Class 10

UP Board Solutions for Class 10 Commerce Chapter 12 Central Bank: Reserve Bank of India

Central Bank: Reserve Bank of India Objective Type Questions (1 Mark)

Question 1.
Reserve Bank of India is the:
(a) Commercial Bank of India
(b) Foreign Exchange Bank of India
(c) Central Bank of India
(d) Rural Bank of Indian
Answer:
(c) Central Bank of India

Question 2.
The main object of the Reserve Bank of India is to stabilise:
(a) Exchange Rates and Internal Prices
(b) Issuing Notes
(c) Credit Control
(d) None of these
Answer:
(a) Exchange Rates and Internal Prices

Question 3.
The Reserve Bank Act was passed in:
(a) 1929
(b) 1930
(c) 1931
(d)1932
Answer:
(a) 1929

Question 4.
NACSF set-up in
(a) 1950
(b) 1952
(c) 1954
(d) 1956
Answer:
(d) 1956

Question 5.
Reserve Bank started functioning from …….
(a) 1st April 1932
(b) 1st April 1935
(c) 1st January 1932
(d) 1st January 1935
Answer:
(b) 1st April 1935

Central Bank: Reserve Bank of India Definite Answer Type Questions (1 Mark)

Question 1.
Name the factors in which economic development of the country depends.
Answer:
Effective control of money and credit.

Question 2.
Write the name of the banker of the banks. (UP 2013)
Answer:
Reserve Bank (UPBoardSolutions.com) of India.

Question 3.
In which year Reserve Bank of India started issuing notes with a monopoly?
Answer:
1st April 1935.

Question 4.
In which year Reserve Bank of India was nationalised? (UP 2015)
Answer:
1948.

Question 5.
Write the name of representative bank of Reserve Bank of India. (UP 2015)
Answer:
State Bank of India.

Central Bank: Reserve Bank of India Very Short Answer Type Questions (2 Marks)

Question 1.
Point out two main functions of the Reserve Bank of India. (UP 2019)
Answer:

• Issue of notes
• Sale and purchase of foreign exchange.

Question 2.
What is a Scheduled Bank?
Answer:
A Scheduled Bank is one which satisfies the following conditions:

• Its paid-up capital and reserve should not be less than Rs. 5 lacs.
• Its policy should not be (UPBoardSolutions.com) contrary to the interest of the depositors.

Question 3.
Give two characteristics of Reserve Bank of India.
Answer:
The main characteristics of Central Bank are as follows:

• They are not primarily profit-seeking enterprise.
• They are subject to close control and participation by the national government.

Question 4.
What is Non-Scheduled Bank?
Answer:
The non-scheduled banks are those banks which are not included in the second schedule of Reserve Bank of India Act. These banks are generally small local banks whose paid-up capital and reserves (UPBoardSolutions.com) are less than Rs. 5 lacs. These banks have to keep a certain percentage of their deposits with the Reserve Bank of India in the form of cash reserve. The Reserve Bank of India provides all the facilities to these banks also, which it provides to Scheduled Banks.

Question 5.
Give two main central banking functions of Reserve Bank of India.
Answer:
Two main central banking functions of the Reserve Bank of India are as follows:

• Issue of Notes.
• Sale and Purchase of Foreign Exchange.

Central Bank: Reserve Bank of India Short Answer Type Questions (4 Marks)

Question 1.
Distinguish between Central Bank and Commercial Banks.
Answer:
Difference between Central Bank and Commercial Banks.

Central Bank	Commercial Banks
1. This is Banker’s Bank. This controls all the banking functions of the country.	1. Commercial Bank is a part of the banking function and is controlled by Central Bank.
2. Its motive is not to earn profit but to provide banking facilities.	2. Its motive is to earn profits.
3. Its works as Government’s banker, so the government provides many special facilities to the bank.	3. They work as the bankers of the general public and the Government does not provide any special facilities to them.
4. It has the monopoly of Note-Issue.	4. They do not have the power of issuing the notes.
5. It grants loans to other banks of the country if they are in need of it.	5. They get loan from Central Bank when they are in need of it.
6. It manages the government’s reserve and provides security.	6. They do not have any relation with government reserves.

Question 2.
Give four prohibited functions of Reserve Bank of India.
Answer:
Prohibited functions of Reserve Bank of India are as follows:

1. The Reserve Bank of India can neither buy its own shares nor can it buy shares of other banks or commercial firms.
2. The Reserve Bank of India cannot buy immoral (UPBoardSolutions.com) prosperity, barring its own premises, nor can it grant loans against the securities of any such immovable property.
3. The Reserve Bank of India cannot grant a loan to any party without proper security.
4. The Reserve Bank of India cannot give interest to its depositors on their deposits.

Central Bank: Reserve Bank of India Long Answer Type Questions (8 Marks)

Question 1.
What do you understand by the Central Bank? Discuss the main functions of the Reserve Bank of India. (UP 2009, 13)
Or
Describe the functions of Reserve Bank of India as a Central Bank of India. (UP 2011, 18)
Or
Write two main functions of the Reserve Bank of India. (UP 2012, 14)
Answer:
Central Bank: The Central Bank is an institution which is charged with the responsibility of managing the expansion and contraction of the volume of money in the interest of general public welfare. This is the apex bank in the banking system of any country normally assigned with the responsibility of issuing notes and also with the supervision of the banking system.
Functions of the Reserve Bank of India: In India, the Central Bank, the Reserve Bank of India performs the following functions:

• Central Banking Functions,
• General Banking Functions.

Central Banking Functions: The following are some of the central banking functions of Reserve Bank of India:

1. Issue of Notes: The Reserve Bank of India has been given the monopoly of the issue of banknotes from 1st April 1935. The bank has the power to issue notes of Rs. 2, Rs. 5, Rs. 10, Rs. 20, Rs. 50, Rs. 100, Rs. 500 and Rs. 1,000. Notes of Re. 1 are issued by the Government of India. The Re. 1 notes are issued as a subsidiary to Re. 1 coins.

2. Banker’s Bank: Reserve Bank is called banker’s bank because it provides services and facilities to other banks in a similar manner as a commercial bank provides services and facilities to the general public. The banks which are affiliated to the Reserve Bank may get a loan from it at the time of need. It re- discounts their bills and provides help at the time of need.

3. Government’s Banker: The Reserve Bank also acts as a banker to the central and State Governments by keeping their money. It also carries out their exchange remittance and other banking operations, besides managing public debt. The bank also transfers the reserve from one place to another, makes payments according to the instructions provided by (UPBoardSolutions.com) the Government and accepts deposits on their behalf. The bank also engages itself in floating loan treasury bills on behalf of the Central and State Governments.

4. Sale and Purchase of Foreign Exchange: Sale and purchase of foreign exchange is very important function of the Reserve Bank whereby it assists in the smooth flow of foreign trade.

5. Credit Control: Monetary system of the country is stabilised through credit control which is very essential for the prosperity of the trade and industry of the country. The Reserve Bank expands and contracts credit according to the need of the country.

6. Clearing House Facility: The Reserve Bank acts as Clearing House for commercial banks. Transactions of member banks are settled through this facility of the clearinghouse. All the banks maintain their accounts with the Reserve Bank. These banks do not pay off their liabilities in cash. All the claims and counterclaims are settled with the minimum use of cash. The representatives of various banks meet each other every day at Clearing House and exchange their credit documents to settle their accounts.

General Banking Functions: The Reserve Bank of India, in addition to its Central Banking functions, also performs following general banking functions:

1. The Reserve Bank of India accepts deposits from the Government of India and the State Governments but it pays no interest on such deposits.
2. The Reserve Bank of India re-discounts the commercial bills and promissory notes tendered by the Scheduled Banks.
3. The bank gives loans to its member banks for a maximum period of 90 days.
4. The Reserve Bank of India can borrow from any Scheduled Bank or Foreign Bank for a period not exceeding 30 days.
5. The Reserve Bank of India can buy and sell securities of Central and State Governments.
6. The Reserve Bank of India can keep in custody gold, silver, diamonds and other securities etc. for safety purposes.
7. The bank can open its account with Central Bank of other (UPBoardSolutions.com) countries or with International Bank.
8. The Reserve Bank of India arranges for Industrial Finance.
9. The Reserve Bank of India controls credit in the country.
10. The Reserve Bank of India can borrow from the Central Government or State Governments for a period not exceeding 90 days.

Question 2.
Give the main characteristics of Reserve Bank of India. (UP 2009)
Answer:
Characteristics of Reserve Bank of India: Reserve Bank of India has the following two characteristics:
1. Non-Profit Seeking Enterprise: The motive of Central Bank is not to earn profit as in the case of other Commercial Banks and business organizations. The Central Bank has to work for the benefit of the country whether it gains or loss. When the government is not the owner of Central Bank, then the dividend which is to be paid to shareholders is fixed by law so that the bank does not indulge in any activity which is unhealthy for the country for earning more profits.

2. Control and Participation of the Government: The main object of the government is to make the life of its citizens happy. The economic development of a country depends upon the principles of the government. For (UPBoardSolutions.com) every scheme of welfare and development, proper economic management is required. For achieving the desired results of these objects there has to be cooperation and coordination between the government and the Central Bank.

Another important object of Central Bank is to control the monetary and credit system of the country. Now almost all the countries have nationalised Central Banks because it is possible that proper co-ordination and co-operation between the government and Central Bank may lack if a Central Bank is an independent organisation.

Question 3.
How the Reserve Bank of India was originated? Explain.
Answer:
Origin of Reserve Bank of India: In the year 1921, Imperial Bank of India was established by the Government. Main functions of Imperial Bank involved banker to the government and the banker’s bank, besides functioning as a commercial bank. Still, there was a general feeling that it lacked in certain respects because of which it could not be called as Central Bank in the proper way.

Certain drawbacks of Imperial Bank were as follows:

1. Monetary system prevailing in the country lacked elasticity as the power of issuing notes was not conferred on the Imperial Bank. The power of issuing the notes was the sole prerogative of the Government of India.
2. Though the Bank functioned as banker’s bank and the banker to the (UPBoardSolutions.com) Government, it also functioned as commercial bank used to compete with other commercial banks.
3. Imperial Bank did not exercise any control over money and credit as all the banks used to keep their own reserves.
4. No power was vested in the Imperial Bank to make arrangement for finances for foreign trade.

No commendable success could be achieved by the Imperial Bank in its functioning as Central Bank of the country. In the year 1925, Hilton Young Commission was asked by the Government of India to express its views on the subject. The Commission opined in favour of the establishment of a new Central Bank for the country. Without exercising any function in the nature of a commercial bank.

Pursuant to this, the government of India introduced a bill, but it could not be passed on account of differences amongst the Members of Legislature. In the year 1929, again a plea was raised by the Central Banking Enquiry (UPBoardSolutions.com) Committee, supporting the establishment of Reserve Bank. Finally, the Reserve Bank of India Act, 1934 was passed, empowering the functioning of Reserve Bank from 1st of April, 1935.

UP Board Solutions for Class 10 Commerce

UP Board Solutions for Class 10 Commerce Chapter 3 Bank Reconciliation Statement

Bank Reconciliation Statement Objective Type Questions (1 Mark)

Question 1.
When the balance as per cash book is the starting point, direct deposits by customers are:
(a) Added
(b) Subtracted
(c) Not required to be adjusted
(d) None of these
Answer:
(a) Added

Question 2.
A Bank Reconciliation Statement is prepared with the help of:
(a) Bank Statement and Bank Column of the Cash Book
(b) Bank statement and Cash Column of the Cash Book
(c) Bank column of the Cash Book and Cash Column of the Cash Book
(d) None of the above.
Answer:
(a) Bank Statement and Bank Column of the Cash Book

Question 3.
A debit balance in the depositer’s cash book will be shown as:
(a) A debit balance in the Bank Statement
(b) A credit balance in the Bank Statement
(c) An overdrawn balance in the Bank Statement
(d) None of above
Answer:
(b) A credit balance in the Bank Statement

Question 4.
A Bank Reconciliation statement is a ………….
(a) Part of Cash Book
(b) Part of Bank Account
(c) Part of Financial Statement
(d) None of these
Answer:
(b) Part of Bank Account

Question 5.
Bank ………… make payment on behalf of customers. (UP 2012, 17)
(a) can
(b) cannot
(c) not known
(d) all of these are incorrect
Answer:
(a) can

Question 6.
Bank reconciliation statement is prepared by: (UP 2015)
(a) Trader
(b) Bank
(c) Debtor
(d) Creditor.
Answer:
(a) Trader

Bank Reconciliation Statement Definite Answer Type Questions (1 Mark)

Question 1.
Write the name of the statement prepared for reconciling the balances of cash book and passbook? (UP 2014)
Answer:
Bank Reconciliation Statement.

Question 2.
Who is prepared a Bank Reconciliation statement?
Answer:
Trader or the Bank Account Holder.

Question 3.
Write the name of the book in which entry made by the bank.
Answer:
Pass Book.

Question 4.
Which type of transactions are entered into cash book?
Answer:
Cash transactions are entered (UPBoardSolutions.com) into cash-book.

Bank Reconciliation Statement Very Short Answer Type Questions (2 Marks)

Question 1.
What do you mean by Bank Reconciliation statement?
Answer:
The statement which is prepared to find out the reasons for differences in the balances of Cash Book and that of the Pass Book is known as Bank Reconciliation Statement.

Question 2.
What are the two methods of preparing the Bank Reconciliation Statement?
Answer:
There are following two methods of reconciling the bank balances:

1. Bank Reconciliation Statement without preparation of Adjusted Cash Book.
2. Bank Reconciliation Statement After the (UPBoardSolutions.com) preparation of the Adjusted Cash Book.

Question 3.
Write two importances of Bank Reconciliation Statement.
Answer:

1. The reconciliation will bring out any errors that may have been committed either in the cash book or in the Pass Book.
2. It helps in finding out the actual position of the bank balance.

Bank Reconciliation Statement Short Answer Type Questions (4 Marks)

Question 1.
Prepare a Bank Reconciliation Statement from the following particulars as on 31st March 2014: (UP 2015)
(i) Debit Balance as per Cash Book – Rs. 8,000
(ii) Cheques issued but not presented for payment – Rs. 1,880
(iii) Cheques deposited into the bank for collection but not yet collected by the bank – Rs. 2,000
(iv) Interest allowed by the bank – Rs. 80
(v) An insurance premium paid by the bank but no information is given to the customer – Rs. 800
(vi) Bank charges – Rs. 50
Solution:

Question 2.
Prepare a Bank Reconciliation Statement as on 31st December 2012 of Shyam Nandan, Kanpur from the following particular:
(i) Debit balance as per Cash Book on 31st December 2012 was Rs. 5,000.
(ii) A cheque of Rs. 1,000 was sent for collection but was not collected by the bank.
(iii) A cheque of Rs. 500 was issued but it was not presented for payment.
(iv) Rs. 125 credited in the Pass Book for interest was not entered into Cash Book.
(v) Rs. 500 of Insurance Premium was directly paid by the bank. (UP 2016)
Solution:

Question 3.
Explain any two reasons for the differences in the balances of the two books.
Answer:
Following two reasons for the differences in the balance as shown by the cash book and pass book are:
(i) Cheques issued but not presented for payment: As (UPBoardSolutions.com) soon as any person is issued a cheque by the customer of the bank it is recorded on the credit side in the bank column of the cash book. The same cheque is presented by the person after a duration of time. Thus, if in between this duration the balances are reconcilled there will be differences in the two balances.

(ii) Cheques deposited but not collected or credited by the Bank: As soon as the cheques are deposited in the bank, the customer debits the bank column of the cash book. This will lead to an increase in the balance in the Cash Book. The book will not increase the balance unless the amount is really received. The process of the collection takes some time and is during this duration the balances are compared there will be a difference in the two because of these cheques.

Bank Reconciliation Statement Long Answer Type Questions (8 Marks)

Question 1.
What is the Bank Reconciliation Statement? Explain its utility and describe the method of preparing it. (UP 2002, 09, 16)
Or
When and why is the Bank Reconciliation Statement prepared? Prepare a Bank Reconciliation Statement with the imaginary figures. (UP 2006)
Or
Why, when and by whom is Bank Reconciliation Statement prepared? Give a proforma of Bank Reconciliation Statement. (UP 2019)
Or
What do you mean by the Bank Reconciliation Statement? Why is it necessary to prepare this statement by the businessmen? (UP 2007, 10)
Or
What are the main objectives of preparing a Bank Reconciliation Statement? (UP 2008)
Or
What is the Bank Reconciliation Statement? Why is it prepared? What are various reasons for differences in the balances of Cash Book and Pass Book at any particular date? Describe. (UP 2011, 18)
Answer:
Bank Reconciliation Statement: Bank balance as shown by the cash book must tally with the balance shown by the passbook. It is quite often seen that the balances as revealed by the cash book and the passbook do not tally. These differences may arise due to numerous reasons. In order to tally the balances of bank column of cash book and the passbook, a statement is prepared (UPBoardSolutions.com) which is known as the ‘Bank Reconciliation Statement’. Thus, Bank Reconciliation Statement may be defined as “The statement which is prepared to find out the reasons of differences in the balances of Cash Book and that of the Pass Book is known as Bank Reconciliation Statement”.

Importance of Bank Reconciliation Statement: The various reasons for the preparation of Bank Reconciliation statement are as follows:
1. Cheques Issued but not Presented for Payment: As soon as any person is issued a cheque by the customer of the bank it is recorded on the credit side in the bank column of the cash book. The same cheque is presented by the person after a duration of time. Thus, if in between this duration the balances are reconciled there will be a difference in the two balances.

2. Cheques Deposited but not Collected or Credited by the Bank: As soon as the cheques are deposited in the bank, the customer debits the bank column of the cash book. This will lead to an increase in the balance in the cash book. The bank will not increase the balance unless the amount is really received. The process of collection of cheques takes some time. If during this duration the balances are compared there will be a difference in the two because of these cheques.

3. Bank Charges: The bank provides many services to its customers. It provides services like collection of dividends, collection of interest, etc. The bank charges some extra amount for these services. Thus bank balance is (UPBoardSolutions.com) reduced as this is debited from the customers account without giving an intimation. This reduces the bank balance and no entry is made in the cash book.

4. Direct Deposits by Customers: There may be some customers who may deposit the money directly into the bank. Thus, the bank balance is increased while the balance in the cash book is not adjusted, accordingly this causing a difference in the balance.

5. A collection made by the Bank on Behalf of Customer: The bank may collect dividend on shares, on government securities etc. on behalf of the customer. The bank credits the amount to the passbook. This increases its balance. While the balance of the cash book is undercast. Thus, the two balances will differ from each other.

6. Dishonour of Bill Discounted with the Bank: The customer gets the bill discounted from the bank before the due date but if on the due date it was dishonoured the bank will debit the amount and the passbook balance will be reduced whereas the cash book will remain unchanged. This will also lead to the difference in the balances.

7. Interest Charged and Allowed by the Bank: When there is overdraft, the bank may charge interest on overdraft. The bank, will record it on the debit side of the passbook. There will be no entry in the cash book to this effect unless some information is received by the bank, thus leading to a difference in the balances. The bank allows some interest on the amount deposited by the customer on a specific date but the customer is informed at a later date. The customer will not pass any entry to this effect in the bank column of the cash book. Hence, there will be a difference between the two balances.

The procedure of Preparing a Bank Reconciliation Statement: In order to prepare a Bank Reconciliation Statement, the following steps should be undertaken:
1. Selection of date: Select the date on which the reconciliation statement is to be prepared. It is advisable for the students that the last date of the month should be taken into consideration so that balances as revealed by the Cash Book and the Pass Book may be easily taken out.

2. Scrutinising of entries: The entries on the debit and the credit sides in the Bank column of the Cash Book are checked with the respective credit and debit sides in the statement relating to the period in question.

3. Grouping of items: The items which are left unticked should be grouped according (UPBoardSolutions.com) to their respective headings.

4. Placing of items: The remaining unticked items should be grouped under two main headings ‘Add’ and ‘Less’.
This grouping of items is of course based on a decision whether the student wants to start the reconciliation statement with the Cash Book Balance or the Pass Book Balance.

5. Copying of Statement: The Bank Reconciliation Statement should be copied into the Cash Book at the end of the month or it should be kept safely in a separate record.

Rules to be followed for Bank Reconciliation Statement: If the balance of Cash Book is given in the question and the Pass Book balance is to be scrutinised then the following items will be added:

• Cheques issued but not presented in the bank for payment till the end of the month.
• Amounts credited by the bank without giving intimation to the customer by the end of the month.

The following items will be subtracted from the given balance:

• Amounts debited by the bank in the account of the customer without giving any information to him by the end of the month.
• Amounts of credit which have been anticipated to be credited but no credit was provided by the bank till the end of the month.

If overdraft (balance) is given then ( – ) sign will be asserted before balancing figures and calculation will be done accordingly. If the balance of Pass Book is given in the problem and balance of Cash Book is asked, then
Add:

• Amounts debited by the bank in the account of the customer without intimating the customer till the end of the month.
• Amounts of credit which were expected to be credited but no credit could be given.

Less:

• Cheques issued but not presented in the bank for payment till the end of the period in question.
• Amounts credited by the bank without giving intimation to the customer (UPBoardSolutions.com) till the end of the month.

Specimen of Bank Reconciliation Statement

Question 2.
What are the reasons for differences in the balance as per Cash Book and as per Bank Pass Book? (UP 2002)
Or
What is a Bank Reconciliation Statement? Discuss the reason liable for the difference between the balance of Cash Book and Bank Pass Book? (UP 2003, 13)
Or
What is the Bank Reconciliation Statement? What are the reasons for the difference in the balance of Bank Column of Cash Book and the balance of Pass Book? Give eight reasons for the difference in their balance. (UP 2004)
Or
What is the importance of Bank Reconciliation Statement? Explain the causes of differences in the Cash Book and Pass Book Balance. (UP 2005, 10)
Or
What do you understand by the Bank Reconciliation Statement? What are the reasons for the difference in balance between Cash Book and Pass Book? What are the objectives of preparing Bank Reconciliation Statement? (UP 2005)
Answer:
Meaning and Importance of Bank Reconciliation Statement:
Bank Reconciliation Statement: Bank balance as shown by the cash book must tally with the balance shown by the passbook. It is quite often seen that the balances as revealed by the cash book and the passbook do not tally. These differences may arise due to numerous reasons. In order to tally the balances of bank column of cash book and the passbook, a statement is prepared which (UPBoardSolutions.com) is known as the ‘Bank Reconciliation Statement’. Thus, Bank Reconciliation Statement may be defined as “The statement which is prepared to find out the reasons of differences in the balances of Cash Book and that of the Pass Book is known as Bank Reconciliation Statement”.

Importance of Bank Reconciliation Statement: The various reasons for the preparation of Bank Reconciliation statement are as follows:
1. Cheques Issued but not Presented for Payment: As soon as any person is issued a cheque by the customer of the bank it is recorded on the credit side in the bank column of the cash book. The same cheque is presented by the person after a duration of time. Thus, if in between this duration the balances are reconciled there will be a difference in the two balances.

2. Cheques Deposited but not Collected or Credited by the Bank: As soon as the cheques are deposited in the bank, the customer debits the bank column of the cash book. This will lead to an increase in the balance in the cash book. The bank will not increase the balance unless the amount is really received. The process of collection of cheques takes some time. If during this duration the balances are compared there will be a difference in the two because of these cheques.

3. Bank Charges: The bank provides many services to its customers. It provides services like collection of dividends, collection of interest, etc. The bank charges some extra amount for these services. Thus bank balance is reduced as this is debited from the customers account without giving any intimation. This reduces the bank balance and no entry is made in the cash book.

4. Direct Deposits by Customers: There may be some customers who may deposit the money directly into the bank. Thus, the bank balance is increased while the balance in the cash book is not adjusted, accordingly this causing a difference in the balance.

5. A collection made by the Bank on Behalf of Customer: The bank may collect dividend on shares, on government securities etc. on behalf of the customer. The bank credits the amount to the passbook. This increases its balance. (UPBoardSolutions.com) While the balance of the cash book is undercast. Thus, the two balances will differ from each other.

6. Dishonour of Bill Discounted with the Bank: The customer gets the bill discounted from the bank before the due date but if on the due date it was dishonoured the bank will debit the amount and the passbook balance will be reduced whereas the cash book will remain unchanged. This will also lead to the difference in the balances.

7. Interest Charged and Allowed by the Bank: When there is overdraft, the bank may charge interest on overdraft. The bank, will record it on the debit side of the passbook. There will be no entry in the cash book to this effect unless some information is received by the bank, thus leading to a difference in the balances. The bank allows some interest on the amount deposited by the customer on a specific date but the customer is informed at a later date. The customer will not pass any entry to this effect in the bank column of the cash book. Hence, there will be a difference between the two balances.

Reasons Liable for the Difference between the balance of Cash Book and Bank Pass Book. The reasons liable for the difference may be summarised as below:
1. Cheques Issued but not Presented for Payment: As soon as any person is issued a cheque by the customer of the bank, it is recorded on the credit side in the bank column of the cash book. The same cheque is presented by the person after a duration of time. Thus, if in between this duration the balances are reconciled, there will be differences in the two balances.

2. Cheques Deposited but not Collected or Credited by the Bank: As soon as the cheques are deposited in the bank, the customer debits the bank column of the cash book. This will lead to an increase in the balance in the cash book. The bank will not increase the balance unless the amount is really received. The process of collection of cheques takes some time and if during this duration the balances are compared, there will be differences in the two because of these cheques.

3. Bank Charges: The bank provides many services like collection of dividends, collection of interest, etc. The bank charges some extra amount for these services. Thus, the bank balance is reduced as this is debited from the customer’s account without giving any intimation. This reduces the bank balance and no entry is made in the cash book.

4. Direct Deposits by Customers: There may be some customers who may deposit the money directly into the bank. Thus, the bank balance is increased while the balance in the cash book is not adjusted accordingly, causing (UPBoardSolutions.com) a difference in the balances.

5. Collection by the Bank on behalf of Customer: The bank may collect dividend on shares, on government securities etc. on behalf of the customer. The bank credits the amount to the passbook, and this increases its balance. While the balance of the cash book is undercast. Thus, the two balances will differ from each other.

6. Dishonour of Bill Discounted with the Bank: The customer gets bill discounted from the bank before the due date but if on the due date it was dishonoured the bank will debit the amount and the passbook balance will be reduced whereas the cash book will remain unchanged. This will also lead to the difference in the balances.

7. Interest Charged and Allowed by the Bank: When there is overdraft, the bank may charge interest on overdraft. The bank will record it on the debit side of the passbook. There will be no entry in the cash book to this effect unless some information is received by the customer leading to a difference in the balances. Similarly, the bank allows some interest on the amount deposited by the customer on a specific date but the customer is informed at a later date. The customer will not pass any entry to this effect in the bank column of the cash book. Hence, there will be a difference between the two balances.

Question 3.
Prepare Bank Reconciliation Statement on 30th June 2011 as per the following information:

1. The credit balance of pass-book on 30th June 2011 was Rs. 15,037.
2. A cheque of Rs. 2,000 was sent for collection which was dishonoured.
3. Cheques of Rs. 5,350 were issued for payment, but cheques worth Rs. 1,035 were presented for payment on 5th July 2011.
4. Bank charges of Rs. 75 were debited in pass-book.
5. Bank charged Rs. 609 as interest on overdraft.
6. Bank paid Rs. 1,055 towards insurance as per standing instructions but Was not entered in the cash book.
7. A cheque of Rs. 2,000 was sent for collection but was not entered in cash book by mistake.
8. The bank credited Rs. 424 in the account related to fixed deposits (UPBoardSolutions.com) as per standing instructions.
9. The bank credited Rs. 993 instead of Rs. 399 in the trader’s account by mistake which was rectified on 17th July 2011.
10. Cheques of Rs. 3,250 were deposited for collection, but bank collected Rs. 2,735 only.

Solution.

Question 4.
Prepare a Bank Reconciliation Statement from the following particulars:

1. On 31st December 2011, there was an overdraft balance of Rs. 13,880 as per Pass Book.
2. Bank charged interest of Rs. 240 on overdraft for 6 months on 31st December 2011. This was not recorded in the Cash Book.
3. Bank expenses of Rs. 60 are not recorded in the Cash Book.
4. A cheque amounting to Rs. 2,300 was issued but not (UPBoardSolutions.com) presented for payment.
5. Rs. 4,340 cheque was sent to the bank but was not collected and deposited.
6. A bill of Rs. 1,000 which was discounted with Bank in November 2011 was dishonoured on 31st December 2011.

Solution:
Bank Reconciliation Statement on 31st December, 2011

Question 5.
From the following particulars, prepare Bank Reconciliation Statement as on 31st December 2009:
On 31st December 2009, the passbook of Gaurav Khemka shows the credit balance Rs. 8,000. On comparing a cash book with a passbook, the following differences are found:
(i) Cheques sent to the bank for collection but not yet collected Rs. 1,000.
(ii) Cheques of Rs. 11,000 issued but out of them only cheques of Rs. 9,000 were presented for payment
(iii) Direct deposited by the customer in his bank account Rs. 4,000.
(iv) An insurance premium paid by bank Rs. 500.
(v) Rs. 100 has been credited by the bank. (UP 2010)
Solution:

Question 6.
From the following particulars prepare a Bank Reconciliation Statement as on 31st March 2007. The credit balance as per bank Pass Book on this date was Rs. 20,500:
(i) Out of total cheques of Rs. 2,000 issued during the month, cheques of Rs. 500 were presented for payment in May 2007, while a cheque of Rs. 100 was lost in transit.
(ii) In accordance with standing instruction of account holder, Bank paid LIC premium of Rs. 600 for which no entry was made in the Cash Book.
(iii) A customer directly deposited Rs. 2,000 in the bank for which no entry was recorded in Cash Book.
(iv) Bank charges of Rs. 50 debited into Pass Book were not recorded in Cash Book. (UP 2008)
Solution:

Question 7.
Prepare a Bank Reconciliation Statement as on 31st December 2008 on the basis of the following information:
(i) Bank Account balance as per Cash Book was Rs. 18,000 on 31st December 2008.
(ii) The cheque for Rs. 2,500 was sent to the bank for collection but was not collected.
(iii) Cheques for Rs. 4,000 and 3,000 were issued to creditors but the only cheque for Rs. 4,000 was presented for payment.
(iv) Following transactions were entered into Pass Book but Cash Book was left unrecorded:
(a) Bank Charges Rs. 50.
(b) Rs. 200 were paid for Insurance premium.
(c) Rs. 5,000 were deposited in the Bank Account directly by a customer. (UP 2009)
Solution:

Question 8.
From the following information, prepare a Bank Reconciliation Statement as on 31st December 2010:
(i) Balance as per Cash Book Rs. 8,000.
(ii) Cheques of Rs. 11,000 sent to the bank for the collection were not collected.
(iii) Cheques of Rs. 12,000 were issued but only cheques of Rs. 10,000 were presented for payment.
(iv) Rs. 4,000 was directly deposited into a bank by a customer.
(v) Rs. 500 was credited by the bank for interest.
(vi) Insurance premium was paid by the bank Rs. 1,500. (UP 2011)
Solution:

UP Board Solutions for Class 10 Commerce

UP Board Solutions for Class 10 Commerce Chapter 11 Bank: Origin, Meaning, Functions and Importance

Bank: Origin, Meaning, Functions and Importance Objective Type Questions (1 Mark)

Question 1.
The name of the account where the money is repayable after a fixed duration is:
(a) Fixed Deposit Account
(b) Recurring Deposit Account
(c) Saving Account
(d) Current Account
Answer:
(a) Fixed Deposit Account

Question 2.
The scheme of the recurring deposit account was started in the year:
(a) 1960
(b) 1962
(c) 1964
(d) 1966
Answer:
(c) 1964

Question 3.
Sale and purchase of foreign currency is done by:
(a) Reserve Bank of India
(b) State’ Bank of India
(c) Punjab National Bank
(d) Foreign Exchange Bank
Answer:
(d) Foreign Exchange Bank

Question 4.
In ……….. account, the customer may withdraw money as and when he likes.
(a) Saving Account
(b) Current Account
(c) Fixed Deposit Account
(d) Recurring Deposit Account
Answer:
(b) Current Account

Question 5.
The word ‘Bank’ has been derived from the Italian word ………
(a) Bango
(b) bingo
(c) Banking
(d) Bingo
Answer:
(a) Bango

Bank: Origin, Meaning, Functions and Importance Definite Answer Type Questions (1 Mark)

Question 1.
Who is played a very important part in the economic development of all the nations of the world?
Answer:
Banking.

Question 2.
Write the name of the bankers of the banks. (UP 2013)
Answer:
Reserve Bank of India.

Question 3.
In which year Reserve Bank of India was set up?
Answer:
1964.

Question 4.
Name the bank which has made an important contribution in the field of giving loans for industrial finance in India.
Answer:
Commercial Bank.

Question 5.
Write the name of Present Central Finance Minister of India.
Answer:
Shree Arun Jethali.

Bank: Origin, Meaning, Functions and Importance Very Short Answer Type Questions (2 Marks)

Question 1.
Give two agency functions of a bank.
Answer:
Two agency function of a bank is as follows:

• Collecting Customer’s Fund: The (UPBoardSolutions.com) bank collects the funds of its customers from other banks and credits them to their accounts.
• Payment of Premium: The bank pays to the insurance companies on behalf of its customers. It may also pay certain bills of the customers as per their activities.

Question 2.
What is an exchange bank?
Answer:
Exchange banks also function as a commercial bank but the only difference is that their main function is the sale and purchase of foreign currencies. In international trade, the main problem is of payment, and without foreign exchange, the business is not possible. Then the exchange bank comes to the rescue of the exporter and the bank purchases the bills from the exporter and makes (UPBoardSolutions.com) the payment by discounting the bills.

Question 3.
What are the main functions of a bank?
Answer:
Main functions of a bank are as follows:
1. Acceptance of Deposit: Acceptance of deposits is a very important function of a modern bank. The bank collects the surplus balance of the individuals and of the firms by giving facilities for opening different deposit accounts. Bank gives some interest on the deposits.

2. Advancing of Loans: The deposits received by the banks are not allowed to lie idle in the cash box of the bank. After keeping certain cash reserves, the balance is given by the bank to the needy borrowers in the form of loans and advances.

3. Discounting of bills: This is another type of lending which (UPBoardSolutions.com) is very popular with modern banks. If the holder of an exchange bill needs money immediately, he can get it discounted by the bank. After deducting its commission, the bank pays the present price of the bill to the holder.

Bank: Origin, Meaning, Functions and Importance Long Answer Type Questions (8 Marks)

Question 1.
How is credit created by a Bank? (UP 2008, 18)
Answer:
Creation of Credit by Bank. Grating of loans and advances is important to function of the bank. But the process by which the banks grant loans and advances has special significance for the modern economy. Money is said to be created when the banks, through their lending activities, make a net addition to the total supply of money in the economy.

The customers deposit their savings (cash or cheques) in their accounts in the bank. These deposits convert currency money into deposit money. The deposit money provides funds, out of which the bank makes loans and advances to its customers. The bank knows by experience that all these primary deposits are not going to be withdrawn by the depositors at any one particular (UPBoardSolutions.com) time. So the bank, after keeping a small percentage of these deposits in cash, uses the balance for making loans and advances to the customers. The primary deposit which is kept in cash by the bank is known as Cash Reserve.

After keeping a small percentage of deposits as Cash Reserve, the balance percentage of deposits are given as loans and advances to the persons in need. When the borrower is granted loan by the bank, the loan money is not paid to the borrower in cash but is credited to his deposit account. The borrower, however, can withdraw the entire loan money either at once or in small instalments according to his requirements. Thus, the formation of credit takes place. We can explain it with an example.
Example: Let us suppose that the minimum Cash Reserve observed by the bank is 10% and a person deposits Rs. 2,000 in the bank.

As the minimum Cash Reserve is 10%, the bank will keep Rs. 200 (10% of Rs. 2,000 as the Cash Reserve and the balance Rs. 1800 (2000 <$E-> 200) will be given by the bank as loan or advance. As already pointed out, the bank does not pay the loan amount in cash but the loan money is credited to borrower’s deposit account. Now the bank will keep 10% as Cash Reserve of the loan amount which will amount to Rs. 180 (i.e., 10% of Rs. 1,800) and the balance of Rs. 1620 (i.e., 1800 < $E- > 180) can be given by the bank as loan or advance. Again the bank will keep 10% Cash Reserve amounting to Rs. 162 (i.e., 10% of Rs. 1620) and the balance of Rs. 1458 (i.e., 1620 <$E- > 162) can (UPBoardSolutions.com) be given as loan or advance. In this way, the process of multiple credit creation will continue.

In the above example, the minimum Cash Reserve Rate is 10%. The initial deposit of Rs. 2,000 will result in creating derivative deposits of Rs. 1800. Thus, there is a ten times increase in derivative deposits on the basis of the original excess reserve of Rs. 1800. The bank has a limited amount but by creating credit, it increased the amount to a large extent. Banks are helpful in fulfilling the needs of the country by creating credit which increases the economical and industrial development of the country.

Thus, we can say that banks do not create credit by only accepting deposits but also create credit by giving loans and advance, a loan is not given in cash but is deposited in the account of the borrower. So we can say that loans create deposits and deposits create loans.

Question 2.
How a saving account is opened with a bank? Write its advantages.
Answer:
Saving Bank Account is meant for the middle class and low-class income group persons for developing the habit of saving among them.
A person wishing to open a Saving Bank Account has to fill in the form and make a declaration therein that he has read the rules of Saving Bank Account. He has also to give specimen signature. Then the amount is deposited in the account by the account-holder and the same is entered in the passbook which is handed over to the depositor. If the account-holder has opted for cheque facility then a cheque book is also issued to the account-holder.

Advantages of Opening Saving Account: Following are the advantages of this account:

1. Encourage Savings: This account helps the people to develop the habit of saving money.
2. Feeling of Economy: When a person feels the importance of saving, he tries his best for the proper and necessary utilization of money. This avoids extravagance.
3. Profitable to Low Income Group: People belonging to (UPBoardSolutions.com) low-income group finds this account much profitable.
4. Facility to Minors: They can also open an account and deposit their savings in it.
5. Earning of Interest: The person depositing his savings get interested in his deposits.

Question 3.
How many types of account can be open in a bank? (UP 2008)
Answer:
The following types of accounts can be opened in a bank:
1. Fixed Deposit Account: The term fixed deposit means deposits repayable after the expiry of a certain period which ordinarily varies from one year to five years. The rate of interest is higher in a fixed deposit account in comparison to other deposits. Money can also be borrowed against the security of fixed deposit.

2. Current Account: This account is generally opened by businessmen. Under this account, the customer can deposit or withdraw money as and when he likes. No Interest is allowed by first-class banks on such accounts.

3. Savings Bank Account: Such account is meant for the middle class and low-class income group persons. The main objective of such account is to develop the habit of savings. When these small savings are pooled, it forms a large capital which can be used for the economic growth of the country.

4. Home Safe Deposit Account: Such account is a very good means of encouraging thrift among persons having small income or among children. These accounts carry only a very small rate of interest.

5. Recurring Deposit Account: Any person can open this account in his personal name or joint names and in case of minor under the guardianship of someone. The term of account depends upon the wish of an account (UPBoardSolutions.com) holder, which varies from 1 year to 7 years. The amount to be deposited every month in the account should be Rs. 10 or in multiples thereof but to the maximum limit of Rs. 500 per month.

Question 4.
List the precautions adopted or information gathered by the bank before opening an account.
Answer:
The bank must be very careful and gather certain information before opening an account. These precautions could be of following nature:
1. Minor: A person after attaining the age of 18 years becomes major. Prior to this age, he is minor. As per the law, a minor cannot enter into any contract. For the contracts entered into by the minor, no legal liability can be cast upon him. There is nothing wrong in dealing with a minor but if a bank provides overdraft facility to a minor, it cannot take any legal action to recover in the name of the minor, but the account should be operated by the guardian.

2. Mad Person: No contract can be entered into with a person who is not of sound mind. Hence, no account should be opened of the person who is of unsound mind, but if the account has already been opened, the bank should stop the payments of the cheques issued by him and suspend all the transactions in relation to his account.

3. Married Lady: A lady who is married, is free to open the account but the bank should be very judicious in providing loans to her because her husband cannot be made responsible for the loans taken by her. The bank should advance any loan but only by taking some guarantee or if the lady has some assets in her name.

4. Agent: The account can also be opened in the name of an agent. (UPBoardSolutions.com) Before opening the account, the bank should verify the rights of the agents.

5. Partnership Firm: Banks, before opening the account of a partnership firm should collect some information, such as partnership deed, soap registration or sale tax registration, nature of the business, names and addresses of the partners and signatures of the partners having right to operate the account.

6. Joint Stock Companies: The bank should obtain the following information before opening the account of joint-stock companies:

• The right of directors, managers and officers of the company as mentioned in articles of association and memorandum of association.
• The copy of the resolution under which the company has appointed them as their bankers.
• Certificate of commencement of business should also be inspected by the bank.

7. Trust: In case the account to be opened is that of the trust, the bank should study the trust because it contains the rights of the trustees. Generally, the deed mentions the rights regarding operation of the account, limit, of loan etc.

8. Joint Account: While opening a joint account, the banker must obtain (UPBoardSolutions.com) definite instructions as to how the account is to be operated. Whether all of them shall operate the account or delegate the authority to one should also be cleared.

UP Board Solutions for Class 10 Commerce

UP Board Solutions for Class 10 Commerce Chapter 25 Organisation and Enterprise

Organisation and Enterprise Objective Type Questions (1 Mark)

Question 1.
The term enterprise means:
(a) Risk-taking
(b) Profit Making
(c) A borrowed loan from market
(d) None of these
Answer:
(a) Risk-taking

Question 2.
Modern business has become very …………
(a) easy affair
(b) doubtful affair
(c) complicated affair
(d) None of these
Answer:
(c) complicated affair

Question 3.
The functions of organisation and enterprise are ………..
(a) different
(b) similar
(c) dependable each other
(d) None of these
Answer:
(a) different

Question 4.
The entrepreneures are the owners of business and the organisers are the ………. of the business.
(a) Customers
(b) Debtors
(c) Creditors
(d) Employers
Answer:
(d) Employers

Question 5.
The organisers get salary for the service they render to the business, the entrepreneures get …………. for taking risks.
(a) Salary
(b) Rent
(c) Wages
(d) Profit
Answer:
(d) Profit

Question 6.
Which of the following items is not the Capital from Economics point of view? (UP 2019)
(a) Fixed Deposit
(b) Investment in shares
(c) Jewellery
(d) Government securities.
Answer:
(c) Jewellery

Organisation and Enterprise Definite Answer Type Questions (1 Mark)

Question 1.
Is there no need for any research for the successful organisation? Give answer in Yes or No.
Answer:
No.

Question 2.
In enterprise an attempt to undertaking risk and bear uncertainty? Give answer in Yes or No.
Answer:
Yes.

Organisation and Enterprise Very Short Answer Type Questions (2 Marks)

Question 1.
What is the organisation?
Answer:
The organisation is an important factor of production and enterprise is different from an organisation. Some economists still think that organisation and enterprise are the same and can be used (UPBoardSolutions.com) interchanging. In common language, the organisation means a systematic arrangement of different parts of a thing to achieve the desired result. In economics also we use the term organisation in the same sense.

Question 2.
Point out any two points of difference between organiser and entrepreneur.
Answer:
The functions of organisation and enterprise are different. The joint-stock company is the most typical business unit in which the organisation is undertaken by a paid manager and enterprise by shareholders. The functions of organisation and risk-bearing are theoretically separate. Organisers supervise and administer business while entrepreneurs take a risk.
The entrepreneurs are the owners of the business and the organisers are the employees of the business.

The organisers get a salary for the services they render to the business, the entrepreneurs get profits for taking risks and get nothing if the business does not make any profit. The entrepreneurs bear losses when the business (UPBoardSolutions.com) runs into a loss.

Organisation and Enterprise Short Answer Type Questions (4 Marks)

Question 1.
Discuss any four functions of the organiser.
Answer:
Functions of the organiser are as follows:
(a) Sale of the Product: He tries to achieve the speedy sale at a maximum price.

(b) Provision of Proper Tools to Labourer: He provides necessary tools and machinery to labourers and does not let machinery stand idle.

(c) To find out an entrepreneur: After completing the investigations regarding the most profitable channel of investing productive resource, the organiser finds out an entrepreneur who is ready to undertake risk in the proposed business.

(d) The localisation of Production: The organiser locates the production unit (UPBoardSolutions.com) itself. In doing so he keeps in his mind several consideration such as nearness to the raw material and the power resources, availability of trained labour, transport facilities, providing to the market etc.

Question 2.
Define the importance of organisation.
Answer:
Modern business has become a very complicated affair. It is affected by many factors. Even a small factor may change the entire form of business. Big business firms use complicated machinery which needs constant care. Labourers of varying degree of skill and ability are engaged by them. Thus a business house of today is difficult to run without the expert guidance of an organiser. He brings together the three factors of production land, labour and capital and organises them so efficiently that they give the best results. Without (UPBoardSolutions.com) an organiser, these factors can reap no fruit. Without him, capital will go waste. Labour will be misdirected. Without an organiser, production is not possible in this world.

UP Board Solutions for Class 10 Commerce

UP Board Solutions for Class 10 Commerce Chapter 24 Capital: Meaning, Classification and Characteristics

Capital: Meaning, Classification and Characteristics Objective Type Questions (1 Mark)

Question 1.
All capital is the product of (UP 2017)
(a) Investment
(b) Saving
(c) Production
(d) None of these
Answer:
(b) Saving

Question 2.
By the term capital formation we mean:
(a) Fixed Assets
(b) Capital Formation
(c) Investment
(d) None of these
Answer:
(b) Capital Formation

Question 3.
……… and forced savings constitute the two types of savings.
(a) Voluntary
(b) Non-voluntary
(c) Either (a) or (b)
(d) none of these
Answer:
(a) Voluntary

Question 4.
…….. and ………. are essential for making additions to the stock of capital.
(a) Saving, Capital
(b) Capital, Investment
(c) Saving, Investment
(d) None of these
Answer:
(c) Saving, Investment

Question 5.
Under-developed countries are characterised by ……….. rate of capital formation.
(a) High
(b) Low
(c) Either (a) or (b)
(d) None of these
Answer:
(b) Low

Capital: Meaning, Classification and Characteristics Definite Answer Type Questions (1 Mark)

Question 1.
Give the name of any two kinds of capital.
Answer:
Fixed and circulating (UPBoardSolutions.com) capital.

Question 2.
Which term is used in the service of money or wealth or property?
Answer:
Capital.

Question 3.
What are the primary factors of production?
Answer:
Land and Labour.

Capital: Meaning, Classification and Characteristics Very Short Answer Type Questions (2 Marks)

Question 1.
Define Capital.
Answer:
According to Marshall, “Capital consists of those kinds of wealth other than free gifts and nature which yield income.”
According to Thomas, “Capital is that part of the (UPBoardSolutions.com) wealth of individuals and communities, other than land, which is used in the production of further wealth.”

Question 2.
Give any two functions of capital.
Answer:
The following are the functions of capital:

• Capital makes the provision of tools and implements to workers for productive purposes.
• A part of capital is spent on purchasing raw materials.

Capital: Meaning, Classification and Characteristics Short Answer Type Questions (4 Marks)

Question 1.
What is the importance of capital in production?
Answer:
Capital has been a very important factor of production even in earlier stages of human development. In the hunting, stage man used some implements to kill wild animals for food. These implements were his capital. Since then capital in some form or the other has played a significant role in the economic development of society. Under capitalism, capital is most (UPBoardSolutions.com) significant. It is equally important under communism. Though capital is not a primary factor of production yet its importance is as great as that of any primary factor of production such as land as labour.

Question 2.
What do you mean by Gross Capital Formation and Net Capital Formation? (UP 2016)
Answer:
Every producing unit has to make provisions for the depreciation of the plant and machinery. So, it keeps aside a part of its profits for replacing the warm out machinery and plant. But it sometimes keeps another part of its income away for buying new machinery and equipment when it feels a need to expand itself. So every producing unit not only keeps its capital intact but it tries to expand its productive capacity through making additions to further capital in future. So, the gross capital formation induces two things:

• Maintaining capital intact.
• Making further additions to capital equipment to expand the volume of production.

While net capital formation includes only one thing, i.e., making further Addition to capital equipment.

Question 3.
Make out the main differences between Fixed and Circulating Capital. (UP 2009, 17)
Answer:
Difference between Fixed Capital and Circulating Capital:
Fixed Capital: Fixed Capital exists in a durable shape, renders continuous service for many years and its return is spread over a greater length of time. Fixed Capital includes those goods which are used again and again for further production. Their utility does not get exhausted in a single-use. For example, machinery is used in a factory for several years until it becomes (UPBoardSolutions.com) useless. Similarly, factory premises are fixed capital because they are used for several years. Examples of fixed capital are machinery, plant, tools, implements, building and other durable goods.

Circulating Capital: Circulating capital refers to those goods which can be used only once in production or those goods which cannot be used in production over and over again. They are single-use producer goods. Examples of circulating capital are raw materials, fuel and goods in process, money paid on wages to workers etc.

Question 4.
Draw a clear line of demarcation between Capital and Wealth. Mention the point of differences between Land and Capital. (UP 2009)
Answer:
Difference between Capital and Wealth: Capital is that part of the wealth that is used for the production of further wealth. Thus, “all wealth is not capital, though all capital is wealth.”

Professor Benham and Fisher do not find any difference between wealth and capital because both are used for production and consumption. According to these scholars, all wealth is capital because the direct effect of goods is on production of wealth. The only difference lies in use. If, for example, a car is bought for excursions and enjoyment, it is not capital, but if it (UPBoardSolutions.com) is bought for doing business, it is capital.
Differences between Land and Capital

Land	Capital
1. Land is a free gift of nature.	1. Capital is formed through human efforts, i.e., it is a ‘produced’ agent of production.
2. Land lacks mobility.	2. Capital is fairly mobile.
3. The supply of land is fixed and limited in the area. In the event of fluctuations in rent, its supply cannot be increased or withdrawn.	3. Supply of capital can be increased or decreased with human efforts.
4. Rent of land varies.	4. Income from capital is more or less uniform.
5. Land is a permanent factor of production and indestructible. Land does not depreciate or wear out.	5. Capital is perishable and becomes completely worn out and the same needs to be replaced.

Question 5.
Distinguish between wealth and capital. Explain the importance of capital in production. (UP 2019)
Answer:
Difference between capital and wealth
Capital is a part of wealth which is used for the production of further wealth. Thus, “All wealth is not capital, Though all capital is wealth”.

Professor Benham and Fisher do not find any difference between wealth and capital because both are used for production and consumption. According to these scholars, all wealth is capital because the direct effect of goods is on production of wealth. The only difference lies in use if for example. A car is bought for excursions and enjoyment. It is not capital but if it is bought for doing business it is capital.

Importance of capital is production in the modern large scale production system. Capital is a very important factor of production, so important that other factors of production manpower resources of a country cannot be utilised without capital nor can the natural resources be exploited for the use of man.

Capital has been a very important factor of production even in the earlier stage of human development in the haunting stage man used some implements to kill wild animals for food. These implements were his capital. Since then capital in some form or the other has played a significant role in the economic development of society. Under capitalism capital is most (UPBoardSolutions.com) significant it is equally important under communism. Though capital is not a primary factor of production. Yet its importance is as great as that of any primary factor of production such as land or labour.

Capital: Meaning, Classification and Characteristics Long Answer Type Questions (8 Marks)

Question 1.
Define Capital and write its characteristics.
Or
Clarify the meaning of Capital. Describe the importance of capital in the business. (UP 2012)
Answer:
Meaning of Capital: Capital generally means money, but in Economics, the term capital means that part of man-made wealth which is used for further production of wealth. In the words of Marshall, “Capital consists of all those kinds of wealth other than free gifts of nature, which yield income.”

Characteristics of Capital: The main characteristics of capital are as follows:
1. Capital is man-made factor of production. Under capital, only man-made factors can be included such as machines, buildings etc. On the contrary, the gifts from nature such as land, climate etc. cannot be considered as capital.

2. All wealth cannot be counted as capital, but only that part of the wealth which is helpful in further production is counted as capital.

3. No production is possible without capital. But capital does not produce anything by itself. Production is carried out with the help of capital and it is rightly said that capital is an inactive factor of production.

4. The capital involves the element of time. The capital renders its services for a period of time. This is the reason why the payment of capital is measured in terms of a particular rate, per cent and per year.

5. The capital is subjected to depreciation. The capital used in the form of machinery (UPBoardSolutions.com) due to constant use suffers wear and tear. Therefore, this needs to be replaced.

6. Capital possesses the quality of mobility. Capital is the most mobile factor of production. The capitalist can carry his capital anywhere he likes without any difficulty.

7. Capital has the characteristics of elasticity. Supply of capital can be increased or decreased depending upon the situation.

8. Production is possible only due to the use of capital. The application of capital (UPBoardSolutions.com) increases the efficiency of labour and productive power of all the factors of production with which it is combined and used.

UP Board Solutions for Class 10 Commerce