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Written by ; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
Important questions
Introduction to business
B.com part 1st
What are the features of a business?
- What are the components /divisions / branches of business?( 2006,2008,2009,2010,2011)
- What are the qualities of good businessman? (2007)
- What is the importance of business? ( 2006 - 2007 - 2008 - 2009)
- Explain the different forms of business (2010)
- Explain the advantages and disadvantages of sole trader ship (2006- 07 - 08 - 09 sup
- Explain the advantages and disadvantages of partnership (SUP-2008)
- What is co-ownership? Explain the difference between partnership and co-owner ship (2010)
- Explain the difference between partnership and sole trader ship
- What are the kinds of partner?
- Explain the right duties and liabilities of partner in a firm (2009- sup 2007)
- Define the dissolution of firm and also explain the circumstances under which a form may be dissolved (2006-08-10, sup 2010)
- Describe the advantages and disadvantages of joint stock company
- What are the types of joint stock company (2006- 08 - 09, sup 2007)
- Differentiate between partnership and public company (2007, sup 2006-08)
- differentiate between private company and public company (2006- 08 - 09, sup 2007)
- What is the procedure of formation of joint stock company (2006- 08 - 09, sup 2006-
- What are the three legal documents of company [2006- 07 - 10, sup 2010- 11
- Explain the types of meeting and also state the purpose of such meeting [ sup 2008]
- What are the advantages and disadvantages of co-operative societies [2009, sup 2006- 07]
- Explain various kinds of cooperative society. [2006-08]
- Difference between joint stock company and co- operative society [2007]
- Define share capital. What are the various forms of share capital [2010]
- What is business combination? Explain the causes of its growth [2006- 08 - 09 - 11]
- What is business combination also explain its various types [2007- 10 - 11, sup2006-09]
- Define marketing also explain the functions of marketing [2007-10]
- Define advertising. what are the various types of advertising [2009-10]
- What is insurance. explain the different types of insurance also describe its merits and demerits [2007, sup2007]
Written by ; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
Define business? What are the characteristics / Features of a
business?
A business should have the following characteristics
1. D eals in goods and services
2. E conomic activities
3. P rofit motive
4. R egular transactions
5. E lement of competition
6. S ize
7. M anagement
8. I nnovation
9. C apital
10. S ocial process
11. B usiness is a system
12. A rt as well as science
13. R egistration of business
14. T ransfer of title
15. E lement of risk
- R eliability 1. Deals in goods and services
Business always deals in goods and services. Goods include consumer ( ) goods and industrial goods. Such as cloth, shoes, sugar, raw material etc. services include insurance companies, teachers, lawyers, doctors etc.
2. Economic activities
Economic activities mean exchange of goods and services for the purpose of earning money. Purpose of every business is to perform some economic activities. If a business is not performing economic activities it cannot be called business.
3. Profit motive
Business must be formed to earn profit. If an organization is formed to serve the nation and its primary motive is not to earn profit it cannot be called business
4. Regular transactions
Note
To remember headings easily, focus on the first letter of every heading it is forming a specific name and in this question it is
DEPRES MICS BARTER
Written by ; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
In sole proprietorship registration is not required In partnership registration is optional. In case of Joint Stock Company it is compulsory.
14. Transfer of title (ownership)
Transfer of title means that the change of ownership from one hand to another. In business goods are purchased with intention to sale them. When goods are sold, ownership transfers form seller to buyer.
15. Element of risk
Risk means the possibility of loss. The business may suffer losses due to change in customer taste and fashion.
16. Reliability
The goods and services produced by the business should be reliable, so that business can achieve goodwill.
Written by ; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
Q#1 what are the components/ divisions/ branches of business?
Or
Explain the scope of business
Or
Explain the industry, commerce and trade
Components of business
Business includes the following components
Industry Commerce
Industry
Industry is a part of business in which goods & services are produced. Industries convert raw material into finished and semi finished goods. Industry has two types.
- Primary industry
- Secondary industry
1) Primary industry
Primary industry is engaged in the production and extraction ( ) of natural sources from earth which are used in the secondary industry. Primary industry can be divided into two parts.
i. Extractive industry ii. Genetic industry
i. Extractive industry
Extractive industries are those which raise or produce natural sources from below the surface of earth. Such as fishery, extraction of oil, gas and coal.
ii. Genetic industries
Genetic industries are those that are engaged in reproducing and multiplying the certain species of animals and plants. Such as poultry farm, fishing farm, nursery.
2) Secondary industry
These industries use finished goods of primary industries as raw material. Secondary industries manufacture the products that can be used by the consumer. Secondary industry has three types.
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The purchase and sale of goods between two or more countries is called foreign trade. It is also called international trade. Foreign trade has three types.
a. Import trade
When goods or services are purchased from other countries it is called import trade.
b. Export trade
When goods or services are sold to other country it is called export trade.
c. Enter port trade
When goods are imported from one country with a view to export them in other country.
2. Aids to trade
Aids to trade include all those activities that support trade. Following are the common aids to trade.
1. Advertisement
It is an easy way to inform large number of customers about the availability of product. Advertisement can be made through, news papers, radio T.V
2. Agents
Agents are those persons who buy or sale goods for their principal.
3. Banking
Bank facilitates the buyer and seller for the settlement of payments both in home trade and foreign trade. They also grant loans to businessmen.
4. Insurance
Insurance companies help trader in transferring goods from one place to another safely.
5. Transportations / Logistics
Means of transportation transfer the goods from factory to customer. Examples of transportation are: railway, by road, by air, by sea,
6. Warehousing
Warehousing the process of storing goods that are produced by the manufacturers
Written by ; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
Q#2 what are the qualities of good businessman?
A good businessman should have the following qualities to run business successfully
17. Professional qualities
18. Personal qualities
Professional qualities
1. M arket information
2. I nnovative
3. T echnical skills
4. A bility to plan
5. C oordination
6. M otivating power
7. A nalysis power
8. F inancial soundness
9. A bility to take decisions
10. T ime management
1. Market information
A business man should have the complete information about likings, disliking, taste and fashion of his customer. A good businessman always keeps an eye on the trends and demand of market.
2. Innovative
A good businessman should have the quality to manufacture new products according to the taste and demand of customer. If a businessman ignores ( ) the taste and trend ( ) of customer he may suffer great lose.
3. Technical skills
A businessman can run business successfully only, when he have adequate ( ) technical skills and command over specialized knowledge.
4. Ability to plan
Plan is a set of predetermined actions. Businessman should have the ability to plan the activities of business. More the plans are strong, more the business is profitable
Note
To remember headings easily, focus on the first letter of every heading it is forming a specific name and in this question, it is
MIT, ACMA, FAT
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2. Attitude
The attitude of businessman should be ethical. Ethical attitude means that there should not be cheating and fraud. Cheating and fraud in business affairs results in loss of customer. Incomes earned by cheating and fraud are illegal.
3. Patients
Patients mean controlling temper at the time of anger of problem. A businessman should show patients in daily affairs of business. If he loses his temper he suffer lose.
4. Intelligent
Intelligent means taking right decision at the right time. An intelligent businessman can handle his affairs at the right time in the right way.
5. Hardworking
Another quality of good businessman is that he should be hardworking. A lazy man cannot run his business successfully.
6. Ability to forecast
A good businessman should have the ability to anticipate the future circumstances to take correct action. For example if he is forecasting increase in demand then he may increase level of production.
7. Personality
Personality of businessman should be cheerful & smiling face. A cheerful greeting may help him to attract customers.
8. Initiative
Initiative means the ability to start and complete the work. A business man should have the ability to initiate.
Written by ; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
Q#
Explain the importance of business
Business
Any legal activity undertaken to earn profit is called profit.
Importance of business
Business is playing a vital role in the economic development of company. Business is
organized and run by the entrepreneurs to earn profit. They make the best use of available
resources and provide goods and services to the people. Importance of business can be jugged
form the following points.
1. Variety of products and services
Businesses are producing variety of products. Customer may choose those products that are
suitable to his taste and choice and purchasing power.
2. Better living standard
Business improves the living standard of the people by providing quality products at low
rates.
3. Source of employment
Business provides employment to large number of people. It is not possible for the
government to provide jobs to whole population, business helps government in solving the
problem of unemployment.
4. Investment opportunities
Business provides investment opportunities to the general public. People can invest their idle
savings in any profitable business to earn profit on it.
5. Innovation
Written by ; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
Q# 4
Explain the different forms / types of business
1. Sole proprietorship
Sole tradership is the oldest from of business organization which is managed owned and
controlled by a single person. This form of business can be easily formed without any legal
formality. One man invests his capital in the business. He alone is responsible for the profit
and loss of business. He manages business by using his skills. Sole proprietor has unlimited
liability which means that personal property of the owner can be sold for the payment of
debts.
2. Partnership
When two or more person carries on business for the purpose of earning profit is called
partnership. Such types of business can be formed easily without any legal formality. Each
partner invests his money in business. Profit and losses of the business are distributed
between the partners. Partners are responsible for the management of business. They use their
skills to run business. Liability of partners in partnership is unlimited which means that their
personal property can be sold for the payment of debts.
3. Joint stock company
A joint stock company is voluntary association of different persons created by law. A
company is formed under company’s ordinance 1984.company issue shares for the
accumulation of capital. General public and other financial institutions invest in company.
Company has many kinds but most popular form of company is public limited. Liability of
members is limited to the value of their share in company. Joint Stock Company is managed
by the skilled and experienced directors.
4. Cooperative society
A cooperative society is a voluntary association of individuals for the common interest of its
members. It is form in various sectors like trading, commerce, industrial and technical. Its
Written by ; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
capital is generally divided into numbers of share shares of equal value. In such form of
organization all the members have the equal right of ownership and management
It is formed under cooperative society’s act 1925. It can be formed with limited and unlimited
liability.
5. Business combination
When two or more business units combine to carry on business together for the economic
benefit, combination take place. if object of business is against public interest it would be
considered unlawful. Combination can be temporary and permanent.
6. Joint Hindu family business
When a business is run by the persons of same family and they run the business as family
business, it is called joint Hindu family business. Such business is run only in India. Joint
Hindu family business is governed under Hindu law.
7. Public corporation
Public corporation is formed under the act of parliament. The acts define the powers, objects
and limits of corporation. Pakistan air lines and state life insurance are the examples of public
corporation
Written by ; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
Another advantage of sole proprietorship is that there are the less chances of fraud because owner performs all the activities himself
7. Easy transfer of ownership
Sole owner can sale his business to other person without any legal formality.
8. Easy dissolution
Dissolution means when the activities of business come to an end. Sole owner can easily dissolve his business at any time.
9. Quick decision
One man control is best to take quick decision because there is no need to consult any other person.
10. Direct relation with customers
Sole owner has the direct relation with customers. In this way he can understand the needs, wants and demand of customer which may help him for the growth of business.
11. Direct relation with employees
Sole owner has direct relation with his employees. In this way he can understand the problems of his employees. He may help them in completing their task.
12. Credit facility
Sole trader has unlimited liability. It means that his personal assets can be sold for the payment of debts. Due to unlimited liability lenders do not hesitate in granting loans.
13. Control on monopoly
Sole proprietorship businesses are in large numbers and they cannot create monopoly. There is competition among them which helps in controlling price level.
Disadvantage/ Demerits of sole proprietorship
Following are the disadvantages of business
1. Low capital
One man invests from his limited personal resources. There are always low investments in such type of business. Due to low capital owner can not expand his business on a large scale.
2. Unlimited liability
The second main drawback of sole owner business is that the liability of owner is unlimited. It means that the personal property can be sold if his insolvency
Written by ; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
3. Entire loss
Sole owner enjoys the whole profit of the business and he is alone responsible for the profits and losses of business therefore he suffers the whole loss of business.
4. Limited size of business
Sole owner has limited capital and limited skills which do not allow him to expand his business on large scale. Normally his business limited to one city or small area of a city.
5. Lack of skilled persons.
The sole owner cannot hire the services of qualified and experienced persons due to limited sources and small scale of business which restrict innovation and new ideas.
6. Lack of management
One man performs all the activities of business himself but he may not be expert in performing every activity. If he is a good accountant, he may not be a good manager.
7. Lack of advertisement
Advertisement is best to inform customers about the availability of the products. There is a lack of advertisement in sole proprietorship because he cannot afford advertisement expenses.
8. Lack of public confidence
Public shows less confidence because this type of business is not registered and there are no legal rules to control such type of business.
9. Lack of inspection
In sole proprietorship there is no need of audit therefore some time owner is found in illegal activities like smuggling.
10. Difficulty in borrowings
The banks and other financial institutions hesitate to advance loans to sole proprietor.
Written by ; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
21. Direct relation with employees
Partners have direct relation with their employees. In this way they can understand the problems of employees. They may help them in completing their task.
22. Credit facility
Liability of partners is unlimited. It means that personal assets of partners can be sold for the payment of debts. Due to unlimited liability lenders do not hesitate in granting loans.
23. Direct relation with customer
Partners have the direct relation with the customers; they can understand the likings and disliking of their customers.
24. Strong management
Management is backbone of every business. Partners can manage the business easily because every partner works according to his skills and abilities.
25. Business expansion
Expansion of partnership is easy as compared to the sole tradership because every partner invest money to grow business more and more.
26. Change in business
The change in business is simple. All the partners must agree to change the nature of business. For example a firm dealing in cloth can decide to buy and sell books.
27. Secrets
Secrets of the business remain with the partners. There is no legal requirement to publish business accounts for general public.
Disadvantage/ Demerits of Partnership
Following are the disadvantages of business
11. Low capital
Partners invest from their limited personal resources. There are always low investments in such type of business. Due to low capital expansion of business is not possible on large scale.
12. Unlimited liability
The second main drawback of partnership business is that the liability of partners is unlimited. It means that the personal property can be sold in case of insolvency
13. Lack of public confidence
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Public shows less confidence because this type of business is not registered and there are no legal rules to control such type of business.
14. Lack of inspection
In partnership there is no need of audit therefore some time partners are found in illegal activities like smuggling.
15. Difficulty in borrowings
The banks and other financial institutions hesitate to advance loans to firms because they are not registered.
16. Limited life
Life of partnership firm is limited because if a partner dies or declared insolvent partnership comes to an end
17. Lack of mutual cooperation
There is lack of cooperation between the partners because every partner has different opinion about the matter.
18. Transfer of share
Partners cannot transfer their share to any other person easily. Share can be transferred with the consent of all the partners
19. Limited size of business
Partners have limited capital and limited skills which do not allow them to expand business on large scale.
20. Chances of fraud
There are always chances of fraud. A dishonest partner may involve in theft of business cash and goods.
21. Lack of management
The small capital keeps the business small. They cannot hire the services of experts
22. Lack of advertisement
Advertisement is best to inform customers about the availability of the products. There is a lack of advertisement because they cannot afford advertisement expenses.
