Category: Class 12

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TN State Board 12th Economics Model Question Paper 5 English Medium

General Instructions:

1. The question paper comprises of four parts.
2. You are to attempt all the parts. An internal choice of questions is provided wherever applicable.
3. All questions of Part I, II, III and IV are to be attempted separately.
4. Question numbers 1 to 20 in Part I are Multiple Choice Questions of one mark each.
   These are to be answered by choosing the most suitable answer from the given four alternatives and writing the option code and the corresponding answer
5. Question numbers 21 to 30 in Part II are two-mark questions. These are to be answered in about one or two sentences.
6. Question numbers 31 to 40 in Part III are three-mark questions. These are to be answered in above three to five short sentences.
7. Question numbers 41 to 47 in Part IV are five-mark questions. These are to be answered in detail Draw diagrams wherever necessary.

Time: 3.00 Hours
Maximum Marks: 90

PART – I

Choose the correct answer. Answer all the questions:

Question 1.
Macro economics is a study of …………
(a) Individuals
(b) firms
(c) nations
(d) aggregates
Answer:
(d) aggregates

Question 2.
State whether the statements are true or false.
(i) Profit Motive of Capitalist Economy.
(ii) Basic problems are solved by customs and traditions.
(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(c) (i) is true but (ii) is false

Question 3.
………. is also known as Disposable Personal Income.
(a) Personal Income
(b) Disposable Income
(c) Consumer Income
(d) Product Income
Answer:
(b) Disposable Income

Question 4.
Assertion (A): National Income is a measure of the total value of the goods and services produced in an economy for a year.
Reason (R): GNP – is the total value of output produced and income received in a year by domestic residence of a country.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’

Question 5.
The basic concept used in Keynes Theory of Employment and Income is
(a) Aggregate demand
(b) Aggregate supply
(c) Effective demand
(d) Marginal Propensity Consume
Answer:
(c) Effective demand

Question 6.
State whether the statements are true or false.
(i) Keynesian theory is – Aggregate demand – Aggregate supply approach. Saving – Investment approach.
(ii) This approach explained the determination level of Income and employment.
(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

Question 7.
It the MPC is 0.5, the multiplier is……..
(a) 2
(b) 1/2
(c) 0.2
(d) 20
Answer:
(a) 2

Question 8.
Which of the following is correctly matched:
(a) Aftalion – 1909
(b) Hawtrey – 1914
(c) Bickerdike – 1915
(d) J.M. Clark – 1916
Answer:
(a) Aftalion – 1909

Question 9.
MV stands for………….
(a) demand for money
(b) supply of legal tender money
(c) supply of bank money
(d) total supply of money
Answer:
(b) supply of legal tender money

Question 10.
The modern economy is described as………….
(a) Demand Economy
(b) Supply Economy
(c) Money Economy
(d) Wage Economy
Answer:
(c) Money Economy

Question 11.
EXIM bank was established in……………
(a) June 1982
(b) April 1982
(c) May 1982
(d) March 1982
Answer:
(d) March 1982

Question 12.
Match the following and choose the correct answer by using codes given below:

Code:

Answer:
(b) A-4, B-3, C-1, D-2

Question 13.
Balance of Trade means:……….
(a) Import and export of invisible items only
(b) Import and export of both visible and invisible items
(c) Import of visible items only
(d) Import and export of visible items only
Answer:
(d) Import and export of visible items only

Question 14.
Which of the following is correctly matched:
(a) SDR – Special Drawing Rights
(b) IMF – India Monetary Fund
(c) BOP – Balance of Price
(d) BOT – Balance of Technology
Answer:
(a) SDR – Special Drawing Rights

Question 15.
The word budget has been derived from the French word “bougette” which means:……….
(a) A small bag
(b) An empty box
(c) A box with papers
(d) None of the above
Answer:
(a) A small bag

Question 16.
Assertion (A): Canons of Taxation are Economical, Equitable, Convenient, Certain Efficient and Flexible.
Reason (R): Adam Smiths four canons of taxation are Canon of Ability, Canon of Certainty, Canon of Convenience, Canon of Economy.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’

Question 17.
Which one of the following causes of global warming?
(a) Earth gravitation force
(b) Oxygen
(c) Centripetal force
(d) Increasing temperature
Answer:
(d) Increasing temperature

Question 18.
Heavy machineries located inside big factories and industrial plants also emit pollutants into the ………..
(a) land
(b) soil
(c) air
(d) water
Answer:
(c) air

Question 19.
Match the following and choose the correct answer by using codes given below:

Code:

Answer:
(a) A-2, B-1, C-4, D-3

Question 20.
Econometrics is the amalgamation of
(a) 3 subjects
(b) 4 subjects
(c) 2 subjects
(d) 5 subjects
Answer:
(a) 3 subjects

PART – II

Answer any seven question in which Question No. 30 is compulsory. [7 × 2 = 14]

Question 21.
Write the Disposable Income.
Answer:

1. Disposable Income is also known as Disposable personal income.
2. It is the individuals income after the payment of income tax.
3. This is the amount available for households for consumption.

Question 22.
Write a short note on “Educational Unemployment”.
Answer:

1. Sometimes educated people are underemployed or unemployed when qualification does not match the job.
2. Faulty education system, lack of employable skills, mass student turnout and preference for white collar jobs are highly responsible for educated unemployment in India.

Question 23.
Write the Accelerator Assumptions.
Answer:
Assumptions:

1. Absence of excess capacity in consumer goods industries.
2. Constant capital – output ratio
3. Increase in demand is assumed to be permanent
4. Supply of funds and other inputs is quite elastic
5. Capital goods are perfectly divisible in any required size.

Question 24.
Explain disinflation.
Answer:
Disinflation: Disinflation is the slowing down the rate of inflation by controlling the amount of credit (bank loan, hire purchase) available to consumers without causing more unemployment. Disinflation may be defined as the process of reversing inflation without creating unemployment or reducing output in the economy.

Question 25.
Write the meaning of Money supply.
Answer:

1. In India, currency notes are issued by the Reserve Bank of India (RBI) and coins are issued by the Ministry of Finance, Government of India (GOI).
2. Besides these, the balance is savings, or current account deposits, held by the public in commercial banks is also considered money.
3. The currency notes are also called fiat money and legal tenders.

Question 26.
Define Commercial banks.
Answer:
Commercial bank refers to a bank, or a division of a large bank, which more specifically deals with deposit and loan services provided to corporations or large/middle-sized business – as opposed to individual members of the public/small business.

Question 27.
Define “Cash Reserve Ratio”.
Answer:

1. Under this system the Central Bank controls credit by changing the Cash Reserves Ratio.
2. For example, if the Commercial Banks have excessive cash reserves on the basis of which they are creating too much of credit,this will be harmful for the larger interest of the economy.
3. So it will raise the cash reserve ratio which the Commercial Banks are required to maintain with the Central Bank.

Question 28.
Write a brief note on flexible exchange rate.
Answer:
Flexible Exchange Rates: Under the flexible exchange rate (also known as floating exchange rate) system, exchange rates are freely determined in an open market by market forces of demand and supply.

Question 29.
Define World Trade Organisation.
Answer:

1. WTC headquarters located at New York, USA.
2. It featured the landmark Twin Towers which was established on 4th April 1973.
3. Later it was destroyed on 11th September 2001 by the craft attack.
4. It brings together businesses involved in international trade from around the globe.

Question 30.
Define “Public Revenue”.
Answer:

1. Public revenue occupies an important place in the study of public finance.
2. The Government has to perform several functions for the welfare of the people.
3. They involve substantial amount of public expenditure which can be financed only through public revenue.
4. The amount of public revenue to be raised depends on the necessity of public expenditure and the people’s ability to pay.

PART – III

Answer any seven question in which Question No. 40 is compulsory. [7 × 3 = 21]

Question 31.
Write a note on Mixed Economy.
Answer:
Mixed Economy (Mixedism):

1. In a mixed economy system both private and public sectors co-exist and work together towards economic development.
2. It is a combination of both capitalism and socialism. It tends to eliminate the evils of both capitalism and socialism.
3. In these economies, resources are owned by individuals and the government.
4. India, England, France and Brazil are the examples of mixed economy.

Question 32.
Define the term “Household sector”.
Answer:

1. The household sector is the sole buyer of goods and services, and the sole supplier of factors of production, i.e., land, labour, capital and organisation.
2. It spends its entire income on the purchase of goods and services produced by the business sector.
3. The household sector receives income from firm sector by providing the factors of production owned by it.

Question 33.
List out the assumptions of Say’s law.
Answer:
The Say’s Law of market is based on the following assumptions:

1. No single buyer or seller of commodity or an input can affect price.
2. Full employment.
3. People are motivated by self interest and self – interest determines economic decisions.
4. The laissez faire policy is essential for an automatic and self adjusting process of full employment equilibrium. Market forces determine everything right.
5. There will be a perfect competition in labour and product market.
6. There is wage-price flexibility.
7. Money acts only as a medium of exchange.
8. Long – run analysis.
9. There is no possibility for over production or unemployment.

Question 34.
Aggregate Supply Function meaning and components.
Answer:
Aggregate supply function is an increasing function of the level of employment. Aggregate supply refers to the value of total output of goods and services produced in an economy in a year. In other words, aggregate supply is equal to the value of national product, i.e., national income.
The components of aggregate supply are:

1. Aggregate (desired) consumption expenditure (C)
2. Aggregate (desired) private savings (S)
3. Net tax payments (T) (Total tax payment to be received by the government minus transfer payments, subsidy and interest payments to be incurred by the government) and
4. Personal (desired) transfer payments to the foreigners (Rf) (e.g. Donations to international relief efforts)

Question 35.
State the concept of super multiplier.
Answer:
Super Multiplier: (k and p interaction)

1. The super multiplier is greater than simple multiplier which includes only autonomous investment and no induced investment, while super multiplier includes induced investment.
2. In order to measure the total effect of initial investment on income, Hicks has combined the k and p mathematically and given it the name of the Super Multiplier.
3. The super multiplier is worked out by combining both induced consumption and induced investment.

Question 36.
Explain the primary functions of money.
Answer:
(i) Money as a medium of exchange:
This is considered as the basic function of money. Money has the quality of general acceptability, and all exchanges take place in terms of money.

(ii) Money as a measure of value:
The second important function of money is that it measures the value of goods and services. In other words, the prices of all goods and services are expressed in terms of money. Money is thus looked upon as a collective measure of value.

Question 37.
Distinguish between CRR and SLR.
Answer:

S.No.	CRR	SLR
1.	The Central Bank controls credit by changing the Cash Reserv es Ratio.	Statutory Liquidity Ratio (SLR) is the amount which a bank has to maintain in the form of cash, gold or approved securities.
2.	Commercial Banks have excessive cash reserves on the basis of which they are creating too much of credit, this will be harmful for the larger interest of the economy.	The quantum is specified as some percentage of the total demand and time liabilities.
3.	So it will raise the cash reserve ratio which the Commercial Banks are required to maintain with the Central Bank.	The liabilities of the bank which are payable on demand anytime, and those liabilities which are accruing in one month’s time due to maturity.

Question 38.
Write Adam Smith’s theory of Absolute Cost Advantage Assumptions.
Answer:
Assumptions:

1. There are two countries and two commodities (2 × 2 model).
2. Labour is the only factor of production.
3. Labour units are homogeneous.
4. The cost or price of a commodity is measured by the amount of labour required to produce it.
5. There is no transport cost.

Question 39.
Explain the major achievements of WTO.
Answer:
The major achievements of WTO are as follows

1. Use of restrictive measures for BoP problems has declined markedly;
2. Services trade has been brought into the multilateral system and many countries, as in goods, are opening their markets for trade and investment;
3. The trade policy review mechanism has created a process of continuous monitoring of trade policy developments.

Question 40.
State and explain instruments of fiscal policy.
Answer:
Fiscal Instruments:
Fiscal Policy is implemented through fiscal instruments also called ‘fiscal tools’ or fiscal levers: Government expenditure, taxation and borrowing are the fiscal tools.
(i) Taxation:

1. Taxes transfer income from the people to the Government.
2. Taxes are either direct or indirect.
3. An increase in tax reduces disposable income.
4. So taxation should be raised to control inflation.
5. During depression, taxes are to be reduced.

(ii) Public Expenditure:

1. Public expenditure raises wages and salaries of the employees and thereby the aggregate demand for goods and services.
2. Hence public expenditure is raised to fight recession and reduced to control inflation

(iii) Public debt:

1. When Government borrows by floating a loan, there is transfer of funds from the public to the Government.
2. At the time of interest payment and repayment of public debt, funds are transferred from Government to public.

PART – IV

Answer all the questions. [7 × 5 = 35]

Question 41 (a).
Briefly explain the objective factors of consumption functions.
Answer:
Objective Factors:
(i) Income Distribution:
If there is large disparity between rich and poor, the consumption is low because the rich people have low propensity to consume and high propensity to save.

(ii) Price level:

• Price level plays an important role in determining the consumption function.
• When the price falls, real income goes up; people will consume more and propensity to save of the society increases.

(iii) Wage level:

• Wage level plays an important role in determining the consumption function and there is positive relationship between wage and consumption.
• Consumption expenditure increases with the rise in wages.
• Similar is the effect with regard to windfall gains.

(iv) Interest rate:

• Rate of interest plays an important role in determining the consumption function.
• Higher rate of interest will encourage people to save more money and reduces consumption.

(v) Fiscal Policy:
When government reduces the tax the disposable income rises and the propensity to consume of community increases.

(vi) Consumer credit:

• The availability of consumer credit at easy installments will encourage households to buy consumer durables like automobiles, fridge, computer.
• This pushes up consumption.

(vii) Demographic factors:

• Ceteris paribus, the larger the size of the family, the grater is the consumption.
• Besides size of family, stage in family life cycle, place of residence and occupation affect the consumption function.

(viii) Duesenberry hypothesis:
Duesenberry has made two observations regarding the factors affecting consumption.

• The consumption expenditure depends not only on his current income but also past income and standard of living.
• Consumption is influenced by demonstration effect. The consumption standards of low income groups are influenced by the consumption standards of high income groups..

(ix) Windfall Gains or losses:
Unexpected changes in the stock market leading to gains or losses tend to shift the consumption function upward or downward.

[OR]

(b) Explain the keynes psycological law of consumption asumptions.
Answer:
Keynes’s Law is based on the following assumptions:
(i) Ceteris paribus (constant extraneous variables):
The other variables such as income distribution, tastes, habits, social customs, price movements, population growth, etc. do not change and consumption depends on income alone.

(ii) Existence of Normal Conditions:

• The law holds good under normal conditions.
• If, however, the economy is faced with abnormal and extraordinary circumstances like war, revolution or hyperinflation, the law will not operate.
• People may spend the whole of increased income on consumption.

(iii) Existence of a Laissez-faire Capitalist Economy:

• The law operates in a rich capitalist economy where there is no government intervention.
• People should be free to spend increased income.
• In the case of regulation of private enterprise and consumption expenditures by the State, the law breaks down.

Question 42 (a).
What are the effects of Inflation on the Economy?
Answer:
The effects of inflation can be classified into two heads:

1. Effects on Production and
2. Effects on Distribution.

1. Effects on Production:
When the inflation is veiy moderate, it acts as an incentive to traders and producers. This is particularly prior to full employment when resources are not fully utilized. The profit due to rising prices encourages and induces business class to increase their investments in production, leading to generation of employment and income.

• However, hyper-inflation results in a serious depreciation of the value of money.
• When the value of money undergoes considerable depreciation, this may even drain out the foreign capital already invested in the country.
• With reduced capital accumulation, the investment will suffer a serious set-back which may have an adverse effect on the volume of production in the country.
• Inflation also leads to hoarding of essential goods both by the traders as well as the consumers and thus leading to still higher inflation rate.
• Inflation encourages investment in speculative activities rather than productive purposes.

2. Effects on Distribution:

• Debtors and Creditors: During inflation, debtors are the gainers while the creditors are losers.
• Fixed-income Groups: The fixed income groups are the worst hit during inflation because their incomes being fixed do not bear any relationship with the rising cost of living.
• Entrepreneurs: Inflation is the boon to the entrepreneurs whether they are manufacturers, traders, merchants or businessmen, because it serves as a tonic for business enterprise.
• Investors: The investors, who generally invest in fixed interest yielding bonds and securities have much to lose during inflation.

[OR]

(b) Describe the functions of IDBI.
Answer:
Functions of IDBI:

1. The functions of IDBI fall into two groups (i) Assistance to other financial institutions; and (ii) Direct assistance to industrial concerns either on its own or in participation with other institutions.
2. The IDBI can provide refinance in respect of term loans to industrial concerns given by the IFC, the SFCs, other financial institutions notified by the Government, scheduled banks and state cooperative banks.
3. A special feature of the IDBI is the provision for the creation of a special fund known as the Development Assistance Fund.
4. The fund is intended to provide assistance to industries which require heavy investments with low anticipated rate of return.
5. Such industries may not be able to get assistance in the normal course.
6. The financing of exports was also undertaken by the IDBI till the establishment of EXIM BANK in March, 1982.

Question 43 (a).
Describe the subject matter of International Economics.
Answer:
Subject Matter of International Economics:
The subject matter of International Economics includes large number of segments which are
classified into the following parts.
1. Pure Theory of Trade: This component explains the causes for foreign trade, composition, direction and volume of trade, determination of the terms of trade and exchange rate, issues related to balance of trade and balance of payments.

2. Policy Issues: Under this part, policy issues such as free trade vs. protection, methods of regulating trade, capital and technology flows, use of taxation, subsidies and dumping, exchange control and convertibility, foreign aid, external borrowings and foreign direct investment, measures of correcting disequilibrium in the balance of payments etc are covered.

3. International Cartels and Trade Blocs: This part deals with the economic integration in
the form of international cartels, customs unions, monetary unions, trade blocs, economic unions and the like. It also discusses the operation of Multi National Corporations (MNCs).

4. International Financial and Trade Regulatory Institutions: The financial institutions like International Monetary Fund IMF, IBRD, WTO etc which influence international economic transactions and relations shall also be the part of international economics.

[OR]

(b) Bring out the components of balance of payments account.
Answer:
Components of BOPs:
The credit and debit items are shown vertical lv in the BOP account of a country. Horizontally, they are divided into three categories, i.e.

1. The current account,
2. The capital account and
3. The official settlements account or official reserve assets account.

1. The Current Account: It includes all international trade transactions of goods and services, international service transactions (i.e. tourism, transportation and royalty fees) and international unilateral transfers (i.e. gifts and foreign aid).

2. The Capital Account: Financial transactions consisting of direct investment and purchases of interest-bearing financial instruments, non-interest bearing demand deposits and gold fall under the capital account.

3. The Official Reserve Assets Account: Official reserve transactions consist of movements of international reserves by governments and official agencies to accommodate imbalances arising from the current and capital accounts.

The official reserve assets of a country include its gold stock, holdings of its convertible foreign currencies and Special Drawing Rights (SDRs) and its net position in the International Monetary Fund (IMF).

Question 44 (a).
What are trade blocks?
Answer:
1. Trade blocks cover different kinds of arrangements between or among countries for mutual benefit. Economic integration takes the form of Free Trade Area, Customs Union, Common Market and Economic Union.

2. A free trade area is the region encompassing a trade bloc whose member countries have signed a free-trade agreement (FTA). Such agreements involve cooperation between at least two countries to reduce trade barriers, e.g. SAFTA, EFTA.

3. A customs union is defined as a type of trade block which is composed of a free trade area with no tariff among members and (zero tariffs among members) with a common external tariff, e.g. BENELUX (Belgium, Netherland and Luxumbuarg).

4. Common market is established through trade pacts. A group formed by countries within a geographical area to promote duty free trade and free movement of labour and capital among its members, e.g. European Common Market (ECM).

5. An economic union is composed of a common market with a customs union. The participant countries have both common policies on product regulation, freedom of movement of goods, services and the factors of production and a common external trade policy, (e.g. European Economic Union).

[OR]

(b) Briefly explain the achievements of SAARC.
Answer:
Achievements of SAARC:

1. The establishment of SAARC Preferential Trading Agreement (SAPTA) and reduction in tariff and non-tariff barriers on imports.
2. The setting up of Technical Committees for economic cooperation among SAARC countries relating to agriculture, communications, education, health and population, rural development, science and technology, tourism, etc.
3. SAARC has established a three-tier mechanism for exchanging information on poverty reduction programmes which is passed on to member countries.
4. SAARC Agricultural Information Centre (SAIC) in 1988 works as a central information institution for agriculture related resources like fisheries, forestry, etc.
5. South Asian Development Fund (SADF) for development projects, human resource development and infrastructural development projects. With all these tall claims, the inter- SAARC Trade has not gone beyond three percent in the last 30 years.

Question 45 (a).
Explain the methods of debt redemption.
Answer:
The process of repaying a public debt is called redemption. The Government sells securities to the public and at the time of maturity, the person who holds the security surrenders it to the Government. The following methods are adopted for debt redemption.
(i) Sinking Fund:

• Under this method, the Government establishes a separate fund known as “Sinking Fund”.
• The Government credits every year a fixed amount of money to this fund.
• By the time the debt matures, the fund accumulates enough amount to pay off the principal along with interest.
• This method was first introduced in England by Walpol.

(ii) Conversion:

• Conversion of loans is another method of redemption of public debt.
• It means that an old loan is converted into a new loan.
• Under this system a high interest public debt is converted into a low interest public debt.
• Dalton felt that debt conversion actually relaxes the debt burden.

(iii) Budgetary Surplus:

• When the Government presents surplus budget, it can be utilised for repaying the debt.
• Surplus occurs when public revenue exceeds the public expenditure.
• However, this method is rarely possible.

(iv) Terminal Annuity:

• In this method, Government pays off the public debt on the basis of terminal annuity in
  equal annual installments. .
• This is the easiest way of paying off the public debt.

(v) Repudiation:

• It is the easiest way for the Government to get rid of the burden of payment of a loan.
• In such cases, the Government does not recognise its obligation to repay the loan.
• It is certainly not paying off a loan but destroying it.
• However, in normal case the Government does not do so; if done it will lose its credibility.

(vi) Reduction in Rate of Interest:
Another method of debt redemption is the compulsory reduction in the rate of interest, during the time of financial crisis.

(vi) Capital Levy:

1. When the Government imposes levy on the capital assets owned by an individual or any institution, it is called capital levy.
2. This levy is imposed on capital assets above a minimum limit on a progressive scale.
3. The fund so collected can be used by the Government for paying off war time debt obligations.
4. This is the most controversial method of debt repayment.

[OR]

(b) Describe the various types of deficit in budget.
Answer:
The Indian Government budget, budget deficit is of four major types.

1. Revenue Deficit
2. Budget Deficit
3. Fiscal Deficit, and
4. Primary Deficit

1. Revenue Deficit:
It refers to the excess of the government revenue expenditure over revenue receipts. It does not consider capital receipts and capital expenditure. Revenue deficit implies that the government is living beyond its means to conduct day-to-day operations.
Revenue Deficit (RD) = Total Revenue Expenditure (RE) – Total Revenue Receipts (RR) When RE – RR > 0

2. Budget Deficit:
Budget deficit is the difference between total receipts and total expenditure (both revenue and capital)
Budget Deficit = Total Expenditure – Total Revenue

3. Fiscal Deficit:
Fiscal deficit (FD) = Budget deficit + Government’s market borrowings and liabilities

4. Primary Deficit:
Primary deficit is equal to fiscal deficit minus interest payments. It shows the real burden of the government and it does not include the interest burden on loans taken in the past. Thus, primary deficit reflects borrowing requirement of the government exclusive of interest payments.
Primary Deficit (PD) = Fiscal deficit (PD) – Interest Payment (IP)

Question 46 (a).
Briefly explain classification of Public expenditure.
Answer:
Classification of public expenditure are as follows:
(i) Classification on the Basis of Benefit:
Cohn and Plehn have classified the public expenditure on the basis of benefit into four classes:

• Public expenditure benefiting the entire society, e.g., the expenditure on general administration, defence, education, public health, transport.
• Public expenditure conferring a special benefit on certain people and at the same time common benefit on the entire community, e.g., administration of justice etc.
• Public expenditure directly benefiting particular group of persons and indirectly the entire society, e.g., social security, public welfare, pension, unemployment relief etc.
• Public expenditure conferring a special benefit on some individuals, e.g., subsidy granted to a particular industry.

(ii) Classification on the Basis of Function:
Adam Smith classified public expenditure on the basis of functions of government in the ‘ following main groups:

• Protection Functions: This group includes public expenditure incurred on the security of the citizens, to protect from external invasion and internal disorder, e.g., defence, police, courts etc.
• Commercial Functions: This group includes public expenditure incurred on the development of trade and commerce, e.g., development of means of transport and communication etc.
• Development Functions: This group includes public expenditure incurred for the development infrastructure and industry.

[OR]

(b) Explain Balanced and Unbalanced Budget.
Answer:
Balanced Budget
Balanced budget is a situation, in which estimated revenue of the government during the year is equal to its anticipated expenditure.

Unbalanced Budget
The budget in which Revenue & Expenditure are not equal to each other is known as Unbalanced Budget.
Unbalanced budget is of two types:

1. Surplus Budget
2. Deficit Budget

1. Surplus Budget
The budget is a surplus budget when the estimated revenues of the year are greater than anticipated expenditures.

2. Deficit Budget
Deficit budget is one where the estimated government expenditure is more than expected revenue.

Question 47 (a).
Write a note on
(a) Climate change and
(b) Acid rain.
Answer:
(a) Climate Change:
The climate change refers to seasonal changes over a long period with respect to the growing accumulation of greenhouse gases in the atmosphere.

Recent studies have shown that human activities since the beginning of the industrial revolution, have contributed to an increase in the concentration of carbon dioxide in the atmosphere by as much as 40%, from about 280 parts per million in the pre-industrial period, to 402 parts per million in 2016, which in turn has led to global warming.

Several parts of the world have already experienced the warming of coastal waters, high temperatures, a marked change in rainfall patterns, and an increased intensity and frequency of storms. Sea levels and temperatures are expected to be rising.

(b) Acid Rain:

1. Acid rain is one of the consequences of air pollution.
2. It occurs when emissions from factories, cars or heating boilers contact with the water in the atmosphere.
3. These emissions contain nitrogen oxides, sulphur dioxide and sulphur trioxide which when mixed with water becomes sulfurous acid, nitric acid and sulfuric acid.
4. This process also occurs by nature through volcanic eruptions.
5. It can have harmful effects on plants, aquatic animals and infrastructure.

[OR]

(b) Discuss the economic determinants of economic development Economic Factors?
Answer:
Economic Factors:
1. Natural Resource: The principal factor affecting the development of an economy is the availability of natural resources. The existence of natural resources in abundance is essential for development.

2. Capital Formation: Capital formation is the main key to economic growth. Capital formation refers to the net addition to the existing stock of capital goods which are either tangible like plants and machinery or intangible like health, education and research.

3. Size of the Market: Large size of the market would stimulate production, increase employment and raise the National per capita income. That is why developed countries expand their market to other countries through WTO.

4. Structural Change: Structural change refers to change in the occupational structure of the economy. Any economy of the country is generally divided into three basic sectors: Primary sector such as agricultural, animal husbandry, forestry, etc; Secondary sector such as industrial production, constructions and Tertiary sector such as trade, banking and commerce.

5. Financial System: Financial system implies the existence of an efficient and organized banking system in the country.

6. Marketable Surplus: Marketable surplus refers to the total amount of farm output cultivated by farmers over and above their family consumption needs. This is a surplus that can be sold in the market for earning income.

7. Foreign Trade: The country which enjoys favorable balance of trade and terms of trade is always developed. It has huge forex reserves and stable exchange rate.

8. Economic System: The countries which adopt free market mechanism (laissez faire) enjoy better growth rate compared to controlled economies.

Students can Download Tamil Nadu 12th Economics Model Question Paper 4 English Medium Pdf, Tamil Nadu 12th Economics Model Question Papers helps you to revise the complete Tamilnadu State Board New Syllabus, helps students complete homework assignments and to score high marks in board exams.

TN State Board 12th Economics Model Question Paper 4 English Medium

General Instructions:

1. The question paper comprises of four parts.
2. You are to attempt all the parts. An internal choice of questions is provided wherever applicable.
3. All questions of Part I, II, III and IV are to be attempted separately.
4. Question numbers 1 to 20 in Part I are Multiple Choice Questions of one mark each.
   These are to be answered by choosing the most suitable answer from the given four alternatives and writing the option code and the corresponding answer
5. Question numbers 21 to 30 in Part II are two-mark questions. These are to be answered in about one or two sentences.
6. Question numbers 31 to 40 in Part III are three-mark questions. These are to be answered in above three to five short sentences.
7. Question numbers 41 to 47 in Part IV are five-mark questions. These are to be answered in detail Draw diagrams wherever necessary.

Time: 3.00 Hours
Maximum Marks: 90

PART – I

Choose the correct answer. Answer all the questions: [20 × 1 = 20]

Question 1.
An economic system where the economic activities of a nation are done both by the private and public together is termed as……….
(a) Capitalistic Economy
(b) Socialistic Economy
(c) Globalisic Economy
(d) Mixed Economy
Answer:
(d) Mixed Economy

Question 2.
In a socialist economy, all decisions regarding production and distribution are taken by
(a) market forces
(b) central planning authority
(c) customs and traditions
(d) private sector
Answer:
(b) central planning authority

Question 3.
State whether the statements are true or false.
(i) Capitalism and Socialism are same approaches.
(ii) Capitalism and Socialism are two extreme and opposite approaches.
(a) Both (i) and (ii) are true
(b) Both (ii) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(d) (i) is false but (ii) is true

Question 4.
Net National product at factor cost is also known as………….
(a) National Income
(b) Domestic Income
(c) Per capita Income
(d) Salary
Answer:
(a) National Income

Question 5.
……….. helps to build economic models both in short run and long run.
(a) National Income
(b) Personal Income
(c) Per Capita Income
(d) State Income
Answer:
(d) State Income

Question 6.
Match the following and choose the correct answer by using codes given below:

Code:

Answer:
(a) A-2, B-1, C-4, D-3

Question 7.
Assertion (A): The Income method is called Factor Earning Method.
Reason (R): This method approaches National Income from the distribution side.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’

Question 8.
Keynes theory pursues to replace, laissez faire by……….
(a) No government intervention
(b) Maximum intervention
(c) State intervention in certain situation
(d) Private sector intervention
Answer:
(c) State intervention in certain situation

Question 9.
……….. defines “Full employment as that level of employment at which any further increase in spending would resort in an inflationary spiral of wages and prices”
(a) Lerner
(b) J.M. Keynes
(c) J.B. Say
(d) Adam Smith
Answer:
(a) Lerner

Question 10.
State whether the statements are true or false.
(i) The function of money is a medium of exchange on the one side and a store of value on the other side is called Keynesianism. ‘
(ii) Macro approach to national problems.
(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

Question 11.
The multiplier tells us how much……….changes after a shift in………..
(a) Consumption, income
(b) investment, output
(c) savings, investment
(d) output, aggregate demand
Answer:
(d) output, aggregate demand

Question 12.
Accelerator Model was made by………..
(a) J.M. Keynes
(b) J.M. Clark
(c) R.F. Khan
(d) Marshall
Answer:
(b) J.M. Clark

Question 13.
Which of the following is correctly matched:
(a) Aggregate Income – C
(b) Consumption expenditure – I_A
(c) Autonomous Investment – Y
(d) Induced Private Investment – I_P
Answer:
(d) Induced Private Investment – I_P

Question 14.
During depression the level of economic activity becomes extremely………..
(a) high
(b) bad
(c) low
(d) good
Answer:
(c) low

Question 15.
Online Banking is also known as …………
(a) E-Banking
(b) Internet Banking
(c) RTGS
(d) NEFT
Answer:
(b) Internet Banking

Question 16.
Fixed Deposits are otherwise known as
(a) Bank Deposits
(b) Customer’s Deposits
(c) Time Deposits
(d) Money Deposits
Answer:
(c) Time Deposits

Question 17.
IMF is a prerequisite to become a member of
(a) SDR
(b) SAF
(c) World Bank
(d) SAF
Answer:
(c) World Bank

Question 18.
Environmental goods are ………….
(a) Market goods
(b) Non-market goods
(c) Both
(d) None of the above
Answer:
(b) Non-market goods

Question 19.
Expansion of NITI Aayog?
(a) National Institute to Transform India
(b) National Institute for Transforming India
(c) National Institution to Transform India
(d) National Institution for Transforming India
Answer:
(d) National Institution for Transforming India

Question 20.
Which of the following is not correctly matched:
(a) Financial planning
(b) NITI Aayog
(c) Seven pillars of effective governance
(d) Physical planning
Answer:
(c) Seven pillars of effective governance

PART – II

Answer any seven question in which Question No. 30 is compulsory. [7 × 2 = 14]

Question 21.
Explain the Expenditure Method (Outlay Method) precautions. Precautions
Answer:

1. Second hand goods: The expenditure made on second hand goods should not be included.
2. Purchase of shares and bonds: Expenditures on purchase of old shares and bonds in the secondary market should not be included.
3. Transfer payments: Expenditures towards payment incurred by the government like old age pension should not be included.
4. Expenditure on intermediate goods: Expenditure on seeds and fertilizers by farmers, cotton and yam by textile industries are not to be included to avoid double counting. That is only expenditure on final products are to be included.

Question 22.
Give short note on frictional unemployment.
Answer:
Frictional Unemployment (Temporary Unemployment) :
Frictional unemployment arises due to imbalance between supply of labour and demand for labour. This is because of immobility of labour, lack of necessary skills, break down of machinery, shortage of raw materials etc. The persons who lose jobs and in search of jobs are also included under frictional unemployment.

Question 23.
Define Marginal Propensity to Save (MPS).
Answer:
Marginal Propensity to Save (MPS):
Marginal Propensity to Save is the ratio of change in saving to a change in income. MPS is obtained by dividing change in savings by change in income. It can be expressed algebraically as
MPS = \(\frac{ΔS}{ΔY}\)
ΔS = Change in Saving;
ΔY = Change in Income
Since MPC + MPS = 1
MPS = 1 – MPC and MPC = 1 – MPS

Question 24.
What is the meaning of trade cycle?
Answer:
Meaning of Trade Cycle
A Trade cycle refers to oscillations in aggregate economic activity particularly in employment, output, income, etc. It is due to the inherent contraction and expansion of the elements which energize the economic activities of the nation. The fluctuations are periodical, differing in intensity and changing in its coverage.

Question 25.
What is the meaning of Open Market Operations?
Answer:
In narrow sense, the Central Bank starts the purchase and sale of Government securities in the money market. In Broad Sense, the Central Bank purchases and sells not only Government securities but also other proper eligible securities like bills and securities of private concerns.

Question 26.
What is credit creation?
Answer:
Credit Creation means the multiplication of loans and advances. Commercial banks receive deposits from the public and use these deposits to give loans: However, loans offered are many times more than the deposits received by banks. This function of banks is known as ‘Credit Creation’.

Question 27.
State any two merits of trade.
Answer:

1. Trade is one of the powerful forces of economic integration.
2. The term ‘trade’ means exchange of goods, wares or merchandise among people.

Question 28.
What is Secular Disequilibrium?
Answer:
Secular Disequilibrium: The secular or long-run disequilibrium in BOP occurs because of long-run and deep seated changes in an economy as it advances from one stage of growth to another. In the initial stages of development, domestic investment exceeds domestic savings and imports exceed exports, as it happens in India since 1951.

Question 29.
Who are “dialogue partners”?
Answer:
The ASEAN, there are six “dialogue partners” which have been participating in its deliberations. They are China, Japan, India, South Korea, New Zealand and Australia.

Question 30.
Mention the indicators of development.
Answer:

1. Economic development is regarded as a process whereby there is an increase in the consumption of goods and services by individuals.
2. From the welfare perspective, economic development is defined as a sustained improvement in health, literacy and standard of living.

PART – III

Answer any seven question in which Question No. 40 is compulsory. [7 x 3 = 21]

Question 31.
Enumerate the features of mixed economy.
Answer:
Features of Mixed Economy:
1. Ownership of Property and Means of Production: The means of production and properties are owned by both private and public. Public and Private have the right to purchase, use or transfer their resources.

2. Coexistence of Public and Private Sectors: In mixed economies, both private and public sectors coexist. Private industries undertake activities primarily for profit. Public sector firms are owned by the government with a view to maximize social welfare.

3. Economic Planning: The central planning authority prepares the economic plAnswer: National plans are drawn up by the Government and both private and public sectors abide. In general, all sectors of the economy function according to the objectives, priorities and targets laid down in the plan.

4. Solution to Economic Problems: The basic problems of what to produce, how to produce, for whom to produce and how to distribute are solved through the price mechanism as well as state intervention.

5. Freedom and Control: Though private has freedom to own resources, produce goods and services and distribute the same, the overall control on the economic activities rests with the government.

Question 32.
What is the solution to the problem of double counting in the estimation of national income?
Answer:

1. The value obtained is actually the GNP at market prices. Care must be taken to avoid double counting.
2. The value of the final product is derived by the summation of all the values added in the productive process.
3. To avoid double counting, either the value of the final output should be taken into the estimate of GNP or the sum of values added should be taken.
4. Double counting is to be avoided under value added method.
5. Any commodity which is either raw material or intermediate good for the final production should not be included.
6. For example, value of cotton enters value of yam as cost, and value of yam in cloth and that of cloth in garments.
7. At every stage value added only should be calculated.

Question 33.
Mention the expenditure method (or) out-lay method.
Answer:
The Expenditure Method (Outlay method): The total expenditure incurred by the society in a particular year is added together. To calculate the expenditure of a society, it includes personal consumption expenditure, net domestic investment, government expenditure on consumption as well as capital goods and net exports. Symbolically,
GNP = C + I + G + (X – M)
C – Private consumption expenditure
I – Private Investment Expenditure
G – Government expenditure
X – M = Net exports

Question 34.
Discuss the estimating the national income through the Income Method precautions.
Answer:

1. Transfer payments are not to be included in estimation of national income as these payments are not received for any services provided in the current year such as pension, social insurance etc.
2. The receipts from the sale of second hand goods should not be treated as part of national income as they do not create new flow of goods or services in the current year.
3. Windfall gains such as lotteries are also not to be included as they do not represent receipts from any current productive activity.
4. Corporate profit tax should not be separately included as it has been already included as a part of company profit.

Question 35.
Specify the limitations of the multiplier.
Answer:

1. There is change in autonomous investment.
2. There is no induced investment
3. The marginal propensity to consume is constant.
4. Consumption is a function of current income.
5. There are no time lags in the multiplier process.
6. Consumer goods are available in response to effective demand for them.
7. There is a closed economy unaffected by foreign influences.
8. There are no changes in prices.
9. There is less than full employment level in the economy.

Question 36.
Explain the uses of multiplier.
Answer:
Uses of multiplier

1. Multiplier highlights the importance of investment in income and employment theory.
2. The process throws light on the different stages of trade cycle.
3. It also helps in bringing the equality between S and I.
4. It helps in formulating Government policies.
5. It helps to reduce unemployment and achieve full employment.

Question 37.
Write a note on metallic money.
Answer:

1. After the barter system and commodity money system, modem money systems evolved.
2. Among these, metallic standard is the premier one.
3. Under metallic standard, some kind of metal either gold or silver is used to determine the standard value of the money and currency.
4. Standard coins made out of the metal are the principal coins used under the metallic standard.
5. These standard coins are full bodied or full weighted legal tender.
6. Their face value is equal to their intrinsic metal value.

Question 38.
What is the meaning of Crypto currency?
Answer:
Crypto Currency:
A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a Central Bank,

Decentralised crypto currencies such as Bitcoin now provide an outlet for Personal Wealth that is beyond restriction and confiscation.

Question 39.
Write the TRIPs agreement.
Answer:
Agreement on Trade Related Intellectual Property Rights (TRIPs):

1. Intellectual Property Rights include copy right, trade marks, patents, geographical indications, trade secrets, industrial designs, etc.
2. TRIPS Agreement provides for granting product patents instead of process patents.
3. The period of protection will be 20 years for patents, 50 years for copy rights, 7 years for trade marks and 10 years for layout designs.
4. As a result of TRIPS, the dependence of LDCs on advanced countries for seeds, drugs, fertilizers and pesticides has increased.
5. Farmers are depending on the industrial firm for their seeds.

Question 40.
What is Crony capitalism?
Answer:
Social Organization:

1. People show interest in the development activity only when they feel that the fruits of development will be fairly distributed.
2. Mass participation in development programs is a pre-condition for accelerating the ‘ development process.
3. Whenever the defective social organization allows some groups to appropriate the benefits of growth.
4. Majority of the poor people do not participate in the process of development.
5. This is called crony capitalism.

PART – IV

Answer all the questions. [7 x 5 = 35]

Question 41 (a).
Explain the Aggregate Demand Function with Diagram.
Answer:
In the Keynesian model, output is determined mainly by aggregate demand. The aggregate demand is the amount of money which entrepreneurs expect to get by selling the output produced by the number of labourers employed.

Therefore, it is the expected income or revenue from the sale of output at different levels of employment.
Aggregate demand has the following four components:

1. Consumption demand
2. Investment demand
3. Government expenditure and
4. Net Export (export – import)

The desired or planned demand (spending) is the amount that households, firms, the governments and the foreign purchasers would like to spend on domestic output.

In other words, desired demand in the economy is the sum total of desired private consumption expenditure, desired investment expenditure, desired government spending and desired net exports (difference between exports and imports). Thus, the desired spending is called aggregate spending (demand), and can be expressed as:
AD = C + I + G + (X – M)
The diagram explains that aggregate demand price increases or decreases with an increase or decrease in the volume of employment. Aggregate demand curve increases at an increasing rate in the beginning and then increases at a decreasing rate.

This shows that as income increases owing to increase in employment, expenditure of the economy increases at a decreasing rate.

[OR]

(b) Describe the Effective demand.
Answer:

1. The starting point of Keynes theory of employment and income is the principle of effective demand.
2. Effective demand denotes money actually spent by the people on products of industry.
3. The money which entrepreneurs receive is paid in the form of rent, wages, interest and profit.
4. Therefore effective demand equals national income.
5. An increase in the aggregate effective demand would increase the level of employment.
6. A decline in total effective demand would lead to unemployment.
7. Therefore, total employment of a country can be determined with the help of total demand of a country.
8. According to the Keynes theory of employment, “Effective demand signifies the money spent on consumption of goods and services and on investment.
9. The total expenditure is equal to the national income, which is equivalent to the national output”.
10. The relationship between employment and output of an economy depends upon the level of effective demand which is determined by the forces of aggregate supply and aggregate demand.
    ED = Y = C + I = Output = Employment
11. Effective demand determines the level of employment in the economy.
12. When effective demand increases, employment will increase.
13. When effective demand decreases, the level employment will decline.
14. The effective demand will be determined by two determinants namely consumption and investment expenditures.
15. The consumption function depends upon income of the people and marginal propensity to consume.
16. According to Keynes, if income increases, consumption will also increase but by less than the increase in income.

Question 42 (a).
Illustrate the working of Multiplier.
Answer:
Working of Multiplier:
1. Suppose the Government undertakes investment expenditure equal to Rs 100 crore on some public works, by way of wages, price of materials etc.
2. Thus income of labourers and suppliers of materials increases by Rs 100 crore. Suppose the MPC is 0.8 that is 80 %.
3. A sum of Rs 80 crores is spent on consumption (A sum of Rs 20 Crores is saved).
4. As a result, suppliers of goods get an income of Rs 80 crores.
5. They intum spend Rs 64 crores (80% of Rs 80 cr).
In this manner consumption expenditure and increase in income act in a chain like manner. The final result is ΔY = 100 + 100 × 4/5 + 100 × [4/5]² + 100 × [4/5]³ or,
ΔY = 100 + 100 × 0.8 + 100 × (0.8)² + 100 × (0.8)³
= 100 + 80+ 64 + 51.2… = 500
that is 100 × 1/1 – 4/5
100 × 1/1/5
100 × 5 = Rs 500 crores
For instance if C = 100 + 0.8Y, I = 100,
Then Y = 100+ 0.8Y + 100
0. 2Y = 200
Y = 200/0.2 = 1000 → Point B
If I is increased to 110, then
0. 2Y = 210
Y = 210/0.2 = 1050 → Point D
For Rs 10 increase in I, Y has increased by Rs 50.
This is due to multiplier effect.
At point A, Y = C = 500
C = 100 + 0.8 (500) = 500; S = 0
At point B, Y = 1000
C = 100 + 0.8 (1000) = 900; S = 100 = I
At point D, Y = 1050
C = 100 + 0.8 (1050) = 940; S = 110 = I
When I is increased by 10, Y increases by 50.
This is multiplier effect (K = 5)
K = \(\frac{1}{0.2}\) = 5

[OR]

(b) Explain about Marginal Efficiency of Capital [MEC] short run factors and long run factors.
Answer:
(a) Short – Run Factors
(i) Demand for the product:

• If the market for a particular good is expected to grow and its costs are likely to fall, the rate of return from investment will be high.
• If entrepreneurs expect a fall in demand for goods and a rise in cost, the investment will decline.

(ii) Liquid assets:

• If the entrepreneurs are holding large volume of working capital, they can take advantage of the investment opportunities that come in their way.
  The MEC will be high.

(iii) Sudden changes in income:

• The MEC is also influenced by sudden changes in income of the entrepreneurs.
• If the business community gets windfall profits, or tax concession the MEC will be high and hence investment in the country will go up.
• On the other hand, MEC falls with the decrease in income.

(iv) Current rate of investment:

• Another factor which influences MEC is the current rate of investment in a particular industry.
• If in a particular industry, much investment has already taken place and the rate of investment currently going on in that industry is also very large, then the marginal efficiency of capital will be low.

(v) Waves of optimism and pessimism:

1. The marginal efficiency of capital is also affected by waves of optimism and pessimism in the business cycle.
2. If businessmen are optimistic about future, the MEC will be likely to be high.
3. During periods of pessimism the MEC is under estimated and so will be low.

(b) Long – Run Factors
The long run factors which influence the marginal efficiency of capital are as follows:
(i) Rate of growth of population:

• Marginal efficiency of capital is also influenced by the rate of growth of population.
• If population is growing at a rapid speed, it is usually believed that the demand of various types of goods will increase.
• So a rapid rise in the growth of population will increase the marginal efficiency of capital and a slowing down in its rate of growth will discourage investment and thus reduce marginal efficiency of capital.

(ii) Technological progress:

• If investment and technological development take place in the industry, the prospects of increase in the net yield brightens up.
• For example, the development of automobiles in the 20th century has greatly stimulated the rubber industry, the steel and oil industry etc.
• So we can say that inventions and technological improvements encourage investment in various projects and increase marginal efficiency of capital.

(iii) Monetary and Fiscal policies:
Cheap money policy and liberal tax policy pave the way for greater profit margin and so MEC is likely to be high.

(iv) Political environment:
Political stability, smooth administration, maintenance of law and order help to improve MEC.

(v) Resource availability:
Cheap and abundant supply of natural resources, efficient labour and stock of capital enhance the MEC.

Question 43 (a).
Briefly explain the Monetary Economics and money.
Answer:
Monetary Economics is a branch of economics that provides a framework for analyzing money and its functions as a medium of exchange, store of value and unit of account. It examines the effects of monetary systems including regulation of money and associated financial institutions.

Meaning

1. Money is anything that is generally accepted as payment for goods and services and repayment of debts and that serves as a medium of exchange.
2. A medium of exchange is anything that is widely accepted as a means of payments.
3. In recent years, the importance of credit has increased in all the countries of the world.
4. Credit instruments are used on an extensive scale.
5. The use of cheques, bills of exchange, etc., has gone up.
6. It should however, be remembered that money is the basis of credit.

[OR]

(b) What are the objectives of Monetary Policy? Explain.
Answer:
The specific objectives of monetary policy are Objectives of monetary policy:

1. Neutrality of Money
2. Stability of Exchange Rates
3. Price Stability
4. Full Employment
5. Economic Growth
6. Equilibrium in the Balance of Payments

1. Neutrality of Money:

• Economists like Wicksteed, Hayek and Robertson are the chief exponents of neutral money.
• They hold the view that monetary authority should aim at neutrality of money in the economy.
• Monetary changes could be the root cause of all economic fluctuations.
• According to neutralists, the monetary change causes distortion and disturbances in the proper operation of the economic system of the country.

2. Exchange Rate Stability:

• Exchange rate stability was the traditional objective of monetary authority.
• This was the main objective under Gold Standard among different countries.
• When there was disequilibrium in the balance of payments of the country, it was automatically corrected by movements.

3. Price Stability:

• Economists like Crustave Cassel and Keynes suggested price stabilization as a main objective of monetary policy.
• Price stability is considered the most genuine, objective of monetary policy.
• Stable prices repose public confidence,
• It promotes business activity and ensures equitable distribution of income and wealth.

4. Full Employment:

• During world depression, the problem of unemployment had increased rapidly.
• It was regarded as socially dangerous, economically wasteful and morally deplorable.
• Thus, full employment was considered as the main goal of monetary policy.

5. Economic Growth:

• Economic growth is the process whereby the real per capita income of a country increases over a long period of time.
• It implies an increase in the total physical or real output, production of goods for the satisfaction of human wants.
• Monetary policy should promote sustained and continuous economic growth by maintaining equilibrium between the total demand for money and total production capacity and further creating favourable conditions for saving and investment.

6. Equilibrium in the Balance of Payments:
Equilibrium in the balance of payments is another objective of monetary policy which emerged significant in the post war years.

Question 44 (a).
What do you mean by balance of payments?
Answer:
Balance of Payments (BOP):
1. BoP is a systematic record of a country’s economic and financial transactions with the rest of the world over a period of time.

2. When a payment is received from a foreign country, it is a credit transaction while a payment to a foreign country is a debit transaction.

3. The principal items shown on the credit side are exports of goods and services, transfer receipts in the form of gift etc., from foreigners, borrowing from abroad, foreign direct investment and official sale of reserve assets including gold to foreign countries and international agencies.

4. The principal items on the debit side include imports of goods and services, transfer payments to foreigners, lending to foreign countries, investments by residents in foreign countries and official purchase of reserve assets or gold from foreign countries and international agencies.

[OR]

(b) Explain the relationship between Foreign Direct Investment and economic development.
Answer:
Foreign Direct Investment (FDI) and Trade:

1. FDI is an important factor in global economy.
2. Foreign trade and FDI are closely related. In developing countries like India
3. FDI in the natural resource sector, including plantations, increases trade volume.
4. Foreign production by FDI is useful to substitute foreign trade. .
5. FDI is also influenced by the income generated from the trade and regional integration schemes.
6. FDI is helpful to accelerate the economic growth by facilitating essential imports needed for carrying out development programmes like capital goods, technical know-how, raw materials and other inputs and even scarce consumer goods.
7. FDI may be required to fill the trade gap.
8. FDI is encouraged by the factors such as foreign exchange shortage, desire to create employment and acceleration of the pace of economic development.
9. Many developing countries strongly prefer foreign investment to imports.
10. However, the real impact of FDI on different sections of an economy.

Question 45 (a).
Describe the Types of Terms of Trades.
Answer:
Types of Terms of Trade:
The different concepts of terms of trade were classified by Gerald M.Meier into the following three categories:
Terms of Trade related to the Ratio of Exchange between Commodities:

1. Net Barter Terms of Trade:
This type was developed by Taussig in 1927. The ratio between the prices of exports and of imports is called the “net barter terms of trade’. It is named by Viner as the ‘commodity terms of trade’.
It is expressed as:
T_n = (P_x / P_m) × 100
Where,
T_n = Net Barter Terms of Trade
P_x = Index number of export prices
P_m = Index number of import prices
This is used to measure the gain from international trade. If ‘T_n’ is greater than 100, then it is a favourable terms of trade which will mean that for a rupee of export, more of imports can be received by a country.

2. Gross Barter Terms of Trade:
This was developed by Taussig in 1927 as an improvement over the net terms of trade. It is an index of relationship between total physical quantity of imports and the total physical quantity of exports.
T_g = (Q_m / Q_x) × 100
Where,
Q_m = Index of import quantities
Q_x = Index of export quantities
If for a given quantity of export, more quantity of import can be consumed by a country, then one can say that terms of trade are favourable.

3. Income Terms of Trade:
The income terms of trade was given by G.S.Dorrance in 1948. It is the index of the value of exports divided by the price index for imports multiplied by quantity index of experts. In other words, it is the net barter terms of trade of a country multiplied by its exports- volume index.
T_y = (P_x / P_m ) Q_x
Where,
P_x = Price index of exports
P_m = Price index of imports
Q_x = Quantity index of exports

[OR]

(b) Write a note on ‘BRICS’.
Answer:
BRICS:

1. BRICS is the acronym for an association of five major emerging national economies: Brazil, Russia, India, China and South Africa.
2. Since 2009, the BRICS nations have met annually at formal summits.
3. South Africa hosted the 10th BRICS summit in July 2018.
4. The agenda for BRICS summit 2018 includes Inclusive growth, Trade issues, Global governance, Shared Prosperity, International peace and security.
5. It’s headquarters is at Shanghai, China.
6. The New Development Bank (NDB) formerly referred to as the BRICS Development Bank was established by BRICS States.
7. The first BRICS summit was held at Moscow and South Africa hosted the Tenth Conference at Johanesberg in July 2018.
8. India had an opportunity of hosting fourth and Eighth summits in 2009 and 2016 respectively.
9. The BRICS countries make up 21 percent of global GDP. They have increased their share of global GDP threefold in the past 15 years.
10. The BRICS are home to 43 percent of the world’s population.
11. The BRICS countries have combined foreign reserves of an estimated $4.4 trillion

Question 46 (a).
Bringout the objectives of SAARC.
Answer:
Objectives of SAARC:
According to Article I of the Charter of the SAARC, the objectives of the Association are as follows:

1. To promote the welfare of the people of South Asia and improve their quality of life;
2. To accelerate economic growth, social progress and cultural development in the region;
3. To promote and strengthen collective self-reliance among the countries of South Asia;
4. To contribute to mutual trust, understanding and appreciation of one another’s problems;
5. To promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields;
6. To strengthen co-operation with other developing countries;
7. To strengthen cooperation among themselves in international forums on matters of common interest;
8. To cooperate with international and regional organisations with similar aims and purposes.

[OR]

(b) Explain the principles of federal finance.
Answer:
Principles of Federal Finance:
In the case of federal system of finance, the following main principles must be applied:

1. Principle of Independence.
2. Principle of Equity.
3. Principle of Uniformity.
4. Principle of Adequacy.
5. Principle of Fiscal Access.
6. Principle of Integration and coordination.
7. Principle of Efficiency.
8. Principle of Administrative Economy.
9. Principle of Accountability.

1. Principle of Independence:

• Under the system of federal finance, a Government should be autonomous and free about the internal financial matters concerned.
• It means each Government should have separate sources of revenue, authority to levy taxes, to borrow money and to meet the expenditure.
• The Government should normally enjoy autonomy in fiscal matters.

2. Principle of Equity:
From the point of view of equity, the resources should be distributed among the different states so that each state receives a fair share of revenue.

3. Principle of Uniformity:
In a federal system, each state should contribute equal tax payments for federal finance.

4. Principle of Adequacy of Resources:

• The principle of adequacy means that the resources of each Government i.e. Central and State should be adequate to carry out its functions effectively.
• Here adequacy must be decided with reference to both current as well as future needs.
• Besides, the resources should be elastic in order to meet the growing needs and unforeseen expenditure like war, floods etc.

5. Principle of Fiscal Access:

• In a federal system, there should be possibility for the Central and State Governments to develop new source of revenue within their prescribed fields to meet the growing financial needs.
• In nutshell, the resources should grow with the increase in the responsibilities of the Government.

6. Principle of Integration and coordination:

• The financial system as a whole should be well integrated.
• There should be perfect coordination among different layers of the financial system of the country.
• Then only the federal system will survive.
• This should be done in such a way to promote the overall economic development of the country.

7. Principle of Efficiency:

• The financial system should be well organized and efficiently administered.
• Double taxation should be avoided.

8. Principle of Administrative Economy:

• Economy is the important criterion of any federal financial system.
• That is, the cost of collection should be at the minimum level and the major portion of revenue should be made available for the other expenditure outlays of the Governments.

9. Principle of Accountability:
Each Government should be accountable to its own legislature for its financial decisions i.e. the Central to the Parliament and the State to the Assembly.

Question 47 (a).
What are the similarities of Public and Private Finance?
Answer:
(i) Rationality:

• Both public finance and private finance are based on rationality.
• Maximization of welfare and least cost factor combination underlie both.

(ii) Limit to borrowing:

• Both have to apply restraint with regard to borrowing.
• The Government also cannot live beyond its means.
• There is a limit to deficit financing by the state also.

(iii) Resource utilisation:

• Both the private and public sectors have limited resources at their disposal.
• So both attempt to make optimum use of resources.

(iv) Administration:

• The effectiveness of measures of the Government as well as private depends on the administrative machinery.
• If the administrative machinery is inefficient and corrupt it will result in wastages and losses.

[OR]

(b) What are the functions of NITI Aayog?
Answer:
Functions of NITI Aayog:

1. Cooperative and Competitive Federalism: To enable the States to have active participation in the formulation of national policy.
2. Shared National Agenda: To evolve a shared vision of national development priorities and strategies with the active involvement of States.
3. Decentralized Planning: To restructure the planning process into a bottom-up model.
4. Vision and Scenario Planning: To design medium and long-term strategic frameworks towards India’s future.
5. Network of Expertise: To mainstream external ideas and expertise into government policies and programmes through a collective participation.
6. Harmonization: To facilitate harmonization of actions across different layers of government, especially when involving cross-cutting and overlapping issues across multiple sectors; through communication, coordination, collaboration and convergence amongst all the stakeholders.
7. Conflict Resolution: To provide platform for mutual consensus to inter-sectoral, inter¬departmental, inter-state as well as centre-state issues for all speedy execution of the government programmes.
8. Coordinating Interface with the World: It will act nodal point to harness global expertise and resources coming from International organizations for India’s developmental process.
9. Internal Consultancy: It provides internal consultancy to Central and State governments on policy and programmes.
10. Capacity Building: It enables to provide capacity building and technology up-gradation across government, benchmarking with latest global trends and providing managerial and technical know-how.
11. Monitoring and Evaluation: It will monitor the implementation of policies and progammes and evaluate the impacts.

Students can Download Tamil Nadu 12th Economics Model Question Paper 3 English Medium Pdf, Tamil Nadu 12th Economics Model Question Papers helps you to revise the complete Tamilnadu State Board New Syllabus, helps students complete homework assignments and to score high marks in board exams.

TN State Board 12th Economics Model Question Paper 3 English Medium

General Instructions:

1. The question paper comprises of four parts.
2. You are to attempt all the parts. An internal choice of questions is provided wherever applicable.
3. All questions of Part I, II, III and IV are to be attempted separately.
4. Question numbers 1 to 20 in Part I are Multiple Choice Questions of one mark each.
   These are to be answered by choosing the most suitable answer from the given four alternatives and writing the option code and the corresponding answer
5. Question numbers 21 to 30 in Part II are two-mark questions. These are to be answered in about one or two sentences.
6. Question numbers 31 to 40 in Part III are three-mark questions. These are to be answered in above three to five short sentences.
7. Question numbers 41 to 47 in Part IV are five-mark questions. These are to be answered in detail Draw diagrams wherever necessary.

Time: 3.00 Hours
Maximum Marks: 90

PART – I

Choose the correct answer. Answer all the questions: [20 x 1 = 20]

Question 1.
The branches of the subject Economics is………….
(a) Wealth and welfare
(b) production and consumption
(c) Demand and supply
(d) micro and macro
Answer:
(d) micro and macro

Question 2.
………. is another name for economics.
(a) Political economy
(b) Socialist economy
(c) Capitalist economy
(d) Planned economy
Answer:
(a) Political economy

Question 3.
Income method is measured by summing up of all forms of…………
(a) Revenue
(b) Taxes
(c) expenditure
(d) Income
Answer:
(d) Income

Question 4.
Match the following and choose the correct answer by using codes given below:

Code:

Answer:
(d) A-3, B-4, C-1, D-2+

Question 5.
According to classical theory, rate of interest is a reward for………..
(a) Investment
(b) Demand
(c) Capital
(d) Saving
Answer:
(d) Saving

Question 6.
Which of the following is not correctly matched:
(a) Say’s law of Market – Classical theory of Employment
(b) Adam Smith – Wealth of nations
(c) Keynes – The General theory of Employment, Interest and Money
(d) A.C. Pigou – French Economist
Answer:
(d) A.C. Pigou – French Economist

Question 7.
When investment is assumed autonomous the slope of the AD schedule is determined by the…………
(a) marginal propensity to invest
(b) disposable income .
(c) marginal propensity to consume
(d) average propensity to consume
Answer:
(c) marginal propensity to consume

Question 8.
Which of the following is correctly matched:
(a) J.M. Clark – Ceteris Paribus
(b) J.M. Keynes – Psychological law of consumption
(c) R.F. Khan – Accelerator model
(d) Duesenberry – Laissez-faire
Answer:
(b) J.M. Keynes – Psychological law of consumption

Question 9.
The basic distinction between M₁ and M₂ is with regard to…………..
(a) post office deposits
(b) time deposits of banks
(c) saving deposits of banks
(d) currency
Answer:
(b) time deposits of banks

Question 10.
Match the following and choose the correct answer by using codes given below:

Code:

Answer:
(a) A-1, B-2, C-3, D-4

Question 11.
Repo Rate meAnswer:…………
(a) Rate at which the Commercial Banks are willing to lend to RBI
(b) Rate at which the RBI is willing to lend to commercial banks
(c) Exchange rate of the foreign bank
(d) Growth rate of the economy
Answer:
(b) Rate at which the RBI is willing to lend to commercial banks.

Question 12.
Lowering the Bank rate off sets……….. tendencies.
(a) Deflationary
(b) Inflationary
(c) Stagflationary
(d) Hyper inflationary
Answer:
(a) Deflationary

Question 13.
Which of the following is a modem theory of international trade?
(a) absolute cost
(b) comparative cost
(c) Factor endowment theory
(d) none of these
Answer:
(c) Factor endowment theory

Question 14.
The headquarters of ASEAN is ……………..
(a) Jaharta
(b) New Delhi
(c) Colombo
(d) Tokyo
Answer:
(a) Jaharta

Question 15.
Which of the following is correctly matched
(a) Objectives of IMF – To promote textiles
(b) Functions of IMF – Exchange stability
(c) Facilities offered by IMF – Basic Debit Facility
(d) Achievements of IMF – Country discipline and co-operation
Answer:
(b) Functions of IMF – Exchange stability

Question 16.
………. refers to Government spending incurred by central, state, local government of a country.
(a) Public Finance
(b) Public Expenditure
(c) Public Revenue
(d) Social Welfare
Answer:
(b) Public Expenditure

Question 17.
Which of the following is the anticipated effect of Global wanning?
(a) Rising sea levels
(b) Changing precipitation
(c) Expansion of deserts
(d) All of the above
Answer:
(a) Rising sea levels

Question 18.
………… the state is all powerful in preparation and implementation of the plan.
(a) Centralized planning
(b) Planning by direction
(c) Indicative planning
(d) Imperative planning
Answer:
(d) Imperative planning

Question 19.
State whether the statements are true or false.
(i) Economic development was redefined in terms of reduction of poverty, inequality and unemployment with in the context of a growing economy.
(ii) New welfare oriented approach is “Redistribution with growth”.
(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (0 is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

Question 20.
Assertion (A): Ronald Fisher introduced the concept of Standard Deviation.
Reason (R): Standard Deviation is one of the methods of Absolute measure of dispersion.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(d) ‘A’ is false but ‘R’ is true

PART – II

Answer any seven question in which Question No. 30 is compulsory. [7 x 2 = 14]

Question 21.
Define Mixed Economy (or) Mixedism.
Answer:
In a mixed economy system both private and public sectors co-exist and work together towards economic development. It is a combination of both capitalism and socialism. It tends to eliminate the evils of both capitalism and socialism.

In these economies, resources are owned by individuals and the government. India, England, France and Brazil are the examples of mixed economy.

Question 22.
Explain briefly NNP at factor cost.
Answer:
Net National Product refers to the value of the net output of the economy during the year. NNP is obtained by deducting the value of depreciation, or replacement allowance of the capital assets from the GNP. It is expressed as,
NNP = GNP – depreciation allowance.

Question 23.
Write the types of unemployment.
Answer:
Types of unemployment:

1. Cyclical Unemployment
2. Seasonal Unemployment
3. Frictional Unemployment
4. Educated Unemployment
5. Technical Unemployment
6. Structural Unemployment
7. Disguised Unemployment

Question 24.
Define marginal propensity to consume (MPC).
Answer:
Marginal Propensity to Consume:
The marginal propensity to consume may be defined as the ratio of the change in the consumption to the change in income. Algebraically it may be expressed as under:
MPC = \(\frac{ΔC}{ΔY}\)
Where, ΔC = Change in Consumption; ΔY = Change in Income
MPC is positive but less than unity, 0 < \(\frac{ΔC}{ΔY}\) < 1

Question 25.
What is gold standard?
Answer:
Gold Standard is a system in which the value of the monetary unit or the standard currency is directly linked with gold. The monetary unit is defined in terms of a certain weight of gold. The purchasing power of a unit of money is maintained equal to the value of a fixed weight of gold.

Question 26.
Define international trade.
Answer:
International Trade refers to the trade or exchange of goods and services between two or more countries. In other words, it is a trade among different countries or trade across political boundaries. It is also called as ‘external trade’ or ‘foreign trade’ or ‘inter-regional trade’.

Question 27.
Write the ‘ASEAN’ member of countries.
Answer:
ASEAN was established on 8 August 1967 in Bangkok by the five original member countries: Indonesia, Malaysia, Philippines, Singapore and Thailand.

Question 28.
What is public revenue?
Answer:
Public Revenue: Public revenue deals with the methods of raising public revenue such as tax and non-tax, the principles of taxation, rates of taxation, impact, incidence and shifting of taxes and their effects.

Question 29.
Define Global warming.
Answer:
Global warming is the current increase in temperature of the Earth’s surface (both land and water) as well as its atmosphere. Average temperatures around the world have risen by 0.75°C (1.4°F) over the last 100 years. About two thirds of this increase has occurred since 1975. Carbon dioxide, methane, Chlorofluoro Carbon, nitrous oxides are the green house gases warming the earth’s surface. So it is also called green house effect. The CO₂ is the most important of the green house gases contributing to 50% of global warming. Global warming adversely affects agriculture, horticulture and eco system.

Question 30.
Define economic development.
Answer:
Economic development refers to the problems of underdeveloped countries and economic growth to those of developed countries. Economic development deals with the problems of UDCs. Change is discontinuous and spontaneous.

Economic development is not determined by any single factor. Economic development depends on Economic, Social, Political and Religious factors.

PART – III

Answer any seven question in which Question No. 40 is compulsory. [7 x 3 = 21]

Question 31.
Indicates the Merits of Socialism.
Answer:

1. Reduction in Inequalities: No one is allowed to own and use private property to exploit others.
2. Rational Allocation of Resources: The central planning authority allocates the resources in a planned manner. Wastages are minimised and investments are made in a pre planned manner.
3. Absence of Class Conflicts: As inequalities are minimum, there is no conflict between rich and poor class. Society functions in a harmonious manner.
4. End of Trade Cycles: Planning authority takes control over production and distribution of goods and services. Therefore, economic fluctuations can be avoided.
5. Promotes Social Welfare: Absence of exploitation, reduction in economic inequalities, avoidance of trade cycles and increase in productive efficiency help to promote social welfare.

Question 32.
Write the statistical problems.
Answer:
The following are the some of the statistical problems:

1. Accurate and reliable data are not adequate, as farm output in the subsistence sector is not completely
2. informed. In animal husbandry, there are no authentic production data available.
3. Different languages, customs, etc., also create problems in computing estimates.
4. People in India are indifferent to the official inquiries. They are in most cases non-cooperative also.
5. Most of the statistical staff are untrained and inefficient.

Question 33.
What do you mean by propensity to consume?
Answer:
The consumption function or propensity to consume refers to income consumption relationship. It is a “functional relationship between two aggregates viz., total consumption and gross national income.”
Symbolically, the relationship is represented as C = f (Y)
Where, C = Consumption; Y Income; f = Function

Thus the consumption function indicates a functional relationship between C and Y, where C is the dependent variable and Y is the independent variable, i.e., C is determined by Y. This relationship is based on the ceteris paribus (other things being same) assumption, as only income consumption relationship is considered and all possible influences on consumption are held constant.

Question 34.
Explain Demand-pull and Cost push inflation.
Answer:
Demand-Pull Vs Cost-Push inflation:
(i) Demand-Pull Inflation: Demand and supply play a crucial role in deciding the inflation levels in the society at all points of time. For instance, if the demand is high for a product and supply is low, the price of the products increases.

(ii) Cost-Push Inflation: When the cost of raw materials and other inputsrises inflation results. Increase in wages paid to labour also leads to inflation.

Question 35.
Give a brief note on NBFI.
Answer:
Non-Banking Financial Institution (NBFI):

A non-banking financial institution (NBFI) or non-bank financial company (NBFC) is a financial institution that does not have a full banking license or is not supervised by the central bank.

The NBFIs do not carry on pure banking business, but they will carry on other financial transactions. They receive deposits and give loans: They mobilize people’s savings and use the funds to finance expenditure on investment activities. In short, they are institutions which undertake borrowing and lending. They operate in both the money and the capital markets.

NBFIs can be broadly classified into two categories. Viz.., (1) Stock Exchange; and (2) Other Financial institutions. Under the latter category comes Finance Companies, Finance Corporations, ChitFunds, Building Societies, Issue Houses, Investment Trusts and Unit Trusts and Insurance Companies.

Question 36.
What are import quotas?
Answer:
Import Control: Imports may be controlled by:

1. imposing or enhancing import duties
2. restricting imports through import quotas
3. licensing and even prohibiting altogether the import of certain non-essential items. But this would encourage smuggling.

Question 37.
Mention the objectives of ASEAN.
Answer:
Objectives of ASEAN:
The ASEAN Declaration states the aims and purposes of the Association as:

1. To accelerate the economic growth, social progress and cultural development in the region;
2. To promote regional peace and stability and adherence to the principles of the United Nations Charter;
3. To promote cooperation among the members of ASEAN through the exchange of knowledge and experience in the field of public sector auditing.
4. To provide a conducive environment and facilities for research, training, and education among the members
5. To serve as a centre of information and as an ASEAN link with other international organizations.

Question 38.
Mention any three methods of redemption of public debt.
Answer:
Methods of Redemption of Public Debt:
The process of repaying a public debt is called redemption. The Government sells securities to the public and at the time of maturity, the person who holds the security surrenders it to the Government. The following methods are adopted for debt redemption.

(i) Sinking Fund:

1. Under this method, the Government establishes a separate fund known as “Sinking Fund”.
2. The Government credits every year a fixed amount of money to this fund.
3. By the time the debt matures, the fund accumulates enough amount to pay off the principal along with interest.
4. This method was first introduced in England by Walpol.

(ii) Conversion:

1. Conversion of loans is another method of redemption of public debt.
2. It means that an old loan is converted into a new loan.
3. Under this system a high interest public debt is converted into a low interest public debt.
4. Dalton felt that debt conversion actually relaxes the debt burden.

(iii) Budgetary Surplus:

1. When the Government presents surplus budget, it can be utilised for repaying the debt.
2. Surplus occurs when public revenue exceeds the public expenditure.
3. However, this method is rarely possible.

Question 39.
State the meaning of e-waste.
Answer:

1. Electronic waste which is commonly referred as “e-waste” is the new byproduct of the Info Tech society.
2. It is a physical waste in the form of old discarded, end of life electronics.
3. It includes a broad and growing range of electronic devices from large household appliances such as refrigerators, air conditioners, cellular phones, computers and other electronic goods”.
4. Similarly, e-waste can be defined as the result when consumer, business and household devices are disposed or sent for re-cycling (example, television, computers, audio-equipments, VCR, DVD, telephone, Fax, Xerox machines, wireless devices, video games, other household electronic equipments).

Question 40.
How would you break the vicious circle of poverty?
Answer:
Breaking the Vicious Circle of Poverty:

1. The vicious circle of poverty is associated with low rate of saving and investment on the supply side.
2. In UDCs the rate of investment and capital formation can be stepped up without reduction in consumption. For this, the marginal rate of savings is to be greater than average rate of savings.
3. To break the vicious circle on the demand side, Nurkse suggested the strategy of balanced growth.
4. If investment is made in several industries simultaneously the workers employed in various industries will become consumers of each other’s products and will create demand for one another.
5. The balanced growth i.e. simultaneous investment in large number of industries creates mutual demand. Thus, through the strategy of balanced growth, vicious circle of poverty operating on the demand side of capital formation can be broken.

PART – IV

Answer all the questions. [7 x 5 = 35]

Question 41 (a).
Explain the Importance of Factor Cost.
Answer:

[OR]

(b) Critically explain Say’s law of market.
Answer:
Criticisms of Say’s Law:
The following are the criticisms against Say’s law:

1. According to Keynes, supply does not create its demand. It is not applicable where demand does not increase as much as production increases.
2. Automatic adjustment process will not remove unemployment. Unemployment can be removed by increase in the rate of investment.
3. Money is not neutral. Individuals hold money for unforeseen contingencies while businessmen keep cash reserve for future activities.
4. Say’s law is based on the proposition that supply creates its own demand and there is no over production. Keynes said that over production is possible.
5. Keynes regards full employment as a special case because there is under – employment in capitalist economies.
6. The need for state intervention arises in the case of general over production and mass unemployment.

Question 42 (a).
What is consumption function?
Answer:
Meaning of Consumption Function:
The consumption function or propensity to consume refers to income consumption relationship. It is a “functional relationship between two aggregates viz., total consumption and gross national income.”

Symbolically, the relationship is represented as
C = f(Y)
Where,
C = Consumption; Y = Income;/= Function
Thus the consumption function indicates a functional relationship between C and Y, where C is the dependent variable and Y is the independent variable, i.e., C is determined by Y. This relationship is based on the ceteris paribus (other things being same) assumption, as only income consumption relationship is considered and all possible influences on consumption are held constant.

[OR]

(b) Explain the Inflation Effects of production.
Answer:
Effects on Production: When the inflation is very moderate, it acts as an incentive to traders and producers. This is particularly prior to full employment when resources are not fully utilized. The profit due to rising prices encourages and induces business class to increase their investments in production, leading to generation of employment and income.

1. However, hyper-inflation results in a serious depreciation of the value of money and it discourages savings on the part of the public.
2. When the value of money undergoes considerable depreciation, this may even drain out the foreign capital already invested in the country.
3. With reduced capital accumulation, the investment will suffer a serious set-back which may have an adverse effect on the volume of production in the country. This may discourage entrepreneurs and business men from taking business risk.
4. Inflation also leads to hoarding of essential goods both by the traders as well as the consumers and thus leading to still higher inflation rate.
5. Inflation encourages investment in speculative activities rather than productive purposes.

Question 43 (a).
Describe the functions of Reserve Bank of India.
Answer:
Functions of Central Bank (Reserve Bank of India):
The Reserve Bank of India (RBI) is India’s central banking institution, which controls the monetary policy of the Indian rupee.
1. Monetary Authority: It controls the supply of money in the economy to stabilize exchange rate, maintain healthy balance of payment, attain financial stability, control inflation, strengthen banking system.

2. The issuer of currency: The objective is to maintain the currency and credit system of the country. It is the sole authority to issue currency. It also takes action to control the circulation of fake currency.

3. The issuer of Banking License: As per Sec 22 of Banking Regulation Act, every bank has to obtain a banking license from RBI to conduct banking business in India.

4. Banker to the Government: It acts as banker both to the central and the state governments. It provides short-term credit. It manages all new issues of government loans, servicing the government debt outstanding and nurturing the market for government securities. It advises the government on banking and financial subjects.

5. Banker’s Bank: RBI is the bank of all banks in India as it provides loan to banks, accept the deposit of banks, and rediscount the bills of banks.

6. Lender of last resort: The banks can borrow from the RBI by keeping eligible securities as collateral at the time of need or crisis, when there is no other source.

7. Act as clearing house: For settlement of banking transactions, RBI manages 14 clearing houses. It facilitates the exchange of instruments and processing of payment instructions.

8. Custodian of foreign exchange reserves: It acts as a custodian of FOREX. It administers and enforces the provision of Foreign Exchange Management Act (FEMA), 1999. RBI buys and sells foreign currency to maintain the exchange rate of Indian rupee v/s foreign currencies.

9. Regulator of Economy: It controls the money supply in the system, monitors different key indicators like GDP, Inflation, etc.

10. Managing Government securities: RBI administers investments in institutions when they invest specified minimum proportions of their total assets/liabilities in government securities.

11. Regulator and Supervisor of Payment and Settlement Systems: The Payment and Settlement Systems Act of 2007 (PSS Act) gives RBI oversight authority for the payment and settlement systems in the country. RBI focuses on the development and functioning of safe, secure and efficient payment and settlement mechanisms.

12. Developmental Role: This role includes the development of the quality banking system in India and ensuring that credit is available to the productive sectors of the economy. It provides a wide range of promotional functions to support national objectives. It also includes establishing institutions designed to build the country’s financial infrastructure. It also helps in expanding access to affordable financial services and promoting financial education and literacy.

13. Publisher of monetary data and other data: RBI maintains and provides all essential banking and other economic data, formulating and critically evaluating the economic policies in India. RBI collects, collates and publishes data regularly.

14. Exchange manager and controller: RBI represents India as a member of the International Monetary Fund [IMF], Most of the commercial banks are authorized dealers of RBI.

15. Banking Ombudsman Scheme: RBI introduced the Banking Ombudsman Scheme in 1995. Under this scheme, the complainants can file their complaints in any form, including online and can also appeal to the Ombudsman against the awards and the other decisions of the Banks.

16. Banking Codes and Standards Board of India: To measure the performance of banks against Codes and standards based on established global practices, the RBI has set up the Banking Codes and Standards Board of India (BCSBI).

[OR]

(b) Explain the State Industrial Development Corporations.
Answer:
State Industrial Development Corporations (SIDCOs):

1. The Industrial Development Corporations have been set up by the state governments and they are wholly owned by them.
2. These institutions are not merely financing agencies; they are entrusted with the responsibility of accelerating the industrialization of their states.

SIDCO (Small Industrial Development Corporation):

1. SIDCOs provide financial assistance to industrial concerns by way of loans guarantees and underwriting of or direct subscriptions to shares and debentures.
2. In addition to these, they undertake various promotional activities, such as conducting techno-economic surveys, project identification, preparation of feasibility studies and selection and training of entrepreneurs.
3. They also promote joint sector projects in association with private promoter in such type of projects.
4. SIDCOs take 26 percent, private co-promoter takes 25 percent of the equity, and the rest is offered to the investing public.
5. SIDCOs undertake the development of industrial areas by providing all infrastructural facilities and initiation of new growth centers.
6. They also administer various State government incentive schemes.
7. SIDCOs get refinance facilities form IDBI.
8. They also borrow through bonds and accept deposits.

Question 44 (a).
Explain briefly the Comparative Cost Theory.
Answer:
Ricardo’s Theory of Comparative Cost Advantage:

1. David Ricardo, the British economist in his ‘Principles of Political Economy and Taxation’ published in 1817, formulated a systematic theory called ‘Comparative Cost Theory’.
2. Ricardo demonstrates that the basis of trade is the comparative cost difference. In other words, trade can take place even if the absolute cost difference is absent but there is comparative cost difference.
3. According to Ricardo, a country can gain from trade when it produces at relatively lower costs. Even when a country enjoys absolute advantage in both goods, the country would specialize in the production and export of those goods which are relatively more advantageous.

Assumptions:

1. There are only two nations and two commodities (2×2 model)
2. Labour is the only element of cost of production.
3. All labourers are of equal efficiency.
4. Labour is perfectly mobile within the country but perfectly immobile between countries.
5. Production is subject to the law of constant returns.
6. Foreign trade is free from all barriers.
7. No change in technology.
8. No transport cost.
9. Perfect competition.
10. Full employment.
11. No government intervention.

Illustration:
Ricardo’s theory of comparative cost can be explained with a hypothetical example of production costs of cloth and wheat in America and India.

Comparative Cost Advantage
(Units of labour required to produce one unit)

It is evident from the example that India has an absolute advantage in production of both cloth and wheat.

However, India should concentrate on the production of wheat in which she enjoys a comparative cost advantage. (80/120 < 90/100). For America the comparative cost disadvantage is lesser in cloth production. Hence America will specialize in the production of cloth and export it to India in exchange for wheat. (Any exchange ratio between 0.88 units and 1.2 units of cloth against one unit of wheat represents gain for both the nations). With trade, India can get 1 unit of cloth and 1 unit of wheat by using its 160 labour units. In the absence of trade, for getting this benefit, India will have to use 170 units of labour. America also gains from this trade. With trade, America can get 1 unit of cloth and one unit of wheat by using its 200 units of labour. Otherwise, America will have to use 220 units of labour for getting 1 unit of cloth and 1 unit of wheat.

[OR]

(b) Briefly explain causes for Balance of payments disequillibrium.
Answer:
Causes for BoP Disequilibrium:
The following are the major causes producing disequilibrium in the balance of payments of a country.
(i) Cyclical Fluctuation:

1. .Cyclical disequilibrium in different countries is caused by their cyclical fluctuations, their phases and magnitude.
2. World trade shrinks during depression while trade flourishes during prosperity.

(ii) Structural Changes:

1. Structural disequilibrium is caused by the structural changes brought by huge development and investment programmes in the developing economies.
2. Such economies may have high propensity to import for want of capital for rapid industrialization, while export may not be boosted up to that extent.

(iii) Development Expenditure:

1. Development disequilibrium is caused by rapid economic development which results in income and price effects.
2. The less developed countries in the early stage of development are not self sufficient.
3. Income, savings and investment are abysmally low.
4. They depend upon developed countries for import of commodities, capital and technology.
5. Export potential is low and import intensity is high.
6. So the LDCs suffer from adverse BoP.

(iv) Consumerism:

1. Balance of payments position of a country is adversely affected by a huge increase in consumption.
2. This increases the need for imports and decreases the capacity to export.

(v) Demonstration Effect:

1. Deficit in the balance of payments of developing countries is also caused by demonstration effect which influences the people in UDCs to imitate western styled goods.
2. This will raise the propensity to import causing adverse balance of payments.
3. This is good for the developed countries.

(vi) Borrowing:

1. International borrowing and investment may cause a deficit in the balance of payments.
2. When the international borrowing is heavy, a country’s balance of payments will be adverse since it repays loans with interest.
3. Servicing of debt is a huge burden. That is why the IJDCs are forced to borrow more.

(vii) Technological Backwardness:

1. Due to technological backwardness, the people (Indians) are unable to use the energy (Solar) available with them.
2. As a result they import huge petroleum products from foreign countries, increasing the trade deficit.

(viii) Global Politics:

1. The rich countries (e.g. USA) need to sell their weapons to promote their economy and generate employment.
2. Hence, wars between countries (for example Iran and Irag, Pakistan and India) are stimulated In order to win the wars, the poor countries are forced to buy the weapons from weapon – rich countries, using their export earnings and creating trade deficit.
3. Thus UDCs are trapped forever.

Question 45 (a).
Explain the achievements of World Bank.
Answer:
Achievements of World Bank:
The World Bank is said to be successful in achieving its primary objective of reconstruction and-development of war ravaged nations. It helped greatly in the reconstruction of Europe after the World War II. It has been providing the developed and developing countries the same treatment in the process of growth.

1. It is noted that the Bank’s membership has increased from the initial number of 30 countries to 68 countries in 1960 and to 151 countries in 1988. The IBRD has 189 member countries.
2. The Bank grants medium and long-term loans (i.e., payable over a period of 15-20 years) for reconstruction and development purposes to the member countries. The actual term of a loan depends upon the estimated useful life of the equipment or plant financed.
3. Initially the World Bank’s loans were mainly directed at the European countries for financing their programmes of reconstruction. Later it changed its development loan strategy and lays more emphasis of financing schemes for the poor masses of the developing countries.
4. The World Bank grants loans to member countries only for productive purposes particularly for agriculture, irrigation, power and transport. In other words, the Bank strengthens . infrastructure needed for further development.
5. The International Development Association (IDA), the Soft Loan Window of the Bank provides loans to UDCs at very low rate of interest. However, the economic inequality among the member-countries goes on increasing. Many African countries are yet to improve their economic status.

[OR]

(b) Bring out the merits of indirect taxes over direct taxes.
Answer:
Merits of Direct Taxes:
(i) Equity:

1. Direct taxes are progressive i.e. rate of tax varies according to tax base.
2. For example, income tax satisfies the canon of equity.

(ii) Certainty:

1. Canon of certainty can be ensured by direct taxes.
2. For example, an income tax payer knows when and at what rate he has to pay income tax.

(iii) Elasticity:

1. Direct taxes also satisfy the canon of elasticity.
2. Income tax is income elastic in nature. As income level increases, the tax revenue to the Government also increases automatically.

(iV) Economy:

1. The cost of collection of direct taxes is relatively low.
2. The tax payers pay the tax directly to the state.

Merits of Indirect Taxes:
(i) Wider Coverage:

1. All the consumers, whether they are rich or poor, have to pay indirect taxes.
2. For this reason, it is said that indirect taxes can cover more people than direct taxes.
3. For example, in India everybody pays indirect tax as against just 2 percent paying income tax.

(ii) Equitable:
The indirect tax satisfies the canon of equity when higher tax is imposed on luxuries used by rich people.

(iii) Economical:

1. Cost of collection is less as producers and retailers collect tax and pay to the Government.
2. The traders act as honorary tax collectors.

(iv) Checks harmful consumption:

1. The Government imposes indirect taxes on those commodities which are harmful to health e.g. tobacco, liquor etc.
2. They are known as sin taxes.

(v) Convenient:

1. Indirect taxes are levied on commodities and services.
2. Whenever consumers make purchase, they pay tax along with the price.
3. They do not feel the pinch of paying tax.

Question 46 (a).
Bring out the merits and demerits of Direct taxes.
Answer:
Merits of Direct Taxes:
(i) Equity:

1. Direct taxes are progressive i.e. rate of tax varies according to tax base.
2. For example, income tax satisfies the canon of equity.

(ii) Certainty:

1. Canon of certainty can be ensured by direct taxes.
2. For example, an income tax payer knows when and at what rate he has to pay income tax. (Hi) Elasticity:
3. Direct taxes also satisfy the canon of elasticity.
4. Income tax is income elastic in nature.
5. As income level increases, the tax revenue to the Government also increases automatically. (iv) Economy:
6. The cost of collection of direct taxes is relatively low.
7. The tax payers pay the tax directly to the state.

Demerits of Direct Taxes:
(i) Unpopular:

1. Direct taxes are generally unpopular.
2. It is inconvenient and less flexible.

(ii) Productivity affected:

1. According to many economists direct tax may adversely affect productivity.
2. Citizens are not willing to earn more income because in that case they have to pay more taxes.

(iii) Inconvenient:
The tax payers find it inconvenient to maintain accounts, submit returns and pay tax in lump sum.

(iv) Tax Evasion:

1. The burden of direct tax is so heavy that tax-payers always try to evade taxes.
2. This ultimately leads to the generation of black money, which is harmful to the economy.

[OR]

(b) Brief the linkage between economy and environment.
Answer:
Linkage between Economy and Environment:

1. Man’s life is interconnected with various other living and non-living things.
2. The life also depends on social, political, ethical, philosophical and other aspects of economic system.
3. In fact, the life of human beings is shaped by his living environment.
4. The relationship between the economy and the environment is generally explained in the form of a “Material Balance Model”.
5. The model considers the total economic process as a physically balanced How between inputs and outputs.
6. Inputs are bestowed with physical property of energy which is received from the environment.
7. The interdependence of economics and environment.

Question 47 (a).
Describe the case for planning.
Answer:
The economic planning is justified on the following grounds.
(i) To accelerate and strengthen market mechanism: The market mechanism works imperfectly in underdeveloped countries because of the ignorance and unfamiliarity with it. A large part of the economy comprises the non-monetized sector.

(ii) To remove unemployment: Capital being scarce and labour being abundant, the problem of providing gainful employment opportunities to an ever-increasing labour force is a difficult task.

(iii) To achieve balanced development: In the absence of sufficient enterprise and initiative, the planning authority is the only institution for planning the balanced development of the economy.

• Development of Agriculture and Industrial Sectors: The need for developing the agriculture sector along with the industrial sector arises from the fact that agriculture and industry are interdependent.
• Development of Infrastructure: The agriculture and industrial sectors cannot develop in the absence of economic and social overheads. The building of canals, roads, railways, power stations, etc., is indispensable for agricultural and industrial development.
• Development of Money and Capital Markets: The expansion of the domestic and foreign trade requires’ not only the development of agricultural and industrial sectors along with social and economic overheads but also the existence of financial institutions.

(iv) To remove poverty and inequalities: Planning is the only path open to underdeveloped countries, for raising national and per capita income, reducing inequalities and poverty and increasing employment opportunities.

[OR]

(b) Central Statistical Office (CSO)
Answer:

1. The Central Statistical Office is one of the two wings of the National Statistical Organisation (NSO).
2. It is responsible for co-ordination of statistical activities in the country and for evolving and maintaining statistical standards.
3. Its activities include compilation of National Accounts; conduct of Annual Survey of Industries and Economic Censuses, compilation of Index of Industrial Production as well as Consumer Price Indices.
4. It also deals with various social statistics, training, international cooperation, Industrial Classification, etc.
5. The CSO is headed by a Director- General who is assisted by 5 Additional Director- Generals looking after the National Accounts Division, Social Statistics Division, Economic Statistics Division, Training Division and the Coordination and Publication Division.
6. CSO is located in the Sardar Patel Bhawan, Parliament Street, New Delhi. The Industrial
   Statistics Wing of CSO is located in Kolkata.
7. The Computer Centre also under the CSO is located in R K Puram, New Delhi.

Students can Download Tamil Nadu 12th Economics Model Question Paper 2 English Medium Pdf, Tamil Nadu 12th Economics Model Question Papers helps you to revise the complete Tamilnadu State Board New Syllabus, helps students complete homework assignments and to score high marks in board exams.

TN State Board 12th Economics Model Question Paper 2 English Medium

General Instructions:

1. The question paper comprises of four parts.
2. You are to attempt all the parts. An internal choice of questions is provided wherever applicable.
3. All questions of Part I, II, III and IV are to be attempted separately.
4. Question numbers 1 to 20 in Part I are Multiple Choice Questions of one mark each.
   These are to be answered by choosing the most suitable answer from the given four alternatives and writing the option code and the corresponding answer
5. Question numbers 21 to 30 in Part II are two-mark questions. These are to be answered in about one or two sentences.
6. Question numbers 31 to 40 in Part III are three-mark questions. These are to be answered in above three to five short sentences.
7. Question numbers 41 to 47 in Part IV are five-mark questions. These are to be answered in detail Draw diagrams wherever necessary.

Time: 3.00 Hours
Maximum Marks: 90

PART – I

Choose the correct answer. Answer all the questions: [20 x 1 = 20]

Question 1.
The country following Capitalism is……….
(a) Russia
(b) America
(c) India
(d) China
Answer:
(a) Russia

Question 2.
The value of NNP at production point is called……….
(a) NNP at factor cost
(b) NNP at market cost
(c) GNP at factor cost
(d) Per capita income
Answer:
(a) NNP at factor cost

Question 3.
The basic concept used in Keynes Theory of Employment and Income is……….
(a) Aggregate demand
(b) Aggregate supply
(c) Effective demand
(d) Marginal Propensity Consume
Answer:
(c) Effective demand

Question 4.
The aggregate effective demand would increase the level of……….
(a) unemployment
(b) employment
(c) cyclical unemployment
(d) open unemployment
Answer:
(b) employment

Question 5.
The term super multiplier was first used by……….
(a) J.R.Hicks
(b) R.G.D. Allen
(c) Kahn
(d) Keynes
Answer:
(a) J.R.Hicks

Question 6.
Paper currency system is managed by the………..
(a) Central Monetary authority
(b) State Government
(c) Central Government
(d) Banks
Answer:
(a) Central Monetary authority

Question 7.
What is the name of inflation without a rise in price level?
(a) Repressed Inflation
(b) Hyper Inflation
(c) Galloping Inflation
(d) Cost-Push Inflation
Answer:
(a) Repressed Inflation

Question 8.
Moral suasion refers…………
(a) Optimization
(b) Maximization
(c) Persuasion
(d) Minimization
Answer:
(c) Persuasion

Question 9.
Current account deposits are operated by……….
(a) agriculturists
(b) business men
(c) government servants
(d) labourers
Answer:
(b) business men

Question 10.
Terms of Trade of a country show………..
(a) Ratio of goods exported and imported
(b) Ratio of import duties
(c) Ratio of prices of exports and imports
(d) Both (a) and (c)
Answer:
(c) Ratio of prices of exports and imports

Question 11.
Match the following and choose the correct answer by using codes given below:

Codes

Answer:
(a) A-2, B-1, C-3, D-4

Question 12.
International Development Association is an affiliate of…………
(a) IMF
(b) World Bank
(c) SAARC
(d) ASEAN
Answer:
(b) World Bank

Question 13.
International Monetary Fund headquarters are present in……….
(a) Geneva
(b) Washington DC
(c) England
(d) China
Answer:
(b) Washington DC

Question 14.
The difference between total expenditure and total receipts including loans and other liabilities is called……….
(a) Fiscal deficit
(b) Budget deficit
(c) Primary deficit
(d) Revenue deficit
Answer:
(a) Fiscal deficit

Question 15.
Adam Smith classified public expenditure on the basis of Production Functions, Commercial Functions and……….. Functions.
(a)’ Defence
(b) Growth
(c) Development
(d) Government
Answer:
(c) Development

Question 16.
Match the following and choose the correct answer by using codes given below:

Code:

Answer:
(d) A-4, B-1, C-2, D-3

Question 17.
The process of nutrient enrichment is termed as
(a) Eutrophication
(b) Limiting nutrients
(c) Enrichment
(d) Schistosomiasis
Answer:
(b) Limiting nutrients

Question 18.
Types of Noise pollution. (Pick the odd one out.)
(a) Atmospheric noise pollution
(b) Industrial noise pollution
(c) Man made noise pollution
(d) Acid rain pollution
Answer:
(d) Acid rain pollution

Question 19.
A process by which we estimate the value of dependent variable on the basis of one or more independent variables is called………….
(a) Correlation
(b) Regression
(c) Residual
(d) Slope
Answer:
(b) Regression

Question 20.
CSO Director Generals are (Pick the odd one out.)
(a) National Accounts Division [NAD]
(b) Sample Statistics Division [SSD]
(c) Economic Statistics Division [ES]
(d) Co-ordination and Publication Division [CPD]
Answer:
(b) Sample Statistics Division [SSD]

PART – II

Answer any seven question in which Question No. 30 is compulsory. [7 x 2 = 14]

Question 21.
Define Mixed Economy (or) Mixedism.
Answer:
In a mixed economy system both private and public sectors co-exist and work together towards economic development. It is a combination of both capitalism and socialism. It tends to eliminate the evils of both capitalism and socialism. In these economies, resources are owned by individuals and the government. India, England, France and Brazil are the examples of mixed economy.

Question 22.
Write the Factor Incomes group.
Answer:
Factor incomes are grouped under labour income, capital income and mixed income.

1. Labour income – Wages and salaries, fringe benefits, employer’s contribution to social security.
2. Capital income – Profit, interest, dividend and royalty
3. Mixed income – Farming, sole proprietorship and other professions.

Question 23.
Give reasons for labour retrenchment at present situation.
Answer:

1. Modem technology being capital intensive requires less labourers and contributes to technological unemployment.
2. Now a days, invention and innovations lead to the adoption of new techniques there by the existing workers are retrenched.
3. Labour saving devices are responsible for technological unemployment.

Question 24.
Write two approaches of the equilibrium level of Income in Keynesian theory?
Answer:
There are two approaches to determination of the equilibrium level of income in Keynesian theory. These are:

1. Aggregate demand – Aggregate supply approach
2. Saving – Investment approach

Question 25.
Define average propensity to consume (APC).
Answer:
Average Propensity to Consume:
The average propensity to consume is the ratio of consumption expenditure to any particular level of income.” Algebraically it may be expressed as under:
APC = \(\frac{C}{Y}\)
Where, C = Consumption; Y = Income

Question 26.
Define inflation.
Answer:

1. Inflation is a consistent and appreciable rise in the general price level.
2. In other words, inflation is the rate at which the general level of prices for goods and services is rising and consequently the purchasing power of currency is falling.
3. “Too much of Money chasing too few goods” – Coulbourn
4. “A state of abnormal increase in the quantity of purchasing power” – Gregorye

Question 27.
Write the meaning of Open market operations.
Answer:

1. In narrow sense, the Central Bank starts the purchase and sale of Government securities in the money market.
2. In Broad Sense, the Central Bank purchases and sells not only Government securities but also other proper eligible securities like bills and securities of private concerns.
3. When the banks and the private individuals purchase these securities they have to make payments for these securities to the Central Bank.

Question 28.
What do you mean by public debt?
Answer:
The state has to supplement the traditional revenue sources with borrowing from individuals, and institutions within and outside the country. The amount of borrowing is huge in the under developed countries to finance development activities. The debt burden is a big problem and most of the countries are in debt trap.

Question 29.
What do you mean by ecosystem?
Answer:
An ecosystem includes all living things (plants, animals and organisms) in a given area, interacting with each other, and also with their non-living environments (weather, earth, sun, soil, climate, atmosphere). Ecosystems are the foundations of the Biosphere and they determine the health of the entire earth system.

Question 30.
What are the social indicators of economic development?
Answer:
Social Indicators:
Social indicators are normally referred to as basic and collective needs of the people. The direct provision of basic needs such as health, education, food, water, sanitation and housing facilities check social backwardness.

PART – III

Answer any seven question in which Question No. 40 is compulsory. [7 x 3 = 21]

Question 31.
Outline the major merits of capitalism.
Answer:
Merits of Capitalism

1. Automatic Working: Without any government intervention, the economy works automatically.
2. Efficient Use of Resources: All resources are put into optimum use.
3. Incentives for Hard work: Hard work is encouraged and entrepreneurs get more profit for more efficiency.
4. Economic Progress: Production and productivity levels are very high in capitalistic economies.
5. Consumers Sovereignty: All production activities are aimed at satisfying the consumers.
6. Higher Rates of Capital Formation: Increase in saving and investment leads to higher rates of capital formation.
7. Development of New Technology: As profit is aimed at, producers invest on new technology and produce quality goods.

Question 32.
Write briefly about national income and welfare.
Answer:
National Income is considered as an indicator of the economic wellbeing of a country.
The per capita income as an index of economic welfare suffers from limitations which are stated below:

1. The economic welfare depends upon the composition of goods and services provided. The greater the proportion of capital goods over consumer goods, the improvement in economic welfare will be lesser.
2. Higher GDP with greater environmental hazards such as air, water and soil pollution will be little economic welfare.
3. The production of war goods will show the increase in national output but not welfare.
4. An increase in per capita income may be due to employment of women and children or forcing workers to work for long hours. But it will not promote economic welfare.

Question 33.
Give short note on Expenditure method.
Answer:
List out the assumptions of Say’s law.
The Say’s Law of market is based on the following assumptions:

1. No single buyer or seller of commodity or an input can affect price.
2. Full employment.
3. People are motivated by self interest and self – interest determines economic decisions.
4. The laissez faire policy is essential for an automatic and self adjusting process of full employment equilibrium. Market forces determine everything right.
5. There will be a perfect competition in labour and product market.
6. There is wage-price flexibility.
7. Money acts only as a medium of exchange.
8. Long – run analysis.
9. There is no possibility for over production or unemployment.

Question 34.
Explain any three subjective and objective factors influencing the consumption function.
Answer:
Subjective Factors:

1. The motive of precaution: To build up a reserve against unforeseen contingencies. e.g. Accidents, sickness.
2. The motive of foresight: The desire to provide for anticipated future needs. e.g. Old age.
3. The motive of calculation: The desire to enjoy interest and appreciation.

Objective Factors:

1. Income Distribution: If there is large disparity between rich and poor, the consumption is low because the rich people have low propensity to consume and high propensity to save.
2. Price level: Price level plays an important role in determining the consumption function. When the price falls, real income goes up; people will consume more and propensity to save of the society increases.
3. Wage level: Wage level plays an important role in determining the consumption function and there is positive relationship between wage and consumption. Consumption expenditure increases with the rise in wages. Similar is the effect with regard to windfall gains.

Question 35.
Explain the Evolution Of money.
Answer:

1. The introduction of money as a medium of exchange was one of the greatest inventions of mankind.
2. Before money was invented, exchange took place by Barter, that is, commodities and services were directly exchanged for other commodities and services.
3. Under the barter system, buyers and sellers of commodities had to face a number of difficulties.
4. Surplus goods were exchanged for money which in turn was exchanged for other needed goods.
5. Goods like furs, skins, salt, rice, wheat, utensils, weapons, etc. were commonly used as money.
6. Such exchange of goods for goods was known as “Barter Exchange” or “Barter System”.

Question 36.
What is E-Banking?
Answer:
Online banking, also known as internet banking, is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial institution’s website.

The online banking system typically connects to or be part of the core banking system operated by a bank and is in contrast to branch banking which was the traditional way customers accessed banking services.

Question 37.
Explain the objectives of WTO.
Answer:

1. To ensure reduction of tariff and other barriers.
2. To eliminate discrimination in trade.
3. To facilitate higher standard of living.
4. To facilitate optimal use of world’s resources.
5. To enable the LDCs to secure fair share in the growth of international trade.
6. To ensure linkages between trade policies, environmental policies and sustainable development.

Question 38.
What are the functions of finance commission of India.
Answer:

1. The distribution between the Union and the States of the net proceeds of taxes, which may be divided between them and the allocation among the states of the respective shares of such proceeds;
2. To determine the quantum of grantsin- aid to be given by the Centre to states [Article 275 (1)] and to volve the principles governing the eligibility of the state for such grant-in-aid;
3. Any other matter referred to the Commission by the President of India in the interest of sound finance. Several issues like debt relief, financing of calamity relief of states, additional excise duties, etc. have been referred to the Commission invoking this clause.

Question 39.
Explain the limitations of statistics.
Answer:
1. Statistics is not suitable to the study of qualitative phenomenon: Since statistics is basically a science and deals with a set of numerical data. It is applicable to the study of quantitative measurements. As a matter of fact, qualitative aspects like empowerment, leadership, honesty, poverty, intelligence etc., cannot be expressed numerically and statistical analysis cannot be directly applied on these qualitative phenomena.

2. Statistical laws are not exact: It is well known that mathematical and physical sciences are exact. But statistical laws are not exact and statistical laws are only approximations. Statistical conclusions are not universally true. They are true only on an average.

3. Statistics table may be misused: Statistics must be used only by experts; otherwise, statistical methods are the most dangerous tools on the hands of the inexpert. The use of statistical tools by the inexperienced and untrained persons might lead to wrong conclusions.

4. Statistics is only one of the methods of studying a problem: Statistical method does not provide complete solution of the problems because problems are to be studied taking the background of the countries culture, philosophy, religion etc., into consideration. Thus the statistical study should be supplemented by other evidences.

Question 40.
Briefly explain the kinds of measures of dispersion.
Answer:
There are two kinds of measures of dispersion, namely

1. Absolute measure of dispersion
2. Relative measure of dispersion

1. Absolute measure of dispersion indicates the amount of variation in a set of values in terms of units of observations.

2. Relative measures of dispersion are free from the units of measurements of the observations. They are pure numbers. They are used to compare the variation in two or more sets, which are having different units of measurements of observations.

3. Standard Deviation is one of the methods of Absolute measure of dispersion. Karl Pearson introduced the concept of standard deviation in 1893. Standard deviation is also called Root- Mean Square Deviation. The reason is that it is the square-root of the mean of the squared deviation from the arithmetic mean. It provides accurate result. Square of standard deviation is called Variance.

PART – IV

Answer all the questions. [7 x 5 = 35]

Question 41 (a).
What is Market price and Equations?
Answer:

[OR]

(b) Narrate the equilibrium between ADF and ASF with diagram.
Answer:
Equilibrium between ADF and ASF

• Under the Keynes theory of employment, a simple two sector economy consisting of the household sector and the business sector is taken to understand the equilibrium between ADF and ASF.
• All the decisions concerning consumption expenditure are taken by the individual households, while the business firms take decisions concerning investment.
• It is also assumed that consumption function is linear and planned investment is autonomous.
• There are two approaches to y determination of the equilibrium level of income in Keynesian theory. These are :1. Aggregate demand – Aggregate supply approach, 2. Saving – Investment approach
• In this chapter, out of these two, aggregate Tg demand and aggregate supply approach is alone explained to understand the determination of equilibrium level of income and employment.
• The concept of effective demand is more Q clearly shown in the figure.
• In the figure, the aggregate demand and aggregate supply reach equilibrium at point E. The employment level is N₀ at that point.
• At ON₁ employment, the aggregate supply is N₁ R₁. But they are able to produce M₁ N₁. The expected level of profit is M₁R₁.
• To attain this level of profit, entrepreneurs will employ more labourers.
• The tendency to employ more labour will stop once they reach point E.
• At all levels of employment beyond, ON₀, the aggregate demand curve is below the aggregate supply curve indicating loss to the producers.
• Hence they will never employ more than ON₀ labour.
• Thus effective demand concept becomes a crucial point in determining the equilibrium level of output in the capitalist economy or a free market economy in the Keynesian system.
• It is important to note that the equilibrium level of employment need not be the full employment level (N₁) from the Figure, it is understood that the difference between N₀ – N₁ is the level of unemployment.
• Thus the concept of effective demand becomes significant in explaining the under employment equilibrium.

Question 42 (a).
Explain Keynes psychological law of consumption function with diagram.
Answer:
The three propositions of the law

Proposition (1):
Income increases by Rs 60 crores and the increase in consumption is by Rs 50 crores.
Proposition (2):
The increased income of Rs 60 crores in each case is divided in some proportion between consumption and saving respectively, (i.e., Rs 50 crores and Rs 10 crores).
Proposition (3):
As income increases consumption as well as saving increase. Neither consumption nor saving has fallen.

Diagrammatically, the three propositions are explained in figure. Here, income is measured horizontally and consumption and saving are measured on the vertical axis. C is the consumption function curve and 45° line represents income consumption equality.

Proposition (1):
When income increases from 120 to 180 consumption also increases from 120 to 170 but the increase in consumption is less than the increase in income, 10 is saved.

Proposition (2):
When income increases to 180 and 240, it is divided in some proportion between consumption by 170 and 220 and saving by 10 and 20 respectively.

Proposition (3):
Increases in income to 180 and 240 lead to increased consumption 170 and 220 and increased saving 20 and 10 than before. It is clear from the widening area below the C curve and the saving gap between 45° line and C curve.

[OR]

(b) Explain the functions of money.
Answer:

1. Primary Functions:
(i) Money as a medium of exchange: This is considered as the basic function of money. Money has the quality of general acceptability, and all exchanges take place in terms of money.

(ii) Money as a measure of value: The second important function of money is that it measures the value of goods and services. In other words, the prices of all goods and services are expressed in terms of money. Money is thus looked upon as a collective measure of value.

2. Secondary Functions:
(i) Money as a Store of value: Savings done in terms of commodities were not permanent. But, with the invention of money, this difficulty has now disappeared and savings are now done in terms of money. Money also serves as an excellent store of wealth, as it can be easily converted into other marketable assets, such as, land, machinery, plant etc.

(ii) Money as a Standard of Deferred Payments: Borrowing and lending were difficult problems under the barter system. In the absence of money, the borrowed amount could be returned only in terms of goods and services. But the modem money-economy has greatly facilitated the borrowing and lending processes.

(iii) Money as a Means of Transferring Purchasing Power: The field of exchange also went on extending with growing economic development. The exchange of goods is now extended to distant lands.

3. Contingent Functions:
(i) Basis of the Credit System: Money is the basis of the Credit System. Business transactions are either in cash or on credit.

(ii) Money facilitates distribution of National Income: The task of distribution of national income was exceedingly complex under the barter system.

(iii) Money helps to Equalize Marginal Utilities and Marginal Productivities: Consumer can obtain maximum utility only if he incurs expenditure on various commodities in such a manner as to equalize marginal utilities accruing from them. Now in equalizing these marginal utilities, money plays an important role, because the prices of all commodities are expressed in money.

(iv) Money Increases Productivity of Capital: Money is the most liquid form of capital. In other words, capital in the form of money can be put to any use.

4. Other Functions:
(i) Money helps to maintain Repayment Capacity: Money possesses the quality of general acceptability. To maintain its repayment capacity, every firm has to keep assets in the form of liquid cash. The firm ensures its repayment capacity with money.

(ii) Money represents Generalized Purchasing Power: Purchasing power kept in terms of money can be put to any use. It is not necessary that money should be used only for the purpose for which it has been served.
(iii) Money gives liquidity to Capital: Money is the most liquid form of capital. It can be put to any use.

Question 43 (a).
Elucidate the functions of Commercial Banks.
Answer:
The functions of commercial banks are broadly classified into primary functions and secondary functions.

Functions of Commercial Banks
I. Primary Functions:
1. Accepting Deposits: It implies that commercial banks are mainly dependent on public deposits.
There are two types of deposits
(i) Demand Deposits: It refers to deposits that can be withdrawn by individuals without any prior notice to the bank. In other words, the owners of these deposits are allowed to withdraw money anytime by writing a withdrawal slip or a cheque at the bank counter or from ATM centres using debit card.

(ii) Time Deposits: It refers to deposits that are made for certain committed period of time. Banks pay higher interest on time deposits. These deposits can be withdrawn only after a specific time period by providing a written notice to the bank.

2. Advancing Loans: It refers to granting loans to individuals and businesses. Commercial banks grant loans in the form of overdraft, cash credit, and discounting bills of exchange.

II. Secondary Functions:
The secondary functions can be classified under three heads, namely, agency functions, general utility functions, and other functions.
1. Agency Functions: It implies that commercial banks act as agents of customers by performing various functions.

• Collecting Cheques: Banks collect cheques and bills of exchange on the behalf of
  their customers through clearing house facilities provided by the central bank.
• Collecting Income: Commercial banks collect dividends, pension, salaries, rents, and interests on investments on behalf of their customers. A credit voucher is sent to customers for information when any income is collected by the bank.
• Paying Expenses: Commercial banks make the payments of various obligations of customers, such as telephone bills, insurance premium, school fees, and rents.

2. General Utility Functions: It implies that commercial banks provide some utility services to customers by performing various functions.

• Providing Locker Facilities: Commercial banks provide locker facilities to its customers for safe custody of jewellery, shares, debentures, and other valuable items. This minimizes the risk of loss due to theft at homes. Banks are not responsible for the items in the lockers.
• Issuing Traveler’s Cheques: Banks issue traveler’s cheques to individuals for traveling outside the country. Traveler’s cheques are the safe and easy way to protect money while traveling.
• Dealing in Foreign Exchange: Commercial banks help in providing foreign exchange to businessmen dealing in exports and imports. However, commercial banks need to – take the permission of the Central Bank for dealing in foreign exchange.

3. Transferring Funds: It refers to transferring of funds from one bank to another. Funds are transferred by means of draft, telephonic transfer, and electronic transfer.

4. Letter of Credit: Commercial banks issue letters of credit to their customers to certify their creditworthiness.

• Underwriting Securities: Commercial banks also undertake the task of underwriting securities. As public has full faith in the credit worthiness of banks, public do not hesitate in buying the securities underwritten by banks.
• Electronic Banking: It includes services, such as debit cards, credit cards, and Internet banking.

III. Other Functions:

1. Money Supply: It refers to one of the important functions of commercial banks that help in increasing money supply.
2. Credit Creation: Credit Creation means the multiplication of loans and advances. Commercial banks receive deposits from the public and use these deposits to give loans:

[OR]

(b) Describe the Merger of Banks.
Answer:
Merger of Banks:

1. Union Cabinet decided to merge all the remaining five associate banks of State Bank Group with State Bank of India in 2017.
2. After the Parliament passed the merger Bill, the subsidiary banks have ceased to exist.
3. Five associates and the Bharatiya Mahila Bank have become the part of State Bank of India (SBI) beginning April 1, 2017.
4. This has placed State Bank of India among the top 50 banks in the world.
5. The five associate banks that were merged are State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP) and State Bank of Travancore (SBT).
6. The other two Associate Banks namely State Bank of Indore and State Bank of Saurashtra had already been merged with State Bank of India.
7. After the merger, the total customer base of SBI increased to 37 crore with a branch network of around 24,000 and around 60,000 ATMs across the country.

Question 44 (a).
Explain the Adam Smith’s Theory of Absolute Cost Advantage Theory and Assumptions with diagram.
Answer:
Adam Smith’s Theory of Absolute Cost Advantage:
Adam Smith argued that all nations can be benefitted when there is free trade and specialisation in terms of their absolute cost advantage.

The Theory:
According to Adam Smith, the basis of international trade was absolute cost advantage.

Trade between two countries would be mutually beneficial when one country produces a commodity at an absolute cost advantage over the other country which in turn produces another commodity at an absolute cost advantage over the first country.

Assumptions:

1. There are two countries and two commodities (2×2 model).
2. Labour is the only factor of production.
3. Labour units are homogeneous.
4. The cost or price of a commodity is measured by the amount of labour required to produce it.
5. There is no transport cost.

Illustration:
Absolute cost advantage theory can be illustrated with the help of the following example.

Absolute Cost Advantage:

1. From the illustration, it is clear that India has an absolute advantage in the production of wheat over China and China has an absolute advantage in the production of cloth over India.
2. Therefore, India should specialize in the production of wheat and import cloth from China.
3. China should specialize in the production of cloth and import wheat from India.
4. This kind of trade would be mutually beneficial to both India and China.

[OR]

(b) Bring out the functions of World Bank.
Answer:
Functions of IBRD (or) World Bank:
The World Bank performs the major role of providing loans for development works to member countries, especially to underdeveloped countries. The World Bank provides long¬term loans for various development projects. Article 1 of the Agreement states the functions performed by the world bank as follows.
(i) Investment for productive purposes: The World Bank performs the function of assisting in the reconstruction and development of territories of member nations through facility of investment for productive purposes. It also encourages the development of productive facilities and resources in less developed countries.

(ii) Balanced growth of international trade: Promoting the long range balanced growth of trade at international level and the maintaining equilibrium in BOPs of member nations by encouraging international investment.

(iii) Provision of loans and guarantees: Arranging the loans or providing guarantees on loans by various other channels so as to execute important projects.

(iv) Promotion of foreign private investment: The promotion of private foreign investment by means of guarantees on loans and other investment made by private investors. The Bank supplements private investment by providing finance for productive purpose out of its own resources or from borrowed funds.

(v) Technical services: The World Bank facilitates different kinds of technical services to the member countries through Staff College and experts.

Question 45 (a).
Explain the scope of public finance.
Answer:
Scope of Public Finance:
The subject ‘Public Finance’ includes five major sub-divisions, viz., Public Revenue, Public Expenditure, Public Debt, Financial Administration and Fiscal Policy.

(i) Public Revenue:
Public revenue deals with the methods of raising public revenue such as tax and non-tax, the principles of taxation, rates of taxation, impact, incidence and shifting of taxes and their effects.

(ii) Public Expenditure:
This part studies the fundamental principles that govern the Government expenditure, effects of public expenditure and control of public expenditure.

(iii) Public Debt:

1. Public debt deals with the methods of raising loans from internal and external sources.
2. The burden, effects and redemption of public debt fall under this head.

(iv) Financial Administration:

1. This part deals with the study of the different aspects of public budget.
2. The budget is the Annual master financial plan of the Government.
3. The various objectives and steps in preparing a public budget, passing or sanctioning, allocation evaluation and auditing fall within financial administration.

(v) Fiscal Policy:
Taxes, subsidies, public debt and public expenditure are the instruments of fiscal policy.

[OR]

(b) Briefly explain causes for the increase in public debt.
Answer:
Causes for the Increase in Public debt:
The causes for enormous growth of public debt may be studied under the following sub-headings:
1. War and Preparation of war
Waging war has become one of the important causes for incurring debts by the governments. In modem times, the preparation for war and nuclear defence programmes take away the major share of the government’s revenue and so it incurs debt.

2. Social obligations
Modem states are considered to be ‘Welfare States and they have to undertake many social obligations like public health, sanitation, education,insurance, transport and communications, etc., besides providing the minimum necessaries of life to the citizens of the country. To finance these, the State has to incur a heavy public debt.

3. Economic Development and Deficit
The government has to undertake many projects for economic development of the country. Construction of railways, power projects, irrigation projects, heavy industries, etc., could be thought of only by means of mobilising resources in the form of public debt. Due to heavy public expenditure, the governments always face deficit budget. Such deficits have to be financed only through borrowings.

4. Employment
Most of the governments of modem days face the problem of unemployment and it has become the duty to solve this by making huge public expenditure. To solve the unemployment problem, and to fight recession, the government has to make huge expenditures. For this the States have to resort to public debt.

5. Controlling inflation
The Government can withdraw excess money from circulation, by raising public debt and thus prevent prices from rising.

6. Fighting depression
During the depression phase, private investment is lacking. The Government applies compensatory public spending by borrowing from internal and external sources.

Question 46 (a).
What is land pollution? Mention the causes of land pollution.
Answer:
The land pollution is defined as, “the degradation of land because of the disposal of waste on the land”. Any substance (solid, liquid or gaseous) that is discharged, emitted or deposited in the environment in such a way that it alters the environment causes land pollution.
Causes of Land Pollution:
(i) Deforestation and soil erosion:

1. Deforestation carried out to create dry lands is one of the major concerns.
2. Land that is once converted into a dry or barren land, can never be made fertile again, whatever the magnitude of measures to convert it.

(ii) Agricultural activities:

1. With growing human and pet animal population, demand for food has increased considerably.
2. Farmers often use highly toxic fertilizers and pesticides to get rid off insects, fungi and bacteria from their crops.
3. However the overuse of these chemicals, results in contamination and poisoning of land.

(iii) Mining activities:
During extraction and mining activities, several land spaces are created beneath the surface.

(iv) Landfills:

1. Each household produces tones of garbage each year due to changing economic lifestyle of the people.
2. Garbage like plastic, paper, cloth, wood and hospital waste get accumulated.
3. Items that cannot be recycled become a part of the landfills that cause land pollution.

(v) Industrialization:

1. Due to increasing consumerism more industries were developed which led to deforestation.
2. Research and development paved the way for modem fertilizers and chemicals that were highly toxic and led to soil contamination.

(vi) Construction activities:

1. Due to urbanization, large amount of construction activities are taking place.
2. This has resulted in large waste articles like wood, metal, bricks, plastic.
3. These are dumped at the outskirts of urban areas that lead to land pollution.

(vii) Nuclear waste:

1. The leftover radioactive materials, harmful and toxic chemicals affect human health.
2. They are dumped beneath the earth to avoid any casualty.

[OR]

(b) What are the effects of Land pollution?
Answer:
Effects of Land Pollution:
(i) Soil pollution:

1. Soil pollution is another form of land pollution, where the upper layer of the soil is damaged.
2. This is caused by the ovemse of chemical fertilizers, and pesticides.
3. This leads to loss of fertile land.
4. Pesticides kill not only pests and also human beings.

(ii) Health Impact:

1. The land when contaminated with toxic chemicals and pesticides lead to problem of skin cancer and human respiratory system.
2. The toxic chemicals can reach our body through foods and vegetables.

(iii) Cause for Air pollution:

1. Landfills and waste dumping lead to air pollution.
2. The abnormal toxic substances spread in the atmosphere cause transmit respiratory diseases among the masses.

(iv) Effect on wildlife:

1. The animal kingdom has suffered mostly in the past decades.
2. They face a serious threat with regards to loss of habitat and natural environment.
3. The constant human activity on land is leaving it polluted, forcing these species to move farther away.
4. Sometimes several species are pushed to the verge of extinction or disappear due to no conducive environment.

Question 47 (a).
Trace the evolution of economic planning in India.
Answer:
The evolution of planning in India is stated below:

(i) Sir M. Vishveshwarya (1934): a prominent engineer and politician made his first attempt in laying foundation for economic planning in India in 1934 through his book, “Planned Economy of India”. It was a 10 year plan.

(ii) Jawaharlai Nehru (1938): set-up “National Planning Commission” by a committee but due to the changes in the political era and second World War, it did not materialize.

(iii) Bombay Plan (1940): The 8 leading industrialists of Bombay presented “Bombay Plan”. It was a 15 Year Investment Plan.

(iv) S.N Agarwal (1944): gave the “Gandhian Plan” focusing on the agricultural and rural economy.

(v) M.N. Roy (1945): drafted ‘People’s Plan”. It was aiming at mechanization of agricultural production and distribution by the state only.

(vi) J.P. Narayan (1950): advocated, “Sarvodaya Plan” which was inspired by Gandhian Plan and with the idea of Vinoba Bhave. It gave importance not only for agriculture, but encouraged small and cottage industries in the plan.

[OR]

(b) Find the Standard Deviation of the following data:
14, 22, 9, 15, 20, 17, 12, 11
Answer:

Students can Download Tamil Nadu 12th Economics Model Question Paper 1 English Medium Pdf, Tamil Nadu 12th Economics Model Question Papers helps you to revise the complete Tamilnadu State Board New Syllabus, helps students complete homework assignments and to score high marks in board exams.

TN State Board 12th Economics Model Question Paper 1 English Medium

General Instructions:

1. The question paper comprises of four parts.
2. You are to attempt all the parts. An internal choice of questions is provided wherever applicable.
3. All questions of Part I, II, III and IV are to be attempted separately.
4. Question numbers 1 to 20 in Part I are Multiple Choice Questions of one mark each.
   These are to be answered by choosing the most suitable answer from the given four alternatives and writing the option code and the corresponding answer
5. Question numbers 21 to 30 in Part II are two-mark questions. These are to be answered in about one or two sentences.
6. Question numbers 31 to 40 in Part III are three-mark questions. These are to be answered in above three to five short sentences.
7. Question numbers 41 to 47 in Part IV are five-mark questions. These are to be answered in detail Draw diagrams wherever necessary.

Time: 3.00 Hours
Maximum Marks: 90

PART – I

Choose the correct answer. Answer all the questions: [20 × 1 = 20]

Question 1.
Indicate the contribution of J M Keynes to economics……..
(a) Wealth of Nations
(b) General Theory
(c) Capital
(d) Public Finance
Answer:
(b) General Theory

Question 2.
Per capita income is obtained by dividing the National income by………..
(a) Production
(b) Population of a country
(c) Expenditure
(d) GNP
Answer:
(b) Population of a country

Question 3.
Assertion (A): The Expenditure method is called outlay method.
Reason (R): This method is used only private sector.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is true but ‘R’ is false
Answer:
(c) ‘A’ is true but ‘R’ is false

Question 4.
The component of aggregate demand is………..
(a) Personal demand
(b) Government expenditure
(c) Only export
(d) Only import
Answer:
(b) Government expenditure

Question 5.
If the Keynesian consumption function is C= 10 + 0.8 Y then, if disposable income is Rs 1000, what is amount of total consumption?
(a) Rs 0.8
(b) Rs 800
(c) Rs 810
(d) Rs 0.81
Answer:
(c) Rs 810

Question 6.
Which of the following is correctly matched:
(a) J.M. Clark – Ceteris Paribus
(b) J.M. Keynes – Psychological law of consumption
(c) R.F. Khan – Accelerator model
(d) Duesenberry – Laissez-faire
Answer:
(b) J.M. Keynes – Psychological law of consumption

Question 7.
………. inflation is in no way dangerous to the economy.
(a) Walking
(b) Running
(c) Creeping
(d) Galloping
Answer:
(a) Walking

Question 8.
Match the following and choose the correct answer by using codes given below:

Codes

Answer:
(a) A-3, B-4, C-1, D-2

Question 9.
Expansions of ATM.
(a) Automated Teller Machine
(b) Adjustment Teller Machine
(c) Automatic Teller mechanism
(d) Any Time Money
Answer:
(a) Automated Teller Machine

Question 10.
Commercial Banks create credit in favour of the……..
(a) consumers
(b) business men
(c) customers
(d) agriculturists
Answer:
(c) customers

Question 11.
Net export equals ………
(a) Export x Import
(b) Export + Import
(c) Export – Import
(d) Exports of services only
Answer:
(c) Export – Import

Question 12.
Assertion (A): Price of a commodity is measured by the amount of labour required to produce it.
Reason (R): Trade is one of the Demerit.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(c) ‘A’ is true but ‘R’ is false

Question 13.
Which of the following is not the member of SAARC?
(a) Pakistan
(b) Sri Lanka
(c) Bhutan
(d) China
Answer:
(d) China

Question 14.
IBRD otherwise called the………..
(a) IMF
(b) SDR
(c) SAF
(d) World Bank
Answer:
(d) World Bank

Question 15.
Finance Commission determines …………
(a) The finances of Government of India
(b) The resources transfer to the states
(c) The resources transfer to the various departments
(d) None of the above
Answer:
(b) The resources transfer to the states

Question 16.
Match the following and choose the correct answer by using codes given below:

codes

Answer:
A-2, B-4. C-1, D-3

Question 17.
………. is the current increase in temperature of the Earth’s surface as well as its atmosphere.
(a) Globe warming
(b) Global warming
(c) Globe spoiled
(d) Temperature warming
Answer:
(b) Global warming

Question 18.
The supply side vicious circle of poverty suggests that poor nations remain poor because
(a) Saving remains low
(b) Investment remains low
(c) There is a lack of effective government
(d) a and b above
Answer:
(d) a and b above

Question 19.
……….planning pertains to the allocation of resources in terms of men, materials and machinery.
(a) Financial
(b) Physical
(c) Functional
(d) Structural
Answer:
(b) Physical

Question 20.
The word ‘statistics’ is used as……….
(a) Singular
(b) Plural
(c) Singular and Plural
(d) None of above
Answer:
(c) Singular and Plural

PART – II

Answer any seven question in which Question No. 30 is compulsory. [7 x 2 = 14]

Question 21.
What do you mean by Capitalism?
Answer:
Capitalism, is total freedom and private ownership of means of production. Capitalistic economy is also termed as a free economy (Laissez faire, in Latin) or market economy where the role of the government is minimum and market determines the economic activities.

Question 22.
Write the formula for calculating GNP.
Answer:
GNP at market prices means the gross value of final goods and services produced annually in a country plus net factor income from abroad
(C + I + G + (X – M) + (R – P)

Question 23.
Write the headlines of difficulties in Measuring National Income.
Answer:
Difficulties in Measuring National Income:

1. Transfer payments
2. Difficulties in assessing depreciation allowance
3. Unpaid services
4. Income from illegal activities
5. Production for self-consumption and changing price
6. Capital Gains
7. Statistical problems.

Question 24.
What is effective demand?
Answer:
The starting point of Keynes theory of employment and income is the principle of effective demand.  Effective demand denotes money actually spent by the people on products of industry. The money which entrepreneurs receive is paid in the form of rent, wages, interest and profit. Therefore effective demand equals national income.

Question 25.
Define “Unemployment”.
Answer:
Unemployment: When there are people, who are willing to work and able to work but cannot find suitable jobs.

Question 26.
Define average propensity to save (APS).
Answer:
Average Propensity to Save (APS):
The average propensity to save is the ratio of saving to income. APS is the quotient obtained by dividing the total saving by the total income. In other words, it is the ratio of total savings to total income. It can be expressed algebraically in the form of equation as under
APS = \(\frac{S}{Y}\)
Where, S = Saving; Y = Income

Question 27.
Define “Ceteris paribus”.
Answer:
Ceteris paribus (constant extraneous variables): The other variables such as income distribution, tastes, habits, social customs, price movements, population growth, etc. do not change and consumption depends on income alone.

Question 28.
State briefly the functions of SAARC.
Answer:
Functions of SAARC:
The main functions of SAARC are as follows.

1. Maintenance of the co operation in the region
2. Prevention of common problems associated with the member nations.
3. Ensuring strong relationship among the member nations.
4. Removal of the poverty through various packages of programmes.
5. Prevention of terrorism in the region.

Question 29.
What are the components of GST?
Answer:
Components of GST:
The component of GST are of 3 types. They are: CGST, SGST & IGST.

1. CGST: Collected by the Central Government on an intra-state sale (e.g. Within state/ union territory)
2. SGST: Collected by the State Government on an intra-state sale (e.g. Within state/ union territory)
3. IGST: Collected by the Central Government for inter-state sale (e.g. Maharashtra to Tamil Nadu)

Question 30.
What are environmental goods? Give examples.
Answer:
Environmental goods are typically non-market goods, including clear air, clean water, landscape, green transport infrastructure (footpaths, cycle ways, greenways, etc.), public parks, urban parks, rivers, mountains, forests, and beaches.

Concerns with environmental goods focus on the effects that the exploitation of ecological systems have on the economy, the well-being of humans and other species, and on the environment.

PART – III

Answer any seven question in which Question No. 40 is compulsory. [7 x 3 = 21]

Question 31.
Describe the socialistic econonomy.
Answer:
Socialistic Economy (Socialism):

1. The Father of Socialism is Karl Marx. Socialism refers to a system of total planning, public ownership and state control on economic activities.
2. Socialism is defined as a way of organizing a society in which major industries are owned and controlled by the government.
3. A Socialistic economy is also known as ‘Planned Economy’ or ‘Command Economy’.
4. In a socialistic economy, all the resources are owned and operated by the government.
5. Public welfare is the main motive behind all economic activities. It aims at equality in the distribution of income and wealth and equal opportunity for all.
6. Russia, China, Vietnam, Poland and Cuba are the examples of socialist economies. But, now there are no absolutely socialist economies.

Question 32.
Discuss the limitations of Macro Economics.
Answer:
Macro economics suffers from certain limitations. They are:

1. There is a danger of excessive generalisation of the economy as a whole.
2. It assumes homogeneity among the individual units.
3. There is a fallacy of composition. What is good of an individual need not be good for nation and vice versa. And, what is good for a country is not good for another country and at another time.
4. Many non-economic factors determine economic activities; but they do not find place in the usual macroeconomic books.

Question 33.
Give short note on Expenditure method.
Answer:
The Expenditure Method (Outlay method):

1. The total expenditure incurred by the society in a particular year is added together.
2. To calculate the expenditure of a society, it includes personal consumption expenditure, net domestic investment, government expenditure on consumption as well as capital goods and net exports.

Question 34.
Describe the types of unemployment.
Answer:
The following are the types of unemployment.
Types of unemployment:

1. Cyclical Unemployment
2. Frictional Unemployment
3. Technical Unemployment
4. Disguised Unemployment
5. Seasonal Unemployment
6. Educated Unemployment
7. Structural Unemployment

1. Cyclical Unemployment:

• This unemployment exists during the downturn phase of trade cycle in the economy.
• In a business cycle during the period of recession and depression, income and output fall leading to widespread unemployment.
• It is caused by deficiency of effective demand.
• Cyclical unemployment can be cured by public investment or expansionary monetary policy.

2. Seasonal Unemployment:

• This type of unemployment occurs during certain seasons of the year.
• In agriculture and agro based industries like sugar, production activities are carried out only in some seasons.
• These industries offer employment only during that season in a year. Therefore people may remain unemployed during the off season.
• Seasonal unemployment happens from demand side also; for example ice cream industry, holiday resorts etc.

3. Frictional Unemployment (Temporary Unemployment):

• Frictional unemployment arises due to imbalance between supply of labour and demand for labour.
• This is because of immobility of labour, lack of necessary skills, break down of machinery.
• shortage of raw materials etc.
• The persons who lose jobs and in search of jobs are also included under frictional unemployment.

4. Educated Unemployment:

• Sometimes educated people are underemployed or unemployed when qualification does
  not match the job.
• Faulty education system, lack of employable skills, mass student turnout and preference for white collar jobs are highly responsible for educated unemployment in India.

5. Technical Unemployment:

• Modem technology being capital intensive requires less labourers and contributes to technological unemployment.
• Now a days, invention and innovations lead to the adoption of new techniques there by the existing workers are retrenched.
• Labour saving devices are responsible for technological unemployment.

6. Structural Unemployment:

• Structural unemployment is due to drastic change in the structure of the society.
• Lack of demand for the product or shift in demand to other products cause this type of unemployment.
• For example rise in demand for mobile phones has adversely affected the demand for cameras, tape recorders etc.
• So this kind of unemployment results from massive and deep rooted changes in economic structure.

7. Disguised Unemployment:

• Disguised unemployment occurs when more people are than what is actually required.
• Even if some workers are withdrawn, production does not suffer.
• This type of unemployment is found in agriculture.
• A person is said to be disguisedly by unemployed if his contribution to output is less than what he can produce by working for normal hours per day.
• In this situation, marginal productivity of labour is zero or less or negative.

Question 35.
Differentiate autonomous and induced investment.
Answer:

Sl.No	Autonomous Investment	Induced Investment
1	Independent	Planned
2	Income inelastic	Income elastic
3	Welfare motive	Profit Motive

Question 36.
What is money supply?
Answer:

1. Money supply means the total amount of money in an economy.
2. It refers to the amount of money which is in circulation in an economy at any given time.
3. Money supply plays a crucial role in the determination of price level and interest rates.
4. Money supply viewed at a given point of time is a stock and over a period of time it is a flow.

Question 37.
Distinguish between money market and capital market.
Answer:

S.No.	Money Market	Capital Market
1.	Money market is the mechanism through which sthort term funds are loaned and borrowed. It designates financial instittutions which handle the purchase, sale and transfer of short term credit instruments.	Capital Market is a part of financial system which is concerned with raising capital by dealing in shares, bonds and other long term investments.
2.	Commercial banks, acceptance houses, Non Banking Financial Institutions and the Central Bank are the institutions catering to the requirements of short term funds in the money Market.	The market where investment instruments like bonds, equities and mortgages are traded is known as the capital market.

Question 38.
List out the achievements of ASEAN.
Answer:
The ASEAN Declaration states the aims and purposes of the Association as:

1. To accelerate the economic growth, social progress and cultural development in the region;
2. To promote regional peace and stability and adherence to the principles of the United Nations Charter;
3. To promote cooperation among the members of ASEAN through the exchange of knowledge and experience in the field of public sector auditing.
4. To provide a conducive environment and facilities for research, training, and education among the members
5. To serve as a centre of information and as an ASEAN link with other international organizations.

Question 39.
Give two examples for direct tax.
Answer:

1. Equity: Direct taxes are progressive i.e. rate of tax varies according to tax base. For example, income tax satisfies the canon of equity.
2. Certainity: Canon of certainty can be ensured by direct taxes. For example, an income tax payer knows when and at what rate he has to pay income tax.

Question 40.
Define economic planning.
Answer:
Economic Planning is “collective control or suppression of private activities of production and exchange”. – Robbins
“Economic Planning in the widest sense is the deliberate direction by persons in-charge of large resources of economic activity towards chosen ends”. – Dalton

PART – IV

Answer all the questions. [7 x 5 = 35]

Question 41 (a).
Compare the feature among Capitalism, Secularism and Mixedism.
Answer:

[OR]

(b) What are the difficulties involved in the measurement of national income?
Answer:
Difficulties in Measuring National Income:
In India, a special conceptual problem is posed by the existence of a large, unorganised and non-monetised subsistence sector where the barter system still prevails for transacting goods and services. Here, a proper valuation of output is very difficult.

Transfer payments:

1. Government makes payments in the form of pensions, unemployment allowance, subsidies, etc. These are government expenditure.
2. But they are not included in the national income.
3. Because they are paid without adding anything to the production processes.
4. During a year, Interest on national debt is also considered transfer payments because it is paid by the government to individuals and firms on their past savings without any productive work.

Difficulties in assessing depreciation allowance:

1. The deduction of depreciation allowances, accidental damages, repair and replacement charges from the national income is not an easy task.
2. It requires high degree of judgment to assess the depreciation allowance and other charges.

Unpaid services:

1. A housewife renders a number of useful services like preparation of meals, serving, tailoring, mending, washing, cleaning, bringing up children, etc.
2. She is not paid for them and her services are not directly included in national income.

Income from illegal activities:

1. Income earned through illegal activities like gambling, smuggling, illicit extraction of . liquor, etc., is not included in national income.
2. Such activities have value and satisfy the wants of the people but they are not considered as productive from the point of view of society.

Production for self-consumption and changing price:

1. Farmers keep a large portion of food and other goods produced on the farm for self consumption.
2. The problem is whether that part of the produce which is not sold in the market can be included in national income or not.

Capital Gains:

1. The problem also arises with regard to capital gains.
2. Capital gains arise when a capital asset such as a house, other property, stocks or shares, etc. is sold at higher price than was paid for it at the time of purchase.
3. Capital gains are excluded from national income.

Statistical problems:

1. There are statistical problems, too. Great care is required to avoid double counting. Statistical data may not be perfectly reliable, when they are compiled from numerous sources.
2. Skill and efficiency of the statistical staff and cooperation of people at large are also equally important in estimating national income.

Question 42 (a).
Write short note on the implications of Say’s law.
Answer:
Implications of Say’s Law:

1. There is no possibility for over production or unemployment.
2. If there exist unutilized resources in the economy, it is profitable to employ them up to the point of full employment. This is true under the condition that factors are willing to accept rewards on a par with their productivity.
3. As automatic price mechanism operates in the economy, there is no need for government intervention. (However, J.M. Keynes emphasized the role of the State)
4. Interest flexibility brings about equality between saving and investment.
5. Money performs only the medium of exchange function in the economy, as people will not hold idle money.

[OR]

(b) State the propositions of Keynes’s Psychological Law of Consumption.
Answer:
Propositions of the Law:
This law has three propositions:
(i) When income increases, consumption expenditure also increases but by a smaller amount. The reason is that as income increases, we wants are satisfied side by side, so that the need to spend more on consumer goods diminishes. So, the consumption expenditure increases with increase in income but less than proportionately.

(ii) The increased income will be divided in some proportion between consumption expenditure and saving. This follows from the first proposition because when the whole of increased income is not spent on consumption, the remaining is saved. In this way, consumption and saving move together.

(iii) Increase in income always leads to an increase in both consumption and saving. This means that increased income is unlikely to lead to fall in either consumption or saving. Thus with increased income both consumption and saving increase.

Question 43 (a).
Bring out the methods of credit control.
Answer:
Methods of Credit Control:
1. Bank Rate Policy:
The bank rate is the rate at which the Central Bank of a country’ is prepared to re-discount the first class securities.

2. Open Market Operations:

• In narrow sense, the Central Bank starts the purchase and sale of Government securities in the money market.
• In Broad Sense, the Central Bank purchases and sells not only Government securities but also other proper eligible securities like bills and securities of private concerns.

3. Variable Reserve Ratio:
(i) Cash Reserves Ratio:

• Under this system the Central Bank controls credit by changing the Cash Reserves Ratio.
• For example, if the Commercial Banks have excessive cash reserves on the basis of which they are creating too much of credit,this will be harmful for the larger interest of the economy.
• So it will raise the cash reserve ratio which the Commercial Banks are required to maintain with the Central Bank.

(ii) Statutory Liquidity Ratio:

• Statutory Liquidity Ratio (SLR) is the amount which a bank has to maintain securities.
• The quantum is specified as some percentage of the total demand and time liabilities (i.e., the liabilities of the bank which are payable on demand anytime, and those liabilities which are accruing in one month’s time due to maturity) of a bank.

[OR]

(b) Briefly explain the gains from International Trade Categories.
Answer:
Gains from International Trade:

• International trade helps a country to export its surplus goods to other countries and secure a better market for it.
• Similarly, international trade helps a country to import the goods which cannot be produced at all or can be produced at a higher cost.
• The gains from international trade may be categorized under four heads.

I. Efficient Production:
International trade enables each participatory country to specialize in the production of goods in which it has absolute or comparative advantages. International specialization offers the following gains.

1. Better utilization of resources.
2. Concentration in the production of goods in which it has a comparative advantage.
3. Saving in time.
4. Perfection of skills in production.
5. Improvement in the techniques of production.
6. Increased production.
7. Higher standard of living in the trading countries.

II. Equalization of Prices between Countries:
International trade may help to equalize prices in all the trading countries.

1. Prices of goods are equalized between the countries (However, in reality it has not happened).
2. The difference is only with regard to the cost of transportation.
3. Prices of factors of production are also equalized (However, in reality it has not happened).

III. Equitable Distribution of Scarce Materials:
International trade may help the trading countries to have equitable distribution of scarce resources.

IV. General Advantages of International Trade:

1. Availability of variety of goods for consumption.
2. Generation of more employment opportunities.
3. Industrialization of backward nations.
4. Improvement in relationship among countries (However, in reality it has not happened).
5. Division of labour and specialisation.
6. Expansion in transport facilities.

Question 44 (a).
Write a note on SAARC.
Answer:
South Asian Association For Regional Co-Operation (SAARC):

1. The South Asian Association for Regional Co-operation (SAARC) is an organisation of South Asian nations, which was established on 8 December 1985 for the promotion of economic and social progress, cultural development within the South Asia region and also for friendship and co-operation with other developing countries.
2. The SAARC Group (SAARC) comprises of Bangaladesh, Bhutan, India, The Maldives, Nepal, Pakistan and Sri Lanka.
3. In April 2007, Afghanistan became its eighth member.
4. The basic aim of the organisation is to accelerate the process of economic and social development of member states through joint action in the agreed areas of cooperation.
5. The SAARC Secretariat was established in Kathmandu (Nepal) on 16th January 1987.
6. The first SAARC summit was held at Dhaka in the year 1985.
7. SAARC meets once in two years. Recently, the 20th SAARC summit was hosted by Sri Lanka in 2018.

[OR]

(b) Briefly explain facilities offered by IMF.
Answer:
Facilities offered by IMF:
The Fund has created several new credit facilities for its members. Chief among them are:
(i) Basic Credit Facility:

• The IMF provides financial assistance to its member nations to overcome their temporary difficulties relating to balance of payments.
• A member nation can purchase from the Fund other currencies or SDRs, in exchange for its own currency, to finance payment deficits.
• The loan is repaid when the member repurchases its own currency with other currencies or SDRs.
• A member can unconditionally borrow from the Fund in a year equal to 25% of its quota.
• This unconditional borrowing right is called the reserve tranche.

(ii) Extended Fund Facility:

• Under this arrangement, the IMF provides additional borrowing facility up to 140% of the member’s quota, over and above the basic credit facility.
• The extended facility is limited for a period up to 3 years and the rate of interest is low.

(iii) Compensatory Financing Facility:

• In 1963, IMF established compensatory financing facility to provide additional financial assistance to the member countries, particularly primary producing countries facing shortfall in export earnings.
• In 1981, the coverage of the compensatory financing facility was extended to payment problem caused by the fluctuations in the cost of cereal inputs.

(iv) Buffer Stock Facility:

• The buffer stock financing facility was started in 1969.
• The purpose of this scheme was to help the primary goods (food grains) producing countries to finance contributions to buffer stock arrangements for the stabilisation of primary product prices.

(v) Supplementary Financing Facility:
Under the supplementary financing facility, the IMF makes temporary arrangements to provide supplementary financial assistance to member countries facing payments problems relating to their present quota sizes.

(vi) Structural Adjustment Facility:

• The IMF established Structural Adjustment Facility (SAF) in March 1986 to provide additional balance of payments assistance on concessional terms to the poorer member countries.
• In December 1987, the Enhanced Structural Adjustment Facility (ESAF) was set up to augment the availability of concessional resources to low income countries.
• The purpose of SAF and ESAF is to force the poor countries to undertake strong macroeconomic and structural programmes to improve their balance of payments positions and promote economic growth.

Question 45 (a).
What are the functions of a modern state?
Answer:
Functions of Modern State:
The modem state is a welfare state and not just police state. The state assumes greater roles by creating economic and social overheads, ensuring stability both internally and externally, conserving resources for sustainable development and so on.

(i) Defence:

1. The primary function of the Government is to protect the people from external aggression and internal disorder.
2. The government has to maintain adequate police and military forces and render protective
   services.

(ii) Judiciary:

1. Rendering justice and settlement of disputes are the concern of the government.
2. It should provide adequate judicial structure to render justice to all classes of citizens,

(iii) Enterprises:

1. The regulation and control of private enterprise fall under the purview of the modem State.
2. Ownership of certain enterprises and operating them successfully are the responsibilities of the government.

(iv) Social Welfare:
It is the duty of the state to make provisions for education, social security, social insurance, health and sanitation for the betterment of the people in the country.

(v) Infrastructure:
Modem States have to build the base for the economic development of the country by creating social and economic infrastructure.

(vi) Macro-economic policy:
The Government has to administer fiscal policy and monetary policy to achieve macro¬economic goals.

(vii) Social Justice:

1. During the process of growth of an economy, certain sections of the society gain at the cost of others.
2. The Government needs to intervene with fiscal measures to redistribute income.

(viii) Control of Monopoly:
Concentration of economic power is another evil to be corrected by the Government. So, the state intervenes through control of monopolies and restrictive trade practices to curb concentration of economic power.

[OR]

(b) What are the causes of water pollution?
Answer:
Water pollution is caused due to several reasons. Here are the few major causes of water pollution:
(i) Discharge of sewage and waste water:

1. Sewage, garbage and liquid waste of households, agricultural runoff and effluents from factories are discharged into lakes and rivers.
2. These wastes contain harmful chemicals and toxins which make the water poisonous for aquatic animals and plants.

(ii) Dumping of solid wastes:
The dumping of solid wastes and litters in water bodies cause huge problems.

(iii) Discharge of industrial wastes:
Industrial waste contains pollutants like asbestos, lead, mercury, grease oil and petrochemicals, which are extremely harmful to both people and environment.

(iv) Oil Spill:
Sea water gets polluted due to oil spilled from ships and tankers while travelling. The spilled oil does not dissolve in water and forms a thick sludge polluting the water.

(v) Acid rain:

1. Acid rain is pollution of water caused by air pollution.
2. When the acidic particles caused by air pollution in the atmosphere mix with water vapor, it results in acid rain.

(vi) Global warming:
Due to global warming, there is an increase in water temperature as a result aquatic plants and animals are affected.

(vii) Eutrophication:

1. Eutrophication is an increased level of nutrients in water bodies.
2. This results in bloom of algae in water.
3. It also depletes the oxygen in water which negatively affects fish and other aquatic animal population.

Question 46 (a).
Explain different sources of e-waste.
Answer:

[OR]

(b) What are the non-economic factors determining development?
Answer:
Non-Economic. Factors:

1. Human Resource
2. Technical Know-how
3. Political Freedom
4. Social Organization
5. Corruption free administration
6. Desire for Development
7. Moral, ethical and social values
8. Casino Capitalism
9. Patrimonial Capitalism

Non-Economic Factors: ‘Economic Development has much to do with human endowments, social attitudes, political conditions and historical accidents. Capital is a necessary but not a sufficient condition of progress.
(i) Human Resources:

• Human resource is named as human capital because of its power to increase productivity and thereby national income.
• There is a circular relationship between human development and economic growth.
• A healthy, educated and skilled labour force is the most important productive asset.
• Human capital formation is the process of increasing knowledge, skills and the productive capacity of people.

(ii) Technical Know-how:
As the scientific and technological knowledge advances, more and more sophisticated techniques steadily raise the productivity levels in all sectors.

(iii) Political Freedom:
The process of development is linked with the political freedom.

(iv) Social Organization:
People show interest in the development activity only when they feel that the fruits of development will be fairly distributed.

(v) Corruption free administration:

• Corruption is a negative factor in the growth process.
• Unless the countries root-out corruption in their administrative system, the crony capitalists and traders will continue to exploit national resources.

(vi) Desire for development:
The pace of economic growth in any country depends to a great extent on people’s desire for development.

(vii) Moral, ethical and social values:

• These determine the efficiency of the market, according to Douglas C. North.
• If people are not honest, market cannot function.

(viii) Casino Capitalism:
If People spend larger proportion of their income and time on entertainment liquor and other illegal activities, productive activities may suffer, according to Thomas Piketty.

(ix) Patrimonial Capitalism:
If the assets are simply passed on to children from their parents, the children would not work hard, because the children do not know the value of the assets.

Question 47 (a).
Describe different types of Planning.
Answer:

(i) Democratic Vs Totalitarian:
A form of rule in which the government attempts to maintain ‘total’ control over society, including all aspects of the public and private lives of its citizens.

(ii) Centralized Vs Decentralized:

• Under centralized planning, the entire planning process in a country is under a central planning authority.
• This authority formulates a central plan, fixes objectives, targets and priorities for every sector of the economy.
• In other words, it is called ‘planning from above’.

(iii) Planning by Direction Vs Inducement:
Under planning by direction, there is a central authority which plans, directs and orders the execution of the plan in accordance with pre-determined targets and priorities.

(iv) Indicative Vs Imperative Planning:

• Indicative planning is peculiar to the mixed economies. It has been in practice in France since the Monnet Plan of 1947-50.
• In a mixed economy, the private sector and the public sector work together.
• Under this plan, the outline of plan is prepared by the Government.
• Then it is discussed with the representatives of private management, trade unions, consumer groups, finance institutions and other experts.

(v) Short, Medium and Long term Planning:

• Short-term plans are also known as ‘controlling plans’.
• They encompass the period of one year, therefore, they are also known as ‘annual plans’.

(vi) Financial Vs Physical Planning:
Financial planning refers to the technique of planning in which resources are allocated in terms of money while physical planning pertains to the allocation of resources in terms of men, materials and machinery.

(vii) Functional Vs Structural Planning:
Functional planning refers to that planning which seeks to remove economic difficulties by directing all the planning activities within the existing economic and social structure.

(viii) Comprehensive Vs Partial Planning:
General planning which concerns itself with the major issues for the whole economy is known as comprehensive planning whereas partial planning is to consider only the few important sectors of the economy.

[OR]

(b) Discuss the Economic planning of Democratic planning and Totalitarian planning.
Answer:
Democratic Vs Totalitarian:

1. Democratic planning implies planning within democracy.
2. People are associated at every step in the formulation and implementation of the plan.
3. A democratic plan is characterized by the widest possible consultations with the various state governments and private enterprises at the stage of preparation.
4. The plan prepared by the Planning Commission is not accepted as such.
5. It can be accepted, rejected or modified by the Parliament of the country.
6. Under totalitarian planning, there is central control and direction of all economic activities in accordance with a single plan.
7. Consumption, production, exchange, and distribution are all controlled by the state. In authoritarian planning, the planning authority is the supreme body.
8. It decides about the targets, schemes, allocations, methods and procedures of implementation of the plan.

Students can Download Tamil Nadu 12th Accountancy Model Question Paper 5 English Medium Pdf, Tamil Nadu 12th Accountancy Model Question Papers helps you to revise the complete Tamilnadu State Board New Syllabus, helps students complete homework assignments and to score high marks in board exams.

TN State Board 12th Accountancy Model Question Paper 5 English Medium

Instructions:

1. The question paper comprises of four parts.
2. You are to attempt all the parts. An internal choice of questions is provided wherever applicable.
3. All questions of Part I, II. III and IV are to be attempted separately.
4. Question numbers 1 to 20 in Part I are Multiple Choice Questions of one mark each. These are to be answered by choosing the most suitable answer from the given four alternatives and writing the option code and the corresponding answer.
5. Question numbers 21 to 30 in Part II are two-mark questions. These are to be answered in about 50 words.
6. Question numbers 31 to 40 in Part III are three-mark questions. These are to be answered in about 150 words.
7. Question numbers 41 to 47 in Part IV are five-mark questions. These are to be answered in about 250 words. Draw diagrams wherever necessary.

Time: 2.30 Hours
Max Marks: 90

PART – I

Answer all the questions. Choose the correct answer. [20 × 1 = 20]

Question 1.
A firms total sales Rs 80,000 and its credit sales Rs 60,000. Then its cash sales is…………
(a) Rs 1,40,000
(b) Rs 70,000
(c) Rs 20,000
(d) Rs 80,000
Answer:
(c) Rs 20,000

Question 2.
A firm has assets worth 47,500, and liabilities 17,700, Then its capital is…………
(a) Rs 29,800
(b) Rs 65,200
(c) Rs 35,400
(d) Rs 17,700
Answer:
(a) Rs 29,800

Question 3.
Some organisations are established for the purpose of rendering services to the public without…………
(a) any profit motive
(b) any service motive
(c) both
(d) None of these
Answer:
(a) any profit motive

Question 4.
Charitable institutions and educational institutions are example of………….
(a) Profit organisation
(b) Not-for-profit organisation
(c) both
(d) None of these
Answer:
(b) Not-for-profit organisation

Question 5.
The rate of interest on capital is generally agreed by the partner and is mentioned in the…………
(a) Capital A/c
(b) Profit and Loss A/c
(c) Partnership deed
(d) None of these
Answer:
(c) Partnership deed

Question 6.
Interest on capital is to be calculated on the capitals at the begining for the…………..
(a) Particular period
(b) Relevant period
(c) average period
(d) all of these
Answer:
(b) Relevant period

Question 7.
The total capitalised value of the business is calculated by capitalising the average profits on the basis of………….
(a) average profit
(b) normal rate of return
(c) actual capital employed
(d) none of these
Answer:
(b) normal rate of return

Question 8.
Goodwill is to be valued when …………
(a) analgamation takes place
(b) a partner is admitted
(c) one company takes over another company
(d) all of the above
Answer:
(d) all of the above

Question 9.
On admission of a partner if goodwill account is to be raised this should be debited to………….
(a) Partner’s capital A/c
(b) Goodwill A/c
(c) Revaluation A/c
(d) None of these
Answer:
(b) Goodwill A/c

Question 10.
The old partners share all the accumulated profits and reserves in their……………
(a) new profit sharing ratio
(b) old profit sharing ratio
(c) capital ratio
(d) sacrificing ratio
Answer:
(b) old profit sharing ratio

Question 11.
At the time of retirement of partners, the existing partners stand to…………..
(a) Gain
(b) Loss
(c) Income
(d) None of these
Answer:
(a) Gain

Question 12.
At the time of retirement of a partners, calculation of new profit ratio is……………
(a) Compulsory
(b) Optional
(c) Necessary
(d) Not necessary
Answer:
(c) Necessary

Question 13.
Equity’ shares are known as …………
(a) authorised capital
(b) issued capital
(c) subscribed capital
(d) ordinary capital
Answer:
(d) ordinary capital

Question 14.
Authorised capital is also known as…………
(a) paid up capital
(b) called up capital
(c) nominal capital
(d) subscribed capital
Answer:
(c) nominal capital

Question 15.
Common size statement can be prepared with……….
(a) Double columns
(b) single columns
(c) three columns
(d) five columns
Answer:
(c) three columns

Question 16.
Which of the following are techniques tools or methods of analysis and interpretation of financial statements………..
(a) Ratio analysis
(b) Average analysis
(c) Trend analysis
(d) All of the above
Answer:
(d) All of the above

Question 17.
Interpretation of accounts is the………….
(a) art and science of translating the figures
(b) to know financial strengths and weakness of a business
(c) to know the causes for the prevailing performance of business
(d) All the above
Answer:
(d) All the above

Question 18.
The term ‘Financial Statement’ covers………….
(a) Profit and Loss Account
(b) Balance sheet and profit and loss statement appropriation account
(c) profit and loss statement and balance sheet
(d) none of these
Answer:
(c) profit and loss statement and balance sheet

Question 19.
A technique that is used in comparative analysis of financial statement is…………..
(a) graphical analysis
(b) preference analysis
(c) common size analysis
(d) returning analysis
Answer:
(c) common size analysis

Question 20.
In payment voucher cash or batik account is credited and other ledger account is…………..
(a) debited
(b) Credited
(c) both ‘a’ and ‘b’
(d) none of these
Answer:
(a) debited

PART – II

Answer any seven questions in which question no. 30 is compulsory. [7 × 2 = 14]

Question 21.
What is a statement of Affairs?
Answer:
A statement of affairs is a statement showing the balances of assets and liabilities on a particular date. The balance of assets are shown on the right side and the balance of liabilities on the left side. This statement resembles a balance sheet. The difference between the total of assets and total of liabilities is taken as capital.
Capital = Assets – Liabilities

Question 22.
From the following details calculate the amount that will be shown as subscription in Income and Expenditure Account for the year ending 31st March, 2017.

Subscription outstanding for the year 2016-17 is Rs 2,400. Subscription for 2016-17 received in 2015-16 was Rs 1,000.
Answer:

Tutorial note:
(i) Subscription for the year 2015-16 Rs 7,500 and for the year 2017-18 Rs 1,500 do not relate to the current year. So they should not be recorded in Income and Expenditure Account.
(ii) Subscription outstanding for the current year 2016-17 is Rs 2.400. it should be added with the’ amount of subscription received during 2016-17.

Question 23.
Mani is a partner, who withdrew Rs 30,000 on 1st September, 2018. Interest on drawings is charged at 6% per annum. Calculate interest on drawings on 31st December, 2018 and show the journal entries by assuming that fluctuating capital method is followed.
Answer:
Mani:
30,000 x \(\frac{6}{100}\) × \(\frac{4}{12}\) = Rs 600
Interest on drawings of Mani = Rs 600

Question 24.
What is goodwill?
Answer:
Goodwill is the good name or reputation of the business which brings benefit to the business. It enables the business to earn more profit. It is the present value of a firm’s future excess earnings.

Question 25.
Arul and Anitha are partners sharing profits and losses in the ratio of 4 : 3. On 31.3.2018, Ajay was admitted as a partner. On the date of admission, the book of the firm showed a general reserve of Rs 42,000. Pass the journal entry to distribute the general reserve.
Answer:

Question 26.
Mary, Meena and Mariam are partners of a firm sharing profits and losses equally.
Answer:
Mary retired from the partnership on 1.1.2019. On that date, their balance sheet showed accumulated loss of Rs 75,000 on the asset side of the balance sheet. Give the journal entry to distribute the accumulated loss.
Answer:
Journal entry

Question 27.
What is over-subscription?
Answer:
When the number of shares applied for is more than the number of shares offered for . subscription it is said to be over subscription.

Question 28.
What is working capital?
Answer:
Working capital statement or schedule of changes in working is prepared to disclose net changes in working capitals on two specific dates (generally two balance sheet dates). It is prepared from current assets and current liabilities.
Working Capital = Current Assets – Current Liabilities

Question 29.
Calculate quick ratio of Auantfe Constructions Ltd from the information given below.

Answer:

Quick assets = Current assets – Inventories – Prepaid expenses
= 2,50,000 – 50,000 – 15,000
= 1,85,000

Question 30.
What are accounting reports?
Answer:
Accounting report is a compilation of accounting information that are derived from the accounting records of a business concern. Accounting reports may be classified as routine reports and special purpose reports.

PART – III

Answer any seven questions in which question No. 40 is compulsory. [7 × 3 = 21]

Question 31.
Find out credit sales from the following information:

Answer:

Question 32.

Subscription of Rs 9,000 is still in arrears for the year 2012-13. Prepare Income and Expenditure Account for 2013-2014.
Answer:
Income and Expenditure Account for the year 31.03.14

Question 33.
Arul is a partner in a partnership firm. As per the partnership deed, interest on drawings is charged at 12% p.a. During the year ended 31st December 2018 he drew as follows:

Calculate the amount of interest on drawings.
Answer:
Interest on drawings = Amount of drawings × Rate of interest × Period of interest

Question 34.
A firm’s profit for the last 5 years were Rs 20,000, Rs 30,000, Rs 40,000, Rs 50,000, and Rs 60,000. Calculated the value of firm’s goodwill on the basis of three years purchase of weighted average profit after using weight of 1, 2, 3, 4, 5 respectively.
Answer:

Goodwill = Weighted avg. profit × Number of years purchase
= 46,667 × 3 = Rs 1,40,000 (appr.)

Question 35.
What are the adjustments required at the time of admission of a partner?
Answer:
The following adjustments are necessary at the time of admission of a partner.

1. Distribution of accumulated profits, reserves and losses
2. Revaluation of assets and liabilities
3. Determination of new profit sharing ratio and sacrificing ratio
4. Adjustment for goodwill
5. Adjustment of capital on the basis of new profit sharing ratio

Question 36.
Distinguish between sacrificing ratio and gaining ratio.
Answer:

Question 37.
Anu Company forfeited 200 equity shares of Rs 10 each issued at par held by Thiyagu for non-payment of the final call of Rs 3 per share. The shares were reissued to Laxman at Rs 6 per share. Show the journal entries for forfeiture and reissue.
Answer:
In the books of Anu Company
Journal entries

Question 38.
From the following particulars, prepare comparative income statement of Arul Ltd.

Answer:
Comparative Income Statement Analysis of Arul Ltd. for the year ended 31.3.2016 to 31.3.2017

Question 39.
From the following statement of profit and loss of Mukesh Ltd. calculate
(i) Gross profit ratio
(ii) Net profit ratio.
Statement of Profit and Loss

Answer:

Gross profit = Revenue from operations – Cost of revenue from operations
= 5,00,000 – 2,00,000
= Rs 3,00,000
Cost of revenue from operations = Purchase of stock in trade + Changes in inventories
= 1,80,000 + 20,000 = Rs 2,00,000

Question 40.
Explain arty five applications of computerised accounting system (CAS).
Answer:
The applications of CAS are as follows

1. Maintaining accounting records
2. Inventory management
3. Pay-roll preparation
4. Report generation
5. Data Import/Export

PART – IV

Answer all the following questions. [7 × 5 = 35]

Question 41 (a).
Ananth does not keep his books under double entry system. Find the profit or loss made by him for the year ending 31st March, 2019.

Ananth had withdrawn Rs 60,000 for his personal use. He had introduced Rs 17,000 as capital for expansion of his business. Create a provision of 5% on debtors. Plant and machinery is to be depreciated at 10%.
Answer:

[OR]

(b) What are the applications of computerised accounting system?
Answer:
Computerised accounting system refers to the system of maintaining accounts using computer. It involves the processing of accounting transactions through the use of computer in order to maintain and produce accounting records and reports.
The applications of computerised accounting system are as follows:
(i) Maintaining accounting records:
In computerised accounting system, accounting records can be maintained easily and efficiently for long time period. It does not require a large amount of physical space. It facilitates fast and accurate retrieval of data and information.

(ii) Inventory management:
Computerised accounting system facilitates efficient management of inventory, fast moving, slow’ moving and obsolete inventory can be identified. Updated information about availability of inventory, Level of inventory etc, can be obtained instantly.

(iii) Payroll Preparation:
Payroll involves the calculation of amount due to an employee. Pay of an employee may be calculated based on hours/days worked or units produced.

(iv) Report generation:
Computerised accounting system helps to generate various routine and special purpose reports.

(v) Data import/export:
Accounting data and information can be imported from or exported to other users within the organisation as well as outside the organisation.

(vi) Taxation:
Computerised accounting system helps to compute various taxes and to deduct these and deposit .the same to the Government account.

Question 42 (a).
What are the Sailent Feature of tally ERP.9?
Answer:
(i) A leading accounting package:
The first version of Tally was released in 1988 and through continuous development is now recognised as one of the leading accounting packages across the world with over a quarter million of customer Tally’s market share is more than 90%.

(ii) No accounting codes:
Unlike other computerised accounting packages which require numeric codes. Tally ERP 9 pioneered the “no accounting codes’” concept. Tally ERP 9 users have the freedom to allocate meaningful names in plain english to their data items in the system.

(iii) Compute business solution:
Tally ERP 9 provides a comprehensive solution to the accounting and inventory needs of a business. The packages comprises financial accounting book keeping and inventory accounting. It also has various tools to extract interpret and present data.

(iv) Speed:
It allows the user to maintain multiple companies and with unlimited levels of classification andJgrouping capabilities. It also allows dried down facility from report level to transaction level.

(v) Versatibility:
Tally ERP is suitable for a range of organisations from small grocery stores to large corporations with international locations and operations.

(vi) Online help:
The Tally ERP 9 online help (AH + H) provides instant assistance on basic and advanced feathers or any other relavent topics of Tally ERP. 9.

[OR]

(b) From the following Receipts and Payments account and from the information given below of Ramanathapuram Sports Club, prepare Income and Expenditure account for the year ended 31st December, 2018 and the balance sheet as on that date.

Additional information:
(j) Capital fund as on 1st January 2018 Rs 30,000.
(ii) Opening stock of sports material Rs 3,000 and closing stock of sports material Rs 5,000.
Answer:
Income and Expenditure Account for the year ended 31.12.18

Question 43 (a).
From the following Receipts and Payments account of Yercaud Youth Association, prepare Income and expenditure account for the year ended 31st March, 2019 and the balance sheet as on that date.
Answer:

Additional information:
(i) Opening capital fund Rs 20,000.
(ii) Stock of books on 1.4.2018 Rs 9,200.
(iii) Subscription due but not received Rs 1,700.
(iv) Stock of stationery on 1.4.2018 Rs 1,200 and stock of stationery on 31.3.2019, Rs 2,000
Answer:
Income and Expenditure Account for the year ended 31.03.19

[OR]

(b) From the following details of Rakesh, prepare Trading and Profit and Loss account for the year ended 31st March, 2019 and a Balance Sheet as on that date.

Answer:

Question 44 (a).
Arulappan and Nallasamy are partners in a firm sharing profits and losses in the ratio of 4 : 1. On 1st January 2018, their capitals were Rs 20,000 and Rs 10,000, respectively. The partnership deed specifies the following:
(a) Interest on capital is to be allowed at 5% per annum.
(b) Interest on drawings charged to Arulappan and Nallasamy are Rs 200 and Rs 300, respectively.
(c) The net profit of the firm before considering interest on capital and interest on drawings amounted to Rs 18,000.
Give necessary journal entries and prepare Profit and loss appropriation account for the year ending 31st December 2018. Assume that the capitals are fluctuating.
Answer:
Journal entries

[OR]

(b) Find out the value of goodwill by capitalising super profits:
(a) Normal Rate of Return 10%
(b) Profits for the last four years are Rs 30,000, Rs 40,000, Rs 50,000 and Rs 45,000.
(c) A non-recurring income of Rs 3,000 is included in the above mentioned profit of Rs 30,000.
(d) Average capital employed is Rs 3,00,000.
Answer:

Total profit = 27000 + 40000 + 50000 + 45000 = 162000

Question 45 (a).
Vetri and Ranjit are partners sharing profits in the ratio 3 : 2. Their balance sheet as on 31st December 2017 is as under.

On 1.1.2018 they admit suriya into their firm as a partner on the following arrangements,
(i) Suriya brings Rs 10,000 as capital for 1/4 share of profit
(ii) Stock to be depreciated by 10%
(iii) Debtors to be revalued at Rs 7,500
(iv) Furniture to be revalued at Rs 40,000.
(v) There is an outstanding wages of? 4,500 not yet recorded. Prepare revaluation account, partners capital account and the balance sheet of the firm after admission.
Answer:

[OR]

(b) Chandru, Vishal and Ramanan are partners in a firm sharing profits and losses equally. Their balance sheet as on 31st March, 2018 is as follows:

Ramanan retired on 31st March 2019 subject to the following conditions:
(i) Machinery is valued at Rs 1,50,000
(ii) Value of furniture brought down by Rs 10,000
(iii) Provision for doubtful debts should be increased to Rs 5,000
(iv) Investment of Rs 30,000 not recorded in the books is to be recorded now.
Pass necessary journal entries and prepare revaluation account and capital account of partners.
Answer:

Question 46 (a).
Kannan, Rahim and John are partners in a firm sharing profit and losses in the ratio of 5 : 3 : 2. The balance sheet as on 31st December, 2017 was as follows:

John retires on 1st January 2018, subject to following conditions:
(i) To appreciate building by 10%
(ii) Stock to be depreciated by 5%
(iii) To provide ? 1,000 for bad debts
(iv) An unrecorded liability of ? 8,000 have been noticed
(v) The retiring partner shall be paid immediately
Prepare revaluation account, partners capital account and the balance sheet of the firm after retirement.
Answer:

[OR]

(b) Sudha Ltd. offered 1,00,000 shares of Rs 10 each to the public payable Rs 3 on application, Rs 4 on share allotment and the balance when required. Applications for 1,40,000 shares were received on which the directors allotted as:
Applicants for 60,000 shares – Full
Applicants for 75,000 shares – 40,000 shares (excess money will be utilised for allotment)
Applicants for 5,000 shares – Nil
All the money due was received. Pass journal entries up to the receipt of allotment.
Answer:

Working note

Question 47 (a).
Prepare common-size statement of financial position of Saleem Ltd as on 31st March, 2017 and 31st March, 2018.

Answer:
Common-size balance sheet of Saleem Ltd as on 31st March, 2017 and 31st March, 2018

[OR]

(b) From the following Balance Sheet of James Ltd. as on 31.03.2019 calculate
(i) Debt-equity ratio
(ii) Proprietary ratio
(iii) Capital gearing ratio
Balance Sheet of James Ltd. as on 31.03.2019

Answer:

Long term debts = Debentures = 3,00,000
Shareholder’s funds = Equity share capital + Preference share capital + Reserves and surplus
= 2,50,000 + 2,00,000 + 1,50,000
= 6,00,000

Funds bearing fixed interest or dividend = Preference share capital + Debentures + Long term borrowings.
= 2,00,000 + 3,00,000
= 5,00,000
Equity shareholder’s funds = Equity share capital + Reserves and surplus
= 2,50,000 + 1,50,000
= 4,00,000
Capital gearing ratio = 4 00 000 = \(\frac{500000}{400000}\) = 1.25 : 1

Students can Download Tamil Nadu 12th Accountancy Model Question Paper 4 English Medium Pdf, Tamil Nadu 12th Accountancy Model Question Papers helps you to revise the complete Tamilnadu State Board New Syllabus, helps students complete homework assignments and to score high marks in board exams.

TN State Board 12th Accountancy Model Question Paper 4 English Medium

Instructions:

1. The question paper comprises of four parts.
2. You are to attempt all the parts. An internal choice of questions is provided wherever applicable.
3. All questions of Part I, II. III and IV are to be attempted separately.
4. Question numbers 1 to 20 in Part I are Multiple Choice Questions of one mark each. These are to be answered by choosing the most suitable answer from the given four alternatives and writing the option code and the corresponding answer.
5. Question numbers 21 to 30 in Part II are two-mark questions. These are to be answered in about 50 words.
6. Question numbers 31 to 40 in Part III are three-mark questions. These are to be answered in about 150 words.
7. Question numbers 41 to 47 in Part IV are five-mark questions. These are to be answered in about 250 words. Draw diagrams wherever necessary.

Time: 2.30 Hours
Max Marks: 90

PART – I

Answer all the questions. Choose the correct answer. [Answers are in bold] [20 x 1 = 20]

Question 1.
Companies cannot keep books on single entry system because of……….
(a) tax properties
(b) legal provisions
(c) both (a) and (b)
(d) None of these
Answer:
(b) legal provisions

Question 2.
Bills receivable endorsed are debited to………
(a) Bills receivable A/c
(b) Debtors A/c
(c) Creditors A/c
(d) None of these
Answer:
(c) Creditors A/c

Question 3.
The amount or property received by a non-profit organisation as stated by the will of a decreased person is commonly referred to as……….
(a) Donations
(b) Honorarium
(c) Legacy
(d) Endowment
Answer:
(c) Legacy

Question 4.
In non-profit organisation the sale of old newspapers is generally considered as a/an …….
(a) Revenue Receipts
(b) Expenditure
(c) Income
(d) capital Receipt
Answer:
(c) Income

Question 5.
Which of the following method, the capital of the partners is not altered and it remains generally fixed?
(a) Fixed capital method
(b) Fluctuating capital method
(c) Both ‘a’ and ‘b’
(d) None of these
Answer:
(a) Fixed capital method

Question 6.
All the transactions between the partner and the firm are recorded in the……..
(a) Capital A/c
(b) Drawing A/c
(c) Profit and loss A/c
(d) Revaluation A/c
Answer:
(a) Capital A/c

Question 7.
Which of the following method goodwill is calculated by multiplying the weighted average – profit?
(a) Super profit method
(b) Annuity
(c) Weighted average profit method
(d) All of these
Answer:
(c) Weighted average profit method

Question 8.
Self-generated goodwill should not be shown in the……….
(a) Journal
(b) Ledger
(c) Balance sheet
(d) Books of accounts
Answer:
(d) Books of accounts

Question 9.
When A and B sharing profits and losses in the ratio of 3:2 they admit C as a partner giving him 1/3 share of profits. This will be given by A and B………
(a) Equality
(b) In the ratio of their capitals
(c) In the ratio of their profit
(d) None of these
Answer:
(c) In the ratio of their profit

Question 10.
In order to maintain fair dealings, at the time of admission it is necessary to revalue assets and liabilities of the firm to their………
(a) Cost price
(b) True value
(c) Selling price
(d) None of these
Answer:
(b) True value

Question 11.
In both types of policies the insurance premium is paid by the……….
(a) Sale tradership
(b) Partnership firm
(c) Hindu undivided family
(d) None of these
Answer:
(b) Partnership firm

Question 12.
The policy amount received from the insurance company, is used to settle the amount due to the………..
(a) Increased partner
(b) Decreased partner
(c) Partnership at will
(d) Partnership deed
Answer:
(b) Decreased partner

Question 13.
The capital of a company is divided into small units of………..
(a) Current amount
(b) fixed amount
(c) Capital amount
(d) None of these
Answer:
(b) fixed amount

Question 14.
Equity shares do not enjoy any ………..
(a) Equity rights
(b) Preference rights
(c) Dividend of rights
(d) Ordinary shares
Answer:
(b) Preference rights

Question 15.
Comparative statements and trend percentages are examples of …………
(a) Cash flow analysis
(b) Trend analysis
(c) Horizontal analysis
(d) Vertical analysis
Answer:
(c) Horizontal analysis

Question 16.
Preparation of common size statements and computation of ratios are examples………..
(a) Ratio analysis
(b) vertical analysis
(c) Horizontal analysis
(d) None of these
Answer:
(b) vertical analysis

Question 17.
Which ratio is the proportion, of fixed income bearing funds to ………..
(a) Debt, equity ratio
(b) Capital gearing ratio
(c) Propreetory ratio
(d) Profitability ratio
Answer:
(b) Capital gearing ratio

Question 18.
Which ratio indicates the efficiency of utilisation of fixed assets ……….
(a) Inventory turnover ratio
(b) Trade receivables turnover ratio
(c) Trade payable turnover ratio
(d) Fixed assets turnover ratio
Answer:
(d) Fixed assets turnover ratio

Question 19.
All transactions related to receipt either in cash or through bank are recorded using……….
(a) Payment voucher
(b) Centra voucher
(c) Receipt voucher
(d) Sales voucher
Answer:
(c) Receipt voucher

Question 20.
All transactions related to payments either in Cash or through bank are recorded using………..
(a) Journal voucher
(b) Centra voucher
(c) Receipt voucher
(d) Payment voucher
Answer:
(d) Payment voucher

PART – II

Answer any seven questions in which question no. 30 is compulsory. [7 × 2 = 14]

Question 21.
What is a statement of affairs?
Answer:
A statement of affairs is a statement showing the balances of assets and liabilities on a particular date. The balance of assets are shown on the right side and the balance of liabilities on the left side. This statement resembles a balance sheet. The difference between the total of assets and total of liabilities is taken as capital.
Capital = Assets – Liabilities

Question 22.
How will the following appear in the final accounts of Marthandam woman Cultural Association.
Stock of sports materials on 1.4.2018 16,000
Sport materials purchased 84,000
Stock of sports materials on 31.3.19 10,000
Answer:

Question 23.
Mani is a partner, who withdrew Rs 30,000 on 1st September, 2018. Interest on drawings is charged at 6% per annum. Calculate interest on drawings on 31st December, 2018 and show the journal entries by assuming that fluctuating capital method is followed.
Answer:
Mani:
30,000 × \(\frac{6}{100}\) x \(\frac{4}{12}\) = Rs 600
Interest on drawings of Mani = Rs 600

Question 24.
The following are the profits of a firm in the last five years: 2014: Rs 4,000; 2015: Rs 3,000; 2016: Rs 5,000; 2017: Rs 4,500 and 2018: Rs 3,500. Calculate the value of goodwill at 3 years purchase of average profits of five years.
Answer:
Goodwill = Average profit × Number of years of purchase

Goodwill = Average profit × Number of years of purchase
= 4,000 × 3 = Rs 12,000.

Question 25.
What is goodwill?
Answer:
Goodwill is the good name or reputation of the business which brings benefit to the business. It enables the business to earn more profits. It is the present value of a firm’s future excess earnings.

Question 26.
Anbu and Raju are partners sharing profits in the ratio of 3 : 2. Akshai is admitted as a partner. The new profit sharing ratio among Anbu. Raju and Akshai is 5 : 3 : 2. Find out the sacrificing ratio.
Answer:
Old ratio of Anbu and Raju = 3 : 2 that is, \(\frac{3}{5}\) : \(\frac{2}{5}\)
New Ratio of Anbu, Raju and Akshai = 5 : 3 : 2 that is, \(\frac{5}{10}\) : \(\frac{3}{10}\) : \(\frac{2}{10}\)
Share sacrificed = Old share – New share

Question 27.
Vivin, Hari and Joy are partners sharing profits and losses in the ratio of 3 : 2 : 1. On 31.3.2017, Hari retired. On the date of retirement, the books of the firm showed a general reserve of Rs 60,000. Pass the journal entry to transfer the general reserve.
Answer:
Journal Entry

Question 28.
List the tools of financial statement analysis.
Answer:

1. Comparative Statement
2. Common size statement
3. Trend analysis
4. Funds flow analysis
5. Cash flow analysis

Question 29.
Calculate quick ratio of Ananth Constructions Ltd from the information given below.

Answer:

Quick assets = Current assets – Inventories – Prepaid expenses
= 2,50,000 – 50,000 – 15,000
= Rs 1,85,000

Question 30.
What are the pre-defined ledgers available in Tally.ERP-9.
Answer:
Tally has two-predefined ledgers cash and profit and loss A/c. The user has to create various other ledgers based on their requirements. Pre-defined group/ledger cannot be deleted.

PART-III

Answer any seven questions in which question No. 40 is compulsory. [7 × 3 = 21]

Question 31.
On 1st April 2017, Ganesh started his business with a capital of Rs 75,000. He did not maintain proper book of accounts. Following particulars are available from his books as on 31.03.2018.

During the year he withdrew Rs 15,000 for his personal use. He introduced further capital of Rs 20,000 during the year. Calculate his profit or loss.
Answer:
Statement of affairs of Ganesh as on 31st March, 2018

For finding out the closing capital, Statement of affairs as on 31st March, 2018 is prepared. Statement of profit or loss for the year ending 31st March, 2018

Question 32.
Compute income from subscription for the year 2018 from the following particulars relating to a club.

Answer:
Subscription received during the year 2018: Rs 45,000.
Income and Expenditure Account for the year ended 31.03.2019

Question 33.
State the difference between fixed capital method and fluctuating capital method.
Answer:

S. No.	Basis of distinction	Fixed capital method	Fluctuating capital method
1.	Number of accounts	Two accounts are maintained for each partner, that is, capital account and current account.	Only one account, that is, capita] account is maintained for each partner.
2.	Change in capital	The amount of capital normally remains unchanged expect when additional capital is introduced or capital is withdrawn permanently.	The amount of capital changes from period to period.
3.	Closing balance	Capital account always shows a credit balance. But, current account may show either debit or credit balance.	Capital account generally shows credit balance. It may also show a debit balance.
4.	Adjustments	All adjustments relating to interest on capital, interest on drawings, salary or commission, share of profit or loss are done in current account.	All adjustments relating to interest on capital, interest on drawings, salary or commission, share of profit or loss are done in the capital account.

Question 34.
From the following information, calculate the value of goodwill based on 3 years purchase of super profit
(i) Capital employed: Rs 2,00,000
(ii) Normal rate of return: 15%
(iii) Average profit of the business: Rs 42,000
Answer:
Normal profit = Capital employed × Normal rate of return
= 2,00,000 × 15% = Rs 30,000
Super profit = Average profit – Normal profit
= 42,000 – 30,000 = Rs 12,000
Goodwill = Super profit × Number of years of purchase
= 12,000 × 3 = Rs 36,000

Question 35.
Govind and Gopal are partners in a firm sharing profits in the ratio of 5 : 4. They admit Rahim as a partner. Govind surrenders 2/9 of his share in favour of Rahim. Gopal surrenders 1/9 of his share in favour of Rahim. Calculate the new profit sharing ratio and sacrificing ratio.
Answer:

Question 36.
Balu, Chandru and Nirmal are partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. On 31st March 2018, Nirmal retires from the firm. On the date of Nirmal’s retirement, goodwill appeared in the books of the firm at Rs 60,000. By assuming fluctuating capital account, pass the necessary journal entry if the partners decide to
(а) write off the entire amount of existing goodwill
(b) write off half of the existing goodwill.
Answer:

Question 37.
State the different between preference shares and equity shares?
Answer:

S. No.	Points to Distinct	Preference Shares	Equity Shares
1.	Rate of Dividend	Rate of Dividend is fixed.	Ratio of Dividend varies from year to year depending upon profits available.
2.	Redemption	These are redeemed after stipulated period but within period of ten years from the date of issue.	These shares are not redeemed during the lifetime of the company. At the time of winding up
3.	Participation in management	They have no right to participate in management.	These shareholders have the right to participate in management.

Question 38.
Briefly explain any three limitations of financial statements.
Answer:
(i) Lack of qualitative information : Qualitative information, that is non-monetary information is also important for business decisions. For e.g. Efficiency of the employees and efficiency of the management. But this is ignored in financial statements.

(ii) Record of historical data : Financial statement are prepared based on historical data. They may not reflect the current position.

(iii) Ignores price level changes : Adjustments for price level changes are not made in the financial statements. Hence financial statements may not reveal the current position.

Question 39.
State any three advantages of ratio analysis.
Answer:
(i) Measuring operational efficiency : Ratio analysis helps to know operational efficiency of a business by finding the relationship between operating cost and revenues and also by comparison of present ratios with those of the past ratios.

(ii) Intra firm comparison : Comparison of efficiency of different divisions of an organisation is possible by comparing the relevant ratios.

(iii) Inter firm comparison : Ratio analysis helps the firm to compare its performance with other firms.

Question 40.
Explain any five applications of computerised accounting system (CAS).
Answer:
The applications of CAS are as follows

1. Maintaining accounting records
2. Inventory management
3. Pay-roll preparation
4. Report generation
5. Data Import/Export
6. Taxation

PART – IV

Answer all the following questions. [7 × 5 = 35]

Question 41(a).
From the following details you are required to calculate credit sales and credit purchases by preparing total debtors account, total creditors account, bills receivable account and bills payable account.

Answer:

[OR]

(b) From the following Receipts and Payments account of Yercaud Youth Association, prepare Income and expenditure account for the year ended 31st March, 2019 and the balance sheet as on that date.

Additional information:
(i) Opening capital fund Rs 20,000.
(ii) Stock of books on 1.4,2018 Rs 9,200.
(iii) Subscription due but not received Rs 1,700.
(iv) Stock of stationery on 1.4.2018 Rs 1,200 and stock of stationery on 31.3.2019, Rs 2,000
Answer:
Income and Expenditure Account for the year ended 31.03.19

Question 42(a).
Following is the Receipts and Payments Account of Salem Recreation Club for the year ended 31st March, 2019.
In the books of Salem Recreation Club

Additional information:
(i) There are 450 members each paying annual subscription of Rs 30.
(ii) Stock of stationery on 31st March, 2018 Rs 300 and on March 31, 2019 Rs 500.
(iii) Capital fund as on 1st April 2018 was Rs 9,300.
Prepare income and expenditure account for the year ended 31st March, 2019 and the balance sheet as on that date.
Answer:

[OR]

(b) From the following‘details you are required to calculate credit sales and credit purchases by preparing total debtors account, total creditors account, bills receivable account and bills payable account.

Answer:

Question 43(a).
Arulappan and Nallasamy are partners in a firm sharing profits and losses in the ratio of 4 : 1. On 1st January 2018, their capitals were Rs 20,000 and Rs 10,000, respectively. The partnership deed specifies the following:
(a) Interest on capital is to be allowed at 5% per annum.
(b) Interest on drawings charged to Arulappan and Nallasamy are Rs 200 and Rs 300, respectively.
(c) The net profit of the firm before considering interest on capital and interest on drawings amounted to Rs 18,000.
Give necessary journal entries and prepare Profit and loss appropriation account for the year en’ding 31st December 2018. Assume that the capitals are fluctuating.
Answer:
Journal entries

[OR]

(b) Calculate the value of goodwill at 5 years purchase of super profit from the following information:
(i) Capital employed: Rs 1,20,000
(ii) Normal rate of profit: 20%
(iii) Net profit for 5 years:
2014: Rs 30,000; 2015: Rs 32,000; 2016: Rs 35,000; 2017: Rs 37,000 and 2018: Rs 40,000
(d) Fair remuneration to the partners Rs 2,800 per annum.
Answer:

Normal profit = Capital employed × Normal rate of return
= 1,20,000 × 20%
= Rs 24,000
Super profit = Average profit – Normal profit
= 32,000 – 24,000
= 8,000
Goodwill = Super profit × Number of years of purchase
= 8,000 × 5
= Rs 40,000

Question 44(a).
Distribution of Profits: Anitha, Ramita were partners sharing profit and losses in the ratio of 7 : 3. Their capitals were Rs. 80,000 and Rs. 60,000, respectively.
(i) Interest on capital @10% p.a
(ii) Interest on drawings @12% p.a
(iii) Both to get a salary of Rs. 10,000 each per annum
(iv) Anitha to get a commission of 10% on the net profit before charging such commission. The profit for the year Rs. 60,000. Drawings were Anitha Rs. 12,000 and Ramita Rs 8,000. Show profit and loss appropriation account and the capital A/c.
Answer:

[OR]

(b) From the following information relating to Sridevi enterprises, calculate the value of goodwill on the basis of 4 years purchase of the average profits of 3 years.
(a) Profits for the years ending 31st December 2016, 2017 and 2018 were Rs 1,75,000, Rs 1,50,000 and Rs 2,00,000, respectively.
(b) A non-recurring income of Rs 45,000 is included in the profits of the year 2016.
(c) The closing stock of the year 2017 was overvalued by Rs 30,000.
Calculation of adjusted profit.
Answer:

Average profit = \(\frac{Total profit}{Number of years}\)
Total profit 1,60,000 + 1,20,000 + 23,000
= 4,80,000
Average profit = \(\frac{4,80,000}{3}\) = Rs 1,60,000
Goodwill = Average profit × No. of year purchase
= Rs 1,60,000 × 4 = Rs 64,00,000

Question 45(a).
Vetri and Ranjit are partners sharing profit in the ratio 3 : 2. Their balance sheet as on 31st December 2017 is under.

On 1.1.2018 they admit suriya into their firm as a partner on the following arrangements.
(i) Suriya brings Rs 10,000 as capital for 1/4 share of profit
(ii) Stock to be depreciated by 10%
(iii) Debtors to be revalued at Rs 7,500
(iv) Furniture to be revalued at Rs 40,000.
(v) There is an outstanding wages Rs 4,500 not yet recorded. Prepare revaluation account, partners’ capital account and the balance sheet of the firm after admission.
Answer:

[OR]

(b) Sundar and Suresh are partners sharing profits in the ratio of 3 : 2. Their balance sheet as on 1st January, 2017 was as follows:

They decided to admit Sugumar into partnership for 1/4 share in the profits on the following terms:
(a) Sugumar has to bring in Rs 30,000 as capital. His share of goodwill is valued at Rs 5,000. He could not bring cash towards goodwill.
(b) That the stock be valued at Rs 20, 000.
(c) That the furniture be depreciated by Rs 2,000.
(d) That the value of building be depreciated by 20%.
Prepare necessary ledger accounts and the balance sheet after admission.
Answer:

Question 46(a).
Charles, Muthu and Sekar are partners, sharing profits in the ratio of 3 : 4 : 2. Their balance sheet as on 31st December 2018 is as under:

On 1,1.2019, Charles retired from the partnership firm on the following arrangements:
(i) Stock to be appreciated by 10%
(ii) Furniture to be depreciated by 5%
(iii) To provide Rs 1,000 for bad debts
(iv) There is an outstanding repair of Rs 11,000 not yet recorded
(v) The final amount due to Charles was paid
Prepare revaluation account, partners capital account and the balance sheet of the firm after retirement.
Answer:

[OR]

(b) Varsha, Shanthi and Madhuri are partners, sharing profits in the ratio of 5 : 4 : 3. Their balance sheet as on 31st December 2017 is as under:
Balance Sheet as on 31st December 2017

On 1.1.2018, Madhuri died and on her death the following arrangements are made:
(i) Stock to be depreciated by Rs 5,000
(if) Premises is to be appreciated by 20%
(iii) To provide Rs 4,000 for bad debts
(iv) The final amount due to Madhuri was not paid
Prepare revaluation account, partners capital account and the balance sheet of the firm after death.
Answer:

Question 47 (a).
Lalitha Ltd. offered Rs 30,000 equity shares of ? 10 each to the public payable Rs 2 per share on application, Rs 3 on share allotment and the balance when required. Applications for 50,000 shares were received on which the directors allotted as:
Applicants for 10,000 shares – Full
Applicants for 35,000 shares – 20,000 shares (excess money will be utilised for allotment)
Applicants for 5,000 shares – Nil
All the money due was received. Pass journal entries upto the receipt of allotment.
Answer:
Journal Entries

Working notes

[OR]

(b) Prepare common-size income statement for the following particulars of Sam Ltd.

Answer:
Common Size Income statement of Sam Ltd.

Students can Download Tamil Nadu 12th Accountancy Model Question Paper 3 English Medium Pdf, Tamil Nadu 12th Accountancy Model Question Papers helps you to revise the complete Tamilnadu State Board New Syllabus, helps students complete homework assignments and to score high marks in board exams.

TN State Board 12th Accountancy Model Question Paper 3 English Medium

Instructions:

1. The question paper comprises of four parts.
2. You are to attempt all the parts. An internal choice of questions is provided wherever applicable.
3. All questions of Part I, II. III and IV are to be attempted separately.
4. Question numbers 1 to 20 in Part I are Multiple Choice Questions of one mark each. These are to be answered by choosing the most suitable answer from the given four alternatives and writing the option code and the corresponding answer.
5. Question numbers 21 to 30 in Part II are two-mark questions. These are to be answered in about 50 words.
6. Question numbers 31 to 40 in Part III are three-mark questions. These are to be answered in about 150 words.
7. Question numbers 41 to 47 in Part IV are five-mark questions. These are to be answered in about 250 words. Draw diagrams wherever necessary.

Time: 2.30 Hours
Max Marks: 90

PART – I

Answer all the questions. Choose the correct answer.[Answers are in bold] [20 x 1 = 20]

Question 1.
The total assets of the proprietor are ? 5,00,000. His liabilities ? 3,50,000. Then his capital in the business is
(a) Rs 8,50,000
(b) Rs 1,50,000
(c) Rs 3,50,000
(d) Rs 4,25;000
Answer:
(b) Rs 1,50,000

Question 2.
A firm has assets worth Rs 60,000 and capital 45,000; then its liabilities is
(a) Rs 45,000
(b) Rs 1,05,000
(c) Rs 60,000
(d) Rs 15,000
Answer:
(d) Rs 15,000

Question 3.
Income and expenditure accounts show
(a) Cash available to an organization
(b) Closing capital of an organization
(c) Cash available in the bank account
(d) Surplus or deficit for the current accounting period
Answer:
(d) Surplus or deficit for the current accounting period

Question 4.
On what basis the receipts and payments account is prepared
(a) Cash basis
(b) Credit basis
(c) Both
(d) None of these
Answer:
(a) Cash basis

Question 5.
The balance in the appropriation account is transferred to the partner’s capital account in the
(a) Agree ratio
(b) Sacrifice ratio
(c) Profit sharing ratio
(d) Old ratio
Answer:
(c) Profit sharing ratio

Question 6.
Amount invested by partners in the partnership business is called
(a) Owner’s capital
(b) Partners capital
(c) Profit and loss appropriation
(d) None of these
Answer:
(b) Partners capital

Question 7.
The profit earning capacity of the firm determines the value of its
(a) Balance Sheet
(b) good will
(c) Profit and Loss Account
(d) All of these
Answer:
(b) good will

Question 8.
Goodwill acquired by making payment in cash or kind is called
(a) Purchased goodwill
(b) Self-generated goodwill
(c) Average goodwill
(d) (a) and (b)
Answer:
(a) Purchased goodwill

Question 9.
A new partner may be admitted to a partnership
(a) with the consent of all the partners
(b) with the consent of any one partner
(c) with the consent of two-third of the old partners
(d) with the consent of three-fourth of the old partners
Answer:
(a) with the consent of all the partners

Question 10.
An incoming partner is liable for all the acts of the firms dare
(a) Before his admission
(b) After his admission
(c) From six months prior to his admission
(d) None of these
Answer:
(b) After his admission

Question 11.
The profit or loss arising therefrom is transferred to the capital accounts of all the partners in the
(a) New profit sharing ratio
(b) Old profit sharing ratio
(c) Gaining ratio
(d) Sacrificing ratio
Answer:
(b) Old profit sharing ratio

Question 12.
The settlement is to be done in the manner prescribed in the
(a) Partnership-at-will
(b) Partnership deed
(c) Both (a) and (b)
(d) None of these
Answer:
(b) Partnership deed

Question 13.
Company is a voluntary association of persons which has separate
(a) legal entity
(b) voluntary association
(c) common seal
(d) limited liability
Answer:
(a) legal entity

Question 14.
The liability of the shareholders of the company is limited to the extent of face value of the shares held by the
(a) share holders
(b) card holders
(c) debenture holders
(d) None of these
Answer:
(a) share holders

Question 15.
The term fund refers to
(a) working capital
(b) opening capital
(c) closing capital
(d) None of these
Answer:
(a) working capital

Question 16.
When figure relating to several years are considered for the purpose of analysis, the analysis is called
(a) Horizontal analysis
(b) vertical analysis
(c) Trend analysis
(d) Cash flow analysis
Answer:
(a) Horizontal analysis

Question 17.
Which ratios measure the firm’s ability to meet its short term obligations in time?
(a) Profitability Ratios
(b) Liquidity Ratios
(c) Activity Ratios
(d) None of these
Answer:
(b) Liquidity Ratios

Question 18.
For Calculating Quick Assets – and- are excluded from current assets
(a) Debtors and inventory
(b) Inventory and Bills payable
(c) Cash and Bank balances
(d) Inventory and Prepaid Expenses
Answer:
(d) Inventory and Prepaid Expenses

Question 19.
Ideal current Ratio is
(a) 1 : 1
(b) 1 : 2
(c) 2 : 1
(d) 3 : 1
Answer:
(c) 2 : 1

Question 20.
Which of the following options is used to view Trial Balance from Gateway of Tally?
(a) Gateway of Tally → Reports → Trial Balance
(b) Gateway of Tally → Trial Balance
(c) Gateway of Tally → Reports → Display → Trial Balance
(d) None of these
Answer:
(c) Gateway of Tally → Reports → Display → Trial Balance

PART – II

Answer any seven questions in which question no. 30 is compulsory. [7 × 2 = 14]

Question 21.
From the following particulars ascertain profit or loss?
Capital as on 1. 4. 2018 1,60,000
Capital as on 31. 3. 2019 1,50,000
Additional capital introduced 25,000
Drawings made during the year 30,000
Answer:
Statement of profit or loss for the year ended 31.3.2019

Question 22.
From the following particulars of Tamil Educational Society.
Prepare Receipts and Payments for the year ended 31.03.2019

Answer:

Question 23.
What is partners current account?
Answer:
Under fixed capital method, Capital account and current accounts are maintained. In current account all adjustments relating to partners are recorded on the credit side of current account viz: Interest on capital, Share of profits, Salary and commission etc are recorded.
On the debit side drawings interest on drawings, share of loss are recorded. Current account sometimes show credit or debit balance.

Question 24.
The following are the profits of a firm in the last five years 2014 – Rs 4,000, 2015 – Rs 3,000, 2016 – Rs 5,000, 2017 – Rs 4,500, 2018 – Rs 3,500. Calculate the value of goodwill at 3 years purchase of average profit of five year.
Answer:
Goodwill = Average profit × No. of years of purchase

Good will = Average profit × No. of years of purchase
= Rs 4,000 × 3
Goodwill = Rs 12,000

Question 25.
Mala and Vimala were partners sharing profit and losses in the ratio of 3 : 2. On 31.3.2017. Varshini was admitted as a partner. On the date of admission. The book of the firm showed a reserve fund of Rs 50,000. Pass the journal entry to distribute the reserve fund.
Answer:
Journal Entry

Question 26.
Mary, Vleena, Mariam are partners of a firm sharing profit and losses equally. Many retired from the partnership on 1.1.2019. On that date, their balance sheet showed accumulated loss of Rs 75,000. On the assets side of Balance Sheet. Give the journal entry to distribute the accumulated loss.
Answer:
Journal Entry

Question 27.
Anitha was holding 500 equity shares of Rs 10 each of Thanjavur Motors Ltd. issued at par. She paid Rs 3 on application Rs 5 on allotment but could not pay the first and final call of Rs 2. The directors forfeited the shares for non payment of call money. Give Journal Entry for forfeiture of shares.
Answer:
Journal Entry

Question 28.
What is working capital?
Answer:
Working capital statement or schedule of changes in working is prepared to disclose net changes in working capitals on two specific dates (generally two balance sheet dates). It is prepared from current assets and current liabilities.
Working Capital = Current Assets – Current Liabilities

Question 29.
What is meant by accounting ratio?
Answer:
Ratio is a mathematical expression of relationship between two related or interdependent items. It is the numerical or quantitative relation ship between two items. It is calculated by dividing one item by the other related item. When ratios are calculated on the basis of accounting information, these are called ‘accounting ratio’.

Question 30.
What are accounting reports?
Answer:
Accounting report is a compilation of accounting information that are derived from the accounting records of a business concern. Accounting reports may be classified as routine reports and special purpose reports.

PART – III

Answer any seven questions in which question No. 40 is compulsory. [7 x 3 = 21]

Question 31.
Following are the balances of Shanthi as on 31.12.2018

Answer:
Prepare a statement of affairs as on 31.12.2018 and calculate capital as at that date.

Question 32.
Compute income from subscription for the 2018 from the following particulars relatiiig to a club.

Answer:
Subscription received during the year 2018 Rs 1,50,000
Calculation of incomes from subscription for 2018

Question 33.
From the following information prepare capital accounts of partners Mannan and Sevagan when their capitals are fluctuating.

Answer:
Partners Capital Account

Question 34.
From the following information relating to Sridevi Enterprises, calculate the value of goodwill on the basis of 4 years purchase of the average profit of 3 years.
(a) Profits for the year ending 31st December 2016, 2017 and 2018 were Rs 1,75,000, 1,50,000 and Rs 2,00,000 respectively.
(b) A non – recuring income of Rs 45,000 is included in the profits of the year 2016.
(c) The closing stock of the year 2017 was overvalued by Rs. 30,000
Answer:
Calculation of adjusted profit

Goodwill = Average profit × Number of years of purchase
= 1,60,000 × 4
= Rs 6,40,000

Question 35.
A, B and C were partners. Sharing profits and losses in the ratio of 5 : 3 : 2. D is admitted into a partnership. The following adjustments are to be made.
(a) Increase the value of premises by Rs 60,000
(b) Depreciate stock by Rs 5,000; Furniture by Rs 2,000 and Machinery by Rs 2,500.
(c) Provide for an outstanding liabilities of Rs 500. Pass the journal entries.
Answer:
Journal Entries

Question 36.
Kavitha, Kumudha and Lalitha are partners sharing profit and losses in the ratio of 5 : 3 : 3 respectively. Kumudha retires on 31st Dec 2018. On the date of retirement, her capital account shows a credit balance of Rs 2,00,000 pass journal entries of
(i) The amount due is paid off immediately by cheque.
(it) The amount due is not paid immediately
(iii) Rs 70,000 is paid immediately by cheque
Answer:

Question 37.
Maruthu Ltd. forfeited 150 equity shares @ Rs 10 each for non-payment of final call of Rs 4/- per share of these 100 shares were reissued @ Rs 9/- per share. Pass journal entries for forfeiture and reissue.
Answer:
Journal entries

Forfeited shares:
150 shares = Rs 900
100 shares \(\frac{900}{150}\) × 100 = Rs 600
Gain or loss = Amount forfeited – loss on reissue
= Rs 600 – 100 = Rs 500

Question 38.
From the following particulars prepare comparative income statement of Mary Co. Ltd.

Answer:
Comparative income statement of Mary Co. Ltd. for the year ended 31st March 2016 and 31st March 2017

Note: Calculation of income tax
For 2015-16 = 2,00,000 × 20% = Rs 40,000;
For 2016-17 = 3,20,000 × 50% = Rs 1,60,000

Question 39.
Explain the objectives of ratio analysis?
Answer:
Following are the objectives of ratio analysis.

1. To Simplify accounting figures
2. To Facilitate analysis of financial statements
3. To analyses the operational efficiency of a business.
4. To help in budgeting and forecasting
5. To facilitate intro firm and inter firm comparison of performance.

Question 40.
Mention the commonly used voucher types in Tally ERP.9. Following are some of the major accounting vouchers used in an organisation.
Answer:

1. Receipt voucher
2. Payment voucher
3. Contra voucher
4. Purchase voucher
5. Sales voucher
6. Journal voucher

PART – IV

Answer all the following questions. [7 × 5 = 35]

Question 41 (a).
Raju does not keep proper books of accounts. Following details are taken from his records.

During the year introduced further capital of? 50,000 and withdraw ? 2,500 per month from the business for his personal use. Prepare statement of profit or loss with above information.
Answer:
Statement of affairs as on 1.1.2018

[OR]

(b) From the following particular calculate total purchases.

Answer:

Total Purchases = Cash Purchases + Credit Purchases
= Rs 3,20,000 + Rs 4,80,000
= Rs 8,00,000

Question 42(a).
From the following Receipts and Payments Account of Friends Football club for the year ending 31st March 2017. Prepare income and expenditure Account for the year ending 31.3.2017.

Additional information:
(i) The club had furniture of Rs 12,000 on 1.4.2016. Ignore depreciation on furniture
(ii) Subscription outstanding for 2016-17- Rs 600
(iii) Stock of sports material on 31.03.2017- Rs 100
(iv) Capital Fund as on 1st April 2016 was Rs 23,000
Answer:
Income and Expenditure Account for the year ended 31.03.17

[OR]

(b) From the following balance sheets of Brindha and Praveena who share profits and losses in the ratio of 3 : 4, calculate interest on capital at 6% p.a. for the year ending 31st December 2017.
Balance sheet as on 31st December 2017

On 1st July 2017, Brindha introduced an additional capital of Rs 6,000 and on 1st October 2017, Praveena introduced Rs 10,000. Drawings of Brindha and Praveena during the year were Rs 5,000 and Rs 7,000 respectively. Profit earned during the year was Rs 31,000.
Answer:

Profit credited = Profit earned Rs 31,000 – Balance profit as per balance sheet Rs 10,000 = Rs 21,000. This amount is distributed in their profit sharing ratio of 3 : 4.
Calculation of interest on capital:

Question 43(a).
Anand and Narayanan are partners in a firm sharing profits and losses in the ratio of 5 : 3. On 1st January 2018, their capitals were Rs 50,000 and Rs 30,000 respectively. The partnership deed specifies the following:
(a) Interest on capital is to be allowed at 6% per annum.
(b) Interest on drawings charged to Anand and Narayanan are Rs 1,000 and Rs 800 respectively.
(c) The net profit of the firm before considering interest on capital and interest on drawings amounted to Rs 35,000.
Give necessary journal entries and prepare profit and loss appropriation account as on 31st December 2018. Assume that the capitals are fluctuating.
Answer:

[OR]

(b) The following particulars are available in respect of a business carried on by a partnership firm:
(i) Profits earned: 2016: Rs 30,000; 2017: Rs 29,000 and 2018: Rs 32,000.
(ii) Profit of 2016 includes a non-recurring income of Rs 3,000.
(iii) Profit of 2017 is reduced by Rs 2,000 due to stock destroyed by fire.
(iv) The stock is not insured. But, it is decided to insure the stock in future. The insurance premium is estimated at Rs 5,600 per annum.
You are required to calculate the value of goodwill on the basis of 2 years purchase of average profits of the last three years.
Answer:

Goodwill = Average profit × Number of years of purchase
= 24,400 × 2 = Rs 48,800

Question 44(a).
Sri Ram and Raj are partners sharing profits and losses in the ratio of 2 : 1. Nelson joins as a partner on 1st April 2017. The following adjustments are to be made.
(i) Increase the value of stock by Rs 5,000
(ii) Bring into record investment of Rs 7,000 which had not been recorded in the books of the firm.
(iii) Reduce the value of office equipment by Rs 10,000
(iv) A provision would also be made for outstanding wages for Rs 9,500. Give journal entries and prepare revaluation account.
Answer:
Journal Entries

[OR]

(b) Kannan, Rahim and John are partners in a firm sharing profit and losses in the ratio of 5 : 3 : 2. The balance sheet as on 31st December, 2017 was as follows:

John retires on 1st January 2018, subject to following conditions:
(i) To appreciate building by 10%
(ii) Stock to be depreciated by 5%
(iii) To provide Rs 1,000 for bad debts
(iv) An unrecorded liability of Rs 8,000 have been noticed
(v) The retiring partner shall be paid immediately
Prepare revaluation account, partners capital account and the balance sheet of the firm after retirement.
Answer:

Question 45(a).
Sudha Ltd. offered 1,00,000 shares of Rs 10 each to the public payable Rs 3 on application, Rs 4 on share allotment and the balance when required. Applications for 1,40,000 shares were received on which the directors allotted as:
Applicants for 60,000 shares – Full
Applicants for 75,000 shares – 40,000 shares (excess money will be utilised for allotment)
Applicants for 5,000 shares – Nil
All the money due was received. Pass journal entries upto the receipt of allotment.
Answer:
In the books of Sudha Ltd. Journal entries

Working note

[OR]

(b) Prepare common-size statement of financial position for the following particulars of Rani Ltd.

Answer:
Common Size Balance sheet of Rani Ltd. as on 31st March 2016 to 31st March 2017

Question 46(a).
Lalitha Ltd. offered 30,000 equity shares of Rs 10 each to the public payable Rs 2 per share on application, Rs 3 on share allotment and the balance when required. Applications for 50,000 shares were received on which the directors allotted as:
Applicants for 10,000 shares – Full
Applicants for 35,000 shares – 20,000 shares (excess money will be utilised for allotment)
Applicants for 5,000 shares – Nil
All the money due was received. Pass journal entries upto the receipt of allotment.
Answer:
Journal Entries

[OR]

(b) From the following particulars of Neithal Ltd, calculate trend percentages.

Answer:
Trend analysis for Neithal Ltd

Question 47 (a).
From the following particulars, calculate the trend percentages of Babu Ltd.

Answer:
Trend Percentage of Babu Ltd. (In Thousands)

[OR]

(b) Calculate
(i) Inventory turnover ratio
(ii) Trade receivable turnover ratio
(iii) Trade payable turnover ratio and
(iv) Fixed assets turnover ratio from the following information obtained from Delphi Ltd.

Additional information:
Revenue from operations for the year Rs 10,50,000
Purchases for the year Rs 4,50,000
Cost of revenue from operations Rs 6,00,000
Assume that sales and purchase are for credit
Answer:

Students can Download Tamil Nadu 12th Accountancy Model Question Paper 2 English Medium Pdf, Tamil Nadu 12th Accountancy Model Question Papers helps you to revise the complete Tamilnadu State Board New Syllabus, helps students complete homework assignments and to score high marks in board exams.

TN State Board 12th Accountancy Model Question Paper 2 English Medium

Instructions:

1. The question paper comprises of four parts.
2. You are to attempt all the parts. An internal choice of questions is provided wherever applicable.
3. All questions of Part I, II. III and IV are to be attempted separately.
4. Question numbers 1 to 20 in Part I are Multiple Choice Questions of one mark each. These are to be answered by choosing the most suitable answer from the given four alternatives and writing the option code and the corresponding answer.
5. Question numbers 21 to 30 in Part II are two-mark questions. These are to be answered in about 50 words.
6. Question numbers 31 to 40 in Part III are three-mark questions. These are to be answered in about 150 words.
7. Question numbers 41 to 47 in Part IV are five-mark questions. These are to be answered in about 250 words. Draw diagrams wherever necessary.

Time: 2.30 Hours
Max Marks: 90

PART-I

Answer all the questions. Choose the correct answer. [Answers are in bold] [20 × 1 = 20]

Question 1.
In case of net worth method of single entry system profit is ascertained by
(a) Comparing the capital in the beginning of the accounting period and the capital at the end of the accounting period
(b) Preparing profit and loss account
(c) Preparing a balance sheet
(d) Representative Personal Account
Answer:
(a) Comparing the capital in the beginning of the accounting period and the capital at the end of the accounting period

Question 2.
Profit = capital at the end + ? – capital introduced – capital in the beginning ………
(a) Sales
(b) Drawing
(c) Net purchases
(d) Revenue expenditure
Answer:
(b) Drawing

Question 3.
From the incomplete records, it is possible to prepare…………
(a) Ledger Accounts
(b) Trial Balance
(c) Statement of Affairs
(d) Personal Account
Answer:
(c) Statement of Affairs

Question 4.
Which of the following is to be recorded in an income and expenditure account?
(а) Purchase of a fixed asset
(б) Capital expenditure incurred in a fixed asset
(c) Profit on the sale of fixed asset
(d) Sale of a fixed assets
Answer:
(c) Profit on the sale of fixed asset

Question 5.
Subscription due but not yet earned is considered as an…………
(a) Asset
(b) Liability
(c) Income
(d) Expenditure
Answer:
(a) Asset

Question 6.
In India partnership firms are governed by the Indian Partnership act ………….
(a) 1932
(b) 1930
(c) 1992
(d) 1986
Answer:
(a) 1932

Question 7.
The maximum number of partners in a partnership firm is……….
(a) 25
(b) 10
(c) 30
(d) 50
Answer:
(d) 50

Question 8.
The monetary value of such advantage is termed as………..
(a) Goodwill
(b) Bank overdraft
(c) Capital
(d) Cash
Answer:
(a) Goodwill

Question 9.
Goodwill helps in earning more profit and attracts more…………
(a) Customers
(b) Producers
(c) Competitors
(d) Suppliers
Answer:
(a) Customers

Question 10.
When are unrecorded liabilities is brought into books is results in …………
(a) Profit
(b) loss
(c) income
(d) expense
Answer:
(b) loss

Question 11.
The revaluation profit or loss is transferred to the old partner’s capital accounts in their……..
(a) Old ratio
(b) New ratio
(c) Sacrifice ratio
(d) Gain ratio
Answer:
(a) Old ratio

Question 12.
A partner who retires from the firm is called an……….
(a) outgoing partner
(b) admitted partner
(c) death of a partner
(d) none of these
Answer:
(a) outgoing partner

Question 13.
Profits and loses of previous years which are not distributed to the partners are known as ………
(a) Accumulated profit and losses
(b) General reserve
(c) Reserve fund
(d) Workmen compensation fund
Answer:
(a) Accumulated profit and losses

Question 14.
The money raised by issuing shares is called………
(a) Share capital
(b) Dividend
(c) Equity capital
(d) Share application
Answer:
(a) Share capital

Question 15.
Profits are distributed among the shareholders in the form of………..
(a) Share
(b) Dividends
(c) Both
(d) None of these
Answer:
(b) Dividends

Question 16.
Which statements are involve personal judgements in certain cases?
(a) Financial statements
(b) Income statements
(c) Profit and loss account statements
(d) None of these
Answer:
(a) Financial statements

Question 17.
Different tools are used for analysing the…………
(a) Balance sheet
(b) Financial statement
(c) Income statement
(d) None of these
Answer:
(b) Financial statement

Question 18.
If the two items in a ratio are from income statement it is classified as ………….
(a) Balance sheet ratio
(b) Income statement ratio
(c) Inter-statement ratio
(d) None of these
Answer:
(b) Income statement ratio

Question 19.
If a ratio is computed with one item from income statement and another item from balance sheet it is called ……….
(a) Inter-statement ratio
(b) Balance sheet ratio
(c) Income statement ratio
(d) None of these
Answer:
(a) Inter-statement ratio

Question 20.
Transactions are to be recorded through………….
(a) Journal entries
(b) Voucher entries
(c) Accounting entries
(d) None of these
Answer:
(b) Voucher entries

PART – II

Answer any seven questions in which question no. 30 is compulsory. [7 × 2 = 14]

Question 21.
What are the possible reasons for keeping in complete records?
Answer:
(i) Simple method:
Proprietor, who do not have the proper knowledge of accounting principles. Find it much convenient and easier to maintain their business records under this system.
(ii) Less expensive:
It is an economical mode of maintaining records as there is no need to appoint specialised accountant.

Question 22.
What are the features of not- for-profit organisation?
Answer:

1. They are the organisations which function without any profit motive.
2. Their main aim is to provide services to a specific group or the public at large.
3. They do not undertake business or trading activities.

Question 23.
Mannan and Ramesh share profit and losses 3 : 1. The capital of Rs 80,000 and Rs 60,000 and their current accounts show a credit balance of Rs 10,000 and Rs 5,000 respectively. Calculate interest on capital at 5% p.a. for the year ending 31st march 2018 and show the journal entries.
Answer:
Interest on capital = amount of capital × rate of interest
Interest of Mannan’s capital = 80,000 × \(\frac{5}{100}\) = Rs 4,000
Interest of Ramesh’s capital = 60,000 × \(\frac{5}{100}\) = Rs 3,000
Note:
Balance of current account will not be considered for calculation of interest on capital.

Question 24.
The following are the profit of a firm in the last five years 2014 – Rs 8,000, 2015 – Rs 6,000, 2016 – Rs 10,000, 2017 – Rs 9,000, 2018 – Rs 7,000. Calculate the value of goodwill at 3 years purchase of average profits of five year.
Answer:
Goodwill = Average profit × No. of years of purchase

Goodwill = Average profit × No. of years of purchase
= Rs 8,000 × 3
Goodwill = Rs 24,000

Question 25.
What is the journal entries of transferring of accumulated profit and reserves?
Answer:

Question 26.
Kiran, vinoth and vimal are partners sharing profits in the ratio 5 : 3 : 2. Kiran retires and the new profit sharing ratio between vinoth and vimal is 2 : 1. Calculate the gaining ratio.
Answer:
Share gained = New share – Old Share

Question 27.
What is the journal entry forfeiture of shares?
Answer:
Journal Entry

Question 28.
What is analysis of Financial statement?
Answer:

1. Methodical classification of the data given in the financial statement.
2. Explaining the meaning and significance of the relationship between various financial factor,
3. Comparison of these relationship.

Question 29.
Calculate quick ratio of Ananth construction ltd from the following given below. Total current liabilities Rs 1,00,000, Inventories Rs 50,000,
Total current assets Rs 25,000, prepaid expenses Rs 15,000.
Answer:

= Current assets – Inventories – Prepaid expenses
= 2,50,000 – 50,000 – 15,000
= Rs 1,85,000

Question 30.
What are accounting reports?
Answer:
Accounting report is a compilation of accounting information that are derived from the accounting records of a business concern. Accounting reports may be classified as routine reports and special purpose reports.

PART – III

Answer any seven questions in which question No. 40 is compulsory. [7 × 3 = 21]

Question 31.
Following are the balances in the books of Thomas as on 31st march 2019.

Answer:

Question 32.
From the following particulars of Tamil Educational society. Prepare Receipts and payments account for year ended 31st march 2019.

Answer:

Question 33.
Mr A and B started a business on 1.4.2014 with capital of Rs 60,000, Rs 50,000 respectively. On 1st July 2014 Mr A withdrawal of Rs 8000 from his capital. Mr. B introduced additional capital Rs 10,000 on 30.9.2014. Calculate interest on capital at 5% p.a. for the year ending 31.03.2015.
Answer:

Question 34.
A firm has decided to value its goodwill at 3 years purchase of the average profits of 4 years using weighted average methods. Profits of past 4 years & respective weights are as follows.

compute the value of good will.
Answer:

Goodwill = Weighted Average profit × Number of years of purchase
= 24,800 × 3 = Rs 74,400

Question 35.
Sri Ram and Raj are partners sharing profit and losses in the ratio of 2 : 1. Nelson joins as a partner on 1.4.17.
The following adjustments are to be made.
(i) Increase the value of stock Rs 5,000
(ii) Bring into record investments of Rs 7,000, which had not been recorded in the books of the firm.
(iii) Reduce the value of office equipment by Rs 10,000.
(iv) A provision would also be made for outstanding wages for Rs 9,500. Give the journal entries.
Answer:
Journal Entries

Question 36.
Rahul, Ravi and Rohit are partners, sharing profits and loss in the ratio of 5 : 3 : 2. Rohit retires and the share is taken by Rahul and Ravi in the ratio of 3 : 2. Find out the new profit sharing ratio and gaining ratio.
Answer:
Rohit share = \(\frac{2}{10}\)
Share gained = Retiring partner share × Proportion of share gained

New share of continuing partners = old share + share gained

Question 37.
Anu company forfeited 200 equity shares of Rs 10 each issued at par held by thiyagu for non-payment of the final call of Rs 3 per share. The shares were reissued to laxman at Rs 6 per share, show the journal entries.
Answer:
In the books of Anu Company Journal entries

Question 38.
From the following prepare comparative income statement of Tharun & Co. Ltd.

Answer:
Comparative incomp statement of Tharun Co. Ltd. for the year ended 31st March 2017 and 31st March 2018

Tutorial note: Computation of percentage increase for revenue from operations.

Question 39.
Calculate operating profit ratio under the following cases,
Case 1: Revenue from operation Rs 20,00,000 operating profit Rs 3,00,000
Case 2: Revenue from operation Rs 30,00,000 operating cost Rs 24,00,000
Case 3: Revenue from operation Rs 40,00,000 gross profit 30% on revenue from
operations expenses Rs 8,00,000.
Answer:

Operating profit = Revenue from operation – operating cost
= 30,00,000 – 24,00,000 = Rs 6,00,000

Operating profit = Gross profit – Operating expenses
= 12,00,000 – 8,00,000 = Rs 4,00,000

Question 40.
What are the salient features of computerised Accounting system?
Answer:
(i) Simplicity:
They are easy to set up and simple to us.
(ii) Speed:
They are capable to generation instant and accurate report.
(iii) Power:
They are capable of maintaining accounts of multiple companies and with unlimited levels of classification.
(iv) Flexibility:
They provide flexibility to generate instant reports for giving period.

PART – IV

Answer all the following questions. [7 × 5 = 35]

Question 41(a).
From the following particulars calculate total purchase.

Answer:
Bills payable account

Total Purchases = Cash purchases + credit Purchase
= 7 3,20,000 + 74,80,000 = 7 8,00,000

[OR]

(b) From the following receipts and payments account of yercaud youth Association. Prepare income and expenditure Account for the year ended 31st march 2019 and the balance sheet as on that date.

Additional information:
(i) Opening capital fund Rs 20,000
(ii) Stock of books on 1.4.2018 Rs 9,200
(iii) Subscription due but not received Rs 1,700
(iv) Stock of stationery on 1.4.2018 Rs 1,200; stock of stationery on 31.3.2019 Rs 2,000.
Answer:
Income and Expenditure Account for the year ended 31.3.2019

Question 42(a).
Miss. Soniya sport equipment does not keep proper records from the following informations. Find out profit or loss and also prepare balance sheet for the year ended 31st December 2017.

Drawing Rs 10,000 per month for personal use, additional capital introduced during the year Rs 2,00,000. A bad debts Rs 2,000 and a provision of 5% to be made in debtors. Outstanding salary Rs 2,600 prepaid insurance Rs 700 depreciation changed as furniture at 10% P.a.
Answer:
Statement of affairs as on 31st December 2016

Balance sheet as on 31.3.2017

[OR]

(b) From the following Receipts and Payment account of Neyveli Science Club for the year ended 31st December 2018.

Additional information:
(i) Opening capital fund Rs 6,400
(ii) Subscription includes Rs 600 for the year 2019
(iii) Science equipment as on 1.1.2018 Rs 5,000
(iv) Surplus on account of exhibition should be kept in reserve for new auditorium.
Prepare income and expenditure account for the year ended 31st December 2018 and the balance sheet as on that date.
Answer:
Income and Expenditure Account for the year ended 31st Dec. 2018

Question 43(a).
Arulappan and Nallasamy are partners sharing profit and losses in the ratio 4 : 1. On 1st January 2018 their capitals were Rs 20,000 and Rs 10,000 respectively. The partnership deed specifies the following.
(а) Interest on capital is to he allowed at 5%P.a
(b) Interest on drawings charged to Arulappan and Nallasamy are Rs 200 and Rs 300 respectively.
(c) The net profit of the firm before considering interest on capital and interest on drawings amounted to Rs 18,000.
Give the journal entries and prepare profit and loss appropriation account for the year ending 31st December 2018. Assume that the capitals are fluctuating.
Answer:
Journal Entries

[OR]

(b) From the following information compute the value of goodwill by super profit method & capitalising method
(i) Capital employed is Rs 4,00,000
(ii) Normal rate of return is 10%
(iii) Profit for 2016 : Rs 62,000; 2017 : Rs 61,000 and 2018 : Rs 63,000
(iv) Super profit method:
Answer:

Normal profit = capital employed × Normal rate of return
= 400000 × \(\frac{10}{100}\)
= 40000
Super profit = Average profit – Normal profit = Rs 62,000 – 40,000
= Rs 22,000

Goodwill = Total capitalised value of the average profit – Capital employed = Rs 6,20,000 – 4,00,000
= Rs 22,000

Question 44(a).
Calculate the value of goodwill of the partnership firm of 2 partners
(а) At the 3 years purchase of average profits
(b) At the 3 years purchase of super profits
(c) On the basis of capitalisation of super profits
(d) On the basis of capitalisation of average profits
(i) Average capital employed Rs 7,00,000
(ii) Net trading results of the firm 2014 – Rs 1,47,600, 2015 – Loss Rs 1,48,100, Profit for 2016 – Rs 4,48,700
(iii) Interest on capital @ 18%
(iv) Remuneration Rs 500 per month.
Answer:
Calculation of Average profit and super profit
Total profit = Rs 1,47,600 – Rs 1,48,100 + Rs 4,48,700 = Rs 4,48,200

Super profit = Average profit – Normal profit
= 1,37,400 – 1,26,000
Super profit = Rs 11,400
(a) Average profit method:
Average profit × No. of years purchase
= Rs 1,37,400 × 3 = Rs 4,12,200
(b) Super profit method:
Super profit × No. of years purchase
= Rs 11,400 × 3 = Rs 34,200

[OR]

(b) Sri Ram and Raj are partners sharing profits in the ratio 2 : 1. Nelson joins as a partner on 1st April 2017. The following adjustments are to be made.
(i) Increase the value of Rs 10,000
(ii) Bring into record investment of Rs 14,000 which had not been recorded in the books of the firm.
(iii) Reduce the value of office equipment by Rs 20,000
(iv) A provision would also be made for outstanding wages for Rs 19,000. Give journal entries and prepare revaluation account.
Answer:
Journal Entries

Question 45(a).
Raj an and selva are partners sharing profit and losses in the ratio of 3:1. sheet as on 31st march 2017.

On 1.4.2017 they admit Ganesan as a new partner on the following arrangements
(i) Ganesan brings 10,000 as capital for 1/5 share of profit.
(ii) Stock and furniture is to be reduced by 10% a reserve of 5% on debtors for doubtful debts is to be created.
(iii) Appreciate building by 20%
Prepare revaluation account, partners capital account and the balance sheet of the firm after admission.
Answer:

[OR]

(b) The balance sheet of Rekha and mary on 31.12.2018 as

They share the profit and losses in the ratio 3 : 1. They agreed to admit kavitha into the partnership firm for 1/4 share of profits which she gets entirely gets from Rekha. Following are the conditions,
(i) Kavitha has to bring Rs 20,000 as capital. Her share of goodwill is valued at 4,000. She could not bring cash towards goodwill.
(ii) Depreciate buildings by 10%
(iii) Stock to be the revalued at Rs 6,000
(iv) Create provision for doubtful debts @ 5% on debito?
Prepare necessary ledger accounts and the balance sheet after admission.
Answer:

Question 46(a).
Charles, Muthu and sekar are partners sharing profits in the ratio 3 : 4 : 2. Their balance sheet as on 31st december 2018 is as under.

(i) On 1.1. 2019 Charles retired from the partnership firm on the following arrangements. Stock to be appreciated by 10%
(ii) Furniture to be depreciated by 5%
(iii) To provide Rs 1000 for bad debts
(iv) There is an outstanding repair of Rs 11,000 not yet recorded.
(v) The final amount due to Charles was paid.
Prepare revaluation account, capital account and the balance sheet of partner’s frim after the retirement.
Answer:

Balance sheet

[OR]

(b) Thangam Ltd issued 50,000 shares of Rs 10 each at a premium of Rs 2 per share payable as follows.
On application Rs 5, on allotment Rs 5 (including premium) on first and final call Rs 2.
Issue was fully subscribed and the amounts due were received except priya to whom 500 shares were allotted who faded to pay the allotment money and first and final call money. Her shares were forfeited. All the forfeited shares were reissued to devi Rs 8 per share. Pass journal entries.
Answer:
Journal Entries

Question 47(a).
Compute trend percentage for the following particular of Boomi Ltd.

Answer:

[OR]]

(b) Calculate-
(i) inventory turnover ratio
(ii) Trade receivable turnover
(iii) Trade payable turnover ratio
(iv) Fixed assets turnover ratio
(v) Gross profit ratio from the following,

Additional information:
Revenue from operations for the year Rs 10,50,000
Purchases for the year Rs 4,50,000
Cost of revenue from operations RS 6,00,000
Assume that sales and purchase are for credit
Answer:


Gross profit = Revenue from operations – Cost of revenue from operations
= 10,50,000 – 6,00,000
= 7 4,50,000

Students can Download Tamil Nadu 12th Accountancy Model Question Paper 1 English Medium Pdf, Tamil Nadu 12th Accountancy Model Question Papers helps you to revise the complete Tamilnadu State Board New Syllabus, helps students complete homework assignments and to score high marks in board exams.

TN State Board 12th Accountancy Model Question Paper 1 English Medium

Instructions:

1. The question paper comprises of four parts.
2. You are to attempt all the parts. An internal choice of questions is provided wherever applicable.
3. All questions of Part I, II. III and IV are to be attempted separately.
4. Question numbers 1 to 20 in Part I are Multiple Choice Questions of one mark each. These are to be answered by choosing the most suitable answer from the given four alternatives and writing the option code and the corresponding answer.
5. Question numbers 21 to 30 in Part II are two-mark questions. These are to be answered in about 50 words.
6. Question numbers 31 to 40 in Part III are three-mark questions. These are to be answered in about 150 words.
7. Question numbers 41 to 47 in Part IV are five-mark questions. These are to be answered in about 250 words. Draw diagrams wherever necessary.

Time: 2.30 Hours
Max Marks: 90

Part -I

Answer all the questions. Choose the correct answer. [Answers are in bold] [20 × 1 = 20]

Question 1.
Capital in the beginning of the accounting year is ascertained by preparing
(a) Debtors A/c
(b) Cash A/c
(c) Opening statement of affairs
(d) None of these
Answer:
(c) Opening statement of affairs

Question 2.
Single entry system can be adopted by
(a) Small firms
(b) Joint stock companies
(c) Co-op societies
(d) None of these
Answer:
(a) Small firms

Question 3.
An advance receipt of subscription from a member of the non-profit organisation is considered as an
(a) Expenses
(b) Liability
(c) Equity
(d) Assets
Answer:
(b) Liability

Question 4.
Income and expenditure account is based on
(a) Cash Accounting
(b) Government Accounting
(c) Management Accounting
(d) Accrual Accounting
Answer:
(d) Accrual Accounting

Question 5.
The name under which the business of a firm is carried on is called the
(a) Company name
(b) Firm name
(c) Partnership firm
(d) Partner’s name
Answer:
(b) Firm name

Question 6.
The profit or loss arising from the partnership business is shared by the partners ………. in the
(a) Old ratio
(b) New ratio
(c) agreed ratio
(d) Sacrifice ratio
Answer:
(c) agreed ratio

Question 7.
Which is the present value of a firm’s future excess earnings?
(a) Fixed assets
(b) Current assets
(c) Goodwill
(d) None of these
Answer:
(c) Goodwill

Question 8.
Goodwill is shown under fixed assets in the
(a) Trial balance
(b) Balance sheet
(c) Trading A/c
(d) P and L A/c
Answer:
(b) Balance sheet

Question 9.
Revaluation account is also called
(a) Accumulation profit and loss A/c
(b) Profit and loss adjustment A/c
(c) Profit and loss appropriation A/c
(d) None of these
Answer:
(b) Profit and loss adjustment A/c

Question 10.
When the value of assets increases it results in
(a) profit
(b) loss
(c) income
(d) expense
Answer:
(a) profit

Question 11.
When a partner leaves from a partnership firm, it is known as
(a) Admission
(b) Retirement
(c) Dissolution
(d) Death
Answer:
(b) Retirement

Question 12.
The firm is reconstituted and other partners continue the partnership firm with a new………..
(a) contract
(b) agreement
(c) start business
(d) none of these
Answer:
(b) agreement

Question 13.
In order to meet them production must be carried on a
(a) small scale
(b) large scale
(c) medium scale
(d) none of these
Answer:
(b) large scale

Question 14.
The capital of companies is divided into small unit is
(a) shares
(b) debentures
(c) dividend
(d) none of these
Answer:
(a) shares

Question 15.
Which statement are prepared by the business concerns at the end of the accounting period to ascertain the operating results and the financial position?
(a) Trend analysis
(b) Income statement
(c) Financial statement
(d) Balance sheet
Answer:
(c) Financial statement

Question 16.
Financial statements are prepared based on………..
{a) Past data
(b) Future cost
(c) Terminal cost
(d) Historical cost
Answer:
(d) Historical cost

Question 17.
The financial status and financial performance of business entities can be assessed through………..
(a) Financial analysis
(b) Managerial analysis
(c) Cash flow statement
(d) None of these
Answer:
(a) Financial analysis

Question 18.
If both items in a ratio are from balance sheet it is classified as………..
(a) Inter statement ratio
(b) Income statement ratio
(c) Balance sheet ratio
(d) All of these
Answer:
(c) Balance sheet ratio

Question 19.
CAS helps to compute various taxes and to deduct these and deposit the same to the………..
(a) Private A/c
(b) Company A/c
(c) Government A/c
(d) None of these
Answer:
(c) Government A/c

Question 20.
In 2009, Tally solutions introduced the software………..
(a) Tally ERP 9
(b) Tally ERP 10
(c) Tally ERP 6.0
(d) None of these
Answer:
(a) Tally ERP 9

PART – II

Answer any seven questions in which question No. 30 is compulsory. [7 × 2 = 14]

Question 21.
What shall be the profits of the concern? if,
Opening capital 3,20,000, Drawings 72,000
Closing capital 3,60,000, Additional capital 20,000
Statement of Profit or Loss
Answer:

Question 22.
How will the following items appear in income and expenditure account?

Stock of sport materials (1.4.2018)	6,000	Stock sports materials (31.3.2019)	8,000
Sports materials purchased	18,000
Sale of old sport materials	1,000

Answer:

Question 23.
What is partnership deed?
Answer:
Partnership deed is a documents in writting that contains the terms of agreement among the partners. It is not compulsory for a partnership to have a partnership deed as per the Indian partnership Act 1932.

Question 24.
What is normal rate of return?
Answer:
Normal rate of return refers to the rate at which profit is earned by similar business entities in the Industry under normal circumstances.

Question 25.
Give the Journal Entry for writing off existing goodwill at the time of admission of a new partner?
Answer:

Question 26.
A, B and C are partners sharing profits in the ratio of 3:2:1. A retires and the new profit sharing ratio between B and C is 2:3. Calculate the gaining ratio.
Answer:
Share gained = New share – old share

∴ The gaining ratio of B, C = 2 : 13

Question 27.
What are the methods of issue of equity shares?
Answer:
A public company may raise capital by issue of equity shares through the following ways:
Public issue
Private placement
Rights issue
Bonus issue

Question 28.
What are “Financial Statements”?
Answer:
Financial statements are the statements prepared by the business concern at the end of the accounting period to ascertain the operating results and the financial position. The basic financial statements prepared by business concerns are income statement and balance sheet.

Question 29.
Calculate quick ratio; Total current liabilities Rs 2,40,000; Total current assets Rs 4,50,000; Inventories Rs 70,000; prepaid expenses Rs 20,000.
Answer:
Current liabilities
Quick ratio = \(\frac{Quick assets}{Current liabilities}\)
Quick assets = Current assets – Inventories – Prepaid expenses
Rs 4,50,000 – 70,000 – 20,000
= Rs 3,60,000
Quick ratio = \(\frac{360000}{240000}\)
= 1.5 : 1

Question 30.
What are accounting reports?
Answer:
Accounting report is a compilation of accounting information that are derived from the accounting records of a business concern. Accounting reports may be classified as routine reports and special purpose reports.

PART – III

Answer any seven questions in which question No. 40 is compulsory. [7 x 3 = 21]

Question 31.
What are the features of incomplete records?
Answer:
(i) Nature:
It is an unscientific and unsystematic way of recording transactions. Accounting principles and accounting standards are not followed properly.
(ii) Lack of uniformity:
There is no uniformity in recording the transactions among different organisations. Different organisations record their transactions according to their needs and conveniences.
(iii) Suitability:
Only the business concerns which have no legal obligation to maintain books of accounts under double entry system may maintain incomplete records. Hence it may be maintained by small sized sole traders and partnership firms.

Question 32.
From the following particulars, show how the items “subscription” will appear in the income and expenditure account for the year ended 31.2.2018. Subscription received in 2018 is Rs 32,000; which includes Rs 3,000 for 2017 and Rs 5,000 for 2019. Subscription outstanding for the year 2018 is Rs 4,000; subscription of Rs 2,000 was received in advance for 2018 in the year 2017.
Answer:
Income and expenditure account for the year ended 31.12.2018

Question 33.
From the following information, prepare capital accounts of Mannan and Sevagan where their capitals and fluctuating.

Answer:

Question 34.
The following particulars are available in respect of a business carried on by a partnership firm.
a) Profits earned 2016 – 30,000; 2017 – 29,000; 2018 – 32,000.
b) Profit of 2016 includes a non-recurring income of Rs 3,000.
c) Profit of 2017 is reduced by Rs 2,000 due to stock destroyed by fire.
d) The stock is not insured. But it is decided to insure the stock in future. The insurance premium is estimated at Rs 5,600 p.a. You are required to calculate the value of goodwill on the basis of 2 years purchase of average profit of the last three years.
Answer:
Calculation of adjusted profit

Goodwill = Average profit × Number of years of purchase
= 24,400 × 2 = Rs 48,800

Question 35.
A and B are partners sharing profits in the ratio of 3 : 2. ‘C’ is admitted as a new partner and the new profit sharing ratio is decided as 5 : 3 : 2. The following revaluation are made. Pass journal entries.
(a) The value of building is increased by Rs 15,000
(b) The value of the machinery is decreased by Rs 4,000
(c) Provision for doubtful debtors is made for Rs 1,000
Answer:
Journal Entries

Question 36.
Rathna, Baskar and Ibrahim are partners sharing profit and losses in the ratio of 2 : 3 : 4, respectively. Rathna died on 31st December 2018. Final amount due to her showed a credit balance of 1,00,000. Pass journal entries, if
(а) The amount due is paid off immediately by cheque
(b) The amount due is not paid immediately
(c) Rs 60,000 is paid immediately by cheque.
Answer:

Question 37.
Anu company forfeited 200 equity shares of Rs 10 each issued at par held by Thiyagu for non-payment of the final call of Rs 3 per share. The shares were reissued to Laxman at Rs 6 per share. Show the journal entries for forfeiture and reissue.
Answer:
Journal entries

Question 38.
From the following particulars prepare comparative income statements of Tharun co Ltd.

Answer:

Question 39.
Calculate operating profit ratio under the following cases:
Case 1: Revenue from operations and Rs 10,00,000, operating profit Rs 1,50,000
Case 2: Revenue from operations and Rs 15,00,000, operating cost Rs 12,00,000
Case 3: Revenue from operations and Rs 20,00,000, gross profit 30%.
On revenue from operations, operating expenses Rs 4,00,000.
Answer:
case 1:
operating profit ratio =

case 2:
operating profit ratio =

Operating profit = Revenue from operation – operating cost
= 15,00,000 – 12,00,000
= Rs 3,00,000

case 3:
operating profit ratio =

Gross profit = 20,00,000 × \(\frac{30}{100}\) = Rs 6,00,000
Operating profit = Gross profit – operating expenses Operating profit
= 6,00,000 – 4,00,000
= Rs 2,00,000

Question 40.
Write a brief note on accounting vouchers?
Answer:
This type of a voucher basically analyses a business transactions from the accounting stand point and is used for recording purposes. These are commonly prepared by accountants on the basis of supporting voucher and approved by a different individual. They are further sub¬divided into two. Cash and non-cash voucher.
Example of cash type:

1. Credit vouchers
2. Debit vouchers

Example of Non-cash type:

1. Debit Note
2. Credit Note
3. Invoice

PART – IV

Answer all the questions. [7 × 5 = 35]

Question 41(a)
David does not keep proper books of accounts. Following details are given from his records.

During the year, he introduced further capital of Rs 45,000 and withdraw of Rs 2,500 per month from the business for his personal use. Prepare the statement of profit or loss with the above information.
Answer:
Statement of affairs as on 1.4.2018 and 31.03.2019

[OR]

(b) Arun and Selvan are partners who maintain their capital accounts under fixed capital method. From the following particulars prepare capital accounts of partner

Answer:

Question 42(a)
From the following receipts and payments account of friends football club for the year ending 31st March 2017. Prepare income and expenditure account for the year ending , 31st March 2017 and the balance sheet as on that date.
In the books of Friends Football Club

Additional information:
(i) The club had furniture of Rs 12,000 on 1st April 2016. Ignore depreciation on furniture.
(ii) Subscription outstanding for 2016-17 – Rs 600
(iii) Stock of sports materials on 31.3.2017 – Rs 100
(iv) Capital fund as on 1st April 2016 was Rs 23,000
Answer:
In the books of Friends Football Club

[OR]

(b) Calculate the value of goodwill at 5 years purchase of super profit from the following information.
(i) Capital employed: Rs 60,000.
(ii) Normal rate of return: 20%
(iii) Net profit for 5 years: 2014 – 1,00,000; 2015 – Rs 50,000; 2016 – 70,000; 2017 – 54,000; 2018 – 10,000.
(iv) Fair remuneration to the partners Rs 3,600 p.a
Answer:


Normal profit = Capital employed × Normal rate of return
= 60000 × \(\frac{20}{100}\)
= Rs 12,000
super profit = Average profit – Normal profit
= 53,200 – 12,000
= 41,200
Goodwill = Super profit × Number of years of purchased R
= 41,200 × 5
= Rs 2,06,000

Question 43(a)
Hari, Madhavan and Kesavan are partners sharing ratio of 5 : 3 : 2. As from 1st April 2017. Vanmathi is admitted into the partnership and the new profit ratio is decided 4 : 3 : 2 : 1. The following adjustments are to be made.
(a) Increase the value of premises by Rs 60,000.
(b) Depreciate stock by Rs 5,000; furniture by Rs 2000 and machinery by Rs 2,500.
(c) Provide for an outstanding liability of Rs 500.
Pass journal entries and prepare revaluation.
Answer:
Journal Entries

[OR]

(b) Sundar, Vivek, and Pandian are partners sharing profits in the ratio of 3 : 2 : 1. Their balance sheet as on 31st Dec 2018 is as under.

On 1.1.2019 Pandian died and on his death the following arrangements are made,
(i) Stock to be depreciated by 10%.
(ii) Land is to be appreciated by Rs 11,000.
(iii) Reduce the value of debtors Rs 3,000.
(iv) The final amount due to Pandian was not paid. Prepare revaluation account, partner’s capital A/c and the balance sheet of the firm after death.
Answer:

Question 44(a)
Vetri and Ranjit are partners sharing profit in the ratio of 3 : 2. Their balance sheet as on 31st December 2017 as under.

On 1.1.2018, they admit suriya into their firm as a partner on the following arrangements.
(i) Suriya brings Rs 10,000 as, capital for 1/4th share of profit
(ii) Stock to be depreciated by 10%
(iii) Debtors to be revalue at Rs 7,500
(iv) Furniture to be revaluted at Rs 40,000
(v) There is an outstanding wages Rs 4,500 not yet recorded. Prepare revaluation account, partner’s capital account and the balance sheet of the firm after admission.
Answer:

[OR]

(b) Prabu, Raju and Siva are partners sharing profit and losses in the ratio of 3 : 2 : 1. Prabu retires from partnership on 1.4.2017.
The following adjustments are to be made:
(i) Increase the value of building by Rs 12,000
(ii) Reduce the value of furniture by Rs 8,500
(iii) A provision would also be made for outstanding salary for Rs 6500.
Answer:
Journal Entries

Question 45(a)
Mani, Rama and Devan are partners in a firm sharing profit and losses in the ratio of 4 : 3 : 3. Their balance sheet as on 31st March 2019 is as follows:

Vlani retired from the partnership firm on 31.03.2019 subject to the following
adjustments:
(i) Stock to be depreciated Rs 5,000.
(ii) Provision for doubtful debtors to be created for Rs 1,000.
(ii) Buildings to be appreciated by Rs 16,000. The final amount due to Mani is not paid immediately. Prepare revaluation A/c and Capital Account of partners after retirement.
Answer:

[OR]

(b) Joy company issued 10,000 equity shares at Rs 10 per share payable Rs 5 on application, Rs 3 on allotment and Rs 2 on first and final call. The public subscribed for 9,000 shares. The directors allotted all the 9,000 shares and duly received the money. Pass the necessary journal entries.
Answer:
Journal Entries

Question 46(a)
Thangam Ltd issued 50,000 shares of Rs 10 each at a premium of Rs 2 per share payable as follows:
On application Rs 5, on allotment Rs 5 (including premium), on first and final call Rs 2. Issue was fully subscribed and the amount due were received except Priya to whom 500 shares were allotted who failed to pay the allotment money and first and final call money. Her shares were forfeited. All the forfeited share were reissued to devi Rs 8 per share.
Answer:
Journal Entries

[OR]

(b) From the following particulars of Neithal Ltd. Calculate trend percentage.

Answer:

Question 47 (a)
From the following balance sheet of Gupta Ltd, prepare comparative balance sheet as on 31st March 2017 and 31st March 2018.

Answer:
Comparative balance sheet as on 31st March 2017 and 31.3.2018

[OR]

(b) Calculate
(i) inventory turnover ratio
(ii) Trade receivable (or) turnover ratio
(iii) Trade payable turnover ratio
(iv) Gross profit ratio
(v) Fixed assets turnover ratio.
From the following information obtained from Delphi Ltd.

Additional information:
Revenue from operations for the year – 10,50,000
Purchases for the year – 4,50,000
Cost of revenue from operations – 6,00,000
Assume that sales and purchases are for credit
Answer:

Gross profit ratio = Revenue from operation – Cost of revenue from operation
Gross profit ratio = 10,50,000 – 6,00,000 = Rs 4,50,000