Multiple Choice Multiple Answer Question The limitations of ratio analysis are

FM assgn :8: Rajesh

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

Term loan

Lessee

Hirer

Retained earnings

Correct Answer Your Answer 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

Not able to claim depreciation on asset

Residue left behind from earnings available to equity shareholders after the payment of annual dividend

Claims the depreciation on the asset instruments to raise long term debt capital

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

1


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

Profitability ratio

Turnover ratios

Overall profitability ratio

Ratios disclosing the financial position or solvency of the firm

Ratios which reflect the final results of business operations

Ratios which indicates the percentage of return on the total capital employed in the business

Ratios measuring the efficiency with which the assets are employed by a firm

Ratios measuring the efficiency with which the assets are employed by a firm

Ratios which reflect the final results of business operations

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


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


Question The hidden cost of capital which is not incurred directly is referred to as

Correct Answer Implicit cost

2

Your Answer Explicit cost


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


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

Select The Blank rates

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


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.

3

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


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


Question The depreciation is being charged for the following assets

Correct Answer Plant and Machinery , Building

Your Answer Plant and Machinery , Building , Stock


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.


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


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

4


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


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


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


Question Technical terminology used to invest in the current assets being

5

Correct Answer Working Capital Management

Your Answer Working Capital Management


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


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


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


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


Question The classification of return on Investment are

Correct Answer Return on Asset , Return on Capital Employed

6

Your Answer Return on Asset , Capital Employed ratio , Debt Equity ratio


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


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


Your Answer True


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

7

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


Question Current Assets Turnover ratio is calculated as

Correct Answer Net Sales / Current Assets

Your Answer Liquid assets / Liquid liabilities

8

Multiple Choice Multiple Answer Question The limitations of ratio analysis are

Products

Support

Multiple Choice Multiple Answer Question The limitations of ratio analysis are

Add this document to collection(s)

Add this document to saved

Suggest us how to improve StudyLib