Advanced Financial Management MCQ || Advanced Financial Management Questions and Answers

121. Any change in Current Liabilities will affect an inverse change in the working capital.

  1. True
  2. False
  3. none
  4. none

Answer.1. True

Explanation:

Current liabilities are an inflow of funds and would reduce the burden on working capital. And as such increases in current liabilities would decrease working capital needs. A decrease in current liabilities, on the other hand, would need funds for payment; hence would increase the requirement for working capital. Current liabilities have an inverse impact on the working capital requirements. It is now a matter of child’s play to prepare the schedule.

 

122. From the following details find out the funds from operations: Net Profit after Tax Rs. 48,000 Depreciation Rs. 30,000 Loss on Sale of Outdated Machinery: Rs. 4000

  1. Rs. 82,000
  2. Rs. 22,000
  3. Rs. 74,000
  4. Rs. 14,000

Answer.1. Rs. 82,000

Explanation:

Total fund from operation = Net profit + depreciation + Loss

= 48000 + 30000 + 4000

= Rs. 82,000

 

123. From the following details find out the fund from operations at Rs. 2,500 Accumulated Depreciation Rs. 2,900 Retained Earning Rs. 4,200 Goodwill Written off Rs. 300 Profit on Sale of Fixed Assets Rs. 200

  1. Rs. 9,900
  2. Rs. 9,600
  3. Rs. 9,700
  4. Rs. 5,100

Answer.3. Rs. 9,700

Explanation:

Fund from operations  = Depreciation + earning + ( Good will – PL of fixed assets)

= 2500 + 2900 + 4200 + (300 -200)

= Rs. 9,700

 

124. Funds Flow Statement indicates the necessity of arranging external funds in advance if the projected outflow is more than the inflow.

  1. True
  2. False
  3. Can’t say
  4. none

Answer.1. True

Explanation:

Fund flow is the sum of all cash inflows/outflows from and into different financial assets. Fund flow is usually calculated on a monthly or quarterly basis; no account is taken of the output of an asset or fund. It is only the share redemptions or outflows, and share purchases or inflows.

 

125. Any change in the Current assets is positively correlated to the change in working capital

  1. True
  2. False
  3. Can’t say
  4. none

Answer.1. True

Explanation:

Current assets are those assets that are converted into cash within one year normally. Any change in the Current assets is positively correlated to the change in working capital.

 

126. Non-cash adjustments like Depreciation, Preliminary Expenses, and Goodwill Written off are shown on the debit side of which account?

  1. Balance Sheet
  2. Funds Flow Statement
  3. Adjusted Profit and Loss Account
  4. Working Capital Statement

Answer.3. Adjusted Profit and Loss Account

Explanation:

Non-cash adjustments like Depreciation, Preliminary Expenses, and Goodwill Written off are shown on the debit side adjusted Profit and Loss Account.

The non-fund items are those which may be operational expenses but they do not affect funds of the business, e.g., for depreciation charged to the Profit and Loss Account, funds really do not move out of business.

Non-operating items are those which may result in the outflow of funds but are not related to the trading operations of the business. Such as Loss on Sale of Machinery or Payment of Dividends. Funds from operations are computed by adjusting the Net Profit figure from above various items.

 

127. Part of the Profit transferred to General Reserve will be shown on the debit side of _________

  1. Balance Sheet
  2. Funds Flow
  3. Cash Flow
  4. Adjusted Profit and Loss Account

Answer.4. Adjusted Profit and Loss Account

Explanation:

Part of the Profit transferred to the General Reserve will be shown on the debit side of the Adjusted Profit and Loss Account.

The non-fund items are those which may be operational expenses but they do not affect funds of the business, e.g., for depreciation charged to the Profit and Loss Account, funds really do not move out of business.

Non-operating items are those which may result in the outflow of funds but are not related to the trading operations of the business. Such as Loss on Sale of Machinery or Payment of Dividends. Funds from operations are computed by adjusting the Net Profit figure from above various items.

 

128. A projected Funds Flow Statement informs the management about

  1. Future Financial Stringency
  2. Future Requirement of Funds
  3. Funds Position of the Company
  4. All of the above

Answer.4. All of the above

Explanation:

A company’s cash flow and fund flow statements reflect two different variables during a specific period of time. The cash flow will record a company’s inflow and outflow of actual cash (cash and cash equivalents). The fund flow records the movement of cash in and out of the company.

A projected Funds Flow Statement informs the management about

  1. Future Financial Stringency
  2. Future Requirement of Funds
  3. Funds Position of the Company

 

129. Funds Flow Statement can be prepared in which form?

  1. Vertical Form
  2. Horizontal Form
  3. Complex Form
  4. Both 1 and 2

Answer.4. Both 1 and 2

Explanation:

The fund flow statement can be prepared in the vertical format as well as horizontal format.

 

130. The funds flow statement is based on _______which is of limited utility for future planning is a limitation of funds flow statement.

  1. Historical Facts
  2. Traditional Facts
  3. Hypothetical Facts
  4. Current Facts

Answer.1. Historical Facts

Explanation:

The funds flow statement is based on Historical Facts which are of limited utility for future planning and is a limitation of the funds flow statement.

A fund flow statement is a statement prepared to analyze the reasons for changes in the financial position of a company between two balance sheets.

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