Unit 2: Financial management - Practice Quiz

1 What does the term funds generally mean in business?

2 Which of the following is an internal source of business funds?

3 Which asset is normally purchased using fixed capital?

4 Which formula is commonly used to calculate working capital?

5 What is costing?

6 If a product costs $80 and the business adds a profit of $20, what is its selling price?

7 Which type of planning focuses on goals for several years?

8 Preparing a production schedule for the next month is an example of which type of planning?

9 What is the main purpose of book keeping?

10 Which document commonly provides evidence of a credit purchase?

11 Why is the journal called the book of original entry?

12 What is a narration in a journal entry?

13 What is the main function of a ledger?

14 What is the transfer of entries from the journal to the ledger called?

15 Which transactions are recorded in the sales book?

16 Which subsidiary book records cash and bank transactions?

17 Which annual financial statement shows assets and liabilities on a specific date?

18 Which financial statement shows the profit or loss earned during an accounting period?

19 What is a primary purpose of taxation?

20 Goods and Services Tax (GST) is generally classified as which type of tax?

21 A business project requires ₹800,000. The entrepreneur contributes ₹300,000 and receives a government grant of ₹100,000. How much additional funding is required?

22 A profitable company wants to finance expansion without diluting ownership or creating mandatory interest payments. Which source of funds is most suitable?

23 A firm has inventory of ₹120,000, receivables of ₹80,000, cash of ₹30,000, and current liabilities of ₹90,000. What is its net working capital?

24 An entrepreneur purchases a production machine and raw materials for a new factory. How should these expenditures be classified?

25 A firm has fixed costs of ₹120,000 and variable costs of ₹30 per unit. If it produces 6,000 units and applies a 25% markup on total cost per unit, what is the selling price per unit?

26 A product sells for ₹80 per unit, its variable cost is ₹50 per unit, and annual fixed costs are ₹150,000. What is the break-even sales volume?

27 A manufacturer is deciding where to locate a new plant and how much capacity it will need over the next five years. What type of planning is this?

28 A business expects a temporary cash shortage during the next three months. Which planning response is most appropriate?

29 An owner introduces ₹100,000 in cash as capital. What is the immediate effect on the accounting equation?

30 A bookkeeper wants to verify the amount and date of a purchase before recording it. Which record should be examined first?

31 Goods worth ₹25,000 are sold on credit to a customer. Which journal entry is correct?

32 A business settles a creditor's balance of ₹12,000 by paying ₹11,500 in cash and receiving a ₹500 discount. Which entry is correct?

33 A journal entry records rent paid in cash. When the entry is posted to the ledger, which accounts are affected?

34 A customer's ledger account has an opening debit balance of ₹20,000. Credit sales are ₹15,000, cash received is ₹25,000, and sales returns are ₹2,000. What is the closing balance?

35 Which transaction should be entered in the sales book?

36 A business returns defective goods that were originally purchased on credit from a supplier. In which subsidiary book should the return be recorded?

37 An annual income statement reports sales of ₹500,000, cost of goods sold of ₹320,000, and operating expenses of ₹120,000. What is the net profit?

38 A company's balance sheet reports total assets of ₹900,000 and total liabilities of ₹350,000. What is the owner's equity?

39 A registered business collects ₹36,000 as output tax on sales and pays ₹22,000 as eligible input tax on purchases. What is its net tax payable?

40 A business earns ₹500,000 before charging tax-allowable depreciation of ₹80,000. Assuming there are no other tax adjustments, what is its taxable business income?

41 During the year, a company generated ₹1.5 million from operations, issued equity for ₹5 million, repaid a bank loan of ₹2 million, and purchased machinery for ₹4 million in cash. Ignoring opening balances, which classification and net cash movement are correct?

42 A firm finances a ₹10 million requirement with 40% debt at 10% interest, 20% preference capital at 12%, and 40% equity at an estimated cost of 16%. If the corporate tax rate is 30% and only debt interest is tax-deductible, what is the weighted average cost of capital?

43 Using a 360-day year, a manufacturer has annual material cost of ₹36 million, labor cost of ₹18 million, factory overhead of ₹12 million, and sales of ₹90 million. Raw materials remain for 30 days; work in progress remains for 15 days with materials fully added and labor and overhead 50% complete; finished goods remain for 20 days; and customers receive 30 days' credit. Suppliers allow 45 days' credit, wages are paid 10 days in arrears, and minimum cash is ₹1 million. What is the estimated net working capital requirement?

44 Under a strict matching approach to financing, which funding arrangement is most appropriate for a factory building, permanent inventory, and a three-month seasonal inventory increase?

45 A company makes products A and B. A sells for ₹120, has variable cost ₹72, and requires 3 machine-hours. B sells for ₹100, has variable cost ₹60, and requires 2 machine-hours. Maximum demand is 1,000 units of A and 1,500 units of B, while only 3,600 machine-hours are available. What production plan maximizes total contribution?

46 A business expects to sell 30,000 units. Variable cost is ₹180 per unit, annual fixed cost is ₹2.4 million, and the investment employed is ₹6 million. What price per unit is required to earn a 15% return on investment, assuming all units are sold?

47 A factory with idle capacity receives a one-time order for 5,000 units at ₹74 each. Variable manufacturing cost is ₹60 per unit. The usual ₹8 selling commission will not apply, but a special setup costing ₹30,000 is required. Allocated fixed overhead is ₹15 per unit and will not change. What should management do on financial grounds?

48 A five-year expansion has a positive net present value, but its first-year monthly cash budget shows a deficit that would breach a loan covenant. Which decision best integrates long-term and short-term planning?

49 March sales are forecast at ₹600,000 and February sales were ₹500,000. Twenty percent of sales are collected immediately and 80% in the next month. March purchases, paid in March, equal 50% of March sales. March wages are ₹90,000, overhead is ₹30,000 including ₹10,000 depreciation, and equipment costing ₹150,000 will be paid for in March. Opening cash is ₹40,000 and the minimum desired balance is ₹50,000. How much must be borrowed in March?

50 A cash purchase of equipment for ₹50,000 was debited to Purchases Account and correctly credited to Cash Account. Ignoring depreciation, which statement is correct?

51 A customer owing ₹100,000 accepts a three-month bill. The business immediately discounts it with a bank and receives ₹96,000. Which combined journal treatment is correct at acceptance and discounting?

52 A ₹80,000 bill receivable previously discounted with the bank is dishonored at maturity. The bank also pays noting charges of ₹1,000 and debits the business's account for the total. Which entry should the business record?

53 The opening debit balance of the trade receivables control account is ₹200,000. During the period, credit sales are ₹900,000; cash collected ₹450,000; sales returns ₹30,000; bad debts ₹20,000; bills receivable accepted ₹100,000; discounts allowed ₹15,000; and contra-setoffs against payables ₹10,000. What is the closing balance?

54 A trial balance has credit totals exceeding debit totals by ₹8,000, so a suspense account is opened. Later, it is found that the total of the sales returns book, ₹8,000, was not posted to the Sales Returns Account. Which correction clears the suspense account?

55 A supplier issues one credit invoice containing ₹70,000 of merchandise for resale and an office chair costing ₹10,000. Under the traditional subsidiary-book system, where should the items be recorded?

56 At month-end, the bills receivable book contains bills accepted by Customer X for ₹40,000, Customer Y for ₹35,000, and Customer Z for ₹25,000. Which posting procedure is correct?

57 Closing inventory at the end of Year 1 was overstated by ₹40,000. The Year 2 closing inventory is counted correctly, and no correcting entry is separately made. Ignoring tax, what is the effect on reported profits?

58 Profit after tax is ₹500,000. It includes depreciation of ₹80,000 and a gain on sale of equipment of ₹20,000. Inventory increased by ₹60,000, receivables decreased by ₹30,000, and payables decreased by ₹25,000. Under the indirect method, what is net cash generated from operating activities?

59 A GST-registered business has output GST of ₹360,000. Input GST shown on purchase invoices totals ₹220,000, of which ₹40,000 relates to a personal-use motor vehicle for which input credit is specifically blocked. Assume all remaining credits satisfy the invoice, receipt, payment, and filing conditions. What is the net GST payable?

60 Accounting profit before tax is ₹1,200,000 after charging book depreciation of ₹200,000 and a nondeductible regulatory penalty of ₹50,000. Tax depreciation allowed is ₹320,000. If there are no other adjustments and the income-tax rate is 30%, what is the current tax expense?