Sources of Business Finance Test 2

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Sources of Business Finance Test 2

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Weekly Quiz Competition

Question 1
1 / -0

External sources includes :-

A
Funds from long-term loans

B
Venture capital

C
Funds from increase in share capital

D
All of the above

Solution

External sources, are the capital arranged from outside the business, unlike retained earnings which are internally generated out of the activity of a business.
External sources of finance are equity capital, preferred stock, debentures, term loans, venture capital, leasing, hire purchase, trade credit , bank overdraft , factoring etc.
Question 2
1 / -0

Which of the following is a requirement of financing a plan?

A
Matching financial resources to physical targets

B
Realisation of Plan target through correct implementation

C
Raising financial resources to implement the Plan

D
To make the Plan smaller in size to be met by the available resource.
Question 3
1 / -0

The increase in profit return resulting from borrowing capital at a low rate and employing it in a business yielding at a higher rate ____________.

A
Operating leverage

B
Trading on equity

C
Asset leverage

D
Return on investment leverage
Question 4
1 / -0

In each bank, within a credit-rating scale, borrowers are classified into _____________________.

A
Excellent, Good and Average

B
Below Average or Unsatisfactory

C
Excellent and Below Average

D
Both (a) and (b)
Question 5
1 / -0

Which of the following is/are the source(s) of short term finance?

A
Trade Credit

B
Cash advance loan

C
Short term Borrowings

D
All of the above

Solution

Short-term finance is the type of business financing where it is obtained for a year or less. The sources of short-term finance are trade credit, cash advance loans, and short-term borrowings.
Hence, option (D) is the correct answer.
Question 6
1 / -0

Public deposits are the deposits that are raised directly from _______.

A
The public

B
The directors

C
The auditors

D
The owners

Solution

Public deposits refer to the deposits that are raised by the company or an organization directly from the public. Public deposits are an important source of financing the medium term and long term requirements of a company.
Question 7
1 / -0

$$\frac{Shareholder's funds}{total assets}\100$$ is a ____________.

A
Liquidity ratio

B
Solvency ratio

C
Profitability ratio

D
Credibility ratio

Solution

A solvency ratio is a key measurement used to measure an enterprise's ability to meet its long-term debt obligations and is used often by potential business lenders. A solvency ratio indicates whether a company's cash flow is sufficient to meet its long-term liabilities.
Share holder's funds = equity share capital + Pref. shares + reserves and surplus - losses
Share holder's fund = net worth = proprietary fund = equity
Equity share holder's fund = share holders fund - pref. shares.
Hence, option (B) is the correct answer.
Question 8
1 / -0

Which of the following is true for 'dirty float'?

A
It is a purely fixed exchange rate system

B
It is compromise between fixed and floating exchange rate systems

C
Central banks sometimes intervene in the forex market to curb sharp changes.

D
Both (B) and (C) above

E
All of (A), (B) and (C) above

Solution

In order to reduce the inefficiencies in the foreign exchange market central banks generally intervene in the currency markets to smoothen the fluctuations. Though officially the exchange rate may be floating, in reality, the central bank may intervene regularly in the currency market, unofficially keeping it fixed. Such a system is referred to as a 'managed float' or a 'dirty float'.
Hence, option (D) is the correct answer.
Question 9
1 / -0

Which of the following is true with respect to sources and uses of funds?

A
Depreciation and decrease in NWC are sources of funds

B
Depreciation and decrease in NWC are uses of funds

C
Depreciation is a source of fund but decrease in NWC is use of fund

D
Depreciation in a use of fund but decrease in NWC is source of fund.

E
Depreciation and increase in NWC are uses of funds.

Solution

As per the accounting principles to ascertain the profits of the firm, depreciation on fixed assets should be charged against the revenue of the fir by debiting to the profit and loss account. This reduces the profits of the firm. But charging depreciation does not involves any fund. Therefore, the amount of depreciation charged against the revenue of the firm should be added back to the net profit to estimate the funds from operations, which is a source of fund. Decrease in net working capital is a source of fund.
Question 10
1 / -0

Which is of the following is / are false?

A
In the FIFO method the issue is in the order of receipt.

B
In the replacement method the current realizable value is taken for pricing the issues.

C
In the weighted average method issue price is the weighted average of quantity and price and the weight being the percentage of value of each lot in the total stock.

D
Under inflationary conditions LIFO method will show low value of inventory.

E
Both (B) and (D) above

Solution

In the Weighted average cost method the pricing of the materials is done on weighted average basis and the weights will be based on the quantity.

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Re-Attempt Weekly Quiz Competition

Sources of Business Finance Test 2

Result

Sources of Business Finance Test 2

Score

-

Rank

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SHARING IS CARING

Question 1

Funds from long-term loans

Venture capital

Funds from increase in share capital

All of the above

Solution

Question 2

Matching financial resources to physical targets

Realisation of Plan target through correct implementation

Raising financial resources to implement the Plan

To make the Plan smaller in size to be met by the available resource.

Question 3

Operating leverage

Trading on equity

Asset leverage

Return on investment leverage

Question 4

Excellent, Good and Average

Below Average or Unsatisfactory

Excellent and Below Average

Both (a) and (b)

Question 5

Trade Credit

Cash advance loan

Short term Borrowings

All of the above

Solution

Question 6

The public

The directors

The auditors

The owners

Solution

Question 7

Liquidity ratio

Solvency ratio

Profitability ratio

Credibility ratio

Solution

Question 8

It is a purely fixed exchange rate system

It is compromise between fixed and floating exchange rate systems

Central banks sometimes intervene in the forex market to curb sharp changes.

Both (B) and (C) above

All of (A), (B) and (C) above

Solution

Question 9

Depreciation and decrease in NWC are sources of funds

Depreciation and decrease in NWC are uses of funds

Depreciation is a source of fund but decrease in NWC is use of fund

Depreciation in a use of fund but decrease in NWC is source of fund.

Depreciation and increase in NWC are uses of funds.

Solution

Question 10

In the FIFO method the issue is in the order of receipt.

In the replacement method the current realizable value is taken for pricing the issues.

In the weighted average method issue price is the weighted average of quantity and price and the weight being the percentage of value of each lot in the total stock.

Under inflationary conditions LIFO method will show low value of inventory.

Both (B) and (D) above

Solution

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