Key Exam Questions from Sources of Business Finance (Class 11 Chapter 8)
Important Questions for Class 11 Business Studies Chapter 8 (Sources of Business Finance) help students understand key financial concepts commonly tested in school and competitive exams. Mastering this chapter builds confidence for scoring in Business Studies and improves understanding of business funding in real-world scenarios.
| Source of Business Finance | Type | Key Examples | Main Features |
|---|---|---|---|
| Equity Shares | Owner's Funds | Shareholders | No fixed return, voting rights, permanent capital |
| Preference Shares | Owner's Funds | Preference Shareholders | Fixed dividend, preference in repayment |
| Debentures | Borrowed Funds | Debenture holders | Fixed interest, no ownership rights |
| Public Deposits | Borrowed Funds | General public | Short/medium-term, higher interest than banks |
| Retained Earnings (Ploughing Back of Profits) |
Owner's Funds | Company’s reserves | Internal, self-sustaining, no external cost |
| International Financing (GDR/ADR/FCCB) | Borrowed/Owner's Funds | Foreign investors | Access to global funds, currency diversification |
Important Questions from Class 11 Business Studies Chapter 8
This section contains exam-oriented questions with sample answers covering all key concepts from Sources of Business Finance. Practise these questions to prepare for your tests, competitive exams, and practical applications in business.
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What is ploughing back of profits?
Ploughing back of profits is when a company retains a part of its net earnings in the business instead of distributing it as dividends. It is an internal source of finance, also known as retained earnings. -
Differentiate between ADR and GDR.
Basis ADR GDR Full Form American Depository Receipt Global Depository Receipt Issued In USA European & other foreign markets Currency US Dollar Any foreign currency Eligible Investors US investors Global investors (excluding US) -
Mention one main feature of Retained Earnings not found in any other source of finance.
Retained earnings are a self-financing source—they do not require payment of interest or flotation costs. -
What do you mean by 'risk capital'?
Risk capital refers to equity share capital, as it does not guarantee fixed returns and carries the highest risk. -
State the main difference between shares and debentures.
Basis Shares Debentures Type of Funds Owner's Funds Borrowed Funds Return Dividend (not fixed) Fixed Interest Voting Rights Yes No Redemption Generally, not redeemable Redeemable at maturity -
Distinguish between lessor and lessee with an example.
The lessor owns the asset and gives it on lease; the lessee takes the asset on lease for use. Example: If ABC Ltd. leases machinery from XYZ Ltd., XYZ is the lessor and ABC is the lessee. -
Name two Indian companies offering factoring services.
SBI Factors and Commercial Services Ltd., and Canbank Factors Ltd. -
State any three limitations of equity share capital.
- Fluctuating returns for investors
- Dilution of existing shareholders’ control
- High floatation and issuance costs
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Explain trade credit as a source of finance.
Trade credit means credit extended by suppliers to buyers, allowing purchase of goods and services with deferred payment. It is a flexible and convenient short-term source of finance. -
List three factors affecting working capital needs.
- Nature of business (manufacturing firms need more)
- Business cycle (more during peak seasons)
- Credit policy of the business
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What are public deposits? Mention one merit and one demerit.
Public deposits are funds accepted by businesses directly from the public for short/medium-term needs.
Merit: Easy to raise with minimal formalities.
Demerit: Not accessible to new companies as public trusts are low.
Comparisons and Tables: Key Study Areas
Learning to compare sources of finance is important for scoring full marks in Business Studies. Tables make revision easier and help in answering application-based and MCQ questions confidently.
| Source | Features | Examples |
|---|---|---|
| Owner’s Funds | Permanent, risk-bearing, includes voting rights | Equity shares, retained earnings |
| Borrowed Funds | Fixed liability, repayable, no ownership rights | Debentures, loans, public deposits |
Case Study Application (Class 11 Business Studies Chapter 8)
Real-life case questions help develop higher-order thinking skills for CBSE and other competitive exams. Practise application scenarios to better understand use-cases of financial sources.
Case Example:
"Ojas Auto Ltd." wants to open a new unit in a backward region using its cash reserves. Which source of finance should it use and why?
Answer: The company should use retained earnings, as it already has a large cash reserve. This avoids additional costs, and also displays values such as social responsibility and women empowerment if it prioritizes local training and development.
Revision Points and Exam Must-Knows
- Equity share capital is known as risk capital.
- Debenture holders receive fixed interest, not dividends.
- Retained earnings involve reinvesting profits, not external borrowing.
- Preference shares have fixed dividend and repayment priority.
- Global funding can be raised through GDR, ADR, FCCB, and IDR instruments.
- Public deposits are simple to raise but not accessible to new businesses.
- Trade credit is flexible but only covers short-term needs.
PDF Download and Study Resources
For a detailed set of important questions, answers, and revision notes for Class 11 Business Studies Chapter 8, download the free PDF: Class 11 Business Studies Chapter 8 Important Questions PDF
Related Study Links for Deeper Revision
- Sources of Business Finance
- Features of Company
- Difference Between Shares and Debentures
- Financial Market
- Development of Public Enterprises in India
- Fund Based Accounting and Subscription
- Functions of Financial Management
- International Business
- Difference Between Equity Shares and Preference Shares
- Banking and E-Banking
- Case Study: Financial Institutions in India
- Ratio Analysis
At Vedantu, we simplify CBSE and Commerce topics to help you score better and understand practical business issues. These important questions for Class 11 Business Studies Chapter 8 support exam preparation and real-world applications in business finance. For more help, explore our revision notes and NCERT solutions.
In summary, important questions for Class 11 Business Studies Chapter 8 help students prepare with confidence for school and competitive exams. Understanding the types, features, and differences between sources of business finance ensures clarity for both written and objective questions, supporting success in Commerce studies and beyond.
FAQs on Class 11 Business Studies Chapter 8: Important Questions and Answers
1. What is the most important chapter of business studies class 11?
While all chapters are important, Chapter 8, Sources of Business Finance, is crucial as it covers a fundamental aspect of business operations. Understanding long-term and short-term sources of finance like equity shares, debentures, and ploughing back of profits is essential for exam success. This chapter forms the base for many higher-level concepts in later classes.
2. How to score full marks in business studies class 11?
Scoring full marks requires a multifaceted approach. Thoroughly understand key concepts from each chapter, including Chapter 8 (Sources of Business Finance). Practice answering different question types such as short answers, long answers, and case studies. Mastering comparisons between different sources of finance, like equity shares vs. preference shares or ADR vs. GDR, is vital. Use retained earnings examples and make sure to revise thoroughly.
3. Is class 11 business studies hard?
The difficulty of Class 11 Business Studies depends on individual learning styles and prior knowledge. Chapter 8, Sources of Business Finance, can be challenging for some students due to its conceptual nature. However, with consistent effort, proper learning resources (like Vedantu’s resources), and a focus on understanding key concepts and differences between various financing options, you can overcome any difficulties.
4. What are the important questions in financial management?
Important questions often revolve around the sources of finance. In Class 11 Business Studies Chapter 8, this includes understanding the differences between long-term and short-term financing, comparing the features of shares and debentures, and knowing the application of concepts like ploughing back of profits and retained earnings. Practical application questions related to case studies are also common.
5. What is ploughing back of profits in Business Studies class 11?
Ploughing back of profits, also known as retained earnings, refers to the practice of reinvesting a portion of a company’s net profit back into the business instead of distributing it as dividends to shareholders. This serves as a crucial internal source of finance for growth and expansion.
6. Which types of questions are most common in chapter 8 Business Studies?
Chapter 8, Sources of Business Finance, typically features questions comparing different funding options (e.g., equity vs. debt, shares vs. debentures). Expect questions on retained earnings, the ploughing back of profits concept, and explanations of international financing options like GDRs and ADRs. Many questions involve distinguishing between different types of capital and their implications.
7. How can I download Class 11 Business Studies Chapter 8 important questions PDF?
A downloadable PDF containing important questions and answers for Chapter 8, Sources of Business Finance, can be accessed through a dedicated download link (usually provided on the relevant webpage) for offline study and revision. These PDFs often include both short and long-answer questions and revision notes.
8. What are three limitations of equity share capital?
Three key limitations of equity share capital are: dilution of control for existing shareholders due to the issue of more shares; fluctuating returns for investors depending on company performance; and a potentially higher cost of capital compared to other sources like debt financing.
9. Why is factoring important for Indian companies?
Factoring is significant for Indian companies as it helps manage cash flow, particularly in industries relying heavily on trade credit. It reduces the risk of bad debts by selling accounts receivable to a factoring company, providing quicker access to funds and improving liquidity.
10. How do international capital markets impact business finance for Indian firms?
International capital markets offer Indian firms alternative funding sources such as GDRs (Global Depository Receipts) and ADRs (American Depository Receipts). This access helps to diversify funding sources, reduce reliance on domestic markets, and potentially gain access to a wider pool of global investors, thereby potentially securing better terms.
