Important Short Questions and Answers: Investments and Financial Accounting

1) What is balance sheet?

The balance sheet provides the financial position of a company at any given point of time.

2)   Say some of the important financial statements?

i.profit and loss account.

ii.balance sheet.

iv.fund flow statement.

3)     What are the contents of a balance sheet?

i.assets

ii.liabilities.

4)   Say some of the types of assets?

i.fixed assets.

ii.investments.

iii.current assets.

iv.loans and advances.

v.miscallaneous expenditure

5)   What is fixed assets?

Their life period is very long, these are purchased for carrying out the operation in a company. Using this the company can generating revenue.

6) What is investment?

The long term and short term financial securities owned by a company comes under this category. Here lomg term investments means buying shares of the other companies.

7)  What is current assets?

Any asset that can be converted into cash within one year of time is called as current asset. They would be converted into cash at the end of the operating cycle of a firm.

8)     What are the items come under this current assets?

              i.cash.

ii.debtors.

iii.inventories.

9)   What is loans and advances?

It is the amont that a company loans to its employees, advances given to supplies, government contractors and other agencies it is also include prepaid expenses.

10)  What are the types of liabilities?

i.share capital.

ii.resreves and surpluses.

iii.secured loans. I

v.unsecured loans.

v.current liabilities.

11)  What is meant by share capital?

It includes both equity share capital and preference share capital. Equity share holders are the owners of a company they take risk and their dividend is not fixed but is case of preference share capital the dividend rate is fixed.

12) What is meant by Reserves and Surpluses?

It is nothing but the profit that is retained by accompany not by not paying it as dividend to the shareholders.

13)    What are the types of reserves ?

i.revenue reserve.

ii.caapital reserve.

14)  What is meant by secured loans?

Loan amount borrowed by the firm by pledging assets (ie) securities are provided for these loans.

15) What is meant by unsecured loans?

In this case nosecurity is provided examples are fixed deposits, loans and advances.

16) What is meant by current liabilities?

This consists of amount that is to the suppliers when goods are purchased on a credit basis, advance payments received accured expenses, provisions for tax.

17) What is meant by income statement?

The companies act does not any particular way in which the profit and loss account or the income statement has to be prepared. This statement reflects the performance of a company over a period of time.

18)  Who are all the users of financial statement?

i.management.

ii.shareholders, investors, anlyst.

iii.lenders

iv.suppliers.

v.customers.

vi.employees.

vii.government and regularity agencies. viii.others

19)  What is meant by cash flow statement?

A firm would enter into trouble if it spends more cash than it is able to generate. The firm should generate adequate capital for it survival.

20)How the cash flow of a business can be classified?

a. operating activities

b. investing activities

c. financing activities

21)what is meant by ratio analysis?

It is one of the powerful tool for financial statement analysis. Ratio is nothing but the relationship between two or more items.

22)What are the different ways of carrying out analysis?

a. past ratio

b. competitors ratio

c. industrial ratio

d. projected ratio

23)What is meant by past ratio?

The current financial years ratios can be compared with the previous years ratio to find whether the financial position has improved over the years or not.

24) What is meant by competitors ratio?

The ratio of a company can be compared with the ratio of the competitors and with the market leader.

25) What is meant by industry ratio?

The ratios of a firm can be compared with the ratios of the industry to which the particular firm belongs to.

1. What are the methods of capitial budgeting ? Traditional Methods Payback period Accounting rate of return.(or) Average rate of return Discounted cash flow method. Internal rate of return Net present value method.

2. What is meant by pay back method. Payback method is based on the period of investment result, of an investment which can give the shortest duration of beneficiary that can be choosen by the capital budgeting decision.

3. . What is meant by NPV? NPV means net present value of any investment.,It is the difference of present value of the future cash inflows and the original investment.

4. Give the significance of capital budgeting? They involve substantial capital outlay They affect the future of the business.

5.     Write down the advantages and disadvantages of IRR method?

Advantages

Recognize time value of money

Helps the management in selecting the most profitable project

Disadvantages

^Ø    Complicated to calculate by trial and error method

^Ø    Assumes that the funds received at the end of each year can be invested at thesame rate of

return

^Ø    Does not provide weightage of the volume of funds committed in the project

6.     What is the uses of capital budgeting?

^Ø   investment committee functions and structure;

^Ø   investment philosophy and objectives;

^Ø   attitude to risk and process for managing risk;

^Ø   decision rights; and process for evaluating and managing investments

7.     Give the formula for calculating Pay Back Period.

PBP= initial investment/annual cash inflow

8.     What do you mean by capital budgeting?

It is concerned with designing and carrying through a systematic investment programmed for acquiring fixed assets like land etc

9.     Give the meaning of Internal rate of Return.

The internal rate of return (IRR) is defined as the discount rate that gives a net present value (NPV) of zero. It is a commonly used measure of investment efficiency.