PART-B (Analysis of Financial Statement)-MCQ

1. Under which major heading “Unclaimed Dividend” appears in the Balance Sheet of a
Company.
(a) Current Assets
(b) Non Current Liabilities
(c) Current liabilities and Provisions
(d) Share holders fund
2. Investments which are necessary for the operations of the business enterprise are called
(a) Long Term Investments (b) Short Term Investments
(c) Non Trade Investments (d) Trade Investments
3. If Quick ratio is 2: 1. State the effect of purchase goods on credit for ₹ 2,000.
(a) Improve (b) Reduce
(c) No Effect (d) May be improve or no effect
4. Dividend is usually paid on:
(a) Authorized Capital (b) Issued Capital
(c) Paid-up Capital (d) Uncalled Capital
5. Working Capital Ratio is calculated by the formula:
(a) Current Assets/Current liabilities
(b) Net working capital/Net Sales
(c) Net working capital/Fixed Assets
(d) Working capital/Capital Employed
6. Which ratio indicates the proportion of total assets financed by shareholders funds?
(a) Total Assets to Debt Ratio (b) Fixed Assets turnover Ratio
(c) Proprietary Ratio (d) Debt Equity Ratio
7. Horizontal analysis is:
(a) The calculation of relative weighting of components within a particular financial period.
(b) The comparison of the current year’s figures with the previous year’s figures.
(c) The comparison of one company’s results with another company.
(d) The comparison of the profit and loss account with the balance sheet.
8. Which Ratio measure the firm’s ability to meet its short term obligations.
(a) Liquidity Ratios. (b) Liquid Ratio
(c) Solvency ratios (d) Current Ratio
9. The Debt Equity Ratio from the following information will be:
Total Assets ₹ 5, 30,000
Current Liabilities ₹ 1, 80,000
Total Debts ₹ 3, 30,000
(a) 0.75 : 1 (b) 0.77 : 1
(c) 0.67 : 1 (d) 0.73 : 1
10. What will be the sales from the following particulars Opening Stock ₹ 4, 00,000?
Inventory Turnover Ratio 6 Times
Gross Profit 20% on sales
Further Closing stock is twice the opening stock.
(a) ₹ 4, 50,000 (c) ₹ 3, 60,000
(b) ₹ 2, 88,000 (d) ₹ 4,80,0000
11. Match columns-I and columns-II:
Column-I Column-II
(i) Employees A. Interested in knowing the profitability and financial strength of
the enterprise
(ii) Creditors B. Interested in knowing the progress of the enterprise to ensure
the safety and recovery of the loan advanced
(iii) Owners C. Interested in knowing the ability of the enterprise to provide
remuneration, retirement benefits and employment opportunities.
(iv)Banks and Financial Enterprise D.Interested in knowing about the credit worthiness of
the business.
Select from the following options:
(a) (i)-B; (ii)-D; (iii)-A; (iv)-C (b) (i)-C; (ii)-A; (iii)-D; (iv)-B
(c) (i)-C; (ii)-D; (iii)-A; (iv)-B (d) (i)-C; (ii)-D; (iii)-B; (iv)-A
12. If current ratio of a company is 2: 1. What will be the effect on this ratio when current
assets increases by ₹ 50,000 and current liabilities increases by ₹ 40,000?
(a) The current ratio will increase
(b) The current ratio will decrease.
(c) There will be no change in current ratio.
(d) The ratio increased to 2.5: 1.
13. The proprietary ratio of a firm is 60%. Which of the following transactions would not
result in increase in this ratio?
(a) Issue of preference shares
(b) Conversion of debentures into preference shares.
(c) Redemption of debentures
(d) Purchase of goods on credit
14. The Interest coverage ratio from the following information will be:
General Reserve ₹ 45,000
Share Capital ₹ 2, 00,000
15% Loan ₹ 1, 00,000
Sales for the year ₹ 2, 50,000
Tax paid during the year ₹ 40,000
Profit after interest and tax ₹ 80,000
(a) 9 Times (b) 6 Times
(c) 5 Times (d) 8 Times
15. The Operating profit ratio from the following information will be:
Selling and distribution expenses ₹ 40,000
Interest paid on debentures ₹ 9,000
Net Profit ₹ 71,000
Rent received ₹ 5,000
Net Sales ₹ 5, 00,000
(a) 54% (b) 5.4%
(c) 15% (d) 4.4%
16. Where will ‘Loose tools' be shown in the Balance Sheet of a company as per revised
schedule III:
(a) Under the head Non-current assets sub head Tangible assets
(b) Under the head Non-current assets sub head Intangible assets
(c) Under the head Current assets sub head other current assets
(d) Under the head Current assets sub head Inventories.
17. In common size statement of Profit and Loss is taken as base figure for calculation of
percentages.
(a) Total Revenue (b) Profit before Tax
(c) Revenue from operations (d) Total Assets
18. Current ratio of a company is 2.5: 1 and its Quick ratio is 1.5: 1. Payment of dividend
already declared would result in:
(a) Increase in Current Ratio and Quick Ratio
(b) Decrease in Current Ratio and Quick Ratio
(c) No effect on Current Ratio
(d) No effect on Quick Ratio
19. Which ratio indicates the proportion of total assets financed by shareholders funds?
(a) Total Assets to Debt Ratio (b) Fixed Assets turnover Ratio
(c) Proprietary Ratio (d) Debt equity Ratio
20. What will be the gross profit from the following particulars Opening Stock ₹ 40,000
Inventory turnover Ratio 6 times Gross profit 20% on revenue from operations. Additional
Information: Closing stock is twice the opening stock.
(a) ₹ 90,000 (b) ₹ 3, 60,000
(c) ₹ 4, 50,000 (d) ₹ 372,000
21. Working capital turnover ratio is calculated by the formula:
(a) Revenue from operations/Working Capital
(b) Net Working Capital/Revenue from operations
(c) Net Working Capital/Fixed Assets
(d) Current Assets/Current Liabilities
22. is included in current assets while preparing balance sheet as per
revised Schedule III but excluded from current assets while calculating Current Ratio
(a) Debtors
(b) Cash and Cash Equivalent
(c) Loose tools and Stores and spares
(d) Bank Balance
23. Which of the following is not a limitation of Financial Statement Analysis?
(a) Ignores price level changes (b) Qualitative aspect is ignored
(c) Window Dressing (d) Judging Managerial efficiency
24. If Quick ratio is 3: 1. What will be the effect on quick ratio in case of purchase of
machinery on credit basis for two months?
(a) Improve (b) Reduce
(c) Depends upon Current Assets (d) No effect.
25. What ratio can be used to avoid inefficient buying habits?
(a) Working Turnover Ratio (b) Gross Profit Ratio
(c) Debt Equity Ratio (d) Inventory Turnover Ratio
26. Measures a firm’s ability to pay all of its fixed charges or expenses with its income
before interest and income tax
(a) Return on investment (b) Current ratio
(c) Quick ratio (d) Interest Coverage Ratio
27. If Operating Cycle is 8 months and any amount receivable in 11 months will be
categorized as
(a) Current Assets (b) Non-urgent Assets
(c) Fictitious Assets (d) Intangible Assets
28. Following sub-headings are to be shown in the balance sheet of the company.
(i) Cash and Cash Equivalents (ii) Other Current Assets
(iii) Inventories (iv) Current Investment
(v) Trade Receivables
What will be the correct order of showing them in the books?
(a) (i), (iii), (iv), (v), (ii) (b) (iii), (iv), (i), (ii), (v)
(c) (iv), (iii), (v), (i), (ii) (d) (iv), (v), (i), (iii), (ii)
29. Identify the correct match:
A. Debt (i) Opening Inventory + Net Purchases + Direct
Expenses – Closing Inventory
B. Equity (ii) Shareholder’s Fund + Long term Debts
C. Capital Employed (iii) Share Capital + Reserves and Surplus
D. Cost of Revenue from (iv) Total Debt – Current Liabilities Operations
Choose the correct option:
(a) A-(ii), B-(iii), C-(iv), D-(i) (b) A-(iv), B-(ii), C-(iii), D-(i)
(c) A-(iv), B-(iii), C-(ii), D-(i) (d) A-(ii), B-(iv), C-(i), D-(iii)
30. The current ratio of a XYZ Ltd is 1. What will be its working capital?
(a) 1 (b) 0
(c) 100 (d) None
31. Debt-Equity Ratio of Dhamaka Ltd is 3: 1. Which of the following will result in decline
in this ratio?
(a) Issue of Debentures for Cash of ₹ 2, 00,000.
(b) Issue of Debentures of ₹ 3, 00,000 to Vendors from whom Machinery was purchased.
(c) Goods purchased on Credit of ₹ 1, 00,000.
(d) Issue of Equity Shares of ₹ 2, 00,000.
32. Shareholders’ Funds doesn’t include from the following
(a)Share Capital
(b) Share Application Money Pending Allotment
(c) Money Received against Share Warrants
(d) Reserves and Surplus
33. Pick the odd one out.
(a) Share Capital (b) Reserves and Surplus
(c) Non-Trade Investment (d) Long Term Debts
34. Match the following:
Column-I Column-II
(i) Loose Tools (a) Intangible Fixed Assets
(ii) Mastheads and Publishing (b) Other Current Assets Titles
(iii) Pre-paid Insurance (c) Short term Provisions
(iv) Provision for tax (d) Inventories
Choose the correct option:
(a) (i)-(a); (ii)-(c); (iii)-(d); (iv)-(d)
(b) (i)-(d); (ii)-(a); (iii)-(b); (iv)-(c)
(c) (i)-(b); (ii)-(d); (iii)-(a); (iv)-(c)
(d) (i)-(c); (ii)-(a); (iii)-(b); (iv)-(d)
35. Which of the following will improve the Current Ratio if Current Ratio is 0.8: 1
(a) Sales of Goods on Credit costing ₹ 20,000 for ₹ 18,000
(b) ₹ 20,000 paid to Creditors
(c) Issue of shares to vendors against Purchase of Machinery
(d) Purchase of goods costing ₹ 20,000 on credit.
36. In a common size statement, % shown against Employee Benefit expenses is 25% and
its amount is ₹ 4, 00,000. What is Revenue from Operations for this organisation?
(a) ₹ 1, 00,000 (b) ₹ 20, 00,000
(c) ₹ 16, 00,000 (d) Inadequate Information
37. From the following information, compute Debt-Equity Ratio
Long term Borrowings ₹ 2, 00,000;
Long term Provisions ₹ 1, 00,000;
Shareholder Funds ₹ 1, 20,000;
Reserves and Surplus ₹ 30,000;
Current Liabilities ₹ 50,000.
(a) 2 : 1 ( b) 2.5 : 1
(c) 2.3 : 1 (d) 2.9 : 1
38. Classify the following as a type of liability: Trade payable expected to be paid in 14
months and the operating cycle is of 19 months:
(a) Current Liability (b) Non-Current Liability
(c) Either (a) or (b) (d) None of the above
39. Under which main head Deferred Tax Liability is shown in the Balance Sheet as per the
Companies Act 2013?
(a) Non-Current Liability
(b) Current Liability
(c) Shareholders Funds
(d) Share Application Money pending Allotment
40. Which two Current Assets are not taken into consideration while calculating Current
Assets for determining Current Ratio?
(a) Loose tools, stores and spares
(b) Prepaid expenses, Closing stock
(c) Both of (a) and (b)
(d) None of (a) or (b)
41. Which ratio is used to determine the efficiency of people engaged in debt collection
department:
(a) Debt Equity Ratio (b) Trade Receivables’ Turnover Ratio
(c) Total Assets to Debt Ratio (d) Proprietary Ratio
42. If profit after interest and tax is ₹ 1,68,000, calculate profit before interest and tax if tax
rate is 40% and interest amount is ₹ 70,000:
(a) ₹ 3, 05,200 (b) ₹ 3, 50,000
(c) ₹ 58,800 (d) ₹ 1, 70,800
43. Capital employed is equal to:
(a) Equity + Debt
(b) Fixed Assets + Current Assets – Current Liabilities
(c) Fixed Assets + Working Capital
(d) All of the above
44. In a Common Size Balance Sheet of ABC Ltd. Current Assets amounted to ₹ 20, 00,000
and it is mentioned as 40% in the statement. If Current Liabilities are ₹ 15, 00,000, then what
should be the Percentage specified in front of Current Liabilities:
(a) 75% (b) 133.3%
(c) 30% (d) Incomplete Information
 ANSWER KEY

1. Ans: (c) Current liabilities and Provisions

3. Ans: (b) Reduce

4. Ans: (c) Paid-up Capital

5. Ans: (a) Current Assets/Current liabilities

6. Ans: (c) Proprietary Ratio

7. Ans: (b) The comparison of the current year’s figures with the previous year’s figures.

8. Ans:(a) Liquidity Ratios.

9. Ans: (a) 0.75: 1

10. Ans: (a) ₹ 4, 50, 000

11. Ans: (c) (i)-C; (ii)-D; (iii)-A; (iv)-B

12. Ans: (b) The current ratio will decrease

13. Ans: (d) Purchase of goods on credit

14. Ans: (a) 9 Times

15. Ans: (c) 15%

16. Ans: (d) Under the head Current assets sub head Inventories.

17. Ans: (c) Revenue from operations

18. Ans: (b) Decrease in Current Ratio and Quick Ratio

19. Ans: (c) Proprietary Ratio

20. Ans: (a) ₹ 90,000

21. Ans: (a) Revenue from operations/Working Capital

22. Ans: (c) Loose tools and Stores and spares

23. Ans: (d) Judging Managerial efficiency

24. Ans: (b) Reduce

25. Ans: (d) Inventory Turnover Ratio

26. Ans: (d) Interest Coverage Ratio

28. Ans: (c) (iv), (iii), (v), (i), (ii)

29. Ans: (c) A-(iv), B-(iii), C-(ii), D-(i)

30. Ans: (b) 0

31. Ans: (d) Issue of Equity Shares of ₹ 2, 00,000

32. Ans: (b) Share Application Money Pending Allotment

33. Ans: (c) Non-Trade Investment

34. Ans: (b) (i)-(d); (ii)-(a); (iii)-(b); (iv)-(c)

35. Ans: (d) Purchase of goods costing ₹ 20,000 on credit

36. Ans: (c) ₹ 16, 00,000

37. (b)

38. Ans: (a) Current Liability

39. Ans: (a) Non-Current Liability

40. Ans: (a) Non-Current Liability