Question Bank - Multiple Choice Questions (MCQS) : Unit 1: Financial Statement of Corporate Organisations

DNYANSAGAR ARTS AND COMMERCE COLLEGE, BALEWADI, PUNE – 45
Subject: Analysis of Financial Statements (505 A) CLASS: TYBBA (Sem-V) (2013 PATTERN)
Question Bank - Multiple Choice Questions (MCQs)

Unit 1: Financial Statement of Corporate Organisations
1) Business finance includes........
a) procurement of funds and utilization of funds
b) management of funds
c) allocation
d) Insurance
2) Funds are required for the..........

a) purchase of land & building
b) purchase of machinery
c) purchase of another fixed asset
d) all of the above
3) Which report gives a review on the profitability of a business?

a) Statement of changes in equity
b) Cash flow statement
c) Balance sheet
d) Income statement
4) The term ‘Financial Statement’ covers

a) Profit & Loss Statement
b) Balance sheet and Profit & Loss Statement appropriation account
c) Profit & Loss Statement and Balance sheet
d) All of above are false
5) Which of the following is true about financial statements?

A) Financial statement gives a summary of accounts. B) Financial statements can be stated as
recorded facts.
a) Only A
b) Only B
c) Both A and B
d) None of the above
6) Schedules attached with the balance sheet forms a part of the financial statements.
a) True
b) False
PROF. KAVITA PAREEK www.dacc.edu.in
7) Which of the following statements are true?

A) Financial statements are only interim report.
B) Financial statements are also known as annual records.
C) Financial statements are historic.
a) Both A and B
b) Both A and C
c) Both B and C
d) A, B, C
8) P&L statement is also known as

a) Statement of operations
b) Statement of income
c) Statement of earnings
d) All of the above
9) Which statement shows the flow of cash and cash equivalents during the financial period?
a) Statement of changes in equity
b) Cash flow statement
c) Balance sheet
d) Income statement
10) Subtracting all expenses from revenues yields?

a) Net profit / Net Loss
b) Carrying value
c) Long term assets
d) Net liabilities
11) Balance sheet of a company is required to be prepared in the format given in ………………………
a) Schedule III Part II
b) Schedule III Part I
c) Schedule III Part III
d) Table A
12) As per Companies Act, the Balance Sheet of a company is required to be presented in ………………………
a) Horizontal Form
b) Vertical Form
c) Either Horizontal or Vertical Form
d) Neither of the above

13) Which of the following is not required to be prepared under the Companies Act?
a) Statement of Profit and Loss
b) Balance Sheet
c) Report of Director’s and Auditor’s
d) Funds Flow Statement
14) According to prescribed order of assets in a Company’s Balance Sheet ……………………… assets should
be shown first of all.
a) Non-Current Assets
b) Current Assets
c) Current Investments
d) Loans and Advances
15) In a Company’s Balance Sheet …………………. appear under the head ‘non-current assets’.
a) Goodwill
b) Patents
c) Vehicles
d) All of the above
16) Calls in Arrears appear in a Company’s Balance Sheet under ………………..

a) Reserve & Surplus
b) Shareholder’s Funds
c) Contingent Liabilities
d) Short-term Borrowings
17) Calls in advance appear in a Company’s Balance Sheet under ………………..

a) Share Capital
b) Current Liability
c) Long-term Borrowings
d) Reserve & Surplus
18) Bills Receivables appear in a Company’s Balance Sheet under the Sub-head ……………………..
a) Current Investments
b) Cash Equivalents
c) Trade Receivables
d) Short term Loans and Advances

19) Which of the following options is not recorded in the Balance sheet?
a) Cash
b) Rent expenses
c) Building
d) Goodwill
20) Certain assumptions are essential to prepare financial statements.

a) True
b) False
21) Which of the given area is NOT addressed by Business Finance?

a) Financing
b) Investing
c) Managing day today expenses
d) None of the given options
22) Which of the following is measured by profit margin?

a) Operating efficiency
b) Asset use efficiency
c) Financial policy
d) Dividend policy
23) Business Finance addresses which of the following?

a) Capital budgeting
b) Capital structure
c) Working capital management
d) All of the given options
24) Finance is vital for which of the following business activity (activities)?
a) Marketing Research
b) Product Pricing
c) Design of marketing and distribution channels
d) All of the given options
25) The most important item that can be extracted from financial statements is the actual ________ of the
firm.
a) Net Working Capital
b) Cash Flow

c) Net Present Value

d) None of the given options
26) Which of the following refers to the difference between the sale price and cost of inventory?
a) Net loss
b) Net worth
c) Markup
d) Markdown
27) Who of the following make a broader use of accounting information?

a) Accountants
b) Financial Analysts
c) Auditors
d) Marketers
28) Which of the following statement is considered as the accountant’s snapshot of firm’s accounting value
as of a particular date?
a) Income Statement
b) Balance Sheet
c) Cash Flow Statement
d) Retained Earning Statement
29) Balance Sheet is based upon which of the following formula?

a) Assets = Liabilities – Stockholder’s equity
b) Assets + Liabilities = Stockholder’s equity
c) Assets + Stockholder’s equity = Liabilities
d) Assets = Liabilities + Stockholder’s equity
30) The conflict of interest between stockholders and management is known as:
a) Agency problem
b) Interest conflict
c) Management conflict
d) Agency cost
31) Which from the following is NOT an example of intangible assets?

a) Trademarks
b) Patents
c) Buildings
d) Technical expertise

32) The following are the examples of financial assets except?

a) Stocks
b) Bank loan
c) Bond
d) Raw material
33) Business finance refers to ...... and ........ employed in a business.

a) money
b) credit
c) both a & b
d) none of the above
34) Business finances is concerned with _________ funds and _______ funds from different sources.
a) estimation of funds
b) raising of funds
c) short term finance
d) both a & b
35) Which of the following is not a function of finance manager?

a) Mobilization of funds
b) Deployment of funds
c) Control over use of funds
d) Manipulate share price of the Company
36) Which is the following main decision taken by the financial manager in a company?
a) Income decision
b) Financing decision
c) Appraisal decision
d) Budget decision
37) Finance Function comprises

a) Safe custody of funds only
b) Expenditure of funds only
c) Procurement of finance only
d) Procurement & effective use of funds
38) Financial management mainly focuses on

a) Efficient management of every business
b) Brand dimension

c) Arrangement of funds
d) All elements of acquiring and using means of financial resources for financial activities
39) The finance manager is accountable for.

a) Earning capital assets of the company
b) Effective management of a fund
c) Arrangement of financial resources
d) Proper utilization of funds
40) The focal point of financial management in a firm is:

a) The number and types of products or services provided by the firm.
b) The minimization of the amount of taxes paid by the firm.
c) The creation of value for shareholders.
d) The dollars profits earned by the firm.
Answer Key:
1-a 2-d 3- d 4-c 5-c 6-a 7-c 8-b 9-b 10 - a

11 - b 12 - b 13 - d 14 - a 15 - d 16 - b 17 - b 18 - c 19 - b 20 - a
21 - d 22 - a 23 - d 24 - d 25 - b 26 - c 27 - b 28 - b 29 - d 30 - a
31 - c 32 - d 33 - c 34 - d 35 - d 36 - b 37 - d 38 - d 39 - c 40 - c

Unit 2: Introduction to Analysis and Interpretation of Financial Statements

1) The term financial statement refers to…
a) Income statement
b) Cash flow and Fund Flow
c) Balance sheet
d) All
2) Which of the following is the main objective of a financial statement?

a) to know the solvency
b) to know the debt capacity
c) to know the earning capacity
d) All
3) In financial statements, the fixed assets are shown at …

a) Market price
b) Cost price
c) Replacement price
d) None
4) What is followed while preparing the financial statements?

a) Accounting conventions
b) Accounting principles
c) Accounting concepts
d) All
5) In financial statement the stock is valued at cost or market price whichever is less on the basis of…
a) Accounting concepts
b) Accounting conventions
c) Accounting principles
d) None
6) Which of the following statement is true?

Statement (I): Financial statements are prepared on the basis of accounting principles.
Statement (II): Any changes in the accounting principles or method will affect the utility of the financial
statements.
a) I is true but not II
b) II is true but not I
c) Both are true

d) Both are false
7) The balance sheet shows …

a) the source of working capital
b) the change in working capital
c) Both
d) None
8) The analysis and interpretations of the financial statement will reveal …

a) the financial position
b) the profitability
c) None
d) Both
9) The process of explaining the meaning, significance and relationship between two financial factors is
called …
a) Summarization
b) Analysis
c) Interpretation
d) None
10) The process of comparing various financial factors of a company over a period of time is known as …
a) Inter‐firm comparison
b) Ratio Analysis
c) Intra‐firm comparison
d) Inter‐industry comparison
11) Which of the following is technique of financial statement analysis?

a) Common‐size statement
b) Comparative statement
c) Trend analysis
d) All
12) Which technique used for figures of two or more periods are placed side by side to facilitate easy and
meaningful comparisons?
a) Comparative statement
b) Common‐size statement

c) Trend Analysis
d) None
13) ________is a simply the amount of cash coming in to a business.

a) cash flow
b) inflow
c) both a and b
d) None of the above.
14) If value of opening inventories increases, what happens to the value of gross profit?
a) decreases
b) increases
c) stays the same
d) gets closer to net profit
15) Which of these is NOT a limitation of ratio analysis:

a) They are calculated on past data and there is may not be a true reflection of the business current
performance
b) Financial records may have been manipulated and there are the ratios calculated could be based on
potentially mis leaked
c) Ratios only consider qualitative matters, making than hard to calculate
d) Inter-firm comparisons can be difficult to not firms report their performance/ generate accounts in
the Way
16) Incorrect cash flow planning can lead to ________

a) solvency
b) insolvency
c) bankruptcy
d) failure
17) The 3 Ps, i.e. the three objectives of analysis and interpretation of financial statements are : Progress,
Position and Prospects.
a) True
b) False
18) Comparison of financial statements highlights the trend of the _________ of the business.
a) Financial position
b) Performance

c) Profitability
d) All of the above
19) Analysis of any financial Statement comprises

a) Balance sheet
b) P&L Account
c) Trading account
d) All of the above
20) Which of the following are techniques, tools or methods of analysis and interpretation of financial
statements?
a) Ratio Analysis
b) Average Analysis
c) Trend Analysis
d) All of the above
21) Interpretation of accounts is the

a) Art and science of translating the figures
b) To know financial strengths and weaknesses of a business
c) To know the causes for the prevailing performance of business
d) All of the above
22) The major device for measuring the profitability of a firm over a defined period of time is the
a) Income statement.
b) Balance sheet.
c) Statement of cash flow.
23) The ________ does not represent continuing operations in any way, but is simply a snapshot of the total
worth of a firm at a given point in time.
a) income statement
b) balance sheet
c) sources and uses of funds statement
24) The statement of cash inflows and outflows shows all of the following except.
a) How the firm's balance sheet changed from one period to another.
b) How funds from operations were used to finance the company's assets.

c) How the firm has matched short-term and long-term sources of funds with short-term and long-term
uses of funds.
d) The firms cost of new borrowing.
25) Cash inflows arise from _____ assets, ________ liabilities, and ___________ stockholders' equity.
a) increasing; increasing; decreasing
b) increasing; decreasing; decreasing
c) decreasing; increasing; increasing
d) decreasing; increasing; decreasing
26) Which of the following is NOT a key ratio in the prediction of bankruptcy as developed by Edward
Altman?
a) debt to equity
b) current ratio
c) retained earnings as a percent of total assets
d) total assets
27) __________ analysis is the process of studying a series of ratios for a company and/or industry over
time.
a) DuPont
b) Trend
c) Common size
d) All of the above.
28) The statement of cash flows tells us

a) accounting profit or loss
b) how cash was created
c) actual profit or loss
d) two of the above
29) The primary sections of a statement of cash flows are:

a) Cash flows from investing, operating, and financing activities.
b) Cash flows from investing and operating activities plus investments.
c) Cash flows from investing, financing, and accounting activities.
d) Cash flows from investing, operating, financing, and accounting activities.
30) In the context of Funds Flow Analysis, the word “funds” is used to define
a) Net Working capital

b) Total current assets-Total current liabilities

c) Both a and b
31) Which of the following are Non-current assets?

a) Land, Building and plant
b) Leasehold property
c) Computer software
d) All of the above
32) Funds flow statements are prepared so as to

a) To identify the changes in working capital
b) To identify reasons behind change in working capital
c) To know the item-wise outflow of funds during given period
d) All of the above
33) Financial statements are ____________.

a) Anticipated facts
b) recorded facts
c) Estimated of facts
d) unknown facts
34) Trend analysis is significant for ____________.

a) Forecasting and budgeting
b) profit planning
c) Capital rationing
d) working capital management
35) In common size income statement analysis, which is taken as 100 percent?
a) sales
b) cost of goods sold
c) purchases
d) total assets
36) The statement which shows the net result of business is ___________.
a) income statement
b) balance sheet
c) fund flow statement

d) cash flow statement
37) Comparative statement analysis sheet is __________.

a) vertical analysis
b) horizontal analysis
c) either vertical or horizontal analysis
d) neither vertical nor horizontal analysis
38) Financial statements are meaningful and useful only when they are ___________.
a) Verified
b) Presented to owners
c) Analyzed and interpreted
d) Published
39) Vertical analysis is made on the basis of __________.

a) Single set of financial statements
b) Multiple sets of financial statements
c) Different schedules attached to financial statements
d) Similar set of financial statements
40) Horizontal analysis is done by analyzing ____________.

a) Quarterly statement
b) Half yearly statement
c) Financial statements of several years
d) Financial statements of a particular year
Answer Key:
1-d 2-d 3- a 4-d 5-b 6-c 7-d 8-d 9-c 10 - c
11 - d 12 - a 13 - a 14 - a 15 - c 16 - c 17 - a 18 - d 19 - d 20 - d
21 - d 22 - a 23 - b 24 - d 25 - c 26 - a 27 - b 28 - b 29 - a 30 - c
31 - d 32 - d 33 - b 34 - b 35 - a 36 - a 37 - b 38 - c 39 - a 40 - d

Unit 3: Ratio Analysis

1) When the concept of ratio is defined in respect to the item shown in the financial statements, it is termed
as
a) Accounting ratio
b) Financial ratio
c) costing ratio
2) The relationship between two financial variables can be expressed in:

a) Pure ratio
b) Percentage
c) Rate or time
d) all the above
3) Stock is considered as a liquid asset as anytime it can be converted into cash immediately.
a) Yes
b) No
c) Only YES
4) Return on properties funds is also known as.

a) Return on net worth
b) Return on shareholders fun
c) Return on the shareholders’ investment
d) All the above
5) What will be the Gross Profit if , total sales is Rs 2,60,000,cost of net goods sold is Rs 2,00,000 & sales
return is Rs10,000 ?
a) 13 %
b) 28%
c) 26%
d) 20%
6) Liquid asset is determined by

a) Current asset - stock - prepaid expense
b) Current asset + Stock + prepaid expense

c) Current asset + prepaid expense

7) Which of the following is not included in current assets.

a) Debtors
b) Stock
c) Cash at bank
d) Cash in hand
8) Liquidity ratios are expressed in

a) Pure ratio form
b) Percentage
c) Rate or time
9) Working capital turnover ratio can be determined by :

a) ( Gross profit / Working capital )
b) ( Cost of goods sold / Net sales )
c) ( Cost of goods sold / Working capital)
10) Determine Working capital turnover ratio if, Current asset is Rs 1,50,000, current liability is Rs 1,00,000
& cost of goods sold is Rs 3,00,000.
a) 5 times
b) 6 times
c) 3 times
d) 1.5 times
11) The ratio analysis is helpful to management in taking several decisions, but as a mechanical substitute
for judgement and thinking, it is worse than useless.
a) True
b) False
12) Profit for the objective of calculating a ratio may be taken as

a) Profit before tax but after interest
b) Profit before interest &tax
c) Profit after interest & tax
d) All the above

13) If sales is Rs 5,00,000 & net profit is Rs 1,20,000 Net profit ratio is
a) 24%
b) 41%
c) 60%
14) General profitability ratios are based on

a) Investment
b) Sales
c) A & B
15) Determine stock turnover ratio if, Opening stock is Rs 31,000 , Closing stock is Rs 29,000, Sales is Rs
3,20,000 & Gross profit ratio is 25% on sales.
a) 31 times
b) 11 times
c) 8 times
d) 32 times
16) Financial Statement Analysis can be used for assessment of past performance only.
a) false
b) true
17) Ratio analysis is an important means of expressing the relationship between two numbers.
a) true
b) false
18) Ratio analysis helps in investment decision.

a) true
b) false
19) Liquid Ratio is also known as 2:1 ratio.

a) false
b) true
20) Current ratio indicates the solvency position of the business.

a) true
b) false

21) An ideal Liquid ratio is considered as 1:1

a) true
b) false
22) The gross profit represents the net margin.

a) false
b) true
23) Reliability of ratios depend upon the reliability of financial data.

a) true
b) false
24) Ratio analysis ensures effective cost control.

a) true
b) false
25) An ideal current ratio is considered as 1:2

a) False
b) true
26) The ratios which reveal the final result of the managerial policies and performance is .
a) Turnover ratios.
b) Profitability ratios.
c) Short term solvency ratio.
d) Long term solvency ratio.
27) Return on investment is a

a) Turnover ratios.
b) Short term solvency ratio.
c) Profitability ratios.
28) Net profit ratio is a .

a) Turnover ratio.
b) Long term solvency ratio.
c) short term solvency ratio
d) Profitability ratio.

29) Stock turnover ratio is a .

a) Turnover ratio.
b) Profitability ratio.
c) Short term solvency ratio.
30) Current ratio is a

a) Short-term solvency ratio.
b) Long-term solvency ratio.
c) Profitability ratio.
d) Turnover ratio.
31) Proprietary ratio is a

d) Turnover ratio.
32) Fixed assets ratio is a

d) Turnover ratio.
33) Fixed assets turnover ratio is a

d) Turnover ratio.
34) The ratio which measures the profit in relation to capital employed is known as
a) Return on investment.
b) Gross profit ratio.
c) Operating ratio.
d) Operating profit ratio.
35) The ratio which determines the profitability from the shareholder’s point of view is .


c) Return on shareholders’ funds.
d) Operating profit ratio.
36) Return on equity is also called

c) Return on shareholders’ funds.
d) Return on net worth.
37) Preliminary expenses is an example of .

a) Fixed assets.
b) Current assets.
c) Fictitious assets.
d) Current liabilities.
38) Prepaid expenses is an example of .

a) Fixed assets.
b) Current assets.
c) Fictitious assets.
d) Current liabilities.
39) The ratio which is calculated to measure the productivity of total assets is
a) Return on equity.
b) Return on shareholders’ funds.
c) Return on total assets.
d) Return on equity share holders’ funds.
40) The ratio which shows the proportion of profits retained in the business out of the current year’s profits
is
a) Retained earnings ratio.
b) payout ratio
c) Earnings per share.
d) price earnings ratio
41) The ratio which indicates earnings per share reflected by the market price is .
a) Retained earnings ratio.
b) Payout ratio.

c) Earnings per share.

d) Price earnings ratio.
42) The ratio establishes the relationship between profit before interest and tax and fixed interest charges is
a) Interest cover ratio.
b) Fixed dividend cover ratio.
c) Debt service coverage ratio.
d) Dividend yield ratio.
43) The ratio shows the preference dividend as a proportion of profit available for shareholders is
44) The dividend is related to the market value of shares in .

45) Turnover ratio is also known as .

a) Activity ratios.
b) Solvency ratios.
c) Liquidity ratios.
d) Profitability ratios.
46) Inventory or stock turnover ratio is also called .

a) Stock velocity ratio.
b) Debtors velocity ratio.
c) Creditors velocity ratio.
d) Working capital turnover ratio.
47) Which ratio is calculated to ascertain the efficiency of inventory management in terms of capital
investment?
a) Stock velocity ratio.

48) The ratio which measures the relationship between the cost of goods sold and the amount of average
inventory is
a) Stock turnover ratio.
49) Sales – Gross Profit = .

a) Net profit.
b) Administrative expenses.
c) Cost of production.
d) Cost of goods sold.
50) Opening stock + purchases + direct expenses – closing stock =

a) Net profit.
b) cost of production
c) Administrative expenses.
d) cost of goods sold
51) Which ratio measures the number of times the receivables are rotated in a year in terms of sales?
b) Debtors turnover ratio.
52) Debtors turnover ratio is also called .

d) working capital turnover ratio
53) Creditors turnover ratio is also called

c) Accounts payables ratio.

54) The primary purpose of the liquidity ratios is to determine

a) How much working capital is tied up in inventory?
b) The relative level of short-term debt.
c) How well a firm is able to pay off short-term obligations?
d) More than one of the above.
55) Which of the following statements about liquidity ratios is true?

a) The higher the current ratio, the more likely a firm is able to pay its short-term obligations.
b) The lower the quick ratios relative to the current ratio, the safer a firm is in terms of liquidity.
c) The ratio of net working capital to total assets always lies between 0 and 1.
d) Relatively high current ratios are usually a sign of efficient working capital management.
56) The ________ ratios help determines the degree of financial risk and earnings volatility present in a
firm.
a) profitability
b) asset utilization
c) liquidity

a) Debt to equity and debt to asset ratios measure capital structure and vary widely among industries.
b) Debt utilization ratios alone do not measure a firm's ability to meet its cash obligations.
c) DuPont analysis considers the impact of debt on the profitability of the firm.
d) Two of the above are true.
58) Debt-equity ratio is a sub-part of

a) Short-term solvency ratio
b) Long-term solvency ratio
c) Debtors turnover ratio
59) The most precise test of liquidity is

a) Quick ratio
b) Current ratio
c) Absolute Liquid ratio

60) Quick ratio is 1.8:1, current ratio is 2.7:1 and current liabilities are Rs 60,000. Determine value of stock.
a) Rs 54,000
b) Rs 60,000
c) Rs 1, 62,000
Answer Key:
1-b 2-d 3- b 4-d 5-d 6-a 7-b 8-a 9-a 10 - b

11 - a 12 - d 13 - a 14 - b 15 - c 16 - a 17 - a 18 - a 19 - a 20 - a
21 - a 22 - a 23 - a 24 - a 25 - a 26 - b 27 - c 28 - d 29 - a 30 - a
31 - b 32 - b 33 - d 34 - a 35 - c 36 - d 37 - c 38 - b 39 - c 40 - a
41 - d 42 - a 43 - b 44 - d 45 - a 46 - a 47 - a 48 - a 49 - d 50 - d
51 - b 52 - b 53 - c 54 - c 55 - a 56 - d 57 - d 58 - d 59 - c 60 - a

Unit 4: Cash Flow Statement

1) Statement of cash flows includes
a) Financing Activities
b) Operating Activities
c) Investing Activities
d) All of the Above
2) In cash flows, when a firm invests in fixed assets and short-term financial investments results in
a) Increased Equity
b) Increased Liabilities
c) Decreased Cash
d) Increased Cash
3) A firm that issues stocks and bonds to raise funds results in

a) Decreases Cash
b) Increases Cash
c) Increases Equity
d) Indian Overseas Bank
4) The purchase value of assets over its serviceable life is categorised as

a) Appreciated Liabilities
b) Appreciated Assets
c) Depreciation
d) Appreciation
5) The basic financial statements include

a) Statement of Cash Flows
b) Income Statement
c) Balance Sheet
d) All of the Above
6) The statement of cash flow clarifies cash flows according to

a) Operating and Non-operating Flows

b) Inflow and Outflow

c) Investing and Non-operating Flows
d) Operating, Investing, and Financing Activities
7) Cash flow example from a financing activity is

a) Payment of Dividends
b) Receipt of Dividend on Investment
c) Cash Received from Customers
d) Purchase of Fixed Asset
8) Cash flow example from an investing activity is

a) Issue of Debenture
b) Repayment of Long-term Loan
c) Purchase of Raw Materials for Cash
d) Sale of Investment by Non-Financial Enterprise
9) Cash flow example from an operating activity is

a) Purchase of Own Debenture
b) Sale of Fixed Assets
c) Interest Paid on Term-deposits by a Bank
d) Issue of Equity Share Capital
10) Which item comes under financial activities in cash flow?

a) Redemption of Preference Share
b) Issue of Preference Share
c) Interest Paid
d) All the above
11) As per Accounting Standard-3, Cash Flow is classified into

a) Operating activities and investing activities
b) Investing activities and financing activities
c) Operating activities and financing activities
d) Operating activities, financing activities and investing activities

12) Cash Flow Statement is also known as

a) Statement of Changes in Financial Position on Cash basis
b) Statement accounting for variation in cash
c) Both a and b
13) The objectives of Cash Flow Statement are

A) Analysis of cash position
B) Short-term cash planning
C) Evaluation of liquidity
D) Comparison of operating Performance
a) Both A and B
b) Both A and C
c) Both B and D
d) A, B, C, D
14) In cash flow statement, the item of interest is shown in

A) Operating Activities
B) Financing Activities
C) Investing Activities
a) Both A and B
b) Both A and C
c) Both B and C
d) A, B, C
15) Cash Flow Statement is based upon

a) Cash basis of accounting
b) Accrual basis of accounting
c) Credit basis of accounting
16) Which of the following statements are false?

A) Cash Flow Statement is helpful in the formation of policies.
B) Cash Flow Statement is useful for external analysis

C) Cash Flow Statement is helpful in estimating future cash flow
a) Both A and B
b) Both A and C
c) Both B and C

A) Cash flow reveals only the inflow of cash
B) Cash flow reveals only the outflow of cash
C) Cash flow is a substitute for income statement
D) Cash flow statement is not a replacement of funds flow statement.
a) Only A
b) Only B
c) Both B and C
d) Only D
18) As per AS-3, Cash Flow Statement is mandatory for

A) All enterprises
B) Companies listed on a stock exchange
C) Companies with a turnover of more than Rs 50 crores
a) Both A and B
b) Both A and C
c) Both C and B
19) Listed Enterprises need to prepare Cash Flow Statement only under indirect method.
a) True
b) False
20) In the case of financial enterprises, the cash flow resulting from interest and dividend received and
interest paid should be classified as cash flow from
a) Operating activities
b) Financing activities

c) Investing activities
21) In case of other enterprises cash flow arising from interest paid should be classified as cash flow from
________ while dividends and interest received should be stated as cash flow from ____.
a) Operating activities, financing activities
b) Financing activities, investing activities
c) Investing activities, operating activities
22) Issue of bonus shares and conversion of debentures into equity are shown as a footnote to the Cash Flow
Statement.
a) True
b) False
23) When a fixed asset is bought as hire purchase, interest element is classified under ______ and loan
element is classified under________.
a) Operating activities, financing activities
b) Financing activities, investing activities
c) Investing activities, operating activities
24) Which of the following statements are false?

A) Old Furniture written off doesn’t affect cash flow.
B) Cash flow statement is a substitute for cash account.
C) Appropriation of retained earnings is not shown in Cash flow statement.
D) Net cash flow during a period can never be negative.
a) A, B, C
b) B, C, D
c) C, D, A
25) Which of the following is not a cash inflow?

a) Decrease in debtors
b) Issue of shares

c) Decrease in creditors
d) Sale of fixed assets
26) Which of the following is not a cash outflow?

a) Increase in Prepaid expenses
b) Increase in debtors
c) Increase in stock
d) Increase in creditors
27) Cash flow statement is prepared for financial planning of

a) Long range
b) Medium range
c) Short range
d) Very Long range
28) Which of the following is source of cash?

a) Cash deposited into Bank
b) Cash withdrawn from Bank
c) Sale of Goods costing ₹10,000 for ₹8,000
d) Sale of marketable securities for cash
29) Which of the following is not source of cash?

a) Issue of shares
b) Purchase of Machinery
c) Sale of Asset
d) Dividend received
30) Which of the following is not application of cash?

a) Increase in Debtors
b) Increase in Inventory
c) Increase in Bills Payable
d) Increase in Prepaid Expenses
31) If a machine whose original cost is ₹40,000 having accumulated depreciation ₹12,000, were sold for
₹34,000 then while preparing Cash Flow Statement its effect on cash flow will be :

a) Cash flow from financing activities ₹34,000

b) Cash flow from financing activities ₹6,000
c) Cash flow from investing activities ₹34,000
d) Cash flow from investing activities ₹6,000
32) If 6% Pref. share capital ₹2,00,000 were redeemed at a premium of 5%, while preparing Cash Flow
Statement its effect on cash flow will be :
a) Cash used from financing activities ₹2,12,000
b) Cash received from financing activities ₹2,12,000
c) Cash used (Payment) from financial activities ₹2,10,000
d) Cash used (Payment) from financial activities ₹2,00,000
33) If the amount of goodwill is ₹40,000 at the beginning of a year and ₹48,000 at the end of that year then
while preparing cash flow statement its effect on cash flow will be :
a) Cash used (Payment) in Investing Activities ₹8,000
b) Cash received from operating activities ₹8,000
c) Cash used (Payment) from Operating Activities ₹8,000
d) Cash used (Payment) from Financial Activities ₹8,000
34) How will you deal increase in the balance of ‘Securities Premium Reserve’ while preparing a Cash Flow
Statement?
a) Cash Flow from Operating Activities
b) Cash Flow from Investing Activities
c) Cash Flow from Financing Activities
d) Cash Equivalent
35) A Ltd., engaged in the business of retailing of two wheelers, invested ₹50,00,000 in the shares of a
manufacturing company. Dividend received on this investment will be :
d) Cash Equivalent
36) How will you treat payment of dividend in a Cash flow statement?


d) Cash Equivalent
37) How will you treat Bank Overdraft in a Cash Flow Statement?
a) Cash Flow from Operating Activities ’
d) Cash Equivalent
38) Where will you show purchase of Goodwill in a Cash Flow Statement?
d) Cash Equivalent
39) How will you treat payment of ‘Interest on Debentures’ while preparing a Cash Flow Statement?
d) Cash Equivalent
40) State whether cash deposited in bank will be classified under which kind of activity?
d) No Cash Flow
Answer Key:
1-d 2-c 3- b 4-c 5-d 6-d 7-a 8-d 9-c 10 - d

11 - d 12 - c 13 - d 14 - c 15 - a 16 - d 17 - d 18 - c 19 - a 20 - a
21 - b 22 - a 23 - b 24 - b 25 - c 26 - d 27 - c 28 - c 29 - b 30 - c
31 - c 32 - c 33 - a 34 - c 35 - b 36 - c 37 - c 38 - b 39 - c 40 - d

Unit 5: Fund Flow Statement

1) A company has to prepare its balance sheet once in..
a) Six months
b) Two years
c) A year
d) As and when it needs
2) Income statement of a business shows…

a) Net profit
b) Net operating result of specified period
c) Net loss
d) None of these
3) The statement which shows the periodical increase or decrease of funds is called___________
statement.
a) Funds flow
b) Cash flow
c) Income
d) Working capital
4) Fund flow statement is based on the concept of…

a) Business entity
b) Accounting period
c) Going concern
d) All of the above
5) Funds means…
a) Money
b) Cash
c) Machinery
d) Any form of financial resources
6) Excess of current assets over current liabilities is called…

a) Net working capital

b) Net current assets

c) Free current assets
d) All of the above
7) Which of the following is the component of current assets?

a) Stock
b) Prepaid expenses
c) Income earned but not received
d) All of the above
8) The term flow of funds refers to…

a) Change in funds
b) Change in working capital
c) Both
d) None
9) Transaction between_________ may cause the flow of funds.

a) Current assets and fixed assets
b) Current assets and long term liabilities, and capital
c) Current liabilities and fixed assets
d) All of the above
10) The term current account refers to….

a) Current assets
b) Current liabilities
c) Both
d) None
11) The term non-current account refers to…

a) Capital
b) Liabilities
c) Long term liabilities
d) Both (a) & (c)

12) Share premium, share forfeited, profit and loss account, balance of profit are the examples of…
a) Current assets
b) Permanent liabilities
c) Fixed assets
d) Current liabilities
13) The funds flow analysis is of primary importance to…

a) Personnel management
b) Financial management
c) Quality control management
d) Auditing
14) Basically, the funds flow statement is considered a tool for…

a) Cost control
b) Financial analysis
c) Performance analysis
d) None
15) Who uses the funds flow statement widely?

a) Financial institutions
b) Financial managers
c) Analysts
d) All of the above
16) Basically, the funds flow statement shows the causes for changes of _________ during a period.
a) Assets
b) Liabilities
c) Both
d) None
17) The sources of side of funds flow statement shows the______ sources of funds of a firm.
a) Internal
b) External
c) Both
d) None

18) Funds flow statement is a substitute for…

a) Income statement
b) Balance sheet
c) Both
d) None
19) Which of following are original statements?

a) Funds flow statement
b) Financial statement
c) Cash flow statement
d) Working capital statement
20) Which of the following statement is dynamic in nature?

a) Balance sheet
b) Funds flow
c) Both
d) Income statement
21) Funds flow statement is complementary to…

a) Balance sheet
b) Income statement
c) Both
d) None
22) Which of the following is the source of funds?

a) Issue of shares
b) Raising long term loans
c) Sale of fixed assets
d) All of these
23) Which of the following is an application of funds?

a) Funds lost in operation
b) Income from investment
c) Funds from operations
d) All of these

24) What is meant by funds from operation?

a) Operating profit
b) Net profit
c) Gross profit
d) All of the above
25) Working capital requirements depends on the credit policy of …

a) The company
b) The suppliers
c) Both
d) None
Answer Key:
1-c 2-b 3- a 4-c 5-d 6-d 7-d 8-c 9-d 10 - c

11 - d 12 - b 13 - b 14 - b 15 - d 16 - c 17 - c 18 - d 19 - b 20 - b
21 - c 22 - d 23 - a 24 - a 25 - c
…………………….Thank You………………………

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DNYANSAGAR ARTS AND COMMERCE COLLEGE, BALEWADI, PUNE – 45

Question Bank - Multiple Choice Questions (MCQs)

2) Funds are required for the..........

3) Which report gives a review on the profitability of a business?

4) The term ‘Financial Statement’ covers

5) Which of the following is true about financial statements?

7) Which of the following statements are true?

8) P&L statement is also known as

10) Subtracting all expenses from revenues yields?

PROF. KAVITA PAREEK www.dacc.edu.in

16) Calls in Arrears appear in a Company’s Balance Sheet under ………………..

17) Calls in advance appear in a Company’s Balance Sheet under ………………..

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20) Certain assumptions are essential to prepare financial statements.

21) Which of the given area is NOT addressed by Business Finance?

22) Which of the following is measured by profit margin?

23) Business Finance addresses which of the following?

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c) Net Present Value

27) Who of the following make a broader use of accounting information?

29) Balance Sheet is based upon which of the following formula?

31) Which from the following is NOT an example of intangible assets?

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32) The following are the examples of financial assets except?

33) Business finance refers to ...... and ........ employed in a business.

35) Which of the following is not a function of finance manager?

37) Finance Function comprises

38) Financial management mainly focuses on

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39) The finance manager is accountable for.

40) The focal point of financial management in a firm is:

1-a 2-d 3- d 4-c 5-c 6-a 7-c 8-b 9-b 10 - a

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Unit 2: Introduction to Analysis and Interpretation of Financial Statements

2) Which of the following is the main objective of a financial statement?

3) In financial statements, the fixed assets are shown at …

4) What is followed while preparing the financial statements?

6) Which of the following statement is true?

c) Both are true

7) The balance sheet shows …

8) The analysis and interpretations of the financial statement will reveal …

11) Which of the following is technique of financial statement analysis?

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13) ________is a simply the amount of cash coming in to a business.

15) Which of these is NOT a limitation of ratio analysis:

16) Incorrect cash flow planning can lead to ________

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19) Analysis of any financial Statement comprises

21) Interpretation of accounts is the

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28) The statement of cash flows tells us

29) The primary sections of a statement of cash flows are:

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b) Total current assets-Total current liabilities

31) Which of the following are Non-current assets?

32) Funds flow statements are prepared so as to

33) Financial statements are ____________.

34) Trend analysis is significant for ____________.