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UGC NET Commerce Model Paper

Q.1 Under the provisions of the Consumer Protection Act, 2019, as
amended by the Consumer Protection Rules, 2021, if a consumer
dispute arises where the value of the goods or services paid as
consideration exceeds ₹5,000,000 but does not exceed
₹20,000,000, which tier of the consumer dispute redressal
commission holds the original pecuniary jurisdiction to entertain
the complaint?
(1) District Consumer Disputes Redressal Commission
(2) State Consumer Disputes Redressal Commission
(3) National Consumer Disputes Redressal Commission
(4) Supreme Court of India

Correct Answer: (2)

Explanation: Under the Consumer Protection Rules, 2021, the
pecuniary jurisdictions were revised. The District Commission
entertains complaints up to ₹5,000,000. The State Commission holds
jurisdiction for values exceeding ₹5,000,000 up to ₹20,000,000.
Complaints exceeding ₹20,000,000 are filed directly with the National
Commission.

Q.2 When a partnership firm is dissolved and a partner is declared

insolvent, how should the capital deficiency of the insolvent
partner be distributed among the solvent partners who have
positive capital balances, according to the ruling in the landmark
English case Garner v. Murray?
(1) In the profit-sharing ratio of the solvent partners
(2) Equally among all the solvent partners
(3) In the ratio of their respective capitals standing in the balance sheet
just before dissolution
(4) In the ratio of initial capitals contributed at the inception of the
partnership

Correct Answer: (3)

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Explanation: The landmark ruling in Garner v. Murray establishes that

while ordinary realization losses are shared in the profit-sharing ratio,
a capital deficiency resulting from a partner's insolvency is a capital
loss. Solvent partners with credit balances must bear this deficiency in
the ratio of their capitals standing after clearing realization
adjustments.

Q.3 An analyst observes that a firm's total revenue (TR) curve

increases at a diminishing rate and then begins to decline as output
increases. Which of the following conditions regarding Marginal
Revenue (MR) and Average Revenue (AR) must hold true when Total
Revenue is at its maximum?
(1) MR is positive and equal to AR
(2) MR is equal to zero, and AR is positive
(3) MR is negative, and AR is decreasing but positive
(4) Both MR and AR are equal to zero

Correct Answer: (2)

Explanation: Mathematically, Total Revenue (TR) reaches its maximum
when its first derivative with respect to output is zero, which means
Marginal Revenue (MR) = 0. Because Average Revenue (AR = TR ÷
Output) remains positive as long as TR is positive, AR must be positive
and greater than MR at this point.

Q.4 A firm is considering an investment project that requires an

initial cash outlay of ₹400,000. The expected annual constant net
cash inflows are ₹100,000 for a project life of 5 years. What is the
Net Present Value (NPV) of this project if the cost of capital is 10%
and the Present Value Interest Factor of an Annuity (PVIFA) at 10%
for 5 years is 3.791?
(1) -₹20,900
(2) ₹0
(3) -₹379,100
(4) ₹20,900

Correct Answer: (1)

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Explanation: The Present Value (PV) of cash inflows is calculated as

Cash Inflow × PVIFA(10%, 5) = ₹100,000 × 3.791 = ₹379,100.
NPV = PV of Inflows − Initial Cash Outlay
NPV = ₹379,100 − ₹400,000 = -₹20,900.
Since the NPV is negative, the project should be rejected.

Q.5 In a moderately asymmetrical frequency distribution, the

values of the arithmetic mean and the mode are found to be 32 and
26, respectively. Using the empirical relationship established by
Karl Pearson, what will be the value of the median for this
distribution?
(1) 28
(2) 30
(3) 29
(4) 31

Correct Answer: (2)

Explanation: Karl Pearson's empirical formula states: Mode = 3 ×
Median − 2 × Mean. Substituting the given values into the equation:
26 = 3 × Median − 2 × 32
26 = 3 × Median − 64
90 = 3 × Median
Median = 30.

Q.6 According to the path-goal theory of leadership formulated by

Robert House, which leadership style is characterized by setting
challenging goals, expecting followers to perform at their highest
level, and continuously seeking improvement in their
performance?
(1) Directive Leadership
(2) Supportive Leadership
(3) Participative Leadership
(4) Achievement-Oriented Leadership

Correct Answer: (4)

Explanation: Under Robert House's Path-Goal Theory, Achievement-
Oriented Leadership involves setting highly challenging goals,

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emphasizing high standards of performance excellence, and exhibiting

confidence that subordinates will meet these expectations. This style is
highly effective for self-motivated, autonomous, and skilled employees.

Q.7 Under the Basel III framework implemented by the Reserve

Bank of India, banks are required to maintain a stock of
unencumbered High-Quality Liquid Assets (HQLA) sufficient to
survive a significant stress scenario lasting for how many days?
(1) 15 Days
(2) 30 Days
(3) 45 Days
(4) 60 Days

Correct Answer: (2)

Explanation: The Liquidity Coverage Ratio (LCR) under the Basel III
international regulatory framework requires banks to hold an adequate
stock of high-quality liquid assets (HQLA) that can be easily and
immediately converted into cash to meet liquidity needs over a 30-
calendar-day severe stress scenario.

Q.8 When an organization uses a product-market growth matrix to

target an existing market with a completely new product line,
which strategic marketing alternative under Ansoff's Matrix is
being executed?
(1) Market Penetration
(2) Market Development
(3) Product Development
(4) Diversification

Correct Answer: (3)

Explanation: Igor Ansoff's Product-Market Growth Matrix defines four
growth paths. When a firm introduces a new product or modification
into its currently established and existing customer markets to capture
higher wallet share, it is practicing a Product Development strategy.

Q.9 Under the Indian Contract Act, 1872, when a person signifies
to another his willingness to do or to abstain from doing anything,

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with a view to obtaining the assent of that other to such act or

abstinence, he is said to make a/an:
(1) Proposal
(2) Acceptance
(3) Agreement
(4) Promise

Correct Answer: (1)

Explanation: Section 2(a) of the Indian Contract Act, 1872, explicitly
defines a proposal (commonly known as an offer) using this specific
statutory wording. Once the person to whom the proposal is made
signifies their assent, the proposal transforms into an official
acceptance under Section 2(b).

Q.10 An individual assessee, who is a resident and ordinarily

resident of India, receives agricultural income from agricultural
land situated in Colombo, Sri Lanka. How will this income be
treated under the provisions of the Income-tax Act, 1961?
(1) Fully exempt under Section 10(1)
(2) Taxable under the head "Income from Capital Gains"
(3) Taxable under the head "Income from Other Sources"
(4) Partially exempt up to 50% under standard agricultural rules

Correct Answer: (3)

Explanation: Section 10(1) of the Income-tax Act exempts agricultural
income from tax only if the agricultural land is geographically located
inside India. Agricultural income generated from land located in a
foreign country is fully taxable under the head "Income from Other
Sources".

Q.11 According to the Heckscher-Ohlin theory of international

trade, a country will export those commodities that intensively use
its:
(1) Most expensive factors of production
(2) Abundant and cheap factors of production
(3) Scarce and highly productive factors of production
(4) Absolute advantage assets only

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Correct Answer: (2)

Explanation: The Heckscher-Ohlin (Factor Proportions) theory states
that international trade patterns are driven by differences in factor
endowments. A capital-abundant nation will export capital-intensive
goods, while a labor-abundant nation will export labor-intensive goods
because its abundant factor is relatively cheaper.

Q.12 During a standard independent financial audit, when an

auditor encounters a situation where they cannot obtain sufficient
appropriate audit evidence to form an opinion on the financial
statements, but the potential effects are both material and
pervasive, the auditor must issue a/an:
(1) Qualified Opinion
(2) Adverse Opinion
(3) Disclaimer of Opinion
(4) Unmodified Opinion with Emphasis of Matter

Correct Answer: (3)

Explanation: Under auditing standards, when the auditor is unable to
obtain sufficient appropriate evidence and the potential undetected
misstatements could be both material and pervasive, they must issue a
Disclaimer of Opinion, stating they do not express an opinion on the
financial statements.

Q.13 If the price elasticity of demand for a luxury passenger car is

found to be exactly equal to 2.5, a corporate decision to increase
the selling price of the car by 10% will result in a percentage change
in the total quantity demanded equal to:
(1) A 25% increase in quantity demanded
(2) A 4% decrease in quantity demanded
(3) A 25% decrease in quantity demanded
(4) A 10% decrease in quantity demanded

Correct Answer: (3)

Explanation: Price elasticity of demand is defined as the percentage
change in quantity demanded divided by the percentage change in price.

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-2.5 = Percentage Change in Quantity ÷ 10%

Percentage Change in Quantity = -2.5 × 10% = -25%.
Thus, quantity demanded will decrease by 25%.

Q.14 Which of the following capital structure theories explicitly

maintains that the total market value of a firm and its weighted
average cost of capital (WACC) remain completely invariant and
independent of the debt-to-equity leverage ratio, in the absence of
corporate taxes?
(1) Net Income Approach
(2) Net Operating Income Approach
(3) Traditional Approach
(4) Walter's Model Approach

Correct Answer: (2)

Explanation: David Durand's Net Operating Income (NOI) approach,
and later the Modigliani-Miller Proposition I (without taxes), asserts that
the market value of the firm depends on its operating income and
business risk, meaning capital structure changes do not alter the overall
WACC or firm value.

Q.15 If a researcher rejects a null hypothesis (H₀) when it is actually

true within the real population parameter, the researcher has
committed which type of statistical error?
(1) Type I Error
(2) Type II Error
(3) Sampling Bias Error
(4) Standard Error of Estimate

Correct Answer: (1)

Explanation: A Type I error occurs when a true null hypothesis is
rejected by a statistical test. It is also known as a false positive, and its
probability of occurrence is denoted by the alpha (α) significance level
set by the researcher before conducting the test.

Q.16 The structural concept of "Span of Control" within

management theory refers directly to which of the following

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organizational dynamics?
(1) The time duration required for an employee to complete a assigned
task
(2) The total number of hierarchical management levels existing inside
a corporation
(3) The number of immediate subordinates who report directly to a
single manager
(4) The geographic dispersion of functional business operations across
regions

Correct Answer: (3)

Explanation: Span of control describes the number of direct
subordinates a supervisor or manager can monitor and direct efficiently.
A narrow span creates tall organizational structures with many levels,
while a wide span leads to flat structures with fewer hierarchical tiers.

Q.17 Which of the following financial institutions in India was

specifically established in 1990 under an Act of Parliament to act
as the principal financial institution for the promotion, financing,
and development of micro, small, and medium enterprises
(MSMEs)?
(1) NABARD
(2) EXIM Bank
(3) SIDBI
(4) NHB

Correct Answer: (3)

Explanation: The Small Industries Development Bank of India (SIDBI)
was set up on April 2, 1990, under a special Act of Parliament. It serves
as the primary development finance institution responsible for
coordinating, funding, and developing MSMEs across India.

Q.18 When a firm charges a very high initial introductory price for
an innovative, technologically advanced product to capture
premium consumers, and then gradually lowers the price over time
to attract price-sensitive segments, it is using which pricing
strategy?

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(1) Penetration Pricing

(2) Price Skimming
(3) Peak-Load Pricing
(4) Limit Pricing

Correct Answer: (2)

Explanation: Market skimming involves charging the highest possible
price that pioneering consumers are willing to pay during the product's
launch phase. As demand from the top layer of the market is satisfied,
the company lowers the price to step down into broader, more price-
sensitive customer segments.

Q.19 According to the Sale of Goods Act, 1930, the legal doctrine
of Caveat Emptor implies which of the following duties during a
standard commercial transaction?
(1) The seller must disclose all hidden faults to the buyer
(2) Let the buyer beware; the buyer must check the quality and
suitability of goods
(3) The buyer can always return the goods if they fail to satisfy personal
expectations
(4) The contract is automatically void if the goods contain any defect

Correct Answer: (2)

Explanation: Caveat Emptor means "let the buyer beware." This
doctrine places the responsibility on the buyer to inspect goods before
purchasing. Unless the seller commits fraud or an implied warranty is
breached, the buyer cannot blame the seller if the product turns out to
be unsuited to their needs.

Q.20 Which of the following options represents a legal technique of

corporate tax planning rather than tax evasion or tax avoidance?
(1) Intentionally under-reporting gross receipts in financial books
(2) Fabricating fake expense receipts to inflate business costs
(3) Utilizing deduction benefits under Section 80IA by establishing a
business in a designated backward region
(4) Inflating closing inventory values to artificially suppress gross profit
figures

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Correct Answer: (3)

Explanation: Tax planning involves arranging financial affairs to
minimize tax liability by taking advantage of incentives provided by the
legislature within the law. Utilizing deductions under Section 80IA
aligns with legislative intent, whereas under-reporting or fabricating
expenses constitutes illegal tax evasion.

Q.21 Under the Balance of Payments (BOP) accounting framework,

which of the following transactions is recorded in the Capital
Account of a nation's BOP, rather than its Current Account?
(1) Unilateral transfer payments received from abroad
(2) Earnings on foreign direct investments made by domestic residents
(3) Foreign portfolio investments made by institutional investors in
domestic equity markets
(4) Payments made to import essential services and technologies

Correct Answer: (3)

Explanation: Unilateral transfers, investment earnings (income), and
imports of services are all components of the Current Account because
they represent trade in goods/services or unilateral transfers. Foreign
portfolio investments (FPI) represent changes in financial assets and
liabilities, placing them strictly inside the Capital Account.

Q.22 A manufacturing company adopts Activity-Based Costing

(ABC) and reports a total machine setup cost of ₹450,000. The total
number of setups conducted across the factory is 150. If Product
Alpha requires 30 setups, what is the total machine setup cost
allocated to Product Alpha under ABC?
(1) ₹15,000
(2) ₹90,000
(3) ₹135,000
(4) ₹3,000

Correct Answer: (2)

Explanation: Under ABC, the activity cost pool rate is calculated first:
Activity Rate = Total Setup Cost ÷ Total Setups = ₹450,000 ÷ 150 =

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₹3,000 per setup.

The cost allocated to Product Alpha is:
Allocated Cost = Setups for Alpha × Activity Rate = 30 × ₹3,000 =
₹90,000.

Q.23 According to indifference curve analysis in microeconomics,

which of the following is not a property of standard indifference
curves representing typical consumer preferences?
(1) Indifference curves are downward sloping from left to right
(2) Indifference curves are convex to the origin due to a diminishing
marginal rate of substitution
(3) Higher indifference curves represent higher levels of consumer
satisfaction
(4) Two indifference curves can intersect each other if the consumer is
indifferent between the two bundles

Correct Answer: (4)

Explanation: Indifference curves can never intersect. If they did, it
would violate the core economic assumptions of transitivity (if A is
preferred to B, and B to C, then A must be preferred to C) and
consistency, resulting in logically contradictory levels of satisfaction on
the same curve.

Q.24 According to Gordon's Dividend Model, if the capitalization

rate (K_e) of a firm is 15% and the internal rate of return on
reinvestment (r) is 18%, what will be the effect on the market price
of the share if the firm increases its dividend payout ratio?
(1) The market price of the share will increase
(2) The market price of the share will decrease
(3) The market price of the share will remain unchanged
(4) The market price of the share will first decrease and then increase

Correct Answer: (2)

Explanation: Since r > K_e (18% > 15%), the firm is a "growth firm."
Gordon's model asserts that growth firms maximize their market value
by retaining all earnings (100% retention, 0% dividend payout).
Therefore, increasing the dividend payout ratio reduces reinvestments,

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causing the share price to decline.

Q.25 If the probability of a defective bulb produced in an automated

factory is 0.02, and a random sample of 100 bulbs is selected, which
probability distribution is most appropriate to model the number
of defective bulbs in this sample?
(1) Binomial Distribution with n = 100 and p = 0.50
(2) Normal Distribution with mean μ = 2 and variance σ² = 2
(3) Poisson Distribution with parameter λ = 2
(4) Exponential Distribution with mean parameter β = 50

Correct Answer: (3)

Explanation: When the number of trials n is large (n ≥ 50) and the
probability of success p is very small (p ≤ 0.1), the Binomial distribution
can be approximated by the Poisson distribution. The parameter λ is
calculated as:
λ = n × p = 100 × 0.02 = 2.

Q.26 Under Victor Vroom's Expectancy Theory of motivation, if an

employee believes that high performance will lead to a specific
outcome (such as a promotion), but does not value that particular
outcome, which component of the motivational force formula is
close to zero?
(1) Expectancy
(2) Instrumentality
(3) Valence
(4) Equity Ratio

Correct Answer: (3)

Explanation: Vroom's model states: Motivation = Expectancy ×
Instrumentality × Valence. Expectancy is the performance-effort link,
Instrumentality is the performance-reward link, and Valence is the
personal value of the reward. Since the employee does not value the
specific promotion outcome, their Valence is close to zero, neutralizing
motivation.

Q.27 According to the prudential norms of the Reserve Bank of

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India (RBI) for Asset Classification, a non-performing asset (NPA) is

classified as a "substandard asset" if it has remained in the NPA
category for a period of:
(1) Less than or equal to 12 months
(2) More than 12 months but less than 36 months
(3) Exceeding 36 months
(4) Exactly 18 months

Correct Answer: (1)

Explanation: Under RBI guidelines, NPAs are categorized into three
classes: Substandard, Doubtful, and Loss assets. A substandard asset
is one that has remained an NPA for a period less than or equal to 12
months, carrying higher credit risk and requiring a general provision of
15%.

Q.28 In service marketing, because services are produced and

consumed at the exact same time, service providers must manage
the interaction between the service employee and the customer.
This specific characteristic of services is known as:
(1) Intangibility
(2) Perishability
(3) Inseparability
(4) Heterogeneity

Correct Answer: (3)

Explanation: Inseparability (or simultaneous production and
consumption) dictates that a service cannot be separated from its
provider. Because the consumer is present during production, the
interaction between the employee and the customer directly affects
service quality, making interactive marketing and training critical.

Q.29 Under the Negotiable Instruments Act, 1881, a person who

becomes the possessor of a negotiable instrument for valuable
consideration, before its maturity, and in good faith without having
sufficient cause to believe that any defect existed in the title of the
person from whom he derived it, is legally termed as a:
(1) Holder

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(2) Holder in Due Course

(3) Drawee in Case of Need
(4) Acceptor for Honour

Correct Answer: (2)

Explanation: Section 9 of the Negotiable Instruments Act, 1881, defines
a "Holder in Due Course" (HIDC). An HIDC enjoys special privileges
under the Act, such as acquiring a title completely free from prior
defects, provided they acquired the instrument for consideration, before
maturity, and in good faith.

Q.30 An individual, who is a foreign national, came to India for the

first time on April 1, 2025, and stayed for 120 days during the
financial year 2025-26. If their Indian-sourced income is
₹2,000,000, and they stayed in India for a total of 400 days in the
preceding four financial years, what is their residential status for
the assessment year 2026-27 under the Income-tax Act, 1861?
(1) Resident and Ordinarily Resident (ROR)
(2) Resident but Not Ordinarily Resident (RNOR)
(3) Non-Resident (NR)
(4) Deemed Resident but Ordinarily Resident (DROR)

Correct Answer: (2)

Explanation: Under Section 6(1), they are resident because they stayed
over 60 days (120 days) and over 365 days (400 days) in the 4 preceding
years. However, since this was their first visit, they cannot satisfy the
additional requirements (resident in 2 out of 10 years; stay of 730+ days
in 7 years), making them RNOR.

Q.31 Under the World Trade Organization (WTO) framework, which

agreement specifically sets out the rules governing investment
measures that can cause trade-restrictive and distorting effects,
such as local content requirements and export balancing rules?
(1) General Agreement on Trade in Services (GATS)
(2) Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS)
(3) Agreement on Trade-Related Investment Measures (TRIMs)

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(4) Agreement on Agriculture (AoA)

Correct Answer: (3)

Explanation: The Agreement on Trade-Related Investment Measures
(TRIMs) restricts investment policies that violate GATT rules on national
treatment and the elimination of quantitative restrictions. Prohibited
practices under TRIMs include mandating foreign companies to
purchase local raw materials (local content requirements) or restrict
imports to balance exports.

Q.32 If a holding company acquires 80% of the equity shares of a

subsidiary company, and on the date of acquisition, the subsidiary
company has general reserves of ₹200,000 and a credit balance in
the Profit and Loss Account of ₹100,000, how much of these
balances represents the holding company's share of "Capital
Profits" for consolidated financial reporting?
(1) ₹300,000
(2) ₹240,000
(3) ₹60,000
(4) ₹160,000

Correct Answer: (2)

Explanation: All reserves and profits existing in a subsidiary company
prior to or on the exact date of acquisition are treated as pre-acquisition
reserves or profits, representing Capital Profits.
Holding company's share = 80% of (₹200,000 + ₹100,000) = 80% of
₹300,000 = ₹240,000.

Q.33 In the analysis of market structures, the "Sweezy Model" of

oligopoly explains price rigidity by demonstrating that the demand
curve facing an individual firm has a kink. What is the fundamental
cause of this kinked demand curve?
(1) Competitors will match any price increase but ignore any price
reduction
(2) Competitors will match any price reduction but ignore any price
increase

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(3) Competitors will match all price changes, whether increases or

decreases
(4) Competitors will ignore all price changes, whether increases or
decreases

Correct Answer: (2)

Explanation: Sweezy's model assume asymmetric rival reactions. If a
firm increases prices, rivals will not follow (creating highly elastic
demand above the prevailing price). If the firm lowers prices,
competitors must match to avoid losing customers (creating inelastic
demand below the prevailing price). This asymmetry creates the kink.

Q.34 A firm's capital structure consists of equity with a market

value of ₹6,000,000 and debt with a market value of ₹4,000,000. If
the cost of equity (K_e) is 15%, the before-tax cost of debt is 10%,
and the corporate tax rate is 30%, what is the Weighted Average
Cost of Capital (WACC) of the firm?
(1) 13.0%
(2) 11.8%
(3) 12.2%
(4) 10.5%

Correct Answer: (2)

Explanation: Weight of Equity (W_e) = 0.6; Weight of Debt (W_d) = 0.4.
After-tax cost of debt (K_d) = 10% × (1 − 0.30) = 7%.
WACC = (W_e × K_e) + (W_d × K_d)
WACC = (0.6 × 15%) + (0.4 × 7%)
WACC = 9.0% + 2.8% = 11.8%.

Q.35 Which of the following non-parametric statistical tests is used

to compare three or more independent groups to determine if they
originate from the same population, acting as the distribution-free
alternative to the parametric one-way Analysis of Variance
(ANOVA)?
(1) Mann-Whitney U Test
(2) Kruskal-Wallis H Test
(3) Wilcoxon Signed-Rank Test

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(4) Chi-Square Test of Independence

Correct Answer: (2)

Explanation: The Kruskal-Wallis H test is a non-parametric alternative
to a one-way ANOVA. It evaluates whether the medians of three or more
independent groups differ significantly, utilizing ranks of the data rather
than raw parameters, and does not require normality assumptions.

Q.36 Under a 360-degree performance appraisal system, which of

the following groups of evaluators participates in assessing an
employee's job performance?
(1) Only the immediate supervisor and the human resource department
manager
(2) Peers, subordinates, supervisors, and customers or self-evaluation
(3) Strictly external consultants and executive committee members
(4) Only the employee themselves and their direct subordinates

Correct Answer: (2)

Explanation: A 360-degree appraisal is a multi-rater performance
feedback system. It collects performance observations on an employee
from multiple directions, including supervisors, peers/colleagues, direct
subordinates, external clients or customers, along with an internal self-
evaluation, providing a holistic and balanced review.

Q.37 Under the provisions of the Insurance Regulatory and

Development Authority of India (IRDAI) framework, when an
insurer transfers a portion of the risk they have written under their
insurance policies to another insurance company, this risk
mitigation transaction is known as:
(1) Double Insurance
(2) Over-Insurance
(3) Re-insurance
(4) Co-insurance

Correct Answer: (3)

Explanation: Re-insurance is the mechanism where one insurance
company (the ceding company) transfers a portion of the risks it has

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underwritten to another insurer (the reinsurer). This reduces the

primary insurer's exposure to catastrophic losses, stabilizes capital
adequacy, and increases underwriting capacity.

Q.38 A brand manager wishes to coordinate marketing efforts

across a product's life cycle. During which phase of the Product Life
Cycle (PLC) does a company typically experience peak profit
margins, followed by a decline as competitive entry triggers heavy
promotional expenditure and price concessions?
(1) Introduction Stage
(2) Growth Stage
(3) Maturity Stage
(4) Decline Stage

Correct Answer: (2)

Explanation: Profit margins typically peak in the late Growth stage
because sales grow rapidly and manufacturing economies of scale are
achieved. Profit margins begin to decline as the product enters Maturity,
due to fierce competition forcing lower prices and increased promotional
costs.

Q.39 According to the Companies Act, 2013, a "One Person

Company" (OPC) is legally classified under which of the following
categories of companies?
(1) A public company
(2) A private company
(3) A non-government association
(4) A joint-sector undertaking

Correct Answer: (2)

Explanation: Section 2(62) of the Companies Act, 2013, defines a "One
Person Company" as a company with only one individual as a member.
Section 3(1)(c) explicitly states that an OPC must be incorporated
specifically as a private company, conforming to most private company
regulations.

Q.40 Under corporate international tax planning, the price that is

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agreed upon in a transaction between two associated enterprises

(such as a parent company and its foreign subsidiary) must conform
to the price that would have been charged between independent
enterprises in uncontrolled transactions. This principle is globally
known as the:
(1) Double Taxation Treaty Rate
(2) Safe Harbour Rules
(3) Arm's Length Principle
(4) Thin Capitalization Limit

Correct Answer: (3)

Explanation: The Arm's Length Principle (ALP) is the standard transfer
pricing rule established by the OECD. It requires related entities to price
their transactions as if they were independent buyers and sellers trading
in an open competitive market, preventing artificial shifting of profits to
low-tax jurisdictions.

Q.41 In the context of regional economic integration, which of the

following statements are correct regarding the trade creation and
trade diversion effects as theorized by Jacob Viner?
A. Trade creation occurs when high-cost domestic production is
replaced by lower-cost imports from a member nation of the trade bloc.
B. Trade diversion occurs when lower-cost imports from an efficient
non-member nation are replaced by higher-cost imports from a member
nation.
C. Trade creation is always welfare-decreasing for the integrating
regional economy as a whole.
D. Trade diversion generally leads to an increase in global economic
efficiency and optimal resource allocation.
E. A trade-diverting customs union may still increase net welfare if the
consumption expansion effect outweighs the production diversion loss.
Choose the correct answer from the options given below:
(1) A, B and E Only
(2) B, C and D Only
(3) A, C and E Only
(4) B, D and E Only

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Correct Answer: (1)

Explanation: Jacob Viner's customs union theory establishes that
trade creation is welfare-increasing because it shifts production to a
more efficient member. Conversely, trade diversion shifts trade to a less
efficient partner, hurting global efficiency. However, if consumption
increases substantially due to lower tariffs, net welfare can still improve.

Q.42 Which of the following statements are correct regarding the

Indian Accounting Standards (Ind AS) and their convergence with
International Financial Reporting Standards (IFRS)?
A. Ind AS are completely identical to IFRS without any modifications,
adjustments, or "carve-outs".
B. Ind AS are formulated by the Accounting Standards Board (ASB) of
the Institute of Chartered Accountants of India (ICAI).
C. Ind AS 101 specifically deals with the first-time adoption of Indian
Accounting Standards by an enterprise.
D. Application of Ind AS is mandatory for all non-banking financial
companies (NBFCs) with a net worth of less than ₹2,500,000,000,
irrespective of their listing status.
E. Ind AS are formulated to bring global comparability, high quality, and
financial transparency to corporate reporting in India.
Choose the correct answer from the options given below:
(1) A, B and D Only
(2) B, C and E Only
(3) C, D and E Only
(4) A, C and E Only

Correct Answer: (2)

Explanation: Statement A is incorrect because Ind AS includes "carve-
outs" (departures) and "carve-ins" to suit Indian economic conditions.
Statement D is incorrect because unlisted NBFCs with a net worth of
less than ₹2,500,000,000 are not mandatorily required to implement
Ind AS. Statements B, C, and E are correct.

Q.43 For a monopolist to successfully practice third-degree price

discrimination across two distinct market segments, which of the
following operational conditions must be satisfied?

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A. The monopolist must possess some degree of monopoly power over

market price determination.
B. The sub-markets must have completely identical price elasticities of
demand.
C. The monopolist must be able to prevent any resale or arbitrage of the
product between the sub-markets.
D. The marginal revenue in both sub-markets must be unequal at the
profit-maximizing output level.
E. The monopolist must be capable of segregating the total market into
two or more distinct sub-markets.
Choose the correct answer from the options given below:
(1) A, B and C Only
(2) B, D and E Only
(3) A, C and E Only
(4) C, D and E Only

Correct Answer: (3)

Explanation: Third-degree price discrimination requires three criteria:
monopoly price-setting power (A), ability to segregate the market based
on differing price elasticities of demand (E), and preventing resale
between markets (C). If elasticities were identical (B) or marginal
revenues unequal at equilibrium (D), discrimination would not
maximize profits.

Q.44 In capital budgeting decisions, which of the following

statements are correct regarding the comparison between Net
Present Value (NPV) and Internal Rate of Return (IRR) techniques?
A. NPV assumes that cash inflows are reinvested at the firm's cost of
capital, whereas IRR assumes reinvestment at the project's internal rate
of return.
B. For mutually exclusive projects, NPV and IRR techniques can
sometimes provide conflicting rankings.
C. The IRR technique is always superior to NPV when evaluating
projects with non-conventional cash flows.
D. A project's NPV will be strictly positive if its IRR is greater than the
cost of capital.
E. NPV is a relative measure of project profitability, whereas IRR is an

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absolute measure of wealth maximization.

Choose the correct answer from the options given below:
(1) A, B and D Only
(2) B, C and E Only
(3) A, C and D Only
(4) B, D and E Only

Correct Answer: (1)

Explanation: The reinvestment rate assumption (A) is a key conceptual
difference. Conflicting rankings (B) occur due to differences in project
scale or cash flow timings. If IRR is higher than the hurdle rate, NPV is
positive (D). IRR is a relative (%) measure, and NPV is an absolute wealth
measure, making E incorrect.

Q.45 Which of the following statements are correct regarding the

properties and characteristics of a mathematically defined Normal
Probability Distribution?
A. The distribution is perfectly symmetrical, making Mean = Median =
Mode.
B. The total area under the normal curve is equal to exactly 1.0.
C. The curve of the distribution is asymptotic to the horizontal axis,
meaning it never touches the x-axis.
D. Approximately 95.44% of the total area lies within the limits of Mean
± 1.0 standard deviation.
E. The skewness of a perfectly normal distribution is equal to positive
1.0.
Choose the correct answer from the options given below:
(1) A, B and C Only
(2) B, C and E Only
(3) A, C and D Only
(4) B, D and E Only

Correct Answer: (1)

Explanation: A, B, and C are fundamental properties of the normal
distribution. Statement D is false because approximately 68.27% of the
area lies within Mean ± 1.0 standard deviation (95.44% lies within Mean
± 2.0 standard deviations). Statement E is false because a perfectly

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normal curve has a skewness of exactly zero.

Q.46 In human resource management, which of the following

statements are correct regarding the concept and functioning of
Workers' Participation in Management (WPM) in Indian industries?
A. WPM is based on the democratic principle of joint decision-making
and industrial democracy.
B. The Works Committee is a statutory body constituted under the
Industrial Disputes Act, 1947, in industrial establishments employing
100 or more workmen.
C. WPM completely eliminates the need for collective bargaining between
trade unions and management.
D. Joint Management Councils (JMCs) have executive powers to
override board-level corporate decisions.
E. The main objective of WPM is to foster mutual trust, increase
productivity, and maintain harmonious industrial relations.
Choose the correct answer from the options given below:
(1) A, B and E Only
(2) B, C and D Only
(3) A, C and E Only
(4) B, D and E Only

Correct Answer: (1)

Explanation: WPM fosters industrial democracy (A) and peace (E).
Under the Industrial Disputes Act, 1947, Works Committees are
statutory for firms with 100+ workers (B). WPM does not eliminate
collective bargaining (C) as they deal with different issues; JMCs are
consultative bodies without executive powers to override boards (D).

Q.47 Under the Basel III capital regulations implemented by the

Reserve Bank of India, which of the following statements are
correct regarding capital buffers and capital adequacy ratios?
A. Banks must maintain a minimum Common Equity Tier 1 (CET1)
capital ratio of 5.5% of risk-weighted assets.
B. The Capital Conservation Buffer (CCB) is specified at 2.5% of risk-
weighted assets and must be met entirely using CET1 capital.
C. The minimum Tier 1 capital adequacy ratio is prescribed at 11.5% of

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risk-weighted assets.
D. The Countercyclical Capital Buffer (CCCB) is a fixed statutory buffer
of 5.0% that never varies across credit cycles.
E. The minimum Capital to Risk-Weighted Assets Ratio (CRAR) required
to be maintained by Indian commercial banks is 9.0% (excluding
buffers).
Choose the correct answer from the options given below:
(1) A, B and C Only
(2) B, C and D Only
(3) A, B and E Only
(4) C, D and E Only

Correct Answer: (3)

Explanation: RBI guidelines mandate a CET1 ratio of 5.5% (A), a CCB
of 2.5% (B), and a baseline CRAR of 9.0% (E) for commercial banks. The
minimum Tier 1 ratio is 7% (excluding buffers), making C incorrect. The
CCCB varies from 0% to 2.5% based on systemic risks, making D
incorrect.

Q.48 In marketing management, which of the following statements

are correct regarding the factors influencing consumer buying
behavior and the consumer decision-making process?
A. Culture is the most fundamental determinant of a person's wants and
behavior as they grow up in a society.
B. Reference groups to which a person does not belong but aspires to
join are called dissociative reference groups.
C. Cognitive dissonance is a state of post-purchase psychological
tension or anxiety that a consumer may experience.
D. Selective distortion is the tendency of people to interpret information
in a way that fits their pre-existing beliefs.
E. In the consumer buying process, the evaluation of alternatives always
precedes the stage of information search.
Choose the correct answer from the options given below:
(1) A, B and D Only
(2) B, C and E Only
(3) A, C and D Only
(4) B, D and E Only

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Correct Answer: (3)

Explanation: Culture is deeply foundational (A). Cognitive dissonance
(C) and selective distortion (D) are verified marketing concepts.
Statement B is false because groups an individual aspires to join are
"aspirational" reference groups (dissociative are groups they reject). In
the consumer buying process, information search precedes alternative
evaluation, making E false.

Q.49 Under the Limited Liability Partnership (LLP) Act, 2008, which
of the following statements are correct regarding the structure and
formation of an LLP in India?
A. An LLP is a body corporate and a legal entity separate from its
partners, having perpetual succession.
B. Any change in the partners of an LLP shall completely dissolve the
existing LLP and terminate its legal identity.
C. Every LLP must have at least two designated partners, both of whom
must be bodies corporate.
D. At least one of the designated partners of an LLP must be a resident
in India.
E. The mutual rights and duties of the partners of an LLP are governed
by an LLP agreement executed between the partners.
Choose the correct answer from the options given below:
(1) A, B and C Only
(2) B, C and D Only
(3) A, D and E Only
(4) C, D and E Only

Correct Answer: (3)

Explanation: An LLP has a separate legal personality and perpetual
succession (A). Changes in partners do not cause dissolution (B).
Designated partners must be individuals (C). However, at least one
designated partner must be a resident in India (D), and partners'
internal operations are governed by the LLP agreement (E).

Q.50 According to the provisions of the Income-tax Act, 1861,

which of the following statements are correct regarding the

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determination of the residential status of an individual assessee?

A. An individual is a resident of India if they stay in India for 182 days
or more during the relevant financial year.
B. The concept of "Deemed Resident" under Section 6(1A) applies to an
Indian citizen whose total income from Indian sources exceeds
₹1,500,000 and who is not liable to tax in any other country.
C. A deemed resident under Section 6(1A) is always classified as a
Resident and Ordinarily Resident (ROR).
D. To be an Ordinarily Resident, an individual must be a resident in at
least 2 out of the 10 preceding financial years.
E. An individual who is an Indian citizen and leaves India during the
financial year for the purpose of employment is considered resident if
they stay for 60 days or more in that year.
Choose the correct answer from the options given below:
(1) A, B and D Only
(2) B, C and E Only
(3) A, C and D Only
(4) B, D and E Only

Correct Answer: (1)

Explanation: A outlines the primary residency test, and D outlines one
of the Ordinarily Resident conditions. B accurately reflects Section 6(1A)
(introduced in Finance Act 2020). C is incorrect because a deemed
resident is always classified as Resident but Not Ordinarily Resident
(RNOR). E is incorrect because the 60-day rule increases to 182 days
for citizens leaving for employment.

Q.51 In international business, which of the following statements

are correct regarding foreign direct investment (FDI) and different
modes of entry?
A. Greenfield investment involves purchasing an existing facility or
corporate asset in a host country.
B. Licensing is an entry mode where a firm grants a foreign entity the
right to use its intellectual property for a royalty fee.
C. Joint ventures involve two or more independent firms establishing a
newly co-owned enterprise to collaborate on business operations.
D. FDI always involves a higher level of financial risk and resource

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commitment compared to exporting or licensing.

E. Brownfield investment is characterized by establishing entirely new
operational facilities from scratch in the host country.
Choose the correct answer from the options given below:
(1) A, B and E Only
(2) B, C and D Only
(3) A, C and D Only
(4) B, D and E Only

Correct Answer: (2)

Explanation: Licensing (B), Joint Ventures (C), and FDI risks (D) are
correct descriptions of market entry modes. Greenfield investment is
establishing operations from scratch, while Brownfield is acquiring or
renting existing assets. Therefore, statements A and E are inverted and
incorrect.

Q.52 In standard costing and variance analysis, which of the

following statements are correct regarding material and labor
variances?
A. Material Cost Variance is the sum of Material Price Variance and
Material Usage Variance.
B. Material Usage Variance is further sub-divided into Material Mix
Variance and Material Yield Variance.
C. Labor Rate Variance is always calculated on the basis of standard
hours allowed for actual output.
D. If actual labor rate paid is less than standard labor rate, the Labor
Rate Variance is favorable.
E. Labor Efficiency Variance is unaffected by the presence of abnormal
idle time.
Choose the correct answer from the options given below:
(1) A, B and D Only
(2) B, C and E Only
(3) A, C and D Only
(4) B, D and E Only

Correct Answer: (1)

Explanation: Statement A is correct (MCV = MPV + MUV). Statement B

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is correct because mix and yield comprise total usage. Statement D is

correct because paying a lower actual rate saves money. Statement C is
incorrect because rate variance is computed using actual hours worked.
Statement E is incorrect because abnormal idle time must be extracted
to analyze true productive efficiency.

Q.53 Which of the following statements represent the key

assumptions of the Modigliani-Miller (MM) Dividend Irrelevance
Hypothesis?
A. There is a perfect capital market where investors behave rationally.
B. Information is freely and symmetrically available to all market
participants.
C. There are high corporate taxes and differential tax treatments for
dividends and capital gains.
D. The firm has a well-defined investment policy that remains constant.
E. There are significant flotation costs and transaction costs incurred
when raising new equity.
Choose the correct answer from the options given below:
(1) A, B and D Only
(2) B, C and E Only
(3) A, C and D Only
(4) B, D and E Only

Correct Answer: (1)

Explanation: The MM dividend irrelevance theory operates under the
strict assumptions of perfect capital markets (A), symmetrical
information (B), and a predetermined investment policy (D). It assumes
the complete absence of corporate or personal taxes (making C
incorrect) and zero transaction or flotation costs (making E incorrect).

Q.54 In statistical hypothesis testing, which of the following

statements are correct regarding the properties and applications of
the Chi-Square (χ²) test?
A. The Chi-Square test is a parametric test that assumes the underlying
population parameters are normally distributed.
B. It is used as a test of goodness of fit to check if an observed frequency
distribution conforms to a theoretical distribution.

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C. It is used as a test of independence to determine if two qualitative

attributes are significantly associated.
D. The calculated Chi-Square value can sometimes be negative if
observed frequencies are much smaller than expected frequencies.
E. The degrees of freedom for a contingency table of size r × c is
calculated using the formula: (r − 1) × (c − 1).
Choose the correct answer from the options given below:
(1) A, B and D Only
(2) B, C and E Only
(3) A, C and D Only
(4) B, D and E Only

Correct Answer: (2)

Explanation: The Chi-Square test is non-parametric (making A
incorrect). Goodness of fit (B) and Independence of Attributes (C) are its
key applications. Because the formula uses squared terms, calculated
values cannot be negative (making D incorrect). Contingency tables
determine degrees of freedom as (r − 1) × (c − 1) (E).

Q.55 Under the Indian Contract Act, 1872, which of the following
statements are correct regarding the distinction between
"Coercion" (Section 15) and "Undue Influence" (Section 16)?
A. Coercion involves the physical threat or use of force, whereas Undue
Influence involves moral or psychological pressure.
B. Coercion can only be exercised by a party to the contract and not by
a stranger.
C. Undue Influence requires the existence of a specific relationship
between parties where one is in a position to dominate the will of the
other.
D. A contract induced by either coercion or undue influence is void-ab-
initio (void from the very beginning).
E. Under coercion, there is criminal intent as it involves committing or
threatening to commit acts forbidden by the Indian Penal Code.
Choose the correct answer from the options given below:
(1) A, B and D Only
(2) B, C and E Only
(3) A, C and E Only

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(4) C, D and E Only

Correct Answer: (3)

Explanation: Statements A, C, and E are correct legal distinctions.
Statement B is false because coercion can be initiated by a stranger.
Statement D is false because contracts induced by coercion or undue
influence are voidable under Sections 19 and 19A, not void-from-the-
beginning (void-ab-initio).

3: Match the Columns

Q.56 Match LIST-I with LIST-II:
LIST-I (Indian Accounting LIST-II (Subject Matter)
Standard - Ind AS)
A. Ind AS 2 I. Statement of Cash Flows
B. Ind AS 7 II. Property, Plant and Equipment
C. Ind AS 16 III. Inventories
D. Ind AS 37 IV. Provisions, Contingent
Liabilities and Contingent Assets

Choose the correct answer from the options given below:

(1) A-I, B-II, C-III, D-IV
(2) A-III, B-I, C-II, D-IV
(3) A-II, B-IV, C-I, D-III
(4) A-III, B-IV, C-I, D-II

Correct Answer: (2)

Explanation: The correct matchings are:
● Ind AS 2 corresponds to Inventories (III)
● Ind AS 7 corresponds to Statement of Cash Flows (I)
● Ind AS 16 corresponds to Property, Plant and Equipment (II)
● Ind AS 37 corresponds to Provisions, Contingent Liabilities and
Contingent Assets (IV)

Q.57 Match LIST-I with LIST-II:

LIST-I (Pricing Strategy) LIST-II (Operational Objective /

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Characteristic)
A. Price Skimming I. Charging different prices during
periods of peak and off-peak
demands
B. Price Penetration II. Setting a high initial price to
extract maximum consumer
surplus from early adopters
C. Peak-Load Pricing III. Pricing products lower than
cost to drive rivals out of the
market
D. Predatory Pricing IV. Setting a low initial price to
rapidly capture market share and
build barriers to entry

Choose the correct answer from the options given below:

(1) A-II, B-IV, C-I, D-III
(2) A-IV, B-II, C-III, D-I
(3) A-I, B-III, C-II, D-IV
(4) A-II, B-I, C-IV, D-III

Correct Answer: (1)

Explanation: The correct matches are:
● Price Skimming matches II (skimming consumer surplus)
● Price Penetration matches IV (low price to capture market share
quickly)
● Peak-Load Pricing matches I (different pricing based on demand
fluctuations)
● Predatory Pricing matches III (undercutting costs to eliminate
competitors)

Q.58 Match LIST-I with LIST-II:

LIST-I (International Trade & LIST-II (Core Concept /
Finance Terms) Description)
A. Global Depository Receipt I. Investment in physical assets
(GDR) like factories and offices in a

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foreign country
B. American Depository Receipt II. Financial instrument
(ADR) denominated in US dollars traded
on European and global markets
C. Foreign Direct Investment (FDI) III. Financial instrument issued
by a US bank representing shares
of a foreign company traded on US
exchanges
D. Eurocurrency IV. Any currency held in deposit
outside its home country of origin

Choose the correct answer from the options given below:

(1) A-III, B-II, C-I, D-IV
(2) A-II, B-III, C-I, D-IV
(3) A-II, B-I, C-IV, D-III
(4) A-IV, B-III, C-I, D-II

Correct Answer: (2)

Explanation: The correct matches are:
● GDR is a global dollar instrument traded internationally (II)
● ADR is issued by US banks specifically for US stock markets (III)
● FDI represents direct physical/capital investment in a host nation
(I)
● Eurocurrency refers to bank deposits held in currencies other than
the local currency (IV)

Q.59 Match LIST-I with LIST-II:

LIST-I (Statistical Test) LIST-II (Key Application /
Distribution Characteristic)
A. Student's t-test I. Non-parametric test to compare
medians of two independent
samples
B. Snedecor's F-test II. Testing significance of
difference between two small
sample means with unknown

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population variance
C. Chi-Square (χ²) test III. Comparing variances of two
independent samples or used in
ANOVA analysis
D. Mann-Whitney U test IV. Testing independence of
attributes in a contingency table

Choose the correct answer from the options given below:

(1) A-II, B-III, C-IV, D-I
(2) A-III, B-I, C-II, D-IV
(3) A-II, B-I, C-IV, D-III
(4) A-I, B-IV, C-III, D-II

Correct Answer: (1)

Explanation: The correct matches are:
● Student's t-test matches II (testing means of small,
related/independent samples)
● F-test matches III (evaluating sample variance ratios or performing
ANOVA)
● Chi-Square test matches IV (testing independence of qualities in
contingency tables)
● Mann-Whitney U test matches I (non-parametric median
comparison)

Q.60 Match LIST-I with LIST-II:

LIST-I LIST-II (Key Proponent /
(Management/Motivation Theorist)
Theory)
A. Two-Factor Theory I. Clayton Alderfer
B. ERG Theory II. Frederick Herzberg
C. Acquired Needs Theory III. Victor Vroom
D. Expectancy Theory IV. David McClelland

Choose the correct answer from the options given below:

(1) A-II, B-I, C-III, D-IV

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(2) A-II, B-I, C-IV, D-III

(3) A-I, B-II, C-IV, D-III
(4) A-IV, B-I, C-II, D-III

Correct Answer: (2)

Explanation: The correct matches are:
● Two-Factor Motivation-Hygiene theory was proposed by Frederick
Herzberg (II)
● ERG (Existence, Relatedness, Growth) theory was proposed by
Clayton Alderfer (I)
● Acquired Needs theory (Achievement, Power, Affiliation) was
designed by David McClelland (IV)
● Expectancy theory was developed by Victor Vroom (III)

Q.61 Match LIST-I with LIST-II:

LIST-I (Special Contracts under LIST-II (Statutory Definition /
Indian Contract Act, 1872) Core Provision)
A. Contract of Indemnity I. Delivery of goods by one person
to another for some purpose upon
a contract
B. Contract of Guarantee II. Delivery of goods as security for
payment of a debt or performance
of a promise
C. Contract of Bailment III. A contract by which one party
promises to save the other from
loss caused by the conduct of the
promisor himself or another
person
D. Contract of Pledge IV. A contract to perform the
promise or discharge the liability
of a third person in case of default

Choose the correct answer from the options given below:

(1) A-III, B-IV, C-I, D-II
(2) A-IV, B-III, C-II, D-I
(3) A-III, B-I, C-IV, D-II

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(4) A-I, B-II, C-III, D-IV

Correct Answer: (1)

Explanation: Under the Indian Contract Act, 1872: Section 124 defines
a Contract of Indemnity (A-III); Section 126 defines a Contract of
Guarantee (B-IV); Section 148 defines Bailment (C-I) as the delivery of
goods for a specific purpose; and Section 172 defines Pledge (D-II) as
bailment of goods as security.

Q.62 Match LIST-I with LIST-II:

LIST-I (International Trade LIST-II (Key Proponent /
Theory) Originator)
A. Theory of Absolute Advantage I. David Ricardo
B. Theory of Comparative II. Adam Smith
Advantage
C. Factor Proportions Theory III. Raymond Vernon
D. Product Life Cycle Theory IV. Eli Heckscher and Bertil Ohlin

Choose the correct answer from the options given below:

(1) A-I, B-II, C-III, D-IV
(2) A-II, B-I, C-IV, D-III
(3) A-II, B-I, C-III, D-IV
(4) A-IV, B-III, C-II, D-I

Correct Answer: (2)

Explanation: Adam Smith introduced the Theory of Absolute Advantage
in 1776 (A-II). David Ricardo formulated the Theory of Comparative
Advantage in 1817 (B-I). Heckscher and Ohlin developed the Factor
Proportions Theory based on capital and labor endowments (C-IV).
Raymond Vernon pioneered the Product Life Cycle Theory of trade (D-
III).

Q.63 Match LIST-I with LIST-II:

LIST-I (Income-tax Act LIST-II (Eligible Investment /
Deductions under Chapter VI-A) Expenditure Category)
A. Section 80C I. Deductions in respect of medical

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insurance premium payments

B. Section 80D II. Deductions in respect of
payment of interest on loans
taken for higher education
C. Section 80E III. Deductions in respect of
contributions to certain pension
funds, specified savings, or equity
shares
D. Section 80G IV. Deductions in respect of
donations to specified funds and
charitable organizations

Choose the correct answer from the options given below:

(1) A-III, B-I, C-II, D-IV
(2) A-I, B-III, C-IV, D-II
(3) A-III, B-II, C-I, D-IV
(4) A-IV, B-I, C-II, D-III

Correct Answer: (1)

Explanation: Chapter VI-A of the Income-tax Act, 1861, contains
deductions from gross total income: Section 80C covers specified
savings (A-III); Section 80D allows medical insurance premium
deductions (B-I); Section 80E permits deductions on interest payments
for higher education loans (C-II); and Section 80G covers donations to
specified charitable funds (D-IV).

Q.64 Match LIST-I with LIST-II:

LIST-I (Corporate Finance LIST-II (Key Conceptual
Model / Theory) Postulate)
A. Walter's Model I. Firms prefer internal financing
over debt, and debt over external
equity due to asymmetric
information
B. Modigliani-Miller Model (With II. Dividend payout is determined
Taxes) by both current earnings and past
dividend payouts, representing

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dividend smoothing
C. Pecking Order Theory III. The value of a levered firm is
equal to the value of an unlevered
firm plus the present value of
corporate tax shields
D. Lintner's Model IV. Dividend decisions are
relevant; share price is maximized
when retention policy matches the
relationship between internal
return and cost of capital

Choose the correct answer from the options given below:

(1) A-IV, B-III, C-I, D-II
(2) A-III, B-IV, C-II, D-I
(3) A-IV, B-I, C-III, D-II
(4) A-I, B-II, C-III, D-IV

Correct Answer: (1)

Explanation: Walter's Model (A-IV) shows dividend relevance linked to
internal return (r) and cost of capital (K_e). MM Proposition with taxes
(B-III) incorporates interest tax shields. Donaldson's Pecking Order
Theory (C-I) ranks funding preferences. John Lintner's Model (D-II)
focuses on dividend smoothing and target payout ratios based on
earnings persistence.

Q.65 Match LIST-I with LIST-II:

LIST-I (Market Segmentation LIST-II (Consumer
Variable) Classification Metrics)
A. Demographic Segmentation I. Social class, lifestyle, values,
motives, and personality traits
B. Psychographic Segmentation II. Brand loyalty, usage rate,
benefits sought, purchase
occasions, and user status
C. Behavioral Segmentation III. Regional climate, municipal
size, population density, or
geographic zones

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D. Geographic Segmentation IV. Age, gender, income,

occupation, educational
attainment, and family size

Choose the correct answer from the options given below:

(1) A-IV, B-I, C-II, D-III
(2) A-I, B-IV, C-III, D-II
(3) A-IV, B-II, C-I, D-III
(4) A-III, B-I, C-IV, D-II

Correct Answer: (1)

Explanation: Demographic segmentation classifies consumers by
measurable population statistics like age or income (A-IV).
Psychographic segmentation uses lifestyle and psychological attributes
(B-I). Behavioral segmentation groups customers based on their
knowledge of, attitude toward, or response to a product (C-II).
Geographic segmentation utilizes physical regions or climates (D-III).

Q.66 Match LIST-I with LIST-II:

LIST-I (Modern Costing Method) LIST-II (Core Operational Goal /
Characteristic)
A. Kaizen Costing I. Focuses on continuous, small
incremental improvements during
the production phase to reduce
costs
B. Target Costing II. Determines cost by subtracting
desired profit margin from target
selling price before product
launch
C. Life Cycle Costing III. Accumulates and tracks costs
associated with a product from
initial research and design to
decommissioning
D. Activity-Based Costing IV. Assigns overhead costs to
products based on their
consumption of activities and cost

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drivers

Choose the correct answer from the options given below:

(1) A-I, B-II, C-III, D-IV
(2) A-II, B-I, C-IV, D-III
(3) A-I, B-III, C-II, D-IV
(4) A-IV, B-III, C-I, D-II

Correct Answer: (1)

Explanation: Kaizen costing is a continuous cost-reduction technique
during manufacturing (A-I). Target costing starts with a competitive
price and deduces the maximum cost allowable (B-II). Life Cycle Costing
covers all costs over a product's life span (C-III). Activity-Based Costing
assigns overheads using cost drivers and activities (D-IV).

Q.67 Match LIST-I with LIST-II:

LIST-I (Indian Regulatory LIST-II (Primary Regulatory
Authority) Mandate)
A. Reserve Bank of India (RBI) I. Regulates and promotes orderly
growth of the securities market
and protects investors' interests
B. Securities and Exchange Board II. Supervises and regulates the
of India (SEBI) insurance and re-insurance
industries to protect policyholders
C. Insurance Regulatory and III. Formulates monetary policy,
Development Authority (IRDAI) regulates commercial banks, and
manages foreign exchange
reserves
D. Pension Fund Regulatory and IV. Promotes old age income
Development Authority (PFRDA) security by establishing,
developing, and regulating
pension funds

Choose the correct answer from the options given below:

(1) A-III, B-I, C-II, D-IV
(2) A-I, B-III, C-IV, D-II

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(3) A-III, B-II, C-I, D-IV

(4) A-IV, B-III, C-I, D-II

Correct Answer: (1)

Explanation: RBI acts as the central bank and monetary authority (A-
III). SEBI regulates stock exchanges, brokerages, and investor
protection (B-I). IRDAI oversees the insurance sector (C-II). PFRDA
regulates pensions, including the National Pension System (D-IV). All
are independent watchdogs in the Indian financial sector.

Q.68 Match LIST-I with LIST-II:

LIST-I (Sampling Technique) LIST-II (Core Methodology)
A. Simple Random Sampling I. Population is divided into
homogeneous groups, and
samples are drawn randomly from
each subgroup
B. Stratified Random Sampling II. A non-probability technique
where the researcher selects
participants according to
predefined characteristics up to a
certain limit
C. Cluster Sampling III. Every single member of the
population has an equal and
independent chance of selection
D. Quota Sampling IV. The population is divided into
heterogeneous naturally
occurring groups, and entire
groups are randomly selected

Choose the correct answer from the options given below:

(1) A-III, B-I, C-IV, D-II
(2) A-I, B-III, C-II, D-IV
(3) A-III, B-IV, C-I, D-II
(4) A-II, B-I, C-IV, D-III

Correct Answer: (1)

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Explanation: Simple random sampling gives everyone equal selection

probability (A-III). Stratified sampling draws from homogeneous strata
(B-I). Cluster sampling selects entire groups from naturally occurring
heterogeneous clusters (C-IV). Quota sampling is a non-probability
technique that targets fixed proportions of demographic characteristics
(D-II).

Q.69 Match LIST-I with LIST-II:

LIST-I (Big Five Personality LIST-II (Individual Behavioral
Trait) Style)
A. Conscientiousness I. The tendency to be
compassionate, cooperative,
trusting, and helpful towards
others
B. Agreeableness II. The degree to which a person is
responsible, organized,
dependable, persistent, and
achievement-oriented
C. Extraversion III. The ability to remain calm,
self-confident, secure, and
resilient under stressful
conditions
D. Emotional Stability IV. The comfort level of an
individual with interpersonal
interactions, showing
assertiveness, sociability, and
talkativeness

Choose the correct answer from the options given below:

(1) A-II, B-I, C-IV, D-III
(2) A-I, B-II, C-III, D-IV
(3) A-II, B-IV, C-I, D-III
(4) A-III, B-I, C-IV, D-II

Correct Answer: (1)

Explanation: In organizational behavior, the Big Five traits describe

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core dimensions: Conscientiousness relates to reliability and

organization (A-II); Agreeableness is interpersonal harmony (B-I);
Extraversion is social energy (C-IV); and Emotional Stability represents
stress tolerance and psychological resilience (D-III).

Q.70 Match LIST-I with LIST-II:

LIST-I (Market Structure Form) LIST-II (Key Price and Seller
Characteristic)
A. Perfect Competition I. A single seller dominates the
market, with high entry barriers
and no close substitutes
B. Monopoly II. A few large dominant firms
selling homogeneous or
differentiated products,
characterized by mutual
interdependence
C. Monopolistic Competition III. A large number of small sellers
offering highly differentiated
products, with free entry and exit
D. Oligopoly IV. An exceptionally large number
of buyers and sellers trading
identical products, with perfect
market information and zero
transaction costs

Choose the correct answer from the options given below:

(1) A-IV, B-I, C-III, D-II
(2) A-I, B-IV, C-II, D-III
(3) A-IV, B-II, C-I, D-III
(4) A-III, B-I, C-IV, D-II

Correct Answer: (1)

Explanation: Perfect competition features price-taking firms selling
identical products (A-IV). Monopoly has a single producer with high
barriers (B-I). Monopolistic competition involves product differentiation
among many sellers (C-III). Oligopoly is defined by a few interdependent

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firms where pricing actions spark immediate competitor reactions (D-

II).

4: Sequential / Chronological / Analytical

Ordering
Q.71 Arrange the steps in the consumer buying decision-making
process in the correct logical sequence, from start to completion:
A. Information Search
B. Post-Purchase Behavior
C. Problem or Need Recognition
D. Evaluation of Alternatives
E. Purchase Decision
Choose the correct answer from the options given below:
(1) C, A, D, E, B
(2) A, C, D, E, B
(3) C, D, A, E, B
(4) C, A, E, D, B

Correct Answer: (1)

Explanation: The standard consumer buying process begins when a
need is recognized (C). This prompts the consumer to search for
information (A), evaluate the available brand alternatives (D), make the
final purchase decision (E), and subsequently evaluate their satisfaction
levels during post-purchase usage (B).

Q.72 Arrange the following international economic organizations

or agreements in the correct chronological order of their official
establishment or entry into force, from the earliest to the latest:
A. World Trade Organization (WTO)
B. International Monetary Fund (IMF)
C. United Nations Conference on Trade and Development (UNCTAD)
D. General Agreement on Tariffs and Trade (GATT)
E. European Economic Community (EEC)
Choose the correct answer from the options given below:
(1) B, D, E, C, A
(2) B, E, D, C, A

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(3) D, B, C, E, A
(4) B, D, C, E, A

Correct Answer: (1)

Explanation: The chronological sequence is:
● International Monetary Fund (IMF) established in 1945 (B)
● General Agreement on Tariffs and Trade (GATT) entered into force in
1948 (D)
● European Economic Community (EEC) founded via the Treaty of
Rome in 1957 (E)
● UNCTAD established in 1964 (C)
● WTO formed in 1995 (A)

Q.73 Arrange the logical steps involved in the process of statistical

hypothesis testing in the correct sequential order, from start to
finish:
A. Set the level of significance (α)
B. Formulate the Null (H₀) and Alternative (H₁) Hypotheses
C. Collect sample data and calculate the appropriate test statistic
D. Establish critical region or decision criteria
E. Make a statistical decision to accept or reject the Null Hypothesis
Choose the correct answer from the options given below:
(1) B, A, D, C, E
(2) B, C, A, D, E
(3) A, B, D, C, E
(4) B, A, C, D, E

Correct Answer: (1)

Explanation: Hypothesis testing begins by formulating the null and
alternative hypotheses (B). Next, the significance level alpha is specified
(A). The critical rejection region is established (D), after which sample
data is collected to compute the test statistic (C). Finally, the statistic is
compared to the critical values to make a decision (E).

Q.74 Arrange the core stages of the Capital Budgeting process in

the correct functional sequence:

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A. Project evaluation and selection

B. Project generation or identification
C. Project implementation
D. Project post-audit or review
E. Project preparation and feasibility study
Choose the correct answer from the options given below:
(1) B, E, A, C, D
(2) B, A, E, C, D
(3) E, B, A, C, D
(4) B, E, C, A, D

Correct Answer: (1)

Explanation: Capital budgeting begins with searching for and
identifying viable investment ideas (B). These undergo feasibility
analysis and capital estimation (E) before being evaluated using
financial tools like NPV and chosen (A). The selected project is then
implemented (C), and its ongoing performance is monitored via post-
audit (D).

Q.75 For four different pairs of datasets A, B, C, and D, the

correlation coefficient between X and Y (denoted as R) and the
standard deviations of X and Y (denoted as S(X) and S(Y)) are given
below. Estimate the covariance between X and Y (denoted as Cov(X,
Y)) for each dataset using the formula Cov(X, Y) = R × S(X) × S(Y),
and arrange them in ascending order of value:
A. R = 0.60, S(X) = 5, S(Y) = 12
B. R = 0.80, S(X) = 6, S(Y) = 8
C. R = 0.50, S(X) = 10, S(Y) = 7
D. R = 0.70, S(X) = 8, S(Y) = 7
Choose the correct answer from the options given below:
(1) C, A, B, D
(2) A, C, B, D
(3) C, B, A, D
(4) B, A, D, C

Correct Answer: (1)

Explanation: Calculate covariance using Cov(X, Y) = R × S(X) × S(Y):

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● Dataset A: Cov = 0.60 × 5 × 12 = 36.0

● Dataset B: Cov = 0.80 × 6 × 8 = 38.4
● Dataset C: Cov = 0.50 × 10 × 7 = 35.0
● Dataset D: Cov = 0.70 × 8 × 7 = 39.2
Arranging in ascending order gives: C (35.0), A (36.0), B (38.4), D
(39.2).

Q.76 Arrange the following liabilities of a company in the correct

legal sequence of their payout order during the process of corporate
liquidation (winding up) under the Companies Act, 2013, from first
to last:
A. Secured creditors and workmen's dues
B. Unsecured creditors
C. Liquidation expenses and liquidator's remuneration
D. Preference shareholders
E. Equity shareholders
Choose the correct answer from the options given below:
(1) C, A, B, D, E
(2) A, C, B, D, E
(3) C, B, A, D, E
(4) C, A, B, E, D

Correct Answer: (1)

Explanation: When winding up a company, realization proceeds are
distributed in a strict legal order. Liquidation costs and liquidator's
remuneration (C) are paid first. This is followed by secured creditors and
workmen's dues (A) ranking pari passu. Unsecured creditors (B) are
paid next, followed by preference shareholders (D), and finally equity
shareholders (E).

Q.77 Arrange the steps in the systematic employee selection

process in human resource management in the correct sequential
order, from start to completion:
A. Preliminary interview or screening
B. Selection decision and physical medical examination
C. Conducting selection tests (aptitude, cognitive, personality)

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D. Comprehensive face-to-face employment interview

E. Background and reference checks
Choose the correct answer from the options given below:
(1) A, C, D, E, B
(2) A, D, C, E, B
(3) C, A, D, E, B
(4) A, C, E, D, B

Correct Answer: (1)

Explanation: The selection process begins by eliminating obviously
unqualified applicants via a preliminary screening interview (A).
Surviving candidates undergo formal selection tests (C) and
comprehensive employment interviews (D). References and
backgrounds are verified next (E), leading to the final selection decision
and a pre-employment medical exam (B).

Q.78 Arrange the following Indian corporate and commercial laws

in the correct chronological order of their initial enactment, from
the earliest to the latest:
A. The Indian Contract Act
B. The Sale of Goods Act
C. The Negotiable Instruments Act
D. The Consumer Protection Act
E. The Competition Act
Choose the correct answer from the options given below:
(1) A, C, B, E, D
(2) A, B, C, E, D
(3) C, A, B, E, D
(4) A, C, B, D, E

Correct Answer: (1)

Explanation: The timeline of enactments is:
● The Indian Contract Act was enacted in 1872 (A)
● The Negotiable Instruments Act was enacted in 1881 (C)
● The Sale of Goods Act was enacted in 1930 (B)
● The Competition Act was enacted in 2002 (E)
● The Consumer Protection Act was enacted in 2019, replacing the

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1986 Act (D)

Q.79 Arrange the following steps in the strategic marketing

planning process in the correct logical sequence:
A. Market Segmentation, Targeting, and Positioning (STP)
B. Conducting SWOT Analysis and Market Auditing
C. Formulation of Marketing Mix (4Ps)
D. Implementation and Control of the Marketing Plan
E. Setting Strategic Marketing Objectives
Choose the correct answer from the options given below:
(1) B, E, A, C, D
(2) E, B, A, C, D
(3) B, A, E, C, D
(4) B, E, C, A, D

Correct Answer: (1)

Explanation: Strategic marketing planning starts by analyzing the
environment through a SWOT analysis (B). This analysis helps define
realistic marketing objectives (E). STP strategies are formulated next to
identify target customers (A). The marketing mix (C) is then designed,
followed by implementation, feedback, and control measures (D).

Q.80 Using the Capital Asset Pricing Model (CAPM) expected return
formula E(R) = R_f + β × (R_m − R_f), calculate the expected return
for four portfolios A, B, C, and D, and arrange them in ascending
order of their returns. Assume a risk-free rate (R_f) of 6% and an
expected market return (R_m) of 14% (making the market risk
premium exactly 8%):
A. Portfolio A with Beta (β) = 1.2
B. Portfolio B with Beta (β) = 0.8
C. Portfolio C with Beta (β) = 1.5
D. Portfolio D with Beta (β) = 1.1
Choose the correct answer from the options given below:
(1) B, D, A, C
(2) D, B, A, C
(3) B, A, D, C

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(4) C, A, D, B

Correct Answer: (1)

Explanation: Calculate expected returns using E(R) = 6% + β × 8%:
● Portfolio A: E(R) = 6% + (1.2 × 8%) = 6% + 9.6% = 15.6%
● Portfolio B: E(R) = 6% + (0.8 × 8%) = 6% + 6.4% = 12.4%
● Portfolio C: E(R) = 6% + (1.5 × 8%) = 6% + 12.0% = 18.0%
● Portfolio D: E(R) = 6% + (1.1 × 8%) = 6% + 8.8% = 14.8%
Arranging in ascending order gives: B (12.4%), D (14.8%), A (15.6%),
C (18.0%).

Q.81 Given below are two statements: one is labelled as Assertion

(A) and the other is labelled as Reason (R).
Assertion (A): An increase in the Cash Reserve Ratio (CRR) by the
Reserve Bank of India (RBI) leads to a contraction in the credit-creating
capacity of commercial banks.
Reason (R): A higher CRR locks up a larger portion of commercial bank
deposits with the central bank, thereby directly reducing the bank's
lendable resources and lowering the money multiplier.
In the light of the above statements, choose the most appropriate answer
from the options given below:
(1) Both (A) and (R) are correct and (R) is the correct explanation of (A)
(2) Both (A) and (R) are correct but (R) is NOT the correct explanation of
(A)
(3) (A) is correct but (R) is not correct
(4) (A) is not correct but (R) is correct

Correct Answer: (1)

Explanation: The CRR is a major quantitative monetary policy
instrument. When the RBI increases the CRR, banks must maintain
larger interest-free balances with the RBI. This reduces their free
loanable reserves, directly compressing the credit multiplier (1 ÷ CRR)
and contracting credit creation, making the reason a valid, direct
explanation.

Q.82 Given below are two statements: one is labelled as Assertion

(A) and the other is labelled as Reason (R).

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Assertion (A): Under marginal costing, the valuation of inventory is

systematically lower than the inventory valuation under absorption
costing.
Reason (R): Marginal costing treats fixed manufacturing overheads as a
period cost and excludes them entirely from product cost calculations,
whereas absorption costing capitalizes fixed overheads into the
inventory.
In the light of the above statements, choose the most appropriate answer
from the options given below:
(1) Both (A) and (R) are correct and (R) is the correct explanation of (A)
(2) Both (A) and (R) are correct but (R) is NOT the correct explanation of
(A)
(3) (A) is correct but (R) is not correct
(4) (A) is not correct but (R) is correct

Correct Answer: (1)

Explanation: Under marginal costing, only variable costs are assigned
to units of inventory. Fixed manufacturing overheads are expensed
immediately in the Profit and Loss Account. Absorption costing assigns
both variable and fixed manufacturing costs to units, causing closing
inventory values to absorb a share of fixed costs and making absorption
valuations systematically higher.

Q.83 Given below are two statements: one is labelled as Assertion

(A) and the other is labelled as Reason (R).
Assertion (A): In the second stage of the classical Law of Variable
Proportions, both the average product (AP) and the marginal product
(MP) of the variable input are declining, but AP remains strictly greater
than MP.
Reason (R): Stage II of production begins at the point where the marginal
product of the variable input is at its maximum and continues until the
total product (TP) begins to decline.
In the light of the above statements, choose the most appropriate answer
from the options given below:
(1) Both (A) and (R) are correct and (R) is the correct explanation of (A)
(2) Both (A) and (R) are correct but (R) is NOT the correct explanation of
(A)

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(3) (A) is correct but (R) is not correct

(4) (A) is not correct but (R) is correct

Correct Answer: (3)

Explanation: Assertion (A) is correct; throughout Stage II, both AP and
MP fall, and MP remains below AP because falling average values drag
marginal values down faster. However, Reason (R) is incorrect because
Stage II begins where AP is at its maximum (where AP = MP), not where
MP is at its maximum.

Q.84 Given below are two statements: one is labelled as Assertion

(A) and the other is labelled as Reason (R).
Assertion (A): According to the Modigliani-Miller (MM) hypothesis with
corporate taxes, the value of a levered firm is strictly greater than the
value of an identical unlevered firm.
Reason (R): The use of debt allows the firm to benefit from the tax
deductibility of interest payments, creating a valuable interest tax shield
that increases the total cash flows available to investors.
In the light of the above statements, choose the most appropriate answer
from the options given below:
(1) Both (A) and (R) are correct and (R) is the correct explanation of (A)
(2) Both (A) and (R) are correct but (R) is NOT the correct explanation of
(A)
(3) (A) is correct but (R) is not correct
(4) (A) is not correct but (R) is correct

Correct Answer: (1)

Explanation: The MM theorem with taxes (Proposition I) proves that
debt financing increases firm value due to tax shields. Because interest
is a tax-deductible expense, a levered firm pays less corporate tax than
an equivalent unlevered firm, transferring that saved cash to debt and
equity investors and increasing overall firm value.

Q.85 Given below are two statements: one is labelled as Assertion

(A) and the other is labelled as Reason (R).
Assertion (A): According to the Central Limit Theorem, the sampling
distribution of the sample mean will be approximately normally

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distributed, regardless of the shape of the underlying population

distribution, if the sample size is sufficiently large (n ≥ 30).
Reason (R): As the sample size n increases, the standard error of the
sample mean (SE = σ ÷ √n) increases proportionally, making the sample
mean a highly volatile estimator of the population mean.
In the light of the above statements, choose the most appropriate answer
from the options given below:
(1) Both (A) and (R) are correct and (R) is the correct explanation of (A)
(2) Both (A) and (R) are correct but (R) is NOT the correct explanation of
(A)
(3) (A) is correct but (R) is not correct
(4) (A) is not correct but (R) is correct

Correct Answer: (3)

Explanation: Assertion (A) is correct. The Central Limit Theorem
ensures normality of the sample mean as n grows (typically n ≥ 30).
However, Reason (R) is mathematically incorrect because the standard
error is inversely proportional to the square root of n (SE = σ ÷ √n). As n
increases, the standard error decreases, making the estimate more
stable.

Q.86 Given below are two statements: one is labelled as Assertion

(A) and the other is labelled as Reason (R).
Assertion (A): Job evaluation is a systematic process designed to
determine the relative worth of different jobs within an organization to
establish an equitable wage structure.
Reason (R): Job evaluation measures the individual performance,
behavioral traits, and operational efficiency of the specific employee
currently performing the job.
In the light of the above statements, choose the most appropriate answer
from the options given below:
(1) Both (A) and (R) are correct and (R) is the correct explanation of (A)
(2) Both (A) and (R) are correct but (R) is NOT the correct explanation of
(A)
(3) (A) is correct but (R) is not correct
(4) (A) is not correct but (R) is correct

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Correct Answer: (3)

Explanation: Assertion (A) is correct. Job evaluation rates the job itself,
not the worker, to achieve internal pay equity. Reason (R) is incorrect
because evaluating an individual's personal performance and traits on
the job is the function of performance appraisal, not job evaluation.

Q.87 Given below are two statements: one is labelled as Assertion

(A) and the other is labelled as Reason (R).
Assertion (A): Under the SARFAESI Act, 2002, secured creditors have
the legal authority to take possession of and sell collateral securities of
defaulting borrowers without any prior intervention of a court or
tribunal.
Reason (R): The primary objective of the SARFAESI Act is to expedite the
recovery process of non-performing assets (NPAs) in the banking sector
by bypassing time-consuming civil court litigation.
In the light of the above statements, choose the most appropriate answer
from the options given below:
(1) Both (A) and (R) are correct and (R) is the correct explanation of (A)
(2) Both (A) and (R) are correct but (R) is NOT the correct explanation of
(A)
(3) (A) is correct but (R) is not correct
(4) (A) is not correct but (R) is correct

Correct Answer: (1)

Explanation: The SARFAESI Act, 2002, provides banks with a powerful
mechanism to manage NPAs. It permits banks to issue a 60-day notice
to defaults and directly seize, manage, or auction collateral. This
eliminates the need to file long judicial suits, and the reason directly
accounts for this statutory design.

Q.88 Given below are two statements: one is labelled as Assertion

(A) and the other is labelled as Reason (R).
Assertion (A): Niche marketing is an exceptionally effective strategy for
smaller firms with limited resources seeking to compete against
dominant, well-entrenched market leaders.
Reason (R): By concentrating corporate efforts on a highly specialized,
narrowly defined customer segment, a niche marketer can deliver

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superior customized value and avoid direct, costly competition with

larger players.
In the light of the above statements, choose the most appropriate answer
from the options given below:
(1) Both (A) and (R) are correct and (R) is the correct explanation of (A)
(2) Both (A) and (R) are correct but (R) is NOT the correct explanation of
(A)
(3) (A) is correct but (R) is not correct
(4) (A) is not correct but (R) is correct

Correct Answer: (1)

Explanation: Small firms can rarely compete head-on with market
giants on scale and price. A niche marketing strategy lets them focus
their limited assets on serving a specialized customer segment very well.
This creates high loyalty, protects margins, and avoids price wars,
making the reason a valid explanation.

Q.89 Given below are two statements: one is labelled as Assertion

(A) and the other is labelled as Reason (R).
Assertion (A): The legal doctrine of Caveat Emptor does not apply where
a buyer relies entirely on the skill and judgment of the seller, having
made the specific purpose of the purchase known to the seller.
Reason (R): Under the Sale of Goods Act, 1930, there is an implied
condition that the goods shall be reasonably fit for the purpose disclosed
by the buyer if the seller normally supplies goods of that description in
their business.
In the light of the above statements, choose the most appropriate answer
from the options given below:
(1) Both (A) and (R) are correct and (R) is the correct explanation of (A)
(2) Both (A) and (R) are correct but (R) is NOT the correct explanation of
(A)
(3) (A) is correct but (R) is not correct
(4) (A) is not correct but (R) is correct

Correct Answer: (1)

Explanation: The general rule of Caveat Emptor (let the buyer beware)
is set aside when a buyer discloses their specific requirements to a seller

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and relies on the seller's professional judgment (Section 16(1)). In such

cases, there is an implied condition of fitness for purpose, which
explains why the buyer is protected.

Q.90 Given below are two statements: one is labelled as Assertion

(A) and the other is labelled as Reason (R).
Assertion (A): The primary objective of transfer pricing regulations in
international corporate taxation is to prevent multinational enterprises
(MNEs) from shifting profits out of high-tax countries to low-tax
jurisdictions.
Reason (R): Transfer pricing regulations require that all commercial and
financial transactions between associated enterprises be priced in
accordance with the internationally accepted Arm's Length Principle.
In the light of the above statements, choose the most appropriate answer
from the options given below:
(1) Both (A) and (R) are correct and (R) is the correct explanation of (A)
(2) Both (A) and (R) are correct but (R) is NOT the correct explanation of
(A)
(3) (A) is correct but (R) is not correct
(4) (A) is not correct but (R) is correct

Correct Answer: (2)

Explanation: Both statements are correct. The primary policy goal of
transfer pricing is to prevent tax base erosion and profit shifting (A). To
achieve this, tax authorities use the Arm's Length Principle (R) to adjust
intercompany prices to reflect market prices. However, the requirement
to use the arm's length method is a mechanism to achieve the goal,
rather than an explanation of the goal itself.

6: Reading Comprehension Passages

Passage 1 (Q. 91 to 95)
Read the passage below and answer the questions that follow:
In the contemporary globalized economy, the intersection of Green
Marketing and Digitalization has redefined organizational logistics and
supply chain management. Green marketing is no longer merely a
public relations tool or a reactive response to environmental activism; it
has matured into an active corporate strategy. Integrating digital tools—

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such as Internet of Things (IoT) sensors, blockchain-enabled

traceability, and big data analytics—allows companies to optimize their
supply chains to minimize carbon footprints while enhancing
operational efficiency. This convergence addresses the classic conflict
between ecological sustainability and short-term profit maximization.
Consumers are increasingly skeptical of corporate environmental
claims, a phenomenon known as "greenwashing". Consequently, firms
must move from superficial sustainability reporting to hard, verifiable
data metrics. Under the extended producer responsibility (EPR)
frameworks, organizations are legally and socially accountable for the
entire lifecycle of their products, from raw material extraction to final
disposal. Implementing circular economy models, supported by
transparent supply chain logistics, enables firms to capture residual
value from post-consumer waste, turning waste management from a
cost center into a source of competitive advantage. However, this
transition is capital-intensive and demands substantial organizational
learning, necessitating a change in corporate culture from top-level
management to frontline operations.

Q.91 Based on the passage, how has the integration of digital tools
transformed green marketing and supply chain logistics?
(1) By converting ecological sustainability from a strategy into a public
relations tool
(2) By allowing firms to measure and minimize carbon footprints while
improving operational efficiency
(3) By completely eliminating the need for corporate social responsibility
and product lifecycle tracing
(4) By guaranteeing high short-term profits without requiring any
capital investment

Correct Answer: (2)

Explanation: The passage states that combining digital tools (like IoT
and blockchain) with supply chains allows companies to optimize
operations. This optimization helps minimize carbon footprints while
simultaneously improving operational efficiency, resolving the classic
conflict between sustainability and profits.

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Q.92 According to the passage, what is the main risk associated

with superficial environmental claims by corporations?
(1) Increased compliance with extended producer responsibility (EPR)
rules
(2) An increase in the capital cost of digital integration
(3) Consumer skepticism and accusations of "greenwashing"
(4) The immediate decline of circular economy operational models

Correct Answer: (3)

Explanation: The text notes that consumers are increasingly skeptical
of corporate environmental claims, referring to this phenomenon as
"greenwashing". This skepticism forces firms to move past superficial
reporting and adopt hard, verifiable data metrics to back up their
claims.

Q.93 Which of the following best describes the concept of

"Extended Producer Responsibility (EPR)" as discussed in the text?
(1) The company's legal duty to limit its operations to raw material
extraction
(2) The consumer's responsibility to safely dispose of products after use
(3) The corporate accountability for a product's entire life cycle,
including raw materials and final disposal
(4) The state's responsibility to manage and fund industrial waste
recycling centers

Correct Answer: (3)

Explanation: The passage explicitly defines EPR frameworks as making
organizations legally and socially accountable for the entire lifecycle of
their products, spanning from initial raw material extraction all the way
to final post-consumer disposal.

Q.94 The author suggests that transitioning to a circular economy

model:
(1) Automatically reduces profits by turning waste management into a
costly liability
(2) Allows companies to capture residual value from waste, creating a
competitive advantage

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(3) Reduces the need for organizational learning and changes in

corporate culture
(4) Is a simple, low-cost marketing exercise that requires minimal capital
commitment

Correct Answer: (2)

Explanation: The passage notes that implementing circular economy
models with transparent logistics allows firms to capture residual value
from post-consumer waste. This turns waste management from a cost
center into a source of competitive advantage, although it remains
capital-intensive.

Q.95 What can be inferred from the passage regarding the role of
top-level management in implementing green supply chains?
(1) They are only responsible for external public relations and
environmental reporting.
(2) They must drive a deep change in corporate culture because the
transition requires significant learning and capital.
(3) They can ignore digital integration since frontline operations handle
daily logistics.
(4) They should focus solely on short-term profits to offset the high
capital cost of EPR.

Correct Answer: (2)

Explanation: The final sentence indicates that transitioning to
sustainable circular models is capital-intensive and demands
substantial organizational learning. This requires a systemic change in
corporate culture that must be supported from top-level management
down to frontline operations.
Passage 2 (
Q. 96 to 100)
Read the passage below and answer the questions that follow:
Modern corporate finance theory recognizes that a firm's capital
structure decision involves a delicate balance between tax advantages
and systemic costs. The classical Modigliani-Miller Proposition I, which
established capital structure irrelevance, assumed perfect capital
markets with zero friction, zero transaction costs, and no taxes. Once

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corporate taxes are introduced, the model suggests an optimal capital

structure of 100% debt due to the tax deductibility of interest payments.
However, in reality, extreme leverage is rarely observed. The Trade-Off
Theory of capital structure resolves this paradox by introducing two
opposing forces: the tax shield benefits of debt and the deadweight costs
of financial distress.
As a firm increases its debt ratio, the probability of default and
insolvency rises, generating both direct costs (legal fees, administrative
costs of bankruptcy) and indirect costs (loss of customer trust, vendor
demands for cash-on-delivery, and brain drain of key employees).
Furthermore, agency costs arise from conflicts of interest between
equity holders and debt holders. For instance, under financial distress,
equity holders may engage in "asset substitution"—undertaking high-
risk projects that benefit shareholders if successful, but leave
bondholders to bear the losses if they fail. Consequently, the optimal
capital structure is achieved at the point where the marginal benefit of
the tax shield is exactly offset by the marginal increase in the present
value of financial distress and agency costs. This optimal point varies
significantly across industries, depending on asset tangibility,
profitability, and cash flow volatility.

Q.96 According to the Trade-Off Theory, why do firms not choose

100% debt financing despite the corporate tax shield?
(1) Because debt capital is always more expensive than external equity
capital
(2) Because extreme leverage increases the present value of costly
financial distress and agency conflicts
(3) Because central bank regulations prohibit commercial debt from
exceeding equity
(4) Because equity shareholders prefer dividend payments over interest
tax shields

Correct Answer: (2)

Explanation: Although debt offers valuable interest tax shields, high
debt ratios increase the probability of default. This generates
substantial direct and indirect costs of financial distress alongside
agency conflicts, which eventually offset the tax benefits.

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Q.97 Which of the following is identified in the passage as an

"indirect cost" of financial distress?
(1) Court-mandated legal fees and bankruptcy administration costs
(2) The corporate tax paid on interest distributions to bondholders
(3) Loss of customer trust, vendor demands for cash, and loss of key
employees
(4) Flotation costs incurred when issuing new equity shares in capital
markets

Correct Answer: (3)

Explanation: The passage distinguishes between direct costs (legal and
administrative expenses) and indirect costs of financial distress,
explicitly listing loss of customer trust, vendor demands for cash-on-
delivery, and employee brain drain as key indirect costs.

Q.98 In the context of financial distress, "asset substitution" refers

to:
(1) Replacing old, depreciated physical assets with modern digital
equipment
(2) Debt holders taking control of a firm's operational assets during
bankruptcy
(3) Equity holders choosing high-risk projects that benefit them if
successful, but harm bondholders if they fail
(4) Selling corporate assets to generate cash to pay down outstanding
interest obligations

Correct Answer: (3)

Explanation: The passage defines "asset substitution" as an agency
conflict where equity holders, facing distress, select high-risk projects.
If successful, shareholders reap the rewards; if the projects fail, the
losses are borne primarily by the bondholders.

Q.99 According to the passage, the optimal capital structure of a

corporation is achieved when:
(1) The debt-to-equity ratio reaches exactly 100% debt financing.
(2) The firm's weighted average cost of capital (WACC) becomes equal to

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its cost of equity.

(3) The marginal tax shield benefit of debt is exactly offset by the
marginal increase in the present value of financial distress and agency
costs.
(4) The firm completely eliminates both its financial leverage and
operating risk.

Correct Answer: (3)

Explanation: The Trade-Off Theory states that the optimal capital
structure is achieved at the point where the marginal benefit of the tax
shield is exactly balanced by the marginal increase in the present value
of financial distress and agency costs.

Q.100 Based on the theoretical framework presented in the

passage, what can be inferred about optimal debt levels across
different industry sectors?
(1) Optimal debt levels are uniform across all industries regardless of
operational risk.
(2) Service sectors with low asset tangibility will always maintain higher
debt ratios than manufacturing firms.
(3) Optimal debt levels vary based on factors like asset tangibility,
profitability, and cash flow volatility.
(4) Highly profitable firms with volatile cash flows will choose 100% debt
structures.

Correct Answer: (3)

Explanation: The final sentence states that the optimal leverage point
varies significantly across different industries. This variance depends on
industry-specific variables including asset tangibility (collateral
potential), general business profitability, and underlying cash flow
volatility.

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