Module 1 (2 marks questions)
Chapter 1
1. What is Income?
Ans. Income refers to the money that a person or entity receives in exchange for their labour or
products. For Businesses, income refers to the revenue a business earns from selling its goods and/or
services. For individuals, income refers to the compensation received for their labour, services or
investments. Example Salary, revenue, commission, interest,dividend.
2. What is Expenditure?
Ans. An expenditure is referred to as the act of spending time, energy or money on something. For
business, an expense is the cost of operations that a company incurs to generate revenue or income
eg. Payment of wages/salaries, rent for premises, electricity charges, interest on business loan etc.
For Individuals, personal expenses like groceries, rent of house, childrens education fees, water bill,
maintainence charges, electricity bills, interest on housing loan.
3. Distinguish between Revenue Expenses and Capital Expenses.
Parameter Revenue Expenses Capital Expenses
Meaning Revenue expense refers to the Capital expense refers to the
expenditure that does not expenditure that creates an
create any assets assets
Nature Regular and recurring Irregular and non recurring
Term Usually short term Long term
Example Payments of salaries, Purchase of Machinery
maintenance of
machinery,etc.
4. What is Saving?
Ans. Savings refers to an individual’s unspent earnings. It is the amount that remains after meeting
the household and other personal expenses. It is the money set aside for future use and not spent
immediately.
Saving =Income -expenditure
A person tend to spend all the money he earned, it’s a better practice to save first and spend what is
left. Rearranging the formula,
Income-Saving=expenditure.
5. Why should we save money?
Savings can be used to accomplish goals/objectives in the short term, such as buying a mobile phone,
or in the long run, for higher education, buying a house,car etc.
Saving money can also help us cover unexpected expenses, such as illness, replace an appliance,
emergency trip.
In addition, savings can be invested yeild profitable returns over a period of time.That is to say , not
only will you have the funds available to spent later, but you will earn money in the process.
6. Write a note on Factors of Production.
Ans. Factors of production are the resources used to produce goods and services.
Traditionally, economists have divided the Factors of Production into four categories
a. Land: Premises used to do a business ex. Office premises, factory, shop etc. It includes
anything that is considered a natural resource. The defination of land can be extensive and includes
the different forms of what the land yeilds- like oil, coal, timber, or gold.
b. Labour: Labour is the effort that people contribute to the the production of goods and
services.
c. Capital: Though capital refers to money invested, as a factor of production it also includes
equipments and technology
d. Entrepreneurship: Entrepreneurship refers to individual’s ideas, concepts, and emotional
efforts to produce a product or service.
, 7. What is Gross Domestic Product?
Ans. GDP is a common economic term in the context of measuring the growth of an economy. GDP
measures the monetary value of final goods and services. It counts all of the output generated within
the borders of a country.
Formula for calculation GDP of a country using Expenditure Method
GDP= C+G+I+NX
Where, C = Consumption Expenditure
G = Government Expenditure
I = Investments
NX= Net Exports (Exports - Imports)
8. What is Time Value of Money?
Ans. The money available at the present time is worth more than the same amount in the future I.e.
Rs. 100 available now is not equivalent to Rs.100 received after a year, since it has potential to earn
returns. Suppose the Rs. 100 received now is placed in one year bank deposit yeilding 6.5%p.a. After a
year, the value would grow to Rs. 106.50.
The value associated with the same sum of money received at various points on the timeline is called
the time value of money.
9. What is the compound interest on Rs.10000 for 2 years at 10% per annum compounded
annually?
Ans. P=10000, n=2, r=0.10, A=?, CI=?
A= P(1+r)2
=10000(1+0.10)2
=10000(1.1)2
=10000x1.21
=12100
CI=A-P
=12100-10000
=2100
10. What is compounding and discounting?
Ans. Compounding is a technique used to calculate the future value of the present cash flows while
discounting is a technique used to calculate the present value of the future cash flows.
Discounting technique is extensively used while evaluating capital budgeting decisions.
Compounding is used in the context of evaluating your financial goals at a future date.
11. What is CAGR?
Ans. CAGR stands for compounded annual growth rate. CAGR can be explained with the help of
example, suppose in Year 1 my investment grew at the rate of 10%, in year 2 @ 12%, in year 3@ 15%,
in year 4 @ 18%, in year 5 @ 38%. As any invester I would be interested to know on an average
annually at what rate my investment is growing, that rate is CAGR. There is one cash outflow and
annual returns which gets reinvested (like compound interest)
CAGR=[(A/P)1/n]-1
(one might need excel or scientific calculator to use above formula)
You can calculate CAGR using Log Table
CAGR= [Antilog{(Log A- Log P)/n}]-1
(CAGR formula is used only if there in one cash inflow and one cash outflow at the end, if there are
many cash inflows and outflows IRR(internal rate of return) formula is used)
12. An Investment doubles in 5 years find CAGR? (class room activity using Excel)
13. An Investment of Rs.10000 grows to Rs.15000 in 3 years. Find CAGR. (class room activity
using Excel)
14. What is Taxation?
Chapter 1
1. What is Income?
Ans. Income refers to the money that a person or entity receives in exchange for their labour or
products. For Businesses, income refers to the revenue a business earns from selling its goods and/or
services. For individuals, income refers to the compensation received for their labour, services or
investments. Example Salary, revenue, commission, interest,dividend.
2. What is Expenditure?
Ans. An expenditure is referred to as the act of spending time, energy or money on something. For
business, an expense is the cost of operations that a company incurs to generate revenue or income
eg. Payment of wages/salaries, rent for premises, electricity charges, interest on business loan etc.
For Individuals, personal expenses like groceries, rent of house, childrens education fees, water bill,
maintainence charges, electricity bills, interest on housing loan.
3. Distinguish between Revenue Expenses and Capital Expenses.
Parameter Revenue Expenses Capital Expenses
Meaning Revenue expense refers to the Capital expense refers to the
expenditure that does not expenditure that creates an
create any assets assets
Nature Regular and recurring Irregular and non recurring
Term Usually short term Long term
Example Payments of salaries, Purchase of Machinery
maintenance of
machinery,etc.
4. What is Saving?
Ans. Savings refers to an individual’s unspent earnings. It is the amount that remains after meeting
the household and other personal expenses. It is the money set aside for future use and not spent
immediately.
Saving =Income -expenditure
A person tend to spend all the money he earned, it’s a better practice to save first and spend what is
left. Rearranging the formula,
Income-Saving=expenditure.
5. Why should we save money?
Savings can be used to accomplish goals/objectives in the short term, such as buying a mobile phone,
or in the long run, for higher education, buying a house,car etc.
Saving money can also help us cover unexpected expenses, such as illness, replace an appliance,
emergency trip.
In addition, savings can be invested yeild profitable returns over a period of time.That is to say , not
only will you have the funds available to spent later, but you will earn money in the process.
6. Write a note on Factors of Production.
Ans. Factors of production are the resources used to produce goods and services.
Traditionally, economists have divided the Factors of Production into four categories
a. Land: Premises used to do a business ex. Office premises, factory, shop etc. It includes
anything that is considered a natural resource. The defination of land can be extensive and includes
the different forms of what the land yeilds- like oil, coal, timber, or gold.
b. Labour: Labour is the effort that people contribute to the the production of goods and
services.
c. Capital: Though capital refers to money invested, as a factor of production it also includes
equipments and technology
d. Entrepreneurship: Entrepreneurship refers to individual’s ideas, concepts, and emotional
efforts to produce a product or service.
, 7. What is Gross Domestic Product?
Ans. GDP is a common economic term in the context of measuring the growth of an economy. GDP
measures the monetary value of final goods and services. It counts all of the output generated within
the borders of a country.
Formula for calculation GDP of a country using Expenditure Method
GDP= C+G+I+NX
Where, C = Consumption Expenditure
G = Government Expenditure
I = Investments
NX= Net Exports (Exports - Imports)
8. What is Time Value of Money?
Ans. The money available at the present time is worth more than the same amount in the future I.e.
Rs. 100 available now is not equivalent to Rs.100 received after a year, since it has potential to earn
returns. Suppose the Rs. 100 received now is placed in one year bank deposit yeilding 6.5%p.a. After a
year, the value would grow to Rs. 106.50.
The value associated with the same sum of money received at various points on the timeline is called
the time value of money.
9. What is the compound interest on Rs.10000 for 2 years at 10% per annum compounded
annually?
Ans. P=10000, n=2, r=0.10, A=?, CI=?
A= P(1+r)2
=10000(1+0.10)2
=10000(1.1)2
=10000x1.21
=12100
CI=A-P
=12100-10000
=2100
10. What is compounding and discounting?
Ans. Compounding is a technique used to calculate the future value of the present cash flows while
discounting is a technique used to calculate the present value of the future cash flows.
Discounting technique is extensively used while evaluating capital budgeting decisions.
Compounding is used in the context of evaluating your financial goals at a future date.
11. What is CAGR?
Ans. CAGR stands for compounded annual growth rate. CAGR can be explained with the help of
example, suppose in Year 1 my investment grew at the rate of 10%, in year 2 @ 12%, in year 3@ 15%,
in year 4 @ 18%, in year 5 @ 38%. As any invester I would be interested to know on an average
annually at what rate my investment is growing, that rate is CAGR. There is one cash outflow and
annual returns which gets reinvested (like compound interest)
CAGR=[(A/P)1/n]-1
(one might need excel or scientific calculator to use above formula)
You can calculate CAGR using Log Table
CAGR= [Antilog{(Log A- Log P)/n}]-1
(CAGR formula is used only if there in one cash inflow and one cash outflow at the end, if there are
many cash inflows and outflows IRR(internal rate of return) formula is used)
12. An Investment doubles in 5 years find CAGR? (class room activity using Excel)
13. An Investment of Rs.10000 grows to Rs.15000 in 3 years. Find CAGR. (class room activity
using Excel)
14. What is Taxation?
