Basics of Financial Mathematics Test 29

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Basics of Financial Mathematics Test 29

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Weekly Quiz Competition

Question 1
1 / -0

Which of the following indicated the Debt-Service Coverage Ratio (DSCR) of 1.5 of a firm?

A
The total obligations (i.e. interest plus repayment on the long term loan) of the firm are 1.5 times its PBDIT

B
The total obligations are 1.5 times its PAT (Profit After Tax)

C
The post-tax cash earnings are are 1.5 times its total obligations.

D
The post-tax earnings after depreciation are 1.5 times its total obligations.

E
The total obligations are 1.5 times than equity earnings

Solution

DSCR of 1.5 indicates that the firm has post-tax cash earnings which are 1.5 times the total obligations (interest and loan repayment) in the particular year.
Question 2
1 / -0

Where depreciable assets are revalued, then according to Accounting Standard-6 depreciation amount should be based on____________.

A
Historical cost and profit on revaluation should be transferred to P and L a/c

B
Revalued amount

C
Depreciated value of the asset

D
Accounting Standard-6 does not specify anything in this regard

Solution

AS-6 deals with depreciation on fixed assets hence, depreciable assets are revalued, then depreciation amount should be based on revalued amount of the asset.
Question 3
1 / -0

50,000 equity shares of Rs. 10 each and its Current price is Rs.45 each.The profit after tax for the year is Rs. 9,60,000.
Calculate cost of capital based on price Earning method.

A
42.67

B
43.67

C
40.67

D
40.00

Solution
Question 4
1 / -0

__________ means decrease in the value of asset.

A
Depreciation

B
Appreciation

C
Appraisal

D
Valuation

Solution

Depreciation means a reduction in the value of an asset over time, due in particular to wear and tear.
Depreciation, i.e. a decrease in an asset's value, may be caused by a number of other factors as well as such as unfavourable market conditions, etc. Machinery, equipment, currency are some examples of assets that are likely to depreciate over a specific period of time.
Question 5
1 / -0

Depreciation accounting is a process of ___________.

A
asset valuation

B
allocation of market value of fixed asset over its useful life

C
allocation of depreciation cost of tangible fixed assets over its useful life

D
allocation of depreciable cost of wasting assets over its useful life

Solution

Depreciation is a system of accounting which aims to distribute the cost of tangible capital assets, less salvage (if any) over the estimated useful life of the unit in a systematic and rational manner. It is a process of allocation , not of valuation.
Question 6
1 / -0

Allocating the cost of a fixed asset over its useful life is called __________.

A
amortization

B
depreciation

C
obsolescence

D
disposal

Solution

Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life. Principle factor in measurement of depreciation are total cost of asset, useful life of the asset, residual value of the asset. In other words a reduction in the value of asset over time, due to particular to wear and tear.
Question 7
1 / -0

Depreciation is the _________ in the value of fixed assets due to its wear and tear.

A
Increase

B
Expansion

C
Addition

D
Reduction

Solution

Depreciation is a reduction in the value of fixed asset due to normal wear & tear, usage and obsolescence.
Depreciation is a charge on profit & loss account, and debited to profit & loss account.
Question 8
1 / -0

Depreciation is a process of ___________.

A
valuation of fixed assets

B
spreading of cost of a fixed asset over its working life

C
provision of fund for replacement of the asset

D
all the three

Solution

Depreciation is a system of accounting which aims to distribute the cost of tangible capital assets, less salvage (if any) over the estimated useful life of the unit in a systematic and rational manner. It is a process of allocation , not of valuation.
Question 9
1 / -0

Gradual and permanent decrease in the value of an asset is known as _________.

A
Loss

B
Profit

C
Depreciation

D
Scrap

Solution

Depreciation is a reduction in the value of fixed asset due to normal wear & tear, usage and obsolescence. Depreciation is a charge on profit & loss account, and debited to profit & loss account.

Gradual and permanent decrease in the value of an asset is known as depreciation.
Question 10
1 / -0

Depreciation arises because of _____________.

A
wear and tear

B
inflation

C
fall in the value of asset

D
profit

Solution

Depreciation is charged on a certain percentage on each of the asset every year. Depreciation arise due to wear and tear of the asset because of its usage.
Depreciation is an indirect cost and debited to profit & loss account and credited to the respective amount. Following entry will be passed:

Depreciation A/c Dr.
To Asset A/c

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Basics of Financial Mathematics Test 29

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Question 1

The total obligations (i.e. interest plus repayment on the long term loan) of the firm are 1.5 times its PBDIT

The total obligations are 1.5 times its PAT (Profit After Tax)

The post-tax cash earnings are are 1.5 times its total obligations.

The post-tax earnings after depreciation are 1.5 times its total obligations.

The total obligations are 1.5 times than equity earnings

Solution

Question 2

Historical cost and profit on revaluation should be transferred to P and L a/c

Revalued amount

Depreciated value of the asset

Accounting Standard-6 does not specify anything in this regard

Solution

Question 3

42.67

43.67

40.67

40.00

Solution

Question 4

Depreciation

Appreciation

Appraisal

Valuation

Solution

Question 5

asset valuation

allocation of market value of fixed asset over its useful life

allocation of depreciation cost of tangible fixed assets over its useful life

allocation of depreciable cost of wasting assets over its useful life

Solution

Question 6

amortization

depreciation

obsolescence

disposal

Solution

Question 7

Increase

Expansion

Addition

Reduction

Solution

Question 8

valuation of fixed assets

spreading of cost of a fixed asset over its working life

provision of fund for replacement of the asset

all the three

Solution

Question 9

Loss

Profit

Depreciation

Scrap

Solution

Question 10

wear and tear

inflation

fall in the value of asset

profit

Solution

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