Prayer Before the Exam

O Lord, before You lie my strength and my

University of San Agustin weakness; Preserve the one, heal the other. Before
You lie my knowledge and my ignorance. Come to
COLLEGE OF COMMERCE my assistance as I prepare for this test. Help me to
remember all that is important. Let me remember
Department of Accountancy You, let me understand You, let me love You.
AE 19 Increase these things in me until You refashion me
to Your will. Amen.
MANAGEMENT ADVISORY SERVICES (Inspired by: St. Augustine, The Trinity XV, 51)
MIDTERM QUIZ
1st Semester, 2020-2021

1. The only feasible purpose of financial management is

a) Wealth Maximization
b) Sales Maximization
c) Profit Maximization
d) Assets maximization
2. Financial management process deals with
a) Investments
b) Financing decisions
c) Both a and b
d) None of the above
3. Agency cost consists of
a) Binding
b) Monitoring
c) Opportunity and structure cost
d) All of the above
4. Finance Function comprises
a) Safe custody of funds only
b) Expenditure of funds only
c) Procurement of finance only
d) Procurement & effective use of funds
5. The objective of wealth maximization takes into account
a) Amount of returns expected
b) Timing of anticipated returns
c) Risk associated with uncertainty of returns
d) All of the above
6. Financial management mainly focuses on
a) Efficient management of every business
b) Brand dimension
c) Arrangement of funds
d) All elements of acquiring and using means of financial resources for
financial activities
7. Time value of money indicates that
a) A unit of money obtained today is worth more than a unit of money
obtained in future
b) A unit of money obtained today is worth less than a unit of money obtained in
future
c) There is no difference in the value of money obtained today and tomorrow
d) None of the above
8. Time value of money supports the comparison of cash flows recorded at
different time period by
a) Discounting all cash flows to a common point of time
b) Compounding all cash flows to a common point of time
c) Using either a or b
d) None of the above.

9. If the nominal rate of interest is 10% per annum and there is quarterly
compounding, the effective rate of interest will be:
a) 10% per annum
b) 10.10 per annum
c) 10.25%per annum
d) 10.38% per annum
10. Relationship between annual nominal rate of interest and annual effective
rate of interest, if frequency of compounding is greater than one:
a) Effective rate > Nominal rate
b) Effective rate < Nominal rate
c) Effective rate = Nominal rate
d) None of the above
11. Mr. X takes a loan of Rs 50,000 from HDFC Bank. The rate of interest is
10% per annum. The first installment will be paid at the end of year 5.
Determine the amount of equal annual installments if Mr. X wishes to repay
the amount in five installments.
a) Rs 19500
b) Rs 19400
c) Rs 19310
d) None of the above
12. If nominal rate of return is 10% per annum and annual effective rate of
interest is 10.25% per annum, determine the frequency of compounding:
a) 1
b) 2
c) 3
d) None of the above
13. Present value tables for annuity cannot be straight away applied to varied
stream of cash flows.
a) True
b) False
14. Heterogeneous cash flows can be made comparable by
a) Discounting technique
b) Compounding technique
c) Either a or b
d) None of the above
15. Risk of two securities with different expected return can be compared with:
a) Coefficient of variation
b) Standard deviation of securities
c) Variance of Securities
d) None of the above
16. A portfolio having two risky securities can be turned risk less if
a) The securities are completely positively correlated
b) If the correlation ranges between zero and one
c) The securities are completely negatively correlated
d) None of the above.
17. Efficient frontier comprises of
a) Portfolios that have negatively correlated securities
b) Portfolios that have positively correlated securities
c) Inefficient portfolios
d) Efficient portfolios

18. Efficient portfolios can be defined as those portfolios which for a given level
of risk provides
a) Maximum return
b) Average return
c) Minimum return
d) None of the above
19. Capital market line is:
a) Capital allocation line of a market portfolio
b) Capital allocation line of a risk free asset
c) Both a and b
d) None of the above
20. CAPM accounts for:
a) Unsystematic risk
b) Systematic risk
c) Both a and b
d) None of the above
21. The point of tangency between risk return indifferences curves and
efficient frontier highlights:
a) Optimal portfolio
b) Efficient portfolio
c) Sub-optimal portfolio
d) None of the above
22. A portfolio comprises two securities and the expected return on them is
12% and 16% respectively. Determine return of portfolio if first security
constitutes 40% of total portfolio.
a) 12.4%
b) 13.4%
c) 14.4%
d) 15.4%
23. A risk free security has zero variance.
a) True
b) False
24. Return on any financial asset consists of capital yield and current yield.
a) True
b) False
25. There is no difference between the capital market line and security market
line as both the terms are same.
a) True
b) False
26. The value of a bond and debenture is
a) Present value of interest payments it gets
b) Present value of contractual payments it gets till maturity
c) Present value of redemption amount
d) None of the above
27. Required rate of return>Coupon rate, the bond will be valued at
a) Premium
b) Par value
c) Discount
d) None of the above.

28. If the coupon rate is constant, the value of bond when close to maturity will
be
a) Issued value
b) Par value
c) Redemption value
d) All of the above
29. A bond is said to be issued at premium when
a) Coupon rate>Required returns
b) Coupon rate=Required returns
c) Coupon rated) None of the above
30. Value of a bond just depends on the interest payment is offers.
a) True
b) False
31. In a variable growth model, the dividend is believed to grow at a constant
pace forever after an initial growth period.
a) True
b) False
32. For a bond YTM is always equal to coupon rate.
a) True
b) False
33. When the concept of ratio is defined in respected to the items shown in the
financial statements, it is termed as
a) Accounting ratio
b) Financial ratio
c) Costing ratio
d) None of the above
34. The definition, “The term accounting ratio is used to describe significant
relationship which exist between figures shown in a balance sheet, in a profit
and loss account, in a budgetary control system or in a any part of the
accounting organization” is given by
a) Biramn and Dribin
b) Lord Keynes
c) J. Betty
d) None of the above.
35. The relationship between two financial variables can be expressed in:
a) Pure ratio
b) Percentage
c) Rate or time
d) Either of the above
36. Liquidity ratios are expressed in
a) Pure ratio form
b) Percentage
c) Rate or time
d) None of the above

37. Which of the following statements are true about Ratio Analysis?
A) Ratio analysis is useful in financial analysis.
B) Ratio analysis is helpful in communication and coordination
C) Ratio Analysis is not helpful in identifying weak spots of the business.
D) Ratio Analysis is helpful in financial planning and forecasting.

a) A, B and D
b) A, C and D
c) A, B and C
d) A, B , C, D
38. The ratio analysis is helpful to management in taking several decisions, but
as a mechanical substitute for judgment and thinking, it is worse than useless.
a) True
b) False
39. Profit for the objective of calculating a ratio may be taken as
a) Profit before tax but after interest
b) Profit before interest and tax
c) Profit after interest and tax
d) All of the above
40. Which of the following are limitations of ratio analysis?
A) Ratio analysis may result in false results if variations in price levels are not
considered.
B) Ratio analysis ignores qualitative factors
C) Ratio Analysis ignores quantitative factors
D) Ratio Analysis is historical analysis.

a) A, B and D
b) A, C and D
c) A, B and C
d) A, B , C, D
41. Which of the following falls under Profitability ratios?
A) General Profitability ratios
B) Overall Profitability ratios
C) Comprehensive Profitability ratios

a) A and B
b) A and C
c) B and C
d) None of the above
42. General Profitability ratios are based on
a) Investments
b) Sales
c) a & B
d) None of the above
43. Gross Profit ratio is also termed as
a) Gross Profit Margin
b) Gross Margin to net sales
c) Both a and b
d) All of the above

44. While calculating Gross Profit ratio,

a) Closing stock is deducted from cost of goods sold
b) Closing stock is added to cost of goods sold
c) Closing stock is ignored
d) None of the above
45. While calculating Gross Profit, if net profit is given,
a) It can be converted into gross profit by adding interest to it
b) It can be converted into Gross profit by adding indirect expenses to it
c) Both a and b
d) None of the above
46. Gross profit ratio is calculated by
a) (Gross Profit/Gross sales)*100
b) (Gross Profit/Net sales)*100
c) (Net Profit/Gross sales)*100
d) None of the above
47. Given Sales is 1, 20,000 and Gross Profit is 30,000, the gross profit ratio is
a) 24%
b) 25%
c) 40%
d) 44%%
48. What will be the Gross Profit if, total sales is Rs 2,60,000 Cost of net goods
sold is Rs 2,00,000 and Sales return is Rs 10,000?
a) 13%
b) 28%
c) 26%
d) 20%
49. If selling price is fixed 25% above the cost, the Gross Profit ratio is
a) 13%
b) 28%
c) 26%
d) 20%
50. Gross Profit ratio should be adequate to cover
a) Selling expenses
b) Administrative expenses
c) Dividends
d) All of the above
51. Net Profit ratio is calculated by
a) (Gross Profit/Gross sales)*100
b) (Gross Profit/Net sales)*100
c) (Net Profit/Net sales)*100
d) None of the above
52. If sales is Rs 5, 00,000 and net profit is Rs 1, 20,000 Net Profit ratio is
a) 24%
b) 416%
c) 60%
d) None of the above

53. If sales is Rs 10,00,000, sales returns is Rs 50,000, Profit Before Tax is Rs

2,00,000, Income tax is 40%, Net profit ratio is
a) 12.63%
b) 20%
c) 10%
d) 50%
54. Net operating profit ratio determines ___________ while net profit ratio
determines
a) Overall efficiency of the business, working efficiency of the management
b) Working efficiency of the management, overll efficiency of the business
c) Overall efficiency of the external market, working efficiency of the internal
management
d) None of the above
55. Operating ratio is calculated by
a) (Operating Cost/Gross sales)*100
b) (Operating Cost/Gross sales)*100
c) (Operating cost/Net sales)*100
d) None of the above
56. Determine Operating ratio, if operating expenses is Rs 60,000, Sales is Rs
9,40,000, Sales Return is Rs 40,000 and Cost of net goods sold is Rs 6,60,000.
a) 80%
b) 15%
c) 25%
d) 11%
57. Which of the following is expenses ratio?
A) Administrative expenses ratio
B) Selling and Distribution expenses ratio
C) Factory expenses ratio
D) Finance Expenses ratio

a) A, B and D
b) A, C and D
c) A, B and C
d) A, B , C, D
58. Overall Profitability ratios are based on
a) Investments
b) Sales
c) a & B
d) None of the above
59. Return on Proprietors’ funds is also known as:
a) Return on net worth
b) Return on Shareholders’ fund
c) Return on Shareholders’ Investment
d) All of the above
60. Return on equity capital is calculated on basis of:
a) Funds of equity shareholders
b) Equity capital only
c) Either a or b
d) None of the above

61. While calculating Earnings per share, if both equity and preference share
capitals are there, then
a) Preference share is deducted from the net profit
b) Equity share capital is deducted from the net profit
c) Both a and b
d) None of the above
62. Turnover ratios are also known as
a) Activity ratios
b) Performance ratios
c) Both a and b
d) None of the above
63. The lower turnover ratio highlights the under utilizations of the resources
accessible at the disposal of the firm.
a) True
b) False
64. Stock velocity established a relationship between
a) Cost of goods sold in a given period and the average amount of inventory held
during that period.
b) Cost of goods sold in a given period and the average amount of stock held during
that period.
c) Both a and b
d) None of the above
65. Determine stock turnover ratio if, Opening stock is Rs 31,000, Closing
stock is Rs 29,000, Sales is Rs 3,20,000 and Gross profit ratio is 25% on sales.
a) 31 times
b) 11 times
c) 8 times
d) 32 times
66. Debtors Turnover ratio is also known as
A) Receivables turnover ratio
B) Debtors velocity
C) Stock velocity
D) Payable turnover ratio

a) A and B
b) A and C
c) B and C
d) C and D
67. Determine Debtors turnover ratio if, closing debtors is Rs 40,000, Cash
sales is 25% of credit sales and excess of closing debtors over opening debtors
is Rs 20,000.
a) 4 times
b) 2 times
c) 6 times
d) 8 times
68. Working capital turnover ratio can be determined by:
a) (Gross Profit/Working capital)
b) (Cost of goods sold/Net sales)
c) (Cost of goods sold/Working capital)
d) None of the above

69. Determine Working capital turnover ratio if, Current assets is Rs 1,50,000,
current liabilities is Rs 1,00,000 and Cost of goods sold is Rs 3,00,000.
a) 5 times
b) 6 times
c) 3 times
d) 1.5 times
71. Which ratio is considered as safe margin of solvency?
a) Liquid ratio
b) Quick ratio
c) Current ratio
d) None of the above
72. The ideal level of current ratio is
a) 4:2
b) 2:1
c) Both a and b
d) None of the above
73. Current ratio is stated as a crude ratio because
a) It measures only the quantity of current assets
b) It measures only the quality of current assets
c) Both a and b
d) Offerings dimension
74. Liquid ratio is also known as
a) Quick ratio
b) Acid test ratio
c) Working capital ratio
d) Stock turnover ratio

a) A and B
b) A and C
c) B and C
d) C and D
75. Stock is considered as a liquid asset as anytime it can be converted into
cash immediately.
a) Yes
b) No
76. The ideal level of liquid ratio is
a) 3:3
b) 4:4
c) 5:5
d) All of the above
77. Debt-equity ratio is a sub-part of
a) Short-term solvency ratio
b) Long-term solvency ratio
c) Debtors turnover ratio
d) None of the above
78. Liquid assets is determined by
a) Current assets-stock-Prepaid expenses
b) Current assets +stock+ prepaid expenses
c) Current assets +Prepaid expenses
d) None of the above

79. Which of the following is not included in current assets?

a) Debtors
b) Stock
c) Cash at bank
d) Cash in hand
80. Higher the ratio, the more favorable it is, doesn’t stands true for
a) Operating ratio
b) Liquidity ratio
c) Net profit ratio
d) Stock turnover ratio
81. The most precise test of liquidity is
a) Quick ratio
b) Current ratio
c) Absolute Liquid ratio
d) None of the above
82. Quick ratio is 1.8:1, current ratio is 2.7:1 and current liabilities are Rs
60,000. Determine value of stock.
a) Rs 54,000
b) Rs 60,000
c) Rs 1, 62,000
d) None of the above
83. Collection of debtors
a) Decreases current ratio
b) Increases current ratio
c) Has no effect on current ratio
d) None of the above
84. Which of the following statement is true about Funds Flow Statement?
A) It highlights change in funds of a firm at different point
B) It highlights change in funds of different firms at a single point
C) It highlights change in funds of different firms at different point
D) It doesn’t highlight change in funds
a) Only A
b) Only B
c) Only D
d) A, B, C, D
85. In the context of Funds Flow Analysis, the word “funds” is used to define
a) Net Working capital
b) Total Current Assets-Total current liabilities
c) Both a and b
d) None of the above.
86. Which of the following is/are examples of Funds Flow Statement?
A) Collection of debtors
B) Shares issued for cash
C) Shares issued against the purchase of machinery
D) Shares issued for property

a) A and B
b) A and C
c) A and D
d) A, B, C and D
87. Which of the following statement/s are true about movement of funds?
A) Funds flow in a transaction between current assets and fixed assets.
B) Funds flow in a transaction between current asset and capital
C) Funds flow in a transaction between fixed assets and current liabilities
D) Funds flow in a transaction between current liabilities and capital

a) A and B
b) A and C
c) A and D
d) A, B, C and D
88. Which of the following transactions will result in inflow of funds?
A) Issue of debentures
B) Conversion of debentures into equity shares
C) Redemption of long term loan
D) Creation of General Reserve

a) Only A
b) Only D
c) A and D
d) A, B, C and D
89. During the year, a business was bought by issue of Rs 25,000 debentures
and Rs 25,000 shares. The business bought had machine worth Rs 20,000,
Debtors Rs 15,000, Stock Rs 5,000 and Creditors Rs 5,000. Determine the effect
of this transaction on flow of funds.
a) Net outflow of Rs 15,000
b) Net inflow of Rs 15,000
c) Neither inflow nor outflow
d) None of the above
90. Which of the following are current assets?
A) Fixed investments
B) Trade Payables
C) Short-term loans and advances
D) Furniture

a) Only A
b) Only B
c) Only C
d) A, B, C and D
91. Which of the following are Non-current assets?
a) Land, Building and plant
b) Leasehold property
c) Computer software
d) All of the above
92. Bond, debentures and term loans falls under:
a) Current assets
b) Non-current assets
c) Non-current liabilities
d) Current liabilities

93. Funds flow statements are prepared so as to

a) To identify the changes in working capital
b) To identify reasons behind change in working capital
c) To know the item-wise outflow of funds during given period
d) All of the above
94. Funds Flow Statement holds significance for
a) Shareholders
b) Financiers
c) Government
d) All of the above
95. Which statement is prepared in the process of funds flow analysis?
a) Schedule of changes in working capital
b) Funds Flow Statement
c) Both a and b
d) None of the above
96. Funds Flow Statement is prepared on the basis of data of P&L statement
and two consecutive balance sheets.
a) True
b) False
c) Value delivery
d) None of the above
97. Which of the following rules stands true while preparation of Schedule of
changes in working capital?
A) An increase in current assets increases working capital.
B) An increase in current assets decreases working capital.
C) An increase in current liabilities decreases working capital.
D) An increase in current liabilities increases working capital

a) A and C
b) A and D
c) B and D
d) A, B, C and D
98. If reserve for bad and doubtful debts is mentioned in the question of Funds
Flow Statement Preparation, it can be shown as
a) In the schedule by deducting from total debtors under current assets
b) In the schedule separately under the heading of capital liabilities
c) Both a & b
d) None of the above
99. Funds Flow Statement is also known as
a) Statement of Funds Flow
b) Statement of Sources and Application of Funds
c) Statement of Sources and Uses of Funds
d) All of the above
100. Given Net profit for the year Rs 2, 50,000 Transferred to general reserves
Rs 40,000 and old machinery bought for Rs 50,000 was sold for Rs 20,000.
Calculate funds from operations.
a) Rs 2, 80,000
b) Rs 2, 20,000
c) Rs 2, 90,000
d) Rs 3, 00,000

101. Which of the following are sources of funds?

A) Issue of bonus shares
B) Issue of shares against the purchase of fixed assets
C) Conversion of debentures into shares
D) Conversion of loans into shares

a) A and C
b) A and D
c) A, B, C and D
d) None of the above
102.1. The share capital of A Ltd. stood at Rs 20,00,000 in 2013 and at Rs 26
lac in 2014. As per records, the company bought asset of another company for
Rs 6 lac payable in fully paid shares. These assets included Goodwill Rs
2,00,000 Machinery Rs 1, 83, 600 and Stock Rs 2,16,400. What is the fund from
issue of shares?
a) Rs 2,15,600
b) Rs 2,16,400
c) Rs 2,00,000
d) None of the above
102.2. Debentures are Rs 2,50,000 and Rs 3,50,000 in the balance sheet of 2013
and 2014. 1000 of the debentures of Rs 100 each were issued at par in 2014 of
which 400 debentures were issued to a supplier for the purchase of a machine.
Determine amount of issue for debentures for the purpose of funds flow
statement.
a) Rs 60,000
b) Rs 40,000
c) RS 10,000
d) None of the above
103. In the balance sheet of Praveen for 2013 and 2014, 4% debentures are Rs
5,00,000 and Rs 4,00,000, respectively. Profit on redemption of debentures in
2013 is nil while in 2014 is Rs 4,000. What is the amount of redemption for the
purpose of funds flow statement?
a) Rs 96,000
b) Rs 1,04,000
c) Rs 9,00,000
d) Rs 9,04,000
104. The balance of property at cost has been RS 20,000 and Rs 17,000 in 2013
and 2014 respectively. The profit on sale of property of Rs 2000 is credited to
Capital Reserves Account. New property costing Rs 5000 bought in 2014.
Determine sale of proceeds from land.
a) Rs 3000
b) Rs 10,000
c) Rs 7000
d) Rs 15,000
105. The Balance sheet of Ram at end of 2013 and 2014 disclose investments in
shares of Rs 2000 and Rs 3000, respectively. Rs 100 as pre-acquisition dividend
has been credited to investments account. Determine purchase of investments.
a) RS 5000
b) Rs 1000
c) Rs 1,100
d) None of the above

106. The balance of fixed assets of Y Ltd. at cost at the end of 2013 and 2014
were Rs 5,70,800 and Rs 6,15,300. During the year 2014 a machinery costing
Rs 60,000 was sold. Determine the purchase of fixed assets.
a) Rs 1,04,500
b) Rs 1,40,500
c) Rs 1,64,500
d) None of the above
107. Which of the following are applications of funds?
a) Payment of dividend on share capital
b) Payment of tax
c) Increase in working capital
d) All of above
108. Which of the following are treated as long term investments?
a) Non-current investments
b) Trade Investments
c) Sinking fund investments
d) All of the above
109. Provision of taxation is treated as
a) As a current liability
b) As an appropriation of profits
c) Either a or b
d) None of the above
110. As per accounting standard AS3, provision for taxation should be treated
as
a) As a current liability
b) As an appropriation of profits
c) Either a or b
d) None of the above
111. Which of the following statement is true?
a) If the amount of good will increases during current year, the difference is treated
as purchase of goodwill.
b) If the amount of good will decreases during current year, It will treated as written
off.
c) Both a and b
d) None of the above
112. The opening and closing balance of general reserves are Rs 10,000 and Rs
9,000, respectively. It is stated in addition information that a loss of Rs 1000
has been written off in general reserves. In such a case, decline in reserve and
loss on investment will be adjusted in P&L account.
a) True
b) False
113. As per Accounting Standard-3, Cash Flow is classified into
a) Operating activities and investing activities
b) Investing activities and financing activities
c) Operating activities and financing activities
d) Operating activities, financing activities and investing activities
114. Cash Flow Statement is also known as
a) Statement of Changes in Financial Position on Cash basis
b) Statement accounting for variation in cash
c) Both a and b
d) None of the above.

115. The objectives of Cash Flow Statement are

A) Analysis of cash position
B) Short-term cash planning
C) Evaluation of liquidity
D) Comparison of operating Performance

a) Both A and B
b) Both A and C
c) Both B and D
d) A, B, C, D
116. In cash flow statement, the item of interest is shown in
A) Operating Activities
B) Financing Activities
C) Investing Activities

a) Both A and B
b) Both A and C
c) Both B and C
d) A, B, C
117. Cash Flow Statement is based upon
a) Cash basis of accounting
b) Accrual basis of accounting
c) Credit basis of accounting
d) None of the above
118. Which of the following statements are false?
A) Cash Flow Statement is helpful in the formation of policies.
B) Cash Flow Statement is useful for external analysis
C) Cash Flow Statement is helpful in estimating future cash flow

a) Both A and B
b) Both A and C
c) Both B and C
d) None of the above
119. Which of the following statements are true?
A) Cash flow reveals only the inflow of cash
B) Cash flow reveals only the outflow of cash
C) Cash flow is a substitute for income statement
D) Cash flow statement is not a replacement of funds flow statement.

a) Only A
b) Only B
c) Both B and C
d) Only D
120. With continuous compounding at 10 percent for 30 years, the future value
of an initial investment of $2,000 is closest to
a). $40,171.
b). $164,500.
c. $328,282.
d). $34,898.