Financial Management and PlanningClass 11 Human Ecology And Family Sciences Part 2 NCERT Solutions
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Q1Practical 16
Financial Management and Planning Plan a budget for any festival celebrated in your school. One example under each heading is given. No. of students: 30 No. of teachers: 5 S.No. Item Cost (Rs.) Venue arrangement Decoration a) Flowers 100.00 b) c) d) e) Sub total Food a) Sweets (Prasad) 200.00 b) c) d) Sub total Stationery a) Coloured paper 200.00 b) c) d) Sub total Miscellaneous a) Transportation b) Costumes c) Gifts d) e) f) Sub total Grand total
Solution
Budget Plan for 'Diwali Celebration'
No. of students: 30
No. of teachers: 5
S.No.
Item
Details
Cost (Rs.)
Venue arrangement
Decoration
a)
Flowers
100.00
b)
Diyas (Earthen lamps)
150.00
c)
Rangoli Colours
100.00
d)
Fairy Lights
250.00
e)
Balloons
50.00
Sub total
650.00
Food
a)
Sweets (Prasad) - Laddoos
200.00
b)
Snacks (Samosas - 35 pcs)
350.00
c)
Juice (35 packs)
350.00
d)
Paper plates and glasses
100.00
Sub total
1000.00
Stationery
a)
Coloured paper
200.00
b)
Chart papers for posters
50.00
c)
Sketch pens and glitter
100.00
d)
Glue and scissors
50.00
Sub total
400.00
Miscellaneous
a)
Music System Rental
500.00
b)
Prizes for games
300.00
c)
Gifts (Small token for students)
300.00
d)
Contingency Fund (for unexpected costs)
150.00
e)
f)
Sub total
1250.00
Grand total
3300.00
Q1Review Exercise
Indicate if the following statements are 'True' or 'False'.
(i)
Budget is the first step in money management. (True/False) _____
(ii)
Money serves as a medium of exchange of commodities. (True/False) _____
(iii)
Profits from business and gifts are a form of income. (True/False)
(iv)
One should first estimate the cost and then list the commodities and services needed while making the budget. (True/False)
(v)
Savings in physical assets are productive in economic terms. (True/False) _____
(vi)
The trend in business cycle is an important consideration under the principal of safety. (True/False) _____
(vii)
The time period may be ignored while considering and deciding on an investment. (True/False) _____
(viii)
The 4 C's of credit are character, capacity, capital and collateral (True/False) _____
(ix)
Nature of enterprise is not an important safety consideration. (True/False) _____
Solution
(i)
True. The text states, "A budget is a plan for future expenditure. It represents the first step in the managerial process as applied to money."
(ii)
True. According to the chapter, one of the two most important functions of money is "Serving as a medium of exchange".
(iii)
True. The list of income forms in the chapter explicitly includes "Profits from business" and "Gifts".
(iv)
False. The chapter lists the steps for making a budget in order. The first step is to "List the commodities and services needed", and the second step is to "Estimate the cost of the desired items".
(v)
False. The text clarifies that investment in physical assets like land or gold "is not productive in the economic sense of the term and does not result in capital formation."
(vi)
True. Under the principle of "Safety of the principal amount", the text lists "Understanding prevailing phase of business cycle" as a way to ensure safety.
(vii)
False. The text highlights "Time period" as a critical principle of investment, stating that the "'lock in' period is a critical aspect to be considered before deciding on an investment."
(viii)
True. The chapter has a specific section on the "4 Cs of credit" which are listed as Character, Capacity, Capital, and Collateral.
(ix)
False. The principle of safety involves considerations like studying the market reputation of securities and owning shares in different companies, which are directly related to the nature of the enterprise.
Q2Review Exercise
What do you understand by 'management of finances'?
Solution
Management of finances, also known as financial management, refers to the process of planning, controlling, and evaluating the use of all types of income available to a family. Finances include all monetary receipts such as salary, wages, rent, interest, and bonus. The primary purpose of managing finances is to utilize the available resources in a way that provides the greatest satisfaction to the family, helping them meet their present needs and achieve their long-term goals.
Q3Review Exercise
Discuss the different types of income.
Solution
According to the chapter, there are three types of family income:
-
Money Income: This is the purchasing power a family receives in the form of rupees and paisa over a specific period. It includes sources like wages, salary, bonus, rent, interest, and royalties. This income is used to buy goods and services for daily living and for savings.
-
Real Income: This is the flow of commodities and services available to a family to satisfy their needs and wants. It is of two types:
- Direct Income: These are goods and services available to the family without using money. Examples include services rendered by family members like cooking and stitching, produce from a kitchen garden, and the use of community facilities like parks and libraries.
- Indirect Income: These are material goods and services that are obtained by using a medium of exchange, usually money. An example is using money to purchase high-quality vegetables.
-
Psychic Income: This is the intangible satisfaction and well-being a family derives from the ownership and use of goods and services. It is subjective and cannot be measured in monetary terms but is crucial for the quality of living.
Q4Review Exercise
Discuss the steps in making a budget.
Solution
Making a family budget involves five main steps:
-
List the commodities and services needed: The first step is to list all the items and services the family requires for the budget period. These items should be grouped into categories like food, housing, clothing, education, transportation, and savings.
-
Estimate the cost: After listing the items, the next step is to estimate the cost for each item and each category. It is important to consider market trends, such as rising prices, and allow a margin for such increases.
-
Estimate total expected income: The family must calculate its total income for the budget period. It is helpful to divide this into 'assured income' (like a fixed salary) and 'possible income' (like a potential bonus). Necessities should be planned from the assured income.
-
Bring expected income and expenditure into balance: Compare the total estimated expenditure with the total expected income. If expenses are higher than income, the family must either find ways to increase income (e.g., taking up extra work) or cut down on non-essential expenditures.
-
Check the plan for success: Finally, the budget plan should be reviewed to ensure it is realistic and has a good chance of success. This check involves confirming that family needs are met, there is a provision for emergencies, the family can pay its bills on time (solvency), and long-term goals are considered.
Q5Review Exercise
What are the controls that can be exercised in money management?
Solution
In money management, control is the step that follows planning. It involves checking the progress of the financial plan and making adjustments where necessary. The main controls are:
-
Checking: This helps in understanding how the plan is progressing. There are two kinds of checks:
- Mental and Mechanical Checks: A mental check involves visualizing the items a specific amount of money must cover, which helps in careful spending. A mechanical check involves physically setting aside a certain amount of cash for a specific purpose, such as keeping the monthly food budget in a separate purse or envelope. The rate at which the money disappears provides a clear check on spending.
- Records and Accounts: This involves keeping a written record of expenditures, such as a daily expense sheet or maintaining all bills and receipts. These records show how money has been spent and allow for a comparison between planned allocations and actual spending.
-
Adjusting the Plan: This is the process of making changes to the budget to keep it on track. Adjustments may be needed due to poor original planning, unforeseen emergencies, or when checking reveals a significant gap between the planned budget and actual spending.
Q6Review Exercise
Discuss the principles underlying sound investments.
Solution
Sound investments are guided by several key principles to ensure that savings are used wisely to provide good returns and security. The main principles are:
- Safety of the principal amount: The primary goal is to ensure the original amount invested is safe and not lost. This can be achieved by diversifying investments across government and private sectors, different companies, and various asset types like real estate, stocks, and bonds.
- Reasonable rate of return: Investments should offer a fair return. Generally, higher returns come with higher risks, so a balance must be struck based on the family's needs. For some, a regular, stable income may be more important than a higher, fluctuating one.
- Liquidity: This refers to how easily an investment can be converted into cash without losing its value. A balance between liquidity and income is necessary, as highly liquid assets often offer lower returns.
- Recognition of effect of world conditions: Investors must consider global and national business trends, as these can significantly affect the value and safety of investments.
- Easy accessibility and convenience: Investments should be chosen based on the family's knowledge and ability to manage them. A complex investment might lead to a loss if not understood properly.
- Investing in needed commodities: The maturity date of an investment should align with the family's future financial needs, such as a child's higher education.
- Tax efficiency: Investments should be chosen to take advantage of tax-saving provisions available under the Income Tax Act, such as those for insurance policies or Provident Funds.
- After investment service: The quality of customer service provided by the financial institution is important. This includes timely communication, easy encashment, and support when needed.
- Time period: The 'lock-in' period of an investment is a critical factor. Longer investment periods usually offer higher returns, so the investor must choose based on their family's needs and when they will require the money.
- Capacity: One should only invest an amount they can afford, ensuring that present needs are met without undue hardship.