Important Questions for Class 11 Business Studies Chapter 8 Sources of Business Finance

Important Questions with Answers for CBSE Class 11 Business Studies Chapter 8 Sources of Business Finance which is outlined by expert Business Studies teachers from the latest version of CBSE (NCERT) books

CBSE Class 11 Business Studies Chapter – 8 Important Questions

QUESTION 1

Define ploughing back of profits.

Answer: In a company, a part of the net incomes is retrained for future use is known as retained earnings. It is used as a source of internal financing, self-financing, or ploughing back of profits.

QUESTION 2

Risk capital is defined as which type of capital?

Answer: Risk capital is defined as equity share capital.

Also Check: Important Questions for Small Business

QUESTION 3

State the return given to debenture holders for using their funds.

Answer: Fixed rate of interest is given to debenture holders for using their funds.

QUESTION 4

Give one feature of retained earnings that the other source of finance does not have.

Answer: Retained earnings save a portion of the net incomes for future use is retained earnings. The retained earnings have the ability to self-finance and it doesn’t involve any explicit cost.

QUESTION 5

Mention one similar function of Public deposits and ADR.

Answer: In both public deposits and ADR, the depositors doesn’t have a voting right.

QUESTION 6

Mention one similar function between preference share capital and equity share capital.

Answer: The one similar function between preference share capital and equity share capital is that both capitals are a part of the owner’s share.

QUESTION 7

Which term is concerned with the redemption and conservation of capital funds in matching the financial need of a company?

Answer: The retained earning is concerned with the redemption and conservation of capital funds in matching the financial need of a company.

QUESTION 8

In the business sector which organization provides both medium and long term loans and has been set up by both the state and central government.

Answer: The organization which provides both medium and long term loans and has been set up by both the state and central government is the development bank.

QUESTION 9

Name the two companies in India offer factoring services.

Answer: The two companies in India offer factoring services are SBI Factors and Commercial Service Ltd.

QUESTION 10

Mention two rights of preference shareholder.

Answer: The two rights of preference shareholder are

• Getting a fixed rate of dividend from the net profit of an organization, before declaring any dividends for equity stockholder.
• At the time of liquidation, receiving funds after the organization creditor’s claim has been resolved.

QUESTION 11

In a company, which factor influence the working capital need.

Answer: The factor that influences the working capital need is.

• Cost- Taking into account both the cost of procurement of funds and cost of utilizing the fund while deciding the sources of the fund is important.
• Financial strength and stability of operation- The sources of funds should have a positive outcome to pay the principal and interest on the borrowed amount. In case, if the operation of a company is not stable, fixed funds should be used wisely as it adds up to the financial burden.

QUESTION 12

Mention two factors the differentiate share and debenture.

Answer: The two factors the differentiate share and debenture are

• Shares/stocks are associated with owner’s fund whereas; a debenture is funds that are borrowed.
• In share, there is a return in interest whereas, a debenture has a fixed rate of interest which is paid to the company.

QUESTION 13

Explain the three limitations of equity share capital.

Answer: The three limitations of equity share capital are

• Financer who expect a constant income may not favour equity share as it has a fluctuating return.
• The cost of equity share is more than the cost of raising funds through many other sources.
• Equity share diminishes the voting power and earnings of the present equity shareholder.

QUESTION 14

Explain the three advantages of retained earnings.

Answer: The three advantages of retained earnings are

• It doesn’t include any direct cost in terms of dividend, interest, and floatation cost.
• It has a flexible operation.
• It increases business capacity to absorb unexpected losses.

QUESTION 15

What is the difference between lessor and lessee?

Answer: The assets owner is called lessor, and the party that uses the assets is known as lessee.

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