CBSE Class 11 Business Studies Chapter 8: Sources of Business Finance NCERT Solutions

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NCERT Solutions PDF Class 11 PDF

This chapter delves into the crucial topic of Sources of Business Finance for Class 11 Business Studies students. It covers various methods businesses use to raise capital, including equity shares, which represent ownership, and redeemable preference shares, which can be bought back by the company. The solutions explain the difference between fixed and working capital, highlighting that funds for current assets fall under working capital requirements. It also introduces American Depository Receipts (ADRs) as a means for US investors to buy foreign company shares, public deposits as funds raised directly from the public, and lease financing, where a lessee uses an asset for a period. These solutions are designed to help students understand the core concepts and prepare effectively for their examinations.

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Quick info

BoardCBSE
ClassClass 11
SubjectBusiness Studies
Session2026
LanguageEnglish
TypeNCERT Solutions
ChapterChapter 8

Chapter summary

Chapter 8 of the CBSE Class 11 Business Studies syllabus focuses on 'Sources of Business Finance'. This section provides NCERT Solutions that clarify key concepts such as equity shareholders as owners, the nature of redeemable preference shares, and the distinction between fixed and working capital. It also explains American Depository Receipts (ADRs), public deposits, and the rights of a lessee in a lease financing agreement. The solutions aim to equip students with a clear understanding of diverse financial sources available to businesses.

Learning outcomes

  • Understand the role of equity shareholders as owners of a company.
  • Differentiate between various types of shares, including redeemable preference shares.
  • Identify the requirements for working capital in a business.
  • Explain the concept and purpose of American Depository Receipts (ADRs).
  • Define public deposits and their source.
  • Describe the rights of a lessee under a lease financing agreement.

Topics covered

Paper topics

  • Equity Shares
  • Owners' Fund
  • Redeemable Preference Shares
  • Working Capital
  • Fixed Capital
  • American Depository Receipts (ADRs)
  • Public Deposits
  • Lease Financing
  • Lessee Rights

Important topics

  • Sources of Business Finance
  • Equity Shareholders as Owners
  • Working Capital Requirements
  • Public Deposits
  • Lease Financing

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Questions and Solutions

Question 1

Equity shareholders are called:
  1. Owners of the company
  2. Partners of the company
  3. Executives of the company
  4. Guardians of the company
Solution: Equity shareholders are considered the ultimate owners of the company. They invest their capital in exchange for equity shares, which represent a stake in the company's ownership and entitle them to a share in profits and voting rights. Therefore, they are fundamentally the owners of the company.

Question 2

The term 'redeemable' is used for:
  1. Preference shares
  2. Commercial paper
  3. Equity shares
  4. Public deposits
Solution: The term 'redeemable' refers to shares that a company can buy back or repay to the shareholders at a specified future date or upon the occurrence of a certain event. This feature is typically associated with preference shares, not equity shares, commercial paper, or public deposits.

Question 3

Funds required for purchasing current assets is an example of:
  1. Fixed capital requirement
  2. Ploughing back of profits
  3. Working capital requirement
  4. Lease financing
Solution: Funds required for the purchase of current assets, such as inventory, raw materials, and accounts receivable, are essential for the day-to-day operations of a business. This type of capital need is known as the working capital requirement.

Question 4

ADRs are issued in:
  1. Canada
  2. China
  3. India
  4. The USA
Solution: ADRs stand for American Depository Receipts. These are negotiable financial instruments issued by a U.S. depository bank to represent shares of a foreign company. Therefore, ADRs are issued in the USA, allowing American investors to invest in foreign companies.

Question 5

Public deposits are the deposits that are raised directly from:
  1. The public
  2. The directors
  3. The auditors
  4. The owners
Solution: Public deposits refer to funds raised by a company directly from the general public. Companies advertise these deposit schemes to attract funds from individuals and other entities, offering them interest in return.

Question 6

Under the lease agreement, the lessee gets the right to:
  1. Share profits earned by the lessor
  2. Participate in the management of the organization
  3. Use the asset for a specified period
  4. Own the asset outright
Solution: In a lease agreement, the lessee is the party that obtains the right to use an asset owned by the lessor. This right is granted for a specified period in exchange for regular lease payments. The lessee does not gain ownership of the asset or rights to share profits or management.

Common mistakes

  • Confusing equity shareholders with other stakeholders like partners or executives.
  • Misunderstanding the definition and purpose of redeemable preference shares.
  • Failing to distinguish between fixed capital and working capital requirements.
  • Not clearly identifying the origin of funds raised through public deposits.

Revision tips

  • Focus on understanding the ownership structure represented by equity shares.
  • Clarify the buy-back mechanism of redeemable preference shares.
  • Differentiate between capital needed for long-term assets and day-to-day operations.
  • Review the specific contexts for ADRs and public deposits.
  • Understand the rights and obligations within a lease financing arrangement.

Practice MCQs

Q1. Who are equity shareholders primarily considered in a company?

Q2. What does the term 'redeemable' typically apply to in the context of shares?

Q3. Funds required for the purchase of current assets are classified as:

Q4. ADRs (American Depository Receipts) are a mechanism for trading shares of companies based in which country?

Q5. Public deposits are funds raised directly from:

Q6. Under a lease agreement, what right does the lessee obtain?

Frequently asked questions

What is the primary role of equity shareholders in a company?

Equity shareholders are considered the owners of the company because they hold equity shares, representing ownership capital and having voting rights.

What is the key characteristic of redeemable preference shares?

Redeemable preference shares are those that the company has the option or obligation to buy back from the shareholders at a specified future date or under certain conditions.

How does working capital differ from fixed capital?

Fixed capital is used for acquiring long-term assets like machinery and buildings, while working capital is used for day-to-day operational expenses and current assets.

What are ADRs and where are they issued?

ADRs (American Depository Receipts) are certificates issued in the USA representing shares of a foreign company, allowing US investors to invest in foreign firms.

From whom are public deposits raised?

Public deposits are a source of finance where companies raise funds by accepting deposits directly from the general public.

What right does a lessee gain in lease financing?

In lease financing, the lessee obtains the right to use an asset owned by the lessor for a specified period in exchange for lease payments.

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