VIVA QUESTIONS

02 September 2021 06:29

VIVA QUESTIONS

1. WHAT DO YOU MEAN BY FINANCIAL STATEMENTS ?

Financial statements are the reports prepared by a company to present

the financial performance and position at a given date.

2. MENTION ANY TWO COMPONENTS OF FINANCIAL STATEMENTS.

Statement of profit and Loss and Balance Sheet.

3. WHAT DO YOU MEAN BY NON CURRENT ASSETS?

Non Current Assets are those assets which are not meant for re-sale. They are
for long term use.

4. WHAT IS SUM OF DEBT AND EQUITY?

Capital Employed

5. WHAT ARE FOUR CATEGORIES IN WHICH RATIOS CAN BE GROUPED?

Liquidity , Profitability , Turnover and Solvency Ratios.

6. DOES DEBT EQUITY RATIO MEASURES THE FINANCIAL LEVERAGE ?

Yes it measures the financial leverage because it explains the extent to which
the enterprise depends on borrowed funds for its business.

7. GROSS PROFIT + OTHER INCOME -___________= NET PROFIT

Indirect Expenses

8. OPERATING RATIO + _______________ RATIO = 100

Operating Profit Ratio

9. TRADE PAYABLE IS THE SUM OF ______________ AND _____________.

Creditors and Bills Payables

10. WHAT IS THE FORMULA OF ROI?

PBIT / CAPITAL EMPLOYED X 100

11. GIVE THE FORMULA OF OPERATING RATIO ?

Cost of RFO + Operating Expenses / RFO X100

12. WHAT IS THE FORMULA OF TRADE RECEIVABLE TURNOVER RATIO?

 Credit RFO / Avg Trade Receivables

13. WHAT IS THE FORMULA OF TRADE PAYABLES TURNOVER RATIO?

Credit Purchases / Avg Trade Payables

14. WHAT IS THE FORMULA TO CALCULATE AVERAGE COLLECTION PERIOD?

12/Trade Receivable Turnover Ratio

15. INTERPRET THE CURRENT RATIO 20:1

It is an unfavourable situation because it indicates excess investment in
inventory , inefficient collection from Debtors , low sales etc.

16. WHAT DOES LOW TRADE RECEIVABLES TURNOVER RATIO INDICATE?

It indicates slow realisation of cash from debtors.

17. What is Gross Profit?

It is the excess of RFO over Cost of RFO.
Gross Profit = RFO - COST OF RFO

18. WHY DO WE EXCLUDE INVENTORY AND PREPAID EXPENSES WHILE

CALCULATING QUICK RATIO ?
Because Inventory is not taken in Liquid Assets as it takes lot of time to
convert inventory into cash .Prepaid Expenses are the expenses paid in
advance hence cannot be converted into cash.

19. WHICH ITEM OF CURRENT ASSET IS NOT TAKEN WHILE CALCULATING

CURRENT RATIO ?
Loose Tools and Stores & Spares

20. WHAT IS THE TREATMENT OF PROVISION FOR DOUBTFUL DEBTS WHILE

CALCULATING CURRENT RATIO?
It is to be deducted from Debtors

21. WHAT DO YOU MEAN BY SOLVENCY?

It is the ability of the firm to pay its Non-Current Liabilities.

22. WHAT DO YOU MEAN BY LIQUIDITY?

It is the ability of the firm to pay its Current Liabilities.

23. CURRENT ASSETS ARE 10,00,000, INVENTORIES 5,00,000, WORKING

CAPITAL 600,000 . WHAT IS THE CURRENT RATIO ?
2.5:1

24. WHAT DOES NON CURRENT LIABILITIES CONSIST OF ?

It consists of long term borrowings and long term provisions.
25. CURRENT RATIO 2.5 AND CURRENT LIABILITIES ARE 4,00,000. WHAT IS
THE WORKING CAPITAL?
6,00,000

26. CURRENT RATIO OF THE COMPANY IS 2:1 . IF THE FIRM PAYS TO

CREDITORS , WILL IT INCREASE OR DECREASE THE RATIO?
This will Increase the Ratio due to corresponding decrease in both.

27. DEBT EQUITY RATIO IS 2:1 . THE FIRM PAYS A LONG TERM LOAN .WILL IT
INCREASE / DECREASE / NOT CHANGE THE RATIO?

28. GIVE THE FORMULA OF CALCULATING INTEREST COVERAGE RATIO .

Net profit before interest and tax /Interest on long term borrowings.

29. HOW IS CAPITAL EMPLOYED CALCULATED BY USING LIABILITIES AND

ASSET APPROACH?
Liabilities Approach , Capital employed = Debt + Equity
Assets Approach , Capital employed = Net Fixed Assets + Working Capital

30. HOW DOES PURCHASE OF STOCK AFFECT THE QUICK RATIO ?

Decrease the Ratio due to decrease in cash.

31. GIVE ANY TRANSACTION WHICH WILL ALWAYS INCREASE THE CURRENT
RATIO .
Sale of Fixed Assets.

32. GIVE ANY TWO FORMULAS OF CALCULATING COST OF REVENUE FROM

OPERATIONS.
Cost of RFO = RFO - GROSS PROFIT
Cost of RFO = Opening Inventory+ Net Purchases + Direct Exp- Closing Inv

33. HOW WILL GROSS PROFIT RATIO BE AFFECTED BY PURCHASING

GOODS ?
No Change because both closing Inventory and Purchase will increase.

34. HOW WOULD YOU CALCULATE NET PROFIT BEFORE INTEREST AND TAX ,
IF PROFIT AFTER INTEREST AND TAX IS GIVEN?
NPBT= Net Profit After Tax + Tax + Interest

35. WHAT DO YOU MEAN BY TRADING AND NON TRADING INVESTMENTS?

Trade Investments are those which are made in those business with whom
business has regular dealings whereas Non-Trade Investments are those
which are made in those business with whom business has no trading
relations.

36. WHAT DO YOU MEAN BY OPERATING CYCLE ?

Time between acquisition of raw material for processing and its realisation
 into cash and cash equivalents.

37. HOW WOULD YOU DEAL WITH DECREASE IN INVENTORY WHILE

CALCULATING COST OF REVENUE FROM OPERATIONS?
It means Opening Inventory is greater than Closing Inventory.

38. WHAT ARE THE COMPONENTS OF OPERATING COST?

Cost of Revenue from Operations + Operating Expenses

39. WHAT ARE THE HEADS AND SUB HEADS OF THE FOLLOWING ITEMS:
(i)SECURITIES PREMIUM - Shareholders Funds - Reserves & Surplus
(ii) DEBENTURES - Non Current Liabilities - Long Term Borrowings
(iii) PUBLIC DEPOSITS - Non Current Liabilities - Long Term Borrowings
(iv)STORES AND SPARES - Current Assets - Inventory
(v) PATENTS - Property Plant and Equipment and Intangible Assets -
Intangible Asset
(vi) PREPAID EXPENSES - Current Asset - Other Current Assets
(vii) BANK OVERDRAFT - Current Liabilities - Short Term Borrowings
(viii) ADVANCE INCOME -Current Liabilities - Other Current Liabilities
(ix) LOANS REPAYABLE ON DEMAND - Current Liabilities - Short Term
Borrowings
(x)STATEMENT OF PROFIT AND LOSS(Dr Bal) - Shareholders Funds -
Reserves & Surplus(Negative Item)
(xi) MOTOR VEHICLES - Property Plant and Equipment and Intangible
Assets - Property Plant and Equipment
(xii) Loan (maturity period of One Year): - Current Liabilities - Short Term
Borrowings
(xiii) Employees Provident Fund - Non Current Liab - Long Term Provisions

40. WHAT ARE BONUS SHARES? HOW DOES IT AFFECT THE CALCULATION OF
DEBT EQUITY RATIO?
Bonus Shares are those shares which are given to shareholders without any
charge. They are issued out of Securities Premium /Accumulated Profits .
The Debt Equity Ratio remain unaffected due to no change in debt and equity.

41. WHAT IS THE FORMULA TO CALCULATE TOTAL ASSETS?

Non-Current Assets + Non Current Investments + Current Assets

42. WHAT IS THE FORMULA TO CALCULATE SHAREHOLDERS FUNDS?

Share Capital + Reserves and Surplus
or
Total Assets - Total Debts

43. WHAT ARE THE ITEMS SHOWN IN NON CURRENT ASSETS?

Property, Plant and Equipment ,Intangible Assets , Non Current Investments.

44. WHAT IS THE FORMULA TO CALCULATE WORKING CAPITAL TURNOVER

 RATIO ?

RFO / Working Capital

45. GIVE THE FORMULA TO CALCULATE OPERATING RATIO .

Cost of RFO + Operating Exp/ RFO X 100

46. WHAT IS THE MEANING OF THE TERM LIQUIDITY?

It is the ability of the firm to pay its current obligations.

47. WHAT IS THE MEANING OF THE TERM PROFITABILITY?

It is the ability of the firm to earn profits.

48. WHAT IS THE MEANING OF WORKING CAPITAL ?

It is the difference between Current Assets and Current Liabilities.

49. GIVE EXAMPLES OF OPERATING EXPENSES.

Employee benefit expenses , Office expenses , Selling and distribution
expenses, Administrative expenses , Depreciation and Amortisation expenses.

50. WHAT ARE DIRECT AND INDIRECT EXPENSES?

Direct expenses are those which are related to purchases and manufacturing
of goods like wages, carriage inwards , freight , power, fuel etc.
Indirect expenses which are incurred in the daily operation of business like
Selling and distribution expenses, Administrative expenses , Depreciation.

51. WHAT IS THE TRADITIONAL CLASSIFICATION OF RATIOS?

Statement of Profit and Loss Ratios
Composite Ratios
Balance Sheet Ratios

52. THE TWO BASIC MEASURE OF LIQUIDITY ARE

(I) INVENTORY TURNOVER AND CURRENT RATIO

(II) CURRENT RATIO AND LIQUID RATIO
(III) GROSS PROFIT AND OPERATING RATIO
(IV) CURRENT RATIO AND TRADE RECEIVABLE TURNOVER RATIO

(II)

53. WHICH RATIO HELPS IN EVALUATING CREDIT COLLECTION POLICIES?

(i) CURRENT RATIO
(ii) LIQUID RATIO
(iii) DEBT EQUITY RATIO
(iv) AVERAGE COLLECTION PERIOD

(IV)
54. IF OPERATING RATIO IS 30% THEN OPERATING PROFIT RATIO WILL
BE-------.

70%

55. WHAT WILL BE THE EFFECT OF PURCHASE OF GOODS ON OPERATING

RATIO?
No Change in the ratio as Purchase and Closing Inventory will increase.

56. A COMPANY HAS EARNED Rs. 5,00,000 AS PROFIT BEFORE INTEREST AND
TAX. ITS ROI IS 20%. STATE THE AMOUNT OF CAPITAL EMPLOYED.

25,00,000

57. LIST ANY TWO ITEMS PRESENTED UNDER OTHER CURRENT LIABILITIES.
Interest Accrued but not due on borrowings
Income received in advance
Unpaid Dividends

58. THE QUICK RATIO IS 1:1. WILL THE SALE OF INVENTORY ON CREDIT
INCREASE , DECREASE OR NOT CHANGE THE RATIO?
It will increase the ratio due to increase in Debtors

59. THE QUICK RATIO IS 1.8:1. WILL THE PAYMENT OF DIVIDEND INCREASE ,
DECREASE OR NOT CHANGE THE RATIO?
It will increase the ratio as current liabilities and current asset will decrease.

60. UNDER WHICH HEAD AND SUB - HEAD WILL THE SECURITY DEPOSIT
APPEAR IN THE BALANCE SHEET OF A COMPANY.
Non-Current Assets - Long Term Loans and Advances

61. What are the two components of Proprietary Ratio?

Shareholders Funds and Total Assets

62. WHILE CALCULATING DEBT EQUITY RATIO ,WHAT ITEMS ARE TAKEN IN
DEBT?
Long Term Debts and Long Term Provisions

63. WHAT DO YOU MEAN BY CURRENT MATURITIES OF A LONG TERM DEBT?

Any Long Term Borrowings which are due to be paid within operating cycle or
12 months.
These are shown under the head Current Liabilities and sub- head short term
borrowings.

64. WHAT WILL BE THE CURRENT RATIO OF A COMPANY WHOSE WORKING

 CAPITAL IS ZERO?
1:1

65. HOW WOULD CASH SALES AFFECT THE GROSS PROFIT RATIO?
No Change because both purchase and closing inventory will decrease.

66. HOW WOULD PURCHASE OF GOODS WILL AFFECT THE INVENTORY

TURNOVER RATIO?
It will decrease the ratio because Cost of RFO will be same due to increase in
purchase and closing inventory, however Average inventory will increase due
to increase in closing inventory.

67. WHAT WILL BE THE EFFECT ON COST OF REVENUE FROM OPERATIONS

IN CASE OF PURCHASE OF STOCK ?
No Change due to increase in purchase and closing inventory by the same
amount.

68. HOW WOULD GOODS WITHDRAWN FOR PERSONAL USE AFFECT THE
OPERATING RATIO?
No change because purchase and closing inventory will decrease.

69. PURCHASE OF MACHINERY BY ISSUE OF SHARES WILL INCREASE ,

DECREASE OR NOT CHANGE THE ROI RATIO.
ROI will decrease due to increase in Capital Employed

70. REDEMPTION OF DEBENTURES WILL INCREASE , DECREASE OR NOT

CHANGE THE CURRENT RATIO.
Current Ratio will increase because Current Assets(Bank) and Debentures
( Current Liability due in current year) will decrease by the same amount.