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
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.
Risk capital is defined as which type of capital?
Answer: Risk capital is defined as equity share capital.
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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.
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.
Mention one similar function of Public deposits and ADR.
Answer: In both public deposits and ADR, the depositors doesn’t have a voting right.
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 are that both capitals are a part of the owner’s share.
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.
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.
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.
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.
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.
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.
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 favor 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 diminish the voting power and earnings of the present equity shareholder
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.
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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