the offers not by speaking but by striking the hammer on the table. This amounts to
(a) Express acceptance
(b) Implied acceptance
(c) Future acceptance
(d) No acceptance
Answer:
(b) Implied acceptance

State Whether The Following Are True or False:

1. Death or insanity of the proposer automatically revokes the proposal.
2. Crossing of letters of offer in the post for the sale & purchase of the same article constitute a valid agreement.
3. A proposal may be revoked by the proposer before the posting of the letter of acceptance by the acceptor.
4. If an offer is made in the form of a promise in return for an act, the performance of that act, even without any communication thereof, is to be treated as an acceptance of the offer.
5. Counter offer to an offer does not make the original offer lapse.
6. Acceptance can be made even without the knowledge of the offer.
7. A counter offer proposing different terms amount to rejection of the proposal.
8. When the promisee does not accept the offer of performance the promisor is not responsible for non-performance.
9. For an acceptance to be valid it should not be partial or qualified.
10. Acceptance takes place as against the proposer, when a letter is posted, not when it is received.
11. An advertisement for sale of goods by auction amounts to an offer to hold such sale.
12. Communication of offer is complete when it is posted to the offeree.
13. Performance of conditions of a proposal is an acceptance of the proposal.
14. An acceptance will be revoked at any time before the communication of the acceptance is complete against the acceptor, but not afterwards.
15. An offer need not be made to an ascertained person.
16. An agreement to agree in future upon terms to be settled afterwards between the parties is valid.
17. Acceptance once given cannot be revoked.
18. A tender and a bid at an auction sale are not offers.
19. A quotation and an answer to a question or inquiry are not offers.
20. A contract is formed when the acceptor has done something to signify his intention to accept, not when he has made to his mind to do so.
21. If the offeree does not accept the offer according to the mode prescribed by the offeror, the offer does not lapse automatically.
22. Communication of an offer is complete when the letter is posted though it has not reached the person to whom the offer is made.
23. Where the mode of acceptance is prescribed in the proposal, it need not be accepted in that manner.
24. A proposal when accepted becomes a contract.
25. Acceptance takes place when and where the message is received.

Answer:

1. False
2. False
3. True
4. True
5. False
6. False
7. True
8. True
9. True
10. True
11. False
12. False
13. True
14. True
15. True
16. False
17. True
18. False
19. True
20. True
21. True
22. False
23. False
24. False
25. True.

Students should practice Rights of Buyer & Rights of Unpaid Seller – CA Foundation Business Law MCQ Questions with Answers based on the latest syllabus.

Rights of Buyer & Rights of Unpaid Seller – Business Law MCQ Questions with Answers

1. The Seller of Goods is deemed to be an Unpaid Seller _________.
(a) when the whole of the price has not been paid or tendered.
(b) when a bill of exchange or other negotiable instrument has been received as conditional payment and the condition has not been fulfilled by reason of the dishonour of the instrument or otherwise.
(c) both (a) and (b).
(d) either (a) or (b).
Answer:
(d) either (a) or (b).

2. The term “Unpaid Seller” includes _________.
(a) Agent of the Buyer
(b) Agent of the Seller
(c) Agent of the Carrier/Transporter
(d) All of the above
Answer:
(b) Agent of the Seller

3. The right of lien is available to the Unpaid Seller, only when _________.
(a) he is not in possession of the goods
(b) he is in possession of the goods
(c) he has delivered the goods to the Carrier/ Transporter
(d) he has delivered the goods to the Buyer
Answer:
(b) he is in possession of the goods

4. The right of lien is available to the Unpaid Seller, u/s 47 of the Sale of Goods Act, when he is in possession of goods _________.
(a) as an agent of the Buyer
(b) as a Bailee for the buyer
(c) in his own right.
(d) all of the above
Answer:
(d) all of the above

5. In which of the following situations, the right of lien available to the Unpaid Seller is lost?
(a) Where the Goods have been sold without any stipulation as to credit
(b) Where the Goods have been sold on credit, but the credit period has expired
(c) Where the Buyer becomes insolvent
(d) Where the Unpaid Seller has parted with the possession of the goods.
Answer:
(d) Where the Unpaid Seller has parted with the possession of the goods.

6. Where the goods have been delivered to Railways for carriage and the R/R is taken in the name of the seller or his agent:
(a) the seller is prima facie deemed to reserve the right of disposal
(b) the seller did not retain the right of disposal
(c) the seller cannot retain right of disposal
(d) none of the above.
Answer:
(a) the seller is prima facie deemed to reserve the right of disposal

7. When the goods have been sold on credit and the credit period _________ lien can he exercised.
(a) has not expired
(b) has expired
(c) has not been extended
(d) has been extended
Answer:
(b) has expired

8. The right of lien can be exercised by the Unpaid Seller in respect of _________.
(a) Price
(b) Any other expenses, e.g. Godown Charges, Interest, etc.
(c) Both (a) and (b)
(d) Either (a) or (b)
Answer:
(a) Price

9. The Unpaid Seller _________ to deliver a part of the Goods on payment of a proportionate part of the price by the Buyer.
(a) shall be bound
(b) may refuse
(c) must honour his commitment
(d) shall request the carrier
Answer:
(b) may refuse

10. Generally, where an Unpaid Seller has made part delivery of the Goods, he _________.
(a) may exercise his right of lien on the remainder
(b) has to honour the entire contract
(c) loses his lien on the remainder of the goods
(d) can supply defective goods in respect of the remainder
Answer:
(a) may exercise his right of lien on the remainder

11. Where the Unpaid Seller has parted with the goods by handing it over to a carrier for transmission, and the goods are in transit, he can reclaim possession thereof. This right is called _________.
(a) Right of Lien
(b) Right of Stoppage of goods in transit
(c) Right of withholding delivery of goods
(d) Right of Re-sale
Answer:
(b) Right of Stoppage of goods in transit

12. Right of Stoppage in transit can be exercised by the Unpaid Seller, where he _________.
(a) has lost his right of lien
(b) still enjoys his right of lien
(c) either (a) or (b)
(d) neither (a) nor (b)
Answer:
(a) has lost his right of lien

13. Right of Stoppage in transit can be exercised by the Unpaid Seller, where the Buyer _________.
(a) is solvent
(b) becomes insolvent
(c) acts fraudulently
(d) acts smartly
Answer:
(b) becomes insolvent

14. The right of stoppage in transit may be exercised by the Unpaid Seller till _________.
(a) payment or tender of the price
(b) Buyer becomes solvent
(c) such time as the Carrier may think fit
(d) such time as the Court may think fit
Answer:
(a) payment or tender of the price

15. Goods are deemed to be in transit from the time they are delivered to the Carrier or other bailee for transmission to the buyer, until _________.
(a) Buyer becomes solvent
(b) Buyer or his agent takes delivery of the goods
(c) Seller becomes solvent
(d) Seller or his agent takes delivery of the goods
Answer:
(b) Buyer or his agent takes delivery of the goods

16. If, after the arrival of goods at their destination, Carrier or other Bailee acknowledges to Buyer or his agent that he holds goods on his behalf, and continues possession of the goods, the transit _________.
(a) is at an end
(b) is deemed to continue
(c) is not at an end
(d) is not affected at all
Answer:
(a) is at an end

17. If goods are rejected by the buyer and the Carrier or other Bailee continues in possession of them, and the seller has refused to receive them back, then transit _________.
(a) is at an end
(b) is deemed to be at an end
(c) is not deemed to be at an end
(d) is dependent on the Court’s decision.
Answer:
(c) is not deemed to be at an end

18. If the Carrier/Bailee wrongfully refuses to deliver the goods to the buyer or his agent, the transit _________.
(a) is at an end
(b) is deemed to be at an end
(c) is not deemed to be at an end
(d) is dependent on the Court’s decision
Answer:
(a) is at an end

19. Right of Stoppage in Transit may be exercised by the Unpaid Seller, by _________.
(a) taking actual possession of Goods
(b) giving notice of his claim to the Carrier/ Bailee who holds the Goods.
(c) either (a) or (b)
(d) Both (a) and (b)
Answer:
(c) either (a) or (b)

20. The Unpaid Seller’s right of lien is to _________.
(a) re-organize possession of goods
(b) re-sell the goods
(c) regain possession of goods
(d) retain possession of goods
Answer:
(d) retain possession of goods

21. The word “perishable” in respect of goods, u/s 54 of the Sale of Goods Act, means _________.
(a) physically perishable
(b) commercially perishable
(c) both (a) and (b)
(d) either (a) or (b)
Answer:
(d) either (a) or (b)

22. Where under a contract of sale, the price is payable on a certain day irrespective of delivery and Buyer wrongfully neglects or refuses to pay the price, the Seller can sue the Buyer for the price of goods. For this purpose, goods _________.
(a) should be appropriated to the contract
(b) need not be appropriated to the contract
(c) should be delivered to the buyer
(d) need not be delivered to the buyer
Answer:
(b) need not be appropriated to the contract

23. The unpaid seller who has retained possession of the goods in exercise of his right of lien or who has resumed possession from the carrier upon insolvency of the buyer, can resell the goods :
(a) If the goods are of perishable nature, without any notice to the buyer
(b) If the goods are non-perishable, by giving notice to the buyer
(c) Either ‘a’ or ‘b’
(d) Neither ‘a’ nor ‘b’
Answer:
(c) Either ‘a’ or ‘b’

24. In case of interest by way of damages and special damages in a suit by the seller u/s 61, the interest may be calculated from _________.
(a) date of tender of goods
(b) date on which the price was payable
(c) either (a) or (b)
(d) both (a) and (b)
Answer:
(b) date on which the price was payable

25. When under a contract of sale, buyer has paid the price, but seller neglects to deliver goods, buyer has a right to claim interest on the amount of price. The buyer can claim interest _________.
(a) only when he can recover the price
(b) only when he is entitled to claim damages
(c) either (a) or (b)
(d) both (a) and (b)
Answer:
(d) both (a) and (b)

State Whether The Following are True or False:

1. The term unpaid seller includes buyer’s agent to whom bill of lading is endorsed.
2. Unpaid seller can exercise his right of lien even when property in goods has been passed to the buyer.
3. Once possession is lost, right of lien of the unpaid seller is also lost.
4. Unpaid seller can exercise his right of resale of goods only when property in goods has not passed to the buyer.
5. Where the unpaid seller has obtained a decree for the price of the goods the right of lien cannot be exercised.
6. Nemo dat quad non habet means let the buyer beware.
7. Sub-sale by the buyer with seller’s consent leads to loss of right of stoppage in transit.
8. Unpaid seller’s right of stoppage in transit can be exercised only when the buyer is insolvent.

Answer:

1. False
2. True
3. True
4. False
5. False
6. False
7. True
8. True

Students should practice General Nature of a Partnership – CA Foundation Business Law MCQ Questions with Answers based on the latest syllabus.

General Nature of a Partnership – Business Law MCQ Questions with Answers

1. What among the following is not an essential element of partnership:
(a) There must be an agreement entered into by all the persons concerned
(b) The agreement must be to share the profits of a business
(c) The business must start within six months from the date of agreement
(d) The business must be carried on by all or any one of them acting for all.
Answer:
(c) The business must start within six months from the date of agreement

2. A Joint Hindu Family is created:
(a) By a contract
(b) By operation of law or status
(c) By registration
(d) By all the above mode
Answer:
(b) By operation of law or status

3. A club is the form of:
(a) Association not for profit
(b) Partnership
(c) Sole proprietorship
(d) Public company.
Answer:
(a) Association not for profit

4. The Partnership Act, 1932 ________.
(a) Specifies the minimum number of partners in a firm
(b) Specifies the maximum number of partners in a firm
(c) Both (a) and (b)
(d) None of the above
Answer:
(a) Specifies the minimum number of partners in a firm

5. The ceiling on maximum number of partners in a firm is laid down in:
(a) The Partnership Act, 1932
(b) The Indian Contract Act, 1872
(c) The Companies Act, 1956
(d) Central Government notification
Answer:
(c) The Companies Act, 1956

6. The test of partnership is laid down in the following case:
(a) Cox v. Hickman
(b) Garner v. Murray
(c) Mohiribibi v. Dharmodas Ghosh
(d) None of the above
Answer:
(a) Cox v. Hickman

7. A partnership firm ________.
(a) Is a legal person
(b) Is not a legal person
(c) Has a distinct legal personality
(d) None of the above
Answer:
(b) Is not a legal person

8. A partnership formed for the purpose of carrying on particular venture or undertaking is known as:
(a) Limited partnership
(b) Special partnership
(c) Joint Venture
(d) Particular partnership
Answer:
(d) Particular partnership

9. The principle of ________ is applicable to partners in a partnership:
(a) Uberrimae fidei/Utmost Good Faith
(b) Ultimate Trust
(c) Insurable Interest
(d) Blind Faith
Answer:
(a) Uberrimae fidei/Utmost Good Faith

10. Limited Liability partnership is a form of partnership that:
(a) Is not possible
(b) Is allowed in certain circumstances in the Partnership Act, 1932
(c) Is now abolished
(d) Can be set up by LLP Act, 2008
Answer:
(d) Can be set up by LLP Act, 2008

11. A partnership for which no period or duration is fixed under the Indian Partnership Act is known as :
(a) Unlimited partnership
(b) Co-ownership
(c) Particular partnership
(d) Partnership at will
Answer:
(d) Partnership at will

12. The essential elements of partnership does not include:
(a) Partnership should be registered
(b) There must bean agreement to share profits of a business.
(c) There must be mutual agency among partners.
(d) There must be an association of two or more persons.
Answer:
(a) Partnership should be registered

13. To form a partnership, the minimum capital contribution should be:
(a) ₹ 1 lakh
(b) ₹ 10 lakh
(c) ₹ 1 crore
(d) There is no minimum limit.
Answer:
(d) There is no minimum limit.

14. Property of firm does not include:
(a) All property which the partners have originally brought into the common stock of the business
(b) Goodwill of the business
(c) Personal properties belonging to the partner
(d) Property acquired by the funds of the firm
Answer:
(c) Personal properties belonging to the partner

15. Which of the parties may be admitted to the benefits of partnership?
(a) Person of unsound mind
(b) Minor
(c) Alien enemies
(d) An insolvent.
Answer:
(b) Minor

State Whether The Following are True or False:

1. Maximum number in a partnership firm is 50 members.
2. A partnership firm cannot be registered for carrying on any charitable activity.
3. The maximum number of partners in a partnership firm is specified in Companies Act, 2013.
4. Sharing of profits is the conclusive evidence of the existence of the partnership between the parties.
5. A minor can be a partner in a partnership firm.
6. A and B agree to buy 100 tins of ghee agreeing to share it between them. They are not partners.
7. If a partnership can be dissolved by the mutual agreement only, then it will be called as a partnership at will.
8. Forming a partnership for construction of a bridge is a type of particular partnership.
9. Goodwill is to be considered as a partnership property.
10. Prior to the enactment of Indian Partnership Act, 1932 the law relating to partnership was contained in the Indian Contract Act, 1872.
11. True test of partnership was first laid down in the case of Cox v. Hickman.
12. A sub-partner has a right to participate in the conduct of the business.
13. Law of partnership is an extension of the general law of guarantee.
14. Partnership firm has a separate legal entity.

Answer:

1. True
2. True
3. True
4. False
5. False
6. True
7. False
8. True
9. True
10. True
11. True
12. False
13. False
14. False