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UPMSP High School Commerce study materials
UPMSP High School Commerce study resources

UPMSP High School Commerce practice questions

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Question 1Business Organisation and Management

A business run by a single owner who bears all risks and keeps all profits is called a:

  1. Partnership
  2. Sole proprietorship Correct answer.
  3. Joint stock company
  4. Co-operative society

Explanation

A sole proprietorship has one owner who invests capital, manages the business, enjoys all profit and bears unlimited liability for losses. Partnership and company forms involve multiple owners or separate legal personality. Hence the single-owner description fits only the sole proprietorship.

Question 2Business Organisation and Management

In a partnership firm, the liability of each partner for the debts of the firm is:

  1. Unlimited and joint Correct answer.
  2. Limited to a fixed government amount
  3. Nil after registration
  4. Limited to capital contributed

Explanation

Under the Indian Partnership Act, partners have unlimited joint and several liability, so personal assets can be used to pay firm debts. Registration does not remove this liability. Limited liability belongs to companies, not ordinary partnerships.

Question 3Business Organisation and Management

The minimum number of members required to form a public company in India is:

  1. Ten
  2. Seven Correct answer.
  3. Two
  4. Fifty

Explanation

A public company must have at least seven members, and there is no upper limit on the number of members. A private company needs a minimum of two members. These thresholds come from the Companies Act, 2013.

Question 4Business Organisation and Management

The document that states the objects for which a company is formed and defines the scope of its activities is the:

  1. Articles of Association
  2. Prospectus
  3. Memorandum of Association Correct answer.
  4. Certificate of Incorporation

Explanation

The Memorandum of Association is the charter of the company and contains the objects clause, which limits the activities the company may undertake. The Articles govern internal management rules. A prospectus invites the public to subscribe to securities.

Question 5Business Organisation and Management

The principle of 'one member, one vote' regardless of capital contributed is a defining feature of:

  1. A public limited company
  2. A sole proprietorship
  3. A co-operative society Correct answer.
  4. A partnership firm

Explanation

Co-operative societies follow democratic control, so each member has one vote irrespective of the amount of capital held. In companies, voting rights usually follow shareholding. Partnerships and sole proprietorships do not use member voting at all.

Question 6Business Organisation and Management

Which function of management involves dividing work into tasks and grouping them into departments?

  1. Organising Correct answer.
  2. Staffing
  3. Controlling
  4. Directing

Explanation

Organising is the process of identifying and dividing work, grouping activities into departments and assigning authority and responsibility. Staffing deals with recruitment and placement of people. Directing concerns instructing and motivating employees.

Question 7Business Organisation and Management

According to Henri Fayol, the principle that a subordinate should receive orders from only one superior is called:

  1. Scalar chain
  2. Esprit de corps
  3. Unity of direction
  4. Unity of command Correct answer.

Explanation

Unity of command states that each subordinate should have only one superior to avoid confusion and conflict in instructions. Unity of direction refers to one head and one plan for activities with the same objective. The scalar chain is the line of authority from top to bottom.

Question 8Business Organisation and Management

The process of comparing actual performance with planned standards and taking corrective action is known as:

  1. Organising
  2. Planning
  3. Controlling Correct answer.
  4. Coordination

Explanation

Controlling is the management function that measures actual performance against standards, identifies deviations and initiates corrective steps. Planning sets the standards in advance. Coordination is the harmonising of activities across departments.

Question 9Business Organisation and Management

A company issues 10,000 equity shares of face value Rs. 10 each at Rs. 12 per share. The amount credited to Securities Premium is:

  1. Rs. 1,20,000
  2. Rs. 10,000
  3. Rs. 20,000 Correct answer.
  4. Rs. 1,00,000

Explanation

The premium per share is Rs. 12 minus Rs. 10, that is Rs. 2. Multiplying Rs. 2 by 10,000 shares gives Rs. 20,000, which is credited to the Securities Premium account. The face value of Rs. 1,00,000 goes to share capital.

Question 10Business Organisation and Management

A firm has current assets of Rs. 3,00,000 and current liabilities of Rs. 1,50,000. Its current ratio is:

  1. 3:1
  2. 2:1 Correct answer.
  3. 1:2
  4. 1.5:1

Explanation

The current ratio equals current assets divided by current liabilities, so Rs. 3,00,000 divided by Rs. 1,50,000 gives 2:1. A ratio above 1 indicates the firm can meet short-term obligations. The other figures invert or misstate the calculation.

Question 11Business Organisation and Management

A partner who lends money to the firm but does not take part in its management is called a:

  1. Secret partner
  2. Nominal partner
  3. Partner by estoppel
  4. Sleeping partner Correct answer.

Explanation

A sleeping partner contributes capital and shares profits but does not participate in day-to-day management. A nominal partner lends only his name without capital or profit share. A partner by estoppel is held liable because of his conduct or representation.

Question 12Business Organisation and Management

The liability of shareholders of a company is limited to:

  1. The total debts of the company
  2. The value of company assets
  3. The unpaid amount on their shares Correct answer.
  4. Their personal property

Explanation

Shareholders of a limited company are liable only for the unpaid portion of the face value of their shares. Their personal assets are protected from company creditors. The company itself is liable for its debts to the extent of its assets.

Question 13Business Organisation and Management

A public company wishes to raise capital from the public for the first time. It must issue a document inviting subscriptions, which is called a:

  1. Prospectus Correct answer.
  2. Articles of Association
  3. Memorandum of Association
  4. Annual return

Explanation

A prospectus is any document that invites the public to subscribe to securities of a company. It must disclose material facts so investors can make an informed decision. The memorandum and articles are constitutional documents, not invitations to invest.

Question 14Business Organisation and Management

In a small firm, the owner performs planning, buying, selling and record-keeping himself. This best illustrates that management is:

  1. A group activity
  2. A continuous process
  3. Pervasive Correct answer.
  4. A goal-oriented process

Explanation

Pervasiveness means management applies at every level and in every type of organisation, from a one-person firm to a large company. The same functions are performed even where one person carries them out. The other options describe different characteristics of management.

Question 15Business Organisation and Management

Under the Companies Act, a private company must have at least:

  1. Two directors Correct answer.
  2. One director
  3. Three directors
  4. Seven directors

Explanation

A private company must have a minimum of two directors, while a public company needs at least three. A one person company needs only one director. The number of directors is separate from the minimum number of members.

Question 16Business Organisation and Management

A business earns a net profit of Rs. 60,000 on sales of Rs. 4,00,000. Its net profit ratio is:

  1. 25%
  2. 15% Correct answer.
  3. 66.67%
  4. 6.67%

Explanation

The net profit ratio equals net profit divided by net sales multiplied by 100. Here Rs. 60,000 divided by Rs. 4,00,000 gives 0.15, that is 15 per cent. The other percentages result from inverting the figures or using wrong bases.

Question 17Business Organisation and Management

The principle of 'subordination of individual interest to general interest' in Fayol's list means that:

  1. Employees should be paid fairly for their work
  2. Work should be divided into specialised tasks
  3. Authority should flow down the chain of command
  4. Organisational interest should prevail over personal interest Correct answer.

Explanation

This principle requires that the interests of the organisation as a whole take precedence over the personal interests of individuals or groups within it. Fair pay relates to the principle of remuneration. Division of work relates to specialisation.

Question 18Business Organisation and Management

A company forfeits 500 shares of face value Rs. 10 each on which Rs. 3 per share had been called and not paid. The amount credited to the Share Forfeiture account is:

  1. Rs. 1,500 Correct answer.
  2. Rs. 5,000
  3. Rs. 1,000
  4. Rs. 3,500

Explanation

On forfeiture, the amount already received on the shares is credited to the Share Forfeiture account. Here Rs. 3 per share had been called and remained unpaid, so the amount received is Rs. 7 per share, giving Rs. 3,500. This figure must be checked against calls in arrears before finalising the entry.

Question 19Business Organisation and Management

Which of the following is a merit of a sole proprietorship form of organisation?

  1. Large capital-raising capacity
  2. Continuity beyond the owner's lifetime
  3. Quick decisions and direct personal contact with customers Correct answer.
  4. Limited liability for the owner

Explanation

Because the sole proprietor is the only decision-maker, decisions can be taken quickly and the owner deals directly with customers. Limited liability, perpetual succession and large-scale capital raising are features of companies, not sole proprietorships.

Question 20Business Organisation and Management

The 'scalar chain' principle of Fayol suggests that:

  1. Authority should flow in an unbroken line from top to bottom Correct answer.
  2. Managers should encourage team spirit among employees
  3. Every employee should receive orders from one superior only
  4. Work should be divided into small specialised tasks

Explanation

The scalar chain is the graded line of authority from the highest to the lowest level, along which communication normally flows. Fayol allowed a 'gang plank' for faster communication between equals in emergencies. Unity of command and division of work are separate principles.

Question 21Business Organisation and Management

A partnership firm earns a profit of Rs. 1,20,000. Partner A and Partner B share profits in the ratio 3:1. If the deed provides interest on capital of Rs. 10,000 to A and Rs. 5,000 to B before profit sharing, the amount A receives in total is:

  1. Rs. 90,000
  2. Rs. 85,000
  3. Rs. 1,05,000
  4. Rs. 88,750 Correct answer.

Explanation

Interest on capital of Rs. 15,000 is deducted from Rs. 1,20,000, leaving Rs. 1,05,000 to be shared 3:1. A's share of divisible profit is Rs. 78,750, and adding interest of Rs. 10,000 gives Rs. 88,750. Profit sharing follows the deed before any residual distribution.

Question 22Business Organisation and Management

A company with an authorised capital of Rs. 50,00,000 has issued shares of Rs. 30,00,000, of which Rs. 27,00,000 has been called up. The amount of uncalled capital is:

  1. Rs. 23,00,000
  2. Rs. 20,00,000
  3. Rs. 27,00,000
  4. Rs. 3,00,000 Correct answer.

Explanation

Uncalled capital is the difference between issued capital and called-up capital. Here Rs. 30,00,000 minus Rs. 27,00,000 gives Rs. 3,00,000. The difference between authorised and issued capital is unissued capital, not uncalled capital.

Question 23Business Organisation and Management

A firm's current ratio is 2:1 and its quick ratio is 0.8:1. The most likely reason for the wide gap between the two ratios is:

  1. A large amount of cash
  2. Large current liabilities
  3. High long-term borrowings
  4. A large holding of inventory Correct answer.

Explanation

The quick ratio excludes inventory from current assets, so a low quick ratio alongside a healthy current ratio points to inventory forming a large part of current assets. Cash is included in both ratios and would not create the gap. Long-term borrowings do not enter either ratio.

Question 24Business Organisation and Management

A private company converts into a public company. Which change is legally required?

  1. Increase in the number of directors to five
  2. Issue of a fresh certificate of incorporation without any alteration
  3. Reduction of share capital to below Rs. 5,00,000
  4. Alteration of the articles to remove restrictive clauses and increase members to at least seven Correct answer.

Explanation

Conversion to a public company requires altering the articles to delete the restrictions that apply to private companies and ensuring at least seven members. A fresh certificate of incorporation is issued on conversion. The number of directors must reach three, not five.

Question 25Business Organisation and Management

A partner retires from a firm and the remaining partners continue the business. Which statement about the retiring partner's liability is correct?

  1. His liability ends only when the firm is dissolved
  2. He remains liable for all future debts of the firm indefinitely
  3. He remains liable for acts done before retirement but can be discharged from future liability by public notice Correct answer.
  4. He is automatically free from all liability from the date of retirement

Explanation

A retiring partner continues to be liable for obligations incurred before retirement. For future acts, he can be discharged if public notice of retirement is given. Without such notice, he may remain liable to third parties who dealt with the firm unaware of the retirement.

Question 26Business Organisation and Management

In a business organisation, the process of assigning duties, granting authority, and creating accountability for the achievement of organisational goals is called:

  1. Span of control
  2. Unity of command
  3. Decentralisation
  4. Delegation Correct answer.

Explanation

Delegation is the downward transfer of authority from a superior to a subordinate, along with responsibility and accountability for results. It is a core organising process that helps managers distribute workload and develop subordinates.

Question 27Business Organisation and Management

A firm follows a policy of filling higher-level positions through internal promotion rather than external recruitment. Which advantage of internal recruitment is most directly supported by this policy?

  1. It widens the choice of candidates for selection
  2. It reduces the cost of recruitment and selection Correct answer.
  3. It brings fresh talent and new ideas into the organisation
  4. It helps in fulfilling reservation requirements for reserved categories

Explanation

Internal recruitment through promotion limits the candidate pool to existing employees, which eliminates the need for extensive advertising and lengthy selection processes. This reduces both the time and cost associated with hiring. The other options are advantages of external recruitment or unrelated to the stated policy.

Question 28Business Organisation and Management

According to Maslow's need hierarchy theory, which need becomes the primary motivator immediately after safety and security needs are reasonably satisfied?

  1. Esteem needs
  2. Physiological needs
  3. Social needs Correct answer.
  4. Self-actualisation needs

Explanation

Maslow arranged needs in a hierarchy: physiological, safety, social, esteem, and self-actualisation. Once safety needs are met, social needs such as belongingness and friendship emerge as the dominant motivators. Esteem and self-actualisation needs become active only after lower-order needs are satisfied.

Question 29Business Organisation and Management

A company introduces a suggestion scheme where employees receive a cash reward for every accepted idea that reduces production waste. Which element of the communication process is primarily strengthened by this scheme?

  1. Channel
  2. Noise
  3. Feedback Correct answer.
  4. Encoding

Explanation

Feedback is the receiver's response that confirms whether the message was understood as intended. A suggestion scheme encourages employees to respond with ideas, thereby strengthening upward feedback and making communication two-way. Encoding, channel, and noise relate to the transmission of the message itself, not to the receiver's response.

Question 30Business Organisation and Management

A firm's current ratio is 2.5:1 and its quick ratio is 0.6:1. Which combination of factors best explains this large gap between the two ratios?

  1. A very low level of current liabilities relative to current assets
  2. A very high level of long-term debt in the capital structure
  3. A high proportion of current assets held as cash and receivables and a low proportion held as inventory
  4. A high proportion of current assets held as inventory and a low proportion held as cash and receivables Correct answer.

Explanation

The quick ratio excludes inventory from current assets. A large gap between a high current ratio and a low quick ratio indicates that inventory forms a major part of current assets while liquid assets like cash and receivables are relatively small. This means the firm may face difficulty in meeting short-term obligations promptly despite a comfortable current ratio.

Question 31Book-Keeping and Accountancy

In double-entry book-keeping, which account is debited when goods are purchased on credit from a supplier?

  1. Cash account
  2. Purchase account Correct answer.
  3. Supplier's (creditor's) account
  4. Sales account

Explanation

Purchases are an expense for the business, and expenses increase on the debit side. The supplier's personal account is credited because the business now owes money to the creditor. Cash is untouched since the transaction is on credit.

Question 32Book-Keeping and Accountancy

Which of the following is a book of original entry (prime entry)?

  1. Balance sheet
  2. Ledger
  3. Trial balance
  4. Purchases return book Correct answer.

Explanation

Books of original entry record transactions first, before posting to the ledger. The purchases return book records goods returned to suppliers and is a subsidiary book of prime entry. The ledger, trial balance and balance sheet come later in the accounting cycle.

Question 33Book-Keeping and Accountancy

An entry recorded on the debit side of a cash book is posted to the credit of the discount allowed account. What does this entry represent?

  1. Bad debts written off
  2. Discount allowed to a customer Correct answer.
  3. Cash received from a debtor
  4. Discount received from a supplier

Explanation

Discount allowed is an expense, so it is debited in the discount allowed account and credited in the personal account of the customer. In the cash book, the amount of discount allowed appears on the debit side alongside the cash received.

Question 34Book-Keeping and Accountancy

A trial balance shows a difference which is placed in a suspense account. Later it is found that a sale of ₹5,000 to Ram was completely omitted from the books. What is the correct rectifying entry?

  1. Debit Suspense ₹5,000; credit Sales ₹5,000
  2. Debit Sales ₹5,000; credit Ram ₹5,000
  3. Debit Ram ₹5,000; credit Sales ₹5,000 Correct answer.
  4. Debit Ram ₹5,000; credit Suspense ₹5,000

Explanation

A complete omission means neither the personal account nor the sales account was recorded, so both must now be written up. Ram is a debtor and is debited, while sales are credited. No suspense account is needed because the omission did not create the trial balance difference.

Question 35Book-Keeping and Accountancy

Under the diminishing (written-down value) method, depreciation is calculated on which amount?

  1. Market value of the asset at year end
  2. Original cost less scrap value
  3. Book value of the asset at the beginning of the year Correct answer.
  4. Original cost of the asset

Explanation

In the diminishing balance method, a fixed percentage is applied each year to the reducing book value of the asset. As a result, the depreciation charge falls each year over the asset's life. The original cost is used only in the first year.

Question 36Book-Keeping and Accountancy

Which of these errors will be disclosed by a trial balance?

  1. A credit sale of ₹500 completely omitted from the books
  2. Purchase of furniture debited to purchases account
  3. Goods sold to A wrongly posted to B's account
  4. A sale of ₹900 to Mohan posted as ₹90 to his account Correct answer.

Explanation

A trial balance fails to agree when the two sides of a single transaction are posted with different amounts. Posting ₹900 as ₹90 creates an unequal debit and credit, so the difference appears. The other errors keep debits and credits equal.

Question 37Book-Keeping and Accountancy

Goods costing ₹8,000 are sold to a customer for ₹10,000 on credit. Which accounting concept requires the profit of ₹2,000 to be recognised at the time of sale?

  1. Going concern concept
  2. Prudence concept
  3. Realisation (revenue recognition) concept Correct answer.
  4. Consistency concept

Explanation

The realisation concept states that revenue is recognised when the sale is made, that is, when the goods are transferred and the right to receive payment arises. Profit is therefore recorded at the point of sale, not when cash is received.

Question 38Book-Keeping and Accountancy

A trader's capital is ₹80,000 and closing liabilities total ₹50,000. What are the total assets?

  1. ₹30,000
  2. ₹1,30,000 Correct answer.
  3. ₹50,000
  4. ₹80,000

Explanation

The accounting equation is Assets = Capital + Liabilities. Adding capital of ₹80,000 and liabilities of ₹50,000 gives total assets of ₹1,30,000. Subtracting one from the other would misapply the equation.

Question 39Book-Keeping and Accountancy

Which item appears on the debit side of a bank reconciliation statement prepared starting from the cash book balance?

  1. Cheques deposited but not yet credited by the bank Correct answer.
  2. Interest allowed by the bank
  3. Direct deposit by a customer into the bank account
  4. Cheques issued but not yet presented for payment

Explanation

Cheques paid in but not yet collected by the bank have been debited in the cash book but not in the pass book. When reconciling from the cash book balance, they are added or placed on the debit side to arrive at the pass book balance.

Question 40Book-Keeping and Accountancy

In a non-profit organisation, the excess of income over expenditure for a year is called:

  1. Deficit
  2. Capital fund
  3. Surplus Correct answer.
  4. Net profit

Explanation

Non-profit organisations prepare an income and expenditure account instead of a profit and loss account. When total income exceeds total expenditure, the difference is a surplus, which is added to the capital fund.

Question 41Book-Keeping and Accountancy

A and B share profits in the ratio 3:2. C is admitted for 1/5 share, which he acquires entirely from A. What is the new profit-sharing ratio of A and B?

  1. 2:2 Correct answer.
  2. 12:8
  3. 11:5
  4. 3:2

Explanation

A gives 1/5 of the total to C, leaving A with 3/5 − 1/5 = 2/5. B's share is unchanged at 2/5. The new ratio between A and B is therefore 2:2, that is, equal shares.

Question 42Book-Keeping and Accountancy

Which of the following is a capital receipt for a business?

  1. Loan taken from a bank Correct answer.
  2. Cash received from sale of goods
  3. Rent received from a tenant
  4. Commission received

Explanation

Capital receipts arise from financing or the sale of capital assets, not from normal trading operations. A bank loan brings funds into the business and creates a liability, so it is a capital receipt. The other items are routine revenue receipts.

Question 43Book-Keeping and Accountancy

Which of the following is a contra entry in a three-column cash book?

  1. Salary paid by cheque
  2. Cheque received from a debtor deposited into bank
  3. Cash paid to a creditor
  4. Cash withdrawn from bank for office use Correct answer.

Explanation

A contra entry affects both the cash and bank columns of the cash book and is marked with the letter C. Withdrawal of cash from the bank for office use is the classic example: bank is credited and cash is debited.

Question 44Book-Keeping and Accountancy

A firm's opening stock is ₹20,000, purchases are ₹1,20,000, closing stock is ₹30,000 and sales are ₹1,80,000. What is the cost of goods sold?

  1. ₹1,10,000 Correct answer.
  2. ₹1,50,000
  3. ₹1,20,000
  4. ₹1,30,000

Explanation

Cost of goods sold equals opening stock plus purchases less closing stock. That is ₹20,000 + ₹1,20,000 − ₹30,000 = ₹1,10,000. Sales are not used in this calculation.

Question 45Book-Keeping and Accountancy

Which of these is a current liability?

  1. Loose tools
  2. Building
  3. Motor vehicle
  4. Bank overdraft Correct answer.

Explanation

A current liability is a short-term obligation settled within a year, usually through current assets. A bank overdraft is repayable on demand and is a typical current liability. Buildings, vehicles and tools are fixed assets.

Question 46Book-Keeping and Accountancy

A bill of exchange is drawn by the drawer and accepted by the drawee. What is the effect of acceptance?

  1. It converts the bill into a promissory note
  2. It discharges the drawer from all liability
  3. It makes the drawee liable to pay the amount on the due date Correct answer.
  4. It transfers ownership of goods to the drawee

Explanation

Acceptance is the drawee's written agreement to pay the bill on maturity. Once accepted, the drawee becomes the acceptor and is primarily liable to pay the amount stated in the bill.

Question 47Book-Keeping and Accountancy

Goods worth ₹4,000 were returned by a customer. Where is this recorded before posting to the ledger?

  1. Cash book
  2. Sales return book Correct answer.
  3. Sales book
  4. Purchases book

Explanation

Goods returned by a customer are sales returns, also called returns inward. They are first entered in the sales return book and then posted to the credit of the customer's account.

Question 48Book-Keeping and Accountancy

A machine costing ₹1,00,000 is depreciated at 10% per annum on the straight line method. What is its book value after two years?

  1. ₹90,000
  2. ₹81,000
  3. ₹80,000 Correct answer.
  4. ₹1,00,000

Explanation

Under the straight line method, depreciation is ₹10,000 each year. After two years the accumulated depreciation is ₹20,000, so the book value is ₹1,00,000 − ₹20,000 = ₹80,000.

Question 49Book-Keeping and Accountancy

Which of the following is a deferred revenue expenditure?

  1. Heavy advertising expenditure whose benefit will last several years Correct answer.
  2. Carriage paid on goods purchased
  3. Insurance premium paid for the current year
  4. Wages paid to workers

Explanation

A deferred revenue expenditure is a revenue expense whose benefit extends over several accounting periods. Heavy advertising launched to build a brand is written off over the years it benefits rather than charged wholly in one year.

Question 50Book-Keeping and Accountancy

A firm's current assets are ₹60,000 and current liabilities are ₹40,000. Stock worth ₹10,000 is then purchased on credit. What happens to the current ratio?

  1. It falls from 1.5:1 to 1.4:1 Correct answer.
  2. It falls to 1:1
  3. It remains unchanged at 1.5:1
  4. It rises from 1.5:1 to 1.6:1

Explanation

Before the purchase the ratio is 60,000/40,000 = 1.5:1. Buying stock on credit raises both current assets and current liabilities by ₹10,000, giving 70,000/50,000 = 1.4:1. Because the ratio was above 1, this equal increase lowers it.