CS Executive

Dividend Policy – CS Executive Financial and Strategic Management MCQ Questions with Answers you can quickly revise the concepts.

Dividend Policy – Financial Management MCQ

Question 1.
Dividend policy determines –
(A) what portion of earnings will be paid out to stock holders
(B) what portion will be retained in the business to finance long-term growth.
(C) Only (A) not (B)
(D) Both (A) and (B)
Answer:
(D) Both (A) and (B)

Question 2.
Dividend constitutes the cash flow that accrues to -…………..
(A) Holders
(B) Equity holders
(C) Bond holders
(D) All of the above
Answer:
(B) Equity holders

Question 3.
Which of the following factor will affect the dividend policy of the firm?
1. Insufficiency of cash
2. Firms contractual obligation
3. Ratio of debt to equity
4. Business cycle considerations
Select the correct answer from the options given below.
(A) 1 and 3 only
(B) 2 and 4 only
(C) 2, 3 and 4
(D) 1,2, 3 and 4
Answer:
(D) 1,2, 3 and 4

Question 4.
Retained earnings are –
(A) An indication of a company’s liquidity.
(B) The same as cash in the bank.
(C) Not important when determining dividends.
(D) The cumulative earnings of the company after dividends.
Answer:
(D) The cumulative earnings of the company after dividends.

Question 5.
In retention growth model, percent of net income firms usually pay out as shareholders dividends, is classified as –
(A) Payout ratio
(B) Payback ratio
(C) Growth retention ratio
(D) Present value of ratio
Answer:
(A) Payout ratio

Question 6.
Which of the following is an argument for the relevance of dividends?
(A) Informational content.
(B) Reduction of uncertainty.
(C) Some investor’s preference for current income.
(D) All of the above.
Answer:
(D) All of the above.

Question 7.
As per Modigliani-Miller hypothesis of dividend irrelevance price of share at year zero is –
(A) D₀ + P₀/1 + K_e
(B) (D₁ + P₁)× (1 + K_e)
(C) D₁ + P/1+K_e
(D) 1-(D₀ + P₀)÷K_e
Answer:
(C) D₁ + P/1+K_e

Question 8.
All of the following are true of stock splits except:
(A) Market price per share is reduced after the split.
(B) The number of outstanding shares is increased.
(C) Retained earnings are changed.
(D) Proportional ownership is unchanged.
Answer:
(C) Retained earnings are changed.

Question 9.
Which of the following techniques does not reward shareholders for investing in a company?
(A) Repurchasing company shares
(B) Offering non-pecuniary benefits
(C) Making a rights issue
(D) Offering a scrip dividend
Answer:
(C) Making a rights issue

Question 10.
Forecast by analysts, retention growth model and historical growth rates are methods used for an –
(A) Estimate future growth
(B) Estimate option future value
(C) Estimate growth ratio
(D) Estimate option present value
Answer:
(A) Estimate future growth

Question 11.
The repurchase of stock is considered …………. decision rather than ……….. decision.
(A) an investment; a financing
(B) financing; an investment
(C) an investment; a dividend
(D) a dividend; a financing
Answer:
(B) financing; an investment

Question 12.
If OML Corporation buyback ten percent of its outstanding common stock from the secondary market, the result would be –
(A) A decline in EPS.
(B) An increase in cash.
(C) A decrease in total assets.
(D) An increase in the number of stock-holders.
Answer:
(C) A decrease in total assets.

Question 13.
Historical growth rates, analysis fore-casts and retention growth model are approaches to estimate:
(A) Net present value of gain
(B) Growth rate
(C) Growth gain
(D) Discounted gain
Answer:
(B) Growth rate

Question 14.
The primary goal of a publicly-owned firm interested in serving its stockholders should be to
(A) Maximize expected total corporate profit
(B) Maximize expected EPS
(C) Maximize the stock price per share
(D) Maximize expected net income.
Answer:
(C) Maximize the stock price per share

Question 15.
A decrease in a firm’s willingness to pay dividends is likely to result from an increase in its –
(A) Earnings stability
(B) Access to capital markets
(C) Profitable investment opportunities
(D) Collection of accounts receivable.
Answer:
(C) Profitable investment opportunities

Question 16.
Payout ratio is subtracted from one to calculate –
(A) Growth ratio
(B) Present value ratio
(C) Retention ratio
(D) Future value ratio
Answer:
(C) Retention ratio

Question 17.
Which of the following would not have an influence on the optimal dividend policy?
(A) The possibility of accelerating or delaying investment projects.
(B) A strong share holders’ preference for current income versus capital gains.
(C) The costs associated with selling new common stock.
(D) All of the statements above can have an effect on dividend policy.
Answer:
(D) All of the statements above can have an effect on dividend policy.

Question 18.
A stock split will cause a change in the toted amounts shown in which of the following balance sheet accounts?
(A) Cash
(B) Common stock
(C) Paid-in capital
(D) None of the above
Answer:
(D) None of the above

Question 19.
You currently own 100 shares of stock in Baba Ltd. The stock currently trades at ₹ 120 a share. The company is contemplating a 2:1 stock split. Which of the following best describes your position after the proposed stock split takes place?
(A) You will have 200 shares of stock, and the stock will trade at or near ₹120 a share.
(B) You will have 200 shares of stock, and the stock will trade at or near ₹60 a share.
(C) You will have 100 shares of stock, and the stock will trade at or near ₹60 a share.
(D) You will have 50 shares of stock, and the stock will trade at or near ₹60 a share.
Answer:
(B) You will have 200 shares of stock, and the stock will trade at or near ₹60 a share

Question 20.
Consider following two statements:
(1) Buyback can be used by companies to defend against hostile takeovers since they increase the proportion of debt in a firm’s capital structure.
(2) After a 3-for-1 stock split, a company’s price per share will fall and its number of shares outstanding will rise total value remaining the same.
Which of the above statement is correct? “%
(A) (2) only
(B) Neither (1) nor (2)
(C) (1) only
(D) Both (1) and (2)
Answer:
(D) Both (1) and (2)

Question 21.
The dividend growth model can be used to compute the cost of equity for a firm in which of the following situations?
I. Firms that have a 100% retention ratio.
II. Firms that pay a constant dividend.
III. Firms that pay an increasing dividend
IV. Firms that pay a decreasing dividend.
Select correct answer from the options given below.
(A) I & II only
(B) II & III only
(C) II,III & IV only
(D) I, II & III only
Answer:
(C) II,III & IV only

Question 22.
If markets are in equilibrium, which of the following will occur:
(A) Each investment’s expected return should equal its realized return
(B) Each investment’s expected return should equal its required return.
(C) Each investment should have the same realized return.
(D) All of the statements above are correct
Answer:
(B) Each investment’s expected return should equal its required return.

Question 23.
Regular Dividend Policy means -……….
(A) investors get dividend at usual rate.
(B) reserve fund is created to pay fixed amount of dividend
(C) payment of low dividend per share constantly plus extra dividend in the year when the company earns high profit.
(D) All of the above
Answer:
(A) investors get dividend at usual rate.

Question 24.
Which of the following examples best represents a passive dividend policy?
(A) The firm sets a policy such that the proportion of dividends paid from net income remains constant.
(B) The firm pays dividends with what remains of net income after taking acceptable investment projects.
(C) The firm sets a policy such that the quantity (dollar amount per share) of dividends paid from net income remains constant.
(D) All of the above are examples of various types of passive dividend policies
Answer:
(B) The firm pays dividends with what remains of net income after taking acceptable investment projects.

Question 25.
Modigliani and Miller argue that the dividend decision
(A) is irrelevant as the value of the firm is based on the earning power of its assets.
(B) is relevant as the value of the firm is not based just on the earning power of its assets.
(C) is irrelevant as dividends represent cash leaving the firm to shareholders, who own the firm anyway.
(D) is relevant as cash outflow always influences other firm decisions
Answer:
(A) is irrelevant as the value of the firm is based on the earning power of its assets.

Question 26.
Constant payout ratio means –
(A) Declaration same bonus ratio every year.
(B) The payment of fixed percentage of earning as dividend every year.
(C) Constantly paying same dividend if EPS is same for all the year.
(D) None of the above
Answer:
(B) The payment of fixed percentage of earning as dividend every year.

Question 27.
Dividend policy is determined by the –
(A) Shareholders in AGM
(B) CEO of the company
(C) Board of directors
(D) Ministry of Corporate Affairs
Answer:
(C) Board of directors

Question 28.
How you calculate Dividend Cover Ratio?
(A) PAT ÷ Dividend
(B) Dividend ÷ PAT
(C) EBIT ÷ Dividend
(D) Dividend ÷ EBIT
Answer:
(A) PAT ÷ Dividend

Question 29.
Investors may be willing to pay a premium for stable dividends because of the informational content of ………. the desire of investors for………. and certain
(A) institutional considerations; dividends; current income.
(B) dividends; current income; institutional considerations.
(C) current income; dividends; institutional considerations.
(D) institutional considerations; current income; dividends
Answer:
(B) dividends; current income; institutional considerations.

Question 30.
EPS ratio measures –
(A) Earning of the company to ratio of debt and equity
(B) Social earning per individual
(C) The profit available for the equity shareholders on a per share basis.
(D) Profit earned by the enterprises by employment various assets.
Answer:
(C) The profit available for the equity shareholders on a per share basis.

Question 31.
A ………….. is a payment of additional shares to shareholders in lieu of cash.
(A) Stock split
(B) Stock dividend
(C) Extra dividend
(D) Regular dividend
Answer:
(B) Stock dividend

Question 32.
Which of the following is correct formula to calculate P/E Ratio?
(A) Market Price ÷ EPS
(B) EPS ÷ Market Price
(C) PAT ÷ EPS
(D) EPS ÷ PAT
Answer:
(A) Market Price ÷ EPS

Question 33.
A …………… occurs when there is an increase in the number of shares out-standing by reducing the par value of stock.
(A) Stock split
(B) Stock dividend
(C) Extra dividend
(D) Regular dividend
Answer:
(A) Stock split

Question 34.
The P/E ratio reflects –
(A) the market’s confidence in the company’s management effectiveness.
(B) Effectiveness of capital budget process.
(C) the market’s confidence in the company’s stakeholders.
(D) the market’s confidence in the company’s equity.
Answer:
(D) the market’s confidence in the company’s equity.

Question 35.
A ……………. is the expected cash dividend that is normally paid to shareholders.
(A) Stock split
(B) Stock dividend
(C) Extra dividend
(D) Regular dividend
Answer:
(D) Regular dividend

Question 36.
Myron Gordon believe that the required return on equity increases as the dividend payout ratio is decreased. Their argument is based on the assumption that
(A) Investors are indifferent between dividends and capital gains.
(B) Investors require that the dividend yield and capital gains yield equal a constant.
(C) Capital gains are taxed at a higher rate than dividends.
(D) Investors view dividends as being less risky than potential future capital gains.
Answer:
(D) Investors view dividends as being less risky than potential future capital gains.

Question 37.
………….. is a non-recurring dividend paid to shareholders in addition to the regular dividend.
(A) A stock split
(B) A stock dividend
(C) An extra dividend
(D) A regular dividend
Answer:
(C) An extra dividend

Question 38.
In the real world, we find that dividends –
(A) Usually exhibit greater stability than earnings.
(B) Fluctuate more widely than earnings
(C) Tend to be a lower percentage of earnings for mature firms
(D) Are usually set as a fixed percentage of earnings
Answer:
(A) Usually exhibit greater stability than earnings.

Question 39.
What method of stack repurchase occurs when the buyer purchases securities through a brokerage house?
(A) Dutch-auction
(B) Fixed-price
(C) Open-market
(D) Fair-warning
Answer:
(C) Open-market

Question 40.
What method of stock repurchase occurs when the buyer seeks bids within a specified price range and accepts the lowest price that will allow it to acquire the entire block of securities desired?
(A) Dutch-auction
(B) Fixed-price
(C) Open-market
(D) Fair-warning
Answer:
(A) Dutch-auction

Question 41.
Which of the following is correct formula to calculate dividend payout ratio?
(A) DPS ÷ EPS
(B) EPS ÷ DPS
(C) Market Price ÷ EPS
(D) EPS ÷ Market Price
Answer:
(A) DPS ÷ EPS

Question 42.
The shareholders of your firm anticipate receiving a regular dividend that is consistent with past dividend policies. What benefit occurs to shareholders if the firm repurchases shares with the same total quantity of money that would have been spent on dividends? Assume that the P/E ratio is maintained with either scenario.
(A) Shareholders can postpone or reduce taxes (assuming a lower capital gain rate).
(B) It is cheaper for shareholders to sell existing shares for cash than it costs to reinvest cash dividends into existing shares.
(C) The current shareholders benefit because there are a greater number share holders than if the firm pays a cash dividend.
(D) There is no benefit as shareholders will not be receiving any cash
Answer:
(A) Shareholders can postpone or reduce taxes (assuming a lower capital gain rate).

Question 43.
Dividend payout ratio – ……………
(A) expresses the relationship between what is available as earnings per share and what is actually paid in the form of dividends out of available earnings.
(B) is a good measure of the dividend policy of the company.
(C) Both (A) and (B)
(D) Neither (A) nor (B)
Answer:
(C) Both (A) and (B)

Question 44.
A dividend reinvestment plan (DRIP) is –
(A) An optional plan, provided by brokerage firms, allowing unit holders to automatically reinvest dividend payments in additional units of the mutual fund.
(B) An optional plan, provided by mutual funds, allowing unit holders to automatically reinvest dividend payments in additional units of the mutual funds.
(C) A mandatory plan, provided by brokerage firms, where shareholders are automatically reinvesting dividend payments in additional units of the mutual fund at a reduced price.
(D) A mandatory plan, provided by mutual funds, where unit holders are automatically reinvesting dividend payments in additional emits of the mutual funds at a reduced price.
Answer:
(B) An optional plan, provided by mutual funds, allowing unit holders to automatically reinvest dividend payments in additional units of the mutual funds.

Question 45.
Which of the following is correct formula to calculate dividend yield ratio?
(A) DPS Question Market Price × 100
(B) (1 – EPS) Question Market Price
(C) EPS Question Market Price × 100
(D) (Market Price × 100) ÷ DPS
Answer:
(A) DPS Question Market Price × 100

Question 46.
Which of the following is not a reason that DeStore.com would prefer to pay a stock dividend rather than a regular cash dividend?
(A) It decreases the supply of shares and enhances shareholder wealth.
(B) It may conserve cash for other firm needs.
(C) It will reduce the stock price into what management perceives as a more beneficial trading range.
(D) It may convey information about the firm to investors that it cannot convey credibly otherwise.
Answer:
(A) It decreases the supply of shares and enhances shareholder wealth.

Question 47.
Some ratios are given below:
I. EPS
II. P/E Ratio
III. Net Profit Ratio
IV. DPS
V. Dividend Yield Ratio
Which of the above ratio can be classified as market test ratio?
(A) Except V all other
(B) II & V only
(C) I, III & IV
(D) All except III
Answer:
(D) All except III

Question 48.
The ……….. is the proportion of earnings that are paid to common shareholders in the form of a cash dividend.
(A) Retention rate
(B) 1 + Retention rate
(C) Growth rate
(D) Dividend payout ratio
Answer:
(D) Dividend payout ratio

Question 49.
All of the following statements are
true regarding ratios that analyze a stock investment except
(A) In general, an increased P/E ratio indicates increased investor confidence in the future of the company.
(B) Shareholders who invest primarily to receive dividends pay special attention to the dividend yield ratio.
(C) Many experts argue that book value is the most useful ratio for investment analysis.
(D) Two ways for shareholders to earn a return on a share investment are receiving dividends and selling the stock investment at again.
Answer:
(C) Many experts argue that book value is the most useful ratio for investment analysis.

Question 50.
The dividend payout ratio describes:
(A) The proportion of earnings paid as dividends
(B) The relationship of dividends per share to market price per share
(C) The percentage change in dividends this year compared to last year
(D) Dividends as a percentage of the price/earnings ratio
Answer:
(A) The proportion of earnings paid as dividends

Question 51.
Which of the following factors is most likely to explain why a company decides to increase its annual dividend?
(A) A firm belief by management that dividends represent a residual payment
(B) A large number of desirable projects.
(C) A large proportion of its shares are owned by institutional investors
(D) Pecking order theory
Answer:
(C) A large proportion of its shares are owned by institutional investors

Question 52.
Company J and Company K each recently reported the same EPS. Company J’s stock, however, trades at a higher price. Which of the following statements is most- correct?
(A) Company J must have a higher P/E ratio.
(B) Company J must have a higher market to book ratio.
(C) Company J must be riskier.
(D) All of the statements above are correct.
Answer:
(A) Company J must have a higher P/E ratio.

Question 53.
Which of the following statements lends most support to the theory that dividend payments are irrelevant to the value of ordinary shares?
(A) Shareholders making homemade dividends face dealing costs
(B) Shareholders are concerned with total earnings rather than with the split between distributed and retained earnings.
(C) Investors’ discount rates increase with time due to uncertainty.
(D) Firms have particular clienteles due to their dividend policy
Answer:
(C) Investors’ discount rates increase with time due to uncertainty.

Question 54.
Which of the following is market test ratio?
(A) Basic Defence Interval
(B) Debt Service Coverage
(C) Dividend Yield Ratio
(D) All of the above
Answer:
(C) Dividend Yield Ratio

Question 55.
Which of the following statements is consistent with dividend irrelevance theory?
(A) Investment decisions are the sole determinant of shareholder wealth
(B) Making homemade dividends causes investors to incur transaction costs
(C) Companies with stable dividend policies build up shareholder clienteles
(D) Investors like to maintain the real value of their dividend payments.
Answer:
(A) Investment decisions are the sole determinant of shareholder wealth

Question 56.
While calculating dividend cover for preference shares numerator should be taken as
(A) EBIT
(B) Profit available for equity shareholder
(C) PAT
(D) PAT + Depreciation
Answer:
(C) PAT

Question 57.
Which of the following statements about the dividend growth model are true?
1. The model prices shares on the basis of the present value of expected future dividends.
2. The model relies on the ability to predict a constant future growth rate for dividend payments.
3. The dividend growth model can accommodate future changes in shareholder’s required rate of return
Select the correct answer from the options given below.
(A) Only 1 and 2 are correct
(B) Only 2 and 3 are correct
(C) 1, 2 and 3 are correct
(D) Only 3 is correct
Answer:
(A) Only 1 and 2 are correct

Question 58.
………… reflects the market’s confidence in the company’s equity.
(A) P/E ratio
(B) Net profit ratio
(C) Cash profit ratio
(D) Total assets turnover ratio
Answer:
(A) P/E ratio

Question 59.
Financial signalling has been raised as an argument in the battle over the relevancy of dividends. Which of the following statements concerning dividends is most likely to be voiced by someone using the financial signalling argument?
(A) A dividend decrease should be viewed by investors as “goodnews.” The dividend decrease acts to add conviction to the statement that the firm has better uses for the earnings of the company than the stockholders.
(B) Reported accounting earnings of a company, not dividends, are a proper reflection or signal of the company’s economic earnings.
(C) The price of a firm’s stock should react unfavourably to an increase in dividends.
(D) Cash dividends speak louder than words when it comes to conveying information about management’s expectations of the future
Answer:
(D) Cash dividends speak louder than words when it comes to conveying information about management’s expectations of the future

Question 60.
…. is a good measure of the dividend policy of the company.
(A) Dividend Payout Ratio
(B) Price Earnings Ratio
(C) Earnings Per Share
(D) None of the above
Answer:
(A) Dividend Payout Ratio

Question 61.
Which of the following statement is correct?
(A) A company may, if so authorized by its articles, pay dividends in proportion to the amount paid-up on each share.
(B) Dividend cannot be paid on calls-in-advance.
(C) All the provisions of the Companies Act, 2013 that are applicable to final dividend are also applicable to interim dividend.
(D) All of the above
Answer:
(D) All of the above

Question 62.
As per provisions of the Companies Act, 2013, dividend can be paid –
1. Out of current profit
2. Out of revaluation reserve
3. Out of profits of previous financial years
4. Out of money provided by the Central or State Government
5. Out of free reserve
Select the correct answer from the options given below.
(A) 1 and 5 only
(B) 1,2, 3 & 5
(C) 1, 3 and 5 only
(D) 1,3, 4 and 5
Answer:
(D) 1,3, 4 and 5

Question 63.
As per Section 128 of the Companies Act, 2013, a company may, before the declaration of any dividend in any financial year, transfer to the reserves of the company.
(A) 25% of its profit
(B) 10% of its profit before tax
(C) such percentage of its profits for that financial year as it may consider appropriate
(D) such percentage of its profits for that financial year as equity shareholder may consider appropriate
Answer:
(C) such percentage of its profits for that financial year as it may consider appropriate

Question 64.
As per Rule 7 of the Companies (Declaration & Payment of Dividend) Rules, 2014, in the event of inadequacy or absence of profits in any year, a company may declare dividend out of surplus subject to the fulfilment of the condition that rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the immediately preceding that year.
(A) 5 years
(B) 10 years
(C) 3 years
(D) 4 years
Answer:
(C) 3 years

Question 65.
As per Rule 7 of the Companies (Declaration & Payment of Dividend) Rules, 2014, in the event of inadequacy or absence of profits in any year, a company may declare dividend out of surplus subject to the fulfilment of the condition that total amount to be drawn from such accumulated profits shall not exceed as appearing in the latest audited financial statement.
(A) 1/10th of the total assets
(B) 1 /5th of the sum of its paid-up share capital
(C) 1/10th of the sum of its paid-up share capital and free reserves
(D) 1 / 5th of the sum of its paid-up share capital and free reserves
Answer:
(C) 1/10th of the sum of its paid-up share capital and free reserves

Question  66.
As per Rule 7 of the Companies (Declaration & Payment of Dividend) Rules, 2014, in the event of inadequacy or absence of profits in any year, a company may declare dividend out of surplus subject to the fulfilment of the condition the balance of reserves after such withdrawal shall not
fall below as appearing in the latest audited financial statement.
(A) 10% of its paid-up share capital
(B) 15% of its paid-up share capital
(C) 15% of its paid-up share capital and free reserve
(D) 10% of its paid-up share capital and free reserve
Answer:
(C) 15% of its paid-up share capital and free reserve

Question 67.
As per the provisions of the Companies Act, 2013, the amount of the dividend, including interim dividend, shall be deposited in a scheduled bank in a separate account within ………….. from the date of declaration of such dividend.
(A) 30 days
(B) 15 days
(C) 10 days
(D) 5 days
Answer:
(D) 5 days

Question 68.
After declaration of dividend, the company has to pay dividend within of declaration of dividend. If amount of dividend remains unpaid or unclaimed for 30 days of declaration of dividend, then in next ……….. the company has to transfer the amount unclaimed to the to a special account in any scheduled bank to be called the “Unpaid Dividend Account”.
(A) 5 days; 5 days
(B) 30 days; 7 days
(C) 30 days; 5 days
(D) 10 days; 7 days
Answer:
(B) 30 days; 7 days

Question 69.
The shareholders may desire that their dividends be credited directly to their bank account. The request will be made in a form duly filled and sent to the company. This is known as –
(A) Dividend Cheque
(B) Dividend Request Form
(C) Dividend Mandate
(D) Pay Dividend Form
Answer:
(C) Dividend Mandate

Question 70.
According to ………….. dividend policy is strictly a financing decision.
(A) Ezra Solomon
(B) Modigliani-Miller
(C) Marshall
(D) John Miller
Answer:
(A) Ezra Solomon

Question 71.
Professor James E. Walter has developed a theoretical model which shows the relationship between
(A) Dividend policies and common stock prices.
(B) Earning policies and common stock prices.
(G) Cost of capital and common stock prices.
(D) Earning policies and dividend policies
Answer:
(A) Dividend policies and common stock prices.

Question 72.
As per Walter’s Model in case of growth firm –
(A) Dividend policies are irrelevant
(B) Optimal payout ratio is 100%
(C) Payout ratio is irrelevant
(D) Optimal payout ratio is nil
Answer:
(D) Optimal payout ratio is nil

Question 73.
……………. suggests that the market price of share is the present value of future dividends.
(A) Walter’s model
(B) MM Model
(C) Grodon’s model
(D) General knowledge
Answer:
(C) Grodon’s model

Question 74.
As per Grodon’s Model payout ratio is irrelevant in case of –
(A) Growth firm
(B) Normal firm
(C) Declining firm
(D) All of the above
Answer:
(B) Normal firm

Question 75.
How market price will be calculated by using the dividend growth model?
(A) P₀ = D₁÷(K_e – g)
(B) P₀ = (K_e – g) ÷ D₁
(C) P₀ = (1+D₁)÷(K_e-g)
(D) P0 = (1 + D₁) × (K_e – g)
Answer:
(A) P₀ = D₁÷(K_e – g)

Question 76.
Consider following two statements:
(I) A company with large portion of inside ownership, all of whom are high-income individuals.
(II) A growth company with an abundance of good investment opportunities.
For each of the company described above, would you expect it to have a high or low dividend payout ratio?
(A) low dividend payout ratio for both companies
(B) high dividend payout ratio for both companies
(C) low dividend payout ratio for company mentioned in Statement (I) and high dividend payout ratio for company mentioned in Statement (II)
(D) high dividend payout ratio for company mentioned in Statement (I) and low dividend payout ratio for company mentioned in Statement (II)
Answer:
(A) low dividend payout ratio for both companies

Question 77.
Consider following two statements:
(I) A company is experiencing ordinary growth and has high liquidity and much unused borrowing capacity.
(II) A company with volatile and high business risk.
For each of the company described above, would you expect it to have a high or low dividend payout ratio?
(A) low dividend payout ratio for both companies
(B) high dividend payout ratio for both companies
(C) low dividend payout ratio for company mentioned in Statement (I) and high dividend payout ratio for company mentioned in Statement (II)
(D) high dividend payout ratio for company mentioned in Statement (I) and low dividend payout ratio for company mentioned in Statement (II)
Answer:
(D) high dividend payout ratio for company mentioned in Statement (I) and low dividend payout ratio for company mentioned in Statement (II)

Question 78.
If you are calculating market price by using Gordon’s Model, increasing payout ratio other things renaming the same will –
(A) Increase the price per share
(B) Decrease the price per share
(C) Will not have any effect on price of the share
(D) Price will remain constant.
Answer:
(C) Will not have any effect on price of the share

Question 79.
As per Gordon’s Model whether com­pany adopts 50%, 80% or any other payout ratio, market price will remain same when -…………..
(A) K>r
(B) K_e<r
(C) K=r
(D) K>R_f
Answer:
(C) K=r

Question 80.
If you are calculating market price by using dividend growth method D₁ ÷ (K_e – g) increase in growth rate leads to –
(A) Fall in market price of stock
(B) Increase in market price of stock
(C) No change in market price of stock
(D) None of the above
Answer:
(B) Increase in market price of stock

Question 81.
Company A and Company B both cal­culates their market price by using Walter’s formula. Both companies will have same market price if –
(A) R_a > R_c and retention ratio of Com­pany A is more than retention ratio of Company B.
(B) R_a < R_c and retention ratio of Com­pany B is more than retention ratio of Company A.
(C) R_a = R_c whether retention ratio is same or different for both the com­panies.
(D) All of the above
Answer:
(C) R_a = R_c whether retention ratio is same or different for both the com­panies.

Question 82.
As per Walter’s Model when R_a < R_c in­crease in dividend payout ratio will lead to –
(A) Increase in market price
(B) Decrease in market price
(C) No change in market price
(D) None of the above
Answer:
(A) Increase in market price

Question 83.
As per Walter’s Model when R_a < R_c decrease in retention ratio will lead to –
(A) Increase in market price
(B) Decrease in market price
(C) No change in market price
(D) None of the above
Answer:
(A) Increase in market price

Question 84.
As per Walter’s Model when R = R market price will remain same when –
(A) Retention ratio increases
(B) Retention ratio decreases
(C) Retention ratio increase or decreases
(D) None of the above
Answer:
(C) Retention ratio increase or decreases

Question 85.
As per Walter’s Model when R_a > R_c in­crease in dividend payout ratio will lead to –
(A) Increase in market price
(B) Decrease in market price
(C) No change in market price
(D) None of the above
Answer:
(B) Decrease in market price

Question 86.
As per Walter’s Model when R_a > R_c decrease in retention ratio will lead to –
(A) Increase in market price
(B) Decrease in market price
(C) No change in market price
(D) No change in market price
Answer:
(B) Decrease in market price

Question 87.
Which of the following is correct formula to calculate market price as per MM Model?
(A) P₀ = (1 + K_e) ÷ (D₁ + P₁)
(B) P₀ = (D₁ + P₁) × (1 + K_e)
(C) P₀ = (D₁+ P₁) ÷ (1 + K_e)
(D) P₀ = (D₁ + P₁) ÷ (1 – K_e)
Answer:
(C) P₀ = (D₁+ P₁) ÷ (1 + K_e)

Question 88.
As per MM Model total value of firm remains same whether it declares dividend or not. You are required to state if dividend is declared the market price per share as per MM Model –
(A) Increase
(B) Decreases
(C) Remain constant
(D) None of the above
Answer:
(A) Increase

Question 89.
Which one of the following is a non-cash payment made by a firm to its shareholders that dilute the value of each share of stock outstanding?
(A) reverse stock split
(B) cash distribution
(C) stock dividend
(D) regular dividend
Answer:
(C) stock dividend

Question 90.
Market price = ?
(A) D₁ ÷ (K_e – g)
(B) EPS × P/E Ratio
(C) (D₁ + P₁) ÷ (1 + K_e)
(D) All of the above
Answer:
(D) All of the above

Question 91.
The date by which a shareholder must be recorded as the share owner in order to receive a declared dividend is called the:
(A) ex-rights date
(B) ex-dividend date
(C) date of record
(D) date of payment
Answer:
(C) date of record

Question 92.
The target payout ratio is:……………
(A) a firm’s preferred rate of dividend growth.
(B) the inverse of a firm’s equity multiplier.
(C) the preferred number of dividend payments per year divided by 12.
(D) a firm’s long-term desired dividend-to-earnings ratio.
Answer:
(D) a firm’s long-term desired dividend-to-earnings ratio.

Question 93.
The difference between the highest and lowest prices at which a stock has sold is called the stock’s:
(A) Average price
(B) Bid-ask spread
(C) Trading range
(D) Opening price
Answer:
(C) Trading range

Question 94.
Which one of the following statements concerning cash dividends is correct?
(A) The chief financial officer of a corporation determines whether or not a dividend will be paid.
(B) A dividend is not a liability of a firm until it has been declared.
(C) If a firm has paid regular quarterly dividends in the past it is legally obligated to continue doing so.
(D) Cash dividends always reduce the paid-in capital account balance
Answer:
(B) A dividend is not a liability of a firm until it has been declared.

Question 95.
The fact that flotation costs can be significant is justification for:
(A) A firm to issue larger dividends than their closest competitors.
(B) Maintaining a constant dividend policy even when profits decline significantly.
(C) Maintaining a high dividend policy.
(D) Maintaining a low dividend policy and rarely issuing extra dividends.
Answer:
(D) Maintaining a low dividend policy and rarely issuing extra dividends.

Question 96.
When a firm is short of cash yet it wishes to distribute something to shareholders, it should consider –
(A) Cash dividend.
(B) Liquidating dividend
(C) Stock dividend
(D) None of the above
Answer:
(C) Stock dividend

Question 97.
A company wants to buy back stock. How will this impact the company and its stock?
(A) The company makes more money because management owns more stock.
(B) Other investors make less money because management can pay more dividends to internal shareholders before external shareholders.
(C) Because there are fewer shares in the open market, the price of the shares goes up.
(D) The net income of the company will go up because of the increase in stocks
Answer:
(C) Because there are fewer shares in the open market, the price of the shares goes up.

Question 98.
Which of the following would ultimately give the greatest benefit to stockholders?
(A) A stock buyback
(B) The issuance of a bond
(C) A stock split
(D) The issuance of new stock
Answer:
(A) A stock buyback

Question 99.
Match the following:

Select the correct answer from the options given below.

Answer:
(B)

Question 100.
Required return × Retention Ratio=?
(A) K_e (Cost of equity)
(B) WACC
(C) B (Beta)
(D) g (Growth Rate)
Answer:
(D) g (Growth Rate)

Question 101.
The shares of company are selling at ₹ 45 per share. The firm had paid dividend @ ₹ 4.5 per share last year. The estimated growth of the company is approximately 5% per year. Determine the estimated market price of the equity share if the anticipated growth rate of the firm rises to 8%.
(A) ₹ 60.45
(B) ₹ 64.80
(C) ₹ 65.70
(D) ₹ 80.35
Answer:
(B) ₹ 64.80

Question 102.
The shares of company are selling at ₹ 90 per share. The firm had paid dividend @ ₹ 9 per share last year. The estimated growth of the company is approximately 5% per year. Determine the estimated market price of the equity share if the anticipated growth rate of the firm falls to 3%.
(A) ₹ 70.84
(B) ₹ 84.70
(C) ₹ 74.16
(D) ₹ 52.34
Answer:
(C) ₹ 74.16

Question 103.
Details regarding A Ltd. are given below:
E = ₹ 24
K = 11%
r = 12%
If retention ratio is 80%, market price as per Gordon’s Model is –
(A) ₹ 340.68
(B) ₹ 346.82
(C) ₹ 324.65
(D) ₹ 342.86
Answer:
(D) ₹ 342.86

Question 104.
Details regarding B Ltd. are given below:
E = ₹ 24
K = 13.20%
r = 14.40%
If retention ratio is 50%, market price as per Gordon’s Model is –
(A) ₹ 200
(B) ₹ 300
(C) ₹ 400
(D) ₹ 600
Answer:
(A) ₹ 200

Question 105.
Details regarding C Ltd. are given below:
E = ₹ 14.4
K_e =7.92%
r = 8.64%
If retention ratio is 90%, market price as per Gordon’s Model is –
(A) ₹ 200
(B) ₹ 25
(C) ₹ 100
(D) ₹ 130
Answer:
(C) ₹ 100

Question 106.
Following details are available for G Ltd.:
E = ₹ 22
K_e = 12.10%
r = 12.10%
Calculate the value of equity shares when retention ratio is
(a) 50%, (b) 80% , (c) 90%.
(A) ₹183.28; ₹ 183.28; ₹ 183.28
(B) ₹181.82; ₹ 181.82; ₹ 181.82
(C) ₹ 175.26; ₹ 190.26; ₹ 130.26
(D) ₹ 200.22; ₹ 180.24; ₹ 120.18
Answer:
(B) ₹181.82; ₹ 181.82; ₹ 181.82

Question 107.
Market price per share of WX Ltd. is ₹ 400 per share at 50% retention ratio as per Gordon’s Model. The firms cost of equity is below required rate of return. If the firm increases retention ratio –
(A) Its price will decrease and will go below ₹ 400
(B) Its price will increase and will go above ₹ 400
(C) Its price will still remain at ₹ 400
(D) None of the above
Answer:
(B) Its price will increase and will go above ₹ 400

Question 108.
JKL Ltd. is foreseeing a growth rate of 12% p.a. in the next 2 years. The growth rate is likely to fall to 10% for the third year and forth year. After that growth rate is expected to stabilize at 8% p.a. If .the last dividend (D₀) paid was ₹ 2.7 per share and investor’s required rate of return is 16%, find out the intrinsic value per share of JKL Ltd. as of date.

(A) ₹ 55.38
(B) ₹ 40.21
(C) ₹ 50.26
(D) ₹ 46.88
Answer:
(B) ₹ 40.21

Question 109.
A large chemical company has been expected to grow at 14% per year for next 4 years and then to grow indefinitely at the same rate as national economy ie. 5%. The required rate of return on equity share is 12%. Assume that company paid a dividend of ₹ 2 per share last year (D₀ = 2). Determine the market price of the shares today.
(A) ₹ 40.62
(B) ₹ 50.42
(C) ₹ 45.23
(D) ₹ 61.18
Answer:
(A) ₹ 40.62

Question 110.
The required rate of return of investors is 15%. ABC Ltd. declared and paid annual dividend of ₹ 4 per share. It is expected to grow @ 20% for the next 2 years and 10% thereafter. Compute the price at which the shares should sell.
PV Factors: @15% for Year 1 = 0.8696 and Year 2 = 0.7561.
(A) Near about ₹ 108
(B) Near about ₹ 106
(C) Near about ₹ 112
(D) Near about ₹ 104
Answer:
(D) Near about ₹ 104

Question 111.
Anurag has invested in a share whose dividend is expected to grow @15% for 5 years and there after @ 5% till life of the company. Find out the value of the share, if current dividend is ₹ 4 per share and investors required rate of return is 6%.
(A) Near about ₹ 756
(B) Near about ₹ 567
(C) Near about ₹ 657
(D) Near about ₹ 675
Answer:
(C) Near about ₹ 657

Question 112.
The cost of capital and rate of return on investment of GOD Ltd. is 10% and 15% respectively. The company has 10 lakh shares of 10% each. Its earnings per share is ₹ 7.5. Calculate the value of the firm per share using Walter’s Model assuming all earnings are distributed as dividend.
(A) ₹ 75
(B) ₹ 100
(C) ₹ 125
(D) ₹ 150
Answer:
(A) ₹ 75

Question 113.
Cost of capital of MNL Ltd. is less them rate of return on investment. Its market price per share is ₹ 62.50 as per Walter’s Model at 50% retention ratio. If firm increase its retention ratio then –
(A) Its price will fall below — ₹ 62.50
(B) Its price will increase above — ₹ 62.50
(C) Its price will increase above — ₹ 100
(D) It price will not change
Answer:
(B) Its price will increase above — ₹ 62.50

Question 114.
EPS of Kalki Ltd. is ₹ 20. Its cost of capital is 16%. Internal rate of return on investment is 20% and retention ratio is 50%. What is the market price per share of Kalki Ltd. as per dividend growth model ?
(A) ₹ 164.55
(B) ₹ 176.66
(C) ₹ 166.67
(D) ₹ 167.33
Answer:
(C) ₹ 166.67

Question 115.
EPS of Don Ltd. is ₹ 15. Its cost of capital is 16%. Internal rate of return on investment is 20% and retention ratio is 40%. What is the market price per share of Don Ltd. as per Walter’s Model?
(A) ₹ 103.125
(B) ₹ 105.225
(C) ₹ 108.125
(D) ₹ 110.525
Answer:
(A) ₹ 103.125

Question 116.
Following details are available for PQR Ltd:
Earnings per share — ₹ 27.5
Cost of capital — 16%
Internal rate of return on investment — ₹ 20%
Retention ratio — 50%
Calculate the price per share as per Walter’s Model.
(A) ₹ 315.40
(B) ₹ 193.36
(C) ₹ 292.91
(D) ₹ 282.86
Answer:
(B) ₹ 193.36

Question 117.
Following details are available for PQR Ltd.:
Calculate the price per share as per Walter’s Model.
(A) ₹ 190.60
(B) ₹ 188.72
(C) ₹ 176.28
(D) ₹ 189.06
Answer:
(D) ₹ 189.06

Question 118.
Details regarding three companies are given below:

If Walter’s Model is applied with 100% retention ratio market price per share of these companies are –

Answer:
(D)

Question 119.
Khemka Ltd. paid dividend per share of ₹ 3, ₹ 3.6, ₹ 4.32, ₹ 5.18 & ₹ 6.22 for last five year. What is the expected dividend for next year?
(A) ₹ 7.46
(B) ₹ 8.32
(C) ₹ 6.80
(D) ₹ 7.25
Answer:
(A) ₹ 7.46

Question 120.
Details regarding three companies are given below:

If Walter’s Model is applied with 50% retention ratio market price per share of these companies are

Answer:
(D)

Question 121.
ABC Ltd. was started a year back with a paid-up capital of ₹ 56,00,000. The other details are as under:
You are required to find out market price per share using Walter’s formula.
(A) ₹ 138.57 per share
(B) ₹ 131.25 per share
(C) ₹ 175.83 per share
(D) ₹ 185.73 per share
Answer:
(B) ₹ 131.25 per share

Question 122.
The EPS of the Ganga Ltd. is 716. The market capitalization rate applicable to the company is 12.5%. Retained earnings can be employed to yield return of 10%. The company is considering payout ratio of 25%, 50%, 75% and 100%. Which of these, if any, would maximize the wealth of shareholders as per Walter’s Model?
(A) If payout ratio is 25%
(B) If payout ratio is 50%
(C) If payout ratio is 75%
(D) If payout ratio is zero percentage
Answer:
(D) If payout ratio is zero percentage
For Ganga Ltd. R_a > R_c (12.5% > 10). It is growth firm as its rate of return on investment is greater than cost of capital. Optimal payout ratio as per Walter’s Model is nil. (in other words 100% retention policy must be followed to maximize the wealth of shareholders)

Question 123.
Prakash Ltd. has had earnings of ₹ 3.20, ₹ 3.00 & ₹ 5.50 per share for the past 3 years. Company anticipates maintaining the same dividend policy this year as the past 3 years. That dividend policy has resulted in dividends per share of ₹ 1.28, ₹ 1.20 & ₹ 2.20 for the past 3 years. It is anticipated that the next year will result in a large increase in earnings to ₹ 9.80 per share. What dividend do you expect the firm to pay in the next year?
(A) ₹ 3.92
(B) ₹ 1.56
(C) ₹ 3.12
(D) ₹ 4.68
Answer:
(A) ₹ 3.92
DPS Ratio: Year 1:1.28/3.2 × 100 = 40%; Year 2:1.2/3 × 100 = 40%; Year 3:22/5.5 × 100 = 40%
Dividend for next year = 9.8 × 40% = 3.92

Question 124.
MNP Ltd. has made plans for the next year. The company will employ total assets of ₹ 25,00,000; 30% of assets being financed by debt at an interest cost of 9% p.a. The direct costs for the year are estimated at ₹ 15,00,000 and all other operating expenses are estimated at ₹ 2,40,000. Sales revenue are estimated at ₹ 22,50,000. Tax rate is assumed to be 40%.
Return on equity = ?
(A) 12.46%
(B) 15.17%
(C) 11.86%
(D) 15.98%
Answer:
(B) 15.17%
Total assets = 25,00,000;
Equity = 25,00,000 × 70% = 17,50,000;
Debt = 25,00,000 × 30% = 7,50,000
22,50,000 – 15,00,000 – 2,40,000 – 67,500 = 4,42,500
PAT = 4,42,500 – 1,77,000 = 2,65,500
Return on equity = 2,65,500/17,50,000 × 100 = 15.17%

Question 125.
Joshi Corporation is growing at a constant rate of 6% per year. It has both common stock and non-participating preferred stock outstanding. The cost of preferred stock (K) is 8%. The par value of the preferred stock is ₹ 120, and the stock has a stated dividend of 10% of par. What is the market value of the preferred stock
(A) ₹ 125
(B) ₹ 120
(C) ₹ 175
(D) ₹ 150
Answer:
(D) ₹ 150
12/0.08 = 150

Question 126.
A share of common stock has just paid a dividend of ₹ 2.00. If the expected long-run growth rate for this stock is 15 percent, and if investors require a 19 percent rate of return, what is the price of the stock?
(A) ₹ 57.50
(B) ₹ 62.25
(C) ₹ 71.86
(D) ₹ 64.00
Answer:
(A) ₹ 57.50
D₁ =2×1.15 = 2.3
2.3/(0.19 – 0.15) = 57.5

Question 127.
CPC Company’s stock is currently selling for ₹ 40 a share. The stock is expected to pay a ₹ 2 dividend at the end of the year. The stock’s dividend is expected to grow at a constant rate of 7 percent a year forever. The risk-free rate (RF) is 6 percent and the market risk premium (RM – RF) is also 6 percent. What is the stock’s beta?
(A) 1.06
(B) 1.00
(C) 2.00
(D) 0.83
Answer:
(B) 1.00
K_e = 2/40 + 0.07 = 0.12 12%
K =R_f + β(R_m-R_f)
12 = 6 + 6x
6 = 6x
x = β = 1

Question 128.
Retention ratio is 0.60 and return on equity is 15.5% then growth retention model would be –
(A) 14.9%
(B) 25.84%
(C) 16.1%
(D) 9.3%
Answer:
(D) 9.3%
15.5% × 0.60 = 9.3%

Question 129.
Ali Motors recently completed a 3 for 1 stock split. Prior to the split, the company had 10 Million shares outstanding and its stock price was ₹150 per share. After the split, the total market value of the company’s stock equalled 71.5 Billion. What was the price of the company’s stock following the stock split?
(A) ₹ 15
(B) ₹ 45
(C) ₹ 50
(D) ₹ 150
Answer:
(C) ₹ 50
150 × 1/3 = 50

Question 130.
If payout ratio is 0.45 then retention ratio will be:
(A) 55%
(B) 1.45
(C) 0.055
(D) 100%
Answer:
(A) 55%

Question 131.
Retention ratio is 0.55 and return on equity is 12.5% then growth retention model would be –
(A) 0.1195
(B) 0.06875
(C) 0.1305
(D) 0.2272
Answer:
(B) 0.06875

Question 132.
Company Q is all equity financed. For each ₹ 1 of earnings, it consistently pays 30 paisa in dividends and retains 70 paisa for reinvestment. It expects to earn a rate of return of 14% on capital employed. According to the Gordon Growth Model, what would the rate of earnings growth be in future Ignore tax.
(A) 4-2%
(B) 7%
(C) 9-8%
(D) 14%
Answer:
(C) 9-8%
br= g = 0.70 × 14 = 9.8%

Question 133.
DHC Ltd. is looking to purchase WIC Ltd., which has the following information: Revenue ₹ 40,00,000; EBITD ₹ 9,00,000; Basic EPS ₹ 1.40; Net assets ₹ 50,00,000 Dividends paid ₹ 0.50. Research has shown that the price-earnings ratio for companies like WIC Ltd. is 9.5. Based on that ratio, what is the value of WIC Ltd.?
(A) 23,75,000
(B) 85,50,000
(C) 50,00,000
(D) 66,50,000
Answer:
(D) 66,50,000
Market Price = P/E Ratio × EPS = 9.5 × 1.4 = 13.3;
50,00,000×13.3/10 = 66,50,000

Question 134.
Market price of Jhakas Ltd. is ₹200 per share as per Gordon Model. EPS is ₹ 20 per share. Cost of capital is 11%. Rate of return on investment is 12%. What is retention ratio?
(A) 80%
(B) 75%
(C) 100%
(D) 50%
Answer:
(D) 50%

Question 135.
Market price of Sara Ltd. is ₹ 1,000 per share. EPS is ₹ 20 per share. Cost of capital is 11 %. Rate of return on investment is 12%. What is dividend per share?
(A) 2
(B) 3
(C) 4
(D) 5
Answer:
(A) 2

Question 136.
Following information is available in respect of Sober Ltd.:
No. of shares outstanding : 1 lakh
Earnings per share : ₹ 4
Equity capitalization rate : 12%
Rate of return on investment : 15%
You are required to calculate Dividend payout ratio to keep share price at ₹ 40.
(A) 50%
(B) 40%
(C) 60%
(D) 20%
Answer:
(D) 20%

Question 137.
A Chemical company belongs to a risk class for which P / E Ratio is 10. It currently has 50,000 equity shares selling at ₹ 200 each. The firm is contemplating the declaration of dividend of ₹ 16 per share at the current fiscal year which has just started. Given the assumption of Modigliani-Miller, what will be the price of share at the end of the year if dividend is declared?
(A) ₹ 205
(B) ₹ 208
(C) ₹ 204
(D) ₹ 225
Answer:
(C) ₹ 204

Question 138.
Damodhar Ltd. has 10 lakh equity shares outstanding. Current market price of the shares is ₹ 150 each. The board of directors of the company has recommended dividend of ₹ 8 per share. Rate of capitalization is 12%. How many shares are to be issued as per MM Model at the end of accounting year on the assumption that the net income is ₹ 2 Crore and the investment budget is ₹ 4 Crore and dividend is declared as recommended by the directors.
(A) 1,19,047 shares
(B) 1,75,000 shares
(C) 1,57,000 shares
(D) 1,68,419 shares
Answer:
(B) 1,75,000 shares

Question 139.
Take the data above question and calculate the market value of the company after giving effect to proposal as stated above.
(A) ₹ 18,80,00,000
(B) ₹ 15,50,00,000
(C) ₹ 18,50,00,000
(D) ₹ 19,90,00,000
Answer:
(A) ₹ 18,80,00,000

Question 140.
An equity share of ₹ 100 is expected to earn an annual dividend of ₹10 and this share can be sold at price of ₹ 180 at the end of year. If the required rate of return is 12%, calculate the value of equity share.
(A) ₹ 196.46
(B) ₹ 169.64
(C) ₹ 149.66
(D) ₹ 170.05
Answer:
(B) ₹ 169.64

Question 141.
Net profit before tax of Acumen Ltd. is ₹ 17,50,000. The company has 1,00,000 equity shares of face value ₹ 10 each, fully paid-up. Current market price of the shares is ₹ 85 per share. Income-tax @ 30% applies to the company. Compute the P/E ratio for the company.
(A) 5.92
(B) 8.63
(C) 6.94
(D) 9.46
Answer:
(C) 6.94

Question 142.
Following details are available to you for Beauty Ltd.
Internal rate of return — 15%
Capitalization rate — 15%
Earnings per share — ₹ 12
Cash dividend per share — ₹ 5
Calculate the value of an equity share.
(A) ₹ 70
(B) ₹ 80
(C) ₹ 90
(D) ₹ 95
Answer:
(B) ₹ 80

Question 143.
Rama Ltd. had 1,00,000 equity shares of ₹ 10 each outstanding. Shares are currently being quoted at par in the market. In the wake of the removal of the dividend restraint, the company now intends to pay a dividend of ₹ 2 per share for the current financial year. It belongs to a risk class whose appropriate capitalization rate is 15%. Using MM Model and assuming no taxes, ascertain the price of the company’s shares as it is likely to prevail at the end of the year – (i) when dividend is declared; and (ii) when no dividend is declared.

Answer:
(D)

Question 144.
Rosa Ltd. has outstanding 1,20,000 shares selling at ₹ 20 per share. The company hopes to make a net income of ₹ 3,50,000 during the year. Company is thinking of paying a dividend of ₹ 2 per share at the end of current year. Capitalization rate has been estimated to be 15%. On the basis of MM model how many new shares the company must issue if the dividend is paid and company needs ?9,50,000 for an approved investment expenditure?
(A) 40,000 equity shares
(B) 50,000 equity shares
(C) 60,000 equity shares
(D) 70,000 equity shares
Answer:
(A) 40,000 equity shares

Question 145.
Take the data of above, question and calculate total market value of the company.
(A) ₹ 35,40,000
(B) ₹ 32,90,000
(C) ₹ 33,60,000
(D) ₹ 34,30,000
Answer:
(C) ₹ 33,60,000

Question 146.
Abhishek Steel Ltd. has one lakh equity shares outstanding which are selling at ₹ 100 each. Its capitalization rate is 14%. The company is expecting ₹ 65 lakh income for the current year and is planning to pay dividend amounting to ₹ 4 lakh. The company wants to invest in a new project which will cost ₹ 75 lakh. It is assumed that the MM Model on dividend policy is applicable. Compute the number of shares to be issued for financing when: A. Dividend is not paid. B. Dividend amounting to ₹ 4 lakh is paid.

Answer:
(B)

Question 147.
Small Events Incorporation has recently paid dividend of ₹ 3.50 per share. The dividends are growing at 10% p.a. and the equity capitalization rate applicable to the company is 12%. Find out the implicit P/E Ratio if the EPS of the company is ₹ 7.
(A) 27.50
(B) 28.50
(C) 30.00
(D) 32.50
Answer:
(A) 27.50

Question 148.
Current price of share of X Ltd. is ₹ 60 and just paid dividend per share is ₹ 4. If the capitalization rate is 12%, what is the dividend growth rate?
(A) 3%
(B) 5%
(C) 4%
(D) 6%
Answer:
(B) 5%

Question 149.
Following information is available in respect of Hajela Ltd.:
No. of shares outstanding : 3 lakh
Net profit : 18 lakh
Equity capitalization rate : 16%
Rate of return on investment : 20%
You are required to calculate Dividend payout ratio to keep share price at ₹ 42.
(A) 42 %
(B) 46%
(C) 58%
(D) 52%
Answer:
(D) 52%

Question 150.
Market price is ₹ 30 per share. Dividends are growing at 2%. Cost of equity is 10.5%. How much dividend must have been paid by the company at the beginning of the year or last year?
(A) 2.55
(B) 2.50
(C) 2.00
(D) 2.60
Answer:
(B) 2.50

Going through the Management Reporting – Corporate and Management Accounting CS Executive MCQ Questions with Answers you can quickly revise the concepts.

Management Reporting – Corporate and Management Accounting MCQs

Question 1.
Management needs information for –
(A) For introducing alterative management for the organization
(B) To effectively carry out a disinvestment programme
(C) Arriving at decisions and for evaluating performance to run the business effectively.
(D) The benefit of society at large.
Answer:
(C) Arriving at decisions and for evaluating performance to run the business effectively.

Question 2.
………… can be defined as means of communication, usually in the written form, of facts which should be brought to the attention of the various levels of management who can use them to take suitable action for proper control.
(A) Formats
(B) Proforma
(C) File
(D) Reports
Answer:
(D) Reports

Question 3.
Top management like to get information like –
(A) Trend of the business, cash flow and fund flow etc.
(B) How to operate machine effectively
(C) Petty cash budget
(D) Latest ruling of High Court on jurisprudence
Answer:
(A) Trend of the business, cash flow and fund flow etc.

Question 4.
A management has only a minimum time to exercise control. Hence, the activities, which are not carried out according to planning and budget, are highlighted before the management. This is the way of following the principle of –
(A) Management by forecasting
(B) Management by exception
(C) Management by unity
(D) Management by delegation
Answer:
(C) Management by unity

Question 5.
Financial control report comes under –
(A) Dynamic financial reports
(B) Static financial reports
(C) Extensive Activity report
(D) None of the above
Answer:
(A) Dynamic financial reports

Question 6.
Which of the following is a kind of information report?
(A) Trend reports
(B) Analytical report
(C) Activity reports
(D) All of the above
Answer:
(D) All of the above

Question 7.
Management reporting can be performed as –
(A) Internal reporting
(B) External reporting
(C) Both (A) & (B)
(D) None of the above
Answer:
(C) Both (A) & (B)

Question 8.
The back bone of any organization is –
(A) Information
(B) Employee
(C) Management
(D) Capital
Answer:
(A) Information

Question 9.
Which of these is usually written in a form of a memorandum?
(A) Informal reports
(B) Formal reports
(C) Professional reports
(D) Business reports
Answer:
(A) Informal reports

Question 10.
Which of the following is a type of matter may be covered in a special report?
(A) Feasibility study for a project
(B) Cost reduction schemes information
(C) Data on make or buy decision
(D) All of the above
Answer:
(D) All of the above

Question 11.
………… are to be presented after making and investigation of the problem which requires to be investigated.
(A) Memorandum
(B) Special reports
(C) Summary
(D) Special facts
Answer:
(B) Special reports

Question 12.
………… is very important method of presenting information to the management in a pictorial manner and attracts the eye of the recipient more quickly and forcibly.
(A) Tabular Reports
(B) Descriptive Reporting
(C) Graphic Presentation
(D) All of the above
Answer:
(C) Graphic Presentation

Question 13.
…………. are presented in the form of comparative statements.
(A) Descriptive Reports
(B) Graphic Presentation
(C) Transactional Analysis
(D) Tabular Reports
Answer:
(D) Tabular Reports

Question 14.
Which of the following general principle that is required to be followed while reporting?
I. Report should have a proper title.
II. Report should be in good form and should have sub-headings and paragraph.
in. Format of report should be changed frequently.
IV. Report should factual.
V. Report need not to save time of the management.
Select the correct answer form the options given below.
(A) I and III only
(B) I & IV only
(C) II, III and V only
(D) IV, I and II only
Answer:
(D) IV, I and II only

Question 15.
Collecting comments and suggestions from users to discover ways to continuously improve the data and process can be described as –
(A) Implementation
(B) Exception
(C) Feedback
(D) Order
Answer:
(C) Feedback

Question 16.
Which of these reports provide information without any evaluation?
(A) Informational
(B) Interpretative
(C) Routine
(D) Progress
Answer:
(A) Informational

Question 17.
………….. report provides rational findings.
(A) Informative
(B) Interpretative
(C) Routine
(D) Progress
Answer:
(B) Interpretative

Question 18.
Which of these is not mentioned in a progress report?
(A) Name of project
(B) Right choice of instruments
(C) Nature of work
(D) Amount of work left
Answer:
(B) Right choice of instruments

Question 19.
Which of these is not a parameter of a formal report?
(A) Presentation
(B) Complaint
(C) Information
(D) Request
Answer:
(B) Complaint

Question 20.
Which of these reports is written before starting a new project?
(A) Feasibility report
(B) Periodic report
(C) Trouble report
(D) Progress report
Answer:
(A) Feasibility report

Question 21.
Which of these must never be a basis for a technical report?
(A) Facts
(B) Tests
(C) Personal prejudices
(D) Experiments
Answer:
(C) Personal prejudices

Question 22.
Reports present conclusions based on:
(A) Intuition
(B) Belief
(C) Impression
(D) Investigation
Answer:
(D) Investigation

Question 23.
Which of these is not a parameter of a report?
(A) Ability to acquire additional information
(B) Quality of additional information acquired
(C) Ability to arrive at subjective evaluation
(D) Ability to provide worthwhile recommendations
Answer:
(C) Ability to arrive at subjective evaluation

Question 24.
The chronological development of information in the body of the report is done according to the:
(A) Logical sequence of events
(B) Order in which events occurred
(C) Choice of the writer
(D) Collection of data
Answer:
(B) Order in which events occurred

Question 25.
Which of these must be avoided in a technical report?
(A) Facts
(B) Logical conclusion
(C) Objective evaluation
(D) Subjective evaluation
Answer:
(D) Subjective evaluation

Analyzing Strategic Edge – CS Executive Financial and Strategic Management MCQ Questions with Answers you can quickly revise the concepts.

Analyzing Strategic Edge – Strategic Management MCQ

Question 1.
What is the term for the act of recreating a core business process with the goal of improving product output, quality or reducing costs?
(A) Business Process Improvement
(B) Business Process Reengineering
(C) Business Process Change
(D) Business Process Advance
Answer:
(B) Business Process Reengineering

Question 2.
Which of the following is objective of Business Process Reengineering (BPR)?
(A) Boost effectiveness and produce higher quality products for end customer.
(B) Improve efficiency in the production processes.
(C) Providing more meaningful work to employees.
(D) All of the above
Answer:
(D) All of the above

Question 3.
Which of the following is not one of the stepsoftheBusinessProcessReengineering (BPR)?
(A) Identify customers and determine their needs
(B) Determining objectives and frame-work
(C) Formulation of a redesign process plan
(D) Partial modification or marginal improvement in the existing work processes.
Answer:
(D) Partial modification or marginal improvement in the existing work processes.

Question 4.
Which of the following is NOT a principle underlying business process re-engineering (BPR)?
(A) Business process must be managed end to end
(B) Business processes should be agile.
(C) Business processes should use prototype technology
(D) Business processes must be aligned with organizational strategy and needs
(E) None of the above
Answer:
(C) Business processes should use prototype technology

Question 5.
…………. is an approach of setting goals and measuring productivity of firms based on best industry practices or against the products, services and practices of its competitors or other acknowledged leaders in the industry.
(A) Benchmarking
(B) Bench parking
(C) Object marking
(D) Quality marking
Answer:
(A) Benchmarking

Question 6.
Benchmarking –
(A) Helps businesses in improving performance by learning from the best practices and the processes by which they are achieved.
(B) Is a process of continuous improvement in search for competitive advantage.
(C) Is an approach of setting goals and measuring productivity of firms based on best industry practices or against the products, services and practices of its competitors or other acknowledged leaders in the industry.
(D) All of the above
Answer:
(D) All of the above

Question 7.
Consider following two statements.
1. It refers to the analysis and redesign of work flows both within and between the organization and the external entities.
2. Benchmarking is a process of finding the best practices within and outside the industry to which an organization belongs.
Select true statement.
(A) 1 only
(B) 2 only
(C) Both  1 and 2
(D) Neither 1 nor 2
Answer:
(C) Both 1 and 2

Question 8.
Consider following two statements.
I. Benchmarking and Business Process re-engineering are one and the same.
II. Benchmarking is a remedy for all problems faced by organizations.
Select true statement.
(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) Neither 1 nor 2
Answer:
(D) Neither 1 nor 2

Question 9.
Managers use this type of benchmarking to identify the best way to compete in the market –
(A) Performance Benchmarking
(B) Process Benchmarking
(C) Strategic Benchmarking
(D) Internal Benchmarking
Answer:
(C) Strategic Benchmarking

Question 10.
………… refers to a process when a company compares itself with the competitors inside its industry.
(A) Functional Benchmarking
(B) Competitive benchmarking
(C) Generic Benchmarking
(D) Strategic Benchmarking
Answer:
(B) Competitive benchmarking

Question 11.
Benchmarking Wheel is a ………. stage process.
(A) Four
(B) Five
(C) Six
(D) Seven
Answer:
(B) Five

Question 12.
Which of the following is not Benchmarking Wheel stage process?
(A) Plan
(B) Find
(C) Analyze
(D) Repeat
Answer:
(D) Repeat

Question 13.
TQM owes its genesis to post war research of American management consultants like –
(A) Drs. Joseph Juran & W. Edwards Dening
(B) Dr. Eric Penfield& Dr. Wilder Penfield
(C) Dr. Eric Berne & W. Edwards Dening
(D) Drs. Joseph Juran & Dr. Wilder Penfleld
Answer:
(A) Drs. Joseph Juran & W. Edwards Dening

Question 14.
Which of the following is not a key feature of Total Quality Management?
(A) Continuous improvement
(B) Identifying customers and their needs
(C) Establishing clear specifications
(D) Teamwork, trust and empowerment
Answer:
(C) Establishing clear specifications

Question 15.
……….. collectively established a common set of quality standards known as ISO 9000.
(A) European Economic Community
(B) American Economic Community
(C) Italian Economic Community
(D) Indian Economic Community
Answer:
(A) European Economic Community

Question 16.
As per TQM principles which of the following is problem -…………….
(A) Process
(B) People
(C) Both process and people
(D) Government policy
Answer:
(A) Process

Question 17.
Which of the following does not correctly depict the TQM principle?
(A) Every employee is responsible for quality.
(B) Quality is a long-term investment.
(C) People, not Processes, are the problem.
(D) AD of the above
Answer:
(B) Quality is a long-term investment.

Question 18.
……….. is also considered as a structured approach in managing uncertainty related to a threat.
(A) Crises management
(B) Risk management
(C) Crises of organizational misdeeds
(D) None of above
Answer:
(B) Risk management

Question 19.
…………. is a defined and disciplined business methodology to increase customer satisfaction and profitability by streamlining operations, improving quality and eliminating defects in every organization-wide process.
(A) Six Sigma
(B) TQM
(C) Five Alpha
(D) Six Beta
Answer:
(A) Six Sigma

Question 20.
The reasons for acquisition are –
(A) Increased market power
(B) Increased diversification
(C) Increased speed to market
(D) All of the these
Answer:
(D) All of the these

Going through the Introduction to Corporate Accounting – Corporate and Management Accounting CS Executive MCQ Questions with Answers you can quickly revise the concepts.

Introduction to Corporate Accounting – Corporate and Management Accounting MCQs

Question 1.
The financial statements of company shall be in the form provided in:……….
(A) Schedule IV
(B) Schedule III
(C) Schedule V
(D) Schedule VI
Answer:
(B) Schedule III

Question 2.
Part I of the Schedule HI to the Companies Act, 2013 gives the -……..
(A) Format of Income Statement
(B) General instructions for preparation of Profit & Loss Account
(C) Format of Balance Sheet
(D) Format of Comparative Statements
Answer:
(C) Format of Balance Sheet

Question 3.
As per Section 129(2) of the Companies Act, 2013, at every of a company,the Board of Directors of the company shall lay before such meeting financial statements for the financial year.
(A) Board Meeting
(B) Annual General Meeting
(C) Extraordinary General Meeting
(D) Ordinary General Meeting
Answer:
(B) Annual General Meeting

Question 4.
The company shall attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries in as per the Companies (Accounts) Rules, 2014.
(A) Form No. AOC-1
(B) Form No. AOC-2
(C) Form No. AOC-3
(D) Form No. AOC-4
Answer:
(A) Form No. AOC-1

Question 5.
Notes to accounts shall contain information in addition to that presented in the Financial Statements and shall provide where required:
1. Narrative descriptions or disaggregation’s of items recognized in those statements
2. Information about items that do not qualify for recognition in those statements.
Select the correct answer from the options given below –
(A) 1 only
(B) 2 only
(C) 1 but not 2
(D) Both 1 and 2
Answer:
(D) Both 1 and 2

Question 6.
If the turnover of the company is less than ₹ 100 Crore, the figures appearing in the Financial Statements may be rounded off to nearest –
(A) To the nearest hundreds
(B) To the nearest hundreds and thousands
(C) To the nearest hundreds, thousands, lakhs or millions thereof.
(D) To the nearest hundreds, thousands, lakhs or millions, or decimals thereof.
Answer:
(D) To the nearest hundreds, thousands, lakhs or millions, or decimals thereof.

Question 7.
Statement I:
Where the financial statements of a company do not comply with the accounting standards referred, the company shall disclose in its financial statements, the deviation from the accounting standards but the reasons for such deviation and the financial effects, if any, arising out of such deviation are not required to be given.

Statement II:
As per Section 129 of the Companies Act, 2013 the word “subsidiary” shall include associate company and joint venture.
Select the correct answer from the options given below –
(A) Statement I is true but Statement II is false.
(B) Statement I is false but Statement II is true.
(C) Both Statement I and Statement II are true
(D) Both Statement I and Statement II are false
Answer:
(B) Statement I is false but Statement II is true.

Question 8.
If the turnover of the company more than 100 Crore, the figures appearing in the Financial Statements may be rounded off to nearest -……..
(A) To the nearest hundreds, thousands, lakhs or millions, or decimals thereof.
(B) To the nearest lakhs, millions or crores, or decimals thereof
(C) To the nearest millions or crores or decimals thereof
(D) To the nearest crores or decimals thereof
Answer:
(B) To the nearest lakhs, millions or crores, or decimals thereof

Question 9.
Under which heading the Deferred Tax Liabilities appears in the balance sheet
(A) Current Liabilities
(B) Non-Current Liabilities
(C) Deferred Liabilities
(D) Contingent Liabilities
Answer:
(B) Non-Current Liabilities

Question 10.
An auditor of a company signed the balance sheet, profit & loss account and schedules/notes and furnished the auditor’s report on the same date on which the reports were signed by the directors on behalf of the board. One of the director raised objection stating that the audit cannot be completed and certified in a day. Which of the following statement is correct
(A) Section 143 gives the auditors access at all times to the books of account and vouchers of the company, which amply suggests that they do not have to remain idle at any time after their appointment as auditors.
(B) If the auditor signs the balance sheet on the same date on which the directors have approved it, it may not be inferred from the circumstances that the auditor has not performed the audit efficiently.
(C) There is no violation of Section 134 where the audit is completed before approved of the balance sheet by the Board of directors.
(D) All of the above
Answer:
(D) All of the above

Question 11.
An asset shall be classified as current:
(A) If it is held primarily for the purpose of being traded.
(B) If it is not possible to classify such asset as non-current asset.
(C) If for the asset normal operating cycle cannot be identified.
(D) If such asset expected to be realized after twelve months after the reporting date.
Answer:
(A) If it is held primarily for the purpose of being traded.

Question 12.
A copy of the financial statements, including consolidated financial statement, along with all the documents attached to financial statements, duly adopted at the AGM, shall be filed with the Registrar within ……….of the date of AGM in prescribed manner along with prescribed fees.
(A) 10 days
(B) 30 days
(C) 60 days
(D) 90 days
Answer:
(B) 30 days

Question 13.
As per Schedule III of the Companies Act, 2013, where the normal operating cycle cannot be identified, it is assumed to have duration of -…………
(A) 3 months
(B) 6 months
(C) 9 months
(D) 12 months
Answer:
(D) 12 months

Question 14.
As per Rule 12 of the Companies (Accounts) Rules, 2014, a financial statement shall be filed in which should be pre-certified by Practicing CA.
(A) Form AOC-3
(B) Form AOC-4
(C) Form AOC-5
(D) Form AOC-6
Answer:
(B) Form AOC-4

Question 15.
A liability shall be classified as current when it satisfies any of the following criteria:
(A) It is expected to be settled in the Company’s normal operating cycle.
(B) It is due to be settled within twelve months after the reporting date
(C) The company does not have an un-conditional right to defer settlement of the liability for at least twelve months after the reporting date.
(D) All of the above
Answer:
(D) All of the above

Question 16.
OPC shall file a copy of the financial statements duly adopted by its member, along with all the documents which are required to be attached to such financial
statements, within from the closure
of the financial year.
(A) 30 days
(B) 60 days
(C) 120 days
(D) 180 days
Answer:
(D) 180 days

Question 17.
Which of the following is required to be disclosed in notes to accounts in respect of ‘Share Capital
(A) A reconciliation of the number of shares outstanding at the beginning and at the end of the reporting period
(B) Aggregate number and class of shares bought back
(C) Shares in the company held by each shareholder holding more than 5%.
(D) All of the above
Answer:
(D) All of the above

Question 18.
As per Rule 3 of the Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2015, all companies having has to file their Balance Sheet, Profit & Loss A/c and other documents with the Registrar using the Extensible Business Reporting Language (XBRL).
(A) Issued capital of ₹ 5 Crore or above
(B) Authorized capital of more than₹ 10 Crore
(C) Paid-up capital of ₹ 5 Crore or above
(D) Subscribed capital of ₹ 25 Crore or above
Answer:
(C) Paid-up capital of ₹ 5 Crore or above

Question 19.
Which of the following appears under the heading ‘Reserves & Surplus’ in the balance sheet
(A) Share Options Outstanding Account
(B) Share Application Money Pending Allotment
(C) Long Term Provisions
(D) Secrete Reserves
Answer:
(A) Share Options Outstanding Account

Question 20.
As per Schedule HI of the Companies Act, 2013, a Company shall disclose by way of notes additional information regarding aggregate expenditure and income in relation to any item of income or expenditure which exceeds:
(A) 0.5% of the revenue from operations
(B) ₹ 10,000
(C) 1% of the revenue from operations ₹ 1,00,000, whichever is higher
(D) 0.5% of the revenue from operations ₹ 10,000, whichever is less.
Answer:
(C) 1% of the revenue from operations ₹ 1,00,000, whichever is higher

Question 21.
As per Rule 3 of the Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2015, all companies having turnover of has to file their Balance Sheet, Profit & Loss A/c and other documents with the Registrar using the Extensible Business Reporting Language (XBRL)
(A) ₹ 50 Crore or above
(B) ₹ 100 Crore or above
(C) ₹ 250 Crore or above
(D) ₹ 500 Crore or above
Answer:
(B) ₹ 100 Crore or above

Question 22.
As per Section 128. of the Companies Act, 2013, every company shall prepare and keep at its books of account and other relevant books and papers and financial statement for every financial year
(A) Corporate Office
(B) Registered Office
(C) Corporate Office or Registered Office
(D) Head Office
Answer:
(B) Registered Office

Question 23.
Which of the following will be shown in the balance sheet under the heading ‘cash and cash equivalents
(A) Earmarked balances with banks
(B) Bank deposits with more than twelve months maturity
(C) Cheques, drafts on hand
(D) All of the above
Answer:
(D) All of the above

Question 24.
Which of the following type of company is required to file their accounts in Extensible Business Reporting Language (XBRL) format
(A) Banking companies
(B) Insurance companies
(C) Non-Banking Financial companies
(D) None of the above
Answer:
(D) None of the above

Question 25.
Declared dividend must be paid within of declaration.
(A) 5 days
(B) 10 days
(C) 30 days
(D) 60 days
Answer:
(C) 30 days

Question 26.
Retained earnings are – …………
(A) An indication of a company’s liquidity.
(B) The same as cash in the bank.
(C) Not important when determining dividends.
(D) The cumulative earnings of the company after dividends.
Answer:
(D) The cumulative earnings of the company after dividends.

Question 27.
Which of the following type of company is required to file their accounts in Extensible Business Reporting Language (XBRL) format
(I) Subsidiary of Indian Listed Company
(II) Companies which are required to prepare their financial statements in accordance with the Companies (Indian Accounting Standards) Rules, 2015
(III) Private company having turnover of ₹ 99 Crore.
(IV) Public companies having paid-up capital of ₹ 3 Crore.
Select the correct answer from the options given below –
(A) (I)&(II)
(B) (II) & (IV)
(C) (II)&(III)
(D) (I), (II) & (III)
Answer:
(A) (I)&(II)

Question 28.
The primary goal of a publicly-owned firm interested in serving its stockholders should be to
(A) Maximize expected total corporate profit
(B) Maximize expected EPS
(C) Maximize the stock price per share
(D) Maximize expected net income.
Answer:
(C) Maximize the stock price per share

Question 29.
In the real world, we find that dividends -…………………
(A) Usually exhibit greater stability than earnings.
(B) Fluctuate more widely than earnings
(C) Tend to be a lower percentage of earnings for mature firms
(D) Are usually set as a fixed percentage of earnings
Answer:
(A) Usually exhibit greater stability than earnings.

Question 30.
Which of the following statement is correct
(A) A company may, if so authorized by its articles, pay dividends in proportion to the amount paid-up on each share.
(B) Dividend cannot be paid on calls-in- advance.
(C) All the provisions of the Companies Act, 2013 that are applicable to final dividend are also applicable to interim dividend.
(D) All of the above
Answer:
(D) All of the above

Question 31.
As per provisions of the Companies Act, 2013, dividend can be paid -……
1. Out of current profit
2. Out of revaluation reserve
3. Out of profits of previous financial years
4. Out of money provided by the Central or State Government
5. Out of free reserve
Select the correct answer from the options given below.
(A) 1 and 5 only
(B) 1,2,3 & 5
(C) 1, 3 and 5 only
(D) 1,3,4 and 5
Answer:
(D) 1,3,4 and 5

Question 32.
As per Section 128 of the Companies Act, 2013, a company may, before the declaration of any dividend in any financial year, transfer ………… to the reserves of the company.
(A) 25% of its profit after tax
(B) 10% of its profit before tax
(C) such percentage of its profits for that financial year as board of directors may consider appropriate
(D) such percentage of its profits for that financial year as equity shareholder may consider appropriate
Answer:
(C) such percentage of its profits for that financial year as board of directors may consider appropriate

Question 33.
As per Rule 7 of the Companies (Declaration & Payment of Dividend) Rules, 2014, in the event of inadequacy or absence of profits in any year, a company may declare dividend out of surplus subject to the fulfillment of the condition that rate of dividend declared shall not exceed the average of the rates at which dividend was
declared by it in the immediately
preceding that year.
(A) 5 years
(B) 10 years
(C) 3 years
(D) 4 years
Answer:
(C) 3 years

Question 34.
As per Rule 7 of the Companies (Declaration & Payment of Dividend) Rules, 2014, in the event of inadequacy or absence of profits in any year, a company may declare dividend out of surplus subject to the fulfillment of the condition that total amount to be drawn from such accumulated profits shall not exceed …….as appearing in the latest audited financial statement.
(A) 1/10th of the total assets
(B) 1 / 5th of the sum of its paid-up share capital
(C) 1/10th of the sum of its paid-up share capital and free reserves
(D) 1 /5th of the sum of its paid-up share capital and free reserves
Answer:
(C) 1/10th of the sum of its paid-up share capital and free reserves

Question 35.
As per Rule 7 of the Companies (Declaration & Payment of Dividend) Rules, 2014, in the event of inadequacy or absence of profits in any year, a company may declare dividend out of surplus subject to the fulfilment of the condition the balance of reserves after such withdrawal shall not
fall below as appearing in the latest
audited financial statement.
(A) 10% of its paid-up share capital
(B) 15% of its paid-up share capital
(C) 15% of its paid-up share capital and free reserve
(D) 10% of its paid-up share capital and free reserve
Answer:
(C) 15% of its paid-up share capital and free reserve

Question 36.
As per the provisions of the Companies Act, 2013, the amount of the dividend, including interim dividend, shall be deposited in a scheduled bank in a separate account within ………… from the date of declaration of such dividend.
(A) 30 days
(B) 15 days
(C) 10 days
(D) 5 days
Answer:
(D) 5 days

Question 37.
After declaration of dividend, the company has to pay dividend within ……. of declaration of dividend. If amount of dividend remains unpaid or unclaimed for 30 days of declaration of dividend, then in next…….. the company has to transfer the amount unclaimed to the to a special account in any scheduled bank to be called the “Unpaid Dividend Account”.
(A) 5 days; 5 days
(B) 30 days; 7 days
(C) 30 days; 5 days
(D) 10 days; 7 days
Answer:
(B) 30 days; 7 days

Question 38.
In the Balance Sheet Corporate Dividend Tax will be shown as a liability under the heading –
(A) Current Liabilities
(B) Non-Current Liabilities
(C) Tax Liabilities
(D) Deferred Liabilities
Answer:
(A) Current Liabilities

Question 39.
Any money transferred to the unpaid dividend account of a company which remains unpaid or unclaimed for a period
of from the date of such transfer must be transferred by the company to Investor Education and Protection Fund
(A) 3 years
(B) 5 years
(C) 7 years
(D) 10 years
Answer:
(C) 7 years

Question 40.
A Company has a paid up equity share capital of ₹ 37,50,000(of ₹ 10each) and 11% preference share capital of ₹ 12,50,000 (of ₹ 100 each). The balance of profit brought forward from the previous Balance Sheet was ₹ 95,000. Profit for the year ended on 31.3.2018 amounted to ₹ 14,50,000 after tax. The directors proposed a dividend of 24% on equity share capital, after the following provisions:
(I) Transfer 10% of current profits to general reserves.
(II) Provision of dividend on preference shares
Assume corporate dividend tax rate 17%. Closing balance of Profit & Loss A/ c will be –
(A) ₹ 1,86,125
(B) ₹ 3,62,500
(C) ₹ 2,48,350
(D) ₹ 1,75,425
Answer:
(A) ₹ 1,86,125

Question 41.
Trial Balance of Complex Ltd., as at 31.3.2019 shows the following item:

Particulars	Dr. (₹ )	Cr. (₹ )
Advance income tax Provision for tax for year ended 31.3.2018	55,000	30,000

(1) Advance payment of income tax includes ₹35,000 for 2017-2018.
(2) Actual tax liability for 2017-2018 amounts to ₹ 38,000 and no effect for the same has so far be given in accounts.
(3) Provision for income tax has to be made for 2018-2019 for ₹ 40,000.
You are required to calculate:
(a) Liability for taxation for last year Le. 2017-2018;
(b) Extra provision to be made in current year for last year.
(A) ₹ 8,000; ₹ 3,000
(B) ₹ 5,000; ₹ 12,000
(C) ₹ 3,000; ₹ 8,000
(D) ₹ 12,000; ₹ 5,000
Answer:
(C) ₹ 3,000; ₹ 8,000

Question 42.
A company had made provision for tax ₹ 70,000 for last year. Actual tax liability for the last financial year settled at ₹ 68,000. If had paid advance tax for last year ₹ 65,000. Which of the following statement is correct in relation tax treatment in accounts of the company
(A) Liability for taxation for the last year is ₹ 3,000
(B) Provision to write back for the last year ₹ 2,000
(C) Adjustment entry is required to be passed in current year by debiting Provision for Tax A/c and crediting Advance Income Tax A/c ₹ 65,000.
(D) All of the above are correct.
Answer:
(D) All of the above are correct.

Question 43.
Yash Ltd. has only one type of capital, viz, 40,000 equity shares of ₹ 100 each. It also has got reserves totalling ₹ 20,00,000. The company closes its books on 31st March each year. It has paid dividends @ 15% up to 2015-2016 and 20% thereafter. In2018-2019, the company suffered a loss of ₹ 2,50,000; therefore, it wishes to draw required amount out of the reserves to pay dividend at 12%. As the Companies (Declaration of Dividend Out of Reserves) Rules, 2014 how much maximum percentage of dividend can be paid by the company out of reserves.
(A) 12%
(B) 10%
(C) 8.75%
(D) 6.55%
Answer:
(C) 8.75%
Dividends can be declared out of past years profits transferred to reserves. In this case, the company has to comply with the Companies (Declaration of Dividend Out of Reserves) Rules, 2014. It lay down the following conditions subject to which a dividend may be declared by a company in the event of inadequacy or absence of profits in any year out of the profits earned by it in previous years and transferred to reserves.

(1) The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the 3 years immediately preceding that year.

Average rate of dividend = 55/3 = 18.3396
So, 18.3396 dividend can be paid at first instance.
Amount required for dividend at 18.3396 = 40,00,000 X 18.3396 = ₹ 7,33,200.

(2) The total amount to be drawn from such accumulated profits shall not exceed 1 / 10th of the sum of its paid-up share capital and free reserves as appearing in the latest audited financial statement.
1/10th of (Paid up capital + Free Reserve)
= (40,00,000 + 20,00,000) × 1 /10
= 6,00,000.
Thus, above amount in condition (1) will be restricted to ₹ 6,00,000.

(3) The amount so drawn shall first be utilized to set off the losses incurred in the financial year in which dividend is declared before any dividend in respect of equity shares is declared.

So, rate of dividend = 3,50,000/40,00,000 × 100 = 8.75%

(4) The balance of reserves after such withdrawal shall not fall below 15% of its paid up share capital as appearing in the latest audited financial statement.

Paid up capital × 15% = 40,00,000 × 15% = 6,00,000
As balance of reserve ie. 16,50,000 is more than 6,00,000. This condition is fulfilled.
So, rate of dividend can be 8.75%.

Question 44.
Due to paucity of profits, MUSKAT LTD. an Indian company proposes to declare dividends out of its general reserves.
10% pref. shares (₹ 100 each) — 10,00,000
Equity shares (₹ 100 each) — 30,00,000
General reserve — 8,00,000
Securities premium — 2,00,000
Credit balance of P & L A/c — 20,000
Net profit for the year (after tax) — 1,80,000
Average dividend for last 3 years — 15%
As the Companies (Declaration of Dividend Out of Reserves) Rules, 2014 how much maximum percentage of dividend can be paid by the company out of reserves.
(A) 10%
(B) 8%
(C) 12%
(D) 15%
Answer:
(A) 10%

Dividends can be declared out of past years profits transferred to reserves. In this case, the company has to comply with the Companies (Declaration & Payment of Dividend) Rules, 2014. It lay down the following conditions subject to which a dividend may be declared by a company in the event of inadequacy or absence of profits in any year out of the profits earned by it in previous years and transferred to Reserves.
(1) The rate of dividend should not exceed the average rate of dividend of last 3 years:
(2) The total amount to be drawn from the accumulated profits = up to 1 / 10th of the sum of the paid-up capital and free reserves of the company. The amount so drawn shall first be utilized to set off the losses incurred in the financial year before any dividend in respect of preference or equity shares is declared.
(3) The balance of reserves after such drawal shall not fall below 15% of the paid-up share capital of the company.

Condition 1:
Average rates of dividend i.e. 15%
So 15% dividend can be paid at first instance.

Condition 2:

So, rate of dividend = 4,00,000/40,00,000 × 100 = 10%

Condition 3:
The balance of reserves after such drawal shall not fall below 15% of the paid-up share capital of the company.

Question 45.
The paid-up capital of Apsara Ltd. consisted of 5,00,000 equity shares of ₹ 10 each and 50,000, 8% preference shares of ₹ 100 each. The statement of profit and loss of the company for the year ended 31.3.2019 showed net profit before tax of ₹ 20,00,000. Net profit brought forward from previous year’s balance sheet amounted to ₹ 6,00,000. Company makes a provision of 40% for income tax. Following appropriations were proposed by the company:
Answers:
(a) To pay final dividend @ ₹ 1.50 per share to equity shareholders.
(b) To transfer 5% of net profit to general reserve.
Assume corporate dividend tax rate 17%.
Closing balance of Profit & Loss A/ c will be –
(A) ₹ 3,94,500
(B) ₹ 2,94,500
(C) ₹ 4,94,500
(D) ₹ 1,94,500
Answer:
(A) ₹ 3,94,500

Business Policy and Formulation of Functional Strategy – CS Executive Financial and Strategic Management MCQ Questions with Answers you can quickly revise the concepts.

Business Policy and Formulation of Functional Strategy – Strategic Management MCQ

Question 1.
Business Policy permits the management to deal with the problems and issues without consulting management every time for decisions.
(A) Top level; Lower level
(B) Lower level; Top level
(C) Lower level; Subordinate
(D) Middle management; Lower level
Answer:
(B) Lower level; Top level

Question 2.
At the corporate level, a organization starts the strategic planning process by defining its overall purpose and
(A) Mission
(B) Values
(C) Vision
(D) All the above
Answer:
(D) All the above

Question 3.
Business policies are the ………. developed by an organization to govern its actions.
(A) Ethics
(B) Roadmap
(C) Guidelines
(D) Actions
Answer:
(C) Guidelines

Question 4.
A clear mission statement acts as an invisible hand that guides people in the firm. It is a statement of …………………..
(A) Fact
(B) Value
(C) Purpose
(D) Financial goals
Answer:
(C) Purpose

Question 5.
Which of the following is best identified as a statement that presents “a firm’s big picture statement, describing a desired end-state, general in scope, and not restrictive”?
(A) Corporate philosophy statement
(B) Company creed
(C) Vision statement
(D) Mission statement
Answer:
(C) Vision statement

Question 6.
Business policy also deals with –
(A) Process of conducting research on a company and its operating environment.
(B) The process that is conducted periodically to keep the strategies up to date
(C) Acquisition of resources with which organizational goals can be achieved.
(D) Products being offered by the business at present.
Answer:
(C) Acquisition of resources with which organizational goals can be achieved.

Question 7.
Which of the following statement is TRUE about a Vision statement of a company?
(A) It concentrates on future
(B) It defines the customers
(C) It identify critical processes
(D) It informs about the desired level of
Answer:
(A) It concentrates on future

Question 8.
What does a market-oriented mission statement define about the business?
(A) Satisfying basic supplier needs
(B) Satisfying basic customer needs
(C) Satisfying basic stockholder needs
(D) Satisfying basic owner needs
Answer:
(B) Satisfying basic customer needs

Question 9.
Every policy must have a basic feature of being –
(A) Tailor-made
(B) Specific and definite
(C) Complex and stable
(D) Flexible and stable
Answer:
(B) Specific and definite

Question 10.
_____ serves the purpose of stating what an organization wishes to achieve in the long run.
(A) Mission
(B) Value
(C) Vision
(D) Rule
Answer:
(C) Vision

Question 11.
To be a global leader in promoting good corporate governance is ………. of ICSI.
(A) Vision
(B) Mission
(C) Rule
(D) Destination
Answer:
(A) Vision

Question 12.
An effective business policy –
(A) Must be unambiguous and as clear as possible in order to guide the subordinates effectively.
(B) Must be uniform and reliable enough to be efficiently followed by the sub ordinates.
(C) Should be appropriate to the represent the organizational goals.
(D) All of the above
Answer:
(D) All of the above

Question 13.
A vision statement is a company’s –
(A) Profitability statement
(B) Road map
(C) Ethical thinking
(D) Policy statement
Answer:
(B) Road map

Question 14.
Which of the following is feature of vision statement?
(A) It motivates employees and is something that employees view as desirable
(B) It describes where the company is going From the current level.
(C) It offers a long-term perspective and is unlikely to be impacted by market or technology changes.
(D) All of the above
Answer:
(D) All of the above

Question 15.
Policy should be in application.
(A) Rigid
(B) Complex
(C) Flexible
(D) Indecisive
Answer:
(C) Flexible

Question 16.
Vision statement …………
(A) is something that can be easily met and discarded.
(B) is general enough to encompass all of the organizations interests and strategic direction.
(C) likely to be impacted by market or technology changes.
(D) undergo maximum revisions during the life of a business.
Answer:
(B) is general enough to encompass all of the organizations interests and strategic direction.

Question 17.
Which of the following describes the desired future position of the company?
(A) Vision statement
(B) Mission statement
(C) Planning statement
(D) Forecasting statement
Answer:
(A) Vision statement

Question 18.
Assertion (A):
Strategic vision and mission statements are not needed in small business houses.
Reason (R):
Organizations irrespective of their size face similar business environment and have to work through competition. Small organizations have to plan strategies for their survival in the market where large organizations are also present
Select the correct answer from the options given below.
(A) A is true but R is false
(B) A and R both are true
(C) A and R both are true and R is correct explanation of A.
(D) A is false R is true and R correctly explains how A is false.
Answer:
(D) A is false R is true and R correctly explains how A is false.

Question 19.
A narrow market focus is to a differentiation-based strategy as a –
(A) Broadly-defined target market is to a cost leadership strategy
(B) Growth market is to a cost-based strategy
(C) Technological innovation is to a cost- based strategy
(D) Growth market is to a differentiation-based strategy
Answer:
(A) Broadly-defined target market is to a cost leadership strategy

Question 20.
Vision Statement answers the question –
(A) What do we do?
(B) What makes us different?
(C) Where do we aim to be?
(D) Whether is it possible to make growth?
Answer:
(C) Where do we aim to be?

Question 21.
A defines the company’s business, its objectives and its approach to reach those objectives.
(A) Vision statement
(B) Mission statement
(C) Planning statement
(D) Forecasting statement
Answer:
(B) Mission statement

Question 22.
One of the primary advantages of diversification is sharing core competencies. In order for diversification to be most successful, it is important that –
(A) The target market is the same, even if the products are very different. –
(B) The products use similar distribution channels.
(C) The methods of production are the same.
(D) The similarity required for sharing core competencies must be in the value chain, not in the product.
Answer:
(D) The similarity required for sharing core competencies must be in the value chain, not in the product.

Question 23.
…………… is a force that creates a sense of commonality that permeates the organization and gives coherence to diverse activities
(A) Right mission
(B) Shared vision
(C) Purpose statement
(D) Shares views
Answer:
(B) Shared vision

Question 24.
Mission and Vision Statements are not commonly used to:
(A) Guide management’s thinking on strategic issues, especially during times of significant change
(B) Create wider linkages with customers, suppliers and alliance partners
(C) Help establish a framework for ethical behaviour
(D) Inspire employees to work more productively by providing focus and common goals
Answer:
(B) Create wider linkages with customers, suppliers and alliance partners

Question 25.
…………. of a company focuses on the question: ‘Who we are’ and ‘What we do’.
(A) Vision statement
(B) Mission statement
(C) Philosophy
(D) Statement of Philosophy
Answer:
(B) Mission statement

Question 26.
Horizontal integration is concerned with
(A) Production
(B) Quality
(C) Product planning
(D) All of the above
Answer:
(A) Production

Question 27.
Corporate level of management consists of –
(A) the Chief Executive Officer (CEO), other senior executives, the board of directors, and corporate staff
(B) general managers are concerned with strategies that are specific to a particular business.
(C) managers are responsible for the specific business functions or operations (human resources, purchasing, product development, customer service, and so on)
(D) none of the above
Answer:
(A) the Chief Executive Officer (CEO), other senior executives, the board of directors, and corporate staff

Question 28.
Competitive rivalry has the most effect on the firm’s strategies than the firm’s other strategies.
(A) Business level
(B) Corporate level
(C) Functional level
(D) All of these
Answer:
(A) Business level

Question 29.
Match the List-I with List-II.

Answer:
(D)

Question 30.
Your . is your ultimate goal, your is how you will get there
(A) Mission, Vision
(B) Vision, Mission
(C) Vision, Vision
(D) Mission, Mission
Answer:
(B) Vision, Mission

Question 31.
A firm successfully implementing a differentiation strategy would expect:
(A) Customers to be sensitive to price increases.
(B) To charge premium prices.
(C) Customers to perceive the product as standard.
(D) To automatically have high levels of power over suppliers.
Answer:
(B) To charge premium prices.

Question 32.
Match the List-I with List-II:

Answer:
(D)

Question 33.
In the case where an organization acquires its supplier, this is an example of –
(A) Horizontal integration
(B) Forwards vertical integration
(C) Backwards vertical integration
(D) None of the above
Answer:
(C) Backwards vertical integration

Question 34.
The strategic management process is the way in which strategists determine objectives and
(A) Make recording
(B) Make coordinating
(C) Make strategic decisions
(D) Make planning
Answer:
(C) Make strategic decisions

Question 35.
Conglomerate diversification is another name for which of the following?
(A) Related diversification
(B) Unrelated diversification
(C) Portfolio diversification
(D) Acquisition diversification
Answer:
(B) Unrelated diversification

Question 36.
Mission statement reflects the -…………….
(A) Corporate philosophy
(B) Identity of an organization
(C) Image of an organization.
(D) All of the above
Answer:
(D) All of the above

Question 37.
Corporate Strategy is –
(A) Decisive and legislative
(B) Executive and governing
(C) Growth and profitability
(D) Focus and Differentiation
Answer:
(A) Decisive and legislative

Question 38.
Internal are activities in an organization that are performed especially well.
(A) Opportunities
(B) Competencies
(C) Strengths
(D) Management
Answer:
(C) Strengths

Question 39.
Corporate Strategy deals with –
(A) Particular business unit or division
(B) Entire business organization
(C) Profitable product segment
(D) All of the above
Answer:
(B) Entire business organization

Question 40.
Corporate Strategy uses –
(A) Introverted approach
(B) Complicated approach
(C) Extroverted approach
(D) Value approach
Answer:
(C) Extroverted approach

Question 41.
A mission statement is a …………….. of an organization’s purpose, identifying the goal of its operations
(A) Long statement
(B) Short statement
(C) Complex statement
(D) None of the above
Answer:
(B) Short statement

Question 42.
Assertion (A):
Functional level constitutes the lowest hierarchical level of strategic management.
Reason (R):
Functional level is responsible for the specific business functions or operations (human resources, purchasing, product development, customer service, and so on) that constitute a company or one of its divisions.
Select the correct answer from the options given below.
(A) A is true and R is false
(B) Both A and R are false
(C) A is true but R is not correct explanation of A
(D) A and R both are true and R is correct explanation of A
Answer:
(D) A and R both are true and R is correct explanation of A

Question 43.
A financing strategy is integral to an organization’s –
(A) Value system
(B) Strategic plan
(C) Operational efficiency
(D) Ratio analysis
Answer:
(B) Strategic plan

Question 44.
Net worth is the -………
(A) Always equal to economic value added.
(B) Sum of free cash flow generated by the organization
(C) Total assets minus total outside liabilities of an individual or a company.
(D) Effective management of current assets and current liabilities and the enhanced management of its working capital and cash conversion cycle.
Answer:
(C) Total assets minus total outside liabilities of an individual or a company.

Question 45.
The New York based financial advisory postulated a concept of economic value added
(A) Stern Stewart & Co.
(B) Shawn Stewart & Co.
(C) Stern Porter & Co.
(D) Miche! Shawn & Co.
Answer:
(A) Stern Stewart & Co.

Question 46.
Risk management is responsibility of the –
(A) Customer
(B) Investor
(C) Developer
(D) Project team
Answer:
(D) Project team

Question 47.
Where you want your business to be in 10 years time. This can be termed as:
(A) Mission statement
(B) Vision statement
(C) Statement of purpose
(D) Memorandum of understanding
Answer:
(B) Vision statement

Question 48.
What are the key decisions falling within the scope of financial strategy?
(A) Investment Decisions
(B) Finance Decisions
(C) Dividend Decisions
(D) All of the above
Answer:
(D) All of the above

Question 49.
Aim of financial strategy is to achieve –
(A) Profit maximization
(B) Wealth maximization
(C) Profit and wealth maximization
(D) Distribute maximum dividend
Answer:
(C) Profit and wealth maximization

Question 50.
Similar to Mission and Vision Statements, Corporate Values Statements provide three of the following. Which is not true?
(A) A vision for the future.
(B) Strategies that zero in on key success approaches.
(C) Values that shape actions.
(D) Directions for promotional planning
Answer:
(D) Directions for promotional planning

Question 51.
……….. is concerned more with how a business competes successfully in a particular market and often described as mission statement.
(A) D, B & C
(B) A, C, B & E
(C) A and C only
(D) E, C & A
Answer:
(C) A and C only

Question 52.
Which of the following is said to be the lifeblood of an organization?
(A) Cash
(B) Finance
(C) Material
(D) Goodwill
Answer:
(B) Finance

Question 53.
Which of the following is concerned with how each part of the business is organized to deliver the corporate and business-unit level strategic direction and is concerned with strategic decisions about choice of products, meeting needs of customers etc.?
(A) Operational strategy
(B) Corporate strategy
(C) Business unit strategy
(D) All of above
Answer:
(A) Operational strategy

Question 54.
Financial Management is concerned with –
A. Investment decisions
B. Labour turnover decisions
C Financing decisions
D. Personnel policy decisions
E Dividend decisions
Select the correct answer from the options
given below.
(A) D,B & C
(B) AC,B & E
(C) A and C only
(D) E,C & A
Answer:
(D) E,C & A

Question 55.
Operational strategy focuses on issues of
(A) Resources
(B) Processes
(C) People
(D) All of above
Answer:
(D) All of above

Question 56.
Which of the following business function more focus on customer
(A) Selling
(B) Marketing
(C) Purchasing
(D) Accounting
Answer:
(B) Marketing

Question 57.
Which of the following is concerned with the overall purpose and scope of the business to meet stakeholder expectations?
(A) Operational strategy
(B) Corporate strategy
(C) Business unit strategy
(D) Operation strategy
Answer:
(B) Corporate strategy

Question 58.
Concept through which life is brought up in message of advertising strategy in memorable and distinctive way is classified as –
(A) Rational concept
(B) Reminder concept
(C) Creative concept
(D) Persuasive concept
Answer:
(C) Creative concept

Question 59.
Customer driven marketing strategy is another name of the –
(A) Selling concept
(B) Marketing concept
(C) Product concept
(D) Societal marketing concept
Answer:
(B) Marketing concept

Question 60.
Marketing strategy in which a firm sells different segments and offers different product is classified as……………
(A) Individual marketing
(B) Differentiated marketing
(C) Mass marketing
(D) Niche marketing
Answer:
(B) Differentiated marketing

Question 61.
Adapting the firm to take advantage of opportunities in its constant changing environment is called …………
(A) Long-range planning
(B) Annual planning
(C) Strategic planning
(D) Environmental scanning
Answer:
(C) Strategic planning

Question 62.
All of the following are accurate descriptions of a company’s mission statement, except which one?
(A) Mission statement should be realistic.
(B) Mission statement should be broad.
(C) Mission statement should fit the market environment.
(D) Mission statement should be written for “public relations” purpose.
Answer:
(B) Mission statement should be broad.

Question 63.
The original framework of marketing mix comprises of 4Ps -.
(A) product, price, place and promotion
(B) product, price, profit and plan
(C) profit, price, place and policy
(D) policy, price, place and promotion
Answer:
(A) product, price, place and promotion

Question 64.
Match List-I with List-II:
List-I —– List-II
1. Money customers have to pay to obtain the product
2. Communicate the merits of the product and persuade target consumers to buy it
3. Make the product available to target consumers
“Goods-and-service” combination the company offers to the target market
Select the correct answer from the options given below.

Answer:
(A)

Question 65.
Marketing strategy is a -…………
(A) careful selection of viable and profitable investment proposals
(B) business’s overall game plan for reaching people and tinning them into customers of the product or service that the business provides.
(C) mix of a firm’s capitalization
(D) process that set out how the organization plans to finance its overall operations to meet its objectives now and in future
Answer:
(B) business’s overall game plan for reaching people and tinning them into customers of the product or service that the business provides.

Question 66.
The Strategic Marketing answers three ‘W’s:…………..
(A) Which markets to compete in?
(B) Which markets to compete in?
(C) When to compete?
(D) All of the above
Answer:
(D) All of the above

Question 67.
………… is a company that has the largest market share in an industry and which can use its dominance to affect the competitive landscape and direction the market takes
(A) Market Challenger
(B) Market Follower
(C) Market Nicher
(D) Market leader
Answer:
(D) Market leader

Question 68.
Market challengers are known as -…………..
(A) Winner firms
(B) Runner-up firms
(C) Challenging firms
(D) Followers
Answer:
(B) Runner-up firms

Question 69.
……….. generally follows the policy of wait and watch. They rarely invest in their own funds in R&D and sit and relax to watch market leaders to bring out novel and innovative products and afterwards adopt a “me-too” approach.
(A) Challenging firms
(B) Market leader
(C) Market Challenger
(D) Market Follower
Answer:
(D) Market Follower

Question 70.
……….. will compete ‘neck to neck’ with the market leader in an effort to grab their market share.
(A) Market Follower
(B) Market Challenger
(C) Market Nicher
(D) Market maker
Answer:
(B) Market Challenger

Question 71.
In terms of market position, firms may be classified as –
(i) Market Nichers
(ii) Market Challengers
(iii) Market Leaders
(iv) Market Followers Arrange in proper sequence.
(A) (iii), (ii), (i), (iv)
(B) (iii), (ii), (iv), (i)
(C) (ii), (iv), (iii), (i)
(D) (i), (ii), (iv), (iii)
Answer:
(B) (iii), (ii), (iv), (i)

Question 72.
According to …………. every entrant into a market whether it is new or not is classified under a Market Pioneer, Close Follower or a Late follower
(A) Koontz and O’Donnell
(B) Haimann and Hick
(C) Lieberman and Montgomery
(D) Lieberman and Hick
Answer:
(C) Lieberman and Montgomery

Question 73.
………… are known to often open a new market to consumers based on major innovation.
(A) Late Followers
(B) Market Pioneers
(C) Close Followers
(D) All of the above
Answer:
(B) Market Pioneers

Question 74.
According to Lieberman and Montgomery who have the first-mover advantage?
(A) Passionate
(B) Followers
(C) Pioneers
(D) Seller
Answer:
(C) Pioneers

Question 75.
Technological Leadership means –
(A) Gaining an advantage through re-search and development.
(B) Acquiring scarce assets within a certain market.
(C) Allowing pre-existing information to be used.
(D) Bearing in mind customer preference
Answer:
(A) Gaining an advantage through research and development.

Question 76.
Human Resource strategy is that part of management which is –
(A) Concerned with how people at work use the various resources available in organization.
(B) Concerned with people at work and with their relationship with an enterprise.
(C) Concerned with how manger effectively use the various resources available in organization.
(D) Concerned with how manger effectively control the people in organization.
Answer:
(B) Concerned with people at work and with their relationship with an enterprise.

Question 77.
Human resource strategy is concerned with the ……………. employed in an organization.
(A) Resources
(B) People
(C) Assets
(D) All of the above
Answer:
(B) People

Question 78.
Which of the following activity is not included in human resource management?
(A) Training and development
(B) Appraisal of performance of employees
(C) Resistance management
(D) Motivation of workforce
Answer:
(C) Resistance management

Question 79.
The human resource management functions aim at –
(A) Ensuring that the human resources possess adequate capital, tool, equipment and material to perform the job successfully
(B) Helping the organization deal with its employees in different stages of employment
(C) Improving an organization’s credit-worthiness among financial institutions
(D) None of the above
Answer:
(B) Helping the organization deal with its employees in different stages of employment

Question 80.
Which of the following statement is true?
(1) Human resource management aids in strategic management.
(2) The human resource management helps the organization to effectively deal with the external environmental challenges.
Select the correct answer from the options given below.
(A) (1) only
(B) (2) only
(C) Both (1) and (2)
(D) Neither (1) nor (2)
Answer:
(C) Both (1) and (2)

Question 81.
Prominent area where Human Resource Manager can play a strategic role –
(A) Providing purposeful direction
(B) Building core competency
(C) Creating competitive advantage
(D) All of the above
Answer:
(D) All of the above

Question 82.
Prominent area where Human Resource Manager can play a strategic role –
(A) Managing workforce diversity
(B) Empowerment of human resources
(C) Development of works ethic and culture
(D) All of the above
Answer:
(D) All of the above

Question 83.
In relation Human Resource management, ‘Empowerment’ means –
(A) Accomplishments rather than active
(B) Management of diverse workforce
(C) Authorizing every member of an organization to take up his own destiny realizing his full potential.
(D) All of the above
Answer:
(C) Authorizing every member of an organization to take up his own destiny realizing his full potential.

Question 84.
Restructuring Strategies relating to Human Resource includes –
(A) Providing the current staff with training and development opportunities to encompass new roles in the organization
(B) Reducing staff, regrouping tasks to create well-designed jobs, and re-organizing work groups to perform more efficiently.
(C) Outreaching to external individuals or organizations to complete certain tasks.
(D) Area of the employer-employee relationship in your organization deserves your attention.
Answer:
(B) Reducing staff, regrouping tasks to create well-designed jobs, and re-organizing work groups to perform more efficiently.

Question 85.
Retention Strategy relating to Human Resource includes –
(A) Every area of the employer employee relationship in your organization deserves your attention.
(B) Providing the current staff with training and development opportunities to encompass new roles in the organization
(C) Collaborating with other organizations to learn from how others do things, allow employees to gain skills and knowledge not previously available in their own organization.
(D) None of the above
Answer:
(A) Every area of the employer employee relationship in your organization deserves your attention.

Question 86.
Which of the following cannot be classified as Business Strategies –
(A) Differentiation Strategy
(B) Delivery Strategy
(C) Cost Leadership Strategy
(D) Market Segmentation Strategy
Answer:
(B) Delivery Strategy

Question 87.
Under a ………. the company tries to be different and unique from its competitors.
(A) Low Cost Strategy
(B) Product Mix Strategy
(C) Differentiation strategy
(D) Quality Strategy
Answer:
(C) Differentiation strategy

Question 88.
Under a cost leadership strategy –
(A) The company divides the market according cost associated with marketing.
(B) The company tries to reduce its cost of production.
(C) The company sells its product below cost.
(D) The company reduces cost by scarifying quality.
Answer:
(B) The company tries to reduce its cost of production.

Question 89.
Under , the company produces and sells high-quality goods and services.
(A) Profit strategy
(B) Quality strategy
(C) Delivery Strategy
(D) Quantity Strategy
Answer:
(B) Quality strategy

Question 90.
Under eco-friendly strategy –
(A) The company keeps friendly approach with its customers.
(B) The company keeps friendly approach with its customers and sup-pliers.
(C) The company produces and sells agricultural products.
(D) The company produces and sells environment-friendly products also called as Green Products.
Answer:
(D) The company produces and sells environment-friendly products also called as Green Products.

Question 91.
In …….. importance is given to speed and reliability.
(A) Flexible response strategy
(B) Service Strategy
(C) Response strategy
(D) Low Cost Strategy
Answer:
(A) Flexible response strategy

Question 92.
Purpose of supply chain management is –
(A) Provide customer satisfaction
(B) Improve quality of a product
(C) Integrating supply and demand management
(D) Increase production
Answer:
(C) Integrating supply and demand management

Question 93.
The term supply chain refers to the linkages between –
(A) Seller, debtor and creditor
(B) Issuer, investor and broker
(C) Suppliers, manufacturers and customers.
(D) Purchaser and supplier
Answer:
(C) Suppliers, manufacturers and customers.

Question 94.
………. is an extension of …………..
(A) Supply chain management; logistic management.
(B) Logistic management; Supply chain management; logistic management
(C) Supply chain management; purchase management
(D) Purchase management; Logistic management
Answer:
(A) Supply chain management; logistic management.

Question 95.
Which of the following statement is true?
1. Logistic Management is an extension of Supply Chain Management.
2. Supply chain management is a tool of business transformation and involves delivering the right product at the right time to the right place and at the right price.
Select the correct answer from the options given below.
(A) 2 only
(B) 1 only
(C) Both 1 and 2
(D) Neither 1 nor 2
Answer:
(A) 2 only

Question 96.
Inbound and Outbound logistics” are related to:
(A) Supply Chain Management
(B) Logistics Management
(C) Value Chain Analysis
(D) All of the above
Answer:
(D) All of the above

Question 97.
Geographical Diversification, Product diversification and Entry Mode are the domains of:
(A) Functional Strategy
(B) Business Strategy
(C) Corporate Strategy
(D) All of the Above
Answer:
(C) Corporate Strategy

Question 98.
An advertisement says, ‘Have Roohafza with milk and lassi too’. Which strategy is the company trying to use:
(A) Market Development
(B) Product Development
(C) Market Penetration
(D) All of the above
Answer:
(C) Market Penetration

Question 99.
A tool by which management identifies and evaluates the various businesses that make up a company is termed as:
(A) Value Chain Analysis
(B) Portfolio Analysis
(C) Competition Analysis
(D) Strategic Analysis
Answer:
(B) Portfolio Analysis

Question 100.
A campaign advocating the message of ‘SAVE WATER’ is:
(A) Services Marketing
(B) Holistic marketing
(C) Social Marketing
(D) Direct Marketing
Answer:
(C) Social Marketing

Going through the Cost Accounting Records & Cost Audit under the Companies Act, 2013 – Corporate and Management Accounting CS Executive MCQ Questions with Answers you can quickly revise the concepts.

Cost Accounting Records & Cost Audit under the Companies Act, 2013 – Corporate and Management Accounting MCQs

Question 1.
Cost Audit is a critical review undertaken ………… for the purpose of:
(a) Verification of the correctness of cost accounts and
(b) Checking that cost accounting plan is adhered to.
Select the correct answer from the options given below.
(A) (b) only
(B) Either (a) or (b)
(C) (a) only
(D) Both (a) and (b)
Answer:
(D) Both (a) and (b)

Question 2.
The Institute of Cost Accountants of India defines statutory cost audit as, “A system of audit introduced by the for the review, examination and appraisal of the cost accounting records and added information required to be maintained by the specified industries”.
(A) Ministry of Corporate Affairs
(B) Government of India
(C) Parliament of India
(D) President
Answer:
(B) Government of India

Question 3.
Which of the following section of the Companies Act, 2013 deals with ‘ maintenance of costing records?
(A) Section 138
(B) Section 142
(C) Section 146
(D) Section 148
Answer:
(D) Section 148

Question 4.
Provisions of the Section 148 of the Companies Act, 2013 relating to maintenance of costing records applicable to –
(A) Technocrat industries
(B) Companies engaged in the production of notified goods
(C) Companies engaged in providing production of goods or services
(D) Companies engaged in providing production of notified goods or services
Answer:
(D) Companies engaged in providing production of notified goods or services

Question 5.
Cost auditor is appointed by the –
(A) Central Government
(B) Audit Committee
(C) Board of Directors
(D) Shareholders
Answer:
(C) Board of Directors

Question 6.
The cost auditor shall comply with the:
(A) Accounting standard
(B) Cost auditing standards
(C) Cost Accounting standard
(D) All of the above
Answer:
(B) Cost auditing standards

Question 7.
The cost audit report shall be submitted by the cost accountant to the –
(A) Board of Directors of the company
(B) Central Government
(C) Audit Committee
(D) (A) and (C)
Answer:
(A) Board of Directors of the company

Question 8.
Within ……….from receipt of cost audit report from cost auditor, the company shall furnish the cost audit report to the Central Government, along with full information and explanation on every reservation or qualification contained therein.
(A) 30 days
(B) 60 days
(C) 90 days
(D) 180 days
Answer:
(A) 30 days

Question 9.
The base of cost audit report is –
(A) Efficiency and propriety
(B) Profitability and liquidity
(C) True & fair view
(D) Reliability and propriety
Answer
(A) Efficiency and propriety

Question 10.
Every cost auditor, who conducts an audit of the cost records of a company, shall submit the cost audit report along with his or its reservations or qualifications or observations or suggestions, if any, in
(A) Form CRA-3
(B) Form CRA-2
(C) Form CRA-2A
(D) Form CRA-3A
Answer
(A) Form CRA-3

Question 11.
As per Rule 3 of the Companies (Cost Records & Audit) Rules, 2014, for the purposes of Section 148(1), the class of companies, including foreign companies, engaged in the production of the goods or providing services, having an overall turnover from all its products and services of during the immediately preceding financial year, shall include cost records for such products or services in their books of account,……..
(A) ₹ 50 Crore or more
(B) ₹ 35 Crore or more
(C) ₹ 25 Crore or more
(D)  ₹ 45 Crore or more
Answer:
(B) ₹ 35 Crore or more

Question 12.
To which of the following companies maintenance of cost records is compulsory under the Companies (Cost Records & Audit) Rules, 2014
(A) Foreign companies having only liaison offices.
(B) A company which is classified as a micro enterprise or a small enterprise including as per the turnover criteria u/s 7(9) of the Micro, Small & Medium Enterprises Development Act, 2006.
(C) Company having turnover above ₹ 25 Crore but below ₹ 30 Crore
(D) None of the above
Answer:
(D) None of the above

Question 13.
As per Rule 4 of the Companies (Cost Records & Audit) Rules, 2014, every company specified in item (A) of Rule 3 (ie. industries in Regulated Sectors) shall get its cost records audited if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is and the aggregate turnover of the individual product or service for which cost records are required to be maintained under Rule 3 is …………..
(A) ₹ 50 Crore or more; ₹ 25 Crore or more
(B) ₹ 25 Crore or more; ₹ 50 Crore or more
(C) ₹ 100 Crore or more; ₹ 150 Crore or more
(D) ₹ 35 Crore or more; ₹ 50 Crore or more
Answer:
(A) ₹ 50 Crore or more; ₹ 25 Crore or more

Question 14.
As per Rule 4 of the Companies (Cost Records & Audit) Rules, 2014, every company specified in item (B) of Rule 3 (i.e. industries in Non-Regulated Sectors) shall get its cost records audited if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is and the aggregate turnover of the individual product or service for which cost records are required to be maintained under Rule 3 is
(A) ₹ 50 Crore or more; ₹ 25 Crore or more.
(B) ₹ 100 Crore or more; ₹ 200 Crore or more.
(C) ₹ 100 Crore or more; ₹ 35 Crore or more.
(D) ₹ 60 Crore or more; ₹ 35 Crore or more.
Answer:
(C) ₹ 100 Crore or more; ₹ 35 Crore or more.

Question 15.
The requirement for cost audit shall not apply to a company –
(A) Whose revenue from exports, in foreign exchange, exceeds 75% of its total revenue
(B) Which is operating from a Special Economic Zone
(C) Which is engaged in generation of electricity for captive consumption through Captive Generating Plant
(D) All of the above
Answer:
(D) All of the above

Question 16.
Every specified company including all units and branches thereof shall maintain cost records in ………..in respect of each
financial year.
(A) Form CRA-5
(B) Form CRA-1
(C) Form CRA-4
(D) Form CRA-2
Answer:
(B) Form CRA-1

Question 17.
Specified category of companies shall within ……….. of the commencement of every financial year, appoint a cost auditor.
(A) 180 days
(B) 90 days
(C) 100 days
(D) 120 days
Answer:
(A) 180 days

Question 18.
Every specified company shall inform the cost auditor concerned of his or its appointment as such and file a notice of such appointment with the Central Government within a period of ……… of the Board meeting in which such appointment is made or within a period of of
the commencement of the financial year, whichever is earlier, through electronic mode, in , along with the fee as specified in the Companies (Registration Offices & Fees) Rules, 2014.
(A) 180 days; 30 days; Form CRA-2
(B) 60 days; 120 days; Form CRA-3
(C) 30 days; 180 days; Form CRA-2
(D) 90 days; 90 days; Form CRA-3
Answer:
(C) 30 days; 180 days; Form CRA-2

Question 19.
The cost auditor may be removed from his office before the expiry of his term, through a after giving a reasonable opportunity of being heard to the Cost Auditor and recording the reasons for such removal in writing.
(A) Board resolution
(B) Special resolution
(C) Ordinary resolution
(D) Shareholders resolution
Answer:
(A) Board resolution

Question 20.
Any causal vacancy in the office of a cost auditor, whether due to resignation, death or removal, shall be filled by the Board of Directors within of occurrence of such vacancy.
(A) 30 days
(B) 1 month
(C) 60 days
(D) 3 months
Answer:
(A) 30 days

Question 21.
Every cost auditor, who conducts an audit of the cost records of a company, shall submit the cost audit report along with his or its reservations or qualifications or observations or suggestions, if any, in –
(A) Form CRA-4
(B) Form CRA-5
(C) Form CRA-3
(D) Form CRA-6
Answer:
(C) Form CRA-3

Question 22.
Every cost auditor shall forward his duly signed report to the Board of Directors of the company within a period of 180 days from –
(A) the date of appointment him as cost
(B) the date of submission of last audit report
(C) the date of submission of cost accounts to the cost auditor by the company
(D) the closure of the financial year to which the report relates
Answer:
(D) the closure of the financial year to which the report relates

Question 23.
CAS-12 deals with –
(A) Repairs & Maintenance Cost
(B) Cost of Service Cost Centre
(C) Interest & Financing Charges
(D) Employee Cost
Answer:
(A) Repairs & Maintenance Cost

Question 24.
CAS-8 deals with –
(A) Packing Material Cost
(B) Cost of Utilities
(C) Cost of Service Cost Centre
(D) Depreciation & Amortization
Answer:
(B) Cost of Utilities

Question 25.
Match the following:

Answer:
(B)

Question 26.
June 2015: The objective of CAS-1 is —
(A) Collection, allocation, apportionment and absorption of overheads
(B) Determination of capacity
(C) Preparation of cost statement
(D) Determination of average/equalized transportation cost
Answer:
(C) Preparation of cost statement

Question 27.
June 2015: Which section of the Companies Act, 2013 deals with audit of cost accounting records –
(A) Section 158
(B) Section 148
(C) Section 168
(D) Section 139
Answer:
(B) Section 148

Question 28.
June 2015: Which of the following is an objective to be achieved through Cost Accounting Standards –
(A) To assist cost accountants in preparation of uniform cost statements
(B) To provide better guidelines on standard cost accounting practices
(C) To help Indian industry and the Government towards better cost management
(D) All of the above
Answer:
(D) All of the above

Question 29.
Dec 2015: The functions of a cost auditor involve —
(A) Examining the inventory records
(B) Capacity utilization
(C) Proper utilization of labour
(D) All of the above
Answer:
(D) All of the above

Question 30.
June 2016: Cost Accounting Standard is related to bringing uniformity and consistency in the principles and methods of determining the selling and distribution overheads with reasonable accuracy.
(A) 10
(B) 12
(C) 15
(D) 4
Answer:
(C) 15

Question 31.
June 2016: Section …………. of the Companies Act, 2013 gives the cost auditor same power as the financial auditor has under section of the Companies Act, 2013.
(A) 148, 143
(B) 143, 148
(C) 147, 148
(D) 143, 144
Answer:
(A) 148, 143

Question 32.
June 2016: Match the following
statements with prescribed forms:
Statements — Forms
(i) Cost Audit Report to Central Government by the company — (a) CRA3
(ii) Cost Auditor to submit report to the Board of Directors — (b) CRA2
(iii) Intimation of appointment of Cost Auditor to MCA by the company — (c) CRA4
Select the correct answer using the codes given below —

Answer:
(B)

Question 33.
June 2016: Which one …………. is not the objective of Cost Accounting Standards —
(A) To bring uniformity and consistency in the principles and methods
(B) To help industry and the Government towards better cost management
(C) To control accounting policies of companies so as to protect investors’ interest
(D) To determine the pollution control costs with reasonable accuracy.
Answer:
(C) To control accounting policies of companies so as to protect investors’ interest

Question 34.
June 2016: Which one of the following is not a statistical technique of cost audit—
(A) Monte-Carlo simulation
(B) Inter-firm comparison
(C) Network analysis
(D) Exponential smoothing
Answer:
(C) Network analysis

Question 35.
Dec 2016: Which one is NOT the objective of Cost Accounting Standards?
(A) To bring uniformity and consistency in the principles and methods.
(B) To help industry and the Government towards better cost management.
(C) To control accounting policies of companies so as to protect investors’ interest
(D) To determine the pollution control costs with reasonable accuracy.
Answer:
(C) To control accounting policies of companies so as to protect investors’ interest

Question 36.
June 2017: The chief objective of cost accounting is to:
(A) Earn more profit
(B) Increase production
(C) Provide information for management for planning and control
(D) Fix the price
Answer:
(C) Provide information for management for planning and control

Question 37.
June 2017: Cost accounting differs from financial accounting in respect of:
(A) Recording Cost
(B) Ascertaining Cost
(C) Control of Cost
(D) Reporting of Cost
Answer:
(D) Reporting of Cost

Question 38.
June 2017: The branch of accounting which primarily deals with processing and accounting data for internal use in a concern is:
(A) Financial accounting
(B) Cost accounting
(C) Management accounting
(D) None of the above
Answer:
(A) Financial accounting

Question 39.
June 2017: A good costing system gives equal emphasis on cost ascertainment and cost
(A) Reduction
(B) Control
(C) Maximization
(D) None of the above
Answer:
(B) Control

Question 40.
Dec 2017: Match the following Cost Accounting Standards with the titles:
CAS — Title
(a) CAS-2 — (1) Material Cost
(b) CAS-6 — (2) Direct Expenses
(c) CAS-1– (3) Pollution Control Cost
(d) CAS-14 (4) Capacity Determination
Codes:

Answer:
(D)

Question 41.
Dec. 2017: Management Accounting and Cost Accounting are ………… to each other.
(A) Complementary
(B) Supplementary
(C) Opposite
(D) Independent
Answer:
(B) Supplementary

Question 42.
Dec. 2017: Practical difficulty in the installation of a costing system is:
(A) Lack of support from top management
(B) Shortage of trained staff
(C) Resistance from existing staff
(D) All of the above
Answer:
(D) All of the above

Question 43.
Dec. 2017: A PSU company shall within 30 days from the date of receipt of the report of the cost auditor furnish explanation on every reservation or qualification contained therein to:
(A) The Registrar
(B) Central Government
(C) The Shareholders
(D) The Parliament
Answer:
(B) Central Government

Question 44.
Dec. 2017: The social purpose of cost audit is:
(A) Detection of errors and frauds
(B) Facilitating the fixation of prices of goods and services
(C) Promoting corporate governance
(D) Inculcation of cost consciousness
Answer:
(B) Facilitating the fixation of prices of goods and services

Question 45.
Dec. 2017: Every PSU company, within a period of 30 days from the date of receipt of cost audit report, furnish to the Centred Government with such report full explanation on every reservation or qualification contained in the report in:
(A) Form CRA-3
(B) Form CRA-4
(C) Form CRA-5
(D) Form CRA-6
Answer:
(B) Form CRA-4

Question 46.
Dec. 2017: Section 148 of the Companies Act, 2013 gives:
(A) No powers to the cost auditor as the financial auditor has u/s 143 of Companies Act, 2013
(B) Same powers to the cost auditor as the financial auditor has u/s 143 of Companies Act, 2013
(C) More powers to the cost auditor than the financial auditor has u/s 143 of Companies Act, 2013
(D) Lesser powers to the cost auditor than the financial auditor has u/s 143 of Companies Act, 2013
Answer:
(B) Same powers to the cost auditor as the financial auditor has u/s 143 of Companies Act, 2013

Question 47.
Dec. 2017: Profitability and productivity measurement technique used by cost auditor while doing cost audit is categorized under:
(A) Economic Techniques
(B) Statistical Techniques
(C) Personnel Techniques
(D) General Techniques
Answer:
(C) Personnel Techniques

Question 48.
Dec. 2017: Non-compliance of which attribute of financial statements makes a company, besides invoking penalties, impairs the confidence of the public investors:
(A) Authenticity
(B) Compliance with Law
(C) Freedom from Bias
(D) All of the above
Answer:
(B) Compliance with Law

Question 49.
June 2018: Every cost auditor, shall submit the cost audit report along with his or its reservation or qualification or suggestions, if any, in form:
(A) CRA-1
(B) CRA-2
(C) CRA-3
(D) CRA-4
Answer:
(D) CRA-4

Question 50.
June 2018: Which of the following statement is not correct?
(A) Cost audit helps to the Government in the fixation of ceiling price of essential commodities.
(B) Cost audit helps in improvement if productivity of human, physical and financial resources of the enterprises.
(C) The cost auditor submits the report in annual general meeting organized by shareholders.
(D) Cost auditor is appointed by the board of directors with the.previous approval of the Central Government.
Answer:
(C) The cost auditor submits the report in annual general meeting organized by shareholders.

Question 51.
June 2018: Every cost auditor shall forward his duly signed report to the board of directors of the company within a period of from the closure of the financial year to which the report relates.
(A) 30 days
(B) 120 days
(C) 90 days
(D) 180 days
Answer:
(D) 180 days

Question 52.
June 2018: Which of the following is not a Statistical technique of Cost Audit?
(A) Activity Sampling
(B) Attitude Survey
(C) Exponential Smoothing
(D) Monte Carlo Simulation
Answer:
(B) Attitude Survey

Question 53.
June 2018: Which of the following is not an objective of the Cost Accounting Standards issued by the Institute of Cost and Works Accountants of India?
(A) Provide better guidelines on standard cost accounting practices.
(B) Enable the comparability of financial statements and improve reliability and usefulness of financial statements.
(C) Assist cost accountants in preparation of uniform costs statements.
(D) Help Indian industry and the Government towards better cost management
Answer:
(B) Enable the comparability of financial statements and improve reliability and usefulness of financial statements.

Question 54.
Dec. 2018: Which of the following Sections of the Companies Act, 2013 deals with the audit of Cost Accounting Records?
(A) Section 128
(B) Section 145
(C) Section 147
(D) Section 148
Answer:
(D) Section 148

Question 55.
Dec. 2018: Remuneration of cost auditor is to be determined in accordance with provisions of:
(A) Section 148(3) of the Companies Act, 2013
(B) Section 143(12) of the Companies Act, 2013
(C) Section 147(1)of the Companies Act, 2013
(D) Section 148(5) of the Companies Act, 2013
Answer:
(A) Section 148(3) of the Companies Act, 2013

Question 56.
Dec. 2018: The Cost Accounting Standard (CAS) concerned with quality control cost is:
(A) CAS-21
(B) CAS-19
(C) CAS-14
(D) CAS-8
Answer:
(A) CAS-21

Question 57.
Dec. 2018: Cost Audit as per the direction of the Central Government shall be conducted by:
(A) A Chartered Accountant in practice
(B) A Cost Accountant in practice
(C) A Chartered Accountant or Cost Accountant in practice
(D) The Auditor General of India
Answer:
(B) A Cost Accountant in practice

Question 58.
Dec. 2018: Which of the following Cost Accounting Standards (CAS) is related to “Depreciation and Amortization”?
(A) CAS-4
(B) CAS-12
(C) CAS-16
(D) CAS-21
Answer:
(C) CAS-16

Question 59.
June 2019: Maintenance of cost records relating to the utilization of materials, labour and other items of cost, in the manner as prescribed by specified class of companies engaged in the:
(A) Production of goods only
(B) Providing services only
(C) Production of such goods and providing such services as may be prescribed
(D) Production of such goods or providing such services as may be prescribed
Answer:
(D) Production of such goods or providing such services as may be prescribed

Question 60.
June 2019: Every cost auditor, who conducts an audit of the cost records of a company, shall submit report in:
(A) General form
(B) Form CRA-1
(C) Form CRA-2
(D) Form CRA-3
Answer:
(C) Form CRA-2
(D) Form CRA-3

Question 61.
June 2019: ‘Cost benefit analysis’ falls under:
(A) Scientific techniques
(B) Accounting or economic techniques
(C) Personnel techniques
(D) Statistical techniques
Answer:
(B) Accounting or economic techniques

Question 62.
June 2019: Which is not a social purpose of cost audit?
(A) Promoting corporate governance
(B) Facilitate in fixation of reasonable prices of goods and services
(C) Improvement of human productivity
(D) Pinpointing areas of inefficiency
Answer:
(A) Promoting corporate governance

Question 63.
June 2019: Principles to determine production overheads relates to:
(A) CAS 5
(B) CAS 7
(C) CAS 3
(D) CAS 2
Answer:
(C) CAS 3

Question 64.
June 2019: …………is concerned with historical records, while is concerned with historical cost with pre-determined cost.
(A) Cost Accounting, Financial Accounting
(B) Financial Accounting, Cost Accounting
(C) Financial Accounting, Management Accounting
(D) Management Accounting, Cost Accounting
Answer:
(B) Financial Accounting, Cost Accounting

Going through the Overview of Accounting Standards – Corporate and Management Accounting CS Executive MCQ Questions with Answers you can quickly revise the concepts.

Overview of Accounting Standards – Corporate and Management Accounting MCQs

Question 1.
Accounting Standards (ASs) are written policy documents issued by –
X. Expert accounting body
Y. Government
Z. Other regulatory body
Select the correct answer from the options given below –
(A) X but not Y and Z
(B) Y but not Y and Z
(C) Z but not X and Y
(D) All X, Y & Z
Answer:
(D) All X, Y & Z

Question 2.
Accounting standards cover the aspects of ……….. of accounting transactions in the financial statements.
(A) Recognition
(B) Measurements
(C) Presentation and disclosure
(D) Any of the above
Answer:
(D) Any of the above

Question 3.
In India Accounting standards are issued by -…….
(A) ICSI
(B) ICAI
(C) ICWA
(D) RBI
Answer:
(B) ICAI

Question 4.
Accounting standards are issued for the purpose of -……
(A) Improving reliability of financial statements
(B) Harmonizing diverse accounting practices
(C) Elimination of non-comparability between financial statements
(D) All of the above
Answer:
(D) All of the above

Question 5.
The Institute of Chartered Accountants of India (ICAI) constituted the , with a view to harmonizing the diverse accounting policies and practices in use in India.
(A) Standards Board of Accounting (SBA)
(B) Accounting Standards Board (ASB)
(C) Accounting Standards Committee (ASC)
(D) Accounting Committee (AC)
Answer:
(B) Accounting Standards Board (ASB)

Question 6.
The Institute of Chartered Accountants of India (ICAI) constituted the Accounting Standards Board (ASB) on …… with a view to harmonizing the diverse accounting policies and practices in use in India.
(A) 2nd Oct, 1977
(B) 21st April, 1977
(C) 15th Aug, 1977
(D) 21st April, 1997
Answer:
(B) 21st April, 1977

Question 7.
The ICAI so far has issued accounting standards.
(A) 29
(B) 30
(C) 32
(D) 35
Answer:
(C) 32

Question 8.
Match the following:

Select the correct answer from the options given below:

Answer:
(C)

Question 9.
Accounting standards are issued for the purpose of –
(a) Improving dependability of financial statements
(b) Auditing work becomes easy task for the auditor
(c) Elimination of non-comparability between financial statements
The correct answer is –
(A) (a) only
(B) (b) only
(C) (c) only
(D) All of the above
Answer:
(C) (c) only

Question 10.
Accounting standards are –
(A) Written policy documents issued by expert accounting body
(B) Set of broad accounting policies to be followed by an entity.
(C) Set in the form of general principles
(D) All of the above
Answer:
(D) All of the above

Question 11.
AS-3 deals with
(A) Accounting for government grants
(B) Accounting for amalgamations
(C) Cash Flow Statement
(D) Fund Flow Statement
Answer:
(C) Cash Flow Statement

Question 12.
AS-11 deals with
(A) Accounting for Government grants
(B) Accounting for foreign exchange transaction
(C) Cash Flow Statement
(D) Fund Flow Statement
Answer:
(B) Accounting for foreign exchange transaction

Question 13.
______ refer to the specific accounting principles and the methods of applying those principles adopted by the enterprise in the preparation and presentation of financial statements.
(A) Accounting methods
(B) Accounting policies
(C) Accounting concepts
(D) Accounting assumptions
Answer:
(B) Accounting policies

Question 14.
Accounting policies followed by organizations –
(A) Can be changed every year.
(B) Should be consistently followed from year to year
(C) Can be changed after 5 years
(D) None of the above
Answer:
(B) Should be consistently followed from year to year

Question 15.
When a change in accounting policy is justified?
(A) To comply with accounting standard
(B) To ensure more appropriate presentation of the financial statement of the enterprise
(C) To comply with law
(D) All of the above
Answer:
(D) All of the above

Question 16.
It is essential to standardize the accounting principles and policies in order to ensure –
(A) Transparency
(B) Profitability
(C) Reputation
(D) All of the above
Answer:
(A) Transparency

Question 17.
Different accounting policies can be adopted in following areas –
(A) Stock valuation
(B) Investment valuation
(C) Charging depreciation
(D) All of the above
Answer:
(D) All of the above

Question 18.
The determination of the amount of bad debts is an accounting –
(A) Policy
(B) Estimate
(C) Parameter
(D) None of the above
Answer:
(B) Estimate

Question 19.
A specific accounting policy refers to –
(A) Principles
(B) Methods of applying those principals
(C) Both (A) & (B)
(D) None of the above
Answer:
(C) Both (A) & (B)

Question 20.
Match the following:

Answer:
(A)

Question 21.
Accounting policy for inventories of X Ltd. states that inventories are valued at the lower of cost or net realizable value. Which accounting principle in followed in adopting the above policy?
(A) Materiality
(B) Prudence
(C) Substance over form
(D) All of the above
Answer:
(B) Prudence

Question 22.
Provisions for doubtful debts, provision for discount on debtors are based on prudence –
(A) Prudence
(B) Substance over from
(C) Materiality
(D) All of the above
Answer:
(A) Prudence

Question 23.
Assets should be valued at the price paid to acquire them is based on –
(A) Realization concept
(B) Cost concept
(C) Matching concept
(D) Periodicity concept
Answer:
(B) Cost concept

Question 24.
Central Government may, by notification, constitute a National Financial Reporting Authority (NFRA) under of the Companies Act, 2013.
(A) Section 131
(B) Section 132
(C) Section 133
(D) Section 134
Answer:
(B) Section 132

Question 25.
AS-8 on Accounting for Research and Development:
(A) Is replaced by AS-26
(B) Is applicable only to listed companies
(C) Is mandatory for Research Institutions
(D) Is still in use.
Answer:
(A) Is replaced by AS-26

Question 26.
AS-2 is on:
(A) Disclosure of Accounting Policies
(B) Valuation of Inventories
(C) Revenue Recognition
(D) Depreciation Accounting
Answer:
(B) Valuation of Inventories

Question 27.
Consistency with reference to application of accounting principles refer to the:
(A) All the companies in the same industries should use identical procedures and methods.
(B) Income and assets have not been overstated.
(C) Accounting methods and procedures used have to be consistently applied from year to year.
(D) Any accounting method or procedure can be utilized.
Answer:
(C) Accounting methods and procedures used have to be consistently applied from year to year.

Question 20.
Accounting Standards ………. the statue:
(A) Can over-ride
(B) Cannot over-ride
(C) May over-ride
(D) None of the above
Answer:
(A) Can over-ride

Question 21.
The global key professional accounting body is the —
(A) International Accounting Standards Board
(B) Financial Accounting Standards Board
(C) Institute of Chartered Accountants of India
(D) International Accounting Standards Committee
Answer:
(B) Financial Accounting Standards Board

Question 22.
The original cost at which an asset or liability is acquired is known as —
(A) Carrying cost
(B) Replacement cost
(C) Amortization
(D) Historical cost
Answer:
(A) Carrying cost

Question 23.
As per AS-11, the process of converting foreign-subsidiary financial statements into the home currency is known as —
(A) Consolidation
(B) Translation
(C) Transmission
(D) Reconstruction
Answer:
(B) Translation

Question 24.
As per AS-21, the accounting process in which the financial statements of a parent company and its subsidiaries are added together to yield a unified set of financial statements is called —
(A) Amalgamation
(B) Amortization
(C) Consolidation
(D) Translation
Answer:
(B) Amortization

Question 25.
The council of ICAI has so far issued accounting standards. However, AS-8 has been withdrawn. Thus, effectively there are accounting standards
(A) 33; 32
(B) 32; 31
(C) 31; 30
(D) 34; 33
Answer:
(A) 33; 32

Question 26.
Which section of the Companies Act, 2013 provides that the financial statements of every company shall comply with the accounting standards?
(A) Section 129
(B) Section 130
(C) Section 131
(D) Section 132
Answer:
(B) Section 130

Question 27.
In case of charitable trusts and co-operative societies –
(A) If their activities are purely charitable or non-commercial then accounting standards are not applicable.
(B) Even if a very small proportion of the activities of trusts/co-operative societies are considered to be commercial, industrial or business in nature, then accounting standards are applicable.
(C) Both (A) and (B)
(D) None of the above
Answer:
(C) Both (A) and (B)

Question 28.
Which of the following is Level-I enterprise?
(A) All commercial, industrial and business reporting enterprises having borrowings, including public deposits, in excess of ₹ 1 Crore but not in excess of ₹ 10 Crore.
(B) All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period exceeds ₹40 lakhs but does not exceed ₹ 50 Crore.
(C) All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period ₹5 Crore but not in excess of ₹ 25 Crore.
(D) None of the above
Answer:
(B) All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period exceeds ₹40 lakhs but does not exceed ₹ 50 Crore.

Question 29.
Which of the following is Level-II enterprise?
I. Listed enterprises outside India.
II. All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period exceeds ₹ 50 Crore.
III. Financial institutions
IV. Enterprises carrying on insurance business.
Select the correct answer from the options given below.
(A) I & III
(B) II & IV
(C) III only
(D) II only
Answer:
(A) I & III

Question 30.
Which aspect of Financial Instruments is death by AS-31?
(A) Recognition & Measurement
(B) Presentation
(C) Disclosures
(D) Limited Revision
Answer:
(D) Limited Revision

Question 31.
Which of the following are fundamental accounting assumptions?
A. Going Concern
B. Matching
C. Consistency
D. Dual Aspect
E. Materiality
F. Accrual
Select the correct answer from the options given below:
(A) A, C &E
(B) B, D & F
(C) A, C & F
(D) A, D & F
Answer:
(B) B, D & F

Question 32.
Which of the following is Non-SMC as per the Companies (Accounting Standards) Rules?
(A) Whose equity or debt securities are not listed or are not in the process of listing on any stock exchange, whether in India or outside India
(B) Which is not a bank, financial institution or an insurance company
(C) Whose turnover excluding other income does exceeds ₹ 50 Crore in the immediately preceding accounting year
(D) All of the above
Answer:
(C) Whose turnover excluding other income does exceeds ₹ 50 Crore in the immediately preceding accounting year

Question 33.
The council of ICAI has so far issued accounting standards. However, AS-8 has been withdrawn. Thus, effectively there are accounting standards
(A) 33; 32
(B) 32; 31
(C) 31; 30
(D) 34; 33
Answer:
(B) 32; 31

Question 34.
Which section of the Companies Act, 2013 provides that the financial statements of every company shall comply with the accounting standards
(A) Section 129
(B) Section 130
(C) Section 131
(D) Section 132
Answer:
(A) Section 129

Question 35.
In case of charitable trusts and co-operative societies –
(A) If their activities are purely charitable or non-commercial then accounting standards are not applicable.
(B) Even if a very small proportion of the activities of trusts/co-operative societies are considered to be commercial, industrial or business in nature, then accounting standards are applicable.
(C) Both (A) and (B)
(D) None of the above
Answer:
(C) Both (A) and (B)

Question 36.
Which of the following is Level-I enterprise
(A) All commercial, industrial and business reporting enterprises having borrowings, including public deposits, in excess of ₹ 1 Crore but not in excess of ₹ 10 Crore.
(B) All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period exceeds ₹ 40 lakhs but does not exceed ₹ 50 Crore.
(C) All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period ₹ 5 Crore but not in excess of ₹ 25 Crore.
(D) None of the above
Answer:
(D) None of the above

Question 37.
Which of the following is Level-II enterprise
I. Listed enterprises outside India.
II. All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period exceeds ₹ 50 Crore.
III. Financial institutions
IV. Enterprises carrying on insurance business.
Select the correct answer from the options given below.
(A) I & III
(B) II & IV
(C) IV only
(D) II only
Answer:
(D) II only

Question 38.
Which aspect of Financial Instruments is death by AS-31
(A) Recognition & Measurement
(B) Presentation
(C) Disclosures
(D) Limited Revision
Answer:
(B) Presentation

Question 39.
Which of the following are fundamental accounting assumptions
A. Going Concern
B. Matching
C. Consistency
D. Dual Aspect
E. Materiality
F. Accrual
Select the correct answer from the options given below:
(A) A, C&E
(B) B, D & F
(C) A, C & F
(D) A, D & F
Answer:
(C) A, C & F

Question 40.
Which of the following is Non-SMC as per the Companies (Accounting Standards) Rules
(A) Whose equity or debt securities are not listed or are not in the process of listing on any stock exchange, whether in India or outside India
(B) Which is not a bank, financial institution or an insurance company
(C) Whose turnover excluding other income does exceeds ₹ 50 Crore in the immediately preceding accounting year
(D) All of the above
Answer:
(C) Whose turnover excluding other income does exceeds ₹ 50 Crore in the immediately preceding accounting year

Question 41.
Consider following cases:
(i) A (P) Ltd., a subsidiary of a multi-national company listed on London Stock Exchange. It has a turnover of ₹ 12 Crores and borrowings of ₹ 5 Crores.
(ii) B (P) Ltd. has a turnover of ₹ 45 Crores, other income of ₹ 7 Crores and bank borrowings of ₹ 9 Crores.
(iii) C Ltd. has appointed Merchant Bankers to prepare a Red-herring prospectus for the purpose of filing the same with SEBI.
Classify above enterprises as SMC or Non- SMC and select the correct option given below:

Answer:
(C)

Question 42.
As per the Companies (Accounting Standards) Rules, an existing company, which was previously Non-SMC and subsequently becomes an SMC, shall not be qualified for exemption or relaxation in respect of Accounting Standards available to an SMC until the company remains an SMC for:
(A) Three consecutive accounting periods
(B) Four consecutive accounting periods
(C) Two consecutive accounting periods
(D) Five consecutive accounting periods
Answer:
(C) Two consecutive accounting periods

Question 43.
AS-20 deals with:
(A) Earnings Per Share
(B) Lease
(C) Segment Reporting
(D) Taxes on Income”
Answer:
(A) Earnings Per Share

Question 44.
Which of the following is treated as Potential Equity Share as per AS-20?
(A) Convertible debentures
(B) Share warrants
(C) Employee Stock Options
(D) All of the above
Answer:
(D) All of the above

Question 45.
If rights and beneficial interest in a property is transferred but documentation and legal formalities are pending then seller & purchaser should record in their accounts as sale & purchase. This the example of –
(A) Prudence
(B) Substance over from
(C) Materiality
(D) Realization
Answer:
(B) Substance over from

Question 46.
Which of the following is included in cost of inventory as per AS-2?
(A) Duties and taxes subsequently recoverable from taxing authorities
(B) Freight inwards
(C) Rebates
(D) Duty drawbacks
Answer:
(B) Freight inwards

Question 47.
Payment of penalties/fines for violation of law should be disclosed separately. It should not be clubbed with “Office Expenses” or “Miscelianeous Expenses”. This the example of –
(A) Prudence
(B) Substance over from
(C) Materiality
(D) Realization
Answer:
(C) Materiality

Question 48.
As per AS-3, unrealized gains and losses arising from changes in foreign exchange rates are –
(A) Cashflows
(B) Cash equivalents
(C) Cash inflows
(D) Not cash flows
Answer:
(D) Not cash flows

Question 49.
Provisions for doubtful debts, provision for discount on debtors are based on:
(A) Prudence
(B) Substance over from
(C) Materiality
(D) Realization
Answer:
(A) Prudence

Question 50.
Which of the following required to be disclosed as per AS-1?
(A) Significant accounting policies
(B) Fundamental accounting assumptions
(C) Change in accounting policies
(D) All of the above
Answer:
(D) All of the above

Question 51.
As per AS-2, inventories should be valued at:
(1) Cost
(2) Net Realizable Value
Select the correct answer from the options given below.
(A) (1) only
(B) Higher of (1) and (2)
(C) (2) only
(D) Lower of (1) and (2)
Answer:
(D) Lower of (1) and (2)

Question 52.
As per AS-2, the historical cost of inventories should normally be determined by using
(A) FIFO and LIFO Method
(B) LIFO and Weighted Average Cost Method
(C) FIFO and Weighted Average Cost Method
(D) FIFO and Simple Average Cost Method
Answer:
(C) FIFO and Weighted Average Cost Method

Question 53.
As per AS-3, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, from
the date of acquisition.
(A) Two months or less
(B) Four months or less
(C) Three months or less
(D) Six months or less
Answer:
(C) Three months or less

Question 54.
NRV or net realizable value of inventory is the expected selling price or market value less
(A) Carry value of the inventory
(B) Expenses necessary to complete sale
(C) Cost of the stock
(D) replacement cost
Answer:
(B) Expenses necessary to complete sale

Question 55.
AS-6: Depreciation applies to –
(A) Goodwill and other intangible assets
(B) Forests, plantations and similar re-generative natural resources
(C) Wasting assets including expenditure on the exploration for and extraction of minerals, oils, natural gas and similar non-regenerative resources
(D) None of the above
Answer:
(D) None of the above

Question 56.
Due to which of the following concept inventory is valued at cost or net realizable value, whichever is less?
(A) Going Concern
(B) Separate Entity
(C) Prudence
(D) Matching
Answer:
(C) Prudence

Question 57.
AS-7: Construction Contracts should be applied in accounting for construction contracts in the financial statements of:
(A) Contractee
(B) Contractors
(C) Both (A) and (B)
(D) Only (A) not (B)
Answer:
(B) Contractors

Question 58.
While finalizing the current year profit, the company realized that there was an error in the valuation of closing stock of the previous year. In the previous year, closing stock was overvalued. As a result
(A) Previous year profit is overstated and current year profit is also overstated.
(B) Previous year profit is understated and current year profit is overstated
(C) Previous year profit is understated, and current year profit is also understated.
(D) Previous year profit is overstated and current year profit is understated.
Answer:
(D) Previous year profit is overstated and current year profit is understated.

Question 59.
As per AS-7: Construction Contracts, an expected loss on the construction contract should be –
(A) Charged to other profitable contracts
(B) Charged to that contract itself
(C) Recognized as an expense immediately Le. debited to P & L A/c.
(D) Should be carried forward.
Answer:
(C) Recognized as an expense immediately Le. debited to P & L A/c.

Question 60.
Which of the following method of inventory valuation is not recommended by AS-2?
(A) Specific Identification Method
(B) Last-in-First Out Method
(C) Weighted Average Cost Method
(D) First-in-First Out Method
Answer:
(B) Last-in-First Out Method

Question 61.
Which of the following is not a method of determining stage of completion of a contract as per AS-7?
(A) Physical completion method
(B) Residual completion method
(C) Surveys of work performed method
(D) Proportionate cost method
Answer:
(B) Residual completion method

Question 62.
If closing stock is overstated
(A) Profit will increase and current assets will decrease
(B) Profit will decrease and current assets will increase
(C) Both profit & current assets will increase
(D) Both profit & current assets will decrease
Answer:
(C) Both profit & current assets will increase

Question 63.
AS-9 is concerned with the recognition of revenue arising in the course of the ordinary activities of the enterprise from:
(A) Sale of goods
(B) Rendering of services
(C) Use by others of enterprise resources yielding interest, royalties and dividends
(D) All of the above
Answer:
(D) All of the above

Question 64.
Which of the following is ‘revenue’ as per AS-9?
(A) Realized gains from the disposal of non-current assets
(B) Natural increases in herds and agricultural and forest products
(C) Realized or unrealized gains resulting from changes in foreign exchange rates
(D) None of the above
Answer:
(D) None of the above

Question 65.
Which of the following statements is correct with respect to inventories?
(A) The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold.
(B) It is generally good business management to sell the most recently acquired goods first.
(C) Under FIFO, the ending inventory is based on the latest units purchased.
(D) FIFO seldom coincides with the actual physical flow of inventory.
Answer:
(C) Under FIFO, the ending inventory is based on the latest units purchased.

Question 66.
Revenue from service transactions is usually recognized as the service is performed, by the: .
(A) Proportionate completion method
(B) Completed service contract method
(C) Both (A) and (B)
(D) Neither (A) nor (B)
Answer:
(C) Both (A) and (B)

Question 67.
As per AS-9, revenue from interest should be recognized –
(A) On time proportion basis.
(B) On accrual basis as per the term of agreement
(C) When right to receive is established
(D) Any of the above
Answer:
(A) On time proportion basis.

Question 68.
AS-13 deals with:
(A) Accounting for borrowings
(B) Accounting for investments
(C) Finance lease
(D) Operating lease
Answer:
(B) Accounting for investments

Question 69.
As per AS-13 shares, debentures and other securities held for sale in the ordinary course of business Eire –
(A) Disclosed as stock-in-trade under the head Current Assets.
(B) Disclosed as temporary investments under the head Current Assets.
(C) Debited to Investment A/c
(D) Disclosed as long term investments under the head Non-Current Assets.
Answer:
(A) Disclosed as stock-in-trade under the head Current Assets.

Question 70.
As per AS-13, where, long-term investments are reclassified as current investments, transfers Eire made at the:
(A) Higher of Cost or Fair Value at the date of transfer.
(B) Lower of Cost or Carrying Amount at the date of transfer.
(C) Lower of Cost or Fair Value at the date of transfer.
(D) Higher of Cost or CEirrying Amount at the date of transfer.
Answer:
(B) Lower of Cost or Carrying Amount at the date of transfer.

Question 71.
As per AS-13, where investments are reclassified from current to long-term, transfers are made at the -………
(A) Lower of Cost or Fair Value at the date of transfer.
(B) Higher of Cost or Fair Value at the date of transfer.
(C) Lower of Cost or Carrying Amount at the date of transfer.
(D) Higher of Cost or Carrying Amount at the date of transfer.
Answer:
(A) Lower of Cost or Fair Value at the date of transfer.

Question 72.
As per AS-13, if an investment is acquired in exchange for another asset, the acquisition cost of the investment is determined by reference to:
(A) Fair value of the asset given up or fair value of the investment acquired whichever is more.
(B) Fair value of the asset given up or fair value of the investment acquired whichever is less.
(C) Fair value of the asset given up or fair value of the investment acquired whichever is more clearly evident.
(D) Market value of the asset given up or market value of the investment acquired whichever is more clearly evident.
Answer:
(C) Fair value of the asset given up or fair value of the investment acquired whichever is more clearly evident.

Question 73.
AS-14 deals with
(A) Accounting for takeovers
(B) Accounting for lease
(C) Accounting for amalgamation
(D) Accounting for taxes
Answer:
(C) Accounting for amalgamation

Question 74.
One of the conditions for amalgamation in the nature of merger is that shareholders holding not less than of the face value of the equity shares of the transferor company become equity shareholders of the transferee company by virtue of the amalgamation.
(A) 75%
(B) 8096
(C) 6096
(D) 9096
Answer:
(D) 9096

Question 75.
Amalgamation in the Nature of Merger is also known as –
(A) Amalgamation in the Nature of Takeover
(B) Pooling of interest
(C) Added value merger
(D) Amalgamation in the Nature of consolidation
Answer:
(B) Pooling of interest

Question 76.
As per amalgamation in the nature of merger method all assets, liabilities, reserves and surplus of the transferor company are incorporated in the financial statements of the transferee company at –
(A) Book value
(B) Agreed value
(C) Either at book value or agreed value
(D) Market value
Answer:
(B) Agreed value

Question 77.
As per amalgamation in the nature of merger method difference between the consideration and share capital of the transferor company is adjusted against:
(A) Reserves or profit & loss balance
(B) Goodwill or capital reserve
(C) General reserve or goodwill
(D) Goodwill or profit & loss balance
Answer:
(A) Reserves or profit & loss balance

Question 78.
As per AS-14, to carry forward “Statutory Reserve”, which account is opened as per Amalgamation in the Nature of Purchase?
(A) Reserve Adjustment A/c
(B) Adjusted Statutory Reserve A/c
(C) Amalgamation Adjustment A/c
(D) Adjusted Profit & Loss A/c
Answer:
(C) Amalgamation Adjustment A/c

Question 79.
As per AS-4, events occurring after the balance sheet date are those ……… that occur between the balance sheet date and the date on which the financial statements are approved by appropriate authority.
(A) Significant Events
(B) Occurring Events
(C) Non-Adjusting Events
(D) Contingent Events
Answer:
(A) Significant Events

Question 80.
As per AS-5, prior period items are income or expenses which arise in the current period as a result of in the preparation of the financial statements of one or more prior periods.
(A) Errors
(B) Omissions
(C) Errors or omissions
(D) Errors or rectifications
Answer:
(C) Errors or omissions

Question 81.
X Ltd. purchased goods at the cost of ₹ 40 lakhs in October, 2018. Till March, 2019, 75% of the stocks were sold. The company wants to disclose closing stock at ₹ 10 lakhs. The expected sale value is ₹ 11 lakhs and a commission at 10% on sale is payable to the agent. What is the correct closing stock to be disclosed as at 31.3.2019 as per AS-2?.
(A) 10 Lakhs
(B) 9.9 Lakhs
(C) 11 lakhs
(D) 12 lakhs
Answer:
(B) 9.9 Lakhs
As per AS-2, Inventories should be valued at the lower of:

• Cost (40 Lakhs × 25%) 10 Lakhs
• Net Realizable Value (11 Lakhs – 1.1 Lakhs) — ₹ 9.9 Lakhs
  Hence, as per AS-2, Inventory should be valued an — ₹ 9.9 Lakhs.

Question 82.
On 31.3.2018 a business firm finds that cost of a partly finished unit on that date is ₹ 530. The unit can be finished in 2018-2019 by an additional expenditure of ₹ 310. The finished unit can be sold for ₹ 750 subject to payment of 4% brokerage on selling price. The firm seeks your advice regarding the amount at which the unfinished unit should be valued as at 31.3.2019 for preparation of final accounts?
(A) 530 per unit
(B) 410 per unit
(C) 440 per unit
(D) 720 per unit
Answer:
(B) 410 per unit
As per AS-2, Inventories should be valued at the lower of:
– Cost ₹ 530
– Net Realizable Value (750 – 310 – 30) ₹ 410
Hence, as per AS-2, Inventory should be valued at ₹ 410 per unit.

Question 83.
X Ltd. manufactures a product and details of costs are as under:
Raw material — ₹ 4,00,000
Direct labour — ₹ 2,50,000
Variable production overheads — ₹ 1,50,000
Fixed production overheads — ₹ 2,90,000
(including interest — ₹ 1,00,000)
Normal production capacity is 55,000 units. At the year end closing stock was 2,500 units. Compute the value of closing stock.
(A) ₹ 45,000
(B) ₹ 40,000
(C) ₹ 55,000
(D) ₹ 50,000
Answer:
(A) ₹ 45,000

Question 84.
In process, 100 units of raw materials were introduced at a cost of ₹ 1,000. The other expenditure incurred by the process was ₹ 600. Of the units introduced, 10% are normally lost in the course of manufacturing and they possess a scrap value of ₹ 3 each. The output of Process was only 75 units. Calculate the value of final output.
(A) ₹ 262
(B) ₹ 1,308
(C) ₹ 1,406
(D) ₹ 863
Answer:
(B) ₹ 1,308

Question 85.
Z Ltd. operates retails business. For the financial year following data is given.

Calculate the cost of closing stock, if sales made during the year is ₹ 2,00,000.
(A) ₹ 16,436
(B) ₹ 14,366
(C) ₹ 16,364
(D) ₹ 14,346
Answer:
(C) ₹ 16,364
Average percentage of cost to retail price \( =\frac{60,000+1,20,000}{80,000+1,40,000} \times 100=\frac{1,80,000}{2,20,000} \times 100=81.82 \%\)
Margin on retail price = 100°6 – 81.82% = 18.18%
Closing inventory at retail price = 80,000 + 1,40,000 – 2,00,000 = 20,000
Value of closing inventory = 20,000 – 3,636 = 16,364.

Question 86.
Best Ltd. deals in five products, P, Q, R, S and T which are neither similar nor interchangeable. At the time of closing of its accounts for the year ending 31 st March 2019, the historical cost and net realizable value of the items of the closing stock are determined as follows:

What will be the value of closing stock for the year ending 31st March, 2019 as per AS-2 “Valuation of Inventories”?
(A) ₹ 23,29,000
(B) ₹ 24,51,000
(C) ₹ 24,36,000
(D) ₹ 23,42,000
Answer:
(A) ₹ 23,29,000
4,75,000 + 9,80,000 + 2,89,000 + 4,25,000 + 1,60,000 = 23,29,000

Question 87.
Books of T Ltd. revealed the following information:
Opening inventory ₹ 16,00,000
Purchases during the year ₹ 34,00,000
Sales during the year ₹ 48,00,000
At year end, the value of inventory as per physical stock-taking was ₹ 3,25,000. The company’s gross profit on sales has remained constant at 25%. The management of the company suspects that some inventory might have been pilfered by a new employee. What is the estimated cost of missing inventory?
(A) ₹ 75,000
(B) ₹ 25,000
(C) ₹ 1,00,000
(D) ₹ 1,50,000
Answer:
(A) ₹ 75,000

Question 88.
NS Ltd., a dealer in second-hand cars has the following five vehicles of different models and makes in their stock at the end of the financial year 2018-2019:

Value of stock included in the balance sheet of the company as on March 31, 2019 was
(A) ₹ 7,62,500
(B) ₹ 7,70,000
(C) ₹ 7,90,000
(D) ₹ 8,70,000
Answer:
(B) ₹ 7,70,000
Closing stock has to value at cost or NRV whichever is less.
90,000 + 1,15,000 + 2,65,000 + 1,00,000 + 2,00,000 = 7,70,000.

Question 89.
An amount of ₹ 9,90,000was incurred on a contract work up to 31.3.2018. Certificates have been received to date to the value of ₹ 12,00,000 against which ₹ 10,80,000 has been received in cash. The cost of work done but not certified amounted to ₹ 22,500. It is estimated that by spending an additional amount of ₹ 60,000 the work can be completed in all respects in another two months. Agreed contract price of work is ₹ 12,50,000. Compute a profit to be taken to the P&L A/c as per AS-7.
(A) ₹ 1,88,625
(B) ₹ 1,65,288
(C) ₹ 1,62,885
(D) ₹ 1,88,562
Answer:
(A) ₹ 1,88,625

Question 90.
From the following details determine the expected profit or loss that should be recognized in the accounts for the year.
Contract price = ₹ 12,50,000
Cost incurred till date = ₹ 10,90,000
Cost expected to be incurred to complete the contract = ₹ 3,60,000
(A) ₹ 2,00,000 profit
(B) ₹ 49,625 loss
(C) ₹ 2,00,000 loss
(D) 149,625 profit
Answer:
(C) ₹ 2,00,000 loss

Question 91.
Z Ltd. purchased 10,000 shares of N Ltd. @ ₹ 300. Brokerage @ 2% and stamp duty was 10 paisa per ₹ 100. What is the value of investment as per AS-13?
(A) ₹ 30,63,000
(B) ₹ 30,60,000
(C) ₹ 30,00,000
(D) ₹ 30,93,000
Answer:
(A) ₹ 30,63,000

Question 92.
P Ltd. purchased 10,000 shares of Q Ltd. and issued its 5,000 shares. Nominal value of shares of both P Ltd. & Q Ltd. is ₹ 10. The fair value of shares of P Ltd. & Q Ltd. are ₹ 11.5 & ₹ 12 respectively. Calculate the cost of investment acquired as per AS-13.
(A) ₹ 57,500
(B) ₹ 1,15,000
(C) ₹ 60,000
(D) ₹ 1,20,000
Answer:
(A) ₹ 57,500
Cost of investment = 5,000 × 11.5 = 57,500

Question 93.
N Ltd. acquired certain investment by giving its machinery having WD V ₹ 47,000 and cash ₹ 16,000. Realizable value of machinery was ₹ 20,000. Calculate the cost of investment acquired as per AS-13.
(A) ₹ 31,000
(B) ₹ 36,000
(C) ₹ 27,000
(D) ₹ 11,000
Answer:
(B) ₹ 36,000
Cost of investment = 20,000 + 16,000 = 36,000

Question 94.
A Ltd. is absorbed by B Ltd., the consideration being the takeover of liabilities, the payment of cost of absorption as part of purchase consideration not exceeding ₹ 20,000, the payment of the 9% Debenture of ₹ 1,00,000 at a premium of 10% to the debenture holders of A Ltd. Equity shareholders of A Ltd. are entitled to ₹ 16 per share in cash and allotment of one 14% Preference Share of ₹ 10 each and 6 equity share of ₹ 10 each fully paid for every 4 share in A Ltd. The numbers of shares of A Ltd. are 2,00,000 of ₹ 10 each fully paid. Purchases consideration as per AS-14 = ?
(A) ₹ 67,00,000
(B) ₹ 62,00,000
(C) ₹ 67,20,000
(D) ₹ 62,20,000
Answer:
(A) ₹ 67,00,000

Question 95.
On 1.1.2019, 7,200 equity shares outstanding in the books of ₹ Ltd.
On 31.5.2019,2,400 shares issued for cash.
1.11.2019, the company made buy back of 1,200 shares.
Net profit for the year ended 31.12.2019 is ₹ 6,30,000.
Basic EPS as per AS-20 = ?
(A) 75 per share
(B) 80 per share
(C) 35 per share
(D) 55 per share
Answer:
(A) 75 per share

Question 96.
On 1.1.2019, 10,800 equity shares of ₹ 10 each fully paid-up outstanding in the books of Y Ltd.
On 31.10.2019 the company issued 3,600 shares of ₹ 10 each, ₹ 5 paid-up. Partly paid shares are entitled to participate in the dividend to the extent of amount paid. Net profit for the year ended 31.12.2019 is ₹ 13,32,000. Basic EPS as per AS-20 = ?
(A) ₹ 80 per share
(B) ₹ 90 per share
(C) ₹ 110 per share
(D) ₹ 120 per share
Answer:
(D) ₹ 120 per share

Question 97.
Details of shares of XM Ltd. are given below.

Weighted average number of equity shares = ?
(A) 6,60,000 shares
(B) 6,40,000 shares
(C) 6,20,000 shares
(D) 6,30,000 shares
Answer:
(D) 6,30,000 shares

Question 98.
Following are the details in respect of JPJ Ltd.
Net profit 2017-2018: ₹ 11,40,000
Net profit 2018-2019: ₹ 22,50,000
No. of equity shares outstanding until 31.12.2018: 5,00,000
Bonus issue on 1.1.2019, one equity share for each equity share outstanding as at 31.12.2018.
Calculate (a) Basic EPS for the current year and (b) Adjusted EPS for the last year?
(A) 2.25 per share & 1.14 per share
(B) 2.50 per share & 1.50 per share
(C) 2.24 per share & 1.12 per share
(D) 2.20 per share & 1.10 per share
Answer:
(A) 2.25 per share & 1.14 per share

For the year 2018-2019, the company had issued bonus shares, hence it should also re-state the EPS for earlier year 2017-2018 while stating EPS for current year i.e. 2018-2019.

Since, the bonus issue is an issue without consideration, the issue is treated as if it had occurred prior to the beginning of the year 2017-2018, the earliest period reported.

Question 99.
X Ltd. supplies following information:
Net profit for the Year 2018: ₹ 20,00,000
Net profit for the Year 2019: ₹ 30,00,000
No. of shares outstanding prior to right issue: 10,00,000 shares
Right issue: One new share for each four outstanding ie. 2,50,000 shares.
Right issue price: ₹ 20
Last date of exercise rights: 31.3.2019.
Fair value of one equity share immediately prior to exercise of rights on 31.3.2019:₹ 25
Basic EPS = ?
(A) ₹ 2.34 per share
(B) ₹ 2.83 per share
(C) ₹ 2.50 per share
(D) ₹ 2.77 per share
Answer:
(C) ₹ 2.50 per share

Question 100.
Net profit for the year attributable to equity shareholder = ₹ 50,00,000
Number of equity shares outstanding = 10,00,000
12% Convertible preference shares of ₹ 100 each = 50,000
(Each preference share is convertible into 8 equity shares)
Corporate tax is 30% while dividend distribution tax is 12.5%.
Diluted EPS = ?
(A) ₹ 5.05 per share
(B) ₹ 4.05 per share
(C) ₹ 4.85 per share
(D) ₹ 3.95 per share
Answer:
(B) ₹ 4.05 per share

Question 101.
Net profit for year = ₹ 2,00,00,000
Number of equity shares outstanding are 40,00,000.
Number of 11% convertible debentures of ₹ 100 each = 50,000
(Each debenture is convertible into 8 equity shares)
Tax rate = 30%
Diluted EPS = ?
(A) ₹ 5.63 per share
(B) ₹ 3.63 per share
(C) ₹ 4.63 per share
(D) ₹ 5.83 per share
Answer:
(C) ₹ 4.63 per share

Question 102.
Following details are available for Z Ltd.

(A) ₹ 2.40 per share
(B) ₹ 2.29 per share
(C) ₹ 2.04 per share
(D) ₹ 2.79 per share
Answer:
(B) ₹ 2.29 per share

Question 103.
Z Ltd. had 12,00,000 equity shares on 1.4.2012. It earned a profit of ₹ 30,00,000 during the year 2015-2016. The fair value of share is ₹ 25. The company has given Share Option to its employees of 2,00,000 equity shares at an option price of ₹ 15. Calculate diluted EPS.
(A) ₹ 2.43 per share
(B) ₹ 2.50 per share
(C) ₹ 2.34 per share
(D) ₹ 2.23 per share
Answer:
(C) ₹ 2.34 per share

Question 104.
Jeevan Ltd. earned a net profit after tax of ₹ 90,00,000 during the year ended 31.3.2012. The company’s equity capital is 10,000 shares of ₹ 10 each. The company has also issued 5,000, 20% convertible debentures of ₹ 20 each, convertible into shares at par. Compute diluted EPS as per AS-20, assuming income tax rate at 30%.
(A) ₹ 470.50 per share
(B) ₹ 405.70 per share
(C) ₹ 405.07 per share
(D) ₹ 450.70 per share
Answer:
(D) ₹ 450.70 per share

Question 105.
Net profit for year = ₹ 83,00,000
Number of equity shares outstanding are 20,00,000.
Number of 10% convertible debentures of ₹ 100 each = 1,00,000 (Each debenture is convertible into 8 equity shares)
Interest expense = ₹10,00,000
Tax rate = 30%
Diluted EPS = ?
(A) ₹ 4.63 per share
(B) ₹ 3.63 per share
(C) ₹ 3.00 per share
(D) ₹ 2.83 per share
Answer:
(C) ₹ 3.00 per share

Strategic Implementation and Control – CS Executive Financial and Strategic Management MCQ Questions with Answers you can quickly revise the concepts.

Strategic Implementation and Control – Strategic Management MCQ

Question 1.
………. refers to the process of conducting research on a company and its operating environment to formulate a strategy.
(A) SWOT analysis
(B) Strategic implementation
(C) Strategic analysis
(D) Strategic turnaround
Answer:
(C) Strategic analysis

Question 2.
………… is a process through which a strategy is put into action.
(A) Strategic analysis
(B) Strategy implementation
(C) SWOT analysis
(D) Strategic turnaround
Answer:
(B) Strategy implementation

Question 3.
Strategic implementation is -……..
(A) Concerned with translating a strategic decision into action.
(B) Crafting a combination of strategies and picking out the best one.
(C) Primarily an intellectual process.
(D) Considered easier and less time consuming.
Answer:
(A) Concerned with translating a strategic decision into action.

Question 4.
The critical 7-S model was developed and created by reputed consulting firm:
(A) Mckinsey
(B) Bain & Co.
(C) A. T. Kearney
(D) Accenture
Answer:
(A) Mckinsey

Question 5.
……….. focuses on whether the strategy is being implemented as planned and the results produced are those intended.
(A) Strategic analysis
(B) Strategic control
(C) Strategy formulation
(D) Strategy implementation
Answer:
(B) Strategic control

Question 6.
Which of the following is NOT one ‘S’ as per McKinsey 7-S framework?
(A) Structure
(B) Shared values
(C) Staff
(D) Shared plan
Answer:
(D) Shared plan

Question 7.
…….. means crafting a combination of strategies and picking out the best one to achieve the organizational goals and objectives and thereby reaching the vision of the organization.
(A) Strategy implementation
(B) Strategic analysis
(C) Strategy formulation
(D) Strategic management
Answer:
(C) Strategy formulation

Question 8.
The way the organization is structured and who reports to whom
(A) Strategy
(B) Structure
(C) Staff
(D) System
Answer:
(B) Structure

Question 9.
Strategy implementation focuses on -……..
(A) Efficiency
(B) Co-ordination
(C) Crafting of strategies
(D) Supporting factors
Answer:
(A) Efficiency

Question 10.
The plan devised to maintain and build competitive advantage over the competition -………
(A) Strategy
(B) Style
(C) Skills
(D) Systems
Answer:
(A) Strategy

Question 11.
Which of the following is NOT included ‘g in McKinsey 7-S framework?
(A) Strategy
(B) Structure
(C) System
(D) Safety
Answer:
(D) Safety

Question 12.
Strategy formulation is primarily –
(A) An operational process
(B) An intellectual process
(C) Profit making activity
(D) Activity undertaken to fulfil needs
Answer:
(B) An intellectual process

Question 13.
McKinsey’s 7-S framework helps analyze organizations and improve their effectiveness. The seven elements to be coordinated are: shared values, structure, systems, style and what?
(A) strategy, service levels and specialization
(B) strategy, staff and skills
(C) service levels, stock and staff
(D) specialization, skills and standards
Answer:
(B) strategy, staff and skills

Question 14.
What does SBU stand for?
(A) Significant business undertaking
(B) Special bureaucratic use
(C) Standard business usage
(D) Strategic business unit
Answer:
(D) Strategic business unit

Question 15.
Strategy formulation requires –
(A) Conceptual intuitive and analytical skills.
(B) Motivation and leadership skills.
(C) An operational process.
(D) None of the above
Answer:
(A) Conceptual intuitive and analytical skills.

Question 16.
Maria is the Marketing Manager for Whole foods Ltd. She is working on the firm’s marketing plan. Her forecasts show that, if they carry on as they have been doing, they are likely to miss their sales revenue targets by ₹ 5,00,000. She needs some new ideas. What kind of analysis has :
Maria undertaken?
(A) PRESTCOM analysis
(B) SWOT analysis
(C) Strategic gap analysis
(D) Ratio analysis
Answer:
(C) Strategic gap analysis

Question 17.
Which of the following is Hard ‘S’ as per McKinsey Model?
(A) Style
(B) Strategy
(C) Staff
(D) Skills
Answer:
(B) Strategy

Question 18.
Which of the following is correct statement?
(A) Primarily, strategy formulation is an operational process and strategy implementation is an intellectual process.
(B) An organization’s culture is always an obstacle to successful strategy implementation.
(C) Resistance to change is an impediment in building of strategic supportive corporate culture.
(D) A corporate culture is always identical in all the organizations.
Answer:
(C) Resistance to change is an impediment in building of strategic supportive corporate culture.

Question 19.
An important activity in ……….. is taking corrective action.
(A) Strategy evaluation
(B) Strategy implementation
(C) Strategy formulation
(D) Strategy leadership
Answer:
(A) Strategy evaluation

Question 20.
Which of the following is Soft ‘S’ as per McKinsey Model?
(A) Strategy
(B) Shared Values
(C) Structure
(D) Systems
Answer:
(B) Shared Values

Question 21.
…………. are at the core of McKinsey 7-S model.
(A) Skills
(B) Staff
(C) Shared Values
(D) System
Answer:
(C) Shared Values

Question 22.
The emphasis on product design is very high, the intensity of competition is low, and the market growth rate is low in the ………… stage of the industry life cycle.
(A) Maturity
(B) Introduction
(C) Growth
(D) Decline
Answer:
(B) Introduction

Question 23.
Which of the following is benefit of McKinsey’s 7-S Framework Model?
(A) It is a diagnostic tool for under-standing the organizations which Eire non-effective.
(B) It also enhances employees’morale because they enjoy full freedom to work hard which leads to their empowerment and development.
(C) It becomes proposition to manage as a result of more divisions and departments.
(D) It is useful in those organizations where activities are geographically spread such as transport, insurance, banking, etc.
Answer:
(A) It is a diagnostic tool for understanding the organizations which Eire non-effective.

Question 24.
Change in culture, attitude, and mindset calls for:
(A) Engagement, involvement and motivation of employees
(B) Rigorous performance appraisal
(C) Performance benchmarking
(D) Organization design change
Answer:
(D) Organization design change

Question 25.
Vertical integration may be beneficial when:
(A) Lower transaction costs and improved coordination are vital and achievable through vertical integration.
(B) Flexibility is reduced, providing a more stationary position in the competitive environment.
(C) Various segregated specializations will be combined.
(D) The minimum efficient scales of two corporations are different
Answer:
(A) Lower transaction costs and improved coordination are vital and achievable through vertical integration.

Question 26.
………….. is the process of stimulating an activity so that it can be performed successfully.
(A) Communication
(B) Activation
(C) Acceptance
(D) Offer
Answer:
(B) Activation

Question 27.
Which types of problem is encountered in the process of resource allocation while activating the strategy?
(A) Power Play
(B) Commitments of past
(C) Resistance to changes
(D) All of the above
Answer:
(D) All of the above

Question 28.
When to organizations combine to increase their strength and financial gains along with breaking the trade barriers is called -…………..
(A) Hostile takeover
(B) Liquidation
(C) Merger
(D) Acquisition
Answer:
(C) Merger

Question 29.
……….e.g., production, selling, finance, etc., is the most widely used basis for grouping activities into administrative units and found in almost every business enterprise at some level or the other.
(A) Departmentation by product & equipment
(B) Departmentation by products or service
(C) Departmentation by process & equipment
(D) Departmentation by functions
Answer:
(D) Departmentation by functions

Question 30.
The functional structure would be found in which type of business?
(A) A business producing a single product or limited range of products
(B) A business producing a diverse range of products
(C) A business owning several subsidiary companies
(D) Both (A) and (B)
Answer:
(A) A business producing a single product or limited range of products

Question 31.
Financial objectives involve all of the  following except:
(A) Growth in revenues
(B) Larger market share
(C) Higher dividends
(D) Greater return on investment
Answer:
(D) Greater return on investment

Question 32.
In a matrix organization, the functional departments like manufacturing, marketing, accounting and personnel constitute the …… while the project organization or product divisions form the ………….
(A) Vertical chains of command, Horizontal chains of command
(B) Horizontal chains of command, Vertical chains of command
(C) Vertical chains of command, Vertical chains of command
(D) Horizontal chains of command, Horizontal chains of command
Answer:
(A) Vertical chains of command, Horizontal chains of command

Question 33.
……………. is defined as a set of assumptions, beliefs, values and norms which are shared by people and groups in the organization and control the way they interact with each other and with stakeholders outside the organization.
(A) Strategy execution
(B) Organizational Culture
(C) Resistance to change
(D) Strategic control
Answer:
(B) Organizational Culture

Question 34.
Strategic leadership facilitates strategy execution through -…………
(A) Exploitation of core competencies
(B) Elimination of non-core competencies
(C) Non cohesive functioning
(D) Business integration
Answer:
(A) Exploitation of core competencies

Question 35.
Specialization is a feature of which organizational structure?
(A) Matrix
(B) Divisional
(C) Multi-divisional
(D) Functional
Answer:
(D) Functional

Question 36.
What is a strategic alliance?
(A) Any form of partnership between one firm and another
(B) Formal agreement committing two or more firms to exchange resources to produce products or services
(C) Formal agreement to share profits from a shared investment
(D) Formal agreement to share knowledge
Answer:
(B) Formal agreement committing two or more firms to exchange resources to produce products or services

Question 37.
Select true statement.
(A) Culture can facilitate communication, decision making and control and promotes co-operation and commitment.
(B) Culture, as a weakness can obstruct the smooth implementation of strategy by creating resistance to change.
(C) Both (A) and (B)
(D) Neither (A) nor (B)
Answer:
(C) Both (A) and (B)

Question 38.
………… involves general monitoring of various sources of information to uncover unanticipated information having a bearing on the organizational strategy.
(A) Strategic Surveillance
(B) Appraisal System
(C) Strategy formulation
(D) Strategy implementation
Answer:
(A) Strategic Surveillance

Question 39.
……….. may be defined as a variation in the established way of life to which people are accustomed to in the organization.
(A) Change
(B) Resistance
(C) Decision
(D) Planning
Answer:
(A) Change

Question 40.
Overt, implicit, immediate or deferred such words are used in relation to -………
(A) Total quality management (TQM)
(B) Motivation
(C) Resistance to change
(D) Morale
Answer:
(C) Resistance to change

Question 41.
Transformational change in an organization refers to -………….
(A) Complete change in almost all aspects of the organization
(B) Incremental change in which necessary improvements are made in the existing organization
(C) No change in any aspect of the organization
(D) None of the above
Answer:
(A) Complete change in almost all aspects of the organization

Question 42.
What do we mean by the term ‘strategic change?
(A) The changes that inevitably result in organizations as they evolve in a changing environment
(B) Planned change
(C) The proactive management of change to achieve strategic objectives
(D) An important organizational change
Answer:
(C) The proactive management of change to achieve strategic objectives

Question 43.
………. is basically the ability to persuade others to achieve the defined objectives willingly and enthusiastically.
(A) Leadership
(B) Motivation
(C) Transactional Analysis
(D) Planning
Answer:
(A) Leadership

Question 44.
What are the major procedural requirements involved in the strategy implementation process?
(A) Licensing Requirements
(B) Company law Requirements
(C) FEMA Requirements
(D) All of the above
Answer:
(D) All of the above

Question 45.
Strategies may require changes in ………………
(A) Structure
(B) Motivation
(C) Resistance
(D) Sale price
Answer:
(A) Structure

Receivable Management – CS Executive Financial and Strategic Management MCQ Questions with Answers you can quickly revise the concepts.

Receivable Management – Financial Management MCQ

Question 1.
Receivables means – ………..
I. Book debts
II. Debtors
III. Account receivables
Select correct answer from the options given below:
(A) I & II
(B) II & III
(C) I & III
(D) All of the above
Answer:
(D) All of the above

Question 2.
Receivables arise -…………….
1. If the goods are sold on credit.
2. If the goods are sold on cash
3. If the services are rendered on credit
4. If the services are rendered on cash.
Select correct answer from the options given below:
(A) 1 only
(B) 1 & 2
(C) 1 & 3
(D) All 1 to 4
Answer:
(C) 1 & 3

Question 3.
A decrease in the firm’s receivable turnover ratio means that –
(A) it is collecting credit sales more quickly than before
(B) it is collecting credit sales more slowly than before
(C) sales have gone down
(D) inventories have gone up
Answer:
(B) it is collecting credit sales more slowly than before
For example, if the hrm goes from 6 turns to 3 turns, the firm is increasing the average collection period from 60 days to 120 days (assuming a 360 day year). Thus, it is collecting more slowly.

Question 4.
The goal of receivables management is to maximize the value of the firm by achieving a trade-off between —
(A) Risk & Profitability
(B) Liquidity & Profitability
(C) Return & Profitability
(D) Return & Liquidity
Answer:
(A) Risk & Profitability

Question 5.
What do we call, when a firm extends credit terms that encourage the buyers of certain products to take delivery before the peak sales period and to defer payment until after the peak sales period?
(A) Trade account
(B) Cash discount
(C) Peak trade account
(D) Seasonal dating
Answer:
(D) Seasonal dating

Question 6.
Which of the following function is required to be performed by the finance manager in relation to proper management of receivables?
(A) To obtain optimum (not maximum) value of sales.
(B) To adopt relaxed policy for administrative expense.
(C) To increase opportunity cost of funds blocked in the receivables.
(D) To make more purchases at bigger discounts.
Answer:
(A) To obtain optimum (not maximum) value of sales.

Question 7.
The payment terms 2/10, Net 30 tell us that:
(A) 2% discount will be awarded if the payment is made within 10 days of invoice date; otherwise, the full amount is payable within next 10 days of invoice date.
(B) 10% discount will be awarded if the payment is made within 20 days of invoice date; otherwise, the full amount is payable within 30 days of invoice date.
(C) 2% discount will be awarded if the payment is made within 30 days of invoice date; otherwise, the full amount is payable within next 10 days of invoice date.
(D) 2% discount will be awarded if the payment is made within 10 days of invoice date; otherwise, the full amount is payable within 30 days of invoice date.
Answer:
(D) 2% discount will be awarded if the payment is made within 10 days of invoice date; otherwise, the full amount is payable within 30 days of invoice date.

Question 8.
Risk of non-payment may due to –
(A) Insolvency
(B) Liquidity problems
(C) Intention of cheating
(D) All of the above
Answer:
(D) All of the above

Question 9.
The cash discount is given to customers for:
(A) Early payments
(B) Good business relations
(C) Bulk purchase
(D) Frequent purchases
Answer:
(A) Early payments

Question 10.
Which of the following tool may be used to determine the degree of risk associated with cash collections?
A. Standard deviation
B. Co-efficient of variation
Select the correct answer from the options given below:
(A) B only
(B) Neither A nor B
(C) A only
(D) Both A and B
Answer:
(D) Both A and B

Question 11.
The accounts receivable that cannot be collected because of their bank ruptcy or another reason are termed as:
(A) Collectible accounts
(B) Bad customers
(C) Doubtful accounts
(D) Uncollectible accounts
Answer:
(D) Uncollectible accounts

Question 12.
Which of the following sentence describes correct strategy for proper administration of receivables?
(A) Most of the firms dissuade credit sales to first time customers.
(B) Promoting cash sales
(C) Firms must have special staff ear-marked for recovery efforts.
(D) (A) and (C)
Answer:
(D) (A) and (C)

Question 13.
Accounts receivable are reported in the balance sheet:
(A) At face value
(B) At gross value
(C) At net realizable value
(D) At net credit sales value
Answer:
(C) At net realizable value

Question 14.
……….. may also be offered for the early payment of dues.
(A) Trade discounts
(B) Special discounts
(C) Both (A) and (B)
(D) Cash discounts
Answer:
(D) Cash discounts

Question 15.
Increasing the credit period from 30 to 60 days, in response to a similar action taken by all of our competitors, would likely result in:
(A) An increase in the average collection period.
(B) A decrease in bad debt losses.
(C) An increase in sales.
(D) Higher profits.
Answer:
(A) An increase in the average collection period.

Question 16.
Credit rating is a study of credit standard of a customer Le. 5 C’s. Which of the following correctly describes those 5 C’s?
(A) Character, Capacity, Capital, Conditions & Collateral security
(B) Character, Capacity, Complaint, Conditions & Collateral security
(C) Character, Charm, Capital, Conditions & Collateral security
(D) Charter, Capacity, Capital, Conditions & Collateral security
Answer:
(A) Character, Capacity, Capital, Conditions & Collateral security

Question 17.
An exercise of credit rating involves –
(A) Doing it internally by a team within the firm
(B) Doing it through external special agencies.
(C) (A) or (B)
(D) None of the above
Answer:
(C) (A) or (B)

Question 18.
Place the methods of collecting on delinquent accounts from the most likely lowest to highest cost.
(A) Letters, phone calls, legal action, and personal visits.
(B) Phone calls, letters, legal action, and personal visits.
(C) Letters, phone calls, personal visits, and legal action.
(D) Personal visits, phone calls, letters, and legal action.
Answer:
(C) Letters, phone calls, personal visits, and legal action.

Question 19.
An important means to get an insight into collection pattern of debtors is the preparation of their –
(A) List of proposed discount
(B) Discount schedule
(C) Schedule of personal information of debtors
(D) Ageing Schedule.
Answer:
(D) Ageing Schedule.

Question 20.
Which of the following may be a reason why you would choose a policy with a higher Average Collection Period (ACP)?
(A) Lower percentage of collections in late dates.
(B) Higher percentage of collections in early dates.
(C) Lower percentage of collections in early dates.
(D) Higher percentage of collections in middle dates
Answer:
(B) Higher percentage of collections in early dates.

Question 21.
………….. is an arrangement to have debts collected by a third party entity for a fee.
(A) Factoring
(B) Aging
(C) Forming
(D) Crediting
Answer:
(A) Factoring

Question 22.
Selling accounts receivable to a third party at a reduced price is part of the collection process known as –
(A) Settling
(B) Writing off
(C) suing
(D) Factoring
Answer:
(D) Factoring

Question 23.
In ……….. type of factoring the bank/ factor takes all the risk and bear all the loss in case of debts becoming bad debts.
(A) Non-Recourse Factoring
(B) Invoice Discounting
(C) Maturity Factoring
(D) Recourse Factoring
Answer:
(A) Non-Recourse Factoring

Question 24.
Which one of the following would help to reduce the number of accounts receivable delinquencies?
(A) Ease the credit approval process
(B) Know your customers’ situations
(C) Refuse to extend payments
(D) Stop sending reminder letters
Answer:
(B) Know your customers’ situations

Question 25.
In factoring arrangement the debts as and when fall due are collected by the –
(A) Debtor
(B) Seller
(C) Factor
(D) Agent
Answer:
(C) Factor

Question 26.
A system used to decide whether to grant credit by assigning a numerical value that is related to the creditworthiness of the applicant is a(n)
(A) Credit Scoring System
(B) ERP System
(C) D & B Rating Classification System
(D) JIT System
Answer:
(A) Credit Scoring System

Question 27.
The factoring transaction involves
(A) Three parties Creditor, Buyer & Factor
(B) Four parties Seller, Buyer, Creditor & Factor
(C) Three parties Seller Buyer & Factor
(D) Four parties Debtor, Seller, Buyer, & Factor
Answer:
(C) Three parties Seller Buyer & Factor

Question 28.
…………. is a process by which a company clubs its different financial assets to form a consolidated financial instrument which is issued to investors. In return, the investors in such securities get interest.
(A) Factoring
(B) Securitization
(C) Bills rediscounting
(D) Forfaiting
Answer:
(B) Securitization

Question 29.
The main purpose of factoring accounts receivable is:
(A) to create an additional guarantee of collection
(B) to establish a legal proof for future use
(C) to meet immediate cash needs
(D) to invest accounts receivable in another business
Answer:
(C) to meet immediate cash needs

Question 30.
Which of the following function is/ are performed by the factor in factoring arrangement?
1. Administration of sellers’ sales ledger.
2. Collection of receivables purchased.
3. Provision of finance.
4. Protection against risk of bad debts.
5. Rendering advisory services in relation to receivables.
Select correct answer from the options given below:
(A) 3, 1, 5
(B) 2,4,3
(C) 4, 1, 3 & 5
(D) All 1 to 5
Answer:
(D) All 1 to 5

Question 31.
In a factoring with recourse, the loss resulting from bad debts is born by –
(A) the organization buying the accounts receivable
(B) the organization selling the accounts receivable
(C) the intermediate organization
(D) all of the above
Answer:
(B) the organization selling the accounts receivable

Question 32.
Under which of the following factoring arrangement the bank/factor purchases the receivables on the condition that any loss arising out or bad debts will be borne by the company which has taken factoring?
(A) Resource Factoring
(B) Recourse Factoring
(C) Non-Recourse Factoring
(D) Maturity Factoring
Answer:
(B) Recourse Factoring

Question 33.
In a factoring without recourse transaction, the loss resulting from bad debts is born by:
(A) Intermediate organization
(B) CEO of the organization
(C) Organization selling the accounts 2 receivable
(D) Organization buying the accounts receivable
Answer:
(D) Organization buying the accounts receivable

Question 34.
Which of the following is transferred in factoring arrangement?
(A) Receivable
(B) Payable
(C) Outstanding liabilities
(D) Prepaid assets
Answer:
(A) Receivable

Question 35.
Credit policy of every company is largely influenced by and
(A) Liquidity, accountability
(B) Liquidity, profitability
(C) Liability, profitability
(D) Liability, liquidity
Answer:
(B) Liquidity, profitability

Question 36.
Which of the following correctly describes ‘maturity factoring’ arrangement?
(A) A factoring arrangement which involves special purpose vehicle.
(B) A process which is governed by private contract between company and factoring firm.
(C) Under this type of factoring the bank provide an advance to the company against the account receivables and in turn charges interest rate from the company for the payment which bank has given to the company.
(D) In this type of factoring bank/factor does not give any advance to the company rather bank/factor collects it from customers and pays to the company either on the date of collection from the customers or on a guaranteed payment date.
Answer:
(D) In this type of factoring bank/factor does not give any advance to the company rather bank/factor collects it from customers and pays to the company either on the date of collection from the customers or on a guaranteed payment date.

Question 37.
In which type of factoring, the customer is not informed of the factoring arrangement?
(A) Private Factoring
(B) Secrete Factoring
(C) Undisclosed Factoring
(D) Untold Factoring
Answer:
(C) Undisclosed Factoring

Question 38.
Which of the following statements (in general) is correct?
(A) A low receivables turnover is desirable.
(B) The lower the total debt-to-equity ratio, the lower the financial risk for a firm.
(C) An increase in net profit margin with no change in sales or assets means a poor ROI.
(D) The higher the tax rate for a firm, the lower the interest coverage ratio.
Answer:
(B) The lower the total debt-to-equity ratio, the lower the financial risk for a firm.

Question 39.
Four parties involved in securitization are –
(A) Obligor, Owner, Special Purpose Vehicle, Investor
(B) Debtor, Owner, Special Purpose Vehicle, Investor
(C) Special Purpose Vehicle, Investor
Creditor & Financial Institution
(D) Investor, Obligor, Agent, Special Purpose Vehicle
Answer:
(A) Obligor, Owner, Special Purpose Vehicle, Investor

Question 40.
Which one of the following would NOT tighten a firm’s credit policy?
(A) Implementing a more stringent credit standard
(B) Shortening the net due period
(C) Lengthening the discount period
(D) Requiring a cash down payment on any purchase
Answer:
(C) Lengthening the discount period

Question 41.
Factoring involves arrangement.
Securitization is arrangement.
(A) Long term finance; long term finance
(B) Short term finance; long term finance
(C) Short term finance; short term finance
(D) Long term finance; short term finance
Answer:
(B) Short term finance; long term finance

Question 42.
Which one of the following correctly applies to a credit scoring system?
(A) Borrowers with low credit scores should be granted higher credit limits.
(B) Borrowers with higher incomes should be granted a higher score than borrowers with lower incomes.
(C) A business selling luxury items should be granted a higher score during periods of weak economic growth.
(D) The more collateral provided by a firm, the lower the credit score assigned.
Answer:
(B) Borrowers with higher incomes should be granted a higher score than borrowers with lower incomes.

Question 43.
(DFHI) aims to impart liquidity to commercial bills, which have already been discounted by commercial banks
(A) Discount & Finance House of India
(B) Discount & Finance Home of India
(C) Discount & Factoring House of India
(D) Discount & Factoring Home of India
Answer:
(A) Discount & Finance House of India

Question 44.
Making a credit decision is based upon all of the following except which?
(A) Character
(B) Capital
(C) Complaint
(D) Collateral
Answer:
(C) Complaint

Question 45.
Bill discounting is always with
(A) recourse
(B) non-recourse
(C) recourse or without recourse
(D) resource
Answer:
(A) recourse

Question 46.
Non-Recourse factoring is called as –
(A) Maturity Factoring
(B) Full Factoring
(C) Material Factoring
(D) Non-Finance Factoring
Answer:
(B) Full Factoring

Question 47.
…………….is a means of financing used by exporters that enables them to receive cash immediately by selling their medium-term receivables (the amount an importer owes the exporter) at a discount, and eliminate risk by making the sale without recourse, meaning the exporter has no liability regarding possible default by the importer on paying the receivables.
(A) Forfaiting
(B) Factoring
(C) Securitization
(D) Reconstruction Factoring
Answer:
(A) Forfaiting

Question 48.
A forfaiter purchase of the receivables, the sum of which is typically guaranteed by the –
(A) exporter’s bank
(B) importer’s bank
(C) buyer’s bank
(D) financer’s bank
Answer:
(B) importer’s bank

Question 49.
Forfaiting eliminates –
(A) Risk of the exporter not receiving payment
(B) Credit risk and transfer risk
(C) Risks posed by foreign exchange rate or interest rate changes.
(D) All of the above
Answer:
(D) All of the above

Question 50.
Forfaiting is –
(A) either with recourse or without re¬course
(B) always without recourse
(C) pure financing agreement
(D) (B) and (C)
Answer:
(D) (B) and (C)

Question 51.
………. is an arrangement to have export debts collected by a third party entity for a fee.
(A) Export factoring
(B) Forfaiting
(C) Striding
(D) Countertrade
Answer:
(A) Export factoring

Question 52.
The term credit policy is used to refer to decisions variable:
(A) Credit standards
(B) Credit terms
(C) Collection efforts
(D) All of the above
Answer:
(D) All of the above

Question 53.
…………. refers to the use of a firm’s receivable to secure a short term loan.
(A) Factoring
(B) Pledging
(C) Monitoring
(D) Securitization
Answer:
(B) Pledging

Question 54.
Which of the following statement(s) 5 is/are correct?
(A) Control of bad-debts is an important part of controlling the working capital or the current assets of the company
(B) Credit policy should be followed which may not lead to bad-debts and expedite collections
(C) Periodical checks should be maintained by classifying debtors as outstanding from 0-30 days, 30-60 days, 60-90 days and 90 and over
(D) All of the above
Answer:
(D) All of the above

Question 55.
You are considering relaxation of Credit policy ie. increasing credit period from 30 days to 45 days then in which of the following circumstances you will advice to do so -……….
(A) If the present profit increases
(B) If present loss reduces
(C) If present bad debt reduces
(D) All of the above
Answer:
(D) All of the above

Question 56.
What relationship exists between the average collection period and accounts receivable turnover?
(A) Both ratios are expressed in number of days
(B) As average collection period increases (decreases) the accounts receivable turnover decreases (increases)
(C) Both ratios are expressed in number of times receivables are collected per year
(D) There is a direct and proportional relationship
Answer:
(B) As average collection period increases (decreases) the accounts receivable turnover decreases (increases)

Question 57.
Which of the following statement is correct?
(A) The higher the debtors turnover ratio betters the position.
(B) Lower the velocity betters the position.
(C) Both (A) & (B)
(D) None of the above
Answer:
(C) Both (A) & (B)

Question 58.
Select the odd one in relation to topic of management of receivables?
(A) Debtors
(B) Factoring
(C) Creditor
(D) Forfaiting
Answer:
(C) Creditor

Question 59.
If you are proposing to introduce relaxed credit policy, you will adopt it if –
(A) There is increase in profit
(B) There is reduction in loss
(C) Both (A) and (B)
(D) Neither (A) nor (B)
Answer:
(C) Both (A) and (B)

Question 60.
When net sales for the year are ₹ 2,50,000 and debtors ₹ 50,000, the average collection period is:
(A) 60 days
(B) 45 days
(C) 42 days
(D) 73 days
Answer:
(D) 73 days
Average collection period =

Question 61.
If credit sales for the year is ₹ 5,40,000 and Debtors at the end of year is ₹ 90,000 the Average Collection Period will be –
(A) 30 days
(B) 61 days
(C) 90 days
(D) 120 days
Answer:
(B) 61 days

Question 62.
Romoji Ltd. has sales of ₹ 1,18,00,000 and its debtor turnover ratio is 4.2. Cost of goods sold is ₹ 82,60,000. Debtors = ?
(A) ₹ 19,66,725
(B) ₹ 19,66,663
(C) ₹ 19,66,263
(D) ₹ 19,66,667
Answer:
(D) ₹ 19,66,667

Note: Debtors turnover ratio can be calculated by taking ‘credit sales ’ or ‘cost of goods sold’. As per data given in question if ‘credit sales’ figure is used to calculate debtors then it comes to 28,09,524; but no such option is given hence debtors are calculated on ‘cost of goods sold’.

Question 63.
X Ltd. cash sales and credit sales are ₹ 5,67,500 & ₹ 87,50,000 respectively. Cost of goods sold is ₹ 61,25,000. Debtors are ₹ 8,20,833 and bills receivable are ₹ 2,00,000.
Debtors turnover ratio = ?
(A) 6.00
(B) 7.46
(C) 10.66
(D) 5.38
Answer:
(A) 6.00

Question 64.
Total sales of LMN Ltd. are ₹ 31,248 out of which 25% are cash sales. Closing balance of debtors are ₹ 9,468. Debtors velocity = ?
(A) 4.2 months
(B) 157 days
(C) 148 days
(D) 4.43 month
Answer:
(C) 148 days

Question 65.
Debtors velocity = 3 months
Sales = ₹ 25,00,000
Bills receivable & Bills payable were ₹ 60,000 and ₹ 36,667 respectively.
Sundry debtors = ?
(A) ₹ 6,25,000
(B) ₹ 5,25,000
(C) ₹ 5,65,000
(D) ₹ 6,65,000
Answer:
(C) ₹ 5,65,000

x Account Receivable = 6,25,000
Debtors + Bills Receivable = Account Receivable
x + 60,000 = 6,25,000
x = Debtors = 5,65,000

Question 66.
K Ltd. had sales last year of ₹ 26,50,000, including cash sales of ₹ 2,50,000. If its average collection period was 36 days, its ending accounts receivable balance is closest to (Assume a 365 day year.)
(A) ₹ 2,63,127
(B) ₹ 2,40,000
(C) ₹ 2,36,712
(D) ₹ 2,40,721
Answer:
(C) ₹ 2,36,712

Question 67.
Apollo Ltd. sells its products allowing a 2 credit period of 15 days only. The average %, variable cost is 60% of sales value and current sales amount to ₹ 100 lakhs. Data for the year is as follows:

Debtors are calculated on cost.
(A) Incremental profit ₹ 3.50 lakh
(B) Incremental loss ₹ 3.50 lakh
(C) Incremental profit ₹ 4.20 lakh
(D) Incremental loss ₹ 4.20 lakh
Answer:
(A) Incremental profit ₹ 3.50 lakh

Question 68.
F Ltd. is examining relaxation of its credit policy. It sells at present 20,000 units at a price of ₹ 100 per unit, the variable cost per unit is ₹ 88 and average cost per unit at the current sales volume is ₹ 92. All the sales are on credit, the average collection period being 36 days. A relaxed credit policy is expected to increase sales by 10% and the average age of receivables to 60 days. Assuming 15% return, should F Ltd. relax its credit policy?
Note: 1 Year = 360 days
(A) Yes, F Ltd. can change its policy as it lead to 15.79% increase in profit.
(B) No, F Ltd. need not to change its policy as there is no incremental return.
(C) Yes, F Ltd. can change its policy as it lead to incremental return of ₹ 2,400.
(D) None of the above option is correct.
Answer:
(A) Yes, F Ltd. can change its policy as it lead to 15.79% increase in profit.

Question 69.
Average cost increases from ₹ 88 to ₹ 92. Incremental profit & incremental debtors is 148,000 & 13,04,000 respectively. Cost of capital is 15%. What is the rate of incremental return on change of credit policy?
(A) 15.79%
(B) No incremental return
(C) 0.79%
(D) 1.58%
Answer:
(A) 15.79%

Question 70.
ABC Ltd. is considering certain relaxation in its credit policy from 60 days to 69 days.

Required rate of return and P/V ratio are 20 % & 30% respective1.
Debtors are calculated on cost
(A) Company should not change policy as debtors are increasing.
(B) Change in policy may lead to profit of ₹ 23,830.
(C) Change in policy may lead to incremental profit of ₹ 18,542.
(D) Company should not change in policy due incremental loss.
Answer:
(C) Change in policy may lead to incremental profit of ₹ 18,542.

Question 71.
In order to increase sales from normal level of ₹ 2,40,000 per annum, the marketing manager submits following two proposal for relaxing credit policy:
Proposal I: Increase credit period from 30 days to 45 days which will lead to increase in sales by ₹ 12,000.
Proposal II : Increase credit period from 30 days to 60 days which will lead to increase in sales by ₹ 18,000.
P/V Ratio and excepted pre-tax rate of return are 33.33% and 20 respectively.
Which of the following statement is correct?
Debtors are calculated on sales.
(A) Data given in question is not sufficient because without data as to cost no conclusion can be drawn.
(B) As compared to present policy, profit will increase by ₹ 1,800 for Proposal II and by ₹ 2,000 for Proposal II.
(C) As compared to present policy, profit will increase by ₹ 1,700 for Proposal I and by ₹ 2,000 for Proposal II.
(D) As compared to present policy, profit will increase by ₹ 1,700 for Proposal I and by ₹ 1,400 for Proposal II.
Answer:
(D) As compared to present policy, profit will increase by ₹ 1,700 for Proposal I and by ₹ 1,400 for Proposal II.

Question 72.
A Company has prepared the following projections for a year:
Sales — 21,000
Selling price per unit — ₹ 40
Variable costs per unit — ₹ 25
Total costs per unit — ₹ 35
Credit period allowed — 1 month
The company proposes to increase the credit period to 2 months. The change in the policy will increase the sale by 8%. The company desires a return of 25% on it investment. Debtors are calculated on cost. The company may decide to shift to proposed policy because –
(A) Total profit in proposed policy will be ₹ 1,30,200 whereas it is ₹ 1,05,000 for present policy.
(B) Incremental profit is ₹ 25,200
(C) Incremental return is 36.92%
(D) All of the above
Answer:
(D) All of the above

Question 73.
Analysis of debtor’s collection history of Karina Ltd. shows the following facts. 42% debtors pays the amount due within 4 days of sales; 18% debtors pays within 20 days and 40% debtors pays within 40 days of sales. What is the average collection period of Karina Ltd. ?
(A) 23 days
(B) 28 days
(C) 21 days
(D) 18 days
Answer:
(C) 21 days

Question 74.
In year 2018, 7% customer paid the amount due in 5 days from the date of sale; 54% customer paid the amount in 30 days and 39% customer paid the amount in 44 days from the date of sale.
In year 2019,13% customer paid the amount due in 4 days from the date of sale; 64% customer paid the amount in 25 days and 23% customer paid the amount in 58 days from the date of sale.
The average collection period –
(A) in year 2019 increased by 4 days
(B) in year 2019 decreased by 3 days
(C) in year 2019 increased by 3 days
(D) in year 2019 decreased by 4 days
Answer:
(D) in year 2019 decreased by 4 days

Question 75.
A firm has current sales of ₹ 25,48,000. The firm has unutilized capacity. In order to boost its sales, it is considering the relaxation in its credit policy. The proposed terms of credit will be 60 days credit against the present policy of 45 days. As a result, debtors (calculated on sales) will be –
(A) increased by 1,06,735
(B) decreased by 1,04,712
(C) increased by 1,06,167
(D) increased by 1,04,635
Answer:
(C) increased by 1,06,167
Increase in credit period = 60 – 45 = 15 days
Increase m Debtors = \(\frac{25,48,000}{360} \times 15\) =1,06,167

Question 76.
A firm has current sales of ₹ 38,22,000. In order to boost its sales, it is considering the relaxation in its credit policy. The proposed terms of credit will be 40 days credit against the present policy of 25 days. The firm’s sales are expected to increase by 10%. As a result, debtors (calculated on sales) will be –
(A) increased by ₹ 1,72,725
(B) decreased by ₹ 1,75,175
(C) decreased by ₹ 1,75,775
(D) increased by ₹ 1,75,175
Answer:
(D) increased by ₹ 1,75,175
Increase m Debtors = \(\frac{38,22,000 \times 1.1}{360} \times 15\) =1,75,175

Question 77.
A firm has current sales of 12,56,48,750. It is considering the relaxation in its credit policy. The proposed terms of credit will be 60 days credit against the present policy of 45 days. As a result, the bad debts will increase from 1.5% to 2% of sales. The firm’s sales are expected to increase by 10%. Variable operating costs is 72% of sales. Firm’s corporate tax rate is 35%, and it requires after-tax return of 15%. Should firm change its credit period?
Note: Firm calculate its debtor on sales.
(A) No, the firm should not change its pol-icy as profit will decline by ₹ 3,50,177
(B) Yes, the firm should change its policy as profit will increase by ₹ 5,39,036
(C) Yes, the firm should change its policy as profit will increase by ₹ 5,38,623
(D) Yes, the firm should change its policy as profit will increase by ₹ 3,50,105
Answer:
(D) Yes, the firm should change its policy as profit will increase by ₹ 3,50,105

Question 78.
Sales Manager of AB Ltd. suggests that if credit period is given for 1.5 months then sales may likely to increase by ₹ 1,20,000 per annum. Cost of sales amounted to 90% of sales. The risk of non-payment is 5%. Income tax rate is 3 0%. The expected return on investment is ₹ 3,375 (after tax). Should the company change its credit policy?
(A) Yes, as total net profit under proposed policy will be ₹ 4,200.
(B) No, as total net profit under proposed policy will be ₹ 4,200.
(C) Yes, as incremental net profit under proposed policy will be ₹ 4,200.
(D) No, as incremental net loss under proposed policy will be ₹ 4,200.
Answer:
(C) Yes, as incremental net profit under proposed policy will be ₹ 4,200.

Question 79.
XYZ Ltd. has credit sales amounting to ₹ 32,00,000. Sale price per unit is ₹ 40, the variable cost is ₹ 25 while the average cost is ₹ 32. Average age of receivables of the firm is 72 days. Firm is considering to tighten the credit standards. It will result in a fall in sales to ₹ 28,00,000, and the average age of receivables to 45 days. Assume 20% of return. Proposed policy will yield –
1 Year= 360days and debtors are calculated on cost.
(A) Incremental profit of ₹ 1,05,350
(B) Incremental loss of ₹ 1,05,350
(C) Incremental profit of ₹ 1,05,530
(D) Incremental loss of ₹ 1,05,530
Answer:
(B) Incremental loss of ₹ 1,05,350

Question 80.
A company has sales of ₹ 25,00,000. Average collection period is 50 days, bad debts losses are 5% of sales and collection expenses are ₹ 25,000. The cost of funds is 15%. The company has two alternative collection programmes:

Debtors are calculated on sales.
Advice the company by selecting the most correct option –
(A) The company should shift toward Programme I as profit is increasing by ₹ 10,274.
(B) The company should shift toward Programme II as profit is increasing by ₹ 15,548.
(C) The company should not change its policy as Programme I & Programme II does not have any incremental profits.
(D) The company may shift to Programme I or Programme II as both have incremental profit of ₹ 10,274 & ₹ 15,548 respectively but Programme II will be selected as it has more incremental profit as compared to Programme I.
Answer:
(D) The company may shift to Programme I or Programme II as both have incremental profit of ₹ 10,274 & ₹ 15,548 respectively but Programme II will be selected as it has more incremental profit as compared to Programme I.

Question 81.
H Ltd. has current sales of ₹ 20,00,000. It is planning to introduce a discount policy of 2/10, Net 30. As a result, the Company expects the average collection period to go down by 10 days and 80% of the sales opt for cash discount facility. Required return on investment is 20%, should it introduce the new discount policy?
(A) Yes, as profit is increasing by ₹ 20,888.
(B) No, as profit is decreasing by ₹ 20,889.
(C) Make no policy change.
(D) No, as profit is decreasing by ₹ 20,837.
Answer:
(B) No, as profit is decreasing by ₹ 20,889.

Question 82.
Current profit of R & Co. is ₹ 3,00,000. It is planning to introduce a discount policy of 2/10, Net 3 0. Due to change in policy profit is expected to increase by ₹ 50,000. Firm’s current average collection period is 30 days which is expected to fall by 10 days. Present investment in debtor is ₹ 58,333 which will be reduced by ₹ 16,666. However, due to increased sales, increased working capital required will be of ₹ 20,000 (without taking into account the effect of debtors). Total discount likely to be claimed in new policy will amount to ₹ 11,000.20% is the required return on investment. What is the impact of change in policy?
(A) Profit will decrease by ₹ 38,000.
(B) Profit will increase by ₹ 38,000.
(C) Profit will increase by ₹ 38,334.
(D) Profit will decrease by ₹ 38,533.
Answer:
(C) Profit will increase by ₹ 38,334.

Question 83.
Present credit terms of P Ltd. are 1/10 Net 30. Its annual sales are ₹ 80 lakhs, its average collection period is 20 days. Its variable and average total costs to sales are 0.85 & 0.95 and its Ko is 10%. Proportion of sales on which customers currently take discount is 0.5. Company is relaxing its discount terms to 2/10 Net 30 which will increase sales by ₹ 5 lakh, reduce average collection period to 14 days and increase the proportion of discount to sales to 0.8. What will be the effect of on company’s profit? Take year as 360 days. Debtors are calculated on cost.
(A) Profit will increase by ₹ 9,900
(B) Profit will increase by ₹ 9,986
(C) Profit will increase by ₹ 8,986
(D) Profit will decrease by ₹ 9,986
Answer:
(D) Profit will decrease by ₹ 9,986

Working Note:
Present discount = 80,00000 × 50% × 1% = 40,000
Proposed discount 8500000 × 80% × 2% = 1,36,000

Question 84.
G Ltd. presently gives credit terms of ‘net 30 days’. It has ₹ 600 lakh in credit sales and its average collection period is 45 days. To stimulate sales, the company may give credit terms of ‘net 60 days’ with sales expected to increase by 15%. After the change, the average collection period is expected to be 75 days. Variable cost to sales ratio is 80% and before tax required rate of return on investment in receivables is 20%. Assume 360 days in a year. Debtors are calculated on sales. Should the company extend its credit period?
(A) Yes, as there is incremental return of 26.18%
(B) Yes, as there is incremental return of 26.32%
(C) Yes, as there is incremental return of 26.52%
(D) Yes, as there is incremental return of 26.81%
Answer:
(A) Yes, as there is incremental return of 26.18%

Question 85.
Following are the details regarding then operation of firm:
Sales : ₹ 12,00,000
Selling price p.u. : 10
Variable cost p.u. : 7
Total cost p.u. : 9
Credit period : 1 month
Firm is considering a proposal to change credit period from 1 month to 2 months. The sales are expected to increase by 25%. Firm’s required return is 25%.
Debtors are calculated on cost.
Which of the following statement is correct?
(A) Total profit of the firm after change in policy will be ₹ 2,10,000.
(B) Incremental profit and investment in debtors will be ₹ 90,000 & ₹ 1,25,000 respectively.
(C) Incremental return will be 72%.
(D) All of the above.
Answer:
(D) All of the above.

Question 86.
S Ltd. currently has sales of ₹ 30,00,000 with an average collection period of 2 months. At present, no discounts are offered. Management of the company is thinking to allow a discount of 2% on sales which will result as under:
(i) The average collection period would reduce to one month.
(ii) 50% of customers would take advantage of 2% discount.
Company would normally require a 25% return on its investment. Advise whether to extend the discount on sales.
Debtors are calculated on sales.
(A) Yes, as profit will increase by ₹ 32,500
(B) Yes, as profit will increase by ₹ 30,500
(C) Yes, as profit will increase by ₹ 31,500
(D) Yes, as profit will increase by ₹ 32,000
Answer:
(A) Yes, as profit will increase by ₹ 32,500

Question 87.
A group of new customers with 10% risk of non-payment, desires to establish business connection with you. The group desires 1.5 months credit and is likely to increase the sales of your concern by ₹ 1,20,000 p.a. Cost of sales would be 80% of sales. Tax rate is 40% and required rate of return after tax is 40%. Debtors are calculated on cost. Should new business connection be established?
(A) Yes, as there is reduction in loss
(B) No, as profit is increasing
(C) Yes, profit is increasing by ₹ 7,200
(D) No, loss will increase by ₹ 7,200
Answer:
(C) Yes, profit is increasing by ₹ 7,200

Question 88.
A manufacturing firm has credit sales of ₹ 360 lakh and its average collection period is 30 days. Firm estimates bad debt losses at around 2% of credit sales. Firm spends ₹ 1,40,000 annually on debtors’ administration.
A factoring firm has offered to buy the firm’s receivables. The factor will charge 1% commission and will pay an advance against receivables on an interest @15% p.a. after withholding 10% as reserve. How much net amount will be paid by the Factor to the Firm ₹ 3 Assume 360 days in a year.
(A) ₹ 26,36,625
(B) ₹ 26,63,625
(C) ₹ 26,36,526
(D) ₹ 26,63,265
Answer:
(A) ₹ 26,36,625

Question 89.
A manufacturing firm has credit sales of ₹ 360 lakh and its average collection period is 30 days. Firm estimates bad debt losses at around 2% of credit sales. Firm spends ₹ 1,40,000 annually on debtors’ administration. A factoring firm has offered to buy the firm’s receivables. The factor will charge 1% commission and will pay an advance against receivables on an interest @15% p.a. after withholding 10% as reserve. Net saving/loss to the Firm due to factoring arrangement = ?
(A) (99,500)
(B) (8,60,000)
(C) 99,500
(D) 7,60,500
Answer:
(C) 99,500

Question 90.
Based on the current credit policy, 25% of the customers pay in 15 days, 50% pay in 60 days, and 25% pay in 150 days. Based on the new proposal, 22% of the customers would pay in 20 days, 50% would pay in 30 days, and 28% would pay in 90 days. What is the approximate effect of the new credit policy proposal on the average collection period (ACP)?
(A) ACP would decrease by 5 days.
(B) ACP would decrease by 15 days.
(C) ACP would decrease by 20 days.
(D) ACP would decrease by 26 days.
Answer:
(D) ACP would decrease by 26 days.

Question 91.
Amit Gupta, a trader is considering changing its credit policy. The incremental cash flows associated with this change are as follows:
Increase in sales of ₹ 13,100, increase in cost of goods sold of ₹ 6,900, increase in bad debts of ₹ 1,500, increase in other costs of ₹ 2,700 and an increase in taxes of ₹ 750. The incremental initial cash outflow at time zero is ₹ 16,450. The applicable discount rate is 9.5%. What is the net present value (NPV) of this proposed change in the credit policy?
(A) (3,292)
(B) (1,089)
(C) (1,444)
(D) (15,200)
Answer:
(A) (3,292)
Cash flow = 13,100 – 6,900- 1,500 – 2,700 – 750 = 1,250
Present value of cash flow = 1250 ÷ 0.095 = 13,158
Net present value = 13,158 – 16,450 = – 3292

Question 92.
You are analyzing two separate credit policies. Policy A will produce annual sales of ₹ 6,45,000 and annual interest expense of ₹ 11,500. Cost of goods sold will equal 53% of sales and bad debts will be 3% of sales. The tax rate is 35%. In comparison, Policy B would have 5% less in sales, interest expense of ₹ 6,000, 53% cost of goods sold, and bad debts equal to 1 % of sales. All other expenses are equal to ₹ 1,21,000 under both policies. Which one of the following statements is correct concerning these two credit policies?
(A) Policy A produces ₹ 34,250 more in sales than Policy B.
(B) Policy B produces ₹ 8,317 more in net income than Policy A.
(C) Policy B produces ₹ 8,317 more in net income than Policy A.
(D) Policy B produces ₹ 2,317 more in net income than Policy A.
Answer:
(D) Policy B produces ₹ 2,317 more in net income than Policy A.

Question 93.
M Ltd. expects annual sales of ₹ 2.45 million next year. They have a strict credit policy of 2/10, net 20. Based on a 365-day year, 1 % of their customers pay in 1 day, 41 % pay in 10 days, 56% pay in 23 days and 2% pay in 60 days. What is the expected value of their accounts receivable for next year?
(A) ₹ 1,22,097
(B) ₹ 1,26,583
(C) ₹ 4,09,639
(D) ₹ 4,55,699
Answer:
(A) ₹ 1,22,097

Question 94.
Firoz has been analyzing the accounts receivables of his firm. Based on the current credit policy, 21% of the customers pay in 14 days, 76% pay in 41 days and 3% pay in 112 days. Based on his best estimates and a new policy that he is proposing, Firoz feels that 42% of the customers would pay in 21 days, 56% would pay in 35 days and 2% would pay in 90 days. What is the effect of the new credit policy proposal on the average collection period?
(A) Average collection period would decrease by 7 days.
(B) Average collection period would decrease by 4 days.
(C) Average collection period would increase by 4 days.
(D) Average collection period would increase by 7 days.
Answer:
(A) Average collection period would decrease by 7 days.

Question 95.
Ninety-per cent of X company’s total sales of ₹ 6,00,000 is on credit. If its year-end receivables turnover is 5, the average collection period (based on a, 365 day year) and the year-end receivables are, respectively:
(A) 365 days and ₹ 1,08,000
(B) 73 days and ₹ 1,20,000
(C) 73 days and ₹1,08,000
(D) 81 days and ₹ 1,08,000
Answer:
(C) 73 days and ₹1,08,000

Question 96.
K Ltd. had sales last year of ₹ 265 million, including cash sales of ₹ 25 million. If its average collection period was 36 days, its ending accounts receivable balance is closest to – (Assume a 365-day year)
(A) ₹ 26.1 million
(B) ₹ 23.7 million
(C) ₹ 7.4 million
(D) ₹ 18.7 million
Answer:
(B) ₹ 23.7 million

Question 97.
The credit policy of S Ltd. is “1.5/10, Net 35.” At present 30% of the customers take the discount, 62% pay within the net period, and the rest pay within 45 days of invoice. What would receivables be if all customers took the cash discount?
(A) Lower than the present level.
(B) No change from the present level.
(C) Higher than the present level.
(D) Unable to determine without more information.
Answer:
(A) Lower than the present level.

Question 98.
A firm sells ₹ 5,00,000 p.a. with 3% bad debt losses. Two alternative policies are available. Policy A would increase sales by ₹ 3,00,000, but bad debt losses on additional sales would be 8%. Policy B would increase sales by an additional ₹ 1,20,000 over Policy A and bad debt losses on the additional ₹ 1,20,000 of sales would be 15%. The average collection period will remain at 60 days (6 turns per year) no matter the policy decision made. Profit margin will be 20% of sales and no other expenses will increase. Opportunity cost is 20%.
(A) Make no policy change.
(B) Change to only Policy A.
(C) Change to Policy B (means also taking Policy A first).
(D) All policies lead to the same total firm profit, thus all policies are equal.
Answer:
(C) Change to Policy B (means also taking Policy A first).

Question 99.
Elite Corporation Ltd. is considering a change in their credit terms. The firm is considering offering a 1.5% discount. Most likely competitors will follow suit, so sales will remain at ₹ 1 Million and 40% of sales will be eligible to take advantage of the discount. The firm anticipates that receivables will be reduced by ₹ 30,000 and the firm has an opportunity cost of 18%. Should the firm change its credit terms?
(A) Yes
(B) No
(C) It does not really matter as the benifits and the costs are identical.
(D) It cannot be determined from the given information.
Answer:
(B) No

Question 100.
A firm has total credit sales of ₹ 80 lakh and its average collection period is 80 days. The past experience indicates that bad debt losses are around 1% of the credit sales. The firm spends ₹ 1,20,000 per year on administering its credit sales which is avoidable costs. A factor is prepared to buy the firm’s receivables. He will charge 2% commission. He will advance against receivables to the firm at 18% after withholding 10% as reserve. How much net amount will be paid by the Factor to the Firm? (Assume 360 days in year)
(A) ₹ 17,77,778
(B) ₹ 15,64,444
(C) ₹ 15,01,866
(D) ₹ 15,46,667
Answer:
(C) ₹ 15,01,866

Going through the Ratio Analysis – Corporate and Management Accounting CS Executive MCQ Questions with Answers you can quickly revise the concepts.

Ratio Analysis – Corporate and Management Accounting MCQs

Question 1.
Which of the following assets is not a quick current asset for the purpose of calculating acid test ratio
(A) Short term bills receivables
(B) Cash
(C) Stock
(D) Debtors less provision for bad and doubtful debts
Answer:
(C) Stock

Question 2.
Dividing net sales by average debtors would yield
(A) Acid test ratio
(B) Return on sales ratio
(C) Debtors turnover ratio
(D) Debtors velocity
Answer:
(C) Debtors turnover ratio

Question 3.
Which of the following liabilities are taken into account for acid test ratio
1. Trade creditors
2. Bank overdraft
3. Bills payable
4. Outstanding expenses
5. Redeemable debentures.
Select the correct answer from the options given below:
(A) 1,2, 3, 4 and 5
(B) 1,3 and 4
(C) 1,2, 3 and 4
(D) 1,3, 4 and 5
Answer:
(B) 1,3 and 4

Question 4.
ROI – Return on investment is equal to:
(A) PAT/Tangible Net Worth
(B) PAT/Net Tangible Assets
(C) PAT/Paid up Capital
(D) Gross Profit/Gross Assets
Answer:
(B) PAT/Net Tangible Assets

Question 5.
Capital gearing ratio is ………..
(A) Market test ratio
(B) Long-term solvency ratio
(C) Liquid ratio
(D) Turnover ratio
Answer:
(B) Long-term solvency ratio

Question 6
…………… is also known as working capital ratio.
(A) Current ratio
(B) Quick ratio
(C) Liquid ratio
(D) Debt-equity ratio
Answer:
(A) Current ratio

Question 7.
What ratio can be used to inefficient buying habits
(A) Inventory turnover ratio
(B) Gross margin ratio
(C) Equity multiplier
(D) Debt ratio
Answer:
(A) Inventory turnover ratio

Question 8.
A ratio that compares investors’ and creditors’ stake in a company is
(A) Debt ratio
(B) Debt equity ratio
(C) Equity ratio
(D) Investor creditor ratio
Answer:
(B) Debt equity ratio

Question 9.
The ratio that explains how efficiently companies use their assets to generate revenue is
(A) Revenue asset ratio
(B) Receivable turnover ratio
(C) Income ratio
(D) Asset turnover ratio
Answer:
(D) Asset turnover ratio

Question 10.
What does the accounts receivable turnover ratio tell us
(A) How often account receivable received
(B) How many time account receivable is collected
(C) Account receivable balance at the end of the period
(D) Bad debt balance at the year end
Answer:
(B) How many time account receivable is collected

Question 11.
The best ratio to evaluate short-term liquidity is:
(A) Working capital turnover ratio
(B) Current ratio
(C) Creditors velocity
(D) All of the above
Answer:
(B) Current ratio

Question 12.
The DuPont Analysis uses the following ratios except:
(A) Debt ratio
(B) Profit margin
(C) Total asset turnover
(D) Financial leverage
Answer:
(A) Debt ratio

Question 13.
Which best describes the gross margin ratio
(A) Leverage ratio
(B) Liquidity ratio
(C) Coverage ratio
(D) Profitability ratio
Answer:
(D) Profitability ratio

Question 14.
Inventory turnover ratio evaluates:
(A) Company’s ability to move inventory
(B) Company’s inventory purchasing efficiency
(C) Both (A) & (B)
(D) None of the above
Answer:
(C) Both (A) & (B)

Question 15.
The quick ratio formula uses which of the following
(A) Total assets
(B) Cash
(C) Total current assets
(D) Inventory
Answer:
(B) Cash

Question 16.
Ratio analysis expresses the relationship of one number to another number. To add meaning to a ratio it can be compared to …………
(A) Budgeted ratios
(B) Ratios of prior years or accounting periods
(C) Industry averages
(D) All of the above
Answer:
(D) All of the above

Question 17.
All of the following statements are true regarding ratios that measure a company’s ability to pay current liabilities except
(A) Working Capital = Current Assets – Current Liabilities
(B) A higher current ratio is always preferred to a lower current ratio
(C) Inventory and prepaid expense are included in the numerator of the current ratio, but not in the numerator of the acid-test ratio
(D) In most industries, a current ratio of 2.0 is considered adequate
Answer:
(B) A higher current ratio is always preferred to a lower current ratio

Question 18.
A company can improve (lower) its debt-to-total assets ratio by doing which of the following
(A) Borrow more
(B) Shift short-term to long-term debt
(C) Shift long-term to short-term debt.
(D) Sell common stock
Answer:
(D) Sell common stock

Question 19.
Match the following:
(1) Test of Liquidity — A. ROI
(2) Test of Profitability — B. Debtors turnover
(3) Test of Solvency — C. Acid test ratio
(4) Test of Activity — D. Debt equity ratio
Select correct given below. answer from the options

Answer:
(D)

Question 20.
A firm’s equity multiplier is an indication of its position.
(A) Liquidity
(B) Debt
(C) Asset utilization
(D) Inventory
Answer:
(C) Asset utilization

Question 21.
Which of the following would NOT improve the current ratio
(A) Borrow short term to finance additional fixed assets.
(B) Issue long-term debt to buy inventory
(C) Sell common stock to reduce current liabilities
(D) Sell fixed assets to reduce accounts payable
Answer:
(A) Borrow short term to finance additional fixed assets.

Question 22.
The gross profit margin is unchanged, but the net profit margin declined over the same period. This could have happened if
(A) Cost of goods sold increased relative to sales.
(B) Sales increased relative to expenses.
(C) The Indian government increased the tax rate.
(D) Dividends were decreased.
Answer:
(C) The Indian government increased the tax rate.

Question 23.
P Ltd. has a debt-to-equity ratio of 1.6 compared with the industry average of 1.4. This means that the company
(A) Will not experience any difficulty with its creditors.
(B) Has less liquidity than other firms in the industry.
(C) Will be viewed as having high credit worthiness.
(D) Has greater than average financial risk when compared to other firms in its industry.
Answer:
(D) Has greater than average financial risk when compared to other firms in its industry.

Question 24.
All of the following statements are true regarding ratios that measure a company’s ability to sell inventory and collect receivables except
(A) An increased accounts receivable turnover ratio indicates an increased ability to collect cash from credit customers.
(B) The formula for the inventory turn-over ratio is sales / average inventory.
(C) An increased inventory turnover ratio indicates a company is selling merchandise more quickly than in previous accounting periods; in general, this translates into more merchandise being sold and higher profitability.
(D) A decreased days sales in receivables ratio indicates the company is collecting cash from credit customers more quickly. In general, this results in greater cash inflows.
Answer:
(B) The formula for the inventory turn-over ratio is sales / average inventory.

Question 25.
Which of the following statements (in general) is correct
(A) A low receivables turnover is desirable.
(B) The lower the total debt-to-equity ratio, the lower the financial risk for a firm.
(C) An increase in net profit margin with no change in sales or assets means a poor ROI.
(D) The higher the tax rate for a firm, the lower the interest coverage ratio.
Answer:
(B) The lower the total debt-to-equity ratio, the lower the financial risk for a firm.

Question 26.
An examination of the sources and uses of funds statement is part of:
(A) A forecasting technique.
(B) A funds flow analysis.
(C) A ratio analysis
(D) Calculations for preparing the balance sheet.
Answer:
(B) A funds flow analysis.

Question 27.
The DuPont Approach breaks down the earning power on shareholders’ book value (ROE) as follows: ROE =
(A) Net profit margin × Total asset turn-over × Equity multiplier
(B) Total asset turnover × Gross profit margin × Debt ratio
(C) Total asset turnover × Net profit margin
(D) Total asset turnover × Gross profit margin × Equity multiplier
Answer:
(D) Total asset turnover × Gross profit margin × Equity multiplier

Question 28.
Which group of ratios measures a firm’s ability to meet short-term obligations
(A) Liquidity ratios
(B) Debt ratios
(C) Coverage ratios
(D) Profitability ratios
Answer:
(A) Liquidity ratios

Question 29.
Which group of ratios relates the financial charges of a firm to its ability to service them
(A) Liquidity ratios
(B) Debt ratios
(C) Coverage ratios
(D) Profitability ratios
Answer:
(C) Coverage ratios

Question 30.
All of the following statements are true regarding ratios that analyze a stock investment except
(A) In general, an increased P/E ratio indicates increased investor confidence in the future of the company.
(B) Shareholders who invest primarily to receive dividends pay special attention to the dividend yield ratio.
(C) Many experts argue that book value is the most useful ratio for investment analysis.
(D) Two ways for shareholders to earn a return on a share investment are receiving dividends and selling the stock investment at again.
Answer:
(C) Many experts argue that book value is the most useful ratio for investment analysis.

Question 31.
Which group of ratios relate profits to sales and investment
(A) Liquidity ratios
(B) Debt ratios
(C) Coverage ratios
(D) Profitability ratios
Answer:
(D) Profitability ratios

Question 32.
In Ratio Analysis, the term Capital Employed refers to:
(A) Equity Share Capital
(B) Net worth
(C) Shareholders Funds
(D) None of the above
Answer:
(D) None of the above

Question 33.
Dividend Payout Ratio is:
(A) PAT/Capital
(B) DPS H-EPS
(C) Pref. Dividend 4- PAT
(D) Pref. Dividend 4- Equity Dividend
Answer:
(B) DPS H-EPS

Question 34.
DuPont Analysis deals with:
(A) Analysis of Current Assets
(B) Analysis of Profit
(C) Capital Budgeting
(D) Analysis of Fixed Assets
Answer:
(B) Analysis of Profit

Question 35.
In Net Profit Ratio, the denominator is:
(A) Net Purchases
(B) Net Sales
(C) Credit Sales
(D) Cost of goods sold
Answer:
(B) Net Sales

Question 36.
Return on Investment may be improved by:
(A) Increasing Turnover
(B) Reducing Expenses
(C) Increasing Capital Utilization
(D) All of the above
Answer:
(D) All of the above

Question 37.
Which group of ratios shows the extent to which the firm is financed with debt
(A) Liquidity ratios
(B) Debt ratios
(C) Coverage ratios
(D) Profitability ratios
Answer:
(B) Debt ratios

Question 38.
Debt-Equity Ratio help to study
(A) Solvency
(B) Liquidity
(C) Profitability
(D) Turnover
Answer:
(A) Solvency

Question 39.
Which of the following is considered a profitability measure
(A) Days sales in inventory
(B) Fixed asset turnover
(C) Price-earnings ratio
(D) Return on Assets
Answer:
(D) Return on Assets

Question 40.
If the trend of the current ratio is increasing, while the trend of the acid-test ratio is decreasing over a period of time, this could be a warning that the firm is:
(A) Depleting its inventories
(B) Having trouble collecting its receivables
(C) Purchasing too much treasury stock
(D) Carrying excess inventories
Answer:
(D) Carrying excess inventories

Question 41.
Return on Investment is computed as:
(A) Net income divided by average total assets
(B) Net income divided by average total owners’ equity
(C) Net income divided by total sales
(D) Sales divided by average total owners’ equity
Answer:
(A) Net income divided by average total assets

Question 42.
Which of the following is not a category of financial statement ratios
(A) Financial leverage
(B) Liquidity
(C) Profitability
(D) Reliability
Answer:
(D) Reliability

Question 43.
The dividend payout ratio describes:….
(A) The proportion of earnings paid as dividends
(B) The relationship of dividends per share to market price per share
(C) The percentage change in dividends this year compared to last year
(D) Dividends as a percentage of the price/earnings ratio
Answer:
(A) The proportion of earnings paid as dividends

Question 44.
What type of ratios measure the liquidity of specific assets and the efficiency of managing assets
(A) Profitability Ratios
(B) Liquidity Ratios
(C) Leverage Ratios
(D) Activity Ratios
Answer:
(D) Activity Ratios

Question 45.
Which of the following statements is false
(A) Financial ratios can serve as screening devices.
(B) No rules of thumb apply to the interpretation of financial ratios.
(C) Financial ratios are predictive.
(D) Financial ratios can indicate areas of potential strength and weakness.
Answer:
(C) Financial ratios are predictive.

Question 46.
Which of the following ratios would be useful in assessing short-term liquidity
(A) Current ratio, quick ratio, cash-flow liquidity ratio.
(B) Average collection period, debt ratio, return on assets
(C) Quick ratio, accounts receivable turnover, return on assets.
(D) Current ratio, inventory turnover, fixed asset turnover
Answer:
(A) Current ratio, quick ratio, cash-flow liquidity ratio.

Question 47.
What does a decreasing inventory turnover ratio usually indicate about a firm
(A) The firm is selling more inventory.
(B) The firm is managing its inventory well.
(C) The firm is inefficient in the management of inventory.
(D) Both (A) and (B)
Answer:
(C) The firm is inefficient in the management of inventory.

Question 48.
What relationship exists between the average collection period and accounts receivable turnover
(A) As average collection period increases (decreases) the accounts receivable turnover decreases (increases)
(B) There is a direct and proportional relationship
(C) Both ratios are expressed in number of days.
(D) Both ratios are expressed in number of times receivables are collected per year.
Answer:
(A) As average collection period increases (decreases) the accounts receivable turnover decreases (increases)

Question 49.
Company J and Company K each recently reported the same EPS. Company J’s stock, however, trades at a higher price. Which of the following statements is most correct
(A) Company J must have a higher P/E ratio.
(B) Company J must have a higher market to book ratio.
(C) Company J must be riskier.
(D) All of the statements above are correct.
Answer:
(A) Company J must have a higher P/E ratio.

Question 50.
Which of the following statements is most correct ?
(A) If a company increases its current liabilities by ₹ 1,000 and simultaneously increases its inventories by ₹ 1,000, its current ratio must rise.
(B) If a company increases its current liabilities by ₹ 1,000 and simultaneously increases its inventories by ₹ 1,000, its quick ratio must fall.
(C) A company’s quick ratio may never exceed its current ratio.
(D) (B) & (C) is correct.
Answer:
(D) (B) & (C) is correct.

Question 51.
Which of the following statements is most correct ?
(A) If two companies have the same return on equity, they should have the same stock price.
(B) If Company A has a higher profit margin and higher total assets turnover relative to Company B, then Company A must have a higher return on assets.
(C) If Company A and Company B have the same debt ratio, they must have the same times interest earned ratio.
(D) None of the above is correct.
Answer:
(B) If Company A has a higher profit margin and higher total assets turnover relative to Company B, then Company A must have a higher return on assets.

Question 52.
Which of the following ratios is(are) useful in assessing a company’s ability to meet current maturing or short-term obligations ?

Answer:
(D)

Question 53.
Which of the following ratios should be used in evaluating the effectiveness with which the company uses its assets ?

Answer:
(D)

Question 54.
Activity ratios are measured with the help of …………
(A) Fixed assets
(B) Sales
(C) Profit
(D) Expenses
Answer:
(B) Sales

Question 55.
Which of the following is not activity ratio
(A) Sales to inventory
(B) Net profit to sales
(C) Sales to debtors
(D) Assets turnover
Answer:
(B) Net profit to sales

Question 56.
Debt equity ratio is …………..
(A) Profitability ratio
(B) Solvency Ratio
(C) Activity Ratio
(D) Operating Ratio
Answer:
(B) Solvency Ratio

Question 57.
In capital gearing ratio nominator is
(A) Variable income securities
(B) Fixed income securities
(C) Both (A) & (B)
(D) Either (A) or (B)
Answer:
(B) Fixed income securities

Question 58.
Issue of shares at cash will ……….. current ratio.
(A) Reduce
(B) Improve
(C) Not change
(D) Can’t say
Answer:
(B) Improve

Question 59.
Purchase of stock for cash will ……….. current ratio.
(A) Reduce
(B) Improve
(C) Not change
(D) Can’t say
Answer:
(C) Not change

Question 60.
Which of the following is market test ratio ?
(A) Basic Defense Interval
(B) Debt Service Coverage
(C) Dividend Yield Ratio
(D) All of the above
Answer:
(C) Dividend Yield Ratio

Question 61.
Proprietary Ratio assess
(A) Long Term Solvency
(B) Short Term Solvency
(C) Profitability
(D) Activity
Answer:
(A) Long Term Solvency

Question 62.
Proprietary Funds = …………..
(A) Equity Share Capital + Reserves – Fictitious Assets + Current assets
(B) Equity Share Capital + Preference Share Capital + Fixed Assets – Fictitious Assets
(C) Equity Share Capital + Preference Share Capital + Reserves – Fictitious Assets
(D) All of the above are correct
Answer:
(C) Equity Share Capital + Preference Share Capital + Reserves – Fictitious Assets

Question 63.
Interest Cover is also known as………
(A) Debt Equity Ratio
(B) Debt Service-Ratio
(C) Debt Ratio
(D) Interest to debt ratio
Answer:
(B) Debt Service-Ratio

Question 64.
While calculating dividend cover for preference shares numerator should be taken as ……….
(A) EBIT
(B) Profit available for equity shareholder
(C) PAT
(D) PAT + Depreciation
Answer:
(C) PAT

Question 65.
……… ratios are used to measure how effectively the firm employs its resources.
(A) Turnover
(B) Profitability
(C) Market test
(D) Short term solvency
Answer:
(A) Turnover

Question 66.
Which of the following statement is correct ?
(A) The higher the debtors turnover ratio betters the position.
(B) Lower the velocity betters the position.
(C) Both (A) & (B)
(D) None of the above
Answer:
(C) Both (A) & (B)

Question 67.
The ……… reflects the market’s confidence in the company’s equity.
(A) P/E ratio
(B) Net profit ratio
(C) Cash profit ratio
(D) Total assets turnover ratio
Answer:
(A) P/E ratio

Question 68.
…. is a good measure of the dividend policy of the company.
(A) Dividend Payout Ratio
(B) Price Earnings Ratio
(C) Earnings Per Share
(D) None of the above
Answer:
(A) Dividend Payout Ratio

Question 69.
Explain the important ratio that would be used in following situation:
A bank is approached by a company for a loan of ₹ 50 lakh for working capital purposes.
(A) Capital Structure/Leverage Ratios
(B) Profitability Ratios
(C) Liquidity Ratios
(D) Activity Ratios
Answer:
(C) Liquidity Ratios

Question 70.
A Ltd. financial statement shows the following data:
Opening stock ₹ 1,75,000, Total purchase ₹ 10,75,000 including cash purchase ₹ 1,75,000, total sales ₹ 15,00,000 out of which 20% are on cash basis. Closing stock is ₹ 1,50,000. Stock turnover ratio = ?
(A) 7.67
(B) 6.77
(C) 7.76
(D) 7.66
Answer:
(B) 6.77

Question 71.
A Ltd. financial statement shows the following data:
Equity ₹ 5,67,500, Reserve & surplus ₹ 3,87,850, total debt ₹ 5,88,778 out of which ₹ 2,88,778 Eire long term debt, fixed assets are ₹ 11,44,128.Current Ratio = ?
(A) 2.48
(B) 1.92
(C) 3.68
(D) 1.33
Answer:
(D) 1.33
Current Liability = 5,88,778 – 2,88,778 = 3,00,000.
Current Assets = 5,67,500 + 3,87,850 + 5,88,778 – 11,44,128 = 4,00,000.

Question 72.
Company’s EBIT is ₹ 2,99,000 which includes miscellaneous income ₹ 9,000. Its capital employed is ₹ 11,00,000. ROI = ?
(A) 27.18%
(B) 26.36%
(C) 26.18%
(D) 27.36%
Answer:
(B) 26.36%

Question 73.
KJ Ltd. PAT is ₹ 1,06,000. Its equity share capital is ₹ 3,50,000 of ₹ 10 each. The market price is ₹ 45.
P/E Ratio = ?
(A) 12.87
(B) 15.84
(C) 14.85
(D) 150
Answer:
(C) 14.85

Question 74.
EBIT of NS Ltd. is ₹ 2,99,000 which includes miscellaneous income ₹ 9,000. Its capital structure consists of following long term debts: 12% Long-term loan ₹ 1,00,000 14% Debentures ₹ 2,50,000.
Interest Cover = ?
(A) 6.33
(B) 3.36
(C) 3.66
(D) 6.36
Answer:
(D) 6.36

Question 75.
Current assets of Z Ltd. are ₹ 3,70,000 which includes stock ₹ 1,00,000 and prepstid expense ₹ 70,000. Its current liability are ₹ 1,60,000 which includes provision for tax ₹ 60,000. Liquid Ratio = ?
(A) 1.25
(B) 1.52
(C) 1.22
(D) 0.95
Answer:
(A) 1.25

Question 76.
KT Ltd. opening stock was ₹ 2,50,000 and closing stock was ₹ 3,75,000. Sales during the year was ₹ 13,00,000 and gross profit ratio was ₹ 25% on sales. Average account payable are ₹ 80,000. Creditors Turnover Ratio = ?
(A) 13.44
(B) 14.33
(C) 13.33
(D) 14.44
Answer:
(A) 13.44

Question 77.
Total sales of OLX Ltd. are ₹ 31,248 out of which 25% Eire cash stiles. Closing balance of debtors are ₹ 9,468. Debtors velocity = ?
(A) 4.2 months
(B) 157 days
(C) 148 days
(D) 4.43 months
Answer:
(C) 148 days

Question 78.
Profit after tax of GB Ltd. was ₹ 3,40,000. Total assets are ₹ 5,94,70,000 out of which 3,57,00,000 was finance from loan funds.
Return on equity = ?
(A) 1.34%
(B) 0.57%
(C) 1.43%
(D) 1.57%
Use the following information to answer next 4 questions.
MNP Ltd. has made plans for the next. The company will employ total assets of ₹ 25,00,000; 30% of assets being financed by debt at an interest cost of 9% p.a. The direct costs for the year are estimated at ₹ 15,00,000 and all other operating expenses are estimated at ₹ 2,40,000. The sales revenue Eire estimated at ₹ 22,50,000. Tax rate is assumed to be 40%.
Answer:
(C) 1.43%

Question 79.
Net profit margin ratio = ?
(A) 10.62%
(B) 11.8%
(C) 15.17%
(D) 11.86%
Answer:
(B) 11.8%

Question 80.
Return on Assets = ?
(A) 12.46%
(B) 15.17%
(C) 11.86%
(D) 10.62%
Answer:
(D) 10.62%

Question 81.
Asset Turnover Ratio = ?
(A) 0.9
(B) 1.1
(C) 1.9
(D) 1.33
Answer:
(A) 0.9

Question 82.
Return on equity = ?
(A) 12.46%
(B) 15.17%
(C) 11.86%
(D) 12.46%
Answer:
(B) 15.17%

Question 83.
N Ltd. gives the following information:
Current Ratio 2.8
Total assets ₹ 60,00,000
Fixed assets ₹ 32,00,000
Current liabilities = ?
(A) ₹ 28,00,000
(B) ₹ 10,00,000
(C) ₹ 18,00,000
(D) ₹ 12,00,000
Answer:
(B) ₹ 10,00,000
Total assets – Fixed assets = Current assets
60,00,000 – 32,00,000 = 28,00,000

2.8x = 28,00,000
x = Current Liabilities = 10,00,000

Question 84.
N Ltd. gives the following information:
Liquid ratio — ₹ 1.6
Current Assets — ₹ 28,00,000
Current Liabilities — ₹ 10,00,000
Stock = ?
(A) ₹ 28,00,000
(B) ₹ 10,00,000
(C) ₹ 18,00,000
(D) ₹ 12,00,000
Answer:
(D) ₹ 12,00,000

Question 85.
S Ltd. gives the following information:
Net working capital — ₹ 2,80,000
Current ratio — 2.4
Liquid ratio — 1.6
Current Assets = ?
(A) ₹ 2,00,000
(B) ₹ 2,80,000
(C) ₹ 4,80,000
(D) ₹ 3,60,000
Answer:
(C) ₹ 4,80,000

24y = x
CA – CL = WC
x – y = 2,80,000
2.4y – y= 2,80,000
1.4y = 2,80,000
y = Current Liabilities = 2,00,000
x = Current Assets 2,00,000 × 2.4 4,80,000

Question 86.
Z Ltd. gives the following information: Capital block to current assets = 3:2 Current Assets = ₹ 8,00,000 Debenture/share capital =1:2
Net profit = 10% of turnover Reserve = 2.5% of turnover Total Sales = ₹ 24,00,000 Share capital = ?
(A) ₹ 3,00,000
(B) ₹ 6,60,500
(C) ₹ 14,00,000
(D) ₹ 6,00,000
Answer:
(D) ₹ 6,00,000

3y = 900,000
y = Debenture 3,00,000
x = Share capital 6,00,000

Question 87.
N Ltd. gives the following information: Fixed assets = ₹ 10,50,000
Fixed assets turnover ratio (on cost of sales) = 2
GP rate on sales = 25%
Sales = ?
(A) ₹ 21,00,000
(B) ₹ 25,00,000
(C) ₹ 26,00,000
(D) ₹ 28,00,000
Answer:
(D) ₹ 28,00,000

x = Cost of sales = 21,00,000
Gross profit is 25% on sales that means 1/3rd or 33.33% on cost.
Gross profit = 21,00,000 × 1/3 = 7,00,000
Cost of sales + Gross profit = Sales
21,00,000 + 7,00,000 = 28,00,000

Question 88.
NS Ltd. gives the following information: Current Ratio = 2.4
Quick Ratio =1.0
Stock = ₹ 5,60,000 Current Assets = ?
(A) ₹ 9,60,000
(B) ₹ 6,90,000
(C) ₹ 4,00,000
(D) ₹ 4,60,000
Answer:
(A) ₹ 9,60,000

Question 89.
SZ Ltd. gives the following information: Fixed Assets = 10,50,000
Current Assets = 9,60,000
Current Liabilities = 4,00,000
Debenture = 4,00,000
Reserve to capital = 0.21
Reserve = ?
(A) ₹ 10,00,000
(B) ₹ 12,10,000
(C) ₹ 2,10,000
(D) ₹ 1,10,000
Answer:
(C) ₹ 2,10,000
Fixed assets + Current assets – current liabilities – debenture Net worth
10,50,000 + 9,60,000 – 4,00,000 – 4,00,000 = 12,10,000

0.21y = x
Capital + Reserve = Net worth
y + x = 12,10,000
y + 0.21y= 12,10,000
1.21y = 12,10,000
y = Capital = 10,00,000
x = Reserve = 10,00,000 × 0.21 = 2,10,000

Question 90.
Gross profit ratio = 20%.
Sales = ₹ 25,00,000;
Stock velocity = 6
Gross profit for the year ended amounts to ₹ 5,00,000. Stock of the year is ₹ 20,000 more than what it was at the beginning of the year. Closing stock = ?
(A) ₹ 10,00,000
(B) ₹ 9,90,000
(C) ₹ 10,10,000
(D) ₹ 10,20,000
Answer:
(C) ₹ 10,10,000

20,00.000 2x + 20,000
19,80,000 = 2x
x = Opening stock = 9,90,000
Closing stock = 9,90,000 + 20,000 = 10,10,000

Question 91.
Debtors velocity = 3 months Sales = 25,00,000
Bills receivable & Bills payable were ₹ 60,000 and 36,667 respectively. Sundry debtors = ?
(A) ₹ 6,25,000
(B) ₹ 5,25,000
(C) ₹ 5,65,000
(D) ₹ 6,65,000
Answer:
(C) ₹ 5,65,000

Question 92.
Creditors velocity = 2 months.
Cost of goods sold = ₹ 20,00,000
Opening stock = ₹ 9,90,000
Closing stock = ₹ 10,10,000
Bills receivable & Bills payable were ₹ 60,000 and 36,667 respectively.
Creditors = ?
(A) ₹ 3,36,667
(B) ₹ 3,66,333
(C) ₹ 3,30,367
(D) ₹ 3,00,000
Answer:
(D) ₹ 3,00,000

x = Accounts payable = 3,36,667
Creditors + Bills payable = Account payable
x + 36,667 = 3,36,667
x = Creditors = ₹ 3,00,000

Question 93.
Capital gearing ratio = 0.625
Long term debts = ₹ 5,00,000
Reserve to capital = 0.6
Reserve = ?
(A) 8,00,000
(B) 5,00,000
(C) 3,00,000
(D) 4,00,000
Answer:
(C) 3,00,000

Capital + Reserve = Net worth
y+ x 8,00,000
y + 0.6y = 8,00000
1.6y = 8,00,000
y = Capital = 5,00,000
x = Reserve = 5,00,000 × 0.6 = 3,00,000

Question 94.
Proprietary Ratio = 0.6 [Fixed Assets/Proprietary Fund]
Current Assets = ₹ 2,00,000
Current Liabilities = ₹ 80,000
Fixed Assets = ₹
(A) 3,00,000
(B) 1,60,000
(C) 1,80,000
(D) 2,40,000
Use the following information to answer next 5 question.
Gross profit 25% of sales Gross profit = 11,20,000 Shareholders equity = ₹ 20,000 Credit sales to total sales 80%
Total turnover to total assets = 4 times Cost of sales to inventory =10 times
Average collection period = 5 days, assume 365 days in year.
Current ratio =1.5 Sundry creditor = ₹ 60,000
Answer:
(C) 1,80,000

Proprietary Fund + Current Liabilities = Fixed Assets + Current Assets y + 80,000 = x + 2,00,000
y + 80,000 = 0.6y + 2,00,000 0.4 y= 1,20,000
1,20,000
y = Proprietary fund = \(\frac{1,20,000}{0.4}\)= 3,00,000
x = Fixed assets = 3,00,000 × 0.6 = 1,80,000

Question 95.
Stock = ?
(A) 36,000
(B) 32,000
(C) 40,000
(D) 42,000
Answer:
(A) 36,000
Calculation of sales & cost of goods sold:

Sales = 4,80,000
Sales – Gross Profit = Cost of sales
4,80,000 – 1,20,000 = 3,60,000

Calculation of current assets:
\(1.5=\frac{\text { Current Assets }}{60,000}\)
Current Assets = 90,000
Calculation of cash:
Cash + Sundry Debtors + Inventory Current Assets
Cash + 5,260 + 36,000 = 90,000
Cash = 48,740

Question 96.
Debtors = ?
(A) 5,260
(B) 5,620
(C) 6,520
(D) 2,650
Answer:
(A) 5,260
Calculation of sales & cost of goods sold:

Sales = 4,80,000
Sales – Gross Profit = Cost of sales
4,80,000 – 1,20,000 = 3,60,000

Calculation of current assets:
\(1.5=\frac{\text { Current Assets }}{60,000}\)
Current Assets = 90,000
Calculation of cash:
Cash + Sundry Debtors + Inventory Current Assets
Cash + 5,260 + 36,000 = 90,000
Cash = 48,740

Question 97.
Current Assets = ?
(A) 1,20,000
(B) 1,10,000
(C) 1,00,000
(D) 90,000
Answer:
(D) 90,000
Calculation of sales & cost of goods sold:

Sales = 4,80,000
Sales – Gross Profit = Cost of sales
4,80,000 – 1,20,000 = 3,60,000

Calculation of current assets:
\(1.5=\frac{\text { Current Assets }}{60,000}\)
Current Assets = 90,000
Calculation of cash:
Cash + Sundry Debtors + Inventory Current Assets
Cash + 5,260 + 36,000 = 90,000
Cash = 48,740

Question 98.
Cash = ?
(A) 48,470
(B) 48,740
(C) 44,870
(D) 47,470
Answer:
(B) 48,740
Calculation of sales & cost of goods sold:

Sales = 4,80,000
Sales – Gross Profit = Cost of sales
4,80,000 – 1,20,000 = 3,60,000

Calculation of current assets:
\(1.5=\frac{\text { Current Assets }}{60,000}\)
Current Assets = 90,000
Calculation of cash:
Cash + Sundry Debtors + Inventory Current Assets
Cash + 5,260 + 36,000 = 90,000
Cash = 48,740

Question 99.
Total of Balance Sheet = ?
(A) 1,20,000
(B) 1,40,000
(C) 1,30,000
(D) 1,25,000
Answer:
(A) 1,20,000
Calculation of sales & cost of goods sold:

Sales = 4,80,000
Sales – Gross Profit = Cost of sales
4,80,000 – 1,20,000 = 3,60,000

Calculation of current assets:
\(1.5=\frac{\text { Current Assets }}{60,000}\)
Current Assets = 90,000
Calculation of cash:
Cash + Sundry Debtors + Inventory Current Assets
Cash + 5,260 + 36,000 = 90,000
Cash = 48,740

Question 100.
When the current ratio is 2:5, and the amount of current liabilities is ₹ 25,000, what is the amount of current assets?
(A) ₹ 62,500
(B) ₹ 12,500
(C) ₹ 10,000
(D) None of these
Answer:
(C) ₹ 10,000

Question 101.
When quick ratio is 1.5:1 and the amount of quick assets ₹ 30,000, what is the amount of quick liabilities?
(A) ₹ 20,000
(B) ₹ 50,000
(C) ₹ 45,000
(D) ₹ 30,000
Answer:
(A) ₹ 20,000

Question 102.
When opening stock is ₹ 50,000, closing stock ₹ 60,000, and cost of goods sold ₹ 2,20,000, the stock turnover ratio is ………..
(A) 2 times
(B) 3 times
(C) 4 times
(D) 5 times
Answer:
(C) 4 times

Question 103.
When net sales for the year are ₹ 2,50,000 and debtors ₹ 50,000, the average collection period is:
(A) 60 days
(B) 45 days
(C) 42 days
(D) 73 days
Answer:
(D) 73 days

Question 104.
Given net profit ₹ 150,000, preference dividend ₹ 25,000, taxes ₹ 10,000 and number of equity shares 1,00,000. What is the Earning per Share (EPS)?
(A) ₹ 1.50
(B) ₹ 1.25
(C) ₹ 1.15
(D) None of these
Answer:
(C) ₹ 1.15

Question 105.
When net profit is ₹ 2,25,000, taxes ₹ 25,000 and net worth ₹ 10,00,000 what is the rate of return on shareholders’ equity
(A) 22.5%
(B) 2096
(C) 2596
(D) Cannot be calculated
Answer:
(B) 2096

Question 106.
Accounting information given by a company:
Total assets turnover 3 times
Net Profit margin 1096
Total assets ₹ 1,00,000
The net profit is:
(A) ₹ 10,000
(B) ₹ 15,000
(C) ₹ 25,000
(D) ₹ 30,000
Answer:
(D) ₹ 30,000

Question 107.
Balance Sheet of a company indicates that its current ratio is 1.5. Company’s net working capital is ₹ 1 crore. The Current Assets would amount to
(A) ₹ 3 Crore
(B) ₹ 1.5 Crore
(C) ₹ 4 Crore
(D) ₹ 2.5 Crore
Answer:
(A) ₹ 3 Crore

Question 108.
Earnings after Interest and Tax is ₹ 20 Crore, interest is ₹ 4 Crore, Income Tax is ₹ 16 Crore. Interest Coverage Ratio would be
(A) 10.00
(B) 9.00
(C) 7.50
(D) 5.00
Answer:
(A) 10.00

Question 109.
For the financial year ended as on March 31,2013 the figures extracted from the balance sheet of X Ltd. as under:
Opening Stock ₹ 29,000;
Purchases ₹ 2,42,000;
Sales ₹ 3,20,000;
Gross Profit 25% of Sales.
Stock Turnover Ratio will be :
(A) 8 times
(B) 6 times
(C) 9 times
(D) 10 times
Answer:
(A) 8 times

Question 110.
If credit sales for the year is ₹ 5,40,000 and Debtors at the end of year is ₹ 90,000 the Average Collection Period will be ………….. ?
(A) 30 days
(B) 61 days
(C) 90 days
(D) 120 days
Answer:
(B) 61 days

Question 111.
Given the following information:


The acid test ratio = ?
(A) 75%
(B) 1.85 times
(C) 1.01 times
(D) 55%
Answer:
(A) 75%

Question 112.
Given the following information:

(A) 8.62
(B) 5.56
(C) 7.52
(D) 4.54
Answer:
(D) 4.54

Question 113.
Determine a firm’s total asset turnover if its net profit margin is 5%, total assets is ₹ 80,00,000 and ROI is 8%.
(A) 1.60
(B) 2.05
(C) 2.50
(D) 4.00
Answer:
(A) 1.60

Question 114.
X Ltd. has an 8% return on total assets of ₹ 3,00,000 and a net profit margin of 5%. What are its sales?
(A) ₹ 37,50,000
(B) ₹ 4,80,000
(C) ₹ 3,00,000
(D) ₹ 15,00,000
Answer:
(B) ₹ 4,80,000

Question 115.
K Ltd. had sales last year of ₹ 26,50,000, including cash sales of ₹ 2,50,000. If its average collection period was 36 days, its ending accounts receivable balance is closest to (Assume a 365 day year.)
(A) 2,40,000
(B) 2,36,712
(C) 2,63,127
(D) 2,40,721
Answer:
(B) 2,36,712

Question 116.
K Ltd. has debt-to-total assets 0.4. What is its debt-to-equity ratio?
(A) 0.2
(B) 0.6
(C) 0.667
(D) 0.333
Answer:
(C) 0.667

Question 117.
Firm A has a Return on Equity equal to 24%, while firm B has an ROE of 15% during the same year. Both firms have a total debt ratio equal to 0.8. Firm A has an asset turnover ratio of 0.9, while firm B has an asset turnover ratio equal to 0.4. From this we know that
(A) Firm A has a higher profit margin than firm B
(B) Firm B has a higher profit margin than firm A
(C) Firm A and B have the same profit margin
(D) Firm A has a higher equity multiplier than firm B
Use the following information to answer next 5 questions:
XL Ltd. gives the following data:

Answer:
(B) Firm B has a higher profit margin than firm A

Question 118.
Current Ratio = ?
(A) 2.1
(B) 1.1
(C) 0.1
(D) 0.9
Answer:
(B) 1.1

Question 119.
Acid Test Ratio = ?
(A) 0.9
(B) 1.1
(C) 0.75
(D) 0.87
Answer:
(C) 0.75

Question 120.
Debtors Velocity = ?
(A) 9 days
(B) 24 days
(C) 4 days
(D) 15 days
Answer:
(D) 15 days

Question 121.
Inventory Turnover Ratio =
(A) 7
(B) 14
(C) 18
(D) 9
Answer:
(B) 14

Question 122.
Net trade cycle is
(A) 35 days
(B) 5 days
(C) 20 days
(D) (11) days
Use the following information to answer next 4 questions:

Gross profit for the year amounts to ₹ 10,00,000. Closing stock of the year is ₹ 40,000 above the opening stock. Bills receivable amount to ₹ 1,20,000 and Bills payable to ₹ 73,333.
Answer:
(D) (11) days

Question 123.
Sales = ?
(A) 52,50,000
(B) 47,50,000
(C) 40,00,000
(D) 50,00,000
Answer:
(D) 50,00,000

Question 124.
Sundry debtors = ?
(A) 12,50,000
(B) 11,50,000
(C) 11,30,000
(D) 12,30,000
Answer:
(C) 11,30,000

Question 125.
Closing stock = ?
(A) 19,80,000
(B) 20,20,000
(C) 19,60,000
(D) 20,40,000
Answer:
(B) 20,20,000

Question 126.
Sundry creditors ?
(A) 6,73,333
(B) 6,66,667
(C) 6,00,000
(D) 5,73,667
Answer:
(C) 6,00,000

Question 127.
From the information given below calculate the amount of fixed assets. Fixed assets to proprietors fund = 0.75 Net Working Capital = ₹ 6,00,000
(A) 17,50,000
(B) 18,00,000
(C) 17,00,000
(D) 18,50,000
Answer:
(B) 18,00,000

Question 128.
If a firm has ₹ 100 in inventories, a current ratio equal to 1.2, and a quick ratio equal to 1.1, what is the firm’s Net Working Capital?
(A) ₹ 10
(B) ₹ 100
(C) ₹ 200
(D) ₹ 1,200
Answer:
(C) ₹ 200

Question 129.
Given the following information, calculate the company’s long-term debt.
Current assets: — ₹ 1,25,000
Current liabilities: — ₹ 85,000
Net fixed assets: — ₹ 2,50,000
Total equity: — ₹ 2,00,000
(A) ₹ 3,75,000
(B) ₹ 50,000
(C) ₹ 2,85,000
(D) ₹ 90,000
Answer:
(D) ₹ 90,000

Question 130.
G Ltd. has total current liabilities of ₹ 2,000 and an inventory of ₹ 1,000. If its current ratio is 2.5, then what is its quick ratio.
(A) 2.0
(B) 2.5
(C) 3.0
(D) 3.5
Answer:
(A) 2.0

Question 131.
Dec 2014: Find the current liability from the following:
Current ratio – 2:5 Liquid ratio – 1:5 Prepaid expenses – Nil Stock – ₹ 4,000
(A) ₹ 20,000
(B) ₹ 40,000
(C) ₹ 80,000
(D) ₹ 4,000
Answer:
(A) ₹ 20,000

Question 132.
Dec 2014: In an organization, profit after interest, tax and dividend on preference shares is ₹ 4,00,000. The number of equity shares is 40,000 and the dividend payout ratio is 40%. The dividend per share is —
(A) ₹ 4
(B) ₹ 25
(C) ₹ 10
(D) ₹ 6
Answer:
(A) ₹ 4

Question 133.
Dec 2014: From the following information find the value of closing stock —
Stock velocity: 6 months Gross profit ratio: 25%
Gross profit for the year ended 31 st March 2014: ₹ 1,00,000
Closing stock for the period – ₹ 20,000 more than it was in the beginning of the year.
(A) ₹ 1,50,000
(B) ₹ 1,40,000
(C) ₹ 1,60,000
(D) ₹ 70,000
Answer:
(C) ₹ 1,60,000

Average Stock = 1,50,000
Let Opening stock be = x
Closing stock = x + 20,000

3,00,000 = 2x + 20,000
2,80,000 = 2x
x = Opening stock = 1,40,000
Closing stock = 1,40,000 + 20,000
= 1,60,000

Question 134.
June 2015: The net profit of a company is ₹ 2,00,000, preference dividend ₹ 25,000 and taxes paid ₹ 15,000. Number of equity shares is 1,00,000. The earnings per share (EPS) is –
(A) ₹ 1.5
(B) ₹ 1.6
(C) ₹ 2
(D) ₹ 1.75
Answer:
(B) ₹ 1.6

Question 135.
June 2015: The current ratio of Brave Ltd. is 2:1, while quick ratio is 1.8:1. If the current liabilities are ₹ 40,000, the value of stock will be –
(A) ₹ 12,000
(B) ₹ 6,500
(C) ₹ 8,000
(D) ₹ 10,000
Answer:
(C) ₹ 8,000

Question 136.
June 2015: In an organization, working capital is ₹ 1,00,000 and current ratio 3:1. The value of current assets is –
(A) ₹ 1,50,000
(B) ₹ 1,00,000
(C) ₹ 50,000
(D) ₹ 15,000
Answer:
(A) ₹ 1,50,000

Question 137.
June 2015: Working capital ratio is also known as –
(A) Quick ratio
(B) Debt-Equity ratio
(C) Current ratio
(D) Liquid ratio
Answer:
(C) Current ratio

Question 138.
June 2015: Credit sales of Jump Ltd. for the year is ₹ 12,00,000 and debtors at the end of year ₹ 2,40,000. Assuming 360 days in a year, average collection period will be –
(A) 60 Days
(B) 72 Days
(C) 180 Days
(D) 80 Days
Answer:
(B) 72 Days

Question 139.
June 2015: For the financial year ended 31 st March 2015, the figures extracted from the balance sheet of Excel Ltd. are as under:
Opening stock ₹ 29,000
Closing stock ₹ 31,000
Purchases ₹ 2,42,000
The stock turnover ratio will be –
(A) 12 Times
(B) 15 Times
(C) 9 Times
(D) 8 Times
Answer:
(D) 8 Times
Opening Stock + Purchase – Closing Stock = Cost of goods sold
29.000 + 2,42,000 – 31,000 = 2,40,000

Question 140.
June 2015: Which of the following is a method used in analyzing financial statements –
(A) Variance analysis
(B) Trend analysis
(C) Break-even analysis
(D) Budget analysis
Answer:
(B) Trend analysis

Question 141.
June 2015: In an organization, current ratio is 2.5, liquid ratio 1.5, prepaid expenses nil and stock ₹ 4,000. The amount of current liabilities is –
(A) ₹ 20,000
(B) ₹ 40,000
(C) ₹ 80,000
(D) ₹ 4,000
Answer:
(D) ₹ 4,000

Question 142.
Dec 2015: ……. are necessary for the study of trends and direction of movements in the financial position and operating results of a concern.
(A) Trend ratios
(B) Cash flow statements
(C) Common size statements
(D) Comparative statements
Answer:
(A) Trend ratios

Question 143.
Dec 2015: Current ratio is 2.5 and liquid ratio is 1.5. Working capital is ₹ 75,000. Value of the stock held will be —
(A) ₹ 60,000
(B) ₹ 1,00,000
(C) ₹ 50,000
(D) None of the above
Answer:
(C) ₹ 50,000

Question 144.
Dec 2015: Determine a firm’s total assets turnover, if its net profits margin is 8%, total assets are ₹ 8,00,000 and the return on investment is 14% —
(A) 2.05
(B) 4.00
(C) 1.75
(D) 2.00
Answer:
(C) 1.75
14%/8% =1.75

Question 145.
Dec 2015: Net income of a company after payment of preference dividend was ₹ 63 lakh. The number of equity shares was 1,40,000. The P/E ratio of the company was 8.50 times. Earnings per share and market value per share would be —
(A) ₹ 45 & ₹ 382.50 respectively
(B) ₹ 45 & ₹ 308.20 respectively
(C) ₹ 33.16 & ₹ 281.86 respectively
(D) ₹ 45 & ₹ 5.29 respectively
Answer:
(A) ₹ 45 & ₹ 382.50 respectively
\(\mathrm{EPS}=\frac{63,00,000}{1,40,000}=45\)
Market Price = P/E Ratio × EPS
Market Price = 8.5 × 45
Market Price = 382.5

Question 146.
Dec 2015: In ratio analysis, ‘proforma analysis’ implies —
(A) Making a list of all the present ratios of the firm
(B) Comparison of liquidity ratios with other kind of ratios of the firm
(C) Comparison of the ratios of the firm relating to the performance of the firm
(D) Comparison of the firm’s past and current ratios with future ratios to ascertain the relative strengths and weaknesses in the past and future
Answer:
(D) Comparison of the firm’s past and current ratios with future ratios to ascertain the relative strengths and weaknesses in the past and future

Question 147.
Dec 2015: Match the following:
List-I — List-II
P. Prepaid expenses — 1. Solvency ratio
Q. Sales ratio — 2. Net profit margin X Investment ratio
R. Return on investment — 3. Turnover ratio
S. 100 minus Proprietary — 4. Current asset ratio
Select the correct answer from the options given below —

(B)

Question 148.
Dec2015: Which of the following pairs is correctly matched —
(A) Administrative expenses + Selling and distribution expenses = Operating expenses
(B) (Gross profit 4- Net sales) × 100 = Net profit ratio
(C) Both (A) and (B) above
(D) None of the above
Answer:
(D) None of the above

Question 149.
Dec 2015:
Statement-I:
If any fixed asset remains idle due to abnormal or unusual events, it should be included in capital employed.
Statement-II:
Idle machines and tools required for normal operation of plant would not be included in capital employed.
Select the correct answer from the following
(A) Both statements are correct
(B) Both statements are incorrect
(C) Statement-I is correct, but Statement-II is incorrect
(D) Statement-I is incorrect, but Statement-II is correct
Answer:
(B) Both statements are incorrect

Question 150.
Dec 2015:
Assertion (A):
Accounting ratios reveal the financial position of a concern.
Reason (R):
Accounting ratios are not useful in assessing the operational efficiency. Select the correct answer from the following —
(A) Both A and R are true and R is the correct explanation of A
(B) Both A and R are true, but R is not the correct explanation of A
(C) A is true, but R is false
(D) A is false, but R is true
Answer:
(C) A is true, but R is false

Question 151.
Dec 2015: Return on investment depends on two ratios —
(A) Net profit ratio and capital turnover ratio
(B) Gross profit ratio and net profit ratio
(C) Capital employed ratio and assets turnover ratio
(D) Earnings per share and net profit ratio
Answer:
(A) Net profit ratio and capital turnover ratio

Question 152.
Which of the following pairs is not correctly matched —
(A) Dividend per equity share/Earnings per share = Payout ratio
(B) [Operating profit/Capital employed] × 100 = Return on capital employed
(C) [(Cost of goods sold + operating expenses)/ net sales] × 100 = Operating profit ratio
(D) None of the above
Answer:
(D) None of the above

Question 153.
Dec 2015: Match the following:
List – I — List – II
P. Operating profit 1. Capital employed = …….. + Preference share capital
Q. Liquid liabilities — 2. ……….. = Gross profit – Operating expenses
R. Capital employed 3. Quick assets = Quick ratio × ………
S. Equity share capital — 4. Fixed assets ratio = fixed assets ÷
Select the correct ans were from the options given below —

Answer:
(A)

Question 154.
Dec 2015: Which of the following pairs is correctly matched —
(A) Profitability ratios – Expenses ratios
(B) Activity ratios – Total assets turnover ratio
(C) Both (A) and (B) above
(D) None of the above
Answer:
(B) Activity ratios – Total assets turnover ratio

Question 155.
Return on investment is also known as —
(A) DuPont chart
(B) Activity ratio
(C) P/V ratio
(D) Market test ratio
Answer:
(A) DuPont chart

Question 156.
Dec 2015:
Assertion (A):
Higher the gross profit ratio, the better it is. Reason (R):
A low gross profit ratio indicates unfavourable trend in the form of reduction in selling prices.
Select the correct answer from the following
(A) Both A and R are true and R is the correct explanation of A
(B) Both A and R are true, but R is not the correct explanation of A
(C) A is true, but R is false
(D) A is false, but R is true
Answer:
(A) Both A and R are true and R is the correct explanation of A

Question 157.
Dec 2015: Equity share capital: ₹ 30 lakh (30,000 shares of ₹ 100 each); 9% preference shares: ₹ 10 lakh; profit before tax: ₹ 24.46 lakh and tax rate 30%. Earnings per share will be —
(A) ₹ 54.07
(B) ₹ 81.53
(C) ₹ 78.53
(D) ₹ 57.07
Answer:
(A) ₹ 54.07

Question 158.
Dec 2015: Financial statement of X Ltd. shows the following data —
Opening stock — 1,50,000
Total purchases (including cash — 10,50,000
purchases of — ₹ 1,75,000)
Closing stock — ₹ 1,20,000
Stock turnover ratio is —
(A) 6.70 times
(B) 8 times
(C) 7.2 times
(D) 9 times
Answer:
(B) 8 times

Question 159.
June 2016: In financial analysis, ‘time series analysis’ refers to —
(A) Making a time series of various ratios to assess a firm’s profitability
(B) A graphical comparison of a firm’s sources of finance
(C) The comparison of financial ratios over a period of time to assess the direction of change and the financial performance of a firm
(D) A comparison of time values for various ratios of a firm
Answer:
(C) The comparison of financial ratios over a period of time to assess the direction of change and the financial performance of a firm

Question 160.
June 2016: If average collection period is 15 days and average account receivables is ₹ 45,000, the total amount of credit sales will be (assume 360 days in a year) —
(A) ₹ 10,80,000
(B) ₹ 16,20,000
(C) ₹ 6,75,000
(D) ₹ 1,87,500
Answer:
(A) ₹ 10,80,000

Question 161.
June 2016:
Cost of goods sold — 4,00,000
Admin. & office exp. — 35,000
Selling & distribution exp. — 45,000
Net credit sales — 4,75,000
Cash sales — 1,25,000
Operating profit ratio will be —
(A) 30%
(B) 35%
(C) 20%
(D) 25%
Answer:
(C) 20%

Question 162.
June 2016: Current liabilities of a firm are ₹ 1,50,000. Its current ratio is 3:1 and liquid ratio is 1:1. The value of stock will be —
(A) ₹ 3,00,000
(B) ₹ 4,50,000
(C) ₹ 2,50,000
(D) ₹ 1,50,000
Answer:
(A) ₹ 3,00,000

Question 163.
June 2016:
Assertion (A):
A current ratio of 2:1 is considered satisfactory as a rule of thumb but it should not be followed blindly.
Reason (R):
The greatest weakness of current ratio is the possibility of window dressing and manipulation.
Select the correct answer from the options given below —
(A) Both A and R are true and R is the correct explanation of A
(B) Both A and R are true, but R is not the correct explanation of A
(C) A is true, but R is false
(D) A is false, but R is true
Answer:
(A) Both A and R are true and R is the correct explanation of A

Question 164.
June 2016:
Stock turnover: 6 times
Total sales: ₹ 3,00,000
Gross profit ratio: 20%
Closing stock: ₹ 4,000 more than opening stock
The opening stock is —
(A) ₹ 36,000
(B) ₹ 38,000
(C) ₹ 40,000
(D) ₹ 42,000
Answer:
(B) ₹ 38,000

Question 165.
June 2016:Which one of the following statements is correct —
(A) Lower debt equity ratio means lower financial risk
(B) Increase in net profit ratio means increase in sales
(C) A higher receivable turnover is not desirable
(D) Interest coverage ratio depends upon tax rate
Answer:
(A) Lower debt equity ratio means lower financial risk

Question 166.
June 2016: Which of the following statement(s) is /are true:
(i) Common size balance sheet is vertical financial analysis
(ii) Financial analysis performed on behalf of shareholders is called internal analysis
(iii) Trend percentage may be used for both balance sheet and profit and loss account.
Select the correct answer from the options given below —
(A) (i) and (ii)
(B) (ii) and (iii)
(C) (i) and (iii)
(D) (ii) only
Answer:
(C) (i) and (iii)

Question 167.
June 2016: From the following financial data, compute stock turnover ratio and stock velocity (assume 360 days in a year) —
Opening stock : — 58,000
Purchases : — 5,02,000
Return outwards : — 18,000
Sales : — 6,53,000
Return inwards : — 13,000
Gross profit :25% on sales
Choose the correct option —
(A) 8 times; 45.62 days
(B) 8 times; 45 days
(C) 10.67 times; 33.75 days
(D) 7.74 times; 46.51 days
Answer:
(B) 8 times; 45 days
Net Purchases = 5,02,000 – 18,000 = 4,84,000
Net Sales 6,53,000 – 13,000 = 6,40,000
Cost of goods sold = 6,40,000 – 1,60,000 (25% profit on sales) = 4,80,000
Opening Stock + Purchases – Closing Stock = Cost of goods sold
58,000 + 4,84,000 – x = 4,80,0000
x = Closing Stock = 62,000

Question 168.
June 2016:
% Preference share capital : — ₹ 3,00,000
Equity share capital : — ₹ 8,00,000
(₹ 10 per share)
Profit after 3096 tax : — ₹ 2,80,000
Market price of equity share : — ₹ 40
The earnings per share and the price
earnings ratio will be —
(A) ₹ 3.50 and 11.43
(B) ₹ 5 and 8
(C) ₹ 4.70 and 8.51
(D) ₹ 3.20 and 12.50
Answer:
(D) ₹ 3.20 and 12.50

\(\mathrm{EPS}=\frac{2,56,000}{80,000}=3.2\)
\(\mathrm{P} / \mathrm{E} \text { Ratio }=\frac{40}{3.2}=12.5\)

Question 169.
Dec2016: Return on investment (ROI) is calculated to measure —
(A) Long-term solvency of business
(B) Earning power of net assets of business
(C) Short-term liquidity position of business
(D) Goods sold and inventory level of business
Answer:
(B) Earning power of net assets of business

Question 170.
Dec 2016: Interest coverage ratio is obtained by dividing EBIT by —
(A) Interest
(B) Tax
(C) Income
(D) Sales
Answer:
(A) Interest

Question 171.
Dec 2016: If price-earnings ratio is 0.05 and earnings per share is ₹ 8, the market price of share will be —
(A) ₹ 120
(B) ₹ 100
(C) ₹ 160
(D) ₹ 0.40
Answer:
(D) ₹ 0.40
Market price = EPS × P/E Ratio = 8 × 0.05 = 0.4

Question 172.
Dec 2016: Sun Ltd. has furnished the following relevant data of financial statements as on 31st March, 2016:
Equity share capital (1,00,000 equity shares of ₹ 10 each) — 10,00,000
General reserve — 2,00,000
15% Debentures — 2,80,000
Current liabilities — 8,00,000
Fixed assets — 30,00,000
Current assets — 18,00,000
Annual fixed cost excluding interest — 2,80,000
Variable cost ratio — 60%
Total assets turnover ratio — 2.5 times
Tax rate — 30%
Earnings per share (EPS) will be —
(A) ₹ 31.35
(B) ₹ 15.80
(C) ₹ 20.00
(D) None of the above
Answer:
(A) ₹ 31.35
Total Assets = Fixed Assets + Current Assets = 30,00,000 + 18,00,000 = 48,00,000

Question 173.
Dec 2016: The relevant data from financial statements of Ross Ltd. as on 31st March, 2016 is given below:
Cash — 1,50,000
Trade receivables — 4,00,000
Investment (short-term) — 3,30,000
Stock — 25,00,000
Prepaid expenses — 50,000
Current liabilities — 10,00,000
The quick ratio will be —
(A) 0.88:1
(B) 0.93 : 1
(C) 3.43 : 1
(D) 3.1 : 1
Answer:
(A) 0.88:1
Quick ratio\(\frac{\text { Liquid assets }}{\text { Current liabilities }}=\frac{8,80,000}{10,00,000}\) = 0.88

Question 174.
Dec 2016: From the books of Raja & Co., following details as on 31st March, 2016 are collected:
Equity share capital — 20,00,000
Retained earnings — 10,00,000
1096 Debentures — 20,00,000
Current liabilities — 10,00,000
Profit before interest & tax — 12,00,000
Interest — 1,60,000
Tax — 3,12,000
The rate of return on capital employed will be —
(A) 3096
(B) 2496
(C) 14.56%
(D) 17.76%
Answer:
(B) 2496
Capital employed = 20,00,000 + 10,00,000 + 20,00,000 = 50,00,000
Return on capital employed = \(=\frac{\text { Operating profit }}{\text { ‘Capital employed }} \times 100=\frac{12,00,000}{50,00,000} \times 100=24 \%\)

Question 175.
Dec 2016: The net profit margin of Rose Ltd. is 896, its total assets are ₹ 6,00,000 and the return on investment is 1896. Total assets turnover will be —
(A) 2.05
(B) 3.15
(C) 2.25
(D) None of the above
Answer:
(C) 2.25
Total assets turnover =\(\frac{18}{8}\)= 2.25

Question 176.
Dec 2016: Which of the following is not a limitation of financial statements —
(A) Financial statements are essentially interim reports and therefore, cannot be final because the final gain or loss can be computed only at the termination of the business
(B) The values ascribed to the assets presented in the statements depend upon the standards of the person dealing with them
(C) Financial statements fail to bring out the significance of non-financial factors
(D) Financial statements serve as a useful guide for the stakeholders of the company.
Answer:
(D) Financial statements serve as a useful guide for the stakeholders of the company.

Question 177.
Dec 2016: A company has annual sales of ₹ 150 lakh entirely on credit. It keeps an average inventory sufficient to meet sales demand for half a month and gives its customers one month credit. Its average current liabilities are ₹ 10 lakh. The company must maintain cash and bank balance to have current ratio of 2. The amount of cash balance will be —
(A) ₹ 1,25,000
(B) ₹ 3,00,000
(C) ₹ 13,75,000
(D) ₹ 7,50,000
Answer:
(A) ₹ 1,25,000


Current Assets = 20,00,000
Inventory = 1,50,00,0000 × 0.5/12 = 6,25,000
(valued at sale price in absence of information about cost)
Debtors = 1,50,00,0000 × 1/12 = 12,50,000
Cash balance = 20,00,000 – 6,25,000 – 12,50,000 = 1,25,000

Question 178.
Dec 2016:
Assertion (A)
Accountants do not take into consideration the price level changes while valuing various assets in different period.
Reason (R)
It is difficult to determine the value of assets, as value of assets changes with change in time.
Select the correct answer from the options given below —
(A) Both A and R are true and R is the correct explanation of A
(B) Both A and R are true but R is not the correct explanation of A
(C) A is true, but R is false
(D) A is false, but R is true
Answer:
(A) Both A and R are true and R is the correct explanation of A

Question 179.
Dec 2016: Gross profit ratio for a firm was 2096 in the year 2015 and 2016 but the net profit ratio was 1596 in the year 2015 and 1296 in the year 2016. The reason for such behaviour could be —
(A) Increase in manufacturing expenses
(B) Increase in indirect expenses
(C) Increase in cost of goods sold
(D) Decrease in sales
Answer:
(B) Increase in indirect expenses

Question 180.
Dec 2016: The capital of Juhi Ltd. is as follows:
10% Preference shares of ₹ 10 each — ₹ 5,00,000
Equity shares of ₹ 100 each — ₹ 7,00,000
Profit (after tax @ 50%) — ₹ 1,55,000
Depreciation — ₹ 60,000
P/E ratio — 12 times
The market price of equity share will be
(A) ₹ 265.71
(B) ₹ 162.86
(C) ₹ 180
(D) ₹ 156
Answer:
(C) ₹ 180

Question 181.
Dec 2016: Match the following:
List -I — List – II
(P) The standard ratio 2:1 is considered satisfactory — (1) Return on assets
(Q) It measures profitability of the firm in terms of assets employed — (2) Current ratio
(R) Ratio which measures long-term solvency of a firm — (3) Gearing ratio
(S) Ratio which indicates how much of the business is funded by borrowings — (4) Debt-equity ratio
Select the correct answer from the options given below —

Answer:
(C)

Question 182.
Dec 2016: Total sales:₹ 24,00,000; Inventory turnover: 4.80 times on basis of cost ratio of goods sold; Gross profit ratio: 25% on cost of goods sold; Closing inventory is ₹ 60,000 more than opening inventory. The amount of opening stock and purchases respectively will be —
(A) ₹ 3,70,000 & ₹ 19,80,000
(B) ₹ 3,45,000 & ₹ 18,60,000
(C) ₹ 3,75,000 & ₹ 19,20,000
(D) None of the above
Answer:
(A) ₹ 3,70,000 & ₹ 19,80,000

Opening stock + Purchases – Closing stock = Cost of goods sold
3,70,000 + Purchases – 4,30,000 = 19,20,000
Purchases = 19,80,000

Question 183.
Dec 2016:
Statement -I
Working capital is a short-term capital which is financed from long-term sources.
Statement – II
Working capital turnover measures the relationship of working capital with sales.
Select the correct answer from the options given below —
(A) Both statements are correct
(B) Both statements are incorrect
(C) Statement-I is incorrect, but Statement-II is correct
(D) Statement-I is correct, but Statement-II is incorrect
Answer:
(C) Statement-I is incorrect, but Statement-II is correct

Question 184.
Dec 2016:
Owners equity : — ₹ 1,00,000
Current debt to total debt : — 0.40
Total debt to owners’ equity : — 0.60
Fixed assets to owners’ equity : — 0.60
Total assets turnover : — 2 times
Inventory turnover : — 8 times
Fixed assets will be —
(A) ₹ 70,000
(B) ₹ 60,000
(C) ₹ 65,000
(D) ₹ 72,000
Answer:
(B) ₹ 60,000

Question 185.
June 2017: Fill in the blank space.
Dividend per share = \(\frac{\text { Dividend per share }}{\text { Market price per share }} \times 100=\)
(A) Payout ratio
(B) Earning yield ratio
(C) Dividend yield ratio
(D) Dividend ratio
Answer:
(C) Dividend yield ratio

Question 186.
June 2017: Proprietor’s net capital employed is known as:
(A) Net Worth
(B) Equity shares
(C) Long-term loans
(D) Fixed assets
Answer:
(A) Net Worth

Question 187.
June 2017: EBIT/Total assets ratio is:
(A) Liquidity ratio
(B) Profitability ratio
(C) Solvency ratio
(D) Turnover ratio
Answer:
(B) Profitability ratio

Question 188.
June 2017: Fill in the blank space.
\(\frac{\text { Cost of Sales }+\text { Operating Exp. }}{\text { Sales }} \times 100=\ldots\)
(A) Sales ratio
(B) Sales operating ratio
(C) Operating ratio
(D) Cost sales ratio
Answer:
(C) Operating ratio

Question 189.
June 2017: Credit sales ₹ 3,00,000, Opening balance of accounts receivable ₹ 50,000 and Closing balance of accounts receivable ₹ 70,000 (assuming 360 days in a year). Debtors turnover ratio will be:
(A) 5
(B) 6
(C) 4
(D) 7
Answer:
(A) 5

Question 190.
June 2017: Short-term solvency is indicated by:
(A) Debtors turnover ratio
(B) Liquid ratio
(C) Price earning ratio
(D) Stock turnover ratio
Answer:
(B) Liquid ratio

Question 191.
June 2017: Match the following:
List – I ———— List – II
(a) Prepaid expenses — (1) Solvency ratio
(b) Sales ratio — (2) Net profit margin × investment ratio
(c) Return on investment — (3) Turnover ratio
(d) 100-Propritary ratio — (4) Current assets

Answer:
(A)

Question 192.
June 2018: The ratio that explains how efficiently companies use their assets to generate sales is:
(A) Revenue asset ratio
(B) Receivable turnover ratio
(C) Income ratio
(D) Fixed Asset turnover ratio
Answer:
(D) Fixed Asset turnover ratio

Question 193.
June 2018: Profit before interest and tax of AB Ltd. was ₹ 3,40,000. Their net fixed assets were ₹ 2,10,00,000 and working capital was ₹ 27,70,000. Return on investments = ?
(A) 1.3496
(B) 0.5796
(C) 1.4396
(D) 1.5796
Answer:
(C) 1.4396
Capital Employed = 2,10,00,000 + 27,70,000 = 2,37,70,000

Question 194.
June 2018: Debtor velocity = 3 months; Sales ₹ 25,00,000; Bills receivable & bills payable were ₹ 60,000 and ₹ 36,667 respectively. Sundry debtors = ?
(A) ₹ 6,25,000
(B) ₹ 5,25,000
(C) ₹ 5,65,000
(D) ₹ 6,65,000
Answer:
(C) ₹ 5,65,000
\(3=\frac{x}{25,00,000} \times 12\)
x = Account receivable = 6,25,000
Debtors + Bills receivable = Account receivable
x + 60,000 = 6,25,000
x = Debtors = 5,65,000

Question 195.
June 2018: Working capital ratio is also known as:
(A) Quick ratio
(B) Current ratio
(C) Debt equity ratio
(D) Liquidity ratio
Answer:
(B) Current ratio

Question 196.
June 2018: For the financial year ended 31st March, 2017, the figures extracted from the balance sheet of EXE Ltd. are as follow:
Opening stock —
Closing stock — 31,000
Cost of goods sold — 2,40,000
The stock turnover ratio will be:
(A) 12 times
(B) 10 times
(C) 8 times
(D) 9 times
Answer:
(C) 8 times

Question 197.
June 2018: Debt service coverage ratio is obtained by dividing net profit before interest and taxes by:
(A) Taxes
(B) Income
(C) Equity
(D) Interest charges
Answer:
(D) Interest charges

Question 198.
June 2018: Working capital will not change if there is:
(A) Increase in current assets
(B) Payment to the creditors
(C) Decrease in current liabilities
(D) Decrease in current asset
Answer:
(B) Payment to the creditors

Question 199.
June 2018: Long term solvency is indicated by:
(A) Debt equity ratio
(B) Proprietary ratio
(C) Fixed assets ratio
(D) All of the above
Answer:
(D) All of the above

Question 200.
Dec2018: Which of the following is not an objective of Management Accounting
(A) To formulate planning and policy
(B) To provide report
(C) To determine the selling price
(D) To assist in decision-making process
Answer:
(C) To determine the selling price

Question 201.
Dec 2018: If Working Capital is ₹ 24 Lakh, Total Debt is₹ 52 Lakh and Long-term Debt is ₹ 40 Lakh, then current ratio will be:
(A) 2:1
(B) 3:1
(C) 0.6:1
(D) 1.9:1
Answer:
(B) 3:1
Current liability = 52 – 40 = 12 lakh; Current assets = 24 + 12 = 36 lakh
Current ratio = \(\frac{36}{12}=3\)

Question 202.
Dec 2018: If Stock, Current Assets and Working Capital are ₹ 25 lakh, ₹ 80 lakh and ₹ 30 lakh respectively, then liquid ratio will be:
(A) 2.67:1
(B) 1.45:1
(C) 1.83:1
(D) 1.1:1
Answer:
(D) 1.1:1
Working capital = Current Assets – Current liabilities
30 lakh = 80 lakh – Current liabilities
Current liabilities = 50 lakh
Liquid assets = 80 lakh – 25 lakh = 55 lakh
Current ratio = \(\frac{55}{50}=1.1\)

Question 203.
Dec 2018: If current ratio is 2.5:1 and Working Capital is ₹ 120 Lakh, then current liabilities are:
(A) ₹ 48 Lakh
(B) ₹ 200 Lakh
(C) ₹ 80 Lakh
(D) ₹ 180 Lakh
Answer:
(C) ₹ 80 Lakh

\(2.5=\frac{x}{y}\)
Working capital = Current Assets – Current liabilities
120 lakh = 2.5y – y
120 lakh = 1.5 y
y = Current liabilities = 80 lakh

Question 204.
Dec 2018: If Average Inventory is ₹ 125 Lakh, Inventory Turnover Ratio is 8 times and Profit is 20% on sales, then amount of sales will be:
(A) ₹ 1,000 Lakh
(B) ₹ 1,200 Lakh
(C) ₹ 800 Lakh
(D) ₹ 1,250 Lakh
Answer:
(D) ₹ 1,250 Lakh

Cost of goods sold = 1,000 lakh
Sales = 1,000 lakh × 125% = 1250 lakh

Question 205.
Dec 2018: Current Ratio is 2.5:1 and Liquid Ratio is 1.5:1. If inventory is ₹ 9,60,000, then the amount of current assets will be:
(A) ₹ 9.6 Lakh
(B) ₹ 14.40 Lakh
(C) ₹ 24 Lakh
(D) ₹ 38.40 Lakh
Answer:
(C) ₹ 24 Lakh

1.5y =2.5y- 9,60,000
y = 9,60,000
x = 9,60,000 × 2.5 = 24,00,000

Question 206.
Dec 2018: Cost of Goods Sold is ₹ 90 Lakh, Purchases are ₹ 96 Lakh and Closing Stock is ₹ 18 Lakh, then Stock Turnover Ratio will be:
(A) 5 times
(B) 6 times
(C) 6.4 times
(D) 4.29 times
Answer:
(A) 5 times

Question 207.
Dec 2018: If Market Price per share, Earning per share and Dividend per share are ₹ 150, ₹ 16.50 and ₹ 15 respectively, then Price Earnings Ratio will be:
(A) 10 times
(B) 9.09 times
(C) 1.1 times
(D) 0.91 times
Answer:
(B) 9.09 times

Question 208.
Dec 2018: Capital Gearing Ratio is categorized as:
(A) Profitability Ratio
(B) Activity Ratio
(C) Long-term Solvency Ratio
(D) Market Test Ratio
Answer:
(C) Long-term Solvency Ratio

Question 209.
June 2019: Dividing net credit sales by average debtors would yield
(A) Current ratio
(B) Return on sales ratio
(C) Debtors turnover ratio
(D) Average receivables
Answer:
(C) Debtors turnover ratio

Question 210.
June 2019: ABC Ltd. has earned 12% returns on total assets of ₹ 8,00,000 and has a net profit ratio of 8%. Sales of the firm shall be:
(A) ₹ 96,000
(B) ₹ 6,40,000
(C) ₹ 12,00,000
(D) ₹ 7,36,000
Answer:
(C) ₹ 12,00,000

Question 211.
June 2019: 9% preference shares of ₹ 10 each ₹ 4,00,000, Equity shares of ₹ 10 each ₹ 12,00,000, Profit after tax ₹ 4,20,000, Equity dividend paid 20%, Market price of equity shares ₹ 25 each. What will be the earnings per share
(A) 3.50
(B) 3.20
(C) 5.40
(D) 9.60
Answer:
(B) 3.20

Question 212.
June 2019: The average creditors are ₹ 74,000, creditors turnover ratio is 4.80. amount of credit purchase will be:
(A) ₹ 15,417
(B) ₹ 3,52,500
(C) ₹ 3,55,200
(D) None of the above
Answer:
(C) ₹ 3,55,200
74,000 × 4.8 = 3,55,200

Question 213.
June 2019: What will be the amount of stock if the current ratio is 2:1 and quick ratio is 1.5:1 and current liabilities are ₹ 90,000
(A) ₹ 55,000
(B) ₹ 1,80,000
(C) ₹ 1,35,000
(D) ₹ 45,000
Answer:
(D) ₹ 45,000

Question 214.
June 2019: Conducted to ensure borrowings capacity of a concern to meet contingencies in near future is:
(A) Long term analysis
(B) Vertical analysis
(C) Short term analysis
(D) Internal analysis
Answer:
(C) Short term analysis

Question 215.
June 2019: A company has an inventory of ₹ 58,400, Debtors of ₹ 48,000 and inventory turnover 6 times. The gross profit margin is 20% on sales and its credit sales are 40% of the total sales. What will be the credit sales
(A) ₹ 3,50,400
(B) ₹ 3,53,440
(C) ₹ 4,38,000
(D) ₹ 1,75,200
Answer:
(D) ₹ 1,75,200
Cost of goods sold = 58,400 × 6 = 3,50,400
GP ratio is 20% on sales that mean it is 25% on cost.
Sales = 3,50,000 + 87,600 = 4,38,000
Credit sales = 4,38,000 × 40% = 1,75,200

Question 216.
June 2019: The following information is given for X Ltd.:
Stock velocity 3.75 months. Gross profit ₹ 80,000 being 20% of sales. The closing stock of the year is ₹ 25,000 more than opening stock. What will be the amount of opening stock and closing stock
(A) ₹ 1,00,000 and ₹ 1,25,000
(B) ₹ 80,000 and ₹ 1,05,000
(C) ₹ 87,500and ₹ 1,12,500
(D) ₹ 85,000 and ₹ 1,10,000
Answer:
(C) ₹ 87,500 and ₹ 1,12,500
Sales = 80,000/20% = 4,00,000
Cost of goods sold = 4,00,000 – 80,000 = 3,20,000
Opening Stock = x
Closing Stock = x + 25,000
Average Stock = (x + x + 25,000)/2
Average Stock = (2x + 25,000)/2
Average Stock = x + 12,500

12,00,000 = 12x+ 1,50,000
x = Opening Stock = 87,500
Closing Stock = 87,500 + 25,000 = 1,12,500

Question 217.
June 2019: A company has the following Current Assets:
Cash — ₹ 40,000
Marketable securities — ₹ 25,000
Debtors — ₹20,000
Inventory — ₹18,000
Total current liabilities were ₹ 65,400 (including the future tax liability of ₹ 4,800 which will be made after one year). What will be the quick ratio of the company
(A) 1.40:1
(B) 1.81:1
(C) 1.57:1
(D) 1.30:1
Answer:
(A) 1.40:1
Quick Ratio = 40,000 + 25,000 + 20,000/65,400 – 4,800 = 85,000/60,600=1.40

Question 218.
June 2019: Closing debtors are ₹ 8,00,000which are 125 percent of opening debtors. Cash sales are 25 percent of total sales. If the debtor’s turnover ratio is 4 times then the amount of total sales will be ………………
(A) ₹ 36,00,000
(B) ₹ 28,80,000
(C) ₹ 38,40,000
(D) ₹ 48,00,000
Answer:
(C) ₹ 38,40,000
Opening debtors = 8,00,000/1.25 = 6,40,000
Average Accounts Receivable = (6,40,000 + 8,00,000)/2 = 7,20,000