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 ASSIGNMENT SOLUTIONS GUIDE (2018-2019)
E.C.O.-1
Business Organisation
Disclaimer/Special Note: These are just the sample of the Answers/Solutions to some of the Questions given in the

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Assignments. These Sample Answers/Solutions are prepared by Private Teacher/Tutors/Authors for the help and guidance
of the student to get an idea of how he/she can answer the Questions given the Assignments. We do not claim 100%

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accuracy of these sample answers as these are based on the knowledge and capability of Private Teacher/Tutor. Sample
answers may be seen as the Guide/Help for the reference to prepare the answers of the Questions given in the assignment.

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As these solutions and answers are prepared by the private teacher/tutor so the chances of error or mistake cannot be

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denied. Any Omission or Error is highly regretted though every care has been taken while preparing these Sample

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Answers/Solutions. Please consult your own Teacher/Tutor before you prepare a Particular Answer and for up-to-date

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and exact information, data and solution. Student should must read and refer the official study material provided by the
university.

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Attempt all the questions.

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Q. 1. (a) Distinguish between the following:

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(i) Advertising and publicity

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Ans. Advertising: It means any paid form of non-personal communication of ideas, goods or services by an

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identified sponsor. It includes four expressions. They are:

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(1) Paid form: Businessmen have to pay some amount to media in order to advertise their product. For example–

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for printing and space used, one has to pay a certain amount, if the message is published in that magazine.

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(2) Non-personal presentation: If businessmen communicate the message through radio, TV, newspaper,

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direct mail etc, it is called non-personal presentation. Face-to-face interaction or communi-cation is done only by

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salesmen this is called personal presentation. But the message is conveyed through non-personal media in case of
advertising.

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(3) Ideas, goods and services: Advertising helps is selling goods, ideas and services. For example– banks

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advertise their services and ideas by informing the usefulness of savings. Similarly, insurance companies advertise

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their services and ideas by informing the usefulness of travelling.

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(4) Identified sponsor: Advertiser is said to be the sponsor of the advertisement. The person who receives the
message should be able to identify both of source and purpose of the advertisement.

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Publicity
It means commercially significant information about a company or its products disseminated by a non-personal
media without a financial charge to the company. It includes the following four expressions:
(1) Non-sponsored: There is no sponsor of the publicity material. Media publish and communicate information
as per its own wish. Company is not liable to sponsor the information.
(2) Commercially significant information: Publicity communicates information regarding the company or its
products.
(3) Disseminated by non-personal media: In order to publicise the information, any media like radio, TV,
Magazine etc, can be adopted. Message can be publicised through debates or discussions, news item etc.

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 (4) Without a financial charge to the company: Media publicise the matter as per its own wish. For conveying
the information, company is not liable to pay any amount.
Differences between Advertising and Publicity
1. In case of advertising, company sponsors it for its products or services. On the other hand, there is no
identifiable sponsor in case of publicity.
2. Company has to pay a certain amount for space and time used in case of advertising. Whereas company is
not liable to pay any amount to the media in case of publicity.
3. Purpose of advertising is to give a favourable impression about the company or its product. Purpose of
publicity is to have a favourable or unfavourable influence on public about company and its product.

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(ii) Savings bank account and current account

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Ans. Current Account: These accounts are mainly for public institutions, businessmen, joint stock companies
etc. Such an account is a running and active account and the holder can operate it as many times as he wants during

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a working day. On current account deposits, no interest is paid by banks. In this type of account, overdraft facilities

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are provided and loans and advances are granted by the bank.

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Savings Bank Account: If a person wants to save a part of his income so as to meet his future needs and also
earn interest on his deposits, he opens and operates a saving bank account. With the help of this account, depositiors

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develop the habit of saving. Interest is allowed by banks on the minimum balance standing to the credit of an account

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during the period from 10th day of month to last day of every month.

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(b) Write short notes on the following:

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(i) Essentials of a good transport system
Ans. Transport—Its Importance: Transport means to carry goods and passengers from one place to another.

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It helps in creating place utility. Transportation provides many benefits to consumers like they get a wide range of

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products at various places. Wihtin a country and even abroad, they get goods at stable prices because goods can

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easily be moved from surplus areas to deficit places and consumers get goods at lower prices due to extended
markets and large scale production.
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Transport provides certain economic benefits like improved transport system has encouraged international

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competition, imports and exports have increased due to well-developed sea transport and it has facilitated economic

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interdependence of countries, enabling people to interact and promoting welfare of human kind.

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Essentials of a Good Transport System

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1. Cost of transport service should not be high so that consumers get them at affordable price and users carry

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their goods at lowest charge.
2. A good transport system should carry the goods speedily, conveniently and properly without any delay.

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3. It must ensure the safety of goods and should be available as and when the need arises.
4. Efficient people should operate a transport so that they can handle the problems in emergency.
5. Goods should be delivered at locations convenient to receiver of the goods.
(ii) Components of an insurance contract
Ans. Insurance Contract: It is an agreement between insurer and insured and details the conditions under
which the risk transfer takes place. It includes following three aspects:
1. The Proposal: If a person wants to get into an insurance contract, he has to submit a proposal either oral or
written to the insurer. Proposal if incomplete can be rejected by the insurer.
2. Cover Notes: When proposal is accepted by insurer, the contract comes into existence. In order to give
temporary protection, insurer may issue a cover note.

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 3. Policy: All terms and conditions of the contract are mentioned in the insurance policy. Insurer when accepts
the proposal, has to issue the policy within one month of receiving the first premium.
Components of an Insurance Contract
Insurance contract consists of five parts:
1. Declaration: It is the first part and it contains information regarding term of contract, identity of insured,
property, type of coverage etc. Most of the basic information is contained in this part.
2. Insuring agreement: It is the most important part if it contains information relating to nature of risk transferred
and what may be recovered in the event of loss. Events insured against and services promised are mentioned in this

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agreement.
3. Exclusions and limitations: Exceptions relating to transfer should be understood properly by the insured.

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Events are subject to limitations and exclusions which are covered in the contract.

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4. Conditions: Clauses or conditions should be fulfilled by the insured if he wants to enforce his rights under the

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contract. He can recover the loss from insurer after fulfilling all the terms of the contract.

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5. Binders: It is a temporary insurance contract. It is issued by the insurer in lieu of insurance policy. It contains

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facts about transaction like date, amount etc.

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Q. 2. “None of the four forms of business organization has all the features of an ideal form of business

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organization”. Critically evaluate the statement.

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Ans. Yes, it is quite true that none of the four forms of business organisation has all the features required for an

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ideal form of organisation. We will get a better picture after the comparative study of different forms of organisation.

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Basis of Sole Partnership Pvt. Limited Public Limited Cooperative

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comparison Proprietorship Company Company organisation

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1.Formation Easiest with Quiet easy with Difficult due to Quite difficult due Few legal formalities

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no legal for- no rigid legal legal formalities to many legal are involved
malities formalities
n oo formalities

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2.Legal status No separate No separate Separate legal Separate legal Separate legal status

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legal status is legal status status is there status is there

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there Minimum 2 and Minimum 2 and Minimum 7 and no

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Minimum 10 and no

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3.Membership Only single maximum 10 in maximum 50 maximum limit maximum limit

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owner banking business

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and 20 in others
Very limited Limited capital Larger capital Any amount of No substantial reso-

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4.Capital capital management resources capital can be urces
required raised
5.Management Owner Owner Limited Control, risk and Complete Not managed by all

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& ownership management expertise ownership separation of the members
generally go management from
together ownership
6.Managerial Very limited Shared by Scope for Very wide scope Scope for expertise
expertise expertise partners as per expertise for expertise.
agreement Volume of business
Shared by Shared by owners
7.Basis of Fully enjoyed Unlimited by each member
owners in the in the proportion of
profit sharing by the owner
proportion of shares held
shares held
8.Owner's Unlimited Relativelydifficult Limited Limited Limited subject to by-
liability
and restricted laws

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 Basis of Sole Partnership Pvt. Limited Public Limited Cooperative
comparison Proprietorship Company Company organisation
9.Ownership Relatively easy Secrets are Relatively difficult Very easy and at Restricted
transfer and at well shared by the and restricted will
partners only Secrets are Secrets are Secrets are
10. Business Full secreay is Very little shared by the exposed to the exposed to the
secrets maintained regulations members of the public members
company
11. State Noregulations There is no need Considerable Excessive Considerable regu-

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regulations of the state to audit the regulations regulations lations
are there accounts

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12. Auditing of There is no The business It is compulsory to It is compulsory to It is compulsory to

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Accounts need to audit can be winded audit the accounts audit the accounts audit the accounts

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the accounts up at will

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13. Winding up The business The business can The business can be

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can be winded No special The business can be winded up winded up under the
up at will income tax be winded up under the Cooperative Soc-

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income tax under the Companies Act, ieties Act, 1912

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Companies Act, 1956

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1956

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No special Consent of all Heavily taxed Exemption from

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14. Tax liability Heavily taxed and
partners and income is income is double income tax

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double taxed.

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Elastic Changes can be Elastic Taxed Inelastic U n e l a s t i c

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15. Flexibility

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organisation made by the organisation organisation organisation.

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Q. 3. Why is the stock exchange called a barometer of the economic and business conditions in a

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country?

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Ans. Stock exchange is defined as an association, organisation or body of individuals, whether incorporated or

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not, established for the purpose of assisting, regulating and controlling business of buying, selling and dealing in
securities. All stock exchanges function according to the provisions of the Securities Contracts (Regulation) Act,

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1956. Stock exchange is an organised market where all transactions take place as per the rules and bye-laws of the

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concerned stock exchange. In a stock exchange, securities such as shares, debentures, bonds etc are bought and sold

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issued by central, state and local governments, port trusts, joint stock companies, municipalities, public corporations

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and utility concerns. Transactions in a stock exchange occur between members or their authorised agents on behalf
of the investors. There are fourteen stock exchanges in India.

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Stock exchanges are not only used as a platform in order to carry business transactions but they are the barometers
that helps in indicating the general conditions of the business atmosphere. One can measure the economic and
business conditions with the help of stock exchanges as they provide real and accurate information about the companies.
Prices of securities rise during economic and business prosperity periods. When economic stagnation occurs or
business activities slowdown due to depression in the markets, prices fall. Security prices change with the change in
economic, social and political conditions.
Economic Functions of Stock Exchange
The functions are divided into two types from the economic point of view-primary functions and secondary
functions.

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Primary Functions:
1. Mobilising surplus savings: It forms an important part of capital market of a country. Industrial and commercial
undertakings can make use of the savings provided by stock exchanges from all parts of the country with a view to
meet their financial requirements.
2. Mobility of capital: It provides capital mobility and sound investment because savings invested in securities
are converted into cash in order to reinvest in other securities. It is possible because of the continuous and open
market provided by stock exchanges for securities.
3. Contribution to capital formation: Investors get proper information regarding where and how to invest their
savings in order to fetch a fair return with the help of stock markets. People start saving as soon as they come to
know about investment avenues.

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4. Marketability and price continuity: As buying and selling of securities take place conveniently in stock
exchanges, it provides for easy marketability of securities. Continuity in the dealings is also there because buying and

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selling takes place on a regular basis.

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5. Facilitates resource allocation: Stock exchange provides for mobility of funds i.e. movement or flow of

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funds in the economy as a whole. People invest their savings in those projects of the industries which have proper

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growth potentials. It is possible to allocate the financial resources of the economy reasonably.
Q. 4. Discuss various factors to be kept in mind while selecting suitable medium of advertising.

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Ans. The features of an ideal medium of advertising are as follows:

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1. Message: The medium that helps is conveying the message adequately and properly should be adopted.

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Medium like newspapers, TV, radio, magazines etc, can be used to convey the message. The medium must deliver the

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message to a large number of people.

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2. Reach: The medium should cover and reach maximum number of audience. Newspapers and radio proves to

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be the best for this purpose. Newspapers are circulated largely among the literate or educated people and radio
reaches a large number of target audience.

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3. Economy: Any medium that proves to be economical in respect of cost should be adopted. Magazines are less

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expensive, newspapers vary in the cost depending upon the space, radio and television are more expensive than

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others, direct mail is moderately expensive and outdoor advertising except bill boards is also less expensive.

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4. Flexible: Relating to size, design, layout, colour etc, medium should be flexible. Newspapers and direct mail

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are highly flexible, magazines are less flexible, outdoor advertising depending on the cost is moderately flexible,
radio and TV both have restricted flexibility depending on the available time.

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5. Scope of repetition: Medium should give adequate scope for repeating the message at regular intervals.

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Repetition should be there in order to arouse the interest of the customers. Radio and TV provide quick repetition,
message can be repeated almost every day through newspapers and magazines are restricted to frequency of publication.

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6. Effective: The medium that helps to achieve the goals of sales promotion should be adopted. Advertising helps

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in increasing sales and with a proper medium, one can earn profit with an increase in sales. Various medium can be

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used like magazines, radio, outdoor advertising, television etc, to advertise a product.

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The following factors influence the choice of media:
1. Nature of the product: Consumer goods are advertised in different ways like the daily consumption goods do

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not need any elaborated description whereas technical details of industrial machinery should be explained. As per the
nature of the products, the size and time of advertisement vary. It is better to advertise consumer goods through radio,
TV, newspapers etc.
2. Type of audience: Medium should be selected by keeping in mind the target audience. Press medium is not
useful if the audience is uneducated. TV will prove to be useful, if the villagers have TV sets in their houses. To reach
housewives in urban areas, radio and TV should be preferred. Therefore, the characteristics of the target audience
should be kept in mind while selecting a medium.
3. Coverage: The medium that can reach or cover the maximum number of target audience should be selected.
Short films in the cinema halls solve the purpose if maximum number of people are uneducated and do not have TV
sets. Sewing machines can be advertised in women’s magazines so that large number of ladies can go through the ad.
4. Cost: While selecting a suitable medium, remember to take the factor of cost into consideration. By absolute
cost and relative cost, one can analyse a medium. Absolute cost is the actual charge for buying a certain amount of

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time and space in a medium. For example–TV is quite expensive as compared to newspaper. Relative cost is absolute
cost related to the size of the audience served by the choosen medium. For example–charges for a one page ad in two
different magazines may be the same but what matters is their circulation. If one out of the two is circulated among
more number of customers, businessmen should prefer that medium.
5. Character of the medium: It is important to analyse the characters of various media in order to choose the
right and suitable medium. Following aspects should be considered before choosing any medium:
(a) Method of communication: Oral, visual or both.
(b) Geographical coverage of medium: National, local etc.
(c) Duration and frequency of exposure of message.
(d) Audience selectivity: It means how well a medium reach the target audience like ladies, children etc.
(e) Production quality of the media

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(f) Degree of durability: It means for how long can the customers view the advertisment.

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(g) Scheduling flexibility is said to be another factor.
Q. 5. What are the forms of organization in public enterprises? Explain their features, merits and

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limitations of each of them.

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Ans. Three forms of organisation exist in case of public enterprises. They are – departmental organi-sation,

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pubic corporation and government company.

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Departmental Organisation
It is an organis-ational form where a public enterprise is organised, financed and controlled in the same way as

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the government department. It is subject to budget accounting and audit controls and it is the minister who controls the

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overall working of such organisation. Employees are civil servants and legislature is the ultimate authority to whom

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minister is answerable for its efficient operations.

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Features of Departmental Organisation:

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1. This organisational form is subject to budget, accounting and audit controls.
2. Without the consent of the government, this organisation form cannot be sued. It enjoys sovereign immunity

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of the state.

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3. As employees are civil servants, their terms and conditions of service are similar as compared to other

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government employees.

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4. This form has to depend upon government for the finances. They can take the finances from the treasury of

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the government through annual budget and have to pay back the revenue into the treasury.

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5. The duty of the minister is to delegate the authority to various organisational levels because the

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overall control lies in his hands.
Merits of Departmental Organisation:
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1. Maximum degree of government control: Social obligations of government can be met effectively because

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government control is maximum in this organisational form.
2. Government control over economic activities: Such organisations can be used freely by the government

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as instruments of its social and economic policy. The reason behind such a freedom is that it has got control over
economic activities.
3. Multiplies economic progress: The surplus or profit obtained from departmental organisation helps in

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increasing the revenue of the government. This revenue can be used in order to achieve economic progress of nation
and for welfare of people.
4. Limited scope to misuse public funds: There is less danger of misuse of public funds because such
organisations are under the control of concerned ministry and the minister is answerable or accountable to the
parliament completely.
5. Responsible to Parliament: A departmental organisation cannot claim certain privileges from Parliamentary
Scruting because it is responsible to Parliament for everyday operations.
Limitations of Departmental Organisation:
1. Absence of competition and profit motive: This form of organisation do not work in order to earn profit. It
is formed with a view to provide services. It do not run on commercial principles which are said to be very important
for its success.

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 2. Excessive parliamentary control: Decisions may get delayed because minister is completely accountable to
Parliament for day-to-day activities. Because of this, the scope for initiation and skill is also hampered.
3. Lack of professional expertise: Such organisations are managed by civil servants who often lack of
professional skills and expertise. There is a delay in decision-making because such organisations rigidly adhere to
procedures and formalities.
4. Bureaucracy and red-tapism: These two evils are found in departmental organisation. Not much scope for
initiation exists due to the reason that each decision is taken depending upon rules and regulations.
5. Financial problems: As these organisations are not allowed to raise finances all by themselves, they have to
completely depend upon the government in order to raise their capital. There is not much flexibility in financial matters
because such a form is subject to budget, accounting and audit controls.

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Public Corporation

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It is an autonomous corporate body created by a special Act of Parliament or state legislature with defined
functions, duties, power and immunities. It is also called statutory corporation. It is the state that fully owns and

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subscribes the capital of public corporations. Financial autonomy is fully enjoyed by such a form and it is accountable

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to the legislature that creates it. Board of Directors manage such corporations and employees are not civil servants.

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Features of Public Corporation:

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1. It is not subject to budget, accounting and audit controls.

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2. A public corporation is a legal entity and is an artificial person created by law.

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3. Government can get things done easily without owning the responsibility of its actions because such corporations

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maintain formal and clear relationship with the government.

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4. This form of organisation is completely accountable to State Legislature or Parliament whosoever creates it.

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But legislature is not expected to interfere in its day-to-day activities.
5. Board of Directors, nominated by the government, control and manage public corporations according to the

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provisions of the act.

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6. Public corporations are completely owned by the state and it is the state that subscribes the capital of such

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organisations.

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Merits of Public Corporation:

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1. Initiative and flexibility: Affairs of such a corporation are managed and operated independently with its own

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flexibility and initiative. Governments’s interference is not involved.

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2. Avoids red-tapism: Evils like red-tapism and bureaucracy that affect the working of organisations are not

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found in public corporations. Because of the absence of such evils, quick decisions can be taken on matters that

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affect the business.

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3. Work with service motive: The aim of such corporations is to provide services and not to earn only profits.

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Profits obtained from such corporations can be used for benefit of consumers and community.

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4. Easy to raise capital: Raising the capital is easy as these corporations are owned by the government. Capital
can be raised by floating bonds at low interest rate. Public can also be invited so that they can subscribe such bonds.

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5. Protects public interest: This form of organisation helps in protecting public interests because it is free from
political interference, parliamentary enquiry and departmental checks and controls.
6. Secures working efficiency: Such corporations secure greater working efficiency because they provide
better facilities and more attractive terms of service to its employees.
Limitations of Statutory Corporations:
1. Inflexibility: Due to the reason that an amendment is required in the act of legislature, if any change in objects
and power has to be made, a corporation becomes inflexible and insensitive to changing situations.
2. Less autonomy: The government controls the autonomy in a systematic way, in those matters also that allow
such corporations to enjoy freedom. Their freedom is curtailed totally by central or state government.
3. Clash amongst divergent interests: As many members called Board of Directors are appointed by the
government, it is quite possible that their interests clash with each other. A corporation may not function properly and
smoothly because of this.

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 4. Excessive public accountability: A public corporation work in order to provide services rather than to earn
profits. This accountability of the corporation towards public acts as a stumbling block in the operational efficiency of
the enterprise.
5. Ignores commercial principles: This form of organisation do not run on commercial principles because they
do not work to earn profits. A corporation may have to face inefficiency and losses in the absence of these principles.
Government Company
It is a company registered under the Indian Companies Act in which not less than 51% of paid-up share capital is
held by central government or any state government or partly by central government and partly by one or more state
governments. Board of Directors and elected members of private shareholders manage a government company. It is
not subject to budget, accounting and audit controls. It enjoys financial autonomy and independent staffing system.
Features of Government Company:

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1. Employees are not civil servants and are appointed on the terms and conditions of the company.

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2. It is necessary that such companies should present their annual reports, audit reports and accounts to the
legislature.

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3. Money can be borrowed by such companies from financial institutions and general public.

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4. Such a company can enter into contracts and buy property in its own name because it is a legal entity and an

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artificial person created by law.

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5. Government may own such a company wholly or partly but its share is not less than 51% in such a company.
6. Government company is managed by Board of Directors nominated by government and elected members if

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any of private shareholders.
Merits of Government Company:

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1. Easy to form: Government can easily form such a company without getting a bill passed by the legislature. It

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can establish or form a new company, if it wants to start a new activity.
2. Facilitates private participation: These is a scope for private participation in capital and management.

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Government can easily facilitate private participation by selling a part of equity of a company to the public.

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3. Easy to transfer ownership: The transfer of ownership becomes easy if the price is decided at which shares

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are to be transferred. Ownership can be transferred by selling the shares to the private party.

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4. Easy to bring changes in constitution: As most of the companies are under the control of the government,

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government can make amendments in the Articles of the company and pass resolution in the meeting as and when
required.
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5. More autonomy: Government companies enjoy financial autonomy and they have their own charter, freedom

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in personnel matters, self-sufficiency in finance, autonomy of operations etc.
6. Flexibility in operations: Because of the absence of evils like red-tapism and bureaucracy, government

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company can take quick decisions on any matter affecting its business. Employees of such companies are not civil

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servants.

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Limitations of Government Company

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1. Fear of public accountability: There is lack of initiation in a company in exploring new areas of activities
because directors of a government always carry the burden of fear of public accountability.

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2. Evades constitutional responsibility: A government company can be formed without getting specific approval
of Parliament. Such a company evades constitutional responsibility.
3. Public criticism: The performance of a government company is reported in the annual reports prepared by
concerned ministry. It is essential to place these reports before Parliament or State Legislature. Reports act as a
public document that expose the enterprise in front of the public.
4. Lack of professional management: Business efficiency is not achieved by these enterprises because directors
of a government company are mostly appointed by the government.
5. Government interference: Government has the right to alter or revise the Articles and Memorandum as and
when required. This affects the autonomy of a company. Without any public discussion, government can make
changes in the constitution of a government company.
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