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Financial Statements and Analysis Test - 28

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Financial Statements and Analysis Test - 28
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Weekly Quiz Competition
  • Question 1
    1 / -0
    Markets which bring closer institutions needing funds and with surplus funds are classified as _____________.
  • Question 2
    1 / -0
    The current ratio of a company is 2: 1 which of the following suggestions would Improve, reduce and net change it. I. Payment to trade creditors II. Sell machinery for cash Ill. Purchased goods for cash IV. Issue of equity shares ________________________.
  • Question 3
    1 / -0
    Capital Budgeting is a part of ___________.
    Solution
    Capital Budgeting is the planning process used to determine whether organisation's long term investment proposal are worth funding through firm's capitalization structure i.e, debt, equity & retained earnings.
    The capital budgeting process is a measurable way for businesses to determine the long-term economic and financial profitability of any investment project. A capital budgeting decision is both a financial commitment and an investment.
  • Question 4
    1 / -0
    Real rate of return is equal to__________.
    Solution
    The real rate of return formula is the sum of one plus the nominal rate divided by the sum of one plus the inflation rate which then is subtracted by one. The formula for the real rate of return can be used to determine the effective return on an investment after adjusting for inflation.
  • Question 5
    1 / -0
    The paid-up capital of Mukund Ltd. is Rs $$18,00,000$$. The company decided to propose a dividend of Rs $$2,16,000$$ out of current profit. How much of current profit is to be transferred to reserve?
    Solution
    As per the provision of sub section (2) of section 205 of the companies act, no dividend can be declared or paid by the company to its shareholders out of the profits of the company for the financial year after providing depreciation until a specified percentage of profit of the financial year is transferred to reserves. 

    Rules are as under:
    • If proposed dividend exceeds 10% but less than 12.5% of the paid up capital, an amount of 2.5% of the current profit need to be transferred to reserve.
    • If proposed dividend exceeds 12.5% but less than 15% of the paid up capital, an amount of 5% of the current profit need to be transferred to reserve.
    • If proposed dividend exceeds 15% but less than 20% of the paid up capital, an amount of 7.5% of the current profit need to be transferred to reserve.
    • If proposed dividend exceeds 20% of the paid up capital, an amount of 10% of the current profit need to be transferred to reserve.

    In present case dividend percentage is 12% (216000/1800000), falls under first rule, hence 2.5% need to be transferred to reserves from current year's profit.
  • Question 6
    1 / -0
    Which of the following is not used in Capital Budgeting?
    Solution
    Capital Budgeting is the process of determining the viability to long term investment on purchase or replacement of property, plant & equipment, new product line or other projects. It takes into account various factors such as time value of money, sensitivity analysis & cash flows.
  • Question 7
    1 / -0
    Which one of the following statements is correct?
    Solution
    Business transactions are events that have a monetary impact on the financial statements of an organization. When accounting for these transactions, numbers in two accounts are recorded, where the debit column is on the left side and the credit column id on the right side.
    1. A debit is an accounting entry that either increase an asset or expense account, or decreases a liability or equity account. It is positioned on the left in an accounting entry.
    2. A credit is an accounting entry that either increases a liability or equity account, or decreases an asset or expense account. It is positioned to the right in an accounting entry.
  • Question 8
    1 / -0
    Feasibility Set Approach to Capital Rationing can be applied in ____________.
    Solution
    Feasibility Set Approach to capital Rationing can be applied in Accept-reject situations.  Accept-Reject situations are the situations which the company is not sure about, so conducting a feasibility test would ensure if the project is suitable or not for the company. 
  • Question 9
    1 / -0
    When preparing the annual financial statements, the balance of prepaid rent account should be treated as a  _____________.
    Solution
    Prepaid expenses are those expenses which have been paid in advance and related benefits are not consumed within the same accounting period. The benefits of expenses incurred are carried to the next accounting period. Examples-prepaid salary, prepaid rent etc. Prepaid expenses are recorded n the books at the end of an accounting period to show true numbers of a business. 
    When preparing the annual financial statements, the balance of  prepaid rent account should be treated as the balance of a personal account and is shown on the assets side of a balance sheet.
  • Question 10
    1 / -0
    Both assets and owners' equity would be increased by _________.
    Solution
    Accounting Equation:

    Owners Equity+Liabilities=Fixed Assets+Current Assets

    When Owner is bringing capital, it increases owners equity along with the cash or bank balance. Hence both assets and owners equity increases.
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