UGC NET PYQ Paper 2: Commerce 29 Sep 2022 Shift 2

Key Points

Presumptive taxation is a concept incorporated in the Income Tax Act to provide relief to taxpayers with a turnover of less than 2 crore rupees. It is a scheme that can be availed by a resident individual, HUF, or partnership.

Presumptive taxation for companies is governed by Section 44AD of the Income Tax Act.

Any company with a turnover of less than 2 million rupees can opt for presumptive taxation.

They must declare profits at the rate of 8% for non-digital transactions or 6% for digital transactions, whichever is applicable.

Additional Information

The presumptive taxation provision of Section 44ADA is designed to provide relief to small taxpayers engaged in a particular profession (i.e., law, medicine, engineering, architecture, accounting, technical consulting, interior design, or any other profession notified by the CBDT).

Key Points

Rural marketing is the process of developing, pricing, promoting, and distributing specific rural goods and services. Rural marketing and the transformation of rural people's spending into effective demand for specific products and services to achieve the goal.

myths of rural marketing -:

1 The rural population is easily deceived.
2 The urban drive.
3 Rural India is a single market.
4 The choice of method or technique.
5 Product and money matter.

Myths are stories based on traditions. Some may be based on fact, while others are completely fictional.

Important Points The steps involved are setting the pricing policy -:

1 Selection of the company's price target.

2 Estimation of the demand curve and the probable quantities that the company will sell at each possible price.

3 Estimating costs for different levels of production. for different levels of accumulated production experience and for differentiated marketing offers.

4 Investigation of competitors' costs, prices and offers.

5 Selection of pricing method.

Key Points

Consensus ad idem is an agreement between the parties to a contract that they understand the meaning of the contract and wish to enter into it. Consensus ad idem in contract law means there has been a meeting of the minds of all parties involved and everyone involved has accepted the offered contractual obligations of each party.

Caveat emptor: The doctrine of caveat emptor is an integral part of the 1930 Sale of Goods Act, which translates as "let the buyer beware."

Quid pro quo describes an agreement between two or more parties in which there is a mutual exchange of goods or services. Quid pro quo means "something given or received for something else." 

Quantum meruit is a doctrine that states that there is a derivative promise to pay a reasonable amount for work performed and materials provided, even in the absence of a lawful, enforceable agreement between the parties. Quantum meruit means "the amount one deserves" or "as much as one has earned". 

The correct answer is

Key Points 

• Manager assigns responsibility to the subordinate to carry out the work on his behalf.
• Certain authority is delegated to the subordinate to the extent,
• which is sufficient to accomplish the assigned responsibility.
• Along with the responsibility, manager also shares authority.
• Manager can not delegate his full authority to a subordinate.
• Delegation of authority may be oral or written, and may be specific or general.

The correct answer is Hull insurance

Key PointsMarine insurance defined—A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the assured, in the manner and to the extent thereby agreed, against marine losses, that is to say, the losses incidental to marine adventure.

Marine Cargo Insurance : covers loss of or damage to the goods carried in a vessel or aircraft, whether on domestic or international journeys.

Marine Hull Insurance : covers loss of or damage to a vessel or aircraft or its machinery or equipment

Marine Hull Insurance provides coverage for the following risks:

• Damage to the hull of the ship or vessel, including its machinery and equipment
• Damage or loss to the ship due to fire, burglary and/or theft
• Accidental damage to the ship due to earthquake, lightning, etc.
• Damage done to other boats by the insured vessel (third party liability)
• Damage to the vessel during maintenance activity
• World-wide coverage for ocean-going vessels

The subject matter of hull insurance is the vessel or ship. There are many types of designs of ships. Most of them are constructed of steel and welded and are capable of sailing on the sea in ballast in with cargo.

Additional Information

Cargo insurance is essentially a risk management tool that protects the business against financial losses due to lost or damaged cargo. It covers up to the limit of an amount insured and is different from carrier liability.
There are two types of Cargo insurance:

• Land Cargo Insurance
• Marine Cargo Insurance

Freight insurance is an agreement by which insured goods are underwritten (protected) in the event of damages caused by a risk covered in the policy. An insurance invoice is required for customs clearance only when the relevant data does not appear in the commercial invoice.

According to the Indian Marine Insurance Act 1963, a voyage policy is a type of marine insurance policy that provides coverage for losses due to unforeseen risks to cargo during a specific voyage.

The correct answer is (A), (B), and (D) only

Key PointsAccording to Section 68 (1), a company may purchase its own shares or other specified securities. The purchase should be made out of:

• its free reserves; or
• the securities premium account; or
• the proceeds of the issue of any shares or other specified securities.

However, buy-back of any kind of shares or other specified securities cannot be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.

Mistake PointsThere is no mention of General reserve in section 68 of Companies Act 2013 regarding a company purchasing its own shares out. Hence, Option 2 has been updated according to correct answer.

The correct answer is (A) - (I), (B) - (II), (C) - (III), (D) - (IV)

Key PointsEconomic exposure, also sometimes called operating exposure, is a measure of the change in the future cash flows of a company as a result of unexpected changes in foreign exchange rates (FX). Economic exposure cannot be easily mitigated because it is caused by the unpredictable volatility of currency exchange rates.

Translation exposure (also known as translation risk) is the risk that a company's equities, assets, liabilities, or income will change in value as a result of exchange rate changes. When a firm denominates a portion of its equities, assets, liabilities, or income in a foreign currency, translation risk occurs.

Transaction exposure, defined as a type of foreign exchange risk faced by companies that engage in international trade, exists in any worldwide market. It is the risk that exchange rate fluctuations will change the value of a contract before it is settled. This exposure pertains to the exposure due to an actual transaction taking place in business involving foreign currency. This can also be called transaction risk.

Operating exposure refers to how exchange rate changes can impact on a firm's future cash flows and consequently affect the firm's value. The cash flows may be contractual or anticipated.

The correct answer is (A) - (III), (B) - (IV), (C) - (II), (D) - (I)

Key PointsNegatively skewed distribution (also known as left-skewed) is a type of distribution in which more values are concentrated on the right side (tail) of the distribution graph while the left tail of the distribution graph is longer.

Positively skewed distribution (also known as right-skewed) is a type of distribution in which most values are clustered around the left tail of the distribution while the right tail of the distribution is longer.

Normal distribution describes continuous data which have a symmetric distribution, with a characteristic 'bell' shape.

Binomial distribution describes the distribution of binary data from a finite sample. Thus it gives the probability of getting r events out of n trials.

The correct answer is (A), (D) (E) only

Key Points

According to Gordon’s Model, the dividend decision of a firm affects its value and the market value of the share is equal to the present value of its expected future dividends.

P = [E (1-b)] / Ke - br

Where, P = price of a share
E = Earnings per share
b = retention ratio
1-b = proportion of earnings distributed as dividends
Ke = capitalization rate
Br = growth rate

Important Points

Assumptions of Gordon’s Model:

• Firm is an all-equity firm i.e. no debt.
• IRR will remain constant because the change in IRR will change the growth rate and consequently the value will be affected.
• Ke will remain constant because the change in the discount rate will affect the present value.
• Retention ratio (b), once decided upon, is constant i.e. constant dividend payout ratio will be followed.
• Growth rate (g = br) is also constant since retention ratio and IRR will remain unchanged and growth, which is the function of these two variables will remain unaffected.
• Ke > g, this assumption is necessary and based on the principles of series of the sum of geometric progression for ‘n’ number of years.
• All investment proposals of the firm are to be financed through retained earnings only.
• The share considered under Gordon’s model is one that offers dividends to the shareholders for an infinite tenure.

The correct answer is Statement I is correct but Statement II is incorrect

Key PointsAn offer is a proposal while an invitation to offer is inviting someone to make a proposal. An Invitation to Offer is an act prior to an offer, in which one person induces another person to make an offer to him, it is known as invitation to offer.

• A catalog of goods is offered, but only an invitation an for offer.
• Display of goods with price tags in a self-service shop is merely an invitation to offer.
•  instead, it is seen as an invitation to offer - that is, an invitation for you as a consumer to go forth and make an offer to the advertiser. Even advertisements with published price lists are not offers. The sellers do not have an obligation to sell the goods to you at the advertised prices. However, an advertisement can be seen as an offer for a unilateral contract. A unilateral contract is a contract where there is an offer made to the offeree (the person making the offer being the offeror) to do something and upon completion of that particular activity, the offeror would do something in return.

Additional InformationAn offer or proposal made by a person cannot legally be regarded as an offer unless it satisfies the following conditions:

• Offer must intend to create legal relations
• Terms of offer must be certain, definite, and not vague
• The offer must be distinguished from a mere declaration of intention
• Offer must be distinguished from an invitation to offer

The correct answer is (A), (B) and (C) only

Key PointsPrudence or Conservatism Principle is many a time described using the phrase "Do not anticipate a profit but provide for all possible losses." The application of this concept ensures that the financial statements do not paint a better picture than what it actually is. For example, closing stock is valued at a lower cost or net realizable value (market value) or making the provision for doubtful debts and discount on debtors in anticipation of bad debts and discount.

Additional Information 1. Recognition of Revenue
As per prudence, prospective income should not be recognized unless there are transactions (and not just events) that justify the certainty of the realization of revenue. This ensures that the revenue (so does the profits) are not overstated unduly without a base.

2. Recognition of Expenses
Prudence works in favor of expenses by not understating the same. It ensures that if there is a possibility for expenses to be incurred, it makes sure that the organization provides for such expenses.

3. Recognition of Assets
Prudence makes sure that assets are not overstated. Thus, the value of the asset should reflect the cost or near about value of realization.

4. Recognition of Liabilities
As per prudence, liabilities should not be understated. Thus, the value of liabilities will always be on the higher side than what it should be.

The correct answer is ​(A) - (IV), (B) - (II), (C) - (I), (D) - (III)

Key Points

Net Stable Funding Ratio

• The net stable funding ratio is a liquidity standard requiring banks to hold enough stable funding to cover the duration of their long-term assets.
• Banks must maintain a ratio of 100% to satisfy the requirement.
• The Net Stable Funding Ratio (NSFR) and Liquidity Coverage Ratio (LCR) are significant components of the Basel III reforms. 

Innovative Perpetual Debt Instrument

• Tier I Capital consists mainly of share capital and disclosed reserves. Since this capital is fully available to cover the core losses, it is also called Core Capital. For this reason, this is considered the highest quality capital.
• IPDIs issued as Tier I cannot exceed 15 percent of total capital.
• This limitation is based on the Tier I capital amount as of March 31 of the previous year along with deductions of intangible assets before investment deductions.

Time Maturity Gap

• Assets Liabilities Management is the process whereby a bank’s total assets and liabilities are controlled and managed simultaneously in an integrated fashion. In the management of the overall balance sheet.
• A maturity gap is a term used to describe a strategy that is designed to assess the relationship between the risk of owning assets and liabilities that generate revenue due to interest rate accruals and the volatility of those holdings.

Risk-Weighted Assets

• Tier II Capital is also known as supplementary capital. It consists of certain reserves and certain types of subordinated debt.
• Any loan which is repayable after other debts have been paid is called subordinated debt. Tier 2 capital also has a ratio.
• This is the formula utilized to describe the capital being held versus what's known as total risk-weighted assets (RWAs).
• Risk-weighted assets are the assets held by the bank that is weighted by its credit risk.

The correct answer is Bounded rationality

Key Points

Bounded rationality describes the way people make decisions that deviate from perfect economic rationality because our rationality is limited by our ability to think, the information available to us, and time. Instead of making the 'best' decisions, we often make decisions that are satisfactory.

Additional Information

Rationality is the process by which consumers choose the things that are best for them.

The term homo economicus refers to rational choices and the attainment of maximum utility through those choices.

Consumer sovereignty is the idea that consumers influence production decisions. Firms will respond to consumer preferences and produce the goods they demand.

The correct answer is (A), (B), (E) only 

Key Points

Internal reliability 

• Internal consistency reliability defines the consistency of the results delivered in a test, ensuring that the various items measuring the different constructs deliver consistent scores.
•  There are three main techniques for measuring internal consistency reliability, depending upon the degree, complexity, and scope of the test. One approach is to look at a split-half correlation.
• This involves splitting the items into two sets, such as the first and second halves of the items or the even- and odd-numbered items.

The random walk theory

• In mathematics, a random walk is a random process that describes a path that consists of a succession of random steps on some mathematical space.
• An elementary example of a random walk is the random walk on the integer number line {Z}  which starts at 0, and at each step moves +1 or −1 with equal probability. 
• Thus, if we average over an ensemble of walkers, the distribution should have zero mean and will spread out with rms width proportional to √n.

Factor Analysis 

• Factor analysis is generally an exploratory/descriptive method that requires many subjective judgments. It is a widely used tool and often controversial because the models, methods, and subjectivity are so flexible that debates about interpretations can occur.
• Factor analysis is a multivariate technique designed to analyze correlations among many observed variables and to explore latent factors.
• Discriminant analysis is also different from factor analysis in that it is not an interdependence technique: a distinction between independent variables and dependent variables (also called criterion variables) must be made.

Additional Information

• Variance is a measure of dispersion that takes into account the spread of all data points in a data set. It’s the measure of dispersion the most often used, along with the standard deviation, which is simply the square root of the variance.
• A reliability coefficient of 0.85 indicates that 85% of the variance in the test scores depends upon the true variance of the trait being measured, and 15% depends on error variance.
• The normal distribution is widely used in understanding distributions of factors in the population. Because the normal distribution approximates many natural phenomena so well, it has developed into a standard of reference for many probability problems. Daily life examples of Normal Distribution are height, rolling a die, tossing a coin, IQ, technical stock market, etc.

The correct answer is option 1|Ep| > 1

Key PointsTotal revenues refer to the amount the company receives from its operating activities

Total revenue increases due to an increase in quantity if the percentage increase in quantity is greater than the percentage decrease in price.

 Important Points

When the elasticity of demand is 1, there is a proportional and direct relationship between the change in price and the demand for a product or service.

A product is inelastic if its elasticity is less than 1.

The numerator (percentage change in quantity demanded) of the elasticity formula is less than the denominator (percentage change in price).

If elasticity = 0, then the product is "perfectly' inelastic, i.e. demand remains unchanged at any price.

The correct answer is option 2 (B), (C), and (D) only

Key Point

• After the solution Disguise things, substantially limit imports
• Labeling rules that indicate the origin and content
• Import duties and quotas
• Safety regulations for motor vehicles and electrical equipment Import restrictions refer to various tariff and non-tariff barriers imposed by an importing nation to control numerous of goods entering the country from other countries.
• Import restrictions are imposed to maintain the exchange rate of the country's currency.
• The main types of trade restrictions are tariffs, quotas, embargoes, licensing requirements, standards, and subsidies.
• A tariff is a tax imposed on goods imported from abroad.
• General Requirements on Hygienic and Sanitary Practices to be followed by all Food Business Operators applying for License
  The establishment in which food is being handled, processed, manufactured, packed, stored, and distributed by the food business operator and the persons handling them should conform to the sanitary and hygienic requirement, food safety measures, and other standards

The correct answer is Esteem or Status

Key Point

Herzberg's theory of motivation and hygiene (the two-factor theory), which was established by Frederick Herzberg,

Hygiene factors

• Hygiene factors are those job factors that are essential for the existence of motivation in the workplace.
• These do not lead to positive satisfaction long term.
• But if these factors are absent/if these factors are non-existent at the workplace, then they lead to dissatisfaction.
• Hygiene factors are also called as dissatisfiers or maintenance factors as they are required to avoid dissatisfaction.

Hygiene factors include:

• Salary and benefits
• Job security
• Work environment
• Job policies
• Supervisory practices
• Company policies and administration
• Company reputation

Motivational factor

• An increase in this factor will strongly satisfy the employees; a decrease will have no influence on their satisfaction.
• According to Herzberg, hygiene factors cannot be regarded as motivators. The motivational factors yield positive satisfaction.
• These factors are inherent to work.
• These factors motivate the employees to superior performance.
• These factors are called satisfiers.

Motivational factors include:

• Achievement
• Advancement
• Variety
• Independence
• Interesting work
• Responsibility
• Accomplishment
• Interpersonal relationships
• Status

The correct option 1 (A), (D), (B), (C), (E)

Key Points

​Alternative minimum tax (AMT) and its computation of book profit and MAT credit under section 115JB of the Income Tax Act, 1961

Minimum Alternative Tax (MAT) is a provision introduced by indirect tax laws to limit the tax deductions/exemptions otherwise available to taxpayers so that they pay a 'minimum' amount of tax to the government.

Objective of MAT

The objective of introducing MAT is to bring into the tax net "zero-tax companies" that do not pay taxes despite substantial book profits and high dividend payouts due to various tax breaks and incentives under the Income Tax Act.

For Computation of Book Profit, one may proceed as follows: –

Step 1 - Find out net profit [before other comprehensive income (OCI)] as per the statement of profit and loss of the company

Step 2 -Adjustment to Net Profit to Convert it into Book Profit which is given under Explanation 1 to section 115JB(2)

(A) Positive Adjustment Amount to be Added Back if Dedibted to Profit and Loss Account.

(B) Negative Adjustments Amount to be Deducted from Net Profit.

The correct option is 2 Both (A) and (R) are correct and (R) is NOT the correct explanation of (A)

Key Points

• Capital structure refers to the specific mix of debt and equity used to finance a company's assets and operations.
• Equity represents a more expensive, permanent source of capital with greater financial flexibility.
• Analysts use the D/E ratio to compare capital structure. It is calculated by dividing total liabilities by total equity.
•  A company with too much debt can be seen as a credit risk.
• Debt represents a cheaper, finite-to-maturity capital source that legally obligates a company to make promised cash outflows on a fixed schedule with the need to refinance at some future date at an unknown cost.
• In reality, many practical considerations affect the capital structure and the use of leverage by companies, leading to wide variation in capital structures even among otherwise-similar companies.

Important PointsTypes of Capital

• Equity: Equity is the money that belongs to the shareholders or owners.
• Debt: Debt is money borrowed and used in the business.
• Retained earnings: part of a company's profit.

The correct answer is Consumer motivation and consumer resources

Key PointsVALS (Values, Attitudes, and Lifestyles) is a framework developed by Arnold Mitchell and his colleagues in the year 1978 at SRI International.

• The main dimensions of the VALS segmentation framework are consumer motivation (the horizontal dimension) and consumer resources (the vertical dimension).
• Consumers are inspired by one of three primary motivations: ideals, achievement, and self-expression.
• The VALS is a system used for grouping consumers with the help of psychographic segmentation.
• It was developed in the 1970s and was inaugurated in 1978 by Mitchell at SRI International.
• The VALS places adult customers into one of the eight segments based on their responses to the questionnaire.
• The main scope of the VALS framework is the resources in the vertical dimension and primary motivation in the horizontal dimension.
• The people in the vertical dimension are based on the degree to which they are innovative and have enough resources like education, income, intelligence, self-control, energy, and leadership skills.
• At the top of the VALS framework are innovators, who have high resources that can have any of the 3 primary motivations.
• At the bottommost are the survivors who live within their means without primary motivation.

Additional Information

The eight categories of VALS are as follows:

• Achievers
• Innovators
• Thinkers
• Believers
• Strivers
• Experiencers
• Makers
• Survivors

The correct answer is (A), (B), (D) only

Key Points

Sumptuary allowance given to High Court Judges under section 22C of the High Court Judges Act, 1954 is not chargeable to tax.

Compensatory allowance received by a Judge under Article 222(2) of the Constitution is fully exempt.

Overtime Allowance - Employees who work beyond their regular shifts may receive an overtime payment from their employers. This is referred to as overtime and any compensation received is fully taxable.

Any allowance or perquisite paid or allowed by Government to its employees posted outside India is fully exempt.

Non-Practicing Allowance is a special kind of allowance payable to Doctors occupying the posts of Medical and Veterinary Services and is fully taxable.

The correct answer is 20 years

Key Points

• Under Section 55 of The Companies Act 2013, a company can issue preference shares liable to be redeemed at the end of twenty years. A company cannot issue an irredeemable preference share as per the Act.
• Preference shares are redeemable and the company has to redeem out of profits it earned or out of the proceeds of fresh issue of shares made for such redemption.

The correct answer is 'Product Life Cycle Theory'

Key Points

• Product Life Cycle Theory:
  • Product Life Cycle Theory, developed by Raymond Vernon, explains how products move through different stages such as introduction, growth, maturity, and decline.
  • It describes how firms invest in foreign markets during different stages of a product's life cycle, thereby influencing FDI (Foreign Direct Investment) flows.
  • During the maturity stage, production may move to developing countries to benefit from lower labor costs and new market opportunities.
  • This results in cross-border investments and shifts in the geographical distribution of production and consumption, forming an ecosystem influenced by these dynamics.

Additional Information

• Factor Endowment Theory:
  • Factor Endowment Theory, also known as the Heckscher-Ohlin Model, explains the trade patterns based on the factor endowments of a country, such as land, labor, and capital.
  • It focuses more on comparative advantage and the types of goods that countries will specialize in rather than FDI flows.
• Waterfall Theory:
  • Waterfall Theory is related to project management, describing the sequential stages of project completion and does not directly address FDI flows.
• New Trade Theory:
  • New Trade Theory, developed by Paul Krugman, emphasizes the roles of increasing returns to scale and network effects in international trade.
  • While it provides insights into trade patterns and market dominance, it does not specifically explain FDI flows in terms of ecosystems.

The correct answer is (A) - (III), (B) - (IV), (C) - (II), (D) - (I)

Key PointsIn 1776, the economist Adam Smith criticized the theory of mercantilism in his publication, “The Wealth of Nations”, and propounded the theory of Absolute advantage. Smith firmly believed that economic growth in reference to international trade firmly depends on specialization and division of labor.

The theory proposed by Heckscher and Ohlin - Factor Endowments deals with the concept of comparative advantage that a country can gain by producing products that make use of the factors that are present in abundance in the country. The main basis of their theory is on a country’s production factors like land, labor, capital, etc.

​The theory proposed by Minhas, Leontief et. al. - Factor intensity reversal means that a good/industry is relatively capital intensive compared with other goods/industries within a country/region but relatively labor intensive compared with other goods/industries within another country/region.

The theory of comparative advantage flourished in the 19th century and was propounded by David Ricardo in his book ‘Principles of Political Economy and Taxation’ in 1817. This theory strengthened the understanding of the nature of trade and acknowledges its benefits. The theory suggests that it is better if a country exports goods in which its relative cost advantage is greater than its absolute cost advantage when compared with other countries.

The correct answer is (A), (C), (D) and (E) only.

Key PointsConsumer rationality in business economics is a collective manifestation of the following assumptions:

• Non-Satiation: The assumption that a consumer will always benefit from additional consumption. The demand for some goods may have a finite limit, but it is likely that there is some good or service a consumer would benefit from having more of.
• Clarity Of Preferences: This assumption states that, logically, selections between goods are rational because of the transitivity statement, which posits that people always prefer goods in the following order: A is preferred to B, and B is preferred to C, so A is preferred to C.
• Economic Selfish Motive: The notion that human behavior is governed by selfishness as an ultimate motive - without altruism (selflessness) and group selection.
• Possession Of Information: The assumption states that a consumer has perfect and complete information and he makes choices based on this information.

The correct answer is Trade-off plan, in general, is considered an appropriate financing strategy for working capital.

Key PointsWorking Capital = Current Assets – Current Liabilities

1. Working capital affects both the liquidity as well as the profitability of a business. As the amount of working capital increases the liquidity of the business increases. However, since current assets offer low returns with the increase in working capital the profitability of the business falls.
2. There are two types of working capital permanent and temporary working capital. The hedging approach suggests that the permanent working capital requirement should be financed through long-term funds, while temporary working capital should be financed through short-term funds.
3. The length of the operating cycle refers to the number of days taken, right from procuring material to making collections against sales from customers. This can be measured in days or months. The length of the operating cycle is directly proportional to your working capital requirements. So, a longer period will attract a higher amount.
4. In evaluating a firm’s net working capital position, an important consideration is a trade-off between profitability and risk. In other In words, the level of net working capital has a bearing on profitability and risk. The trade-off between these variables is that regardless of how the firm increases its profitability through the manipulation of working capital, the consequence is a corresponding increase in risk as measured by the level of Net Working Capital.

Important PointsAggressive approach - The aggressive strategy is one of the approaches of working capital management wherein the company’s investments in working capital are kept at a minimum level, i.e., limited investment in current assets.

Conservative approach - Conservative strategy is one of the approaches of working capital management wherein the organization follows a strategy to invest a high amount of capital in current assets.

Moderate/Hedging or Matching approach - In this strategy, a balance between risk and return is maintained in order to benefit more by more effective use of the funds. This approach classifies the requirements of total working capital into permanent and temporary.

Additional Information 

The correct answer is (A). (C), (B), (E), (D)

Key Points

•  A Global Depositary Receipt (GDR) is a sort of bank certificate issued in multiple nations for the purpose of purchasing shares of a global corporation.
• GDRs are convertible securities that incorporate shares in at least two markets, most frequently the U.S. and the Euromarkets. It can be characterized as a form or bank document that reflects shares of a worldwide corporation insofar as the shares are held by a foreign branch of an international banking institution.
• The shares themselves are traded like domestic shares, however, they can be purchased globally at a number of bank locations.
• GDRs are used by private markets to raise cash that is backed by dollars or euros. GDRs are referred to as EDRs if private markets attempt to purchase euros instead of dollars.

Important Points Process of GDR Issues:

1. Registration with prescribed authority
2. Approval of the regulatory authorities
3. Appointment and vesting of shares with the custodian
4. GDR allotment
5. Listing of GDR

The correct answer is (D), (A), (E), (C), (B)

Key PointsThe World Trade Organization (WTO) is a multilateral organization headquartered in Geneva, Switzerland. It came into existence on January 1, 1995, as a successor to the General Agreement on Tariffs and Trade (GATT). The organization functions as a central body that facilitates global trade. As of 2021, the WTO has 164 member countries,

A total of 9 WTO trade rounds were held:

• Geneva - April 1947
• Annecy - April 1949
• Torquay - September 1950
• Geneva - January 1956
• Dillon - September 1960
• Kennedy - May 1964
• Tokyo - September 1973
• Uruguay -September 1986
• Doha - November 2001

Hence, negotiation rounds of WTO (World Trade Organization) in reverse chronological order are Doha, Uruguay, Tokyo, Kennedy, Geneva

The correct answer is to Claim damages only

Key Points

• In case of a breach of warranty, the injured party is liable to be compensated. The injured party can refuse to accept the goods as well as claim damages in case of breach of condition. A condition can be treated as a warranty on the wish of the buyer. A warranty cannot be treated as a condition.
• A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.

The correct answer is Audit Programme

Key PointsAudit memorandum means a memorandum or letter issued during the course of an audit for eliciting information, confirmation of facts, or any other matter considered necessary by the audit officer in the conduct of an audit.

Audit Planning refers to the design of an audit describing the overall audit strategy and guidelines to follow while performing the audit. It helps in the successful completion of the audit process.

An audit notebook is maintained by the staff of the auditor to record the difficulties, mistakes, and errors noticed during the course of the audit to discuss further with the seniors or auditor before finalizing the audit report.

An audit programme is an action plan that documents what procedures an auditor will follow to validate that an organization is in conformance with compliance regulations.

Additional Information An audit program also called an audit plan, is an action plan that documents what procedures an auditor will follow to validate that an organization is in conformance with compliance regulations.

The goal of an audit program is to create a framework detailed enough for any outside auditor to understand. It should contain the following information:

• the official examinations that have been completed;
• conclusions reached; and
• the reasoning behind each conclusion.

The correct answer is

Key Points

• When a price ceiling is set below the equilibrium price, the quantity demanded will exceed the quantity supplied, and excess demand or shortages will result. When a price floor is set above the equilibrium price, the quantity supplied will exceed the quantity demanded, and excess supply or surpluses will result.
• The Shortage of the commodity and black marketing economy drives out legitimate industries that can't compete with the lower costs of illegal operations. Some black market players deliberately create shortages in legal goods to force people to purchase from them. The tax-free nature of the black market means the government loses revenue.

Additional Information 

• A commodity Glut is an excessive quantity i.e. oversupply a glut of the commodity on the market.
• The incidence, or burden, of a tax, falls both on the consumers and producers of the taxed goods. If demand is more inelastic than supply, consumers bear most of the tax burden. But, if supply is more inelastic than demand, sellers bear most of the tax burden.
• Exports are goods and services that are produced in one country and sold to buyers in another. Exports, along with imports, make up international trade.

The correct answer is Investment in Commercial Paper

Key PointsSecondary reserves are any type of monetary assets that can be accessed quickly should the need arise. In many cases, cash reserves of this type are invested in short-term securities that earn some interest, effectively allowing those assets to work for the investor even though they are not currently in active use. As the name implies, secondary reserves are called into use when the primary reserves have been exhausted or are not sufficient to settle some sort of immediate debt situation. Assets invested in short-term marketable securities, usually Treasury bills and short-term government securities

Additional InformationCash and cash equivalents refer to the line item on the balance sheet that reports the value of a company's assets that are cash or can be converted into cash immediately.

Cash equivalents include bank accounts and marketable securities such as commercial paper and short-term government bonds. Cash equivalents should have maturities of three months or less.

Cash in Bank means the current balance in checking accounts, savings accounts, or the like in the name of the Company/Business applying for a Certificate. Do not include retirement accounts or personal bank account balances.

Cash Reserve Ratio (CRR) is the share of a bank’s total deposit that is mandated by the Reserve Bank of India (RBI) to be maintained with the latter as reserves in the form of liquid cash.

The commercial paper refers to a short-term, unsecured debt obligation that is issued by financial institutions and large corporations as an alternative to costlier methods of funding. It is a money market instrument that generally comes with a maturity of up to 270 days.

Statutory Liquidity Ratio (SLR) refers to the percentage of aggregate deposits that commercial banks have to invest in liquid assets. The RBI has specified such liquid assets which banks have to invest in to maintain their SLR. Banks are required to invest 18 percent of their deposits in SLR securities, comprising central and state government securities.

The correct answer is Consumer surplus

Key PointsWhen a monopolist switches from charging a single price to perfect price discrimination, it reduces the consumer surplus.  Consumer surplus is defined as the difference between what a consumer believes they should pay for a good or service and the total amount that they actually do pay. The amount they pay is known as the market price and what they are willing to pay is noted on the demand curve.

The correct answer is (B), (C) only

Key Points

Statement B:

The government has made quoting of PAN or Aadhaar number mandatory if the cash deposits and withdrawals in a financial year exceed Rs 20 lakh and in case of opening of current account or cash credit account with a bank. The Central Board of Direct Taxes (CBDT) issued a notification on May 10, 2022, for the same. The new rules will be effective from May 26, 2022.

Statement C:

The process of detection of counterfeit notes should be carried out at the back office or currency chest only. Banks can check arithmetical accuracy and other deficiencies like mutilated notes at counters and pass on appropriate credit to the depositor/account or value in exchange given.
Thereafter the notes should be passed over to the back office or currency chest, as the case may be, for detailed verification and authentication through machines.

Additional InformationStatement A:

Chain banking refers to a situation where a group of banks are linked to each other through ownership or control, but each bank operates under a separate charter. It is not controlled by a group of people. In general, the controlling parties are majority shareholders or the heads of interlocking directorates. Chain banking as an entity has declined along with a surge in interstate banking.

Statement D:

The interest rates on bank's contribution to Rural Infrastructure Development Fund is fixed by RBI. The RIDF was set up by the Government in 1995-96 for financing ongoing rural Infrastructure projects. The Fund is maintained by the National Bank for Agriculture and Rural Development (NABARD).

Statement E:

Section 31 in The Reserve Bank of India Act, 1934, "No person in 2[India] other than the Bank, or, as expressly authorized by this Act the 3[Central Government] shall draw, accept, make or issue any bill of exchange, hundi, promissory note or engagement for the payment of money payable to bearer on demand, or borrow, owe or take up any sum or sums of money on the bills, hundis or notes payable to bearer on demand of any such person"

The correct answer is (C) → (A) → (B) → (E) → (D)

Key PointsPublic communication means making any work available for being seen or heard or otherwise enjoyed by the public directly or by any means of display or diffusion other than by issuing copies of such work regardless of whether any member of the public actually sees, hears or otherwise enjoys the work so made available.

Copyright transmission - The owner of the copyright in a work may grant any interest in his copyright to any person by license in writing, which is to be signed by him or by his duly authorized agent. A license can be granted not only in existing work but also in respect of future work, in this situation assignment shall come into force when such future work comes into existence.

Copyright assignment - The owner of the copyright in an existing work or the prospective owner of the copyright in a future work may assign to any person the copyright either wholly or partially and either generally or subject to limitations and either for the whole of the copyright or any part thereof: Provided that in the case of the assignment of copyright in any future work, the assignment shall take effect only when the work comes into existence.

Relinquish copyright - The author of a work may relinquish all or any of the rights comprised in the copyright in work by giving notice in the prescribed form and thereupon such rights shall, subject to the provisions of sub-section (3), cease to exist from the date of the notice.

Content development -  “Publication” means making a work available to the public by issue of copies or by communicating the work to the public. A work published in India shall be deemed to be first published in India, notwithstanding that it has been published simultaneously in some other country unless such other country provides a shorter term of copyright for such work; and a work shall be deemed to be published simultaneously in India and in another country if the time between the publication in India and the publication in such other country does not exceed thirty days or such other period as the Central Government may, in relation to any specified country, determine.

The correct answer is The extent to which a sample mean is likely to differ from the population mean

Key Points

• The most commonly used numerical measures for quantitative data are mean, median, mode, percentiles, range, variance, and standard deviation.
• The standard error is a statistical term that measures the accuracy with which a sample distribution represents a population using standard deviation.
• In statistics, a sample mean deviates from the actual mean of a population; this deviation is the standard error of the mean.
• The standard error tells you how accurate the mean of any given sample from that population is likely to be compared to the true population mean.
• When the standard error increases, i.e. the means are more spread out, it becomes more likely that any given mean is an inaccurate representation of the true population means.

Additional Information

• In cluster sampling, researchers divide a population into smaller groups known as clusters. They then randomly select among these clusters to form a sample. Cluster sampling is a probability sampling method that is often used to study large populations, particularly those that are widely geographically dispersed.
• The normal distribution is symmetrical and bell-shaped in which the mean, median, and mode are equal. It is a central component of inferential statistics.

Therefore, the standard error is a statistical measure of the extent to which a sample mean is likely to differ from the population mean.

The correct answer is (B) → (D) → (A) → (E) → (C)

 Key PointsUtility analysis compares costs and outcomes which are measured in different units. This differs from a cost-benefit analysis, which uses a common unit (ie. financial value) to compare costs and benefits. Utility analysis is often referred to in the health sector as a cost-effectiveness or cost-utility analysis.

An indifference curve is a graphical representation of combined products that give a similar kind of satisfaction to a consumer thereby making them indifferent. Every point on the indifference curve shows that an individual or a consumer is indifferent between the two products as it gives him the same kind of utility.

The budget line is a graphical delineation of all possible combinations of the two commodities that can be bought with provided income and cost so that the price of each of these combinations is equivalent to the monetary earnings of the customer.

Consumer Equilibrium means a state of maximum satisfaction. A situation where a consumer spends his given income purchasing one or more commodities so that he gets maximum satisfaction and has no urge to change this level of consumption, given the prices of commodities, is known as the consumer's equilibrium.

The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period of time. In a typical representation, the price will appear on the left vertical axis, and the quantity demanded on the horizontal axis.

The correct answer is Threat of Competitor

Key Points

Threat of Competitor/Competitive Rivalry - The intensity of rivalry in an industry is a significant determinant of an industry’s attractiveness and profitability. The impact of competition is more evident at the functional level.

Threat of New Entrants - New entrants can reduce an industry’s profitability by adding new production and supply capacity which erodes the existing firms’ market share position. New entrants also place a limit on prices and affect the profitability of existing players, which is known as the Price War.

Bargaining Power of Buyers - This force becomes heavier depending on the possibility of buyers forming groups or cartels because powerful buyers usually bargain for better services or for securing reduced prices.

Bargaining Power of Sellers - The bargaining power of suppliers determines the cost of raw materials and other inputs of the industry, and therefore, influences an industry’s attractiveness and profitability.

Threat of Substitutes - Substitutes, too, usually limit the prices and profits of an industry. Wherever significant investment in R&D is taking place, threats from substitute products can be expected. To predict profit pressure from this source of competition, firms must search for products that can perform the same or nearly the same, functionalities as their own products.

• A fund flow statement is a document created to examine the factors that led to changes in a company's financial situation between two balance sheets.
• It depicts the inflow and outflow of funds during a specific time period, including the sources and uses of that money.

Important Points Statement 1: It is prepared to know the total sources and their uses in a year.

A fund flow statement will give us the following two information:

• Sources of funds - From where the funds have come in.
• Application of funds - Where these funds have been used.

Hence, Statement 1 is true.

Statement 2: Dividend received is a source of funds.

• Dividend received facilitates the inflow of cash in the business and hence they are regarded as sources of funds.

Hence, statement 2 is correct.

Statement 3: Its preparation is at the discretion of the management.

• The income statement, balance sheet, and statement of cash flows are mandatory financial statements.
• Fund flow statement is prepared at a discretion of the management.

Hence, Statement 3 in correct.

Statement 4: It is useful for external financial management.

• It acts as a financial parameter that aids in controlling a company's finances, improving long-term financial planning strategies, and utilising both short- and long-term cash.
• Hence, it is useful for internal financial management.

Hence, Statement 4 in incorrect.

The correct answer is (A), (C), (D), (E) only

Key PointsThe formula to calculate population variance is:

σ² = Σ (xi – μ)²/N

The formula to calculate sample variance is:

s² = Σ (xi – x)²/(n-1)

Cronbach’s alpha coefficient measures the internal consistency, or reliability, of a set of survey items. This statistic is used to determine whether a collection of items consistently measures the same characteristic. Cronbach’s alpha quantifies the level of agreement on a standardized 0 to 1 scale. Higher values indicate higher agreement between items.

Spurious regression is a statistical model that shows misleading statistical evidence of a linear relationship; in other words, a spurious correlation between independent non -stationary variables.

Qualitative methods are an increasing element of the development of randomized controlled trials (RCTs), particularly those of complex interventions where the conduct of the intervention is mediated by human behavior. Qualitative methods are advocated in the pre‐trial development phase of complex interventions and during and after the trial to facilitate interpretations of trial results.

The correct answer is Offshore Banks

Key PointsOffshore banking refers to the deposit of funds by a company or individual in a bank that is located outside their national residence. Although the term implies that these banks are located on islands, many offshore banks are, in fact, found in onshore locations, such as Panama, Luxembourg and
Switzerland.

Additional InformationForeign Bank means an organization that

• is organized under the laws of a foreign country
• engages in the business of banking
• is recognized as a bank by the bank supervisory or monetary authority of the country of its organization or principal banking operations
• receives deposits to a substantial extent in the regular course of its business
• has the power to accept demand deposits, but does not include the U.S. branches or agencies of a foreign bank

The correct answer is Both Statement I and Statement II are correct

Key PointsCustomer lifetime value (CLV) is a measure of the total income a business can expect to bring in from a typical customer for as long as that person or account remains a client.

When measuring CLV, it’s best to look at the total average revenue generated by a customer and the total average profit. Each provides important insights into how customers interact with your business and if your overall marketing plan is working as expected.

Activity-based costing (ABC) is a costing method that assigns overhead and indirect costs to related products and services. This accounting method of costing recognizes the relationship between costs, overhead activities, and manufactured products, assigning indirect costs to products less arbitrarily than traditional costing methods. However, some indirect costs, such as management and office staff salaries, are difficult to assign to a product.

The correct answer is Expert power

Key PointsAffiliation: This is characterized by a concern for establishing and maintaining close personal relationships, an emphasis on friendship, and a tendency to express one's emotions.

Expert power is a type of power that comes as a result of having deep, expert knowledge on a subject. If you know a lot about something, especially if you have developed expertise in the field, you can influence and inform those who know less than you about that subject.

Extension: this is characterized by a concern for others, interest in super ordinate goals, and an urge to be relevant and useful to large groups, including society as a whole.

Achievement: this motive is characterized by concern for excellence competition against standards set by others or by oneself, the setting of challenging goals for oneself, awareness of the obstacles that might be encountered in attempting to achieve these goals, and persistence in trying alternative paths to ones goals.

The correct answer is (A), (B), (D) and (E) only

Key PointsMarginal Costing is a costing system where products or services and inventories are valued at variable costs only. It does not take into consideration of fixed costs. This system of costing is also known as direct costing as only direct costs form part of product and inventory costs. Costs are classified on the basis of the behavior of cost (i.e. fixed and variable) rather than functions as done in the absorption costing method.

Additional InformationCharacteristics of Marginal Costing:

• All elements of cost are classified into fixed and variable components. Semi-variable costs are also analyzed into fixed and variable elements.
• The marginal or variable costs (as direct material, direct labor, and variable factory overheads) are treated as the cost of the product.
• Under marginal costing, the value of finished goods and work–in–progress is also comprised only of marginal costs. Variable selling and distribution are excluded from valuing these inventories. Fixed costs are not considered for the valuation of closing stock of finished goods and closing WIP.
• Fixed costs are treated as period costs and are charged to the profit and loss account for the period for which they are incurred.
• Prices are determined with reference to marginal costs and contribution margin.
• Profitability of departments and products is determined with reference to their contribution margin.

The correct answer is Gap between consumer expectation and management perception.

Key Points

Gap between Service Quality Specification and Management Perception 

This gap arises when the management or service provider might correctly comprehend what the customer requires, but may not set a performance standard. It can be due to poor service design, Inappropriate Physical evidence, Unsystematic new service Development process.

Gap between Management Perception and Customer Expectation

This gap arises when the management or service provider does not correctly analyze what the customer wants or needs. It also arises due to insufficient communication between contact employees and managers. There is a lack of market segmentation. This Gap occurs due to insufficient market research.

Gap between External Communication and Service Delivery

Consumer Expectations are highly influenced by the statements made by the company representatives and advertisements. This gap arises when these assumed expectations are not fulfilled at the time of Delivery of Service.

Gap between Service Quality Specification and Service Delivery

This gap may arise in situations existing to the service personnel. It may occur due to improper training, incapability or unwillingness to meet the set service standards. It can be due to inappropriate evaluation and compensation systems. Ineffective Recruitment is the main cause of this gap. The failure to match the supply and demand can led to tis gap. There is also a lack of empowerment, Perceived Control, and framework.

The correct answer is (A), (C), (D), (E) only

Key PointsA Research Design is simply a structural framework of various research methods as well as techniques that are utilised by a researcher.

Additional Information 

Elements of Research Design:

• The method applied for analyzing collected details
• Type of research methodology
• Accurate purpose statement
• Probable objections to research
• Techniques to be implemented for collecting and analyzing research
• Timeline
• Measurement of analysis
• Settings for the research study

The difference between the amount of material actually used for the production level achieved and the amount anticipated to be used, based on standard consumption levels, valued at standard cost, is known as the material usage variance.

Formula: (Standard quantity of material - Actual quantity of material) x Standard price per unit.

Important Points Standard Material = 400 kgs for 1000 units = 800 kgs for 2000 units.

Actual Material = 825 kgs for 2000 units.

Standard Price = 2.50/kg

MUV = (Standard quantity of material - Actual quantity of material) x Standard price per unit.

MUV = (800 - 825) x 2.50

MUV = -25 x 2.50

MUV = Rs. 62.5 adverse

The correct answer is Forex swap

Key PointsSwap rate is the rate of the fixed leg of a swap as determined by its particular market and the parties involved. In an interest rate swap, it is the fixed interest rate exchanged for a benchmark rate such as LIBOR or the Fed Funds Rate plus or minus a spread. It is also the exchange rate associated with the fixed portion of a currency swap.
A foreign exchange swap (forex swap) is a simultaneous purchase and sale of identical amounts of one currency for another with two different value dates and may use foreign exchange derivatives. A foreign exchange swap has two legs - a spot transaction and a forward transaction - that are executed simultaneously for the same quantity, and therefore offset each other. Forward foreign exchange transactions occur if both companies have a currency the other needs.

A forward rate is a specified price agreed by all parties involved for the delivery of a good at a specific date in the future. The use of forward rates can be speculative if a buyer believes the future price of a good will be greater than the current forward rate. Alternatively, sellers use forward rates to mitigate the risk that the future price of a good materially decreases.

A spot rate is the real-time price quoted for the instant settlement of a contract. In commodities markets, the spot rate represents the current price for the purchase or sale of a commodity, security, or currency.

The correct answer is Countercyclical Capital Buffer

Key PointsCountercyclical Capital Buffer is intended to guarantee that capital requirements for the banking sector consider the macroeconomic environment in which banks operate.

Additional InformationA capital buffer is an additional capital that financial organizations must retain over and beyond their basic capital requirements. And it has two categories, Countercyclical Capital Buffer, and capital conservation buffer.

When banks incur losses, the capital conservation buffer guarantees that they have an additional layer of useful capital from which to draw.

The correct answer is Makes control easy for top management

Key PointsA geographical organizational structure suits businesses that have offices or units in different regions or geographical areas. This form of structure enables businesses to

• have a reporting and functional system across multiple locations
• operate separate sites according to local demand but still be directed by business policy.

The advantages of organization structure by territory

• Serve better.
• Better communication.
• More effective management.
• Strong collaborative team.
• Knowledge transfer.
• Efficiency.
• lose communication with local customers
• strong collaborative teams at each location
• the ability to better serve local needs and tailor their approach to the local market
• the ability to encourage positive competition between different departments

Additional InformationTypes of Organizational Structure

1. Formal Organizational Structure

It refers to the structure of well-defined jobs each bearing a definite measure of authority, responsibility, and accountability. The structure is a formal organization can be functional or divisional.

Formal organizational structures are categorized as:

i) Linorganizationalal structure.

(ii) Staff or functional authority organizational structure.

(iii) Line and staff organizational structure.

(iv) Committee organizational structure.

(v) Divisional organizational structure.

(vi) Project organizational structure.

(vii) Matrix organizational structure and

(viii) Hybrid organizational structure.

2. Informal Organisational Structure

Interaction among people at work gives rise to a 'network of social relationships among employees, called informal organization. Informal organization emerges from within the formal organization when people interact beyond their officially defined roles.

The correct answer is (A), (B), (C), (D), (E)

Key PointsAs per Fayol's principle of management - 'Authority and Responsibility' an employee derives authority through position, experience, moral worth, past service, and intelligence.

Additional Information 

Fayol's 14 Principles of Management

• Work division - When employees are specialized, production can increase as they become increasingly skilled and efficient.
• Authority - Managers should have authority to command, but they must also bear in mind that with authority comes responsibility.
• Discipline – Discipline must be maintained in organizations, but the methods of doing so may vary.
• Unity of Command - Employees should have only one direct supervisor.
• Unity of Direction - Working under the same plan with the same objective should work under the direction of a manager. This will ensure that the action is properly coordinated.
• Subordinating personal interests to common interests - An employee's interests should not be allowed to become more important than those of the group. This includes managers.
• Remuneration – Employee satisfaction depends on fair remuneration for all. This includes financial and non-financial compensation.
• Centralization – This principle refers to how close employees are to the decision-making process. This is important for proper balance.
• Scalar Chain - Employees need to be aware of where they stand in the hierarchy or chain of command of the organization.
• Arrangement – ​​Workplace facilities should be clean and safe for the employees. Everything should have its place.
• Equality - Managers must be fair to employees at all times, both necessarily maintaining discipline and acting with kindness where appropriate.
• Stability of Personnel's tenure - Managers should strive to reduce employee turnover. Personnel planning should be a priority.
• Initiative - The employees should be given the required level of independence to formulate and carry out plans.
• Esprit de corps - Organizations should strive to promote team spirit and unity.

The correct answer is Slum sale price method

Key Points

Methods of Computation of Arm’s Length Price Section 92C:

1. Comparable Uncontrolled Price Method

CUP is applied when the price is charged for a product or service. This is a comparison of prices charged for the property transferred or service provided in a controlled transaction to a price charged for property or services transferred in a comparable uncontrolled transaction.

2. Resale Price Method

This is applicable when the property is purchased or services are obtained from associated enterprises and the same are sold to unrelated enterprises. This is based on the price of a property or service purchased or obtained from an associated enterprise and the further resale of the same to an unrelated enterprise.

3. Cost Plus Method

This method is applicable where some semi-finished goods are sold between related parties or similar situations or in respect of joint facility agreements, long-term buy and supply arrangements of provisions of services.

4. Profit Split Method

This method is applicable mainly in international transactions involving the transfer of unique intangibles or in multiple international transactions which are so interrelated that they cannot be evaluated separately for the purpose of determining the arm’s length price of any one transaction.

5. Transaction Net Margin Method

The TNMM requires establishing a comparability level at a broad functional level. It requires a comparison between the net margin derived from the operation of the uncontrolled parties and the net margin derived by an associated enterprise on a similar operation. Under this method, the net profit margin realized by an associated enterprise from an international transaction is computed in relation to a particular factor such as costs incurred, sales, assets utilized, etc. The net profit margin earned by an associate enterprise is compared with the net profit margin of uncontrolled transactions to arrive at an arm’s length price.

The correct answer is (A) - (IV), (B) - (I), (C) - (II), (D) - (III)

Key PointsInd AS 1 - This Standard prescribes the basis for the presentation of general-purpose financial statements to ensure comparability both with the entity’s financial statements of previous periods and with the financial statements of other entities. It sets out overall requirements for the presentation of financial statements, guidelines for their structure, and minimum requirements for their content.

Ind AS 12 - The objective of this Standard is to prescribe the accounting treatment for income taxes. The principal issue in accounting for income taxes is how to account for the current and future tax consequences.

Ind AS 24 - The objective of this Standard is to ensure that an entity’s financial statements contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances, including commitments, with such parties.

Ind AS 38 - The objective of this Standard is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another Standard. This Standard requires an
entity to recognize an intangible asset if, and only if, specified criteria are met. The Standard also specifies how to measure the carrying amount of intangible assets and requires specified disclosures about intangible assets.

The correct answer is (A) - (III), (B) - (I). (C) - (IV), (D)  - (II)

Key Points

• ITC Ltd.’s Sunfeast Mom’s Magic recently hosted a virtual musical concert under #StayStrongMoms. Campaign to pay tribute to mothers who keep their families cheerful and safe during such challenging times. The theme of the #StayStrongMoms germinated with the belief that Mother is the Warmest Superpower, and that Sunfeast Mom’s Magic helps mothers work their magic that makes everything feel right.
• Brooke Bond Red Label has come up with a new video to break the stereotypes and raise awareness on dwarfism with Unstereotype on October 25, celebrated as International Dwarfism Awareness Day. Using the hashtag #unstereotype, the story aims to initiate more conversations on account of International Dwarfism Awareness Day.
• Close-up is an American brand of toothpaste launched in 1967 by Unilever as the first gel toothpaste. CloseUp India in an effort to make the #FreedomToLove a reality for one and all In 2018, released figures based on a study in India, Brazil, and the Philippines.
• Mountain Dew started a new campaign on its social media platform with the tagline Stay indoors and take a step #JeetKiOre. Mountain Dew is a carbonated soft drink brand produced and owned by PepsiCo. PepsiCo (then The Pepsi-Cola Company) acquired the Mountain Dew brand in 1964, and shortly thereafter in 1969, the logo was modified as the company sought to shift its focus to a "younger, outdoorsy" generation.

 Additional Information Hindustan Unilever Limited (HUL) is an Indian consumer goods company headquartered in Mumbai. It is a subsidiary of the British company Unilever. Its products include foods, beverages, cleaning agents, personal care products, water purifiers, and other fast-moving consumer goods (FMCGs).

PepsiCo entered India in 1989 and has grown to become one of the largest MNC food and beverage businesses in India. PepsiCo India’s diverse portfolio includes iconic brands like Pepsi, Lay’s, Kurkure, Tropicana 100%, Gatorade and Quaker.

ITC Limited is an Indian conglomerate company headquartered in Kolkata. ITC has a diversified presence across industries such as FMCG, hotels, software, packaging, paperboards, specialty papers, and agribusiness.

Brooke Bond & Company was founded by Arthur Brooke in England, in 1845. Brooke chose the business name because it was his 'bond' to his customers to provide quality teas, hence Brooke Bond. The firm expanded into wholesale tea sales in the 1870s. In 1903, Brooke Bond launched Red Label in British India.

The correct answer is Management Contract

Key Points

Management Contracting

• Management Contracting is a low-risk method of getting into a foreign market and it starts yielding income right from the beginning.
• The arrangement is especially attractive if the contracting firm is given the option to purchase some shares in the managed company within a stated period. 
• It may obtain the business of exporting or selling otherwise of the product of the managed company or supply the inputs required by the managed company.
•  A management contract can involve a wide range of functions, such as the technical operation of a production facility, management of personnel, accounting, marketing services, and training.

Additional InformationInternational Licensing

• An international business licensing agreement involves two firms from different countries, with the licensee receiving the rights or resources to manufacture in the foreign country.
• Rights or resources may include patents, copyrights, technology, managerial skills, or other factors necessary to manufacture the good.

International Leasing

• International leasing means a transaction where the lease itself crosses a border i.e, where the lessor and lessee are in different countries.
• International leasing provides the lessee with additional flexibility in his use of resources, the ability to better plan his budgets, financial convenience, taxation-proof advantages, risk matching, and flexibility in dealing with replacement decisions in the face of rapid technological change.

Portfolio Investment

• Portfolio investment is defined as cross-border transactions and positions involving equity or debt securities, other than those included in direct investment or reserve assets.

The correct answer is (A), (B), (C) and (E) only

Key Points

1. An exclusive distribution agreement is an agreement between a distributor and a supplier that grants the distributor exclusive rights to sell the supplier's goods.
2. Resale Price Maintenance Agreements (RPM) are arrangements where resellers agree that they will sell products or products at certain prices at or above the price floor (minimum RPM) or at or below a price ceiling (maximum RPM).
3. An exclusive supply agreement, also called exclusive dealing, is a legal agreement between two parties in which one party imposes restrictions on the other party’s freedom to make choices about with who or with whom they do business.
4. A tie-in agreement is a system whereby there is some additional condition that is tied to the primary object. Tie-in agreement includes any arrangement requiring a purchaser of goods as a requirement of such purchase to purchase some other kinds of goods.

Additional Information

A non-compete agreement prevents a vendor from competing against a client's company or providing goods or services to the client's direct competitors.

This is not included in the anti-competetive agreements as per the Competition Act. 2002.

According to section 34(1) of Limited Liability Partnership Act, 2008:

• The limited liability partnership shall maintain such proper books of account as may be prescribed relating to its affairs for each year of its existence on cash basis or accrual basis and according to double entry system of accounting and shall maintain the same at its registered office for such period as may be prescribed.

Hence, Statement 1 is true.

Statement 1: LLP shall prepare a Statement of Account and Solvency for each financial year.

According to section 34 (2) of Limited Liability Partnership Act, 2008:

• Every limited liability partnership shall, within a period of six months from the end of each financial year, prepare a Statement of Account and Solvency for the said financial year as at the last day of the said financial year in such form as may be prescribed, and such statement shall be signed by the designated partners of the limited liability partnership.

Hence, Statement 2 is true.

Statement 3: Every LLP shall file an annual return with the Registrar of Companies.

According to section 34 (2) of Limited Liability Partnership Act, 2008:

• Every limited liability partnership shall file an annual return duly authenticated with the Registrar within sixty days of closure of its financial year in such form and manner and accompanied by such fee as may be prescribed.

Hence, Statement 3 is true.

Statement 4: LLP is not a separate legal entity independent of its partners.

According to section 3 of Limited Liability Partnership Act, 2008:

• A limited liability partnership is a body corporate formed and incorporated under this Act and is a legal entity separate from that of its partners.

Hence, Statement 4 is incorrect.

The correct answer is (A), (B), (C), (D) only

Key PointsRationing is a process of allocating limited resources over different demand centers in an optimal manner.

Capital rationing, therefore, means allocating a limited amount of capital over different projects available for investments in a way so as to maximize the overall net present value resulting from the entire investment.

Factors of Capital rationing:

• The increased cost of capital for higher capital/funding requirements.
• Higher debt in books of the company.
• Any internal management restriction.
• Lack of human resources or knowledge for undertaking all the projects.

Additional Information

Types of Rationing

• The first type of capital rationing is called hard capital rationing. This type of rationing happens if a company is having issues with raising excessive funds, either by means of debt or equity. The rationing happens from an external dependence in order to cut down on expenses and may result in a shortage of capital to raise enough money for projects in the future.
• The second kind of capital, rationing, is referred to as soft capital rationing. It is also called internal rationing. This happens because of the internal policies of an organization. A company that is financially conservative will have a high required return on the capital invested in taking up projects in the coming days, thereby imposing self-capital rationing.

The correct answer is (A) - (IV), (B) - (III), (C) - (II), (D) - (I)

Key PointsAs per Section 80G, donations to National Defence Fund set up by the Central Government are eligible for a 100% deduction without a qualifying limit.

Hedging of Tax/Tax avoidance refers to the use of legal methods to minimize the amount of income tax owed by an individual or a business.

Compliance with Legal Formalities leads to effective Tax management. It refers to the management of finances, for the purpose of paying taxes. Tax Management deals with filing Returns on time, getting the accounts audited, deducting tax at source, etc. Tax Management helps in avoiding payment of interest, penalty, and prosecution.

The correct answer is (A), (B) and (E) only

Key PointsCentral banks, especially those in developing countries, intervene in the foreign exchange market in order to build reserves for themselves or provide them to the country's banks. Their aim is often to stabilize the exchange rate.

Additional InformationTypes of Intervention by Central Banks

• Jawboning
• Operational Intervention
• Concerted Intervention
• Sterilized Intervention

The correct answer is 10 days

Key PointsThe third party should, within 10 days from the date of receipt of notice from the PIO, make a representation in writing or orally against the proposed disclosure and give written notice to the third party.

Additional Information“Third Party” means a person other than the citizen making a request for information and the public authority to which the request is made. It could be a private individual or a public authority. Section 11 of the Act requires that if the information sought by the citizen pertains to a record or part thereof relates to, or has been supplied by a third party and if it is not treated as
confidential by that third party, the PIO is at liberty to provide the same to the applicant. If, however, such above information is treated as ‘confidential’ by that third party, the following steps will have to be taken:

• The PIO gives written notice to the third party, within 5 days of receipt of the application, and conveys his intention to disclose the information or record while requiring the third party to make a submission, within 10 days from the date of receipt of such notice, regarding whether the information should be disclosed or not.
• The third-party should, within 10 days from the date of receipt of notice from the PIO, make a representation in writing or orally against the proposed disclosure and give written notice to the third party.
• The PIO can, within 40 days after the receipt of an application for information, if the third party has been given an opportunity to make representation, make a decision on disclosure, and give written notice to the third party.
• The third party is entitled to prefer an appeal against the decision of the PIO. Except in the case of “trade or commercial secrets protected by law”, disclosures involving third-party information may be allowed if the public interest in disclosure outweighs the importance of any possible harm or injury to the interests of a such third party. If the third party is a private individual, the PIO has to be very cautious and properly weigh the consequences as the privacy of an individual is important and protected under Section 8 (1) (j).

The correct answer is (A), (C) and (D) only

Key Points

Key factors favouring product standardization include high technology intensity, huge customization costs, global convergence of customer needs, and country-of-origin effects. The marketing of products sold internationally can be standardized to ensure a consistent look and feel across markets.

Important PointsWhat is product standardization in the international market?
Product standardization is a process and strategy for uniformly producing and selling products or services. It involves ensuring that a product in any market meets certain standards for item quality, service delivery, or appearance.

The correct answer is Securitization

Key Points

Securitization involves bundling loans and selling them to a special purpose vehicle (SPV), which then issues securities called pass-through certificates (PTCs) backed by the loan pool. For lenders of home loans, securitization would mean pooling home loans.

Additional Information 

Unbundling occurs when a company disposes of business units, including assets, subsidiaries, etc. This process separates the revenues from the individual business units so that the company can focus on its core business.

A derivative is a security whose price depends on or is derived from one or more underlying assets. The derivative itself is a contract between two or more parties based on the asset or assets. Its value is determined by fluctuations in the underlying asset.

Credit enhancement is a strategy to improve the credit risk profile of a company, usually to obtain better terms for debt repayment. In the financial industry, credit enhancement can be used to reduce the risks for investors in certain structured financial products.

Key Point

Normal goods are a type of good whose demand has a direct relationship with the consumer's income. This means that the demand for normal goods increases with an increase in the consumer's income or an expansion of the economy. A normal good has an income elasticity of demand that is positive, but less than one.

An inferior good is an economic term that describes a good whose demand decreases when people's income increases. The income elasticity of demand for inferior goods is negative.

A luxury good is a good whose demand increases disproportionately as people's income increases so that spending on that good accounts for a larger share of total spending. If a good is a luxury, its income elasticity of demand is Positive and greater than 1.

A "necessity good" or "necessary good" is a type of "normal good." Necessary goods are products and services that consumers will purchase regardless of changes in their income levels, so these products are less sensitive to changes in income. The income elasticity is between zero and one.

Additional Information​Income elasticity of demand means that the quantity demanded of a given product depends not only on its own price ( elasticity of demand) and on the price of other related products (cross-price elasticity of demand) but also on other factors such as income.

Methods to calculate elasticity:

• Percentage method
• Arc method
• Proportionate method
• Geometric method

The correct answer is The errors in the value of y are identical in successive observations.

Key Points

Linear regression is an analysis that examines whether one or more predictor variables explain the dependent variable (criterion).

Linearity: The relationship between X and the mean of Y is linear.

Homoscedasticity: the variance of the residuals is the same for each value of X.

Independence: The observations are independent of each other.
Normality: For any fixed value of X, Y is normally distributed

The set of expected values of the dependent variable y for given values of the independent variable x is normally distributed.

The standard deviation and variance of the expected values of the dependent variable around the regression line are constant for all values of the independent variable x for the set of observations in a sample.

The dependent variable y is a continuous random variable.

Important Points

Simple linear regression is used to estimate the relationship between two quantitative variables like (heights of girls and boys, and runs of two different players). We can use simple linear regression if you want to know something like how strong the relationship is between two variables (e.g., the relationship between precipitation and soil erosion).
The value of the dependent variable gives a certain value of the independent variable (e.g., the amount of soil erosion given a certain amount of precipitation).

The correct option is Section 80 IA

Key Points

Section 80-IA of the Income Tax Act provides a 100 % tax deduction for certain industrial companies involved in infrastructure development. Section 80IA provides deductions in respect of profits and gains from undertakings or enterprises
engaged in infrastructure development/ operation/maintenance, generation/transmission/ distribution of power, etc.

Additional Information10(5) AND RULE 2B] - Salary Income - Income Tax.  

Travel must be within India; overseas travel is not exempt.

For example, if an employer provides an allowance of 50,000 but an employee spends only 40,000 on travel, the exemption is limited to 40,000.

A person may claim a deduction for health insurance premium and preventive medical check-up expenses for himself, spouse, dependent children, and parents. This is subject to the conditions specified in Section 80D of the Income Tax Act of 1961.

Section 80CCC of the Income Tax Act, 1961 provides deductions of up to 1.5 lakhs per annum.

The correct answer is Both (A) and (R) are true and (R) is the correct explanation of (A)

Key Points

The income effect is the change in consumers' consumption of goods as a function of their income (purchasing power).

The substitution effect occurs when consumers substitute cheaper goods for more expensive ones due to price changes or an improvement in their financial situation.

Additional Information

The substitution effect is an effect due to the adjustment of the cost of a service or product that causes customers to substitute more extravagant items for less expensive ones.

The "income effect" refers to the adjustment of interest in a product or service caused by the adjustment of a customer's real income.

Lowering the price of a product

This makes it cheaper than its substitutes, which attracts more customers and causes the products or services to become more desirable.

Expands a buyer's real purchasing power, which allows him to buy more with the given financial plan.

Increase in the price of the product

Since the other products are similarly cheaper, customers will switch to other products.

The substitution effect is greater than the income effect because the amount of money spent on any one commodity is less.

Hence, the correct answer is Both (A) and (R) are true and (R) is the correct explanation of (A).