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ANALYSIS OF FINANCIAL
STATEMENTS
Analysis
& interpretation of financial statements, techniques & limitations of
financial analysis, ratio analysis, funds flow analysis and cash flow analysis.
Multiple
choice questions:
1. Which
of the following assets is not a quick current asset for the purpose of
calculating acid test ratio?
a. Short
term bills receivable
b. Cash
c. Stock
d. Debtors
2. Which
of the following is a satisfactory liquid ratio?
a. 2:1
b. 1:2
c. 1:1
d. 1.5:1
3. Current
ratio is a
a. Balance
sheet ratio
b. Profit
and loss account ratio
c. Combined
ratio
d. Solvency
ratio
4. Which
of the following items is not an operating expense?
a. Advertising.
b. Depreciating
of the office equipment
c. General
management salaries
d. Loss
on the sale of motor van
5. Debtors
turnover ratio is calculated by:
a. Credit
sales/Average debtors
b. Total
sales/average debtors
c. Credit
sales/debtors*days in the year
d. Cash
sales/total debtors.
6. ‘net
worth’ of business means
a. Equity
capital
b. Total
assets
c. Total
assets minus total liabilities
d. Fixed
assets minus current assets
7. Sale
of inventory for cash will cause the current ratio to
a. Increase
b. Decrease
c. Remain
unchanged
8. The
immediate solvency ratio is
a. Quick
ratio
b. Current
Ratio
c. Stock
Turnover Ratio
d. Debtors
Turnover ratio
9. Given
the following information
Debentures Rs.
1,50,000
Equity capital Rs.
2,00,000
General reserve Rs.
90,000
Accumulated profit Rs.
60,000
What is Debt Equity ratio?
a. 15:20
b. 15:24
c. 15:29
d. 15:35
10.
Capital gearing ratio
denotes the relationship between
a. Assets
and capital
b. Loans
and capital
c. Equity
share holder’s funds and long term borrowed funds
d. Debentures
and equity capital
11.
The flow of fund is said
to have taken place when
a. Cash
is paid to creditors
b. Cash
is received from debtors
c. Machinery
is purchased for cash
d. All
of the above.
12.
Which of the following is
a non-current asset?
a. Debtors
b. Pre-paid
insurance
c. Land
d. Stock
13.
Cash sales result into
a. Source
of fund
b. Application
of fund
c. No
flow of fund
14.
When preliminary expenses
are written off
a. Source
of fund
b. Application
of fund
c. No
flow of fund
15.
Which of the following is
not a source of fund?
a. Purchase
of a machinery
b. Profit
earned during the year
c. Issue
of share capital
d. Long
term loan raised
16.
Which of the following is
an application of fund?
a. Purchase
of machinery
b. Repayment
of loan
c. Redemption
of preference shares
d. Payment
of dividend
e. All
of these
17.
For preparing a funds
flow statement, unexpired insurance is treated as a
a. Current
asset
b. Non-current
asset
c. Current
liability
d. Non-current
liability
18.
Increase in share premium
account results in a
a. Source
of fund
b. Application
of fund
c. No
flow of fund
19.
For analyzing the changes
in financial position, companies prepare
a. Profit
& Loss Account
b. Balance
Sheet
c. Funds
Flow Statement & Cash Flow Statement.
d. Statement
of changes in working capital.
20.
Patents and copy rights
fall under
a. Current
asset.
b. Liquid
asset
c. Intangible
asset
d. Normal
asset
21.
Preparation of cash flow
statement is
a. Mandatory
b. Recommendary
c. Required
under the companies act
d. Required
under the companies act
22.
Which of the following
items result in cash flows
a. Issue
of shares
b. Transfer
to general reserve
c. Goodwill
written off
d. Salaries
outstanding.
23.
A cash flow
a. Increases
total cash
b. Increases
cash equivalents
c. Increase
cash but decreases cash equivalents
d. Increase
both cash and cash equivalent
24.
Cash payment to employees
is a cash flow from
a. Operating
activities
b. Investing
activities
c. Financing
activities
d. All
of the above
25.
Which of the following is
not a cash inflow?
a. Purchase
of a fixed asset
b. Sale
of fixed asset
c. Issue
of debentures
d. Cash
from business operations
26.
When there is net profit,
which of the items are deducted from net profit to arrive at cash from
operations
a. Increase
in current assets
b. Decrease
in current assets
c. Increase
in current liabilities
d. All
of the above
27.
Buy back of equity share
by a company
a. Operating
activity
b. Investing
activity
c. Financing
activity
d. None
of these
28.
AS-3 : Cash flow
statement is mandatory in
a. All
stock companies
b. All
listed companies
c. All
commercial and industrial businesses
d. All
commercial and industrial businesses whose turnover for the accounting period
is 25 crores
29.
Income tax paid is
concerned with
a. Operating
activities
b. Investing
activities
c. Financing
activities
d. None
of these
30.
Acquisition of land and
building by issue of shares should be classified as
a. Operating
activities
b. Investing
activities
c. Financing
activities
d. None
of these
31.
A company is highly
geared when it raised-
a. Finance
by one equity capital
b. Finance
by only debentures
c. More
finance by debentures than by preference shares
d. More
finance by debentures than by equity shares
Key
answers:
1. (c)Stock
2. (d)
1:2
3. (a)
balance sheet ratio
4. (d)
Loss on the sale of motor van
5. (a)
Credit sales/Average debtors
6. (c)
Total assets minus total liabilities
7. (c)
Remain unchanged
8. (a)
Quick ratio
9. (d)
15:35
10. (d)
Debentures and equity capital
11. (c)
Machinery is purchased for cash
12. (c)
Land
13. (a)
Source of fund
14. (c)
No flow of fund
15. (a)
Purchase of a machinery
16. (e)
All of these
17. (a)
Current asset
18. (a)
Source of fund
19. (c)
Funds Flow Statement & Cash Flow Statement.
20. (c)
Intangible asset
21. (a)
Mandatory
22. (a)
Issue of shares
23. (d)
Increase both cash and cash equivalent
24. (a)
Operating activities
25. (a)
Purchase of a fixed asset
26. (a)
Increase in current assets
27. (c)
Financing activity
28. (b)
All listed companies
29. (a)
Operating activities
30. (d)
None of these
31. (d)
More finance by debentures than by equity shares
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