strategic finance

Strategic Finance - 2Strategic Finance - 2

Due to diversification employees seek:-Correct AnswerHigher compensation , Job security , Better opportunities within the firm

Select The Blank

A geographical segment cannot be ________.Correct AnswerCountries in different zones

Select The Blank

A shareholder expects a higher rate of return as a firm's compensation for ________.Correct AnswerIncreased risk

Multiple Choice Single Answer

Most companies focus only on :-Correct AnswerReturn on investment

As a general rule, an asset is :-Correct AnswerA good or a right that a firm owns in a determined moment , Prepayment adjustments , Capitalized expenses

In the disclosures in financial statements, there are significant restrictions on :-Correct AnswerThe right of ownership , Realisability of investments , The remittance of income & proceeds of disposal


Equity includes :-Correct AnswerDevelopment Rebate Reserve

Match The Following

Correct Answer

Free cash flow theoryEnormous conflicts of interest between Stakeholders and shareholders

Net income approachCost of debt & equity do not change with a change in leverage ratio

Net operating income approachThe overall capitalization rate remains constant for all levels of financial leverages

Modigliani - Miller Theoryweighted average cost of capital does not change with a change in the proportion of debt to equity in the capital structure

True/False

Organisational changes are similar to mission changes.Correct AnswerTrue


Which of the following is NOT A Characteristic of declining firm :-Correct AnswerThe optimum payout ratio for a declining firm is not 100 %

Select The Blank

A company shall buyback its shares through the stock exchange by making a public announcement at least ________ days prior to the commencement of buyback.Correct AnswerSeven

True/False

Money becomes less valuable when received at a latter stage instead of in present time.Correct AnswerTrue

Select The Blank

The resource theory considers that the competitive position of a firm depends on its ________ Assets.Correct AnswerSpecific

A firm having aggressive policy of investing in current assets will show the following features :-Correct AnswerFrequent production stoppages , High ROI

True/False

Making decision on dividend is a very crucial area of financial management for a firm.Correct AnswerTrue


Segment reporting comes under :-Correct AnswerAS 17

True/False

Usually cost data is perfect for ABC Analysis & distribution.Correct AnswerFalse


As per Pecking order theory, which is the costliest means of funding :-Correct AnswerEquity Shares

Match The Following

Correct Answer

MechanismsPerforms or provides energy to an activity

InputsInformation or material used to produce the output of an activity

ControlsInformation or material that constrains an activity

OutputsInformation or material produced by an activity

True/False

According to NOI Approach, any capital structure is optimum.Correct AnswerTrue

Select The Blank

The ________ often gives the best insight into the borrower's short term credit needs.Correct AnswerCash budget

Select The Blank

If firms have same technology ________ makes the difference i.e. firms become more

productive .Correct AnswerSolid human resource team

True/False

Explicit cost and implicit cost are the two parts of cost of debt.Correct AnswerTrue

Select The Blank

If a segment is not designated as a ________ it should be included as an unallocated reconciling item.Correct AnswerReportable segment


Research into true human resources accounting began in :-Correct Answer1960`s

Select The Blank

Increase in cost of capital means decrease in ________.Correct AnswerProfitability

True/False

According to NI Approach, decrease in leverage decreases the overall cost of capital and increases the firm's value.Correct AnswerFalse

Accrued expenses represent :-Correct AnswerCostless financing , An interest free source of financing

The direct costs tier normally only includes the following :-Correct AnswerThe personnel payroll , Supplies , Individual rental equipment


Fixed price tender offers are accompanied by an abnormal announcement period return of :-Correct Answer8 - 10 %


Many companies claim their main assets are their :-Correct AnswerPeople

The main assumptions for stock repurchase models are as follows :-Correct AnswerThe market is efficient , There is perfect competition in the securities market


The Buy back of shares shall not be made fromCorrect AnswerThe promoters or persons in control of the company

True/False

Opportunity costs and real costs decrease the market value of a firm.Correct AnswerTrue

True/False

Retained earnings are the most important internal sources of financing the growth of the firm.Correct AnswerTrue

True/False

The chance of bankruptcy is small when the leverage of a firm is small.Correct AnswerTrue

Examples of accounting methods used by firm are :-Correct AnswerFIFO , LIFO , Accrual Accounting


For the following process the valuation is needed to decide the price at which the deal will be possibly concluded :-Correct AnswerMergers & Acquisitions

True/False

Diversification helps in preserving a firm's reputation & goodwill.Correct AnswerTrue


According to Net Income Approach, the average cost of capital declines as the leverage ratio :-Correct Answer

Increases

True/False

Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than its form.Correct AnswerFalse

Select The Blank

Forfeiting is mostly used for ________.Correct AnswerBig ticket items & durable goods

The financial framework of a merger decision covers 3 interrelated aspects i.e. :-Correct AnswerDetermining the firm's value , Financing techniques in mergers , Analysis of merger as a capital budgeting decision

True/False

For determining exchange ratio, the model developed by Conn & Nielson is used.Correct AnswerTrue


One of the important assumptions for capital structure theories is :-Correct AnswerDebt and equity are the 2 kinds of funds used by the firm

Select The Blank

________ are not diversible.Correct AnswerMarket related risks

The financial managers of a company consume a great deal of their time in activities like :-Correct AnswerMonitoring the investment in inventories , Negotiating favourable credit terms , Administrating Accounts receivables

LIST OF ATTEMPTED S AND ANSWERS

The different types of floats are :-Correct AnswerPostal float , Deposit float , Bank float


A low payout policy implies :-Correct AnswerMore retention of profits

True/False

optimum cash balance under certainty i.e. Baumul`s model allows the cash flow to fluctuate.Correct AnswerFalse


Companies often need to value its own :-Correct AnswerShares

Select The Blank

Postage is an example of ________ cost.Correct AnswerNon traceable cost


Value added analysis :-Correct AnswerHelps to identify potential activities that may be omitted immediately

Intangible assets include :-Correct AnswerPreliminary expenses , Deferred revenue expenditure , Discount on issues of shares / debenture etc


The Management of the Company may enter into a negotiated purchase, which is referred to as :-Correct AnswerGreenfield


If the segment result of a segment includes interest expense its segment liabilities include :-Correct AnswerThe related interest bearing liabilities

Select The Blank

As per NOI Approach - the overall capitalization rate remains ________ for all levels of financial leverage.

Correct AnswerConstant

Match The Following

Correct Answer

Exit costLost efficiency prior to separation, Job vacancy cost during the new search & termination pay.

Historical costsSacrifice necessary to hire & train people

Substitution costExit costs of the leaving employee & recruiting & training of the replacement

Opportunity costAn asset value when they are the target of an alternative use.


Suppliers of equity are interested in :-Correct AnswerHigh share prices

The 3 groups of participants in a firm are :-Correct AnswerSuppliers of equity , Debt suppliers , Firm Managers

True/False

It is possible to place a single value for the acquired firm.Correct AnswerFalse

Select The Blank

________ is never a part of the output.

Correct AnswerMechanisms

Exit costs are classified into 3 categories namely :-Correct AnswerLost efficiency prior to separation , Job vacancy cost during the new search , Termination pay

True/False

A transport corporation has a substantial working capital requirement.Correct AnswerFalse

Select The Blank

________ know the best about a firm's performance.Correct AnswerFirm Managers

As per AS 13 Statement, the following are not considered as investments:-Correct AnswerShares , Debentures , Other securities held as stock in trade

The employer in offering the job contract assumes a range of legal obligations such as :-Correct AnswerRewards - cash like & non cash like , Health & safety policies , Pensions & contributions to social security paymentsTrue/False

It is essential that ABC must fit into the strategy of the company.Correct AnswerTrue

True/False

Trade credit creates book debts which the firm is expected to collect in the near future.Correct AnswerTrue

Select The Blank

At times managers invest in projects that improve the company's ________.Correct AnswerPrestige or power

Select The Blank

Business risk & financial risk do not have any influence on ________.Correct AnswerAccounting numbers

True/False

The objective of a dividend policy should be to maximize shareholder's return so that the value of his investment is maximized.Correct AnswerFalse

True/False

A change in the method of depreciation is treated as a change in an accounting policy and is disclosed accordingly.Correct Answer TrueSelect The Blank

________ is not a characteristic of financial conglomerates.Correct AnswerProvide ineffective competitive process

Select The Blank

There is a ________ relationship between the number of employees & the use of operating supplies.Correct AnswerNatural


If a firm opts for restrictive policy then the investments in current assets is :-Correct AnswerLow

Match The Following

Correct Answer

AS 17Segment reporting

AS 19Leases

AS 6Depreciation accounting

AS 10Accounting for fixed assets

True/False

To `gather costs', means capturing all relevant expenses that pertain to the selected model and processes.Correct AnswerTrue

Select The Blank

Investors can reduce the company related risk by diversification of their investments in ________.Correct Answer

Shares of a large number of companies

For ABC Analysis the available cost data :-Correct AnswerHas to be adjusted for change , Has to be corrected for undocumented element costs , Has to be combined with different types of data from alternate sources

The external staffing performance indicators include :-Correct AnswerCompensation per Re. Profit , Personnel services head count , Profit per head

Select The Blank

HLL the largest FMCG company has a turnover of Rs. ________.Correct Answer118 Bn

Select The Blank

Segment expense includes ________.Correct AnswerThe relevant portion of enterprise revenue that can be allocated on a reasonable basis to a segment

The important aspect of dividend policy is :-Correct AnswerTo determine the amount of earnings to be distributed to shareholders , Amount to be retained in the firm

Select The Blank

In today's fast moving world, the quickest way to get information on a firm is through

________.Correct AnswerInternet

The main characteristics of operating economies are :-Correct AnswerIt is achieved through horizontal, vertical and conglomerate mergers , It occurs due to indivisibilities of resources , It is possible in generic management functions


Segment liabilities do not include :-Correct AnswerBorrowings & other liabilities that are incurred for financing rather than operating purpose


Which of the following company is reaping high market valuation due to showing human resources as an asset in its balance sheet information?Correct AnswerInfosys

True/False

In market value approach, interested parties never manipulate the stock markets.Correct AnswerFalse


The stock value for a company will be considered to be fair value for ordinary transactions if the shares are :-Correct AnswerListed

True/False

Planning helps an acquiring firm to identify the units it should drop & it should add.Correct AnswerTrue


For paying dividends, firms will have a given amount of :-Correct AnswerCash available


The depreciation rates or the useful lives of the assets are disclosed only :-Correct AnswerIf they are different from the principle rates specified in the statute

Select The Blank

Earning power of the company approach tries to value the ________.Correct AnswerCurrent value of the assets

Strategic Finance - 1


One of the selective developments that has taken place in recent times is companies are going in for :-Correct AnswerActivity based costing and management

True/False

Diversification helps in preserving a firm's reputation & goodwill.Correct AnswerTrue

True/False

Cash dividends are taxable at ordinary tax rates.Correct AnswerTrue

The 3 groups of participants in a firm are :-Correct AnswerSuppliers of equity , Debt suppliers , Firm Managers

As per AS 13 Statement, the following are not considered as investments:-Correct AnswerShares , Debentures , Other securities held as stock in trade

Match The Following

Correct Answer

Opportunity costAn asset value when they are the target of an alternative use.

Exit costLost efficiency prior to separation, Job vacancy cost during the new search & termination pay.

Historical costsSacrifice necessary to hire & train people

Substitution costExit costs of the leaving employee & recruiting & training of the replacement

The acquiring firm for any M & A will require data about the target firm which will include :-Correct AnswerQuality of management , Production capabilities , Profitability


Equity includes :-Correct AnswerDevelopment Rebate Reserve

Match The Following

Correct Answer

Free cash flow theory-Enormous conflicts of interest between Stakeholders and shareholders

Net income approach-Cost of debt & equity do not change with a change in leverage ratio

Net operating income approach-The overall capitalization rate remains constant for all levels of financial leverages

Modigliani - Miller Theory-weighted average cost of capital does not change with a change in the proportion of debt to equity in the capital structure

Select The Blank

If a segment is not designated as a ________ it should be included as an unallocated reconciling item.Correct AnswerReportable segment

True/False

For determining exchange ratio, the model developed by Conn & Nielson is used.Correct AnswerTrue

Select The Blank

In presenting the reconciliation segment result should be reconciled to ________.Correct AnswerEnterprise net profit or loss

Select The Blank

Identify disclosure on human resources as a societal concern & prepare international regulations comes under ________Correct AnswerThe compulsory method


Which is an example out of the following to which special consideration apply for depreciation :-Correct AnswerRegenerative natural resources

True/False

It is essential that ABC must fit into the strategy of the company.Correct AnswerTrue

Select The Blank

HLL the largest FMCG company has a turnover of Rs. ________.Correct Answer118 Bn

Select The Blank


The important aspect of dividend policy is :-Correct AnswerTo determine the amount of earnings to be distributed to shareholders , Amount to be

retained in the firm

The main characteristics of CAPM are :-Correct AnswerIt is an equilibrium Model , It describes the pricing of assets as well as derivatives , Expected security return = Riskless return + beta x (expected market risk premium)

True/False

Current accounting system is able to provide actual value of employee capabilities & knowledge.Correct AnswerFalse


In respect of depreciable assets, which do not have material value, depreciation is often allocated :-Correct AnswerFully in the accounting period for which they are acquired


The depreciation rates or the useful lives of the assets are disclosed only :-Correct AnswerIf they are different from the principle rates specified in the statute

Due to diversification employees seek:-Correct AnswerJob security , Better opportunities within the firm , Higher compensation

Select The Blank

The ________ cost tier has the advantage of being the simplest to calculate and justify.Correct Answer

Direct

To gather costs means to do the following actions to support the costing of the activities :-Correct AnswerTo capture , To construct , To synthesize the correct cost figures

True/False

Odd lots purchase is not a method of buy back of shares.Correct AnswerFalse

The overhead expenses include :-Correct AnswerUtilities , Maintenance , Security


In a matching approach policy, :-Correct AnswerThere is a small risk if shortage of funds


The most important internal sources of financing the growth of the firm is through :-Correct AnswerRetained earnings

True/False

The intellectual assets of a company are often worth 3 or 4 times the tangible book value.Correct AnswerTrue

Indicators of the value of an investment are obtained by :-Correct AnswerReference to its market value , The investee`s assets , The expected cash flows from the investment

Select The Blank

Buy back through book building the process should be made through ________.Correct AnswerAn electronically linked transparent facility

Significant influence is the power to :-Correct AnswerParticipate in the operating policy decisions , Participate in the financial decisions

True/False

An activity model is a tool to assist in understanding & defining the organisation.Correct AnswerTrue

True/False

Decisions related to working capital are repetitive & frequent.Correct AnswerTrue

Select The Blank

________ is not a characteristic of financial conglomerates.Correct AnswerProvide ineffective competitive process


In the past, costing mainly focused on :-Correct Answer

Manufacturing costs

A firm using a conservative policy for determining the requirements of current assets :-Correct AnswerHas fewer production stoppages , Ensures quick deliveries to customers , Stimulates sales

The major conditions to be fulfilled for buyback of shares as per the legal provisions include :-Correct AnswerArticles of association should authorize buyback of shares , The shares which are sought to be bought back should be fully paid up , After the buy back the ratio of debt to total capital and free reserves should not be more than 2 : 1


Segment liabilities do not include :-Correct AnswerBorrowings & other liabilities that are incurred for financing rather than operating purpose


The difference between current assets & current liabilities is known as :-Correct AnswerNet working capital


The bottom line of ABC Process is :-Correct AnswerTo achieve a better method of doing the right business pf the organisation

Select The Blank

Non value added activities helps ________.Correct Answer

To analyse the activities more carefully


In value of assets method the following is also to be included as they are also of value to the company :-Correct AnswerNon trading assets


Best practices, a tool for review process is similar to :-Correct AnswerBench marking

Select The Blank

HLL is ________ % of subsidiary of Unilever PLC.Correct Answer0.516

Select The Blank

traditionally avails are provided by ________.Correct AnswerBanks


The financial framework of a merger decision covers 3 interrelated aspects i.e. :-Correct AnswerFinancing techniques in mergers , Analysis of merger as a capital budgeting decision , Determining the firm's value

Select The Blank

A company shall buyback its shares through the stock exchange by making a public

announcement at least ________ days prior to the commencement of buyback.Correct AnswerSeven

True/False

Management of working capital refers to the management of total assets and liabilities of a company.Correct AnswerFalse

True/False

optimum cash balance under certainty i.e. Baumul`s model allows the cash flow to fluctuate.Correct AnswerFalse

True/False

Appraisal value of a firm can be acquired from an independent appraisal agency.Correct AnswerTrue

True/False

Accounting standards (AS - 13) is now mandatory.Correct AnswerTrue

True/False

The accounting records serve as the major source of cost data.Correct AnswerTrue

To gather costs means to do the following actions to support the costing of the activities :-

Correct AnswerTo capture , To construct , To synthesize the correct cost figures

Select The Blank

If firms have same technology ________ makes the difference i.e. firms become more productive .Correct AnswerSolid human resource team

Select The Blank

In many companies, there is no formal record of________.Correct AnswerInvestment in employees

True/False

The activity model is normally created by an activity Accountant.Correct AnswerFalse

True/False

The chance of bankruptcy is small when the leverage of a firm is small.Correct AnswerTrue

Select The Blank

The total cost of the activity model allocated by the applied activity drivers to the output of the activity model is called________.Correct AnswerThe cost of the output

A firm using a conservative policy for determining the requirements of current assets :-Correct AnswerHas fewer production stoppages , Ensures quick deliveries to customers , Stimulates

sales

The budgetary records are useful for:-Correct AnswerValidating accounting costs , Providing a rationale for division of costs , Replacing missing data


When a company has resorted to buyback of its shares it cannot make a further issue of the same kind of securities within a period of how many months?Correct Answer6 months


The bottom line of ABC Process is :-Correct AnswerTo achieve a better method of doing the right business pf the organisation

Select The Blank

The most popular kind of dividend policy is one that pays a ________.Correct AnswerRegular, steady dividend

Due to diversification employees seek:-Correct AnswerJob security , Better opportunities within the firm , Higher compensation

Match The Following

Correct Answer

Amount involved in buy backNot to exceed 25 % of the total paid up capital

Articles of AssociationAuthorize buy back of securities

Board of DirectorsResolution permitting the buy back of shares

Shares to be bought backFully paid up


A high payout policy means :-Correct AnswerMore current dividends

Match The Following

Correct Answer

Earning per shareAcquisition is considered to be a function of the impact of the merger on the EPS

Book valueDivide net worth by the number of equity shares outstanding

Appraisal valueProvides a list of the reasonableness of results obtained through methods base upon the going concern concept

Market valueIndicate the consensus of the investors

Select The Blank

In the reproduction value method of valuation, the value of assets is taken to be on the basis of ________Correct AnswerReplacement cost

Select The Blank

The advantage of ________ is that the company is not required to wait for the payment by the bill issuer.Correct AnswerBill discountingMultiple Choice Single Answer

In a growth firm, internal rate is :-Correct AnswerMore than opportunity

Shortage costs are mainly in the form of :-Correct AnswerDisruption in production schedule , Loss of sales , Loss of customer goodwill

Shortcomings of accounting numbers consist of the following :-Correct AnswerFirms use different kind of accounting methods , Business risk and financial risk do not have any influence on accounting numbers


Internal financing means the firm finances all investments through :-Correct AnswerRetained earnings


The earning power of the company approach includes :-Correct AnswerMainly discounting of all future earnings


A firm should consider acquisition as a :-Correct AnswerCapital budget decision


Firms which have marked seasonality in their operations usually have :-Correct AnswerHighly fluctuating working capital requirement


Decrease in leverage results in increasing the :-Correct AnswerOverall cost of capital

Select The Blank

Segment expense includes ________.Correct AnswerThe relevant portion of enterprise revenue that can be allocated on a reasonable basis to a segment


the amount of working capital required to meet long term, minimum needs is called :-Correct AnswerPermanent working capital

Select The Blank

The costs should be gathered & allocated within the organisation at the ________ structural layer.Correct AnswerLowest possible

The acquiring firm for any M & A will require data about the target firm which will include :-Correct AnswerQuality of management , Production capabilities , Profitability


Segment assets are determined after :-Correct AnswerDeducting related allowances / provisions reported as direct offsets

For M & As, the acquiring firm needs industry data on :-Correct AnswerMarket growth , Nature of competition , Degree of regulation

Select The Blank

Implicit & Explicit costs are included in the ________.Correct AnswerPrice of a product

In a merger decision, the value of a firm depends upon:-Correct AnswerEarnings , Operating characteristics of acquiring firm , Financial characteristics of acquiring firm

True/False

To `gather costs', means capturing all relevant expenses that pertain to the selected model and processes.Correct AnswerTrue

True/False

Segment result is segment revenue less segment expenses.Correct AnswerTrue


The main factor affecting the profits is :-

Correct AnswerThe magnitude of sales of the business

True/False

Retained earnings are the most important internal sources of financing the growth of the firm.Correct AnswerTrue

Select The Blank

________ are those operating assets that are employed by a segment in its operating activities.Correct AnswerSegment assets

The direct costs tier normally only includes the following :-Correct AnswerThe personnel payroll , Supplies , Individual rental equipment

Accounting numbers are not influenced by :-Correct AnswerDividend policy , Time span of money , Financial and business risk


Select The Blank

Total risk reduces if operations of combining firms are ________.Correct AnswerNegatively correlated


The Public announcement of share buy back has to be made at least :-Correct Answer7 Days prior to the commencement of buy back

It is the activity accountant's job to do the following for the existing organisational structure :-Correct AnswerTo define the costs , To refine the costs , To document the costs

Operating economies occur due to indivisibilities of resources like :-Correct AnswerPeople , Equipment , Overheads

Select The Blank

The amount to be invested by any single investor in a commercial paper shall not be less than Rs. ________.Correct Answer25 lacs

True/False

A change in the method of depreciation is treated as a change in an accounting policy and is disclosed accordingly.Correct AnswerTrue


The development aspect of training in firms focus on :-Correct AnswerPromotion to higher job levels

The main assumptions for stock repurchase models are as follows :-Correct AnswerThe market is efficient , There is perfect competition in the securities market


AS 17 is mandatory for all commercial, industrial & business reporting enterprises whose turnover for the accounting period :-Correct AnswerExceeds 50 crores

Select The Blank

If the segment result of a segment includes interest or dividend income its segment assets will not include ________.Correct AnswerPayables

Select The Blank

Economies of scale arises with increase in volume of production leading to________.Correct AnswerReduction in the cost of production


When a change in the method of depreciation is made :-Correct AnswerDepreciation is recalculated in accordance with the new method

One of the advantages of trade credit is its flexibility i.e. the firm does not :-Correct AnswerHave to sign a note , Pledge collateral , Adhere to strict payment schedule

Select The Blank

Depreciation is ________ of an asset.Correct AnswerLoss of value

Select The Blank



If a firm opts for restrictive policy then the investments in current assets is :-Correct AnswerLow


When the seller asks for the payment before making the delivery in order to avoid all risks it is known asCorrect AnswerCash before delivery

True/False

An activity model is a tool to assist in understanding & defining the organisation.Correct AnswerTrue

True/False

It is possible to place a single value for the acquired firm.Correct Answer

False

In the disclosures in financial statements, there are significant restrictions on :-Correct AnswerThe right of ownership , Realisability of investments , The remittance of income & proceeds of disposal


The depreciable assets are assets which are expected to be used :-Correct AnswerDuring more than 1 accounting period

True/False

Short term financing is meant for funding working capital of a company.Correct AnswerTrue

The existence of significant influence by an investor is usually evidenced in the following ways :-Correct AnswerParticipation in policy making processes , Material transactions between the investor & the investee , Interchange of managerial personnel

The important steps involved in the analysis of mergers & acquisitions are:-Correct AnswerPlanning , Searching & screening , Financial evaluation

Match The Following

Correct Answer

Unsecured loansForm of debt not backed by the pledge of specific assets

Line of creditDoes not constitute any legal commitments on the part of the bank

Revolving credit agreementsWhile the commitment is in force the bank must extend credit whenever the borrower wishes to borrow

Transaction loanThe cash flow ability of the borrower to pay the loan is usually of paramount importance

The financial managers of a company consume a great deal of their time in activities like :-Correct AnswerMonitoring the investment in inventories , Negotiating favourable credit terms , Administrating Accounts receivables

True/False

Dividends increase the current returns for shareholders.Correct AnswerTrue

True/False

Book value is based on the balance sheet value of owner's equity.Correct AnswerTrue

Select The Blank

the commercial paper may be issued in the multiples of ________.Correct Answer5 lakhs

Select The Blank

In presenting the reconciliation segment result should be reconciled to ________.

Correct AnswerEnterprise net profit or loss

Select The Blank

Another meaning of bear hug is ________.Correct AnswerHostile takeover


Funds borrowed for a period of 1 year or less is called :-Correct AnswerShort term finance

Financial statements classify the following into separate categories :-Correct AnswerFixed assets , Investments , Current assets


Any addition or extension to an existing asset which retains a separate identify & is capable of being used after the existing asset is disposed of :-Correct AnswerIs depreciated independently


In value of assets approach the value of which of the following should be deducted to calculate the net assets available to the equity shareholders :-Correct AnswerOutstanding preference shares


What is a very important factor in any kind of merger?Correct AnswerExchange ratio


When the working capital is less than its peak level :-Correct AnswerThe surplus is invested in liquid assets

True/False

Baumul`s Model is similar to EOQ model in inventory management.Correct AnswerTrue

True/False

Sometimes the mechanisms may appear to be inputs for an activity.Correct AnswerTrue

Accrued expenses represent :-Correct AnswerCostless financing , An interest free source of financing

True/False

The intellectual assets of a company are often worth 3 or 4 times the tangible book value.Correct AnswerTrue

Match The Following

Correct Answer

Terminal warehouse receiptInventory is stored with a public or terminal warehousing company

Floating lienLoose arrangement as the lender may find it difficult to policeChattel mortgageWell suited for financial good inventories of capital goods

Trust receiptSpecifically identified by serial number or other means

The different types of floats are :-Correct AnswerPostal float , Deposit float , Bank float

If a company is following multiple accounting system, the activity accountant will have to match data across :-Correct AnswerCodes , Time periods , Systems

True/False

AS 13 statement does not deal with operating or finance leases.Correct AnswerTrue

Select The Blank

The number of bidding centers shall not be less than ________ for buy back through book building.Correct Answer30

Select The Blank

Market approach is used for companies whose shares are ________ on the Stock market.

Correct AnswerListed


Multiple Choice Single Answer A quantity discount is offered :-Correct Answer On large shipments

Indicators of the value of an investment are obtained by :-Correct Answer Reference to its market value , The investee`s assets , Theexpected cash flows from the investment

Multiple Choice Single Answer The following is not a method of payment to the acquired firm:-Correct Answer Fixed deposits of the acquiring firm

True/False The activity model is normally created by an activity Accountant.Correct Answer False

A company is prohibited to buy back its own shares in thefollowing circumstances :-Correct Answer Through any subsidiary company , Through any investmentcompany , If a company defaults in repayment of deposits orinterest due thereon

Select The Blank If the segment result of a segment includes interest or dividendincome its segment assets will not include ________.Correct Answer Payables

Select The Blank Forward or backward integration is a characteristic of ________.Correct Answer Vertical Mergers

Multiple Choice Single Answer Modigliani - Miller Theoram is based on :-Correct Answer Perfect Capital Markets

True/False Value based approach of HRA tracking can be divided into 2categories - Non - monetary & monetary.Correct Answer True

Select The Blank During the costing process, we look at ________.Correct Answer Resource consumption

For accounting standard (AS) 27, Significant influence may begained by :-Correct Answer Share ownership , Statute , Agreement

As a general rule, an asset is :-Correct Answer A good or a right that a firm owns in a determined moment ,Prepayment adjustments , Capitalized expenses

Multiple Choice Single Answer Deferred payment plan is also known as:-Correct Answer Earn out plan

True/False There are few methods of allocating depreciation over the usefullife of an assets.Correct Answer False

Select The Blank Market approach is used for companies whose shares are________ on the Stock market.Correct Answer Listed

Operating economies of scale are achieved through the followingmergers :-

Correct Answer Horizontal , Vertical , Conglomerate

Multiple Choice Single Answer Tender offers can be afforded by firms with :-Correct Answer A large amount of financial Slack

Multiple Choice Single Answer The following method of valuation is used for listed companiesthat have an active market for their shares :-Correct Answer Market value approach

Select The Blank According to Altman (1984) total costs in percentage of themarket value of a firm range between ________Correct Answer 12.1 % & 16.7 %

Multiple Choice Single Answer Conservative policy for determining the requirements of currentassets is also known as :-Correct Answer Flexible policy

Multiple Choice Single Answer Yield or earning approach method of valuation uses :-Correct Answer Price to earnings ratio

The main categories of organisational elements are :-Correct Answer Managerial , Support , OperationalSelect The Blank The ________ cost tier has the advantage of being the simplestto calculate and justify.Correct Answer Direct

The existence of significant influence by an investor is usuallyevidenced in the following ways :-Correct Answer Participation in policy making processes , Material transactionsbetween the investor & the investee , Interchange of managerialpersonnel

Multiple Choice Single Answer Free Reserves is a component of :-Correct Answer Equity

Match The Following- Correct Answer

Sentiments and rumours -No fundamental basis.

Unlisted shares on stock exchange-Difficult to estimate the price

Invalid valuation of shares Easy to estimate the price Selective information -Valuation by variouspeople on information available

True/False Only firms with a large amount of financial slack can affordtender offers.Correct Answer True

Select The Blank Buy back through book building the process should be madethrough ________.Correct Answer An electronically linked transparent facility

For M & As, the acquiring firm needs industry data on :-Correct Answer Market growth , Nature of competition , Degree of regulation

True/False The chance of bankruptcy is small when the leverage of a firm issmall.Correct Answer True

True/False A change in the method of depreciation is treated as a change inan accounting policy and is disclosed accordingly.Correct Answer True

Select The Blank Economies of scale arises with increase in volume of productionleading to________.Correct Answer Reduction in the cost of production

True/False Arbitrage process implies that security cannot sell at differentprices.Correct Answer True

Select The Blank Capital gains are taxed at ________.

Correct Answer Preferentially lower rate

Multiple Choice Single Answer Net period - no cash discount means :-Correct Answer The seller only specifies the time period allowed for the payment

True/False A long term investment is an investment other than a currentinvestment.Correct Answer True

Multiple Choice Single Answer Accounting standards (AS - 17) has come into effect in respectof accounting periods commencing :-Correct Answer On or after 01.04.2001True/False Accounting standards (AS - 13) is now mandatory.Correct Answer True

Valuation methods are highly specific to the following for doingthe valuation :-Correct Answer To the person , To the firm , To the Consultant

Select The Blank ________ Assets in the balance sheet are normally excludedfrom the value of total assets.Correct Answer Intangible

The budgetary records are useful for:-Correct Answer Validating accounting costs , Providing a rationale for division ofcosts , Replacing missing data

As per the new sections of the company's act, funds out of whichbuy back may be financed include :-Correct Answer Free reserves of the company , Securities premium account ,Proceeds of any shares or other specified securities

Match The Following -Correct Answer

PpH = P / H ( C + B ) / PSPE = R / H (C + B ) / RRR = (C + B ) / R P / H

U % = R / ( C + B ) R / ( C + B )

Due to diversification employees seek:-Correct Answer Job security , Better opportunities within the firm , Highercompensation

Select The Blank In today's fast moving world, the quickest way to get informationon a firm is through ________.Correct Answer Internet

Multiple Choice Single Answer It is often not possible to directly attribute, or reasonably allocate-Correct Answer The interest bearing liabilities to segments

True/False Odd lots purchase is not a method of buy back of shares.Correct Answer False


LIST OF ATTEMPTED S AND ANSWERS

A normal firm shows the following characteristics :-Correct Answer No unique optimum payout ratio , Market value per shareunaffected by the payout ratio , All dividend policies are similar

Multiple Choice Single Answer One of the bases for determining the residual value of similarassets is :-Correct Answer Realizable value

If a firm diversifies managerial teams formed can be shifted fromunproductive activities to productive ones which leads to :-Correct Answer Improved profitability , Continuity , Growth of the firm

Multiple Choice Single Answer Segment liabilities do not include :-Correct Answer Borrowings & other liabilities that are incurred for financing ratherthan operating purpose


As per Pecking order theory, which is the costliest means offunding :-Correct Answer Equity Shares

Select The Blank Cost of ________ is more than other sources for raising short -term finance.Correct Answer Bank finance

Operating economies occur due to indivisibilities of resourceslike :-Correct Answer People , Equipment , Overheads

True/False If a company has resorted to buyback its shares, it cannot makea further issue of the same kind of securities within a period of 1year.Correct Answer False

True/False In value of assets approach for computation of valuation ofshares, the total value of all the assets will be divided by the totalnumber of shares.Correct Answer True

Multiple Choice Single Answer Short term sources of funds include :-Correct Answer Current Liabilities

Multiple Choice Single Answer Investment decisions are mainly concerned with :-Correct Answer Assets

Debt reduces :-Correct Answer Agency cost of free cash flow , Commitment to pay in time to alllenders , Freedom of decisions

The main theories behind share repurchases are :-Correct Answer Dividend or personal taxation hypothesis , Leverage hypothesis ,Information or signalling hypothesis

Select The Blank The cost of facilities is usually included & distributed as

________.Correct Answer Depreciation

Investments having no physical existence includes :-Correct Answer Shares , Debentures , Bonds

An investment property is an investment in land or buildings :-Correct Answer Not intended to be occupied substantially for use by investingenterprise , Not intended to be in the operations of the investingenterprise

Multiple Choice Single Answer If a firm opts for restrictive policy then the investments in currentassets is :-Correct Answer Low

True/False According to NOI Approach, any capital structure is optimum.Correct Answer True

Select The Blank Segment assets are ________.Correct Answer Directly attributable to the segment


Free cash flow theory -Enormous conflicts ofinterest between Stakeholders and shareholdersMany groups of non -investor stakeholders havean interest in the firm

Net income approach Cost of debt & equity donot change with a changein leverage ratioEnormous conflicts ofinterest betweenStakeholders andshareholders

Net operating income

approachThe overall capitalizationrate remains constant forall levels of financialleveragesFirms have preferences bychoosing a way to financetheir projectsModigliani - Miller Theory weighted average cost ofcapital does not changewith a change in theproportion of debt toequity in the capitalstructureCost of debt & equity donot change with a changein leverage ratio

Select The Blank The processes to be identified & focused should to be on thebasis of not adhering to benchmarks, bottlenecks, quality notmet, time problems etc. This is called as ________.Correct Answer Process analysis

The main characteristics of operating economies are :-Correct Answer It is achieved through horizontal, vertical and conglomeratemergers , It occurs due to indivisibilities of resources , It ispossible in generic management functions

Multiple Choice Single Answer usually the `controlling block' tends to be between :-Correct Answer 20 & 40 percent

The 3 groups of participants in a firm are :-Correct Answer Suppliers of equity , Debt suppliers , Firm Managers

Multiple Choice Single Answer Human Assets accounting stands for :-Correct Answer Measurement & reporting of the cost and value of people asorganisational resources

Multiple Choice Single Answer Profitability of a company depends upon :-Correct Answer Cost of capital

Select The Blank Horizontal mergers involves firms________.Correct Answer That operate & compete in a similar kind of business


Availability of funds in the market Cost of funds depends onthis factor Different costs are involved Flexibility -The extent & the easewith which the funds can be raised & paid back are very important

Time -Takes less time to take an overdraft from the bank

Creditworthiness of theissuer-If a company has a good creditworthiness it is notdifficult to raise short term funds

A firm's current assets include :-Correct Answer Marketable securities , Receivables , Inventory

Select The Blank If a segment is not designated as a ________ it should beincluded as an unallocated reconciling item.Correct Answer Reportable segment

Select The Blank An asset is included in segment assets, if and only if the relateddepreciation or amortisation is included in ________.Correct Answer Segment expense

True/False Trade credit creates book debts which the firm is expected tocollect in the near future.Correct Answer True

Long term financing strategy is used by a firm to meet :-Correct Answer Fixed assets requirements , Permanent working capitalrequirements , Portion of fluctuating working capital requirement

Multiple Choice Single Answer Debt is often issued at :-Correct Answer The head office level

True/False Determination of residual value of an asset is normally a difficultmatter.Correct Answer True

Multiple Choice Single Answer Which of the following systems identifies each of theorganizational elements of the traditional bureaucratic structureand applies the identifiable costs of that element accordingly?Correct Answer Organization element accounting

Multiple Choice Single Answer Segment result represents :-Correct Answer Operating profit or loss

Multiple Choice Single Answer Which of the following is NOT a disadvantage of deferredpayment plan to the acquiring firm?Correct Answer There is built - in cushion to the acquiring firm as total paymentis not made at the time of acquisition

Select The Blank The resource theory considers that the competitive position of afirm depends on its ________ Assets.Correct Answer Specific

True/False Short term financing is meant for funding working capital of acompany.Correct Answer True

True/False Money becomes less valuable when received at a latter stageinstead of in present time.Correct Answer True

True/False The intellectual assets of a company are often worth 3 or 4 timesthe tangible book value.Correct Answer True

Multiple Choice Single Answer One of the selective developments that has taken place in recenttimes is companies are going in for :-Correct Answer Activity based costing and management

The financial managers of a company consume a great deal oftheir time in activities like :-Correct Answer Monitoring the investment in inventories , Negotiating favourablecredit terms , Administrating Accounts receivables

Select The Blank If total external revenue attributable to reportable segmentsconstitutes less than ________ of the total enterprise revenueadditional segments should be identified as reportablesegments.Correct Answer 75 percent

True/False A single organisation model serves to keep all individualinitiatives to be targeted into a co-ordinated plan.Correct Answer True

True/False Valuation of current investments on overall basis is notconsidered appropriate.Correct Answer True


True/False Accounting standards (AS - 13) is now mandatory.Correct Answer True

Exit costs are classified into 3 categories namely :-Correct Answer Lost efficiency prior to separation , Job vacancy cost during the newsearch , Termination pay


In a merger decision, the value of a firm depends upon:-Correct Answer Earnings , Operating characteristics of acquiring firm , Financialcharacteristics of acquiring firm

A company is permitted to buy back its shares through stockexchange in the following situations :-Correct Answer The company shall complete the verification of acceptances within15 days of the payout , The identity of the company as a purchasershall appear on the electronic screen when the order is placed , Thebuy back shall be made only on stock exchanges with electronictrading facility

True/False A merger will make sense to the acquiring firm if its shareholdersbenefit.Correct Answer TrueStrategic Finance II Page 2 of 8

Select The Blank ________ Assets in the balance sheet are normally excluded fromthe value of total assets.Correct Answer Intangible

Multiple Choice Single Answer What is a very important factor in any kind of merger?Correct Answer Exchange ratio

Select The Blank A shareholder expects a higher rate of return as a firm'scompensation for ________.Correct Answer Increased risk

True/False Usually cost data is perfect for ABC Analysis & distribution.Correct Answer False


Multiple Choice Single Answer Segment assets are determined after :-Correct Answer Deducting related allowances / provisions reported as direct offsets

Multiple Choice Single Answer Acceptable audit requirements cannot be overlooked even under thepressure of :-Strategic Finance II Page 3 of 8Correct Answer Timeliness & turnaround

Multiple Choice Single Answer Which of the following is NOT a disadvantage of deferred paymentplan to the acquiring firm?Correct Answer There is built - in cushion to the acquiring firm as total payment is notmade at the time of acquisition

True/False A single organisation model serves to keep all individual initiatives tobe targeted into a co-ordinated plan.Correct Answer True

True/False Assets held as stock - in - trade are also investments.Correct Answer False

Multiple Choice Single Answer In an aggressive approach :-Correct Answer There is a very large risk of shortage of funds

True/False Organisational changes are similar to mission changes.Correct Answer True

The internal staffing performance indicators are :-Correct Answer Sales per employee , Recovery rate , Utilization %

Select The BlankStrategic Finance II Page 4 of 8 The most popular kind of dividend policy is one that pays a________.Correct Answer Regular, steady dividend

Match The Following- Correct AnswerAmount involved in buy backNot to exceed 25 % of the total paid up capital

Articles of Association- Authorize buy back of securities

Resolution permitting -the buy back of shares Board of DirectorsAuthorize buy back of securities Shares to be bought back -Fully paid up

Multiple Choice Single Answer A good accounting system does NOT have the characteristics suchas :-Correct Answer Does not cover decisions over the life cycle

Multiple Choice Single Answer Fixed price tender offers are accompanied by an abnormalannouncement period return of :-Correct Answer 8 - 10 %

The external staffing performance indicators include :-Correct Answer Compensation per Re. Profit , Personnel services head count , Profitper head


Trust receipt -Specifically identified by serial number or other means

Terminal warehouse receipt Inventory is stored with a public or terminal

Strategic Finance II Page 5 of 8 -warehousing company

Floating lien Loose arrangement as the lender may find it difficult to police-Well suited for financial good inventories of capital goods Chattel mortgageAffords- a higher degree of control over the collateral

Select The Blank In today's fast moving world, the quickest way to get information on afirm is through ________.Correct Answer Internet

Multiple Choice Single Answer Companies often need to value its own :-Correct Answer Shares

Long term financing strategy is used by a firm to meet :-Correct Answer Fixed assets requirements , Permanent working capital requirements, Portion of fluctuating working capital requirement

True/False For determining exchange ratio, the model developed by Conn &Nielson is used.

Correct Answer True

Select The Blank usually credit lines are established for a period of ________.Correct Answer 1 year

Shortcomings of accounting numbers consist of the following :-Strategic Finance II Page 6 of 8Correct Answer Firms use different kind of accounting methods , Business risk andfinancial risk do not have any influence on accounting numbers

Select The Blank Investors can reduce the company related risk by diversification oftheir investments in ________.Correct Answer Shares of a large number of companies

True/False Making decision on dividend is a very crucial area of financialmanagement for a firm.Correct Answer True

Multiple Choice Single Answer The following is not a factor for reduction in the life of an asset byobsolescence :-Correct Answer No study of market demand for a product / service

Due to diversification employees seek:-Correct Answer Job security , Better opportunities within the firm , Highercompensation

Multiple Choice Single Answer Research into true human resources accounting began in :-Correct Answer 1960`s


Strategic Finance II Page 7 of 8True/False AS 13 statement does not deal with operating or finance leases.Correct Answer True

Select The Blank

The costs should be gathered & allocated within the organisation atthe ________ structural layer.Correct Answer Lowest possible

Multiple Choice Single Answer Value implies that something has :-Correct Answer Worth

Examples of accounting methods used by firm are :-Correct Answer FIFO , LIFO , Accrual Accounting

The main assumptions for stock repurchase models are as follows :-Correct Answer The market is efficient , There is perfect competition in the securities market

As a general rule, an asset is :-Correct Answer A good or a right that a firm owns in a determined moment ,Prepayment adjustments , Capitalized expenses

True/False It is easy to find a risk free security.Correct Answer FalseStrategic Finance II Page 8 of 8

Multiple Choice Single Answer The earning power of the company approach includes :-Correct Answer Mainly discounting of all future earnings


Select The Blank Mature companies with stable earnings generally pay out ________.Correct Answer A high proportion of earningsStrategic Finance - 10Strategic Finance - 10


True/False

The activity model is normally created by an activity Accountant.Correct Answer False

Organisations have various records and reports from pastactions such as :-Correct Answer Logs to record workflow , Specific costs , External and internalaudit reports


Select The Blank The cost of facilities is usually included & distributed as________.Correct Answer Depreciation


The direct costs tier normally only includes the following :-Correct Answer The personnel payroll , Supplies , Individual rental equipment

While accounting for human assets, the following data is to beconsidered :-Correct Answer Full time equivalent staff , Revenues , Expenses

Accrued expenses represent :-Correct Answer Costless financing , An interest free source of financing

True/False The accounting records serve as the major source of cost data.Correct Answer True

Multiple Choice Single Answer Conservative policy for determining the requirements of current

assets is also known as :-Correct Answer Flexible policy

Multiple Choice Single Answer When the working capital is less than its peak level :-Correct Answer The surplus is invested in liquid assets

True/False optimum cash balance under certainty i.e. Baumul`s modelallows the cash flow to fluctuate.Correct Answer False

Multiple Choice Single Answer open account credit appears on the buyer's balance sheet as :-Correct Answer Accounts payable


Multiple Choice Single Answer According to a survey for reasons for share purchase, what isthe percentage of cash distribution to cash holders ?Correct Answer 0.28

Select The Blank ________ is not a characteristic of financial conglomerates.Correct Answer Provide ineffective competitive process

The important steps involved in the analysis of mergers &acquisitions are:-Correct Answer Planning , Searching & screening , Financial evaluation

Trade credits are of the following types:-Correct Answer Notes payable , Trade acceptances , Open accounts

True/False The statute governing an enterprise may provide the basis forcomputation of the depreciation.Correct Answer True

Select The Blank The clean up period is usually ________ months.

Correct Answer 1 to 2 months

Multiple Choice Single Answer Any addition or extension to an existing asset which retains aseparate identify & is capable of being used after the existingasset is disposed of :-Correct Answer Is depreciated independently


Amount involved in buy back- Not to exceed 25 % of the total paid up capital Authorize buy back ofsecuritiesBoard of Directors- Resolution permitting the buy back of sharesThe ratio of debt to total capital & free reservesshould be 1 : 1

Multiple Choice Single Answer Acceptable audit requirements cannot be overlooked even underthe pressure of :-Correct Answer Timeliness & turnaround


Book value of the assets is directly dependent on the accountingpolicies followed by the company which is used in the followingareas :-Correct Answer Booking depreciation , Methods of provisions , Inventoryvaluation

Select The Blank Identify disclosure on human resources as a societal concern &prepare international regulations comes under ________Correct Answer The compulsory method

Walter's model on dividend relevance is based on the followingassumptions :-Correct Answer Internal financing , Constant return and cost of capital , 100 Percent payout or retention

Multiple Choice Single Answer When competition is high in the market, it is :-Correct Answer Essential to maintain a larger inventory of finished goods

Multiple Choice Single Answer A manufacturing concern like a machine tool has :-Correct Answer A long operating cycle

True/False Decisions related to working capital are repetitive & frequent.Correct Answer True

Select The Blank In many companies, there is no formal record of________.Correct Answer Investment in employees

Select The Blank Depreciation is ________ of an asset.Correct Answer Loss of value


Mortgage -Pertains to immovable properties

Lien- The bank has a right to retain the goods belonging to the company until thedebts due to the bank are paid

Hypothecation -A charge against property for an amount of debt

Pledge- Duty of the bank to take care of movable goods

Significant influence is the power to :-Correct Answer Participate in the financial decisions , Participate in the operatingpolicy decisions

Select The Blank Stock repurchases ________ the debt / equity ratio.Correct Answer Increases

True/False Organisational changes are similar to mission changes.Correct Answer TrueMultiple Choice Single Answer

Where the management's estimate of the useful life of an assetof the enterprise is shorter than that envisaged under theprovisions of the relevant statute, the depreciation provision isapproximately computed :-Correct Answer By applying a higher rate


The support elements consists of important functions such as :-Correct Answer Payroll , Accounting , Automatic data processing

Multiple Choice Single Answer Cost benefit analysis is the simplest form of comparison betweenCorrect Answer Ideas to determine which is faster, better or cheaper


Multiple Choice Single Answer Arbitrage means :-Correct Answer Securities cannot sell at different prices

Select The Blank Credit standards should be relaxed upon the point whereincremental returns ________ incremental costs.Correct Answer Equals


True/False Dividends increase the current returns for shareholders.Correct Answer True

True/False When a company is able to assess an individual's worth, it helpsin increasing its own worth.Correct Answer True



Opportunity cost An asset value when they are the target of analternative use.Exit cost- Lost efficiency prior to separation, Job vacancy cost during the newsearch & termination pay.

Historical costs- Sacrifice necessary to hire & train people

Substitution cost- Exit costs of the leaving employee & recruiting &training of the replacement

Multiple Choice Single Answer Book value is relevant to determine the firm's value because ofthe following reasons except:-Correct Answer It cannot be used as a starting point to be compared &complimented by other analysis

True/False For determining exchange ratio, the model developed by Conn &Nielson is used.Correct Answer True

Multiple Choice Single Answer Normally the basis for identifying an enterprise segments are :-Correct Answer The organizational structure of an enterprise

Multiple Choice Single Answer FEA is a technique to analyze & evaluate :-Correct Answer Alternative process improvements



True/False

Retained earnings are the most important internal sources offinancing the growth of the firm.Correct Answer True


Multiple Choice Single Answer For paying dividends, firms will have a given amount of :-Correct Answer Cash available

The characteristics of working capital are :-Correct Answer It is continually required for a going concern , Quantum ofworking capital fluctuates depending on the level of activity , It isimpacted by numerous transactions on a continuous basis

Select The Blank Earning power of the company approach tries to value the________.Correct Answer Current value of the assets

As per AS 13 Statement, the following are not considered asinvestments:-Correct Answer Shares , Debentures , Other securities held as stock in trade

Operating economies of scale are achieved through the followingmergers :-Correct Answer Horizontal , Vertical , Conglomerate

True/False Usually only a single method is used for valuation of shares.Correct Answer False

Select The Blank As per residual theory of dividends the focus is on ________.Correct Answer Growth

True/False Management of working capital refers to the management oftotal assets and liabilities of a company.Correct Answer False

The important aspect of dividend policy is :-Correct Answer To determine the amount of earnings to be distributed toshareholders , Amount to be retained in the firm

The cost of an investment includes charges such as :-Correct Answer Brokerage , Fees , Duties

Select The Blank Forfeiting is mostly used for ________.Correct Answer Big ticket items & durable goods

True/False Planning helps an acquiring firm to identify the units it shoulddrop & it should add.Correct Answer True

Multiple Choice Single Answer Segment information needs to be presented :-Correct Answer Only on the basis of the consolidated financial statements

Select The Blank Postage is an example of ________ cost.Correct Answer Non traceable cost


Earning per share- Acquisition is considered to be a function of theimpact of the merger on

Book value- Divide net worth by the number of equity sharesoutstanding

Appraisal value- Provides a list of the reasonableness of resultsobtained through methods base upon the going concern concept

Market value -Indicate the consensus of the investors

Book value of the assets is directly dependent on the accountingpolicies followed by the company which is used in the followingareas :-

Correct Answer Booking depreciation , Methods of provisions , Inventoryvaluation

Every business requires funds on a continual basis for expensesincurred on for :-Correct Answer Purchase of raw material , Manufacturing costs , Administration


True/False According to NI Approach, decrease in leverage decreases theoverall cost of capital and increases the firm's value.Correct Answer False


Multiple Choice Single Answer Best practices, a tool for review process is similar to :-Correct Answer Bench marking

Multiple Choice Single Answer One of the important assumptions for capital structure theories isCorrect Answer Debt and equity are the 2 kinds of funds used by the firm


True/False The scope of the data required relates to the scope of the activitymodel & processes under review.Correct Answer True

Select The Blank The ________ cost tier has the advantage of being the simplestto calculate and justify.Correct Answer Direct



Multiple Choice Single Answer Many companies claim their main assets are their :-Correct Answer People


Select The Blank ________ is not a example of segment liability.Correct Answer Goodwill


The main characteristics of CAPM are :-Correct Answer It is an equilibrium Model , It describes the pricing of assets aswell as derivatives , Expected security return = Riskless return +beta x (expected market risk premium)

Multiple Choice Single Answer Debt suppliers main concern is :-Correct Answer Interest & debt repayment


Multiple Choice Single Answer The difference between current assets & current liabilities isknown as :-Correct Answer Net working capital





Multiple Choice Single Answer Any addition or extension to an existing asset which retains a separateidentify & is capable of being used after the existing asset is disposed of :-CorrectAnswer Is depreciated independently

True/False In market value approach, interested parties never manipulate the stockmarkets.Correct Answer False

For accounting standard (AS) 27, Significant influence may be gained byCorrect Answer Share ownership , Statute , Agreement

Multiple Choice Single Answer Accounts payable is also known as :-Correct Answer Trade credit from suppliers

Select The Blank Earning power of the company approach tries to value the ________.Correct Answer Current value of the assets


Free cash flow theory -Enormous conflicts of interest between Stakeholders andshareholders.

Net income approach -Cost of debt & equity do not change with a change in leverage

ratio.Net operating income approach- The overall capitalization rate remains constant forall levels of financial leverages.Modigliani - Miller -Theory weighted average cost of capital does not change with achange in the proportion of debt to equity in the capital structure.

Multiple Choice Single Answer Where the management's estimate of the useful life of an asset of theenterprise is shorter than that envisaged under the provisions of the relevant statute, thedepreciation provision is approximately computed :-Correct Answer By applying a higher rate


Select The Blank Segment expense includes ________.Correct Answer The relevant portion of enterprise revenue that can be allocated ona reasonable basis to a segment

Multiple Choice Single Answer The depreciable assets are assets which are expected to be used :-Correct Answer During more than 1 accounting period

True/False Arbitrage process implies that security cannot sell at different prices.CorrectAnswer True

Multiple Choice Single Answer Which is an example out of the following to which special considerationapply for depreciation :-Correct Answer Regenerative natural resources

True/False Baumul`s Model is similar to EOQ model in inventory management.Correct Answer True

Financial evaluation involves :-Correct Answer Determining the earnings , Areas of risk , Best way to finance amerger

Multiple Choice Single Answer The difference between current assets & current liabilities is known as :-Correct Answer Net working capital


Multiple Choice Single Answer Which of the following systems identifies each of the organizationalelements of the traditional bureaucratic structure and applies the identifiable costs of thatelement accordingly?Correct Answer Organization element accounting

The major conditions to be fulfilled for buyback of shares as per the legalprovisions include :-Correct Answer Articles of association should authorize buyback of shares , Theshares which are sought to be bought back should be fully paid up , After the buy backthe ratio of debt to total capital and free reserves should not be more than 2 : 1

True/False Determination of residual value of an asset is normally a difficult matter.Correct Answer True



True/False To `gather costs', means capturing all relevant expenses that pertain to theselected model and processes.Correct Answer True

Multiple Choice Single Answer When a company has resorted to buyback of its shares it cannot make afurther issue of the same kind of securities within a period of how many months?Correct Answer 6 months

Select The Blank At times managers invest in projects that improve the company's________.Correct Answer Prestige or power

It is the activity accountant's job to do the following for the existingorganisational structure :-Correct Answer To define the costs , To refine the costs , To document the costs

Multiple Choice Single Answer One of the important assumptions for capital structure theories is :-Correct Answer Debt and equity are the 2 kinds of funds used by the firm




Select The Blank HLL the largest FMCG company has a turnover of Rs. ________.Correct Answer 118 Bn

The characteristics of working capital are :-Correct Answer It is continually required for a going concern , Quantum ofworking capital fluctuates depending on the level of activity , It is impacted by numeroustransactions on a continuous basis


Multiple Choice Single Answer In the tender offer, the purchaser approaches :-Correct Answer The shareholder

To overcome the problems of matching data the actions can be taken asfollows :-Correct Answer Keep extensive records of the process , Maintain detailedprocedures , Keep records of assumptions as an audit trail

Select The Blank

In the shareholding pattern of a company, the promoter's holdingincludes________.Correct Answer Foreign Promoters

A current investment is an investment that is by nature :-Correct Answer Readily realisable , Intended to be held for not more than 1yearfrom the date on which investment is made

True/False Trade credit creates book debts which the firm is expected to collect in thenear future.Correct Answer True

True/False The chance of bankruptcy is small when the leverage of a firm is small.Correct Answer True


The financial managers of a company consume a great deal of their time inactivities like :-Correct Answer Monitoring the investment in inventories , Negotiating favourablecredit terms , Administrating Accounts receivables

True/False Appraisal value of a firm can be acquired from an independent appraisalagency.Correct Answer True

The following categories of personnel are taken into account to calculatethe actual manpower strength :-Correct Answer Full time equivalents , Temporary staff , Part time personnel


discretionary financingSelect The Blank There is a ________ relationship between the number of employees & the

use of operating supplies.Correct Answer Natural


Mechanisms- Performs or provides energy to an activity.

Inputs -Information or material used to produce the output of an activityControls -Information or material that constrains an activity.Outputs- Information or material produced by an activity.

Multiple Choice Single Answer Value added analysis :-Correct Answer Helps to identify potential activities that may be omittedimmediately

True/False Notes payable means the buyer signs a note that evidences a debt to theseller.Correct Answer True






Select The Blank The cost of facilities is usually included & distributed as________.Correct Answer Depreciation



While accounting for human assets, the following data is to beconsidered :-Correct Answer Full time equivalent staff , Revenues , Expenses



Multiple Choice Single Answer Conservative policy for determining the requirements of currentassets is also known as :-Correct Answer Flexible policy


True/False optimum cash balance under certainty i.e. Baumul`s modelallows the cash flow to fluctuate.Correct Answer False

Multiple Choice Single Answer open account credit appears on the buyer's balance sheet as :-

Correct Answer Accounts payable






True/False The statute governing an enterprise may provide the basis forcomputation of the depreciation.Correct Answer True

Select The Blank The clean up period is usually ________ months.Correct Answer 1 to 2 months

Multiple Choice Single Answer Any addition or extension to an existing asset which retains aseparate identify & is capable of being used after the existingasset is disposed of :-Correct Answer Is depreciated independently


Amount involved in buy backNot to exceed 25 % of the total paid up capital Authorize buy back of securitiesArticles of Association Authorize buy back of securities

The ratio of debt to total capital & free reserves should be 1 : 1Shares to be bought back Fully paid up

Multiple Choice Single Answer Acceptable audit requirements cannot be overlooked even underthe pressure of :-Correct Answer Timeliness & turnaround



Select The Blank Identify disclosure on human resources as a societal concern &prepare international regulations comes under ________Correct Answer The compulsory method

Walter's model on dividend relevance is based on the followingassumptions :-Correct Answer Internal financing , Constant return and cost of capital , 100 Percent payout or retention

Multiple Choice Single Answer When competition is high in the market, it is :-Correct Answer Essential to maintain a larger inventory of finished goodsMultiple Choice Single Answer A manufacturing concern like a machine tool has :-Correct Answer A long operating cycle

True/False Decisions related to working capital are repetitive & frequent.Correct Answer True

Select The Blank In many companies, there is no formal record of________.Correct Answer Investment in employees


Match The Following- Correct AnswerMortgage -Pertains to immovable properties

Lien -The bank has a right to retain the goods belonging to the company until thedebts due to the bank are paid

Hypothecation- A charge against property for an amount of debt

Pledge- Duty of the bank to take care of movable goods


Select The Blank Stock repurchases ________ the debt / equity ratio.Correct Answer IncreasesTrue/False Organisational changes are similar to mission changes.Correct Answer True

Multiple Choice Single Answer Where the management's estimate of the useful life of an assetof the enterprise is shorter than that envisaged under theprovisions of the relevant statute, the depreciation provision isapproximately computed :-Correct Answer By applying a higher rate


The support elements consists of important functions such as :-Correct Answer Payroll , Accounting , Automatic data processing

Multiple Choice Single Answer Cost benefit analysis is the simplest form of comparison betweenCorrect Answer Ideas to determine which is faster, better or cheaper



Select The Blank Credit standards should be relaxed upon the point whereincremental returns ________ incremental costs.Correct Answer Equals


True/False Dividends increase the current returns for shareholders.Correct Answer True

True/False When a company is able to assess an individual's worth, it helpsin increasing its own worth.Correct Answer True



Opportunity cost- An asset value when they are the target of an alternative use.

Exit cost- Lost efficiency prior to separation, Job vacancy cost during the new search & termination pay.

Historical costs- Sacrifice necessary to hire & train people

Substitution cost -Exit costs of the leaving employee & recruiting &training of the replacement

Multiple Choice Single Answer Book value is relevant to determine the firm's value because ofthe following reasons except:-Correct Answer It cannot be used as a starting point to be compared &complimented by other analysis






True/False Retained earnings are the most important internal sources offinancing the growth of the firm.Correct Answer True



The characteristics of working capital are :-Correct Answer It is continually required for a going concern , Quantum ofworking capital fluctuates depending on the level of activity , It isimpacted by numerous transactions on a continuous basis

Select The Blank Earning power of the company approach tries to value the________.Correct Answer Current value of the assets

As per AS 13 Statement, the following are not considered asinvestments:-Correct Answer Shares , Debentures , Other securities held as stock in trade

Operating economies of scale are achieved through the followingmergers :-Correct Answer Horizontal , Vertical , Conglomerate



True/False Management of working capital refers to the management oftotal assets and liabilities of a company.Correct Answer False

The important aspect of dividend policy is :-Correct Answer To determine the amount of earnings to be distributed toshareholders , Amount to be retained in the firm

The cost of an investment includes charges such as :-Correct Answer Brokerage , Fees , DutiesSelect The Blank Forfeiting is mostly used for ________.Correct Answer Big ticket items & durable goods

True/False

Planning helps an acquiring firm to identify the units it shoulddrop & it should add.Correct Answer True




Earning per share -Acquisition is considered to be a function of the impact of the merger on

Book value- Divide net worth by the number of equity shares outstanding

Appraisal value -Provides a list of the reasonableness of results obtained through methodsbase upon the going concern concept

Market value- Indicate the consensus of the investors




True/False According to NI Approach, decrease in leverage decreases the

overall cost of capital and increases the firm's value.Correct Answer False



Multiple Choice Single Answer One of the important assumptions for capital structure theories is:-Correct Answer Debt and equity are the 2 kinds of funds used by the firm


True/False The scope of the data required relates to the scope of the activitymodel & processes under review.Correct Answer True

Select The Blank The ________ cost tier has the advantage of being the simplestto calculate and justify.Correct Answer Direct







The main characteristics of CAPM are :-Correct Answer It is an equilibrium Model , It describes the pricing of assets aswell as derivatives , Expected security return = Riskless return +beta x (expected market risk premium)



Multiple Choice Single Answer The difference between current assets & current liabilities isknown as :-Correct Answer Net working capital




Strategic Finance - 8Multiple Choice Single Answer Any addition or extension to an existing asset which retains a separateidentify & is capable of being used after the existing asset is disposed of :-CorrectAnswer Is depreciated independently

True/False In market value approach, interested parties never manipulate the stockmarkets.Correct Answer False

For accounting standard (AS) 27, Significant influence may be gained byCorrect Answer Share ownership , Statute , Agreement

Multiple Choice Single Answer Accounts payable is also known as :-Correct Answer Trade credit from suppliers



Free cash flow theory- Enormous conflicts of interest between Stakeholders andshareholders .Net income approach- Cost of debt & equity do not change with a change in leverageratioNet operating income approach -The overall capitalization rate remains constant forall levels of financial leveragesModigliani - Miller -Theory weighted average cost of capital does not change with a-change in the proportion of debt to equity in the capital structure

Multiple Choice Single Answer Where the management's estimate of the useful life of an asset of theenterprise is shorter than that envisaged under the provisions of the relevant statute, thedepreciation provision is approximately computed :-Correct Answer By applying a higher rate


Select The Blank Segment expense includes ________.Correct Answer The relevant portion of enterprise revenue that can be allocated ona reasonable basis to a segment

Multiple Choice Single Answer The depreciable assets are assets which are expected to be used :-Correct Answer During more than 1 accounting period

True/False Arbitrage process implies that security cannot sell at different prices.CorrectAnswer True

Multiple Choice Single Answer Which is an example out of the following to which special considerationapply for depreciation :-Correct Answer Regenerative natural resources

True/False Baumul`s Model is similar to EOQ model in inventory management.Correct Answer True

Financial evaluation involves :-Correct Answer Determining the earnings , Areas of risk , Best way to finance amerger



Multiple Choice Single Answer Which of the following systems identifies each of the organizationalelements of the traditional bureaucratic structure and applies the identifiable costs of thatelement accordingly?Correct Answer Organization element accounting

The major conditions to be fulfilled for buyback of shares as per the legalprovisions include :-Correct Answer Articles of association should authorize buyback of shares , The

shares which are sought to be bought back should be fully paid up , After the buy backthe ratio of debt to total capital and free reserves should not be more than 2 : 1

True/False Determination of residual value of an asset is normally a difficult matter.Correct Answer True



True/False To `gather costs', means capturing all relevant expenses that pertain to theselected model and processes.Correct Answer True

Multiple Choice Single Answer When a company has resorted to buyback of its shares it cannot make afurther issue of the same kind of securities within a period of how many months?Correct Answer 6 months

Select The Blank At times managers invest in projects that improve the company's________.Correct Answer Prestige or power

It is the activity accountant's job to do the following for the existingorganisational structure :-Correct Answer To define the costs , To refine the costs , To document the costs






The characteristics of working capital are :-Correct Answer It is continually required for a going concern , Quantum ofworking capital fluctuates depending on the level of activity , It is impacted by numeroustransactions on a continuous basis


Multiple Choice Single Answer In the tender offer, the purchaser approaches :-Correct Answer The shareholder

To overcome the problems of matching data the actions can be taken asfollows :-Correct Answer Keep extensive records of the process , Maintain detailedprocedures , Keep records of assumptions as an audit trail

Select The Blank In the shareholding pattern of a company, the promoter's holdingincludes________.Correct Answer Foreign Promoters

A current investment is an investment that is by nature :-Correct Answer Readily realisable , Intended to be held for not more than 1yearfrom the date on which investment is made

True/False Trade credit creates book debts which the firm is expected to collect in thenear future.Correct Answer True

True/False

The chance of bankruptcy is small when the leverage of a firm is small.Correct Answer True


The financial managers of a company consume a great deal of their time inactivities like :-Correct Answer Monitoring the investment in inventories , Negotiating favourablecredit terms , Administrating Accounts receivables

True/False Appraisal value of a firm can be acquired from an independent appraisalagency.Correct Answer True

The following categories of personnel are taken into account to calculatethe actual manpower strength :-Correct Answer Full time equivalents , Temporary staff , Part time personnel


Select The Blank There is a ________ relationship between the number of employees & theuse of operating supplies.Correct Answer Natural


Mechanisms- Performs or provides energy to an activityInputs- Information or material used to produce the output of an activityControls -Information or material that constrains an activityOutputs- Information or material produced by an activity

Multiple Choice Single Answer Value added analysis :-Correct Answer Helps to identify potential activities that may be omittedimmediately

True/False

Notes payable means the buyer signs a note that evidences a debt to theseller.Correct Answer True

Strategic Finance -13Strategic Finance -13

The support elements consists of important functionssuch as :-Correct Answer Accounting , Automatic data processing , Payroll

Multiple Choice Single Answer The value of the asset does not include:-Correct Answer Price per share

Multiple Choice Single Answer The bottom line of ABC Process is :-Correct Answer To achieve a better method of doing the right businesspf the organisation


True/False Articles of association should authorise buy back ofsecurities as per the Company's Act.Correct Answer True

Multiple Choice Single Answer During Share repurchase, it is necessary to transfercertain sum to :-Correct Answer Capital redemption reserve Account

Multiple Choice Single Answer Comparative analysis is :-Correct Answer A review to ensure consistency within the activitymodel & process flow

Exit costs are classified into 3 categories namely :-Correct Answer Lost efficiency prior to separation , Job vacancy costduring the new search , Termination pay

As a general rule, an asset is :-Correct Answer A good or a right that a firm owns in a determinedmoment , Prepayment adjustments , Capitalizedexpenses


Select The Blank Credit standards should be relaxed upon the pointwhere incremental returns ________ incrementalcosts.Correct Answer Equals

True/False Usually cost data is perfect for ABC Analysis &distribution.Correct Answer False

True/False An activity model is a tool to assist in understanding &defining the organisation.Correct Answer True

The acquiring firm for any M & A will require dataabout the target firm which will include :-Correct Answer Quality of management , Production capabilities ,Profitability

Select The Blank ________ is not a example of segment liability.Correct Answer GoodwillMultiple Choice Single Answer The value based approach of HRA Tracking suggeststhat the value of human resources depends upon :-Correct Answer Capacity to generate revenue

Select The Blank ________ are considered most desirable fromshareholders point of view.Correct Answer Dividends

Shareholders returns consists of 2 components :-Correct Answer Dividend , Capital gains

Multiple Choice Single Answer In the book building method, the company makes anoffer to buy back :-Correct Answer Its specified number of shares at a specified offerprice range

A company is permitted to buy back its shares throughstock exchange in the following situations :-Correct Answer The company shall complete the verification ofacceptances within 15 days of the payout , Theidentity of the company as a purchaser shall appearon the electronic screen when the order is placed ,The buy back shall be made only on stock exchangeswith electronic trading facility

Multiple Choice Single Answer Research into true human resources accountingbegan in :-Correct Answer 1960`s

Select The Blank If firms have same technology ________ makes thedifference i.e. firms become more productive .Correct Answer Solid human resource team

True/False It is necessary to identify all costs that may be relatedto an acquisition.Correct Answer True

It is the activity accountant's job to do the following forthe existing organisational structure :-Correct Answer To define the costs , To refine the costs , Todocument the costs

Debt reduces :-Correct Answer Agency cost of free cash flow , Commitment to pay intime to all lenders , Freedom of decisions


Select The Blank If total external revenue attributable to reportablesegments constitutes less than ________ of the totalenterprise revenue additional segments should beidentified as reportable segments.Correct Answer 75 percent

A current investment is an investment that is by natureCorrect Answer Readily realisable , Intended to be held for not morethan 1year from the date on which investment is made

Select The Blank If the segment result of a segment includes interest ordividend income its segment assets will not include________.Correct Answer Payables

Multiple Choice Single Answer What is the maximum amount involved in the buyback of the total paid up capital & free reserves of thecompany?Correct Answer 0.25

Select The Blank Economies of scale arises with increase in volume ofproduction leading to________.Correct Answer Reduction in the cost of production


The important aspect of dividend policy is :-Correct Answer To determine the amount of earnings to be distributedto shareholders , Amount to be retained in the firm

True/False Baumul`s Model is similar to EOQ model in inventorymanagement.

Correct Answer True

True/False To `gather costs', means capturing all relevantexpenses that pertain to the selected model andprocesses.Correct Answer True

Multiple Choice Single Answer When the seller asks for the payment beforemakingthe delivery in order to avoid all risks it is known as :-Correct Answer Cash before delivery

True/False When a company is able to assess an individual'sworth, it helps in increasing its own worth.Correct Answer TrueMultiple Choice Single Answer The depreciation rates or the useful lives of the assetsare disclosed only :-Correct Answer If they are different from the principle rates specified inthe statute



True/False Money becomes less valuable when received at alatter stage instead of in present time.Correct Answer True

True/False Diversification helps in preserving a firm's reputation &goodwill.Correct Answer True

Multiple Choice Single Answer Decrease in leverage results in increasing the :-Correct Answer Overall cost of capital

The limitations of value of assets approach include :-Correct Answer Book value of the assets is directly dependent on theaccounting policies followed by the company , Thereare no standard procedures for valuation of intangibleassets , No importance to the market value of theasset

True/False The chance of bankruptcy is small when the leverageof a firm is small.Correct Answer True


True/False It is easy to find a risk free security.Correct Answer False

Multiple Choice Single Answer As per the study conducted by RBI, Current assetsconstitute :-Correct Answer More than 50 % of the total assets

The following categories of personnel are taken intoaccount to calculate the actual manpower strength :-Correct Answer Full time equivalents , Temporary staff , Part timepersonnel

Select The Blank Business risk & financial risk do not have anyinfluence on ________.Correct Answer Accounting numbers

The characteristics of working capital are :-Correct Answer It is continually required for a going concern ,Quantum of working capital fluctuates depending onthe level of activity , It is impacted by numeroustransactions on a continuous basis


If a firm diversifies managerial teams formed can beshifted from unproductive activities to productive oneswhich leads to :-Correct Answer Improved profitability , Continuity , Growth of the firm

Select The Blank Conglomerate mergers are also called ________.Correct Answer Concentric mergers

True/False The buyback shall be made only on stock exchangeswith electronic trading facility.Correct Answer True

True/False Appraisal value of a firm can be acquired from anindependent appraisal agency.Correct Answer True

True/False firms use credit policy as a marketing tool forexpanding sales.Correct Answer True

Multiple Choice Single Answer Tender offers are used primarily for :-Correct Answer Large Equity repurchases

Multiple Choice Single Answer Which is an example out of the following to whichspecial consideration apply for depreciation :-Correct Answer Regenerative natural resources

Multiple Choice Single Answer Which of the following is NOT A Characteristic ofdeclining firm :-Correct Answer The optimum payout ratio for a declining firm is not100 %

Multiple Choice Single Answer According to Net Income Approach, the average costof capital declines as the leverage ratio :-Correct Answer Increases

Personnel services expenses is made up of:-Correct Answer Personnel salaries , Cost of facilities , Training &development budgets

The employer in offering the job contract assumes arange of legal obligations such as :-Correct Answer Rewards - cash like & non cash like , Health & safetypolicies , Pensions & contributions to social securitypayments

Select The Blank Mature companies with stable earnings generally payout ________.Correct Answer A high proportion of earnings

Multiple Choice Single Answer Segment result represents :-Correct Answer Operating profit or loss


True/False Making decision on dividend is a very crucial area offinancial management for a firm.Correct Answer True


Mechanisms -Performs or providesenergy to an activity

Inputs -Information or material used to produce theoutput of an activity

Controls- Information or material that constrains anactivity

Outputs -Information or material produced by an activity

True/False

According to NI Approach, decrease in leveragedecreases the overall cost of capital and increases thefirm's value.Correct Answer False


Lien- The bank has a right to retain the goods belonging to thecompany until the debts due to the bank are paid

Hypothecation -A charge against property for an amount of debtPledge- Duty of the bank to take care of movable goods

Mortgage -Pertains to immovable properties


A normal firm shows the following characteristics :-Correct Answer No unique optimum payout ratio , Market value pershare unaffected by the payout ratio , All dividendpolicies are similar

Select The Blank Buy back through book building the process should bemade through ________.Correct Answer An electronically linked transparent facility


The 3 main types of accounting records followed byan organisation are :-Correct Answer Organisational accounting , Budgetary accounting ,Cost accounting

Select The Blank An asset is included in segment assets, if and only ifthe related depreciation or amortisation is included in

________.Correct Answer Segment expense

Select The Blank A company shall buyback its shares through the stockexchange by making a public announcement at least________ days prior to the commencement ofbuyback.Correct Answer Seven

Multiple Choice Single Answer Which of the following systems identifies each of theorganizational elements of the traditional bureaucraticstructure and applies the identifiable costs of thatelement accordingly?Correct Answer Organization element accounting


True/False Tender offers us an alternative approach to acquireanother firm.Correct Answer True


True/False Management of working capital refers to themanagement of total assets and liabilities of acompany.Correct Answer False

If a company is following multiple accounting system,the activity accountant will have to match data across:-Correct Answer Codes , Time periods , Systems

Multiple Choice Single Answer If competition is weak, a firm :-Correct Answer Can manage with a smaller inventory of finishedgoods

Select The Blank When a firm invests in human resources byacquisition & training, it anticipates a ________Correct Answer Future generation of profits & services

Select The Blank Horizontal mergers involves firms________.Correct Answer That operate & compete in a similar kind of business

Multiple Choice Single Answer The following of total cost of assets over its useful lifeis called depreciation :-Correct Answer Distribution

The different types of floats are :-Correct Answer Postal float , Deposit float , Bank float

Select The Blank Segment expense includes ________.Correct Answer The relevant portion of enterprise revenue that can beallocated on a reasonable basis to a segment

Due to diversification employees seek:-Correct Answer Job security , Better opportunities within the firm ,Higher compensation

True/False Short term financing is meant for funding workingcapital of a company.Correct Answer True

Multiple Choice Single Answer Deferred payment plan is also known as:-Correct Answer Earn out plan

Multiple Choice Single Answer Estimation for determining the useful life of an asset isrequired :-Correct Answer On some reasonable basis


Multiple Choice Single Answer The Buy back of shares shall not be made fromCorrect Answer The promoters or persons in control of the company

Operating economies of scale are achieved throughthe following mergers :-Correct Answer Horizontal , Vertical , Conglomerate


Select The Blank Capital gains are taxed at ________.Correct Answer Preferentially lower rate

Select The Blank Forward or backward integration is a characteristic of________.Correct Answer Vertical Mergers

True/False Valuation of current investments on overall basis isnot considered appropriate.Correct Answer True

The main categories of organisational elements are :-Correct Answer Managerial , Support , Operational

Multiple Choice Single Answer A firm can manage with small inventory if the supply is:-Correct Answer Prompt & adequate

Accounting standard 19 for leases statement isapplied in accounting for all leases other than :-Correct Answer Lease agreements to explore for or use naturalresources , Licensing agreements for items such asmotion picture films , Lease agreements to use land

Multiple Choice Single Answer Equity includes :-Correct Answer Development Rebate Reserve

Select The Blank ________ is not a example of segment asset.Correct Answer Customer advances

Multiple Choice Single Answer Book value is relevant to determine the firm's valuebecause of the following reasons except:-Correct Answer It cannot be used as a starting point to be compared &complimented by other analysis

Multiple Choice Single Answer As per Pecking order theory, which is the costliestmeans of funding :-Correct Answer Equity Shares


The net income approach is based on following 3assumptions :-Correct Answer There are no taxes , Cost of debt is less than equitycapitalization rate , Use of debt doesn't change therisk perception of investors

True/False Receivables constitutes a substantial portion ofcurrent assets of several firms.Correct Answer True

True/False Decisions related to working capital are repetitive &frequent.Correct Answer True

Multiple Choice Single Answer One of the important assumptions for capital structuretheories is :-Correct Answer Debt and equity are the 2 kinds of funds used by thefirm

Select The Blank Liquidation value is also known as ________.Correct Answer Realizable value

True/False It is possible to place a single value for the acquiredfirm.Correct Answer False

Implicit claims are non written promises and rightssuch as :-Correct Answer Right to provide service to customers , Job security forthe employees

Select The Blank According to Altman (1984) total costs in percentageof the market value of a firm range between ________Correct Answer 12.1 % & 16.7 %


Availability of funds inthe marketCost of funds depends on this factorFlexibility -The extent & the ease with which the fundscan be raised & paid back are very important

Time- Takes less time to take an overdraft from thebankCreditworthiness of the If a company has a issuer- good creditworthinessit is not difficult to raise short term funds

A firm with a judicious mixture of debt and equity willhave :-Correct Answer Lowest cost of capital , High value of firm , Goodmarket reputation

Select The Blank Implicit & Explicit costs are included in the ________.Correct Answer Price of a product


Diversification -Growth through thecombination of firms in unrelated fields of business

Horizontal mergers 2 -Firms operate & compete in a similar kind of business

Vertical mergers -Firms in different stages of production

Conglomerate mergers- Different or unrelatedbusiness activity

The main characteristics of operating economies are :-Correct Answer It is achieved through horizontal, vertical andconglomerate mergers , It occurs due to indivisibilitiesof resources , It is possible in generic managementfunctions

Multiple Choice Single Answer The following analysis is more targeted on similaractivities or firms that exist in parallel within the activitymodel or process flow to ensure that they are beingdone the same best way :-Correct Answer Comparative analysis

Every business requires funds on a continual basis forexpenses incurred on for :-Correct Answer Purchase of raw material , Manufacturing costs ,Administration

True/False There are few methods of allocating depreciation overthe useful life of an assets.Correct Answer False

Multiple Choice Single Answer For paying dividends, firms will have a given amountof :-

Correct Answer Cash available

Financial evaluation involves :-Correct Answer Determining the earnings , Areas of risk , Best way tofinance a merger

True/False A single organisation model serves to keep allindividual initiatives to be targeted into a co-ordinatedplan.Correct Answer True

True/False The objective of a dividend policy should be tomaximize shareholder's return so that the value of hisinvestment is maximized.Correct Answer False

Select The Blank HLL is ________ % of subsidiary of Unilever PLC.Correct Answer 0.516

Multiple Choice Single Answer In a matching approach policy, :-Correct Answer There is a small risk if shortage of funds

Select The Blank In case of direct placement of commercial papers itmay be issued for maturities ________ from the dateof issue.Correct Answer Between 15 days to 1 year

Select The Blank ________ is not a characteristic of financialconglomerates.Correct Answer Provide ineffective competitive process

Multiple Choice Single Answer Controlling block is usually acquired from:-Correct Answer A single seller

A firm using a conservative policy for determining therequirements of current assets :-Correct Answer Has fewer production stoppages , Ensures quick

deliveries to customers , Stimulates sales

True/False Only firms with a large amount of financial slack canafford tender offers.Correct Answer True

Changes in the investee`s equity includes those :-Correct Answer Arising from the revaluation of fixed assets , Fromforeign exchange translation differences , From theadjustment of differences arising on amalgamation

True/False Value based approach of HRA tracking can be dividedinto 2 categories - Non - monetary & monetary.Correct Answer True

Multiple Choice Single Answer Depreciation includes amortization of assets whoseuseful life is :-Correct Answer Predetermined

True/False Human assets accounting is still to become anaccepted trend in the industry.Correct Answer True

Multiple Choice Single Answer Value implies that something has :-Correct Answer Worth

Long term financing strategy is used by a firm to meet

Correct Answer Fixed assets requirements , Permanent workingcapital requirements , Portion of fluctuating workingcapital requirement


1 Decrease in leverage results in increasing the :-Correct Answer Overall cost of capital

2 Value implies that something has :-Correct Answer Worth

3 Organisational changes are similar to mission changes.Correct Answer True

4 In value of assets method the following is also to be included as they are also of valueto the company :-Correct Answer Non trading assets

5 In the reproduction value method of valuation, the value of assets is taken to be on thebasis of ________Correct Answer Replacement cost

6 Diversification helps in preserving a firm's reputation & goodwill.Correct Answer True

7 Normally the basis for identifying an enterprise segments are :-Correct Answer The organizational structure of an enterprise

8 Investments having no physical existence includes :-Correct Answer Shares , Debentures , Bonds

9 The 3 groups of participants in a firm are :-Correct Answer Suppliers of equity , Debt suppliers , Firm Managers

11 A good accounting system does NOT have the characteristics such as :-Correct Answer Does not cover decisions over the life cycle

12 The direct costs tier normally only includes the following :-Correct Answer The personnel payroll , Supplies , Individual rental equipment

13 ________ are not diversible.Correct Answer Market related risks

14 The important aspect of dividend policy is :-Correct Answer To determine the amount of earnings to be distributed to shareholders ,Amount to be retained in the firm

15 A company is prohibited to buy back its own shares in the following circumstances :-Correct Answer Through any subsidiary company , Through any investment company , If acompany defaults in repayment of deposits or interest due thereon

16 The main theories behind share repurchases are :-Correct Answer Dividend or personal taxation hypothesis , Leverage hypothesis , Informationor signalling hypothesis

17 A change in the method of depreciation is treated as a change in an accounting policyand is disclosed accordingly.Correct Answer True

18 The main characteristics of CAPM are :-Correct Answer It is an equilibrium Model , It describes the pricing of assets as well asderivatives , Expected security return = Riskless return + beta x (expected market risk premium)

19 Segment result is segment revenue less segment expenses.Correct Answer True

20 To `gather costs', means capturing all relevant expenses that pertain to the selectedmodel and processes.Correct Answer True

21 The resource theory considers that the competitive position of a firm depends on its________ Assets.Correct Answer Specific

22 Segment revenue includes ________.Correct Answer Revenue from transactions with other segments of the enterprise

23 Deferred payment plan is also known as:-Correct Answer Earn out plan

24 The statute governing an enterprise may provide the basis for computation of thedepreciation.Correct Answer True

25 The final selection of the method of shares valuation depends upon ________.Correct Answer The purpose for which valuation is being done.

26 In a merger decision, the value of a firm depends upon:-Correct Answer Earnings , Operating characteristics of acquiring firm , Financialcharacteristics of acquiring firm

27 In an aggressive approach :-Correct Answer There is a very large risk of shortage of funds

29 Significant influence is the power to :-Correct Answer Participate in the financial decisions , Participate in the operating policydecisions

30 The costs should be gathered & allocated within the organisation at the ________structural layer.Correct Answer Lowest possible

31 A single organisation model serves to keep all individual initiatives to be targeted intoa co-ordinated plan.Correct Answer True

32 During the costing process, we look at ________.Correct Answer Resource consumption

33 Money becomes less valuable when received at a latter stage instead of in presenttime.Correct Answer True

34 The external staffing performance indicators include :-Correct Answer Compensation per Re. Profit , Personnel services head count , Profit per head

35 The Management of the Company may enter into a negotiated purchase, which isreferred to as :-Correct Answer Greenfield

36 One of the selective developments that has taken place in recent times is companiesare going in for :-Correct Answer Activity based costing and management

37 ________ is not a characteristic of financial conglomerates.Correct Answer Provide ineffective competitive process

38 An investment property is an investment in land or buildings :-Correct Answer Not intended to be occupied substantially for use by investing enterprise , Notintended to be in the operations of the investing enterprise

39 Notes payable means the buyer signs a note that evidences a debt to the seller.Correct Answer True

40 Business risk & financial risk do not have any influence on ________.

Correct Answer Accounting numbers

41 During Share repurchase, it is necessary to transfer certain sum to :-Correct Answer Capital redemption reserve Account

42 The main assumptions for stock repurchase models are as follows :-Correct Answer The market is efficient , There is perfect competition in the securities market

43 Cash dividends are taxable at ordinary tax rates.Correct Answer True

44 When a firm invests in human resources by acquisition & training, it anticipates a________Correct Answer Future generation of profits & services

45 The amount to be invested by any single investor in a commercial paper shall not beless than Rs. ________.Correct Answer 25 lacs

46 Tender offers are used primarily for :-Correct Answer Large Equity repurchases

47 Many companies claim their main assets are their :-Correct Answer People

Strategic Finance - 15 1 If a company is following multiple accounting system, the activity accountant willhave to match data acrossCorrect Answer Codes , Time periods , Systems

2 Combination of 2 or more companies into existing company is called ________.Correct Answer Absorption

4 For M & As, the acquiring firm needs industry data on :-Correct Answer Market growth , Nature of competition , Degree of regulation

5 A high payout policy on dividends implies :-Correct Answer More current dividends , Less retained earnings

6 HLL the largest FMCG company has a turnover of Rs. ________.Correct Answer 118 Bn

7 The scope of the data required relates to the scope of the activity model & processesunder review.Correct Answer True

8 The total cost of the activitymodel allocated by the applied activity drivers to theoutput of the activity model is called________.Correct Answer The cost of the output

9 The voluntary market based method means :-Correct Answer Develop a consistent framework which can be operational across sectors andcountries

10 Exit costs are classified into 3 categories namely :-Correct Answer Lost efficiency prior to separation , Job vacancy cost during the new search ,Termination pay

11 The offer price by the acquiring company should be an average of the weekly high &low for :-Correct Answer The last 26 months

12 One of the advantages of trade credit is its flexibility i.e. the firm does not :-Correct Answer Have to sign a note , Pledge collateral , Adhere to strict payment schedule

13 A firm with a judicious mixture of debt and equity will have :-Correct Answer Lowest cost of capital , High value of firm , Good market reputation

14 The acquirer should intimate to the target company & the concerned stock exchangesas soon as its holding touches :-Correct Answer 5 % of the voting capital of the target company

15 What is a very important factor in any kind of merger?Correct Answer Exchange ratio

16 For determining exchange ratio, the model developed by Conn & Nielson is used.Correct Answer True

17 As per Pecking order theory, which is the costliest means of funding :-Correct Answer Equity Shares

19 Capital gains are taxed at ________.Correct Answer Preferentially lower rate 20 Articles of association should authorise buy back of securities as per the Company'sAct.Correct Answer True

21 In today's fast moving world, the quickest way to get information on a firm is through

________.Correct Answer Internet

22 Suppliers of equity are interested in :-Correct Answer High share prices

23 The buyback shall be made only on stock exchanges with electronic trading facility.Correct Answer True

24 Accounting standard 19 for leases statement is applied in accounting for all leasesother than :-Correct Answer Lease agreements to explore for or use natural resources , Licensingagreements for items such as motion picture films , Lease agreements to use land

25 Odd lots purchase is not a method of buy back of shares.Correct Answer False

26 Segment liabilities do not include :-Correct Answer Borrowings & other liabilities that are incurred for financing rather thanoperating purpose

27 Economic analysis usually covers :-Correct Answer A small number of improvement alternatives

28 A firm using a conservative policy for determining the requirements of current assets:-Correct Answer Has fewer production stoppages , Ensures quick deliveries to customers ,Stimulates sales

29 Forfeiting is mostly used for ________.Correct Answer Big ticket items & durable goods

30 The objective of a dividend policy should be to maximize shareholder's return so thatthe value of his investment is maximized.Correct Answer False

31 firms use credit policy as a marketing tool for expanding sales.Correct Answer True

32 Mature companies with stable earnings generally pay out ________.Correct Answer A high proportion of earnings

33 As per AS 13 Statement, the following are not considered as investments:-Correct Answer Shares , Debentures , Other securities held as stock in trade

34 Accounting numbers are not influenced by :-Correct Answer Dividend policy , Time span of money , Financial and business risk

35 ________ Assets in the balance sheet are normally excluded from the value of totalassets.Correct Answer Intangible

36 The development aspect of training in firms focus on :-Correct Answer Promotion to higher job levels

37 work in progress means the inventories are semi manufactured products.Correct Answer True

38 A company is permitted to buy back its shares through stock exchange in thefollowing situations :-Correct Answer The company shall complete the verification of acceptances within 15 days ofthe payout , The identity of the company as a purchaser shall appear on the electronic screen whenthe order is placed , The buy back shall be made only on stock exchanges with electronic tradingfacility

39 Current accounting system is able to provide actual value of employee capabilities &knowledge.Correct Answer False

40 The ________ cost tier has the advantage of being the simplest to calculate andjustify.Correct Answer Direct

41 Operating economies occur due to indivisibilities of resources like :-Correct Answer People , Equipment , Overheads

42 ________ is a variable expense that can be readily eliminated with organisationalchanges.Correct Answer Rental equipment

43 The HHI index reflects :-Correct Answer Inequality & degree of concentration

44 ________ is never a part of the output.Correct Answer Mechanisms

45 It is essential that ABC must fit into the strategy of the company.

Correct Answer True

46 In a matching approach policy, :-Correct Answer There is a small risk if shortage of funds

47 Which is an example out of the following to which special consideration apply fordepreciation :-Correct Answer Regenerative natural resources


A firm using a conservative policy for determining the requirements ofcurrent assets :-Correct Answer Has fewer production stoppages , Ensures quick deliveries tocustomers , Stimulates sales

The main theories behind share repurchases are :-Correct Answer Dividend or personal taxation hypothesis , Leverage hypothesis ,Information or signalling hypothesis

Multiple Choice Single Answer In respect of depreciable assets, which do not have material value,depreciation is often allocated :-Correct Answer Fully in the accounting period for which they are acquired

Multiple Choice Single Answer What is the maximum amount involved in the buy back of the totalpaid up capital & free reserves of the company?Correct Answer 0.25

True/False Tender offers us an alternative approach to acquire another firm.Correct Answer True

Multiple Choice Single Answer Cost benefit analysis is the simplest form of comparison between :-Correct Answer Ideas to determine which is faster, better or cheaper

For ABC Analysis the available cost data :-Correct Answer Has to be adjusted for change , Has to be corrected forundocumented element costs , Has to be combined with differenttypes of data from alternate sources


Today knowledge has become a key determinant for :-Correct Answer Economic & business success


Multiple Choice Single Answer A firm can manage with small inventory if the supply is :-Correct Answer Prompt & adequate

Operating economies occur due to indivisibilities of resources like :-Correct Answer People , Equipment , Overheads

Select The Blank If firms have same technology ________ makes the difference i.e.firms become more productive .Correct Answer Solid human resource team


True/False There are few methods of allocating depreciation over the useful lifeof an assets.Correct Answer False

True/False Cash dividends are taxable at ordinary tax rates.Correct Answer True

Financial statements classify the following into separate categories :-Correct Answer Fixed assets , Investments , Current assets



Information or signaling hypothesis-Management believes that the common stock of the company is undervalued

Dividend or PersonalTaxation Hypothesis-Cash dividends are taxableat ordinary tax rates

Leverage hypothesis -Stock repurchases increases the debt / equity ratio

Wealth transfer among shareholders-The largest portion of wealth effect goes to thenon – tendering shareholders




True/False Diversification helps in preserving a firm's reputation & goodwill.Correct Answer True

True/False If a company has resorted to buyback its shares, it cannot make afurther issue of the same kind of securities within a period of 1 year.Correct Answer False

Select The Blank The clean up period is usually ________ months.Correct Answer 1 to 2 months

Multiple Choice Single Answer The bottom line of ABC Process is :-Correct Answer To achieve a better method of doing the right business pf theorganisation

Select The Blank If a segment is not designated as a ________ it should be includedas an unallocated reconciling item.Correct Answer Reportable segment


If a particular item of depreciation or amortisation is included insegment expense, the related asset is included in :-Correct Answer Segment assets

True/False The intellectual assets of a company are often worth 3 or 4 times thetangible book value.Correct Answer True

True/False Segment result is segment revenue less segment expenses.Correct Answer True


True/False Book value is based on the balance sheet value of owner's equity.Correct Answer True

The overhead expenses include :-Correct Answer Utilities , Maintenance , Security

Match The Following- Correct AnswerAmount involved in buy back-Not to exceed 25 % of the total paid up capital

Articles of Association -Authorize buy back of securitiesThe ratio of debt to total capital & free reserves should be 1 : 1Board of Directors Resolution permitting the buy back of shares

True/False It is necessary to identify all costs that may be related to anacquisition.Correct Answer True

True/False Notes payable means the buyer signs a note that evidences a debt tothe seller.Correct Answer True

Select The Blank ________ know the best about a firm's performance.Correct Answer Firm Managers

Multiple Choice Single Answer The FEA Tools encompass a vast array of information & policy into :-Correct Answer One evaluation

The employer in offering the job contract assumes a range of legalobligations such as :-Correct Answer Rewards - cash like & non cash like , Health & safety policies ,Pensions & contributions to social security payments

Select The Blank Business risk & financial risk do not have any influence on ________.Correct Answer Accounting numbers

A current investment is an investment that is by nature :-Correct Answer Readily realisable , Intended to be held for not more than 1year fromthe date on which investment is made

Multiple Choice Single Answer The depreciation rates or the useful lives of the assets are disclosedonly :-Correct Answer If they are different from the principle rates specified in the statute

The net income approach is based on following 3 assumptions :-Correct Answer There are no taxes , Cost of debt is less than equity capitalizationrate , Use of debt doesn't change the risk perception of investors

Select The Blank In case of direct placement of commercial papers it may be issued formaturities ________ from the date of issue.Correct Answer Between 15 days to 1 year


Select The Blank ________ government has made it mandatory to include in theirannual reports information on customers, processes & human capital.

Correct Answer Danish (Denmark)

Select The Blank ________ are those operating assets that are employed by asegment in its operating activities.Correct Answer Segment assets



Walter's model on dividend relevance is based on the following assumptions :-Correct Answer 100 Per cent payout or retention , Internal financing , Constant return and cost ofcapital

A firm with a judicious mixture of debt and equity will have :-Correct Answer Lowest cost of capital , High value of firm , Good market reputation

Investment are the assets held for earning income by way of :-Correct Answer Dividend , Interest , Rentals

An activity model is a tool to assist in understanding & defining the organisation.Correct Answer True

The most popular kind of dividend policy is one that pays a ________.Correct Answer Regular, steady dividend

Assets held as stock - in - trade are also investments.Correct Answer False

As per Pecking order theory, which is the costliest means of funding :-Correct Answer Equity Shares

In the past, costing mainly focused on :-CorrectAnswer Manufacturing costs

Articles of association should authorise buy back of securities as per the Company's Act.Correct Answer True

Opportunity costs and real costs decrease the market value of a firm.Correct Answer True

Increase in cost of capital means decrease in ________.Correct Answer Profitability According to NI Approach, decrease in leverage decreases the overall cost of capital andincreases the firm's value.Correct Answer False

Short term sources of funds include :-Correct Answer Current Liabilities

A high payout policy means :-Correct Answer More current dividends

Baumul`s Model is similar to EOQ model in inventory management.Correct Answer True

One of the bases for determining the residual value of similar assets is :-Correct Answer Realizable value

Investment decisions are mainly concerned with :-Correct Answer Assets

current liabilities arise in the context of :-Correct Answer Current assets

A high payout policy on dividends implies :-Correct Answer More current dividends , Less retained earnings

In the stock repurchase model one of the main assumption is that ________.Correct Answer The market is efficient

Normally the basis for identifying an enterprise segments are :-Correct Answer The organizational structure of an enterprise

If a firm diversifies managerial teams formed can be shifted from unproductive activitiesto productive ones which leads to :-Correct Answer Improved profitability , Continuity , Growth of the firm

Capital gains are taxed at ________.Correct Answer Preferentially lower rate

AS 13 Accounting for investments - Accounting standard comes into effect for financialstatements covering periods commencing on or after ________.Correct Answer `April 1, 1995

Comparative analysis is :-Correct Answer A review to ensure consistency within the activity model & process flow

The depreciation rates or the useful lives of the assets are disclosed only :-Correct Answer If they are different from the principle rates specified in the statute

When a firm invests in human resources by acquisition & training, it anticipates a________Correct Answer Future generation of profits & services

________ is never a part of the output.Correct Answer Mechanisms

It is essential that ABC must fit into the strategy of the company.Correct Answer True


For accounting standard (AS) 27, Significant influence may be gained by :-Correct Answer Share ownership , Statute , Agreement

Postage is an example of ________ cost.Correct Answer Non traceable costAS 4 Contingencies & events occurring after the balance sheet dateAS 13 Accounting for investments Accounting for investmentsAS 23 Accounting for investments in associates in consolidated financial statements Accounting forinvestments in associates in consolidated financial statementsAS 21 Consolidated financial statements Consolidated financial statements

The value based approach of HRA Tracking suggests that the value of human resourcesdepends upon :-Correct Answer Capacity to generate revenue

Shortcomings of accounting numbers consist of the following :-Correct Answer Firms use different kind of accounting methods , Business risk and financial riskdo not have any influence on accounting numbersExit cost Lost efficiency prior to separation, Job vacancy cost during the new search & terminationpay. Lost efficiency prior to separation, Job vacancy cost during the new search & termination pay.Historical costs Sacrifice necessary to hire & train people Sacrifice necessary to hire & train people

Substitution cost Exit costs of the leaving employee & recruiting & training of the replacement Exitcosts of the leaving employee & recruiting & training of the replacementOpportunity cost An asset value when they are the target of an alternative use. An asset value whenthey are the target of an alternative use.

It is necessary to identify all costs that may be related to an acquisition.Correct Answer True

Cost benefit analysis is the simplest form of comparison between :-Correct Answer Ideas to determine which is faster, better or cheaper

Modigliani - Miller Theoram is based on :-Correct Answer Perfect Capital Markets

In today's fast moving world, the quickest way to get information on a firm is through________.Correct Answer Internet

Determination of residual value of an asset is normally a difficult matter.Correct Answer True

The scope of the data required relates to the scope of the activity model & processesunder review.Correct Answer True


In case of direct placement of commercial papers it may be issued for maturities________ from the date of issue.Correct Answer Between 15 days to 1 year

AS 13 Does not deal with :-Correct Answer The bases for recognition of interest, dividends & rentals earned on investments ,Operating or finance leases , Investment in mutual funds

Debt reduces :-Correct Answer Agency cost of free cash flow , Commitment to pay in time to all lenders ,Freedom of decisions

It is the activity accountant's job to do the following for the existing organisationalstructure :-

Correct Answer To define the costs , To refine the costs , To document the costsStrategic Finance - 18 Book value of the assets is directly dependent on the accounting policies followed by thecompany which is used in the following areas :-Correct Answer Inventory valuation , Booking depreciation , Methods of provisions

Segment expense includes ________.Correct Answer The relevant portion of enterprise revenue that can be allocated on a reasonablebasis to a segment

During the costing process, we look at ________.Correct Answer Resource consumption

Long term cash forecasting is generally for a period of ________ years.Correct Answer 3 to 5 years

Decisions related to working capital are repetitive & frequent.Correct Answer True

Share repurchase a form of restructuring comes under :-Correct Answer Changes in ownership structure Explicit cost and implicit cost are the two parts of cost of debt.Correct Answer True

The limitations of value of assets approach include :-Correct Answer Book value of the assets is directly dependent on the accounting policies followedby the company , There are no standard procedures for valuation of intangible assets , No importanceto the market value of the asset

As a general rule, an asset is :-Correct Answer A good or a right that a firm owns in a determined moment , Prepaymentadjustments , Capitalized expenses

In many companies, there is no formal record of________.Correct Answer Investment in employees

In a merger decision, the value of a firm depends upon:-Correct Answer Earnings , Operating characteristics of acquiring firm , Financial characteristics ofacquiring firm

The 3 main types of accounting records followed by an organisation are :-Correct Answer Organisational accounting , Budgetary accounting , Cost accounting

Cost of ________ is more than other sources for raising short - term finance.Correct Answer Bank finance

Operating economies of scale are achieved through the following mergers :-Correct Answer Horizontal , Vertical , Conglomerate

The main assumption in comparative analysis is the possibility of :-Correct Answer Combination or co-location of similar functions

If the segment result of a segment includes interest or dividend income its segmentassets will not include ________.Correct Answer Payables

According to Net Income Approach, the average cost of capital declines as the leverageratio :-Correct Answer Increases

Equity includes :-Correct Answer Development Rebate Reserve

Long term financing strategy is used by a firm to meet :-Correct Answer Fixed assets requirements , Permanent working capital requirements , Portion offluctuating working capital requirement

The employer in offering the job contract assumes a range of legal obligations such as :-Correct Answer Rewards - cash like & non cash like , Health & safety policies , Pensions &contributions to social security paymentsSegment liabilities Enterprise liabilities Enterprise liabilitiesSegment revenue Enterprise revenue Enterprise revenueSegment result Enterprise net profit or loss Enterprise net profit or lossSegment assets Enterprise assets Enterprise assets

Organisational changes are similar to mission changes.Correct Answer True

The number of bidding centers shall not be less than ________ for buy back throughbook building.Correct Answer 30Segment liabilities Do not include borrowings that are incurred for financing purposes

Does notinclude extra ordinary itemsSegment revenue Does not include extra ordinary items The qualitative characteristics include therelevanceSegment expenses Does not include income tax expenses Determined after intra - enterprisebalances are eliminatedSegment assets Do not include income tax assets Do not include income tax assets

Total risk reduces if operations of combining firms are ________.Correct Answer Negatively correlated

In the reproduction value method of valuation, the value of assets is taken to be on thebasis of ________Correct Answer Replacement cost

A good accounting system does NOT have the characteristics such as :-Correct Answer Does not cover decisions over the life cycle

The ________ cost tier has the advantage of being the simplest to calculate and justify.Correct Answer Direct

In today's world, knowledge has become the key determinant for economic & businesssuccess.Correct Answer True

Management of working capital refers to the management of total assets and liabilities ofa company.Correct Answer False

optimum cash balance under certainty i.e. Baumul`s model allows the cash flow tofluctuate.Correct Answer False

A company under siege may look for support & help from its :-Correct Answer Friends

If the segment result of a segment includes interest expense its segment liabilitiesinclude :-Correct Answer The related interest bearing liabilities

To overcome the problems of matching data the actions can be taken as follows :-Correct Answer Keep extensive records of the process , Maintain detailed procedures , Keep

records of assumptions as an audit trail

A firm using a conservative policy for determining the requirements of current assets :-Correct Answer Has fewer production stoppages , Ensures quick deliveries to customers ,Stimulates sales

The following Act contains the provisions permitting the companies to buy back theirshares :-Correct Answer Companies (Amendment) Act, 1999

Shortage costs are mainly in the form of :-Correct Answer Disruption in production schedule , Loss of sales , Loss of customer goodwill

open account credit appears on the buyer's balance sheet as :-Correct Answer Accounts payable

Business risk & financial risk do not have any influence on ________.Correct Answer Accounting numbers

When a company is able to assess an individual's worth, it helps in increasing its ownworth.Correct Answer True

Which of the following is NOT a disadvantage of deferred payment plan to the acquiringfirm?Correct Answer There is built - in cushion to the acquiring firm as total payment is not made atthe time of acquisition


Often a company borrows loans / debts by giving the following as a security :-Correct Answer Shares

A long term investment is an investment other than a current investment.Correct Answer True

Valuation of current investments on overall basis is not considered appropriate.Correct Answer True

If a particular item of depreciation or amortisation is included in segment expense, therelated asset is included in :-Correct Answer Segment assets

Segment result is segment revenue less segment expenses.Correct Answer TrueStrategic Finance - 17 1 The accounting records serve as the major source of cost data.Correct Answer True

2 ________ know the best about a firm's performance.Correct Answer Firm Managers

3 A merger will make sense to the acquiring firm if its shareholders benefit.Correct Answer True

4 The important steps involved in the analysis of mergers & acquisitions are:-Correct Answer Planning , Searching & screening , Financial evaluation

5 Developing a consistent framework supported by rewarding mechanisms once it isintroduced & approved at enterprise level is a characteristic of :-Correct Answer The investing in people method in the united kingdom

6 Dividends increase the current returns for shareholders.Correct Answer True

7 Internal financing means the firm finances all investments through :-Correct Answer Retained earnings

8 In a friendly takeover, the acquiring firm makes a financial proposal to the largestfirm's ________.Correct Answer Management & board

10 Long term financing strategy is used by a firm to meet :-Correct Answer Fixed assets requirements , Permanent working capital requirements , Portionof fluctuating working capital requirement

11 Explicit cost and implicit cost are the two parts of cost of debt.Correct Answer True

12 AS 13 Does not deal with :-Correct Answer The bases for recognition of interest, dividends & rentals earned oninvestments , Operating or finance leases , Investment in mutual funds

13 the amount of working capital required to meet long term, minimum needs is called :-Correct Answer Permanent working capital

14 A long term investment is an investment other than a current investment.Correct Answer True

15 Short term financing is meant for funding working capital of a company.Correct Answer True

16 Share repurchase a form of restructuring comes under :-Correct Answer Changes in ownership structure

17 Retained earnings are the most important internal sources of financing the growth ofthe firm.Correct Answer True

18 Receivables constitutes a substantial portion of current assets of several firms.Correct Answer True

19 Investment are the assets held for earning income by way of :-Correct Answer Dividend , Interest , Rentals

20 Personnel services expenses is made up of:-Correct Answer Personnel salaries , Cost of facilities , Training & development budgets

21 In many companies, there is no formal record of________.Correct Answer Investment in employees

22 Value added analysis is a method to determine, if elements within a process flowprovide the :-Correct Answer Values

24 The Buy back of shares shall not be made fromCorrect Answer The promoters or persons in control of the company

25 traditionally avails are provided by ________.Correct Answer Banks

26 ________ is not a example of segment liability.Correct Answer Goodwill

27 Examples of accrued expenses are :-Correct Answer Wages , Income tax , Property tax

28 Liquidation value is also known as ________.Correct Answer Realizable value

29 Indicators of the value of an investment are obtained by :-Correct Answer Reference to its market value , The investee`s assets , The expected

cash flowsfrom the investment

30 The major conditions to be fulfilled for buyback of shares as per the legal provisionsinclude :-Correct Answer Articles of association should authorize buyback of shares , The shares whichare sought to be bought back should be fully paid up , After the buy back the ratio of debt to totalcapital and free reserves should not be more than 2 : 1

31 optimum cash balance under certainty i.e. Baumul`s model allows the cash flow tofluctuate.Correct Answer False

32 Cost accounted for per activity is classified under ________.Correct Answer Traceable cost

33 The following categories of personnel are taken into account to calculate the actualmanpower strength :-Correct Answer Full time equivalents , Temporary staff , Part time personnel

34 The cost of facilities is usually included & distributed as ________.Correct Answer Depreciation

35 In value of assets approach the value of which of the following should be deducted tocalculate the net assets available to the equity shareholders :-Correct Answer Outstanding preference shares

36 usually the `controlling block' tends to be between :-Correct Answer 20 & 40 percent

37 When competition is high in the market, it is :-Correct Answer Essential to maintain a larger inventory of finished goods

38 Segment expense includes ________.Correct Answer The relevant portion of enterprise revenue that can be allocated on areasonable basis to a segment

39 Credit standards should be relaxed upon the point where incremental returns________ incremental costs.Correct Answer Equals

40 Management of working capital refers to the management of total assets andliabilities of a company.

Correct Answer False

41 The employer in offering the job contract assumes a range of legal obligations such asCorrect Answer Rewards - cash like & non cash like , Health & safety policies , Pensions &contributions to social security payments

42 The most important internal sources of financing the growth of the firm is through :-Correct Answer Retained earnings

43 When a change in the method of depreciation is made :-Correct Answer Depreciation is recalculated in accordance with the new method

44 Shortcomings of accounting numbers consist of the following :-Correct Answer Firms use different kind of accounting methods , Business risk and financialrisk do not have any influence on accounting numbers

45 Profitability of a company depends upon :-Correct Answer Cost of capital

46 A normal firm shows the following characteristics :-Correct Answer No unique optimum payout ratio , Market value per share unaffected by thepayout ratio , All dividend policies are similar

47 As per residual theory of dividends the focus is on ________.Correct Answer Growth

Strategic Finance - 19 Walter's model on dividend relevance is based on the following assumptions :-Correct Answer 100 Per cent payout or retention , Internal financing , Constant return and cost ofcapital

A firm with a judicious mixture of debt and equity will have :-Correct Answer Lowest cost of capital , High value of firm , Good market reputation

Investment are the assets held for earning income by way of :-Correct Answer Dividend , Interest , Rentals

An activity model is a tool to assist in understanding & defining the organisation.Correct Answer True

The most popular kind of dividend policy is one that pays a ________.Correct Answer Regular, steady dividend



In the past, costing mainly focused on :-CorrectAnswer Manufacturing costs

Articles of association should authorise buy back of securities as per the Company's Act.Correct Answer True

Opportunity costs and real costs decrease the market value of a firm.Correct Answer True

Increase in cost of capital means decrease in ________.Correct Answer Profitability

According to NI Approach, decrease in leverage decreases the overall cost of capital andincreases the firm's value.Correct Answer False


A high payout policy means :-Correct Answer More current dividends



Investment decisions are mainly concerned with :-Correct Answer Assets

current liabilities arise in the context of :-Correct Answer Current assets A high payout policy on dividends implies :-Correct Answer More current dividends , Less retained earnings

In the stock repurchase model one of the main assumption is that ________.Correct Answer The market is efficient

Normally the basis for identifying an enterprise segments are :-Correct Answer The organizational structure of an enterprise

If a firm diversifies managerial teams formed can be shifted from unproductive activitiesto productive ones which leads to :-Correct Answer Improved profitability , Continuity , Growth of the firm


AS 13 Accounting for investments - Accounting standard comes into effect for financialstatements covering periods commencing on or after ________.Correct Answer `April 1, 1995

Comparative analysis is :-Correct Answer A review to ensure consistency within the activity model & process flow

The depreciation rates or the useful lives of the assets are disclosed only :-Correct Answer If they are different from the principle rates specified in the statute



It is essential that ABC must fit into the strategy of the company.Correct Answer True



Postage is an example of ________ cost.Correct Answer Non traceable costAS 4 Contingencies & events occurring after the balance sheet dateAS 13 Accounting for investments Accounting for investmentsAS 23 Accounting for investments in associates in consolidated financial statements Accounting for

investments in associates in consolidated financial statementsAS 21 Consolidated financial statements Consolidated financial statements

The value based approach of HRA Tracking suggests that the value of human resourcesdepends upon :-Correct Answer Capacity to generate revenue

Shortcomings of accounting numbers consist of the following :-Correct Answer Firms use different kind of accounting methods , Business risk and financial riskdo not have any influence on accounting numbersExit cost Lost efficiency prior to separation, Job vacancy cost during the new search & terminationpay. Lost efficiency prior to separation, Job vacancy cost during the new search & termination pay.Historical costs Sacrifice necessary to hire & train people Sacrifice necessary to hire & train peopleSubstitution cost Exit costs of the leaving employee & recruiting & training of the replacement Exitcosts of the leaving employee & recruiting & training of the replacementOpportunity cost An asset value when they are the target of an alternative use. An asset value whenthey are the target of an alternative use.

It is necessary to identify all costs that may be related to an acquisition.Correct Answer True

Cost benefit analysis is the simplest form of comparison between :-Correct Answer Ideas to determine which is faster, better or cheaper




The scope of the data required relates to the scope of the activity model & processesunder review.Correct Answer True

Trade credits are of the following types:-

Correct Answer Notes payable , Trade acceptances , Open accounts

In case of direct placement of commercial papers it may be issued for maturities________ from the date of issue.Correct Answer Between 15 days to 1 year

AS 13 Does not deal with :-Correct Answer The bases for recognition of interest, dividends & rentals earned on investments ,Operating or finance leases , Investment in mutual funds


It is the activity accountant's job to do the following for the existing organisationalstructure :-Correct Answer To define the costs , To refine the costs , To document the costsStrategic Finance - 18 Book value of the assets is directly dependent on the accounting policies followed by thecompany which is used in the following areas :-Correct Answer Inventory valuation , Booking depreciation , Methods of provisions

Segment expense includes ________.Correct Answer The relevant portion of enterprise revenue that can be allocated on a reasonablebasis to a segment



Decisions related to working capital are repetitive & frequent.Correct Answer True

Share repurchase a form of restructuring comes under :-Correct Answer Changes in ownership structure

Explicit cost and implicit cost are the two parts of cost of debt.Correct Answer True

The limitations of value of assets approach include :-

Correct Answer Book value of the assets is directly dependent on the accounting policies followedby the company , There are no standard procedures for valuation of intangible assets , No importanceto the market value of the asset


In many companies, there is no formal record of________.Correct Answer Investment in employees

In a merger decision, the value of a firm depends upon:-Correct Answer Earnings , Operating characteristics of acquiring firm , Financial characteristics ofacquiring firm

The 3 main types of accounting records followed by an organisation are :-Correct Answer Organisational accounting , Budgetary accounting , Cost accounting Cost of ________ is more than other sources for raising short - term finance.Correct Answer Bank finance


The main assumption in comparative analysis is the possibility of :-Correct Answer Combination or co-location of similar functions


According to Net Income Approach, the average cost of capital declines as the leverageratio :-Correct Answer Increases

Equity includes :-Correct Answer Development Rebate Reserve

Long term financing strategy is used by a firm to meet :-Correct Answer Fixed assets requirements , Permanent working capital requirements , Portion offluctuating working capital requirement

The employer in offering the job contract assumes a range of legal obligations such as :-Correct Answer Rewards - cash like & non cash like , Health & safety policies , Pensions &contributions to social security paymentsSegment liabilities Enterprise liabilities Enterprise liabilitiesSegment revenue Enterprise revenue Enterprise revenueSegment result Enterprise net profit or loss Enterprise net profit or lossSegment assets Enterprise assets Enterprise assets


The number of bidding centers shall not be less than ________ for buy back throughbook building.Correct Answer 30Segment liabilities Do not include borrowings that are incurred for financing purposes Does notinclude extra ordinary itemsSegment revenue Does not include extra ordinary items The qualitative characteristics include therelevanceSegment expenses Does not include income tax expenses Determined after intra - enterprisebalances are eliminatedSegment assets Do not include income tax assets Do not include income tax assets

Total risk reduces if operations of combining firms are ________.Correct Answer Negatively correlated

In the reproduction value method of valuation, the value of assets is taken to be on thebasis of ________Correct Answer Replacement cost


The ________ cost tier has the advantage of being the simplest to calculate and justify.Correct Answer Direct

In today's world, knowledge has become the key determinant for economic & businesssuccess.Correct Answer True

Management of working capital refers to the management of total assets and liabilities

ofa company.Correct Answer False

optimum cash balance under certainty i.e. Baumul`s model allows the cash flow tofluctuate.Correct Answer False

A company under siege may look for support & help from its :-Correct Answer Friends

If the segment result of a segment includes interest expense its segment liabilitiesinclude :-Correct Answer The related interest bearing liabilities

To overcome the problems of matching data the actions can be taken as follows :-Correct Answer Keep extensive records of the process , Maintain detailed procedures , Keeprecords of assumptions as an audit trail

A firm using a conservative policy for determining the requirements of current assets :-Correct Answer Has fewer production stoppages , Ensures quick deliveries to customers ,Stimulates sales

The following Act contains the provisions permitting the companies to buy back theirshares :-Correct Answer Companies (Amendment) Act, 1999

Shortage costs are mainly in the form of :-Correct Answer Disruption in production schedule , Loss of sales , Loss of customer goodwill

open account credit appears on the buyer's balance sheet as :-Correct Answer Accounts payable

Business risk & financial risk do not have any influence on ________.Correct Answer Accounting numbers

When a company is able to assess an individual's worth, it helps in increasing its ownworth.Correct Answer True

Which of the following is NOT a disadvantage of deferred payment plan to the acquiringfirm?Correct Answer There is built - in cushion to the acquiring firm as total payment is not

made atthe time of acquisition


Often a company borrows loans / debts by giving the following as a security :-Correct Answer Shares A long term investment is an investment other than a current investment.Correct Answer True


If a particular item of depreciation or amortisation is included in segment expense, therelated asset is included in :-Correct Answer Segment assets

Segment result is segment revenue less segment expenses.Correct Answer TrueStrategic Finance - 17 1 The accounting records serve as the major source of cost data.Correct Answer True

2 ________ know the best about a firm's performance.Correct Answer Firm Managers

3 A merger will make sense to the acquiring firm if its shareholders benefit.Correct Answer True

4 The important steps involved in the analysis of mergers & acquisitions are:-Correct Answer Planning , Searching & screening , Financial evaluation

5 Developing a consistent framework supported by rewarding mechanisms once it isintroduced & approved at enterprise level is a characteristic of :-Correct Answer The investing in people method in the united kingdom

6 Dividends increase the current returns for shareholders.Correct Answer True

7 Internal financing means the firm finances all investments through :-Correct Answer Retained earnings 8 In a friendly takeover, the acquiring firm makes a financial proposal to the largestfirm's ________.Correct Answer Management & board

10 Long term financing strategy is used by a firm to meet :-Correct Answer Fixed assets requirements , Permanent working capital requirements , Portionof fluctuating working capital requirement

11 Explicit cost and implicit cost are the two parts of cost of debt.Correct Answer True

12 AS 13 Does not deal with :-Correct Answer The bases for recognition of interest, dividends & rentals earned oninvestments , Operating or finance leases , Investment in mutual funds

13 the amount of working capital required to meet long term, minimum needs is called :-Correct Answer Permanent working capital

14 A long term investment is an investment other than a current investment.Correct Answer True

15 Short term financing is meant for funding working capital of a company.Correct Answer True

16 Share repurchase a form of restructuring comes under :-Correct Answer Changes in ownership structure

17 Retained earnings are the most important internal sources of financing the growth ofthe firm.Correct Answer True

18 Receivables constitutes a substantial portion of current assets of several firms.Correct Answer True

19 Investment are the assets held for earning income by way of :-Correct Answer Dividend , Interest , Rentals

20 Personnel services expenses is made up of:-Correct Answer Personnel salaries , Cost of facilities , Training & development budgets

21 In many companies, there is no formal record of________.Correct Answer Investment in employees

22 Value added analysis is a method to determine, if elements within a process flowprovide the :-Correct Answer Values

24 The Buy back of shares shall not be made from

Correct Answer The promoters or persons in control of the company

25 traditionally avails are provided by ________.Correct Answer Banks

26 ________ is not a example of segment liability.Correct Answer Goodwill

27 Examples of accrued expenses are :-Correct Answer Wages , Income tax , Property tax

28 Liquidation value is also known as ________.Correct Answer Realizable value

29 Indicators of the value of an investment are obtained by :-Correct Answer Reference to its market value , The investee`s assets , The expected cash flowsfrom the investment

30 The major conditions to be fulfilled for buyback of shares as per the legal provisionsinclude :-Correct Answer Articles of association should authorize buyback of shares , The shares whichare sought to be bought back should be fully paid up , After the buy back the ratio of debt to totalcapital and free reserves should not be more than 2 : 1

31 optimum cash balance under certainty i.e. Baumul`s model allows the cash flow tofluctuate.Correct Answer False

32 Cost accounted for per activity is classified under ________.Correct Answer Traceable cost

33 The following categories of personnel are taken into account to calculate the actualmanpower strength :-Correct Answer Full time equivalents , Temporary staff , Part time personnel

34 The cost of facilities is usually included & distributed as ________.Correct Answer Depreciation

35 In value of assets approach the value of which of the following should be deducted tocalculate the net assets available to the equity shareholders :-Correct Answer Outstanding preference shares

36 usually the `controlling block' tends to be between :-Correct Answer 20 & 40 percent

37 When competition is high in the market, it is :-Correct Answer Essential to maintain a larger inventory of finished goods

38 Segment expense includes ________.Correct Answer The relevant portion of enterprise revenue that can be allocated on areasonable basis to a segment

39 Credit standards should be relaxed upon the point where incremental returns________ incremental costs.Correct Answer Equals

40 Management of working capital refers to the management of total assets andliabilities of a company.Correct Answer False

41 The employer in offering the job contract assumes a range of legal obligations such asCorrect Answer Rewards - cash like & non cash like , Health & safety policies , Pensions &contributions to social security payments 42 The most important internal sources of financing the growth of the firm is through :-Correct Answer Retained earnings

43 When a change in the method of depreciation is made :-Correct Answer Depreciation is recalculated in accordance with the new method

44 Shortcomings of accounting numbers consist of the following :-Correct Answer Firms use different kind of accounting methods , Business risk and financialrisk do not have any influence on accounting numbers

45 Profitability of a company depends upon :-Correct Answer Cost of capital

46 A normal firm shows the following characteristics :-Correct Answer No unique optimum payout ratio , Market value per share unaffected by thepayout ratio , All dividend policies are similar

47 As per residual theory of dividends the focus is on ________.Correct Answer Growth


Any addition or extension to an existing asset which retains a separate identify & iscapable of being used after the existing asset is disposed of :-Correct Answer Is depreciated independently

In market value approach, interested parties never manipulate the stock markets.Correct Answer False


Accounts payable is also known as :-Correct Answer Trade credit from suppliers

Earning power of the company approach tries to value the ________.Correct Answer Current value of the assetsFree cash flow theory Enormous conflicts of interest between Stakeholders and shareholdersEnormous conflicts of interest between Stakeholders and shareholdersNet income approach Cost of debt & equity do not change with a change in leverage ratioCost of debt & equity do not change with a change in leverage ratioNet operating income approach The overall capitalization rate remains constant for all levels offinancial leverages The overall capitalization rate remains constant for all levels of financialleveragesModigliani - Miller Theory weighted average cost of capital does not change with a change in theproportion of debt to equity in the capital structure weighted average cost of capital does notchange with a change in the proportion of debt to equity in the capital structure

Where the management's estimate of the useful life of an asset of the enterprise isshorter than that envisaged under the provisions of the relevant statute, the depreciation provision isapproximately computed :-Correct Answer By applying a higher rate

What is a very important factor in any kind of merger?Correct Answer Exchange ratio

Segment expense includes ________.Correct Answer The relevant portion of enterprise revenue that can be allocated on a

reasonable basis to a segment

The depreciable assets are assets which are expected to be used :-Correct Answer During more than 1 accounting period

Arbitrage process implies that security cannot sell at different prices.Correct Answer True

Which is an example out of the following to which special consideration apply fordepreciation :-Correct Answer Regenerative natural resources


Financial evaluation involves :-Correct Answer Determining the earnings , Areas of risk , Best way to finance a merger

The difference between current assets & current liabilities is known as :-Correct Answer Net working capital

Stock repurchases ________ the debt / equity ratio.Correct Answer Increases

Which of the following systems identifies each of the organizational elements of thetraditional bureaucratic structure and applies the identifiable costs of that element accordingly?Correct Answer Organization element accounting

The major conditions to be fulfilled for buyback of shares as per the legal provisionsinclude :-Correct Answer Articles of association should authorize buyback of shares , The shares whichare sought to be bought back should be fully paid up , After the buy back the ratio of debt to totalcapital and free reserves should not be more than 2 : 1


Free Reserves is a component of :-Correct Answer Equity


To `gather costs', means capturing all relevant expenses that pertain to the selectedmodel and processes.Correct Answer True

When a company has resorted to buyback of its shares it cannot make a further issueof the same kind of securities within a period of how many months?Correct Answer 6 months

At times managers invest in projects that improve the company's ________.Correct Answer Prestige or power

It is the activity accountant's job to do the following for the existing organisationalstructure :-Correct Answer To define the costs , To refine the costs , To document the costs

One of the important assumptions for capital structure theories is :-Correct Answer Debt and equity are the 2 kinds of funds used by the firm


As per residual theory of dividends the focus is on ________.Correct Answer Growth

Profitability of a company depends upon :-Correct Answer Cost of capital

HLL the largest FMCG company has a turnover of Rs. ________.Correct Answer 118 Bn

The characteristics of working capital are :-Correct Answer It is continually required for a going concern , Quantum of working capitalfluctuates depending on the level of activity , It is impacted by numerous transactions on acontinuous basis

If a firm diversifies managerial teams formed can be shifted from unproductiveactivities to productive ones which leads to :-Correct Answer Improved profitability , Continuity , Growth of the firm

In the tender offer, the purchaser approaches :-Correct Answer The shareholder

To overcome the problems of matching data the actions can be taken as follows :-Correct Answer Keep extensive records of the process , Maintain detailed procedures ,

Keeprecords of assumptions as an audit trail

In the shareholding pattern of a company, the promoter's holding includes________.Correct Answer Foreign Promoters

A current investment is an investment that is by nature :-Correct Answer Readily realisable , Intended to be held for not more than 1year from the dateon which investment is made

Trade credit creates book debts which the firm is expected to collect in the nearfuture.Correct Answer True



The financial managers of a company consume a great deal of their time in activitieslike :-Correct Answer Monitoring the investment in inventories , Negotiating favourable credit terms, Administrating Accounts receivables

Appraisal value of a firm can be acquired from an independent appraisal agency.Correct Answer True

The following categories of personnel are taken into account to calculate the actualmanpower strength :-Correct Answer Full time equivalents , Temporary staff , Part time personnel


There is a ________ relationship between the number of employees & the use ofoperating supplies.Correct Answer NaturalMechanisms Performs or provides energy to an activity Performs or provides energy to anactivity. Inputs Information or material used to produce the output of an activity Information or material used to produce the output of an activityControls Information or material that constrains an activity Information or material thatconstrains an activity. Outputs Information or material produced by an activity

Information or material produced by an activity.

Value added analysis :-Correct Answer Helps to identify potential activities that may be omitted immediately Notes payable means the buyer signs a note that evidences a debt to the seller.Correct Answer TrueStrategic Finance - 21 Accounting standards (AS - 13) is now mandatory.Correct Answer True

Exit costs are classified into 3 categories namely :-Correct Answer Lost efficiency prior to separation , Job vacancy cost during the new search ,Termination pay


In a merger decision, the value of a firm depends upon:-Correct Answer Earnings , Operating characteristics of acquiring firm , Financialcharacteristics of acquiring firm

A company is permitted to buy back its shares through stock exchange in thefollowing situations :-Correct Answer The company shall complete the verification of acceptances within 15 days ofthe payout , The identity of the company as a purchaser shall appear on the electronic screen whenthe order is placed , The buy back shall be made only on stock exchanges with electronic tradingfacility

A merger will make sense to the acquiring firm if its shareholders benefit.Correct Answer True

________ Assets in the balance sheet are normally excluded from the value of totalassets.Correct Answer Intangible

What is a very important factor in any kind of merger?Correct Answer Exchange ratio

A shareholder expects a higher rate of return as a firm's compensation for ________.Correct Answer Increased risk

Usually cost data is perfect for ABC Analysis & distribution.


Forward or backward integration is a characteristic of ________.Correct Answer Vertical Mergers

Segment assets are determined after :-Correct Answer Deducting related allowances / provisions reported as direct offsets

Acceptable audit requirements cannot be overlooked even under the pressure of :-Correct Answer Timeliness & turnaround

Which of the following is NOT a disadvantage of deferred payment plan to theacquiring firm?Correct Answer There is built - in cushion to the acquiring firm as total payment is not made atthe time of acquisition

A single organisation model serves to keep all individual initiatives to be targeted intoa co-ordinated plan.Correct Answer True


In an aggressive approach :-Correct Answer There is a very large risk of shortage of funds



The most popular kind of dividend policy is one that pays a ________.Correct Answer Regular, steady dividendAmount involved in buy backNot to exceed 25 % of the total paid up capital Not to exceed 25% of the total paid up capitalArticles of Association Authorize buy back of securities Resolution permitting the buyback of sharesBoard of Directors Resolution permitting the buy back of sharesAuthorize buy back of securitiesShares to be bought back Fully paid up Fully paid up


Fixed price tender offers are accompanied by an abnormal announcement periodreturn of :-Correct Answer 8 - 10 %

The external staffing performance indicators include :-Correct Answer Compensation per Re. Profit , Personnel services head count , Profit per headTrust receipt Specifically identified by serial number or other means Specifically identified byserial number or other meansTerminal warehouse receipt Inventory is stored with a public or terminal warehousing companyInventory is stored with a public or terminal warehousing companyFloating lien Loose arrangement as the lender may find it difficult to police Well suited forfinancial good inventories of capital goodsChattel mortgage Well suited for financial good inventories of capital goods Affords a higherdegree of control over the collateral


Companies often need to value its own :-Correct Answer Shares

Long term financing strategy is used by a firm to meet :-Correct Answer Fixed assets requirements , Permanent working capital requirements , Portionof fluctuating working capital requirement

For determining exchange ratio, the model developed by Conn & Nielson is used.CorrectAnswer True

usually credit lines are established for a period of ________.Correct Answer 1 year

Shortcomings of accounting numbers consist of the following :-Correct Answer Firms use different kind of accounting methods , Business risk and financialrisk do not have any influence on accounting numbers

Investors can reduce the company related risk by diversification of their investmentsin ________.

Correct Answer Shares of a large number of companies

Making decision on dividend is a very crucial area of financial management for afirm.

The following is not a factor for reduction in the life of an asset by obsolescence :-Correct Answer No study of market demand for a product / service

Due to diversification employees seek:-Correct Answer Job security , Better opportunities within the firm , Higher compensation

Research into true human resources accounting began in :-Correct Answer 1960`s

Segment assets are ________.Correct Answer Directly attributable to the segment

AS 13 statement does not deal with operating or finance leases.Correct Answer True

The costs should be gathered & allocated within the organisation at the ________structural layer.Correct Answer Lowest possible

Value implies that something has :-Correct Answer Worth

Examples of accounting methods used by firm are :-Correct Answer FIFO , LIFO , Accrual Accounting

The main assumptions for stock repurchase models are as follows :-Correct Answer The market is efficient , There is perfect competition in the securities market


It is easy to find a risk free security.Correct Answer False

The earning power of the company approach includes :-Correct Answer Mainly discounting of all future earnings

During the costing process, we look at ________.

Correct Answer Resource consumption

Mature companies with stable earnings generally pay out ________.Correct Answer A high proportion of earningsStrategic Finance - 20 A firm can manage with small inventory if the supply is :-Correct Answer Prompt & adequate

A transport corporation has a substantial working capital requirement.Correct Answer False

Implicit claims are non written promises and rights such as :-Correct Answer Right to provide service to customers , Job security for the employees

As per NOI Approach - the overall capitalization rate remains ________ for all levelsof financial leverage.Correct Answer Constant


While accounting for human assets, the following data is to be considered :-Correct Answer Full time equivalent staff , Revenues , ExpensesFree cash flow theory Enormous conflicts of interest between Stakeholders and shareholdersFirms have preferences by choosing a way to finance their projectsNet income approach Cost of debt & equity do not change with a change in leverage ratioweighted average cost of capital does not change with a change in the proportion of debt toequity in the capital structureNet operating income approach The overall capitalization rate remains constant for all levels offinancial leverages The overall capitalization rate remains constant for all levels of financialleveragesModigliani - Miller Theory weighted average cost of capital does not change with a change in theproportion of debt to equity in the capital structure Cost of debt & equity do not change with achange in leverage ratio

The processes to be identified & focused should to be on the basis of not adhering tobenchmarks, bottlenecks, quality not met, time problems etc. This is called as ________.

Correct Answer Process analysis

The following is not a method of payment to the acquired firm:-Correct Answer Fixed deposits of the acquiring firm


Short term financing is meant for funding working capital of a company.Correct Answer True


In case of direct placement of commercial papers it may be issued for maturities________ from the date of issue.Correct Answer Between 15 days to 1 yearEarning per share Acquisition is considered to be a function of the impact of the merger on theEPS Divide net worth by the number of equity shares outstandingBook value Divide net worth by the number of equity shares outstanding Evaluate theimpact of the merger on EPS & price - earning ratioAppraisal value Provides a list of the reasonableness of results obtained through methods baseupon the going concern concept Indicate the consensus of the investorsMarket value Indicate the consensus of the investors Provides a list of the reasonableness ofresults obtained through methods base upon the going concern concept

Book value is relevant to determine the firm's value because of the following reasonsexcept:-Correct Answer It cannot be used as a starting point to be compared & complimented by otheranalysis

Receivables constitutes a substantial portion of current assets of several firms.Correct Answer True Odd lots purchase is not a method of buy back of shares.Correct Answer False

A company is prohibited to buy back its own shares in the following circumstances :-Correct Answer Through any subsidiary company , Through any investment company , If acompany defaults in repayment of deposits or interest due thereon

An activity model is a tool to assist in understanding & defining the organisation.

Correct Answer True

A quantity discount is offered :-Correct Answer On large shipments

According to NI Approach, decrease in leverage decreases the overall cost of capitaland increases the firm's value.Correct Answer False

Human Assets accounting stands for :-Correct Answer Measurement & reporting of the cost and value of people as organisationalresources

Shareholders returns consists of 2 components :-Correct Answer Dividend , Capital gains

In value of assets method the following is also to be included as they are also of valueto the company :-Correct Answer Non trading assets

Usually only a single method is used for valuation of shares.Correct Answer False

Where the management's estimate of the useful life of an asset of the enterprise isshorter than that envisaged under the provisions of the relevant statute, the depreciation provision isapproximately computed :-Correct Answer By applying a higher rate

ForM & As, the acquiring firm needs industry data on :-Correct Answer Market growth , Nature of competition , Degree of regulation

Increase in cost of capital means decrease in ________.Correct Answer Profitability



The number of bidding centers shall not be less than ________ for buy back throughbook building.Correct Answer 30

The following of the depreciable asset may undergo subsequent changes arising dueto price adjustments :-Correct Answer Historical cost


A company that comes to the rescue of a firm that is being targeted for a takeover iscalled :-Correct Answer White knight

________ is not a example of segment asset.Correct Answer Customer advances

Risk appetite decides the rate of capitalization.Correct Answer True

usually the `controlling block' tends to be between :-Correct Answer 20 & 40 percent

Sometimes the mechanisms may appear to be inputs for an activity.Correct Answer True

AS 23 - Accounting for investments in associates in consolidated financial statementscomes into effect in respect of accounting periods commencing on or after ________.Correct Answer 01.04.2002


The following categories of personnel are taken into account to calculate the actualmanpower strength :-Correct Answer Full time equivalents , Temporary staff , Part time personnel


A firm using a conservative policy for determining the requirements of current assets:-Correct Answer Has fewer production stoppages , Ensures quick deliveries to customers ,Stimulates sales

Valuation of current investments on overall basis is not considered appropriate.

Correct Answer True

The advantage of ________ is that the company is not required to wait for thepayment by the bill issuer.Correct Answer Bill discounting

A single business segment does not include products & services :-Correct Answer With significantly differing risks & returns


Match The Following - Correct AnswerOpportunity cost -An asset value when they are the target of an alternative use.Exit cost -Lost efficiency prior to separation, Job vacancy cost during the new search & termination pay.Historical costs Sacrifice necessary to hire & train people .Substitution cost- Exit costs of the leaving employee & recruiting & training of the replacement

Multiple Choice Single Answer Book value is relevant to determine the firm's value because of the following reasons except:-Correct Answer It cannot be used as a starting point to be compared & complimented by other analysis

True/False For determining exchange ratio, the model developed by Conn & Nielson is used.Correct Answer True



True/False Arbitrage process implies that security cannot sell at different prices.Correct Answer True

Select The Blank

________ is not a characteristic of financial conglomerates.Correct Answer Provide ineffective competitive process

True/False Retained earnings are the most important internal sources of financing the growth of the firm.Correct Answer True

Significant influence is the power to :-Correct Answer Participate in the financial decisions , Participate in the operating policy decisions


The characteristics of working capital are :-Correct Answer It is continually required for a going concern , Quantum of working capital fluctuates depending on the level of activity , It is impacted by numerous transactions on a continuous basis


As per AS 13 Statement, the following are not considered as investments:-Correct Answer Shares , Debentures , Other securities held as stock in trade



Select The Blank As per residual theory of dividends the focus is on ________.Correct Answer GrowthTrue/False Management of working capital refers to the management of total assets and liabilities of acompany.


The important aspect of dividend policy is :-Correct Answer To determine the amount of earnings to be distributed to shareholders , Amount to be retained inthe firm



True/False Planning helps an acquiring firm to identify the units it should drop & it should add.Correct Answer True



Match The Following- Correct AnswerEarning per share- Acquisition is considered to be a function of the impact of the merger onBook value- Divide net worth by the number of equity shares outstandingAppraisal value- Provides a list of the reasonableness of results obtained throughmethods base upon the going concern conceptMarket value- Indicate the consensus of the investors

Book value of the assets is directly dependent on the accounting policies followed by the companywhich is used in the following areas :-Correct Answer Booking depreciation , Methods of provisions , Inventory valuation

Every business requires funds on a continual basis for expenses incurred on for :-Correct Answer Purchase of raw material , Manufacturing costs , Administration


True/False According to NI Approach, decrease in leverage decreases the overall cost of capital andincreases the firm's value.Correct Answer False

If a firm diversifies managerial teams formed can be shifted from unproductive activities toproductive ones which leads to :-Correct Answer Improved profitability , Continuity , Growth of the firm



True/False If a company has resorted to buyback its shares, it cannot make a further issue of the same kind ofsecurities within a period of 1 year.Correct Answer False

True/False The scope of the data required relates to the scope of the activity model & processes under review.Correct Answer True

Select The Blank The ________ cost tier has the advantage of being the simplest to calculate and justify.Correct Answer Direct

Select The Blank Stock repurchases ________ the debt / equity ratio.

Correct Answer Increases

Select The Blank The resource theory considers that the competitive position of a firm depends on its ________Assets.Correct Answer Specific


The important steps involved in the analysis of mergers & acquisitions are:-Correct Answer Planning , Searching & screening , Financial evaluation


Select The Blank If a segment is not designated as a ________ it should be included as an unallocated reconciling item.Correct Answer Reportable segment

The main characteristics of CAPM are :-Correct Answer It is an equilibrium Model , It describes the pricing of assets as well asderivatives , Expected security return = Riskless return + beta x (expected market risk premium)




The 3 groups of participants in a firm are :-Correct Answer Suppliers of equity , Debt suppliers , Firm ManagersMultiple Choice Single Answer When the working capital is less than its peak level :-Correct Answer The surplus is invested in liquid assets

Multiple Choice Single Answer According to a survey for reasons for share purchase, what is the percentage of cash distribution to cash holders ?Correct Answer 0.28


Match The Following Correct Answer Your AnswerAS 21 Consolidated financial statements Consolidated financial statementsAS 4 Contingencies & events occurring after the balance sheet date Contingencies & events occurring after the balance sheet dateAS 13 Accounting for investments Accounting for investmentsAS 23 Accounting for investments in associates in consolidated financial statements Accounting for investments in associates in consolidated financial statements

Select The Blank There is a ________ relationship between the number of employees & the use ofoperating supplies.Correct Answer Natural

The main characteristics of CAPM are :-Correct Answer It is an equilibrium Model , It describes the pricing of assets as well as derivatives ,Expected security return = Riskless return + beta x (expected market risk premium)

A firm using a conservative policy for determining the requirements of current assets:-Correct Answer Has fewer production stoppages , Ensures quick deliveries to customers , Stimulates sales

Multiple Choice Single Answer As per Pecking order theory, which is the costliest means of funding :-Correct Answer Equity Shares


Select The Blank ________ are those operating assets that are employed by a segment in itsoperating activities.Correct Answer Segment assets


Examples of accrued expenses are :-Correct Answer Wages , Income tax , Property tax

Multiple Choice Single Answer One of the bases for determining the residual value of similar assets is :-Correct Answer Realizable value

Select The Blank The number of bidding centers shall not be less than ________ for buy back throughbook building.Correct Answer 30

Multiple Choice Single Answer Conservative policy for determining the requirements of current assets is also knownas :-Correct Answer Flexible policy

True/False

Management of working capital refers to the management of total assets andliabilities of a company.Correct Answer False




The main theories behind share repurchases are :-Correct Answer Dividend or personal taxation hypothesis , Leverage hypothesis , Information orsignalling hypothesis

Multiple Choice Single Answer In value of assets method the following is also to be included as they are also ofvalue to the company :-Correct Answer Non trading assets


True/False The scope of the data required relates to the scope of the activity model & processesunder review.Correct Answer True

Multiple Choice Single Answer Investment decisions are mainly concerned with :-

Correct Answer Assets

Match The Following -Correct AnswerUnsecured loans- Form of debt not backed by the pledge of specific assetsLine of credit- Does not constitute any legal commitments on the part of thebankRevolving credit agreements -While the commitment is in force the bank must extend creditwhenever the borrower wishes to borrow

Transaction loan -The cash flow ability of the borrower to pay the loan is usually of paramount importance



True/False DCF is not a method used to calculate market value of a firm.Correct Answer False

Shortcomings of accounting numbers consist of the following :-Correct Answer Firms use different kind of accounting methods , Business risk and financial risk donot have any influence on accounting numbers

Debt reduces :-Correct Answer Agency cost of free cash flow , Commitment to pay in time to all lenders , Freedom ofdecisions


Select The Blank Non value added activities helps ________.Correct Answer To analyse the activities more carefully


Select The Blank In the reproduction value method of valuation, the value of assets is taken to be onthe basis of ________Correct Answer Replacement cost

The major conditions to be fulfilled for buyback of shares as per the legal provisionsinclude :-Correct Answer Articles of association should authorize buyback of shares , The shares which aresought to be bought back should be fully paid up , After the buy back the ratio of debtto total capital and free reserves should not be more than 2 : 1

Multiple Choice Single Answer The Public announcement of share buy back has to be made at least :-Correct Answer 7 Days prior to the commencement of buy back

Select The Blank Combination of 2 or more companies into existing company is called ________.Correct Answer Absorption


The characteristics of working capital are :-Correct Answer It is continually required for a going concern , Quantum of working capital fluctuatesdepending on the level of activity , It is impacted by numerous transactions on acontinuous basis


Select The Blank AS 23 - Accounting for investments in associates in consolidated financialstatements comes into effect in respect of accounting periods commencing on orafter ________.Correct Answer 01.04.2002




Select The Blank A geographical segment cannot be ________.Correct Answer Countries in different zones

Multiple Choice Single Answer The Management of the Company may enter into a negotiated purchase, which isreferred to as :-Correct Answer Greenfield

Multiple Choice Single Answer The acquirer should intimate to the target company & the concerned stockexchanges as soon as its holding touches :-Correct Answer 5 % of the voting capital of the target company

Significant influence is the power to :-Correct Answer Participate in the financial decisions , Participate in the operating policy

decisions

An investment property is an investment in land or buildings :-Correct Answer Not intended to be occupied substantially for use by investing enterprise , Notintended to be in the operations of the investing enterprise

Multiple Choice Single Answer The following analysis is more targeted on similar activities or firms that exist inparallel within the activity model or process flow to ensure that they are being donethe same best way :-Correct Answer Comparative analysis



Select The Blank As per NOI Approach - the overall capitalization rate remains________ for all levels of financial leverage.Correct Answer Constant


Multiple Choice Single Answer The main assumption in comparative analysis is the possibility of:-Correct Answer Combination or co-location of similar functions



Strategic Finance

Multiple Choice Single Answer As per the study conducted by RBI, Current assets constitute :-Correct Answer More than 50 % of the total assets



Diversification -Growth through the combination of firms inunrelated fields of business

Horizontal mergers 2- Firms operate & compete in a similar kindof business


Conglomerate mergers -Different or unrelated business activity

Multiple Choice Single Answer in case of temporary working capital, the investment in currentassets varies with :-Correct Answer Seasonal requirements


True/False The carrying amount for current investments is the lower of cost& fair value.Strategic FinanceCorrect Answer True

A company is prohibited to buy back its own shares in thefollowing circumstances :-Correct Answer Through any subsidiary company , Through any investment

company , If a company defaults in repayment of deposits orinterest due thereon

True/False Explicit cost and implicit cost are the two parts of cost of debt.Correct Answer True


Multiple Choice Single Answer As per Dorsman (1995) - financing with a high percentage ofdebt prevents firms from :-Correct Answer Investing too much

Multiple Choice Single Answer Estimation for determining the useful life of an asset is required:-Correct Answer On some reasonable basis

True/False In market value approach, interested parties never manipulatethe stock markets.Correct Answer FalseStrategic Finance

Multiple Choice Single Answer Which of the following company is reaping high market valuationdue to showing human resources as an asset in its balancesheet information?Correct Answer Infosys


Multiple Choice Single Answer Suppliers of equity are interested in :-Correct Answer High share prices


Free cash flow theory- Enormous conflicts of interest between

Stakeholders and shareholders

Net income approach -Cost of debt & equity do not change with a changein leverage ratio

Net operating income approach-The overall capitalization rate remains constant for all levels of financialleverages

Modigliani - Miller Theory- weighted average cost of capital does not changewith a change in the proportion of debt to 2equity in the capitalstructure

Select The BlankStrategic Finance

The date on which the announcement is made of new dividend iscalled ________.Correct Answer Declaration date

The net income approach is based on following 3 assumptions :-Correct Answer There are no taxes , Cost of debt is less than equitycapitalization rate , Use of debt doesn't change the riskperception of investors

Multiple Choice Single Answer A single business segment does not include products & services:-Correct Answer With significantly differing risks & returns



Multiple Choice Single Answer Value added analysis is a method to determine, if elements

within a process flow provide the :-Correct Answer Values

Select The Blank Investors can reduce the company related risk by diversificationof their investments in ________.Strategic Finance


The 3 main types of accounting records followed by anorganisation are :-Correct Answer Organisational accounting , Budgetary accounting , Costaccounting

The following disclosures in financial statements in relation toinvestments are appropriate :-Correct Answer The accounting policies for the determination of carrying amountof investments , Profits & losses on disposal of currentinvestments , The amounts included in P & L Statement



The financial framework of a merger decision covers 3interrelated aspects i.e. :-Correct Answer Determining the firm's value , Financing techniques in mergers ,Analysis of merger as a capital budgeting decision

Multiple Choice Single Answer According to Net Income Approach, the average cost of capitaldeclines as the leverage ratio :-Correct Answer IncreasesStrategic Finance

True/False

A long term investment is an investment other than a currentinvestment.Correct Answer True

True/False The capital Asset pricing model describes the pricing of assetsas well as derivatives.Correct Answer True

Personnel services expenses is made up of:-Correct Answer Personnel salaries , Cost of facilities , Training & developmentbudgets


Select The Blank the commercial paper may be issued in the multiples of________.Correct Answer 5 lakhs



The most popular kind of dividend policy is one that pays a________.Correct Answer Regular, steady dividend

AS 13 Does not deal with :-Correct Answer The bases for recognition of interest, dividends & rentals earnedon investments , Operating or finance leases , Investment in mutual funds


Multiple Choice Single Answer One of the important assumptions for capital structure theories is:-

Correct Answer Debt and equity are the 2 kinds of funds used by the firm




Exit costs are classified into 3 categories namely :-Correct Answer Lost efficiency prior to separation , Job vacancy cost duringthe new search , Termination pay


True/False Tender offers us an alternative approach to acquire anotherfirm.Correct Answer TRUE

Select The Blank Increase in cost of capital means decrease in ________.Correct Answer Profitability

Multiple Choice Single Answer To calculate depreciable amount the following is subtractedfrom its historical cost :-Correct Answer Estimated residual value


The main characteristics of CAPM are :-

Correct Answer It is an equilibrium Model , It describes the pricing of assetsas well as derivatives , Expected security return = Riskless return + beta x )(expected market risk premium

True/False Assets held as stock - in - trade are also investments.Correct Answer FALSE

Select The Blank Segment revenue includes ________.Correct Answer Revenue from transactions with other segments of theenterprise

Multiple Choice Single Answer Which is an example out of the following to which specialconsideration apply for depreciation :-Correct Answer Regenerative natural resources

Multiple Choice Single Answer The value based approach of HRA Tracking suggeststhat the value of human resources depends upon :-Correct Answer Capacity to generate revenue

True/False According to NI Approach, decrease in leverage decreasesthe overall cost of capital and increases the firm's value.Correct Answer FALSE

The employer in offering the job contract assumes a rangeof legal obligations such as :-Correct Answer Rewards - cash like & non cash like , Health & safety policies ,Pensions & contributions to social security payments




True/False Valuation of current investments on overall basis is notconsidered appropriate.Correct Answer TRUE

Select The Blank Combination of 2 or more companies into existing companyis called ________.Correct Answer Absorption

An investment property is an investment in land or buildings :-Correct Answer Not intended to be occupied substantially for use by ,investing enterprise Not intended to be in the operations of the investing enterprise

True/False Organisational changes are similar to mission changes.Correct Answer TRUE

Match The Following -Correct AnswerFree cash- Enormous conflicts of interest between Stakeholders and shareholdersflow theory

Net income-Cost of debt & equity do not change with a change in leverage ratioapproach

Net opera- The overall capitalization rate remains constant for all levels of financialting income approach leverages

Modigliani -weighted average cost of capital does not change with a change

Miller Theory in -the proportion of debt to equity in the capital structure

Select The Blank In the shareholding pattern of a company, the promoter'sholding includes________.Correct Answer Foreign Promoters


Multiple Choice Single Answer As per Pecking order theory, which is the costliest means

of funding :-Correct Answer Equity Shares

True/False The carrying amount for current investments is the lower ofcost & fair value.Correct Answer TRUE

The limitations of value of assets approach include :-Correct Answer Book value of the assets is directly dependent on theaccounting policies followed by the company , There are no standard proceduresfor valuation of intangible assets , No importance to the market value of the asset

True/False Management of working capital refers to the managementof total assets and liabilities of a company.Correct Answer FALSE

True/False When a company is able to assess an individual's worth,it helps in increasing its own worth.Correct Answer TRUE

Multiple Choice Single Answer The Board of Directors should pass a resolution permittingthe buy back upto what percent of the paid up equity capital?Correct Answer 0.1

Select The Blank Long term cash forecasting is generally for a period of________ years.Correct Answer 3 to 5 years



Multiple Choice Single Answer The following analysis is more targeted on similar activitiesor firms that exist in parallel within the activity model or process flow to ensure

that they are being done the same best way :-Correct Answer Comparative analysis

Accounting numbers are not influenced by :-Correct Answer Dividend policy , Time span of money , Financial andbusiness risk

Select The Blank Cost of ________ is more than other sources for raisingshort - term finance.Correct Answer Bank finance

True/False Segment result is segment revenue less segment expenses.Correct Answer TRUE

Multiple Choice Single Answer The depreciable assets are assets which are expectedto be used :-Correct Answer During more than 1 accounting period


Select The Blank An asset is included in segment assets, if and only if therelated depreciation or amortisation is included in ________.Correct Answer Segment expense



Implicit claims are non written promises and rights such as :-Correct Answer Right to provide service to customers , Job security for theemployees


Often a company borrows loans / debts by giving thefollowing as a security :-Correct Answer Shares

Match The Following -Correct AnswerA highly- Shows the illusion of financial problemsleveraged firm

Fiscal -advaIsntdaegdeu, ctible from the profitthe interest of financing with debt

Financing -Prevents firms from investing too muchwith a high percentage of debt

Firms must-Discussions about the sell out of assets must be maderepay debts


True/False Opportunity costs and real costs decrease the marketvalue of a firm.Correct Answer TRUE

Select The Blank the commercial paper may be issued in the multiples of ________.Correct Answer 5 lakhs

Strategic Finance - 24 A quantity discount is offered :-Correct Answer On large shipments

Indicators of the value of an investment are obtained by :-Correct Answer Reference to its market value , The investee`s assets , The expected cash flowsfrom the investment







Value based approach of HRA tracking can be divided into 2 categories - Non -monetary & monetary.Correct Answer True




Deferred payment plan is also known as:-Correct Answer Earn out plan

There are few methods of allocating depreciation over the useful life of an assets.Correct Answer False

Market approach is used for companies whose shares are ________ on the Stockmarket.Correct Answer Listed


Tender offers can be afforded by firms with :-Correct Answer A large amount of financial Slack

The following method of valuation is used for listed companies that have an activemarket for their shares :-Correct Answer Market value approach

According to Altman (1984) total costs in percentage of the market value of a firmrange between ________Correct Answer 12.1 % & 16.7 %

Conservative policy for determining the requirements of current assets is also knownas :-Correct Answer Flexible policy

Yield or earning approach method of valuation uses :-Correct Answer Price to earnings ratio


The ________ cost tier has the advantage of being the simplest to calculate andjustify.Correct Answer Direct

The existence of significant influence by an investor is usually evidenced in thefollowing ways :-Correct Answer Participation in policy making processes , Material transactions between theinvestor & the investee , Interchange of managerial personnel

Free Reserves is a component of :-Correct Answer EquitySentiments and rumours No fundamental basis.No effect on valuationUnlisted shares on stock exchange Difficult to estimate the price Invalid valuation of sharesManipulation of stock markets Invalid valuation of shares Easy to estimate the priceSelective information Valuation by various people on information available Valuation byvarious people on information available

Only firms with a large amount of financial slack can afford tender offers.Correct Answer True

Buy back through book building the process should be made through ________.Correct Answer An electronically linked transparent facility



A change in the method of depreciation is treated as a change in an accounting policyand is disclosed accordingly.Correct Answer True

Economies of scale arises with increase in volume of production leading to________.Correct Answer Reduction in the cost of production



Net period - no cash discount means :-Correct Answer The seller only specifies the time period allowed for the payment


Accounting standards (AS - 17) has come into effect in respect of accounting periodscommencing :-Correct Answer On or after 01.04.2001

Accounting standards (AS - 13) is now mandatory.Correct Answer True

Valuation methods are highly specific to the following for doing the valuation :-Correct Answer To the person , To the firm , To the Consultant


The budgetary records are useful for:-Correct Answer Validating accounting costs , Providing a rationale for division of costs ,Replacing missing data

As per the new sections of the company's act, funds out of which buy back may befinanced include :-Correct Answer Free reserves of the company , Securities premium account , Proceeds of anyshares or other specified securitiesPpH = P / H ( C + B ) / P

SPE = R / H (C + B ) / RRR = (C + B ) / R P / HU % = R / ( C + B ) R / ( C + B )



It is often not possible to directly attribute, or reasonably allocate :-Correct Answer The interest bearing liabilities to segments

Odd lots purchase is not a method of buy back of shares.Correct Answer False

Strategic Finance - 23 A normal firm shows the following characteristics :-Correct Answer No unique optimum payout ratio , Market value per share unaffected by thepayout ratio , All dividend policies are similar



Segment liabilities do not include :-Correct Answer Borrowings & other liabilities that are incurred for financing rather thanoperating purpose




If a company has resorted to buyback its shares, it cannot make a further issue of thesame kind of securities within a period of 1 year.


In value of assets approach for computation of valuation of shares, the total value ofall the assets will be divided by the total number of shares.Correct Answer True


Investment decisions are mainly concerned with :-Correct Answer Assets Debt reduces :-Correct Answer Agency cost of free cash flow , Commitment to pay in time to all lenders ,Freedom of decisions

The main theories behind share repurchases are :-Correct Answer Dividend or personal taxation hypothesis , Leverage hypothesis , Informationor signalling hypothesis

The cost of facilities is usually included & distributed as ________.Correct Answer Depreciation



If a firm opts for restrictive policy then the investments in current assets is :-Correct Answer Low

According to NOI Approach, any capital structure is optimum.Correct Answer True

Segment assets are ________.Correct Answer Directly attributable to the segmentFree cash flow theory Enormous conflicts of interest between Stakeholders and shareholdersMany groups of non - investor stakeholders have an interest in the firmNet income approach Cost of debt & equity do not change with a change in leverage ratioEnormous conflicts of interest between Stakeholders and shareholders

Net operating income approach The overall capitalization rate remains constant for all levels offinancial leverages Firms have preferences by choosing a way to finance their projectsModigliani - Miller Theory weighted average cost of capital does not change with a change in theproportion of debt to equity in the capital structure Cost of debt & equity do not change with achange in leverage ratio

The processes to be identified & focused should to be on the basis of not adhering tobenchmarks, bottlenecks, quality not met, time problems etc. This is called as ________.Correct Answer Process analysis The main characteristics of operating economies are :-Correct Answer It is achieved through horizontal, vertical and conglomerate mergers , Itoccurs due to indivisibilities of resources , It is possible in generic management functions

usually the `controlling block' tends to be between :-Correct Answer 20 & 40 percent




Horizontal mergers involves firms________.Correct Answer That operate & compete in a similar kind of businessAvailability of funds in the market Cost of funds depends on this factor Different costs areinvolvedFlexibility The extent & the ease with which the funds can be raised & paid back are veryimportant The extent & the ease with which the funds can be raised & paid back are veryimportantTime Takes less time to take an overdraft from the bank Takes less time to take an overdraft fromthe bankCreditworthiness of the issuerIf a company has a good creditworthiness it is not difficult

to raiseshort term funds If a company has a good creditworthiness it is not difficult to raise short termfunds


If a segment is not designated as a ________ it should be included as an unallocatedreconciling item.Correct Answer Reportable segment

An asset is included in segment assets, if and only if the related depreciation oramortisation is included in ________.Correct Answer Segment expense



Debt is often issued at :-Correct Answer The head office level



Segment result represents :-Correct Answer Operating profit or loss


The resource theory considers that the competitive position of a firm depends on its

________ Assets.Correct Answer Specific


Money becomes less valuable when received at a latter stage instead of in presenttime.Correct Answer True

The intellectual assets of a company are often worth 3 or 4 times the tangible bookvalue.Correct Answer True

One of the selective developments that has taken place in recent times is companiesare going in for :-Correct Answer Activity based costing and management

The financial managers of a company consume a great deal of their time in activitieslike :-Correct Answer Monitoring the investment in inventories , Negotiating favourable credit terms, Administrating Accounts receivables

If total external revenue attributable to reportable segments constitutes less than________ of the total enterprise revenue additional segments should be identified as reportablesegments.Correct Answer 75 percent



Strategic Finance Notes - 4Strategic Finance Notes - 4

Q.14 Explain the concept of Human Resources Accounting.Ans Human Resource Accounting (HRA):HRA as an approach was originally defined as the process of identifying, measuring and communicating information about human resources in order to facilitate effective

management within an organisation. It is an extension of the accounting principles of matching costs and revenues and of organizing data to communicate relevant information in financial terms.

The accounting of human resources can be seen as just as much a of philosophy as of technique. This is one of the reasons behind the variety of approaches. It is further underlined by the broad range of purposes for which accounting human resources can be used. For example, it can be used as an information tool for internal and/or external use (employees, customers, investors, etc.) and as a decision-making tool for human resource management.

The reasons for developing HRA methods can be summarized in the following six points:• Inadequacy of traditional balance sheets in providing sufficient information on enterprise performance,• Measuring problems deriving from the valuation of human resources,• Redistribution of social responsibilities between the public and private sectors,• Security versus flexibility in employment,• Improved human resource management,• Formal learning versus in-firm competency acquirement.

The Policy DimensionThe focus on HRA in enterprises has lead to a growing interest by stakeholders who have started to identify and formulate their positions. The main stakeholders, such as the enterprises, investors, employees, trade unions and governments, are therefore gradually becoming aware of the potential of HRA, albeit from different perspectives.

The basic s in this perspective are:• Should HRA be mandatory for enterprises alongside financial statements, i.e. should law and/or social partner agreements regulate HRA?• If mandatory, what kind of information should be included in such statements?• If voluntary, how to secure the interests of, say the employees, at enterprise level?

If, and this is still a big if, the public sector, nationally or internationally, decides to promote HRA, three ways forward can be identified:• The voluntary market-based method i.e. develop a consistent framework which can be operational across sectors and countries and promote this through a rewarding and image campaign,• The voluntary rewarding method, i.e. develop a consistent framework supported by rewarding mechanisms once it is introduced and approved at enterprise level,• The compulsory method i.e. identify disclosure of human resources as a societal concern and prepare international regulations.

HRA is not a new issue in economics. Economists consider human capital as a production factor, and they explore different ways of measuring its investment in education, health and other areas. Accountants have recognized the value of human

assets for at least 70 years. Research into true human resource accounting began in the 1960s.

Performance Ratios/Indicators for HRMWhat data might we use when accounting for human assets?• FTEs – Full time equivalent staff• Headcount (H) e.g. total FTEs at month end• Revenues(R) – total operating income (total sales)• Expenses (E)- Operating expenditure exac. Tax, interest and extraordinary items• Profit-R Less E• Cash Like rewards (C)- emoluments: salaries, wages, overtime, bonuses, commissions, including NI contributions.• Benefits (B) –other rewards which may or may not be taxed as “benefit in kind” – cars, pensions, company loans etc.

Staffing Performance IndicatorsInternal:1. Sales per employee – indicates general employee productivity. Compare SPE this year over last year and with SPEs of rival organisations. Their turnover may be smaller but they may have a better SPE.SPE = R/HH may increase if the business expands. Was the growth was worth it (SPE)?2. Recover Rate Aggregate compensation and benefits then divide by revenue. LRR compares staffing costs with revenues delivered. Are we obtaining better or worse returns on each RR of staff expenditure? A decreasing RR is desirable.RR = (C+B)/RUnravelling influences on RR can be difficult e.g. is it the staff turnover or a new marketing approach or manufacturing plant? The impact on additional investment should show through in RR later – revenue increases whilst staffing costs fall.3. Utilisation % - can be applied e.g. to a consultancy company or school whose main business is allocating or selling the time of its staff. We assume that an increase in U% is desirable – is this always the case?U%= R/(C+B)R (revenue) can be substituted by another measurable output e.g. wagons delivered, dustbins emptied, examination results (points). Calculation must include staff costs of the whole business unit – direct and support staff.External:4. Profit per Head like RoCE, shareholders and business analysts may use profit per head or profit before tax per head to focus on employee related costs and returns.PpH= P/HA firm’s PpH rating may highlight under-achievement and profit potential when compared to industry competitors. Corporate preditors may be attracted.5. Compensation per Re. Profit. This evaluates profit against cost/employee rather than headcount. Interpretation can be difficult. CpP can swing with profits e.g. where there are close links between profits and staff compensation (profit related bonuses).CpP= (C+B)/P

CpP is negative where a firm is making a loss. What if CpP is a small positive number and CpP a small negative number? CpP may indicate that better management could improve cost-effectiveness or controls.6. Personnel services expenses (PSE). What are the total operating expenses of the personnel/HRM section.7. Personal Services Headcount (PSH) – total FTE for the personal/HR section in the calculation period.8. Personal Service Cost %. (PSC) Divide PSE by total operating expenses (E) to identify rends and to influence budgeting processes.PSC =PSE/E

Q.15 What are the various models and theories for valuation of shares and goodwill?Ans Theories for valuation of Shares:a) Value of assets: In this approach the focus for the valuation of the shares will be on the assets. The net value of the assets, i.e. the value of the assets less the liabilities will be used. For computation of valuation of shares, the total value of all the assets will be divided by the total number of shares.

But in this approach,i) Non trading assets should be includedii) If the company is having outstanding preference shares, their value should be deducted to calculate the net asset available to the equity shareholders.iii) There may a lot of intangible assets in the balance sheet like preliminary expenses, deferred revenue expenditure, discount on issue of shares/debenture etc. These should normally be excluded from the value of total assets.

This approach has certain limitations.Firstly the book value of the assets is directly dependent on the accounting policies followed by the company. This is more so in the area of booking depreciation, methods of provisioning adopted by the company, and valuation of inventory.

Second, in the valuation of intangible assets, there are no standard procedures. This is for intangible assets like goodwill, patents etc.

b) Realizable or liquidation of value:To overcome some of the limitations in the book value approach, here the value of assets is taken to be the market value. Thus the value chosen is the one which can be had by selling the assets. It is also known as the liquidation value. This may be estimated for the company as whole, as it would be misleading or even irrelevant to look at individual assets. The value would be equivalent to estimated net amount that will be received by sale of assets less liabilities.The method is as followsNet Estimated value of assets = Estimated market value of assets – LiabilitiesValue of the share = Net Estimated value of assets/ Number of Equity shares

c) Replacement or reproduction value:In this approach, we move away from both the book value as well as the market value. Instead, we focus on the assumption that if the assets were to be replaced or reproduced all over again, what will be the value required. Thus the value of assets is taken to be on the basis of replacement cost rather than historical cost and market value. This replacement cost is estimated by competent authorities, like chartered engineers, other competent authorities. Again, there is and most likely a possibility that the replacement value may differ from authority to authority depending on the process, competency in valuing all the assets, person related factors and the assumptions that they make.The method is as followsNet Replacement value of assets = Estimated replacement value of assets – LiabilitiesValue of the share = Net replacement value of assets/Number of equity sharesSome of the limitations:First- replacement value of certain assets that are no longer available, or of an older technology may not be possible.Second- estimating impact of depreciation on the replacement cost is difficult.

d) Yield/Earnings Approach: This approach assumes that the investors are interested in the income an investment would generate in the future. Often past earnings and income also have a bearing on the expected income in the future. Then the priced- i.e. the valuation of the share that they are prepared to pay depends upon the dividends, which they are expected to earn.As such the value of share is calculated as:Price = Rate of dividend x paid up value of share/ Normal rate of return

VALUATION OF GOODWILLGoodwill is the value or the amount of reputation/standing/credibility of the business in respect of additional profit expected in future over and above the normal level of profit earned by a company – normally in the same class of business.

i) Super Profit Approach: In this approach, the future expected profits of the company are compared with normal profits, had their not been goodwill. There would some adjustments to be made for known factors affecting the profitability. Normal profit indicates the profit, which would have been earned by an average firm without goodwill. Normal profits can be calculated by multiplying the average capital employed by the average rate of return. The difference between future expected profit and normal profit is in the form of super profits, which is the measure of extra profits earned by the firm due to goodwill. Goodwill is calculated by multiplying the super profit by the certain number of years. The number of years to be taken into account would differ from investor to investor, from company to company and also would differ from industry to industry. It is a highly judgmental. Normally 3 to 5 years are considered.ii) Capitalisation Method: Total value of the business is calculated using the actual average profits after taking into account all factors based on normal expectation. The value of the goodwill is the difference between capitalized value and the net assets of the business.

Strategic Finance Notes - 3Q.12 Explain the accounting standards for investments in brief.AnsIntroduction:1. This Statement deals with accounting for investments in the financial statements of enterprises and related disclosure requirements.

Shares, debentures and other securities held as stock-in-trade (i.e., for sale in the ordinary course of business) are not ‘investments’ as defined in this Statement. However, the manner in which they are accounted for and disclosed in the financial statements is quite similar to that applicable in respect of current investments. Accordingly, the provisions of this Statement, to the extent that they relate to current investments, are also applicable to shares, debentures and other securities held as stock-in-trade, with suitable modifications as specified in this Statement.2. This Statement does not deal with:a) the bases for recognition of interest, dividends and rentals earned on investments which are covered by Accounting Standard 9 on Revenue Recognition;b) operating or finance leases;c) investments of retirement benefit plans and life insurance enter¬prises; andd) mutual funds and/or the related asset management companies, banks and public financial institutions formed under a Central or State Government Act or so declared under the Companies Act, 1956.

DefinitionsThe following terms are used in this Statement with the meanings assigned:

Investments are assets held by an enterprise for earning income by way of dividends, interest, and rentals, for capital apprecia¬tion, or for other bene¬fits to the investing enterprise. Assets held as stock-in-trade are not ‘investments’.

A current investment is an investment that is by its nature readily realisable and is intended to be held for not more than one year from the date on which such investment is made.A long-term investment is an investment other than a current investment.An investment property is an investment in land or buildings that are not intended to be occupied substantially for use by, or in the operations of, the investing enterprise.Fair value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s length transaction. Under appropriate circumstances, market value or net realisable value provides an evidence of fair value.Market value is the amount obtainable from the sale of an invest¬ment in an open market, net of expenses necessarily to be in¬curred on or before disposal.

ExplanationForms of Investments3. Enterprises hold investments for diverse reasons. For some enterprises, investment

activity is a significant element of operations, and assessment of the performance of the enterprise may largely, or solely, depend on the reported results of this activity.4. Some investments have no physical existence and are represented merely by certificates or similar documents (e.g., shares) while others exist in a physical form (e.g., buildings). The nature of an investment may be that of a debt, other than a short or long term loan or a trade debt, representing a monetary amount owing to the holder and usually bearing interest; alternatively, it may be a stake in the results and net assets of an enterprise such as an equity share. Most investments represent financial rights, but some are tangible, such as certain investments in land or buildings.5. For some investments, an active market exists from which a market value can be established. For such investments, market value generally provides the best evidence of fair value. For other investments, an active market does not exist and other means are used to determine fair value.ExplanationClassification of Investments6. Enterprises present financial statements that classify fixed assets, investments and current assets into separate categories. Investments are classified as long term investments and current investments. Current investments are in the nature of current assets, although the common practice may be to include them in investments.7. Investments other than current investments are classified as long term investments, even though they may be readily marketable.ExplanationCost of Investments8. The cost of an investment includes acquisition charges such as brokerage, fees and duties.9. If an investment is acquired, or partly acquired, by the issue of shares or other securities, the acquisition cost is the fair value of the securities issued (which, in appropriate cases, may be indicated by the issue price as determined by statutory authorities). The fair value may not necessarily be equal to the nominal or par value of the securities issued.10. If an investment is acquired in exchange, or part exchange, for another asset, the acquisition cost of the investment is determined by reference to the fair value of the asset given up. It may be appropriate to consider the fair value of the investment acquired if it is more clearly evident.11. Interest, dividends and rentals receivables in connection with an investment are generally regarded as income, being the return on the investment. However, in some circumstances, such inflows represent a recovery of cost and do not form part of income. For example, when unpaid interest has accrued before the acquisition of an interest-bearing investment and is therefore included in the price paid for the investment, the subsequent receipt of interest is allocated between pre-acquisition and post-acquisition periods; the pre-acquisition portion is deducted from cost. When dividends on equity are declared from pre-acquisition profits, a similar treatment may apply. If it is difficult to make such an allocation except on an arbitrary basis, the cost of investment is normally reduced by dividends receivable only if they clearly represent a recovery of a part of the cost.12. When right shares offered are subscribed for, the cost of the right shares is added to

the carrying amount of the original holding. If rights are not subscribed for but are sold in the market, the sale proceeds are taken to the profit and loss statement. However, where the investments are acquired on cum-right basis and the market value of investments immediately after their becoming ex-right is lower than the cost for which they were acquired, it may be appropriate to apply the sale proceeds of rights to reduce the carrying amount of such investments to the market value.Carrying Amount of InvestmentsCurrent Investments13. The carrying amount for current investments is the lower of cost and fair value. In respect of investments for which an active market exists, market value generally provides the best evidence of fair value. The valuation of current investments at lower of cost and fair value provides a prudent method of determining the carrying amount to be stated in the balance sheet.14. Valuation of current investments on overall (or global) basis is not considered appropriate. Sometimes, the concern of an enterprise may be with the value of a category of related current investments and not with each individual investment, and accordingly the investments may be car¬ried at the lower of cost and fair value computed categorywise (i.e. equity shares, preference shares, convertible debentures, etc.). However, the more prudent and appropriate method is to carry investments individual¬ly at the lower of cost and fair value.15. For current investments, any reduction to fair value and any rever¬sals of such reductions are included in the profit and loss statement.Carrying Amount of InvestmentsLong-term Investments16. Long-term investments are usually carried at cost. However, when there is a decline, other than temporary, in the value of a long term investment, the carrying amount is reduced to recognise the decline. Indicators of the value of an investment are obtained by reference to its market value, the investee’s assets and results and the expected cash flows from the investment. The type and extent of the investor’s stake in the investee are also taken into account. Restrictions on distributions by the investee or on disposal by the investor may affect the value attributed to the investment.17. Long-term investments are usually of individual importance to the investing enterprise. The carrying amount of long-term investments is therefore determined on an individual investment basis.18. Where there is a decline, other than temporary, in the carrying amounts of long term investments, the resultant reduction in the carrying amount is charged to the profit and loss statement. The reduction in carrying amount is reversed when there is a rise in the value of the investment, or if the reasons for the reduction no longer exist.Investment Properties19. The cost of any shares in a co-operative society or a company, the holding of which is directly related to the right to hold the investment property, is added to the carrying amount of the investment property.Disposal of Investments20. On disposal of an investment, the difference between the carrying amount and the disposal proceeds, net of expenses, is recognised in the profit and loss statement.21. When disposing of a part of the holding of an individual investment, the carrying

amount to be allocated to that part is to be determined on the basis of the average carrying amount of the total holding of the investment.Reclassification of Investments22. Where long-term investments are reclassified as current invest¬ments, transfers are made at the lower of cost and carrying amount at the date of transfer.23. Where investments are reclassified from current to long-term, trans¬fers are made at the lower of cost and fair value at the date of transfer.Disclosure24. The following disclosures in financial statements in relation to investments are appropriate:—a) the accounting policies for the determination of carrying amount of investments;b) the amounts included in profit and loss statement for:i) interest, dividends (showing separately dividends from sub¬sidiary companies), and rentals on investments showing separately such income from long term and current invest¬ments. Gross income should be stated, the amount of income tax deducted at source being included under Advance Taxes Paid;ii) profits and losses on disposal of current investments and changes in carrying amount of such investments;iii) profits and losses on disposal of long term investments and changes in the carrying amount of such investments;c) significant restrictions on the right of ownership, realisability of investments or the remittance of income and proceeds of disposal;d) the aggregate amount of quoted and unquoted investments, giving the aggregate market value of quoted investments;e) other disclosures as specifically required by the relevant statute governing the enterprise.

Q.13 Explain the accounting standards for inventories in brief.Ans ObjectiveA primary issue in accounting for inventories is the determination of the value at which inventories are carried in the financial statements until the related revenues are recognised. This Statement deals with the determination of such value, including the ascertainment of cost of inventories and any write-down thereof to net realisable value.

Scope1. This Statement should be applied in accounting for inventories other than:a) work in progress arising under construction contracts, including directly related service contracts (see Accounting Standard (AS) 7, Accounting for Construction Contracts);b) work in progress arising in the ordinary course of business of service providers;c) shares, debentures and other financial instruments held as stock-in-trade; andd) producers’ inventories of livestock, agricultural and forest products, and mineral oils, ores and gases to the extent that they are measured at net realisable value in accordance with well established practices in those industries.

2. The inventories referred to in paragraph 1 (d) are measured at net realisable value at

certain stages of production. This occurs, for example, when agricultural crops have been harvested or mineral oils, ores and gases have been extracted and sale is assured under a forward contract or a government guarantee, or when a homogenous market exists and there is a negligible risk of failure to sell. These inventories are excluded from the scope of this Statement.

Definitions3. The following terms are used in this Statement with the meanings specified:Inventories are assets:a. held for sale in the ordinary course of business;b. in the process of production for such sale; orc. in the form of materials or supplies to be consumed in the production process or in the rendering of services.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

4. Inventories encompass goods purchased and held for resale, for example, merchandise purchased by a retailer and held for resale, computer software held for resale, or land and other property held for resale. Inventories also encompass finished goods produced, or work in progress being produced, by the enterprise and include materials, maintenance supplies, consumables and loose tools awaiting use in the production process. Inventories do not include machinery spares which can be used only in connection with an item of fixed asset and whose use is expected to be irregular; such machinery spares are accounted for in accordance with Accounting Standard (AS) 10, Accounting for Fixed Assets.

Measurement of Inventories5. Inventories should be valued at the lower of cost and net realisable value.

Cost of Inventories6. The cost of inventories should comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Costs of Purchase7. The costs of purchase consist of the purchase price including duties and taxes (other than those subsequently recoverable by the enterprise from the taxing authorities), freight inwards and other expenditure directly attributable to the acquisition. Trade discounts, rebates, duty drawbacks and other similar items are deducted in determining the costs of purchase.

Costs of Conversion8. The costs of conversion of inventories include costs directly related to the units of production, such as direct labour. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished

goods. Fixed production overheads are those indirect costs of production that remain relatively constant regardless of the volume of production, such as depreciation and maintenance of factory buildings and the cost of factory management and administration. Variable production overheads are those indirect costs of production that vary directly, or nearly directly, with the volume of production, such as indirect materials and indirect labour.9. The allocation of fixed production overheads for the purpose of their inclusion in the costs of conversion is based on the normal capacity of the production facilities. Normal capacity is the production expected to be achieved on an average over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. The actual level of production may be used if it approximates normal capacity. The amount of fixed production overheads allocated to each unit of production is not increased as a consequence of low production or idle plant. Unallocated overheads are recognised as an expense in the period in which they are incurred. In periods of abnormally high production, the amount of fixed production overheads allocated to each unit of production is decreased so that inventories are not measured above cost. Variable production overheads are assigned to each unit of production on the basis of the actual use of the production facilities.

10. A production process may result in more than one product being produced simultaneously. This is the case, for example, when joint products are produced or when there is a main product and a by-product. When the costs of conversion of each product are not separately identifiable, they are allocated between the products on a rational and consistent basis. The allocation may be based, for example, on the relative sales value of each product either at the stage in the production process when the products become separately identifiable, or at the completion of production. Most by-products as well as scrap or waste materials, by their nature, are immaterial. When this is the case, they are often measured at net realisable value and this value is deducted from the cost of the main product. As a result, the carrying amount of the main product is not materially different from its cost.

Other Costs11. Other costs are included in the cost of inventories only to the extent that they are incurred in bringing the inventories to their present location and condition. For example, it may be appropriate to include overheads other than production overheads or the costs of designing products for specific customers in the cost of inventories.12. Interest and other borrowing costs are usually considered as not relating to bringing the inventories to their present location and condition and are, therefore, usually not included in the cost of inventories.

Exclusions from the Cost of Inventories13. In determining the cost of inventories in accordance with paragraph 6, it is appropriate to exclude certain costs and recognise them as expenses in the period in which they are incurred. Examples of such costs are:a. abnormal amounts of wasted materials, labour, or other production costs;b. storage costs, unless those costs are necessary in the production process prior to a

further production stage;c. administrative overheads that do not contribute to bringing the inventories to their present location and condition; andd. selling and distribution costs.

Cost Formulas14. The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects should be assigned by specific identification of their individual costs.15. Specific identification of cost means that specific costs are attributed to identified items of inventory. This is an appropriate treatment for items that are segregated for a specific project, regardless of whether they have been purchased or produced. However, when there are large numbers of items of inventory which are ordinarily interchangeable, specific identification of costs is inappropriate since, in such circumstances, an enterprise could obtain predetermined effects on the net profit or loss for the period by selecting a particular method of ascertaining the items that remain in inventories.16. The cost of inventories, other than those dealt with in paragraph 14, should be assigned by using the first-in, first-out (FIFO), or weighted average cost formula. The formula used should reflect the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition.17. A variety of cost formulas is used to determine the cost of inventories other than those for which specific identification of individual costs is appropriate. The formula used in determining the cost of an item of inventory needs to be selected with a view to providing the fairest possible approximation to the cost incurred in bringing the item to its present location and condition. The FIFO formula assumes that the items of inventory which were purchased or produced first are consumed or sold first, and consequently the items remaining in inventory at the end of the period are those most recently purchased or produced. Under the weighted average cost formula, the cost of each item is determined from the weighted average of the cost of similar items at the beginning of a period and the cost of similar items purchased or produced during the period. The average may be calculated on a periodic basis, or as each additional shipment is received, depending upon the circumstances of the enterprise.

Techniques for the Measurement of Cost18. Techniques for the measurement of the cost of inventories, such as the standard cost method or the retail method, may be used for convenience if the results approximate the actual cost. Standard costs take into account normal levels of consumption of materials and supplies, labour, efficiency and capacity utilisation. They are regularly reviewed and, if necessary, revised in the light of current conditions.19. The retail method is often used in the retail trade for measuring inventories of large numbers of rapidly changing items that have similar margins and for which it is impracticable to use other costing methods. The cost of the inventory is determined by reducing from the sales value of the inventory the appropriate percentage gross margin. The percentage used takes into consideration inventory which has been marked down to below its original selling price. An average percentage for each retail department is

often used.

Net Realisable Value20. The cost of inventories may not be recoverable if those inventories are damaged, if they have become wholly or partially obsolete, or if their selling prices have declined. The cost of inventories may also not be recoverable if the estimated costs of completion or the estimated costs necessary to make the sale have increased. The practice of writing down inventories below cost to net realisable value is consistent with the view that assets should not be carried in excess of amounts expected to be realised from their sale or use.21. Inventories are usually written down to net realisable value on an item-by-item basis. In some circumstances, however, it may be appropriate to group similar or related items. This may be the case with items of inventory relating to the same product line that have similar purposes or end uses and are produced and marketed in the same geographical area and cannot be practicably evaluated separately from other items in that product line. It is not appropriate to write down inventories based on a classification of inventory, for example, finished goods, or all the inventories in a particular business segment.22. Estimates of net realisable value are based on the most reliable evidence available at the time the estimates are made as to the amount the inventories are expected to realise. These estimates take into consideration fluctuations of price or cost directly relating to events occurring after the balance sheet date to the extent that such events confirm the conditions existing at the balance sheet date.23. Estimates of net realisable value also take into consideration the purpose for which the inventory is held. For example, the net realisable value of the quantity of inventory held to satisfy firm sales or service contracts is based on the contract price. If the sales contracts are for less than the inventory quantities held, the net realisable value of the excess inventory is based on general selling prices. Contingent losses on firm sales contracts in excess of inventory quantities held and contingent losses on firm purchase contracts are dealt with in accordance with the principles enunciated in Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date.24. Materials and other supplies held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. However, when there has been a decline in the price of materials and it is estimated that the cost of the finished products will exceed net realisable value, the materials are written down to net realisable value. In such circumstances, the replacement cost of the materials may be the best available measure of their net realisable value.25. An assessment is made of net realisable value as at each balance sheet date.

Disclosure26. The financial statements should disclose:a. the accounting policies adopted in measuring inventories, including the cost formula used; andb. he total carrying amount of inventories and its classification appropriate to the enterprise.

27. Information about the carrying amounts held in different classifications of inventories and the extent of the changes in these assets is useful to financial statement users. Common classifications of inventories are raw materials and components, work in progress, finished goods, stores and spares, and loose tools.Strategic Finance Notes - 2Q.8. How is CAPM model helpful? Detail out the model and its theory.Ans Capital Asset Pricing Model (CAPM)

Introduction: The capital Asset Pricing Model (CAPM) is an equilibrium model, which describes the pricing of assets, as well as derivatives. The model concludes that the expected return of an asset(or derivative) equals the riskless return plus a measure of the assets non-diversifiable risk (“beta”) times the market-wide risk premium (excess expected return of the market portfolio over the riskless return). That is:

Expected security return = Riskless return + beta x (expected market risk premium)It concludes that only the risk, which cannot be diversified away by holding a well-diversified portfolio (e.g. the market portfolio) will affect the market price of the asset. This risk is called systematic risk, while risk that can be diversified away is called diversifiable risk.

The CAPM asks what is the value of an asset (or derivative) relative to the return of the market portfolio. Because of this, the option models are often referred to as “relative” valuation models, while the CAPM is considered an “absolute” valuation model. However the model is only valid within a special set of assumptions.

Assumptions of CAPMInvestors are risk averse individuals who maximize the expected utility of their end of period wealth.

Implication: The model is a one period model.• Investors have homogenous expectations (belief) about asset returns. Implication : all investors perceive identical opportunity sets. This is, everyone have the same information at the same time.• Asset returns are distributed by the normal distribution.• There exists a risk free asset and investors may borrow or lend unlimited amounts of the asset at a constant rate: the risk free rate (k).• There is a definite number of assets and their quantities are fixed within the one period world.• All assets are perfectly divisible and priced in a perfectly competitive marked. Implication: e.g. human capital is non-existing.• Asset markets are frictionless and information is costless and simultaneously available to all investors.• There are no market imperfections such as taxes, regulations or restrictions on short selling.

Rationale of CAPM:This method of valuing assets and calculating the cost of capital for an alternative i.e. the capital asset price model (CAPM) has come to dominate modern finance. The rationale of the CAPM can be simplified as follows.

Investors can eliminate some sorts of risk known as Residual risk or alpha, by holding a diversified portfolio of assets. These alpha risks are specific to an individual asset, for example, the risk that a company’s managers will turn out to be no good. Some risks, such as that of a global recession cannot be eliminated through diversification.

So even a basket of all the shares in a stock market will still be risky. People must be rewarded for investing in such a risky basket by earning returns on average above those that they can get on safer assets, such as treasury bills. Assuming investors diversify away alpha risks, how an investor values any particular asset should depend crucially on how much the asset’s price is affected by the risk of the market as a whole.The market’s risk contribution is captured by a measure of relative volatility. BETA, which indicates how much an asset’s price is expected to change when the overall market changes. Safe investments have a beta close to zero: economists call these assets risk free. Riskier investments, such as a share, should earn a premium over the risk free rate. How much is calculated by the average premium for all assets of that type, multiplied by the particular asset’s beta.

Pronounced as though it were spelled cap-m, this model was originally developed in 1952 by Harry markowitz and fine tuned over a decade later by others, including William Sharpe. CAPM describes the relationship between risk and expected return, and it serves as a model for the pricing of risky securities. CAPM says that the expected return of a security or a portfolio equals the rate on a risk free security plus a risk premium. If this expected return does not meet or beat our required return, the investment should not be undertaken.

The commonly used formula to describe CAPM relationship is as follows:Required (expected return)= RF rate + (Market return – RF rate)* Beta

Implications of CAPM• Investors will always combine a risk free asset with a market portfolio of risky assets. They will invest in risky assets in proportion to their market value.• Investors will be compensated only for that risk which they can’t diversify. This is the market related risk.• Investor can expect returns from their investment according to the risk.

The concept of risk and return as developed under CAPM have intuitive appeal and they are quite simple to understand. Financial managers use these concepts in a number of financial decision making such as valuation of securities, cost of capital measurement, investment risk analysis etc.

Limitations of CAPM:

• Unrealistic assumptions: CAPM is based on a number of assumptions that are far from the reality. For e.g. its very difficult to find a risk free security.A short term, highly liquid govt. security is considered as a risk free security. Its unlikely that govt. will default but inflation causes uncertainty about the real rate of return.

The assumption of the equality of the lending and borrowings is also not correct. In practice these rates differ. Further, investors may not hold highly diversified portfolios or the market indices may not be well diversified. Under these circumstances, CAPM may not accurately explain the investment behavior of investors and beta may fail to capture the risk of investment.• Testing CAPM Most of the assumptions of CAPM may not be very critical for its practical validity. What we need to know therefore, is the empirical validity of CAPM. We need to establish that beta is able to measure the risk of security and that there is a significant correlation between beta and the expected return.• Stability of BETA : Beta is a measure of a security’s future risk. But investors don’t have the future data to estimate beta. What they have are past data about the share prices and the market portfolio. Thus, they can only estimate beta based on historical data. Investors can use historical beta as the measure of future risk only if its stable over time. This implies that historical betas are poor indicators of the future risk of securities.

CAPM is a useful device for understanding the risk return relationship inspite of its limitations. It provides a logical and quantitative approach for estimating risk. Its better than many alternative subjective methods of determining risk and risk premium. One major problem in the use of CAPM is that many times the risk of an asset is not captured by beta alone.

Q.9 What are the different dividend theories? Explain their application with the Indian context.Ans Different Dividend theories:

• Bird in Hand Theory:

The conclusions of Miller and Modigliani- that, dividend policy does not matter – presented a strong challenge to the conventional wisdom of that time. Finance theorists and corporate mangers believed that investors preferred dividends to capital gains and that a firm could increase (or at least support) the market value of its shares by choosing a generous dividend policy.

At that time, the most popular argument for dividend was the “Bird in the hand”- Theory. It holds that dividends (a bird in the hand) are preferred to retained earnings (a bird in the bush) because the latter never materialize as future dividends (it can fly away). This is obvious as the risk of having money today is definitely less than risking your money for returns in the future.

At first glance, this theory seems to be reasonable, especially in the light of the fact that

a higher dividend stocks tend to be lower on the risk spectrum of common stocks. And other things being equal, less risky stocks are more expensive than higher risk stocks with the same expected future cash flow.This theory from Myron Gordon is rather an argument about investment policy than about dividends.

• Smoothing Theory

One of the first papers on the subject dividend policy, was published by John Lintner in 1956. He conducted a series of interviews with mangers about their thinking on the determination of dividend policy. His results can be summarized in four stylized facts:

1. Firms have long-run target dividend payout ratios. Mature companies with stable earnings generally pay out a high proportion of earnings; growth companies have low payouts.2. Managers focus more on dividend changes than on absolute levels. Thus, paying a Rs. 2.0 dividends is an important financial decision if last year’s dividend was Re. 1.00, but no big deal if last year’s dividend was Rs. 2.00.3. Dividend changes follow shifts in long run, sustainable earnings. Managers “smooth” dividends. Transitory earnings changes are unlikely to affect dividend payouts. This also helps to keep investors happy.4. Managers are reluctant to make dividend changes that might have to be reversed. They are particularly worried about having to rescind a dividend increase.

• Tax Differential Theory

According to this theory, since dividends are effectively taxed at higher rates than capital gains in most countries, investors require higher rates of return on stocks with high dividend yields.

The theory says, a firm should pay a low (or zero) dividend in order to minimize its cost of capital and maximise its value. The tax system may tend to favour retention of profit and limit dividend. Thus low dividend yield shares have been likely to be in great demand by high rate taxpayers, who prefer a low dividend payout and a high rate of earnings retention in the hope of an appreciation in the capital value of the company.

Small shareholders may prefer relatively high dividend pay out rate. The dividend policy of such a firm may be a compromise between a low and a high payout.

• Residual Theory

According to residual theory of dividends, the firm should follow its investment policy of accepting all positive NPV projects and paying out dividends if and only if funds are available. The focus is on growth. The discounting factor in the calculation of NPV would be equal to greater than the cost of capital K.

If the firm treats dividend as a residual, then the dividend can vary highly from period to period depending upon the opportunities available and the investment plan and operating results of the firm. If a firm attracts investors falling into a particular dividend clientele, it suggests that the firm should maintain fairly stable dividend policy. The residual dividend policy is used by most firms to set a long run target payout.

• Span of Control Theory:

Managers in an organization look at the cash flows generated from the operations as an important and convenient source of new capital. The professional managers prefer to have a large span of control as measured by the number of employees, sales, market value, total assets or total expenditure. In pursuit of managerial objective of increasing the span of control, directors are expected to prefer retention of profits to distributions.

Retention increases status, remuneration and security of mangers. Also increases in the firm’s investment schedule should result in growth in the value of shares to the extent that retained cash flows are reinvested in profitable projects.

• Investor Rationality Theory

Shefrin and Statman (1984) supported their argument based on the psychological preferences of individual investor. Their argument is that an investor who wishes to conserve his/her long run wealth could stipulate that portfolio capital should not be consumed, only dividends.

The investor can select dividend payout ratio that conforms to his/her desired consumption level. Thus even though taxes and transaction costs may favor capital gains, an investor may find cash dividends attractive and hence be willing to pay the appropriate premium. The investor then would invest in a portfolio of shares to meet h\this need. Some of the investments would be in shares with high payout ration for consumption needs and others with low payout ratio for capital appreciation.

Strategic Finance Notes - 1Q.3 With the help of models explain inventory control for working capital management.Ans INVENTORY MANAGEMENTIntroduction: Inventories are stock of the product a company is manufacturing for sale and components that make up the product.

Nature of Inventories: The various forms in which inventories exists in manufacturing company are• Raw Materials: are basic inputs that are converted into finished product through the manufacturing process.• Work-in-Progress: inventories are semi-manufactured products.• Finished Goods: inventories are those completely manufactured products, which are ready for sale.

Need to hold Inventories:• Transactions motive: emphasizes the need to maintain inventories to facilitate smooth production & sales operation.• Precautionary motive: necessitates holding of inventories to guard against the risk of unpredictable changes in demand & supply forces & other factors.• Speculative motive; influences the decision to increase or reduce inventory levels to take advantage of price fluctuations.Objective of Inventory Management• To maintain a large size of inventory for efficient and smooth production & sales operations.• To maintain a minimum investment in inventories to maximise profitability.

The firm should always avoid a situation of over investment or under investment in inventories.The major dangers of over investment are:a) Unnecessary tie up of the firm’s funds and loss of profit,b) Excessive carrying costs,c) Risk of liquidity.

The major dangers of under investments are:a) Production hold-ups.b) Failure to meet delivery commitments.An effective inventory management should:• Ensure a continuous supply of raw materials to facilitate uninterrupted production.• Maintain sufficient stocks of raw materials in periods of short supply and anticipate price changes,• Maintain sufficient finished goods inventory for smooth sales operation, and efficient customer service,• Minimize the carrying cost and time, and• Control investment in inventories and keep it at an optimum level.

Q.4. With the help of models explain cash control for working capital management.Ans CASH MANGEMENTCash is the most important current asset in any business operations. The term cash includes coins, currency and cheques held by the firm, and balances in its bank account.

Cash management is concerned with managing of1. cash flow into and out of the firm2. cash flows within the firm3. cash balances held by the firm by financing deficit or investments of surplus cash

All these activities are to be done at minimum cost.

Facets of Cash management:Cash planning:

Cash inflows and outflows should be planned to project cash surplus or deficit for each period of planning period. Cash budget is prepared for this purpose.

Managing cash flows:Cash flow should be properly managed. Inflow of cash should accelerate while outflow should decelerate as far as possible.

Optimum cash level:The firm should determine optimum cash level considering the cost of excess cash and danger of cash deficiency.

Investing surplus cash:Surplus cash should be properly invested in short term opportunities like deposits, corporate lending, marketable securities to earn profits.

Motives of Holding Cash

Transaction motiveThe transaction motive requires a firm to hold cash to conduct its business in ordinary course to make payments for purchases, wages, other operating expenses, taxes etc. Transaction motive mainly refers to holding cash to meet anticipated payments whose timing is not perfectly matched with cash receipts.

Precautionary motiveIt is needed to hold cash for contingencies in future. It gives cushion to withstand the unexpected emergency. Less cash is required to be maintained for emergency if cash flows are fairly accurate. The precautionary balance is kept in cash form or marketable securities.

Speculative motiveIt is holding cash for investing it in profit making opportunities as and when they arise.Cash forecasting.Short-term forecasting.Short-term forecasting is done for the following reasons.To determine operating cash requirements.To anticipate short-term financing: which is generally obtained from bank.To manage investment of surplus cash : which help managers to study the market and invest in better yield investments.Short-term forecasting methods1. Receipts and disbursement methodThis sources of cash inflow like operating, non operating and financial inflows etc. are considered on receipt side. Whereas on disbursement side cash outflows like operating expenses, capital expenditure, contractual payments, taxes and likes are considered to come to work out cash requirements.

Receipt and disbursement method is sound tool as it gives clear picture of all items.

2. Adjusted net income methodThis method involves tracing of working capital flows. Its objectives are to project company’s need for cash at a future date and to show whether the company can generate it internally or borrow from market.

Long term cash forecasting:It is generally for the period of 3 to 5 years. It is not as detail as short term forecast.It helps company to find future financial needs and improves corporate planning.

Determining the optimum cash balance:Organisation should keep enough liquidity so that operations do not suffer and should not loose profit due to high liquidity. Then how one should decide on optimum cash balance? There are two situations, which are explained below.

Optimum Cash balance

Q.7 What are the reasons for restructuring through share buybacks? Explain Indian context and regulations.Ans. The provisions regulating buy back of shares are contained in Section 77A, 77AA and 77B of the Companies Act,1956. These were inserted by the Companies (Amendment) Act,1999. The Securities and Exchange Board of India (SEBI) framed the SEBI(Buy Back of Securities) Regulations,1998 and the Department of Company Affairs framed the Private Limited Company and Unlisted Public company (Buy Back of Securities) Regulations,1998 pursuant to Section 77A(2)(f) and (g) respectively.

Objectives of Buy Back:

Shares may be bought back by the company on account of one or more of the following reasonsi. To increase promoters holdingii. Increase earning per shareiii. Rationalize the capital structure by writing off capital not represented by available assets. iv. Support share valuev. To thwart takeover bidvi. To pay surplus cash not required by businessInfact the best strategy to maintain the share price in a bear run is to buy back the shares from the open market at a premium over the prevailing market price.

Resources of Buy BackA Company can purchase its own shares from

(i) free reserves; Where a company purchases its own shares out of free reserves, then a sum equal to the nominal value of the share so purchased shall be transferred to the capital redemption reserve and details of such transfer shall be disclosed in the balance-sheet or(ii) securities premium account; or(iii) proceeds of any shares or other specified securities. A Company cannot buyback its shares or other specified securities out of the proceeds of an earlier issue of the same kind of shares or specified securities.

Conditions of Buy Back(a) The buy-back is authorised by the Articles of association of the Company;

(b) A special resolution has been passed in the general meeting of the company authorising the buy-back. In the case of a listed company, this approval is required by means of a postal ballot. Also, the shares for buy back should be free from lock in period/non transferability.The buy back can be made by a Board resolution If the quantity of buyback is or less than ten percent of the paid up capital and free reserves;

(c) The buy-back is of less than twenty-five per cent of the total paid-up capital and fee reserves of the company and that the buy-back of equity shares in any financial year shall not exceed twenty-five per cent of its total paid-up equity capital in that financial year;

(d) The ratio of the debt owed by the company is not more than twice the capital and its free reserves after such buy-back;

(e) There has been no default in any of the followingi. in repayment of deposit or interest payable thereon,ii. redemption of debentures, or preference shares oriii. payment of dividend, if declared, to all shareholders within the stipulated time of 30 days from the date of declaration of dividend or iv. repayment of any term loan or interest payable thereon to any financial institution or bank;

(f) There has been no default in complying with the provisions of filing of Annual Return, Payment of Dividend, and form and contents of Annual Accounts;

(g) All the shares or other specified securities for buy-back are fully paid-up;

(h) The buy-back of the shares or other specified securities listed on any recognised stock exchange shall be in accordance with the regulations made by the Securities and Exchange Board of India in this behalf; and

(i) The buy-back in respect of shares or other specified securities of private and closely held companies is in accordance with the guidelines as may be prescribed.

Disclosures in the explanatory statement

The notice of the meeting at which special resolution is proposed to be passed shall be accompanied by an explanatory statement stating - (a) a full and complete disclosure of all material facts; (b) the necessity for the buy-back; (c) the class of security intended to be purchased under the buy-back; (d) the amount to be invested under the buy-back; and (e) the time-limit for completion of buy-back

Sources from where the shares will be purchasedThe securities can be bought back from(a) existing security-holders on a proportionate basis;Buyback of shares may be made by a tender offer through a letter of offer from the holders of shares of the company or(b) the open market through(i). book building process;(ii) stock exchanges or(c) odd lots, that is to say, where the lot of securities of a public company, whose shares are listed on a recognized stock exchange, is smaller than such marketable lot, as may be specified by the stock exchange; or(d) purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity.

Filing of Declaration of solvencyAfter the passing of resolution but before making buy-back, file with the Registrar and the Securities and Exchange Board of India a declaration of solvency in form 4A. The declaration must be verified by an affidavit to the effect that the Board has made a full inquiry into the affairs of the company as a result of which they have formed an opinion that it is capable of meeting its liabilities and will not be rendered insolvent within a period of one year of the date of declaration adopted by the Board, and signed by at least two directors of the company, one of whom shall be the managing director, if any: No declaration of solvency shall be filed with the Securities and Exchange Board of India by a company whose shares are not listed on any recognized stock exchange.

Register of securities bought backAfter completion of buyback, a company shall maintain a register of the securities/shares so bought and enter therein the following particularsa. the consideration paid for the securities bought-back,b. the date of cancellation of securities,c. the date of extinguishing and physically destroying of securities and d. such other particulars as may be prescribedWhere a company buys-back its own securities, it shall extinguish and physically destroy the securities so bought-back within seven days of the last date of completion of buy-back.

Issue of further shares after Buy backEvery buy-back shall be completed within twelve months from the date of passing the special resolution or Board resolution as the case may be.A company which has bought back any security cannot make any issue of the same kind of securities in any manner whether by way of public issue, rights issue up to six months from the date of completion of buy back.

Filing of return with the Regulator

A Company shall, after the completion of the buy-back file with the Registrar and the Securities and Exchange Board of India, a return in form 4 C containing such particulars relating to the buy-back within thirty days of such completion. No return shall be filed with the Securities and Exchange Board of India by an unlisted company.

Prohibition of Buy BackA company shall not directly or indirectly purchase its own shares or other specified securities - (a) through any subsidiary company including its own subsidiary companies; or (b) through any investment company or group of investment companies; or

Procedure for buy backa) Where a company proposes to buy back its shares, it shall, after passing of the special/Board resolution make a public announcement at least one English National Daily, one Hindi National daily and Regional Language Daily at the place where the registered office of the company is situated.b) The public announcement shall specify a date, which shall be "specified date" for the purpose of determining the names of shareholders to whom the letter of offer has to be sent.c) A public notice shall be given containing disclosures as specified in Schedule I of the SEBI regulations.d) A draft letter of offer shall be filed with SEBI through a merchant Banker. The letter of offer shall then be dispatched to the members of the company.e) A copy of the Board resolution authorising the buy back shall be filed with the SEBI and stock exchanges.f) The date of opening of the offer shall not be earlier than seven days or later than 30 days after the specified dateg) The buy back offer shall remain open for a period of not less than 15 days and not more than 30 days.h) A company opting for buy back through the public offer or tender offer shall open an escrow Account.

PenaltyIf a company makes default in complying with the provisions the company or any officer of the company who is in default shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to fifty thousand rupees, or with both. The offences are, of course compoundable under Section 621A of the Companies Act,1956.Posted by Koshy at 2:11 PM 2 comments: Email ThisBlogThis!Share to TwitterShare to FacebookShare to PinterestLabels: Strategic Finance


Exit costs are classified into 3 categories namely :-

Correct Answer Lost efficiency prior to separation , Job vacancy cost duringthe new search , Termination pay


True/False Tender offers us an alternative approach to acquire anotherfirm.Correct Answer TRUE

Select The Blank Increase in cost of capital means decrease in ________.Correct Answer Profitability

Multiple Choice Single Answer To calculate depreciable amount the following is subtractedfrom its historical cost :-Correct Answer Estimated residual value


The main characteristics of CAPM are :-Correct Answer It is an equilibrium Model , It describes the pricing of assetsas well as derivatives , Expected security return = Riskless return + beta x )(expected market risk premium

True/False Assets held as stock - in - trade are also investments.Correct Answer FALSE

Select The Blank Segment revenue includes ________.Correct Answer Revenue from transactions with other segments of theenterprise

Multiple Choice Single Answer Which is an example out of the following to which specialconsideration apply for depreciation :-Correct Answer Regenerative natural resources


The value based approach of HRA Tracking suggeststhat the value of human resources depends upon :-Correct Answer Capacity to generate revenue

True/False According to NI Approach, decrease in leverage decreasesthe overall cost of capital and increases the firm's value.Correct Answer FALSE

The employer in offering the job contract assumes a rangeof legal obligations such as :-Correct Answer Rewards - cash like & non cash like , Health & safety policies ,Pensions & contributions to social security payments




True/False Valuation of current investments on overall basis is notconsidered appropriate.Correct Answer TRUE

Select The Blank Combination of 2 or more companies into existing companyis called ________.Correct Answer Absorption

An investment property is an investment in land or buildings :-Correct Answer Not intended to be occupied substantially for use by ,investing enterprise Not intended to be in the operations of the investing enterprise

True/False Organisational changes are similar to mission changes.Correct Answer TRUE

Match The Following -Correct AnswerFree cash- Enormous conflicts of interest between Stakeholders and shareholdersflow theory

Net income-Cost of debt & equity do not change with a change in leverage ratioapproach

Net opera- The overall capitalization rate remains constant for all levels of financialting income approach leverages

Modigliani -weighted average cost of capital does not change with a change

Miller Theory in -the proportion of debt to equity in the capital structure

Select The Blank In the shareholding pattern of a company, the promoter'sholding includes________.Correct Answer Foreign Promoters


Multiple Choice Single Answer As per Pecking order theory, which is the costliest meansof funding :-Correct Answer Equity Shares

True/False The carrying amount for current investments is the lower ofcost & fair value.Correct Answer TRUE

The limitations of value of assets approach include :-Correct Answer Book value of the assets is directly dependent on theaccounting policies followed by the company , There are no standard proceduresfor valuation of intangible assets , No importance to the market value of the asset

True/False Management of working capital refers to the managementof total assets and liabilities of a company.Correct Answer FALSE

True/False When a company is able to assess an individual's worth,it helps in increasing its own worth.Correct Answer TRUE

Multiple Choice Single Answer The Board of Directors should pass a resolution permittingthe buy back upto what percent of the paid up equity capital?Correct Answer 0.1

Select The Blank Long term cash forecasting is generally for a period of________ years.Correct Answer 3 to 5 years



Multiple Choice Single Answer The following analysis is more targeted on similar activitiesor firms that exist in parallel within the activity model or process flow to ensurethat they are being done the same best way :-Correct Answer Comparative analysis

Accounting numbers are not influenced by :-Correct Answer Dividend policy , Time span of money , Financial andbusiness risk

Select The Blank Cost of ________ is more than other sources for raisingshort - term finance.Correct Answer Bank finance

True/False Segment result is segment revenue less segment expenses.Correct Answer TRUE

Multiple Choice Single Answer The depreciable assets are assets which are expected

to be used :-Correct Answer During more than 1 accounting period


Select The Blank An asset is included in segment assets, if and only if therelated depreciation or amortisation is included in ________.Correct Answer Segment expense



Implicit claims are non written promises and rights such as :-Correct Answer Right to provide service to customers , Job security for theemployees

Multiple Choice Single Answer Often a company borrows loans / debts by giving thefollowing as a security :-Correct Answer Shares

Match The Following -Correct AnswerA highly- Shows the illusion of financial problemsleveraged firm

Fiscal -advaIsntdaegdeu, ctible from the profitthe interest of financing with debt

Financing -Prevents firms from investing too muchwith a high percentage of debt

Firms must-Discussions about the sell out of assets must be maderepay debts


Arbitrage means :-Correct Answer Securities cannot sell at different prices

True/False Opportunity costs and real costs decrease the marketvalue of a firm.Correct Answer TRUE

Select The Blank the commercial paper may be issued in the multiples of ________.Correct Answer 5 lakhs

Strategic Finance - 24 A quantity discount is offered :-Correct Answer On large shipments

Indicators of the value of an investment are obtained by :-Correct Answer Reference to its market value , The investee`s assets , The expected cash flowsfrom the investment







Value based approach of HRA tracking can be divided into 2 categories - Non -monetary & monetary.Correct Answer True




Deferred payment plan is also known as:-Correct Answer Earn out plan

There are few methods of allocating depreciation over the useful life of an assets.Correct Answer False

Market approach is used for companies whose shares are ________ on the Stockmarket.Correct Answer Listed


Tender offers can be afforded by firms with :-Correct Answer A large amount of financial Slack

The following method of valuation is used for listed companies that have an activemarket for their shares :-Correct Answer Market value approach

According to Altman (1984) total costs in percentage of the market value of a firmrange between ________Correct Answer 12.1 % & 16.7 %

Conservative policy for determining the requirements of current assets is also knownas :-Correct Answer Flexible policy

Yield or earning approach method of valuation uses :-Correct Answer Price to earnings ratio


The ________ cost tier has the advantage of being the simplest to calculate and

justify.Correct Answer Direct

The existence of significant influence by an investor is usually evidenced in thefollowing ways :-Correct Answer Participation in policy making processes , Material transactions between theinvestor & the investee , Interchange of managerial personnel

Free Reserves is a component of :-Correct Answer EquitySentiments and rumours No fundamental basis.No effect on valuationUnlisted shares on stock exchange Difficult to estimate the price Invalid valuation of sharesManipulation of stock markets Invalid valuation of shares Easy to estimate the priceSelective information Valuation by various people on information available Valuation byvarious people on information available

Only firms with a large amount of financial slack can afford tender offers.Correct Answer True

Buy back through book building the process should be made through ________.Correct Answer An electronically linked transparent facility



A change in the method of depreciation is treated as a change in an accounting policyand is disclosed accordingly.Correct Answer True

Economies of scale arises with increase in volume of production leading to________.Correct Answer Reduction in the cost of production



Net period - no cash discount means :-Correct Answer The seller only specifies the time period allowed for the payment


Accounting standards (AS - 17) has come into effect in respect of accounting periodscommencing :-Correct Answer On or after 01.04.2001

Accounting standards (AS - 13) is now mandatory.Correct Answer True

Valuation methods are highly specific to the following for doing the valuation :-Correct Answer To the person , To the firm , To the Consultant


The budgetary records are useful for:-Correct Answer Validating accounting costs , Providing a rationale for division of costs ,Replacing missing data

As per the new sections of the company's act, funds out of which buy back may befinanced include :-Correct Answer Free reserves of the company , Securities premium account , Proceeds of anyshares or other specified securitiesPpH = P / H ( C + B ) / PSPE = R / H (C + B ) / RRR = (C + B ) / R P / HU % = R / ( C + B ) R / ( C + B )



It is often not possible to directly attribute, or reasonably allocate :-Correct Answer The interest bearing liabilities to segments

Odd lots purchase is not a method of buy back of shares.Correct Answer False


A normal firm shows the following characteristics :-Correct Answer No unique optimum payout ratio , Market value per share unaffected by thepayout ratio , All dividend policies are similar



Segment liabilities do not include :-Correct Answer Borrowings & other liabilities that are incurred for financing rather thanoperating purpose




If a company has resorted to buyback its shares, it cannot make a further issue of thesame kind of securities within a period of 1 year.Correct Answer False

In value of assets approach for computation of valuation of shares, the total value ofall the assets will be divided by the total number of shares.Correct Answer True


Investment decisions are mainly concerned with :-Correct Answer Assets Debt reduces :-Correct Answer Agency cost of free cash flow , Commitment to pay in time to all lenders ,Freedom of decisions

The main theories behind share repurchases are :-Correct Answer Dividend or personal taxation hypothesis , Leverage hypothesis , Information

or signalling hypothesis

The cost of facilities is usually included & distributed as ________.Correct Answer Depreciation



If a firm opts for restrictive policy then the investments in current assets is :-Correct Answer Low

According to NOI Approach, any capital structure is optimum.Correct Answer True

Segment assets are ________.Correct Answer Directly attributable to the segmentFree cash flow theory Enormous conflicts of interest between Stakeholders and shareholdersMany groups of non - investor stakeholders have an interest in the firmNet income approach Cost of debt & equity do not change with a change in leverage ratioEnormous conflicts of interest between Stakeholders and shareholdersNet operating income approach The overall capitalization rate remains constant for all levels offinancial leverages Firms have preferences by choosing a way to finance their projectsModigliani - Miller Theory weighted average cost of capital does not change with a change in theproportion of debt to equity in the capital structure Cost of debt & equity do not change with achange in leverage ratio

The processes to be identified & focused should to be on the basis of not adhering tobenchmarks, bottlenecks, quality not met, time problems etc. This is called as ________.Correct Answer Process analysis The main characteristics of operating economies are :-Correct Answer It is achieved through horizontal, vertical and conglomerate mergers , Itoccurs due to indivisibilities of resources , It is possible in generic management functions

usually the `controlling block' tends to be between :-

Correct Answer 20 & 40 percent




Horizontal mergers involves firms________.Correct Answer That operate & compete in a similar kind of businessAvailability of funds in the market Cost of funds depends on this factor Different costs areinvolvedFlexibility The extent & the ease with which the funds can be raised & paid back are veryimportant The extent & the ease with which the funds can be raised & paid back are veryimportantTime Takes less time to take an overdraft from the bank Takes less time to take an overdraft fromthe bankCreditworthiness of the issuerIf a company has a good creditworthiness it is not difficult to raiseshort term funds If a company has a good creditworthiness it is not difficult to raise short termfunds


If a segment is not designated as a ________ it should be included as an unallocatedreconciling item.Correct Answer Reportable segment

An asset is included in segment assets, if and only if the related depreciation oramortisation is included in ________.Correct Answer Segment expense



Debt is often issued at :-Correct Answer The head office level



Segment result represents :-Correct Answer Operating profit or loss


The resource theory considers that the competitive position of a firm depends on its________ Assets.Correct Answer Specific


Money becomes less valuable when received at a latter stage instead of in presenttime.Correct Answer True

The intellectual assets of a company are often worth 3 or 4 times the tangible bookvalue.Correct Answer True

One of the selective developments that has taken place in recent times is companiesare going in for :-Correct Answer Activity based costing and management

The financial managers of a company consume a great deal of their time in activities

like :-Correct Answer Monitoring the investment in inventories , Negotiating favourable credit terms, Administrating Accounts receivables

If total external revenue attributable to reportable segments constitutes less than________ of the total enterprise revenue additional segments should be identified as reportablesegments.Correct Answer 75 percent


Valuation of current investments on overall basis is not considered appropriate.Correct Answer TruePosted by Koshy at 2:06 PM 2 comments: Email ThisBlogThis!Share to TwitterShare to FacebookShare to PinterestLabels: Strategic Finance


Match The Following - Correct AnswerOpportunity cost -An asset value when they are the target of an alternative use.Exit cost -Lost efficiency prior to separation, Job vacancy cost during the new search & termination pay.Historical costs Sacrifice necessary to hire & train people .Substitution cost- Exit costs of the leaving employee & recruiting & training of the replacement

Multiple Choice Single Answer Book value is relevant to determine the firm's value because of the following reasons except:-Correct Answer It cannot be used as a starting point to be compared & complimented by other analysis

True/False For determining exchange ratio, the model developed by Conn & Nielson is used.Correct Answer True



True/False Arbitrage process implies that security cannot sell at different prices.Correct Answer True


True/False Retained earnings are the most important internal sources of financing the growth of the firm.Correct Answer True



The characteristics of working capital are :-Correct Answer It is continually required for a going concern , Quantum of working capital fluctuates depending on the level of activity , It is impacted by numerous transactions on a continuous basis


As per AS 13 Statement, the following are not considered as investments:-Correct Answer Shares , Debentures , Other securities held as stock in trade


True/False Usually only a single method is used for valuation of shares.


Select The Blank As per residual theory of dividends the focus is on ________.Correct Answer GrowthTrue/False Management of working capital refers to the management of total assets and liabilities of acompany.Correct Answer False

The important aspect of dividend policy is :-Correct Answer To determine the amount of earnings to be distributed to shareholders , Amount to be retained inthe firm






Match The Following- Correct AnswerEarning per share- Acquisition is considered to be a function of the impact of the merger onBook value- Divide net worth by the number of equity shares outstandingAppraisal value- Provides a list of the reasonableness of results obtained throughmethods base upon the going concern conceptMarket value- Indicate the consensus of the investors

Book value of the assets is directly dependent on the accounting policies followed by the companywhich is used in the following areas :-Correct Answer Booking depreciation , Methods of provisions , Inventory valuation

Every business requires funds on a continual basis for expenses incurred on for :-Correct Answer Purchase of raw material , Manufacturing costs , AdministrationSelect The Blank Forward or backward integration is a characteristic of ________.Correct Answer Vertical Mergers

True/False According to NI Approach, decrease in leverage decreases the overall cost of capital andincreases the firm's value.Correct Answer False

If a firm diversifies managerial teams formed can be shifted from unproductive activities toproductive ones which leads to :-Correct Answer Improved profitability , Continuity , Growth of the firm



True/False If a company has resorted to buyback its shares, it cannot make a further issue of the same kind ofsecurities within a period of 1 year.Correct Answer False

True/False The scope of the data required relates to the scope of the activity model & processes under review.Correct Answer True

Select The Blank The ________ cost tier has the advantage of being the simplest to calculate and justify.Correct Answer Direct


Select The Blank The resource theory considers that the competitive position of a firm depends on its ________Assets.Correct Answer Specific


The important steps involved in the analysis of mergers & acquisitions are:-Correct Answer Planning , Searching & screening , Financial evaluation


Select The Blank If a segment is not designated as a ________ it should be included as an unallocated reconciling item.Correct Answer Reportable segment

The main characteristics of CAPM are :-Correct Answer It is an equilibrium Model , It describes the pricing of assets as well asderivatives , Expected security return = Riskless return + beta x (expected market risk premium)




The 3 groups of participants in a firm are :-Correct Answer Suppliers of equity , Debt suppliers , Firm ManagersMultiple Choice Single Answer When the working capital is less than its peak level :-Correct Answer The surplus is invested in liquid assets

Multiple Choice Single Answer According to a survey for reasons for share purchase, what is the percentage of cash distribution to cash holders ?Correct Answer 0.28


Match The Following Correct Answer Your AnswerAS 21 Consolidated financial statements Consolidated financial statementsAS 4 Contingencies & events occurring after the balance sheet date Contingencies & events occurring after the balance sheet dateAS 13 Accounting for investments Accounting for investmentsAS 23 Accounting for investments in associates in consolidated financial statements Accounting for investments in associates in consolidated financial statements

Select The Blank There is a ________ relationship between the number of employees & the use ofoperating supplies.Correct Answer Natural

The main characteristics of CAPM are :-Correct Answer It is an equilibrium Model , It describes the pricing of assets as well as derivatives ,Expected security return = Riskless return + beta x (expected market risk premium)

A firm using a conservative policy for determining the requirements of current assets:-Correct Answer Has fewer production stoppages , Ensures quick deliveries to customers , Stimulates sales

Multiple Choice Single Answer As per Pecking order theory, which is the costliest means of funding :-Correct Answer Equity Shares


Select The Blank ________ are those operating assets that are employed by a segment in itsoperating activities.Correct Answer Segment assets


Examples of accrued expenses are :-Correct Answer Wages , Income tax , Property tax

Multiple Choice Single Answer One of the bases for determining the residual value of similar assets is :-Correct Answer Realizable value

Select The Blank The number of bidding centers shall not be less than ________ for buy back throughbook building.Correct Answer 30

Multiple Choice Single Answer Conservative policy for determining the requirements of current assets is also knownas :-Correct Answer Flexible policy

True/False Management of working capital refers to the management of total assets andliabilities of a company.Correct Answer False




The main theories behind share repurchases are :-Correct Answer Dividend or personal taxation hypothesis , Leverage hypothesis , Information orsignalling hypothesis

Multiple Choice Single Answer In value of assets method the following is also to be included as they are also ofvalue to the company :-Correct Answer Non trading assets


True/False The scope of the data required relates to the scope of the activity model & processesunder review.Correct Answer True


Match The Following -Correct AnswerUnsecured loans- Form of debt not backed by the pledge of specific assetsLine of credit- Does not constitute any legal commitments on the part of thebankRevolving credit agreements -While the commitment is in force the bank must extend creditwhenever the borrower wishes to borrow

Transaction loan -The cash flow ability of the borrower to pay the loan is usually of paramount importance



True/False DCF is not a method used to calculate market value of a firm.Correct Answer False

Shortcomings of accounting numbers consist of the following :-Correct Answer Firms use different kind of accounting methods , Business risk and financial risk donot have any influence on accounting numbers

Debt reduces :-Correct Answer Agency cost of free cash flow , Commitment to pay in time to all lenders , Freedom ofdecisions


Select The Blank Non value added activities helps ________.Correct Answer To analyse the activities more carefully


Select The Blank In the reproduction value method of valuation, the value of assets is taken to be onthe basis of ________Correct Answer Replacement cost

The major conditions to be fulfilled for buyback of shares as per the legal provisionsinclude :-Correct Answer Articles of association should authorize buyback of shares , The shares which aresought to be bought back should be fully paid up , After the buy back the ratio of debtto total capital and free reserves should not be more than 2 : 1

Multiple Choice Single Answer The Public announcement of share buy back has to be made at least :-Correct Answer 7 Days prior to the commencement of buy back

Select The Blank Combination of 2 or more companies into existing company is called ________.Correct Answer Absorption

Select The Blank

________ is not a example of segment liability.Correct Answer Goodwill

The characteristics of working capital are :-Correct Answer It is continually required for a going concern , Quantum of working capital fluctuatesdepending on the level of activity , It is impacted by numerous transactions on acontinuous basis


Select The Blank AS 23 - Accounting for investments in associates in consolidated financialstatements comes into effect in respect of accounting periods commencing on orafter ________.Correct Answer 01.04.2002




Select The Blank A geographical segment cannot be ________.Correct Answer Countries in different zones

Multiple Choice Single Answer The Management of the Company may enter into a negotiated purchase, which isreferred to as :-Correct Answer Greenfield

Multiple Choice Single Answer The acquirer should intimate to the target company & the concerned stockexchanges as soon as its holding touches :-Correct Answer 5 % of the voting capital of the target company



Multiple Choice Single Answer The following analysis is more targeted on similar activities or firms that exist inparallel within the activity model or process flow to ensure that they are being donethe same best way :-Correct Answer Comparative analysis



Select The Blank As per NOI Approach - the overall capitalization rate remains________ for all levels of financial leverage.Correct Answer Constant


Multiple Choice Single Answer The main assumption in comparative analysis is the possibility of:-Correct Answer Combination or co-location of similar functions



Strategic Finance

Multiple Choice Single Answer As per the study conducted by RBI, Current assets constitute :-Correct Answer More than 50 % of the total assets



Diversification -Growth through the combination of firms inunrelated fields of business

Horizontal mergers 2- Firms operate & compete in a similar kindof business


Conglomerate mergers -Different or unrelated business activity

Multiple Choice Single Answer in case of temporary working capital, the investment in currentassets varies with :-Correct Answer Seasonal requirements


True/False

The carrying amount for current investments is the lower of cost& fair value.Strategic FinanceCorrect Answer True

A company is prohibited to buy back its own shares in thefollowing circumstances :-Correct Answer Through any subsidiary company , Through any investmentcompany , If a company defaults in repayment of deposits orinterest due thereon

True/False Explicit cost and implicit cost are the two parts of cost of debt.Correct Answer True


Multiple Choice Single Answer As per Dorsman (1995) - financing with a high percentage ofdebt prevents firms from :-Correct Answer Investing too much

Multiple Choice Single Answer Estimation for determining the useful life of an asset is required:-Correct Answer On some reasonable basis

True/False In market value approach, interested parties never manipulatethe stock markets.Correct Answer FalseStrategic Finance

Multiple Choice Single Answer Which of the following company is reaping high market valuationdue to showing human resources as an asset in its balancesheet information?Correct Answer Infosys


Multiple Choice Single Answer Suppliers of equity are interested in :-Correct Answer High share prices


Free cash flow theory- Enormous conflicts of interest betweenStakeholders and shareholders

Net income approach -Cost of debt & equity do not change with a changein leverage ratio

Net operating income approach-The overall capitalization rate remains constant for all levels of financialleverages

Modigliani - Miller Theory- weighted average cost of capital does not changewith a change in the proportion of debt to 2equity in the capitalstructure


The date on which the announcement is made of new dividend iscalled ________.Correct Answer Declaration date

The net income approach is based on following 3 assumptions :-Correct Answer There are no taxes , Cost of debt is less than equitycapitalization rate , Use of debt doesn't change the riskperception of investors

Multiple Choice Single Answer A single business segment does not include products & services:-Correct Answer With significantly differing risks & returns

True/False For determining exchange ratio, the model developed by Conn &

Nielson is used.Correct Answer True


Multiple Choice Single Answer Value added analysis is a method to determine, if elementswithin a process flow provide the :-Correct Answer Values

Select The Blank Investors can reduce the company related risk by diversificationof their investments in ________.Strategic Finance


The 3 main types of accounting records followed by anorganisation are :-Correct Answer Organisational accounting , Budgetary accounting , Costaccounting

The following disclosures in financial statements in relation toinvestments are appropriate :-Correct Answer The accounting policies for the determination of carrying amountof investments , Profits & losses on disposal of currentinvestments , The amounts included in P & L Statement



The financial framework of a merger decision covers 3interrelated aspects i.e. :-Correct Answer Determining the firm's value , Financing techniques in mergers ,Analysis of merger as a capital budgeting decision

Multiple Choice Single Answer According to Net Income Approach, the average cost of capitaldeclines as the leverage ratio :-Correct Answer IncreasesStrategic Finance


True/False The capital Asset pricing model describes the pricing of assetsas well as derivatives.Correct Answer True

Personnel services expenses is made up of:-Correct Answer Personnel salaries , Cost of facilities , Training & developmentbudgets


Select The Blank the commercial paper may be issued in the multiples of________.Correct Answer 5 lakhs



The most popular kind of dividend policy is one that pays a________.Correct Answer Regular, steady dividend

AS 13 Does not deal with :-Correct Answer The bases for recognition of interest, dividends & rentals earned

on investments , Operating or finance leases , Investment in mutual funds


Multiple Choice Single Answer One of the important assumptions for capital structure theories is:-Correct Answer Debt and equity are the 2 kinds of funds used by the firm



strategic finance

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