CBSE Class 11th Business Studies Test - t7b

Free Business Studies - Class 11th (CBSE) - Test - t7b - Sources of Business Finance

Dear class 11th students,

Prepare yourself for your examination by clearing your concepts regarding “Chapter 7: Sources of Finance”.

Therefore, our team has developed an exclusive test that students can solve and gain more knowledge about the topic.

Here are the quick details:

• Subject: Business Studies
• Class: 11th (CBSE)
• Chapter Name: Sources of Business Finance
• Marks: 40​
• Time: 1.5 hours

CBSE Class 11th Test

Q1. Debenture holders are called: (1 Mark)

1. Employees of the Company
2. Owners of the Company
3. Creditors of the Company
4. None of the above.

Q2. Who among the following are called owners of the company? (1 Mark)

1. Debenture holders
2. Employees
3. Directors
4. Equity shareholders

Q3. The most dependable source of funds is: (1 Mark)

1. Equity share
2. Preference share
3. Public deposits
4. Retained earnings

Q4. Ploughing back of profits is also referred to as __________ profits. (1 Mark)

Q5. Payment of dividends on shares is: (1 Mark)

1. Compulsory
2. Voluntary
3. Rarely
4. None of the above

Q6. Loans given by commercial banks are generally: (1 Mark)

1. Short-term
2. Medium-term
3. Long-term
4. None of the above

Q7. Which of the following businesses requires a higher amount of working capital? (1 Mark)

1. Figure A
2. Figure B
3. Both A and B
4. None of these

Q8. Vinita is the finance manager of Kipla Pharma Co. As the company wants to import a piece of new machinery from Japan for its expansion, the capital requirements for the same are estimated to be ₹ 5 crore. Vinita reported that the company is not in a position to bear the extra burden of paying interest to the company, so the company should use its own capital sources rather than borrowed capital. The board of directors is confident about the sales turnover and cash flow position of the company in the coming years and supports the borrowed capital source of raising capital. The company is also considering using retained earnings for the same.

Name the source of owned capital that is available free of cost. (1 Mark)

1. Equity shares
2. Preference shares
3. Retained earnings
4. Bonds

Q9. Read the following statements—Assertion (A) and Reason (R). (1 Mark)
Choose one of the correct alternatives given below. (1 Mark)

1. Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
2. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
3. Assertion (A) is true, but Reason (R) is false.
4. Assertion (A) is false, but Reason (R) is true.

• Assertion (A): ICICI assists the creation, expansion, and modernisation of industrial enterprise in the private sector only. (1)
• Reason (R): ICICI is meant to assist industries in both the public and private sectors.

Q10. Match the statement given under Column I with the correct option given under Column II: (1 Mark)

Match the statement given under Column I with Column II

Column I	Column II
A. Equity shares	(i) Charge against assets of the company
B. Preference shares	(ii) Fixed rate of dividend
C. Debentures	(iii) Irredeemably

1. (A-i) (B-iii) (C-ii)
2. (A-ii) (B-i) (C-ii)
3. (A-iii) (B-ii) (C-i)
4. (A-i) (B-ii) (C-iii)

Q11. Identify and explain the source of finance highlighted in the following cases: (3 Marks)

1. It facilitates the purchase of goods and services without making immediate payment.
2. It refers to that part of profits which is kept as a reserve for use in the future.
3. This source has certain characteristics of both equity shares and debentures.
4. This source is arranged through brokers, and the rate of interest is higher than that of a bank.
5. It is also known as ploughing back profits.
6. This short-term source can be issued only by financially sound and highly creditworthy firms.
7. It is a permanent source of capital and is not redeemed during the lifetime of the company.

Q12. Ajay was not happy with his government job due to political interference and red tape in his department. He decided to take retirement under the Voluntary Retirement Scheme of the government.

On his retirement, he got some amount of money in the form of gratuity and provident fund, and plans to invest in securities where he can get regular returns with ownership rights.

You, being the financial market expert working for ‘Mitra Financial Advisors, OPC (Private Limited)’ are required to advise him on the following issues: (3 Marks)

1. Which type of security will you suggest to Ajay?
2. State two benefits of such securities for the issuing company.

Q13. How would you differentiate between Equity shares and Preference shares? (3 Marks)

Q14. Shiv Sales Pvt. Ltd. owns the agency of different food products, which sells goods of different brands to retailers after purchasing them from several companies. It purchases almost all goods for cash, while it sells on credit for one month. 

So the company keeps struggling 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 a source of finance which does not involve any bureaucracy and legal problems, and the market of which remains stable’. 

The view of the second person was that the company should buy goods on credit. The third person’s opinion was that the company needs cash credit and overdraft. 

Therefore, the source of finance should be selected considering this fact. 

The chairperson of the meeting listened to the suggestions of all kinds and, to make the final decision, asked them to present at a meeting next week.

Identify and explain the sources of finance as suggested by different persons by quoting the lines. (4 Marks)

Q15. A public limited company decided to borrow additional funds. The management of the company is not interested in dilution of control. (5 Marks)

1. Suggest a suitable type of source of funds for raising the funds.
2. State any four merits.

Q16. Sanjoli and some of her friends jointly set up ‘Tirmurti Limited’. The business of their company was to manufacture blankets at a low rate. 

At the time of setting up the company, they issued 25,000 shares of the face value of ₹ 10 each. In this way, they started their business with a capital of ₹ 2,50,000. 

Before collecting the money from the public, they decided that they would issue such a security that would not allow the company to incur any fixed financial charges. 

Also, they wished to have the capital from such a source as should enable the company to keep the rate of return up all the time. 

To collect the capital, Sanjoli and her friends issued a prospectus. Through it, they told the public that in the coming years, the company expected to earn a big profit and that the price of its shares would be very high. 

As a result, the investors would be able to earn extra profit. 

In the prospectus, it was also said that the company would organise its meetings from time to time and that the investors would be invited to these meetings. 

They would have the right to cast their votes in these meetings. 

The company started earning more profit than what had been proposed to the investors. (5 Marks)

1. Identify the type of shares issued by ‘Trimurti Limited’.
2. Quoting the relevant lines, write about the four advantages to Trimurti Limited from the shares identified in para (i).

Q17. FSN Industries Limited manufactures heavy machines for small-scale enterprises in India. It enjoys excellent earnings with a sound capital structure position in the industry. 

Capital employed of the company consists of ₹ 50 crore as equity and ₹ 20 crore as long-term borrowings (debt). 

Inspired by the ‘Make in India’ campaign, which is directed to provide ease in doing business, it wishes to spread its business operations to overseas countries by raising ₹ 10 crore to install a new manufacturing unit in rural areas of Nagaland, where the rural women are to be trained under the ‘Skill India Mission’. (6 Marks)

1. As a financial advisor, you are asked to suggest which source of finance the company should choose to raise further funds. Explain the source.
2. State the reason for selecting the source of finance under part (i).
3. Differentiate between shares and debentures on the basis of:

• Nature
• Voting rights
• Redemption

The End

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