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    MCQ’s on Balance Sheet

    1)  Rent receivable (given in trial balance) is an item of:

    A) Balance Sheet

    B) Profit & Loss Account 

    C) Trading Account

    D) Both Balance Sheet and Profit & Loss Account

    2)  When closing stock is given in trial balance then it !ill effect:

    A) Trading account only

    B) Balance sheet only

    C) Owner's equity only

    D) Both Trading account and Balance sheet

    ")  Which of the follo!ing acco#nt is affecte$ from the %ra!ings of cash in sole&'ro'rietorshi' b#siness

    A) Caital account

    B) Shareholder account

    C) Lia!ility account

    D) "#ense account

    )  *n asset is consi$ere$ to be a c#rrent asset if:

    A) $t has !een !ought recently and was !ought new and not used

    B) $t can !e reali%ed in cash or sold or consued in the !usiness within one year 

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    C) $t is a iece of new achinery that is e#ected to last for at least ten years

    D) All of the gien otions

    +)  ,eneral office e-'enses are charge$ to !hich of the follo!ing hea$:

    A) Adinistratie e#enses

    B) (areting e#enses

    C) Selling e#enses

    D) *inancial e#enses

    .)  Which of the follo!ing !o#l$ /0 be consi$ere$ as a com'onent of cost of stock

    A) Salaries of selling staff 

    B) Transortation inward costs

    C) $ort duties

    D) Purchase rice

    3)  Consi$er the follo!ing $ata an$ i$entif4 the amo#nt !hich !ill be $e$#cte$ fromS#n$r4 %ebtors in Balance Sheet

    5artic#lars 6

    Bad de!ts +fro trial !alance) ,-.//

    Proision for dou!tful de!ts +old) 0-///

    Current year1s roision +new) 2//

    A) 34// 

    B) 32// 

    C) 30-///

    D) 30-4//

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    7)  Which of the follo!ing is /0 correct abo#t income ta-

    A) Different coanies ay ta# on different rates

    B) $t is treated as an e#ense and de!ited in Profit & Loss account

    C) 5hen financial stateents are reared- an estiate of e#ected ta# lia!ility is ade

    D) $t is treated as an e#ense and credited in Profit & Loss account

    8)  (*mo#nt of ne! 'rovision 9 *mo#nt of ba$ $ebts) *mo#nt of ol$ 'rovision thenamo#nt !ill be sho!n on:

    A) De!it side of P & L account

    B) Credit side of P & L account

    C) Asset side of Balance Sheet

    D) Lia!ility side of Balance SheetAnswers :

    1) A2) D3) A4) B5) A6) A7) B8) B9) B

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    Multiple Choice Questions on !" Account

    1) Accor#in$ to the #ou%le entr& s&ste' o( ccountin$* n ccount tht

    o%tins %ene+t is:

    A) Cre#it

    B) De%it 

    C) ,nco'e

    D) -o nee# to show s ccountin$ recor#

    2) .er' /Cre#it/ 'ens0000000 %& the %usiness

    A) eceiin$ o( %ene+ts

    B) ,t hs no eect on %usiness 

    C) roi#in$ o( %ene+ts

    D) ,t #epen#s upon ite's

    3) hen "i%ilit& is re#uce# or #ecrese#* it is recor#e# on the:

    A) "e(t or cre#it si#e o( the ccount 

    B) i$ht or #e%it si#e o( the ccount

    C) i$ht or cre#it si#e o( the ccount

    D) "e(t or #e%it si#e o( the ccount

    4) hen Cpitl is increse# %& n 'ount* it is recor#e# on the:

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    A) i$ht or #e%it si#e o( the ccount 

    B) "e(t or cre#it si#e o( the ccount 

    C) "e(t or #e%it si#e o( the ccount

    D) i$ht or cre#it si#e o( the ccount

    5) ht t&pe o( epenses re pi# out o( ross ro+t

    A) enerl penses 

    B) inncil penses 

    C) ;ellin$ penses

    D) All o( the $ien options

    6) hich o( the (ollowin$ shows su''r& o( co'pn&

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    A) rnchise ri$hts 

    B) oo#will

    C) tents

    D) "n#

    8) hich o( the (ollowin$ is n e'ple o( %usiness li%ilit&

    A) "n#

    B) Buil#in$

    C) Csh

    D) Cre#itors

    9) .he un(or%le %lnce o( ro+t n# "oss ccount shoul# %e:

    A) A##e# in li%ilities

    B) ;u%trcte# (ro' current ssets

    C) ;u%trcte# (ro' cpitl

    D) ;u%trcte# (ro' li%ilities

    Answers :1) A2) A3) D

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    4) D5) D6) C7) D8) D

    9) C

    DESCRIPTIVE QUESTIONS

    Questions on Balance Sheet: - (3 MKS Each)

    1. Explain the following in short: -

    a. urrent !ssets .he +rst '>or co'ponent o( the %lnce sheet is current ssets .hese

    ssets cn esil& %e conerte# to csh within one opertin$ c&cle ?? the

    'ount o( ti'e the co'pn& nee#s to sell pro#uct n# collect csh (ro'

    tht sle* o(ten n&where %etween [email protected] n# [email protected] #&s

    Co'pnies nee# current ssets to (un# their #&?to?#& opertions ,( current

    ssets (ll short* the co'pn& will he to scr'%le (or other sources o(

    short?ter' (un#in$* either %& tin$ on #e%tor issuin$ 'ore stoc

     .here re +e 'in in#s o( current ssets:

    Csh n# euilents

    ;hort? n# lon$?ter' inest'ents

    Accounts recei%le

    ,nentories

    repi# epenses

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    ". urrent #ia"ilitiesCurrent li%ilities re wht co'pn& currentl& owes to its suppliers n#

    cre#itors .hese re short?ter' #e%ts* ll #ue in less thn &er &in$

    the' o nor'll& reuires the co'pn& to conert so'e o( its current ssetsinto csh

    Current "i%ilities re lso source o( ssets An& 'one& tht co'pn&

    pulls (ro' line o( cre#it* or postpones p&in$ (ro' its ccounts p&%le* is

    n sset tht cn %e use# to $row the %usiness

     .here re +e 'in cte$ories o( current li%ilities:

    Accounts p&%le

    Accrue# epenses

    ,nco'e t p&%le

    ;hort?ter' p&%les

    "on$?ter' p&%les

    $. %rite a Short &ote on apital 'esere.,t is the resere* which #oes not inclu#e n& 'ount re$r#e# s (ree (or

    #istri%ution throu$h the !" Account ;hre re'iu' n# Cpitl

    e#e'ption esere Account shoul# not %e cre#ite# to cpitl resere theseccounts he to %e ept seprte =nl& pro+ts o( surplus o( cpitl

    nture cn %e cre#ite# to such resere ollowin$ re the instnces o(

    surplus* which cn %e cre#ite# to cpitl resere: ?

    Cpitl pro+ts on sle o( +e# ssets

    ro+ts on eissue o( or(eite# ;hres

    re'iu's receie# on issue o( #e%entures

    ro+t on ;le o( ,nest'ents

    ro+ts on urchse o( -ew Business

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    3. %hat is alle *p+ !uthori,e ai *p apital/

    Clle# Ep Cpitl: ? it is tht prt o( the co'pn&Fs shre cpitl tht hs%een clle# up %& the co'pn& (or p&'ent

    i# Ep Cpitl: ? it is tht prt o( the co'pn&Fs clle# up shre cpitl tht

    hs %een pi# up %& the shrehol#ers o( the co'pn&

    AuthoriGe# ;hre Cpitl: ? it is the totl per'issi%le li'it o( cpitl tht

    co'pn& cn issue in its li(eti'e ,t is #eci#e# upon #urin$ the (or'tion o(

    the co'pn& ! is eplicitl& 'entione# in the Me'orn#u' o( the Co'pn&

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    Questions on ro0t #oss !ccount: - (3 MKS Each)

    1. %hat is a ro0t #oss !ccount/ #ist an 12 ites that appearin a # !ccount/

     .he ro+t n# "oss H!") ;tte'ent is lso nown s the ,nco'e

    ;tte'ent ,t shows how well co'pn& %u&s n# sells inentor& Hor

    serices) to 'e pro+t Iust s the Blnce ;heet is snpshot o( the

    +nncil con#ition o( co'pn& t certin point in ti'e* the ro+t n#

    "oss stte'ent shows the results o( +nncil opertions oer perio# o(

    ti'e .he 'ount o( ti'e coul# %e 'onth* urter o( &er* hl(?

    &er* or &er ,te's pperin$ in ro+t ! "oss AJc inclu#e: ?

    ;lries* "e$l Chr$es* Deprecition* lectricit& chr$es* B# De%ts*

    Discounts* ross ro+ts* Co''ission* A#ertisin$ penses* ;toc* etc

    $. %hat are 4rawings/ 5ow are the treate for in a # !ccount/

    heneer the proprietor o( the +r' #eci#es to with#rw certin su's o(

    'one& (or his personl use it is ter'e# s #rwin$s Drwin$s in

    ccountin$ re the ssets with#rwn (ro' the %usiness %& the owners

     .he ssets cn %e in csh (or' or in n& other (or' o( sset with#rwn

     .his cn %e slries (or wor #one %& the owner* or #ii#en#s i( it is (or

    shre o( the pro+ts Drwin$s re not n epense to the +r' n# hence

    shoul# not %e #e%ite# to the pro+t n# loss ccount .he& re #irectl&

    #e%ite# to the owners ccount s his personl epense

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    3. %hat are Ba 4e"ts/ %hat is the treatent on Ba 4e"ts inthe # !ccount/

     .he ter' bad debtsusull& re(er to ccounts recei%le Hor tr#e ccounts

    recei%le) tht will not %e collecte# Koweer* %# #e%ts cn lso re(erto notes recei%le tht will not %e collecte# B# De%ts* in nor'l ter's

    re those #e%ts tht cn no lon$er %e recoere# (ro' the #e%tors n# re

    now loss to the %usiness ;ince it is loss* %# #e%ts ccount is #e%ite#

    to the ro+t n# "oss ccount* n# since the 'one& cn no lon$er %e

    recoere# (ro' the custo'er* it is close# %& cre#itin$ it to the custo'ers

    ccount

    ie

    B# De%ts Account LLLLLLLLLDr

      .o De%torFs H-'e) Account

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    (6LT$ C7O$C" 86"ST$O9S:

    ,; Presently Current assets and Current Lia!ilities of a coany are ,.-//-/// and 2-//-///resectiely; The current ratio will

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    ; $ssue of ,0 Preference Shares will

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    $ Aerage of Oening and Closing Stoc 

    ,@; A coany1s long ter solency can !e easured !y:a Asset Turnoer ratiosb Actiity atios

    c Leerage atios$ Liquidity ratios

    ,.; A coany1s efficiency to effectiely use its assets can !e easured !y:a Actiity atiosb Leerage atiosc Liquidity ratios$ $nternal (easureent atios

    ,; An organisations1s short ter a!ility to generate adequate aount of cash can !e easured !y:a Leerage atios

    b Liquidity ratiosc Current atios$  9one of the a!oe

    ,2; The ratio which ena!les us to calculate the aerage nu!er of days it taes to collect cash frocustoers after a sale is ade:

    a Total Conersion eriod ratiob Accounts eceia!le Turnoer atioc Leerage atio$ Accounts Paya!le Turnoer atio

    $; LO9E 86"ST$O9S:

    ,; aF Ltd; sells goods on cash as well as credit; The following articulars are e#tracted fro their !oos of accounts for the current year end:

    Total gross salesCash sales +included in a!oe)Sales eturnsTotal De!tors at the endBills eceia!le

    Proision for Dou!tful De!ts at the end ofthe year Total Creditors at the end

    ,-//-///0/-///

    -///-///0-///

    ,-///

    ,/-///

    Calculate: +a) Aerage Collection Period- +!) De!tor Turnoer ratio;

    0; Deterine the sales of a fir gien the following inforation:

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    Current atio G ,;4Acid Test atio G ,;0Current Lia!ilities G ,-.//$nentory Turnoer atio G 2

    =; *irs Current Assets and Current Lia!ilities are ,-.// and ,-/// resectiely; 7ow uch can it !orrow on a short?ter !asis without reducing the Current atio !elow ,;[email protected];

    4; A fir has ade credit sales of 0-4/-/// during the year; The outstanding aount of De!tors atthe !eginning and at the end of the year resectiely was [email protected]// and [email protected]//; Deterine theDe!tors turnoer ratio;

    @; The fir has ade Credit urchases of ,-2/-///; The aount aya!le to the Creditors at the !eginning and at the end of the year is [email protected]// and [email protected]// resectiely; *ind out the Creditorsturnoer ratio;

    .; The following incolete Balance sheet of Suan & Coany is furnished together with certainadditional inforation; Hou are required to colete the issing figures in the Balance Sheetusing atio Analysis:

    Balance sheet of Suan & CoanyAs on =,st (arch ,2

    Caital & Lia!ilities uees Assets uees

    Share Caital 0-//-/// *i#ed Assets:Eeneral esere ,-//-/// Plant & (achinery

    and Building

    I

    Long?ter Loans I

    Sundry Creditors ,-//-/// Current Assets:

    $nentory I

    Sundry De!tors I

    Cash & Ban 

    Balance

    I

    Additional $nforation:

    ,; atio of Long ter loan to 9et worth G , : 00; Asset Turnoer G 0 ties=; Aerage Collection Period G . days4; $nentory Turnoer G ,/ [email protected]; Eross Profit (argin G ,/ of Cost of goods sold.; Acid Test atio G ,:,; Credit SalesG @/

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    +Assue =./ days in a year)

    A9S5"S

    $; (6LT$ C7O$C" 86"ST$O9S:

    ,; ! ? Decrease0; ! ? 9ot affect=; a J =4; ! J [email protected]; a J . ties.; ! ? De!t Serice Coerage atio; ! J Decrease

    2; ! ? the fir is ore liely to aoid insolency in short run than other firs in the industry;; ! ? current ratio,/; c ? how well a fir is a!le to ay off short?ter o!ligations;,,; c ? slow conersion of inentory into sales,0; c ? not change,=; d ? the fir is utili%ing assets ore efficiently than other firs in the industry;,4; d ? Aerage of Oening and Closing Stoc ,@; c J Leerage atios,.; a J Actiity atios,; ! J Liquidity atios,2; ! ? Accounts eceia!le Turnoer atio

    $$; LO9E 86"ST$O9S:

    ,; Total net credit sales G Eross Sales J Cash Sales J Sales eturnsG,-//-/// J 0/-/// J -/// G =-///

    De!tors Turnoer G Credit Sales >+De!tors K Bills eceia!le)

    G=-/// > ,,-/// G = > ,,

    Aerage Collection Period G [email protected] days > De!tors Turnoer +i;e; = > ,,) G @@ days;

    0; The sales figure ay !e deried as follows:

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    Current Assets G Current Lia!ilities Current atioG ,-.// ,;4 G 0-04/

    Current Assets ? $nentories G Current Lia!ilities Asset Test atio

    G ,-.// ,;0 G ,-0/

    $nentories G 0-04/ ?,-0/ G =0/

    Sales G $nentories $nentories Turnoer atioG =0/ 2 G [email protected]/

    =; Let the a#iu short?ter !orrowing !e MAN; The Current atio with this !orrowing should !e ,;[email protected];

    G +,-.// K A) > +,-/// K A) G ,;[email protected]

    Soling this equation- we get MAN G ,-4//; 7ence the a#iu erissi!le short?ter

     !orrowing is ,-4//;

    4; De!tors Turnoer atio G 0-4/-/// > [email protected]// K [email protected]//) > 0 G 2 ties er year 

    De!tors Collection eriod G ,0 onths > De!tors TurnoerG ,;@ onths

    @; Creditors Turnoer atio G ,-2/-/// > [email protected]// K [email protected]//) > 0 G 4 ties er year 

    Creditors ayent eriod G ,0 onths > Creditors Turnoer atio +4)G = onths

    .; Balance sheet of Suan & Coany as on =,st (arch ,2:

    Caital & Lia!ilities uees Assets uees

    Share Caital 0-//-/// *i#ed Assets:

    Eeneral esere ,-//-/// Plant & (achinery

    and Building

    [email protected]/-///

    Long?ter Loans

    +note ,)

    ,[email protected]/-///

    Sundry Creditors ,-//-/// Current Assets:

    $nentory +note 4) ,-//-///

    Sundry De!tors +note

    0)

    -,.

    Cash & Ban 

    Balance +note =)

    /-2==

    @[email protected]/-/// @[email protected]/-///

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     9otes:,; Long ter loan G Q 9et worth G Q =-//-/// G ,[email protected]/-///

    0; Asset Turnoer atio G 0 tiesSales G 0 Total Assets G 0 @[email protected]/-/// G ,,-//-///

    Credit Sales G /;@ ,,-//-/// G @[email protected]/-///Aerage Collection Period G . daysSundry De!tors G +. Credit Sales) > =./ G +. @[email protected]/-///) > =./ G -,.

    =; Acid Test atio G , : ,

    +Sundry De!tors K Cash and Ban !alance) > Sundry creditors G ,Sundry De!tors K Cash and Ban !alance G Sundry creditors-,. K Cash and Ban !alance G ,-//-///Cash and Ban Balance G /-2==

    4; $nentory turnoer G Cost of goods sold > $nentory G ,/Eross Profit (argin G ,/ of COESCOES G +,/>,,) sales G +,/>,,) ,,-//-/// G ,/-//-///

    $nentory G COES > ,/ G ,/-//-/// >,/ G ,-//-///

    o'ic:& 5rofitabilit4 an$ sharehol$ers ratio

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    8uestion ,;

    Stoc is not included in the current assets when calculating the acid test ratio !ecause:

    ο Only de!tors can !e included- as they will !e conerted into cash shortly

    ο Stoc is not a liquid asset

    ο Bans only recognise cash and de!tors as liquid assets

    ο $t aes coarison easier as only two current lia!ilities are included in the acid

    test ratio

    8uestion 0;

    $f a fir sold stoc on credit then which of the following would !e the resultI

    ο

    Acid test ratio decreasesο Current ratio increases

    ο Current ratio decreases

    ο Acid test ratio increases

    8uestion =;

    A fir e#eriencing difficulties due to raid growth in sales is nown as one which is:

    ο $nsolent

    ο Banrut

    ο Solent

    ο Oertrading

    8uestion 4;

    Coarison of the aret rice of the share with the earnings er share gies us which ratioI

    ο $nterest coer 

    ο Price>"arnings ratio

    ο Diidend yieldο Diide coer 

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    8uestion @;

    $f we want to e#aine the efficiency of a fir- which of the following ratios would !e helfulI

    ο Stoc turnoer 

    ο

    Eearingο Diidend coer 

    ο Current ratio

    8uestion .;

    The roortion of sales that is accounted for !y total costs can !e ascertained !y which ratioI

    ο eturn on caital eloyed

    ο Stoc turnoer 

    ο Eross rofit ercentage

    ο  9et rofit ercentage

    8uestion ;

    5hich of the following factors does not suggest oertrading is taing laceI

    ο Build u of cash in !an 

    ο Lower rofit argins

    ο $ncreases in sales olue

    ο eliance on short ter finance

    8uestion 2;

    *S ,4 defines which ratioI

    ο eturn on equity

    ο Diidend yield

    ο "arnings er share

    ο eturn on caital eloyed

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    8uestion ;

    Creditors would not !e interested in which grou of ratiosI

    ο Solency

    ο Caital structure

    ο Profita!ility

    ο Shareholder 

    8uestion ,/;

    5hich ite would not !e included in the calculation of the Price>"arnings ratioI

    ο  9u!er of ordinary shares outstanding

    ο Total diidends distri!uted

    ο Profit aaila!le to ordinary shareholders

    ο (aret rice of share

    8uestion ,,;

    5hy is rofit after interest and ta# used for shareholder ratio calculationsI

    ο Coliance with coany law

    ο 7istorical recedence

    ο $t is rudent to do so

    ο This easure of rofit shows what is aaila!le to the shareholder 

    8uestion,0;

    5hich of the following is not a category of ratiosI

    o "fficiencyo (anageent

    o Profita!ility

    o Solency

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    8uestion ,=;

    Profita!ility ay !e ore iortant than solency when:

    ο 5hen the fir has few otions for short?ter finance

    ο Shareholders ressure for higher returns

    ο The fir has recently !egun trading

    ο During eriod of econoic downturn

    8uestion ,4;

    5hich of the following is not an efficiency ratioI

    ο $nterest coer 

    ο Asset turnoer 

    ο De!tor days

    ο Stoc turnoer 

    8uestion ,@;

    5hich of the following would not !e norally considered as ratio concerned with rofita!ilityI

    o "#enses as a of sales;

    o  9et rofit as a of sales;

    o Selling costs as a of sales;

    o Sales as a of woring caital;

    8uestion ,.

    ; atios can !e groued into certain categories- each of which reflects a articular asect of thefinancial erforance or osition of an entity; Those ratios which easure the e#tent to which

    assets can !e quicly turned into cash are coonly called:

    ο   Liquidity ratios

    ο   $nestent ratios

    ο   Profita!ility ratios

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    ο   Eearing ratios

    8uestion ,;

    5hich of the following would not !e a signal of oertradingI

    ο Lengthening de!tor and creditor ratios;

    ο aid accuulation of cash;

    ο  9eed for oerdraft arrangeents;

    ο aid increases in sales;

    8uestion ,2;

    There is usually a trade off to !e ade !etween rofita!ility and sales olue; Soe !usinesses

    are reared to accet a low net rofit ercentage in return for generating a high olue of sales;

    5hich one of the following tyes of !usiness is tyified !y low rofita!ility !ut high sales

    olueI

    ο Discount food retailer 

    ο Pharaceuticals anufacturer 

    ο (areting agency

    ο Lu#ury car ae

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    1 Investment cash flow is the cash received from the sale of

     _________________________

    2 What are the 3 segments of cash flow?

    3.A corportion reporte# the (ollowin$ in(or'tion (or the pst &er:

    -et inco'e [email protected]@@@@Deprecition epense [email protected]@@@in on sle o( truc [email protected]@@rocee#s (ro' sle o( truc [email protected]@@Decrese in ccounts recei%le [email protected]@@@

    Assu'in$ these re the onl& (cts* wht 'ount will the corportionreport s the Csh roi#e# %& =pertin$ Actiities on the csh owstte'ent

    a) 225,000 b) 235,000 c) 253,000

    4.Gain on the Sale of Automobile formerly used in the business.

    a) Operating b) Investing c) Financing d) Supplemental

    5 or recent &er corportion

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    .) According to the accounting rofession- which of the following would !e considered a cash?flow ite fro an RinestingR actiityI

    a) cash flow from interest income

    b)Cash flow from dividend incomec)Cash outflow to acquire fixed assets

    d)All of the above

    7)hich o( the (ollowin$ woul# %e inclu#e# in csh %u#$et

    )#eprecition chr$es

    %) oo#will

    c) Dii#en#s

    #) tent 'ortiGtion

    2) 5hich of the following is /0 a cash outflow for the firI

    ) ,nterest p&'ent

    %) Dii#en#

    C) .es#)#eprecition

    9) Use the following information to calculate net cash from

    operating activities: cash sales 100,000; cash from account

    receivable payments 200,000; cash dividends received 3,000;

    dividends paid 4,000; rent paid ,000; and amorti!ation e"pense

    #,000$

    a% 2&4000

    b% 2&'000c% &'000

    d% 2&2000

    10% Use the following information to calculate net cash from

    investing activities: sell a capital asset for 10,000 cash and a

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    1,000 gain; purchase a bond investment for 1#,000; receive 2,000

    interest payment from the bond investment; and pay off a 3,000

    mortgage payable$

    a% 9,000 net cash outflow from investing activities

    b% 6,000 net cash outflow from investing activities

    c% 5,000 net cash outflow from investing activities

    d) 4,000 net cash outflow from investing activities

    11) The information in a cash flow statement will help users assess all of the following

    except

    a.the company’s ability to generate future cash flows.

    b.the company’s ability to pay dividends and meet obligations.

    c.the company’s ability to turn over its accounts receivable.

    d.the reasons for the difference between net income and cash provided or used by

    operating activities.

    12) 6.Potter Limited reported a net loss of 10,000 for the year ended December 31,

    2007. During the year, accounts receivable decreased 5,000, merchandise inventory

    increased 8,000, accounts payable increased by 10,000, and amortization expense of

    5,000 was recorded. During 2007, operating activities

    a.used net cash of 2,000.

    b.used net cash of 8,000.

    c.provided net cash of 2,000.

    d.provided net cash of 8,000.

    13)Use the indirect method to answer questions 17-20. he followinginformation is availa!le for "ase# "om$an#%

    &et income 200 increase in $lant and

    equi$ment 90

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    'e$reciation e($enditure 50 $a#ment of

    dividend 25 

    )ncrease in accounts receiva!le *0 increase in long term

    de!t 100

    'ecrease in inventories 10 decrease in accounts $a#a!le 20

    +hat is cash flow from o$erating activities for "ase# "om$an# 

    a210

    !290

    c*10

    d195 

    14) Retirement of long-term Bonds Payable.

    a)Operating b)Investing c)Financing d)None of the above

    15) (hat is the immediate effect of ma)ing a capital repayment on a

    loan on cash flow and profits* 

    a% n $rofit - )ncrease/ n cash - 'ecrease

    b% n $rofit - 'ecrease/ n cash - 'ecrease

    c% n $rofit - 'ecrease/ n cash &one

    d n $rofit - &one/ n cash 'ecrease

    16 +n an +- . -tatement of /ash lows where would you find a

    ban) current account debit balance* 

    a% )n investing activities

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    b% )n financing activities

    c% )n cash and cash equivalents

    d% )n o$erating activities

    17 (hich one of the following is false* 

    a%  $rofita!le com$an# will never run out of cash

    b% a$idl# e($anding com$anies can sometimes face a cash shortage

    c% )f cash outflows e(ceed cash inflows on an ongoing !asis, the !usiness

    will eventuall# run out of cash

    d% "ash is the life!lood of a !usiness and without it the !usiness will die

    1'% company with healthy profits is facing a cash shortage$ (hich

    of the following events could account for this* 

    an increase in dividends $ro$osed !# the directors

    ! 'ela#ing $a#ments to creditors

    c he recent acquisition of equi$ment 

    d he shortening of the credit $eriod granted to de!tors

    19  company has a negative cash flow from operating

    activities$ (hat could e"plain this negative cash flow* 

    a% he re$a#ment of a loan

    b%  sudden increase in credit sales

    c% 3igh levels of dividend $a#ments

    d%  su!stantial investment in new fi(ed assets

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    20 Eses o( (un#s inclu#e Hn):

    ) #ecrese in csh

    %) increse in n& li%ilit&

    c) increse in +e# ssets

    #) t re(un#

    21) An e'intion o( the sources n# uses o( (un#s stte'ent is prt o(:

    ) (orecstin$ techniue

    %) (un#s ow nl&sis

    c) rtio nl&sis

    #) clcultions (or preprin$ the %lnce sheet

    22) ll of the following are true regarding the investing activity

     section of the cash flow statement e"cept 

    a% investing activities include the $urchase and sale of income-$roducing

    assets

    b% large $urchases of ca$ital assets ma# signal an emergenc# 

    cinvesting activities require anal#sis of long-term asset accounts

    d)selling off capital assets may be good news if the company is getting rid of 

    unprofitable divisions

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    23)  ,( the (ollowin$ re %lnce sheet chn$es:  5*@@5 #ecrese in ccounts recei%le

    7*@@@ #ecrese in csh  12*@12 #ecrese in notes p&%le

      [email protected]*@@1 increse in ccounts p&%le /use/ o( (un#s woul# %e the

    ) 7*@@@ #ecrese in csh%) 5*@@5 #ecrese in ccounts recei%lec) [email protected]*@@1 increse in ccounts p&%le#) 12*@12 #ecrese in notes p&%le

    24) ll of the following are true regarding the operating activity section of the cash flow statement e"cept 

    a%a negative cash flow warrants investigationb% it includes cash transactions affecting 4non-cash current asset and

    current lia!ilit# accountsc% the direct method includes the sale of assets re$orting a gain or a loss

    d% the direct or indirect format ma# !e used to $resent the information

    Answers

    1 a) long-life assets, or spent oncapital expenditure

    2 a)Cash flow from operating activities; b) cash flow from investing activities c)

    cash flow from financing activities.3 %)

     

    4.a)

    The gain (computed as proceeds minus the book value) appeared on the income

    statement and increased the company's net income. However, the

    http://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Capital_(economics)

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    entireproceeds from the sale of a company's assets are shown in the investing

    section. In order to avoid double-counting the gain, thegain must be subtracted

    from the net income amount appearing in the operating actiities

    section of the statement of cash flows

    5.a)

    The solution is shown below.

    6) c7)c8)#9)%[email protected])%

    11) c. the company’s ability to turn over its accounts receivable.

    12) 6.Potter Limited reported a net loss of 10,000 for the year ended December31, 2007. During the year, accounts receivable decreased 5,000, merchandise

    inventory increased 8,000, accounts payable increased by 10,000, and

    amortization expense of 5,000 was recorded. During 2007, operating activities

    c. provided net cash of 2,000.

    13) )

    14) c)

    !onds Pa"ab#e is a long-term liability. Changes in#ong$term #iabi#ities and

    changes instoc%ho#ders& e'uit" are shown in the(nancing activities section. A

    decrease in!onds Pa"ab#e will be shown as adecrease in cash from financing

    activities.

    15) #)16)c)

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    17))18)c)19) c)[email protected])c)21)%)

    22)%)23)#)24)c

    ,) 5hen erger is !etween two coanies that are into the sae roducts or serices- it iscalled a erger;

      ;ori

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    .) Buy?!ac is eritted fro Share reiu account

    *ree reseres

    Prior issue

     

    *ll the above

    ) Period during which inestors can gie their shares in a tae?oer situation is called  en$ering 'erio$

    Offer eriod

    Pu!lic issue eriod

     9one of the a!oe

    2) 5hich of the following are eritted for>s of ayent in a tae oerI

    listed shares in the equity share caital of the acquirer or of any erson acting in

    concert listed secured de!t instruents issued !y the acquirer or any erson acting in

    concert conerti!le de!t securities

      *ll the above

    ) 5hich of the following are allowed to !e de?listed fro all stoc e#changes

      =>#it4

    Conerti!le securities

    Both the a!oe

     9one of the a!oe

    ,/) Share?holders1 resolution is required for all fors of de?listing;

    True

      ?alse

    ,,) *or *D$ in unlisted coanies- B$ insists on aluation !ased on

    P>" atio

    P>B atio

      %C?

    "nterrise alue

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    ,0) 9on?coete fee aid to rooters does not affect the ay?off for other shareholders;

    True

      ?alse

      ,=) A leeraged !uyout inoles the urchase of a coany financed riarily !y de!t;

    r#e

    *alse

    ,4) 5hich of the following are coonly cited reasons for (&AsI

    Synergy

    (aret ower 

    Strategic realignent

    *ll of the above

    ,@) A erger is a co!ination of !usinesses in which

    two !usinesses co!ine to for a new !usiness;

    the articiants are necessarily coara!le in si%e- coetitie osition-

     rofita!ility- and aret caitali%ation;

    one of the two firs !ecoes a wholly owned su!sidiary of the other fir;  none of the [email protected]

    ,.) ertical ergers are those in which the articiants are

    in the sae industry;

    in different industries

    in different hases of the alue chain;

    none of the a!oe;

    ,) The colete a!sortion of one coany !y another- wherein the acquiring fir retainsits identity and the acquired fir ceases to e#ist as a searate entity- is called

    (erger 

    Consolidation

    tender offer 

    sinoff 

    diestiture;

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    ,2) An attet to gain control of a fir !y soliciting a sufficient nu!er of stocholder otesto relace the current !oard of directors is called a:

    Tender offer 

    Pro#y contest

    Eoing?riate transaction

    Leeraged !uyout Consolidation;

    ,) 5hich of the following is 9OT coonly used (&A terinologyI

    Consolidation;

    Alliances;

    oint enture;

    Licensing;

    0/) The erger of a dairy faring !usiness with a sulier of agricultural foodstuffs is an

    e#ale of 

    A coleentary erger 

    A hori%ontal erger 

    A congloerate erger 

    A ertical erger 

    0,) Assuing we are aluing a going concern- which of the following tyes of incoestreas would !e ost aroriate for aluing the coanyI

    "arnings Before $nterest and Ta#es

    *ree Cash *lows

    Oerating $ncoe After Ta#es

    Price to "arnings atio

    00) Pooling of interests is used in the case of 

    Aalgaation in the nature of erger 

    Aalgaation in the nature of urchase Both the a!oe

     9one of the a!oe

    0=) Benefit of inde#ation is not aaila!le for?

    Caital inde#ed !onds issued !y the goernent

    Derecia!le assets

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    Both the a!oe

     9one of the a!oe

    04) Share?holders1 secial resolution is not required if !uy?!ac does not e#ceed

    [email protected] of aid u caital and free reseres ,/ of aid u caital and free reseres

    ,/ of aid u equity caital

    [email protected] of aid u equity caital

    [email protected]) 7ostile taeoers can !e funded !y:i; Cash only;

    ii; Shares only;iii; Cash and shares;i; Other incenties;

    5hich of the a!oe is>are trueI

    a) A; $ only; !) B; $ and $$;c) C; $- $$ and $;d) D; $- $$- $$$ and $;

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    Q#estionnaires on =A*

    ,:7ow is econoic alue added +"A) calculatedI

    o $t is the difference !etween the aret alue of the fir and the !oo alue of

    equity;o $t is the fir's net oerating rofit after ta# +9OPAT) less a dollar cost of caital

    charge;o $t is the net incoe of the fir less a dollar cost that equals the weighted aerage

    cost of caital ultilied !y the !oo alue of lia!ilities and equities;o  9one of the a!oe are

    htt:>>ws;earsoned;co;u>ea

    A9S: $t is the fir's net oerating rofit after ta# +9OPAT) less a dollar cost of caital charge

    0: 5hat is the difference !etween econoic rofit and accounting rofitI

    o "conoic rofit includes a charge for all roiders of caital while accounting

     rofit includes only a charge for de!t;o "conoic rofit coers the rofit oer the life of the fir- while accounting rofit

    only coers the ost recent accounting eriod;

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    o Accounting rofit is !ased on current acceted accounting rules while econoic

     rofit is !ased on cash flows;o All of the a!oe are

    A9S: "conoic rofit includes a charge for all roiders of caital while accounting rofit

    includes only a charge for de!t;

    htt:>>ws;earsoned;co;u>ea

    =: A 9egatie "A +"conoic alue Added) for the year ilies that the fir has not earned

    enough during the year to coer its caital of caital and the alue of the fir has declined

    a;True

     !;*alse

    A9S: +T6")

    htts:>>www;google;co;in>urlI

    saGt&rctGF&qG&esrcGs&sourceGwe!&cdG0&edG/CD"8*FAB&urlGhtt=A0*

    0*Fc;sui!e;edu;cn0*od0*news0*download;h=*t=D,=020.40.td

    =D2ededc,0.cat=D/0.siteid=D,/,/40.id=D=.20.!id=D0/0.d

    =D!d!/=!&eiG8T"6%*C2Ergeoh4E4CA&usgGA*8FC9"d#=UL7V=D"f2/PD

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    @: 5hich of the following is not a alue added erforance easureI

    a;"conoic alue Added

     !;(aret alue Added

    c;*ranchise *actor 

    d;Coany lue Added;

    A9S: D-;

    htts:>>www;google;co;in>urlI

    saGt&rctGF&qG&esrcGs&sourceGwe!&cdG0&edG/CD"8*FAB&urlGhtt=A0*

    0*Fc;sui!e;edu;cn0*od0*news0*download;h=*t=D,=020.40.td

    =D2ededc,0.cat=D/0.siteid=D,/,/40.id=D=.20.!id=D0/0.d

    =D!d!/=!&eiG8T"6%*C2Ergeoh4E4CA&usgGA*8FC9"d#=UL7V=D"f2/PD

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    D) 9one of the a!oe

    A9S:A

    htt:>>highered;cgraw?

    hill;co>sites>//[email protected]>studentchater,0>ultile>highered;cgraw?

    hill;co>sites>//[email protected]>studentchater,0>ultile

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     A) True

    B) *alse

    A9S:A

    htt:>>highered;cgraw?

    hill;co>sites>//[email protected]>studentchater,0>ultile

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    Q#estionnaires 0n /05*

    ,:TS5 $nc; had the following data for last year: 9et incoe G 32//Y 9et oerating rofit after

    ta#es +9OPAT) G 3//Y Total assets G 3=-///Y and Total oerating caital G 30-///; $nforation

    for the Fust?coleted year is as follows: 9et incoe G 3,-///Y 9et oerating rofit after ta#es

    +9OPAT) G [email protected] Total assets G 30-.//Y and Total oerating caital G [email protected]//; 7ow uch free

    cash flow did the fir generate during the Fust?coleted yearI

    A 3=2=

    B [email protected]

    C 34.2

    D [email protected],4

    " [email protected]

    A9S B

    htt:>>www;scri!d;co>doc>0,[email protected],>,?(cq

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    0: Consider the following stateent: MThe discounted a!noral 9OPAT growth odel defines

    the alue of net assets as the su of the caitali%ed ne#t?eriod 9OPAT forecast and the resent

    alue of forecasted 9OPAT !eyond the ne#t eriod;N This stateent is

    a;True

     !;*alse

    htt:>>cws;cengage;co;u>aleustudents>(C8s>Alication0/files>Chater/;ht

    Ans True

    =: 7areling "nterrises e#erienced a decline in net oerating rofit after ta#es +9OPAT);

    5hich of the following definitely cannot hel e#lain this declineI

    a; Sales reenues decreased;

     !; Costs of goods sold increased;

    c; Dereciation increased;

    d; $nterest e#ense increased;

    e; Ta#es increased;

    htts:>>!rainass;co>!usiness>caital?asset?ricing?odel>2=,0=

    4 : 5hat are the a!noral earnings of a fir that has 9OPAT of 34/-///

    with an equity cost of caital of ,/- when the !oo alue at the !eginning of eriod is

    32//-///I

    a; 3 +4/-///)

     !; 3 +2/-///)

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    c; 3 4/-///

    d; 3 2/-///

    A9S a;

    htt:>>www;uic;edu>classes>actg>[email protected],.rtr>eiew?*in?Actg>/.?aluation0/&0/Cash

    0/*low0/Analysis;df 

     

    efer to Ta!le .?0 for ne#t @ questions:

    *ir A *ir B *ir C

     9OPAT

    3.-/// 3,4-/// 3,2-///

    ,/ 2 ,0

    Bt 3,//-/// 3,@/-/// 3,/-///

     

    @:; efer to Ta!le .?0; 5hat are the a!noral earnings for *ir AI

    a; 3 +4-///)

     !; 3 +.-///)

    c; 3 4-///

    d; 3 .-///

    A9S A

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    htt:>>www;uic;edu>classes>actg>[email protected],.rtr>eiew?*in?Actg>/.?aluation0/&0/Cash

    0/*low0/Analysis;df 

    .; efer to Ta!le .?0; 5hat are the a!noral earnings for *ir BI

    a; 3 ,-///

     !; 3 0-///

    c; 3 ,0-///

    d; 3 ,4-///

    A9S:B

    htt:>>www;uic;edu>classes>actg>[email protected],.rtr>eiew?*in?Actg>/.?aluation0/&0/Cash0/*low0/Analysis;df 

    ;; efer to Ta!le .?0; 5hat are the a!noral earnings for *ir CI

    a; 3 +0-4//)

     !; 3 +4-2//)

    c; 3 4-2//

    d; 3 -.//

    A9S:B

    htt:>>www;uic;edu>classes>actg>[email protected],.rtr>eiew?*in?Actg>/.?aluation0/&0/Cash

    0/*low0/Analysis;df 

    2; efer to Ta!le .?0; Assue that *ir A can increase 9OPAT !y 34-///- !y cutting costs;

    A!noral earnings would !e

    a; 3 +,-///);

     !; 3 /;

    c; 3 ,-///;

    d; 3 ,[email protected]//;

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    A9S:!

    htt:>>www;uic;edu>classes>actg>[email protected],.rtr>eiew?*in?Actg>/.?aluation0/&0/Cash

    0/*low0/Analysis;df 

    ;efer to Ta!le .?0; Assue that *ir B can diest itself of 30/-/// of unroductie caital

    with 9OPAT falling !y only 3=-///; A!noral earnings are

    a; 30//;

     !; 34//;

    c; 3.//;

    d; 32//

     A9S: c

    htt:>>www;uic;edu>classes>actg>[email protected],.rtr>eiew?*in?Actg>/.?aluation0/&0/Cash

    0/*low0/Analysis;df 

    ,/: 9OPAT su!tracts which one of teh following grou of ites fro the net incoeI

    a;9on recurring ites-interest-distortions realting to acounting quality concerns;

     !;9on oerating-non recurring ites and after ta# interest;

    c :9on oerating-non recurring ites and after ta# interest and distortion related to accounting

    quality concerns;

    A9S D;

    htt:>>www;uic;edu>classes>actg>[email protected],.rtr>eiew?*in?Actg>/@?*inancial0/Strateent

    0/Analysis;df 

    ,,; 9OPAT is frequently used in calculations of "conoic alue added and *ree cash flow

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    a;true

     !;false

    ans a;

    htt:>>en;wiiedia;org>wii>9OPAT

    ,0; $n cororate finance- net oerating rofit after ta# +9OPAT) is a coany's after?

    ta# oerating rofit for all inestors- including shareholders and de!t holders

    a;true

     !;false

    Ans a;

    htt:>>en;wiiedia;org>wii>9OPAT

    http://en.wikipedia.org/wiki/Corporate_financehttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Earnings_before_interest_and_taxeshttp://en.wikipedia.org/wiki/Corporate_financehttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Earnings_before_interest_and_taxes