Financial Management - 4

LIST OF ATTEMPTED QUESTIONS AND ANSWERS



Multiple Choice Multiple Answer
Question
The limitations of ratio analysis are
Correct Answer
Ratios are based on historical financial statements rather than future happenings , Ratios are only indicators, they cannot be taken as final regarding good or bad financial position of the business , Ratio analysis takes in to consideration only monetary transactions
Your Answer
Ratios are based on historical financial statements rather than future happenings , Ratio analysis provides data for inter-firm comparison , Ratio analysis takes in to consideration only monetary transactions

True/False
Question
Carrying cost of inventory includes cost incurred for preparation of purchase requisition
Correct Answer
False
Your Answer
True

True/False
Question
The excessive issue of equity shares may result in over-capitalisation to be realized in future
Correct Answer
True
Your Answer
True

Multiple Choice Single Answer
Question
Net revenue is arrived at
Correct Answer
Sales revenue less cost
Your Answer
Sales revenue less tax liability

Match The Following
Question
Correct Answer
Your Answer
Term loan
represents a source of debt finance which is generally repayable in more than one year but less than ten years
unsecured borrowings for the company
Lessee
Not able to claim depreciation on asset
Residue left behind from earnings available to equity shareholders after the payment of annual dividend
Hirer
Claims the depreciation on the asset
instruments to raise long term debt capital
Retained earnings
Residue left behind from earnings available to equity shareholders after the payment of annual dividend
represents a source of debt finance which is generally repayable in more than one year but less than ten years

Multiple Choice Single Answer
Question
The ratio which indicates the credit policy followed by a business firm is known as
Correct Answer
Debtors turnover ratio
Your Answer
Creditors turnover ratio

True/False
Question
Debtors turnover ratio is normally supported by the calculations of average collection period
Correct Answer
True
Your Answer
False

True/False
Question
The mostly used methods of short term forcasting is the Receipt and Payment method
Correct Answer
True
Your Answer
True

Match The Following
Question
Correct Answer
Your Answer
Financial ratios
Ratios disclosing the financial position or solvency of the firm
Ratios which indicates the percentage of return on the total capital employed in the business
Profitability ratio
Ratios which reflect the final results of business operations
Ratios measuring the efficiency with which the assets are employed by a firm
Turnover ratios
Ratios measuring the efficiency with which the assets are employed by a firm
Ratios which reflect the final results of business operations
Overall profitability ratio
Ratios which indicates the percentage of return on the total capital employed in the business
The ratios indicate the long term financial prospects of the company

Multiple Choice Single Answer
Question
The rate of return which computes the average annual yield on the net investment in the project is known as
Correct Answer
Accounting rate of return
Your Answer
Return on investment

Multiple Choice Single Answer
Question
The hidden cost of capital which is not incurred directly is referred to as
Correct Answer
Implicit cost
Your Answer
Explicit cost

Multiple Choice Single Answer
Question
For the calculation of Operating Profit / Loss , Preliminary expenses written off should be
Correct Answer
added to the Net Profit as per Profit and loss account
Your Answer
Deducted from the Net Profit as per Profit and loss account

Select The Blank
Question
Cost management is the function of a ________.
Correct Answer
Treasurer
Your Answer
Finance manager

Multiple Choice Multiple Answer
Question
Advantages of Debentures from company's point of view are
Correct Answer
The specific cost of debt capital represented by debentures is lower than the cost of preference or equity capital , Debenture financing does not result in dilution of control
Your Answer
The specific cost of debt capital represented by debentures is lower than the cost of preference or equity capital , Debenture financing does not result in dilution of control , Debenture prices are vulnerable to increase in interest rates

Select The Blank
Question
If the project is accepted, Internal Rate of return resulting from the same should be ________ than cost of capital
Correct Answer
more
Your Answer
more

Select The Blank
Question
For accounting and tax purposes of hire purchase agreement, ________ is treated as revenue expenditure and is considered to be a tax deductible expenditure
Correct Answer
Only interest
Your Answer
Lease rental

True/False
Question
Following lenient dividend policy without bothering much about building up the reserves may be the cause for undercapitalisation
Correct Answer
False
Your Answer
True

Select The Blank
Question
The following data are extracted from the published accounts of a company : Sales Rs. 38,00,000/-, Net Profit after tax Rs. 2,50,000/-, Equity capital Rs. 10,00,000/-,General Reserve Rs. 6,50,000/-, Rs. Long term debt Rs. 7,00,000/-, Creditors Rs. 6,90,000/-, Bank credit/short term loan Rs. 2,30,000/-, Fixed Assets Rs. 17,50,000/-, Inventories Rs. 7,25,000/-, Other Current assets Rs. 5,25,000/-. The Inventory Turnover ratio is ________
Correct Answer
5.24
Your Answer
8.85

Multiple Choice Multiple Answer
Question
If Profit maximization is accepted as the only goal of finance function, it is criticised on the following grounds
Correct Answer
Ignores risk factor , Does not consider social obligation , Ignores quality aspect of benefits associated with a financial course of action
Your Answer
Ignores risk factor , Does not consider social obligation , Ignores quality aspect of benefits associated with a financial course of action

Multiple Choice Multiple Answer
Question
The depreciation is being charged for the following assets
Correct Answer
Plant and Machinery , Building
Your Answer
Plant and Machinery , Building , Stock

Multiple Choice Multiple Answer
Question
Advantages of the issue of Bonus shares in the form of Dividend to the company are
Correct Answer
Remedy for undercapitalisation , Increase marketability of shares , Increase credit standing of the company in the eyes of the lending financial institutions
Your Answer
Remedy for overcapitalisation , Remedy for undercapitalisation , Increase marketability of shares

True/False
Question
A partnership is an incorporated association of individuals.
Correct Answer
False
Your Answer
True

True/False
Question
Wealth maximization goal is only an extension of Profit maximization goal of the organisation
Correct Answer
True
Your Answer
True

Multiple Choice Single Answer
Question
From the following data, work out the Economic order quantity : Annual Demand : 5000 units, Ordering cost Rs. 60 per order, Price per unit Rs. 100, Inventory carrying cost is 15% on average inventory
Correct Answer
200 units
Your Answer
250 units

Multiple Choice Multiple Answer
Question
The factor may provide the following services to the client
Correct Answer
It may undertake the credit analysis of the customers of the client , It will undertake the various book-keeping and accounting activities in relation to the receivables management , It undertakes the responsibility of following up with the customers for the purpose of making the collection from the customer
Your Answer
It may undertake the credit analysis of the customers of the client , It will undertake the various book-keeping and accounting activities in relation to the receivables management , It undertakes the responsibility of following up with the customers for the purpose of making the collection from the customer

Multiple Choice Multiple Answer
Question
Advantages of Preference shares from shareholders point of view
Correct Answer
For a corporate investor, preference dividend income , It earns a stable dividend rate
Your Answer
For a corporate investor, preference dividend income , It earns a stable dividend rate , Enjoys controlling power over the firm

True/False
Question
With limited funds, the company must obtain the optimum combination of acceptable investment proposals
Correct Answer
True
Your Answer
True

Select The Blank
Question
________ leverage also acts as a guideline in setting maximum limit upto which the company should use the debt capital
Correct Answer
Financial
Your Answer
Operating

Multiple Choice Single Answer
Question
Interest coverage ratio is useful in indicating the symptom of
Correct Answer
Inability to pay interest
Your Answer
Inability to pay dues to financial institutions

True/False
Question
Financial lease is also referred to as Capital lease
Correct Answer
True
Your Answer
True

Multiple Choice Single Answer
Question
Technical terminology used to invest in the current assets being
Correct Answer
Working Capital Management
Your Answer
Working Capital Management

Multiple Choice Multiple Answer
Question
The advantages of stable Dividend policy are
Correct Answer
Credit standing of the company in the market increases , Share price of the company increases , Enjoys Confidence of the shareholders
Your Answer
Credit standing of the company in the market increases , Share price of the company increases , Enjoys Confidence of the shareholders

Multiple Choice Single Answer
Question
Denomination of the equity shares in the public issue or rights issue can be decided by
Correct Answer
the company
Your Answer
Company law Board

Multiple Choice Multiple Answer
Question
Limitations of credit rating are
Correct Answer
Credit rating is based upon the evaluation made by the agencies which may vary depending upon the experience, knowledge and individual opinion of the rators which may be biased in some cases , Credit rating is primarily based upon the past performance whereas the future prospects should be given more importance while deciding the credit rating , Multiplicity of the rating agencies can be considered to be the limitation of the credit rating
Your Answer
Credit rating is based upon the evaluation made by the agencies which may vary depending upon the experience, knowledge and individual opinion of the rators which may be biased in some cases , Credit rating is primarily based upon the past performance whereas the future prospects should be given more importance while deciding the credit rating , Multiplicity of the rating agencies can be considered to be the limitation of the credit rating

Multiple Choice Single Answer
Question
The amount of cheques deposited by a Bank awaiting clearance is called
Correct Answer
Collection float
Your Answer
Deposit float

Select The Blank
Question
________ is an example of Intangible asset
Correct Answer
Goodwill
Your Answer
Goodwill

Multiple Choice Multiple Answer
Question
The classification of return on Investment are
Correct Answer
Return on Asset , Return on Capital Employed
Your Answer
Return on Asset , Capital Employed ratio , Debt Equity ratio

Multiple Choice Multiple Answer
Question
The classification of ratios under miscellaneous group includes
Correct Answer
Earnings per share , Dividend Payment ratio
Your Answer
Earnings per share , Dividend Payment ratio , Return on Asset

Multiple Choice Multiple Answer
Question
Undue decrease in Gross Profit ratio may indicate
Correct Answer
Non-consideration of sales invoices , Under-valuation of closing stock , Improper utilisation of infrastructural facilities
Your Answer
Non-consideration of sales invoices , Under-valuation of closing stock , Improper utilisation of infrastructural facilities

Select The Blank
Question
________ implies arithmetical relationship between two related figures
Correct Answer
Ratio
Your Answer
Ratio

True/False
Question
If the cash is held to take advantage of profit making opportunities arising out of changes in the value of securities, the cash holding is called Precautionary motive
Correct Answer
False
Your Answer
True

Multiple Choice Single Answer
Question
Calculate the Gross Profit Ratio from the following figures : Sales Rs. 1,00,000/-, Purchases Rs. 60,000/-, Sales Return Rs. 10,000/-, Opening stock Rs. 20,000/-, Purchases Return Rs. 15,000/-, Closing Stock Rs. 5,000/-
Correct Answer
0.3333
Your Answer
0.3234

Select The Blank
Question
Shareholders of a joint stock company appoint their representative in the form of ________ to carry on the day-to-day affairs of the company
Correct Answer
Directors
Your Answer
Accountant

Select The Blank
Question
under no circumstances , ________ term requirement of funds should be met out of short term sources of funds
Correct Answer
long
Your Answer
long

Select The Blank
Question
Proprietory ratio indicates the relationship between the owner's fund and ________
Correct Answer
Total assets
Your Answer
Profits

Select The Blank
Question
________ is one of the current assets that takes the longest time to get converted into cash
Correct Answer
Stock
Your Answer
Debtors

Multiple Choice Single Answer
Question
Current Assets Turnover ratio is calculated as
Correct Answer
Net Sales / Current Assets
Your Answer
Liquid assets / Liquid liabilities