Basic Finance Questions for the Interviews

Q.1 what is the meaning of Derivatives ? ( CAPITAL IQ ) A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage. Futures contracts, forward contracts, options and swaps are the most common types of derivatives. Q.2 what is contra entry? Contra is an adjustment entry, because it doesn't affect your Net Cash Balance.(whether cash in hand or bank, your current asset will be the same). Q.3 Expense paid but the benefit not been received so far like deferred exp so can we consider it as a prepaid exp? ( L & T ) The term deferred expense is used to describe a payment that has been made, but it won t be reported as an expense until a future accounting period Q.4 Define P&L appropriate? (GENPACT) Profit and Loss Appropriation account is the part of financial statements of company. It is different from profit and loss appropriation account of partnership firm . When a company makes his profit and loss account, its net profit is transferred to the credit side of profit and loss appropriation account. Profit and loss account shows only the net profit or net loss from operation of business but profit and loss appropriation accounts shows all non- operational adjustment which is needed for proper distribution of net profit between shareholders and company for future growth. So, net profit of P/L A/c is used for providing reserve, dividend, dividend distribution tax and adjustment of income tax. In the debit side of this account, we will show the following items. 1. 2. 3. 4. Transfer to reserve /general reserve. Transfer to dividend/interim dividend/proposed dividend. Debenture redemption fund account. Dividend equalization fund account.

5. Dividend Distribution Tax (A 15% dividend distribution tax and surcharge of 3% is paid by companies before distribution.) 6. Income tax for previous year not provided for.

Q. we will show the following accounts 1. 4. In the credit side of this account. Profit Centre: it is that department whose manager responsible for cost as well as revenue of department that department is called profit centre like "Autonomous Business Units".5 what is the difference between cost centre and business centre? Cost Centre: it is that department of a company whose manager is responsible for cost spending only like production department. Surplus transfer to balance sheet.7. Amount withdrawn from general reserve or any other reserve. 2. Provision such as income tax provision no longer required or excess of provision or refund of tax. Balance of surplus of previous year. Revenue Centre: it is that department whose manager is only responsible for revenue for example sales department. . Net Profit of this year. 3.

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