Free Business Studies - Class 11th (CBSE) - Test - t7a - Sources of Business Finance
- Subject: Business Studies
- Class: 11th (CBSE)
- Chapter Name: Sources of Business Finance
- Marks: 40
CBSE Class 11th Test
Q1. The unsecured source of borrowed fund which can be raised
for a period of six months to three years is ______ (1 Mark)
- Public Deposits
- Preference Shares
- Debentures
- None of the above.
Q2. Public Deposits are not suitable for new companies. (True/False) (1 Mark)
Q3. A company needs funds for funding Working capital requirement and Fixed Capital requirement. (True/False) (1 Mark)
Q4. Which of the following instruments is also known as hybrid
security? (1 Mark)
- Equity shares
- Debentures
- Public deposits
- Preference shares
Q5. Preference shareholders get preference over equity shares
for (1 Mark)
- Payment of dividend
- Voting right
- Participation in management
- None of these
Q6. Equity shareholders are also known as ______ owners. (1 Mark)
Q7. Name the kind of return on investment given to the investors
shown in the given picture. (1 Mark)
- Interest Paid on Bank Loan
- Retained earnings
- Dividend
- Trade credit
Q8. The capital of a company is divided into small units called
______. (1 Mark)
- Shares
- Debentures
- Bonds
- None of these
Q9. Preference shareholders have ______ rights as to the
redemption of capital at the time of winding up of the company. (1 Mark)
- Normal
- Preferential
- No
- None of these
Q10. Read the following statements carefully: (1 Mark)
In light of the given statements, choose the correct alternative from the following:
- Statement 1 is true and statement 2 is false.
- Statement 1 is false and statement 2 is true.
- Both statements 1 and 2 are true.
- Both statements 1 and 2 are false.
- Statement 1: Public deposits are not issued against the security of assets of the company.
- Statement 2: Public deposits are unsecured
Q11. Libra Sales Private Limited owns the agency for different food products. This company sells the goods of different brands to retailers after buying them from several companies. The special characteristics of this company’s business are that it buys almost all its goods on a cash basis and sells on a credit basis. The retailers make payment to it about one month after. This is the very reason that the company often struggles with short-term finance. To overcome this problem, the company’s finance department held a meeting. The chairperson of the meeting asked the members to express their views on the solution of this problem.
The first person said, “We should use such a source of finance that does not involve bureaucracy and legal hassles, and to obtain this, help from other companies can be obtained”.
The second person’s opinion was “When we sell goods on credit, why not make efforts to buy goods on credit too? Hence, to do so, pressure on the companies selling goods should be built up.”
The chairperson of the meeting listened to the suggestions of all the people and, to make the final decision, asked them to be present in the meeting again after a week.
Quoting the relevant lines, identify the source of finance indicated by the suggestions given by different people. (3 Marks)
Q12. Differentiate between Owners’ funds and borrowed funds on the basis of: (3 Marks)
- Investors
- Control
- Risk
Q13. What do you understand by ploughing back profits? (4 Marks)
Q14. Akshit Ltd. is a manufacturing company. The company has issued equity and preference shares to meet its requirements.
Other sources of finance have not been considered at all.
This has resulted in payment of a larger amount of taxes to the government, as dividends on shares are not deducted from the income of the company for the purpose of tax calculation.
- State the source of finance that can give the benefit of tax savings.
- State any two merits. (4 Marks)
Q15. Ratna Metals and Tubes Ltd. is a multi-location, multi-product company, manufacturing tubes and pipes in stainless steel/exotic material in wide size ranges, for a wide spectrum of applications.It now wants to cater to the Asian market and has decided to invest in new hi-tech machines.
Since the investment is large, the finance manager wants to raise borrowed funds through the cheapest long-term source of finance.
On the basis of the given information about Ratna Metals & Tubes Ltd., answer the following questions: (5 Marks)
- Identify and explain the source of finance to be used by the company to meet its funding requirements.
- State any three merits of the source of finance identified in part (i).
Q16. After completing her studies, Neetu decided to start her own business of handmade chocolates.
After analysing all the pros and cons, she came to the conclusion that the total funds required are ₹12,00,000.
She had ₹2,00,000 in her savings account. As these funds were insufficient to start the business, she approached Axis Bank for a loan of ₹10,00,000. The loan was approved within a month.
On the basis of the given case, answer the following questions: (5 Marks)
- Categorise the two types of funds on the basis of ownership.
- Out of the two sources of funds, which one is a permanent source of finance?
- Which source of funds requires a legal obligation to pay interest at a fixed rate at regular intervals?
Q17. ‘Balaji Traders Ltd.’ is a company that deals in the wholesale business of rice. Its Financial Manager, Mr. Charanjeet Chatterji, arranges unsecured short-term finance for the company through a commission agent.
The rate of interest to be paid on this loan is more than the bank’s rate of interest.
For Mr. Chatterji, one of the great advantages of this finance was that its source was far away from Bureaucratic and Legal Hassles.
Identify this source of finance and write about any five of its characteristics. (6 Marks)
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