Tag: analysis of financial statements

Quizzes (6) Questions (90)

Questions Related to analysis of financial statements

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

NPV of a proposal, as calculated under Risk Adjusted Discount Rate(RADR) & Real Certainty Equivalent(CE) Approach will be __________.

  1. Same

  2. Unequal

  3. Both A and B

  4. None of A and B
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The Risk Adjusted Discount Rate (RADR) and Certainty Equivalent (CE) approaches are different methods for incorporating risk into capital budgeting. They generally yield different NPV results because they adjust for risk in different ways.

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

What factors increase the riskiness of  a Capital budgeting Project?

  1. Industry specific risk factors

  2. Competition risk factors

  3. Project specific risk factors

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The factors that increase riskiness of a capital budgeting project are industry specific risk, competition risk and project risk. Industry specific risk/market risk are the risks that might occur due to change in the industry, competition risks are the risk that can occur because of the competitors strategy and lastlyt project risk are the risk that are associated with the project as whether or not the project will be profitable or not. 

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

Risk-aversion of an investor can be measured by______________.

  1. Market Rate of Return

  2. Risk-free Rate of Return

  3. Portfolio Return

  4. None of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Risk aversion means the tendency of a person to avoid a decision/investment when there is risk involved. Risk aversion is a personal trait of a person. Risk-aversion of an investor cannot be measured by market rate of return, risk free rate of return or portfolio profit. 

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

For calculating trend percentage, which of the following formula is used? 

  1. (Present year value/Base year value) x 100

  2. (Base year value/Present year value) x 100

  3. (Present year value/100) x Base year value

  4. (Base year value/100) x Present year value
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Generally the first year is taken as the base year. The figure of base year is taken as 100. Trend percentage is calculated by following formula:

(Present year value/Base year value) x 100

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

The most commonly used tools for financial analysis are _______________.

  1. Horizontal analysis

  2. Vertical analysis

  3. Ratio analysis

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Commonly used tools of financial analysis are: Comparative statements, Common size statements, trend analysis, ratio analysis, funds flow analysis, and cash flow analysis.

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

Select the correct statement.

  1. General reserve is created out of divisible profits

  2. General reserve is used for some specified purposes

  3. Revenue reserve include capital reverse also

  4. All the three
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

General reserve is created out of divisible profits. This is the only true statement. General reserve is created to meet any future uncertainties, they are basically the retained earnings of the company.  

Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

Which of the following statements are false?
A) When all the figures in a balance sheet are stated as percentage of the total, it is termed as horizontal analysis. 
B) When financial statements of several years are analyzed, it is termed as vertical analysis. 
C) Vertical Analysis is also termed as dynamic analysis. 

  1. Both A and B

  2. Both A and C

  3. Both B and C

  4. A, B and C
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
Statements are A and C are false. 
A) False. When all figures in the balance sheet are stated as percentage of the total, its termed as vertical or common-size analysis. 
C) False. Horizontal analysis is termed as dynamic analysis. Vertical analysis is done to review and analysis the financial statements for a year only and therefore it is also called static analysis.
Multiple choice trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

A company discloses the following information in relation to its receivables in the notes to its financial statements.
Gross amount receivable - Rs. 4,800
Provision for doubtful debts - Rs. 360
Net Carrying amount of receivable - Rs. 4,400
Which one of the following is the maximum credit risk that it must also disclose in the notes to comply with IFRS 7?

  1. Rs. 360

  2. Rs. 4,400

  3. Rs. 4,800

  4. No disclosure is required
Reveal answer Fill a bubble to check yourself
D Correct answer
Multiple choice book keeping and accountancy analysis of financial statements financial statement of company rules for recording in journal dual effect of transactions, types of accounts and rules of debit and credit

A has $Rs. 3,500$ due from B. On January $20$, B makes a partial payment of $Rs. 2,100$ to A. The journal entry made on January $20$ by A to record this transaction include_________.

  1. A credit to the cash received account of $Rs. 2,100$

  2. A credit to B's account of $Rs. 2,100$

  3. A debit to the cash account of $Rs. 1,400$

  4. A debit to B's account of $Rs. 1,400$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When B makes a payment to A, A receives cash (debit) and B's debt to A decreases. Decreasing an asset (accounts receivable) requires a credit to B's account.