SMB108 WB PDF

IC
FA
I
AN INTRODUCTION TO DIFFERENTIATED LEARNING TOOLS
Participants in flexible learning programs have limitations on the nature of the

time they can spend on learning. Typically they are employed fully or partially,
pursuing higher studies or have other social and familial responsibilities.
Availability of time is a great constraint to these students.
To aid the participants, we have developed four unique learning tools as below:
 Bullet Notes : Helps in introducing the important concepts in each unit
of curriculum, equip the student during preparation of examinations and
placement interviews
 Case Studies : Illustrate the concepts through real life experiences
 Workbook : Helps absorption of learning through questions based on real life nuggets
 PEP Notes : Sharing notes of practices and experiences in the Industry will help the student
to rightly perceive and get inspired to learn concepts at the cutting edge
application level.
Why are these needed?
 Adults learn differently from B. School or college going
students who spend long hours at campus.
 Enhancing analytical skills through application related learning
I
kits trigger experiential learning
FA
 Availability of time is a challenge.
 Career success increasingly depends on continuous learning
and success
What makes it relevant?

IC
 Practitioners can use their real life knowledge and skill to enhance learning skills.
 Immediate visualization of the practical dimension of the concept will offer a rich learning
experience.
How is it useful?
 Through these tools, the learning bytes are right sized for ease of learning for time challenged
participants.
 The content starts from practice and connect to precept making it easy to connect to industry
and retain.
 They can be connected to continuous assessment process of the academic program.
Where does this lead to?
 Helps stay motivated and connected.
 Easier to move ahead in the learning process.
 Will facilitate the student to complete the program earlier than
otherwise.
When is it useful?
 As and when you get 5 to 10 minutes you can read one of these and absorb and comprehend.
Spending more time is your choice.
 You can use the time in travel, waiting for meetings, lunch time, small breaks or at home
usefully.
Accounting &
FinanceI
FA
Workbook
IC
i
© The ICFAI Foundation for Higher Education (IFHE), Hyderabad,
April, 2015. All rights reserved
No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or
transmitted in any form or by any means – electronic, mechanical, photocopying or otherwise – without
prior permission in writing from The ICFAI Foundation for Higher Education (IFHE), Hyderabad.
I
FA
IC
Ref. No.AF-WB-IFHE – 042015
For any clarification regarding this book, the students may please write to The ICFAI Foundation for
Higher Education (IFHE), Hyderabad giving the above reference number of this book specifying chapter
and page number.
While every possible care has been taken in type-setting and printing this book, The ICFAI Foundation
for Higher Education (IFHE), Hyderabad welcomes suggestions from students for improvement in future
editions.
Our E-mail id: cwfeedback@icfaiuniversity.in
ii
INTRODUCTION
Participants in ICFAI University Programs are eager to learn more from practice. They realize that
application orientation can enhance their learning and subsequent usage of management precepts and
practices. Picking out the principle behind real world events is critical to this learning, as also identifying
the alternative/solution using the principle. Towards this end the institution has reengineered the
Workbook.
The Workbook is a set of questions which typically illustrate a real life context from contemporary
corporate happenings and then poses a question to the student for reflection. The narration of question
helps the reader to reinforce the concept and facilitates the student to enhance his/her capabilities in
analyzing and interpreting the conceptual frameworks.
The examples depicting the names of existing persons or companies are taken from news
clippings/published articles from various public domain websites or website of respective companies.
Since live examples reinforce the understanding of the students, the possible responses are connected to
the concepts taught directly or indirectly. In many cases the alternatives provided are choices in a work
situation based on alternative approaches.
These questions provoke the learner to start thinking from the application side and connect to the
knowledge that he will use to solve. Practitioners can connect better thereby improving the learning
experience. This form of assessment improves learning while assessing whereas the conventional form is
more about assessment of learning.
The learning outcomes expected are:

I
FA
1. The examples are linked back to application of theoretical knowledge in the illustrated
real-time situation. This facilitates the student to develop analytical approach in similar
or related situations.
2. Application based approach which enhances absorption and retention significantly.
3. Exposure to the current incidences and situations in relation to important concepts of
the subject.
IC
The Workbook format is also used for Assessment..
iii
DETAILED CURRICULUM
UNIT 1 INTRODUCTION TO FINANCIAL STATEMENTS
Definition of Accounting - Objectives of Accounting: Maintenance of Records for Business

Transactions/Events, Ascertaining whether the Business Operations have been profitable or not,
Depicting the Financial Position of the Business, Providing information to the users of Financial
Information - Accounting Information: Quantitative and Non-Quantitative Information, Accounting
Information System - Sources of Financial Information: Financial Statements, Auditor‟s Reports,
Director‟s Reports, Supplementary Schedules, Other Sources - Double Entry System of Financial
Accounting - Generally Accepted Accounting Principles - Financial Statements - Form and Contents of
Financial Statements - Understanding Financial Statements - Qualitative characteristics of Financial
Statements: Understandability, Relevance, Reliability, Comparability - Users of Financial Statement:
Shareholders/ Investors/Owners, Management, Lenders, Suppliers/Creditors, Employees, Customers,
Government and Other Regulatory Agencies, Research, Others.
UNIT 2 CONCEPTUAL FRAMEWORK OF FINANCIAL ACCOUNTING
Conceptual Framework of Financial Accounting - The Accounting Process: Identification of Transaction,

Preparation of Business Documents, Recording of Transaction in Journal, Posting to Ledger, Preparation
of Unadjusted Trial Balance, Passing of Adjusting Entries, Preparation of Adjusted Trial Balances -
Fundamental Accounting Equation: Implications of Fundamental Accounting Equation- Symbols for
Sources and uses : Nature of Debit and Credit - Types of Accounts: Personal Accounts: Natural Person‟s
Accounts, Artificial Person‟s Accounts, and Representative Personal Accounts ; Real Accounts: Tangible
Real Accounts, Intangible Real Accounts; Nominal Accounts: Assets Account, Liabilities Account,
I
Capital Account, Revenue Account, Expenses Accounts - Rules of Debit and Credit - Recording of
Transactions in Journal : Steps in journalizing, Compound Entry - Ledger – Process of Posting and
FA
Balancing : Format of Ledger, Steps in Ledger Posting, Balancing of Ledger - Sub-Journals or
Subsidiary Books or Special Journals: Sales Journal, Purchase Journal, Sales Returns Journal, Purchase
Returns Journal, Bills Receivable Journal, Bills Payable Journal, Cash Journal : Simple Cash Book,
Double Column Cash Book, Three Column Cash Book, Petty Cash Book, Journal Proper: Opening
Entries, Closing Entries, Transfer Entries, Adjusting Entries, Rectification Entries, Miscellaneous Entries
IC
- Preparation of Trial Balance : Objectives of Preparation of Trial Balance, Construction and Format of
Trial Balance, Computerized Accounting Systems - Passing Adjustment Entries: Accrued Income,
Income Received in Advance, Outstanding Expenses, Prepaid or Unexpired Expenses, Closing Stock,
Depreciation, Bad Debts,, Bad Debts Provision, Provision for discount on Debtors, Provision for
discount on Creditors, Interest on Capital, Interest on Drawings, Goods sent on sale or approval basis,
Manager‟s Commission.
UNIT 3 ELEMENTS OF FINANCIAL STATEMENTS
Distinction between Capital and Revenue Items: Capital and Revenue Expenditure, Deferred Revenue
Expenditure, Capital Receipts and Revenue Receipts - Elements of Financial Statements: The Income
Statement; Concepts relating to Profit Determination: Accounting Period Concept, Realization Concept,
Matching Concept, Conservatism Concept; Manufacturing and Trading Account: Elements of Trading
Account, Closing Entries for Trading Account; Profit And Loss Account: Format of Profit and Loss
Account, Elements In Profit And Loss Account, Closing Entries For Profit And Loss Account,
Preparation of Profit And Loss Account Without Adjustments, Preparation of Profit and Loss Account
With Adjustments - Balance Sheet: Format of Balance Sheet, Elements of Balance Sheet, Concepts
Relating to Balance Sheet: Going Concern Concept, Cost Concept, Convention of Consistency,
Convention of Full Disclosure, Presentation of Financial Statements - Cash Flow Statement
UNIT 4 FINANCIAL STATEMENTS OF COMPANIES
Statutory Requirements Governing Financial Statements: Legal Requirements as to the Submission of

Financial Statements, Legal Requirements as to Form and Contents, Legal Requirements as to
Compliance with Accounting Standards, Other Legal Requirements - Presentation of Profit and Loss
iv
Account/Income Statement: Explanation of Terms Used In the Income Statement, Requirements of
Profit and Loss Account as given in Part II of Schedule VI of the Companies Act, 1956 - Profit and Loss
Appropriation Account: Earnings Per Share, Dividends, Interest on Share Capital, Transfer to Reserves -
Treatment of Special Items: Depreciation, Interest on Debentures, Income Tax, Managerial
Remuneration: In case of Companies having Adequate Profits, In case of Companies not having
Adequate Profits, Computation of Net Profits for Managerial Remuneration, Commission after charging
such Commission - Balance Sheet: Advantages of the Vertical form of Balance Sheet; Detailed
Explanation of Vertical Form of Balance Sheet: Sources of Funds, Application of Funds
UNIT 5 INTRODUCTION TO FINANCIAL STATEMENTS ANALYSIS
Nature of Financial Statement Analysis - Need for Financial Statement Analysis - Importance of
Financial Statement Analysis: Analytical Tool, Forecasting Tool, Diagnostic Tool, Evaluation Tool -
Purpose of Financial Statement Analysis: Assessment of Past Performance and Current Position;
Prospects for the Future - Considerations in Financial Statement Analysis - Information Needs of
Different Users of Financial Statement Analysis: Users with a Direct Financial Interest: Information
needs of Investor, Information needs of Creditors, Managers and Employees, Customers; Users with an
Indirect Financial Interest: Information needs of Regulators, Information needs of Tax authorities -
Sources of Financial Statement Analysis : Reports published by the Company, Stock Exchange Reports,
Business Periodicals and Credit and Investment Advisory Services, Other Sources - Tools and
Techniques of Financial Statement Analysis: Cross-Sectional Analysis: Common-Size Statements,
Financial Ratio Analysis; Time Series Analysis: Year-to-Year Change Analysis, Trend Statements,
Financial Ratios; Cash Flow Analysis, Other Tools - Limitations of Financial Statement Analysis
UNIT 6 FINANCIAL RATIO ANALYSIS I

Importance of Ratio Analysis - Classification of Ratios: Valuation Ratios: Price/Earnings Ratio,
Price/Book Value Ratio, Dividend Payout Ratio, Book Values Per Share; Income Statement Ratios:
FA
Gross Profit Ratio, Operating Profit Ratio, Net Profit Ratio, Earnings Per Share, Fixed Interest Coverage
Ratio, Debt Service Coverage Ratio, Dividend Coverage Ratio; Balance Sheet Ratios: Current Financial
Position, Current Ratio, Liquid or Acid-Test or Quick Ratio, Inventory Turnover or Stock Turnover
Ratio, Debtors or Receivable Turnover Ratio, Creditors/Payable Turnover Ratio, Debt-Equity Ratio,
Fixed Asset Ratio, Return on Investment, Return on Capital Employed (ROCE), Return on Equity; Cash
IC
Flow Statement Ratios: Operating Cash Flow Ratio, Concept of Free Cash Flow, Operating Cash
Flow/Total Debt - Limitations of Financial Ratio Analysis
UNIT 7 BASIC COST TERMS AND CONCEPTS
Types of Costs: By Nature or Element or Analytical, By Functions, By Traceability, By Variability, By

Controllability, By Normality, By Capital or Revenue or Financial Accounting Classification, By Time,
By Identification as part of Inventory, According to Planning and Control, For Managerial Decisions,
Other types of Costs - Cost Units and Cost Centers - Characteristics of Cost Information: Cost Tracing,
Cost Allocation, Cost Driver - Costs for Financial Reporting Purposes - Cost Behavior and Cost
Estimation - Statement of Cost or Cost Sheet: Specimen of Cost Sheet, Treatment of Stock, Treatment of
Scrap, Production Account, Tenders or Quotations
UNIT 8 COST ANALYSIS AND DECISION MAKING
Concept of Relevant Cost and Irrelevant Cost: Characteristics of Relevant Cost - Costs for
Decision Making : Sunk Cost, Variable Cost, Fixed Cost, Opportunity Cost, Out-Of-Pocket Cost,
Differential Cost - Marginal Costing and Differential Cost Analysis: Similarities; Differences - Make
or Buy Decisions - Accept or Reject An Order/Foreign Orders or Exploring New Markets - Purchasing
or Leasing - Sell or Further Process Decision - Product Mix Decision under Capacity Constraint -
Closing Down of Factory or Segment: Dropping or Adding Product Line - Marketing Decisions – Need
for Pricing Decisions, Product, Pricing, Promotion, Place or Distribution - Fixation of Selling Price:
Pricing Under Normal Conditions, Selling Price Below the Marginal Cost, Pricing During Stiff
Competition and Trade Depression - Pricing Methods: Major Considerations In Setting a Price, Cost
Plus Pricing: Limitations of Cost Plus Pricing, Return on Investment Pricing, Contribution-Margin
v
Approach to Pricing, Relationship Between Full Cost and Contribution Margin Pricing, Differential Cost
Pricing: Advantages of Differential Cost Pricing - Selling Agents Vs. Sales Force: Break-even Chart for
Sales Agents Vs. Sales Force - Target Costing
UNIT 9 INTRODUCTION TO FINANCIAL MANAGEMENT
Nature and Objectives of Financial Management - Role of a Finance Manager: Mobilization of Funds;
Deployment of Funds; Managing Working Capital; Dividend Distribution; Other Functions: Control over
the use of Funds, Risk-return Trade-off, Treasury Operations, Foreign Exchange, Financial Structuring,
Maintaining Share Prices, Ensuring Management Control - Interfaces between Finance and Other
Functions: Marketing-Finance Interface; Production-Finance Interface; Top Management-Finance
Interface - Environment of Corporate Finance: The Important Forms of Business Organization: Sole
Proprietorship, Partnership, Companies, Distinction between a Private Company and a Public Company;
Regulatory Framework: Industrial Policy, Industrial Licensing Provisions and Procedures, Regulation of
Foreign Collaborations and Investments, Foreign Exchange Management Act, Competition Act 2002,
Companies Act, 1956, Tax Aspects, Minimum Alternate Tax, Corporate Dividend Tax, Rate of Dividend
Tax, Payment of Dividend Tax, Basis of Charge (Section 115-o (1)), In the event of Non-Payment of Tax
(Section 115P), Rate of Interest, Penalty (Section 271C)
UNIT 10 INDIAN FINANCIAL SYSTEM
Functions Performed By a Financial System: Savings Function, Liquidity Function, Payment Function,
Risk Function, Policy Function - Financial Markets - Money Markets: Call Money Market, Treasury
Bills, Commercial Papers and Certificates of Deposits, Money Market Mutual Funds (MMFs) -
Introduction to Capital Markets: Primary Market: SEBI, Functions and Powers of SEBI, Guidelines as
per SEBI and Companies Act, Types of issue, Private Placement Market, Bought-out Deals; Secondary
I
Market: National Stock Exchange, Trading system, Depositors, Clearing Mechanism, Carry Forward
System, The Settlement Procedure at NSE, Protection of Identity of the Investor - Government Securities
FA
Market :Types of Government Securities: Stock Certificates, Promissory Notes, Bearer Bonds, Others;
Market for Government Securities: Primary Market, Secondary Market, Primary Market in India -
International Capital Markets: The Players, Intermediaries, The Instruments, Equity, Debt Instruments,
Forex Market , Direct Quotation and Indirect Quotation, Value Date Concept, Various Participants in
Forex Market, Derivative Markets, Futures, Options - Financial Institutions; All India Development
IC
Banks: IDBI, IFCI, IIBI, EXIM BANK, SFCs, SIDCs; Investment Institutions: LIC, GIC, UTI, Mutual
Funds; Functions of Reserve Bank of India: Currency Issuing Authority, Government Banker, The
Banker‟s Bank, Exchange Controls, Developmental Activities - Nature of Commercial Banks - Theory of
Banking Operations: Liquidity, Liabilities of Banks, Banking Assets, Lead Bank Scheme, Credit Cards -
Financial Sector Reforms- Privatization: Privatization of Banks, Guidelines for Private Banks, Insurance,
Classification of Insurance, Insurance Regulatory and Development Authority (IRDA) - Classification of
Non-Banking Financial Companies: Investment Trusts or Investment Companies, Nidhis, Merchant
Banks, Hire Purchase Finance Companies, Lease Finance Companies, Housing Finance Companies,
Venture Capital Funding Companies.
UNIT 11 TIME VALUE OF MONEY
Meaning of Time Value of Money - Process of Compounding and Discounting - Future Value of Cash –
Flows: Doubling Period: Increased Frequency of Compounding: Effective Vs. Nominal Rate of Interest;
Future Value of Multiple Cash Flows; Future Value of Annuity - Present Value of Single Cash Flows:
Present Value of Uneven Multiple Cash Flows; Present Value of Annuity; Present Value of Perpetuity
UNIT 12 SOURCES OF LONG-TERM FINANCE
Need for Long-Term Finance - Important Sources of Long-Term Finance: Equity Capital; Preference
Capital; Debenture Capital: Non-Convertible Debentures (NCDs), Fully Convertible Debentures (FCDs),
Partly Convertible Debentures (PCDs), Secured Premium Notes (SPNs); Other Sources of Long-Term
Finance: Term Loans, Internal Accruals, Deferred Credit, Leasing and Hire Purchase, Venture Capital,
Government Subsidies, Sales Tax Deferments and Exemptions - Issue of Securities: Public Issue:
vi
Appointment of the Lead Manager, Preparation of the Prospectus, Appointment of Intermediaries ;
Rights Issue; Private Placement; Bought-Out-Deals; Euro-Issues
UNIT 13 WORKING CAPITAL MANAGEMENT
The Meaning and Need for Working Capital - Description of Current Assets and Current Liabilities -
Objectives of Working Capital Management: Liquidity Vs. Profitability, Choosing the pattern of
Financing - Static and Dynamic View of Working Capital - Factors affecting Composition of Working
Capital: Nature of Business, Nature of Raw Material used, Process Technology used, Nature of Finished
Goods, Degree of Competition in the Market - Interdependence among Components of Working Capital
- Estimation of a Firm‟s Working Capital Needs Using the Operating Cycle: Application of the
Operating Cycle: Raw Material Storage Period, Conversion Period, Finished Goods Storage Period,
Average Collection Period, Average Payment Period - Measures for Evaluation of Working Capital
Management: Liquidity, Availability of Cash, Inventory Turnover, Credit Extended to Customers,
Under-Trading and Over-Trading, Profit Criterion for Working Capital - Working Capital Ratios:
Current Ratio, Quick Ratio, Inventory Turnover Ratio.
I
FA
IC
vii
CONTENTS
Multiple Choice Questions
Unit 1: Introduction to Financial Statements 9

Unit 2: Conceptual framework of Financial Accounting 11
Unit 3: Elements of Financial Statements 13
Unit 4: Financial Statement of Companies 15
Unit 5: Introduction to Financial Statement Analysis 17
Unit 6: Financial Ratio Analysis 20
Unit 7: Basics of cost term concepts 23
Unit 8: Cost Analysis and Decision Making 26
Unit 9: Introduction to Financial Management 29
Unit 10: Indian Financial system 31
Unit 11: Time Value of Money 33
Unit 12: Sources of Long Term Finance 35
Unit 13: Working Capital Management 37
I
Multiple Choice Answers and Explanations
FA
Unit 1: Introduction to Financial Statements 40
Unit 2: Conceptual framework of Financial Accounting 41
Unit 3: Elements of Financial Statements 42
IC
Unit 4: Financial Statement of Companies 43

Unit 5: Introduction to Financial Statement Analysis 44
Unit 6: Financial Ratio Analysis 45
Unit 7: Basics of cost term concepts 46
Unit 8: Cost Analysis and Decision Making 48
Unit 9: Introduction to Financial Management 50
Unit 10: Indian Financial system 51
Unit 11: Time Value of Money 52
Unit 12: Sources of Long Term Finance 53
Unit 13: Working Capital Management 54
viii
MULTIPLE CHOICE QUESTIONS
UNIT 1: INTRODUCTION TO FINANCIAL STATEMENTS
1. Mr Kamal has been hired by Microtech Ltd recently. His job profile includes systematic recording
and classifying of all monetary transactions as and when they occur and reporting the same to his
boss Mr. Ray .He is also required to assist Mr. Ray in summarizing the results of all business
transactions in a specified format after a fixed period of time. The work done by Mr. Ray and Mr.
Kamal in the language of business is known as …
a Recording b. Interpreting
c. Accounting d. Summarizing
e. Classifying
2. Cash crop Ltd deals with marketing of organic foods. It is in urgent need for cash for payment to
suppliers of raw materials .Ready cash available is not sufficient to meet the dues .The chairman
Mr. Ghosh asks for the details of all the short term resources which can be converted to cash
immediately. Which of the following should not be included in the report sent to Mr. Ghosh?
a. Inventories b. Short term loan given
c. Bills receivable d. Cash at bank
e. Reserves I
3. ABCL Ltd purchased a land for setting up a new unit for Rs 1.00 lac in the year 2005. The new
unit runs successfully today and the market price of the land on which it was set up values
FA
Rs.20.00 lakhs in the year 2014. What value of land should be recorded while preparing the
financial statements for the year 2014?
a. Original price at which it was purchased
b. Market price today
IC
c. Average of market price and original price

d. Actual Resale value of the land
e. Market price less than the original price
4. Mr.Khuswant owns a tools and spare parts manufacturing unit. He has recently returned from a
holiday trip abroad and wants to see all the latest financial statements. Which of the following
transactions or events will not appear in the financial statements of the unit?
a. Chairman‟s visit abroad on a holiday amounting to Rs.1,00,000
b. Rs.50,000 cash withdrawn by the chairman for business purpose
c. Rs.50,000 cash withdrawn by the chairman for personal use
d. Salaries and wages of the employees amounting to Rs.2,00,000
e. Cash Award of Rs.20,000 given to the best employee
5. Mr. Sharma has invested Rs.50, 000 into his new business. His total short term and long term
borrowing from banks and other sources amounts to Rs.1, 20,000. He created some fixed assets
worth Rs.1, 00,000 and the remaining balance was kept in cash. Ms Kedaki, the newly appointed
accounts executive is confused regarding the total assets of the company. What will be the total
amount of assets?
a. Rs.70,000 b. Rs.1,20,000
c. Rs.50,000 d. Rs.1,70,000
e. Rs.85,000
9
Accounting & Finance: Workbook
6. The table below shows the income of ABC limited over the last four years. The average annual
amount of dividends paid over the last four years is Rs.3,000 cr
Year Profit (Rs.in crores)

2010 8000
2011 5000
2012 12,000
2013 10,000
What is the ending retained earnings balance?
a. Rs.47, 000 crores b. Rs.35,000 crores
c. Rs.23, 000 crores d. Rs. 7,000 crores
e. Rs.12, 000 crores
Q7 to Q9 are based the information given below
ABC Paints Ltd finalizes its account on 31st March every year. The following information
available from its financial record is used to prepare the financial statements for the FY 2014.
Amount Amount
Particulars (Rs.in Particulars (Rs.in
crores) crores)
Cash 1,200 Debtors 5,600
Cash at bank 2,000 Creditors 4,200
Bills receivable 3,444 Loans given 3,000
Bills payable 2,143 Loans(long term)taken 5,100
Salaries to supervisory staff 350 Sales 10,000
Manufacturing expenses 220 Purchases 2,000
I
Opening stock of paint 500
FA
Closing stock of paint 430
7. ABC Paints wants to arrive at the sum of costs incurred for manufacturing the goods sold during
that period. What according to you is the figure?
a. Rs.2,290 Crores b. Rs.1,940 Crores
IC
c. Rs.2 930 Crores d. Rs.3,150 Crores

e. None of the above
8. The junior accounts executive is confused regarding placement of certain items in the financial
statements of ABC Paints Ltd. Which of the following statements do you think will help them?
a. Bills payable is an asset while bills receivable is a liability
b. Creditors are people who own us money and hence they appear on asset side
c. Salaries to staff is a part of manufacturing expenses and appears on trading account
d. Loans given will appear on liability side along with long term loans taken
e. Cash is current asset and will appear on the asset side
9. Other things remaining the same, if the salaries to the staff are expected to increase by 10% next
year what will be its impact on the financial statements of 2015?
a. There will be increase in the manufacturing expenses
b. There will be decrease in the gross profit
c. There will be increase in the net profit
d. There will be a decrease in the net profit
e. There will be no impact on the profit figure
10. AXY Cements has been profitably operating and has been a market leader for years. However
during the year 2013 its total assets decreased by Rs.1,000 crores and liabilities increased by
Rs.2,000 crores. During the same period, the amount and direction (increase or decrease) of the
period‟s changes in stockholder‟s equity is:
a. Rs.1,000 crores increase b. Rs.3,000 crores increase
c. Rs.3,000 crores decrease d. Rs.1000 crores decrease
e. There will be no change
10
Multiple Choice – Questions
UNIT 2: CONCEPTUAL FRAMEWORK OF FINANCIAL ACCOUNTING
11. ABC bank ltd is conducting an induction program for its new recruits of the accounts department.
The first day was spent in understanding how transactions are recorded in Journals. As a part of
newly recruited member‟s team which of the following statements do you feel is incorrect?
a. Journal entry records a transaction with a debit and a corresponding credit entry
b. It ends with a narration
c. It is prepared only in absence of other subsidiary books
d. It is the book of original entry
e. Transactions in the journal are recorded as and when they occur
12. Britinnko ltd has introduced a new line of cream biscuits with children as their target customers. It
has set aside a budget of Rs.5,000,000 to be introduced into the new line of business. How would
this transaction be recorded in the journal?
a. By Debiting the Britinnko account
b. By Crediting cash account
c. By Debiting capital account
d. By Crediting the capital account
e. No journal entry will be passed as the new line is yet to function
13. ABC Theatre and Film Production Company have taken a loan from Capital Bank of India for
starting a new unit for production of documentaries and social programs for the Indian television.
The Capital Bank of India will appear in their books of account as personal account because …
I
a. It depicts a balance due to bank and requires personal attention
b. It will deal with the bank on regular basis
FA
c. Bank has a group of persons working
d. Bank is a legal entity and is an artificial person
e. Bank has a name like any other person
14. Fair look cosmetics‟ follows the practice of rigorous marketing, research and innovation. As a part
IC
of this policy, the management spends a massive amount of 5 crore rupees on advertisements and 2
crore rupees on innovation and new product development every month. The recording in the
journal of the firm on 30th Sept 2014 for the expenditure of Rs.5 crores will be …
a. Debit advertisement (expense)account and credit cash
b. Credit the advertisement account and debit cash
c. Debit the cash account and credit investment account
d. Credit the new product development account and debit cash
15. Mrs Vinita, the head of the Accounts and Finance department in Bright Airnet realizes that on the
last day of every month there are lots of monetary transactions and that a lot of time is spent on
recording of each transaction separately. She instructed all the accounts executives to record a
single transaction for all accounts affected on the same day for a particular transaction to save time
and duplication of work. Such entries are known as …
a. Complex entry b. Compound entry
c. Multiple entry d. Complicated entry
e. Single point entry
11
16. Getwell hospital has a small accounts department and there has been difficulty in having
consolidated and summarized information at one place. It hires two more people in the accounts
department to prepare ledgers. Which of the following purposes does it serve?
a. Summarizes all the events and transactions of a particular account
b. Records the daily business transactions in a chronological sequence
c. It records all cash transactions in a summarized form
d. Summaries all balances outstanding at a particular date
e. Shows the summarized financial position of the company at a particular date
17. Techno Power Ltd deals in assembling and marketing electrical equipment‟s. It has identified
reliable suppliers of spare parts as well as prospective customers who buy in bulk for resale. For
the current month cash purchases amounted to Rs.50, 000 and cash sales amounted to Rs.1, 00,000
whereas the credit sales and purchases amounted to Rs.40, 000 and Rs.80, 000 respectively. Which
of the following statement is correct regarding their accounting treatment?
a. An amount of Rs 50,000 will be recorded in cash book
b. An amount of Rs 1,00,000 will be recorded in cash book
c. An amount of Rs 40,000 will be recorded in sales journal
d. An amount of Rs 80,000 will be recorded in purchase journal
e. All the above are correct
18. Liberty Leathers has taken 3 buildings on rent to function as factories for production of leather
bags, belts and shoes. It follows a practice of paying rent on 7 th of every month. During the
financial year ending on March 2014 rent account shows a debit balance of Rs.50, 000. Rent for
March is paid on 7th April and amounts to Rs 60,000. Which of the following statements is
incorrect?
I
FA
a. Outstanding rent of Rs.60,000 to be included in current year
b. Financial statements will show rent account total of Rs.1,10,000
c. Outstanding expense of Rs.60,000 will be shown as liability on the balance sheet
d. Rent of Rs.50,000 will not have any impact on profit and loss account
e. None of the statements are incorrect
IC
19. Rosewood Ltd is into cultivation of rose gardens and sells roses worth Rs.60,000 on credit to
Fragrance Pvt ltd. has always been making timely payments of credit sales however during the
current year the sale of his perfume brand hit a record low because of the introduction of new
brand in the market. Fragnance pvt ltd could not recover its production cost and could only pay
Rs.40,000 to Rosewood Ltd. What term will be used to record the remaining amount of Rs.20,000?
a. Debtors account b. Bad debts account
c. Insolvency account d. Credit sales account
e. Uncollectible account
20. Grow Well Limited is a trading company and has branches all over the country. They have been
the market leaders over the years, making huge profits, however they are faced with cash crunch in
the business. The CEO wants to understand the movements of cash and a record of all payments
and receipts of the Company. Which of the following transactions will not have an impact on the
cash book presented to the CEO?
a. Cash deposited into bank b. Goods returned by Kamal
c. Paid rent for the month d. Withdrew cash for personal use
e. Bought machinery for cash
12
UNIT 3: ELEMENTS OF FINANCIAL STATEMENTS
21. Pure and White dairy products Ltd is thinking of replacing its old machine. It buys new machinery
worth Rs.6, 00,000 and spends freight and insurance expenses of Rs.20,000 on the new machinery.
The machinery is expected to increase the profits by 10% every year and the expected life of the
machine is 10 years. Such expenditures are known as …
a. Revenue expenditure b. Capital expenditure
c. Long term expenditure d. Operational expenditure
e. Manufacturing expenditure
22. Bharat Enterprises is in production of washing machines. It orders for 10,000 sheets of metals to
be used in production of the washing machine. However 200 sheets of metal were taken by the
proprietor for personal use. What impact will it have on the financial statements of Bharat
enterprises?
a. No impact on trading account
b. Will be subtracted from purchases in trading account
c. Will be shown on the credit side of trading account
d. Will be shown in debit side of profit and loss account as drawings
e. Will be shown on credit side of profit and loss account
23. Health India Ltd is considering expanding its existing line by adding a new variety of health drink
for the elderly people .After the initial market survey and research it goes ahead with the
production. Entering a new line has major expenses. Which of the following expenses is deferred
revenue expenditure?
I
a. Expenses incurred on a visit abroad for importing new machinery
FA
b. Purchase price of new machinery
c. Heavy advertisement incurred to launch a product
d. Purchase price of the raw material
e. Salaries of health specialists hired
IC
24. Ajanta group Ltd, with its headquarters at Agra, is into manufacturing of marble slabs and tiles.
The marketing head of the company had been on a country wide tour, looking out for marketing
avenues in other parts of the country. After his return he asks to see the income statement of the
company with the intention of stepping up the marketing expenses and for understanding its
impact on profit. However, he finds some error in the income statement presented to him .What
could be the error?
a. Salaries and incentives of the salesmen shown as an expense in the profit and loss
account
b. Free samples distributed shown as expense in profit and loss account
c. Return of marble tiles from a builder subtracted from sales in trading account
d. Packaging charges of marble showpieces shown as expense in trading account
e. Transport charges of marble slabs to a construction site shown as expense in profit and
loss account
25. Fly India have recently entered the aviation industry and completed their first year of operation on
March 31st 2014. They follow the practice of providing free meals and refreshments to the crew on
board. The staff gets their salaries after deduction of income tax and provident fund. The total
amount of salaries as reflected in the income statement will be
a. Salaries after deducting tax
b. Salaries with provident fund added back
c. Actual Salaries paid
d. Salaries with free meals and refreshment cost added back
e. Total Salaries inclusive of all deductions and staff cost added back
13
26. With reference to Q25 which of the following do you think will not have any effect on the profit
and loss account statement?
a. Purchase cost of the jet plane
b. Jet fuel expenses
c. Salaries to air hostesses and pilots
d. Salaries to cleaning staff and maintenance staff
e. Revenue from catering services and onboard shopping
27. Dubai World is a mega company with over $100 billion of assets that is facing a financial
nightmare as it does not have enough funds to pay $4 billion of dues to the banks and bondholders.
Most of its funds are stuck up in real-estate which cannot be easily liquidated to pay the current
liabilities. As one of the measures to focus on liquidity it decides to rearrange the items of balance
sheet .Which of the following statement is incorrect in the above context?
a. The assets which are easily convertible into cash are shown as current assets
b. Current liability will be shown separately from long term liability
c. Permanent assets meant for long term use are shown after current assets
d. Capital is shown first followed by short term liability
e. Liability payable on a priority basis comes first
Q28 – Q30 are based on the information given below
Fabric fashions Mills Ltd has had a successful year in terms of growth and sales .It wants to
determine the exact figure of profit and get an overview of its financial position, to purchase
new machineries for block printing which is the current fashion trend. The following
information is available from its financial records of the previous year:
I
FA
Amount Amount
Particulars Particulars
(Rs.in lakhs) (Rs.in lakhs)
Short term Advances given to
Cash at bank 2,800 suppliers 3,000
Salaries to garment designers 3,000 Personal Loans taken from State
Salaries to weavers 2,100 Bank of India (to be paid back in
IC
Maintenance expenses 550 20 years) 50,000

Coloring and dyeing expenses 15 Purchase price of land for setting
Transport cost of bringing cotton from 10 up factory 10,000
the supplier Sales of kids garments 2,000
Cost of sacs to pack cotton 5 Sale of women kurtis 5,000
Cost of price tags 2 Purchase of cotton and thread 4,300
Cost price of machinery 1 11,000 Opening stock of cotton 100
Cost price of machinery 2 15,000 Closing stock of cotton 30
28. What do you think will be the amount of total cost of raw materials?
a. Rs.4,300 lakhs b. Rs.4,315 lakhs
c. Rs.4,415 lakhs d. Rs.4,385 lakhs
29. Which of the following expenses are not relevant for determining the net profit?
a. Sales of kids‟ garments b. Purchase of cotton and thread
c. Opening stock of cotton d. Cost of price tags
e. Advance given to suppliers
30. What amount will be shown under fixed assets in balance sheet?
a. Rs.26,000 lakhs b. Rs.50,000 lakhs
c. Rs.53000 lakhs d. Rs.36000 lakhs
14
UNIT 4: FINANCIAL STATEMENT OF COMPANIES
31. Reserve Bank of India has been continuously making efforts to ensure convergence of its
supervisory norms and practices with the international best practices with a view to aligning
standards adopted by the Indian banking system with global standards. In this direction, it feels it
is necessary to put in place appropriate arrangements to identify compliance by banks, as also gaps
in compliance, with the Accounting Standards (AS) issued by the Institute of Chartered
Accountants of India (ICAI) and steps to eliminate / reduce gaps. Which of the following
statements are incorrect, with reference to the above context?
a. The deviation from accounting standards is strictly not allowed
b. Deviation from accounting standards is allowed in some cases
c. The reasons for such deviation should be disclosed in separate report
d. The financial effect if any arising from such deviation should be disclosed
e. All the above is correct
32. Companies Act was revised in the year 2013 and the listed companies now need to make
substantial changes to their directors‟ remuneration report. The changes in directors‟ remuneration
reporting legislation, effective for periods ending on or after 30 September 2013, represented the
biggest change in the field since the original legislation came into effect over a decade ago. The
objective of this revision in Companies Act was …
a. For greater transparency in corporate governance.
b. To serve as an important source of public information,
c. Form of social accounting.
d. To provide shareholders more power through binding votes, so that they can hold
companies and directors to account.
I
FA
e. All the above is correct
33. Soft sell Info Systems Ltd is into development of software products. It follows the policy of
preparing a detailed statement of expenses and revenues clearly divided into trading account, profit
and loss account and Profit and Loss appropriation account. What will not form a part of the Profit
and Loss appropriation account?
IC
a. Accumulated profit carried forward from the previous year

b. Current year profits
c. Preference dividend
d. Transfer to reserve
e. Operating expenses
34. The total called up equity capital of Hindustan Heavy products Ltd is Rs 10 crores. However
amount to the extent of Rs.50,000 has not been paid by the shareholders till the due date. On
December 1, 2013, Directors of the company propose a dividend of 10% to its shareholders .The
dividend is payable on December 31st 2013. What will be the amount of dividend?
a. Rs.10,00,000 b. Rs.99,95,000
c. Rs.9,50,000 d. Rs.95,000
e. Rs.1,00,000
35. Fast Track Tyres Ltd uses several types of rubber, fillers and other ingredients, mixed in giant
blenders known as Banbury mixers to produce high performance tyres. It currently has 20 blenders
for the manufacturing of different types of tyres. The company has been depreciating its blenders
every year to be able to replace it at a proper time. The company is in growing stage and has not
been able to declare dividends and is under pressure to declare dividends in the current year.
Which of the following statements reflect the correct policy followed by the company regarding
depreciation?
a. Depreciation is to be calculated in such a way that it leaves adequate profit margin for
declaration of dividends
15
b. Depreciation is to be calculated in such a way that it leaves adequate margin for

managerial remuneration
c. Depreciation is to be calculated as specified by the board of directors
d. Depreciation to be calculated on a basis that has the effect of writing off the asset by
95% of the original cost on the expiry of the specified period
e. Depreciation to be calculated on a basis that has the effect of writing off the asset by
100% of the original cost on the expiry of the specified period
36. For the year ended 31st March 2013 the balance sheet of Pawan motors shows 12% non-
convertible debentures to the extent of Rs.100, 00,000. The interest on debentures is payable every
six months due dates being 31st July and 31st Dec. Trial balance on the same date shows a debit
amount Rs 3,00,000. What are the financial implications?
a. Interest accrued and not due as shown in profit and loss account amounts to
Rs.3,00,000
b. An amount of Rs.3,00,000 is outstanding debenture interest and appears on the
balance sheet
c. Interest accrued and due amounts to Rs.3,00,000 and is shown on the balance sheet
d. An amount of Rs.3,00,000 is outstanding debenture interest and is added to the actual
debenture interest paid in the profit and loss account
e. Interest accrued and not due amounts to 3,00,000 and is shown on the balance sheet
37. The profits of Super Lever Ltd has been soaring and so was the remuneration of managing
director Mr. Subash Sharma as his package includes a commission of 2% on the net profits . As
an assistant to the HR Head, which of the following do you think is irrelevant for arriving at total
package of Mr. Sharma?
a. Revenue from sale of plant
I
b. Subsidy from central government
FA
c. Any compensation made voluntarily d. General expenses
e. Interest on debentures
38. The share capital of TCCS Solutions stands at Rs.605 crores. The Company has made huge profit
of Rs.500 crores and the directors propose to declare a dividend of 15% on the equity shares.
Provision for taxation for the year is 20%. The amount of provision that will appear in the balance
IC
sheet of the company on December 2013…

a. Opening balance of the provision as shown in the trial balance
b. Opening balance plus proposed dividends plus provision for taxation
c. Opening balance plus proposed dividends
d. Opening balance plus provision for taxation
39. Like Me Cosmetics Ltd had released its financial statements for the year 2013 .However A
material overstatement in closing inventory was discovered by the stores and the purchase
department after the issue of year-end Financial statements by the Company to the public. What
effect did this error have on the year-end financial statements?
a. Current assets would be understated b. Fixed assets would be understated
c. Current assets would be overstated d. Gross profit would be understated
e. There will be no impact
40. Aditya Motors is a Delhi based company and during the year 2013 they have invested a huge
amount in setting up a new unit at Noida. Work has not been completed and the unit may become
functional only the next year but the chief accountant is of the view that the company has already
incurred a capital investment and such investments must be shown in the balance sheet. Under
what head do you think the amount would be recorded in the balance sheet the company?
a. Assets under progress b. Incomplete Asset class.
c. Capital WIP d. Actual asset
e. It should not be shown in the balance sheet
16
UNIT 5: INTRODUCTION TO FINANCIAL STATEMENT ANALYSIS

41. The CEO of Balaji Tele products Ltd is a taskmaster and has called for a meeting with the Finance
department heads with the agenda of identifying strengths and weakness of the firm, diagnosis of
managerial, operating and other problem areas, developing a forecasting tool for future financial
condition and finally narrowing the areas of uncertainty in the decision making process. What do
you think would be the suggestion of the departmental heads?
a. Preparation of revised financial statements
b. Simplification of financial data in the financial statements
c. Analysis and interpretation of the financial statements
d. Preparation of financial statements at frequent intervals
e. Systematic classification of data in the balance sheet
42. Mr. Sudanshu has been hired by Bharat Motors Ltd recently .He is required to analyze and
interpret the data contained in the financial statements of the company and assist the board of
management in decision-making. Which of the following tools do you think will not serve his
purpose?
a. Financial ratio analysis b. Trend analysis
c. Cash flow analysis d. stock exchange reports
e. Common size statements
43. Mrs Kedaki is considering investing money in the equity shares of Reliance Communications Ltd.
which is India‟s second largest telecom operator. She goes through all the reports published by the
company as she feels that the information needs of the equity shareholders are more
comprehensive than other users of financial data. Which of the following is not true with relevance
to the above context?
a.
I
Equity share holders safeguard both preference shareholders and creditors
FA
b. Equity investors are the major fund providers
c. Equity shareholders are the major risk takers
d. Equity investors are entitled to rewards only after meeting the claims of preference
shareholders
e. The rewards received to equity shareholders is lower than the preference shareholders
IC
when the company prospers

44. Relook Cosmetics and Creams Ltd want to raise capital from external sources for introduction of a
new line of herbal products. It finalizes on raising a loan of Rs 10 crore from Bharat Bank of India.
How do you think will Bharat Bank of India take a decision on extending the credit?
a. Assessment of the past performance
b. Assessment of the current position
c. Assessment of Company‟s future prospects
d. Assessment of Short term liquidity and long term solvency
e. All the above
45. Technology Solutions Ltd has announced rising of Rs.64 million by issue of equity shares in the
next month. Mr. Khanna who is a retired government officer is considering investing his savings in
the shares of the company; however he wants to be sure of his decision and is searching for all
possible sources to gather information about the company .Which of the following sources of
information will not help him much in reaching a decision?
a. Interim financial Reports b. Company website
c. Competitor‟s website d. Print media
e. Trade journals
46. The CEO of India Motors Ltd wants to understand the changes in the operating cost and revenues
over the last five years with an intention of boosting up sales and lowering costs .The finance head
suggests selecting a base year, using the base year with the value of 100 and expressing the value
of subsequent years in terms of the base year. Such a technique is known as
a. Ratio analysis b. Series analysis
c. Comparative analysis d. Year to year analysis
e. Trend analysis
17
Q47, Q48, Q49 and Q50 are based on the information given below
Global Finance Pvt Ltd offers financial advice to varied corporations and institutions. With an array of
wealth management and investor services, their services are customized in a manner such that they meet
every investor requirement, however it is continuously losing its customer base and is considering to
conduct a detailed assessment and analysis of its performance and financial position Following is the
extracts from the balance sheet of the company for the past three years.
as of as of as of
12/31/2011 12/31/2012 12/31/2013
(amount in Rs (amount in Rs (amount in Rs
crores) crores) crores)
Current assets
Cash 1,200,000 900,000 750,000
Accounts receivable 4,800,000 3,600,000 3,000,000
Cash at Bank 3,600,000 2,700,000 2,300,000
Total current assets 9,600,000 7,200,000 6,050,000
Total fixed assets 6,200,000 5,500,000 5,000,000
Total Assets 15,800,000

I 12,700,000 11,050,000
FA
Current liabilities
Accounts payable 2,400,000 1,800,000 1,500,000
Accrued expenses 480,000 360,000 300,000

IC
Short-term debt 800,000 600,000 400,000
Total current liabilities 3,680,000 2,760,000 2,200,000
Long-term debt 9,020,000 7,740,000 7,350,000
Total liabilities 12,700,000 10,500,000 9,550,000
Shareholders’ equity 3,100,000 2,200,000 1,500,000
Total liabilities and equity 15,800,000 12,700,000 11,050,000
47. Global Finance Pvt Ltd wants to make comparisons with the other companies belonging to the
same industry. Its major competitors are Sunshine Trading Ltd and ABC capital market Pvt Ltd.
Following exercises were planned for the same
a. Detailed trend analysis of its own company
b. Detailed ratio analysis of its own company
c. Detailed ratio analysis of the competitors company
d. Comparing companies ratios with the competitors ratios
e. Comparing companies ratios with the industry average
f. Study of the financial statements of the competitors
Which of the following exercises will serve the purpose?
a. ii,and iii b. I and vi
c. ii,iii and iv d. ii ,iii, iv and v
e. All the above
18
48. To facilitate comparison over a period of time, the finance and accounts department is instructed to
prepare common size statements. What conclusions cannot be drawn about the company from the
common size statements?
a. Current assets make a large portion of the total assets
b. Investment in fixed asset as a percentage of total assets is declining
c. Company prefers to use short term debt over long term
d. Shareholders equity capital forms a greater percentage of the total liabilities in 2012
than in 2013
e. Decrease in current liabilities is more in the year 2011 than in 2012
49. The Board of Directors of the Company wants a detailed analysis and has insisted on preparation
of all required reports and documents. Which of the following will not be part of the detailed
analysis?
a. Breakeven analysis b. Year to year analysis
c. Trend statements d. financial ratios
e. Common size statements
50. The CEO of the company is of the view that detailed analysis and interpretation of financial
statements may not be sufficient alone and has its own drawbacks. What can be the logic behind
such thought?
a. Such analysis and interpretation is time consuming
b. Financial analysis ignores the non-monetary factors
c. Interpretation Is difficult to carry out
d. Experts to carry out such tasks are not easily available
e. It is not relevant
I
FA
IC
19
UNIT 6: FINANCIAL RATIO ANALYSIS
51. Mrs. Sreedevi has keen interest in online trading. She has invested in the shares of many
companies, and is now considering selling a few shares for financing the educational needs of her
daughter. She wants to know about ratios that relate to firms stock price and earnings to determine
the real attractiveness of her stock based on its current market price. Which category of ratios is
she concerned with?
a. Valuation ratios b. Income statement ratios
c. Balance sheet ratios d. Cash flow statement ratios
e. Liquidity and solvency ratios
52. Provex Ltd has recently started a three-year exercise to become a leaner company, initiating its
most ambitious reorganization effort since it started selling computers in 1981 and presaging
similar moves in an industry that has been a prolific job-creator. This has created a panic among its
employees and they are concerned about the sustainability and sufficiency of the company‟s
earnings. Which are the ratios they should focus upon to clear their doubts?
a. Gross profit ratios b. Operating profit ratios
c. Net profit ratios d. Earnings per Share
e. All the above
Q53 and Q54 are based on the information given below
Tata Motors Limited is India‟s largest automobile company, with consolidated revenues of Rs.2,32,834
I
crores (USD 38.9 billion) in 2013-14. It is the leader in commercial vehicles in each segment, and among
FA
the top in passenger vehicles with winning products in the compact, midsize car and utility vehicle
segments. Following information is available as on 31 st March 2014
EPS 1.04
Industry P/E RATIO 248.08
IC
Price / book ratio 8.61

Current market price 513
Book value per share 59.58
53. What is the P/E ratio of Tata Motors?

a. 493.26 b. 57.28
c. 0.017 d. 0.002
54. Which of the following statements is true about Tata Motors?
i. Tata motor firm indicates strong growth prospects
ii. Firms share price is undervalued
iii. The company is highly rated
a. I only b. I and ii
c. I, ii, and iii d. I and iii
55. The shopping season from September-end to Diwali in late October is the top sales period in India,
accounting for about 40% of the total for most brands. No wonder then that Snap deal, Flipart and
Amazon are going out all guns blazing. The top three e-commerce companies, according to
multiple media planners, are expected to spend up to Rs 200 crore this season in the advertising
campaign. Other things remaining same, this expenditure will not have any effect on their
a. Gross profit ratio b. Earnings per share
c. Fixed interest coverage ratio d. Debt service coverage ratio
e. Current ratio effect
20
Q 56 and Q 57 are based on the data given below

Following are the key ratios of ABC Motors for the last five years
March 2014 March 2013 March 2012 March 2011 March 2010
Current Ratio 0.43 0.42 0.50 0.52 0.44
Quick Ratio 0.36 0.40 0.43 0.54 0.44
Debt Equity
0.76 0.75 0.56 0.73 1.12
Ratio
Long Term Debt
0.51 0.42 0.41 0.48 0.80
Equity Ratio
56. Which of the following inferences can be drawn about company‟s liquidity position?
a. Current ratio is as per the standard and the company has a strong liquidity position
b. Current assets are almost double the current liabilities
c. The firms commitment to meet the short term liability is high
d. The cushion available to the short term creditors is low
57. The long term debt equity ratio and the debt equity ratio declined to almost half in the year 2011.
What does it imply?
a. Long term creditors of the company are relatively safe in 2011 as compared to 2010
b. Increase in the equity capital of the company in 2010
c. Use a very high degree of leverage in 2011
d. A very conservative approach in designing the capital structure
I
58. A special dividend is a payment made by a company to its shareholders in addition to the typical
FA
recurring dividend cycle .A prominent example of a special dividend was the $3 dividend
announced by Microsoft in 2004 to partially relieve its balance sheet of a large cash balance. A
more recent example of a special dividend is the $1 dividend announced by SAIC (U.S. company)
in 2013, just prior to it splitting off its solutions business into a new company named Leidos.
Which of the following is true in the above context?
IC
a. Special dividend is a normal item as far as accounting treatment is concerned

b. It should be added to the total dividends in calculating the dividend payout ratio
c. Only the tax paid on special dividends should be taken into consideration in deciding
the dividend payout ratio
d. In the case of a special dividend, the company is signaling that this is a one-time
payment and not a sustained increase
e. All the above
59. The financial records of Hindustan Hardware Ltd show the following information for the year
2013-14. (Amount in Rs crores)
Net profits before tax 8000
Provision for taxation 950
Interim dividends 350
Final dividends 580
Dividend tax 195
Special dividends 50
Capital
12% preference shares of 100 each 5000
Equity shares of 10each 9500
21
Which of the following ratios cannot be calculated from the information given?
a. Dividend payout ratio
b. Dividend coverage ratio for equity shareholders
c. Dividend coverage ratio for Preference share holders
d. Debt Service coverage ratio
e. All the above can be calculated
60. The analysis of a company‟s financial ratios is core to CRISIL‟s rating process. Hence the users of
CRISIL ratings including investors in corporate debt need to understand CRISIL‟s approach to
financial ratios and the formulae employed in computing them. To calculate the operating cash
flow ratio, which of the following information is essential?
i. Current liabilities
ii. Net cash flow from operations
iii. EBIT
iv. Current assets
a. i and ii b. ii and iii

c. ii , iii and iv d. ii and iv
e. all the above
I
FA
IC
22
UNIT 7: BASICS OF COST TERM CONCEPTS
61. The size of Indian detergent market is roughly estimated to be Rs 12000 crore. Characterized by
immense competition and high penetration levels the detergent market is ruled by players like
HUL, Henkel and Procter and Gamble. Star Detergent Pvt Ltd is a new entrant in the market and to
cope up with immense competition it has employed thirty salesmen who travel in ten delivery vans
to deliver stock to the well-known retail shops of Hyderabad. Salaries paid to sales persons and
van drivers are..
a. Manufacturing and production cost b. Production overhead
c. Selling and distribution costs d. Administrative costs
62. Chinese bicycles have flooded the Indian market unhindered despite "heavy" import duty imposed,
as importers are bringing such China-made products via countries such as Sri Lanka and
Bangladesh by paying lower custom charges. Such practices have resulted in a blow to the
domestic bicycle makers. Spark cycle manufacturing unit who manufacture different types of
cycles are aiming at cost reductions with a view to meet the competition. They have incurred
following costs for manufacture of tricycles during 2013.
Particulars Amount (Rs in lakhs)
Cost of diamond shaped metal frames : 100
Cost of wheels 10
Cost of tyres 8
Cost of handle bars 7
Cost of chains 5
Cost of seats
I 3
Cost of brakes 3
FA
Wages to the workers operating the assembling machines 20
Wages to cleaning staff 1
Wages to security staff 1
Wages to the painter /polishing staff 2
Rent of factory buildings 15
Salaries to supervisors and engineers 10
IC
Depreciation of the assembling machine 2
Which of the following statements are incorrect?

a. Salaries to supervisors and engineers is an indirect cost
b. Wages of workers operating the assembling machine is a direct cost
c. Cost of wheels and cost of seats is a direct expense
d. Cost of Diamond metal frames used is an indirect expense
e. Auditor fee paid.
63. With reference to data given in Q62, Indirect Costs incurred by Spark Cycles amounts to
a. Rs.100 lakhs b. Rs. 29 lakhs
c. Rs. 31 lakhs d. Rs. 41 lakhs
e. Rs. 68 lakhs
64. Sun Cosmetics Pvt Ltd is introducing a new line of herbal products .Three Different types of costs
are incurred for the same
Cost Type cost for 100 K units cost for 150 K units
(amount Rs. in Lakhs) (amount Rs. in Lakhs)
P 9000 12500
Q 6000 6000
R 8000 12000
Where F = Fixed costs. V = Variable costs and SV = Semi variable costs.
23
Three costs incurred by the company are

a. SV, SV and V b. F. V, and SV
c. V, SV and F d. SV, F, V
e. V, F and V
65. Hindustan Leathers has proposed to use an owned vacant factory building that was shut down a
few years back for its new project. While evaluating the profit of the project, the expected rent of
the building today has been taken into consideration because it is an
a. Replacement cost b. Avoidable cost
c. Opportunity cost d. Unavoidable cost
e. Prime cost
66. Royal Travels operates buses between Hyderabad and Warangal. Distance between the two cities
is 150 Kilo meters. Each bus makes two trips. The bus carries 30 passengers on an average.
Service is provided for 5 days in a week. Total cost of operation per week is Rs.90000. Cost of
unit (cost per Kilometer per passenger) is
a. Rs.0.50 b. Rs.1.00
c. Rs.0.90 d. Rs.2.00
e. Rs.1.50
67. Evergreen Mfg. Company, the makers of environmentally friendly laundry detergent, trash bags
and Baby diapers, strongly believe that “in our every deliberation we must consider the impact of
our decisions on the next seven generations.” Following Data is taken from their books, as on
March 2014
I Amount
Particulars
FA
(Rs. in lakhs)
Opening Stock of cotton & plastics 60000
Closing Stock of cotton & plastics 80000
Purchase of cotton and elastic to be used in making diapers 500000
Wages of the workers 200000
Opening stock semi-finished trash bags 20000
IC
Closing stock of semi-finished diapers 25000

Factory rent 100000
Power used for operating the machines 100000
Depreciation of machines 100000
Telephone expenses of the director 100000
Stationary used in corporate office 100000
Opening stock of 180000
Detergent( 50,000)
Trash bags (1,00,000)
Diapers (30,000)
Closing stock of 250000
Detergent(1,35,000)
Trash bags (70,000)
Diapers(45,000)
Diapers given as free samples
Trash bags given to sponsor a cleanliness drive 100000
Sales 75000
Detergent(50,000) 1450000
Trash bags (70,000)
Diapers(25,000)
Which of the following items will not be a part of prime cost?

a. Closing Stock of cotton & plastics b. Purchase of cotton and elastic to be used in
making diapers
c. Wages of the workers d.Opening stock of semi- finished trash bags
e. All the above
24
68. With reference to data given in Q67 which of the following statements are incorrect?
i. Closing stock of semi-finished diapers will be taken into consideration for arriving at
works cost
ii. Trash bags given to sponsor a cleanliness drive is a selling expense
iii. Depreciation of machines is an administrative expense
iv. Closing stock of Detergent will be taken into consideration while determining the
factory cost
c. iii and iv d. i , ii, and iv
e. I and iv
69. With reference to data given in Q67 what would be the prime cost
a. Rs. 240000
b. Rs. 370000
c. Rs. 345000
d. Rs. 170000
e. Rs. 840000
70. In response to invitation of sealed tenders by Nagarjuna Business Solutions , from reputed,
experienced agencies for providing security services to the different Office Buildings in the city
of Hyderabad, Sharp Security Services Ltd has filed a tender with the following cost information
Cost of hand guns ( for 4 security persons Rs1lac each) Rs.4,00,000

Cost of CCTV camera system Rs.1,00,000
Cost of Other protective equipment
I Rs.20,000
FA
Cost of boots Rs.20,000
Cost of Lighting systems Rs.10 000
Wages Rs. 64000
Training of the staff 25% of wages
Office & Genl. Expenses 10% of work cost
Net profit to be made 20% of sales
IC
Amount of tender would be

a. Rs.3,85,000 b. Rs. 806,000
c. Rs.796,000 d. Rs. 776,000
e. Insufficient data.
25
UNIT 8: COST ANALYSIS AND DECISION MAKING
71. ABC Batteries Ltd is a pioneer in manufacturing of long lasting AAA maintenance free batteries in
India. It is one of the leading manufacturers of automotive batteries including two wheeler
batteries. The company has manufacturing capacity of two wheeler batteries of 8.4 million units
per year, but present capacity utilization is 4.8 million units. The company wants to make full
capacity utilization. Which one of the following is irrelevant cost?
a. Depreciation b. Direct raw materials.
c. Direct labor cost d. Direct factory overheads
e. None of the above.
72. The private sector has emerged as a vibrant force in India's healthcare industry. The private sector's
share in healthcare delivery is expected to increase from 66 per cent in 2005 to 81 per cent by
2015. Good Health Hospital one of the leading private hospital, has appointed an Ophthalmologist
for its newly proposed Ophthalmology wing with a salary of Rs.75000/- per month. His salary is a
a. Irrelevant cost b. Sunk cost
c. Fixed cost d. Relevant cost
e. Both c and d
73. M/s. India Tools Pvt ltd has a option to either run a fully automated operation that produces
1,00,000 widgets per year at a cost of Rs.13,00,000 or use direct labor to manually produce
1,00,000 widgets for Rs.15,00,000 .The differential cost between the two alternatives is
Rs.2,00,000. Which of the following is not true about differential costs?
I
a. Differential cost differs from one course of action to another.
FA
b. The differential cost data is related to costs, revenue and investment factors.
c. Differential cost considers only incremental cost and decremented cost and not that of
the cost per unit.
d. It is a future cost and includes all variable costs.
e. A differential cost can be a variable cost or a fixed cost or a mix of the two
IC
74. Comfort furniture is producing 9000 units of office chairs with 90% of its capacity. The following
figures are taken from budget
90% (9000 Units) 100% (10000units)
(Rs.) (Rs.)
Cost of wood, paint and other materials 6,30,000 7,00,000
Labor charges for carpenters, machine men 1,25,000 1,50,000
carving ,polish men and other variable costs
Sales force expenses 75,000 1,00,000
Rent, Insurance and office salaries 2,50,000 2,50,000
Sales 12,00,000 15,00,000
If the firm wants to use 100% capacity unit differential cost and incremental profit would be
a. Rs.120, 180000 b. Rs.100, 120000
c. Rs.150, 300000 d. Rs.120, 300000
e. Rs.300, 180000
75. Indian toys market is flooded with import of Chinese toys. Only 20 percent of the Indian market is
served by Indian manufactures and the rest being accounted for by the imports from mainly China
and Italy which offer wider variety at lower prices and attract children of all ages. Playtime - an
Indian unit which manufactures Toy guns, Action toys, Battery operated toy animals and other
types of toys, is aiming at cost reductions with a view to meet the competition. It manufactures
toys with two components plastic mould of Toys and Electronic circuit
26
Total Variable Costs

Particulars Amount (Rs.)
Plastic mould of toys 100
Electronic Circuit 150
Packing 50
Selling Price 600
To meet additional demand, the company wants to purchase component plastic mould of Toy or
Electronic circuit at the price of Rs.180 and Rs.200. Contribution by purchasing Body of Toy or
Electronic circuit would be
a. Rs.350, Rs.300 b. Rs.220, Rs.250
c. Rs.130, Rs.130 d. Rs.300, Rs.250
e. Rs.220, Rs.300
76. Bharat Apparels a cotton knitwear unit in Tirupur, Tamilnadu got a bulk order to the tune of 10000
T-Shirts. Unit's production capacity is 20000 units. Selling price is Rs.100/- per unit. Bulk order
has to be supplied at Rs.90/- per unit. Company can increase its production by 3000 units with an
additional cost of Rs.100000.
Other data provided by the company (capacity at 20000units):
Cost of Dyed/bleached cotton knitted fabric Rs. 600000
Salaries of skilled labor for stitching Rs. 300000
Washing, Checking, Pressing and packing expenses: Rs. 150000
Fixed cost I Rs. 400000
Incremental revenue, differential cost for the company, if the order is accepted.
FA
a. Rs.200000, Rs.157500 b. Rs.300000, Rs.257500
c. Rs.200000, Rs.257500 d. Rs.170000, Rs.100000
e. Rs.300000, Rs.100000
77. Fashion weavers make 1000 silk sarees in a month which can be sold @ Rs.2500 per saree. Further
work can be done on the sarees with additional golden embroidery with silk threads increasing the
IC
thread cost by Rs 200 per saree and additional labor cost of the weavers by Rs.150 per saree. After
additional work the sarees can be sold @ 3000/-per saree. If the company takes up additional work
the incremental profit would be
a. Rs.500000 b. Rs.150000
c. Rs.350000 d. Rs.-150000
e. Rs.300000
78. Sunlight Ltd has a chain of marketing centers across India to sell its products. Directors of the
company are confronted with the problem, whether to continue its Hyderabad and Bhopal centers
or close the units and letting out the premises at a rent of Rs.800000/- for Hyderabad and
Rs.900000/- for Bhopal. Data provided by the company is
Hyderabad Bhopal
Rs. (Rs.)
Office furniture, equipment, office supplies 1650,000 1950,000
Staff Wages 250,000 350,000
HO Marketing Expenses 500,000 600,000
Net Profit 400,000 500,000
Average Stocks maintained 40,00,000 50,00,000
HO audit expenses (travelling) 100,000 100,000
27
The company can invest surplus funds to earn a yield of 6%

Net profit/loss if the two centers are continued would be
a. –Rs.240,000 , -Rs.200,000 b. Rs.490,000, Rs.550,000
c. Rs.200,000, -Rs.200,000 d. Rs.240,000, Rs.240,000
e. Rs.240,000, Rs.200,000
79. A Gel Pen manufacturer adopts cost plus pricing method to fix price for its product. It produces
25000 units with the following costs.
Variable Cost
Materials in injection moulding section Rs.4.00 per unit
Direct labor in moulding section Rs.1.50 per unit
Production overhead in Assembling & packing Rs.6.00 per unit
Salaries of sales Dept. Rs.1.00 per unit
Fixed cost Rs.1.50 per unit
profit required Rs.75000/-
What would be selling price of the unit?

a. Rs. 17 b. Rs. 12.50
c. Rs 14 d. Rs.15.50
e. Rs.15.00
80. TATA Motors developed new product 'NANO', a small car for the lower price range. Market price
of NANO was established using small Cars in the market as an initial bench mark and adjusted for
feature differentials between the two cars. A required profit margin was subtracted from this price
I
based on industry norms and TATA's desired return to set an allowable cost for the car. Pricing
FA
method adopted by TATAs for NANO is
a. Differential cost pricing b. Contribution approach pricing
c. Cost plus pricing d. Target costing
e. Return on investment pricing
IC
28
UNIT 9: INTRODUCTION TO FINANCIAL MANAGEMENT

81. Mr. Rajesh is a Finance Manager in a listed company and he is continuously monitoring and
ensuring the procurement and deployment of funds in accordance to the company‟s plan. Mr.
Rajesh is exercising which of the following functions?
a. Managing Working Capital b. Financial Control
c. Treasury Operations d. Management Control
e. Capital Budgeting
82. Bloom Technologies Private Limited wants to convert into Public Limited Company to increase
the company's profile and to create a market for the company's shares. What are the Minimum
Capital & Member Requirements?
a. Minimum Paid up capital of Rs.5 Lac & Minimum Members 7
b. Minimum Paid up capital of Rs.1 Lac & Minimum Members 2
c. Minimum Paid up Capital of Rs. 10 Lac & Maximum Members 200
d. Minimum Paid up Capital of Rs. 5 Lac & Maximum Members 200
e. Maximum Paid up Capital of Rs.20 Lac & Maximum Members 50
83. Tishman Speyer LLP, UK wants to remit $400 Million in India for their Real Estate Business
Development in India. The Company needs to follow the provisions stipulated by the Reserve
Bank of India for the Foreign Remittances under which of the following Acts:
a. Foreign Exchange Management Act b. Companies Act, 1956
(FEMA), 2000
c. Competition Act, 2002 d. Immovable Property Act
e.
I
Foreign Exchange Regulation Act (FERA), 1973
FA
84. RVR Infrastructure Limited issued a dividend of Rs.3/-per equity share recently. If you are the
Finance Manager of RVR, which of the following tax , are you required to pay within fourteen
days of declaration of dividend?
a. Minimum Alternate Tax (MAT) b. Value Added Tax(VAT)
IC
c. Corporate Dividend Tax d. Income Tax

e. Wealth Tax
85. On May 2014, the Competitive Commission of India(CCI) received a notice from Sun
Pharmaceuticals Industries Limited (Sun Pharma) and Ranbaxy Laboratories Limited (Ranbaxy) in
relation to the merger of Ranbaxy into Sun Pharma .In terms of Section 29(2) of the Competition
Act, 2002 (Act), the Commission formed a prima facie opinion that the combination is likely to
have an appreciable adverse effect on competition and accordingly directed Sun Pharma and
Ranbaxy (Parties) to publish details of the combination within ten working days for bringing the
combination to the knowledge or Information of the public and persons affected or likely to be
affected by such combination. Which of the Following function is CCI exercising?
a. Anti- Competitive agreements among enterprises.
b. Abuse of dominant position in the Market
c. Combinations/ Mergers between enterprises.
d. All a,b,c
e. Competition Advocacy
86. Bharat Constructions Private Limited has issued an advertisement in a TV News Channel inviting
deposits from the public. Some people responded to the Ad and paid application money for the
same. What is the position of the company now?
a. It will still be a Private company
b. It will become a Deemed Public Company
c. It will not affect the Status of the Company
d. It will Lose its Legal Private Company Status
e. It will get Converted into Limited Liability Partnership
29
87. Mr. Krishna joined Abhaya Foundation (Non-Profit Organization) as a Trainee. His superior
instructed him to go through the organization‟s history and financial position and asked his advice
for effective financial management. Mr. Krishna replied to his Superior saying that since theirs is a
Non-Profit Organization, they didn‟t require financial management. What would be your response
if you are in the superior‟s place?
a. Financial Management is required only for profit making organizations (Commercial)
b. Financial Management is required only for „Not for Profit‟ Organizations
c. Financial management is required for both Profit based and Non Profit based
Organizations
d. Financial Management is not required for both Profit base and Non Profit based
Organizations
e. Financial Management is required only for Government organizations
88. Taking advantage of the tax holiday and concessions that would be offered in view of the Special
Category status being given to Andhra Pradesh, a group of industrialists are planning investments
to the tune of Rs. 5,600 crore in Andhra Pradesh in 12 different sectors, including information
technology, over the next two to three years. Which of the following provisions need to be
complied and kept in mind by the industrialists?
a. Industrial Policy Regulations, 1956
b. Industrial Licensing Policy, 1973
c. Industrial Policy Statements made by the Government
d. Foreign Exchange Management Act,(FEMA),2000
e. Only a ,b & c
89. In financial year 2013-14, Columbus Laboratories Limited proposed to commit resources worth
I
$251mn in 9 Environment Management Projects for Research & Development. This Business
FA
Decision of the Company is known as ---
a. Marketing Decision b. Working Capital Decision
c. Planning Decision d. Investment Decision
e. Dividend Decision
IC
90. Excellent Group controlled by Robert, the father of Indian retail industry, and ABC India have
formed a strategic partnership under which the e-retailer will sell Excellent Group's merchandise
online. According to the Indian Partnership Act, 1932 the Partnership Firm comes into being
through a -----
a. Partnership Agreement/Deed b. Memorandum of Association
c. Articles of Association d. Charter Document
e. Charter Document
30
UNIT 10: INDIAN FINANCIAL SYSTEM
91. In October, 2014, JLA Infraville Shoppers Limited had issued IPO (Initial Public Offering) for
Subscription of Equity Shares at a Face Value of Rs.10/- . Mr. Ravi a retired banker wanted to
invest in the IPO. His investment was basically in which of the following Market?
a. Primary Market which creates long-term instruments
b. Secondary Market providing liquidity to the investors
c. Rights issue for raising additional finance from existing members
d. Money Market which is for investing in Short term funds
e. International Securities Market for investing abroad
92. ABC Limited wanted to raise money by the issue of Commercial Papers (CP) in India. The Board
of directors of the company asked the Company Secretary to provide the basic requirements for the
issue of CPs under RBI Guidelines. Which of the following basic requirements does the Company
needs to fulfill?
a. The tangible net worth of the company, as per the latest audited balance sheet, not less
than Rs. 4 crore
b. Company sanctioned with a working capital limit by bank/s or all-India financial
institution/s;
c. The borrowed account of the company classified as a Standard Asset by the financing
banks and institutions
d. The denominations of the CP being Rs.1 lakh or multiples thereof.
e. Only a,b,c
I
93. ICICI Prudential Liquid Plan (G) Fund primarily invests in Money Market Mutual Funds in India.
FA
This Fund facilitates the investors to invest in Money Markets with a minimum of Rs. 5000/- .
Which of the following body regulates the Money Markets in India?
a. Reserve Bank of India
b. Association of Mutual Funds of India
c. Securities Exchange Board of India
IC
d. Bombay Stock Exchange

e. Competition Commission of India
94. In September, 2014 MNC Limited proposed to raise additional funds from the existing members of
the Company by offering equity shares in the entitlement ratio of 7:6. This issue was termed as ----
a. Initial Public Offering (IPO) b. Rights Issue of Shares
c. Private Placement of Shares d. Bonus Issue of Shares
e. Bought-out Deals
95. ABC Stock Broking Ltd acts as an intermediate investor to many corporate by buying their shares
in bulk and offloading the shares to public at appropriate time at a later date. This process is known
as
a. Initial Public Offering (IPO) b. Rights Issue of Shares
c. Private Placement of Shares d. Bonus Issue of Shares
e. Bought-out Deals
96. If the face value of the bid is Rs 1000, and the bid received by the RBI is Rs.922.36 for a 364-day
treasury bill, and the bank calculates yield based on 365-day year, then the yield is?
a. 9% b. 8.41%
c. 10% d. 12%
e. 15%
31
97. South Korea's Hana Bank Group sold a two-year bond in late July, 2012. It paid 1.17 percentage
points over the comparable Japanese government bond yield. These bonds issued by non-Japanese
borrowers in the domestic Japanese markets are known as?
a. Yankee Bonds b. Samurai Bonds
c. Bulldog Bonds d. Shibosai Bonds
e. Euronotes
98. G. Das consultancy Group, among the various consulting services help the investors in
achievingrisk-free profits by simultaneously buying similar instruments in Bombay Stock
Exchange and selling them in National Stock Exchange. This service offered by G.Das Group is
termed as
a. Arbitrage Services b. Speculation Services
c. Hedging services d. Custodian
e. Depository Participant
99. The volumes of equity-linked Indian products traded on offshore exchanges as dollar denominated
negotiable certificate is picking up thick and fast. The cumulative sales volume of offshore trading
instruments with Indian equities as their underlying assets has reached a historic high of $1.6
billion per day. What do you call this instrument?
a. Global Depository Receipt b. American Depository Receipt
c. Euro Bond d. Bull dog bonds
e. Global MTNs
100. The country's two biggest state-run banks SBI and BOB have pitched for treating a portion of
I
their gold deposits as part of the mandatory CRR. What do you mean by CRR?
FA
a. It is the cash that banks deposit with Reserve Bank as a proportion of their deposits.
b. The banks are required to maintain specified reserves in the form of government
securities, specified bonds and approved securities.
c. It is the rate at which the Reserve Bank rediscounts the first class commercial bills of
exchange.
IC
d. The cash base of commercial banks, through selling and buying of government
securities in the open market.
e. It is the Reserve Required for Maintaining Foreign Currency with Reserve Bank of
India
32
UNIT 11: TIME VALUE OF MONEY
101. The Employee Provident Fund Organization retained the interest payment on provident fund
deposits for 2014-15 at 8.75%. How does PPF manage to pay a return to the investors?
a. Present Value of Money b. Future Value of Money
c. Time Value of Money d. Both a and b
102. One of the largest public-sector banks, SBI (State Bank of India) has a large fixed deposit
customer base with some of the most lucrative rates in the market. The table below shows the fixed
deposit scheme of State Bank of India.
Period % rate per annum
30 days 5
120 days 7
6 months 7.25
9 months 7.5
1 year and above 8.75
If ATC Ltd invests an amount of Rs 1 crore in the fixed deposit scheme of SBI for a period of 2
years, what is the approximate final amount that they will receive?
a. Rs 1,18,26,562.50 b. Rs 1,18,25,962.50
c. Rs 1,19,26,562.50 d. Rs 1,19,25,986.50
e. Insufficient data
103. What will be the final amount (approx) received after one year if the interest is compounded
quarterly (With reference to Q102)?
I
FA
a. Rs 1,09,00,000 b. Rs 1,10,00,000
c. Rs 1,12,00,000 d. Insufficient data
104. The bank is rewarding ATC Ltd by paying a greater amount than originally invested. Which of
the following statements supports this concept of rewarding?(With reference to Q102)?
IC
a. Money invested in the bank can be utilized productively to generate returns

b. Any amount of money has a greater value than the same amount received after a year
c. Future is characterized by uncertainty and there is a preference for current
consumption when compared to future consumption
d. Purchasing power of rupee decreases with time
e. All of the above
105. Komal Jeevanis a Money Back Plan by LIC which can be bought by the parent or grandparents
for their child from the age of 0-10years. This plan gives financial protection against death during
the duration of the plan with fixed periodic payments on survival at specified durations. What are
such fixed equal payments at fixed intervals known as?
a. Sinking fund b. Future value
c. Recurring payments d. Annuity
e. Periodic flow
106. Mid-market-focused private equity firm Gaja Capital has raised $130 million (about Rs 780 crore)
from International Finance Corporation (IFC), one of Europe's largest development financial
institutions. To calculate the amount of each installment to be paid ,which of the following
information is irrelevant?
a. The total installment amount is the sum of interest and principal
b. The amount of loan
c. The rate of interest by IFC
d. Period in which the loan is to be repaid
e. All the above
33
Following are the details of interest rates charged by ABCD Bank
Interest Rates:
Type of Loan Base Rate + Markup Effective ROI (floating)
Loan Against Property Base Rate + 3.10% 13.25%
Purchase of Commercial Property Base Rate + 3.10% 13.25%
Overdraft Facility Against Property Base Rate + 4.10% 14.25%
Lease Rental Discounting Base Rate + 3.35% 13.50%
Reverse Mortgage Loan Base Rate + 1.85% 12.00%
** Base Rate - 10.15%, effective from 17th October,2014
107. The customers are generally ignorant about different types of interest rates. Which of the
following statements are correct in this context?
a. If the nominal rate on a loan is 5%, then borrowers can expect to pay Rs 5 as interest
for every Rs 100 loaned to them
b. Effective interest rate, takes the power of compounding into account
c. The nominal interest rate, takes the power of compounding into account
d. Effective interest rate, is conceptually the stated coupon rate of a given bond or loan.
e. Only a and b
I
FA
108. World Nature products Ltd, a company in Personal Products Industry, has been retaining a part of
their profits to undertake a major expansion drive .The value of profits retained varies from one
year to another. To find the future value of multiple cash flows invested at the end of each year
which of the following information is not essential?
IC
a. saving for each year

b. need of the lump sum amount after a period of six years
c. Investment in a scheme offering an interest rate of 12%
d. The Present Value Interest Factor (PVIF) at the end of each year
e. The Present Value Interest Factor (PVIF) of annuity at the end of sixth year
109. The government has decided to prelaunch the Kisan Vikas Patra scheme hoping to lure investors
away from gold and fraudulent schemes by offering attractive terms. There won't be any upper
limit on investments; the minimum denomination being Rs 1,000.Investors will be able to double
their money in 100 months. Applying the rule of 72 what is the interest rate that can be expected
from Kisan Vikas Patra?
a. 8.64 b. 8.00
c. 7.20 d. 8.54
e. Insufficient data
110. ABC Bank group has opened a financial literacy and credit counseling centre named Citizen
Service Centre at Hyderabad. The centre, headed by an experienced retired officer, would offer
free counseling on various financial aspects including the basics of time value of money for
personal financial management. What are the ways by which Time Value of money is taken care
of?
a. Compounding b. Discounting
c. Perpetuity d. Only a and b
e. a, b and c
34
UNIT 12: SOURCES OF LONG TERM FINANCE

111. Hair and beauty chain Naturals is a limited company which has 350 outlets in South India. Out of
a total of 404 outlets in the country plans to have 3,000 saloons by end of year 2017. It wants to
raise Rs 100 crore as it plans to expand its footprint across the country. Which of the following
sources of finance cannot be used?
a. Equity capital b. Preference capital
c. Debentures d. Long Term bank loans
e. Short term Loans
112. Following is the extract from the balance sheet of ABC Steel (amount in Rs crores)
Mar '14 Mar '13 Mar '12

Equity Share Capital 971.41 971.41 971.41
Reserves 60,176.58 54,238.27 51,649.95
Net worth 61,147.99 55,209.68 52,621.36

Secured Loans 4,400.55 4,311.02 4,190.47
Unsecured Loans 21,726.23 21,600.49 19,503.35
Total Debt 26,126.78 25,911.51 23,693.82
The equity capital of the company remains same and the company is relying more on debt capital
to meet its financing need. Which of the following advantages, in financial cash flows, apply in
this situation?
i. Interest paid on debt is tax deductible
I
ii. Cost of raising debt is cheaper
FA
iii. Risk involved in raising debt is comparatively less
iv. Limited liability for repayment
c. iii and iv d. i and iv
IC
e. All the above
113. If the reserve of the company has been continuously increasing what cannot be a possible
implication?
(With reference to data given in Q112)
a. The company may be risk averse
b. The company may be having a lot of long term funding opportunities
c. The company was aiming at cost reduction through elimination of issue expenses
d. Company believes in “No dilution of control”
e. All of the above
114. SMEs form the backbone of our Economy. According to a recent survey, most of the SME
however, are in a bad shape financially, and are unable to even pay salaries to their staff in time.
Which of the following ways can improve their financial condition to meet their day to day
financial requirements?
a. Raising funds through IPO b. borrowing term loans
c. Issuing debentures d. Inviting short term public deposits
e. Collaborating with a venture capitalist
35
115. International Coffee House is increasing the authorized capital in its Indian unit to Rs 350 crore to
maintain its rapid expansion drive. It is a 50-50 joint venture between US Coffee café and Indian
Beverages Ltd. If the promoters feel the need to raise fresh funds without diluting their control,
what would be the instrument of raising finance?
a. Public issue b. Private placement
c. Rights issue d. Non-voting shares
e. Both c and d
116. In a first-ever initiative to connect the Indian business community with the Japanese capital
markets, Tokyo Stock Exchange (TSE) invited Indian companies to raise capital in Japan. Several
leading Indian businesses presented their profiles to the Tokyo Stock Exchange taking the first step
in the listing process. Which of the following cannot be a reason to raise money from foreign
capital market?
a. Less procedural delays and b. higher borrowing cost in India
administrative problems
c. Small domestic markets in India d. Access to newer sources of funds.
e. Diversifying risk
117. Indian Future Retail group has received market regulator Sebi's approval to rise up to Rs 1,600
crore through rights issue. Which of the following statements about rights issue is incorrect?
a. Priced lower than public issue
b. Shares are issued to existing equity share holders
c. Shares are issued in the ratio of current holding
d. Rights offer to be kept open for a period of 90 days
e.
I
Shareholders can renounce their rights in favor of another person
FA
118. Estate Logistic Properties, a group active in the real estate sector have raised finance up to Rs.500
crore in the debt form which participate in the profits of the company. They carry the features of
no interest for a specified initial period followed by low interest for next round of period when
sales and profit are at low levels and finally high interest for the remaining period of retaining the
money, as the concern has the ability to compensate now for the initial benefit. What is such a debt
IC
known as?
a. Detachable equity warrants b. Participating debentures
c. Participating preference shares d. Convertible debentures with options
e. Third party convertible debentures
119. Hindustan Aluminum Ltd is planning to replace its Hot & Cold Rolling Mills (Belt Wrappers)
with a more sophisticated version of the machine. Owing to huge investments involved, the
company negotiates with the suppliers of the machine to pay the purchase price over a period of
time at a fixed interest rate, with provision for complete repayment in five years. What is this
method of raising funds known as?
a. Leasing b. Hire purchase
c. Deferred credit d. bought out deals
e. Bridge loans
120. Gurgaon based mobile wallet venture MobiKwik has entered into discussions with a number of
prominent venture capital firms to raise $25 million to strengthen its brand, focus on customer and
merchant acquisition, and to build on its technology platform. Which of the following statements
about venture capital is incorrect?
a. The Venture capitalists have business interest in the project financed
b. Venture capitalists bring funds at an early stage
c. The borrowing company has to put up with the control mechanisms stipulated by the
venture capitalists
d. Venture capital is used only for startup projects
e. Venture capital is considered as high risk, high return source of finance
36
UNIT 13: WORKING CAPITAL MANAGEMENT
Following is the extract of Balance sheet of SDF Steel. (All figures in Rs crores )
2014 2013
Gross Block 39,019.72 38,056.28
Less: Accum. Depreciation 14,753.97 13,181.23
Net Block 24,265.75 24,875.05
Capital Work in Progress 18,509.40 8,722.29
Investments(long term) 54,661.80 50,418.80
Inventories 6,007.81 5,257.94
Sundry Debtors 770.81 796.92
Cash and Bank Balance 961.16 2,218.11
121. Which of the following statements are incorrect with reference to the above balance sheet?
a. Inventories are a part of total current assets
b. Total Current assets amounts to Rs 7739.78 crores for the year 2014
c. Capital work-in-progress comprises outstanding advances paid to acquire fixed assets
d. Capital work-in-progress comprises outstanding advances paid to acquire current assets
e. Gross block includes intangible and tangible fixed assets
I
122. With reference to data given in Q121, the cash balances of the company has declined from Rs
2218.11 crores to 961.16 .Which of the following statements are correct in the above context?
FA
a. Reducing cash balances shows improved liquidity positions
b. Changing cash balances have no impact on working capital management
c. High levels of cash indicate higher profitability and good working capital management
d. Working capital management involves management of cash at adequate levels
IC
e. Working capital management of the company is poor
123. Reliable Agro Ltd follows a conservative approach to working capital management where as its
competitors Nature fresh Ltd follow an aggressive policy. Which of the following statement is
incorrect in the above context?
a. Reliable Agro focuses on maintaining liquidity
b. Nature Fresh Ltd focuses on maintaining profitability
c. Reliable Agro has very low cash balances
d. Reliable Agro has high investments in inventories
e. Nature Fresh Ltd believes in maintaining low working capital margins
124. The ratio of working capital to sales of RDD, one of India‟s largest infrastructure companies, at
the end of September 2014 increased to about 25% as against 12% seen about two years ago. What
does it indicate?
a. an increase in the working capital
b. the company is spending more money than what it earns
c. rise in its short-term borrowings,
d. delay in their projects
e. All the above
125. Your deal, one of India‟s largest online marketplaces, has launched a new initiative, We Fund,
aimed at providing sellers on its platform an access to funding, as they look to expand their
businesses. The New Delhi-based e-commerce company said the initiative will further enable
sellers on the platform by helping them meet their growing working capital requirement as they
37
scale their businesses on the Your deal marketplace platform. Working capital management is not
essential for
a. Providing adequate support for smooth functioning of the business
b. Adequate investment in fixed assets to meet the needs of forecasted sales
c. To provide a cushion for unforeseen contingencies‟
d. Choosing the pattern of financing of current assets
e. Management of current liabilities
126. Following is the extract from the balance sheet of Bharat Industries .( All figures in Rs crores )
Mar-14 Mar-13
Gross Block 929.1 777.53

Less: Accum. Depreciation 383.44 325.85
Net Block 545.66 451.68
Capital Work in Progress 97.22 128.44
Investments 372.99 279.6
Inventories 366.86 331.49
Sundry Debtors 53.69 77.12
Cash and Bank Balance 65.78 64.48
Total Current Assets 486.33 473.09
Loans and Advances 342.24 350.22
Current Liabilities
I
660.98 576.9
FA
Provisions 325.38 272.96
Total CL & Provisions 986.36 849.86
Net Current Assets -157.79 -26.55
Total Assets 858.08 833.17
IC
What is the gross working capital and net working capital of the company for the year 2013-14?
a. 828.31,-157.79 b. -157.79,828.31
c. 823.31,-26.55 d. 486.33,-500.03
e. 473.09,-376.77
Q 127 and Q 128 are based on the information given in Q 126
127. A negative net working capital of Britannia indicates which of the following?
i. Problems in meeting short term obligations
ii. Problems of liquidity
iii. Financing of long term assets with short term funds
iv. Declining profits
v. Insolvency in future
a. i ,ii, and v b. i ,ii, and iii

c. i ,ii, iii and v d. ii ,iii, and iv
e. all the above
38
128. Amount of net working capital of the Company obtained from the balance sheet may not reflect
the true picture of working capital because
a. bank borrowing in the form of cash or credit overdraft are not a part of current
liabilities
b. short term public deposits are shown as unsecured loans in balance sheet
c. marketable securities are not included in current assets
d. balance sheet is static in nature
e. All of the above
129. Implementing an effective working capital management system is an excellent way for many
companies to improve their earnings, and companies are devising newer ways of effective working
capital management. In which of the following companies will the significance of working capital
management be the highest?
a. Godrej – manufacturing industry
b. Make my Trip – online travel company
c. Deloitte - consultancy firm
d. Apollo- healthcare industry
e. Bajaj Investment and Capital Ltd – Financial service provider
130. Following are the key financial ratios of ASZ Ltd.
Current Ratio 0.77 1.04

Quick Ratio 0.67 0.9
Debt Equity Ratio 0.08 0.07
Long Term Debt Equity Ratio
I
0.02 0.03
FA
Inventory Turnover Ratio 25.62 23.68
Debtors Turnover Ratio 30.8 36.92
Investments Turnover Ratio 25.62 23.68
Fixed Assets Turnover Ratio 1.96 2.25
IC
Total Assets Turnover Ratio 1.94 2.21
Which of the following ratios are not relevant for determining the effectiveness of working capital
management?
a. Total asset turnover ratio b. Current ratio
c. Inventory turnover ratio d. Debtors turnover ratio
e. Quick ratio f. Fixed asset turnover ratio
39
Multiple Choice Answers and Explanations
UNIT 1: INTRODUCTION TO FINANCIAL STATEMENTS
1. c) Accounting The American institute of certified public accountants defined financial accounting
as “the art of recording, classifying and summarizing in significant manner and in terms of
money ,transactions and events ,which are in part at least, of a financial character and interpreting
the results there of ”
2. e) Reserves Only current assets can be converted to cash immediately and reserves are a part of the
capital of the company. Reserves are funds to be used by the company to do things in the future.
3. a) Original price at which it was purchased The historical cost concept implies that all the assets
be recorded in the book of accounts at the price paid to acquire it and this cost forms the basis for
subsequent accounting for the asset
4. a) Chairman’s visit abroad on a holiday amounting to 1, 00,000 Chairman‟s visit abroad is a
personal expense and according to the Business entity concept the business is considered to have
a separate existence from that of its owners. It implies that a distinction between the economic
activities of the enterprise and that of the owner is to be maintained
5. c) Rs.1, 70,000 According to the dual entry concept owners‟ equity plus outside liability is equal to
assets. This equation is also known as the fundamental accounting equation
6. c)
I
Rs.23000 Retained earnings are created out of profits which have not been distributed. Average
FA
dividends for year amounts to 12000. Total profits for four years amount to 35000. Retained
profit is 35000-12000= 23000
7. a) Rs.2290 crore cost of goods sold = opening stock + purchases + manufacturing expenses –
closing stock
IC
8. e) Cash is current asset and will appear on the asset side . All the other statements are incorrect.
Bills payable is a liability while bills receivable is an asset. Creditors are people who owe us
money and hence they appear on liability side. The salaries paid to staff are a part of office and
administrative expenses and appear in profit and loss account. Loans given are an asset while
long term loans taken are a liability.
9. d) There will be a decrease in the net profit. Salaries to the staff is an administrative expense and
will appear on the debit side of profit and loss account leading to overall increase in the expenses
and decrease in the net profit
10. c) Rs.3,000 crores decrease According to dual entry concept owners‟ equity +outside liability =
Assets.A decrease by Rs 1,000 crores in assets and an increase by Rs 2,000 crores in liability
implies a Rs 3000 crores decrease in the owner‟s equity
40
Multiple Choice – Answers and Explanations
UNIT2: CONCEPTUAL FRAMEWORK OF FINANCIAL

ACCOUNTING
11. c) It is prepared only in absence of other subsidiary books. Journal is a book of prime entry and
with increase in size and complexity of business, subsidiary books are maintained in addition to
the journal
12. d) By Crediting the capital account .The journal entry when cash is introduced in the business is
cash a/c dr ------
To capital a/c ------
13. d) Bank is a legal entity and is an artificial personal.
14. a) Debit advertisement account The journal entry when cash is spent in meeting the expenses is
Advertisement (expense) a/c dr ------
To cash ac ------
15. b) Compound entry. When a number of transactions of similar nature with a particular party on
the same date are entered, a compound entry may be passed instead of several journal entries
16. a) Summarizes all the events and transactions of a particular account. Ledger is a collection of
various accounts of an enterprise and each account contains a summary of all transactions
recorded in the journal
17. e) All the above are correct. When the goods are purchased for cash it is recorded in the cash book
and when goods are purchased on credit it is recorded in purchase journal .When the goods are
I
sold for cash it is recorded in the cash book and when goods are sold on credit it is recorded in
FA
purchase journal
18. d) Rent of 50,000 will not have any impact on profit and loss account. Outstanding expense
refers to expenses incurred but not yet paid. They will be shown on the debit side of profit and
loss account by addition to the appropriate account and will appear on the liability side of the
balance sheet as provision
IC
19. b) Bad debts account. Bad Debt is the amount of due from the debtor but not expected to be
received. It is a loss to the business and is transferred to bad debt account
20. b) Goods returned by Kamal. Cash book records all cash transactions directly from the source
documents. Goods returned by Kamal represents return of goods sold on credit and will be
recorded in return outward /purchase return journal
41
UNIT 3: ELEMENTS OF FINANCIAL STATEMENTS

21. b) Capital expenditure. Capital expenditure relates to such expenditure that generate benefits and
assist the entity in earning revenue over a period of time
22. b) Will be subtracted from purchases in trading account. Goods taken away by proprietor for
personal use are treated as drawings and subtracted from purchases in trading account
23. c) Heavy advertisement incurred to launch a product. Deferred revenue expenditure is basically
of revenue nature for which payment has been made or liability incurred but which is carried
forward on the presumption that it will benefit over a subsequent period
24. d) Packaging charges of marble showpiece shown as expense in trading account. Marble
showpiece is a finished product. The packaging charges of finished product is treated as an
expense in profit and loss account whereas the packaging charges of raw material is treated as an
expense in trading account
25. e) Salaries with all deductions and staff cost added back
26. a) Purchase cost of the jet plane. Purchase cost of the jet plane will come under assets in balance
sheet
27. d) Capital is shown first followed by short term liability
28. d) Rs.4,385lakhs cost of raw material (cotton)=( opening stock +purchases - closing stock) + Cost
of sacs to pack cotton +Transport cost of bringing cotton from the supplier = (4300+100-
30)+5+10 = 4,385
I
FA
29. e) Advance given to suppliers Advance given to suppliers will be shown in the balance sheet and
has no impact on profit and loss account
30. d) 36,000 lakhs cost price of machinery 1+cost price of machinery 2 +Purchase price of land for
setting up the factory = 11000+15000+10000= 36,000
IC
42
UNIT 4: FINANCIAL STATEMENT OF COMPANIES

31. a) The deviation from accounting standards is strictly not allowed .Deviations from the
accounting standards may be allowed on pretext of providing flexibility and presenting a fair
and true view; however all deviations, the reasons for deviation and the financial impact, if
any, has to be clearly mentioned.
32. e) All the above is correct
33. e) Operating expenses Profit and loss appropriation account shows, in detail, the
appropriations made from the profits with respect to dividends and transfer to reserve. All
the operating expenses are shown in profit and loss account.
34. b) Rs.99,95,000 When any shareholder does not pay call money to company on its due date, it
is known as calls in arrears . Companies will deduct calls in arrears amount from total
called up capital for showing net paid up capital in balance sheet and dividends are
calculated on net paid up capital (100,00,000- 50,000 ) x 10/100= 99,95,000;
35. d) Depreciation to be calculated on a basis that has the effect of writing off the asset by
95% of the original cost on the expiry of the specified period. Depreciation to be
calculated to the extent specified in section 350 of the Companies Act or on any other basis
approved by the central government that has the effect of writing off the asset by 95% of the
original cost on the expiry of the specified period.
36. a) Interest accrued, and not due, as shown in profit and loss account amounting to
3,00,000 interest for the full year is 12% of 100,00,000 = 12,00,000 . Out of which 3,
00,000 has been paid and 9, 00,000 is outstanding. The amount of 3, 00,000 will be shown in
the profit and loss account as follows:
I
FA
Particulars Debit Credit
12% debenture
3,00,000 100,00,000
Interest on debentures
37. c) Any compensation made voluntarily. Any compensation, damages or payments made
IC
voluntarily, that is to say other than in virtue of liability is not to be deducted while
computing net profits for managerial remuneration.
38. b) Opening balance plus proposed dividends plus provision for taxation part iii of section
vi includes the following list of provisions to be shown in the balance sheet:
i. provision for contingencies
ii. provision for taxation
iii. proposed dividends
iv. provision for provident fund scheme
v. provision for insurance pension and similar staff benefit schemes
39. c) Current assets would be overstated. As inventory is a component of current assets, an
overstatement of ending inventory will cause current assets to be overstated. The income
statement effects of an inventory overstatement or understatement can best be seen by
analyzing the cost of goods sold formula: Opening inventory + Purchases=Cost of goods
available for sale - closing inventory=Cost of goods sold. Based on this formula, an
overstatement of ending inventory will cause an understatement of cost of goods sold, which
will result in an overstatement of gross profit (Sales – Cost of goods sold = Gross profit).
40. c) Capital WIP. Capital Work in Progress means work that has not been completed but has
already incurred a capital investment from the company. This is usually recorded as an asset
on the balance sheet as Capital WIP. Capital WIP. is referred to as Assets under
Construction and are represented by a specific Asset class. Subsequently on the actual
readiness of the asset for commercial production, the Asset under Construction gets
capitalized to an actual asset.
43
UNIT 5: INTRODUCTION TO FINANCIAL STATEMENT ANALYSIS
41. c) Analysis and interpretation of the financial statements. Preparation of revised statements
or preparing them more frequently will not serve the purpose. Simplifying and classifying
data in financial statements is a part of financial analysis and interpretation.
42. d) Stock exchange reports analysis. Financial analysis and interpretation deals with
examining and drawing inferences from the financial statements of the company and stock
exchange report is prepared by people external to the company.
43. e) The rewards received to equity shareholders is lower than the preference shareholders
when the company prospers. When the company prospers equity shareholders gain a lot
more than preference shareholders and creditors and they are the main losers when the
company collapses.
44. e) All the above. Bharat Bank of India as a creditor is giving a loan of 10 crore for a long
period of time so it may be may be concerned about the past, current and future profitability
and solvency of the firm to ensure timely payment of interest and repayment of the principal
amount.
45. c) Competitor’s website. Annual reports, financial reports, auditor‟s report and interim
financial statement are all sources of information. Financial newspapers, financial magazines
and website of the company can all give insights about company‟s financial position.
Competitor‟s website may not be useful as a source of information for investment.
46. e)
I
Trend analysis. Trend analysis involves selecting a base year with normal operations, and
FA
expressing the value of subsequent years in terms of the base year. The base year is assigned
a value of 100.
47. d) ii ,iii, iv and v Detailed ratio analysis of its own company and the competitor‟s company
and comparing company‟s ratios with the competitor‟s ratio and the industry average will
IC
serve the purpose . Trend analysis is more useful in comparing the financial statements of
the company over a period of time. Study of the financial statements alone may not serve
any purpose.
48. c) Company prefers to use short term debt over long term. All other statements can be
confirmed by preparing common size statement showing each asset and liability as a
percentage of total assets and total liabilities.
49. a) Breakeven analysis. Breakeven analysis is not the preferred tool for financial analysis and
interpretation. It is used to determine the interrelationship between cost, volume and profit.
50. b) Financial analysis ignores the non-monetary factors .This is one of the major drawbacks
of financial statement analysis and interpretation. All other statements are irrelevant.
44
UNIT 6: FINANCIAL RATIO ANALYSIS
51. a) Valuation ratios. Valuation ratios relate to the firm‟s stock price and its earnings .These ratios
are very useful to the investors to know and analyze the value of the investment.
52. e) All the above. All of them are income statement ratios which show the firm‟s ability to
generate, sustain and to increase profits.
53. a) 493.26 P/E ratio = market price / Earnings Per Share = 513/1.04=493.26;
54. d) i and iii The company‟s P/E ratio is greater than Industry average which shows that the
company has strong growth prospects and is highly rated.
55. a) Gross profit ratio. Advertising is an administrative expense and does not affect gross profit but
only the net profit which is the base for calculating all other ratios.
56. d) The cushion available to the short term creditors is low. The standard current ratio to be
maintained is 2:1 .The current ratio of the company is below the required standards indicating
that the cushion available to the short term creditors is low.
57. a) Long term creditors of the company were relatively safe in 2011 as compared to 2010.
Decline in debt equity ratio in the year 2011 meant increase in equity capital in 2011, which in
turn meant increased safety for long term creditors of the company in the year 2011.
58. d) In the case of a special dividend, the company is signaling that this is a one-time payment
I
and not a sustained increase. Special dividend is not a normal item as far as accounting
treatment is concerned. Special dividends and tax paid on special dividends should be taken into
FA
consideration in deciding the dividend payout ratio.
59. d) Debt Service coverage ratio. Information about debt capital and the total amount of interest
paid on debt is missing for calculation of debt service coverage ratio.
IC
60. a) i and ii operating cash flow ratio.

= net cash flow from operating activities/current liabilities.
45
UNIT 7: BASICS OF COST TERM CONCEPTS
61. c) Selling and distribution costs. Selling costs are defined as“ the cost of seeking to create and
stimulate demand and of securing orders.” Distribution costs are defined as “the cost of
sequence of operations which begin with making the packed product available for dispatch
and ends with making the reconditioned, returned empty packages, if any, available for re-
use”.
62. d) Cost of Diamond metal frames used is an indirect expense. Direct costs are incurred for and
may be conveniently identified or easily traceable with a cost center or cost unit.
63. b) Rs. 29 lakhs. Indirect costs are incurred for the benefit of a number of cost centers or cost
units and cannot be conveniently identified with a cost center or cost unit.
64. d) SV, F, V
Cost per Unit 100 units Cost per Unit 150 units Cost Type
P 90 83.33 SV
Q Cost Constant Cost Constant F
R 80 80 V
Fixed costs remain fixed in total with increase or decrease in the volume of output or activity
for a given period of time or for a given range of output. Variable costs vary in total, directly
in proportion to the volume of output. Semi variable costs are partly fixed and partly variable.
65. c) Opportunity cost. Opportunity cost is the maximum possible alternative earnings that will be
foregone if the productive capacity or services are put to some alternative use. Opportunity
I
costs are not the actual costs incurred but only the benefits foregone. They will not be recorded
FA
in the accounting books.
66. b) Rs.1.00
Distance covered by bus per day = 150 X 4 = 600 KM
Output = 600 x 30 = 18000 passenger KM per day.
Output per week = 18000 x 5 = 90000 passenger KM per week
IC
Cost of operations per week = Rs.90000

Cost of unit (Cost per passenger kilometer = Rs90000/90000 = Rs.1.00
67. d) Opening stock semi-finished trash bags. Semi-finished or uncompleted units are called as
work in progress. It does not form a part of prime cost but is valued at the works cost.
68. c) iii and iv Depreciation of machines is a factory expense. Closing stock of Detergent will be
taken into consideration while determining the cost of goods sold.
69. e) Rs.840000
Opening Stock (60,000 + 80,000) Rs. 140000
Add Purchases Rs. 500000
Rs. 640000
Add Wages Rs. 200000
Prime Cost Rs. 840000
70. a) Rs. 385000
Raw materials required Rs. 250000
Add Wages Rs. 24000
Prime Cost Rs. 274000
Add work overheads 25% of wages Rs. 6000
Work cost Rs. 280000
Add Office and General Expenses Rs. 28000
(10% of work cost)
Cost of production Rs. 308000
Profit required 25% of cost of production: Rs. 77000
Amount of tender Rs. 385000
46
UNIT 8: COST ANALYSIS AND DECISION MAKING
71. a) Depreciation A cost can be considered as relevant cost if it helps the management to take the
right decision to achieve the objectives of the company. Irrelevant costs are those costs that will
not be affected by any decision made by the management. Depreciation is not affected by using
idle capacity of the machine.
72. e) Both c and d. Salary is fixed cost. Fixed Costs are those that remain fixed at the same value,
irrespective of the level of activity or quantum of output.
73. d) It is a future cost and includes all variable costs. Variable costs are considered as differential
depending upon the situation.
74. d) 120, 3,00,000 Incremental / decremental costs, incremental revenue and incremental /
decremental profit are main analytical tools used in differential costing.
90% (9000 Units 100% (10000 Units) Differential Cost
Cost of wood , paint and other Rs.630000 Rs.700000 Rs. 70000
materials
Labor charges for carpenters, Rs.125000 Rs.150000 Rs. 25000
machine men, carving men,
polish men and other variable
costs
Sales force expenses Rs. 75000 Rs.100000 Rs. 25000
Rent, insurance and office Rs.250000 Rs.250000
salaries
Sales Rs.1200000
I Rs.1500000
Profit Rs.120000 Rs.300000
FA
Total differential cost Rs.120000
Unit differential cost = Total Differential cost/ Differential units

120000 /1000 =120
IC
75. b) Rs.220,Rs.250
If component A is purchased, contribution will be = 180
150
Packing 50
Total variable costs 380
Selling price 600
Contribution 220
If component B is purchased, contribution will be = 100

200
Packing 50
Total variable costs 350
Selling price 600
Contribution 250
Make or buy decision will be taken using marginal costing

76. c) Rs.2,00,000 and Rs.2,57,500 Incremental revenue :
10000 units + 3000 units increased production @ Rs.100/- Rs.1300000

Bulk Order 10000 @ Rs.90/- Rs.900000
Proposed revenue Rs.2200000
Existing revenue Rs.2000000
Incremental revenue Rs.200000
Differential Cost:
47
Raw materials (for 23000 units) Rs.690000

Labor Cost Rs.345000
Overhead cost Rs.172500
Fixed Cost Rs.400000
Additional cost Rs.100000
Total Cost Rs.1707500
Present Cost Rs.14500000
Differential Cost Rs.257700
77. b) 1,50,000 Incremental revenue : 1000 x 3000 = 3000000

1000 x 2500 = 2500000
Incremental Revenue 500000
Differential cost
Material cost 1000 x 200 = 200000
Labor cost 1000 x 150 = 150000
Differential cost = 350000
Incremental profit = 150000
Differential cost analysis can be used to know whether the product can be sold profitably or it
requires further processing to charge a premium.
78. e ) Rs.2,40,000; Rs.2,00,000
Present Position
Hyderabad Bhopal
(Rs.) (Rs.)
Net Profit
I 4000 5000
FA
Share of HO expenses 5000 6000
Benefit 9000 11000
Proposed Position
Hyderabad Bhopal
IC
Rental income 8000 9000

HO audit expenses 1000 1000
Interest earned on amount if not invested 2400 3000
Benefit 11400 13000
Net Benefit 2400 2000
79. a) Rs 17 Total Variable cost = 25000 x 12.50 = Rs. 312500
Fixed cost 25000 x 1.50 = Rs. 37500
Profit required = Rs. 75000
No of units produced = 25000
Selling price of the product = (312500+37500+75000) / 25000 = Rs.17
80. d) Target costing. Target costing process starts with determining market based prices based on
market and competitive conditions and then subtracting the required margin to determine the
product or service level target costs.
48
UNIT 9: INTRODUCTION TO FINANCIAL MANAGEMENT
81. b) Financial Control. Finance Manager has the responsibility to continuously monitor the funds
and their use in order to ensure that the procurement and deployment of funds proceeds
according to plan. This task of a finance manager is known as Financial Control.
82. a) Minimum Paid up capital of Rs.5lacs & Minimum Members 7. According to Sec. 3(1)(iv)
of the Companies Act, 1956, a public company means a Company which has a minimum paid-
up capital of five lakh rupees. The minimum numbers of persons required is 7.
83. a) FEMA (Foreign Exchange Management Act, 2000). The Foreign Exchange Regulation Act,
1973, regulates foreign investment in India. The Foreign Exchange Management Act (FEMA)
replaced the Foreign Exchange Regulation Act (FERA) with effect from June 1, 2000.
84. c) Corporate Dividend Tax. The Companies need to pay the dividend tax @12.5% plus
surcharges applicable within 14days from the date of Declaration of Dividend/Payment of any
dividend, whichever is earlier.
85. d) All a, b, c The main objectives of Competition act, 2002 is regulate the framework of rules
covering critical areas of competition namely:
a). Anti- competitive agreements among enterprises.
b). Abuse of dominant position in the Market
c). Combinations/ Mergers between enterprises
86. b) It will become a Public Company. A private Company becomes a public company on
I
acceptance of deposits from public through issue of advertisement.
FA
87. c) Financial management is required for both Profits based and Non Profit based
Organizations. The common thread running through all the decisions taken by the various
managers is money and there is hardly any manager, working in any organization, for which
money does not matter. Basic skills in financial management are essential for all types of
organizations.
IC
88. e) Only a, b & c. In view of new investments to be made within the country, provisions that need
to be complied and kept in mind by the industrialists include Industrial Policy Regulation, 1956,
Industrial Licensing Policy, 1973, and the Industrial Policy Statements made by the government
from time to time.
89. d) Investment Decision. Commitment of huge monetary resources, with long term benefit in
mind, after careful appraisal is known as investment decision
90. a) Partnership Agreement/Deed. As per the Provisions of India Partnership Act, 1932, the
partnership comes into being through a partnership agreement or a partnership deed.
49
UNIT 10: INDIAN FINANCIAL SYSTEM
91. a) Primary Market

The capital market consists of the primary markets and the secondary markets and there is a
close link between them. The primary market creates long-term instruments through which
corporate entities borrow from the capital market.
To meet the financial requirements of their projects, companies raise capital through issue of
securities (shares and debentures) in the primary market. Ex. IPOs
92. e) Only a, b & c
A corporate would be eligible to issue CP provided,
(i) Its tangible net worth of the company is not less than Rs.4 crore as per
the latest audited balance sheet.
(ii) Company has been sanctioned working capital limit by bank/s or all-India financial
institution(s); and
(iii) The borrowed account of the company is classified as a standard asset by the financing bank
(s)/institutions.
CP are issued in denominations of Rs.5 lakh or multiples thereof. A single investor should
invest not less that Rs. 5 lakh of face value.
93. c) Securities Exchange Board of India
Money Market Mutual Funds (MMMFs) are mutual funds that invest primarily in money
market instruments of very high quality and of very short maturities. Earlier these funds were
regulated by the RBI, but RBI withdrew its guidelines, with effect from March 7, 2000 and
now they are governed by SEBI.
94. b) Rights Issue of Shares
I
Rights issue is the method of raising additional finance from existing members by offering
securities (shares and debentures) to them on pro rata basis.
FA
95. e) Bought out Deals
BOD happens when a company initially places its equity shares, (which are to be offered to
the public at a later date,) to a sponsor/merchant banker, who in turn offloads the shares at the
appropriate time. In a BOD, the sponsor is also an intermediate investor who buys stakes in
the company and disinvests in favor of the public at an appropriate time.
IC
96. b) 8.41%
Yield (K) = F-P/P x 365/d
where
k = Yield
F = Face value
P = Price
d = Maturity period in days
1000-922.36/922.36 x 365/364 = 8.41%
97. b) Samurai Bonds
Samurai Bonds are bonds issued by non-Japanese borrowers in the domestic Japanese
markets.
98. a) Arbitrage Services
The act of obtaining risk-free profits by simultaneously buying and selling similar instruments
in different markets is known as „arbitrage‟. The person who does this activity is referred to as
an „arbitrageur‟. For example, one could always sell a stock on NSE and buy on BSE. These
Services offered by the Merchant Bankers is known as Arbitrage Services.
99. b) ADR. ADR is a dollar denominated negotiable certificate and it represents a non-US company‟s
publicly traded equity. It was devised in the late 1920s to help Americans invest in overseas
securities and to assist non-US companies that wish to have their stock traded in the American
Markets.
100. a) It is the cash that banks deposit with Reserve Bank as a proportion of their deposits
The central bank regulates the liquidity of the banking system through two complementary
methods such as Cash Reserve Ratio (CRR), and Statutory Liquidity Ratio (SLR).CRR (Cash
Reserve Ratio) is the average daily balance with RBI, the percentage of CRR will be specified
by RBI from time to time on Net Demand and Time Liabilities (NDTL). It is the cash that banks
deposit with Reserve Bank as a proportion of their deposits.
50
UNIT 11: TIME VALUE OF MONEY
101. c) Time Value of Money .Financial Products recognize that money has time value and they
manage to pay returns as additional compensation for parting with a sum of money today
102. a) 1,18,26562.50.The formula used is FVn=PV(1+k)n = 1,00,00,000(1+0.0875)2 = 1,18,26562.50
103. b) The formula for compounding FV n= PV (1+k/n)m*n
= 1,00,00,000(1+0.0875/4)4*1 =
104. e) All the above. All the statements support the concept of time value of money
105. d) Annuity. Annuity is the term used to describe a series of periodic flows of equal amounts.
106. a) The installment includes a part of installment and a part of principal. The formula for
calculating the amount of installment is R= amount of loan/PVIFA (at 10% for 5 years )
107. e) Only a and b. The nominal interest rate is conceptually the simplest type of interest rate. It is
quite simply the stated interest rate of a given bond or loan. If the nominal rate on a loan is 5%,
then borrowers can expect to pay Rs 5 as interest for every Rs 100 loaned to them. Effective
rate, account. If the nominal interest rate is 10% under a scheme where compounding is done
semi-annually, the principal amount grows at the rate of 10.25%.This 10.25% is called the
effective rate of interest
108. e) The present value Interest Factor (PVIF) of annuity at the end of sixth year. Annuity
I
present values are used for equal amounts of cash outflow or inflow every year
FA
109. a) 8.64 According to the rule of 72, doubling period =72/interest rate
= interest rate = 72/doubling period
Doubling period = 100 months = 8.333 years
Interest rate = 72/8.3333= 8.64
IC
110. c) Only a and b. Discounting is determining the present value of future cash flows and
compounding is finding the future value of cash flows at the end of a time horizon . Both take
care of time value of money.
51
UNIT 12: SOURCES OF LONG TERM FINANCE
111. e) Short term bank loans. An amount of 100 crore for expansion in the next 3 years should be
financed through long term sources of finance.
112. a) i and ii. Interest on debt capital is a tax deductible expense and raising debt capital is cheaper
than equity capital.
113. e) All the above the major advantage of using reserves is its easy availability, no risk, elimination
of expenses and no dilution of control. Companies which have lot of investment opportunities
prefers to retain where as companies which do not have enough profitable investment
opportunities declare dividends.
114. d) Inviting short term public deposits Finance required for a shorter period of time for meeting
the daily or recurring financial requirements should be met through short term sources of
finance.
115. d) Non-voting shares these shares are useful to companies seeking to increase their net worth
without losing control. They are similar to equity in every respect, the sole exception being
absence of voting rights.
116. c) Small Domestic markets in India. Indian capital markets are growing rapidly and its stock
exchange is among the 5 biggest stock exchanges in the world in terms of volume of
transactions carried out. I
117. d) Rights offer should be kept open for a period of 90 days. Rights offer should be kept open for
a period of 60 days.
FA
118. c) Participating debentures. Participating debentures are unsecured corporate debt securities
which participate in the profits of the company.
119. c) Deferred credit Deferred credit facility is offered by suppliers of machinery wherein the buyer
can pay the purchase price in installments on a fixed rate of interest, and within the time frame,
IC
as negotiated between both parties.

120. d) Venture capital is used only for startup projects besides providing funds for startup projects;
venture capital is also used to fund expansion projects. It may also be used to leverage buyout
financing.
52
UNIT 13: WORKING CAPITAL MANAGEMENT
121. d) Capital work-in-progress comprises outstanding advances paid to acquire current assets.
122. d) Working Capital Management involves management of cash at adequate levels. High levels
of cash may hinder profitability and lower levels of cash may affect the liquidity of the company
in an adverse way.
123. c) Reliable Agro has very low cash balances. A Company following conservative approach
believes in maintaining high levels of working capital including high cash levels.
124. e) All the above. High working capital to sales ratio indicates high investments in the working
capital which in turn implies that the company is spending more money than what it earns while
implementing projects. High working levels can also mean a delay in projects and an increased
cash outflow. The deficit between the cash outgo and inflow is bridged by taking short-term
loans from the banks. This is the key reason for the rise in its short-term borrowings.
125. b) Adequate investment in fixed assets to meet the needs of forecasted sales. Working capital
management deals with investment and management of current assets
126. a) 828.31,-157.79.Gross working capital is equal to the total of all current assets including loans
and advances and Net working capital is the difference between gross working capital and
current liabilities
127. b) i ,ii, and iii. Working capital is excess of current assets over current liabilities. A Negative
I
working capital means current assets are less than current liabilities and a part of long term
FA
assets has been financed with short term funds leading to problems in meeting short term
obligations and problems of liquidity.
128. e) All the above. Balance sheet is prepared according to schedule VI of the Indian Companies Act
which requires bank borrowing to be shown under the heading „secured loans‟ and Short term
public deposits as „unsecured loans‟. It does not form a part of current liabilities. Similarly
IC
marketable securities are shown under „Investments‟ and are not included in current assets
129. a) Godrej – manufacturing industry. Being a manufacturing industry, their investment in current
assets will be maximum
130. a) Total asset turnover ratio. Working Capital Management is concerned with management and
financing of current assets..
53
The ICFAI Group
ICFAI was established in
1984 as a not-for-profit ICFAI practices the value of academic integrity at all
society with the broad levels.
objective of empowering
The ICFAI Group's culture of teaching and learning
citizens through world class
supports and fosters intellectual and personality
quality education. Since its
development among its graduating students. They carry
establishment, ICFAI Group
an attitude of ownership of their work. ICFAI Group strives
has made a significant mark
to make the students - DOERS. ICFAI Group system,
in the Indian educational
strongly believes in developing an 'entrepreneurial
field with a pan Indian
network and presence.
Subsequently, there was a
big leap when ICFAI Group
started its chain of business
schools (IBS) across India in
1995 to offer management
program. Since its
inception, IBS has been
consistently ranked among
the top ranked B-Schools of
India providing excellent
academic delivery and
I
infrastructure to its students
FA
and transforming them into
leaders for the future.
ICFAI Group has 3 Strategic
Institutional Units, the ICFAI
IC
Universities, the ICFAI

Business Schools and the Flexible Learning Programs
(Distance Mode). In all the programs offered across these
units, the emphasis is on adherence to academic rigor mindset' among its
and differentiated curriculum that bridges the industry graduating students.
–academia gap.
The alumni of ICFAI
Flexible and tech enabled learning also plays an Group are working in
important role in ICFAI's teaching methodology. The renowned companies
delivery takes place with the use of hi-tech learning world-wide. Collectively,
management system at campus programs and content ICFAI Group alumni
delivery for distance learning through online medium. contribute significantly to
the growth story of India.
Awards won by ICFAI Group

IC
FA
I

SMB108 WB PDF

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

SMB108 WB PDF

Caricato da

Copyright:

Formati disponibili

IC

Participants in flexible learning programs have limitations on the nature of the

What makes it relevant?

Ref. No.AF-WB-IFHE – 042015

Our E-mail id: cwfeedback@icfaiuniversity.in

The learning outcomes expected are:

The Workbook format is also used for Assessment..

Definition of Accounting - Objectives of Accounting: Maintenance of Records for Business

UNIT 2 CONCEPTUAL FRAMEWORK OF FINANCIAL ACCOUNTING

Conceptual Framework of Financial Accounting - The Accounting Process: Identification of Transaction,

UNIT 3 ELEMENTS OF FINANCIAL STATEMENTS

UNIT 4 FINANCIAL STATEMENTS OF COMPANIES

Statutory Requirements Governing Financial Statements: Legal Requirements as to the Submission of

UNIT 5 INTRODUCTION TO FINANCIAL STATEMENTS ANALYSIS

UNIT 6 FINANCIAL RATIO ANALYSIS I

UNIT 7 BASIC COST TERMS AND CONCEPTS

Types of Costs: By Nature or Element or Analytical, By Functions, By Traceability, By Variability, By

UNIT 8 COST ANALYSIS AND DECISION MAKING

UNIT 9 INTRODUCTION TO FINANCIAL MANAGEMENT

UNIT 10 INDIAN FINANCIAL SYSTEM

UNIT 11 TIME VALUE OF MONEY

UNIT 12 SOURCES OF LONG-TERM FINANCE

UNIT 13 WORKING CAPITAL MANAGEMENT

Multiple Choice Questions

Unit 1: Introduction to Financial Statements 9

Unit 4: Financial Statement of Companies 43

UNIT 1: INTRODUCTION TO FINANCIAL STATEMENTS

c. Average of market price and original price

Year Profit (Rs.in crores)

c. Rs.2 930 Crores d. Rs.3,150 Crores

UNIT 2: CONCEPTUAL FRAMEWORK OF FINANCIAL ACCOUNTING

UNIT 3: ELEMENTS OF FINANCIAL STATEMENTS

Maintenance expenses 550 20 years) 50,000

UNIT 4: FINANCIAL STATEMENT OF COMPANIES

a. Accumulated profit carried forward from the previous year

b. Depreciation is to be calculated in such a way that it leaves adequate margin for

sheet of the company on December 2013…

UNIT 5: INTRODUCTION TO FINANCIAL STATEMENT ANALYSIS

when the company prospers

Cash 1,200,000 900,000 750,000

Accounts receivable 4,800,000 3,600,000 3,000,000

Cash at Bank 3,600,000 2,700,000 2,300,000

Total current assets 9,600,000 7,200,000 6,050,000

Total fixed assets 6,200,000 5,500,000 5,000,000

Total Assets 15,800,000

Accounts payable 2,400,000 1,800,000 1,500,000

Accrued expenses 480,000 360,000 300,000

Short-term debt 800,000 600,000 400,000

Total current liabilities 3,680,000 2,760,000 2,200,000

Long-term debt 9,020,000 7,740,000 7,350,000

Total liabilities 12,700,000 10,500,000 9,550,000

Shareholders’ equity 3,100,000 2,200,000 1,500,000

Total liabilities and equity 15,800,000 12,700,000 11,050,000

UNIT 6: FINANCIAL RATIO ANALYSIS

Q53 and Q54 are based on the information given below

Price / book ratio 8.61

53. What is the P/E ratio of Tata Motors?

Q 56 and Q 57 are based on the data given below

a. Special dividend is a normal item as far as accounting treatment is concerned

a. i and ii b. ii and iii

UNIT 7: BASICS OF COST TERM CONCEPTS

Depreciation of the assembling machine 2

Which of the following statements are incorrect?