Corporate Financial Reporting – Corporate and Management Accounting MCQ

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

Corporate Financial Reporting – Corporate and Management Accounting MCQs

Question 1.
The term ‘EVA’ is used for:
(A) Extra Value Analysis
(B) Economic Value Added
(C) Expected Value Analysis
(D) Engineering Value Analysis
Answer:
(B) Economic Value Added

Question 2.
The New York based financial advisory postulated a concept of economic value added.
(A) Shawn Stewart & Co.
(B) Stem Stewart & Co.
(C) Stem Shawn & Co.
(D) S.S.&Co.
Answer:
(B) Stem Stewart & Co.

Question 3.
If a company’s EVA is negative –
(A) It is destroying share holders wealth even though it may be reporting positive and growing EPS or return on capital employed.
(B) It is destroying the overall cost of capital of the firm.
(C) It is increasing the overall cost of capital of the firm causing low NPV.
(D) It is increasing the overall cost of capital of the firm which can be adjusted by risk premium.
Answer:
(A) It is destroying share holders wealth even though it may be reporting positive and growing EPS or return on capital employed.

Question 4.
Cost of equity share or debt is called:
(A) Related cost of capital
(B) Easy to calculate cost of capital
(C) Specific cost of capital
(D) Burden on the shareholder
Answer:
(C) Specific cost of capital

Question 5.
Corporate Financial Reporting contains:
(1) Qualitative information
(2) Quantitative information
Select the correct answer from the options given below
(A) (1) only
(B) Neither (1) nor (2)
(C) (2) only
(D) Both (1) and (2)
Answer:
(D) Both (1) and (2)

Question 6.
Cost of capital is equal to required return rate on equity in case if investors are only –
(A) Valuation Manager
(B) Common Stockholders
(C) Asset Seller
(D) Equity Dealer
Answer:
(B) Common Stockholders

Question 7.
Corporate Financial Reporting may be defined as –
(A) A process of recording the transactions in systematic manner.
(B) Communication of published financial statement and related information from a business enterprise to all users.
(C) A barometer of health of a business entity.
(D) Recording of financial data relating to business in a significant and orderly manner.
Answer:
(B) Communication of published financial statement and related information from a business enterprise to all users.

Question 8.
Which of the following model/method makes use of beta (P) in calculation of cost of equity?
(A) Risk Adjusted Discount Model
(B) Capital Assets Pricing Method
(C) MM Model
(D) Price Earning Method
Answer:
(B) Capital Assets Pricing Method

Question 9.
A corporate balance sheet is also known as:
(A) Statement of changes in assets and liabilities
(B) Statement of sources and application of funds
(C) Statement of financial condition
(D) Statement of object and reason
Answer:
(C) Statement of financial condition

Question 10.
The cost of equity share or debt is called specific cost of capital. When specific costs are combined, then we arrive at –
(A) Maximum rate of return
(B) Internal rate of return
(C) Overall cost of capital
(D) Accounting rate of return
Answer:
(C) Overall cost of capital

Question 11.
Which of the following method can be used by listed company for preparation of Cash Flow Statement?
(A) Direct Method
(B) Indirect Method
(C) Both (A) & (B)
(D) Either (A) or (B)
Answer:
(B) Indirect Method

Question 12.
EVA = ?
(A) PAT – (Capital Employed × WACC)
(B) NOPAT – (Capital Employed × Ke)
(C) NOPAT – (Capital Employed × WACC)
(D) NOPAT – (Total Assets × Ke × Kd)
Answer:
(C) NOPAT – (Capital Employed × WACC)

Question 13.
A business may incur an operating loss in a given financial year yet has more cash in the bank at the end. A reason for this could be that:
(A) Some fixed assets were sold for cash
(B) Dividends paid were higher this year than last
(C) Payments to creditors were made more promptly
(D) Debtors were allowed a longer period of credit
Answer:
(A) Some fixed assets were sold for cash

Question 14.
Assertion (A):
Cost of share capital would be based upon the expected rate of earnings of a company.
Reason (R); Each investor expects a certain amount of earnings, whether distributed or not from the company in whose shares he invests.
Select the correct answer from the options given below:
(A) A is true but R is false
(B) A is false but R is true
(C) A and R both are 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 15.
All of the following are true regarding the cash flow statement except
(A) This statement explains the causes of the change in the cash balance
(B) Cash outflows are shown in parentheses to indicate that payments must be subtracted
(C) This statement reports information as of a certain date and therefore, is dated like the balance sheet
(D) This statement classifies cash trans-actions as operating, investing, or financing
Answer:
(C) This statement reports information as of a certain date and therefore, is dated like the balance sheet

Question 16.
If we deduct ‘risk free return’ from ‘market return’ and multiply it with ‘beta factor’ and again add ‘risk free return’, the resultant figure will be –
(A) Nil
(B) Risk premium
(C) Cost of equity
(D) WACC of the firm
Answer:
(C) Cost of equity

Question 17.
All of the following are true regarding the purpose of the statement of cash flows except
(A) It is for predicting future cash flows
(B) It is for determining the company’s ability to pay dividends to share-holders and interest and principle to creditors
(C) It is for evaluating management decisions
(D) It is for reporting net income
Answer:
(D) It is for reporting net income

Question 18.
How you will calculate expected dividend ie. dividend at the end of year one?
(A) D1 = [D0(1+g)]
(B) D1 = [D0(1 -1)]
(C) D1 = [D0 × (1-g)]
(D) D1 = [D0+(1-g)](1-t)
Answer:
(A) D1 = [D0(1+g)]

Question 19.
Match the following:
List-I — List-II
P. Cost accounting — 1. Change in working capital
Q. Funds flow statement — 2. Deals with the cost of production, selling & distribution
R. Cash flow statement — 3. Is an important technique of financial analysis
S. Ratio analysis — 4. Cash & cash equivalents
Select the correct answer from the options given below —
Corporate Financial Reporting – Corporate and Management Accounting MCQ 1
Answer:
(B)

Question 20.
Risk free rate is subtracted from expected market return is considered as:
(A) Country risk
(B) Diversifiable risk
(C) Equity risk premium
(D) Market risk premium
Answer:
(D) Market risk premium

Question 21.
Assertion (A):
Cash flow statement enhances the comparability of report.
Reason (R):
Cash flow statement eliminates the effect of using different treatments for same transactions.
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 22.
How the economic value added (EVA) is calculated
(A) It is the difference between the market value of the firm and the book value of equity.
(B) It is the firm’s net operating profit after tax (NOPAT) less cost of capital.
(C) It is the net income of the firm less cost that equals the weighted average cost of capital multiplied by the book value of liabilities and equities.
(D) None of the above is correct
Answer:
(B) It is the firm’s net operating profit after tax (NOPAT) less cost of capital.

Question 23.
Arrange the following categories of cash inflows and cash outflows in the correct order of cash flow statements:
(1) Cash flows from investing activities
(2) Cash flows from financing activities
(3) Cash flows from operating activities.
Select the correct answer from the options given below —
(A) (3), (1), (2)
(B) (1), (3), (2)
(C) (3), (2), (1)
(D) (2), (1), (3)
Answer:
(A) (3), (1), (2)

Question 24.
Which of the following is advantage of EVA
(A) The use of EVA is a substitute for detailed analysis of business drivers.
(B) EVA improves the overall cost of capital.
(C) In some cases, company pay bonuses to the employees on the basis of EVA generated. Thus, it promotes the employees for working hard for generating higher revenue.
(D) EVA improves the skill of financial analyst.
Answer:
(C) In some cases, company pay bonuses to the employees on the basis of EVA generated. Thus, it promotes the employees for working hard for generating higher revenue.

Question 25.
Which one of the following is false
(A) If cash outflows exceed cash inflows on an ongoing basis, the business will eventually run out of cash.
(B) Rapidly expanding companies can sometimes face a cash shortage.
(C) Cash is the lifeblood of a business and without it the business will die.
(D) A profitable company will never run out of cash.
Answer:
(D) A profitable company will never run out of cash.

Question 26.
Which of the following action can be taken to improve EVA
(A) Improve Asset Turnover Ratios
(B) Change the capital structure by sub-stituting lower cost debt for higher cost equity
(C) Both (A) and (B)
(D) Neither (A) nor (B)
Answer:
(C) Both (A) and (B)

Question 27.
Which of the following matters are required to be covered in Management Discussion & Analysis Report
I. Industry Structure & Developments
II. Opportunities and threats
III. Auditors negative remarks
IV. Product-wise performance
V. Risks and concerns
VI. Notes to financial statements VH. SEBI Directions
Select the correct answer from the options given below —
(A) IV, III, V & I only
(B) I, II, III, & VII only
(C) IV,II,V & I only
(D) I, II, IV, VI & VII only
Answer:
(C) IV,II,V & I only

Question 28.
Market value added is the difference between –
(A) EPS and Price Earning per share
(B) Cost of capital and economic value added
(C) The Company’s adjusted value for inflation and book value of various assets
(D) The Company’s market and book value of shares.
Answer:
(D) The Company’s market and book value of shares.

Question 29.
In the audit report, auditor expresses his opinion whether the financial statement
of the company gives in conformity with the accounting principles.
(A) True & fair view
(B) Full & fair view
(C) True & reasonable view
(D) Full & reasonable view
Answer:
(A) True & fair view

Question 30.
represents the economic profits generated by a business above and beyond the minimum return required by all providers of capital.
(A) Shareholder Value Added (SVA)
(B) Economist Value Added (EVA)
(C) Market Makers Value Added (MM VA)
(D) Debt holders Value Added (DVA)
Answer:
(A) Shareholder Value Added (SVA)

Question 31.
Match List-I with List-II:
Corporate Financial Reporting – Corporate and Management Accounting MCQ 2
Answer:
(A)

Question 32.
The auditor of a company is required to give his report in accordance with the
provision …………. of the Companies Act, 2013.
(A) Section 148
(B) Section 143
(C) Section 149
(D) Section 147
Answer:
(B) Section 143

Question 33.
Which of the following is not a objective of financial reporting given by Financial Accounting Standard Board (FASB)?
(A) The information should be useful to both, the present and potential investors.
(B) It should provide information about how management of an enterprise has discharged its stewardship responsibilities to owners for the use of enterprise resource entrusted to it.
(C) It should provide information about the enterprise’s financial performance during a period.
(D) It should forecast future performance and financial position of the enterprise using past data.
Answer:
(D) It should forecast future performance and financial position of the enterprise using past data.

Question 34.
can be defined as the value
created by the activities of a firm, that is, sales less the cost of bought in goods and services.
(A) Economic value added
(B) Value added
(C) Market value added
(D) Shareholders value added
Answer:
(B) Value added

Question 35.
Value added can be defined as -………..
(A) Wealth generated by the owners and shareholders of the business entity
(B) Value added by increasing net profit of the company
(C) Wealth generated by the entity through the collective efforts of capital providers, management and employees
(D) Net increasing in assets of the business organization.
Answer:
(C) Wealth generated by the entity through the collective efforts of capital providers, management and employees

Question 36.
Which of the following is advantage of Value Added Statement
(A) It helps in judging the productivity of the company.
(B) It helps in ascertaining result i e. profit earned or loss suffered in business during a particular period.
(C) It provides up to date information about the various assets that the firm possesses and the liabilities the firm owes
(D) It measures past performance of the business entity and depicts its current financial position.
Answer:
(A) It helps in judging the productivity of the company.

Question 37.
Which of the following is deducted in Value Added Statement in ‘Value Added’ section
(A) Other Income
(B) Replacement Reserve
(C) Deferred tax account
(D) None of the above
Answer:
(D) None of the above

Question 38.
Which of the following is appears in ‘Value Applied’ section in the value-added statement
(A) Decrease in stock
(B) Manufacturing & Other Expenses
(C) Depreciation
(D) All of the above
Answer:
(C) Depreciation

Question 39.
Statement I: EVA measures whether the operating profit is sufficient enough to cover cost of capital.
Statement II: If a company’s EVA is negative it is destroying shareholders’ wealth even though it may be reporting positive and growing EPS or return on capital employed.
Which statement is correct and which statement is false
Corporate Financial Reporting – Corporate and Management Accounting MCQ 3
Answer:
(C)

Question 40.
If we add ‘Cost of Capital’ to ‘Economic Value Added’ we gets -……………..
(A) Profit After Tax
(B) Net Operating Profit After Tax
(C) Gross Value Added
(D) Earnings before Interest and tax
Answer:
(B) Net Operating Profit After Tax

Question 41.
To which type of company the Companies (Auditor’s Report) Order, 2016 (CARO) applies
(A) Banking company.
(B) Insurance company
(C) One Person Company
(D) None of the above
Answer:
(D) None of the above

Question 42.
CARO, 2016 applies to a private limited company being a subsidiary or holding company of a public company, having a paid up capital and reserves and surplus not more than as on the balance
sheet date
(A) ₹ 5 Crore
(B) ₹ 1 Crore
(C) ₹ 2 Crore
(D) ₹ 10 Crore
Answer:
(B) ₹ 1 Crore

Question 43.
CARO, 2016 applies to a private limited company which has total revenue as disclosed in Scheduled III to the Companies Act, 2013 including revenue from discontinuing operations exceeding
during the financial year as per the financial statements.
(A) ₹ 15 Crore
(B) ₹ 100 Crore
(C) ₹ 10 Crore
(D) ₹ 25 Crore
Answer:
(C) ₹ 10 Crore

Question 44.
To which type of company the Companies (Auditor’s Report) Order, 2016 (CARO) applies
1. A private limited company being a subsidiary or holding company of a public company, having a paid up capital and reserves and surplus more than ₹ 2 Crore as on the balance sheet date.
2. A private limited company which have total borrowings exceeding ₹ 2 Crore from any bank or financial institution at any point of time during the financial year.
3. A private limited company which have a total revenue as disclosed in Scheduled III to the Companies Act, 2013 (including revenue from discontinuing operations) less than ₹ 10 Crore during the financial year as per the financial statements.
Select the correct answer from the options given below –
(A) 1 and 2 only
(B) 2 and 3 only
(C) 1 and 3 only
(D) None of the 1, 2 or 3
Answer:
(A) 1 and 2 only

Question 45.
CARO, 2016 shall not apply to the auditor’s report on –
(A) Income statement
(B) Financial statements
(C) Consolidated financial statements
(D) None of the above
Answer:
(C) Consolidated financial statements

Question 46.
As per CARO, 2016 auditor’s report must state whether the company has entered into any non-cash transactions with directors or persons connected with him as contained in of Companies Act, 2013
(A) Section 192
(B) Section 195
(C) Section 292
(D) Section 295
Answer:
(C) Section 292

Question 47.
The Board of every company referred to Section 135 (1), shall ensure that the company spends, in every financial year, at least , of the company made during the 3 immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.
(A) 1% of the profits
(B) 2% of the profit before depreciation
(C) 2% of the average net profits
(D) 5% of the EBIT
Answer:
(C) 2% of the average net profits

Question 48.
Financial statement and Board’s Report shall be sent to every member of the company, to every trustee for the debenture-holder of any debentures issued by the company, and to all persons other than such member or trustee, being the person so entitled, not less than before the date of the meeting.
(A) 10 days
(B) 30 days
(C) 7 days
(D) 21 days
Answer:
(D) 21 days

Question 49.
A copy of the financial statements and Board’s report duly adopted at the AGM shall be filed with the Registrar within of the date of AGM.
(A) 60 days
(B) 30 days
(C) 90 days
(D) 21 days
Answer:
(B) 30 days

Question 50.
The Board of Directors of a company shall approve financial statement and the Board’s report by means of resolutions passed -…………..
(A) By circulation
(B) Shareholders ordinary resolution
(C) At meetings of the Board
(D) E-meeting
Answer:
(C) At meetings of the Board

Question 51.
As per Rule 8 of the Companies (Accounts) Rules, 2014, the Report of the Board shall contain the particulars of contracts or arrangements with related parties Section 188 (1) in the -…………
(A) Form AOC-1A
(B) Form AOC-2
(C) Form AOC-3
(D) Form AOC-4A
Answer:
(B) Form AOC-2

Question 52.
Every listed company and every other public company having a paid up share capital of calculated at the end of the preceding financial year shall include, in the report by its Board of directors, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors.
(A) ₹ 5 Crore or more
(B) ₹  50 Crore or more
(C) ₹ 25 Crore or more
(D) ₹ 10 Crore or more
Answer:
(C) ₹ 25 Crore or more

Question 53.
Which of the following is not one of the underlying principles of the Corporate Governance
(A) Openness
(B) Integrity
(C) Accountability
(D) Acceptability
Answer:
(D) Acceptability

Question 54.
Directors’ responsibilities are unlikely to include:
(A) A duty of care
(B) A duty to propose high dividends for shareholders
(C) A fiduciary duty
(D) A duty to keep proper accounting records
Answer:
(B) A duty to propose high dividends for shareholders

Question 55.
A director of a limited company may not be liable for wrongful trading if he –
(A) Introduced into the balance sheet an asset based on a valuation of its brands sufficient to meet any short-fall.
(B) Took every step to minimize the potential loss to creditors.
(C) Increased the valuation of its inventories to cover any potential shortfall.
(D) Brought in some expected sales from next year into the current year.
Answer:
(B) Took every step to minimize the potential loss to creditors.

Question 56.
Which of the following actions will not help directors to protect themselves from non-compliance with their obligations and responsibilities
(A) Keeping themselves fully informed about company affairs.
(B) Including a disclaimer clause in their service contracts.
(C) Ensuring that regular management accounts are prepared by the company.
(D) Seeking professional help.
Answer:
(B) Including a disclaimer clause in their service contracts.

Question 57.
The corporate governance structure of a company reflects the individual company’s:
(A) Cultural and economic system
(B) Legal and business system
(C) Social and regulatory System
(D) All of the above
Answer:
(D) All of the above

Question 58.
CSR stands for
(A) Company Social Responsibility
(B) Corporate Social Rights
(C) Corporate Social Responsibility
(D) Company Social Rights
Answer:
(C) Corporate Social Responsibility

Question 59.
CSR and corporate governance
represent a between business
and society.
(A) Social climate
(B) Special contract
(C) Special climate
(D) Social contract
Answer:
(D) Social contract

Question 60.
Who are the stakeholders of the business that are concerned with CSR
(A) Governments, employees, communities, partners, competitors
(B) Employees, research agencies, governments, communities, trade organizations
(C) Suppliers, partners, employees, communities, investors, education institutions
(D) All of the above
Answer:
(D) All of the above

Question 61.
Corporate governance can be defined as:
(A) The system used by firms to control the actions of their employees.
(B) The election process used to vote in a new Board of Director.
(C) The corporate compliance system used by the firm.
(D) The system used by firms to identify who the critical stakeholders are for the firm.
Answer:
(C) The corporate compliance system used by the firm.

Question 62.
The company shall obtain a certificate from either the regarding compliance of conditions of corporate governance of the listing agreement and annex the certificate with the director’s report, which is sent annually to all the shareholders of the company.
(A) Auditors
(B) Practicing Company Secretary
(C) Both (A) and (B)
(D) Either (A) or (B)
Answer:
(D) Either (A) or (B)

Question 63.
Which type of director should be the head of the Stakeholders Grievance Committee
(A) Executive director
(B) Non-executive director
(C) Senior most director
(D) Chairman appointed for shareholders meetings
Answer:
(B) Non-executive director

Question 64.
Which type of committee is not required to form for compliance with provisions of Corporate Governance under the Companies Act, 2013 and SEBI Regulations
(A) Audit Committee
(B) Nomination & Remuneration Committee
(C) Stakeholders Grievance Committee
(D) Corporate Governance Committee
Answer:
(D) Corporate Governance Committee

Question 65.
R Ltd. has disbursed a dividend of ₹ 75 on each equity share of ₹ 25. The market price of share is ₹ 200. Corporate tax rate is 40%. Its cost of equity is –
(A) 30.0%
(B) 37.5%
(C) 35.7%
(D) 33.5%
Answer:
(B) 37.5%
75/200 = 0.375 ie. 37.5%

Question 66.
P Ltd. has 1,50,000 equity shares of ₹ 25 each and its current market value is ₹ 150 each. The before tax profit of the company for the year just ended is ₹ 36,36,363. Tax rate is 34%. Cost of equity of P Ltd. –
(A) 10.76%
(B) 12.72%
(C) 10.67%
(D) 13.48%
Answer:
(C) 10.67%
Profit after tax = 36,36,363 – 12,36,363 = 24,00,000
EPS = 24,00,000/1,50,000 = 16 per share
Price Earning Method:
Corporate Financial Reporting – Corporate and Management Accounting MCQ 8

Question 67.
NSZ Ltd. has equity of 15 Million and 10% debentures of 20 Million. Cost of equity is 18% and pre-tax cost of debt is 10%. Company estimates its EBIT for 7 Million. Applicable tax rate is 30%. What is the Economic value added of NSZ Ltd.
(A) 0.088 Million
(B) 0.678 Million
(C) 0.798 Million
(D) 0.533 Million
Answer:
(C) 0.798 Million
Corporate Financial Reporting – Corporate and Management Accounting MCQ 9

Question 68.
Maya Ltd. share beta factor (p)is 1.1214. Dividend paid by the company last year was ₹ 3.60 per share on face value of ₹ 20. The risk free rate of interest on government bonds is 7.5%. The expected rate of return on company equity shares is 13%. What is the cost of equity (Ke) of Maya Ltd.?
(A) 12.89%
(B) 13.67%
(C) 14.52%
(D) 13.03%
Answer:
(B) 13.67%
K=Rf+P(Rm-Rf)
= 7.5 + 1.1214(13-7.5)
= 13.67%

Question 69.
H Ltd. p is 1.8025. Dividend paid by the company last year was ₹ 9 per share on face value of ₹ 30. The risk free rate is 0.061275. Risk premium is 0.0825. Calculate cost of equity capital.
(A) 21%
(B) 6.28%
(C) 14.77%
(D) 12%
Answer:
(A) 21%
Ke = Rf + p (Rm – Rf)
Note: Risk Premium = (Rm – Rf)
= 6.1275 + 1.8025 × 8.25 = 21%

Question 70.
Rao Ltd. earns profit after tax ₹ 3,96,000. Corporate tax is 0.4. Its capital structure consist of equity shares ₹ 9,60,000; 15% Term loan ₹ 4,80,000. Cost of equity is 0.12. its economic value added is –
(A) ₹ 2,66,400
(B) ₹ 12,80,800
(C) ₹ 2,08,800
(D) ₹ 12,80,008
Answer:
(B) ₹ 12,80,800
Corporate Financial Reporting – Corporate and Management Accounting MCQ 10
Corporate Financial Reporting – Corporate and Management Accounting MCQ 11

Question 71.
Following details are submitted by Rajlakhami Ltd.:
EBIT — ₹ 350 lakh
Equity Capital — ₹ 400 lakh
Reserves & Surplus — ₹ 325 lakh
10% Debentures — ₹ 1,000 lakh
Current Assets — ₹ 82 lakh
Cost of Equity — 17.5%
Income Tax Rate 30%
Economic Value Added = ?
(A) ₹ 43.75 lakh
(B) ₹ 40.75 lakh
(C) ₹ 43.57 lakh
(D) ₹ 45.37 lakh
Answer:
(A) ₹ 43.75 lakh
Corporate Financial Reporting – Corporate and Management Accounting MCQ 12

Question 72.
An analyst has calculated economic value added of ₹ 43,750 for Z Ltd. WACC of the company is 11.5% and applicable tax rate is 30%. The company paid interest of ₹ 1,00,000 during the year. Total assets of the company are ₹ 17,50,000. What is profit after tax (PAT) of the company
(A) ₹ 2,45,000
(B) ₹ 1,45,000
(C) ₹ 1,75,000
(D) ₹ 3,15,000
Answer:
(C) ₹ 1,75,000
Corporate Financial Reporting – Corporate and Management Accounting MCQ 13

Question 73.
Ramola Ltd. report its NOPAT ₹ 25,00,000. Its capital employed and economic value added is ₹ 60,00,000 & ₹ 19,00,000 respectively. What is overall cost of capital of Ramola Ltd.?
(A) 10.9%
(B) 11%
(C) 10%
(D) 9.8%
Answer:
(C) 10%
EVA NOPAT – (Capital Employed × WACC)
19,00,000 25,00,000 – (60,00,000 × x)
– 6,00,000 – 60,00,000x
x = 0.1 i.e. 10%

Question 74.
Compute the EVA with the help of following information:
Equity — 10,00,000
Debt (10%) — 5,00,000
Profit after tax — 2,00,000
Risk-free rate of return is 7%. Beta (P) = 0.9, Market rate of return =15%. Applicable tax rate is 40%.
(A) ₹ 57,950
(B) ₹ 57,590
(C) ₹ 57,905
(D) ₹ 59,750
Answer:
(A) ₹ 57,950
Corporate Financial Reporting – Corporate and Management Accounting MCQ 14

Question 75.
Compute the EVA with the help of following information:
Equity — ₹ 15,00,000
Debt (10%) — ₹ 7,00,000
Profit after tax — ₹ 4,00,000
Risk-free rate of return is 7%.
Beta (β) = 0.9
Market rate of return = 15%.
Applicable tax rate is 40%.
(A) ₹ 1,87,020
(B) ₹ 1,78,020
(C) ₹ 1,87,200
(D) ₹ 1,85,200
Answer:
(A) ₹ 1,87,020
Corporate Financial Reporting – Corporate and Management Accounting MCQ 15

Question 76.
If after -tax operating income is ₹1,85,000, weighted average cost of capital is 11%, total assets are ₹ 4,85,000 and total liabilities are ₹ 3,67,000, then economic value added would be –
(A) ₹ 1,42,020
(B) ₹ 1,72,020
(C) ₹ 1,62,020
(D) ₹ 1,52,020
Answer:
(B) ₹ 1,72,020
Capital employed = 4,85,000 – 3,67,000 = 1,18,000
Cost of capital = 1,18,000 × 11% = 12,980
EVA = 1,85,000 – 12,980 = 1,72,020

Question 77.
Following is the information in respect of Sun Ltd.:
Gross sales — 1,250
Discount allowed — 50
Depreciation on plant & machinery — 70
Dividend to equity shareholders — 40
Raw material consumed — 780
Salary and wages — 160
Interest on term loan — 60
Retained profit for the year — 30
Office expenses — 30
Rate at tax is 30%
Value-added = ?
(A) 380 lakh
(B) 390 lakh
(C) 340 lakh
(D) 280 lakh
Answer:
(B) 390 lakh
Corporate Financial Reporting – Corporate and Management Accounting MCQ 16

Question 78.
Following is the information in respect
Value Applied of KYC Ltd.:
Corporate Financial Reporting – Corporate and Management Accounting MCQ 4
What is profit before tax of KYC Ltd.?
(A) ₹ 100 lakh
(B) ₹ 140 lakh
(C) ₹ 170 lakh
(D) ₹ 180 lakh
Answer:
(A) ₹ 100 lakh
Corporate Financial Reporting – Corporate and Management Accounting MCQ 17
Perform reverse working.
Consider only those items that appear before the figure of ‘profit before tax’ in Profit & Loss Statement and also appears in ‘Value Applied.’ section in Value Added Statement.

Question 79.
Following income statement pertains to Brite Ltd.:
Corporate Financial Reporting – Corporate and Management Accounting MCQ 5
Corporate Financial Reporting – Corporate and Management Accounting MCQ 6
Value added = ?
(A) ₹ 1,713 lakh
(B) ₹ 1,600 lakh
(C) ₹ 1,887 lakh
(D) 1 1,800 lakh
Answer:
(D) 1 1,800 lakh

Question 80.
Following income statement pertains to GHG Ltd.:
Corporate Financial Reporting – Corporate and Management Accounting MCQ 7
Operating cost includes ₹ 20,494 lakhs as wages, salaries & other benefits to employees.
Value added =
(A) ₹ 24,811 lakh
(B) ₹ 24,181 lakh
(C) ₹ 24,118 lakh
(D) ₹ 28,114 lakh
Answer:
(C) ₹ 24,118 lakh
Corporate Financial Reporting – Corporate and Management Accounting MCQ 9

Question 81.
Prosperous Bank has a criterion that it will give loans to companies that have an economic value added (EVA) greater than zero for the past three years on an average. Bank is considering lending money to a small company that has characteristics shown below:
(i) Average operating income after tax equals to ₹ 25,00,000 per year for the last 3 years.
(ii) Average operating income after tax equals to ₹ 25,00,000 per year for the last 3 years.
years equals ₹ 75,00,000.
(iii) Weighted average cost of capital appropriate for the company is 10%, applicable for all 3 years.
(iv) Company’s average current liabilities over past 3 years are ₹ 15,00,000.
Economic Value Added ?
(A) 17,00,000
(B) 18,00,000
(C) 19,00,000
(D) 21,00,000
Answers:
(C) 19,00,000
Corporate Financial Reporting – Corporate and Management Accounting MCQ 19