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financial accounting for managers
Accounting For Managers 2009 Edition Rama Gopal, CA. C. - Solutions
True or False Leverage Ratio indicates proportion of debt and equity in financing firm’s assets.
True or False A firm’s ability to meet the interest charges and repayment dues on long-term obligations is referred to as its short-term solvency.
True or False Generally, a Quick ratio is not better than current ratio in a test of liquidity.
True or False Quick ratio establishes a relationship between liquid assets and current liabilities.6.True or False Low gearing is preferable to high gearing from the viewpoint of creditors.
True or False Rate of return on capital employed is a turnover ratio.
True or False Current Ratio is a crude and quick measure of firm’s liquidity.
True or False Creditors turnover ratio is a ‘Solvency Ratio’.
True or False Liabilities are not subject to fall, as they have to be paid.
Earnings per share are Rs.80. Bonus shares are issued in the ratio of 1:4 during the year.What is the adjusted earning per share of the year in which bonus is made?(a) 60 (b) 70(c) 80 (d) 100(e) 20
Share price, before bonus issue is Rs.100. Bonus issue 1:4 is made.What would be the ex-bonus price of a share, if other factors were constant?(a) 60 (b) 70(c) 80 (d) 100(e) 20
Calculate Return on Equity with the following information:EBIT: 50,000; 6% Debentures: 5,00,000 Tax rate: 50%; Equity share capital: 1,00,000 (Face value Rs.10) General Reserves: 3,00,000(a) 10% (b) 2.5%(c) 20% (d) 15%(e) 30%
Cost of goods sold includes(a) Depreciation (b) Gross Profit(c) Administrative Expenses (d) Interest(e) None.
Capital employed means(a) Net Worth (b) Net Worth + Long-term Loans.(c) Current Assets + Current Liabilities (d) Net Current Assets.
Calculate Net Working Capital Cash: 5,000; Finished Goods: 12,000 Debtors: 20,000; Prepaid Expenses: 3,000 Debentures: 4,000; Long-term Loan: 5,000 and Bank Cash Credit: 6,000;Creditors = 10,000(a) 24,000. (b) 26,000.(c) 21,000. (d) 15,000.(e) 20,000.
A company can meet its financial obligations as and when they fall due if(a) Current Ratio is 2:1. (b) Current Ratio is less than 2 : 1(c) More depends on composition of current (d) Current assets just cover current assets rather than currant ratio alone. liabilities.
This ratio is a ‘Test of Quantity but not Quality’.(a) Quick Ratio. (b) Debt-Equity Ratio.(c) Current Ratio (d) Dividend Payout Ratio
Calculate Quick Ratio from the following.Debentures : 10,000 Long-term loan : 20,000 Cash : 15,000 Raw materials : 6,000 Debtors : 5,000 Creditors : 5,000 Prepaid expenses : 5,000(a) 3:1 (b) 4:1(c) 2:1 (d) 1:1
Find out the missing figure if current ratio is 2:1.Work in progress : 20,000.Bank cash credit : 5,000.Raw materials : 10,000.Creditors : 4,000.Bills payable : ?.(a) 10,000. (b) 9,000.(c) 12,000. (d) 6,000.
Calculate current ratio from the following data:Bank OD: 20,000; Cash: 15,000; Outstanding expenses: 10,000 Accrued income: 5,000; Stock: 5,000; Prepaid expenses: 5,000(a) 2:1. (b) 1:1.(c) 1.5:1. (d) 1:1.5.
For calculating inventory ratio, the following information is more appropriate.(a) Opening Stocks (b) Closing Stock(c) Sales (d) Gross Profit(e) Average Stock 4 Which statement is wrong?(a) Liquidity Ratio – Measures firm’s ability to meet current obligations.(b) Activity Ratio – Reflects
Debt Equity Ratio is a(a) Liquidity Ratio (b) Solvency Ratio(c) Profitability Ratio (d) Activity Ratio 2 Calculate the inventory holding, in terms of days:Opening stock: 10,000;Closing stock: 20,000;Sales: 40,000; Gross Profit: 10%(a) 150 (b) 30(c) 60 (d) 120
True or False Inventory is part of liquid assets.
True or False An arbitrary Current Ratio of 2:1 should not be blindly followed.
True or False A firm should ensure neither excess liquidity nor inadequate liquidity.
True or False While analysing ratios, investors concentrate on the firm’s present and future profitability.
True or False Acceptable current ratio is 2:1.
True or False Liquidity ratios measure long-term solvency of a concern.
True or False Rule of thumb for acid–test ratio is 1:1.
True or False If EBIT increases, percentage increase of ROE depends on the capital gearing of the firm.
True or False If Net Profit margin is inadequate, return on shareholder’s funds would be low.
True or False Current ratio measures quality of assets.
True or False A large number of shareholders in a firm would be more interested in DPS rather than EPS.
True or False A decreased Stock Turnover Ratio usually indicates expanding business.
True or False If price earnings ratio of a company is more than the industry’s average, it is better to buy the scrip at that market price.
True or False The term ‘financial analysis, includes both ‘analysis and interpretation’.
True or False Net Profit after Tax to sales indicates Net Profit Margin.
True or False Gross Profit Ratio shows the spread between sales revenue and cost of goods sold.
True or False Working Capital requirement of a firm is always met by Bank Borrowings alone.
True or False Aging Schedule does not show the period debtors are outstanding in a firm.
True or False Activity Ratios are also called Turnover Ratios because they indicate the speed of converting assets into sales.
True or False A very high degree of liquidity is good for the firm as it would not experience any difficulty in making payments.
True or False Current Ratio represents margin of safety.
What are the major tools of Financial Analysis and explain any three of them?
Explain common-size statements? Explain the technique of preparing the common size balance sheet? (8.8)
Explain the different types of Financial Analysis? (8.5)
What are the objectives of Analysis of Financial Statements? Who are the Users of Financial Analysis? (8.3 and 8.4)
What is meant by ‘Financial Analysis’? Discuss the utility and significance of the Analysis of Financial Statements to the management and others, interested in the business? (8.1 to 8.3)
What is the need of Analysis of Financial Statements? (8.1 and 8.2)
True or False Horizontal Analysis is used for comparing data of several years of one firm, while Vertical Analysis is used for comparing the relative performance of different firms in the same industry for the same period.
True or False Different parties need the financial statements for same purposes.
True or False ‘Liquidity’ refers to the ability of the firm to pay, as and when the demands and debts fall due for payment.
True or False The purpose of financial analysis is to diagnose the information content in financial statements so as to judge the profitability, financial soundness of the firm and chalk out the way to improve existing performance.
True or False The traditional financial statements give all the relevant and required information to show the strength and weakness of the company.
True or False Ratio analysis is one of the major tools of Financial Analysis.
True or False In horizontal analysis, balance sheets of different years of the same firm are kept side by side for comparison.
True or False External analysis is better than the internal analysis.
True or False It is not obligatory under Companies Act, 1956 for all companies to prepare the final accounts of the companies by presenting current year as well as previous year figures for comparison.
True or False Comparative Financial Statements indicate the direction of the movement of the firm.
Financial Analysis is meant for the following category.a. Trade creditors.b. Trade creditors and suppliers of long-term debt.c. Investors.d. Management.e. All above categories specified ina, b, c and d.
Financial Analysis can be made forma. Profit and Loss Account.b. Balance Sheet.c. Items in Profit and Loss Account and Balance Sheet by establishing relationship.
Financial analysis is meant fora. Identifying strength of firm.b. Identifying weakness of firm.c. Identifying strength and weaknesses of firm.
What do you understand by Trend Analysis?
Name some of the tools available for analysis of financial statements?
What is the basic purpose of analysis of financial statements?
A firm wants to change the existing Straight Line Method of Depreciation to Diminishing Balance Method from the current year? Can the firm change the method of depreciation?
What is the special advantage with the sinking fund method of providing depreciation?
Out of the different methods of providing depreciation, which method is mostly adopted and why it is so?
Why depreciation is to be provided while finalizing the accounts?
What is ‘Depreciation’?
A firm does not want to disturb its business operations for replacing a fixed asset. Discuss the method of depreciation that is recommended?
If the value of a fixed asset falls, is it necessary to provide depreciation? What are basic factors for calculation of depreciation? (7.3 and 7.7)
Is it possible for a firm to change the method of depreciation? If so, what is the procedure to be followed? (7.6)
State the accounting procedure in respect of sale of an asset and discarding the machinery as scrap? (7.9)
Name the different methods of providing depreciation and state their merits and demerits? (7.5)
What are the objectives for providing depreciation?
What is the meaning of ‘Depreciation’? Explain the need for providing depreciation? (7.2 and 7.3)
‘Depreciation is to be provided on fixed assets as well as current assets’ – Discuss? (7.1)
The greatest advantage with the following method is availability of ready funds for replacement of fixed asset as depreciation amount is invested outside the business of the firm.(a) Straight Line Method (b) Diminishing Balance Method(c) Sinking Fund Method (d) Depletion Method
Burden on the profit and loss account in the form of depreciation and interest would be……… in the annuity method compared to Straight Line Method as well as Diminishing Balance Method(a) more (b) less(c) same (d) can be more or less
Change in method of depreciation is ………… in case of a limited company:(a) Permitted (b) Not permitted(c) Permitted, in exceptional cases (d) Permitted in all cases, but change and impact of change are to be stated in‘Notes to Accounts’.
For calculating the extraction of mines and quarries, the following method of depreciation is used:(a) Depletion Method (b) Diminishing Balance Method(c) Sinking Fund Method (d) Revaluation Method
A firm is in the business of livestock. The following method is used for computing depreciation:(a) Straight Line Method (b) Diminishing Balance Method(c) Sinking Fund Method (d) Revaluation Method
True or False When Provision for depreciation account is maintained, balance sheet shows the fixed asset at the original cost with provision for depreciation as a deduction.
True or False A change in the method of depreciation is treated as a change in an accounting policy.
True or False Even if the fixed asset is purchased in the middle of the year, depreciation is to be provided for the whole year.
True or False Fixed assets are not meant for sale in the ordinary course of business.
True or False Depreciation is a mere accounting entry, which does not affect the operational results of the firm.
True or False Replacement of fixed asset creates liquidity problem unless planned, properly.
True or False Provision for depreciation account always shows a debit balance.
True or False Depreciation can be credited to the fixed asset account or ‘provision for depreciation’ account, when a separate account is maintained for this purpose.
True or False Depreciation is necessary on fixed assets, not on current assets.
True or False If a fixed asset is not used, depreciation need not be provided.
True or False Depreciation amount is invested outside the business in Diminishing Balance method so that replacement of asset does not disturb the firm’s liquidity in business.
True or False Depreciation amount goes on reducing in Straight Line Method year after year.
True or False Depreciation does not involve any outgo of cash from the firm.
True or False Depreciation Fund Method provides readily available cash for replacement of the fixed asset.
True or False Depreciation amount is same every year both in straight-line method and diminishing balance method.
True or False Depreciation is the diminution in the value of the fixed assets because of their use, wear and tear, efflux of time; depletion etc.
What is perpetual inventory? Why this method is preferred to periodical Inventory?
Why inventory is to be valued at cost or market price, whichever is lower?
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