Test: Accounting & Financial Management of Banking - 1 - Bank Exams MCQ

Present value of cash flows:

Present value of inflows = 1834 + 1684 + 1544 + 1416 + 1300 = 7778
Net Present Value = Inflows - Outflows = 7778 - 8000 =-222
Hence, the correct answer is option (b).

• When the opening and closing stock is zero, both absorption costing and marginal costing will give the same profit.
• When the opening and closing stock have the same fixed cost component, both absorption costing and marginal costing will give the same profit.
• When the closing stock is greater than the opening stock, a part of the fixed cost component is carried forward to the next accounting period, resulting in a higher profit as per absorption costing.
• When the opening stock is greater than the closing stock, a part of the fixed cost component from the preceding period is added to the cost of goods sold, resulting in a higher profit as per marginal costing.
• The difference in the profit between absorption costing and marginal costing depends on the level of fixed costs. The variable cost per unit being higher than the fixed cost per unit does not necessarily determine the difference in the profit between the two methods.
• Therefore, the correct answer is option (c).

• The component of a standard costing system is the establishment of standard costs for materials, labor, and overheads for a particular production line. This involves setting predetermined costs that a company expects to incur during production.
• Comparison of actual costs with the established standards to determine the variances is also a component of a standard costing system. This involves analyzing the difference between the actual costs incurred during production and the standard costs set by the company.
• The final component of a standard costing system is the analysis of the variances and initiation of corrective actions where necessary. This involves analyzing the reasons for the variances and taking corrective actions to improve the company's production and cost-control processes

The marginal cost of capital refers to the cost of raising an additional rupee of capital. MCC is calculated based on the average cost of capital using the marginal weights.
The marginal weights represent the proportion of funds the firm intends to employ. Hence, the problem of choosing between the book value weights and the market value weights does not arise in the case of the marginal cost of capital computation.

New provision
25000 x 5/100 = 1250
When the amount due from debtors is found irrecoverable it is called bad actor it is a loss to the business. When a bad act is given in trial balance in this Case No adjusting entry is needed; it should be taken on the debit side of P&L account. When a bad act is given as an adjustment it should be taken at two places. one is at the debit side of the profit and loss account and should also be deducted from debtors on the asset side of the balance sheet. Provision for bad and doubtful debt

A part of the debtor at the end of the year may be irrecoverable. This means that some of the debtors are doubtful. A doubtful debt is the debt which may or may not be recovered.it is necessary to show every asset at its true value. Hence all enterprise based on their past experience create a provision for doubtful debts to meet such a probable loss in case it happens. The provision should be created during the current year itself because the debtors relate to the current year. When a debt irrecoverable in the next year it can be adjusted from this provision created. By creating such a provision for doubtful debts it is possible to show debtors at its true value. Provision is created at a certain percentage on sundry dipterous. If bad debt written off plus new provision as per adjustment is more than the existing provision the difference should be debited to P&L account.

Both assertion and reason are correct and reason is the suitable explanation of the assertion. The current yield of a bond is the measure of the annual income generated by the bond as a percentage of its current market price. It is calculated by dividing the bond's annual interest payment by its current market price. The current yield of a bond increases when the bond's market price decreases.

Hence, the correct answer is Option (d).

No tax deduction is to be made from any interest payable:
(i) on National Development Bonds;
(ii) on 7-year National Savings Certificates (IV Issue);
(iii) on debentures issued by any institution or authority or any public sector company or any co-operative society (including a co-operative land mortgage bank or a co-operative land development bank), as notified by the Central Government).

Budgetary control is the establishment of budgets relating to the responsibilities of executives to the requirement of a policy and the continuous comparison of actual with budgeted results. It provides a basis for revision for current and future policies.

To do bank reconciliation you would match the cash balances on the balance sheet to the corresponding amount on your bank statement, determining the differences between the two in order to make changes to the accounting records, resolve any discrepancies and identify fraudulent transactions. The purpose of preparing bank reconciliation statement:-

• Detecting errors such as double payments, missed payments, calculation errors etc.
• Tracking and adding bank fees and penalties in the books
• Spot fraudulent transactions and theft
• Keeping track of accounts payable and receivables of the business

Thus, the correct option is (d)

Double Entry System seeks to record every transaction in money or money's worth in its double aspect. Recording of both personal and impersonal aspects is an important feature of the double entry system. Both personal and impersonal aspects of a transaction are recorded.
Non monetary aspect of the transactions is not recorded under double entry system.
Thus, the correct option is (a)

Statement I: Correct
Hedging approach: according to the hedging approach the permanent working capital requirements should be financed by long term funds while the temporary or seasonal working capital requirement should be financially out of short term funds or current liability. According to this approach, the expected life of an asset is matched with the period of source of finance with which the asset is financed. In other words, the life of an asset should match with the maturity of the source of finance. That is why it is also known as the matching approach.

Statement II: Correct
Conservative approach: this approach emphasizes safety. According to this approach, all requirements of a working capital fund should be met from long term sources. The short term source should be used only during emergency time. According to conservative strategy, It is necessary to maintain a high level of working capital and it should be financed by long term funds like share capital or long term debt. Availability of sufficient working capital shall enable the smooth operation of business. When sufficient working capital is available, there would be no stoppage of production. Sufficient stock of finished goods can be maintained to meet the market fluctuation. The higher liquidity levels reduce the risk of insolvency.

Statement III: Correct
Aggressive approach: under this approach, the firm relies more on short term sources then on long term sources to finance its current assets. In other words, the entire estimated amount of current asset is financed from short term sources. This approach makes the finance mix more risky, costly and profitable.

Capital Loss- The losses which are not related with the normal course of business are capital losses. For example:-

• Loss of fixed assets.
• Loss on sale of a fixed asset.
• Theft committed by an employee or by the outsiders after business hours.
• Loss on issue of shares and debentures.

Revenue Loss- The losses which are incurred in the normal course of business are revenue losses. Examples are:-

• Loss of stock by fire or theft
• Misappropriation or embezzlement of cash by employees during usual business hours.
• Bad Debts

Capital Profit- Profits earned on sale of fixed assets or in connection with share capital are known as capital profits. When shares are issued at premium, the amount of premium is called capital profit.

Revenue Profit- The profits which are earned in the normal course of business are termed as revenue profits.
Thus, the correct option is (d)

GST compliance provides multiple benefits for businesses in India, including streamlining of the tax system, reduction in tax evasion, and increased tax revenue for the government. By implementing GST compliance, businesses can ensure a more transparent and efficient tax system, which ultimately benefits all stakeholders.

Accounting ratios, an important sub-set of financial ratios, are a group of metrics used to measure the efficiency and profitability of a company based on its financial reports. They provide a way of expressing the relationship between one accounting data points to another and are the basis of ratio analysis.

• Accounting ratios, an important sub-set of financial ratios, are a group of metrics used to measure the efficiency and profitability of a company based on its financial reports.
• An accounting ratio compares two line items in a company's financial statements, namely made up of its income statement, balance sheet, and cash flow statement.
• These ratios can be used to evaluate a company's fundamentals and provide information about the performance of the company over the last quarter or fiscal year.
• Common accounting ratios include the debt-to-equity ratio, the quick ratio, the dividend payout ratio, gross margin, and operating margin.
• Accounting ratios are used by both the company itself to make improvements or monitor progress as well as by investors to determine the best investment option.

Accounting standards are designed to harmonise diverse accounting practises and are issued from time to time by accounting professional bodies such as institute of Chartered Accountants certified public accountants or institution which are established for this purpose accounting standards codify the generally accepted principle they lay down the norms of accounting policies and practises by way of codes or guidelines with regard to financial statement.

A positive change in working capital suggests that the company is able to finance its operation through its own resources. A negative change in long-term investments means that the company is selling off its long term investments. This would help in freeing the cash for the company to use in other areas. Like purchasing long term assets like building, plant and machinery etc.

• Equity shareholders are entitled to dividends after the income claims of other stakeholders are satisfied. The dividend payable to them is an appropriation of profits and not a charge against profit.
• It is a permanent source of finance. Since such shares are not redeemable. The company has no liability for cash outflow associated with its redemption. In other words once the company has issued equity shares they are tradable i.e. they can be purchased and sold. So a company is in no way responsible for any cash outflows of investors by which they become the shareholders of the company by purchasing the shares of existing shareholders.

[Cost of Goods Sold = (opening stock + purchases + expenses) - (closing stock)
= 15000 + 950000 - 25000 = 940000]
Hence option (a) is correct

Under marginal costing, only the variable cost is allocated to a product. So, the cost of a finished unit in inventory will include only the direct materials, direct labor, and variable overhead costs. It will not include the fixed overhead costs, which are directly taken to the profit and loss account. In absorption costing, these fixed overhead costs are also allocated to the product, in addition to the variable costs. Therefore, the absorption costing is also called full costing or the full absorption costing.

Hence the correct answer is Option (c)

Adjustment entries are basically a change in journal entries previously recorded. All the entries are not adjustment entries. Few entries are taken into account as adjustment entries like bad debts, closing balance, prepaid expenses etc.

Fund flow statement is a Statement of sources and application of fund is a technical device designed to analyse the changes in the financial condition of a business enterprise between two dates.
The statement helps in determining how the funds are being used. As a result, analysts can assess the company's fund flow in the future.

The Statement comprises the following 2 components.

• sources of fund= includes where the funds have come from and their source.
• application of fund = denotes the usage of funds for short term and long term needs.

Among the options provided, the required points for fund flow statement preparation are:

(I) Schedule of Changes in Working Capital
(II) Statement of Sources and Application of Funds
(III) Statement of Fund from Operations

The fund flow statement is used to analyze the changes in a company's financial position over a specific period of time. It helps in understanding how funds are generated and utilized in a business. Points (I), (II), and (III) are directly related to the preparation of a fund flow statement:

• Schedule of Changes in Working Capital (I): This is essential because it shows how working capital (current assets minus current liabilities) has changed during the period. It indicates whether funds were tied up in working capital or released.
• Statement of Sources and Application of Funds (II): This statement provides an overview of where the funds came from (sources) and how they were used (applications). It helps identify the inflows and outflows of funds.
• Statement of Fund from Operations (III): This statement shows the funds generated or utilized from the core operating activities of the business. It involves adjustments to the net profit for non-cash items and changes in working capital.

(IV) Statement of Funds by Other Institutions is not typically required for the preparation of a fund flow statement. This option is not directly related to the fundamental analysis of a company's financial position and its sources and uses of funds

Organization Chart: This chart lists the functionaries responsible for accomplishment of various distinct tasks specified in the budget. This chart shows the functional responsibilities of each functional executive, the delegation of authority to him and his relative position with other functional heads.

Budget Manual: The document setting out instructions and guidelines relating to the preparation and use of budgets is known as the budget manual. It instructions and guidelines pertain to forms and records, responsibilities of persons, the procedures to be followed and the time schedules to be followed etc.

Budget Committee: The master budget of an organization can be assumed to be a combination of various individual budgets of all the budget centers in the organization. These budget centers or functionaries are inter-related and budget for each cannot be set in isolation. They have to consult each other before finalizing the budget. For example; the sales promotion department may plan a budget for promoting new products but it may turn out that the production department will not be ready to produce these in near future. Unless there is co-ordination between the two departments, a realistic budget for the organization will not be finalized. The budget committee consists of the representatives of various departments of the organization. This committee co-ordinate in preparing and finalizing the budget.

Budget Reports: The budget reports contain the comparison of actual performance with the budgeted one. These reports are submitted periodically and regularly to the management. The frequency of submission of these reports is decided by the management. The budget reports are submitted irrespective of whether the variance is positive or negative. The format of the report is normally pre-decided.

Hence the correct answer is Option (d).

Long-Term Borrowings
Long-term borrowings shall be classified as:

• Bonds/debentures;
• Term loans: from banks, from other parties.
• Deferred payment liabilities;
• Deposits;
• Loans and advances from related parties;
• Long term maturities of finance lease obligations;
• Other loans and advances (specify nature).
• Borrowings shall further be sub-classified as secured and unsecured. Nature of security shall be specified separately in each case.
• Where loans have been guaranteed by directors or others, the aggregate amount of such loans under each head shall be disclosed.
• Bonds/debentures (along with the rate of interest and particulars of redemption or conversion, as the case may be) shall be stated in descending order of maturity or conversion, starting from farthest redemption or conversion date, as the case may be. Where bonds/debentures are redeemable by instalments, the date of maturity for this purpose must be reckoned as the date on which the first instalment becomes due.
• Particulars of any redeemed bonds/debentures which the company has power to reissue shall be disclosed.
• Terms of repayment of term loans and other loans shall be stated.
• Period and amount of continuing default as on the balance sheet date in repayment of loans and interest, shall be specified separately in each case.

Hence option (a) is the correct

Exchange rates can be quoted in two ways, Direct and Indirect. Exchange rates are typically quoted in pairs as base currency and counter currency. In a direct quote the domestic currency is the base currency and foreign currency is the counter currency. Whereas, in the indirect quote, the foreign currency is the base currency and the domestic currency is the counter currency.
Hence, the correct answer is Option (b).

Accounting equation signifies that the assets of a business are always equal to the total of its liabilities and capital (owner's equity). The equation reads as follows:
A = L + C
Where,
A = Assets
L = Liabilities
C = Capital
[Assets = Bank + Stock +Fixed asset
= 42000 + 30,000 +500000
= 572000
Liabilities = Outsider's Claims
=170000]
[Capital = Asset - Liability
= 572000- 170000 = 402000]
Hence the correct answer is Option (a).

The basic formula of CVP analysis, when profit, sales volume and costs, all are expressed in money terms, is: Profit = Sales Volume - Costs
The concept of marginal costing has refined this formula as under:
Profit = Sales Volume - (Fixed Costs + Variable Costs) or,
P = (S X N) - [F + (V X N)] where,
P = Profit,
S = Sales value per unit
N = Number of units sold
F = Fixed Costs
V = Variable Cost per unit
Applying the CVP analysis, we calculate the profit as under:
S = 450
N = 1000
F = 150000
V = 145
Profit = (S X N) - [F + (V X N)]
= (450 X 1000) - [150000 + (145 X 1000)]
= 450000 - (150000 + 145000)
= 450000 - 295000 =155000
Hence the correct answer is Option (a).

Job cost card is a document used in a job costing system to record and track the direct and indirect costs associated with a particular job or project. It is used to accumulate the costs incurred on a job or project and to calculate the total cost of the job at the end of the project.

The costing method in which the cost of production is calculated for each unit of product or service is known as unit costing. It focuses on the cost of producing a single unit of a product or services.

The concept of equivalent production is used in industries where manufacturing is a continuous activity and process costing is used.
Under this method, the partly finished units are converted into equivalent finished units.
Equivalent production means converting the incomplete production units into their equivalent completed units by estimating material, labour and overhead.
Equivalent completed units = {Actual number of units in the process of manufacture} X {Percentage of work completed}

[Quick ratio= Quick assets/current liabilities
Quick assets = Trade receivables [7,00,000]+ Cash and cash equivalents [2,50,000] + Short term loans and advances [45,000]= 9,95,000
Current liabilities = Trade payables [4,00,000]+ short term borrowings [3,40,000]= 7,40,000
Quick ratio = 9,95,000/7,40,000 = 1.34:1]
Hence, the correct answer is Option (a).

NON-VOTING SHARES
Section 43 of the Companies Act 2013, provides that share capital of the company shall consist of the following:

• Equity shares with voting rights
• Equity shares with differential rights as to dividend, voting or otherwise in accordance with such rules as may be prescribed; and
• Preference share capital The demand for non-voting equity shares has been made by several sections of the industry basically on the ground that they do exist in many other countries and also provide a measure to the management to tap a class of investors who are interested in higher dividend against absence of voting rights.

The main object of permitting the company to issue non-voting equity shares is to enable them to raise resources without losing management control.

Conditions for issue of non-voting equity shares are as follows:

• Issue of non-voting equity shares shall be authorised by the Articles of Association of the company and approved by the shareholders at their general body meeting by passing a special resolution.
• Special resolution must state the price at which the shares can be issued and higher rate of dividend which non-voting equity shares shall carry.
• Such shareholders are entitled to all rights and bonus shares but do not enjoy voting rights.
• Only 25 per cent of the paid-up capital of the company can be issued as equity shares without voting rights.
• Both private and public companies, limited by shares, can issue non-voting rights equity shares.
• No company will be permitted to convert shares with voting rights into shares without voting rights.

Hence the option (d) is correct