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Commerce Exam  >  Commerce Tests  >  Test: Financial Management- Assertion & Reason Type Questions- 1 - Commerce MCQ

Test: Financial Management- Assertion & Reason Type Questions- 1 - Commerce MCQ


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15 Questions MCQ Test - Test: Financial Management- Assertion & Reason Type Questions- 1

Test: Financial Management- Assertion & Reason Type Questions- 1 for Commerce 2024 is part of Commerce preparation. The Test: Financial Management- Assertion & Reason Type Questions- 1 questions and answers have been prepared according to the Commerce exam syllabus.The Test: Financial Management- Assertion & Reason Type Questions- 1 MCQs are made for Commerce 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Financial Management- Assertion & Reason Type Questions- 1 below.
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Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 1
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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?

Assertion (A): The risk involved in the business should not be discussed in the beginning.

Reason (R): The business having more risks should issue ownership securities only.

Detailed Solution for Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 1
Securities are important because they provide companies a chance to raise capital. Many startups want to avoid taking out business loans, and they turn to securities for this possibility. Debt and equity securities are popular because of the benefits they provide.
Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 2
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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?

Assertion (A): With rising prices, larger amounts are required even to maintain a constant volume of production and sales.

Reason (R): The working capital requirement of a business become higher with higher rate of inflation.

Detailed Solution for Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 2
Inflation leads to increase in prices of raw materials, thus more working capital is required. Changes in the price level also affect the working capital requirements. Generally, the rising prices will require the firm to maintain larger amount of working capital as more funds will be required to maintain the same current assets.
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Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 3
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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?

Assertion (A): A sound financial plan should be rigid.

Reason (R): In a financing programme, flexibility for future should not be allowed.

Detailed Solution for Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 3

The financial plan should not be rigid. It should allow a scope for adjustments as and when new situations emerge. There may be a scope for raising additional funds if fresh opportunities occur. Similarly, idle funds, if any, may be invested in short-term and low-risk bearing securities.

Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 4
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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?

Assertion (A): In peak season, because of higher level of activity, larger amount of working capital is required.

Reason (R): Most business have some seasonality in their operations.
Detailed Solution for Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 4
The seasonal enterprises, i.e., the enterprise whose operations pick up seasonally may require more working capital to meet their increased operations during the particular season.
Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 5
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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?

Assertion (A): Business can survive without earning profit.

Reason (R): Profit earning is the main aim of every economic activity.
Detailed Solution for Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 5
No business can survive for a significant amount of time without making a profit, though measuring a company's profitability, both current and future, is critical in evaluating the company. Although a company can use financing to sustain itself financially for a time, it is ultimately a liability, not an asset.
Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 6
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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?

Assertion (A): A labour-intensive organisation requires higher investment in plant and machinery.

Reason (R): Those manufacturing enterprises which make use of modern and automatic machines need large amount of fixed capital.
Detailed Solution for Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 6
Companies using capital intensive techniques require more fixed capital whereas companies using labour-intensive techniques require less capital because capital intensive techniques make use of plant and machinery and company needs more fixed capital to buy plants and machinery.
Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 7
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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?

Assertion (A): Routine function of finance manager include record keeping and reporting.

Reason (R): Preparation of various financial statements is not a function of finance manager.
Detailed Solution for Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 7
Routine finance functions include the following tasks as follows:

  • Taking care of mechanical details regarding all new outside financing employed by the firm. Maintaining records of the firm's activities which have financial implications.

  • Timely reporting to facilitate financial manager.

Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 8
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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?

Assertion (A): A trading organisation usually needs a smaller amount of working capital compared to a manufacturing organisation.

Reason (R): The basic nature of a business influences the amount of working capital required.
Detailed Solution for Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 8
The working capital requirement of the manufacturing companies is usually high as they require huge stock-in-trade (inventories) and the amount of their debtors is also expected to be large because of the credit sales involved.
Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 9
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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?

Assertion (A): Modem approach is not a continuous process.

Reason (R): Financial manager has to play an important role only at the beginning of enterprise.
Detailed Solution for Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 9

  • The modern approaches include sociological approach, economic approach, psychological approach, quantitative approach, simulation approach, system approach, behavioural approach, Marxian approach etc.

  • Financial managers are responsible for the financial health of an organization. They produce financial reports, direct investment activities, and develop strategies and plans for the long-term financial goals of their organization.

Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 10
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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?

Assertion (A): The higher the ICR, lower shall be the risk of company failing to meet its interest payment obligations.

Reason (R): If the ROI of the company is higher, it can choose to use trading on equity to increase its EPS, i.e., its ability to use debt is greater.
Detailed Solution for Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 10
A higher ICR ratio indicates a better financial health. It means company is more capable to meet its interest obligations from operating earnings.
Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 11
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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?

Assertion (A): Traditional approach to financial management ignore routine problems.

Reason (R): It does not lay focus on day-to-day financial problems of business enterprises.
Detailed Solution for Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 11
The traditional approach to addressing bullying has several limitations: The use of direct sanctions may produce compliance but not necessarily a change in an underlying attitude. In itself, it typically does not promote self-reflection or encourage a 'change of heart.
Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 12
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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?

Assertion (A): A higher DSCR indicates better ability to meet cash commitments.

Reason (R): If a firm uses its debt potential to the full, it loses flexibility to issue further debt.
Detailed Solution for Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 12
A higher DSCR indicates better ability to meet cash commitments and consequently, the company’s potential to increase debt component in its capital structure. If a firm uses its debt potential to the full, it loses flexibility to issue further debt. To maintain flexibility, it must maintain some borrowing power to take care of unforeseen circumstances.
Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 13
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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?

Assertion (A): The capital structure should involve minimum risk of financial insolvency.

Reason (R): The use of excessive debt threatens the solvency of the company.
Detailed Solution for Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 13
An optimum capital structure is one which maximises earning per equity share and minimizes cost of financing. In a sound capital structure, content of debt will be a reasonable proportion of the total capital employed in the business. As a result, it has minimum risk of becoming insolvent.
Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 14
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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?

Assertion (A): Capital structure of a company affects only the profitability.

Reason (R): A capital structure will be said to be optimal when the proportion of debt and equity is such that it results in an increase in the value of the equity share.
Detailed Solution for Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 14
Capital structure of a company affects both the profitability and the financial risk as capital structure is the mix between owner’s funds and borrowed funds.
Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 15
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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?

Assertion (A): Risk principle of capital structure is one that minimise cost of capital structure.

Reason (R): According to this principle, reliance is placed more on equity for financial purpose.
Detailed Solution for Test: Financial Management- Assertion & Reason Type Questions- 1 - Question 15
Risk Principle: This principle deals with the capital structure which should not accept high risk. If company issue large amount of preference shares out of the earnings of the company then less amount will be left out for equity shareholders as dividend is paid after the preference shares.
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