AP Inter 1st Year Commerce Model Paper Set 1 with Solutions

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AP Inter 1st Year Commerce Model Paper Set 1 with Solutions

Time : 3 hrs
Max Marks : 100

PART – 1
Section – A 

Answer ALL the following questions. (4 × 1 = 4)

Question 1.
Home trade is also known as _____.
Answer:
Domestic trade or internal trade

Question 2.
Minimum members required to form a private company _____
Answer:
Two members

Question 3.
The registration of a partnership firm is _____
Answer:
not compulsory

Question 4.
The capital required for purchase of fixed assets is known as _____
Answer:
Fixed Capital

Section – B

Answer any SEVEN of the following questions. (7 × 2 = 14)

Question 5.
Business
Answer:

• The term Business refers to “the state of being busy”.
• Business is an economic activity involving production, exchange, distribution and sale of goods and services with an objective of making profits. The primary intention of business is making profits.

Definition:
L.H. Haney defined business as “a human activity directed towards producing or acquiring wealth through buying and selling of goods”.

Question 6.
Entrepot-Trade
Answer:

1. When goods are imported from one country and the same are exported to another country, such trade is called entrepot trade.
2. This type of trade is also known as re-export trade.
   E.g.: India importing wheat from U.S. and exporting the same to silence.

Question 7.
Karta
Answer:

1. The business of a Joint Hindu Family is managed by the senior most male member of the family Who is known as Karta.
2. The Karta has only the legal right to enter into contracts on behalf of the family business. Other members cannot question the decisions taken by the Karta.

Question 8.
Active Partner
Answer:

1. The partners who actively participate in the day-to-day operations of the business are known as active partners or working partners.
2. He/she may act in different capacities such as Manager, Organizer, adviser and controller of all the affairs of the firm.

Question 9.
Business organisation
Answer:

1. A Business organisation is an organised entity having a group of people working together to achieve a common goal.
2. Arrangement of ownership and management of business organisations is termed as ‘Forms of Business Organisation’. Business organisations may be owned and managed by a single individual (Sole Proprietorship) or a group of individuals (Partnership) or in the form of a company (Joint Stock Company).

Question 10.
Credit Co-operative Society.
Answer:
These societies are started by persons who need credit. They accept deposits from the members and grant them loans at a reasonable rate of interest.

Question 11.
Minimum Subscription
Answer:

1. The minimum amount of capital to be collected by a public company before its allotment of shares is known as ‘minimum subscription’.
2. A Public company cannot commence business unless a minimum subscription as stated in the prospectus has been subscribed.

Question 12.
Statutory Company
Answer:

1. A company that is created by a special Act of the Parliament or the Legislature of a State is called a Statutory Company.
2. The State Bank of India, Reserve Bank of India, Life Insurance Corporation, Unit Trust õf India etc., are examples of Statutory Companies.

Question 13.
working Capital
Answer:

1. The capital required by a business organisation to run its day-to-day operation such as payment of wages, salaries, electricity bills, purchase of raw – material, etc., is called “Working Capital”. The capital used in current assets is also called “Working capital”.
2. Current assets are those which can be converted into cash within a period of one year. Therefore, it is also called circulating or revolving capital.
3. The working capital of the business concern depends on the nature of the business, size of the business, production policy, etc.

Question 14.
Online Transaction
Answer:
An online transaction refers to any financial or non-financial activity that takes place over the internet. The financial transactions include online banking, bill payments, electronic fund transfers, and digital wallet transactions. The non- financial transactions include online shopping, purchasing digital products, and participating in online forums.

Section – C

Answer any FOUR of the following questions. (4 × 4 = 16)

Question 15.
What are the characteristics of business ?
Answer:
Following are the essential features of the business.

1. Creation of Utilities : Business makes goods more useful to satisfy’ human wants. It adds time, place, form and possession utilities to various types of goods, for Example : It carries goods from place of production to the place of consumption (place utility). It makes goods available for use in future through storage (time utility).
2. Deals with goods and services : Business deals with goods and services. The goods may be consumer goods such as cloths, soaps, milk, shoes, furniture, etc. They may be industrial goods such as machinery, equipment, etc., which are used for further production. Business also deals with services such as. transport, warehousing, banking, insurance, etc.
3. Continuity in dealings: Dealings in goods and services become business only if undertaken on a regular basis. A single isolated transaction of purchase and sale does not constitute business. Recurring or repeated transactions of purchase and sale constitutes business. E.g.: If a person sells his old car, it is not business though the seller gets money in exchange. But if he opens a shop and sells scooters or cars regularly, it will become business.
4. Sale, transfer or exchange : All business activities involve exchange, sale, transfer of goods or services between these two parties for money. For instance, cooking food for personal consumption does not constitute business, But cooking food and selling it to others for a price becomes business.
5. Profit motive : The primary objective of business is to earn profits. Profits are essential for the survival as well as growth of business. Profits must, however, be earned through legal and fair means. Business should never exploit society to make money.
6. Risk and uncertainty : Profit is the reward for assuming risk. Risk implies uncertainty of profit or the possibility of loss. Risk is a part and parcel of business. Business enterprises function in uncertain and uncontrollable environment, E.g. : Changes in customers’ tastes and fashions, demand, competition, government policies, etc., create risk. Flood, fire, earthquake, strike by employees, theft, etc., also cause loss.
7. Economic activity : Business is primarily an economic function. It involves production and distribution of goods and services for the satisfaction of human wants.
8. Art as well as science : Business is an art because it requires personal skills and experience. It is also a science because it is based on certain principles and laws.

Question 16.
Explain Various types of Industries.
Answer:
Classification/ Types of Industry:
There are various types of industries. They are described below:

1. Primary Industry : Primary industry is concerned with production of goods with the help of nature. It is a nature-oriented industry, which requires very little human effort. E.g.: Agriculture, Farming, Forestry, Horticulture etc.
2. Genetic Industry: Genetic industries are engaged, in reproduction and mul-tiplication of certain species of plants and animals with the object of sale. The main aim is to earn profit from such sales. e.g.: Plant nurseries, Poultry, Fishing, Cattle breeding, etc.
3. Extractive Industry: Extractive industry is concerned with extraction or drawing out goods from the soil, air or water. Generally, products of extractive industries come in raw form and they are used by manufacturing and construction industries for producing finished products. e.g.: Mining, Coal, Mineral, Oil, Iron ore, extraction of timber and rubber from forests, etc.
4. Manufacturing Industry : Manufacturing industries are engaged in transforming raw materials into finished product with the help of machines and manpower. The finished goods can be either consumer goods or producer goods. E.g.: Textiles, Chemicals, Sugar, Paper, etc. The manufacturing may be analytical, synthetic, processing, and assembling industries.
   • Analytical: In an analytical industry the basic raw material is broken into several useful materials. For example, in an oil refinery, crude oil is refined and several petroleum products are obtained.
   • Synthetic : In this type of manufacturing industry two or more materials are mixed to form a new product. For example, Cosmetics, Soap, Fertilizers, Paint industry, etc.
   • Processing : In the processing industry, material is processed through various stages. For example, in the textile industry, cotton passes through the spinning, weaving, dyeing, bleaching and printing processes.
   • Assembling : In this type of industry, manufactured components or parts are combined together mechanically or chemically to produce a new product. Manufacture of T.V sets, watches and automobiles are the examples of assembling industries.
5. Construction Industry : Construction industries take up the work of construction of buildings, bridges, roads, dams, canals, etc. This industry is different from all other types of industries. The other industries can produce goods in one place and sell them in another place. But goods produced and sold by constructive industry are erected in one place.
6. Service Industry: In modern times, service sector plays an important role in the development of the nation and therefore it is named as service industry. The main industries, which fall under this category include Banking industry, Hotel industry, Tourism industry, Entertainment industry, etc.

Question 17.
State any four characteristics of Joint Hindu Family business.
Answer:
Features of Joint Hindu Family business:
The essential features of the Joint Hindu Family business are as under.

• Formation : In JHF business there must be at least two members in the family, having some ancestral property. It is not created by an agreement but by operation of law.
• Legal Status: The JHF business is jointly owned. It is governed by the Hindu Succession Act of 1956.
• Membership: Outsiders are not allowed to become the coparcener in the JHF business. Only the members of undivided family acquire coparcener ship rights by birth.
• Profit Sharing : All coparceners have an equal share in the profits of the business.

Question 18.
Differentiate between Memorandum of Association and Articles of Association.
Answer:

Aspects	Memorandum of Association	Articles of Association
1. Nature	Memorandum is the char­ter of the company. It defines the objects and scope of the company.	It is a subsidiary document and contains the rules and regulations for the internal management of the company.
2. Scope	It defines the relationship between the company and the outsiders.	If defines the relationship between and its members and also, the relatioship among the members them­selves.
3. Contents	It contains the objects and powers of the company.	It lays down the rules by which those objects are achieved.
4. Filing	At the time of incorporation, filing of memorandum is compulsory.	The filing of articles is optional. A public company need not file it. It can adopt rules stated in Table – A.
5. Status	Memorandum is sub­ordinate to Companies Act.	Articles of Association is subordinate to both Memo­randum and Companies Act.
6. Alteration	It can be altered only under special circumstances with the prior approval of and central govt., court.	It can be altered by tpassing special resolution of the shareholders. In some cas­es, only the approval of the central govt. required.
7. Legal effects	The legal effects are harsher on memorandum Companies Act regulated it.	The legal effects are less on articles. The shareholders can modify the Articles and ratify it.

Question 19.
Differentiate between a share and a Debenture.
Answer:

Shares	Debentures
A share is a part of owned capital.	A debenture is an acknowledgment of a Debt.
Shareholders are paid dividends on the shares held by them.	Debenture holders are paid interest on debentures.
The rate of dividend depends upon the number of divisible profits and the policy of the Board of Directors.	A fixed rate of interest is paid on debentures irrespective of (profits or losses).
Shareholders have voting rights. They have control over the manage­ment of the company.	Debenture holders are only credi­tors of the company.
Shares are-not redeemable except re­deemable preference shares during the life of the company.	Debentures are redeemed after certain period.
At the time of liquidation of the company, share capital is payable after meeting all outside liabilities.	Debentures are payable in priority over share capital.

Question 20.
What are the benefits of e business to organization.
Answer:

1. Reach beyond boundaries : Expands the marketplace to national and international markets.
2. Cost savings : Reduces the cost of creating, processing, distributing, storing and retrieving information. Allows reduced inventories and overheads.
3. Competitive benefits : The adjusted processing time allows for the customization of products and services to achieve competitive advantages.
4. Earlier capital collection : Reduces the time between the outlay of capital and the receipt of products or services.

Section – D

Answer any TWO of the following questions. (2 × 8 = 16)

Question 21.
Define sole proprietorship and discuss its merits and demerits.
Answer:
Sole proprietorship is a form of business organisation in which a single individual introduces his own capital, skill, and intelligence in the management of its affairs and is solely responsible for the results of its operations. It is the first stage in the evolution of the forms of organisation and is, thus, the oldest among them. Also known as Individual Entrepreneurship.

Definition:
J.L. Hanson: “A type of business unit where one person is solely responsible for providing the capital and bearing the risk of the enterprise, and for the management of the business.”

Kimball and Kimball : “Sole Proprietorship is a form of business where the individual proprietor is the supreme judge of all matters of his business”

Advantages of Sole Proprietorship:

a) Easy to Form and Wind Up : It is very easy and simple to form a sole propri-etorship form of business organisation. Less legal formalities are required to be observed. Naturally, the business can wind up at any time if the proprietor so decides.

b) Quick Decision and Prompt Action : As stated earlier, nobody interferes in the affairs of the sole proprietary organisation. So, he/she can make quick decisions on the various issues relating to business and accordingly, prompt action can be taken.

c) Direct Motivation : In sole proprietorship form of business organisations the entire profit of the business goes to the owner. This motivates the proprietor to work hard and run the business effectively and efficiently.

d) Flexibility in Operation : It is very easy to initiate and implement changes as per the requirements of the business. The expansion or curtailment of business activities does not require as many formalities as in the case of other forms of business organisation.

e) Maintenance of Business Secrets : The business secrets are known only to the proprietor. He is not required to disclose any information to others unless and until he so decides. He is also not bound to publish his business accounts.

f) Personal Touch : Since the proprietor himself handles everything relating to business, it is easy to maintain good personal contact with the customers and employees. By knowing the likes, dislikes, and tastes of the customers, the proprietor can adjust his operations accordingly. Similarly, as the employees are very few and work directly under a single proprietor, it helps in maintaining a harmonious relationship with them, and the business can run smoothly.

Disadvantages of Sole Proprietorship:

• Limited Resources : The resources of a sole proprietor are always limited. Being a single owner, it is not always possible to arrange sufficient funds from his own sources. Again, borrowing funds from friends and relatives or banks has its own implications. So, the proprietor has a limited capacity to raise funds for his business.
• Lack of Continuity : The continuity of the business is linked with the life’ of the proprietor. Illness, death or insolvency of the proprietor can lead to closure of the business. Thus, the continuity of business is uncertain.
• Unlimited Liability: In the eyes of the law, the proprietor and the business are one and the same. So personal properties of the owner can also be used to meet the business obligations and debts.
• Not Suitable for Large – Scale Operations : Since the resources and managerial ability are limited, sole proprietorship form of business organisation is not suitable for large-scale businesses.
• Limited Managerial Expertise: A sole proprietorship form of business organ-isation always suffers from lack of managerial expertise. A single person may not be an expert in all fields like purchasing, selling, financing, etc. Again, because of limited financial resources, and the size of the business, it is also not possible to engage professional managers in sole proprietorship forms of business organisations.

Question 22.
Distinguish between a Private Company and Public Company.
Answer:

Basis of Comparison	Private Company	Public Company
1. Minimum number of members	Two (2) members	Seven (7) members
2. Maximum number of members	200 members	No limit
3. Minimum paid up capital	Rs. One lakh	Rs. Five lakhs
4. Identification	Must suffix ‘Private Limit­ed’ to its name.	Must suffix ‘Public Limited’ to its name.
5. Transfer of shares	Members cannot transfer their shares.	Members can freely sell their shares to others.
6. Public issue of capital	It cannot secure capital from the public.	It can secure capital from the public.
7. Commencement of business	It can start its business immediately upon its incorporation.	It cannot start its business immediately after its incorporation. It has to obtain a certificate for starting.
8. Board of Directors	Minimum: Two (2) Maximum: 15	Minimum: Three (3) Maximum: 15 directors
9. Appointment and Retirement of Directors	A Single resolution is enough to appoint or retire the directors.	A Single resolution is required.
10. Managerial remuneration	There are no restrictions on the remuneration of Directors and Managing Directors.	There are restrictions.

Question 23.
What is Business Finance? Explain the need and significance in the Business Organization?
Answer:
The requirement of funds by a business firm to accomplish its varous activities is called ‘business finance’. Finance is considered the lifeblood of any organization. The success of an industry depends on the availability of adequate finance. To promote and operate a proposed enterprise economically and efficiently, adequate finance is necessary.

Finance is a vital functional area of a business. It deals with the procurement of funds and their effective utilisation. Finance is also labelled as the capital of a company. A business fundamentally requires identifying its sources of finance from where it can procure funds. As soon as an entrepreneur starts a business, the need for business finance emerges.

Business needs finance mainly for acquiring various types of assets and to meet various expenses on a day-to-day basis. There are also many other reasons for the requirement of business finance. The significance and need of business finance are explained below.

1. To meet fixed capital requirement of business : To purchase fixed assets like land and buildings, plant and machinery, furniture and fixtures, etc., business requires finance.
2. To meet working capital requirements: Working Capital is used for holding current assets such as stock of material, payment of wages, transportation expenses, etc.
3. For growth and expansion : For growth and expansion activities, a business requires finance. It may be required to increase production, install more machines, set up a R&D) centre, etc.
4. For diversification : Business finance is needed to start any new activity in business. For example, ITC dealing with tobacco started ITC Kakatiya (hotels), Vivel (shampoos, and cosmetics), Classmate (notebooks and stationery) etc. Entering into new businesses and new lines of activities is known as diversi-fication. Similarly, main enterprises keep on grabbing opportunities to start producing products for different segments.
5. For survival : To carry out the various business operations in continuity, business finance is needed. Without the required finance, organizations cannot survive for long.
6. To meet Liabilities : To meet the liabilities of a business, be it long-term or short-term, a business requires sufficient finance, e.g., for payment of loan instalments, creditors, etc.
7. For payment of expenses: For paying salaries, wages, taxes, advertisements and rent, finance is needed. Therefore, to execute the various plans of the business, finance is needed.

PART – II
Section – E

Answer ALL the following questions. (4 × 1 = 4)

Question 24.
Capital + Liabilities =

Question 25.
L.F. stands for _____

Question 26.
In the Cash Book, Cash Receipts are recorded on the ____ side.

Question 27.
The decline in the value of Fixed asset is called ____.

Section – F

Answer any SEVEN of the following questions. (7 × 2 = 14)

Question 28.
Book Keeping

Question 29.
Business entity concept

Question 30.
Debit Note

Question 31.
Trade Discount

Question 32.
Contra entry

Question 33.
Prepare an Opening entry from the following particulars.

Question 34.
Prepare Trial Balance from the following particulars.

Question 35.
What is meant by Bank Reconciliation Statement

Question 36.
Bad debts

Question 37.
Capital Expenditure

Section – G

Answer any TWO of the following questions. (2 × 4 = 8)

Question 38.
Explain different Types of Accounts along with their debit, Credit rules.

Question 39.
Prepare Vamsi’s Account.

Question 40.
Enter the following Transactions in the related Subsidiary Books.

Question 41.
Prepare the Bank Reconciliation Statement of Ashok Ltd. as on 31/03/2019.
Balance as per the pass book 8,900.
a) Cheque issued but not yet presented for payment – 2,100
b) Cheque deposited for Collection, but not yet realized – 900
c) A wrong debit given by bank in pass book – 500
d) Bank charges debited only in pass Book – 210.
d Direct payment of Insurance premium as per standing instructions – 600

Section-H 

Answer any ONE of the following questions. (1 × 8 = 8)

Question 42.
Journalise the following transactions

Question 43.
Prepare Three Column Cash Book from the following particulars:

Section – I

Answer the following question. (1 × 16 = 16)

Question 44.
From the following Trial Balance, Prepare Trading and Profit and Loss Account and Balance Sheet as on 31/12/2022 of Kiran Traders.
Trial Balance

Adjustments

1. Closing Stock – 2,100
2. Outstanding wages – 600
3. Depreciation on Machinery – 10%
4. Prepaid Wages – 500