August 28, 2016

1)   Into How many sets the Liabilities are grouped into
Ans : The Liability is classified into 3
(a)  Net worth
(b)  Term Liability
(c)  Current Liability
2)  What is Net worth ?
Ans: N W= Equity Capital + Free Reserve

3)  Into how many sets the Asset side of the Balance Sheet are mainly classified into
(a)  Fixed Asset
(b)  Intangible Assets
(c)  Non Current Asset
(d)  Current Assets
4)  Preference Share Capital may be classified as Networth if the same is redeemable
Ans  After 12 years as on the date of balance sheet.

5)  Reserves are mainly classified as
Ans  (a)  Free Reserve  (b)  Non free reserve

6)  Free Reserve include
Ans  a) Revenue Reserve (other than kept for specific payment etc)
       b) Capital Reserve (other than Revaluation Reserve)

7)  Capital Redemption Reserve is a
Ans  Free Revenue Reserve.

8)  Dividend Equalisation Reserve is a
Ans Free Revenue Reserve.

9)  Premium on issue of share is a
Ans  Capital Reserve (free reserve)

10) Margin Money assistance for small industries, can be treated as
Ans:  Quasi Equity otherwise it is a Term Liability.

11) Unsecured Loans from friends & Relatives if pegged in business can be treated as
Ans : Quasi Equity, for general classification it is Term Liability.

12) Liability under LC’s, LG’s issued by Bank on behalf of the concern is referred to as
Ans:  Contingent Liabilities.

13) Old Receivables outstanding beyond a certain period say 12 months is classified as 
Ans:  Non Current Assets.

14) Bad Debts not provided for to be treated as
Ans  Intangible Asset.

(A)  How is Raw Material Consumption Is calculated

Ans  Opening Stock of Raw Material

Plus: Purchase of Raw Material
Less: Closing Stock of Raw Material
Equal: Raw Material Consumption.

(B)  How is Cost of Production  arrived at

Ans  Raw Material Consumption
Add: Manufacturing Expenses
Add: Depreciation
Add: Opening Stock of WIP (Sfg)
Less:Closing Stock of WIP (Sfg) is equal to cost of production. 

(C)  How is Cost of Sale  calculated

Ans  Cost of Production
Plus: Opening Stock of Finished goods
Less: Clearing Stock of Finished goods
Equal:Cost of Sales

(D)  Gross Profit is

Ans  Gross Sales
Less: Excise Duty
Equal: Net Sales
Net Sales Less: Cost of Sales = Gross Profit
(E)  Operating Profit is arrived at by
Ans  Gross Profit Less: Operating expenses = Operating Profit.

(F)  Net Profit After Tax is arrived at as
Ans  Operating Profit
Add: Other Income
Less: Other Expenses
Less: Income Tax
Equal: to Net Profit after tax

(1)  What is  Solvency Ratio
Ans  1) Tangible Net worth = Networth – Intangible Asset
Solvency Ratio  = Total Tangible Asset
                          Total Outside Liability

  3) Solvency Measure  = Tangible Networth

(2)  What are the Liquidity Ratios

Ans  1) Networking Capital = Current Asset – Current Liabilities

(1)  Networking Capital = Long term source – Long term use
(2)  Current Ratio =   Current Asset
                               Current Liability

(4)  Quick Ratio  =   Quick Asset
                              Quick Liability

(5)  Quick Asset  = Current Asset – Inventory
(6)  Acid Test Ratio is the same as Quick Ratio

3)  What is a  Leverage Ratio How it is arrived at

Ans : It is the benefit in Profit available to a unit by Borrowing
(1)  Debt Equity Ratio  =   Long Term Debt

(2)Total Debt Equity Ratio = Long Term Liability + Current Liability

(3)Total Debt Equity Ratio is the same as Total Indebtness Ratio

  4) Capital Gearing Ratio =  Fixed Charge bearing Long term fund
                                                     Total Long Term Fund

  5) Proprietory Ratio  =   Share Holding Fund
                                     ---------------------------  x 100 
                                     Total Tangible Asset

  6) Debt Equity Ratio for SSI unit upto Rs.10 lacs can be 3:1.

  7) Debt Equity Ratio for MLI unit can be 2:1.

4)   What are the different Profitability Ratio


(1)  Gross Profit Ratio  =  Gross Profit
                                      ------------------  x 100
                                        Net Sales

(2)  Operating Profit Ratio  = Operating Profit
                                            -----------------------  x 100   
                                            Net Sales
(3)  Net Profit Ratio  = Net Profit
                                  --------------- x 100
                                  Net Sale
(4)  Return on Networth  =   Net Profit After Tax
                                          Tangible Networth
(5) Return on Capital Employed  Profit Before Interest & Tax
                                                Capital Employed

        =   PAT + Int TL + Int WC + Tax
                TNW + TL + CL

(6) Return on Investment

  =  PAT + Int on TL + Int WC + Tax                                        ------------------------------------------- 
      Total Tangible Asset

     Total Tangible Asset

7. What are the different Turnover Ratio


(1)  Debtors Velocity  =      Average Debtors   
   in Number of days          ---------------------------  x 365 
                                       Credit Sales
(2)  Debtors Velocity  =               Average Debtors
in months                                    ---------------------------- x 12 
                                                 Credit Sales
(3)  Creditors Velocity in days =   Average Creditors
                                                 ------------------------ x 12
                                                 Credit Purchase

(4)  Creditors Velocity in months =  Average Creditors
                                                    ------------------------ x 12
                                                    Credit Purchase
(5)  Inventory Turnover Ratio  =   Cost of Sales
                                             Average Inventory
(6)   Raw Material Turnover Ratio  = Raw Material Consumption
                                                     Average Raw Material
(7)  WIP Turnover  =  Cost of Product
                                Average WIP

(8)  Finished Goods Turnover  =   Cost of Sales
                                                  Average Fg

(9)   What do you know by the term Over Trading
A Unit is said to be overtrading when it accepts sale orders disportionate to its working capital

10) How BEP is Worked out
Ans    Break Even Point in no. of units =     Fixed Cost
                                                           (Unit Selling Price = Unit VP)
BEP in Value  =  Fixed Cost
                         ---------------------------------- x SP
                       Unit Selling Price – Unit Variable Cost

12) What you Know By Contribution
Contribution  =   Unit Selling Price – Unit Variable Cost
13) What isPV Ratio
Ans  PV RATIO  =  Unit Contribution
  -------------------------  x 100
  Unit Selling Price
14)How Margin of Safety is arrived
Ans  Margin of safety =  Capital Utilisation – BEP Capacity
   --------------------------------------------- x 100
    Capital Utilisation
15)  How DSCR Is Calculated
DSCR =  Profit After T ax + Int on TL + Depreciation  + Other Cash exp
                                  Interest on  TL + Instalment of TL

16)  Expand DSCR?
  Ans  Debt Service Coverage Ratio
17)What is Woking Capital Gap  ?

Ans  Working Capital Group  = Total CA – Other Current Liabilities

18)  MPBF Under Tandon II Method of Lending is
MPBF =  PBF1 or PBF2 whichever is lower
PBF1  =  WCG – 25% TCA
PBF2  =  WCG -  Projected NWC.

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