interview material for finance

8/18/2019 Interview Material for Finance

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1. Definition of accounting: “the art of recording, classifying and summarizing in a

significant manner and in terms of money, transactions and events hich are, in

!art at least of a financial character and inter!reting the results there of".

#. Boo$ $ee!ing: %t is mainly concerned ith recording of financial data relating to

the &usiness o!erations in a significant and orderly manner.

'(%)*+'+- / A**U)T%)0 2, 34

2. *once!ts of accounting:

A. se!arate entity conce!t

B. going concern conce!t

*. money measurement conce!t

D. cost conce!t

+. dual as!ect conce!t

/. accounting !eriod conce!t

0. !eriodic matching of costs and revenue conce!t

5. realization conce!t

3 *onventions of accounting

A. conservatism

B. full disclosure

*. consistency

D. materiality

6. -ystems of &oo$ $ee!ing:

A. single entry system

B. dou&le entry system

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?. -ystems of accounting

A. cash system accounting

B. mercantile system of accounting


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1. -tale cheCue: a stale cheCue means not valid of cheCue that means more than si

months the cheCue is not valid.

#=. Ban$ reconciliation statement: it is a statement reconciling the &alance as shon

&y the &an$ !ass&oo$ and the &alance as shon &y the *ash Boo$. &8: to

$no the difference !ass necessary correcting, ad8usting entries in the &oo$s.

#1. atching conce!t: matching means reCuires !ro!er matching of e!ense iththe revenue.

##. *a!ital income: the term ca!ital income means an income hich does not gro

out of or !ertain to the running of the &usiness !ro!er.

#2. (evenue income: the income, hich arises out of and in the course of the regular

&usiness transactions of a concern.

#3. *a!ital e!enditure: it means an e!enditure hich has &een incurred for the

!ur!ose of o&taining a long term advantage for the &usiness.

#6. (evenue e!enditure: an e!enditure that incurred in the course of regular&usiness transactions of a concern.

#?. Differed revenue e!enditure: an e!enditure, hich is incurred during an

accounting !eriod &ut is a!!lica&le further !eriods also. +g: heavy

advertisement, !reliminary e!, develo!ment e!. not ritten off or ad8usted4

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22. -us!ense account: the sus!ense account is an account to hich the difference in

the trial &alance has &een !ut tem!orarily.

23. De!letion: it im!lies removal of an availa&le &ut not re!lacea&le source, -uch as

etracting coal from a coal mine.

26. Amortization: the !rocess of riting of intangi&le assets is term as amortization.

2?. Dila!idations: the term dila!idations to damage done to a &uilding or other

!ro!erty during tenancy.

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3. 0eneral reserve: the reserve hich is transferred from normal !rofits of the

firm is called general reserve

3;. /ree *ash: the cash not for any s!ecific !ur!ose, free from any encum&rance

li$e sur!lus cash.

6=. inority %nterest: minority interest refers to the eCuity of the minority

shareholders in a su&sidiary com!any.

61. *a!ital recei!ts: ca!ital recei!ts may &e defined as “non9recurring recei!ts from

the oner of the &usiness or lender of the money crating a lia&ility to either of

them.

6#. (evenue recei!ts: (evenue recei!ts may defined as “A recurring recei!ts against

sale of goods in the normal course of &usiness and hich generally the result of

the trading activities".

62. eaning of *om!any: A com!any is an association of many !ersons ho

contri&ute money or moneyIs orth to common stoc$ and em!loys it for a

common !ur!ose. The common stoc$ so contri&uted is denoted in money and is

the ca!ital of the com!any.

63. Ty!es of a com!any:

1. -tatutory com!anies

#. 0overnment com!any

2. /oreign com!any

3. (egistered com!anies:

A. *om!anies limited &y shares

B. *om!anies limited &y guarantee

*. Unlimited com!anies

D. !rivate com!any

+. !u&lic com!any

66. 'rivate com!any: A !rivate co. is hich &y its

AA: (estricts the right of the mem&ers to transfer of shares imits the no. f

mem&ers 6=. 'rohi&its any %nvitation to the !u&lic to su&scri&e for its shares or

de&entures.




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6?. 'u&lic com!any: A com!any, the articles of association of hich does not contain

the reCuisite restrictions to ma$e it a !rivate limited com!any, is called a !u&lic

com!any.

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#. Wealth maimization: ealth maimization means the o&8ective of a firm

should &e to maimize its value or ealth, or value of a firm is re!resented &y

the mar$et !rice of its common stoc$ .


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6. 'rofita&ility inde: here different investment !ro!osal each involving different

initial investments and cash inflos are to &e com!ared.

?. %((: internal rate of return is the rate at hich the sum total of discounted cash

inflos eCuals the discounted cash out flo.


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1=1. -hare ca!ital: The sum total of the nominal value of the shares of a com!any is

called share ca!ital.

1=#. /unds flo statement: %t is the statement deals ith the financial resources for

running &usiness activities. %t e!lains ho the funds o&tained and ho they

used.

1=2. -ources of funds: There are to sources of funds internal sources and eternalsources. %nternal source: /unds from o!erations is the only internal sources of

funds and some im!ortant !oints add to it they do not result in the outflo of

funds

• De!reciation on fied assets

&4 'reliminary e!enses or goodill ritten off, oss on sale of fied assets

Deduct the folloing items, as they do not increase the funds:

'rofit on sale of fied assets, !rofit on revaluation of fied assets

+ternal sources:

a4 /unds from long9term loans

&4-ale of fied assets

c4 /unds from increase in share ca!ital

1=3. A!!lication of funds: a4 'urchase of fied assets &4 'ayment of dividend c4

'ayment of ta lia&ility d4 'ayment of fied lia&ility

1=6. %*D %nter cor!orate de!osits4: *om!anies can &orro funds for a short

!eriod. /or eam!le ? months or less from another com!any hich have

sur!lus liCuidity, such de!osits made &y one com!any in another com!any are

called %*D.

1=?. *ertificate of de!osits: The *D is a document of title similar to a fied de!osit

recei!t issued &y &an$s there is no !rescri&ed interest rate on such *Ds it is

&ased on the !revailing mar$et conditions.

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11=. AD( American de!ository recei!ts4: De!ository recei!ts issued &y a com!any

in the U-A are $non as AD(s. -uch recei!ts are to &e issued in accordance

ith the !rovisions sti!ulated &y the securities +change commission -+*4 of

U-A li$e -+B% in %ndia.

111. *ommercial &an$s: *ommercial &an$s etend foreign currency loans for

international o!erations, 8ust li$e ru!ee loans. The &an$s also !rovided

overdraft.

11#. Develo!ment &an$s: %t offers long9term and medium term loans including

foreign currency loans

112. %nternational agencies: %nternational agencies li$e the %/*, %B(D, ADB, %/

etc. !rovide indirect assistance for o&taining foreign currency.

113. -eed ca!ital assistance: The seed ca!ital assistance scheme is desired &y the

%DB% for !rofessionally or technically Cualified entre!reneurs and !ersons

!ossessing relevant e!erience and s$ills and entre!reneur traits.

116. Unsecured loans: %t constitutes a significant !art of long9term finance availa&le

to an enter!rise.

11?. *ash flo statement: %t is a statement de!icting change in cash !osition from

one !eriod to another.

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a4 'urchase of fied assets

&4 'ayment of long9term loans

c4 Decrease in deferred !ayment lia&ilities

d4 'ayment of ta, dividend

e4 Decrease in unsecured loans and de!osits

11;. Budget: %t is a detailed !lan of o!erations for some s!ecific future !eriod. %t is

an estimate !re!ared in advance of the !eriod to hich it a!!lies.

1#=. Budgetary control: %t is the system of management control and accounting in

hich all o!erations are forecasted and so for as !ossi&le !lanned ahead, and

the actual results com!ared ith the forecasted and !lanned ones.

1#1. *ash &udget: %t is a summary statement of firmIs e!ected cash inflo and

outflo over a s!ecified time !eriod.

1##. aster &udget: A summary of &udget schedules in ca!sule form made for the

!ur!ose of !resenting in one re!ort the highlights of the &udget forecast.

1#2. /ied &udget: %t is a &udget, hich is designed to remain unchanged

irres!ective of the level of activity actually attained.

1#3. Kero9 &ase9 &udgeting: %t is a management tool hich !rovides a systematic

method for evaluating all o!erations and !rograms, current of ne allos for

&udget reductions and e!ansions in a rational manner and allos reallocation

of source from lo to high !riority !rograms.

1#6. 0oodill: The !resent value of firmIs antici!ated ecess earnings.

1#?. B(-: %t is a statement reconciling the &alance as shon &y the &an$ !ass &oo$

and &alance shon &y the cash &oo$.

1#


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12#. *ost accounting: %t is thus concerned ith recording, classifying, and

summarizing costs for determination of costs of !roducts or services !lanning,

controlling and reducing such costs and furnishing of information management

for decision ma$ing.

122. +lements of cost:

A4 aterial

B4 a&our

*4 +!enses

D4 verheads

123. *om!onents of total costs:

A4 'rime cost

B4 /actory cost

*4Total cost of !roduction

D4 Total cost

126. 'rime cost: %t consists of direct material direct a&our and direct e!enses. %t

is also $non as &asic or first or flat cost.

12?. /actory cost: %t com!rises !rime cost, in addition factory overheads hich

include cost of indirect material indirect a&our and indirect e!enses incurredin factory. This cost is also $non as or$s cost or !roduction cost or

manufacturing cost.

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d4!eration costing

e4!erating costing

f4Unit costing

g4Batch costing

131. TechniCues of costing:

a4 arginal costing

&4 Direct costing

c4 A&sor!tion costing

d4 Uniform costing

13#. -tandard costing: standard costing is a system under hich the cost of the

!roduct is determined in advance on certain !redetermined standards.

132. arginal costing: it is a techniCue of costing in hich allocation of e!enditure

to !roduction is restricted to those e!enses hich arise as a result of

!roduction, i.e., materials, a&our, direct e!enses and varia&le overheads.

133. Derivative: derivative is !roduct hose value is derived from the value of one

or more &asic varia&les of underlying asset.

136. /orards: a forard contract is customized contracts &eteen to entities

ere settlement ta$es !lace on a s!ecific date in the future at todayIs !re agreed

!rice.

13?. /utures: a future contract is an agreement &eteen to !arties to &uy or sell an

asset at a certain time in the future at a certain !rice. /uture contracts are

standardized echange traded contracts.

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16#. +uro!ean o!tion: it is the o!tion at eercised only on e!iration date it self.

162. Basis: &asis means future !rice minus s!ot !rice.

163. *ost of carry: the relation &eteen future !rices and s!ot !rices can &e

summarized in terms of hat is $non as cost of carry.

166. %nitial margin: the amount that must &e de!osited in the margin a@c at the timeof first entered into future contract is $non as initial margin.

16? aintenance margin: this is some hat loer than initial margin.

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1?;. *haracteristics of mutual fund: nershi! of the / is in the hands of the of

the investors / managed &y investment !rofessionals the value of !ortfolio is

u!dated every day

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13. -!onsor: s!onsor is the !romoter of the / and a!!oints trustees, custodians

and the A* ith !rior a!!roval of -+B%.

16. Trustee: Trustees is res!onsi&le to the investors in the / and a!!oint the

A* for managing the investment !ortfolio.

1?. A*: the A* descri&es Asset anagement *om!any, it is the &usiness face

of the /, as it manages all the affairs of the /.

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#=1. Draings: A draing denotes the money ithdran &y the !ro!rietor from the

&usiness for his !ersonal use.

#=#. utstanding %ncome: utstanding %ncome means income hich has &ecome

due during the accounting year &ut hich has not so far &een received &y the

firm.

#=2. utstanding +!enses: utstanding +!enses refer to those e!enses hichhave &ecome due during the accounting !eriod for hich the /inal Accounts

have &een !re!ared &ut have not yet &een !aid.

#=3. *losing stoc$: The term closing stoc$ means goods lying unsold ith the

&usinessman at the end of the accounting year.

#=6. ethods of de!reciation:

1. Unirorm charge methods:

A. /ied installment method

B.De!letion method

*. achine hour rate method.

#. Declining charge methods:

A. Diminishing &alance method

B. -um of years digits method

*. Dou&le declining method

2. ther methods:

A. 0rou! de!reciation method

B. %nventory system of de!reciation

*. Annuity method

D. De!reciation fund method

+. %nsurance !olicy method.

#=?. Accrued %ncome: Accrued %ncome means income hich has &een earned &y the

&usiness during the accounting year &ut hich has not yet &ecome due and,

therefore, has not &een received.

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0ross !rofit

/ormula: 9999999999999999999 L1==

)et sales

#=. )et !rofit ratio: it indicates net margin on sales

)et !rofit

/ormula: 9999999999999999999 L1==

)et sales

#=;. (eturn on share holders funds: it indicates measures earning !oer of eCuity

ca!ital.

'rofits availa&le for +Cuity shareholders

/ormula: 999999999999999999999999999999999999999999999999999999 L 1==

Average +Cuity -hareholders /unds

#1=. +arning !er +Cuity share +'-4: it shos the amount of earnings attri&uta&le

to each eCuity share.

'rofits availa&le for +Cuity shareholders

/ormula: 9999999999999999999999999999999999999999999999

)um&er of +Cuity shares

#11. Dividend yield ratio: it shos the rate of return to shareholders in the form of

dividends &ased in the mar$et !rice of the share

/ormula : Dividend !er share

9999999999999999999999999999 L1==

ar$et !rice !er share

#1#. 'rice earning ratio: it a measure for determining the value of a share. ay also&e used to measure the rate of return e!ected &y investors.

/ormula : ar$et !rice of share'-4

9999999999999999999999999999999L 1==

+arning !er share +'-4




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#12. *urrent ratio: it measures short9term de&t !aying a&ility.

/ormula : *urrent Assets

999999999999999999999999

*urrent ia&ilities

#13. De&t9+Cuity (atio: it indicates the !ercentage of funds &eing financed through

&orroingsJ a measure of the etent of trading on eCuity.

/ormula : Total ong9term De&t

999999999999999999999999999

-hareholders funds

#16. /ied Assets ratio: This ratio e!lains hether the firm has raised ade!uate

long9term funds to meet its fied assets reCuirements.

/ormula /ied Assets

9999999999999999999

ong9term /unds

#1?. Muic$ (atio: The ratio termed as N liCuidity ratioI. The ratio is ascertained y

com!aring the liCuid assets to current lia&ilities.

/ormula : iCuid Assets

999999999999999999999999

*urrent ia&ilities

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9999999999999999999999999999

Average Accounts (eceiva&le

#1;. *reditors Turnover (atio: it indicates the s!eed ith hich the !ayments for

credit !urchases are made to the creditors.

/ormula: *redit 'urchases

99999999999999999999999

Average Accounts 'aya&le

##=. Wor$ing ca!ital turnover ratio: it is also $non as Wor$ing *a!ital everage

(atio. This ratio %ndicates hether or not or$ing ca!ital has &een effectively

utilized in ma$ing sales.

/ormula: )et -ales

9999999999999999999999999999

Wor$ing *a!ital

##1. /ied Assets Turnover ratio: This ratio indicates the etent to hich the

investments in fied assets contri&utes toards sales.

/ormula: )et -ales

99999999999999999999999999

/ied Assets

### .'ay9out (atio: This ratio indicates hat !ro!ortion of earning !er share has

&een used for !aying dividend.

/ormula: Dividend !er +Cuity -hare

99999999999999999999999999999999999999999999L1==

+arning !er +Cuity share

##2. verall 'rofita&ility (atio: %t is also called as “ (eturn on %nvestment" (%4

or (eturn on *a!ital +m!loyed (*+4 . %t indicates the !ercentage of return

on the total ca!ital em!loyed in the &usiness.

/ormula : !erating !rofit

999999999999999999999999L 1==




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*a!ital em!loyed

The term ca!ital em!loyed has &een given different meanings a.sum total of all

assets hether fied or current &.sum total of fied assets, c.sum total of long9

term funds em!loyed in the &usiness, i.e., share ca!ital Ereserves sur!lus

Elong term loans Fnon &usiness assets E fictitious assets4. !erating !rofit

means N!rofit &efore interest and taI

##3. /ied %nterest *over ratio: the ratio is very im!ortant from the lenderIs !oint

of vie. %t indicates hether the &usiness ould earn sufficient !rofits to !ay

!eriodically the interest charges.

/ormula : %ncome &efore interest and Ta

999999999999999999999999999999999999999

%nterest *harges

##6. /ied Dividend *over ratio: This ratio is im!ortant for !reference

shareholders entitled to get dividend at a fied rate in !riority to other

shareholders.

/ormula : )et 'rofit after %nterest and Ta

999999999999999999999999999999999999999999

'reference Dividend

##?. De&t -ervice *overage ratio: This ratio is e!lained a&ility of a com!any to

ma$e !ayment of !rinci!al amounts also on time.

/ormula : )et !rofit &efore interest and ta

9999999999999999999999999999999999999999 19Ta rate

%nterest E 'rinci!al !ayment installment

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##. Difference &eteen 8oint venture and !artner shi!: %n 8oint venture the

&usiness is carried on ithout using a firm name, %n the !artnershi!, the

&usiness is carried on under a firm name. %n the 8oint venture, the &usiness

transactions are recorded under cash system %n the !artnershi!, the &usiness

transactions are recorded under mercantile system. %n the 8oint venture, !rofit

and loss is ascertained on com!letion of the venture %n the !artner shi! , !rofit

and loss is ascertained at the end of each year. %n the 8oint venture, it is confined

to a !articular o!eration and it is tem!orary. %n the !artnershi!, it is confinedto a !articular o!eration and it is !ermanent.

##;. eaning of Wor$ing ca!ital: The funds availa&le for conducting day to day

o!erations of an enter!rise. Also re!resented &y the ecess of current assets over

current lia&ilities.

#2=. *once!ts of accounting:

1. Business entity conce!ts: 9 According to this conce!t, the &usiness is

treated as a se!arate entity distinct from its oners and others.

#. 0oing concern conce!t: 9 According to this conce!t, it is assumed that a

&usiness has a reasona&le e!ectation of continuing &usiness at a !rofit for

an indefinite !eriod of time.

2. oney measurement conce!t: 9 This conce!t says that the accounting

records only those transactions hich can &e e!ressed in terms of money

only.

3. *ost conce!t: 9 According to this conce!t, an asset is recorded in the &oo$s

at the !rice !aid to acCuire it and that this cost is the &asis for all su&seCuentaccounting for the asset.

6. Dual as!ect conce!t: 9 in every transaction, there ill &e to as!ects F the

receiving as!ect and the giving as!ectJ &oth are recorded &y de&iting one

accounts and crediting another account. This is called dou&le entry.

?. Accounting !eriod conce!t: 9 %t means the final accounts must &e !re!ared

on a !eriodic &asis. )ormally accounting !eriod ado!ted is one year, more

than this !eriod reduces the utility of accounting data.

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;. atching conce!ts: 9 The cost or e!enses of a &usiness of a !articular

!eriod are com!ared ith the revenue of the !eriod in order to ascertain the

net !rofit and loss.

1=. Accrual conce!t: 9 the !rofit arises only hen there is an increase in

oners ca!ital, hich is a result of ecess of revenue over e!enses and loss.

#21. /inancial analysis: the !rocess of inter!reting the !ast, !resent, and futurefinancial condition of a com!any.

#2#. %ncome statement: an accounting statement hich shos the level of revenues,

e!enses and !rofit occurring for a given accounting !eriod.

#22. Annual re!ort: the re!ort issued annually &y a com!any, to its share holders. it

containing financial statement li$e, trading and !rofit lose account and

&alance sheet.

#23. Ban$ru!t: A statement in hich a firm is una&le to meets its o&ligations and

hence, it is assets are surrendered to court for administration

#26. ease: ease is a contract &eteen to !arties under the contract, the oner of

the asset gives the right to use the asset to the user over an agreed !eriod of the

time for a consideration

#2?. !!ortunity cost: The cost associated ith not doing something.

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#36. Define the term accrual: (ecognition of revenues and costs as they are earned

or incurred . it includes recognition of transaction relating to assets and

lia&ilities as they occur irres!ective of the actual recei!ts or !ayments.

#36. Accrued e!enses : An e!ense hich has &een incurred in an accounting

!eriod &ut for hich no enforcea&le claim has &ecome due in hat !eriodagainst the enter!rises.

#3?. Accrued revenue: (evenue hich has &een earned is an earned is an accounting

!eriod &ut in res!ect of hich no enforcea&le claim has &ecome due to in that

!eriod &y the enter!rise.

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#6?. -hare !remium: The ecess of issue of !rice of shares over their face value. %t

ill &e shoed ith the allotment entry in the 8ournalJ it ill &e ad8usted in the

&alance sheet on the lia&ilities side under the head of “reserves sur!lus".

#6


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A funds flo statement matches the “funds raised" and “funds a!!lied" during a

!articular !eriod. The source and a!!lication of funds may &e of ca!ital as ell

as of revenue nature. An income statement matches the incomes of a !eriod ith

the e!enditure of that !eriod, hich are &oth of a revenue nature.

interview material for finance

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