COMPETENCY – BASED TEST ITEMS

CLASS: XI COMMERCE
SUBJECT: BUSINESS STUDIES
NAME OF CHAPTER: FORMS OF BUSINESS ORGANISATION

Q. LEARNING QUESTION MARK

NO OUTCOME
/ASSESSMENT
OBJECTIVE
1 LO: Able to describe Identify the related feature of a company," its Assets and liabilities 1
the feature of a are separate from those of its owners."
company. (a) Artificial person
(b) Perpetual succession
(c) Common seal
AO: To assess the (d) Separate legal entity
understanding of the
feature of a
company.
2 LO: Able to describe Registration is compulsory in this form of business. 1
the compulsory (a) Partnership and Joint Hindu Family
registration of (b) Cooperative societies and Joint stock company
differernt form of (c) Joint Hindu Family and Sole Proprietorship
business. (d) Parrtnership and Joint stock company

AO: To assess the

understanding of
compulsory
registration of
different form of
business.
3 LO: Able to describe Suppose Lucky is a shareholder in a company holding 5000 shares of 1
the liability of a Rs.10 each on which he has already paid Rs. 8 per share. His liability
shareholder. in the event of losses or company's failure to pay debts can be only
up to
(a) Rs. 40000
AO: To assess the (b) Rs. 50000
understanding of (c) Rs. 10000
liability of a (d) Rs. 20000
shareholder.
4 LO: Able to describe A Statement in lieu of prospectus may be issued by 1
the prospectus of a (a) Public company
company. (b) Private company
(c) Both public and private company
(d) None of the above
AO: To assess the
understanding the
statement in lieu of a
prospectus.
5 LO: Able to describe The documents for registration for a company were filed on 21th 1
the certificate of February 2017. The Certificate of Incorporation was issued on 29th
incorporation. February 2017. But the date mentioned on the Certificate of
Incorporation was 27th February 2017. From which date will the
company be considered to be in existence and the contracts signed
AO: To assess the will be considered valid.
understanding of (a) 21st February 2017
stages of formation (b) 29th February2017
of a company. (c) 27th February 2017
(d) None of the above
6 LO: Able to describe Assertion (A) In a limited partnership the liability of at least one of 1
the liabilities of the partners is unlimited.
partners. Reason (R) The liability of a partner by estoppel is limited.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
AO: To assess the (b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not
understanding of the correct explanation of Assertion (A)
liabilities any types (c) Assertion (A) is true, but Reason (R) is false
of partnership. (d) Assertion (A) is false, but Reason (R) is true
7 LO: Able to describe Assertion (A) Timely decisions of sole proprietor help him/her to 1
the sole take advantage of market opportunities as and when they arise.
proprietorship. Reason (R) Sole proprietorship can be easily started or dissolved at
any time with minimum legal formalities.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
AO: To assess the correct explanation of Assertion (A)
understanding the (b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not
sole proprietorship. the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true
8 LO: Able to describe Assertion (A) Personal assets of the partners may be used to pay-off 1
the liabilities of business debts in case of insufficiency of business assets.
partners. Reason (R) Partners of a firm have unlimited liability.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
AO: To assess the (b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not
understanding of the correct explanation of Assertion (A)
liabilities of (c) Assertion (A) is true, but Reason (R) is false
partnership. (d) Assertion (A) is false, but Reason (R) is true
9 LO: Able to describe Assertion (A) Board of directors exercise direct control over the 1
the Board of business.
Directors. Reason (R) Board of directors are the owners of the company.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
AO: To assess the (b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not
understanding of the correct explanation of Assertion (A)
Board of Directors. (c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true
10 LO: Able to describe Assertion (A) The managing committee elected by members of the 1
the cooperative cooperative society is generally not professionally equipped to handle
society. the management functions effectively.
Reason (R) Cooperative society is unable to employ experts because
of their inability to pay them high salaries.
AO: To assess the (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
understanding of correct explanation of Assertion (A)
cooperative society. (b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not
 the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true
11 LO: Able to describe Reyansh Communication Limited and Aayansh Communication 3
the Partnership. Limited entered into partnership contract to produce a movie based
on the social issue of female foetic to showcase the future of the
country, if we keep killing the girl child.
AO: To assess the In context of the above case:
understanding of (a) Identify and explain the type of partnership being described in the
type of partnership. above lines
(b) Also, state the category of types of partnership to which it
belongs.
(c) Describe in brief, any other type of partnership belonging to the
same category.
12 LO: Able to describe Sharma Brothers inherited some ancestral property. They decided to 3
the Joint Hindu form a Hindu Undivided Family (HUF) consisting of four male
Family. members and invested the ancestral property into the business. The
family is headed by Mr. Sunil Sharma; hence he is regarded as the
Karta. He is the one who takes all the decisions and manages the
AO: To assess the business. The business took a loan of Rs. 10 lakh from Punjab
understanding of National Bank which was to be returned within three years. Due to
Joint Hindu Family. poor financial position of the business, they were unable to repay the
loan. The bank filed a suit for the recovery of loan. Mr. Sunil Sharma
pleaded to the court that as the entire loan was taken for the purpose
of business, all members of the business were liable for the
repayment of the loan. The court held that all the members except
Karta were also responsible but only to the extent of their share of
co- parcenery property of business. However, Mr. Sunil Sharma
being karta of the HUF held an unlimited liability. Hence, he had to
pay the balance amount even if it had to be from his personal
property.
(a) What are the two conditions for formation of Joint Hindu Family
Business?
(b) In the given case who has unlimited liability and why?
(c) How is membership acquired in Joint Hindu Family Business?
13 LO: Able to describe NHPC Ltd. is a public limited company involved in manufacturing 3
the Joint Stock electrical appliances. The company took a loan of 90 lakhs from XYZ
Company. Finance Ltd. for its growth and expansion. The company was unable
to repay it because of heavy losses. The company asked its
shareholders to come forward and contribute towards the repayment
AO: To assess the of loan. The shareholders refused as they had already paid the full
understanding of amount due on their shares. XYZ Finance Ltd. filed a case against
Joint Stock NHPC Ltd for not repaying the loan amount. The court decided that
Company and NHPC Ltd. was a public company and hence its shareholders had
Shareholders. limited liability. They were liable only upto the unpaid amount on
shares held by them. They couldn't be called to repay loan out of their
personal property. It was the duty of NHPC Ltd. to use company's
assets to repay loan.
(a) In the given case, what type of liability is enjoyed by shareholders
of NHPC Ltd.?
(b) The members of the NHPC Ltd were not liable to contribute
towards the repayment of loan. This decision was based on which
concept?
(c) Members may come and members may go but the company
continues to exist. Identify the related feature of a Joint Stock
Company.
14 LO: Able to Sunny sent an email to his friend Suresh who resides in US asking for 3
describe the form of financial help. Sunny shared with him that due to a prolonged illness,
business. his business suffered a lot. As a result, he was not able to repay the
bank loan which he had taken for the expansion of his business. He
also informed him that his warehouse has been confesticated by the
AO: To assess the bank authorities to settle his claims. Sunny also reminded Suresh of
understanding of his good times in business when he had helped Suresh financially
sole proprietorship. being the sole recipient of all the business profits.
In context of the above case:
(a) Identify the related feature and liability of the form of
business been described in the above paragraph.
(b) Explain in brief, any two merits of this form of business which
have not been mentioned in the paragraph.
15 LO: Able to describe Reyansh is the sole owner of a shoe manufacturing factory. He took 4
the Partnership. loan of 20 lakhs from ABC Finance Company for the expansion of
his business. Because of continuous losses however, he was not able
to repay the loan on time. Assets of the business were not enough for
AO: To assess the repaying liabilities in full. As a result, the Finance Company asked
understanding of him to repay their loan. He refused to do so on the ground that the
type of partnership. loan was taken by his business and not by him for his personal use.
The Company filed a case against him. The court gave decision in
favour of the Company on the ground that Reyansh was operating as
the sole proprietor and a sole proprietor did not have a separate entity
distinct from his own. The Court further stated that Reyansh had
unlimited liability and held him liable to repay the loan even by
selling his personal property if need be.
(a). Name the form of business which is being carried out by
Reyansh.
(b). What type of liability is enjoyed by Reyansh?
(c). Why did Court hold Reyansh responsible for paying his business
liabilities out of his personal assets?
(d). Name that characterstic of sole proprietorship which facilitates
the sole proprietor to take all decisions related to his business without
consulting anybody.
16 LO: Able to describe Jai and Viru belonged to a small town in Jharkhand and aspired to be 4
the type of Partners. famous movie star. As the luck shined on Jai, he became a superstar
in Jollywood cinemas. Whereas, after working in a few films as a
supporting actor, Viru decided to start an advertising agency in
AO: To assess the Ranchi. In order to give a boost to his business right from its
understanding of inception he asked his friend Jai to become a partner in his business.
Active and Nominal Jai agreed to do so and allowed the use of his name by the firm. But
partner. he refused to participate in the management of the business.
(a) Identify and explain the type of partners being mention in the
given paragraph.
(b) Also comment upon liability, capital contribution and shares in
profit and loss with regard to the types of partners as identified in part
(a) of the question.
17 LO: Able to Dharam Ltd. the famous group of promoters filed documents related 4
describe the to registration of the company with the Registrar of companies on
certificate of 8th March, 2011. The Registrar of companies, after getting satisfied
incorporation and about the completion of formalities for registration, issued Certificate
of Incorporation to the company on 12th March, 2011. However, the
its validation.
date mentioned on certificate was 8th March. The company had
entered into the contract of buying land from XYZ Ltd. on 10th
AO: To assess the March, 2011. Now, XYZ Ltd. is not interested in selling land as the
understanding of
 validation of value of land has appreciated. It refused to honour the contract on the
certificate of pretext of company not being in existence on 10th March, 2011 as the
incorporation. Registrar of companies had issued Certificate of Incorporation on
12th March, 2011.
(a) What would be the status of the contract signed on 10th March,
between, 2011 as the company and X Ltd.?
(b) Why did X company refuse to honour the contract?
(c) What's the date of birth of the company 8th March, 2011. 10th
March or 12th March, 2011.
(d) What is the third stage in the formation of a company?
18 LO: Able to describe Ram, Rahim, Rohan, Sohan and Mohan are partners in a partnership 6
the liabilities and firm. The firm has different types of partners.
type of Partners. Mr. Ram has contributed capital and participates in the management
of firm. He shares profits and losses and is liable to an unlimited
extent to the creditors of firm.
AO: To assess the Mr. Rahim has contributed capital and shares its profits and loses. He
understanding of also has unlimited liability but he does not take part in day to day
liabilities type of activities of business.
partners. Association of Mr. Rohan with firm is unknown to general public but
in all other respects he is like an active partner.
Mr. Sohan has allowed the firm to use his name as he enjoys good
reputation among client but he does not either contribute capital
or take part in the management,
Master Mohan, 15 years of age is entitled to the benefits of
partnership with mutual consent of all other members. He is not
eligible to take part in management of firm and shares only profits
and not losses.
(a) In the given case, how many types of partners are involved in the
partnership firm?
(b) Who is working as an active partner and what is the nature of his
liability?
(c) Who is working as a sleeping partner and what is the nature of his
liability?
(d) Who is working as a secret partner and what is the nature of
his liability?
(e) Who is working as a nominal partner? Can he be held liable for
the losses of the business? What is the nature of his liability?
(f) Is Master Mohan a legal partner? Can he be held liable for the
losses of the business? What is the nature of his liability?
19 LO: Able to describe Farmina N&D Private Limited is a well-known company dealing in 6
the benefits of pet food and accessories. Keeping in view the growing demand for its
private company products the company has decided to increase its production turnover.
over public The expansion plan will necessiate setting up of a new factory. In
company. order to meet, its increased financial needs the management of the
company has decided to 'go public' that is to change the form of
business from a private limited company to a public limited
AO: To assess the company.
understanding of (a) Why do you think the management of the company has decided to
public subscription convert the company into a public limited company?
and benefits of (b) State any five privileges that it now enjoys as a private limited
private company company over public limited company.
over public
company.
20 LO: Able to describe Nishant is pursuing a course on financial market management from a 6
the capital premier institute in Hyderabad. He has been asked to give a
subscription stage in presentation in the class on the topic 'Capital subscription stage in the
the formation of formation of a company'. As he was travelling to attend his best
company. friend's wedding at Ranchi, he asked his sister Namrata to prepare the
presentation for him. Namrata prepared the presentation covering the
various steps involved in rasing funds from the public by a public
AO: To assess the company. But she forgot to number these steps a proper serial order.
understanding of Listed below are the extracts about various steps in an incone order.
capital subscription You are required to you arrange these steps in an appropriate
stage in the sequence.
formation of (a) An application is to be made to at least one stock exchange for
company. permission to de in its shares or debentures.
(b) The company needs to appoint bankers, brokers and underwriters.
(c) Prior approval from SEBI is required before going ahead with
the raising funds fre public.
(d) Return on allotment signed by a director or secretary is filed with
the registrar of companies within 30 days of allotment.
(e) If the applications received for shares are for an amount less than
90% of the issue size the allotment cannot be made and the
application money received must be returned to the applicants. (f) A
copy of prospectus or a statement in lieu of prospectus is filed with
the registre of Companies.