Strategic Finance

Strategic Finance - 2
Due to diversification employees seek:Correct Answer

Higher compensation , Job security , Better opportunities within the firm
Select The Blank

A geographical segment cannot be ________.
Correct Answer
Countries in different zones
Select The Blank

A shareholder expects a higher rate of return as a firm's compensation for ________.
Correct Answer
Increased risk
Multiple Choice Single Answer

Most companies focus only on :Correct Answer
Return on investment
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
In the disclosures in financial statements, there are significant restrictions on :Correct Answer
The right of ownership , Realisability of investments , The remittance of income &
proceeds of disposal

Equity includes :Correct Answer
Development 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
True/False
Organisational changes are similar to mission changes.
Correct Answer
True
Which of the following is NOT A Characteristic of declining firm :Correct Answer
The 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 Answer
Seven
True/False
Money becomes less valuable when received at a latter stage instead of in present
time.
Correct Answer
True
Select The Blank

The resource theory considers that the competitive position of a firm depends on its
________ Assets.
Correct Answer
Specific
A firm having aggressive policy of investing in current assets will show the following
features :Correct Answer
Frequent production stoppages , High ROI
True/False
Making decision on dividend is a very crucial area of financial management for a firm.
Correct Answer
True

Segment reporting comes under :Correct Answer
AS 17
True/False
Usually cost data is perfect for ABC Analysis & distribution.
Correct Answer
False

As per Pecking order theory, which is the costliest means of funding :Correct Answer
Equity Shares
Match The Following
Correct Answer
Mechanisms
Performs or provides energy to an activity
Inputs
Information or material used to produce the output of an activity
Controls
Information or material that constrains an activity
Outputs
Information or material produced by an activity
True/False
According to NOI Approach, any capital structure is optimum.
Correct Answer
True
Select The Blank

The ________ often gives the best insight into the borrower's short term credit needs.
Correct Answer
Cash budget
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
Explicit cost and implicit cost are the two parts of cost of debt.
Correct Answer
True
Select The Blank

If a segment is not designated as a ________ it should be included as an unallocated
reconciling item.
Correct Answer
Reportable segment
Research into true human resources accounting began in :Correct Answer
1960`s
Select The Blank
Increase in cost of capital means decrease in ________.
Correct Answer
Profitability
True/False
According to NI Approach, decrease in leverage decreases the overall cost of capital
and increases the firm's value.
Correct Answer
False
Accrued expenses represent :Correct Answer

Costless financing , An interest free source of financing
The direct costs tier normally only includes the following :Correct Answer
The personnel payroll , Supplies , Individual rental equipment

Fixed price tender offers are accompanied by an abnormal announcement period return
of :Correct Answer
8 - 10 %

Many companies claim their main assets are their :Correct Answer
People
The main assumptions for stock repurchase models are as follows :Correct Answer
The market is efficient , There is perfect competition in the securities market

The Buy back of shares shall not be made from
Correct Answer
The promoters or persons in control of the company
True/False
Opportunity costs and real costs decrease the market value of a firm.
Correct Answer
True
True/False
Retained earnings are the most important internal sources of financing the growth of the
firm.
Correct Answer
True
True/False
The chance of bankruptcy is small when the leverage of a firm is small.
Correct Answer
True
Examples of accounting methods used by firm are :Correct Answer

FIFO , LIFO , Accrual Accounting

For the following process the valuation is needed to decide the price at which the deal
will be possibly concluded :Correct Answer
Mergers & Acquisitions
True/False
Diversification helps in preserving a firm's reputation & goodwill.
Correct Answer
True

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 Answer
False
Select The Blank

Forfeiting is mostly used for ________.
Correct Answer
Big ticket items & durable goods
The financial framework of a merger decision covers 3 interrelated aspects i.e. :Correct Answer
Determining 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 Answer
True

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
________ are not diversible.

Correct Answer
Market related risks
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
LIST OF ATTEMPTED S AND ANSWERS
The different types of floats are :Correct Answer

Postal float , Deposit float , Bank float

A low payout policy implies :Correct Answer
More retention of profits
True/False
optimum cash balance under certainty i.e. Baumul`s model allows the cash flow to
fluctuate.
Correct Answer
False

Companies often need to value its own :Correct Answer
Shares
Select The Blank

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

Value added analysis :Correct Answer
Helps to identify potential activities that may be omitted immediately
Intangible assets include :Correct Answer

Preliminary 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 Answer
Greenfield

If the segment result of a segment includes interest expense its segment liabilities
include :Correct Answer
The related interest bearing liabilities
Select The Blank

As per NOI Approach - the overall capitalization rate remains ________ for all levels of
financial leverage.
Correct Answer
Constant
Match The Following
Correct Answer
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
Opportunity cost
An asset value when they are the target of an alternative use.

Suppliers of equity are interested in :Correct Answer
High share prices
The 3 groups of participants in a firm are :Correct Answer

Suppliers of equity , Debt suppliers , Firm Managers
True/False
It is possible to place a single value for the acquired firm.
Correct Answer
False
Select The Blank

________ is never a part of the output.
Correct Answer
Mechanisms
Exit costs are classified into 3 categories namely :Correct Answer

Lost 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 Answer
False
Select The Blank

________ know the best about a firm's performance.
Correct Answer
Firm Managers
As per AS 13 Statement, the following are not considered as investments:Correct Answer

Shares , Debentures , Other securities held as stock in trade
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 payments
True/False
It is essential that ABC must fit into the strategy of the company.
Correct Answer
True
True/False
Trade credit creates book debts which the firm is expected to collect in the near future.
Correct Answer
True
Select The Blank

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

Business risk & financial risk do not have any influence on ________.
Correct Answer
Accounting 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 Answer
False
True/False
A change in the method of depreciation is treated as a change in an accounting policy
and is disclosed accordingly.
Correct Answer True
Select The Blank
________ is not a characteristic of financial conglomerates.
Correct Answer
Provide ineffective competitive process
Select The Blank
There is a ________ relationship between the number of employees & the use of
operating supplies.
Correct Answer
Natural

If a firm opts for restrictive policy then the investments in current assets is :Correct Answer
Low
Match The Following
Correct Answer
AS 17
Segment reporting
AS 19
Leases
AS 6
Depreciation accounting
AS 10
Accounting for fixed assets
True/False
To `gather costs', means capturing all relevant expenses that pertain to the selected
model and processes.
Correct Answer
True
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 Answer

Has 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 Answer

Compensation per Re. Profit , Personnel services head count , Profit per head
Select The Blank

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

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

In today's fast moving world, the quickest way to get information on a firm is through
________.
Correct Answer
Internet
The main characteristics of operating economies are :Correct Answer

It 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 Answer
Borrowings & 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 Answer
Infosys
True/False
In market value approach, interested parties never manipulate the stock markets.
Correct Answer
False

The stock value for a company will be considered to be fair value for ordinary
transactions if the shares are :Correct Answer
Listed
True/False
Planning helps an acquiring firm to identify the units it should drop & it should add.
Correct Answer
True

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

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

One of the selective developments that has taken place in recent times is companies
are going in for :Correct Answer
Activity based costing and management
True/False
Correct Answer
True
True/False
Cash dividends are taxable at ordinary tax rates.
Correct Answer
True
The 3 groups of participants in a firm are :Correct Answer

Suppliers of equity , Debt suppliers , Firm Managers
As per AS 13 Statement, the following are not considered as investments:Correct Answer

Shares , Debentures , Other securities held as stock in trade
Match The Following
Correct Answer
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
The acquiring firm for any M & A will require data about the target firm which will include
:Correct Answer
Quality of management , Production capabilities , Profitability

Equity includes :Correct Answer
Development 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
-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

reconciling item.
Correct Answer
Reportable segment
True/False
Correct Answer
True
Select The Blank

In presenting the reconciliation segment result should be reconciled to ________.
Correct Answer
Enterprise net profit or loss
Select The Blank

Identify disclosure on human resources as a societal concern & prepare international
regulations comes under ________
Correct Answer
The compulsory method

Which is an example out of the following to which special consideration apply for
depreciation :Correct Answer
Regenerative natural resources
True/False
Correct Answer
True
Select The Blank

Correct Answer
118 Bn
Select The Blank
operating supplies.
Correct Answer
Natural
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
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)
True/False
Current accounting system is able to provide actual value of employee capabilities &
knowledge.
Correct Answer
False

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
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

Job 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 Answer
To capture , To construct , To synthesize the correct cost figures
True/False
Odd lots purchase is not a method of buy back of shares.
Correct Answer
False
The overhead expenses include :Correct Answer

Utilities , Maintenance , Security

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

The most important internal sources of financing the growth of the firm is through :Correct Answer
Retained earnings
True/False
The intellectual assets of a company are often worth 3 or 4 times the tangible book
value.
Correct Answer
True
Indicators of the value of an investment are obtained by :Correct Answer

Reference 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 Answer
An electronically linked transparent facility
Significant influence is the power to :Correct Answer

Participate 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 Answer
True
True/False
Decisions related to working capital are repetitive & frequent.
Correct Answer
True
Select The Blank
Correct Answer
Provide 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 Answer
Has 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 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 back the ratio of debt to
total capital and free reserves should not be more than 2 : 1

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

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

The bottom line of ABC Process is :Correct Answer
To 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 Answer
Non trading assets

Best practices, a tool for review process is similar to :Correct Answer
Bench marking
Select The Blank

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

traditionally avails are provided by ________.
Correct Answer
Banks
The financial framework of a merger decision covers 3 interrelated aspects i.e. :Correct Answer
Financing 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 Answer
Seven
True/False
Management of working capital refers to the management of total assets and liabilities
of a company.
Correct Answer
False
True/False
fluctuate.
Correct Answer
False
True/False
Appraisal value of a firm can be acquired from an independent appraisal agency.
Correct Answer
True
True/False
Accounting standards (AS - 13) is now mandatory.
Correct Answer
True
True/False
The accounting records serve as the major source of cost data.
Correct Answer
True
To gather costs means to do the following actions to support the costing of the activities
:-
Correct Answer
To 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 Answer
Solid human resource team
Select The Blank

In many companies, there is no formal record of________.
Correct Answer
Investment in employees
True/False
The activity model is normally created by an activity Accountant.
Correct Answer
False
True/False
Correct Answer
True
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 Answer
The cost of the output
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 budgetary records are useful for:Correct Answer

Validating 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 Answer
6 months

The bottom line of ABC Process is :Correct Answer
To 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 Answer
Regular, steady dividend

Job security , Better opportunities within the firm , Higher compensation
Match The Following

Correct Answer
Amount involved in buy back
Not to exceed 25 % of the total paid up capital
Articles of Association
Authorize buy back of securities
Board of Directors
Resolution permitting the buy back of shares
Shares to be bought back
Fully paid up

A high payout policy means :Correct Answer
More current dividends
Match The Following

Correct Answer
Earning per share
Acquisition is considered to be a function of the impact of the merger on the EPS
Book value
Divide net worth by the number of equity shares outstanding
Appraisal value
Provides a list of the reasonableness of results obtained through methods base upon
the going concern concept
Market value
Indicate 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 Answer
Replacement cost
Select The Blank
The advantage of ________ is that the company is not required to wait for the payment
by the bill issuer.
Correct Answer
Bill discounting
In a growth firm, internal rate is :Correct Answer
More than opportunity
Shortage costs are mainly in the form of :Correct Answer

Disruption in production schedule , Loss of sales , Loss of customer goodwill
Shortcomings of accounting numbers consist of the following :Correct Answer

Firms 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 Answer
Retained earnings

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

A firm should consider acquisition as a :Correct Answer
Capital budget decision

Firms which have marked seasonality in their operations usually have :Correct Answer
Highly fluctuating working capital requirement

Decrease in leverage results in increasing the :Correct Answer
Overall cost of capital
Select The Blank

Correct Answer
The 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 Answer
Permanent working capital
Select The Blank

The costs should be gathered & allocated within the organisation at the ________
structural layer.
Correct Answer
Lowest possible
The acquiring firm for any M & A will require data about the target firm which will include
:Correct Answer
Quality of management , Production capabilities , Profitability
Segment assets are determined after :Correct Answer

Deducting related allowances / provisions reported as direct offsets
For M & As, the acquiring firm needs industry data on :Correct Answer
Market growth , Nature of competition , Degree of regulation
Select The Blank

Implicit & Explicit costs are included in the ________.
Correct Answer
Price of a product
In a merger decision, the value of a firm depends upon:Correct Answer

Earnings , Operating characteristics of acquiring firm , Financial characteristics of
acquiring firm
True/False
Correct Answer
True
True/False
Segment result is segment revenue less segment expenses.
Correct Answer
True

The main factor affecting the profits is :-
Correct Answer
The magnitude of sales of the business
True/False
Retained earnings are the most important internal sources of financing the growth of the
firm.
Correct Answer
True
Select The Blank

________ are those operating assets that are employed by a segment in its operating
activities.
Correct Answer
Segment assets
The direct costs tier normally only includes the following :Correct Answer
The personnel payroll , Supplies , Individual rental equipment
Accounting numbers are not influenced by :Correct Answer

Dividend policy , Time span of money , Financial and business risk
Select The Blank

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

The Public announcement of share buy back has to be made at least :Correct Answer
7 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 Answer
To define the costs , To refine the costs , To document the costs
Operating economies occur due to indivisibilities of resources like :Correct Answer

People , 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 Answer
25 lacs
True/False
Correct Answer
True

The development aspect of training in firms focus on :Correct Answer
Promotion to higher job levels
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 17 is mandatory for all commercial, industrial & business reporting enterprises
whose turnover for the accounting period :Correct Answer
Exceeds 50 crores
Select The Blank

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

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

When a change in the method of depreciation is made :Correct Answer
Depreciation 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 Answer
Have to sign a note , Pledge collateral , Adhere to strict payment schedule
Select The Blank

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

operating supplies.
Correct Answer
Natural

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

When the seller asks for the payment before making the delivery in order to avoid all
risks it is known as
Correct Answer
Cash before delivery
True/False
Correct Answer
True
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 Answer
The 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 Answer
During more than 1 accounting period
True/False
Short term financing is meant for funding working capital of a company.
Correct Answer
True
The existence of significant influence by an investor is usually evidenced in the following

ways :Correct Answer
Participation 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 Answer
Planning , Searching & screening , Financial evaluation
Match The Following
Correct Answer
Unsecured loans
Form of debt not backed by the pledge of specific assets
Line of credit
Does not constitute any legal commitments on the part of the bank
Revolving credit agreements
While the commitment is in force the bank must extend credit whenever the borrower
wishes to borrow
Transaction loan
The cash flow ability of the borrower to pay the loan is usually of paramount importance
like :Correct Answer
Monitoring the investment in inventories , Negotiating favourable credit terms ,
Administrating Accounts receivables
True/False
Dividends increase the current returns for shareholders.
Correct Answer
True
True/False
Book value is based on the balance sheet value of owner's equity.
Correct Answer
True
Select The Blank

the commercial paper may be issued in the multiples of ________.
Correct Answer
5 lakhs
Select The Blank

In presenting the reconciliation segment result should be reconciled to ________.
Correct Answer
Enterprise net profit or loss
Select The Blank

Another meaning of bear hug is ________.
Correct Answer
Hostile takeover

Funds borrowed for a period of 1 year or less is called :Correct Answer
Short term finance
Financial statements classify the following into separate categories :Correct Answer
Fixed 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 Answer
Is 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 Answer
Outstanding preference shares
What is a very important factor in any kind of merger?

Correct Answer
Exchange ratio

When the working capital is less than its peak level :Correct Answer
The surplus is invested in liquid assets
True/False
Baumul`s Model is similar to EOQ model in inventory management.
Correct Answer
True
True/False
Sometimes the mechanisms may appear to be inputs for an activity.
Correct Answer
True
Accrued expenses represent :Correct Answer

Costless financing , An interest free source of financing
True/False
value.
Correct Answer
True
Match The Following
Correct Answer
Terminal warehouse receipt
Inventory is stored with a public or terminal warehousing company
Floating lien
Loose arrangement as the lender may find it difficult to police
Chattel mortgage
Well suited for financial good inventories of capital goods
Trust receipt
Specifically identified by serial number or other means
The different types of floats are :Correct Answer

Postal float , Deposit float , Bank float
If a company is following multiple accounting system, the activity accountant will have to
match data across :Correct Answer
Codes , Time periods , Systems
True/False
AS 13 statement does not deal with operating or finance leases.
Correct Answer
True
Select The Blank

The number of bidding centers shall not be less than ________ for buy back through
book building.
Correct Answer
30
Select The Blank
Market approach is used for companies whose shares are ________ on the Stock
market.
Correct Answer
Listed
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 flows from the investment

The following is not a method of payment to the acquired firm:Correct Answer Fixed deposits of the acquiring firm
True/False
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 a company defaults in repayment of deposits or
interest due thereon
Select The Blank

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

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

Modigliani - Miller Theoram is based on :Correct Answer Perfect Capital Markets
True/False
Value based approach of HRA tracking can be divided into 2
categories - 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 be

gained 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

Deferred payment plan is also known as:Correct Answer Earn out plan
True/False
There are few methods of allocating depreciation over the useful
life of an assets.
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 following

mergers :-
Correct Answer Horizontal , Vertical , Conglomerate

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 active market for their shares :Correct Answer Market value approach
Select The Blank
According to Altman (1984) total costs in percentage of the
market value of a firm range between ________
Correct Answer 12.1 % & 16.7 %
Conservative policy for determining the requirements of current
assets is also known as :Correct Answer Flexible policy
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 , Operational
Select The Blank
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 the following ways :Correct Answer Participation in policy making processes , Material transactions
between the investor & the investee , Interchange of managerial
personnel
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 various
people on information available
True/False
Only firms with a large amount of financial slack can afford
tender offers.
Correct Answer True
Select The Blank
Buy back through book building the process should be made
through ________.
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 is
small.
Correct Answer True
True/False
A change in the method of depreciation is treated as a change in
an accounting policy and is disclosed accordingly.
Correct Answer True
Select The Blank
Economies of scale arises with increase in volume of production
leading to________.
Correct Answer Reduction in the cost of production
True/False
Arbitrage process implies that security cannot sell at different
prices.
Correct Answer True
Select The Blank
Capital gains are taxed at ________.
Correct Answer Preferentially lower rate

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 current
investment.
Correct Answer True
Accounting standards (AS - 17) has come into effect in respect
of accounting periods commencing :Correct Answer On or after 01.04.2001
True/False
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
Select The Blank
________ Assets in the balance sheet are normally excluded
from the value of total assets.
Correct Answer Intangible
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 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 ) / P
SPE = R / H (C + B ) / R
RR = (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 , Higher
compensation
Select The Blank
In today's fast moving world, the quickest way to get information
on a firm is through ________.
Correct Answer Internet
It is often not possible to directly attribute, or reasonably allocateCorrect Answer The interest bearing liabilities to segments
True/False
LIST OF ATTEMPTED S AND ANSWERS

A normal firm shows the following characteristics :Correct Answer No unique optimum payout ratio , Market value per share
unaffected by the payout ratio , All dividend policies are similar
One of the bases for determining the residual value of similar
assets is :Correct Answer Realizable value
If a firm diversifies managerial teams formed can be shifted from

unproductive activities to productive ones which leads to :Correct Answer Improved profitability , Continuity , Growth of the firm
Segment liabilities do not include :Correct Answer Borrowings & other liabilities that are incurred for financing rather
than operating purpose
As per Pecking order theory, which is the costliest means of

funding :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 resources

like :Correct Answer People , Equipment , Overheads
True/False
If a company has resorted to buyback its shares, it cannot make
a further issue of the same kind of securities within a period of 1
year.
True/False
In value of assets approach for computation of valuation of
shares, the total value of all the assets will be divided by the total
number of shares.
Correct Answer True
Short term sources of funds include :Correct Answer Current Liabilities
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
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 investing
enterprise , Not intended to be in the operations of the investing
enterprise

If a firm opts for restrictive policy then the investments in current
assets is :Correct Answer Low
True/False
Correct Answer True
Select The Blank
Segment assets are ________.
Correct Answer Directly attributable to the segment
Match The Following
- Correct Answer
Free cash flow theory -Enormous conflicts of
interest between Stakeholders and shareholders
Many groups of non investor stakeholders have
an interest in the firm
Net income approach Cost of debt & equity do
not change with a change
in leverage ratio
Enormous conflicts of
interest between
Stakeholders and
shareholders
Net operating income
approach
The overall capitalization
rate remains constant for
all levels of financial
leverages
Firms have preferences by
choosing a way to finance
their projects
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
Cost of debt & equity do
not change with a change
in leverage ratio
Select The Blank
The processes to be identified & focused should to be on the
basis of not adhering to benchmarks, 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 , It occurs 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
The 3 groups of participants in a firm are :Correct Answer Suppliers of equity , Debt suppliers , Firm Managers
Human Assets accounting stands for :Correct Answer Measurement & reporting of the cost and value of people as
organisational resources
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
Match The Following
-Correct Answer
Availability of funds in the market Cost of funds depends on
this factor Different costs are involved Flexibility -The extent & the ease
with which the funds can be raised & paid back are very important
Time -Takes less time to take an overdraft from the bank
Creditworthiness of theissuerIf a company has a good creditworthiness it is not
difficult 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 be
included as an unallocated reconciling item.
Correct Answer Reportable segment
Select The Blank
An asset is included in segment assets, if and only if the related
depreciation or amortisation is included in ________.
Correct Answer Segment expense
True/False
Trade credit creates book debts which the firm is expected to
collect 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 capital
requirements , Portion of fluctuating working capital requirement
Debt is often issued at :Correct Answer The head office level
True/False
Determination of residual value of an asset is normally a difficult
matter.
Correct Answer True
Which of the following systems identifies each of the
organizational elements of the traditional bureaucratic structure
and applies the identifiable costs of that element accordingly?
Correct Answer Organization element accounting
Segment result represents :Correct Answer Operating profit or loss
Which of the following is NOT a disadvantage of deferred
payment plan to the acquiring firm?
Correct Answer There is built - in cushion to the acquiring firm as total payment
is not made at the time of acquisition
Select The Blank
The resource theory considers that the competitive position of a
firm depends on its ________ Assets.
Correct Answer Specific
True/False
Short term financing is meant for funding working capital of a
company.
Correct Answer True
True/False
Money becomes less valuable when received at a latter stage
instead of in present time.
Correct Answer True
True/False
The intellectual assets of a company are often worth 3 or 4 times
the tangible book value.
Correct Answer True
One of the selective developments that has taken place in recent
times is companies are 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
Select The Blank
If total external revenue attributable to reportable segments
constitutes less than ________ of the total enterprise revenue
additional segments should be identified as reportable
segments.
Correct Answer 75 percent
True/False
A single organisation model serves to keep all individual
initiatives to be targeted into a co-ordinated plan.
Correct Answer True
True/False
Valuation of current investments on overall basis is not
considered appropriate.
Correct Answer True
True/False
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 , Financial
characteristics of acquiring firm
A company is permitted to buy back its shares through stock

exchange in the following situations :Correct Answer The company shall complete the verification of acceptances within
15 days of the payout , The identity of the company as a purchaser
shall appear on the electronic screen when the order is placed , The
buy back shall be made only on stock exchanges with electronic
trading facility
True/False
A merger will make sense to the acquiring firm if its shareholders
benefit.
Correct Answer True
Strategic Finance II Page 2 of 8
Select The Blank
________ Assets in the balance sheet are normally excluded from
the value of total assets.
Correct Answer Exchange ratio
Select The Blank
A shareholder expects a higher rate of return as a firm's
compensation for ________.
Correct Answer Increased risk
True/False
Select The Blank
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 :Strategic Finance II Page 3 of 8
Correct Answer Timeliness & turnaround

Which of the following is NOT a disadvantage of deferred payment
plan to the acquiring firm?
Correct Answer There is built - in cushion to the acquiring firm as total payment is not
made at the time of acquisition
True/False
A single organisation model serves to keep all individual initiatives to
be targeted into a co-ordinated plan.
Correct Answer True
True/False
Assets held as stock - in - trade are also investments.
In an aggressive approach :Correct Answer There is a very large risk of shortage of funds
True/False
Correct Answer True
The internal staffing performance indicators are :Correct Answer Sales per employee , Recovery rate , Utilization %
Select The Blank
The most popular kind of dividend policy is one that pays a
________.
Correct Answer Regular, steady dividend
Match The Following
- Correct Answer
Not 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 Directors
Authorize buy back of securities Shares to be bought back -Fully paid up

A good accounting system does NOT have the characteristics such
as :Correct Answer Does not cover decisions over the life cycle
Fixed price tender offers are accompanied by an abnormal
announcement period return of :Correct Answer 8 - 10 %
The external staffing performance indicators include :Correct Answer Compensation per Re. Profit , Personnel services head count , Profit
per head
Match The Following
-Correct Answer
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 mortgage
Affords- a higher degree of control over the collateral
Select The Blank
In today's fast moving world, the quickest way to get information on a
firm is through ________.
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 8

Correct Answer Firms use different kind of accounting methods , Business risk and
financial risk do not have any influence on accounting numbers
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
True/False
Making decision on dividend is a very crucial area of financial
management for a firm.
Correct Answer True
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
Select The Blank
True/False
Correct Answer True
Select The Blank
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
Prepayment adjustments , Capitalized expenses
True/False
It is easy to find a risk free security.
The earning power of the company approach includes :Correct Answer Mainly discounting of all future earnings
Select The Blank
Select The Blank
Mature companies with stable earnings generally pay out ________.
Correct Answer A high proportion of earnings
True/False
Correct Answer True
True/False

Organisations have various records and reports from past

actions such as :Correct Answer Logs to record workflow , Specific costs , External and internal
audit reports
Select The Blank
Select The Blank
________.

personnel
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 be

considered :Correct Answer Full time equivalent staff , Revenues , Expenses
Accrued expenses represent :Correct Answer Costless financing , An interest free source of financing
True/False
Correct Answer True

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 model
allows the cash flow to fluctuate.
open account credit appears on the buyer's balance sheet as :Correct Answer Accounts payable
Select The Blank
According to a survey for reasons for share purchase, what is
the percentage of cash distribution to cash holders ?
Correct Answer 0.28
Select The Blank
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 for
computation of the depreciation.
Correct Answer True
Select The Blank
The clean up period is usually ________ months.
Correct Answer 1 to 2 months

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 Answer Is depreciated independently
Match The Following
- Correct Answer
Amount involved in buy back- Not to exceed 25 % of the total paid up capital Authorize
buy back of
securities
Board of Directors- Resolution permitting the buy back of shares
The ratio of debt to total capital & free reserves
should be 1 : 1
Acceptable audit requirements cannot be overlooked even under
the pressure of :Correct Answer Timeliness & turnaround
True/False
investment.
Correct Answer True
Book value of the assets is directly dependent on the accounting

policies followed by the company which is used in the following
areas :Correct Answer Booking depreciation , Methods of provisions , Inventory
valuation
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 following

assumptions :Correct Answer Internal financing , Constant return and cost of capital , 100 Per
cent payout or retention

When competition is high in the market, it is :Correct Answer Essential to maintain a larger inventory of finished goods
A manufacturing concern like a machine tool has :Correct Answer A long operating cycle
True/False
Correct Answer True
Select The Blank
Correct Answer Investment in employees
Select The Blank
Correct Answer Loss of value
Match The Following
- Correct Answer
Mortgage -Pertains to immovable properties
Lien- The bank has a right to retain the goods belonging to the company until the
debts 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 operating
policy decisions
Select The Blank
Stock repurchases ________ the debt / equity ratio.
Correct Answer Increases
True/False
Correct Answer True
Where the management's estimate of the useful life of an asset

of the enterprise is shorter than that envisaged under the
provisions of the relevant statute, the depreciation provision is
approximately computed :Correct Answer By applying a higher rate
Select The Blank
The support elements consists of important functions such as :Correct Answer Payroll , Accounting , Automatic data processing
Cost benefit analysis is the simplest form of comparison between
Correct Answer Ideas to determine which is faster, better or cheaper

Arbitrage means :Correct Answer Securities cannot sell at different prices
Select The Blank
Credit standards should be relaxed upon the point where
incremental returns ________ incremental costs.
Correct Answer Equals
True/False
Correct Answer True
True/False
When a company is able to assess an individual's worth, it helps
in increasing its own worth.
Correct Answer True
Match The Following
-Correct Answer
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

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
Nielson is used.
Correct Answer True
Normally the basis for identifying an enterprise segments are :Correct Answer The organizational structure of an enterprise
FEA is a technique to analyze & evaluate :Correct Answer Alternative process improvements
True/False
prices.
Correct Answer True
Select The Blank
True/False
Retained earnings are the most important internal sources of

financing the growth of the firm.
Correct Answer True
policy decisions
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 of
working capital fluctuates depending on the level of activity , It is
impacted 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 as

investments:Correct Answer Shares , Debentures , Other securities held as stock in trade

mergers :Correct Answer Horizontal , Vertical , Conglomerate
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 Growth
True/False
Management of working capital refers to the management of
total assets and liabilities of a company.
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
The cost of an investment includes charges such as :Correct Answer Brokerage , Fees , Duties
Select The Blank
Correct Answer Big ticket items & durable goods
True/False
Planning helps an acquiring firm to identify the units it should
drop & it should add.
Correct Answer True
Segment information needs to be presented :Correct Answer Only on the basis of the consolidated financial statements
Select The Blank
Correct Answer Non traceable cost
Match The Following
- Correct Answer
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 methods base upon the going concern concept
Market value -Indicate the consensus of the investors

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
Select The Blank
True/False
According to NI Approach, decrease in leverage decreases the
overall cost of capital and increases the firm's value.

Best practices, a tool for review process is similar to :Correct Answer Bench marking
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
year.
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
Select The Blank

Select The Blank
Many companies claim their main assets are their :Correct Answer People

Select The Blank
________ is not a example of segment liability.
Correct Answer Goodwill
Select The Blank
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)
Debt suppliers main concern is :Correct Answer Interest & debt repayment
True/False
Correct Answer True
The difference between current assets & current liabilities is
known as :Correct Answer Net working capital
Correct Answer 0.28

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 :CorrectAnswer Is depreciated independently
True/False
In market value approach, interested parties never manipulate the stock
markets.
For accounting standard (AS) 27, Significant influence may be gained by

Correct Answer Share ownership , Statute , Agreement
Accounts payable is also known as :Correct Answer Trade credit from suppliers
Select The Blank
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.
Where the management's estimate of the useful life of an asset of the
enterprise is shorter than that envisaged under the provisions of the relevant statute, the
depreciation provision is approximately computed :Correct Answer By applying a higher rate
Select The Blank
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
True/False
Arbitrage process implies that security cannot sell at different prices.
CorrectAnswer True
Which is an example out of the following to which special consideration
apply for depreciation :Correct Answer Regenerative natural resources
True/False
Correct Answer True
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
Select The Blank

Which of the following systems identifies each of the organizational
elements of the traditional bureaucratic structure and applies the identifiable costs of
that
element accordingly?
The major conditions to be fulfilled for buyback of shares as per the legal
provisions 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 back
the 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 the
selected model and processes.
Correct Answer True
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 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 existing

organisational structure :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
True/False
Select The Blank
Select The Blank
Correct Answer 118 Bn
working capital fluctuates depending on the level of activity , It is impacted by numerous
transactions on a continuous basis

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 , Keep records of assumptions as an audit trail
Select The Blank
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 date on which investment is made
True/False
Trade credit creates book debts which the firm is expected to collect in the
near future.
Correct Answer True
True/False
Correct Answer True
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
True/False
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 actual manpower strength :Correct Answer Full time equivalents , Temporary staff , Part time personnel
discretionary financing
Select The Blank
There is a ________ relationship between the number of employees & the
use of operating supplies.

Correct Answer Natural
Match The Following
-Correct Answer
Mechanisms- Performs or provides energy to an activity.
Inputs -Information or material used to produce the output of an activity
Controls -Information or material that constrains an activity.
Outputs- Information or material produced by an activity.
Value added analysis :Correct Answer Helps to identify potential activities that may be omitted
immediately
True/False
Notes payable means the buyer signs a note that evidences a debt to the
seller.
Correct Answer True
True/False
Correct Answer True
True/False

audit reports
Select The Blank
Select The Blank

________.

personnel
While accounting for human assets, the following data is to be

considered :Correct Answer Full time equivalent staff , Revenues , Expenses
True/False
Correct Answer True
True/False
optimum cash balance under certainty i.e. Baumul`s model
allows the cash flow to fluctuate.
open account credit appears on the buyer's balance sheet as :-
Correct Answer Accounts payable

Select The Blank
Correct Answer 0.28
Select The Blank

True/False
The statute governing an enterprise may provide the basis for
computation of the depreciation.
Correct Answer True
Select The Blank
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 Answer Is depreciated independently
Match The Following
-Correct Answer
Not to exceed 25 % of the total paid up capital Authorize buy back of securities
Articles of Association Authorize buy back of securities
The ratio of debt to total capital & free reserves should be 1 : 1

Shares to be bought back Fully paid up
Acceptable audit requirements cannot be overlooked even under
the pressure of :Correct Answer Timeliness & turnaround
True/False
investment.
Correct Answer True

valuation
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 following

assumptions :Correct Answer Internal financing , Constant return and cost of capital , 100 Per
cent payout or retention
When competition is high in the market, it is :Correct Answer Essential to maintain a larger inventory of finished goods
A manufacturing concern like a machine tool has :Correct Answer A long operating cycle
True/False
Correct Answer True
Select The Blank
Select The Blank

Match The Following
- Correct Answer
Lien -The bank has a right to retain the goods belonging to the company until the
debts due to the bank are paid
Hypothecation- A charge against property for an amount of debt
policy decisions
Select The Blank
True/False
Correct Answer True
Where the management's estimate of the useful life of an asset
of the enterprise is shorter than that envisaged under the
provisions of the relevant statute, the depreciation provision is
Select The Blank
The support elements consists of important functions such as :Correct Answer Payroll , Accounting , Automatic data processing

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

Select The Blank
Credit standards should be relaxed upon the point where
incremental returns ________ incremental costs.
True/False
Correct Answer True
True/False
When a company is able to assess an individual's worth, it helps
in increasing its own worth.
Correct Answer True
Match The Following

- Correct Answer
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

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 &
True/False
Nielson is used.
Correct Answer True
True/False
prices.
Correct Answer True
Select The Blank
True/False
Retained earnings are the most important internal sources of
financing the growth of the firm.
Correct Answer True
policy decisions
working capital fluctuates depending on the level of activity , It is
impacted by numerous transactions on a continuous basis
Select The Blank
Earning power of the company approach tries to value the
________.
As per AS 13 Statement, the following are not considered as

investments:Correct Answer Shares , Debentures , Other securities held as stock in trade

mergers :Correct Answer Horizontal , Vertical , Conglomerate
True/False
Select The Blank
True/False
Management of working capital refers to the management of
total assets and liabilities of a company.
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
Select The Blank
True/False
Planning helps an acquiring firm to identify the units it should

drop & it should add.
Correct Answer True
Select The Blank
Match The Following
- Correct Answer
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
methods
base upon the going concern concept
Market value- Indicate the consensus of the investors

valuation
Select The Blank
True/False
According to NI Approach, decrease in leverage decreases the
overall cost of capital and increases the firm's value.


:Correct Answer Debt and equity are the 2 kinds of funds used by the firm
True/False
year.
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
Select The Blank
Select The Blank

Select The Blank
Select The Blank
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)

True/False
Correct Answer True
The difference between current assets & current liabilities is
known as :Correct Answer Net working capital
Correct Answer 0.28
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 :CorrectAnswer Is depreciated independently
True/False
In market value approach, interested parties never manipulate the stock
markets.
For accounting standard (AS) 27, Significant influence may be gained by

Correct Answer Share ownership , Statute , Agreement
Select The Blank
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
Where the management's estimate of the useful life of an asset of the
enterprise is shorter than that envisaged under the provisions of the relevant statute, the
depreciation provision is approximately computed :Correct Answer By applying a higher rate
Select The Blank

Correct Answer The relevant portion of enterprise revenue that can be allocated on
a reasonable basis to a segment
True/False
CorrectAnswer True
Which is an example out of the following to which special consideration
apply for depreciation :Correct Answer Regenerative natural resources
True/False
Correct Answer True
Financial evaluation involves :Correct Answer Determining the earnings , Areas of risk , Best way to finance a
merger
Select The Blank
Which of the following systems identifies each of the organizational
elements of the traditional bureaucratic structure and applies the identifiable costs of
that
The major conditions to be fulfilled for buyback of shares as per the legal
provisions 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 back
the ratio of debt to total capital and free reserves should not be more than 2 : 1
True/False
Correct Answer True
True/False
To `gather costs', means capturing all relevant expenses that pertain to the
selected model and processes.
Correct Answer True
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?
Select The Blank
At times managers invest in projects that improve the company's
________.
It is the activity accountant's job to do the following for the existing

organisational structure :Correct Answer To define the costs , To refine the costs , To document the costs
True/False
Select The Blank

Select The Blank
working capital fluctuates depending on the level of activity , It is impacted by numerous

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
Select The Blank
includes________.
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 date on which investment is made
True/False
Trade credit creates book debts which the firm is expected to collect in the
near future.
Correct Answer True
True/False

Correct Answer True
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
True/False
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 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 & the
use of operating supplies.
Match The Following
- Correct Answer
Mechanisms- Performs or provides energy to an activity
Inputs- Information or material used to produce the output of an activity
Controls -Information or material that constrains an activity
Outputs- Information or material produced by an activity
Value added analysis :Correct Answer Helps to identify potential activities that may be omitted
immediately
True/False
Notes payable means the buyer signs a note that evidences a debt to the
seller.
Correct Answer True
Strategic Finance -13

Strategic Finance -13
The support elements consists of important functions

such as :Correct Answer Accounting , Automatic data processing , Payroll
The value of the asset does not include:Correct Answer Price per share
The bottom line of ABC Process is :Correct Answer To achieve a better method of doing the right business
pf the organisation
True/False
Articles of association should authorise buy back of
securities as per the Company's Act.
Correct Answer True
During Share repurchase, it is necessary to transfer
certain sum to :Correct Answer Capital redemption reserve Account
Comparative analysis is :Correct Answer A review to ensure consistency within the activity
model & process flow
Exit costs are classified into 3 categories namely :Correct Answer Lost efficiency prior to separation , Job vacancy cost
during 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 determined
moment , Prepayment adjustments , Capitalized
expenses
Select The Blank
Select The Blank
Credit standards should be relaxed upon the point
where incremental returns ________ incremental
costs.
True/False
Usually cost data is perfect for ABC Analysis &
distribution.
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 data

about the target firm which will include :Correct Answer Quality of management , Production capabilities ,
Profitability
Select The Blank
The value based approach of HRA Tracking suggests
that the value of human resources depends upon :Correct Answer Capacity to generate revenue
Select The Blank
________ are considered most desirable from
shareholders point of view.
Correct Answer Dividends
Shareholders returns consists of 2 components :Correct Answer Dividend , Capital gains

In the book building method, the company makes an
offer to buy back :Correct Answer Its specified number of shares at a specified offer
price range
A company is permitted to buy back its shares through

stock exchange in the following situations :Correct Answer The company shall complete the verification of
acceptances within 15 days of the payout , The
identity of the company as a purchaser shall appear
on the electronic screen when the order is placed ,
The buy back shall be made only on stock exchanges
with electronic trading facility
Research into true human resources accounting
began in :Correct Answer 1960`s
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
It is necessary to identify all costs that may be related
to an acquisition.
Correct Answer True
It is the activity accountant's job to do the following for

the existing organisational structure :Correct Answer To define the costs , To refine the costs , To
document the costs
Debt reduces :Correct Answer Agency cost of free cash flow , Commitment to pay in
time to all lenders , Freedom of decisions
Select The Blank

Select The Blank
If total external revenue attributable to reportable
segments constitutes less than ________ of the total
enterprise revenue additional segments should be
identified as reportable segments.
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 date on which investment is made
Select The Blank
If the segment result of a segment includes interest or
dividend income its segment assets will not include
________.
What is the maximum amount involved in the buy
back of the total paid up capital & free reserves of the
company?
Correct Answer 0.25
Select The Blank
Economies of scale arises with increase in volume of
production leading to________.
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
True/False
Baumul`s Model is similar to EOQ model in inventory
management.
Correct Answer True

True/False
To `gather costs', means capturing all relevant
expenses that pertain to the selected model and
processes.
Correct Answer True
When the seller asks for the payment beforemaking
the 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's
worth, it helps in increasing its own worth.
Correct Answer True
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
Select The Blank
True/False
Money becomes less valuable when received at a
latter stage instead of in present time.
Correct Answer True
True/False
Diversification helps in preserving a firm's reputation &
goodwill.
Correct Answer True
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 the
accounting policies followed by the company , There
are no standard procedures for valuation of intangible
assets , No importance to the market value of the
asset
True/False
The chance of bankruptcy is small when the leverage
of a firm is small.
Correct Answer True
True/False
As per the study conducted by RBI, Current assets
constitute :Correct Answer More than 50 % of the total assets
The following categories of personnel are taken into

account to calculate the actual manpower strength :Correct Answer Full time equivalents , Temporary staff , Part time
personnel
Select The Blank
Business risk & financial risk do not have any
influence 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 on
the level of activity , It is impacted by numerous
If a firm diversifies managerial teams formed can be

shifted from unproductive activities to productive ones
which 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 exchanges
with electronic trading facility.
Correct Answer True
True/False
Appraisal value of a firm can be acquired from an
independent appraisal agency.
Correct Answer True
True/False
firms use credit policy as a marketing tool for
expanding sales.
Correct Answer True
Tender offers are used primarily for :Correct Answer Large Equity repurchases
Which is an example out of the following to which
special consideration apply for depreciation :Correct Answer Regenerative natural resources
Which of the following is NOT A Characteristic of
declining firm :Correct Answer The optimum payout ratio for a declining firm is not
100 %
According to Net Income Approach, the average cost
of 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 a

range of legal obligations such as :Correct Answer Rewards - cash like & non cash like , Health & safety
policies , Pensions & contributions to social security
payments
Select The Blank
Mature companies with stable earnings generally pay
out ________.
True/False
Making decision on dividend is a very crucial area of
financial management for a firm.
Correct Answer True
Match The Following
- Correct Answer
Mechanisms -Performs or providesenergy to an activity
Inputs -Information or material used to produce the

output of an activity
Controls- Information or material that constrains an

activity
Outputs -Information or material produced by an activity
True/False
According to NI Approach, decrease in leverage

decreases the overall cost of capital and increases the
firm's value.
Match The Following
- Correct Answer
Lien- The bank has a right to retain the goods belonging to the
company until the debts due to the bank are paid
Hypothecation -A charge against property for an amount of debt

A normal firm shows the following characteristics :Correct Answer No unique optimum payout ratio , Market value per
share unaffected by the payout ratio , All dividend
policies are similar
Select The Blank

Buy back through book building the process should be
made through ________.
The 3 main types of accounting records followed by

an organisation are :Correct Answer Organisational accounting , Budgetary accounting ,
Cost accounting
Select The Blank
An asset is included in segment assets, if and only if
the related depreciation or amortisation is included in
________.
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 Answer Seven
Which of the following systems identifies each of the
organizational elements of the traditional bureaucratic
structure and applies the identifiable costs of that
True/False
Tender offers us an alternative approach to acquire
another firm.
Correct Answer True
Select The Blank
True/False
Management of working capital refers to the
management of total assets and liabilities of a
company.
If a company is following multiple accounting system,

the activity accountant will have to match data across
:Correct Answer Codes , Time periods , Systems
If competition is weak, a firm :Correct Answer Can manage with a smaller inventory of finished
goods
Select The Blank

When a firm invests in human resources by
acquisition & training, it anticipates a ________
Correct Answer Future generation of profits & services
Select The Blank
The following of total cost of assets over its useful life
is called depreciation :Correct Answer Distribution
The different types of floats are :Correct Answer Postal float , Deposit float , Bank float
Select The Blank
Correct Answer The relevant portion of enterprise revenue that can be
allocated 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 working
capital of a company.
Correct Answer True
Estimation for determining the useful life of an asset is
required :Correct Answer On some reasonable basis
The Buy back of shares shall not be made from
Correct Answer The promoters or persons in control of the company
Operating economies of scale are achieved through

the following mergers :Correct Answer Horizontal , Vertical , Conglomerate
Select The Blank
Select The Blank
Forward or backward integration is a characteristic of
________.
True/False
Valuation of current investments on overall basis is
not considered appropriate.
Correct Answer True
A firm can manage with small inventory if the supply is
:Correct Answer Prompt & adequate
Accounting standard 19 for leases statement is

applied in accounting for all leases other than :Correct Answer Lease agreements to explore for or use natural
resources , Licensing agreements for items such as
motion picture films , Lease agreements to use land

Equity includes :Correct Answer Development Rebate Reserve
Select The Blank
________ is not a example of segment asset.
Correct Answer Customer advances
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 &
As per Pecking order theory, which is the costliest
means of funding :Correct Answer Equity Shares
The net income approach is based on following 3

assumptions :Correct Answer There are no taxes , Cost of debt is less than equity
capitalization rate , Use of debt doesn't change the
risk perception of investors
True/False
Receivables constitutes a substantial portion of
current assets of several firms.
Correct Answer True
True/False
Decisions related to working capital are repetitive &
frequent.
Correct Answer True
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

Liquidation value is also known as ________.
Correct Answer Realizable value
True/False
It is possible to place a single value for the acquired
firm.
Implicit claims are non written promises and rights

such as :Correct Answer Right to provide service to customers , Job security for
the employees
Select The Blank
According to Altman (1984) total costs in percentage
of the market value of a firm range between ________
Match The Following
- Correct Answer
Availability of funds in
the market
Cost of funds depends on this factor
Flexibility -The extent & the ease with which the funds
can be raised & paid back are very important
Time- Takes less time to take an overdraft from the

bank
Creditworthiness of the If a company has a issuer- good creditworthiness
it is not difficult to raise short term funds
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
Select The Blank
Implicit & Explicit costs are included in the ________.
Correct Answer Price of a product
Match The Following

- Correct Answer
Diversification -Growth through the
combination 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 unrelated

business activity
The main characteristics of operating economies are :Correct Answer It is achieved through horizontal, vertical and
conglomerate mergers , It occurs due to indivisibilities
of resources , It is possible in generic management
functions
The following analysis is more targeted on similar
activities or 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
Every business requires funds on a continual basis for

expenses incurred on for :Correct Answer Purchase of raw material , Manufacturing costs ,
Administration
True/False
There are few methods of allocating depreciation over
the useful life of an assets.
For paying dividends, firms will have a given amount
of :-
Correct Answer Cash available
Financial evaluation involves :Correct Answer Determining the earnings , Areas of risk , Best way to
finance a merger
True/False
A single organisation model serves to keep all
individual initiatives to be targeted into a co-ordinated
plan.
Correct Answer True
True/False
The objective of a dividend policy should be to
maximize shareholder's return so that the value of his
investment is maximized.
Select The Blank
HLL is ________ % of subsidiary of Unilever PLC.
Correct Answer 0.516
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 it
may be issued for maturities ________ from the date
of issue.
Correct Answer Between 15 days to 1 year
Select The Blank
________ is not a characteristic of financial
conglomerates.
Controlling block is usually acquired from:Correct Answer A single seller
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

True/False
Only firms with a large amount of financial slack can
afford tender offers.
Correct Answer True
Changes in the investee`s equity includes those :Correct Answer Arising from the revaluation of fixed assets , From
foreign exchange translation differences , From the
adjustment of differences arising on amalgamation
True/False
Value based approach of HRA tracking can be divided
into 2 categories - Non - monetary & monetary.
Correct Answer True
Depreciation includes amortization of assets whose
useful life is :Correct Answer Predetermined
True/False
Human assets accounting is still to become an
accepted trend in the industry.
Correct Answer True
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
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
value
to the company :Correct Answer Non trading assets
5 In the reproduction value method of valuation, the value of assets is taken to be on
the
basis 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 a
company 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 ,
Information
or signalling hypothesis
17 A change in the method of depreciation is treated as a change in an accounting
policy
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 as
derivatives , 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 selected
Correct Answer True
21 The resource theory considers that the competitive position of a firm depends on its
________ Assets.
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 the
depreciation.
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 , Financial
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 policy
decisions
30 The costs should be gathered & allocated within the organisation at the ________
structural layer.
31 A single organisation model serves to keep all individual initiatives to be targeted
into
a co-ordinated plan.
Correct Answer True
32 During the costing process, we look at ________.
33 Money becomes less valuable when received at a latter stage instead of in present
time.
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 is
referred to as :Correct Answer Greenfield
36 One of the selective developments that has taken place in recent times is
companies
are going in for :Correct Answer Activity based costing and management
37 ________ is not a characteristic of financial conglomerates.
38 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
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 ________.

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
________
45 The amount to be invested by any single investor in a commercial paper shall not be
less 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
1 If a company is following multiple accounting system, the activity accountant will
have to match data across
Correct 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. ________.
7 The scope of the data required relates to the scope of the activity model & processes
under review.
Correct Answer True
8 The total cost of the activitymodel allocated by the applied activity drivers to the
output 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 and
countries
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
exchanges
as 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?
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 ________.
20 Articles of association should authorise buy back of securities as per the Company's
Act.
Correct Answer True
21 In today's fast moving world, the quickest way to get information on a firm is through
________.
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 leases
other than :Correct Answer Lease agreements to explore for or use natural resources , Licensing
agreements 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.
26 Segment liabilities do not include :Correct Answer Borrowings & other liabilities that are incurred for financing rather than
operating 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 ________.
30 The objective of a dividend policy should be to maximize shareholder's return so
that
the value of his investment is maximized.
31 firms use credit policy as a marketing tool for expanding sales.
Correct Answer True
32 Mature companies with stable earnings generally pay out ________.
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 total
assets.
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 the
following situations :Correct Answer The company shall complete the verification of acceptances within 15
days of
the payout , The identity of the company as a purchaser shall appear on the electronic
screen when
the order is placed , The buy back shall be made only on stock exchanges with
electronic trading
facility
39 Current accounting system is able to provide actual value of employee capabilities &
knowledge.
40 The ________ cost tier has the advantage of being the simplest to calculate and
justify.
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 organisational
changes.
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 for
depreciation :Correct Answer Regenerative natural resources
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
Information or signalling hypothesis
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
What is the maximum amount involved in the buy back of the total
paid 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
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 for
undocumented element costs , Has to be combined with different
types of data from alternate sources
Today knowledge has become a key determinant for :Correct Answer Economic & business success
Select The Blank
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 life
of an assets.
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
Match The Following
-Correct Answer
Information or signaling hypothesis
-Management believes that the common stock of the company is undervalued
Dividend or Personal
Taxation 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 the
non tendering shareholders

Select The Blank
True/False
Correct Answer True
True/False
If a company has resorted to buyback its shares, it cannot make a
further issue of the same kind of securities within a period of 1 year.
Select The Blank
The bottom line of ABC Process is :Correct Answer To achieve a better method of doing the right business pf the
organisation
Select The Blank

If a segment is not designated as a ________ it should be included
as an unallocated reconciling item.
If a particular item of depreciation or amortisation is included in

segment 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 the
tangible book value.
Correct Answer True
True/False
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 Answer
-Not to exceed 25 % of the total paid up capital
Articles of Association -Authorize buy back of securities
The ratio of debt to total capital & free reserves should be 1 : 1
Board of Directors Resolution permitting the buy back of shares
True/False
It is necessary to identify all costs that may be related to an
acquisition.
Correct Answer True
True/False
Notes payable means the buyer signs a note that evidences a debt to
the seller.
Correct Answer True
Select The Blank

________ know the best about a firm's performance.
Correct Answer Firm Managers
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 legal

obligations such as :Correct Answer Rewards - cash like & non cash like , Health & safety policies ,
Pensions & contributions to social security payments
Select The Blank
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 date on which investment is made

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
The net income approach is based on following 3 assumptions :Correct Answer There are no taxes , Cost of debt is less than equity capitalization
rate , 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 for
maturities ________ from the date of issue.
Select The Blank
Select The Blank
________ government has made it mandatory to include in their
annual reports information on customers, processes & human capital.
Correct Answer Danish (Denmark)

Select The Blank
________ are those operating assets that are employed by a
segment 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 of
capital
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
Correct Answer True
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
Correct Answer True

Correct Answer Profitability
and
increases the firm's value.
A high payout policy means :Correct Answer More current dividends
Correct Answer True
One of the bases for determining the residual value of similar assets is :Correct Answer Realizable value
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
If a firm diversifies managerial teams formed can be shifted from unproductive activities
to 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 financial
statements 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 True
For accounting standard (AS) 27, Significant influence may be gained by :Correct Answer Share ownership , Statute , Agreement
AS 4 Contingencies & events occurring after the balance sheet date
AS 13 Accounting for investments Accounting for investments
AS 23 Accounting for investments in associates in consolidated financial statements
Accounting for
investments in associates in consolidated financial statements
AS 21 Consolidated financial statements Consolidated financial statements
The value based approach of HRA Tracking suggests that the value of human
resources
depends 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 risk
do not have any influence on accounting numbers
Exit cost Lost efficiency prior to separation, Job vacancy cost during the new search &
termination
pay. 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 Exit
costs of the leaving employee & recruiting & training of the replacement
Opportunity cost An asset value when they are the target of an alternative use. An asset
value when
they are the target of an alternative use.
It is necessary to identify all costs that may be related to an acquisition.
Correct Answer True
________.
Correct Answer True
The scope of the data required relates to the scope of the activity model & processes
under review.
Correct Answer True
In case of direct placement of commercial papers it may be issued for maturities
________ from the date of issue.
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
structure :-
Correct Answer To define the costs , To refine the costs , To document the costs
Book value of the assets is directly dependent on the accounting policies followed by
the
company which is used in the following areas :Correct Answer Inventory valuation , Booking depreciation , Methods of provisions
Correct Answer The relevant portion of enterprise revenue that can be allocated on a
reasonable
basis to a segment
Long term cash forecasting is generally for a period of ________ years.
Correct Answer 3 to 5 years
Correct Answer True
Share repurchase a form of restructuring comes under :Correct Answer Changes in ownership structure
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 followed
by the company , There are no standard procedures for valuation of intangible assets ,
No importance
to the market value of the asset
Prepayment
adjustments , Capitalized expenses
characteristics of
acquiring 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.
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
According to Net Income Approach, the average cost of capital declines as the
leverage
ratio :Correct Answer Increases
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
:Correct Answer Rewards - cash like & non cash like , Health & safety policies ,
Pensions &
contributions to social security payments
Segment liabilities Enterprise liabilities Enterprise liabilities
Segment revenue Enterprise revenue Enterprise revenue
Segment result Enterprise net profit or loss Enterprise net profit or loss
Segment assets Enterprise assets Enterprise assets
Correct Answer True
book building.
Correct Answer 30
Segment liabilities Do not include borrowings that are incurred for financing purposes
Does not
include extra ordinary items
Segment revenue Does not include extra ordinary items The qualitative characteristics
include the
relevance
Segment expenses Does not include income tax expenses Determined after intra enterprise
balances are eliminated
Segment assets Do not include income tax assets Do not include income tax assets
Correct Answer Negatively correlated
basis of ________
A good accounting system does NOT have the characteristics such as :Correct Answer Does not cover decisions over the life cycle
In today's world, knowledge has become the key determinant for economic & business
success.
Correct Answer True
of
a company.
fluctuate.
A company under siege may look for support & help from its :Correct Answer Friends
include :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 their
shares :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
When a company is able to assess an individual's worth, it helps in increasing its own
worth.
Correct Answer True
Which of the following is NOT a disadvantage of deferred payment plan to the acquiring
firm?
made at
the 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, the
related asset is included in :Correct Answer Segment assets

Correct Answer True
1 The accounting records serve as the major source of cost data.
Correct Answer True
2 ________ know the best about a firm's performance.
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 is
introduced & 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 largest
firm'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 ,
Portion
of 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 on
investments , 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 of
the 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________.
22 Value added analysis is a method to determine, if elements within a process flow
provide the :Correct Answer Values
24 The Buy back of shares shall not be made from
25 traditionally avails are provided by ________.
Correct Answer Banks
26 ________ is not a example of segment liability.
27 Examples of accrued expenses are :Correct Answer Wages , Income tax , Property tax
28 Liquidation value is also known as ________.
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 flows
from the investment
30 The major conditions to be fulfilled for buyback of shares as per the legal provisions
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 back the ratio of
debt to total
capital 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 to
fluctuate.
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 actual
manpower strength :Correct Answer Full time equivalents , Temporary staff , Part time personnel
34 The cost of facilities is usually included & distributed as ________.
35 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 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 ________.
reasonable basis to a segment
39 Credit standards should be relaxed upon the point where incremental returns
________ incremental costs.
40 Management of working capital refers to the management of total assets and
liabilities of a company.

41 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 &
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
financial
risk 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
the
payout ratio , All dividend policies are similar
47 As per residual theory of dividends the focus is on ________.
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 of
capital
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
Correct Answer True
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
Correct Answer True
and
A high payout policy means :Correct Answer More current dividends
Correct Answer True
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
to 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 financial
statements 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
________
Correct Answer True
AS 4 Contingencies & events occurring after the balance sheet date
Accounting for
investments in associates in consolidated financial statements

The value based approach of HRA Tracking suggests that the value of human
resources
depends upon :Correct Answer Capacity to generate revenue
financial risk
do not have any influence on accounting numbers
Exit cost Lost efficiency prior to separation, Job vacancy cost during the new search &
termination
pay. 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 Exit
costs of the leaving employee & recruiting & training of the replacement
Opportunity cost An asset value when they are the target of an alternative use. An asset
value when
they are the target of an alternative use.
It is necessary to identify all costs that may be related to an acquisition.
Correct Answer True
________.
Correct Answer True
under review.
Correct Answer True
Trade credits are of the following types:-
Correct Answer Notes payable , Trade acceptances , Open accounts

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
,
structure :Correct Answer To define the costs , To refine the costs , To document the costs
the
company which is used in the following areas :Correct Answer Inventory valuation , Booking depreciation , Methods of provisions
reasonable
basis to a segment
Correct Answer True
Share repurchase a form of restructuring comes under :Correct Answer Changes in ownership structure
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 followed
by the company , There are no standard procedures for valuation of intangible assets ,
No importance
to the market value of the asset
Prepayment
characteristics of
acquiring firm
The 3 main types of accounting records followed by an organisation are :Correct Answer Organisational accounting , Budgetary accounting , Cost accounting
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
leverage
ratio :Correct Answer Increases
Portion of
fluctuating working capital requirement
:Correct Answer Rewards - cash like & non cash like , Health & safety policies ,
Pensions &
Segment liabilities Enterprise liabilities Enterprise liabilities
Segment revenue Enterprise revenue Enterprise revenue
Segment result Enterprise net profit or loss Enterprise net profit or loss
Segment assets Enterprise assets Enterprise assets
Correct Answer True
book building.
Correct Answer 30
Segment liabilities Do not include borrowings that are incurred for financing purposes
Does not
include extra ordinary items
Segment revenue Does not include extra ordinary items The qualitative characteristics
include the
relevance
Segment expenses Does not include income tax expenses Determined after intra enterprise
balances are eliminated
Segment assets Do not include income tax assets Do not include income tax assets
Correct Answer Negatively correlated
basis of ________
In today's world, knowledge has become the key determinant for economic & business
success.
Correct Answer True
of
a company.
fluctuate.
A company under siege may look for support & help from its :Correct Answer Friends
include :Correct Answer The related interest bearing liabilities
Keep
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 their
shares :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
When a company is able to assess an individual's worth, it helps in increasing its own
worth.
Correct Answer True
Which of the following is NOT a disadvantage of deferred payment plan to the acquiring
firm?
made at
Often a company borrows loans / debts by giving the following as a security :Correct Answer Shares
Correct Answer True
Correct Answer True
If a particular item of depreciation or amortisation is included in segment expense, the
related asset is included in :Correct Answer Segment assets
Correct Answer True
1 The accounting records serve as the major source of cost data.
Correct Answer True
2 ________ know the best about a firm's performance.
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 is
introduced & 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 largest
firm'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 ,
Portion
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 on
investments , 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 of
the 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________.
22 Value added analysis is a method to determine, if elements within a process flow
provide the :Correct Answer Values
24 The Buy back of shares shall not be made from

25 traditionally avails are provided by ________.
Correct Answer Banks
26 ________ is not a example of segment liability.
27 Examples of accrued expenses are :Correct Answer Wages , Income tax , Property tax
28 Liquidation value is also known as ________.
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 flows
from the investment
30 The major conditions to be fulfilled for buyback of shares as per the legal provisions
which
debt to total
31 optimum cash balance under certainty i.e. Baumul`s model allows the cash flow to
fluctuate.
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 actual
34 The cost of facilities is usually included & distributed as ________.
35 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 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 ________.
39 Credit standards should be relaxed upon the point where incremental returns
________ incremental costs.
40 Management of working capital refers to the management of total assets and
41 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 &
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
financial
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
the
47 As per residual theory of dividends the focus is on ________.
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 Answer Is depreciated independently
In market value approach, interested parties never manipulate the stock markets.
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
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 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 weighted average cost of capital does
not
change 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 is
shorter than that envisaged under the provisions of the relevant statute, the depreciation
provision is

Correct Answer True
Which is an example out of the following to which special consideration apply for
depreciation :Correct Answer Regenerative natural resources
Correct Answer True
Financial evaluation involves :Correct Answer Determining the earnings , Areas of risk , Best way to finance a merger
Which of the following systems identifies each of the organizational elements of the
traditional bureaucratic structure and applies the identifiable costs of that element
accordingly?
which
debt to total
Correct Answer True
Correct Answer True
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?
At times managers invest in projects that improve the company's ________.
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 of working
capital
fluctuates depending on the level of activity , It is impacted by numerous transactions on
a
continuous basis
If a firm diversifies managerial teams formed can be shifted from unproductive
activities to productive ones which leads to :Correct Answer Improved profitability , Continuity , Growth of the firm
Keep
In the shareholding pattern of a company, the promoter's holding includes________.
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 date
on which investment is made
Trade credit creates book debts which the firm is expected to collect in the near
future.
Correct Answer True
Correct Answer True
like :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 actual
operating supplies.
Mechanisms Performs or provides energy to an activity Performs or provides energy to
an
activity. Inputs Information or material used to produce the output of an activity
Information or material used to produce the output of an activity
Controls Information or material that constrains an activity Information or material that
constrains 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 True
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
A company is permitted to buy back its shares through stock exchange in the
following situations :Correct Answer The company shall complete the verification of acceptances within 15
days of
the payout , The identity of the company as a purchaser shall appear on the electronic
screen when
the order is placed , The buy back shall be made only on stock exchanges with
electronic trading
facility
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 total
assets.
A shareholder expects a higher rate of return as a firm's compensation for ________.

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 the
acquiring firm?
made at
A single organisation model serves to keep all individual initiatives to be targeted into
Correct Answer True
In an aggressive approach :Correct Answer There is a very large risk of shortage of funds
Correct Answer True
Amount involved in buy backNot to exceed 25 % of the total paid up capital Not 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 Directors Resolution permitting the buy back of sharesAuthorize buy back of
securities
Shares to be bought back Fully paid up Fully paid up
Fixed price tender offers are accompanied by an abnormal announcement period

return of :Correct Answer 8 - 10 %
The external staffing performance indicators include :Correct Answer Compensation per Re. Profit , Personnel services head count , Profit
per head
Trust receipt Specifically identified by serial number or other means Specifically
identified by
serial number or other means
Terminal warehouse receipt Inventory is stored with a public or terminal warehousing
company
Inventory is stored with a public or terminal 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 mortgage Well suited for financial good inventories of capital goods Affords a
higher
degree of control over the collateral
________.
Companies often need to value its own :Correct Answer Shares
Portion
CorrectAnswer True
financial
Investors can reduce the company related risk by diversification of their investments
in ________.

Making decision on dividend is a very crucial area of financial management for a
firm.
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
Correct Answer True
The costs should be gathered & allocated within the organisation at the ________
structural layer.
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
Prepayment
The earning power of the company approach includes :Correct Answer Mainly discounting of all future earnings

Mature companies with stable earnings generally pay out ________.
A firm can manage with small inventory if the supply is :Correct Answer Prompt & adequate
A transport corporation has a substantial working capital requirement.
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 levels
of financial leverage.
Correct Answer Constant
________
While accounting for human assets, the following data is to be considered :Correct Answer Full time equivalent staff , Revenues , Expenses
shareholders
Firms have preferences by choosing a way to finance their projects
ratio
weighted average cost of capital does not change with a change in the proportion of
debt to
equity in the capital structure
levels of
financial leverages The overall capitalization rate remains constant for all levels of
financial
leverages
change in the
proportion of debt to equity in the capital structure Cost of debt & equity do not change
with a
change in leverage ratio
The processes to be identified & focused should to be on the basis of not adhering to
benchmarks, bottlenecks, quality not met, time problems etc. This is called as
________.

Correct Answer True
Earning per share Acquisition is considered to be a function of the impact of the merger
on the
EPS Divide net worth by the number of equity shares outstanding
Book value Divide net worth by the number of equity shares outstanding Evaluate the
impact of the merger on EPS & price - earning ratio
Appraisal value Provides a list of the reasonableness of results obtained through
methods base
upon the going concern concept Indicate the consensus of the investors
Market value Indicate the consensus of the investors Provides a list of the
reasonableness of
results obtained through methods base upon the going concern concept
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
Receivables constitutes a substantial portion of current assets of several firms.
Correct Answer True
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 a
Correct Answer True

and increases the firm's value.
organisational
resources
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 value
to the company :Correct Answer Non trading assets
Where the management's estimate of the useful life of an asset of the enterprise is
shorter than that envisaged under the provisions of the relevant statute, the depreciation
provision is
ForM & As, the acquiring firm needs industry data on :Correct Answer Market growth , Nature of competition , Degree of regulation
book building.
Correct Answer 30
The following of the depreciable asset may undergo subsequent changes arising due
to price adjustments :Correct Answer Historical cost
A company that comes to the rescue of a firm that is being targeted for a takeover is
called :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
Sometimes the mechanisms may appear to be inputs for an activity.
Correct Answer True
AS 23 - Accounting for investments in associates in consolidated financial statements
comes 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 actual
,
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
Correct Answer True

The advantage of ________ is that the company is not required to wait for the
payment 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 Answer
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
except:-Correct Answer It cannot be used as a starting point to be compared &
True/False
Correct Answer True

True/False
Correct Answer True
Select The Blank

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
capital fluctuates depending on the level of activity , It is impacted by numerous
Select The Blank
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
Select The Blank
True/False
of a
company.
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
Select The Blank
True/False
Correct Answer True

Select The Blank
Match The Following
- Correct Answer
Earning per share- Acquisition is considered to be a function of the impact of the merger
on
Appraisal value- Provides a list of the reasonableness of results obtained through
methods base upon the going concern concept
the company
which 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
Select The Blank

True/False
and
to
productive 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 of
securities within a period of 1 year.
True/False
under review.
Correct Answer True
Select The Blank

Select The Blank

Select The Blank

________
Assets.

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

Select The Blank

reconciling item.
The main characteristics of CAPM are :Correct Answer It is an equilibrium Model , It describes the pricing of assets as well as
premium)
True/False
Correct Answer True

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 Answer
AS 4 Contingencies & events occurring after the balance sheet date Contingencies &
events occurring after the balance sheet date
Accounting for investments in associates in consolidated financial statements
Select The Blank
operating supplies.
derivatives ,
A firm using a conservative policy for determining the requirements of current assets:Correct Answer Has fewer production stoppages , Ensures quick deliveries to


Select The Blank

________ are those operating assets that are employed by a segment in its
operating activities.
Examples of accrued expenses are :Correct Answer Wages , Income tax , Property tax

Select The Blank

book building.
Correct Answer 30

Conservative policy for determining the requirements of current assets is also known
as :Correct Answer Flexible policy
True/False
Management of working capital refers to the management of total assets and



Select The Blank

Information or
signalling hypothesis

In value of assets method the following is also to be included as they are also of
value to the company :Correct Answer Non trading assets
True/False
under review.
Correct Answer True

Investment decisions are mainly concerned with :-
Correct Answer Assets
Match The Following

-Correct Answer
Unsecured loans- Form of debt not backed by the pledge of specific assets
Line of credit- Does not constitute any legal commitments on the part of the
bank
Revolving credit agreements -While the commitment is in force the bank must extend
credit
whenever 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.
financial risk do
not have any influence on accounting numbers
, Freedom of
decisions
True/False
Correct Answer True
Select The Blank

Correct Answer To analyse the activities more carefully
True/False
Select The Blank

In the reproduction value method of valuation, the value of assets is taken to be on
the basis of ________
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

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 ________.
Select The Blank

capital fluctuates
depending on the level of activity , It is impacted by numerous transactions on a
continuous basis
True/False
Correct Answer True
Select The Blank
AS 23 - Accounting for investments in associates in consolidated financial
statements comes into effect in respect of accounting periods commencing on or
after ________.
True/False
True/False
Correct Answer True

Select The Blank

Correct Answer Countries in different zones


The acquirer should intimate to the target company & the concerned stock
exchanges as soon as its holding touches :Correct Answer 5 % of the voting capital of the target company
decisions
enterprise , Not

The following analysis is more targeted on similar activities or 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
True/False
Select The Blank
As per NOI Approach - the overall capitalization rate remains
________ for all levels of financial leverage.
The main assumption in comparative analysis is the possibility of
:Correct Answer Combination or co-location of similar functions
Select The Blank
Strategic Finance
As per the study conducted by RBI, Current assets constitute :Correct Answer More than 50 % of the total assets
Select The Blank
Match The Following
- Correct Answer
Diversification -Growth through the combination of firms in
unrelated fields of business
Horizontal mergers 2- Firms operate & compete in a similar kind
of business
Conglomerate mergers -Different or unrelated business activity

in case of temporary working capital, the investment in current
assets varies with :Correct Answer Seasonal requirements

audit reports
True/False
The carrying amount for current investments is the lower of cost
& fair value.
Strategic Finance
Correct Answer True


True/False
Correct Answer True
Select The Blank
As per Dorsman (1995) - financing with a high percentage of
debt prevents firms from :Correct Answer Investing too much
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 manipulate
the stock markets.
Strategic Finance

Which of the following company is reaping high market valuation
due to showing human resources as an asset in its balance
sheet information?
Correct Answer Infosys
Suppliers of equity are interested in :Correct Answer High share prices
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

-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 2equity in the capital
structure
Select The Blank

Strategic Finance
The date on which the announcement is made of new dividend is
called ________.
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 equity
capitalization rate , Use of debt doesn't change the risk
perception of investors

A single business segment does not include products & services
:Correct Answer With significantly differing risks & returns
True/False
Nielson is used.
Correct Answer True
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 diversification
of their investments in ________.
Strategic Finance
The 3 main types of accounting records followed by an

organisation are :Correct Answer Organisational accounting , Budgetary accounting , Cost
accounting
The following disclosures in financial statements in relation to

investments are appropriate :Correct Answer The accounting policies for the determination of carrying amount
of investments , Profits & losses on disposal of current
investments , The amounts included in P & L Statement
Select The Blank
includes________.
The financial framework of a merger decision covers 3

interrelated aspects i.e. :Correct Answer Determining the firm's value , Financing techniques in mergers ,
Analysis of merger as a capital budgeting decision
According to Net Income Approach, the average cost of capital
declines as the leverage ratio :Correct Answer Increases
Strategic Finance
True/False

investment.
Correct Answer True
True/False
The capital Asset pricing model describes the pricing of assets
as well as derivatives.
Correct Answer True
Personnel services expenses is made up of:Correct Answer Personnel salaries , Cost of facilities , Training & development
budgets
Select The Blank
the commercial paper may be issued in the multiples of
________.
Correct Answer 5 lakhs
Select The Blank
Strategic Finance
________.
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
True/False
Correct Answer True
:-
Correct Answer Debt and equity are the 2 kinds of funds used by the firm
True/False
company.
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
True/False
Tender offers us an alternative approach to acquire another
firm.
Correct Answer TRUE
Select The Blank
To calculate depreciable amount the following is subtracted
from 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 assets

as well as derivatives , Expected security return = Riskless return + beta x )
(expected market risk premium
True/False
Correct Answer FALSE
Select The Blank
Segment revenue includes ________.
Correct Answer Revenue from transactions with other segments of the
enterprise
Which is an example out of the following to which special
consideration apply for depreciation :Correct Answer Regenerative natural resources
True/False
According to NI Approach, decrease in leverage decreases
the overall cost of capital and increases the firm's value.
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 ,
development budgets
True/False
Correct Answer TRUE
Select The Blank
Combination of 2 or more companies into existing company
is called ________.
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
Correct Answer TRUE
Match The Following
-Correct Answer
Free cash- Enormous conflicts of interest between Stakeholders and shareholders
flow theory
Net income-Cost of debt & equity do not change with a change in leverage ratio
approach
Net opera- The overall capitalization rate remains constant for all levels of financial
ting 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's
holding includes________.
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 of
cost & fair value.
Correct Answer TRUE
accounting policies followed by the company , There are no standard procedures
for valuation of intangible assets , No importance to the market value of the asset
True/False
Management of working capital refers to the management
of total assets and liabilities of a company.
True/False
When a company is able to assess an individual's worth,
it helps in increasing its own worth.
Correct Answer TRUE
The Board of Directors should pass a resolution permitting
the 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.
Select The Blank
The following analysis is more targeted on similar activities
or 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 and
business risk
Select The Blank
Cost of ________ is more than other sources for raising
short - term finance.
True/False
Correct Answer TRUE
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 the
related depreciation or amortisation is included in ________.
Select The Blank
Select The Blank
Implicit claims are non written promises and rights such as :Correct Answer Right to provide service to customers , Job security for the
employees
Often a company borrows loans / debts by giving the

following as a security :Correct Answer Shares
Match The Following
-Correct Answer
A highly- Shows the illusion of financial problems
leveraged firm
Fiscal -advaIsntdaegdeu, ctible from the profit
the interest of financing with debt
Financing -Prevents firms from investing too much
with a high percentage of debt
Firms must-Discussions about the sell out of assets must be made
repay debts
True/False
Opportunity costs and real costs decrease the market
value of a firm.
Correct Answer TRUE
Select The Blank
Indicators of the value of an investment are obtained by :Correct Answer Reference to its market value , The investee`s assets , The expected
cash flows
from the investment
If a
Value based approach of HRA tracking can be divided into 2 categories - Non monetary & monetary.
Correct Answer True
Prepayment
There are few methods of allocating depreciation over the useful life of an assets.
market.
The following method of valuation is used for listed companies that have an active
market for their shares :Correct Answer Market value approach
According to Altman (1984) total costs in percentage of the market value of a firm
range between ________
The ________ cost tier has the advantage of being the simplest to calculate and
justify.
The existence of significant influence by an investor is usually evidenced in the
following ways :Correct Answer Participation in policy making processes , Material transactions
between the
investor & the investee , Interchange of managerial personnel
Sentiments and rumours No fundamental basis.No effect on valuation
Unlisted shares on stock exchange Difficult to estimate the price Invalid valuation of
shares
Manipulation of stock markets Invalid valuation of shares Easy to estimate the price
Selective information Valuation by various people on information available Valuation by
various people on information available
Only firms with a large amount of financial slack can afford tender offers.
Correct Answer True

Correct Answer True
Correct Answer True
Correct Answer True
Correct Answer True
Accounting standards (AS - 17) has come into effect in respect of accounting periods
commencing :Correct Answer On or after 01.04.2001
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
assets.
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 be
financed include :Correct Answer Free reserves of the company , Securities premium account , Proceeds
of any
shares or other specified securities
PpH = P / H ( C + B ) / P
SPE = R / H (C + B ) / R
RR = (C + B ) / R P / H
U%=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
A normal firm shows the following characteristics :Correct Answer No unique optimum payout ratio , Market value per share unaffected by
the
Segment liabilities do not include :Correct Answer Borrowings & other liabilities that are incurred for financing rather than
operating purpose
same kind of securities within a period of 1 year.

In value of assets approach for computation of valuation of shares, the total value of
all the assets will be divided by the total number of shares.
Correct Answer True
,
Information
The cost of facilities is usually included & distributed as ________.
enterprise , Not
If a firm opts for restrictive policy then the investments in current assets is :Correct Answer Low
Correct Answer True
shareholders
Many groups of non - investor stakeholders have an interest in the firm
ratio
levels of
financial leverages Firms have preferences by choosing a way to finance their projects
change in the
with a
________.
The main characteristics of operating economies are :Correct Answer It is achieved through horizontal, vertical and conglomerate mergers , It
occurs due to indivisibilities of resources , It is possible in generic management
functions
organisational
resources
Availability of funds in the market Cost of funds depends on this factor Different costs
are
involved
Flexibility The extent & the ease with which the funds can be raised & paid back are
very
important The extent & the ease with which the funds can be raised & paid back are
very
important
Time Takes less time to take an overdraft from the bank Takes less time to take an
overdraft from
the bank
Creditworthiness of the issuerIf a company has a good creditworthiness it is not difficult
to raise
short term funds If a company has a good creditworthiness it is not difficult to raise short
term
funds
reconciling item.
An asset is included in segment assets, if and only if the related depreciation or
amortisation is included in ________.
future.
Correct Answer True
Portion
Correct Answer True
accordingly?
acquiring firm?
made at
________ Assets.
Correct Answer True
time.
Correct Answer True
value.
Correct Answer True
terms
If total external revenue attributable to reportable segments constitutes less than
________ of the total enterprise revenue additional segments should be identified as
reportable
segments.
Correct Answer True
Correct Answer True
Strategic 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 Dimension
The 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 HRM
What 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 Indicators
Internal:
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/H
H 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)/R
Unravelling 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/H
A firms 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 included
ii) 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 follows
Net Estimated value of assets = Estimated market value of assets Liabilities
Value 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 follows
Net Replacement value of assets = Estimated replacement value of assets Liabilities
Value of the share = Net replacement value of assets/Number of equity shares
Some 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 GOODWILL
Goodwill 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.

Q.12 Explain the accounting standards for investments in brief.
Ans
Introduction:
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 enterprises; and
d) 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.
Definitions
The 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 appreciation, or for other benefits 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 arms 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 investment in an open market, net of expenses necessarily to be incurred on or
before disposal.
Explanation
Forms of Investments
3. 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.
Explanation
Classification of Investments
6. 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.
Explanation
Cost of Investments
8. 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 Investments
Current Investments
13. 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 carried 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
individually at the lower of cost and fair value.
15. For current investments, any reduction to fair value and any reversals of such
reductions are included in the profit and loss statement.
Carrying Amount of Investments
Long-term Investments
16. 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 investees assets and results and the
expected cash flows from the investment. The type and extent of the investors 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 Properties
19. 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 Investments
20. 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 Investments
22. Where long-term investments are reclassified as current investments, 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, transfers are made
at the lower of cost and fair value at the date of transfer.
Disclosure
24. 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 subsidiary companies), and
rentals on investments showing separately such income from long term and current
investments. 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 Objective
A 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.
Scope
1. 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; and
d) 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.
Definitions
3. 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; or
c. 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 Inventories
5. Inventories should be valued at the lower of cost and net realisable value.
Cost of Inventories
6. 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 Purchase
7. 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 Conversion
8. 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 byproducts 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 Costs
11. 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 Inventories
13. 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; and
d. selling and distribution costs.
Cost Formulas
14. 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 Cost
18. 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 Value
20. 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.
Disclosure
26. The financial statements should disclose:
a. the accounting policies adopted in measuring inventories, including the cost formula
used; and
b. 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.
Q.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:
It concludes that only the risk, which cannot be diversified away by holding a welldiversified 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 CAPM
Investors 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 companys 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 assets price is affected by the risk of the market as a whole.
The markets risk contribution is captured by a measure of relative volatility. BETA,
which indicates how much an assets 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 assets 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 cant 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 securitys future risk. But investors dont
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 years dividend was Re. 1.00,
but no big deal if last years 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
firms 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.
Q.3 With the help of models explain inventory control for working capital management.
Ans INVENTORY MANAGEMENT
Introduction: 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 firms 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 MANGEMENT
Cash 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 of
1. cash flow into and out of the firm
2. cash flows within the firm
3. 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 motive
The 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 motive
It 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 motive
It 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 methods
1. Receipts and disbursement method
This 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 method

This method involves tracing of working capital flows. Its objectives are to project
companys 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
reasons
i. 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 business
Infact 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 Back
A 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 purchased
The 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 solvency
After 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 back
After 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 prescribed
Where 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 back
Every 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 Back
A 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 back
a) 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 date
g) 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.
Penalty
If 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.
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Labels: Strategic Finance
Exit costs are classified into 3 categories namely :-
Correct Answer Lost efficiency prior to separation , Job vacancy cost during
the new search , Termination pay
True/False
Tender offers us an alternative approach to acquire another
firm.
Correct Answer TRUE
Select The Blank
To calculate depreciable amount the following is subtracted
from 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 assets
as well as derivatives , Expected security return = Riskless return + beta x )
(expected market risk premium
True/False
Select The Blank
Segment revenue includes ________.
Correct Answer Revenue from transactions with other segments of the
enterprise
Which is an example out of the following to which special
consideration apply for depreciation :Correct Answer Regenerative natural resources

True/False
According to NI Approach, decrease in leverage decreases
the overall cost of capital and increases the firm's value.
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 ,
development budgets
True/False
Correct Answer TRUE
Select The Blank
Combination of 2 or more companies into existing company
is called ________.
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
Correct Answer TRUE
Match The Following

-Correct Answer
Free cash- Enormous conflicts of interest between Stakeholders and shareholders
flow theory
Net income-Cost of debt & equity do not change with a change in leverage ratio
approach
Net opera- The overall capitalization rate remains constant for all levels of financial
ting 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's
holding includes________.
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 of
cost & fair value.
Correct Answer TRUE
accounting policies followed by the company , There are no standard procedures
for valuation of intangible assets , No importance to the market value of the asset
True/False
Management of working capital refers to the management
of total assets and liabilities of a company.
True/False
When a company is able to assess an individual's worth,
it helps in increasing its own worth.
Correct Answer TRUE
The Board of Directors should pass a resolution permitting
the 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.
Select The Blank
The following analysis is more targeted on similar activities
or 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 and
business risk
Select The Blank
Cost of ________ is more than other sources for raising
short - term finance.
True/False
Correct Answer TRUE
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 the
related depreciation or amortisation is included in ________.
Select The Blank
Select The Blank
Implicit claims are non written promises and rights such as :Correct Answer Right to provide service to customers , Job security for the
employees
Often a company borrows loans / debts by giving the
following as a security :Correct Answer Shares
Match The Following
-Correct Answer
A highly- Shows the illusion of financial problems
leveraged firm
Fiscal -advaIsntdaegdeu, ctible from the profit
the interest of financing with debt
Financing -Prevents firms from investing too much
with a high percentage of debt
Firms must-Discussions about the sell out of assets must be made
repay debts

True/False
Opportunity costs and real costs decrease the market
value of a firm.
Correct Answer TRUE
Select The Blank
Indicators of the value of an investment are obtained by :Correct Answer Reference to its market value , The investee`s assets , The expected
cash flows
from the investment
If a
Value based approach of HRA tracking can be divided into 2 categories - Non monetary & monetary.
Correct Answer True

Prepayment
There are few methods of allocating depreciation over the useful life of an assets.
market.
The following method of valuation is used for listed companies that have an active
market for their shares :Correct Answer Market value approach
According to Altman (1984) total costs in percentage of the market value of a firm
range between ________
The ________ cost tier has the advantage of being the simplest to calculate and
justify.
The existence of significant influence by an investor is usually evidenced in the
following ways :Correct Answer Participation in policy making processes , Material transactions
between the
investor & the investee , Interchange of managerial personnel
Sentiments and rumours No fundamental basis.No effect on valuation
Unlisted shares on stock exchange Difficult to estimate the price Invalid valuation of
shares
Manipulation of stock markets Invalid valuation of shares Easy to estimate the price
Selective information Valuation by various people on information available Valuation by
various people on information available
Only firms with a large amount of financial slack can afford tender offers.
Correct Answer True
Correct Answer True
Correct Answer True
Correct Answer True

Correct Answer True
Accounting standards (AS - 17) has come into effect in respect of accounting periods
commencing :Correct Answer On or after 01.04.2001
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
assets.
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 be
financed include :Correct Answer Free reserves of the company , Securities premium account , Proceeds
of any
shares or other specified securities
PpH = P / H ( C + B ) / P
SPE = R / H (C + B ) / R
RR = (C + B ) / R P / H
U%=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
A normal firm shows the following characteristics :Correct Answer No unique optimum payout ratio , Market value per share unaffected by
the
Segment liabilities do not include :Correct Answer Borrowings & other liabilities that are incurred for financing rather than
operating purpose
same kind of securities within a period of 1 year.
In value of assets approach for computation of valuation of shares, the total value of
all the assets will be divided by the total number of shares.
Correct Answer True
,
Information
The cost of facilities is usually included & distributed as ________.
enterprise , Not
If a firm opts for restrictive policy then the investments in current assets is :Correct Answer Low
Correct Answer True
shareholders
Many groups of non - investor stakeholders have an interest in the firm
ratio
levels of
financial leverages Firms have preferences by choosing a way to finance their projects
change in the
with a
________.
The main characteristics of operating economies are :Correct Answer It is achieved through horizontal, vertical and conglomerate mergers , It
occurs 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

organisational
resources
Availability of funds in the market Cost of funds depends on this factor Different costs
are
involved
Flexibility The extent & the ease with which the funds can be raised & paid back are
very
important The extent & the ease with which the funds can be raised & paid back are
very
important
Time Takes less time to take an overdraft from the bank Takes less time to take an
overdraft from
the bank
Creditworthiness of the issuerIf a company has a good creditworthiness it is not difficult
to raise
short term funds If a company has a good creditworthiness it is not difficult to raise short
term
funds
reconciling item.
An asset is included in segment assets, if and only if the related depreciation or
amortisation is included in ________.
future.
Correct Answer True
Portion
Correct Answer True
accordingly?
acquiring firm?
made at
________ Assets.
Correct Answer True
time.
Correct Answer True
value.
Correct Answer True
terms
If total external revenue attributable to reportable segments constitutes less than
________ of the total enterprise revenue additional segments should be identified as
reportable
segments.
Correct Answer True
Correct Answer True
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Labels: Strategic Finance
Match The Following
- Correct Answer
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
except:-Correct Answer It cannot be used as a starting point to be compared &
True/False
Correct Answer True

True/False
Correct Answer True
Select The Blank
True/False
Retained earnings are the most important internal sources of financing the growth of
the firm.
Correct Answer True
decisions
capital fluctuates depending on the level of activity , It is impacted by numerous
Select The Blank
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

Select The Blank
True/False
of a
company.
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
Select The Blank
True/False
Correct Answer True

Select The Blank
Match The Following
- Correct Answer
Earning per share- Acquisition is considered to be a function of the impact of the merger
on
Appraisal value- Provides a list of the reasonableness of results obtained through
methods base upon the going concern concept
the company
which is used in the following areas :Correct Answer Booking depreciation , Methods of provisions , Inventory valuation
Select The Blank
True/False
and
to
productive ones which leads to :Correct Answer Improved profitability , Continuity , Growth of the firm
True/False
same kind of
securities within a period of 1 year.
True/False
under review.
Correct Answer True
Select The Blank

Select The Blank

Select The Blank

________
Assets.

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

Select The Blank

reconciling item.
premium)

True/False
Correct Answer True

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 Answer
AS 4 Contingencies & events occurring after the balance sheet date Contingencies &
events occurring after the balance sheet date
Accounting for investments in associates in consolidated financial statements
Select The Blank
operating supplies.
derivatives ,
A firm using a conservative policy for determining the requirements of current assets:Correct Answer Has fewer production stoppages , Ensures quick deliveries to


Select The Blank

________ are those operating assets that are employed by a segment in its
operating activities.
Examples of accrued expenses are :Correct Answer Wages , Income tax , Property tax

Select The Blank

book building.
Correct Answer 30

True/False
Management of working capital refers to the management of total assets and


Select The Blank

Information or
signalling hypothesis

In value of assets method the following is also to be included as they are also of
value to the company :Correct Answer Non trading assets
True/False
under review.
Correct Answer True

Match The Following

-Correct Answer
Unsecured loans- Form of debt not backed by the pledge of specific assets
Line of credit- Does not constitute any legal commitments on the part of the
bank
Revolving credit agreements -While the commitment is in force the bank must extend
credit
whenever 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.
financial risk do
not have any influence on accounting numbers
, Freedom of
decisions
True/False
Correct Answer True
Select The Blank

Correct Answer To analyse the activities more carefully
True/False
Select The Blank

In the reproduction value method of valuation, the value of assets is taken to be on
the basis of ________
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

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 ________.
Select The Blank

capital fluctuates
depending on the level of activity , It is impacted by numerous transactions on a
continuous basis
True/False
Correct Answer True
Select The Blank
AS 23 - Accounting for investments in associates in consolidated financial
statements comes into effect in respect of accounting periods commencing on or
after ________.
True/False
True/False
Correct Answer True

Select The Blank

Correct Answer Countries in different zones


The acquirer should intimate to the target company & the concerned stock
exchanges as soon as its holding touches :Correct Answer 5 % of the voting capital of the target company
decisions
enterprise , Not

The following analysis is more targeted on similar activities or 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
True/False
Select The Blank
As per NOI Approach - the overall capitalization rate remains
________ for all levels of financial leverage.
The main assumption in comparative analysis is the possibility of
:Correct Answer Combination or co-location of similar functions
Select The Blank
Strategic Finance
As per the study conducted by RBI, Current assets constitute :Correct Answer More than 50 % of the total assets
Select The Blank
Match The Following
- Correct Answer
Diversification -Growth through the combination of firms in
unrelated fields of business
Horizontal mergers 2- Firms operate & compete in a similar kind
of business
Conglomerate mergers -Different or unrelated business activity

in case of temporary working capital, the investment in current
assets varies with :Correct Answer Seasonal requirements

audit reports
True/False
The carrying amount for current investments is the lower of cost

& fair value.
Strategic Finance
Correct Answer True

True/False
Correct Answer True
Select The Blank
As per Dorsman (1995) - financing with a high percentage of
debt prevents firms from :Correct Answer Investing too much
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 manipulate
the stock markets.
Strategic Finance

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

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

-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 2equity in the capital
structure
Select The Blank

Strategic Finance
The date on which the announcement is made of new dividend is
called ________.
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 equity
capitalization rate , Use of debt doesn't change the risk
perception of investors

A single business segment does not include products & services
:Correct Answer With significantly differing risks & returns
True/False
Nielson is used.
Correct Answer True
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 diversification
of their investments in ________.
Strategic Finance
The 3 main types of accounting records followed by an

organisation are :Correct Answer Organisational accounting , Budgetary accounting , Cost
accounting
The following disclosures in financial statements in relation to

investments are appropriate :Correct Answer The accounting policies for the determination of carrying amount
of investments , Profits & losses on disposal of current
investments , The amounts included in P & L Statement
Select The Blank
includes________.
The financial framework of a merger decision covers 3

interrelated aspects i.e. :Correct Answer Determining the firm's value , Financing techniques in mergers ,
Analysis of merger as a capital budgeting decision

According to Net Income Approach, the average cost of capital
declines as the leverage ratio :Correct Answer Increases
Strategic Finance
True/False
investment.
Correct Answer True
True/False
The capital Asset pricing model describes the pricing of assets
as well as derivatives.
Correct Answer True
Personnel services expenses is made up of:Correct Answer Personnel salaries , Cost of facilities , Training & development
budgets
Select The Blank
the commercial paper may be issued in the multiples of
________.
Select The Blank
Strategic Finance
________.
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

True/False
Correct Answer True
:Correct Answer Debt and equity are the 2 kinds of funds used by the firm
True/False
company.
Correct Answer True

Strategic Finance

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Strategic Finance - 2

Due to diversification employees seek:Correct Answer

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As a general rule, an asset is :Correct Answer

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Match The Following

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Accrued expenses represent :Correct Answer

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Examples of accounting methods used by firm are :Correct Answer

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________ are not diversible.

LIST OF ATTEMPTED S AND ANSWERS

The different types of floats are :Correct Answer

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Intangible assets include :Correct Answer

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The 3 groups of participants in a firm are :Correct Answer

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Exit costs are classified into 3 categories namely :Correct Answer

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As per AS 13 Statement, the following are not considered as investments:Correct Answer

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Shares of a large number of companies

For ABC Analysis the available cost data :Correct Answer

The external staffing performance indicators include :Correct Answer

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The important aspect of dividend policy is :Correct Answer

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The main characteristics of operating economies are :Correct Answer

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The 3 groups of participants in a firm are :Correct Answer

As per AS 13 Statement, the following are not considered as investments:Correct Answer

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