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Posted Date: 26 Dec 2007      Posted By:: ashish    Member Level: Gold    Points: 5 (Rs. 1)

2005 ICFAI University M.B.A Business Law Question paper



Course: M.B.A   University/board: ICFAI University





Question Paper
Business Law (MB261) : January 2005
Section A : Basic Concepts (30 Marks)

• This section consists of questions with serial number 1 - 30.
• Answer all questions.
• Each question carries one mark.
• Maximum time for answering Section A is 30 Minutes.

1. How much amount shall be transferred to capital redemption reserve account, when a company
purchases its own shares out of free reserves?
(a) A sum equal to the nominal value of the shares so purchased
(b) A sum equal to the market value of the shares so purchased
(c) A sum equal to the book value of the shares so purchased
(d) A sum equal to the intrinsic value of the shares so purchased
(e) A sum equal to the market value of shares or book value of shares which ever is higher.

2. The Companies (Acceptance of Deposits) Rules, 1975 are applicable to
(a) Non –Banking Finance Companies
(b) Non-Banking Non–Finance Companies
(c) Finance Companies
(d) Banking Companies
(e) Co-operative societies.

3. As per section 591 of the Companies Act, a foreign company means?
(a) A company incorporated out side India and having place of business in India
(b) A company incorporated in India and having place of business out side India
(c) A company incorporated out side India and having place of business out side India
(d) A company incorporated in India and having place of business in India
(e) A company incorporated in India but not commenced its business.

4. Which of the following directors can be appointed by passing circular resolution?
I. Appointment of director in casual vacancy
II. Appointment of director as additional director
III. Appointment of director as alternate director
(a) Only (I) above (b) Only (II) above
(c) Both (I) and (III) above (d) Both (II) and (III) above
(e) (I), (II) and (III) above.

5. What is the minimum age limit prescribed under the Companies Act, for a person to be appointed as
managing director of a company
(a) Attaining the age of eighteen years (b) Attaining the age of twenty five years
(c) Completing the age of eighteen years (d) Completing the age of twenty five years
(e) Attaining the age of twenty one years.

6. Which of the following is the scope of the company?
(a) Memorandum of Association of the company
(b) Articles of Association of the Company
(c) Paid up capital of the company
(d) Common seal of the company
(e) Assets of the company.

7. The Doctrine of Election lays down the principle that
(a) Representatives of the people should be elected
(b) A person has the liberty to do whatever he wants
(c) A man taking a benefit under an instrument must also bear the burden
(d) Between alternative legal remedies a person may choose that which is most beneficial to him.
(e) A property cannot be transferred where a suit or proceeding is pending in any court.


8. Which of the following is false?
(a) Compromise can be a consideration for a contract
(b) Forbearance can be a consideration for a contract
(c) Abstinence can be a consideration for a contract
(d) Consideration for a contract may be illusory
(e) Consideration should be real.

9. Debentures cannot be issued at discount if they are
(a) Non-cumulative (b) Redeemable (c) Convertible
(d) Unsecured (e) Cumulative.
< Answer >
10. A guarantee given for an existing debt or obligation is called a
(a) Retrospective guarantee (b) Prospective guarantee
(c) Specific guarantee (d) Simple guarantee
(e) Fidelity guarantee.

11. Under which of the following circumstances a company is not permitted to engage in buy-back of its
securities?
(a) When default is made in filing its annual return
(b) When Managing director is not appointed as required
(c) When annual general meeting is not conducted for a calendar year
(d) When the directors claims excess remuneration than what they are eligible
(e) When higher rate of dividend is declared at an annual general meeting.

12. Which of the following is not the right of an auditor of a company
(a) To have access to books of accounts
(b) To call for information and explanations
(c) To receive notices and other communications relating to general meetings
(d) To receive remuneration for auditing the accounts
(e) To check whether the transactions of the company, which are represented merely by book entries,
are not prejudicial to the interest of the company.

13. An agent, who in consideration for an extra-commission, guarantees his principal that the persons with
whom he enters into a contract on behalf of the principal, shall perform their obligations, is called:
(a) Special agent (b) General agent (c) Universal agent
(d) Commission agent (e) Del-credere agent.

14. In case of breach of a warranty in a contract of sale, the buyer can
(a) Repudiate the contract (b) Claim damages only
(c) Reject the goods (d) Refuse to pay the price
(e) Not reject the goods.
15. Which of the following instruments can be made payable to ‘bearer on demand’
I. A promissory note. II. A bill of exchange.
III. A cheque. IV. A hundi.
(a) Only (II) above (b) Only (III) above
(c) Both (II) and (III) above (d) Both (I) and (II) above
(e) Both (III) and (IV) above.

16. Which of the following preconditions is false in respect of the deductions that a newly established
undertaking in the Free Trade Zone can claim under Section 10A of the Income Tax Act, 1961?
(a) The undertaking should not be formed by the splitting or the reconstruction of the existing
business
(b) It should not be formed by the transfer of the old machinery
(c) It has to begin the manufacture or production in the Free Trade Zone
(d) There should be repatriation of the sale proceeds to India in convertible foreign exchange
(e) No certificate from the Auditor is necessary for the purpose of claiming the deduction.

17. The income from the sale of the coffee grown, cured, roasted and grounded by the seller in India
without mixing any flavouring ingredients is treated as agricultural income to the extent of
(a) 40 percent (b) 60 percent (c) 100 percent
(d) 50 percent (e) Nil.

18. Which of the following statements is/are true in respect of the income earned by a local authority?
I. The income from the supply of a commodity (not being water and electricity) within the
jurisdiction is exempt from tax.
II. The income from the supply of electricity outside the jurisdiction is exempt from tax.
III. The income from the supply of the water is fully taxable.
IV. The capital gains earned by a local authority are fully taxable.
(a) Only (I) above (b) (I), (II) and (III) above (c) (III) and (IV) above
(d) (I) and (II) above (e) (I), (II), (III) and (IV) above.

19. Mr. Dhananjay who works as an officer in a private company uses his own car of 1200c.c for both
official and the private purposes. His employer incurs an amount of Rs.6,000 per month on the car. He
recovered an amount of Rs.18,000 p.a. from Mr. Dhananjay towards the car expenses. What is the
taxable value of the perquisite in respect of the car in the hands of Mr. Dhananjay for the assessment
year 2004-05?
(a) Rs.54,000 (b) Rs.14,400 (c) Rs.60,000 (d) Rs.39,600 (e) Rs.45,600.

20. Which of the following is not treated as profits in lieu of salary as per the provisions of the Income Tax
Act, 1961?
(a) Retrenchment compensation received by an employee
(b) Lumpsum payments received prior to the employment
(c) Lumpsum payments received after the cessation of the employment
(d) Compensation received from the employer in connection with the modifications of the terms of the
employment
(e) Payment from the unrecognized provident fund over and above the contributions made by the
assessee and the interest thereon.

21. For which of the following purposes can the Central Government prohibit the import or export of goods
of specified description u/s 11 of the Customs Act, 1962?
I. Maintenance of security of India.
II. The protection of deceptive practices.
III. The conservation of exhaustible natural resources.
IV. The prevention of smuggling.
(a) Both (I) and (III) above (b) Both (II) and (IV) above
(c) Both (I) and (II) above (d) (I), (II) and (III) above
(e) (I), (II), (III) and (IV) above.

22. Which of the following is/are the sale in course of export on which no tax is payable under the Central
Sales Tax?
I. Sale or purchase that occasions the export.
II. Sale is effected by a transfer of the documents of title to goods after the goods have crossed the
customs frontiers of India.
III. Exports through the agents.
(a) Only (I) above (b) Only (II) above (c) Only (III) above
(d) Both (I) and (III) above (e) (I), (II) and (III) above.

23. Under the Central Excise Act ‘sale’ at the time of removal includes
(a) Hire purchase and the lease (b) Job work (c) Stock transfer
(d) Branch transfer (e) Free samples.

24. Under which of the following situations, are the rules under Part B of Schedule III not applicable for
valuation of a building?
I. The Assessing Officer, with the approval of Deputy Commissioner, is of the opinion that it is not
practicable to apply the rules of Part B of Schedule III to a particular case
II. The unbuilt area exceeds the specified area by more than 20% of the aggregate area
III. The property is built on a leasehold land and the lease expires within a period of 15 years and the
lease deed does not give an option to the lessee for renewal of the lease.
(a) Only (I) above (b) Only (II) above (c) Both (I) and (II) above
(d) Both (I) and (III) above (e) (I), (II) and (III) above.


25. Which of the following will not be considered while computing the maximum ceiling of Rs.20,000 in
respect of the repayment of the housing loan for the purpose of section 88?
(a) Stamp duty and the registration
(b) Legal expenditure incurred for the registration of the house property in the assessee’s name
(c) Cost of the repairs before the issuance of the completion certificate
(d) Cost of the repairs before the occupation of the house
(e) Repayment of the loan taken from a friend for the house construction.

26. Which of the following losses are not deductible from the business income?
I. Losses relating to any business or profession discontinued before the commencement of the
previous year
II. Loss of the advances made for setting up of a new business and which could not be started
III. Losses incurred on the sale of the shares held as investments
IV. Loss arising from the non-recovery of the tax paid by an agent on behalf of the non-resident.
(a) Both (III) and (IV) above (b) (I), (II) and (III) above
(c) (I), (III) and (IV) above (d) (II), (III) and (IV) above
(e) (I), (II), (III) and (IV) above.

27. Which of the following statements are true in respect of the wealth tax return to be filed by an
assessee?
I. The due date for the income tax and the wealth tax return is the same.
II. Wealth tax officer can issue a notice to the assessee on his failure to file the wealth tax return,
before the end of the relevant assessment year.
III. A revised wealth tax return can be filed within one year from the end of the assessment year or
before the completion of the assessment, whichever is earlier.
IV. A return, which shows the net wealth below the exemption limit is deemed to have never been
furnished.
(a) Both (I) and (II) above (b) Both (II) and (III) above
(c) (I), (II) and (III) above (d) (II), (III) and (IV) above
(e) (I), (II), (III) and (IV) above.

28. The excise duty is not chargeable from the manufacturer
(a) On the goods which are used within the factory
(b) On the goods which are captively consumed in the factory for the further manufacture
(c) On the goods which are given as free samples
(d) On the goods which are given as free replacement
(e) On the textile goods manufactured on a job work basis, at small units.

29. The abatement of the duty on the damaged goods is allowed u/s 22 of customs Act in which of the
following cases?
I. If the goods are damaged before or during the unloading in India.
II. If the goods are damaged by accident after unloading but before the examination by the Customs
Officer, for the assessment.
III. If the goods are damaged by accident in the warehouse before the clearance.
(a) Only (I) above (b) Only (II) above (c) Only (III) above
(d) Both (II) and (III) above (e) (I), (II) and (III) above.

30. The stock transfer will be treated as occasioned as a result of the sale, if not supported by
(a) Form ‘C’ (b) Form ‘H’ (c) Form ‘G’ (d) Form’F’ (e) Form ‘D’.

END OF SECTION A


Section B : Problems (50 Marks)
• This section consists of questions with serial number 1 – 8.
• Answer all questions.
• Marks are indicated against each question.
• Detailed workings should form part of your answer.
• Do not spend more than 110 - 120 minutes on Section B.

1. Kartik is a director in 20 companies as on 1st October 2004. The composition of his directorships is as detailed
below:
I. Alternative director in a public limited company;
II. Director in 15 public limited companies;
III. Director in 2 private companies which are neither subsidiaries nor holding of other public companies; and
IV. Director in a company registered as an association not carrying on business for profit.
V. Director in an unlimited company.
Wise Ltd., a public limited company, wants to induct Kartik as a director in its Board. Decide whether Kartik can
be appointed as director in Wise Ltd. in terms of Sections 275 and 278 of the Companies Act, 1956?
(5 marks)

2. Sri Krishna Limited with paid-up capital of Rs.3 crore and free reserves of Rs. 5 crore as on March 31, 2004 has
investments of Rs. 8 crore in various firms. The company made the following further investments:
I. 50,000 Equity shares of Rs. 10 each at Rs. 390 per share in PQR Co. Ltd.,
II. Investment of Rs. 1 crore in 11% debentures of Albert Pharma Ltd.
III. 50,000 Units of US-64 issued by the UTI at Rs. 14.50 each
IV. 25,000 Equity shares of Rs. 10 each @ Rs. 130 each in securities.
Discuss whether, the company has violated the provisions of Sec 372A of the Companies
Act, if not so, how much amounts further the company apart from the existing investments can invest in other
body corporates?
(5 marks)

3. The Board of directors of Slow-Down Limited set up an audit committee comprising of four members, but did not
fix the quorum. At a meeting of the audit committee only two members present to transact certain business. In the
above situation, discuss, whether the two members of the Audit Committee can form quorum for the meeting?
(5 marks)

4. A, accepted a bill and delivered it to B for the purpose of getting it discounted from him. B, having failed to
discount it, returned the bill to A, who tore the bill into two pieces intending to cancel it, and threw the pieces
into the street. B picked up the pieces and pasted them together in such a manner that the bill seemed to have
been folded for safe custody rather than cancelled. B then indorsed the bill in favor of C, a holder in due course.
In the above context, discuss whether, C gets valid title to the bill?
(5 marks)

5. ABC Ltd. company has twelve directors, who are scattered all over the country. Every time when ever there is a Board meeting, all twelve directors attend thereby, the cost of sitting fees is high and the directors are given
trouble all the way to attend to all the board meetings. They sought the advise of the company secretary on this
matter, how they can meet and decide the matters which will not amount to violation of the Companies Act. The
company secretary advised the Board of directors to form committees so that, they need not waste money, time
and energy of all directors. Taking the above matter into account, decide what are the matters that can be
delegated to committee of directors?
(5 marks)

6. Brahma Ltd. offered the following fringe benefits to its senior executive, Mr.Seshadri whose basic pay exceeds
Rs.18,000 per month for the previous year 2003-04:
• Special discount on the sales of the company’s product for personal use.
• Option to purchase used furniture, cooler and refrigerator in furnished accommodation (used for 10 years)
at concessional value.
• Leave travel assistance to the same extent as is given to the Government servants.
• Free educational facility for his 3 children in the school owned and maintained by the company.
• Interest free loan for the purchase of a house.
• Free lunch facility within the office premises during the business hours.
• The company has provided also a domestic servant.
You are required to discuss the tax treatment of the above benefits / perquisites provided by the company to
Mr.Seshadri for the assessment year 2004-05.
(7 marks)

7. On May 28, 1999 Mr. Pranav purchased 1,000 equity shares of Rs.10 each of Glaco Ltd. at the rate of Rs.150 per share from a broker. He paid brokerage at the rate of 1% on the purchase. On January 24, 2002, he was allotted bonus shares by the company at the rate of one bonus share for every four shares held. Subsequently, in the month of April, 2003, he was given an option to acquire right shares at the rate of Rs.90 per share in the ratio of one share for every two shares originally purchased. He acquired 50% of the right shares on the same day and sold the balance 50% of the rights at Rs.20,000 to his friend. On March 26, 2004 he sold all his shares at the rate of Rs.225 per share. The transaction cost was 1% of the sale consideration.
You are required to compute the capital gains in the hands of Mr. Pranav for the assessment year 2004-05.
(Clearly indicate the short-term and long-term capital gains).
Cost inflation index
1998-1999 – 351 2001-2002 – 426
1999-2000 – 389 2002-2003 – 447
2000-2001 – 406 2003-2004 – 463
(8 marks)

8. Mr.Dhananjay owns 3 houses. The following particulars have been furnished by Mr.Dhananjay for the previous
year 2003-04:

House 1
House 2
House 3
Particulars
Let out
Self occupied
Self occupied
(Rs.)
(Rs.)
(Rs.)
Municipal value 3,50,000 2,60,000 80,000
Fair rent
3,60,000 2,25,000 79,000
Standard rent 3,65,000 2,15,000 81,000
Actual rent
3,72,000 –– ––
Unrealized rent 31,000 –– ––
Repair expenses 60,000 20,000 5,000
Municipal taxes 24,000 12,000 2,000
Insurance premium 4,000 3,000 400
Interest on borrowed fund utilized for
construction of respective house property
60,000
82,000
––
Vacancy period 1 month –– ––
Date of completion of construction March 3, 1992 Jan. 1, 2001 June 6, 1989
Date of loan May 5, 1990 July 7, 1999 ––
On the basis of above particulars, you are required to compute the income chargeable to tax from house
properties in the hands of Mr. Dhananjay for the assessment year 2004-05.
(10 marks)

END OF SECTION B

Section C : Applied Theory (20 Marks)
• This section consists of questions with serial number 9 - 12.
• Answer all questions.
• Marks are indicated against each question.
• Do not spend more than 25 -30 minutes on section C.

9. Discuss the ‘privileges’ of holder in due course by applying the provisions of Negotiable Instruments Act, 1881.
(5 marks)

10. ‘All agreements are not contracts but all contracts are agreements’ elucidate the statement by applying the
provisions of the Indian Contract Act, 1872.
(5 marks)

11. Write short notes on the following applying the provisions of Central Sales Tax Act, 1956:
a. Dealer [(u/s 2(b)]
b. Place of business [(u/s 2(dd)]
c. Goods [(u/s 2(d)]

(2 + 2 + 2 = 6 marks)

12. Briefly explain the procedure for registration u/s 6 of the Central Excise Act, 1944.
(4 marks)





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