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Paper-1

ACCOUNTING

REVIEWER
Includes ICAI Study Material, RTP, MTP & Previous
Year Questions & Solutions in Chapterwise Format.

SAMPLE MATERIAL

Modified as per the

NEW Scheme

Applicable for
May’25, Sept’25
& Jan’26
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Table of Contents
Sr. Particulars Page Number
No
1 Theoretical Framework
1.1 Meaning and Scope of Accounting 1.1.1 – 1.1.6
1.2 Accounting Concepts, Principles and Conventions 1.2.1 – 1.2.12
1.3 Capital and Revenue Expenditures and Receipts 1.3.1 – 1.3.8
1.4 Contingent Assets and Contingent Liabilities 1.4.1 – 1.4.3
1.5 Accounting Policies 1.5.1 – 1.5.3
1.6 Accounting as a Measurement Discipline – Valuation Principles, 1.6.1 – 1.6.3
Accounting Estimates
1.7 Accounting Standards 1.7.1 – 1.7.3
2 Accounting Process
2.1 Basic Accounting Procedures – Journal entries 2.1.1 – 2.1.23
2.2 Ledgers 2.2.1 – 2.2.9
2.3 Trial Balance 2.3.1 – 2.3.9
2.4 Subsidiary Books 2.4.1 – 2.4.9
2.5 Cash Book 2.5.1 – 2.5.11
2.6 Rectification of Errors 2.6.1 – 2.6.26
3 Bank Reconciliation Statement 3.1 – 3.28
4 Inventories 4.1 – 4.17
5 Depreciation and Amortization 5.1 – 5.28
6 Bills of Exchange and Promissory Notes 6.1 – 6.20
7 Preparation of Final Accounts of Sole Proprietors
7.1 Final Accounts of Non-Manufacturing Entities 7.1.1 – 7.1.38
7.2 Final Accounts of Manufacturing Entities 7.2.1 – 7.2.12
8 Financial Statements of Not-for-Profit Organizations 8.1 – 8.1.41
9 Accounts from Incomplete Records 9.1 – 9.47
10 Partnership and LLP Accounts
10.1 Introduction to Partnership Accounts 10.1.1 – 10.1.20
10.2 Treatment of Goodwill in Partnership Accounts 10.2.1 – 10.2.14
10.3 Admission of a New Partner 10.3.1 – 10.3.32
10.4 Retirement of a Partner 10.4.1 – 10.4.28
10.5 Death of a Partner 10.5.1 – 10.5.21
10.6 Dissolution of Partnership Firms and LLPs 10.6.1 – 10.6.36
11 Company Accounts
11.1 Introduction to Company Accounts 11.1.1 – 11.1.5
11.2 Issue, Forfeiture and Re-Issue of Shares 11.2.1 – 11.2.35
11.3 Issue of Debentures 11.3.1 – 11.3.16
11.4 Accounting for Bonus Issue and Right Issue 11.4.1 – 11.4.19
11.5 Redemption of Preference Shares 11.5.1 – 11.5.25
11.6 Redemption of Debentures 11.6.1 – 11.6.14
 1.1-1

Chapter 1.1
Meaning and Scope of Accounting

Section A: Study Material Questions

Illustrations & Examples

Question 1 (illustration)
An individual invests ₹ 2,00,000 for running a stationery business. On 1st January, he purchases goods
for ₹ 1,15,000 and sells for ₹ 1,47,000 during the month of January. He pays shop rent for the month
₹ 5,000 and finds that still he has goods worth ₹ 15,000 in hand. The individual performs an economic
activity. He carries on a few transactions and encounters with some events. Is it not logical that he will
want to know the result of his activity?
Answer 1
We see that the individual, who runs the stationery business, earns a surplus of ₹ 42,000.
₹
Goods sold 1,47,000
Goods in hand 15,000
1,62,000
Less : Goods purchased 1,15,000
Shop rent paid 5,000 (1,20,000)
Surplus 42,000
Earning of ₹ 42,000 surplus is an event; also having the inventories in hand is another event, while
purchase and sale of goods, investment of money and payment of rent are transactions.

True and False

Question 1
There is no difference between book keeping and accounting, both are same.
Answer 1
False: Book-keeping and accounting are different from each other. Accounting is a broad subject. It calls
for a greater understanding of records obtained from book- keeping and an ability to analyse and interpret
the information provided by book- keeping records.
Book-keeping is the recording phase while accounting is concerned with the summarizing phase of an
accounting system.

Question 2
Management Accounting covers the preparation and interpretation of financial statements and
communication to the users of accounts.
Answer 2
False: Financial accounting covers the preparation and interpretation of financial statements and
communication to the users of accounts.

Question 3
Financial accounting is concerned with internal reporting to the managers of a business unit.
Answer 3
False: Management accounting is concerned with internal reporting to the managers of a business unit.

Question 4
Customers of business should not be considered as users of accounts prepared by business. They are not
interested to know performance of the business

Chapter 1.1 Meaning and Scope of Accounting

 1.1-2

Answer 4
False: Customers are also concerned with the stability and profitability of the enterprise because their
functioning is more or less dependent on the supply of goods.

Question 5
Summarising is the basic function of accounting. All business transactions of a financial characters
evidenced by some documents such as sales bill, pass book, salary slip etc. are recorded in the books of
account.
Answer 5
False: Recording is the basic function of accounting. Summarising is concerned with the preparation and
presentation of the classified data in a manner useful to the internal as well as the external users of
financial statements.

Question 6
Balance sheet shows the position of the business on the day of its preparation and not on the future
date.
Answer 6
True: Balance Sheet is a statement of the financial position of an enterprise at a given date.

Question 7
Objectives of book-keeping are complete recording of transactions & ascertainment of financial effect
on the business.
Answer 7
True: Book-keeping is concerned with complete recording and combined effect of transactions made
during the accounting period.

Multiple Choice Questions

Question 1
Which of the following is not a subfield of accounting?
(a) Management accounting.
(b) Cost accounting.
(c) Book-keeping
Answer 1 : (c)

Question 2
Purposes of an accounting system include all the following except
(a) Interpret and record the effects of business transaction.
(b) Classify the effects of transactions to facilitate the preparation of reports.
(c) Dictate the specific types of business enterprise transactions that the enterprises may engage in.
Answer 2 : (c)

Question 3
Book-keeping is mainly concerned with
(a) Recording of financial data
(b) Designing the systems in recording, classifying and summarising the recorded data.
(c) Interpreting the data for internal and external users.
Answer 3 : (a)

Question 4
All of the following are functions of Accounting except
(a) Decision making.
(b) Ledger posting.
(c) Forecasting.
Answer 4 : (b)
Chapter 1.1 Meaning and Scope of Accounting
 1.1-3

Question 5
Financial statements are part of
(a) Accounting.
(b) Book-keeping.
(c) Management Accounting.
Answer 5 : (a)

Question 6
Financial position of the business is ascertained on the basis of
(a) Records prepared under book-keeping process.
(b) Trial balance.
(c) Balance Sheet.
Answer 6 : (c)

Question 7
Users of accounting information include
(a) Creditors/Suppliers
(b) Lenders/ Customers
(c) Both (a) and (b)
Answer 7 : (c)

Question 8
Financial statements do not consider
(a) Assets expressed in monetary terms.
(b) Liabilities expressed in monetary terms.
(c) Assets and liabilities expressed in non-monetary terms
Answer 8 : (c)

Question 9
On January 1, Sohan paid rent of ₹ 5,000. This can be classified as
(a) An event.
(b) A transaction.
(c) A transaction as well as an event.
Answer 9 : (b)

Question 10
On March 31, 2022 after sale of goods worth ₹ 2,000, he is left with the closing inventory of ₹ 10,000.
This is
(a) An event.
(b) A transaction.
(c) A transaction as well as an event.
Answer 10 : (a)

Question 11
Which of the following is not a business transaction?
(a) Bought a machine of ₹10,000 for business
(b) Paid towards salaries of employees ₹ 5,000
(c) Paid son’s fees from her personal bank account ₹ 8,000
Answer 11 : (c)

Question 12
Which qualitative characteristics of accounting information is reflected when accounting information is
clearly presented?
(a) Understandability
(b) Relevance
Chapter 1.1 Meaning and Scope of Accounting
 1.1-4

(c) Comparability
Answer 12 : (a)

Theoretical Questions & Answers

Question 1
Define accounting. What are the sub-fields of accounting?
Answer 1
Accounting is the art of recording, classifying, and summarising in a significant manner and in terms of
money, transactions and events which are, in part at least, of a financial character, and interpreting the
result thereof. Various subfields of accounting are listed as: Financial Accounting; Management
Accounting; Cost Accounting; Social Responsibility Accounting and Human Resource Accounting.

Question 2
Who are the users of accounting information?
Answer 2
Users of accounts can be listed as Investors, Employees, Lenders, Suppliers and Creditors, Customers, Govt.
and their agencies, public and Management.

Question 3
Discuss briefly the relationship of accounting with
(i) Economics (ii) Statistics (iii) Law
Answer 3
(i) Accounting and Economics: Economics is viewed as a science of rational decision- making about the
use of scarce resources. It is concerned with the analysis of efficient use of scarce resources for
satisfying human wants. This may be viewed either from the perspective of a single firm or of the
country as a whole.
Accounting is viewed as a system, which provides data to the users to permit informed judgement and
decisions. Some non-accounting data are also relevant for decision- making.
Accounting overlaps economics in many respects. It contributed a lot in improving the management
decision-making process. But, economic theories influenced the development of the decision-making
tools used in accounting.
However, there exists a wide gulf between economists’ and accountants’ concepts of income and
capital. Accountants got the ideas of value, income and capitalmaintenance from economists, but
brushed suitably to make them usable in practical circumstances. Accountants developed the
valuation, measurement and decision- making techniques which may owe to the economic theorems
for origin but these are moulded in the work environment and suitably tempered with reference to
relevance, verifiability, freedom from bias, timeliness, comparability, reliability and understandability.
(ii) Accounting and Statistics: The use of statistics in accounting can be appreciated better inthe context of
the nature of accounting records. Accounting information is very precise; it is exact to the last paisa.
But, for decision-making purposes such precision is not necessary and hence, the statistical
approximations are sought.
In accounts, all values are important individually because they relate to business transactions. As
against this, statistics is concerned with the typical value, behaviour or trend over a period of time or
the degree of variation over a series of observations. Therefore, wherever a need arises for only broad
generalisations or the average of relationships, statistical methods have to be applied in accounting
data.
Further, in accountancy, the classification of assets and liabilities as well as the headsof income
and expenditure has been done as per the needs of financial recording to ascertain financial results of
various operations. Other types of classification like the geographical and historical ones and ad hoc
classification are done depending on the purpose to make such classification meaningful.
Accounting records generally take a short-term view of events and are confined to a year while
statistical analysis is more useful if a longer view is taken for the purpose. For example, to fit the trend
line a longer period will be required. However, statistical methods do use past accounting records
maintained on a consistent basis.
Chapter 1.1 Meaning and Scope of Accounting
 1.1-5

The functional relations showing mathematical relations of one variable with one or more other
variables are based on statistical work. These relations are used widely in making cost or price estimates
for some estimated future values assigned to the given independent variables. For example, given the
functional relation of total cost to the price of an input, the effect of changes in future prices on the
cost of production can be calculated.
In accountancy, a number of financial and other ratios are based on statistical methods, which help in
averaging them over a period of time. Several accounting and financial calculations are based on
statistical formulae.
Statistical methods are helpful in developing accounting data and in their interpretation. For example,
time series and cross-sectional comparison of accounting data is based on statistical techniques. Now-
a-days multiple discriminate analysis is popularly used to identify symptoms of sickness of a business
firm. Therefore, the study and application of statistical methods would add extra edge to the accounting
data.
(iii) Accounting and Law: An economic entity operates within a legal environment. All transactions with
suppliers and customers are governed by the Contract Act, the Sale of Goods Act, the Negotiable
Instruments Act, etc. The entity itself is created andcontrolled by laws. For example, a company is
created by the Companies Act and also controlled by Companies Act.
Similarly, every country has a set of economic, fiscal and labour laws. Transactions and events are
always guided by laws of the land. Very often the accounting system to be followed has been prescribed
by the law. For example, the Companies Act has prescribed the format of financial statements for
companies.
Banking, insurance and electric supply undertakings may also have to produce financial statements as
prescribed by the respective legislations controlling such entities.
However, legal prescription about the accounting system is the product of developmentsin accounting
knowledge. That is to say, legislation about accounting system cannot be enacted unless there is a
corresponding development in the accounting discipline. In that way accounting influences law and is
also influenced by law.

Section B: RTP, MTP & PYP Questions

Question 1
What services can a Chartered Accountant provide to the society?
(RTP Jun’24, MTP 4 Marks Mar’22, SM)
Answer 1
The practice of accountancy has crossed its usual domain of preparation of financial statements,
interpretation of such statements and audit thereof. Chartered Accountants are presently taking active
role in company laws and other corporate legislation matters, in taxation laws matters (both direct and
indirect) and in general management problems.
Some of the services rendered by chartered accountants to the society are briefly mentioned hereunder:
(i) Maintenance of books of accounts;
(ii) Statutory audit;
(iii) Internal Audit;
(iv) Taxation;
(v) Management accounting and consultancy services;
(vi) Financial advice and financial investigations etc.
(vii) Other services like secretarial work, share registration work, company formation receiverships,
arbitrations etc.

Question 2
Discuss the limitations which must be kept in mind while evaluating the Financial Statements.
(MTP 4 Marks Dec’23, Nov’22, Apr’24, RTP May’23, SM)
Answer 2
Limitations which must be kept in mind while evaluating the Financial Statements are as follows:
• The factors which may be relevant in assessing the worth of the enterprise don’t find place in the
accounts as they cannot be measured in terms of money.

Chapter 1.1 Meaning and Scope of Accounting

 1.1-6

• Balance Sheet shows the position of the business on the day of its preparation and not on the future
date while the users of the accounts are interested in knowing the position of the business in the near
future and also in long run and not for the past date.
• Accounting ignores changes in some money factors like inflation etc.
• There are occasions when accounting principles conflict with each other.
• Certain accounting estimates depend on the sheer personal judgement of the accountant.
• Different accounting policies for the treatment of same item adds to the probability of manipulations.

Question 3
What are the sub-fields of accounting? (PYP 5 Marks Dec’23)
Answer 3
The various sub-fields of accounting are:
(i) Financial Accounting – It covers the preparation and interpretation of financial statements and
communication to the users of accounts. It is historical in nature as it records transactions which had
already been occurred. The final step of financial accounting is the preparation of Profit and Loss Account
and the Balance Sheet. It primarily helps in determination of the net result for an accounting period and
the financial position as on the given date.
(ii) Management Accounting – It is concerned with internal reporting to the managers of a business unit. To
discharge the functions of stewardship, planning, control, and decision- making, the management needs
variety of information. The different ways of grouping information and preparing reports as desired by
managers for discharging their functions are referred to as management accounting. A very important
component of the management accounting is cost accounting which deals with cost ascertainment and
cost control.
(iii) Cost Accounting – The process of accounting for cost which begins with the recording of expenditure or
the bases on which they are calculated and ends with the preparation of periodical statements and
reports for ascertaining and controlling costs.
(iv) Social Responsibility Accounting – The demand for social responsibility accounting stems from increasing
social awareness about the undesirable by- products of economic activities., Social responsibility
accounting is concerned with accounting for social costs incurred by the enterprise and social benefits
created.
(v) Human Resource Accounting – Human resource accounting is an attempt to identify, quantify and report
investments made in human resources of an organisation that are not presently accounted for under
conventional accounting practice.

Chapter 1.1 Meaning and Scope of Accounting

 1.2-1

Chapter 1.2
Accounting Concepts, Principles and Conventions

Section A: Study Material Questions

Examples & Illustrations

Example 1:
Mr. X started business investing ₹ 7,00,000 with which he purchased machinery for ₹ 5,00,000 and
maintained the balance in hand. The financial position of the will be as follows:
₹
Capital 7,00,000
Machinery 5,00,000
Cash 2,00,000
This means that the enterprise owes to Mr. X ₹ 7,00,000. Now if Mr. X spends ₹ 5,000 to meet his family
expenses from the business fund, then it should not be taken as business expenses and would be charged
to his capital account (i.e., his investment would be reduced by ₹ 5,000). Following the entity concept the
revised financial position would be
Liability ₹ ₹
Capital 7,00,000
Less : Drawings (5,000) 6,95,000
Machinery 5,00,000
Cash 1,95,000

Example 2:
Mr. X purchased a piece of land on 1.1.1995 paying ₹ 2,000. Its current market value is ₹ 1,02,000 on
31.12.2022. Should the accountant show the land at ₹ 2,000 following cost concept and ignoring
₹1,00,000 value increase since it is not realised? If he does so, the financial position would be:
BALANCE SHEET
Liabilities ₹ Asset ₹
Capital 2,000 Land 2,000
2,000 2,000
Is it not proper to show it in the following manner?
BALANCE SHEET
Liabilities ₹ Asset ₹
Capital 2,000 Land 1,02,000
Unrealised Gain 1,00,000
1,02,000 1,02,000
Now-a-days the revaluation of assets has become a widely accepted practice when the change in value is
of permanent nature. Accountants adjust such value change through creation of revaluation (capital)
reserve.
Thus, the going concern, cost concept and realization concept gives the valuation criteria.

Example 3:
BALANCE SHEET
Liabilities ₹ Asset ₹
Capital 1,50,000 Machinery 2,00,000
Bank Loan 75,000 Cash 1,00,000
Other Loan 75,000
3,00,000 3,00,000
Transactions:
(a) A new machine is purchased paying ₹ 50,000 in cash.
(b) A new machine is purchased for ₹ 50,000 on credit, cash is to be paid later on.
(c) Cash paid to repay bank loan to the extent of ₹ 50,000.
(d) Raised bank loan of ₹ 50,000 to pay off other loan.
Chapter 1.2 Accounting Concepts, Principles and Conventions
 1.2-2

Effect of the Transactions:

(a) Increase in machine value and decrease in cash balance by ₹ 50,000.
BALANCE SHEET (1 & 3)
Liabilities ₹ Asset ₹
Capital 1,50,000 Machinery 2,50,000
Bank Loan 75,000 Cash 50,000
Other Loan 75,000
3,00,000 3,00,000
(b) Increase in machine value and increase in Creditors by ₹ 50,000.
BALANCE SHEET (1 & 3)
Liabilities ₹ Asset ₹
Capital 1,50,000 Machinery 2,50,000
Creditors for machinery 50,000 Cash 1,00,000
Bank Loan 75,000
Other Loan 75,000
3,50,000 3,50,000
(c) Decrease in bank loan and decrease in cash by ₹ 50,000.
BALANCE SHEET (4 & 8)
Liabilities ₹ Asset ₹
Capital 1,50,000 Machinery 2,00,000
Bank Loan 25,000 Cash 50,000
Other Loan 75,000
2,50,000 2,50,000
(d) Increase in bank loan and decrease in other loan by ₹ 50,000
BALANCE SHEET (5 & 7)
Liabilities ₹ Asset ₹
Capital 1,50,000 Machinery 2,00,000
Bank Loan 1,25,000 Cash 1,00,000
Other Loan 25,000
3,00,000 3,00,000
We may conclude that every transaction and event has two aspects.
This gives basic accounting equation :
Equity (E) + Liabilities (L) = Assets (A)
Or
Equity (E)= Assets (A) – Liabilities(L)
Or, Equity + Long Term Liabilities + Current Liabilities = Fixed Assets + Current Assets
Or, Equity + Long Term Liabilities = Fixed Assets + (Current Assets – Current Liabilities)
Or, Equity = Fixed Assets + Working Capital – Long Term Liabilities

Question 1 (ILLUSTRATION)
Develop the accounting equation from the following information:
Particulars March 31, 2021 ₹ March 31, 2022 ₹
Capital 1,00,000 ?
12% Bank Loan 1,00,000 1,00,000
Trade Payables 75,000 70,000
Fixed Assets 1,25,000 1,10,000
Trade Receivables 75,000 80,000
Inventory 70,000 80,000
Cash & Bank 5,000 6,000
Required
Find the profit for the year & the Balance sheet as on 31/3/2022.
Answer 1
For the year ended March 31, 2021:
Equity = Capital ₹ 1,00,000
Liabilities = Bank Loan + Trade Payables

Chapter 1.2 Accounting Concepts, Principles and Conventions

 1.2-3

₹ 1,00,000 + ₹ 75,000 = ₹ 1,75,000

Assets = Fixed Assets + Trade Receivables + Inventory + Cash & Bank
₹ 1,25,000 + ₹ 75,000 + ₹ 70,000 + ₹ 5,000 = ₹ 2,75,000
Equity + Liabilities = Assets
₹ 1,00,000 + ₹ 1,75,000 = 2,75,000
For the year ended March 31, 2022:
Assets = ₹ 1,10,000 + ₹ 80,000 + ₹ 80,000 + ₹ 6,000 = ₹ 2,76,000
Liabilities = ₹ 1,00,000 + ₹ 70,000 = ₹ 1,70,000
Equity = Assets – Liabilities = ₹ 2,76,000 – ₹ 1,70,000 = ₹ 1,06,000
Profits = New Equity – Old Equity = ₹ 1,06,000 – ₹1,00,000 = ₹ 6,000

True and False

Question 1
The concept helps in keeping business affairs free from the influence of the personal affairs of the owner
is known as the matching concept.
Answer 1
False: Under matching concept all expenses matched with the revenue of that period should only be taken
into consideration. In the financial statements of the organization if any revenue is recognized then
expenses related to earn that revenue should also be recognized.

Question 2
Entity concept means that the enterprise is liable to the owner for capital investment made by the
owner.
Answer 2
True: Since the owner invested capital, he has claim on the profits of the enterprise.

Question 3
Accrual means recognition as money is received or paid and not of revenue and costs as they are earned
or incurred.
Answer 3
False: Under accrual concept, the effects of transactions and other events are recognised on mercantile
basis i.e., when they occur (and not as cash or a cash equivalent is received or paid) and they are recorded
in the accounting records and reported in the financial statements of the periods to which they relate.

Question 4
The Conservatism Concept states that no change should be counted unless it has materialized.
Answer 4
False: The Realisation Concept states that no change should be counted unless it has materialised.

Question 5
The concept of consistency implies non-flexibility as not to allow the introduction of improved method
of accounting.
Answer 5
False: The concept of consistency does not imply non-flexibility as not to allow the introduction of
improved method of accounting.

Question 6
The materiality depends only upon the amount of the item and not upon the size of the business, nature
and level of information, level of the person making the decision etc.
Answer 6
False: As per materiality principle, all the items having significant economic effect on the business of the
enterprise should be disclosed in the financial statements.

Chapter 1.2 Accounting Concepts, Principles and Conventions

 1.2-4

Question 7
Accrual basis of accounting is the method of recording transactions by which revenues and costs and
assets and liabilities are reflected in the accounts in the period in which actual receipts or actual
payments are made.
Answer 7
False: Cash Basis of Accounting is the method of recording transactions by which revenues and costs and
assets and liabilities are reflected in the accounts in the period in which actual receipts or actual payments
are made.

Multiple Choice Questions

Question 1
All the following items are classified as fundamental accounting assumptions except
(a) Consistency.
(b) Business entity.
(c) Going concern.
Answer 1 : (b)

Question 2
Two primary qualitative characteristics of financial statements are
(a) Understandability and materiality.
(b) Relevance and reliability.
(c) Neutrality and understandability.
Answer 2 : (b)

Question 3
Kanika Enterprises follows the written down value method of depreciating machinery year after year
due to
(a) Comparability.
(b) Convenience.
(c) Consistency.
Answer 3 : (c)

Question 4
A purchased a car for ₹ 5,00,000, making a down payment of ₹ 1,00,000 and signing a ₹ 4,00,000 bill
payable due in 60 days. As a result of this transaction
(a) Total assets increased by ₹ 5,00,000.
(b) Total liabilities increased by ₹ 4,00,000.
(c) Total assets increased by ₹ 4,00,000 with corresponding increase in liabilities by ₹ 4,00,000.
Answer 4 : (c)

Question 5
Mohan purchased goods for ₹15,00,000 and sold 4/5th of the goods amounting ₹18,00,000 and met
expenses amounting ₹ 2,50,000 during the year, 2022. He counted net profit as ₹ 3,50,000. Which of the
accounting concept was followed by him?
(a) Entity.
(b) Periodicity.
(c) Matching.
Answer 5 : (c)

Question 6
A businessman purchased goods for ₹ 25,00,000 and sold 80% of such goods during the accounting year
ended 31st March, 2022. The market value of the remaining goods was ₹ 4,00,000. He valued the closing
Inventory at cost. He violated the concept of
(a) Money measurement.
(b) Conservatism.
(c) Cost.
Answer 6 : (b)
Chapter 1.2 Accounting Concepts, Principles and Conventions
 1.2-5

Question 7
Capital brought in by the proprietor is
(a) Increase in asset and increase in liability
(b) Increase in liability and decrease in asset
(c) Increase in asset and decrease in liability
Answer 7 : (a)

Question 8
During the life-time of an entity, accounting provides financial statements in accordance with which basic
accounting concept:
(a) Conservatism
(b) Matching
(c) Accounting period
Answer 8 : (c)

Question 9
A concept that a business enterprise will not be liquidated in the near future is known as :
(a) Going concern
(b) Economic entity
(c) Monetary unit
Answer 9 : (a)

Question 10
Assets are held in the business for the
(a) Resale.
(b) Conversion into cash
(c) Earning revenue.
Answer 10 : (c)

Question 11
Revenue from sale of products, is generally, realised in the period in which
(a) Cash is collected.
(b) Sale is made
(c) Products are manufactured.
Answer 11 : (b)

Question 12
The concept of conservatism when applied to the balance sheet results in
(a) Understatement of assets.
(b) Overstatement of assets.
(c) Overstatement of capital.
Answer 12 : (a)

Question 13
Decrease in the amount of trade payables results in
(a) Increase in cash.
(b) Decrease in bank over draft account.
(c) Decrease in assets.
Answer 13 : (c)

Question 14
The determination of expenses for an accounting period is based on the principle of
(a) Objectivity.
(b) Materiality.
(c) Matching.
Answer 14 : (c)

Chapter 1.2 Accounting Concepts, Principles and Conventions

 1.2-6

Question 15
Economic life of an enterprise is split into the periodic interval to measure its performance is as per
(a) Entity.
(b) Matching.
(c) Periodicity.
Answer 15 : (c)

Question 16
If an individual asset is increased, there will be a corresponding
(a) Increase of another asset or increase of capital.
(b) Decrease of another asset or increase of liability.
(c) Decrease of specific liability or decrease of capital.
Answer 16 : (b)

Question 17
Purchase of machinery for cash
(a) Decreases total assets.
(b) Increases total assets.
(c) Retains total assets unchanged.
Answer 17 : (c)

Question 18
Consider the following data pertaining to Alpha Ltd.:
Particulars ₹
Cost of machinery purchased on 1st April, 2021 10,00,000
Installation charges 1,00,000
Market value as on 31st March, 2022 12,00,000
While finalizing the annual accounts, if the company values the machinery at ₹ 12,00,000. Which of the
following concepts is violated by the Alpha Ltd.?
(a) Cost.
(b) Matching.
(c) Accrual.
Answer 18 : (a)

Theoretical Questions & Answers

Question 1
Write short notes on:
(i) Fundamental accounting assumptions.
(ii) Periodicity concept.
(iii) Accounting conventions.
Answer 1
(i) Fundamental accounting assumptions: There are three fundamental accounting assumptions: Going
Concern; Consistency and Accrual. If nothing has been written about the fundamental accounting
assumption in the financial statements then it is assumed that they have already been followed in
their preparation of financial statements.
(ii) Periodicity concept: According to this concept accounts should be prepared after every period & not
at the end of the life of the entity.
This is also called the concept of definite accounting period. As per going concern’ concept an
indefinite life of the entity is assumed. For a business entityit causes inconvenience to measure
performance achieved by the entity in the ordinary course of business.
So, a small but workable fraction of time is chosen out of infinite life cycle of the business entity for
measuring performance and looking at the financial position. Generally, one year period is taken up
for performance measurement and appraisal of financial position. However, it may also be 6 months
or 9 months or 15 months.
According to this concept accounts should be prepared after every period & not at the end of the life

Chapter 1.2 Accounting Concepts, Principles and Conventions

 1.2-7

of the entity. Usually, this period is one calendar year. We generally follow from 1st April of a year to
31st March of the immediately following year.
Thus, for performance appraisal it is not necessary to look into the revenue and expenses of an unduly
long time-frame. This concept makes the accounting system workable and the term ‘accrual’
meaningful. If one thinks of indefinite time-frame, nothing will accrue. There cannot be unpaid
expenses and non- receipt of revenue. Accrued expenses or accrued revenue is only with reference to
a finite time-frame which is called accounting period.
Thus, the periodicity concept facilitates in:
(i) Comparing of financial statements of different periods
(ii) Uniform and consistent accounting treatment for ascertaining the profit and assets of the
business
(iii) Matching periodic revenues with expenses for getting correct results of thebusiness operations
(iii) Accounting conventions: Accounting conventions emerge out of accounting practices, commonly
known as accounting principles, adopted by various organizations over a period of time. For details,
Accounting conventions emerge out of accounting practices, commonly known as accounting
principles, adopted by various organizations over a period of time. These conventions are derived by
usage and practice. The accountancy bodies of the world may change any of the convention to
improve the quality of accounting information. Accounting conventions need not have universal
application.
In the study material, the terms ‘accounting concepts’, ‘accounting principles’ and ‘accounting
conventions’ have been used interchangeably to mean those basic points of agreement on which
financial accounting theory and practice are founded

Question 2
Briefly explain the qualitative characteristics of the financial statements.
Answer 2
Qualitative characteristics are the attributes that make the information provided in financial statements
useful to users.
1. Understandability: An essential quality of the information provided in financial statements is that it must
be readily understandable by users. For this purpose, it is assumed that users have a reasonable knowledge
of business, economic activities and accounting and study the information with reasonable diligence.
Information about complex matters that should be included in the financial statements because of its
relevance to the economic decision-making needs of users should not be excluded merely on the ground
that it may be too difficult for certain users to understand.
2. Relevance: To be useful, information must be relevant to the decision-making needsof users. Information
has the quality of relevance when it influences the economic decisions of users by helping them evaluate
past, present or future events or confirming, or correcting, their past evaluations.
3. Reliability: To be useful, information must also be reliable, Information has the qualityof reliability when it
is free from material error and bias and can be depended upon by users to represent faithfully that which it
either purports to represent or could reasonably be expected to represent.
4. Comparability: Users must be able to compare the financial statements of an enterprise through time in
order to identify trends in its financial position, performance and cash flows. Users must also be able to
compare the financial statements of different enterprises in order to evaluate their relative financial
position, performance and cash flows. Hence, the measurement and display of the financial effects of like
transactions and other events must be carried out in a consistent way throughout an enterprise and over
time for that enterprise and in a consistent way for different enterprises.
5. Materiality: The relevance of information is affected by its materiality. Information is material if its
misstatement (i.e., omission or erroneous statement) could influence the economic decisions of users
taken on the basis of the financial information. Materiality depends on the size and nature of the item or
error, judged in the particular circumstances of its misstatement. Materiality provides a threshold or cut-
off point rather than being a primary qualitative characteristic which the information must haveif it is
to be useful.
6. Faithful Representation: To be reliable, information must represent faithfully the transactions and other
events it either purports to represent or could reasonably be expected to represent. Thus, for example, a
balance sheet should represent faithfully the transactions and other events that result in assets, liabilities
and equity of the enterprise at the reporting date which meet the recognition criteria.

Chapter 1.2 Accounting Concepts, Principles and Conventions

 1.2-8

7. Substance over Form: If information is to represent faithfully the transactions and otherevents that it
purports to represent, it is necessary that they are accounted for and presented in accordance with their
substance and economic reality and not merelytheir legal form. The substance of transactions or other
events is not always consistent with that which is apparent from their legal or contrived form. For
example, where rights and beneficial interest in an immovable property are transferred but the
documentations and legal formalities are pending, the recording of acquisition/disposal (by the
transferee and transferor respectively) would in substance represent the transaction entered into.
8. Neutrality: To be reliable, the information contained in financial statements must be neutral, that is, free
from bias. Financial statements are not neutral if, by the selectionor presentation of information, they
influence the making of a decision or judgementin order to achieve a predetermined result or outcome.
9. Prudence: The preparers of financial statements have to contend with the uncertainties that inevitably
surround many events and circumstances, such as the collectability of receivables, the probable useful life
of plant and machinery, and the warranty claims that may occur. Such uncertainties are recognised by the
disclosure of their nature and extent and by the exercise of prudence in the preparation of the financial
statements. Prudence is the inclusion of a degree of caution in the exercise of the judgments needed in
making the estimates required under conditions of uncertainty, such that assets or income are not
overstated and liabilities or expenses are not understated. However, the exercise of prudence does not
allow, for example, the creation of hidden reserves or excessive provisions, the deliberate understatement
of assets or income, or the deliberate overstatement of liabilities or expenses, because the financial
statements would then not be neutral and, therefore, not have the quality of reliability.
10. Full, fair and adequate disclosure: The financial statement must disclose all the reliableand relevant
information about the business enterprise to the management and also to their external users for which
they are meant, which in turn will help them to take a reasonable and rational decision. For it, it is necessary
that financial statements are prepared in conformity with generally accepted accounting principles i.e the
information is accounted for and presented in accordance with its substance and economic reality and not
merely with its legal form. The disclosure should be full and final so that users can correctly assess the
financial position of the enterprise.
11. Completeness: To be reliable, the information in financial statements must be complete within the
bounds of materiality and cost. An omission can cause information to be false or misleading and thus
unreliable and deficient in terms of its relevance.

Section B: RTP, MTP & PYP Questions

True & False Questions

Question 1
The financial statement must disclose all the relevant and reliable information in accordance with the
Full Disclosure Principle. (RTP Nov’22)
Answer 1
True: The financial statement must disclose all the relevant and reliable information in accordance with
the Full Disclosure Principle.

Question 2
A concern proposes to discontinue its business from December 2023 and decides to dispose off all its
plants within a period of 3 months. The Balance Sheet as on 31st December, 2023 should continue to
indicate the plants at its historical costs as the assets will be disposed off after the Balance Sheet date.
(RTP Jun’24)
Answer 2
False: If the fundamental accounting assumption of going concern is not followed, then the assets and
liabilities should be stated at realizable value not historical cost.

Question 3
State with reasons, whether the following statements are true or false:
The concepts of conservatism when applied to the Balance Sheet results in understatement of assets.
(MTP 2 Marks, Apr’23)

Chapter 1.2 Accounting Concepts, Principles and Conventions

 1.2-9

Answer 3
True: Conservatism states that the accountant / entity should not anticipate any future income. However,
they should provide for all possible / probable losses. Imprudent use of concept of conservatism may lead
to understatement of Income and Assets.

Question 4
Accrual concept implies accounting on cash basis. .(MTP 2 Marks, Nov’22 & Nov’23)
Answer 4
False: Accrual concept implies accounting on ‘due’ or ‘accrual’ basis. Accrual basis of accounting involves
recognition of revenues and costs as and when they accrue irrespective of actual receipts or payments.

Question 5
The financial statements are not prepared on the assumption that an enterprise is a going concern and
will continue its operation for the foreseeable future. (PYP 2 Marks, Nov’22)
Answer 5
False: The financial statements are normally prepared on the assumption that an enterprise is a going
concern and will continue in operation for the foreseeable future.

Question 6
The provision for discount on creditors is often not provided in keeping with the principle of
conservatism. (PYP 2 Marks, Nov’22)
Answer 6
True: According to the principle of conservatism provision is maintained for the losses to be incurred in
future. Discount on creditors is an income so provision in not maintained.

Question 7
State with reasons, whether the following statements are True or False:
As per concept of conservatism the accountant should provide for all possible losses but should not
anticipate income. (PYP 2 Marks, Jun’23)
Answer 7
True: Conservatism states that the accountant should not anticipate any future income, however they
should provide for all possible losses.

Question 8
State with reasons, whether the following statements are True or False:
The financial statement must disclose all the relevant and reliable information in accordance with the
full disclosure principle. (PYP 2 Marks, Dec’23, MTP 2 Marks, May’24)
Answer 8
True: The financial statement must disclose all the reliable and relevant information about the business
enterprise to the management and also to their external users for which they are meant, which in turn will
help them to take a reasonable and rational decision. The disclosure should be full and final as per AS – 1,
so that users can correctly assess the financial position of the enterprise.

Question and Answer

Question 1
Explain Cash and Mercantile system of accounting. (RTP Nov’22, MTP 4 Marks, May’22, Nov’23)
Answer 1
Cash and mercantile system: Cash system of accounting is a system by which a transaction is recognized
only if cash is received or paid. In cash system of accounting, entries are made only when cash is received
or paid, no entry being made when a payment or receipt is merely due. Cash system is normally followed
by professionals, educational institutions or non-profit making organizations.
On the other hand, mercantile system of accounting is a system of classifying and summarizing transactions
into assets, liabilities, equity (owner’s fund), costs, revenues and recording thereof. A transaction is
recognized when either a liability is created/ impaired and an asset is created /impaired. A record is made
on the basis of amounts having become due for payment or receipt irrespective of the fact whether
payment is made or received actually.
Mercantile system of accounting is generally accepted accounting system by business entities.
Chapter 1.2 Accounting Concepts, Principles and Conventions
 1.2-10

Question 2
Write short notes on Going Concern concept. (RTP Nov’22)
Answer 2
Going Concern concept: The financial statements are normally prepared on the assumption that an
enterprise is a going concern and will continue in operation for the foreseeable future. Hence, it is assumed
that the enterprise has neither the intention nor the need to liquidate or curtail materially the scale of its
operations; if such an intention or need exists, the financial statements may have to be prepared on a
different basis and, if so, the basis used is disclosed.

Question 3
Distinguish between Going concern and cost concept. (RTP May’23, SM)
Answer 3
Going Concern concept: The financial statements are normally prepared on the assumption that an
enterprise is a going concern and will continue its operation for the foreseeable future. Hence, it is assumed
that the enterprise has neither the intention nor the need to liquidate or curtail materially the scale of its
operations; if such an intention or need exists, it should be disclosed in the financial statements.
Cost concept: It means that the value of an asset is to be determined on the basis of historical cost, in other
words, acquisition cost. Although there are various measurement bases, accountants traditionally prefer
this concept in the interests of objectivity.

Question 4
Distinguish between money measurement concept and matching concept. (RTP Dec’23, SM)
Answer 4
Distinction between Money measurement concept and matching concept
As per Money Measurement concept, only those transactions, which can be measured in terms of money
are recorded. Since money is the medium of exchange and the standard of economic value, this concept
requires that those transactions alone that are capable of being measured in terms of money should be
recorded in the books of accounts. Transactions and events that cannot be expressed in terms of money
are not recorded in the business books.
In Matching concept, all expenses matched with the revenue of that period should only be taken into
consideration. In the financial statements of the organization if any revenue is recognized then expenses
related to earn that revenue should also be recognized.

Question 5
Write short notes on the following:
Accounting conventions. (RTP Dec’23, May’23)
Answer 5
Accounting conventions emerge out of accounting practices, commonly known as accounting principles,
adopted by various organizations over a period of time. These conventions are derived by usage and
practice. The accountancy bodies of the world may change any of the convention to improve the quality
of accounting information. Accounting conventions need not have universal application.

Question 6
Write short notes on the following:
Fundamental Accounting Assumptions. (RTP Jun’24, Dec’23)
Answer 6
Fundamental Accounting Assumptions: Fundamental accounting assumptions underlie the preparation
and presentation of financial statements. They are usually not specifically stated because their acceptance
and use are assumed. Disclosure is necessary if they are not followed. The Institute of Chartered
Accountants of India issued Accounting Standard (AS) 1 on ‘Disclosure of Accounting Policies’ according to
which the following have been generally accepted as fundamental accounting assumptions:
1. Going concern: The enterprise is normally viewed as a going concern, i.e. as continuing operations
for the foreseeable future. It is assumed that the enterprise has neither the intention nor the
necessity of liquidation or of curtailing materially the scale of the operations.

Chapter 1.2 Accounting Concepts, Principles and Conventions

 1.2-11

2. Consistency: It is assumed that accounting policies are consistent from one period to another.
3. Accrual: Guidance Note on ‘Terms used in Financial Statements’ defines accrual basis of accounting
as “the method of recording transactions by which revenue, costs, assets and liabilities are reflected
in the accounts in the period in which they accrue.” The accrual ‘basis of accounting’ includes
considerations relating to deferrals, allocations, depreciation and amortisation. Financial statements
prepared on the accrual basis inform users not only of past events involving the payment and receipt
of cash but also of obligations to pay cash in future and of resources that represent cash to be
received in the future. Hence, they provide the type of information about past transactions and other
events that is most useful to users in making economic decisions. Accrual basis is also referred to as
mercantile basis of accounting.

Question 7
Explain the followings:
Accrual Basis of Accounting (PYP 1 Marks, Dec’21)
Answer 7
Accrual Basis of Accounting
The method of recording transactions by which revenues, costs, assets and liabilities are reflected in the
accounts in the period in which they accrue.

Question 8
Briefly explain the following Concepts of Accounting:
• Money Measurement Concept
• Periodicity Concept. (PYP 4 Marks, May’22)
Answer 8
Money Measurement concept: As per this concept, only those transactions, which can be measured in
terms of money are recorded. Since money is the medium of exchange and the standard of economic
value, this concept requires that those transactions alone that are capable of being measured in terms
of money be only to be recorded in the books of accounts. Transactions and events that cannot be
expressed in terms of money are not recorded in the business books.
Periodicity concept: According to this concept, accounts should be prepared after every period not
at the end of the life of the entity. This is also called the concept of definite accounting period. Usually,
this period is one accounting year. We generally follow from 1st April of a year to 31st March of the
immediately following year.

Question 9
Briefly explain the following term- Materiality (PYP 1 Marks, Jun’23)
Answer 9
Materiality refers to all relatively important and relevant items, i.e., items the knowledge of which might
influence the decisions of the user of the financial statements are disclosed in the financial statements.

Question 10
Briefly explain the following term- Conservatism (PYP 1 Marks, Jun’23)
Answer 10
Conservatism states that the accountant should not anticipate any future income however they should
provide for all possible losses. When there are many alternative values of an asset, an accountant should
choose the method which leads to the lesser value.

Question 11
Briefly explain the following term- Money Measurement Concept (PYP 1 Marks, Dec’23)
Answer 11
Money measurement concept: As per this concept, only those transactions, which can be measured in
terms of money are recorded. Transactions, even if, they affect the results of the business materially, are
not recorded if they are not convertible in monetary terms.

Chapter 1.2 Accounting Concepts, Principles and Conventions

 1.2-12

Question 12
Briefly explain the following term- Realisation Concept (PYP 1 Marks, Dec’23)
Answer 12
Realisation concept: It closely follows the cost concept. Any change in value of an asset is to be recorded
only when the business realises it.

Chapter 1.2 Accounting Concepts, Principles and Conventions

CA FOUNDATION
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Table of Contents
Sr. No. Particulars Page Number
1 Indian Regulatory Framework 1.1 – 1.2
2 The Indian Contract Act,1872
2.1 Nature of Contracts 2.1.1 – 2.1.12
2.2 Consideration 2.2.1 – 2.2.6
2.3 Other Essential Elements of a Contract 2.3.1 – 2.3.18
2.4 Performance of a Contract 2.4.1 – 2.4.11
2.5 Breach of Contract & Its Remedies 2.5.1 – 2.5.10
2.6 Contingent & Quasi Contracts 2.6.1 – 2.6.8
2.7 Contract of Indemnity & Guarantee 2.7.1 – 2.7.12
2.8 Bailment & Pledge 2.8.1 – 2.8.7
2.9 Agency 2.9.1 – 2.9.10
3 Sale of Goods Act, 1930
3.1 Formation of the Contract of Sale 3.1.1 – 3.1.12
3.2 Conditions & Warranties 3.2.1 – 3.2.14
3.3 Transfer of Ownership & Delivery of Goods 3.3.1 – 3.3.10
3.4 Unpaid Seller 3.4.1 – 3.4.11
4 The Indian Partnership Act, 1932
4.1 General Nature of Partnership 4.1.1 – 4.1.9
4.2 Relations of Partners 4.2.1 – 4.2.16
4.3 Registration & Dissolution of Firm 4.3.1 – 4.3.11
5 The Limited Liability Partnership Act, 2008 5.1 – 5.10
6 The Companies Act, 2013 6.1 – 6.31
7 The Negotiable Instruments Act, 1881 7.1 – 7.27
 1.1

Chapter 1
Indian Regulatory Framework

Section A: Study Material Questions

Multiple Choice Questions

1. A Chartered Accountant should be aware of law because
(a) He has to be an expert in law
(b) He has to argue in High court and Supreme court
(c) He has to advice management and clients on legal matters at a basic or threshold
level.
(d) None of the above.
Answer: (c)

2. Which of the following is not a MAIN source of law in India?

(a) Legal text books
(b) The Parliament
(c) State Assemblies
(d) The Constitution
Answer: (a)

3. In India we follow the federal system of Government. This means that

(a) All the power is with the President of India
(b) Powers are distributed between Centre and States
(c) All the power is with the Centre
(d) There are no restrictions on the power of States
Answer: (b)

4. The Constitution of India was adopted in

(a) 1947
(b) 1949
(c) 1950
(d) 1951
Answer:(c)

5. Income Tax Act, 1961 is a part of the

(a) Central list
(b) State list
(c) Joint list
(d) None of the above
Answer:(a)

6. The law concerned with violation of the rule of law and punishment of the same is called -
(a) Family law
(b) Criminal law
(c) Civil law
(d) Property law
Answer:(b)

7. Which of the following is NOT an example of Civil law?

(a) Breach of contract
(b) Non-delivery of goods
(c) Traffic offenses
(d) Non-payment of dues
Answer:(c)
Chapter 1 Indian Regulatory Framework
 1.2

8. When a law is proposed in Parliament it is called

(a) Act
(b) Statute
(c) Bill
(d) Notification
Answer:(c)

9. Which of the following is NOT a department of the Ministry of Finance?

(a) Department of Economic Affairs
(b) Department of Expenditure
(c) Department of States
(d) Department of Revenue
Answer:(c)

10.Courts get territorial limits based on

(a) The local limits within which the party resides
(b) The local limits within which the property under dispute is located
(c) either a or b
(d) None of the above
Answer:(c)

Section B: RTP, MTP & PYP Questions

Question 1
What do you understand by Indian Judicial System and what are its various functions? (RTP Jun’24)
Answer 1
Indian Judicial System is a branch which through the enforcement of Law resolves dispute between
citizens or between citizens and the Government.
The functions of judiciary system of India are:
• Regulation of the interpretation of the Acts and Codes,
• Dispute Resolution,
• Promotion of fairness among the citizens of the land.
Indian Judicial System performs his functions through the hierarchy ofcourts, the Supreme Court is at the
top, followed by the High Courts, District Courts and Metropolitan Courts. Decisions of a High Court are
binding in the respective state but are only persuasive in other states. Decisions of the Supreme Court are
binding on all High Courts under Article 141 of the Indian Constitution. In fact, a Supreme Court decision
is the final word on the matter.

Chapter 1 Indian Regulatory Framework

 2.1 - 1

Chapter 2.1
Nature of Contracts

Section A: Study Material Questions

Multiple Choice Questions

1. An agreement enforceable by law is a
(a) Promise
(b) Contract
(c) Obligation
(d) Lawful promise
Answer:(b)

2. A void agreement is one which is -

(a) Valid but not enforceable
(b) Enforceable at the option of both the parties
(c) Enforceable at the option of one party
(d) Not enforceable in a court of law.
Answer:(d)

3. An agreement which is enforceable by law at the option of one or more of the parties thereon but not at
the option of the other or others is a
(a) Valid Contract
(b) Void contract
(c) Voidable contract
(d) Illegal contract
Answer:(c)

4. When the consent of a party is not free, the contract is

(a) Void
(b) Voidable
(c) Valid
(d) Illegal
Answer:(b)

5. In case of illegal agreements, the collateral agreements are:

(a) Valid
(b) Void
(c) Voidable
(d) None of these
Answer:(b)

6. An offer may lapse by:

(a) Revocation
(b) Counter Offer
(c) Rejection of offer by offeree
(d) All of these
Answer:(d)

7. A proposal when accepted becomes a

(a) Promise
(b) Contract
(c) Offer
(d) Acceptance
Answer:(a)
Chapter 2.1 Nature of Contracts
 2.1 - 2

8. If A says to B “I offer to sell my house to you for ₹ 40,00,000” and B accepts the offer by saying clearly “I
accept your offer”, it is a/an
(a) Implied offer
(b) Express offer
(c) General offer
(d) None of the above
Answer:(b)

9. ‘A’ offered a reward of ₹ 1,00,000 for recovery of some valuable missing articles. ‘B’ who did not know of
this offer, found the missing articles. Which one of the following is the correct solution to this problem?
(a) Giving delivery of articles to ‘A’ amounts to an acceptance and hence ‘B’ is entitled to get the
reward of ₹ 1,00,000
(b) Giving delivery of articles to ‘A’ amounts to performance of a condition precedent to an offer
and hence there is valid acceptance. So ‘B’ must get the reward of ₹ 1,00,000
(c) As there is no acceptance of an offer due to want of Knowledge, ‘B’, is not entitledto get the
reward of ₹ 1,00,000
(d) In the absence of any legal obligation on ‘A’, no claim for reward of ₹ 1,00,000 is maintainable
by ‘B’.
Answer:(c)

10. Arun has two cars- one of white colour and another of red colour. He offers to sell one of the cars to
Basu thinking that he is selling the car which has white colour. Basu agrees to buy the car thinking that
Arun is selling the car which has red colour. Will this agreement become a valid contract?
(a) Yes
(b) No
(c) Insufficient information
(d) None of the above.
Answer:(b)

11. A dress is displayed in the showroom with a price tag attached to the dress. A buyer interested in the
dress and ready to pay the price mentioned in the tag approached the shopkeeper for purchasing the
dress.
(a) The shopkeeper can refuse to sell the dress as display of dress is just an invitation to offer.
(b) The shopkeeper cannot refuse to sell the dress as the buyer has accepted the offer
(c) In case of refusal, the shopkeeper will be liable for breach of contract
(d) The shopkeeper cannot refuse to sell the dress but may charge higher price
Answer:(a)

12. A agrees to pay ₹ 1,000 to B if a certain ship returns within a year. However, the ship sinks within the
year. In this case, the contract becomes
(a) Valid
(b) Void
(c) Voidable
(d) Illegal
Answer:(b)

13. A notice in the newspaper inviting tenders is

(a) a proposal
(b) An invitation to proposal
(c) A promise
(d) An invitation for negotiation
Answer:(b)

Chapter 2.1 Nature of Contracts

 2.1 - 3

14. A telephonic acceptance is complete when the offer is

(a) spoken into the telephone
(b) heard but not understood by the offeror
(c) heard and understood by the offeror
(d) is received, heard and understood by some person in the offeror’s house.
Answer:(c)

15. A and B agree to deal in smuggled goods and share the profits. A refuses to give B’s share of profit. In
this case:
(a) B can enforce the agreement in the court
(b) B can only claim damages
(c) B has no remedy as the contract is illegal
(d) B can enforce the contract and claim damages
Answer:(c)

16. Which one of the following statements is correct?

(a) Void agreements are always illegal
(b) Illegal agreements are voidable
(c) Illegal agreement can be ratified by the parties
(d) Illegal agreements are always void
Answer:(d)

17. A voidable contract is one which

(a) Can be enforced at the option of aggrieved party
(b) Can be enforced at the option of both the parties
(c) Cannot be enforced in a court of law
(d) Courts prohibit
Answer: (a)

18. When offer is made to a definite person, it is known as

(a) General Offer
(b) Cross Offer
(c) Counter offer
(d) Special offer
Answer: (d)

19. On the face of a ticket, it is mentioned that to look for the terms and conditions look behind. Mr. A
bought the ticket but didn’t read the terms and conditions. He:
(a) is not bound by the terms and condition
(b) may decide to bound by certain terms and ignore others
(c) is bound by all the terms and conditions whether he read it or not
(d) none of the above
Answer: (c)

20. It does not effect the free consent of the parties,

(a) Fraud
(b) Coercion
(c) Incompetency of parties
(d) Undue Influence
Answer: (c)

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21. contract is made without intention of parties.

(a) Express
(b) Implied
(c) Quasi
(d) Executory
Answer: (c)

22. A offers B to supply Books at Rs. 500 each. B accepts the same with condition of 30% discount. It is
_______
(a) Counter Offer
(b) Cross Offer
(c) Specific Offer
(d) General Offer
Answer:(a)

Question Answers
Question 1
A sends an offer to B to sell his second-car for ₹ 1,40,000 with a condition that if B does not reply within
a week, he (A) shall treat the offer as accepted. Is A correct in his proposition?
Answer 1
Acceptance to an offer cannot be implied merely from the silence of the offeree, evenif it is expressly
stated in the offer itself. Unless the offeree has by his previous conduct indicated that his silence amount
to acceptance, it cannot be taken as valid acceptance. So, in the given problem, if B remains silent, it does
not amount to acceptance. The acceptance must be made within the time limit prescribed by the offer.
Theacceptance of an offer after the time prescribed by the offeror has elapsed will not avail to turn the
offer into a contract.

Question 2
State whether there is any contract in following cases:
(a) A engages B to do certain work and remuneration to be paid as fixed by C.
(b) A and B promise to pay for the studies of their maid’s son
(c) A takes a seat in public bus.
(d) A, a chartered accountant promises to help his friend to file his return.
Answer 2
(a) It is a valid express contract
(b) It is not a contract as it is a social agreement
(c) It is an implied contract. A is bound to pay for the bus fare.
(d) It is a social agreement without any intention to create a legal relationship.

Question 3
Miss Shakuntala puts an application to be a teacher in the school. She was appointed by the trust of the
school. Her friend who works in the same school informs her about her appointment informally. But later
due to some internal reasons her appointment was cancelled. Can Miss Shakuntala claim for damages?
Answer 3
No, Miss Shakuntala cannot claim damages. As per Section 4, communication of acceptance is complete as
against proposer when it is put in the course of transmission to him. In the present case, school authorities
have not put any offer letter in transmission. Her information from a third person will not form part of
contract.

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Section B: RTP, MTP & PYP Questions

Question 1
State which of the following agreements are valid contract under the Indian Contract Act, 1872?
(a) A, who owns two cars is selling red car to B. B thinks he is purchasing the black car.
(b) A threatened to shoot B if he (B) does not lend him ₹2,00,000 and B agreed to it.
(c) A agrees to sell his house to B against 100 kgs of cocaine (drugs).
(d) A ask B if he wants to buy his bike for ₹ 50,000. B agrees to buy bike.
(e) Mr. X agrees to write a book with a publisher. But after few days, X dies in an accident.
(RTP May’23)
Answer 1
(a) A, who owns two cars is selling red car to B. B thinks he is purchasing the black car. There is no
consensus ad idem and hence not a valid contract.
(b) A threatened to shoot B if he (B) does not lend him ₹2,00,000 and B agreed to it. Here the agreement
is entered into under coercion and hence not a valid contract.
(c) A agrees to sell his house to B against 100 kgs of cocaine (drugs). Such agreement is illegal as the
consideration is unlawful.
(d) A ask B if he wants to buy his bike for ₹ 50,000. B agrees to buy bike. It is agreement which is
enforceable by law. Hence, it is a valid contract.
(e) Mr. X agrees to write a book with a publisher. But after few days, X dies in an accident. Here the
contract becomes void due to the impossibility of performance of the contract.

Question 2
Mr. Parth applied for a job as principal of a school. The school management decided to appoint him. One
member of the school management committee privately informed Mr. Parth that he was appointed but
official communication was not given by the school. Later, the management of the school decided to
appoint someone else as a principal. Mr. Parth filed a suit against the school for cancellation of his
appointment and claimed damages for loss of salary. State with reasons, will Mr. Parth be successful in
suit filed against school under the Indian Contract Act, 1872?
(RTP Jun’24, Nov’21)
Answer 2
As per the rules of acceptance, the acceptance should be communicated to offer or by offeree himself
or by his authorized agent. Communication of acceptance by third person cannot be concluded as valid
acceptance. In the instant case, Mr. Parth applied for a job as principal of a schooland one member of
the school management committee privately informed Mr. Parth that he was appointed. Later, the
management of the school appointed someone else as a principal. On the basis of the above provisions
and facts, communication of appointment of Mr. Parth should be made by the school management
committee or by any authorised agent. Communication by third person cannot be termed as
communication of acceptance. Therefore, no valid contract was formed between Mr. Parth and the school
and Mr. Parth cannot file a suit against the school for cancellation of his appointment.

Question 3
Mr. Joy owns two flats in a building. He wanted to sell flat no.101 to Mr. Roy. Mr. Joy offered to sell
his flat no. 101 to Mr. Roy, but Mr. Roy thought that Mr. Joy wanted to sell flat no. 102 and said yes
for the agreement. Considering the provisions of Indian Contract Act, 1872, discuss the validity of such
a contract. (MTP Jun’22 4 Marks)
Answer 3
Section 10 of Indian Contract Act, 1872 laid done the essential elements of a valid contract. One of the
essential elements of valid contract is free consent. Consent is an express willingness or giving voluntary
permission or agreeing to something. Section 13 further clarify" two or more persons are said to consent
when they agree upon the same thing in the same sense". In the present case, both the parties have
given a free consent but they are not consenting for the same thing in the same sense. Mr. Joy wants to
sell flat no. 101 and Mr. Roy has agreed the contract thinking that it's flat no. 102. Hence, the agreement
would be invalidated at the inception (beginning) stage itself because both the parties did not agree
about a thing (sale of flat) in the same sense. Hence, both the parties did not have mutual consent for
the contract; therefore it is not a valid contract.
Chapter 2.1 Nature of Contracts
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Question 4
“All contracts are agreements, but all agreements are not contracts”. Comment.
(MTP Jun’22 4 Marks) (SM) (MTP 4 Marks, Nov’21)
Answer 4
An agreement comes into existence when one party makes a proposal or offer to the other party and
that other party gives his acceptance to it. A contract is an agreement enforceable by law. It means that
to become a contract, an agreement must give rise to a legal obligation i.e. duly enforceable by law. If
an agreement is incapable of creating a duly enforceable by law, it is not a contract. There can be
agreements which are not enforceable by law, such as social, moral or religious agreements. The
agreement is a wider term than the contract. All agreements need not necessarily become contracts but
all contracts shall always be agreements. All agreements are not contracts: When there is an agreement
between the parties and they do not intend to create a legal relationship, it is not a contract. All contracts
are agreements: For a contract there must be two things (a) an agreement and (b) enforceability by law.
Thus, existence of an agreement is a pre-requisite existence of a contract. Therefore, it is true to say that
all contracts are agreements. Thus, we can say that there can be an agreement without it becoming a
contract, but we can’t have a contract without an agreement.

Question 5
Explain the type of contracts in the following agreements under the Indian Contract Act, 1872:
(a) A coolie in uniform picks up the luggage of A to be carried out of the railway station without being
asked by A and A allows him to do so.
(b) Obligation of finder of lost goods to return them to the true owner.
(c) A contract with B (owner of the factory) for the supply of 10 tons of sugar, but before the supply
is affected, the fire caught in the factory, and everything was destroyed.
(MTP Nov’22 4 Marks)(SM)
Answer 5
(a) It is an implied contract and A must pay for the services of the coolie detailed by him.
Implied Contracts: Implied contracts come into existence by implication. Most often the implication
is by law and or by action. Section 9 of the Act contemplates such implied contracts when it lays
down that in so far as such proposal or acceptance is made otherwise than in words, the promise is
said to be implied.
(b) Obligation of finder of lost goods to return them to the true owner cannot be said to arise out of a
contract even in its remotest sense, as there is neither offer and acceptance nor consent. These are
said to be quasi-contracts.
Quasi-Contract: A quasi-contract is not an actual contract but it resembles a contract. It is created
by law under certain circumstances. The law creates and enforces legal rights and obligations when
no real contract exists. Such obligations are known as quasi-contracts. In other words, it is a contract
in which there is no intention on part of either party to make a contract, but law imposes a contract
upon the parties.
(c) The above contract is a void contract.
Void Contract: Section 2 (j) states as follows: “A contract which ceases to be enforceable by law
becomes void when it ceases to be enforceable”. Thus, a void contract is one which cannot be
enforced by a court of law.

Question 6
Ashwin goes to super market to buy a Air Conditioner. He selects a branded Air Conditioner having a
price tag of ₹ 40,000 after a discount of ₹ 3000. Ashwin reaches at cash counter for making the
payment, but cashier says, “Sorry sir, the discount was up-to yesterday. There is no discount from
today. Hence you have to pay ₹ 43,000.” Ashwin got angry and insists for ₹ 40,000. State with reasons
whether under Indian Contract Act, 1872, Ashwin can enforce the cashier to sell at discounted price
i.e. ₹ 40,000. (MTP Apr’23 4 Marks) RTP May’22 (PYP Dec’23 3 Marks) (MTP 4 Marks, Oct’21)
Answer 6
An invitation to offer is different from offer. Quotations, menu cards, price tags, advertisements in
newspaper for sale are not offer. These are merely invitations to public to make an offer. An invitation
to offer is an act precedent to making an offer. Acceptance of an invitation to an offer does not result in
the contract and only an offer emerges in the process of negotiation. In the instant case, Ashwin reaches
Chapter 2.1 Nature of Contracts
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to super market and selects a Air Conditioner with a discounted price tag of ₹ 40,000 but cashier denied
to sell at discounted price by saying that discount is closed from today and request to make full payment.
But Ashwin insists to purchase at discounted price. On the basis of above provisions and facts, the price
tag with Air Conditioner was not offer. It is merely an invitation to offer. Hence, it is the Ashwin who is
making the offer not the super market. Cashier has right to reject the Ashwin’s offer. Therefore, Ashwin
cannot enforce cashier to sell at discounted price.

Question 7
Mr. Ayush is the principal in Modern Public School. He needs 2000 packets of Biscuits to be distributed
to students in his school on the occasion of Republic Day celebration. For this purpose, he contracted
with Yograj Biscuit Company. Mr. Ayush visited the workshop of Yograj Biscuit Company and was very
much satisfied with the quality of biscuits. He also found that a large number of varieties of biscuits
are manufactured in the workshop. He ordered 2000 packs of biscuits and gave the token money but
did not specify the category of biscuits, he needed. Yograj Biscuit Company did not supply the biscuits
on the due date. Mr. Ayush filed the suit against Yograj Biscuit Company for compensation. State with
reasons, whether Yograj Biscuit Company is liable under Indian Contract Act, 1872?
(MTP Nov’23 4 Marks)
Answer 7
According to the Indian Contract Act 1872, the meaning of agreement must be certain and not vague or
indefinite. If the meaning of agreement is not certain, the agreement is not enforceable by law. In the
instant case, Mr. Ayush is being principal in Modern Public School ordered 2000 packs of biscuits to
Yograj Biscuit Company for the purpose of distribution on Republic Day among students. He also gave
the token money but did not specify the category of biscuits. Yograj Biscuit Company did not supply the
biscuits on the due date and Mr. Ayush filed the suit for compensation. On the basis of above provisions
and facts, it can be said that the agreement was not enforceable for want of certainty of meaning as Mr.
Ayush did not specify the category of biscuits. Hence, Yograj Biscuit Company is not liable to pay any
compensation to Mr. Ayush.

Question 8
Mr. Nikhil has decided to get interior work for his new office. For this purpose, he entered into a
contract with M/s Sherry Fine Interiors. It was agreed that M/s Sherry Fine Interiors will complete the
interior work latest by 31st January, 2023. On 31st January, 2023, Mr. Nikhil observed that only 20%
to 30% work has been completed. He decided to cancel the contract with M/s Sherry Fine Interiors.
On cancellation of the contract, M/s Sherry Fine Interiors filed a suit against Mr. Nikhil for recovery of
the cost which it has incurred on the interior work. Mr. Nikhil argued that M/s Sherry Fine Interiors
did not complete the work within the time as per contract and further the work done till 31st January,
2023 by M/s Sherry Fine Interiors was of no use for him as he has to appoint a new interior designer.
Explain, whether Mr. Nikhil is liable to pay the cost of work done by M/s Sherry Fine Interiors under
the provisions of Indian Contract Act, 1872? (MTP Dec’23 4 Marks)
Answer 8
Section 2(i) of Indian Contract Act, 1872 provides that an agreement which is enforceable by law at the
option of one or more parties thereto, but not at the option of the other or others is a voidable contract.
Further, when a party to a contract promise to perform a work within a specified time, could not perform
with in that time, the contract is voidable at the option of the promisee. If promisee has received any
benefit, he must return to promisor. In the given problem, the contract is voidable at the option of Mr.
Nikhil as work is not completed within the time agreed in the contract. Further, Mr. Nikhil is not liable
to pay the cost incurred by M/s Sherry Fine Interiors as that cost did not provide any benefit to him and
he has to appoint a new interior designer.

Question 9 (Includes concepts of 2.3- Other essential elements of a contract)

X agrees to pay Y ₹ 1,00,000/-, if Y kills Z. To pay Y, X borrows ₹ 1,00,000/- from W, who is also aware
of the purpose of the loan. Y kills Z but X refuses to pay. X also to repay the loan to W. Explain the
validity of the contract.
(i) Between X and Y.
(ii) Between X and W (PYP Nov’22 4 Marks)

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Answer 9
Illegal Agreement: It is an agreement which the law forbids to be made. As an essential condition, the
lawful consideration and object is must to make the agreement valid. (Section 10). As per Section 23 of
the Indian Contract Act, 1872, an agreement is illegal and void, if the consideration and object is unlawful
/ contrary to law i.e. if forbidden by law. Such an agreement is void and is not enforceable by law. Even
the connected agreements or collateral transactions to illegal agreements are also void.
In the present case,
(i) X agrees to give ₹ 1,00,000 to Y if Y kills Z. Thus, the agreement between X and Y is void agreement being
illegal in nature.
(ii) X borrows ₹ 1,00,000 from W and W is also aware of the purpose of the loan. Thus, the agreement
between X and W is void as the connected agreements of an illegal agreements are also void.

Question 10
Radha invited her ten close friends to celebrate her 25th birthday party on 1st January, 2023 at 7.30
P.M. at a well-known "Hi-Fi Restaurant" at Tonk Road, Jaipur. All invited friends accepted the
invitation and promised to attend the said party. On request of the hotel manager, Radha deposited
₹ 5,000/- as non-refundable security for the said party. On the scheduled date and time, three among
ten invited friends did not turn up for the birthday party and did not convey any prior communication
to her. Radha, enraged with the behaviour of the three friends, wanted to sue them for loss incurred
in the said party. Advise as per the provisions of the Indian Contract Act, 1872. Would your answer
differ if the said party had been a "Contributory 2023 New Year celebration Party" organized by
Radha? (PYP Jun’23 4 Marks)
Answer 10
As per one of the requirements of Section 10 of the Indian Contract Act, 1872, there must be an intention
on the part of the parties to create legal relationship between them. Social or domestic agreements are
not enforceable in court of law and hence they do not result into contracts. In the instant case, Radha
cannot sue her three friends for the loss incurred in the said party as the agreement between her and
her ten friends was a social agreement, and the parties did not intend to create any legal relationship. If
the said party organised by Radha had been a “Contributory 2023 New year celebration party”, then
Radha could have sued her three friends for the loss incurred in the said party as the agreement between
her and her friends would have legal backing; on the basis of which Radha deposited the advance amount
and the parties here intended to create legal relationship.

Question 11
Distinguish between Void Contract and Voidable Contract according to the Indian Contract Act, 1872.
(PYP Jun’23 5 Marks)
Answer 11
The differences between void contract and voidable contract are as follows:
Sr. Basis Void Contract Voidable Contract
No.
1 Meaning A Contract which ceases to be An agreement which is enforceable by law
enforceable by law becomes void at the option of one or more of the
when it ceases to be enforceable. parties thereto, but not at the option of
the other or others, is a voidable contract.
2 Enforceability A void contract cannot be It is enforceable only at the option of
enforced at all. aggrieved party and not at the option of
the other party.
3 Cause A contract becomes void due to A contract becomes a voidable contract if
change in law or change in the consent of a party was not free.
circumstances beyond the
contemplation of parties.
4 Performance A void contract cannot be If the aggrieved party does not, within
of contract performed. reasonable time, exercise his right to
avoid the contract, any party can sue the
other for claiming the performance of the
Chapter 2.1 Nature of Contracts
 2.1 - 9

contract.
5 Rights A void contract does not grant any The party whose consent was not free has
legal remedy to any party. the right to rescind the contract within a
reasonable time. If so rescinded it
becomes a void contract. If it is not
rescinded it becomes a valid contract.

Question 12
Explain the type of contracts in the following agreements under the Indian Contract Act, 1872:
(i) X promise to sell his scooter to Y for ₹ 1 Lac. However, the consent of X has been procured by Y
at a gun point.
(ii) A bought goods from B in 2015. But no payment was made till 2019.
(iii) G agrees to give tuitions to H, a pre-engineering student, from the next month and H in
consideration promises to pay G ₹ 5,000 per month. (RTP May’21)
Answer 12
(i) In the instant case, X is an aggrieved party and the contract is voidable at his option but not at the
option of Y. It means if X accepts the contract, the contract becomes a valid contract then Y has no
option of rescinding the contract.
(ii) B cannot sue A for the payment in 2019 as it has crossed three years and barred by Limitation Act.
A good debt becomes unenforceable after the period of three years as barred by Limitation Act.
(iii) Where, G agrees to give tuitions to H, a pre-engineering student, from the next month and H in
consideration promises to pay G ₹ 5,000 per month, the contract is executory because it is yet to
be carried out.

Question 13
Mr. S aged 58 years was employed in a Government Department. He was going to retire after two years.
Mr. D made a proposal to Mr. S to apply for voluntary retirement from his post so that Mr. D can be
appointed in his place. Mr. D offered a sum of ₹10 Lakhs as consideration to Mr. S in order to induce him
to retire. Mr. S refused at first instance but when he evaluated the amount offered as consideration is
just double of his cumulative remuneration to be received during the tenure of two years of
employment, he agreed to receive the consideration and accepted the above agreement to receive
money to retire from his office. Whether the above agreement is valid? Explain with reference to
provision of Indian Contract Act, 1872. (PYP 4 Marks, Jan’21)
Answer 13
Section 10 of the Indian Contract Act, 1872 provides for the legality of consideration and objects thereto.
Section 23 of the said Act also states that every agreement of which the object or consideration is unlawful
is void. The given problem talks about entering into an agreement for traffic relating to public office, which
is opposed to public policy. Public policy requires that there should be no money consideration for the
appointment to an office in which the public is interested. Such consideration paid, being opposed to public
policy, is unlawful. In the given case, Mr. S, who was going to be retired after two years was proposed by
Mr. D, to apply for voluntary retirement from his post, in order that he can be appointed in his place. In
lieu of that Mr. D offered Mr. S a sum of ₹ 10 lakh as consideration. Mr. S refused initially but later accepted
the said offer to receive money to retire from his office. Here, Mr. S’s promise of sale for Mr. D, an
employment in the public services is the consideration for Mr. D’s promise to pay ₹10 lakh. Therefore, in
terms of the above provisions of the Indian Contract Act, the said agreement is not valid. It is void, as the
consideration being opposed to public policy, is unlawful.

Question 14
Define the term acceptance under the Indian Contract Act, 1872. Explain the legal rules regarding a valid
acceptance. (PYP 7 Marks, Jan’21)
Answer 14
Definition of Acceptance: In terms of Section 2(b) of the Indian Contract Act, 1872 the term acceptance is
defined as “When the person to whom the proposal is made signifies his assent thereto, proposal is said
to be accepted. The proposal, when accepted, becomes a promise”.

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Legal Rules regarding a valid acceptance

(1) Acceptance can be given only by the person to whom offer is made. In case of a specific offer, it can
be accepted only by the person to whom it is made. In case of a general offer, it can be accepted by
any person who has the knowledge of the offer.
(2) Acceptance must be absolute and unqualified: As per section 7 of the Act, acceptance is valid only
when it is absolute and unqualified and is also expressed in some usual and reasonable manner unless
the proposal prescribes the manner in which it must be accepted. If the proposal prescribes the
manner in which it must be accepted, then it must be accepted accordingly
(3) The acceptance must be communicated: To conclude a contract between the parties, the acceptance
must be communicated in some perceptible form. Further when a proposal is accepted, the offeree
must have the knowledge of the offer made to him. If he does not have the knowledge, there can be
no acceptance. The acceptance must relate specifically to the offer made. Then only it can materialize
into a contract.
(4) Acceptance must be in the prescribed mode: Where the mode of acceptance is prescribed in the
proposal, it must be accepted in that manner. But if the proposer does not insist on the proposal being
accepted in the manner prescribed after it has been accepted otherwise, i.e., not in the prescribed
manner, the proposer is presumed to have consented to the acceptance.
(5) Time: Acceptance must be given within the specified time limit, if any, and if no time is stipulated,
acceptance must be given within the reasonable time and before the offer lapses.
(6) Mere silence is not acceptance: The acceptance of an offer cannot be implied from the silence of the
offeree or his failure to answer, unless the offeree has in any previous conduct indicated that his
silence is the evidence of acceptance.
(7) Acceptance by conduct/ Implied Acceptance: Section 8 of the Act lays down that “the performance
of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which
may be offered with a proposal, constitutes an acceptance of the proposal. This section provides the
acceptance of the proposal by conduct as against other modes of acceptance i.e. verbal or written
communication.
Therefore, when a person performs the act intended by the proposer as the consideration for the promise
offered by him, the performance of the act constitutes acceptance.

Question 15
Mr. B makes a proposal to Mr. S by post to sell his house for ₹ 10 lakhs and posted the letter on 10th
April 2020 and the letter reaches to Mr. S on 12th April 2020. He reads the letter on 13th April 2020.
Mr. S sends his letter of acceptance on 16th April 2020 and the letter reaches Mr. B on 20th April 2020.
On 17th April Mr. S changed his mind and sends a telegram withdrawing his acceptance. Telegram
reaches to Mr. B on 19th April 2020.
Examine with reference to the Indian Contract Act, 1872:
(1) On which date, the offer made by Mr. B will complete?
(2) Discuss the validity of acceptance.
(3) What would be validity of acceptance if letter of revocation and letter of acceptance reached
together? (PYP 6 Marks, Jan’21)
Answer 15
(i) According to Section 4 of the Indian Contract Act, 1872, “the communication of offer is complete when
it comes to the knowledge of the person to whom it is made”.
When a proposal is made by post, its communication will be complete when the letter containing the
proposal reaches the person to whom it is made. Further, mere receiving of the letter is not sufficient,
he must receive or read the message contained in the letter.
In the given question, Mr. B makes a proposal by post to Mr. S to sell his house. The letter was posted
on 10th April 2020 and the letter reaches to Mr. S on 12th April 2020 but he reads the letter on 13th
April 2020.
Thus, the offer made by Mr. B will complete on the day when Mr. S reads the letter,
i.e. 13th April 2020.
(ii) When communication of acceptance is complete: Where a proposal is accepted by a letter sent by
the post, in terms of Section 4 of the Act, the communication of acceptance will be complete as against
the proposer when the letter of acceptance is posted and as against the acceptor when the letter
reaches the proposer.
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Revocation of Acceptance: The acceptor can revoke his acceptance any time before the letter of
acceptance reaches the offeror, if the revocation telegram arrives before or at the same time with the
letter of acceptance, the revocation is absolute. In the given question, when Mr. S accepts Mr. B’s
proposal and sends his acceptance by post on 16th April 2020, the communication of acceptance as
against Mr. B is complete on 16th April 2020, when the letter is posted. As against Mr. S acceptance
will be complete, when the letter reaches Mr. B i.e. 20th April 2020. Whereas, acceptor, will be bound
by his acceptance only when the letter of acceptance has reached the proposer.
The telegram for revocation of acceptance reached Mr. B on 19th April 2020 i.e. before the letter of
acceptance of offer (20th April 2020). Hence, the revocation is absolute. Therefore, acceptance to an
offer is invalid.
(iii) It will not make any difference even if the telegram of revocation and letter of acceptance would have
reached on the same day, i.e. the revocation then also would have been absolute. As per law,
acceptance can be revoked anytime before the communication of acceptance is complete. Since
revocation was made before the communication of acceptance was complete and communication can
be considered as complete only when the letter of acceptance reaches the proposer i.e. Mr. B.

Question 16
State with reason(s) whether the following agreements are valid or void:
(i) A clause in a contract provided that no action should be brought upon in case of breach.
(ii) Where two courts have jurisdiction to try a suit, an agreement between the parties that the suit
should be filed in one of those courts alone and not in the other.
(iii) X offers to sell his Maruti car to Y. Y believes that X has only Wagon R Car but agrees to buy it.
(iv) X, a physician and surgeon, employs Y as an assistant on a salary of ₹ 75,000 per month for a term
of two years and Y agrees not to practice as a surgeon and physician during these two years.
(PYP 4 Marks, Jul’21)
Answer 16
(i) The given agreement is void.
Reason: As per Section 28 of the Indian Contract Act, 1872, this clause is in restraint of legal
proceedings because it restricts both the parties from enforcing their legal rights.
Note: Alternatively, as per Section 23 of the Indian Contract Act, 1872, this clause in the agreement
defeats the provision of law and therefore, being unlawful, is treated as void.
(ii) The given agreement is valid.
Reason: An agreement in restraint of legal proceeding is the one by which any party thereto is
restricted absolutely from enforcing his rights under a contract through a Court. A contract of this
nature is void. However, in the given statement, no absolute restriction is marked on parties on filing
of suit. As per the agreement suit may be filed in one of the courts having jurisdiction.
(iii) The said agreement is void.
Reason: This agreement is void as the two parties are thinking about different subject matters so that
there is no real consent and the agreement may be treated as void because of mistake of fact as well
as absence of consensus.
(iv) The said agreement is valid.
Reason: An agreement by which any person is restrained from exercising a lawful profession, trade or
business of any kind, is to that extent void. But, as an exception, agreement of service by which an
employee binds himself, during the term of his agreement, not to compete with his employer is not
in restraint of trade.

Question 17
Shambhu Dayal started “self service” system in his shop. Smt. Prakash entered the shop, took a basket
and after taking articles of her choice into the basket reached the cashier for payments. The cashier
refuses to accept the price. Can Shambhu Dayal be compelled to sell the said articles to Smt. Prakash?
Decide as per the provisions of the Indian Contract Act, 1872.
(MTP 4 Marks, Apr’21) (SM) (MTP 3 Marks, Nov’21)

Chapter 2.1 Nature of Contracts

 2.1 - 12

Answer 17
Invitation to offer: The offer should be distinguished from an invitation to offer. An offer is the final
expression of willingness by the offeror to be bound by his offer should the party chooses to accept it.
Where a party, without expressing his final willingness, proposes certain terms on which he is willing to
negotiate, he does not make an offer, but invites only the other party to make an offer on those terms.
This is the basic distinction between offer and invitation to offer. The display of articles with a price in it in
a self-service shop is merely an invitation to offer. It is in no sense an offer for sale, the acceptance of which
constitutes a contract. In this case, Smt. Prakash by selecting some articles and approaching the cashier for
payment simply made an offer to buy the articles selected by her. If the cashier does not accept the price,
the interested buyer cannot compel him to sell.

Question 18
Mr. Shekhar wants to sell his car. For this purpose, he appoints Mr. Nadan, a minor as his agent. Mr.
Shekhar instructs Mr. Nadan that car should not be sold at price less than Rs. 1,00,000. Mr. Nadan ignores
the instruction of Mr. Shekhar and sells the car to Mr. Masoom for Rs. 80,000. Explain the legal position
of contract under the Indian Contract Act, 1872 whether:
(i) Mr. Shekhar can recover the loss of Rs. 20,000 from Mr. Nadan?
(ii) Mr. Shekhar can recover his car from Mr. Masoom? (MTP 4 Marks, Nov’21)
Answer 18
According to the provisions of Section 11 of the Indian Contract Act, 1872, a minor is disqualified from
contracting. A contract with minor is void-ab-initio but minor can act as an agent. But he will not be liable
to his principal for his acts.
In the instant case, Mr. Shekhar appoints Mr. Nadan, a minor as his agent to sale his car. Mr. Shekhar
clearly instructed to Mr. Nadan that the minimum sale price of the car should be Rs. 1,00,000 yet Mr.
Nadan sold the car to Mr. Masoom for Rs. 80,000.
(i) Considering the facts, although the contract between Mr. Shekhar and Mr. Nadan is valid, Mr. Nadan will
not be liable to his principal for his acts. Hence, Mr. Shekhar cannot recover the loss of Rs. 20,000.
(ii) Further, Mr. Masoom purchased the car from agent of Mr. Shekhar, he got good title. Hence, Mr. Shekhar
cannot recover his car from Mr. Masoom.

Chapter 2.1 Nature of Contracts

CA FOUNDATION
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Table of Contents
Sr. Particulars Page
No Number
1 Ratio and Proportion, Indices, Logarithms 1.1 - 1.14
2 Equations 2.1 - 2.8
3 Linear Inequalities 3.1 - 3.8
4 Mathematics of Finance 4.1 - 4.28
5 Basic Concepts of Permutation & Combinations 5.1 - 5.10
6 Sequence & Series: Arithmetic & Geometric Progressions 6.1 - 6.8
7 Sets, Relations and Functions, Basics of Limits & Continuity Functions 7.1 - 7.8
8 Basic Application of Differential and Integral Calculus in Business and
Economics
8.1 Differential Calculus 8.1.1 - 8.1.5
8.2 Integral Calculus 8.2.1 - 8.2.4
9 Number Series, Coding and Decoding and Odd man Out 9.1 - 9.11
10 Direction Tests 10.1 - 10.11
11 Seating Arrangements 11.1 - 11.13
12 Blood Relations 12.1 - 12.12
13.1 Statistical Description of Data 13.1.1 - 13.1.9
13.2 Sampling 13.2.1 - 13.2.1
14 Measures of Central Tendancy and Dispersion
14.1 Measures of Central Tendancy 14.1.1 - 14.1.12
14.2 Dispersion 14.2.1 - 14.2.20
15 Probability 15.1 - 15.16
16 Theoretical Distributions 16.1 - 16.12
17 Correlation and Regression 17.1 - 17.13
18 Index Numbers 18.1 - 18.11
 1-1

Chapter 1
Ratio and Propotion, Indices, Logarithms

1. If x = 2 +√𝟑 and y = 2 -√𝟑 then value of 𝒙𝟐 + 𝒚𝟐 =……………. (MTP 1 Mark Dec’23)

(a) 14 (b) 4
(c) 2 (d) 6
Answer: (a)

2. If (𝟐𝟓)𝟏𝟓𝟎 = (𝟐𝟓𝒙)𝟓𝟎, then the value of x will be: (MTP 1 Mark Dec’23, May’23, Jun’22)
(a) 53 (b) 54
(c) 52 (d) 5
Answer: (b)

3. On solving the equation log t + log (t-3) = 1 we get the value of t as (MTP 1 Mark Dec’23)
(a) 5 (b) 2
(c) 3 (d) 0
Answer: (a)

4. If log 2 = 0.3010 and log 3 = 0.4771, then the value of log 24 is : (MTP 1 Mark Dec’23)
(a) 1.0791 (b) 1.7323
(c) 1.3801 (d) 1.8301
Answer: (c)

𝟏 𝟏 𝟏 𝟏
5. If four numbers , , , are proportional then x =………. (MTP 1 Mark Dec’23)
𝟐 𝟑 𝟓 𝒙
6 5
(a) (b)
5 6
15 (d) none
(c) 2
Answer: (c)

6. A box contains 276 coins of 5 rupees, 2 rupees and 1 rupee. The value of each kind of coins are in
the ratio 2:3:5 respectively. The number of 2 rupees coin is (MTP 1 Mark Dec’23)
(a) 52 (b) 60
(c) 76 (d) 85
Answer: (b)

7. What must be added to each term of the ratio 49 : 68, so that it becomes 3 : 4 ?
(MTP 1 Mark Dec’23)
(a) 3 (b) 5
(c) 8 (d) 9
Answer: (c)

8. The students in three classes are in the ratio 2 : 3 : 5. If 40 students are increased in each class the
ratio changes to 4 : 5 : 7. Originally the total number of students was (MTP 1 Mark, Apr’24)
(a) 180 (b) 400
(c) 100 (d) 200
Answer: (d)

9. A bag contains coins of denominations 1 rupee, 2 rupee and 5 rupees . Their numbers are in the
ratio 4:3:2 .If bag has total of Rs. 1800 then find the number of 2 rupee coins? (MTP 1 Mark, Apr’24)
(a) 270 (b) 230
(c) 180 (d) 210
Answer: (d)

Chapter 1 Ratio and Propotion, Indices, Logarithms

 1-2

10. The ages of two persons are in the ratio 5:7. Eighteen years ago their ages were in the ratio of 8:13,
their present ages (in years) are : (MTP 1 Mark, Apr’24)
(a) 50, 70 (b) 70, 50
(c) 40, 56 (d) None of these
Answer: (a)

11. A box contains ₹ 56 in the form of coins of one rupee, 50 paise and 25 paise. The number of 50 paise
coin is double the number of 25 paise coins and four times the numbers of one rupee coins. The
numbers of 50 paise coins in the box is (MTP 1 Mark, Apr’24)
(a) 64 (b) 32
(c) 16 (d) 14
Answer: (a)

12. A man starts his job with a certain monthly salary and earns a fixed increment every year. If his
salary was ₹ 1,500 after 4 years of service and ₹ 1,800 after 10 years of service, what was his starting
salary and what is the annual increment in rupees? (MTP 1 Mark, Apr’24)
(a) ₹ 1,300, ₹ 50 (b) ₹ 1,100, ₹ 50
(c) ₹ 1,500, ₹ 30 (d) None
Answer: (a)

13. If 𝐥𝐨𝐠 𝟒 (𝐱 𝟐 + x) – 𝐥𝐨𝐠 𝟒 (x + 1) = 2 then the value of x is (MTP 1 Mark, Apr’24)

(a) 2 (b) 3
(c) 16 (d) 8
Answer: (c)

14. The expenditues and savings of a person are in the ratio 4:1. If his savings are increased by 25% of
his income , then what is the new ratio of his expenditure and savings ? (MTP 1 Mark, May’24)
(a) 11:9 (b) 8:5
(c) 7:5 (d) 7:4
Answer: (a)

𝐚−𝐛 𝟏
15. If log = 𝟐 (log a + log b), the value of 𝒂𝟐 + 𝒃𝟐 is (MTP 1 Mark, May’24)
𝟐
(a) 6ab (b) 8ab
(c) 6𝑎2 62 (d) None of these
Answer: (a)

𝐩+𝐪 𝐩
16. What is the value of 𝐩−𝐪 if 𝐪 = 7 (MTP 1 Mark, Nov’23)
(a) 4/3 (b) 2/3
(c) 2/6 (d) 7/8
Answer: (a)

17. If x/2 = y/3 = z/7, then the value of (2x – 5y + 4z)/2y is (MTP 1 Mark, Nov’23)
(a) 6/23 (b) 23/6
(c) 3/2 (d) 17/6
Answer: (d)

18. If x : y = 3 : 4, the value of 𝒙𝟐 y + 𝒙𝒚𝟐 : 𝒙𝟑 + 𝒚𝟑 is (MTP 1 Mark, Nov’23)

(a) 13 : 12 (b) 12 : 13
(c) 21 : 31 (d) none of these
Answer: (b)

19. If 𝒂𝒙 = b, 𝐛 𝐲= c, 𝐜 𝐳 = a, then xyz is (MTP 1 Mark, Nov’23)

Chapter 1 Ratio and Propotion, Indices, Logarithms
 1-3

(a) 1 (b) 2
(c) 3 (d) none of these
Answer: (a)

20. Given that 𝐥𝐨𝐠 𝟏𝟎 2 = x and 𝐥𝐨𝐠 𝟏𝟎 3 = y, the value of 𝐥𝐨𝐠 𝟏𝟎 120 is expressed as (MTP 1 Mark, Nov’23)
(a) 2x – y + 1 (b) 2x + y + 1
(c) 2x – y – 1 (d) none of these
Answer: (b)

𝟏
21. The simplified value of 2 𝐥𝐨𝐠 𝟏𝟎 𝟓 + 𝐥𝐨𝐠 𝟏𝟎 𝟖 - 𝟐 𝐥𝐨𝐠 𝟏𝟎 𝟒 is (MTP 1 Mark, Nov’23)
(a) 1/2 (b) 4
(c) 2 (d) none of these
Answer: (b)

𝐚+𝐛 𝟏 𝐚 𝐛
22. If log ( 𝟒
) = 𝟐 (log a + log b) then 𝐛 + 𝐚 (MTP 1 Mark, Nov’23)
(a) 12 (b) 14
(c) 16 (d) 8
Answer: (b)

√𝐱+𝟓 + √𝐱−𝟏𝟔 𝟕
23. If = 𝟑 then x equals (MTP 1 Mark, Nov’23)
√𝐱+𝟓 − √𝐱−𝟏𝟔
(a) 10 (b) 20
(c) 30 (d) 40
Answer: (b)

𝟏 𝟏 𝟏 𝟏
24. If x = 𝟑𝟒 = 𝟑− 𝟒 and y = 𝟑𝟒 - 𝟑− 𝟒 then the value 3(𝒙𝟐 + 𝒚𝟐 )𝟐 will be (MTP 1 Mark, Nov’23)
(a) 12 (b) 18
(c) 46 (d) 64
Answer: (d)

25. The monthly incomes of A& B are in the ratio 4 : 5 and their monthly expenditures are in the ratio
5 :7 If each saves ₹ 150 per month, find their monthly incomes. (MTP 1 Mark, May’23)
(a) (40; 50) (b) (50; 40)
(c) (400; 500) (d) None of the these
Answer: (c)

26. Two vessels containing water and milk in the ratio 2 : 3 and 4 : 5 are mixed in the ratio 1 :2. The ratio
of milk and water in the resulting mixture. (MTP 1 Mark, May’23)
(a) 58 : 77 (b) 77 : 58
(c) 68 : 77 (d) None of these
Answer: (b)

27. If (x – 9): (3x + 6) is the duplicate ratio of 4: 9, find the value of x (MTP 1 Mark, May’23)
(a) x= 9 (b) x=16
(c) x= 36 (d) x= 25
Answer: (d)

𝟏 𝟏 𝟏
28. Value of (𝒂𝟏/𝟖 + 𝒂−𝟏/𝟖 )(𝒂𝟏/𝟖 − 𝒂−𝟖 )(𝒂𝟒 + 𝒂−𝟒 ) (𝒂𝟏/𝟐 + 𝒂−𝟏/𝟐 ) (MTP 1 Mark, May’23)
1 1
(a) a+a (b) a-a
1 1
(c) 𝑎2 + (d) 𝑎2 -
𝑎2 𝑎2
Answer: (b)

Chapter 1 Ratio and Propotion, Indices, Logarithms

 1-4

𝟏𝟔 𝟐𝟓 𝟖𝟏
29. 7log (𝟏𝟓) + 5log (𝟐𝟒) + 3log (𝟖𝟎) is equal to (MTP 1 Mark, May’23)
(a) 0 (b) 1
(c) Log 2 (d) Log 3
Answer: (c)

30. 𝐥𝐨𝐠 𝟒 (𝐱 𝟐 + 𝐱) - 𝐥𝐨𝐠 𝟒 (x+1) = 2. Find x (MTP 1 Mark, May’23)

(a) 16 (b) 0
(c) -1 (d) None of these
Answer: (a)

31. Given log 2 = 0.3010 and log3 = 0.4771 then the value of log 24 (MTP 1 Mark, May’23)
(a) 1.3081 (b) 1.1038
(c) 1.3801 (d) 1.830
Answer: (a)

𝟔𝟒(𝐛𝟒 𝐚𝟑 )𝟔
32. The value of [𝟒(𝐚𝟑𝐛)𝟐 ×(𝐚𝐛)𝟐] (MTP 1 Mark, Apr’23)
10 20
(a) 16 a b (b) 4 a20 b10
(c) 8 a10 b20 (d) 4 a10 b20
Answer: (a)

33. Four persons A, B, C, D wish to share a sum in the ratio of 5:4:2:3. If D gets `1000 less than C, then
the share of B ? (MTP 1 Mark, Apr’23)
(a) 2000 (b) 1200
(c) 2400 (d) 3000
Answer: (a)

34. The mean proportional between 12𝒙𝟐 and 27𝒚𝟐 (MTP 1 Mark, Apr’23)
(a) 18 xy (b) 81 xy
(c) 8xy (d) 9xy
Answer: (a)

35. If 𝐥𝐨𝐠 𝟑 4. 𝐥𝐨𝐠 𝟒 5. 𝐥𝐨𝐠 𝟓 6. 𝐥𝐨𝐠 𝟔 7. 𝐥𝐨𝐠 𝟕 8. 𝐥𝐨𝐠 𝟖 9 = x, then find the value of x (MTP 1 Mark, Apr’23)
(a) 4 (b) 3
(c) 2 (d) 1
Answer: (b)

36. if ½ 𝒍𝒐𝒈𝟏𝟎𝟒 = y and if ½ 𝒍𝒐𝒈𝟏𝟎𝟗 = x, then the value of 𝒍𝒐𝒈𝟏𝟎𝟏𝟓 (MTP 1 Mark, Apr’23)
(a) x-y+1 (b) x+y-1
(c) x+y+1 (d) y-x+1
Answer: (a)

37. In a hostel ration stocked for 400 students upto 31 days. After 28 days 280 students were vacated
the hostel. Find the number of days for which the remaining ratio will be sufficient for the remaining
students. (MTP 1 Mark, Apr’23)
(a) 5 (b) 4
(c) 7 (d) 10
Answer: (d)

𝟓/𝟐 𝟕/𝟐
√𝟑 𝟗
38. ( 𝟗 ) (𝟑 ) (MTP 1 Mark, Nov’22)
√𝟑
(a) 1 (b) √3
3
(c) 3√3 (d) 9√3
Chapter 1 Ratio and Propotion, Indices, Logarithms
 1-5

Answer: (a)

𝐩 𝟐 𝟐𝐩+𝐪
39. If 𝐪 = 𝟑 then the value of 𝟐𝐩−𝐪 is (MTP 1 Mark, Nov’22)
1 1
(a) 7
(b) −7
(c) 1 (d) 7
Answer: (d)

𝟏
40. 𝒍𝒐𝒈𝒂 √𝟑 = 𝟔 , find the value of a (MTP 1 Mark, Nov’22)
(a) 9 (b) 81
(c) 27 (d) 3
Answer: (c)

𝐩𝟐 𝐪𝟐 𝐫𝟐
41. log 𝐪𝐫 + log 𝐩𝐫 + log 𝐩𝐪 = (MTP 1 Mark, Nov’22)
(a) pqr 1
(b) pqr
(c) 1 (d) 0
Answer: (d)

𝟑𝐭 −𝟏
42. Find the value of 𝟏 (MTP 1 Mark, Nov’22)
−
𝐭 𝟑
3 3
(a) 2 (b) 3
t3 t2
3 3
(c) 1 (d) t2
t3
Answer: (a)

43. A bag conatind 25 paise, 10 paise and 5 paise are in the ratio 3:2:1. The total value of ₹40, the
number of 5 paise coins is (MTP 1 Mark, Nov’22)
(a) 45 (b) 48
(c) 40 (d) 20
Answer: (c)

44. The ratio of two numbers are 3 : 4. The difference of their squares is 28 .Greater number is:
(MTP 1 Mark, Nov’22)
(a) 8 (b) 12
(c) 24 (d) 64
Answer: (a)

45. The price of scooter and moped are in the ratio 7 : 9. The price of moped is ₹1600 more than that of
scooter. Then the price of moped is: (MTP 1 Mark, Nov’22)
(e) ₹7200 (f) ₹5600
(g) ₹800 (h) ₹700
Answer: (a)

46. 𝐥𝐨𝐠 𝟎.𝟎𝟏10,000 = ? (MTP 1 Mark, Nov’22)

(a) 2 (b) -2
(c) 4 (d) -4
Answer: (b)

𝟏
𝟏
𝐧+ √𝟑.𝟑𝐧 𝐧
47. Value of [𝟗 𝟒 . ] (MTP 1 Mark, Nov’22)
𝟑.√𝟑−𝐧
(a) 9 (b) 27
(c) 81 (d) 3
Chapter 1 Ratio and Propotion, Indices, Logarithms
 1-6

Answer: (b)

48. If x: y = 2:3, then (5x+2y): (3x-y) = (MTP 1 Mark, Jun’22)

(a) 19:3 (b) 16:3
(c) 7:2 (d) 7:3
Answer: (b)

𝟐 𝟐 𝒃𝟐 +𝒃𝒄+𝒄𝟐 𝟐 𝟐
𝒚𝒂 𝒂 +𝒂𝒃+𝒃 𝒚𝒃 𝒚𝒄 𝒄 +𝒄𝒂+𝒂
49. The value of (𝒚𝒃 ) × ( 𝒚𝒄 ) × (𝒚𝒂 ) is equal to (MTP 1 Mark, Jun’22)
(a) y (b) -1
(c) 1 (d) None of these
Answer: (c)

50. If x = 𝐥𝐨𝐠 𝟐𝟒 12, y = 𝐥𝐨𝐠 𝟑𝟔 24, z = 𝐥𝐨𝐠 𝟒𝟖 36, then xyz + 1 = (MTP 1 Mark, Jun’22)
(a) 2xy (b) 2xz
(c) 2yz (d) 2
Answer: (c)

51. A person has asset worth of ₹1,48,200. He wish to divide it amongst his wife, son and daughter in
the ratio 3:2:1 respectively. From this assets share of his wife son will be :
(MTP 1 Mark, Jun’22)
(a) ₹24,700 (b) ₹49.400
(c) ₹74,100 (d) ₹37,050
Answer: (b)

52. X, Y, Z together starts a business, if X invests 3 times as much as Y invests and Y invests two third of
what Z invests, then the ratio of capitals of X, Y, Z is (MTP 1 Mark, Jun’22)
(a) 3:9:2 (b) 6:3:2
(c) 3:6:2 (d) 6:2:3
Answer: (b)

53. If 𝟐𝐱+𝐲 = 𝟐𝟐𝐱+𝐲 = √𝟖 then the respective values of x and y are __________.
(MTP 1 Mark, Jun’22)
(a) 1, ½ (b) ½, 1
(c) ½, ½ (d) None of these
Answer: (a)

54. Find the value of [𝐥𝐨𝐠 𝟏𝟎 √𝟐𝟓 − 𝐥𝐨𝐠 𝟏𝟎 (𝟐𝟑 ) + 𝐥𝐨𝐠 𝟏𝟎 (𝟒)𝟐 ] (MTP 1 Mark, Mar’22)
(a) x (b) 10
(c) 1 (d) None
Answer: (c)

55. If A: B = 2:5, then (10A + 3B): (5A + 2B) is equal to (MTP 1 Mark, Mar’22)
(a) 7:4 (b) 7:3
(c) 6:5 (d) 7:9
Answer: (a)

56. The ratio compounded of 4:5 and sub-duplicate of a:9 is 8:15. Then value of “a” is
(MTP 1 Mark, Mar’22)
(a) 2 (b) 3
(c) 4 (d) 5
Answer: (c)

Chapter 1 Ratio and Propotion, Indices, Logarithms

 1-7

57. If ½ , 1/3 ,1/5 and 1/x are in proportion , then the value of x will be (MTP 1 Mark, Mar’22)
(a) 15/2 (b) 6/5
(c) 10/3 (d) 5/6
Answer: (a)

58. If P = 𝐱 𝟏/𝟑 + 𝐱 −𝟏/𝟑 then find value of 3𝐩𝟑 – 9p (MTP 1 Mark, Mar’22)
(a) 3 (b) ½(x+1/x)
(c) (x+1/x)) (d) 2((x+1/x))
Answer: (c)

59. Fourth proportional to x, 2x, (x+1) is: (MTP 1 Mark, Mar’22)

(a) (x+2) (b) (x-2)
(c) (2x+2) (d) (2x-2)
Answer: (c)

𝟑𝐧+𝟏 +𝟑𝐧
60. The value of 𝟑𝐧+𝟑−𝟑𝐧+𝟏 is equal to (MTP 1 Mark, Mar’22)
(a) 1/5 (b) 1/6
(c) 1/4 (d) 1/9
Answer: (b)

𝐱 𝟐 −(𝐲−𝐳)𝟐 𝐲 𝟐 −(𝐱−𝐳)𝟐 𝐳 𝟐 −(𝐱−𝐲)𝟐

61. The value of (𝐱+𝐳)𝟐−𝐲𝟐 + (𝐱+𝐲)𝟐−𝐳𝟐 + (𝐲+𝐳)𝟐−𝐱𝟐 (MTP 1 Mark, Mar’22)
(a) 0 (b) 1
(c) -1 (d) ∞
Answer: (b)

𝟏 𝟏 𝟏
62. If abc = 2 then the value of + 𝟏 + is (MTP 1 Mark, Mar’22)
𝟏+𝐚+𝟐𝐛 −𝟏 𝟏+ 𝐛+𝐜 −𝟏 𝟏+𝐜+𝐚−𝟏
𝟐
(a) 1 (b) 2
(c) 3 (d) ½
Answer: (a)

𝟑𝐱−𝟐
63. If 𝟓𝐱−𝟔 is the duplicate ratio of 2/3 then the value of ‘x’ is (MTP 1 Mark, Mar’22)
(a) 2 (b) 6
(c) 5 (d) 9
Answer: (b)

64. If , then x is equal to: (MTP 1 Mark, Nov’21)

(a) 1 (b) 3
(c) 5 (d) 10
Answer: (b)

𝐱+𝐲 𝐳+𝐲 𝐱+𝐳

65. If xy + yz + zx = -1, then the value of (𝟏+𝐱𝐲 + 𝟏+𝐳𝐲 + 𝟏+𝐳𝐱) is (MTP 1 Mark, Nov’21)
(a) xyz 1
(b) - yz
1 1
(c) xyz
(d) 𝑥+𝑦+𝑧
Answer: (c)

66. The salaries of A, B and C are of ratio 2:3:5. if the increments of 15 %, 10% and 20% are done their
respective salaries, then find new salaries. (MTP 1 Mark, Nov’21)
(a) 23: 33: 60 (b) 33: 23: 60
(c) 23: 60: 33 (d) 33: 60: 23
Answer: (a)
Chapter 1 Ratio and Propotion, Indices, Logarithms
 1-8

67. If A: B = 5:3, B:C = 6:7 and C: D = 14:9 then the value of A: B:C:D (MTP 1 Mark, Nov’21)
(a) 20:14:12:9 (b) 20:9:12:14
(c) 20:9:14:12 (d) 20:12:14:9
Answer: (d)

68. The salary of P is 25% lower than that of Q and the salary of R is 20% higher than Q , the ratio of
salary of R and P will be : (MTP 1 Mark, Nov’21)
(a) 5:8 (b) 8:5
(c) 5:3 (d) 3:5
Answer: (b)

69. The cab bill is partly fixed and partly varies on the distance covered. For 456 km the bill is Rs.8252,
for 484 km the bill is Rs. 8728. What will the bill be for 500km? (MTP 1 Mark, Nov’21)
(a) Rs. 8876 (b) Rs.9156
(c) Rs. 9472 (d) Rs.9000
Answer: (d)

𝟏 𝟏 𝟏 𝟏
70. If x: y = 3:5, then find ( + ): ( − ) (MTP 1 Mark, Oct’21)
𝐱 𝐲 𝐱 𝐲
(a) 2 (b) 4
(c) 6 (d) 8
Answer: (b)

71. if A: B = 3:5 and B:C= 5:4 , C:D = 2:3 and D is 50% more than E, find the ratio between A and E
(MTP 1 Mark, Oct’21)
(a) 2:3 (b) 3:4
(c) 3:5 (d) 4:5
Answer: (b)

𝟒 𝟖
72. Find the value of √𝟔𝟓𝟔𝟏 + √𝟔𝟓𝟔𝟏 + √𝟔𝟓𝟔𝟏 (MTP 1 Mark, Oct’21)
(a) 81 (b) 93
(c) 121 (d) 243
Answer: (b)

𝐱𝐧 𝐲𝐧 𝐳𝐧
73. Find the value of log 𝐲𝐧 + log 𝐳 𝐧 + log 𝐱 𝐧 (MTP 1 Mark, Oct’21)
(a) -1 (b) 0
(c) 1 (d) 2
Answer: (b)

𝟖𝒏 ×𝟐𝟑 ×𝟏𝟔𝟎𝟏 𝟏
74. If = then the value of n (MTP 1 Mark, Oct’21)
𝟐𝒏 ×𝟒𝟐 𝟒
(a) 1 (b) 3
3 2
(c) 2
(d) 3
Answer: (c)

75. The ratio of the number of boys and girls in a school is 2:5. if there are 280 students in the school,
find number of girls in the school (MTP 1 Mark, Apr’21)

(a) 200 (b) 250

(c) 150 (d) 100
Answer: (a)

Chapter 1 Ratio and Propotion, Indices, Logarithms

 1-9

76. The third proportional to 9 and 25 (MTP 1 Mark, Apr’21)

(a) 80/3 (b) 80
(c) 80/7 (d) None of these
Answer: (d)

𝟓/𝟐 𝟕/𝟐
√𝟑 𝟗
77. ( 𝟗 ) (𝟑 ) × 9 is equal to (MTP 1 Mark, Apr’21)
√𝟑
(a) 1 (b) √3
3 3
(c) √3 (d) 9
√3
Answer: (a)

𝐥𝐨𝐠 𝟑 𝟖
78. The value 𝐥𝐨𝐠 is: (MTP 1 Mark, Apr’21)
𝟗 𝟏𝟔.𝐥𝐨𝐠 𝟒 𝟏𝟎
(a) 3 log10 2 (b) 7 log10 3
(c) 3 log e z (d) None
Answer: (a)

𝐩 𝟐 𝟐𝐪+𝐪
79. 𝐪
= - 𝟑 then the value of 𝟐𝐩−𝐪
is: (MTP 1 Mark, Apr’21)
(a) 1 (b) -1/7
(c) 1/7 (d) 7
Answer: (c)

80. Two numbers are in the ratio 7: 8 if 3 is added to each of them, their ratio becomes 8:9, the
numbers are (MTP 1 Mark, Mar’21)
(a) 14/16 (b) 24/27
(c) 21/24 (d) 16/18
Answer: (c)

81. Which of the numbers are not in proportions? (MTP 1 Mark, Mar’21)
(a) 6,8,5,7 (b) 7.3,14,6
(c) 18,27,12,18 (d) 8,6,12, 9
Answer: (a)

𝟏
82. If 𝐱 𝟐 + 𝐲 𝟐 = 7xy, then log (x + y) = then x is (MTP 1 Mark, Mar’21)
𝟑
(a) (log x + log y) (b) 1/2(log x + log y)
(c) 1/3(log x + log y) (d) 3(log x / log y)
Answer: (b)

𝟐𝒏 +𝟐𝒏−𝟏
83. The value of is (MTP 1 Mark, Mar’21)
𝟐𝒏+𝟏 −𝟐𝒏
(a) 1/2 (b) 3/2
(c) 2/3 (d) 2
Answer: (b)

84. If 𝟑𝐱 = 𝟓𝐲 = 𝟕𝟓𝐳 then (MTP 1 Mark, Mar’21)

(a) x + y – z = 0 2 1 1
(b) x
+y= z
1 2 1 2 1 1
(c) +y= z (d) x
+𝑧=𝑦
x
Answer: (c)

85. The value of √𝟔 + √𝟔 + √𝟔 +. . … ∞ is (MTP 1 Mark, Mar’21)

(a) -3 (b) 2
(c) 3 (d) 4
Chapter 1 Ratio and Propotion, Indices, Logarithms
 1-10

Answer: (c)

86. If x: y = 2: 3, then find (5x+2y): (3x-y) (MTP 1 Mark, Oct’20)

(a) 13/3 (b) 16/3
(c) 19/3 (d) 7/3
Answer: (b)

87. A bag contains ₹187 in the form 1 rupee, 50 paise and 10 paise coins in the ratio 3:4:5. Find the
number of each type of coins. (MTP 1 Mark, Oct’20)
(a) 102, 136, 170 (b) 136,102, 170
(c) 170, 102, 136 (d) none
Answer: (a)

88. 𝐥𝐨𝐠 𝐞x + log(1+x) = 0 is equivalent to (MTP 1 Mark, Oct’20)

(a) x 2 + x + e = 0 (b) x 2 + x - e = 0
2
(c) x + x + 1 = 0 (d) x 2 + x - 1 = 0
Answer: (d)

89. The ratio of the speed of the two trains is 2: 5. If the distances they travel are in the ratio 5: 9, find
the ratio of times taken by them. (MTP 1 Mark, Oct’20)
(a) 2:9 (b) 18:25
(c) 25:18 (d) 10:45
Answer: (c)

90. If x = 𝟑𝟏/𝟒 + 𝟑−𝟏/𝟒 and y = 𝟑−𝟏/𝟒 , then the value of 3 (𝐱 𝟐 + 𝐲 𝟐 )𝟐 will be (MTP 1 Mark, Oct’20)
(a) 12 (b) 18
(c) 46 (d) 64
Answer: (d)

𝐲 𝐱 𝐲 𝐱 𝟏
91. Find the value of (x+y), if (𝐱 + 𝐱 𝟐) – (𝐲 + 𝐱) + (𝐲𝟐 + 𝐲) = 𝟑 (MTP 1 Mark, Oct’20)
(a) 1/3 (b) 3
(c) 1/2 (d) 2
Answer: (b)

92. The ratio of the prices of two houses was 16: 23. Two years later when the price of the first has
increased by 10% and that of the second by Rs. 477, the ratio of the prices becomes 11: 20. Find the
original prices of the two houses. (MTP 1 Mark, May’20)
(a) Rs. 848, Rs. 1,219. (b) Rs. 838, Rs. 1,119.
(c) Rs. 828, Rs. 1,219. (d) Rs. 848 Rs. 1,229.
Answer: (a)

93. If a: b = 3: 4, the value of (2a+3b): (3a+4b) is (MTP 1 Mark, May’20)

(a) 54:25 (b) 8:25
(c) 17:24 (d) 18:25
Answer: (d)

94. 𝟓𝟏𝟔 + 𝟏𝟐𝟓𝟓 is divisible by which of the following (MTP 1 Mark, May’20)
(a) 5 (b) 6
(c) 8 (d) 9
Answer: (b)
95. Given that log 𝟏𝟎𝟐 = x and 𝐥𝐨𝐠 𝟏𝟎𝟑 = y, the value of 𝐥𝐨𝐠 𝟏𝟎𝟔𝟎 is expressed as (MTP 1 Mark, May’20)
(a) 5 (b) 6
(c) 8 (d) 9
Answer: (b)

Chapter 1 Ratio and Propotion, Indices, Logarithms

 1-11

96. If pqr = 𝐚𝐱 , qrs = 𝐚𝐲 and rsp = 𝐚𝐳 , then find the value of (𝐩𝐪𝐫𝐬)𝟏/𝟐 (MTP 1 Mark, May’20)
(a) 𝐚𝐱+𝐲+𝐳 (b) a√x + y + z
(c) a 4√𝑥 + 𝑦 + 𝑧 (d) (𝑎 𝑥+𝑦+𝑧 )1/4
Answer: (d)

97. The sum of two numbers is 62 and their product is 960. The sum of their reciprocals is
(MTP 1 Mark, May’20)
5 29
(a) (b) 480
480
61 41
(c) 960
(d) 960
Answer: (a)

98. The ratio of the earnings of two persons 3:2. If each saves 1/5th of their earnings, the ratio of their
savings. (MTP 1 Mark, Oct’19)
(a) 2:3 (b) 3:2
(c) 4:5 (d) 5:4
Answer: (b)

99. The Third Proportional to 15 and 20 is (MTP 1 Mark, Oct’19)

(a) 80/3 (b) 80
(c) 80/7 (d) 120
Answer: (a)

𝟑
100. If 𝐥𝐨𝐠 𝟗 𝐱 + 𝐥𝐨𝐠 𝟑 𝐱 = then x is (MTP 1 Mark, Oct’19)
𝟐
(a) 0 (b) 1
9 (d) 3
(c) 4
Answer: (b)

101. If x+y, y+z, z+x are in the ratio 6:7:8 and x + y + z =14 then the value of x is (MTP 1 Mark, Oct’19)
(a) 6 (b) 7
(c) 8 (d) 10
Answer: (b)

1 1
102. If 𝟐𝐱 = 𝟑𝐲 = 𝟔𝐳 then x
+ y = (MTP 1 Mark, Oct’19)
1 1 1
(a) 𝑧
(b) 𝑧
-x
1 1 (d) 0
(c) 𝑧
+x
Answer: (a)

103. If x:y:z = 2: 3:5 if x+ y+ z = 60 ,then the value of z (MTP 1 Mark, Apr’19)

(a) 30 (b) 15
(c) 9 (d) 12
Answer: (a)

104. The ratio of two numbers is 15:19. If a certain number is added to each term of the ratio it become
8: 9. What is the number added to each of the ratio? (MTP 1 Mark, Apr’19)
(a) 6 (b) 15
(c) 17 (d) 23
Answer: (c)
𝐚 𝐛 𝒄 𝟐𝐚+𝟑𝐛+𝟐𝐜
105. If 𝟑 = 𝟒 = 𝟓 then 𝟒𝐚−𝐛+𝟐𝐜
is (MTP 1 Mark, Apr’19)
11 17
(a) (b)
19 9
19 19
(c) 9
(d) 7
Chapter 1 Ratio and Propotion, Indices, Logarithms
 1-12

Answer: (c)

𝟐𝒏 +𝟐𝒏−𝟏
106. Simplify 𝟐𝒏+𝟏+𝟐𝒏 = (MTP 1 Mark, Apr’19)
(a) 2n+2 (b) 2n
(c) 2 1
(d)
2
Answer: (d)

𝟏 𝟏
107. If 𝟐𝐚 = 𝟑𝐛 = 𝟏𝟐𝐜 then 𝐚 + 𝐛 = (MTP 1 Mark, Apr’19)
1 1 1
(a) c
(b) c
-a
1 (d) 0
(c) -c
Answer: (b)

108. The value of 𝐥𝐨𝐠 𝟔𝟒 512 is (MTP 1 Mark, Apr’19)

(a) 9 (b) 9/2
(c) 9/4 (d) 3/2
Answer: (d)

109. The value of (𝐥𝐨𝐠 𝐛 𝐚 𝐥𝐨𝐠 𝐜 𝐛 𝐥𝐨𝐠 𝐚 𝐜)𝟑 = (MTP 1 Mark, Apr’19)
(a) 1 (b) 3
(c) (log b C)3 (d) (log c b)3
Answer: (a)

110. The ratio compounded of 2:3, 9:4, 5:6 and 8: 10 is (MTP 1 Mark, Mar’19)
(a) 1: 1 (b) 1:5
(c) 3: 8 (d) none of these
Answer: (a)

111. The sub-triplicate ratio of 8: 27 (MTP 1 Mark, Mar’19)

(a) 27: 8 (b) 24: 81
(c) 2: 3 (d) none of these
Answer: (c)
𝐩 𝐫 𝐩−𝐫
112. If 𝐪 = 𝐬 = 𝐪−𝐬 , the process is called (MTP 1 Mark, Mar’19)
(a) Subtrahendo (b) Componendoc
(c) Alternendo (d) None of these
Answer: (a)
𝟐 𝟐 (𝒃𝟐 +𝒃𝒄+𝒄𝟐 ) 𝟐 𝟐
𝑿 (𝒂 +𝒂𝒃+𝒃 ) 𝑿𝒃 𝑿𝒄 (𝒄 +𝒄𝒂+𝒂 )
113. The value of (𝑿𝒂𝒃 ) x ( 𝑿𝒄 ) x (𝑿𝒂 ) (MTP 1 Mark, Mar’19)
(a) 1 (b) 0
(c) -1 (d) None of these
Answer: (a)

114. If a = 𝐥𝐨𝐠 𝟏𝟐 24 , b = 𝐥𝐨𝐠 𝟑𝟔 24 , b = 𝐥𝐨𝐠 𝟒𝟖 36 then prove that 1 + abc = (MTP 1 Mark, Mar’19)
(a) 2bc (b) 2ca
(c) 2ba (d) 3bc
Answer: (a)

115. If x = 𝟓𝟏/𝟑 + 𝟓−𝟏/𝟑 , 𝟓𝟑 - 15x is given by (MTP 1 Mark, Mar’19)

(a) 25 (b) 26
(c) 27 (d) 30
Answer: (b)
Chapter 1 Ratio and Propotion, Indices, Logarithms
 1-13

116. Ten years ago the age of a father was four times his son. Ten years hence the age of the father will
be twice that of his son. The present age of the father and the son are (MTP 1 Mark, Mar’19)
(a) (50, 20) (b) (60, 20)
(c) (55, 25) (d) none of these
Answer: (a)

117. For a, b, c > 0 the value of each ratio is

𝐚 𝐛 𝐜
𝐛+𝐜
= 𝐜+𝐚 = 𝐚+𝐛 , then find the value of each ratio if a + b+ c ≠ 0 (MTP 1 Mark, Oct’18)
(a) 1/2 (b) 1/3
(c) 1/4 (d) 1
Answer: (a)
𝐱 𝐲 𝐳
118. If 𝐛+𝐜−𝐚 = 𝐜+𝐚−𝐛 = 𝐚+𝐛−𝐜 , then find the value of (b - c) x + (c - a)y + (a - b)z = (MTP 1 Mark, Oct’18)
(a) 0 (b) -1
(c) +1 (d) 1/2
Answer: (a)

119. x:y:z = 2:3:5 . If x+y+z = 60 then the value of z is (MTP 1 Mark, Oct’18)
(a) 30 (b) 15
(c) 9 (d) 12
Answer: (a)

120. Simplify 𝐥𝐨𝐠 𝟐 𝟑 𝐥𝐨𝐠 𝟑 𝟒 𝐥𝐨𝐠 𝟒 𝟓 𝐥𝐨𝐠 𝟓 𝟔 𝐥𝐨𝐠 𝟔 𝟕 𝐥𝐨𝐠 𝟕 𝟖 (MTP 1 Mark, Oct’18)
(a) 2 (b) 3
(c) 4 (d) 3/2
Answer: (b)

121. For p, q, r, s > 0 the value of each ratio is (MTP 1 Mark, Aug’18)
𝐩 𝐪 𝐫 𝐬
- -
𝐪+𝐫 𝐫+𝐬 𝐬+𝐩 𝐩+𝐪
-
(a) 1/2 (b) 1/3
(c) 1/4 (d) 1
Answer: (a)

𝐱+𝐲+𝐳
122. Let x, y and z are three positive numbers and P = 𝟐
; if (p-x) : (p-y) : (p-z) = 3:5:7 then the ratio of
x:y:z is (MTP 1 Mark, Aug’18)
(a) 4:5:6 (b) 6:5:4
(c) 3:5:7 (d) 7:5:3
Answer: (b)

123. If x = √√𝟔 + 𝟔 + (√𝟕 + 𝟐√𝟔) - √𝟔 then the value (MTP 1 Mark, Aug’18)
(a) 1 (b) 2
(c) 3 (d) 6
Answer: (a)

124. If 𝐥𝐨𝐠 𝟕 𝐥𝐨𝐠 𝟓 (√𝒙 + 𝟓 + √𝒙 = 0, the value of x is (MTP 1 Mark, Aug’18)

(a) 0 (b) 1
(c) 1/4 (d) 4
Answer: (d)

125. P, Q and R three cities. The ratio of average temperature between P and Q is 11: 12 and that
between P and R is 9:8. The ratio between the average temperature Q and R (MTP 1 Mark, Mar’18)

Chapter 1 Ratio and Propotion, Indices, Logarithms

 1-14

(a) 22.27 (b) 27.22

(c) 32.33 (d) none
Answer: (b)

126. The third proportional between (𝒂𝟐 −𝒂𝟐 ) and (𝐚 + 𝐛)𝟐 is: (MTP 1 Mark, Mar’18)
a+b a−b
(a) a−b
(b) a+b
(a−b)2 (a+b)2
(c) a+b
(d) a−b
Answer: (d)

127. The value of 𝐥𝐨𝐠 𝟎.𝟏 0.001 = (MTP 1 Mark, Mar’18)

(a) 3 (b) 2
(c) 4 (d) 1/3
Answer: (a)

128. if 𝐥𝐨𝐠 𝟒 x = -3/2. Then x is (MTP 1 Mark, Mar’18)

(a) 1/8 (b) 1/4
(c) 1/2 (d) 1/3
Answer: (a)

Chapter 1 Ratio and Propotion, Indices, Logarithms

CA FOUNDATION
Paper-4

BUSINESS
ECONOMICS
REVIEWER
Includes ICAI Study Material, RTPs & MTPs
Questions & Answers in Chapterwise Format.

SAMPLE MATERIAL

Modified as per the

NEW Scheme

Applicable for
May’25, Sept’25
& Jan’26
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Table of Contents
Sr. Particulars Page Number
No
1 Nature and Scope of Business Economics
1.1 Introduction 1.1.1 – 1.1.17
1.2 Basic Problem of an Economy & Role of Price Mechanism 1.2.1 – 1.2.7
2 Theory of Demand and Supply
2.1 Law of Demand & Elasticity of Demand 2.1.1 – 2.1.42
2.2 Theory of Consumer Behavior 2.2.1 – 2.2.18
2.3 Supply 2.3.1 – 2.3.10
3 Theory of Production and Cost
3.1 Theory of Production 3.1.1 – 3.1.26
3.2 Theory of Cost 3.2.1 – 3.2.26
4 Price Determination in Different Markets
4.1 Meaning and Types of Market 4.1.1 – 4.1.32
4.2 Determination of Prices & Price Output Determination Under 4.2.1 – 4.2.16
Different Market Forms
5 Business Cycles 5.1 – 5.13
6 Determination of National Income
6.1 National Income Accounting 6.1.1 – 6.1.5
6.2 The Keynesian Theory of Determination of National Income 6.2.1 – 6.2.3
7 Public Finance
7.1 Fiscal Functions: An Overview, Centre & State Finance 7.1.1 – 7.1.4
7.2 Market Failure/ Government Intervention to correct Market 7.2.1 – 7.2.5
Failure
7.3 The Process of Budget Making: Sources of Revenue, Expenditure 7.3.1 – 7.3.5
Management and Management of Public Debt
7.4 Fiscal Policy 7.4.1 – 7.4.5
8 Money Market
8.1 The Concept of Money Demand 8.1.1 – 8.1.3
8.2 The Concept of Money Supply 8.2.1 – 8.2.4
8.3 Monetary Policy 8.3.1 – 8.3.4
9 International Trade
9.1 Theories of International Trade 9.1.1 – 9.1.3
9.2 The Instruments of Trade Policy 9.2.1 – 9.2.4
9.3 Trade Negotiations 9.3.1 – 9.3.3
9.4 Exchange Rate and Economic Effects 9.4.1 – 9.4.3
9.5 International Capital Movements 9.5.1 – 9.5.3
10 Indian Economy 10.1 – 10.4
 1.1.1

Chapter 1.1
Introduction

Section A: Study Material Questions

1. Economists regard decision making as important because:
(a) The resources required to satisfy our unlimited wants and needs are finite, or scarce.
(b) It is crucial to understand how we can best allocate our scarce resources to satisfy
society’s unlimited wants and needs.
(c) Resources have alternative uses.
(d) All the above.
Answer: (d)

2. Business Economics is -
(a) Abstract and applies the tools of Microeconomics.
(b) Involves practical application of economic theory in business decision making.
(c) Incorporates tools from multiple disciplines.
(d) (b) and (c) above.
Answer: (d)

3. In Economics, we use the term scarcity to mean -

(a) Absolute scarcity and lack of resources in less developed countries.
(b) Relative scarcity i.e. scarcity in relation to the wants of the society.
(c) Scarcity during times of business failure and natural calamities.
(d) Scarcity caused on account of excessive consumption by the rich.
Answer: (b)

4. Which of the following is a normative statement?

(a) Planned economies allocate resources via government departments.
(b) Most transitional economies have experienced problems of falling output and rising prices over
the past decade.
(c) There is a greater degree of consumer sovereignty in market economies than planned
economies.
(d) Reducing inequality should be a major priority for mixed economies.
Answer: (d)

5. In every economic system, scarcity imposes limitations on

(a) households, business firms, governments, and the nation as a whole.
(b) households and business firms, but not the governments.
(c) local and state governments, but not the federal government.
(d) households and governments, but not business firms.
Answer: (a)

6. Macroeconomics is also called——— economics.

(a) applied
(b) aggregate
(c) experimental
(d) none of the above
Answer: (b)

7. An example of ‘positive’ economic analysis would be:

(a) an analysis of the relationship between the price of food and the quantity purchased.
(b) determining how much income each person should be guaranteed.
(c) determining the ‘fair’ price for food.
(d) deciding how to distribute the output of the economy.
Answer: (a)
Chapter 1.1 Introduction
 1.1.2

8. A study of how increases in the corporate income tax rate will affect the national unemployment rate is
an example of -
(a) Macro-Economics.
(b) Descriptive Economics.
(c) Micro-economics.
(d) Normative economics.
Answer: (a)

9. Which of the following does not suggest a macro approach for India?
(a) Determining the GNP of India.
(b) Finding the causes of failure of ABC Ltd.
(c) Identifying the causes of inflation in India.
(d) Analyse the causes of failure of industry in providing large scale employment
Answer: (b)

10. Ram: My corn harvest this year is poor.

Krishan: Don’t worry. Price increases will compensate for the fall in quantity supplied.
Vinod: Climate affects crop yields. Some years are bad, others are good.
Madhu: The Government ought to guarantee that our income will not fall.
In this conversation, the normative statement is made by -
(a) Ram
(b) Krishan
(c) Vinod
(d) Madhu
Answer: (d)

11. Which of the following is not a subject matter of Micro-economies?

(a) The price of mangoes.
(b) The cost of producing a fire truck for the fire department of Delhi, India.
(c) The quantity of mangoes produced for the mangoes market.
(d) The national economy’s annual rate of growth.
Answer: (d)

12. The branch of economic theory that deals with the problem of allocation of resources is-
(a) Micro-Economic theory.
(b) Macro-economic theory.
(c) Econometrics.
(d) None of the above.
Answer: (a)

13. Which of the following is not the subject matter of Business Economics?
(a) Should our firm be in this business?
(b) How much should be produced and at price should be kept?
(c) How will the product be placed in the market?
(d) How should we decrease unemployment in the economy?
Answer: (d)

14. Which of the following is a normative economic statement?

(a) Unemployment rate decreases with industrialization
(b) Economics is a social science that studies human behaviour.
(c) The minimum wage should be raised to ₹ 200/- per day
(d) India spends a huge amount of money on national defence.
Answer: (c)

Chapter 1.1 Introduction

 1.1.3

15. Which of the following would be considered a topic of study in Macroeconomics?

(a) The effect of increase in wages on the profitability of cotton industry
(b) The effect on steel prices when more steel is imported
(c) The effect of an increasing inflation rate on living standards of people in India
(d) The effect of an increase in the price of coffee on the quantity of tea consumed
Answer: (c)

16. The difference between positive and normative Economics is:

(a) Positive Economics explains the performance of the economy while normative Economics finds
out the reasons for poor performance.
(b) Positive Economics describes the facts of the economy while normative Economics involves
evaluating whether some of these are good or bad for the welfare of the people.
(c) Normative Economics describes the facts of the economy while positive Economics involves
evaluating whether some of these are good or bad for the welfare of the people.
(d) Positive Economics prescribes while normative Economics describes.
Answer: (b)

17. Which of the following is not within the scope of Business Economics?
(a) Capital Budgeting
(b) Risk Analysis
(c) Business Cycles
(d) Accounting Standards
Answer: (d)

18. Which of the following statements is incorrect?

(a) Business economics is normative in nature.
(b) Business Economics has a close connection with statistics.
(c) Business Economist need not worry about macro variables.
(d) Business Economics is also called Managerial Economics.
Answer: (c)

19. Economic goods are considered scarce resources because they.

(a) cannot be increased in quantity.
(b) do not exist in adequate quantity to satisfy the requirements of the society.
(c) are of primary importance in satisfying social requirements.
(d) are limited to man made goods.
Answer: (b)

20. In a free market economy the allocation of resources is determined by

(a) voting done by consumers.
(b) a central planning authority.
(c) consumer preferences.
(d) the level of profits of firms.
Answer: (c)

21. Which of the following is considered as a disadvantage of allocating resources using the market system?
(a) Income will tend to be unevenly distributed.
(b) People do not get goods of their choice.
(c) Men of Initiative and enterprise are not rewarded.
(d) Profits will tend to be low.
Answer: (a)

Chapter 1.1 Introduction

 1.1.4

22. Which of the following statements does not apply to a market economy?
(a) Firms decide whom to hire and what to produce.
(b) Firms aim at maximizing profits.
(c) Households decide which firms to work for and what to buy with their incomes.
(d) Government policies are the primary forces that guide the decisions of firms and households.
Answer: (d)

23. In a mixed economy –

(a) all economic decisions are taken by the central authority.
(b) all economic decisions are taken by private entrepreneurs.
(c) economic decisions are partly taken by the state and partly by the private entrepreneurs.
(d) none of the above.
Answer: (c)

24. Macro Economics is the study of ___________.

(a) all aspects of scarcity.
(b) the national economy and the global economy as a whole.
(c) big businesses.
(d) the decisions of individual businesses and people.
Answer: (b)

25. The definition “Science which deals with wealth of Nation” was given by:
(a) Alfred Marshall
(b) A C Pigou
(c) Adam Smith
(d) J B Say
Answer: (c)

26. The managerial economics –

(a) Is Applied Economics that fills the gap between economic theory and business practice
(b) Is just a theory concept
(c) Trains managers how to behave in recession
(d) Provides the tools which explain various concepts
Answer: (a)

27. Which of the following statements is correct?

(a) Micro economics is important for study of a particular household and a particular firm
(b) Macro economics is important for study of economic conditions of a country
(c) None of the above
(d) Both a and b
Answer: (d)

28. Mr. Satish hired a business consultant to guide him for growth of his business. The consultant visited his
factory and suggested some changes with respect to staff appointment, loan availability and so on. Which
approach is that consultant using?
(a) Micro economics
(b) Macro economics
(c) None of the above
(d) Both a and b
Answer: (a)

Chapter 1.1 Introduction

 1.1.5

29. Which of the following statements is/are correct regarding business economics?
(a) Business economics attempts to indicate how business policies are firmly rooted in economic
principles.
(b) Business economics uses micro economic analysis of the business unit and macro economic
analysis of business environment.
(c) Business economics takes a pragmatic approach towards facilitating an integration between
economic theory and business practices.
(d) All the above.
Answer: (d)

Section B (Previous Year Questions)

1. Which of the following in not within the Scope of Business Economics? (MTP 1 Mark, Mar’18)
(a) Capital Budgeting
(b) Accounting Standards
(c) Business Cycles
(d) Risk Analysis
Answer: (b)

2. When we study why saving rates are high or low, we are studying : (MTP 1 Mark, Mar’18)
(a) Macro Economics
(b) Micro Economics
(c) Econometrics
(d) Both (a) and (b)
Answer: (a)

3. expressed the view the “Economics is neutral between end”. (MTP 1 Mark, Aug’18, Nov’22, Apr’24)
(a) Robbins
(b) Marshall
(c) Pigou
(d) Adam Smith
Answer: (a)

4. Which of the following is not micro - economic subject matter? (MTP 1 Mark, Aug’18)
(a) The price of apples.
(b) The cost of producing a fire truck for the fire department of Delhi, India
(c) The quantity of apples produced for the apple market.
(d) The national economy’s annual rate of growth.
Answer: (d)

5. Which of the following statements is incorrect? (MTP 1 Mark, Oct’18)

(a) Unlike normative economics, positive economics is based on objective analysis of economic
issues.
(b) The opportunity cost of a good is the quantity of other goods sacrificed to get another unit
of that good.
(c) Microeconomics emphasizes interactions in the economy as a whole.
(d) None of the above.
Answer: (c)

6. Which of the following is considered production in economics? (MTP 1 Mark, Oct’18)

(a) Tilling of soil.
(b) Singing a song before friends
(c) Preventing a child from falling into a manhole on the road
(d) Painting a picture for pleasure.
Answer: (a)

Chapter 1.1 Introduction

 1.1.6

7. Which of the following is not an economic activity? (MTP 1 Mark, Oct’18)

(a) A son looking after his ailing mother
(b) A chartered accountant doing his own practice,
(c) A soldier serving at the border.
(d) A farmer growing millets
Answer: (a)

8. Which of the following statements is incorrect? (MTP 1 Mark, Mar’19)

(a) The services of doctors, lawyers, teachers etc. are termed as production
(b) Man cannot create matter
(c) Accumulation of capital does not depend solely on income
(d) None of the above
Answer: (d)

9. Economic goods are goods which: (MTP 1 Mark, Mar’19)

(a) Cannot be increased in quantity
(b) Obey the law of Micro Economics
(c) Are limited in supply and are scarce
(d) Are limited to man-made goods.
Answer: (c)

10. Which of the following means an Economic activity? (MTP 1 Mark, Mar’19)
(a) Production of Goods
(b) Production of Services
(c) Consumption of Goods and Services
(d) All of the above
Answer: (d)

11. Macroeconomics is the study of: (MTP 1 Mark, Mar’19)

(a) Inflation
(b) Unemployment
(c) Growth
(d) All of the above
Answer: (d)

12. Questions like what should be the level of national income, what should be the wage rate fall within the
scope of: (MTP 1 Mark, April’19)
(a) Positive Science
(b) Normative Science
(c) Both (a) and (b)
(d) None of the above
Answer: (b)

13. We mainly study the following in Micro Economics: (MTP 1 Mark, April’19)
(a) Location of a Industry
(b) Study of firms
(c) Factor pricing
(d) All of the above
Answer: (d)

14. Which of the following statements is correct? (MTP 1 Mark, April’19)

(a) As normative science, Economics involves value judgments
(b) Robbins has made economics as a form of welfare economics
(c) The Law of Demand is always true
(d) None of the above
Answer: (a)

Chapter 1.1 Introduction

 1.1.7

15. When we are studying how a producer fixes the price of his products we are studying
(MTP 1 Mark, April’19)
(a) Macro Economics
(b) Micro Economics
(c) Both Micro and Marco Economics
(d) None of the above
Answer: (b)

16. Macro economics doesn’t include one example from the following: (MTP 1 Mark, April’19)
(a) National Income and output
(b) Study of firms
(c) General Price Level
(d) Saving and Investment
Answer: (b)

17. A normative economic statement is- (MTP 1 Mark, Oct’19)

(a) Unemployment rate decreases with industrialization
(b) Economics is a social science that studies human behaviour
(c) The minimum wage should be raised to ₹ 200/- per day
(d) India spends a huge amount of money on national defence
Answer: (c)

18. The branch of economic theory that deals with the problem of allocation of resources is
(MTP 1 Mark, May’20)
(a) Micro-Economic theory
(b) Macro-economic theory
(c) Econometrics
(d) none of the above
Answer: (a)

19. Which of the following statements would you consider to be a normative one? (MTP 1 Mark, May’20)
(a) Faster economic growth should result if an economy has a higher level of investment.
(b) Changing the level of interest rates is a better way of managing the economy than using taxation
and government expenditure.
(c) Higher levels of unemployment will lead to higher levels of inflation.
(d) The average level of growth in the economy was faster in the 1990s than the 1980s.
Answer: (b)

20. Which of the following is not within the scope of Business Economics? (MTP 1 Mark, May’20, May’23)
(a) Capital Budgeting
(b) Risk Analysis
(c) Business Cycles
(d) Accounting Standards
Answer: (d)

21. A study of how increases in the corporate income tax rate will affect the national unemployment rate is
an example of (MTP 1 Mark, May’20)
(a) Macro-Economics
(b) Descriptive Economics
(c) Micro-economics
(d) Normative economics
Answer: (a)

Chapter 1.1 Introduction

 1.1.8

22. The difference between Positive and Normative Economics is: (MTP 1 Mark, May’20)
(a) Positive Economics explains the performance of the economy while Normative Economics finds
out the reasons for poor performance.
(b) Positive Economics describes the facts of the economy while Normative Economics involves
evaluating whether some of these are good or bad for the welfare of the people Normative
Economics describes the facts of the economy while Positive Economics involves evaluating
whether some of these are good or bad for the welfare of the people.
(c) Positive Economics prescribes while Normative Economics describes.
Answer: (b)

23. Which of the following statements does not apply to market economy? (MTP 1 Mark Oct’20)
(a) Firms decide whom to hire and what to produce.
(b) Firms aim at maximizing profits.
(c) Households decide which firms to work for and what to buy with their incomes.
(d) Government policies are the primary forces that guide the decisions of firms and households.
Answer: (d)

24. Which of the following is not a subject matter of Micro-economies? (MTP 1 Mark Oct’20)
(a) The price of mangoes.
(b) The cost of producing a fire truck for the fire department of Delhi, India.
(c) The quantity of mangoes produced for the mangoes market.
(d) The national economy’s annual rate of growth
Answer: (d)

25. Which of the following statements is incorrect? (MTP 1 Mark Oct’20)

(a) Business economics is normative in nature.
(b) Business Economics has a close connection with statistics.
(c) Business Economist need not worry about macro variables.
(d) Business Economics is also called Managerial Economics.
Answer: (c)

26. Who expressed the view that “Economics is neutral between end”. (MTP 1 Mark Oct’20)
(a) Robbins
(b) Marshall
(c) Pigou
(d) Adam Smith
Answer: (a)

27. The definition “Science which deals with wealth of Nation” was given by: (MTP 1 Mark Oct’20)
(a) Alfred Marshall
(b) A C Pigou
(c) Adam Smith
(d) J B Say
Answer: (c)

28. The Book “The Wealth of Nations “is written by: (MTP 1 Mark, Mar’21)
(a) Adam Smith
(b) Arthur Pigou
(c) Robinson
(d) Ragnar Nurske
Answer: (a)

Chapter 1.1 Introduction

 1.1.9

29. The Nature of Business Economics: (MTP 1 Mark, Mar’21)

(a) Business Economics is a Science
(b) Incorporate elements of Macro Analysis
(c) Interdisciplinary in Nature
(d) All the above
Answer: (d)

30. Rational decision making requires that: (MTP 1 Mark, Mar’21)

(a) one’s choice be arrived at logically and without error.
(b) one’s choice be consistent with one’s goal.
(c) one’s choice never vary.
(d) the consumer plan’s to attain the highest possible level of satisfaction.
Answer: (d)

31. An Applied Economics that fills the gap between economic theory and business practice:
(MTP 1 Mark, Apr’21)
(a) Business Economics
(b) Macro Economics
(c) Welfare Economics
(d) None of these
Answer: (a)

32. Which of the following is a normative statement? (MTP 1 Mark, Apr’21)

(a) Health care basic facilities to be provided to all citizens.
(b) With Industrialisation, unemployment rate decreases.
(c) On national defence India spent huge amount of money.
(d) None of these
Answer: (a)

33. In mixed economy the feature include existence of (MTP 1 Mark, Oct’21)
(a) Private Sector
(b) Public Sector
(c) Combined Sector
(d) All of these
Answer: (d)

34. Which of the following is included in study of Micro economics: (MTP 1 Mark, Oct’21)
(a) Product Pricing
(b) Factor Pricing
(c) Both (a) and (b)
(d) None of these
Answer: (c)

35. Business Economics in its approach is (MTP 1 Mark, Oct’21)

(a) Pragmatic
(b) Idealistic
(c) Normative
(d) None of these
Answer: (a)

36. In the beginning economics was named as (MTP 1 Mark, Oct’21, Apr’23)
(a) Political Economy
(b) Welfare Economics
(c) Economies of Wealth
(d) None of these
Answer: (a)

Chapter 1.1 Introduction

 1.1.10

37. Normative economics can be explained through: (MTP 1 Mark, Oct’21)

(a) Fairness to tax
(b) Incidence to tax
(c) Effect of tax on incentives to work
(d) None of these
Answer: (a)

38. Which of the following is not a characteristic of capitalist economy: (MTP 1 Mark, Nov’21)
(a) Right to Private Property
(b) Freedom of Enterprise
(c) Consumer Sovereignty
(d) Combined Sector
Answer: (d)

39. Which are the areas that come under Macro economics ___ (MTP 1 Mark, Nov’21)
(a) External Value of currency
(b) The general price level and interest rate
(c) Location of the industry
(d) National Income and National Output
Answer: (c)

40. Business Economics is a: (MTP 1 Mark, Nov’21, Apr’23, May’23)

(a) Normative Science
(b) Interdisciplinary
(c) Pragmatic
(d) All of these
Answer: (d)

41. Allocation of resources is dealt in: (MTP 1 Mark, Nov’21, May’23, Nov’23)
(a) Macro Economic
(b) Micro Economics
(c) Public Finance
(d) None of these
Answer: (b)

42. Which of the following are the characteristics of Business Economics: (MTP 1 Mark, Mar’22)
(a) It is a normative Science
(b) It is inter disciplinary
(c) Pragmatic in Nature
(d) All of the above
Answer: (d)

43. Which branch of economic theory deals with allocation of resources: (MTP 1 Mark, Mar’22)
(a) Macro-economic
(b) Micro economic
(c) Economic Growth
(d) None of these
Answer: (b)

44. Taxation involves which aspects of normative economics: (MTP 1 Mark, Mar’22)
(a) Incidence
(b) Fairness
(c) Incentive to work
(d) All of the above
Answer: (b)

Chapter 1.1 Introduction

 1.1.11

45. A theory is : (MTP 1 Mark, Mar’22)

(a) An assumption
(b) A hypothesis
(c) A validated hypothesis
(d) None of these
Answer: (c)

46. Modern business activities are based on the anticipations of business community and are affected by
waves of optimism or pessimism is opined by_____. (MTP 1 Mark, Mar’22)
(a) Pigou
(b) Keynes
(c) Hawtrey
(d) None of these
Answer: (a)

47. Globalization indicate rapid_______ between Countries: (MTP 1 Mark, Mar’22, Apr’23)
(a) Competition
(b) Investment
(c) Integration
(d) None of these
Answer: (c)

48. Which of the following statements is correct? (MTP 1 Mark, Mar’22)

(a) In a two-good economy, the production possibilities frontier reflects the maximum amount of
one good that can be produced when a given amount of the other good is produced.
(b) Microeconomics is the study of the behavior of the economy as a whole.
(c) Positive economics focuses on welfare of the people of a society
(d) None of the above
Answer: (a)

49. Most of the economic problems are of ____ nature and are affected by ________.
(MTP 1 Mark, Jun’22)
(a) Complex, Several forces
(b) Simple, Several forces
(c) Simple, single factor
(d) Complex, Single factor
Answer: (a)

50. The survival and success of any business depends on sound_____. (MTP 1 Mark, Jun’22)
(a) Mind
(b) Environment
(c) Decisions
(d) None of these
Answer: (c)

51. Management of the firm _____ control over macro-economic factors.

(MTP 1 Mark, Jun’22, Nov’22, Apr’24)
(a) has
(b) has no
(c) has partial
(d) None of these
Answer: (b)

Chapter 1.1 Introduction

 1.1.12

52. In a planned or command economy all the economic decisions are taken by the ____. (MTP 1 Mark, Jun’22)
(a) Workers
(b) Consumers
(c) Voters
(d) Government
Answer: (d)

53. Which of the following statements is/are correct about mixed economic system? (MTP 1 Mark, Jun’22)
(a) Mixed economic system depends on both markets and governments for allocation of resources
(b) Mixed economy is not always a golden path between capitalism and socialism.
(c) It is very difficult to maintain a proper balance between private and public sectors.
(d) All of the above
Answer: (d)

54. In economics, we are concerned with (MTP 1 Mark, Jun’22)

(a) Value in use only
(b) Exchange value only
(c) Both value in use and exchange value
(d) None of the above
Answer: (b)

55. Which of the following statements is true? (MTP 1 Mark, Nov’22)

(a) The study of economics ensures that all problems will be appropriately tackled.
(b) The study of economics cannot ensure that all problems will be appropriately tackled.
(c) The study of economics does not enable a student to examine a problem in its right perspective.
(d) None of these
Answer: (b)

56. Business economics is____. (MTP 1 Mark, Nov’22)

(a) A science
(b) An art
(c) Both science and art
(d) None of these
Answer: (c)

57. is concerned with welfare proposition. (MTP 1 Mark, Nov’22, Nov’23, Dec’23)
(a) Normative Economics
(b) Positive Economics
(c) Both (a) and (b)
(d) None of these
Answer: (a)

58. expressed the view the “Economics is neutral between end” (MTP 1 Mark, Nov’22)
(a) Robbins
(b) Marshall
(c) Pigou
(d) Adam Smith
Answer: (a)

59. Microeconomic theory studies how a free-enterprise economy determines (MTP 1 Mark, Nov’22)
(a) the price of goods
(b) the price of services
(c) the price of economic resources
(d) all of the above.
Answer: (a)

Chapter 1.1 Introduction

 1.1.13

60. Which aspect of taxation involves normative economics? (MTP 1 Mark, Nov’22, Dec’23)
(a) the incidence of (i.e., who actually pays for) the tax
(b) the effect of the tax on incentives to work
(c) the “fairness” of the tax
(d) all of the above.
Answer: (c)

61. Economics is a branch of ______ focused on the production, distribution and consumption of goods and
services. (MTP 1 Mark, Nov’22)
(a) Natural science
(b) Physical science
(c) Social science
(d) None of these
Answer: (c)

62. According to British economist J. M. Keynes ____ was the main cause of massive decline in income and
employment during Great Depression of 1930. (MTP 1 Mark, Nov’22)
(a) Lower aggregate expenditure in the economy.
(b) Banking crises and low money supply.
(c) Overdebtness.
(d) Lower profits & pessimism
Answer: (a)

63. Which of the following is not studied in micro economics? (MTP 1 Mark, Nov’22)
(a) Factor pricing
(b) Location of Industry
(c) Consumer Behaviour
(d) External value of currency
Answer: (d)

64. Which of the following are within the scope of business economies? (MTP 1 Mark, Nov’22)
(a) Capital Budgeting
(b) Risk Analysis
(c) Business cycles
(d) All of the Above
Answer: (d)

65. Management of the firm _______ control over macro-economic factors. (MTP 1 Mark, Nov’22)
(a) has
(b) has no
(c) has partial
(d) None of these
Answer: (b)

66. Business Economics is a: (MTP 1 Mark, Apr’23)

(a) Normative Science
(b) Interdisciplinary
(c) Pragmatic
(d) All of these
Answer: (d)

Chapter 1.1 Introduction

 1.1.14

67. In the beginning economics was named as: (MTP 1 Mark, Apr’23)
(a) Political Economy
(b) Welfare Economics
(c) Economies of Wealth
(d) None of these
Answer: (a)

68. Macroeconomics is also called ______ economics. (MTP 1 Mark, Apr’23)

(a) experimental
(b) aggregate
(c) applied.
(d) none of these
Answer: (b)

69. Normative economics can be best explained through: (MTP 1 Mark, Apr’23)
(a) Fairness to tax
(b) Incidence to tax
(c) Effect of tax on incentives to work
(d) None of these
Answer: (a)

70. Globalization indicate rapid _____ between Countries: (MTP 1 Mark, Apr’23)
(a) Competition
(b) Investment
(c) Integration
(d) None of these
Answer: (c)

71. ‘’The wealth of Nation” Considered as the first modern work of Economics was written by:
(MTP 1 Mark, May’23)
(a) Marx
(b) Adam-Smith
(c) Lipsey
(d) Allen
Answer: (b)

72. Business Economics is: (MTP 1 Mark, May’23)

(a) Normative Science
(b) Interdisciplinary
(c) Pragmatic in approach
(d) All the above
Answer: (d)

73. The ‘communist Manifesto’ was published in: (MTP 1 Mark, May’23)
(a) (a) 1848
(b) (b) 1905
(c) (c) 1952
(d) (d) None of these.
Answer: (a)

74. Which of the following is not within the scope of Business Economies? (MTP 1 Mark, May’23)
(a) Risk Analysis
(b) Accounting Standards
(c) Capital Budgeting
(d) All the Above
Answer: (b)

Chapter 1.1 Introduction

 1.1.15

75. The allocation of resources in a free-market economy is determined by: (MTP 1 Mark, May’23)
(a) Level of Profits of firms
(b) Consumer Preferences
(c) Central Planning Authority
(d) None of these
Answer: (b)

76. Who defined Business economics in terms of the use of economic analysis in the formulation of business
policies? (MTP 1 Mark, May’23, Apr’24)
(a) Adam Smith
(b) Robbins
(c) Joel Dean
(d) Alfred Marshall
Answer: (c)

77. Allocation of resources is dealt in: (MTP 1 Mark, May’23)

(a) Macro-Economic
(b) Microeconomics
(c) Public Finance
(d) None of these
Answer: (b)

78. An example of positive economic analysis would be: (MTP 1 Mark, Nov’23)
(a) an analysis of the relationship between the price of food and quantity purchased
(b) determining how much income each person should be granted
(c) determining the fair price for foo
(d) deciding how to distribute the output of the economy
Answer: (a)

79. Scarcity definition of Economics is given by: (MTP 1 Mark, Nov’23)

(a) Adam Smith
(b) Robinson
(c) Samuelson
(d) Alfred Marshall
Answer: (b)

80. Allocation of resources is dealt in: (MTP 1 Mark, Nov’23)

(a) Macro-Economic
(b) Microeconomics
(c) Public Finance
(d) None of these
Answer: (b)

81. __________ is concerned with welfare proposition. (MTP 1 Mark, Nov’23)

(a) Normative Economics
(b) Positive Economics
(c) Both (a) and (b)
(d) None of these
Answer: (a)

82. Which aspect of taxation involves Normative Economics? (MTP 1 Mark, Dec’23)
(a) the incidence of the tax
(b) the effect of the tax on incentives to work
(c) the “fairness” of the tax
(d) all the above.
Answer: (c)

Chapter 1.1 Introduction

 1.1.16

83. In a market economy, resource allocation is primarily determined by: (MTP 1 Mark, Dec’23)
(a) Central planning by the government
(b) Consumer demand and supply in the marketplace
(c) The decisions of a few large corporations
(d) international trade agreements
Answer: (b)

84. is concerned with welfare proposition. (MTP 1 Mark, Dec’23)

(a) Normative Economics
(b) Positive Economics
(c) Both (a) and (b)
(d) None of these
Answer: (a)

85. Who defined Business economics in terms of the use of economic analysis in the formulation of business
policies? (MTP 1 Mark, Apr’24)
(a) Adam Smith
(b) Robbins
(c) Joel Dean
(d) Alfred Marshall
Answer: (c)

86. Concept of Business Economics was given by: (MTP 1 Mark, Apr’24)
(a) Joel Dean
(b) Alfred Marshall
(c) Adam Smith
(d) L. Robbins
Answer: (a)

87. Which of the following are the features of a mixed economy? (MTP 1 Mark, Apr’24)
(a) Planned economy
(b) Dual system of pricing exists
(c) Balance regional development
(d) All of the above
Answer: (d)

88. Which of the following is NOT a central issue in macroeconomics? (MTP 1 Mark, Apr’24)
(a) How should the central bank of a country fight inflation?
(b) What is responsible for high and persistent unemployment?
(c) How do tax changes influence consumers' buying choices?
(d) What factors determine economic growth?
Answer: (c)

89. expressed the view the “Economics is neutral between end”. (MTP 1 Mark, Apr’24)
(a) Robbins
(b) Marshall
(c) Pigou
(d) Adam Smith
Answer: (a)

90. Which of the following matters is/are fundamentally connected to economic analysis? (MTP 1 Mark, Apr’24)
(a) Economic prosperity
(b) Higher standard of living
(c) Changes in price of a commodity
(d) All of the above
Answer: (d)

Chapter 1.1 Introduction

 1.1.17

91. Management of the firm factors _______________ control over macro-economic Factors
(MTP 1 Mark, Apr’24)
(a) has
(b) has no
(c) has partial
(d) None of these
Answer: (b)

92. Positive economics means: (MTP 1 Mark, May’24)

(a) Does not depend on market interactions,
(b) only looks at the best parts of the economy.
(c) Examines how the economy works (as opposed to how it should work)
(d) is very subjective.
Answer: (c)

93. We can say Indian agriculture has become modern since: (MTP 1 Mark, May’24)
(a) there has been an increase in the use of high yielding varieties of seeds, fertilizers pesticides etc.
(b) there has been noticeable positive change in the attitude of farmers towards new techniques of
production
(c) farmers are increasingly resorting to intensive cultivation, multiple cropping, scientific water
management
(d) all of the above.
Answer: (d)

Chapter 1.1 Introduction