[paper - 1] fundamentals of accounting - pe exam. i.pdf · 2013. 3. 7. · 1 [paper - 1]...

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[Paper - 1] Fundamentals of Accounting

Chapter - 2 : Conceptual Framework of Accounting

2006 -May [6] Write short notes on the following :

(i) Fundamental of Accounting Assumptions. (5 marks)

Answer : Fundamental Accounting Assumptions : – Refer Q. No. 10 of Q & A Zone of Chapter 1 i.e.

(Definition and Scope of Accounting).

Chapter - 3 : Basic Accounting Procedures

2006 -May [6] Write short notes on the following :

(ii) Objects of preparing Trial Balance. (5 marks)

Answer : Objects of preparing Trial Balance :– Trial Balance is a statement which shows either thebalance or total amounts of debit items and credit items of all ledger accounts in the ledger and the cashand bank balances. It may be noted that a trial balance is a statement and not an account and is preparedon a particular date and not for a particular period :–Objects of preparing Trial Balance :– The main objectives are preparing the trial balance are asfollows:–

(i) To determine the arithmetical accuracy of ledgers :– A tallied trial balance shows that equaldebits and credits have been recorded in the accounts.

(ii) To help in Locating errors and their rectifications :– Untallied trial balance shows that someerror (s) has/have been committed, which are corrected before preparing the final account.

(iii) To show a summary of all accounts :– It is a just a summary of the contents of the ledger. Theledger is seen only when details of a account is required.

(iv) To facilitate the preparation of financial statements :– It helps to prepare the final accounts i.e.Trading P & L A/c and Balance Sheet by providing the balances of all the accounts at one place.

Chapter - 5 : Rectification of Errors2006 - May [3] (a) The difference in Trial Balance is kept by Rajesh in Suspense Account. Beforepreparing the Final Accounts, the following errors were detected by him :

(i) Purchase for Rs. 1,080 was written in Sales day book, but was posted to the correct side of theParty’s account.

(ii) Salary account total Rs. 25,200 was carried over to the next page as Rs. 2,520 on the wrong side.(iii) Interest on Overdraft Rs. 1,300 was not posted to the Ledger from the Cash-book.

Pass the Rectification entries and prepare the suspense account. (5 marks)

PE Examination I May 2006 2

Answer : In the books of Rajesh

Rectification entries

Date Particular L.F. Dr. (Rs.) Cr. (Rs.)

1. Purchase a/c Dr.Sales a/c Dr.

To Suspense a/c(Being purchase was recorded by mistake in sales day book)

1,0801,080

2,160

2. Salary a/c (25,200 + 2,520) Dr.To Suspense a/c

(Being total of salary a/c Bal. of Rs. 25.200 written as 2520 on thewrong side.)

27,72027,720

3. Interest on Overdraft a/c Dr.To suspense a/c

(Being posting of entry to the ledger ommitted)

1,3001,300

31,180 31,180

Dr. Suspense a/c Cr.

Particular Rs. Particular Rs

To Bal. b/d 31,180 By PurchaseBy SalesBy SalaryBy Interest on overdraft

1,0801,080

27,7201,300

31,180 31,180

Chapter - 8 : Depreciation2006 -May [6] Write short notes on the following :

(iv) Machine Hour Rate method of calculating depreciation. (5 marks)Answer : Machine Hour Rate method of calculating depreciation :– Machine hour rate method isuseful in case of machines whose life is fixed in terms of hours. Hourly rate of depreciation is worked outby dividing the cost of the machine by the total number of hours for which the machine is expected to beused. Depreciation to be written off in a year will be ascertained by multiplying the hourly rate ofdepreciation by the number of hours that the machine actually runs in the year :

Machine Hour Rate = Depreciation = Machine hour rate × Service hours used during the year.

Chapter - 12 : Bills of Exchange2006 -May [6] Write short notes on the following :

(v) Trade bill v/s Accommodation bill. (5 marks)Answer : Trade bill v/s Accommodation bill :–

Trade Bill Accommodation Bill

(1) Purpose It is drawn and accepted for someconsideration i.e. for trade purpose.

It is drawn and accepted without anyconsideration.


(2) Need It is drawn to settle a businesstransaction.

It is drawn to meet the financialrequirements of the drawer/draweeboth temporarily.

(3) Legal status The drawer can take legal action ifthe bill is dishonoured.

The drawer cannot take any legalaction when the bill is dishonoured.

(4) Basis of issue It acknowledges the debts It does not acknowledge the debts.

(5) Discounting of bill It may, or, may not be discountedwith the bank.

It is always discounted with the bank.

(6) Discounting charges

Discounting charges are borne by thedrawer.

Discounting charges are dividedbetween the drawer and drawee inthe ratio of the proceeds.

Chapter - 13 : Consignment Accounts2006 - May [2] (b) M of Mathura consigned 5,000 kg. of oil costing Rs. 20 per kg. to S of Surat. M paidRs. 25,000 as Freight and Insurance. 125 kg. of oil was destroyed in transit. The insurance claim wassettled at Rs. 2,250 and was paid directly to the consignor. S took delivery of consignment and accepteda bill drawn upon him by M for Rs. 50,000. S reported as follow :

(i) 3,750 kg. of oil was sold at Rs. 30 per kg.(ii) His expenses were — Godown rent Rs. 10,000; Wages Rs. 1,000; Printing and Stationery Rs.

5,000.(iii) 125 kg. of oil was lost due to leakage, which is quite normal.

S is entitled to a commission of 5% on the sales effected. S paid the amount due in respect of theconsignment. Show the Consignment Account, the Account of S and Abnormal Loss Account in thebooks of M. (9 marks)Answer : In the books of MDr. Consignment A/c Cr.

Particular Rs. Particular Rs.

To Goods sent to Consignee A/c (5,000 × Rs. 20)

To Bank Freight & insurance

To S A/cGodown RentWagesPrinting & StationaryCommission (1,12,500 × 5%)

1,00,000

25,000

10,0001,0005,0005,625

By S A/c (Sales) (3,750 kg. × Rs. 30)

By Cash A/c (Insurance paid)By Abnormal Loss A/cBy Stock on ConsignmentBy P&L a/c (loss)

1,12,5002,250

87525,658

5,342

1,46,625 1,46,625

Dr. S A/c Cr.


To Consignment (3750 × Rs. 30) 1,12,500 By Bills ReceivableBy Consignment

Godown Rent

50,000


WagesPrinting & StationaryCommission

By Bank A/c

1,0005,0005,625

40,875

1,12,500 1,12,500

(i) Calculation of Closing Stock :–Particular Kg.Goods Sent 5,000(!) Destroyed in transit (125)(!) Sold by ‘S’ (3750)(!) Lost due to leakage (125)Closing Stock 1,000 Kg.

(ii) Calculation of Closing Stock :–Total Cost 1,25,000(!) Abnormal bls. (3125)

12,1875(+) Consignee’s exp. NIL(Note) 1,21,575Unit remain Cost40,750 12,18751,000 25,658

Note on Consignee expenses :– It is assumed that expenses paid by consignee are in nature & henceit is not included in closing stock.

Chapter - 14 : Joint Venture Accounts2006 - May [3] (b) A of Agra and B of Kanpur entered into joint venture for purchase and sale of C.D.players. The cost of each C.D. player was Rs. 3,600 and the retail selling price Rs. 4,500 The followingtransactions were recorded between them :2005July 1 A purchased 100 C.D. players, paying Rs. 72,000 in cash. A raised a loan from bank for Rs.

50,000 at 18% p.a. interest, repayable on 1st September, 2005. A forwarded 80 C.D. players toB, incurring Rs. 2,880 as freight and insurance.

July 7 B received the consignment and paid Rs. 720 as clearing charges.Aug. 1 A sold 5 C.D players for cash.

B sold 20 C.D. players for cash.B raised a loan of Rs. 1,50,000 from bank, at 18% p.a. interest, repayable on 1st September,2005.B remitted Rs. 1,50,000 to A, incurring charges of Rs. 50.A paid balance due for the purchase of C.D. players.

Aug. 26 A sold the balance C.D. players for cash and paid selling expenses Rs. 5,000.B sold the balance C.D. players for cash and paid selling expenses Rs. 20,000.

Mar. 1 Accounts settled between the ventures and loans repaid. They shared profits equally.You are required to show :

(i) The Memorandum Joint Venture Account in the books of A and B.(ii) Joint Venture with B Account in the books of A.

(iii) Joint Venture with A Account in the books of B. (10 marks)


Answer : (i) The Memorandum Joint Venture A/c :–

Dr. In the books of A and B Cr.


To A :–Cost of (D. players)Forwarding ChargesInterest (2 months)Selling Expenses

To B :–Clearing chargesInterest (1 month)Sundry ExpensesSelling Expenses

3,60,0002,8801,5005,000

7202,250

5020,000

By SalesA 20 × 4500B 80 × 4500

90,0003,60,000

To Net Profit toAB

28,80028,800 57,600

4,50,000 4,50,000

(ii) Joint Venture with B a/c in the books of A :–


To Bank A/c (Part Payment of Cost)To Bank A/c (forward)To Bank A/c (Bal. Cost of Purchase)To Bank A/c (selling)To Interest A/c To P & L A/c

72,0002,880

2,88,0005,0001,500

28,800

By Bank A/c (Sales proceeds)By Bank A/c (Remittance from B)By Bank A/c (Sales proceeds)By Bank A/c (Received from B)

22,5001,50,000

67,5001,58,180

3,98,180 3,98,180

(iii) Joint Venture with A a/c in the books of B :–


To Bank a/c Clearing chargesRemittance including chargesSelling Exp.InterestSundry Expense

To P & L A/cTo Bank A/c (paid to A)

7201,50,000

20,0002,250

5028,800

1,58,180

By Bank A/c (Sales proceeds of 20CD players)

By Bank A/c (sale proceeds of 60C. D. Players)

90,000

2,70,000

3,60,000 3,60,000

Working Notes :(1) Calculation of interest on loan :–

Loan taken by A as on 1st July Rs. 50.000 (1st July to 1st September)Interest – 50,000 × 18% × = Rs. 1,500


Loan taken by B as on 1st August Rs. 1,50,000 (1st Aug. to 1st September)Interest – 1,50,000 × 18% × = Rs. 2,250

Chapter - 15 : Self-Balancing Ledgers2006 -May [6] Write short notes on the following :

(iii) Advantages of Self-balancing system. (5 marks)Answer : Advantages of Self-Balancing System :– Refer Q. No. 7 of the Q & A Zone of Chapter 15 i.e.(Self-Balancing Ledger) on Page No. I.217.

Chapter - 16 : Insurance Claims2006 - May [2] (a) A fire occurred in the workshop of Mr. A on 31st March, 2006 where a large part ofthe stock was destroyed. Scrap realised Rs. 7,500. Mr. A gives you the following information for theperiod of 1st January to 31st March, 2006 :

Rs.(i) Purchases 42,500

(ii) Sales 45,000(iii) Goods costing Rs. 1,000 were taken by Mr. A for personal use.(iv) Cost price of stock on 1st January, 2006 was Rs. 20,000.(v) Over the past few years, Mr. A has been selling goods at a consistent gross profit margin of 30%.

(vi) The Insurance policy was for Rs. 25,000. It included an average clause. Prepare a statement ofclaim to be made on the Insurance Company by Mr. A. (6 marks)

Answer : In the books of Mr. A

Dr. Memorandum Trading A/c upto 31st March, 2006 Cr.


To Opening StockTo PurchasesTo Gross Profit (W. N. l)

20,00042,50013,500

By SalesBy Goods then for personal useBy Closing Stock

45,0001,000

30,000

76,000 76,000

Working Note :– (1) Calculation’s of Gross Profit :–

GP Ratio = × 10030 = × 100

= GP� Gross Profit = Rs. 13,500

Statement of claim to be made on the insurance co, by Mr. AParticular AmountAverage Clause = × Actual loss of Stock= × (30,000 ! 7500 Salvage) Rs. = 18,750

� Claim to be made by A = Rs. 18,750.

Chapter - 18 : Final Accounts for Non-profit making Organisations2006 - May [1] Following is the Income and Expenditure Account of Victoria Club for the year ending31st March, 2006 :

Expenditure Amount Income AmountRs. Rs.

To Salaries &Wages 19,000 By Subscription 30,000


To Misc. Expenses By Entrance Fees received 1,000(including Insurance) 2,000 By Annual Sports Income

To Audit fees 1,000 Receipts 6,000To Chief Executives’ Less—Expenses 3,000 3,000

Honorarium 4,000To Printing and Stationary 1,800To Annual day

Celebration Exp. 6,000Less—Donation 4,000 2,000

To Interest on Bank Loan 600To Depreciation on Sports

Equipment 1,200To Excess of Income over

Expenditure 2,400 34,000 34,000

Additional Information :31.03.05 31.03.06

(Rs.) (Rs.)(i) Subscription outstanding 2,400 3,000

(ii) Subscription received in advance 1,800 1,080(iii) Salaries outstanding 1,600 1,800(iv) Sports equipment (after deducting depreciation) 10,400 10,800(v) Prepaid Insurance — 240

(vi) Cash in Hand ? 6,400(vii) The Club owned a Sports’ ground of Rs. 40,000

(viii) The Club took a loan of Rs. 8,000 from a bank during the year 2004-05, which was not paid in2005-06.

(ix) Audit fee of 2005-06 was outstanding, but Audit fees of Rs. 800 for 2004-05 was paid in 2005-06.Prepare Receipts and Payments Account for the year ending 31st March, 2006 and a Balance Sheet

on that date. (20 marks)Answer : In the books of Victoria Club Receipt & Payment A/c Dr. for the year ended 31st March, 2006 Cr.


To Bal. b/dTo Subscription

As per income & Exp. A/c 30,000

5,560 By SalariesAdd: Paid for 2005Less: Unpaid for 2006

19,0001,600

(1,800) 18,800

+ 2004-05 Received+ 2006-07 Advance

2,4001,080

By Misc. Expense(+) prepaid

2,000240 2,240

(!) 2005-6 Recei. in 2004-05(!) O/s of 2005-06

(1,800)(3,000) 28,680

By Audit fee(+) Paid for 2004-05

1,000

800

To Entrance feeTo Profit on annual Sports

1,0003,000

(!) O/s for 2005- 06 (1,000)

800


By Chief executing HonorariumBy Printing & StationaryBy Annual day exe.By Interest on Bank loanBy Purchase of sports equip.

10,800 - (10,400 ! 1,200 )By Bal. c/d.

4,0001,8002,000

6001,600

6,400

37,340 37,340

Balance Sheet as on 31st March, 2006

Liabilities Amount Assets Amount

Capital Fund(+) Excess of Income overexpend.

46,160

2,400 48,560

Sports equip. + purchase(!) Dep.

10,400700

1,200 10,800

Subscription Recd. in Adv.O/s salariesO/s Audit feeBank loan

1,0801,8001,0008,000

Sports groundCash in handSubscription ReceivablePrepaid insurance

40,0006,4003,000

240

60,440 60,440

Working Note :–Balance sheet as On 31st March, 2005 :–


Capital fund (Bala-figure)Bank LoanSubscription Received in advanceO/s salariesO/s audit fee

46,1608,0001,8001,600

800

Sports equipmentSports groundCash in handO/s subscription Receivable

10,40040,000

5,5602,400

58,360 58,360

Chapter - 22 : Admission of a new Partner2006 - May [4] The following is the Balance Sheet of A, B and C sharing Profits and Losses in theproportion of 6/14, 5/14 and 3/14 respectively :

Rs. Rs.Creditors 37,800 Cash 3,780Bills Payable 12,600 Debtors 52,920General Reserve 21,000 Stock 58,800Capital Accounts : Furniture 14,700

A 70,800 Land and Building 90,300

B 59,700 Goodwill 10,500C 29,100

2,31,000 2,31,000They agreed to take D into partnership and give him 1/8th share on the following terms :

(i) That furniture be depreciated by Rs. 1,840.


(ii) That stock be depreciated by 10%.(iii) That a provision of Rs. 2,640 be made for outstanding repair bills.(iv) That the value of land and building, having appreciated, be brought upto Rs. 1,19,700.(v) That the value of goodwill be brought up to Rs. 28,140.

(vi) That D should bring in Rs. 29,400 as his capital.(vii) That after making the above adjustments the Capital accounts of old partners be adjusted on the

basis of the proportion of D’s capital to his share in the business and actual cash to be paid off orbrought in by the old partners, as the case may be.

Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of the new firm.(15 marks)

Answer : Revaluation a/c


To FurnitureTo StockTo Prov. for O/s billsTo Partner’s Capital a/c

1,8405,8802,640

19,040

By Land & Building 29,400

29,400 29,400

Dr. Partners’s Capital Cr.

Particular A B C D Particular A B C D

To Bal. c/d

To Cash

88,200

7,320

73,500

6,800

44,100 29,400

By Bal. b/d

By General Reserve

By Revaluation

By Cash

By Goodwill

By Cash

70,800

9,000

8,160

—

7,560

59,700

7,500

6,800

—

6,300

29,100

4,500

4,080

—

3,780

2,640

—

—

—

29,400

—

95,520 80,300 44,100 29,400 95,520 80,300 44,100 29,400

Dr. Cash A/c Cr.


To Balance b/dTo D’s CapitalTo C’s Capital

3,78029,400

2,640

By ABy BBy Balance C/d

7,3206,800

21,700

35,820 35,820

Balance Sheet of the new firm (After admission of D)

Liabilities Rs. Assets Rs.


CapitalABCD

88,20073,50044,10029,400 2,35,200

Land & BuildingFurnitureGoodwillStockDebtors

1,19,70012,86028,14052,9205,2920

CreditorsBills payableProvision for O/s bills

37,80012,600

2,640

Cash 21,700

2,88,240 2,88,240

Working Note :1. Calculation of old Ratio :–

A B C: :

� 6 : 5 : 32. Calculation of New Ratio :–

D’s Share ! 1 ! =

A. × =B. × =C. × =

A B C D: : :

= : : :� 6 : 5 : 3 : 2

3. Calculation of Closing Bal. of Capital A/c :–

Ratio Capital : 29,400 = 1 : 9 = 2,35,200

A — 2,35,200 × = 88,200B — 2,35,200 × = 73,500C — 2,35,200 × = 44, 100D — 2,35,200 × = 29,400

Chapter - 26 : Objective Questions2006 - May [5] State with brief reasons whether the following statements are True or False (attempt anyten) :

(i) The allowance made for promoting sales is called Cash discount.(ii) Sectional balance ledger system makes the ledgers to balance independently.

(iii) “Marshalling” and ‘Grouping’ has the same meaning.(iv) Closing stock will never appear in the Trial Balance.(v) A Promissory Note Requires acceptance.

(vi) Cash column of a Cash!book may show a Debit or Credit Balance.(vii) Sundry debtors are liquid assets.

(viii) Direct collection received by the bank on behalf of its customers will increase the balance as perthe Bank Pass!book as compared to the balance as per the Cash!book.


(ix) At the time of Renewal of a bill, Interest account is debited in the books of a Drawee.(x) Depreciation can be charged on Goodwill by Fixed Instalment method.

(xi) Sale or Return Account in the Sale or Return Ledger represents the value of goods still lying withthe customers for approval.

(xii) As per the decision in Garner vs. Murray the loss on account of insolvency of a partner should beborne by the solvent partners in their profit sharing ratio. (10 × 2 = 20 Marks)

Answer : (i) False :– The allowance made for promoting sales is called Trade Discounts and it may vary with

the quantity purchased whereas cash discount is allowed for encouraging prompt payment.(ii) False :– Under self balance ledger system two extra accounts (i) Total Debtor Ledger Account

and (ii) Total Creditor Account are included in general ledger for completing double entry in thegeneral ledger itself. the supplier’s and customer’s individual accounts are, however maintainedin the respective ledgers. Under this system only the general ledger is made self balancing not allthe ledgers.

(iii) True :– Marshalling and grouping has the same things because under marshalling alsotransactions are assembled or grouped at one location/place.

(iv) False :– Closing stock (Dr. balance) will be given in the trial balance, in this case purchaseaccount was already adjusted with the closing period. Therefore in such situation, adjustedpurchase will be shown on the debit side of the trading A/c and closing stock will be shown onthe asset side of the Balance Sheet.

(v) False :– Promissory note is a written unconditional promise and it does not requires anyacceptance. It is drawn and signed by the person to whom credit is granted or by the debtor.

(vi) False :– Cash column of cash-book is always debit balance, because it is Real Account, and realaccount never be a credit balance.

(vii) True :– Liquid assets are those assets which are readily converted into cash and will include cashbalance, bills receivable, Sundry debtors and short term investments. But it does not includeprepaid expenses and inventories.

(viii) True :– Direct collection received by the bank on behalf of its customer will increases the balanceof pass book, as compared to the balance as per cash book till the customer gets and intimationfrom the bank..

(ix) True :– At the time of renewal of a bill, interest account is debited and drawer’s accounts iscredited in the books of drawee because interest becomes liability for drawee and it becomespayable to drawer.

(x) True :– Goodwill is shown in the Balance Sheet only when it is purchased. So it has a historicalcost and when it was purchased it has to be some expected life. So depreciation on it can becharged on the basis of fixed instalment method.

(xi) True :– Sale or Return Accounts in the Sales or Return ledger represents the value of goods stilllying with the customer for approval and when customer approves it, it is to be transferred torespective ledger account.

(xii) False :– As per the decision of Garner Vs Murray, the solvent partners only must bear thedeficiency owing to insolvency of a partner in the capital ratio not in profit sharing ratio but thenormal loss on realisation of assets are to be borne by all partners (inclusive of insolvent partner)in the profit sharing ratio.


[Paper - 2] Mathematics & Statistics

Section AMathematics

Chapter - 1 : Linear, Quadratic, Exponential and Logarithmic Functions2006 - May [4] (a) Find the vertex and the points of intersection with both the axes of the graph of thefunction :

y = x2 ! 4x + 3.Draw a graph of the above function. (5 marks)

Answer : Y = x2 ! 4x +3 ......................................................................................... (1)Comparing the given function with quadratic function

y = ax2 + bx + c, we geta = 1, b = !4, c = 3Its Vertex is at x = and y =

or x = and y = or x = 2 and y = !1

� Its vertex is at (2,!1).For point of intersection with x ! axis, putting y = 0 in

x2 ! 4x + 3 = 0| x2 ! 3x ! x + 3 = 0| x (x ! 3) ! 1(x ! 3) = 0| (x ! 3) (x ! 1) = 0| x = 3 and x = 1

� Curve intersects x ! axis at (3, 0) and (1, 0)For point of intersection with y ! axis, putting x = 0 in (1)

y = (0)2 ! 4 × 0 + 3| y = 3

� Curve intersects y axis at (0, 3)Graph of the given function is


2006 - May [6] (b) A company produces shirts for which variable cost of producing each shirt is Rs. 110.Packing of each shirt takes an extra cost of Rs.5. The company sells the shirt for Rs. 250 each. If thebreak-even point is at the level of 200 shirts, find the fixed cost. (5 marks)Answer : Let fixed cost be F(x). If x units of shirts are produced and sold, then

Variable cost = 110x + 5x= F(x) + 115x

� Total cost = Fixed cost + variable cost= F(x) 115x

Revenue R(x) = 250xSince, break-even occurs at x = 200 units

� At x = 200 Profit P(x) = 0| R(x) = C(x)| 250 x = f(x) + 115xSubstituting x = 200, we get 250 × 200 = F(x) + 115 × 200 or 50,000 = F(x) + 23,000

� F(x) = 50,000 ! 23,000= Rs. 27,000

Chapter - 2 : Progressions2006 - May [2] (b) The cost of boring a 400 meter deep tubewell keeps increasing with depth. It is Rs.10,000 for the first ten meters and increases by an additional Rs. 500 for every subsequent 10 meters. Findthe cost of boring the last 10 meters and the total cost of boring. (5 marks)Answer : It is given that cost of boring first 10 meters is Rs. 10,000. Cost of boring remaining 390 metersincreases by an additional Rs. 500 for every subsequent 10 meters.Therefore,

Cost of 2nd 10 meters = Rs. 500 Cost of 3 rd 10 meters = Rs. 500 + Rs. 500 = Rs. 1000

Cost of 4 th 10 meters = Rs. 1000, + Rs. 500 = Rs. 1500

and so on


All these terms will form an A. P. and it will have 39 terms whose 1st term is 500 and commondifference is 500.

There fore, cost of boring last 10 meters = t39 = 500 + (39 !1) 500= 500 + 38 × 500= 500 + 19000= Rs. 19,500

Total cost of boring = Rs. 10,000 +[Rs. 500 + Rs. 1000 + Rs. 1500 + ................ + 39th terms]= Rs. 10,000 + {2 × 500 + (39!1) × 500}= Rs. 10,000 + {1,000 + 19,000}= Rs. 10,000 + × 20,000= Rs. 10,000 + Rs. 3,90,000 = Rs. 4,00,000.

Chapter - 3 : Permutations and Combinations2006 - May [2] (a) A question paper contains ten questions and is divided into two Sections A and B.Section A contains 5 questions and Section B also contains 5 questions. In how many ways can anexaminee answer six questions, selecting at least two questions from each Section? (5 marks)Answer : An examinee can select six questions in the following ways.

He can select 2 questions from section A and 4 questions from section B in 5C2 × 5C4 ways.or, he can select 3 questions from section A and 3 questions from section B in 5C3 × 5C3 waysor, he can select 4 questions from section A and 2 questions from section B in 4 5C4 × 5C4 ways

Therefore , Total no. of ways in which he can answer six questions is= 5C2 × 5C4 + 5C3 × 5C3 × 5C4 × 5C2

= × + × + × = × + × + × = 10 × 5 + 10 × 10 + 10 × 5= 50 + 100 + 50= 200 ways

Chapter - 4 : Matrices2006 - May [1] (a) By augmenting the matrix and using the method of reduction, solve the followingequations :

l + m = 4l + 2m + n = 7

2l ! m ! n = 1. (5 marks)(b) Find the value of q, so that the matrix

A = does not have an inverse. Obtain A!1, when q = 2. (5 marks)

Answer :

(a) Augmented matrix of the given system of equations is

Using elementary row operation


Converting back this configuration in the equation form

1.x + 0.y + 0.z = 2

0.x + 1.y + 0.z = 2

0.x + 0.y + 1.z = 1

� Solution is x = 2, y = 2, z =1

(b) The necessary condition that any square matrix A does not have an inverse is that.

*A* = 0

Here A =

� *A* = 1

= 1(6+6) !q (12+0) +0 (4!0)

= 12 ! 12q + 0

= 12 ! 12q

Now *A* = 0

| 12 !12q = 0

| 12q = 12

| q = 1

Now A = (Taking q = 2)

Adj A =

A11 = (!1)1+1 = (6+6) = 12; A12 = (!1)1+2 = !(12!0) = !12

A13 = (!1)1+3 = (4!0) = 4; A21 = (!1)2+1 = !(12!0) = !12

A22 = (!1)2+2 = (6!0) = 6; A23 = (!1)2+3 = !(2!0) = !2

A31 = (!1)3+1 = (!6 ! 0) = !6; A32 = (!1)3+2 = !(!3 ! 0) = 3

A33 = (!1)3+3 = (1 ! 4) = ! 3

� Adj A = =

*A* = = 1

= 1(6 + 6) !2 (12 + 0) + 0 (4 ! 0)

= 12 ! 24

= !12

� A!1 = = =

Chapter - 5 : Graphs of Linear Inequalities

2006 - May [7] (a) Draw the graph of the following inequalities and indicate the common region with its

boundary :

4x + 5y $ 20


3y ! x # 6

x ! y < 8

x $ 0, y $ 0. (5 marks)

Answer : Considering equation 4x + 5y $ 20 as linear equation 4x + 5y = 20

then + = 1

The line intersects x !axis at (5,0) and y!axis at (0,4)

Considering equation 3y !x#6 as linear equation 3y ! x = 6 Table for 3y ! x = 6

x 0 15

y 2 7

Considering equation x!y<8 as linear equation x ! y = 8

Table for x ! y = 8

x 8 15

y 0 7

� graph of the given linear inequalities will be as following :

Common region is A B C D.

Chapter - 6 : Differential Calculus

2006 - May [4] (b) Cost function of a company is given by :

C(x) = x3 ! 9x2 + 20x + 8,

where x denotes the output.

If the demand function is given by :

p = 440 ! 3x,

find the revenue function and profit function. Find the level of output at which profit will be

maximum. (5 marks)

Answer : Cost function e (x) = x3 ! 9x2 + 20x + 8

demand function p = 440 ! 3x


� Revenue function R (x) = px = (440 ! 3x) x = 440x !3x2

Profit function P(x) = R(x) ! C(x)

= (440x ! 3x2) ! (x3 ! 9x2 + 20x + 8)

= 440x ! 3x2 ! x3 + 9x2 ! 20x ! 8

= !x3 + 6x2 + 420x ! 8

Now = (!x3 + 6x2 + 420x ! 8)

= !3x2 + 12x + 438

For maximum profit = 0

| !3x2 + 12x + 420 = 0

| 3x2 ! 12x ! 420 = 0

| x2 ! 4x ! 140 = 0

| x2 ! 14x + 10x !140 = 0

| x (x !14) + 10 (x ! 14) = 0

| (x !14) (x + 10) = 0

| x = 14, and x = ! 10

Now = !6x +12

At x = 14, = !6 × 14 + 12 = ! 84 +12 = ! 72 < 0

� At x = 14 units, the profit will be maximum.

At x = !10, = !6x (!10) +12 = 60 +12 = 72 > 0

� At x = !10 units, the profit will be minimum

Therefore, the company should produce 14 units to get maximum profit.

2006 - May [5] Give the correct option with reasons for the following questions :

(a) f(x) = , when x � a

f(x) = b, when x = a.

If f(x) is continuous at x = a, then b is equal to

(i) a (ii) 0 (iii) 3a (iv) 3a2. (3 marks)

(b) If f(x) = , then f1(0) is equal to

(i) 3 (ii) 0 (iii) 5 (iv) 2. (4 marks)

(c) is equal to

(i) log 2 + log 7 (iii) log 2 . log 7

(ii) 6 (iv) log 2 ! log 7. (3 marks)

Answer :

(a) Given that f (x) = when x � a

| f(x) =

= x2 + ax + a2

Since f(x) is continuos at x = a

Therefore, f(x) = f(x) = f(a)

or f(a+h) = f (a ! h) = f (a)

or f(a + h)2 + (a + h)a + a2 = (a ! h)2+ (a!h)a + a2 = b

or a2 + a2 + a2 = a2 + a2 + a2 = b

or 3a2 = 3a2 = b

� (iv) is correct.

(b) f(x) = +

= 2x3e!3x + .3

f1(x) = 2x3e!3x (!3) + e!3x6x2 +3. loge 3 × 2x

� f1(0) = 2x(0)3 e!3×0 (!3) +e!3×0 × 6(0)2 + loge3 × 0


= 0 + 0 + 0

= 0

Since 2x3e!3x is the product of two functions and is in the form of ax

� (ii) is correct.

(c)

=

=

=

=

= loge2 . loge7

Since = logea

� (iii) is correct.

2006 - May [7] (b) Test the existence of the following limit :

(5 marks)

Answer :

Let f(x) =

for x < 0, we have *x* = !x, and thus for x<0

f(x) = =

� f(x) = = !

Thus as x approaches o from the left, f(x) approaches

For x > 0, we have | x | = x, and thus for x > 0

F(x) = =

� + f(x) = + =

Therefore, as x approaches o from the right, f(x) approaches Since ! f(x) � f(x), We conclude

that does not exist.

Chapter - 7 : Integral Calculus

2006 - May [3] (a) For a commodity, marginal revenue function is given by :

MR(x) = 5 ! 3x + x2,

where x denotes the number of units sold. Find the Revenue function and Demand function. Obtain

total revenue from the sale of 60 units of commodity. (5 marks)

Answer : Revenue function R (x) = IMR dx

= I(5 ! 3x + x2) dx

= 5x ! + + k

when x = 0 then Revenue R (x) = 0

Therefore 5 × 0 ! + + k = 0

| k = 0

� Revenue function R(x) = ! + 5x

Since R = p × x

| p =

=

= ! x + 5

Therefore, demand function D(x) = ! x + 5

When x = 60 units

Total Revenue; R (60) = × × (60)2 + 5 × 60

= ! × 3,600 + 300


= 72,000 ! 5,400 + 300

= Rs. 66,900.

2006 - May [6] (a) Evaluate the integral :

dx. (5 marks)

Answer : dx = dx

= I(x + 3)dx + dx ...........................................................(1)

Now, let = + or 7x !6 = A (x ! 2) + B(x ! 1)Putting x = 2, we get 7 × 2 ! 6 = A (2!2) + B (2 ! 1) or B = 8Putting x = 1, we get 7 ×1!6 = A (1!2) + B (1 ! 1) orA = !1

� = ! + Now from (1), we get

dx=I(x+3)dx + dx= + 3x ! log (x !3) + 8 log (x ! 2) + c = + 3x + log +c

Chapter - 8 : Mathematics of Finance2006 - May [3] (b) A person wishes to invest money for two years. He has a choice of choosing betweenannual interest of 10% compounded quarterly and annual interest of 10.5% compounded yearly. Whichoption he should choose for maximum return? [Given (1.025)8 = 1.2184]

(5 marks)Answer : Let principal be Rs. P(1) When interest is compounded quarterly, then

r = 10% = , m = 4, n = 2 years� C.I = P = P [(1.025)8 !1]

= P [1.2184 ! 1]= 0.2184 P

(2) When interest is compounded yearly, then r = = 0.1, m = 1, n = 2 years

� C. I. = P[(1 + 0.1)2 ! 1] = P [(1.1)2 !1]= P[1.21 ! 1]= 0.2100P

Since interest from first investment is more than from second investment. Therefore person shouldchoose first option.

Section BStatistics

Chapter - 1 : Classification and Tabulation of Data2006 - May [8] (a) Distinguish between Primary and Secondary data. What are the sources of secondarydata ? (3 + 2 = 5 marks)(b) Define Classification and Tabulation. Describe the basis of classification and parts of tabulation.

(2 + 3 = 5 marks)

Answer :


(a) [Refer Q. No. 7]

Sources of secondary data :– Secondary data can be collected from following sources :–

(1) Data collected through newspapers and periodicals.

(2) Data obtained from the publications of trade associations.

(3) Data obtained from the research papers published by university department or research centres.

(4) Data collected from the official publications of the central, state and local governments.

(5) Data collected from the official publications of the foreign governments.

(b) For definition of classification refer para 2 of Notes Zone of Chapter 1 for definition of Tabulation

refers para 3 point 2 of Notes Zone of Chapter 1.

Basis of Classification :– There are four basis of classification of data :–

(i) Qualitative :– When the basis of classification is according to characteristics like social

status etc. is called Qualitative, e.g rich and poor persons, educated and uneducated persons,

intelligent and dull students etc.

(ii) Quantitative :– When the basis of classification is according to differences in quantity, the

classification is called quantitative. In this date are classified by assigning arbitrary limits

called class limits e.g, a class of Students split up into groups according to their ages.

(iii) Temporal :– When the basis of classification is according to differences in time, the

classification is called temporal e.g. the students who got first division during the last three

years are classified year wise.

(iv) Spatial or Geographical :– When the basis of classification is according to geographical

location or place, the classification is called spatial or geographical. e.g. , the production of

wheat in different states.

For “Parts of Tabulation” Refer Q. No. 17 on Page 2B.12.

Chapter - 2 : Measures of Central Tendency and Dispersion

2006 - May [9] (a) Define Central Tendency and Dispersion of Data. What are their measures ?

(3 + 2 = 5 marks)

(b) Find the coefficients of variation of the series A and B and find out which of them is more variable:

A : 32 28 47 63 71 39 10 60 96 14

B : 19 31 48 53 67 90 10 62 40 80 (5 marks)

Answer :

(a) For definition of “Central Tendency” refer para 1 of Notes Zone.

Dispersion :– Dispersion means scatterness. It helps in finding out the variability of the data of

scatteredness of individual items in a given distribution. In other words, the degree to which

numerical data tend to spread about an average value is called the dispersion of data.

There are five types of measures of central tendency which are :–

1. Arithmetic mean. 2 Median 3. Mode 4. Geometric Mean 5. Harmonic Mean.

There are four types of measures of dispersion which are :–

1. Range 2. Quartile Deviation or Semi-Inter-Quartile Deviation 3. Mean Deviation 4. Standard

Deviation.


(b) Table for standard deviation :–

Series A Series B

Value (x) d = x ! d2 = (x ! )2 value (x) D = x ! d2 = (x ! )2

32

28

47

63

71

39

10

60

96

14

!14

!18

1

17

25

!7

!36

14

50

!32

196

324

1

289

625

49

1296

196

2500

1024

19

31

48

53

67

90

10

62

40

80

!31

!19

!2

3

17

40

!40

12

!10

30

961

361

4

9

289

1600

1600

144

100

900

3 x = 460 3d2 = 6500 3x = 500 3d2 = 5968

Calculation of C. V. for Series A :–A. M. = = = 46

S. d. = F = = = = 25.4950

C. V. = × 100 = × 100 = 55.4239

Calculation of C. V. for series B :–A. M. = = = 50

S. d. = F = = = = 24.4294

C. V. = × 100 = × 100 = 48.8588

Since value of C. V. for series A is greater than value of C. V. for series B. Therefore series A is

more variable.

Chapter - 3 : Correlation

2006 - May [10] (a) Write Spearman’s rank correlation coefficient formula. (1 mark)

(b) Write Karl Pearson’s correlation coefficient formula. (1 mark)

Answer :

(a) Spearman’s rank correlation coefficient formula is given by R = 1!

Where D2 is the square of the difference of corresponding ranks, and n is the number of pairs

of observations.

(b) Karl Pearson’s correlation coefficient formula for two variables X and Y is given by

First Form, r =

Second Form, r =

Where , are means of x and y series respectively.

Chapter - 4 : Regression

2006 - May [10] (c) Given the following informations based on 14 paired observations on the variables

X and Y :

xi = 350; yj = 308; (xi ! )2 = 264; (yj ! )2 = 1782 and (xi ! ) (yj ! ) = 185.

(i) Obtain the regression lines of x on y and y on x. (2 marks)

(ii) Obtain the value of x for given value of y. (2 marks)

(d) Calculate Spearman’s rank correlation coefficient between the series A and B based on the following

informations :


Rank of Series A 2.5 5 6 7 8 9 1 4 2.5

Rank of Series B 3 5 6.5 6.5 9 8 1 4 2 (4 marks)

Answer :

(c) Here, it is given that xi = 350; yi = 308 (xi ! )2 = 264; (yj! )2 = 1782; (xi! ) (yj! ) =

185

Now r = =

= = = 0.2697

Fx = = = = 4.3424

Fy = = = = 11.2820

bxy = r. = = 0.104

byx = r. = = 0.701

= = 25; = = 22

� Regression equation of x on y is x ! = bxy (y! )or x !25 = 0.104 (y ! 22)or x !25 = 0.104 y !2.288or x = 0.104y + 22.712

Regression equation of y on x is y! = byx (x! )or y !22 = 0.701(x ! 25)or y !22 = 0.701 !17.525or y = 0.701 + 4.475

(d)

Rank of series A R1 Rank of series B, R2 D = R1!R2 D2

2.55678914

2.5

35

6.56.598142

!0.50

!0.50.5!1100

0.5

2.50

2.52.51100

2.5

3D2 = 12

Here m1= 2� The correction factor for A - series is = = = Here m2 = 2� The correction factor for B - series is = = =

Therefore, the rank correlation is R =1 ! = 1 ! = 1! = 1!0.108 = 0.892

Chapter - 5 : Probability2006 - May [11] (a) Define the following terms :

(i) Event(ii) Mutually exclusive events

(iii) Independent events. (3 marks)(b) Examine, whether two events can be simultaneously mutually exclusive and independent.


(2 marks)(c) If A, B and C be three mutually exclusive and exhaustive events such that 2P(A) = 3P(B) = 4P(C),then find :

(i) P(A), P(B), P(C) (3 marks)(ii) P(A c B) (1 mark)

(iii) P(B c C). (1 mark)

Answer :

(a) (i) Event :– A sub collection of a number of sample points under a definite rule or law is called an

event.

(ii) Mutually exclusive events :– If in an experiment the occurrence of an event prevents or rules out

the occurrence of all other events in the same experiment, then these events are said to be mutually

exclusive events.

(iii) Independent event :– Two events are said to be independent, if occurrence or non - occurrence

of one event does not affect the occurrence of the other event.

(b) Yes, two events can be simultaneously mutually exclusive and independent. For example, in tossing

of a coin event of coming of head and event of coming of tail are mutually exclusive because if the

outcome is head, then the possibility of getting a tail in the same trial is ruled out. These events are

also independent, because the event of head or tail in one experiment does not have any effect on

the occurrence of events of head or tail in subsequent experiment.

(c) Given that 2p(A) = 3p(B) = 4p(c)

Now 2p(A) = 3p(B)

or p (B) = p(A)

Also, 2p(A) = 4p(c)

or p(c) = p (A) = p (A)

Since A, B and C are mutually exclusive and exhaustive events

(i) Therefore,

p(AcBcC) = p (A) + p (B) + p (c) = 1

or p (A) + p(A) + p (A) = 1

or = 1

or p(A) =

p(B) = p(A) = × =

p(c) = p(A) = × =

(ii) p(AcB) = p(A) + p(B) = + =

(iii) p(BcC)= p(B)+ P(C) = + =

2006 - May [12] (a) A person throws an unbiased die and gets the amount in Rupees equal to the square

of the face value obtained. Find the mathematical expectation of the amount he receives. (2 marks)

Answer :

Result

(xi)

(pi)

1

1

1/6

2

4

1/6

3

9

1/6

4

16

1/6

5

25

1/6

6

36

1/6

� Mathematical expectation E(x) = x1p1 + x2p2 + x3p3 + x4p4 + x5p5 + x6p6

= 1× + 4 × + 9 × × 16 × + 25 × + 36 ×

= = = 15.17

Therefore, mathematical expectation of the amount he receives is Rs. 15.17


Chapter - 6 : Elements of Theoretical Distribution

2006 - May [12] (b) Write the probability mass functions and the values of mean and variance in case of

Binomial and Poisson distributions. (2 marks)

(c) Under what conditions Binomial distribution tends to :

(i) Poisson distribution (1 mark)

(ii) Normal distribution ? (1 mark)

(d) If X be a Poisson variate, such that

P(x = 2) = 3P ( x = 4) + 30 P (x = 6),

then find the Mean and variance of X. (2 marks)

(e) For the following probability density function :

f(x) =

Find the value of P( x < 46.5). (2 marks)

Answer :

(b) Binomial Distribution : – The probability mass function of Binomial distribution for r success in

n trials is given by p(r) = pr where p = probability of success in a single trial.

It has mean = np and variance = npq

Poisson distribution :– The probability means function of poisson distribution is given by

p(x = x) = , x = 0,1,2,.......

Where m is the parameter and

e = 2.7183 = 1 + + + +

It has mean = np or m and variance = np or m

(c) [Refer to Q. No. 16 of Q & A Zone of Chapter 6]

(d) It is given that P(x = 2) = 3P (x = 4) + 30 P (x = 6)

or = 3 + 30

or = +

or = +

or m4 + 3m2 ! 4 = 0

or (m2 ! 1) (m2 + 4) = 0

� m2 = 1 or m2 = ! 4

or m = + 1 or m =

m = is discarded because is an imaginary number.

Therefore, Mean = 1 and Variance = 1

(e) When x = 46.5, then corresponding z = = !1.1

� p (x < 46.5) = p(z < ! 1.1) = 0.5000!0.3643 = 0.1357

Chapter - 8 : Significance Testing

2006 - May [13] (a) Define the following terms :

(i) Level of significance (1 mark)

(ii) Power of the test. (1 mark)

Answer :

(i) Level of significance :– The level of significance is the maximum probability of making a type

I error and it is denoted by r. i.e. , P [Rejecting H0 when H0 is true] = % The probability of making

a correct decision is then (1!%)

(ii) Power of the test.

Chapter - 9 : Z-Test

2006 - May [13] (c) A drug is given to 10 patients, the increments in their blood pressure were recorded

as follows :


8, 3, 6, 10, 2, !2, 3, 0, !6, 1.

Test the efficiency of the drug on the increase of blood pressure.

[ Given that : t9, .05 = 2.26 and t10, .05 = 2.23]

(4 marks)

Answer :

Patient 1 2 3 4 5 6 7 8 9 10 Total

D 8 3 6 10 2 !2 3 0 !6 1 3D = 25

D2 64 9 36 100 4 4 9 0 36 1 3D2 = 625

Mean Difference = = = 2.5

Estimated variance of population : S2 = = = 69.44

� S = = 8.33

Null hypothesis : H0 : µ1 = µ2 i,e. there is no change in blood pressure due to the effect of drug.

Alternative hypothesis : Hi, µ1 � µ2

S. E. ( ) = = = = 2.64

Test statistic ,t = = = 0.946

Level of significance % = 0.05

Critical value :– Critical value of t at % = 0.05 for (10 ! 1) = 9 degree of freedom is t9,0.05 = 2.26

Decision :– Since the calculated value * t * = 0.946 <tabulated value t9, 0.05 = 2.26, so null

hypothesis H0 is accepted.

� There is no change in blood pressure due to the effect of drug.

Chapter - 11 : P2 Test

2006 - May [13] (b) A factory owner agrees to purchase the product of a brand, if the items do not have

variance more than 5 mm2 in their length. To make sure, the owner selects a sample of 9 items from the

lot. The length of each item is measured. Their values in mm are as follows :

185, 183, 187, 183, 182, 185, 183, 182, 186.

Test whether the factory owner should purchase the product. Use 5% level of significance.

[Given that = 15.507, = 16.92]

(4 marks)

Answer :

Table for S2

xi xi ! = xi ! 184 (xi.! )2

18.5

18.3

18.7

18.3

18.2

18.5

18.3

18.2

18.6

1

!1

3

!1

!2

1

!1

!2

2

1

1

9

1

4

1

1

4

4

Mean = = = 184

� Sample variance = S2 = = = = 3.25

Null Hypothesis : µ0 : F2 = F2 (Here F02 = 5mm2)


Alternative Hypothesis µ : F2 � F02

Test Statistic : P2 = = = 5.2

Level of significance % = 0.05

At 5% significance level and (9!1) = 8 d.o f, ,0.05 = 15.507

Decision :– Since computed value P2 = 5.2 < Table value of ,0.05 = 15.507 so null hypothesis is accepted

Therefore, the factory owner should purchase the product.

Chapter - 12 : Time Series & Forecasting

2006 - May [14] (b) What is Time series? Explain the different components of time series. (5 marks)

Answer : Time Series :– [Refer Para 1 of Notes Zone of Chapter 12 and Q. 6 of Q & A Zone].

Components of Time Series :– [Refer Q. 11 of Q & A Zone of Chapter 12].

Chapter - 13 : Index Numbers

2006 - May [14] (a) State Time and Factor Reversal tests and verify from the following data whether

Fisher’s ideal index number formula satisfies these test.

1995 2005

Commodity P0 (Rs.) Q0 (Kg.) P1 (Rs.) Q1 (Kg.)

A 30 80 50 90

B 22 55 35 75

C 12 45 45 60

(5 marks)

Answer : Time Reversal Test :– [Refer Para 8 of Notes Zone of Chapter 13].

Factor Reversal test :– [Refer Para 8 of Notes Zone of Chapter 13].

Computation Table

Commodity 1995 2005 P1 Q0 P0 Q0 P1 Q1 P0 Q1

P0 (Rs.) Q0 (Kg.) P1 (Rs.) Q1 (Kg.)

A

B

C

30

22

12

80

55

45

50

35

45

90

75

60

4,000

1,925

2,025

2,400

1,210

540

4,500

2,625

2,700

2,700

1,650

720

3P1Q0

= 7,950

3P0Q0 =

4,150

3 P1Q1 =

9,825

3 P0Q1 =

5,070

Fisher’s Ideal index Number = ×100 = × 100

= × 100 = 1.925×100

Time Reversal Test :

P01 × P10 = ×

= = 1

� Fisher’s ideal index Number Statistics Time Reversal Test

Factor Reversal Test :–P01 × Q01 = ×

= = =

= = value Index

� Fisher’s ideal index number satisfies factor Reversal test.


[Paper - 3] Economics

Chapter - 1 : Meaning and Scope of Economics

2006 - May [4] Give answers to the following questions :

(g) Explain the salient features of a Capitalist economy. (5 marks)

Answer : Refer Para 6 of Notes Zone of Chapter 1.

2006 - May [1] Out of the following Multiple Choice Questions, Indicate the most appropriate answer:

(b) Solution of central problems in a capitalist economy is done through

(i) Government Policies

(ii) Price Mechanism

(iii) Economic Planning

(iv) None of the above. (1 mark)

Answer : (ii)

Chapter - 3 : Demand Analysis


(b) Explain the uses of the concept of elasticity of demand. (5 marks)



(a) Law of demand is a

(i) Quantitative statement

(ii) Qualitative statement

(iii) Both, Qualitative and Quantitative statements

(iv) Neither Quantitative nor Qualitative. (1 mark)

Answer : (ii).

Chapter - 4 : Consumer's Behaviour


(c) For the equilibrium of a consumer in the indifference curve analysis :

(i) Indifference map is required

(ii) Budget line is required

(iii) Indifference map and the budget line both are required

(iv) Consumer’s decision is required. (1 mark)

Answer : (iii)

Chapter - 6 : Supply Analysis


(d) Explain the determinants of elasticity of supply. (5 marks)

Answer : Refer Q. No. 5 of Q & A Zone of Chapter 6.

2006 - May [2] Fill in the blanks :

(c) Commodities which are perishable in nature have ............ supply. (1 mark)

Answer : In elastic

Chapter - 7 : Production Analysis

2006 - May [3] Explain distinction between the following :

(a) Short-run and Long-run production function. (5 marks)

(d) Territorial and professional division of Labour. (5 marks)


(e) Producer goods and Consumer goods. (5 marks)

Answer :

(a)

Sl.No.

Basis of difference Short Run Production Function Long Run ProductionFunction

1. Factors of Production. Only capital is fixed while other

factors are variable.

All the factors of production is

variable.

2. Scale of Production. The scale of production does not

change, only the proportion of input

are varied.

The scale of production also

changes.

3. Installation of New

Machine or plant.

Cannot be done in short run. Can be done in long run.

4. Behaviour of Produc-tion.

The behaviour of production is thesubject matter of law of variableproportion.

The behaviour of production isthe subject matter of laws ofreturns to scale.

(d) (i) In territorial division of labour the labours are classified territory wise according to the naturalcondition prevailing, natural resources available etc.

While in professional division of labour the community is classified into professionalclasses such as medicos, engineers etc.

(ii) Territorial division of labour is based on the diversities in natural condition. Whereasprofessional division of labour is based on the profession taken up.

(e) Consumer goods are those goods which are produced for the final consumption by consumers. Thesegoods lose their utility as soon as they are consumed. while producer goods are those goods whichare used in the production or manufacturing of other goods.

2006 - May [4] Give answers to the following questions :(c) Describe the features of Equal-product curves. (5 marks)(f) Discuss the various stages of Capital formation. (5 marks)Answer : (c) Refer Q. No. 32 of Q & A Zone of Chapter 7.(f) Refer Q. No. 20 of Q & A Zone of Chapter 7.2006 - May [1] Out of the following Multiple Choice Questions, Indicate the most appropriate answer:(d) Internal economies relate to :

(i) Marketing economies(ii) Technical economies

(iii) Financial economies(iv) All the above. (1 mark)

Answer : (iv)2006 - May [2] Fill in the blanks :(a) Cobb-Douglas production function exhibits ............ returns to scale. (1 mark)(b) In the law of variable proportions, when total product declines, marginal product is ............ .

(1 mark)(d) Capital formation means a sustained increase in the stock of ............ in a country. (1 mark)Answer : (a) Constant


(b) Negative(d) Real Capital

Chapter - 8 : Cost Analysis2006 - May [3] Explain distinction between the following :(b) Production overhead and Production cost. (5 marks)Answer :

Sl. No. Basis Production over head Production Cost

1. Nature Is indirect in nature. Includes both direct and indirect cost.

2. Components Indirect material indirect wages andindirect expenses.

Price cost i.e. direct material, directwages, direct expenses and all thecomponents of production over head.

3. Scope It is a part of production cost. It includes production over head.

Chapter - 9 : Meaning and Types of Market

2006 - May [3] Explain distinction between the following :

(c) Monopoly and Monopolistic competition. (5 marks)



(a) Explain the features of Oligopoly market. (5 marks)

(e) Describe the features of Perfect competition. (5 marks)

Answer :

(a) Refer Para 32 of Notes Zone of Chapter 9.

(e) Refer Para 5 of Notes Zone of Chapter 9.


(e) In perfect competition, price is determined by

(i) Representative firm

(ii) Government

(iii) Industry

(iv) Firm itself. (1 mark)

Answer : (iii)

2006 - May [2] Fill in the blanks :

(e) For the equilibrium of a discriminating monopolist, marginal revenue of one market should be equal

to the marginal revenue of the second market and both should be equal to ............ . (1 mark)

Answer : Marginal Cost

Chapter - 12 : Problem of Population

2006 - May [5] Explain the meaning of the following :

(a) Preventive checks (2 marks)

(b) Sex-ratio (2 marks)

Answer :

(a) Preventive check :– Preventive checks are those which according to Malthus helps in restraining

the growth of population. It consists of celibacy, late marriage, moral restraint etc.

(b) Sex Ratio :– Sex ratio is defined as the number of males per thousand females. It thus refers to the

proportion of males and females in the total population.

2006 - May [6] Answer the following questions :


(f) Discuss Malthusian theory of Population. (8 marks)


Chapter - 13 : Problems of Unemployment & Poverty


(c) Poverty line (2 marks)

Answer : Poverty line :– Poverty line divides the society into two parts. The people falling below the

poverty line are considered to be poor. while people on and above the poverty line are not poor. Poverty

line is drawn on the basis of barest minimum desirable nutritional standards of 2400 calories per person

per day in rural area and 2100 calories per person per day in urban areas.

Chapter - 14 : National Income


(d) Transfer payments (2 marks)

Answer :

Transfer payment :– Payments received by households production units and non Profit making

institutions from government and other sources without rendering any service are known as transfer

payments. These payments do not add to the current flow of goods and services. Examples of transfer

payment includes gifts, scholarships, old age pension etc.

Chapter - 15 : Profile of Indian Agriculture


(g) Describe the role of Agriculture in Indian economy. (8 marks)


Chapter - 16 : Measures for Improving Agricultural Productivity


(f) Mahalwari system (2 marks)

Answer : Mahalwari System :– Prior to independence, there were three types of land tenure system

prevailing in India. Mahalwari system is one of them. This systems was introduced in Agra and Awadh

which later become popular in Punjab, Haryana, M.P. and U.P. Under this system the whole village was

treated as one unit. and the whole village collectively paid revenue to the Government. The responsibility

of collecting the revenue and depositing it with the Government rested with the village head.


(b) Describe the problems faced by ‘Regional Rural Banks’ in India. (8 marks)

(c) Describe the weaknesses of ‘Land Reforms Programme’ in India. (8 marks)

Answer :

(b) The problems faced by Regional Rural Banks are as follows :–

(i) Regional disparities :– The growth of RRB’s have not been proportionate. About 55 % of

the total branches are spread in only four states that of Andhra Pradesh, Bihar, M.P. and U.P.

Other states have not got their due shares.

(ii) Mounting losses :– Out of 196 RRB’s almost 90 % have incurred heavy loss in the past

years These losses are eating into their deposits, and many have completely wiped off their

equity.

(iii) Problem of over dues :– Growing overdues hamper the ability of RRBs to grant loans. and

advances.


(iv) Problem of staffing :– RRB lack good staff. This is more so because the chances of

promotions in RRBs are very less. As such the employees leave RRBs in search of better

chances.

(c) Refer Para 10 of Notes Zone of Chapter 16.

Chapter - 19 : Small Scale Industries


(d) Describe the problems faced by Small Scale Industries in India. (8 marks)


Chapter - 20 : Public Sector Enterprises in India


(e) Disinvestment (2 marks)

Answer : Disinvestment :– Disinvestment means selling of an investment. It is one of the important

techniques of privatisation. It refers to selling out to private entrepreneurs the government’s share in

public enterprises. It began in 1992 as a strategy of new economic policy of liberalisation and privatisation

as forwarded by the then finance minister Dr. Manmohan Singh.


(e) What is Public Sector ? Discuss its role. (8 marks)

Answer : Public Sector :– Public sector refers to those enterprises which are directly or indirectly

managed by the Government. In terms of ownership public sector enterprises are those which are owned

either wholly by the Government or partly along with private individual or institutions, but nonetheless

has predominant share. As an enterprise it is primarily service oriented, although the profit aspect is also

taken care of. Viewed in terms of management public sector falls in the following three categories :–

(i) Those which are departmentally managed under various ministries.

(ii) Those which are controlled by board.

(iii) Those which are organised in public corporation in accordance with the provision of the Act of

Parliament.

Role of public Sector :– The public sector plays an important role in the economic development of the

Country :–

(i) Balanced Regional Development :– The public sector brings about a balanced regional growth

by promoting industries in backward and under developed regions.

(ii) Optimum Allocation of Resources :– The Public sector helps in proper allocation of resources

so that the economic development is promoted in desirable channels.

(iii) Building Industrial Base :– The public sector assists in establishment and expansion of growth

generating and infrastructural type of industries and thus lays foundation to further

industrialisation.

(iv) Capital formation :– The public sector also promotes capital good industries which helps in

capital formation which is key to economic growth

(v) Social objectives :– The public sector is a decisive instrument which is employed in preventing

concentration of economic power and growth of monopolistic tendencies. More over profits of

public sector is utilised to promote general social welfare.

Chapter - 22 : Banking


(a) Discuss the functions of the Central Bank. (8 marks)



Chapter - 25 : Composition and Direction of India's Foreign Trade


(h) Describe the causes of unfavourable ‘Terms of Trade’ for developing countries. (8 marks)


Chapter - 27 : India and the World Economy


(g) Convertibility of Rupee. (2 marks)

Answer : Convertibility of Rupee :– Convertibility of rupee means converting rupee into dollar or

determination of exchange rate in the international money market without official intervention. Thus, the

importers can get their required quantity of foreign exchange by converting their rupee resources into

dollars from the foreign exchange market. Similarly, the exporters do not have to surrender their foreign

exchange earned abroad to RBI but can now sell then directly in the foreign exchange market.

[Paper - 4] Business Communication and

Organisation and Management

Part ABusiness Communication

Chapter - 1 :Communication : Meaning, Importance & Process

2006 - May [1] {C} Comment on the following statements in about 30 words each :

(v) Communication is culture-bound. (1 mark)

(ix) Decoding may not always be accurate. (1 mark)

Answer :

Comment :–(v) Communication is culture bound. One has to be very careful in choice of words so as to not to

offend the receiver who may be having a very different cultural background. Cultural difference

very often come up as communication barrier. The same words, phrases, symbols etc may mean

different things to different people of different cultural background.

(ix) It is very true that decoding may not always be accurate. It depends on individual experiences. If

the receiver is familiar with the codes used by the sender and his perception is good, he will derive

more or less the same meaning as meant by sender, otherwise not. Inaccurate decoding makes the

communication ineffective.

Chapter - 2 : Dimensions/Directions of Communication


(vi) Diagonal communication, though practicable, has some limitations. (1 mark)

Answer :

Comment :–(vi) Diagonal communication, though practicable has some limitations. They are :–

(i) Anarchy – which takes place in the absence of well accepted procedures for diagonal

communication.

(ii) Resistance by managers when not consulted.

(iii) It violates the principle of unity of command and thus causes conflicts and confusion.

Chapter - 3 : Verbal/Non-Verbal Communication



(i) You glow when someone puts an arm around you, reaches across the table to hold your hand or

envelops you in a hug. (1 mark)

(ii) Your reaching office in time and completion of task within a specific time span does not

communicate anything. (1 mark)

(iii) Proxemics explains kind of human relationships. (1 mark)

(iv) Listening is antonym of hearing. (1 mark)

(viii) You reach office late by ten minutes. Your boss first looks at you and then the wall clock. But he

utters no word. (1 mark)

Answer :

Comment :–(i) Human beings communicate in many ways other than through words. Words, very often fail to

convey the exact meaning. Thus non-verbal signals mutually understood by the sender and

receiver are used. The space around the sender and receiver communicates too which is called

Proxemics’. Thus one glows when someone puts an arm around, reaches across the table to hold

the hand or envelops in a hug. Here a close contact is maintained and is the intimate space

language.

(ii) Reaching office in time and completion of task within a specific time span does communicate. It

communicates the importance of time. This non-verbal communication is called, Time Language.

Time pervades our thinking and dominates our communication. Under time language, people

communicate with each other in terms of time by showing them in a very sophisticated way, the

worth of time.

(iii) Proxemics is the study of how we communicate within the space around us. For this the distance

between the sender and receiver is demarcated. The distance between the receiver and the sender

while communicating speaks about the relationship between them. It is intimate if the distance

between them is physical contact to18 inches. It is personal if the distance between them is 18

inches to 4 feet. Thus proxemics do explain kind of human relationships.

(iv) Listening is a deliberate effort. It is not same as hearing. While hearing one has to make no effort.

But for listening one has to train ones ears and ask themselves as to why he wants to listen.

Again, while listening one has to discriminate, evaluate, appreciate and react as well which is not

required in hearing.

(viii) Human body and its various parts play an important role in communication. The boss although

has not uttered any words but by his body language, i.e. gestures has conveyed very well that the

person is late and he does not approve of it. This use of body language as a medium of

communication is also known as kinesics’.

Chapter - 5 : Barriers of Communications

2006 - May [2] {C} (b) 90% of the problems in any organisation are caused by ineffective

communication. How ? (Give any five reasons) (5 marks)

Answer : It is very true that 90% of the problems in any organisation are caused by ineffective

communication. It is evident from the following :–

(i) Unclear message :– When the sender is not sure of what he wants to communicate, why he wants

to do it, to whom he wants to communicate, his message can never be clear. This is more because

a clear message can never be sent from unclear mind.. An unclear massage is likely to be decoded

in different ways giving different meanings.

(ii) Incomplete message :– Incomplete messages keep the receiver guessing. This creates

misunderstanding and often delays action.


(iii) Incorrect message :– When incorrect message is communicated, wrong decisions are taken in

light of incorrect message.

(iv) Absence of attention :– Both the receiver and sender has to pay their full attention. Lack of

attention leads to distortion of message giving out a different meaning.

Noise :– Ineffective communication also results from noise. Noise acts as a major barrier to

communication. Noise distracts the persons and incorrect message is conveyed.

Chapter - 8 : Techniques of Group Decision Making

2006 - May [2] {C} (a) What is a Group ? How formal groups are different from informal groups ? (Give

any three distinctions) (2 + 3 = 5 marks)

Answer : A group is a unit of two or more persons who work together to achieve a goal. The members

of a group interact with one another in face to face relationships over a period of time. Thus a group may

be defined as a collection of two or more persons who have a common goal and interact with each other

to accomplish the goal. A group is however different from a mere aggregate of people. An aggregate of

persons will become a group only if the members share a common mission and responsibility for working

to achieve it.

Difference between formal and informal organisation :–(a) Creation :– A formal group is created by the action of management to overcome the defects of

organisation structure. An informal group is created spontaneously because of operation of the social

and psychological factors at workplace.

(b) Authority Pattern :– In a formal group, members derive authority through the formal source that

is through delegation and redelegation of authority. In an informal group members derive authority

from interpersonal relationship.

(c) Stability :– A formal group is stable and is likely to continue for a longer time even if the members

change. Informal groups are unstable. Members themselves create the group and they themselves

leave the group because of change of members or its working.

Chapter - 10 : Characteristics of Effective Correspondence


(xiv) The two sentences — “Your efforts are highly appreciated by the management”, and “The

management highly appreciates your efforts” — make the same impact. (1 mark)

Answer :

Comment :–(xiv) The two sentences do not make the same impact. The first sentence is in passive voice and the

second sentence is in active voice. Written messages should always be prepared with due care.

While writing, to make the message more effective, verbs in active voice are preferred to verbs

in passive voice. Thus the second sentence should be used instead of the first.

Chapter - 11 : The Layout of a Business Letter


(vii) Only one standard format is there in which a business letter can be written. (1 mark)

Answer :

Comment :–(vii) Several formats are used for writing business letters. Choosing a particular form is a matter of

individual taste and preference. The different forms are :- the indented form, the block form, the

complete block form, the semi-block form, and the hanging indented form. One should choose

the form which best suits ones business requirements.

Chapter - 12 : Letter of Enquiry/Requests for Quotations and Replies


2006 - May [4] {C} (Or) What is a Tender ? What is the purpose of inviting tenders ? What specific

information must be included in a Tender Notice ? Why should the size of a tender notice be brief ?

(2 + 2 + 5 + 1 = 10 marks)

Answer : A tender refers to a formal offer to complete a particular job or to supply the specified goods

and services at a stated price and within the specified time period.

A tender is written in response to invitation to tender and bids are sent out or published. It is written

by contractors or business houses who give detail of the work to be done along with the cost estimates

for the completion of work.

Purpose of inviting tenders :– The basic purpose of inviting tender is to ask the suppliers or contractors

to submit estimates for supplying specific goods or services as given in the bidding document.

Specific informations to be included in tender notice :–(a) Work to be done or goods to be supplied.

(b) Time period, required.

(c) Eligibility of the supplier.

(d) Earnest money to be deposited.

(e) Cost of tender document.

(f) Last date of receipt of application for purchase of tender.

(g) Last date for issue of tender document.

(h) Last date for receipt of tender.

(i) Date of opening of tender.

Size of Tender Notice :– The size of the tender notice should be brief. This is because a message to be

effective should be concise. It is well said that brevity is the soul of effective communication. Thus a

tender notice should be such in which the message is organised well by using simple words and short

sentences.

Chapter - 14 : Sale Letters/Offers


(x) Sales letters need to be more detailed as compared to other letters. (1 mark)

Answer : Comment :–

(x) Yes, the sales letters need to be more detailed as compared to other letters. This is so because sales

letter are persuasive in nature. Sales letter persuades the customer. They are a kind of

advertisement of the product or service offered. Thus the sales letters are somewhat lengthy as

compared to other letters.

Chapter - 18 : Insurance Correspondence

2006 - May [4] {C} Write a letter to Insurance Company complaining about non-receipt of insurance

policy of your factory building. You require it urgently for submission to your bank with whom the

building has been pledged. (10 marks)

Answer :


RADHA SUGAR MILLS PVT. LTD.B-18 NEHRU NAGAR

AGRAMay 3, 2006

To,THE BRANCH MANAGERUNITED INSURANCE CO. Ltd.NEHRU NAGAR; AGRA

Dear Sir,This is to inform you that we have insured our factory building through your insurance

company in the month of March 2006. But till date we have not received the insurance policy. We

require it urgently for submission to our bank with whom the building is pledged.

I therefore request you to kindly do the needful and send us the policy at the earliest.

Thanking you in anticipation,

YoursX Y Z

For Radha Sugar Mills Pvt Ltd.

Chapter - 19 : Memoranda

2006 - May [3] {C} (Or) What is a Memo ? Is it different from a Circular ? Recently a public notice

issued by the Income-tax Department has come to the notice of General Manager - Finance. The notice

asks all employers to submit PAN (Permanent Account Number) of their employees alongwith TDS (Tax

Deducted at Source) in their Quarterly Returns. Prepare a Memo to bring it to the notice of Accounts

Manager to issue a circular to all employees to submit their PAN. (2 + 2 + 6 = 10 marks)

Answer : Memo :– The word memo or memoranda has been derived from a Latin word ‘Memorare’

which means to mention or tell. It has been defined as, a short official notice that you write to a person

or to several people, especially people who you work with. Thus, whenever a superior has to issue some

instruction to his subordinates or to bring an important matter to their notice he writes a memo. The main

purpose of a memo is to record or convey informations and decisions or to make short requests. It may

be addressed to a single person or may be in form of a circular, addressed to all such persons whose name

appears in the bottom left hand corner.

Circular :– A letter which circulates the same message is known as circular letter. On certain occasion

a business man has to communicate some message to a large member of his customers and suppliers. For

this purpose he uses circulars. Circulars are also used to convey the message of a superior to his

subordinates.

Is a memo different from a circular :– Although both memo and circular serve the same purpose that

is to convey a message to large number of people yet there is difference between them. The difference lies

in the fact that while memos are used for internal communication circulars are used for both internal and

external communication. Secondly memo can be for a single person or a group of persons while a circular

is always for a group of persons.

A memo to issue a circular :–


S. V. K. Pvt. Ltd.22, SUNDARAM TOWERS

CHENNAI

MEMORANDUM

No. 61/05From : A. K. PILLAI, G. M. (Finance)To : SHRIDHAR T. P., ACCOUNTS MANAGER.DATE : 4th April 2005.

SUBJECT : Notice to issue circular to all the employee’s

A public notice issued by the income tax Department has come to my notice. It asks all the

employers to submit PAN of their employees along with T. D. S. in the quarterly returns.

With regard to this, you are requested to issue a circular to all the employees to submit their pan,

with immediate effect.

(A. K. Pillai)

Chapter - 22 : Meeting, Agenda and Minutes


(xi) Minutes are the official record of the proceeding of a meeting. (1 mark)

(xv) Notification and agenda mean the same thing. (1 mark)

Answer :

Comment :–(xi) Minutes are the official record of the proceedings of a meeting. It is a summary of the business

transacted, decisions taken and resolutions arrived at the meeting. It is also the evidence or proof

of the proceedings at a meeting, of when and where the meeting was held, who chaired the

meeting, what decisions were taken etc. Minutes are maintained by the company secretary.

(xv) No, notification and agenda do not mean the same thing. Agenda is a document which specifies

the business to be transacted in a meeting. It is a statement of issues to be discussed during the

meeting. Notification is to notify the members about the meeting. For this a notice is sent to the

member. It is issued by the company to the share holders which notifies them about the meeting

to be held.

Chapter - 23 : Summarising or Precis Writing

2006 - May [5] {C} Write a precis of the following passage reducing it to about one-third of its length

and give a suitable title :

In all modern economies and societies, money plays a crucial role as a tool of motivation. It is

recognised to have the ability to satisfy several types of needs and wants of people; the basic creature

comforts pertaining to food, clothing and shelter; the psychological needs for safety and security as also

the need for status, prestige and esteem. All these needs have both quantitative and qualitative

implications. People not only seek to have more of the same thing, but they also aspire to have better

quality of things such as an independent house instead of an apartment, exclusive club membership and

so forth. As more and more things are monetised, money is in a position to buy several types of tangible

and intangible satisfactions. In a way, for a large majority of people, the need for money almost replaces

several other needs with the result that money earning becomes an obsession and mission for them.


Yet it is physically impossible for a well-educated, intellectual, or brave man to make money the

chief object of his thoughts; just as it is for him to make his dinner the principal object of them. All

healthy people like their dinners, but their dinner is not the main objective of their lives. So also, all

healthy-minded people like making money–ought to like it, and enjoy the sensation of getting it; but the

main object of their life is not money–it is some- thing better than money. A real soldier, for instance,

mainly wishes to do his fighting well. He is glad of his pay–very properly so, and justify complaints when

he is not given it. Still, his main notion of life is to win battles, not to be paid for winning them. Same is

true of doctors. They like fees no doubt, ought to like them; yet if they are brave and well-educated, the

entire object of their lives is not fees. They, on the whole, desire to cure the sick; and if they are good

doctors, and the choice was fairly put to them, they would rather cure their patient, and lose the fee than

kill him and get it. And so with all other brave and rightly trained men; their work is first, their fee second-

very important no doubt, but still second. However, in every nation, there are vast numbers of people who

are ill-educated, cowardly, and more or less stupid. And with these people, just as certainly the fee is first

and the work second; as with brave people the work is first and the fee second (10 marks)

Answer : Precise :–

TITLE : Priorities of Life :– Money, in todays modern world has the ability to satisfy the basic,

psychological, safety and security need. But more than these needs, today the need of man seems to be

to earn and have more money. It has become an obsession and mission for them.

But it is not so for all. As all healthy minded people eat food to live and not live to eat food so also

healthy minded people like to earn money but their main object in life is not just to earn money. They give

more emphasis on satisfaction of their psychological needs. For example the main object of a soldier is

to win a battle rather than getting paid for it. Similarly doctors choose to cure the patients first than to get

his fees. Still, there are large number of people, mostly ill-educated and cowardly who prefer money to

work. As for brave people, work is first and fees comes next.

Chapter - 24 : Report Writing

2006 - May [3] {C} What is a Report ? What are the two types of reports ? What does make a report

effective ? (2 + 2 + 6 = 10 marks)

Answer :

Meaning of Report :– Refer Para 1 of Notes Zone of Chapter 24.

Types of Report :– Refer Para 6 of Notes Zone of Chapter 24.

Tips for effective Report :– Refer Para 5 of Notes Zone of Chapter 24.

New Chapter : Import Export Correspondence


(xii) Certificate of origin in foreign trade certifies who is exporter and who is importer. (1 mark)

(xiii) A letter of credit is required to be sent to an importer by the exporter. (1 mark)

Answer :

Comment :–(xii) Certificate of origin is one of the most important shipping document which is required for

clearance of imported goods. This certificate indicates the country where the goods were

originally produced or manufactured. This is useful because it provides evidence for availing

preference tariff and also to ensure that there is no economic ban against import of goods into the

importing country.


(xiii) A letter of credit is issued by the importer’s banker in favour of the exporter, authorising him to

draw a bill of exchange upto a particular amount covering specific shipment of good, assuring him

of payment against the delivery of the prescribed document in his own country. Thus a letters of

credit is required to be sent by importer to exporter and not by exporter to an importer.

Part BOrganisation and Management

Chapter - 1 : Nature of Organisation and Management

2006 - May [12] State with reasons which of the following statements are correct/incorrect :

(iii) We live and work in a world of organisations. (2 marks)

Answer : Correct, We live and work in the world of organisations. We are born in a family, we go to

school and college, market, place of worship etc. All these are one or the other form of organisation.

Chapter - 3 : Business Environment

2006 - May [8] What are the elements of External Environment ? Explain them alongwith their impact

on business enterprise. (2 + 6 = 8 marks)

Answer : Business environment is the sum total of all the forces and factors which influence business

decisions. All such factors which lie outside the organisation are called external environment. The

external factors affect the business externally and are usually beyond the direct control of the organisation.

How ever they effect the business decisions to a great extent. The elements of external environment are:–

The elements of External Environment are :–(i) Economic Environment

(ii) Political Environment

(iii) Social Environment

(iv) Technological Environment

(i) Economic Environment :– The factors which give shape and form to the development of

economic activities come under the head of economic environment. This includes :–

General economic condition :– economic systems, national income, distribution of income,monetary policy and fiscal policy.Market factors :– natural resources, infrastructural facilities, raw material supplies, plants andequipment, financial facilities and productivity.Product market :– nature of competition, industry demand, bargaining power of customers andsuppliers.

(ii) Political Environment :– Those factors which either restrain or facilitate the business throughthe government action are covered by political environment. It may include :–Political atmosphere :– political parties, Government, administration defence military policies.General approach of govt. towards business :– various constraining and facilitating forces.Law regulating the business :– Protections and constraints.

(iii) Social Environment :– Social environment is quite comprehensive because it may include thetotal social forces within which an organisation operates. From the point of the view of businessorganisation, it may include attitude of society towards business and management. It coversstructure, responsibility, custom, tradition, conventions and level of education.

(iv) Technological Environment :– Technological Environment refers to the sum total of knowledgeproviding ways to do things. it consists of state of technology, research and developmentactivities, technological obsolescence, change in technology, product lines, growth anddevelopment etc.


Chapter - 4 : Social Responsibility2006 - May [12] State with reasons which of the following statements are correct/incorrect :

(ii) The business of business is only to earn profits. (2 marks)Answer : Incorrect, The business of business is not only to earn profits but to serve society as well. It hasa social responsibility and commitment to society beyond the basic traditional economic function ofproducing and supplying goods and services.

Chapter - 5 : Planning2006 - May [11] Write short notes on the following :

(i) Philosophies of Planning (4 marks)Answer : Philosophies of Planning :– Planning is the first function of managers. According to RussetAckoff, there are three philosophies of planning which are as follows :– (a) Satisficing Philosophy :– This approach seeks to set up goals which are simple, tangible and

quantifiable such that they can be easily interpreted and understood. It believes in relative status quo,stability, continuity and slow change. It sets up the goal in such a environment which is devoid ofcomplexity and uncertainty. When the environment is complex it tries to make it easy to tackle. Theapproach seeks path of least resistance and does not favour bold initiative, radical innovations andunconventional thinking.

(b) Optimising Philosophy :– This approach seeks to set up goals which are precise and are based onsuch decision which are based on systematic analysis and evaluation of various alternative courses.It has a close affinity with the quantitative approach to management. Under this approachquantitative techniques are applied to arrive at solutions to the problems.

(c) Adaptivising Philosophy :– This approach seeks to blend rationality and reality. The aim is to buildup the organisation as dynamic and adaptive entities which are able to adjust with the environmentalchanges. Adaptions can be either reactive behaviour or proactive behaviour. Under reactivebehaviour the organisation responds after the event has occurred while under proactive behaviourevents are anticipated and actions are taken in advance.

Chapter - 6 : Business Policy and Strategy2006 - May [10] Distinguish between the following :

(i) Policies and Procedures (4 marks)Answer :

Distinguish between Policies and Procedures

Sl. No. Basis of Difference Policy Procedure

(i) Definition A policy is a verbal, written orimplied overall guide, setting upboundaries that supply the generallimits and direction in whichmanagerial action will take place.

A procedure is a series of relatedt a sk s tha t ma ke up th echronological sequence and theestablished way of performing thework to be accomplished.

(ii) Guideline A po l i cy i s a g u id e l i n e tomanagerial decision making

A procedure is a guideline tosequential action.

(iii) Nature A policy is relatively flexible innature and can be deviated.

A procedure is rigid in nature andleaves very little scope fordiscretion and deviation.

(iv) Formulated by A policy is formulated by high levelmanagers as they are moreconcerned about with the totality ofthe organisational functioning.

A procedure is formulated by lowerlevel managers as they are mainlyconcerned with routine work.


(v) Link A policy serves as bridge betweenorganisational purpose andperformance.

A procedure serves as a bridgebetween activities and outcomes.

Chapter - 7 : Decision-making2006 - May [6] {C} Read the following case and answer the questions given at the end :

A Bombay Stock Exchange (BSE) listed well-established company, engaged in manufacturing ofmetal containers and packaging items, had diversified its operations in early 1990s by investing a largeamount in a bearings factory. In the late 1990s the company was found suffering from a high coststructure, mounting losses, shortage of liquid funds and large scale exodus of technicians and managers.For a turnaround the management proposed for reduction in workforce, wage cuts and freezing of LTCfacility and other perks. But the proposal was not acceptable to the labour unions. Ultimately the companydecided to reopen the packaging units, hitherto closed. But their revival depended upon cost reductionthrough reduction in the excess workforce. A Multi National Company was interested in taking over thesick unit, but was not allowed to do so under the present laws.Questions :

(i) Was the decision to diversify into bearings correct ? (6 marks)(ii) What apparently went wrong ? (6 marks)

(iii) What would be your advice to the company ? (6 marks)Answer :

(i) In the given case it is given that a BSE listed well established company, engaged in manufacturingof metal containers and packaging items, has diversified its operation in early 1990's and by late90's was found suffering from huge loss. This loss poses the question that was the decision todiversify into bearings correct ? The answer to the above question will be ‘yes. Yes, the decisionto diversify into bearings was absolutely correct. This is because, diversification is a secondbusiness strategy capable of giving high returns to the company. Diversification also reduces therisk of company by reducing dependence on just one product. If a company has diversified itsproduct range there is an added advantage that if one industry is in recession the other productmay be in growth phase of business cycle. Thus the decision of the company was correct. It alsoseems from the given case study the company has reaped some profits too. Taking intoconsideration all the above points one can state that the company had the capacity market andreputation to justify the decision.

(ii) It is given in the case that after diversification the company is suffering from high cost structure,mounting losses, shortage of liquid fund and large scale exodus of technicians and managers.Thus the question arises what apparently went wrong ? There may be many a reason as to whythe strategy went wrong.

The first reason may be that the diversification was done at a very high cost.Secondly, the company is over staffed. This is evident more so because the company is

proposing for reduction in work force.Moreover it seems the company is bit by mismanagement and is not utilising its resources

effectively.The company also seems to have failed at human relations front. There seems a lack of

motivational force resulting in low productivity.(iii) To revive, the company needs to tackle the situation with a positive look and a rational approach.

First of all it has to take its union into confidence. By introducing worker’s participation inmanagement, the company can seek advice from the workers. The decisions taken with thesupport of the workers would be easier to implement. Secondly the company should adopt costreduction and cost control methods through new improved working methods. It can also go in for


voluntary retirement scheme to reduce the excess workforce. It is also given that the company issuffering from shortage of liquid fund. Thus for revival the company needs additional fund. Thisfund can be arranged from financial institutions.

2006 - May [11] Write short notes on the following :(ii) Classification of Decisions (4 marks)

Answer : Decisions can be classified as follows :–1. Strategic and Tactical or Routine Decision :–

(i) Strategic or basic of non-routine decision :– Strategic decision is a major choice of actionsconcerning allocation of resources and contribution to the achievement of organisationalobjectives. Such decisions are crucial for the whole or for the major part of the organisation.These are generally taken by the top executives of the organisation. They generally relate topolicy matters. They contribute directly to the achievement of organisational objectives.

(ii) Tactical or operational or routine decision :– These are derived out of strategic decision.They relate to day-to-day working of the organisation. They are taken well within the setpolicies and procedures. They are frequently taken by the middle and lower level managerswho are responsible for the supervision of actual operations. Such decisions are repetitiveand programmed decisions.

2. Programmed and Non-programmed Decisions :–(i) Programmed or structured decision :– These may be also characterised as routine and

repetitive decisions. They are also known as tactical or operational decisions. They aregenerally taken by the middle or lower level managers. They have short term impact. Theyare taken in the context of well settled policies, rules or procedures of the organisation whichhave been settled by the top level executives.

(ii) Non-programmed or unstructured decision :– These are just reverse to programmeddecision. They are taken by the top executives. They are free from any limitation. They maydiffer from the decision taken in the past because they may be changed with the change inenvironmental factor. They have no readymade courses of action.

3. Policy and Operative Decisions :–(i) Policy Decisions :– These determine the basic policies of the organisation. They are taken

by top level management. The policies decided at the top become the basis for operativedecision. no decision may go beyond the policy framework of the organisation. These areimportant in nature and have long term impact.

(ii) Operative decisions :– These are less important and are related with day-to-day operationsof the business. These decisions are taken by middle and lower level management in the lightof policies decided by the top management. These involve actual execution and supervision.

Chapter - 8 : The Function of Organisation2006 - May [7] What is Delegation of Authority ? Is it similar to span of control ? Why do managers notdelegate their authority ? (2 + 2 + 4 = 8 marks)Answer : Delegation of Authority :– To delegate means to authorise. Delegation of authority stands forthe devolution of authority on subordinates with a view to making them to perform an assigned duty. Itis a process adopted by a manager in dividing work among his subordinates that enables him to do hismain task effectively and get the allied tasks done by the subordinates.

According to Allen, ‘Delegation is the entrusting of authority and responsibility to another and thecreation of accountability for performance.’

Thus delegation implies the directions to other to do a particular duty or duties which the person sodelegating would have been required to do by himself. It also implies that the person who delegates should


see that the subordinate to whom the authority is delegated performs the work perfectly by due excerciseof authority. It enables the managers to distribute their load of work to others and concentrate onimportant function which only they can perform better. Thus delegation is based principle of sharing ofwork between the superior and the subordinate.Span of control :– Span of control refers to the member of subordinates which a manager can effectivelysupervise. It denotes the degree of direct authority and responsibility of a manager for supervision anddirection of activities of his subordinates.

Thus it is clear from above that delegation of authority is not similar to span of control. Whiledelegation is a process by which the superior assigns some of his own work load to his subordinates, thespan of control decides the member of subordinates to whom the work load can be assigned.Reasons for :–Reluctance of managers to delegate authority :–

(i) Lure for authority :– A manager may not delegate his authority if he is an autocrat and has a lurefor authority. He thinks that if he delegates his authority his influence will be reduced in theorganisation and thus avoids delegation of authority.

(ii) Lack of receptiveness :– Very often a manager is reluctant to delegate his authority when he feelsthat none can do the job better than he himself can do. This I can do it better myself fallacyobstructs delegation of authority.

(iii) Lack of truest in subordinates :– If a manager does not have confidence in his subordinates hedoes not delegate authority to give his subordinate any chance to make mistake and learn how totake correct decision.

(iv) Lack of control :– Effective delegation requires adequate control. A manager will hesitate todelegate authority if he does not set up adequate controls or has no means of knowing the use ofauthority.

(v) Fear of Subordinates :– A manager may not delegate authority due to fear of subordinates. Thisfear may take 2 forms :–(a) if the subordinate is given authority he may perform it better and occupy his position.(b) the subordinates increasing ability might earn him a promotion to some other parts of the

organisation and he may lose a good subordinate.(vi) Lack of ability or fear of exposure :– Adequate delegation may reveal the manager’s managerial

short comings which are being practiced. Therefore he tends to keep all the authority to himselfwith the fear of being exposed

Chapter - 9 : Designing Effective Organisation2006 - May [10] Distinguish between the following :

(ii) Project structure and Matrix Structure (4 marks)Answer : (a) Project structure is most suitable for managing the small numbers of large projects. While matrix

structure is suitable for managing large number of small projects.(b) In project structure each division is charged with the complete responsibility for the accomplishment

of the specified tasks and the resources needed for the accomplishment of the given tasks are alsoassigned to the project which the project manager uses them exclusively for the project, But inmatrix organisation the project manager does not have the complete authority for using the resourcesexclusively for the project, but he shares them with the rest of the organisation.

Chapter - 12 :2006 - May [12] State with reasons which of the following statements are correct/incorrect :

(i) Constructive conflicts are desirable. (2 marks)Answer : Correct, constructive conflicts are desirable because they activate people to re-examine hisbehaviour. It opens up fresh opportunities and ideas to do things.


Chapter - 13 : Leadership2006 - May [9] Describe the measures for developing leadership ability of Managers. (8 marks)Answer : Some of the measures for developing Leadership Ability of managers are as follows :–

(i) Training Programmes :– Training programmes which can be both off the job and on the jobcreates the temper of the manager to tackle different situations. The situations offered in thetraining programmes are partly real and partly simulated. The confidence inputted in the managermakes them effective leader.

(ii) Internal Organisatioal exposure :– Managers may be exposed to critical situation within theorganisation itself requiring the application of leadership skill. The situations include solvingproblems relating to people e.g. moral building, team development, instilling discipline etc. Themanagers may also be made incharge of committees which are assigned the task of projectimplementation, co-ordination and control.

(iii) Autonomy and accountability :– Autonomy along with accountability develops a higher senseof responsibility and other leadership skills of managers. Managers should be given more freedomin tackling critical situations and support in form of authority should be provided with challengingyet realistic goals which managers are required to achieve within specified times period. Suchdemanding job targets force managers to develop the necessary leadership goal skill. However thetask of goal setting should be a participation process and goals should be such that bring out anddevelop the best leadership ability of managers.

(vi) Job Rotation :– Systematic rotation of job is very helpful in developing the various leadershipskills. Job rotation exposes the leader to a variety of job situation. This exposure helps a managerto develop new abilities and styles to cope with altogether different situation.

2006 - May [12] State with reasons which of the following statements are correct/incorrect :(iv) Country Club Leadership Style has high concern for production and low concern for people.

(2 marks)Answer : Incorrect, country club leadership style has low concern for production and high concern forpeople. The leader maintains a friendly relation with people and gives very little importance to mattersof production.

Chapter - 14 : The Function of Control2006 - May [10] Distinguish between the following :

(iii) Post-control and Pre-control. (4 marks)Answer : Post control and Pre Control :–(a) In post control, necessary corrective action is initiated after analysis of deviations from planned

results. While in pre-control, necessary corrective action is initiated in advance to stop deviationsfrom materialising.

(b) In post control, output is monitored while in pre-control, input is monitored.2006 - May [11] Write short notes on the following :

(iii) The Control cycle. (4 marks)Answer : The Control Cycle :– Managerial control involves four basic steps i.e. establishment ofstandards, measurement of performance, comparing actual performance with the standard performanceand correction of deviation :–1. Establishment of Standards :– This is the first step. The management has to establish standards

for various activities which the personnel are expected to achieve during the course of operation.Such standards should be in quantitative terms. However, in some, cases, standards may be inqualitative terms where setting of standards in quantitative terms are not possible. Standards shouldbe precise, capable of achievement, flexible, accurate and based on some scientific basis, etc. They


must concentrate on results and not on procedures and should be inconsistent with the overallobjective.

2. Measuring Performance :– The 2nd step in the control process is to measure the actual performanceof activities. For this purpose, necessary information about the performance is collected for analysis.

The performance should be measured in quantitative terms. The measurement technique maybe personal observation, sample checking, performance report etc.

3. Comparing Actual with Standards :– This is the third step which involves the comparison ofactual performance with standard performance. Such comparison will reveal deviations, which maybe controllable or uncontrollable. Two things should be noted at this stage — (i) extent of deviations,and (ii) possible causes of deviations. If deviations are within reasonable limits, no action is required.Causes should be analysed for further planning. The report of performance should be brought to thenotice of the manager concerned who are responsible for the short performance.

4. Corrective Action :– The final step is the correction of deviations which may be achieved through— (i) revision of standards, (b) change in the assignment, (c) training, (d) change in the techniquesof direction, (e) change in the organisation etc. Action should be taken at the right time.

2006 - May [12] State with reasons which of the following statements are correct/incorrect :(v) Management Information System is concerned merely with collecting date for managerial

decisions. (2 marks)Answer : Incorrect, MIS is not just concerned with collecting data but it processes, stores, retrieves andtransmits information for managerial decision.

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