Management Accounting Objectives Sem V

TY B Com MORE CLASSES
Management Accounting Your Partner in Studies

(Objectives)
CHAPTER 1: STUDY OF FINANCIAL STATEMENTS
1. Internal analysis of financial statements is done by

(a) Potential investors (c) Creditors and Lenders
(b) The owners or managers of the concern (d) Government
2. Which of the following statements regarding Horizontal analysis of the financial statements is/are true?
(i) It is known as ’Dynamic Analysis’
(ii) Trend percentage is an example of ‘Horizontal Analysis’
(a) only (i) (b) only (ii) (c)Both (i) and (ii) (d)None of (i) and (ii)
3. Vertical analysis involves
(a) finding out the relationship between an item in respect of two concerns in different years.
(b) finding out the relationship between two items in respect of two concerns over two years.
(c) finding out the relationship between two items in respect of the same concern and in the same year.
(d) finding out the relationship between two items in respect of the same concern over two years.
4. Following are the examples of Vertical Analysis
(a)Ratio Analysis (b) Cash Flow Statements (c)Trend Percentages (d) both (a) and (b)
5. Owner’s funds
(a) Capital - Reserves and surplus - P&L A/c Dr. Balance – Misc. Expenditure not written off
(b) Capital + Reserves and Surplus + P&L A/c Dr. Balance – Misc. Expenditure not written off
(c) Capital + Reserves and Surplus - P&L A/c Dr. Balance – Misc. Expenditure not written off
(d) Capital + Reserves and Surplus - P&L A/c Dr. Balance + Misc. Expenditure not written off
6. Own Funds + Loan funds equal to
(a) Total Funds Available (c)Fixed Assets +Investments +Working Capital
(b) Capital Employed only (d)Each of the above
7. Total Assets are equal to
(a) Fixed Assets + Investments + Current Assets (b) Fixed Assets + Investments + Working Capital
(c) Own Funds + Loan funds - Current Liabilities (d) Fixed Assets + Investments + Current Liabilities
8. Capital Employed is equal to
(a) Fixed Assets + Investments + Current Assets (b) Fixed Assets +Investments + Working Capital
(c) Fixed Assets + Investments + Current Liabilities (d) None of the above
9. Owners ‘Funds are equal to
(a) Capital Employed (b) Fixed Assets + Investments + Working Capital
(c) Total Assets -Current Liabilities – Loan Funds (d) None of the above
10. Following is not a Quick asset
(a) Loose tools (b) Advance tax (c) Bills Receivable (d) Interest Accrued
11. Following is not a Quick liability
(a) Unclaimed Dividends (b) Public Deposits (c) Bank Overdraft (d) Advances Received
12. Calls-in-arrears
(a) Will increase the owners funds (c) Will reduce the owners funds
(b) Will have no effect on the owners funds (d) Will Increase the current Liabilities
13. Balance in Forfeited Shares Account
(a) will increase the owners funds (c) will reduce the owners funds
(b) will have no effect on the owners funds (d) will increase the current assets
14. Short Term Investments are shown in the vertical financial statements as
(a) part of investments (c) part of Current Assets
(b) part of loans and advances (d) none of the above
15. Interest accrued on investments is shown in the vertical financial statements as
(a) part of investments (c) part of current Assets
(b) part of loans and advances (d) none of the above
16. Debentures repayable within 1 year are shown in the vertical financial statements as
(a) Current asset (b) Current liabilities (c) Loan funds (d) none of the above
17. Long Term Loans given are as shown in the vertical financial statements as
(a) Current liabilities (b) Loan funds (c) Investments (d) Current assets
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(Objectives)
18. Advance given are shown in the vertical financial statements as

(a) Part of Investments (b) Part of loans (c) Part of current assets (d) none of the above
19. Advances Received are shown in the vertical financial statements as
(a) Part of Investments (c) Part of current liabilities
(b) Part of loans and advances (d) Part of current assets
20. Cost of Goods=
a) Opening Stock +Purchase-Direct Expenses +Closing stock
b) Opening Stock +Purchase- Direct Expenses -Closing stock
c) Sales- Opening Stock +Purchase- Direct Expenses -Closing stock
d) Opening Stock +Purchase-Direct Expenses -Closing stock
21. Loss on sale of fixed assets
a) Is ignored in the vertical financial statements
b) Is shown as non- operating expenditure in the vertical financial statements
c) Is shown as operating expenditure in the vertical financial statements
d) Is shown as cost of goods sold in the vertical financial statements
22. Depreciation on machinery
a) Is ignored in the vertical financial statements
b) Is shown as non- operating expenditure in the vertical financial statements
c) Is shown as administrative expenditure in the vertical financial statements
d) Is shown as cost of goods sold in the vertical financial statements
23. In __________, Year-1 is taken as the base year and the figure of all the years are compared with those of the
base year
(a) Comparative Statements (b) Common size statements (c) Trend Analysis
24. Inter-firm and inter-period comparisons are made with the help of
(a) Comparative Statements (b) Common size statements (c) Trend Analysis
25. In a common size income statement,
a) Sales of 1st year is taken as the base figure and the sales of all the years(years2,year3)are compared with
that of the base year
b) Sales is taken as the base and treated as equal to 100
c) Sales figure of various firms in the same industry are compared
26. Common size statements are used
a) Only for Horizontal Analysis c) Only for Vertical Analysis
b) For both Horizontal Analysis nor for Vertical Analysis
27. The term financial statement refers to __________.
(a) Income statement (b) Balance sheet (c) Cash flow statement (d) All of the above
28. In _________figures of two or more period are placed side by side to facilitate easy and meaningful
comparisons.
(a) Comparative analysis (b) Common-size analysis (c) Trend percentage analysis
29. What is shown by a comparative balance sheet?
a) Two year balance sheet figure only c) Only percentage of increase or decrease
b) Only increase or decrease in figures d) All of the above
30. The technique of converting figures into percentage to some common base is called_____
(a) Common-size analysis (b) Trend percentages (c) Ratio analysis
31. In common-size income statement analysis the _________ is a assumed to be hundred and all other figures are
expressed as a percentage of______
(a) Sales, Sales (b) Sales, Profit (c) Sales, Net profit (d) None of these
32. In common –size balance sheet analysis, ________ are taken as cent percent.
(a) Fixed assets (b) Total capital (c) Total assets (d) None of these
33. The technique of the taking first year figures as base and comparing with subsequent year is called____
(a) Trend analysis (b) Ratio analysis (c) Common-size statement
34. The term ‘outsiders funds/owed funds ,indicates______
(a) All short-term debts (b) All long-term debts (c) Both short and long-term debts
35. Capital employed is equal to
(a) Fixed assets + current assets (b) Shareholders fund (c) Net worth+ long-term liabilities
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(Objectives)
36. In common size analysis the items in the income statement are expressed as percentage of
(a) Total assets (b) Net sales (c) Total expenses (d) Gross sales
37. Which of the following is not a method used in analyzing financial statements?
(a) Ratio analysis Technical analysis Trend analysis Common-size statements
38. Which type of analysis is a comparison of a company’s financial condition and performance across time?
(a) Horizontal analysis (b) Vertical analysis (c) Upward analysis (d) Downward analysis
TRUE OR FALSE
1. Horizontal Analysis involves analysis of two items in the financial statement of the same concern and in the
same year.
2. For an oil company, stock of oil is a liquid asset.
3. In a vertical balance sheet, fictitious assets are included under Fixed Assets.
4. Owed funds are an internal source of Finance.
5. Goodwill is shown under ‘Application of Funds’ in the vertical Balance sheet.
6. Advances to suppliers for goods are classified as Quick Assets in vertical statements.
7. Advances to contractors for construction of building are classified as Loans & Advances under Current
Assets in vertical financial statements.
8. Unclaimed dividends are classified as current liabilities in vertical financial statements.
9. Penalty for late payment of sales tax on sale of trading goods is an operating expenditure.
10. Common – size statements are used for both horizon and vertical analysis
11. While comparative statement shows the size of change, a trend statement shows the direction of change.
12. Common – size analysis is used for comparing performance of a company in one year with that of another
year.
13. In common – size analysis, the industry average is compared with the performance of a company.
14. In common – size analysis express items in the balance sheet as an index relative to the base year.
15. Common –size analysis, all the items in the financial statements are expressed as a percentage of the
concerned totals.
16. A financial statement for one company that shows two or more years in a side-by-side format is called a
comparative financial statement.
17. IF a company that has no long-term debt in year 1 and Rs 50,000 of long-term debt in year 2, it had a 100%
increase in long-term debt between Years 1 and 2.
18. The base year for calculating a trend percentage is always the first accounting year of the concern.
19. If the base –year net sales are Rs. 1,20,000, the second year net sales are Rs 1,32,000, the trend
percentage in sales for the second year will shown as 10%.
20. If the base –year sales are Rs 1,20,000 , the second year sales are Rs 1,32,000 , and the third year sales
are Rs 1,51,800, the trend percentage in sales for the third year will shown as 115%.
21. In the common size percentage for net sales, cost of goods sold and net income are 100.0%, 55.0% , and
10.0%, respectively, the concern size percentage of operating expenses is 35.0%.
22. The comparison of data overtime / (years) is sometimes called horizontal analysis.
23. Comparing each item in a financial statement to some common total of the financial statement, within a
single accounting period is a type of vertical analysis.
24. In a vertical balance sheet for financial analysis’ current assets are listed in alphabetical order.
25. Common size income statements recast each statements item as a percent of total sale assets.
26. Trend income statements recast each statement item as a percent of sales.
27. Trend statements indicate growth and decline better than common size statements.
28. Statements in which all items are expressed in relative terms are called common –size statements.
29. In the common size balance sheet, the base for current liabilities is total liabilities.
30. Using the common size income statement, a company’s net income as a percentage of net sales is 15%;
therefore, the cost of goods sold as a percentage of sales must be 85%.
31. Comparative Financial Statements indicate the direction of the movement of the firm.
32. It is not obligatory under Companies Act for all companies to prepare the final accounts of the companies by
presenting current year as well as a previous year figures for comparison.
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(Objectives)
33. External analysis is more useful for management than the internal analysis.
34. In horizontal analysis, balance sheets of different years of the same firm are kept side by side for
comparison.
35. The traditional financial statements give all the relevant and required information to show the strength and
weakness of the company.
36. ‘Liquidity’ refers to the ability of the firm to pap as and when the debts fall due for payment.
37. Horizontal Analysis is used for comparing data of several years of one firm, while Vertical Analysis is used fir
comparing the relative performance of different firms in the same industry for the same period.
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(Objectives)
CHAPTER 2: ACCOUNTING RATIOS
MULTIPLE CHOICE QUESTIONS

1) Classify the following ratios on the basis of its source, whether they are Balance Sheet ratio, Revenue
statement ratio and Composite ratio:
Current ratio Balance Sheet ratio Stock-Working capital ratio Balance Sheet ratio
Gross profit Revenue Statement ratio Stock-turnover ratio Composite ratio
Liquid/ Quick ratio Balance Sheet ratio Expenses ratio Revenue Statement ratio
Proprietary ratio Balance Sheet ratio Return on Capital Employed Composite ratio
Capital Gearing ratio Balance Sheet ratio Return on Proprietors funds Composite ratio
Operating ratio Revenue Statement ratio Return on Equity capital Composite ratio
Debt-equity ratio Balance Sheet ratio Debtors turnover ratio Composite ratio
Net operating profit ratio Revenue Statement ratio Creditors turnover ratio Composite ratio
Dividend Payout ratio Composite ratio Interest service ratio Revenue Statement ratio
Debt service ratio Composite ratio Fixed Assets turnover Composite ratio
2) Write the Standards for the following ratios:

Current ratio 2:1
Liquid/ Quick ratio 1:1
Proprietary ratio 65% - 75%
Debt-Equity ratio 2:1
Stock to Working capital ratio Less than 100%
Stock turnover ratio 5 – 6 times
3) Which of these are Leverage ratios?

a) Capital gearing, Debt-Equity and Proprietary ratio b) Liquid ratio and Current ratio
c) Stock turnover ratio and Debtors turnover ratio d) Return on investments, Return on Equity capital
4) Which of these are Liquidity ratios?
5) Which of these are Coverage ratios?
c) Dividend payout, Debt service ratio d) Return on investments, Return on Equity capital
6) Which of these are Activity ratios?
7) Which of these ratios are useful for shareholders?
a) Liquid ratio and Stock-working capital b) Return on Proprietor’s funds and Equity capital
c) Operating ratio d) Expenses ratio
8) Which of these ratios are useful for short-term creditors?
a) Liquid ratio and Current ratio b) Return on Proprietor’s funds and Equity capital
c) Dividend payout, Debt service ratio d) Operating ratio and Expenses ratio
9) Liquidity ratio indicates the ability of the company to meet its ______________.
(a) current liability (b) Long-term liabilities (c) Shareholders claim (d) tax payable
10) Quick Assets is equal to ____________.
(a) current assets – (stock - prepaid expenses) (b) current assets – (stock + prepaid expenses)
(c) current assets + (stock - prepaid expenses) (d) current assets + (stock + prepaid expenses)
11) Quick liabilities are equal to ____________.
(a) current liabilities + bank overdraft (b) current liabilities - bank overdraft
(c) current assets – current liabilities (d) current liabilities - stock
12) Which ratio indicates the relationship between shareholders funds and outsiders’ funds?
(a) proprietary ratio (b) operating ratio (c) debt-equity ratio (d) capital gearing
13) What does a high stock-turnover ratio indicate?
(a) quick movement of stock (b) high cost of goods sold
(c) slow movement of stock (d) low cost of goods sold
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(Objectives)
14) Which of the following profits are used to compute the given ratios:
Return on Capital employed
Return on Proprietor’s funds
Return on Equity share capital
Debt-service coverage ratio
Interest-service coverage ratio
Operating profit ratio
(a) Profit before interest and tax (b) Profit before tax
(c) Profit after tax (d) Net Operating profit
15) If current ratio is less than 1, then we definitely say that
(a) Working capital is positive (b) Working capital is negative
(c) Working capital is nil (d) none of these
16) If current ratio is equal to 1, then we definitely say that
(a) Working capital is positive (b) Working capital is negative
(c) Working capital is nil (d) none of these
17) If opening stock is not available, then average stock will be equal to
(a) closing stock (b) closing stock / 2 (c) nil (d) either (a) or (b)
18) Classify the following ratios on the basis of its significance, whether they are Profitability ratio, Solvency
statement ratio or Turnover ratio:
Current ratio Stock-Working capital ratio
Gross profit Stock-turnover ratio
Liquid/ Quick ratio Expenses ratio
Proprietary ratio Return on Capital Employed
Capital Gearing ratio Return on Proprietors funds
Operating ratio Return on Equity capital
Debt-equity ratio Debtors turnover ratio
Net operating profit ratio Creditors turnover ratio
Debt service ratio Interest service ratio
19) If current ratio was 2:1, if payment is received from debtors then the current ratio will
(a) increase (b) decrease (c) remain unchanged (d) none of these
20) If current ratio was 2:1, and cash is paid to creditors for settlement then the current ratio will
21) If current ratio was 2:1, and goods are purchased on credit then the current ratio will
22) If current ratio was 2:1, and goods are sold on credit then the current ratio will
23) If current ratio was 2:1, and goods are purchased on cash then the current ratio will
24) If current ratio was 2:1, and goods are sold on cash then the current ratio will
25) If current ratio was 2:1, and goods are purchased on credit then the current ratio will
26) If current ratio was 2:1, and bills payable were duly honored then the current ratio will
27) If current ratio was 2:1, and machinery purchased on credit then the current ratio will
28) If current ratio was 2:1, and bills were drawn on and duly accepted by debtors then the current ratio will
29) If a company has not issued preference shares, then Debt-Equity ratio will be same as __________.
(a) Proprietary ratio (b) Current ratio (c) Capital gearing (d) Return on Investment
30) If quick ratio is as per standard, and goods were sold on credit then the quick ratio will
STATE WHETHER TRUE OR FALSE
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(Objectives)
1) Liquid ratio indicates the company’s ability to meet its long term liabilities.
2) Bank Overdraft = Current Assets – Quick Liabilities
3) High Proprietary Ratio indicates low risk for the creditors.
4) High stock Turnover Ratio indicates high cost of goods sold.
5) All other things remaining the same, issue of new shares will improve the current ratio.
6) The difference between the current and quick ratio is that inventory is reduced from current liabilities when
computing liquid ratio.
7) Liquidity means the firm’s ability to pay its debts in the long run.
8) Lower inventory Turnover Ratio indicates higher efficiency in inventory management.
9) While computing Debt Equity Ratio, Pref. Share capital is to be ignored.
10) While Computing Proprietary Ratio, Pref. share capital is taken as a part of the Proprietors’ Funds.
11) A liquid ratio higher than 1:1 shows under – investment.
12) A current ratio lower than 2:1 shows under – trading.
13) In capital Gearing Ratio, Pref. share capital forms part of the denominator.
14) Operating Ratio = (Operating Expenses ÷ profit)
15) Net Profit Ratio = (Net Profit after tax ÷ sales) X 100
16) Return on Capital Employed = (NPAT ÷ Capital Employed) X100
17) Return on Capital Employed = Net Profit Ratio X Capital Turnover Ratio
18) Return on Equity Capital = (Net Profit before Tax ÷ Equity Shareholders Funds) X 100
19) Return on proprietors ‘ Funds = NPAT ÷ Capital Employed X 100
20) Return on Equity Capital = Profit available to Equity Shareholders ÷ Paid-up Equity Share capital x 100
21) Dividend Payout Ratio = Equity Dividend ÷ NPAT x100
22) Dividend Payout Ratio = Equity Dividend +Pref. Dividend ÷ NPAT x 100
23) Debt Service Ratio = PBIT ÷ Interest
24) Debtors Turnover Ratio includes only sundry debtors; it excludes Bills Receivable.
25) A ratio expresses a mathematical relation between two qualities.
26) Ratio analysis is a tool for analyzing the financial statement of any enterprise.
27) Ratio analysis establishes relationship between two financial statements.
28) Extraordinary gains and losses are usually included in ratio analysis.
29) The liquidity of a business firm is measured by its ability to satisfy its long-term obligations as they come due.
30) Liquidity and efficiency are used synonymously in ratio analysis.
31) Liquidity ratios measure the degree of protection of long-term suppliers of funds.
32) The liquidity ratio measure how quickly a firm can dispose of inventory.
33) The higher the current ratio , the more likely a firm is able to pay its short-term obligations
34) The lower the quick rations relative to the current ratio, the safer a firm is in terms of liquidity.
35) High current ratios are usually a sign of efficient working capital management.
36) When a company records a credit sale , the acid-test ratio will increase
37) A firm can have a positive current ratio and a negative acid-test ratio.
38) The write off of a bad debt will increase the current ration.
39) A business with a higher working capital will also have a higher current ratio.
40) A firm may have a current ratio greater than 1 and a quick ratio of less than 1.
41) As the operating expense ratio decreases, net income increases.
42) The gross profit ratio is a measurement of short – term liquidity
43) The inventory turnover ratio is an indication of how often inventory is purchased.
44) A decline in the inventory turnover ratio suggests that the firm’s liquidity position is improving.
45) If a firm’s debt service coverage ratio is relatively high, the firm should be able to meet its debt obligations.
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(Objectives)
CHAPTER 3: CASH FLOW STATEMENTS
MULTIPLES CHOICE QUESTIONS:
1) Classify the following items into relevant cash flow categories:

Cash sales of goods-in-trade
Cash paid to suppliers of raw materials
Cash payments of salaries and wages to employees
Cash payment to acquire fixed assets (Land, Building, Machinery, Furniture, Patents)
Cash proceeds from issuing shares at premium
Payment of Dividends (Interim and Final) (Both Equity and Preference)
Interest received on investments
Interest paid on debentures
Dividend received on shares of other companies
Repayment of long-term loan
Payment of income-tax
Proceeds from issue of Preference share capital
Cash sale of scrap
Bank loan taken
Sale proceeds of fixed assets (Land, Building, Machinery, Furniture, etc.)
Cheques received from debtors
Redemption of Preference shares
Manufacturing overheads paid
Administration overheads paid
Selling and Distribution overheads paid
Underwriting Commission paid
Brokerage paid on issue of Debentures
Bank Overdraft will be shown as
Cash Credit will be shown as
Short-term deposits will be shown as
Marketable securities will be shown as
Refund of income tax received will be shown as
(a) operating cash flow (b) investing cash flow

(c) financing cash flow (d) cash or cash equivalent
TRUE OR FALSE:
1. For the purpose of cash flow statement, Deposits kept with Banks for 30 days will be classified as investing
Activity.
2. Interest paid on loans reduces the Cash Flow for operating activity.
3. Income –tax on profit on sale of share investment reduces the Operating Cash Flow.
4. Tax –Refund is a non-profit Cash Flow.
5. Loans given to others are a financing activity.
6. Change in Bank Over draft is adjusted in cash flows from financing.
7. While inflow of cash results inflow of funds; inflow of funds may not always result in inflow of cash.
8. Increase in current assets will always result inflow of cash.
9. Increases in outstanding expenses are added to Net Profit to arrive at cash from operations.
10. Cash equivalents are defined as demand deposits in bank.
11. Transaction of conversation of debt into equity should be disclosed by way of a footnote to the Cash Flow
Statement.
12. Cash from operation = Net Profit in P & L A/c + Increases in Creditors.
13. Cash from operation = Net Profit in P & L A/c + Increases in Bills Receivables.
14. Statement of cash flow shows not only the amount of cash used during a particular time ,but also how the
cash was used
15. The statement of cash flows reflects cash flows during a period of time.
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(Objectives)
16. The statement of cash flows does not report why cash increased or decreased during the period.
17. Investors and management use the statement of cash flows to evaluate a firm’s profitability.
18. For purpose of the statement of cash flows ,”Cash” includes cash on hand, cash in the bank and cash
equivalents.
19. Cash equivalents include investments that cannot be readily converted into cash.
20. Operating activities on the statement of cash flows include activities that affect net income, current liabilities
and the current assets.
21. The operating activities section of the statement of cash flows is the most important section.
22. The operating activities section of the statement of cash flows includes paying dividends and paying off
loans.
23. Investing activities include activities’ that affect the current assets section of the balances sheet.
24. Financing activities includes activities that affect long-term liabilities and the owner’s equity on the balance
sheet.
25. The indirect method of presenting the investing activities section of the statement of cash flow reconciles net
income to net cash provided by investing activities.
26. When a company uses the indirect method to present the statement of cash flows, depreciation expense
must be subtracted from net income to compute net cash provided by operating activities.
27. When a company uses the indirect method to present the statement of cash of cash flows a gain on the sale
of a long-term assets must be added to net income to compute net cash provided by operating activities.
28. When a company uses the indirect method to present the statement of cash of cash flows an increase in a
current liability must be subtracted from net income to compute net cash provided by operating activities.
29. When accompany uses indirect method to present the statement of cash flows, cash received from the sale
of long-term assets increases the amount of net cash provided by investing activities.
30. The statement of cash flows shows the relationship of assets to cash flows.
31. When preparing a statement of cash flows, cash equivalents are subtracted from cash in order to calculate
the net change in cash during a period.
32. Most of the time, net income will be the same as cash flows from operating activities.
33. The statement of cash flows classifies cash receipts and payment as operating, no operating, and
finanancial activities.
34. Only the balances sheet is used to prepare the statement of cash flows.
35. Only the financing activities section of cash flow differs between the direct and indirect methods.
36. During 2012, ABC Corporation’s purchase totaled Rs. 2, 50,000 and Accounts Payable decreased by
Rs.7000;therefore ,the cash paid to suppliers was Rs.2,57,000.
37. During 2012, ABC Corporation’s Revenues from sales totaled Rs.4, 50,000 and Accounts Receivable
decreased by Rs.7, 000; therefore, the cash received from customers was Rs.4, 43,000.
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(Objectives)
ESTIMATION OF WORKING CAPITAL
MULTIPLE CHOICE QUESTIONS
1. The total Current Assets without deducting the current liabilities.

a) Gross Working Capital c) Permanent working capital
b) Net Working capital d) Temporary working capital
2. Current Assets – Current Liabilities
b) Net Working Capital d) Temporary working capital
3. When cash is received against overdraft from bank
a) There is an increase in Net Working Capital
b) There is an increase in Gross Working Capital
c) There is an increase in Gross and Net Working capital
d) There is no effect on both the Gross and Net Working capital
4. The minimum amount o working capital required to enable the concern to operate at the lowest level of
activity
5. Permanent working capital is known as
a) Gross Working Capital c) Core Working Capital
b) Net Working Capital d) Fixed Capital
6. When activity is at higher level, the concern needs more working capital, which is known as
7. Cash Working Capital includes
a) Fixed assets less deprecation
b) Debtors at sales value
c) Debtors at sales less profit margin
d) Creditors at purchase cost purchase cost less profit margin
8. Cash Working Capital includes
a) Fixed assets less depreciation
b) Costs of inventory excluding depreciation
c) Cost of inventory including depreciation
d) None of the above
9. The amount of funds invested in current assets is called
a) Gross working capital c) Surplus capital
b) Net working capital d) None of these
10. Under the gross working capital concept the working capital is equal to
a) Total current liabilities c) Total current assets
b) Surplus current assets d) None of these
11. Under the gross working capital refers to
a) Total current liabilities c) Total current assets
b) Surplus current assets d) None of these
12. The term net working capital refers to
a) The excess of the current assets
b) The liquid assets
c) The total current assets less provision
d) None of these
13. ------- will ensure high return on investment
a) Adequate working capital c) Shortage of working capital
b) Surplus working capital d) None of these
14. Shortage of working capital may result in --------
a) Poor credit standing c) More trade discount
b) More cash discount d) None of the above
15. Net Operating cycle can be delayed by
a) Poor credit standing c) More trade discount
b) More cash discount d) None of the above
16. If the conversion period is arrived at as 10 ,it means
a) It takes 10 days to convert the raw materials to finished goods
b) 20 days costs of production is held on an average as WIP
c) Raw materials which can be consumed in 10 days are held in WIP
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(Objectives)

17. Which of the following is not a factor that affects the composition of the working capital?
a) Nature of business c) Tax structure of the company
b) Nature of raw materials used d) Process technology
18. If the net working capital is negative then it indicates that
a) Long – term funds have been used for financing short-term assets
b) Long – term funds have been used for financing long-term assets
c) short-term assets have been used for financing long-term assets
d) short-term assets have been used for financing short-term assets
19. Net operating cycle period is
a) The period from raw material procurement to sale of finished goods
b) The length of time taken for a rupee invested in current assets to come with profit to the company
c) The time taken to convert raw materials into finished goods
d) The time between payment of raw material purchase and the collection of cash for sales
20. The duration of the net operating cycle can be reduced by
a) Increasing the time available for payments to creditors
b) Decreasing the raw material storage period
c) Decreasing the work – in – progress
21. Gross working capital means
a) Total assets
b) Total current assets
c) Total current liabilities
d) Fixed assets minus current assets
e) Current assets minus current liabilities
22. Net working capital is equal to
a) Current assets – Current liabilities
b) Fixed assets- Current assets
c) Current Assets- cash
d) Long-term-loans
e) Short-term-loans
f) Current liabilities – Provision
23. Which of the following is not an item of current liabilities?
a) Sundry creditors d) Unclaimed dividends
b) Advances from customers e) Debentures
c) Hire purchase dues
24. Which of the following will increase the duration of the net operating cycle?
a) Increase in the raw material storage period
b) Decrease in the average collection period
c) Increase in the average payment period
d) Decrease in the conversion period
e) Both (a) and (c)
25. Which of the following will cause a decrease in the net operating cycle of a firm?
a) Increase in the average collection period
b) Increase in the average payment period
c) Increase in the finished goods storage period
d) Increase in the raw materials storage period
e) Increase in the work-in progress period
26. S Ltd. Buys raw materials from suppliers on six weeks’ credit, which are delivered immediately. The raw
materials are held in stock for four stocks for four weeks before being issued to production. The production
process takes three weeks and the finished goods are in held in stock for two weeks before being sold on
credit. Customers are allowed eight weeks’ credit and pay promptly at the end of the period. What is the
length of the cash conversion cycle of the business?
a) 19 weeks c) 17 weeks
b) 11 weeks d) 23 weeks
27. D Engineering Co. buys raw materials from suppliers on four weeks’ credit and they are delivered
immediately. When the raw materials are received, they are held in the warehouse for five weeks before
being used in production. The production process takes and the completed goods are held for two weeks
Page 11 of 14
(Objectives)
before being sold to credit customers. These customers are allowed a maximum credit period of six weeks
.what is the cash conversion cycle of the business?
a) 7 weeks c) 11 weeks
b) 10 weeks d) 12 weeks
28. P Co. buys material from its suppliers on eight weeks ‘credit. The material are delivered immediately and
held for two weeks before being issued to production .The production process takes five weeks and the
finished goods are held for four weeks to pay. How long is the cash conversion cycle of the business?
a) 7 weeks
b) 10 weeks
c) 18 weeks
d) 25 weeks
Page 12 of 14
(Objectives)
TRUE OR FALSE
1. In public utility concern like Railways, Electricity Boards, where most transaction is in cash, working capital
requirements are low.
2. Working capital requirement is high, when the supply of raw material is irregular.
3. The amount of funds invested in current assets is called the net working capital.
4. Under the gross working capital concept, the working capital is equal to the surplus current asset.
5. The term net working capital refers to the liquid assets.
6. If the debtors take longer to pay, the operating cycle too becomes longer.
7. If we pay creditors late, we require more working capital.
8. If we get more advances from customers, we need less working capital.
9. Higher Bank Overdraft means higher working capital
10. The permanent working capital will remain in the working capital.
11. The permanent working capital will remain in the business until the business is closed down.
12. Temporary or variable working capital is meant to take care of seasonal demands.
13. Temporary working capital is financed by long term bank loans.
14. Net operating cycle is the sum of inventory cycle, debtors’ realization cycle and the creditors’ payment cycle.
15. Net operating cycle is the sum of inventory cycle and debtors credit cycle.
16. Net operating cycle is the sum of inventory cycle plus debtors credit cycle less creditors’ payment cycle.
17. Permanent ‘Working Capital is the same as fixed Capital.
18. Gross Working Capital is the sum of the Total Current Assets.
19. Net Working Capital can never be negative.
20. Working Capital refers to a firm’s long term capital.
21. In general, the greater a firm’s current assets relative to its short-term obligations, the better able it will be to
pay its bills as they come due.
22. An increase in current assets increases net Working Capital, thereby increasing liquidity.
23. The cash conversation cycle is the amount of time from the point when the firm inputs materials and labor
into the production cash is collected from the sale of the resulting finished product.
24. The firms operating cycle is simply the sum of the average age of inventory and the average payment
period.
25. The cash conversation cycle is the total number of days in the gross operating cycle less the average
payment period for inputs to production.
26. A negative cash conversation cycle means the average payment period exceeds the gross operating cycle.
27. The gross operating cycle is the conversation of a firm working from cash to inventories and inventories to
receivable and back to cash
28. The gross operating cycle is the amount of time the firm’s cash is tied up between payment for production
inputs and receipt of payment from the sale of the resulting finished products.
29. The cash conversion cycle is the difference between the number of days resources are tied up in the gross
operating cycle and the average number of days the firm can delay making payment on the raw materials
purchased on credit.
30. A positive cash conversation cycle means that the firm must obtain financing to support the cash conversion
cycle.
31. Firms typically would prefer a positive cash conversation cycle versus a negative cash conversion cycle.
32. Working capital estimation involves the estimation of all of a firm’s assets and liabilities.
33. The cash conversion cycle is the net period from the start of cash outflow for producing a product or service
until the associated cash inflow materializes from the sale of that product or service.
34. The cash conversion cycle is made up of the production cycle minus the collection cycle plus the payment
cycle.
35. To determine the average cash conversion cycle, we must first compute the average production cycle, the
average collection cycle, and the average payment cycle.
36. Gross operating cycle has two components: the production cycle and the collection cycle.
37. The time between when a raw material is ordered and when it is paid for is called the cash conversion cycle.
Page 13 of 14
(Objectives)
38. Gross Working Capital refers a to investment in current assets, while net working capital is the difference
between current assets and current liabilities
39. The firms’ total investments in current assets should be financed with temporary sources of financing.
40. The cash conversion cycle is equal to the days of sales outstanding plus the days of sales in inventory plus
the days of payables outstanding.
41. A cask conversion cycle of (-) 5 days is better than a cash conversation cycle of 50 days.
42. The cash conversation cycle cannot be negative.
43. If a company’s inventory turnover increases from 8 to 10,then its cash conversion cycle will also
increase,i.e., get longer.
44. One way to improve a company’s cash conversion cycle is to increase its day’s sales outstanding.
45. If a company offers a cash discount for early payment, this will most likely increase its cash conversion cycle
since it will have to pay out more cash to its customers.
46. As the inventory turnover ratio decreases, the inventory conversion cycle increases.
47. Increasing the credit period by suppliers also increases the cash conversion cycle.
48. Cash Conversions cycles =Gross Operating Cycle – Credit period by suppliers.
MATCH THE FOLLOWING COLUMNS
COLUMN A COLUMN B
1. Gross Working Capital a. Raw material ,work-in-process, finished
goods
2. Net Working Capital b. Current assets
3. Permanent Working capital c. Net Current Assets as on the year of
concern
4. Temporary Working Capital d. Current Assets – Current Liabilities
5. Balance sheet Working capital e. Financed by means of Share Capital
6. Cash working capital f. Current Assets – Inventory
7. Operating cycle of manufacturing g. Debtors not at selling price
8. Operating cycle of service concern h. Financed through bank overdraft
i. Only credit cycle
j. Current Assets – Bank Overdraft
Page 14 of 14

Management Accounting Objectives Sem V

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TY B Com MORE CLASSES

Management Accounting Your Partner in Studies

CHAPTER 1: STUDY OF FINANCIAL STATEMENTS

1. Internal analysis of financial statements is done by

18. Advance given are shown in the vertical financial statements as

CHAPTER 2: ACCOUNTING RATIOS

MULTIPLE CHOICE QUESTIONS

2) Write the Standards for the following ratios:

3) Which of these are Leverage ratios?

STATE WHETHER TRUE OR FALSE

CHAPTER 3: CASH FLOW STATEMENTS

MULTIPLES CHOICE QUESTIONS:

1) Classify the following items into relevant cash flow categories:

(a) operating cash flow (b) investing cash flow

ESTIMATION OF WORKING CAPITAL

MULTIPLE CHOICE QUESTIONS

1. The total Current Assets without deducting the current liabilities.

d) None of the above

MATCH THE FOLLOWING COLUMNS

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