Principal of Commerce

2018-19
XI Commerce
Including
Complete Solution of Past papers
With Complete List of Important
Questions

Edited & Compiled By

Fahad Siddiqi (M.Com)
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Material/ Data taken from different renowned and well respected authors.
Prof. Amin Khalid
Prof. Saeed Ahmed Siddiqi
Prof. Wazir Ahmed Razzaqui

Ch # Name of Chapter Page #

Complete Short Questions list from Past Papers 2
Complete Long Questions list from Past Papers 3
1 4
Commerce/Business
2 14
Forms of Business
3 32
Channels of Distribution
4 37
Foreign trade
&
Export promotion bureau
5 44
Advertising
6 48
Transportation
7 50
Insurance
8 54
Finance
9 57
Business Letters

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Short Questions list from Past Papers

1) Define commerce and state its scope.

2) Enlist the auxiliaries to Trade. Describe any 3 of them.
3) Define Business, Industry and Profession.
4) Describe the basic considerations for starting a business.
5) Write any five advantages of Sole proprietorship.
6) What are kinds of Partners? Describe Sleeping partner.
7) Write down the rights of a partner.
8) Define Partnership Agreement. Enlist any eight of its contents.
9) Under what circumstances the partnerships can be dissolved?
10) What are the characteristics of Joint Stock Company?
11) List the advantages and disadvantages of Joint Stock Company.
12) State the channels of Distribution.
13) Enlist the kinds of retailing. Explain chain stores.
14) State the services of Retailer to Consumers.
15) State the services of Wholesaler to Retailer and Manufacturer.
16) Write about Public Warehouses and Private Warehouses.
17) Enlist the advantages of Warehousing. Explain any one.
18) Define Salesmanship. Write any four qualities of a good salesman.
19) Define the term Mudarba and Musharka.
20) Differentiate between Foreign Trade and Domestic Trade.
21) Name the documents used in exporting goods.
22) Describe any five services to exporters provided by the export promotion bureau.
23) Differentiate between advertising and publicity.
24) List the kinds of advertising media. Explain any one.
25) Define transportation and enlist the various modes of Transportation in Pakistan.
26) Define insurance. List its various kinds.
27) What is meant by Short Term Finance? Enlist any eight of its sources.
28) What are the sources of long term finance?
29) Draw the sketch of a Standard Business Letter.
30) Enlist the various kinds of Business letters. Describe Complaint letter.
31) What are circular letters? Why are they written?

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Long Questions list from Past Papers

1. Which factors should be considered in the selection of the type of a Business
Ownership?
2. Define Joint Stock Company. Describe its characteristics.
3. Describe the procedure of incorporation of a joint stock company.
4. Define marketing and describe its functions.
5. Define middlemen. How can they be classified in different kinds?
6. Define Insurance. Explain various types of Insurance.
7. What role is played by Export Promotion Bureau in promoting exports? Describe its
functions.
8. Explain the procedure of Export Trade. Enlist the documents used to import Trade.
9. Describe the procedure of importing goods from foreign country.
10. Describe the various parts of Business letter. Draw the sketch of a standard Business
letter.
11. Describe the qualities of a good Business Letter.
12. Write an application for the post of a "Sales Executive". Assume all necessary particulars
and details.
13. Draft an application for the post of an assistant accountant with resume. Assume
necessary details.
14. Write an order letter for importing Electronic goods from Germany. Assume necessary
details.
15. Draft an order letter of the purchases of electrical goods assuming necessary details.
16. Draft a circular letter to the prospective customer to inform them about the arrival of
new models of mobile phone sets. Assume necessary particulars and details.
17. Draft a circular letter to prospectus customers regarding the introduction of a new
product. Assume necessary details and particulars.

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CHAPTER # 1

COMMERCE / BUSINESS

1) Define commerce and state its scope.

2) Enlist the auxiliaries to Trade. Describe any 3 of them.
3) Define Business, Industry and Profession.
4) Define trade and commerce. List the Auxiliaries to trade.
5) Define business and industry. Write the names of various kinds of business.
6) Describe the basic considerations for starting a business.

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Q1.Define Commerce/Business? What are its main characteristics?

Definitions:
Various authors have defined the term business (commerce). Some of the selected definitions are given
below:

According to L.H. Haney

“Business may be defined as human activity directed towards providing or acquiring wealth through
buying and selling goods.”

Urwick and Hunt describes

“Business as an enterprise which makes distributes or provides any article or service which the other
members of the community need and
are able and willing to pay for it.”

According R.N. Owen

“Business includes all the commercial and industrial activities that provide goods and service to the
people with an objective to earn profits.”

Q2. Define the following terms (a) Industry (b) Trade (c) Commerce (d) Profession.
OR
Distinction between Trade, Commerce and Industry

Trade, commerce and industry are different parts of business, of the three, trade is a part of commerce.
The main points of distinction among the three are discussed under the following broad heads.

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BASIS TRADE COMMERCE INDUSTRY
1. Meaning Trade is a business activity. It is Commerce includes all Industry is concerned
related to the purchase and sale those activities, which are with the making or
of goods and services. It helps meant to make the manufacturing of
sellers to transfer goods to produced goods and goods. It includes all the
buyers. Trade is only one aspect services available to the activities that are
of commerce. consumers at the time undertaken for the
when they want it, at a conversion of raw
price, which they can material into finished
afford to pay, and of a goods or for ultimate
quality, which satisfies consumption.
them. Commerce includes
trades and aids to trade
such as transport,
banking, insurance,
advertising etc.
2. Capital The requirement of capital The activities, which help Capital needs are quite
depends upon the type of trade. to break the barriers high for industry. The
Wholesale trade needs more between producers and various processes of
capital than retail trade. Similarly consumers such as production, extraction,
foreign trade involves more transporting, conversion, fabrication
capital than domestic trade. warehousing, financing etc. require vast
etc. require huge capital. amount of fixed and
working capital.
3. Scope Trade deals only with the The scope of commerce is Industry is that part of
purchase and sale of goods and wide. It includes trade and business activity which
services. aids to trade such as is concerned with the
transport, warehousing, production of goods
insurance etc. and services through
utilization of available
resources. Industry may
be primary (extractive,
genetic) or secretary
(manufacturing,
construction) or service
industry (insurance,
hotels etc.).

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PROFESSION: 4. Risk It involves greater amount of The risk involved in the Industry involve
Profession refers to risk. There are ups and downs in buying and selling of greater amount
a vocation, which a business. Trader’s gains when goods, exchange of right from the
person adopts after prices rise and lose when prices commodities and the extraction stage
getting specialized fall. distribution of finished to the finishing
training education products is also quite high. goods.
knowledge. The
professional men provide services of specialized nature to the community. The professionals are mainly
of two types.

1) Who carry on the profession purely for profit motive?

2) Who are not guided by profit motive but are strongly motivated to provide services to the
community like professors, doctors, engineers, accountants, artists, scholars etc.
The number of professionals who render services to the people on non-profit basis or free of costs in
very negligible.

Q3. Define commerce and state its scope.

FUNCTIONS / SCOPE OF COMMERCE

The commerce has a wider scope. In case of home trade, the wholesalers, retailers and other
middlemen connect the actual producers on one hand and the ultimate consumers on the other
hand. Various closely related activities of commerce such as transport, warehousing, insurance, banking
and finance in short all the functions of commerce are included in the scope of commerce.

PRODUCTION: Business function starts with the planning for production, which is
conversion of materials from one from to another. It requires the purchase of raw materials, machinery
and equipment and hiring different classes of laborers. Production, which is a commercial activity, has
four factors land, labor, capital and entrepreneurship without which it cannot take place.

BANKING FINANCE: Banking and finance are part of commerce. By performing this service,
commerce is able to finance the needs of the business firms. Through banking producers and middlemen
get the needed funds. Bank helps businessmen in foreign trade by issuing drafts, L/Cs, and discounting
bills of exchange.

INSURANCE (RISK): Risk is inherent to business. Business risks include theft, fire, and
change in prices, government policies and restrictions, strikes, change in fashion, changing taste of
consumers. Risk may be classified as:
A: Insurable risks.
B: Uninsurable risks.
Those risks, which can be covered under an insurance policy, are referred to insurable risks and
initial theft, fire and sea hazards.
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STORING/ WAREHOUSING: Warehousing may also be referred to as the process of

storing the main objective of which is to hold goods for safety till the time they are sold. On the other
hand, warehousing is the stores or place where goods are kept for safety. There are various kinds of
warehousing, public warehouse, private warehouse, and cold storage

TRANSPORTATION: Transporting is so as important activity that no business can be

performed without it. It refers to moving goods from the point of production to the point of
consumption. It helps the producer dispose of their goods to the far and needy markets. It creates place
utility. Quick and modern means of transport have made possible to send goods in any part of the globe
in a very short period.

INFORMATION: Commerce requires information at every stage. In production, in buying, in

selling, and in research one needs exact and latest information. Well – informed businessman is more
successful than a uniformed person. Information activity of commerce also includes advertising without
which major business activity cannot be successful.

TRADE (BUYING & SELLING): Trade has a pivotal role in business. Trade refers to buying
and selling. It also covers imports, exports, retailing, wholesaling and brokerage. Business and trade are
compulsory to each other. Infect trade is a branch of the business.
Business requires acumen of the businessman. Before buying he has to take in to account quality,
variety, price, design, and term of sales, guarantee and services offered by the sellers. In selling, he has
to locate customer, advertise his products, determine channel of production, prepare promotional
material and fix selling prices. He must also be aware of customer’s trade, trends and preferences

Q4. Define marketing & its functions. OR

What are the important activities involved in the marketing process.
MARKETING:
Marketing has been defined in many ways. The traditional definition of marketing is that “Marketing is
the performance of business activities that direct the flow of goods and services from producer to
consumer. This is too narrow as it ignores consumer’s needs and the ultimate good of business concern.
The new approach covering the above draw back defines marketing as the process of getting the right
goods to the right consumers at the right place and time and at the right price.”

FUNCTIONS OF MARKETING:
The activities falling under the scope of marketing are grouped under eight universal functions.
Manufacturers, others by wholesalers and still others by retailers perform some of the marketing
functions. The main marketing functions are as under:

A) Merchandizing Functions: B) General business C) Sales functions:

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1. Buying 6. Financing 8. Pricing
2. Assembling 7 Risk taking 9. Selling
3. Standardizing and grading 10.Transportation
4. Storing
5. Market research

A) MERCHANDIZING FUNCTIONS:
1) BUYING:
Buying is the first most important step in the process of marketing. It is the process of acquiring goods
at the right place, at a right time, in right quantity and quality and from a right source of supplier.
Buying may be done directly or through middlemen. The manufacturers buy goods for processing or
converting it into other products. The traders purchase goods for resale in the market. The buying of
goods for the purpose of converting into semi-finished or finished goods or for the purpose of resale be
carried out with utmost care. It is generally said that goods well brought are half sold. The profits of the
business to a large extent depend upon efficient buying.

2) ASSEMBLING:
Assembling means collection of goods from various places in small quantities and making them available
in sufficient quantities at some central places. In most of the agricultural as well as industrial raw
materials, middlemen do assembling. Manufacturers and wholesalers buy the assembled goods.

3) STANDARDIZING AND GRADING:

If the goods are properly standardized according to their size, shape, color, design, material and graded
according to their quality and characteristics, they can be bought and sold by reference to their standards
and grades on telephones, telegrams. The standarilized goods can be purchased and sold easily.
Standardization and grading of goods are thus helpful in marketing.

4) STORING:
The manufacturers produce most of the goods in anticipation of demand. The manufacturers,
wholesalers hold sufficient stocks to sell as and when needed by the consumer. Storing of goods helps
in regulating the prices of the products by creating time and place utility.

5) MARKET RESEARCH:
Efficient sale depends upon the market research. Market research for a good helps the supplier in finding
out the quality and quantity of goods wanted by the customers, the time when the customers want it,
the attitude of the customers towards price, discovering potential markets for products etc.

B) GENERAL BUSINESS FUNCTIONS:

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6) FINANCING:
The financing function is very important in the marketing process. It involves the use of capital for
maintaining inventory and providing of marketing services. A marketing concern finances its activities
from two sources:
i) Owned capital
ii) Borrowed capital
The manufacturers need finance for keeping sufficient stock of goods in anticipation of demand. The
manufacturers also make sale on credit to the middlemen. The wholesalers need finance for storing
sufficient quantity of goods and sometimes making payments to the producers. The retailers also require
funds for selling goods on credit to the trusted consumers. The main problems involved in marketing
finance include finding the sources, terms of credit, cost of credit and collection of debts.

7) RISK BEARING:
Risks are involved in almost all stages in the marketing process. Risks are possible due to changes in
demand and supply conditions of the goods, loss in storage, transport and other natural calamities. The
risks in marketing cannot be avoided. However, they can be reduced. The successful marketer is that
who takes a calculated risk or tries to transfer the risks or eliminates the risks. ‘Hedging’ usually covers
risks due to price fluctuations. Risks attached to natural calamities may be transferred to the insurance
companies.

C) SALES FUNCTIONS:

8) PRICING:
Pricing function is an important marketing activity for a business. The pricing decisions should be based
on a number of considerations. Price of goods should be set at a point, which covers all direct and indirect
costs of a business and also yields profit. The reaction of the competitors, the elasticity and inelasticity
of demand for good the discount offered by other manufacturers of the same class, sale made on cash
or credit basis, the policy of the State etc. are to be carefully examined by a seller to survive and prosper.

9) SELLING:
The heart of marketing is selling in the words of Pyle, “Selling comprises of all personal and impersonal
activities finding, securing, and developing a demand for a given product or service and in
communicating the sale of it. With the manifold increase in the volume production of goods, selling of
goods at profitable price is now a problem with the producer. The main elements involved in selling are:
a) Product planning and development
b) Establishing contact with the buyers
c) Creation of demand
d) Negotiations with prospective buyers to settle terms
e) Entering into a contract for the of goods from the seller to the buyer.

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10) TRANSPORTATION:
Transportation is an essential marketing activity. Transportation gives place utility to the product making
it available at the place where it is demanded or consumed. The main modes of transport are:
a) Land transport
b) Water transport
c) Air transport
Transportation has helped a lot in widening of the markets, increasing the movement of capital and labor
facilitating specialization and large scale production, stabilizing prices of the products and providing
employment to the people.

Q6. Discuss in brief the problem before starting a new business. OR

Describe the fundamental considerations in starting a new business.

By establishing a business means to start a new business, before the industrial revolution, the goods
were generally produced for local markets. It was, therefore, easy to establish and operate the business.
The conditions are now entirely changed. Machines produce the goods. The rate the production has
gone up. There is stiff competition for the sale of goods in the market. Goods are produced in anticipation
of demand. The risk is business has increased manifold. The entrepreneur therefore has to be very
careful before undertaking any new business. The main factors or problems, which are to be examined
before establishing a new business, are as follow:

PROBLEMS BEFORE STARTING A NEW BUSINESS

(1) SELECTION OF BUSINESS:
The most important decision before engaging oneself in any business activity is the selection of business.
Once a decision is taken and business is established, it then becomes difficult to change it. So detailed
investigations and utmost care should be taken up in the selection of business.
(2) DEMAND FOR THE PRODUCT:
A business should be taken up on the basis of current demand only. Future trend in demand should be
carefully examined if the demand for a product is irregular, seasonal, and uncertain and the margin of
profit earned by existing firms is very low, it is no use in starting such a business. For examples, a beauty
parlor in fashionable area can do more business than such a parlor in a locality where people of low
income are living.

(3) SIZE OF BUSINESS UNIT:

The size of business unit means the scale of business. The size of business unit depends upon the demand
for the commodity in the market, the availability of resources, technical and organizational ability of the
entrepreneur etc. If the business is carried on a large scale, it brings economics in expenses. However,
determination of the scale of business is an important factor to be considered before establishing a
business.

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(4) ORGANIZATIONAL PROBLEM:
The businessman first has to decide in what form his business is to start. He may decide on sole
proprietorship, partnership, joint stock Company, or cooperative society. His decision will take into
account factors like capital, experience, nature and scope of business and his ability to assume risk.
(5) PROVISION OF CAPITAL:
Capital is the lifeblood of business. Before starting a business, the capital needs of the business are to be
assessed. The capital needs depend upon its fixed and working capital requirements. After considering the
financial requirements, the sources for raising funds for the business should be taken up. In case the full amount
of capital required for establishing and operating business cannot be met from owned capital, (own resources)
then arrangements shall have to be made for the availability of raising of borrowed capital form banks, friends
etc.
(6) LOCATION:
Success of business depends on right location, right product, and at the right time; at the right place are
the ingredients of success. Factors of location to be considered are customer traffic, competition,
nearness to the market, roads, heat, power, light, land and building cost, nature of business, room for
extension and local government policies and incentives.

(7) SELECTION OF PHYSICAL FACILITIES:

The selection of physical facilities depends upon the nature of a new business. In case of a manufacturing
concern, the decision acquiring land, building, machinery, warehouses etc. through purchase, or on rent
basis or on lease are to be carefully undertaken. In case of trading concern, the purchase/hire of shop in
the shopping center, provision and proper display of goods, etc. need proper consideration.

(8) PLAN LAYOUT:

The success of a business particularly manufacturing depends greatly on its plan layout. The plan layout
is the setting up of machines and equipment of the factory. If the plan layout is good, it facilities the flow
of work. There is an effective utilization of men materials and machines.

(9) SELECTION OF STAFF:

A new business has to acquire adequate staff both skilled and unskilled for the operation of a business.
Here care should be taken that rights persons are selected for the right job.

(10) OFFICE EQUIPMENT:

The provision of office equipment, tables, chairs, telephones, calculators, duplicating, air conditioners
machines etc. are essential for a business house. This equipment improves the working and efficiency of
the staff.

(11) FULFILLMENT OF LEGAL REQUIREMENTS:

An entrepreneur before starting a business has to fulfill the conditions and rules enforced by the state,
if any. The non-fulfillment of legal requirement may send him to jail.
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(12) COMPETITION:
Competition refers to a condition when a substantial number of suppliers (e.g. shopkeepers,
manufacturers) exist in the market. Under competition prices are low or competitive, quality is better,
services are in abundance, and the consumer is the king the survival of business relies on high turnover,
proper advertising, carefully devised production and marketing policies. The present business world is
extremely competitive and businessman must know how to beat the competition.

(13) RISK:
Risk must be considered and studied carefully. Risk is an essential factor of every business. Change in
fashion, unfavorable movement of prices, new inventions, competition, consumer demand and taste,
death of a key employee, fire and thrift are all various forms of risks which are permanent phenomena
of business. Figuring out risk correctly reduces the chances of loss and improves profitability.

(14) INFORMATION:
New and old businesses can only survive on latest, relevant, and right information. The businessman
needs to know of the competition, sources of supply, location and income of customers, inventions, and
changes in technology, government policies, and other business information.

CHAPTER # 2

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Forms of business
1) Write any five advantages of Sole proprietorship.
2) Describe the advantages of Partnership form of business.
3) What are kinds of Partners? Describe Sleeping partner.
4) Write down the rights of a partner.
5) Define Partnership Agreement. Enlist any eight of its contents.
6) Under what circumstances the partnerships can be dissolved?
7) What are the characteristics of Joint Stock Company?
8) Write any four advantages of Joint Stock Company.
9) List the advantages and disadvantages of Joint Stock Company.

Which factors should be considered in the selection of the type of a Business Ownership?
Define Joint Stock Company. Describe the procedure of incorporation of a joint stock company.
Define Joint Stock Company. Describe its characteristics.

Q1. What do you understand by sole proprietorship? What are its merits and demerits?
OR
What do you understanding by sole trading concern?
OR
Discuss the advantages and disadvantages of sole trading business. What are the prospects
such a business in Pakistan?

SOLE PROPRIETORSHIP
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Sole proprietorship is a form of business enterprise in which an individual owns the business assumes all
risks and operates the firm for his own personal interest. Sole proprietor here is the sole owner, manage,
controller, financier and risk bearer. He wears many hats, of financial planning, marketing, development,
business strategies, risks etc.

The individual’s runs the business alone through he may obtain the assistance of paid employees. The
sole trader ship is very popular with small-scale business such as tailoring, hair dressing retailers,
accounting, legal profession etc. The sole proprietor forms of business ownership are very popular in
Pakistan. Its prospects here as also quits bright. The main advantages which the solve trader enjoys are
as under:

ADVANTAGES:
(1) EASY TO FORM:
A person can undertake any lawful business activity for profit motive easily. The person has to develop
an idea, set the goals and then develop it into a profitable operation. According to J.L. Lundy, becoming
a sole proprietor is as simple as buying newspapers and selling them in street.

(2) SOLE AUTHORITY:

The sole proprietor has full authority to manage his business, as he likes. He prepares the plan, invests his
money, supervises the business and enjoys the profit. He is the king of his business.

(3) SOLE PROFIT:

The sole trader receives full profits of the business. He also bears the full risks of loss.

(4) FLEXIBLE AND INEXPENSIVE MANAGEMENT:

The full authority rests with the single proprietor in this business. He can make prompt decisions in
carrying out policies, changing the methods of production, redoing or increasing the prices of the
commodities, delegating responsibilities, etc. He can also take quick action for increasing the production
activities of the workers by giving them incentives. The operational expenses are kept at the minimum
(5) CREDIT STANDING:
If the proprietor has a sound goodwill and personal assets. He enjoys an excellent credit rating among
the creditors. He establishes his credit worthiness in the market.

(6) MINIMUM RESTRICTIONS:

As long as the proposed business is legal, anyone can organize it without going through any special
formality.
(7) PROPRIETOR AND PROPRIETORSHIP ARE ONE:
Legally the sole trader and his business are not separate from each other. The proprietor and his business
have one personality. All assets are his assets. Loss in business is his loss. Liabilities of his business are
his liabilities.
(8) SECRECY

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A sole trader, being the organizer he, maintains a high standards of secrecy of profits, in technique of
production, special formula, etc.
(9) POSSIBLE TAX ADVANTAGE:
The sole proprietorship’s profits are taxed as personal income of the owner. Thus a sole proprietorship
does not pay any special super tax or double tax.

(10) DIRECT RELATIONSHIP WITH CUSTOMERS

A sole trader is in close touch with his customers. He knows the taste of his customers and provides them the
necessary goods, which they need. This creates his good will in the market.

DISADVANTAGES OR LIMITATIONS:
There are certain serious disadvantages, which a sole trader has to face in operating this form of
business. These irritations in brief, are as follows:

(1) BURDEN OF UNLIMITED LIABILITY:

The most serious drawback of proprietorship is the burden of unlimited liability. In case the claims of.
The creditors against a business exceed the value of its assets, and then the personal property of the
sole proprietor may be taken to pay the business debts.

(2) DIFFICULTIES OF EXPANSION:

An individual proprietor faces difficulty in expanding the sole trading business. Most of the capital, which
is invested in the business, comes from the personal savings of the proprietor.

(3) LIMITED MANAGERIAL ABILITY:

In managing this type of business, the sole traders have to rely upon his own skill and judgment for
operating the business. Most of the proprietors do not possess all the management skills required for
financing marketing, purchasing, producing, and supervising of the business.

(4) LACK OF CONTINUITY:

The continuity or permanence of a sole proprietorship is normally difficult to maintain. If the proprietor
dies, falls sick, gets imprisonment is disabled and there is no suitable successor to him, the business is
adversely affected. The business may be closed, sold or liquidated.

(5) OPERATIONAL DISADVANTAGES:

As the sole proprietor normally faces difficulty in acquiring capital, he has to face operational problems,
which are not so acute in other forms of business ownership’s.

(6) LOSS IN ABSENCE:

A sole proprietorship has to suffer from the long illness of the proprietor. The business in his absence
comes to a standstill.

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(7) ABSENCE OF SPECIALIZATION:
The sole trader is not in a position to hire the services of experts like qualified accountants, salesman,
etc. The sole trading business, therefore, is deprived of the services of experts.

(8) WEAK BARGAINING POSITION:

The sole trader both as a buyer and seller has weak bargaining position compared to big business units.

(9) UNSUITABLE FOR A DEVELOPING BUSINESS:

When a business grows in size it needs huge capital and qualified personnel this business usually does
not grow to a high level because of limited amount of capital and non-availability of highly qualified
personnel’s.

Q2.Explain in brief the merits and demerits of partnership. OR

Write down the advantages and disadvantages of partnership.

The formation of partnership is easy and simple. It is formed to meet the need for more capital, effective
supervision and control, greater specialization, division of work between proprietors and for spreading
of risk.
The main merits of partnership organization are as follows.

ADVANTAGES:
1) EASY TO FORM:
The partnership, like the sole proprietorship, can be easily organized. There are no complicated legal
formalities involved in the establishment of partnership business.

2) FAVORABLE CREDIT STANDING:

The partnership enjoys a better credit rating in the eyes of creditors. As the liability of each partner in
the organization is unlimited, the financial institution cans loans to the firms.

3) LARGE CAPITAL:
Partnership can bring more capital to the business by the joint efforts of the partners. The partnership
is normally in strong position to raise capital and expand the business.

4) GREATER MANAGEMENT ABILITY:

As there are many partners in the operation of a business the firm can distribute the duties and
responsibilities to each partner for which one qualified and suited.

5) UNION OF BUSINESS ABILITY:

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In case of partnership, the partner mutually consults each other about the lay out, production procedure,
marketing channel, etc. and as a result, a wise course of procedure results.

6) PROFIT INCENTIVE:
The partners as per agreement share the profits. They are encouraged to do more work to earn more
profit. Higher the profits, higher will be the partner’s share.

7) ADVANTAGES OF SECRECY:
If a parents can keep the business secrets to themselves. The firm is not required by law to publish its
profit and loss account and balance.

8) RETENTION OF A SKILL WORKER:

If employee in the partnership business is found to be a man of outstanding talent and ability, he with
the mutual consultations of other partners can be given a status of a partner in the business.

9) SPECULATES PROTECTION TO MINOR:

A death or lunacy of a partner may hot cause dissolution of the partnership. His minor can be admitted
only to the benefits of partner with the consent of other partners.

10) EASY TO DISSOLVE:

The partnership can also be legally dissolved without much difficult by mutual consent of the partners
or in accordance with a contract by the partners. There are no formal documents required to be drawn
up as in the case of a joint stock company.

DISADVANTAGES:
1) UNLIMITED LIABILITY OF PARTNERS:
One of the basic defects of partnership is that the partner is personally and jointly responsible for all the
debts of the firm.

2) LIMITED LIFE:
The duration of the partnership is always uncertain. If any partner dies, injured, withdraws, sells his
interest, or a new partner is admitted into the business, or their arises difference, the partnership may
come.

3) DISPUTES AMONG THE PARTNERS:

The partners should be like minded, have a common objective, be large hearted, have a cool
temperament, should not unnecessarily cause friction and confusion among the partners.

4) POSSIBILITY OF MISUSE OF RESOURCES:

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It is known to each and every partner that the resources of the firm are own jointly. There can and does
arise the misuse of resources by a partner / partners.

6) LOSS OF BUSINESS OPPORTUNITIES:

In case of differences among the partners, a delay may take place in decision-making. This can cause loss
to the firm.

7) DIVIDED CONTROL:
In a partnership, the work of the business is divided among the partners according to their ability, choice
and taste. Divided control and responsibility sometimes creates confusion and delay in making decisions.

8) LACK OF PUBLIC CONFIDENCE:

Partnership form of organization may not enjoy public confidence due to lack of publicity and absence
of regulations.

CONCLUSION:
Partnership form of ownership is suitable where business is of medium size; the partners are of equal
status, ability and resources.

Q3.What is a partnership deed? Discuss its main contents.

PARTNERSHIP AGREEMENT / DEED
Partnership agreement in writing is called partnership deed. Partnership deed is a document which is
signed by all the partners and which contains all the matters determining and governing the mutual
rights, duties and liabilities of the partners in the conduct and management of.

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The importance of partnership deed can be judged from the following facts.
1) It forms the basis of formation of the partnership.
2) It defines the mutual rights, duties and liabilities of the partners.
3) It helps in minimizing the areas of disputes among the partners.
4) It serves as guidepost for the conduct of firms business

CLAUSES OR CONTENTS OF PARTNERSHIP DEED:

1) Name and location of business.
2) The nature of the business.
3) The amount of capital to be contributed by each partner.
4) Provisions of reinvestment in business.
5) The duties, powers and obligations of all the partners.
6) Length or life of business.
7) The method of distribution of profit and sharing of the losses.
8) Method of admitting a new partner.
9) Procedure for withdrawal of a partner.
10) The method of valuation of goodwill on admission or retirement or death of a partner.
11) The method of revaluation of asset or liabilities on admission, retirement or death of a
partner.
12) Procedure to be followed for expulsion of a partner.
13) Arrangements to be followed in case a partner becomes insolvent.
14) Salary, if any, payable to the partner for managing the firm.
15) The method of preparing accounts and arrangement for audit.
16) Procedure for dissolution of the firm and settlement of accounts.
17) Arbitration in case of disputes among partners.
18) Operation of bank account.

Q4. Discuss the various kinds of partners in a partnership firm.

KINDS OF PARTNERS:
The partner of a firm is broadly divided into three main categories:
1) General partners
2) Special partners
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3) Other partners

1) GENERAL PARTNERS:
Basically all the partners of a firm are general partners. General partners are those whose liability is
unlimited in the firm. General partners are of two types: (a) Active partner, and (b) Sleeping partner.

a) ACTIVE PARTNER: A partner who takes active part in the day-to-day management of the business
is called an active partner. An active partner (also called working partner) may work in different
capacities such as manager, organizer, adviser, controller of all the affairs of the firm.

b) SLEEPING/SILENT PARTNERS: A sleeping partner is one who contributes capital, shares profits
and losses of the firm but takes no pat in the day-to-day management of the affairs of the firm.

2) SPECIAL / LIMITED PARTNERS:

Special partners are partner whose liability is limited to the extent of their capital contributed in the firm.

3) OTHER PARTNERS:
The other types of partners sometimes found in a firm are as follows:

a) SECRET PARTNER: A partner who active part in the affairs of a business but is not known to the
public as a partner is called “Secret partner”.

b) NOMINAL PARTNER: A nominal partner lends his name for the goodwill and credit worthiness to
the firm. He neither contributes capital nor takes active part in the management of business. Such
partner is called nominal partners. Nominal partner are liable for the debts of the firm.

c) MINOR PARTNER: Partnership is a contract and a contract with minor is void. Under Section 30
of Partnership Act, a minor is not able to enter into a contract and so he cannot become a partner of
firm.
d) PARTNER AT WILL: This type of partner will continue so long the partners have mutual faith, trust
and confidence among them.

e) PARTNERS IN PROFIT ONLY: If partner is entitled to receive certain share of profit and is not held
liable for the losses, he is known as partner in profit only. He is not allowed to take part in the
management of the business
Q5. Describe in brief the rights, duties and obligation of partners in the absence of partnership
agreement.

In the absence of a written partnership agreement, the Partnership Act shall govern the mutual rights
and duties of partners, which are as follows:

DUTIES OF A PARTNER:
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a) COMMON ADVANTAGE: Partners are bound to carry on the business of the firm to the greatest
common advantage, to be just and faithful to each other and to render the true accounts and full
information of all the things affecting in the firm to any partner or his legal representative.

b) INDEMNITY: Every partner shall compensate the firm for any loss caused to it by his fraud in the
conduct of the business of the firm.

c) LOSS CAUSE BY WILLFUL NEGLECT: The Act provides that a partner shall indemnify the firm for
any loss caused to it by his willful, neglect in the conduct of the business of the firm.

d) DUE DILIGENCE: Every partner shall attend honestly and carefully to his duties in the conduct of
business.

e) PROVISION OF INFORMATION: It is the duty of the partner to give full information about the
affairs of the firm to one another.

RIGHTS OF A PARTNER:
According to Section 12 and 13 of the Partnership Act. The rights of a partner are as follows:

a) RIGHT TO TAKE PART IN THE MANAGEMENT: A partner has a right to take part in the
management of a business subject to the agreement.

b) EXPRESSION OF OPINION: A partner has a right to express his opinion before the matter is
decided, but no change may be made in the nature of a business without the consent of all the partners.

c) INSPECTION OF BOOKS: A partner has a right to inspect and copy any of the books of the firm.

d) RIGHT TO BE INDEMNIFIED: A partner has the right to compensated by the firm in respect of
expenses incurred by him or any losses suffered by him in the conduct of his business.

e) RIGHT TO CONTINUE: A partner has the right to continue in the business unless he is expelled
according to the provisions of deed and in good faith.

f) USE OF PROPERTY: The partner has the right to see and ensure that the property of the firm is
held and used exclusively for the purpose of the business.

g) SHARING OF PROFIT AND LOSS: Every partner shall have an equal share in profits and loss in a
business, unless otherwise mentioned in partnership.

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DISSOLUTION OF A PARTNERSHIP:
Dissolution of partnership is the end of partnership only. If one partner of a firm dies, retires or adjudged
insolvent (unable to pay debt), the remaining. Partners may agree to continue the firm under the same
name. The remaining partners may purchase the shares of the outgoing or deceased partner by signing
a fresh agreement. The firm can continue its business. We thus conclude by saying that dissolution of
partnership may or may not include the dissolution of the firm. Includes the dissolution of partnership.

CONDITIONS/CIRCUMSTANCES OF DISSOLUTION:
a) Admission of partner
b) Retirement of partner
c) Insolvency of partner
d) Insanity of partner
e) Expiry of period
f) Death of partner
g) End of venture

Q6. What is a joint stock company? Discuss its characteristics.

JOINT STOCK COMPANY

A joint stock company is a voluntary association formed by people to carry on a certain business for
profit. People contribute their capital in the form of shares in the company. Company works in its own
name under a common seal. It has separate entity from its members. A joint stock company has been
defined in a number of ways.

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In the words at Prof. L.H. Haney, “Company is an artificial person created by law having separate entity
with a perpetual succession and common seal.”

CHARACTERISTICS
The analysis of the various definitions of a company brings out the following characteristics:

1. VOLUNTARY ASSOCIATION OF PERSONS:

A company is a voluntary association of persons joining hands with a common motive. For the formation
of a private company, there must be at least two members and the maximum limits fifty. In a public
company, minimum number of members is seven and there is no restriction over its maximum number.

2. AN ARTIFICIAL PERSONS:
A company is called an artificial person.. It is a person created by law. The company being an artificial
person has many of the rights of nature person. For example it can sue or be sued in its name.

3. SEPARATE LEGAL ENTITY:

A company which is itself a person, has separate legal entity from its share-holder. This means that the
shareholder of the company cannot be sued for the debts taken by the company.

4. LIMITED LIABILITY:
This is the most Important characteristic of the company. The liability of each shareholder of the
company is limited up to the value of the share purchased by him. In case of loss to the company, a
shareholder cannot be called upon to pay more than the value of the shares held by him.

5. SEPARATION OF OWNERSHIP FROM MANAGEMENT:

The shareholders, elect board of directors in its annual general meeting and entrust the management of
the company to them. The ownership and management of the company are thus in two separate hands.

6. TRANSFERABILITY OF SHARES:
The shares of a company are transferable. The shareholders of a company have full freedom to transfer
their shares to any one without consulting other shareholders.

The advantages and disadvantages of a company.

ADVANTAGES:
1) GREATER PERMANENCY:

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The life of a joint stock company compared to the partnership is very stable. If the business remains well
managed, it can live on indefinitely. The life of a company is not affected by the death, disability,
insolvency or disagreement of shareholders.
2) LIMITED LIABILITY:
In a joint stock company, all the shareholders have a limited liability. In case of loss to the company, the
liability of the shareholders is limited to the amounts, they have interested in the company.
3) EASY TO TRANSFER OWNERSHIP:
One of the basic features of Joint Stock Company is that the shareholders can transfer the ownership of
shares to the interested parties through the share brokers.
4) ATTRACTION OF HUGE CAPITAL:
The joint stock companies divided the share capital into shares of small denominations in order to attract
capital from large number of investors of starting big business and industrial enterprises.
5) MANAGEMENT FUNCTIONS:
In a joint stock company, the management activities are divided according to functions. The company
employs ‘specialist’ in each department to do specific type of work, of purchase, sale, manufacturing,
finance, etc.
6) RECOGNIZED LEGAL ENTITY:
The joint stock company is incorporated under the Companies Ordinance. In all legal matters, therefore,
it is dealt with as an individual person. The company can either into contracts, borrow money, open
banking account in its name. It can sue or be sued, hold, deal and dispose of property in its own name.
7) HIGHER PROFITS:
Due to availability of large capital, the company installs expensive and up-to-date machinery. There is
thus greater production of goods. The cost is reduced and the firm can earn higher profits by producing
better quality of goods.
8) BENEFITS OF LARGE-SCALE PRODUCTION:
The company due to the increase in the size of business enjoys all the economics of large-scale
production.

DISADVANTAGES:
There is no doubt that Joint Stock Company enjoys certain distinct advantages of limited liability, greater
permanence etc. but there are also certain abuses draw backs which are associated with the joint stock
company. They, in brief are as follows:
1) FORMATION OF A COMPANY COMPLICATED:

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The formation of a joint stock company is much more complicated than sole proprietorship. There are
many legal formalities, which are to be observed which consume a greater amount of time, energy and
the money also.
2) DOUBLE TAXATION:
The joint stock company is subjected to doubt taxation. It pays on its earnings to the government. The
tax is also paid by the shareholders on the receipt of divided from the company
3) EXPLOITATION OF SHAREHOLDER:
The shareholders of a company mostly remain unknown to one another. The concentration of control in
a few hands can and often leads to exploitation of the shareholders. If the company is suffering losses,
they sell their shares and shift the burden to the new shareholders.
4) SEPARATION OF OWNERSHIP FROM CONTROL:
In a joint stock company, the shareholders who are real investors are not allowed to take part in the
operations of the business. There is thus a separation of ownership from control. The directors in
collaboration with the managers often exploit the helpless shareholders.
5) PROMOTION OF FRAUDS:
The joint stock company is incorporated by taking definite legal steps. If the promoters are dishonest
and want to exploit the scattered shareholders, they give a very rosy picture of high profits in the
prospectus.
6) STOCK EXCHANGE SPECULATION:
The joint stock company facilitates speculation in shares at stock exchanges. The reckless speculation is
harmful to the interest of the shareholders and for sound investment.
7) LACK OF SECRECY:
In a joint stock company, the management has to make an annual report, regarding sales, net profits,
assets, liabilities, etc. of the company.
8) IMPERSONAL RELATIONSHIP:
As the size of business run by the company is expanding day-by-day, feeling of separation between the
employers and the employees is widening. The company is thus, considered soulless and cold-blooded.

Q7. How many basic Legal Documents Issued by a Company?

OR
Define Memorandum of Association and what are its main clauses?
OR
Define Articles of Association and what are its main contents?

BASIC LEGAL DOCUMENTS ISSUED BY A COMPANY

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There are three basic legal documents of a company.
 Memorandum of Association
 Articles of Association
 Prospectus

All the above three documents are now discussed under separate heads.

I - MEMORANDUM OF ASSOCIATION:
Memorandum of Association is the basic document of a joint stock company. It is known as the Charter
of the Company. It sets out the limits outside which the company cannot go. Its main purpose is to enable
shareholders, creditors and all those who deal with the company to know what is its permitted range of
enterprise. The main clauses of the memorandum of association of a company limited by shares have
been described in Sections 16, 17 and 18 of the Companies Ordinance as under:

CLAUSES OF MEMORANDUM:

1. NAME CLAUSE:
This clause states the name of the company. A company may select any name but it should not resemble
the name of any other company. It should also not contain the words like king, queen, emperor,
government bodies, UNO, WHO etc. The name should not be objectionable in the opinion of the
government. The Companies Ordinance provides that the name of company must end with the world
‘Limited’

2. SITUATION CLAUSE:
It is also known as domicile clause. The company is required to state the name of the province in which
the office is situated. It is also necessary to give the exact address and name of the city where the
company is located.

3. OBJECT CLAUSE:
This clause is the essence of the Memorandum. It clearly defines the sphere of the company’s activities.
It indicates a series of objects for which the company is started. Any business activity carried outside the
territories specified in the object clause of memorandum is ultra-virus and void.

4. LIABILITY CLAUSE:
This clause of Memorandum contains a declaration that the liability of the members of the company is
limited to the extent of the value of shares purchased by them.

5. CAPITAL CLAUSE:
A company having a share capital shall state the total maximum amount of share capital with which it is
registered. The capital as mentioned is called Authorized or Registered Capital.

6. ASSOCIATION AND SUBSCRIPTION CLAUSE:

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This clause contains a declaration by the subscribers (7 persons in public company and 2 in a private Ltd.
Company) that they are desirous of forming a company and agree to have number of shares written
against their respective names.

ALTERATION OF MEMORANDUM:
Any clause in the Memorandum may be altered by following the conditions laid down in the Companies
Ordinance. The procedure for each clause varies.

II - ARTICLES OF ASSOCIATION:
Meaning: Articles of association is a legal document second in importance to memorandum of
association. The articles of association are the regulations or by laws which govern the internal
organization and conduct of a company. In other words, it is concerned with the procedural matters in
the routine conduct of the affairs of the company.

The articles of association describe the powers of the directors, other officers and of the shareholders
as to voting etc.

CONTENTS OF ARTICLES:
The main contents of the articles of association are as under:
 Amount of share capital issued, transmission of shares.
 Rights of shareholder regarding voting, dividend, and return of capital.
 Rules regarding issue of shares and debentures.
 Procedure as well as regulations in respect of making calls on shares.
 Manner of transfer of shares.
 Rules regarding appointment of directors, managing directors., agents secretaries
And treasures.
 Number, qualifications, remuneration, powers and liabilities of directors.
 Declaration of dividends.
 Convening and conduct of meetings with reference to notice, quorum, poll, proxy,
resolutions etc.
 Rules regarding the forfeiture and surrender of shares.
 Matters relating to account and audit.
 Rules regarding the winding up of the company.

ALTERNATION OF ARTICLES:
According to Section 28 of the Companies Ordinance a company may alter or add to its articles by special
resolution. The alternation made in the articles should not conflict with the Memorandum.

The articles of association should be printed, divided into paragraphs and serially numbered. All the
persons who have put their signatures, names, addresses etc. on the articles of association also.

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III - PROSPECTUS:
After the receipt of Certificate of Incorporation from the Registrar of Companies, the promoters of a
public company invite the public and financial institutions to subscribe to the capital of the company.
This notice, advertisement or other document inviting offers for the subscription to the share capital of
the company is called prospectus. Only public companies can issue a prospectus. The objects of issuing
prospectus are fourfold.
i. To bring to the notice of the public that a new company has been formed.
ii. To convince those who have saving to invest about the genuineness of the company and its
future prospects.
iii. To keep an authenticated record of the conditions on which the capital has been raised.
iv. To secure that the directors of the company accept responsibility for the statements in the
prospectus.

1) CONTENTS OF PROSPECTUS:
In contents, the detailed description regarding the establishment of the company, its characteristics and
its estimated future is given. The important matters included in the prospectus are as follows:
2) SHARE CAPITAL:
Under this head, information is provided regarding:

i. Share capital of the company. (a) Authorized (b) Issued subscribed and paid up capital (c)
Present issues offered for subscription.
ii. Basis of allotment of shares.
iii. Facilities available to non-resident Pakistanis for purchase of shares etc.

3) COMMISSION, BROKERAGE AND TAX EXEMPTIONS:

This part contains the following information:

i. Commission to be paid to the bankers to the issue.

ii. Brokerage.
iii. Tax exemption on investment on the shares of the company

Q8. What are the difference between proprietorship and other forms of business organizations?
SOLE PROPRIETORSHIP PARTNERSHIP JOINT STOCK COMPANY
1. Formation: Partnership is mostly formed by A joint stock company can be
Sole proprietorship is a written agreement among the formed by fulfilling the
formed with greatest ease partners (minimum 2, maximum conditions of (1) Promotion
and minimum cost as no 20) for carrying on a lawful and (2) Incorporation (3)
state, charter, legal economic activity. The rights Commencement as laid down
duties and obligations of under the Companies

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agreement or other red tape partners are clearly mentioned in Ordinance. The legal
is involved in it. the Partnership Act. Partnership procedure is complicated.
is generally registered.

Partnership is financially
stronger than sole A joint stock company raises a
2. Financing: proprietorship. The partners specified amount of capital by
Sole trading business is generally contribute capital in issuing of ordinary paid up
mostly financed from the varying proportions. They can shares. It also obtains loans
saving of the proprietor secure loans from banks and from financial institutions.
called owned capital. Capital other financial institutions.
can also be procured from
friends relatives and banks.

The liability of each partner The liability of the shareholder

3. Members liability: (unless limited by agreement) is is limited only to the value of
The liability of the sole unlimited. The partners in the the shares held by him. The
proprietor is unlimited. The business, regardless of the size of shareholders thus in a joint
business assets as well as their investment are liable for stock company have a limited
the private property of the the firm individually as well as liability.
owner may be used to pay jointly.
off the obligations of the
business.
The shareholders who are the
4. Control: The control in the partnership is owners usually exercise
The sole proprietor is his shared. All major decisions are indirect control over the affairs
own boss. He has full taken with the unanimous of the company. The boards of
freedom in making business consent of all the partners. directors who are elected by
decisions in this form of shareholders make basic
organization. decisions.

The shareholders elect the

5. Management: In a partnership, the managerial board of directors and entrust
The sole trader relies upon functions are shared among the the management of company
his own skill and judgment partners according to their to them. The board of directors
foe managing the affairs of talents, skill and ability. Division appoint experts and make
the business. He is not to of duties thus helps in building them in charge of production,
consult any partner or board up a more efficient organization. marketing, finance accounting,
of directors. He himself is an research etc.
active manager in this form
of ownership.

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6. Taxation: Many tax incentives and tax
The proprietor is taxed as an If a firm is registered with the holidays for industries are
individual unit. No Income Tax Authority, the profit available only to companies.
difference is made between of the firm will be divided among The company is subject to
the personal and business partners. Each partner will be double taxation.
income of the proprietor. assessed to Income Tax
separately.
7. Dissolution:
The sole proprietor has full A joint stock company is an
freedom in making business The partnership will run artificial being. It life is
decisions. If he does not find smoothly so long the partners perpetual unless dissolved
the sole trade business have mutual respect of one according to the law. The
profitable it will be wound another. If partners lose company can be dissolved (1)
up quickly. confidence and begin to mistrust by court order (2) by approval
the co-partners it will soon come of the owners of majority of
to an end. Partnership may also shares (3) by the expiration of
be dissolved, if any one of the the corporate charter (4) by
partner dies retires or becomes the state for misuse and
insolvent. nonuse of its powers.

Q9. What is winding up of a company? Discuss the various methods of winding up company?
WINDING OF A JOINT STOCK COMPANY
By winding up of a company is meant the end of the life of a company. It is the permanent closing down
of its business. A company is the creature of law. It therefore, cannot die a natural death. The termination
of its existence is affected by law. Thus winding up of the company is a legal procedure in which all the
affairs of the company are wound up. Its assets and liabilities are determined assets are sold out and
claims of the creditors met out of sale proceeds. The balance if any is distributed among shareholders in
proportion of their shareholdings. This work is done by the liquidator:
METHODS OR MODES OF WINDING UP:
According to the Companies Ordinance, 1984 a company can be wound up in the following three ways.
→ Winding up by court.
→ Voluntary winding up.

1) WINDING UP BY COURT:
The main grounds for winding up by the court are as under:
i) By special resolution:
A special resolution has been passed by the company to be wound up by the court.
ii) Default in delivering statutory report:
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A public company is wound up on the ground that it has not held (a) statutory meeting and submitted
statutory report to the registrar or has not held two consecutive annual general meetings.
iii) Delay in commencement of business is another ground:
If a public company does not commence business within one year of the date of its incorporation or
suspends business for a whole year, the court may order its winding up.
iv) Members reduced below minimum:
A public company may be wound up if its members are reduced below seven. (Less than two in case of
private company Ltd).
2) VOLUNTARY WINDING UP OF A COMPANY:
The voluntary winding up of the company is of two kinds:
→ Members voluntary winding up.
→ Creditors voluntary winding up.

a) Member voluntary winding up:

In case of members voluntary winding up, the directors declare in the meeting of shareholders that the
company is fit for liquidation. The company is solvent. The meeting then passes a resolution for voluntary
winding up and appoint liquidator themselves. The voluntary winding up of the company by the
members themselves may take place under the following circumstances
i) Expiry of period:
If the period fixed for the duration of the company in the articles has expired, the company may be
wound up voluntarily by passing a resolution in the general meeting.
ii) By special resolution:
If the company resolves by a special resolution that the company be wound up, the company then will
be put to an end.
iii) Declaration of solvency:
If the majority of directors in a special board meeting resolve to wind up the company and submit a
statutory declaration verified by the company’s auditor to the registrar of the joint stock company a) has
no debts b) is able to pay its debts in full within a period not exceeding one year from the commencement
of winding up.

iv) Appointment of liquidators:

The company in general meeting of the shareholders shall point one or more liquidators for the purpose
of winding up the affairs and disturbing the assets of the company. The shareholders fix the
remuneration to be paid to the liquidator. On the appointment of liquidator, all powers of the directors

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and other officers of the company shall cease, except so for as the company in general meeting or the
liquidator sanctions the powers to remain with them.

v) Final meeting and dissolution:

When the affairs of the company are finally wound up the liquidator shall call a general meeting of the
shareholders and place before them the full accounts of the company and send its copy to the registrar
within one week of the meeting. The company shall be dissolved on the expiration of three months on
the receipt of the copy of account and other relevant documents from the liquidator.

b) Creditors Voluntary Winding up:

A winding up in the case of which a declaration of solvency has not been delivered to the registrar is
known as Creditors voluntary winding up. The company calls a meeting of its creditors and appoints a
liquidator. When liquidation is complete, the liquidator calls the final meeting of the company and the
creditors and places before them the full account. A copy of his report is also sent to the registrar. The
registrar on receiving the accounts and other documents takes the action of dissolution of company as
laid down in the Companies Ordinance.

CHAPTER # 3

Channels Of Distribution
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1) State the channels of Distribution.
2) Enlist the kinds of retailing. Explain chain stores.
3) State the services of Retailer to Consumers.
4) State the services of Wholesaler to Retailer.
5) State the services of wholesaler to the manufacturer.
6) Write about Public Warehouses and Private Warehouses.
7) Enlist the advantages of Warehousing. Explain any one.

Define middlemen. How can they be classified in different kinds?

Q1. Discuss the typical channel of distribution used in the marketing.

CHANNELS OF DISTRIBUTION:
The channel of distribution is the route or the path taken by a product as it moves from producer to
consumer. This channel or the route, which connects the producer with the consumer in the transfer of
ownership of a product, may be direct or indirect. A channel of distribution is called direct when the
manufacturer supplies the goods directly to the ultimate consumer and uses no intermediaries. Here the
marketing functions are carried out by the manufacturer or producer himself.

Direct channel: (No middleman involved.)

Indirect channel: Exclusive distributive channels (only one retailer sells the goods).

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1) DIRECT CHANNEL FROM PRODUCER TO CONSUMER:
The direct channel is constituted where the manufacturer or the producer supplies goods directly to the
consumers. The manufacturer in one stage channel performs all the marketing functions himself. No
middleman is involved.
In the direct channel of distribution, the manufacturer attempts to reach the consumers through his (1)
Own retail stores, (2) House to house selling, (3) By mail and (4) By sales from the factory door.

2) INDIRECT CHANNEL:
Exclusive Distributive Channel Marketing of goods first to retailer who in turn sell it to consumers is a
favorite method with most of the manufacturers of consumer goods such as clothes, machinery’s,
automobiles, furniture’s etc. The reasons for selecting this channel of distribution are (1) Better control
on the supply of goods. (2) Speedy disposal of products. (3) Lesser expenses on selling. (4) Better training
of sales people and (5) Rapid feedback.

Q2. What is mean by wholesaling & wholesaler?

WHOLESALER:
The word ‘Wholesaler’ has been derived from the word ‘Wholesale’, which means to sell goods in bulk
or in relatively large quantities. According to S.E. Thomas: “A wholesaler is a trader who purchases goods
in large quantities from manufacturers and resells them to retailers is small quantities.”
WHOLESALING:
Wholesaling is a marketing activity by which goods in bulk quantities are sold to retailer.

Q3.Explain the services (advantages) of wholesaler to

(a) Manufacturers (b) Retailers (c) Society

CHARACTERISTICS of Wholesaler:
The main characteristics of wholesaler are,
1) He buys and sells goods in bulk quantities.
2) He deals only in a few types of products.
3) He acts as a middleman between the producers and retailers.
4) He usually makes cash purchases and sells goods on credit to the retailers.
5) He does not sell goods to the consumers.
6) He operates in specific area determined by producers.
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SERVICES (ADVANTAGES) TO THE PRODUCERS:

1) CONCENTRATION OR PRODUCTION:
The wholesalers provide full opportunity to the producers to concentrate on production activities. The
producers need not have sale organizations. The supply of goods in small quantities is taken over by the
wholesalers.

2) FACILITATES LARGE SCALE:

The wholesalers buy goods in large quantities from the producers. This facilitates the producers to
produce goods in large quantities and avail of the economies of large scale production.

3) INFORMATION ABOUT CONSUMERS’ BEHAVIOUR:

The wholesalers provide valuable information to the producers about the consumer’s behavior to the
goods in the market, the changes in tastes and fashions and also the latest demands of the consumers.

4) REGULATION OF PRODUCTION:
The wholesaler normally place orders for the purchase of goods well in advance to the producers of
goods. This helps the producers to plan and regulate their production as to how much and which quality,
the goods are to be produced.

5) RELIEVING PRODUCERS FROM KEEPING STOCKS:

The wholesalers normally make forward dealing about the supply goods with the producers. The
producers are thus relieved of keeping the stocks and also the worry of sale of goods.

6) FINANCIAL ASSISTANCE:
The wholesalers may make advance payments to the producers for the purchase of goods. They also
provide soft term (at low rate of interest) loans to the producers.

SERVICES TO RETAILERS:
1) RELIEF FROM KEEPING HUGE STOCK:
The retailers can buy goods in small quantities from the wholesalers. They are thus saved of keeping
large stocks with themselves.

2) FINANCIAL HELP:
The wholesalers provide financial assistance to the retailers by selling goods on credit to them.

3) NOT AFFECTED BY PRICE FLUCTUATIONS:

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The retailers buy goods in small quantity from the wholesalers. They are, therefore, not affected by price
fluctuations of goods in the market.

4) PROVISION OF INFORMATION:
The wholesalers provide full information to retailers regarding the type, quality and price of goods.

5) INFORMATION ABOUT NEW PRODUCTS:

The wholesalers provide full information to the retailers about the new products through salesman or
price lists etc.

6) TRANSPORTATION FACILITIES:
The wholesalers help retailers to take advantage of transporting goods from the wholesalers go down to
retailer’s shop.
7) TRADE DISCOUNT:
The wholesalers give trade discount on purchase of goods to the retailers.

8) BENEFIT OF SPECIALIZATION:
The wholesalers provide the benefit of specialization to retailers.
Q4. What are the retailers & its characteristics? And; explain the services (advantages) of retailer
to;
(a) Wholesaler (b) Consumer

Retailer:
Retail means to ‘cut off’ a small price i.e., to sell in small quantities rather than in bulk. According to
Carrod, “The retailer is one who buys relatively in small quantities and sells them in still small quantities
to the people.” Retailing thus includes all the activities related to the sale of goods and services for final
consumption.
Characteristics:
1) The retailer acts as a link between the wholesaler or the manufacturers and the consumers.
2) He usually purchase goods in bulk from the wholesalers and sells them to final consumers.
3) A retailer maintainers a personal contact with his customers.
4) A retailer does not deal in special goods but deals in variety of goods.
5) A retailer sells good on credit to his trusted customers.
6) A retailer makes sufficient shop display to attract the customers.
7) He is the last link in the chain of middleman.

Services of Retailers:
In the chain of distribution of goods, the retailers are vital link between the wholesalers or manufacturers
and the consumers. The services of retailers to the wholesalers are described in brief:
A) SERVICES TO THE WHOLESALERS:
1) Retailers provide the wholesaler’s access to market their products to final consumers.
2) The wholesalers are relieved of selling goods in small quantity to the consumers.
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3) Retailers supply valuable and reliable information to wholesalers about the consumers demand
for goods and also the change occurring in the customers tastes, fashions etc.
4) The retailers increase the sale of goods by keeping close contact with the customers. This helps
the manufacturers to increase their production.

b) Services to consumers:
1) The retailers hold stock of goods for immediate sale to the consumers. The consumers, thus, are
not required to keep stock of goods with themselves at homes.
2) The retailers provide consumers with a wide variety of choice goods displayed at their shops.
3) Retailers make available to their customers goods of the sizes, styles, types, qualities and prices
they prefer.
4) Retailers supply fresh goods to the customers.
5) Retailer’s behavior with the customers is very polite and accommodating.
6) Many retailers offer free home delivery of goods purchased by their customers.
7) Retailers also supply information and give correct advice about the product to their
customers.
8) Retailers also give credit facilities to their trusted consumers.

Q5. What are the kinds of Retailing?

KINDS OF RETAILING:
The following are the types of retailing:
 Supermarket
 Department store
 Mail order house
 Chain store
 Discount house
 Utility store
 Single product store

CHAPTER # 4

FOREIGN TRADE
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&
EXPORT PROMOTION BUREAU

1) Differentiate between Foreign Trade and Domestic Trade.

2) Name the documents used in exporting goods.
3) Describe any five services to exporters provided by the export promotion bureau.

What role is played by Export Promotion Bureau in promoting exports? Describe its functions.

Explain the procedure of Export Trade. Enlist the documents used to import Trade.

Describe the procedure of importing goods from foreign country.

Q1. What is foreign trade? How it is different from home trade?

MEANING OF TRADE:
The word trade implies an exchange of goods and services for money or for other goods and services. If
an exchange of goods or business is conducted by the citizens within a country, it is called domestic or
home trade. In case the goods and services are exported to a foreign country or imported from abroad,
it is named as foreign trade. Foreign trade, in other words, is a business on an international scale. It is
conducted by the citizens, companies and the governments of the nations of the world. Foreign trade is
carried on in bulk and on wholesale basis. It consists of exports of goods and imports of goods from
abroad.

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DIFFERENCE BETWEEN DOMESTIC TRADE AND FOREIGN TRADE

Trade, no doubt, implies exchange of goods between persons, but there are marked differences between
domestic trade and international trade. The differences and the complications arise therein are in brief
are as follows:

1) DISTANCE:
The distance involved in the export of goods in external trade is generally greater than on the domestic
trade.

2) LANGUAGE DIFFERENCES:
There are differences in the languages of the nations of the world. The overseas traders should be very
careful in preparing the publicity material in the language of the trading country. This difficulty is not
faced to the same extent within the country.

3) CULTURAL DIFFERENCES:
A producer should have full knowledge about the market of his products. For exporting goods
particularly a thorough research is undertaken for finding out the habits, tastes and the reaction of the
customers to the products of foreign countries. Within the borders of a country, there are, however, not
wide differences in culture.

4) TECHNICAL DIFFERENCE:
In the national market the difference in the technical specification for goods and their requirements is
not wide. However, an exporter has to sell the goods strictly according to the technical specifications for
goods of each country.

5) TARIFF BARRIERS:
In the national trade, there are no custom duties, exchange restrictions, fixed quotas or other tariff
barriers. The overseas trader faces all such restrictions on trade.
6) DOCUMENTATION:
In the home trade, there are a few documents involved in the exchange of goods. The exporter, on the
other hand, is confronted with complicated documentation, some required under law and some under
customs of trade.

7) PAYMENTS:
In the internal trade, the goods are exchanged in the currency unit of the country. In case of foreign
trade, currencies differ widely throughout the world and those also vary in value. Payment of foreign
currency and its conversion in local currency poses an additional problem to the exporter.

8) TRANSPORT AND INSURANCE COSTS:

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The transport and insurance costs are less in case of domestic trade. For the exports, on the other hand
the costs of transport are high the insurance is complicated.

Q2. Explain the procedure, involved in the export of goods.

PROCEDURE INVOLVED IN EXPORTING OF GOODS:

The procedure involved in exporting of goods varies from country to country. However, the procedure
followed in exporting goods from Pakistan is as under:

1) ENQUIRY:
An exporter may receive an enquiry from overseas buyers regarding price and other terms on which the
goods can be supplied to them. The exporter sends the quotations giving full details about price of the
goods, insurance, freight, handling charges, packing, currency acceptable in the country etc. to the
overseas prospective buyers.
2) ORDER:
The first step in export is to receive an order or indent for the goods from the prospective importer.
Living abroad. Indent is an order of an importer to an exporter to supply the goods. The order contains
full information of goods required as quantity, quality, price, insurance, packing etc. of goods.
3) OBTAINING LICENSE:
An exporter is required to obtain export license for goods, which are to be exported from the concerned
authority. The goods, which have no export control, can be freely exported.
4) COMPLIANCE WITH EXCHANGE REGULATIONS:
Before exporting goods, an exporter gives an undertaking to State Bank of Pakistan that the value of the
exported goods in foreign exchange will be surrendered to the State Bank of Pakistan within a specified
period.
5) OBTAINING LETTER OF CREDIT (L/C):
As soon as the confirmed indent is received from the buyer, the exporter would demand a letter of credit
from the foreign buyer. A letter of credit is demanded by the exporter for safeguarding his economic
interest.

6) PACKING AND FORWARDING:

On receiving order the exporter has to arrange goods for exporting. The goods should be carefully packed
and must contain maximum quantity in the minimum space.

7) INVOICE:
An exporter after meeting all the formalities prepares the invoice. The invoice is prepared according to
the terms and conditions of sale. It contains details such as the name of the ship designation of ship,
price of the goods etc.

8) SHIPMENT OF GOODS:
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The exporter sends the packed goods to the dock/airport to the custom authorities for necessary
scrutiny. The custom authorities after necessary checkup issue custom export pass.

9) BILL OF LADING:
Bill of lading is the most important document in international trade. Bill of lading is an acknowledgement
of the receipt of goods on ship by the master of the ship. Bill of lading contains the name of the ship,
place of loading, place of destination, name of consignee, description of goods, date freight etc. being a
title of goods, it can be transferred by endorsement in favor of any other person. Airway Bill, is an
equivalent to bill of lading for goods sent by air.

10) INSURANCE:
The exporter in order to safeguard the goods insures them on board. The insurance policy is sent to the
importer along with other documents.

11) INFORMATION TO THE IMPORTER:

The exporter will send all the documents about the goods to the importer. He will also inform about the
date of reaching the ship at the port of destination.

12) SECURING PAYMENT:

The exporter gets payment of the goods sold to the importer by two main methods (a) If a letter of credit
has been obtained then the payment is received by drawing a bill of exchange or draft on the bank which
has issued the L/C. (b) The other method is get the payment by drawing a documentary bill of exchange
on the importer.

13) SATISFACTORY RECEIPT OF GOODS:

If the importer is satisfied about the goods received, he will send a satisfactory report to the exporter.
The transaction between the two is then considered closed. If there is any complaint about the shortage
or quality of goods, it is then settled through correspondence or mutual agreement.

Q3. What are the main stages involved in the import trade?

IMPORT PROCEDURE:

INTRODUCTION:
The importers like exporters also face a number of problems. The problems of language difference,
cultural differences, technical differences in standardization of goods, tariff barriers, custom regulations,

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documentation, payments, insurance etc. arise more acutely in the import of goods. The reason is that
the imports are more strictly controlled than exports of goods by the Govt. of a country.

1) REGISTRATION:
Any Pakistani person, firm or a company, desirous of importing goods from abroad must get its name
registered with the Chief Controller of Imports and Exports (CCI&E). On obtaining a certificate of
Registration, the importer is entitled to avail of the facilities declared from time to time under import
policies.

2) IMPORT LICENSE:
A registered importer for obtaining an import license has to apply on a prescribed form to the licensing
authority through his bank. The bank after scrutinizing the papers would submit them to the Chief
Controller of Imports and Exports. The CCI&E after necessary check and verification would issue the
license and have it registered with the safe State Bank of Pakistan also. The goods which are placed under
free list do not require any license.

3) ORDER:
An importer after obtaining an import license and quotations places an order (Indent) for the goods to
the overseas exporter. The indent may be placed directly to the exporter or through specialized
intermediaries called “indent houses”.

4) FOREIGN EXCHANGE:
The Exchange Control Department of State Bank of Pakistan on proper verification of the import
documents sanctions the release of a certain amount of the desired currency to the importer through
his bank.

5) OPENING CREDIT:
On acquiring sanction of foreign exchange from the State Bank of Pakistan, an importer makes
arrangements for the payment of goods to the overseas exporter. The payment is generally made
through a letter of credit (L/C). The letter of credit can be revocable or irrevocable. If the L/C is revocable,
it is liable to cancellation by the importer. In case the L/C is irrevocable, it cannot be cancelled by the
importer. An importer can also make payment to the exporter on acceptance of the bill of exchange
drawn by the exporter. The importer bank presents the documentary bill to the drawer (importer) and
delivers documents of goods to him on receipt of full payment.

6) ADVICE OF SHIPMENT:
An importer has to wait for the receipt of advice note from the exporter. The advice note is sent by the
exporter to the importer just after the shipment of goods. The advice note contains the date of shipment
of goods and the probable date of the arrival of ship at the destination.
7) PAYMENT OF THE BILL:
The exporter sends documents to the bank of the importer to take delivery of goods. In case the
documents are D/P (document against payment), then these will be handed over to the importer on
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making the payment. If documents are D/A (documents against acceptance), then these will be handed
over to the importer as soon as he accepts the bill.
8) RELEASE OF GOODS:
The final stage involved in the import transaction is the clearance of goods. The importer may get the
goods cleared from the port directly or indirectly through middlemen called import merchants, import
commission houses, import brokers. If the goods are released through middlemen, they charge
commission for their services.
The port authorities deliver the goods to the importer on presenting the bill of lading bill of entry other
documents relating to the shipment of goods and receiving duty, if payable on goods.

Q4. Write a note on Export Promotion Bureau?

EXPORT PROMOTION BUREAU
BACKGROUND:
The Export Promotion Bureau was set up in 1963 to help business community to find out & capture
foreign markets & earn the country precious foreign markets & earn the country precious foreign
exchange that would be ploughed back in the industrialization of the country.
The bureau provides the exporters with the latest marketing information & offers then all necessary
guidance about the export procedures, rules, regulations, tariffs, custom duties in Pakistan exporters &
foreign importers & makes arrangements for direct contact between them.
By 2000 the EPB has established over forty trade offices abroad with the main objective to boost export
of Pakistan product.

Organization based on chairman, vice chairman & area officers. The Export Promotion Bureau is headed
by a chairman who must be minister of state. Vice chairman’s works under chairman & supervises
directors who are posted at and head various area offices. The area offices are all over major cities of
Pakistan EPB is an attached department of the ministry of commerce.

Functions to achieve the objective:

The main objective of the bureau is to promote boost exports of goods & services.
→ It explores foreign markets.
→ It conducts trade fairs & exhibition locally & abroad.
→ It has established permanent exhibition complex in Karachi.
→ It sends delegations abroad.
→ It conducts market surveys & studies.
→ It has established many institutions to help exports
Services to exporters:
The Export Promotion Bureau provides following services to exporters:

→ It offers advisory services & guides about foreign markets.

→ It carries out promotional activities.
→ It arranges importers & exporters meetings.
→ It guides in Quality Control & ISO related matters.

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→ It prepares delegations to visit abroad.

Services to government:
→ The Export Promotion Bureau helps govt. to fix export targets keeping in view the local
capability & potentials, competitions & the import policies of foreign countries.
→ It helps in formulating regulations for export trade.
→ It monitors & analyzes the export performance.
→ It arranges for trade negotiations.
→ It conducts studies & surveys on trade barriers, impact of govt. policies & competitors policies.
→ It advises the govt. how to simplify export procedure.

Q5. List the name of documents, which used in foreign trade.

DOCUMENTS USED IN FOREIGN TRADE

There are a number of documents, which are used in the export, and import of goods. The main
documents are now discussed in brief:

1) Order
2) Letter of credit:
3) Shipping order:
4) Dock receipt:
5) Mate’s receipt:
6) Bill of lading:
7) Airway bill:
8) Insurance policy:
9) Commercial invoice:
10) Invoice:
11) Certificate of origin:
12) Import license:
13) Bill of Exchange:

CHAPTER # 5

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ADVERTISING
1) Differentiate between advertising and publicity.
2) List the kinds of advertising media. Explain any one.

Q1. What are the advertising media?

ADVERTISING MEDIA:
Advertising media are the forms and means of communication by which advertised message reaches the
audience. These media can be divided into two classes:
1) Non-electronic media
2) Electronic media
a. Audio media
b. Video media

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I-NON-ELECTRONIC MEDIA:
Printed Media:
Printed media include newspapers, magazines and journals, pamphlets, billboards, skywriting, etc. their
details are as follows:

1) Newspapers:
Newspapers are issued daily or weekly and provide latest news and information to the general public.
They are good and effective means of making the goods and services known to the prospective
consumers. But since their circulation is geographically limited and they are short lived, their impact is
limited.

2) Magazine and journals:

Their impact also is limited to only some cities. Rural areas cannot be reached because of low literacy
rate over there. Immediate advertising in magazine is not possible because its frequency is monthly or
even greater period. Booking for advertisements is made many weeks before the issue.

3) Pamphlets / hand bills:

It is a cheap means of advertising. It has limited effect and restricted to limited geographical areas
because of its limited geographic distribution. Through this medium only low priced goods and services
are advertised.

4) Bill boards:
They are installed along important and busy roads. They are used to attract the attention of the
automobile travelers and passengers, and pedestrian. Neon signs can also be used on the billboards to
make the message illuminate at nights.

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5) Sky writing:
Airplanes are used to write the message by their smokes high on the air/atmosphere. Before resorting
to this method a previous announcement to this effect is necessary. This method is costly and short-
lived.

II-ELECTRONIC MEDIA:
Audio Media:

Radio:
Radio is an audio medium. It is also known as radio commercial. Ads can be broadcast nationwide,
province wide or citywide. Advertisements can be announced at once or can be changed or stopped at
a short notice. To advertise by radio requires purchase of time, while by the newspaper or magazines
requires purchase of space. Radio commercial has different rates for different timings. Prime time
advertising is the costliest.
Video Media:
1) Television:
Television advertising is a visual medium. It is very effective but costly. It brings quick results. TV
advertising cannot only be viewed but also heard. It doesn’t require education or literacy. It has different
rates for different timings. Advertise during prime time and famous programs are the costliest.
2) Cinema slide:
It is a type of video media. Goods and services are advertised on the slide during the playing of the film.
It offers limited geographical result and is very short-lived. Its main advantage is its low cost.
3) Internet:
It is the most modern communication technique of advertising and works through the personal
computer. It can send information across any part of the world in seconds at a very nominal cost.
Companies can advertise their products through it.

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Q2. Difference between advertising and salesmanship.

ADVERTISING SALESMANSHIP
1. It is non-personal method of presenting It is a personal method of presenting goods and
goods and services. services.
2. It addresses a group of persons. It is one-to-one contact.
3. It fails to attract individual. It is successful in drawing individual attention.
Immediate satisfaction is possible by meeting
4. Customers cannot get immediate customer’s questions and dispelling doubts.
response to their questions and doubts. Salesman’s message, talks, pitch, slogan ca be
5. Advertising message is fixed for adjusted to age, sex, status, caste, education,
everyone irrespective of education age, sex, and need.
status, caste, and need etc.

Q5. Difference between advertising and publicity?

PUBLICITY ADVERTISING
1. It is in the form of a news item, article It is a public notice or a device for obtaining
or editorial on the mass media. public favor or popularity.
2. It is free of cost. For it a space or time is It is a paid form and requires space or time
not needed to buy. that must be bought to advertise.
3. Sponsor is unknown. Sponsor is known.
4. It may be negative. It is always favorable.

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CHAPTER # 6

Transportation
1) Define transportation and describe land transportation.
2) Enlist the various modes of Transportation in Pakistan. Describe any two of them.

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Q1. What do you mean by transportation? And it’s Channel.

Transportation:
Transportation is one of the pillar on which stand the business world. Industrial revolution would have
never succeeded should transportation mean were not available.

Channel:
Transportation channel can be classified into three main categories.
1. Air Route (Airplane, Helicopters)
2. Land Route (Trains, Trucks, Animal cart, Pipeline)
3. Marine Route (Ships, Launches, Boats)

Air Route:
It is the quickest way moving the goods and services. It is suitable to shift light & small size items. it is
very expensive to use.

LAND TRANSPORT:

Trains.
Its helps moving heavy voluminous goods within and outside the country. It is save &economical mean.

Trucks:
They are also used effectively used within and among cities and countries.

Pipeline:
It means of transportation both land & water. Through them oil, gas and water can be transferred. It is
also used to export or import oil &gas.

MARINE ROUTE:
Today’s ships & other means sail at a faster knot miles than yesterday.
Over 80% of the world trade uses sea route, according to the survey.

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CHAPTER # 7

Insurance
Define Insurance. Explain various types of Insurance.

1) Define insurance. List its various kinds.

2) List the various types of Insurance. Describe Marine Insurance.

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Q#1. Define Insurance. Explain various types of Insurance.

DEFINITION:

Insurance is a legal contract that protects people from the financial costs that result
loss of life, loss of health, lawsuits, goods or property damage.
Insurance provides a means for individuals and societies to cope up with
some of the risks faced in everyday life. People purchased contracts of insurance
called policies from a variety, of insurance companies.
TYPES OF RISKS:
Insurance distinguish between two types of risks.

SPECULATIVE RISK:
It offers both the potential for gain and the potential for loss. People who
invest the sock of companies for example, take speculative risk. An increase in stock
prices procedures a gain, why a decline in stock prices produce a loss.
PURE RISK:

Pure risk does not necessarily result in loses, they never result in gains.
Historically, insurance dealt only with pure risk and most people still buy insurance
to cover pure risks. No one, for instance, experience a gain when they go a full year
without an auto accident. However, same insurance companies now help business
finance large losses including those incurred on speculative risks, such as the
international exchange of currency.
Kinds of Insurance:
They are the Kinds of Insurance
LIFE INSURANCE:

Life insurance is a financial resource for loved ones in the event of person’s
death. When a person enters into a contract with an insurance company that
promises to provide a certain amount of money upon his death is called life
insurance. In return (that person) makes periodic payment, known as premiums.

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TERM INSURANCE:
Term insurance is the simplest form of life insurance. It provides financial
protection for a specific time, usually one to thirty years. These policies are
relatively inexpensive and are well suited for goals.

PERMANENT TERM INSURANCE:

Purchasing permanent insurance is like buying home instead of renting.
Permanent insurance provide long term financial protection.
HEALTH INSURANCE:
A health insurance provides a sense of security that if a person becomes ill
or need an operation he can get treatment promptly without getting worried about
the rising cost of medical care.
BUSINESS INSURANCE:
The key to make sure that all the efforts and money invested in a business
will not disappear if a disaster strikes is called business insurance.
COMMERCIAL AUTO / TRUCK INSURANCE:
Auto / Truck insurance protects against the financial loss if a person have an
accident. It is a contract between an insurance company and an individual
(employee) to play losses as defined in policy.

DISABILITY INSURANCE:
Disability insurance is a type of health insurance that pay’s a monthly income
to a policy holder who is unable to work because of an accident or illness during
the employment.
LONG TERM CARE INSURANCE:
It is a protection for employees and their families associated with the cost of
qualified long-term care service. It involves variety of serviced aimed at helping
people with chronic conditions compensate for limitations in their ability to
function independently.
HOME OWNERS INSURANCE:
Home insurance provides financial protection against disasters. A standard
home owners insurance includes for essential types of coverage.

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 Coverage the structure of home.
 Coverage for the personal belongings.
 Liability protection.
OTHER TYPES OF INSURANCE:
Other types of insurance are:
 Travel insurance
 Landlord contents and building insurance
 Marine insurance
 Sport insurance
 Mortgages insurance
THE IMPORTANCE / ADVANTAGES OF INSURANCE:
Insurance are not only benefit society but it also serves many other
important economic and social functions.
 Insurance allow individual to share the risk faced by many people.
 The increased availability of credit helps people buy homes and cars.
 It provides capital that communities need to quickly rebuild and recover
economically from natural disasters, such as tornadoes or hurricanes.
 It helps employers in buying insurance to cover their employees against work
related injuries and health problems.
 Because it makes business operation safer, insurance encourages businesses
to make economic transactions, which benefits the economics of countries.
 Insurance company invest their funds to brings in extra revenues, such
investment help businesses and government to finance their operations.

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CHAPTER # 8

Finance

1) What is meant by Short Term Finance? Enlist any eight of its sources.
2) What is meant by Short term finance? List any six sources of Short Term Finance.
3) What are the sources of long term finance?

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Q#1. What are the main types of business finance? Describe in brief the sources of short,
intermediate and long term financing.
OR
What are the main types of business finance? Describe the various sources of business finance in
Pakistan.

I- SHORT-TERM FINANCE:
Short term finance is defined as money raised for a period of less than one year, short term capital is
require for meeting the day to day expenses of business such as payment of wages, gas, electricity bills,
unforeseen expenses, seasonal peaks of business etc.

SOURCES OF RISING SHORT TERM FINANCE:

The best-known and most popular sources of raisins short-term finance are as under.

i ) Trade credits / (A/P):

Trade credit is the least expensive method of raising capital. In all the developing and developed
countries of the world, most of the sale and purchase of goods is carried on an open book account. Under
this arrangement a firm buys material, equipment etc., from a supplier on a promise to pay the bill at a
later date which usually ranges from 7 to 90 days.
ii) Advance:
Advance is a part payment of the full price. The remaining amount is paid by the buyer on the supply of
the commodity. There are some businesses whose products have wide demand in the market. These
businesses, sometimes, get advance payments from their customers and agents.

iii) Installment credit:

Something’s, the business purchases goods on installments. The possession of the goods in taken but
the payment is made in installments over a specified period of time.
iv) Bank overdraft:
Bank overdraft is the best-known and most popular source of raising short-term funds. An overdraft is
an agreement with the bank by which the customer may draw more than his deposit in current account
up to a certain limit and for a specific period. Interest is charged daily on the outstanding amount. The
overdraft facility is given against the security of an asset.

v) Discounting of bills:
Banks may give short-term credit to its trusted customers by discounting their bills of exchange. The
bank purchases the bill of exchange and credits the customer’s account with the amount of the bill less
discount. The bank gets back the money on maturity of the bill
vi) Bill of lading: A bill of lading is a receipt issued by a shipping company for the goods to be
transported from the seller to the purchaser. The purchaser can get short-term loan from the bank by
offering bill of lading as security for the loan.
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vii) Account receivable:
Some of the foreign financial institutions in Pakistan have started giving short term loans by assigning
the accounts receivable of the well reputed business concerns. It is a safe method of short term
financing.
II- Medium term finance:
Medium term finance is defined as money raised for a period from one to five years. The medium term
funds are required by a business mostly for the repair and modernizing of the machinery.
MEDIUM TERM SOURCES OF SECURING FINANCE:
The main sources of securing medium term funds are as under.
i) Commercial banks:
Commercial banks are now the most important source of providing medium term loans. Loans are
generally given against some security of assets. Generally, the loan is credited to the account of the
borrower.
ii) Debenture:
A company may raise a part of medium term credit by issuing debentures. A debenture is on instrument
issued by a company acknowledge debt under its common seal.
III- Long-term finance:
Long-term finance is defined as money raised for a period in excess of five years, the long-term finance
is mostly used by the business concerns for the purchases of fixed assets, modernization and expansion
of business. The main sources of long-term finance are as follows:
SOURCES OF LONG-TERM FINANCE:
i) Shares:
The issuing of equity shares (ordinary shares) is the most important source for raising the long term
capital by a company. These shares are the best source because they are only pain back on the winding
up of the company. Equity shareholders are the real owners of the company. Equity shareholders get
divided when company is earning profit.
ii) Issue of right shares:
A public company may increase its subscribed capital by issue of right shares. Right shares are offered to
the shareholders in proportion to their present holding often at a price which is less than the currently
quoted price on the stock exchange.
iv) Loans from industrial and financial institutions:
A company also meets its long and medium term capital requirements from the industrial and financial
institutions like IDBP, BEL, and NIT etc.
v) Leasing:
Leasing is now a popular method of long term finance. It is gradually gaining ground in developing and
developed countries of the world. It is a contract for the hire of a specific asset. A business may get plant,
equipment, land, vehicle etc. on a long term hire purchase.

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CHAPTER # 9

Business letters

1) Draw the sketch of a Standard Business Letter.

2) Enlist the various kinds of Business letters. Describe Complaint letter.
3) Enlist the various kinds of Business letters. Explain Inquiry letter.
4) What are circular letters? Why are they written?

Describe the various parts of Business letter. Draw the sketch of a standard Business letter.

Describe the qualities of a good Business Letter.

Write an application for the post of a "Sales Executive". Assume all necessary particulars and
details.

Draft an application for the post of an assistant accountant with resume. Assume necessary
details.

Write an order letter for importing Electronic goods from Germany. Assume necessary details.

Draft an order letter of the purchases of electrical goods assuming necessary details.

Draft a circular letter to the prospective customer to inform them about the arrival of new
models of mobile phone sets. Assume necessary particulars and details.

Draft a circular letter to prospectus customers regarding the introduction of a new product.
Assume necessary details and particulars.

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Q1. Explain the different parts of business letter illustrating their position by means of a sketch.
Parts of Business Letters:
A business letter has the following parts:
 Heading
 Inside address
 Salutation
 Body / text
 Complimentary close
 Signature
Additional parts of the letter: Post Script, Initial of the typist, Carbon copies, Enclosure etc.

Heading:
Every business letter must have a printed heading. Most of the companies have a printed letterhead on
which they write letters. The heading carries the following details:

1. Name of the company (the sender).

2. Address of that company.
3. Telephones, telex, cables and fax numbers.
4. Date of the letter.

Inside Address:
Inside address has its place on the left below the heading. It has the following details:
1. Name of the receiver.
2. His designation.
3. Department’s name.
4. Name of the company.
5. Its address.

Attention Line:
Attention line focuses on a particular person to whom the letter should reach. It is written between
inside address and salutation.
Subject Line:
To facilitate the reader to immediately know the topic of the letter a subject line is given below attention
line and b/w inside address and saturation. Subject line may also follow the salutation.
Salutation:
It is a third important part of the letter. It is words of greeting. It must include the word ‘dear’ followed
by the name of the addressee. If the name is known, the designation or sir, or madam may be used. The
following are the specimens of salutation.
Dear Mr.Saleem
Dear Miss.Mehwish

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Dear Dr. Khan
Dear Sir
Dear Manager
Dear Miss

After salutation, a comma, colon or no punctuation is used.

Body / Text:
The text of the business letter follows salutation. It is the main part of the letter in which the message is
delivered. It is a core part without which letter has no meaning. The text must be complete, to the point
and clearly meaningful. Long messages should be avoided.

Complimentary Close:
It is placed on the second line below the last line on the text. The closing should coincide with the level
of formality in the salutation. The following standard closing are listed in order of increasing formality.
Regards Yours truly
Best wishes yours respectfully
Cordially
Sincerely
Cordially yours
Sincerely yours
Signature
It is the last part of the letter. Every business letter should be signed by hand. The name of the writer or
the firm must be given below the signature. Signature is written on the space b/w the complementary
words and the name that is written on the fourth line below complimentary words. The following is the
specimen.
Yours truly.
Additional Parts of Business Letter:
M. A. Qasim
Typist’s Initial Sales Manager
Two lines below the complimentary close follows the typist’s and sender’s initials.
RS: PB
RS stands for Raees Sheikh who is the sender and PB stands for Peer Bux who is the typist.
Enclosure:
If something is enclosed with the letter such as invoice, cheques, railway receipt or a proof or copy of
another letter show it by writing enclosure or enclosures in the lower left hand corner.

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SKETCH OF A BUSINESS LETTER (FULL BLOCK STYLE)

Heading  MEHWISH & COMPANY
SADDAR
KARACHI

Phone:021-1234567
Date with Reference
5 January 2009
Ref: 05/EN/09

Director General
Inside Address 
ABC Company
Karachi

Subject Line  Subject:

Salutation  Dear Sir,

------------------------- First Paragraph ----------------------------------------------

-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------

----------------------- Second Paragraph --------------------------------------------

-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Body/Text 
-----------------------------------------------------------------------------------------------

------------------------- Third Paragraph ---------------------------------------------

----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------

Yours’ sincerely
Complimentary Close  S-d
Sheikh Saleem
Signature 
Typist Initial  AW: PK

Encl:
Enclosure 

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Q2. How many types of business letters are used?

Kinds of business letters:

Business letters may be classified as follows:

1. Sales letters.
2. Inquiry letters.
3. Order letters.
4. Reminders.
5. Claim or complaint letters.
6. Announcements letters. (Circular)
7. Letters of applications. (Job letters)
8. Official letters.

Sales Letters:
These letters are written to prospective customers introducing the company’s goods and services. The
company tries to convince and persuade the customer that the product will yield maximum benefit and
satisfaction for the money he spends on it. In the letter, quality, price, durability, status, guarantee, easy
accessibility and availability, spare parts and the like are taken up as motivating factors.

Sales letters are written on AIDA principles. AIDA stands for:

Attention
Interest
Desire
Action

Sales letters are of two types:

1. Unsolicited sales letters.
2. Solicited sales letters.

Unsolicited Sales Letters:

These letters companies issue on their own initiatives. They maintain a mailing list of prospective
customers and send them letters many times during a specified period of time.
Solicited Sales Letters:
Such sales letters are written in reply to enquiry letters. Through them the company sends information
about quality, variety, model, price, discount, sales return, delivery and the like. Its writes them tactfully,
so that the customer is convinced and comes into action.

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Enquiry Letters:
Business requires different types of information about products, candidates for the job, status and
character of credit customers and borrowers. As such inquiry letters may be classified as follows:

1. Inquiry about products.

2. Inquiry of candidates for the job.
3. Inquiry about the status of credit customers or borrowers.

Inquiry about Products:

The inquiry about the product is usually made in the following aspects or respects:
1. Quality and variety available.
2. Ordinary and special quantity discounts.
3. Terms of sales.
4. Credit facility and its minimum and maximum period.
5. Sales return and allowances.
6. Place, time and mode of delivery.

Inquiry about Candidates for the Job:

Before finally selecting and appointing a candidate the prospective employer seeks from the ex-
employer or referee information and guidance about the candidate.

The information needed may be:

1. The candidate’s integrity, punctuality, personality and behaviour.
2. His dependability, communication skills, emotional stability and initiative.
3. Loyalty with the firm.

Indent or Order Letters:

Through such letters the company sends its order for buying merchandise or other goods and services.
They contain such information as name of the product, price, quality, quantity, brand, mode of delivery,
packing and the like. These letters are written following inquiry and haggling letters.

Reminders:
There are times when businesses fail to send the ordered goods, make payment or answer any inquiry
on time. In such a case, it is sent letters known as reminders or dunning letters. Sometimes more than
one letter are sent.

Claim or Complaint Letters:

A complaint arises when goods are not in accordance with the sales agreement, delivery is delayed, due
payment has not been made or an inquiry has not been answered.

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On the ground of a complaint a remedy is sought referred to as a claim. The aggrieved party may suggest
one or more of the following remedies:
1. Refund of money.
2. Repairs free of charge.
3. Replacement of goods.
4. A new shipment of the right product.
5. Concession on the invoice amount.
6. Correction on the bill or invoice.

Circular or Announcement Letters:

They carry a common message to various and sundry parties. The message of common interest to all
receivers of the circular may include the following:
1. The establishment or initiation of a new business.
2. Opening of a new branch.
3. Change in address on premises.
4. Introduction of new commodity, product or service.
5. Admission of a new partner or director.
6. Retirement of a partner or director.

Letters of Application: (Job Letter)

Job letters are written by candidate to the prospective employers. Though them he offers his services
mentioning his education, experience, age, potentials and others Bio-Data.
The language of the application should be plain, original and convincing and avoid trite terms and
phrases and jargons.

The usual contents of an application are as under:

1. Name.
2. Father’s Name
3. Address.
4. Place of birth.
5. Date of birth.
6. Domicile.
7. Marital status.
8. Education.
9. Experience.
10. Extracurricular activities.
11. References.
12. Nationality.

Letters of applications fall in two categories:

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1. Solicited Application:
They are written in response to a call of the company through an advertisement or other means.

2. Unsolicited Application:
They are sent by the candidate on his own to the prospective employers. In a way, it is an inquiry about
the availability of a suitable job.

Official Letters:
Official letters may be referred to in two meanings:

1. Office or formal letters.

2. Government letters.

Official Letters as Office or Formal Letters:

Official letters may refer to formal letter. The word official is the derivative of office, as such, all the
letters used in business and offices are official or formal. In case of written communication within an
organization it is known as memorandum, memo or interdepartmental memo. Official letters or memos
are used both by governments and private businesses and offices.

Office or formal letters are written in the same fashion as business letters.

Government Letters:
The characteristics of government letters are as follows:

1. The official or government letter is a non-business letter and its main subjects are
instructions, directions, statistics, facts and figures.
2. Its language is usually based on fixed phrases and trite words and office jargons its
subjects are also fixed, and as such, one previously written letter can be used on other
occasions just by changing the date, name and address.
3. These letters can easily be written even by a matriculate.
4. They are short, compact and based on necessary and correct information.

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Q.3: State the qualities/Principle of good business letter?
Characteristics or principles of good business letters (9C’S OF BUSINESS
LETTER)
When writing a business letter the following principles should be observed and characteristics infused
to making the letter effective and bringing desire result.

The principles are as follows:

1. Conciseness
2. Clarity.
3. Correctness.
4. Concreteness.
5. Confidence.
6. Conversation tone.
7. Consideration.
8. Courtesy.
9. Completeness.

1. Conciseness:
Conciseness makes a business letter to the point and strong. Unnecessary words, phrases and sentences
should be dropped. This principle facilitates the receiving manager who is overly busy to save his
precious time. Therefore, or irrelevant and superfluous matters and paraphrases should be discarded.
For example:

Not Concise Concise

In the month of May In May
In the year 1999 In 1999
For the purpose of For
Enclosed herewith please find a cheques Enclosed is a cheques

2. Clarity:
Business messages and letters should be clear, understandable and have easy and standard language. A
letter that contains a sentence, a phrase or a word, which has two or more meanings, is really vague,
confusing and time consuming.
Message will be clear if:

1. Strong, short, familiar words are used.

2. Proper and necessary punctuation is used.
3. Rules of standard grammar and composition have been followed.
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Unclear Clear
Being old customer we invite you to the Since you are our old customer, we invite
conference. (Who’s old customer, we or you to the conference.
you?) Or: Being our old customer we invite you
to the conference.

3. Correctness:
Letters should contain accurate facts and figures. The level of grammar should be correct. Right word,
correct spelling, suitable punctuation and proper paragraphing all make the letter correct. Moreover
when writing in third person? (He, She, they, etc.), you, I, we, should not be used.

Incorrect Correct
Juices of fruit are healthful. Juices of fruit are health-giving.

4. Concreteness:
It is the quality that makes the letter definite, clear, and specific. Violation of the principles turns the
message into a vague and general statement. Common nouns and adjectives should not be used because
they make the text weak and difficult to understand clearly.

General Concrete / Specific

Please send us some goods as soon as Please send us five Wonder refrigerators
possible. and six clean vacuum cleaners by the end
(Some, goods, and as soon as possible of this week.
must be defined)

5. Confidence:
Confidence plays an important role in business letters. Show it in the message, in the reader and in
oneself. It must be expressed in them to put a good effect on the reader. The following phrases and
sentences create doubts rather than confidence:
I hope, I am of the opinion, If and when, I trust.
People with confidence avoid such words and phrases like unfortunately, sorry, apologies, hard, cannot,
unable and try to establish what when, and how they can do to solve the problem.
Lack of confidence in the reader is reflected by the following phrases:
You want to say that….
We cannot understand….
If your stand is right….
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You failed to explain
We cannot believe that
Your application will not be entertained after May 31
6. Conversational Tone:
Letters should be written in such a way as if the writer was holding a friendly conversation with the
reader. Conversational tone can be achieved by avoiding trite terms and office jargons.

Non-Conversational Tone Conversational Tone

Enclosed herewith please find a cheque Enclosed is a cheque for Rs.10,000.
for Rs.10,000.

7. Consideration:
Consideration refers to empathy, understanding of human psychology and being considerate to the
reader. The writer should be able to understand the emotion, desires, attitudes and difficulties of the
reader. Consideration also requires you-attitude in business letters. Emphasis on I, we, us shows egotism
and should be avoided. Consideration can be achieved by:
1. Adopting you-attitude and avoiding I, we and us.
2. Concentrating on the positive and pleasant aspects.
3. Being true and honest.
4. Showing things of reader-benefit or interest in the reader.

We attitude You attitude

We are pleased to inform that You should be pleased to know that

8. Courtesy:
“Every one gains where courtesy reigns” is a good age-old slogan for written and oral communication.
Courtesy is more important and advantageous in business writing than it is in face-to-face
communication and conversation. Courteous messages strengthen present relations and make new
friends. Courtesy is a goodwill builder.
9. Completeness:
The letter must be complete in all respects. Completeness saves times and money spent on seeking
clarification and further information. It also creates harmony between the sender and the receiver.
Complete letters can become an important document worth keeping in the record. They prevent the
possibility of lawsuits from the missing information.
Completeness can be ensured by answering to the following:
What When Where Why Who

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Q4. Write a job letter / application in full block form to the P&G Company for the post of
Accountant.

The H.R Manager

P&G Company
Karachi.

Subject: Applied for Accountant.

Dear Sir,

I want to work in a reputed organization, where I can fully utilize my knowledge and skills confidently
and more over. I could have the facility to do some creative work to my skills polishing in the field of
Accountancy and Management.

Throughout my educational career Accounting is field of special interest If opportunity given me to join
your organization, I assure that I will prove to be an assets of your firm.

Therefore, I am applying for the above post in your company because it’s the most rapidly expanding
organization, I want to work and learn to the maximum.

I am looking forward for soon favorable reply.

Thank you for your consideration.

Sincerely yours
S-d
(Mr. Hammad Sheikh.)

Encl: CV & Doc.

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HAMMAD SHEIKH

Date of 01 - Mar - 1979 Age: 29 Years

Birth:
Address: Flat # A, Noor Bright, Sector A5-II North Nazimabad.
75300, Karachi; Pakistan.
Cell: 0992-1234567
Email(s): [email protected]

Objective: I want to work in a reputed Organization, where I can fully utilize my knowledge
and skills confidently and more over. I could have the facility to do some creative
work to my skills polishing in the field of Accountancy and Management.

Professional Career Summary:

Professional Certification: ACMA, MBA (Finance)

Education: MA (Economics); B.Com
Work Experience: Duration Organization & Designation
Mar 05 to Dec 08 Assistant Accountant in M/S. ABC co. Ltd.)

Work Experience

Organization: ABC Co.Ltd.

Organization Type: Manufacturing
Designation: Accountant
Tenure: Mar 2005 to Dec 2008
Location: Karachi, Pakistan
Area(s)of Finance & Accounting, Management, Supply Chain, Store,
Experience:
Reporting to: Managing Director
Responsibility:  Coordination with Accounts deptt.
 Look after store deptt.
 Controlling of Purchasing,
 Prepare daily Production report
 Prepare monthly Production report
 Coordination with Head office

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Professional Certification & Academic Education

Sr Certification/ Degree Institution / University Specialization/ Major

Passing Year
1 ACMA III ICMAP Management 2008
Accounting
2 M.B.A. University of Karachi Finance 2004
3 B.Com University of Karachi Commerce 2002

Computer Skills:

1 Word Processing
2 Software Presentation
4 Spread Sheet
5 Peach Tree Accounting

Personal Information

Father’s Name: Asad Sheikh

Marital Status: Single
CNIC No: 41110-123456-1
Religion: Islam
Gender: Male

Co-curricular Activities

Sr. Description of Activities

1 Reading Books
2 Net Browsing

References

Sr. Name Organization Contact No.

1 Mr. Dawood HBL Ltd. 0311-1234567
2 Miss. Mehwish Canon Apparel (Pvt). Ltd. 0222-1234567

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